Wrap Text
Summarised audited results for the year ended 31 December 2014
Sanlam Limited
(Registration number: 1959/001562/06)
JSE share code (primary listing): SLM
NSX share code: SLA
ISIN: ZAE000070660
Incorporated in the Republic of South Africa
Summarised audited results for the year ended 31 December 2014
Contents
Overview
Key features
Salient results
Executive review
Comments on the results
Summarised financial statements
Accounting policies and basis of presentation
External audit
Summarised shareholders’ information
Group Equity Value
Shareholders’ fund income statement
Notes to the shareholders' information
Embedded value of covered business
Notes to the embedded value of covered business
Summarised Group IFRS financial statements
Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Cash flow statement
Notes to the financial statements
Administration
Key features
Earnings
- Net result from financial services per share increased by 26%
- Normalised headline earnings per share up 3%
Business volumes
- New business volumes up 18% to R182 billion
- Net value of new covered business up 21% to R1 592 million
- Net new covered business margin of 2,92%
- Net fund inflows of R42 billion
Group Equity Value
- Group Equity Value per share of R46,84
- Return on Group Equity Value per share of 18,5%
Capital management
- Discretionary capital of R3,3 billion at 31 December 2014
- Sanlam Life Insurance Limited CAR cover of 4,5 times
Dividend
- Normal dividend of 225 cents per share, up 13%
Salient results
for the year ended 31 December 2014
2014 2013 % change
Sanlam Group
Earnings
Net result from financial services per share cents 336,2 266,0 26
Normalised headline earnings per share(1) cents 407,6 395,0 3
Diluted headline earnings per share cents 411,6 397,8 3
Net result from financial services R million 6 879 5 429 27
Normalised headline earnings(1) R million 8 340 8 060 3
Headline earnings R million 8 325 8 062 3
Group administration cost ratio(2) % 30,2 29,4
Group operating margin(3) % 26,6 22,2
Business volumes
New business volumes R million 182 297 154 976 18
Net fund inflows R million 41 994 26 113 61
Net new covered business
Value of new covered business R million 1 592 1 320 21
Covered business PVNBP(4) R million 54 518 43 197 26
New covered business margin(5) % 2,92 3,06
Group Equity Value
Group Equity Value R million 95 936 84 409 14
Group Equity Value per share cents 4 684 4 121 14
Return on Group Equity Value per share(6) % 18,5 17,0
Sanlam Life Insurance Limited
Shareholders’ fund R million 68 156 60 542
Capital Adequacy Requirements (CAR) R million 8 325 7 550
CAR covered by prudential capital Times 4,5 4,5
(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
The Sanlam Group achieved another sound performance in 2014, despite one of the more challenging operating
environments since the financial crisis. Factors that impacted on the Group and its businesses in 2014 included:
- Economic growth: The pressure on economic growth, both in South Africa and in other major regions where Sanlam
operates, put a damper on the Group’s growth potential.
- Industrial action in South Africa: Around 10% of Sanlam Sky Solutions’ new business originates from the platinum
belt. In addition, Sanlam Employee Benefits administers a large portion of the employee benefits for the platinum mining
companies. The five month platinum mining strike in the first half of 2014 therefore had a significant impact on these
businesses.
- Currency exchange rates: Although the weak average rand exchange rate worked in our favour in some instances,
investing offshore with a volatile currency is difficult. In addition, weak currencies in some of the regions where we operate
depressed the translated rand results of these operations. The biggest impact came from the significant depreciation of
the Ghanaian cedi.
- Regulatory change: The raft of regulatory change imposed on the savings and investment industry in South Africa as
well as in a number of the other countries in which we operate, most notably in India and the UK, has placed cost
pressures on all of the Group’s businesses. The uncertainty created by some of these reforms has resulted in significant
opportunity costs. A great deal of capacity has been invested in preparing for the implementation of these reforms at the
expense of product development and other important projects.
The diversified nature of the Group’s operations, together with the strength of the Sanlam brand and the brands of our
international partners, enabled us to withstand these challenges and contributed 18% growth in our new business volumes,
the combination of 24% growth in new insurance business and 15% growth in new investment mandates received. Net result
from financial services grew by 27% (26% on a per share basis). We consider this a very satisfactory achievement.
The following are some of our other salient results:
- Net value of new covered business up 21%
- Net value of new covered business margin of 2,92% compared to 3,06% in 2013
- Dividend per share increased by 13% to 225 cents
All the major businesses contributed to this growth. Sanlam Personal Finance, our South African business cluster
operating in the retail space performed exceptionally well in an environment where particularly the retail consumer is under
increasing financial pressure. Our general insurance business, Santam, also performed substantially better in 2014 with
underwriting margins that exceeded the high end of the target range.
2014 strategic initiatives
The following five strategic pillars continue to underpin the Sanlam Group business model:
- Improving performance through earnings growth;
- Improved operational efficiencies, including costs and quality;
- Diversification of the base (including geographical presence, products, market segments and distribution platforms);
- Improving returns through optimal capital utilisation; and
- Embracing and accelerating transformation of the Group.
Below is a brief overview of our achievements for 2014 against these strategic pillars.
Earnings growth
Given the tough conditions that plagued 2014, we consider the Group’s operating earnings growth of 27% an exceptional
achievement. Our established core operations performed very well and delivered the required organic growth. We are
particularly pleased with Santam’s contribution, which more than doubled in 2014.
Operational efficiencies
Maintaining cost efficiency across the Group remains a key focus. All businesses are experiencing cost pressures,
which is aggravated by additional costs associated with regulatory changes and new compliance requirements as well as
relatively low growth rates in certain key areas, in part due to already significant market shares. The areas experiencing
most of the cost pressures are our more mature businesses - Sanlam Investments (SI), Sanlam Personal Finance (SPF) and
Santam.
These businesses are therefore continuously exploring ways to increase cost-efficiencies. Santam introduced a project
in 2014 aimed at reducing management costs, while SPF focused on driving down acquisition costs. SI implemented a new
distribution structure in 2014 that should reduce client acquisition costs through an improvement in client retention.
In addition, the two long-term Group-wide initiatives introduced in recent years to foster efficiency remain firmly in
place. The Sanlam for Sanlam programme, which has been in place for four years, encourages effective collaboration
between clusters with the goal of achieving greater growth and profitability. The Blueprint for Success initiative, launched
in 2012, is aimed at enhancing the Sanlam for Sanlam programme by helping employees embrace the critical enabling
factors that will help Sanlam achieve accelerated growth. The success of this initiative is measured annually and the 2014
results show that in the two years since launch the engagement levels of our employees have improved from 45% to 75%,
which is bordering on a world-class score.
Diversification
Our successful strategy of diversification across geographies, market segments and products once again enabled the
Group to deliver overall solid growth and value to our stakeholders in a more sustainable manner. In just 10 years this
strategy has helped us transform the profile of the Group from a traditional insurer to a well-diversified financial
services provider with a direct footprint on four continents and able to offer extensive solutions across all market segments
in South Africa.
In 2014 we continued to aggressively pursue this strategy with the aim of further diversifying revenue streams. We
concluded several transactions in 2014, including some 10 acquisitions and the disposal of our stake in Intrinsic in the
UK. These transactions utilised a net R1,9 billion of surplus capital. As a result, we now have a direct footprint in 10
African countries, as well as Europe, India and Malaysia.
Optimal capital utilisation
The Group’s strategic approach is to use surplus capital for further diversification and the internationalisation of
our business. Over the past five years we redeployed R30 billion of surplus capital. With R13 billion we bought back our
own shares when they were still significantly undervalued and we used R1 billion for a special dividend in 2013. A total
of R16 billion was used to give effect to our diversification strategy. This substantial investment fundamentally
changed the structure of the Group.
Only 10 years ago this business mainly consisted of a large capital base and a relatively small life business. Through
the efficient use of capital, we have succeeded in largely de-risking the business and transforming it into a
profitable world-class business that is far less capital intensive. This has significantly increased the return on capital.
The Group started the 2014 financial year with discretionary capital of R4 billion. An additional R1,2 billion was added to
this war chest during the year, generated from investment returns, capital releases and excess dividend cover. This provided us
with R5,2 billion in capital available for strategic deployment in 2014.
Investment opportunities of significant scale are generally scarce in financial services. Our focus has therefore been
on smaller bolt-on deals across the spectrum of financial services in partnership with established businesses in a
number of countries in the emerging markets. As outlined earlier under the diversification section, we were able to apply a
total of R1,9 billion of the available capital in respect of a number of growth opportunities in 2014, leaving available
discretionary capital of some R3,3 billion at 31 December 2014. All of this is earmarked for further expansion and
diversification of the Group.
Transformation
At the end of 2013, what has been described as one of the most successful black economic empowerment transactions in
South Africa with Ubuntu-Botho Investments came to an end. The Group’s continued alignment with Ubuntu-Botho post the
original 10-year deal is a key part of our sustainability and future strategy. Both parties agreed in 2014 to continue with
the partnership and to formalise an ongoing strategic relationship.
With the Ubuntu-Botho transaction we transformed our ownership in the most meaningful way possible, namely by
involving a representative spectrum of South African community groups in Sanlam’s future. In 2014 the focus of our
transformation goals in South Africa shifted from ownership towards employment equity as well as training and development.
While we have made significant progress in some areas in terms of improving our employment equity scorecard, we acknowledge that
more must be done. The empowerment targets at the middle and senior management levels are particularly tough to meet. To
accelerate our progress we are in the process of implementing a number of innovative projects.
The Group again achieved a level 2 BEE status in 2014 when measured against the Financial Sector Code. This is in line
with our target and an achievement that we are very proud of.
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, among 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 financial statements for the year ended 31 December 2014 are presented based on and in compliance
with International Financial Reporting Standards (IFRS). The basis of presentation and accounting policies for the IFRS
financial statements and shareholders’ information are in all material respects consistent with those applied in the 2013
integrated report, apart from the following changes in presentation:
- SI restructured its South African investment management operations in 2014 to better align with its client-centric
model. The former Asset Management and Investment Services businesses were combined into an Asset Management SA business
with three sub-units: client-facing Retail and Institutional units responsible for distribution and client service and
an Investment Core that houses the investment management capabilities. Comparative segmental information has been
restated to combine the former Asset Management and Investment Services information into the new Asset Management SA business.
- White label fund flows have been removed from the fund flow analysis. This business relates to low margin
administration business managed by Sanlam Collective Investments. Given the expansion in administration businesses across the
Group, it is no longer relevant to disclose this particular type of administration business separately. Comparative
information has been restated accordingly.
- Sanlam UK reclassified business written by Sanlam Financial Solutions from covered business to other Group
operations as it better reflects the underlying nature of this business. The change in classification has been disclosed in the
Embedded Value of Covered business (EV) analysis as a transfer from covered business to other Group operations on 1
January 2014. Comparative information has not been restated. The 2013 comparatives include R2 056 million of new life
business volumes, R7 million of value of new business (VNB) and R2 222 million Present Value of New Business Premiums (PVNBP)
relating to this business. With effect from 2014 the new business volumes are included under investment business.
Group Equity Value
Group Equity Value (GEV) amounted to R95,9 billion or 4 684 cents per share on 31 December 2014. Including the dividend of
200 cents per share paid during the year, a Return on Group Equity Value (RoGEV) per share of 18,5% was achieved for 2014,
well in excess of the 2014 performance hurdle of 12,2%.
Investment markets performed slightly ahead of assumptions during the year, compared to a significant outperformance
in 2013. Interest rates were, however, relatively stable in 2014 compared to an increase of 1,4% in the nine-year risk
free rate in 2013. The consequence was much more subdued investment and economic assumption variances during 2014,
resulting in a generally lower RoGEV for both the life insurance and investment management operations than in 2013. Strong
underlying operational performance, however, continued to support returns in 2014, which is particularly pleasing as this is
the sustainable part of RoGEV over the long term. Excluding the favourable impact of investment returns in excess of
the long-term expectations, interest rate changes and certain other once-off effects not under management control, an
adjusted RoGEV per share of 18,0% is also well in excess of the return target.
Group Equity Value at 31 December 2014
GEV RoGEV
R million December December
2014 2013 %
Group operations 87 739 76 470 15 374 20,0
Sanlam Personal Finance 38 453 35 666 6 372 17,9
Sanlam Emerging Markets 14 571 10 189 2 910 28,0
Sanlam Investments 20 122 17 971 3 671 20,4
Santam 14 593 12 644 2 421 19,1
Covered business 48 393 43 475 8 239 19,0
Value of in-force 31 207 27 675 6 942 25,1
Adjusted net worth 17 186 15 800 1 297 8,2
Other operations 39 346 32 995 7 135 21,5
Group operations 87 739 76 470 15 374 20,0
Discretionary capital and other 8 197 7 939 209 2,7
Group Equity Value 95 936 84 409 15 583 18,5
Per share (cents) 4 684 4 121 763 18,5
Group operations yielded an overall return of 20% in 2014. The embedded value of covered business (life operations)
amounted to R48,4 billion, 50% of GEV at 31 December 2014. The capital allocated to the life operations increased from
R15,8 billion at the end of 2013 to R17,2 billion in 2014. This is substantially due to new acquisitions during the year,
in particular MCIS Insurance in Malaysia. The capital requirement of the rest of the book increased by some R500 million,
attributable to new business written as well as growth in the overall size of the in-force book. The return on covered
business of 19% benefited from the net VNB written of R1,6 billion and continued strong operating experience variances
of R1 billion, which was at a similar level than 2013. Positive risk experience, in particular mortality experience,
continued across all covered business and contributed the substantial part of the positive operating experience. Economic
assumption changes and investment variances contributed R761 million to the return, compared to R2,8 billion in 2013. The
reduced impact from investment market outperformance is the main cause of a lower overall RoGEV on covered business when
compared to the return of 23,4% achieved in 2013.
Other Group operations delivered a return of 21,5% compared to 13,3% in 2013. The valuations of the investment
management operations were in general positively impacted by a higher level of assets under management, augmented by a strong
performance in the Santam share price during 2014. The listed Santam share provided a return of 19,1% on our investment
in Santam during the year compared to only 1,5% in 2013. This improved performance is also the main driver behind the
overall increase in the return on other Group operations.
The low return on discretionary and other capital is essentially the combined effect of the investment return earned
on surplus capital (substantially invested in low yielding liquid assets), offset by corporate costs.
Earnings
Shareholders’ fund income statement for the year ended 31 December 2014
R million 2014 2013 % change
Net result from financial services 6 879 5 429 27
Sanlam Personal Finance 3 476 2 920 19
Sanlam Emerging Markets 1 241 1 011 23
Sanlam Investments 1 468 1 301 13
Santam 801 333 141
Corporate and other (107) (136) 21
Net investment return 1 794 3 019 (41)
Project costs and amortisation (224) (237) 5
Equity participation costs (109) (151) 28
Normalised headline earnings 8 340 8 060 3
Per share (cents) 408 395 3
Net result from financial services (net operating profit) of R6,9 billion increased by 27% on 2013, with all clusters
achieving solid results. Structural growth in SEM contributed 1% to the overall growth in the Group net operating
profit, with organic growth of 26% particularly pleasing. A higher level of assets under management across most asset
management and administration businesses, a growing life in-force book, the weaker average rand exchange rate against most
currencies and favourable claims experience in the life and general insurance operations supported the earnings growth. The
2013 comparable period also included once-off losses relating to the impairment of the Group’s exposure to First Strut,
with similar losses not repeating in 2014.
Sanlam Personal Finance (SPF) achieved strong growth for a largely mature business. Sanlam Individual Life remains the
largest contributor to SPF’s operating earnings with growth in its net result from financial services of 17% in 2014. Risk
underwriting and administration profits were the main drivers of this growth, with both business lines increasing by more
than 50%. Favourable claims experience, in particular mortality, continued in the second half of 2014. A higher level of
assets under management supported higher fee income in the administration business.
Sanlam Sky’s net result from financial services increased by 23%, attributable to the growth in the in-force book over
the last number of years and improved mortality claims experience in 2014.
A higher level of assets under management is also the main driver of the 38% increase in Glacier’s profit
contribution.
Sanlam Emerging Markets’ (SEM) operating profit includes the contribution from structural activity in 2013 and 2014,
with organic growth of 16% a satisfactory result given the challenging conditions experienced in Ghana and India.
Namibia (up 27% net of tax and non-controlling interests; 38% on a gross basis) benefited from the Capricorn
Investment Holdings acquisition concluded in 2013, credit spread profits in the life insurance book and higher employee
benefits market related income, partly offset by a strengthening of the long duration lapse assumptions for level premium
risk business. The deviation between gross and net growth is mostly attributable to relatively stronger growth in the
businesses with minority interests.
Botswana achieved excellent growth of 36% in its net result from financial services (22% before tax and
non-controlling interests). The life business’ results were supported by good annuity profits following the strong new business
performance over the last number of years (including 2014). Letshego also continued on its growth path and increased its
profit contribution by more than 20%. The increase in the Group’s effective stake in Botswana Insurance Holdings Limited
(BIHL) from 56% in 2013 to 60% in 2014 benefited growth on a net basis.
The Rest of Africa contribution to net result from financial services declined by 10%, due to once-off prior year tax
adjustments. Before tax and non-controlling interests, result from financial services in this region increased by 22%
despite lower property sales in Kenya and a lower contribution from Ghana due to the weak currency and economic
environment in that country. This reflects the positive impact of diversification across a number of countries, an increasing
in-force book and lower losses from the medical business, which has been restructured into essentially a distribution and
administration business.
Net result from financial services in India (up 23%; 24% before tax and non-controlling interests) includes a R51 million
(R72 million before tax) once-off release of a provision held in respect of the third-party pool business that was
transferred to Shriram General Insurance after the change in regulations governing this business. Excluding this once-off
item, net result from financial services increased by 9%. Low growth in the Shriram Transport Finance Company loan book
(after a deliberate decision to slow down new loan grants) hampered growth to some extent. Shriram City Union Finance
and Shriram General Insurance, however, achieved good growth. The weakening of the rand against the rupee had a positive
impact on the translated rand results.
Malaysia includes the first-time contribution from MCIS Insurance, which was acquired at the end of June 2014.
Sanlam Investments delivered an overall sound performance.
The Investment Management businesses (net result from financial services up 23%) benefited from a higher level of assets under
management as well as strong investment performance across most businesses, contributing to higher recurring fee income and good
performance fees.
Similar to SPF, Sanlam Employee Benefits (SEB) also experienced a favourable mortality claims environment,
contributing to a 34% increase in its net result from financial services before once-off items. The AECI transaction (refer below)
generated significant new business strain, which was partly alleviated by positive actuarial basis changes. These
once-off items amounting to a net R138 million after tax reduced SEB’s net operating earnings to R234 million, 16% lower than
2013.
Capital Management managed to achieve 13% growth in its net result from financial services in a very difficult year
for structuring businesses. The volatile environment limited deal flow, with movements in credit spreads also impacting
negatively on the results.
Santam’s net result from financial services more than doubled compared to 2013, with its underwriting margin improving
from 2,8% in 2013 to 8,7% in 2014. Claims experience in 2014 improved considerably compared to 2013. The agricultural
business, in particular, incurred significant losses from hail damage to summer crops and drought in other parts of the
country in 2013. This did not recur in 2014 with widespread rainfall and an absence of hail storms. The underwriting
profit of the agricultural business turned around from a loss of R128 million in 2013 to a profit of R264 million in 2014,
which together with a resilient performance from the Specialist businesses, contributed to the significant increase in
the overall underwriting margin and operating profit.
Normalised headline earnings of R8,3 billion are 3% up on 2013. This is the combined effect of the 27% increase in net
result from financial services, largely offset by a 41% decline in net investment return. Investment surpluses in 2013
included once-off investment gains of some R215 million from an increase in the valuation of the Group’s interest in
Capricorn Investment Holdings following the listing of Bank Windhoek and a sizable recovery of a previously impaired
portfolio investment. Excluding these, net investment return earned on the capital portfolio declined by 36%, which is in line
with the relatively weaker investment market performance in 2014. Given the outperformance of equity markets over the
last two years and uncertainty around a potential future correction, R2 billion of the unhedged equity exposure in Sanlam
Life’s capital portfolio has been protected through a fence structure at the end of September 2014. The cap of the
hedge over a one year period is 112,25% plus dividends.
Business volumes
The Group achieved overall growth of 18% in new business volumes, including the Capricorn Unit Trust (CUT) business
that was sold on 1 July 2013. Excluding CUT, new business volumes grew by 20%. SEB concluded one of the largest South
African life insurance policies ever with the AECI retirement fund with a premium of R8,3 billion, a highlight for the year.
Life insurance new business volumes increased by 33%, augmented by 18% (excluding CUT) and 6% growth in new investment
and general insurance business respectively. All businesses contributed to the solid performance, apart from Sanlam Sky
in SPF and the Wealth Management sub-cluster in SI.
SPF’s Individual Life business achieved overall new business growth of 10%, a very good performance in this mature
market segment, notwithstanding the weak economy and pressure on consumers’ disposable income. Strong single premium sales
continue to drive this growth, while endowment savings and retirement annuity recurring premium volumes also increased
by more than 10%. Recurring premium risk sales were, however, 3% down on 2013. In a very challenging year for this
business unit, Sanlam Sky’s total new business sales declined by 2%. Group risk business sales were well down from a high base
in 2013 that included large once-off transactions. The termination of the Capitec credit life underwriting agreement
with effect from April 2015 is a disappointment. The industrial action in the Rustenburg platinum belt that persisted for
most of the first half of 2014, and its secondary effects that flowed through to other provinces, placed severe pressure
on individual life business volume growth. Future growth prospects for this business, however, remains intact, with the
adviser channel that has already made a strong recovery in the second half of the year to record 14% growth for 2014.
Glacier continued to grow its asset base, with its superior service offering and product innovation driving 30% growth in
new business. Above-average investment market performance over the last number of years also contributed to this growth
in the form of higher maturity values being reinvested at Glacier.
The 5% decline in SEM’s new business volumes is entirely attributable to the CUT sale in 2013. Excluding CUT, SEM
achieved overall growth of 42%, with all regions achieving strong growth apart from Ghana.
The AECI policy written by SEB made a considerable contribution to SI’s 20% growth in new business. New mandates
awarded to the Wealth Management sub-cluster declined by 24% from a high base in 2013.
Santam grew its gross written premium by 10% in a very demanding and competitive South African market. All business
lines contributed to this growth. The lower level of growth on a net earned premium basis of 3% is attributable to the
increased use of reinsurance.
The ongoing strategic focus on the quality of new business written is reflected in good retention levels and strong
net fund inflows. Net fund inflows of R42 billion compared to R26,1 billion in 2013 are commendable, in particular given
the highly competitive market in South Africa and some R10 billion withdrawal by the Government Employees Pension Fund
from SI’s third-party portfolios.
Business volumes for the year ended 31 December 2014
New business Net inflows
R million 2014 2013 % change 2014 2013 % change
Sanlam Personal Finance 52 566 42 507 24 19 580 14 993 31
Sanlam Emerging Markets 9 259 9 749 (5) 3 971 1 794 121
Sanlam Investments 103 250 85 970 20 12 099 4 184 189
Santam 17 222 16 750 3 6 344 5 142 23
Total 182 297 154 976 18 41 994 26 113 61
Covered business 42 290 31 687 33 18 430 10 561 75
Investment business 121 383 105 697 15 16 853 10 238 65
Short-term insurance 18 624 17 592 6 6 711 5 314 26
Total (excluding white label) 182 297 154 976 18 41 994 26 113 61
The discount rate used to determine VNB is directly linked to long-term interest rates. The rise in the five-year
long-term benchmark rate during 2014 resulted in a commensurate increase in the risk discount rate used by Sanlam Sky
with a negative effect on the growth in VNB. The nine-year rate was broadly in line with 2013. VNB at actual discount rates
increased by 20% (21% net of non-controlling interests). On a comparable basis (before economic assumption changes) VNB
increased by 22% (23% net of non-controlling interests).
SPF achieved overall growth of 12% on a comparable basis despite Sanlam Sky only increasing by 1%. A change in mix to
the more profitable individual life business in Sanlam Sky enabled a marginal increase in its VNB notwithstanding lower
new business sales. In a highly competitive market, SPF did well to maintain VNB margins on a per product basis.
SEM’s VNB growth of 20% on a comparable basis is the combined effect of growth in excess of 20% in all regions, apart
from Rest of Africa where VNB declined by 11%. Ghana and Kenya are the main contributors to this disappointing
performance. Ghana’s VNB was depressed by the economic and currency weakness in the country, while Kenya was negatively
impacted by higher unit costs and significantly lower annuity rates in a highly competitive market.
SI’s VNB more than doubled. The AECI transaction generated most of the VNB growth and was augmented by good growth in
recurring premium risk business at SEB.
VNB margins were in general maintained at a product level with the relative size of the AECI transaction resulting in
marginally lower overall margins.
Value of new covered business for the year ended 31 December 2014
2014 economic basis 2013 economic basis
R million 2014 2013 % change 2014 2013 % change
Value of new covered business 1 743 1 450 20 1 770 1 450 22
Sanlam Personal Finance 1 084 986 10 1 106 986 12
Sanlam Emerging Markets 431 364 18 436 364 20
Sanlam Investments 228 100 128 228 100 128
Net of non-controlling interest 1 592 1 320 21 1 616 1 320 22
Present value of new business premiums 56 394 44 902 26 56 363 44 902 26
Sanlam Personal Finance 34 798 30 789 13 34 790 30 789 13
Sanlam Emerging Markets 5 673 4 877 16 5 649 4 877 16
Sanlam Investments 15 923 9 236 72 15 924 9 236 72
Net of non-controlling interest 54 518 43 197 26 54 497 43 197 26
New covered business margin 3,09% 3,23% 3,14% 3,23%
Sanlam Personal Finance 3,12% 3,20% 3,18% 3,20%
Sanlam Emerging Markets 7,60% 7,46% 7,72% 7,46%
Sanlam Investments 1,43% 1,08% 1,43% 1,08%
Net of non-controlling interest 2,92% 3,06% 2,97% 3,06%
Capital and solvency
The Group started the year with discretionary capital of R4 billion, which was earmarked for new growth and expansion
opportunities as well as to strengthen existing relationships. A net total of R1,9 billion was redeployed in the year,
which included the following:
- Acquiring a 40% shareholding in one of the largest general insurance companies in Ghana, Enterprise Insurance
Company Limited, for R237 million. Sanlam already holds a 49% stake in Enterprise Life Assurance Company Limited as well as a
40% stake in Enterprise Trustees Limited and this transaction solidifies Sanlam’s partnership with the Enterprise Group
in Ghana.
- Acquiring a 63% interest in Soras Group Limited, Rwanda’s largest life and non-life insurance company for R255 million.
The transaction will see Sanlam doing business directly for the first time in Rwanda, which has one of the fastest
growing economies on the continent.
- Acquiring a 32,7% direct interest in NIKO General Insurance Company (Tanzania) Limited and increasing the stake in
NIKO Uganda to 78,7% for R34 million in total. SEM acquired a 49% direct interests in NICO Holdings Limited’s General
Insurance businesses in Malawi and Zambia and 48,4% in Uganda in 2013. SEM also has a 25% direct stake in NICO Holdings
Limited and a 49% direct stake in NICO Life Insurance Company Limited.
- FBN Life in Nigeria increased its stake in the general insurance company, Oasis Insurance Plc, to 100%. SEM and FBN
Holdings are 35% and 65% shareholders of FBN Life respectively. The Group’s contribution to the acquisition amounted to
R20 million.
- The Group’s stake in Botswana Insurance Holdings Limited was increased from 56% to 60% for some R106 million.
- Acquiring a 22% stake in UK-based micro-insurance provider, MicroEnsure Holdings Limited, at a cost of R56 million.
The company has a strong footprint in emerging markets that overlaps with that of SEM in Africa, India and South-East
Asia. We consider micro-insurance, which includes the buying of insurance products through mobile phones, a substantial
growth opportunity across all our markets.
- SEM concluded its acquisition of a 51% interest in MCIS Insurance Berhad (MCIS Insurance) in Malaysia for
approximately R1,26 billion. By law an investor may not do business under more than one life or general insurance licence in
Malaysia, unless the second is a Takaful (Sharia-compliant insurance) licence. Given SEM’s acquisition of a 49% stake in the
general insurer, Pacific and Orient Insurance Company Berhad, in 2013, the general insurance book of MCIS is being sold
and this will be concluded in 2015. Proceeds from this disposal have been ring-fenced in terms of the acquisition
agreement and will not accrue to the Group.
- The Piramal Group acquired a 20% stake in Shriram Capital Limited in 2014, in part through the injection of new
capital in the business, and SEM had to invest additional capital of R71 million (net of the disposal of a 2% direct stake
in Shriram Transport Finance Company) to maintain its shareholding at 26%. We see the Piramal investment as a positive
development. This new three-way partnership between Shriram, Piramal and Sanlam aims to further strengthen Shriram’s
position in the financial services industry in India.
- SI increased its stake in FOUR Capital in the United Kingdom (UK) to 90% and acquired a 20% holding in Cameron Hume,
a UK based specialist investment management boutique focused on fixed income investments. It also reacquired the
property management agreement from Vukile in South Africa to unlock future synergies by internally managing the Group’s
property portfolio. These transactions utilised a total amount of some R300 million.
- The disposal of non-core operations in the UK and Europe, together with Santam’s contribution to acquire a 35%
economic interest in the Group’s general insurance acquisitions outside of South Africa during the year, generated some
R450 million of additional discretionary capital.
The application of discretionary capital further enhances the Group’s geographic diversification and exposure to
identified growth markets.
Investment return earned on the discretionary capital portfolio, excess capital released from Group businesses and the
2014 dividend cover in excess of cash operating earnings added some R1,2 billion of surplus capital, leaving
unallocated discretionary capital of R3,3 billion at the end of December 2014. We remain focused on utilising the available
discretionary capital by finding value-accretive investment opportunities.
All of the life insurance businesses within the Group were sufficiently capitalised at the end of December 2014. 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 R37,2 billion, covered its capital adequacy
requirements (CAR) 4,5 times. No policyholder portfolio had a negative bonus stabilisation reserve at the end of December 2014.
FitchRatings has affirmed the credit ratings of the Group in 2014 and the outlook remained stable. These include
Sanlam Limited: National Long-term AA- (zaf); Sanlam Life Insurance Limited: National Insurer Financial Strength: 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 normal
dividend, subject to the Group’s liquidity and solvency requirements. The operational performance of the Group in the 2014
financial year enabled the Board to increase the normal dividend per share by 13% to 225 cents. This will maintain a cash
operating earnings cover of approximately 1,2 times. The South African dividend withholding tax regime applies in respect
of this dividend. No STC credits will be utilised. The dividend does not carry any STC credits and will in full be
subject to the 15% withholding tax, where applicable, which will result in a net final dividend, to those shareholders who
are not exempt from paying dividend tax, of 191,25 cents per ordinary share. The number of ordinary shares in issue in the
Company’s share capital at the date of the declaration is 2 004 287 323 (excluding treasury shares of 162 184 483). The
Company’s tax reference number is 9536/346/84/5.
Shareholders are advised that the final cash dividend of 225 cents for the year ended 31 December 2014 is payable on
Monday, 20 April 2015 by way of electronic bank transfers to ordinary shareholders recorded in the register of Sanlam at
close of business on Friday, 17 April 2015. The last date to trade to qualify for this dividend will be Friday, 10 April 2015,
and Sanlam shares will trade ex-dividend from Monday, 13 April 2015.
Share certificates may not be dematerialised or rematerialised between Monday, 13 April 2015 and Friday, 17 April 2015,
both days included.
Accounting policies and basis of presentation
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited
Listings Requirements for abridged reports, and the requirements of the Companies Act applicable to summary financial
statements. The Listings Requirements require abridged reports to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 - Interim Financial
Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the
summary consolidated financial statements were derived, are in terms of International Financial Reporting Standards and
are consistent with the accounting policies applied in the preparation of the previous consolidated annual financial
statements.
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 2013, apart from changes in the economic
assumptions.
The basis of presentation and accounting policies for the IFRS financial statements and Shareholders’ information are
in all material respects consistent with those applied in the 2013 annual report, apart from the changes indicated
below.
The preparation of the Group’s audited annual results was supervised by the Financial Director, Kobus Möller CA(SA).
The following new or revised IFRSs and interpretations are applied in the Group’s 2014 financial year:
- Amendment to IAS 32 - Clarification of the instances in which the set off of financial assets and liabilities is
allowed.
- Amendment to IAS 36 - Recoverable Amount Disclosures for Non-Financial Assets.
The application of these revised standards did not have a material impact on the Group’s financial position, reported
results and cash flows.
The following new or revised IFRS and interpretations have effective dates applicable to future financial years and
have not been early adopted:
- IFRS 9 - Financial Instruments (effective 1 January 2018)
- IFRS 15 - Revenue from Contracts with Customers (effective 1 January 2017)
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
This summarised report is extracted from audited information, but is not itself audited.
The annual financial statements were audited by Ernst & Young Inc., who expressed an unmodified opinion thereon. The audited
annualfinancial statements and the auditors’ report thereon are available for inspection at the Company’s registered office.
The shareholders’ information was audited by Ernst & Young Inc., who expressed an unmodified opinion thereon. The audited
shareholders’ information and the auditors’ report thereon are available for inspection at the Company’s registered office.
The directors take full responsibility for the preparation of the abridged report and the financial information has
been correctly extracted from the underlying annual financial statements and shareholders’ information.
Summarised shareholders’ information for the
year ended 31 December 2014
Contents
Group Equity Value
Shareholders’ fund income statement
Notes to the shareholders’ information
Embedded value of covered business
Group equity value
at 31 December 2014
R million 2014 2013
Embedded value of covered business 48 393 43 475
Sanlam Personal Finance 35 444 33 033
Adjusted net worth 9 446 9 041
Value of in-force 25 998 23 992
Sanlam Emerging Markets 5 116 3 541
Adjusted net worth 2 324 1 533
Value of in-force 2 792 2 008
Sanlam Investments 7 833 6 901
Adjusted net worth 5 416 5 226
Value of in-force 2 417 1 675
Other Group operations 39 346 32 995
Sanlam Personal Finance 3 009 2 633
Sanlam Emerging Markets 9 455 6 648
Sanlam Investments 12 289 11 070
Santam 14 593 12 644
Other capital and net worth adjustments 4 897 3 939
92 636 80 409
Discretionary capital 3 300 4 000
Group Equity Value 95 936 84 409
Group Equity Value per share (cents) 4 684 4 121
Shareholders’ fund income statement
for the year ended 31 December 2014
R million 2014 2013
Result from financial services before tax 10 744 8 179
Sanlam Personal Finance 4 801 4 055
Sanlam Emerging Markets 2 213 1 736
Sanlam Investments 1 927 1 718
Santam 1 968 835
Corporate and other (165) (165)
Tax on financial services income (2 849) (2 100)
Non-controlling interest (1 016) (650)
Net result from financial services 6 879 5 429
Net investment return 1 794 3 019
Net investment income 931 852
Net investment surpluses 817 2 110
Net equity-accounted headline earnings 46 57
Net project expenses (14) (31)
Equity participation costs (109) (151)
Amortisation of intangibles (210) (206)
Normalised headline earnings 8 340 8 060
Profit on disposal of operations 387 90
Net equity-accounted non-headline earnings 118 -
Impairments (101) (21)
Normalised attributable earnings 8 744 8 129
Fund transfers (15) 2
Attributable profit per Group statement of comprehensive income 8 729 8 131
Notes to the shareholders’ information
for the year ended 31 December 2014
R million 2014 2013
1. New business
Analysed per licence:
Life Insurance 42 290 31 687
Sanlam Personal Finance 25 145 21 498
Sanlam Emerging Markets 3 286 2 862
Sanlam Investments 13 859 7 327
Investment business and other 140 007 123 289
Sanlam Personal Finance 27 421 21 009
Sanlam Emerging Markets 5 973 6 887
Sanlam Investments 89 391 78 643
Santam 17 222 16 750
Total new business 182 297 154 976
2. Net flow of funds
Analysed per licence:
Life Insurance 18 430 10 561
Sanlam Personal Finance 8 214 6 538
Sanlam Emerging Markets 2 214 1 541
Sanlam Investments 8 002 2 482
Investment business and other 23 564 15 552
Sanlam Personal Finance 11 366 8 455
Sanlam Emerging Markets 1 757 253
Sanlam Investments 4 097 1 702
Santam 6 344 5 142
Total net flow of funds 41 994 26 113
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.
cents 2014 2013
Normalised diluted earnings per share:
Net result from financial services 336,2 266,0
Headline earnings 407,6 395,0
Profit attributable to shareholders’ fund 427,3 398,4
R million 2014 2013
Analysis of normalised earnings
(refer shareholders’ fund income statement):
Net result from financial services 6 879 5 429
Headline earnings 8 340 8 060
Profit attributable to shareholders’ fund 8 744 8 129
million 2014 2013
Adjusted number of shares:
Weighted average number of shares for diluted earnings per share 2 022,8 2 026,7
Add: Weighted average Sanlam shares held by policyholders 23,4 13,9
Adjusted weighted average number of shares for normalised diluted
earnings per share 2 046,2 2 040,6
Number of ordinary shares in issue 2 166,5 2 100,0
Shares held by subsidiaries in shareholders’ fund (142,1) (146,6)
Outstanding shares and share options in respect of Sanlam Limited
long-term incentive scheme 23,9 28,6
Convertible deferred shares held by Ubuntu-Botho - 66,5
Adjusted number of shares for value per share 2 048,3 2 048,5
Embedded value of covered business
at 31 December 2014
R million Note 2014 2013
Sanlam Personal Finance 35 444 33 033
Adjusted net worth 9 446 9 041
Net value of in-force covered business 25 998 23 992
Value of in-force covered business 27 872 25 834
Cost of capital (1 874) (1 842)
Sanlam Emerging Markets 5 116 3 541
Adjusted net worth 2 324 1 533
Net value of in-force covered business 2 792 2 008
Value of in-force covered business 4 618 3 313
Cost of capital (384) (350)
Non-controlling interest (1 442) (955)
Sanlam UK(1) 1 193 1 194
Adjusted net worth 391 401
Net value of in-force covered business 802 793
Value of in-force covered business 858 845
Cost of capital (56) (52)
Sanlam Employee Benefits(1) 6 640 5 707
Adjusted net worth 5 025 4 825
Net value of in-force covered business 1 615 882
Value of in-force covered business 2 520 1 792
Cost of capital (905) (910)
Embedded value of covered business 48 393 43 475
Adjusted net worth(2) 17 186 15 800
Net value of in-force covered business 1 31 207 27 675
Embedded value of covered business 48 393 43 475
(1) Sanlam UK and Sanlam Employee Benefits are part of the Sanlam Investments cluster.
(2) Excludes subordinated debt funding of Sanlam Life.
Change in embedded value of covered business
for the year ended 31 December 2014
2014 2013
Net Value of Adjusted net
R million Note Total in-force worth Total
Embedded value of covered business at the beginning of the year 43 475 27 675 15 800 38 996
Value of new business 2 1 592 3 653 (2 061) 1 320
Net earnings from existing covered business 4 881 (667) 5 548 3 991
Expected return on value of in-force business 3 368 3 368 - 2 585
Expected transfer of profit to adjusted net worth - (4 598) 4 598 -
Operating experience variances 3 991 (86) 1 077 1 021
Operating assumption changes 4 522 649 (127) 385
Expected investment return on adjusted net worth 1 179 - 1 179 935
Embedded value earnings from operations 7 652 2 986 4 666 6 246
Economic assumption changes 5 86 74 12 (1 077)
Tax changes (6) (2) (4) 88
Investment variances - value of in-force 557 161 396 2 387
Investment variances - investment return on adjusted net worth 118 - 118 1 247
Goodwill from business (162) (160) (2) -
Exchange rate movements (6) (6) - 237
Embedded value earnings from covered business 8 239 3 053 5 186 9 128
Acquired value of in-force 1 358 534 824 79
Transfer from/(to) other Group operations (106) (55) (51) 44
Net transfers from covered business (4 573) - (4 573) (4 772)
Embedded value of covered business at the end of the year 48 393 31 207 17 186 43 475
Analysis of earnings from covered business
Sanlam Personal Finance 5 805 2 006 3 799 6 205
Sanlam Emerging Markets 932 250 682 1 251
Sanlam UK 147 64 83 326
Sanlam Employee Benefits 1 355 733 622 1 346
Embedded value earnings from covered business 8 239 3 053 5 186 9 128
Value of new business
for the year ended 31 December 2014
R million Note 2014 2013
Value of new business (at point of sale):
Gross value of new business 1 979 1 654
Sanlam Personal Finance 1 191 1 090
Sanlam Emerging Markets 466 407
Sanlam UK 33 43
Sanlam Employee Benefits 289 114
Cost of capital (236) (204)
Sanlam Personal Finance (107) (104)
Sanlam Emerging Markets (35) (43)
Sanlam UK (3) (4)
Sanlam Employee Benefits (91) (53)
Value of new business 1 743 1 450
Sanlam Personal Finance 1 084 986
Sanlam Emerging Markets 431 364
Sanlam UK 30 39
Sanlam Employee Benefits 198 61
Value of new business attributable to:
Shareholders’ fund 2 1 592 1 320
Sanlam Personal Finance 1 084 986
Sanlam Emerging Markets 280 234
Sanlam UK 30 39
Sanlam Employee Benefits 198 61
Non-controlling interest 151 130
Sanlam Personal Finance - -
Sanlam Emerging Markets 151 130
Sanlam UK - -
Sanlam Employee Benefits - -
Value of new business 1 743 1 450
Geographical analysis:
South Africa 1 282 1 047
Africa 409 361
Other international 52 42
Value of new business 1 743 1 450
Analysis of new business profitability:
Before non-controlling interest:
Present value of new business premiums 56 394 44 902
Sanlam Personal Finance 34 798 30 789
Sanlam Emerging Markets 5 673 4 877
Sanlam UK 3 978 5 554
Sanlam Employee Benefits 11 945 3 682
New business margin 3,09% 3,23%
Sanlam Personal Finance 3,12% 3,20%
Sanlam Emerging Markets 7,60% 7,46%
Sanlam UK 0,75% 0,70%
Sanlam Employee Benefits 1,66% 1,66%
After non-controlling interest:
Present value of new business premiums 54 518 43 197
Sanlam Personal Finance 34 798 30 789
Sanlam Emerging Markets 3 797 3 172
Sanlam UK 3 978 5 554
Sanlam Employee Benefits 11 945 3 682
New business margin 2,92% 3,06%
Sanlam Personal Finance 3,12% 3,20%
Sanlam Emerging Markets 7,37% 7,38%
Sanlam UK 0,75% 0,70%
Sanlam Employee Benefits 1,66% 1,66%
Notes to the embedded value of covered business
for the year ended 31 December 2014
1. Value of in-force sensitivity analysis
Gross Net Change
value of value of from
in-force Cost of in-force base
business capital business value
R million R million R million %
Base value 34 299 (3 092) 31 207
Risk discount rate increase by 1% 32 429 (3 792) 28 637 (8)
2. Value of business sensitivity analysis
Base value 1 812 (220) 1 592
Risk discount rate increase by 1% 1 596 (269) 1 327 (17)
R million 2014 2013
3. Operating experience variances
Risk experience 842 645
Persistency (64) 211
Maintenance expenses 22 6
Working capital and other 191 159
Total operating experience variances 991 1 021
4. Operating assumption changes
Risk experience 167 655
Persistency 88 13
Maintenance expenses 32 26
Modelling improvements and other 235 (309)
Total operating assumption changes 522 385
5. Economic assumption changes
Investment yields 86 (1 137)
Long-term asset mix assumptions, inflation gap change and other - 60
Total economic assumption changes 86 (1 077)
6. Reconciliation of growth from covered business
R million 2014 2013
The embedded value earnings from covered business reconcile as follows
to the net result from financial services for the year:
Net results from financial services of covered business per shareholders’
fund income statement. 3 889 3 430
Sanlam Personal Finance 3 110 2 607
Sanlam Emerging Markets 477 484
Sanlam UK 68 62
Sanlam Employee Benefits 234 277
Investment return on adjusted net worth 1 297 2 182
Embedded value earnings from covered business: value of in-force 3 053 3 516
Embedded value earnings from covered business 8 239 9 128
7. Economic assumptions
% 2014 2013
Gross investment return, risk discount rate and inflation
Sanlam Life
Point used on the relevant yield curve 9 year 9 year
Fixed-interest securities 8,1 8,2
Equities and offshore investments 11,6 11,7
Hedged equities 8,6 8,7
Property 9,1 9,2
Cash 7,1 7,2
Return on required capital 9,1 9,2
Inflation rate(1) 6,1 6,2
Risk discount rate 10,6 10,7
Sanlam Investments and Pensions
Point used on the relevant yield curve 15 year 15 year
Fixed-interest securities 2,2 3,5
Equities and offshore investments 5,4 6,7
Hedged equities n/a n/a
Property 5,4 6,7
Cash 2,2 3,5
Return on required capital 2,2 3,5
Inflation rate 2,9 3,4
Risk discount rate 5,9 7,2
SDM Limited
Point used on the relevant yield curve 5 year 5 year
Fixed-interest securities 7,6 7,4
Equities and offshore investments 11,1 10,9
Hedged equities n/a n/a
Property 8,6 8,4
Cash 6,6 6,4
Return on required capital 8,9 8,7
Inflation rate 5,6 5,4
Risk discount rate 10,1 9,9
Botswana Life Insurance
Fixed-interest securities 7,5 8,0
Equities and offshore investments 11,0 11,5
Hedged equities n/a n/a
Property 8,5 9,0
Cash 6,5 7,0
Return on required capital 8,8 8,1
Inflation rate 4,5 5,0
Risk discount rate 11,0 11,5
(1) Expense inflation of 8,1% (2013: 8,2%) assumed for retail business
administered on old platforms.
Illiquidity premiums
Investment returns on non-participating and inflation-linked annuities,
as well as guaranteed plans include assumed illiquidity premiums due to
matching assets being held to maturity.
Assumed illiquidity premiums generally amount to between 25bps and 55bps
(2013: 25bps and 50bps) for non-participating annuities, between 25bps
and 75bps (2013: 25bps to 50bps) for inflation-linked annuities and
between 50bps and 110bps (2013: 25bps and 110bps) for guaranteed plans.
Asset mix for assets supporting required capital
Sanlam Life
Equities 26 26
Offshore investments 10 10
Hedged equities 13 13
Fixed-interest securities 15 15
Cash 36 36
100 100
Sanlam Investments and Pensions
Cash 100 100
100 100
SDM Limited
Equities 50 50
Cash 50 50
100 100
Botswana Life Insurance
Equities 50 15
Property - 10
Fixed-interest securities - 25
Cash 50 50
100 100
Summarised Group IFRS financial statements
for the year ended 31 December 2014
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 2014
R million 2014 2013
ASSETS
Equipment 723 586
Owner-occupied properties 1 096 672
Goodwill 3 974 3 796
Other intangible assets 439 111
Value of business acquired 2 045 1 586
Deferred acquisition costs 3 281 2 976
Long-term reinsurance assets 941 796
Investments 538 155 477 550
Properties 10 333 9 182
Equity-accounted investments 11 895 9 780
Equities and similar securities 183 040 166 122
Interest-bearing investments 161 778 131 417
Structured transactions 12 348 11 906
Investment funds 133 552 131 029
Cash, deposits and similar securities 25 209 18 114
Deferred tax 365 361
Assets of disposal groups classified as held for sale 1 893 415
Net defined benefit asset 144 -
Short-term insurance technical assets 3 964 2 716
Working capital assets 54 233 69 739
Trade and other receivables 37 974 51 339
Cash, deposits and similar securities 16 259 18 400
Total assets 611 253 561 304
Equity and liabilities
Shareholders’ fund 46 037 40 965
Non-controlling interest 5 198 3 651
Total equity 51 235 44 616
Long-term policy liabilities 443 672 382 309
Insurance contracts 186 626 158 575
Investment contracts 257 046 223 734
Term finance 5 775 6 129
Margin business 1 835 2 038
Other interest-bearing liabilities 3 940 4 091
Structured transactions liabilities 766 1 387
External investors in consolidated funds 49 625 55 710
Cell owners’ interest 925 814
Deferred tax 2 498 2 142
Liabilities of disposal groups classified as held for sale 1 466 -
Short-term insurance technical provisions 12 592 11 032
Working capital liabilities 42 699 57 165
Trade and other payables 40 529 54 799
Provisions 283 285
Taxation 1 887 2 081
Total equity and liabilities 611 253 561 304
Statement of comprehensive income
for the year ended 31 December 2014
R million 2014 2013
Net income 92 060 102 000
Financial services income 49 683 45 104
Reinsurance premiums paid (6 341) (4 963)
Reinsurance commission received 1 125 675
Investment income 22 491 19 688
Investment surpluses 28 891 47 350
Finance cost - margin business (105) (69)
Change in fair value of external investors liability (3 684) (5 785)
Net insurance and investment contract benefits and claims (58 626) (71 376)
Long-term insurance contract benefits (26 388) (26 480)
Long-term investment contract benefits (22 168) (34 106)
Short-term insurance claims (14 404) (13 861)
Reinsurance claims received 4 334 3 071
Expenses (20 811) (18 418)
Sales remuneration (6 442) (5 825)
Administration costs (14 369) (12 593)
Impairments (140) (34)
Amortisation of intangibles (240) (263)
Net operating result 12 243 11 909
Equity-accounted earnings 1 603 1 224
Finance cost - other (517) (516)
Profit before tax 13 329 12 617
Taxation (3 534) (3 483)
Shareholders’ fund (3 007) (2 422)
Policyholders’ fund (527) (1 061)
Profit for the year 9 795 9 134
Other comprehensive income
Movement in foreign currency translation reserve 569 1 123
Employee benefits re-measurement gain 128 3
Comprehensive income for the year 10 492 10 260
Allocation of comprehensive income:
Profit for the year 9 795 9 134
Shareholders’ fund 8 729 8 131
Non-controlling interest 1 066 1 003
Comprehensive income for the year 10 492 10 260
Shareholders’ fund 9 393 9 030
Non-controlling interest 1 099 1 230
Earnings attributable to shareholders of the company (cents):
Basic earnings per share 436,7 419,8
Diluted earnings per share 431,5 401,2
Statement of changes in equity
for the year ended 31 December 2014
R million 2014 2013
Shareholders’ fund:
Balance at beginning of the year 40 965 36 556
Comprehensive income 9 393 9 030
Profit for the year 8 729 8 131
Other comprehensive income 664 899
Net acquisition of treasury shares(1) (515) (319)
Share-based payments 376 329
Dividends paid(2) (4 009) (4 283)
Acquisitions, disposals and other movements in interests (173) (348)
Balance at end of the year 46 037 40 965
Non-controlling interest:
Balance at beginning of the year 3 651 2 970
Comprehensive income 1 099 1 230
Profit for the year 1 066 1 003
Other comprehensive income: 33 227
Net (acquisition)/disposal of treasury shares(1) (20) 11
Share-based payments 57 46
Dividends paid(2) (636) (518)
Acquisitions, disposals and other movements in interests 1 047 (88)
Balance at end of the year 5 198 3 651
Shareholders’ fund 40 965 36 556
Non-controlling interest 3 651 2 970
Total equity at beginning of the year 44 616 39 526
Shareholders’ fund 46 037 40 965
Non-controlling interest 5 198 3 651
Total equity at end of the year 51 235 44 616
(1) Includes movement in cost of shares held by subsidiaries and the share incentive trust.
(2) Normal dividend of 225 cents per share (2013: 165 cents per share) declared during 2014
in respect of the 2013 financial year.
Cash flow statement
for the year ended 31 December 2014
R million 2014 2013
Net cash flow from operating activities 35 944 10 372
Net cash flow from investment activities (30 033) (4 529)
Net cash flow from financing activities (971) 143
Net increase in cash and cash equivalents 4 940 5 986
Cash, deposits and similar securities at beginning of the year 36 491 30 505
Cash, deposits and similar securities at end of the year 41 431 36 491
Notes to the financial statements
for the year ended 31 December 2014
cents 2014 2013
1. Earnings per share
Basic earnings per share:
Headline earnings 416,5 416,2
Profit attributable to shareholders’ fund 436,7 419,8
Diluted earnings per share:
Headline earnings 411,6 397,8
Profit attributable to shareholders’ fund 431,5 401,2
R million 2014 2013
Analysis of earnings:
Profit attributable to shareholders’ fund 8 729 8 131
Less: Net profit on disposal of operations (387) (90)
Less: Equity-accounted non-headline earnings (118) -
Plus: Impairment of investments and goodwill 101 21
Headline earnings 8 325 8 062
million 2014 2013
Number of shares:
Number of ordinary shares in issue at beginning of year 2 100,0 2 100,0
Add: Shares reclassified during the year 66,5 -
Less: Weighted Sanlam shares held by subsidiaries
(including policyholders) (167,6) (162,9)
Adjusted weighted average number of shares for basic
earnings per share 1 998,9 1 937,1
Add: Weighted conversion of deferred shares - 61,0
Add: Total number of shares in respect of Sanlam Limited
long-term incentive schemes 23,9 28,6
Adjusted weighted average number of shares for diluted
earnings per share 2 022,8 2 026,7
R million 2014 2013
2. Reconciliation of segmental information
Segment financial services income (per shareholders’ fund information) 45 713 42 104
Sanlam Personal Finance 14 364 13 249
Sanlam Emerging Markets 5 236 4 045
Sanlam Investments 8 286 7 574
Santam 17 700 17 124
Corporate and other 127 112
IFRS adjustments 3 970 3 000
Total financial services income 49 683 45 104
Segment result (per shareholders’ fund information after tax
and non-controlling interest) 8 744 8 129
Sanlam Personal Finance 6 578 5 536
Sanlam Emerging Markets 1 504 1 302
Sanlam Investments 2 055 1 854
Santam 916 692
Corporate and other (2 309) (1 255)
Reverse non-controlling interest included in segment result 1 066 1 003
Fund transfers (15) 2
Total profit for the year 9 795 9 134
3. Share repurchases
The Sanlam shareholders granted general authorities to the Group at the 2014 and 2013 annual general meetings
to repurchase Sanlam shares in the market. No share repurchases were done in respect of these authorities.
4. Contingent liabilities
Shareholders are referred to the contingent liabilities disclosure in the 2014 annual report. The circumstances
surrounding the contingent liabilities remain materially unchanged from 2013.
5. 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 2014 as reflected in these financial statements.
6. Fair value disclosures
Determination of fair value and fair value hierarchy
Below follows required disclosure of fair value measurements, using a three-level fair value hierarchy that reflects the
significance of the inputs used in determining the measurements. It should be noted that these disclosures only cover assets and
liabilities measured at fair value.
Included in level 1 category are assets and liabilities that are measured by reference to unadjusted, quoted prices in an active
market for identical assets and liabilities.
Included in level 2 category are assets and liabilities measured using inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
For example, instruments measured using a valuation technique based on assumptions that are supported by prices from observable
current market transactions are categorised as level 2.
Assets and liabilities measured using inputs that are not based on observable market data are categorised as level 3.
R million Level 1 Level 2 Level 3 Total
Recurring fair value measurements
31 December 2014
Properties - - 10 333 10 333
Equities and similar securities 180 185 2 460 395 183 040
Interest-bearing investments 107 061 53 063 396 160 520
Structured transactions 4 653 7 695 - 12 348
Investment funds 114 691 18 409 452 133 552
Trading account assets 7 522 15 304 - 22 826
Cash deposits and similar securities 20 053 5 153 - 25 206
Total assets at fair value 434 165 102 084 11 576 547 825
Investment contract liabilities - 254 494 2 552 257 046
Term finance 3 031 111 347 3 489
Valued at stock exchange prices 3 031 - - 3 031
Based on internal valuation - 111 347 458
Structured transactions liabilities - 766 - 766
Trading account liabilities 1 008 21 111 - 22 119
External investors in consolidated funds 49 476 149 - 49 625
Total liabilities at fair value 53 515 276 631 2 899 333 045
31 December 2013
Properties - 1 955 7 227 9 182
Equities and similar securities 162 861 1 948 1 313 166 122
Interest-bearing investments 100 900 29 723 394 131 017
Structured transactions 3 161 8 745 - 11 906
Investment funds 115 828 14 742 459 131 029
Trading account assets 3 021 33 605 - 36 626
Cash deposits and similar securities 13 614 4 494 - 18 108
Total assets at fair value 399 385 95 212 9 393 503 990
Investment contract liabilities - 222 967 767 223 734
Term finance 3 047 209 259 3 515
Valued at stock exchange prices 3 047 - - 3 047
Based on internal valuation - 209 259 468
Structured transactions liabilities - 1 184 203 1 387
Trading account liabilities 2 265 30 355 - 32 620
External investors in consolidated funds 54 540 1 170 - 55 710
Total liabilities at fair value 59 852 255 885 1 229 316 966
Reconciliation of movements in level 3 assets and liabilities measured at fair value
Equities Cash,
and Interest- deposits
similar bearing Structured Investment and similar Total
R million Properties securities investments transactions funds securities assets
Assets
Balance at 1 January 2014 7 227 1 313 394 - 459 - 9 393
Total gains/(loss) in statement
of comprehensive income 181 82 34 2 50 - 349
Acquisitions 1 022 130 13 - - - 1 165
Disposals (301) (1 133) (51) (2) (57) - (1 544)
Foreign exchange movements 138 3 6 - - - 147
Transfer from owner occupied properties 111 - - - - - 111
Transfers from level 2
Significant - transfer in(1) 1 955 - - - - - 1 955
Balance at 31 December 2014 10 333 395 396 - 452 - 11 576
Assets
Balance at 1 January 2013 - 1 881 163 122 353 2 2 521
Adjustment due to IFRS 13 8 419 - - - - - 8 419
Total gain/(loss) in statement
of comprehensive income 440 1 191 92 6 6 - 1 735
Acquisitions 501 222 - - 56 - 779
Issues - - 160 - - - 160
Disposals (2 227) (1 985) (34) (128) (11) (2) (4 387)
Foreign exchange movements 112 4 26 - - - 142
Settlements - - (13) - - - (13)
Transfers from level 1 and level 2
Not significant (net in/out) (18) - - - 55 - 37
Balance at 31 December 2013 7 227 1 313 394 - 459 - 9 393
(1) In the valuation performed on these investments, insignificant adjustments were made to the rates used to discount future
cash flows. The valuation methodology has been revisited and additional unobservable inputs are included, changing the classification.
Investment Structured
contract Term transactions Total
R million liabilities finance liabilities liabilities
Liabilities
31 December 2014
Balance at 1 January 2014 767 259 203 1 229
Total (gain)/loss in statement of comprehensive income 82 59 94 235
Acquisitions 195 - - 195
Disposals (505) - (297) (802)
Foreign exchange movements 29 29 - 58
Transfers from level 1 and level 2
Significant - transfer in(1) 1 984 - - 1 984
Balance at 31 December 2014 2 552 347 - 2 899
31 December 2013
Balance at 1 January 2013 652 97 - 749
Total (gain)/loss in statement of comprehensive income 113 172 197 482
Acquisitions 151 - 6 157
Issues 160 - - 160
Disposals (337) - - (337)
Settlements - (11) - (11)
Foreign exchange movements 28 1 - 29
Balance at 31 December 2013 767 259 203 1 229
(1) The classification of investment contracts backing investment property has changed in line with the change in the
classification of the underlying investments. The policy of the Group is to effect transfers of financial instruments
between the fair value hierarchy levels at the beginning of the reporting period.
R million 2014 2013
Gains and losses (realised and unrealised) included in profit or loss
Total gains or losses included in profit or loss for the period 114 1 253
Total unrealised gains or losses included in profit or loss for the period
for assets held at the end of the reporting period 191 1 007
Transfers between categories
Cash,
Equities Interest- deposits
and similar bearing Structured and similar Total
R million securities investments transactions securities assets
2014
Assets
Transfer from level 1
to level 2 - 380 106 36 522
Transfer from level 2
to level 1 5 - - - 5
2013
Transfer from level 1
to level 2 - - 2 25 27
Transfers from level 1 to level 2 relate to Corporate interest-bearing investments and Structured transactions held within the
Santam businesses portfolio that was previously disclosed at level 1 but did not trade sufficiently to meet the liquidity
requirements for categorisation in level 1 and were thus transferred to level 2.
Valuation techniques used in determining the fair value of assets and liabilities
Applicable Valuation Main Significant
Instrument to level basis assumptions Unobservable input
Properties 2 and 3 Discounted cash Bond and interbank Capitalisation rate
flow model (DCF), swap interest rate curve Discount rate
Earnings multiple Cost of capital
Consumer price index
Equities and 2 and 3 Discounted cash Bond and interbank Cost of capital
similar securities flow model (DCF), swap interest rate curve Earnings multiple
Earnings multiple Cost of capital
Consumer price index
Interest-bearing 2 and 3 Discounted cash Bond and interbank Earnings multiple
investments flow model (DCF), swap interest rate curve
(including insurance Earnings multiple, Cost of capital
policies) Quoted put/surrender Consumer price index
price by issuer
Trading account 2 DCF Forward rate n/a
assets and liabilities Credit risk spread
Liquidity spread
Investment contract 2 and 3 Current unit price Bond and interbank Earnings multiple
liabilities and of underlying swap interest rate curve n/a
Investment funds unitised asset, Cost of capital
multiplied by the Consumer price index
number Bond interest rate curves
of units held
DCF
Earnings multiple
Term finance 2 and 3 DCF Bond and forward rate Liquidity spread
Credit ratings of issuer
Liquidity spread
Agreement interest curves
Structured 2 and 3 Option pricing Bond and interbank n/a
transactions assets models swap interest rate curve
and liabilities DCF Forward equity and currency rates
Volatility risk adjustments
External investors in 2 Quoted (exit) price n/a n/a
consolidated funds provided by fund
manager
Sensitivity of level 3 assets and liabilities measured at fair value to changes in key assumptions
Assets
Effect Effect
Effect of Effect of of a 1% of a 1%
a 10% 10% increase decrease
increase decrease in base/ in base/
in risk in risk capitali- capitali-
Carrying adjust- adjust- Carrying sation sation
R million amount ments ments amount(1) rate rate
2014
Properties
Cash flow risk adjustments 10 333 (1 033) 1 033 - - -
Base rate - - - 7 097 (264) 282
Capitalisation - - - 7 097 (382) 466
Effect of Effect of
Effect of Effect of a 1% a 1%
a 10% a 10% increase decrease
Carrying increase decrease Carrying in discount in discount
R million amount(2) in multiple in multiple amount(3) rate rate
Other investments
Equities and similar securities 323 32 (32) 72 (3) 3
Interest-bearing investments 396 40 (40) - - -
Investment funds 452 45 (45) - - -
Total 1 171 117 (117) 72 (3) 3
Properties
2013
Cash flow risk adjustments 7 227 (723) 723 - - -
Base rate - - - 7 227 (255) 272
Capitalisation - - - 7 227 (354) 432
Effect of Effect of
Effect of Effect of a 1% a 1%
a 10% a 10% increase decrease
Carrying increase decrease Carrying in discount in discount
R million amount(2) in multiple in multiple amount(3) rate rate
Equities and similar securities 755 76 (76) 558 (6) 6
Interest-bearing investments 345 35 (35) 49 (12) 14
Investment funds 459 46 (46) - - -
Total 1 559 157 (157) 607 (18) 20
Liabilities
Effect Effect
of a 1% of a 1%
Effect of Effect of increase decrease
a 10% a 10% in in
Carrying increase decrease Carrying discount discount
R million amount(2) in value in value amount(3) rate rate
2014
Investment contract liabilities 2 552 255 (255) - - -
Term finance 347 35 (35) - - -
Total liabilities 2 899 290 (290) - - -
2013
Investment contract liabilities 494 49 (49) 273 (8) 8
Term finance 259 26 (26) - - -
Structured transactions liabilities - - - 203 (37) 14
Total liabilities 753 75 (75) 476 (45) 22
(1) Investment properties comprise a majority of Sanlam Life properties valued using capitalisation and discount rates,
with sensitivities based on these two unobservable inputs.
(2) Represents mainly private equity investments valued on earnings multiple, with sensitivities based on the full valuation.
(3) Represents mainly instruments valued on a discounted cash flow basis, with sensitivities based on changes in the discount rate.
7. Business combinations
During May 2014 the Group acquired a 51% interest in MCIS Insurance, a life and general insurance provider in Malaysia.
The acquisition is in line with Sanlam’s strategy to pursue value accretive growth opportunities in the South-East Asia region.
The excess amount paid over fair value of net assets is recognised as goodwill. Non-controlling interests are measured at the
proportional share of the acquiree’s identifiable net assets. The goodwill arising from the acquisition relates to synergies between
the interest acquired and existing Sanlam Group businesses. None of the goodwill recognised is expected to be deductible for income
tax purposes.
Details of the assets acquired and liabilities assumed are as follows:
Fair value
recognised
on
acquisition
R million
ASSETS
Equipment 23
Owner-occupied properties 319
Value of business acquired 641
Other Intangible assets 41
Long-term reinsurance assets 9
Investment properties 34
Equities and similar securities 1 093
Interest-bearing investments 11 110
Investment funds 416
Cash, deposits and similar securities 801
Assets of disposal groups held for sale 1 457
Trade and other receivables 247
Total identifiable assets 16 191
LIABILITIES
Long-term policy liabilities (11 930)
Deferred tax liability (99)
Liabilities of disposal groups held for sale (1 457)
Trade and other payables (584)
Taxation (2)
Total identifiable liabilities (14 072)
Total identifiable net assets 2 119
Non-controlling interest (1 038)
Goodwill arising on acquisition 177
Purchase consideration 1 258
The fair value and gross amount of the trade receivables amounts to R247 million. None of the trade receivables have been
impaired and it is expected that the full contractual amounts can be collected.From the date of acquisition, MCIS Insurance
has contributed R376 million to financial services income and R71 million to the profit before tax of the Group. If the
business combination had taken place at the beginning of the year, financial services income of the Group would have
increased by R356 million and profit before tax by R62 million.
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
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)11 370-5000
Fax +27 (0)11 688-5200
Directors:
DK Smith (Chairman), PT Motsepe (Deputy Chairman), J van Zyl(1) (Group Chief Executive),
MM Bakane-Tuoane, CB Booth (2), AD Botha, PR Bradshaw(2), A Duggal(3), MV Moosa, JP Möller(1), TI Mvusi(1),
SA Nkosi, P Rademeyer, Y Ramiah(1), RV Simelane, CG Swanepoel, ZB Swanepoel, PL Zim
(1) Executive
(2) British
(3) American national and resident of India
Bellville
5 March 2015
Sponsor
Deutsche Securities (SA) Proprietary Limited
www.sanlam.co.za
Date: 05/03/2015 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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