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SANTAM LIMITED - INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2004
Santam Limited
(Incorporated in the Republic of South Africa)
(Reg. No 1918/001680/06)
Share Code:SNT
ISIN:ZAE000006854
(`Santam` or `the company`)
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2004
HIGHLIGHTS
Net written premium increased by 11%
Net insurance result of R667 million
181% increase in headline earnings per share
R940 million in cash generated by operating activities
Santam Limited and its Subsidiaries
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2004
INCOME STATEMENT
Reviewed Reviewed Audited
Notes Six months Six months % Year ended
ended 30 ended 30 31 December
June 2004 June 2003 2003
R millions R millions Chang R millions
e
Gross written
premium 4,414 4,387 1 9,513
Net written
premium 3,690 3,325 11 7,022
Net earned
premium 3,596 3,210 6,755
Claims incurred
1,997 2,173 4,375
Net commission
435 418 789
Management
expenses 586 445 1,061
Underwriting
result 578 174 530
Investment
return on 89 107 205
insurance funds
Net insurance
result 667 281 137 735
Investment 2
income 159 53 200 498
Income from
associates 2 (4) (12)
Goodwill
(32) (12) (37)
Income before
taxation 796 318 1,184
Taxation 3
230 113 356
Income after
taxation 566 205 176 828
Minority
shareholders` 5 11 22
interest
NET INCOME
561 194 189 806
Cents Cents Cents
Earnings per
share
Earnings per 490 173
share 183 718
Headline 4
earnings per 518 184 181 751
share
Dividends per
share 95 72 32 220
Dividends per 0.2 0.4
share (61)
Dividend per
share
BALANCE SHEET
Reviewed Reviewed Audited
As at As at As at 31
30 June 30 June 2003 December
2004 2003
R millions R millions R millions
ASSETS
Non-current assets
Property and equipment
69 64 70
Goodwill
76 107 109
Deferred Tax
14,063 14,063
Deferred taxation
17 23 14
Investments
3,832 3,338 3,835
Investments in associated
companies 156 40 150
Investments
3,676 3,298 3,685
Technical assets
1,939 1,945 2,302
Current assets
4,769 3,830 4,379
Amounts due by debtors, reinsurers
and outstanding premiums 926 1,167 1,176
Cash and cash equivalents
3,843 2,663 3,203
Total assets
10,702 9,307 10,709
EQUITY AND LIABILITIES
Capital and reserves
4,353 3,420 3,956
Minority shareholders` interest
43 44 53
Long-term loans
- -
Deferred taxation
55 42 135
Technical provisions
4,963 4,580 5,156
Current liabilities and provisions
1,288 1,221 1,409
Total equity and liabilities
10,702 9,307 10,709
Number of shares in issue
(millions) 114.9 112.2 113.6
Weighted average number of shares
in issue (millions) 114.6 112.0 112.3
Net asset value per share (cents)
3,790 3,049 3,482
Solvency margin (%) 59 53 56
STATEMENT OF CHANGES IN EQUITY
Reviewed Reviewed Audited
As at 30 As at 30 As at 31
June 2004 June 2003 December 2003
R millions R millions R millions
Balance as at beginning of
period 3,956 3,375 3,375
Shares issued
31 7 39
Net income for the period
561 194 806
Translation difference on
foreign entities (26) (39) (66)
Dividends paid
(169) (117) (198)
Balance as at the end of
period 4,353 3,420 3,956
CASH FLOW STATEMENT
Reviewed Reviewed Audited
Six Six Year
months months ended 31
ended ended December
30 June 30 June 2003
2004 2003
R R R
millions millions millions
Cash generated from operations
666 355 1,092
Income before taxation
796 318 1,184
Depreciation charge
11 8 22
Other non-cash adjustments
31 18 32
Total investment income
(248) (159) (703)
Change in working capital
76 170 557
Dividends and interest received
274 244 418
Cash generated by operating
activities 940 599 1,510
Taxation paid
(144) (75) (233)
Dividends paid
(177) (122) (200)
Cash retained from operating
activities 619 402 1,077
Cash utilised in net investment
activities 62 72 (31)
Cash retained from operating and
investment activities 681 474 1,046
Proceeds from ordinary shares issued
31 7 39
Investment in associated companies
(9) (22) (69)
Investment in subsidiaries
- (408) (408)
Cash acquired through acquisition of
subsidiaries - 391 406
Cash utilised in additions to fixed
assets (9) (16) (36)
Increase in long-term loan
- -
Translation effect on cash
(54) (35) (47)
Cash generated for the period
640 391 931
Cash and cash equivalents at
beginning of period 3,203 2,272 2,272
Cash and cash equivalents at end of
period 3,843 2,663 3,203
SEGMENTAL REPORTING
Reviewed Reviewed Audited Reviewed Reviewed Audited
Six Six months Year ended Six Six months Year en
months ended 31 December months ended 31
ended 30 June 2003 ended 30 June December
30 June 2003 30 June 2003 2003
2004 2004
R R millions R millions R R millions R milli
millions millions
Gross written premium Underwriting result
Geographical
segments
Income
statements
Southern
Africa 4,233 4,214 8,926 566 145 465
Europe & UK
181 173 587 12 29 65
4,414 4,387 9,513 578 174 530
Total assets Total liabilities
Balance
sheets
Southern
Africa 9,679 8,230 9,446 5,698 5,176 5,894
Europe & UK
1,023 1,077 1,263 608 667 806
10,702 9,307 10,709 6,306 5,843 6,700
REVENUE ANALYSIS
Reviewed Reviewed Audited Reviewed Reviewed Audited
Six Six Year ended Six Six Year ended
months months 31 months months 31
ended ended December ended ended December
30 June 30 June 2003 30 June 30 June 2003
2004 2003 2004 2003
R R R millions R R R millions
millions millions millions millions
Gross written premium Underwriting result
Insurance
class
Motor
1,987 1,856 3,773 257 84 177
Property
1,347 1,209 2,648 170 (8) 133
Liability
304 261 616 65 26 30
Crop
59 185 638 22 25 50
Miscellaneous
44 180 347 3 20 61
Engineering
172 168 352 36 3 22
Alternative
risk 205 166 402 2 2 10
Transportation
127 143 282 12 8 13
Accident and
health 133 122 253 5 - 6
Guarantee
36 97 202 6 14 28
4,414 4,387 9,513 578 174 530
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 2003.
Comparatives
The comparatives have been reclassified to include goodwill as part of income
before taxation.
Reviewed Reviewed Audited
Six months Six months Year ended
ended ended 31
30 June 30 June December
2004 2003 2003
R millions R millions R millions
2. Investment income
Interest
47 38 87
Dividends
83 76 151
Foreign exchange differences
7 (6) (20)
Realised/Unrealised investment
surpluses 42 (48) 289
Investment management fee
(20) (7) (9)
Investment return:shareholders
159 179
Long-term rate of return
adjustment
Investment income
159 53 498
3. Taxation
Analysis of income tax
Net insurance result
200 85 222
Investment income
16 14 121
Other
14 14 13
Tax
230 113 356
4. Headline earnings per share
Net income
561 194 806
Goodwill
32 12 37
Headline earnings
593 206 843
Headline earnings per share
(cents) 518 184 751
NOTES TO THE FINANCIAL STATEMENTS
Reviewed Reviewed Audited
Six Six months Year ended
months ended 31
ended 30 June December
30 June 2003 2003
2004
R R millions R millions
millions
4. RECONCILIATION OF HEADLINE EARNINGS
Reconciliation of headline earnings
Attributable income
561 302
Net investment income
(42) 22
Taxation on investment income
7 7
Headline and attributable earnings
as stated in terms of previous 526 331
policy
Headline earnings per share (cents)
- previous policy 297 297
5. Net long-term rate of return
adjustment
Net income
561 194 806
Net long-term rate of return
adjustment 74 139 (29)
Gross investment return
82 151 (79)
Tax
8 12 (50)
Pro forma earnings based on long-
term rate of return 635 333 777
Pro forma earnings per share based
on long-term rate of return (cents) 554 297 692
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
1,128 642 985
Long-term returns
1,259 869 1,042
Excess aggregate short-term
fluctuations 131 227 57
COMMENTS
During the period under review, the South African short-term insurance industry
experienced a continuation of favourable underwriting conditions. Santam`s
results for the six months were exceptional with headline earnings increasing
to R593 million.
Although total gross written premium was only marginally up from the
corresponding period, premium growth for personal and commercial lines increased
by 7.5%. Growth in the corporate market came under severe pressure as
international players increased activity in the market, resulting in significant
premium discounting. New entrants into the crop market, together with lower
levels of insurance due to climatic conditions, hampered growth in this segment.
Despite the strengthening of the rand against sterling, international gross
written premiums increased by 4.7% compared to the corresponding period in 2003
(11.1% in GBP terms).
The level of reinsurance premiums reduced considerably, largely due to the
company`s strategy to retain more business at acceptable risk profiles. In
addition, the slowing of crop and corporate business further contributed to the
lower levels of reinsurance.
The largest factor contributing to the substantial increase in underwriting
profits was the lower claims ratio experienced in southern Africa across most
classes of insurance. The group`s net claims ratio of 55.5% was 12.2% points
lower than the equivalent period in 2003 due to favourable climatic conditions,
a lower frequency of motor accidents as well as a reduction in theft claims.
On the international front, Westminster Motor Insurance Association is now in
its second year of operation under the Santam umbrella. This business has
performed satisfactorily, despite increased competition. Its net underwriting
margin for the six months was adversely affected by an adjustment to reinsurance
provisions.
Management expenses increased due to inter alia higher performance bonuses and
fees paid to administrators.
Continued focus on cash and working capital management yielded positive results,
with the float (funds generated by insurance activities) up 10% from 31 December
2003. However, lower interest rates negated the positive effect of the higher
float level, causing investment income on insurance funds to decrease by 17%.
The combined effect of all insurance activities resulted in a net insurance
margin of 18.5% against 8.7% for the corresponding period.
The equity market continued its bull run for the first two months of 2004, but
moved sideways for the remainder of the reporting period. This, coupled with
healthy increases in interest and dividend income, resulted in a 200% increase
in total investment income from 2003 levels.
The favourable underwriting result and investment income impacted positively on
headline earnings per share which improved by 181% to 518 cps.
As a result of increased profitability, cash generated by operating activities
totalled R940 million, an increase of 57% from 2003. The solvency level
increased from 56% at the end of 2003 to 59%.
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 half year.
PROSPECTS
It is anticipated that underwriting margins could come under pressure during the
second half of 2004 due to increased competition and the likely normalisation of
claims.
The board is pleased to announce that the Irish regulatory body (IFSRA) granted
a short-term insurance licence to Santam Europe in July, which will, inter alia,
underwrite the future business generated by Bluesure. It paves the way for
Santam to gradually advance with its strategy of marketing and underwriting the
Multiplex insurance concept in the UK and Europe.
Although the company continually assesses its capital requirements, there is
currently a specific focus on this aspect, considering the changes in, inter
alia, reinsurance arrangements, and our international expansion initiatives. We
are well advanced with an extensive exercise to determine desired capital levels
for the company`s combined underwriting and investment risk, with a view to
optimising growth, business prospects and shareholder return at acceptable risk
profiles. This will be completed during the next couple of months, after which
the board will consider appropriate actions where necessary.
Anticipated low interest rates for the remainder of 2004 will continue to have
an adverse effect on cash portfolio investment returns. The direction of equity
markets looks rather undecided, but with a firm first half performance as a
base, the board remains cautiously optimistic regarding prospects for the
remainder of the year.
DECLARATION OF DIVIDEND (NUMBER 100)
Notice is hereby given that the board has declared an interim dividend of 95
cents a share (2003: 72 cents). Shareholders are advised that the last day to
trade `cum dividend` will be Thursday, 16 September 2004. The shares will trade
`ex dividend` from the commencement of business on Friday, 17 September 2004.
The record date will be Thursday, 23 September 2004, and the payment date will
be Monday, 27 September 2004. Shareholders may not dematerialise or
rematerialise their shares between Friday, 17 September 2004, and Thursday, 23
September 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 SC Gilbert
Chairman Chief Executive
24 August 2004
NON-EXECUTIVE DIRECTORS SANTAM HEAD OFFICE AND REGISTERED
ADDRESS
JJ Geldenhuys, JG Le Roux, NM 1 Sportica Crescent, Tyger Valley,
Magau,
AR Martin, JE Newbury, Bellville 7530
P de V Rademeyer, GE Rudman, PO Box 3881, Tyger Valley 7536
DK Smith (Chairman), J van Zyl, Tel (021) 915 7000
BP Vundla Fax (021) 914 0700
EXECUTIVE DIRECTORS http://www.santam.co.za
SC Gilbert (Chief executive), Registration number 1918/001680/06
MJ Reyneke ISIN ZAE000006854
JSE share code: SNT
NSX share code: SNM
COMPANY SECRETARY SPONSOR
CV du Plessis (Acting) Investec Bank Limited
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70 Marshall Street,
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http://www.computershare.com
Date: 25/08/2004 08:00:25 AM Produced by the JSE SENS Department
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