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SLM/SLA - Sanlam Limited - Operational update - June 2009
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 - June 2009
The diversification of the Group into different market segments and solutions
offerings is reflected in resilient new business levels (+2% excluding white
label), new business margins being maintained at similar levels to 2008 and
continued Group net inflows (including net life inflows) for the four months to
30 April 2009. These results were achieved amidst extremely challenging
financial and economic conditions.
Challenging business environment
Despite a slight recent recovery in global equity markets, the financial and
economic impact of the global financial market crisis continued unabated during
the first four months of 2009, as evidenced by negative earnings reports being
the order of the day. The slowdown in the world`s largest economies has resulted
in lower demand for resources, and hence negatively impacting on the growth of
the commodity based economies in which the Group operates. The South African
economy is no exception and a general slowdown in economic growth and pressure
on consumers` disposable income is evident in consumer spending statistics. The
interest rate cuts announced by the South African Reserve Bank over the last few
months should provide some relief to consumers, but it is likely to take some
time before this will be evident in increased consumer demand.
Highlights
Total new business volumes (excluding low margin white label business) increased
by 2% compared to the first four months of the 2008 financial year. The pressure
on consumer spending is most evident in the retail middle-income market, with
Sanlam Personal Finance, Sanlam Private Investments and our businesses in the
United Kingdom experiencing a slowdown in respect of savings and investment-
related business volumes. Risk underwriting and institutional new business
volumes are proving to be more resilient and recorded a satisfactory performance
in the current environment. Core earnings per share for the four months to 30
April 2009 are 6% lower than the comparable period in 2008. Normalised headline
earnings per share are down 23%, reflecting a continuation of the negative
investment market performance in 2009. The FTSE/JSE All Share Index lost 4% of
its value (excluding dividends) for the four months to 30 April 2009, compared
to an increase of 6% in the first four months of the 2008 financial year.
Capital
As indicated in the Group`s 2008 annual report, a more cautious approach is
being followed in the application of the Group`s discretionary capital in the
current financial and economic environment. In line with this, the share buy-
back programme was suspended during 2008. Significant utilisation of
discretionary capital for corporate activity during 2009 was limited to the
acquisition of the minority interests in Channel Life for some R200 million. A
total of 30 million Sanlam shares held as treasury shares were cancelled during
March 2009, reducing Sanlam`s issued share capital to 2 160 million shares. All
of the Group`s operations remain well capitalised. Sanlam Life Insurance
Limited`s statutory capital covered its Capital Adequacy Requirements by 2,4
times as at 31 March 2009, after allowing for the dividend payable to Sanlam
Limited in respect of the 2008 financial year. The Group remains well positioned
to take advantage of growth opportunities.
Salient features of the Group`s performance for the four months to 30 April 2009
are:
New Business volumes
* Overall new business volumes, excluding white label, are up 2% on the
comparable period in 2008, with a strong contribution from institutional
and non-South African fund flows.
* New life business volumes decreased by 5% compared to the first four
months of 2008.
- Sanlam Personal Finance recorded a 15% decrease in new life business
sales, with both Glacier and Topaz South African business negatively
impacted by the pressure on consumers` disposable income. Risk
underwriting business is more resilient in the current environment and
recorded an 8% increase compared to the first four months of 2008.
- Sanlam Developing Markets reported growth of 5% in its new business
volumes for the first four months of 2009. This growth has been
impacted by the discontinued new single premium business in Sanlam Sky
Solutions. Excluding these, Sanlam Developing Markets recorded an 11%
growth in new business sales. South African recurring premiums
increased by only 2%, in particular due to the deliberate scaling down
of low margin direct sales. New business volumes of the African
operations are up more than 30% on 2008, with recurring premiums
increasing by more than 50%. The slowdown in economic growth in Africa
is expected to impact negatively on the continuation of these growth
trends. The Indian market is also not escaping the impact of the
economic downturn and Shriram Life`s new business flows for the four
months are 16% lower than in 2008.
- The economic environment in the United Kingdom continued to weaken
during 2009, with investors remaining cautious. This contributed to a
53% decrease in Sanlam UK`s new life business volumes.
- Sanlam Employee Benefits continues to be adversely impacted by the
extremely competitive environment and recorded a decrease in new
business sales. This is, however, attributable to lower single premium
business, which is more volatile in nature. Recurring premium business
is up on 2008.
- Overall, the average life new business margin for the four months has
been retained at levels similar to the first half of 2008.
- Persistency in the middle market is continuing to show some strain, as
expected in the current environment, but remains within acceptable
levels. In this regard, there have been no material basis changes
required to the valuation basis.
* Gross investment business inflows are 4% higher than in 2008.
- The strain on disposable income is also evident in Sanlam Personal
Finance`s new investment business in South Africa. This was, however,
offset by strong unit trust sales in Namibia, with an overall 2%
decline in new business.
- Gross investment flows in Sanlam Investments increased by 4%,
supported by an increase in the equity mandate of the Public
Investment Corporation. Sanlam Collective Investments also recorded
satisfactory growth, the combined effect of a slight decrease in
retail business and strong wholesale volumes. SIM`s assets under
management amounted to R408 billion on 30 April 2009.
* Net fund inflows of some R2,7 billion (excluding white label) are
particularly satisfactory in the current environment. This includes
outflows of R4,5 billion relating to low margin custody business at
Sanlam Private Investments, which will have a negligible effect on the
fee base. Excluding this specific transaction, net fund inflows increased
from R6,6 billion in 2008 to R7,2 billion in 2009. Life net fund flows
remain positive.
Earnings
* Net result from financial services for the four months is down 7% on
2008.
- Sanlam Personal Finance, Sanlam Developing Markets and Sanlam Capital
Markets achieved solid performances.
- Santam has been impacted by large commercial claims during the first
few months of 2009, a general trend experienced in the industry. This
had a negative impact on Santam`s underwriting result.
- As expected, volatile equity markets, overall lower market levels and
a reduction in performance fees earned continue to have an adverse
impact on Sanlam Investment`s results, with net operating profit
decreasing in line with the overall lower average level of assets
under management.
* Core earnings per share are 6% lower than 2008.
* Normalised headline earnings per share are down 23%, primarily due to the
negative investment market performance.
* Share buy-backs during 2008 resulted in a 6% reduction in the comparable
adjusted weighted average number of shares in issue (net of treasury
shares).
Outlook
The challenging financial and economic environments are expected to continue for
the remainder of the year and into 2010, and are likely to impact on growth in
the Group`s key operational performance indicators. Shareholders need to be
aware of the impact of financial market volatility on Group earnings and Group
Equity Value. Relative market movements may have a major impact on the growth in
Group earnings to be reported for the full 2009 financial year.
The information in this operational update has not been reviewed or reported on
by Sanlam`s auditors. Sanlam`s interim results for the six months ended 30 June
2009 are due to be released on 3 September 2009. Shareholders are advised that
this is not a trading statement as per section 3.4 of the JSE Listings
Requirements.
Conference call
A conference call for analysts, investors and the media will take place at 17h00
(South African time) today. Investors and media who wish to participate in the
conference call should dial the following numbers:
Audio dial-in facility
A toll free dial-in facility will be available. We kindly advise callers to dial
in 5 - 10 minutes before the conference call starts at 17:00.
Access numbers for participants dialing live from their country:
South Africa and other Toll +27 (0)11 535 3600
Toll-free 0800 200 648
USA Toll 1 412 858 4600
Toll-free 1 800 860 2442
UK Toll-free 0800 917 7042
Recorded playback will be available for three days after the conference.
Access Numbers for Recorded Playback:
Access code for recorded playback: 2560#
South Africa and other Toll +27 (0)11 305 2030
USA Toll 1 412 317 0088
UK Toll 0808 234 6771
For further information on Sanlam, please visit our website at www.sanlam.co.za
Bellville
3 June 2009
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 03/06/2009 13:55:02 Supplied by www.sharenet.co.za
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