Afre Corporatio​n Limited approach shareholde​rs for funds
An improvement in operational performance across Afre's subsidiaries has motivated management to approach shareholders for additional funding so as to take advantage of new business opportunities. The company intends to raise approximately $15 million and an EGM to seek shareholders' approval for the same will be held on or before the 30th of September 2011. A potential underwriter has already been secured. The rights issue proceeds will be used to recapitalise the business and inject the much needed solvency, whilst part of the funds will be used to restructure the internal debt.
In the interim period, gross premium income grew by 62% to $42.9 million with 34% coming through from the medical savings unit, 26% from reinsurance, 19% employee benefits, 11% short term insurance and 10%from the individual life unit. Besides growth in business volumes, the medical savings unit was supported by correction of prices on the products and a favourable decline on accounts as challenges were being incurred in terms of claims settlement on the bulk of those which closed. For the individual life unit, $2 million of the premium income came from the Ecolife business where volumes continue to grow. A number of smaller funds were also acquired in the employee benefits division, whilst the stabilisation of most employee pay from allowances to salaries has also supported growth. Profitability also continues to grow in the short term insurance unit despite the rampant competition in the sector. For the reinsurance unit, performance was driven by volume growth and management report scope for further growth especially for the Botswana operation. Net premium income amounted to $34.6 million up 69% on the prior period.
Rental income amounting to $3.1 million (first half of 2010: $2.9 million) came through from the property business, whilst an investment income of $4.5 million was recorded from a prior loss of US$6 million. On the expenses, claims were the highest contributor to total expenses at $17.6 million mainly as a result of growth in business written. A $5 million provision for scrip loss improperly disposed through related party transactions was allowed for. Management expenses grew by 30% due to an increase in staff numbers to enhance distribution channels.
The share of losses from associate, RTG, amounted to $24,673 from a profit of US$28,168. The profit for the period was $4.7 million whilst the shareholders' attributable loss amounted to $2.4 million after $6.4 million was attributed to policy holders.
On the balance sheet, management reported that they are looking to restructure their investment in RTG, so as to use the funds to partly clear the policyholders' liabilities. We however noted a worrying decline in shareholders' value to $59.3 million down from $63.7 million and we expect to see further erosion in the short term given the unlikely recoverability of disputed funds. Further the upcoming rights issue will effect significant dilution. The price may continue being discounted for the corporate governance issues.
