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Operational Update - June 2014
Sanlam Limited
(Incorporated in the Republic of South Africa)
Registration number 1959/001562/06
JSE share code: SLM
NSX share code: SLA
ISIN: ZAE000070660
(“Sanlam” or “the Group”)
Operational Update – June 2014
The Group delivered a solid performance in the first four months of 2014 in a challenging operating
environment. Net result from financial services benefited from higher average investment market levels as
well as a marked improvement in Santam’s underwriting margin compared to the first four months of
2013. Continued pressure on consumers’ disposable income and ongoing industrial action in the platinum
mining sector placed significant pressure on new business sales in the South African middle-income and
entry-level market segments. Despite these conditions, good growth was achieved in new business
volumes, supported by the Group’s diversification across products, market segments and geographies. The
operating results reported for the four months to April 2014 include maiden contributions from the
acquisitions concluded during the 2013 financial year, in particular the Capricorn Investment Holdings
(CIH), Pacific & Orient and Shriram Transport Finance Company transactions.
Results
The salient features of the Group’s performance for the four months to April 2014 are:
* New business volumes of R59 billion (excluding white label), up 21% on 2013.
o Personal Finance recorded a 26% increase in new business sales. Sanlam Sky new business volumes
were slightly lower than 2013. Individual recurring premium business reflects satisfactory growth
despite the major impact of industrial action in the platinum sector on sales of Sanlam Sky’s
Rustenburg branch. All other branches delivered growth in line with expectations. Group recurring
premium business declined compared to the same period in 2013, attributable to the biennial
renewal of the ZCC scheme which occurred in 2013 as well as a slower start to the year for the
more volatile group schemes business. Individual life volumes (middle-income market) increased by
a satisfactory 11%, with a continuance of strong growth in single premiums and recurring premium
retirement annuity business. Glacier sales increased by more than 30%.
o Emerging Markets achieved sterling new business growth of 58%, excluding the discontinued
Capricorn Unit Trust business, which was sold as part of the CIH transaction in 2013. All regions
contributed growth in excess of 40%. Excluding the maiden contribution from Pacific & Orient, new
business volumes grew by 47%.
o The Investments cluster increased its new business volumes by 29%, with very strong growth at the
Wealth Management and International operations. The South African asset management
operations delivered growth of 12%, a particularly pleasing result in a very competitive market. Net
business flows of R2,1 billion are lower than the R3,6 billion recorded in the comparable period in
2013. This is essentially due to outflows of two low margin share incentive scheme portfolios at
Sanlam Private Investments amounting to R2,5 billion.
o Value of new life business (VNB) increased by 13% on 2013 on a comparable economic basis.
Excluding the impact of higher long-term interest rates in 2014, VNB margins were maintained on
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an individual product basis at the 2013 levels. A change in mix to lower margin single premium
business, however, resulted in a marginal decline in the overall VNB margin.
o Overall net fund inflows (excluding white label) of R10,7 billion were achieved compared to R9,4
billion in the comparable four-month period in 2013, despite the large outflows referred to above.
o Persistency levels remain within the Group’s assumptions.
* Net result from financial services up by some 40%.
o All business clusters reported strong earnings growth, in excess of 20%.
o The increase in operating profit is in general supported by a relatively higher level of assets under
management as well as maiden contributions from the corporate activity referred to above.
o Santam’s underwriting performance improved significantly compared to the first four months of
2013. This was mainly driven by a turnaround in the crop insurance business during the period
compared to the losses recorded in 2013 and the impact of corrective action taken in the
intermediated business units.
Normalised headline earnings up by some 30%.
o The strong growth in net result from financial services was partly offset by lower investment return
earned on the capital portfolio. A relatively stronger performance in South African equity markets
in 2014 was more than offset by lower return on South African bonds as well as the international
exposure in the portfolio.
* Diluted headline earnings per share, which includes fund transfers recognised in respect of Sanlam
shares held in policyholder portfolios, increased by 23%.
Capital
All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory capital covered its
Capital Adequacy Requirements by 4.1 times on 31 March 2014, after allowing for the dividend paid to
Sanlam.
The Group had excess capital of R4 billion available for redeployment at the end of December 2013. Since
then a total of R1,6 billion was utilised, including R1,3 billion for the acquisition of a 51% interest in MCIS
Insurance in Malaysia and some R300 million to acquire an additional 2,4% stake in the Group’s Botswana
operations and to fund increased capital requirements of certain non-life Group businesses. Net of these
transactions, investment return earned on the discretionary capital portfolio and the excess dividend cover
relating to the April 2014 dividend payment, the available discretionary capital amounts to some R3 billion.
This remains earmarked for growth opportunities mainly in Africa and South-East Asia.
Outlook
We do not anticipate an improvement in the economic environment for the remainder of the year. General
operating conditions are therefore expected to remain challenging with a resulting impact on the Group’s
key operational performance indicators. Investment market volatility is likely to persist. An increasing 2013
comparative base, due to the contribution of acquisitions concluded during 2013, the poor first-quarter
2013 underwriting performance of Santam and higher equity markets in the remainder of the 2013
financial year, is expected to impact on the sustainability of the level of operating earnings growth
reported for the first four months of 2014 for the remainder of the 2014 financial year.
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Shareholders also need to be aware of the impact of the level of interest rates and financial market returns
and volatility on the Group’s earnings and Group Equity Value. Relative movements in these elements may
have a major impact on the growth in normalised headline earnings and Group Equity Value to be reported
for the six months to 30 June 2014.
The information in this operational update has not been reviewed and reported on by Sanlam's external
auditors. Sanlam’s financial results for the six months ending 30 June 2014 are due to be released on 4
September 2014. Shareholders are advised that this is not a trading statement as per paragraph 3.4 of the
JSE Limited Listings Requirements.
Conference call
A conference call for analysts, investors and the media will take place at 17h00 (South African time) today.
Investors and media who wish to participate in the conference call should dial the following numbers:
Audio dial-in facility
A toll free dial-in facility will be available. We kindly advise callers to dial in 5 - 10 minutes before the
conference call starts at 17:00.
Access numbers for participants dialing live from their country:
Toll 021 819 0900
South Africa
Toll-free 0800 200 648
USA and Canada Toll-free 1 855 481 5362
UK Toll-free 0808 162 4061
+27 11 535 3600
Other Countries Toll
+27 10 201 6800
Recorded playback will be available for three days after the conference.
Access Numbers for Recorded Playback:
Access code for recorded playback: 28680
South Africa Toll 011 305 2030
USA and Canada Toll-free 1 855 481 5363
UK Toll-free 0 808 234 6771
Other Countries Toll +27 11 305 2030
For further information on Sanlam, please visit our website at www.sanlam.co.za
Cape Town
4 June 2014
Sponsor
Deutsche Securities (SA) Proprietary Limited
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