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SLM - Sanlam Group - Audited results for the year ended 31 December 2009

Release Date: 11/03/2010 08:00
Code(s): SLM
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SLM - Sanlam Group - Audited results for the year ended 31 December 2009 SANLAM GROUP (INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA) (REGISTRATION NUMBER 1959/001562/06) JSE SHARE CODE (PRIMARY LISTING): SLM NSX SHARE CODE: SLA ISIN: ZAE000070660 ("Sanlam" or "the Group") Audited results for the year ended 31 December 2009 Contents Overview Key features Salient results Executive review Comments on the results Group financial statements Accounting policies and basis of presentation External audit Shareholders` information Group Equity Value Shareholders` fund at fair value Shareholders` fund income statement Notes to the shareholders` fund information Embedded value of covered business Group financial statements Statement of financial position Statement of comprehensive income Statement of changes in equity Cash flow statement Notes to the financial statements Administration Sanlam Group Annual Results December 2009 Key features Earnings - Net result from financial services per share decreased by 1% - Core earnings per share down 3% - Normalised headline earnings per share up 133% Business volumes - New business volumes up 3% to R103 billion - Value of new covered business down 1% to R689 million - New covered business margin of 2,61% - Net fund inflows of R15,5 billion, up 70% Group Equity Value - Group Equity Value per share up 12% to R24,73 - Return on Group Equity Value per share of 16,2% Capital management - Discretionary capital of R3,5 billion at 31 December 2009 - Sanlam Life CAR cover of 3,1 times Salient results For the year ended 31 December 2009 2009 2008 % change
SANLAM GROUP Earnings Net result from financial services cents 132,2 133,8 -1% per share Core earnings per share (1) cents 179,7 184,8 -3% Normalised headline earnings per cents 218,9 93,9 133% share (2) Diluted headline earnings per share cents 218,8 132,2 66% Net result from financial services R million 2 714 2 802 -3% Core earnings (1) R million 3 690 3 870 -5% Normalised headline earnings (2) R million 4 494 1 966 129% Headline earnings R million 4 438 2 702 64% Group administration cost ratio (3) % 27,6 28,4 Group operating margin (4) % 16,9 18,4 Business volumes New business volumes R million 102 928 100 136 3% Net fund flows R million 15 499 9 122 70% New covered business Value of new covered business R million 689 698 -1% Covered business PVNBP (5) R million 26 365 26 033 1% New covered business margin (6) % 2,61 2,68 GROUP EQUITY VALUE Group Equity Value R million 51 024 45 238 13% Group Equity Value per share cents 2 473 2 213 12% Return on Group Equity Value per % 16,2 (1,7) share (7) Adjusted return on Group Equity % 13,1 12,4 Value per share Sanlam Life Insurance Limited Shareholders` fund R million 37 036 34 419 Capital Adequacy Requirements (CAR) R million 7 675 8 075 CAR covered by prudential capital times 3,1 2,7 Notes (1) Core earnings = net result from financial services and net investment income (including dividends received from non-operating associates). (2) Normalised headline earnings = core earnings, net investment surpluses, secondary tax on companies and equity-accounted headline earnings less dividends received from non-operating associates, but excluding fund transfers. Headline earnings include fund transfers. (3) Administration costs as a percentage of income after sales remuneration. (4) Result from financial services as a percentage of income after sales remuneration. (5) PVNBP = present value of new business premiums and is equal to the present value of new recurring premiums plus single premiums. (6) New covered business margin = value of new covered business as a percentage of PVNBP. (7) Growth in Group Equity Value per share (with dividends paid, capital movements and cost of treasury shares acquired/reversed) as a percentage of Group Equity Value per share at the beginning of the period. Executive review The Sanlam Group delivered a solid and stable performance in 2009 - a year heavily scarred by turmoil in world financial markets, the magnitude of which claimed unprecedented victims late in 2008. The resilience of Sanlam`s business model stood out clearly with our persistence commended by both shareholders and analysts. Business environment The turmoil in the international financial markets had an ongoing impact on the Sanlam business environment in 2009. Prudent policies and practices shielded the Group from major financial losses, but could not prevent our 2009 new business volumes and operating results being affected by the challenging economic conditions experienced in all areas in which the Sanlam Group operates. Investment markets have a material impact on the Group`s reported results. Similar to international trends, the South African equity market experienced huge volatility in 2009. After losing 14% in the first two months of 2009, the FTSE JSE All Share Index recovered on the back of increasing local and international demand to record an overall gain of 29% for the year compared to a loss of 26% in 2008. This had a positive impact on portfolio returns achieved for the year and in particular also on the investment return on shareholder funds reported in headline earnings. However, the average FTSE JSE All Share Index level for the year was still 15% lower than in 2008, which impacted negatively on the Group`s asset-based revenue. Long-term interest rates increased from the beginning of 2009, which is reflected in the 1% negative All Bond return in 2009, compared to a return of 17% in 2008. Short-term interest rates decreased in line with the reduction in the South African Reserve Bank`s repo rate, which had a negative impact on the interest earned on working capital. The rand strengthened against most of the currencies of the other countries in which we operate. This had a negative impact on the translated rand results of these entities. Against the British pound the rand strengthened by 11% from R/GBP13,33 at the end of December 2008 to R/GBP11,89 at the end of 2009 and against the Botswana pula from R/P1,26 to R/P1,13. Performance review In the context of the challenging environment, the Group achieved a pleasing operational performance for the 2009 financial year. The primary performance target of the Group is to optimise shareholder value through maximising the return on Group Equity Value (ROGEV) per share. This measure of performance is regarded as the most appropriate given the nature of the Group`s business and incorporates the result of all the major value drivers in the business. A target has been set for the ROGEV per share to exceed the Group`s cost of capital on a sustainable basis. The ROGEV per share of 16,2% achieved in 2009 comfortably exceeded the target of 11,3%, in part owing to the positive impact of the strong equity market. The adjusted ROGEV, i.e. assuming a normalised investment market performance and excluding any once-off items, for 2009 amounted to 13,1%, also well ahead of target. Total new business volumes for 2009 of R103 billion are 3% higher than in 2008. After a relatively flat first half performance, new business volumes improved by 5% in the second half on those achieved in the comparable period in 2008. Net inflows of R15,5 billion are well up on the R9,1 billion achieved in 2008, which is testimony to the Group`s positive fund retention and persistency experience. Value of new covered business of R689 million is down 1% at a marginally lower average margin of 2,61%. Core earnings of R3 690 million are 5% lower than in 2008, the combined effect of a 3% decrease in the net result from financial services and a 9% decline in net investment income earned on the capital portfolio. The relatively lower base of assets under management impacted on the growth in fee income and the profitability of especially the investment management businesses. This was further aggravated by deterioration in the claims experience at Santam. Core earnings per share decreased by a lower 3%, attributable to a 2% reduction in the weighted average number of shares in issue. The investment return earned on the Group`s capital portfolio improved significantly compared to the negative performance in 2008, supported by the strong investment market gains in particularly the second half of the 2009 financial year. Normalised headline earnings per share benefited from the turnaround in investment returns and increased by 133% on 2008. Delivering on strategy Our strategy, which has proved to be resilient and sustainable, was fundamental in distinguishing our performance from that of many of our peers in 2009. Our strategy will therefore continue to centre around five pillars: optimal capital utilisation, earnings growth, costs and efficiencies, diversification and transformation. We maintained our prudent approach to the application of discretionary capital and focused on further optimising the capital base of the Group. Limited investments were made in existing operations and future growth markets during the period under review. As a result Sanlam now has discretionary capital of R3,5 billion. While it was prudent to use this capital as a buffer during 2009, we will be looking for profitable growth opportunities and other ways of efficiently redistributing some of this capital in 2010. Ongoing focus on reducing costs, while at the same time upping efficiencies, significantly buffered our operations when the economy and financial markets were placed under intense pressure by global events. Given the increased strain on capital in 2009, we intensified our efforts. Sanlam Investments and Sanlam Personal Finance, which have been impacted most by lower assets under management and new business volumes, made a concerted effort to reduce costs even further. Containment of costs in all other business units was also a priority, although not to the detriment of future growth opportunities. Diversification is key to ensuring sustainable future growth. The successful diversification of our business since 2003 has helped us achieve a significant rebalancing of our mix of new business, with an increasing contribution (83%) channelled via our non-life operations. Our geographic diversification through Sanlam Developing Markets once again paid off. The majority of operations within this business cluster delivered reasonable new business results in 2009 despite the tough economic conditions experienced by most of the markets in which these businesses operate. In 2009 Sanlam Investments bedded down its joint venture with SMC, India`s fourth largest securities broking house. Sanlam International Investment Partners also formed an investment partnership with UK-based investment manager, FOUR Capital Partners. In terms of the partnership, Sanlam acquired an initial equity interest of 29,9% in the firm. The transaction is in line with our strategy of acquiring stakes in specialist asset managers in selected global markets. Transformation remains one of the key pillars of Sanlam`s business strategy, because only true qualitative change across all spheres of our business will facilitate sustainable growth into the future. Looking ahead Dedicated focus on all five pillars of our strategy helped us to achieve sustainable higher returns for the Group. But the biggest mistake we could make now would be to rest on our laurels. We have proved to our shareholders, clients and other stakeholders that we are a world-class operation. We are now in a good position to accelerate our journey of transformation. We would like to share the view of the optimists in their outlook for 2010, but remain concerned that the worst is not necessarily behind us and that the South African economy may still see further job losses this year. Inflation is likely to stay under pressure largely as a result of Eskom`s tariff hikes, the oil price and wage demands. In our view the true bottom may well still be ahead of us, with a delayed recovery towards the end of this year. How does this impact on our growth ambitions' While 2010 will not be an easy year, we do believe that we are well placed to deliver another set of solid results this year. We remain well positioned to achieve the sustainable growth for which we have positioned the Group over the past seven years. Forward-looking statements In this report we make certain statements that are not historical facts and relate to analyses and other information based on forecasts of future results not yet determinable, relating, amongst others, to new business volumes, investment returns (including exchange rate fluctuations) and actuarial assumptions. These are forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. Words such as "believe", "anticipate", "intend", "seek", "will", "plan", "could", "may", "endeavour" and "project" and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve inherent risks and uncertainties and, if one or more of these risks materialise, or should underlying assumptions prove incorrect, actual results may be very different from those anticipated. Forward-looking statements apply only as of the date on which they are made, and Sanlam does not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. Comments on the results Introduction The Sanlam Group results for the year ended 31 December 2009 are presented below. Group Equity Value (GEV) GEV is the aggregate of the following components: - The embedded value of covered business, being the life insurance businesses of the Group, which comprises the required capital supporting these operations and the net present value of their in-force books of business (VIF); - The fair value of other Group operations based on longer term assumptions, which includes the investment management, capital markets, credit, short-term insurance and the non-covered wealth management operations of the Group; and - The fair value of discretionary and other capital. GEV provides an indication of the value of the Group`s operations, but without placing any value on future new covered business to be written by the Group`s life insurance businesses. Sustainable return on GEV is the primary performance benchmark used by the Group in evaluating the success of its strategy to maximise shareholder value. Group Equity Value at 31 December 2009 December 2009 December 2008 R million Total Fair Value of Total Fair Value value of in force value of of in assets assets force
Embedded value 28 988 14 247 14 741 28 591 15 013 13 578 of covered business Sanlam 19 884 8 098 11 786 19 574 8 275 11 299 Personal Finance Sanlam 3 479 1 363 2 116 2 796 1 032 1 764 Developing Markets Sanlam UK 665 217 448 680 234 446 Sanlam 4 960 4 569 391 5 541 5 472 69 Employee Benefits Other group 17 227 17 227 - 13 560 13 560 - operations Retail 2 707 2 707 - 2 287 2 287 - cluster Institutional 7 371 7 371 - 6 000 6 000 - cluster Short-term 7 149 7 149 - 5 273 5 273 - insurance Capital (700) (700) - (1 429) (1 429) - diversification Other capital 2 009 2 009 - 2 416 2 416 - and net worth adjustments 47 254 32 783 14 741 43 138 29 560 13 578 Discretionary 3 500 3 500 - 2 100 2 100 - capital Group Equity 51 024 36 283 14 741 45 238 31 660 13 578 Value
Issued shares 2 063,1 2 044,2 for value per share (million) Group Equity 2 473 2 213 Value per share (cents) Share price 2 275 1 700 (cents) Discount -8% -23% The GEV as at 31 December 2009 amounted to R51 billion, up 13% on the R45,2 billion at the end of 2008. On a per share basis GEV increased by 12% from 2 213 cents to 2 473 cents at 31 December 2009. This increase is after payment of the dividend of 98 cents per share during 2009. The Sanlam share price closed on R22,75 on 31 December 2008, an 8% discount to the GEV on that date. As a financial services organisation, the Group has a material exposure to the investment markets, both in respect of the shareholder capital portfolio that is invested in financial instruments, as well as a significant portion of the fee income base that is linked to the level of assets under management. After the 2008 return (-1,7%) that reflected the depressed financial markets at the time, the Group`s performance recovered in 2009 in line with the stronger investment markets. Sanlam achieved a ROGEV per share of 16,2% in 2009, well up on the 11,3% target set for the year. Return on Group Equity Value for the year ended 31 December 2009 2009 2008 Earnings Return Earnings Return R million % R million % Sanlam Personal Finance 3 003 14,3 744 3,5 Covered business 2 815 14,4 453 2,3 Other operations 188 13,2 291 24,4 Sanlam Developing 569 19,2 648 29,6 Markets Covered business 467 16,7 659 30,5 Other operations 102 63,8 (11) -39,3 Sanlam UK (89) -5,8 (356) -23,4 Covered business (14) -2,1 (36) -3,9 Other operations (75) -8,9 (320) -53,3 Institutional cluster 2 607 22,6 (723) -5,8 Covered business 1 153 20,8 (157) -3,0 Sanlam Investments 1 381 24,7 (547) -8,2 Coris Administration (70) -129,6 16 42,1 Capital markets 143 31,8 (35) -8,8 Short-term insurance 2 133 40,5 (1 279) -20,1 Discretionary and other (774) (440) capital Balance of portfolio (334) 114 Shares delivered to - (46) Sanlam Demutualisation Trust Intangible assets less (87) (43) value of in-force acquired Treasury shares and (244) (269) other Change in net worth (109) (196) adjustments Return on Group Equity 7 449 16,5 (1 406) -2,7 Value
Return on Group Equity 16,2 -1,7 Value per share Covered business yielded a return of 15,5% compared to 3,2% in 2008. An analysis of this return is set out below: Return on covered business for the year ended 31 December 2009 R million 2009 2008 Net value of new business 607 612 Earnings from existing business 2 430 1 885 Expected return on value of in-force 1 714 1 838 Operating experience variances 636 278 Operating assumption changes 80 (231) Expected investment return on adjusted net 1 091 1 180 worth Embedded value earnings from operations 4 128 3 677 Economic assumption and tax changes (1 206) 571 Investment variances - value of in-force 1 149 (1 435) Investment variances - adjusted net worth 515 (1 864) Project expenses and other (165) (30) Total embedded value earnings 4 421 919 Return on covered business 15,5% 3,2% The increase in the return during 2009 is the combined effect of the following: - Net value added by new business written of R607 million (2008: R612 million) and earnings from the existing in-force book of R2,4 billion (R1,9 billion). The increase in the latter was aided by positive experience variances of R636 million, essentially related to positive risk experience (R 363 million) and interest earned on net working capital. Operating assumption changes were overall positive, versus net negative adjustments required in 2008. The current year includes some strengthening in the mortality and persistency bases; - The increase in long-term interest rates and the change in long-term asset mix assumptions resulted in negative changes in the economic assumptions base of R1,2 billion, compared to positive changes of R356 million in 2008; - The assets held in policyholder portfolios were positively impacted by the improved market conditions, resulting in an increase in expected future fee income, which supports an increase in the value of the book of in-force business of R1,1 billion in 2009 compared to negative variances of R1,4 billion in 2008; and - Positive investment return on the capital supporting the life operations of R1,6 billion compared to a negative return of R0,7 billion in 2008. The 2009 result comprises an expected investment return of R1,1 billion (2008: R1,2 billion) and positive investment variances of R0,5 billion (2008: negative R1,9 billion). This can mostly be ascribed to the improved investment market performance in 2009. The valuations of the other Group operations were strongly impacted by the turnaround in market conditions and yielded a positive return of 28% for 2009 compared to a negative return of 12% in 2008. The Group`s investment in Santam was the largest contributor to this performance, following a 37% increase in the Santam share price during 2009. Compared to negative return of R1,3 billion in 2008 (20% negative return), the investment in Santam yielded a positive return of R2,1 billion (42%) in 2009, a turnaround of R3,4 billion. Non-life operations in the Institutional cluster achieved a return of 24%. This performance is directly linked to the higher overall level of assets under management following the stronger investment market performance during the year. The Group`s businesses in the UK are experiencing the aftermath of the financial market crisis more severely than the South African based operations, aggravated by the strong rand exchange rate. This is reflected in the 9% negative return reported for the Sanlam UK non-life operations. The return on discretionary and other capital was impacted by the following: - A negative change of R109 million in the net worth adjustments. This is largely due to an increase in the allowance for corporate costs as corporate resources are required at a Sanlam Developing Markets level to support this growing cluster; - A loss of R244 million recognised in respect of treasury shares. This loss is substantially attributable to losses recognised on the delivery of share incentive scheme shares to participants at the applicable strike prices, which have previously been taken into account in the number of shares for value per share purposes; and - Negative investment returns of R334 million, of which a large portion is attributable to foreign exchange losses on offshore cash holdings and the notional transfer of investment return on the R1,4 billion capital diversification allocated to covered business at the end of 2008. Earnings Summarised shareholders` fund income statement for the year ended 31 December 2009 R million 2009 2008 % change Net result from financial services 2 714 2 802 -3% Net investment income 976 1 068 -9% Core earnings 3 690 3 870 -5% Project expenses (28) (56) 50% Net equity-accounted headline earnings 41 16 156% BEE transaction costs (7) (7) - Net investment surpluses 1 032 (1 699) 161% Secondary Tax on Companies (STC) (150) (59) -154% Discontinued operations - (22) Amortisation of value of business (84) (77) -9% acquired Normalised headline earnings 4 494 1 966 129% Other non-headline earnings and (41) (208) 80% impairments Normalised attributable earnings 4 453 1 758 153% Core earnings Core earnings for the year of R3 690 million are 5% down on 2008, the combined effect of a lower net result from financial services for the period and a 9% decline in net investment income. On a per share basis, core earnings decreased by 3%. The net result from financial services of R2 714 million for the 2009 financial year is 3% lower than in 2008. Net result from financial services for the year ended 31 December 2009 R million 2009 2008 % change Retail cluster 1 703 1 757 -3% Sanlam Personal Finance 1 498 1 555 -4% Sanlam Developing Markets 172 144 19% Sanlam UK 33 58 -43% Institutional cluster 890 737 21% Sanlam Investments 593 589 1% Sanlam Employee Benefits 154 183 -16% Sanlam Capital Markets 143 (35) Short-term insurance cluster 242 439 -45% Santam 313 494 -37% MiWay (71) (55) -29% Corporate and other (121) (131) 8% Net result from financial 2 714 2 802 -3% services - Sanlam Personal Finance once again produced a solid set of results with a 3% increase in its gross result from financial services for the year in spite of the difficult business environment. Administration profit decreased by 5% largely owing to increased new business strain. This was partly offset by cost- saving initiatives. Risk profits increased by 8% largely owing to improved underwriting experience. Market-related income, which contributes some 66% of Sanlam Personal Finance`s profit, grew by only 2%. Lower interest rates caused a reduction in interest earned on working capital. An increase in the effective tax rate resulted in a reduction in the net operating result of 4% to R1 498 million. - The Sanlam Developing Markets operations produced gross operating profit of R376 million, that is 72% up on 2008. Botswana once again made a substantial contribution to the results, in part due to the recovery in the Botswana equity markets as well as positive mortality experience on the annuity book, a reduction in the credit default provisions and a change in the accounting treatment of Letshego, a micro finance business in Botswana. Botswana Life Insurance obtained significant influence over Letshego following an increase in our shareholding and directorships. Letshego accordingly became an associate of the Group, with our portion of Letshego`s profit reported as equity-accounted earnings through operating profit. All the other African operations reported lower earnings as most territories experienced the impact of the current economic environment. Also contributing to the lower earnings were lower credit life profits following a general reduction in lending activities of banks and a reduction in margins on credit life business. In South Africa the results of the Sanlam Sky operations improved by some 50% on 2008, attributable to positive expense basis changes resulting from cost control and an increase in the number of in-force policies. Net of tax and minorities the Sanlam Developing Markets operating profit is up 19%, with a higher effective tax rate impacting growth on a net basis. - The Sanlam UK results reflect the tough UK operating environment. Net operating profit is down 43% on the comparable period in 2008. A strengthening of the rand / sterling exchange rate aggravated these results. - Sanlam Investments` net result from financial services of R593 million is 1% up on the comparable period in 2008. The positive investment market performance in the second half of the year supported fee income, with a marked improvement in net operating profit since the June reporting period. Excluding the impact of a release of over-provisions of some R70 million (after tax), net operating profit decreased by 11%, which is in line with the decline in the average level of assets under management in 2009 compared to 2008. Operating costs were well managed and are 4% lower than 2008, excluding the release of over-provisions. - Sanlam Employee Benefits posted a 16% decline in its net result from financial services on 2008, the result of lower cash interest rates that contributed to a decrease in the interest earned on working capital as well as a disappointing increase in losses associated with the retirement fund administration business. The migration of the funds onto the new administration platform has essentially been completed and management attention will now shift to process optimisation and an improvement in cost efficiencies. - Sanlam Capital Markets` net result from financial services of R143 million is a major improvement on the loss of R35 million reported in 2008. The equities division had a very strong year, driven by equity-backed finance transactions. The debt division also recorded satisfactory results, despite continued pressure from credit valuations. - Santam`s net result from financial services for the period is 37% lower than 2008. A deteriorating claims experience in respect of its personal lines motor book and some large fire-related claims in the corporate division in the first half of the year resulted in an increase in the overall claims experience and a 40% decline in the gross underwriting result. Lower cash interest rates also contributed to a decrease in float income earned. - MiWay recorded a R71 million net operating loss for the period. The difficult economic environment in 2009 had a negative impact on their anticipated book build towards break even. The latter part of the year, however, saw some encouraging improvement in new business volumes while maintaining an acceptable overall loss ratio. Net investment income declined by 9%. This is mainly attributable to a reduction in short-term interest rates as well as the relatively lower asset base following the utilisation of some of the discretionary capital through the year. Normalised headline earnings Normalised headline earnings are 129% higher than the comparable period in 2008, which is in the main attributable to improved investment returns. Business volumes New business flows New business volumes, excluding white label, increased by 3% on 2008. New business volumes for the year ended 31 December 2009 R million 2009 2008 % change Sanlam Personal Finance 30 972 31 070 0% South Africa 21 790 22 644 -4% Africa 9 182 8 426 9% Sanlam Developing Markets 2 702 2 594 4% South Africa 1 363 1 449 -6% Africa 1 198 968 24% Other international 141 177 -20% Sanlam UK 2 140 2 350 -9% Institutional cluster 48 030 45 476 6% Sanlam Investments 46 907 44 961 4% Sanlam Employee Benefits 1 123 515 118% Santam 12 896 12 165 6% NEW BUSINESS EXCLUDING WHITE LABEL 96 740 93 655 3% WHITE LABEL 6 188 6 481 -5% TOTAL NEW BUSINESS 102 928 100 136 3% Overall Sanlam Personal Finance new business sales remained in line with the 2008 level. The South African middle-income market in particular experienced the full impact of the challenging economic environment. In these conditions Sanlam Personal Finance did well to report much improved net inflows of R7 billion, substantially due to the improved retention of investment business but also a 15% reduction in policy surrenders. Sanlam Developing Markets achieved a 4% improvement in overall new business flows. This is a commendable performance given the deliberate scaling down in low-yielding single premium and non-profitable recurring premium business in South Africa and lower single premium sales in India. Businesses in the Rest of Africa continued to perform well, notwithstanding the extremely tough environment in the resource-based economies. Annuity and individual life business performed strongly in Botswana, contributing to a 37% increase on 2008. Kenya and Ghana recorded growth in new business volumes of 30% and 23% respectively. The Sanlam UK total new business volumes for the year is 9% down at R2,1 billion as its operations continue to be affected by the major slowdown in the UK economy. The Institutional cluster recorded a 6% improvement in new inflows and substantial (100%) growth in net inflows to R3,3 billion. This reflects a welcome increase in new investment mandates received as well as more than a doubling in new group life business. Santam recorded a 6% increase in net earned premiums, a strong performance in challenging conditions where consumers and businesses were under pressure. The growth in core business lines was above the industry average, reflecting an increased market share in intermediated business. Net fund flows As also referred to above, the Group has been very successful in retaining funds under management and achieved net inflows for the year of R15,5 billion, 70% up on the R9,1 billion in the corresponding period in 2008. Net fund flows for the year ended 31 December 2009 R million 2009 2008 Sanlam Personal Finance 7 048 3 876 Life business 2 248 1 170 Investment business 4 800 2 706 Sanlam Developing Markets 1 229 1 218 Sanlam UK (199) 89 Institutional cluster 3 301 1 650 Sanlam Employee Benefits (322) (1 994) Sanlam Investments 3 623 3 644 Santam 3 796 3 734 Net fund flows excluding white label 15 175 10 567 White label 324 (1 445) Total net fund flows 15 499 9 122 Value of new covered business The total value of new life business (VNB) for 2009 of R689 million is 1% lower than 2008, with new business margins also marginally lower, primarily owing to the effect of the higher interest rates prevailing at year end, with a commensurate impact on the risk discount rate (reducing VNB by R71 million) as well as the decrease in Sanlam Personal Finance new business volumes. After minorities, VNB of R607 million is also 1% down on 2008 at an average margin of 2,42%. Excluding the impact of the higher risk discount rate, net VNB of R674 million is 10% up on 2008 at an average margin of 2,62%. Value of new covered business for the year ended 31 December 2009 R million 2009 2008 % change Value of new covered business 689 698 -1% Sanlam Personal Finance 320 386 -17% Sanlam Developing Markets 290 302 -4% Sanlam UK 14 1 Sanlam Employee Benefits 65 9 622% Net of minorities 607 612 -1% Present value of new business premiums 26 365 26 033 1% Sanlam Personal Finance 16 573 17 371 -5% Sanlam Developing Markets 5 711 5 332 7% Sanlam UK 951 1 484 -36% Sanlam Employee Benefits 3 130 1 846 70% Net of minorities 25 102 24 459 3% New covered business margin 2,61% 2,68% Sanlam Personal Finance 1,93% 2,22% Sanlam Developing Markets 5,08% 5,66% Sanlam UK 1,47% 0,07% Sanlam Employee Benefits 2,08% 0,49% Net of minorities 2,42% 2,50% Sanlam Personal Finance`s VNB for 2009 of R320 million is 17% lower than in 2008. The performance against 2008 is the combined effect of the higher interest rates, which reduced the VNB by R61 million, and the lower new business volumes. Cost-saving initiatives as well as the switch to higher margin risk business and ad hoc premium increases dampened the impact of the lower volumes. The VNB margin is similarly impacted by the increase in interest rates, with the overall margin reducing from 2,22% in 2008 to 1,93% in 2009. Excluding the impact of the change in economic basis, margins are in line with 2008. Sanlam Developing Markets recorded VNB of R290 million for 2009, which is 4% down on 2008 at an average margin of 5,08%, down from 5,66% in 2008. On a similar economic basis as 2008, VNB increased by 6% to R320 million at a margin of 5,48%. The performance against 2008 is largely the combined effect of a 13% increase in the Botswana VNB with the strong new business performance being offset by lower annuity business margins due to the decrease in long-term interest rates, and lower business volumes and bancassurance margins earned in the other Africa operations. Net of minorities, Sanlam Developing Markets` VNB is 2% lower than in 2008. Sanlam Employee Benefits` VNB increased from R9 million in 2008 to R65 million in 2009. At the same time the average margin achieved of 2,08% is well up on the 0,49% of 2008. This substantial improvement follows the increase in business volumes. R20 million of the 2009 VNB is attributable to a change in economic basis, which also provided some support to the increase in the VNB margins. The Sanlam UK operations reported an improved VNB contribution of R14 million for 2009 at a margin of 1,47%. This performance is largely attributable to a change in the mix of business to more profitable products. Solvency All of the life insurance businesses within the Group were sufficiently capitalised at the end of December 2009. Sanlam Life Insurance Limited`s admissible regulatory capital at the end of December 2009 covered its regulatory Capital Adequacy Requirements (CAR) 3,1 times, compared to 2,7 times on 31 December 2008. No policyholder portfolio held a negative bonus stabilisation reserve at the end of December 2009. Santam`s capital (shareholders` funds plus subordinated debt) constituted 44% of net earned premiums on 31 December 2009, which is at the higher end of the target range of 35% to 45% set by Santam. Dividend Sustainable growth in dividend payments is an important consideration for the Board in determining the dividend for the year. The Board uses cash operating earnings as a guideline in setting the level of the dividend, subject to the Group`s liquidity and solvency requirements. The operational performance of the Group in the 2009 financial year enabled the Board to increase the dividend per share by 6% to 104 cents. Shareholders are advised that the cash dividend of 104 cents for the year ended 31 December 2009 is payable on Wednesday, 5 May 2010 to ordinary shareholders recorded in the register of Sanlam at the close of business on Friday, 23 April 2010. The last date to trade to qualify for this dividend will be Friday, 16 April 2010, and Sanlam shares will trade ex-dividend from Monday, 19 April 2010. Dividend payment by way of electronic bank transfers will be effected on Wednesday, 5 May 2010. The mailing of cheque payments in respect of dividends due to those shareholders who have not elected to receive electronic dividend payments will commence on or as soon as practically possible after this date. Share certificates may not be dematerialised or rematerialised between Monday, 19 April 2010 and Friday, 23 April 2010. Annual general meeting These financial results will be tabled at the annual general meeting. Shareholders are invited to attend this meeting, to be held on Wednesday, 9 June 2010 at 14:00 at the Sanlam head office in Bellville. Roy Andersen Johan van Zyl Chairman Group Chief Executive Sanlam Limited Cape Town 10 March 2010 Sanlam Group Financial statements for the year ended 31 December 2009 Accounting policies and basis of presentation The accounting policies adopted for purposes of the financial statements comply with International Financial Reporting Standards (IFRS), specifically IAS 34 on interim financial reporting, and with applicable legislation. The condensed financial statements are presented in terms of IAS 34, with additional disclosure where applicable, using accounting policies consistent with those applied in the 2008 financial statements, apart from the changes resulting from new and revised standards (refer below). 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 2008, apart from changes in the economic assumptions. The basis of preparation and presentation of the shareholders` information is also consistent with that applied in the 2008 financial statements. Application of new and revised IFRSs and interpretations The following new or revised IFRSs and interpretations are applied in the Group`s 2009 financial year: - IAS 1 Revised Presentation of Financial Statements - IAS 1 Amended Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation - IAS 32 Amended Financial Instruments: Presentation - Puttable Financial Instruments and Obligations Arising on Liquidation - IFRS 2 Amended Share-based Payment - Vesting Conditions and Cancellations - The May 2008 Improvements to IFRS - Amendments to IFRIC 9 - Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement - Embedded Derivatives - Amendment to IFRS 7 Financial Instruments: Disclosure - Improving Disclosures about Financial Instruments - AC 503: Amendment to AC 503 - Accounting for Black Economic Empowerment (BEE) Transactions The following presentational changes were introduced upon adoption of the revised IAS 1: - The Group income statement has been replaced with a Group statement of comprehensive income, presenting all items of recognised income and expense in one statement; - The Group statement of changes in equity only includes details of transactions with owners - non-owner changes in equity are presented in a single line; and - The Group balance sheet has been renamed to a Group statement of financial position. The application of these standards and interpretations did not have a significant impact on the Group`s financial position, reported results and cash flows. The following new or revised IFRSs and interpretations have effective dates applicable to future financial years and have not been early adopted: - IAS 27 Amended Consolidated and Separate Financial Statements (effective 1 July 2009) - IAS 39 Amended Financial Instruments: Recognition and Measurement - Eligible Hedged Items (effective 1 July 2009) - IFRS 3 Revised Business Combinations (effective 1 July 2009) - IFRS 5 Amended Non-current Assets Held for Sale and Discontinued Operations (effective 1 July 2009) - IFRIC 17 Distribution of Non-cash Assets to Owners (effective 1 July 2009) - The April 2009 Improvements to IFRS (mostly effective 1 January 2010) - Amendments to IFRS 2: Group Cash-settled Share-based Payment Transactions (effective 1 January 2010) - Amendment to IAS 32 - Classification of Rights Issues (effective 1 February 2010) - IAS 24 revised - Related Party Disclosures (effective 1 January 2011) - AC 504: IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction in a South African Pension Fund Environment (effective 1 April 2009) - IFRS 9 Financial Instruments (effective 1 January 2013) - IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010) - Amendments to IFRIC 14 - Prepayments of a Minimum Funding Requirement (effective 1 January 2011) The application of these revised standards and interpretations in future financial reporting periods is not expected to have a significant impact on the Group`s reported results, financial position and cash flows, except for IFRS 3 Revised and IAS 27 Amended for which the impact cannot be quantified as it will depend on the nature and structure of a specific business combination. External audit The Group financial statements have been extracted from the Group`s 2009 audited annual financial statements, which have been audited by Ernst & Young Inc. and their unqualified audit opinion is available for inspection at the company`s registered office. The Shareholders` information has also been subject to external audit by Ernst & Young Inc. and the unqualified audit opinion is available for inspection at the registered office of Sanlam Limited. Shareholders` information for the year ended 31 December 2009 Contents Group Equity Value Shareholders` fund at fair value Shareholders` fund income statement Notes to the shareholders` fund information Embedded value of covered business Group equity value at 31 December 2009 2009 2008 R million R million
Embedded value of covered business 28 988 28 591 Sanlam Personal Finance 19 884 19 574 Adjusted net worth 8 098 8 275 Value of in-force 11 786 11 299 Sanlam Developing Markets 3 479 2 796 Adjusted net worth 1 363 1 032 Value of in-force 2 116 1 764 Sanlam UK 665 680 Adjusted net worth 217 234 Value of in-force 448 446 Sanlam Employee Benefits 4 960 5 541 Adjusted net worth 4 569 5 472 Value of in-force 391 69 Other Group operations 17 227 13 560 Retail cluster 2 707 2 287 Institutional cluster 7 371 6 000 Short-term insurance 7 149 5 273 Capital diversification (700) (1 429) Other capital and net worth adjustments 2 009 2 416 47 524 43 138
Discretionary capital 3 500 2 100 Group equity value 51 024 45 238 Group equity value per share (cents) 2 473 2 213 Shareholders` fund at fair value at 31 December 2009 2009 2008 R million R million Property and equipment 194 228 Owner-occupied properties 614 613 Goodwill 497 473 Value of business acquired 753 802 Other intangible assets 45 - Deferred acquisition costs 1 390 1 260 Investments 36 489 31 807 Sanlam businesses 17 227 13 560 Sanlam Investments 6 778 5 581 SIM Wholesale 4 481 3 903 International 1 909 1 358 Sanlam Collective Investments 388 320 Sanlam Personal Finance 1 612 1 423 Glacier 762 696 Sanlam Personal Loans 133 71 Multi-Data 166 190 Sanlam Trust 160 144 Sanlam Home Loans 120 133 Sanlam Healthcare Management 130 78 Other 141 111 Sanlam UK 833 847 Principal 283 299 Punter Southall Group 259 219 Other 291 329 Sanlam Developing Markets other 262 17 operations Coris Administration - 54 Sanlam Capital Markets 593 365 Short-term insurance 7 149 5 273 Associated companies 369 234 Joint ventures - Shriram Life Insurance 247 208 Other investments 18 646 17 805 Other equities and similar securities 7 657 9 036 Public sector stocks and loans 199 1 411 Investment properties 744 491 Other interest-bearing and preference 10 046 6 867 share investments Net term finance - - Term finance (5 397) (5 101) Assets held in respect of term finance 5 397 5 101 Net deferred tax 61 352 Net working capital (344) (451) Minority shareholders` interest (763) (947) Shareholders` fund at fair value 38 936 34 137 Fair value per share (cents) 1 888 1 670 Shareholders` fund income statement for the year ended 31 December 2009 2009 2008 R million R million
Result from financial services before 4 242 4 260 tax Sanlam Personal Finance 2 031 1 975 Sanlam Developing Markets 376 218 Sanlam UK 35 68 Sanlam Employee Benefits 214 258 Short-term Insurance 746 1 161 Investment Management 833 825 Capital Markets 173 (61) Corporate and other (166) (184) Tax on financial services income (1 120) (966) Minority shareholders` interest (408) (492) Net result from financial services 2 714 2 802 Net investment income 976 1 068 Core earnings 3 690 3 870 Net project expenses (28) (56) BEE transaction costs (7) (7) Net equity-accounted headline earnings 41 16 Net investment surpluses 1 032 (1 699) Amortisation of value of business (84) (77) acquired Net loss from discontinued operations - (22) Net Secondary Tax on Companies (150) (59) Normalised headline earnings 4 494 1 966 Other equity-accounted earnings - 33 Profit on disposal of subsidiaries and 35 3 associates Impairments (76) (244) Normalised attributable earnings 4 453 1 758 Fund transfers (56) 736 Attributable earnings per Group 4 397 2 494 statement of comprehensive income Notes to the shareholders` fund information for the year ended 31 December 2009 2009 2008 R million R million
1. NEW BUSINESS Analysed per market: Retail Life business 12 395 12 862 Sanlam Personal Finance 11 032 11 413 Sanlam Developing Markets 1 363 1 449 Non-life business 29 586 29 105 Sanlam Personal Finance 10 758 11 231 Sanlam Private Investments 8 769 7 094 Sanlam Collective Investments 10 059 10 780
South African 41 981 41 967 Non-South African 12 661 11 921 Sanlam Personal Finance 9 182 8 426 Sanlam Developing Markets 1 339 1 145 Sanlam UK 2 140 2 350 Total Retail 54 642 53 888 Institutional Group life business 1 907 1 500 Sanlam Employee Benefits 1 123 515 Investment Management 784 985 Non-life business 23 487 23 918 Segregated (1) 11 306 12 404 Sanlam Multi-Manager 3 666 4 040 Sanlam Collective Investments 8 515 7 474
South African 25 394 25 418 Investment Management non-SA (1) 3 808 2 184 Institutional 29 202 27 602 White label 6 188 6 481 Short-term insurance 12 896 12 165 Total new business 102 928 100 136 (1) Fund flows have been re-allocated between Sanlam Investments International and Wholesale business pursuant to the restructuring of the Octane group.
2. NET FLOW OF FUNDS Analysed per market: Retail Life business 1 658 795 Sanlam Personal Finance 1 844 794 Sanlam Developing Markets (186) 1 Non-life business 5 612 7 058 Sanlam Personal Finance 2 460 2 897 Sanlam Private Investments 992 3 215 Sanlam Collective Investments 2 160 946
South African 7 270 7 853 Non-South African 3 960 1 491 Sanlam Personal Finance 2 744 185 Sanlam Developing Markets 1 415 1 217 Sanlam UK (199) 89 Total Retail 11 230 9 344 Institutional Group life business (1 090) (2 736) Sanlam Employee Benefits (322) (1 994) Investment Management (768) (742) Non-life business 3 051 813 Segregated (1) 2 349 2 491 Sanlam Multi-Manager (1 487) (3 406) Sanlam Collective Investments 2 189 1 728
South African 1 961 (1 923) Investment Management non-SA (1) (1 812) (588) Total Institutional 149 (2 511) White label 324 (1 445) Short-term insurance 3 796 3 734 Total net flow of funds 15 499 9 122 (1) Fund flows have been re-allocated between Sanlam Investments International and Wholesale business pursuant to the restructuring of the Octane group. 3. Normalised diluted earnings per share In terms of IFRS, the policyholders` fund`s investments in Sanlam shares and Group subsidiaries are not reflected as equity investments in the Sanlam statement of financial position, but deducted in full from equity on consolidation (in respect of Sanlam shares) or reflected at net asset value (in respect of subsidiaries). The valuation of the related policy liabilities however includes the fair value of these shares, resulting in a mismatch between policy liabilities and policyholder investments, with a consequential impact on the Group`s earnings. The number of shares in issue must also be reduced with the treasury shares held by the policyholders` fund for the calculation of IFRS basic and diluted earnings per share. This is, in management`s view, not a true representation of the earnings attributable to the Group`s shareholders, specifically in instances where the share prices and/or the number of shares held by the policyholders` fund varies significantly. The Group therefore calculates normalised diluted earnings per share to eliminate the impact of investments in Sanlam shares and Group subsidiaries held by the policyholders` fund. 2009 cents 2008 cents Normalised diluted earnings per share: Net result from financial services 132,2 133,8 Core earnings 179,7 184,8 Normalised headline earnings 218,9 93,9 Profit attributable to shareholders` 216,9 84,0 fund R million R million Analysis of normalised earnings (refer shareholders` fund income statement): Net result from financial services 2 714 2 802 Core earnings 3 690 3 870 Headline earnings 4 494 1 966 Profit attributable to shareholders` 4 453 1 758 fund million million Adjusted number of shares: Weighted average number of shares for 2 028,1 2 043,5 diluted earnings per share (refer below) Add: Weighted average Sanlam shares held 25,0 50,5 by policyholders Adjusted weighted average number of 2 053,1 2 094,0 shares for normalised diluted earnings per share
Number of ordinary shares in issue at 2 303,6 2 303,6 beginning of period Shares cancelled (143,6) (113,5) Number of ordinary shares in issue 2 160,0 2 190,1 Shares held by subsidiaries in (151,8) (197,3) shareholders` fund Outstanding long-term incentive scheme 37,1 45,5 shares and options Number of shares under option to be (5,4) (12,7) issued at fair value Convertible deferred shares held by 23,2 18,6 Ubuntu-Botho Adjusted number of shares for value per 2 063,1 2 044,2 share 4. Share repurchases The Sanlam shareholders granted general authorities to the Group at the 2008 and 2009 annual general meetings to repurchase Sanlam shares in the market. The Group did not acquire any shares during 2009 in terms of the general authorities. Embedded value of covered business at 31 December 2009 2009 2008 Note R million R million Sanlam Personal Finance 19 884 19 574 Adjusted net worth 8 098 8 275 Net value of in-force covered 11 786 11 299 business Value of in-force covered business 13 645 12 809 Cost of capital (1 694) (1 378) Minority shareholders` interest (165) (132) Sanlam Developing Markets 3 479 2 796 Adjusted net worth 1 363 1 032 Net value of in-force covered business 2 116 1 764 Value of in-force covered business 2 786 2 432 Cost of capital (307) (284) Minority shareholders` interest (363) (384) Sanlam UK 665 680 Adjusted net worth 217 234 Net value of in-force covered business 448 446 Value of in-force covered business 480 481 Cost of capital (32) (35) Minority shareholders` interest - - Sanlam Employee Benefits 4 960 5 541 Adjusted net worth 4 569 5 472 Net value of in-force covered business 391 69 Value of in-force covered business 1 300 824 Cost of capital (909) (755) Minority shareholders` interest - -
Embedded value of covered business 28 988 28 591 Adjusted net worth 14 247 15 013 Net value of in-force covered business 1 14 741 13 578 Embedded value of covered business 28 988 28 591 CHANGE IN EMBEDDED VALUE OF COVERED BUSINESS FOR THE YEAR ENDED 31 DECEMBER 2009 2009 2008
R MILLION NOTE TOTAL VALUE OF ADJUSTED TOTAL IN-FORCE NET WORTH Embedded value of covered 28 591 13 578 15 013 28 432 business at the beginning of the year Value of new business 607 1 714 (1 107) 612 Net earnings from 2 430 (85) 2 515 1 885 existing covered business Expected return on 1 714 1 714 - 1 838 value of in-force business Expected transfer of - (2 064) 2 064 - profit to adjusted net worth Operating experience 3 636 182 454 278 variances Operating assumption 4 80 83 (3) (231) changes Expected investment 1 091 - 1 091 1 180 return on adjusted net worth
Embedded value earnings 4 128 1 629 2 499 3 677 from operations Economic assumption 5 (1 206) (1 171) (35) 356 changes Tax changes - - - 215 Investment variances - 1 149 805 344 (1 435) value of in-force Investment variances - 515 - 515 (1 864) investment return on adjusted net worth Exchange rate movements (137) (137) - 23 Net project expenses 6 (28) - (28) (53) Embedded value earnings 4 421 1 126 3 295 919 from covered business Acquired value of in- 210 37 173 - force Transfers from other 17 - 17 - Group operations Change in utilisation (729) - (729) 197 of capital diversification Net transfers from (3 522) - (3 522) (957) covered business Embedded value of covered 28 988 14 741 14 247 28 591 business at the end of the year Analysis of earnings from covered business Sanlam Personal Finance 2 815 487 2 328 453 Sanlam Developing 467 315 152 659 Markets Sanlam UK (14) 2 (16) (36) Sanlam Employee 1 153 322 831 (157) Benefits Embedded value earnings 4 421 1 126 3 295 919 from covered business VALUE OF NEW BUSINESS FOR THE YEAR ENDED 31 DECEMBER 2009 R MILLION NOTE 2009 2008 Value of new business (at point of sale): Gross value of new business 797 787 Sanlam Personal Finance 354 419 Sanlam Developing Markets 335 343 Sanlam UK 17 6 Sanlam Employee Benefits 91 19
Cost of capital (108) (89) Sanlam Personal Finance (34) (33) Sanlam Developing Markets (45) (41) Sanlam UK (3) (5) Sanlam Employee Benefits (26) (10) Value of new business 689 698 Sanlam Personal Finance 320 386 Sanlam Developing Markets 290 302 Sanlam UK 14 1 Sanlam Employee Benefits 65 9
Value of new business attributable to: Shareholders` fund 2 607 612 Sanlam Personal Finance 308 377 Sanlam Developing Markets 220 225 Sanlam UK 14 1 Sanlam Employee Benefits 65 9
Minority shareholders` interest 82 86 Sanlam Personal Finance 12 9 Sanlam Developing Markets 70 77 Sanlam UK - - Sanlam Employee Benefits - - Value of new business 689 698
Geographical analysis: South Africa 484 507 Africa 186 181 Other international 19 10 Value of new business 689 698 Analysis of new business profitability: Before minorities: Present value of new business 26 365 26 033 premiums Sanlam Personal Finance 16 573 17 371 Sanlam Developing Markets 5 711 5 332 Sanlam UK 951 1 484 Sanlam Employee Benefits 3 130 1 846
New business margin 2,61% 2,68% Sanlam Personal Finance 1,93% 2,22% Sanlam Developing Markets 5,08% 5,66% Sanlam UK 1,47% 0,07% Sanlam Employee Benefits 2,08% 0,49% Analysis of new business profitability: After minorities: Present value of new business 25 102 24 459 premiums Sanlam Personal Finance 16 269 17 080 Sanlam Developing Markets 4 752 4 049 Sanlam UK 951 1 484 Sanlam Employee Benefits 3 130 1 846
New business margin 2,42% 2,50% Sanlam Personal Finance 1,89% 2,21% Sanlam Developing Markets 4,63% 5,56% Sanlam UK 1,47% 0,07% Sanlam Employee Benefits 2,08% 0,49% NOTES TO THE EMBEDDED VALUE OF COVERED BUSINESS FOR THE YEAR ENDED 31 DECEMBER 2009 Gross Cost of Net value Change
value of capital of in- from base in-force force value business business 1. VALUE OF IN-FORCE R million R million R million % SENSITIVITY ANALYSIS BASE VALUE 17 626 (2 885) 14 741 Interest rate and assets - Risk discount rate increase 16 639 (3 486) 13 153 -11 by 1% - Investment return and 18 073 (2 789) 15 284 4 inflation decrease by 1%, coupled with a 1% decrease in risk discount rates, and with bonus rates changing commensurately - Equity and property values 16 897 (2 865) 14 032 -5 decrease by 10%, without a corresponding change in dividend and rental yields - Expected return on equity 18 023 (2 631) 15 392 4 and property investments increase by 1%, without a corresponding change in discount rates Expenses and persistency - Non-commission maintenance 18 124 (2 873) 15 251 3 expenses (excluding investment expenses) decrease by 10% - Discontinuance rates 18 005 (2 967) 15 038 2 decrease by 10% Insurance risk - Mortality and morbidity 18 238 (2 878) 15 450 5 decrease by 5% for life assurance business - Mortality and morbidity 17 512 (2 882) 14 630 -1 decrease by 5% for life annuity business Gross Cost of Net value Change
value of capital of new from base new business value business 2. VALUE OF NEW BUSINESS R million R million R million % SENSITIVITY ANALYSIS Base value 704 (97) 607 Interest rate and assets - Risk discount rate increase 620 (118) 502 -17 by 1% - Investment return and 750 (99) 651 7 inflation decrease by 1%, coupled with a 1% decrease in risk discount rates, and with bonus rates changing commensurately Expenses and persistency - Non-commission maintenance 773 (97) 676 11 expenses (excluding investment expenses) decrease by 10% - Acquisition expenses 771 (97) 674 11 (excluding commission and commission related expenses) decrease by 10% - Discontinuance rates 796 (102) 694 14 decrease by 10% Insurance risk - Mortality and morbidity 832 (97) 735 21 decrease by 5% for life assurance business - Mortality and morbidity 694 (98) 596 -2 decrease by 5% for life annuity business 2009 2008 R million R million
3. OPERATING EXPERIENCE VARIANCES Risk experience 363 307 Investment guarantee reserve 64 (117) Working capital and other 209 88 Total operating experience 636 278 variances
4. OPERATING ASSUMPTION CHANGES Mortality and morbidity (124) (196) Persistency (67) (31) Modelling improvements and 271 (4) other Total operating assumption 80 (231) changes 5. ECONOMIC ASSUMPTION CHANGES Investment yields and risk (866) 363 premiums Long-term asset mix (340) (7) assumptions Total economic assumption (1 206) 356 changes 6. Net project expenses Net project expenses relate to once-off expenditure on the Group`s distribution platform that has not been allowed for in the embedded value assumptions. 2009 2008 % % 7. Economic assumptions Gross investment return, risk discount rate and inflation
Sanlam Life: Point used on the relevant yield curve 9 year 9 year Fixed-interest securities 9,4 7,3 Equities and offshore investments 12,9 10,8 Hedged equities 9,9 7,8 Property 10,4 8,3 Cash 8,4 6,3 Return on required capital 10,3 8,8 Inflation rate 6,4 4,3 Risk discount rate 11,9 9,8 Merchant Investors: Point used on the relevant yield curve 15 year 15 year Fixed-interest securities 4,5 3,7 Equities and offshore investments 7,7 7,0 Hedged equities 7,7 7,0 Property 7,7 7,0 Cash 4,5 3,7 Return on required capital 4,5 3,7 Inflation rate 3,8 2,9 Risk discount rate 8,2 7,5 SDM Limited: Point used on the relevant yield curve 6 year 6 year Fixed-interest securities 8,6 7,3 Equities and offshore investments 12,1 10,8 Hedged equities n/a n/a Property 9,6 8,3 Cash 7,6 6,3 Return on required capital 9,9 8,6 Inflation rate 5,6 4,3 Risk discount rate 11,1 9,8 Botswana Life Insurance: Fixed-interest securities 10,0 10,5 Equities and offshore investments 13,5 14,0 Hedged equities n/a n/a Property 11,0 11,5 Cash 9,0 9,5 Return on required capital 10,1 10,6 Inflation rate 7,0 7,5 Risk discount rate 13,5 14,0 Asset mix for assets supporting the required capital Sanlam Life: Equities 34 44 Hedged equities 13 13 Property 3 3 Fixed-interest securities 15 25 Cash 35 15 100 100 Merchant Investors: Equities - - Hedged equities - - Property - - Fixed-interest securities - - Cash 100 100 100 100 SDM Limited: Equities 50 50 Hedged equities - - Property - - Fixed-interest securities - - Cash 50 50 100 100 Botswana Life Insurance: Equities 15 15 Hedged equities - - Property 10 10 Fixed-interest securities 25 25 Cash 50 50 100 100 Group financial statements for the year ended 31 December 2009 Contents Group statement of financial position Group statement of comprehensive income Group statement of changes in equity Group cash flow statement Notes to the financial statements Group statement of financial position at 31 December 2009 2009 2008
R million R million ASSETS Property and equipment 375 382 Owner-occupied properties 652 652 Goodwill 2 810 2 623 Other intangible assets 45 - Value of business acquired 1 210 1 309 Deferred acquisition costs 2 140 1 970 Long-term reinsurance assets 499 506 Investments 288 278 268 530 Properties 15 757 15 981 Equity-accounted investments 1 964 1 317 Equities and similar securities 141 570 120 284 Public sector stocks and loans 50 803 50 531 Debentures, insurance policies, 34 792 35 309 preference shares and other loans Cash, deposits and similar securities 43 392 45 108 Deferred tax 515 712 Short-term insurance technical assets 2 064 2 250 Working capital assets 36 241 38 974 Trade and other receivables 24 261 28 908 Cash, deposits and similar securities 11 980 10 066 Total assets 334 829 317 908 EQUITY AND LIABILITIES Shareholders` fund 30 044 27 651 Minority shareholders` interest 2 628 2 596 Total equity 32 672 30 247 Long-term policy liabilities 245 997 229 268 Insurance contracts 123 774 120 879 Investment contracts 122 223 108 389 Term finance 6 916 6 763 Margin business 3 341 2 830 Other interest-bearing liabilities 3 575 3 933 External investors in consolidated funds 10 534 9 822 Cell owners` interest 535 447 Deferred tax 763 440 Short-term insurance technical provisions 8 304 8 229 Working capital liabilities 29 108 32 692 Trade and other payables 25 842 29 325 Provisions 1 396 1 453 Taxation 1 870 1 914
Total equity and liabilities 334 829 317 908 Group statement of comprehensive income for the year ended 31 December 2009 2009 2008
R million R million Net income 60 671 19 700 Financial services income 30 968 28 578 Reinsurance premiums paid (2 848) (2 990) Reinsurance commission received 258 401 Investment income 15 997 17 044 Investment surpluses 17 380 (24 672) Finance cost - margin business (246) (244) Change in fair value of external (838) 1 583 investors liability NET INSURANCE AND INVESTMENT CONTRACT (41 063) (4 352) BENEFITS AND CLAIMS Long-term insurance and investment (32 847) 3 062 contract benefits Short-term insurance claims (9 800) (9 189) Reinsurance claims received 1 584 1 775 Expenses (11 576) (11 134) Sales remuneration (4 438) (4 189) Administration costs (7 138) (6 945) Impairment of investments and goodwill (79) (247) Amortisation of value of business (84) (77) acquired Net operating result 7 869 3 890 Equity-accounted earnings 104 34 Finance cost - other (363) (391) Profit before tax 7 610 3 533 Taxation (2 529) (621) Shareholders` fund (1 759) (428) Policyholders` fund (770) (193) Profit from continuing operations 5 081 2 912 Discontinued operations - 25 Profit for the period 5 081 2 937 Other comprehensive income Movement in foreign currency (454) 154 translation reserve Comprehensive income for the period 4 627 3 091 Allocation of comprehensive income: Profit for the period 5 081 2 937 Shareholders` fund 4 397 2 494 Minority shareholders` interest 684 443 Comprehensive income for the period 4 627 3 091 Shareholders` fund 4 088 2 554 Minority shareholders` interest 539 537 Earnings attributable to shareholders of the company (cents): Basic earnings per share 222,5 125,0 Diluted earnings per share 216,8 122,0 Earnings attributable to shareholders of the company from continuing operations (cents): Basic earnings per share 222,5 126,1 Diluted earnings per share 216,8 123,1 Group statement of changes in equity FOR THE YEAR ENDED 31 DECEMBER 2009 2009 2008 R million R million Shareholders` fund: Balance at beginning of the period 27 651 29 334 Comprehensive income 4 088 2 554 Profit for the period 4 397 2 494 Other comprehensive income: movement in (309) 60 foreign currency translation reserve Net movement in treasury shares 735 17 Net realised investment surpluses on (274) (307) treasury shares Cost of net treasury shares disposed 1 009 324 (1) Share-based payments 139 134 Dividends paid (2) (1 954) (1 907) Shares cancelled (615) (2 481) Balance at end of the period 30 044 27 651 Minority shareholders` interest: Balance at beginning of the period 2 596 2 220 Comprehensive income 539 537 Profit for the period 684 443 Other comprehensive income: movement in (145) 94 foreign currency translation reserve Net movement in treasury shares (14) (48) Net realised investment surpluses on (23) (28) treasury shares Cost of net treasury shares 9 (20) disposed/(acquired) (1) Share-based payments 28 23 Dividends paid (419) (366) Acquisitions, disposals and other (102) 230 movements in minority interests Balance at end of the period 2 628 2 596
Shareholders` fund 27 651 29 334 Minority shareholders` interest 2 596 2 220 Total equity at beginning of the period 30 247 31 554
Shareholders` fund 30 044 27 651 Minority shareholders` interest 2 628 2 596 Total equity at end of the period 32 672 30 247 (1)Comprises movement in cost of shares held by subsidiaries and the share incentive trust. (2)Dividend of 98 cents per share paid during 2009 (2008: 93 cents per share) in respect of the 2008 financial year. Group cash flow statement for the year ended 31 December 2009 2009 2008 R million R million Net cash inflow from operating 3 993 6 810 activities Net cash outflow from investment (4 288) (404) activities Net cash inflow/(outflow) from 519 (2 570) financing activities Net increase in cash and cash 224 3 836 equivalents Cash, deposits and similar securities 55 145 51 309 at beginning of the year Cash, deposits and similar securities 55 369 55 145 at end of the year - continuing operations Cash outflow from discontinued - (812) operations Cash, deposits and similar securities - 812 at beginning of the year - discontinued operations Cash, deposits and similar securities - - at end of the year - discontinued operations Notes to the Financial Statements For the year ended 31 December 2009 2009 2008
cents cents 1. Earnings per share Basic earnings per share: Headline earnings 224,6 135,4 Profit attributable to shareholders` fund 222,5 125,0 Diluted earnings per share: Headline earnings 218,8 132,2 Profit attributable to shareholders` fund 216,8 122,0 R million R million Analysis of earnings: Profit attributable to shareholders 4 397 2 494 Less: Net profit on disposal of (25) (3) subsidiaries Less: Net profit on disposal of (10) - associated companies Less: Equity-accounted non-headline - (33) earnings Plus: Impairment of investments and 76 244 goodwill Headline earnings 4 438 2 702 Headline earnings include re-measurements of investment properties, which are largely attributable to policyholder funds million million Number of shares: Number of ordinary shares in issue at 2 190,1 2 303,6 beginning of period Less: Weighted average number of shares (25,1) (64,3) cancelled Less: Weighted average Sanlam shares held (189,2) (243,5) by subsidiaries (including policyholders) Adjusted weighted average number of 1 975,8 1 995,8 shares for basic earnings per share Add: Weighted conversion of deferred 20,6 14,9 shares Add: Total number of shares and options 37,1 45,5 Less: Number of shares (under option) (5,4) (12,7) that would have been issued at fair value Adjusted weighted average number of 2 028,1 2 043,5 shares for diluted earnings per share
2. Segmental information 2009 2008 R million R million Segment financial services income (per 29 316 26 969 shareholders` fund information) Sanlam Personal Finance 6 846 6 678 Sanlam Developing Markets 3 996 3 115 Sanlam UK 367 399 Sanlam Employee Benefits 2 190 2 059 Short-term Insurance 13 345 12 274 Sanlam Investments 2 106 2 259 Sanlam Capital Markets 409 107 Corporate, consolidation and other 87 78 IFRS adjustments 1 652 1 609 Total financial services income 30 968 28 578
Segment result (per shareholders` fund 4 453 1 758 information after tax and minorities) Sanlam Personal Finance 2 960 80 Sanlam Developing Markets 162 53 Sanlam UK 59 (35) Sanlam Employee Benefits 791 (85) Short-term Insurance 550 358 Sanlam Investments 617 526 Sanlam Capital Markets 143 (35) Corporate, consolidation and other (829) 896 Reverse minority shareholders` interest 684 443 included in segment result Fund transfers (56) 736 Total profit for the year 5 081 2 937 3. Contingent liabilities Shareholders are referred to the contingent liabilities disclosed in the 2009 interim and 2008 annual reports. The circumstances surrounding these contingent liabilities remained materially unchanged. 4. Subsequent events No material facts or circumstances have arisen between the dates of the balance sheets and this report that affect the financial position of the Sanlam Group at 31 December 2009 as reflected in these financial statements. GROUP SECRETARY JOHAN BESTER REGISTERED OFFICE 2 STRAND ROAD, BELLVILLE 7530, SOUTH AFRICA tELEPHONE +27 21 947-9111 FAX +27 21 947-3670 POSTAL ADDRESS PO BOX 1, SANLAMHOF, 7532, SOUTH AFRICA REGISTERED NAME: SANLAM LIMITED (REGISTRATION NUMBER 1959/001562/06) JSE SHARE CODE (PRIMARY LISTING): SLM NSX SHARE CODE: SLA ISIN NUMBER: ZAE000070660 INCORPORATED IN SOUTH AFRICA TRANSFER SECRETARIES: COMPUTERSHARE INVESTOR SERVICES (PROPRIETARY) LIMITED (REGISTRATION NUMBER 2004/003647/07) 70 MARSHALL STREET, JOHANNESBURG 2001, SOUTH AFRICA PO BOX 61051, MARSHALLTOWN 2107, SOUTH AFRICA TEL +27 (0)11 373-0000 FAX +27 (0)11 688-5200 WWW.SANLAM.CO.ZA Directors: RC Andersen (Chairman), PT Motsepe (Deputy Chairman), J van Zyl (1) (Group Chief Executive), MMM Bakane-Tuoane, AD Botha, AS du Plessis, FA du Plessis, MV Moosa, JP Moller (1), YG Muthien (1), TI Mvusi (1), SA Nkosi, I Plenderleith (2), GE Rudman, RV Simelane, DK Smith, ZB Swanepoel, PL Zim (1) Executive (2) British 11 MARCH 2010 BELLVILLE SPONSOR DEUTSCHE SECURITIES (SA) (PROPRIETARY) LIMITED Date: 11/03/2010 08:00:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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