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SLM - Sanlam Limited - Operational Update - December 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 - December 2009
The demanding business environment experienced in the first six months of the
year continued unabated during the four months ended 31 October 2009. Given
these challenging conditions the Group continued to record satisfactory
operating results. Particularly pleasing are the resilient new business volumes,
sustained average new life business margins and the level of client retention,
as is evident in strong net business flows and satisfactory persistency levels.
Business environment
The economic conditions in our target markets remain depressed as the aftermath
of the global financial crisis continues to impact on the business fortunes of
developing economies in particular. Early signs of recovery in the developed
economies are encouraging and bode well for a step up in the outlook for
sustainable economic growth. This is however expected to take some time to
manifest in any meaningful improvement in the developing world. The South
African economy is expected to follow a similar recovery path with real upside
only likely towards the middle of 2010.
International investment markets have recovered sharply since the end of June
2009 based on the expected turnaround in the global economy. Even though this is
supported by early evidence of improved company earnings there is some doubt
about the sustainability of the current market levels.
Highlights
Total new business volumes (excluding low margin white label business) increased
by 2% on the first ten months of the 2008 financial year. The rest of Africa
life insurance businesses continued to perform well, while risk underwriting and
institutional new business volumes continued to be the main drivers of the
overall growth in South African new business sales. Pressure on the retail
middle-income market in South Africa persisted, with the contractual savings in
Sanlam Personal Finance and retail collective investments new business volumes
being impacted in particular. Sanlam UK new business sales volumes remain
depressed.
Core earnings per share for the ten months ended 31 October 2009 are 1% lower
than the comparable period in 2008. The strong investment market performance for
the year to date is in sharp contrast to the deterioration in equity markets
experienced during the ten months to October 2008. This had a major positive
impact on the relative net investment return earned on the capital portfolio,
resulting in a five-fold increase in normalised headline earnings per share for
the ten months.
Capital
The Group continued with its cautious capital management approach. The
utilisation of discretionary capital since the end of June 2009 was limited to
R190 million, essentially used in respect of the capitalisation of the Indian
joint venture investment businesses with SMC, the acquisition of the PSG Group`s
interest in MiWay and a further contribution to fund MiWay`s start-up losses.
The share buy-back programme remained suspended. All of the Group operations
remain well capitalised. Sanlam Life Insurance Limited`s statutory capital
covered its Capital Adequacy Requirements by 2,8 times on 30 September 2009.
Santam`s solvency remained within its target range of 35% to 45%.
Salient features of the Group`s performance for the ten months to October 2009
are:
New Business volumes
- Overall new business volumes (based on 100% of recurring and single
business volumes), excluding white label, are up 2% on the comparable
period in 2008, with a strong contribution from institutional fund flows.
- New life business volumes decreased by 6% compared to the first ten months
of 2008.
- Sanlam Personal Finance recorded a 6% decrease in new life business sales,
with both Glacier and Topaz South African business reflecting improved
levels of growth compared to those reported in the 2009 interim results.
The impact of the continued pressure on consumers` disposable income is,
however, still evident. Risk underwriting business remains more resilient
in the current environment and recorded a 10% increase compared to the
first ten months of 2008.
- Sanlam Developing Markets reported growth of 13% in its new business
volumes for the first ten months of 2009, a particularly satisfactory
result. South African recurring premiums increased by 6%, with the
deliberate scaling down of low margin direct sales continuing to limit the
overall level of growth. The African operations recorded strong growth of
37%, with recurring premiums increasing by 33% and single premiums by 40%.
Shriram Life`s new business performance remained in line with that of the
first half of the year.
- The economic environment in the United Kingdom remained weak, with investor
risk aversion being prevalent. Sanlam UK`s new life business volumes
decreased by 43% as a result.
- Sanlam Employee Benefits` new business performance improved since the end
of June. New business volumes decreased by 5% on the first ten months of
2008, compared to a decrease of 47% for the first six months of the year.
Recurring premiums increased by 66%, with single premiums decreasing by
33%.
- The average life new business margin for the ten months increased
marginally compared to the first half of 2009.
- Persistency in the middle market remains within acceptable levels, with no
marked negative experience variances for the Group.
- 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, which decreased by 7%.
Unit trust sales in Namibia remained resilient and were only marginally
down on the high base of 2008.
- Gross investment flows in Sanlam Investments increased by 7%, supported by
strong performances from Sanlam Private Investments and the International
operations. The Sanlam Private Investments performance includes a once-off,
low margin inflow of some R1 billion. However, even excluding this inflow,
its performance reflects a significant improvement since the end of June.
Institutional collective investments new business volumes slowed down, as
expected. This contributed to an overall slowdown in Sanlam Collective
Investments growth, but still positive on an overall basis. Sanlam
Investments` assets under management amounted to R443 billion on 31 October
2009.
- Net fund inflows of R13,5 billion (excluding white label) are particularly
satisfactory in the current environment. Life net fund flows improved from
a marginal net inflow in 2008 to R1,6 billion in 2009.
Earnings
- Net result from financial services for the ten months to 31 October 2009 is
down 7% on 2008.
- Sanlam Personal Finance achieved a solid performance taking cognisance of
the impact of lower interest rates and fund based fee income on its
financial services income.
- Sanlam Capital Markets continued to outperform significantly compared to
its 2008 results.
- Sanlam Developing Markets` contribution was negatively impacted by once-off
items, including restructuring costs associated with the integration of the
Channel Life and Sanlam Sky operations.
- Santam`s results continue to be impacted by the large commercial claims
during the first few months of 2009.
- Volatile equity markets and overall lower market levels 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 1% lower than 2008.
- Normalised headline earnings per share for the ten months to October 2009
increased five-fold, primarily due to the relatively strong investment
market performance for the period compared to a very low comparative base
in 2008. Markets were at a low point at the end of October 2008 but
recovered towards the end of the 2008 financial year which should, together
with continued market volatility, impact on the headline earnings growth to
be reported for the full year.
Outlook
The challenging economic environment is 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.
The information in this operational update has not been reviewed or reported on
by Sanlam`s external auditors. Sanlam`s annual results for the year ended 31
December 2009 are expected to be released on 11 March 2010. Shareholders are
advised that this is not a trading statement as per section 3.4 of the JSE
Listings Requirements.
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 17h00 (South African
time).
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
2 December 2009
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 02/12/2009 16:00:02 Supplied by www.sharenet.co.za
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