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AUDITED RESULTS PRESENTATION FOR THE YEAR ENDED 31 MARCH 2003 June 2003.

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Presentation on theme: "AUDITED RESULTS PRESENTATION FOR THE YEAR ENDED 31 MARCH 2003 June 2003."— Presentation transcript:

1 AUDITED RESULTS PRESENTATION FOR THE YEAR ENDED 31 MARCH 2003 June 2003

2 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE - 2003 OPERATIONAL PERFORMANCE - 2003 FINANCIAL RESULTS - 2003 OBJECTIVES - 2004

3 OUR AMBITION To create shareholder value in the medium to long term by: –Integration & administration of policy books –Doing new business in our target markets –Maximising return on capital (‘NAV’) & value on in force (‘VIF’) –Providing innovative products & operational excellence

4 WHY WE EXIST To offer: –Life insurance on the Capital Alliance brand to the lower income commercial market –Life insurance products to selected markets primarily through branded distribution partners & specialist intermediaries –Life insurance admin services to local & overseas operators –Our primary products & services cover: Individual insurance Group insurance Retirement fund products & admin services

5 WHY WE EXIST Efficient integrator of life insurance business Provide better value proposition to selected markets (price, benefits, service) via focus on efficiency & cost leadership (bottom quartile new business & renewal cost) Maximise retention & onsell to existing customers

6 CORE COMPETENCIES Efficient cost-effective operations engine Integration expertise Innovative product factory to support group risk business, distribution partners and CAL Commercial channel

7 CAPITAL ALLIANCE STRUCTURE CAPITAL ALLIANCE HOLDINGS Capital Alliance Life Investments - Australia39% - Nova31% Group Business Individual Life Product Factory Single Operations Engine

8 OUR STRATEGY IN SUMMARY Primarily a ‘wholesaler, integrator & administrator’ strategy building on our operations core competence Distribution via distribution partners & specialist intermediaries to achieve one to many A customer service & cost-effective culture Focused on embedded value enhancement

9 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE - 2003 OPERATIONAL PERFORMANCE - 2003 FINANCIAL RESULTS - 2003 OBJECTIVES - 2004

10 CHALLENGES AND RESPONSE - 2003 Impact –Negative return on certain share & policyholder portfolios –Level of surrenders & maturities in line with plan, but –Difficult to conserve maturing & surrendering funds ahead of plan Volatility & substantial decline in investment values (primarily international assets & local equities)

11 CHALLENGES AND RESPONSE - 2003 Our response –Set portfolio mandates to protect share & policyholder assets –Set performance benchmarks for all portfolios & critically evaluate asset management performance –Rely on trusted asset management professionals Achievement –Satisfactory relative investment performance for policyholders –Positive return on shareholders’ portfolio Volatility & substantial decline in investment values (primarily international assets & local equities)

12 CHALLENGES AND RESPONSE - 2003 Overcapacity in market Low growth in formal sector employment Low levels of discretionary saving Competition from other investment products Impact –Ongoing decline in recurring premium volumes –Group business market is mature –Limited scope to increase IL production volumes profitably at acceptable risk Pressure on new business volumes

13 CHALLENGES AND RESPONSE - 2003 Our response –Remain a niche player – focus on risk business –Tight control of new business activities –Continue to build our presence in the group risk market –Preference for as-and-when commission in IL business Achievement –Growth in IL new business EV for 3 consecutive years –Met target in group risk business for 4 consecutive years –Good relationship with distribution partners provides platform for future growth Pressure on new business volumes

14 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE - 2003 OPERATIONAL PERFORMANCE - 2003 FINANCIAL RESULTS - 2003 OBJECTIVES - 2004

15 OPERATIONAL PERFORMANCE - 2003 Fedsure/Norwich individual life integration completed ahead of schedule & within budget Acquired & integrated Saambou Life Concluded reinsurance & integration of Investec Employee Benefits annuities Exceeded planned embedded value enhancement in all integrations Improved EV on new business for third year

16 OPERATIONAL PERFORMANCE - 2003 Excellence in administration operations demonstrated –Now administer >1million IL contracts on one scalable platform –Exceed demanding service levels –Policyholders & intermediaries have commented favourably –Call centre judged 5th in insurance, banking & other financial services –Improved group business administration systems

17 OPERATIONAL PERFORMANCE - 2003 Work items 0 2000 4000 6000 8000 10000 12000 14000 16000 2001/01 2002/01 2003/01 Loans SurrendersClient ServicesValuesClaimsMaturities

18 OPERATIONAL PERFORMANCE - 2003 Service levels Value calculations Loans Surrenders Death claims Other alterations Complex alterations Premium recon Premium queries Refunds Scanning 99% 100% 98% 100% 98% 96% 95% 98% 100% Achievement May 2003 2 days 1 day 2 days 1 day 2 days 1 day Current Service level May 2003 100% Achievement May 2002 5 days Current Service level May 2002 80% 70% 80% 40% 5% 0% Achievement August 2001 20 days 50 days 10 days 30 days 5 days Current Service level August 2001Item

19 OPERATIONAL PERFORMANCE - 2003 Call centre statistics 3766Number of agents50 143 sec240 secAverage talk time173 sec 3.4%15%Abandoned calls6.5% 2 8966 200Incoming calls4 561 25 sec180 secAverage queue time37 sec 92%60%Service level (80% answered in 45 sec’s)77% May 2003May 2002August 2001 5 th place ‘Call centre of the year’ Awards Item

20 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE - 2003 OPERATIONAL PERFORMANCE - 2003 FINANCIAL RESULTS - 2003 OBJECTIVES - 2004

21 SUMMARISED GROUP INCOME STATEMENTS 4 521 918 4 030 039 491 879 Audited year ended 31 March 2003 Income Outgo Taxation Life insurance and pensions business Total 2002 R'000 Total 2003 R'000 17 597 888 4 560 767Net premium income 16 041 283 1 205 418 Investment income 782 220 (1 244 267) disposal of investments Gain/(loss) on revaluation and 774 385 17 847 147 4 760 057Net policyholders' benefits3 396 163 138 963Commissions144 884 250 977Administration expenses242 748 43 285Amortisation of intangible assets- (29 060)5 489 (1 134 183)Transfers (from)/to life funds14 057 863 (249 259)

22 SUMMARISED GROUP INCOME STATEMENTS 40% Audited year ended 31 March 2003 Income/(loss) after tax495 473 Life insurance & pensions business491 879(249 259) Other income3 59414 580 (234 679) Headline earnings515 221369 017 Split as: Operating income420 947(299 695) Investment income167 44325 831 (Loss)/gain on revaluation & disposal(96 511)24 605 Attributable earnings471 936(250 983) Total 2002 R'000 Total 2003 R'000 Preference dividends paid(23 537)(16 304))

23 SUMMARISED GROUP INCOME STATEMENTS Attributable earnings per share (cents) 22% Headline earnings per share (cents) Dividend per ordinary share (cents) Dividend cover (headline earnings, times) Weighted avg. number of shares in issue (’000) Total shares in issue (’000) 264.3 288.5 70.0 4.1 178 572 177 186 Audited year ended 31 March 2003 (161.4) 237.3 49.5 4.8 155 521 174 880 2002 2003

24 SUMMARISED GROUP INCOME STATEMENTS Audited year ended 31 March 2003 Plus : Except. reserving strain on reinsurance transactions 0620 000 Amortisation of intangible assets 43 2850 Attributable earnings471 936(250 983) 515 221369 017 Headline earnings Total 2002 R'000 Total 2003 R'000 Non recurring expenses 25 092 Preference share dividends paid 16 304 Consolidation adjustments in respect of the share scheme (7 618) Headline earnings disclosed last year 402 795 Reconciliation:

25 HEADLINE EARNINGS 147 417 189 523 288 252 402 795 515 221 0 100 000 200 000 300 000 400 000 500 000 600 000 19992000200120022003

26 SUMMARISED GROUP BALANCE SHEETS 31 Mar 2002 R'000 31 Mar 2003 R'000 as at ASSETS Investment assets Property, plant & equipment Deferred tax Current assets EQUITY, RESERVES AND LIABILITIES TOTAL EQUITY, RESERVES AND LIABILITIES Intangible assets TOTAL ASSETS Audited year ended 31 March 2003 17 618 620 89 401 798 589 18 568 693 17 489 556 0 907 688 Total shareholders' funds1 662 8691 267 041 Policyholder liabilities15 405 94315 876 386 Non-current liabilities223 660185 647 Current liabilities1 076 221888 771 18 417 845 Outside shareholders' interests200 000 23 3080 38 77520 601

27 SUPPLEMENTARY INFORMATION LIFE ASSURANCE OPERATIONS Premiums net of reinsurance 4 560 767 Audited year ended 31 March 2003 Individual - recurring premiums1 369 650 1 448 676 Group - lump sums29 209 11 710 Group - other premiums179 804 109 271 Group funeral - single premiums8 407 13 479 Credit life - normal50 383 22 835 Reinsurance premiums2 739 725 13 887 185 16 041 283 Individual - single premiums183 589 327 608 - Standard General0 220 519 Total 2002 R'000 Total 2003 R'000

28 SUPPLEMENTARY INFORMATION LIFE ASSURANCE OPERATIONS Net policyholder benefits 4 760 057 Audited year ended 31 March 2003 Individual life4 450 4433 019 461 Group benefits171 099140 583 Credit life - normal45 9256 929 3 396 163 - Standard General92 590229 190 Death & disability benefits328 033154 914 Maturities *1 970 6891 403 594 Annuities771 608513 046 Surrenders *1 380 113947 907 Total 2002 R'000 Total 2003 R'000 * Stated gross of policy loans of R1.311bn

29 SUPPLEMENTARY INFORMATION Risk discount rate12.9% Equity return (before capital gains tax)12.4% Fixed interest return (before tax)10.4% Cash return (before tax)8.4% Average investment return (before tax)11.1% VALUATION BASIS: ECONOMIC ASSUMPTIONS AT 31 MARCH 2003 Audited year ended 31 March 2003 Property return (before tax)11.4% Expense inflation rate per annum6.4%

30 GROUP EMBEDDED VALUE 31 March 2002 R'000 31 March 2003 R'000 Shareholders' net assets Gross value of in force life business Embedded value Less: opportunity cost of 829 282 2 380 180 (200 629)capital adequacy requirements Audited year ended 31 March 2003 - total1 662 8691 267 041 - plus other group assets88 658160 496 Net value of in force life business628 653666 958 836 472 2 094 495 (169 514) as at

31 GROUP EMBEDDED VALUE Capital adequacy requirement ("CAR") Capital adequacy cover (times) Net asset value per share (Rands) Embedded value of in force business per share (Rands) Embedded value per share (Rands) 903 153 2.1 9.89 3.55 13.43 Audited year ended 31 March 2003 708 511 2.1 8.16 3.81 11.98 31 March 2002 R'000 31 March 2003 R'000 as at 12%

32 VALUE OF NEW BUSINESS Gross value of new life insurance business Less: opportunity cost of capital adequacy requirements Net value of new life insurance business 43 136 (4 579) 38 557 Audited year ended 31 March 2003 21 714 (3 635) 18 079 31 March 2002 R'000 31 March 2003 R'000 as at 113%

33 ANALYSIS OF GROWTH IN EMBEDDED VALUE 2002 R'000 2003 R'000 Audited year ended 31 March 2003 Changes in share capital46 370 469 329 Dividends declared or paid(146 014) (82 577) Embedded value earnings385 329 249 233 Investment return on group net assets31 371 75 706 Value of new business38 557 18 079 Change in economic assumptions9 065 (7 804) Growth in embedded value285 685 635 985 Saambou Life opening embedded value124 310 Expected return on value of in force105 585 31 468 Expected return on new business2 412 1 351 Change in non-economic assumptions & basis31 497 (40 585) Experience variations42 532 171 018 Embedded value earnings385 329 249 233

34 COMPOSITION OF SHAREHOLDERS’ NAV Equity Cash Interest bearing Property Other Audited year ended 31 March 2003 611 929 232 850 782 891 60 273 (25 074) R'000 31 March 2003 1 662 869 561 709 481 618 324 230 23 574 (124 090) R'000 31 March 2002 1 267 041

35 SHAREHOLDER VALUE DRIVERS Individual Life Recurring114 982180 407 CAL Commercial17 92115 088 Broker9 45916 685 Distribution partners - continuing80 04895 137 - discontinued7 55453 497 Group Benefits Recurring66 94871 971 Group Risk54 66847 433 Credit Life6 93222 201 Funeral5 3482 337 Total181 930252 378 Single premiums - Individual Life183 390285 000 Credit Life11 7283 290 New business API by source Audited year ended 31 March 2003 R'000 2003 R'000 2002

36 SHAREHOLDER VALUE DRIVERS Improved new business EV from R18m to R38.6m This was due to: –Re-pricing the product set for all distribution channels –Higher agent productivity (avg monthly production per agent of 6.5 policies) due to better management controls and training –Top 10% of agents production > 20 policies per month with first year persistency > 80% Achieved despite reduced production volumes & increased acquisition cost per policy from R157 to R268 Group NB EV increased due to mix of business New business profitability

37 157 77 220 268 85 195 782 89 632 74 433 74 392 77 463 87 229 79 SHAREHOLDER VALUE DRIVERS Acquisition and renewal costs 0 100 200 300 400 500 600 700 800 900 199619971998199920002002 2003 New businessCAL renewal Fed renewal

38 SHAREHOLDER VALUE DRIVERS CAL Commercial 15 month persistency 78% (78%) Distribution partners 15 month persistency 79% (79%) Group risk retention 87% (92%) Client retention

39 SHAREHOLDER VALUE DRIVERS Sustainability of in force book Projected reduction in life fund in percentage terms over 20 years 0% 20% 40% 60% 80% 100% 120% Mar-03Mar-04Mar-06Mar-07Mar-09Mar-10Mar-12Mar-13Mar-15Mar-16Mar-18Mar-19Mar-21Mar-22

40 SHAREHOLDER VALUE DRIVERS A terrible year for the ALSI 60 65 70 75 80 85 90 95 100 105 Mar-02May-02Jul-02Sep-02Nov-02Jan-03Mar-03May-03

41 SHAREHOLDER VALUE DRIVERS ….. with some recovery after the year-end 60 65 70 75 80 85 90 95 100 105 Mar-02May-02Jul-02Sep-02Nov-02Jan-03Mar-03May-03

42 SHAREHOLDER VALUE DRIVERS CAL equity portfolios better off than ALSI 60 70 80 90 100 110 120 130 Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03 ALSICALEQTCALSCPCALABR

43 SHAREHOLDER VALUE DRIVERS CAL core equity performance -40% -30% -20% -10% 0% 10% 20% 30% 1m3m6m1y -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% Core equityALSI40Active (RH)

44 SHAREHOLDER VALUE DRIVERS …and bonds gave excellent returns 95 100 105 110 115 120 125 130 Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03

45 SHAREHOLDER VALUE DRIVERS Bond performance 0% 5% 10% 15% 20% 25% 30% 6 months1 year2 yrs p.a.3 yrs p.a.5 yrs p.a. PortfolioIndexActive

46 0% 3% 6% 9% 12% 15% 18% 21% 10%12%14%16%18%20%22%24%26% Annualised standard deviation Annualised return Absolute return ALBI ALSI SHAREHOLDER VALUE DRIVERS Absolute return comparative risk/return matrix

47 SHAREHOLDER VALUE DRIVERS Absolute return rolling returns 0% 10% 20% 30% 40% 50% 60% 70% Mar-98Sep-98Mar-99Sep-99Mar-00Sep-00Mar-01Sep-01Mar-02Sep-02Mar-03 12 m return12 m risk

48 SHAREHOLDER VALUE DRIVERS Absolute return cumulative 90 110 130 150 170 190 210 Sep-99Mar-00Sep-00Mar-01Sep-01Mar-02Sep-02Mar-03 SA 3m T-billHeadline inflation (1 m lag)ALBIALSIInvestec opportunity

49 RETURN ON CAPITAL Calculated as headline earnings divided by average capital employed Assumes all capital employed in life business 35% for 2003 (33%)

50 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE - 2003 OPERATIONAL PERFORMANCE - 2003 FINANCIAL RESULTS - 2003 OBJECTIVES - 2004

51 5 PILLARS OF BEE AT CAPITAL ALLIANCE

52 Equity Employment Equity Skills development and training Procurement Corporate Social Responsibility

53 BEE AT CAPITAL ALLIANCE Highest direct level of black equity ownership in listed life insurance sector Black directors play strong role in strategic direction, transformation & positioning of the group Ahead of industry average in terms of employment equity 4% of payroll budgeted on black staff development & training in 2004, increasing in 2005 33% of discretionary procurement directed to black suppliers in 2003

54 BEE AT CAPITAL ALLIANCE Corporate Social Responsibility commitment to: –Siyandiza, with South African Air Force –CAL Kids, a project to rehabilitate street children –Hantam Educational Trust, a rural education programme –Jhb CBD police upliftment programme –CIDA City campus –Tikkun

55 BEE AT CAPITAL ALLIANCE Employment Equity : HDI’s by occupational category 0% 10% 20% 30% 40% 50% 60% 70% DirectorsExec mgtSen mgtProf & mid mgtTech & jnr mgtSemi-skilled

56 BEE AT CAPITAL ALLIANCE Employment profile by economic sector 0%5%10%15%20%25%30%35%40% African Male Coloured Male Indian Male White Male African Female Coloured Female Indian Female White Female Capital AllianceIndustry average

57 2004 OBJECTIVES Key initiatives are: –Further renewal cost reduction –Maturity extensions, annuity & risk products –Retention/conservation –Commitment to continuous service improvements –Continual review of asset/liability matching to optimise investment returns 1.Continue focus on service levels, retention of existing policyholders & enhancement in VIF

58 2004 OBJECTIVES Key initiatives are: –Expand delivery from current distribution channels (IL & group) –Source new distribution partners 2. Reinforce business development activities

59 2004 OBJECTIVES Key initiatives are: –Enhance systems capability to deliver on specific requirements of local & international TPA opportunities –Improve positioning to deliver the business –Leverage our investment in Australia where appropriate to further our integration strategy 3. Investigate life insurance administration business locally & internationally

60 2004 OBJECTIVES We recognise the importance of patience & will not be unduly pressurised Will only conclude further transactions which demonstrate acceptable shareholder value add 4. Conclude further local transactions if available on acceptable terms

61 THANK YOU


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