New Africa Capital Ltd - GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002
JSE code: NAC - NSX CODE: NWC - ISIN NO. ZAE000033361
NEW AFRICA CAPITAL FINANCIAL SERVICES GROUP
GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002
Embedded value of life insurance new business +172%
Recurring premium new business +33%
Core headline earnings per share +5%
Dividend per share +9%
Enviable positive cash flow from clients +R2.8 billion
DIRECTORS" STATEMENT
The directors take pleasure in presenting the audited, unqualified annual
financial statements of the New Africa Capital Financial Services Group for the
year ended 31 December 2002.
The consolidated financial statements are prepared in accordance with the
provisions of the South African Companies Act and the Long-term Insurance Act
and comply with South African Statements of Generally Accepted Accounting
Practice (GAAP); guidelines issued by the Actuarial Society of South Africa; and
the disclosure requirements of the JSE Securities Exchange South Africa (JSE).
Presentation of financial statements
The consolidated financial statements are prepared on the fair value and going
concern bases. The principal accounting policies are consistent with those
applied at 31 December 2001, with the exception of new accounting policies
adopted in order to comply with new Statements of GAAP and a change in the
accounting policy for earnings.
AC133 and core headline earnings
In 2001 the group elected early adoption of AC 133, with the effect that capital
appreciation on available for sale assets was accounted for through the income
statement and included in earnings, but excluded from headline earnings. In
December 2002 SAICA, in conjunction with the JSE, issued Circular 7/2002
defining headline earnings which does not allow adjustments for capital
appreciation, deferred tax on capital appreciation (CGT), investment variances
or actuarial basis changes. This definition, which differs from that used in
previous reporting periods, became applicable immediately. The current
calculation for headline earnings complies with SAICA Circular 7/2002.
Core headline earnings comprise operating profit and investment income on
shareholder assets (ie what was disclosed as headline earnings in previous
reports). Capital appreciation, deferred tax on capital appreciation (CGT),
investment variances and actuarial basis changes are excluded, as these items
are volatile. Core headline earnings therefore presents a more meaningful and
stable earnings figure, and is directly comparable to the figures disclosed in
previous reports.
There is also currently a debate, both internationally and locally, questioning
whether policyholder liabilities, valued on the financial soundness valuation
(FSV) basis, represent fair value. The directors are of the opinion that until a
reasonable solution has been found, the FSV basis of valuing these liabilities,
as applied within the New Africa Capital group, represents fair value.
New Statements of GAAP
During the year the group adopted AC135 (investment property).
Change in accounting policy for earnings
Life company earnings, as disclosed in 2001, comprised operating profit,
investment income and capital appreciation on shareholder assets. This policy
has been changed retrospectively to include basis changes, excluding those in
the 90:10 fund, as part of earnings. The change had a positive R85 million
effect on net profit for 2001. There was no effect on tax or minorities.
Corporate activity
* The entire long-term insurance business of Commercial Union Life Assurance
Company of South Africa Limited was transferred to Metropolitan Life Limited
with effect from 1 January 2002. The fund is ring-fenced and the 90:10 licence
is still applicable.
* A 17.5% stake in Metropolitan Life (Namibia) Limited was sold to a Namibian
empowerment consortium (Pinnacle), with effect from 1 November 2002, through a
loan finance structure. A staff share trust was created for the staff of
Metropolitan Life (Namibia) Limited. These transactions reduced New Africa
Capital"s holding in the Namibian company from 100% to 80.2%.
* Ovation Global Investment Services (Pty) Limited was sold with effect from
30 November 2002.
* The group increased its holding in Metropolitan Health Corporate (Pty)
Limited by 19.9% to 98.5% with effect from 1 January 2002.
REVIEW OF OPERATIONS AND PROSPECTS
The past year saw pleasing improvements in all areas of the group"s operational
performance. However, the decline in investment markets and the volatility of
the rand dampened the overall results. Market conditions reinforced the need for
the group"s smoothed bonus products. The group continued to increase the flow of
new business and once again delivered a positive cash flow from clients. An
increase of 17% in the annual premium equivalent (APE) can be largely attributed
to solid growth in new recurring business premium income from both individual
life and employee benefits, despite a decline in single premium income. Overall
persistency has continued to improve. The embedded value of life insurance new
business grew by 172% to R68 million, resulting in improved profit margins.
However, the directors acknowledge that more work is needed to improve these
margins still further.
Administration expenses, in both life and administration companies, were lower
than in the previous year, and the board is satisfied that these cost reductions
are of a permanent nature.
All four business clusters in the group contributed positively and showed
improved operating profits over 2001 despite an overall increase of 41% in tax
paid. Net after-tax investment income was, however, significantly lower, mainly
as a result of a 223% increase in the tax charge.
Despite unsatisfactory investment returns reducing the group"s net asset value,
the group remains in a strong capital position with 2.9 times cover of the
minimum capital adequacy requirement.
During 2002 the economic conditions under which NAC operated continued to show
signs of improvement. The main underlying factors were decreases in individual
personal income tax and real increases in salaries. These improvements have
continued into 2003. NAC recently made significant changes to its operating
structures. It is the largest long-term financial services group in Southern
Africa focused on the low and middle income markets. The benefits of these
changes are starting to show in the results. However, improved investment
returns remain critical to satisfactory long-term performance, and are receiving
continued attention from the board and management. The board is confident that
the operational improvements delivered in 2002 will continue into 2003, and will
be enhanced by NAC"s commitment to black economic empowerment as a socio-
economic imperative.
Share buy-back
Metropolitan Life Limited, a wholly owned subsidiary of New Africa Capital
Limited, acquired 13 million (2001: 28 million) New Africa Capital shares. The
41 million treasury shares held at year-end have been deducted from
shareholders" capital. The total shareholding currently held by subsidiary
companies, through policyholders" and shareholders" funds, is 10%.
In addition, New Africa Capital acquired and cancelled 20 million shares during
the year. The total amount paid to acquire these shares has also been deducted
from shareholders" capital.
CORPORATE GOVERNANCE
The board has satisfied itself that locally recognised principles of corporate
governance were applied throughout the group for the year under review.
Additional governance recommendations, as set out in the second King report, are
currently being addressed and implemented.
Directorate changes and directors" shareholding
Mr P C Lamprecht was appointed to the board with effect from 1 May 2002; no
further changes have been made to the directorate since 31 December 2001. During
2002, 1 120 000 unlisted shares were allocated to executive directors as part of
the share purchase scheme allocation to staff. All transactions in listed shares
involving directors were disclosed on SENS as required.
CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The group had no material capital commitments at 31 December 2002.
The group is party to legal proceedings in the normal course of business, and
appropriate provisions are made when losses are expected to materialise.
POST BALANCE SHEET EVENTS
No material post balance sheet events occurred between the balance sheet date
and the date of approval of the annual financial statements.
DIVIDEND DECLARATION
The dividend policy approved by the directors, and consistent with prior years,
is to provide shareholders with stable dividend growth while allowing the
dividend cover to fluctuate. In declaring the 9% increase in the dividend, the
board took into consideration the strong capital position of the group and the
good operational performance for the year, as well as the extremely volatile
investment markets.
A final dividend of 20.50 cents per share has been declared for 2002, giving a
total dividend for the year of 38.00 cents and resulting in a dividend cover of
1.5 times calculated on core headline earnings. This dividend is payable to
holders of ordinary shares recorded in the register of the company at the close
of business on Friday, 4 April 2003 and will be paid on Monday, 7 April 2003.
The last day to trade "cum" dividend will be Friday, 28 March 2003. The shares
start trading "ex" dividend from the commencement of business on Monday, 31
March 2003. Share certificates may not be dematerialised or rematerialised
between Monday, 31 March and Friday, 4 April 2003, both days inclusive.
A special dividend of R41 million (2001: R33 million) was declared to
participants in the share purchase scheme, while participants in the share
incentive scheme received the same dividend as ordinary shareholders.
Where applicable, dividends in respect of certificated shareholders will be
transferred electronically to shareholders" bank accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
shareholders.
The directors are unanimously of the opinion that, for the 12 months after the
date of the declaration:
* the company will be able to pay its debts as they become due in the
ordinary course of business
* the consolidated assets of the company, fairly valued in accordance with
Generally Accepted Accounting Practice, will, after the dividend payment, not be
less than the consolidated liabilities of the company.
AUDIT OPINION
The auditors, Ernst & Young and PricewaterhouseCoopers Inc, have issued their
opinions on the group financial statements for the year ended 31 December 2002.
A copy of their unqualified report is available for inspection at the company"s
registered office.
Signed on behalf of the board
Gloria Tomatoe Serobe Group chairman
Peter Doyle Group chief executive
Cape Town
11 March 2003
Registration number: 2000/031756/06 Registered office: 7 Parc du Cap,
Mispel Road, Bellville 7535
Transfer secretaries: Computershare Investor Services Limited (Registration
number 1958/003546/06), 70 Marshall Street, Johannesburg, 2001, PO Box 61051
Marshalltown 2107
JSE code: NAC - NSX CODE: NWC - ISIN NO. ZAE000033361
Directors: Gloria Tomatoe Serobe (group chairman), Peter Doyle (group chief
executive), Abel Sithole (executive), Preston Speckmann (executive),
Ntuthukoyezwe Buthelezi, Irene Charnley, Prof Willie Esterhuyse, Dr Ian Goldin,
Peter Lamprecht, Syd Muller, John Newbury, Moss Ngoasheng, Marius Smith, Dr
Franklin Sonn, Johan van Reenen, Sandile Zungu
Secretary: Bongiwe Gobodo-Mbomvu
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 1: CONSOLIDATED INCOME STATEMENT 2002 2001
Rm Rm
Income from insurance business (table 6) (236) 674
Income from administration business (note 3) 66 43
Income from holding company (note 4) (135) 2
Income before goodwill and tax (305) 719
Goodwill amortised (52) (42)
Income before tax (357) 677
Shareholders" tax paid (25) (198)
Income after tax (382) 479
Outside shareholders" share of profit (3) (9)
Earnings (385) 470
Goodwill amortised 52 42
Headline earnings (333) 512
Capital depreciation / (appreciation) on 874 (172)
excess
Deferred tax - CGT (145) 124
Basis changes and investment variances (18) (85)
Core headline earnings (note 5) 378 379
Core headline earnings per share (cents) 55.26 52.49
Headline earnings per share (cents) (48.68) 70.91
Earnings per share (cents) (56.29) 65.10
Weighted average number of shares in issue 684 722
(million)
Dividend per ordinary listed shares (cents)
Interim 17.50 15.50
Final 20.50 19.50
Total 38.00 35.00
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 2: CONSOLIDATED REVENUE ACCOUNT - 2002 2001
LONG-TERM INSURANCE Rm Rm
Revenue 5 593 10 350
Premium income (note 1) 6 824 7 009
Investment return (1 231) 3 341
Investment income 1 898 2 324
Realised and unrealised changes in market (3 129) 1 017
value of investments
Outgo 6 287 5 857
Policyholders" benefits paid (note 2) 4 921 4 500
Sales and distribution costs 642 575
Administration expenses 707 738
Policyholders" tax paid 17 44
Revenue less outgo (694) 4 493
TABLE 3: CONSOLIDATED BALANCE SHEET 2002 2001
Rm Rm
ASSETS
Non-current assets
Investment assets 30 279 31 801
Equipment 126 147
Intangibles 97 71
Goodwill 389 375
Deferred tax 40 7
Current assets 1 468 1 425
Total assets (note 7) 32 399 33 826
EQUITY AND LIABILITIES
Capital and reserves (table 4) 4 329 5 101
Outside shareholders" interest 52 83
Non-current liabilities 26 610 27 172
Long-term insurance fund 26 600 27 048
Deferred tax 10 124
Current liabilities 1 408 1 470
Total equity and liabilities 32 399 33 826
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 4: CONSOLIDATED STATEMENT OF CHANGES IN 2002 2001
EQUITY Rm Rm
Shareholders" equity at beginning of year 5 101 2 335
Changes in share capital (86) 1 709
Shares issued in terms of scheme arrangement - 1 839
Issue of share capital to staff schemes - -
Share premium on new issue 174 128
Share issue costs written off - (24)
Treasury shares acquired (110) (234)
Shares acquired and cancelled (150) -
Changes in distributable reserve (705) 1 036
Dividend in specie - (1 839)
Transfer from long-term insurance fund - 2 534
Transfer to foreign currency translation - (21)
reserve
Revaluation of owner-occupied properties (33) -
Earnings (385) 470
Dividend (287) (108)
Changes in foreign currency translation reserve (14) 21
Transfer from distributable reserve - 21
Currency translation difference (4) -
Transfer to long-term insurance fund (10) -
Change in non-distributable reserve 33 -
Revaluation of owner-occupied properties 33 -
Shareholders" equity at end of year (table 3) 4 329 5 101
TABLE 5: CONSOLIDATED CASH FLOW STATEMENT 2002 2001
Rm Rm
Net cash inflow from operating activities 2 061 3 340
Net cash outflow from investing activities (1 737) (2 576)
Net cash outflow from financing activities (86) (130)
Net cash flow 238 634
Cash resources and funds on deposit at beginning
of year 3 125 2 491
Cash resources and funds on deposit at end of
year 3 363 3 125
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 6: STATEMENT OF ACTUARIAL VALUES OF ASSETS 2002 2001
AND LIABILITIES Rm Rm
Total assets per balance sheet (table 3) 32 399 33 826
Current liabilities and deferred tax per balance
sheet (1 418) (1 594)
Outside shareholders" interest per balance sheet (52) (83)
Net assets - group 30 929 32 149
Actuarial liabilities under unmatured policies (25 857) (26 200)
Excess - NAC group (table 7; note 8) 5 072 5 949
Net assets - non-insurance (984) (1 210)
Excess - insurance business 4 088 4 739
Change in excess of assets over liabilities -
insurance business (651) (1 415)
Increase in share capital (7) (128)
Dividend paid 313 1 946
Foreign currency translation reserve 5 -
Total surplus arising during year (340) 403
Operating profit 246 191
Investment income on group excess 137 202
Basis and other changes 61 (148)
Investment variance (85) -
Capital (depreciation)/appreciation on group (699) 158
excess
Surplus arising (90:10 fund) 117 64
Shareholder earnings (90:10 fund) (12) 46
Consolidation adjustments (21) (10)
Net profit from insurance business (256) 503
Shareholders" tax paid 5 171
Goodwill amortised 15 -
Income from insurance business (before goodwill
and tax) (table 1) (236) 674
Capital adequacy requirement 1 726 1 397
Capital adequacy multiple (NAC group excess) 2.9 4.3
Second-tier margins 1 078 1 231
NEW AFRICA CAPITAL GROUP RESULTS
The current capital depreciation on the group excess includes R43 million
relating to the 2001 year. In addition, the current basis changes include R33
million relating to the same year. The income from insurance business is
therefore reduced by R76 million. Current earnings and headline earnings are
similarly reduced, but there is no impact on the disclosed core headline
earnings for the current or prior years. Investment variances reflect the impact
of actual returns on the value of future expense recoveries.
NOTE 1 - PREMIUM INCOME 2002 2001
Rm Rm
Recurring premiums 4 332 4 087
Individual life 3 270 3 022
Employee benefits 1 278 1 173
Re-insurance (216) (108)
Single premiums 2 492 2 922
Individual life 930 1 052
Employee benefits 1 562 1 870
Total (table 2; note 6) 6 824 7 009
Metropolitan Life Ltd 5 997 5 913
Metropolitan Odyssey Ltd 333 329
CU Life Assurance Company of SA Ltd - 359
Metropolitan Life (Namibia) Ltd 313 296
Metropolitan Life of Botswana Ltd 181 112
6 824 7 009
NEW AFRICA CAPITAL GROUP RESULTS
NOTE 2 - POLICYHOLDERS" BENEFITS PAID 2002 2001
Rm Rm
Individual life 2 537 2 432
Death and disability claims 661 634
Maturity claims 603 515
Annuities 378 325
Surrenders 935 983
Re-insurance recoveries (40) (25)
Employee benefits 2 382 2 068
Death and disability claims 342 287
Maturity claims 141 230
Annuities 199 89
Withdrawal benefits 339 247
Terminations 1 423 1 252
Re-insurance recoveries (60) (37)
Total (table 2; note 6) 4 921 4 500
Metropolitan Life Ltd 4 468 2 890
Metropolitan Odyssey Ltd 228 210
CU Life Assurance Company of SA Ltd - 1 202
Metropolitan Life (Namibia) Ltd 180 163
Metropolitan Life of Botswana Ltd 45 35
4 921 4 500
NOTE 3 - INCOME FROM 2002 2001
ADMINISTRATION BUSINESS
(before tax, goodwill and outside
shareholders)
Revenue Expenses Total Total
Rm Rm Rm Rm
Health administration 286 (255) 31 26
Asset management 116 (81) 35 17
Total income from administration
business (table 1) 402 (336) 66 43
NEW AFRICA CAPITAL GROUP RESULTS
NOTE 4 - INCOME FROM HOLDING COMPANY 2002 2001
(before tax)
Rm Rm
Investment income 35 4
Realised and unrealised changes in market value of
investments (146) 2
Administration expenses (24) (4)
Total income from holding company (table 1) (135) 2
NOTE 5 - ANALYSIS OF CORE HEADLINE EARNINGS 2002 2001
Rm Rm
Corporate business 94 88
Operating profit 132 115
Tax (38) (27)
Retail business 170 128
Operating profit 206 159
Tax (36) (31)
International business 13 (12)
Operating profit 16 (12)
Tax (3) -
Metropolitan Health Group 22 17
Operating profit 28 18
Tax (6) (1)
Shareholders" equity 79 158
Holding company expenses (24) (4)
Investment income on shareholder assets 145 175
Income tax on investment income (42) (13)
Core headline earnings (table 1) 378 379
NEW AFRICA CAPITAL GROUP RESULTS
NOTE 6 - FUNDS RECEIVED FROM Gross Gross Net Net
CLIENTS inflow outflow inflow inflow
2002 2001
Rm Rm Rm Rm
Metropolitan 5 997 (4 468) 1 529 3 030
Life 3 416 (2 176) 1 240 1 450
Employee benefits 2 721 (2 369) 352 1 592
Re-insurance (140) 77 (63) (12)
Odyssey 333 (228) 105 119
Commercial Union Life - - - (843)
Namibia 313 (180) 133 133
Botswana 181 (45) 136 77
Total premiums / claims
(note 1; note 2) 6 824 (4 921) 1 903 2 516
Health administration 3 608 (3 369) 239 359
Asset management 3 761 (3 884) (123) 1 417
EB segregated annuities 805 - 805 -
Total funds received 14 998 (12 174) 2 824 4 292
NOTE 7 - ASSETS UNDER MANAGEMENT 2002 2001
Rm Rm
Investment assets 30 279 31 756
Strategic investments - 45
Goodwill 389 375
Equipment and intangibles 223 218
Current assets and deferred tax 1 508 1 432
Total on-balance sheet assets (table 3) 32 399 33 826
Unit trusts 1 393 1 020
Health administration 1 281 1 603
Ovation - 1 018
Metropolitan Asset Managers 3 649 4 370
EB segregated assets 805 -
Total assets under management 39 527 41 837
NEW AFRICA CAPITAL GROUP RESULTS
NOTE 8 - ANALYSIS OF ASSETS BACKING NAC 2002 2001
GROUP EXCESS
Rm % Rm %
Listed equities 2 253 52.0 2 488 48.8
Foreign investments 599 13.8 1 298 25.5
Properties 432 10.0 326 6.4
Fixed interest 384 8.9 241 4.7
Money market 166 3.8 223 4.4
Intangibles 390 9.0 446 8.7
Other assets 106 2.5 79 1.5
Group net asset value 4 329 100.0 5 101 100.0
Surplus in 90:10 fund 743 848
Excess - NAC group 5 072 5 949
TABLE 7: EMBEDDED VALUE 2002 2001
Rm Rm
Excess - NAC group (table 6) 5 072 5 949
Adjustments for:
Asset management (table 16) 139 130
Metropolitan Health Group (table 16) 43 52
New Africa Capital expenses (163)
Surplus in 90:10 fund and goodwill (927) (1 001)
Adjusted net asset value 4 164 5 130
Net value of in-force business 2 159 2 423
Individual life 1 745 1 977
Gross value of in-force business 1 860 2 090
Less: Cost of capital (115) (113)
Employee benefits 414 446
Gross value of in-force business 538 570
Less: Cost of capital (124) (124)
Embedded value 6 323 7 553
Embedded value per share (cents) 911 1 079
Adjusted net asset value per share (cents) 600 733
Number of shares in issue (million) 694 700
(net of 41 million treasury shares;
2001: 28 million)
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 8: EMBEDDED VALUE PER Net Value of 2002 2001
COMPANY asset in-force Total Total
value
Rm Rm Rm Rm
Metropolitan Life Ltd 2 866 1 949 4 815 5 362
Metropolitan Odyssey Ltd 108 102 210 236
CU Life Assurance Company of SA
Ltd 290 - 290 396
Metropolitan Life (Namibia) Ltd 128 100 228 210
Metropolitan Life of Botswana Ltd
60 38 98 110
Metropolitan Health Group 292 43 335 330
Asset management 59 139 198 209
New Africa Capital (after
consolidation adjustments) 526 (193) 333 853
Goodwill (184) - (184) (153)
Total embedded value 4 145 2 178 6 323 7 553
Adjustment for surplus in 90:10
fund and goodwill (table 7) 927
Excess - NAC group (table 6) 5 072
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 9: ANALYSIS OF CHANGES Non- Insurance 2002 2001
IN GROUP EMBEDDED VALUE insurance operations Total Total
Rm Rm Rm Rm
Profit from new business 68 73 141 165
Point of sale 64 68 132 154
Expected return to end of
year 4 5 9 11
Profit from existing business (141) 15 (126) 254
Expected return 53 372 425 443
Experience variance -
economic (63) (284) (347) (36)
Experience variance - non-
economic (131) (73) (204) (153)
Embedded value profit from
operations (73) 88 15 419
Investment return on net worth
(47) (519) (566) 213
Capital gains tax - - - (138)
Changes in assumptions -
economic 10 (39) (29) 60
Changes in assumptions - non-
economic (206) (66) (272) (25)
Exchange rate movements - (5) (5) 15
Total embedded value profit (316) (541) (857) 544
Capital raised 174 - 174 128
Dividend 26 (313) (287) (108)
Share buy-back and share issue
costs (260) - (260) (258)
(Decreases)/increase in
embedded value (376) (854) (1 230) 306
Return on embedded value (%) (11.3) 7.5
TABLE 10: VALUE OF LIFE INSURANCE NEW BUSINESS 2002 2001
Rm Rm
Retail business 38 (16)
Gross value of new business 47 (9)
Less: Cost of capital (9) (7)
Corporate business 61 63
Gross value of new business 69 72
Less: Cost of capital (8) (9)
Metropolitan Advisory and Retail Services (31) (22)
68 25
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 11: SOURCE OF NEW BUSINESS 2002 2001
APE % Total % APE % Total %
General intermediary channel 16 17 30 39
Direct writers 43 40 47 43
Direct mail and telemarketing 27 13 16 7
MARS - since July 2001 14 30 7 11
TABLE 12: VALUE OF NEW BUSINESS 2002 2001
PER COMPANY
Gross Cost of Net Net
capital
Rm Rm Rm Rm
Metropolitan 113 (14) 99 44
Life 46 (7) 39 (20)
Employee benefits 67 (7) 60 64
Metropolitan Odyssey (7) (1) (8) (8)
Metropolitan Namibia 4 (1) 3 5
Metropolitan Botswana 6 (1) 5 6
Metropolitan Advisory and Retail
Services (31) - (31) (22)
85 (17) 68 25
TABLE 13: VALUE OF NON-LIFE NEW BUSINESS 2002 2001
Rm Rm
Health administration 14 83
Asset management 50 46
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 14: NEW BUSINESS PREMIUMS 2002 2001
Rm Rm
Recurring premiums
Individual life 614 484
Gross premiums 705 582
Lapses from inception (91) (98)
Employee benefits 233 155
847 639
Single premiums
Individual life 930 1 033
Employee benefits 1 562 1 958
2 492 2 991
Annual premium equivalent (APE) 1 096 938
Lapses as a % of gross premiums 12.9 16.9
TABLE 15: VALUE OF NEW BUSINESS PREMIUMS Value of APE* Margin
AS A % OF ANNUAL PREMIUM EQUIVALENT (APE) new
- excluding MARS business
Rm Rm %
Individual life 38 707 5.4
Employee benefits 61 389 15.7
Total 99 1 096 9.0
* APE represents new recurring premiums (net of lapses at inception)
plus 10% of single premiums.
TABLE 16: VALUATION OF NON-LIFE Net asset Write-up Embedded
SUBSIDIARIES value as per to fair value
balance sheet value
Rm Rm Rm
Asset management 59 139 198
Metropolitan Health Group
292 43 335
NEW AFRICA CAPITAL GROUP RESULTS
TABLE 17: PRINCIPAL ASSUMPTIONS 2002 2001
% %
Pre-tax investment return
Equities 12.8 13.8
Properties 12.8 13.8
Government stock 10.8 11.8
Cash 8.8 9.8
Risk discount rate 14.3 15.3
Investment return (before tax) - smoothed bonus 12.2 13.2
Expense inflation rate 8.0 8.5
TABLE 18: LIFE BUSINESS: SENSITIVITIES - Change in base value
2002 of:
In-force New Notes
business business
% %
1% Increase in risk discount rate (5.7) (12.5) (i)
1% Reduction in risk discount rate 5.4 14.2 (i)
10% Reduction in per policy expenses 6.4 25.8 (ii)
1% Reduction in expense and salary
inflation 2.5 2.7 (ii)
10% Reduction in policy discontinuance
rates 1.5 10.1
10% Reduction in mortality, morbidity
and medical rates 16.8 79.8 (ii)
1% Increase in the assumed investment
return 8.3 3.6 (iii)
10% Increase in the premium indexation
take-up rate (from 70% to 80%) 1.8 4.0
1% Increase in risk discount rate
impact on cost of car (2.9) (iv)
1% Reduction in risk discount rate
impact on cost of car 3.3 (iv)
10% Increase in the number of new
policies 32.1
Base value before cost of CAR
(rand million) 2 398 85
NEW AFRICA CAPITAL GROUP RESULTS
(i) The risk discount rate appropriate to an investor depends
on the investor"s own requirements, tax position and
perception of the risk associated with the realisation of
the future profits of New Africa Capital and its
subsidiaries.
(ii) No corresponding changes in variable policy charges are
assumed, although in practice it is likely that variable
charges will be modified according to circumstances.
(iii) Bonus rates are assumed to change commensurately.
(iv) A change in the risk discount rate also has a noticeable
effect on the cost of holding the required CAR levels.
Other sensitivities above are shown before cost of CAR.
TABLE 19: STOCK EXCHANGE PERFORMANCE 2002 2001
Value of shares traded (rand million) * 1 652 2 472
Volume of shares traded (million) * 246 273
Shares traded (% of total shares in issue) 35.4 39.0
Trade prices (cents per share)
Highest 902 1 060
Lowest 485 650
Last sale of period (closing) 610 800
Price/core headline earnings ratio 11.04 15.24
Dividend yield % (dividend to listed shares) 6.23 4.38
Total shares issued (million)
Listed 635 667
Ordinary shares # 628 661
Share incentive scheme 7 6
Unlisted 59 33
Share purchase scheme 59 33
Total 694 700
Market capitalisation at year-end (rand billion) # 4.23 5.60
NEW AFRICA CAPITAL GROUP RESULTS
* Net of 20 million shares acquired for R150 million and cancelled, and 13
million treasury shares acquired for R110 million in 2002.
# Net of 41 million treasury shares held by subsidiary companies at year-end.
(2001: Both net of 28 million treasury shares acquired for R234 million)
PRESS RELEASE
New Africa Capital"s turnaround accelerates as focus sharpens
All aspects of New Africa Capital"s (NAC) operational performance for the
financial year ended 31 December 2002 showed a marked improvement.
The upturn that was apparent at interim results stage was not only sustained, it
gained impetus as the group"s delivery on promises made to stakeholders picked
up speed over the 12 months.
NAC promised four things: reduced costs; improved quantity and quality of new
business; enhanced profitability; and revitalised investment performance.
As a result of a strong emphasis on cost reduction across the group,
administration expenses in both the life and non-life companies decreased to
below the previous year"s levels. The former declined by 4%, including growth-
related costs, while the latter were 11% down.
New recurring premium insurance business was up 33%, although single premium
insurance business declined. The average premium equivalent (APE), a figure
comprising net new recurring insurance premiums plus 10% of single premiums,
increased by 17%.
The improvement in new business APE accelerated from quarter to quarter, rising
from R211 million in the first quarter to R236 million in the second, R302
million in the third and R347 million in the fourth.
The embedded value of new life insurance business, which is calculated half-
yearly, has also moved consistently upward: from -R12 million in the second half
of 2001, to R16 million in the first half of 2002, to R52 million in the second
half of 2002. This gives NAC an embedded value total of R68 million for 2002.
Overall, the embedded value of new life insurance business written by NAC, at R
68 million for the full 2002 financial year, was 172% higher than in 2001,
resulting in improved new business profit margins.
"We are greatly encouraged by the strides we have made, but acknowledge that
there is still a lot of work to be done for us to equal, and ultimately exceed,
the profit margins achieved by our competition," says group chief executive
Peter Doyle.
Thanks to the improved new business production, which was the case across all
four of the group"s business clusters (retail, corporate, health and
international), NAC once again achieved a positive cash flow from clients. "At
R2.8 billion, our positive cash flow bucks industry trends, weighting
comparisons with larger competitors heavily in our favour," points out Doyle.
All four business clusters were profitable, and all achieved higher operating
profits than in 2001. In this regard, the performances of retail and health were
particularly impressive, with upswings of 33% and 29% respectively. Corporate
rose some 7%, while international recorded a first-time profit of R13 million.
Core headline earnings per share showed a 5% increase to 55 cents, boosted by
the increased earnings from the clusters but tempered by increased taxation. A
total dividend per share of 38 cents was declared, 9% higher than in 2001,
resulting in a final dividend for the year of 28.5 cents.
Note
It has always been, and will always be NAC"s intention to comply with
legislation, and the group is therefore disclosing headline earnings calculated
in terms of the most recent SAICA circular, 7/2002.
As a result of the group"s election in respect of AC 133, capital movements have
been included in headline earnings.
NAC is therefore also disclosing core headline earnings, which exclude capital
movements, in order to provide a more stable earnings number that is comparable
with previous years" figures.
The core headline earnings calculation is consistent with that used for headline
earnings in prior reporting periods.
In NAC"s retail business, both productivity and persistency measures moved
steadily in the right direction. The number of new ordinary business policies
put on the books increased for the first time since the introduction of the
Persal restrictions, and lapses at inception decreased by 5%.
Plummeting investment markets and an extremely volatile rand did, however,
detract substantially from those elements of the results directly related to
investment returns.
Improved investment performance in absolute and real terms has been, and
continues to be, the focal point of intensive action at Metropolitan Asset
Managers (MetAM). Moderate gains in relative returns were achieved, especially
during the last quarter of 2002 and the first quarter of 2003, but it will take
a while for the full benefits of such action to be seen in longer term
investment performance rankings.
Despite 2002"s extremely disappointing investment returns, NAC"s CAR (capital
adequacy requirement) cover, at a multiple of 2.9, remains one of the highest in
the industry, proof of the ongoing soundness of the group"s financial position.
Embedded value and net asset value per share decreased by 16% and 18%
respectively in line with the fall in investment markets.
"NAC"s earnings formula for the 2003 financial year is the ongoing improvement
of operational performance in conjunction with good net investment returns," is
how Doyle sums up the group"s strategy going forward. "Superior investment
performance is critical if we are to deliver sustained business growth into the
future."
During the year the group focused strongly on aligning its vision and values
(centred around people, trust and performance), its chosen market segments,
strategies and operational structures.
According to Doyle, the successful implementation of this extensive review and
reallocation of resources, both human and financial, means that NAC is now
optimally positioned to capitalise on its core competencies.
NAC, together with the Metropolitan businesses for which it is the listed
holding company, is concentrating its efforts and energies on the lower and
middle income markets. The group is the largest long-term financial services
player in Southern Africa that has these markets as its central focus.
In the lower income market in particular, the group"s proven expertise and
experience, built up over more than a hundred years, together with the well-
known and well-liked Metropolitan brand, give it a strong competitive edge. "Our
objective is two-fold: to continue dominating the lower income market, and to
become a leading player in the middle income market."
"It is also of great strategic significance that NAC"s business model is readily
exportable to other countries that share similar characteristics, not only in
Africa but throughout the developing world," says Doyle. "We are undoubtedly
capable of making our vision of becoming a world-class, Africa-based business a
reality."
In line with its sharper strategic focus, NAC increased its stake in
Metropolitan Health Corporate to 98.5% in January, and disposed of its 74.9%
holding in Ovation, the linked investment service provider, in November. The
long-term insurance business of CU Life was transferred to Metropolitan Life
Limited at the beginning of the year.
NAC remains committed to achieving broad-based empowerment as a socio-economic
imperative. "It is crucial from both a national and a corporate perspective;
neither country nor company will survive without it," says Doyle.
The group endorses the charter concept, which is closely allied to the way in
which it has approached empowerment to date in achieving its status as one of
the premier empowerment financial services groups in South Africa.
In terms of empowerment credentials, NAC has just been rated first in the
insurance and life insurance sector, and eighth in the country taking all JSE
sectors into account, according to the latest Empowerdex Index, published last
week (3 -7 March 2003). The Index is unique in that it includes financial
performance as one of the categories in its empowerment ranking system.
"We are also intimately involved in the development of a charter for the
financial services sector," says Doyle. The Life Offices" Association (LOA) is
looking at a scoreboard approach, similar in principle to NAC"s empowerment
barometer, launched in January 2002. The barometer measures progress in five
vital areas of empowerment: ownership and control; employment equity;
procurement; corporate social involvement (CSI); knowledge and skills
development.
In line with its undertaking to advance empowerment ownership and control, NAC
sold a 17.5% stake in Metropolitan Namibia to Pinnacle, a Namibian empowerment
consortium, in November 2002. It also committed a further 2.5% of its holding in
Metropolitan Namibia to creating a share trust for staff.
end
ISSUED BY SUE SNOW
FINANCIAL MEDIA SPECIALIST
NEW AFRICA CAPITAL
TEL 021 9406119 OR 083 300 9745
DATE 12 MARCH 2003
QUERIES
PETER DOYLE
GROUP CHIEF EXECUTIVE
NEW AFRICA CAPITAL
TEL 021 9405681 OR CEL 082 880 2690
TYRREL MURRAY GENERAL MANAGER: GROUP FINANCE
NEW AFRICA CAPITAL
TEL 021 9405083 OR 082 889 2167
PRESTON SPECKMANN GROUP FINANCE DIRECTOR
NEW AFRICA CAPITAL
TEL 021 9406634 OR 083 285 6454
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