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Sanlam Group - Interim Results for the six months ended 30 June 2005
Sanlam Group
Registered name: Sanlam Limited
(Registration number 1959/001562/06)
JSE share code: SLM
NSX share code: SLA
ISIN number: ZAE000028262
Interim Results for the six months ended 30 June 2005
Key features
Earnings
- Headline earnings per share up 85%
- Core earnings per share up 18%
Business Flows
- Total new business inflows up 11% to R30 billion
- Investment inflows up 14% to R20,8 billion
- Net funds inflow of R495 million
Embedded Value
- Embedded value of 1 441 cents per share
- Annualised return on embedded value 23,2%
- Embedded value of new life business R114 million
- New business embedded value margin 12,4%
SALIENT FEATURES
for the six months ended 30 June 2005 2005 2004 %
SANLAM LIMITED GROUP
Earnings:
Result from financial services after R million 1 006 848 19%
tax
Core earnings (1) R million 1 556 1 251 24%
Headline earnings (2) R million 2 681 1 384 94%
Adjusted headline earnings based on R million 2 250 1 882 20%
the LTRR (3)
Net result from financial services cents 38,5 34,0 13%
per share
Core earnings per share (1) cents 59,4 50,2 18%
Headline earnings per share (2) cents 102,5 55,5 85%
Adjusted headline earnings per share cents 86,0 75,5 14%
based on the LTRR (3)
Group administration cost ratio (4) % 28,3 31,6
Group operating margin (5) % 20,1 20,8
Business volumes:
New business volumes R million 30 134 27 143 11%
Net fund flows R million 495 8 263
Value of new life business R million 114 133 -14%
Life insurance new business APE (6) R million 919 917
Value of new business margin (7) % 12,4 14,5
Embedded value:
Embedded value R million 39 263 30 481 29%
Embedded value per share cents 1 441 1 114 29%
Growth from life business % 16,6 16,1
Return on embedded value (8) % 23,2 11,5
SANLAM LIFE INSURANCE LIMITED
Shareholders" fund R million 27 555 19 877 39%
Capital adequacy requirements (CAR) R million 6 250 7 775 20%
CAR covered by prudential capital times 3,8 2,4 58%
Notes
(1) Core earnings = net result from financial services and net investment
income (including dividends received from associates).
(2) Headline earnings = core earnings, net investment surpluses, secondary tax
on companies and equity-accounted headline earnings less dividends received
from associates.
(3) Adjusted headline earnings based on the LTRR = net result from financial
services and total investment return based on a long-term rate of return.
(4) Administration costs as a percentage of financial services income earned by
the shareholders" fund less sales remuneration.
(5) Result from financial services as a percentage of financial services income
earned by the shareholders" fund less sales remuneration.
(6) APE = annual premium equivalent and is equal to new recurring premiums
(excluding indexed growth premiums) plus 10% of single premiums.
(7) Value of new business margin = value of new business as a percentage of
life insurance new business APE.
(8) Growth in embedded value (with dividends paid, capital raised and cost of
treasury shares acquired reversed) as a percentage of embedded value at the
beginning of the period.
(9) Returns for 6 months are annualised.
(10) Extracted from IFRS segmental information, except for embedded value
results.
EXECUTIVE REVIEW
Overall performance
These results are the first to be presented based on International Financial
Reporting Standards (IFRS). Headline earnings for the six months to June 2005
amounted to R2 681 million, a 94% improvement on the first half of 2004.
Headline earnings per share improved by 85% to 102,5 cps. The strong equity
markets experienced during the period largely contributed to this growth.
The net result from financial services for the first six months of 2005
increased by 19% on 2004. As expected, Santam experienced some contraction in
its underwriting results during the period. This detracted somewhat from an
otherwise satisfactory financial performance across the Group. An improvement of
36% in net investment income contributed to an overall improvement in Core
earnings of 24% to R1 556 million.
New business volumes were 11% higher than in the first half of 2004, primarily
due to an increase in retail and multi manager asset management investment
inflows. Total investments under management increased by 29% to R375 billion
during the period. New life insurance business flows were down 3% on the
comparable period in 2004 as the recent negative sentiment towards life insurers
contributed to a deteriorating environment for contractual savings and life
insurance products in particular. The embedded value of new life business for
the period amounted to R114 million, which is 14% lower than in the
corresponding period in 2004. The annualised return on embedded value increased
to 23,2% in the first half of 2005, which is well in excess of our hurdle rate.
Delivering on strategy
Major progress has been made in 2005 on Sanlam"s strategy to grow a more
balanced business within a defined financial services framework and to create an
optimal capital structure for the Group:
- An important milestone has been the disposal of the Sanlam shareholders"
fund"s entire holding of 124 million shares in Absa to Barclays Plc for some R10
billion in July 2005. This transaction removed an imbalance in Sanlam"s capital
portfolio and released capital for alternative application. It created the
liquidity necessary to redeploy capital of approximately R7 billion that the
Board regards as excess to the Group"s current capital requirement.
- In July 2005 Sanlam announced that the Board proposed a reduction in capital
of approximately R4 billion. This proposal is expected to be effected by a
simultaneous specific pro rata repurchase of shares from all shareholders and a
voluntary offer to shareholders holding a small number of shares, followed by a
share repurchase in the open market. A circular with full details on the
proposal has been distributed to shareholders. A special shareholder meeting has
been convened for 21 September to obtain the required shareholder approval to
implement this process.
- In May 2005 Sanlam announced its entry into the Indian insurance market in
partnership with the local Shriram group. This is a unique opportunity for
Sanlam to explore this potentially lucrative market with a fairly limited
initial capital outlay. The partnership is in line with our strategy of
developing selective international opportunities with the potential to diversify
revenue and enhance profitability on a sustainable basis.
- During August 2005 Sanlam announced a firm intention to acquire all of the
issued ordinary shares of African Life Assurance Company Limited ("African
Life") for some R2.6 billion as well as a controlling interest in Channel Life
for some R116 million. We have identified the entry-level life insurance market
as an important component of our growth strategy. The acquisition of African
Life, as well as the investment in Channel Life, will provide Sanlam with a
meaningful presence from which to consolidate and accelerate our existing
offering through Sanlam Group Solutions and Safrican in this segment. These are
revenue-enhancing acquisitions that we are confident will improve our earnings,
new business embedded value and return on embedded value. The offer for African
Life still needs to be accepted by a requisite majority of African Life
shareholders and sanctioned by the court to become effective. Both transactions
are also subject to obtaining the necessary regulatory approvals.
Sanlam is committed to providing a competitive value offering to all our clients
and is continuously seeking ways to improve this. To this end, Sanlam Life has
introduced a new product solution that provides retirement annuities and
endowments with materially improved values when a policy is paid up,
surrendered, or when premium reductions are made. It provides for improved
values on retirement annuities and endowments from the very first month of the
policy"s existence.
The Pension Fund Adjudicator
The Pension Fund Adjudicator recently issued a number of rulings that could have
potentially significant implications for Sanlam and the insurance industry as a
whole. Sanlam strongly supports actions to ensure the equitable treatment of
policyholders. It is in the interest of our policyholders and shareholders that
all parties honour the contractual, regulatory and legal framework upon which
the life insurance industry was founded. It is on this basis that we have
decided to institute the necessary legal processes to appeal against the
Adjudicator"s rulings. We are awaiting the outcome of this process. Due to the
uncertainty of the cost, if any, involved in addressing the potential claims
raised by the Adjudicator"s rulings, no specific provision has been created for
this purpose in the financial statements and embedded value.
Looking forward
The Board and management remain focused on delivering on four key strategic
areas:
- achieving growth through a product and distribution capability that is aligned
with Sanlam"s targeted markets;
- further improving operational efficiencies to ensure long-term profitability
while improving the value proposition for our clients;
- continued emphasis on capital optimisation; and
- accelerating Sanlam"s brand positioning through transformation and marketing.
The buoyant equity markets had a significant impact on the strong headline
earnings reported for the first six months of 2005. This trend may not continue
during the second half of the year, given the direct impact of equity markets on
headline earnings growth. Second half performance will also be impacted by the
sale of the investment in Absa. A substantial component of the proceeds from the
sale has been invested in liquid assets in anticipation of the share buy back
programme and the settlement of the African Life acquisition. The benefits of
the acquisition of African Life and the capital reduction will contribute to
performance from 2006.
Roy Andersen Johan van Zyl
Chairman Group Chief Executive
Sanlam Limited
Cape Town
7 September 2005
COMMENTS ON THE INTERIM RESULTS TO JUNE 2005
International Financial Reporting Standards
The Sanlam group results, as presented for the six months to 30 June have been
prepared, for the first time, based on and in compliance with International
Financial Reporting Standards (IFRS). Both the interim and full year 2004
results have been restated accordingly. The global development and practical
interpretation and application of these accounting standards are however ongoing
and certain interpretations and disclosures adopted in these interim results may
be subject to change in future reports.
While we fully support the efforts of the accounting profession to achieve
consistency in reporting and to counter any misrepresentation of company
results, we are concerned that the current implementation of IFRS may not in all
instances reflect economic and contractual reality; the most notable examples
being the prescribed IFRS valuation bases of investments in subsidiaries,
associated companies and Sanlam Limited shares supporting policy liabilities.
We will continue to interact with all role players to find an appropriate
approach to these problem areas.
Earnings
Shareholders" fund summarised income statement for the six months
ended 30 June 2005
R million 2005 2004 %
Net result from financial services 1 006 848 19%
Net investment income 550 403 36%
CORE EARNINGS 1 556 1 251 24%
Secondary Tax on Companies (STC) (87) -
Net investment surpluses 791 (208)
Return on shareholders" fund 700 (118)
Fund transfers 91 (90)
Equity-accounted headline earnings 421 341 23%
HEADLINE EARNINGS 2 681 1 384 94%
Other equity-accounted earnings (8) (12)
Net discontinuance costs - (13)
Loss on disposal of subsidiary (4) -
Impairment of investments and goodwill 6 (16)
Attributable earnings 2 675 1 343 99%
Net result from financial services 1 006 848 19%
Net investment return 1 669 495
Attributable earnings 2 675 1 343 99%
Net result from financial services and 919 848 8%
STC
LTRR investment return 1 331 1 034 29%
LTRR HEADLINE EARNINGS 2 250 1 882 20%
The comments on the results are based on an analysis of the IFRS income
statement in a management-reporting format. A reconciliation with the IFRS
income statement is provided in the financial statements.
Headline Earnings
Headline earnings of R2 681 million are up 94% and Headline earnings per share
of 102.5 cents are up 85% on the first six months of 2004. The lower per share
level of increase on 2004 is due to an increase in the number of issued shares,
essentially following the implementation of the Ubuntu-Botho (UB) empowerment
transaction in April 2004.
Following the introduction of IFRS and the designation of all shareholders" fund
investments as "at fair value through profit or loss", Headline earnings now
include all fair value changes on the investments held by the shareholders"
fund. This introduced significant volatility into Headline earnings, as is
evidenced by the sharp increase in Headline earnings over the prior period,
substantially due to relatively higher equity market growth during the first six
months of 2005.
In determining the Sanlam group results Sanlam shares held in the policyholder
portfolios now have to be treated as treasury shares (and no longer as an
investment at fair value) and shares held by these portfolios in Santam
(subsidiary), Vukile (subsidiary), Satrix (consolidated fund) and Absa
(associated company up to 30 June 2005) may no longer be accounted for as
investments at fair value, but must be accounted for at their net asset value
and equity-accounted values respectively. As a consequence, a transfer (through
Headline earnings) is required to or from the shareholders" fund in respect of
the market value changes of these shares. For the six months to June 2005, this
transfer to the shareholders" fund amounted to R91 million, compared to a
transfer from the shareholders" fund of R90 million for the same period in 2004.
Excluding these transfers the growth in headline earnings amounts to 76%.
Headline earnings are reported after a Secondary Tax on Companies (STC) charge
of R87 million in respect of Sanlam"s 2004 dividend paid in May 2005. This
follows the first time recognition in the 2004 results of a deferred tax asset
in respect of unused STC credits.
After the adoption of IFRS, there is little difference between Attributable
earnings and Headline earnings, except that goodwill impairments are included in
Attributable earnings but do not form part of Headline earnings.
LTRR Earnings
Earnings based on a long-term rate of investment return (LTRR) are 20% higher
than for the first six months of 2004, mainly due to the higher asset base on
which the long-term return is calculated. The asset base benefited from the
higher market values due to the strong growth towards the end of 2004 and in
2005 as well as the UB proceeds received in April 2004. The long-term return
rate used has been lowered from 11% to 10% for 2005.
Core Earnings
A Sanlam Core earnings figure is presented in an attempt to provide shareholders
with an indication of `normalised" earnings. Core earnings comprise the net
result from financial services and net investment income earned on the
shareholders" fund and exclude certain items that may cause volatility in
headline earnings, including changes in market value of the investments in the
shareholders" fund and transfers to or from the policyholders" fund. To ensure
consistency in our approach Core earnings no longer account for all the equity-
accounted earnings of non-operating companies, but only account for dividends
received from these associated companies.
On this basis, Core earnings of R1 556 million are 24% up on 2004, reflecting a
19% growth in the net result from financial services and a 36% increase in
investment income. The latter consists of dividends and interest earned on the
shareholders" fund, as well as the margin earned on the Group"s preference share
portfolio, and has been largely impacted by the higher Absa dividend received in
the current reporting period. The growth in the net result from financial
services reflects an improved performance by all Group operations, with the
exception, as anticipated, of a contraction in Santam"s performance. Gross of
tax and minority interests the result from financial services of R1 573 million
is 6% higher than in 2004. The taxation charge for the six-month period (as well
as for 2004) is net of the utilisation of taxation losses that emanated from a
historical tax dispensation. As indicated in the 2004 annual report this will be
substantially utilised by the end of the 2005 financial year.
Result from financial services for the six months ended
30 June
R million 2005 2004 %
Life insurance 777 704 10%
Sanlam Personal Finance 685 628 9%
Sanlam Employee Benefits 92 76 21%
Short-term insurance 532 663 (20%)
Investment management 269 208 29%
Sanlam Capital Markets 51 49 4%
Independent Financial Services 26 30 (13%)
Corporate expenses (82) (81) (1%)
Continued operations 1 573 1 573 -
Discontinued operations - (94) -
Gross result from financial 1 573 1 479 6%
services
- The Life insurance cluster recorded a 10% improvement to R777 million in its
results for the six months. The major contributor to the cluster"s performance,
Sanlam Personal Finance, increased its contribution by 9% to R685 million. This
can be attributed to buoyant stock markets, which improved underlying asset
values and fees earned, favourable risk underwriting experience and the
containment of administration expenses. Sanlam Employee Benefits benefited from
a favourable risk underwriting experience and increased its contribution by 21%
to R92 million.
- The short-term insurance industry recorded unprecedented underwriting results
in 2003 and 2004. As expected these could not be sustained indefinitely and the
margins achieved came under pressure in the first six months of 2005. Santam"s
net insurance result for the period of R532 million is down by 20% on 2004.
- The results of the Investment cluster for the six-month period increased to
R269 million, a 29% improvement on the corresponding period in 2004. The
international businesses in the cluster made a large contribution to this
increase, notwithstanding a stronger Rand, with Sanlam Multi Manager
International (SMMI) continuing to extract margin benefits from its growing
asset base. The transfer of Merchant Investors Assurance (MIA) investments to
SMMI contributed to the growth in asset base, crystallising the synergies
anticipated with the acquisition of MIA. Octane also had a very successful
first half of 2005. The South African investment management businesses increased
their profits by some 11%, with Sanlam Private Investments and Sanlam Collective
Investments in particular recording strong growth in earnings.
- Sanlam Capital Markets" contribution of R51 million is 4% up on 2004 and in
line with expectations.
- The contribution from Independent Financial Services is down by 13% to
R26 million, substantially due to the sale of 65% of Gensec Property Services in
the second half of 2004.
Total Group administration expenses for the six months were marginally lower
than in 2004, resulting in an improvement in the overall administration expense
ratio from 31.6% to 28.3%.
Business volumes
New business flows
Total new business inflows of R30 billion for the six months are 11% higher than
for the corresponding period in 2004. Strong growth from the Sanlam Multi-
Manager and retail investment inflows are somewhat offset by lower segregated
fund inflows at Sanlam Investment Management (SIM) and some reduction in SFS UK
inflows. Santam"s net premium income rose by 15%.
New Business Volumes for the six months ended 30 June
R million 2005 2004 %
Individual single 3 426 3 604 (5%)
Individual recurring 717 687 4%
Group business 1 064 1 076 (1%)
Life business 5 207 5 367 (3%)
Investment cluster 14 064 12 040 17%
Innofin 3 058 3 148 (3%)
SFS UK 2 539 2 730 (7%)
Namibia Unit Trust 1 127 274 >100%
Investment business 20 788 18 192 14%
Short-term insurance 4 139 3 584 15%
TOTAL 30 134 27 143 11%
The low interest rates of late, coupled with the recent negative press reports
on the insurance industry, impacted client investment behaviour and negatively
affected life insurance business volumes as private and collective investments
grew in popularity as substitutes for insurance policy based investments.
Individual Life new recurring premiums grew by 4% for the six months but single
premiums were down 5% on 2004, substantially due to a fall in life policy
continuations and lower sales of policies providing a guaranteed return. In this
environment, the strategic initiatives launched recently to address our reach
and market share in key segments are progressing, albeit slower than originally
planned. The level of new group business inflows for the period remained
unchanged relative to the first half of 2004. A 6% increase in policy benefit
payments and a 12% rise in policy surrenders and terminations lead to a net
outflow of R2 billion in respect of life insurance business for the period.
Overall, new investment inflows continued the upward trend of the recent past
and attracted more than R20 billion in gross new inflows. This was greatly
assisted by strong flows to both our local and international multi-managers, and
a strong growth in inflows to our Private and Collective Investments businesses.
SIM received new third party wholesale mandates of R4,6 billion during the six-
month period, somewhat lower than the R5 billion received in the first half of
2004. SFS UK attracted new inflows of R2,5 billion, which is some 7% lower than
the first six months of 2004. The Public Investment Commissioner withdrew R6
billion of its funds under management from SIM in March 2005 as part of the
restructuring of its investment process and mandates. Notwithstanding this
withdrawal, the Group achieved positive net investment inflows of some R1
billion for the six months. Investments under management or administration
amounted to R375 billion at the end of June 2005.
Embedded value of new business
The embedded value of new life business (VNB) for the six months decreased by
14% to R114 million. This is to a large extent the result of sluggish new
business volumes, which also impacted on unit costs and the margin of new
business, but also an improved allocation of acquisition costs in Employee
Benefits. The annual premium equivalent (APE) for the first six months remained
virtually unchanged from 2004 at R919 million, whilst the APE margin decreased
to 12,4% from the 14,5% recorded in the first half of 2004.
In line with the future disclosure proposed for the industry, the profit margin
is also expressed as a percentage of the present value of total new business
premiums. On this basis the margin reduced from 1,9% to 1,6%.
Solvency
The capital of Sanlam Life Insurance Limited increased by R1,8 billion from 31
December 2004 (after paying a dividend of R1,3 billion), to R27,6 billion at the
end of the period and CAR (Capital Adequacy Requirements) cover calculated on
the regulatory capital amounted to 3,8 at the end of June 2005, compared to 3,6
at the end of December 2004.
Embedded value
Sanlam group"s embedded value amounted to R39,3 billion at the end of June 2005
- 7% up on the R36,6 billion at the end of December 2004.
After taking the dividend of R1,4 billion paid into account, the return on
embedded value amounted to 23,2% annualised. The annualised return per share is
also 23,2%. The value of the Life insurance cluster"s in-force book amounted to
R8,9 billion, after taking into account the cost of capital at risk of R1,6
billion. Annualised growth from life business, based on the starting value of
the in-force life business, amounted to 16,6%.
Dividend
In line with past practice, no interim dividend has been declared. Sanlam
declares an annual dividend at year-end.
ACCOUNTING POLICIES AND ACTUARIAL BASIS
Statement of compliance
The accounting policies adopted for the purposes of the financial statements
comply with International Financial Reporting Standards (IFRS), specifically IAS
34 on interim financial reporting, and with applicable legislation. The policy
liabilities and profit entitlement rules are determined in accordance with
prevailing legislation, generally accepted actuarial practice and the
stipulations contained in the demutualisation proposal. There have been no
material changes in the financial soundness valuation basis since 31 December
2004.
Adoption of IFRS
Being a first-time adopter of IFRS for the 2005 financial year, the Group"s date
of transition to IFRS is 1 January 2004. The Group"s opening balance sheet on 1
January 2004 and comparative information for 2004 have been restated to comply
with all IFRS expected to be effective as at 31 December 2005.
The migration to IFRS for insurers will, in its full extent, take a number of
years. The interim results have been prepared in accordance with current
interpretations of IFRS. Future results may be impacted, as the development of
guidance for the long-term insurance industry, both from an accounting and
actuarial perspective is an ongoing process.
The South African standard applicable to long-term insurers, AC121 has been
withdrawn concurrently with the introduction of IFRS. Therefore, long-term
insurers will no longer have any form of exemption from applying normal
consolidation principles in instances where investments are held in policyholder
portfolios to fund policyholder benefits.
In terms of South African Generally Accepted Accounting Practice (SA GAAP) the
shareholders" fund"s investments in associated companies were carried at their
original cost plus the shareholders" fund"s share of its retained earnings after
acquisition (effectively carried at net asset value including goodwill, if any).
In respect of the investment in Absa, the equity-accounted carrying value was
further adjusted to reflect the investment at fair value. Similarly, the
investments in Safair Lease Finance and Peermont were also recognised at fair
value. These adjustments to fair value are not allowed in the absence of AC121
and Sanlam is required to reflect the shareholders" fund"s investment in these
companies at the equity-accounted carrying value.
The policyholders" fund"s investment in Absa must also be carried at original
cost plus its share of retained earnings after acquisition. Portfolio
investments in subsidiary companies (e.g. Santam) can no longer be accounted for
at market value but be carried at consolidated net asset value. Portfolio
investments in Sanlam shares have to be treated as treasury shares and deducted
from equity on consolidation. The result is a mismatch between the valuation of
long-term policy liabilities, which continues to include the affected
investments on a marked to market basis, and the policyholder assets underlying
these liabilities, which may not be at fair value or may be eliminated on
consolidation.
The movement in mismatch in any particular period, referred to above, is
accounted for through an income statement transfer to or from the shareholders"
fund, impacting on Headline and Attributable earnings as well as net asset
value. An appropriate adjustment is made to the value of the shareholders" fund
for Embedded Value and Capital Adequacy Requirement purposes to reverse this
impact.
Transitional provisions
IFRS 1 First-time Adoption of International Financial Reporting Standards
requires retrospective compliance with all IFRS expected to be effective at the
end of the first IFRS reporting period. However, it contains a number of
exemptions to this full retrospective application of IFRS. The Group has
applied the following exemptions:
Business combinations
The Group has elected not to apply IFRS 3 Business Combinations retrospectively
to business combinations that occurred prior to 1 January 2004. Accordingly, no
adjustments have been made to the accounting treatment of these business
combinations.
Property and equipment
The Group has elected to use the previous SA GAAP revaluation of selected
property and equipment as deemed cost on the date of transition to IFRS.
Cumulative translation differences
The cumulative translation differences in respect of the Group"s foreign
operations have been deemed to be zero on the date of transition to IFRS.
Designation of financial instruments
The majority of the Group"s financial instruments were designated as `available
for sale" in terms of SA GAAP. The Group has elected to redesignate these
financial instruments to the `at fair value through profit or loss" category in
IAS 39 Financial Instruments: Recognition and Measurement.
Share-based payments
The Group has elected not to apply IFRS 2 Share-based Payment to equity
instruments granted on or before 7 November 2002 or granted after 7 November
2002 but which had vested prior to 1 January 2005.
Comparatives
In terms of IFRS 1 an entity need not disclose comparative information that
complies with IAS 32 Financial Instruments: Disclosure and Presentation, IAS 39
Financial Instruments: Recognition and Measurement and IFRS 4 Insurance
Contracts in its first set of IFRS annual financial statements. In the interest
of comparable disclosure, the Group has not applied this exemption.
Compound financial instruments
The Group has elected not to separate compound financial instruments into equity
and liability components where the liability component is no longer outstanding
on the date of transition.
Changes in reporting structures and accounting policies
The implementation of IFRS concurrently with the withdrawal of the specific
South African accounting standard applicable to insurers (AC121) required the
following changes to the Group"s basis of presentation and accounting policies:
- Investments in associated companies and joint ventures
The Group"s investments in Absa Limited, Peermont Limited and the Safair Lease
Finance joint venture were recognised at fair value in the consolidated balance
sheet in terms of SA GAAP. The measurement basis has been changed from fair
value to an equity-accounted valuation as the exemptions in IFRS for continued
use of a fair value basis do not apply to these investments.
- Treasury shares
Sanlam Limited shares held in policyholder portfolios are treated as treasury
shares under IFRS and recognised as a deduction from equity on consolidation
(carried at fair value in terms of SA GAAP).
- Consolidation of policyholders" interest in Santam
The policyholders" fund"s interest in Santam Limited is consolidated in the
balance sheet under IFRS (carried at fair value in terms of SA GAAP).
- Goodwill
Goodwill in respect of business combinations with an agreement date before 31
March 2004 was previously recognised at cost and written off on a straight-line
basis over the lesser of its estimated useful life and twenty years. Goodwill
was also reviewed bi-annually for impairment and written down where necessary.
Amortisation of goodwill is no longer permitted under IFRS 3 Business
Combinations but is subject to at least an annual impairment review. The full
amortisation charge for 2004 has been reversed and all goodwill has been tested
for impairment as at 1 January 2004, 30 June 2004 and 31 December 2004. An
additional impairment was required on 30 June 2004 and 31 December 2004, mainly
in respect of the Group"s international operations.
- Classification of policy contracts
The Group has reclassified policy contracts between the insurance and investment
categories based on the IFRS 4 Insurance Contracts criteria.
A contract is classified as insurance where Sanlam accepts significant insurance
risk by agreeing with the policyholder to pay benefits if a specified uncertain
future event (the insured event) adversely affects the policyholder or other
beneficiary. Significant insurance risk exists where it is expected that for
the duration of the policy or part thereof, policy benefits payable on the
occurrence of the insured event will exceed the amount payable on early
termination, before allowance for expense deductions at early termination.
- Investment policy contracts
The valuation basis for investment contracts has been changed from the FSV
method to fair value. Negative Rand Reserves that were included in the
valuation of investment contracts under FSV have been eliminated.
Costs directly attributable to the acquisition of investment contracts are
capitalised to a deferred acquisition cost (DAC) asset and amortised to the
income statement over the term of the contracts. The DAC asset is tested for
impairment bi-annually and written down when it is not expected to be fully
recovered from future fee income.
- Long-term reinsurance contracts
Contracts entered into with reinsurers under which the Group is compensated for
losses on one or more contracts issued by the Group and which meet the
classification requirements for insurance contracts are classified as long-term
reinsurance contracts. The expected claims and benefits to which the Group is
entitled under these contracts are recognised as assets. The Group assesses its
long-term reinsurance assets for impairment. If there is objective evidence
that the reinsurance asset is impaired, the carrying amount is reduced to a
recoverable amount, and the impairment loss is recognised in the income
statement. Long-term insurance liabilities were previously shown net after
reinsurance; under IFRS long-term insurance liabilities are shown gross of
reinsurance and the asset is disclosed separately.
- Reclassification of policy loans
Loans granted to policyholders were disclosed as separate assets under AC121.
Loans with a legal right of set-off and where the intention is to settle the
policy loan and policy liability on a net basis, must be offset in terms of
IFRS. The affected loans have been reclassified from investment assets and set
off against long-term policy liabilities.
- Reclassification of financial instruments
The Group has reclassified its financial instruments formerly designated as
`available for sale" to the `at fair value through profit or loss" category.
All fair value gains and losses (investment surpluses) on these instruments are
recognised in the income statement under IFRS.
- Reclassification of cell owners" interest
Santam"s interests in cell insurance companies are consolidated under IFRS,
resulting in a reclassification of the cell owners" interest from minority
shareholders" interest to a cell owners" liability.
- Consolidation of investment vehicles
IFRS requires the consolidation of certain investment vehicles controlled by the
Group, e.g. collective investment schemes, which were previously recognised at
fair value in the Group balance sheet. A financial liability is recognised for
the fair value of external investors" interest where the issued units of the
fund are classified as financial liabilities in terms of IFRS. In all other
instances, the interest of external investors are recognised as minority
shareholders" interest.
- Share-based payments
Sanlam operates a staff share incentive scheme in terms of which shares are
offered to staff on a combined option and deferred delivery basis. With the
exception of administration costs incurred in respect of the scheme, no cost was
recognised in the income statement under SA GAAP. In terms of IFRS 2 Share-
based Payment the scheme is treated as equity-settled transactions and the fair
value of share-based payment instruments granted are recognised as an expense in
the income statement on a straight-line basis over the vesting period (adjusted
to reflect actual levels of vesting), with a corresponding credit to equity.
The equity-instruments granted to Ubuntu-Botho as part of the Group"s black
economic empowerment transaction have vested before 1 January 2005 and are
excluded from the scope of IFRS 2.
- Elimination of inter-company transactions
Inter-company transactions at arm"s length, which do not influence the Group"s
net earnings, were previously not eliminated from the results to fairly present
the activities of the various businesses. In the absence of AC121 inter-company
transactions are eliminated in the Group income statement and balance sheet.
- Operating leases
The South African Institute of Chartered Accountants (SAICA) recently issued
Circular 7/2005, which requires that rental income from operating leases that
contain fixed escalation clauses be recognised on a straight-line basis over the
lease term. It also requires that the cumulative difference between rental
income on a straight-line and accrual basis be recognised on the balance sheet,
but does not provide any further guidance on the required accounting treatment
in a fair value environment. The income statement adjustment does not represent
a valid claim for rental income due from the counter-party to the operating
lease. The resultant balance sheet adjustment is accordingly recognised as part
of the carrying amount of investment properties, which are subsequently
remeasured to fair value in terms of Sanlam"s accounting policies. The
adjustment to rental income pursuant to the application of Circular 7/2005 is
therefore netted off against investment surpluses.
Further analysis and interpretations on the application of Circular 7/2005 are
expected in the near term. These will be evaluated to determine any required
adjustment to Sanlam"s application of Circular 7/2005, as outlined above, in
finalising the full year results.
The financial impact of the changes in accounting policies is disclosed in the
IFRS Reconciliation of Equity and Earnings.
SPECIAL PURPOSE AUDIT REPORT
The 30 June 2005 results and the 30 June 2004 comparative information has not
been subject to an audit or review by the external auditors. The 31 December
2004 preliminary IFRS financial information has been audited.
A copy of the unqualified Special Purpose Audit Report of the joint auditors,
Ernst & Young and PricewaterhouseCoopers Inc, on the Group"s preliminary IFRS
financial information for the year ended 31 December 2004, is available for
inspection at the registered office of the company. The report includes
emphasis of matters that notes that only a complete set of financial statements
can provide a fair presentation of the Group"s financial position, results of
operations and cash flows in accordance with IFRS and that they have not audited
or reviewed the 30 June 2005 and 30 June 2004 financial information and express
no opinion thereon. They further note that the development of additional
guidance and interpretations may require amendment of the preliminary IFRS
financial information before inclusion as comparative information in the
financial statements for the year ended 31 December 2005.
GROUP BALANCE SHEET at 30 June 2005
June unaudited December
2005 2004 2004
R R R million
million million
ASSETS
Property and equipment 217 203 184
Owner-occupied properties 381 386 380
Goodwill 2 191 2 238 2 186
Deferred acquisition costs 1 050 895 994
Long-term reinsurance assets 333 295 318
Investments 200 554 164 555 187 437
Investment properties 14 659 12 086 14 413
Associated companies 6 288 4 611 5 098
Joint ventures 116 76 69
Equities 97 536 75 979 88 084
Public sector stocks and loans 42 064 33 689 44 434
Debentures, insurance policies, preference 17 901 15 431 17 141
shares and other loans
Cash, deposits and similar securities 21 990 22 683 18 198
Deferred tax 441 389 440
Short-term insurance technical assets 1 864 1 939 1 980
Working capital assets 34 808 28 473 31 192
Trade and other receivables 25 479 18 271 20 043
Cash, deposits and similar securities 9 329 10 202 11 149
Total assets 241 839 199 373 225 111
Equity and liabilities
Shareholders" fund 21 205 18 467 19 685
Minority shareholders" interest 3 305 2 283 3 515
Total equity 24 510 20 750 23 200
Long-term policy liabilities 172 051 146 256 163 556
Insurance contracts 96 948 81 663 92 961
Investment contracts 75 103 64 593 70 595
Term finance 4 901 4 508 6 103
External investors in consolidated funds 4 169 2 200 3 209
Cell owners" interest 86 - 47
Deferred tax 1 279 321 809
Short-term insurance technical provisions 5 632 4 963 5 198
Working capital liabilities 29 211 20 375 22 989
Trade and other payables 28 076 18 942 21 337
Provisions 319 344 465
Taxation 816 1 089 1 187
Total equity and liabilities 241 839 199 373 225 111
GROUP INCOME STATEMENT for the six months ended 30 June 2005
Six months Full
unaudited year
2005 2004 2004
Note R R R
million million million
Net income 21 783 9 789 41 975
Financial services income 9 161 8 360 17 836
Reinsurance premiums paid (979) (985) (2 303)
Reinsurance commission received 193 252 504
Investment income 4 878 4 639 9 658
Investment surpluses 8 759 (2 467) 16 659
Change in fair value of external (229) (10) (379)
investors liability
Net insurance and investment (15 037) (4 214) (30 081)
contract benefits and claims
Long-term insurance and investment (12 439) (2 282) (25 814)
contract benefits
Short-term insurance claims (2 980) (2 251) (5 014)
Reinsurance claims received 382 319 747
Expenses (3 464) (3 343) (7 026)
Sales remuneration (1 199) (1 082) (2 302)
Administration costs (2 265) (2 261) (4 724)
Impairment of investments and 6 (36) (263)
goodwill
Net operating result 3 288 2 196 4 605
Equity-accounted earnings 781 513 1 085
Finance cost (62) - (49)
Loss from discontinued operations - (87) (92)
Profit before tax 4 007 2 622 5 549
Tax expense 4 (836) (952) (1 771)
Shareholders" fund (393) (394) (1 013)
Policyholders" fund (443) (558) (758)
Profit for the year 3 171 1 670 3 778
Attributable to:
Shareholders" fund 2 675 1 343 2 758
Minority shareholders" interest 496 327 1 020
3 171 1 670 3 778
Earnings attributable to
shareholders of the company (cents):
Continuing operations:
Basic earnings per share 7 104,3 57,9 112,3
Diluted earnings per share 7 102,3 57,4 110,9
GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2005 Six months Full
unaudited year
2005 2004 2004
R R R
million million million
Shareholders" fund:
Balance at beginning of period 19 685 17 622 17 622
Total recognised income 2 865 1 199 2 559
Profit for the year 2 675 1 343 2 758
Equity-accounted earnings 23 (74) (42)
Movement in foreign currency 167 (70) (157)
translation reserve
Cost of treasury shares donated to the - (314) (314)
Ubuntu-Botho Community Development
Trust
Net realised investment surpluses on (57) (56) (126)
other treasury shares
Share option costs 38 21 51
Dividends paid (1 295) (1 022) (1 022)
New shares issued (1) - 865 865
Costs relating to share issuance - (19) (19)
Cost of treasury shares acquired (2) (31) 171 69
Balance at end of period 21 205 18 467 19 685
Minority shareholders" interest:
Balance at beginning of period 3 515 1 944 1 944
Total recognised income 526 296 1 005
Profit for the year 496 327 1 020
Equity-accounted earnings - (1) -
Movement in foreign currency 30 (30) (15)
translation reserve
Share option costs 2 2 4
Dividends paid (702) (89) (168)
Acquisitions, disposals and other (36) 130 730
movements in minority interests
Balance at end of period 3 305 2 283 3 515
Shareholders" fund 19 685 17 622 17 622
Minority shareholders" interest 3 515 1 944 1 944
Total equity at beginning of period 23 200 19 566 19 566
Shareholders" fund 21 205 18 467 19 685
Minority shareholders" interest 3 305 2 283 3 515
Total equity at end of period 24 510 20 750 23 200
(1) Comprises 113 million new ordinary shares at R7,65 per share, 56,5 million
`A" deferred shares at R0,01 per share and 52 million `A" preference shares
at R0,01 per share.
(2) Comprises movement in cost of shares held by subsidiaries and the share
incentive trust.
CASH FLOW STATEMENT
for the six months ended 30 June 2005 Six months Full
unaudited year
2005 2004 2004
R R R
million million million
Net cash inflow/(outflow) from operating 2 353 (226) 2 109
activities
Discontinued operations - (100) (105)
Other 2 353 (126) 2 214
Net cash outflow from investment (580) (1 447) (2 148)
activities
Net cash (outflow)/inflow from financing (3 429) 67 (777)
activities
Net decrease in cash and cash equivalents (1 656) (1 606) (816)
Cash, deposits and similar securities at 10 953 11 769 11 769
beginning of period
Cash, deposits and similar securities at 9 297 10 163 10 953
end of period
IFRS RECONCILIATION OF EQUITY AND EARNINGS
Six Full year
months
unaudited
June 2004 2004
R million R million
Reconciliation of reported earnings:
Attributable earnings reported under SA GAAP 1 463 3 283
Withdrawal of AC121:
Difference between fair value-based earnings
and equity-accounted earnings for the
shareholders" fund"s investment in:
Absa (1) (549) (2 942)
Peermont (1) 17 (246)
Safair Lease Finance (1) 70 67
Change in value shortfall of the
policyholders" fund"s investment in:
Absa (1) (133) (384)
Santam (2) 93 46
Vukile (2) - (71)
Satrix (2) (8) (113)
Sanlam (3) 18 (632)
Elimination of dividend paid to (60) (60)
policyholders (3)
Adoption of IFRS:
New business strain from investment (6) (13)
contracts (4)
Share option costs (5) (21) (51)
Goodwill amortisation (6) 179 328
Goodwill impairment (6) (36) (42)
Reclassification of available for sale 316 3 588
investments (7)
Profit attributable to shareholders" fund 1 343 2 758
under IFRS
IFRS RECONCILIATION OF EQUITY AND EARNINGS (continued)
31 December 2004
Assets Liabil- Minority Share-
ities share- holders"
holders" fund
interest
R million R million R million R million
Reconciliation of equity:
Reported under SA GAAP 228 024 197 586 2 796 27 642
Withdrawal of AC121:
Reduction in carrying value of
shareholders" fund"s
investment in:
Absa (1) (5 456) (783) (23) (4 650)
Peermont (1) (386) (67) - (319)
Safair Lease Finance (1) (225) - - (225)
Reduction in carrying value of
policyholders" fund"s
investment in:
Absa (1) (613) (34) - (579)
Santam (2) (90) - - (90)
Vukile (2) 2 140 1 483 728 (71)
Satrix (2) 483 739 - (256)
Sanlam (3) (1 824) - - (1 824)
Consolidation of investment 2 539 2 507 32 -
vehicles (8)
Elimination of inter-company (897) (897) - -
transactions (9)
Reclassification of policy (258) (258) - -
loans (10)
Adoption of IFRS:
Change in carrying value of - 1 270 (2) (1 268)
investment contracts (4)
Recognition of deferred 994 - - 994
acquisition costs asset (4)
Tax effect of change in 80 - - 80
investment contract valuation
basis (4)
Goodwill amortisation (6) 358 - 30 328
Goodwill impairment (6) (48) - (6) (42)
Reclassification of long-term 318 318 - -
reinsurance assets (11)
Revaluation of trading account (42) - - (42)
assets and liabilities (12)
Change in carrying value of 14 - 7 7
other associated companies
(13)
Reclassification of cell - 47 (47) -
owners" interest (14)
Reported under IFRS 225 111 201 911 3 515 19 685
IFRS RECONCILIATION OF EQUITY AND EARNINGS (continued)
30 June 2004 - unaudited
Assets Liabil- Minority Share-
ities share- holders"
holders" fund
interest
R million R million R million R million
Reconciliation of equity:
Reported under SA GAAP 202 270 177 092 2 248 22 930
Withdrawal of AC121:
Reduction in carrying value of
shareholders" fund"s
investment in:
Absa (1) (2 616) (310) (16) (2 290)
Peermont (1) (74) (18) - (56)
Safair Lease Finance (1) (222) - - (222)
Reduction in carrying value of
policyholders" fund"s
investment in:
Absa (1) (352) (24) - (328)
Santam (2) (43) - - (43)
Vukile (2) - - - -
Satrix (2) 566 717 - (151)
Sanlam (3) (1 293) - - (1 293)
Consolidation of investment 1 529 1 510 19 -
vehicles (8)
Elimination of inter-company (1 561) (1 561) - -
transactions (9)
Reclassification of policy (238) (238) - -
loans (10)
Adoption of IFRS:
Change in carrying value of - 1 160 - (1 160)
investment contracts (4)
Recognition of deferred 895 - - 895
acquisition costs asset (4)
Tax effect of change in 77 - - 77
investment contract valuation
basis (4)
Goodwill amortisation (6) 204 - 25 179
Goodwill impairment (6) (36) - - (36)
Reclassification of long-term 295 295 - -
reinsurance assets (11)
Revaluation of trading account (42) - - (42)
assets and liabilities (12)
Change in carrying value of 14 - 7 7
other associated companies
(13)
Reclassification of cell - - - -
owners" interest (14)
Reported under IFRS 199 373 178 623 2 283 18 467
IFRS RECONCILIATION OF EQUITY AND EARNINGS (continued)
1 January 2004 - unaudited
Assets Liabil- Minority Share-
ities share- holders"
holders" fund
interest
R million R million R million R million
Reconciliation of equity:
Reported under SA GAAP 196 056 172 438 1 931 21 687
Withdrawal of AC121:
Reduction in carrying value of
shareholders" fund"s
investment in:
Absa (1) (1 822) (148) (8) (1 666)
Peermont (1) (91) (18) - (73)
Safair Lease Finance (1) (292) - - (292)
Reduction in carrying value of
policyholders" fund"s
investment in:
Absa (1) (206) (11) - (195)
Santam (2) (136) - - (136)
Vukile (2) - - - -
Satrix (2) 547 690 - (143)
Sanlam (3) (1 344) - - (1 344)
Consolidation of investment 1 418 1 404 14 -
vehicles (8)
Elimination of inter-company (375) (375) - -
transactions (9)
Reclassification of policy (207) (207) - -
loans (10)
Adoption of IFRS:
Change in carrying value of - 1 092 - (1 092)
investment contracts (4)
Recognition of deferred 836 - - 836
acquisition costs asset (4)
Tax effect of change in 75 - - 75
investment contract valuation
basis (4)
Goodwill amortisation (6) - - - -
Goodwill impairment (6) - - - -
Reclassification of long-term 232 232 - -
reinsurance assets (11)
Revaluation of trading account (42) - - (42)
assets and liabilities (12)
Change in carrying value of 14 - 7 7
other associated companies
(13)
Reclassification of cell - - - -
owners" interest (14)
Reported under IFRS 194 663 175 097 1 944 17 622
Notes on IFRS implementation adjustments:
Investments in associated companies and joint venture
The Group"s investments in Absa Limited, Peermont Limited and the Safair Lease
Finance joint venture were recognised at fair value in terms of SA GAAP. IFRS
does not allow the continued use of a fair value basis for these investments,
resulting in a reduction in the carrying value from fair value to an equity-
accounted valuation.
Reported earnings are adjusted with the difference between the fair value-based
investment return and equity-accounted earnings.
Policyholders" fund"s investment in subsidiaries
In terms of SA GAAP the policyholders" fund"s investments in Santam and Vukile,
subsidiaries of the Sanlam group, and Satrix, now a consolidated fund, were
accounted for as equity investments at fair value. In terms of IFRS the
policyholders" interest must be consolidated and measured at net asset value.
Reported earnings are adjusted with the difference between the fair value-based
investment return and the consolidated earnings.
Policyholders" fund"s investment in Sanlam shares
In terms of SA GAAP the policyholders" fund"s investment in Sanlam Limited
shares was accounted for as an equity investment at fair value. In terms of
IFRS the policyholders" interest must be treated as treasury shares and
recognised as a deduction from equity on consolidation.
Reported earnings are adjusted with the investment return earned on the Sanlam
shares held by policyholder portfolios.
Measurement of investment policy contracts
Investment contracts issued by Sanlam Life Insurance Limited were measured under
SA GAAP using bases similar to the Financial Soundness Valuation (FSV) method.
These contracts are valued at fair value in terms of IFRS, requiring an
adjustment to their carrying value. The FSV valuation includes specific
allowance for commission and other issuing costs. In a fair value environment,
the FSV cost allowance is replaced by a deferred acquisition costs (DAC) asset
in terms of IAS 18 Revenue. The new business strain, as well as the increase in
the total net liability recognised in respect of investment contracts, result
primarily from the difference between the incremental cost that can be
capitalised to DAC in terms of IFRS and the level of cost allowance inherent to
the FSV method.
Share option costs
IFRS 2 Share-based Payment requires the recognition of an income statement
expense in respect of equity instruments granted to participants of the Group"s
share incentive schemes. No income statement effect was recognised in terms of
SA GAAP, except for administration costs incurred in respect of the schemes.
Goodwill amortisation and impairment
Goodwill in respect of business combinations with an agreement date prior to 31
March 2004 was amortised under SA GAAP and subject to an impairment review.
Goodwill is not amortised under IFRS but subject to at least an annual
impairment review. Goodwill amortised under SA GAAP during the 2004 financial
year has been reversed in terms of IFRS 1. All goodwill has been tested for
impairment as at 1 January 2004, 30 June 2004 and 31 December 2004. An
additional impairment was required on 30 June 2004 and 31 December 2004, mainly
in respect of the Group"s international operations.
Reclassification of available for sale investments
In terms of SA GAAP (AC133) the Group classified the majority of its investments
as `available for sale" and elected to transfer unrealised investment surpluses
directly to equity. In terms of IFRS 1 the Group has reclassified these
financial instruments as `at fair value through profit or loss" (refer
`Transitional provisions" section). Unrealised investment surpluses formerly
reported directly in equity have been transferred to the income statement.
Consolidation of investment vehicles
IFRS requires the consolidation of certain investment vehicles controlled by the
Group, e.g. collective investment schemes, which were previously recognised at
fair value in the Group balance sheet.
Elimination of inter-company transactions
Inter-company transactions at arm"s length, which do not influence the Group"s
net earnings, were previously not eliminated from the results to fairly present
the activities of the various businesses. In the absence of AC121 inter-company
transactions are eliminated with no net impact on the shareholders" fund.
Reclassification of policy loans
Loans granted to policyholders were disclosed as separate assets under AC121.
Loans with a legal right of set-off and where the intention is to settle the
policy loan and policy liability on a net basis, must be offset in terms of
IFRS. The affected loans have been reclassified from investment assets to long-
term policy liabilities.
Reclassification of long-term reinsurance assets
Contracts entered into with reinsurers under which the Group is compensated for
losses on one or more contracts issued by the Group and that meet the
classification requirements for insurance contracts were previously offset
against long-term insurance contract liabilities. These reinsurance assets have
been reclassified from long-term policy liabilities to a separate asset class in
terms of the disclosure requirements of IFRS 4.
Revaluation of trading account assets and liabilities
The valuation of certain unquoted trading assets and liabilities was adjusted to
comply with the requirements of the revised IAS 39, among others in respect of
the treatment of day one profits.
Change in carrying value of other associated companies
The post acquisition equity-accounted earnings of certain associated companies
have been changed as a result of the transition to IFRS.
Reclassification of cell owners" interest
Santam"s interests in cell insurance companies are consolidated under IFRS,
resulting in a reclassification of the cell owners" interest from minority
shareholders" interest to a cell owners" liability.
ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET -
NET ASSET VALUE
(All businesses consolidated at NAV)
at 30 June 2005 June unaudited December
2005 2004 2004
R million R million R million
Assets
Goodwill 2 175 2 238 2 170
Investments 28 440 23 747 26 582
Working capital and other assets 30 763 25 088 26 748
Total assets 61 378 51 073 55 500
Equity and liabilities
Shareholders" fund 21 205 18 467 19 685
Minority shareholders" interest 2 583 2 423 2 932
Term finance, working capital and 37 590 30 183 32 883
other liabilities
Total equity and liabilities 61 378 51 073 55 500
ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET -
FAIR VALUE (Group businesses, associates and joint venture below
reflected as investments at fair value)
at 30 June 2005 June unaudited December
2005 2004 2004
R million R million R million
Assets
Property and equipment 144 103 106
Owner-occupied properties 369 369 370
Goodwill (1) 389 372 387
Deferred acquisition costs 122 - -
Investments 37 404 28 106 34 794
Sanlam businesses 7 910 5 622 7 743
Investment Management (2) 2 572 2 079 2 384
Sanlam Financial Services 379 356 349
Sanlam Capital Markets 444 399 441
Innofin 232 145 187
Santam 3 851 2 613 4 028
Other (3) 432 30 354
Associated companies 11 405 6 529 10 033
Absa 10 250 6 254 9 429
African Life Assurance 521 - -
Peermont 634 275 604
Joint venture - Safair Lease 278 298 270
Finance
Other investments 17 811 15 657 16 748
Other equities 7 840 6 262 6 739
Public sector stocks and loans 1 494 2 388 1 550
Investment properties 571 505 619
Other interest-bearing and 7 906 6 502 7 840
preference share investments
Deferred tax 310 227 313
Working capital assets 5 669 6 148 6 657
Total assets 44 407 35 325 42 627
Equity and liabilities
Shareholders" fund 32 101 23 747 29 782
Minority shareholders" interest 53 - 61
Term finance 3 791 4 819 5 064
External investors in 98 74 51
consolidated funds
Deferred tax 1 105 391 1 143
Working capital liabilities 7 259 6 294 6 526
Total equity and liabilities 44 407 35 325 42 627
Net asset value per share 1 178 868 1 093
(cents)
The goodwill relates mainly to the consolidation of Merchant Investors Assurance
and is excluded in the build-up of the Group embedded value, as the current
value of in-force business for this life insurance company is included in the
embedded value.
Included in Investment Management are Sanlam Investment Management, Sanlam
Collective Investments and the Investment Cluster"s international businesses.
Other businesses comprise the non-life businesses in the Life Insurance cluster,
which are excluded from the value of in-force and all the businesses in the
Independent Financial Services cluster apart from Sanlam Financial Services.
ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET -
FAIR VALUE (continued)
Assets Minority Share-
share- holders"
holders" fund
interest
R R million R
million million
Reconciliation of equity - fair
value:
31 December 2004
Reported under SA GAAP 30 045 63 29 982
Change in carrying value of (196) (2) (194)
investment contracts
Revaluation of trading account (42) - (42)
assets and liabilities
Goodwill amortisation reversed - 36 - 36
Merchant Investors Assurance
Reported under IFRS 29 843 61 29 782
30 June 2004 - unaudited
Reported under SA GAAP 23 958 - 23 958
Change in carrying value of (188) - (188)
investment contracts
Revaluation of trading account (42) - (42)
assets and liabilities
Goodwill amortisation reversed - 19 - 19
Merchant Investors Assurance
Reported under IFRS 23 747 - 23 747
1 January 2004 - unaudited
Reported under SA GAAP 22 819 - 22 819
Change in carrying value of (181) - (181)
investment contracts
Revaluation of trading account (42) - (42)
assets and liabilities
Reported under IFRS 22 596 - 22 596
ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET -
FAIR VALUE (continued)
Six months unaudited Full year
2005 2004 2004
R million R million R million
SANLAM BUSINESSES AND INVESTMENTS: EXCESS OF FAIR VALUE OVER NET
ASSET VALUE
The shareholders" fund balance sheet at fair value includes the
value of the companies below based on directors" valuation, apart
from Santam, Absa, African Life Assurance and Peermont, which are
valued according to ruling share prices.
Net asset value of businesses and 9 223 7 273 8 426
investments
Investment Management (1) 486 369 514
Sanlam Financial Services UK 355 391 335
Sanlam Capital Markets 444 399 441
Innofin 157 141 155
Santam 2 398 2 052 2 655
Absa 4 498 3 674 4 030
African Life Assurance 521 - -
Peermont 229 201 218
Safair Lease Finance 71 46 45
Other (2) 64 - 33
Goodwill recognised in respect of above 1 198 1 198 1 198
companies
Deferred capital gains tax on investments 936 437 1 146
at fair value
Revaluation adjustment of interest to fair 8 236 3 541 7 276
value
Fair value of businesses and investments 19 593 12 449 18 046
Analysis of fair value
Sanlam businesses 7 910 5 622 7 743
Associated companies 11 405 6 529 10 033
Joint venture - Safair Lease Finance 278 298 270
Fair value of businesses and investments 19 593 12 449 18 046
(1) Included in Investment Management are Sanlam Investment
Management, Sanlam Collective Investments and the Investment
cluster"s international businesses.
(2) Other businesses comprise the non-life businesses in the Life
Insurance cluster, which are excluded from the value of in-force
and all the businesses in the Independent Financial Services
cluster apart from Sanlam Financial Services.
RECONCILIATION OF EARNINGS to segmental analysis
Six months ended 30 June 2005 -
unaudited
Shareholder Policy-
activities holder
Active-
ties
R million Total Financia Investme
l nt
services return
Net income 21 783 9 078 1 170 11 535
Financial services income 9 161 9 183 (2) (20)
Reinsurance premiums paid (979) (979) - -
Reinsurance commission received 193 193 - -
Investment income 4 878 657 397 3 824
Investment surpluses 8 759 24 788 7 947
Change in fair value of external (229) - (13) (216)
investors liability
Net insurance and investment (15 037) (4 046) - (10
contract benefits and claims 991)
Long-term insurance and investment (12 (1 448) - (10
contract benefits 439) 991)
Short-term insurance claims (2 980) (2 980) - -
Reinsurance claims received 382 382 - -
Expenses (3 464) (3 459) - (5)
Sales remuneration (1 199) (1 199) - -
Administration costs (2 265) (2 260) - (5)
Impairment of investments and 6 - 6 -
goodwill
Net operating result 3 288 1 573 1 176 539
Equity-accounted earnings 781 - 713 68
Finance cost (62) - - (62)
Loss from discontinued operations - - - -
Profit before tax 4 007 1 573 1 889 545
Tax expense (836) (364) (29) (443)
Shareholders" fund (393) (364) (29) -
Policyholders" fund (443) - - (443)
Profit for the year 3 171 1 209 1 860 102
Attributable to:
Shareholders" fund 2 675 1 006 1 669 -
Minority shareholders" interest 496 203 191 102
3 171 1 209 1 860 102
RECONCILIATION OF EARNINGS to segmental analysis
Six months ended 30 June 2004 -
unaudited
Shareholder Policy-
activities holder
Active-
ties
R million Total Financia Investme
l nt
services return
Net income 9 789 8 203 145 1 441
Financial services income 8 360 8 380 (3) (17)
Reinsurance premiums paid (985) (985) - -
Reinsurance commission received 252 252 - -
Investment income 4 639 556 368 3 715
Investment surpluses (2 467) - (204) (2 263)
Change in fair value of external (10) - (16) 6
investors liability
Net insurance and investment (4 214) (3 291) - (923)
contract benefits and claims
Long-term insurance and investment (2 282) (1 359) - (923)
contract benefits
Short-term insurance claims (2 251) (2 251) - -
Reinsurance claims received 319 319 - -
Expenses (3 343) (3 339) - (4)
Sales remuneration (1 082) (1 082) - -
Administration costs (2 261) (2 257) - (4)
Impairment of investments and (36) - (36) -
goodwill
Net operating result 2 196 1 573 109 514
Equity-accounted earnings 513 - 464 49
Finance cost - - - -
Loss from discontinued operations (87) (94) 7 -
Profit before tax 2 622 1 479 580 563
Tax expense (952) (381) (13) (558)
Shareholders" fund (394) (381) (13) -
Policyholders" fund (558) - - (558)
Profit for the year 1 670 1 098 567 5
Attributable to:
Shareholders" fund 1 343 848 495 -
Minority shareholders" interest 327 250 72 5
1 670 1 098 567 5
RECONCILIATION OF EARNINGS to segmental analysis
Year ended 31 December 2004
Shareholder Policy-
activities holder
Active-
ties
R million Total Financia Investme
l nt
services return
Net income 41 975 17 170 879 23 926
Financial services income 17 836 17 886 (7) (43)
Reinsurance premiums paid (2 303) (2 303) - -
Reinsurance commission 504 504 - -
received
Investment income 9 658 1 083 789 7 786
Investment surpluses 16 659 - 127 16 532
467) 263)
Change in fair value of (379) - (30) (349)
external investors
liability
Net insurance and (30 081) (6 965) - (23
investment contract 116)
benefits and claims
Long-term insurance and (25 (2 698) - (23
investment contract 814) 116)
benefits
Short-term insurance (5 014) (5 014) - -
claims
Reinsurance claims 747 747 - -
received
Expenses (7 026) (6 996) (1) (29)
Sales remuneration (2 302) (2 302) - -
Administration costs (4 724) (4 694) (1) (29)
Impairment of investments (263) - (263) -
and goodwill
Net operating result 4 605 3 209 615 781
Equity-accounted earnings 1 085 - 984 101
Finance cost (49) - - (49)
Loss from discontinued (92) (94) 2 -
operations
Profit before tax 5 549 3 115 1 601 833
Tax expense (1 771) (789) (224) (758)
Shareholders" fund (1 013) (789) (224) -
Policyholders" fund (758) - - (758)
Profit for the year 3 778 2 326 1 377 75
Attributable to:
Shareholders" fund 2 758 1 812 946 -
Minority shareholders" 1 020 514 431 75
interest
3 778 2 326 1 377 75
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 30 June 2005 Six months unaudited Full yea
2005 2004 2004
R million R million R milli
FUNDS RECEIVED FROM CLIENTS
Life insurance 5 207 5 367 11 200
Investments 20 788 18 192 40 933
Short-term insurance 4 139 3 584 7 719
Total new business 30 134 27 143 59 852
Premiums on existing business 5 354 5 269 10 879
Total funds received from clients 35 488 32 412 70 731
Funds received from short-term insurance are
recognised in the income statement. All
other funds received are recognised directly
in the balance sheet or as segregated funds
as applicable; fee income earned on this
business is recognised in the income
statement.
payments TO CLIENTS
Life insurance 12 599 12 383 25 517
Risk underwriting benefits 1 382 1 294 2 568
Other payments 11 217 11 089 22 949
Investments 19 730 9 704 24 226
Short-term insurance 2 664 2 062 4 397
Total payments to clients 34 993 24 149 54 140
Life insurance risk underwriting benefits
and short-term insurance payments are
recognised in the income statement; all
other payments to clients are recognised
directly in the balance sheet or as
segregated fund flows as applicable.
NET FLOW OF FUNDS
Life insurance (2 038) (1 747) (3 438)
Investments 1 058 8 488 16 707
Short-term insurance 1 475 1 522 3 322
Total net inflow of funds 495 8 263 16 591
TAXATION
Result from financial services 364 381 789
Current year 364 381 793
Prior year - - (4)
Investment income - current year 62 47 92
Investment surpluses (120) (34) 232
Secondary Tax on Companies 87 - (100)
Tax expense - shareholders" fund 393 394 1 013
Tax expense - policyholders" fund 443 558 758
Total income tax charged to income statement 836 952 1 771
SEGMENTAL ANALYSIS - SHAREHOLDERS" FUND
Financial services
Life insurance 777 704 1 493
Short-term insurance 532 663 1 361
Investment management 269 208 419
Sanlam Capital Markets 51 49 86
Independent Financial Services 26 30 44
Corporate expenses (82) (81) (194)
Result from continued operations 1 573 1 573 3 209
Discontinued operations - (94) (94)
Result from financial services before tax 1 573 1 479 3 115
Investment return
Life insurance 2 546 1 290 7 287
Short-term insurance 410 161 1 062
Investment management (5) (5) 48
Sanlam Capital Markets - 23 -
Independent Financial Services - (31) (52)
Corporate and other 718 527 1 022
Consolidation (1 780) (1 392) (7 768)
Result from continued operations 1 889 573 1 599
Discontinued operations - 7 2
Investment return before tax 1 889 580 1 601
Investment INCOME - SHAREHOLDERS" FUND
Interest-bearing investments 234 175 445
Equities 120 174 312
Properties 43 19 32
Investment income before consolidation 397 368 789
Dividends from associated companies 273 139 264
Total investment income 670 507 1 053
EARNINGS PER SHARE
Basic earnings per share:
Net result from financial services 39,2 34,3 71,4
Core earnings 60,7 50,7 104,8
Headline earnings 104,5 56,0 116,8
Adjusted headline earnings based on the long-87,7 76,2 160,4
term rate of return
Profit from continuing operations 104,3 57,9 112,3
attributable to shareholders" fund
Loss from discontinued operations - (3,5) (3,6)
attributable to shareholders" fund
Diluted earnings per share:
Net result from financial services 38,5 34,0 70,5
Core earnings 59,4 50,2 103,4
Headline earnings 102,5 55,5 115,3
Adjusted headline earnings based on the long-86,0 75,5 158,3
term rate of return
Profit from continuing operations 102,3 57,4 110,9
attributable to shareholders" fund
Loss from discontinued operations - (3,5) (3,6)
attributable to shareholders" fund
Analysis of earnings:
Net result from financial services 1 006 848 1 812
Net investment income 550 403 847
Investment income per note 6 670 507 1 053
Tax on investment income (62) (47) (92)
Minority shareholders" interest (58) (57) (114)
Core earnings 1 556 1 251 2 659
Net equity-accounted headline earnings 421 341 718
Equity-accounted headline earnings 443 341 747
(excluding dividends received)
Minority shareholders" interest (22) - (29)
Net investment surpluses 791 (208) (514)
Investment surpluses 782 (227) 32
Tax on investment surpluses 120 34 (232)
Minority shareholders" interest (111) (15) (314)
Secondary tax on companies (87) - 100
Headline earnings 2 681 1 384 2 963
Non-headline earnings (6) (41) (205)
Profit for the period 2 675 1 343 2 758
Adjusted headline earnings based on the long-2 250 1 882 4 070
term rate of return
Profit from continuing operations 2 675 1 430 2 850
attributable to shareholders" fund
Loss from discontinued operations - (87) (92)
attributable to shareholders" fund
Number of shares:
Number of ordinary shares in issue at 2 767,6 2 654,6 2 654,6
beginning of period
Add: Weighted number of shares issued - 28,3 84,8
Less: Weighted Sanlam shares held by (202,9) (213,5) (201,6)
subsidiaries (including policyholders)
Adjusted weighted average number of shares 2 564,7 2 469,4
for basic earnings per share 2 537,8
Add: Conversion of deferred shares 6,9 3,0 3,0
Add: Total number of shares under option 119,9 128,9 132,1
Less: Number of shares (under option) that (75,7) (108,7)
would have been issued at fair value (102,1)
Adjusted weighted average number of shares 2 615,8 2 492,6
for diluted earnings per share 2 570,8
Number of ordinary shares in issue 2 767,6 2 767,6 2 767,6
Shares held by subsidiaries in shareholders" (49,9) (30,4) (47,5)
fund
Convertible deferred shares held by Ubuntu- 7,7 - 5,8
Botho
Adjusted number of shares for value per 2 725,4 2 737,2 2 725,9
share
8. ASSETS UNDER MANAGEMENT AND
ADMINISTRATION (r million)
Total assets per Group balance sheet 241 839 199 373 225 111
Segregated funds not included in Group 133 104 92 362 121 678
balance sheet
Total assets under management and 374 943 291 735 346 789
administration
9. CONTINGENT LIABILITIES
The Pension Fund Adjudicator recently issued a number of rulings that
could have potentially significant implications for Sanlam and the
insurance industry as a whole. Refer to the executive review for
further information.
Shareholders are also referred to the contingent liabilities
disclosed in the 2004 annual report. The circumstances surrounding
these contingent liabilities remained unchanged
Adjusted headline earnings - LTRR
Six months unaudited Full
year
2005 2004 2004
R million R million R million
The LTRR investment return is determined
by applying the long-term expected return
of 10% (2004: 11%) to the average monthly
shareholders" fund investments
Adjusted headline earnings - long-term
rate of return (LTRR)
Net result from financial services 1 006 848 1 812
Secondary tax on companies (87) - 100
LTRR investment return after taxation 1 331 1 034 2 158
Equity-accounted headline earnings 421 341 718
LTRR investment return - balanced 910 693 1 440
portfolio
Adjusted earnings - LTRR 2 250 1 882 4 070
Reconciliation of headline earnings and
LTRR headline earnings
Headline earnings per note 7 2 681 1 384 2 963
Fund Transfers (91) 90 1 214
Net LTRR adjustment (340) 408 (107)
Adjusted headline earnings - LTRR 2 250 1 882 4 070
Analysis of net LTRR adjustment
Investment return (185) 584 (300)
Equities (278) 388 (331)
Interest-bearing investments 133 194 47
Properties (40) 2 (16)
Tax (216) (149) (65)
Minority shareholders" interest 61 (27) 258
Net LTRR adjustment (340) 408 (107)
AssetS subject to LTRR
Investments per shareholders" fund balance 28 440 23 747 26 582
sheet at net asset value
Less: Investment in associated companies (5 604) (4 035) (4 544)
Investment in joint ventures (116) (76) (69)
Investments held in respect of term (3 718) (3 417) (3 809)
finance
Investments held in respect of capital (109) (89) (62)
market activity
Investments from discontinued operations, (781) (797) (905)
matched by liabilities
Other (413) (338) (104)
LTRR investments 17 699 14 995 17 089
Embedded Value
for the six months ended 30 June 2005 Six months unaudited Full year
2005 2004 2004
R million R million R million
Embedded Value
Sanlam group shareholders" fund at fair 32 101 23 747 29 782
value
Adjustment for discounting capital gains 176 111 138
tax (1)
Adjustment to include business under value (356) (372) (356)
of in-force (2)
Present value of strategic corporate (772) (641) (883)
expenses (3)
Fair value of share incentive scheme (4) (668) (375) (799)
STC deferred tax asset written down (5) (100) - (100)
Sanlam group shareholders adjusted net 30 381 22 470 27 782
assets
Net value of life insurance business in- 8 882 8 011 8 851
force (2)
Value of life insurance business in-force 10 497 9 418 10 285
- Individual business 9 447 8 090 9 147
- Employee benefits 1 050 1 328 1 138
Cost of capital at risk (1 563) (1 407) (1 400)
- Individual business (1 237) (986) (1 128)
- Employee benefits (326) (421) (272)
Minority shareholders" interest in value (52) - (34)
of in-force
Sanlam group embedded value 39 263 30 481 36 633
Embedded value per share (cents) (6) 1 441 1 114 1 344
Number of shares (million) (6) 2 725 2 737 2 726
2. embedded value EARNINGS
Embedded value from new life insurance 114 133 321
business (7)
Earnings from existing life insurance 798 741 1 363
business
Expected return 591 587 1 148
Operating experience variations (8) 137 113 144
Operating assumption changes 70 41 71
Embedded value earnings from life 912 874 1 684
operations
Economic assumption changes (9) (319) (48) 197
Tax changes (10) (87) - -
Investment variances 184 (183) 253
Exchange rate movements 36 (21) (37)
Change in minority shareholders" interest (18) - (34)
in value of in-force
Growth from life insurance business 708 622 2 063
Investment return on shareholders adjusted 3 185 1 031 6 389
net assets
Change in fair value of share incentive 131 56 (368)
scheme
Total embedded value earnings before
dividends are paid, capital raised and 4 024 1 709 8 084
cost of treasury shares acquired
Dividends paid (1 363) (1 082) (1 082)
Capital raised - 848 846
Cost of treasury shares acquired (31) (176) (397)
Change in Sanlam group embedded value 2 630 1 299 7 451
Growth from life insurance business as a % 16,6% 16,1% 26,5%
of beginning value of in-force*
Return on embedded value* (6) 23,2% 11,5% 27,7%
Return on embedded value per share* (6) 23,2% 8,0% 22,6%
* annualised returns for 6-month periods
3. NEW BUSINESS
Value of new business
Gross value of new business 127 144 339
Individual business - RSA 109 119 279
Employee benefits - RSA 10 19 46
International (11) 8 6 14
Cost of capital at risk (13) (11) (18)
Individual business - RSA (7) (5) (10)
Employee benefits - RSA (4) (4) (5)
International (11) (2) (2) (3)
Net value of new business (7) 114 133 321
New business profitability ratios (12)
Annual Premium Equivalent (APE) (12) 919 917 1 958
Individual business - RSA 704 729 1 489
Employee benefits - RSA 145 141 356
International (11) 70 47 113
Present value of new business premiums 7 175 6 930 15 357
(13)
Individual business - RSA 5 200 5 230 11 096
Employee benefits - RSA 1 392 1 345 3 352
International (11) 583 355 909
Net value of new business (7) 114 133 321
Individual business - RSA 102 114 269
Employee benefits - RSA 6 15 41
International (11) 6 4 11
APE margin (12) 12,4% 14,5% 16,4%
Individual business - RSA 14,5% 15,6% 18,1%
Employee benefits - RSA 4,1% 10,6% 11,5%
International (11) 8,6% 8,5% 9,7%
Present value of premium margin (12) 1,6% 1,9% 2,1%
Individual business - RSA 2,0% 2,2% 2,4%
Employee benefits - RSA 0,4% 1,1% 1,2%
International (11) 1,0% 1,1% 1,2%
Gross value Cost of Net value Change from
of in-force capital of in- base
business at risk force %
R million R business
million R million
4. SENSITIVITY
Value of in-force business
less cost of capital
Base value 10 497 (1 563) 8 934
Increase risk discount rate 9 844 (1 864) 7 980 (11%)
by 1,0% to 11,6%
Decrease risk discount rate 11 250 (1 207) 10 043 12%
by 1,0% to 9,6%
Value of new business
Base value 127 (13) 114
Increase risk discount rate 107 (16) 91 (20%)
by 1,0% to 11,6%
Decrease risk discount rate 153 (12) 141 24%
by 1,0% to 9,6%
METHODOLOGY
The embedded value methodology applied is consistent with the methodology used
in the 31 December 2004 Embedded Value report. There are no material changes in
the methodology used. The embedded value results have been adjusted, where
applicable, for the adoption of IFRS for the 2005 interim results. Both the
interim and full year 2004 embedded value results have been restated and have
not been subject to an audit.
PRINCIPAL ASSUMPTIONS
June unaudited December
2005 2004 2004
% p.a. % p.a. % p.a.
Gross investment return and inflation
(14)
Fixed-interest securities 8,1 10,4 8,3
Equities and offshore investments 10,1 12,4 10,3
Hedged equities (15) 8,1 9,4 8,3
Property 9,1 11,4 9,3
Cash 6,1 8,4 6,3
Risk discount rate 10,6 12,9 10,8
Return on capital at risk (16) 8,4 11,0 9,1
Unit cost and salary inflation 4,1 6,4 4,3
Consumer price index inflation 3,1 4,9 3,3
Decrements, expenses and bonuses
Future mortality, morbidity and discontinuance rates and future expense levels
are based on recent experience where appropriate.
Future rates of bonuses for traditional participating business, stable bonus
business and participating annuities are set at levels that are supportable by
the assets backing the respective product asset funds at the respective
valuation dates.
Sanlam Life"s current surrender and paid-up bases are assumed to be maintained
in the future.
HIV/Aids
Allowance is made, where appropriate, for the impact of expected HIV/Aids-
related claims, consistent with the recommendations of the Actuarial Society of
South Africa as set out in its proposed Professional Guidance Note 105.
Premiums in respect of individual business are assumed to be rerated, where
applicable, in line with deterioration in mortality, with a three-year delay
from the point where mortality losses would be experienced.
Taxation
Projected corporate tax is allowed for at a rate of 29% (previously 30%).
Allowance is made for capital gains tax. The assumed rollover period for
realisation of investments is five years for property and equity assets
supporting policy reserves. For property and equity assets supporting capital
at risk the assumed rollover period is also five years, except for Santam (ten
years) and ABSA (not discounted).
Allowance for secondary tax on companies is made by placing a present value on
the tax liability generated by the net cash dividends paid that is attributable
to the life company. Previously it was assumed that over the long-term the
proportion of cash dividends paid would reduce to a level of 50% from the
current 100% level. We now assume that all future dividends will be paid in
cash.
June unaudited December
2005 2004 2004
% % %
Long-term asset mix for assets
supporting the capital at risk
Equities 25 42 42
Hedged equities 35 26 26
Property 5 8 8
Fixed-interest securities 20 20 20
Cash 15 4 4
100 100 100
7. New business premiums Six months Full
unaudited year
2005 2004 2004
R R R
million million million
Financial statements
New business premiums 5 207 5 367 11 200
Less: Premium increases (index growth) (300) (289) (619)
Plus: Optional reduction in premiums 11 18 36
Less: Other life business (17) (40) (12) (83)
Premiums used in the calculation of 4 878 5 084 10 534
annual premium equivalent
New business embedded value premiums
Recurring premiums 480 454 1 005
Single premiums 4 398 4 630 9 529
Premiums used in the calculation of 4 878 5 084 10 534
annual premium equivalent
The embedded value results were adjusted, where applicable, in accordance with
IFRS adopted for the 2005 interim results. Both the interim and full year 2004
embedded value results have been restated.
Adjustment to allow for the delay before incurring the capital gains tax
liability included in the fair value of the shareholders" fund.
Reverse goodwill relating to Merchant Investors Assurance (MIA), as its value of
in-force business is included in the total value of life insurance business in-
force.
The June 2005 value is calculated by multiplying half of the projected full year
recurring corporate expenses not related to life business (after tax) of R56,5
million by the share price of 1174 cents and dividing by the headline earnings
per share based on the long-term rate of return of 86,0 cents.
The fair value of the Sanlam employee share incentive scheme has been determined
using a statistical model. Actual options outstanding have been valued based on
the actual share price and dividend yield at the valuation date.
The deferred tax asset in respect of unused STC credits, included in the net
asset value, is reversed as the value of in-force business already includes an
allowance for the STC expense, after allowing for available STC credits.
Total embedded value earnings before dividends paid, capital raised and cost of
treasury shares acquired, as a percentage of embedded value at the beginning of
the period. Per share values are net of the dilution resulting from the Ubunto-
Botho transaction and deferred shares earned for the period.
The minority shareholders" interest in the net value of new business for the
first half of 2005 amounted to R1 million.
The main contributor to the operating experience variation is positive risk
experience of R106 million.
Economic assumption changes at 30 June 2005 include adjustments to the long-term
asset mix assumptions for:
Policyholders" funds, leading to a R118 million decrease in the embedded value;
and
Assets supporting capital at risk, leading to a R200 million decrease in the
embedded value.
The contributors to this change are:
The change in the corporate tax rate from 30% to 29% added R162 million to the
embedded value; and
The allowance for secondary tax on companies is made by placing a present value
on the tax liability generated by net cash dividends paid out by the life
company. Previously it was assumed that over the long-term the proportion of
cash dividends paid would reduce to a level of 50% from the current 100% level.
We now assume that all future dividends will be paid in cash, increasing the
allowance for STC by R249 million.
International includes Sanlam Namibia and MIA.
APE (annual premium equivalent) is equal to new recurring premiums (excluding
indexed growth premiums) plus 10% of single premiums. The profitability of new
business is measured by both the ratio of value of new business (VNB) to APE, as
well as to the present value of new business premiums.
Defined as the present value of new recurring premiums plus single premiums for
the period.
The economic assumptions used for all life business except MIA.
The assumed future return for these assets is lower than that of equities, which
are not hedged, reflecting the cost of derivative instruments.
The investment return on assets supporting the capital at risk is based on the
long-term asset mix for these funds.
The majority of profits in respect of these premiums accrue to Sanlam Investment
Management.
Group secretary Registered name: Sanlam Limited
Johan Bester (Registration number 1959/001562/06)
JSE share code: SLM
Registered office NSX share code: SLA
2 Strand Road, Bellville 7530 ISIN number: ZAE000028262
telephone (021) 947-9111 Incorporated in South Africa
Fax (021) 947-3670
Transfer secretaries:
Computershare Investor Services 2004
Postal address (Proprietary) Limited
PO Box 1, Sanlamhof 7532 (Registration number 2004/003647/07)
70 Marshall Street, Johannesburg
2001
PO Box 61051, Marshalltown 2107
Tel 0861 100 913
Fax (011) 688-5201
www.sanlam.co.za
Directors: R.C. Andersen (Chairman), P.T. Motsepe (Deputy Chairman), J. van Zyl
(Group Chief Executive), M.M.M. Bakane-Tuoane, D.C. Brink, P. de V. Rademeyer,
A.S. du Plessis, F.A. du Plessis, W.G. James, V.P. Khanyile, C.E. Maynard, M.V.
Moosa, M. Ramos, G.E. Rudman, R.V. Simelane, Z.B. Swanepoel, E. van As, J.J.M.
van Zyl.
Date: 08/09/2005 08:01:22 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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