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Operational Update - December 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 – December 2015
The Sanlam Group achieved an overall solid performance for the 10 months ended 31
October 2015, despite continued impact from the headwinds faced by the Group in the
first half of 2015. Economic conditions in the markets where the Group operates
remained challenging, with the commodity-based economies experiencing pressure on
domestic economic growth as well as currency volatility. South Africa, the Group’s
largest region, is no exception with a poor economic growth outlook for 2015 and a
marked weakening of the Rand against developed market currencies since the end of
June 2015.
The broader trends underlying the Group’s performance for the 10 months to 31
October 2015 are in line with those of the first half of 2015. The large R8.3 billion policy
written by Sanlam Employee Benefits in the third quarter of 2014 (“the SEB policy”)
affects the comparability of new business volumes, value of new life business (VNB)
and net result from financial services.
Results
The salient features of the Group’s performance for the 10 months to 31 October 2015
are:
- New business volumes of R175 billion, up 17% on the first 10 months of the 2014
financial year. Excluding the SEB policy, new business volumes increased by
24%.
o Sanlam Personal Finance achieved growth of 22% in new business sales.
Sanlam Sky new business volumes increased by 14%, comprising 13% growth
in individual life recurring premiums and an 18% increase in group life recurring
premiums. The 2015 new business sales benefited from the biennial premium
renewal of the ZCC scheme as well as a large new voluntary scheme awarded to
Sanlam Sky, which more than compensated for the termination of the Capitec
credit life underwriting agreement towards the end of 2014. Excluding these
items, new business volumes grew by 12% on a normalised basis, in line with
the target for this business. The introduction of the tax free savings product in
this market segment resulted in higher than expected replacement sales with a
commensurate change in mix to the low margin savings product. The Individual
Life segment grew new business volumes by 3%. Single premium sales growth
remains moderate, in part due to a shift in sales to the Glacier platform. New
recurring premiums increased by 8%, supported by good growth in risk, tax free
savings and credit life business. Demand for Glacier’s offshore and wrap product
solutions remains strong, contributing to 28% growth in Glacier’s new business
contribution.
o Sanlam Emerging Markets achieved overall new business growth of 42%. The
Namibian operations experienced lower inflows of the more volatile unit trust
business, which more than offset good growth in new life business. The
Botswana operations more than doubled their new business contribution,
supported by strong annuity and investment business volumes. All of the other
regions (Rest of Africa, Malaysia and India) achieved growth in excess of 20%,
despite some headwinds:
o New business activity in Zambia remains depressed in the difficult
operating environment with an improvement only expected during 2016.
o The new business impact of the system implementation issues
experienced by the Kenyan life business continues to reflect in the
October year-to-date results.
o Pacific & Orient, the Group’s general insurance business in Malaysia, is
experiencing pressure on new business from a general decline in the
sales of two-wheelers as well as increased competition. Appropriate
management action has been implemented.
o The Sanlam Investments cluster increased its new business volumes by 14%
(26% excluding the SEB policy), with the South African Investment Management
and Wealth Management businesses achieving particularly strong growth. Group
recurring premium risk business in Sanlam Employee Benefits remains under
pressure, similar to the first half of 2015. The International businesses also
recorded a decline in new business inflows, partly attributable to the disposal of
Intrinsic in 2014.
o VNB on a consistent economic basis declined by 8% on the comparable period
in 2014. Excluding the SEB policy, VNB increased by 1%. VNB margins have
been maintained on a per product basis. Growth in Sanlam Personal Finance’s
VNB was, however, depressed by the change in mix to the lower margin tax free
savings product in both Sanlam Sky and Individual Life, as well as the strong
growth in Sanlam Sky’s lower margin group life business. Sanlam Personal
Finance’s overall VNB increased marginally as a result, with a decline reported
at Sanlam Sky. Sanlam Emerging Markets’ VNB growth continues to be
impacted by lower contributions from Namibia, Zambia and Kenya, due to the
factors highlighted in the Group’s interim results. Sanlam Employee Benefits
reported a markedly lower contribution due to the impact of the SEB policy
included in the comparable base and a decline in the more profitable recurring
premium risk business.
o Overall net fund inflows of R11.5 billion were down from the R27,5 billion
achieved in the comparable 10-month period in 2014, but represents a
satisfactory performance given the large outflows experienced in 2015 from two
institutional clients. The Public Investment Corporation withdrew R11.2 billion
from Sanlam Investment Management while the Botswana Public Officers
Pension Fund withdrew an overall R17.3 billion from Sanlam Emerging Markets
and Sanlam Investments’ International business.
o Persistency levels are generally in line with the 2015 first-half results.
- Net result from financial services up 8% on the first 10 months of the 2014 financial
year.
o The same key factors that affected the Group’s 2015 first-half performance also
reflect in the results for the 10 months to 31 October 2015.
o Fund-based fee income benefited from a relatively higher level of assets
under management.
o Mortality experience in most of the major market segments remained in
line with the first-half performance.
o Sanlam Investments’ profitability reflects lower performance fees and
increases in administration spend on projects and capacity building. An
increase in emerging market credit spreads and marked-to-market losses
on equity-backed financing structures in the current volatile equity market
environment had a negative effect on Sanlam Capital Markets’
performance since the end of June 2015.
o In Sanlam Emerging Markets, the Zambian and Indian businesses
reported a decline in profits compared to the same period in 2014, with
additional provisions being raised since the end of June 2015 in respect of
the arrears position in the Shriram Transport Finance equipment finance
book. Overall growth in operating earnings for the cluster remained
broadly in line with the first-half performance.
o Santam experienced a particularly favourable claims environment in the four
months to 31 October 2015.
- Normalised headline earnings per share up by 12% compared to the first 10 months
of the 2014 financial year.
o Investment return earned on the capital portfolio benefited from the major
weakening in the Rand exchange rate since the end of June 2015, which
supported the performance of the offshore 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 16%
compared to the first 10 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 5 times on 30 September 2015.
The Group had excess capital of R4.6 billion available for redeployment at the end of
June 2015. Utilisation since then has been limited to a number of small transactions.
Including investment return earned on the portfolio and the release of some illiquid
capital, discretionary capital amounted to R4.8 billion on 31 October 2015. As indicated
before, a major portion of the available discretionary capital has been earmarked for
transactions in the process of completion.
The Group followed a prudent approach in the allocation of capital to its operations in
anticipation of the implementation of Solvency Assessment and Management (SAM) in
South Africa. With increased certainty regarding the final outcome of the SAM regime,
the Group is identifying opportunities to improve the efficiency of capital allocation.
Being a diverse Group, one of the opportunities is to cover part of the life operations’
capital requirement with the investments held in other Group operations. This is referred
to as internal capital diversification that creates some additional capacity for strategic
investments. Combined with the existing discretionary capital pool, this will enable the
Group to cover the funding requirements of all the recently announced transactions,
including the proposed acquisition of an interest in the Saham Finances Group, from
internal resources. An update on the Group’s capital position will be provided in the
2015 annual results announcement in March 2016.
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
financial year ending 31 December 2015. Relatively strong operating earnings and new
business growth experienced in the latter part of 2014 also cause an increase in the
comparable base.
The 2015 financial year has been particularly challenging to date with a number of
headwinds contributing to lower than expected performance in a number of key metrics.
These are short-term pressures and we remain confident that the Group’s strategy is
appropriate to 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 year ending 31 December
2015 are due to be released on 10 March 2016. 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 16h00 (South
African time) today. Investors and media who wish to participate in the conference call
should dial the numbers indicated below.
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 16h00.
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 0 808 162 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: 41231
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
2 December 2015
Sponsor
Deutsche Securities (SA) Proprietary Limited
Date: 02/12/2015 02:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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