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SLM
SLM
SLM - Sanlam Group - Interim results for the six months ended 30 June 2007
Sanlam Group
Registered name: Sanlam Limited
(Registration number 1959/001562/06)
JSE share code: SLM
NSX share code: SLA
ISIN number: ZAE000070660
Interim results for the six months ended 30 June 2007
Contents
Overview
Key features
Salient results
Executive review
Comments on the interim results
Interim financial statements
Accounting policies and actuarial basis
External audit review
Financial information for the shareholders` fund
Shareholders` fund balance sheet at net asset value
Analysis of shareholders` fund at fair value
Shareholders` fund income statement
Notes to the shareholders` fund information
Group financial statements
Group balance sheet
Group income statement
Group statement of changes in equity
Group cash flow statement
Notes to the financial statements
Group embedded value results
Administration
Sanlam Group Interim Results June 2007
Key features
Earnings
- Net result from financial services up 24%
- Core earnings per share up 27%
- Normalised headline earnings per share up 18%
Business volumes
- Total new business volumes up 26% to R49,8 billion
- Net fund inflows of R1,3 billion
Embedded Value
- Embedded value per share of R21,88
- Annualised return on embedded value per share of 22,7%
- Value of new life insurance business up 51% to R260 million
- Life new business margin of 2,3%
Capital management
- 2,7% of issued shares bought back since year-end for R1,4 billion
- Discretionary capital of R5,8 billion at 30 June 2007
SALIENT RESULTS
for the six months ended 30 June 2007 2007 2006
SANLAM LIMITED GROUP
Earnings:
Net result from financial services R million 1 448 1 165 24%
Core earnings (1) R million 1 962 1 582 24%
Normalised headline earnings (2) R million 3 126 2 745 14%
Headline earnings R million 2 745 3 130 -12%
Net result from financial
services per share cents 65,5 51,5 27%
Core earnings per share (1) cents 88,8 69,9 27%
Normalised headline
earnings per share (2) cents 135,9 115,4 18%
Headline earnings per share cents 124,2 138,4 -10%
Group administration cost ratio (3) % 26,3 25,7
Group operating margin (4) % 21,4 18,7
Gross business volumes:
New business volumes R million 49 820 39 581 26%
Net fund flows R million 1 250 8 272
Value of new life insurance business
Value of new life insurance business R million 260 172 51%
Life insurance PVNBP (5) R million 11 214 9 485 18%
Life new business margin (6) % 2,3 1,8
Value of new non-life linked and
loan business R million 31 28 11%
Embedded value:
Embedded value (7) R million 48 626 46 811 4%
Embedded value per share (7) cents 2 188 2 047 7%
Annualised growth from life
insurance business (7) % 26,1 30,7
Annualised return on embedded
value per share (7),(8) % 22,7 31,0
SANLAM LIFE INSURANCE LIMITED
Shareholders` fund (7) R million 35 086 34 197
Capital adequacy requirements
(CAR) (7) R million 6 875 5 800
CAR covered by prudential capital (7) times 3,7 4,4
Notes
(1) Core earnings = net result from financial services and net investment
income (including dividends received from non-operating associates).
(2) Normalised headline earnings = core earnings, net investment surpluses,
secondary tax on companies and equity-accounted headline earnings less dividends
received from non-operating associates, but excluding fund transfers.
(3) Administration costs as a percentage of income after sales remuneration.
(4) Result from financial services as a percentage of income after sales
remuneration.
(5) PVNBP = present value of new business premiums and is equal to the present
value of new recurring premiums plus single premiums.
(6) Life new business margin = value of new business as a percentage of life
insurance PVNBP.
(7) Comparative figures are as at 31 December 2006.
(8) Growth in embedded value per share (with dividends paid, capital movements
and cost of treasury shares acquired reversed) as a percentage of embedded value
per share at the beginning of the period.
EXECUTIVE REVIEW
Overview
Sanlam`s strong operational performance in 2006 continued during the first six
months of 2007, the result of sustained progress in the execution of the Group`s
strategy, assisted by ongoing favourable market conditions. We successfully
delivered on our primary objective to maximise shareholder value. Embedded value
per share increased from 2 047 cents per share at the end of December 2006 to 2
188 cents per share at the end of June 2007, representing an annualised return
on embedded value per share for the six months of 22,7%.
The business environment for all our operations remained competitive during the
first half of 2007. This was evident in challenging underwriting conditions and
demanding competitive product pricing. Despite these challenges the Group
delivered sound overall results.
Strong growth in earnings was achieved, with the net result from financial
services and core earnings both increasing by 24% on the first half of 2006. All
operational businesses recorded satisfactory growth in earnings, with sterling
performances by Santam and Sanlam Capital Markets in particular. Headline
earnings are 12% lower than in 2006, mainly due to International Financial
Reporting Standards` (IFRS) prescribed accounting treatment of the policyholders
fund`s investments in Sanlam shares and Group subsidiaries, which has the impact
of decreasing headline earnings as the share prices of these investments
increase. Normalised headline earnings, which exclude the IFRS fund transfers
recognised in respect of these shares, increased by 14%. The lower level of
growth in headline earnings compared to core earnings is in line with
expectations, due to the combined effect of lower equity returns, capital
utilised to buy back Sanlam shares and a move towards a more conservative asset
mix for the capital portfolio.
Total new business volumes of R50 billion for the first half of 2007 are 26%
higher than in the comparable 2006 period. Individual life business growth of
17% in a very competitive environment is particularly satisfying. Sanlam
Personal Finance recorded a commendable 14% increase in new life business. After
a slow start in 2006, Sanlam Developing Markets delivered on expectations and
achieved excellent first-half results in 2007, contributing more than R1 billion
in new life business flows, an increase of 36% compared to the same period in
2006. Institutional life business decreased by 28% during the first half of
2007, notwithstanding a more than doubling in recurring group life business.
This performance is a reflection of the prevailing market conditions, as well as
the effect of some internal focus during the restructuring and integration of
Sanlam Employee Benefits into the Sanlam Institutional Cluster. Sanlam
Investments experienced another period of strong new business flows,
contributing to a 35% increase in new investment inflows. However, some major
institutional fund withdrawals, mostly due to changes in clients` investment
strategy as well as the closure of the SCI Dividend Income Fund following
changes in tax legislation, limited net investment inflows to R1,5 billion.
The value of new life business of R260 million is 51% up on the comparable 2006
period. All life businesses contributed to this performance. Sanlam Developing
Markets` strong new business performance, in particular, resulted in a 110%
improvement in its value of new life business. The new life business margin
improved from 1,8% in the first half of 2006 to 2,3% in 2007.
Delivering on strategy
The Sanlam Board and management remain committed to their ongoing strategy of
transforming the Group into a well-diversified financial services organisation.
Good progress has been made to date in this regard as is evident in the
increasing contribution by non-traditional client solutions.
Our focus on distribution capacity and reach is reflected in the strong new
business volumes achieved during the first half of 2007. Sanlam Developing
Markets succeeded in expanding its distribution reach in South Africa as
alternative distribution channels are increasingly complementing the business
volumes of the traditional adviser and broker channels. Shriram Life, our
fledging life insurance business in India, continues to perform to plan, albeit
still on a relatively low scale. Its accredited life agent force totalled more
than 11 000 at the end of June 2007. The focus remains on activating and
improving the productivity of these agents.
Operational efficiency has been well maintained across the Group. The
administration cost ratio increased slightly from 25,7% in 2006 to 26,3% in
2007. This can mainly be ascribed to some planned and necessary expansion in
Sanlam Investments` operational infrastructure following the accelerated growth
achieved over the past few years.
The effective management of the Group`s capital base is a key component of our
strategy to maximise shareholder value. Group businesses are each allocated an
optimal level of capital and are measured against appropriate return hurdles.
Capital in excess of the Group`s immediate operational requirements is
separately ring-fenced as discretionary capital. The level of discretionary
capital decreased from some R6,2 billion at the end of the 2006 financial year
to R5,8 billion at the end of June 2007. This is essentially due to the net
effect of market value appreciation and some R1,4 billion that was utilised
during the first six months of 2007 to repurchase 61,8 million Sanlam shares.
The majority of these shares were acquired in the open market but also includes
17,9 million shares acquired in the voluntary tender offer. The aggregate amount
of capital returned to shareholders since the start of 2005 now amounts to R7,5
billion (524,3 million shares or 18,9% of Sanlam`s issued share capital as at
the beginning of 2005).
In the application of discretionary capital the priority remains to find
investment opportunities that complement Group strategy and will enhance
shareholder value. A number of relatively small opportunities are currently
being considered and evaluated. At the same time we will continue the buy back
of Sanlam shares in the open market in periods of relative market weakness. Any
possible capital reduction through a special dividend will only be considered
once the value-adding potential of the above options has been exhausted. The
future taxation applicable to dividends will also be an important consideration.
In the interim, a strong capital position should stand us in good stead in the
current uncertain and volatile financial markets.
We have indicated our intention before to augment our financial services
offering with a quality health management solution. At the end of July 2007 we
announced that Sanlam has reached an agreement with the Trustees of the Bestmed
medical scheme to acquire the scheme`s administration and managed healthcare
operations, subject to certain suspensive conditions. Membership of the Bestmed
medical scheme will be available through Sanlam`s existing distribution network,
thereby expanding the solution and value offering to our clients.
Towards the end of 2006 we announced our intention to pursue the acquisition of
the minority shareholders` interests in Santam, subject to it being achievable
on terms that would be value enhancing for Sanlam shareholders. In subsequent
discussions with minority shareholders it became evident that a successful offer
would not have been possible on that basis. Sanlam also did not receive any
acceptances of its standby offer made in Santam`s share buy-back scheme. Some 3
million shares were however acquired in the open market up to June 2007 to
minimise the dilution in Sanlam`s effective shareholding post the implementation
of Santam`s Black Economic Empowerment transaction. The Boards of Sanlam and
Santam agreed to continue to explore areas of synergy and improved efficiency
through closer cooperation between the two entities.
It is a priority and business imperative for the Group to participate in the
economic and social transformation in South Africa. We are committed to and are
making satisfactory progress in achieving the specific targets agreed to in the
Financial Sector Charter. In respect of the promotion of black share ownership,
our Broad-based Employee Share Plan was extended during 2007 to include some 900
additional employees that do not participate in existing incentive schemes.
Sanlam also effectively contributed some R200 million to the benefit of the
participants in the Santam Black Economic Empowerment Scheme through the sale
into the scheme of 6,7 million Santam shares at a substantial discount to the
prevailing market price.
Looking ahead
The success of the Group`s strategic direction and the efforts of its
management, staff and intermediaries are evident in continued strong financial
performance during the first six months of 2007. We will remain focussed on
further enhancing value, not only for shareholders but for all our stakeholders.
Market conditions in general, and in particular risk-underwriting conditions and
the effect of the current volatility and relative weakness in debt and equity
markets, will have a significant impact on our ability to repeat the performance
of the first six months during the second half of the year.
COMMENTS ON THE INTERIM RESULTS
Introduction
The Sanlam group interim results for the six months to 30 June 2007 are
presented based on and in compliance with IFRS. The Group`s external auditors,
Ernst & Young Inc., have reviewed these results.
Continuing impact of IFRS
IFRS have been developed as general-purpose accounting standards to be applied
across all industries without exemption for any unique industry or country-
specific circumstances. While we support the objective of IFRS to achieve
consistency in financial reporting, we are concerned that the indiscriminate
application of IFRS does not necessarily present the economic substance of
transactions or the reality and performance of the reporting entity, to the
potential detriment of the users of the financial statements.
The accounting treatment of investments in Sanlam shares and Group subsidiaries
held by the policyholders` fund is an example where IFRS have a material
disclosure but non-economical impact on the Group`s results.
In terms of IFRS, the policyholders` fund`s investments in Sanlam shares and
Group subsidiaries are not reflected as equity investments at fair value in the
Sanlam balance sheet, but deducted in full from equity on consolidation (in
respect of Sanlam shares) or reflected at net asset value (in respect of
subsidiaries). The valuation of the related policy liabilities however includes
the fair value of these shares, resulting in a mismatch between policy
liabilities and policyholder investments, with a consequential impact on the
Group`s earnings through a transfer between policyholders` and shareholders`
funds (refer Headline earnings section below). For the calculation of basic and
diluted earnings per share in terms of IFRS, the number of shares in issue is
reduced by the Sanlam shares held by the policyholders` fund. This is not a
true representation of the earnings attributable to the Group`s shareholders.
This is specifically evident in instances where the share prices and/or the
number of shares held by the policyholders` fund varies significantly, which
results in losses being recognised in the IFRS earnings as the Sanlam share
price increases and profits when the Sanlam share price decreases. These are not
true economic profits and losses. The Group therefore decided to also disclose
normalised diluted earnings per share from June 2007 that eliminate this IFRS
impact.
As the granting of shares to the beneficiaries of Santam`s Black Economic
Empowerment transaction is still in the implementation phase, no charge has been
recognised in the income statement in terms of IFRS 2 during the first half of
2007.
Embedded value
The Group`s embedded value of R48,6 billion at 30 June 2007 is 4% higher than
the R46,8 billion reported at 31 December 2006, after allowing for the R1,8
billion dividend paid in respect of the 2006 financial year as well as the R1,4
billion cost of Sanlam shares acquired during the six-month period. Embedded
value per share increased by 7% from 2 047 cents per share at the end of
December 2006 to 2 188 cents per share at the end of June 2007. The embedded
value at 30 June 2007 includes discretionary capital of R5,8 billion. By
utilising the net asset value of non-life businesses to partially cover the
required capital of the Group`s life operations, a diversification benefit of
R1,2 billion was achieved at 30 June 2007. This contributes to the optimal use
of the Group`s capital base.
The table below provides a summary of the Group embedded value. The value of
life operations comprises the net value of in-force life business as well as an
allocation of the capital required in support of these operations.
Embedded value
June 2007 December 2006
R million Total Adjusted Value of Total Adjusted Value of
net assets in-force net assets in-force
Life operations 28 286 15 223 13 063 27 403 15 140 12 263
Non-life
operations 15 191 15 191 - 13 210 13 210 -
Diversification
benefit (1 201) (1 201) - (1 532) (1 532) -
Discretionary
capital 5 800 5 800 - 6 200 6 200 -
Other capital 550 550 - 1 530 1 530 -
Embedded value 48 626 35 563 13 063 46 811 34 548 12 263
Embedded value per
share (cents) 2 188 2 047
Share price
(cents) 2 249 1 830
Premium/(discount)
to embedded value 2,8% (10,6%)
The annualised return on embedded value per share of 22,7% is again well in
excess of the Group`s long-term return target of the 10-year gilt yield plus 4%.
The Group has outperformed this target on a cumulative basis since Sanlam`s
demutualisation in 1998. The relatively lower annualised return on embedded
value of 23% for the first half of 2007 compared to the 31% achieved for the
full year 2006, is to a large extent attributable to a lower return on the
balanced portfolio due to lower equity returns and the implementation of a more
conservative asset mix in the portfolio. The return for the six months has also
been negatively impacted by the effect of the substantial recent increase in the
Sanlam share price on the share option scheme, both in terms of the cost of
shares delivered to participants during the period and the valuation of the
outstanding commitment, as well as the negative value impact of the introduction
of an embedded valuation for Shriram Life.
Return on Embedded value
June 2007 June 2006
EV EV
earnings ROEV earnings ROEV
R million % R million %
Non-life operations 2 830 21,4 1 512 15,6
Life cluster 136 12,9 223 33,4
Santam 1 393 24,8 (324) -6,8
Investment Management 995 18,6 1 433 44,4
Sanlam Capital Markets 140 35,0 50 12,5
Independent Financial Services 166 26,6 130 25,7
Balanced portfolio 1 302 5,7 1 963 10,0
Shriram goodwill less
VIF acquired (103) -
Treasury shares and other (201) (92)
Change in shareholders`
fund adjustments (146) 41
Shareholders` adjusted net
assets 3 682 10,7 3 424 12,4
Growth from life insurance
business 1 513 12,3 1 295 12,2
Return on embedded value 5 195 11,1 4 719 12,4
Non-life businesses contributed R2,8 billion of the total R5,2 billion growth in
embedded value for the period. The strong performance in Santam`s share price
resulted in a R1,4 billion (24,8%) return on that investment for the six months,
while the investment management businesses yielded a return of R1 billion
(18,6%), compared to 44,4% for the comparable period in 2006. The excellent
performance of the Sanlam Investments businesses over the past two years
supported a re-rating during the 2006 financial year, with a corresponding
substantial increase in the return on fair value. It was therefore expected that
these businesses` contribution would normalise in 2007.
Growth from life insurance business of 12,3% is consistent with the first half
of 2006. A particularly satisfactory trend is the increasing contribution of
value of new life business to the return on embedded value. In the first half of
2006 the value of new life business contributed only 11,5% to the growth from
life business compared to 14,7% during the first six months of 2007.
The Sanlam share price traded at a 3% premium to embedded value at 30 June 2007
compared to an 11% discount at 31 December 2006.
Earnings
Shareholders` fund summarised income statement for the six months
ended 30 June 2007
R million 2007 2006
Net result from financial
services 1 448 1 165 24%
Net investment income 514 417 23%
CORE EARNINGS 1 962 1 582 24%
Net broad-based employee
share plan (4) (19) 79%
Net equity-accounted headline
earnings 104 56 86%
Net investment surpluses 1 210 1 246 -3%
Amortisation of value of
business acquired (23) (21) -10%
Net project expenses (31) - -
Net Secondary Tax on
Companies (STC) (92) (99) 7%
NORMALISED HEADLINE EARNINGS 3 126 2 745 14%
Profit on disposal of
associates and subsidiaries 614 98
Impairment of investments
and goodwill - (8)
Normalised attributable
earnings 3 740 2 835 32%
Core earnings
Core earnings, a measure of the Group`s `stable` earnings, of R1 962 million for
the six months, are 24% up on the corresponding period in 2006. Core earnings
comprise the net result from financial services and net investment income earned
on the shareholders` fund, but exclude abnormal and non-recurring items as well
as investment surpluses. Net investment income includes dividends received from
non-operating associated companies and joint ventures, but excludes the equity-
accounted retained earnings. The growth in core earnings is the combined result
of a 24% increase in the net result from financial services and a 23% increase
in net investment income.
On a per share basis, core earnings increased by 27%, reflecting the 2%
reduction in the weighted average number of issued shares following the share
buy-backs. Normalised core earnings per share, which exclude the impact of
Sanlam shares held by the policyholders` fund (refer Continuing Impact of IFRS
above) increased by 28%.
All of the Group operations contributed to the improvement in the net result
from financial services. The gross result from financial services of R2 287
million for the first six months of 2007 is 29% higher than the comparative
period in 2006. Sanlam Capital Markets and Santam delivered a sterling
performance while Sanlam Investments continued to record strong operational
results despite the high comparative base in 2006. Net of taxation and minority
interests, the result from financial services is 24% higher than 2006. The
relatively lower growth on a net basis is due to a marginal increase in the
effective tax rate as well as a relatively larger contribution from businesses
with minority interests.
Result from financial services for the six months ended 30 June 2007
R million 2007 2006
Sanlam Personal Finance 841 773 9%
Sanlam Developing Markets 179 156 15%
Institutional cluster 724 604 20%
Sanlam Investments 560 482 16%
Sanlam Employee Benefits 74 69 7%
Sanlam Capital Markets 90 53 70%
Santam 567 304 87%
Independent Financial
Services 9 27 -67%
Corporate expenses (33) (96) 66%
Gross result from financial
services 2 287 1 768 29%
Taxation (556) (411) -35%
Minority shareholders`
interest (283) (192) -47%
Net result from financial
services 1 448 1 165 24%
- Sanlam Personal Finance`s result from financial services is 9% up on 2006.
Growth in new business volumes contributed to an increase in net administration
income, while the strong financial markets during the first six months of 2007
had a positive impact on market-related income. The retail credit businesses
performed well and are making an increasing profit contribution. These positive
factors were to an extent offset by a lower risk underwriting margin following a
higher claims experience.
- The Sanlam Developing Markets` operating result of R179 million is 15% up
on 2006. These results are the combined effect of a strong recovery in the
results of African Life SA and another solid contribution by the Botswana
operations, supported by the strong local equity market performance year-to-date
as well as the growth in its new business volumes. Channel Life reported profit
in line with 2006. Their new business written during the six months will support
future profit growth. Shriram Life made a welcome profit contribution for the
period, albeit still relatively small.
- The Sanlam Institutional Cluster recorded a sterling performance for the
six months. Sanlam Investments` result from financial services is 16% up on
2006, a strong performance given the high comparative base in 2006. Contributing
to the performance is the gearing effect of the higher assets under management
following the good market performance, as well as the inclusion of the Coris
Multi-Manager business acquired during 2006. The results were also supported by
strong performance fees earned, in particular by the international businesses.
Sanlam Employee Benefits posted a 7% improvement on 2006, a commendable result
given the management attention required during the integration of the business
into the Sanlam Institutional Cluster. The results were positively impacted by
an improvement in risk underwriting results. Sanlam Capital Markets experienced
a favourable first six months in 2007 and increased its result from financial
services by 70% to R90 million. The performance is largely due to an excellent
result from the Equities division, which was well positioned for the market
conditions in the first half, as well as the Debt division that benefited in
particular from equity-linked return.
- Santam`s result from financial services of R567 million for the six months
is significantly higher than 2006 at 87%. A 12% increase in net premiums,
coupled with lower net claims levels (67,7% in 2007 compared to 71,7% in 2006),
contributed to the excellent results.
- Independent Financial Services` year-to-date results are significantly
lower than 2006, largely due to an expected initial loss from the Coris
Retirement Fund Administration joint venture as well as a disappointing result
from its investment in Thebe Community Financial Services.
- The reduction in corporate costs in 2007 is mainly due to the first-time
inclusion of the interest earned for four months on the cash held in respect of
the Sanlam Limited dividend payment in May 2007. Excluding the interest income,
which was previously included in the operational results of the different Group
businesses, the level of corporate costs are in line with 2006.
Net investment income consists of dividends, interest and rental income earned
on the shareholders` fund, the net interest earned on Sanlam Life`s matched
hybrid debt investment portfolio, as well as the margin on the Group`s
preference share portfolio. Net investment income of R514 million for the six
months to June 2007 is 23% higher than in 2006, due to relatively higher cash
interest rates and the more conservative investment asset mix that was
implemented for the balanced portfolio as part of the Group`s capital management
programme. This resulted in a higher exposure to interest-bearing investments
(and a corresponding lower exposure to equities) in 2007 compared to 2006.
Normalised headline earnings
Normalised headline earnings of R3 126 million are 14% up on the first six
months of 2006. Normalised headline earnings exclude the IFRS accounting impact
of investments in Sanlam shares and Group subsidiaries held by the
policyholders` fund (refer Continuing Impact of IFRS above). Including the
effect of the fund transfers that are accounted for in terms of IFRS in respect
of these shares, headline earnings decreased by 12%.
Normalised headline earnings per share increased by 18% with the higher increase
on a per share basis due to the 3% reduction in the adjusted weighted average
number of shares in issue during the period under review.
- Equity-accounted earnings in 2007 increased by 86% compared to 2006. This
increase was largely driven by a significant improvement in the Group`s share of
earnings from the Safair Lease Finance joint venture.
- Headline earnings include R31 million spent on special projects relating to
the Group`s distribution platform. These projects will continue into the 2008
financial year and are aligned with Sanlam`s strategy to diversify and expand
the Group`s distribution reach.
- Investment surpluses amounted to R1 210 million (after tax and minorities)
for the first six months of 2007 compared to R1 246 million (after tax and
minorities) in 2006. The 3% reduction in net investment surpluses is primarily
due to lower equity returns and a more conservative asset mix implemented for
the balanced portfolio.
Normalised attributable earnings increased by 32% to R3 740 million. The profit
on disposal of subsidiaries and associated companies during 2007 relates mainly
to the disposal of the Group`s interest in Peermont Global.
Business volumes
New business flows
Total new business inflows for the six months are 26% higher than the
corresponding period in 2006, supported by a sterling performance from Sanlam
Investments and Sanlam Developing Markets. The growth experienced in life
business has moderated to 7% for the year to date. Strong growth in both Sanlam
Personal Finance and Sanlam Developing Markets is offset by a disappointing
result from group life business (-28%). Excluding group life flows, life
business increased by some 17%. Investment business inflows were very strong and
exceeded the comparative period in 2006 by 35%.
White label flows are presented separately due to the high level of volatility
in these flows. White label flows are 17% up on 2006, with a strong
contribution from both Sanlam Developing Markets and Sanlam Collective
Investments.
New Business Volumes for the six months ended 30 June 2007
R million 2007 2006
Sanlam Personal Finance 12 494 10 693 17%
RSA recurring life 511 422 21%
RSA single life 3 871 3 563 9%
Non-RSA life 744 515 44%
Investment 7 368 6 193 19%
Sanlam Developing Markets 1 050 771 36%
South Africa 681 493 38%
Africa 316 272 16%
Other international 53 6 >100%
Institutional cluster 26 348 19 412 36%
Sanlam Investments 25 387 18 071 40%
Sanlam Employee Benefits 961 1 341 -28%
Santam 5 476 4 897 12%
White label 4 452 3 808 17%
Total new business 49 820 39 581 26%
- Sanlam Personal Finance sales are up 17% on the first six months of 2006.
Total recurring premium business (including life and non-life) increased by 28%
compared to a 16% increase in total single premium business.
- Excellent new South African recurring premium life sales were recorded,
being 21% up on the same period in 2006. The strong growth in recurring premiums
is on the back of good support for both risk and savings solutions, an
indication of some improved sentiment towards the insurance industry.
- Total South African single premium life sales were up 9% on 2006, driven
mainly by continuations. Continuations are doing particularly well and were 12%
up on 2006. Glacier continued its growth record of the past few years and
recorded an increase of 15% in life inflows.
- Non-RSA life business is 44% up on 2006. Merchant Investors` new
business volumes improved by 54% compared to 2006. Management is currently
focusing on building and enhancing the distribution footprint. Good growth was
also experienced in Namibian life business on the back of an increased sales
focus.
- Non-life Glacier and Namibian unit trust business increased by an
aggregate 19% compared to 2006. The higher growth in single premium non-life
business is reflecting the continued shift in client preference for non-life
savings solutions.
- Sanlam Developing Markets inflows (excluding white label) are 36% higher
than 2006 and well in excess of expectations.
- South African inflows are 38% up on 2006, driven by strong single
premium sales at Channel Life. Recurring premiums are up 23% on 2006, with
average premium size exceeding expectations.
- Rest of Africa inflows are 16% up on 2006, supported by excellent
sales of Botswana Life`s new client solutions and strong contributions from
Kenya and Tanzania.
- Shriram is continuing its strong sales performance with year-to-date
sales of R53 million, compared to R44 million for the full 2006 year. Shriram`s
accredited agents increased from 9 400 at the end of 2006 to more than 11 000 at
the end of June 2007.
- Institutional Cluster inflows increased by 36% compared to the first six
months of 2006.
- New Sanlam Investments business inflows increased by 40%, with the
majority of the investment management businesses reporting excellent inflows
compared to 2006. The best performers were wholesale segregated (up 62% on
2006), Sanlam Collective Investments (up 52%), Sanlam Multi-Manager (up 209%)
and SIM Global (up 271%). The only exceptions were Sanlam Private Investments
and Octane, which were down on a relatively high base in 2006.
- Sanlam Employee Benefits inflows were 28% down on the comparable 2006
inflows. This is the combined result of a commendable 121% increase in new
recurring premium business, offset by a 35% reduction in single premium
business. The latter is a reflection of a very competitive and changing business
environment for group life savings business.
- Santam recorded a 12% increase in net premium inflows over the first six
months of 2006, a satisfactory result in the current competitive short-term
insurance environment.
Net business flows
Total inflows increased by 17% on 2006 while outflows in respect of fund
withdrawals and policy benefits were up by 38%. The high level of outflows,
which have been impacted by significant once-off flows, led to a net inflow of
R1,3 billion, significantly lower than the inflow of R8,3 billion in the
corresponding period in 2006.
Net Business Flows for the six months ended 30 June 2007
R million 2007 2006
Sanlam Personal Finance 2 440 2 884
Life business (598) 111
Investment 3 038 2 773
Sanlam Developing Markets 497 577
Institutional cluster (3 627) 2 001
Sanlam Employee Benefits (1 764) (1 321)
Sanlam Investments (1 863) 3 322
Santam 1 767 1 387
White label 173 1 423
Sanlam Collective Investments 60 1 449
Sanlam Developing Markets 113 (26)
Total net business flows 1 250 8 272
The reduction in Sanlam Personal Finance`s net flows is due to its life business
recording net outflows of R598 million compared to a net inflow of R111 million
in 2006. This is the result of a higher level of maturities, which can be
ascribed to an increase in the value of maturity benefits from the current
higher market levels, as well as an increase in the number of maturity benefits
that is attributable to a relatively big block of five-year business sold a few
years ago.
Businesses in the Institutional cluster experienced a sharp decrease in net
business flows.
- Sanlam Employee Benefits` net outflows continued, essentially due to the
low level of new business flows, and remain to be a concern. We are confident
that the integration of the business into the Sanlam Institutional Cluster will
improve the fund flow position.
- Sanlam Investments experienced significant once-off outflows during June
2007, contributing to a R1,9 billion net outflow for the first six months of
2007 compared to net inflows of R3,3 billion in 2006. SIM Wholesale lost a few
sizable investment mandates during the reporting period, essentially due to
changes in client investment strategy. Sanlam Collective Investments also
experienced some large outflows due to the closure of the Sanlam Dividend Income
Fund following changes in applicable tax legislation. The Sanlam Alternative
Income Fund that replaced the Dividend Income Fund has a much smaller capacity
due to the limited availability of suitable assets for the fund.
Value of new business
The value of new life business (VNB) of R260 million for the first six months of
2007 represents strong growth of 51% on the R172 million achieved in 2006. This
has been achieved on the back of a sterling performance by Sanlam Developing
Markets. The average Group new life business margin of 2,3% is also higher than
that of the comparable period in 2006, mainly due to the improvement in the
average margin achieved by Sanlam Developing Markets in 2007 and its higher
relative contribution to the overall Group VNB.
- Sanlam Developing Markets` Botswana operations contributed largely to its
strong results, with both VNB and margins positively impacted by strong
bancassurance sales and good margins achieved on new solutions.
- The Sanlam Personal Finance VNB was positively impacted by the good sales
record for the year to date, supporting a 20% increase on 2006. VNB margins
also improved marginally, despite the competitive market pricing.
- Sanlam Employee Benefits achieved VNB of R26 million, a marked increase on
2006, with a similar improvement in margins. This was primarily driven by an
increase in recurring risk business.
Excluding minority shareholders` interest, VNB grew by 49% from R149 million in
2006 to R222 million in 2007.
Sanlam Personal Finance`s value of non-life business increased by 11% from R28
million in 2006 to R31 million in 2007. The value of new loan business remained
on the same level as in 2006. This is mainly attributable to lower Sanlam Home
Loans sales volumes following the application of more stringent credit criteria
to eliminate marginal lending. The implementation of the National Credit Act
also had some negative effect on sales volumes of both Sanlam Home Loans and
Sanlam Personal Loans.
The value of new non-life business is calculated based on methodologies and
assumptions similar to those used in the calculation of VNB. The Group`s
methodology will be developed over time in line with developing best practice.
Solvency
All life insurance companies in the Group were adequately capitalised at the end
of June 2007. The capital of Sanlam Life Insurance Limited amounted to R35,1
billion compared to R34,2 billion as at 31 December 2006. The Capital Adequacy
Requirements (CAR) were covered 3,7 times by regulatory capital at the end of
June 2007, compared to 4,4 times at 31 December 2006. Excluding the identified
discretionary capital, CAR was covered 2,8 times. As at 30 June 2007 there were
no policyholder portfolios with negative stabilisation reserves.
Santam maintained its healthy solvency position and held capital of 64% of net
earned premiums at the end of June 2007, compared to 62% at the end of December
2006.
Although the Group`s capital base was reduced by R1,4 billion as a result of the
buy-back of shares during the six months ended 30 June 2007, the Group remained
in a strong solvency position at 30 June 2007. As required by the JSE Listings
Requirements, the Sanlam Limited Board has confirmed that after the share buy-
back, Sanlam Limited and the Group have sufficient share capital, reserves and
working capital for ordinary business purposes and to service their debt during
the next 12 months and that the Group`s assets will exceed its liabilities
during this period.
Dividend
In line with the Group policy no interim dividend has been declared. Sanlam
only declares an annual dividend. A dividend of 77 cents per share was paid to
shareholders on 9 May 2007 in respect of the 2006 financial year. The last date
to trade to qualify for this dividend was 19 April 2007.
Roy Andersen Johan van Zyl
Chairman Group Chief Executive
Sanlam Limited
Cape Town
5 September 2007
Interim Financial Statements for the six months ended 30 June 2007
ACCOUNTING POLICIES AND ACTUARIAL BASIS
Basis of presentation
The accounting policies adopted for the purposes of the financial statements
comply with International Financial Reporting Standards, specifically IAS 34 on
interim financial reporting, and with applicable legislation. The condensed
financial statements are presented in terms of IAS 34, with additional
disclosure where applicable, using accounting policies consistent with those
applied in the 2006 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 2006, apart from changes in the
economic assumptions.
The basis of presentation is consistent with that applied in the 2006 financial
statements, apart from the following:
- The shareholders` fund income statement has been adjusted to exclude fund
transfers relating to the policyholders` fund`s investments in Sanlam shares and
Group subsidiaries. Comparative information has been restated to exclude fund
transfers of R385 million and R205 million for the six months ended 30 June 2006
and the year ended 31 December 2006 respectively, which were previously
recognised in the shareholders` fund income statement.
- The shareholders` fund balance sheet has also been adjusted to exclude the
consolidation reserve that represents the mismatch between policy liabilities
and policyholder assets resulting from the IFRS treatment of the policyholders`
fund`s investments in Sanlam shares and Group subsidiaries. Comparative
information has been restated, which increased the shareholders` fund net asset
value by R1 726 million and R1 859 million on 30 June 2006 and 31 December 2006
respectively.
The IFRS accounting treatment of the policyholders` fund`s investments in Sanlam
shares and Group subsidiaries results in a misrepresentation of the Group`s
economical operational performance. The basis of presentation was changed to
ensure that the shareholders` fund income statement and balance sheet more
accurately reflect the actual economic performance and net asset value of the
Group.
Application of new and revised standards
The following new or revised IFRSs and interpretations that relate to the
Group`s operations have effective dates applicable to the 2007 financial year:
- IFRS 7 Financial Instruments - Disclosures
- Amendment to IAS 1: Presentation of Financial Statements - Capital
Disclosures
- IFRIC 8 Scope of IFRS 2
- IFRIC 9 Reassessment of Embedded Derivatives
- IFRIC 10 Interim Financial Reporting and Impairment
- AC503 Accounting for Black Economic Empowerment (BEE) Transactions
The application of these standards and interpretations did not have a
significant impact on the Group`s reported results and cash flows for the six
months ended 30 June 2007 and the financial position as at 30 June 2007.
The following new or revised IFRSs and interpretations that relate to the
Group`s operations have effective dates applicable to future financial years:
- IFRS 8 Operating Segments
- IFRIC 11 IFRS 2 Group and Treasury share Transactions
- IFRIC 12 Service Concession Arrangements
- IFRIC 13 Customer Loyalty Programmes
The Group has not early adopted any of these standards or interpretations. The
application of these standards and interpretations in future financial reporting
periods is not expected to have a significant impact on the Group`s reported
results, financial position and cash flows.
EXTERNAL AUDIT REVIEW
The appointed external auditors, Ernst & Young Inc., reviewed the financial
information for the shareholders` fund, the condensed balance sheet of the
Sanlam Limited group as at 30 June 2007 and the related condensed statements of
income, changes in equity and cash flows for the six-month period then ended,
and other explanatory notes. The review was conducted in accordance with the
International Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity.
The external auditors have also conducted a limited assurance review of the
Group Embedded Value Results for the six months ended 30 June 2007 in accordance
with the International Standard on Assurance Engagements 3000 Assurance
Engagements Other Than Audits or Reviews of Historical Financial Information.
Copies of the unqualified reports of Ernst & Young Inc. are available for
inspection at the registered office of the company.
Financial Information for the Shareholders` Fund for the six months ended 30
June 2007
Contents
Shareholders` fund balance sheet - Net Asset Value
Analysis of Shareholders` fund at Fair Value
Shareholders` fund income statement
Notes to the shareholders` fund information
SHAREHOLDERS` FUND BALANCE SHEET AT NET ASSET VALUE
at 30 June 2007
June December
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
Assets
Goodwill 2 391 1 958 2 163
Value of business acquired 970 949 977
Investments 40 146 31 810 36 423
Working capital and other
assets 44 917 41 178 45 982
Total assets 88 424 75 895 85 545
Equity and liabilities
Shareholders` fund 30 988 27 352 30 980
Share capital and premium 955 956 955
Treasury shares (2 158) (773) (377)
Other reserves 9 854 9 778 9 812
Retained earnings 22 337 17 391 20 590
Minority shareholders`
interest 3 368 3 379 4 050
Term finance, working
capital and
other liabilities 54 068 45 164 50 515
Total equity and liabilities 88 424 75 895 85 545
Net asset value per
share (cents) 1 394 1 190 1 355
Reconciliation to Group
balance sheet
Shareholders` fund at net
asset value
above 30 988 27 352 30 980
Consolidation reserve (2 052) (1 726) (1 859)
Shareholders` fund per
Group balance
sheet 28 936 25 626 29 121
Note: Comparative information has been restated to exclude the impact of the
consolidation reserve.
ANALYSIS OF SHAREHOLDERS` FUND AT FAIR VALUE
at 30 June 2007
June December
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
Property and equipment 209 181 195
Owner-occupied properties 604 488 514
Goodwill (2) 476 473 477
Value of business acquired (2) 967 947 977
Deferred acquisition costs 857 782 917
Investments 41 645 32 011 38 504
Sanlam businesses 15 191 10 309 13 210
Sanlam Investments (3) 5 817 4 240 5 358
SIM Wholesale 3 992 3 110 3 729
International 1 495 816 1 336
Sanlam Collective Investments 330 314 293
Sanlam Personal Finance 1 146 869 1 058
Glacier 569 440 527
Sanlam Personal Loans (4) 114 98 94
Multi-Data 115 85 110
Sanlam Trust 96 82 95
Sanlam Home Loans 187 110 168
Other (5) 65 54 64
Independent Financial
Services 757 622 625
Punter Southall Group 298 354 209
Other (6) 459 268 416
Alfinanz 35 - -
Sanlam Capital Markets 540 467 541
Santam 6 896 4 111 5 628
Associated companies 101 799 2 806
Peermont - 736 1 062
Other 101 63 1 744
Joint ventures 435 395 387
Safair Lease Finance 271 271 271
Shriram and other 164 124 116
Other investments 25 918 20 508 22 101
Other equities and similar
securities 11 719 11 494 10 232
Public sector stocks
and loans 1 932 2 231 2 368
Investment properties 310 530 793
Other interest-bearing and
preference
share investments 11 957 6 253 8 708
Net term finance (1 986) - (2 071)
Term finance (5 142) (2 954) (5 322)
Assets held in respect of
margin business 3 156 2 954 3 251
Net deferred tax (415) (366) (215)
Net working capital (2 693) (1 922) (989)
Minority shareholders`
interest (927) (588) (818)
Shareholders` fund at
fair value 38 737 32 006 37 491
Fair value per share (cents) 1 743 1 393 1 640
(1) Group businesses listed above not consolidated, but reflected as
investments at fair value.
(2) The value of business acquired and goodwill relate mainly to the
consolidation of African Life, Channel Life and Merchant Investors and are
excluded in the build-up of the Group embedded value, as the current value of
in-
force business for these life insurance companies are included in the embedded
value.
(3) Excludes the investment management operations of Botswana Insurance Fund
Management (BIFM), as it is included in the current value of BIFM in-force life
insurance business.
(4) The life insurance component of Sanlam Personal Loans` operations is
included in the value of in-force business and therefore excluded from the
Sanlam Personal Loans fair value.
(5) Other Sanlam Personal Finance businesses comprise the non-life businesses
in Namibia.
(6) Other Independent Financial Services investments include Intrinsic,
Nucleus, Coris, JHI and other smaller investments.
SHAREHOLDERS` FUND INCOME STATEMENT
for the six months ended 30 June 2007
June December
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
Result from financial
services before tax 2 287 1 768 4 126
Life insurance 1 094 998 2 188
Short-term Insurance 567 304 906
Investment Management 560 482 1 077
Capital Markets 90 53 151
Independent Financial
Services 9 27 20
Corporate and other (33) (96) (216)
Tax on financial
services income (556) (411) (996)
Minority shareholders`
interest (283) (192) (514)
Net result from financial
services 1 448 1 165 2 616
Net investment income 514 417 786
Core earnings 1 962 1 582 3 402
Net project expenses (31) - -
Net broad-based employee
share plan (4) (19) (19)
Net equity-accounted
headline earnings 104 56 164
Net investment surpluses 1 210 1 246 3 215
Amortisation of value of
business acquired (23) (21) (45)
Net Secondary Tax
on Companies (92) (99) (84)
Normalised headline
earnings 3 126 2 745 6 633
Other equity-accounted
earnings - - 5
Profit on disposal of
subsidiaries and
Associates 614 98 132
Impairment of investments
and goodwill - (8) (30)
Normalised attributable
earnings 3 740 2 835 6 740
Fund transfers (381) 385 205
Attributable earnings per Group
income statement 3 359 3 220 6 945
NOTES TO THE SHAREHOLDERS` FUND INFORMATION
for the six months ended 30 June 2007
June
Reviewed Reviewed
2007 2006
R million R million
1. NEW BUSINESS AND TOTAL
FUNDS RECEIVED FROM CLIENTS
Analysed per market:
Retail (1)
Life business 5 063 4 478
Sanlam Personal Finance 4 382 3 985
Sanlam Developing Markets 681 493
Non-life business 13 849 11 905
Sanlam Personal Finance 4 482 3 822
Sanlam Private Investments 3 730 4 051
Sanlam Collective Investments 5 637 4 032
South African 18 912 16 383
Non-South African 3 999 3 164
Sanlam Developing Markets 369 278
Sanlam Personal Finance - Merchant
Investors 566 367
Sanlam Personal Finance - Namibia 3 064 2 519
Total Retail 22 911 19 547
Institutional (1)
Group Life business 972 1 379
Sanlam Employee Benefits 961 1 341
Sanlam Investment Management 11 38
Non-life business 14 806 8 144
Segregated 5 111 3 292
Sanlam Multi-Manager 3 672 1 189
Sanlam Collective Investments
wholesale 6 023 3 663
South African 15 778 9 523
Sanlam Investment Management non-South
African 1 203 1 806
Total Institutional 16 981 11 329
White label 4 452 3 808
Sanlam Collective Investments 3 998 3 600
Sanlam Developing Markets 454 208
Short-term insurance 5 476 4 897
Total new business 49 820 39 581
(1) Comparative figures have been restated for a reclassification of collective
investment funds between retail and institutional business and to disclose
Sanlam Developing Markets` white label flows separately.
June
Reviewed Reviewed
2007 2006
R million R million
2. NET FLOW OF FUNDS
Analysed per market:
Retail (1)
Life business (377) 522
Sanlam Personal Finance (454) 223
Sanlam Developing Markets 77 299
Non-life business 4 867 3 668
Sanlam Personal Finance 1 732 1 618
Sanlam Private Investments 2 445 1 726
Sanlam Collective Investments 690 324
South African 4 490 4 190
Non-South African 1 582 1 321
Sanlam Developing Markets 420 278
Sanlam Personal Finance - Namibia 1 349 1 165
Sanlam Personal Finance - Merchant
Investors (187) (122)
Total Retail 6 072 5 511
Institutional (1)
Group Life business (2 174) (1 841)
Sanlam Employee Benefits (1 764) (1 321)
Sanlam Investment Management (410) (520)
Non-life business (4 617) 251
Segregated (4 522) (659)
Sanlam Multi-Manager 470 3
Sanlam Collective Investments
wholesale (565) 907
South African (6 791) (1 590)
Sanlam Investment Management
non-South African 29 1 541
Total Institutional (6 762) (49)
White label 173 1 423
Sanlam Collective Investments 60 1 449
Sanlam Developing Markets 113 (26)
Short-term insurance 1 767 1 387
Total net flow of funds 1 250 8 272
(1) Comparative figures have been restated for a reclassification of collective
investment funds between retail and institutional business and to disclose
Sanlam Developing Markets` white label flows separately.
June December
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
3. EXCESS OF FAIR VALUE OVER NET ASSET VALUE OF SANLAM BUSINESSES AND
INVESTMENTS
The shareholders` fund at fair
value includes the value of the
companies below based on directors`
valuation, apart from Santam and
Peermont, which are valued according
to ruling share prices.
Net fair value of businesses and
investments 15 727 11 420 16 403
Fair value of businesses
and investments 15 727 11 503 16 403
Deferred capital gains tax
on businesses and investments
at fair value - (83) -
Less: Net asset value of
businesses and
investments 6 708 5 511 8 643
Sanlam Investments 870 694 938
SIM Wholesale
International 262 168 283
Sanlam Collective
Investments 70 59 33
Sanlam Personal Finance 586 394 510
Glacier 258 191 217
Sanlam Personal Loans 63 46 47
Multi-Data 52 28 40
Sanlam Trust 7 6 13
Sanlam Home Loans 187 100 168
Other 19 23 25
Independent Financial
Services 516 498 536
Punter Southall Group and
other
international 203 249 189
Other 313 249 347
Sanlam Capital Markets 540 467 541
Santam 3 766 2 852 3 798
Associated companies 101 386 2 079
Peermont - 323 335
Other 101 63 1 744
Joint ventures 329 220 241
Safair Lease Finance 165 96 125
Shriram and other 164 124 116
Less: Goodwill in respect
of above
businesses 1 270 1 248 1 247
Revaluation adjustment of
interest in businesses
and investments
to fair value 7 749 4 661 6 513
Analysis of fair value
Sanlam businesses 15 191 10 309 13 210
Associated companies 101 799 2 806
Joint ventures 435 395 387
Fair value of businesses and
Investments 15 727 11 503 16 403
The fair value of the Sanlam businesses has been determined by the application
of stock exchange prices for listed subsidiaries and the following valuation
methodologies for unlisted businesses:
June December
Reviewed Reviewed Audited
2007 2006 2006
Valuation method R million R million R million
Ratio of price to assets
under management 5 817 4 240 5 358
SIM Wholesale 3 992 3 110 3 729
International 1 495 816 1 336
Sanlam Collective Investments 330 314 293
Discounted cash flows 1 686 1 325 1 451
Glacier 569 440 527
Sanlam Personal Loans 114 98 94
Multi-Data 115 85 110
Sanlam Trust 96 82 95
Punter Southall Group 298 354 209
Other 494 266 416
Earnings multiple - Other 65 56 64
Net asset value 727 577 709
Sanlam Home Loans 187 110 168
Sanlam Capital Markets 540 467 541
Fair value of unlisted
businesses 8 295 6 198 7 582
The main assumptions applied in the primary valuation for the unlisted
businesses are presented below. The sensitivity analysis is based on the
following changes in assumptions:
Assumption Change in assumption
Ratio of price to assets under management (P/AuM) 0,1%
Risk discount rate (RDR) 1,0%
Perpetuity growth rate (PGR) 1,0%
Earnings multiple (PE) 1,0
Fair value of Sanlam businesses
R million Weighted Base value Decrease Increase
average in in
assumption assumption assumption
Ratio of price to
assets under
management P/AuM = 1,31% 5 817 5 299 6 340
Discounted cash
flows RDR = 17,8% 1 686 1 795 1 593
PGR = 2,5% - 5% 1 686 1 644 1 737
Earnings multiple
PE = 7,5 times 65 56 74
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
4. INVESTMENT INCOME -
SHAREHOLDERS` FUND
Interest-bearing, preference
shares and
similar securities 393 223 459
Interest income and
preference share
dividends 630 327 796
Interest paid and term
finance cost (237) (104) (337)
Equities and similar
securities 265 294 581
Properties 17 29 54
Total investment income 675 546 1 094
5. NORMALISED DILUTED EARNINGS PER SHARE
In terms of IFRS, the policyholders` fund`s investments in Sanlam shares and
Group subsidiaries are not reflected as equity investments in the Sanlam balance
sheet, but deducted in full from equity on consolidation (in respect of Sanlam
shares) or reflected at net asset value (in respect of subsidiaries). The
valuation of the related policy liabilities however includes the fair value of
these shares, resulting in a mismatch between policy liabilities and
policyholder investments, with a consequential impact on the Group`s earnings.
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 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 diluted earnings per
share to eliminate the impact of investments in Sanlam shares and Group
subsidiaries held by the policyholders` fund.
Cents Cents Cents
Normalised diluted earnings
per share:
Net result from financial
services 62,9 49,0 111,2
Core earnings 85,3 66,5 144,6
Headline earnings 135,9 115,4 282,0
Profit attributable to
shareholders` fund 162,5 119,2 286,6
5. NORMALISED DILUTED EARNINGS PER SHARE (continued)
R million R million R million
Analysis of normalised
earnings (refer
shareholders` fund income
statement:
Net result from financial
services 1 448 1 165 2 616
Core earnings 1 962 1 582 3 402
Headline earnings 3 126 2 745 6 633
Profit attributable to shareholders`
fund 3 740 2 835 6 740
million million million
Adjusted number of shares:
Weighted average number of shares
for diluted earnings per share 2 209,8 2 262,3 2 243,1
Add: Weighted average Sanlam
shares held by policyholders 90,8 117,0 108,9
Adjusted weighted average number of
shares for normalised diluted earnings
per share 2 300,6 2 379,3 2 352,0
Number of ordinary shares in issue at
beginning of period 2 303,6 2 408,6 2 408,6
Shares cancelled - (70,0) (105,0)
Number of ordinary shares in issue 2 303,6 2 338,6 2 303,6
Shares held by subsidiaries in shareholders`
fund (91,1) (47,0) (24,1)
Convertible deferred shares held by
Ubuntu-Botho 9,7 6,6 7,2
Adjusted number of shares for value
per share 2 222,2 2 298,2 2 286,7
6. SHARE REPURCHASES
The Sanlam shareholders granted general authorities to the Group at the 2006 and
2007 annual general meetings to repurchase Sanlam shares in the market. The
Group acquired 61,8 million shares from 8 March 2007 to 30 June 2007 in terms of
the general authorities. The lowest and highest prices paid were R20,69 and
R23,29 per share respectively. The total consideration paid of R1,4 billion was
funded from existing cash resources. All repurchases were effected through the
JSE trading system without any prior understanding or arrangement between the
Group and the counter parties. Authority to repurchase 201,6 million shares, or
8,7% of Sanlam`s issued share capital at the time, remain outstanding in terms
of the general authority granted at the annual general meeting held on 6 June
2007.
The financial effects of the share repurchases during 2007 on IFRS earnings and
net asset value per share are illustrated in the table below:
Before After
repurchases repurchases
Basic earnings per share:
Profit attributable to shareholders`
fund Cents 154 155
Headline earnings Cents 126 126
Diluted earnings per share:
Profit attributable to
shareholders`fund Cents 151 152
Headline earnings per share
Cents 124 124
Value per share:
Embedded value Cents 2 192 2 188
Net asset value Cents 1 330 1 302
Tangible net asset
value Cents 1 115 1 082
Group Financial Statements for the six months ended 30 June 2007
Contents
Group Balance Sheet
Group Income Statement
Group Statement of Changes in Equity
Group Cash Flow Statement
Notes to the financial statements
GROUP BALANCE SHEET at 30 June 2007
June December
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
ASSETS
Property and equipment 280 240 259
Owner-occupied properties 622 504 530
Goodwill 2 391 1 958 2 163
Value of business acquired 970 949 977
Deferred acquisition costs 1 536 1 248 1 397
Long-term reinsurance assets 416 391 427
Investments 297 002 251 819 280 627
Properties 15 640 13 072 14 602
Equity-accounted investments 1 264 2 016 3 417
Equities and similar
securities 152 217 133 901 141 456
Public sector stocks and
loans 49 339 47 624 53 921
Debentures, insurance
policies, preference
shares and other loans 30 767 25 058 31 743
Cash, deposits and similar
securities 47 775 30 148 35 488
Deferred tax 333 356 549
Short-term insurance
technical assets 2 248 2 505 2 288
Working capital assets 46 446 43 063 46 265
Trade and other receivables 35 259 31 270 37 103
Cash, deposits and similar
securities 11 187 11 793 9 162
Total assets 352 244 303 033 335 482
EQUITY AND LIABILITIES
Shareholders` fund 28 936 25 626 29 121
Minority shareholders`
interest 3 275 3 263 3 934
Total equity 32 211 28 889 33 055
Long-term policy liabilities 248 350 215 423 237 864
Insurance contracts 128 749 113 812 125 517
Investment contracts 119 601 101 611 112 347
Term finance 6 238 3 262 5 760
Interest-bearing liabilities
matched
by assets 4 252 3 262 3 689
Other interest-bearing
liabilities 1 986 - 2 071
External investors in
consolidated funds 12 767 8 072 8 010
Cell owners` interest 383 286 329
Deferred tax 1 981 1 588 1 929
Short-term insurance technical
provisions 8 235 7 537 7 752
Working capital liabilities 42 079 37 976 40 783
Trade and other payables 38 855 35 767 37 801
Provisions 1 106 887 996
Taxation 2 118 1 322 1 986
Total equity and liabilities 352 244 303 033 335 482
GROUP INCOME STATEMENT for the six months ended 30 June 2007
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
Note R million R million R million
Net income 31 480 26 457 69 960
Financial services
income 12 932 11 382 24 221
Reinsurance premiums
paid (1 310) (1 072) (2 432)
Reinsurance commission
received 187 222 383
Investment income 7 584 7 359 12 022
Investment surpluses 14 840 9 024 37 903
Finance cost - margin
business (120) (104) (223)
Change in fair value of
external investors
liability (2 633) (354) (1 914)
Net insurance and
investment contract
benefits and claims (21 045) (17 516) (50 072)
Long-term insurance and
investment
contract benefits (17 483) (14 082) (43 272)
Short-term insurance
claims (4 196) (3 838) (8 086)
Reinsurance claims
received 634 404 1 286
Expenses (4 678) (4 059) (8 956)
Sales remuneration (1 742) (1 580) (3 300)
Administration costs (2 936) (2 479) (5 656)
Impairment of investments
and goodwill - (8) (30)
Amortisation of value of business
acquired (23) (21) (45)
Net operating result 5 734 4 853 10 857
Equity-accounted earnings 201 121 423
Finance cost - other (117) - (114)
Profit before tax 5 818 4 974 11 166
Taxation 1 (1 814) (1 347) (3 070)
Shareholders` fund (1 189) (876) (1 894)
Policyholders` fund (625) (471) (1 176)
Profit for the period 4 004 3 627 8 096
Attributable to:
Shareholders` fund 3 359 3 220 6 945
Minority shareholders`
interest 645 407 1 151
4 004 3 627 8 096
Earnings attributable to shareholders
of the company (cents):
Basic earnings
per share 2 154,5 145,2 315,2
Diluted earnings
per share 2 152,0 142,3 309,6
GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2007
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
Shareholders` fund:
Balance at beginning of period 29 121 25 020 25 020
Total recognised income 3 354 3 531 7 263
Profit for the period 3 359 3 220 6 945
Movement in foreign currency translation
reserve (5) 311 318
Net recognised investment surpluses on
treasury shares (203) (85) (188)
Share-based payments 28 45 74
Dividends paid (1) (1 705) (1 469) (1 467)
Shares cancelled - (1 036) (1 644)
Cost of treasury shares
(acquired)/sold (2) (1 659) (380) 63
Balance at end of period 28 936 25 626 29 121
Minority shareholders` interest:
Balance at beginning of period 3 934 3 443 3 443
Total recognised income 640 512 1 257
Profit for the period 645 407 1 151
Movement in foreign currency translation
reserve (5) 105 106
Share-based payments 4 4 9
Dividends paid (255) (575) (668)
Acquisitions, disposals and other movements
in minority interests (507) (121) (107)
Cost of treasury shares acquired (541) - -
Balance at end of period 3 275 3 263 3 934
Shareholders` fund 29 121 25 020 25 020
Minority shareholders` interest 3 934 3 443 3 443
Total equity at beginning
of period 33 055 28 463 28 463
Shareholders` fund 28 936 25 626 29 121
Minority shareholders` interest 3 275 3 263 3 934
Total equity at end of period 32 211 28 889 33 055
(1) Dividend of 77 cents per share paid during 2007 (2006: 65 cents per share)
in respect of the 2006 financial year.
(2) Comprises movement in cost of shares held by subsidiaries and the share
incentive trust.
GROUP CASH FLOW STATEMENT
for the six months ended 30 June 2007
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
Net cash inflow/(outflow) from operating
activities 1 017 8 415 (5 436)
Net cash inflow/(outflow) from investment
activities 14 653 (2 672) 11 704
Net cash (outflow)/inflow from financing
Activities (1 355) (1 210) 971
Net increase in cash and
cash equivalents 14 315 4 533 7 239
Cash, deposits and similar securities at
beginning of period 44 647 37 408 37 408
Cash, deposits and similar securities at
end of period 58 962 41 941 44 647
NOTES TO THE FINANCIAL STATEMENTS
For the six months ended 30 June 2007
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
1. TAXATION
Result from financial services 536 411 850
Investment income 93 68 184
Investment surpluses 312 247 714
Profit on disposal of subsidiaries 10 - 3
Profit on disposal of
associated companies 138 4 4
Broad-based employee share plan (2) (8) -
Secondary Tax on Companies 102 154 139
Tax expense - shareholders` fund 1 189 876 1 894
Tax expense - policyholders` fund 625 471 1 176
Total income tax charged to income
statement 1 814 1 347 3 070
Cents Cents Cents
2. EARNINGS PER SHARE
Basic earnings per share:
Net result from financial services 66,6 52,5 118,7
Core earnings 90,2 71,3 154,4
Headline earnings 126,2 141,1 310,4
Profit attributable to
shareholders` fund 154,5 145,2 315,2
Diluted earnings per share:
Net result from financial services 65,5 51,5 116,6
Core earnings 88,8 69,9 151,7
Headline earnings 124,2 138,4 304,9
Profit attributable to
shareholders` fund 152,0 142,3 309,6
R million R million R million
Analysis of earnings:
Net result from financial services
(refer note 5 above) 1 448 1 165 2 616
Core earnings (refer note 5 above) 1 962 1 582 3 402
Headline earnings 2 745 3 130 6 838
Per note 5 above 3 126 2 745 6 633
Fund transfers (381) 385 205
Profit attributable to shareholders`
Fund 3 359 3 220 6 945
Per note 5 above 3 740 2 835 6 740
Fund transfers (381) 385 205
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
million million million
2. EARNINGS PER SHARE (continued)
Number of shares:
Number of ordinary shares in issue at
beginning of period 2 303,6 2 408,6 2 408,6
Less: Weighted average number of
shares cancelled - (11,7) (43,8)
Less: Weighted average Sanlam shares
held by subsidiaries (including
policyholders) (129,4) (178,7) (161,7)
Weighted average number of shares for
basic earnings per share 2 174,2 2 218,2 2 203,1
Add: Weighted conversion of
deferred shares 8,7 6,6 6,8
Add: Total number of shares under
option 42,7 72,7 63,1
Less: Number of shares (under option)
that would have been issued at fair
value (15,8) (35,2) (29,9)
Weighted average number of shares for
diluted earnings per share 2 209,8 2 262,3 2 243,1
3. SEGMENTAL INFORMATION
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
Segment revenue (per shareholders`
fund information) 12 280 10 816 22 913
Life Insurance 5 196 4 744 10 039
Short-term Insurance 5 643 5 023 10 482
Investment Management 1 129 870 1 996
Sanlam Capital Markets 237 151 370
Independent Financial Services 13 30 28
Corporate and other 62 (2) (2)
IFRS adjustments 652 566 1 308
Total segment revenue 12 932 11 382 24 221
Segment result (per shareholders fund
information before tax
and minorities) 5 228 4 504 10 183
Life Insurance 5 841 3 478 9 454
Short-term Insurance 1 213 865 2 483
Investment Management 619 502 1 186
Sanlam Capital Markets 142 53 151
Independent Financial Services 26 112 110
Corporate and other (2 613) (506) (3 201)
IFRS adjustments (13) 2 (146)
Policyholder activities 603 468 1 129
Total segment result 5 818 4 974 11 166
4. CONTINGENT LIABILITIES
Shareholders are referred to the contingent liabilities disclosed in the 2006
annual report. The circumstances surrounding these contingent liabilities
remained materially unchanged.
5. SUBSEQUENT EVENTS
No material facts or circumstances have arisen between the dates of the balance
sheet and this report which affect the financial position of the Sanlam Limited
group as reflected in these financial statements.
Group Embedded Value Results for the six months ended 30 June 2007
Contents
Basis of presentation
Assumptions
Group Embedded Value
Group Return on Embedded Value
Value of New Life Business
Notes to the Group Embedded Value Results
GROUP EMBEDDED VALUE RESULTS
for the six months ended 30 June 2007
BASIS OF PRESENTATION
The embedded value information has been prepared in accordance with PGN 107
(Version 3), the guidance note on the derivation of assumptions, calculation and
reporting of embedded values, issued by the Actuarial Society of South Africa.
The embedded value results have been prepared on the same basis as used in the
2006 annual report, apart from the treatment of the Shriram joint venture.
Shriram was previously included in the Group embedded value at its equity-
accounted carrying value. With effect from 1 January 2007, the goodwill
included in the equity-accounted carrying value is replaced with Shriram`s value
of in-force business.
The net impact of the above change in methodology was a decrease in the embedded
value earnings for the six months ended 30 June 2007 of some R100 million.
ASSUMPTIONS
The embedded value calculation is based on best estimate assumptions (refer note
9). These assumptions are used as the basis for statutory solvency reporting, to
which compulsory and discretionary margins are added for the determination of
policy liabilities in the financial statements.
Economic assumptions
The assumed investment return on assets supporting the policy liabilities and
capital at risk are based on the long-term asset mix for these funds.
Inflation assumptions for unit cost, policy premium indexation and employee
benefits salary inflation are based on an assumed long-term gap relative to
fixed-interest securities.
Assets backing capital at risk
The assumed composition of the assets backing the capital at risk is consistent
with Sanlam`s practice and with the long-term asset distribution used to
calculate the statutory capital requirements of the Group`s life businesses.
Decrements, expenses and bonuses
Future mortality, morbidity and discontinuance rates and future expense levels
are based on recent experience where appropriate.
Future rates of bonuses for traditional participating business, stable bonus
business and participating annuities are set at levels that are supportable by
the assets backing the respective product asset funds at the valuation date.
The surrender and paid-up bases of the Group`s South African life companies have
been adjusted, where applicable, to reflect the minimum standards for early
termination values agreed between the Life Offices Association and National
Treasury. In all other respects, future benefits have been determined on
current surrender and paid-up bases.
HIV/Aids
Allowance is made, where appropriate, for the impact of expected HIV/Aids-
related claims, using models developed by the Actuarial Society of South Africa,
adjusted for Sanlam`s practice and product design.
Premiums on individual business are assumed to be rerated, where applicable, in
line with deterioration in mortality, with a three-year delay from the point
where mortality losses would be experienced.
Asset management fees
Projected asset management expenses are based on the fee structures agreed with
the Group and external fund managers, as appropriate. To the extent that fees
include profit margins for Sanlam Investment Management, these margins have not
been included in the value of in-force and new business.
Project costs
In determining the value of in-force business, the value of future expenses in
respect of certain planned projects that focus on both administration and
distribution aspects of the life insurance business, is deducted. These projects
are of a short-term nature, although similar projects may be undertaken from
time-to-time. No allowance has been made for anticipated future productivity
gains.
Where appropriate, special development costs that relate to investments in the
Group`s distribution platform are not allowed for in the projections. These
costs are included in embedded value earnings from life operations as they are
incurred.
Taxation
Projected tax is based on current tax legislation and rates, except where future
changes in tax legislation or rates have been announced.
Allowance has been made for the impact of capital gains tax on investments in
South Africa, other than investments in Group subsidiaries. The assumed
rollover period for realisation of these investments is five years.
Allowance is made for STC by placing a present value on the tax liability
generated by the net cash dividends paid that are attributable to life insurance
business. It is assumed that all future dividends will be paid in cash.
GROUP EMBEDDED VALUE at 30 June 2007
June December
Reviewed Reviewed Audited
2007 2006 2006
Note R million R million R million
Group shareholders`
fund atfair value 38 737 32 006 37 491
Reverse goodwill and value of
life business acquired (1 510) (1 395) (1 425)
Merchant Investors (356) (356) (356)
African Life (934) (936) (955)
Channel Life (88) (81) (91)
Goodwill included in carrying
value of Shriram Life (105) - -
Other (27) (22) (23)
Shareholders` fund adjustments (1 664) (1 594) (1 518)
Present value of holding company
expenses 1 (760) (924) (667)
Fair value of outstanding equity
compensation shares (878) (618) (772)
Other (26) (52) (79)
Group shareholders` adjusted
net assets 35 563 29 017 34 548
Net value of life insurance business
in-force 2 13 063 11 201 12 263
Value of life insurance business
in-force 15 713 13 312 14 746
Sanlam Personal Finance 12 840 10 769 12 010
Sanlam Developing Markets 1 922 1 535 1 762
Sanlam Employee Benefits 951 1 008 974
Cost of capital at risk (2 199) (1 800) (2 115)
Sanlam Personal Finance (1 614) (1 402) (1 582)
Sanlam Developing Markets (155) (115) (142)
Sanlam Employee Benefits (430) (283) (391)
Minority shareholders` interest
in net value of in-force (451) (311) (368)
Sanlam Personal Finance (83) (46) (51)
Sanlam Developing Markets (368) (265) (317)
Sanlam Employee Benefits - - -
Group embedded value 48 626 40 218 46 811
Embedded value per share (cents) 2 188 1 750 2 047
Number of shares (million) 2 222 2 298 2 287
GROUP RETURN ON EMBEDDED VALUE for the six months ended 30 June 2007
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million Note Value Adjusted
of in- net
force assets Total Total Total
Embedded value from new
life insurance business 667 (407) 260 172 434
Earnings from existing
life insurance business (256) 1 259 1 003 622 1 717
Expected return on value of in
-force business 768 - 768 624 1 256
Expected transfer of profit to adjusted
net assets (1 041) 1 041 - - -
Operating experience
variations 3 2 221 223 32 277
Operating assumption
changes 15 (3) 12 (34) 184
Development
expenses 4 - (31) (31 - -
Embedded value earnings from
life operations 411 821 1 232 794 2 151
Economic assumption
changes 5 (122) 4 (118) (160) (5)
Tax changes 6 283 2 285 102 47
Investment variances 292 (54) 238 485 1 015
Exchange rate movements 9 - 9 100 119
Change in minority interests in
growth from life
business (78) (55) (133) (26) (76)
Growth from life insurance
business 795 718 1 513 1 295 3 251
Investment return on shareholders`
adjusted net assets - 3 828 3 828 3 383 8 345
Non-life operations - 2 830 2 830 1 512 4 359
Balanced portfolio - 1 302 1 302 1 963 3 954
Shriram goodwill less VIF
acquired - (103) (103) - -
Treasury shares
and other - (201) (201) (92) 32
Change in adjustments to net
worth - (146) (146) 41 116
Total embedded value
earnings 7 795 4 400 5 195 4 719 11 712
Acquired value
of in-force 5 (5) - - -
Dividends paid - (1 771) (1 771) (1 535) (1 535)
Shares cancelled - - - (1 036) (1 644)
Cost of treasury shares
acquired - (1 609) (1 609) (134) 74
Sanlam share buy back - (1 446) (1 446) - -
Share incentive scheme
and other - (163) (163) (134) 74
Change in Group embedded
value 800 1 015 1 815 2 014 8 607
Annualised growth from life insurance business as a % of beginning value of in-
force 26,1% 26,0% 30,7%
Annualised return on embedded value 23,4% 26,2% 30,7%
Annualised return on embedded value per share 22,7% 26,6% 31,0%
Analysis of return on embedded value (ROEV):
June 2007 June 2006 December 2006
Reviewed Reviewed Audited
EV ROEV EV ROEV EV ROEV
R million % R million % R million %
Non-life
operations 2 830 21,4 1 512 15,6 4 359 44,9
Life cluster 136 12,9 223 33,4 303 45,4
Santam 1 393 24,8 (324) -6,8 1 043 22,0
Investment
Management 995 18,6 1 433 44,4 2 711 84,0
Sanlam Capital
Markets 140 35,0 50 12,5 141 35,3
Independent Financial
Services 166 26,6 130 25,7 161 31,9
Balanced portfolio 1 302 5,7 1 963 10,0 3 954 20,2
Shriram goodwill less
VIF acquired (103) - -
Treasury shares and
Other (201) (92) 32
Change in shareholders`
fund adjustments (146) 41 116
Shareholders` adjusted
net assets 3 682 10,7 3 424 12,4 8 461 30,6
Growth from life insurance
business 1 513 12,3 1 295 12,2 3 251 30,7
Value of new life
business 260 2,1 172 1,6 434 4,1
Existing life
business 1 003 8,2 622 5,9 1 717 16,2
Expected return 768 6,3 624 5,9 1 256 11,9
Operating experience
variations 223 1,8 32 0,3 277 2,6
Operating assumption
changes 12 0,1 (34) -0,3 184 1,7
Adjustments 414 3,4 527 5,0 1 176 11,1
Investment variances
and exchange rate
differences 247 2,0 585 5,5 1 134 10,7
Economic assumption
changes (118) -1,0 (160) -1,5 (5) 0,0
Tax changes 285 2,3 102 0,9 47 0,4
Development
expenses (31) -0,3 - - - -
Minority interests in
value of in-force (133) -1,1 (26) -0,2 (76) -0,7
Return on embedded
value 5 195 11,1 4 719 12,4 11 712 30,7
VALUE OF NEW LIFE BUSINESS for the six months ended 30 June 2007
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
Note R million R million R million
Value of new life business (at point of sale)
Gross value of new life business 278 192 472
Sanlam Personal Finance 154 129 276
Sanlam Developing Markets 95 52 149
Sanlam Employee Benefits 29 11 47
Cost of capital at risk (18) (20) (38)
Sanlam Personal Finance (8) (7) (15)
Sanlam Developing Markets (7) (10) (15)
Sanlam Employee Benefits (3) (3) (8)
Net value of new life business 260 172 434
Sanlam Personal Finance 146 122 261
Sanlam Developing Markets 88 42 134
Sanlam Employee Benefits 26 8 39
Net value of new life business attributable to:
Shareholders` fund 222 149 379
Sanlam Personal Finance 145 121 259
Sanlam Developing Markets 51 20 81
Sanlam Employee Benefits 26 8 39
Minority interests 38 23 55
Sanlam Personal Finance 1 1 2
Sanlam Developing Markets 37 22 53
Sanlam Employee Benefits - - -
Net value of new life business 260 172 434
Geographical analysis:
South Africa 202 141 346
Africa 52 30 84
Other international 6 1 4
Net value of new life business 260 172 434
New business profitability
Before minority shareholders` interest
Present value of new business
premiums 8 11 214 9 485 20 308
Sanlam Personal Finance 7 438 6 373 13 735
Sanlam Developing Markets 2 010 1 426 3 107
Sanlam Employee Benefits 1 766 1 686 3 466
Life new business margin 2,3% 1,8% 2,1%
Sanlam Personal Finance 2,0% 1,9% 1,9%
Sanlam Developing Markets 4,4% 2,9% 4,3%
Sanlam Employee Benefits 1,5% 0,5% 1,1%
After minority shareholders` interest
Present value of new business
premiums 8 10 535 8 991 19 426
Sanlam Personal Finance 7 390 6 302 13 663
Sanlam Developing Markets 1 379 1 003 2 297
Sanlam Employee Benefits 1 766 1 686 3 466
Life new business margin 2,1% 1,7% 2,0%
Sanlam Personal Finance 2,0% 1,9% 1,9%
Sanlam Developing Markets 3,7% 2,0% 3,5%
Sanlam Employee Benefits 1,5% 0,5% 1,1%
NOTES TO THE GROUP EMBEDDED VALUE RESULTS
for the six months ended 30 June 2007
1. Present value of holding company expenses
The present value of holding company expenses has been calculated by applying a
multiple of 7,2 to the projected full year after tax recurring corporate
expenses. From December 2006 corporate expenses include allowance for interest
earned on cash held in respect of the annual dividend between year-end and
actual payment date.
2. Sensitivity to risk discount rate at 30 June 2007
Gross value Net
of in-force Cost of value of Change
business capital in-force from
at risk business base
R R R value
million million million %
Net value of in-force business
Base value 15 216 (2 153) 13 063
* Increase risk discount
rate by 1,0% 14 303 (2 436) 11 867 -9
* Decrease risk discount
rate by 1,0% 16 246 (1 834) 14 412 10
Gross value Net
of new Cost of value of Change
business capital new from
at risk business base
R R R value
million million million %
Net value of new life business
Base value (after minorities) 237 15) 222
* Increase risk discount
rate by 1,0% 206 (17) 189 -15
*Decrease risk discount
rate by 1,0% 273 (14) 259 17
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
3. Operating experience variations
Risk experience 111 120 280
Group stabilised
business outflows (14) (77) (108)
Working capital and other 126 (11) 105
Total operating
experience variations 223 32 277
4. Development expenses
Development expenses relate to once-off expenditure on the Group`s distribution
platform that has not been allowed for in the embedded value assumptions.
5. Economic assumption changes
Investment yields and
inflation gap (80) (154) (51)
Long-term asset mix
assumptions (38) (6) 46
Total economic
assumption changes (118) (160) (5)
Six months Full year
Reviewed Reviewed Audited
2007 2006 2006
R million R million R million
6. Tax changes
Change in policyholders`
fund tax rate 135 102 117
Reduction in STC rate
from 12,5% to 10% 150 - -
STC modeling changes
and other - - (70)
Total tax changes 285 102 47
7. Reconciliation of embedded value earnings
The embedded value earnings reconcile as follows to attributable earnings for
the year:
Normalised attributable earnings per
shareholders` fund
income statement 3 740 2 835 6 740
Earnings recognised
directly in equity 23 356 392
Net foreign currency translation
(losses)/gains (5) 311 318
Share-based payments 28 45 74
Movement in fair value adjustment -
non-life operations 1 236 1 020 2 876
Treasury shares and other (373) (92) 32
Earnings: shareholders`
fund at fair value 4 626 4 119 10 040
Movement in adjustments to shareholders`
Fund (226) - 19
Present value of holding company
expenses (93) 23 280
Fair value of share
incentive scheme (106) 175 21
Other shareholders`
fund adjustments 53 (158) (185)
Change in goodwill and VOBA adjustments
less VIF acquired (80) (40) (97)
Earnings: shareholders`
adjusted net assets 4 400 4 119 10 059
Growth from life business 795 600 1 653
Total embedded value earnings 5 195 4 719 11 712
8. Present value of new business premiums
The present value of new business premiums is based on the new life insurance
business as disclosed in note 1 of the shareholders` fund information, excluding
Sanlam Developing Markets white label new business.
June December
Reviewed Reviewed Audited
2007 2006 2006
% p.a. % p.a. % p.a.
9. Economic assumptions
Gross investment return, risk discount rate and inflation
Sanlam Life and Sanlam Life Namibia:
Fixed-interest securities 8,4 8,8 7,9
Equities and offshore investments 10,4 10,8 9,9
Hedged equities 8,4 8,8 7,9
Property 9,4 9,8 8,9
Cash 6,4 6,8 5,9
Risk discount rate 10,9 11,3 10,4
Return on capital at risk 7,6 9,1 7,1
Unit cost and salary inflation 4,9 5,3 4,4
Consumer price index inflation 4,9 4,3 4,4
Merchant Investors:
Fixed-interest securities 5,3 4,7 4,6
Equities and offshore investments 7,8 7,1 7,1
Hedged equities 7,8 7,1 7,1
Property 7,8 7,1 7,1
Cash 5,3 4,5 4,6
Risk discount rate 9,0 8,4 8,3
Return on capital at risk 5,3 4,7 4,6
Unit cost and salary inflation 3,9 3,0 3,5
Consumer price index inflation 3,9 3,0 3,5
African Life:
Fixed-interest securities 8,7 8,8 8,0
Equities and offshore investments 10,7 10,8 10,0
Hedged equities n/a n/a n/a
Property 9,7 9,8 9,0
Cash 6,7 6,8 6,0
Risk discount rate 11,2 11,3 10,5
Return on capital at risk 8,7 9,3 8,0
Unit cost and salary inflation 5,7 5,8 5,0
Consumer price index inflation n/a n/a n/a
Botswana Life Insurance:
Fixed-interest securities 10,5 12,0 11,0
Equities and offshore investments 12,5 14,0 13,0
Hedged equities 12,5 14,0 13,0
Property 11,5 13,0 12,0
Cash 8,5 10,0 9,0
Risk discount rate 14,0 15,5 14,5
Return on capital at risk 11,1 12,6 11,8
Unit cost and salary inflation 7,5 9,0 8,0
Consumer price index inflation n/a n/a n/a
June December
Reviewed Reviewed Audited
2007 2006 2006
% % %
9. Economic assumptions (continued)
Long-term asset mix for assets supporting the capital at risk
Sanlam Life and Sanlam Life Namibia:
Equities - 25 -
Hedged equities 20 35 20
Property - 5 -
Fixed-interest securities 50 20 50
Cash 30 15 30
100 100 100
Merchant Investors:
Equities - - -
Hedged equities - - -
Property - - -
Fixed-interest securities - - -
Cash 100 100 100
100 100 100
African Life:
Equities 50 50 50
Hedged equities - - -
Property - - -
Fixed-interest securities - 25 -
Cash 50 25 50
100 100 100
Botswana Life Insurance:
Equities 68 66 75
Hedged equities - - -
Property 8 3 1
Fixed-interest securities 14 31 24
Cash 10 - -
100 100 100
Note: The above life companies represent some 98% of the Group`s net value of
in-
force business at 30 June 2007.
Group secretary
Johan Bester
Registered office
2 Strand Road, Bellville 7530, South Africa
Telephone +27 21 947-9111
Fax +27 21 947-3670
Postal address
PO Box 1, Sanlamhof 7532, South Africa
Registered name: Sanlam Limited
(Registration number 1959/001562/06)
JSE share code: SLM
NSX share code: SLA
ISIN number: ZAE000070660
Incorporated in South Africa
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary) Limited
(Registration number 2004/003647/07)
70 Marshall Street, Johannesburg 2001,
South Africa
PO Box 61051, Marshalltown 2107, South Africa
Tel 086 1100 913
Fax +27 11 688-5201
www.sanlam.co.za
Directors: RC Andersen (Chairman), PT Motsepe (Deputy Chairman), J van Zyl
(Group Chief Executive), MMM Bakane-Tuoane, AD Botha, AS du Plessis, FA du
Plessis, WG James, MV Moosa, JP Moller, RK Morathi, SA Nkosi, I Plenderleith, M
Ramos, GE Rudman, RV Simelane, ZB Swanepoel, PL Zim
6 September 2007
Sponsor
JPMorgan Equities Ltd
Date: 06/09/2007 09:11:44 Produced by the JSE SENS Department.
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