Wrap Text
Summarised audited results for the year ended 31 December 2016
SANLAM LIMITED
Incorporated in the Republic of South Africa
(Registration number 1959/001562/06)
JSE share code (primary listing): SLM
NSX share code: SLA
ISIN: ZAE000070660
"Sanlam", "Sanlam Group", or "the Company"
Summarised audited results for the year ended 31 December 2016
Contents
Overview
Key features
Salient results
Executive review
Comments on the results
Summarised financial statements
Accounting policies and basis of presentation
External audit
Summarised shareholders' information
Group Equity Value
Shareholders' fund income statement
Notes to the shareholders' information
Embedded value of covered business
Notes to the embedded value of covered business
Summarised Group IFRS financial statements
Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Cash flow statement
Notes to the financial statements
Administration
Key features
Earnings
- Net result from financial services per share increased by 10%
- Normalised headline earnings per share down 6%
- Diluted headline earnings per share up 6%
Business volumes
- New business volumes up 11% to R233 billion
- Net value of new covered business up 18% to R1 605 million
- Net new covered business margin of 2,69% (2,62% in 2015)
- Net fund inflows of R41 billion compared to R19 billion in 2015
Group Equity Value
- Group Equity Value per share of R54,07
- Return on Group Equity Value per share of 11,8%
- Adjusted Return on Group Equity Value per share of 17,8%; exceeding target of 14,1%
Capital management
- R3,4 billion redeployed during 2016
- Unallocated discretionary capital of R550 million at 31 December 2016
- Further planned releases of discretionary capital of R500 million - R1 billion per annum over next four years
- Sanlam Life Insurance Limited CAR cover of 5,8 times
- Sanlam Group SAM cover ratio of 2,2 times; Sanlam Life Insurance Limited at 3,1 times
Dividend
- Normal dividend per share of 268 cents, up 9,4%
SALIENT RESULTS
for the year ended 31 December 2016 2016 2015 Change
SANLAM GROUP
Earnings
Net result from financial services per share cents 389,4 355,2 10%
Normalised headline earnings per share (1) cents 408,5 432,5 (6%)
Diluted headline earnings per share cents 488,1 459,5 6%
Net result from financial services R million 7 969 7 269 10%
Normalised headline earnings (1) R million 8 360 8 851 (6%)
Headline earnings R million 9 860 9 300 6%
Dividend per share cents 268 245 9%
Business volumes
New business volumes R million 233 178 210 842 11%
Net fund inflows R million 40 921 19 049 115%
Net new covered business
Value of new covered business R million 1 605 1 360 18%
Covered business PVNBP (2) R million 59 556 51 856 14%
New covered business margin (3) % 2,69 2,62
GROUP EQUITY VALUE
Group Equity Value R million 110 717 103 506 7%
Group Equity Value per share cents 5 407 5 057 7%
Return on Group Equity Value per share (4) % 11,8 12,8
SANLAM LIFE INSURANCE LIMITED
Shareholders' fund R million 83 866 77 970
Capital Adequacy Requirements (CAR) R million 8 150 8 250
CAR covered by prudential capital times 5,8 5,8
Notes
(1) Normalised headline earnings = headline earnings, excluding fund transfers.
(2) PVNBP = present value of new business premiums and is equal to the present value of new recurring premiums plus single premiums.
(3) New covered business margin = value of new covered business as a percentage of PVNBP.
(4) Growth in Group Equity Value per share (with dividends paid, capital movements and cost of treasury shares acquired reversed) as a percentage of Group Equity Value
per share at the beginning of the year.
EXECUTIVE REVIEW
The Group achieved satisfactory results in the 2016 financial year, delivering double-digit growth in all key operating indicators despite a challenging environment.
Global markets were impacted by various domestic and international events during 2016. These included fears of lower than expected global economic growth driven by a
slowdown in China and the soft commodity cycle, rising geopolitical risks and the impact of potentially opposing monetary policy stances by central banks in the United
States (US), United Kingdom (UK), Europe and Japan. The fragile outlook for global economic growth was dealt a further blow at the end of the second quarter by the UK
electorate's surprise vote in favour of Britain leaving the European Union, signifying rising pressure in a number of countries for more protectionist policies.
Protectionism also featured strongly in the US presidential elections.
These conditions increased the pressure on the economic growth, currencies and investment market performance of the emerging market countries where the Group operates,
with commodity-based economies such as Zambia, Nigeria and Angola particularly hard hit. The British pound was similarly under pressure. The exceptions were the rand
exchange rate and returns on the bond market in South Africa. The changes in Finance Ministers in December 2015 sparked a sharp weakening in the rand and a significant
rise in long-term interest rates at the end of 2015. The positive developments of cooperation between government, labour and business since then and South Africa's
ability to retain its investment grade foreign credit rating, supported a rally in the rand exchange rate and a 15% return from the South African All-bond index as
long-term interest rates declined by some 100 basis points (bps). The rand strengthened by 12% and 26% against the US dollar and British pound respectively, with the pound
weakening on a relative basis in the aftermath of Brexit. The rand also strengthened against the emerging market currencies where the Group operates.
The Group's 2016 performance under these conditions is testimony to a well-executed sustainable strategy. The five-pillar strategy introduced in 2003 transformed the
Group into a business diversified across business lines, geographies, market segments and products, with an exceptionally strong capital base. We remain focussed on:
- Improving performance through top-line earnings growth by increasing market share in key segments and diversifying the base (including diversification of geographical
presence, products, market segments and distribution platforms).
- Optimising operational efficiencies.
- Enhancing capital utilisation on an ongoing basis, including the allocation of capital to business units in a manner that will best achieve stated RoGEV targets.
- Prioritising diversification by enhancing the Group's international positioning and growing the relative importance and contribution of the international business to
the Group, with a specific Pan-African focus.
- Commitment to the promotion of transformation and diversity within operations and broadly through the contribution to socio-economic development in the countries and
markets in which the Group operates, whether that be directly, or via collaboration with business partners.
The Group's strategy is by no means unique with many other multi-national insurance and financial services groups following a similar approach. Sanlam's ability to
consistently execute on the strategy has, however, been a key differentiator, enabled by:
- A single-minded focus on execution across the Group operations. The strategy is well-communicated and understood, supported by incentives that reward performance
aligned with the five strategic pillars.
- A client-centric approach that equitably balances value creation between Sanlam clients, shareholders and other stakeholders.
- A corporate culture embedded in ethics and prudence. Sanlam's prudent approach is unique, which often means forsaking short-term gains in support of long-term
sustainable growth.
- Sanlam's ability to attract and retain the best skills available. The Group is fortunate to have a multi-level management team with some of the best financial
services expertise and experience available in the market.
The Group has made good progress in the implementation of the elements of the five-pillar strategy. Below is a brief overview of the main achievements in 2016.
Earnings growth
Net result from financial services increased by 10% from R7,3 billion in 2015 to R8 billion in 2016, a particularly satisfactory performance. All businesses
contributed to the growth, apart from Santam where underwriting margins normalised after an exceptional performance in 2015. New business volumes increased by 11%,
with Sanlam Emerging Markets (SEM) outperforming targets for the year and the other clusters coming in only slightly below stretched targets, a commendable performance
under difficult operating conditions. The 18% increase in value of new business (VNB) (10% on a consistent economic basis) is ascribed to growth in new life business as well
as an improvement in the business mix. The new business performance contributed to net fund inflows of R41 billion in 2016 (2015: R19 billion), with net inflows across all
clusters during the year increasing their future earnings bases.
Operating and cost efficiencies
The restructuring of several business units during 2016, including Sanlam Personal Finance (SPF), Sanlam UK and Sanlam Investments' (SI) South African investment
management business, and the establishment of the new Sanlam Corporate cluster, were based on client-centric alignment, while offering the opportunity to optimise
efficiency in an environment of rapidly rising regulatory compliance costs and continued pressure on fee levels. This includes the elimination of product duplication
and unnecessary statutory costs and creating the ability to roll out regulatory changes in a consistent manner at the lowest possible cost. It also reduces relative
levels of overhead costs, except where new ventures and innovation requirements are prioritised.
Sanlam has a solid track record of delivering on operational efficiencies. This is evident in our ability to largely maintain new business margins on a per product
level despite cost and fee pressures. We again managed to achieve this in 2016. Growth in administration cost was limited to an inflationary increase despite
additional restructuring expenses incurred during 2016.
Optimal capital utilisation
Capital management is a tight standard managed from the Group Office. To enhance Return on Group Equity Value (RoGEV), Group businesses are allocated an optimal level of
capital and are measured against appropriate return hurdles. Further opportunities to optimise the capital base are continuously investigated as the Group and the operating
environment develop, including more sophisticated balance sheet management, strategic asset allocation and the most appropriate capital structure. The new solvency regime
being introduced in South Africa through the Solvency Assessment and Management (SAM) regulations enables the Group to further optimise balance sheet and capital management.
Progress includes the following:
- The enhancement of the Group's projection capability within a SAM environment received significant attention. The modelling results, combined with the more
conservative investment strategy introduced at the end of 2015 for the capital supporting the South African life operations, indicates that the Group should be able
to release further discretionary capital over the next few years (refer Capital management section below).
- Balance sheet management also received particular attention. The diversified nature of the South African life operations will enable the Group to expand its exposure
to credit assets in this business in a capital efficient manner, thereby enhancing future profitability and RoGEV. The relevant mandates have been adjusted to
facilitate a higher asset allocation to credit assets in the appropriate products. This was one of the drivers for the establishment of the Central Credit Management
function in Sanlam Capital Markets (SCM).
- The introduction of SAM also enables the Group to more effectively manage future profit margins embedded in certain policyholder liabilities with a dual benefit of
enhancing RoGEV, while decreasing Group Equity Value (GEV) volatility. The necessary Sanlam board of directors approvals were obtained with implementation scheduled for
appropriate times from 2017.
Santam declared a special interim dividend of R8 per share, after taking current and future solvency requirements into account. Sanlam's share of the special dividend
enhanced available discretionary capital at a Group level by some R540 million.
Diversification
The Saham Finances transaction, which became effective in February 2016, expanded the Group's footprint to more than 30 markets in Africa. Sanlam also acquired 23%
direct stakes in Shriram Life Insurance and Shriram General Insurance whereas Santam made a few small acquisitions in the local market. SPF announced the acquisition
of a 53% stake in BrightRock Holdings, a provider of innovative adaptable needs-based risk solutions, in January 2017.
These initiatives further enhanced the Group's profile. The transformation of the Group from a diversification perspective over the past 14 years has been significant.
From being largely a South African life insurance company, the Group's geographic and line of business exposure has become much more balanced.
Transformation
Ongoing transformation is driven at both a Group and individual business unit level. Transformation includes the Group's diversification efforts, but also aims to
align the Group's demographic profile to the territories in which it operates, and contributes towards black economic empowerment in South Africa.
Sanlam's talent management strategy takes into account global and local talent management practices, and guides the Group in how to attract, recruit, develop and
retain its people to strengthen Sanlam's pool of intellectual capital.
In South Africa, the Group tracks demographic developments and shifts to transform its employee profile and distribution presence. This includes, for example, the
increasing importance of Gauteng as a key metropolitan area due to urbanisation. SPF has made good progress in penetrating new areas and market segments through
employee and distribution transformation.
The restructuring initiatives in different clusters provided an opportunity to improve employment equity profiles to meet the Group targets for black recruitment. Good
progress was made in senior and middle management appointments. Succession plans also show encouraging signs of increasing the number of black people in key roles.
Sanlam and Santam have both been certified as Top Employers in 2017.
Forward-looking statements
In this report we make certain statements that are not historical facts and relate to analyses and other information based on forecasts of future results not yet
determinable, relating, amongst others, to new business volumes, investment returns (including exchange rate fluctuations) and actuarial assumptions. These statements
may also relate to our future prospects, developments and business strategies. These are forward-looking statements as defined in the United States Private Securities
Litigation Reform Act of 1995. Words such as "believe", "anticipate", "intend", "seek", "will", "plan", "could", "may", "endeavour" and "project" and similar
expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve
inherent risks and uncertainties and, if one or more of these risks materialise, or should underlying assumptions prove incorrect, actual results may be very different
from those anticipated. Forward-looking statements apply only as of the date on which they are made, and Sanlam does not undertake any obligation to update or revise any
of them, whether as a result of new information, future events or otherwise.
COMMENTS ON THE RESULTS
Introduction
The Sanlam Group International Financial Reporting Standards (IFRS) financial statements for the year ended 31 December 2016 are presented based on and in compliance
with IFRS. The basis of presentation and accounting policies for the IFRS financial statements and shareholders' information are in all material respects consistent
with those applied in the 2015 Annual Report. For segmental reporting, the newly created Sanlam Corporate cluster is shown separately for the first time, initially
comprising of Sanlam Employee Benefits (SEB) and the Sanlam Healthcare businesses.
Group Equity Value
GEV amounted to R110,7 billion or 5 407 cents per share at 31 December 2016. Including the dividend of 245 cents per share paid during the year, a RoGEV per share of
11,8% was achieved for 2016. This is lower than the 14,1% target for the year, principally due to negative foreign currency translation differences recognised in
respect of the non-South African operations following the sharp recovery in the rand exchange rate during 2016. The benefits of a lower risk discount rate (RDR) in South Africa at 31
December 2016 compared to end-2015 were substantially offset by the weak equity market performance during 2016. Adjusted RoGEV per share, which excludes the impact of
lower investment return than the long-term assumptions, interest rate changes and other one-off effects not under management control (such as tax changes), and
assuming normalised exchange rate movements, amounted to 17,8% - well in excess of the target.
South African long-term interest rates declined by some 90bps during 2016, with a corresponding 90bps decline in the RDR used to value the Group's South African
businesses for GEV purposes. A discounted cash flow (DCF) valuation basis is used for essentially all of the Group's operations, with the decline in RDR having a
positive effect on the end-2016 valuations and RoGEV for 2016. This positive impact was largely negated by a weak equity market performance, which limited growth in
assets under management and hence GEV valuations at SI and SPF. The strengthening of the rand against most currencies during 2016 had a pronounced negative impact of
more than R5 billion on the rand-based valuations of the Group's operations outside of South Africa and Namibia. This resulted in an overall underperformance in RoGEV
compared to target in 2016. Adjusted RoGEV is a more comparable measure of the underlying operational performance, which continues to reflect sound results despite the
challenging operating environment during 2016.
Group Equity Value at 31 December 2016
GEV RoGEV
R million December December
2016 2015 %
Group operations 102 035 91 558 12 432 13,1
Sanlam Personal Finance 41 878 37 472 8 503 22,7
Sanlam Emerging Markets 22 097 18 047 (491) (2,3)
Sanlam Investments 15 807 16 835 (322) (1,9)
Sanlam Corporate 6 385 6 354 613 9,6
Santam 15 868 12 850 4 129 32,1
Covered business 51 246 47 222 7 473 15,8
Value of in-force 35 845 32 114 7 751 24,1
Adjusted in net worth 15 401 15 108 (278) (1,8)
Other operations 50 789 44 336 4 959 10,5
Group operations 102 035 91 558 12 432 13,1
Discrentionary capital and other 8 682 11 948 (162) (1,8)
Group Equity Value 110 717 103 506 12 270 11,9
Per share (cents) 5 407 5 057 595 11,8
Group operations yielded an overall return of 13,1% in 2016, the combination of 15,8% return on covered business and 10,5% on other Group operations.
The Group's covered business operations (comprising 46% of GEV) achieved a good overall performance, exceeding the Group hurdle rate by a healthy margin despite the
economic and currency headwinds faced in 2016. This was supported by a sterling return from the mature South African covered business operations of SPF, which exceeded
the 14,1% hurdle rate by 7,3% with an overall return of 21,4% (20% on an adjusted basis). A strong VNB performance, positive operating experience variances and
assumptions changes, tax changes and the positive effect of the lower RDR contributed to this performance. The weak investment return earned on the South African
capital portfolio during 2016 suppressed Sanlam Corporate's covered business return to 7,8% given the large relative capital allocation to this business. SEM achieved
a return of only 0,7% due to foreign currency translation losses - adjusted RoGEV of 21,1% was well in excess of its target. The Sanlam UK return on covered business
of -24,7% (adjusted RoGEV of 9,6%) reflects the stronger rand exchange rate, but also operational underperformance emanating from the UK restructuring, lower than
expected new business production and the strengthening of the reserving basis for regulatory changes (refer Earnings section below).
Other Group operations (comprising 46% of GEV) achieved a return of 10,5% (20,4% on an adjusted basis). The valuation and return of the South African businesses were
positively impacted by the lower RDR, partly offset by low growth in assets under management at the SI asset management businesses. Foreign currency translation
differences on the SEM and SI non-South African operations account for most of the difference between actual and adjusted RoGEV. All of the major businesses achieved
good growth in adjusted RoGEV, apart from the following:
- Sanlam Investments' international businesses. The Sanlam UK businesses experienced expense overruns and weak new business growth during the restructuring process,
which inevitably led to some internal focus. Assets under management at the Dublin platform business and the asset management businesses were impacted by large
withdrawals from Sanlam FOUR and a repatriation of funds by South African clients (refer Business volumes section below).
- The Shriram Capital credit businesses, where a prudent valuation approach was followed in light of the uncertain impact that de-monetisation will have on the Indian
economy and credit businesses in general.
- The general insurance operations of Pacific & Orient (P&O). Diversification of the P&O product lines is taking longer than expected, impacting negatively on the
short-term growth prospects and valuation of the business.
- The Soras general insurance business, where financial irregularities uncovered during the year resulted in an impairment of the GEV valuation.
Central support functions at SEM were also strengthened during the year to more effectively support the expanding footprint. Capitalisation of the increased central
support costs also had a negative impact on the non-life RoGEV returns, as the valuations do not explicitly allow for any potential future benefits arising from these
initiatives.
The Group's investment in Santam is valued at its listed share price, which recorded a strong return of 32% in 2016 compared to a negative performance of 8,4% in 2015.
The low return on discretionary and other capital is essentially the combined effect of the following:
- Net corporate expenses of R107 million recognised in net result from financial services.
- A relatively low level of return earned on the portfolio's exposure to low yielding liquid assets.
- Hedging of the Saham Finances and Shriram Life and General Insurance transactions. (Refer Capital management section below.) The transactions were hedged through the
acquisition of foreign currency, which earns a very low rate of interest due to the US Dollar denomination. The application of hedge accounting principles in the GEV
presentation furthermore eliminated the foreign currency gains, essentially exposing the portfolio to some R5 billion of assets that earned close to zero return - R4
billion for two months (Saham Finances) and R1 billion for nine months (Shriram options).
Earnings
Shareholders' fund income statement for the year ended 31 December 2016
R million 2016 2015 Change
Net result from financial services 7 969 7 269 10%
Sanlam Personal Finance 4 099 3 818 7%
Sanlam Emerging Markets 1 557 1 197 30%
Sanlam Investments 1 096 1 056 4%
Santam 814 933 (13%)
Sanlam Corporate 510 374 36%
Group office and other (107) (109) 2%
Net investment return 676 1 946 (65%)
Project costs and amortisation (280) (321) 13%
Equity participation costs (5) (43) 88%
NNormalised headline earnings 8 360 8 851 (6%)
Per share (cents) 408,5 432,5 (6%)
Net result from financial services (net operating profit) of R8 billion increased by 10% on 2015, with sterling contributions from SEM and Sanlam Corporate and solid
performances by the other Group operations. Santam achieved lower operational earnings due to the normalisation in its underwriting margin from an exceptionally high
base in 2015. Structural growth (Saham Finances, the Zimbabwean operations, Afrocentric and the 23% direct stakes acquired in Shriram Life Insurance and Shriram
General Insurance) contributed R221 million to net result from financial services. Excluding these, organic growth of 7% represents a satisfactory performance in an
unsupportive environment.
SPF delivered a solid performance for a largely mature business in an environment of stagnant economic growth and a weak equity market performance. Sanlam Individual
Life remains the largest contributor to SPF's operating earnings with growth in its net result from financial services of 6% in 2016.
Profit from investment products declined by 2%, largely attributable to the impact of the weak equity market performance on assets under management, a relatively lower
impact on profit from actuarial basis changes, a decline in asset mismatch profits and an acceleration in deferred acquisition cost amortisation following a rise in
paid up and early retirement policies.
Profit from risk products declined by 53%, the combined effect of increased new business strain and weaker claims experience. The Group follows a prudent profit
recognition approach for insurance contracts in terms of which all upfront acquisition costs are expensed instead of being capitalised and amortised over the duration
of the contracts. The strong growth in new recurring premium risk business in 2016 (refer below) combined with the introduction of the Risk Policy Tax Fund during 2016
contributed to a 45% increase in new business strain. Mortality claims experience deteriorated significantly in the first half of 2016 after exceptionally favourable
experience in 2015. Claims experience improved in the second half of the year, but were still at a lower overall level for the 2016 full-year compared to 2015.
Profit released from the asset mismatch reserve held in respect of non-participating risk business increased by 4% in line with the higher average level of this
reserve during 2016.
Profit from the annuity book almost doubled due to increased risk margin releases in line with the larger size of the book, an increase in asset mismatch profits and
higher spread generated by the newly established Central Credit Manager in SCM. Other life profits increased by 82%, benefiting from higher short-term interest rates
through an 18% rise in working capital profit and lower negative actuarial basis changes in 2016 compared to the 2015 comparable period.
Sanlam Personal Loans profit declined by 4%, attributable to only a marginal increase in the size of the loan book. The implementation of the National Credit Amendment
Act added substantially to the administration process surrounding loan applications and also introduced more strict affordability requirements. This resulted in a
decline in activations, and also a decline in the number of clients qualifying for loans. Focus remained on maintaining the quality of the book. The bad debt ratio
improved to 5,0% as a result, from 5,4% in 2015.
Sanlam Sky's net result from financial services increased by 6%. Growth in the size of the in-force book and positive mortality and persistency experience variances
were somewhat offset by lower investment variances and economic assumption changes.
Glacier grew its profit contribution by 25% after tax. Fund-based fee income benefited from an increase in average assets under management. Stringent expense
management and lower variable costs due to the lower level of growth in new business also supported the results.
SEM grew its net result from financial services by 30%, comprising organic growth of 18% and a 12% contribution from structural growth.
Namibia's net result from financial services declined by 12% (down 7% on a gross basis). Life earnings were suppressed by negative mortality and disability claims
experience, an increase in new business strain following strong growth in entry-level market risk business and lower annuity mismatch profits. Santam Namibia also
experienced a normalisation in underwriting margins, similar to Santam's South African operations. Bank Windhoek performed well and achieved double-digit profit
growth.
The Botswana operations achieved mixed results with overall growth of only 1% in net result from financial services. Life insurance profit declined marginally due to
lower annuity new business volumes and asset mismatch losses recognised following adverse movements in the yield curve. Letshego, the second largest profit
contributor, experienced flat earnings compared to 2015. Increased competition from banks in Botswana limited growth in the loan book while foreign currency
translation losses also dampened earnings growth. The asset management business experienced strong growth of 19%, benefiting from an increase in assets under
management after being awarded a large new mandate by the Botswana Public Officers Pension Fund (BPOPF).
The Rest of Africa operations, excluding first time contributions of R112 million from Saham Finances and the Zimbabwean operations, achieved growth in net result from
financial services of 45%. All countries delivered strong growth, apart from Malawi and Zambia. The general insurance operations in Malawi experienced pressure on
claims, while Zambia continues to be impacted by a difficult operating environment. The Zimbabwean and Nigerian operations exceeded expectations, while Saham Finances
performed only marginally below the business plan despite pressure on the Nigerian and Angolan operations that are affected by currency liquidity constraints and
pressure on economic growth from lower oil prices.
Net result from financial services in India rose 65%; 19% excluding profit contributed by the 23% direct stakes acquired in Shriram Life Insurance and Shriram General
Insurance during the year as well as the R103 million equipment finance bad debt provision recognised in 2015 which did not reoccur in 2016. The credit businesses
achieved strong growth pursuant to almost 20% growth in their loan books and an expansion in net interest margins. The general insurance business also contributed good
growth despite higher than expected claims experience on the third party motor book, while the life insurance business incurred an operating loss due to increased new
business strain and continued investment in expanding its distribution footprint.
The Malaysian businesses had a disappointing year, masked by one-off incurred but not reported IBNR releases. Net result from financial services increased by 110%,
the aggregate of a fivefold growth in general insurance earnings and a lower contribution from the life insurance business. Growth in general insurance business premiums
remained under pressure, with diversification of the product lines taking longer than anticipated. This was however more than offset by releases of the IBNR reserves
recognised in 2015 as experience develops. Product innovation is a key focus for the business to regain market share and to expand its product lines. A number of new
products are planned for launch during 2017. The life insurance business had a difficult year with operating earnings declining by 38%. This is attributable to a number
of one-off items:
- Higher reinsurance premiums payable in respect of Group Life products in terms of renewed treaties.
- Continued medical losses due to the delayed effect of repricing of the product while awaiting regulatory approvals. The approvals have recently been received.
- Strengthening of the reserving basis in a number of areas.
SI achieved overall growth of 4% in its net result from financial services, with an exceptional performance from Capital Management largely offset by a lower profit
contribution from the investment management businesses.
Investment Management net result from financial services declined by 10% on 2015, predominantly caused by lower performance fees in the South African Asset Management
business.
The ability of the South African Asset Management business to grow assets under management and fee income in 2016 was hampered by a number of factors:
- The weak South African equity market performance in 2015 and 2016 impacted adversely on growth in assets under management with flat average market levels. Strong
returns from the bond market could only compensate partially due to the lower fee base of the fixed interest asset class.
- Continued net outflows from the South African life book. The legacy life book managed by SI is running off while SPF's open architecture approach results in only a
portion, albeit increasing, of its new business being managed by SI.
- The redeployment of discretionary capital during the year further reduced the SI asset base.
- Net performance fees declined by 41% from R214 million in 2015 to R127 million in 2016. Performance fees on the SPF and SEB portfolios are measured over a rolling 3-
year period. The 2015 base still included the 2013 calendar year, which was a particularly strong year of outperformance. Its exclusion from the 2016 calculation muted
growth in performance fees in 2016.
The impact of the weak equity markets on assets under management and related fee income was even more pronounced at the Wealth Management business given the larger
exposure to equities in its underlying portfolios.
These businesses have done well to limit the decline in their operational earnings to only 4% under these conditions. This was achieved through diligent cost
management and success in attracting higher margin retail flows (refer below).
The International business had a disappointing year, with net result from financial services declining by 38% on 2015. The weakening of the rand during 2015 caused
breaches in a number of South African funds' foreign investment allowance, requiring a repatriation of assets from the international portfolios. This had a negative
impact on administration and asset management fee income. Sanlam FOUR also experienced large outflows from its UK equity portfolio (refer below), further suppressing
fee income growth. Sanlam UK earnings also came under pressure from one-off restructuring costs incurred in realigning the business for future growth and strengthening
of the reserving basis in the UK life operations following the introduction of regulatory caps on exit fees. The latter required an increase in policy liabilities of
some R70 million, part of which is expected to emerge as positive experience in the future depending on persistency experience.
Capital Management achieved 89% growth in its net result from financial services. Credit spreads on Eurobonds narrowed during 2016 while commodity stock share prices
linked to equity-backed financing structures rose sharply. This contributed to a reversal of the marked-to-market losses incurred on these instruments during the 2015
financial year, when credit spreads widened and share prices were under severe pressure.
The underwriting margin at Santam normalised during 2016 to 6,4% from an exceptionally high base of 9,6% in 2015. The 2016 performance is in the middle of the target
range of 4% to 8%, representing a solid performance. The benign claims environment of 2015 reversed with higher claims experienced across most lines of business. The
crop and property business lines were severely affected by drought-related and large corporate claims respectively. Net premium growth was also less than planned for
2016 in a competitive environment for especially niche and specialist classes. Net result from financial services declined by 13% as a result.
The 36% growth in Sanlam Corporate's net result from financial services includes a first-time contribution of R82 million by Afrocentric (14% growth excluding
Afrocentric). SEB's net result from financial services increased by 18%. SEB Investments benefited from asset mismatch profits, good mortality (annuity longevity)
experience and lower new business strain, supporting a doubling in Investment and other earnings. Higher short-term interest rates increased interest earned on working
capital by 33%. The retirement fund administration business on boarded a large new client, which increased administration fee income in 2016 and contributed to a
pleasing decline in the business's operating loss from R18 million in 2015 to R5 million in 2016, which was offset by one-off system development costs. The adverse
disability claims experience in the first half of 2016 improved in the second half of the year, but with this improvement partly offset by a few large mortality claims
in December 2016. Group risk profits accordingly remained under pressure and declined by 38% compared to 2015.
Normalised headline earnings of R8,4 billion are 6% down on 2015. This is the combined effect of the 10% increase in net result from financial services, a 65% decline
in net investment return earned on the capital portfolio and an 22% decline in amortisation of intangible assets and equity participation costs. Net investment return
was adversely affected by the following:
- The impact of the stronger rand on investment return earned on the international exposure in the South African portfolio;
- Weaker equity market returns in the major SEM geographies; and
- The additional deferred tax expense of R192 million recognised following the increase in the effective capital gains tax (CGT) rate from 19% to 22% during the first half of 2016.
Business volumes
The Group achieved overall growth of 11% in new business volumes, a credible performance. Excluding first-time contributions from structural growth, new business
volumes increased by 9%. Life insurance new business volumes increased by 9%, investment business inflows by 10% and general insurance earned premiums by 18% (7%
excluding structural growth). Structural growth did not contribute significantly to life insurance and investment new business.
Business volumes for the year ended 31 December 2016
R million New business Net inflows
2016 2015 Change 2016 2015 Change
Sanlam Personal Finance 61 748 61 173 1% 16 493 22 142 (26%)
Sanlam Emerging Markets 23 696 14 565 63% 10 929 (6 593) >100%
Sanlam Investments 122 879 113 669 8% 5 215 (3 023) >100%
Sanlam Corporate 5 029 2 913 73% 1 369 (489) >100%
Santam 19 826 18 522 7% 6 915 7 012 (1%)
TOTAL 233 178 210 842 11% 40 921 19 049 115%
Covered business 43 599 39 976 9% 11 356 12 081 (6%)
Investment business 165 740 150 670 10% 21 169 (523) >100%
General insurance 23 839 20 196 18% 8 396 7 491 12%
TOTAL 233 178 210 842 11% 40 921 19 049 115%
SPF's new business sales grew by 1%, with lower discretionary single premium volumes concealing a strong recurring premium performance.
Sanlam Sky new business increased by 1%. Major progress was made in improving the mix of business between risk and savings solutions after disproportionate sales of
tax free savings products in 2015. The design of the savings solution was also amended during 2016 as much weaker than expected persistency experience rendered the
original product launched in 2015 unprofitable. Individual life recurring premium new business declined marginally due to the management actions implemented to improve
the mix of business. Individual life risk business sales increased by a healthy 13%, offset by a 43% decline in savings business. The change in mix had a significant
positive impact on VNB (refer below). Group recurring premium sales were supported by a few large new schemes written by Safrican during 2016 and increased by 17%,
excluding the impact of the biennial renewal of the ZCC scheme that occurred in 2015. Including the ZCC, group recurring premium business increased by 8%.
New business volumes in the Individual Life segment, which is largely focused on the middle income segment in South Africa, increased by 1%. Single premium sales
declined by 1%, the combined effect of some pressure on disposable income and increased investor risk aversion in the uncertain political and investment market
environment. Guaranteed plan business did well under these conditions and increased by 9%, but was more than offset by lower sales of the other major product lines.
New recurring premium sales grew by a strong 13%, with all lines of business contributing to the growth apart from credit life that reflects the low level of growth in
the Sanlam Personal Loans book. Growth in sales of the more profitable risk business remained particularly strong at 20% following recent product innovation and
improvements and enhanced distribution focus. VNB benefited as a result (refer below), but new business strain recognised in operating earnings increased
commensurately as highlighted above.
Glacier was also severely impacted by the heightened investor risk aversion, contributing to a 12% decline in discretionary non-life new business sales (excluding wrap
funds). Demand for life licence and wrap solutions were more resilient with new business volumes increasing by 11% and 7% respectively. Within the life insurance
sales, demand for both offshore and local funds persisted.
The slowdown in single premium business had a negative impact on SPF's net fund inflows, which declined from R22 billion in 2015 to R16 billion in 2016.
SEM new business volumes grew by 63% (47% excluding structural growth). New life business increased by 7% (4% excluding structural growth), investment business inflows
by 80% and general insurance earned premiums by 140% (10% excluding structural growth).
New business volumes in Namibia increased by 4%, the combined result of 16% and 1% growth in new life and investment business respectively. Entry-level market life
business sales performed particularly well, supporting growth in the Namibian VNB (refer below). The low growth in investment business is attributable to only marginal
growth in both collective investment scheme inflows and Glacier Namibia new business.
The Botswana operations almost doubled their new business contribution. This is largely attributable to a R4,6 billion asset management mandate received from the
BPOPF, a welcome development after the large withdrawals by the BPOPF in 2015. Annuity sales declined from a high base in 2015, contributing to an overall 19% decline
in life insurance new business.
Rest of Africa new business volumes grew by 149%, supported by the first-time inclusion of Saham Finances and Zimbabwe. Excluding structural growth, new business
volumes increased by 51%. All countries in the region contributed to the growth, apart from Zambia and Malawi. In Zambia, the operating environment remains under
pressure from low copper prices, presenting headwinds to growth in new business volumes. In Malawi, general insurance premiums were under pressure, more than
offsetting good growth in life business. The Kenyan business achieved good growth in single premium life and general insurance business, augmented by a threefold rise
in new investment management mandates. Individual life recurring premium life sales, however, remained under pressure following a change in the agency remuneration
model and declined by 17%. Particularly pleasing is the performance of the Nigerian business, which grew its new business contribution by 52% to R407 million despite a
sluggish economy and a significantly weaker currency. This illustrates the benefits of low insurance penetration in Africa that enables the Group to maintain good
growth despite a weaker economic environment.
Strong growth in Indian new business persisted, with overall growth of 55% in 2016 (21% excluding structural growth). New life and general insurance business sales
increased by 86% (49% excluding structural growth) and 44% (10% excluding structural growth) respectively. The life business continued to benefit from the investments
made in growing its distribution footprint. Organic growth in general insurance was less than expected due to slow progress in expanding the product mix to include new
and more profitable lines of business.
New business volumes in Malaysia were in line with the 2015 financial year. The life business had a good sales year, experiencing growth of 22%. Pacific & Orient,
however, disappointed with a 17% decline in net earned premiums. Progress with diversifying the lines of business was slower than anticipated, aggravated by some
market share losses in its traditional two-wheeler line of business. Management focus in 2017 will be on accelerated diversification and effectively responding to the
de-tariffing of the general insurance industry in Malaysia.
Net fund flows staged a recovery from net outflows of R7 billion in 2015 to R11 billion of net inflows in 2016. This is the combination of strong new business growth
in 2016 and the large withdrawals by the BPOPF included in the 2015 comparative base.
SI's new business growth of 8% represents a satisfactory performance given the difficult operating environment during 2016. Retail and institutional clients in South
Africa took a cautious stance given political and investment market instability. The SA Investment Management business struggled to win new third party mandates under
these conditions as especially pension fund trustees refrained from changing mandates and asset managers. The implemented consulting product offering, however,
continued to gain traction, contributing to good growth in primary retail inflows as well as an increase in the proportion of funds invested in SI products. This
supported satisfactory growth of 8% in new inflows at the SA Investment Management business. The Wealth Management business did particularly well to grow by 11%
despite the heightened investor risk aversion. The international businesses achieved new business growth of only 5% as management focus was partly on the
restructuring.
Net fund inflows improved from a R3 billion net outflow in 2015 to a net inflow of R5 billion in 2016. The turnaround is largely attributable to the R14 billion
withdrawals by the BPOPF and the Public Investment Corporation included in the 2015 results. The International businesses experienced net outflows of some R5 billion
in 2016, largely from Sanlam FOUR's UK equity portfolio which underperformed in the aftermath of the Brexit vote due to its exposure to UK small caps.
The majority of Santam's premiums are still written in the highly competitive South African market, where the niche classes were in particular under pressure. Gross
written premiums and net earned premiums grew by 7%, reflecting the maturity of the South African market, competitive pressures and the current low-growth economic
environment. MiWay, Santam's direct insurance business, continues to achieve strong growth and increased its premium base by 19%.
Sanlam Corporate achieved growth of 73% in new business volumes, with net fund flows commensurately improving from a R489 million net outflow in 2015 to net inflows of
R1,4 billion in 2016. Linked and smoothed bonus investment business did well, but the more profitable recurring premium risk business declined by 23% as competitive
market pressures to retain existing business persisted.
Overall net fund inflows of R41 billion in 2016 is a satisfactory performance given the challenging market conditions.
Value of new covered business for the year ended 31 December 2016
R million 2016 economic basis 2015 economic basis
2016 2015 Change 2016 2015 Change
Value of new covered business 1 779 1 514 18% 1 670 1 514 10%
Sanlam Personal Finance 1 163 955 22% 1 062 955 11%
Sanlam Emerging Markets 533 448 19% 520 448 16%
Sanlam Investments 7 26 (73%) 7 26 (73%)
Sanlam Corporate 76 85 (11%) 81 85 (5%)
Net of non-controlling interest 1 605 1 360 18% 1 501 1 360 10%
Present value of new business premiums 62 383 54 362 15% 61 763 54 362 14%
Sanlam Personal Finance 41 507 38 041 9% 40 952 38 041 8%
Sanlam Emerging Markets 9 654 8 041 20% 9 590 8 041 19%
Sanlam Investments 3 411 3 947 (14%) 3 411 3 947 (14%)
Sanlam Corporate 7 811 4 333 80% 7 810 4 333 80%
Net of non-controlling interest 59 556 51 856 14% 58 684 51 856 13%
New covered business margin 2,85% 2,79% 2,70% 2,79%
Sanlam Personal Finance 2,80% 2,51% 2,59% 2,51%
Sanlam Emerging Markets 5,52% 5,57% 5,42% 5,57%
Sanlam Investments 0,21% 0,66% 0,21% 0,66%
Sanlam Corporate 0,97% 1,96% 1,04% 1,96%
Net of non-controlling interest 2,69% 2,62% 2,56% 2,62%
The discount rate used to determine VNB is directly linked to long-term interest rates. The 90bps and 100bps decline in the South African 9- and 5-year benchmark rates
respectively during 2016 resulted in a commensurate decline in the risk discount rate with a positive impact on VNB growth and margins. In general, VNB margins were
maintained on a per product basis. Changes in business mix at SPF had a significant positive impact on the Group's VNB performance in 2016, augmented by strong organic
growth at SEM. Net VNB at actual discount rates increased by 18%. On a comparable basis (before economic assumption changes) net VNB increased by a pleasing 10%.
SPF achieved overall growth of 11% on a comparable basis. The change in business mix in Sanlam Sky, together with an improvement in the profitability of the savings
product, contributed to a 27% increase in its VNB contribution and an increase in VNB margin from 5,86% in 2015 to 6,8% in 2016. The good growth in new risk business
in Individual Life similarly supported VNB, with this segment's contribution increasing by 9% on a comparable basis despite only marginal overall growth in new
business sales. Individual Life VNB margins improved from 2,59% to 2,70%. Glacier's VNB growth was in line with its new business performance.
Net VNB at SEM grew by 19% on a comparable basis, with strong growth in Namibia, Nigeria, Tanzania, Uganda, India and Malaysia in line with these regions' new life
business performance. Saham Finances made a first-time contribution of R16 million. Malawi reported lower VNB compared to 2015 due to an adverse change in business
mix. Kenya disappointed with a negative VNB contribution of R7 million as lower individual life recurring premium business resulted in an increase in maintenance unit
costs. Management focus remains on improving the new business performance.
SI's VNB declined by 73%, principally due to a 15% decline in life insurance new business in the UK and an increase in the cost of capital allowance.
Sanlam Corporate VNB declined by 5% on a comparable basis, due to the change in mix towards less profitable savings business.
Capital management
Solvency Assessment and Management
The South African insurance industry performed parallel solvency reporting during 2016 to prepare for the implementation of the new Solvency Assessment and Management
(SAM) regime in 2017. The SAM regime is anticipated to replace the current Financial Soundness Valuation (FSV) solvency regime in the second half of 2017. As
highlighted in previous communication, SAM is a risk-based solvency regime founded on the European Solvency II principles, but adapted for South African circumstances.
The initial focus of Sanlam's SAM programme was to prepare the Group and the South African insurance subsidiaries for SAM compliance. In a second phase, the strategic
asset allocation of the balanced portfolio supporting Sanlam Life's covered business was amended during the 2015 financial year to optimise the capital base from a
RoGEV perspective in line with the pending SAM environment. SAM is significantly more punitive in respect of unhedged equity exposures than FSV and accordingly require
a more conservative asset allocation. Implementation of the revised strategic asset allocation (illustrated in the table below) concluded in the first half of 2016.
Asset class %
Balanced portfolio
Equities -
Offshore investments 8
Hedged equities 80
Zero cost collars providing a 100% floor 60
Fences (100/80 and/or 100/85) 20
Cash 12
Total balanced portfolio 100
Subordinated debt
Fixed interest 100
Total subordinated debt 100
For Sanlam Life, the Group's target under the FSV basis was to ensure that its CAR cover would be at least 1,5 times over a 10-year period, within a 95% confidence
level. At the end of 2015 this translated into IFRS-based required capital of some R14,5 billion for Sanlam Life's life insurance business, which was covered as
follows:
- R2,5 billion by Santam shares;
- R2 billion by the subordinated debt issued by Sanlam Life; and
- R10 billion by the balanced portfolio.
A prudent approach was followed in determining required capital at the end of 2015 as further modelling capability and certainty on the final SAM standard formula were
required to confirm the level of required capital under SAM.
The third phase of the SAM programme involved expansion of the Group's capital management projection capability, specifically adapted for SAM. Good progress has been
made during 2016 in this regard, which enabled the Group to set an appropriate level of IFRS required capital for Sanlam Life's covered business under SAM, based on
the following principles:
- A SAM solvency capital requirement (SCR) cover range of between 1,7 times and 2,1 times is targeted over a 10-year projection period.
- Investment return earned on the balanced portfolio is excluded from the projections. Actual investment return earned will therefore be available for release to
discretionary capital on an annual basis under normal circumstances. In severe scenarios that result in a breach of the lower threshold, investment return can be
retained in the portfolio to restore the SCR cover to the lower end of the range. This allows for increased capital management flexibility.
- Transfers to discretionary capital will occur when the upper limit of the target range is breached over the full 10-year projection period.
The IFRS required capital for Sanlam Life's covered business has been set at R12 billion at 31 December 2016, covered by the R2 billion subordinated debt and R10
billion in the balanced portfolio.
On this basis, the SAM cover ratio for Sanlam Life's covered business amounted to 2,2 times on 31 December 2016. Including Sanlam Life's investments in Group
businesses, the discretionary capital held on its balance sheet as well as the cash held for the anticipated dividend payment to Sanlam Limited in 2017, the SCR cover
for the Sanlam Life legal entity (solo) amounted to 3,1 times on 31 December 2016. The solo solvency ratio will be reported to the regulator once SAM is effective and
will also be relevant for clients, market participants and credit rating agencies in evaluating Sanlam Life's credit risk.
SAM also requires the calculation of a Group solvency position, which is likely to become the more relevant solvency measure over time. The Sanlam Group had a healthy
SCR cover of 2,2 times at 31 December 2016. The principle reason for the lower Group SCR cover compared to Sanlam Life, is the inclusion of Santam in the Group
position. General insurance business can be conducted at lower cover ratios than life business given its different risk profile. Santam's well diversified book further
reduces its capital requirement and hence SCR cover ratio. At a Group level a prudent approach was also followed by not including the Santam surplus capital, thereby
effectively including it at a 1 times cover ratio.
Sanlam Life's capital requirement is expected to reduce over the next few years as the more capital intensive legacy business continue to decline as a proportion of
the overall life book, settling at around R8 billion. The capital modelling conducted during 2016 indicate that, together with expected investment return to be earned
on the balanced portfolio, between R500 million and R1 billion can be released per annum over the next four years to augment the discretionary capital available for
deployment. Focus will also be placed in 2017 on opportunities to further optimise the capital position of the other South African life insurance licences.
The fourth phase of the SAM programme was also launched during 2016, focussing on optimising balance sheet management. The introduction of the Central Credit
Management function in SCM is the first initiative flowing from this work.
Discretionary capital
The Group started the year with discretionary capital of R2,3 billion, which was earmarked for new growth and expansion opportunities as well as to increase stakes in
existing operations on a selective basis. This balance excluded the capital allocated for the Saham Finances transaction announced in 2015 and the acquisition of 23%
direct stakes in Shriram Life Insurance and Shriram General Insurance. These transactions were concluded and payment made during 2016.
A net total of R3,4 billion was redeployed in 2016 in respect of new transactions, which included the following:
- An additional investment in Saham Finances was announced in December 2016. In terms of this second transaction, the Group will acquire a further 16,6% stake for some
R4,6 billion. At least R2,7 billion will be funded from discretionary capital and has been formally allocated as such from the available discretionary capital, with
the remainder to be funded through the raising of debt. The acquisition price is payable in US Dollars, which the Group hedged in the latter part of 2016 and
beginning of 2017.
- In January 2017 SPF announced the acquisition of a 53% stake in BrightRock for some R700 million. BrightRock is an innovative provider of unique needs-based life
insurance cover in South Africa that adapts in line with changing client needs. The BrightRock products will augment SPF's existing risk product offering and is
expected to enhance SPF's market share of this profitable line of business.
- SI concluded a number of smaller transactions, including:
- A R150 million investment in Brackenham, a private client wealth management business.
- An effective 49% shareholding in FirstGlobal Asset Management, a South African asset management company which also renders intermediary services in relation to
participatory interests in collective investment schemes. The total acquisition consideration was R56 million.
- The acquisition of the non-controlling shareholders' interest in Blue Ink for R39 million.
- R18 million for investment in its international asset managers, to set up an African wealth management business and for trail payments for the acquisition of the
Vukile property management agreement.
- Some R140 million was invested by SEM to bolster the capital position of its Rwanda operations and to expand its bancassurance arrangement with Standard Chartered Bank
to general insurance business.
- The disposal of SPF's interest in Anglo African Finance and Santam's contribution to SEM general insurance transactions during 2016 (including Shriram General
Insurance) generated some R360 million of discretionary capital.
The discretionary capital portfolio was augmented by the following inflows:
- Sanlam's share of the Santam special dividend payment in 2016 amounted to R542 million.
- The investment return of R182 million earned on the Sanlam Life balanced portfolio was released to discretionary capital as the balance required in the portfolio
remained unchanged at R10 billion.
- Some illiquid investments were disposed of, generating some R150 million.
- The 2015 dividend cover in excess of cash operating earnings and other smaller items added some R800 million.
Together with investment return earned on the discretionary capital portfolio, unallocated discretionary capital amounted to R550 million at the end of December 2016.
Further discretionary capital is expected to be generated in 2017 through a release from the Sanlam Life balanced portfolio (refer above) as well as the 2016 excess
dividend cover of some R700 million. Discretionary capital remains earmarked to be utilised for value-accretive investment opportunities.
Solvency
All of the life insurance businesses within the Group were sufficiently capitalised at the end of December 2016. The total admissible regulatory capital (including
identified discretionary capital) of Sanlam Life Insurance Limited, the holding company of the Group's major life insurance subsidiaries, of R46,9 billion, covered its
CAR 5,8 times.
The Group's solvency position under the new SAM regime is also healthy, as indicated above.
Standard&Poors issued the following credit ratings to the Group during 2016: Sanlam Limited: South Africa National: zaA; Sanlam Life Insurance Limited: South Africa
National: zaAAA, Subordinated debt: zaAA-.
Dividend
The Group only declares an annual dividend due to the costs involved in distributing an interim dividend to our large shareholder base. Sustainable growth in dividend
payments is an important consideration for the Board in determining the dividend for the year. The Board uses cash operating earnings as a guideline in setting the
level of the normal dividend, subject to the Group's liquidity and solvency requirements. Dividend cover of cash operating earnings is managed broadly within a 1 to
1,1 times range to target consistent real growth in the Group's normal dividend payment. The operational performance of the Group in the 2016 financial year enabled
the Board to increase the normal dividend per share by 9,4% to 268 cents. This will maintain a cash operating earnings cover of approximately 1,1 times. The South
African dividend withholding tax regime applies in respect of this dividend. The dividend will in full be subject to the 20% withholding tax, where applicable, which
will result in a net final dividend, to those shareholders who are not exempt from paying dividend tax, of 214,4 cents per ordinary share. The number of ordinary
shares in issue in the company's share capital at the date of the declaration is 2 010 119 548 (excluding treasury shares of 156 352 258). The company's tax reference
number is 9536/346/84/5.
Shareholders are advised that the final cash dividend of 268 cents for the year ended 31 December 2016 is payable on Monday, 10 April 2017 by way of electronic bank
transfers to ordinary shareholders recorded in the register of Sanlam at close of business on Friday, 7 April 2017. The last date to trade to qualify for this dividend
will be Tuesday, 4 April 2017, and Sanlam shares will trade ex-dividend from Wednesday, 5 April 2017.
Share certificates may not be dematerialised or rematerialised between Wednesday, 5 April 2017 and Friday, 7 April 2017, both days included.
Sanlam Group
Summarised financial statements for the year ended 31 December 2016
ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, and the
requirements of the Companies Act applicable to summary financial statements. The Listings Requirements require abridged reports to be prepared in accordance with the
framework concepts and the measurement and recognition requirements of IFRS and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim
Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the summary consolidated financial
statements were derived, are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the previous consolidated annual financial
statements.
The policy liabilities and profit entitlement rules are determined in accordance with prevailing legislation, generally accepted actuarial practice and the
stipulations contained in the demutualisation proposal. There have been no material changes in the financial soundness valuation basis since 31 December 2015, apart
from changes in the economic assumptions.
The basis of presentation and accounting policies for the IFRS financial statements and Shareholders' information are in all material respects consistent with those
applied in the 2015 annual report. The only amendment coming into effect in the current year that had an effect on the financial statements was an amendment to IAS1 -
Presentation of Financial Statements, which requires that the equity-accounted other comprehensive income of associates and joint ventures to be shown separately on
the face of the statement of comprehensive income. In the past, these other comprehensive income amounts, which for Sanlam relates to foreign currency translation
differences, were included in the total 'movement in foreign currency translation reserve' line item. For segmental reporting, the newly created Sanlam Corporate
cluster is shown separately for the first time, initially comprising of SEB and the Sanlam Healthcare businesses.
The preparation of the Group's audited annual results was supervised by the Financial Director, Heinie Werth CA(SA).
The following new or revised IFRS and interpretations have effective dates applicable to future financial years and have not been early adopted:
- IFRS 9 - Financial Instruments (effective 1 January 2018)
- IFRS 15 - Revenue from Contracts with Customers (effective 1 January 2018)
- IFRS 16 - Leases (effective 1 January 2019)
Management is in the process of assessing the classification and measurement of its financial instruments in light of the requirements of IFRS 9. No significant impact
is expected. Initial work performed on the impact of IFRS 15 and 16 indicates that there will be limited impact on the financial statements as a result of these
standards.
EXTERNAL AUDIT
This summarised report is extracted from audited information, but is not itself audited. The annual financial statements were audited by Ernst & Young Inc., who
expressed an unmodified opinion thereon. The audited annual financial statements and the auditor's report thereon are available for inspection at the company's
registered office. The shareholders' information was audited by Ernst & Young Inc., who expressed an unmodified opinion thereon. The audited shareholders' information
and the auditor's report thereon are available for inspection at the company's registered office.
The directors take full responsibility for the preparation of the summarised report and that the financial information has been correctly extracted from the underlying
annual financial statements and shareholders' information.
Summarised shareholders' information for the year ended 31 December 2016
Contents
Group Equity Value
Shareholders' fund income statement
Notes to the shareholders' information
Embedded value of covered business
GROUP EQUITY VALUE
at 31 December 2016
2016 2015
R million R million
Embedded value of covered business 51 246 47 222
Sanlam Personal Finance 38 216 34 526
Adjusted net worth 8 358 8 287
Value of in-force 29 858 26 239
Sanlam Emerging Markets 6 370 5 486
Adjusted net worth 2 857 2 323
Value of in-force 3 513 3 163
Sanlam Investments (1) 1 137 1 633
Adjusted net worth 466 778
Value of in-force 671 855
Sanlam Corporate(1) 5 523 5 577
Adjusted net worth 3 720 3 720
Value of in-force 1 803 1 857
Other Group operations 50 789 44 336
Sanlam Personal Finance (2) 3 662 2 946
Sanlam Emerging Markets 15 727 12 561
Sanlam Investments 14 670 15 202
Santam 15 868 12 850
Sanlam Corporate(2) 862 777
Other capital and net worth adjustments 8 132 9 648
110 167 101 206
Discretionary capital 550 2 300
Group equity value 110 717 103 506
Group equity value per share (cents) 5 407 5 057
(1) Sanlam Employee Benefits has been reallocated from Sanlam Investments to the Sanlam Corporate cluster.
(2) The Health Management business have been reallocated from Sanlam Personal Finance to the Sanlam Corporate cluster.
SHAREHOLDERS' FUND INCOME STATEMENT
for the year ended 31 December 2016
2016 2015
R million R million
Result from financial services before tax 12 678 11 595
Sanlam Personal Finance (1) 5 691 5 298
Sanlam Emerging Markets 2 896 2 248
Sanlam Investments 1 505 1 376
Santam 2 050 2 321
Sanlam Corporate (1) 712 516
Group office and other (176) (164)
Tax on financial services income (3 493) (3 098)
Non-controlling interest (1 216) (1 228)
Net result from financial services 7 969 7 269
Net investment return 676 1 946
Net investment income 940 968
Net investment surpluses (300) 946
Net equity-accounted headline earnings 36 32
Net project expenses (29) (15)
Equity participation costs (5) (43)
Amortisation of intangibles (251) (306)
Normalised headline earnings 8 360 8 851
Profit on disposal of operations 31 200
Net equity-accounted non-headline earnings (3) -
Impairments (265) (109)
Normalised attributable earnings 8 123 8 942
Fund transfers 1 500 449
Attributable profit per Group statement of comprehensive income 9 623 9 391
(1) The Health Management businesses have been reallocated from Sanlam Personal Finance to Sanlam Corporate cluster.
NOTES TO THE SHAREHOLDERS' INFORMATION
for the year ended 31 December 2016
2016 2015
R million R million
1. NEW BUSINESS
Analysed per licence:
Life Insurance 43 599 39 976
Sanlam Personal Finance 30 175 28 443
Sanlam Emerging Markets 5 208 4 869
Sanlam Corporate (1) 5 029 2 913
Sanlam Investments (1) 3 187 3 751
Investment business and other 189 579 170 866
Sanlam Personal Finance 31 573 32 730
Sanlam Emerging Markets 18 488 9 696
Sanlam Investments 119 692 109 918
Santam 19 826 18 522
Total new business 233 178 210 842
2. NET FLOW OF FUNDS
Analysed per licence:
Life Insurance 11 356 12 081
Sanlam Personal Finance 7 298 8 914
Sanlam Emerging Markets 2 941 3 428
Sanlam Corporate (1) 1 369 (489)
Sanlam Investments (1) (252) 228
Investment business and other 29 565 6 968
Sanlam Personal Finance 9 195 13 228
Sanlam Emerging Markets 7 988 (10 021)
Sanlam Investments 5 467 (3 251)
Santam 6 915 7 012
Total net flow of funds 40 921 19 049
(1) Sanlam Empoyee benefits has been reallocated from Sanlam Investments to the Sanlam Corporate cluster.
3. NORMALISED EARNINGS PER SHARE
In terms of IFRS, a consolidation reserve is created for differences in the valuation bases of long-term policy liabilities and assets supporting those liabilities.
Certain investments held in policyholder portfolios may not be recognised at fair value in terms of IFRS, whereas the valuation of the related policy liabilities is
based on the assets at fair value. Similarly, deferred tax assets recognised in respect of assessed tax losses in policyholder funds increases the Group's net assets
without a corresponding increase in policy liabilities. These create mismatches with a corresponding impact on the shareholders' fund. A separate reserve is created
for these valuation differences owing to the fact that they represent accounting differences and not economic gains or losses for the shareholders' fund. The number
of shares in issue must also be reduced with the treasury shares held by the policyholders' fund for the calculation of IFRS basic and diluted earnings per share.
This is, in management's view, not a true representation of the earnings attributable to the Group's shareholders, specifically in instances where the share prices
and/or the number of shares held by the policyholders' fund varies significantly. The Group therefore calculates normalised earnings per share to eliminate these
impacts.
2016 2015
cents cents
Normalised diluted earnings per share:
Net result from financial services 389,4 355,2
Headline earnings 408,5 432,5
Profit attributable to shareholders' fund 396,9 437,0
R million R million
Analysis of normalised earnings
(refer shareholders' fund income statement):
Net result from financial services 7 969 7 269
Headline earnings 8 360 8 851
Profit attributable to shareholders' fund 8 123 8 942
Million Million
Adjusted number of shares:
Weighted average number of shares for diluted earnings per share 2 020,1 2 024,0
Add: Weighted average Sanlam shares held by policyholders 26,4 22,3
Adjusted weighted average number of shares for normalised
diluted earnings per share 2 046,5 2 046,3
Number of ordinary shares in issue 2 166,5 2 166,5
Shares held by subsidiaries in shareholders' fund (138,9) (141,2)
Outstanding shares and share options in respect of Sanlam Limited
long-term incentive scheme 19,9 21,3
Adjusted number of shares for value per share 2 047,5 2 046,6
EMBEDDED VALUE OF COVERED BUSINESS at 31 December 2016
2016 2015
Note R million R million
Sanlam Personal Finance 38 216 34 526
Adjusted net worth 8 358 8 287
Net value of in-force covered business 29 858 26 239
Value of in-force covered business 31 823 28 139
Cost of capital (1 965) (1 900)
Sanlam Emerging Markets 6 370 5 486
Adjusted net worth 2 857 2 323
Net value of in-force covered business 3 513 3 163
Value of in-force covered business 5 712 5 317
Cost of capital (562) (525)
Non-controlling interest (1 637) (1 629)
Sanlam UK(1) 1 137 1 633
Adjusted net worth 466 778
Net value of in-force covered business 671 855
Value of in-force covered business 828 1 066
Cost of capital (157) (211)
Sanlam Employee Benefits(2) 5 523 5 577
Adjusted net worth 3 720 3 720
Net value of in-force covered business 1 803 1 857
Value of in-force covered business 2 857 2 804
Cost of capital (1 054) (947)
Embedded value of covered business 51 246 47 222
Adjusted net worth (3) 15 401 15 108
Net value of in-force covered business 1 35 845 32 114
Embedded value of covered business 51 246 47 222
(1) Sanlam UK is included in the Sanlam Investments cluster whereas Sanlam Employee Benefits forms part of the Sanlam Corporate cluster.
(2) Sanlam Employee Benefits is part of Sanlam Corporate cluster.
(3) Excludes subordinated debt funding of Sanlam Life.
CHANGE IN EMBEDDED VALUE OF COVERED BUSINESS for the year ended 31 December 2016
2016 2015
NET VALUE ADJUSTED
R MILLION NOTE TOTAL OF IN-FORCE NET WORTH TOTAL
Embedded value of covered business at the beginning of the year 47 222 32 114 15 108 48 393
Value of new business 2 1 605 3 594 (1 989) 1 360
Net earnings from existing covered business 6 042 (582) 6 624 5 328
Expected return on value of in-force business 4 634 4 634 - 3 759
Expected transfer of profit to adjusted net worth - (5 723) 5 723 -
Operating experience variances 3 983 (23) 1 006 1 081
Operating assumption changes 4 425 530 (105) 488
Expected investment return on adjusted net worth 1 199 - 1 199 1 256
Embedded value earnings from operations 8 846 3 012 5 834 7 944
Economic assumption changes 5 485 484 1 (1 608)
Tax changes 6 422 561 (139) 7
Investment variances - value of in-force (159) (214) 55 (74)
Investment variances - investment return on adjusted net worth (1 312) - (1 312) 443
Goodwill from business (183) (183) - (69)
Exchange rate movements (626) (626) - 394
Embedded value earnings from covered business 7 473 3 034 4 439 7 037
Acquired value of in-force 1 247 651 596 124
Transfer (to)/from other Group operations (13) 46 (59) -
Net transfers from covered business (4 683) - (4 683) (8 332)
Embedded value of covered business at the end of
the year 51 246 35 845 15 401 47 222
Analysis of earnings from covered business
Sanlam Personal Finance 7 402 3 573 3 829 4 363
Sanlam Emerging Markets 37 (301) 338 1 403
Sanlam UK (403) (184) (219) 277
Sanlam Employee Benefits 437 (54) 491 994
Embedded value earnings from covered business 7 473 3 034 4 439 7 037
VALUE OF NEW BUSINESS for the year ended 31 December 2016
R MILLION Note 2016 2015
Value of new business (at point of sale):
Gross value of new business 2 051 1 729
Sanlam Personal Finance 1 315 1 065
Sanlam Emerging Markets 589 499
Sanlam UK 13 28
Sanlam Employee Benefits 134 137
Cost of capital (272) (215)
Sanlam Personal Finance (152) (110)
Sanlam Emerging Markets (56) (51)
Sanlam UK (6) (2)
Sanlam Employee Benefits (58) (52)
Value of new business 1 779 1 514
Sanlam Personal Finance 1 163 955
Sanlam Emerging Markets 533 448
Sanlam UK 7 26
Sanlam Employee Benefits 76 85
Value of new business attributable to:
Shareholders' fund 2 1 605 1 360
Sanlam Personal Finance 1 163 955
Sanlam Emerging Markets 359 294
Sanlam UK 7 26
Sanlam Employee Benefits 76 85
Non-controlling interest 174 154
Sanlam Personal Finance - -
Sanlam Emerging Markets 174 154
Sanlam UK - -
Sanlam Employee Benefits - -
Value of new business 1 779 1 514
Geographical analysis:
South Africa 1 239 1 040
Africa 461 400
Other international 79 74
Value of new business 1 779 1 514
Analysis of new business profitability(1):
Before non-controlling interest:
Present value of new business premiums 62 383 54 362
Sanlam Personal Finance 41 507 38 041
Sanlam Emerging Markets 9 654 8 041
Sanlam UK 3 411 3 947
Sanlam Employee Benefits 7 811 4 333
New business margin 2,85% 2,79%
Sanlam Personal Finance 2,80% 2,51%
Sanlam Emerging Markets 5,52% 5,57%
Sanlam UK 0,21% 0,66%
Sanlam Employee Benefits 0,97% 1,96%
After non-controlling interest:
Present value of new business premiums 59 556 51 856
Sanlam Personal Finance 41 507 38 041
Sanlam Emerging Markets 6 827 5 535
Sanlam UK 3 411 3 947
Sanlam Employee Benefits 7 811 4 333
New business margin 2,69% 2,62%
Sanlam Personal Finance 2,80% 2,51%
Sanlam Emerging Markets 5,26% 5,31%
Sanlam UK 0,21% 0,66%
Sanlam Employee Benefits 0,97% 1,96%
(1) Comparative information has been adjusted for the reallocation of Glacier Namibia from Sanlam Personal Finance to Sanlam Emerging Markets.
NOTES TO THE EMBEDDED VALUE OF COVERED BUSINESS for the year ended 31 December 2016
1. VALUE OF IN-FORCE SENSITIVITY ANALYSIS Gross value Net value
of in-force Cost of of in-force Change from
business capital business base value
R million R million R million %
Base value 39 379 (3 534) 35 845
- Risk discount rate increase by 1% 37 204 (4 094) 33 110 ( 8)
2. VALUE OF NEW BUSINESS SENSITIVITY ANALYSIS Gross value Net value
of new Cost of of new Change from
business capital business base value
R million R million R million %
Base value 1 829 (224) 1 605
- Risk discount rate increase by 1% 1 598 (265) 1 333 (17)
2016 2015
R million R million
3. OPERATING EXPERIENCE VARIANCES
Risk experience 438 816
Persistency (11) 174
Maintenance expenses 30 (16)
Working capital 354 288
Credit spread 89 -
Other 83 (181)
Total operating experience variances 983 1 081
4. OPERATING ASSUMPTION CHANGES
Risk experience 122 810
Persistency 54 (60)
Maintenance expenses 99 (3)
Modelling improvements and other 150 (259)
Total operating assumption changes 425 488
5. ECONOMIC ASSUMPTION CHANGES
Investment yields 552 (1 603)
Long-term asset mix assumptions, inflation gap change and other (67) (5)
Total economic assumption changes 485 (1 608)
6. TAX CHANGES
Risk Policy Fund (RPF) 674 -
Capital gains tax (inclusion rate) (257) -
Other 5 7
Total tax changes 422 7
7. RECONCILIATION OF GROWTH FROM COVERED BUSINESS
The embedded value earnings from covered business reconcile as
follows to the net result from financial services for the year:
Net results from financial services of covered business per
shareholders' fund income statement 4 717 4 484
Sanlam Personal Finance 3 680 3 446
Sanlam Emerging Markets 599 603
Sanlam UK 11 74
Sanlam Employee Benefits 427 361
Investment return on adjusted net worth (113) 1 699
Effect of capital gains tax inclusion rate increase on deferred tax liability (165) -
Embedded value earnings from covered business: value of in-force 3 034 854
Embedded value earnings from covered business 7 473 7 037
% %
8. ECONOMIC ASSUMPTIONS
Gross investment return, risk discount rate and inflation
SANLAM LIFE:
Point used on the relevant yield curve 9 year 9 year
Fixed-interest securities 9,2 10,1
Equities and offshore investments 12,7 13,6
Hedged equities 8,6 9,5
Property 10,2 11,1
Cash 8,2 9,1
Inflation rate 7,2 8,1
Risk discount rate 11,7 12,6
SANLAM INVESTMENTS AND PENSIONS:
Point used on the relevant yield curve 15 year 15 year
Fixed-interest securities 1,7 2,4
Equities and offshore investments 4,9 5,6
Hedged equities n/a n/a
Property 4,9 5,6
Cash 1,7 2,4
Inflation rate 3,4 3,2
Risk discount rate 5,4 6,1
SDM LIMITED:
Point used on the relevant yield curve 5 year 5 year
Fixed-interest securities 8,6 9,6
Equities and offshore investments 12,1 13,1
Hedged equities 7,6 n/a
Property 9,6 10,6
Cash 7,6 8,6
Inflation rate 6,6 7,6
Risk discount rate 11,1 12,1
BOTSWANA LIFE INSURANCE:
Fixed-interest securities 7,0 7,5
Equities and offshore investments 10,5 11,0
Hedged equities n/a n/a
Property 8,0 8,5
Cash 6,0 6,5
Inflation rate 4,0 4,5
Risk discount rate 10,5 11,0
Illiquidity premiums
Investment returns on non-participating and inflation-linked annuities as well as guarantee plans include assumed illiquidity premiums due to matching assets being
held to maturity.
Assumed illiquidity premiums generally amount to between 25bps and 60bps (2015: 25bps and 60bps) for non-participating annuities, between 25bps and 75bps (2015: 25bps
to 75bps) for inflation-linked annuities and capped at 120bps reflecting both illiquidity premiums and credit risk premiums (2015: 80bps for illiquidity premiums only)
for guarantee plans.
Summarised Group IFRS financial statements for the year ended 31 December 2016
Contents
Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Cash flow statement
Notes to the financial statements
STATEMENT OF FINANCIAL POSITION at 31 December 2016
2016 2015
R million R million
ASSETS
Equipment 881 892
Owner-occupied properties 1 171 1 329
Goodwill 3 596 3 895
Value of business acquired 1 606 1 943
Other intangible assets 575 487
Deferred acquisition costs 3 597 3 463
Long-term reinsurance assets 958 945
Investments 592 945 590 894
Properties 10 664 11 606
Equity-accounted investments 21 560 15 999
Equities and similar securities 176 944 189 214
Interest-bearing investments 170 584 165 261
Structured transactions 13 756 14 179
Investment funds 161 050 157 288
Cash, deposits and similar securities 38 387 37 347
Deferred tax 1 880 368
Assets of disposal groups classified as held for sale 663 540
General insurance technical assets 5 022 4 251
Working capital assets 59 665 65 501
Trade and other receivables 40 904 45 360
Cash, deposits and similar securities 18 761 20 141
Total assets 672 559 674 508
Equity and liabilities
Shareholders' fund 53 390 53 621
Non-controlling interest 5 696 6 571
Total equity 59 086 60 192
Long-term policy liabilities 483 748 480 910
Insurance contracts 177 675 183 972
Investment contracts 306 073 296 938
Term finance 6 466 5 637
Margin business 1 652 1 737
Other interest-bearing liabilities 4 814 3 900
Structured transactions liabilities 1 298 2 374
External investors in consolidated funds 55 486 53 641
Cell owners' interest 1 153 980
Deferred tax 2 069 2 180
General insurance technical provisions 14 557 13 523
Working capital liabilities 48 696 55 071
Trade and other payables 46 636 52 751
Provisions 332 319
Taxation 1 728 2 001
Total equity and liabilities 672 559 674 508
STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2016
2016 2015
R million R million
Net income 86 695 85 293
Financial services income 58 189 53 754
Reinsurance premiums paid (7 626) (6 831)
Reinsurance commission received 1 396 1 275
Investment income 28 413 25 241
Investment surpluses 9 150 13 942
Finance cost - margin business (106) (101)
Change in fair value of external investors liability (2 721) (1 987)
Net insurance and investment contract benefits and claims (49 329) (47 675)
Long-term insurance contract benefits (24 143) (15 247)
Long-term investment contract benefits (13 204) (21 736)
General insurance claims (17 423) (14 206)
Reinsurance claims received 5 441 3 514
Expenses (24 731) (23 024)
Sales remuneration (8 140) (7 269)
Administration costs (16 591) (15 755)
Impairments (340) (173)
Amortisation of intangibles (326) (382)
Net operating result 11 969 14 039
Equity-accounted earnings 2 095 1 310
Finance cost - other (460) (580)
Profit before tax 13 604 14 769
Taxation (3 026) (3 859)
Shareholders' fund (1 832) (3 078)
Policyholders' fund (1 194) (781)
Profit for the year 10 578 10 910
Other comprehensive income
Movement in foreign currency translation reserve (1) (4 367) 3 462
Other comprehensive income of equity accounted investments (248) (72)
Movement in cash flow hedge (469) 509
Employee benefits re-measurement loss (1) (54) (11)
Comprehensive income for the year 5 440 14 798
Allocation of comprehensive income:
Profit for the year 10 578 10 910
Shareholders' fund 9 623 9 391
Non-controlling interest 955 1 519
Comprehensive income for the year 5 440 14 798
Shareholders' fund 5 139 12 863
Non-controlling interest 301 1 935
(1) Comparative information has been restated to comply with amendments to IAS 1 as described in the basis of presentation.
Earnings attributable to shareholders of the company (cents):
Basic earnings per share 481,1 468,9
Diluted earnings per share 476,4 464,0
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016
2016 2015
R million R million
Shareholders' fund:
Balance at beginning of the year 53 621 46 037
Comprehensive income 5 139 12 863
Profit for the year 9 623 9 391
Other comprehensive income (1) (4 484) 3 472
Net acquisition of treasury shares (2) (690) (1 146)
Share-based payments 325 409
Dividends paid (3) (4 916) (4 526)
Acquisitions, disposals and other movements in interests (89) (16)
Balance at end of the year 53 390 53 621
Non-controlling interest:
Balance at beginning of the year 6 571 5 198
Comprehensive income 301 1 935
Profit for the year 955 1 519
Other comprehensive income(1) (654) 416
Net (acquisition)/ disposal of treasury shares(2) (41) (16)
Share-based payments 37 57
Dividends paid (3) (1 224) (891)
Acquisitions, disposals and other movements in interests 52 288
Balance at end of the year 5 696 6 571
Shareholders' fund 53 621 46 037
Non-controlling interest 6 571 5 198
Total equity at beginning of the year 60 192 51 235
Shareholders' fund 53 390 53 621
Non-controlling interest 5 696 6 571
Total equity at end of the year 59 086 60 192
(1) Other comprehensive income includes a realisation of cash flow hedging adjustments of R707 million (R509 million net of tax) in respect of the acquisition of
interests in Saham Finances, Shriram Life Insurance and Shriram General Insurance, as well as an additional cash flow hedging adjustment of R56 million
(R40 million net of tax) in respect of the cumulative fair value movements on the hedging instruments designated for funding of an additinal stake in
Saham Finances.
(2) Comprises movement in cost of shares held by subsidiaries, share incentives trusts and other consolidated funds as well as the effect of recognising certain
tax losses relating to policyholder funds recognised as deferred tax asset.
(3) A normal dividend of 245 cents per share declared during 2016 in respect of the 2015 financial year (2015: normal dividend of 225 cents per share)
CASH FLOW STATEMENT for the year ended 31 December 2016
2016 2015 (1)
R million R million
Net cash flow from operating activities 14 428 32 593
Net cash flow from investment activities (15 949) (16 291)
Net cash flow from financing activities 165 (1 477)
Net increase in cash and cash equivalents (1 356) 14 825
Net foreign exchange difference (69) 707
Cash and cash equivalents at beginning of the year 54 046 38 514
Cash and cash equivalents at end of the year 52 621 54 046
(1) Cash, deposits and similar securities disclosed in the statement of financial position include financial instruments of varying durations in line with the
definition of the Solvency Assessment and Management regime being implemented in South Africa and the operational management of liquidity by the Group. During 2016,
the Group reassessed the application of IAS7 to liquid instruments held to match certain five-year guaranteed investment contracts issued to policyholders by a
subsidiary. The application of IAS7 to these instruments was amended, resulting in a reallocation of R380 million between the net movement in cash and cash
equivalents and cash flows from investment activities for 2015.
Policyholder
Previously activities
R million reported adjustment Restated
Cash flow from operating activities 32 593 - 32 593
Cash flow from investment activities (15 911) (380) (16 291)
Cash flow from financing activities (1 477) - (1 477)
Net movement in cash and cash equivalents 15 205 (380) 14 825
Net foreign exchange difference 707 - 707
Cash and cash equivalents at beginning of the year 41 431 (2 917) 38 514
Cash and cash equivalents at the end of year 57 343 (3 297) 54 046
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
2016 2015
cents cents
EARNINGS PER SHARE
Basic earnings per share:
Headline earnings 493,0 464,4
Profit attributable to shareholders' fund 481,1 468,9
Diluted earnings per share:
Headline earnings 488,1 459,5
Profit attributable to shareholders' fund 476,4 464,0
R million R million
Analysis of earnings:
Profit attributable to shareholders' fund 9 623 9 391
Less: Net profit on disposal of subsidiaries and associated companies (31) (200)
Less: Equity-accounted non-headline earnings 3 -
Plus: Impairments 265 109
Headline earnings 9 860 9 300
million million
Number of shares:
Number of ordinary shares in issue 2 166,5 2 166,5
Less: Weighted Sanlam shares held by subsidiaries and consolidated investment funds (including policyholders) (166,3) (163,8)
Adjusted weighted average number of shares for basic earnings per share 2 000,2 2 002,7
Add: Total number of shares in respect of Sanlam Limited long-term incentive schemes
19,9 21,3
Adjusted weighted average number of shares for diluted earnings per share 2 020,1 2 024,0
2. RECONCILIATION OF SEGMENTAL INFORMATION
2016 2015
R million R million
Segment financial services income (per shareholders' fund information) 54 382 49 365
Sanlam Personal Finance (1) 16 421 15 103
Sanlam Emerging Markets 7 462 6 078
Sanlam Investments (1) 5 546 5 286
Santam 20 608 19 066
Sanlam Corporate 4 217 3 691
Group office and other (1) 128 141
IFRS adjustments 3 807 4 389
Total financial services income 58 189 53 754
Segment result (per shareholders' fund information after tax and non-controlling interest) 8 123 8 942
Sanlam Personal Finance 4 978 3 718
Sanlam Emerging Markets 1 517 1 445
Sanlam Investments 913 865
Santam 846 1 367
Sanlam Corporate 554 745
Group office and other (685) 802
Reverse Non-controlling interest included in segment result 955 1 519
Fund transfers 1 500 449
Total profit for the year 10 578 10 910
(1) Comparative informaton has been adjusted for the reallocation of business units from Sanlam Personal Finance and Sanlam Investments to the Sanlam Corporate cluster.
3. SHARE REPURCHASES
The Sanlam shareholders granted general authorities to the Group at the 2016 and 2015 annual general meetings to repurchase Sanlam shares in the market. The Group did
not acquire any shares in terms of these general authorities.
4. CONTINGENT LIABILITIES
Shareholders are referred to the contingent liabilities disclosure in the 2016 annual financial statement. The circumstances surrounding the contingent liabilities remain
materially unchanged.
5. SUBSEQUENT EVENTS
No material facts or circumstances have arisen between the date of the statement of financial position and this report which materially affects the financial position
of the Sanlam Limited Group at 31 December 2016 as reflected in these financial statements.
6. FAIR VALUE DISCLOSURES
Determination of fair value and fair value hierarchy
Below follows required disclosure of fair value measurements, using a three-level fair value hierarchy that reflects the significance of the inputs used in determining
the measurements. It should be noted that these disclosure only cover assets and liabilities measured at fair value.
Included in level 1 category are assets and liabilities that are measured by reference to unadjusted, quoted prices in an active market for identical assets and liabilities.
Included in level 2 category are assets and liabilities measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices). For example, instruments measured using a valuation technique based on assumptions that are supported
by prices from observable current market transactions are categorised as level 2.
Assets and liabilities measured using inputs that are not based on observable market data are categorised as level 3.
R million
Recurring fair value measurements
31 December 2016 Level 1 Level 2 Level 3 Total
Properties - - 10 664 10 664
Properties held for sale - 655 - 655
Equities and similar securities 174 452 2 072 420 176 944
Interest-bearing investments 48 621 120 570 392 169 583
Structured transactions 6 502 7 254 - 13 756
Investment funds 143 374 17 209 467 161 050
Trading account assets 3 661 19 288 - 22 949
Cash, deposits and similar securities 22 792 15 595 - 38 387
Investment in joint ventures - - 423 423
Total assets at fair value 399 402 182 643 12 366 594 411
Investment contract liabilities - 303 761 2 312 306 073
Term finance - 4 300 201 4 501
Structured transactions liabilities - 1 298 - 1 298
Trading account liabilities 1 828 21 170 - 22 998
External investors in consolidated funds 54 389 493 604 55 486
Total liabilities at fair value 56 217 331 022 3 117 390 356
R million
Recurring fair value measurements
31 December 2015 Level 1 Level 2 Level 3 Total
Properties - - 11 606 11 606
Equities and similar securities 186 222 2 562 430 189 214
Interest-bearing investments 72 478 91 049 490 164 017
Structured transactions 6 391 7 788 - 14 179
Investment funds 132 186 24 595 507 157 288
Trading account assets 5 549 24 243 - 29 792
Cash, deposits and similar securities 25 769 11 573 - 37 342
Total assets at fair value 428 595 161 810 13 033 603 438
Investment contract liabilities - 293 760 3 178 296 938
Term finance 2 937 104 359 3 400
Structured transactions liabilities - 2 374 - 2 374
Trading account liabilities 170 33 416 - 33 586
External investors in consolidated funds 53 437 204 - 53 641
Total liabilities at fair value 56 544 329 858 3 537 389 939
R million
Reconciliation of movements in level 3 assets and
liabilities measured at fair value
31 December 2016
Assets Properties Equities Interest Investment Investment
and similar bearing funds in joint Total
securities investments ventures Assets
Balance at 1 January 2016 11 606 430 490 507 - 13 033
Total gains/(loss) in statement of comprehensive income 557 36 (114) (33) - 446
Acquisitions 1 050 54 50 - 423 1 577
Disposals (1 014) (83) - (7) - (1 104)
Foreign exchange movements (961) (17) (34) - - (1 012)
Reclassified as disposal groups classified as held for sale (655) - - - - (655)
Transfer from owner-occupied properties 81 - - - - 81
Balance at 31 December 2016 10 664 420 392 467 423 12 366
31 December 2015
Balance at 1 January 2015 10 333 395 396 452 - 11 576
Total gains in statement of comprehensive income 42 23 41 60 - 166
Acquisitions 400 64 - 2 - 466
Disposals (207) (70) (1) (7) - (285)
Foreign exchange movements 1 049 18 54 - - 1 121
Transfer to owner-occupied property (11) - - - - (11)
Balance at 31 December 2015 11 606 430 490 507 - 13 033
Liabilities
External
Investment investors in
contract Term consolidated Total
liabilities finance funds liabilities
R million
31 December 2016
Balance at 1 January 2016 3 178 359 - 3 537
Total gains in statement of comprehensive income (84) - (67) (151)
Acquisitions 201 - - 201
Disposals (335) - - (335)
Foreign exchange movements (648) (24) - (672)
Settlements - (134) - (134)
Transfers in (1) - - 671 671
Balance at 31 December 2016 2 312 201 604 3 117
31 December 2015
Balance at 1 January 2015 2 552 347 - 2 899
Total loss in statement of comprehensive income 152 21 - 173
Acquisitions 73 - - 73
Disposals (193) (101) - (294)
Foreign exchange movements 594 92 - 686
Balance at 31 December 2015 3 178 359 - 3 537
(1) The market for the shares to which the external investors in consolidated funds relate became inactive during the year.
Gains and losses (realised and unrealised) included in profit and loss
R million 2016 2015
Total gains or losses included in profit or loss for the period 597 (7)
Total unrealised gains or losses included in profit or loss for
the period for assets held at the end of the reporting period 515 (47)
Transfers between categories
Assets
Cash,
Equities Interest- deposits
and similar bearing Structured Investment and similar Total
R million securities investments transactions funds securities assets
2016
Transfer from level 1 to level 2 - 15 521 162 - 350 16 033
Transfer from level 2 to level 1 - 10 - 6 - 16
2015
Transfer from level 1 to level 2 - 2 603 - - 1 331 3 934
Transfer from level 2 to level 1 - 313 142 469 153 1 077
Liabilities
R million Term finance
2016
Transfer from level 1 to level 2 3 145
Management have re-evaluated their determination of what constitutes an inactive market to a more conservative approach. As a result, certain bonds are
now considered to be classified as level 2 valuations.
Valuation techniques used in determining the fair value of assets and liabilities
Instrument Applicable Valuation Main Significant
to level basis assumptions Unobservable input
Properties 2 and 3 Recently contracted Bond and interbank Capitalisation rate
prices swap interest rate Discount rate
Discounted cash flow curve, Cost of Capital,
model (DCF), Consumer price index
Earnings multiple
Equities and similar securities 2 and 3 DCF, Earnings Bond and interbank Cost of Capital
multiple swap interest rate Earnings multiple
curve, Cost of Capital,
Consumer price index
Interest bearing investments (including insurance policies) 2 and 3 DCF, Earnings Bond and interbank Earnings multiple
multiple, Quoted swap interest rate
put/surrender price by curve, Cost of Capital,
issuer Consumer price index
Trading account assets and 2 DCF Forward rate n/a
liabilities Credit risk spread
Liquidity spread
Investment contract liabilities and Investment funds 2 and 3 Current unit price of Bond and interbank Earnings Multiple
underlying unitised swap interest rate
asset, multiplied by the curve, Cost of capital
number of units held Consumer price index
DCF Bond interest rate
Earnings multiple curve
Term finance 2 and 3 DCF Bond and forward rate Liquidity spread
Credit ratings of issuer
Liquidity spread
Agreement interest curves
Structured transactions assets 2 Option pricing models Bond and interbank n/a
and liabilities DCF curve swap interest rate
Forward equity and
currency rates
Volatility risk
adjustments
External investors in consolidated funds 2 and 3 Current unit price
of underlying unitised Based on underlying Based on underlying
asset,multiplied by the assets as discussed assets as discussed
number of units held above above
Cash, deposits and similar securities 2 Mark-to-market Bond and interbank n/a
Yield curve swap interest rate curve
Investment in joint ventures 3 DCF Bond and interbank Cost of Capital
swap interest rate curve,
Cost of Capital,
Consumer price index
Sensitivity of level 3 assets and liabilities measured at fair value to changes in key assumptions
Assets
Effect of Effect of
Effect of Effect of a 1% a 1%
a 10% a 10% increase decrease
increase decrease in base/ in base/
Carrying in risk in risk Carrying capitalisation capitalisation
R million amount adjustments adjustments amount (1) rate rate
Properties
2016
Cash flow risk adjustments 10 664 (1 066) 1 066 - - -
Base rate - - - 7 670 (290) 310
Capitalisation rate - - - 7 670 (340) 411
2015
Cash flow risk adjustments 11 606 (1 161) 1 161 - - -
Base rate - - - 8 371 (293) 314
Capitalisation rate - - - 8 371 (350) 427
Effect of Effect of Effect of Effect of
a 10% a 10% a 1% a 1%
Carrying increase decrease Carrying increase in decrease in
R million amount in multiple in multiple amount (3) discount rate discount rate
Other Investments
2016
Equities and similar securities (2) 420 42 (42) - - -
Interest-bearing investments 361 36 (36) 31 (1) 1
Investment funds (2) 467 47 (47) - - -
Investment in joint ventures - - - 423 (29) 32
Total 1 248 125 (125) 454 (30) 33
2015
Equities and similar securities 399 40 (40) 31 (6) 5
Interest-bearing investments 490 49 (49) - - -
Investment funds 507 51 (51) - - -
Total 1 396 140 (140) 31 (6) 5
Liabilities
Effect of Effect of
Carrying a 10% a 10%
amount increase decrease
R million in value in value
2016
Investment contract liabilities (2) 2 312 231 (231)
Term finance 201 20 (20)
External investors in consolidated funds 604 60 (60)
Total Liabilities 3 117 311 (311)
2015
Investment contract liabilities 3 178 318 (318)
Term finance 359 36 (36)
Total Liabilities 3 537 354 (354)
(1) Investment Properties comprise a majority of Sanlam Life properties valued using capitalisation and discount rates, with sensitivities
based on these two unobservable inputs.
(2) Represents mainly private equity investments valued on earnings multiple, with sensitivities based on the full valuation.
(3) Represents mainly instruments valued on a discounted cash flow basis, with sensitivities based on changes in the discount rate.
7. BUSINESS COMBINATIONS
There were no material business combinations during the year.
Administration
Group Company secretary Registered name: Sanlam Limited
Sana-Ullah Bray (Registration number: 1959/001562/06)
Tax reference number: 9536/346/84/5
Registered office JSE share code (primary listing): SLM
2 Strand Road, Bellville 7530, South Africa NSX share code: SLA
Telephone +27 (0)21 947-9111 ISIN: ZAE000070660
Fax +27 (0)21 947-3670 Incorporated in South Africa
Transfer secretaries:
Postal address Computershare Investor Services (Proprietary) Limited
PO Box 1, Sanlamhof 7532, South Africa (Registration number 2004/003647/07)
70 Marshall Street, Johannesburg 2001,
South Africa
PO Box 61051, Marshalltown 2107, South Africa
Tel +27 (0)11 370-5000
Internet address Fax +27 (0)11 688-5200
www.sanlam.co.za
Directors: DK Smith (Chairman), PT Motsepe (Deputy Chairman), Ian Kirk (1) (Group Chief Executive), MM Bakane-Tuoane, CB Booth(2), AD Botha, MV Moosa, TI Mvusi(1), SA
Nkosi, K Nonduma, P Rademeyer, Y Ramiah(1), RV Simelane, CG Swanepoel, J van Zyl, HC Werth(3), PL Zim
(1) Executive
(2) British
(3) Appointed 1 October 2016
Bellville
9 March 2017
Sponsor
Deutsche Securities (SA) Proprietary Limited
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