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SLM - Sanlam Group - Audited Results for the year ended 31 December 2010
Sanlam Group
Incorporated in the Republic of South Africa
Registered name: Sanlam Limited
(Registration number 1959/001562/06)
JSE share code (primary listing): SLM
NSX share code: SLA
ISIN: ZAE000070660
Audited Results for the year ended 31 December 2010
Contents
Overview
Key features
Salient results
Executive review
Comments on the results
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 results December 2010
Key features
Earnings
- Net result from financial services per share increased by 23%
- Normalised headline earnings per share up 15%
Business volumes
- New business volumes up 3% to R106 billion
- Net value of new covered business up 10% to R666 million
- Net new covered business margin of 2,57%, up from 2,42%
- Net fund inflows of R22 billion, up 42%
Group Equity Value
- Group Equity Value per share of R28,18
- Return on Group Equity Value per share of 18,2%
- Adjusted return on Group Equity Value per share of 16%
Capital management
- Discretionary capital of R4 billion at 31 December 2010
- Sanlam Life CAR cover of 3,4 times
Dividend of 115 cents per share, up 11%
Sanlam Investments assets under management of R491 billion
Salient results
for the year ended 31 December 2010
2010 2009 % change
Sanlam Group
Earnings
Net result from financial services
per share cents 161,5 131,8 23%
Core earnings per share (1) cents 203,1 179,3 13%
Normalised headline earnings
per share (2) cents 251,5 218,5 15%
Diluted headline earnings per share cents 252,4 218,4 16%
Net result from financial services R million 3 303 2 705 22%
Core earnings (1) R million 4 154 3 681 13%
Normalised headline earnings (2) R million 5 143 4 485 15%
Headline earnings R million 5 122 4 429 16%
Group administration cost ratio (3) % 29,6 27,7
Group operating margin (4) % 19,8 16,9
Business volumes
New business volumes R million 105 526 102 928 3%
Net fund flows R million 22 026 15 499 42%
Net new covered business
Value of new covered business R million 666 607 10%
Covered business PVNBP (5) R million 25 891 25 102 3%
New covered business margin (6) % 2,57 2,42
Group Equity Value
Group Equity Value R million 57 361 51 024 12%
Group Equity Value per share cents 2 818 2 473 14%
Return on Group Equity Value
per share (7) % 18,2 16,2
Adjusted return on Group Equity Value
per share (8) % 16,0 13,1
Sanlam Life Insurance Limited
Shareholders` fund R million 40 521 37 036
Capital Adequacy Requirements (CAR) R million 7 375 7 675
CAR covered by prudential capital times 3,4 3,1
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 project expenses, 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.
(8) Return on Group Equity Value per share, based on investment return
assumptions as at the beginning of the year.
Executive review
We are pleased to report on another solid performance in the 2010 financial
year. An unwavering execution of the Group strategy and appropriate financial
discipline in a challenging business environment contributed to a sustained
delivery on the Group`s commitment to optimise shareholder value.
Performance review
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. Cost of capital is set at the government (9-
year) bond yield at the start of each financial year plus 300 basis points, with
a target to exceed this return by at least 100 basis points. Over a short-term
measurement period the actual return achieved can be distorted by volatile
market movements. An `adjusted` ROGEV is therefore also reported that aims to
exclude the impact of investment market volatility. This is calculated by
assuming that for purposes of the investment return earned on the supporting
capital of covered business and the valuation of other Group operations, the
investment return assumptions used at the beginning of the reporting period were
actually achieved in that period. Other significant items not under management`s
control are also excluded.
The target ROGEV per share for 2010 based on the above metrics was 13,4%. The
actual 2010 ROGEV per share achieved of 18,2% is well in excess of this target,
supported by the favourable equity market performance and a decrease in long-
term interest rates during the year. The adjusted ROGEV for 2010 amounted to
16%, which is also in excess of the targeted return. A key measure of
performance is also its sustainability. On a cumulative basis the Group has
outperformed the ROGEV performance target since being demutualised in 1998.
Other key indicators used by the Group to evaluate its operational performance
are as follows for the 2010 reporting period:
- Net result from financial services increased by 23% on 2009 to 161,5 cents
per share;
- New business volumes of R106 billion, up 3% on 2009;
- Value of new life business up 11% to R762 million;
- Net fund inflows of R22 billion in 2010 compared to R15 billion in 2009;
and
- Dividend per share increased by 11% to 115 cents per share.
Sanlam shareholders earned a return of 27% on their shareholding in 2010, the
combination of a 23% increase in the Sanlam share price and a dividend of 104
cents per share paid in 2010. This is well in excess of the general market
return and reflects the continued market confidence in the sustainability of the
Group`s strategic direction. Measured over a longer term the Sanlam share price
continues to outperform the Life and Financial indices since Sanlam`s listing in
1998.
Delivering on strategy
Our strategy, which has proved resilient and sustainable, was fundamental in
helping us to once again deliver a solid set of results. The five pillars that
continue to make up our strategy are: optimal capital utilisation, earnings
growth, costs and efficiencies, diversification and transformation. By focusing
resolutely on these five pillars, we have achieved market-leading growth over
the past seven years and have transformed Sanlam into an efficient and
profitable company with a healthy capital position.
Some of the key strategic initiatives for 2010 include:
- Sanlam International Investment Partners (SIIP) manages Sanlam and external
client international assets of more than US$4,5 billion. SIIP continued its
strategy of acquiring stakes in carefully selected, specialist investment
management businesses during 2010, buying a stake in Centre Asset
Management, a New York-based equity manager, as well as in Exclusive
Holdings, a European property manager.
- Glacier International, the international division of Glacier by Sanlam, was
launched at the beginning of 2010 in partnership with US-based Milliman,
one of the top risk management companies in the world. This new offering
was set up to provide affluent South African clients with innovative ways
of investing offshore. The new offering became available in October 2010
and we are confident that this offering will rapidly gain traction.
- Key to the sustainability and ongoing growth of Sanlam UK is the success of
the new Sanlam UK Distribution Services division. This division was set up
early in 2010 to assist its underlying businesses in achieving greater new
business volumes by providing intermediary agencies with expert support in
the fields of tax, risk management and business consultancy. Sanlam UK will
also be leveraging off the strength of the Sanlam brand, which has become
well recognized and respected in the UK, by rebranding and repositioning
its subsidiaries in the first half of 2011.
- Sanlam Personal Finance (SPF) launched the pilot version of our new Sanlam
Empowerment Funds in October 2010. These funds offer black clients access
to empowerment funding asset classes and direct investment into BEE deals.
Initial feedback from the market has been positive.
- Sanlam Personal Loans (SPL) expanded its client database to offer loans to
selected Sanlam clients in the lower middle market from November 2010. SPL
also started a pilot project offering loans to selected Sanlam clients in
the entry-level market as well as the segment of the middle market with a
poorer credit history.
- As part of our strategy to tap into new markets, SDM made good progress
with a number of new initiatives in 2010.These include launching a new life
company in Uganda, acquiring a stake in NICO Life in Malawi and finalising
a partnership with First Bank in Nigeria.In addition, Safrican performed
very well. The group risk business and agency force in Sanlam Sky Solutions
performed above expectation. SDM also managed to establish a medical
business, Sanlam Health International in 2010 which is operational in a
number of African countries. In South Africa, SDM also launched icover
which provides affordable and easily accessible funeral cover to low income
earners.
- SDM`s joint venture with the JD Group became operational in 2010.
- The sale of MiWay, the new direct short-term insurance venture, to Santam
was finalised in 2010. Santam will reimburse Sanlam`s investment of R240
million into MiWay, while Sanlam will also share in any increase in the
valuation of MiWay up to December 2013. Sanlam also retains access to the
MiWay structures to enable it to distribute other financial services
products.
- Following the merger of Telemed with Bestmed in 2010, Sanlam Healthcare
Management acquired Eternity Health Administrators to become the fourth
largest medical aid administrator in South Africa.
Capital management
Capital efficiency is a major strategic focus of the Group. Unproductive capital
is value dilutive and the optimal utilisation of capital is therefore a key
Group priority. Some level of prudence is however required in dealing with what
is earmarked as surplus to the Group`s requirements until we have a better
understanding of the full impact of the new Solvency Assessment and Management
(SAM) regime. Our view is that it is too early in the development and roll out
of the SAM rules and requirements for any speculation on the potential for
surplus capital in addition to what is currently being earmarked as
discretionary.
We have allocated R4 billion to our discretionary capital pool. A number of
strategic investment opportunities have been identified and are being pursued
which, if successful, could utilise a major portion of this capital pool. In
addition, we will continue with the buy-back of Sanlam shares in periods of
relative price weakness.
Looking ahead
The South African economy is not going to stage a large-scale recovery in 2011.
Instead we expect slow, yet steady progress, led by household consumption and
followed by a turnaround in capital spending by the business sector. This is
likely to lead to a current account deficit, which could curb the rising trend
in the exchange rate.
Risks facing us over the shorter term are volatile markets and a continued
weakness in the economies of developed markets. Of concern is that the economies
of most African countries tend to lag the developed world. Therefore, while slow
recovery is starting to set in elsewhere, countries like Botswana are still
feeling the recessionary pressures.
The outlook for the financial services business environment is not buoyant, but
we expect to see modest growth in 2011. Cautious optimism is therefore in order
for 2011.
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 2010 are presented based
on and in compliance with International Financial Reporting Standards (IFRS), as
applicable. The basis of presentation and accounting policies are consistent
with those applied in the 2009 annual report, apart from the following:
- Segmental reporting: The Investment Management and Capital Markets segments
were restructured. Sanlam Private Equity, Sanlam Properties (excluding the
property management operations that were transferred to the corporate
segment) and Sanlam Structured Solutions were reallocated from Sanlam
Investments and combined with Sanlam Capital Markets to form the new
Capital Management segment in line with the new management structures.
- Accounting policies: Sanlam Sky Solutions and Channel Life were integrated
into a single business unit after the acquisition of the minority
shareholder interest in Channel Life during 2009. As part of the
integration, Channel Life`s accounting policies for insurance contracts
have been aligned with that of the Sanlam Group by eliminating negative
rand reserves held as part of its insurance contract policy liabilities.
Refer below for further information, including the impact on earnings and
the Group shareholders` fund.
Comparative information has been restated accordingly, apart from Group Equity
Value that has not been restated for the change in accounting policies based on
its immaterial impact on this performance measure.
Business environment
By their nature the Group`s operations are exposed to the volatility of
financial markets and economic conditions in general. This was again illustrated
in the 2010 financial results. The main features to take cognisance of in
evaluating the Group`s results are highlighted below.
Economic conditions
Economic growth in the main geographical regions in Africa and the United
Kingdom (UK) where the Group operates remained weak. Administrative inflation
also continued to put pressure on disposable income in the South African target
market areas.
Equity markets
The South African equity market followed international trends with a strong
performance in the latter half of 2010. The FTSE/JSE All Share and Swix Indices
closed the year 16% and 18% up respectively on their 31 December 2009 levels.
This compares to the respective increases of 29% and 26% in 2009. The strong
equity market performance since the latter half of 2009 contributed to a 22%
higher average market level during 2010 as compared to 2009.
Interest rates
Long-term interest rates decreased by 1% since 31 December 2009 while short-term
interest rates declined further in 2010 from the exceptionally high levels in
early 2009. The result was a 2% fall in the average return earned on the Group`s
cash portfolio in 2010.
Foreign currency exchange rates
The rand continued its strong performance against all the major currencies to
which the Group has exposure, as reflected in the table below (negative
variances indicate a strengthening of the rand).
Europe United USA Botswana India Kenya
Kingdom
Foreign Euro GBP US$ BWP INR KES
currency/Rand
31/12/2008 12.85 13.33 9.24 1.26 0.19 0.13
31/12/2009 10.56 11.89 7.36 1.13 0.16 0.10
-17.8% -10.8% -20.3% -10.3% -15.8% -23.1%
31/12/2009 10.56 11.89 7.36 1.13 0.16 0.10
31/12/2010 8.88 10.36 6.62 1.05 0.15 0.09
-15.9% -12.9% -10.1% -7.1% -6.3% -10.0%
Average: 2009 11.62 13.04 8.31 1.2 0.17 0.11
Average: 2010 9.68 11.29 7.30 1.1 0.16 0.10
-16.7% -13.4% -12.2% -8.3% -5.9% -9.1%
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 2010
Restated
2010 2009
R million Total Fair Value Total Fair Value
value of in- value of in-
of force of force
assets asset
s
Embedded value of covered
business 31 045 14 033 17 012 28 988 14 14 741
247
Sanlam Personal Finance 21 488 8 144 13 344 19 884 8 098 11 786
Sanlam Developing Markets 3 952 1 104 2 848 3 479 1 363 2 116
Sanlam UK 638 212 426 665 217 448
Sanlam Employee Benefits 4 967 4 573 394 4 960 4 569 391
Other group operations 19 413 19 413 - 16 833 16 -
833
Retail cluster 3 359 3 359 - 2 707 2 707 -
Institutional cluster 7 525 7 525 - 6 977 6 977 -
Short-term insurance 8 529 8 529 - 7 149 7 149 -
Capital diversification - - - (700) (700) -
Other capital and net
worth adjustments 2 903 2 903 - 2 403 2 403 -
53 361 36 349 17 012 47 524 32 14 741
783
Discretionary capital 4 000 4 000 - 3 500 3 500 -
Group Equity Value 57 361 40 349 17 012 51 024 36 14 741
283
Issued shares for value
per share (million) 2 035,5 2 063,1
Group Equity Value
per share (cents) 2 818 2 473
Share price (cents) 2 792 2 275
Discount -1% -8%
The GEV as at 31 December2010 amounted to R57,4 billion, up 12% on the R51
billion at the end of 2009. On a per share basis GEV increased by 14% from 2 473
cents to 2 818 cents at 31 December 2010, after allowing for the 104 cents per
share dividend paid in 2010. The Sanlam share price traded at a 1% discount to
GEV by close of trading on 31 December 2010, substantially eliminating the 8%
discount at the end of 2009.
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
negative GEV return in 2008 (-1,7%) that reflected the depressed financial
markets at the time, the Group`s performance recovered in 2009 and 2010 in line
with the stronger investment markets. Sanlam achieved a ROGEV per share of 18,2%
in 2010 relative to the 16,2% achieved in 2009 and well up on the 13,4% target
set for the year.
Return on Group Equity Value
for the year ended 31 December 2010
2010 2009
Earnings Return Earnings Return
R million % R million %
Covered business 5 057 17,5 4 421 15,5
Sanlam Personal Finance 3 782 19,0 2 815 14,4
Sanlam Developing Markets 676 19,7 467 16,7
Sanlam UK (7) (1,1) (14) (2,1)
Sanlam Employee Benefits 606 12,2 1 153 20,8
Other operations 4 100 24,4 3 802 28,0
Sanlam Personal Finance 743 46,1 188 13,2
Sanlam Developing Markets 98 37,4 102 63,8
Sanlam UK 48 5,8 (75) (8,9)
Institutional cluster 1 155 16,6 1 454 26,4
Short-term insurance 2 056 28,8 2 133 40,5
Discretionary and other 165 (774)
capital
Balance of portfolio 400 (334)
Shriram goodwill less value
of in-force acquired (20) (87)
Treasury shares and other (153) (244)
Change in net worth (62) (109)
adjustments
Return on Group Equity Value 9 322 18,3 7 449 16,5
Return on Group Equity Value
per share 18,2 16,2
Covered business yielded a return of 17,5% compared to 15,5% in 2009. The
favourable return during 2010 is the combined effect of the following:
- Net value added by new business written of R666 million (2009: R607
million) and earnings from the existing in-force book of R2,6 billion
(2009: R2,4 billion). The increase in the latter was aided by positive
experience variances of R468 million, essentially related to positive risk
experience and interest earned on net working capital. Net operating
assumption changes were negative R47 million, adversely impacted by a
strengthening in long duration persistency assumptions in Sanlam Personal
Finance;
- The decrease in long-term interest rates and simultaneous change in long-
term return assumptions resulted in a positive change in the economic
assumptions base of R430 million, compared to negative change of R1,2
billion in 2009;
- The assets held in policyholder portfolios were positively impacted by the
improved market conditions, resulting in an increase in expected future fee
income. This, combined with assets increasing in some portfolios in excess
of the related liabilities, contributed to investment variances of R332
million in 2010 after a similar increase of R1,1 billion in 2009; and
- Sustained positive investment returns on the capital supporting the life
operations of R1,2 billion compared to a return of R1,6 billion in 2009.
The 2010 result comprises an expected investment return of R1,1 billion
(2009: R1,1 billion) and positive investment variances of R4 million (2009:
R0,5 billion). The lower positive variance in 2010 can be ascribed to the
lower level of interest earned on the cash exposure in the portfolios as
well as lower offshore returns.
The valuations of the other Group operations were positively impacted by the
continued improvement in market conditions and yielded a positive return of 24%
for 2010 (28% in 2009). The Group`s investment in Santam was again the largest
contributor to this performance. Following a return of 42% in 2009, the
investment in Santam yielded a return of R2 billion (30%) in 2010. Sterling
operational performance from the non-life businesses in SPF and SDM is reflected
in a respective 46% and 37% return on those businesses in 2010. Operations in
the Institutional cluster achieved a return of 17%. As mentioned above, the
Institutional cluster`s performance is directly linked to the higher overall
level of assets under management following the strong investment market
performance during the year. The Group`s businesses in the UK are still
experiencing the aftermath of the financial market crisis but yielded a
satisfactory return of 6% for the year, given the strong rand exchange rate.
Earnings
Summarised shareholders` fund income statement
for the year ended 31 December 2010
Restated
R million 2010 2009 % change
Net result from financial services 3 303 2 705 22%
Net investment return 2 123 2 049 4%
Net investment income 851 976 -13%
Net investment surpluses 1 131 1 032 10%
Net equity-accounted earnings 141 41 244%
Project expenses (48) (28) -71%
BEE transaction costs (8) (7) -14%
Secondary tax on companies (135) (150) 10%
Amortisation of intangible assets (92) (84) -10%
Normalised headline earnings 5 143 4 485 15%
Other non-headline earnings and
impairments 401 (41)
Normalised attributable earnings 5 544 4 444 25%
Net result from financial services
The net result from financial services or net operating profit improved across
the Group since the end of June 2010 to record 22% growth on the 2009 financial
year.
Net result from financial services for the year ended 31 December 2010
Restate %
d
R million 2010 2009 change
Retail cluster 1 979 1 694 17%
Sanlam Personal Finance 1 715 1 498 14%
Sanlam Developing Markets 218 163 34%
Sanlam UK 46 33 39%
Institutional cluster 861 890 -3%
Sanlam Investments 489 516 -5%
Sanlam Employee Benefits 171 154 11%
Capital Management 201 220 -9%
Short-term insurance cluster 575 242 138%
Santam 623 313 99%
MiWay (48) (71) 32%
Corporate and other (112) (121) 7%
Net result from financial services 3 303 2 705 22%
- Sanlam Personal Finance`s net operating profit is 14% up on 2009. Profit
from the life operations benefited from improved risk underwriting profits
attributable to lower claims, increased releases from the asset mismatch
reserve (based on the higher level of this reserve during 2010) and an
increase in profits from the non-participating annuity book. The non-life
operations more than doubled their profit contribution, with Sanlam
Personal Loans being the largest contributor. Sanlam Personal Loans was
affected by higher doubtful debt provisions in 2009 in light of the
recessionary conditions, which did not recur in 2010. An increase in the
size of its loan book also contributed to increased profitability.
- The Sanlam Developing Markets net operating profit of R218 million is 34%
up on 2009. The South African and Botswana operations remain the largest
contributors, with both regions contributing to the growth. In South Africa
earnings were negatively impacted by weaker premium collection and claims
experience, but this was offset by a strong performance from the group risk
and Safrican businesses. Botswana recorded positive experience variances in
most areas, with its results also supported by strong earnings growth from
personal loans business, through its equity-accounted investment in
Letshego.
- Sanlam UK`s net operating profit is 39% higher than 2009, with both
Merchant Investors and Principal recording improved performances. Merchant
Investors had positive experience in respect of most of its key actuarial
assumptions. Principal`s profit base is directly linked to the level of
assets under management, which was supported by both strong net fund flows
and the recovery in UK investment markets.
- The Institutional cluster operations recorded a net operating profit of
R861 million, which is 3% down on 2009.
- Sanlam Investments` net operating profit of R489 million is 5% down on
2009. Excluding the release of expense over provisions in 2009,
comparable net operating profit increased by 10%. Fee income increased
in line with higher assets under management, supported by the higher
average level of investment markets. Net performance fees also
increased compared to 2009.
- Sanlam Employee Benefits` net operating profit increased by 11% from
R154 million in 2009 to R171 million for the 2010 financial year. High
claims experience negatively impacted on risk underwriting profits.
This was however more than offset by higher annuity mismatch profits
and higher investment fees at Sanlam Structured Solutions. The
Retirement Fund Administration business is still in a loss making
position. Progress is however being made to improve the profitability
of this business.
- The Capital Management business grouping reported a 9% decrease in its
net operating profit, which reflects an improvement since the end of
June 2010. Within Sanlam Capital Markets, the Debt and Equities
divisions reported strong results, which were partly offset by the
continued impact of a lack of deal flow in the Market Activity
division. Carried interest earned by Sanlam Private Equity on the exit
of investments also provided support to the cluster`s results. This
was, however, offset by property development losses at Sanlam
Properties, where the tough economic conditions continue to impact
severely on the residential property market and required a provision
against the realisable value of its property developments.
- Santam`s excellent underwriting margins continued in the latter half of the
year. Underwriting profit increased by 157% following the improved claims
experience. Interest earned on working capital is 6% lower than the
comparable period in 2009, the combined result of higher float balances,
offset by lower short-term interest rates.
Normalised headline earnings
Normalised headline earnings of R5,1 billion are 15% higher than in 2009.
Normalised headline earnings exclude the IFRS accounting impact of investments
in Sanlam shares and Group subsidiaries held by the policyholders` fund.
Including the effect of fund transfers recognised in terms of IFRS in respect of
these shares, headline earnings per share increased by 16%.
Business volumes
New business flows
New business volumes for the Group increased by 3% to R106 billion (up 3% to
R100 billion excluding white label business). The growth is supported by a 6%
increase in short-term insurance business, with new life and investment business
sales increasing by 3%. Net fund inflows reflect a very pleasing 42% growth.
Business volumes for the year ended 31 December 2010
R million New business Net flows
2010 2009 % 2010 2009 %
change change
Sanlam Personal 32 042 30 972 3% 5 629 7 048 -20%
Finance
Sanlam Developing
Markets 3 187 2 702 18% 2 726 1 229 122%
Sanlam UK 3 059 2 140 43% 699 (199) -
Institutional 47 992 48 030 - 7 514 3 301 128%
cluster
Short-term insurance 13 667 12 896 6% 4 900 3 796 29%
99 947 96 740 3% 21 468 15 175 41%
White label 5 579 6 188 -10% 558 324 72%
Total new business 105 526 102 928 3% 22 026 15 499 42%
- Growth in Sanlam Personal Finance`s new business volumes was dampened by
low demand for single premium savings solutions in South Africa as well as
slightly lower new business sales in Namibia. The low interest rate
environment in South Africa eroded the attractiveness of guaranteed plan
and single premium annuity products in particular. Recurring premium risk
business remained attractive and increased by 9%. A welcome development is
higher demand for recurring premium savings products, particularly
retirement annuities that increased by 12%. Unit trust sales in Namibia
performed well to be broadly in line with the high base of 2009. In the
context of the challenging environment, Sanlam Personal Finance`s overall
3% growth in new business volumes represent a satisfactory performance. Net
fund flows remained strong, despite the lack of growth in single premiums,
aided by improved persistency levels.
- Sanlam Developing Markets recorded a strong 18% growth in new business
volumes.Excluding roll-overs of discontinued South African single premium
business, new business sales increased by an exemplary 24%. South African
recurring premium new business sales increased by 8%. Growth in South
Africa was deliberately slowed down as part of a renewed focus on writing
high quality business. All of the other African operations recorded growth
in excess of 20%, with strong bancassurance, group life and credit life
volumes contributing to an overall 31% growth in Rest of Africa new
business, after allowing for the negative impact of the stronger rand
exchange rate. Despite a challenging regulatory environment in India,
Shriram Life Insurance continued its growth trend. Net fund flows benefited
from the strong new business volumes and more than doubled on 2009.
- Although the UK economic conditions improved somewhat during 2010, trading
conditions remained challenging with retail investors remaining cautious.
Much improved investment market performance, however, provided some
support.Despite these trading conditions, Sanlam UK recorded 43% growth in
new business sales, with the largest contribution from Principal. In
sterling terms, new business sales increased by a particularly satisfactory
65%.
- The Institutional cluster recorded flat new inflows but a more than
doubling in net fund inflows. The group life market proved particularly
challenging for Sanlam Employee Benefits, especially after a very strong
second half performance in 2009, and it reported a 31% decrease in new
business. Both single and recurring premium business lagged 2009. New
investment mandates increased by 1%. Sanlam Multi Manager and the
international businesses recorded growth in excess of 50%. This was,
however, offset by a decline at Sanlam Private Investments from the high
base in 2009, continued low demand for money-market business at Sanlam
Collective Investments and lower new RSA segregated flows.
- The Group`s Short-term operations (including Santam, MiWay and Shriram
General Insurance) recorded a 6% increase in net earned premiums. Growth
conditions remained tough in 2010, with the competitive environment
depressing premium rates.
Value of new covered business
The Group`s strategic focus on profitable earnings growth is evident in our
ability to retain new business margins, despite pressure on new life business
volumes in particularly the middle-income market in South Africa. The value of
new life business (VNB) written during 2010 increased by 11% on 2009 to reach
R762 million. After minorities, VNB increased by 10% to R666 million.
Value of new covered business
for the year ended 31 December 2010
R million 2010 2009 %
change
Value of new covered business 762 689 11%
Sanlam Personal Finance 386 320 21%
Sanlam Developing Markets 345 290 19%
Sanlam UK 11 14 -21%
Sanlam Employee Benefits 20 65 -69%
Net of minorities 666 607 10%
Present value of new business premiums 27 334 26 365 4%
Sanlam Personal Finance 17 555 16 573 6%
Sanlam Developing Markets 6 584 5 711 15%
Sanlam UK 996 951 5%
Sanlam Employee Benefits 2 199 3 130 -30%
Net of minorities 25 891 25 102 3%
New covered business margin 2,79% 2,61%
Sanlam Personal Finance 2,20% 1,93%
Sanlam Developing Markets 5,24% 5,08%
Sanlam UK 1,10% 1,47%
Sanlam Employee Benefits 0,91% 2,08%
Net of minorities 2,57% 2,42%
Solvency
All of the life insurance businesses within the Group were sufficiently
capitalised at the end of the 2010 financial year. The total admissible
regulatory capital (including identified discretionary capital) of Sanlam Life
Insurance Limited, the holding company of the Group`s major life insurance
subsidiaries, of R25,3 billion covered its capital adequacy requirements (CAR)
3,4 times. No policyholder portfolio had a negative bonus stabilisation reserve
at the end of 2010.
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 2010 financial year enabled the Board to increase the dividend per
share by 11% to 115 cents. This will maintain a cash operating earnings cover of
approximately 1,1 times.
Shareholders are advised that the final cash dividend of 115 cents for the year
ended 31 December 2010 is payable on Tuesday, 10 May 2011 to ordinary
shareholders recorded in the register of Sanlam at the close of business on
Friday, 29 April 2011. The last date to trade to qualify for this dividend will
be Tuesday, 19 April 2011, and Sanlam shares will trade ex-dividend from
Wednesday, 20 April 2011.
Dividend payment by way of electronic bank transfers will be effected on
Tuesday, 10 May 2011. 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
Wednesday, 20 April 2011 and Friday, 29 April 2011, both days inclusive.
Desmond Smith Johan van Zyl
Chairman Group Chief Executive
Sanlam Limited
Cape Town
9 March 2011
Sanlam Group
Financial statements for the year ended 31 December 2010
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,the AC 500 Standards as issued by the Accounting
Practices Board or its successor, 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 2009 financial statements, apart from the changes indicated
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
2009, apart from changes in the economic assumptions and change in accounting
policy for Channel Life`s insurance contracts, as set out below.
The basis of preparation and presentation of the shareholders` information is
also consistent with that applied in the 2009 financial statements, apart from
the following change in segmental reporting:
- The Investment Management and Capital Markets segments were restructured.
Sanlam Private Equity, Sanlam Properties (excluding the property management
operations that were reallocated to the corporate segment) and Sanlam
Structured Solutions were reallocated from Sanlam Investments and combined
with Sanlam Capital Markets to form the new Capital Management segment.
Comparative information has been restated accordingly.The impact on the
applicable segments` results was immaterial.
Application of new and revised IFRSs and interpretations
The following new or revised IFRSs and interpretations are applied in the
Group`s 2010 financial year:
- IAS 27 Amended Consolidated and Separate Financial Statements
- IAS 39 Amended Financial Instruments: Recognition and Measurement -
Eligible Hedged Items
- IFRS 3 Revised Business Combinations
- IFRIC 17 Distribution of Non-cash Assets to Owners
- IFRIC 18 Transfers of Assets from Customers
- April 2009 Improvements to IFRS
- Amendments to IFRS 2: Group Cash-settled Share-based Payment Transactions
- AC 504: IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction in a South African Pension Fund
Environment
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:
- Amendment to IAS 32 - Classification of Rights Issues (effective 1 February
2010)
- IAS 24 revised - Related Party Disclosures (effective 1 January 2011)
- 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)
- May 2010 Improvements to IFRS (mostly 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.
Change in accounting policies
Sanlam Sky Solutions and Channel Life were integrated into a single business
unit after the acquisition of the minority shareholder interest in Channel Life
during 2009. As part of the integration, Channel Life`s accounting policies for
insurance contracts have been aligned with that of the Sanlam Group by
eliminating negative rand reserves held as part of its insurance contract policy
liabilities. The alignment of the accounting policies results in a more
consistent presentation of the Sanlam Group results.
External audit
The Group financial statements have been extracted from the Group`s 2010 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 2010
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 2010
Restated
2010 2009
R million R million
Embedded value of covered business 31 045 28 988
Sanlam Personal Finance 21 488 19 884
Adjusted net worth 8 144 8 098
Value of in-force 13 344 11 786
Sanlam Developing Markets 3 952 3 479
Adjusted net worth 1 104 1 363
Value of in-force 2 848 2 116
Sanlam UK 638 665
Adjusted net worth 212 217
Value of in-force 426 448
Sanlam Employee Benefits 4 967 4 960
Adjusted net worth 4 573 4 569
Value of in-force 394 391
Other Group operations 19 413 16 833
Retail cluster 3 359 2 707
Institutional cluster 7 525 6 977
Short-term insurance 8 529 7 149
Capital diversification - (700)
Other capital and net worth adjustments 2 903 2 403
53 361 47 524
Discretionary capital 4 000 3 500
Group Equity Value 57 361 51 024
Group Equity Value per share (cents) 2 818 2 473
Shareholders` fund at fair value
at 31 December 2010
Restated
2010 2009
R million R million
Property and equipment 222 194
Owner-occupied properties 493 614
Goodwill 497 497
Value of business acquired 716 753
Other intangible assets 39 45
Deferred acquisition costs 1 528 1 390
Investments 39 405 36 489
Sanlam businesses 19 413 16 833
Sanlam Investments 6 569 5 993
SIM Wholesale 4 247 3 696
International 1 810 1 909
Sanlam Collective Investments 512 388
Sanlam Personal Finance 2 054 1 612
Glacier 965 762
Sanlam Personal Loans 365 133
Multi-Data 149 166
Sanlam Trust 185 160
Sanlam Home Loans - 120
Sanlam Healthcare Management 235 130
Other 155 141
Sanlam UK 901 833
Principal 318 283
Punter Southall Group 227 259
Other 356 291
Sanlam Developing Markets other
operations 404 262
Coris Administration and Infinit 25 -
Capital Management 931 984
Short-term insurance 8 529 7 149
Associated companies 1 168 369
Joint ventures - Shriram Life Insurance 257 247
Other investments 18 567 19 040
Other equities and similar securities 7 947 8 051
Public sector stocks and loans 17 199
Investment properties 993 744
Other interest-bearing and preference
share investments 9 610 10 046
Net term finance - -
Term finance (5 577) (5 397)
Assets held in respect of term finance 5 577 5 397
Net deferred tax 284 61
Net working capital 520 (344)
Minority shareholders` interest (668) (763)
Shareholders` fund at fair value 43 036 38 936
Fair value per share (cents) 2 114 1 888
Shareholders` fund income statement
for the year ended 31 December 2010
Restated
2010 2009
R million R million
Result from financial services before tax 5 396 4 229
Sanlam Personal Finance 2 409 2 031
Sanlam Developing Markets 453 363
Sanlam UK 44 35
Sanlam Employee Benefits 238 214
Short-term Insurance 1 472 746
Investment Management 689 736
Capital Management 254 270
Corporate and other (163) (166)
Tax on financial services income (1 387) (1 116)
Minority shareholders` interest (706) (408)
Net result from financial services 3 303 2 705
Net investment return 2 123 2 049
Net investment income 851 976
Net investment surpluses 1 131 1 032
Net equity-accounted headline earnings 141 41
Net project expenses (48) (28)
BEE transaction costs (8) (7)
Amortisation of intangibles (92) (84)
Net secondary tax on companies (135) (150)
Normalised headline earnings 5 143 4 485
Profit on disposal of operations 404 35
Impairments (3) (76)
Normalised attributable earnings 5 544 4 444
Fund transfers (21) (56)
Attributable profit per Group statement
of comprehensive income 5 523 4 388
Notes to the shareholders` fund information
for the year ended 31 December 2010
Restated
2010 2009
R million R million
1. New business
Analysed per market:
Retail
Life business 12 842 12 395
Sanlam Personal Finance 11 454 11 032
Sanlam Developing Markets 1 388 1 363
Non-life business 30 023 29 586
Sanlam Personal Finance 11 537 10 758
Sanlam Private Investments 8 064 8 769
Sanlam Collective Investments 10 422 10 059
South African 42 865 41 981
Non-South African 13 909 12 661
Sanlam Personal Finance 9 051 9 182
Sanlam Developing Markets 1 799 1 339
Sanlam UK 3 059 2 140
Total Retail 56 774 54 642
Institutional
Group life business 1 813 1 907
Non-life business 22 340 23 487
Segregated 10 820 11 306
Sanlam Multi-Manager 5 527 3 666
Sanlam Collective Investments 5 993 8 515
South African 24 153 25 394
Investment Management non-SA 5 353 3 808
Institutional 29 506 29 202
White label 5 579 6 188
Short-term insurance 13 667 12 896
Total new business 105 526 102 928
Restated
2010 2009
R million R million
2. Net flow of funds
Analysed per licence:
Life business 2 784 3 057
Sanlam Personal Finance 1 571 2 248
Sanlam Developing Markets 2 726 1 229
Sanlam UK (134) (98)
Sanlam Employee Benefits (1 379) (322)
Life licence business (1 173) (517)
Investment business 14 957 8 839
Sanlam Personal Finance 4 058 4 800
Sanlam Investments 10 066 4 140
Sanlam UK 833 (101)
Short-term insurance 4 900 3 796
21 468 15 175
White label 558 324
Total net flow of funds 22 026 15 499
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 balance
sheet, 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.
Restated
2010 2009
Cents Cents
Normalised diluted earnings per share:
Net result from financial services 161,5 131,8
Core earnings 203,1 179,3
Headline earnings 251,5 218,5
Profit attributable to shareholders` fund 271,1 216,9
R million R million
Analysis of normalised earnings (refer
shareholders` fund income statement):
Net result from financial services 3 303 2 705
Core earnings 4 154 3 681
Headline earnings 5 143 4 485
Profit attributable to shareholders` fund 5 544 4 444
million million
Adjusted number of shares:
Weighted average number of shares for diluted
earnings per share (refer below) 2 029,0 2 028,1
Add: Weighted average Sanlam shares held by
policyholders 16,3 25,0
Adjusted weighted average number of shares for
normalised diluted earnings per share 2 045,3 2 053,1
Number of ordinary shares in issue at
beginning of period 2 160,0 2 190,1
Shares cancelled (60,0) (30,1)
Number of ordinary shares in issue 2 100,0 2 160,0
Shares held by subsidiaries in
shareholders` fund (125,7) (151,8)
Outstanding long-term incentive scheme shares
and options 34,9 37,1
Number of shares under option to be issued
at fair value (1,9) (5,4)
Convertible deferred shares held by Ubuntu-Botho 28,2 23,2
Adjusted number of shares for value per share 2 035,5 2 063,1
Embedded value of covered business at 31 December 2010
2010 2009
Note R million R million
Sanlam Personal Finance 21 488 19 884
Adjusted net worth 8 144 8 098
Net value of in-force covered business 13 344 11 786
Value of in-force covered business 15 273 13 645
Cost of capital (1 695) (1 694)
Minority shareholders` interest (234) (165)
Sanlam Developing Markets 3 952 3 479
Adjusted net worth 1 104 1 363
Net value of in-force covered business 2 848 2 116
Value of in-force covered business 3 475 2 786
Cost of capital (267) (307)
Minority shareholders` interest (360) (363)
Sanlam UK 638 665
Adjusted net worth 212 217
Net value of in-force covered business 426 448
Value of in-force covered business 455 480
Cost of capital (29) (32)
Minority shareholders` interest - -
Sanlam Employee Benefits 4 967 4 960
Adjusted net worth 4 573 4 569
Net value of in-force covered business 394 391
Value of in-force covered business 1 286 1 300
Cost of capital (892) (909)
Minority shareholders` interest - -
Embedded value of covered business 31 045 28 988
Adjusted net worth (1) 14 033 14 247
Net value of in-force covered business 1 17 012 14 741
Embedded value of covered business 31 045 28 988
(1) Excludes subordinated debt funding of Sanlam Life.
Change in embedded value of covered business
for the year ended 31 December 2010
2010 2009
R million Note Total Value of Adjusted Total
in-force net worth
Embedded value of covered
business at the beginning
of the period as reported 28 988 14 741 14 247 28 591
Change in accounting policies 8 (49) 237 (286) -
Embedded value of covered
business at the beginning
of the period - restated 28 939 14 978 13 961 28 591
Value of new business 2 666 1 780 (1 114) 607
Net earnings from existing
covered business 2 639 (138) 2 777 2 430
Expected return on value
of in-force business 2 218 2 218 - 1 714
Expected transfer of profit
to adjusted net worth - (2 388) 2 388 -
Operating experience
variances 3 468 (28) 496 636
Operating assumption
changes 4 (47) 60 (107) 80
Expected investment return
on adjusted net worth 1 151 - 1 151 1 091
Embedded value earnings
from operations 4 456 1 642 2 814 4 128
Economic assumption
changes 5 430 433 (3) (1 206)
Tax changes - change in
corporate tax rates - 2 (2) -
Investment variances -
value of in-force 332 72 260 1 149
Investment variances -
investment return on
adjusted net worth 4 - 4 515
Exchange rate movements (119) (119) - (137)
Net project expenses 6 (46) - (46) (28)
Embedded value earnings from
covered business 5 057 2 030 3 027 4 421
Acquired value of in-force 6 4 2 210
Transfer from other Group
operations - - - 17
Change in utilisation of
capital diversification (700) - (700) (729)
Net transfers from covered
business (2 257) - (2 257) (3 522)
Embedded value of covered
business at the end
of the period 31 045 17 012 14 033 28 988
Analysis of earnings from
covered business
Sanlam Personal Finance 3 782 1 558 2 224 2 815
Sanlam Developing Markets 676 491 185 467
Sanlam UK (7) (22) 15 (14)
Sanlam Employee Benefits 606 3 603 1 153
Embedded value earnings
from covered business 5 057 2 030 3 027 4 421
Value of new business
for the year ended 31 December 2010
R million Note 2010 2009
Value of new business (at point of sale):
Gross value of new business 866 797
Sanlam Personal Finance 428 354
Sanlam Developing Markets 373 335
Sanlam UK 14 17
Sanlam Employee Benefits 51 91
Cost of capital (104) (108)
Sanlam Personal Finance (42) (34)
Sanlam Developing Markets (28) (45)
Sanlam UK (3) (3)
Sanlam Employee Benefits (31) (26)
Value of new business 762 689
Sanlam Personal Finance 386 320
Sanlam Developing Markets 345 290
Sanlam UK 11 14
Sanlam Employee Benefits 20 65
Value of new business attributable to:
Shareholders` fund 2 666 607
Sanlam Personal Finance 367 308
Sanlam Developing Markets 268 220
Sanlam UK 11 14
Sanlam Employee Benefits 20 65
Minority shareholders` interest 96 82
Sanlam Personal Finance 19 12
Sanlam Developing Markets 77 70
Sanlam UK - -
Sanlam Employee Benefits - -
Value of new business 762 689
Geographical analysis:
South Africa 522 484
Africa 224 186
Other international 16 19
Value of new business 762 689
Analysis of new business profitability:
Before minorities:
Present value of new business premiums 27 334 26 365
Sanlam Personal Finance 17 555 16 573
Sanlam Developing Markets 6 584 5 711
Sanlam UK 996 951
Sanlam Employee Benefits 2 199 3 130
New business margin 2,79% 2,61%
Sanlam Personal Finance 2,20% 1,93%
Sanlam Developing Markets 5,24% 5,08%
Sanlam UK 1,10% 1,47%
Sanlam Employee Benefits 0,91% 2,08%
Analysis of new business profitability
(continued):
After minorities:
Present value of new business premiums 25 891 25 102
Sanlam Personal Finance 17 293 16 269
Sanlam Developing Markets 5 403 4 752
Sanlam UK 996 951
Sanlam Employee Benefits 2 199 3 130
New business margin 2,57% 2,42%
Sanlam Personal Finance 2,12% 1,89%
Sanlam Developing Markets 4,96% 4,63%
Sanlam UK 1,10% 1,47%
Sanlam Employee Benefits 0,91% 2,08%
Notes to the embedded value of covered business
for the year ended 31 December 2010
1. Value of in-force Gross Cost of Net value Change
sensitivity analysis value of capital of in- from base
in-force R million force value
business business %
R million R million
Base value 19 840 (2 828) 17 012
Risk discount rate
increase by 1% 18 708 (3 445) 15 263 (10)
2. Value of new business Gross Cost of Net value Change
sensitivity analysis value of capital of new from base
new R million business value
business R million %
R million
Base value 759 (93) 666
Risk discount rate
increase by 1% 649 (111) 538 (19)
2010 2009
R million R million
3. Operating experience variances
Risk experience 352 363
Investment guarantee reserve - 64
Working capital and other 116 209
Total operating experience variances 468 636
4. Operating assumption changes
Mortality and morbidity (13) (124)
Persistency (89) (67)
Modelling improvements and other 55 271
Total operating assumption changes (47) 80
5. Economic assumption changes
Investment yields and other 448 (866)
Long-term asset mix assumptions (18) (340)
Total economic assumption changes 430 (1 206)
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.
% %
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 8,4 9,4
Equities and offshore investments 11,9 12,9
Hedged equities 8,9 9,9
Property 9,4 10,4
Cash 7,4 8,4
Return on required capital 9,3 10,3
Inflation rate (1) 5,4 6,4
Risk discount rate 10,9 11,9
Merchant Investors:
Point used on the relevant yield curve 15 year 15 year
Fixed-interest securities 4,0 4,5
Equities and offshore investments 7,2 7,7
Hedged equities n/a n/a
Property 7,2 7,7
Cash 4,0 4,5
Return on required capital 4,0 4,5
Inflation rate 3,5 3,8
Risk discount rate 7,7 8,2
SDM Limited:
Point used on the relevant yield curve 5 year 6 year
Fixed-interest securities 7,7 8,6
Equities and offshore investments 11,2 12,1
Hedged equities n/a n/a
Property 8,7 9,6
Cash 6,7 7,6
Return on required capital 9,0 9,9
Inflation rate 4,7 5,6
Risk discount rate 10,2 11,1
Botswana Life Insurance:
Fixed-interest securities 9,5 10,0
Equities and offshore investments 13,0 13,5
Hedged equities n/a n/a
Property 10,5 11,0
Cash 8,5 9,0
Return on required capital 9,6 10,1
Inflation rate 6,5 7,0
Risk discount rate 13,0 13,5
(1)Expense inflation of 7,4% (2009: 8,4%) assumed for retail business
administered on old platforms.
2010 2009
% %
7. Economic assumptions (continued)
Asset mix for assets supporting the
required capital
Sanlam Life:
Equities 34 34
Hedged equities 13 13
Property 3 3
Fixed-interest securities 15 15
Cash 35 35
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
8. Change in accounting policies
Channel Life`s accounting policies for insurance contracts have been aligned
with the rest of the Sanlam Group. In terms of the amended accounting policies,
no negative rand reserves are recognised on an individual policy level. Channel
Life`s capital and economic bases have also been aligned with that of SDM
Limited. The impact of the aforementioned amendments was to reduce embedded
value by R49 million at 1 January 2010 as follows:
- A R286 million reduction in required capital with a commensurate R36
million decrease in the cost of capital.
- The gross value of in force business increased by R201 million commensurate
with an increase in future taxable income following the elimination of the
negative rand reserves.
Comparative information has not been restated based on the immaterial impact of
the changes on the embedded value of covered business, embedded value earnings
and value of new business. The full impact is recognised as a change to the
opening embedded value of covered business on 1 January 2010.
Group financial statements
for the year ended 31 December 2010
Contents
Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Cash flow statement
Notes to the financial statements
Statement of financial position
at 31 December 2010
Restated
2010 2009
R million R million
Assets
Property and equipment 470 375
Owner-occupied properties 653 652
Goodwill 3 197 2 810
Other intangible assets 39 45
Value of business acquired 1 320 1 210
Deferred acquisition costs 2 270 2 140
Long-term reinsurance assets 588 499
Investments 310 091 288 278
Properties 17 362 15 757
Equity-accounted investments 3 626 1 964
Equities and similar securities 151 190 141 570
Public sector stocks and loans 57 347 49 905
Debentures, insurance policies, preference
shares and other loans 31 586 30 075
Cash, deposits and similar securities 48 980 49 007
Deferred tax 932 626
Short-term insurance technical assets 1 560 2 064
Working capital assets 40 071 36 230
Trade and other receivables 27 883 24 250
Cash, deposits and similar securities 12 188 11 980
Total assets 361 191 334 929
Equity and liabilities
Shareholders` fund 31 778 29 644
Minority shareholders` interest 2 608 2 513
Total equity 34 386 32 157
Long-term policy liabilities 265 695 246 330
Insurance contracts 132 985 124 107
Investment contracts 132 710 122 223
Term finance 6 766 6 916
Margin business 3 115 3 341
Other interest-bearing liabilities 3 651 3 575
External investors in consolidated funds 11 655 10 534
Cell owners` interest 577 535
Deferred tax 1 178 763
Short-term insurance technical provisions 7 945 8 304
Working capital liabilities 32 989 29 390
Trade and other payables 30 422 25 842
Provisions 617 1 396
Taxation 1 950 2 152
Total equity and liabilities 361 191 334 929
Statement of comprehensive income
for the year ended 31 December 2010
Restated
2010 2009
R million R million
Net income 67 285 60 634
Financial services income 33 737 30 931
Reinsurance premiums paid (3 040) (2 848)
Reinsurance commission received 307 258
Investment income 15 344 15 997
Investment surpluses 21 831 17 380
Finance cost - margin business (216) (246)
Change in fair value of external investors
liability (678) (838)
Net insurance and investment contract
benefits and claims (44 640) (41 063)
Long-term insurance contract benefits (22 928) (17 084)
Long-term investment contract benefits (13 444) (15 763)
Short-term insurance claims (9 520) (9 800)
Reinsurance claims received 1 252 1 584
Expenses (13 290) (11 552)
Sales remuneration (4 870) (4 414)
Administration costs (8 420) (7 138)
Impairment of investments and goodwill - (79)
Amortisation of intangibles (103) (84)
Net operating result 9 252 7 856
Equity-accounted earnings 329 104
Finance cost - other (309) (363)
Profit before tax 9 272 7 597
Taxation (2 757) (2 525)
Shareholders` fund (1 911) (1 755)
Policyholders` fund (846) (770)
Profit for the year 6 515 5 072
Other comprehensive income
Movement in foreign currency translation
reserve (517) (454)
Comprehensive income for the year 5 998 4 618
Allocation of comprehensive income:
Profit for the year 6 515 5 072
Shareholders` fund 5 523 4 388
Minority shareholders` interest 992 684
Comprehensive income for the year 5 998 4 618
Shareholders` fund 5 115 4 079
Minority shareholders` interest 883 539
Earnings attributable to shareholders of the
company (cents):
Basic earnings per share 280,4 222,1
Diluted earnings per share 272,2 216,4
Statement of changes in equity
for the year ended 31 December 2010
Restated
2010 2009
R million R million
Shareholders` fund:
Balance at beginning of the year 29 644 27 260
Comprehensive income 5 115 4 079
Profit for the period 5 523 4 388
Other comprehensive income: movement in
foreign currency translation reserve (408) (309)
Net (acquisition)/disposal of treasury shares (1) (1 074) 120
Share-based payments 191 139
Acquisitions, disposals and other movements
in interests (2) -
Dividends paid (2) (2 096) (1 954)
Balance at end of the year 31 778 29 644
Minority shareholders` interest:
Balance at beginning of the year 2 513 2 481
Comprehensive income 883 539
Profit for the period 992 684
Other comprehensive income: movement in
foreign currency translation reserve (109) (145)
Net acquisition of treasury shares(1) (98) (14)
Share-based payments 32 28
Dividends paid (629) (419)
Acquisitions, disposals and other movements
in minority interests (93) (102)
Balance at end of the year 2 608 2 513
Shareholders` fund 29 644 27 260
Minority shareholders` interest 2 513 2 481
Total equity at beginning of the year 32 157 29 741
Shareholders` fund 31 778 29 644
Minority shareholders` interest 2 608 2 513
Total equity at end of the year 34 386 32 157
(1) Comprises movement in cost of shares held by subsidiaries and the share
incentive trust.
(2) Dividend of 104 cents per share paid during 2010 (2009: 98 cents per share)
in respect of the 2009 financial year.
Cash flow statement
for the year ended 31 December 2010
2010 2009
R million R million
Net cash inflow from operating activities 904 3 980
Net cash inflow/(outflow) from investment
activities 313 (865)
Net cash (outflow)/inflow from financing
activities (1 037) 519
Net increase in cash and cash equivalents 180 3 634
Cash, deposits and similar securities at
beginning of the year 60 984 57 350
Cash, deposits and similar securities at
end of the year 61 164 60 984
Notes to the financial statements
for the year ended 31 December 2010
Restated
2010 2009
cents cents
1. Earnings per share
Basic earnings per share:
Headline earnings 260,0 224,2
Profit attributable to shareholders` fund 280,4 222,1
Diluted earnings per share:
Headline earnings 252,4 218,4
Profit attributable to shareholders` fund 272,2 216,4
R million R million
Analysis of earnings:
Profit attributable to shareholders 5 523 4 388
Less: Net profit on disposal of operations (404) (35)
Plus: Impairment of investments and goodwill 3 76
Headline earnings 5 122 4 429
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
beginning of period 2 160,0 2 190,1
Less: Weighted average number of shares (50,0) (25,1)
cancelled
Less: Weighted average Sanlam shares held by
subsidiaries (including policyholders) (140,0) (189,2)
Weighted average number of shares for basic
earnings per share 1 970,0 1 975,8
Add: Weighted conversion of deferred shares 26,0 20,6
Add: Total number of shares and options 34,9 37,1
Less: Number of shares (under option) that would
have been issued at fair value (1,9) (5,4)
Weighted average number of shares for diluted
earnings per share 2 029,0 2 028,1
2. Segmental information
Restated
2010 2009
R million R million
Segment financial services income (per
shareholders` fund information) 31 839 29 279
Sanlam Personal Finance 7 578 6 846
Sanlam Developing Markets 4 411 3 929
Sanlam UK 357 367
Sanlam Employee Benefits 2 676 2 190
Short-term Insurance 14 018 13 345
Sanlam Investments 2 114 1 940
Sanlam Capital Management 573 575
Corporate, consolidation and other 112 87
IFRS adjustments 1 898 1 652
Total financial services income 33 737 30 931
Segment result (per shareholders` fund
information after tax and minorities) 5 544 4 444
Sanlam Personal Finance 3 335 2 960
Sanlam Developing Markets 179 156
Sanlam UK 111 59
Sanlam Employee Benefits 585 791
Short-term Insurance 922 550
Sanlam Investments 446 540
Sanlam Capital Management 527 220
Corporate, consolidation and other (561) (832)
Reverse minority shareholders` interest
included in segment result 992 684
Fund transfers (21) (56)
Total profit for the period 6 515 5 072
3. Restatements
Channel Life`s accounting policies for insurance contracts have been aligned
with that of the Sanlam Group by eliminating negative rand reserves held as part
of its insurance contract policy liabilities.
Following recent queries from SARS and pursuant to the complete restructuring of
Santam`s investment portfolio in 2007 and 2008, an additional provision has been
raised for income tax relating to the potential under provisioning for taxation
on the net realised gains on traded investments during the said periods.
Comparative information has been restated for the change in accounting policies
and reclassifications due to re-assessment of Investments classifications, as
follows:
Year ended 31 December 2009
R million Restated Reported
Shareholders fund at the beginning
of the period 27 260 27 651
Shareholders fund at the end
of the period 29 644 30 044
Retained earnings at the beginning
of the period 22 067 22 458
Retained earnings at the end
of the year 23 740 24 140
Minority shareholders` interest
at the beginning of the period 2 481 2 596
Minority shareholders` interest at
the end of the period 2 513 2 628
Public sector stocks and loans 49 905 50 803
Debentures, insurance policies,
preference shares and other loans 30 075 34 792
Cash, deposits and similar securities 49 007 43 392
Deferred tax asset 626 515
Trade and other receivables 24 250 24 261
Insurance contract policy liabilities 124 107 123 774
Taxation payable 2 152 1 870
Comprehensive income for the period
The impact on individual line items in the Statement of Comprehensive Income,
basic earnings per share and diluted earnings per share, is immaterial to
disclose here separately.
4. Contingent liabilities
Shareholders are referred to the contingent liabilities disclosed in the 2009
annual report. In respect of the pension and retirement fund investigation
referred to in note 34.4 of the report, Sanlam and the curator of the funds have
reached a settlement agreement. Sanlam made a payment of R175 million to the
funds involved. Settlement has also been reached in respect of the
Topmed/Selfmed claims against Sanlam Health. An amount of R588 million was paid
in January 2011 as full and final settlement of the claims. Both amounts were
paid from existing provisions. In addition, the Sanlam Capital Markets` R7
billion guarantee was increased to R8,5 billion. The circumstances surrounding
the other contingent liabilities remain materially unchanged.
5. Subsequent events
No material facts or circumstances have arisen between the dates of the balance
sheet and this report that affect the financial position of the Sanlam Group at
31 December 2010 as reflected in these financial statements.
Group secretary
Sana-Ullah Bray
Registered office
2 Strand Road, Bellville 7530, South Africa
telephone +27 (0)21 947-9111
Fax +27 (0)21 947-3670
Postal address
PO Box 1, Sanlamhof 7532, South Africa
Registered name: Sanlam Limited
(Registration number 1959/001562/06)
JSE share code: SLM
NSX share code: SLA
ISIN number: ZAE000070660
Incorporated in South Africa
Transfer secretaries:
Computershare Investor Services (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:
DK Smith (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, ZB Swanepoel, PL Zim
(1) Executive
(2) British
Cape Town
10 March 2011
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 10/03/2011 08:00:01 Supplied by www.sharenet.co.za
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