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SANTAM LIMITED AND ITS SUBSIDIARIES - REVIEWED INTERIM REPORT FOR THE SIX MONTHS
ENDED 30 JUNE 2003
Santam Limited and its subsidiaries
REVIEWED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2003
HIGHLIGHTS
28% increase in gross written premium
Significant improvement in underwriting surplus & operating income
40% increase in headline earnings per share
Strong cash flow generated by operating activities
Westminster Motor Insurance acquisition finalised
INCOME STATEMENT
Reviewed Unaudited Audited
Six months Six months Year
Ended ended ended
30 June 30 June 31 December
2003 2002 2002
Notes R millions R millions Change R millions
Gross written premium 4,387 3,429 28 8,197
Net written premium 3,325 2,549 30 5,635
Net earned premium 3,210 2,568 25 5,548
Claims incurred 2,173 1,807 3,925
Net commission 418 325 698
Management expenses 445 357 783
Underwriting surplus 174 79 120 142
Investment return on
insurance funds 107 48 115
Operating income 281 127 121 257
Investment income 2 53 131 179
Income from associates (4) (12) (1)
Income before taxation 330 246 34 435
Taxation 3 113 94 116
Minority interest 11 5 14
Headline earnings 206 147 40 305
Amortisation of goodwill 12 - 3
Attributable earnings to
shareholders 194 147 302
Pro forma earnings based
on long-term rate of
return 4 333 245 36 516
Cents Cents Cents
EARNINGS PER SHARE
Headline earnings per
share 184 132 39 274
Attributable earnings
per share 173 132 31 271
Pro forma earnings per
share based on long-term
rate of return 297 220 35 464
Dividend per share 72 65 11 170
BALANCE SHEET
Reviewed Unaudited Audited
As at As at As at
30 June 30 June 31 December
2003 2002 2002
R millions R millions R millions
ASSETS
Non-current assets
Property and equipment 64 34 41
Goodwill 107 - 33
Deferred taxation 23 - 14
Investments 3,338 3,245 3,208
Listed at market value 2,591 2,581 2,480
Unlisted at directors valuation 707 629 697
Investment in associated companies 40 35 31
Technical assets 1,945 1,576 2,073
Current assets 3,830 2,497 3,548
Amounts due by debtors, reinsurers
and outstanding premiums 1,167 921 1,276
Cash and cash equivalents 2,663 1,576 2,272
Total assets 9,307 7,352 8,917
EQUITY AND LIABILITIES
Capital and reserves 3,420 3,283 3,375
Minority shareholders" interest 44 32 39
Deferred taxation 42 135 34
Technical provisions 4,580 3,200 4,226
Current liabilities and provisions 1,221 702 1,243
Total equity and liabilities 9,307 7,352 8,917
Number of shares in issue (millions) 112.2 111.4 111.8
Weighted average number of shares
in issue (millions) 112.0 111.1 111.4
Net asset value per share (cents) 3,049 2,946 3,018
Solvency margin (%) 53 68 60
STATEMENT OF CHANGES IN EQUITY
Reviewed Unaudited Audited
As at As at As at
30 June 30 June 31 December
2003 2002 2002
R millions R millions R millions
Balance as at beginning of period 3,375 3,230 3,230
Shares issued 7 12 21
Attributable income to shareholders 194 147 302
Translation difference on foreign
entities (39) - -
Dividends paid (117) (106) (178)
Balance as at the end of period 3,420 3,283 3,375
CASH FLOW STATEMENT
Reviewed Unaudited Audited
Six months Six months Year ended
30 June 30 June 31 December
2003 2002 2002
R millions R millions R millions
Cash generated from operations 355 163 682
Income before taxation 330 246 435
Depreciation charge 8 8 16
Other non-cash adjustments 6 12 (8)
Investment income (159) (179) (294)
Change in working capital 170 76 533
Dividends and interest received 244 140 309
Cash generated by operating activities 599 303 991
Taxation paid (75) (81) (96)
Dividends paid (122) (106) (178)
Cash retained from operating
activities 402 116 717
Cash generated by investment
activities 72 371 353
Cash retained from operating and
investment activities 474 487 1,070
Proceeds from ordinary shares issued 7 12 21
Proceeds from disposal of associated
companies - - 13
Investment in associated companies (22) (5) (5)
Investment in subsidiaries (408) - (36)
Cash acquired through acquisition of
subsidiaries 391 - 143
Cash utilised in additions to fixed
assets (16) (5) (21)
Translation effect on cash (35) - -
Cash generated for the year 391 489 1,185
Cash and cash equivalents at
beginning of period 2,272 1,087 1,087
Cash and cash equivalents at end
of period 2,663 1,576 2,272
SEGMENTAL REPORTING
Gross written premiums
Reviewed Unaudited Audited
Six months Six months Year ended
30 June 30 June 31 December
2003 2002 2002
R millions R millions R millions
Insurance class
Motor 1,856 1,409 2,999
Property 1,209 1,018 2,132
Liability 261 188 482
Crop 185 142 611
Miscellaneous 180 131 608
Engineering 168 124 300
Alternative risk 166 86 391
Transportation 143 121 251
Accident and health 122 103 214
Guarantee 97 107 209
4,387 3,429 8,197
Geographical
Southern Africa 4,214 3,429 7,911
Europe & UK 173 - 286
4,387 3,429 8,197
Underwriting surplus
Reviewed Unaudited Audited
Six months Six months Year ended
30 June 30 June 31 December
2003 2002 2002
R millions R millions R millions
Insurance class
Motor 84 29 44
Property (8) 8 (26)
Liability 26 5 18
Crop 25 14 36
Miscellaneous 20 (1) 34
Engineering 3 (5) (7)
Alternative risk 2 3 7
Transportation 8 9 40
Accident and health - 8 11
Guarantee 14 9 (15)
174 79 142
Geographical
Southern Africa 145 79 144
Europe & UK 29 - (2)
174 79 142
Note:
Due to the general nature of the balance sheet, segmental reporting is limited
to the income statement
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICY
The interim consolidated financial statements are prepared in accordance with
the South African Statements of Generally Accepted Accounting Practice on
interim reporting (AC 127). The accounting policies are consistent with those
used in the annual financial statements for the year ended 31 December 2002
except for the adoption of AC133 (Financial instruments - Recognition and
measurement) which has been applied from 1 January 2003.The adoption of AC133
had no effect on opening reserves as the investments were measured on a similar
basis in the past.
1.1. Comparative figures
Where necessary, comparative figures (June 2002) have been restated to conform
to changes in presentation of earnings based on long-term rate of return.
Reviewed Unaudited Audited
Six months Six months Year ended
30 June 30 June 31 December
2003 2002 2002
R millions R millions R millions
2. INVESTMENT INCOME
Interest 38 53 113
Dividends 76 57 114
Foreign exchange differences (6) - (17)
Net investment deficit and
impairments (48) 25 (22)
Investment management fee (7) (4) (9)
Investment income 53 131 179
3. TAXATION
Analysis of income tax
Operating profit 85 39 78
Investment income 14 53 30
Other 14 2 8
Tax 113 94 116
4. NET LONG-TERM RATE OF RETURN
ADJUSTMENT
Attributable earnings to
shareholders 194 147 302
Net long-term rate of return
adjustment 139 98 214
Gross investment return 111 86 255
Tax (28) (12) 41
Pro forma earnings based on
long-term rate of return 333 245 516
A comparison of the aggregate
actual and calculated long-term
returns after tax since 1 January
2001 is set out below:
Actual returns 642 536 608
Long-term returns 869 508 695
Excess aggregate short-term
fluctuations 227 (28) 87
COMMENTS
The group achieved exceptional operating results for the period under review,
increasing the underwriting surplus to R174 million and operating income to R281
million.
Gross written premium increased by 28%, of which 23% resulted from the southern
African activities and 5% from the new acquisitions in the U.K.
A number of factors contributed towards the improved underwriting results.
Favourable weather patterns and increased underwriting discipline resulted in
significant improvement in the crop and motor insurance classes. In addition,
the typically more volatile insurance classes, such as liability also
experienced low claims ratios. The acquisition of Westminster Insurance
Association, a niche player in the UK motor insurance market, was concluded in
January. This business made a significant contribution during the period,
achieving very satisfactory margins and resulting in a contribution of R29
million to the underwriting surplus.
Despite the general favourable climatic conditions, severe flooding in the Klein
Karoo and a number of incidences of fire negatively impacted on the property
portfolio results. Overall, personal lines have improved, but are still only
marginally profitable. Certain operational re-structuring initiatives were
effected during the period to increase efficiencies, resulting in a non-
recurring charge of R18 million.
The investment return on insurance funds increased by 123% to R107 million.
High short-term interest rates, focus on cash management and the addition of
Westminster"s float were the main contributors toward the improvement. Although
equity markets recovered considerably during the second quarter, losses during
the first quarter left their mark on investment returns. However, on a relative
basis, the portfolio performed satisfactorily.
Despite the depressed performance of the equity market, headline earnings
improved by a healthy 40%. By applying the downwardly adjusted long term rate
of return of 12%, which eliminates short term volatility, pro forma earnings
based on the long-term rate of return increased by 36%.
Cash generated from operating activities increased by 98% mainly as a result of
the increased profitability and management of working capital. The solvency
margin remained firm at 53% compared to 60% at 31 December 2002.
In line with Santam"s commitment to Black Economic Empowerment and the company"s
imperative to build on the positive progress achieved to date, the company has
actively participated in the formulation and development of the Financial
Services Charter.
The Board would like to extend its thanks to Santam"s management, staff and
brokers for their effort and support during the first half.
PROSPECTS
In line with the group"s theme of focusing on the basics, it will continue to
apply strict underwriting disciplines, especially in areas where the results are
still not satisfactory. There will be a continued focus on cash management and
cost control. Procurement initiatives during the latter part of 2002 and the
early part of this year have started to yield positive results. Against this
background, bar any unforeseen events, the outlook from an underwriting
perspective for the second half remains positive.
Declining interest rates will have an adverse impact on investment returns.
However, there seems to be some consensus amongst analysts that the South
African equity market could stabilize and even recover further during the second
half.
DECLARATION OF DIVIDEND (NUMBER 98)
Notice is hereby given that the board has declared an interim dividend of 72
cents per share (2002: 65 cents). Shareholders are advised that the last day to
trade "cum dividend" will be Thursday 18 September 2003. The shares will trade
"ex dividend" from the commencement of business on Friday 19 September 2003. The
record date will be Friday 26 September 2003 and the payment date will be Monday
29 September 2003. Share certificates may not be dematerialised or
rematerialised between Friday 19 September 2003 and Friday 26 September 2003,
both dates inclusive.
REVIEW BY AUDITORS
The company"s external auditors, PricewaterhouseCoopers Inc, have reviewed the
interim announcement. A copy of their unqualified review opinion is available on
request at the company"s registered office.
On behalf of the board
DK Smith SC Gilbert
Chairman Chief Executive
26 August 2003
NON-EXECUTIVE DIRECTORS SANTAM HEAD OFFICE AND
JJ Geldenhuys, JG Le Roux, NM Magau, REGISTERED ADDRESS
AR Martin, JE Newbury, 1 Sportica Crescent, Tyger Valley,
P de V Rademeyer, GE Rudman, Bellville 7530
DK Smith (Chairman), J van Zyl, PO Box 3881, Tyger Valley 7536
BP Vundla Tel (021) 915 7000
Fax (021) 914 0700
EXECUTIVE DIRECTORS http://www.santam.co.za
SC Gilbert (Chief executive), Registration number 1918/001680/06
JA van Tonder, JW Wilken ISIN ZAE000006854
JSE share code: SNT
NSX share code: SNM
COMPANY SECRETARY
VF Malie
TRANSFER SECRETARIES
Computershare Limited
70 Marshall Street, Johannesburg 2000
PO Box 61051, Johannesburg 2000
Tel: (011) 370 7700
Fax: (011) 688 7721
http://www.computershare.com
Sponsor:Investec Bank Limited
Date: 27/08/2003 07:30:12 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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