Wrap Text
SANLAM GROUP - SANLAM LIMITED: RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER
2003
SANLAM GROUP
Registered name: Sanlam Limited
(Registration number 1959/001562/06)
JSE share code: SLM
NSX share code: SLA
ISIN number: ZAE000028262
Results for the financial year ended 31 December 2003
Highlights
Business volumes
R5 bn net funds inflows received from clients
Improvement of R8 bn in net investment inflows
20% increase in new business inflows
Earnings
R2 405m gross operating profit: up 12%
Increase of 16% in core earnings from 86,7 cps to 100,2cps
Capital
15,3% return on embedded value per share
Sanlam Life CAR cover improved to 2,7 times
Dividend up 8% to 40 cps
SALIENT FEATURES FOR THE YEAR ENDED 31 DECEMBER 2003
2003 2002
SANLAM LIMITED GROUP
Operating results:
Operating profit before
restructuring cost before
tax R million 2 466 2 149
Operating profit before tax R million 2 405 2 149
Core earnings (1) R million 2 641 2 280
Headline earnings (2) R million 2 351 2 127
Adjusted headline earnings
based on the LTRR (3) R million 3 291 3 227
Net operating profit per
Share cents 53,2 56,3
Core earnings per share (1) cents 100,2 86,7
Headline earnings per
share (2) cents 89,2 80,8
Adjusted headline earnings
per share based on the
LTRR (3) cents 124,9 122,7
Dividend per share cents 40 37
Group administration cost
ratio (4) % 33,6 34,7
Group operating margin (5) % 17,5 16,9
Business volumes:
New business volumes R million 38 786 32 257
Net inflow/(outflow) of
funds R million 4 956 (3 934)
Embedded value of new
Business R million 218 320
Life insurance new
business APE (6) R million 1 729 2 179
New business embedded
value margin % 12,6 14,7
Embedded value:
Embedded value per share cents 1 147 1 032
Growth from life insurance
Business % 24,7 12,7
Return on embedded value (7) % 15,3 (8,8)
SANLAM LIFE INSURANCE LIMITED
Shareholders" funds to total
policy liabilities % 15 13
Shareholders" funds to
non-market-related policy
liabilities % 22 20
Capital adequacy
requirements covered times 2,7 1,7
Notes
(1) Core earnings = Fully diluted earnings based on net operating profit, net
investment income and equity accounted earnings.
(2) Headline earnings =Fully diluted core earnings after assistance provided to
policyholder funds.
(3) Adjusted headline earnings based on the LTRR = net operating profit and
total investment return based on a long-term rate of return.
(4) Administration costs (excluding Sanlam Life restructuring cost) as a
percentage of income earned by the shareholders" funds less sales remuneration.
(5) Operating profit (excluding Sanlam Life restructuring cost) as a percentage
of income earned by the shareholders" funds less sales remuneration.
(6) APE = Annual premium equivalent and is equal to new recurring premiums
(excluding indexed growth premiums) plus 10% of single premiums.
(7) Growth in embedded value per share (with dividends paid added back) as a
percentage of embedded value per share at the beginning of the year, reduced by
dividends paid.
Executive review
Quote on front page
"In the past year, our efforts reflected a robust back-to-basics approach.
Initiatives centred on sharpening the group"s focus on the changing service and
product needs of clients, rightsizing the group to weather ongoing economic
volatility and realising the opportunities open to the group to deliver value to
shareholders.
"Focusing the different businesses on clearly defined roles and responsibilities
have better positioned them to extract top line synergies from each other and to
ensure ongoing efficiency and improved profitability," said Sanlam CEO Johan van
Zyl.
Going forward, Van Zyl said:
"The significant strategic and operational advances made in the past year, and
with the costs of restructuring having been largely accounted for, the group is
well positioned to benefit from the expected improvements in the South African
economy and to deliver an improved financial performance going forward."
Period under review
In the past year, Sanlam"s efforts centred on sharpening the group"s focus on
the changing service and product needs of clients, rightsizing the group to
weather ongoing economic volatility and realising the opportunities open to the
group to deliver value to shareholders.
The first priority was to simplify and further decentralise the group by
restructuring operations into focused business clusters, with greater autonomy
to enable individual market relevance and optimal operating efficiency.
Head office was downsized to focus on functions where centralisation made sense.
These included strategic decision-making, financial and risk management, and
other group services. During this process, attempts were made wherever possible
to redeploy people into the different clusters to avoid all but the necessary
retrenchments.
Rising confidence over the year restored the group"s ability to attract and
retain best industry talent, which supported the strategy of putting the right
people in the right jobs to deliver consistent excellence. Where necessary,
appointments were made to strengthen the cadre of strong leaders, increase the
employment equity profile and deepen the succession pool.
One of the strategic issues that required urgent attention was Sanlam"s position
in relation to its investment in Absa. The relationship was clarified in a
formal co-operation agreement reached during the year. This agreement will
facilitate the extraction of tangible value from the relationship by way of
dedicated support, training and service structures.
Good progress is being made on a number of projects, which will assist Sanlam to
regain a meaningful share of Absa brokers" sales volumes. Improving access to
this new distribution channel underpins Sanlam"s intention to strengthen the
group"s ability to deliver increased business volumes. The recently announced
joint venture with Absa to establish Sanlam Home Loans adds further impetus to
the co-operative relationship.
The group"s proposed black economic empowerment (BEE) transaction with Ubuntu-
Botho Investments, led by Mr Patrice Motsepe, will enable Sanlam to secure
significant long-term growth opportunities and effect true, broad-based
empowerment by involving a representative spectrum of community groups in
Sanlam"s future.
Through the Ubuntu-Botho transaction, Sanlam will obtain access to crucial new
markets and, once the deal is approved by shareholders, will begin to
aggressively pursue the institutional and retail opportunities in the life
insurance, short-term insurance and asset management businesses. These
opportunities will extend to individual market segments as well as
institutional, corporate, parastatal and government business.
During the period, Sanlam"s international strategy was refined through
simplifying and decentralising overseas interests, giving each cluster the
responsibility for developing and expanding their international activities most
appropriately.
Furthermore, acquisitions were made to improve Sanlam"s ability to service high-
value niche markets requiring access to international investment opportunities.
This focused integration of international and local businesses was directed at
leveraging existing operational strengths to provide cost effective, relevant
product and service offerings to clients, while delivering investment returns
guided by the appropriate South African benchmarks.
Focusing the Sanlam businesses on clearly defined roles and responsibilities has
better positioned them to extract top line synergies from each other and to
ensure ongoing efficiency and improved profitability.
Prospects
Sanlam has achieved much in a short time span and is well ahead of its
anticipated schedule. The group is confident that the positive changes will
accelerate its progress in the years ahead and will continue to position its
businesses for sustainable growth.
The group"s BEE transaction will allow Sanlam to remain competitive and retain
its leadership position in the financial services sector through value-enhancing
alliances with established entrepreneurs and the broader community.
Internally, Sanlam"s investment in employment equity and training and
development will raise the competency and quality of life of all Sanlam people,
making for a more inclusive and diverse organisation, able to service diverse
markets.
Now that the group structure has been realigned, each cluster has strong
prospects, with the appropriate operating platforms to build profitable and
diversified income streams and pursue local and international growth
opportunities.
Sanlam"s Life business should benefit from the expected improvement in economic
conditions and the much improved investment performance from SIM. With a
steadily increasing focus on targeted market segments, a better understanding of
changing service and product needs, and strong focus on cost-efficient
distribution and support structures, a sustained improvement in performance and
an increase in new Life inflows should flow through.
The group will concentrate on capitalising fully on the co-operation model with
Absa, through jointly developed products and more cross-selling, which should
result in volume growth.
At SIM, the challenge will be to build strongly on its reputation to sustain
improved investment performance and ratings, and translate these gains into new
business inflows. This business is now well balanced and able to adjust nimbly
to changing market conditions, which should see a consistently competitive
performance.
In Sanlam Capital Markets, the renewed focus on the core areas of risk
management solutions, product innovation and associated capital market
activities will continue to boost its operational performance and optimise its
return on capital.
From a solid foundation of well-aligned and refocused operational structures, a
reinvigorated team and an established geographical spread, Santam will
concentrate on leveraging its strong brand and market leading position for
sustained profitable growth.
Recently formed Independent Financial Services cluster will begin to provide an
important alternative revenue stream for the group in the medium to long term.
Ton Vosloo Johan van Zyl
Chairman Group Chief Executive
Sanlam Limited
Cape Town
3 March 2004
Comments on the results
Sanlam achieved satisfactory overall results in 2003. Core earnings improved by
16% to 100,2 cents per share and new fund inflows increased by 20%. Net fund
flows was highly satisfactory, improving to R5 billion in 2003 from a net
outflow of R4 billion in 2002. Disappointing new Life business volumes, however,
led to a 32% decrease in the embedded value of new life business and a 2.1%
reduction in the average new business margin.
The Sanlam share price improved from 760 cents per share on 1 January 2003 to
880 cents per share by the end of December 2003. This, including the dividend of
37 cents per share paid during the year, provided a 21,7% return to
shareholders. Over the same period, taking dividend payments into account,
Sanlam"s embedded value improved by 15,3% to 1 147 cents per share, in line with
Sanlam"s growth target. The discount to embedded value amounted to 23% on 31
December 2003.
Headline earnings
Sanlam adopted AC133: Financial Instruments - Recognition and Measurement in
2003. Its introduction forced a revisit of Sanlam"s treatment of investment
surpluses. In the past all investment surpluses were taken through the income
statement. All investments of the shareholders" portfolio are now classified as
available-for-sale in terms of the standard. Sanlam elected to take unrealised
investment surpluses directly to equity, while realised investment surpluses
will be recognised in the income statement, but do not form part of headline
earnings. As dictated by the accounting standard, comparative figures were not
restated, but the effect of revaluing financial instruments at the beginning of
the year of R13 million was adjusted against opening retained income.
Headline earnings comprise the group"s operating results, equity-accounted
income and investment income. Headline earnings recorded for the year of R2 351
million were 11% up on the R2 127 million achieved in 2002. Headline earnings
is stated net of a R290 million (2002: R153 million) assistance to policyholder
portfolios - accounted for as a fully provided loan to the portfolios. A prudent
valuation of the financial position of certain portfolios identified a
requirement to bolster the funding level of the portfolios. The relinquishing of
this support will be determined by the future performance of the assets in the
portfolios and will be reviewed on a regular basis. Core earnings of R2 641
million, which excludes the financial assistance and is consistent with the
headline earnings figure reported in 2002, were 16% up on the R2 280 million
achieved in 2002. The major contribution to core earnings growth in 2003 came
from a substantial improvement in equity-accounted income.
Gross operating income increased by 11% on 2002. An exceptional performance by
Santam was in part offset by one-off restructuring expenditure incurred in
Sanlam Life and the adverse performances of Gensec and Sanlam Financial
Services. After accounting for taxation and the Santam minorities" share of
income, net operating income reduced by 5% on 2002.
Equity-accounted income largely represents the Sanlam shareholder funds"
proportionate share of Absa"s earnings for their twelve-month reporting period
to September 2003. Equity-accounted income doubled to R781 million in 2003.
Absa"s results were positively impacted by an improved operating performance
over the period, and by the introduction of AC133 at the beginning of their
financial year on 1 April 2003. In line with Sanlam"s accounting practice,
Sanlam"s proportionate share of a direct AC133 related adjustment to Absa"s
opening reserves on 1 April 2003 has been set off against the carrying value of
the Absa investment. Equity-accounted income in 2002 included a one-off negative
impact of R189 million that Unifer had on Absa"s 2002 results.
Investment income for the full year increased by 14% on 2002. Investment income
accounts for dividends, rental and interest earned, net of taxation, on the
Sanlam shareholder funds" balanced investment portfolio. In terms of Sanlam"s
implementation of AC133: Financial Instruments - Recognition and Measurement,
any adjustment in the market value of such investments is excluded from headline
earnings. Changes in the composition of the investment portfolio, eg an increase
in interest bearing investments, had a positive impact on this income line.
Earnings based on a long-term rate of return ("LTRR") improved by 2% from R3 227
million in 2002 to R3 291 million. LTRR adjusted earnings comprise net operating
income, equity-accounted income, as well as an assumed overall investment return
on the Sanlam shareholder funds" balanced investment portfolio. The latter,
which includes both capital appreciation and dividend, rental and interest
income, is determined by using an expected long-term return yield. In line with
the trend in long-term interest rates, the expected yield has been reduced from
13% before taxation used in 2002 to 12% in 2003. This reduction had a negative
impact on the 2003 results.
The relatively small increase in LTRR earnings can largely be attributed to a
18% reduction in the expected long-term return on the investment portfolio. This
is due to the lower assumed yield referred to above, and the lower actual base
on which the expected yield is applied, as markets remained depressed for most
of the year.
Attributable Earnings
Attributable earnings for the year of R1,9 billion (71,5 cent per share) are
R2,5 billion higher than in 2002. This is largely due to a change in accounting
practice and is therefore not directly comparable. Upon the introduction of
AC133, with effect from 1 January 2003, investments were classified as available
for-sale and Sanlam elected, in terms of the statement, to take unrealised
investment surpluses directly to equity. In terms of the requirements of AC133,
prior year results were not restated. Investment surpluses in 2003 therefore
only reflect surpluses actually realised during the financial year. Unrealised
net surpluses in 2003 of R693 million were directly charged to equity.
Attributable earnings are reported net of goodwill amortisation and any
specifically required impairment of goodwill. The consolidated amortisation
charge for 2003 amounted to R277 million. A review of the fair value and the
carrying value of the strategic Group investments indicated a potential value
shortfall of some R248 million. This is largely in respect of Gensec"s exposure
to the Safair Lease Finance joint venture ("SLF") (R100 million) and Fieldstone
(R129 million). The group"s investment in Fieldstone has been written down in
full.
The restructuring of Gensec resulted in the formal closure of certain parts of
its business. Separately identifiable after tax costs of R77 million incurred in
respect of the termination of these businesses, including retrenchment and
related staff costs, are, in terms of ruling accounting practice, excluded from
headline earnings.
Business volumes
New business flows
A 20% increase in total new inflows was achieved for the year. This is due to a
major improvement in investment inflows and strong growth in Santam"s premium
income. SIM"s segregated fund inflows, in particular, exceeded R5 billion for
the year, compared to R403 million in 2002, while Sanlam Multi Manager attracted
new inflows of R1 billion. The re-engineering of the investment process and new
senior appointments at SIM are bearing fruit as is reflected in the improved new
business inflows. SIM"s ranking on the Alexander Forbes Large Manager Watch
ranking is within the stated objective of consistent top-half performance as
well as ranking fourth and fifth out of ten on the Global and Domestic ranking
respectively, compared with ranking eigth and sixth a year ago respectively.
New business volumes
R million 2003 2002 %
New business
Life Business 10 012 13 123 -3,111 -24%
Individual Single 6 073 8 835 -2,762 -31%
Individual Recurring 1 504 1 540 -36 -2%
Group Business 2 435 2 748 -313 -11%
Investment 22 019 13 586 8,433 62%
Short term insurance 6 755 5 548 1,207 22%
New business inflows 38 786 32 257 6 529 20%
New Life inflows were disappointing, with an overall reduction of 24%.
Individual single premiums, constituting approximately 60% of new Life inflows,
were, in particular, affected by environmental constraints and were down by 31%
on 2002. Client appetite for contractual equity linked saving, both local and
international, was severely impacted by market and currency volatility and
adverse investment returns experienced in the recent past. This was aggravated
by the negative impact of an inverse yield curve on the competitiveness of some
of the major single premium product offerings. The recent stock market recovery,
coupled with a return to more competitive investment management results by SIM,
should increase the attractiveness of equity-linked products. New individual
recurring business is down 2% as a 10% fall in new business written was partly
offset by the premium growth resulting from index-linked adjustments. Group
Life business experienced an 11% fall in new business flows. The overall Life
Annual Premium Equivalent of R1 729 million is down by 21% on 2002.
New business embedded value
In line with the lower new business inflows, the embedded value of new Life
business written during the year, at R218 million, is down 32% on 2002. The
profitability of new Life business, as measured by the ratio of the embedded
value of the new business to the annual premium equivalent (APE), is also lower
at 12,6% from 14,7% in 2002.
Net new inflows
Net fund inflows of almost R5 billion represents a significant and welcome
improvement on the 2002 outflows of R4 billion. The major contributor to the
turnaround is net third party investment inflows of R1,5 billion, compared to a
R5,6 billion net outflow in 2002. Sanlam Private Investments, Sanlam Collective
Investments and Innofin all achieved satisfactory increases in net inflows.
These results are most gratifying and appropriate reward for the improved
investment results reported on funds managed by SIM. Santam"s excellent
underwriting performance is reflected in the strong improvement in short-term
insurance net fund flows. The net outflow of Life funds remains disappointing,
largely as a result of the lower level of new business. Total outflows are down
by 10%, assisted by a 36% reduction in individual policy surrenders. Net Group
Life business flows, although still negative, are 38% up on 2002, while the
Individual Life flows were negatively impacted by one major policy of R1,4
billion that matured during the year.
Operating results
Group gross operating profit of R2 405 million is a 12% improvement on 2002. The
increase can mainly be ascribed to an excellent performance by Santam, which was
partly offset by the results of Gensec and Sanlam Financial Services.
Gross operating profit
R million 2003 2002 %
Sanlam Life 1 445 1 451 0%
normal operations 1 506 1 451 4%
restructuring cost (61)
Santam 735 257 186%
Gensec Bank (19) 112 -117%
Investments 292 243 20%
Ind. Financial Services (1) 99 -101%
SFS (20) 75 -127%
Gensec Properties 19 24 -21%
Corporate income 73 101 -28%
2 525 2 263 12%
Corporate expenses (120) (114) -5%
Gross operating profit 2 405 2 149 12%
Sanlam Life"s results reflect the impact of lower sales volumes and equity
markets for the year. This has been compensated for by improved underwriting
results and effective cost management. A restructuring process initiated during
the last quarter of 2003, which is aimed at Sanlam Life attaining annualised
cost savings of at least R250 million, necessitated a one off associated cost of
R61 million, which has been accounted for in full in the 2003 results. Excluding
these restructuring costs, Sanlam Life"s profit shows a 4% increase over 2002.
Santam achieved excellent underwriting results in 2003, which led to
underwriting profit more than doubling the 2002 contribution. Improved cash flow
management income, further contributed to total operating profit for the year of
R735 million, compared to R257 million in 2002.
SIM"s improved asset base led to a 17% overall increase in fee income. Following
the restructuring of the international business, the results of the
international multi-manager (SMMI) are included in the Investment cluster for
the second half of 2003. This contribution, as well as that of the other
businesses in the cluster, especially Innofin and SPAM, resulted in the
Investment cluster delivering a 20% improvement in operating profit to R292
million for the year compared to 2002.
Gensec Bank"s performance had a material effect on Sanlam"s results for the
year. Its restructuring necessitated that a distinction be made between the
ongoing operations that will in future be the core of Sanlam Capital Markets,
and those operations to be discontinued.
Gensec recorded an operating loss before tax of R19 million (and a headline loss
of R16 million) for the twelve months to December 2003, including an operating
loss before tax of R74 million for the discontinued operations.
The results of Sanlam Financial Services UK ("SFS"), the remaining advisory and
related activities business in SFS, are now included in the Independent
Financial Services cluster and recorded a loss of R20 million for the period.
Its results, in particular brokerage and private client business, were affected
by lower fee income based on a lower level of investments under management.
Costs incurred in respect of the restructuring of the businesses also impacted
negatively on the results.
The 28% fall in corporate income is in part attributable to a reduction in
margin on the corporate preference share book.
Embedded value
At the end of December 2003 Sanlam"s embedded value amounted to R29,66 billion.
This represents an increase in value of R3,55 billion on the R27,09 billion at
the end of December 2002 after taking into account the dividend of R972 million
paid during the year.
Embedded value
R million 2003 2002 %
Group operations at fair
value 6 237 5 447 15%
Santam 2 688 1 581 70%
Investment Cluster 2 118 1 599 32%
Gensec Bank & SCM 1 001 1 186 -16%
Merchant Investors 441
Sanlam Financial Services 378 1 071 -65%
Gensec Properties 52 60 -13%
ABSA 5 181 3 957 31%
Other 11 401 11 543 -1%
Group shareholders" fund
at fair value 22 819 20 947 9%
NAV adjustment (501) (600) -17%
Adjusted Net Assets 22 318 20 347 10%
Net value of in-force
business 7 344 6 740 9%
Gross value of in-force
business 8 669 8 251 5%
Cost of capital at risk (1 325) (1 511) -12% ( 259)
Embedded value (EV) 29 662 27 087 10%
EV cents per share 1 147 1 032 11%
NAV cents per share 883 798 11%
Share price discount to EV -23% -26%
The net value of Sanlam Life"s in-force book increased by 9% to R7.3 billion.
The growth from life insurance business (R1.7 billion) as a percentage of the
starting value of the in-force life business amounted to 24,7%. Positive
operational experience variances for the year, most notably improved risk
profits and interest earned on working capital contributed to this.
Dividend
The Board declared a dividend of 40 cents per share payable on 19 May 2004 to
shareholders recorded in the register on 23 April 2004. This represents an
increase of 8% over the 37 cents per share dividend declared in respect of 2002.
To allow for the dividend calculation, Sanlam"s share register (including
Sanlam"s two nominee companies namely Sanlam Share Account (Pty) Ltd and Sanlam
Fundshares Nominee (Pty) Ltd) will be closed for all transfers, off market
transactions and dematerialisations or rematerialisations from 13 April 2004 to
23 April 2004, both dates included.
The last date of trade to qualify for this dividend will be 16 April 2004 and
shares will trade ex div from 19 April 2004.
GROUP INCOME STATEMENT
2003 2002
note R million R million
FUNDS RECEIVED FROM CLIENTS 1 48 883 42 098
Financial services income 15 970 14 597
Sales remuneration (1 892) (1 863)
Income after sales remuneration 14 078 12 734
Underwriting policy benefits (6 877) (6 162)
Administration costs (4 796) (4 423)
Operating profit before tax 4 2 405 2 149
Tax on operating profit 5 (724) (549)
Operating profit from ordinary
activities after tax 1 681 1 600
Minority shareholders" interest (279) (118)
NET OPERATING PROFIT 1 402 1 482
Net investment income 458 402
Investment income 6 699 620
Tax on investment income 5 (131) (110)
Minority shareholders" interest (110) (108)
Net equity-accounted earnings 781 396
Equity-accounted earnings 1 025 471
Tax on equity-accounted earnings 5 (244) (75)
CORE EARNINGS 2 641 2 280
Financial assistance provided to
Policyholders 7 (290) (153)
HEADLINE EARNINGS 2 351 2 127
Net investment surpluses (1) 134 (2 468)
Investment surpluses 215 (2 669)
Tax on investment surpluses 5 (56) 177
Minority shareholders" interest (25) 24
Net discontinuance costs (77) -
Discontinuance costs (108) -
Tax on discontinuance costs 5 31 -
Impairment of investments and
Goodwill (248) -
Amortisation of goodwill (277) (259)
ATTRIBUTABLE EARNINGS 1 883 (600)
Diluted earnings per share (cents):
Net operating profit from ordinary
Activities 53,2 56,3
Core earnings 100,2 86,7
Headline earnings 89,2 80,8
Attributable earnings 71,5 (22,8)
Basic attributable earnings per share 72,1 (22,8)
Dividend per share 40,0 37,0
Adjusted weighted average number of
shares (million) 2 634,5 2 631
Adjusted headline earnings based on
the LTRR per share 124,9 122,7
(1) Upon the introduction of AC133, investments were classified as available-for
sale and Sanlam elected to take unrealised investment surpluses directly to
equity. In terms of the requirements of AC133, prior year results were not
restated.
GROUP BALANCE SHEET
2003 2002
Note R million R million
ASSETS
Non-current assets
Fixed assets 220 260
Owner-occupied properties 390 381
Goodwill 1 855 1 992
Investments 156 622 149 276
Deferred tax 257 237
Short-term reinsurance provisions 2 302 2 072
Current assets 34 410 29 339
Total assets 196 056 183 557
EQUITY AND LIABILITIES
Shareholders" funds 21 687 20 651
Minority shareholders" interest 1 931 1 624
Non-current liabilities
Long-term policy liabilities 134 441 129 329
Insurance contracts 94 800
Investment contracts 39 641
Term finance 4 200 5 382
Deferred tax 289 35
Short-term insurance provisions 5 156 4 226
Current liabilities 28 352 22 310
Total equity and liabilities 196 056 183 557
Segregated funds not included
in the above balance sheet 86 512 62 396
Total assets under management and
Administration 282 568 245 953
Tangible net asset value per share
(cents) - group businesses valued at
fair value 883 798
GROUP STATEMENT OF CHANGES IN EQUITY
2003 2002
R million R million
Shareholders" funds at beginning
of period 20 651 22 231
Attributable earnings 1 883 (600)
Dividends paid (972) (921)
Cost of treasury shares acquired (344) (59)
Net unrealised investment surpluses (1) 693 -
Unrealised investment surpluses 1 047 -
Tax on unrealised investment surpluses (289) -
Minority shareholders" interest (65) -
Foreign currency translation differences(211) -
Adoption of AC133 (2) (13) -
Shareholders" funds at end of period 21 687 20 651
(1) Upon the introduction of AC133, investments were classified as available-
for-sale and Sanlam elected to take unrealised investment surpluses directly to
equity. In terms of the requirements of AC133, prior years results were not
restated.
(2) The adoption of AC133 by Gensec Bank in 2003 resulted in the revaluation of
instruments at the beginning of the year with a consequent restatement to
opening retained income.
CASH FLOW STATEMENT
2003 2002
R million R million
Net cash inflow from operating
activities before dividends paid 1 720 4 113
Dividends paid (972) (921)
Net cash outflow from investment
activities (495) (1 130)
Net cash (outflow)/inflow from
financing activities (1 170) 354
Net (decrease)/increase in cash
and cash equivalents (917) 2 416
Cash, deposits and similar securities
at beginning of period 12 725 10 309
Cash, deposits and similar
securities at end of period 11 808 12 725
NOTES TO THE FINANCIAL STATEMENTS
2003 2002
R million R million
1. FUNDS RECEIVED FROM CLIENTS
Life insurance 10 012 13 123
Investments 22 019 13 586
Short-term insurance 6 755 5 548
Total new business 38 786 32 257
Recurring premiums on existing
Business 10 097 9 841
Total funds received from clients 48 883 42 098
New business premiums used in the
calculation of Annual Premium
Equivalent (APE)
Recurring premiums 1 026 1 166
Individual Life 1 478 1 512
Less: index growth (631) (559)
Add: optional reductions 38 34
Group Life 127 156
Sanlam Namibia 14 23
Single premiums 7 033 10 129
Individual Life 4 819 7 557
Group Life 2 164 2 486
Sanlam Namibia 50 86
Total premiums used to calculate APE 8 059 11 295
Life insurance annual premium
Equivalent 1 729 2 179
2. PAYMENTS TO CLIENTS
Life insurance 25 136 27 896
Investments 14 416 14 211
Short-term insurance 4 375 3 925
Total payments to clients 43 927 46 032
3. NET FLOW OF FUNDS
Life insurance (5 027) (4 932)
Investments 7 603 (625)
Short-term insurance 2 380 1 623
Total flow of funds 4 956 (3 934)
4. ANALYSIS OF OPERATING PROFIT
Sanlam Life 1 445 1 451
Normal operations 1 506 1 451
Restructuring costs (61) -
Santam 735 257
Sanlam Investment Management 292 243
Gensec Bank (19) 112
Continuing operations 55 112
Discontinuing operations (74) -
Independent Financial Services (1) 99
Sanlam Financial Services (20) 75
Gensec Property Services 19 24
Corporate income 73 101
Corporate costs (120) (114)
Total operating profit 2 405 2 149
5. INCOME TAX
Operating profit 724 549
Current year 714 553
Prior year 9 (7)
Equity accounted earnings included
in operating return 1 3
Investment income - current year 131 110
Equity-accounted earnings 244 75
Realised Investment surpluses
Investment surpluses 56 (177)
Investment surpluses - normal - 15
Investment surpluses - capital
gains tax 56 (182)
Investment surplus on investment
in associated company - capital
gains tax - (10)
Taxation on discontinuance costs (31) -
Income tax charged to income statement1 124 557
Unrealised investment surpluses
(taken to equity) 289 -
Investment surpluses - capital
gains tax 145 -
Investment surplus on investment in
associated company - capital
gains tax 144 -
Total income tax 1 413 557
6. INVESTMENT INCOME
Interest-bearing investments 326 319
Equities 312 236
Properties 61 65
Total investment income 699 620
7. FINANCIAL ASSISTANCE PROVIDED TO POLICYHOLDER FUNDS
During the course of the year a prudent valuation of the financial position of
the Participating Annuity Portfolio in terms of prevailing actuarial guidelines,
indicated the need to bolster the funding level of the portfolio by an
additional R190 million (R153 million in 2002). In addition, it was decided
during the year to support the Monthly Bonus Fund with R100 million in view of
this portfolio"s relatively low funding level at the time. Full provision has
been made for this assistance in the income statement. The possible repayment of
the support will in both instances be determined by the future performance of
its underlying assets and will be reviewed on a regular basis.
2003 2002
R million R million
8. ABRIDGED SHAREHOLDERS" FUNDS BALANCE
SHEET - NET ASSET VALUE
(All businesses consolidated at NAV)
Assets
Goodwill 1 855 1 992
Investments 26 010 24 026
Current and other assets 33 249 27 788
Total Assets 61 114 53 806
Equity and liabilities
Shareholders" funds 21 687 20 651
Minority shareholders" interest 2 217 1 969
Term finance, current and other
Liabilities 37 210 31 186
Total equity and liabilities 61 114 53 806
9. SHAREHOLDERS" FUNDS BALANCE SHEET AT FAIR VALUE
(Group businesses listed below not consolidated, but reflected as
investments at fair value)
Assets
Fixed assets 113 153
Owner-occupied properties 370 333
Investments
Sanlam businesses 6 237 5 447
Investment Management (1) 2 118 2 044
International 378 576
Gensec Bank 1 001 1 186
Gensec Properties 52 60
Santam 2 688 1 581
Associated company - Absa 5 181 3 957
Other Investments
Other equities 6 670 5 772
Public sector stocks and loans 1 916 1 611
Investment properties 607 659
Other interest-bearing investments 6 033 6 859
Deferred tax 3 50
Current and other assets 5 296 5 028
Total Assets 32 426 29 869
Equity and liabilities
Shareholders" funds 22 819 20 947
Term finance 4 501 4 581
Deferred tax 298 1
Current and other liabilities 4 808 4 340
Total equity and liabilities 32 426 29 869
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) 6 237 5 447
Less: Tangible net asset value 3 772 3 782
Investment Management (1) 520 366
International 402 429
Gensec Bank 1 001 1 459
Gensec Properties 28 49
Santam 1 821 1 479
Less: Goodwill recognised in respect
of above businesses 1 198 1 369
Deferred capital gains tax on
investments at fair value 135 -
Revaluation adjustment of interest
in businesses to fair value 1 132 296
(1) Included in Investment Management are the values of Sanlam Investment
Management, Sanlam Collective Investments and Innofin.
ACCOUNTING POLICIES AND ACTUARIAL BASIS
The accounting policies adopted for the purposes of the financial statements
comply with South African Statements of Generally Accepted Accounting Practice
and with applicable legislation. Apart from the adoption of AC133, these
accounting policies are consistent with those of the previous year.
The policy liabilities and profit entitlement rules are determined in accordance
with prevailing legislation, generally accepted actuarial practice and the
stipulations contained in the demutualisation proposal.
CHANGES IN REPORTING STRUCTURES AND ACCOUNTING POLICIES
Following the restructuring of the Sanlam businesses into four distinct
clusters, the results of Innofin and Sanlam Collective Investments (formerly
Sanlam Unit Trusts) have been transferred from the Life Cluster to the
Investment cluster. Certain corporate functions were transferred into the
businesses as part of the creation of a small streamlined central function.
Operating results of prior periods have been restated to reflect the above
changes.
Sanlam Life Sanlam Corporate
Investments Costs
2002 2002 2002
R million R million R million
Operating profit before tax -
previously disclosed 1 533 185 (138)
Reallocations
Sanlam Collective Investments (56) 56 -
Innofin (2) 2 -
Corporate costs (24) - 24
Restated comparatives 1 451 243 (114)
The Group"s international advisory and asset management business has been
restructured. Sanlam has, with effect from 1 July 2003, reduced its holding in
the advisory and related businesses (PSigma Group based in the UK) to 60%.
Sanlam"s Investment cluster regained a 100% holding in the asset and multi
manager components of SFS. The full results of these operations for the first
six months of the year are included in the Independent Financial Services
Cluster, whereas the results of the investment manager for the second half of
the year is included with the Investment Cluster. Because of the change in
business model, operating results of prior periods have not been restated to
reflect this transaction.
The adoption of AC133 Financial Instruments: Recognition and Measurement in the
2003 financial year resulted in certain changes in presentation for the Sanlam
group.
Sanlam Life has categorised its life policies between investment contracts,
which fall within the scope of AC133, and insurance contracts.
An insurance contract is a contract under which Sanlam accepts significant
insurance risk by agreeing with the policyholder to compensate the policyholder
or other beneficiary if a specified uncertain future event (the insured event)
adversely affects the policyholder or other beneficiary. Insurance contracts
fall outside the scope of AC133 and will continue to be valued on the current
financial soundness valuation basis.
Investment contracts are measured at fair value, as specified by AC133.
Currently the financial soundness approach is considered to be an appropriate
valuation model for investment contracts issued by long-term insurers. This is
in accordance with interim solutions developed in conjunction with the South
African Institute of Chartered Accountants, which are being implemented in order
to limit significant temporary changes to the treatment of investment and
insurance contracts within South Africa, while adhering to the principles of
AC133.
The liabilities under insurance and investment contracts are disclosed
separately on the balance sheet.
The migration to new International Financial Reporting Standards (IFRS) for
insurers will last a number of years, as there is currently no such standard.
The exposure draft on the first phase of the proposals for IFRS on insurance
contracts was only recently issued. Future results may however be impacted, as
the development of guidance for the long-term insurance industry, both from an
accounting and actuarial perspective, is an ongoing process.
As detailed in the accounting policies below, the fair value basis of accounting
was applied for the following financial assets and liabilities:
Financial assets and liabilities held for trading
Financial assets and liabilities classified as available for sale
Derivative financial instruments.
Those interest bearing assets and liabilities classified as held to maturity are
valued on an amortised cost basis.
Gensec Bank has revisited all financial instruments that were previously carried
at historical or amortised cost (excluding instruments originated by the Bank)
and for which the Bank does not have the intent and ability to keep to maturity.
These will now be marked-to-market with the effective date being 1 January 2003.
The net effect on implementation date is, in accordance with AC133, reflected as
an adjustment to opening retained earnings for the year.
The introduction of AC133 forced us to revisit the treatment of investment
surpluses on the investments held by the shareholders" funds. In the past all
investment surpluses were taken through the income statement. We have now
classified all investments of the shareholders" portfolio as available-for-sale
in terms of the standard and elected to take unrealised investment surpluses
directly to equity. Realised investment surpluses are recycled to the income
statement, but do not form part of headline earnings.
In line with the practise prescribed in AC133, prior year results have not been
restated.
Consistent with the treatment in 2003, headline earnings for 2002 now include
the financial assistance provided to policyholders previously included in
investment surpluses. Core earnings comprise the group"s operating results,
equity accounted income and investment income, and as such is represents the
headline earnings previously published for 2002.
AUDITED RESULTS
A copy of the unqualified audit opinion of the joint auditors,
PricewaterhouseCoopers Inc. and Ernst & Young, on the Group results is available
for inspection at the registered office of the company.
ADJUSTED HEADLINE EARNINGS - LTRR
2003 2002
R million R million
The LTRR investment return is determined by applying the long-term expected
return of 12% (2002: 13%) to the average monthly shareholders" fund investments.
Adjusted headline earnings - long-term rate of return (LTRR)
Net operating profit 1 402 1 482
LTRR investment return 1 889 1 745
Net equity-accounted earnings 781 396
Investment return after taxation 1 108 1 349
Adjusted headline earnings - LTRR 3 291 3 227
Reconciliation of headline
earnings and LTRR headline earnings
Headline earnings per income
Statement 2 351 2 127
Investment surpluses per income
Statement 134 (2 468)
Investment surpluses taken
directly to equity 693 -
Net LTRR adjustment 113 3 568
Adjusted headline earnings - LTRR 3 291 3 227
Analysis of net LTRR adjustment
Investment return (61) 4 054
Equities 168 3 081
(Surplus)/deficit on investment
in associated company (676) 629
Interest-bearing investments 461 301
Properties (14) 43
Tax 163 (364)
Minority shareholders" interest 11 (122)
Net LTRR adjustment 113 3 568
ASSETS SUBJECT TO LTRR
Investments per shareholders"
funds balance sheet (per note 8) 26 010 24 026
Less : Investment in associated
Companies 5 391 4 002
Investment in joint ventures 309 408
Investments held in respect
of term finance 4 454 4 731
Investments held in respect
of banking activity 1 568 1 136
Other 289 154
Long-term rate of return
Investments 13 999 13 595
STATEMENT OF ACTUARIAL VALUES OF ASSETS AND LIABILITIES OF SANLAM LIFE INSURANCE
LIMITED GROUP AS AT 31 DECEMBER 2003
2003 2002
Note R million R million
ASSETS
Fair value of assets 164 625 155 998
Less: Liabilities 144 889 138 997
Actuarial value of
policy liabilities 134 441 129 329
Investment contracts 39 641
Insurance contracts 94 800
Long-term and current
liabilities 10 448 9 668
EXCESS OF ASSETS OVER
LIABILITIES 1 19 736 17 001
ANALYSIS OF MOVEMENT IN EXCESS OF ASSETS OVER LIABILITIES
Operating profit 2 1 448 1 476
Investment return on
excess of assets over
liabilities 3 427 (3 022)
Investment income 843 474
Realised and unrealized
investment surpluses 3 2 584 (3 496)
Financial assistance
provided to
policyholders 4 (290) (153)
Taxation (800) (309)
Income tax (500) (496)
Capital gains tax (300) 187
Normal dividends paid (1 050) (900)
Movement in excess of
assets over liabilities 2 735 (2 908)
CAPITAL ADEQUACY AND RATIOS
Capital adequacy
requirements (CAR)
before management actions 16 425 22 425
Management actions
Assumed 5 (9 175) (12 525)
CAR after management
actions assumed 7 250 9 900
Times CAR covered by
excess of assets over
liabilities 2,7 1,7
Excess of assets over
liabilities as percentage of:
Policy liabilities 15% 13%
Non-market-related policy
Liabilities 22% 20%
NOTES TO THE STATEMENT OF ACTUARIAL VALUES OF ASSETS AND LIABILITIES OF SANLAM
LIFE INSURANCE LIMITED GROUP AS AT 31 DECEMBER 2003
1. EXCESS OF ASSETS OVER LIABILITIES
For regulatory purposes the value of assets must be adjusted for group
undertakings. The excess of assets over liabilities reduces to R18 720 million
after this adjustment is made.
2. OPERATING PROFIT
The operating profit of the Sanlam Life Insurance Limited group (R1 448 million)
is net after corporate expenses (R121 million), corporate income (R46 million)
and investment management income (R78 million), which are not reported as part
of the Sanlam Life business (R1 445 million) in the segmental reporting.
A number of changes were made to the valuation methodology and assumptions,
inter alia with regard to:
provision for investment guarantees in accordance with new actuarial guidance;
considering universal life products that provide very high levels of life cover
separately when testing for the maximum of the prospective and retrospective
liabilities; and
restricting the retrospective build-up for the HIV/Aids reserve to a maximum of
the prospective reserve assuming no re-rating of risk premiums.
Overall the changes in the valuation methodology and assumptions did not have a
material effect on the operating profit for 2003 and 2002.
3. REALISED AND UNREALISED INVESTMENT SURPLUSES
A special dividend, relating to extraordinary investment surpluses realised
during the rationalisation of group companies, was paid to Sanlam Limited in
2002 and is included in realised and unrealised investment surpluses for 2002
above.
4. FINANCIAL ASSISTANCE PROVIDED TO POLICYHOLDERS FUNDS
During the course of the year a prudent valuation of the financial position of
the Participating Annuity Portfolio in terms of prevailing actuarial guidelines,
indicated the need to bolster the funding level of the portfolio by an
additional R190 million (R153 million in 2002). In addition, it was decided
during the year to support the Monthly Bonus Fund with R100 million in view of
this portfolio"s relatively low funding level at the time. Full provision has
been made for this assistance in the income statement. The possible repayment of
the support will in both instances be determined by the future performance of
its underlying assets and will be reviewed on a regular basis.
NOTES TO THE STATEMENT OF ACTUARIAL VALUES OF ASSETS AND LIABILITIES OF SANLAM
LIFE INSURANCE LIMITED GROUP AS AT 31 DECEMBER 2003 (CONTINUED)
2003 2002
R million R million
5. MANAGEMENT ACTIONS
The management actions assumed
to offset the negative impact
on the capital adequacy
requirement, should the
resilience scenario occur, are
set out below. The resilience
scenario assumes that equity
values decline by 30%, property
values by 15% and that fixed
interest yields increase or
decrease by 3% (whichever
yields the worst result) on
the valuation date and do
not subsequently recover
within the short term.
Reduction in non-vested bonuses
(on average 4,4% of non-vested
bonuses) 606 678
Reduction in future bonus rates
(on average 2,9% per annum below
expected long-term rates, for
three years) 3 944 5 915
Capitalisation of future profits 2 104 2 611
Reduction in grossing up for
the assets covering CAR 2 755 3 497
Independence credits (234) (176)
Total management actions 9 175 12 525
6. BONUS STABILISATION RESERVES
No portfolio had a negative bonus stabilisation reserve which exceeded 7,5% of
the relevant investment accounts at 31 December 2003.
7. SANLAM LIFE INSURANCE LIMITED GROUP
All information presented is in respect of the Sanlam Life Insurance Limited
group and include the actuarial values of assets and liabilities relating to
Sanlam Namibia Limited.
8. VALUATION BASES
The valuation bases used to calculate the policy liabilities of all material
lines of business are set out in the Annual Report and are also available on
request.
EMBEDDED VALUE
2003 2002
R million R million
EMBEDDED VALUE
Sanlam Group shareholders" funds
at fair value (per note 9) 22 819 20 947
Adjustment for discounting capital
gains tax (1) 91 0
Present value of strategic corporate
expenses (2) (592) (600)
Sanlam Group shareholders" adjusted
net assets 22 318 20 347
Net value of life insurance
business in force 7 344 6 740
Value of life insurance business
in force 8 669 8 251
Cost of capital at risk (1 325) (1 511)
Sanlam Group embedded value 29 662 27 087
Embedded value per share (cents) 1 147 1 032
Number of shares (million) (3) 2 585 2 625
Return on embedded value (cps) (4) 15,3% (8,8%)
2. EMBEDDED VALUE EARNINGS
Embedded value from new life
insurance business 218 320
Earnings from existing life
insurance business 1 404 1 353
Expected return 1 153 1 208
Operating experience variations (5) 241 96
Operating assumption changes 10 49
Embedded value earnings from life
Operations 1 622 1 673
Economic assumption changes 99 117
Tax changes (6) 0
Investment variances (including
change in long-term asset mix) (6) (50) (907)
Growth from life insurance business 1 665 883
Investment return on shareholders"
adjusted net assets 2 226 (3 553)
Treasury shares acquired (3) (344) (59)
Total embedded value earnings
before dividends are paid 3 547 (2 729)
Dividends paid (972) (921)
Change in Sanlam Group embedded value 2 575 (3 650)
Growth from life insurance business
as a % of beginning value of in-force 24,7% 12,7%
Return on embedded value (4) 13,6% (9,2%)
2003 2002
R million R million
3. NEW BUSINESS EMBEDDED VALUE
Value of new business
Gross value of new business 246 365
Individual business 189 266
Group business 57 99
Cost of Capital at risk (28) (45)
Individual business (17) (19)
Group business (11) (26)
Net value of new business (7 ) 218 320
Net value of new business as a
percentage of the annual premium
equivalent
Annual Premium Equivalent (APE) (8) 1 729 2 179
Individual business 1 386 1 774
Group business 343 405
Net value of new business 218 320
Individual business 172 247
Group business 46 73
APE margin 12,6% 14,7%
Individual business 12,4% 13,9%
Group business 13,4% 18,0%
4. SENSITIVITY Gross Net value
value of Cost of of in- %
in-force capital at force Change
business risk business from
R million R million R million base
Base value 8 669 (1 325) 7 344
Increase risk discount
rate by 1,0% to 12,9% 8 173 (1 594) 6 579 (10%)
Decrease risk discount
rate by 1,0% to 10,9% 9 231 (1 023) 8 208 12%
Investment return
(and inflation) decreased
by 1,0%, coupled with a
1,0% decrease in risk
discount rate to 10,9%,
and with bonus rates
changing commensurately 8 704 (1 294) 7 410 1%
Non-commission maintenance
expenses (excluding
investment expenses)
increase by 10% 8 423 (1 323) 7 100 (3%)
Discontinuance rates
increase by 10% 8 527 (1 283) 7 244 (1%)
Mortality and morbidity
increased by 10% for
assurances, coupled with
a 10% decrease in
mortality for annuities 8 220 (1 315) 6 905 (6%)
Gross
value of Cost of Net value %
new capital at of new Change
business risk business
from
R million R million R million base
Value of new business
Base value 246 (28) 218
Increase risk discount
rate by 1,0% to 12,9% 214 (32) 182 (17%)
Decrease risk discount
rate by 1,0% to 10,9% 283 (22) 261 20%
Investment return (and
inflation) decreased by
1,0%, coupled with a 1,0%
decrease in risk discount
rate to 10,9%, and with
bonus rates changing
commensurately 252 (27) 225 3%
Non-commission maintenance
expenses (excluding
investment expenses)
increase by 10% 225 (28) 197 (10%)
Non-commission acquisition
expenses increase by 10% 204 (28) 176 (19%)
Discontinuance rates
increase by 10% 227 (26) 201 (8%)
Mortality and morbidity
increased by 10% for
assurances, coupled with a
10% decrease in mortality
for annuities 197 (28) 169 (22%)
New business volumes
decrease by 10% 187 (25) 162 (26%)
5. METHODOLOGY
The embedded value methodology applied is consistent with the methodology used
in the 31 December 2002 Embedded Value report. There were no material changes
in the methodology used.
6. PRINCIPAL ASSUMPTIONS
Gross investment return and inflation
2003 2002
% p.a. % p.a.
Fixed-interest securities 9,4 10,8
Equities and offshore investments 11,4 12,8
Hedged equities (9) 8,4 9,8
Property 10,4 11,8
Cash 7,4 8,8
Risk discount rate 11,9 13,3
Return on capital at risk (10) 10,0 11,9
Unit cost and salary inflation 5,4 6,3
Consumer price index inflation 3,9 4,8
Decrements, expenses and bonuses
Future mortality, morbidity and discontinuance rates and future expense levels
were based on recent experience where appropriate.
Future rates of bonuses for traditional participating business, stable bonus
business and participating annuities were set at levels that were supportable by
the assets backing the respective product asset funds at the respective
valuation dates.
Sanlam Life"s current surrender and paid-up bases were assumed to be maintained
in the future.
HIV/Aids
Allowance was made, where appropriate, for the impact of expected HIV/Aids-
related claims, consistent with the recommendations of the Actuarial Society of
South Africa as set out in its latest proposed Professional Guidance Note (PGN)
105.
Premiums were assumed to be rerated, where applicable, in line with
deterioration in mortality, with a three-year delay from the point where
mortality losses would be experienced.
Taxation
Projected corporate tax was allowed for at a rate of 30%. Allowance was made
for capital gains tax. The assumed rollover period for realisation of
investments is five years for property and equity assets supporting capital at
risk and policy reserves. For strategic equity assets the assumed rollover
period is ten years.
Allowance for secondary tax on companies was made by placing a present value on
the tax liability generated by the net cash dividends paid that are attributable
to the life company. It was assumed that over the long-term the proportion of
cash dividends paid would fall to a level of 50% from the current 100% level.
Long-term asset mix for assets supporting the capital at risk
2003 2002
% %
Equities 42 58
Hedged equities 26 18
Property 8 12
Fixed-interest securities 20 10
Cash 4 2
100 100
7. NEW BUSINESS PREMIUMS R million R million
Financial statements
New business premiums
(per note 1) 10 012 13 123
Less: Premium increases (index growth) (643) (564)
Plus: Optional reduction in premiums 38 34
Less: Other life business (11) (1 344) (1 300)
Premiums used in the calculation of annual
premium equivalent 8 063 11 293
New business embedded value premiums
Recurring premiums 1 026 1 166
Single premiums 7 037 10 127
Premiums used in the calculation of annual
premium equivalent 8 063 11 293
(1) Adjustment to allow for the delay before incurring the capital gains tax
liability included in the fair value.
(2) The December 2003 value was calculated by multiplying the 2003 corporate
expenses not related to life business (after tax) of R84 million by the share
price of 880 cents and dividing by the headline earnings per share based on the
long-term rate of return of 124,9 cents.
(3) Total embedded value earnings is net of the purchase consideration on
treasury shares acquired during the year. The number of shares used in the
calculation of embedded value per share was consequently reduced.
(4) Total embedded value earnings before dividends are paid as a percentage of
embedded value at the beginning of the year reduced by dividends paid.
(5) The main contributors to the operating experience variation was positive
risk experience, profit on working capital balances, offset by higher than
expected once-off expenses and the cost of increasing the maturity guarantee
reserves.
(6) The change in the long-term asset mix assumptions resulted in a decrease of
R99 million.
(7) The net value of new business excludes the value of Investment Linked Life
Annuities sold by Innofin of R14 million (APE margin 13,6%). It is not included
in the embedded value earnings in Table 2. Furthermore, the fair value of the
Innofin business (including an allowance for goodwill) is included in the
shareholders" net assets in Table 1 and not in the value of in-force business.
This value is given purely for information purposes.
(8) APE (annual premium equivalent) is equivalent to new recurring premiums
plus 10% of single premiums.
APE excludes life licence business.
(9) The assumed future return for these assets is lower than that of equities,
which are not hedged, reflecting
the cost of derivative instruments.
(10) The investment return on assets supporting the capital at risk is based on
the long-term asset mix for these
funds.
(11) The majority of profits in respect of these premiums accrue to Sanlam
Investment Management and Innofin.
Group secretary Registered name: Sanlam Limited
J.P. Bester (Registration number 1959/001562/06)
JSE share code: SLM
Registered office ISIN number: ZAE000028262
2 Strand Road, Bellville 7530 Incorporated in South Africa
Telephone (021) 947-9111
Fax (021) 947-3670 Transfer secretaries:
Computershare Limited
(Registration number 2000/006082/06)
Postal address 70 Marshall Street, Johannesburg 2001
PO Box 1, Sanlamhof 7532 Private Bag X105, Marshalltown 2107
Tel (011) 370-5000
Fax (011) 370-5487
www.sanlam.co.za
Directors: T. Vosloo (Chairman), J. van Zyl (Group Chief Executive Officer),
D.C. Brink, M.M.M. Bakane-Tuoane, P. de V. Rademeyer, A.S. du Plessis, F.A. du
Plessis, W. James, V.P. Khanyile, C.E. Maynard, G.E. Rudman, E. van As, J.J.M.
van Zyl.
Alternate directors: N.T. Christodoulou, S.C. Gilbert, L. Lambrechts, J.H.P. van
der Merwe.
Date: 04/03/2004 08:03:11 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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