| Mon 30 May 2005, 8:59 | | Financial results for the year ended 31 March 2005 |
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Alexander Forbes Limited - Financial results for the year ended 31 March 2005
Alexander Forbes Limited
(Incorporated in the Republic of South Africa)
(Registration number 1958/001974/06)
Sharecode: AFB
ISIN code: ZAE 000018230
(`the company`)
Financial results for the year ended 31 March 2005
* Strong operating results from African businesses
* Significant growth in International Financial Services
* Investment Solutions global assets grow to R87,7 billion
* Review of International Risk Services
* R1,5 billion of debt repaid
* Distribution to shareholders maintained at 67 cents
INCOME STATEMENT
31 March 31 March
2005 2004
Reviewed Audited
Rm Rm
Total revenue 4 625 +4% 4 449
Operating expenses (3 835) (3 663)
Operating profit before non- 790 +1% 786
recurring restructuring costs
Non-recurring restructuring costs (111) -
Operating profit after non- 679 -14% 786
recurring restructuring costs
Net interest income/(costs) 12 (84)
Share of profits of associates 9 9
Non-trading currency gain 5 6
Headline profit before tax 705 -2% 717
Impairment and other capital (23) (27)
items
Profit before taxation 682 -1% 690
Taxation (199) (211)
Profit after taxation 483 +1% 479
Minority interests (45) (40)
Net profit for the year 438 - 439
EARNINGS PER SHARE
- Basic earnings (cents) 107 -16% 127
- Headline earnings (cents) 113 -16% 135
- Headline earnings, excluding 132 -2% 135
non-recurring restructuring costs
(cents)
DILUTED EARNINGS PER SHARE
- Basic earnings (cents) 107 -16% 127
- Headline earnings (cents) 112 -16% 134
- Headline earnings, excluding 131 -2% 134
non-recurring restructuring costs
(cents)
DISTRIBUTION PER SHARE (cents) 67 - 67
Number of shares (millions)
- issued (net of treasury shares) 461 +34% 345
- weighted average 409 +19% 345
- diluted weighted average 411 +18% 347
Net asset value per share 556 +68% 330
BALANCE SHEET
31 March 31 March
2005 2004
Reviewed Audited
Rm Rm
Total assets of investment and 84 984 64 890
insurance operations
Property and equipment 264 250
Purchased and developed computer 23 39
software
Goodwill and other intangible 2 193 2 002
assets
Investments in associates 66 105
Deferred tax asset 66 67
Financial assets 82 149
Total non-current assets 2 694 2 612
Trade and other receivables 1 587 1 804
Financial assets - current 186 313
Cash and cash equivalents 2 278 2 137
Total current assets 4 051 4 254
Total assets 91 729 71 756
Total liabilities of investment 84 984 64 890
and insurance operations
Ordinary shareholders` funds 2 561 1 140
Minority interests 132 107
Total shareholders` funds 2 693 1 247
Borrowings 402 1 829
Deferred consideration for 165 120
acquisitions
Retirement benefit obligations 160 170
Provisions 127 71
Deferred tax liability 47 3
Total non-current liabilities and 901 2 193
provisions
Borrowings - current 358 309
Other current liabilities 2 793 3 117
Total current liabilities 3 151 3 426
Total equity and liabilities 91 729 71 756
CASH FLOW STATEMENT
31 March 31 March
2005 2004
Reviewed Audited
Rm Rm
Cash from operating activities
Cash generated from operations 948 906
Non-recurring restructuring costs (26) -
(net of non-cash provisions)
Taxation and dividend payments (476) (439)
Net cash inflow from operating 446 467
activities
Cash from fiduciary activities
Movements in insurer balances (66) (106)
Refund of vendor loan notes (7) (50)
Net cash outflow from fiduciary (73) (156)
activities
Cash invested
Net subsidiaries and businesses (72) (79)
acquired
Capital expenditure for the year (132) (170)
Net movement in financial assets 3 78
Net cash outflow from investing (201) (171)
activities
Cash from financing
Proceeds of shares issued net of 1 163 19
treasury shares purchased
Repayment of debt (1 479) (496)
Acquisition financing raised 113 10
Withdrawal of matching deposit 227 280
Funding of premium finance (25) 67
receivables
Other net movements (46) (77)
Net cash outflow from financing (47) (197)
activities
Net cash flows 125 (57)
Foreign subsidiary translation 16 (201)
adjustment
Net movement in cash balances 141 (258)
SEGMENTAL ANALYSIS
Revenue
31 March 31 March
2005 2004
International (GBPm)
Risk Services 111,1 -5% 117,5
Financial Services 74,4 +29% 57,5
Lane Clark & Peacock 40,2 +33% 30,3
AFFS 34,2 +26% 27,2
Investment Solutions 4,0 +11% 3,6
Intra-group profit (2,1) -250% (0,6)
elimination
Direct Marketing 9,7 -22% 12,5
Total international (GBPm) 197,1 +3% 190,5
Total international (Rm) 2 259 -3% 2 321
Africa (Rm)
Risk & Insurance Services 794 +6% 746
Financial Services 970 +10% 879
Investment Solutions 602 +20% 503
Total Africa (Rm) 2 366 +11% 2 128
Total Group (Rm) 4 625 +4% 4 449
SEGMENTAL ANALYSIS
Operating profit before non-
recurring restructuring costs
31 March 31 March
2005 2004
International (GBPm)
Risk Services 6,3 -52% 13,0
Financial Services 10,1 +58% 6,4
Lane Clark & Peacock 5,9 +51% 3,9
AFFS 4,2 +68% 2,5
Investment Solutions (1,6) -23% (1,3)
Intra-group profit (1,6) -300% (0,4)
elimination
Direct Marketing 6,3 -23% 8,2
Total international (GBPm) 19,5 -25% 25,9
Total international (Rm) 225 -28% 312
Africa (Rm)
Risk & Insurance Services 161 +17% 138
Financial Services 202 +15% 175
Investment Solutions 202 +25% 161
Total Africa (Rm) 565 +19% 474
Total Group (Rm) 790 +1% 786
SEGMENTAL ANALYSIS
International
31 March 31 March
2005 2004
Operating profit before non-
recurring restructuring costs 225 312
Non-recurring restructuring costs (111) -
Operating profit after non-recurring
restructuring costs 114 312
Net interest income/(costs) (18) (128)
Operational interest income 31 27
Other interest received 15 26
Interest paid (64) (181)
Share of profits of associates 9 8
Non-trading currency gain 5 6
Headline profit before tax 110 198
Taxation on headline profit (29) (37)
Minority interests (28) (29)
Headline earnings 53 132
SEGMENTAL ANALYSIS
Africa
31 March 31 March
2005 2004
Operating profit before non-
recurring restructuring costs 565 474
Non-recurring restructuring costs - -
Operating profit after non-recurring
restructuring costs 565 474
Net interest income/(costs) 30 44
Operational interest income 44 61
Other interest received 51 53
Interest paid (65) (70)
Share of profits of associates - 1
Non-trading currency gain - -
Headline profit before tax 595 519
Taxation on headline profit (170) (175)
Minority interests (17) (11)
Headline earnings 408 333
SEGMENTAL ANALYSIS
Total
31 March 31 March
2005 2004
Operating profit before non-
recurring restructuring costs 790 786
Non-recurring restructuring costs (111) -
Operating profit after non-recurring
restructuring costs 679 786
Net interest income/(costs) 12 (84)
Operational interest income 75 88
Other interest received 66 79
Interest paid (129) (251)
Share of profits of associates 9 9
Non-trading currency gain 5 6
Headline profit before tax 705 717
Taxation on headline profit (199) (212)
Minority interests (45) (40)
Headline earnings 461 465
STATEMENT OF CHANGES IN EQUITY
Share Treasury
capital share and
and share share option Other
premium reserve reserves Total
Rm Rm Rm Rm
31 March 2003
As previously 65 (87) 971 949
reported
Adjustment to 41 249 (290) -
opening reserves
due to adoption of
share option
accounting
Restated balance 106 162 681 949
Share issues 19 19
Movement in share 14 24 18 56
option reserve
Treasury shares (24) (24)
purchased
Translation and (68) (68)
other movements
Net profit for the 439 439
year
Distribution to (53) (178) (231)
shareholders
At 31 March 2004 86 162 892 1 140
Share issues 1 175 1 175
Movement in share 9 (17) 37 29
option reserve
Treasury shares (12) (12)
purchased
Translation and 22 22
other movements
Net profit for the 438 438
year
Distribution to (231) (231)
shareholders
At 31 March 2005 1 270 133 1 158 2 561
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of accounting
The abridged financial information has been prepared on the historical cost
basis in accordance with South African Statements of Generally Accepted
Accounting Practice. The accounting policies used in preparing the financial
information are consistent with those of the previous year except for the
adoption of the following accounting standards:
- AC139 (IFRS2), which requires the cost of share options granted to employees
to be spread over the vesting period of the options and expensed through the
income statement. The amounts were fully disclosed in previous years and this
standard has been adopted with full retrospective effect for the year ending 31
March 2005 which has resulted in a R290 million decrease in opening
distributable reserves and share option expenses of R29 million and R56 million
in the current year and previous year respectively.
- AC140 (IFRS3) on business combinations, which requires goodwill balances to be
initially recorded at net book value at implementation date and thereafter at
cost. These carrying balances are then subject to an annual impairment
assessment, but are no longer amortised. The group has implemented this change
with effect from 31 March 2003 as permitted by AC140 and, accordingly,
comparative figures have been restated to remove goodwill amortisation charges
from this date. As a result the attributable earnings have increased by R143
million for the year ended 31 March 2004. There was no effect on headline
earnings as previously reported.
- Accounting standards AC128 (IAS 36) and AC129 (IAS 38), which are required to
be adopted with effect from the same implementation date as accounting standard
AC140. AC128 prescribes the procedures to apply in assessing the recoverable
amount of all assets and calculating and accounting for any impairment losses.
AC129 prescribes the measurement and recognition of intangible assets, including
those arising from business combinations. Intangible asset amortisation amounted
to R3 million for the current year. There was no effect on headline earnings as
previously reported.
31 March 31 March
2005 2004
Reviewed Audited
2. Exchange rates
The income statements and balance
sheets of significant foreign
subsidiaries have been translated
to Rands as follows:
Weighted average R:GBP rate 11,5 12,1
Closing R:GBP rate 11,7 11,6
3. Reconciliation of headline
earnings per share (Rm)
Net profit for the year 438 439
Add: Impairment and other capital 23 26
items (net of tax)
Headline earnings 461 465
Weighted average number of shares 409 345
(m)
Headline earnings per share 113 135
(cents)
4. Associates (Rm)
Carrying value in balance sheet 66 105
Directors` valuation of 102 141
associates
5. Capital expenditure and
commitments (Rm)
Depreciation and amortisation for 122 112
the year
Capital expenditure for the year 132 170
Operating lease commitments
- Due within one year 213 197
- Thereafter 1 207 1 270
1 420 1 467
6. Distribution to shareholders
The directors have recommended a distribution to shareholders of 67 cents per
share by way of a reduction in share capital for the year ended 31 March 2005.
The terms and conditions of the capital reduction are subject to specific
approval by shareholders at the forthcoming annual general meeting, to be held
on 27 July 2005.
In compliance with the requirements of STRATE, the following dates are
applicable
Last day to trade cum the distribution 12 August 2005
Date trading commences ex the distribution 15 August 2005
Record date 19 August 2005
Date of payment 22 August 2005
Shares may not be dematerialised or rematerialised between Monday, 15 August
2005 and Friday, 19 August 2005 both days are inclusive.
Review report
Our auditors, PricewaterhouseCoopers Inc, have reviewed the abridged financial
information in this report for the year ended 31 March 2005. A copy of their
unqualified review report is available upon request.
Review of operations
Overview
The year to 31 March 2005 has been characterised by:
- Strong operating results from our African businesses;
- Significant growth in our International Financial Services businesses;
- Continued strong growth in the assets of Investment Solutions with global
assets under management increasing by 31% to exceed R87 billion at 31 March
2005; and
- Focused action taken following a review of our International Risk Services
business.
Alexander Forbes has also significantly strengthened its financial position
since the previous financial year-end, having settled R1,5 billion of offshore
borrowings and exchangeable bond debt combined with the R1,159 billion equity
issue to VenFin Limited.
Review of operations
The group produced revenues of R4,6 billion for the year under review, up 4% on
the previous year. Operating profits (before non-recurring restructuring costs)
increased by 1% to R790 million, having been impacted by the reduced profit
contribution from International Risk Services and Direct Marketing (as advised
in our trading update on14 April 2005). Operating profit attributable to all of
the other group operations increased 24% in comparison to the previous year.
Africa (principally South Africa)
The African operations continued to produce strong organic growth with revenue
increasing by 11% and operating profit growing by 19% to R565 million for the
year. All of the businesses contributed to this result.
Financial Services
The Financial Services business recorded a 15% increase in operating profit to
R202 million with good revenue gains in the core Actuarial Consulting and
Administration businesses. The Health Care and Financial Planning Consulting
divisions continued their improved profitability reported at half-year. The
Asset Consulting division also delivered an improved performance. The Homeplan
pension backed lending business increased both clients and profits building on
prior year performances.
Risk & Insurance Services
The Risk Services (corporate insurance broking and risk management), Personal
Services (personal lines insurance) and Guardrisk (cell captive insurance
facilities) businesses have again delivered a good combined performance with
operating profit increasing by 17% to R161 million. The core corporate insurance
broking business achieved modest growth in turnover and operating profit,
building on strong prior year results. Significant success was achieved in
delivering innovative new products and services through Cre-8, as well as
Guardrisk. The Personal Services business again produced strong profit growth
resulting from good underwriting results and continued disciplined expense
management.
Investment Solutions
Investment Solutions continued its strong performance reported at the half-year,
increasing its operating profit by 25% to R202 million. This was achieved though
further net inflows of assets under management of R3,7 billion for the year
combined with the positive impact of strong market returns over the year. This
resulted in assets under management from Southern African clients exceeding R82
billion at year-end, an increase of 28% on the closing assets at the end of the
previous financial year.
International (principally United Kingdom)
The international operations showed revenue growth of 3%. Operating profit,
before non-recurring restructuring costs, decreased by 25% to GBP19,5 million as
a result of the reduced profit contribution from International Risk Services and
Direct Marketing.
Financial Services
The Financial Services businesses recorded strong growth in operating profit to
GBP10,1 million, up 58% from the previous year. This reflects continued good
growth in the Alexander Forbes Financial Services (AFFS) business with 68%
operating profit growth to GBP4,2 million. In addition, a strong second half
performance by Lane Clark & Peacock`s UK actuarial consulting business and the
benefits of its European acquisitions resulted in operating profit increasing by
51% to GBP5,9 million for the year. Excluding acquisitions, Lane Clark & Peacock
recorded 31% organic growth in operating profit.
Risk Services
Revenues decreased by 5%, being negatively impacted by softening property and
casualty insurance rates, industry change caused by events in the United States
and the continued impact of the weaker dollar on US$ denominated brokerage.
Operating profits were further impacted by cost pressures, including costs
incurred in preparing the business for Financial Services Authority regulation
in January 2005, decreasing by 52% to GBP6,3 million.
At the time of the half-year results announcement on 15 November 2004, we
advised that we were undertaking a specific review of our International Risk
Services business and indicated that there would be one-off costs associated
with this review. Arising from the review, we have instituted a number of
focused actions within this business including:
- Aggressively focusing on client retention, new business and revenue generation
to capitalise on enhanced opportunities in the market.
- Cutting costs with annualised savings of approximately GBP4 million. Most of
the benefit from these savings will only be realised in the new financial year
and will be partially offset by the cost of new hires.
- Selectively recruiting key resources including the appointment of a new
Operations Director and Head of our Retail business. We continue to recruit
successfully from a number of our competitors.
- Dealing with legacy issues. This has resulted in some provisions being
required for bad debts and historic lease issues.
- Selling our 20% shareholding in National Britannia for GBP5 million.
One-off costs of GBP9,6 million (R111 million) have been incurred resulting from
the review. These costs, which include redundancy payments, bad debt write offs
and provisions for historic lease issues, have been separately reported as non-
recurring costs in the group`s results.
The combination of action already taken and plans in place has left the
International Risk Services business in a stronger position to capitalise on the
growing number of opportunities in the market.
Investment Solutions
The UK Investment Solutions business continued to successfully grow assets and
members under administration. Strong new business has resulted in assets under
management increasing by GBP250 million (R2,9 billion) to GBP445 million (R5,2
billion) at 31 March 2005. The operating loss of GBP1,6 million for the year is
seen as a continued investment in growing this start up business.
Direct Marketing
The operating profit of the UK Direct Marketing business has decreased in line
with expectations to GBP6,3 million for the year. The business continues to
operate profitably but on a smaller scale.
Financing
The group has significantly strengthened its financial position since the
previous financial year-end having made capital repayments on term loan debt,
fully settled the Merrill Lynch loan debt in the United Kingdom and repurchased
the exchangeable bonds held by VenFin. The total debt repaid during the period
under review amounts to R1,5 billion and has been funded through the proceeds of
the R1,159 billion equity issue of 114,8 million new ordinary shares to VenFin,
the release of the matching Merrill Lynch deposit in South Africa of R227
million and the balance from internal cash resources. This has resulted in a
materially stronger Alexander Forbes balance sheet.
The strengthening of the group`s financial position is reflected in the net
interest income of R12 million reported for the year compared to a cost of R84
million for the previous year. This resulted from reduced interest paid
following the repurchase of the exchangeable bonds during the year and interest
earnings on the group`s retained profits. The decrease in operational interest
income (resulting from interest rate cuts in South Africa) was offset by
decreased borrowing costs on term loan borrowings in South Africa and increased
deposit rates in the United Kingdom.
Earnings per share and distribution to shareholders
Headline earnings per share decreased by 16% to 113 cents for the year,
primarily as a result of the non-recurring restructuring costs detailed above.
Not withstanding this decrease, the strengthening of the group`s financial
position and cash generative nature of our operations have enabled the
distribution to shareholders to be maintained at 67 cents per share. This
represents a 34% increase in the total distribution, which amounts to R309
million (2004: R231 million).
Developments and prospects
Our African businesses continue to deliver organic growth. At the same time,
significant progress has been made in the transformation of these businesses and
extending our footprint in Africa. Our empowerment partners, headed by Shanduka,
continue to play an important role in the development and internal
transformation of our South African businesses.
The review of our International Risk Services business has placed the business
in a stronger position from which to achieve future growth. While trading
conditions remain challenging in the short term, there are opportunities arising
from changes in the global insurance broking industry. The International
Financial Services and Investment Solutions businesses are well placed to build
on the successes of the past year.
The group is well positioned to achieve growth in the year ahead.
For and on behalf of the board
PL Heinamann RI Gordon
Chairman Group Chief Executive
27 May 2005
DIRECTORS
PL Heinamann (Chairman), JVH Robins* (Deputy chairman), RI Gordon (Group chief
executive), MG Ilsley (Group finance director), TRT Bohlmann, JJ Durand, MP
Nicholls*, MC Ramaphosa, GGH Todd, PJJ van der Walt, GJ Roberts-Baxter
(alternate director)
* British
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Limited
(Registration number 2000/006082/06)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
REGISTERED OFFICE
Alexander Forbes Place
61 Katherine Street, Sandown, 2196,
South Africa
Group company secretary: JE Salvado
www.alexanderforbes.com
Sponsor
JP Morgan Equities Limited
