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Sanlam Limited
Highlights
- Operating profit exceeds R2 billion, growth of 21%
- Attributable earnings exceeds R4 billion
- Embedded value of new business increased by 21%
- New business embedded value margin improved from 9,7% to 13,2%
Our vision is to be the leader in wealth creation
Our strategy to pursue this vision is based on three themes - domestic
growth, superior client relationships and internationalisation
Our values we uphold are to grow value through innovation and superior
performance, to lead with courage, to serve with pride, to care because we
respect others and to act with integrity and accountability.
Salient features 2001 2000
Gross operating profit R million 2 011 1 656
Net operating profit per share cents 61,9 46,3
Headline earnings per share
based on the LTRR(1) cents 133,2 131,5
New business R million 37 605 37 700
Net (outflow)/inflow of funds R million (1 654) 832
Embedded value of new business
(NUBev) R million 290 240
Life insurance new business
APE(2) R million 2 204 2 477
NUBev margin % 13,2 9,7
Embedded value per share cents 1 167 1 067
Growth from life business % 15,7 22,8
Dividend per share cents 35 30
(1) LTRR = long term rate of return
(2) APE (annual premium equivalent) = recurring plus 10% single premiums
Overview OF FINANCIAL RESULTS
GENERAL
Sanlam achieved sound growth of 21% in operating profit during 2001 compared
to the previous year, increasing its profit to R2 011 million. Headline
earnings, including the investment return calculated on the Long Term Rate
of Return basis, however did not improve at the same rate and total headline
earnings amounted to R3 534 million which was only 1% higher than the
headline earnings achieved in 2000. The earnings per share increased to
133,2 cps compared to 131,5 cps achieved in 2000. Operating earnings after
tax and minorities contributed 61,9 cps to headline earnings (46,3 cps in
2000) while the investment return contributed 71,3 cps (85,2 cps in 2000).
New business embedded value of R290 million was achieved, reflecting growth
of 21% on a comparable basis. The margin of the new business embedded value
improved to 13,2% from 9,7% in 2000.
Funds flows remain a primary focus area and after the success of 2000 when
we achieved a net inflow, we experienced a net outflow of R1 654 million in
2001. A net outflow of segregated funds and Life licence business of R5 679
million was the major contributor while Sanlam Life achieved a net inflow of
R1 998 million, primarily due to a net inflow of R2 399 million to Sanlam
Unit Trusts and R1 630 million to Innofin.
Structural changes and abnormal items have affected the comparability of the
earnings in 2001 and 2000. The acquisition of the Gensec minorities in
December 2000 caused a net reduction in capital invested of some R2,5
billion resulting in the decline in investment return with a corresponding
increase in operating earnings. In 2000 deferred tax to the value of R354
million was reversed and the balance of the deferred tax credit amounting to
R284 million has been reversed in 2001. On a comparable basis, headline
earnings increased by 9,2%.
BUSINESS REVIEW
Following the acquisition of the Gensec minorities, we report on the
underlying Gensec businesses separately. The surplus capital that was held
within Gensec is being redeployed within the Sanlam capital structure as
part of the capital optimisation project. The income on the Gensec capital
including the equity underwriting profits and private equity income has been
incorporated in the investment return to which the Long Term Rate of Return
is applied.
The Life businesses were merged during the year and the combined Sanlam Life
increased its operating profit contribution by 17% to R1 452 million, which
is equal to 72% of the Sanlam operating profit. The operating profit of
Sanlam Investment Management declined marginally to R254 million and
contributed 13% to Sanlam operating profit. The difficult trading conditions
impacted on the operational results of Gensec Bank and its operating profit
contribution declined by 20% to R191 million, which equalled 9% of Sanlam
operating profit. Santam achieved underwriting profit of R97 million, which
was 3% lower than in 2000. Gensec Properties increased its operating profit
by 22% to R72 million and corporate costs declined by 8% to R174 million.
Sanlam disposed of its Health business with effect from 30 September 2001.
In this report an operating profit of R33 million is reported, of which R16
million represents operating profit and an amount of R17 million, being the
reversal of provisions.
EMBEDDED VALUE
The treatment of corporate expenses changed. In the published 2000 embedded
values, the share register expenses were deducted and the balance allocated
to the businesses. The portion allocated to life business was further split
between acquisition and maintenance functions, both impacted on NUB EV, but
only the latter on VIF. In restating the 2000 values only corporate expenses
related to life business were allocated to the life business. The balance
was multiplied by a P/E type multiple and deducted from Sanlam's net assets.
The impact was to reduce the 2000 net assets by R778 million, to increase
the value of in-force business by R256 million and the NUB EV by R31
million. Sanlam achieved an embedded value on new business of R290 million.
On a comparable basis the new business embedded value increased by 21%
compared to 2000 and the margin improved from 9,7% to 13,2%.
The embedded value of the Group at 31 December 2001 amounted to 1 167 cps
(R30,7 billion) compared to 1 067 cps a year ago, reflecting a share price
discount to embedded value of 21% at year-end. The growth in embedded value
amounted to 12,3% before and 9,5% after the dividend declaration and the
growth from inforce life insurance business to 15,7%.
GROSS INVESTMENT RETURN BASED ON THE LONG TERM RATE OF RETURN
As indicated earlier, the capital available for investment has declined by a
net amount of some R2,5 billion as a result of the acquisition of the Gensec
minorities during December 2000. This decline was the primary reason for the
lower investment income and total investment return Interest rates declined
further during the year which also impacted on investment income.
Stronger equity markets were responsible for the significant investment
surplus of R1 728 million compared to a deficit in 2000. The stronger equity
markets have also impacted on the total investment return. The JSE All Share
Index was 28% higher at the end of 2001 compared to 2000. Attributable
earnings amounted to R4 009 million which was 81% higher than in 2000.
On implementation of the LTRR it was decided to determine the rate of return
on a longer term perspective with the intention not to change unless market
factors necessitated such action. Since 2000 we have assumed a 13% rate of
return before tax and based on a balanced portfolio. The Board of Sanlam
resolved to amend its policy to adjust for changes in market conditions and
we will, in future, decide annually on the rate for the following year. The
decision will be influenced predominantly by the investment return
assumptions used in the determination of the embedded value. An investment
return rate of 13% will be applied for 2002.
ABSA RESULTS
Sanlam equity accounts its investment in Absa and the earnings contribution
is included in investment return. At 31 December 2001 Sanlam shareholders'
funds held an interest of 17,7% in Absa. The investment had a market value
of R4 036 million and our share of equity accounted earnings amounted to
R443 million which on a comparable shareholding basis reflected an increase
of some 22,3% on the contribution in 2000. The contribution is determined
based on published results, i.e. the contribution to 31 December 2001
reflected the earnings for the 12 months to 30 September 2001. On 14 January
2002 Absa announced that it was investigating the adequacy of provisions in
Unifer, its micro-lending subsidiary and that it would support a capital
injection in Unifer to ensure that it would have sufficient capital to
continue its activities. Shareholders are referred to a number of
announcements by Absa in this regard. The Absa share price declined after
the announcement and the value of Sanlam's investment amounted to R3 237
million on 22 February 2002 which implies a decrease of 20% compared to the
31 December 2001 value and a decline in the Sanlam net asset value and
embedded value of 30 cents per share.
Unifer will impact Absa's results to 31 March 2002 and will as a result
impact the expected contribution to Sanlam for 2002. It has to be borne in
mind that the impact has to be considered for both half years, i.e. to 31
March 2002 and to 30 September 2002 relative to the 2001 contributions.
CONTINGENCY
In the announcement of the interim results to 30 June 2001, shareholders
were advised that the South African Revenue Services ("SARS") had issued
revised assessments in respect of the 1997 and 1998 tax years of a
subsidiary of Genbel Securities Limited ("the company") and that a revised
assessment would be issued in respect of the 1999 tax year.
Subsequently to the foregoing SARS issued a revised assessment in respect of
the 1999 tax year and the company lodged objections in respect of all three
revised assessments. As was set out in the interim accounts, in terms of the
revised assessments certain significant surpluses arising from the disposal
of the assets are subjected to full tax as SARS contends that such surpluses
are not of a capital nature. The company's objections that these amounts are
in fact of a capital nature have been disallowed. SARS has afforded the
company the opportunity to make representations with respect to the possible
imposition of penalties and interest on the tax payable. The company
proposes to appeal against the disallowance of its objections.
DIVIDENDS
The Board has declared a dividend of 35 cents per share payable on 15 May
2002 to shareholders recorded on the register on 19 April 2002. This
represents an increase of 16,7% over the 30 cents per share dividend
declared in respect of 2000. The dividend is covered 3,8 times by headline
earnings.
To allow for the dividend calculation, Sanlam's share register will be
closed for all transfers and dematerialisation between 6 April 2002 and 19
April 2002 both dates included. During the same period Sanlam's two nominee
companies namely Sanlam Share Account (Pty) Ltd and Sanlam Fundshare Nominee
(Pty) Ltd will be closed for all off market transactions and
rematerialisations. Transactions on the JSE are not affected by this
arrangement.
The last date of trade to qualify for this dividend will be 12 April 2002
and shares will trade ex div from 15 April 2002.
INTERNATIONALISATION
Our research indicate that a regional approach as a strategy for
internationalisation is appropriate and we have identified some attractive
niche markets in the United Kingdom and Western Europe as well as
prospective markets in Asia and SADC outside South Africa in which we could
compete successfully. We will soon announce a senior appointment and an
appropriate structure to fully exploit these opportunities so as to deliver
on the internationalisation objectives we have set ourselves and which are
captured in our overall need to generate operating profit from new
operations to satisfy our longer term objectives.
PROSPECTS
Sanlam has identified six areas that will receive focused attention in 2002
to enhance growth. These are revenue or topline growth, higher productivity
and cost efficiency, internal co-operation between its businesses, becoming
the employer of choice, furthering black economic empowerment and becoming a
group of companies pursuing a single vision: wealth creation.
In the short term indications are that 2002 will be a difficult year and
that we will be stretched to achieve our growth targets. Our six focus areas
for domestic growth are aimed at continuing our growth pattern. In the
longer-term, we are optimistic on the political and economic growth
prospects for the country which should stimulate the business climate.
DIRECTORATE
Sanlam today announced that Mr AS du Plessis has been appointed as a non-
executive director on the Board from 1 March 2002. This follows his
decision to step down as an executive director from Sanlam's Board on
28 February 2002 after 16 years of service with the Group. He will continue
to serve on the Boards of most of the key companies within the Sanlam Group.
The Board also announced that Professor A.C. Bawa has retired as a non-
executive director from 1 March 2002.
By order of the board
Ton Vosloo Leon Vermaak
Chairman Chief Executive Officer
Cape Town
6 March 2002
2001 2000
GROUP INCOME STATEMENT Note R million R million
FUNDS RECEIVED FROM CLIENTS 2 47 148 46 926
Operating profit before tax 5 & 6 2 011 1 656
Tax on operating profit 7.1 (303) (180)
Operating profit from ordinary
activities after tax 1 708 1 476
Minority interest (65) (246)
NET OPERATING PROFIT 1 643 1 230
Actual investment return 8 3 084 1 322
Tax on investment return 7.2 (454) (202)
Minority interest (310) (33)
Net long term rate of return
adjustment 9 (429) 1 178
LTRR Net investment return 1 891 2 265
lTRR hEADLINE EARNINGS 3 534 3 495
Short term investment
fluctuations 9 429 (1 178)
Net investment surplus/(deficit)
on investment in associated
company 323 (108)
Accounting policy change by
subsidiary (62) -
Amortisation of goodwill (215) -
Attributable earnings 4 009 2 209
Diluted earnings per share
(cents):
- Net operating profit from
ordinary activities 61,9 46,3
- LTRR headline earnings 133,2 131,5
- Attributable earnings 151,1 83,1
Weighted average number of shares (million) 2 653 2 657
Dividends per share (cents) 35,0 30,0
GROUP BALANCE SHEET
2001 2000
R million R million
ASSETS
Non-current assets
Fixed assets 294 256
Goodwill 1 840 1 711
Investments 167 647 153 753
Deferred tax 146 115
General reinsurance provisions 1 718 1 274
Current assets 28 561 22 230
Total assets 200 206 179 339
Equity and liabilities
Shareholders' funds 22 231 19 012
Minority interest 1 503 1 215
Non-current liabilities
Policy liabilities 145 248 133 952
Term finance 4 936 4 698
Deferred tax 346 284
General insurance provisions 3 376 3 067
Current liabilities 22 566 17 111
Total equity and liabilities 200 206 179 339
Segregated funds not included in the
above balance sheet 53 337 45 572
Total assets under management and
administration 253 543 224 911
Tangible net asset value per share (cents) 927 831
Cash flow statement
Net cash flow from operating activities 16 230 4 707
Cash flow from investment activities (13 919) (2 515)
Cash flow from financing activities (169) 628
Net increase in cash and cash equivalents 2 142 2 820
Cash, deposits and similar securities at
beginning of year 7 036 4 216
Cash, deposits and similar securities
at end of year 9 178 7 036
financial ratios
2001 2000
Returns % %
Operating profit before tax(1) 9,5 6,7
Operating profit after tax(1) 8,1 6,6
Headline earnings based on the long
term rate of return(2) 17,4 18,7
Return on embedded value(3) 12,3 6,5
Annualised return on the Sanlam share
price since listing 17,0 26,6
Group administration cost ratio(4) 33,4 32,3
Group operating margin(5) 17,7 16,5
NOTES
(1) Operating profit before and after tax and minorities as a percentage of
the average shareholders' funds for the year.
(2) Headline earnings based on the long term rate of return as a percentage
of the average shareholders' funds for the year.
(3) Growth in embedded value (before dividends paid) as a percentage of
embedded value at the beginning of the year.
(4) Administration costs as a percentage of income earned by the
shareholders less sales remuneration.
(5) Operating profit as a percentage of income earned by the shareholders
less sales remuneration.
NOTES TO THE FINANCIAL STATEMENTS
2001 2000
R million R million
1. NEW BUSINESS
Individual Life 8 569 8 871
Group Life 3 132 3 594
Unit trust 10 209 9 074
Life licence business* 1 349 1 567
SIM Segregated fund business 6 318 7 973
Santam 4 760 3 836
Other 3 268 2 785
TOTAL NEW BUSINESS 37 605 37 700
LIFE INSURANCE APE 2 204 2 477
2. FUNDS RECEIVED FROM CLIENTS
Individual Life 15 331 15 630
Group Life 5 252 5 754
Unit trust 10 209 9 074
Life licence business* 1 954 1 852
SIM Segregated fund business 6 318 7 973
Santam 4 760 3 836
Other 3 324 2 807
TOTAL FUNDS RECEIVED FROM CLIENTS 47 148 46 926
3. BENEFITS PAID TO CLIENTS
Individual Life 16 518 15 897
Group Life 6 096 5 954
Unit trust 7 810 8 569
Life licence business* 6 233 6 692
SIM Segregated fund business 6 979 4 350
Santam 3 367 2 763
Other 1 799 1 869
TOTAL BENEFITS PAID TO CLIENTS 48 802 46 094
4. net inflow of funds
Life insurance (1 815) (362)
Other 161 1 194
TOTAL (OUT)/INFLOW OF FUNDS (1 654) 832
*Life licence business relates to investment products provided by Sanlam
Investment Management and Innofin by means of life insurance policies. The
group life investment products provided by means of insurance policies were
previously reported as group life business. With effect from 1 January 2001
the responsibility for the bulk of this business was transferred to Sanlam
Investment Management and has been reported accordingly. For comparative
purposes the 2000 figures were restated to reflect a reasonable
approximation of the split in this business.
5. SEGMENTAL ANALYSIS OF OPERATING PROFIT
Sanlam Life 1 452 1 246
Sanlam Investment Management (SIM) 254 263
Gensec Bank 191 239
Santam 97 100
Gensec Properties 72 59
Corporate income 98 121
Corporate costs (174) (190)
Other (12) (51)
Sanlam Health 33 15
Gensec corporate and trading - (146)
Total operating profit 2 011 1 656
6. OPERATING PROFIT
Financial services income 13 069 11 614
Sales remuneration (1 686) (1 553)
Income after sales remuneration 11 383 10 061
Underwriting policy benefits (5 346) (4 785)
Administration costs (3 802) (3 252)
Operating profit before exceptional items 2 235 2 024
Exceptional items (224) (368)
Operating profit after exceptional items 2 011 1 656
7. INCOME TAX
7.1 Operating profit 303 180
- Normal and deferred 488 410
- Deferred tax reversal (185) (230)
7.2 Actual investment return 454 202
- Normal and deferred 332 326
- Deferred capital gains tax 221 -
- Deferred tax reversal (99) (124)
7.3 Investment surpluses on investment in
associated companies - capital gains tax 10 -
Income tax (before LTRR adjustment) 767 382
8. ACTUAL investment return
Investment income 735 1 004
Absa equity accounted earnings 621 423
Investment surpluses/(deficits) 1 728 (105)
Actual investment return 3 084 1 322
9. NET LONG TERM RATE OF RETURN ADJUSTMENT
Investment return (606) 1 598
Tax 116 (105)
Minority shareholders interest 61 (315)
Net long term rate of return adjustment (429) 1 178
10. ABRIDGED SHAREHOLDERS' FUND BALANCE SHEET
- fAir VALUE
(Santam, SIM, Gensec Bank, Gensec Properties
& Sanlam Unit Trusts not consolidated but
reflected as investments at fair value)
Assets
Investments
Sanlam businesses
- SIM(1) 3 412 3 588
- Gensec Bank(1) 1 442 1 600
- Gensec Properties(1) 175 225
- Sanlam Unit Trusts(1) 874 961
Strategic investment - Santam(1) 1 709 1 274
Associated company - ABSA 4 036 2 751
Other Investments
- Other equities 7 250 6 741
- Public sector stocks and loans 1 859 1 909
- Properties 1 018 1 074
Other interest bearing investments 6 685 6 484
Current and other assets 4 730 4 870
Total Assets 33 190 31 477
Equity and liabilities
Shareholders' Funds 24 399 21 874
Term finance 4 331 4 711
Current and other liabilities 4 460 4 892
Total equity and liabilities 33 190 31 477
(1) Excess of fair value over net asset
value of businesses
The shareholders' funds balance sheet at
fair value include the value of the companies
below based on directors' valuation, apart
from Santam which is valued according to
ruling share prices.
Fair value of businesses (above) 7 612 7 648
Less: Tangible net asset value 3 904 3 074
Sanlam Unit Trusts 462 389
SIM 519 323
Gensec Bank 1 444 1 234
Gensec Properties 92 62
Santam 1 387 1 066
Less: Goodwill recognised in respect of
above businesses 1 540 1 711
Revaluation adjustment of interest in
businesses to fair value 2 168 2 863
11. ABRIDGED SHAREHOLDERS' FUNDS BALANCE SHEET
- NET ASSET VALUE
(All businesses consolidated at NAV)
Assets
Goodwill 1 840 1 711
Investments 26 219 24 224
Current and other assets 26 419 19 286
Total Assets 54 478 45 221
Equity and liabilities
Shareholders' funds 22 231 19 012
Term Finance, current and other liabilities 32 247 26 209
Total equity and liabilities 54 478 45 221
EMBEDDED VALUE
2001 2000 2000
Restated Published
R million R million R million
1. embedded value
Sanlam group shareholders' funds
at fair value (per note 10) 24 399 21 874 20 512
Adjustment for discounting of
capital gains tax(1) 61 -
Present value of strategic
corporate expenses(2) (664) (778) -
Sanlam group shareholders'
adjusted net assets 23 796 21 096 20 512
Net value of life insurance
business in force 6 941 6 982 6 726
Value of life insurance business
in force 8 756 8 156(3) 7 900
Cost of holding prudential
reserves (1 815)(4) (1 174) (1 174)
Sanlam group embedded value 30 737 28 078 27 238
(1) Adjustment to allow for the delay before incurring the capital gains tax
liability included in the fair value.
(2) The value was calculated by multiplying corporate expenses not related
to life business (after tax) of R96 million (2000: R107 million) by the
share price of 919 cents (2000: 956 cents) and divided by the headline
earnings per share based on the long term rate of return 133,2 cents (2000:
131,5 cents)
(3) The restated gross value of life insurance business in force (VIF) for
2000 includes an increase of R256 million, which relates to the removal of
corporate expenses not related to life business of R48 million multiplied by
an annuity factor, from the VIF.
(4) The increase in the cost of holding prudential reserves is largely due
to the effect of capital gains tax that was introduced on 1 October 2001.
2. embedded value EARNINGS
Embedded value from new life
insurance business 290 240 209
Earnings from in-force life
insurance business 1 111 1 279 1 330
- Expected return 1 204 1 214 1 173
- Operating experience variations 32 45 137
- Operating assumption changes (125) 20 20
Embedded value earnings from life
operations 1 401 1 519 1 539
Economic and other (including
asset mix) assumption changes 105 289 289
Introduction of capital gains tax (613) - -
Tax changes - (22) (22)
Investment variances 200 (304) (304)
Growth from life insurance
business 1 093 1 482 1 502
Investment return on shareholders'
adjusted net assets 2 356 332 (130)
Total embedded value earnings
before dividends paid 3 449 1 814 1 372
Dividends paid or proposed (790) (398) (790)
Increase in Sanlam group
embedded value 2 659 1 416 582
APE for embedded value
purposes(1) 2 204 2 477 2 477
Embedded value of new life
business as a percentage of APE 13,2% 9,7% 8,4%
Growth from life insurance
business as a % of beginning
value of in-force 15,7% 22,8% 24,3%
3. analysis PER BUSINESS
Net value of existing life
insurance business
Individual business 6 144 6 152 6 152
Group business 848 897 897
Corporate (51) (67) (323)
Sanlam group 6 941 6 982 6 726
2001 2000
New business embedded
value and APE margin R million margin R million margin
Individual life 208 12,0% 171 8,8%
Group life 82 17,6% 69 12,9%
Sanlam group 290 13,2% 240 9,7%
(1) APE (annual premium equivalent) is equivalent to new recurring premiums,
excluding indexed growth new business, plus 10% single premiums. APE
excludes life license business as a very small portion of its value relates
to life business.
2001 2000
% %
4. PRINCIPAL ASSUMPTIONS
Pre-tax investment returns
- Equities and offshore investments 13,8 15,1
- Hedged equities 10,8 12,1
- Properties 12,8 14,1
- Fixed-interest securities 11,8 13,1
- Cash 9,8 11,1
Risk discount rate 14,3 15,6
Unit cost and salary inflation 7,3 6,6
Consumer price index inflation 5,8 6,6
Group Secretary
Xoliswa Motswai
Registered office
2 Strand Road, Bellville 7530. Telephone (021) 947-9111. Fax(021) 947-3670
Postal address
POBox 1, Sanlamhof 7532
Registered name and JSE codes
Sanlam Limited
(Reg. number 1959/001562/06)
JSE share code: SLM
ISIN number: ZAE000028262
Mercantile Registrars Limited
(Reg. number 1987/003382/06)
10th Floor, 11 Diagonal Street, Johannesburg 2001
Private Bag X105, Marshalltown 2107
www.sanlam.co.za
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