Wrap Text
Reviewed condensed consolidated interim financial statements for the six months ended 30 June 2016
Santam Limited and its subsidiaries
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the six months ended 30 June 2016
- Gross written premium growth both including and excluding cell captive insurance 8%
- Underwriting margin 6.4%
- Group solvency ratio 51%
- Return on shareholders' funds 17.4% (annualised)
- Positive growth contribution from international diversification
- Acquisition of effective interest in Saham Finances completed
- Headline earnings per share decreased by 29%
- Interim dividend of 311 cents per share, up 8%
- Special dividend of 800 cents per share
FINANCIAL REVIEW
The Santam group reported strong underwriting results and acceptable growth for the six months ended June 2016 in the context of the current low-growth economic
environment. The group achieved gross written premium growth of 8% and a net underwriting margin of 6.4% (2015: 8.9%), well within the target range of 4% to 8%.
Investment income, net of fair value movements on financial instruments, of R555 million was significantly lower compared to R767 million in 2015. The South African
investment portfolio performed in line with the market. Foreign currency exchange losses had a negative impact on investment returns following the relative
strengthening of the rand since December 2015. In addition, the value of the Sanlam Emerging Markets (SEM) general insurance businesses portfolio showed negative
unrealised fair value movements following tough trading conditions in certain emerging markets.
The lower underwriting profits compared to the exceptional performance in 2015 and significantly lower investment results reduced headline earnings per share by 29%
compared to June 2015. An annualised return on capital of 17.4% was achieved. The solvency margin of 51% was higher than the target range of 35% to 45% of net written
premiums.
Gross written premium growth of 8% was in line with the growth achieved in the corresponding period in 2015. This was pleasing in the context of almost no real growth
in the economy and inflation of 6%.
The property class achieved strong growth of 12% on the back of increased corporate property business written in the rest of Africa and good growth achieved by the
Santam Re property portfolio. The motor class benefitted from 20% growth reported by MiWay, the direct insurance business, (gross written premium of R1 003 million;
2015: R835 million) but was negatively impacted by corrective actions on unprofitable books of business on outsourced platforms.
The liability class experienced significant competitive market pressure and reported a decline in gross written premiums of 17%. The engineering business for large
construction contracts was under strain following reduced construction activity in the current economic climate. The transportation class also experienced competitive
pressures reducing growth to 2%.
Growth of 22% was achieved in the alternative risk class following good performance by risk finance and new business.
The group’s focus on international diversification continued to reflect positive growth results with gross written premium from the rest of Africa (excluding Namibia),
India, Southeast Asia and China of R698 million for the period (2015: R450 million). Santam Namibia reported gross written premium of R565 million (2015: R512 million),
resulting in total gross written premium from outside South Africa during this six-month period increasing to R1 263 million compared to the R962 million achieved in
the comparative period in 2015.
As part of managing its exposure to South Africa’s sovereign credit rating, Santam entered into a three-year alternative risk transfer (ART) reinsurance quota share
agreement with an international insurer, effective 1 January 2014, with an annual reinsurance quota share premium of R1 billion. The agreement includes a facility
whereby Santam can use the insurer’s AA-rated licence for business which is dependent on a minimum international scale rating. The agreement also reduces Santam’s
net catastrophe exposure.
The net underwriting margin of 6.4% was lower than the excellent margin of 8.9% achieved in 2015; however, it is on par with the seven-year average of 6.4%.
The motor and property classes of business were positively impacted by continued disciplined underwriting, including a significant improvement in the underwriting
results from business on outsourced platforms. The impact of the catastrophe hail events in Gauteng and North West in January 2016 was significantly reduced by
recoveries from a sideways reinsurance catastrophe programme. However, a number of large corporate property claims reduced the underwriting results in the property
class of business. MiWay achieved a claims ratio of 63.1%, up from 60.8% in 2015, mainly due to the impact of significant new business growth and an increase in
motor parts cost following the weakening of the rand in 2015. MiWay contributed an underwriting profit of R72 million (2015: R76 million).
The underwriting profit of the engineering class of business showed a decrease compared to 2015, mainly due to competitive market conditions and the impact of a few
large claims reported during the period. The liability class reflected a significant improvement in underwriting results following claims estimate releases and the
absence of large claims during the period.
Despite the severe drought conditions, the crop insurance business achieved a net underwriting profit of R8 million (2015: R53 million). This was as a result of
disciplined underwriting and fewer hail-related claims during the crop season. Gross crop insurance claims of R469 million were incurred during this six month period
of which R231 million related to drought claims.
There were no significant changes to the group’s reinsurance programme for 2016 as the soft reinsurance market continued to provide opportunities to optimise
reinsurance placements.
The net acquisition cost ratio of 29% (excluding the impact of the ART reinsurance quota share agreement) increased from 28% for the comparative period in 2015.
The management expense ratio (excluding the impact of the ART reinsurance quota share agreement) decreased from 15.9% in 2015 to 15.5% in 2016. The 2015 comparatives
included the management expenses of Indwe Broker Holdings Group (Pty) Ltd (Indwe). Following the sale of the controlling stake in Indwe in December 2015, the
management expenses of Indwe are no longer consolidated in 2016. The adjusted ratio excluding Indwe for 2015 was 15.3%. Management expenses growth was well contained
and the marginal increase in the management expense ratio, excluding the impact of Indwe, was due to new growth initiatives.
Strategic project costs, included as part of management expenses, amounted to 0.6% of net earned premium (2015: 0.7%). These costs mainly relate to the continued
development of a new core underwriting, administration and product management platform for the Santam intermediated business. The project is progressing according to
plan with the majority of personal lines policies now migrated to the new system. The development phase of the commercial business product was completed in June 2016.
The net commission ratio (excluding the impact of the ART reinsurance quota share agreement) was 13.5% (2015: 12.1%). The comparative ratio in 2015 excluding Indwe
was 12.8%. A decrease in the gross commission ratio due to the growth in MiWay, where limited commission expenses are incurred, was offset by lower reinsurance
commissions earned on specialist business lines. These included crop and corporate property, following relatively worse loss ratios compared to 2015. Furthermore,
gross commission on inwards reinsurance business from Santam Re, as well as business written in Africa, typically carries higher commission rates than South African
business.
The investment return on insurance funds of R291 million increased from the R236 million earned in 2015, supported by the increase in the repo rate in January and
March 2016 and positive market movements on Santam’s active income portfolio.
Investment returns on the South African investment portfolio were significantly lower compared to 2015. For the first half of 2016, listed equities achieved a return
of 5.6%, marginally underperforming the SWIX benchmark. However, over the longer term, listed equities performed in line with the benchmark. The Santam group’s
interest exposure is managed in enhanced cash and active income portfolios. The active income portfolios achieved a return of 5.7% for the six months to 30 June 2016,
which is considered acceptable given the fund’s low risk positioning. In May 2016, a zero cost fence structure over listed equities to the value of R1 billion was
entered into based on the SWIX 40, providing 10% downside protection from the implementation level of 10 621, with upside participation (excluding dividends) of 10.3%.
The structure matures on 15 December 2016. The hedge showed an unrealised profit of R6 million at the end of June. Foreign currency losses of R46 million
(2015: gains of R62 million) were reported following the 5% strengthening of the rand against the US dollar from December 2015 levels.
Negative fair value movements of R110 million (2015: R13 million positive movement) on Santam’s interest in SEM’s general insurance businesses in Africa, India and
Southeast Asia reduced the investment performance. Key drivers of the negative fair value movements were:
- A downward adjustment to the value of the Pacific & Orient Insurance Co. Berhad (P&O) business in Malaysia of R37 million due to lower premium growth. There is a
significant focus on expanding the current product offering.
- A reduction in the value of the investment in Soras Assurance Generales Ltd (Soras) in Rwanda of R46 million following financial irregularities identified during
this period relating to prior years. Corrective measures were taken to address these irregularities.
- Foreign exchange losses of R39 million (2015: R34 million) following the relative strengthening of the rand against emerging market currencies compared to
December 2015.
Dividend income of R6 million (2015: R22 million) from the SEM portfolio was also recognised. Santam invested a further R49 million in participatory investments in
SEM general insurance businesses in Botswana and Zimbabwe. At the end of June 2016, the SEM investments had a fair value of R942 million (December 2015: R1 005 million)
which accounted for 12% of the group’s shareholder funds.
The transaction to acquire a 30% shareholding in Saham Finances, together with SEM, announced in November 2015, was finalised during the first quarter of 2016. The
acquisition was structured through a special purpose vehicle held jointly by SEM (75%) and Santam (25%) for a total cash consideration of US$400 million. Santam’s
share of the purchase consideration, amounting to US$100 million, was funded from internal cash resources. Santam acquired sufficient foreign currency in addition to
existing dollar assets to cover the purchase consideration before the transaction was concluded in November 2015. A cash flow hedge was implemented on 24 November 2015
to cover Santam’s foreign currency exposure by designating these US dollar-denominated cash balances to the transaction. The impact of this was that foreign currency
gains of R140 million recognised on the designated cash balances since implementation date were not recognised in the statement of comprehensive income, but were
accounted for as part of the investment in Saham Finances. Therefore, the cost price of the investment, net of the cash flow hedge impact, was R1 412 million. Santam
accounts for the investment in Saham Finances as an associate company and equity-accounted earnings of R30 million for the four-month period from 29 February 2016 was
included in the results for the period to June 2016.
During February 2016, Santam acquired a 49% stake in PPS Short-term Insurance (PPS STI) for R55 million. PPS STI is an independent short-term insurer focusing on
providing short-term insurance solutions exclusively to Graduate Professionals including the PPS Group’s client base of more than 200 000 professionals.
The group successfully issued R1 billion of subordinated debt in April 2016 with the purpose of investing the proceeds in an interest-bearing investment portfolio
in order to enhance the group’s regulatory position and to achieve economic benefits.
Prospects
Trading conditions in the South African insurance industry remain very competitive in a low-growth economic environment. Real GDP growth is expected to be zero for
2016, resulting in almost no growth of insurable assets for the insurance industry. The repo rate increased by 50 basis points in 2015, with a further 75 basis points
increase during the first half of 2016 which will continue to put pressure on consumers.
Despite the 5% strengthening of the rand against the US dollar compared to December 2015, the 25% rand depreciation during 2015 is expected to negatively impact
claims cost (mainly imported motor parts). Santam continues to focus on the optimisation of the claims and procurement value chains to increase efficiency and counter
the impact of the weakening rand.
The group’s focus remains on profitable growth in South Africa and to increase its international diversification through the Santam Specialist Business and Santam Re.
Santam continues to strategically focus on supporting the development of the SEM general insurance businesses in emerging markets by allocating appropriate technical
resources. In South Africa, focus areas include developing Santam’s full multichannel capability and MiWay’s business insurance and broker-direct offerings, as well
as the MiWay Life insurance initiative in conjunction with Sanlam Life.
Santam will maintain its focus on cost-efficiencies to improve the management expense ratio over the medium term.
The investment market is likely to remain uncertain. The higher interest rate environment will result in increased interest income for the group but higher volatility
is expected on interest-bearing instruments. The increased exposure to non-rand-denominated business further increases foreign exchange volatility.
Solvency and special dividend
The group solvency ratio of 51% at 30 June 2016 exceeded the group’s target solvency range of 35% to 45% of net written premiums. With the expected introduction of
Solvency Assessment and Management (SAM), the new regulatory framework for insurers in 2017, the group will target an economic capital coverage range of 130% to 170%
going forward. The group economic capital coverage ratio was 178% at 30 June 2016. The group is in the process of applying to the Insurance Regulator to use the
Santam Regulatory Internal Model to determine its regulatory capital. Taking into account the group solvency ratio at 30 June 2016, the current and future regulatory
solvency requirements and further potential acquisitions, the board has declared a special dividend of 800 cents per share.
Effective management of the impact of regulatory developments will remain a key focus area.
Events after the reporting period
Santam and the shareholders of RMB-SI Investments (Pty) Ltd (RMB-SI) have reached an agreement in terms of which Santam will acquire 100% of the issued
share capital of RMB-SI. RMB-SI has, over the years, pioneered an innovative specialist insurance structuring business, offering its partners and clients individually
designed innovative insurance solutions. RMB-SI’s 22.4% interest in Truffle Capital (Pty) Ltd (Truffle) is excluded from the scope of the transaction.
The transaction is still subject to regulatory approvals by the Financial Services Board and the competition authorities in South Africa, as well as the relevant
regulatory authorities in Mauritius and Ireland.
There have been no other material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position date.
Declaration of ordinary and special dividend (Number 125)
Notice is hereby given that the board has declared a gross interim dividend of 311 cents per share (2015: 288 cents per share) and a special gross dividend of
800 cents per share (2012: 850 cents).
Shareholders are advised that the last day to trade “cum dividend” will be Tuesday, 20 September 2016. The shares will trade “ex dividend” from the commencement of
business on Wednesday, 21 September 2016. The record date will be Friday, 23 September 2016, and the payment date will be Monday, 26 September 2016. Certificated
shareholders may not dematerialise or rematerialise their shares between Wednesday, 21 September 2016 and Friday, 23 September 2016, both dates inclusive.
The interim and special dividends have been declared from income reserves and will be subject to dividends tax. The amounts per share, subject to the
withholding of dividends tax at a maximum rate of 15%, are therefore 311 cents per share for the interim dividend and 800 cents per share for the special dividend.
A net interim dividend of 264.35 cents per share and a net special dividend of 680 cents per share will apply to shareholders liable for dividends tax at a rate of
15%, and 311 cents per share for the interim dividend and 800 cents per share for the special dividend for shareholders that qualify for complete exemption therefrom. The
issued ordinary share capital as at 31 August 2016 is 115 131 417 shares. The company’s income tax reference number is 9475/144/71/4.
In terms of the dividends tax legislation, the dividends tax amount due will be withheld and paid over to the South African Revenue Service (SARS) by a nominee
company, stockbroker or Central Security Depository Participant (CSDP) (collectively Regulated Intermediary) on behalf of shareholders. However, all shareholders
should declare their status to their Regulated Intermediary as they may qualify for a reduced dividends tax rate or they may even be exempt from dividends tax.
Appreciation
The board would like to extend its gratitude to Santam’s management, employees, intermediaries and other business partners for their efforts and contributions during
the six months.
Preparation and presentation of the financial statements
The preparation of the independently reviewed financial statements was supervised by the chief financial officer of Santam Ltd, HD Nel CA(SA).
Auditor’s Report
These condensed consolidated interim financial statements for the period ended 30 June 2016 have been reviewed by PricewaterhouseCoopers Inc., who expressed an
unmodified conclusion thereon. A copy of the auditor’s report on the condensed consolidated interim financial statements is available for inspection at the company’s
registered office, together with the financial statements identified in the auditor’s report. The auditor’s report does not necessarily report on all of the
information contained in these financial results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor’s
engagement they should obtain a copy of the auditor’s report together with the accompanying financial information from the issuer’s registered office.
GG Gelink L Lambrechts
Chairman Chief executive officer
31 August 2016
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed at Reviewed at Audited at
30 June 2016 30 June 2015 31 Dec 2015
Notes R million R million R million
ASSETS
Non-current assets
Property and equipment 96 114 90
Intangible assets 837 1 061 827
Deferred income tax 124 146 140
Investment in associates and joint ventures 1 702 173 252
Financial assets at fair value through income
Equity securities 6 2 788 3 375 2 730
Debt securities 6 10 911 8 384 9 721
Reinsurance assets 7 164 179 164
Deposit with cell owner 231 - 187
Total non-current assets 16 853 13 432 14 111
Current assets
Cell owners' interest 4 8 6
Financial assets at fair value through income
Derivatives 6 6 10 2
Short-term money market instruments 6 1 981 2 118 2 281
Reinsurance assets 7 3 953 3 549 3 514
Deposit with cell owner 61 - 67
Deferred acquisition costs 410 407 525
Loans and receivables including insurance receivables 6 3 322 2 720 3 449
Income tax assets 17 12 13
Cash and cash equivalents 2 241 1 882 3 349
Non-current assets held for sale 8 125 677 541
Total current assets 12 120 11 383 13 747
Total assets 28 973 24 815 27 858
EQUITY AND LIABILITIES
Capital and reserves attributable to the company's equity holders
Share capital 103 103 103
Treasury shares (460) (456) (450)
Other reserves 240 278 548
Distributable reserves 7 958 6 858 7 880
7 841 6 783 8 081
Non-controlling interest 461 430 466
Total equity 8 302 7 213 8 547
Non-current liabilities
Deferred income tax 217 304 107
Financial liabilities at fair value through income
Debt securities 6 2 005 992 974
Investment contracts 6 - 76 -
Derivatives 6 1 - 1
Cell owners' interest 1 060 947 980
Insurance liabilities 7 1 423 1 543 1 525
Reinsurance liability relating to cell owners 231 - 187
Total non-current liabilities 4 937 3 862 3 774
Current liabilities
Financial liabilities at fair value through income
Debt securities 6 48 24 24
Investment contracts 6 84 - 70
Derivatives 6 9 - -
Financial liabilities at amortised cost
Collateral guarantee contracts 104 99 105
Insurance liabilities 7 11 577 10 434 11 139
Reinsurance liability relating to cell owners 61 - 67
Deferred reinsurance acquisition revenue 183 170 280
Provisions for other liabilities and charges 83 89 122
Trade and other payables including insurance payables 3 407 2 681 3 412
Current income tax liabilities 178 243 318
Total current liabilities 15 734 13 740 15 537
Total liabilities 20 671 17 602 19 311
Total shareholders' equity and liabilities 28 973 24 815 27 858
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2016 30 June 2015 Change 31 Dec 2015
Notes R million R million % R million
Gross written premium 12 148 11 270 8% 24 319
Less: reinsurance written premium 2 914 2 628 5 435
Net written premium 9 234 8 642 7% 18 884
Less: change in unearned premium
Gross amount (532) (450) 528
Reinsurers' share 66 4 (167)
Net insurance premium revenue 9 700 9 088 7% 18 523
Investment income 9 441 502 (12%) 1 210
Income from reinsurance contracts ceded 629 591 1 236
Net gains on financial assets and liabilities at fair value through income 9 101 265 235
Investment income and fair value losses on financial assets held for sale 9 13 - -
Net income 10 884 10 446 4% 21 204
Insurance claims and loss adjustment expenses 8 488 7 253 13 980
Insurance claims and loss adjustment expenses recovered from reinsurers (2 199) (1 467) (2 470)
Net insurance benefits and claims 6 289 5 786 9% 11 510
Expenses for the acquisition of insurance contracts 1 846 1 562 3 240
Expenses for marketing and administration 1 571 1 577 3 277
Expenses for investment-related activities 26 18 53
Amortisation and impairment of intangible assets 22 67 117
Total expenses 9 754 9 010 8% 18 197
Results of operating activities 1 130 1 436 (21%) 3 007
Finance costs (77) (47) (116)
Net income from associates and joint ventures 45 43 53
Profit on sale of associated companies 11 - 21 413
Profit on sale of subsidiary 11 - - 15
Profit before tax 1 098 1 453 (24%) 3 372
Income tax expense 10 (336) (390) (908)
Profit for the period 762 1 063 (28%) 2 464
Other comprehensive income, net of tax
Items that may subsequently be reclassified to income:
Currency translation differences (114) 35 163
Share of associates' currency translation differences (62) - -
Hedging reserve movement (134) - 134
Tax on hedging reserve movement - - (37)
Total comprehensive income for the period 452 1 098 (59%) 2 724
Profit attributable to:
- equity holders of the company 697 995 (30%) 2 348
- non-controlling interest 65 68 116
762 1 063 2 464
Total comprehensive income attributable to:
- equity holders of the company 387 1 030 (62%) 2 608
- non-controlling interest 65 68 116
452 1 098 2 724
Earnings attributable to equity shareholders
Earnings per share (cents) 12
Basic earnings per share 633 870 (27%) 2 090
Diluted earnings per share 627 865 (28%) 2 065
Weighted average number of ordinary shares (millions) 110.19 114.31 112.34
Weighted average number of ordinary shares for diluted earnings per share (millions) 111.23 114.96 113.72
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the company
Distribu- Non-
Share Treasury Other table controlling
capital shares reserves reserves Total interest Total
R million R million R million R million R million R million R million
Balance as at 1 January 2015 107 (506) 238 7 171 7 010 430 7 440
Profit for the period - - - 2 348 2 348 116 2 464
Other comprehensive income:
Currency translation differences - - 163 - 163 - 163
Hedging reserve movement - - 134 (37) 97 - 97
Total comprehensive income for the period ended 31 December 2015 - - 297 2 311 2 608 116 2 724
Sale of treasury shares - 56 - (56) - - -
Repurchase of shares (refer to note 14) (4) - - (797) (801) - (801)
Transfer to reserves - - 4 (4) - - -
Share-based payment costs - - - 124 124 - 124
Increase in capital contribution reserve (refer to note 14) - - 9 - 9 - 9
Dividends paid - - - (869) (869) (82) (951)
Interest sold to non-controlling interest - - - - - 2 2
Balance as at 31 December 2015 103 (450) 548 7 880 8 081 466 8 547
Profit for the period - - - 697 697 65 762
Other comprehensive income:
Currency translation differences - - (114) - (114) - (114)
Share of associates' currency translation differences - - (62) - (62) - (62)
Hedging reserve movement - - (134) - (134) - (134)
Total comprehensive income for the period ended 30 June 2016 - - (310) 697 387 65 452
Sale of treasury shares - 75 - (75) - - -
Purchase of treasury shares - (85) - - (85) - (85)
Transfer to reserves - - 2 (2) - - -
Share-based payment costs - - - 39 39 - 39
Dividends paid - - - (581) (581) (70) (651)
Balance as at 30 June 2016 103 (460) 240 7 958 7 841 461 8 302
Balance as at 1 January 2015 107 (506) 238 7 171 7 010 430 7 440
Profit for the period - - - 995 995 68 1 063
Other comprehensive income:
Currency translation differences - - 35 - 35 - 35
Total comprehensive income for the period ended 30 June 2015 - - 35 995 1 030 68 1 098
Sale of treasury shares - 50 - (50) - - -
Repurchase of shares (refer to note 14) (4) - - (797) (801) - (801)
Transfer to reserves - - 5 (5) - - -
Share-based payment costs - - - 94 94 - 94
Dividends paid - - - (550) (550) (68) (618)
Balance as at 30 June 2015 103 (456) 278 6 858 6 783 430 7 213
CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2016 30 June 2015 31 Dec 2015
Notes R million R million R million
Cash flows from operating activities
Cash generated from operations 844 1 212 3 656
Interest paid (50) (47) (110)
Income tax paid (340) (350) (1 002)
Net cash from operating activities 454 815 2 544
Cash flows from investing activities
Acquisition of financial assets (9 505) (4 540) (14 086)
Proceeds from sale of financial assets 8 538 4 532 13 348
Settlement of fence - - 42
Cash received/(disposed of) through sale of subsidiaries 11 208 - (183)
Staff trust acquired 14 - - 132
Purchases of equipment (26) (18) (39)
Purchases of intangible assets (21) (42) (85)
Proceeds from sale of equipment 1 1 -
Acquisition of associated companies and joint ventures 11 (1 467) - (2)
Capitalisation of associated companies - (28) (28)
Proceeds from sale of associated companies 11 - 23 625
Cash proceeds from unwinding of non-current assets held for sale 8 394 - -
Net cash used in investing activities (1 878) (72) (276)
Cash flows from financing activities
Purchase of treasury shares (85) - -
Repurchase of shares - (801) (801)
Proceeds from issue of unsecured subordinated callable notes 1 000 - -
Increase/(decrease) in investment contract liabilities 7 (29) (35)
Increase in collateral guarantee contracts - 11 11
Dividends paid to company's shareholders (581) (550) (869)
Dividends paid to non-controlling interest (70) (68) (82)
Increase in cell owners' interest 120 22 16
Net cash from/(used in) financing activities 391 (1 415) (1 760)
Net (decrease)/increase in cash and cash equivalents (1 033) (672) 508
Cash and cash equivalents at beginning of period 3 349 2 561 2 561
Exchange (losses)/gains on cash and cash equivalents (75) (7) 280
Cash and cash equivalents at end of period 2 241 1 882 3 349
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards, IAS 34 Interim Financial Reporting,
the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards
Council and the requirements of the Companies Act of South Africa.
2. Accounting policies
The accounting policies applied in the preparation of the condensed consolidated interim financial statements are in terms of IFRS and are consistent with those
accounting policies applied in the preparation of the previous consolidated annual financial statements, except for:
The following new IFRSs and/or IFRICs were effective for the first time from 1 January 2016:
- Amendments to IFRS 10, IFRS 12 and IAS 28 Investment entities - Applying the consolidation exception
- Amendments to IFRS 11 - Joint arrangements
- IFRS 14 Regulatory deferral accounts
- Amendments to IAS 1 - Disclosure initiative
- Amendments to IAS 16 and IAS 38 - Clarification of acceptable methods of depreciation and amortisation
- Amendment to IAS 16 and IAS 41 - Agriculture: Bearer plants
- Amendment to IAS 27 - Equity method in separate financial statements
- Annual Improvements 2012-14 cycle
There was no material impact on the condensed consolidated interim financial statements identified.
3. Estimates
The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
In preparing this condensed consolidated interim financial statements, the significant judgements made by management in applying the group's accounting policies and
the key sources of estimation uncertainty are the same as those that applied to the consolidated annual financial statements for the year ended 31 December 2015.
4. Risk management
The group's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk, foreign currency risk and derivatives risk),
credit risk and liquidity risk. Insurance activities expose the group to insurance risk (including pricing risk, reserving risk, accumulation risk and reinsurance risk).
The group is also exposed to operational risk and legal risk.
The capital risk management philosophy is to maximise the return on shareholders' capital within an appropriate risk framework.
The condensed consolidated interim financial statements do not include all risk management information and disclosure required in the annual financial statements and
should be read in conjunction with the group's annual financial statements as at 31 December 2015.
There have been no changes in the risk management policies since the previous year-end.
5. Segment information
Segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been
identified as the chief executive officer, supported by the group executive committee.
The group conducts mainly insurance and investment activities.
Insurance activities are all core general insurance and reinsurance underwriting activities directly undertaken by the group and are analysed by insurance class. Operating
segments are aggregated based on quantitative and/or qualitative significance. The performance of insurance activities is based on gross written premium as a measure
of growth, with net underwriting result as measure of profitability.
Investment activities are all investment-related activities undertaken by the group, including strategic diversification activities. Due to the nature of the activities
conducted, investment activities are considered to be one operating segment. Investment activities are measured based on net investment income and net income from
associated companies and joint ventures.
Given the nature of the operations there is no single external client that provides 10% or more of the group's revenues.
The investment return on insurance funds is calculated based on the day-weighted effective return realised by the group on the assets held to cover the group's net
insurance working capital requirements.
Insurance business denominated in foreign currencies is covered by foreign denominated bank accounts and investment portfolios. Foreign exchange movements on underwriting
activities are therefore offset against the foreign exchange movements recognised on the bank accounts and investment portfolios.
The Santam BEE transaction costs are unrelated to the core underwriting, investment or strategic diversification performance of the group. Therefore, these costs are
disclosed as unallocated activities.
Santam Ltd is domiciled in South Africa. Geographical analysis of the gross written premium and non-current assets and liabilities is based on the countries in which
the business is underwritten or managed. Non-current assets comprise goodwill and intangible assets, property and equipment, investments in associates and joint
ventures and SEM target shares (included in financial instruments).
5.1 For the six months ended 30 June 2016
Insurance Investment Unallocated IFRS total
Business activity R million R million R million R million
Revenue 12 148 305 - 12 453
Gross written premium 12 148 - - 12 148
Net written premium 9 234 - - 9 234
Net earned premium 9 700 - - 9 700
Net claims incurred 6 289 - - 6 289
Net commission 1 217 - - 1 217
Management expenses (excluding BEE costs) 1 576 - - 1 576
Underwriting result 618 - - 618
Investment return on insurance funds 291 - - 291
Net insurance result 909 - - 909
Investment income net of management fee and finance costs - 161 - 161
Income from associates and joint ventures - 45 - 45
Santam BEE costs - - (6) (6)
Amortisation and impairment of intangible assets (11) - - (11)
Income before taxation 898 206 (6) 1 098
Insurance activities
The group's insurance activities are spread over various classes of general insurance.
Gross written Underwriting
premium result
R million R million
Accident and health 164 2
Alternative risk 1 334 18
Crop 108 8
Engineering 579 81
Guarantee 32 (5)
Liability 489 172
Miscellaneous 22 3
Motor 5 315 300
Property 3 772 18
Transportation 333 21
Total 12 148 618
Comprising:
Commercial insurance 5 853 344
Personal insurance 4 961 256
Alternative risk 1 334 18
Total 12 148 618
Investment activities
For detailed analysis of investment activities refer to notes 6 and 9.
5.2 For the six months ended 30 June 2015
Insurance Investment Unallocated IFRS total
Business activity R million R million R million R million
Revenue 11 270 595 - 11 865
Gross written premium 11 270 - - 11 270
Net written premium 8 642 - - 8 642
Net earned premium 9 088 - - 9 088
Net claims incurred 5 786 - - 5 786
Net commission 971 - - 971
Management expenses (excluding BEE costs) 1 523 - - 1 523
Underwriting result 808 - - 808
Investment return on insurance funds 236 - - 236
Net insurance result 1 044 - - 1 044
Investment income net of management fee and finance costs - 466 - 466
Income from associates including profit on sale - 64 - 64
Santam BEE costs - - (66) (66)
Amortisation and impairment of intangible assets (55) - - (55)
Income before taxation 989 530 (66) 1 453
Insurance activities
The group's insurance activities are spread over various classes of general insurance.
Gross written Underwriting
premium (1) result (1)
R million R million
Accident and health 169 22
Alternative risk 1 094 10
Crop 67 53
Engineering 539 123
Guarantee 91 8
Liability 588 85
Miscellaneous 29 6
Motor 4 988 324
Property 3 380 136
Transportation 325 41
Total 11 270 808
Comprising:
Commercial insurance 5 605 546
Personal insurance 4 571 252
Alternative risk 1 094 10
Total 11 270 808
(1) The following reclassifications between insurance classes were made as a result of more granular information becoming available: a decrease of
R178 million in gross written premium for the motor class and corresponding increase of R178 million for the property class; a decrease of R140 million
in gross written premium for commercial lines and a corresponding increase of R140 million in gross written premium for personal lines.
Investment activities
For detailed analysis of investment activities refer to notes 6 and 9.
5.3 For the year ended 31 December 2015
Insurance Investment Unallocated IFRS total
Business activity R million R million R million R million
Revenue 24 319 1 428 - 25 747
Gross written premium 24 319 - - 24 319
Net written premium 18 884 - - 18 884
Net earned premium 18 523 - - 18 523
Net claims incurred 11 510 - - 11 510
Net commission 2 004 - - 2 004
Management expenses (excluding BEE costs) 3 230 - - 3 230
Underwriting result 1 779 - - 1 779
Investment return on insurance funds 499 - - 499
Net insurance result 2 278 - - 2 278
Investment income net of management fee and finance costs - 777 - 777
Income from associates including profit on sale - 466 - 466
Profit on sale of subsidiary - 15 - 15
Santam BEE costs - - (71) (71)
Amortisation and impairment of intangible assets (93) - - (93)
Income before taxation 2 185 1 258 (71) 3 372
Insurance activities
The group's insurance activities are spread over various classes of general insurance.
Gross written Underwriting
premium (1) result (1)
R million R million
Accident and health 371 60
Alternative risk 2 248 20
Crop 840 131
Engineering 1 176 216
Guarantee 149 13
Liability 1 327 234
Miscellaneous 62 11
Motor 10 247 673
Property 7 213 330
Transportation 686 91
Total 24 319 1 779
Comprising:
Commercial insurance 12 860 1 231
Personal insurance 9 211 528
Alternative risk 2 248 20
Total 24 319 1 779
(1) The following reclassifications between insurance classes were made as a result of more granular information becoming available: a decrease
of R282 million in gross written premium for commercial lines and a corresponding increase of R282 million in gross written premium for personal lines.
Investment activities
For detailed analysis of investment activities refer to notes 6 and 9.
5.4 Geographical analysis
Gross written premium
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
South Africa (1) 10 885 10 308 21 909
Rest of Africa (2) 986 775 1 973
Southeast Asia, India, Middle East and China (3) 277 187 437
Group total 12 148 11 270 24 319
Non-current assets
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
South Africa 1 071 1 414 1 000
Rest of Africa 1 822 405 441
Southeast Asia, India, Middle East and China 684 621 733
Group total 3 577 2 440 2 174
(1) Includes gross written premium managed by specialist business and Santam Re.
(2) Includes gross written premium relating to Namibia of R565 million (June 2015: R512 million; Dec 2015: R1 056 million).
(3) Includes gross written premium relating to China of R53 million (June 2015: R57 million; Dec 2015: R140 million).
Reviewed at Reviewed at Audited at
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
6. Financial assets and liabilities
Financial assets
The group's financial assets are summarised below by measurement category.
Financial assets at fair value through income 15 686 13 887 14 734
Loans and receivables 3 322 2 720 3 449
Total financial assets 19 008 16 607 18 183
Financial instruments measured at fair value on a recurring basis
The table below analyses financial instruments, carried at fair value through income, by valuation method. There were no significant changes in the valuation methods
applied since 31 December 2015. The different levels have been defined as follows:
- Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: Input other than quoted prices included within level 1 that is observable for the asset or liability, either directly (that is, prices) or indirectly
(that is, derived from prices). Listed bonds that did not trade actively during a financial period are classified as level 2 financial instruments. The
fair value of level 2 instruments is predominantly determined using discounted cash flow models based on market observable input.
- Level 3: Input for the asset or liability that is not based on observable data (that is, unobservable input).
There were no significant transfers between level 1 and level 2 during the current or prior periods.
All derivative instruments are classified as investments held for trading. The rest of the investment portfolio is designated as financial assets at fair value through
income based on the principle that the entire portfolio is managed on a fair value basis and reported as such to the investment committee.
30 June 2016
Level 1 Level 2 Level 3 Total
Financial assets at fair value through income R million R million R million R million
Equity securities
Quoted
Listed 1 719 - - 1 719
Unitised funds - 113 - 113
Irredeemable preference shares 1 - - 1
Unquoted - - 955 955
Total equity securities 1 720 113 955 2 788
Debt securities
Quoted
Government and other bonds 1 821 1 039 27 2 887
Collateralised securities - 140 - 140
Redeemable preference shares - 220 - 220
Money market instruments more than one year - 2 450 30 2 480
Equity-linked notes - 264 - 264
Unquoted
Government and other bonds - 135 - 135
Collateralised securities - 10 - 10
Money market instruments more than one year - 4 612 33 4 645
Redeemable preference shares - 101 29 130
Total debt securities 1 821 8 971 119 10 911
Derivative instruments
Fence structure - - 6 6
Total derivative instruments - - 6 6
Short-term money market instruments - 1 981 - 1 981
Total financial assets at fair value through income 3 541 11 065 1 080 15 686
Level 1 Level 2 Level 3 Total
Financial liabilities at fair value through income R million R million R million R million
Debt securities 2 053 - - 2 053
Investment contracts - 84 - 84
Derivative instruments
Interest rate swaps - - 1 1
Exchange traded futures - 9 - 9
Total derivative instruments - 9 1 10
Total financial liabilities at fair value through income 2 053 93 1 2 147
30 June 2015
Level 1 Level 2 Level 3 Total
Financial assets at fair value through income R million R million R million R million
Equity securities
Quoted
Listed 2 444 - - 2 444
Unitised funds - 50 - 50
Irredeemable preference shares 1 - - 1
Unquoted - - 880 880
Total equity securities 2 445 50 880 3 375
Debt securities
Quoted
Government and other bonds 1 318 946 35 2 299
Collateralised securities - 166 - 166
Redeemable preference shares - 257 - 257
Money market instruments more than one year - 1 327 - 1 327
Unquoted
Government and other bonds - 65 - 65
Money market instruments more than one year - 4 191 - 4 191
Redeemable preference shares - 50 29 79
Total debt securities 1 318 7 002 64 8 384
Derivative instruments
Interest rate swaps - - 1 1
Fence structure - - 9 9
Total derivative instruments - - 10 10
Short-term money market instruments - 2 072 46 2 118
Total financial assets at fair value through income 3 763 9 124 1 000 13 887
Level 1 Level 2 Level 3 Total
Financial liabilities at fair value through income R million R million R million R million
Debt securities 1 016 - - 1 016
Investment contracts - 76 - 76
Total financial liabilities at fair value through income 1 016 76 - 1 092
31 December 2015
Financial assets at fair value through income Level 1 Level 2 Level 3 Total
R million R million R million R million
Equity securities
Quoted
Listed 1 643 - - 1 643
Unitised funds - 66 - 66
Irredeemable preference shares 2 - - 2
Unquoted - - 1 019 1 019
Total equity securities 1 645 66 1 019 2 730
Debt securities
Quoted
Government and other bonds 1 378 1 122 36 2 536
Collateralised securities - 190 - 190
Redeemable preference shares - 214 - 214
Money market instruments more than one year - 1 799 - 1 799
Unquoted
Government and other bonds - 132 - 132
Money market instruments more than one year - 4 459 - 4 459
Redeemable preference shares - 101 29 130
Equity-linked notes - 261 - 261
Total debt securities 1 378 8 278 65 9 721
Derivative instruments
Exchange traded futures - 2 - 2
Total derivative instruments - 2 - 2
Short-term money market instruments - 2 237 44 2 281
Total financial assets at fair value through income 3 023 10 583 1 128 14 734
Level 1 Level 2 Level 3 Total
Financial liabilities at fair value through income R million R million R million R million
Debt securities 998 - - 998
Investment contracts - 70 - 70
Derivative instruments
Interest rate swaps - - 1 1
Total derivative instruments - - 1 1
Total financial liabilities at fair value through income 998 70 1 1 069
The following tables present the changes in level 3 instruments:
30 June 2016 Short-term
Equity Debt money market
securities securities instruments Derivatives Total
R million R million R million R million R million
Opening balance 1 019 65 44 (1) 1 127
Acquisitions 48 - - - 48
Capital distributions (2) - - - (2)
Transfers between asset classes - 44 (44) - -
(Losses)/gains recognised in profit or loss (110) 10 - 6 (94)
Closing balance 955 119 - 5 1 079
30 June 2015 Short-term
Equity Debt money market
securities securities instruments Derivatives Total
R million R million R million R million R million
Opening balance 820 56 38 - 914
Acquisitions 51 35 1 - 87
Disposals/settlements (5) (21) (11) - (37)
Transfers between asset classes - (15) 15 - -
Gains recognised in profit or loss 14 9 3 10 36
Closing balance 880 64 46 10 1 000
31 December 2015 Short-term
Equity Debt money market
securities securities instruments Derivatives Total
R million R million R million R million R million
Opening balance 820 56 38 - 914
Acquisitions 51 - 1 - 52
Disposals/settlements (5) - (2) - (7)
Transfers between asset classes - (4) 4 - -
Gains/(losses) recognised in profit or loss 153 13 3 (1) 168
Closing balance 1 019 65 44 (1) 1 127
The investments in Cardrow Insurance Ltd (Cardrow) and Beech Hill Insurance Ltd (Beech Hill) are classified as held for sale (refer to note 8). The investment in
Cardrow had an opening balance of R390 million (June 2015: R308 million; Dec 2015: R308 million) with exchange losses of R14 million (June 2015: gains of R18 million;
Dec 2015: gains of R82 million) and fair value losses of R376 million (June 2015: Rnil; Dec 2015: Rnil) during the period. The closing balance at 30 June 2016 amounted
to Rnil (June 2015: R326 million; Dec 2015: R390 million). The investment in Beech Hill had an opening balance of R151 million (June 2015: R120 million; Dec 2015:
R120 million) with exchange losses of R21 million (June 2015: gains of R6 million; Dec 2015: gains of R31 million) and fair value losses of R5 million (June 2015:
Rnil; Dec 2015: Rnil) during the period. The closing balance at 30 June 2016 amounted to R125 million (June 2015: R126 million; Dec 2015: R151 million).
The unquoted equity instruments recognised as level 3 instruments consist mainly of the participation target shares issued by Sanlam Emerging Markets (Pty) Ltd (SEM).
Of the R110 million loss (June 2015: R14 million gain; Dec 2015: R153 million gain) recognised on equity securities, R110 million (June 2015: R13 million; Dec 2015:
R152 million) relates to the SEM target shares, of which R39 million (June 2015: R34 million; Dec 2015: R105 million) relates to foreign exchange losses (June 2015:
losses; Dec 2015: gains), and R71 million (June 2015: R47 million; Dec 2015: R47 million) to a decrease (June 2015: increase; Dec 2015: increase) in fair value. Key
drivers of the decrease in fair value were:
- A downward adjustment to the value of the Pacific & Orient Insurance Co. Berhad (P&O) business in Malaysia of R37 million due to lower premium growth. There is a
significant focus on expanding the current product offering.
- A reduction in the value of the investment in Soras Assurance Generales Ltd (Soras) in Rwanda of R46 million following financial irregularities identified during this
period relating to prior years. Corrective measures were taken to address these irregularities.
The fair value of the SEM target shares is determined using discounted cash flow models. The most significant assumptions used in these models are the discount rate,
exchange rate and net insurance margin expectations. Should the discount rates increase or decrease by 10%, the cumulative value of the most significant target shares
would decrease by R108 million (June 2015: R98 million; Dec 2015: R114 million) or increase by R159 million (June 2015: R149 million; Dec 2015: R172 million),
respectively. If the relative foreign exchange rates increase or decrease by 10%, the cumulative fair values will increase or decrease by R68 million (June 2015:
R68 million; Dec 2015: R73 million). Should the net insurance margin profile (projected over a period of 10 years) increase or decrease by 10%, the cumulative fair
values will increase by R72 million (June 2015: R68 million; Dec 2015: R79 million) or decrease by R73 million (June 2015: R67 million; Dec 2015: R78 million),
respectively.
The debt securities and short-term money market instruments classified as level 3 predominantly consist of African Bank Investments Ltd and African Bank Ltd instruments.
These instruments are valued at the closing market price as listed on the JSE.
The interest rate derivatives represent the fair value of interest rate swaps effected on a total of R100 million (June 2015: R100 million; Dec 2015: R100 million) of
fixed interest securities held in the investment portfolio underlining the subordinated callable notes. The interest rate swaps have the effect of swapping a variable
interest rate for a fixed interest rate on these assets to eliminate interest rate risk on assets supporting the bond liability. The derivatives mature on 12 June 2017.
During 2007, the company issued unsecured subordinated callable notes to the value of R1 billion in two tranches. The fixed effective rate for the R600 million issue
was 8.6% and 9.6% for the second tranche of R400 million, representing the R203 companion bond plus an appropriate credit spread at the time of the issues. The fixed
coupon rate, based on the nominal value of the issues, amounts to 8.25% and for both tranches the optional redemption date is 15 September 2017. Between the optional
redemption date and final maturity date of 15 September 2022, a variable interest rate (JIBAR-based plus additional margin) will apply.
During April 2016, the company issued additional unsecured subordinated callable notes to the value of R1 billion in two equal tranches of fixed and floating rate
notes. The effective rate for the floating rate notes amounted to 9.69%, representing the 3-month JIBAR plus 245 basis points at the time of the issue, while the rate
for the fixed rate notes amounted to 11.77%. The floating rate notes have a call date of 12 April 2021, and the fixed rate notes a call date of 12 April 2023.
Per the conditions set by the Regulator, Santam is required to maintain liquid assets equal to the value of the callable notes until maturity. The callable notes are
therefore measured at fair value to minimise undue volatility in the statement of comprehensive income.
In February 2015, a zero cost fence structure was entered into based on the SWIX 40, providing 10% downside protection from the implementation level of 10 443, with up
side participation (excluding dividends) of 10.9%. The structure matured on 17 December 2015 and was not renewed. In May 2016, a zero cost fence structure was entered
into based on the SWIX 40, providing 10% downside protection from the implementation level of 10 621, with upside participation (excluding dividends) of 10.3%. The
structure will mature on 15 December 2016.
Reviewed at Reviewed at Audited at
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
7. Insurance liabilities and reinsurance assets
Gross insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 8 13 6
- claims incurred but not reported 30 24 30
General insurance contracts
- claims reported and loss adjustment expenses 6 972 6 612 6 273
- claims incurred but not reported 1 762 1 535 1 567
- unearned premiums 4 228 3 793 4 788
Total gross insurance liabilities 13 000 11 977 12 664
Non-current liabilities 1 423 1 543 1 525
Current liabilities 11 577 10 434 11 139
Recoverable from reinsurers
Long-term insurance contracts
- claims reported and loss adjustment expenses 4 6 3
- claims incurred but not reported 7 5 7
General insurance contracts
- claims reported and loss adjustment expenses 2 781 2 502 2 220
- claims incurred but not reported 289 243 272
- unearned premiums 1 036 972 1 176
Total reinsurers' share of insurance liabilities 4 117 3 728 3 678
Non-current assets 164 179 164
Current assets 3 953 3 549 3 514
Net insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 4 7 3
- claims incurred but not reported 23 19 23
General insurance contracts
- claims reported and loss adjustment expenses 4 191 4 110 4 053
- claims incurred but not reported 1 473 1 292 1 295
- unearned premiums 3 192 2 821 3 612
Total net insurance liabilities 8 883 8 249 8 986
8. Non-current assets held for sale
Santam Ltd initially set up the Santam International group in 2002 to facilitate the expansion into Europe. Santam International Ltd (Santam International) directly
and indirectly held three subsidiaries called Santam UK Ltd, Westminster Motor Insurance Agency Ltd (WMIA) and Santam Europe Ltd (Europe). The holdings in WMIA and
Europe were sold in 2008 and Santam International only retained deferred conditional rights relating to the sale contracts. WMIA and Europe were renamed subsequent to
the sale to Cardrow Insurance Ltd (Cardrow) and Beech Hill Insurance Ltd (Beech Hill), respectively.
The deferred conditional rights relating to Cardrow were realised during the first half of 2016 when it paid a dividend of R394 million. Beech Hill was still recognised
as held for sale in the group as at 30 June 2016. It is expected that these deferred conditional rights will also be realised before the end of 2016.
Once the assets have been realised in full, management will commence a process to unwind the Santam International group. The completion of the unwinding process is
subject to regulatory approval.
Reviewed at Reviewed at Audited at
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
Assets that are classified as held for sale
Financial assets at fair value through income
Equity securities - 326 390
Loans and receivables including insurance receivables 125 126 151
Investment in associates - 225 -
125 677 541
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
9. Investment income and net (losses)/gains on financial assets and liabilities
Investment income 441 502 1 210
Dividend income 36 74 119
Interest income 451 366 729
Foreign exchange differences (46) 62 362
Net (losses)/gains on financial assets and liabilities at fair value through income 101 265 235
Net realised gains on financial assets 27 505 1 010
Net fair value gains/(losses) on financial assets designated as at fair value through income 98 (264) (850)
Net realised/fair value (losses)/gains on derivative instruments (5) 9 43
Net fair value gains on short-term money market instruments 12 8 7
Net fair value (losses)/gains on financial liabilities designated as at fair value through income (31) 7 25
Net fair value (losses)/gains on debt securities (31) 7 25
Investment income and net losses on financial assets held for sale* 13 - -
Dividend income 394 - -
Net fair value losses (381) - -
555 767 1 445
* Dividend income for the group includes a dividend of R394 million resulting from the realisation of the value in the non-current assets held
for sale. This resulted in the net fair value of the related investment being reduced by R381 million.
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
10. Income tax
Normal taxation
Current period 228 376 1 077
Prior period - 14 24
Recovered from cell owners (54) (39) (67)
Foreign taxation - current period 33 29 57
Total income taxation for the period 207 380 1 091
Deferred taxation
Current period 129 22 (170)
Prior period - (12) (13)
Recovered from cell owners - - -
Total deferred taxation for the period 129 10 (183)
Total taxation as per statement of comprehensive income 336 390 908
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0 28.0
Adjusted for:
Disallowable expenses 0.6 1.4 0.7
Foreign tax differential 0.5 0.4 0.2
Exempt income (1.5) (1.6) (1.2)
Investment results 0.1 (1.4) (0.9)
Change in CGT inclusion rate* 4.1 - -
Income from associates (1.3) (0.9) (1.0)
Previous periods' underprovision - 0.1 0.3
Other permanent differences 0.1 0.8 0.7
Other taxes - - 0.1
Net increase/(reduction) 2.6 (1.2) (1.1)
Effective rate (%) 30.6 26.8 26.9
* The increase in the CGT inclusion rate resulted in an increase in the deferred tax provision on fair value movements of R45 million.
11. Corporate transactions
2016
Acquisitions
Saham Finances
The transaction to acquire a 30% shareholding in Saham Finances, together with SEM, announced in November 2015, was finalised during the first quarter of 2016. The
acquisition was structured through a special purpose vehicle held jointly by SEM (75%) and Santam (25%) for a total cash consideration of US$400 million. Santam's
share of the purchase consideration, amounting to US$100 million, was funded from internal cash resources. Santam acquired sufficient foreign currency in addition to
existing dollar assets to cover the purchase consideration before the transaction was concluded in November 2015. A cash flow hedge was implemented on 24 November 2015
to cover Santam's foreign currency exposure by designating these US dollar-denominated cash balances to the transaction. The impact of this was that foreign currency
gains of R140 million (June 2015: Rnil; Dec 2015: R134 million) recognised on the designated cash balances since implementation date were not recognised in the
statement of comprehensive income, but were accounted for as part of the investment in Saham Finances. Therefore, the cost price of the investment, net of the cash
flow hedge impact, was R1 412 million.
Professional Provident Society Short-term Insurance Company Ltd (PST)
During March 2016, Santam purchased 49% of PST for R55 million in cash.
2015
Disposals
Indwe Broker Holdings Group (Pty) Ltd
On 31 December 2015, Santam Ltd, as well as Swanvest 120 (Pty) Ltd, Main Street 409 (Pty) Ltd and Thebe Risk Services Holdings (Pty) Ltd (all wholly-owned subsidiaries
of Santam Ltd) sold 26.34%, 13.82%, 16.8% and 19.04% respectively of their shareholding in Indwe Broker Holdings Group (Pty) Ltd to Sanlam Life Insurance Ltd (25%) and
African Rainbow Capital (Pty) Ltd (51%) for R208 million in total. The net profit realised was R15 million and capital gains tax of R5 million was recognised. The
remaining 24%, held by Swanvest 120 (Pty) Ltd, was classified as a joint venture and remeasured to fair value, resulting in a gain of R3 million (included in the
profit on sale).
R million
Details of the assets and liabilities disposed of are as follows:
Property and equipment 23
Intangible assets 223
Deferred taxation 5
Loans and receivables 6
Cash and cash equivalents 183
Provisions for other liabilities and charges (1)
Trade and other payables (170)
Current income tax liabilities (10)
Net asset value disposed of 259
Profit on sale 15
Less: Fair value of remaining investment (66)
Less: Purchase price receivable (208)
Purchase consideration received -
The purchase consideration was received in 2016.
Credit Guarantee Insurance Corporation of Africa Ltd
On 9 October 2015, Santam Ltd sold its 33.6% shareholding in Credit Guarantee Insurance Corporation of Africa Ltd for R602 million. The net profit realised was
R392 million and capital gains tax of R91 million was recognised.
Censeo (Pty) Ltd
On 31 May 2015, Swanvest 120 (Pty) Ltd sold its 37.5% shareholding in Censeo (Pty) Ltd for R23 million. The net profit realised was R21 million and capital gains tax
of R4 million was recognised.
Reviewed at Reviewed at Audited at
30 June 2016 30 June 2015 31 Dec 2015
R million R million R million
Goodwill reconciliation
Opening balance 598 833 833
Impairment (1) (30) (47)
Disposal of subsidiary - - (188)
Closing balance 597 803 598
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2016 30 June 2015 31 Dec 2015
12. Earnings per share
Basic earnings per share
Profit attributable to the company's equity holders (R million) 697 995 2 348
Weighted average number of ordinary shares in issue (million) 110.19 114.31 112.34
Earnings per share (cents) 633 870 2 090
Diluted earnings per share
Profit attributable to the company's equity holders (R million) 697 995 2 348
Weighted average number of ordinary shares in issue (million) 110.19 114.31 112.34
Adjusted for share options 1.04 0.65 1.38
Weighted average number of ordinary shares for diluted earnings per share (million) 111.23 114.96 113.72
Diluted basic earning per share (cents) 627 865 2 065
Headline earnings per share
Profit attributable to the company's equity holders (R million) 697 995 2 348
Adjusted for:
Impairment of goodwill and other intangible assets 1 36 52
Profit on sale of subsidiary - - (15)
Tax charge on profit on sale of subsidiary - - 5
Profit on sale of associated companies - (21) (413)
Tax charge on profit on sale of associated companies - 4 95
Headline earnings (R million) 698 1 014 2 072
Weighted average number of ordinary shares in issue (million) 110.19 114.31 112.34
Headline earnings per share (cents) 633 887 1 844
Diluted headline earnings per share
Headline earnings (R million) 698 1 014 2 072
Weighted average number of ordinary shares for diluted headline earnings per share (million) 111.23 114.96 113.72
Diluted headline earnings per share (cents) 628 882 1 822
13. Dividend per share
Dividend per share (cents) 311 288 816
Special dividend per share (cents) 800 - -
14. Broad-based black economic empowerment (BBBEE)
In May 2007, Central Plaza Investments 112 (Pty) Ltd acquired 10% of Santam's shares with the following beneficiaries:
- Emthunzini Black Economic Empowerment Staff Trust
- Emthunzini Black Economic Empowerment Business Partners Trust
- Emthunzini Broad-based Black Economic Empowerment Community Trust
The scheme matured in February 2015. Of the shares held by Central Plaza Investments 112 (Pty) Ltd, Santam repurchased 38% of the shares (4 215 000 shares at a price
of R190 per share for a total consideration of R801 million) and 24% were sold in the market through a successful bookbuild during the unwinding process, and the
balance distributed to participants.
The consequent distribution of Santam shares and cash valued at R1.1 billion to the beneficiaries started in September 2015 with R530 million allocated to close to
2 400 Santam and Sanlam employees. Santam shares and cash to the value of R330 million were distributed to 68 black business partners, while the Emthunzini Community
Trust received Santam shares and cash to the value of R275 million. The unwinding of the scheme had a minimal impact on Santam's black ownership status.
The Emthunzini Black Economic Empowerment Staff Trust is also under the control of Santam Ltd since the unwinding of Central Plaza and is therefore consolidated as at
31 December 2015. The net impact of the inclusion of the staff trust at 31 December 2015 was an increase in cash of R132 million, the recognition of the capital
contribution reserve of R9 million and an increase of 684 482 in treasury shares.
15. Events after the reporting period
Santam and the shareholders of RMB-SI Investments Proprietary Limited (RMB-SI) have reached an agreement in terms of which Santam will acquire 100% of the issued
share capital of RMB-SI. RMB-SI has over the years pioneered an innovative specialist insurance structuring business, offering its partners and clients individually
designed and innovative insurance solutions. RMB-SI’s 22.4% interest in Truffle Capital Proprietary Limited (Truffle) is excluded from the scope of the transaction.
The transaction is still subject to regulatory approvals by the Financial Services Board and the competition authorities in South Africa, as well as the relevant
regulatory authorities in Mauritius and Ireland.
There have been no other material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position date.
NON-EXECUTIVE DIRECTORS
B Campbell, MP Fandeso, BTPKM Gamedze, GG Gelink (chairman), IM Kirk, MLD Marole, JP Moller, T Nyoka, Y Ramiah, MJ Reyneke
EXECUTIVE DIRECTORS
L Lambrechts (chief executive officer), HD Nel (chief financial officer)
COMPANY SECRETARY
M Allie
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Tel: 011 370 5000
Fax: 011 688 7721
www.computershare.com
SANTAM HEAD OFFICE AND REGISTERED ADDRESS
1 Sportica Crescent
Tyger Valley, Bellville 7530
PO Box 3881, Tyger Valley 7536
Tel: 021 915 7000
Fax: 021 914 0700
www.santam.co.za
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
SPONSOR
Investec Bank Ltd
Santam is an authorised financial services provider (licence number 3416).
INSURANCE GOOD AND PROPER
www.santam.co.za
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