Alexander Forbes Group Holdings Limited · JSE:AFH
Alexander Forbes — FY2003 Earnings Presentation
39 slides from Alexander Forbes's earnings presentation, Mar 31, 2003
Slide 1: Results to 31 March 2003
Results to 31 March 2003
Slide 2: Financial highlights
Financial highlights Strong trading results in tough environment • Trading profit R1,054 bn • Trading profit increase + 19% • Revenue + 15% • Core EPS + 14%
Slide 3: Factors affecting results
Factors affecting results • Difficult trading environment in many areas - Indemnity insurance costs - Dollar weakness - Weak global markets - Lower interest rates (UK) - Lack of insurance capacity in some markets - Disappointing performance of associates - Rand strength • Some positive offsets - Har
Slide 4: Alexander Forbes Group structure
Alexander Forbes Group structure Africa Africa Risk Financial Services Services Investment Solutions International UK Risk Financial Services Services
Slide 5: Revenue analysis
Revenue analysis 2003 Increase 2002 Rm Rm Africa 1 968 (40%) 10% 1 790 (42%) International 2 912 (60%) 19% 2 449 (58%) Total 4 880 (100%) 15% 4 239 (100%)
Slide 6: Alexander Forbes Africa
Alexander Forbes Africa Africa Africa Risk Financial Services Services Investment Solutions International UK Risk Financial Services Services
Slide 7: Operational review - Africa
Operational review - Africa 2003 2002 Trading profit Rm Increase Rm Risk Services 172 25% 138 Financial Services 208 15% 181 Investment Solutions 160 12% 143 Total 540 17% 462
Slide 8: Africa
Africa • Risk Services - Modest revenue gain - Strong growth in profit - Strong turn around in Personal Services - Disciplined management - Benefit from harder insurance market • Financial Services - Healthy growth in revenue and margin - Operating environment remains competitive - Good new business
Slide 9: African associates
African associates • Medscheme - Disappointing performance - New management implementing positive change • Thebe Risk & Benefits - Sold for total consideration of R48m - Effective date - 31 March 2003 - Subject to conditions precedent
Slide 10: Strategic developments - Africa
Strategic developments - Africa • Empowerment transaction implemented (30% shareholding) - Empowerment consortium headed by MCI - Broad-based participation through AF Community Trust - Benefits already being realised - Effective date – 31 March 2003 - Expected 7-year earn-out • SA board restructured
Slide 11: Alexander Forbes Community Trust
Alexander Forbes Community Trust • 5% equity stake in Alexander Forbes South Africa • Beneficiaries - Aged - HIV/Aids - Education - Disabled - Women • Initial cash injection
Slide 12: Investment Solutions
Investment Solutions Africa Africa Risk Financial Services Services Investment Solutions International UK Risk Financial Services Services
Slide 13: Investment Solutions - financial highlights
Investment Solutions - financial highlights Mar Mar 2003 Increase2002 Revenue (Rm) 450.312% 400.4 Operating profit (Rm) 159.812% 143.3 Pre-tax profit (Rm) 195.915% 170.5 Headline earnings (Rm) 144.921% 120.0 Closing assets (Rbn) 46.61% 46.2 Average assets (Rbn) 46.015% 40.0
Slide 14: Embedded value
Embedded value • Present value of projected future post-tax profits from existing business plus shareholder assets Mar 2003 Mar 2002 Rm Rm Net value of inforce business 1,4991,528 Shareholder assets 352278 Embedded value 1,8511,806 Embedded value of 12 months new business 238246 Embedded value per s
Slide 15: Highlights of the year
Highlights of the year • Average asset growth - Continued new business success - Healthy ongoing cashflow • Product enhancements continue • Large fund successes • Black empowerment - IS delisted to form part of Alexander Forbes’ strategy - No impact on operations and branding of IS • Scrip lending n
Slide 16: UK developments
UK developments • Purchase of Schroder Pensions Group with LCP - Renamed as Investment Solutions Group - Approval granted by FSA - Providers of integrated services to UK pension fund market - £90 million assets under management - 48 institutional and over 8000 individual members - 45 new staff membe
Slide 17: Alexander Forbes International Operations
Alexander Forbes International Operations Africa Africa Risk Financial Services Services Investment International UK Solutions Risk Financial Services Services
Slide 18: Operational review - International
Operational review - International 2003 2002 Trading profit Rm Increase Rm Risk Services 301 25% 241 Financial Services 78 28% 61 Investment Solutions – – Direct Marketing 135 13% 120 Total 514 22% 422
Slide 19: Operational review - International
Operational review - International 20032002 Trading profit RmIncrease Rm Risk Services 30125% 241 - UK & Europe 26511% 239 - Latin America 15183% (18) - Asia 215% 20 Financial Services 7828% 61 - LCP 51 – - IFA 27(56%) 61
Slide 20: International
International • Risk Services - Benefit from harder insurance market (some capacity constraints) - Negative impact of Dollar weakness and low interest rates - Significant success in Professional Indemnity area - Positive developments in UK Retail - Turnaround in Argentina • Financial Services - LCP
Slide 21: International (cont.)
International (cont.) • Direct Marketing - Exploring alternate providers for MIS - Reduced marketing spend benefits current year results - ADB doubles policy count • Investment Solutions (Schroder’s acquisition) - Imminent launch of Investment Solutions completes business model in UK
Slide 22: International acquisition issues
International acquisition issues • LCP acquisition - Leading actuarial consultancy firm - Results on plan • Investment Solutions (Schroder’s acquisition) - DC admin capability - Development of specialist products • National Britannia - Reasonable revenue, but profit behind plan - Accelerated write-o
Slide 23: Analysis of financial results
Analysis of financial results Mike Ilsley
Slide 24: Financial results
Financial results 2003 2002 Rm Increase Rm Revenue from operations 4,880 15% 4,239 Net operating expenses (3,930) (3,457) Operating profit 950 21% 782 Operational interest income 104 102 Trading profit 1,054 19% 884 Trading profit ratio 22% 21% Operating profit ratio 19% 18%
Slide 25: Profitability ratios
Profitability ratios 25% 22% 21% 20% 20% 19% 18% 18% 17% 16% 15% 15% 12% 10% 1999 2000 2001 2002 2003 Operating profit ratio Trading profit ratio
Slide 26: Attributable core earnings
Attributable core earnings 2003 2002 Rm Increase Rm Trading profit 1,054 19% 884 Net finance costs (115) (64) Profit before associates 939 15% 820 Associates 29 61 Profit 968 10% 881 Tax* (291) (268) Minority interests** (75) (83) Core earnings 602 14% 530 (*excludes taxation of non-trading items) (
Slide 27: Effective tax rate
Effective tax rate 2003 2002 Rm Rm Effective tax rate on headline earnings 25.9% 30.3% - Tax per income statement 221 315 - Tax on unrealised currency loss / (gain) 33 (47) - Permanent tax saving 37 - Tax on core earnings 291 268 Effective tax rate on core earnings 30.1% 30.4%
Slide 28: Earnings per share
Earnings per share 2003 2002 cents Increasecents Core EPS 174.014% 153.2 Unrealised currency loss / (gain) (33.2)45.4 - Tax thereon 9.5(13.6) - Permanent tax saving 10.7− Headline EPS 161.0(13%) 185.0 Add: Goodwill and other capital items (41.6)(24.6) EPS 119.4(26%) 160.4
Slide 29: Headline adjusting items per share
Headline adjusting items per share 2003 2002 cents cents Goodwill amortisation (30.1) (24.3) Rodobens write-off (5.5) − National Britannia accelerated amortisation (9.0) − Sale of Thebe Risk & Benefits 4.9 − Medscheme write-down (1.7) − Other (0.2) (0.3) Total headline adjustments per share (41.6) (
Slide 30: Gearing and interest cover
Gearing and interest cover 20032002 RmRm Long term liabilities (a) 2,5032,153 Equity before goodwill effects (b) 2,7922,448 Gearing (a) / (b) 90%88% Trading profit (c) 1,054884 Net finance costs (d) 11564 Interest cover (c) / (d) 9 times14 times
Slide 31: Return on equity
Return on equity Inter- Africanational Total Profit before non-trading items 563405 968 Tax thereon (161)(130) (291) Minority interests (47)(28) (75) Attributable core earnings 355247 602 Ordinary shareholders funds (before goodwill effects) - Closing 1,929868 2,797 - Average 1,845777 2,622 Return o
Slide 32: Cash flow
Cash flow 2003 2002 Rm IncreaseRm Cash from operations 1 27132% 966 Tax and dividends paid (602)(339) Cash from fiduciary activities - Change in insurer balances (472) (37) - Refund of vendor loan notes (554)- Cash invested - Subsidiaries and associates (1 352)(244) - Other (215)(416) Cash from fina
Slide 33: Cash position
Cash position Inter- Africa nationalTotal Cash per balance sheet 4631,902 2,365 Utilisation: • Insurer balances (207)(830) (1,037) • Loan note deposits (66) (66) • Other net current liabilities and solvency requirements (137)(831) (968) Cash available 119175 294 Refinancing of premium finance receiv
Slide 34: Shareholders and strategy
Shareholders and strategy Rael Gordon
Slide 35: Shareholding at 31 March 2003
Shareholding at 31 March 2003 5% Share Trusts 8% RMB 8% Genesis (total 16%) 10% Old Mutual 8% Other - Non SA 11% Coronation 22% Other - SA 14% Stanlib 14% Sanlam
Slide 36: Prospects (Africa)
Prospects (Africa) • Empowerment positioning creates additional opportunity across all business lines • Financial Services - Surplus legislation - Client gains • Risk Services - Hard market - New products and services - Continued efficiency gains • Investment Solutions - Continued new business focus
Slide 37: Prospects (International)
Prospects (International) • Risk Services - Focus on efficiency in each business - More stable insurance market - Continued opportunity in Professions - New management in Retail • Financial Services - LCP performing well - CTC and bureau rationalisation largely complete - Significant sales successes
Slide 38: The future
The future • Strategic positioning unchanged - Independent, fast growing provider of financial and risk services with niche dominance in selected regions and business areas • Organic growth - New revenue - Efficiency gains • Selectively target acquisitions • Simpler structure and presentation - With
Slide 39: Thank you
Thank you
Alexander Forbes Group Holdings — FY2003 Earnings Presentation on 6ix