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AXA Operating Profit after Tax

AXA Asia Pacific Holdings Limited
Operating Profit after Tax and Before Abnormals up 12% to $162m
Further Evidence of Performance Improvement
AXA Asia Pacific Holdings today announced an Operating Profit after Income Tax and before Abnormals for the six months ended 31 March 2001 of $162.3 million, representing a 12 per cent increase on the profit of $144.9 million for the six months to 31 March 2000.
The Directors have declared an unfranked interim dividend of 4.75 cents per share, a 5.6 per cent increase on the previous interim dividend of 4.5 cents per share (franked to 60 per cent).

Group Result

H1 2001
$ million H1 2000
$ million %
Operating Earnings 166.0 111.3 49
Capitalised losses reversed/(expensed) 2.3 (11.1) 121
Investment Earnings on Net Assets 95.8 126.9 (24)
Corporate Expenses (31.9) (25.4) (26)
Interest Expense (43.3) (33.1) (31)
Goodwill Amortisation (1.3) (1.2) (8)
Provisions/Non-Recurring Costs (25.3) (22.5) (12)
Operating Profit after Income Tax before Abnormals 162.3 144.9 12
Abnormal Items - 109.6 100
Total Profit after Income Tax and Abnormals 162.3 254.5 (36)

H1 2001 H1 2000 % Change
Dividend 4.75cps 4.5cps 5.6
Earnings Per Share (before abnormals) 9.2cps 8.2cps 12.2

Australia and New Zealand

Operating Profit after Income Tax before Abnormals for the six months ended 31 March 2001 was $117.3 million, an increase of 131 per cent (2000 - $50.8 million)

Australia and New Zealand H1 2001
$ million H1 2000
$ million % Change
Operating Earnings including capitalised losses 92.7 38.4 141
Investment Earnings on Net Assets 49.9 34.9 43
Other Provisions/Non-recurring costs (25.3) (22.5) (12)
Operating Profit after Income Tax before Abnormals 117.3 50.8 131
Abnormal Items - (39.7) 100
Total Profit after Income Tax and Abnormals 117.3 11.1 957

Operating Earnings including capitalised losses were $92.7 million, up 141 per cent on last year. A significant improvement came from Health Insurance, which exhibited very strong performance compared to the first half in 2000 as a result of membership growth and the maintenance of effective claims and management expense ratios.

Investment Earnings contributed $49.9 million to after tax profit, up 43 per cent from $34.9 million in 2000, including a gain of $6.6 million from the sale of the New Zealand health business.

AXA China Region

AXAChina Region H1 2001
Group Share
$ million H1 2000
Group Share
$ million H1 2000
$ million % Change
Group Share
Operating Earnings including capitalised losses 71.7 58.3 63.5 23
Investment Earnings on Net Assets 35.5 76.8 82.4 (54)
Total Profit after Tax and Abnormals 107.2 135.1 145.9 (21)

Operating Profit after Tax before Abnormals for the six months ended 31 March 2001 was $107.2 million, down 21 per cent (2000 Group Share - $135.1 million). In December 1999 the Group acquired the 23.5 per cent of AXA CR that it did not already own. The 2000 first half year is also shown on a 100 per cent proforma basis for comparison.

Operating Earnings in local currency on a 100 per cent basis were 7 per cent lower than the previous comparable period mainly as a result of higher discontinuance rates.

Investment Earnings are down 54 per cent due to weaker equity markets, although favourable movements in long-term bond yields did offset the effect to some extent.

International Businesses

International H1 2001
$ million H1 2000
$ million % Change
Operating Earnings 3.9 3.5 11
Investment Earnings on Net Assets 3.6 2.8 28
Total Profit after Income Tax and Abnormals 7.5 6.3 19

International businesses contributed $7.5 million after tax, almost entirely generated by AXA Life Singapore, and 19 per cent up on the previous comparable period.

Commenting on the results for the half year and on progress generally Group Chief Executive Les Owen said:
“The 12 per cent improvement in Operating Profit after Income Tax represents further evidence of improving performance in a number of areas of the business. In Australia and New Zealand we saw increases in operating earnings in all business areas with the health insurance operation being a very significant contributor with an increase in profits of 132 per cent to $52 million. We now provide health insurance to around 1 million Australians. Clearly this result has been helped by the significant increase in membership following the introduction of the Lifetime Rating initiative in the second half of last year. As the waiting periods for new members run off we would expect to see a return to more normal levels of profit. However, AXA Health benefits from one of the lowest claims ratios and a below average expense ratio and is well positioned in the market place.

“Profits from our Risk business grew compared to the same period last year when we significantly increased open claims reserves. We have now implemented major changes to our income protection product design and pricing and this is helping in moving this book back toward sustainable profitability. We do, however, have a significant inforce portfolio written on the old terms and it must be expected that this will be reflected in claims incidence rates and durations over the next few years. We will continue to pay close attention to our underwriting and open claims management but there is some way to go before we can say that this problem is completely behind us.

“Our recurring management expenses reduced by 12 per cent over the comparable period last year reflecting strong focus on improving the efficiency of our business at all levels in the organisation. These savings are being reinvested back in the business. In the current financial year we are investing around $100 million in our K5 transformation programme targetted at growing our new business revenues, continuing to improve our cost efficiency and improving service to our distribution networks and to our customers.
“New business sales in Australia and New Zealand are showing some early signs of gathering momentum. Sales of retirement and savings products in the retail market are up by 24 per cent and our market leading master trust, Summit, has enjoyed a substantial improvement with new money up 35 per cent and with total funds under administration reaching $2 billion.

“In March we launched our new range of 13 mezzanine unit trusts provided through our joint venture partner Alliance Capital. Rating agencies have reacted well to these new product offerings with, for example, our wholesale US Equity – Premier Growth fund receiving 5 stars from Assirt and a AA rating from Van Eyk. A number of research houses are currently reviewing our new funds for rating purposes and we expect positive outcomes in the near future. We are optimistic that this will lead to increasing funds flows as the year progresses.

“This is being followed in July by the launch of an exciting new range of retail unit trusts again springboarding off our relationship with Alliance Capital. This launch is very important to our strategy in the retail investment market and we are optimistic that it will help us generate positive sales growth during the second half of 2001.

“Turning to our international operations, profit from AXA China Region (AXA CR) decreased by 20 per cent compared to the same period last year. Although operating earnings grew by 23 per cent to $71.7 million, investment earnings on net assets fell sharply as a result of significant falls in Asian equity markets. Over the last 12 months the Hong Kong market has been characterised by extremely aggressive poaching of agents involving the payment of enormous upfront incentives. Churning of inforce business commonly follows these defections and this did adversely affect our operating earnings in the first half.

“Agent retention strategies have been introduced including changes to commissions, new client surrender procedures and a media campaign to reinforce the strength of the AXA group locally and worldwide. We do not believe that this poaching is in the interests of shareholders, customers or the market generally and we have made it clear that we will not indulge in this sort of behaviour.

“The new unit linked product range that we launched in January 2001 has been very successful and by April accounted for over 50 per cent of new business sales. Since the launch we have seen agent productivity improve by 36 per cent. We are actively implementing alternative distribution strategies and I am confident that our existing strengths, relatively low cost base and powerful brand positions us well for the future.

“Our other international operations in Singapore, Indonesia, Thailand and the Philippines have all generated strong growth in new business and an increase in profit of 19 per cent, substantially earned by AXA Life Singapore. Our bancassurance relationship with Metrobank in the Phillipines is generating sales in excess of our initial targets and the bancassurance joint venture with Krung Thai Bank in Thailand will commence roll out in the 3rd quarter this year. We are confident that these relationships will play an important role in our future growth in those countries

“Last week we announced a partnership with Deutsche Asset Management in direct property management under which they have purchased the management company for our listed and unlisted property trusts, and have entered into an agreement to manage our direct property assets. This, together with our joint venture with Alliance Capital, a member of the global AXA Group, now means that we offer advisers and customers world class capability and performance across all major asset classes.

“There is one other matter I wish to briefly mention. We are proposing to change the company's balance date from September to December, starting this year. This means that we will have a 15 month financial period to 31 December, 2001. We will, however, issue year-to-date results as at September, 2001 to ensure that shareholders are fully informed on the company's progress. The change in balance date will put us on the same schedule as the global AXA Group and will simplify our financial reporting and improve the efficiency of our processes. As a result we would expect, in the future, to be reporting somewhat earlier after the end of a financial period than has been the case in previous years.”


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