| Wed 28 Aug 2002, 0:00 | | Santam Limited And Its Subsidiaries - Interim Repo |
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Santam Limited And Its Subsidiaries - Interim Report for the six months ended 30
June 2002
Santam Limited And Its Subsidiaries
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2002
HIGHLIGHTS
18% Increase in gross written premium
52% Improvement in Underwriting surplus
Headline earnings per share based on long-term rate of return up by 9%
Strong cash flow generation by operating activities
INCOME STATEMENT
UNAUDITED AUDITED
SIX SIX
MONTHS MONTHS YEAR
ENDED ENDED Change ENDED
30 JUNE 30 JUNE 31 DECEMBER
Notes 2002 2001 2001
R millions R millions R millions
Gross written premium 3 429 2 898 18% 6 206
Net written premium 2 549 2 325 10% 4 574
Net Earned Premiums 2 568 2 311 11% 4 760
Claims incurred 1 807 1 637 3 366
Acquisition costs 682 622 1 297
Underwriting surplus 79 52 52% 97
Investment return on
insurance funds 48 43 88
Operating profit 127 95 34% 185
Investment return based
on the long-term rate of
return 2 217 193 398
Income from associates (12) - 2
Income before taxation 332 288 15% 585
Taxation 4 82 63 128
Minority interest 5 3 12
Headline earnings based on
the long-term rate of
return 245 222 10% 445
Short-term investment
fluctuations 3 (98) 90 126
Attributable earnings 147 312 -53% 571
Cents Cents Cents
Headline earnings per share
based on the long-term rate
of return 220 202 9% 404
Attributable earnings per share 132 284 -53% 518
Dividends per share 65 59 10% 154
BALANCE SHEET
UNAUDITED AUDITED
AS AT AS AT AS AT
30 JUNE 30 JUNE 31 DECEMBER
2002 2001 2001
R millions R millions R millions
ASSETS
Non-current assets
Fixed assets 34 41 36
Investments 3 245 3 534 3 600
Listed at market value 2 581 3 033 2 939
Unlisted at directors` valuation 629 445 620
Investment in associated companies 35 56 41
Technical assets 1 576 1 239 1 800
Current assets 2 497 1 970 2 022
Amounts due by debtors, reinsurers and
outstanding premiums 921 885 935
Cash and cash equivalents 1 576 1 085 1 087
Total assets 7 352 6 784 7 458
EQUITY AND LIABILITIES
Capital and reserves 3 283 3 ,019 3 230
Minority shareholders` interest 32 23 29
Deferred taxation 135 162 116
Technical provisions 3 200 3 104 3 458
Current liabilities and provisions 702 476 625
Total equity and liabilities 7 352 6 784 7 458
Number of shares in issue (millions) 111.4 110.1 110.9
Weighted average number of shares in
issue (millions) 111.1 109.8 110.2
Net asset value per share (cents) 2 946 2 742 2 914
Solvency margin (%) 68 68 71
STATEMENT OF CHANGES IN EQUITY
UNAUDITED AUDITED
SIX SIX
MONTHS MONTHS YEAR
ENDED ENDED ENDED
30 JUNE 30 JUNE 31 DECEMBER
2002 2001 2001
R millions R millions R millions
Balance at beginning of period 3 230 2 795 2 795
Shares issued 12 8 24
Attributable income to shareholders 147 312 571
Dividends paid (106) (96) (160)
Balance as at end of period 3 283 3 019 3 230
CASH FLOW STATEMENT
Cash generated from operations 163 73 (89)
Income before taxation 332 288 585
Depreciation charged 8 16 25
Other non-cash adjustments 12 2 (7)
Investment income (154) (154) (315)
Net investment surpluses (25) (184) (311)
Long-term rate of return adjustment (86) 102 140
Change in working capital 76 3 (206)
Dividends and interest received 140 134 315
Cash generated by operating activities 303 207 226
Taxation paid (81) (33) (70)
Dividends paid (106) (95) (162)
Cash retained from operating activities 116 79 (6)
Proceeds from ordinary shares issued 12 8 24
Investment in associated companies (5)
Cash utilised in additions to fixed assets (5) (3) (2)
Increase in investments and liquid assets 118 84 16
ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The interim consolidated financial statements are prepared in accordance with
the South African Statement of General Accepted Accounting Practices on interim
reporting (AC 127) and are consistent with those used in the annual financial
statements for the year ended 31 December 2001 except for change in the
accounting policy as mentioned below.
Where necessary, comparative figures have been restated to conform to changes
in presentation in the current year.
The investment return on insurance funds represents the interest earned on the
funds generated from insurance activities.
CHANGE IN ACCOUNTING POLICY
During the year, the company changed its accounting policy with respect to the
treatment of investment income. Previously, the net unrealised surplus resulting
from the revaluation of investments, and the realised surpluses resulting from
the sale of investments, were directly transferred to equity as non-
distributable and distributable reserves respectively.
From this year, the realised and unrealised surpluses are recognised in the
income statement. The comparative amounts have been appropriately restated. As
there has been no change to the opening reserve balances, the effect of this
change on attributable earnings is as follows:
SIX SIX
MONTHS MONTHS YEAR
ENDED ENDED ENDED
30 JUNE 30 JUNE 31 DECEMBER
2002 2001 2001
R millions R millions R millions
Gross increase in attributable earnings 25 184 311
Taxation (38) (28) (50)
Net decrease in attributable earnings (13) 156 261
Reconciliation of headline earnings
Attributable income 147 312 571
Net investment surpluses (25) (184) (311)
Taxation on investment surpluses 38 28 50
Headline and attributable earnings as
stated in terms of previous policy 160 156 310
Headline and attributable earnings
per share (cents) 144 142 282
NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICY FOR THE LONG -TERM RATE OF RETURN ADJUSTMENT.
The long-term rate of return adjustment represents the difference between the
actual investment return earned on shareholders` funds during the year and the
long term investment return calculated on the basis described below. The long-
term investment return is determined by the directors and is based on historical
experience and current market conditions having regard to inflation expectations
and consensus economic and investment forecasts.
The long-term investment return of 13% pre-tax is calculated on a monthly basis
on the fair value of the investments held in the shareholders` funds, excluding
holdings in associated companies. The directors are of the opinion that this
rate of return is appropriate and has been selected with a view to ensuring that
investment returns credited to headline earnings that are consistent with the
actual returns expected to be earned over the long term.
The directors are also of the opinion that the change to this method
appropriately discloses total earnings of the company.
UNAUDITED AUDITED
SIX SIX
MONTHS MONTHS YEAR
ENDED ENDED ENDED
30 JUNE 30 JUNE 31 DECEMBER
2002 2001 2001
R millions R millions R millions
2 INVESTMENT RETURN BASED ON THE LONG-TERM
RATE OF RETURN
Interest 53 53 102
Dividends 57 62 133
Net investment surpluses 25 184 311
Investment management fee (4) (4) (8)
Investment return: shareholders 131 295 538
Long-term rate of return adjustment 86 (102) (140)
Investment return based on the
long-term rate of return 217 193 398
3 NET LONG-TERM RATE OF RETURN ADJUSTMENT
Gross investment return 86 (102) (140)
Tax 12 12 14
Net long-term rate of return adjustment 98 (90) (126)
A comparison of the aggregate actual and
calculated long-term returns after tax
since 1 January 2001 is set out below:
Actual returns 536 252 458
Long-term returns (508) (162) (332)
Excess aggregate short-term fluctuations 28 90 126
4 TAXATION
Analysis of income tax
Operating profit 41 32 62
Investment return 53 43 80
Long-term rate of return adjustment (12) (12) (14)
Income tax on headline earnings based
on the long-term rate of return 82 63 128
SEGMENTAL REPORT
GROSS UNDERWRITING
PREMIUMS SURPLUS
UNAUDITED UNAUDITED
SIX SIX SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
30 JUNE 30 JUNE 30 JUNE 30 JUNE
2002 2001 2002 2001
R millions R millions R millions R millions
INSURANCE CLASS
Property 1 219 1 042 23 21
Transportation 122 105 9 5
Motor 1 431 1 298 31 4
Accident and health 104 90 8 13
Guarantee 107 37 9 10
Liability 191 126 5 7
Engineering 124 79 (5) 8
Miscellaneous 131 121 (1) (16)
3 429 2 898 79 52
Note:
Due to the general nature of the balance sheet, segmental reporting is limited
to the income statement.
COMMENTS
The Group has changed its reporting format to conform to international trends
and to enable industry comparison. Headline earnings per share based on the long
term rate of return increased by 9% to 220 cents per share.
Apart from market related premium increases, a steady growth in market share in
selected areas has brought about the increase in gross written premiums. The
34% increase in operating profit to R127 million was mainly as a result of the
improvement in the underwriting surplus. No catastrophic losses were
experienced during the period and the claims in both the corporate and niche
businesses sectors were unusually low. As a result, an underwriting surplus of
R79 million (June 2001: R52 million) was achieved.
Unfortunately the group could not escape the impact of adverse market movements
and its investment portfolios performed significantly below the assumed long-
term rate of return of 13%. However, on a relative basis, the portfolio managers
have performed well and outperformed their benchmarks. Over an 18 month-period
the actual return earned exceeds the long-term target.
Cash flows generated by operating activities improved mainly due to better
working capital management.
The solvency margin has decreased slightly from 71% at the previous year-end to
68%, predominantly as a result of the increased premium volume.
Against the background of the strong cash flow and healthy solvency margin, the
interim dividend is increased to 65 cents per share, in terms of the dividend
policy.
PROSPECTS
The group is pursuing various initiatives to increase stakeholders` wealth.
Negotiations are in progress to acquire a majority interest in a specialist UK
insurer at a cost of approximately R350million. This transaction is subject to
final contractual arrangements and regulatory approval. Successful consummation
will have a beneficial financial impact on the group and is an important
strategic step towards diversification of its income base.
Storm and flood damages were experienced during July and August. There has also
been an alarming increase in the cost of the imported components for motor
vehicle repairs. Provided these conditions do not continue performance will be
in line with set goals. Reduced cost and improved underwriting discipline, are
expected to support achievement of targeted results.
DECLARATION OF DIVIDEND (NUMBER 96)
Notice is hereby given that the board has declared an interim dividend of 65
cents per share (2001: 59 cents). Shareholders are advised that the last day to
trade "cum dividend" will be Thursday 19 September 2002. The shares will trade
"ex dividend" from the commencement of business Friday 20 September 2002. The
record date will be Friday 27 September 2002 and the payment date will be Monday
30 September 2002. Share certificates may not be dematerialised or
rematerialised between Friday 20 September 2002 and Friday 27 September
2002,both days inclusive.
On behalf of the board.
L VERMAAK J VAN ZYL
Chairman Chief executive
27 August, 2002
SANTAM HEAD OFFICE AND REGISTERED ADDRESS
1 SPORTICA CRESCENT, TYGER VALLEY, BELLVILLE 7530
P.O. BOX 3881,TYGER VALLEY 7536
TEL (021) 915 7000 FAX (021) 914 0700
http:// www.santam.co.za
ISIN ZAE000006854 JSE Share code SNT
Registration Number 1918/001680/06 NSX Share code SNM
TRANSFER SECRETARIES
Computershare Investor Services Limited
2nd Floor Edura, 41 Fox Street, Johannesburg 2000
P.O. Box 61051, Marshalltown 2107
TEL (011) 370 7700 FAX (011) 688 7721
http://www.computorshare.com
NON-EXECUTIVE DIRECTORS
L VERMAAK (Chairman), JJ GELDENHUYS*, EM GROENEWEG*, JG LE ROUX*, NM MAGAU*,
AR MARTIN*, JE NEWBURY*, P DE V RADEMEYER, GE RUDMAN, DK SMITH, BP VUNDLA*.
EXECUTIVE DIRECTORS
J VAN ZYL (Chief Executive), JA VAN TONDER, JW WILKEN.
COMPANY SECRETARY
VF MALIE.
* Independent non-executive directors
Date: 28/08/2002 08:00:00 AM Produced by the JSE SENS Department
