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Santam Limited - Abridged Financial Report For The Year Ended 31 December 2003
Santam Limited and its Subsidiaries
Registration number 1918/001680/06
ISIN ZAE000006854
JSE share code: SNT
NSX share code: SNM
ABRIDGED FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2003
HIGHLIGHTS
273% improvement in underwriting surplus
186% increase in operating income
174% increase in headline earnings per share
Cash generated by operating activities exceeds R1.5 billion
29% increase in dividends per share
INCOME STATEMENT
Reviewed Audited
Year ended Year ended
31 December 31 December
2003 2002 %
Notes R millions R millions Change
Gross written premium 9,513 8,197 16
Net written premium 7,022 5,635 25
Net earned premium 6,755 5,548 22
Claims incurred 4,375 3,925
Net commission 789 698
Management expenses 1,061 783
Underwriting surplus 530 142 273
Investment return on
insurance funds 205 115 78
Operating income 735 257 186
Investment income 2 498 179 178
Income from associates (12) (1)
Income before taxation 1,221 435 181
Taxation 3 356 116
Minority interest 22 14
Headline earnings 843 305 176
Amortisation of goodwill 37 3
Attributable earnings to
shareholders 806 302 167
Pro-forma earnings based on
long-term rate of return 4 777 516 51
Cents Cents
Earnings per share
Headline earnings per share 751 274 174
Attributable earnings per share 718 271 165
Pro-forma earnings per share
based on long-term rate of return 692 464 49
Dividend per share 220 170 29
BALANCE SHEET
Reviewed Audited
As at As at
31 December 31 December
2003 2002
R millions R millions
ASSETS
Non-current assets
Property and equipment 70 41
Goodwill 109 33
Deferred taxation 14 14
Investments 3,835 3,208
Investments in associated companies 150 31
Available-for-sale investments 3,645 3,137
Trading assets 40 40
Technical assets 2,302 2,073
Current assets 4,379 3,548
Amounts due by debtors, reinsurers
and outstanding premiums 1,176 1,276
Cash and cash equivalents 3,203 2,272
Total assets 10,709 8,917
EQUITY AND LIABILITIES
Capital and reserves 3,956 3,375
Minority shareholders" interest 53 39
Deferred taxation 135 34
Technical provisions 5,156 4,226
Current liabilities and provisions 1,409 1,243
Total equity and liabilities 10,709 8,917
Number of shares in issue (millions) 113.6 111.8
Weighted average number of shares
in issue (millions) 112.3 111.4
Net asset value per share (cents) 3,482 3,018
Solvency margin (%) 56 60
STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
Year ended Year ended
31 December 31 December
2003 2002
R millions R millions
Balance as at beginning of year 3,375 3,230
Shares issued 39 21
Attributable income to shareholders 806 302
Translation difference on foreign entities (66) -
Dividends paid (198) (178)
Balance as at the end of year 3,956 3,375
CASH FLOW STATEMENT
Reviewed Audited
Year ended Year ended
31 December 31 December
2003 2002
R millions R millions
Cash generated from operations 1,092 682
Income before taxation 1,221 435
Depreciation charge 22 16
Other non-cash adjustments (5) (8)
Investment income (703) (294)
Change in working capital 557 533
Dividends and interest received 418 309
Cash generated by operating activities 1,510 991
Taxation paid (233) (96)
Dividends paid (200) (178)
Cash retained from operating activities 1,077 717
Cash utilised in net investment activities (31) 353
Cash retained from operating and
investment activities 1,046 1,070
Proceeds from ordinary shares issued 39 21
Proceeds from disposal of associated companies - 13
Investment in associated companies (69) (5)
Investment in subsidiaries (408) (36)
Cash acquired through acquisition
of subsidiaries 406 143
Cash utilised in additions to fixed assets (36) (21)
Translation effect on cash (47) -
Cash generated for the year 931 1,185
Cash and cash equivalents at beginning of year 2,272 1,087
Cash and cash equivalents at end of year 3,203 2,272
SEGMENTAL REPORTING
Reviewed Audited Reviewed Audited
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
Geographical segments 2003 2002 2003 2002
R millions R millions R millions R millions
Gross written premium Underwriting result
Income statements
Southern Africa 8,926 7,911 465 144
Europe & UK 587 286 65 (2)
9,513 8,197 530 142
Total assets Total liabilities
Balance sheets
Southern Africa 9,446 8,499 5,894 5,186
Europe & UK 1,263 418 806 317
10,709 8,917 6,700 5,503
REVENUE ANALYSIS
Reviewed Audited Reviewed Audited
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2003 2002 2003 2002
R millions R millions R millions R millions
Gross written premium Underwriting surplus
Insurance class
Motor 3,773 2,999 177 44
Property 2,648 2,132 133 (26)
Liability 616 482 30 18
Crop 638 611 50 36
Miscellaneous 347 608 61 34
Engineering 352 300 22 (7)
Alternative risk 402 391 10 7
Transportation 282 251 13 40
Accident and health 253 214 6 11
Guarantee 202 209 28 (15)
9,513 8,197 530 142
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICY
The abridged consolidated financial statements are prepared in accordance with
the South African Statements of Generally Accepted Accounting Practice and are
consistent with those used in the annual financial statements for the previous
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
financial instruments were accounted for on a similar basis as in the past.
Reviewed Audited
Year ended Year ended
31 December 31 December
2003 2002
R millions R millions
2. INVESTMENT INCOME
Interest 87 113
Dividends 151 114
Foreign exchange differences (20) (17)
Net investment surplus 289 (22)
Investment management fee (9) (9)
Investment income 498 179
3. TAXATION
Analysis of income tax
Operating income 222 78
Investment income 121 30
Other 13 8
Tax 356 116
4. NET LONG-TERM RATE OF RETURN ADJUSTMENT
Attributable earnings to shareholders 806 302
Net long-term rate of return adjustment (29) 214
Gross investment return (79) 255
Tax (50) 41
Pro-forma earnings based on long-term
rate of return 777 516
A comparison of the aggregate actual
and calculated long-term returns after
tax excluding investment return on
insurance funds since 1 January 2001
is set out below:
Actual returns 985 608
Long-term returns 1,042 695
Excess aggregate short-term fluctuations 57 87
COMMENTS
Santam concluded its most profitable financial year ever and achieved
exceptional results on all fronts. Underwriting surplus amounted to R530
million, 273 percent higher than 2002 while operating income increased by 186
percent to R735 million.
Gross written premium increased by 16 percent, with the international component
doubling from 2002 levels. Net written premium was up 25
percent, largely due to an improved focus on reducing reinsurance costs without
an undue increase in exposure.
Several factors contributed to the substantial increase in underwriting profits,
of which the lower claims ratio, especially in southern Africa, was the largest
contributor. The net claims ratio decreased by 6 percentage points to 64,8
percent in 2003, largely due to the strength of the underwriting cycle and
continued strict underwriting discipline. This was further enhanced by
favourable climatic conditions and fewer man-made disasters, all of which
favourably impacted on the crop, motor and property insurance classes
respectively. The typically more volatile class of insurance business such as
liability and guarantee also achieved lower claims ratios.
On the international front, the Westminster Motor Insurance Association results
were included in the group"s results for the first time this year. Together with
the participation in the Beazley Syndicate, operations in the UK and Europe
contributed R65 million to the group"s underwriting results.
Net acquisition cost ratio increased by 0,7 percent compared to 2002 and
included higher performance bonuses and profit sharing provisions as a result of
higher profitability.
Higher than expected short-term interest rates in the first nine months,
combined with increased focus on cash management, increased operational activity
and the acquisition of Westminster"s float saw the investment return on
insurance funds increase by 78 percent to
R205 million.
The recovery of equity markets in the second half of 2003 largely contributed to
investment income being 178 percent higher. The negative equity income from
associated companies is due to Santam"s share of start-up costs incurred in
Bluesure Ltd, an associated company in the UK.
As a result of the favourable underwriting results and higher investment return,
the headline earnings per share improved by 174 percent at 751cps compared to
274 cps in 2002.
Cash generated by operating activities exceeded R1.5 billion, up 52 per cent as
a result of increased profitability and improved management of working capital.
Due to the strong growth in net written premium, the solvency margin reduced
from its 2002 level of 60 percent to a still healthy 56 percent.
The board would like to extend its thanks to Santam"s management, staff, brokers
and other business partners for their effort and support during the past year.
PROSPECTS
The "back to basics" theme laid the foundation for enforcing effective
underwriting disciplines, which will continue in the future. There will be
continued focus on cash management and cost control in 2004. Although the
favourable conditions will most likely not be repeated we expect the firm
underwriting cycle to continue during 2004.
Lower interest rates for at least the first half of 2004 will have an adverse
impact on interest-bearing investment returns. Indications are that the equity
markets will remain strong, which will have a favourable effect on equity
returns.
The favourable results, backed by a balanced portfolio, well-aligned operational
structures and geographical spread give Santam a solid platform for profitable
growth in future.
DECLARATION OF DIVIDEND (NUMBER 99)
Notice is hereby given that the board has declared a final dividend of 148 cents
a share (2002: 105 cents). Shareholders are advised that the last day to trade
"cum dividend" will be Thursday, 18 March 2004. The shares will trade "ex
dividend" from the commencement of business on Friday, 19 March 2004. The record
date will be Friday, 26 March 2004 and the payment date will be Monday, 29 March
2004. Certified shareholders may not dematerialise or rematerialise their shares
between Friday, 19 March 2004, and Friday, 26 March 2004, both dates inclusive.
REVIEW BY AUDITORS
The company"s external auditors, PricewaterhouseCoopers Inc., have reviewed the
abridged financial report. A copy of their unqualified opinion is available on
request at the company"s registered office.
On behalf of the board
DK Smith
Chairman
SC Gilbert
Chief Executive
24 February 2004
NON-EXECUTIVE DIRECTORS
JJ Geldenhuys, JG Le Roux, NM Magau,
AR Martin, JE Newbury,
P de V Rademeyer, GE Rudman,
DK Smith (Chairman), J van Zyl,
BP Vundla
EXECUTIVE DIRECTORS
SC Gilbert (Chief executive),
MJ Reyneke
COMPANY SECRETARY
VF Malie
TRANSFER SECRETARIES
Computershare Limited
70 Marshall Street, Johannesburg 2000
PO Box 61051, Marshalltown 2107
Tel: (011) 370 7700
Fax: (011) 688 7721
http://www.computershare.com
SANTAM HEAD OFFICE AND REGISTERED ADDRESS
1 Sportica Crescent, Tyger Valley,
Bellville 7530
PO Box 3881, Tyger Valley 7536
Tel (021) 915 7000
Fax (021) 914 0700
http://www.santam.co.za
SPONSOR
Investec Securities Limited
Date: 25/02/2004 08:00:11 AM Produced by the JSE SENS Department
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