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SANLAM LIMITED
SANLAM INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 1999
SALIENT FEATURES
SIX MONTHS FULL YEAR
UNAUDITED AUDITED AUDITED
1999 1998 1998
FUNDS RECEIVED FROM CLIENTS R MILLION 15 645 15 568 37 733
HEADLINE EARNINGS R MILLION 1 012 737 1 186
CENTS PER SHARE 38,1 37,3 58,4
ATTRIBUTABLE EARNINGS R MILLION 2 204 1 912 364
CENTS PER SHARE 83,0 96,7 17,9
EMBEDDED VALUE R MILLION 26 292 - 21 952*
CENTS PER SHARE 990 - 827*
ASSETS UNDER MANAGEMENT R BILLION 199 193 176
DIVIDENDS CENTS PER SHARE 10 - -
* UNAUDITED
ALLOCATION OF CAPITAL AND RETURN ON EQUITY
DURING THE FIRST HALF OF 1999 THE ALLOCATION OF CAPITAL TO THE VARIOUS
BUSINESSES WAS COMPLETED TO ENABLE MORE EFFICIENT USE OF CAPITAL AND MAXIMISE
THE RETURN ON CAPITAL. GENSEC AND SANTAM, AS SEPARATELY LISTED COMPANIES, HAVE
THEIR OWN CAPITAL. THE ALLOCATION OF CAPITAL WAS BASED ON THE FUTURE ESTIMATED
CAPITAL ADEQUACY REQUIREMENTS OF THE BUSINESSES AND THE REMAINDER WILL BE HELD
BY SANLAM LIMITED FOR STRATEGIC AND CORPORATE PURPOSES. THE INVESTMENTS OF
SANLAM PERSONAL FINANCE AND SANLAM EMPLOYEE BENEFITS' CAPITAL FOR LIFE
OPERATIONS WILL REMAIN IN A CENTRAL PORTFOLIO AND THE INVESTMENT RETURN ON THIS
CAPITAL WILL THEREFORE BE THE SAME.
THE ALLOCATION OF CAPITAL AND THE ANNUALISED HEADLINE RETURNS FOR THE FIRST SIX
MONTHS OF 1999 ARE:
CAPITAL HEADLINE
R MILLION (1) RETURN (2)
SANLAM PERSONAL FINANCE (3) 8 247 12,3%
SANLAM EMPLOYEE BENEFITS(3) 5 356 9,2%
SANLAM HEALTH 256 11,2%
GENSEC 3 456 23,6%
SANLAM LIMITED GROUP RETURN (4) 14 904 14,0%
THE SANLAM LIMITED GROUP ANNUALISED ATTRIBUTABLE EARNINGS RETURN FOR THE FIRST
HALF OF 1999 WAS 31,8%.
(1) CAPITAL AT 1 JANUARY 1999.
(2) HEADLINE EARNINGS AS A PERCENTAGE OF CAPITAL AT BEGINNING OF YEAR.
THIS RETURN IS GENERALLY IMPROVED BY INVESTMENT SURPLUSES WHICH ARE NOT
INCLUDED IN HEADLINE EARNINGS. GENSEC DETERMINES ITS RETURN AS A PERCENTAGE OF
ITS AVERAGE CAPITAL.
(3) INVESTMENT IN SANTAM AND GENSEC REFLECTED AT FAIR VALUE.
(4) INVESTMENT IN SANTAM AND GENSEC REFLECTED AT NET ASSET VALUE.
GROUP INCOME STATEMENTS
SIX MONTHS FULL YEAR
UNAUDITED AUDITED AUDITED
1999 1998 1998
NOTE R MILLION R MILLION R MILLION
FUNDS RECEIVED FROM CLIENTS 1 15 645 15 568 37 733
OPERATING PROFIT 2 1 036 1 062 1 237
INVESTMENT INCOME 675 434 893
HEADLINE EARNINGS BEFORE TAXATION 1 711 1 496 2 130
INCOME TAX ON HEADLINE EARNINGS (398) (426) (427)
HEADLINE EARNINGS AFTER TAXATION 1 313 1 070 1 703
MINORITY SHAREHOLDERS' AND
POLICYHOLDERS' INTEREST (301) (333) (517)
HEADLINE EARNINGS 3 1 012 737 1 186
INVESTMENT SURPLUSES AFTER TAX,
MINORITIES AND POLICYHOLDERS'
INTEREST 1 192 1 175 (822)
ATTRIBUTABLE EARNINGS 2 204 1 912 364
ORDINARY DIVIDENDS 266 - -
RETAINED EARNINGS FOR THE YEAR 1 938 1 912 364
WEIGHTED AVERAGE NUMBER OF SHARES
IN ISSUE 2 655 1 977 2 030
ATTRIBUTABLE EARNINGS PER
SHARE (CENTS) 83,0 96,7 17,9
HEADLINE EARNINGS PER SHARE (CENTS) 38,1 37,3 58,4
DIVIDENDS PER SHARE (CENTS) 10,0 - -
DIVIDEND COVER BY HEADLINE
EARNINGS (TIMES) 3,8 - -
GROUP BALANCE SHEETS
UNAUDITED AUDITED AUDITED
30 JUNE '99 30 JUNE '98 31 DEC '98
R MILLION R MILLION R MILLION
CAPITAL EMPLOYED
SHAREHOLDERS' FUND 16 842 13 030 14 904
MINORITY SHAREHOLDERS' INTEREST 2 198 2 066 1 846
POLICY LIABILITIES 126 702 129 508 114 635
TERM FINANCE 5 412 6 324 5 598
DEFERRED TAX 918 565 517
CURRENT LIABILITIES 12 838 11 353 11 637
164 910 162 846 149 137
EMPLOYMENT OF CAPITAL
INVESTMENTS 146 866 146 010 133 526
FIXED ASSETS 812 792 789
DEFERRED TAX 4 10 88
CURRENT ASSETS 17 228 16 034 14 734
164 910 162 846 149 137
SEGREGATED FUNDS 34 037 29 878 26 661
TOTAL ASSETS UNDER MANAGEMENT 198 947 192 724 175 798
TOTAL SHARES ISSUED 2 655 1 977 2 655
TANGIBLE NET ASSET VALUE PER
SHARE (CENTS)* 774 - 630
* INVESTMENT IN SANTAM AND GENSEC ADJUSTED FROM NET ASSET VALUE TO FAIR VALUE.
NOTES TO THE GROUP FINANCIAL STATEMENTS
SIX MONTHS FULL YEAR
UNAUDITED AUDITED AUDITED
1999 1998 1998
R MILLION R MILLION R MILLION
NOTE 1: FUNDS RECEIVED FROM CLIENTS
- SANLAM PERSONAL FINANCE 10 907 9 131 21 292
INDIVIDUAL INSURANCE 6 010 5 420 11 603
RECURRING PREMIUMS 3 904 3 984 8 496
SINGLE PREMIUMS 2 106 1 436 3 107
UNIT TRUSTS 4 026 3 042 8 266
LINKED PRODUCTS 871 669 1 423
- SANLAM EMPLOYEE BENEFITS 2 264 3 474 7 850
RECURRING PREMIUMS 1 405 1 338 2 740
SINGLE PREMIUMS 859 2 136 5 110
- SHORT-TERM INSURANCE - SANTAM 1 301 1 926 3 261
- SANLAM HEALTH 324 436 832
- SEGREGATED FUNDS 849 601 4 498
TOTAL FUNDS RECEIVED FROM CLIENTS 15 645 15 568 37 733
NEW INDIVIDUAL RECURRING
INSURANCE BUSINESS 623 657 1 385
NOTE 2: ANALYSIS OF OPERATING PROFIT
SANLAM PERSONAL FINANCE 390 464 670
SANLAM EMPLOYEE BENEFITS 137 143 227
GENSEC 589 574 710
SANLAM HEALTH 5 (72) (220)
SANTAM 19 45 20
CORPORATE COSTS (104) (92) (170)
OPERATING PROFIT 1 036 1 062 1 237
NOTE 3: ANALYSIS OF HEADLINE EARNINGS
SANLAM PERSONAL FINANCE 271 303 436
SANLAM EMPLOYEE BENEFITS 96 93 148
GENSEC 202 188 295
SANLAM HEALTH 5 (72) (220)
SANTAM* 30 45 72
INVESTMENT INCOME 480 240 566
CORPORATE COSTS (72) (60) (111)
HEADLINE EARNINGS 1 012 737 1 186
* INCLUDES SANTAM'S INVESTMENT INCOME.
NOTE 4: ANALYSIS OF MOVEMENT IN POLICY LIABILITIES AND SEGREGATED FUNDS
FUNDS RECEIVED FROM CLIENTS
(REFER NOTE 1) 15 645 15 568 37 733
INVESTMENT RETURN, TAX, EXPENSES
AND OTHER ADJUSTMENTS 22 798 13 030 (7 866)
NET INCREASE BEFORE PAYMENTS
TO CLIENTS 38 443 28 598 29 867
PAYMENTS TO CLIENTS (REFER NOTE 5) (19 000) (14 310) (33 669)
NET INCREASE IN POLICY LIABILITIES
AND SERGE GATED FUNDS 19 443 14 288 (3 802)
NOTE 5: PAYMENTS TO CLIENTS
- SANLAM PERSONAL FINANCE 10 434 6 765 15 702
INDIVIDUAL INSURANCE 6 705 4 877 11 160
UNIT TRUSTS 3 428 1 799 4 261
LINKED PRODUCTS 301 89 281
- SANLAM EMPLOYEE BENEFITS 6 980 4 552 10 488
FUND TERMINATIONS 3 586 1 473 3 645
OTHER BENEFITS 3 394 3 079 6 843
- SHORT-TERM INSURANCE - SANTAM 931 1 387 2 381
- SANLAM HEALTH 307 461 883
- SEGREGATED FUNDS 348 1 145 4 215
TOTAL PAYMENTS TO CLIENTS 19 000 14 310 33 669
EMBEDDED VALUE
30 JUNE '99 31 DEC '98
R MILLION R MILLION
EMBEDDED VALUE
COMPONENTS OF EMBEDDED VALUE
SHAREHOLDERS' NET ASSETS 16 842 14 904
REVALUATION OF GENSEC AND SANTAM
TO FAIR VALUE 3 697 1 827
SHAREHOLDERS' TANGIBLE NET ASSETS 20 539 16 731
VALUE OF IN-FORCE BUSINESS 5 753 5 221
EMBEDDED VALUE 26 292 21 952
ANNUALISED INCREASE IN EMBEDDED
VALUE 43,4% -
6 MONTHS TO 12 MONTHS TO
30 JUNE '99 31 DEC '98
CHANGE IN SANLAM GROUP EMBEDDED VALUE
(IE EMBEDDED VALUE EARNINGS ANALYSIS)
- INVESTMENT RETURN ON SANLAM
GROUP SHAREHOLDERS' NET ASSETS 3 829 (1 595)
- EXPECTED RETURN ON VALUE OF
IN-FORCE BUSINESS AND EXPECTED
CHANGE IN COST OF HOLDING
PRUDENTIAL RESERVES 600 967
- EFFECT OF INVESTMENT
EXPERIENCE VARIATION ON VALUE OF
IN-FORCE BUSINESS 313 (836)
- EFFECT OF OTHER EXPERIENCE
VARIATIONS (80) 314
- ASSUMPTION CHANGES (75) 594
- VALUE OF NEW BUSINESS 19 57
- EMBEDDED VALUE EARNINGS 4 606* (499)
* GROWTH IN EMBEDDED VALUE BEFORE DIVIDEND DECLARATION OF R266 MILLION.
GROWTH IN VALUE FROM LIFE BUSINESS
- GROWTH IN VALUE OF IN-FORCE
LIFE BUSINESS 532 724
- OPERATING PROFIT FROM LIFE
BUSINESS 245 372
GROWTH FROM LIFE BUSINESS 777 1 096
ANNUALISED GROWTH FROM LIFE
BUSINESS 32,0% 24,4%
THE MORE SIGNIFICANT ASSUMPTIONS USED IN THE DETERMINATION OF THE
EMBEDDED VALUE ARE INCLUDED IN THE TABLE BELOW. CHANGES IN THESE
ASSUMPTIONS SINCE 31 DECEMBER 1998 DID NOT HAVE A MATERIAL EFFECT ON THE
VALUE OF THE IN-FORCE BUSINESS.
ASSUMED PRE-TAX INVESTMENT RETURNS:
- EQUITY 18,5% 19,5%
- FIXED-INTEREST SECURITIES 15,5% 16,5%
- CASH 14,0% 15,0%
- PROPERTY 17,0% 18,5%
EXPENSE INFLATION 9,0% 10,0%
RISK DISCOUNT RATE 18,0% 19,0%
OTHER ASSUMPTIONS AND METHODOLOGY USED WERE BROADLY THE SAME AS THOSE APPLIED
AT 31 DECEMBER 1998.
THE RISK DISCOUNT RATE APPROPRIATE TO AN INVESTOR WILL DEPEND ON THE INVESTOR'S
OWN REQUIREMENTS, TAX POSITION AND PERCEPTION OF RISK ASSOCIATED WITH THE
REALISATION OF THE FUTURE PROFITS OF SANLAM LIFE INSURANCE LIMITED. THE VALUE
OF THE IN-FORCE LIFE INSURANCE BUSINESS LESS THE COST OF HOLDING PRUDENTIAL
RESERVES AT 30 JUNE 1999 AT A RISK DISCOUNT RATE OF 16,5% PER ANNUM WILL AMOUNT
TO R6,95 BILLION AND AT A DISCOUNT RATE OF 19,5%, TO R4,7 BILLION. THE VALUE OF
THE NEW BUSINESS FOR THE SIX MONTHS TO 30 JUNE 1999 AT A RISK DISCOUNT RATE OF
16,5% PER ANNUM WILL AMOUNT TO R38 MILLION AND AT 19,5% TO R4 MILLION. ALL THE
ASSUMPTIONS IN THESE SENSITIVITY CALCULATIONS REMAINED UNCHANGED WITH THE
EXCEPTION OF THE RISK DISCOUNT RATE.
POLICYHOLDERS' SECURITY - SANLAM LIFE INSURANCE LIMITED
(SANLAM LIFE)
30 JUNE '99 31 DEC '98
- SHAREHOLDERS' FUND OF SANLAM
LIFE (R MILLION) 16 028 13 390
- SHAREHOLDERS' FUND OF SANLAM
LIFE AS A PERCENTAGE OF:
- POLICY LIABILITIES (%) 13 12
- NON-MARKET-RELATED LIABILITIES (%) 22 20
- CAPITAL ADEQUACY REQUIREMENTS (CAR)
- SANLAM LIFE (R MILLION) 6 700 8 000
- TIMES CAR COVERED BY SHAREHOLDERS'
FUND OF SANLAM LIFE (TIMES) 2,4 1,7
WE ARE SATISFIED THAT OUR CAPITAL AFFORDS POLICYHOLDERS ADEQUATE SECURITY AND
THAT THE OPTIMUM USE OF THE GROUP'S CAPITAL IS NOW ACCENTUATED.
COMMENTS ON INTERIM RESULTS
HEADLINE EARNINGS OF THE SANLAM LIMITED GROUP FOR THE SIX MONTHS INCREASED BY
37% TO R1 012 MILLION (1998: R737 MILLION) LARGELY AS A RESULT OF THE
TURNAROUND OF SANLAM HEALTH, INCOME EARNED ON THE CAPITAL RAISED TOWARDS THE
END OF 1998 AND THE REDUCTION IN THE CORPORATE TAX RATE. HEADLINE EARNINGS PER
SHARE OF 38,1 CENTS (1998: 37,3 CENTS), WHICH TAKES INTO CONSIDERATION THE 34%
INCREASE IN THE ISSUED SHARE CAPITAL, INCREASED BY 2% OVER THE FIRST HALF OF
1998 AND IS CONSIDERABLY HIGHER THAN THE 21,1 CENTS ACHIEVED IN THE SECOND HALF
OF 1998. THESE RESULTS ARE IN LINE WITH OUR EXPECTATIONS AND ARE BASED ON A
FINANCIAL SOUNDNESS ACTUARIAL VALUATION AS AT 30 JUNE 1999.
1998 WAS CHARACTERISED BY SEVERE TURMOIL IN THE FINANCIAL MARKETS - THE BUOYANT
GROWTH CONDITIONS OF THE FIRST HALF WERE FOLLOWED BY A MAJOR MARKET CRASH
DURING THE SECOND HALF. THIS HAD AN IMPACT ON THE SOUTH AFRICAN ECONOMY AS A
WHOLE AND ALSO ON OUR RESULTS DURING THAT YEAR.
GENERALLY, THE OPERATING PROFIT OF OUR VARIOUS BUSINESSES, AS DISCUSSED BELOW,
WERE EXCELLENT DURING THE FIRST HALF OF 1998 AND DISAPPOINTING DURING THE
SECOND HALF. CONSEQUENTLY, A TRUE REFLECTION OF OUR PERFORMANCE IN 1999
COMPARED TO 1998 WILL EMERGE FROM A FULL YEAR COMPARISON.
ATTRIBUTABLE EARNINGS, WHICH INCLUDES REALISED AND UNREALISED INVESTMENT
SURPLUSES ON THE INVESTMENTS OF THE SHAREHOLDERS' FUNDS, AMOUNTED TO R2 204
MILLION WHICH IS 15% HIGHER THAN THE FIRST HALF OF 1998.
OPERATING PROFIT FOR THE FIRST HALF OF 1999 AMOUNTED TO R1 036 MILLION COMPARED
TO R1 062 MILLION IN THE FIRST HALF OF 1998 AND R175 MILLION IN THE SECOND HALF
OF 1998.
FUNDS RECEIVED FROM CLIENTS OF R15 645 MILLION WERE BOOSTED BY HIGHER SINGLE
PREMIUMS AND UNIT TRUST INFLOWS AT SANLAM PERSONAL FINANCE BUT THIS WAS OFFSET
BY THE REDUCTION IN SINGLE PREMIUMS AT SANLAM EMPLOYEE BENEFITS.
THE ALLOCATION OF CAPITAL TO THE VARIOUS BUSINESSES WAS COMPLETED IN THE FIRST
HALF OF 1999. THE RETURN ON THIS CAPITAL AND ON THE SANLAM GROUP CAPITAL HAS
BEEN DISCLOSED FOR THE FIRST TIME.
FURTHER DISCUSSION OF THE INDIVIDUAL BUSINESSES' RESULTS FOLLOWS.
SANLAM PERSONAL FINANCE (SPF)
FUNDS RECEIVED FROM CLIENTS INCREASED BY 19% TO R10 907 MILLION, MAINLY AS A
RESULT OF A 47% INCREASE IN SINGLE PREMIUMS. RECURRING PREMIUMS SUFFERED FROM A
TREND TOWARDS SINGLE PREMIUM INVESTMENTS, AND WERE DOWN BY 2%. THEY WERE
NEGATIVELY AFFECTED BY AN ABNORMALLY HIGH LEVEL OF SURRENDERS OF POLICIES. THIS
IS ATTRIBUTED TO FINANCIAL PRESSURE EXPERIENCED BY POLICYHOLDERS AS A RESULT OF
THE HIGH REAL RATES OF INTEREST, AS WELL AS A RETURN FROM THE VERY LOW LEVEL OF
POLICY SURRENDERS PRIOR TO DEMUTUALISATION. VARIOUS INITIATIVES, SOME OF WHICH
ARE ALREADY BEARING FRUIT, HAVE BEEN IMPLEMENTED TO IMPROVE OUR RECURRING
PREMIUMS. FUNDS RECEIVED BY SANLAM UNIT TRUSTS AND OUR LINKED PRODUCT PROVIDER,
SANLAM PERSONAL PORTFOLIOS INCREASED BY 32% BUT THEY ALSO EXPERIENCED MAJOR
OUTFLOWS FROM THE CASH-BASED UNIT TRUSTS IN PARTICULAR.
OPERATING PROFIT FOR THE FIRST HALF WAS R390 MILLION OR 16% LESS THAN THE R464
MILLION ACHIEVED IN THE FIRST SIX MONTHS OF 1998. THE REDUCTION IN RECURRING
PREMIUM INCOME HAD A DAMPENING EFFECT ON ADMINISTRATION FEES RECEIVED.
INCREASES IN EXPENDITURE WERE WELL CONTAINED AND TOTAL ADMINISTRATION COSTS
WERE KEPT AT THE SAME LEVEL AS IN 1998, NOTWITHSTANDING AN INCREASE IN SPF'S
MARKETING EXPENDITURE, HIGHER COSTS ASSOCIATED WITH THE NEW CALL CENTRES AND
RETRENCHMENT COSTS. EARNINGS FROM THE LIFE ANNUITY PORTFOLIO HAVE BEEN SUBJECT
TO SEVERE VOLATILITY IN THE PAST. AN AMOUNT OF R53 MILLION HAS BEEN PROVIDED
FOR IN THE RESULTS FOR THE SIX MONTHS TO IMPROVE THE ASSET PROFILE AND THUS
REDUCE THE FUTURE VOLATILITY OF THE PORTFOLIO.
EXPENDITURE ON INFORMATION AND COMMUNICATION SYSTEMS WAS INCREASED FROM R60
MILLION IN 1998 TO R96 MILLION FOR THE PAST SIX MONTHS AS THE STRATEGY TO
REPLACE AND ENHANCE THE CURRENT SYSTEMS CONTINUED. COSTS OF R41 MILLION HAVE
BEEN INCURRED IN RESPECT OF THE RESTRUCTURING OF SPF'S DISTRIBUTION FUNCTION,
WHICH INCLUDED THE CLOSURE OF OFFICES AND RETRENCHMENT EXPENDITURE. THIS
PROCESS IS NOW ALMOST COMPLETED.
SANLAM EMPLOYEE BENEFITS (SEB)
SEB'S OPERATING PROFIT OF R137 MILLION FOR THE FIRST HALF OF 1999 IS SLIGHTLY
LOWER THAN THE CORRESPONDING R143 MILLION REPORTED LAST YEAR.
THE MAIN REASON FOR THIS DECLINE IS REDUCED INVESTMENT FEES FOLLOWING THE STOCK
MARKET CRASH IN THE SECOND HALF OF 1998 WITH ONLY A PARTIAL RECOVERY IN THE
FIRST HALF OF THIS YEAR AS WELL AS THE DECREASE IN SINGLE PREMIUMS AND HIGH
LEVEL OF FUND TERMINATIONS OVER THE LAST TWELVE MONTHS, AS DISCUSSED BELOW.
RECURRING PREMIUM INCOME WAS SLIGHTLY HIGHER THAN 1998 AND IN LINE WITH OUR
EXPECTATIONS. HOWEVER, DUE TO A SWING TOWARDS SPLIT FUNDING, SEB EXPERIENCED A
DECREASE IN SINGLE PREMIUM INCOME TO R859 MILLION (1998: R2 136 MILLION) AS
WELL AS A HIGH LEVEL OF FUND TERMINATIONS AMOUNTING TO R3 586 MILLION (1998: R1
473 MILLION). SOME OF THESE INVESTMENTS ARE HOWEVER REINVESTED WITH GENSEC AS
SEGREGATED FUNDS AND REMAIN WITHIN THE SANLAM GROUP. THESE TRENDS ARE BEING
ADDRESSED THROUGH NEW INVESTMENT PRODUCT INITIATIVES WHICH WILL INCLUDE SPLIT
FUNDING ARRANGEMENTS. A REVIEW OF AND ADJUSTMENT TO SMOOTHED BONUS PRODUCTS
ALSO RECEIVED ATTENTION WITH THE LAUNCH OF A MORE TRANSPARENT MONTHLY FULLY
VESTING SMOOTHED BONUS PRODUCT, WHICH SHOULD ATTRACT NEW SINGLE PREMIUM
INVESTMENTS.
STEPS WERE ALSO INTRODUCED TO IMPROVE SERVICE TO OUR CUSTOMERS, FOR EXAMPLE
TRANSFERRING THE ADMINISTRATION OF SMALL RETIREMENT FUNDS TO TOTAL CARE
STRATEGY HOLDINGS (PTY) LIMITED - A COMPANY WITH AN EXCELLENT TRACK RECORD IN
THE GROWING MARKET FOR SMALL RETIREMENT FUNDS. WE ACQUIRED A 60% INTEREST IN
THIS COMPANY.
GENSEC
GENSEC'S OPERATING PROFIT OF R589 MILLION FOR THE FIRST SIX MONTHS OF 1999 IS
3% HIGHER THAN THE CORRESPONDING PERIOD IN 1998. THESE FIRST HALF RESULTS FOR
1999 ARE SATISFACTORY SINCE THEY WERE ACHIEVED AGAINST THE BACKDROP OF LOWER
AVERAGE MARKET PRICES OF ASSETS UNDER MANAGEMENT, ONE OFF BENEFITS IN THE 1998
FIRST HALF RESULTING FROM THE ACQUISITION OF SANLAM'S ASSET MANAGEMENT BUSINESS
AND THE INCREASED EXPENDITURE IN 1999 ON SYSTEMS, PARTICULARLY FOR RISK
MANAGEMENT.
GENSEC'S AFTER-TAX EARNINGS OF R438 MILLION ARE 6% HIGHER THAN THE FIRST HALF
OF 1998 AND EARNINGS PER SHARE OF 173 CENTS WERE 1% BELOW 1998.
SHAREHOLDERS ARE REFERRED TO THE FULL SET OF GENSEC'S RESULTS WHICH WERE
PUBLISHED RECENTLY.
SANLAM HEALTH
FOLLOWING THE SUCCESSFUL OUTSOURCING OF ITS MEMBER AND CLAIMS ADMINISTRATION,
SANLAM HEALTH HAS POSTED A SMALL PROFIT OF R5 MILLION FOR THE FIRST SIX MONTHS
OF 1999 COMPARED TO A LOSS OF R72 MILLION IN THE FIRST HALF OF 1998. THE PROFIT
IS DUE TO THE COMBINATION OF A REDUCTION IN SCHEME ADMINISTRATION COSTS, A
PREMIUM INCREASE AND A DROP IN THE CLAIMS RATIO. THE PROVISIONS CREATED IN 1998
WERE ADEQUATE TO COVER RESTRUCTURING AND OUTSTANDING CLAIMS. NO PROVISIONS HAVE
BEEN REVERSED.
PREMIUM INCOME REDUCED FROM R436 MILLION IN THE FIRST HALF OF 1998 TO R324
MILLION IN 1999 DUE MAINLY TO MEMBERS LEAVING SANLAM HEALTH AS A RESULT OF THE
ADMINISTRATIVE PROBLEMS EXPERIENCED LAST YEAR. AS THESE HAVE BEEN RESOLVED, WE
ARE LOOKING TO EXPAND OUR MEMBERSHIP AND VARIOUS MARKETING INITIATIVES HAVE
BEEN IMPLEMENTED TO ACHIEVE THIS.
SANTAM
THE COMPARISON OF THE SANTAM RESULTS IS DISTORTED AS THE EARNINGS FOR THE
PERIOD TO 30 JUNE 1998 COVERED A NINE MONTH PERIOD DUE TO A CHANGE IN YEAR END.
SANTAM'S UNDERWRITING SURPLUS OF R19 MILLION (1998 - 9 MONTHS: R45 MILLION)
COMPARES FAVOURABLY WITH THE SHORT TERM INSURANCE INDUSTRY UNDERWRITING
RESULTS. THESE RESULTS WERE ACHIEVED AS SANTAM INCREASED ITS FOCUS ON THE EARLY
IDENTIFICATION AND ELIMINATION OF UNACCEPTABLE RISKS THROUGH STRICTER
UNDERWRITING MEASURES, WHILE MAINTAINING PREMIUM INCOME LEVELS.
INVESTMENT INCOME INCREASED BY 2% FROM R106 MILLION FOR THE COMPARABLE SIX
MONTHS IN 1998 TO R108 MILLION (1998 - 9 MONTHS: R152 MILLION).
THE ABOVEMENTIONED RESULTED IN SANTAM'S EARNINGS PER SHARE OF 131 CENTS BEING
10% LOWER THAN THE COMPARABLE SIX MONTH PERIOD IN 1998.
SHAREHOLDERS ARE REFERRED TO THE FULL SET OF SANTAM'S RESULTS WHICH WERE
PUBLISHED RECENTLY.
CORPORATE COSTS
CORPORATE COSTS HAVE FOR THE FIRST TIME BEEN DISCLOSED SEPARATELY INSTEAD OF
ALLOCATING THEM TO THE BUSINESSES. THESE COSTS REPRESENT:
- THE CORPORATE FUNCTIONS;
- THE NET UNDER-RECOVERY OF THE SHARED SERVICES OPERATIONS WHICH PROVIDE COMMON
INFRASTRUCTURE SERVICES TO THE BUSINESSES AT MARKET-RELATED FEES; AND
- SHAREHOLDER SERVICES WHICH REPRESENT THE COSTS OF SERVICING OUR SHAREHOLDERS
NUMBERING IN EXCESS OF TWO MILLION AT LISTING. THESE COSTS AMOUNTED TO R27
MILLION IN THE FIRST SIX MONTHS OF 1999 AND WERE NOT INCURRED IN 1998 AS SANLAM
ONLY LISTED IN THE LAST QUARTER OF 1998.
SHAREHOLDER SERVICES AND CORPORATE MARKETING COSTS COMPRISE APPROXIMATELY HALF
OF THE 1999 FIRST HALF CORPORATE COSTS.
INVESTMENT INCOME AND TAXATION
THE 56% INCREASE IN INVESTMENT INCOME IS LARGELY ATTRIBUTABLE TO INCOME EARNED
ON THE CAPITAL RAISED TOWARD THE END OF 1998 AND HIGHER INTEREST RATES. WE
EXPECT THAT INTEREST RATES WILL BE LOWER IN THE SECOND HALF OF 1999 WHICH WILL
IMPACT ON OUR INVESTMENT INCOME FOR THIS PERIOD. THE LOWER EFFECTIVE TAX RATE
ON HEADLINE EARNINGS OF 23% FOR 1999 COMPARED TO 28% IN THE FIRST HALF OF 1998
IS DUE TO THE REDUCTION IN THE CORPORATE TAX RATE FROM 35% TO 30%.
DIVIDENDS
THE BOARD OF DIRECTORS HAVE DECLARED A SPECIAL INTERIM CASH DIVIDEND OF 10
CENTS PER SHARE WHICH IS PAYABLE ON 3 NOVEMBER 1999 TO HOLDERS OF ORDINARY
SHARES REGISTERED IN THE BOOKS OF THE COMPANY AT THE CLOSE OF BUSINESS ON 1
OCTOBER 1999. IT IS THE BOARD'S INTENTION TO DECLARE ONLY ANNUAL DIVIDENDS IN
FUTURE. DIVIDENDS IN RESPECT OF THE FREE SHARES ATTRIBUTABLE TO POLICYHOLDERS
WHO DID NOT VERIFY THEIR DETAILS AND WHICH ARE HELD BY THE SANLAM
DEMUTUALISATION TRUST, WILL BE TREATED IN ACCORDANCE WITH THE TRUST DEED.
YEAR 2000
SANLAM HAS IN ALL MATERIAL RESPECTS COMPLETED ITS YEAR 2000 READINESS PROJECTS
TO ADDRESS THE SUSTAINED CONTINUITY OF BUSINESS PROCESSES, PROCEDURES, SYSTEMS
AND COMPUTER FACILITIES THROUGH 1999 AND BEYOND 2000. OUR INTERNAL SYSTEMS HAVE
BEEN THOROUGHLY TESTED AND WE ARE SATISFIED WITH THE RESULTS THEREOF.
IN ADDITION, SANLAM HAS APPROACHED ITS PRINCIPAL BUSINESS PARTNERS AND AGENTS
TO DETERMINE WHETHER THEIR SYSTEMS WILL BE YEAR 2000 READY. WE DO NOT EXPECT
THAT THE YEAR 2000 WILL HAVE A SIGNIFICANT ADVERSE EFFECT ON OUR OPERATIONS,
SUBJECT TO SUCH THIRD PARTIES ENSURING THAT THEIR SYSTEMS ARE YEAR 2000 READY.
WHERE, FOR REASONS BEYOND OUR CONTROL, WE HAVE NOT BEEN ABLE TO TEST YEAR 2000
READINESS TO OUR SATISFACTION, OR READINESS APPEARS TO BE COMPROMISED,
CONTINGENCY PLANS HAVE BEEN DEVELOPED TO MITIGATE SUCH RISKS TIMEOUSLY, SHOULD
THEY OCCUR.
THE TOTAL CAPITAL AND OPERATING EXPENDITURE ON THE YEAR 2000 PROJECT IS
EXPECTED TO BE R110 MILLION, OF WHICH APPROXIMATELY R70 MILLION HAS BEEN SPENT
UP TO THE END OF JUNE 1999. A LARGE PART OF THE REMAINING R40 MILLION IS
EXPECTED TO BE INCURRED ON THE PERSONAL COMPUTER RECTIFICATION PROJECT AS WELL
AS THE MANAGEMENT OF THE YEAR END PROCEDURES, THE WINDING DOWN OF THE YEAR 2000
PROJECT AND OTHER POTENTIAL CONTINGENCIES. APPROXIMATELY R30 MILLION HAS BEEN
SPENT IN THE FIRST SIX MONTHS OF 1999. THIS EXPENDITURE IS BEING EXPENSED WHEN
INCURRED, OTHER THAN CAPITAL EXPENDITURE WHICH IS TREATED IN ACCORDANCE WITH
THE CURRENT ACCOUNTING POLICY.
SANLAM IS CONFIDENT THAT EVERY EFFORT HAS BEEN MADE TO ADDRESS THE YEAR 2000
CHALLENGE IN THE MOST COMPETENT AND TRANSPARENT MANNER.
PROSPECTS
SUBJECT TO FAVOURABLE MARKET CONDITIONS, WE ANTICIPATE THAT OUR HEADLINE
EARNINGS FOR THE SECOND HALF OF 1999 WILL BE MORE OR LESS IN LINE WITH THE
RESULTS ACHIEVED IN THE FIRST HALF WHICH SHOULD REFLECT SOUND EARNINGS GROWTH
FOR THE YEAR COMPARED TO 1998.
FOR AND ON BEHALF OF THE BOARD
MH DALING P DE V RADEMEYER
EXECUTIVE CHAIRMAN FINANCIAL DIRECTOR
SANLAM LIMITED
1 SEPTEMBER 1999
CAPE TOWN
GROUP SECRETARY: JP BESTER
REGISTERED OFFICE: 2 STRAND ROAD, BELLVILLE 7530. TELEPHONE (021) 947-9111.
FAX: (021) 947-3670
POSTAL ADDRESS: PO BOX 1, SANLAMHOF 7532
REGISTERED NAME: SANLAM LIMITED - 59/01562/06.
SANLAM LIFE INSURANCE LIMITED - 98/21121/06
TRANSFER SECRETARIES:
MERCANTILE REGISTRARS LIMITED
(REGISTRATION NUMBER 87/03382/06)
10TH FLOOR, 11 DIAGONAL STREET, JOHANNESBURG 2001
PRIVATE BAG X105, MARSHALLTOWN 2107
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