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SANLAM LIMITED - Operational Update - June 2015

Release Date: 03/06/2015 13:55
Code(s): SLM     PDF:  
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Operational Update - June 2015

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 2015

The Group achieved satisfactory results for the four months ended 30 April 2015, given
an increasingly challenging economic environment in a number of the countries where
we operate. As anticipated, the exceptionally favourable life and general insurance
underwriting conditions in the 2014 financial year also set a high earnings base, with
resulting lower growth prospects in 2015 than that achieved by the Group over the last
few years.

Economic and employment growth in South Africa, our largest market, remains modest,
which, coupled with labour instability and significant hikes in administered prices
(electricity in particular), places pressure on the disposable income of the average
South African consumer. Several of the rest of Africa economies where we operate are
also experiencing headwinds. Low commodity prices, including oil, are impacting on the
economic activity and currencies of a number of these countries. The anticipated
acceleration of the Indian economic growth under the Modi administration is also
lagging. Delays in the roll-out of infrastructure spending in particular are impacting not
only on growth in our Indian credit businesses, but also the bad debt position of the
Indian lending market in general.

Results

The salient features of the Group’s performance for the four months to 30 April 2015
are:

-       New business volumes of R68 billion (excluding white label), up 15% on the first
        four months of the 2014 financial year.

    o Personal Finance recorded a 20% overall increase in new business sales.
      Sanlam Sky new business volumes increased by 13%, with a 22% increase in
      the individual life agency channel contribution somewhat offset by lower new
      broker channel and group life business. The latter was impacted by the
      termination of the Capitec credit life underwriting agreement early in 2015.
      Pressure on consumer disposable income is evident in the middle income
      market new business results. In this segment overall new business volumes
      were marginally down on the comparable period, with 3% growth in sales of
      recurring premium business being offset by lower single premiums. In the
      affluent market, Glacier continued on its strong growth trajectory to achieve a
      28% increase in new business.
    o Emerging Markets achieved overall new business growth of only 2%. The
      Namibian operations experienced lower inflows of the more volatile unit trust
        business, which more than offset continued good growth in new life business.
        Pacific & Orient, the Group’s general insurance business in Malaysia had a slow
        start to the year. MCIS Insurance, the Malaysian life insurance business
        acquired during 2014, is performing well and is meeting its targets. New
        business volumes in the Rest of Africa region were negatively affected by
        temporary distribution instability during the implementation of a new life
        administration system. Excluding this, the region recorded strong growth in
        excess of 30%. Botswana and India achieved satisfactory growth in new
        business flows.
    o   The Investments cluster increased its new business volumes by 15%, which
        includes 31% growth from Employee Benefits. The latter was driven by single
        premium investment products, with recurring premium risk sales declining in a
        very competitive market. Net fund inflows more than doubled to R4,3 billion.
    o   Value of new life business (VNB) increased by 8% on the comparable period in
        2014. Personal Finance and Emerging Markets achieved combined growth of
        18%, but this was offset by a significant reduction in the Employee Benefits
        contribution due to the decline in the more profitable recurring premium risk
        business.
    o   Overall net fund inflows (excluding white label) of R3 billion were down from the
        R10,7 billion achieved in the comparable four-month period in 2014. As
        communicated in the Group’s 2014 Annual Report, the Botswana Public Officers
        Pension Fund withdrew P9 billion of investments managed by our Botswana
        asset manager.
    o   Persistency levels are generally holding up but the impact of the economic
        environment can be seen in some deteriorating trends.

-   Net result from financial services up 8% on the first four months of the 2014
    financial year.

    o The growth in operating profit is in general supported by:
         o A relatively higher level of assets under management;
         o Sound cost management; and
         o Sustained positive mortality experience in most of the major market
             segments.
    o The following, however, had some negative impact on earnings growth:
         o Increased new business strain at Sanlam Sky due to the strong growth in
             new individual life business volumes.
         o Increased expenditure at Sanlam Investments on marketing and
             expanding capacity in the client facing units. The benefits from these
             investments will only reflect in future earnings.
         o Project costs incurred by Sanlam Investments relating to the outsourcing
             of collective investment administration services.
         o Lower performance fees earned by Sanlam Investments in respect of
             collective investment schemes and the Public Investment Corporation
             (PIC) mandates. The value-biased investment approach detracted
             somewhat from short-term performance in 2015 compared to the first four
             months of 2014 while the funds withdrawn by the PIC in 2014 also left a
             lower base on which fees can be earned.
           o Some earnings dilution following the effective exchange of a 2% direct
             stake in Shriram Transport Finance Company for a higher interest in the
             Shriram Group during 2014.
           o Bad debt provisions in Shriram Transport Finance Company’s equipment
             finance subsidiary. The delayed roll-out of infrastructure spending in India
             had a particularly negative impact on the bad debt experience in this niche
             credit business. Measures have been put in place to limit further losses.
           o A normalisation in Santam’s underwriting experience, with the first quarter
             of 2015 characterised by some large commercial, hail and drought-related
             claims.
           o Pressure on earnings in certain commodity driven markets.

-   Normalised headline earnings per share up by 17% compared to the first four
    months of the 2014 financial year.

    o   Relatively stronger investment performance across all asset classes supported
        investment return earned on the capital portfolio.

-   Diluted headline earnings per share, which includes fund transfers recognised in
    respect of Sanlam shares held in policyholder portfolios, increased by 20%
    compared to the first four months of the 2014 financial year.

Capital

All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory
capital covered its Capital Adequacy Requirements by 4.7 times on 31 March 2015.

The Group had excess capital of R3.3 billion available for redeployment at the end of
December 2014. Since then some R2 billion was either utilised for or committed to a
number of specific transactions. The balance of the discretionary capital was
augmented by a special dividend paid by MCIS Insurance, the disposal of some illiquid
investments, the excess dividend cover relating to the 2014 financial year and
investment return earned on the discretionary capital portfolio. This resulted in available
discretionary capital of some R2 billion at the end of April 2015 that remains earmarked
for growth opportunities.

Outlook

We expect that the economic and operating environment will remain challenging for the
remainder of 2015 with a resulting impact on the Group’s key operational performance
indicators. 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 2015. Relatively strong operating earnings growth experienced in
the second quarter of 2014 also causes an increase in the comparable base.

We have a solid strategy in place that served us well over more than 10 years and will
continue to do so into the future. Despite the short-term pressure on operating earnings
growth, we remain confident that we will deliver on our longer term growth targets.

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
2015 are due to be released on 3 September 2015. Shareholders are advised that this
is not a trading statement as per paragraph 3.4(b) 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 to 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 call.
Access Numbers for Recorded Playback:
Access code for recorded playback: 35727

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 June 2015

Sponsor
Deutsche Securities (SA) Proprietary Limited

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