| Wed 12 Sep 2001, 0:00 | | Sanlam Limited - Results For The Six Months Ended |
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Sanlam Limited
JSE Share code: SLM
ISIN number: ZAE4028262
Results for the six months ended 30 June 2001
Highlights
- 30% growth in gross operating profit
- Life insurance new business* growth of 15%
- 56% growth in new business embedded value
- New business embedded value margin improved to 12,6%
- New business annual premium equivalent (APE)
Six months unaudited Full year
Salient features 2001 2000 2000
Life insurance new business APE (1) R million 1 258 1 091 2 948
Embedded value of new business (NUBev) R million 128 82 209
NUBev margin % 12,6 9,3 8,4
New business R million 14 901 17 117 37 700
Net inflow of funds R million (3002) 45 777
Gross operating profit R million 1 004 774 1 656
Net operating profit per share cents 27,3 22,9 46,3
Headline earnings per share based on
the LTRR(2) cents 61,1 66,9 131,5
Embedded value per share cents 1 097 980 1 035
(1) APE (annual premium equivalent) = recurring plus 10% single premiums
(2) LTRR = long term rate of return
GROUP INCOME STATEMENT
Six months unaudited Full year
Note 2001 2000 2000
R million R million R million
FUNDS RECEIVED FROM CLIENTS 2 19 370 21 868 46 926
Operating profit before tax 5 & 6 1 004 774 1 656
Tax on operating profit 7 (242) (78) (180)
Operating profit from ordinary
activities after tax 762 696 1 476
Minority interest (32) (91) (246)
NET OPERATING PROFIT 730 605 1 230
Actual investment return 8 804 89 1 322
Tax on investment return 7 (164) (7) (202)
Minority interest (178) 182 (33)
Net long term rate of return
adjustment 9 440 898 1 178
LTRR NET INVESTMENT RETURN 902 1 162 2 265
LTRR HEADLINE EARNINGS 1 632 1 767 3 495
Short-term investment fluctuations 9 (440) (898) (1 178)
Other net investment surpluses/(deficits)
and adjustments 685 (254) (108)
Attributable earnings 1 877 615 2 209
Diluted earnings per share (cents):
- Net operating profit from ordinary activities 27,3 22,9 46,3
- LTRR headline earnings 61,1 66,9 131,5
- Attributable earnings per share 70,3 23,3 83,1
Weighted average number of shares (million) 2 670 2 641 2 657
Dividends per share (cents) - - 30,0
GROUP BALANCE SHEET
Six months unaudited Full year
2001 2000 2000
R million R million R million
ASSETS
Non-current assets
Fixed assets 274 320 256
Goodwill 1 950 34 1 711
Investments 157 379 150 298 152 652
Deferred tax 87 224 115
Current assets 25 561 21 545 23 331
Total assets 185 251 172 421 178 065
EQUITY AND LIABILITIES
Shareholders' funds 20 099 18 292 18 222
Minority interest 1 324 2 569 1 215
Non-current liabilities
Policy liabilities 136 766 128 940 133 952
Term finance 5 059 4 153 4 698
Deferred tax 297 406 284
Current liabilities 21 706 18 061 19 694
Total equity and liabilities 185 251 172 421 178 065
Segregated funds not included
in the above
balance sheet 54 430 42 379 45 572
Total assets under management
and administration 239 681 214 800 223 637
Tangible net asset value
per share (cents) 843 750 779
CASH FLOW STATEMENT
Net cash flow from operating
activities 2 457 (2 460) 4 707
Cash flow from investment
activities (4 682) 3 513 (1 414)
Cash flow from financing
activities 361 91 628
Net (decrease)/increase in
cash and cash equivalents (1 864) 1 144 3 921
Cash, deposits and similar
securities at beginning
of year 8 137 4 216 4 216
Cash, deposits and similar
securities at end of year 6 273 5 360 8 137
FINANCIAL RATIOS
Six months unaudited Full year
2001 2000 2000
Returns * % % %
Operating profit before tax (1) 10,0 7,5 7,3
Operating profit after tax (1) 7,6 6,8 6,6
Headline earnings based on the
long term rate of
return (2) 16,9 19,9 18,8
Return on embedded value (3) 12,1 -6,4 5,1
Annualised return on the
Sanlam share price since
listing 28,8 22,4 26,6
Group administration cost
ratio (4) 32,3 31,6 32,3
Group operating margin (5) 19,9 19,0 20,0
* returns annualised for 6 months to 30 June
NOTES
(1) Operating profit before and after tax as a percentage of the average
shareholders' fund for the year.
(2) Headline earnings based on the long term rate of return as a percentage
of the average shareholders' fund for the year.
(3) Growth in embedded value (before dividends paid) as a percentage of
embedded value at the beginning of the year.
(4) Administration costs as a percentage of income earned by the
shareholders less sales remuneration.
(5) Operating profit before exceptionals as a percentage of income earned by
the shareholders less sales remuneration.
NOTES TO THE FINANCIAL STATEMENTS
R million R million R million
1. NEW BUSINESS
LIFE INSURANCE 5,431 4,470 12,661
SPF 4,438 3,786 8,871
Recurring 729 607 1,642
Single 2,511 2,159 4,989
Continuations 1,198 1,020 2,240
SEB 900 584 3,594
Recurring 48 92 195
Single 852 492 3,399
Other life insurance 93 100 196
Recurring 17 16 32
Single 76 84 164
OTHER 9,470 12,647 25,039
SPF : Unit trust inflows 3,476 4,892 9,074
SIM 1,763 4,283 8,744
Life licence business * 278 350 771
Segregated fund business 1,485 3,933 7,973
Innofin 1,341 1,284 2,449
Life licence business * 394 361 762
Linked products 947 923 1,687
Sanlam Health 332 330 668
Santam 2,310 1,709 3,836
Other 248 149 268
TOTAL NEW BUSINESS 14,901 17,117 37,700
LIFE INSURANCE APE 1,258 1,091 2,948
Six months unaudited Full year
2001 2000 2000
R million R million R million
2. FUNDS RECEIVED FROM CLIENTS
LIFE INSURANCE 9,596 8,695 21,568
SPF 7,541 7,004 15,630
Recurring 3,832 3,825 8,401
Single & continuations 3,709 3,179 7,229
SEB 1,952 1,565 5,754
Recurring 1,100 1,073 2,355
Single 852 492 3,399
Other life insurance 103 126 184
Recurring 33 22 54
Single 70 104 130
OTHER 9,774 13,173 25,358
SPF : Unit trust inflows 3,476 4,892 9,074
SIM 2,067 4,809 9,063
Life licence business * 582 876 1,090
Recurring 298 516 695
Single 284 360 395
Segregated fund business 1,485 3,933 7,973
Innofin 1,341 1,284 2,449
Life licence business * 394 361 762
Linked products 947 923 1,687
Sanlam Health 332 330 668
Santam 2,310 1,709 3,836
Other 248 149 268
FUNDS RECEIVED FROM CLIENTS 19,370 21,868 46,926
3. BENEFITS PAID TO CLIENTS
LIFE INSURANCE 10,955 9,927 21,985
SPF 8,361 7,226 15,952
Surrenders 2,093 1,627 3,672
Other benefits 6,268 5,599 12,280
SEB 2,558 2,666 5,954
Terminations 704 948 2,214
Other benefits 1,854 1,718 3,740
Other life insurance 36 35 79
OTHER 11,417 11,896 24,164
SPF : Unit trust outflows 3,592 4,937 8,569
SIM 5,047 4,770 10,900
Life licence business * 2,420 3,361 6,550
Terminations 1,723 2,265 4,689
Other benefits 697 1,096 1,861
Segregated fund business 2,627 1,409 4,350
Innofin 689 507 1,133
Life licence business * 108 60 142
Linked products 581 447 991
Sanlam Health 313 321 640
Santam 1,661 1,289 2,763
Other 115 72 159
BENEFITS PAID TO CLIENTS 22,372 21,823 46,149
4. NET INFLOW OF FUNDS
Life insurance (1,359) (1,232) (417)
Other (1,643) 1,277 1,194
TOTAL IN/(OUT) FLOW OF FUNDS (3,002) 45 777
*Life licence business relates to investment products provided by
Sanlam Investment Management and Innofin by means of life insurance
policies. The employee benefit investment products provided by means of
insurance policies were previously reported as Sanlam Employee Benefit
business. With effect from
1 January 2001 the responsibility for the bulk of this business was
transferred to Sanlam Investment Management and has been reported
accordingly. For comparative purposes the 2000 figures were restated to
reflect a reasonable approximation of the split in this business.
5. SEGMENTAL ANALYSIS OF OPERATING PROFIT
Sanlam Personal Finance 585 496 1 044
Sanlam Employee Benefits 122 106 202
Sanlam Investment Management 129 145 263
Gensec Bank 112 138 239
Santam 52 (13) 100
Gensec Properties 42 52 59
Sanlam Health 7 7 15
Corporate income 54 64 122
Corporate costs (89) (95) (190)
Other (10) (18) (52)
Gensec corporate and trading - (108) (146)
Total operating profit 1 004 774 1 656
6. OPERATING PROFIT
Financial services income 6 294 5 390 11 643
Sales remuneration 815 731 1 505
Income after sales
remuneration 5 479 4 659 10 138
Underwriting policy benefits 2 620 2 300 4 840
Administration costs 1 769 1 473 3 274
Operating profit before
exceptional items 1 090 886 2 024
Exceptional items 86 112 368
Operating profit after
exceptional items 1 004 774 1 656
7. INCOME TAX
Operating profit 242 78 180
Normal and deferred 242 196 410
Deferred tax reversal - (118) (230)
Actual investment return 164 7 202
Normal and deferred 164 70 326
Deferred tax reversal - (63) (124)
Income tax (before LTRR adjustment) 406 85 382
8. ACTUAL INVESTMENT RETURN
Investment income 325 488 950
Private equity, underwriting
and corporate cash income 3 (168) (26)
Absa equity accounted earnings 300 206 423
Investment surpluses 176 (437) (25)
Actual investment return 804 89 1 322
9. NET LONG TERM RATE OF RETURN ADJUSTMENT
Investment return 416 1 385 1 598
Tax (29) (128) (105)
Minority shareholders interest 53 (359) (315)
Net long term rate of return
adjustment 440 898 1 178
10. ABRIDGED SHAREHOLDERS' FUND BALANCE SHEET - MARKET VALUE
(Santam, SIM, Gensec Bank, Gensec Properties & Gensec not
consolidated and reflected as investments at market value)
Assets
Investments
Sanlam businesses
Gensec (1) (50% interest held) - 3 409 -
SIM (1) 3 629 - 3 588
Gensec Bank (1) 1 365 - 1 600
Gensec Properties (1) 200 - 225
Strategic investment-Santam (1) 1 698 1 078 1 274
Associated company - ABSA 4 045 2 383 2 751
Other Investments
Other equities 5 538 7 902 5 730
Private and underwriting equities 1 018 - 1 203
Public sector stocks
and loans 1 840 3 115 1 913
Properties 1 054 682 1 074
Other interest investments 6 757 5 482 6 412
Current and other assets 4 042 4 502 4 986
Total Assets 31 186 28 553 30 756
Equity and liabilities
Shareholders' Fund 22 185 19 739 20 512
Term finance 4 641 4 119 4 711
Current and other liabilities 4 360 4 695 5 533
Total equity and liabilities 31 186 28 553 30 756
(1) Excess of fair value over net
asset value of businesses
Fair value of businesses (above) 6 892 4 487 6 687
Less : Tangible net asset value 2 856 3 040 2 686
Gensec (50% interest held) - 2 123 -
SIM 181 - 323
Gensec Bank 1 339 - 1 234
Gensec Properties 64 - 62
Santam 1 272 917 1 067
Less : Goodwill recognised
in respect of above
businesses 1 950 - 1 711
Revaluation of interest
in businesses to fair value 2 086 1 447 2 290
11. ABRIDGED SHAREHOLDERS' FUND BALANCE SHEET - NET ASSET VALUE
(All businesses consolidated at NAV)
Assets
Goodwill 1 950 34 1 711
Investments 24 515 25 703 23 123
Current and other assets 21 630 17 116 19 113
Total Assets 48 095 42 853 43 947
Equity and liabilities
Shareholders' fund 20 099 18 292 18 222
Term Finance, current and
other liabilities 27 996 24 561 25 725
Total equity and liabilities 48 095 42 853 43 947
12. ASSETS SUBJECT TO LTRR INVESTMENT RETURN
Investments per shareholders' balance sheet
(note 11) 24 515 25 703 23 123
Less: Investment in ABSA 4 045 2 383 2 751
: Investments held for term
finance 4 626 3 695 4 369
: Free float of subsidiary 1 832 1 525 1 814
: Other 447 255 473
Assets subject to LTRR
investment return 13 565 17 845 13 716
Six months unaudited Full year
2001(1) 2000 2000
R million R million R million
13.1 EMBEDDED VALUE
Sanlam group shareholders'
net assets
per note 11) 20 099 18 292 18 222
Revaluation of interest in
businesses
to fair value (2)
(per note 10) 2 086 1 447 2 290
Sanlam group shareholders'
adjusted
et assets 22 185 19 739 20 512
Net value of existing life
insurance business 6 702 6 070 6 726
* Value of existing life
insurance business 8 408 7 655 7 900
* Cost of holding prudential
reserves (1 706) (1 585) (1 174)
Sanlam group embedded value 28 887 25 809 27 238
13.2 EMBEDDED VALUE EARNINGS
Embedded value from new life insurance
business 128 82 209
Earnings from existing life
insurance business 724 657 1 330
* Expected return 578 574 1 173
* Operating experience
variations 72 75 137
* Operating assumption changes 74 8 20
Embedded value earnings from
life operations 852 739 1 539
Economic and other
(including asset mix)
assumption changes 134 (66) 289
Tax changes (536) (23) (22)
Investment variances (14) (292) (304)
Growth from life insurance
business 436 358 1 502
Investment return on shareholders'
adjusted net assets 1 213 (1 205) (130)
Total embedded value
earnings before
dividends paid 1 649 (847) 1 372
APE for embedded value
purposes (3) 1 016 878 2 477
Embedded value of new
life business
as a percentage of APE 12,6% 9,3% 8,4%
Growth from life insurance business as
a % of beginning value of
existing business 13,0%* 11,6%* 24,3%
* annualised
(1) Provision was made for capital gains tax in 2001 for the first time
which reduced the embedded value by R536 million.
(2) This represents the revaluation from net asset to fair value of the
shareholders' funds interest in SIM, Gensec Bank, Gensec Properties,
Santam and Gensec. At 31/12/2000 and 30/06/2001 the fair value of SIM,
Gensec Bank and Gensec Properties was determined by the directors and at
30/06/2000 the listed value of the Gensec group was used as fair value.
(3) APE (annual premium equivalent) is equivalent to new recurring premiums
plus 10% single premiums. APE for embedded value purposes differs from that
disclosed in the financial statements as it excludes indexed growth new
business and other minor adjustments. APE excludes life licence business.
13.3 ANALYSIS PER BUSINESS
Net value of existing life insurance business
Sanlam Personal Finance 6 215 5 623 6 152
Sanlam Employee Benefits 812 789 897
Corporate (325) (342) (323)
Sanlam Group 6 702 6 070 6 726
30 June 2001 30 June 2000 31 December 2000
NUBev and APE
margins NUBev APE NUBev APE NUBev APE
Rm margin Rm margin Rm margin
Sanlam Personal
Finance 123 14,3% 63 8,8% 190 10,0%
Sanlam Employee
Benefits 27 20,3% 38 26,9% 70 13,1%
Corporate (22) - (19) - (51) -
Sanlam group 128 12,6% 82 9,3% 209 8,4%
30 June 2001 30 June 2000 31 December 2000
% % %
13.4 PRINCIPAL ASSUMPTIONS
Pre-tax investment
returns
Equities and offshore
investments 13,1 16,7 15,1
Hedged equities 10,1 13,7 12,1
Properties 12,1 15,7 14,1
Fixed-interest securities 11,1 14,7 13,1
Cash 9,1 12,7 11,1
Unit cost inflation 6,6 8,2 6,6
Consumer price index
inflation 6,1 8,2 6,6
Risk discount rate 13,6 16,7 15,6
STATEMENT OF CHANGES IN EQUITY
A separate statement of changes in equity is not presented as earnings
attributable to shareholders reflected in the income statement and dividends
paid of R664 million at 31 December 2000 are the only changes in the
shareholders equity during the reporting periods.
ACCOUNTING POLICIES
The accounting policies adopted for the purposes of this interim report
comply in all material respects with South African Statements of Generally
Accepted Accounting Practice as well as with applicable legislation. These
accounting policies are consistent with those of the previous year except
where stated otherwise.
VISION AND STRATEGY
Our vision is to be the leader in wealth creation and to further position
Sanlam as an innovative and dynamic leader in financial services. The
vision is supported by a strategy which is aimed at building and maintaining
long term relationships with clients and is based on three themes:
Domestic growth. The short-term focus is to deliver investment
excellence, building the base for operational excellence and thus broadening
our market base.
Client relationships. The focus is to use the Sanlam brand to its full
potential and to develop the provision of trusted advice and innovative
solutions to clients and ultimately an integrated life time value management
relationship.
Internationalisation. The immediate objective is to finalise Sanlam's
international strategy before the end of 2001 and to gear the capacity to
realise these aspirations.
We are actively continuing our efforts to become the employer of choice, to
maintain the momentum of our employment equity programme and to further
strengthen our position as a truly South African group.
INTEGRATION OF GENSEC ACTIVITIES
The Gensec Bank, Sanlam Investment Management (SIM) and Gensec Property
Services activities have been integrated as core businesses of the Sanlam
group. The Gensec private equity, underwriting and corporate cash
activities have been reclassified as investment activities and their results
(after adjusting for the LTRR) are included in the LTRR investment return in
the income statement. Previously these results were included in net
operating profit. Comparatives have been restated to reflect this
reclassification. The impact on the 2000 LTRR headline earnings due to this
restatement is not material.
CAPITAL EFFICIENCY AND MANAGEMENT
Capital efficiency, particularly the allocation of capital to the businesses
and asset deployment, has received specific attention during the review
period. The total capital at fair value of R22,2 billion is reflected by a
balanced portfolio and liquid assets of R9,7 billion and the balance
represented by investments in core businesses, non-liquid assets and our
investment in Absa which is subject to a voting pool agreement. The
estimated surplus capital in the Group, before current period earnings which
include significant unrealised investment surpluses, amounts to
approximately R2 billion. This excludes R1 billion which is held off-shore
to fund future expansion. Our ability to reduce this surplus is restricted
by our investment in core and strategic businesses as well as the need to
apply prudence in ensuring a satisfactory level of buffer capital for
unfavourable market conditions. This prudence is reaffirmed by the potential
market instability which may result from the tragic events in the USA. Our
objective remains to continuously improve the liquidity of our asset base
and to optimise its application.
The dividend distribution policies of the businesses in the Group promote
the migration of surplus capital and cash to Sanlam. The return measures
that the Group applies have been refined to assist shareholders in measuring
efficiency of capital utilisation.
COMMENTS ON RESULTS
Comments on the results for the six months to 30 June 2001, including
progress with our strategic focus areas, are included below.
General
The results for the six months to 30 June 2001 show good growth in our life
insurance business but our investment management and banking activities were
negatively impacted by difficult market conditions both locally and
internationally.
New business
We exceeded our target growth of 10% real in respect of our new business
volumes from life insurance business which increased by 21% due to improved
product offerings, particularly SPF's Stratus international endowment
product. This was offset by a 24% reduction in the non- life new business
inflows largely as a result of a decrease in the inflows into investment
products provided by Sanlam Investment Management (SIM) and inflows into
Sanlam Unit Trust products (SUT). This is in line with the trend in the
unit trust industry. SIM's inflows were influenced by clients' preference
to diversify their funds among asset managers and a lacklustre investment
performance which influenced both SIM & SUT inflows. The relative
investment performance for unit trusts has shown signs of improvement
towards the end of the reporting period.
Flow of funds
Although not satisfactory, the net outflow of funds from life insurance
business remained fairly constant over the comparable reporting periods.
The satisfactory growth in new life business was offset by a 29% increase in
policy surrenders. This is due to an increase in single premium policy
surrenders as clients appear increasingly to have shorter term views. The
publication of daily performance reports contributes to this trend. The net
inflow of funds from non-life business deteriorated significantly by
R2 920 million from a net inflow of R1 277 million in the first half of 2000
to a net outflow of R1 643 million in 2001, largely due to the reduced new
business inflows at SIM and SUT as discussed above.
Operating Profit
Operating profit before tax and minorities grew by 30%. The factors driving
this growth are:
SPF's profits, which contribute 58% of the Group's profit, grew by 18%
largely due to a 38% increase in administration profit. Increased revenue
and the containment of administration expenses, which increased by only 5%,
contributed largely to this increase.
Santam turned their underwriting loss of R13 million in 2000 around to a
profit of R52 million, and
The loss of R108 million incurred by the Gensec corporate and trading
activities in 2000, was not repeated in 2001.
Operating profit was negatively influenced by the 11% and 19% respective
reduction in SIM and Gensec Bank profits. SIM's profit was impacted by the
net outflow of funds and a lower international asset base caused by poorer
investment markets. Gensec Bank's profits was influenced by the difficult
market conditions experienced by investment banks both locally and
internationally.
Net operating profit (after tax and minorities) grew by 21%. The lower
growth compared to the growth in the operating profit discussed above is
largely attributable to the net effect of the deferred tax credit of R118
million and the reduction of R99 million in respect of the Gensec minorities
in 2000, which were not repeated in 2001.
Net LTRR investment return
The long term rate of return (LTRR) investment return is determined by
applying the longer term expected gross investment return of 13% to the
monthly average fair value of the underlying investments. The investment
base in 2001 was lower than last year as it was reduced by some
R4,5 billion during December 2000 to acquire the Gensec minority
shareholders and by some
R300 million for the cash consideration component of the Punter Southall
acquisition. The lower investment base contributed largely to the 22%
decrease in the net LTRR investment return over 2000. The LTRR investment
return in 2000 also included a R63 million deferred tax reversal and a
reversal of an investment provision of R37 million.
LTRR headline earnings
LTRR headline earnings represents the aggregate of the net operating profit
and the net LTRR investment return. In addition to the factors indicated
above, which contributed to the 9% reduction in LTRR headline earnings, the
acquisitions of the Gensec minorities and Punter Southall also had a
dilutionary effect on the 2001 earnings.
Embedded value
The life insurance new business embedded value (NUBev) increased by 56% to
R128 million and the NUBev margin improved from 9,3% to 12,6%. SPF's NUBev
grew by 95% and contributed 96% of the Group NUBev. The growth was largely
driven by increased new business volumes and a higher margin business mix.
The 2% reduction in the risk discount rate also contributed to the increased
NUBev, but to a lesser extent.
The annualised growth from life business (i.e. net value of existing life
business before the transfer of operating profit to current earnings) for
the six months to 30 June 2001 was 13,0% compared to 11,6% last year.
The sensitivity of the embedded values to the base risk discount rate of
13,6% has been determined. If the risk discount rate is reduced by 1,5% to
12,1%, the net value of existing life insurance business would increase by
21% (or by R1 392 million) and the net value of new life insurance business
would increase by 24% (or by R31 million). If the risk discount rate is
increased by 1,5% to 15,1% then the net value of existing life insurance
business would decline by 18% (or by R1181 million) and the net value of new
life insurance business would decline by 22% (or by R28 million).
CONTINGENCY
For one of the subsidiaries of Genbel Securities Ltd ("Gensec"), the South
African Revenue Services ("SARS") has issued revised assessments in respect
of the 1997 and 1998 tax years and has indicated that a revised assessment
will be issued in respect of the 1999 tax year. The company is in the
process of lodging objections to the revised assessments. The reason for
the revised assessments is that SARS contends that certain significant
surpluses arising from the disposal of assets by the company are not of a
capital nature. This contention will be disputed by the company.
DIVIDENDS
No interim dividend has been declared as it is our policy to only declare an
annual dividend at year end.
PROSPECTS
Notwithstanding the excellent growth in new business embedded value (NUBev)
and the sound growth achieved in new life business in the first half of
2001, we do not expect to achieve our NUBev target of R340 million for the
full year. The investment return will be lower than 2000 as a result of the
lower investment asset base due to the acquisition of the Gensec minorities
at the end of 2000.
In view of the tragic events in the USA and the potential market
instability, a forecast of results for the remainder of the year is
considered inappropriate.
DIRECTORATE
Ms Carmen Maynard was appointed as a non-executive director to the Sanlam
Board with effect from
1 August 2001 in the remaining vacancy that existed on the Board since
Sanlam decided in June this year to increase the number of its directors
from 14 to 18. Mr Derek Keys retired on 31 August 2001 and was replaced on
1 September 2001 by Mr George Rudman.
