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Operational Update - December 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 – December 2014
The Group delivered a satisfactory operational performance for the 10 months ended 31 October
2014, despite a persistent challenging business environment. The broader trends are in line with
the first-half 2014 performance, with higher average market levels and sound underwriting
experience largely offsetting the impact of a weak South African economy and pressure on
consumers’ disposable income. Overall investment market returns during the first 10 months of
2014 were significantly weaker than the comparable period in 2013, dampening growth in headline
earnings per share. As anticipated and highlighted in the Group’s interim results announcement in
September 2014, the growth in net result from financial services is moderating towards the end of
2014. This is due to once-off items in the first half of 2014, the base effect of new acquisitions and
an increasing 2013 base, in part due to the weak first-half 2013 underwriting results at Santam.
New business volumes benefited from a large pension outsourcing policy awarded to Sanlam
Employee Benefits during the third quarter of 2014, a particularly satisfactory achievement.
Results
The salient features of the Group’s performance for the 10 months to October 2014 are:
* New business volumes of R150 billion (excluding white label), up 17% on the first 10 months
of 2013.
o Personal Finance recorded a 22% increase in new business sales. Sanlam Sky new
business volumes increased by 5%, excluding the ZCC scheme (where premiums are
renewed on a biennial basis) and large once-off schemes written in the third quarter of
2013, a solid performance after the disruption caused by industrial action in the platinum
sector in the first half of the year. Middle income market volumes increased by 10%, with a
continuance of strong growth in single premiums and recurring premium retirement annuity
business, compensating for some reduction in new recurring risk premiums. Glacier sales
increased by 27%.
o Emerging Markets achieved new business growth of 30%, excluding the discontinued
Capricorn Unit Trust business, which was sold as part of the CIH transaction in 2013. All
regions contributed strong growth, apart from Botswana where a high comparative base for
single premiums limited growth to 7%. Core recurring premium sales in Botswana,
however, continue to perform well and increased by more than 30%.
o The Investments cluster increased its new business volumes by 21%, supported by an R8
billion pension outsourcing policy written by Sanlam Employee Benefits. Excluding this
business, new business sales increased by 9%. The International and SA Investment
Management businesses recorded strong growth, with Wealth Management new mandates
reducing from a high base in 2013. In addition to withdrawals of R2.9 billion from low
margin share incentive scheme portfolios at Wealth Management, the Public Investment
Corporation withdrew R10 billion from its funds managed by Sanlam Investment
Management. Despite these withdrawals, net fund flows (excluding white label) increased
from R89 million in the first 10 months of 2013 to R4.6 billion in the same period in 2014.
o Value of new life business (VNB) increased by 22% on the comparable period in 2013.
Excluding the R8 billion pension outsourcing policy referred to above, VNB increased by
11%. VNB margins were broadly in line with those reported for the first six months of 2014
and were maintained on an individual product basis.
o Overall net fund inflows (excluding white label) of R27.5 billion were achieved compared to
R18 billion in the comparable 10-month period in 2013.
o Persistency levels deteriorated somewhat compared to 2013, as also reported in the first-
half 2014 results.
* Net result from financial services up 27% on the first 10 months of 2013.
o All business clusters reported satisfactory underlying earnings growth.
o The increase in operating profit is in general supported by a relatively higher level of assets
under management as well as favourable claims experience in the life and general
insurance businesses.
o Santam’s underwriting performance improved significantly compared to the first 10 months
of 2013. This was influenced by a turnaround in the crop insurance business during the
period compared to the losses recorded in 2013, but with all of the other main businesses
also experiencing an improved performance.
* Normalised headline earnings per share up by some 3% compared to the first 10 months of
2013.
o The strong growth in net result from financial services was largely offset by lower
investment return earned on the capital portfolio, attributable to both the South African
equity and 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 4% compared to the first 10
months of 2013.
Capital
All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory capital
covered its Capital Adequacy Requirements by 4.6 times on 30 September 2014.
The Group had excess capital of R3.3 billion available for redeployment at the end of June 2014.
Since then a net total of R111 million was utilised, including R237 million for the acquisition of a
40% stake in Enterprise Insurance Company, a general insurance business in Ghana, and capital
released from the disposal of the Group’s interest in Intrinsic in the UK. Net of these transactions
and investment return earned on the discretionary capital portfolio, the available discretionary
capital amounts to some R3.2 billion. This remains earmarked for growth opportunities.
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. The increasing 2013 comparative base highlighted above is expected to continue
impacting on the sustainability of the level of operating earnings growth for the remainder of the
2014 financial year.
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 full year to 31 December 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 year ending 31 December 2014 are due to be
released on 5 March 2015. 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 17h00.
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: 28681
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
3 December 2014
Sponsor
Deutsche Securities (SA) Proprietary Limited
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