Axa AP to pay NAB $425 million for Asian insurance arms

Deal to spearhead groupÆs growth ambitions in Hong Kong and Indonesia.
Axa Asia Pacific, the Australian arm of Europe's second-largest insurer, announced yesterday (February 21) that it is to acquire National Australia BankÆs insurance units in Hong Kong and Indonesia for A$575 million ($425 million) in a bid to accelerate growth in Asia.

Axa Asia chief executive, Les Owen says the purchase of MLC Hong Kong and MLC Indonesia is, "a strategically attractive opportunity to accelerate our growth in the Asian region.

"Life insurance margins in Hong Kong are very attractive," he comments. "With high savings ratios there's considerable growth potential for life insurance, investment products and wealth management."

Melbourne-based Axa Asia will add more than 800 sales agents to the 2,400 life insurance advisers it has in Hong Kong, and almost double its sales force in Indonesia to 2,200. The acquisition will add to earnings in 2007, Owen believes.

In Indonesia, Owen says the MLC acquisition will see agency and advisor distribution numbers grow by around 1,000 to over 2,200, positioning AXA APH as the second largest life insurer in terms of new business.

The transaction is to be funded from internal capital. Owen notes that the acquisition will be earnings neutral in 2006 - before one-off integration costs - and is expected to be earnings positive in 2007.

The $575 million acquisition - the group's largest since listing in Australia in 1996 - came as the life insurer and funds manager reported a $542 million annual net profit, driven by strong investment markets and fund flows.

Net income was up 6% from the prior year and beat market expectations. Excluding a one-off benefit in 2004 after it adopted new accounting standards, profit was up 18%.

However Owen rules out a return of excess capital to shareholders, instead saying he favours using the funds to further expand in Asia.

"We have growth opportunities in Asia that we have been able to use some of that capital for," he says. He adds that Axa secured the deal to buy MLC Hong Kong for $555 million and MLC Indonesia for $20 million after a short period of talks with National Australia Bank (NAB) because the businesses were such a good fit with AXA's existing operations.

Owen concludes that the group's balance sheet remains strong, with about $300 million of excess cash, of which $100 million has already been tagged for its current expansion plans in India and Malaysia.

"If another acquisition came along, we would certainly have financial flexibility to do another deal," he notes.

Axa is pursuing an ambitious goal, set out in May 2005, of doubling the value of its Asian operations to A$8bn by the end of 2008. Hong Kong is Axa's most important market outside of Australia, generating almost half the companyÆs earnings. It is currently valued at $4.8 billion.

"We are in a strong position in Hong Kong, we are one of the leaders, we've been there for 20 years and we have got a strong management team. Buying MLC gives us the opportunity to create, over the next two or three years, quite significant upside in value if we can integrate it well," Owen concludes.

The group, which is 51.6% owned by French parent AXA SA, reported an 11% increase in investment earnings to $256 million for 2005 while the operating earnings grew by 23% to $377 million.

"Assuming markets behave reasonably well in 2006, I would see no reason why we would not expect to grow our underlying operating earnings in double digits," Owen adds.

The result was buoyed by net fund flows in its Australian and New Zealand business, which more than doubled during the year, while on a group basis total funds under management grew by 31.2% to $80.6 billion.

Axa declared a final dividend of 7.75 cents per share, partly franked, up from 6.5 cents in the previous corresponding period. Total dividends for 2005 were 14 cents per share, up from 11.75 cents.
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