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HIGHLIGHTS OF INTERIM RESULTS FOR SIX MONTHS TO 30 JUNE 1999
*HEADLINE EARNINGS INCREASED BY 37%
*TURNAROUND OF SANLAM HEALTH ACHIEVED
*EMBEDDED VALUE OF R26,3 BILLION OR 990 CENTS PER SHARE
*SPECIAL INTERIM DIVIDEND OF 10 CENTS PER SHARE
SANLAM'S FIRST INTERIM RESULTS AS A LISTED FINANCIAL SERVICES GROUP ANNOUNCED
TODAY ARE IN LINE WITH THEIR EXPECTATIONS. A TURNAROUND IN SANLAM HEALTH'S
FORTUNES CONTRIBUTED TO A SOLID INCREASE OF 37% IN HEADLINE EARNINGS AND A
SPECIAL INTERIM DIVIDEND OF 10 CENTS PER SHARE WAS DECLARED .
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.
CORPORATE COSTS WHICH HAVE PREVIOUSLY BEEN ALLOCATED TO THE VARIOUS BUSINESSES
AND RETURN ON CAPITAL, HAVE BEEN DISCLOSED SEPARATELY FOR THE FIRST TIME.
THE ANNUALISED HEADLINE EARNINGS RETURN ON THE CAPITAL OF THE SANLAM GROUP WAS
14% FOR THE FIRST HALF OF 1999 AND THE ANNUALISED ATTRIBUTABLE EARNINGS RETURN
WAS 31,8%.
COMMENTING ON THE RESULTS MARINUS DALING, EXECUTIVE CHAIRMAN, SAID THAT WITH
ITS PREVIOUS RESULTS, SANLAM STATED IT WAS A FINANCIAL SERVICES GROUP WITH
POTENTIAL, IN TRANSITION. "OUR RESULTS FOR THE FIRST SIX MONTHS OF 1999
INDICATE THAT WE ARE WELL ON OUR WAY TO REALISE THIS POTENTIAL AND TO CONTINUE
WITH TRANSITION.
"THIS IS SUPPORTED BY THE TURNAROUND OF SANLAM HEALTH FOLLOWING THE SUCCESSFUL
OUTSOURCING OF ITS MEMBER AND CLAIMS ADMINISTRATION. IT HAS POSTED A 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 ADDITIONAL DISCLOSURES ON CORPORATE COSTS AND RETURN ON CAPITAL IN OUR
INTERIM REPORT IS ANOTHER IMPORTANT STEP IN OUR COMMITMENT TO TRANSPARENCY IN
OUR COMMUNICATION WITH OUR STAKEHOLDERS."
IN COMPARING RESULTS WITH THOSE OF 1998, DALING SAID THAT THE PREVIOUS YEAR 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 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.
"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."
SALIENT FEATURES
FOR THE SIX MONTHS ENDED 30 JUNE 1999
*FUNDS RECEIVED FROM CLIENTS AMOUNTED TO R15 645 MILLION (1998: R15 568
MILLION);
*HEADLINE EARNINGS INCREASED TO R1 012 MILLION OR 38,1 CENTS PER SHARE (1998:
R737 MILLION OR 37,3 CENTS PER SHARE);
*ATTRIBUTABLE EARNINGS AMOUNTED TO R2 204 MILLION OR 83 CENTS PER SHARE
(1998: R1 912 MILLION OR 96,7 CENTS PER SHARE)
*EMBEDDED VALUE INCREASED FROM R21 952 MILLION OR 827 CENTS PER SHARE AT THE
END OF 1998 TO R26 292 MILLION OR 990 CENTS PER SHARE
*ASSETS UNDER MANAGEMENT INCREASED TO R199 BILLION, COMPARED WITH R193 BILLION
AT 30 JUNE 1998.
IN ADDITION
*INVESTMENT INCOME INCREASED BY 56%;
*OPERATING PROFIT AMOUNTED TO R1036 MILLION COMPARED TO R1 062 MILLION IN THE
FIRST HALF OF 1998 AND R175 MILLION IN THE SECOND HALF OF 1998;
*CAPITAL ADEQUACY REQUIREMENTS OF SANLAM LIFE INSURANCE LIMITED COVERED 2,4
TIMES BY ITS SHAREHOLDERS' FUNDS (31 DECEMBER 1998: 1,7 TIMES)
THE SPECIAL DIVIDEND IS PAYABLE ON 3 NOVEMBER TO HOLDERS OF ORDINARY SHARES
REGISTERED AT THE CLOSE OF BUSINESS ON 1 OCTOBER. IN FUTURE ONLY ANNUAL
DIVIDENDS WILL BE DECLARED.
COMMENTS
THE RESULTS ARE IN LINE WITH SANLAM'S EXPECTATIONS AND ARE BASED ON A FINANCIAL
SOUNDNESS ACTUARIAL VALUATION AS AT 30 JUNE 1999. SANLAM'S CAPITAL AFFORDS
POLICYHOLDERS ADEQUATE SECURITY AND THE OPTIMUM USE OF THE GROUP'S CAPITAL IS
NOW ACCENTUATED.
FUNDS RECEIVED FROM CLIENTS WERE BOOSTED BY HIGHER SINGLE PREMIUMS AND UNIT
TRUSTS INFLOWS AT SANLAM PERSONAL FINANCE BUT WERE OFFSET BY A REDUCTION IN
SINGLE PREMIUMS AT SANLAM EMPLOYEE BENEFITS.
VARIOUS INITIATIVES HAVE BEEN IMPLEMENTED TO IMPROVE PREMIUM INCOME, SOME OF
WHICH ARE ALREADY BEARING FRUIT.
THE 56% INCREASE IN INVESTMENT INCOME IS LARGELY ATTRIBUTABLE TO INCOME EARNED
ON THE CAPITAL RAISED TOWARDS THE END OF 1998 AND HIGHER INTEREST RATES.
INTEREST RATES ARE EXPECTED TO BE LOWER IN THE SECOND HALF OF 1999 WHICH WILL
IMPACT ON 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%.
PROGRESS HAS BEEN MADE ON SEVERAL FRONTS EXPLOITING OPPORTUNITIES TO DO
BUSINESS MORE EFFECTIVELY AND PROFITABLY AND TO IMPROVE SERVICE LEVELS.
EMPLOYMENT OF CAPITAL
DURING THE FIRST HALF OF 1999 SANLAM'S ALLOCATION OF CAPITAL TO THE VARIOUS
BUSINESSES WAS COMPLETED TO ENABLE MORE EFFICIENT USE OF CAPITAL AND MAXIMISE
THE RETURN ON CAPITAL. THE ALLOCATION 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 ANNUALISED ATTRIBUTABLE EARNINGS RETURN ON THE CAPITAL OF THE SANLAM GROUP
WAS 31,8%
CORPORATE COSTS
CORPORATE COSTS HAVE BEEN DISCLOSED SEPARATELY INSTEAD OF ALLOCATING IT TO THE
GROUP'S 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. THE LATTER INCLUDES R27 MILLION FOR SERVICING
SHAREHOLDERS (NUMBERING IN EXCESS OF TWO MILLION AT LISTING AT THE END OF LAST
YEAR). SHAREHOLDER SERVICES AND CORPORATE MARKETING COSTS COMPRISE
APPROXIMATELY HALF OF THE 1999 FIRST HALF CORPORATE COSTS.
EMBEDDED VALUE
THE EMBEDDED VALUE OF THE SANLAM GROUP INCREASED BY 19,8% (43,4% ON AN
ANNUALISED BASIS) FROM R21 952 MILLION AT 31 DECEMBER 1998 TO R26 202 MILLION
THE ANNUALISED GROWTH RESULTING FROM THE LIFE INSURANCE BUSINESS WAS R777
MILLION, OR ANNUALISED GROWTH OF 32%.
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. SANLAM'S INTERNAL
SYSTEMS HAVE BEEN THOROUGHLY TESTED AND SANLAM WAS SATISFIED WITH THE RESULTS
THEREOF.
*NOTES ON PERFORMANCE OF BUSINESSES IN THE GROUP (SEE NEXT TWO PAGES)
* GROUP FINANCIAL STATEMENTS (BY PAPER FAX ON REQUEST)
ENQUIRIES: FLIP RADEMEYER, FINANCIAL DIRECTOR (021) 947-6801
WALLY HARRIS, SENIOR FINANCIAL ACCOUNTANT (021) 947-3253
RELEASED BY FRANS VAN RENSBURG, SANLAM MEDIA RELATIONS (021) 947-4893 OR 083
626 8955
NOTES ON PERFORMANCE OF BUSINESSES IN THE GROUP
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 RECURRING PREMIUMS.
FUNDS RECEIVED BY SANLAM UNIT TRUST AND OUR LINKED PRODUCT PROVIDER, SANLAM
PERSONAL PORTFOLIOS, INCREASED BY 32% BUT 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 HAS
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
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 MILLLION). 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 RANSPARENT MONTHLY FULLY
VESTING SMOOTHED BONUS PRODUCT, WHICH SHOULD ATTRACT NEW SINGLE PREMIUM
INVESTMENTS.
STEPS WERE ALSO INTRODUCED TO IMPROVE SERVICE TO 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. SEB 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 IS 6% HIGHER THAN THE FIRST HALF OF
1998 AND EARNINGS PER SHARE OF 173 CENTS WAS 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 R 5 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, SANLAM HEALTH IS LOOKING TO EXPAND ITS MEMBERSHIP AND VARIOUS
MARKETING INITIATIVES HAVE BEEN IMPLEMENTED TO ACHIEVE THIS.
SANTAM
THE COMPARISON OF THE SANTAM RESULTS IS DISTORTED AS THEIR 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 6 MONTHS IN 1998 TO
R108 MILLION (1998 - 9 MONTHS: R 152 MILLION).
THE ABOVEMENTIONED RESULTED IN SANTAM'S EARNINGS PER SHARE OF 131 CENTS BEING
10% LOWER THAN THE COMPARABLE 6 MONTH PERIOD IN 1998. SHAREHOLDERS ARE REFERRED
TO THE FULL SET OF SANTAM'S RESULTS WHICH WERE PUBLISHED RECENTLY.
WEDNESDAY 1 SEPTEMBER 1999
- ENDS -
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