| Tue 7 Jun 2005, 7:57 | | Results For The Year Ended 31 March 2005 |
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African Life - Audited Results For The Year Ended 31 March 2005
AFRICAN LIFE ASSURANCE COMPANY LIMITED
Authorised financial services provider 11230
(Registration number 1911/003818/06)
(`African Life` or `the Company`)
Share code: AFI
ISIN: ZAE000000246
- A SOLID STRATEGIC PLATFORM
- Headline earnings up 36%
- Operating profit - up 28%
- Embedded value on consistent basis with prior year- up 20%
- Embedded value after deducting fair value of share options- up 13%
- Total dividend - up 25%
- Risk discount rate premium conservatively maintained at 1,5%
AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2005
GROUP INCOME STATEMENT
Audited Audited
Year to Year to
31 March 31 March
2005 2004
Notes Rm Rm
Premium income 1 2 216,0 1 917,1
Recurring 1 502,9 1 435,2
Single 713,1 481,9
Fee and other income 150,0 110,0
Investment return 730,3 824,1
Net fair value gains on
financial assets 708,9 403,7
Total income 3 805,2 3 254,9
Loss from associated companies (0,1) (0,1)
Goodwill amortised and impaired - (20,4)
Selling expenses (374,5) (361,4)
Operating expenses (402,9) (358,1)
Impairment charges (5,0) -
Policyholder benefits (1 469,1) (1 447,4)
Net fair value adjustment on
investment contracts (708,9) (403,7)
Change in actuarial value of
policyholder liabilities under
insurance contracts (387,8) (326,6)
Surplus before tax 456,9 337,2
Taxation (83,8) (93,8)
Surplus after tax 373,1 243,4
Attributable to minority shareholders (74,3) (72,7)
Surplus attributable to ordinary
shareholders 298,8 170,7
Operating surplus 226,7 177,7
Investment income on free assets 97,3 98,2
Taxation (65,1) (84,8)
Headline earnings 258,9 191,1
Goodwill amortised and impaired - (20,4)
Realised investment surpluses on
free assets 39,9 -
298,8 170,7
Earnings per share (cents) 281,9 159,4
Fully diluted earnings per share (cents) 279,5 158,3
Headline earnings per share (cents) 244,2 178,4
Fully diluted headline earnings
per share (cents) 242,2 177,2
Weighted average number of shares (000`s) 105 981 107 101
NOTES:
1. PREMIUM INCOME 2 216,0 1 917,1
Recurring 1 502,9 1 435,2
Individual life 1 380,2 1 273,4
Group benefits 122,7 161,8
Single 713,1 481,9
Individual life 709,7 477,5
Group benefits 3,4 4,4
GROUP BALANCE SHEET
Audited Audited
As at As at
31 March 31 March
2005 2004
Rm Rm
ASSETS
Investments 11 909,0 13 109,3
Goodwill 70,4 69,6
Intangible assets 27,8 11,5
Fixed assets 146,5 116,3
Current assets 952,3 959,5
13 106,0 14 266,2
EQUITY AND LIABILITIES
Share capital and premium 451,2 437,0
Reserves 1 532,9 1 175,5
Excess of assets over liabilities 1 984,1 1 612,5
Minority shareholders` interest 425,8 393,5
Total shareholders` interest 2 409,9 2 006,0
Policyholder liabilities 10 132,6 11 754,3
Insurance contracts 4 816,4 4 420,3
Investment contracts 5 316,2 7 334,0
Deferred taxation 61,6 193,2
Long-term liabilities 26,1 25,5
Current liabilities 475,8 287,2
13 106,0 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
Audited Audited
As at As at
31 March 31 March
2005 2004
Rm Rm
SHARE CAPITAL AND SHARE PREMIUM
Share capital and share premuim 488,2 488,2
Elimination of treasury shares (37,0) (51,2)
Balance at the end of the year 451,2 437,0
RESERVES
Balance at the beginning of the year 1 175,5 1 102,5
Income attributable to shareholders 298,8 170,7
Retained income 1 474,3 1 273,2
Dividends paid (93,6) (88,6)
Movement on fair value, foreign currency
and other reserves 152,2 (9,1)
Balance at the end of the year 1 532,9 1 175,5
ABRIDGED CASH FLOW STATEMENT
Audited Audited
Year Year
to to
31 March 31 March
2005 2004
Rm Rm
Cash flows from operating activities (1 518,6) 1 105,2
Cash utilised in investing activities 1 051,0 (776,2)
Cash flows from financing activities 14,8 (25,7)
Net increase in cash resources (452,8) 303,3
Cash resources at the beginning of the year 1 948,3 1 645,0
Cash resources at the end of the year 1 495,5 1 948,3
STATEMENT OF CHANGES IN THE ACTUARIAL
VALUE OF POLICYHOLDER LIABILITIES
Audited Audited
Year Year
to to
31 March 31 March
2005 2004
Rm Rm
INSURANCE CONTRACTS
Policyholder liabilities at the beginning
of the year 4 420,3 4 250,8
Movement for the year 396,1 169,5
Transfer from the income statement 387,8 326,6
Foreign currency effect of translating
liabilities 8,3 (157,1)
Policyholder liabilities at the end of
the year 4 816,4 4 420,3
INVESTMENT CONTRACTS
Policyholder liabilities at the beginning
of the year 7 334,0 6 245,5
Movement for the year (2 017,8) 1 088,5
Pension and investment deposits 440,7 1 631,5
Fair value adjustment through the income
statement 708,9 403,7
Withdrawals and transfer to segregated funds (3 217,1) (1 215,6)
Foreign currency effect of translating
liabilities 49,7 268,9
Policyholder liabilities at the end of
the year 5 316,2 7 334,0
SEGMENTAL ANALYSIS
EMBEDDED VALUE
Net value of
Shareholders` in-force Total
net assets business
31 March 31 March 31 March 31 March 31 March 31 March
Rm 2005 2004 2005 2004 2005 2004
Life
operations 1 879,6 1 521,3 546,5 454,4 2 426,1 1 975,7
- South
Africa 1 436,1 1 195,7 427,9 353,7 1 864,0 1 549,4
- Botswana 378,1 297,6 102,1 89,8 480,2 387,4
- Namibia 34,1 28,0 8,4 10,9 42,5 38,9
- Kenya** 31,3 8,1 39,4
Fund management
(Botswana) 94,6 92,6 64,6 79,9 159,2 172,5
Health (SA) 9,9 (1,4) - - 9,9 (1,4)
Fair value
adjustments
to NAV* (165,8) - - - (165,8) -
Total 1 818,3 1 612,5 611,1 534,3 2 429,4 2 146,8
*The net assets include a fair value adjustment to the NAV, details of which
appear in note 3 of the embedded value results.
**Included for first time in 31 March 2005
EMBEDDED VALUE OF NEW BUSINESS (AT VALUATION DATE)
South Africa International Total
business
31 March 31 March 31 March 31 March 31 March 31 March
Rm 2005 2004 2005 2004 2005 2004
Life
operations 50,4 65,0 29,8 30,5 80,2 95,5
- Recurring 44,5 62,5 20,3 24,8 64,8 87,3
- Single 3,9 1,2 9,0 4,8 12,9 6,0
- Other 2,0 1,3 0,5 0,9 2,5 2,2
Fund
management - - 4,8 17,6 4,8 17,6
Total 50,4 65,0 34,6 48,1 85,0 113,1
OPERATING SURPLUS
South Africa International Total
business
31 March 31 March 31 March 31 March 31 March 31 March
Rm 2005 2004 2005 2004 2005 2004
Life
operations 133,2 110,2 59,5 45,9 192,7 156,1
Fund
management - - 14,6 21,6 14,6 21,6
Health
operations 19,4 - - - 19,4 -
Total 152,6 110,2 74,1 67,5 226,7 177,7
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 including for the first time the
fair value adjustment for share options; 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, Life Office of Namibia
Limited and Pan Africa Insurance Holdings (Kenya). Other operations have been
taken at net asset value.
Year Year
31 March 31 March
2005 2004
Rm Rm
EMBEDDED VALUE RESULTS
Shareholders` net assets 1 984,1 1 612,5
Fair value adjustments to NAV (165,8) -
Value of in-force 611,1 534,3
Value before cost of capital 747,2 622,7
Cost of capital (136,1) (88,4)
Embedded value at end of period 2 429,4 2 146,8
Capital adequacy requirement (CAR) 834,5 721,1
CAR cover 2,4 2,2
Embedded value per share (rands) 22,76 20,28
EMBEDDED VALUE EARNINGS
Embedded value at end of period 2 429,4 2 146,8
Embedded value at beginning of period (2 146,8) (2 023,1)
Change in embedded value 282,6 123,7
Dividends and share repurchases 79,3 155,4
Share options at fair value 156,5 -
Embedded value earnings 518,4 279,1
These earnings can be analysed as follows:
Roll forward 336,4 171,3
Investment return on free assets after tax 252,3 85,9
Expected return on life business in-force 84,1 85,4
Change over the period 182,0 107,8
Value of new business at end of period 85,0 113,1
Value at point of sale 77,2 104,7
Expected return to end of period 7,8 8,4
Change in assumptions and methodology 17,1 86,9
Experience variations 43,1 (30,9)
Reversal of prior years tax overprovision 45,0 -
Other fair value adjustments to NAV (9,3) -
Additional exchange rate fluctuations and
change in shareholdings 1,1 (61,3)
Total earnings 518,4 279,1
Value of new business at end of period 85,0 113,1
Value at point of sale before cost of capital 106,2 123,5
Cost of capital (29,0) (18,8)
Expected return to end of period 7,8 8,4
The value of new business is derived from new business premium income as shown
below:
NEW BUSINESS PREMIUMS
Recurring premium (API) 365,9 436,0
Single premium 1 001,5 1 318,1
ASSUMPTIONS
The main assumptions used are as follows:
March 2005 March 2004
1. ECONOMIC SA Botswana SA Botswana
assumptions % p.a. % p.a. % p.a. % p.a
Risk discount rate (RDR) 11,9 13,0 13,2 13,5
Overall investment
return (before tax) 10,0 10,4 11,1 11,6
Expense inflation rate 5,4 6,5 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 (0,6) - (0,6)
Expenses and commission (6,9) (0,5) (7,4)
Lapses and surrenders 23,3 (11,4) 11,9
Premium updates 7,7 - 7, 7
Product, data and
methodology changes (7,9) (6,5) (14,4)
Premium collection (5,6) - (5,6)
Other (1,2) - (1,2)
Total operational 8,8 (18,4) (9,6)
Economic 31,8 8,7 40,5
Tax changes (8,3) (5,5) (13,8)
Total 32,3 (15,2) 17,1
2. EXPERIENCE VARIATIONS
Mortality and morbidity 30,2 19,5 49,7
Expenses and commission (15,8) (2,1) (17,9)
Lapses and surrenders (5,8) (5,7) (11,5)
Premium updates 6,0 - 6,0
Premium collection
shortfall (9,6) - (9,6)
Other (6,0) 5,9 (0,1)
Total operational (1,0) 17,6 16,6
Investment return 22,9 3,6 26,5
Total 21,9 21,2 43,1
3. FAIR VALUE ADJUSTMENTS TO NAV
BIHL capitalisation of
costs - (17,8) (17,8)
Other fair value
adjustments - 8,5 8,5
- (9,3) (9,3)
Share options at fair value (149,2) (7,3) (156,5)
Total (149,2) (16,6) (165,8)
COMMENTARY
ENVIRONMENT
The South African economy has maintained good growth on the back of lower
interest rates and higher consumer confidence. In most African countries,
increased democratisation and financial liberalisation have improved the
business environment in which the group markets its products.
While the rand has stabilised somewhat against other African currencies, its
continued strength adversely impacts group results.
ORGANISATION STRUCTURE
The new structure, announced at our interims, has settled down well. The life,
health and fund management divisions are headed by highly competent and
experienced individuals who are committed to best practice within their
divisions and to extracting synergies across the group.
FINANCIAL REVIEW
The group continues to make good progress towards its long-term financial
objectives.
A satisfactory operational performance and the reduced tax charge disclosed at
the interim results contributed to a 36% increase in headline earnings to R258,9
million (2004: R191,1million). Headline earnings per share increased by 37% to
244,2cents per share (2004: 178,4 cents per share).
The group achieved a 28% growth in operating profit to R226,7million (2004:
R177,7 million). Life operations performed ahead of expectations, recording no
material negative experience variations. African Life Health (ALH) made a
welcome R19,4 million contribution. Fund management contributed R14,6 million
(2004: R21,6 million).
While the recovery trend in recurring premium sales in South Africa is evident,
the rate of that recovery has been slower than expected and this has contributed
to a 26% decline in group embedded value of recurring new business to R64,8
million. However, recurring premium new business margin, even using the group`s
conservative basis of calculation, was a healthy 17%. The embedded value of
single premium new business in the period under review did not benefit from any
significant new allocation of Botswana government pension fund assets.
The value of in-force has continued its impressive growth trend with a 14%
increase over the review period. Total embedded value increased 20% since the
previous period after transactions with shareholders of R79,3 million ,but
before a fair value adjustment of R156,5 million for BEE and management share
options. The return on opening embedded value over the review period was 24%.
The Group is in the process of converting to International Financial Reporting
Standards (IFRS) and will be compliant from 1 April 2005.
The disclosure required in terms of PGN107 is available at
www.africanlifegroup.com.
FINANCIAL SECTOR CHARTER AND BEE
The group is committed to the objectives of the Financial Sector Charter. The
delay in the finalisation of targets is regrettable but the group will continue
to pursue its own ambitious BEE objectives to long-term business benefit. The
group has an important role to play in providing access to affordable financial
services to lower-income earners. It is hoped that increasing regulatory costs
will not hinder the fulfilment of this role.
The BEE shareholding transaction with a grouping comprising Mvelaphanda and
business partners was completed during the review period and regular
communication between all parties has since been a feature.
Empowerment is also a feature of our operations outside South Africa, where the
group actively seeks local shareholders who can assist management through their
knowledge of local sensitivities, nuances and opportunities.
LIFE
The South African life operation reported a satisfactory operating performance
as it positioned itself within an environment characterised by new regulations,
increased competition and lower interest rates.
Recurring premium new business was 88% of the previous year but has shown an
improving trend throughout the year. This trend is expected to continue. Single
premium new business more than doubled despite the lower interest rate
environment.
Over the review period, recurring premium income increased 8% to R1070,6
million. It is expected that the unprecedented removal of HIV/Aids limitations
for existing as well as new customers will enhance customer retention and reduce
service costs. Policy benefits were in line with expectation but impacted by a
R827 million single premium maturity of a PIC investment policy.
The company`s thorough preparation for the Financial Advisory and Intermediary
Services (FAIS) Act has facilitated a change in approach to intermediary
management. The pursuit of appropriately qualified and highly productive
intermediaries may have affected sales in the short term, but will undoubtedly
lead to improved intermediary and customer retention in the long term - to the
benefit of all.
New business volumes in Botswana increased by 7%, reflecting the opportunities
still available in that market. A deterioration in late duration lapses,
ascribed to the economic environment, was the only material negative influence
on what was otherwise a solid operating performance.
New business margin remained strong and operating profit contributed R60,2
million, indicating the operations` importance to group results.
The Namibian operation increased its operating profit contribution 29% to R4,6
million.
The Kenyan operation enjoyed good new business and premium income growth with
positive profit and embedded value contributions. Embedded value of R39,4million
and healthy new business margins provide evidence of the potential of this
operation.
The Ghanaian operation is performing very well and the group is looking at ways
in which it can accelerate its expansion in Ghana. Recurring premium new
business and file size grew by 149% and 186% respectively, over the period.
A much-improved business environment in Zambia should see a better performance
from the Zambian operation after a disappointing 2005.
Towards the end of the review period, African Life Tanzania was launched in Dar
es Salaam to much local fanfare. This is a greenfield operation.
HEALTH
In South Africa, despite the changing and challenging healthcare environment,
ALH has pursued the considerable opportunities available in that environment.
Membership increased to 55000 members over the period. ALH`s free rewards
programme was enthusiastically received by members and will become an
increasingly important part of our offering.
Preparation for the Lesotho government employees` medical scheme, which ALH was
chosen to set up and administer, is substantially complete and data migration of
the 45000 members has commenced. Clients from the private sector have also been
acquired.
ALH Botswana has acquired private sector clients for its Botsogo Health Plan.
During the period, ALH won the open government three-year tender to provide
medical cover for approximately 7000 Batswana students studying in South Africa.
In Kenya, Amini, the joint venture between ALH and associate company APA
Insurance, broke even in its first year of operation.
Total principal membership at ALH stood at 75000 at the end of the reporting
period, covering some 200000 lives.
No fair value adjustment has been made to the group`s investment in ALH although
it is anticipated that the fair value will exceed the group`s total investment
in ALH of R100 million.
FUND MANAGEMENT
Work commenced to position fund management for the opportunities that are
undoubtedly available across Africa as a result of financial liberalisation.
Assets under management increased to R9,8 billion (2004: R7,9 billion).
The group`s fund management activities are currently dominated by the Botswana
operation (BIFM), where client retention during the period was successful
despite increased competition from South African companies. BIFM has a highly
competent Motswana executive team - providing evidence of our commitment to
localisation.
As mentioned at the half-year, segregated portfolios were set up for certain
funds and these have been accounted for off balance sheet. These funds remain
under our management.
In Zambia, the fund management operation enjoyed a good year, increasing
operating profit by 31%.
PROSPECTS
Good progress has been made in building on the foundations put in place over
recent years.
The business environment, in all the African countries in which we operate, is
expected to facilitate market demand for our product offerings.
The upward growth trend in life new business is expected to continue in South
Africa. Health operations are expected to grow off the solid base set in the
2005 financial year. Continued growth is expected in contributions from all
operations outside South Africa.
We are determined to further improve the value proposition to our customers and
provide better returns to our shareholders.
AUDIT OPINION
The financial information and embedded value results have been audited by
PricewaterhouseCoopers Inc. whose unqualified audit opinion is available for
inspection at the Group`s registered office.
DIRECTORATE
Mrs Margaret Dawes was appointed Executive Director: Finance on 11 February
2005. Mr Craig Lyons was appointed alternate director to Mr Mikki Xayiya on 23
February 2005.
DIVIDEND
A final dividend (number 33) of 63,5 cents per ordinary share has been declared
for the financial year ended 31 March 2005, bringing the total dividend for the
year to 106,0 cents per share (2004: 84,5cents per share). The dividend is
payable to shareholders of ordinary shares recorded in the books of the company
at the close of business on Friday, 1 July 2005, 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 Friday, 24 June 2005
Ordinary shares trade `ex` dividend Monday, 27 June 2005
Record date Friday, 1 July 2005
Payment date Monday, 4 July 2005
Share certificates may not be dematerialised or rematerialised between Monday,
27 June 2005 and Friday, 1 July 2005, both days inclusive.
For and on behalf of the Board
Sipho Nkosi Jeremy Rowse
Non-executive Chairman Chief Executive
7 June 2005
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), M MDawes (Mrs), C T Harding, W A Jack, J D
Krige, T K S Letlape, C Lyons (Alt.), M Mbekeni (Ms), W T Roos, T A Wixley,
M Xayiya
www.africanlifegroup.com
Date: 07/06/2005 08:00:33 AM
Produced by the JSE SENS Department
