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SLA - Sanlam Limited - Sanlam Audited Results for the year ended 31 December

Release Date: 08/03/2012 08:00
Code(s): SLM
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SLA - Sanlam Limited - Sanlam Audited Results for the year ended 31 December 2011 SANLAM LIMITED Incorporated in the Republic of South Africa Registered name: Sanlam Limited (Registration number 1959/001562/06) "Sanlam" or "the company" JSE share code (primary listing): SLM NSX share code: SLA ISIN: ZAE000070660 Sanlam Audited Results for the year ended 31 December 2011 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 2011 Key features Earnings * Net result from financial services per share increased by 15% * Normalised headline earnings per share down 1% Business volumes * New business volumes up 9% to R115 billion * Net value of new covered business up 44% to R958 million * Net new covered business margin of 3,05%, up from 2,57% * Net fund inflows of R25 billion, up 16% Group Equity Value * Group Equity Value per share of R31,46 * Return on Group Equity Value per share of 15,7% Capital management * Unallocated discretionary capital of R1,9 billion at 31 December 2011 * Sanlam Life Insurance Limited CAR cover of 3,7 times Dividend of 130 cents per share, up 13% Salient results for the year ended 31 December 2011 2011 2010 % SANLAM GROUP Earnings Net result from financial services per cents 186,1 161,5 15% share Normalised headline earnings per share cents 248,7 251,5 -1% (1) Diluted headline earnings per share cents 250,1 252,4 -1% Net result from financial services R million 3 760 3 303 14% Normalised headline earnings (1) R million 5 023 5 143 -2% Headline earnings R million 5 015 5 122 -2% Group administration cost ratio (2) % 30,1 29,6 Group operating margin (3) % 20,2 19,8 Business volumes New business volumes R million 115 087 105 526 9% Net fund inflows R million 25 480 22 026 16% Net new covered business Value of new covered business R million 958 666 44% Covered business PVNBP (4) R million 31 449 25 891 21% New covered business margin (5) % 3,05 2,57 GROUP EQUITY VALUE Group Equity Value R million 63 521 57 361 11% Group Equity Value per share cents 3 146 2 818 12% Return on Group Equity Value per % 15,7 18,2 share(6) Sanlam Life Insurance Limited Shareholders` fund R million 45 172 40 521 Capital Adequacy Requirements (CAR) R million 7 350 7 375 CAR covered by prudential capital Times 3,7 3,4 Notes (1) Normalised headline earnings = headline earnings, excluding fund transfers. (2) Administration costs as a percentage of income after sales remuneration. (3) Result from financial services as a percentage of income after sales remuneration. (4) PVNBP = present value of new business premiums and is equal to the present value of new recurring premiums plus single premiums. (5) New covered business margin = value of new covered business as a percentage of PVNBP. (6) 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 year. Executive review Sustainable delivery summarises Sanlam`s performance in a year characterised by uncertainty and global economic headwinds. The period under review proved as challenging as we had anticipated in 2010. The uncertainty that emanated from the eurozone during 2011 caused tremendous volatility in financial markets around the world. While emerging market countries, including South Africa, displayed remarkable resilience in the face of the global crisis, they are not decoupled from the developed world and were not spared from the fall-out of the extreme volatility filtering out of Europe and the United States. We performed well in areas of the business that we could control, resulting in a pleasing growth in operational profits. Since investment markets are, however, largely out of our control, we had to accept fairly flat investment performance in 2011. We also maintained our focus on the quality of new business in line with our objective to focus on profitable business instead of simply chasing market share. The following are some of our salient results: * Net result from financial services per share up 15% * New business volumes increased by 9% to R115 billion * Net new covered business margin of 3,05% compared to 2,57% in 2010 * Return on Group Equity Value per share of 15,7% * Dividend per share increased by 13% to 130 cents. The Group achieved a satisfactory 14% growth in net operating profit. Sanlam Personal Finance (SPF) performed exceptionally with excellent earnings growth of 18%, the result of sound contributions from all its South African retail market segments and all its major businesses. Sanlam Emerging Markets (SEM) and Sanlam Investments recorded 8% and 7% growth respectively, both clusters benefiting from their diversified composition as strong performances from certain individual businesses compensated for relatively weaker performances by other. Businesses in the latter category are essentially either start-ups or growth phase entities or businesses more directly and severely impacted by the adverse economic conditions. Santam again made a material contribution to the Group`s bottom line as favourable underwriting conditions continued during 2011. Some reduction in margin in the second half of 2011 resulted in only a relatively small increase in Santam`s operating profit for the year. The increase in the Group`s effective interest in Santam during 2011, however, supported a 13% increase in the Group`s share of Santam`s operating earnings. Our primary performance target 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 diversified business and incorporates the result of all the major value drivers in the business. The lacklustre investment market performance during 2011 had a marked negative impact on the RoGEV for the period. This was, however, offset by growth in the underlying asset bases of most operations through strong net fund inflows, which contributed to a RoGEV of 15,7% per share for 2011. 2011 strategic initiatives In 2011 we continued to execute the Group`s five-pillar strategy and achieved our overarching objective of keeping the business on a strategically sound footing for the future. 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 and have transformed Sanlam into an efficient and profitable company with a healthy capital position. * Optimal capital utilisation One of our big focus areas for 2011 has been to pursue profitable growth opportunities with the aim of efficiently utilising discretionary capital. Of the discretionary capital, some R2 billion has been earmarked for the Shriram Capital investment in India announced late last year. This investment is in line with our strategy to diversify both geographically and into broader financial services. Our target remains to close this transaction in the second quarter of 2012. We used some R1,1 billion of discretionary capital for strategic acquisitions. These include an increase in our Santam holding to an effective 60% and Sanlam Private Investments` acquisition of leading United Kingdom (UK) stockbroking firm, Merchant Securities Group plc, and Summit Trust, an international independent trust services group headquartered in Geneva, Switzerland. Our expanded global wealth management proposition will serve the established South African client base and clients in the UK and Australia. SEM provided further capital to a number of its fledgling businesses, expanded into Swaziland in 2011 where we established an asset management business, and started exploring opportunities in Mozambique. We also continued the buy-back of Sanlam shares on a selective basis. R979 million was utilised for this purpose. In 2011, we bolstered our discretionary capital portfolio by some R1 billion through the disposal of non-strategic investments, including the sale of a major part of the Group`s holding in the Vukile Property Fund. * Earnings Growth Key to our strategy is to grow earnings in a responsible and sustainable manner. We will therefore not push short-term profits at the expense of long-term earnings growth. Strong growth in all of the key performance indicators during 2011 reflects the success of this approach. * Cost and efficiencies The strategic change in the Group`s management structure, effective 1 July 2011, should ensure improved focus and co-ordination across businesses. These changes include a targeted Emerging Markets business as well as the combination of SPF and Sanlam Sky in a South African retail cluster. This should in time result in reduced operating costs and greater efficiencies. * Diversification Our diversification strategy has resulted in a mix of business that has provided us with the resilience required to withstand the extreme global turmoil over the past four years. We have successfully achieved geographic, product, distribution and market segment diversification in recent years, which has served us well. In 2003, for example, 74% of our net operating profit was derived from our life business. In 2011 life business, while double in size compared to 2003, contributed only 52% of net operating profit. So while our life business is still important to the Sanlam Group, it forms part of a much more balanced portfolio of businesses that is better equipped to withstand harsh conditions. * Transformation Transformation is one of the pillars of our business strategy, because only through focused transformation will we ensure that this business remains viable. While the internal transformation of Sanlam is a key priority, we are also concerned with the transformation of the savings and investment landscape of South Africa. South Africa`s low savings rate is of concern and we believe we have an important role to play in helping more South Africans achieve financial stability by providing access to appropriate products that offer value. We have therefore done away with products that no longer offer value and are focused on delivering innovative products through unconventional channels into the low- income market. Looking ahead The strategic restructuring implemented in 2011 created a solid base from which to achieve sustainable future growth for the Sanlam Group. We are facing many challenges, including global economic uncertainty and a raft of regulatory changes in all the regions we operate. However, we remain confident that our conservative approach and experienced staff will enable us to continue withstanding more turmoil while at the same time enable us to provide growth and value on a sustainable basis. 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 statements may also relate to our future prospects, developments and business strategies. 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 2011 are presented based on and in compliance with International Financial Reporting Standards (IFRS). The basis of presentation and accounting policies are consistent with those applied in the 2010 annual report and the 2011 interim report, apart from the following changes, which were also indicated in the 2011 interim results announcement: * Segmental reporting: To ensure appropriate strategic focus across the Group, the management structure was changed, effective 1 July, as follows: - Operations in emerging markets outside of South Africa have been combined into a Sanlam Emerging Markets cluster. This includes operations formerly managed within the Sanlam Personal Finance, Sanlam Developing Markets, Short- term Insurance and Investments clusters. - The South African operations of the former Sanlam Developing Markets cluster have been combined with that of Sanlam Personal Finance. - Management responsibility for Sanlam UK has been transferred to the Investments cluster. - The Group now reports in five segments: Sanlam Personal Finance, Sanlam Emerging Markets, Sanlam Investments, Santam and Corporate and Other. Segmental information for 2010 has been restated accordingly. * The replacement of STC in South Africa with a withholding tax basis, effective 1 April 2012, required the elimination of STC as a future Sanlam cost in the valuation base. This resulted in an increase in the future profitability of new life insurance business written (VNB) as well as the in-force life insurance book (VIF). 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 2011 2011 2010 R million Total Fair Value Total Fair Value value of in- value of in- of force of force
assets assets Covered business 34 875 14 553 20 322 31 045 14 033 17 012 Sanlam Personal 26 687 8 622 18 065 23 663 8 513 15 150 Finance Sanlam Emerging 2 320 1 012 1 308 1 777 735 1 042 Markets Sanlam 5 868 4 919 949 5 605 4 785 820 Investments Other group 22 012 22 012 - 19 413 19 413 - operations Sanlam Personal 2 189 2 189 - 1 949 1 949 - Finance Sanlam Emerging 1 167 1 167 - 1 000 1 000 - Markets Sanlam 9 041 9 041 - 8 078 8 078 - Investments Santam 9 615 9 615 - 8 386 8 386 - Other capital and 2 734 2 734 - 2 903 2 903 - net worth adjustments 59 621 39 299 20 322 53 361 36 349 17 012 Discretionary 3 900 3 900 - 4 000 4 000 - capital Group Equity Value 63 521 43 199 20 322 57 361 40 349 17 012 Issued shares for 2 018,9 2 035,5 value per share (million) Group Equity Value 3 146 2 818 per share (cents) Share price (cents) 2 885 2 792 Discount -8% -1% The GEV per share increased by 11,6% from 2 818 cents at 31 December 2010 to 3 146 cents at 31 December 2011, after payment of a 115 cents per share dividend in May 2011. The Sanlam share price traded at an 8% discount to GEV by close of trading on 31 December 2011, with the discount widening since December 2010 in the volatile investment market conditions. The Group operations have a significant exposure to 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. The lacklustre investment market performance during 2011 had a marked negative impact on the RoGEV for the period. This was, however, offset by growth in the underlying asset bases of most operations through strong net fund inflows. After achieving a RoGEV per share of 18,2% in 2010, the per share return of 15,7% in 2011 is a particularly pleasing performance. This was positively impacted by the reversal of the STC allowance in the value of in-force (VIF) of R1,2 billion (refer above). The adjusted RoGEV per share for 2011, which excludes the STC reversal and assumes long-term investment return assumptions, was 14,6%, well in excess of the return target of 12,4%. The lower RoGEV on a per share basis is in part the result of the further vesting of the conversion right in respect of 13,3 million `A` Deferred shares in terms of the value add arrangement with our BBBEE partner Ubuntu-Botho. In aggregate, the conversion right in respect of 41,5 million of the issued 56,5 million `A` Deferred shares have vested to date. Return on Group Equity Value for the year ended 31 December 2011 2011 2010 Earnings Return Earnings Return R million % R million % Covered business 6 273 20,2 5 057 17,5 Sanlam Personal Finance 5 146 21,7 4 108 18,9 Sanlam Emerging Markets 571 32,1 350 21,6 Sanlam Investments 556 9,9 599 10,6 Other operations 2 708 13,9 4 100 24,4 Sanlam Personal Finance 373 19,1 732 48,4 Sanlam Emerging Markets 27 2,7 127 15,6 Sanlam Investments 1 113 13,8 1 193 16,0 Santam 1 195 14,2 2 048 29,1
Discretionary and other capital 424 165 Portfolio investments and 575 342 other Net corporate expenses (124) (112) Share-based payment (4) (3) transactions Change in net worth (23) (62) adjustments Return on Group Equity Value 9 405 16,4 9 322 18,3 Return on Group Equity Value 15,7 18,2 per share Covered business yielded a return of 20,2% compared to 17,5% in 2010. Excluding the reversal of STC, investment variances and economic assumption changes, the adjusted RoGEV of covered business amounted to 16,6%, a solid performance. Strong VNB growth and continued positive operating experience variances supported the results. The valuations of the other Group operations were in general positively impacted by a higher average level of assets under management, supporting increased future profitability. Santam and the majority of SEM`s non-life operations are valued at their listed share prices. The Santam share price outperformed general equity markets in South Africa, which supported the 14,2% return earned on this investment. The SEM operations` relatively low return of 2,7% reflects the weak equity market performance in Botswana. Earnings Summarised shareholders` fund income statement for the year ended 31 December 2011 R million 2011 2010 % Net result from financial services 3 760 3 303 14% Net investment return 1 571 2 123 -26% Net investment income 792 851 -7% Net investment surpluses 715 1 131 -37% Net equity-accounted earnings 64 141 -55% Project expenses (25) (48) 48% BEE transaction costs (7) (8) 13% Secondary tax on companies (168) (135) -24% Amortisation of intangible assets (108) (92) -17% Normalised headline earnings 5 023 5 143 -2% Other non-headline earnings and impairments 151 401 Normalised attributable earnings 5 174 5 544 -7% Net result from financial services The net result from financial services or net operating profit increased by a pleasing 14%, with a strong contribution from SPF in particular. Result from financial services for the year ended 31 December 2011 Gross Net R million 2011 2010 % 2011 2010 % Sanlam Personal Finance 2 775 2 353 18% 1 990 1 680 18% Sanlam Emerging Markets 656 591 11% 309 286 8% Sanlam Investments 1 230 1 151 7% 945 882 7% Investment Management 584 605 -3% 435 456 -5% Employee Benefits 330 248 33% 242 179 35% Capital Management 262 254 3% 210 201 4% Sanlam UK 54 44 23% 58 46 26%
Santam 1 517 1 464 4% 640 567 13% Corporate and other (171) (163) -5% (124) (112) -11% Net result from financial 6 007 5 396 11% 3 760 3 303 14% services SPF`s net result from financial services increased by 18%, with a similar increase on a gross basis. The entry-level market recorded gross operating earnings of R296 million, 92% up on 2010. This is attributable to growth in the size of the book over the last few years, augmented by good mortality experience in 2011. The results were further enhanced as the level of new business strain remained approximately in line with that of 2010 as a consequence of a slowdown in new business volumes. The middle-income market gross profit increased by 11%, attributable to higher risk profits from improved claims experience and an increase in administration profit following higher average assets under management, partly offset by lower interest earned on working capital as short- term interest rates remained low. Sanlam Personal Loans increased its contribution to gross operating profit by 43% following a 25% increase in the average size of the loan book and improved bad debt experience. Glacier also reported a 34% increase in gross profit, supported by an increase in fees earned on the overall higher level of assets under management. SEM achieved an 8% increase in its net result from financial services. On gross basis operating earnings increased by 11%, despite some R45 million losses incurred by newly established operations. The Namibian operations` gross contribution decreased by 1% from the high base in 2010, which included annuity mismatch profits that did not repeat in 2011 to the same extent. The Botswana operations` operating earnings were flat on 2010 (up 2% in local currency), with the increased stake in Letshego offsetting the negative impact of a reduced holding in the Zambian investment management business and lower asset management fees earned following a withdrawal of funds by the Botswana Public Officers Pension Fund. The Rest of Africa results were negatively impacted by start-up losses at new operations and the stronger average rand exchange rate; excluding these the Rest of Africa businesses achieved satisfactory operating earnings of some R100 million in 2011. Sanlam Investments` result from financial services is 7% up on the prior year on a gross and net basis, with Sanlam Employee Benefits (SEB) being the main contributor. SEB`s earnings benefited from an improvement in claims experience as well as a once-off release of data-related reserves. Sanlam Capital Markets was impacted by a lack of deal flow during 2011 as market volatility drained investor confidence and impacted on the competitiveness of hedging rates. The Debt business, however, outperformed on the back of lower credit risk margins. The Private Equity business` results were in turn negatively affected by the non-recurrence of large fees earned in 2010 on the exit of investments. Despite these conditions, Sanlam Capital Management managed to increase its gross operating earnings by 3%, aided by a R45 million once-off profit realised on a property financing transaction. The Investment Management operations reported a 3% decrease in gross operating earnings, attributable to a R31 million decline in performance fees earned and a R14 million decrease in the investment return earned on seeding capital provided to some of the cluster`s hedge fund portfolios. SIM Global is the main contributor to the decline in performance fees, with volatility in its earnings expected given the specialised nature of its investment funds. Excluding these items, gross operating earnings increased by a satisfactory 14%, which is in excess of the growth in average assets under management. Santam`s favourable underwriting experience of 2010 continued into the 2011 financial year, resulting in a 4% increase in Santam`s gross result from financial services (13% on a net basis). The strategic focus on claims management is reflecting in a relatively low claims ratio, with an underwriting margin of 7,7% in 2011, marginally down on the 7,8% average margin achieved in 2010 but down on the 8,6% margin achieved in the second half of 2010 and the 8,5% margin in the first half of 2011. Most risk classes contributed to the results. Normalised headline earnings Normalised headline earnings of R5,02 billion are 2% lower than in 2010, largely attributable to the 26% decrease in the net investment return earned on the capital portfolio. The South African equity market delivered a marked weaker performance in 2011 compared to 2010. This was partly offset by the positive impact of the weaker rand (against developed market currencies) on the valuation of the offshore exposure in the capital portfolio. The increase in the STC expense for 2011 is the combined effect of lower STC credits earned during 2011 and a higher dividend paid in respect of the 2010 financial year. Business volumes New business flows The Group achieved growth of 9% in new business volumes, a satisfactory performance in the difficult operating environment of 2011. New life business recorded exceptional growth of 25%, with investment and short-term insurance business increasing by 5% and 8% respectively. The strategic focus on the quality of new business written is reflected in good retention levels and a continuance of strong net fund inflows. Business volumes for the year ended 31 December 2011 R million New business Net flows 2011 2010 % 2011 2010 %
Sanlam Personal Finance 27 246 25 422 7% 5 898 5 660 4% Sanlam Emerging Markets 10 995 10 660 3% 2 008 799 151% Sanlam Investments 56 062 50 304 11% 11 444 10 141 13% Santam 14 653 13 561 8% 5 249 4 868 8% 108 956 99 947 9% 24 599 21 468 15% White label 6 131 5 579 10% 881 558 58% Total 115 087 105 526 9% 25 480 22 026 16% SPF new business sales increased by 7% on 2010, with single premium business the main contributor to the growth. Excluding a once-off book transfer included in the 2010 results, new business volumes increased by 12%.New business volumes in the South African entry-level market decreased by 5%. Single premiums continued to decline as roll-overs of the discontinued single premium business in Sanlam Sky reduce over time while the book runs off. This trend was in line with expectations. New recurring premium business were 3% up on 2010, reflecting the impact of the strategic drive to improve new business quality. The middle-income market segment recorded growth of 14% in new life business, with good sales of new single premium savings products launched during the year offsetting lacklustre demand for the traditional guaranteed solutions in the current low interest rate environment. Recurring premium life business in this segment grew by only 2%, in part impacted by a decision not to follow the low premium rates offered by competitors in the underwriting market. The Group`s focus remains on quality, rather than market share and unprofitable new business growth. Glacier continued to perform well in the affluent market with growth of 28% in life business sales. Demand for Glacier`s new international offering and linked annuities remained strong. Investment business sales were, however, 4% lower than in 2010, largely due to a R1 billion once-off book transfer included in the 2010 results. Excluding this transfer, new investment business increased by 6%. SEM new business volumes increased by 3% on 2010, with strong growth in Rest of Africa and India offset by a lower overall level of growth in the relatively more mature Namibia and Botswana operations. New business volumes in Namibia were 3% up on 2010. Life business sales decreased by 29% to R346 million from a high base in 2010, which included once-off single premiums. Despite a very competitive environment, collective investment scheme flows increased by 4% to R7,8 billion. Botswana recorded flat new business volumes, supported by strong single premium annuity and credit life sales. Recurring premium volumes were, however, 19% down on 2010, with industrial action and increasing competition eroding new business growth. The Rest of Africa operations recorded new business volumes of R526 million, up 17% on 2010 despite an average 10% stronger rand exchange rate against most countries. Zambia, Tanzania and Malawi are the main contributors to the growth, with Nigeria also recording a satisfactory maiden contribution of R21 million. Our Indian operation adapted well to the new regulatory environment and achieved new business growth of 9% on 2010, supported by single premium savings, credit life and short-term insurance volumes. Sanlam Investments` new business volumes were up 11% on 2010. South African new investment business grew by 8%, with a continued strong performance of retail collective investment scheme business partly offset by a decline in new segregated and multi-manager mandates. Sanlam UK continued on its growth path with new investment business increasing by 34% (partly assisted by business flows from the newly acquired Border Asset Management operations). SIM Global recorded growth of 59%, offsetting lower new business sales at Sanlam International Investment Partners. Overall international investment business volumes increased by 3% in a very challenging operating environment in the developed markets. New life business volumes increased by 125% on 2010 to R3,9 billion, with both SEB (up 228%) and Sanlam UK (up 43%) contributing to the growth. The SEB performance benefited from a R1,2 billion annuity mandate received in the second half of the year. The new life business aided the cluster`s overall net fund inflows of R11,4 billion, offset by a weaker performance from investment business. Santam`s gross written premium increased by 12%, but higher reinsurance exposure resulted in net earned premiums increasing by 8%, a satisfactory result in the context of strong competition from the established direct insurers and banks. MiWay continues to successfully build its direct distribution capacity, increasing its net written premiums by some 70% in 2011. Value of new covered business The value of new life business (VNB) written during 2011 increased by 38% on 2010 to reach R1 051 million, breaching the R1 billion mark for the first time. After minorities, VNB increased by 44% to R958 million. The replacement of STC in South Africa with a withholding tax basis, results in an increase in the future profitability of new business written and commensurately VNB. The change in tax basis increased net VNB by R50 million for 2011. Excluding this, net VNB increased by 36% at overall improved margins, testimony to the success of the Group`s strategic focus on the quality of new business. Value of new covered business for the year ended 31 December 2011 R million After STC basis Before STC basis change change 2011 2010 % 2011 2010 % Value of new covered 1 051 762 38% 1 001 762 31% business Sanlam Personal Finance 705 510 38% 668 510 31% Sanlam Emerging Markets 223 221 1% 214 221 -3% Sanlam Investments 123 31 297% 119 31 284% Net of minorities 958 666 44% 908 666 36% Present value of new 32 786 27 334 20% 32 786 27 334 20% business premiums Sanlam Personal Finance 23 423 20 372 15% 23 423 20 372 15% Sanlam Emerging Markets 3 642 3 767 -3% 3 642 3 767 -3% Sanlam Investments 5 721 3 195 79% 5 721 3 195 79% Net of minorities 31 449 25 891 21% 31 449 25 891 21%
New covered business margin 3,21% 2,79% 3,05% 2,79% Sanlam Personal Finance 3,01% 2,50% 2,85% 2,50% Sanlam Emerging Markets 6,12% 5,87% 5,88% 5,87% Sanlam Investments 2,15% 0,97% 2,08% 0,97% Net of minorities 3,05% 2,57% 2,89% 2,57% Solvency All of the life insurance businesses within the Group were sufficiently capitalised at the end of December 2011. 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 R27,5 billion covered its capital adequacy requirements (CAR) 3,7 times. No policyholder portfolio had a negative bonus stabilisation reserve at the end of December 2011. FitchRatings has affirmed the following ratings of the Group in 2011 and the outlook remained stable: Sanlam Limited: * National Long-term: AA- (zaf) Sanlam Life Insurance Limited: * National Insurer Financial Strength: AA+ (zaf) * National Long-term: AA (zaf) * National Short-term: F1+ (zaf) * Subordinated debt: A+ (zaf) Santam Limited: * National Insurer Financial Strength: AA+ (zaf) * National Long-term: AA (zaf) * Subordinated debt: A+ (zaf) Dividend The Group only declares an annual dividend due to the costs involved in distributing an interim dividend to our large shareholder base. 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. Any cost relating to a dividend payment is allowed for in setting the dividend for a particular year. The dividend payable in 2012 is still subject to STC and allowance is accordingly made for this cost in setting the dividend. The new dividend withholding tax regime will apply in respect of future dividend declarations. The operational performance of the Group in the 2011 financial year enabled the Board to increase the dividend per share by 13% to 130 cents. This will maintain a cash operating earnings cover of approximately 1,19 times. Shareholders are advised that the final cash dividend of 130 cents for the year ended 31 December 2011 is payable on Wednesday, 9 May 2012 to ordinary shareholders recorded in the register of Sanlam at the close of business on Thursday, 26 April 2012. The last date to trade to qualify for this dividend will be Thursday, 19 April 2012, and Sanlam shares will trade ex-dividend from Friday, 20 April 2012. Dividend payment by way of electronic bank transfers will be effected on Wednesday, 9 May 2012. 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 Friday, 20 April 2012 and Thursday, 26 April 2012, both days inclusive. Desmond Smith Johan van Zyl Chairman Group Chief Executive Sanlam Limited Bellville 7 March 2012 Sanlam Group Financial statements for the year ended 31 December 2011 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 2010 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 2010, 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 2010 financial statements. The preparation of the Group`s reviewed consolidated annual results was supervised by the financial director, Kobus Moller CA(SA). The following new or revised IFRSs and interpretations are applied in the Group`s 2011 financial year: * Amendment to IAS 32 - Classification of Rights Issues (effective 1 February 2010) * IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010) * IAS 24 revised - Related Party Disclosures (effective 1 January 2011) 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 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: * Amendments to IFRS 1 - Severe hyperinflation and removal of fixed dates for first-time adopters (effective 1 July 2011) * Amendment to IFRS 7 - Disclosures - Transfers of Financial Assets (effective 1 July 2011) * Amendment to IFRS 7 - Disclosures relating to offsetting of financial assets and liabilities (effective 1 January 2013) * Amendments to IAS 12 - Deferred tax: Recovery of underlying assets (effective 1 January 2012) * Amendment to IAS 32 - Clarification of the instances in which the set off of financial assets and liabilities is allowed (effective 1 January 2014) * IAS 1 Presentation of financial statements - Amendment regarding presentation of other comprehensive income (effective 1 July 2012) * IFRS 9 Financial Instruments (effective 1 January 2013) * IFRS 10 Consolidated Financial Statements (effective 1 January 2013) * IFRS 11 Joint Arrangements (effective 1 January 2013) * IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013) * IFRS 13 Fair Value Measurement (effective 1 January 2013) * IAS 19 Employee Benefits - Amendment regarding removal of corridor method and other comprehensive income treatment (effective 1 January 2013) * IAS27 Separate Financial Statements - Consequential amendments resulting from consolidation project (effective 1 January 2013) * IAS 28 Investments in Associates and Joint Ventures - Consequential amendments resulting from consolidation project (effective 1 January 2013) 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. External audit The Group financial statements have been extracted from the Group`s 2011 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 2011 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 2011 2011 2010 R million R million Embedded value of covered business 34 875 31 045 Sanlam Personal Finance 26 687 23 663 Adjusted net worth 8 622 8 513 Value of in-force 18 065 15 150
Sanlam Emerging Markets 2 320 1 777 Adjusted net worth 1 012 735 Value of in-force 1 308 1 042 Sanlam Investments 5 868 5 605 Adjusted net worth 4 919 4 785 Value of in-force 949 820 Other Group operations 22 012 19 413
Sanlam Personal Finance 2 189 1 949 Sanlam Emerging Markets 1 167 1 000 Sanlam Investments 9 041 8 078 Santam 9 615 8 386 Other capital and net worth adjustments 2 734 2 903 59 621 53 361 Discretionary capital 3 900 4 000 Group equity value 63 521 57 361 Group equity value per share (cents) 3 146 2 818 Shareholders` fund at fair value at 31 December 2011 2011 2010 R million R million Property and equipment 332 222 Owner-occupied properties 416 493 Goodwill 478 497 Value of business acquired 694 716 Other intangible assets 29 39 Deferred acquisition costs 1 888 1 528 Non-current assets held for sale 512 - Investments 42 434 39 405 Sanlam businesses 22 012 19 413 Sanlam Investments 9 041 8 078 Sanlam Investment Management SIM Wholesale 4 247 4 201 International 2 034 1 508 Sanlam Collective Investments 583 512 Capital Management 851 931 Sanlam Employee Benefits: Infinit - 25 Sanlam UK Principal 473 318 Punter Southall Group 307 227 Nucleus 229 140 Preference shares, interest-bearing instruments and other 317 216 Sanlam Personal Finance 2 189 1 949 Glacier 1 169 965 Sanlam Personal Loans 494 365 Multi-Data 112 149 Sanlam Trust 168 185 Anglo African Finance 50 50 Sanlam Healthcare Management 196 235 Sanlam Emerging Markets other operations 1 167 1 000 Santam 9 615 8 386 Associated companies 786 1 168 Joint ventures - Shriram Life Insurance 267 257 Other investments 19 369 18 567 Other equities and similar securities 8 440 7 947 Public sector stocks and loans 13 17 Investment properties 489 993 Other interest-bearing and preference share investments 10 427 9 610 Net term finance - - Term finance (5 108) (5 577) Assets held in respect of term finance 5 108 5 577 Net deferred tax 111 284 Net working capital (137) 520 Minority shareholders` interest (917) (668) Shareholders` fund at fair value 45 840 43 036 Fair value per share (cents) 2 271 2 114 Shareholders` fund income statement for the year ended 31 December 2011 2011 2010
R million R million Result from financial services before tax 6 007 5 396 Sanlam Personal Finance 2 775 2 353 Sanlam Emerging Markets 656 591 Sanlam Investments 1 230 1 151 Santam 1 517 1 464 Corporate and other (171) (163) Tax on financial services income (1 532) (1 387) Minority shareholders` interest (715) (706) Net result from financial services 3 760 3 303 Net investment return 1 571 2 123 Net investment income 792 851 Net investment surpluses 715 1 131 Net equity-accounted headline earnings 64 141 Net project expenses (25) (48) BEE transaction costs (7) (8) Amortisation of intangibles (108) (92) Net secondary tax on companies (168) (135) Normalised headline earnings 5 023 5 143 Profit on disposal of operations 186 404 Impairments (35) (3) Normalised attributable earnings 5 174 5 544 Fund transfers (8) (21) Attributable profit per Group statement of 5 166 5 523 comprehensive income Notes to the shareholders` fund information for the year ended 31 December 2011 2011 2010
R million R million 1. New business
Analysed per licence: Life Insurance 21 455 17 151 Sanlam Personal Finance 15 338 13 074 Sanlam Emerging Markets 2 205 2 337 Sanlam Investments 3 912 1 740 Investment business and other 87 501 82 796 Sanlam Personal Finance 11 908 12 348 Sanlam Emerging Markets 8 790 8 323 Sanlam Investments 52 150 48 564 Santam 14 653 13 561 New business excluding white label 108 956 99 947 White label 6 131 5 579 Total new business 115 087 105 526 2011 2010 R million R million
2. Net flow of funds Analysed per licence: Life Insurance 6 685 2 784 Sanlam Personal Finance 4 143 2 424 Sanlam Emerging Markets 1 806 1 873 Sanlam Investments 736 (1 513) Investment business and other 17 914 18 684 Sanlam Personal Finance 1 755 3 236 Sanlam Emerging Markets 202 (1 074) Sanlam Investments 10 708 11 654 Santam 5 249 4 868 Net inflow excluding white label 24 599 21 468 White label 881 558 Total net flow of funds 25 480 22 026 3. Normalised 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 earnings per share to eliminate the impact of investments in Sanlam shares and Group subsidiaries held by the policyholders` fund. 2011 2010 cents cents
Normalised diluted earnings per share: Net result from financial services 186,1 161,5 Headline earnings 248,7 251,5 Profit attributable to shareholders` fund 256,2 271,1 R million R million Analysis of normalised earnings (refer shareholders` fund income statement): Net result from financial services 3 760 3 303 Headline earnings 5 023 5 143 Profit attributable to shareholders` fund 5 174 5 544 million million Adjusted number of shares: Weighted average number of shares for 2 004,9 2 029,0 diluted earnings per share Add: Weighted average Sanlam shares held by 15,0 16,3 policyholders Adjusted weighted average number of shares 2 019,9 2 045,3 for normalised diluted earnings per share Number of ordinary shares in issue at 2 100,0 2 160,0 beginning of year Shares cancelled - (60,0) Number of ordinary shares in issue 2 100,0 2 100,0 Shares held by subsidiaries in (158,1) (125,7) shareholders` fund Outstanding shares and share options in 36,5 34,9 respect of Sanlam Limited long-term incentive scheme Number of shares under option that would (1,0) (1,9) have been issued at fair value Convertible deferred shares held by Ubuntu- 41,5 28,2 Botho Adjusted number of shares for value per 2 018,9 2 035,5 share 4. Share repurchases Sanlam shareholders granted general authorities to the Group at the 2011 and 2010 annual general meetings to repurchase Sanlam shares in the market. The Group acquired 36,1 million shares from 11 March 2011 to 11 November 2011 in terms of the general authorities. The lowest and highest prices paid were R26,57 and R28,61 per share respectively. The total consideration paid of R979 million was funded from existing cash resources. All repurchases were effected through the JSE trading system without any prior understanding or arrangement between the Group and the counter parties. Authority to repurchase 410,8 million shares, or 19,6% of Sanlam`s issued share capital at the time, remain outstanding in terms of the general authority granted at the annual general meeting held on 8 June 2011. The financial effects of the share repurchases during 2011 on the IFRS earnings and net asset value per share are illustrated in the table below. Tangible net asset value excludes goodwill, value of business acquired, other intangible assets and deferred acquisition cost included in the shareholders` fund at net asset value. Before After
Cents repurchases repurchases Basic earnings per share: Profit attributable to shareholders` fund 264,8 266,9 Headline earnings 257,1 259,1 Diluted earnings per share: Profit attributable to shareholders` fund 255,8 257,7 Headline earnings 248,4 250,1 Value per share: Equity value 3 140 3 146 Net asset value 1 718 1 699 Tangible net asset value 1 382 1 357 Embedded value of covered business at 31 December 2011 2011 2010 Note R million R million
Sanlam Personal Finance 26 687 23 663 Adjusted net worth 8 622 8 513 Net value of in-force covered business 18 065 15 150 Value of in-force covered business 19 813 16 943 Cost of capital (1 721) (1 781) Minority shareholders` interest (27) (12)
Sanlam Emerging Markets 2 320 1 777 Adjusted net worth 1 012 735 Net value of in-force covered business 1 308 1 042 Value of in-force covered business 2 181 1 805 Cost of capital (226) (181) Minority shareholders` interest (647) (582) Sanlam UK 791 638 Adjusted net worth 250 212 Net value of in-force covered business 541 426 Value of in-force covered business 575 455 Cost of capital (34) (29) Minority shareholders` interest - - Sanlam Employee Benefits 5 077 4 967 Adjusted net worth 4 669 4 573 Net value of in-force covered business 408 394 Value of in-force covered business 1 319 1 286 Cost of capital (911) (892) Minority shareholders` interest - - Embedded value of covered business 34 875 31 045 Adjusted net worth (1) 14 553 14 033 Net value of in-force covered business 1 20 322 17 012 Embedded value of covered business 34 875 31 045 (1) Excludes subordinated debt funding of Sanlam Life. Change in embedded value of covered business for the year ended 31 December 2011 2011 2010 R million Note Total Net value Adjusted Total of in- net worth force Embedded value of covered 31 045 17 012 14 033 28 988 business at the beginning of the year as reported Change in accounting 9 - - - (49) policies Embedded value of covered 31 045 17 012 14 033 28 939 business at the beginning of the year - restated Value of new business 2 958 2 178 (1 220) 666 Net earnings from existing covered business 3 125 (376) 3 501 2 639 Expected return on value of in-force business 2 404 2 404 - 2 218 Expected transfer of profit to adjusted net worth - (2 891) 2 891 - Operating experience 3 681 192 489 468 variances Operating assumption 4 40 (81) 121 (47) changes Expected investment return on 1 062 - 1 062 1 151 adjusted net worth Embedded value earnings from 5 145 1 802 3 343 4 456 operations Economic assumption changes 5 132 142 (10) 430 Tax changes 6 1 244 1 241 3 - Investment variances - value of in-force (136) (188) 52 332 Investment variances - investment return on adjusted net worth (259) - (259) 4 Exchange rate movements 151 151 - (119) Net project expenses 7 (4) - (4) (46) Embedded value earnings from 6 273 3 148 3 125 5 057 covered business Acquired value of in-force 235 137 98 6 Transfer from/(to) other Group operations 34 25 9 - Change in utilisation of capital diversification - - - (700) Net transfers from covered business (2 712) - (2 712) (2 257) Embedded value of covered 34 875 20 322 14 553 31 045 business at the end of year Analysis of earnings from covered business Sanlam Personal Finance 5 146 2 915 2 231 4 108 Sanlam Emerging Markets 571 240 331 350 Sanlam UK 229 115 114 (7) Sanlam Employee Benefits 327 (122) 449 606 Embedded value earnings from 6 273 3 148 3 125 5 057 covered business VALUE OF NEW BUSINESS for the year ended 31 December 2011 R million Note 2011* 2011** 2010 Value of new business (at point of sale): Gross value of new business 1 193 1 143 866 Sanlam Personal Finance 755 718 556 Sanlam Emerging Markets 248 239 245 Sanlam UK 11 11 14 Sanlam Employee Benefits 179 175 51 Cost of capital (142) (142) (104) Sanlam Personal Finance (50) (50) (46) Sanlam Emerging Markets (25) (25) (24) Sanlam UK (3) (3) (3) Sanlam Employee Benefits (64) (64) (31) Value of new business 1 051 1 001 762 Sanlam Personal Finance 705 668 510 Sanlam Emerging Markets 223 214 221 Sanlam UK 8 8 11 Sanlam Employee Benefits 115 111 20 Value of new business attributable to: Shareholders` fund 2 958 908 666 Sanlam Personal Finance 701 664 507 Sanlam Emerging Markets 134 125 128 Sanlam UK 8 8 11 Sanlam Employee Benefits 115 111 20 Minority shareholders` interest 93 93 96 Sanlam Personal Finance 4 4 3 Sanlam Emerging Markets 89 89 93 Sanlam UK - - - Sanlam Employee Benefits - - - Value of new business 1 051 1 001 762 Geographical analysis: South Africa 820 779 522 Africa 223 214 224 Other international 8 8 16 Value of new business 1 051 1 001 762 Analysis of new business profitability: Before minorities: Present value of new business premiums 32 786 32 786 27 334 Sanlam Personal Finance 23 423 23 423 20 373 Sanlam Emerging Markets 3 642 3 642 3 766 Sanlam UK 1 374 1 374 996 Sanlam Employee Benefits 4 347 4 347 2 199 New business margin 3,21% 3,05% 2,79% Sanlam Personal Finance 3,01% 2,85% 2,50% Sanlam Emerging Markets 6,12% 5,88% 5,87% Sanlam UK 0,58% 0,58% 1,10% Sanlam Employee Benefits 2,65% 2,55% 0,91% R million Note 2011* 2011** 2010 Analysis of new business profitability (continued): After minorities: Present value of new business premiums 31 449 31 449 25 891 Sanlam Personal Finance 23 353 23 353 20 287 Sanlam Emerging Markets 2 375 2 375 2 409 Sanlam UK 1 374 1 374 996 Sanlam Employee Benefits 4 347 4 347 2 199 New business margin 3,05% 2,89% 2,57% Sanlam Personal Finance 3,00% 2,84% 2,50% Sanlam Emerging Markets 5,64% 5,26% 5,31% Sanlam UK 0,58% 0,58% 1,10% Sanlam Employee Benefits 2,65% 2,55% 0,91% * Excluding STC allowance ** Including STC allowance Notes to the embedded value of covered business for the year ended 31 December 2011 1. Value of in-force Gross value Cost Net value Change from sensitivity analysis of in-force of of in-force base value business capita business %
R million l R million R millio n
Base value 23 145 (2 20 322 823)
* Risk discount rate increase by 1% 21 862 (3 18 409 (9) 453) 2. Value of new business Gross value Cost Net value Change from sensitivity analysis of new of of new base value business capita business % R million l R million R
millio n Base value 1 093 (135) 958
* Risk discount rate increase by 1% 967 (171) 796 (17) 2011 2010
R million R million 3. Operating experience variances Risk experience 431 352 Working capital and other 250 116 Total operating experience variances 681 468 4. Operating assumption changes Mortality and morbidity 13 (13) Persistency (147) (89) Modelling improvements and other 174 55 Total operating assumption changes 40 (47)
5. Economic assumption changes Investment yields and other 130 448 Long-term asset mix assumptions 2 (18) Total economic assumption changes 132 430 6. Tax changes Tax changes are mostly due to the removal of STC in the embedded value calculations. STC will be replaced by a new dividend withholding tax system in South Africa effective from 1 April 2012.
7. 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. 8. Economic assumptions 2011 2010 Gross investment return, risk discount rate % % and inflation Sanlam Life: Point used on the relevant yield curve 9 year 9 year Fixed-interest securities 8,2 8,4 Equities and offshore investments 11,7 11,9 Hedged equities 8,7 8,9 Property 9,2 9,4 Cash 7,2 7,4 Return on required capital 9,1 9,3 Inflation rate (1) 5,2 5,4 Risk discount rate 10,7 10,9
Sanlam Investments and Pensions (2): Point used on the relevant yield curve 15 year 15 year Fixed-interest securities 2,5 4,0 Equities and offshore investments 5,7 7,2 Hedged equities n/a n/a Property 5,7 7,2 Cash 2,5 4,0 Return on required capital 2,5 4,0 Inflation rate 2,7 3,5 Risk discount rate 6,2 7,7 SDM Limited: Point used on the relevant yield curve 5 year 5 year Fixed-interest securities 7,4 7,7 Equities and offshore investments 10,9 11,2 Hedged equities n/a n/a Property 8,4 8,7 Cash 6,4 6,7 Return on required capital 8,7 9,0 Inflation rate 4,4 4,7 Risk discount rate 9,9 10,2 Botswana Life Insurance: Fixed-interest securities 9,5 9,5 Equities and offshore investments 13,0 13,0 Hedged equities n/a n/a Property 10,5 10,5 Cash 8,5 8,5 Return on required capital 9,6 9,6 Inflation rate 6,5 6,5 Risk discount rate 13,0 13,0 Asset mix for assets supporting the required capital Sanlam Life: Equities 26 24 Offshore investments 10 10 Hedged equities 13 13 Property - 3 Fixed-interest securities 15 15 Cash 36 35 100 100 Sanlam Investments and Pensions: 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 (1) Expense inflation of 7,2% (Dec 2010: 7,4%) assumed for retail business administered on old platforms. (2) Formerly Merchant Investors. 9. Change in Accounting Policies During 2010, Channel Life`s accounting policies for insurance contracts were 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. 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 2011 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 2011 2011 2010 R million R million
Assets Property and equipment 514 470 Owner-occupied properties 586 653 Goodwill 3 195 3 197 Other intangible assets 47 39 Value of business acquired 1 611 1 320 Deferred acquisition costs 2 427 2 270 Long-term reinsurance assets 674 588 Investments 329 150 310 091 Properties 15 310 17 362 Equity-accounted investments 2 938 3 626 Equities and similar securities 165 582 151 190 Public sector stocks and loans 58 831 57 347 Debentures, insurance policies, preference shares and other loans 35 002 31 586 Cash, deposits and similar securities 51 487 48 980 Deferred tax 640 932 Non-current assets held for sale 1 390 - Short-term insurance technical assets 1 831 1 560 Working capital assets 40 138 40 071 Trade and other receivables 25 761 27 883 Cash, deposits and similar securities 14 377 12 188 Total assets 382 203 361 191
Equity and liabilities Shareholders` fund 33 822 31 778 Minority shareholders` interest 3 046 2 608 Total equity 36 868 34 386 Long-term policy liabilities 282 421 265 695 Insurance contracts 135 742 132 985 Investment contracts 146 679 132 710 Term finance 6 295 6 766 Margin business 2 414 3 115 Other interest-bearing liabilities 3 881 3 651 Derivative liabilities 212 - External investors in consolidated funds 11 592 11 655 Cell owners` interest 603 577 Deferred tax 902 1 178 Short-term insurance technical provisions 8 682 7 945 Working capital liabilities 34 628 32 989 Trade and other payables 32 502 30 422 Provisions 423 617 Taxation 1 703 1 950 Total equity and liabilities 382 203 361 191 Statement of comprehensive income for the year ended 31 December 2011 2011 2010 R million R million Net income 54 278 67 285 Financial services income 36 663 33 737 Reinsurance premiums paid (3 661) (3 040) Reinsurance commission received 392 307 Investment income 14 603 15 344 Investment surpluses 4 843 21 831 Finance cost - margin business (203) (216) Change in fair value of external investors liability 1 641 (678) Net insurance and investment contract (31 437) (44 640) benefits and claims Long-term insurance contract benefits (15 322) (22 928) Long-term investment contract benefits (7 199) (13 444) Short-term insurance claims (10 766) (9 520) Reinsurance claims received 1 850 1 252 Expenses (14 187) (13 290)
Sales remuneration (4 959) (4 870) Administration costs (9 228) (8 420) Impairments (36) - Amortisation of intangibles (128) (103) Net operating result 8 490 9 252 Equity-accounted earnings 421 329 Finance cost - other (336) (309) Profit before tax 8 575 9 272 Taxation (2 510) (2 757) Shareholders` fund (1 903) (1 911) Policyholders` fund (607) (846)
Profit for the year 6 065 6 515 Other comprehensive income Movement in foreign currency translation reserve 541 (517) Comprehensive income for the year 6 606 5 998 Statement of comprehensive income for the year ended 31 December 2011 (continued) 2011 2010
R million R million Allocation of comprehensive income: Profit for the year 6 065 6 515 Shareholders` fund 5 166 5 523 Minority shareholders` interest 899 992
Comprehensive income for the year 6 606 5 998 Shareholders` fund 5 601 5 115 Minority shareholders` interest 1 005 883 Earnings attributable to shareholders of the company (cents): Basic earnings per share 266,9 280,4 Diluted earnings per share 257,7 272,2 Statement of changes in equity for the year ended 31 December 2011 2011 2010
R million R million Shareholders` fund: Balance at beginning of the year 31 778 29 644 Comprehensive income 5 601 5 115 Profit for the year 5 166 5 523 Other comprehensive income: movement in foreign currency translation reserve 435 (408) Net acquisition of treasury shares (1) (1 144) (1 074) Share-based payments 239 191 Dividends paid (2) (2 261) (2 096) Change in ownership of subsidiaries (391) (2) Balance at end of the year 33 822 31 778 Minority shareholders` interest: Balance at beginning of the year 2 608 2 513 Comprehensive income 1 005 883 Profit for the year 899 992 Other comprehensive income: movement in foreign currency translation reserve 106 (109) Net acquisition of treasury shares(1) (22) (98) Share-based payments 28 32 Dividends paid (2) (455) (629) Change in ownership of subsidiaries (118) (93) Balance at end of the year 3 046 2 608 Shareholders` fund 31 778 29 644 Minority shareholders` interest 2 608 2 513 Total equity at beginning of the year 34 386 32 157 Shareholders` fund 33 822 31 778 Minority shareholders` interest 3 046 2 608 Total equity at end of the year 36 868 34 386 (1) Includes movement in cost of shares held by subsidiaries and the share incentive trust. (2) Dividend of 115 cents per share declared during 2011 (2010: 104 cents per share) in respect of the 2010 financial year. Cash flow statement for the year ended 31 December 2011 2011 2010
R million R million Net cash flow from operating activities 18 929 904 Net cash flow from investment activities (12 562) 313 Net cash flow from financing activities (1 674) (1 037) Net increase in cash and cash equivalents 4 693 180 Cash, deposits and similar securities at 61 164 60 984 beginning of the year Cash, deposits and similar securities at end 65 857 61 164 of the year Notes to the financial statements for the year ended 31 December 2011 2011 2010
cents cents 1. Earnings per share Basic earnings per share: Headline earnings 259,1 260,0 Profit attributable to shareholders` fund 266,9 280,4 Diluted earnings per share: Headline earnings 250,1 252,4 Profit attributable to shareholders` fund 257,7 272,2 R million R million Analysis of earnings: Profit attributable to shareholders` fund 5 166 5 523 Less: Net profit on disposal of operations (186) (404) Plus: Impairment of investments and 35 3 goodwill Headline earnings 5 015 5 122 million million Number of shares:
Number of ordinary shares in issue at beginning of year 2 100,0 2 160,0 Less: Weighted number of shares cancelled - (50,0) Less: Weighted Sanlam shares held by subsidiaries (including (164,8) (140,0) policyholders) Adjusted weighted average number of shares for basic earnings per share 1 935,2 1 970,0 Add: Weighted conversion of deferred 34,2 26,0 shares Add: Total number of shares and options 36,5 34,9 Less: Number of shares (under option) that would have been issued at fair value (1,0) (1,9) Adjusted weighted average number of shares for diluted earnings per share 2 004,9 2 029,0 2. Segmental information 2011 2010 R million R million Segment financial services income (per shareholders` fund information) 34 342 31 839 Sanlam Personal Finance 10 935 9 758 Sanlam Emerging Markets 2 279 2 401 Sanlam Investments 5 997 5 558 Santam 15 041 14 010 Corporate and other 90 112 IFRS adjustments 2 321 1 898 Total financial services income 36 663 33 737
Segment result (per shareholders` fund information after tax and minorities) 5 174 5 544 Sanlam Personal Finance 2 911 3 248 Sanlam Emerging Markets 420 310 Sanlam Investments 1 041 1 633 Santam 801 914 Corporate and other 1 (561) Reverse minority shareholders` interest included in segment result 899 992 Fund transfers (8) (21) Total profit for the year 6 065 6 515
3. Contingent liabilities Shareholders are referred to the contingent liabilities disclosed in the 2011 annual report. The circumstances surrounding the contingent liabilities remain materially unchanged. 4. Subsequent events No material facts or circumstances have arisen between the dates of the statement of financial position and this report that affect the financial position of the Sanlam Group at 31 December 2011 as reflected in these financial statements. Administration 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 (primary listing): SLM NSX share code: SLA ISIN: 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, P Buthelezi, FA du Plessis, MV Moosa, JP Moller (1), YG Muthien (1), TI Mvusi (1), SA Nkosi, I Plenderleith (2), P Rademeyer, RV Simelane, CG Swanepoel, ZB Swanepoel, PL Zim (1) Executive (2) British Bellville 8 March 2012 Sponsor Deutsche Securities (SA) (Proprietary) Limited Date: 08/03/2012 08:00:03 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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