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Sanlam Group - Audited results for the year ended 31 December 2005

Release Date: 09/03/2006 08:06
Code(s): SLM
Wrap Text

Sanlam Group - Audited results for the year ended 31 December 2005 SANLAM GROUP REGISTERED NAME: SANLAM LIMITED JSE SHARE CODE: SLM REGISTRATION NUMBER 1959/001562/06) NSX SHARE CODE: SLA ISIN number: ZAE000070660 Audited results for the year ended 31 December 2005 Contents Overview Key features Salient results Executive review Comments on the results Financial statements Group balance sheet Group income statement Group statement of changes in equity Group cash flow statement Shareholders" fund information Abridged shareholders" fund balance sheet - FV Abridged shareholders" fund balance sheet - NAV Reconciliation of earnings to segmental analysis Notes to the financial statements Adjusted headline earnings - LTRR Accounting policies and actuarial basis Adoption of IFRS Transitional provisions Changes in accounting policies IFRS reconciliation of equity and earnings Embedded value Administration Sanlam Group Results 2005 Key features Earnings Headline earnings per share up 99% Core earnings per share up 25% Business Flows Total new business volumes up 23% to R73 billion Investment inflows up 29% to R53 billion Net fund inflows of R15 billion Embedded Value Embedded value per share 1 615 cents Return on embedded value per share 24,4% Embedded value of new life business R291 million New business embedded value margin 13,5% Dividend per share up 30% to 65 cents Capital management Disposal of shareholding in Absa realised some R10 billion 13% of issued shares successfully bought back for R4.4 billion SALIENT FEATURES for the year ended 31 December 2005 2005 2004 SANLAM LIMITED GROUP Earnings: Result from financial services R million 2 300 1 812 27% after tax Core earnings (1) R million 3 280 2 659 23% Headline earnings (2) R million 5 813 2 963 96% Net result from financial services cents 90,9 70,5 29% per share Core earnings per share (1) cents 129,7 103,4 25% Headline earnings per share (2) cents 229,8 115,3 99% Group administration cost ratio (3) % 29,1 31,4 Group operating margin (4) % 20,7 21,6 Dividend per share cents 65 50 30% Business volumes: New business volumes R million 73 481 59 852 23% Net fund flows R million 15 168 16 591 Value of new business R million 291 321 -9% Life insurance new business APE (5) R million 2 153 1 958 10% Value of new business margin (6) % 13,5 16,4 EMBEDDED VALUE: Embedded value R million 38 204 36 633 4% Embedded value per share cents 1 615 1 344 20% Growth from life business % 22,3 26,5 Return on embedded value per share % 24,4 22,6 (7) SANLAM LIFE INSURANCE LIMITED Shareholders" fund R million 27 314 26 308 4% Capital adequacy requirements (CAR) R million 5 375 6 550 -18% CAR covered by prudential capital times 3,9 3,6 8% Notes Core earnings = net result from financial services and net investment income (including dividends received from associates). Headline earnings = core earnings, net investment surpluses, secondary tax on companies and equity-accounted headline earnings less dividends received from associates. Administration costs as a percentage of financial services income earned by the shareholders" fund less sales remuneration. Result from financial services as a percentage of financial services income earned by the shareholders" fund less sales remuneration. APE = annual premium equivalent and is equal to new recurring premiums (excluding indexed growth premiums) plus 10% of single premiums. Value of new business margin = value of new business as a percentage of life insurance new business APE. Growth in embedded value per share (with dividends paid, capital movements and cost of treasury shares acquired reversed) as a percentage of embedded value per share at the beginning of the period. The above is extracted from segmental information, except for embedded value results. EXECUTIVE REVIEW Overview By any measure, South Africa had an epic year. A stable interest rate and a strong rand, falling inflation figures and positive assessments of emerging markets by international investors, saw the South African economy expand at a rate of 5%, its fastest pace since 1984. At the same time, the rampant equity bull market pushed the JSE all-share index to all-time highs, while the property market continued to grow, albeit at a more subdued rate than that experienced during the preceding few years. The 2005 financial year was spent converting aspiration into reality. Significant headway was made in terms of the implementation of our strategy towards capital efficiency, realignment of core businesses and growth initiatives. Sanlam achieved strong overall results in 2005. Headline earnings improved by 99% to 229.8 cents per share while Core earnings per share are up 25% to 129.7 cents per share. Total new business fund inflows for the Group operations amounted to R73.5 billion, an improvement of 23% on 2004. Net fund inflows of R15.2 billion are only marginally down on the R16.6 billion recorded in 2004. The embedded value of new life business written was some 9% lower at R291 million but was compensated for by the growth in value of new non-life business. Delivering on strategy The evolution of Sanlam into a balanced financial services enterprise took shape during 2005.The disposal of Sanlam"s shareholding in ABSA realised some R10 billion, with the intention to redeploy some R7 billion deemed as being in excess of the Group"s capital requirements. A successful share buy back programme resulted in 13% of Sanlam"s shares in issue being acquired for R4.4 billion at an average price of R12.39 per share. Capital invested in support of Sanlam"s growth strategy included the acquisition of shares in African Life Assurance Company for some R2.6 billion, as well as a controlling interest in Channel Life for R116 million. Together with Sanlam Group Solutions and our strategic stake in Safrican, these operations will form the bedrock of Sanlam"s entry-level life market strategy. The integration process is on track and we are confident that our operational and return targets will be met. In line with Sanlam"s aim to strengthen its distribution strategy into the middle and upper market segments, Sanlam Personal Finance has had notable success in improving its distribution resources while enhancing the demographic profile of young and black advisers. A more tangible presence in Gauteng has included setting up a separate adviser channel targeting the upper middle class, while the affluent sector of our business continues to be successfully driven through Innofin. Sanlam"s move into health management commenced this year with the acquisition of a majority interest in the Resolution Health Group, a provider of comprehensive healthcare solutions. We have also strengthened offshore diversification with the launch of Shriram Life Insurance, a joint venture between Sanlam and the Shriram Group of India. While this represents a small investment, the Indian insurance market holds promise of significant growth. We are confident that the combination of Sanlam"s insurance skills and the Shriram Group"s strong track record and its extensive distribution network will translate into a sound and successful business. Capital management The directors and management of Sanlam continue to focus on ensuring an optimal capital structure. The share buy-back programme approved by shareholders last September was successfully completed, with a total of 359 million Sanlam shares repurchased for a final consideration of R4.4 billion. The benefit of the buy- back is evident in the improved return on embedded value and the dividend per share. The productive utilisation of capital is of paramount concern to the board, and management will be focused on investing in profitable growth opportunities. At the same time we will continue to evaluate share repurchases in the open market on a selective basis. Life industry developments A number of high-profile rulings relating to the charge structures and membership entitlements in respect of early terminations of retirement annuities have fuelled negative public sentiment towards life products as an investment medium. In an effort to reaffirm the value proposition of life products, the life industry, through the Life Offices Association, and National Treasury have broadly reached agreement on termination values to be met by insurers. Sanlam has made a provision of R620 million (before tax) in the 2005 results for these enhanced early termination benefits. Dividend The sound earnings performance in 2005 enabled the board to increase the total dividend distribution by 30% on 2004. As a result of the reduction in the number of shares in issue, the dividend per share increases by 15 cents to 65 cents per share. The dividend is payable on Wednesday, 10 May 2006 to shareholders recorded in the register on Friday, 28 April 2006. 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 Friday, 21 April 2006 to Friday, 28 April 2006, both dates included. The last date of trade to qualify for this dividend will be Thursday, 20 April 2006 and shares will trade ex div from Friday, 21 April 2006. Appointment of auditors In the interest of improved efficiency and to eliminate cost duplication,the Board reconsidered the joint audit appointment for Sanlam and the use of two different audit firms in the various group companies. It was decided to recommend to the Annual General Meeting that Ernst & Young be appointed as auditors of Sanlam and all entities that are wholly-owned. We wish to thank PriceWaterhouseCoopers for their professional and excellent service over many years as auditors. Looking forward The growth curve of our economy provides a strong foundation for sustainable growth across our business constituents. The challenges remain - as they have since the advent of our young democracy - to achieve growth and transformational development, underpinned by the provision of employment opportunities and housing, the maintenance and development of our infrastructure and the management of the HIV/Aids pandemic and the impact it is having on our business and on our communities. We have made substantial strides in reinventing the architecture of Sanlam"s business and realising our vision of becoming the pre-eminent generator of wealth in our markets. Our new, operationally robust Sanlam is positioned to continue to deliver shareholder value through both investment and organic growth. We will continue to focus on ensuring optimal capital management, and to challenge ourselves and our competitors through the provision of innovative products and services and entry to new and vital markets. Each of our business clusters is moving in the right direction and we believe that we are set for continued growth. Market conditions, in particular the performance of the equity markets, contribute substantially to Sanlam"s headline earnings and will impact in 2006 on our ability to repeat or improve on the 2005 earnings. Roy Andersen Chairman Johan van Zyl Group Chief Executive Sanlam Limited Cape Town 8 March 2006 Sponsor JPMorgan Equities Limited COMMENTS ON THE RESULTS International Financial Reporting Standards The audited Sanlam group results as presented for the 2005 financial year have been prepared, for the first time, based on and in compliance with International Financial Reporting Standards (IFRS). The 2004 results have been restated accordingly. The global development and practical interpretation and application of these accounting standards are however ongoing and certain interpretations and disclosures adopted in these results may be subject to change in future reports. While we fully support the efforts of the accounting profession to achieve consistency in reporting and to counter any misrepresentation of company results, we are concerned that the current implementation of IFRS may not in all instances reflect economic and contractual reality, the most notable example being the prescribed IFRS valuation bases of investments in subsidiaries, associated companies and own (Sanlam Limited) shares supporting policy liabilities, which has introduced a substantial distortion in Sanlam"s reported headline earnings. We will continue to interact with all role players to find a more appropriate approach to these problem areas. Earnings Shareholders" fund summarised income statement for the year ended 31 December R million 2005 2004 Net result from financial services 2 300 1 812 27% Net investment income 980 847 16% CORE EARNINGS 3 280 2 659 23% Secondary Tax on Companies (STC) (88) 100 Equity-accounted headline earnings 478 720 -34% Net investment surpluses 2 003 698 187% Earnings before fund transfers and 5 673 4 177 36% provisions Financial claims (590) - Fund transfers 730 (1 214)
HEADLINE EARNINGS 5 813 2 963 96% Other equity-accounted earnings (8) - Profit on disposal of associate and 5 125 58 subsidiaries Impairment of investments and goodwill (3) (263) Attributable earnings 10 927 2 758 296% Net result from financial services 2 300 1 812 Net investment return 8 627 946 Attributable earnings 10 927 2 758 Net result from financial services after 2 212 1 912 16% tax and STC Financial claims (590) LTRR investment return 2 453 2 158 14% LTRR HEADLINE EARNINGS 4 075 4 070 1% Headline earnings of R5 813 million for the year are up 96% on 2004 while Core earnings of R3 280 million are up 23%. Growth in Headline and Core earnings, on a per share basis, is marginally higher than the absolute increase at 99% and 25% respectively as earnings per share are based on the weighted average number of shares in issue, which is marginally down on 2004. This is largely due to the effect of the new Sanlam shares issued in 2004 to Ubunto-Botho Investments as part of the black empowerment transaction, being offset by the impact of the Sanlam shares bought back late in 2005. Core earnings comprise the net operating result from providing financial services as well as net investment income earned on the shareholders" fund. The latter includes dividends received from associated companies, but Core earnings exclude the equity-accounted retained earnings of associated companies that do not form part of the Group operating structure and activities (e.g. the investment in Absa prior to its disposal). Core earnings of R3 280 million are 23% up on 2004, the combined effect of a 27% growth in the net result from providing financial services and a 16% increase in net investment income. All major Group operations, with the exception of Santam, reported an increase in net operating profit. A sterling performance by the businesses in the Investment cluster in particular, including Sanlam Capital Markets, was somewhat offset by the expected contraction of short-term underwriting margins experienced by Santam. The gross result from operations improved by 11% on 2004. After accounting for taxation and the Santam minorities" share of its lower net income, net operating income increased by 27% on 2004. Notwithstanding the reduction in underwriting results in 2005, the strong performance of the equity markets enabled Santam to equal its 2004 headline earnings. Net investment income consists of dividends and interest earned on the shareholders" fund"s discretionary investment portfolio, as well as the margin earned on a preference share portfolio. Investment income for the first six months of 2005 was substantially up on 2004, in part due to the extraordinary dividend of R249 million received on the realisation of the investment in Absa. The sale of Absa and the capital reduction in the second half of the year, however, caused a major reduction in the level of investment income and limited the full-year increase on this line to 16%. Result from financial services for the year ended 31 December R million 2005 2004 Life insurance 1 729 1 493 16% Sanlam Personal Finance 1 512 1 309 16% Sanlam Employee Benefits 217 184 18% Short-term insurance 1 016 1 361 -25% Investment management 699 419 67% Sanlam Capital Markets 151 86 76% Independent Financial Services 32 44 -27% Corporate expenses (172) (169) -2% Continued operations 3 455 3 234 7% Discontinued operations & Marketing - (119) - provision Gross result from financial services 3 455 3 115 11% Headline earnings are reported net of a Secondary Tax on Companies (STC) charge of R88 million as the STC payable in respect of the group"s dividends paid exceeded the available STC credits generated in the shareholders" fund. The first-time implementation of a policy to account for unutilised STC credits at year-end resulted in the raising of a R100 million asset and a corresponding income item at the end of 2004. Equity-accounted retained headline earnings of R478 million are down 34% on 2004. The major contribution to this line is the Sanlam shareholders" fund"s proportionate share of Absa"s earnings prior to the sale of the investment. The reported earnings for 2005 reflect Absa"s strong operating performance for the six months to March 2005. It also includes R30 million, being Sanlam"s 21% interest in the African Life results for the nine months to 31 December 2005. Following the introduction of IFRS and the designation of all shareholders" fund investments as "at fair value through profit or loss", Headline earnings now include all fair value changes on the investments held by the shareholders" fund. A 187% improvement in net investment surpluses, in part due to the strong equity market growth in 2005, made a material contribution to the increase in Headline earnings over 2004. National Treasury and the Life Offices" Association announced an agreement in December 2005 on minimum standards to be applied on early termination of long- term savings and investment products. Certain enhanced early termination values will, where applicable, be applied retrospectively for five years. The cost of providing these benefits in respect of Sanlam"s existing business is estimated at some R620 million. This amount, net of tax, is provided for in full in the 2005 financial results as a once-off income statement charge of R440 million. For embedded value purposes it is assumed that the full tax relief will only be realised some time in the future. On a net present value basis the charge to embedded value is therefore R500 million. Certain other financial claims have been or could potentially be instituted against Group companies, some of which have already been referred to in the 2004 annual report and before. These claims in essence relate to possible tax liabilities due to differences on treatment and interpretation between Sanlam and the South African Revenue Services, contractual disputes and potential claims flowing from pension fund administration and surplus apportionments. The relevant Group operations are contesting or intend to contest either the merit or quantum of the majority of these claims. The Sanlam board, in taking a prudent view on the potential liability on these claims, decided to strengthen existing provisions created for such claims by R150 million. This should ensure that provisions sufficiently cover the aggregate liability in a best estimate outcome, although not necessarily the maximum exposure in respect of these items. In terms of IFRS, in determining the Sanlam group results, Sanlam shares held in the policyholder portfolios have to be treated as treasury shares (and no longer as an investment at fair value) and shares held by these portfolios in group subsidiaries and associates may no longer be accounted for as investments at fair value, but must be accounted for at their net asset value and equity- accounted values respectively. Since the policyholder liabilities remain unaffected, a fund transfer (through Headline earnings) is required to or from the shareholders" fund in respect of the market value changes of these shares. For 2005 this transfer to the shareholders" fund amounted to R730 million, compared to a transfer from the shareholders" fund of R1 214 million for the same period in 2004. Excluding these transfers, the once-off provision created in respect of potential financial claims and enhanced termination values, the growth in Headline earnings amounted to 36%. Attributable earnings for 2005 of R10.93 billion are 296% higher than the R2.76 billion in 2004. After the adoption of IFRS, there are only a few items that are reported in Attributable earnings but fall outside the definition of Headline earnings. These are essentially limited to profit realised on the sale of a subsidiary or associate and goodwill impairments. Due to the restriction placed by IFRS on not fair value accounting the investment in Absa, Sanlam realised an accounting profit of R5 billion on the sale of its holding in Absa. This represents the difference between the sales / transaction value and the equity accounted carrying value of the investment. Business volumes New business flows Total new business inflows at R73.5 billion are 23% higher than in 2004, in particular due to a strong performance in the second half of the financial year. New business inflows in the second six months of the year totalled R43.3 billion, 32% up on that achieved in the comparable period in 2004. Inflows into white-labelled unit trust funds, higher Investment inflows, as well as a strong recovery by new Life Insurance product sales, contributed substantially to this improvement. The new life business Annual Premium Equivalent (APE) of R2 153 million is 10% higher than in 2004, with group life business and international life business being up 25% and 27% respectively. New Business Volumes for the year ended 31 December R million 2005 2004 Life insurance 11 862 11 200 6% Investments 52 748 40 933 29% Short-term insurance 8 871 7 719 15% 73 481 59 852 23%
Retail 28 473 24 613 16% Institutional 19 684 18 239 8% Sanlam Financial Services (UK) 10 615 5 950 78% Sanlam Collective Investments white label 5 838 3 331 75% Short-term insurance 8 871 7 719 15% 73 481 59 852 23% New retail business flows improved by 16% on 2004 to R28.5 billion. South African Individual Life Insurance business of R8.0 billion is only 2% up on 2004 and comprises 28% of retail flows vs 32% in 2004. After a disappointing start to the year (8% down on 2004 for first six months), single premium life inflows in South Africa recovered to end the year on R6.5 billion, approximately the same level as in 2004. Satisfactory growth in continuations, endowments and the sale of Living Life annuities offset the lower demand for guaranteed savings products. New recurring premiums inflows improved by 9% on 2004. This is substantially due to the improved demand for Sanlam"s Matrix range of risk products. South African non-life retail gross inflows of R16 billion are 16% up on 2004. This comprises investment inflows to the Innofin product range, Sanlam Private Investments new inflows, as well as the retail inflows into Sanlam Collective Investments. Consolidated Financial Services, created in 2004 through the merger of Sanlam"s Namibian life insurance interests with that of other Namibian parties, recorded 26% growth in new life business and a 166% increase in gross unit trust inflows in its first year. Merchants Investors Assurance in the UK achieved an 11% growth to R671 million in new business inflow. SA Institutional new business flows were just short of R20 billion in 2005, an increase of 8% on 2004. Group Life premiums represent 16% of South African institutional inflows in 2005. It totalled R2.9 billion and is 14% up on 2004. This is the result of strong new inflows attracted in the second half of 2005, which were 25% higher than that in the comparable period in 2004. New Group Life business is essentially focussed on risk business due to an increasing percentage of investment business inflows being placed with asset managers directly. Sanlam Investment Management"s (SIM) institutional investment inflows grew by 7% to R16.9 billion. R9.4 billion originated from third party wholesale asset management mandates, while Sanlam Multi Manager recorded inflows of R3.1 billion. New wholesale inflows to Sanlam Collective Investments and SIM International improved by 17% and 12% respectively. Sanlam Financial Services (UK) performed exceptionally well to attract new business under administration and advice of GBP0.9 billion (R10.6 billion) in 2005, an improvement of 78% on 2004. Net business flows The Public Investment Commissioner withdrew R6 billion of its funds under management from SIM in March 2005 as part of the restructuring of its investment process and mandates. Notwithstanding this withdrawal, the Group achieved positive net business inflows of some R15.2 billion for the year, compared with R16.6 billion in 2004. Excluding the R6 billion withdrawal, the South African institutional investment businesses achieved net inflows of R6.7 billion, which is only marginally down on 2004. A major contribution to the Group"s institutional net inflow also came from Sanlam Financial Services (UK). Group Life net outflows however remain high. Fund terminations, which can in part be ascribed to funds being switched into direct investment portfolios, resulted in net outflows of R3.5 billion for the year, a similar level to 2004. Net business inflows from retail business amounted to R3.5 billion. Embedded value of new business The embedded value of new life business written for 2005, of R291 million, is 9% lower than in 2004. Margins and profitability remained under pressure during the year, largely due to more competitive pricing and cost incurred to support sales growth in 2006. The average APE margin achieved in 2005 amounted to 13.5%, compared with 16.4% achieved in 2004. In terms of the proposed future basis of disclosure for the industry, the profit margin is also expressed as a percentage of the present value of total new business premiums. On this basis the overall margin reduced from 2.2% to 1.8%. Progress has been made in standardising the measurement of the profitability of and value added by non-life business. It is the intention to also disclose the value of new non-life business in future to provide a more complete picture of new business performance. These calculations are still being refined but indicate that non-life retail business made a substantial contribution to the value of the overall new retail investment business flows in 2005, compensating by enlarge for the lower value of the life business. Embedded value At 31 December 2005 Sanlam"s embedded value amounted to R38.2 billion or 1 615 cents per share. This represents an increase of 4% on the R36.6 billion at the end of December 2004, despite the R4.4 billion utilised to buy back 359 million shares. Taking into account the capital reduction and the dividend paid in respect of the 2004 financial year, the return on embedded value to the end of 2005 amounted to 20.6%. A higher growth per share of 24.4% confirms the accretive effect of the share buy back. A return of 20.0% was achieved on net assets. EMBEDDED VALUE R million 2005 2004 Net Asset Value (at fair value) 30 592 29 782 3% Goodwill on life company 1 328 356 acquisitions Non-life Group operations 9 702 7 743 25% Portfolio investments 19 562 21 683 -10% Adjustments (2 962) (2 000) 48% Adjusted Net Asset Value 27 630 27 782 -1% Net value of life in-force 10 574 8 851 19% business Embedded value 38 204 36 633 4% Embedded value per share (cents) 1 615 1 344 20% Share price at 31 December (cents) 1 519 1 300 17% Discount to embedded value 5.9% 3.3% The value of the Life businesses" in-force book (VIF) at the end of December 2005 amounted to R10,6 billion, after taking into account the cost of capital at risk of R1,7 billion. Growth from life insurance business, based on the starting value of VIF, amounted to 22,3% compared with growth of 26,5% in 2004. The negative effect of adjustments made to the long-term asset mix assumption of both the policyholder funds and the assets supporting CAR and an increased allowance for STC payable in future, in part offset the benefit of positive operating and investment variances experienced during the year. Solvency As at 31 December 2005 all group companies were adequately capitalised. The statutory capital requirement (CAR) of Sanlam Life amounted to R5.3 billion. Capital allocated to Sanlam Life and qualifying for regulatory capital purposes amounted to R20.9 billion, which covered the capital requirement 3.9 times (3.6 times at the end of 2004). The improved cover can be attributed to improved equity markets and the active management of the shareholders" funds. All policyholder portfolios were fully funded as at 31 December 2005. Santam ended the 2005 financial year with a healthy solvency level of 61%, which will reduce to 49% after payment of its ordinary dividend of 227 cents per share and special dividend of 650 cents per share. These results will be tabled at the annual general meeting to be held at the Sanlam Head Office in Bellville on Wednesday, 7 June 2006. Shareholders are invited to attend this meeting. GROUP BALANCE SHEET at 31 December 2005 2005 2004 R million R million ASSETS Property and equipment 249 184 Owner-occupied properties 492 380 Goodwill 2 174 2 186 Value of business acquired 942 - Deferred acquisition costs 1 155 994 Long-term reinsurance assets 389 318 Investments 232 851 187 606 Investment properties 12 748 14 413 Equity-accounted investments 1 037 5 167 Equities and similar securities 120 763 88 084 Public sector stocks and loans 47 998 44 434 Debentures, insurance policies, preference 21 173 17 141 shares and other loans Cash, deposits and similar securities 29 132 18 367 Deferred tax 372 440 Short-term insurance technical assets 2 372 1 980 Working capital assets 35 716 31 192 Trade and other receivables 27 427 20 043 Cash, deposits and similar securities 8 289 11 149 Total assets 276 712 225 280 Equity and liabilities Shareholders" fund 25 020 19 685 Minority shareholders" interest 3 443 3 515 Total equity 28 463 23 200 Long-term policy liabilities 198 234 163 556 Insurance contracts 109 591 92 961 Investment contracts 88 643 70 595 Term finance 2 879 6 685 External investors in consolidated funds 6 030 3 209 Cell owners" interest 268 47 Deferred tax 1 623 809 Short-term insurance technical provisions 6 702 5 198 Working capital liabilities 32 513 22 576 Trade and other payables 30 057 20 924 Provisions 860 465 Taxation 1 596 1 187 Total equity and liabilities 276 712 225 280 GROUP INCOME STATEMENT for the year ended 31 December 2005 2005 2004 Note R million R million
Net income 63 307 41 975 Financial services income 20 393 17 836 Reinsurance premiums paid (2 339) (2 303) Reinsurance commission received 445 504 Investment income 10 429 9 658 Investment surpluses 35 282 16 659 Change in fair value of external (903) (379) investors liability Net insurance and investment contract (41 440) (30 081) benefits and claims Long-term insurance contract benefits (21 070) (15 829) Long-term investment contract benefits (14 094) (9 985) Enhanced early termination benefits (620) - Short-term insurance claims (6 904) (5 014) Reinsurance claims received 1 248 747 Expenses (7 769) (7 026) Sales remuneration (2 632) (2 302) Administration costs (5 137) (4 724) Impairment of investments and goodwill (12) (263) Net operating result 14 086 4 605 Equity-accounted earnings 944 1 085 Finance cost (136) (49) Discontinued operations - (92) Profit before tax 14 894 5 549 Taxation 4 (2 803) (1 771) Shareholders" fund (1 684) (1 013) Policyholders" fund (1 119) (758) Profit for the year 12 091 3 778 Attributable to: Shareholders" fund 10 927 2 758 Minority shareholders" interest 1 164 1 020 12 091 3 778
Earnings attributable to shareholders of the company (cents): Continuing operations: Basic earnings per share 7 439,2 112,3 Diluted earnings per share 7 432,0 110,9 GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2005 2005 2004
R million R million Shareholders" fund: Balance at beginning of year 19 685 17 622 Total recognised income 11 008 2 559 Profit for the year 10 927 2 758 Equity-accounted earnings movement in 15 (42) associated companies" reserves Movement in foreign currency translation 66 (157) reserve Cost of treasury shares donated to the Ubuntu- - (314) Botho Community Development Trust Net realised investment surpluses on other 25 (126) treasury shares Share based payments 64 51 Dividends paid (1 295) (1 022) Acquired through business combinations (31) - New shares issued (1) - 865 Costs relating to share issuance - (19) Shares cancelled (4 446) - Cost of treasury shares acquired (2) 10 69 Balance at end of year 25 020 19 685 Minority shareholders" interest: Balance at beginning of year 3 515 1 944 Total recognised income 1 163 1 005 Profit for the year 1 164 1 020 Movement in foreign currency translation (1) (15) reserve Share based payments 5 4 Dividends paid (788) (168) Acquisitions, disposals and other movements in (452) 730 minority interests Balance at end of year 3 443 3 515 Shareholders" fund 19 685 17 622 Minority shareholders" interest 3 515 1 944 Total equity at beginning of year 23 200 19 566 Shareholders" fund 25 020 19 685 Minority shareholders" interest 3 443 3 515 Total equity at end of year 28 463 23 200 (1) Comprises 113 million new ordinary shares at R7,65 per share, 56,5 million `A" deferred shares at R0,01 per share and 52 million `A" preference shares at R0,01 per share. (2) Comprises movement in cost of shares held by subsidiaries and the share incentive trust. GROUP CASH FLOW STATEMENT for the year ended 31 December 2005 2005 2004 R million R million Net cash inflow/(outflow) from operating 1 938 (3 774) activities Net cash inflow from investment activities 13 069 1 908 Net cash (outflow)/inflow from financing (6 919) 2 842 activities Cash flow from discontinued operations - (92) Net increase in cash and cash equivalents 8 088 884 Cash, deposits and similar securities at 29 320 28 436 beginning of year Cash, deposits and similar securities at end 37 408 29 320 of year ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET - FAIR VALUE (Group businesses, associates and joint venture below reflected as investments at fair value) at 31 December 2005 2005 2004 R million R million
Assets Property and equipment 177 106 Owner-occupied properties 480 370 Goodwill (1) 419 387 Value of business acquired (1) 942 - Deferred acquisition costs 582 - Investments 35 307 34 794 Sanlam businesses 9 702 7 743 Investment Management (2) 3 228 2 384 Sanlam Financial Services UK 382 349 Sanlam Capital Markets 552 441 Innofin 341 187 Santam 4 749 4 028 Other (3) 450 354 Associated companies 871 10 033 Absa - 9 429 Peermont 779 604 Other 92 - Joint ventures 395 270 Other investments 24 339 16 748 Other equities and similar securities 12 267 6 739 Public sector stocks and loans 2 019 1 550 Investment properties 671 619 Other interest-bearing and preference share 9 382 7 840 investments Deferred tax 216 313 Working capital assets 4 486 6 657 Total assets 42 609 42 627 Equity and liabilities Shareholders" fund 30 592 29 782 Minority shareholders" interest 439 61 Term finance 2 834 5 477 External investors in consolidated funds 49 51 Deferred tax 1 031 1 143 Working capital liabilities 7 664 6 113 Total equity and liabilities 42 609 42 627 Net asset value per share (cents) 1 293 1 093 The value of business acquired and goodwill relates mainly to the consolidation of African Life Assurance and Merchant Investors Assurance and are excluded in the build-up of the Group embedded value, as the current value of in-force business for these life insurance companies are included in the embedded value. Included in Investment Management are Sanlam Investment Management, Sanlam Collective Investments and the Investment Cluster"s international businesses. Other businesses comprise the non-life businesses in the Life Insurance cluster, which are excluded from the value of in-force and all the businesses in the Independent Financial Services cluster apart from Sanlam Financial Services UK. ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET - FAIR VALUE (continued) 2005 2004 R million R million EXCESS OF FAIR VALUE OVER NET ASSET VALUE: SANLAM BUSINESSES AND INVESTMENTS The shareholders" fund balance sheet at fair value includes the value of the companies below based on directors" valuation, apart from Santam, Absa and Peermont, which are valued according to ruling share prices. Net asset value of businesses and investments 5 583 8 434 Investment Management businesses (1) 752 514 Sanlam Financial Services UK 340 335 Sanlam Capital Markets 552 441 Innofin 177 155 Santam 2 903 2 655 Absa - 4 030 Peermont 310 218 Safair Lease Finance 94 45 Other (2) 455 41 Goodwill in respect of above businesses 1 198 1 198 Deferred capital gains tax on investments at 546 1 146 fair value Revaluation adjustment of interest in 3 641 7 268 businesses and investments to fair value Fair value of businesses and investments 10 968 18 046 Analysis of fair value Sanlam businesses 9 702 7 743 Associated companies 871 10 033 Joint ventures 395 270 Fair value of businesses and investments 10 968 18 046 (1) Included in Investment Management are Sanlam Investment Management, Sanlam Collective Investments and the Investment cluster"s international businesses. (2) Other businesses comprise the non-life businesses in the Life Insurance cluster, which are excluded from the value of in-force and all the businesses in the Independent Financial Services cluster apart from Sanlam Financial Services UK. ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET - FAIR VALUE (continued) Net Minority Shareholders" assets shareholders" fund interest
R million R million R million Reconciliation of equity - fair value: 31 December 2004 Reported under SA GAAP 30 045 63 29 982 Change in carrying value of (196) (2) (194) investment contracts Revaluation of trading (42) - (42) account assets and liabilities Goodwill amortisation 36 - 36 reversed - Merchant Investors Assurance Reported under IFRS 29 843 61 29 782 1 January 2004 - unaudited Reported under SA GAAP 22 819 - 22 819 Change in carrying value of (181) - (181) investment contracts Revaluation of trading (42) - (42) account assets and liabilities Reported under IFRS 22 596 - 22 596 ABRIDGED SHAREHOLDERS" FUND BALANCE SHEET - NET ASSET VALUE (All businesses consolidated at net asset value) at 31 December 2005 2005 2004 R million R million
Assets Goodwill 2 174 2 170 Investments 32 547 26 582 Working capital and other assets 33 918 26 748 Total assets 68 639 55 500 Equity and liabilities Shareholders" fund 25 020 19 685 Minority shareholders" interest 3 557 2 932 Term finance, working capital and 40 062 32 883 other liabilities Total equity and liabilities 68 639 55 500 RECONCILIATION OF EARNINGS to segmental analysis for the year ended 31 December 2005 Year ended 31 December 2005 Shareholder Policyholder
activities activities R MILLION Total Financial Investment services return Net income 63 307 19 390 10 022 33 895 Financial services income 20 393 20 524 (3) (128) Reinsurance premiums paid (2 339) (2 339) - - Reinsurance commission received 445 445 - - Investment income 10 429 718 892 8 819 Investment surpluses 35 282 42 9 115 26 125 Change in fair value of external (903) - 18 (921) investors liability Net insurance and investment (41 440) (9 030) - (32 contract benefits and claims 410) Long-term insurance contract (21 070) (2 754) - (18 benefits 316) Long-term investment contract (14 094) - - (14 benefits 094) Enhanced early termination (620) (620) - - benefits Short-term insurance claims (6 904) (6 904) - - Reinsurance claims received 1 248 1 248 - - Expenses (7 769) (7 685) - (84) Sales remuneration (2 632) (2 632) - - Administration costs (5 137) (5 053) - (84) Impairment of investments and (12) - (12) - goodwill Net operating result 14 086 2 675 10 010 1 401 Equity-accounted earnings 944 5 865 74 Finance cost (136) - - (136) Profit before tax 14 894 2 680 10 875 1 339 Tax expense (2 803) (567) (1 117) (1 119) Shareholders" fund (1 684) (567) (1 117) - Policyholders" fund (1 119) - - (1 119) Profit for the year 12 091 2 113 9 758 220 Attributable to: Shareholders" fund 10 927 1 710 9 217 - Minority shareholders" interest 1 164 403 541 220 12 091 2 113 9 758 220 RECONCILIATION OF EARNINGS to segmental analysis for the year ended 31 December 2005 Year ended 31 December 2004 Shareholder Policyholder activities activities
R MILLION Total Financial Investment services return Net income 41 975 17 170 879 23 926 Financial services income 17 836 17 886 (7) (43) Reinsurance premiums paid (2 303) (2 303) - - Reinsurance commission 504 504 - - received Investment income 9 658 1 083 789 7 786 Investment surpluses 16 659 - 127 16 532 Change in fair value of (379) - (30) (349) external investors liability Net insurance and investment (30 081) (6 965) - (23 contract benefits and claims 116) Long-term insurance contract (15 829) (2 698) - (13 benefits 131) Long-term investment (9 985) - - (9 985) contract benefits Short-term insurance claims (5 014) (5 014) - - Reinsurance claims received 747 747 - - Expenses (7 026) (6 996) (1) (29) Sales remuneration (2 302) (2 302) - - Administration costs (4 724) (4 694) (1) (29) Impairment of investments (263) - (263) - and goodwill Net operating result 4 605 3 209 615 781 Equity-accounted earnings 1 085 - 984 101 Finance cost (49) - - (49) Loss from discontinued (92) (94) 2 - operations Profit before tax 5 549 3 115 1 601 833 Tax expense (1 771) (789) (224) (758) Shareholders" fund (1 013) (789) (224) - Policyholders" fund (758) - - (758) Profit for the year 3 778 2 326 1 377 75 Attributable to: Shareholders" fund 2 758 1 812 946 - Minority shareholders" 1 020 514 431 75 interest 3 778 2 326 1 377 75 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2005 2005 2004 R million R million FUNDS RECEIVED FROM CLIENTS LIFE BUSINESS 11 862 11 200 INVESTMENTS 52 748 40 933 SHORT-TERM INSURANCE 8 871 7 719 Total new business 73 481 59 852 PREMIUMS ON EXISTING BUSINESS 11 173 10 879 Total funds received from clients 84 654 70 731 Funds received from short-term insurance are recognised in the income statement. All other funds received are recognised directly in the balance sheet or as segregated funds as applicable; fee income earned on this business is recognised in the income statement. payments TO CLIENTS LIFE BUSINESS 27 499 25 517 RISK UNDERWRITING BENEFITS 2 618 2 568 OTHER PAYMENTS 24 881 22 949 INVESTMENTS 36 195 24 226 SHORT-TERM INSURANCE 5 792 4 397 Total payments to clients 69 486 54 140 Life insurance risk underwriting benefits and short-term insurance payments are recognised in the income statement; all other payments to clients are recognised directly in the balance sheet or as segregated fund flows as applicable. NET FLOW OF FUNDS LIFE BUSINESS (4 464) (3 438) Investments 16 553 16 707 Short-term insurance 3 079 3 322 Total net inflow of funds 15 168 16 591 TAXATION Result from financial services 747 789 Current year 752 793 Prior year (5) (4) Investment income - current year 150 92 Investment surpluses 330 232 Profit on disposal of associated companies 534 - Enhanced early termination benefits (180) - Secondary Tax on Companies 103 (100) Tax expense - shareholders" fund 1 684 1 013 Tax expense - policyholders" fund 1 119 758 Total income tax charged to income statement 2 803 1 771 NOTES (continued) 2005 2004 R million R million
SEGMENTAL ANALYSIS - SHAREHOLDERS" FUND Financial services Life insurance 1 729 1 493 Short-term insurance 1 016 1 361 Investment management 699 419 Sanlam Capital Markets 151 86 Independent Financial Services 32 44 Corporate expenses (172) (194) Result from continued operations 3 455 3 209 Discontinued operations - (94) Result from financial services before tax 3 455 3 115 Investment INCOME - SHAREHOLDERS" FUND Interest-bearing investments 460 445 Equities 372 312 Properties 53 32 Investment income before associated companies 885 789 Dividends from associated companies 384 264 Total investment income 1 269 1 053 NOTES (continued) 2005 2004
Cents Cents EARNINGS PER SHARE Basic earnings per share: Net result from financial services 92,5 71,4 Core earnings 131,8 104,8 Headline earnings 233,7 116,8 Profit from continuing operations attributable to 439,2 112,3 shareholders" fund Discontinued operations attributable to - (3,6) shareholders" fund Diluted earnings per share: Net result from financial services 90,9 70,5 Core earnings 129,7 103,4 Headline earnings 229,8 115,3 Profit from continuing operations attributable to 432,0 110,9 shareholders" fund Discontinued operations attributable to - (3,6) shareholders" fund R million R million Analysis of earnings: Net result from financial services 2 300 1 812 Net investment income 980 847 Investment income per note 6 1 269 1 053 Tax on investment income (150) (92) Minority shareholders" interest (139) (114) Core earnings 3 280 2 659 Net enhanced early termination benefits (440) - Enhanced early termination benefits (620) - Tax on enhanced early termination benefits 180 - Provision for financial claims (150) - Net equity-accounted headline earnings 478 720 Equity-accounted headline earnings (excluding 489 749 dividends received) Minority shareholders" interest (11) (29) Net investment surpluses 2 733 (516) Investment surpluses 3 478 33 Tax on investment surpluses (330) (232) Minority shareholders" interest (415) (317) Secondary tax on companies (88) 100 Headline earnings 5 813 2 963 Non-headline earnings 5 114 (205) Profit for the period 10 927 2 758 Adjusted headline earnings based on the long-term 4 075 4 070 rate of return Profit from continuing operations attributable to 10 927 2 850 shareholders" fund Discontinued operations attributable to - (92) shareholders" fund NOTES (continued) 2005 2004 million Million Number of shares: Number of ordinary shares in issue at beginning of 2 767,6 2 654,6 period Add: Weighted number of shares issued - 84,8 Less: Weighted average number of shares cancelled (76,4) - Less: Weighted Sanlam shares held by subsidiaries (203,5) (201,6) (including policyholders) Adjusted weighted average number of shares for 2 487,7 basic earnings per share 2 537,8 Add: Weighted conversion of deferred shares 6,2 3,0 Add: Total number of shares under option 89,6 132,1 Less: Number of shares (under option) that would (54,1) have been issued at fair value (102,1) Adjusted weighted average number of shares for 2 529,4 diluted earnings per share 2 570,8 Number of ordinary shares in issue - beginning of 2 767,6 2 654,6 period Shares issued - 113,0 Shares cancelled (359,0) - Number of ordinary shares in issue 2 408,6 2 767,6 Shares held by subsidiaries in shareholders" fund (48,6) (47,5) Convertible deferred shares held by Ubuntu-Botho 6,5 5,8 Adjusted number of shares for value per share 2 366,5 2 725,9 R million R million 8. ASSETS UNDER MANAGEMENT AND ADMINISTRATION Total assets per Group balance sheet 276 712 225 280 Segregated funds not included in Group balance 167 215 121 678 sheet Total assets under management and administration 443 927 346 958 9. CONTINGENT LIABILITIES Shareholders are referred to the contingent liabilities disclosed in the 2004 annual report. The circumstances surrounding these contingent liabilities remained unchanged. ADJUSTED HEADLINE EARNINGS - LTRR 2005 2004 R million R million THE LTRR INVESTMENT RETURN IS DETERMINED BY APPLYING THE LONG-TERM EXPECTED RETURN OF 10% (2004: 11%) TO THE AVERAGE MONTHLY SHAREHOLDERS" FUND INVESTMENTS Adjusted headline earnings - long-term rate of return (LTRR) Net result from financial services 2 300 1 812 Secondary tax on companies (88) 100 Policyholder fund restitution and financial claims (590) - LTRR investment return after taxation 2 453 2 158 Equity-accounted headline earnings 478 720 Dividends received from associated companies 290 264 LTRR investment return - balanced portfolio 1 685 1 174 Adjusted headline earnings - LTRR 4 075 4 070 Reconciliation of headline earnings and LTRR headline earnings Headline earnings per note 7 5 813 2 963 Fund Transfers (730) 1 214 Net LTRR adjustment (1 008) (107) Adjusted headline earnings - LTRR 4 075 4 070 Analysis of net LTRR adjustment Investment return (1 411) (300) Equities (1 856) (331) Interest-bearing investments 460 47 Properties (15) (16) Tax 64 (65) Minority shareholders" interest 339 258 Net LTRR adjustment (1 008) (107) AssetS subject to LTRR Investments per shareholders" fund balance sheet 32 547 26 582 at net asset value Less: Investment in associated companies (2 428) (4 544) Investment in joint ventures (328) (69) Investments held in respect of term finance (2 508) (3 809) Investments held in respect of capital market (42) (62) activity Investments matched by liabilities (2 567) (905) Other (36) (104) LTRR investments 24 638 17 089 ACCOUNTING POLICIES AND ACTUARIAL BASIS Statement of compliance The accounting policies adopted for the purposes of the financial statements comply with International Financial Reporting Standards (IFRS) and with applicable legislation. 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. There have been no material changes in the financial soundness valuation basis since 31 December 2004. Adoption of IFRS Being a first-time adopter of IFRS for the 2005 financial year, the Group"s date of transition to IFRS is 1 January 2004. The Group"s opening balance sheet on 1 January 2004 and comparative information for 2004 have been restated to comply with all IFRS effective as at 31 December 2005. The migration to IFRS for insurers will, in its full extent, take a number of years. The results have been prepared in accordance with current interpretations of IFRS. Future results may be impacted, as the development of guidance for the long-term insurance industry, both from an accounting and actuarial perspective, is an ongoing process. The South African standard applicable to long-term insurers, AC121 has been withdrawn concurrently with the introduction of IFRS. Therefore, long-term insurers will no longer have any form of exemption from applying normal consolidation principles in instances where investments are held in policyholder portfolios to fund policyholder benefits. Shareholders" fund In terms of South African Generally Accepted Accounting Practice (SA GAAP) the shareholders" fund"s investments in associated companies (and joint ventures) were carried at their original cost plus the shareholders" fund"s share of its retained earnings after acquisition (effectively carried at net asset value including goodwill, if any). In respect of the investment in Absa, Safair Lease Finance and Peermont, the equity-accounted carrying value was further adjusted to reflect the investment at fair value. These adjustments to fair value are not allowed in the absence of AC121 and Sanlam is required to reflect the shareholders" fund"s investment in these companies at the equity-accounted carrying value. Policyholders" fund The policyholders" fund"s investment in Absa must also be carried at original cost plus its share of retained earnings after acquisition. Portfolio investments in subsidiary companies (e.g. Santam) can no longer be accounted for at market value but be carried at consolidated net asset value. Portfolio investments in Sanlam shares have to be treated as treasury shares and deducted from equity on consolidation. The result is a mismatch between the valuation of long-term policy liabilities, which continues to include the affected investments on a marked to market basis, and the policyholder assets underlying these liabilities, which may not be at fair value or may be eliminated on consolidation. The movement in mismatch in any particular period, is accounted for through an income statement transfer to or from the shareholders" fund, impacting on Headline and Attributable earnings as well as net asset value. An appropriate adjustment is made to the value of the shareholders" fund for Embedded Value and Capital Adequacy Requirement purposes to reverse this impact. TRANSITIONAL PROVISIONS IFRS 1 First-time Adoption of International Financial Reporting Standards requires retrospective compliance with all IFRS expected to be effective at the end of the first IFRS reporting period. However, it contains a number of exemptions to this full retrospective application of IFRS. The Group has applied the following exemptions: Business combinations The Group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred prior to 1 January 2004. Accordingly, no adjustments have been made to the accounting treatment of these business combinations. Property and equipment The Group has elected to use the previous SA GAAP revaluation of selected property and equipment as deemed cost on the date of transition to IFRS. Cumulative translation differences The cumulative translation differences in respect of the Group"s foreign operations have been deemed to be zero on the date of transition to IFRS. Designation of financial instruments The majority of the Group"s financial instruments were designated as `available for sale" in terms of SA GAAP. The Group has elected to redesignate these financial instruments to the `at fair value through profit or loss" category in IAS 39 Financial Instruments: Recognition and Measurement. Share-based payments The Group has elected not to apply IFRS 2 Share-based Payment to equity instruments granted on or before 7 November 2002 or granted after 7 November 2002 but which had vested prior to 1 January 2005. Comparatives In terms of IFRS 1 First time adoption of International Financial Reporting Standards an entity need not disclose comparative information that complies with IAS 32 Financial Instruments: Disclosure and Presentation, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts in its first set of IFRS annual financial statements. In the interest of comparable disclosure, the Group has not applied this exemption. Compound financial instruments The Group has elected not to separate compound financial instruments into equity and liability components where the liability component is no longer outstanding on the date of transition. Changes in reporting structures and accounting policies The implementation of IFRS concurrently with the withdrawal of the specific South African accounting standard applicable to insurers (AC121) required the following changes to the Group"s basis of presentation and accounting policies: - The measurement basis of the investment in Absa and Peermont on the balance sheet is changed from fair value to an equity-accounted valuation. This item has been updated to include the policyholders" investment in Absa following the revised interpretation discussed above; - Sanlam Limited shares held in policyholder portfolios are treated as treasury shares and eliminated against equity on consolidation (carried at fair value in terms of SA GAAP); - The policyholders" fund"s interest in Santam Limited is consolidated in the balance sheet under IFRS (carried at fair value in terms of SA GAAP); - Goodwill in respect of business combinations with an agreement date prior to 1 January 2004 is not amortised but subject to an impairment review (amortised in terms of SA GAAP); - The valuation basis for investment policy contracts is changed from the Financial Soundness Valuation method to fair value; - Recognition of share option costs in the Group income statement with a corresponding increase in equity (no cost recognised in terms of SA GAAP); - Reclassification of financial assets formerly designated as `available for sale" to the `at fair value through profit or loss" category; and - The consolidation of certain investment vehicles controlled by the Group, e.g. collective investment schemes (carried as investments at fair value in terms of SA GAAP). The financial impact of the changes in accounting policies is disclosed in the IFRS Reconciliation of Equity and Earnings on pages 28 to 32. IFRS RECONCILIATION OF EQUITY AND EARNINGS Notes refer to the notes on pages 31 to 32. 2004 R million
Reconciliation of reported earnings: Attributable earnings reported under SA GAAP 3 283 Withdrawal of AC121: Difference between fair value-based earnings and equity-accounted earnings for the shareholders" fund"s investment in: Absa (1) (2 942) Peermont (1) (246) Safair Lease Finance (1) 67 Change in value shortfall of the policyholders" fund"s investment in: Absa (1) (384) Santam (2) 46 Vukile (2) (71) Satrix (2) (113) Sanlam (3) (632) Elimination of dividend paid to policyholders (3) (60) Adoption of IFRS: New business strain from investment contracts (4) (13) Share based payments (5) (51) Goodwill amortisation (6) 328 Goodwill impairment (6) (42) Reclassification of available for sale investments 3 588 (7) Profit attributable to shareholders" fund under 2 758 IFRS IFRS RECONCILIATION OF EQUITY AND EARNINGS (continued) 31 December 2004
Assets Liabilities Minority Shareholders" shareholders" fund interest R million R million R million R million
Reconciliation of equity: Reported under SA GAAP 228 024 197 586 2 796 27 642 Withdrawal of AC121: Reduction in carrying value of shareholders" fund"s investment in: Absa (1) (5 456) (783) (23) (4 650) Peermont (1) (386) (67) - (319) Safair Lease Finance (1) (225) - - (225) Reduction in carrying value of policyholders" fund"s investment in: Absa (1) (613) (34) - (579) Santam (2) (90) - - (90) Vukile (2) 2 140 1 483 728 (71) Satrix (2) 483 739 - (256) Sanlam (3) (1 824) - - (1 824) Consolidation of 2 539 2 507 32 - investment vehicles (8) Elimination of inter- (897) (897) - - company transactions (9) Reclassification of (258) (258) - - policy loans (10) Adoption of IFRS: Change in carrying value - 1 270 (2) (1 268) of investment contracts (4) Recognition of deferred 994 - - 994 acquisition costs asset (4) Tax effect of change in 80 - - 80 investment contract valuation basis (4) Goodwill amortisation (6) 358 - 30 328 Goodwill impairment (6) (48) - (6) (42) Reclassification of long- 318 318 - - term reinsurance assets (11) Revaluation of trading (42) - - (42) account assets and liabilities (12) Change in carrying value 14 - 7 7 of other associated companies (13) Reclassification of cell - 47 (47) - owners" interest (14) Reclassification of term 169 169 - - finance (15) Reported under IFRS 225 280 202 080 3 515 19 685 IFRS RECONCILIATION OF EQUITY AND EARNINGS (continued) 1 January 2004 Assets Liabilities Minority Shareholders"
shareholders" fund interest R million R million R million R million Reconciliation of equity: Reported under SA GAAP 196 056 172 438 1 931 21 687 Withdrawal of AC121: Reduction in carrying value of shareholders" fund"s investment in: Absa (1) (1 822) (148) (8) (1 666) Peermont (1) (91) (18) - (73) Safair Lease Finance (1) (292) - - (292) Reduction in carrying value of policyholders" fund"s investment in: Absa (1) (206) (11) - (195) Santam (2) (136) - - (136) Vukile (2) - - - - Satrix (2) 547 690 - (143) Sanlam (3) (1 344) - - (1 344) Consolidation of 1 418 1 404 14 - investment vehicles (8) Elimination of inter- (375) (375) - - company transactions (9) Reclassification of (207) (207) - - policy loans (10) Adoption of IFRS: Change in carrying value - 1 092 - (1 092) of investment contracts (4) Recognition of deferred 836 - - 836 acquisition costs asset (4) Tax effect of change in 75 - - 75 investment contract valuation basis (4) Goodwill amortisation - - - - (6) Goodwill impairment (6) - - - - Reclassification of long-232 232 - - term reinsurance assets (11) Revaluation of trading (42) - - (42) account assets and liabilities (12) Change in carrying value 14 - 7 7 of other associated companies(13) Reclassification of cell - - - - owners" interest (14) Reclassification of term - - - - finance (15) Reported under IFRS 194 663 175 097 1 944 17 622 IFRS RECONCILIATION OF EQUITY AND EARNINGS (continued) Notes on IFRS implementation adjustments: Investments in associated companies and joint venture The Group"s investments in Absa, Peermont and the Safair Lease Finance joint venture were recognised at fair value in terms of SA GAAP. IFRS does not allow the continued use of a fair value basis for these investments, resulting in a reduction in the carrying value from fair value to an equity-accounted valuation. Reported earnings are adjusted with the difference between the fair value-based investment return and equity-accounted earnings. Policyholders" fund"s investment in subsidiaries In terms of SA GAAP the policyholders" fund"s investments in Santam and Vukile, subsidiaries of the Sanlam group, and Satrix, now a consolidated fund, were accounted for as equity investments at fair value. In terms of IFRS the policyholders" interest must be consolidated and measured at net asset value. Reported earnings are adjusted with the difference between the fair value-based investment return and the consolidated earnings. Policyholders" fund"s investment in Sanlam shares In terms of SA GAAP the policyholders" fund"s investment in Sanlam Limited shares was accounted for as an equity investment at fair value. In terms of IFRS the policyholders" interest must be treated as treasury shares and recognised as a deduction from equity on consolidation. Reported earnings are adjusted with the investment return earned on the Sanlam shares held by policyholder portfolios. Measurement of investment policy contracts Investment contracts issued by Sanlam Life Insurance Limited were measured under SA GAAP using bases similar to the Financial Soundness Valuation (FSV) method. These contracts are valued at fair value in terms of IFRS, requiring an adjustment to their carrying value. The FSV valuation includes specific allowance for commission and other issuing costs. In a fair value environment, the FSV cost allowance is replaced by a deferred acquisition costs (DAC) asset in terms of IAS 18 Revenue. The new business strain, as well as the increase in the total net liability recognised in respect of investment contracts, result primarily from the difference between the incremental cost that can be capitalised to DAC in terms of IFRS and the level of cost allowance inherent to the FSV method. Share option costs IFRS 2 Share-based Payment requires the recognition of an income statement expense in respect of equity instruments granted to participants of the Group"s share incentive schemes. No income statement effect was recognised in terms of SA GAAP, except for administration costs incurred in respect of the schemes. Goodwill amortisation and impairment Goodwill in respect of business combinations with an agreement date prior to 31 March 2004 was amortised under SA GAAP and subject to an impairment review. Goodwill is not amortised under IFRS but subject to at least an annual impairment review. Goodwill amortised under SA GAAP during the 2004 financial year has been reversed in terms of IFRS 1. All goodwill has been tested for impairment as at 1 January 2004 and 31 December 2004. An additional impairment was required on 31 December 2004, mainly in respect of the Group"s international operations. Reclassification of available for sale investments In terms of SA GAAP (AC133) the Group classified the majority of its investments as `available for sale" and elected to transfer unrealised investment surpluses directly to equity. In terms of IFRS 1 the Group has reclassified these financial instruments as `at fair value through profit or loss" (refer to the Transitional provisions above). Unrealised investment surpluses formerly reported directly in equity have been transferred to the income statement. Consolidation of investment vehicles IFRS requires the consolidation of certain investment vehicles controlled by the Group, e.g. collective investment schemes, which were previously recognised at fair value in the Group balance sheet. Elimination of inter-company transactions Inter-company transactions at arm"s length, which do not influence the Group"s net earnings, were previously not eliminated from the results to fairly present the activities of the various businesses. In the absence of AC121 inter-company transactions are eliminated with no net impact on the shareholders" fund. Reclassification of policy loans Loans granted to policyholders were disclosed as separate assets under AC121. Loans with a legal right of set-off and where the intention is to settle the policy loan and policy liability on a net basis, must be offset in terms of IFRS. The affected loans have been reclassified from investment assets to long- term policy liabilities. Reclassification of long-term reinsurance assets Contracts entered into with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts were previously offset against long-term insurance contract liabilities. These reinsurance assets have been reclassified from long-term policy liabilities to a separate asset class in terms of the disclosure requirements of IFRS 4. Revaluation of trading account assets and liabilities The valuation of certain unquoted trading assets and liabilities was adjusted to comply with the requirements of the revised IAS 39, among others in respect of the treatment of day one profits. Change in carrying value of other associated companies The post acquisition equity-accounted earnings of certain associated companies have been changed as a result of the transition to IFRS. Reclassification of cell owners" interest Santam"s interests in cell insurance companies are not consolidated under IFRS, resulting in a reclassification of the cell owners" interest from minority shareholders" interest to a cell owners" liability. Reclassification of term finance The short-term portion of term finance formerly relating to the discontinued activities of Gensec Bank has been reallocated from working capital liabilities to term finance. In addition, term finance liabilities over properties held in unit-linked policyholder portfolios have been reallocated and disclosed separately from policyholder assets. EMBEDDED VALUE EMBEDDED VALUE 2005 2004 R million R million Sanlam group shareholders" fund at 30 592 29 782 fair value Adjustment for discounting capital 245 138 gains tax (1) Reverse goodwill and value of (1 328) (356) business acquired (2) Present value of strategic corporate (947) (883) expenses (3) Fair value of share incentive scheme (793) (799) (4) Adjustment for delayed tax relief on (60) - enhanced early termination benefits(5) STC deferred tax asset written down (79) (100) (6) Sanlam group shareholders" adjusted 27 630 27 782 net assets Net value of life insurance business 10 574 8 851 in-force (7) Value of life insurance business in- 12 542 10 285 force Individual business 11 485 9 147 Employee benefits 1 057 1 138 Cost of capital at risk (1 707) (1 400) Individual business (1 393) (1 128) Employee benefits (314) (272) Minority shareholders" interest in (261) (34) value of in-force Sanlam group embedded value 38 204 36 633 Embedded value per share (cents) (8) 1 615 1 344 Number of shares (million) (8) 2 366 2 726 Notes: Adjustment to allow for the delay before incurring the capital gains tax liability included in the fair value. Goodwill and value of insurance and investment contract business acquired (VOBA), relating to life insurance subsidiaries, are reversed from the net assets, as their value of in-force business is incorporated in the Group"s value of in-force business. At 31 December 2005 the adjustment was mainly in respect of African Life (R955 million) and Merchant Investors Assurance (R356 million). The December 2005 value has been calculated by multiplying the 2005 recurring corporate expenses not related to life business (after tax) of R115 million by the share price of 1519 cents and dividing by the headline earnings per share based on the long-term rate of return excluding extraordinary items of 184,4 cents. The fair value of the Sanlam share incentive scheme has been determined using a statistical model. Actual options outstanding have been valued based on the actual share price and dividend yield at the valuation date. At 31 December 2005 the financial statements allow for the full tax deduction of R180 million on the enhanced early termination benefit cost of R620 million in respect of Sanlam Life Insurance Limited. This adjustment allows for the time value effect of not realising the tax relief immediately. The deferred tax asset, relating to life insurance business, based on the unused STC credits, and included in the net asset value, is reversed as the value of in force business already includes an allowance for STC. The net value of life insurance business in-force at 31 December 2005 includes that of the African Life Group. The number of shares is after the effect of shares delisted and cancelled under the share buy back programme, as well as the dilution from the additional conversion rights vesting during the year in respect of the deferred shares held by Ubuntu-Botho 2. EMBEDDED VALUE EARNINGS 2005 2004
VALUE OF ADJUSTED TOTAL Total IN-FORCE NET ASSETS R MILLION R MILLION R MILLION R million
Embedded value from new life 709 (418) 291 321 insurance business (1) Earnings from existing life (450) 1 801 1 351 1 363 insurance business Expected return on value of in- 1 193 - 1 193 1 148 force business (2) Expected transfer of profit from (1 348) 1 348 - - value of in-force to adjusted net assets (3) Operating experience variations (314) 452 138 144 (4) Operating assumption changes 19 1 20 71 Embedded value earnings from life 259 1 383 1 642 1 684 operations Economic assumption changes (5) (287) (29) (316) 197 Tax changes (6) (144) (35) (179) - Investment variances 785 60 845 253 Exchange rate movements (7) 4 - 4 (37) Change in minorities shareholders" (20) - (20) (34) interest in value of in-force Growth from life insurance 597 1 379 1 976 2 063 business Investment return on shareholders" - 5 551 5 551 6 389 adjusted net assets (9) Change in fair value of share - 6 6 (368) incentive scheme Total embedded value earnings 597 6 936 7 533 8 084 before dividends paid, capital movements and cost of treasury shares acquired Acquired value of in-force 1 126 (1 126) - - business (8) Dividends paid - (1 363) (1 363) (1 082) Capital (share buy-back) / raised - (4 446) (4 446) 846 Cost of treasury shares acquired - (153) (153) (397) Change in Sanlam group embedded 1 723 (152) 1 571 7 451 value Growth from life insurance 22,3% 26,5% business as a % of beginning value of in-force Return on embedded value (9) 20,6% 27,7% Return on embedded value per share 24,4% 22,6% (10) Notes: The minority shareholders" interest in the net value of new business for 2005 amounted to R 0,2 million. This amount includes the expected return on both the starting value of in-force business and the accumulation of value of new business from point of sale to year-end. This amount is the expected, after tax, profit transfer to net assets from the value of in-force at the start of the year. (The expected after tax profit/(loss) transferred to net assets in respect of value of new business is not included). The main contributors to the operating experience variations are positive risk experience of R221 million, offset by higher than expected outflows from group stabilised bonus business resulting in a R96 million decrease in embedded value. Economic assumption changes at 31 December 2005 can be broken down into the following components: Lower bond yields and the reduced inflation gap assumption added R15 million to the embedded value. Changes to the long-term asset mix assumptions, in respect of: - policyholder funds, leading to a R130 million decrease in the embedded value; and - assets supporting capital at risk, leading to a R201 million decrease in the embedded value. The tax changes at 31 December 2005 can by broken down into the following components: - The change in the corporate tax rate from 30% to 29%, which added R167 million to the embedded value; - The allowance for secondary tax on companies (STC) is made by placing a present value on the tax liability generated by net cash dividends paid out by the life company. Previously it was assumed that over the long-term the proportion of cash dividends paid would reduce to a level of 50% from the current 100% level. We now assume that all future dividends will be paid in cash, increasing the deduction for future STC by R273 million; and - A strengthening of tax provisions leading to a R73 million decrease in embedded value. The principal exchange rates used to translate the operating results of foreign business are the same as used in the principal financial statements. The acquired value of in-force insurance business relates to the following: - At 1 January 2005 the carrying value of Safrican Insurance Company Limited was included in adjusted net assets. During 2005 the accompanying goodwill was reversed and replaced by value of in-force (R17 million), leaving adjusted shareholders" net assets of R9 million after minority interests, with no change to total embedded value. - At 31 December 2005 the total cost and carrying value relating to African Life Assurance Company Limited was reversed and replaced by its value of in-force (R1 109 million) and adjusted shareholders" net assets (R1 647 million). Total embedded value earnings before dividends paid, capital raised / share buy back and cost of treasury shares acquired, as a percentage of embedded value at the beginning of the period. The return on embedded value per share for 2005 includes the effect of shares delisted and cancelled under the share buy back programme, as well as the dilution from the additional conversion rights vesting during the year in respect of the deferred shares held by Ubuntu-Botho. 3. VALUE OF NEW LIFE INSURANCE BUSINESS 2005 2004 R million R million VALUE OF NEW BUSINESS: GROSS VALUE OF NEW BUSINESS 318 339 INDIVIDUAL BUSINESS - RSA 254 279 Employee benefits - RSA 56 46 International (1) 8 14 Cost of capital at risk (27) (18) INDIVIDUAL BUSINESS - RSA (13) (10) Employee benefits - RSA (10) (5) International (1) (4) (3) Net value of new business (2)(3)(5) 291 321 NEW BUSINESS PROFITABILITY RATIOS: Annual Premium Equivalent (APE) (4) 2 153 1 958 INDIVIDUAL BUSINESS - RSA 1 565 1 489 Employee benefits - RSA 445 356 International (1) 143 113 Present value of new business 16 533 15 357 premiums (4) INDIVIDUAL BUSINESS - RSA 11 246 11 096 Employee benefits - RSA 4 111 3 352 International (1) 1 176 909 Net value of new business (2)(3)(5) 291 321 INDIVIDUAL BUSINESS - RSA 241 269 Employee benefits - RSA 46 41 International (1) 4 11 APE margin 13,5% 16,4% INDIVIDUAL BUSINESS - RSA 15,4% 18,1% Employee benefits - RSA 10,4% 11,5% International (1) 2,8% 9,7% Present value of new business 1,8% 2,1% premium margin INDIVIDUAL BUSINESS - RSA 2,1% 2,4% Employee benefits - RSA 1,1% 1,2% International (1) 0,3% 1,2% Notes: International includes life insurance business of Sanlam Namibia and Merchant Investors Assurance. African Life is not included, as the company was acquired at the end of the 2005 financial year. Net value of new business includes minority interests of R0,2 million in 2005 (R2 million in 2004). APE (annual premium equivalent) is equal to new recurring premiums (excluding indexed growth premiums) plus 10% of single premiums. The profitability of new business is measured by both the ratio of value of new business (VNB) to APE, as well as to the present value of new business premiums The total charge to embedded value of R500 million, resulting from the enhanced early termination benefit agreement for savings business, includes the effect on the current year"s new business. Had the agreed future minimum standard applied for the whole of 2005, the new business embedded value figure would have been R14 million lower. 4. SENSITIVITY ANALYSIS AT 31 DECEMBER 2005 Gross Net value Change value of Cost of of in- from in-force capital force base business at risk business value
R million R million R million % VALUE OF IN-FORCE BUSINESS (1) BASE VALUE 12 262 (1 688) 10 574 Increase risk discount 11 717 (2 166) 9 551 (10) rate by 1,0% Decrease risk discount 13 179 (1 416) 11 763 11 rate by 1,0% Investment return (and 12 269 (1 580) 10 689 1 inflation) decrease by 1,0%, coupled with a 1,0% decrease in risk discount rate, and with bonus rates changing commensurately Investment return (and 11 368 (1 991) 9 377 (11) inflation) decrease by 1,0% and with bonus rates changing commensurately Non-commission 11 892 (1 675) 10 217 (3) maintenance expenses (excluding investment expenses) increase by 10% Discontinuance rates 12 037 (1 628) 10 409 (2) increase by 10% Mortality and morbidity 11 530 (1 663) 9 867 (7) increase by 10% for assurances, coupled with a 10% decrease in mortality for annuities Equity assets fall by 10% 11 700 (1 685) 10 015 (5) Notes: (1) Value of in-force sensitivity analysis includes African Life. Gross value of Cost of Net value Change new capital of new from
business at risk business base R million R million R million value % VALUE OF NEW BUSINESS (1) Base value 318 (27) 291 Increase risk discount 267 (30) 237 (19) rate by 1,0% Decrease risk discount 377 (22) 355 22 rate by 1,0% Investment return (and 327 (25) 302 4 inflation) decrease by 1,0%, coupled with a 1,0% decrease in risk discount rate, and with bonus rates changing commensurately Investment return (and 271 (29) 242 (17) inflation) decrease by 1,0% and with bonus rates changing commensurately Non-commission 292 (27) 265 (9) maintenance expenses (excluding investment expenses) increase by 10% Non-commission 282 (27) 255 (12) acquisition expenses increase by 10% Discontinuance rates 299 (26) 273 (6) increase by 10% Mortality and morbidity 249 (27) 222 (24) increase by 10% for assurances, coupled with a 10% decrease in mortality for annuities Notes: (1) The value of new business sensitivity analysis excludes African Life. 5. EMBEDDED VALUE METHODOLOGY Other than stated below, the embedded value methodology applied in preparing the embedded value report is consistent with the methodology used in the previous year. The most significant changes for the current period include: Revised assumptions for modeling future STC on net cash dividends; and Adjustments to assumed long-term asset mix assumptions for both policyholders" and shareholders" funds. These changes, together with other significant items of experience, have been highlighted and their effect quantified in the notes to the embedded value results tables. 6. ASSUMPTIONS Investment return and inflation The assumed investment return on assets supporting the policyholder liabilities and capital at risk are based on the long-term asset mix for these funds. Inflation indexation for individual life premiums is assumed to be equal to consumer price index inflation, while that for employee benefits is assumed to equal expected salary inflation. Unit cost inflation is assumed to be at the same level as salary inflation. Cost of capital at risk The assumed composition of the assets backing the capital at risk is consistent with Sanlam"s practice and with the long-term asset distribution when calculating the capital requirements. Decrements, expenses and bonuses Future mortality, morbidity and discontinuance rates and future expense levels are based on recent experience where appropriate. Future rates of bonuses for traditional participating business, stable bonus business and participating annuities are set at levels that are supportable by the assets backing the respective product asset funds at the respective valuation dates. The surrender and paid-up bases of South African life companies have been adjusted, where applicable, to reflect the minimum standards for early termination values agreed by the Life Offices" Association and National Treasury. In all other respects, future benefits have been determined on current surrender and paid-up bases. HIV/Aids Allowance is 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 proposed Professional Guidance Note 105, adjusted for the findings from subsequently released ASSA Aids models. Premiums on individual business are 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. Recurring expenses and project costs Future investment expenses are based on the current scale of fees payable by the Group"s life insurance companies to the relevant asset managers. To the extent that this scale of fees includes profit margins for Sanlam Investment Management, these margins have not been included in the value of in-force and new business. In determining the value of in-force business, the value of expenses for certain planned projects focusing on both administration and distribution aspects of the life insurance business has been deducted. These projects are of a short-term nature, although similar projects may be undertaken from time-to-time. No allowance has been made for the expected positive impact these projects may have on the future operating experience. Taxation Projected tax is allowed for at rates and on bases in accordance with the tax regimes applicable for each of the life businesses. Allowance is made for capital gains tax in South Africa. The assumed rollover period for realisation of investments is five years for property and equity assets supporting policy reserves. For property and equity assets supporting capital at risk the assumed rollover period is five years except for Santam where we assume a ten year rollover period. Allowance for secondary tax on companies (STC) is made by placing a present value on the tax liability generated by the net cash dividends paid out, that are attributable to the South African life companies. It is assumed that all future dividends will be paid in cash. Previously it was assumed that over the long-term the proportion of cash dividends paid would fall to a level of 50% from the starting 100% level. No allowance is made for tax changes announced by the Minister of Finance in his budget speech on 15 February 2006. SENSITIVITY ANALYSIS Risk premiums relating to mortality are assumed to be increased consistent with mortality experience (where appropriate). The mortality assumption relating to annuities is decreased, because a decrease in mortality increases the mortality risk on annuities. 7. GROSS INVESTMENT RETURN AND INFLATION Sanlam Life Merchant African BIHL (1) Insurance Investors Life (1) Limited 2005 2004 22005 2004 2005 2005
% % p.a. % % p.a. % % Fixed-interest 7,5 8,3 4,1 4,6 7,4 10,0 securities Equities and 9,5 10,3 6,6 7,0 9,4 12,0 offshore investments Hedged equities (2) 7,5 8,3 6,6 7,0 n/a n/a Property 8,5 9,3 6,6 7,0 8,4 11,0 Cash 5,5 6,3 4,1 4,6 5,4 8,0 Risk discount rate 10,0 10,8 7,8 8,3 10,9 13,5 Return on capital 7,8 9,1 4,1 4,6 7,9 11,0 at risk Unit cost and 4,0 4,3 3,0 3,0 4,4 7,0 salary inflation Consumer price 3,0 3,3 3,0 3,0 n/a n/a index inflation 8. LONG-TERM ASSET MIX FOR ASSETS SUPPORTING THE CAPITAL AT RISK Sanlam Life Merchant African BIHL(1) Insurance Investors Life(1) Limited
2005 2004 2005 2004 2005 2005 % % % % % % Equities 25 42 0 0 50 65 Hedged equities 35 26 0 0 0 0 Property 5 8 0 0 0 4 Fixed-interest 20 20 0 0 25 14 securities Cash 15 4 100 100 25 17 100 100 100 100 100 100 Notes: African Life = African Life Assurance Company Limited; BIHL = Botswana Insurance Holdings Limited. The assumed future return for these assets is lower than that of equities, which are not hedged, reflecting the cost of derivative instruments. GROUP SECRETARY JOHAN BESTER REGISTERED OFFICE 2 STRAND ROAD, BELLVILLE 7530, SOUTH AFRICA tELEPHONE +27 21 947-9111 FAX +27 21 947-8066 POSTAL ADDRESS PO BOX 1, SANLAMHOF 7532, SOUTH AFRICA REGISTERED NAME: SANLAM LIMITED (REGISTRATION NUMBER 1959/001562/06) JSE SHARE CODE: SLM NSX SHARE CODE: SLA ISIN NUMBER: ZAE000070660 INCORPORATED IN SOUTH AFRICA TRANSFER SECRETARIES: COMPUTERSHARE INVESTOR SERVICES 2004 (PROPRIETARY) LIMITED (REGISTRATION NUMBER 2004/003647/07) 70 MARSHALL STREET, JOHANNESBURG 2001, SOUTH AFRICA PO BOX 61051, MARSHALLTOWN 2107, SOUTH AFRICA TEL 086 1100 913 Fax +27 11 688-5201 WWW.SANLAM.CO.ZA Directors: R.C. Andersen (Chairman), P.T. Motsepe (Deputy Chairman), J. van Zyl (Group Chief Executive), M.M.M. Bakane-Tuoane, D.C. Brink, A.S. du Plessis, F.A. du Plessis, W.G. James, M.V. Moosa, P. de V. Rademeyer, M. Ramos, G.E. Rudman, R.V. Simelane, Z.B. Swanepoel, E. van As, J.J.M. van Zyl Date: 09/03/2006 08:07:10 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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