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SANLAM - THE FINANCIAL SERVICES GROUP WITH POTENTIAL, IN TRANSITION

Release Date: 10/03/1999 15:12
Code(s): SLM
Wrap Text

SANLAM LIMITED GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 1998 SALIENT FEATURES
PRO FORMA*
1998 1997
HEADLINE EARNINGS R MILLION 1 186 1 147
CENTS PER SHARE 58,4 58,0
TANGIBLE NET ASSET VALUE R MILLION 16 731 10 429
CENTS PER SHARE 630 528
ASSETS UNDER MANAGEMENT R MILLION 175 798 166 382
FUNDS RECEIVED FROM CLIENTS R MILLION 37 733 34 180 AUDITED INCOME STATEMENT
PRO FORMA*
1998 1997
FOR THE YEAR ENDED 31 DECEMBER 1998 R MILLION R MILLION
FUNDS RECEIVED FROM CLIENTS 37 733 34 180
OPERATING PROFIT 1 203 989
INVESTMENT INCOME 927 760
HEADLINE EARNINGS BEFORE TAXATION 2 130 1 749
INCOME TAX ON EARNINGS (427) (449)
HEADLINE EARNINGS AFTER TAXATION 1 703 1 300 MINORITY SHAREHOLDERS' AND
POLICYHOLDERS' INTEREST (517) (153)
HEADLINE EARNINGS 1 186 1 147 INVESTMENT SURPLUSES AFTER TAX AND
MINORITIES (822) 20
REALISED AND UNREALISED INVESTMENT SURPLUSES (1 433) 156
INCOME TAX ON INVESTMENT SURPLUSES 141 (75) MINORITY SHAREHOLDERS' AND POLICYHOLDERS'
INTEREST IN INVESTMENT SURPLUSES 470 (61)
EARNINGS ATTRIBUTABLE TO SHAREHOLDERS 364 1 167
TRANSFER TO INVESTMENT RESERVE - (20)
RETAINED EARNINGS FOR THE YEAR 364 1 147
WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE 2 030 1 977
ATTRIBUTABLE EARNINGS PER SHARE (CENTS) 17,9 59,0
HEADLINE EARNINGS PER SHARE (CENTS) 58,4 58,0 AUDITED BALANCE SHEET
PRO FORMA*
1998 1997
AS AT 31 DECEMBER 1998 R MILLION R MILLION EMPLOYMENT OF CAPITAL
SHARE CAPITAL AND PREMIUM 3 514 20
NON-DISTRIBUTABLE RESERVES 10 289 9 415
RETAINED INCOME 1 101 737
SHAREHOLDERS' FUNDS 14 904 10 172
MINORITY SHAREHOLDERS' INTEREST 1 846 799
POLICY LIABILITIES 114 635 119 935
TERM FINANCE 5 598 5 585
DEFERRED TAX 517 185
137 500 136 676 CAPITAL EMPLOYED
INVESTMENTS 133 526 132 425
FIXED ASSETS 789 794
DEFERRED TAX 88 10
NET CURRENT ASSETS 3 097 3 447
- CURRENT ASSETS 14 734 7 990
- CURRENT LIABILITIES (11 637) (4 543)
137 500 136 676
NUMBER OF SHARES IN ISSUE (MILLION) 2 655 1 977
TANGIBLE NET ASSET VALUE PER SHARE (CENTS)** 630 528 ASSETS MANAGED ON BEHALF OF CLIENTS NOT INCLUDED
IN THE ABOVE BALANCE SHEET 26 661 25 163
TOTAL ASSETS UNDER MANAGEMENT 175 798 166 382 NOTES TO THE FINANCIAL STATEMENTS
PRO FORMA*
1998 1997
FOR THE YEAR ENDED 31 DECEMBER 1998 R MILLION R MILLION 1. OPERATING PROFIT
SANLAM PERSONAL FINANCE 505 370
SANLAM EMPLOYEE BENEFITS 210 270 GENSEC (SANLAM ASSET MANAGEMENT PRIOR TO
1 JANUARY 1998) 710 339
SANLAM HEALTH (242) (96)
SANTAM: SHORT-TERM INSURANCE 20 106
1 203 989 2. FUNDS RECEIVED FROM CLIENTS 2.1 INSURANCE BUSINESS - LONG-TERM INSURANCE BUSINESS
INDIVIDUAL INSURANCE 11 603 13 812
RECURRING PREMIUMS 8 496 8 354
SINGLE PREMIUMS 3 107 5 458
EMPLOYEE BENEFITS 7 850 8 154
RECURRING PREMIUMS 2 740 3 000
SINGLE PREMIUMS 5 110 5 154
- TOTAL LONG-TERM INSURANCE BUSINESS 19 453 21 966
- SHORT-TERM INSURANCE 4 093 3 307
TOTAL INSURANCE BUSINESS 23 546 25 273
2.2 OTHER BUSINESS 14 187 8 907
UNIT TRUSTS 8 266 2 957
MANAGED ASSETS 4 498 5 519
LINKED PRODUCTS 1 423 431
TOTAL FUNDS RECEIVED FROM CLIENTS 37 733 34 180
NEW INDIVIDUAL RECURRING INSURANCE BUSINESS 1 385 1 565 3. SANLAM LIFE INSURANCE LIMITED 3.1 SHAREHOLDERS' FUNDS OF SANLAM LIFE
INSURANCE LIMITED 13 390 10 429 3.2 SHAREHOLDERS' FUNDS OF SANLAM LIFE INSURANCE LIMITED AS A PERCENTAGE OF:
- POLICY LIABILITIES 12% 9%
- NON-MARKET-RELATED LIABILITIES 20% 15%
R MILLION R MILLION 3.3. CAPITAL ADEQUACY REQUIREMENTS (CAR)
SANLAM LIFE INSURANCE LIMITED 8 000 5 950
TIMES CAR COVERED BY SHAREHOLDERS' FUNDS OF SANLAM LIFE
INSURANCE LIMITED 1,7X 1,8X
* PRO FORMA FIGURES AS DISCLOSED IN THE PROSPECTUS.
** SANTAM AND GENSEC (IN 1998 ONLY) ADJUSTED FROM NET ASSET VALUE TO MARKET VALUE.
- HEADLINE EARNINGS OF 58,4 CENTS PER SHARE IN LINE WITH FORECAST
- NET ASSET VALUE OF 630 CENTS AND EMBEDDED VALUE OF 827 CENTS PER SHARE - SUCCESSFUL MERGER OF SANLAM ASSET MANAGEMENT BUSINESS WITH GENSEC COMMENTS ON RESULTS HEADLINE AND ATTRIBUTABLE EARNINGS
HEADLINE EARNINGS WERE BROADLY IN LINE WITH THOSE ACHIEVED IN 1997 AND AMOUNTED TO R1 186 MILLION AS AGAINST R1 147 MILLION IN 1997. HEADLINE EARNINGS PER SHARE WAS 58,4 CENTS PER SHARE COMPARED TO 58,0 CENTS IN 1997.
THESE RESULTS ARE IN LINE WITH THOSE FORECAST IN THE PROSPECTUS.
THE RESULTS ARE SATISFACTORY CONSIDERING THE WEAK STOCK MARKET CONDITIONS DURING THE SECOND HALF OF 1998 AND THE TIME AND ENERGY DEMANDED BY THE DEMUTUALISATION AND TRANSFORMATION PROCESS WHICH TOOK PLACE OVER THE YEAR. ATTRIBUTABLE EARNINGS WERE SEVERELY AFFECTED BY THE SHARP DROP IN THE STOCK MARKET DURING THE SECOND HALF OF 1998 AND AMOUNTED TO R364 MILLION COMPARED TO R1 167 MILLION IN 1997. UNLIKE HEADLINE EARNINGS, THESE EARNINGS INCLUDE REALISED AND UNREALISED INVESTMENT SURPLUSES ON THE INVESTMENTS OF THE SHAREHOLDERS' FUNDS. THIS AMOUNTED TO A NET DEFICIT OF R822 MILLION AFTER MINORITIES AND TAX COMPARED TO A NET SURPLUS OF R20 MILLION IN 1997. IN LINE WITH GENERALLY ACCEPTED PRACTICE, HEADLINE EARNINGS IS THE APPROPRIATE PERFORMANCE MEASURE FOR THE BUSINESS AND WILL GENERALLY BE SUBSTANTIALLY AUGMENTED BY INVESTMENT SURPLUSES. WE EXPECT THESE SURPLUSES TO BE POSITIVE OVER TIME BUT THESE MAY BE MORE VOLATILE IN THE SHORT TERM IN LINE WITH FLUCTUATIONS IN THE FINANCIAL MARKETS. FUNDS RECEIVED FROM CLIENTS
FUNDS RECEIVED FROM CLIENTS WHICH CONSIST OF SINGLE AND RECURRING LONG AND SHORT-TERM INSURANCE PREMIUM INCOME, UNIT TRUST CONTRIBUTIONS, INFLOW OF ASSETS MANAGED ON BEHALF OF CLIENTS AND LINKED PRODUCT CONTRIBUTIONS, INCREASED TO R37 733 MILLION FROM R34 180 MILLION IN 1997 DUE TO THE SIGNIFICANT INCREASE IN THE FUNDS RECEIVED FROM OUR UNIT TRUST AND LINKED PRODUCT CLIENTS WHICH INCREASED FROM R2 957 MILLION AND R431 MILLION IN 1997 TO R8 266 MILLION AND R1 423 MILLION RESPECTIVELY.
HOWEVER, PREMIUM INCOME FROM LONG TERM INSURANCE BUSINESS DECREASED FROM R21 966 MILLION IN 1997 TO R19 453 MILLION DUE TO STRONG COMPETITION FROM OTHER SAVINGS INSTRUMENTS SUCH AS UNIT TRUSTS AND LINKED PRODUCTS, THE VOLATILITY IN THE STOCK MARKETS AND HIGH INTEREST RATES. OPERATING PROFIT
THE OPERATING PROFIT OF SANLAM PERSONAL FINANCE (SPF) INCREASED FROM R370 MILLION IN 1977 TO R505 MILLION. A PRUDENT REVIEW OF SPF'S BUSINESS EXPOSURE AND RISK ASSUMPTIONS LED TO THE ONCE-OFF STRENGTHENING OF PROVISIONS AMOUNTING TO R102 MILLION COMPARED TO THE EXCEPTIONAL PROVISIONS OF R141 MILLION IN 1997. OPERATING PROFIT WAS NEGATIVELY IMPACTED BY THE MARKET CONDITIONS DURING THE SECOND HALF OF 1998 COUPLED WITH A DECLINE IN THE FUNDS RECEIVED FROM CLIENTS IN RESPECT OF LIFE BUSINESS AS DESCRIBED ABOVE.
THIS WAS OFFSET BY THE INCREASED FUNDS RECEIVED AND PROFITABILITY OF THE UNIT TRUST AND LINKED PRODUCT BUSINESS. PROFITS WERE ALSO INFLUENCED BY
RESTRUCTURING AND SYSTEM DEVELOPMENT COSTS OF R170 MILLION COMPARED TO R134 MILLION IN 1997. THE GROWTH IN OPERATING PROFITS BEFORE EXCEPTIONAL ITEMS AND RESTRUCTURING AND DEVELOPMENT COSTS EQUATED TO 20%.
SANLAM EMPLOYEE BENEFITS' OPERATING PROFIT DECREASED FROM R270 MILLION IN 1997 TO R210 MILLION. AS MENTIONED PREVIOUSLY, THE MARKET CONDITIONS, AS WELL AS LOWER RISK PROFITS AND RESTRUCTURING AND SYSTEM DEVELOPMENT COSTS, CAUSED THE DECLINE. THE BENEFITS OF THE RESTRUCTURING AND DEVELOPMENT COSTS ARE EXPECTED TO INCREASE FUTURE PROFITABILITY.
THE LOSSES AT SANLAM HEALTH INCREASED FROM R96 MILLION IN 1997 TO R242 MILLION IN 1998 AS A RESULT OF THE ADMINISTRATIVE PROBLEMS WHICH IMPACTED NEGATIVELY ON THE LEVEL OF OUR SERVICE. NEW MANAGEMENT WAS APPOINTED IN FEBRUARY 1998 TO ADDRESS THESE PROBLEMS. DURING OCTOBER 1998 SANLAM HEALTH COMMENCED THE OUTSOURCING OF ITS ADMINISTRATION FUNCTION AND ALL NEW CLAIMS HAVE BEEN PROCESSED SATISFACTORILY SINCE 1 JANUARY 1999. THE BACKLOG OF PROBLEMS IS EXPECTED TO BE ELIMINATED LARGELY BY AROUND MAY 1999. THEREAFTER THE FOCUS WILL SHIFT TO EXPANDING THE BUSINESS. PROVISION HAS BEEN MADE FOR CLAIMS IN ARREARS THAT HAVE NOT BEEN FINALISED YET AND FOR THE RESTRUCTURING COSTS RESULTING FROM THE OUTSOURCING.
FOLLOWING THE SUCCESSFUL MERGER OF SANLAM ASSET MANAGEMENT WITH GENSEC WITH EFFECT FROM 1 JANUARY 1998, GENSEC CONTRIBUTED OPERATING PROFIT OF R710 MILLION IN 1998 COMPARED TO SANLAM ASSET MANAGEMENT'S CONTRIBUTION OF R339 MILLION IN 1997.
SANTAM'S OPERATING PROFIT DECREASED FROM R106 MILLION TO R20 MILLION AS A RESULT OF MARKET CONDITIONS WHICH PLACED INCREASED PRESSURE ON THEIR
UNDERWRITING. THERE WAS A GENERAL INCREASE IN CLAIMS, A FURTHER ESCALATION IN CRIME RELATED AND VEHICLE ACCIDENT CLAIMS. FIRE AND WEATHER RELATED CLAIMS ALSO CONTRIBUTED TO THE DETERIORATION. SHARE PRICE
SALAAM'S SHARES WERE LISTED ON 30 NOVEMBER 1998 AT AN ISSUE PRICE OF R6 PER SHARE. THIS COINCIDED WITH THE BEGINNING OF A SLUMP ON THE JSE AND MARKETS ACROSS THE WORLD, WITH THE RESULT THAT THE SHARE PRICE CAME UNDER PRESSURE FROM THE START.
DURING DECEMBER 1998, WHEN INITIATIVES WERE IN PLACE TO STABILISE THE PRICE THROUGH THE OVER-ALLOTMENT OPTION AND THE GENSEC SUBSCRIPTION AGREEMENT, SANLAM'S SHARE PRICE OUTPERFORMED THE FINANCIAL INDEX. THE SUBSEQUENT WEAKENING AGAINST THE INDEX CAN BE ASCRIBED TO, INTER ALIA, THE CONTINUED SALE OF FREE SHARES BY POLICYHOLDERS AND THE FACT THAT INSTITUTIONS HAVE NOT ACQUIRED SHARES AGGRESSIVELY. MEASURED AGAINST SANLAM'S ESTIMATED NET ASSET VALUE OF 704 CENTS AND ITS ESTIMATED EMBEDDED VALUE OF 901 CENTS AT 8 MARCH 1999 (I.E. THE NET ASSET VALUE PLUS THE UNDERLYING VALUE OF BUSINESS ALREADY ON THE BOOKS), THE SHARES WERE TRADING AT A DISCOUNT OF 33 PERCENT AND 47 PERCENT RESPECTIVELY TO THE SHARE PRICE ON THAT DATE. DIVIDENDS
AS INDICATED IN THE PROSPECTUS, A DIVIDEND HAS NOT BEEN DECLARED FOR 1998 IN VIEW OF THE SHORT TIME LAPSE BETWEEN THE DEMUTUALISATION AND LISTING AND THE END OF THE FINANCIAL YEAR. A ONCE-OFF INTERIM DIVIDEND WILL BE CONSIDERED FOR THE SIX MONTHS ENDING 30 JUNE 1999, AFTER WHICH ANNUAL DIVIDEND DECLARATIONS WILL BE CONSIDERED FOLLOWING THE FINANCIAL YEAR-END. SANLAM'S DIVIDEND POLICY IS TO DECLARE ANNUAL DIVIDENDS WHICH ARE COVERED BETWEEN TWO AND THREE TIMES BY HEADLINE EARNINGS. YEAR 2000
SANLAM RECOGNISED THE BUSINESS RISKS ASSOCIATED WITH COMPUTER SYSTEMS REGARDING THE YEAR 2000 ISSUE AND FORMED A YEAR 2000 PROJECT COMMITTEE IN NOVEMBER 1996. RESPONSIBILITY TO ENSURE COMPLIANCE RESTS WITH THE BUSINESS UNITS. THE PROJECT COMMITTEE HAS IDENTIFIED AND INVESTIGATED BUSINESS DEPENDENCIES AND RISKS AND, WHERE NECESSARY, IS IN THE PROCESS OF UPGRADING AND REPLACING ITS SYSTEMS, COMPUTER FACILITIES BUSINESS, PROCESSES AND PROCEDURES ACCORDINGLY.
SANLAM LIMITED IS ALSO IN THE PROCESS OF IDENTIFYING AND ASSESSING WHETHER THE SYSTEMS OF ITS PRINCIPAL BUSINESS PARTNERS AND AGENTS WILL BE YEAR 2000 COMPLIANT. WHERE LACK OF COMPLIANCE OF THESE PARTIES MAY HAVE A MATERIAL IMPACT ON THE SANLAM GROUP, CONTINGENCY PLANS ARE BEING DEVELOPED TO MITIGATE SUCH RISKS ON A TIMELY BASIS. BASED ON THE RESULTS OF THE WORK UNDERTAKEN BY THE YEAR 2000 PROJECT COMMITTEE, THE BOARD HAS NO REASON TO BELIEVE THAT THERE IS A SIGNIFICANT RISK OF THE SANLAM GROUP INCURRING
MATERIAL LIABILITY, DIRECTLY OR INDIRECTLY, ARISING FROM FAILURE ON THE PART OF SANLAM LIMITED TO ADDRESS THE YEAR 2000 ISSUE.
THE TARGET DATE FOR MATERIAL YEAR 2000 COMPLIANCE OF THE SANLAM GROUP IS 30 SEPTEMBER 1999. THE TOTAL EXPENDITURE ON SANLAM LIMITED'S YEAR 2000 PROJECT IS EXPECTED TO BE R110 MILLION OF WHICH APPROXIMATELY R40 MILLION HAS BEEN SPENT UP TO THE END OF 1998. THIS EXPENDITURE IS BEING EXPENSED WHEN INCURRED. POLICYHOLDERS' SECURITY
THE CAPITAL ADEQUACY REQUIREMENT (CAR) OF SANLAM LIFE INSURANCE LIMITED WAS COVERED 1,7 TIMES BY ITS SHAREHOLDERS' FUNDS WHICH IS APPROXIMATELY AT THE PREVIOUS YEARS' LEVEL OF 1,8 TIMES COVERED. AS A RESULT OF THE POOR PERFORMANCE OF THE MARKETS DURING 1998 IT WAS HOWEVER NECESSARY TO DECLARE LOW BONUSES. EMBEDDED VALUE
THE EMBEDDED VALUE OF THE SANLAM LIMITED GROUP WAS R21 952 MILLION COMPARED TO THE PRO FORMA EMBEDDED VALUE OF R22 451 MILLION AT 31 DECEMBER 1997, OR 827 CENTS PER SHARE COMPARED TO 846 CENTS PER SHARE IN 1997 (2 655 MILLION SHARES IN ISSUE). THE PRO FORMA EMBEDDED VALUE OF THE SANLAM GROUP AT 31 DECEMBER 1997 WAS DETERMINED ON THE ASSUMPTION THAT THE RESTRUCTURING AND CAPITAL RAISING WHICH TOOK PLACE DURING 1998 IN TERMS OF THE DEMUTUALISATION PROPOSAL AND THE GENSEC MERGER WITH SANLAM ASSET MANAGEMENT WERE IN PLACE. PROSPECTS
THE RESTRUCTURING OF THE GROUP HAS LARGELY BEEN COMPLETED AND THE FOUNDATION FOR FUTURE GROWTH HAS BEEN ESTABLISHED. IT IS EXPECTED THAT ACTIONS WHICH HAVE ALREADY BEEN TAKEN WILL CONTRIBUTE TO A MATERIAL IMPROVEMENT IN PERFORMANCE. IN PARTICULAR THE OUTSOURCING OF SANLAM HEALTH'S ADMINISTRATION AND THE
IMPROVEMENT OF ITS RISK MANAGEMENT ARE CURRENTLY ON TRACK AND WE EXPECT TO ACHIEVE BREAK-EVEN IN 1999. SPECIFIC INITIATIVES ARE IN PLACE TO IMPROVE PROFITABILITY THROUGHOUT THE REST OF THE GROUP, WHICH TOGETHER WITH REASONABLE MARKET CONDITIONS, SHOULD ENSURE SOUND PROFIT GROWTH. THESE INITIATIVES FOCUS ON IMPROVING OUR SALES PERFORMANCE AND MARKET SHARE, IMPROVING CUSTOMER SERVICE STANDARDS, MANAGING AND REDUCING COSTS AND FURTHER INVESTMENT IN INFORMATION TECHNOLOGY. FOR AND ON BEHALF OF THE BOARD MH DALING P DE V RADEMEYER EXECUTIVE CHAIRMAN FINANCIAL DIRECTOR 10 MARCH 1999 CAPE TOWN
REGISTERED OFFICE: SANLAM LIMITED. 2 STRAND ROAD, BELLVILLE 7532 REGISTRATION NUMBER: 59/01562/06
TRANSFER SECRETARIES: MERCANTILE REGISTRARS LIMITED. 11 DIAGONAL STREET, JOHANNESBURG 2000

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