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SANLAM LIMITED - Operational Update - December 2017

Release Date: 06/12/2017 14:00
Code(s): SLM     PDF:  
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Operational Update - December 2017

Sanlam Limited
(Incorporated in the Republic of South Africa)
Registration number 1959/001562/06
JSE share code: SLM
NSX share code: SLA
ISIN: ZAE000070660
(“Sanlam” or “the Group”)

Operational Update – December 2017

The Group achieved a solid operational performance for the first 10 months of the 2017
financial year. Particularly pleasing is sustained strong growth in the value of new life
business (VNB) and an improvement in operational earnings growth.

The operating environment remained challenging, in particular in South Africa, Namibia,
Botswana, Angola and Nigeria. A stronger average Rand exchange rate during the first
10 months of 2017 compared to the same period in 2016 also had a negative impact on
the translated Rand results of the non-South African operations. These conditions were
consistent with the first-half 2017 experience and as a result, the underlying new
business performance trends were largely in line with those reported for the six months
ended 30 June 2017.

Despite persistent political and policy uncertainty in South Africa, the local equity
market rallied since the end of June 2017 on the back of dual listed and blue chip
stocks, supporting assets under management and fund-based fee income in the second
half of the year. Due to the lag effect on average assets under management, the higher
market levels did not have a significant impact on the October 2017 year-to-date
results.

Highlights

-   Net result from financial services up 7%
-   Normalised headline earnings up 22%
-   New business volumes down 2%
-   Net fund inflows of R32 billion, in line with 2016
-   Net value of new life business (VNB) up 13%
-   Net VNB margin of 2,76%, up from 2,52% in 2016
-   Sanlam Life Capital Adequacy Requirement (CAR) cover of 5,6 times at 30
    September 2017
-   Sanlam Life Solvency Assessment and Management (SAM) cover ratio of 2,8 times
    at 30 September 2017; Group at 2,1 times

Results

The constant currency information included in this operational update has been
presented to illustrate the impact of changes in currency exchange rates and is the
responsibility of the Group’s board of directors. It is presented for illustrative purposes
only and because of its nature may not fairly present the company’s financial position,                                                                                
changes in equity, result of operations or cash flows. All references to constant
currency information are based on the translation of foreign currency results for the 10
months to 31 October 2017 at the weighted average exchange rate for the 10 months to
31 October 2016, which is also applied for the translation of comparative information.
The major currencies contributing to the exchange rate movements are the British
Pound, Indian Rupee, Botswana Pula, Moroccan Dirham and the Nigerian Naira
(negative movements in the table below indicate a strengthening in the Rand exchange
rate):


                               Average Rand           Average Rand        Change in average
                           exchange rate – 10     exchange rate – 10          exchange rate
                            months to October      months to October
    Currency                             2017                   2016
    British Pound                       16.95                  20.24                  -16.3%
    Indian Rupee                        0.203                  0.222                   -8.3%
    Botswana Pula                       1.295                  1.378                   -6.0%
    Moroccan Dirham                     1.374                  1.507                   -8.8%
    Nigeria Naira                      0.0406                 0.0642                   -1.8%

The constant currency information has not been reviewed and reported on by Sanlam’s
external auditors.

The salient features of the Group’s performance for the 10 months to 31 October 2017
are:

-        Net VNB increased by 13% on the first 10 months of 2016 (17% in constant
         currency). Overall VNB margins improved by some 20 basis points, in line with the
         change in mix to more profitable business. The underlying trends reported for the
         first half of 2017 continued for the 10 months to October 2017.

-        New business volumes of R190 billion, down 2% on the first 10 months of the
         2016 financial year, largely due to lower lump-sum inflows at Glacier and the
         Botswana asset management business.

     o    Robust growth in Sanlam Personal Finance’s more profitable recurring premium
          risk business continued, in both the entry-level and middle-income market
          segments. Investor confidence, however, remained under pressure in the mass
          affluent segment in the uncertain economic and political environment, with
          discretionary and life business sales in this market exhibiting similar trends to the
          first half of 2017. Overall new business volumes at Sanlam Personal Finance
          declined by 7% as a result.

          Sanlam Sky new business sales increased by 12% on the comparable 2016
          period, with the large new scheme written by Safrican in the first half of the year
          having a diminishing impact on growth as the year progresses. The change in
          mix towards risk business persisted, contributing to 15% growth in Sanlam Sky’s
          individual life risk business sales. Sales of savings products declined by 38%
          following our deliberate decision to scale back on selling unprofitable savings
          products. Overall individual life new recurring business increased by 7%. Group                                                                                    
          recurring premium new business increased by 29%, supported by the large new
          Safrican scheme written in the first half of the year, as well as the biennial
          renewal of the ZCC scheme.

          New business volumes in the middle-income market increased by 3%. Solid
          demand for recurring premium risk business (up 10%) and retirement annuities
          (up 11%) contributed to overall growth of 6% in recurring premium sales.
          Demand for traditional endowment savings products and ad hoc premium
          increases remained under pressure. Overall single premium growth of some 2%
          reflected a change in mix to the more profitable guaranteed products, benefiting
          growth in VNB.

          As highlighted above, Glacier new business volumes remained under pressure
          and declined by 11%, in line with the first-half 2017 performance.

      o   Sanlam Emerging Markets recorded an overall decline in new business volumes
          of 3%. The net positive impact of structural activity (Saham Finances, direct
          stakes in Shriram Life and General Insurance, Sanlam Investments East Africa
          and the disposal of the Group’s stake in the Enterprise Group) was more than
          offset by the base effect of the R4.6 billion Botswana Public Officers Pension
          Fund (BPOPF) mandate received in the comparable 2016 period. Excluding
          these one-off impacts, new business volumes increased by 17% (25% in
          constant currency). Saham Finances slightly lagged the business plan due to the
          economic pressure in Angola and Nigeria. Corrective actions at the Malaysian
          operations are not yet reflecting in top-line growth. Underlying trends within the
          other Emerging Markets businesses were in line with the first-half 2017 results.

     o   Sanlam Investments continued to attract healthy institutional fund flows with
         overall growth in new fund inflows in the SA asset management business broadly
         in line with its performance for the first half of 2017. The Wealth Management
         and International businesses gained traction, contributing to an overall
         improvement in the cluster’s new business growth from an 8% decline at the end
         of June 2017 to a decline of only 2% for the 10 months to October 2017.

     o    Sanlam Employee Benefits achieved pleasing growth of 11% in its new business
         contribution. Both recurring premium risk business and single premium inflows
         recorded good growth on the first 10 months of 2016.

     o   Overall net fund inflows of R32 billion were in line with the comparable 2016
         results, a resilient performance in the challenging environment. Sanlam
         Investments achieved a threefold increase in net inflows, which was offset by
         lower inflows at Sanlam Personal Finance (due to the lower Glacier single
         premium inflows) and Sanlam Emerging Markets (attributable to the base effect
         of the BPOPF inflow in Botswana during 2016).

     o   Persistency experience remained broadly in line with the first-half 2017 results.
         Should the poor economic conditions in South Africa persist, it may put pressure
         on this key profit driver.

-   Net result from financial services up 7% on the first 10 months of the 2016 financial
    year (up 10% in constant currency). Improved contributions from Sanlam Personal
    Finance, Sanlam Emerging Markets and Sanlam Investments supported the overall
    acceleration in growth compared to the six months ended 30 June 2017.

    o   The strong growth in risk business at Sanlam Sky and Individual Life generated a
        significant increase in the new business strain recognised in terms of the Group’s
        prudent accounting policies. This limited growth in Sanlam Personal Finance’s
        net result from financial services to 4%. Excluding the increase in new business
        strain, commendable growth of some 9% was achieved on the first 10 months of
        2016.

    o   Sanlam Emerging Markets’ net result from financial services increased by 22%
        (35% in constant currency), supported by structural activity. Organic growth in
        constant currency of 16% was achieved. The demonetisation-related bad debt
        provision of R110 million (after tax and allowing for Sanlam Emerging Markets’
        effective interest) recognised in the first half of the year in Shriram Capital largely
        reversed in the second half as the arrears position started to improve. The
        impact of the structural growth will moderate towards the end of the year and
        growth is commensurately not expected to be sustained at the current level for
        the full 2017 financial year. Saham Finances’ operating earnings tracked the
        business plan despite the pressure in Angola and Nigeria.

    o   Sanlam Investments’ contribution to net result from financial services increased
        by 3% (up 8% in constant currency). Fee income in the South African asset and
        wealth management businesses remained under pressure from lacklustre growth
        in average assets under management, as the improved equity market
        performance since the end of June 2017 had only a subdued impact for the 10-
        month period to October 2017. Investor risk aversion also continued to affect
        brokerage volumes and related income at Sanlam Private Wealth. The benefits
        of the restructuring at Sanlam UK during 2016 was still evident in strong growth
        in international earnings. Capital management earnings declined from a high
        comparative base in 2016.

    o   Santam’s net underwriting margin for the 10-month period was within the target
        range of 4% to 8% despite a number of catastrophe claims in 2017, reflecting the
        benefits of its well-diversified book of business and reinsurance strategy. Further
        weather-related large claims since June 2017 were partly offset by increased
        allowance for reinsurance recoveries in respect of the first-half 2017
        catastrophes. A severe winter storm in June 2017 caused widespread wind and
        water damage in Cape Town, while strong winds from the same storm also drove
        wildfires in the Knysna and Plettenberg Bay areas that resulted in significant
        property damage. These were treated as separate events in Santam’s 2017
        interim results. Clarity has now been provided that it is one event for reinsurance
        purposes, increasing the allowance for reinsurance recoveries by some R70
        million.

    o   Sanlam Employee Benefits and Sanlam Healthcare achieved good growth in net
        result from financial services of 14%. The growth rate normalised somewhat
        since the end of June 2017, commensurate with the higher comparative base in                                                                                    
        the second half of 2016. Risk claims experience at Sanlam Employee Benefits
        remained above longer term trends.

-   Normalised headline earnings per share increased by 22% compared to the first 10
    months of the 2016 financial year. A relatively stronger investment market
    performance in 2017 to date supported investment return earned on the capital
    base. Investment market returns up to the end of 2017 can have an impact on the
    sustainability of this level of growth.

-   Diluted headline earnings per share increased by 2%. The lower level of growth in
    diluted headline earnings per share compared to normalised headline earnings is
    attributable to the one-off deferred tax asset of R1.3 billion raised in 2016 following
    the introduction of the Risk Policy Fund in South Africa for tax purposes. This
    significantly increased the comparative earnings base.

Capital

All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory
capital covered its CAR under the current solvency regime 5.6 times on 30 September
2017. Under the new SAM regime being implemented in South Africa, Sanlam Life
Insurance’s Solvency Capital Requirement cover ratio amounted to 2.8 times on 30
September 2017, while the Sanlam Group cover ratio was 2.1 times.

Capital deployment since the end of June 2017 was limited to the acquisition of Lion
Assurance Company, a general insurer in Uganda, and the Group following its rights in
terms of the Afrocentric rights issue for a combined outlay of some R100 million.
Available discretionary capital at 31 October 2017 was therefore largely unchanged
from the 30 June 2017 position. A combined total of some R400 million will be utilised
for the Absa Consultants and Actuaries and EasyEquities transactions.

Outlook

We expect that the economic and operating environment will remain challenging for the
remainder of 2017 with a resulting impact on the Group’s key operational performance
indicators. Persistent investor risk aversion, average investment market levels, the
relative strength of the Rand exchange rate and the level of long-term interest rates are
key factors that may have an impact on the growth in net result from financial services,
normalised headline earnings and Group Equity Value to be reported for the full 2017
financial year. The outcome of the African National Congress’ national elective
conference in December 2017 can potentially result in currency, investment market and
interest rate volatility. The Group is, however, well-positioned to weather these
headwinds and to continue delivering value for our shareholders and other
stakeholders.

The information in this operational update has not been reviewed and reported on by
Sanlam's external auditors. Sanlam’s annual financial results for the year ending 31
December 2017 are due to be released on 8 March 2018. Shareholders are advised
that this is not a trading statement as per paragraph 3.4(b) of the JSE Limited Listings
Requirements.

                                                                                
Conference call

A conference call for analysts, investors and the media will take place at 17h00 (South
African time) today. Investors and media who wish to participate in the conference call
should register as indicated below.

Audio dial-in facility
A toll free dial-in facility will be available. Please register at
http://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumb
er=9103126&linkSecurityString=27d8aa5fa for the call. For assistance, please contact
Sanlam Investors Relations at +2721 947 8455.

Recorded playback will be available for three days after the conference call.

Access Numbers for Recorded Playback:

Access code for recorded playback: 19032#

 South Africa             Toll        011 305 2030
 USA and Canada           Toll-free   1 855 481 5363
 UK                       Toll-free   0 808 234 6771
 Other Countries          Toll        +27 11 305 2030

For further information on Sanlam, please visit our website at www.sanlam.com

Cape Town
6 December 2017

Sponsor
Deutsche Securities (SA) Proprietary Limited                                                                              

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