| Wed 8 Sep 2004, 9:34 | | Results for the six months ended 30 June 2004 |
|
Sage Group Limited - Interim Results for the six months ended 30 June 2004
Sage Group Limited
(`the group`)
(Incorporated in the Republic of South Africa)
(Registration number 1970/010541/06)
Share code: SGG
ISIN: ZAE000006623
Interim Results for the six months ended 30 June 2004
Positive operating performance including new business results and policy
discontinuances
Total operational earnings up to R113,4 million (R21,0 million to 30/06/03)
Total life new business APE of R160,6 million (R165 million to 30/06/03)
Individual life new business APE up 7,9% to R130,4 million (R120,8 million to
30/06/03); APE for last three months up 26,5%
Unit trust external sales more than double to R189,6 million (R93, 4 million to
30/06/03)
Total new business volumes up by 31,6% to R494,4 million
Continued improvement in the trend of policy discontinuances; policy lapses
decreased by 16,7% and policy surrenders by 21,3%
Headline loss per share of 10,5 cents (29,8 cents profit to 30/06/03) due to
much increased financing costs because of stronger rand and higher ABSA share
price
Total assets under management of R10,5 billion (R10,6 billion at 31/12/03)
Sage Life capital adequacy ratio strengthens further to 2,5 times (2,2 times at
31/12/03)
Group embedded value per share of 199 cents (222 cents at 31/12/03)
Significant investment in operational infrastructure
Launch of new retail brand and enhanced risk product range
8 September 2004
Garth Griffin, Group Chief Executive, commented:
`We continue to make good progress in refocusing the Sage business, as evidenced
by our improved operating results, particularly Individual Life new business and
unit trust sales. In August, we launched the `Sage Financial` brand and an
enhanced risk product range to our intermediaries which has been very well
received. We have continued to invest for the future in our operational
infrastructure and in new management.
`Our net earnings have been impacted by higher financing costs due to the strong
rand and ABSA share price. This matter is receiving our close attention and we
will make an announcement on our re-financing in the near future.
`The outlook for the year is for continued operational improvement with the
brand launch showing early signs of success.`
Enquiries:
Sage Group Limited Tel: 011 377 5000
Garth Griffin, Group Chief Executive Tel: 011 377 5364
Nombini Mehlomakulu, Investor Relations Tel: 011 377 5821
College Hill Tel: 011 447 3030
Nicholas Williams Tel: 083 607 0761
Angela Parr Tel: 083 578 3885
SALIENT FEATURES
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
Unaudited Unaudited Audited
EARNINGS
Operational earnings R million 113,4 21,0 131,1
Total (loss)/earnings R million (38,8) 46,0 74,6
Total (loss)/earnings per share cents (10,7) 29,3 28,7
Headline (loss)/earnings R million ( 38,0) 46,8 61,2
Headline loss/(earnings) per share cents (10,5) 29,8 23,5
Average number of shares in issue
(excluding treasury shares) million 362,3 157,1 260,0
EMBEDDED VALUES
Sage Life embedded value R million 1 418,3 1 298,6 1 341,9
Group embedded value R million 721,1 826,8 804,4
Group embedded value per share cents 199 228 222
Total number of shares in issue million 362,3 362,3 362,3
FINANCING
Financing activities at
Group level(1) R million (145,4) 35,0 (54,9)
Debt at Group level R million 676,4 417,2 500,4
OTHER FEATURES
Total assets under management R million 10 515,8 9 993,3 10 566,5
New business volumes(2) R million 494,4 375,6 816,9
Life new business APE(3) R million 160,6 165,0 329,3
Life new business
embedded value R million 3,1 16,7 16,7
Net fund flows R million (15,9) (24,0) 138,4)
FINANCIAL RATIOS
Life new business embedded
value margin(4) % 3,0 17,1 7,7
CAR - Sage Life Limited times 2,49 1,53 2,15
(1) Financing costs at Group level include the fair value adjustments in terms
of AC133 and foreign exchange adjustments relating to the ELNs.
(2) New business volumes: total life new business plus external unit trust
sales.
(3) APE: annual premium equivalent and is equal to new recurring premiums
(including automatic increases) plus 10% of single premiums.
(4) Life new business embedded value margin: calculated using APE excluding
automatic increase premiums.
Commentary
Operating Environment
Despite a period of positive equity market performance over the last 12 months
and improving domestic economic fundamentals, the life assurance and unit trust
industries continue to operate in a somewhat challenging environment, where
savings are not a high priority of the consumer. Regulatory issues, namely FAIS
and FICA, continue to demand much time and resource from industry participants,
but should have a beneficial longer term influence on the development of the
protection, savings and investment industries.
Strategic Review
Significant progress has been made with the task, that began last year, of re-
energising and refocusing the Group`s South African life insurance and unit
trust operations and of developing a new vision to drive longer term strategy.
This encompasses restructuring and expanding the leadership team, enhancing
financial management and operational processes, addressing future capital needs,
reviewing market segmentation, products and distribution structures, and
rejuvenating the well established Sage brand. The `Sage Financial` brand, being
the new retail umbrella brand for the Group, was presented to intermediaries
early in August, together with a revised risk product range, and both were
positively received.
Steps are being taken to address the capital and funding needs of the Group,
arising from the Equity Linked Note (ELNs) liability, and an announcement in
this regard will be made in the near future.
Operating Results
New Business
Individual Life: Individual Life recurring premium new business was 5,9% up on
the equivalent period last year, while single premiums were 27,3% up. Overall,
Individual new business Annual Premium Equivalent (APE - new recurring premiums
plus 10% of single premiums) was up by 7,9% compared to the first 6 months last
year. New business APE for the 3 months to end June was significantly up by
26,5%, compared to the 3 months to March. The improving trend has continued
after June.
Employee Benefits (EB): Recurring premium new business was disappointing and
down 32,6% on 2003, while single premium new business declined by 4,7%. Overall,
EB new business was down by 31,6% on an APE basis. EB comprises less than 20% of
total new business and business flows tend to be uneven.
Unit Trusts: Gross third party sales were R190 million for the six months to
June, compared to R93 million for the same period to end June last year.
Redemptions were significantly lower (R163 million vs R215 million), resulting
in a net inflow of some R27 million, against an outflow of R122 million for the
same period last year.
Expense Management
Given the ongoing development of the operating infrastructure which is vital to
the future of the business, expenses of management have been well controlled and
were 9,6% up on the previous year. This is before recognising a specific
provision of R13,4 million in respect of the Sage Group Pension Fund, arising
from a deficit in the Sage Life section of the Fund. Sales remuneration, in
particular, has shown an improvement over last year, in relation to new business
volumes. Management action on both sales remuneration and other management
expenses should result in cost savings going forward. These are likely to be
offset partially by the agreed spend totalling some R17 million on development
and communication of the new brand. The growth in expenses is likely to reduce
over the balance of the year.
Despite the control of expenses and the growth in new business, unit costs have
remained higher than expected. As a result, the expense overrun of R34,2 million
continues to be the major negative item in the overall operating results.
Policy Discontinuances and Alterations
Within Sage Life there has been a continued improvement in the trend of policy
discontinuances through lapses and surrenders that began during the second half
of last year. The number of policies lapsed during the review period decreased
by 16,7% compared with the same period last year, while the number of policies
surrendered decreased by 21,9%. Lapses and surrenders are now within actuarial
assumptions.
In-force annualised premiums have increased to R1 036 million compared to R1 017
million at 31 December 2003 and R1 013 million at 30 June 2003.
The impact of surrenders and lapses on the operating result for the six months
to June 2004 was a gain of R4 million as opposed to a loss of R19 million in the
12 months to December 2003.
Other changes to policy conditions, including premium updates, contributed R34,6
million to operating earnings.
Underwriting
Emerging profits from mortality and morbidity were in line with previous periods
and contributed R32,3 million to operating earnings.
Investments
The investment management process continues to deliver satisfactory relative and
absolute performance levels for the various investment portfolios.
Sage Life`s money weighted average fund investment returns for the rolling
twelve months to June 2004, compared to the twelve months to 31 December 2003,
were as follows:
* Individual domestic portfolios :16,3% (19,8% in 2003)
* Individual foreign portfolios : -1,6% (-1,2% in 2003)
* Employee Benefits linked portfolios : 18,6% (19,3% in 2003)
Performance of the Group`s retail unit trusts for the 12 months to 30 June 2004
reflects satisfactory absolute performance in most funds compared to their
benchmarks and particularly strong performance by Sage Financial Services Fund
and Sage Global Fund which led their sectors for the period.
Investment results, overall, contributed R34,2 million to operating earnings.
In addition shareholders` funds benefited directly from the continued positive
performance of the holding in ABSA Group Limited. Investment returns, net of tax
and expenses totalled R80,7 million in the shareholders` fund. Subsidiary
operations, including Sage Unit Trusts, contributed a further R4,6 million net
of tax.
Financial Results
Attributable earnings from operations amounted to R113,4 million compared to
R21,0 million for the six months ended June 2003 and R131,1 million for the 12
months ended December 2003. This was after a R28,1 million new business
financing strain, and a R1,3 million increase in the reserve for policy
guarantees.
Attributable earnings at the operating level have been more than offset by the
Group financing costs of R145,4 million compared to R54,9 million at June 2003
and a net gain of R35 million at December 2003. Of this amount, R137,2 million
was attributable to the ELNs and the associated USD forward exchange contract
(FEC). This has resulted in an attributable loss for the review period of R38,8
million compared to attributable earnings of R46,8 million for the six months to
June 2003 and R74,6 million for the twelve months to December 2003. The total
loss per share amounted to 10,7 cents compared to earnings of 29,3 cents in the
comparable six months and 28,7 cents for the 12 months to December 2003.
Sage Life`s capital adequacy requirement at 30 June 2004 was R337,1 million and
the capital adequacy multiple has increased to 2,49 compared to 2,15 at December
2003 and 1,5 at June 2003.
No dividend has been declared at the interim stage or is anticipated for the
balance of the financial year.
Equity Linked Notes
The Group`s financing activities relate mainly to the ELNs due for redemption in
July 2005 at a value linked to the dollar price of ABSA Group Limited shares.
US$57,5 million of the total ELN liability, amounting to US$75,2 million as at
30 June, has been hedged against the movement in the rand/dollar exchange rate.
Total financing costs are therefore impacted by a combination of interest
charges, currency movements and movements in the fair value of the ELNs as per
AC133. The fair value of the ELNs increased by R82,3 million to R467,3 million
over the period.
Since 30 June, the Group has been notified of the redemption of US$6.5 million
of ELNs in terms of the early redemption option available to noteholders.
Discussions are currently under way with certain major shareholders to ensure
that the necessary facilities are in place to fund further redemptions.
The Group has also taken steps to limit its future exposure to volatility in the
rand/dollar exchange rate by way of a further currency hedge against part of the
existing FEC.
Embedded Value Statements
Sage Life
Sage Life`s embedded value at 30 June 2004 was R1 418,3 million, a 5,7% increase
since 31 December 2003. Net shareholder`s funds increased by 16,5% to R819,1
million, while the present value of future profits from business already written
by the life insurance operations, net of cost of capital, (`Life PVFP`),
decreased from R639,1 million to R599,2 million. This was due, inter alia, to
the higher interest rate assumption and the lack of significant growth in new
business volumes.
The margin on Sage Life`s new business reduced from 7,7% as at December 2003 to
3,0% for the reporting period, reflecting the pressure on new business unit
costs and a change in the business mix.
Sage Group
The Group`s embedded value at 30 June 2004 amounted to R721,1 million,
equivalent to 199 cents per share. This measures the current value of the
Group`s net assets at fair value, adjusted for corporate expenses, together with
the Life PVFP, and shows a reduction from the 222 cents per share as at December
2003 due to the R38,8 million loss reported at Group level and the reduction in
the Life PVFP.
Outlook
Performance over the balance of the year will depend on a number of key factors,
including the value of the rand against the USD, the performance of local and
international investment markets and a continuation of the improving trend in
retail new business within Sage Financial. It will also be important to reach
finality on the refinancing of the ELNs. Notwithstanding these significant
issues, we believe the Group is positioned to deliver satisfactory operating
performance over the balance of the year.
Dr DC Cronje G Griffin
Chairman Group Chief Executive
7 September 2004
GROUP BALANCE SHEET
30 June 30 June 31 Dec
2004 2003 2003
R millions Note Unaudited Unaudited Audited
ASSETS
Non-current assets 7 488,8 7 051,0 7 511,4
Tangible assets 20,4 21,2 19,1
Intangible assets 58,6 69,0 65,2
Financial assets 13,5 17,4 15,4
Investments of the life
assurance subsidiaries 7 396,3 6 943,4 7 411,7
Current assets 599,2 801,1 652,5
Total assets 8 088,0 7 852,1 8 163,9
EQUITY AND LIABILITIES
Ordinary shareholders` interest 1 85,1 96,1 123,9
Non-current liabilities 455,4 406,4 379,2
Equity linked notes 2 443,3 406,4 360,3
Deferred taxation 12,1 - 8,9
Other - - 10,0
Policyholder liabilities 6 941,5 6 810,3 7 119,7
Insurance contract liabilities 4 229,4 3 890,6 4 262,8
Investment contract liabilities 2 665,1 2 898,3 2 823,0
Deferred taxation 47,0 21,4 33,9
Current liabilities 606,0 539,3 541,1
Short-term borrowings 3 103,1 164,4 55,1
Derivative liabilities 4 121,3 12,7 102,9
Other 381,6 362,2 383,1
Total equity and liabilities 8 088,0 7 852,1 8 163,9
SUMMARISED GROUP INCOME STATEMENT
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
R millions Note Unaudited Unaudited Audited
Sage Life Limited operating
surplus/(deficit) 41,5 (44,5) (19,3)
Abnormal charge - Pension fund provision (13,4) - -
28,1 (44,5) (19,3)
Attributable to Sage Life Limited
shareholder`s funds:
Net earnings 8 80,7 54,1 117,3
Other operating income 9 4,6 11,4 33,1
Attributable earnings from
operations, after taxation 113,4 21,0 131,1
Other activities 10 (6,8) (10,0) (1,6)
Financing activities 11 (145,4) 35,0 (54,9)
Total attributable (loss)/earnings (38,8) 46,0 74,6
Reconciliation of attributable (loss)/earnings
to headline (loss)/earnings:
Total attributable (loss)/earnings (38,8) 46,0 74,6
Capital items 0,8 0,8 (13,4)
Headline (loss)/earnings (38,0) 46,8 61,2
Weighted average number of ordinary
shares in issue (millions)* 362,3 157,1 260,0
Total number of ordinary shares
in issue (millions)* 362,3 362,3 362,3
*excluding 4,8 million treasury shares
Total attributable (loss)/earnings
per ordinary share (cents) (10,7) 29,3 28,7
Headline (loss)/earnings per
ordinary share (cents) (10,5) 29,8 23,5
GROUP STATEMENT OF CHANGES IN EQUITY
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
Balance at beginning of period 123,9 (249,2) (249,2)
AC133 transitional adjustment - (23,2) (23,2)
Consolidation of the share incentive schemes - (10,3) (10,4)
(Loss)/earnings attributable to ordinary
shareholders (38,8) 46,0 74,6
Ordinary shares issued - 350,0 350,0
Share issue expenses - (17,2) (17,9)
Balance at end of period 85,1 96,1 123,9
SUMMARISED CASH FLOW STATEMENT
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
Cash inflow/(outflow) from
operating activities 52,4 (6,2) (48,0)
Cash (outflow)/inflow from
investing activities (202,4) 135,3 80,6
Cash inflow/(outflow) from
financing activities 38,7 (17,9) (21,9)
Net (decrease)/increase in cash and
cash equivalents (111,3) 111,2 10,7
Cash and cash equivalents at beginning
of period 321,7 311,0 311,0
Adjustment for cash in discontinued
operations at beginning of period - (91,2) -
Cash and cash equivalents at end
of period 210,4 331,0 321,7
Policyholders 160,2 296,6 260,0
Shareholders (in subsidiaries) 50,2 34,4 61,7
210,4 331,0 321,7
SEGMENTAL ANALYSIS
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
ASSETS
Life insurance 7 903,6 7 443,4 8 008,2
Unit trusts 16,6 29,2 25,4
Group and other activities 167,8 379,5 130,3
8 088,0 7 852,1 8 163,9
LIABILITIES
Life insurance 7 308,6 7 092,3 7 484,5
Unit trusts 6,7 10,8 16,2
Group and other activities 687,6 652,9 539,3
8 002,9 7 756,0 8 040,0
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
HEADLINE EARNINGS
Life insurance 108,8 10,9 83,5
Unit trusts 3,3 8,1 25,3
Group and other activities (150,1) 27,8 (47,6)
(38,0) 46,8 61,2
FUND INFLOWS
Life insurance 729,3 695,9 1 418,7
Unit trusts 189,6 93,5 238,1
Other 3,4 4,2 8,1
922,3 793,6 1 664,9
FUND OUTFLOWS
Life insurance (774,2) (602,3) (1 431,4)
Unit trusts (162,6) (215,1) (371,1)
Other (1,4) (0,2) (0,8)
(938,2) (817,6) (1 803,3)
NET FUND FLOWS
Life insurance (44,9) 93,6 (12,7)
Unit trusts 27,0 (121,6) (133,0)
Other 2,0 4,0 7,3
(15,9) (24,0) (138,4)
NOTES TO THE GROUP FINANCIAL STATEMENTS
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
1 RECONCILIATION BETWEEN ORDINARY
SHAREHOLDERS` INTEREST IN SAGE LIFE
LIMITED AND SAGE GROUP LIMITED
Shareholder`s funds - Sage Life Limited 840,1 680,7 726,7
Adjustment to fair values of Sage Life
subsidiaries (82,5) (148,0) (82,5)
Shareholder`s funds of Sage Life Limited
at net asset value 757,6 532,7 644,2
Equity linked notes (gross) (467,3) (439,4) (385,0)
Other interest bearing liabilities (79,1) (131,4) (40,4)
Goodwill 13,1 14,8 13,9
Tangible and intangible assets 0,3 26,1 4,0
Financial assets 0,3 - -
Intercompany loan (130,0) (66,0) (75,0)
Net working capital items (9,8) 159,3 (37,8)
Shareholders` interest -
Sage Group Limited 85,1 96,1 123,9
2 EQUITY LINKED NOTES
US$48,3 million (June 2003: US$55,3 million) 8% unsecured equity linked notes
redeemable 31 July 2005, stated at fair value of US$75,2 million (June 2003:
US$59,0 million). The foreign liability has been hedged to the extent of US$57,5
million by means of a forward exchange contract at a forward rate of R8,32/US$.
Opening balance 385,0 558,4 558,4
Effect of AC133 transitional adjustment
on equity linked note - 12,3 12,3
Repurchases - (59,7) (116,4)
Fair value adjustment 101,8 8,1 46,9
Foreign exchange adjustment (19,5) (79,7) (116,2)
Closing balance 467,3 439,4 385,0
Less: Current portion of the liability
included in short-term borrowings (24,0) (33,0) (24,7)
443,3 406,4 360,3
3 SHORT-TERM BORROWINGS
Interest bearing borrowings
Redeemable preference shares issued
by subsidiary 10,0 10,0 -
Bank borrowings 69,1 115,4 24,4
Other borrowings - 6,0 6,0
79,1 131,4 30,4
Current portion of equity linked note
liability (Note 2) 24,0 33,0 24,7
103,1 164,4 55,1
Bank facilities totalling R71,2 million, of which R69,1 million has been
utilised, are secured by means of a pledge of 22,7% of the ordinary shares in
Sage Life Limited.
4 DERIVATIVE LIABILITIES
Forward exchange contract in respect
of the equity linked notes 121,3 12,7 80,1
Equity derivative hedge in respect of
ABSA shares held in Sage Life Limited`s
shareholder`s funds - - 22,8
121,3 12,7 102,9
5 DEBT AT SAGE GROUP LEVEL
Equity linked notes 467,3 439,4 385,0
Other interest bearing liabilities 79,1 131,4 40,4
Intercompany loan 130,0 66,0 75,0
Rights offer proceeds - (219,6) -
676,4 417,2 500,4
6 TOTAL ASSETS UNDER MANAGEMENT
Sage Life Limited assets 8 168,0 7 774,0 8 215,9
Reversal of revaluation adjustments (82,5) (148,0) (82,5)
Other Group assets 2,5 226,1 30,5
8 088,0 7 852,1 8 163,9
Unit Trusts` third party assets 2 427,8 2 141,2 2 402,6
10 515,8 9 993,3 10 566,5
7 CONTINGENT LIABILITIES
7.1 In respect of any further deficit (after providing for the anticipated
deficit of R13,4 million) arising from the possible adoption of prescribed
minimum benefits relating to the Sage Life defined benefit pension fund: R7,6
million.
7.2 In respect of disputed assessments raised by SARS, including interest:
R23,2 million.
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
8 NET EARNINGS
Investment income 17,8 10,6 27,3
Realised and unrealised net surpluses
on financial assets 71,6 50,0 109,6
Adjustments to fair value
of subsidiaries - (15,0) (67,8)
Taxation (4,8) (4,1) (8,0)
Other (3,9) (2,4) (11,6)
80,7 39,1 49,5
Reversal of adjustments to fair value
of subsidiaries - 15,0 67,8
80,7 54,1 117,3
9 OTHER OPERATING INCOME
Earnings of unlisted subsidiaries
- Sage Unit Trusts 3,3 8,1 25,0
- Sage Specialised Insurances 1,3 3,3 8,1
4,6 11,4 33,1
10 OTHER ACTIVITIES
Net expenses (3,4) (0,7) (12,3)
Goodwill amortisation (0,8) (0,8) (1,7)
Taxation at Group level (2,6) (8,5) (2,7)
Discontinued international operations - - 15,1
(6,8) (10,0) (1,6)
11 FINANCING ACTIVITIES
Equity linked notes ( 137,2) 53,2 (31,9)
- interest paid (13,7) (20,3) (34,4)
- fair value adjustment (AC133) (101,8) (8,1) (46,9)
- Unrealised loss on forward
exchange contract (41,2) (12,7) (80,1)
- Foreign exchange adjustment 19,5 79,7 116,2
- Profit on repurchases - 14,6 13,3
Redeemable preference share dividends (0,4) (2,4) (2,8)
Interest on bank and other
short-term borrowings (2,1) (10,6) (11,3)
Interest paid to Sage Life Limited (5,7) (5,2) (8,9)
(145,4) 35,0 (54,9)
12 COMPARATIVE FIGURES
The following adjustments have been made to comparative figures:
12.1 The June 2003 figures have been adjusted to reflect the consolidation of
the share incentive schemes, which were consolidated from December 2003 with
retrospective effect.
The effects of this adjustment on the June 2003 figures are as follows:
Currently Previously
reported reported
Total number of shares in issue (millions) 362,3 367,1
Weighted average number of ordinary
shares (millions) 157,1 161,1
Compulsorily convertible debentures in issue - 2,0
Total attributable earnings per ordinary
shares (cents) 29,3 28,0
Headline earnings per ordinary share (cents) 29,8 28,5
12.2 The transitional adjustment upon the adoption of AC133 has been adjusted to
reflect the final transitional adjustment as reported at 31 December 2003.
Currently Previously
reported reported
AC133 transitional adjustment to opening
accumulated deficit (23,2) (44,8)
NEW BUSINESS SAGE GROUP LIMITED
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
Unaudited Unaudited Audited
LIFE INSURANCE PREMIUMS (GROSS)
Individual 259,8 222,5 490,1
Annualised recurring 116,0 109,5 237,4
Single 143,8 113,0 252,7
Employee benefits 45,0 59,7 88,7
Annualised recurring 28,7 42,6 64,2
Single 16,3 17,1 24,5
Total Life new business 304,8 282,2 578,8
UNIT TRUST SALES
External 189,6 93,4 238,1
Internal 836,1 1 566,5 3 362,7
1 025,7 1 659,9 3 600,8
SHAREHOLDER`S FUNDS ANALYSIS SAGE LIFE LIMITED
30 June 30 June 31 Dec
2004 2003 2003
Unaudited Unaudited Audited
Listed investments - ABSA 476,9 454,3 440,7
Other investments
- Unlisted subsidiaries 108,6 168,3 104,0
Net asset value 26,1 20,3 21,5
Revaluation adjustments 82,5 148,0 82,5
- Properties 37,5 77,3 81,0
- Other interest bearing investments 137,2 74,4 82,2
Current and other assets 60,3 18,9 42,8
Taxation and amount due from/
(to) policyholders 19,6 (112,5) (24,0)
840,1 680,7 726,7
Capital adequacy requirements (CAR) 337,1 442,6 338,2
Shareholder`s funds as a percentage of:
- Policyholder liabilities (%) 12,1 10,0 10,2
- Non-market related liabilities 27,6 23,1 22,9
EMBEDDED VALUE SAGE LIFE LIMITED
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
Shareholder`s funds 819,1 680,7 702,8
Excess of assets over liabilities 840,1 680,7 726,7
Value of future corporate expenses (21,0) - (23,9)
Net value of life insurance business
in force 599,2 617,9 639,1
Value of life insurance business
in force 624,0 633,3 660,0
Cost of capital (24,8) (15,4) (20,9)
Embedded value 1 418,3 1 298,6 1 341,9
EMBEDDED VALUE EARNINGS
Embedded value at end of period 1 418,3 1 298,6 1 341,9
Embedded value at beginning of period 1 341,9 1 331,8 1 331,8
Embedded value earnings 76,4 (33,2) 10,1
COMPONENTS OF EMBEDDED
VALUE EARNINGS
New business 3,1 16,7 16,7
Earnings from existing business 28,0 (154,0) (108,7)
- Expected return 37,6 42,9 89,3
- Operating experience variations 21,8 (142,4) (90,6)
Investment return 52,5 (94,8) (16,0)
Gross (46,7) 67,9 138,2
Capitalised changes 99,2 (162,7) (154,2)
Pension fund provision (13,4) - -
Expense overrun (34,2) - (63,7)
Other 16,9 (47,6) (10,9)
- Operating assumption changes (31,4) (54,5) (107,4)
Investment return on shareholder`s funds 85,2 50,5 74,3
Income 17,8 10,6 52,2
Capital gains 76,2 46,3 41,7
Taxation and expenses (8,8) (6,4) (19,6)
Change in future corporate expenses 2,9 - (23,9)
Change in shareholder`s rate (42,8) 53,6 51,7
Embedded value earnings 76,4 (33,2) 10,1
APE for embedded value purposes
(excluding automatic increase premiums) 104,4 97,7 215,8
Embedded value of new business as a
percentage of APE (new business/APE) 3,0 17,1 7,7
Principal actuarial assumptions % % %
Risk discount rate 12,5 11,5 11,5
Pre-tax investment returns
Equities 12,5 11,5 11,5
Properties 11,5 10,5 10,5
Fixed interest securities 10,5 9,5 9,5
Cash 8,5 7,5 7,5
Expense inflation 6,5 5,5 5,5
The expense overrun arose mainly from low new business volumes.
The operating experience variation (excluding investment return) of R12,9
million arose mainly from better mortality than that assumed.
The operating assumption changes of -R31,4 million include a provision in
respect of anticipated future expense overruns.
Renewal expense assumptions used in the calculation of the embedded value have
not been changed from December 2003, other than allowing for an inflationary
increase. This will be reviewed at year-end taking account of the growth in
business volumes and their relationship to expenses.
The future corporate expenses were determined assuming that there will be a
reduction from the current year`s expenses over the next five years.
EMBEDDED VALUE SAGE GROUP LIMITED
30 June 30 June 31 Dec
2004 2003 2003
R millions Unaudited Unaudited Audited
Shareholders` funds 85,1 96,1 123,9
Value of future corporate expenses (45,7) (35,2) (41,1)
Group (24,7) (35,2) (17,2)
Sage Life (21,0) - (23,9)
Adjustment for revaluation of unlisted
subsidiaries 82,5 148,0 82,5
Net value of life insurance business
in force 599,2 617,9 639,1
Group embedded value 721,1 826,8 804,4
GROUP EMBEDDED VALUE PER SHARE
Shares in issue (millions)* 362,3 362,3 362,3
Group embedded value per share (cents) 199 228 222
* ordinary shares excluding treasury shares
BASIS OF PREPARATION OF THE RESULTS
The unaudited results of the Group for the six months ended 30 June 2004 have
been prepared on a basis consistent with the audited annual financial statements
at 31 December 2003. The determination of Sage Life Limited`s operating surplus,
embedded value, capital adequacy requirement and value of new business, reflect
the Statutory Actuary`s current estimate for interim reporting purposes. The
accounting policies of the Group conform with South African Statements of
Generally Accepted Accounting Practice. The interim report has been prepared in
accordance with AC127: Interim Financial Reporting.
Directors
Dr DC Cronje (Chairman) G Griffin+ (Group Chief Executive) Dr MP Adonisi JP
Davies+ Dr BM Ilsley L Kaplan+ BA Myerson* JA Treger* HL Shill AF van
Biljon CL van Wyk Adv T van Wyk FJ Visser (*British) (+Executive)
Secretary
CS Cant* (*British)
Registered Office
11th Floor Sage Centre 10 Fraser Street Johannesburg 2001
PO Box 7755 Johannesburg 2000
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg 2001
PO Box 61051 Marshalltown 2107
Sponsor
Grant Thornton Corporate Finance (Proprietary) Limited
137 Daisy Street corner Grayston Drive Sandown 2196
Private Bag X28 Benmore 2010
www.sage.co.za
Date: 08/09/2004 08:01:32 AM
Produced by the JSE SENS Department
