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SLM - Sanlam Limited - Operational Update - December 2008
Sanlam Limited
Incorporated in the Republic of South Africa
Registration number 1959/001562/06)
JSE share code: SLM
NSX share code: SLA
ISIN number: ZAE000070660
("Sanlam" or "the Group")
Operational Update - December 2008
Notwithstanding the challenging financial market and economic conditions, the
Group achieved satisfactory operating results for the ten months to October
2008, as reflected in the growth in new business volumes and continued Group net
cash inflows. The resilience of the Group`s results bears testimony to an
entrenched strategy of diversifying the Group`s operations, market segmentation
and solutions offering. The Group remains well capitalised and is well
positioned to take advantage of growth opportunities.
Business environment
The unfolding financial markets crisis continues to have marked repercussions in
the global economies. Although South African financial institutions have been
weathering the adverse conditions relatively well, the local economy with its
liquid currency and open investment markets is not impervious to these
international events. Weakening economic growth in South Africa, as well as the
impact of the high interest rate and inflation environment on consumers`
disposable income, has a commensurate unfavourable impact on Sanlam`s business
environment.
Highlights
Total new business volumes (excluding low margin white label business) increased
by some 7% on the first ten months of the 2007 financial year. The underlying
trends in the new business performance remained broadly similar to those
reported in the Group`s interim results announcement, with strong performances
in Sanlam Developing Markets recurring premium and Sanlam Personal Finance
single premium business in particular. The exception is some deterioration in
the level of growth in Sanlam Employee Benefits and Sanlam UK`s business
volumes. Core earnings per share for the ten months are in line with the
comparable period in 2007. Normalised headline earnings per share are down 86%,
reflecting the unfavourable investment returns on shareholders` funds. The JSE
All Share Index fell by 28% for the ten months to 31 October 2008 (compared to
an increase of 26% in the first ten months of the 2007 financial year) and by
more than 30% during the four months since 30 June 2008.
Capital
The Sanlam Board remains committed to optimising the capital structure of the
Group while sustaining acceptable solvency levels. Given the recent market
conditions, a prudent approach has been followed in the application of the
Group`s discretionary capital. Share buy-backs for the period since 30 June 2008
have been limited to 30,4 million Sanlam shares for a total consideration of
R526 million. A total of 50 million Sanlam shares held as treasury shares were
cancelled during September 2008, reducing Sanlam`s issued share capital to
2 190 million shares. The estimated Group Equity Value per share amounted to
approximately R20,50 per share on 31 October 2008, with the Sanlam share price
of R15,90 on that date representing a 22% discount compared to Group Equity
Value per share. Despite the prevailing market and economic conditions, all of
the Group operations remained well capitalised. Sanlam Life Insurance Limited`s
statutory capital covered its Capital Adequacy Requirements by 2,7 times on 30
September 2008.
Salient features of the Group`s performance for the ten months to October 2008
are:
New Business volumes
- Overall new business volumes are up 4% on 2007 (7% before white label), with
the strong growth in new life insurance business continuing at a level of some
15%.
- Sanlam Personal Finance recorded a 35% increase in SA single premiums, with
the strong demand for Glacier retirement and Topaz guaranteed plan and
contractual preservation fund solutions continuing. The high interest rate and
inflation environment also continues to impact on SA recurring premiums, which
are marginally up on the comparable period in 2007.
- Sanlam Developing Markets continued its strong performance of the first six
months of 2008. SA new recurring premiums increased by 27%, with the underlying
growth trends of the first six months also continuing. Single premiums are
lower, as expected, following the focus on recurring premium business. New
business volumes of the African operations are up more than 30% on 2007, with an
approximately equivalent contribution by recurring and single premiums.
- Sanlam UK new business sales increased by 19%.
- Sanlam Employee Benefits is adversely impacted by the extremely competitive
environment and recorded a decrease in new business sales.
- Overall, the average life new business margin for the ten months has been
retained at levels similar to the first six months of the financial year.
- Persistency in the middle market continues to show some strain, as expected
in the current environment.
- Gross investment business inflows are marginally up on 2007.
- Sanlam Personal Finance`s new investment business increased by more than
20%, including good growth in Namibian unit trust flows. Demand continues to
favour money market solutions in the current volatile investment market
environment.
- Gross investment flows in Sanlam Investments are down by 5%, mainly due to
lower multi-manager, international and collective investments business flows.
SIM`s assets under management amounted to R415 billion on 31 October 2008.
- Net fund inflows of some R10,4 billion (excluding white label) are
particularly satisfactory in the current environment. Individual life net flows
remain positive, with a deterioration in Sanlam Employee Benefits net outflows,
as a result of the lower new business performance, contributing to a marginal
overall net outflow of life business.
Earnings
- Net result from financial services for the ten months is down 6% on 2007.
- Sanlam Personal Finance, Sanlam Employee Benefits and Santam achieved solid
performances.
- Sanlam Developing Markets` performance continues to be impacted by new
business strain from its strong new recurring premium performance, some costs
associated with the closure of the Channel call centre and lower equity markets
in Botswana. Excluding the impact of new business strain, Sanlam Developing
Markets recorded a strong result.
- As expected, volatile equity markets and a reduction in performance fees
earned continues to have an adverse impact on Sanlam Investments` results, with
growth in net operating profit in line with the interim results. Sanlam Capital
Markets experienced some deterioration in performance due to a substantial
slowdown in deal flow as well as the unprecedented level of market volatility.
- MiWay continues to perform in line with expectations.
- Core earnings per share are in line with 2007.
- Normalised headline earnings per share are down 86%, primarily due to the
negative investment market performance but also partially attributable to a
lower capital base following the share buy backs in 2007 and 2008.
- Share buy backs resulted in an 8% reduction in the comparable adjusted
weighted average number of shares in issue (net of treasury shares).
Outlook
The challenging financial and economic conditions are not expected to abate for
the remainder of the year, and are likely to impact on growth in the Group`s key
operational performance indicators. The overall level of growth in new business
volumes is slowing down in a difficult business environment and is not expected
to persist at the levels of the first ten months. Sanlam Developing Markets`
full year low margin single premium business in South Africa will be down on
2007, in line with the refocusing of their business.
Shareholders need to be aware of the impact of financial market volatility on
Group earnings and Group Equity Value. Market movements towards the end of
December 2008 may have a major impact on the level of Group earnings to be
reported for the full 2008 financial year.
The information in this operational update has not been reviewed or reported on
by Sanlam`s auditors. Sanlam`s annual results for the year ended 31 December
2008 are due to be released on 5 March 2009. Shareholders are advised that this
is not a trading statement as per section 3.4(b) of the JSE Listings
Requirements.
A conference call for analysts, investors and the media will take place at 17h00
(South African time) today. Analysts, investors and members of the media who
wish to participate in the conference call should dial the following numbers:
Live call
South Africa Toll 011 535 3600
Toll-free 0800 200 648
USA Toll 1 412 858 4600
Toll-free 1800 860 2442
UK Toll-free 0800 917 7042
Playback - code 2560#
South Africa & Other + 27 11 305 2030
USA 1 412 317 0088
UK 0808 234 6771
Bellville
3 December 2008
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 03/12/2008 16:00:01 Supplied by www.sharenet.co.za
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