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SANLAM GROUP - INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2002
SANLAM LIMITED
(REGISTRATION NUMBER 1959/001562/06)
JSE SHARE CODE: SLM
ISIN NUMBER: ZAE000028262
SANLAM GROUP RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2002
Highlights
Headline earnings of R1 554 million (58,9 cps)
14% growth in Comparable headline earnings (cps)
Operating profit of R1 085 million
Excellent underwriting results from Santam : up 52%
15% growth in Sanlam Life operating profit
International contribution 11%
Progress on strategic initiatives
Sanlam Wealth Management division enhances focus on clients and wealth
creation
Launch of Development Fund of Funds
Entered into aviation finance joint venture with Imperial Group
SALIENT FEATURES Six months Full
unaudited year
2002 2001 2001
Operating profit before tax R 1 085 1 040 2 092
million
Headline earnings based on the LTRR(1) R 1 554 1 631 3 534
million
Net operating profit per share cents 28,1 27,8 62,9
Headline earnings per share based on cents 58,9 61,1 133,2
the LTRR (1)
Comparable headline earnings per cents 68,8 60,3 117,6
share(2)
New business volumes R 14 816 15 335 39 085
million
Net outflow of funds R (1 326) (2 746) (963)
million
Embedded value of new life business R 146 143 290
million
Life insurance new business APE (3) R 1 032 1 016 2 204
million
New business embedded value margin % 14,1 14,1 13,2
Embedded value per share cents 1 094 1 097 1 167
Growth from life business(4) % 12,6 13,4 15,7
FINANCIAL RATIOS Six months Full year
unaudited
2002 2001 2001
Returns (4) % % %
Operating profit before tax (5) 10,5 10,5 10,3
Operating profit after tax (5) 7,2 7,5 8,2
Headline earnings based on the LTRR(6) 15,0 16,5 17,4
Return on embedded value (7) -7,1 11,2 12,3
Group administration cost ratio (8) 33,6 32,2 33,4
Group operating margin (9) 18,0 19,0 18,3
Notes
LTRR = Long-term rate of return.
Headline earnings adjusted for the impact of Absa`s Unifer losses, the
introduction of capital gains tax and the change in the recognition of
currency translation differences.
APE = Annual premium equivalent and is equal to new recurring premiums
(excluding indexed growth premiums) plus 10% of single premiums.
Returns for six months are annualised.
Operating profit before and after tax as a percentage of the average monthly
shareholders` funds for the year.
Headline earnings based on the long-term rate of return as a percentage of
the average monthly shareholders` funds for the year.
Growth in embedded value (before dividends paid) as a percentage of embedded
value at the beginning of the year.
Administration costs as a percentage of income earned by the shareholders`
funds less sales remuneration.
Operating profit as a percentage of income earned by the shareholders` funds
less sales remuneration.
EXECUTIVE REVIEW
Overview of results
Global markets have been subject to extreme volatility in recent months.
Wall Street has lost all gains made since September 11th, while the exposure
of poor business and accounting practices in the United States continues to
impact severely on business and investor confidence. Given this, it was
reassuring for Sanlam to, once again, be awarded as a winner for excellence
in reporting and communication by the Investment Analyst Society of South
Africa. The sound fundamental base of the South African economy initially
offered some protection to the local markets against the global turbulence,
but could not prevent the spillover of cautious, if not negative, sentiment
to local investors. This sentiment, in addition to the currency uncertainty
created by the perceived undervalued Rand early in 2002, had a marked impact
on local corporate activity and investment patterns and preference. This is
evident in the sales and operating results of our Group businesses for the
six months to June. In view of the impact of these trading conditions, in
June this year the Sanlam Board advised shareholders that the adverse market
conditions, coupled with the negative impact of the losses suffered by
Unifer on the Absa results to be accounted for by Sanlam, would prevent the
Group from achieving its stated earnings growth target for the six-month
period.
In these market conditions, Sanlam achieved a satisfactory increase of 4% to
R1 085 million in its gross operating profit compared with the first half of
2001. Total new inflows of funds were, however, down by a disappointing 3%.
The embedded value of new life business increased by 2% to R146 million, at
an unchanged profit margin of 14,1%.
Headline earnings of R1 554 million, including investment return based on a
long term rate of return, were down by 5% on the first six months of 2001.
Headline earnings per share amounted to 58,9 cps compared to 61,1 cps
reported for the first half of 2001. On a more comparable basis headline
earnings amount to 68,8 cps representing a 14% increase on 60,3 cps for the
first half of 2001.
PROGRESS ON GROUP STRATEGY
Our vision - to be the Leader in Wealth Creation - supports the definition
of Sanlam as a group of businesses focused on building, preserving and
growing wealth for our clients. The vision is underpinned by the three
themes of superior client relationships, domestic and international growth.
Developments in this regard include the following:
Sanlam Wealth Management, a new business unit headed by Charl le Roux,
concentrates on developing and delivering appropriate client solutions that
address the needs of clients in different market segments as effectively as
possible, thereby further enhancing the Group`s core focus. It aims to
provide individuals and groups with quality financial advice and innovative
products, which it will source from all businesses in the Sanlam Group.
Sanlam Life, under Liz Lambrechts, will deliver innovative individual life,
employee benefit and unit trust products and services to Sanlam`s
distribution channels.
We are making progress in the evaluation of suitable models for adding
banking products to our array of products and services. As we have stated
publicly in the past, we have to evaluate all options available to us to
supplement our existing products and services with banking products, which
are essential in our quest to be the leader in wealth creation. We are
committed to making an announcement to our shareholders before the end of
2002 on how we intend to execute the strategy.
Sanlam decided on a regional approach as strategy for internationalisation
and has identified some markets in which we could compete successfully. To
this end Angus Samuels has been appointed to drive the positioning of the
Group in offshore markets. Existing foreign operations already contributed
11% of group operating profit for the first six months of 2002.
Sanlam has a four-pillar strategy for black economic empowerment. These are
employment equity, a new procurement and service provider policy, full
participation in the economic development of South Africa and ownership and
control transformation. With reference to the latter pillar, Sanlam is
investigating structures and processes to further this strategy. We are
currently finalising a Black Economic Empowerment Charter and the formation
of a new subcommittee of the Board has been approved to monitor and advise
on the implementation of the charter.
It is our view that black empowerment and economic growth go hand in hand.
This has been fundamental to the decision to create a unique new empowerment
fund, which is designed to promote empowerment, but at the same time protect
the invested capital and deliver market-competitive returns. This innovative
vehicle, the Sanlam Development Fund of Funds, was created by Sanlam
Investment Management (SIM) and again confirms our commitment to finding
products and solutions suited to client needs. The fund offers retirement
funds the opportunity to provide their members with competitive returns
while promoting empowerment.
PROSPECTS FOR 2002
Tough trading conditions continued into the third quarter of 2002,
confirming the view expressed in our 2001 annual report that it would be
difficult to achieve our growth targets in 2002. All our group businesses
are focused on maximizing their efforts during the remainder of the
financial year. Our target is to achieve real growth in gross operating
profit for the year, but this may prove difficult given the constraints of
currency and stock market volatility.
The disappointing growth in new business volumes for the year to date is of
concern. We remain confident that the recent appointment of Johan van der
Merwe and the other changes in processes and staff introduced at SIM over
the past few months will increasingly produce results that will re-establish
SIM`s reputation for consistent superior investment performance, and attract
new investment funds. Recent improvements in unit trust performance are
encouraging. New innovative life products - in particular a new range of
competitive risk products to be launched later this year - should also
contribute to improved sales volumes.
DIRECTORATE
It was with regret that the Board accepted the resignation of Mr Peter
Vundla as a director from 1 April 2002. We thank him for his contribution
during his tenure. We would like to welcome Mr Vusi Khanyile, chairman of
Thebe Investment Corporation, who accepted an invitation to join the Sanlam
Board as a non-executive director from 7 August 2002.
Ton Vosloo Leon Vermaak
Chairman Chief Executive Officer
Sanlam Limited
4 September 2002
Cape Town
COMMENTS ON THE RESULTS
Operating results
The Group achieved OPERATING PROFIT of R1 085 million for the six months
ended 30 June 2002, an improvement of 4% on the R1 040 million recorded in
the first half of 2001. While Gensec Bank had a particularly difficult
trading period that saw its operating profit reduce by 54% compared with the
first half of 2001, Sanlam Life, Sanlam Investment Management and Santam all
managed to grow their operating profit in excess of 10%. In line with the
Group`s strategy to expand its international presence, 11% of operating
profit is now contributed by the offshore operations of Sanlam Investment
Management (io investors and Psigma) and Gensec Bank.
R MILLION 6 MONTHS TO 12 MONTHS
TO
JUNE JUNE DEC 2001
2002 2001
SANLAM LIFE 765 665 1 371
SANLAM INVESTMENT 161 145 291
MANAGEMENT
Gensec Bank 51 112 191
Santam 127 95 188
Corporate & Other (19) 23 51
Total operating profit 1 085 1 040 2 092
Total group administration expenditure grew by 14% compared with the first
half of 2001. The increase in local expenditure was well contained to 3 %
and the substantial rise was mainly due to the building of capacity in our
fledgling international operations. The benefits of these should be derived
in due course. As a result the Group`s cost to income ratio deteriorated
from 32,2% for the first half of 2001 to 33,6%.
* Sanlam Life continued its trend of consistent growth in operating profit
and recorded a profit of R765 million for the first half of 2002. This is
15% higher than the first six months of 2001 and contributed 71% of the
total group operating profit. This growth in profit was substantially due
to an increase in market-related income (mainly higher net interest earned
on working capital) and a reduction in exceptional system development
expenditure. The increase in administration expenses was contained to 3%,
but was not enough to compensate for only a marginal increase in
administration fee income. The latter resulted from lower sales volumes
and
a more conservative accounting approach to income recognition. Net income
from risk business decreased by 3% owing to an increase in claims, mainly
in respect of group business.
The introduction of a first banking product, Sanlam Personal Loans, in a
joint venture with Direct Axis, has been very successful - 11 000 loans
worth almost R100 million have been granted since its launch in November
2001.
* SIM`s operating profit of R161 million is 11% higher than in the first
half
of 2001, mainly as a result of the strong contribution of the
international
business. In Rand terms the contribution of Psigma and io investors
increased by 18%.
During the six months SIM acquired, and successfully integrated, a major
portion of the private client business of Merill Lynch, adding R8 billion
to its assets under management and administration, thus establishing
Sanlam
Personal Investments as a major player in this market.
As indicated in the trading statement issued in June, Gensec Bank`s profit
is significantly lower than for the first half of 2001. The tough market
conditions for investment banking activity, advisory services and
arbitrage
resulted in the bank`s profit of R51 million being 54% lower than the R112
million achieved during the first six months of 2001.
A new aviation financing company, Safair Lease Finance, with an initial
funding capacity of at least R5 billion, has been formed as a joint
venture
between the Imperial Group and Gensec Bank, each investing R400 million.
This transaction introduces a steady earnings stream into the bank`s
profit.
* Santam achieved most satisfactory underwriting results owing to favourable
claims experience. Their underwriting surplus of R79 million for the six
months is 52% higher than the R52 million reported for the first six
months
of 2001. Including the interest earned on working capital, their
contribution of R127 million to gross operating profit is 34% higher than
in 2001.
* Ongoing corporate expenses were maintained at the same level as for the
first half of 2001. In addition, exceptional costs relating to expenditure
on Group strategic development are also expensed in the current period.
Income reported on this line is down owing to a reduction in income earned
from a corporate preference share structure and lower contributions from
other Group businesses.
Total NEW FUND INFLOWS of R14,8 billion received during the six months were
down by 3% on those received in the first half of 2001. This is mainly the
result of a reduction in investment inflows into unit trust and segregated
investment funds. New life premiums increased by 6% (APE up 2%), while short
term insurance premiums received, net of reinsurance, were 11% higher than
for the six months to June 2001.
R MILLION 6 MONTHS TO 12 MONTHS TO
JUNE 2002 JUNE 2001 DECEMBER 2001
Life Insurance Business 6 446 6 103 13 297
Investments 5 802 6 589 20 481
Short term insurance 2 568 2 311 4 760
(Santam)
Sanlam Health - 332 547
Total new business 14 816 15 335 39 085
Life insurance annual 1 032 1 016 2 204
premium equivalent
Life insurance business includes the R642 million inflows (2001: R672
million) of investment business provided by SIM and Innofin by means of life
insurance policies. Substantial growth in such business achieved by Innofin
during the six months was offset by a sharp reduction in new business
attracted by SIM.
New individual life business (R4 344 million) was marginally down on 2001
(R4 438 million). Single premium business increased by 10% to R2 763
million, particularly as a result of strong growth in products offering a
guarantee in respect of market value or investment return. Inflows to
products offering direct market exposure were down on 2001, as were those in
respect of policies offering risk cover. The latter will be addressed with
the launch of a new range of risk products later in the year. This trend in
product preference was also evident in respect of new recurring business. A
relatively high weighting of market-linked business resulted in a 5% decline
(to R690 million) in new recurring premiums. The introduction of capital
gains tax (CGT) had a severe impact on the viability of the trade in second-
hand life insurance policies. A substantial component of past new inflows in
respect of policies continued after maturity came from this source. For the
six months to June 2002 continuations were down 26% to R891 million.
New group life business of R1 414 million was up 57% on the first six months
of 2001. A major part of the growth resulted from an increase in single
premium bonus pension business.
Investment business covers all investment funds attracted by the Group
companies but not sold in the form of a life insurance policy. This includes
the inflows of Sanlam Unit Trusts, Innofin and SIM`s segregated funds. Total
inflows (R5 802 million) were down 12% on the first six months of 2001.
Innofin recorded a 62% improvement to R2 229 million in its inflows, mainly
linked-product, hedge fund and money market inflows. This was offset by a
drop of 4% (to R3 351 million) in new business inflows to Sanlam Unit
Trusts. The reduction was mainly due to lower inflows to equity funds, which
can in part be attributed to a switch to Innofin`s products that offer wider
asset management exposure and more flexibility for investors. Sanlam Unit
Trusts offers a white-labelling facility to third parties on which it earns
a nominal margin. Current period inflows include R1 041 million received
from this source (nil in the corresponding period in 2001). Sanlam
Investment Management attracted only a relatively small amount of new
segregated funds during the six months.
NET OUTFLOWS of R1 326 million for the Group in the first half of 2002
remain unsatisfactory, although they were less than half of those
experienced in the first half of 2001.
R MILLION 6 MONTHS TO 12 MONTHS TO
JUNE 2002 JUNE 2001 DECEMBER 2001
Life Insurance Business (2 629) (2 883) (6 094)
Investments 542 (556) 3 677
Short term insurance 761 674 1 394
(Santam)
Sanlam Health - 19 60
Total net outflows (1 326) (2 746) (963)
Total funds received from clients of R19 666 million were 1% lower than in
the first six months of 2001. Life premiums received of R11 296 million
account for 57% of inflows and were up by 7% on the first six months of
2001. Short term insurance premiums rose by 11% to R2 568 million.
Investment inflows were down by 12%.
Total payments to clients of R20 992 million were 7% lower than in 2001.
Life and short term policy benefits were up by 3%, while fund withdrawals,
terminations and policy surrenders decreased by 13% to R4 925 million. The
outflow of investment funds decreased to R5 260 million, 26% less than 2001.
Headline earnings
Headline earnings for the six months to June 2002 amounted to R 1 554
million, 5% down on the equivalent period in 2001. Headline earnings per
share decreased by 4% from 61,1 cps to 58,9 cps.
R MILLION 6 MONTHS TO
JUNE 2002 JUNE 2001
Operating Profit Before Tax 1 085 1 040
Taxation (279) (254)
Minorities (64) (44)
Net operating profit 742 742
Absa - equity accounted 107 218
Long term investment return 705 671
Headline earnings 1 554 1 631
Headline earnings (cps) 58,9 61,1
Comparable headline earnings 68,8 60,3
(cps)
Headline earnings are the aggregate of net operating profit and investment
return. Investment return consists of equity-accounted earnings from
associated companies and income on portfolio investments based on a long-
term rate of return (LTRR). The long term return rate of 13% is applied to
the monthly average market value of the underlying investment base.
The equity-accounted earnings for Absa comprise the shareholders` fund`s
interest of approximately 18% in the earnings of Absa. The results reported
to 30 June 2002 are based on the actual results for the second half of
Absa`s financial year ended 31 March 2002, which include the impact of the
losses incurred by Unifer. The impact of the Unifer loss is to reduce the
Sanlam headline earnings by R189 million (7,2 cps).
The calculated net long-term investment return for the six months amounts to
R705 million. The net actual investment return for the six months was a
deficit of R605 million, owing to the decline in markets over the period.
These deviations from the expected long-term investment return are accounted
for in determining the Group`s attributable earnings. The long-term
investment return includes an adjustment for capital gains tax (CGT),
introduced from 1 October 2001. The impact of CGT is to reduce headline
earnings by R72 million (2,7 cps). Excluding the impact of CGT, Absa`s
Unifer losses and the change in the recognition of currency translation
differences, headline earnings per share for the six months show an increase
of 14% on 2001.
EMBEDDED VALUE
The value of new life business for the six months amounted to R146 million,
a 2% improvement on the R143 million for the corresponding period in 2001.
JUNE 2002 JUNE 2001
RM MARGIN RM MARGIN
INDIVIDUAL 102 12,3% 117 13,3%
GROUP 44 21,6% 26 20,3%
Total value of new life 146 14,1% 143 14,1%
business
The profitability of new life business can be measured by the ratio of the
embedded value of new business to the annual premium equivalent (APE). This
margin was maintained at 14,1% for both periods. Higher margin group
business compensated for the lower volumes and the lower margin of
individual life business.
R MILLION JUNE 2002 DEC 2001
Adjusted Net Assets 21 905 23 796
Group Shareholders` Funds At Fair 22 601 24 399
Value
Adjustment For Discounting Cgt 37 61
Present Value Of Corporate Expenses (733) (664)
Net Value Of In-Force Business 6 822 6 941
Gross Value Of In-Force Business 8 572 8 756
Cost Of Holding Prudential Reserves (1 750) (1 815)
Embedded value 28 727 30 737
cps 1 094 1 167
The total embedded value of the group on 30 June 2002 amounted to R28 727
million, which is 7% down on the value at the end of December 2001. This
equates to a negative growth of R1 089 million (7,1% annualised) in the
embedded value before taking into account the dividend declared in respect
of the 2001 financial year. The negative growth can mainly be attributed to
negative investment return on shareholders` net assets driven by weak
investment markets. The operational experience for the six months did not
materially deviate from the actuarial assumptions underlying the embedded
value calculation. The growth from life insurance business as a percentage
of the starting value of the in-force life business amounted to an
annualised 12,6%.
The results of the embedded value sensitivity analysis performed at 30 June
2002 were similar to those published in the 2001 annual report. In
particular, the sensitivity of the embedded values to the base risk discount
rate of 14,7% (14,3% at 31 December 2001) has been determined. If the risk
discount rate is reduced by 1,5% to 13,2%, the net value of in-force life
insurance business would increase by 21% (or by R1 415 million) and the net
value of new life insurance business would increase by 26% (or by R38
million). If the risk discount rate is increased by 1,5% to 16,2%, the net
value of the in-force life insurance business would decline by 17% (or by R1
133 million) and the net value of new life insurance business would decline
by 21% (or by R31 million).
CONTINGENCY
Shareholders are referred to the note in the 2001 annual report on the
potential tax liability of a subsidiary of GENSEC. The matter is still
being pursued with the revenue authorities.
Dividends
No interim dividend has been declared, as it is our policy to declare an
annual dividend at year-end.
GROUP SECRETARY REGISTERED NAME AND JSE CODES:
JOHAN BESTER SANLAM LIMITED
(REGISTRATION NUMBER 1959/001562/06)
REGISTERED OFFICE JSE SHARE CODE: SLM
2 STRAND ROAD, BELLVILLE 7530 ISIN NUMBER: ZAE000028262
TELEPHONE (021) 947-9111
FAX (021) 947-3670 TRANSFER SECRETARIES:
COMPUTERSHARE INVESTOR SERVICES
POSTAL ADDRESS LIMITED
PO BOX 1, SANLAMHOF 7532 70 MARSHALL STREET, MARSHALLTOWN
2001
PRIVATE BAG X105, MARSHALLTOWN 2107
TEL (011) 370-5000
FAX (011) 370-5487
WWW.SANLAM.CO.ZA
Directors: T. Vosloo (Chairman), L. Vermaak (Chief Executive Officer),
J.P.L. Alberts, D.C. Brink, P. de V. Rademeyer, A.S. du Plessis, T.S.
Gcabashe, V.P. Khanyile, P.C. le Roux, C.E. Maynard, D.N.M. Mokhobo,
A.F. Perold*, G.E. Rudman, P.E.I. Swartz, J. van Zyl, J.J.M. van Zyl.
Alternate directors: N.T. Christodoulou, M. Ferreira, B.F. Mohale, J.A.A.
Samuels**, C.G. Swanepoel.
* American, ** British
GROUP INCOME STATEMENT Six months unaudited Full year
2002 2001 2001
Note R million R million R million
FUNDS RECEIVED FROM CLIENTS 2 19 666 19 804 48 628
Financial services income 6 939 6 317 13 140
Sales remuneration (905) (831) (1 734)
Income after sales remuneration 6 034 5 486 11 406
Underwriting policy benefits (2 879) (2 591) (5 285)
Administration costs (2 025) (1 769) (3 804)
Operating profit before 1 130 1 126 2 317
exceptional items
Exceptional items (45) (86) (225)
Operating profit before tax 5 1 085 1 040 2 092
Tax on operating profit 6 (279) (254) (330)
Operating profit from ordinary 806 786 1 762
activities after tax
Minority interest (64) (44) (92)
NET OPERATING PROFIT 742 742 1 670
Actual investment return 7 (532) 761 2 993
Tax on investment return 6 71 (152) (427)
Minority interest (37) (159) (273)
Net long term rate of return 8 1 310 439 (429)
adjustment
LTRR Net investment return 812 889 1 864
LTRR HEADLINE EARNINGS 1 554 1 631 3 534
Short-term investment fluctuations 8 (1 310) (439) 429
Net investment (385) 796 323
(deficits)/surpluses and
adjustments
Accounting policy change by - - (62)
subsidiary
Amortisation of goodwill (129) (111) (215)
Attributable earnings (270) 1 877 4 009
Diluted earnings per share
(cents):
Net operating profit from ordinary 28,1 27,8 62,9
activities
LTRR headline earnings 58,9 61,1 133,2
Attributable earnings per share (10,2) 70,3 151,1
(cents)
Adjusted weighted average number 2 639 22 670 2 653
of shares (million)
Dividend per share (cents) - - 35,0
GROUP BALANCE SHEET
June unaudited December
2002 2001 2001
R million R million R million
ASSETS
Non-current assets
Fixed assets 263 274 295
Goodwill 2 014 1 950 1 840
Investments 157 819 156 569 165 848
Deferred tax 125 87 146
Short term reinsurance provisions 1 576 1 239 1 800
Current assets 29 118 26 371 30 369
Total assets 190 915 186 490 200 298
Equity and liabilities
Shareholders` funds 20 984 20 099 22 231
Minority interest 1 636 1 324 1 503
Non-current liabilities
Policy liabilities 137 723 136 766 145 248
Term finance 5 131 5 059 4 936
Deferred tax 277 297 346
Short term insurance provisions 3 199 3 104 3 458
Current liabilities 21 965 19 841 22 576
Total equity and liabilities 190 915 186 490 200 298
Segregated funds not included in 68 396 54 430 53 337
the above balance sheet
Total assets under management and 259 311 240 920 253 635
administration
Tangible net asset value per share 861 862 927
(cents)
CASH FLOW STATEMENT Six months unaudited Full year
2002 2001 2001
R million R million R million
Cash (outflow)/inflow from (9 623) 2 457 16 238
operating activities
Cash inflow/(outflow) from 7 401 (4 585) (13 934)
investment activities
Cash inflow/(outflow) from 132 361 (169)
financing activities
Net (decrease)/increase in cash (2 090) (1 767) 2 135
and cash equivalents
Cash, deposits and similar 10 985 8 850 8 850
securities at beginning of period
Cash, deposits and similar 8 895 7 083 10 985
securities at end of period
Realised and unrealised investment surpluses are treated as equivalent cash
flows. The fall in the stock markets since 31 December 2001 caused a
decrease in policy liabilities (reflected as cash outflow from operating
activities) and investments backing these liabilities (reflected as cash
inflow from investment activities).
NOTES TO THE FINANCIAL STATEMENTS
Six months unaudited Full Year
2002 2001 2001
R million R million R million
New Business
Life Insurance Business 6 446 6 103 13 297
Investments 5 802 6 589 20 481
Short Term Insurance 2 568 2 311 4 760
Sanlam Health - 332 547
Total new business 14 816 15 335 39 085
Life insurance annual premium 1 032 1 016 2 204
equivalent
Funds Received From Clients
Life Insurance Business 11 296 10 572 22 840
Investments 5 802 6 589 20 481
Short Term Insurance 2 568 2 311 4 760
Sanlam Health - 332 547
Total funds received from clients 19 666 19 804 48 628
Payments TO CLIENTS
Life Insurance Business 13 925 13 455 28 934
Investments 5 260 7 145 16 804
Short Term Insurance 1 807 1 637 3 366
Sanlam Health - 313 487
Total payments to clients 20 992 22 550 49 591
Net Flow Of Funds
Life Insurance Business (2 629) (2 883) (6 094)
Investments 542 (556) 3 677
Short term insurance 761 674 1 394
Sanlam Health - 19 60
Total outflow of funds (1 326) (2 746) (963)
Six months unaudited Full year
NOTES (CONTINUED)
2002 2001 2001
R million R million R million
ANALYSIS OF OPERATING PROFIT
Sanlam Life 765 665 1 371
Sanlam Investment Management 161 145 291
Gensec Bank 51 112 191
Santam 127 95 188
Gensec Properties 7 33 48
Corporate income 53 53 103
Corporate costs (77) (64) (125)
Other (2) (6) (8)
Sanlam Health - 7 33
Total operating profit 1 085 1 040 2 092
INCOME TAX
Operating profit 279 254 330
Normal and deferred 279 254 515
Deferred tax reversal - - (185)
Actual investment return (71) 152 427
Normal and deferred 50 152 305
Deferred capital gains tax (121) - 221
Deferred tax reversal - - (99)
Investment surplus on investment in (10) - 10
associated company
INCOME TAX (BEFORE ADJUSTMENT FOR 198 406 767
LONG TERM RATE OF RETURN)
ACTUAL investment return
Investment income 325 313 644
Equity accounted earnings 47 300 621
Investment (deficits)/surpluses (904) 148 1 728
Actual investment return (532) 761 2 993
NET LONG TERM RATE OF RETURN
ADJUSTMENT
Investment return 1 555 414 (606)
Tax (179) (27) 116
Minority shareholders` interest (66) 52 61
Net long term rate of return 1 310 439 (429)
adjustment
June unaudited December
NOTES (CONTINUED)
2002 2001 2001
R million R million R million
Abridged Shareholders` Funds
Balance Sheet At Fair
Value(Santam, Sanlam Investment
Management, Gensec Bank, Gensec
Properties And Sanlam Unit Trusts
Not Consolidated, But Reflected As
Investments At Fair Value)
Assets
Investments
Sanlam businesses 6 703 7 476 7 262
Sanlam Investment Management 3 287 3 955 3 705
Gensec Bank 1 255 1 365 1 442
Gensec Properties 84 74 65
Sanlam Unit Trusts (1) 263 384 341
Strategic investment - Santam 1 814 1 698 1 709
Associated company - Absa 4 015 4 045 4 036
Other Investments
Other equities 6 726 6 822 7 563
Public sector stocks and loans 1 607 1 834 1 859
Properties 1 168 1 054 1 018
Other interest bearing investments 6 599 6 695 6 685
Current and other assets 4 408 3 698 4 777
Total Assets 31 226 31 624 33 200
Equity and liabilities
Shareholders` funds 22 601 22 684 24 399
Term finance 4 450 4 641 4 331
Current and other liabilities 4 175 4 299 4 470
Total equity and liabilities 31 226 31 624 33 200
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) 6 703 7 476 7 262
Less: Tangible net asset value 3 608 3 266 3 537
Sanlam Investment 556 512 536
Management
Gensec Bank 1 467 1 339 1 444
Gensec Properties 52 58 75
Santam 1 407 1 272 1 370
Sanlam Unit Trusts 126 85 112
Less: Goodwill recognised in respect 1 454 1 625 1 540
of above businesses
Capital gains tax on investments at 24 - 17
fair value
Revaluation adjustment of interest 1 617 2 585 2 168
in businesses to fair value
(1) The SUT fair value of R874 million at 31 December 2001 has been
reclassified to reflect the current group structure: surplus cash of R350
million is now included in other investments and the SUT wholesale business
was transferred to Sanlam Investment Management (R183 million).
NOTES (CONTINUED) June unaudited December
2002 2001 2001
R million R million R million
ABRIDGED SHAREHOLDERS` FUNDS BALANCE
SHEET - NET ASSET VALUE
(All businesses consolidated at NAV)
Assets
Goodwill 2 014 1 950 1 840
Investments 24 446 23 705 24 420
Current and other assets 24 886 23 679 28 310
Total Assets 51 346 49 334 54 570
Equity and liabilities
Shareholders` funds 20 984 20 099 22 231
Term finance, current and other 30 362 29 235 32 339
liabilities
Total equity and liabilities 51 346 49 334 54 570
AssetS subject to LTRR
Investments per shareholders` funds 24 446 23 705 24 420
balance sheet (note 10)
Less : Investment in ABSA 4 015 4 045 4 036
: Investments held in respect of 4 266 4 626 4 029
term finance
: Investments held in respect of 1 138 1 022 897
banking activity
: Other 459 447 329
Long term rate of return investments 14 568 13 565 15 129
CAPITAL ADEQUACY AND RATIOS
Shareholders` funds - Sanlam Life 18 125 18 232 19 909
Insurance Limited
Capital adequacy requirements (CAR) 8 825 7 630 7 102
Times CAR covered by shareholders` funds 2,1 2,4 2,8
times
Shareholders` funds as percentage of
Policy liabilities % 13,2 13,3 13,7
Non-market-related liabilities % 20,2 21,2 21,6
STATEMENT OF CHANGES IN EQUITY
A separate statement of changes in equity is not presented as earnings
attributable to shareholders reflected in the income statement and dividends
paid of R921 million (2001: R790 million) are the only changes in the
shareholders` equity during the reporting periods.
ACCOUNTING POLICIES AND ACTUARIAL BASIS
The accounting policies adopted for the purposes of this interim report
comply in all material respects with South African Statements of Generally
Accepted Accounting Practice as well as with applicable legislation. These
accounting policies are consistent with those of the previous year except
where stated otherwise.
THERE WERE NO MATERIAL CHANGES IN THE FINANCIAL SOUNDNESS VALUATION BASIS OR
EMBEDDED VALUE CALCULATION METHODOLOGY SINCE 31 DECEMBER 2001.
CHANGES IN REPORTING STRUCTURES
Certain reclassifications within operating profit of businesses have been
made to the 2001 figures to reflect the current group structure.
A component of expenditure incurred by the Sanlam corporate office relates
to the Sanlam Life business. Prior to 31 December 2001 these costs were not
identified and allocated as such, but most of corporate costs were
recognised for embedded value purposes. The specific costs associated with
Sanlam Life`s business have now been identified and are accounted for
directly in the Sanlam Life operating results and in the Life company`s
embedded value calculations.
In conforming to Group practice, Santam has reallocated the reporting of
income on its free float (or working capital) from investment income to
operating profit.
Both the operating results and embedded values have been restated, where
applicable.
All international operations of the group are now accounted for as foreign
entities in terms of AC112. In 2001 the foreign businesses of Gensec Bank
were accounted for as integrated operations. Currency translation
differences arising on the consolidation of foreign businesses are therefore
no longer reflected in operating income.
EMBEDDED VALUE
Six months Full year
unaudited
2002 2001 2001
R million R million R million
EMBEDDED value
Sanlam Group shareholders` funds at 22 601 22 684 24 399
fair value (per note 9)
Adjustment for discounting 37 - 61
capital gains tax(1)
Present value of strategic (733) (788) (664)
corporate expenses(2) (3)
Sanlam Group shareholders` 21 905 21 896 23 796
adjusted net assets
Net value of life insurance 6 822 6 964 6 941
business in force
Value of life insurance business 8 572 8 670 8 756
in force(3)
Cost of holding prudential reserves (1 750) (1 706) (1 815)
Sanlam Group embedded value 28 727 28 860 30 737
embedded value EARNINGS
Embedded value from new life 146 143 290
insurance business(3)
Earnings from existing life 650 724 1 111
insurance business
Expected return 595 578 1 204
Operating experience variations(4) 42 72 32
Operating assumption changes 13 74 (125)
Embedded value earnings from 796 867 1 401
life operations
Economic and other (48) 134 105
(including asset mix) assumption changes
Tax changes - (536) (613)
Investment variances (325) (14) 200
Growth from life insurance 423 451 1 093
business
Investment return on shareholders` (1 512) 1 124 2 356
adjusted net assets
Total embedded value earnings (1 089) 1 575 3 449
before dividends are paid
Dividends paid (921) (790) (790)
Increase in Sanlam Group (2 010) 785 2 659
embedded value
APE for embedded value 1 032 1 016 2 204
purposes (5)
Embedded value of new life 14,1% 14,1% 13,2%
business as a percentage of APE
Growth from life insurance business 12,6%* 13,4%* 15,7%
as a % of beginning value of in-force
* annualised
ANALYSIS PER BUSINESS
Net value of life insurance business in
force
Individual business 6 075 6 215 6 144
Group business 711 812 848
Sanlam Namibia Limited 36 24 34
Corporate - (87) (85)
Sanlam Group 6 822 6 964 6 941
EMBEDDED VALUE (CONTINUED)
Six months unaudited Full year
2002 2001 2001
R million R million R million
3.ANALYSIS PER BUSINESS (CONTINUED)
New business embedded value
Individual business 102 117 208
Group business 44 26 82
Sanlam Group 146 143 290
% % %
APE margin
Individual business 12,3 13,3 12,0
Group business 21,6 20,3 17,6
Sanlam Group 14,1 14,1 13,2
PRINCIPAL ASSUMPTIONS
Pre-tax investment returns
Equities and offshore investments 14,2 13,1 13,8
Hedged equities 11,2 10,1 10,8
Properties 13,2 12,1 12,8
Fixed-interest securities 12,2 11,1 11,8
Cash 10,2 9,1 9,8
Risk discount rate 14,7 13,6 14,3
Unit cost inflation 7,7 6,6 7,3
Consumer price index inflation 6,2 6,1 5,8
(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 half the projected full year
corporate expenses not related to life business (after tax) of R101
million (2001: R96 million) by the share price of 859 cents (2001: 919
cents) and dividing by the headline earnings per share based on the long
term rate of return of 58,9 cents (2001: 133,2 cents).
(3) The June 2001 figure was restated for the changes in treatment of
corporate expenses.
(4) The main contributor to the positive operating experience variation is
risk profits of R70 million.
(5) APE (annual premium equivalent) is equivalent to new recurring premiums
plus 10% of single premiums.
APE excludes life licence business.
Date: 05/09/2002 07:05:01 AM Supplied by www.sharenet.co.za
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