| Mon 29 Nov 2004, 8:50 | | Results for the six months ended 30 September 2004 |
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African Life - Unaudited results for the six months ended 30 September 2004
AFRICAN LIFE ASSURANCE COMPANY LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1911/003818/06
JSE code: AFI
ISIN: ZAE000000246
(`African Life` or `the company`)
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004
Headline earnings - up 74%
Operating profit - up 21%
Embedded value - up 10% since March 2004
Embedded value per share - up 10% to R22,27 per share
African Life Health - maiden operating profit recorded
Our Vision
Our vision is to be the dominant provider of life insurance, risk, savings and
healthcare products in our chosen markets. African Life`s core business
addresses the essentials of affordable financial security for the family. Our
objective is to create that security for as many families as possible.
Group income statement
Unaudited Unaudited Audited
Six months Six months
months to months to Year to
30 Sept 30 Sept 31 March
2004 2003 2004
Note Rm Rm Rm
Premium income 1 1 092,9 986,1 1 917,1
Recurring 718,7 720,0 1 435,2
Single 374,2 266,1 481,9
Fee and other income 68,7 50,4 110,0
Investment return 330,3 421,4 824,1
Net fair value gains on
financial assets 221,5 410,4 403,7
Income from associated
companies 2,5 0,3 (0,1)
Total income 1 715,9 1 868,6 3 254,8
Goodwill amortised and
impaired - (3,8) (20,4)
Selling expenses (190,7) (195,6) (361,4)
Operating expenses (189,0) (173,1) (358,1)
Policyholder benefits (695,4) (605,6) (1 447,4)
Net fair value adjustment on
investment contracts (221,5) (410,4) (403,7)
Change in actuarial value of
policyholder liabilities under
insurance contracts (214,1) (302,9) (326,6)
Surplus before tax 205,2 177,2 337,2
Taxation (0,2) (55,2) (93,8)
Taxation before overprovision (45,2) (55,2) (93,8)
Reversal of prior year`s
overprovision 45,0 - -
Surplus after tax 205,0 122,0 243,4
Attributable to minority
shareholders (39,8) (32,1) (72,7)
Surplus attributable to
ordinary shareholders 165,2 89,9 170,7
Operating surplus 110,7 91,6 177,7
Investment income on free
assets 45,1 48,4 98,2
Taxation 6,4 (46,6) (84,8)
Taxation before overprovision (38,6) (46,6) (84,8)
Reversal of prior year`s
overprovision 45,0 - -
Headline earnings 162,2 93,4 191,1
Goodwill amortised and impaired - (3,5) (20,4)
Realised investment surpluses
on free assets net of tax 3,0 - -
165,2 89,9 170,7
Earnings per share (cents) 155,7 83,9 159,4
Fully diluted earnings per
share (cents) 155,0 83,4 158,3
Headline earnings per
share (cents) 152,8 87,2 178,4
Fully diluted headline
earnings per share (cents) 152,1 86,6 177,2
Weighted average number
of shares (000`s) 106 108 107 101 107 101
Note:
1. Premium income 1 092,9 986,1 1 917,1
Recurring 718,7 720,0 1 435,2
Individual life 654,6 616,3 1 273,4
Group benefits 64,1 103,7 161,8
Single 374,2 266,1 481,9
Individual life 371,8 263,2 477,5
Group benefits 2,4 2,9 4,4
Group balance sheet
Unaudited Unaudited Audited
As at As at As at
30 Sept 30 Sept 31 March
2004 2003 2004
Rm Rm Rm
ASSETS
Investments 11 332,7 14 106,0 13 109,3
Intangible assets 80,8 43,7 81,1
Fixed assets 116,3 118,2 116,3
Current assets 962,2 963,4 959,5
12 492,0 15 231,3 14 266,2
EQUITY AND LIABILITIES
Share capital and premium 433,6 437,0 437,0
Reserves 1 341,2 1 149,3 1 175,5
Excess of assets over liabilities 1 774,8 1 586,3 1 612,5
Minority shareholders` interest 422,0 365,6 393,5
Total shareholders` interest 2 196,8 1 951,9 2 006,0
Policyholder liabilities 9 748,1 12 759,6 11 754,3
Insurance contracts 4 635,0 4 530,8 4 420,3
Investment contracts 5 113,1 8 228,8 7 334,0
Deferred taxation 49,8 182,9 193,2
Long-term liabilities 52,4 - 25,5
Current liabilities 444,9 336,9 287,2
12 492,0 15 231,3 14 266,2
Accounting policies and basis of preparation
Basis of preparation
The accounting policies comply in all material respects with South African
Statements of Generally Accepted Accounting Practice as well as the South
African Companies Act of 1973. These accounting policies are consistent with
those applied at 31 March 2004, except for the implementation of the South
African Statement of Generally Accepted Accounting Practice AC140: Business
Combinations, which has been applied from 1 April 2004. This statement requires
that goodwill is no longer amortised but is subject to an annual impairment
test.
Statement of changes in equity
Unaudited Unaudited Audited
As at As at As at
30 Sept 30 Sept 31 March
2004 2003 2004
Rm Rm Rm
Share capital and share premium
Balance at the beginning of
the period 437,0 488,2 488,2
Share repurchases on open market (3,4) (51,2) (51,2)
Balance at the end of the period 433,6 437,0 437,0
Reserves
Balance at the beginning of
the period 1 175,5 1 102,5 1 102,5
Income attributable to
shareholders 165,2 89,9 170,7
Retained income 1 340,7 1 192,4 1 273,2
Dividends paid (48,1) (49,8) (88,6)
Movement on fair value and
foreign currency translation
reserves 48,6 6,7 (9,1)
Balance at the end of the period 1 341,2 1 149,3 1 175,5
Abridged cash flow statement
Unaudited Unaudited Audited
Six months Six months
to to Year to
30 Sept 30 Sept 31 March
2004 2003 2004
Rm Rm Rm
Cash flows from operating
activities (1 974,4) 2 224,1 1 370,3
Cash flows excluding transfer
to segregated funds 183,1 2 224,1 1 370,3
Cash flows from transfer to
segregated funds (2 157,5) - -
Cash utilised in investing
activities 2 098,6 (2 192,2) (1 041,3)
Cash flows excluding transfer
to segregated funds (58,9) (2 192,2) (1 041,3)
Cash flows from transfer to
segregated funds 2 157,5 - -
Cash flows from financing
activities 23,4 (51,2) (25,7)
Net increase in cash resources 147,6 (19,3) 303,3
Cash resources at the beginning
of the period 1 948,3 1 645,0 1 645,0
Cash resources at the end of
the period 2 095,9 1 625,7 1 948,3
Statement of changes in the actuarial value of policyholder liabilities
Unaudited Unaudited Audited
Six months Six months
to to Year to
30 Sept 30 Sept 31 March
2004 2003 2004
Rm Rm Rm
Insurance contracts
Policyholder liabilities at
the beginning of the period 4 420,3 4 250,8 4 250,8
Movement for the period 214,7 280,0 169,5
Transfer from the income statement 214,1 302,9 326,6
Foreign currency effect of
translating liabilities 0,6 (22,9) (157,1)
Policyholder liabilities at the
end of the period 4 635,0 4 530,8 4 420,3
Investment contracts
Policyholder liabilities at
the beginning of the period 7 334,0 6 245,5 6 245,5
Movement for the period (2 220,9) 1 983,3 1 088,5
Pension and investment deposits 353,5 1 804,5 1 631,5
Fair value adjustment through
the income statement 221,5 410,4 403,7
Withdrawals (639,7) (150,7) (1 215,6)
Transfer to segregated funds (2 157,5) - -
Foreign currency effect of
translating liabilities 1,3 (80,9) 268,9
Policyholder liabilities at the
end of the period 5 113,1 8 228,8 7 334,0
Segmental analysis
Shareholders` Net value of in-force
net assets business
Embedded value 30 Sept 31 March 30 Sept 31 March
Rm 2004 2004 2004 2004
Life operations 1 679,1 1 521,3 509,5 454,4
South Africa 1 324,5 1 195,7 402,5 353,7
Botswana 324,3 297,6 96,5 89,8
Namibia 30,3 28,0 10,5 10,9
Fund management
(Botswana) 93,0 92,6 73,3 79,9
Health (SA) 2,7 (1,4) - -
Total 1 774,8 1 612,5 582,8 534,3
Embedded value Total
(continued) 30 Sept 31 March
Rm 2004 2004
Life operations 2 188,6 1 975,7
South Africa 1 727,0 1 549,4
Botswana 420,8 387,4
Namibia 40,8 38,9
Fund management - -
(Botswana) 166,3 172,5
Health (SA) 2,7 (1,4)
Total 2 357,6 2 146,8
Segmental analysis (continued)
Embedded value of
of new business South Africa International business
(at valuation date) 30 Sept 30 Sept 30 Sept 30 Sept
Rm 2004 2003 2004 2003
Life operations 28,2 29,5 15,7 13,0
Recurring 21,0 27,8 12,6 8,9
Single 5,0 1,7 2,2 2,9
Other 2,2 - 0,9 1,2
Fund management - - 4,4 17,9
Total 28,2 29,5 20,1 30,9
Embedded value of
of new business
(at valuation date) Total
(continued) 30 Sept 30 Sept
Rm 2004 2003
Life operations 43,9 42,5
- Recurring 33,6 36,7
- Single 7,2 4,6
- Other 3,1 1,2
Fund management 4,4 17,9
Total 48,3 60,4
Segmental analysis (continued)
South Africa International business
Operating surplus 30 Sept 30 Sept 30 Sept 30 Sept
Rm 2004 2003 2004 2003
Life operations 64,5 46,8 28,8 32,8
Asset management 10,3 12,00
Health operations 7,1 - - -
Total 71,6 46,8 39,1 44,8
Operating surplus Total
(continued) 30 Sept 30 Sept
Rm 2004 2003
Life operations 93,3 79,6
Asset management 10,3 12,0
Health operations 7,1 -
Total 110,7 91,6
Group embedded value
The embedded value represents an estimate of the value of the Group, excluding
the value attributable to minority interests and goodwill attributable to future
new business. The embedded value comprises:
* the value of the shareholders` net assets; and
* the value of the in-force business adjusted for the cost of solvency
capital required to support this business.
The value of the in-force business is the present value of future after-tax
profits arising from business in force at the valuation date, discounted at the
risk discount rate.
The value of in-force business has been calculated for African Life Assurance
Company Limited, Botswana Insurance Holdings Limited and Life Office of Namibia
Limited. Other operations have been taken at net asset value.
Six Six
months months
to to Year to
30 Sept 30 Sept 31 March
2004 2003 2004
Embedded value results Rm Rm Rm
Shareholders` net assets 1 774,8 1 586,3 1 612,5
Value of in-force 582,8 489,9 534,3
Value before cost of capital 673,0 602,9 622,7
Cost of capital (90,2) (113,0) (88,4)
Embedded value at end of period 2 357,6 2 076,2 2 146,8
Capital adequacy requirement (CAR) 763,4 704,9 721,1
CAR cover 2,3 2,3 2,2
Embedded value per share (rands) 22,27 19,61 20,28
Embedded value earnings
Embedded value at end of period 2 357,6 2 076,2 2 146,8
Embedded value at beginning
of period (2 146,8) (2 023,1) (2 023,1)
Change in embedded value 210,8 53,1 123,7
Dividends and share repurchases 137,4 105,3 155,4
Embedded value earnings 348,2 158,4 279,1
These earnings can be analysed
as follows:
Roll forward 267,2 67,3 171,3
Investment return on free assets
after tax 227,9 33,1 85,9
Expected return on life business
in force 39,3 34,2 85,4
Change over the period 81,0 91,1 107,8
Value of new business at end
of period 48,3 60,4 113,1
Value at point of sale 47,0 57,1 104,7
Expected return to end of period 1,3 3,3 8,4
Change in assumptions and
methodology (2,7) 20,6 86,9
Experience variances 35,3 12,3 (30,9)
Additional exchange rate fluctuations
and change in shareholdings 0,1 (2,2) (61,3)
Total earnings 348,2 158,4 279,1
Value of new business at end
of period 48,3 60,4 113,1
Value at point of sale before
cost of capital 58,4 71,8 123,5
Cost of capital (11,4) (14,7) (18,8)
Expected return to end of period 1,3 3,3 8,4
The value of new business is derived
from new business premium income
as shown below.
New Business Premiums
Recurring premium (API) 184,3 212,4 436,0
Single premium 541,2 1 124,7 1 318,1
Assumptions
The main assumptions used are
as follows:
1. Economic assumptions September 2004 September 2003
South South
Africa Botswana Africa Botswana
% pa % pa % pa % pa
Risk discount rate (RDR) 12,5 14,0 13,4 15,0
Overall investment return
(before tax) 10,7 11,5 10,4 12,4
Expense inflation rate 6,0 7,5 6,4 8,0
1.Economic assumptions
(continued) March 2004
assumptions South
Africa Botswana
% pa % pa
Risk discount rate (RDR) 13,2 13,5
Overall investment return
(before tax) 11,1 11,6
Expense inflation rate 6,7 7,0
2. Other assumptions
The assumptions for future mortality, morbidity, persistency, premium updates
and expenses are based on recent experience adjusted for anticipated future
trends. In particular, allowance has been made for deteriorating mortality as a
result of HIV/Aids.
Notes:
1. Changes in assumptions South Africa International Group
and methodology Rm Rm Rm
Mortality and morbidity (2,2) - (2,2)
Expenses 2,0 (1,4) 0,6
Lapses and surrenders (3,2) (1,5) (4,7)
Premium updates 6,5 - 6,5
Data and methodology changes (12,0) (10,6) (22,6)
Other (1,3) - (1,3)
Total operational (10,2) (13,5) (23,7)
Economic 21,6 (0,6) 21,0
Total 11,4 (14,1) (2,7)
2. Experience variances
Mortality and morbidity 23,3 8,8 32,1
Expenses and commission (8,4) (0,4) (8,8)
Lapses and surrenders (3,1) 0,5 (2,6)
Premium updates 1,6 0,3 1,9
Premium collection
shortfall (5,6) - (5,6)
Other 6,7 2,2 8,9
Total operational 14,5 11,4 25,9
Investment return 6,7 2,7 9,4
Total 21,2 14,1 35,3
Commentary
Environment
Economic fundamentals in South Africa remain sound and lower interest and
inflation rates have contributed to higher consumer confidence. Africa`s macro-
economic picture is improving as political and economic fundamentals strengthen.
African governments are increasingly embracing market-led economic policies,
including privatisation and deregulation of financial services, which offer many
opportunities for the Group. In all the territories in which we operate, as well
as elsewhere in Africa, the demand for African Life`s products remains strong on
the back of a growing awareness of the need for financial planning.
The strong Rand relative to other African currencies had a negative impact on
the results. The average Pula exchange rate depreciated by 12% against the Rand
in the last twelve months.
Group Structure Re-organisation
During the review period the Group was re-structured into Life, Health and Fund
Management divisions to align its structures with its revenue streams. As a pan-
African financial services provider, segmentation according to product rather
than region will allow the Group to enhance the cross pollination of ideas and
best practice as well as introduce greater focus and economies of scale.
Financial Review
The Group made good progress during the review period towards its objectives for
the year.
A stronger operational performance and a reduced tax charge, as a result of an
over provision in prior years, contributed to the 74% increase in headline
earnings to R162,2 million (2003: R93,4 million). Headline earnings per share
increased by 75% to 152,8 cents per share (2003: 87,2 cents per share).
The Group recorded a 21% growth in operating profit to R110,7 million (2003:
R91,6 million). African Life Health (ALH) recorded an operating profit for the
period under review while the SA life operations performed in line with
actuarial assumptions, recording no material negative experience variances.
Recently received tax assessments for the financial years ended 2001, 2002 and
2003 showed an overprovision of tax. This arose in the main from the treatment
of negative rand reserves and related deductions on transition from the
Prescribed Valuation basis to the Financial Soundness Valuation basis for tax
purposes in 2001 in terms of Section 29A of the Income Tax Act No 58 of 2001.
A slow recovery in recurring premium sales in South Africa led to an 8% decline
in Group embedded value of recurring premium new business to R33,6 million.
Nevertheless, recurring premium new business margin was 19%. The completion, in
the previous financial year, of the initial allocation of government pension
fund assets in Botswana impacted adversely on the embedded value of single
premium new business in the period under review. Total embedded value of new
business decreased by 20% to R48,3 million (2003: R60,4 million).
The value of in force continues its growth trend with the Group reporting a 9%
increase to R582,8 million over the review period. Total embedded value
increased 10% since year end to R2,36 billion after transactions with
shareholders of R137,4 million. The return on opening embedded value over the
six-month period was 16%.
Financial Sector Charter and BEE The black economic empowerment (BEE)
transaction was approved on 9 July 2004 with overwhelming shareholder support.
Mvelaphanda`s deputy chairman, Mr. Mikki Xayiya was subsequently appointed to
the Board. The grouping of African Life`s business partners (comprising of
supporting brokers, unions, SANTACO, the ZCC and other business partners) have
made considerable progress in formalising their participation in the Group and
are exploring new business opportunities.
The Group is committed to the South African Financial Sector Charter and is well
positioned to meet all requirements. The challenge of expanding access to
affordable financial services is significant in the face of increasing
regulatory costs.
Life
September September %
2004 2003 change
Operating surplus R93,3m R79,6m +17
The South African life operations reported a satisfactory performance in a
competitive and challenging environment.
Recurring premium new business shows an upward growth trend with volumes above
the previous six months, albeit lower than the previous interim period`s level.
Single premium income more than doubled as customers grew accustomed to the
lower interest rate environment.
Over the review period, recurring premium income remained flat at R718,7
million. The unprecedented removal of HIV/Aids limitations for existing
customers as well as new customers is expected to enhance benefit delivery, a
crucial element of our value proposition.
During the period the company`s intermediaries prepared for the introduction of
consumer protection legislation: the Financial Advisory and Intermediary
Services (FAIS) Act, which came into force on 1 October 2004. Management
believes that our approach of having an appropriately qualified and productive
distribution capability with high retention remains the solution to meeting the
inevitable increase in costs associated with increased regulation. We will
continue to seek sustainable growth through this strategy.
Group Risk performed in line with expectation.
New business volumes in the Botswana operation increased in a market that still
offers opportunity. In addition, good persistency and cost control allowed for a
consistent operational performance.
The Kenyan operation reported strong new business growth and a positive
contribution to Group results.
The Namibian operation improved its new business performance off a low base
whilst efforts to address the shareholding profile continue.
The Ghanaian operation continues to perform above expectation and has
significant potential. Management`s investigation of opportunities to increase
the Group`s presence in Ghana is ongoing.
Zambia provides African Life with scope to expand the operations there. Current
financial and operational performance is however, below expectations.
Health
September September %
2004 2003 change
Operating surplus R7,1m - -
ALH reported a profit for the review period reflecting the benefits of the
Amanzi acquisition in January 2004 and organic growth in Ingwe HPO. Despite
industry turbulence in South Africa, the market continues to show considerable
interest in our affordable healthcare plans. Membership increased to 60 000
principal members during the period. Members will enjoy the valuable benefits of
ALH`s free rewards programme from 2005.
ALH`s move to profit was complemented by the Company`s appointment by the
Lesotho government to set up and administer a medical scheme for its 30 000
employees and their families. In addition, approaches have been received from
the private sector in that country.
ALH also expanded its operations into Botswana and Kenya, although the financial
benefits of the African initiatives will only be felt from the 2006 financial
year.
ALH Botswana launched the Botsogo Health Plan in November 2004 and considerable
interest has been shown by private and public sector representatives. ALH
already provides health cover to 7 000 Botswana students studying in South
Africa.
ALH entered the Kenyan market in 2004 through a joint venture with an associated
company, APA Insurance, to form Amini and administer 50 000 lives. Amini
provides a solid foundation upon which to grow the business in Kenya and
marketing efforts will commence in 2005.
Fund Management
September September %
2004 2003 change
Operating surplus R10,3m R12,0m -14
The Fund Management division is set to harness the opportunities provided by the
increasing privatisation of financial services across the continent. Fund
management in Africa requires the unique skills and solutions currently applied
by the Group`s Botswana Insurance Fund Management (BIFM).
With the privatisation of the Botswana government`s pension fund complete, BIFM
has successfully focused its attention during the period on the retention of
existing clients in the face of strong competition. In light of increased risk
management and corporate governance, segregated portfolios were set up for
certain funds and these have been accounted for off balance sheet. These funds
remain under our management.
The Zambian fund management business continues to grow, ably assisted by its
new, 30% citizen shareholder consortium.
Prospects
The Group`s progress in meeting its objectives reflects the focused attention
paid to profit drivers. Recent research has highlighted low penetration levels
in the Group`s target markets and the Group is ideally positioned to maximise
these opportunities.
The emerging success of ALH gives support to the Group`s healthcare strategy and
complements the pan-African service offering.
Increased strategic emphasis will be placed on capital management and cost
efficiencies as well as customer service and product innovation, to provide our
customers with a better value proposition and our shareholders with better
returns.
Directorate
Mr. M Xayiya, deputy chairman of Mvelaphanda Holdings (Pty) Limited was
appointed to the Board as a non-executive director with effect from 12 August
2004. Mr. A van Heerden resigned from the Board with effect from 31 August 2004.
Dividend
In line with the current dividend policy of declaring half of the total dividend
of the previous year, an interim dividend (number 32) of 42,5 cents per share
has been declared for the six months ended 30 September 2004, payable to
shareholders of ordinary shares recorded in the books of the Company at the
close of business on Friday, 17 December 2004, the record date to participate in
this dividend. The dividend declared is payable in the currency of the Republic
of South Africa.
Last date to trade ordinary
shares `cum` dividend Thursday, 9 December 2004
Ordinary shares trade
`ex` dividend Friday, 10 December 2004
Record date Friday, 17 December 2004
Payment date Monday, 20 December 2004
Share certificates may not be dematerialised or rematerialised between Friday,
10 December 2004 and Friday, 17 December 2004, both days inclusive.
For and on behalf of the Board
Sipho Nkosi Jeremy Rowse
Non-executive chairman Chief executive
26 November 2004
African life Assurance Company Limited
(Registration number 1911/003818/06)
(`African Life` or `the Company`)
Share code: AFI ISIN: ZAE000000246
REGISTERED OFFICE AND POSTAL ADDRESS:
African Life Park, 11 - 13 West Street, Houghton, 2198
PO Box 1941, Houghton, 2041
Telephone (+27 11) 359-7700 Telefax (+27 11) 483-2494
Directors:
S A Nkosi (Chairman), J P Rowse (Chief Executive) (British), A H Arnott, J A
Burbidge (British), C T Harding, W A Jack, J D Krige,
T K S Letlape, M Mbekeni (Ms), W T Roos, T A Wixley, M Xayiya
