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Operational Update – June 2016
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 2016
Operating conditions remained challenging during the first four months of the 2016
financial year across most of the markets where the Group operates. Despite these
conditions impacting on performance in a number of areas, the Group’s diversification
across geographies, market segments and product lines enabled it to deliver an overall
solid performance for the four months ended 30 April 2016.
Economic growth in most markets remains below longer-term potential, in particular in
South Africa where only modest growth is expected for 2016. The first four months of
2016 also saw significant investment market volatility in South Africa and international
markets. Coupled with concerns around global growth prospects, these conditions
posed particular headwinds for the Group to grow new business volumes and fund-
based fee income, aggravated in South Africa by concerns of a downgrade in the
international sovereign rating to below investment grade. The Rand regained some
ground against major currencies, but was still significantly weaker on an average basis
during the first four months of 2016 compared to the same period in 2015.
Results
The salient features of the Group’s performance for the four months to 30 April 2016
are:
* New business volumes of R74 billion, up 9% on the first four months of the 2015
financial year.
o Sanlam Personal Finance achieved growth of 11% in new business sales, a
particularly satisfactory performance given the challenging operating conditions
in South Africa. Sanlam Sky new business volumes increased by 5%, comprising
only a marginal increase in individual life recurring premiums and strong growth
in group life recurring premiums. The low growth in individual life business is
largely attributable to increasing consumer pressure in this market segment and
the realignment of the channels towards more profitable product lines. The
Individual Life segment grew new business volumes by 3%. Single premium
sales growth remains moderate, in line with the 2015 experience. New recurring
premiums increased by 16%, supported by strong growth in risk business.
Glacier achieved overall growth of 13% as demand for its offshore and wrap
product solutions remains strong.
o Sanlam Emerging Markets achieved overall new business growth of 53%,
supported by a weaker average Rand exchange rate and the impact of corporate
activity during 2015. Excluding these, new business volumes increased by some
40%. All major businesses contributed strong growth, apart from Zambia, that
continues to struggle in a difficult environment, and Ghana and Malawi that had a
slow start to the year. New life business volumes increased by 42%, augmented
by 65% and 50% growth in investment and general insurance business
respectively.
o The Sanlam Investments cluster increased its new business volumes by 5%,
with Sanlam Employee Benefits and the International businesses achieving
particularly good growth. Group recurring premium risk business in Sanlam
Employee Benefits remains under pressure while the South African Investment
Management and Wealth Management business units achieved only marginal
growth on the 2015 comparative base.
o Net value of new life business (“VNB”) on a consistent economic basis increased
by 7% on the comparable period in 2015 (in line with 2015 based on actual 30
April 2016 economic basis). VNB margins have been largely maintained on a per
product basis. Growth in Sanlam Personal Finance’s VNB was, however,
depressed by the inclusion of the lower margin tax free savings product in the
Sanlam Sky business mix (the product was introduced after April 2015 and
therefore not included in the comparative base). Sanlam Personal Finance’s
overall VNB increased marginally as a result, with a decline at Sanlam Sky
offsetting good growth at Individual Life and Glacier. Sanlam Emerging Markets’
net VNB grew by 23% on a comparable economic basis with VNB trends
generally in line with new business performance. Sanlam Employee Benefits
reported a markedly lower contribution due to a decline in the more profitable
Group Risk business.
o Overall net fund inflows of R16 billion were up from the R3 billion achieved in the
comparable 4-month period in 2015, with most businesses contributing to the
higher net inflows. The comparable 2015 period included the Botswana Public
Officers Pension Fund withdrawal from Sanlam Emerging Markets and Sanlam
Investments.
o Persistency levels are generally in line with the 2015 results.
* Net result from financial services up 7% on the first four months of the 2015
financial year.
o All businesses contributed satisfactory growth, apart from Sanlam Investments
where fund-based fee income was impacted by lower average market levels.
o The Saham Finances acquisition concluded on 29 February 2016 and
contributed to the Group’s earnings with effect from 1 March 2016.
* Normalised headline earnings per share down 13% compared to the first four
months of the 2015 financial year.
o Subdued investment returns earned on the capital portfolio relative to the first
four months of 2015 were further negatively impacted by the strengthening in the
Rand exchange rate since the end of December 2015, which contributed to
negative returns from 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, decreased by 15%
compared to the first four months of the 2015 financial year.
Capital
All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory
capital covered its Capital Adequacy Requirements 5.3 times on 31 March 2016 after
allowing for the dividend paid to Sanlam in April 2016.
The Group had excess capital of R2.3 billion available for redeployment at the end of
December 2015, after allowing for the Saham Finances and Shriram Insurance
transactions. Utilisation since then has been limited to a number of small transactions.
Including investment return earned on the portfolio and the excess dividend cover in
respect of the 2016 dividend payment, discretionary capital amounted to R3.1 billion on
30 April 2016. The available discretionary capital remains earmarked for transactions
currently under consideration.
Outlook
We expect that the economic and operating environment will remain challenging for the
remainder of 2016 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 2016 as well as the full 2016 financial year. Relatively strong
operating earnings and new business growth experienced subsequent to April 2015
also cause an increase in the comparable base.
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
2016 are due to be released on 8 September 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: 48527#
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
8 June 2016
Sponsor
Deutsche Securities (SA) Proprietary Limited
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