Wrap Text
Reviewed interim report for Santam Limited and its subsidiaries for the six months ended 30 June 2012
Santam Limited and its subsidiaries
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
Reviewed interim report for Santam Limited and its subsidiaries for the
six months ended 30 June 2012
- Gross written premium growth of 10%
- Underwriting margin of 6.1% within target range
- 38% increase in investment income
- Group solvency ratio of 41%
- MiWay achieves maiden profits
- Strong cash generation
- Tax charge significantly impacted by STC on special dividend and CGT
inclusion rate change
- Interim dividend of 230 cents per share, up 15%
Financial review
The Santam group maintained its growth momentum and achieved excellent
gross written premium growth of 10% when compared to June 2011, while
keeping the underwriting margin solidly within the medium-term targeted
range of 5% to 7%. An underwriting margin of 6.1% was achieved against
8.4% for the comparative period in 2011 and 7.1% for the second half of
2011.
Compared to 2011, investment results were significantly higher mainly
driven by an improvement in fair value movements on equities. The income
before tax of R927 million was 1% higher than the 2011 level achieved.The
income tax charge increased by over 84% when compared to 2011. The most
significant taxation drivers were the STC on the special dividend paid in
the first half of the year with an impact of R96 million, as well as an
increase in the deferred tax provision on fair value movements of equities
due to the increase in the CGT inclusion rate effective from 2013, with an
impact of R59 million. This resulted in headline earnings decreasing by
29%. Cash flow from operations was higher than for June 2011 while the
solvency margin was at 41% at the end of June 2012, well within the
targeted range of 35% to 45%.
The 2012 net underwriting result of R471 million was 21% below the R594
million achieved in 2011, significantly impacted by the flooding in
Mpumalanga in January 2012 and some large fire claims early in the year,
which adversely affected the property book of the core Santam personal
lines and commercial business unit. Our diverse book of business, together
with a continuous focus on risk management to further improve the quality
and diversity of the risk pool, provided relief from this impact. The
motor book continued to perform well, although not at the exceptional
levels reported in 2011. Margins in the specialist classes were
satisfactory with the exception of the liability business in the
specialist underwriting manager Stalker Hutchison Admiral where we have
seen a deterioration in the net claims ratio which is due to softer rating
conditions and claims paid falling within our retention and consequent low
reinsurance recoveries. Improved management practices in the portfolio
administration business continued to deliver satisfactory underwriting
results. MiWay and Santam Re produced results above expectation with MiWay
producing their maiden six-month profitable results.
Despite the prevailing uncertainty in the economy and pressure on
consumers, Santam’s continued focus on its strategic growth initiatives,
including the diversification of distribution channels and improvement of
existing channels, resulted in the achievement of excellent growth of 10%
in gross written premium. Positive growth was achieved across all
significant insurance classes.
The net acquisition cost ratio of 27.8% increased marginally from 27.7% in
2011. The aim remains to manage the acquisition cost ratio down in the
medium to long term, but taking cognisance of our business composition and
regulatory changes in the industry, as well as the impact of investment in
strategic change projects in the core Santam business.
Investment returns on insurance funds of R204 million increased from the
R193 million earned in 2011, mainly due to a higher float balance. As a
percentage of net premium investment returns on insurance funds reduced
slightly from 2.7% in 2011 to 2.6%.
The combined effect of insurance activities resulted in a net insurance
income of R674 million or an 8.8% margin, compared to R787 million and a
margin of 11.2% in 2011. The net insurance margin for the second half of
2011 was 9.6%.
Performance of the investment portfolio was positively impacted by the
realisation of positive fair value movements on equities which were sold
in anticipation of the payment of the special dividend in March. This was
set off to some extent by unrealised fair value movements at the end of
June. Interest and dividend income was up from 2011 by 9% and 27%
respectively. The result was a significant increase in investment income,
excluding investment returns on insurance funds, when compared to 2011.
Santam’s investment portfolio performance was in line with the benchmarks
set in the investment mandates.
Net earnings from associated companies of R42 million decreased from R46
million in 2011. Earnings from Credit Guarantee Insurance Corporation of
Africa Ltd improved while earnings from NICO Holdings Ltd in Malawi
deteriorated somewhat compared to the prior reporting period.
The group generated healthy cash flow from operations, amounting to R1.3
billion.
At 30 June 2012 the group’s international solvency ratio was 41%, compared
to the 48% reported in December 2011 following the payment of a special
dividend in March 2012. Santam remains committed to maximise the return on
shareholders’ capital within an appropriate risk framework. R1 434 million
was released from other reserves to distributable reserves due to a
contingency reserve no longer being required by the Financial Services
Board.
The board would like to extend its gratitude to Santam’s management,
staff, brokers and other business partners for their efforts and
contributions during the past six months.
Prospects
It is expected that South Africa’s GDP growth will be less than 3% in
2012. Headline inflation is expected to average below 6% for the year.
Short-term insurance industry growth for the first half of the year was
very subdued, mainly due to soft premium rates in the market.
It is expected that while competitive forces may suppress premium rates in
the short term, drivers of premium rates, being frequency, average claims
cost, and reinsurance cost, will inevitably result in a hardened premium
rate environment. Santam will continue to apply selective increases
through our market and risk segmentation approach. The weaker rand is also
expected to apply upward pressure on claims cost, most notably on the cost
of motor vehicle repairs due to the increased cost of imported vehicle
parts. Our continued efforts to reduce claims cost are expected to absorb
some of the impact of the upward cost pressure. The underwriting margin
for the second half of the year is expected to remain at the upper end of
the target range, assuming the absence of large catastrophic events.
Nominal interest rates are now expected to remain at low levels well into
2013. Therefore, interest received is not expected to be higher in the
second half of the year, implying a flat return on insurance funds for
2012 compared to 2011. It is expected that uncertainty and volatility will
remain in the investment markets due to the impact of the instability in
Europe.
Events after the reporting period
There have been no material changes in the affairs or financial position
of the company and its subsidiaries since the statement of financial
position date.
Declaration of dividend (Number 117)
Notice is hereby given that the board has declared an interim dividend of
230 cents per share (2011: 200 cents). Shareholders are advised that the
last day to trade “cum dividend” will be Friday, 14 September 2012. The
shares will trade “ex dividend” from the commencement of business on
Monday, 17 September 2012. The record date will be Friday, 21 September
2012 and the payment date will be Tuesday, 25 September 2012. Certificated
shareholders may not dematerialise or rematerialise their shares between
17 September 2012 and 21 September 2012, both dates inclusive.
The dividend has been declared from income reserves and will be subject to
the new dividends tax that was introduced with effect from 1 April 2012.
There are R19 187 021 STC credits available for utilisation. Accordingly
the Secondary Tax on Companies (“STC”) credit available is 16.07675 cents
per share. The amount per share subject to the withholding of dividends
tax at a maximum rate of 15% is therefore 213.92325 cents per share. A net
dividend of 197.91151 cents per share will apply to shareholders liable
for dividends tax at a rate of 15% and 230 cents per share for
shareholders that qualify for complete exemption therefrom. The issued
ordinary share capital as at 29 August 2012 is 119 346 417 shares. The
company’s income tax reference number is 9475/144/71/4.
In terms of the dividends tax legislation, the dividends tax amount due
will be withheld and paid over to the South African Revenue Service (SARS)
by a nominee company, stockbroker or Central Security Depository
Participant (CSDP) (collectively “Regulated Intermediary”) on behalf of
shareholders. However, all shareholders should declare their status to
their Regulated Intermediary, as they may qualify for a reduced dividends
tax rate or they may even be exempt from dividends tax. The increase in
the dividend per share includes a once-off adjustment of 7% to the
dividend per share declared was made to account for the STC saving for the
company resulting from the introduction of dividends tax.
Preparation and presentation of financial statements
The preparation of the reviewed financial statements was supervised by the
financial director of Santam Ltd, MJ Reyneke.
Auditors’ report
The company’s external auditors, PricewaterhouseCoopers Inc, have reviewed
the condensed interim financial report. A copy of their unqualified review
opinion is available on request at the company’s registered office.
Retirement of executive director
Machiel Reyneke earlier this year announced his intention to retire in
2012. His retirement will be effective during September 2012. He will
however, remain on the board as a non-executive director of the company.
He played an important role in the group over the years as chief financial
officer (CFO) and as a member of the leadership team. Santam expresses its
gratitude to him for ten years of dedicated service to the group and we
look forward to his contribution as a non-executive director. As
previously announced, Mr Reyneke’s responsibilities as CFO will be assumed
by Hennie Nel as from 17 September 2012. The Santam board welcomes Hennie
to the company as CFO and executive director.
On behalf of the board
VP Khanyile IM Kirk
Chairman Chief Executive Officer
29 August 2012
Consolidated statement of financial position
Reviewed Reviewed Audited
At At At
30 June 30 June 31 Dec
2012 2011 2011
Notes R million R million R million
Assets
Non-current assets
Property and equipment 81 72 80
Intangible assets 1 024 1 018 994
Deferred income tax 196 237 207
Investment in associates 257 241 274
Financial assets – at fair value
through income
Equity securities 6 3 230 3 884 3 856
Debt securities 6 6 655 5 286 6 160
Derivatives 6 4 – 1
Financial assets – at amortised
Cost
Cell owners’ interest 33 17 40
Reinsurance assets 7 149 302 244
Current assets
Financial assets – at fair value
through income
Short-term money market
instruments 6 1 251 1 848 1 775
Reinsurance assets 7 1 542 1 013 1 256
Deferred acquisition costs 320 243 332
Loans and receivables including
insurance receivables 1 492 2 010 1 836
Income tax assets 44 21 36
Cash and cash equivalents 1 821 2 160 1 598
Total assets 18 099 18 352 18 689
Equity
Capital and reserves attributable to
the company’s equity holders
Share capital 107 107 107
Treasury shares (588) (648) (635)
Other reserves 26 1 354 1 492
Distributable reserves 5 602 4 667 5 072
5 147 5 480 6 036
Non-controlling interest 98 88 105
Total equity 5 245 5 568 6 141
Liabilities
Non-current liabilities
Deferred income tax 195 249 115
Financial liabilities – at fair
value through income
Debt securities 6 1 005 919 964
Derivatives 6 – 3 –
Financial liabilities – at
amortised cost
Cell owners’ interest 644 612 643
Insurance liabilities 7 1 323 1 377 1 404
Provisions for other liabilities
and charges – 2 1
Current liabilities
Financial liabilities – at fair
value through income
Debt securities 6 24 24 24
Investment contracts 6 71 472 104
Derivatives 6 – 21 –
Financial liabilities – at
amortised cost
Collateral guarantee contracts 72 111 114
Insurance liabilities 7 7 214 6 591 7 071
Deferred reinsurance acquisition
revenue 93 11 102
Provisions for other liabilities
and charges 103 29 105
Trade and other payables 2 046 2 136 1 828
Current income tax liabilities 64 227 73
Total liabilities 12 854 12 784 12 548
Total shareholders’ equity and
liabilities 18 099 18 352 18 689
Consolidated statement of comprehensive income
Reviewed Reviewed
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 Dec
2012 2011 Change 2011
Notes R million R million % R million
Gross written premium 9 050 8 228 10% 17 707
Less: Reinsurance premium 1 739 1 293 3 033
Net premium 7 311 6 935 5% 14 674
Less: change in unearned
premium
Gross amount (299) (138) 241
Reinsurers’ share (92) 45 (219)
Net insurance premium revenue 7 702 7 028 10% 14 652
Investment income 8 337 301 12% 676
Income from reinsurance
contracts ceded 245 183 321
Net gains on financial assets
and liabilities at fair value
through income 8 177 70 189
Net income 8 461 7 582 12% 15 838
Insurance claims and loss
adjustment expenses 5 848 5 229 10 788
Insurance claims and loss
adjustment expenses recovered (759) (742) (1 384)
from reinsurers
Net insurance benefits and
claims 5 089 4 487 13% 9 404
Expenses for the acquisition
of insurance contracts 1 269 1 220 2 324
Expenses for marketing and
administration 1 118 910 2 114
Expenses for asset management
services rendered 16 14 28
Amortisation of intangible
assets 24 33 68
Expenses 7 516 6 664 13% 13 938
Results of operating
activities 945 918 3% 1 900
Finance costs (60) (48) (94)
Share of profit of associates 42 46 85
Profit before tax 927 916 1% 1 891
Income tax expense 9 (430) (234) (486)
Profit for the period 497 682 (27%) 1 405
Other comprehensive income
Currency translation
differences (32) 25 108
Total comprehensive income for
the period 465 707 1 513
Profit attributable to:
– equity holders of the
company 475 670 (29%) 1 376
– non-controlling interest 22 12 29
497 682 1 405
Total comprehensive income
attributable to:
– equity holders of the
company 443 695 (36%) 1 484
– non-controlling interest 22 12 29
465 707 1 513
Earnings attributable to
equity shareholders
Earnings per share (cents) 12
Basic earnings per share 419 593 (29%) 1 216
Diluted earnings per share 415 584 (29%) 1 202
Weighted average number of
shares – millions 113.33 113.07 113.15
Weighted average number of
ordinary shares for diluted
earnings per share – millions 114.43 114.70 114.47
Consolidated statement of changes in equity
Non-
control-
Attributable to equity holders of the ling
company interest Total
Distrib-
Share Treasury Other utable
capital shares reserves reserves
R million R million R million R million R million R million
Balance as at
1 January 2011 107 (651) 1 265 4 405 93 5 219
Profit for the
period – – – 1 376 29 1 405
Other
comprehensive
income:
Currency
translation
differences – – 108 – – 108
Total
comprehensive
income for the
period ended
31 December 2011 – – 108 1 376 29 1 513
Purchase of
treasury shares – (37) – – – (37)
Sale of treasury
shares – 53 – – – 53
Loss on sale of
treasury shares – – – (68) – (68)
Transfer to
reserves – – 119 (119) – –
Share-based
payments – – – 63 – 63
Transfer to
share-based
payment liability – – – (30) - (30)
Dividends paid – – – (593) (25) (618)
Net excess
received on
acquisition of
non-controlling
interest – – – 38 – 38
Interest acquired
from non-
controlling
interest – – – – 8 8
Balance as at
31 December 2011 107 (635) 1 492 5 072 105 6 141
Profit for the
period – – – 475 22 497
Other
comprehensive
income:
Currency
translation
differences – – (32) – – (32)
Total
comprehensive
income for the
period ended
30 June 2012 – – (32) 475 22 465
Sale of treasury
shares – 47 – – – 47
Loss on sale of
treasury shares – – – (46) – (46)
Transfer to
reserves – – (1 434) 1 434 – –
Share-based
payments – – – 32 – 32
Dividends paid – – – (1 365) (31) (1 396)
Interest acquired
from non-
controlling
interest – – – – 2 2
Balance as at
30 June 2012 107 (588) 26 5 602 98 5 245
Balance as at
1 January 2011
Profit for the
period 107 (651) 1 265 4 405 93 5 219
Other
comprehensive
income: – – – 670 12 682
Currency
translation
differences – – 25 – – 25
Total
comprehensive
income for the
period ended
30 June 2011 – – 25 670 12 707
Purchase of
treasury shares – (37) – – – (37)
Sale of treasury
shares – 40 – – – 40
Loss on sale of
treasury shares – – – (39) – (39)
Transfer to
reserves – – 64 (64) – –
Share-based
payments – – – 24 – 24
Dividends paid – – – (367) (24) (391)
Net excess
received on
acquisition of
non-controlling
interest – – – 38 – 38
Interest acquired
from non-
controlling
interest – – – – 7 7
Balance as at
30 June 2011 107 (648) 1 354 4 667 88 5 568
Consolidated statement of cash flows
Reviewed Reviewed
Six months Six months
ended ended Audited
30 June 30 June Year ended
2012 2011 31 Dec 2011
Notes R million R million R million
Cash generated from operations 1 302 1 289 2 522
Interest paid (60) (73) (119)
Income tax paid (357) (292) (813)
Net cash from operating
activities 885 924 1 590
Cash flows from investing
activities
Cash generated in investment
activities 881 790 201
Acquisition of subsidiary 10 – (240) (343)
Cash acquired through
acquisition of subsidiary 10 – 3 3
Purchases of equipment (25) (12) (39)
Purchases of software (14) (18) (28)
Proceeds from sale of equipment 1 – 1
Acquisition of associated
companies (3) – –
Acquisition of book of business (42) – –
Net cash from investing
activities 798 523 (205)
Cash flows from financing
activities
Purchase of treasury shares – (37) (37)
Proceeds on sale of treasury
shares – 4 4
Decrease in investment contract
liabilities (35) (35) (413)
Decrease in collateral guarantee
contracts (45) – –
Dividends paid to company’s
shareholders (1 365) (367) (593)
Dividends paid to non-
controlling interest (31) (24) (25)
Increase in cell owners’
interest 8 18 26
Net cash used in financing
activities (1 468) (441) (1 038)
Net increase in cash and cash
equivalents 215 1 006 347
Cash and cash equivalents at
beginning of period 1 598 1 143 1 143
Exchange gains on cash and cash
equivalents 8 11 108
Cash and cash equivalents at end
of period 1 821 2 160 1 598
Notes to the interim financial information
1. Basis of presentation
These condensed consolidated interim financial statements for the six
months ended 30 June 2012 have been prepared in accordance with IAS 34 –
Interim Financial Reporting and in compliance with the Listings
Requirements of the JSE Limited. The condensed consolidated interim
financial statements do not include all of the information required by
IFRS for full annual financial statements and should be read in
conjunction with the annual financial statements for the year ended 31
December 2011, which have been prepared in accordance with IFRSs.
2. Accounting policies
The accounting policies adopted are consistent with those of the previous
financial year.
There are no new IFRSs or IFRICs that are effective for the first time for
this interim period that are expected to have a material impact on the
group.
Taxes on income in the interim period are accrued using the tax rate that
would be applicable to the expected total annual profit or loss.
3. Estimates
The preparation of interim financial statements requires management to
make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities,
income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements,
the significant judgements made by management in applying the group’s
accounting policies and the key sources of estimation uncertainty were the
same as those that applied to the consolidated financial statements for
the year ended 31 December 2011.
4. Risk management
The group’s activities expose it to a variety of financial risks: market
risk (including price risk, interest rate risk, foreign currency risk and
derivatives risk), credit risk and liquidity risk. Insurance activities
expose the group to insurance risk. This risk includes pricing risk,
reserving risk, accumulation risk and reinsurance risk. The group is also
exposed to operational risk and legal risk.
The capital risk management philosophy is to maximise the return on
shareholders’ capital within an appropriate risk framework.
The condensed interim consolidated financial statements do not include all
risk management information and disclosure required in the annual
financial statements and should be read in conjunction with the group’s
annual financial statements as at 31 December 2011.
There have been no changes in the risk management policies since year-end.
5. Segment information
The group’s internal reporting is reviewed in order to assess performance
and allocate resources. The operating segments identified are
representative of the internal structure of the group.
Two core activities of the group, i.e. insurance activities and investment
activities, are reviewed on a monthly basis. Insurance activities are all
insurance underwriting activities undertaken by the group and comprise
commercial insurance, personal insurance and alternative risks. Insurance
activities are also further analysed by insurance class. Investment
activities are all investment-related activities undertaken by the group.
The performance of insurance activities is considered based on gross
written premium as a measure of growth as well as underwriting result and
net insurance result as a measure of profitability.
Investment activities are measured based on net investment income and
income from associated companies.
5.1 For the six months ended 30 June 2012
Invest-
Insurance ment
activities activities Total
Business activity R million R million R million
Revenue 9 050 290 9 340
Gross written premium 9 050 9 050
Net written premium 7 311 7 311
Net earned premium 7 702 7 702
Claims incurred 5 089 5 089
Net commission 1 024 1 024
Management expenses 1 116 2 1 118
Underwriting result 473 (2) 471
Investment return on
insurance funds 204 204
Net insurance result 677 (2) 675
Investment income net of
management fee and finance
costs 234 234
Income from associates 42 42
Amortisation of intangible
assets (24) (24)
Income before taxation 653 274 927
Total assets 7 952 10 147 18 099
Total liabilities 11 825 1 029 12 854
Gross Under- Total
written writing Total liabili-
premium result assets ties
Insurance class R million R million R million R million
Accident and health 137 (12) 38 152
Alternative risk 948 5 371 1 859
Crop 76 34 45 76
Engineering 444 48 366 651
Guarantee 9 3 4 19
Liability 552 96 275 1 820
Miscellaneous 10 – 1 16
Motor 4 047 186 145 1 766
Property 2 586 66 710 2 058
Transportation 241 47 54 213
Unallocated – (2) 16 090 4 224
Total 9 050 471 18 099 12 854
Comprising:
Commercial insurance 4 389 348 1 526 5 451
Personal insurance 3 713 120 112 1 320
Alternative risk 948 5 371 1 859
Unallocated – (2) 16 090 4 224
Total 9 050 471 18 099 12 854
5.2 For the six months ended 30 June 2011
Invest-
Insurance ment
activities activities Total
Business activity R million R million R million
Revenue 8 228 172 8 400
Gross written premium 8 228 8 228
Net written premium 6 935 6 935
Net earned premium 7 028 7 028
Claims incurred 4 487 4 487
Net commission 1 037 1 037
Management expenses 904 6 910
Underwriting result 600 (6) 594
Investment return on
insurance funds 193 193
Net insurance result 793 (6) 787
Investment income net of
management fee and finance
costs 116 116
Income from associates 46 46
Amortisation of intangible
assets (33) (33)
Income before taxation 760 156 916
Total assets 9 666 8 686 18 352
Total liabilities 11 816 968 12 784
Gross
written Underwriting Total Total
premium result assets liabilities
Insurance class R million R million R million R million
Accident and health 136 21 10 127
Alternative risk 817 (6) 289 1 761
Crop 67 25 26 51
Engineering 330 64 119 280
Guarantee 7 3 10 24
Liability 538 113 415 1 914
Miscellaneous 7 1 1 11
Motor 3 749 212 51 1 754
Property 2 393 115 576 1 841
Transportation 184 52 62 218
Unallocated – (6) 16 793 4 803
Total 8 228 594 18 352 12 784
Comprising:
Commercial insurance 4 010 503 1 151 4 846
Personal insurance 3 401 103 119 1 374
Alternative risk 817 (6) 289 1 761
Unallocated – (6) 16 793 4 803
Total 8 228 594 18 532 12 784
5.3 For the year ended 31 December 2011
Insurance Invest-
activities ment Total
Business activity R million active- R million
ties
R million
Revenue 17 707 468 18 175
Gross written premium 17 707 17 707
Net written premium 14 674 14 674
Net earned premium 14 652 14 652
Claims incurred 9 404 9 404
Net commission 2 003 2 003
Management expenses 2 103 11 2 114
Underwriting result 1 142 (11) 1 131
Investment return on
insurance funds 388 388
Net insurance result 1 530 (11) 1 519
Investment income net of
management
fee and finance costs 355 355
Income from associates 85 85
Amortisation of intangible
asset (68) – (68)
Income before taxation 1 462 429 1 891
Total assets 8 398 10 291 18 689
Total liabilities 11 560 988 12 548
Gross Under- Total
written writing Total liabili-
premium result assets ties
Insurance class R million R million R million R million
Accident and health 286 45 31 137
Alternative risk 1 924 (5) 354 1 941
Crop 575 12 234 386
Engineering 736 120 167 382
Guarantee 17 9 6 20
Liability 1 157 142 341 1 950
Miscellaneous 16 1 1 13
Motor 7 621 471 48 1 608
Property 4 981 256 613 1 930
Transportation 394 91 39 212
Unallocated – (11) 16 855 3 969
Total 17 707 1 131 18 689 12 548
Comprising:
Commercial insurance 8 844 940 1 425 5 402
Personal insurance 6 939 207 55 1 236
Alternative risk 1 924 (5) 354 1 941
Unallocated – (11) 16 855 3 969
Total 17 707 1 131 18 689 12 548
6. Financial assets and liabilities at fair value through income
Fair value estimation
The table below analyses financial instruments, carried at fair value
through income, by valuation method. The different levels have been
defined as follows:
– Level 1: Quoted prices (unadjusted) in active markets for identical
assets or liabilities
– Level 2: Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that is,
prices) or indirectly (that is, derived from prices)
– Level 3: Inputs for the asset or liability that are not based on
observable data (that is, unobservable inputs)
Reviewed Reviewed Audited
At At At
30 June 30 June 31 Dec
Financial assets at fair value through 2012 2011 2011
income R million R million R million
The group’s financial assets are
summarised below by measurement
category.
Total financial assets 11 140 11 018 11 792
Level 1 Level 2 Level 3 Total
June 2012 R million R million R million R million
Equity securities
Quoted
Listed 2 730 – – 2 730
Unitised funds – 80 – 80
Irredeemable preference
shares 2 - - 2
Unquoted – – 418 418
Total equity securities 2 732 80 418 3 230
Debt securities
Quoted
Government and public
bonds 1 647 118 – 1 765
Unitised funds – 269 – 269
Money market
instruments > 1 year – 1 496 – 1 496
Unquoted
Government and public
bonds – 42 – 42
Money market
instruments > 1 year – 2 800 – 2 800
Redeemable preference
shares – – 283 283
Total debt securities 1 647 4 725 283 6 655
Derivatives
Interest rate swaps – – 4 4
Total derivatives – – 4 4
Short-term money market
instruments – 1 251 – 1 251
4 379 6 056 705 11 140
Level 1 Level 2 Level 3 Total
June 2011 R million R million R million R million
Equity securities
Quoted
Listed 3 484 – – 3 484
Unitised funds – 39 – 39
Irredeemable
preference shares 2 – – 2
Unquoted – – 359 359
Total equity securities 3 486 39 359 3 884
Debt securities
Quoted
Government and public
bonds 1 665 83 – 1 748
Unitised funds – 383 – 383
Money market
instruments > 1 year – 1 154 – 1 154
Unquoted
Government and public
bonds – 256 – 256
Money market
instruments > 1 year – 1 432 – 1 432
Redeemable
preference shares – – 313 313
Total debt securities 1 665 3 308 313 5 286
Short-term money market
instruments – 1 848 – 1 848
5 151 5 195 672 11 018
December 2011
Equity securities
Quoted
Listed 3 360 – – 3 360
Unitised funds – 80 – 80
Irredeemable
preference shares 2 – – 2
Unquoted – – 414 414
Total equity securities 3 362 80 414 3 856
Debt securities
Quoted
Government and public
bonds 1 575 182 – 1 757
Unitised funds – 392 – 392
Money market
instruments > 1 year – 1 371 – 1 371
Unquoted
Government and public
bonds – 167 – 167
Money market
instruments > 1 year – 2 197 – 2 197
Redeemable
preference shares – – 276 276
Total debt securities 1 575 4 309 276 6 160
Derivatives
Interest rate swaps – – 1 1
Total derivatives – – 1 1
Short-term money market
instruments – 1 775 – 1 775
4 937 6 164 691 11 792
Reviewed Reviewed Audited
At At At
30 June 30 June 31 Dec
Financial liabilities at fair value 2012 2011 2011
through income R million R million R million
The group’s financial liabilities are
summarised below by measurement
category.
Total financial liabilities 1 100 1 439 1 092
Level 1 Level 2 Level 3 Total
June 2012 R million R million R million R million
Debt securities 1 029 – – 1 029
Investment contracts – 71 – 71
1 029 71 – 1 100
June 2011
Debt securities 943 – – 943
Investment contracts – 472 – 472
Derivatives
Interest rate swaps – – 3 3
Fence – – 21 21
Total derivatives – – 24 24
943 472 24 1 439
December 2011
Debt securities 988 – – 988
Investment contracts – 104 – 104
988 104 – 1 092
During 2007 the company issued unsecured subordinated callable notes to
the value of R1 billion in two tranches. The fixed effective rate for
the R600 million issue was 8.6% and 9.6% for the second tranche of R400
million, representing the R203 companion bond plus an appropriate
credit spread at the time of the issues. The fixed coupon rate, based
on the nominal value of the issues, amounts to 8.25% and for both
tranches the optional redemption date is 15 September 2017. Between the
optional redemption date and final maturity date of 15 September 2022,
a variable interest rate (JIBAR-based plus additional margin) will
apply.
Per the conditions set by the Regulator, Santam is required to maintain
liquid assets equal to the value of the callable notes until maturity.
The callable notes are therefore measured at fair value to minimise
undue volatility in net profit.
Reviewed Reviewed Audited
At At At
30 June 30 June 31 Dec
2012 2011 2011
R million R million R million
7. Insurance liabilities and reinsurance
assets
Gross
Long-term insurance contracts
– claims reported and loss
adjustment expenses – – –
– claims incurred but not reported 9 10 9
Short-term insurance contracts
– claims reported and loss
adjustment expenses 4 458 4 072 4 191
– claims incurred but not reported 1 333 1 253 1 246
– unearned premiums 2 737 2 633 3 029
Total insurance liabilities – gross 8 537 7 968 8 475
Recoverable from reinsurers
Long-term insurance contracts
– claims reported and loss
adjustment expenses – – –
– claims incurred but not reported 1 1 1
Short-term insurance contracts
– claims reported and loss
adjustment expenses 895 877 920
– claims incurred but not reported 229 186 150
– unearned premiums 566 251 429
Total insurance liabilities – 1 691 1 315 1 500
reinsurers’ share
Net
Long-term insurance contracts
– claims reported and loss
adjustment expenses – – –
– claims incurred but not reported 8 9 8
Short-term insurance contracts
– claims reported and loss
adjustment expenses 3 563 3 195 3 271
– claims incurred but not reported 1 104 1 067 1 096
– unearned premiums 2 171 2 382 2 600
Total insurance liabilities – net 6 846 6 653 6 975
Reviewed Reviewed Audited
At At At
30 June 30 June 31 Dec
2012 2011 2011
R million R million R million
8. Investment income and net
gains/(losses) on financial assets and
liabilities at fair value through
income
Dividend income 88 69 150
Interest income 248 227 436
Foreign exchange differences 1 4 90
Net realised gains on financial assets 322 51 140
Net fair value (losses)/gains on
financial assets at fair value through
income (103) (39) 21
Net fair value (losses)/gains on
financial assets held for trading (3) 11 9
Net realised/fair value gains on
derivatives 3 54 80
Net fair value gains on financial
liabilities at fair value through
income (42) (6) (61)
Net fair value (losses)/gains
on debt securities (40) 5 (39)
Net fair value losses on
investment contracts (2) (11) (22)
514 371 865
9. Income tax
South African normal taxation
Current year 319 234 567
Charge for the year 180 200 531
STC 139 34 36
Prior year 10 1 (4)
Foreign taxation 14 13 34
Income taxation for the year 343 248 597
Deferred taxation 87 (14) (111)
Current year 83 (13) (111)
STC 4 (1) –
430 234 486
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0 28.0
Adjust for
– Exempt income (2.5) (2.1) (2.2)
– Investment results (2.0) (2.2) (1.9)
– Change in CGT inclusion rate 6.5 – –
– STC 15.5 3.6 1.9
– Other 0.9 (1.8) -
Net increase/(reduction) 18.4 (2.5) (2.2)
Effective rate 46.4 25.5 25.8
Reviewed Reviewed
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 Dec
2012 2011 2011
R million R million R million
10. Business combinations
Sale of subsidiary
a) Stilus Underwriting
Managers (Pty) Ltd
On 1 January 2012, the Santam Group
sold its 60% interest in Stilus
Underwriting Managers (Pty) Ltd.
Details of the assets and
liabilities sold are as follows:
Deferred taxation 2
Trade and other payables (4)
Net asset value sold (2) – –
Plus: Non-controlling interest 2
Purchase consideration received – – –
2011
Acquisition/Increase in shareholding
a) MiWay Group Holdings (Pty) Ltd
During the year the deferred purchase consideration for MiWay Group
Holdings (Pty) Ltd was settled in cash. A profit of R4 million was
recognised in the statement of comprehensive income.
b) Mirabilis Engineering Underwriting Managers (Pty) Ltd
On 1 March 2011, the Santam Group acquired 55% of the voting
equity interest in Mirabilis Engineering Underwriting Managers
(Pty)Ltd by merging its construction and engineering business into
Mirabilis. The new merged entity will be the leading engineering
underwriter in the South African market.
b)
Mirabilis
Engineer-
ing
a) MiWay Under-
Group writing
Holdings Managers
Details of the assets and liabilities Ltd (Pty) Ltd Total
acquired at fair value are as follows: R million R million R million
Deferred taxation – (5) (5)
Intangible assets – 18 18
Financial assets at fair value through
income – 5 5
Loans and receivables – 1 1
Cash and cash equivalents – 3 3
Trade and other payables – (4) (4)
Net asset value acquired – 18 18
Goodwill – 28 28
Excess of acquirer’s interest in the
net fair value of the acquiree’s
identifiable assets, liabilities and
contingent liabilities over cost – (38) (38)
Less: Investment in non-controlling
share previously acquired – (8) (8)
Deferred purchase consideration paid 343 – 343
Purchase consideration paid 343 – 343
Reviewed Reviewed
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 Dec
2012 2011 2011
R million R million R million
11. Transactions with non-controlling
parties
a) Mirabilis Engineering Underwriting
Managers (Pty) Ltd
On 1 March 2011, Santam Ltd sold
the non-controlling interest of 45%
in its construction and engineering
business by merging it into
Mirabilis Engineering Underwriting
Managers (Pty) Ltd.
Net excess received on sale of
non-controlling interest – (38) (38)
Settled through acquisition of
Mirabilis Engineering Underwriting
Managers (Pty) Ltd – 38 38
Purchase consideration paid – – –
12. Earnings per share
Basic earnings per share
Profit attributable to the company’s
equity holders (R million) 475 670 1 376
Weighted average number of ordinary
shares in issue (million) 113.33 113.07 113.15
Earnings per share (cents) 419 593 1 216
Diluted earnings per share
Profit attributable to the company’s
equity holders (R million) 475 670 1 376
Weighted average number of ordinary
shares in issue (million) 113.33 113.07 113.15
Adjusted for share-options 1.10 1.63 1.32
Weighted average number of ordinary
shares for diluted earnings per share
(million) 114.43 114.70 114.47
Diluted basic earnings per share
(cents) 415 584 1 202
Headline earnings per share
Profit attributable to the company’s
equity holders 475 670 1 376
Weighted average number of ordinary
shares in issue (million) 113.33 113.07 113.15
Headline earnings per share (cents) 419 593 1 216
Diluted headline earnings per share
Headline earnings (R million) 475 670 1 376
Weighted average number of ordinary
shares for diluted earnings per share
(million) 114.43 114.70 114.47
Diluted headline earnings per share
(cents) 415 584 1 202
13. Dividends per share
Dividend per share (cents) 230 200 555
Special dividend per share (cents) – – 850
Non-executive directors
B Campbell, MD Dunn, MP Fandeso, BTPKM Gamedze, GG Gelink, VP Khanyile
(Chairman), ML Marole, JP Möller, YG Muthien, J van Zyl
Executive directors
IM Kirk (Chief Executive Officer), MJ Reyneke (Chief Financial Officer),
Y Ramiah
Sponsor
Investec Bank Limited
Transfer secretaries
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Tel: 011 370 5000
Fax: 011 688 7721
www.computershare.com
Company secretary
Masood Allie
Santam head office and registered address
1 Sportica Crescent
Tyger Valley
Bellville 7530
PO Box 3881, Tyger Valley 7536
Tel: 021 915 7000
Fax: 021 914 0700
www.santam.co.za
Date: 29/08/2012 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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