| Thu 6 Mar 2003, 11:05 | | Sanlam Group Results For The Year Ended 31 Decembe |
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Sanlam Group Results For The Year Ended 31 December 2002
SANLAM LIMITED
(REGISTRATION NUMBER 1959/001562/06)
JSE SHARE CODE: SLM
ISIN NUMBER: ZAE000028262
SANLAM GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002
Highlights
- New business embedded value margin increased from 13,2% to 14,7%
- Embedded value of new business increased by 10% to R320 million
- Operating profit of R2 149 million
- Excellent underwriting results from Santam: up 46%
- 11% growth in Sanlam Life operating profit
- Pro-forma LTRR headline earnings of R3 227 million (122,7 cps)
- 14% growth in comparable pro-forma LTRR headline earnings (cps)
- Dividend increased to 37c
SALIENT FEATURES
2002 2001 (1)
Operating profit before tax R million 2 149 2 092
Headline earnings R million 2 280 2 628
Pro Forma Headline earnings based on
the LTRR (2) R million 3 227 3 534
Net operating profit per share cents 56,3 62,9
Headline earnings per share cents 86,7 99,1
Pro Forma Headline earnings per share
based on the LTRR (2) Cents 122,7 133,2
Comparable pro-forma LTRR headline cents 134,4 117,6
earnings per share (3)
New business volumes R million 32 257 36 581
Net outflow of funds R million (3 934) (950)
Embedded value of new life business R million 320 290
Life insurance new business APE (4) R million 2 179 2 204
New business embedded value margin % 14,7 13,2
Embedded value per share cents 1 032 1 167
Dividend per share cents 37 35
FINANCIAL RATIOS
2002 2001
Returns
Operating profit after tax (5) % 7,2 8,2
Headline earnings % 11,0 12,9
Pro Forma Headline earnings based on
the LTRR (6) % 15,6 17,
Return on embedded value (7) % (8,9) 12,3
Group administration cost ratio (8) % 34,4 35,2
Group operating margin (9) % 17,0 18,4
Notes
(1) Operating results for 2001 have been reclassified to reflect the current
reporting structure.
(2) LTRR = Long term rate of return.
(3) Pro-forma LTRR headline earnings adjusted for the impact of Absa`s Unifer
losses, capital gains tax, reversal of surplus tax provision and a change in the
recognition of currency translation differences.
(4) APE = Annual premium equivalent and is equal to new recurring premiums
(excluding indexed growth premiums) plus 10% of single premiums.
(5) Operating profit after tax as a percentage of the average monthly
shareholders` funds for the year.
(6) Headline earnings based on the long term rate of return as a percentage of
the average monthly shareholders` funds for the year.
(7) Growth in embedded value (with dividends added back) as a percentage of
embedded value at the beginning of the year.
(8) Administration costs as a percentage of income earned by the shareholders`
funds less sales remuneration.
(9) Operating profit as a percentage of income earned by the shareholders` funds
less sales remuneration.
EXECUTIVE REVIEW
Introduction
We report on our achievements during the past year, which was one of the most
demanding in Sanlam`s history. The negative trends in the global economy and
their effect locally, the significant influence of the brutal equity markets on
the global insurance industry, the dynamics of South Africa and the rapidly
changing financial services industry, require of any successful organisation to
evolve in response to its environment.
Sanlam, as a major financial services group based in South Africa, with assets
under management of R246 billion, has been at the forefront of that change
process in 2002.
Operating environment in 2002
The 2002 results were achieved against a background of a weak global economy and
an increase of four percentage points in the domestic prime overdraft rate
during the course of the year, as well as extreme exchange rate volatility. The
South African economy demonstrated its resilience in spite of the rand/dollar
exchange rate appreciating by 28% during the year.
South African equity prices largely followed movements in international markets,
which took their cue from Wall Street. While the JSE Securities Exchange
outperformed Wall Street in the first half of 2002, this performance was
reversed in the second half of the year as resources stocks came under pressure
from the sharp appreciation in the rand and concerns regarding the impact of
government`s policy on black economic empowerment in the mining sector. All in
all it was a volatile year for the financial services industry, with perhaps the
most notable trend being the continued desire of investors to move towards more
liquid, short term investments rather than longer term life products. This
restrained the growth of our individual life business, although shorter term non
life products flourished.
Results for 2002
Pro-forma headline earnings per share, based on a long term rate of investment
return of 13% per annum, totalled 122,7 cents, an 8% decline on the previous
year`s 133,2 cents. On a comparable basis we achieved growth of 14%. As a Group
we favour this method of earnings calculation, which is recommended practice for
long term insurers in the United Kingdom, as it provides investors with a
measure of sustainable long term results. The adverse equity and currency market
movements, locally and internationally, materially affected the market value of
the Group`s investments during the year. Headline results based on actual
investment income for the period amount to R2 280 million compared with R2 628
million in 2001.
On the operational side, Sanlam Life posted a sterling 11% growth in operating
profit while the new business embedded value margin increased to 14,7%. Total
funds under advice at Sanlam International more than doubled to $24 billion.
Almost a third of Sanlam`s unit trusts were in the top quartile and three
quarters in the top half, measured over a 12-month period, while Sanlam
Investment Management managed to improve its position in the Alexander Forbes
Large Manager Watch. Gensec Bank bore the brunt of the difficult market
conditions and its operating profit declined by 41% while Santam performed
exceptionally by increasing its operating profit by 37%.
The Board resolved to declare a dividend of 37 cents per share in respect of the
2002 financial year. The increase on the 35 cents per share declared last year
is confirmation of the Board`s belief in the growth potential of the Group and
is in line with the stated dividend policy of progressive growth. The dividend
is covered 3,3 times by pro-forma LTRR headline earnings.
During 2002 management was concerned with evaluating the most appropriate way of
harnessing the Group`s 23% investment in Absa. The imperative was that the
solution had to benefit both businesses and deliver value to shareholders.
Towards the end of the financial year it was concluded that a full merger of the
two groups at the time would not achieve the objective of delivering optimal
value to shareholders and discussions on a co-operation model are being pursued.
Sanlam wishes to provide its clients with a more complete range of financial
products including banking-type products.
Focus areas for 2003
We have taken up the challenge to improve our performance in this new financial
year by focusing on delivering value to all our stakeholders.
There are four areas on which we are concentrating:
Operational excellence
Achieving superior investment performance
Harnessing the values inherent in our integrated business model, including
banking products
Developing the four pillars of Black Economic Empowerment
From an operational point of view we are addressing a number of issues, such as
improving the Group`s operating margin by regaining lost business and adding and
retaining new business across all the business units, as well as by containing
and ultimately reducing the cost of acquiring new business. To this end a focus
of attention is the employee benefits division, where the current meaningful
synergies with the life business can be further developed to generate appealing
products for the corporate market.
At the time of writing, it appears that the international financial markets will
remain mired in a bear market, held back by weak economies and the threat of a
war in the Middle East. Naturally this would have a negative impact on absolute
investment performance in spite of the fact that the outlook for our local
markets is reasonably optimistic. The test of our recently strengthened and
energised investment team is to seek those opportunities, both in the markets
and via innovative new products, that will deliver superior returns on an
appropriate risk-adjusted basis. The investment team is well aware of the
strategic importance of delivering an improved performance and is capable of
meeting that challenge.
We are acutely aware of and empathise with the disillusionment regarding
effective returns (against projected returns) on certain long term investments
and bonus declarations. This industry occurrence is directly linked to declining
investment markets world wide.
In the area of establishing Sanlam`s integrated business model excellent
progress has been made in Sanlam Life. The essence of our business remains
wealth creation for our clients and this motivates our relentless focus on
providing clients with trusted advice and superior client service across our
businesses. The drive to broaden the product range to satisfy our clients`
wealth creation needs will also continue.
One of our competitive advantages is our solid distribution channel. This,
coupled with our strong brand, are great value drivers and we are busy to
optimise these assets to deliver significant benefits
As is appropriate for one of South Africa`s leading companies, Black Economic
Empowerment remains high on the agenda at Sanlam. Employment equity will
continue to be encouraged throughout the Group, building on the successes
already achieved. We have announced our aim to introduce new black shareholders
into the Group and any participation will be based on the value they are able to
add to Sanlam. The Group`s procurement policy was initiated and finalised during
the year. It aims to ensure that our suppliers are diverse in terms of race,
gender and disability status. In particular, Sanlam service providers will be
actively encouraged to utilise the skills of historically disadvantaged
individuals. We remain an active participant in the economic development of the
country, not only in the economic debate and policy formulation, but also
through direct financial investment. Initiatives such as the R2,2 billion Sanlam
Development Fund and the R500 million Community Builder Fund, which we reported
on last year, and the launch last year of the Sanlam Development Fund of Funds,
South Africa`s first private equity fund of funds, have become the blueprint for
similar initiatives which will be announced in the year ahead.
We continually to seek to introduce new products and services that will reach
the broadest segment of our population and satisfy their wealth creation needs.
43% of Sanlam`s target market is black and 57% of that market has no insurance.
In 2002 the number of black advisors in Sanlam increased by 64%, from 400 to
655, now constituting a third of the advisor corps. During this period black
advisors were responsible for 30% of sales in recurring policies while 44% of
new recurring policies sold were to black clients. 38% of Sanlam Life`s primary
clients are black.
CORPORATE GOVERNANCE
Corporate governance fell under the spotlight during the year in the light of
corporate failures both globally and here in South Africa. Investors, regulators
and the media focused their attention on corporate wrongdoings and lifted the
veil on many unacceptable practices. As a group we welcome greater shareholder
activism and accept our responsibility to be accountable to all our
stakeholders.
We embrace the principles of the Code of Corporate Practices and Conduct as set
out in the King Committee Report on Corporate Governance (King II) and have
taken a number of steps towards improved compliance. One particular achievement
is the fact that a non-executive director will chair every subsidiary in the
Group and each subsidiary`s audit committee will also have a non-executive
chairperson.
APPOINTMENT OF A NEW CEO
Given the complexity and nature of the institution, Sanlam is following a
comprehensive process in the identification and appointment of a CEO, after the
resignation of dr. Leon Vermaak in December 2002.
PROSPECTS FOR 2003
Sanlam is entering the new financial year positively. With much of the Group`s
restructuring behind us, most of the vital elements are in place to allow our
teams to concentrate on delivering value. Provided investment markets are not
unduly negative, we anticipate that the Group`s results for the 2003 financial
year will show a satisfactory improvement on those for 2002.
Ton Vosloo Flip Rademeyer
Chairman Acting Chief Executive Officer
Sanlam Limited
5 March 2003
Cape Town
COMMENTS ON THE RESULTS
R million 2002 2001 ?
Gross operating 3%
profit 2 2
149 092
Net operating profit -11%
1 1
482 670
Net investment -17%
income 798 958
Headline earnings -13%
2 2
280 628
LTRR investment
return adjustment 947 906
Pro-forma LTRR -9%
headline earnings 3 3
227 534
Cents per share
Headline earnings 86,7 99,1 -13%
Pro-forma LTRR 122, 133, -8%
headline earnings 7 2
Pro-forma LTRR headline earnings of 122,7 cents per share were 8% down (up 14%
on a comparable basis) on the 133,2 cents per share achieved in 2001. Pro-forma
LTRR headline earnings aim to provide a measure of total earnings on a
sustainable basis, taking into account operating profit as well as the expected
total investment return to be earned over time on the shareholders` funds`
discretionary investments. The latter is based on an expected long term rate of
return. An average pre tax return of 13% per annum was used in the calculation.
The Sanlam Board has resolved to adjust the rate to 12% for the 2003 financial
year.
Following the recent developments in respect of the presentation of Headline
earnings, we now also present a headline earnings figure that is based on
operating profit and actual investment income earned for the period. Accounting
standard (AC133) on the measurement and recognition of financial instruments
will be effective from Sanlam`s 2003 financial year. The intended implementation
of the standard requires that investment surpluses be recognised against equity
in future. Headline earnings calculated on this basis amounts to R2 280 million,
compared with R2 628 million in 2001.
One-off items included in both the 2001 and 2002 results complicate a true
evaluation of the year`s performance. Excluding the impact of these items, a
true comparison of headline earnings shows an improvement of 13% in 2002, while
pro-forma LTRR headline earnings per share were up by 14%. The reversal of
surplus tax provisions of R284 million in 2001 (R185 million in respect of
operating income) constitutes the major single adjustment. Other one-off items
include the impact of Absa`s Unifer losses, a change in the recognition of
currency translation differences, and the impact of the implementation of CGT on
LTRR investment returns. Excluding the tax reversal, pro-forma LTRR headline
earnings remained substantially unchanged from 2001, which is in line with the
forecast in the trading statement issued in December 2002.
Gross operating profit of R2 149 million was 3% up on 2001. Total financial
services income, net of sales remuneration, rose by 11%. The Group`s
administration expenditure increased by 9% to R4 357 million. The increase is
mostly due to an almost doubling of expenditure at our international operations,
due to the fact that they are expanding capacity. Local operations` expenditure
was well contained and was on average down by 2% compared with 2001.
Underwriting benefit payments rose by 17%. The Group`s gross profit margin of
17,0% was down on the 18,4% achieved in 2001. The R185 million release of
surplus tax provisions in 2001, as well as an increase in Santam`s relative
profit contribution in 2002, caused a disproportionate rise in tax and minority
interests, resulting in an 11% drop in net operating profit.
Investment income of R798 million earned on the shareholders` fund`s
discretionary investment portfolio is 17% lower than in 2001. This is mainly due
to an 11% fall in equity accounted income in 2002 and a R99 million surplus tax
reversal in 2001. The equity income of R396 million mostly comprises Sanlam`s
effective interest in Absa`s attributable earnings for the 12 months to
September 2002. The lower contribution is due to the losses incurred by Absa in
its micro lending operation, Unifer.
Business volumes
Date: 06/03/2003 09:06:00 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
