| Tue 22 Feb 2005, 14:56 | | Financial Report for the year ended 31 December 04 |
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Santam Limited - Abridged Financial Report for the year ended 31 December 2004
Santam Limited
Registration number 1918/001680/06
ISIN ZAE000006854
JSE share code: SNT
NSX share code: SNM
Santam Limited and its Subsidiaries
Abridged Financial Report for the year ended 31 December 2004
HIGHLIGHTS
Return on capital of 37%
Net written premium increased by 12%
Net insurance result of R1.4 billion
107% increase in headline earnings per share
R2.1 billion cash generated by operating activities
Return excess capital of R10 per share
Santam Limited and its Subsidiaries
Abridged Financial Report for the year ended 31 December 2004
INCOME STATEMENT
Reviewed Audited
Notes Year ended 31 Year ended 31 Decembe
December 2004 2003
R million R million
Gross written premium 9,735 9,513
Net written premium 7,843 7,022
Net earned premium 7,719 6,755
Claims incurred 4,397 4,375
Net commission 942 789
Management expenses 1,214 1,061
Underwriting result 1,166 530
Investment return on insurance funds 203 205
Net insurance result 1,369 735
Investment income 2 1,022 498
Income from associates 56 (12)
Goodwill (49) (37)
Income before taxation 2,398 1,184
Taxation 3 615 356
Income after taxation 1,783 828
Minority shareholders` interest 24 22
Income attributable to cell owners 25 -
NET INCOME 1,734 806
Cents Cents
Earnings per share
Earnings per share 1,513 718
Headline earnings per share 4 1,556 751
Diluted earnings per share 1,492 708
Diluted headline earnings per share 1,534 741
Dividends per share 290 220
Dividends per share 0.2
Dividend per share
BALANCE SHEET
Reviewed Audited
As at As at
31 December 31 December 2003
2004
R million R million
ASSETS
Non-current assets
Property and equipment 55 70
Goodwill 63 109
Deferred Tax 14,063
Deferred taxation 10 14
Investments 5,414 3,835
Investments in associated companies 209 150
Investments 5,205 3,685
Technical assets 1,980 2,302
Current assets 5,007 4,379
Amounts due by debtors, reinsurers and 1,080 1,176
outstanding premiums
Cash and cash equivalents 3,927 3,203
Total assets 12,529 10,709
EQUITY AND LIABILITIES
Capital and reserves 5,405 3,956
Minority shareholders` interest 60 53
Long term loans -
Cell owners` interest 47 -
Non-current liabilities 164 135
Technical provisions 5,198 5,156
Current liabilities and provisions 1,655 1,409
Total equity and liabilities 12,529 10,709
Number of shares in issue (millions) 115.2 113.6
Weighted average number of shares in 114.6 112.3
issue (millions)
Net asset value per share (cents) 4,692 3,482
Solvency margin (%) 69 56
STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
Year ended 31 Year ended 31
December 2004 December 2003
R million R million
Balance as at beginning of year 3,956 3,375
Shares issued 41 39
Net income for the period 1,734 806
Translation difference (48) (66)
Dividends paid (278) (198)
Balance as at the end of year 5,405 3,956
CASH FLOW STATEMENT
Reviewed Audited
Year ended 31 Year ended 31 Dec
December 2004
R million R million
Cash generated from operations 1,682 1,092
Income before taxation 2,398 1,184
Depreciation charge 25 22
Other non-cash adjustments (6) 32
Total investment income (1,225) (703)
Change in working capital 490 557
Dividends and interest received 449 418
Cash generated by operating activities 2,131 1,510
Taxation paid (372) (233)
Dividends paid (296) (200)
Cash retained from operating activities 1,463 1,077
Cash utilised in net investment (714) (31)
activities
Cash retained from operating and 749 1,046
investment activities
Proceeds from ordinary shares issued 41 39
Proceeds from disposal of associated 8 -
companies
Investment in associated companies (37) (69)
Proceeds from disposal of interest in 9 -
subsidiary
Investment in subsidiaries - (408)
Cash acquired through acquisition of - 406
subsidiaries
Cash utilised in additions to fixed (12) (36)
assets
Increase in long-term loan -
Translation effect on cash (34) (47)
Cash generated for the year 724 931
Cash and cash equivalents at beginning 3,203 2,272
of year
Cash and cash equivalents at end of 3,927 3,203
year
SEGMENTAL REPORTING
Reviewed Audited Reviewed Audited
Geographical Year ended 31 Year ended 31 Year ended 31 Year ended
segments December 2004 December 2003 December 2004 December 2003
R million R million R million R million
Gross written premium Underwriting result
Income statement
Southern Africa 9,171 8,926 1,141 465
Europe & UK 564 587 25 65
9,735 9,513 1,166 530
Total assets Total liabilities
Balance sheet
Southern Africa 11,215 9,446 6,323 5,894
Europe & UK 1,314 1,263 693 806
12,529 10,709 7,017 6,700
REVENUE ANALYSIS
Reviewed Audited Reviewed Audited
Year ended 31 Year ended 31 Year ended 31 Year ended
December 2004 December 2003 December 2004 December 2003
R million R million R million R million
Gross written premium Underwriting result
Insurance class
Motor 4,085 3,773 498 177
Property 3,022 2,648 309 133
Liability 633 616 122 30
Crop 380 638 20 50
Miscellaneous 132 347 34 61
Engineering 380 352 86 22
Alternative risk 475 402 38 10
Transportation 255 282 47 13
Accident and 282 253 1 6
health
Guarantee 91 202 11 28
9,735 9,513 1,166 530
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICY
The abridged consolidated financial statements are prepared in accordance wit
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,
except for the adoption of AC501 with regard to deferred tax on STC credits.
COMPARATIVES
The comparatives have been reclassified to include goodwill as part of income
before taxation.
Reviewed Audited
Year ended 31 December Year ended 31 Dec
2004 2003
R million R million
2. INVESTMENT INCOME
Interest 94 87
Dividends 167 151
Foreign exchange differences 5 (18)
Realised/Unrealised investment 797 289
surpluses
Investment management fee (41) (11)
Investment return:shareholders 1,022
Long-term rate of return
adjustment
Investment income 1,022 498
3. TAXATION
Analysis of income tax
Net insurance result 412 222
Investment income 174 121
Other 29 13
Tax 615 356
4. HEADLINE EARNINGS PER SHARE
Net income 1,734 806
Goodwill 49 37
Headline earnings 1,783 843
Headline earnings per share 1,556 751
(cents)
NOTES TO THE FINANCIAL STATEMENTS
Reviewed Audited
Year ended Year ended
31 31
December December
2004 2003
R million R million
5. NET LONG-TERM RATE OF RETURN ADJUSTMENT
Net income 1,734 806
Net long-term rate of return adjustment (437) (29)
Gross investment return (543) (79)
Tax 106 50
Pro forma earnings based on long-term rate 1,297 777
of return
Pro forma earnings per share based on long- 1,132 692
term rate of return (cents)
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 1,838 985
Long-term returns 1,458 1,042
Excess aggregate short-term fluctuations (380) 57
COMMENTS
The past year proved to be one of the most favourable underwriting years in the
history of the South African short-term insurance industry. Santam delivered its
strongest set of financial results ever, with headline earnings increasing to
R1.78 billion, which is more than double the amount for 2003.
Despite marginal growth in gross written premium, net written premium increased
by 12 percent as a result of further optimisation of Santam`s reinsurance
programme. Growth in the corporate market came under pressure due to increased
capacity at significantly reduced rates. New entrants to the crop insurance
market, together with lower levels of insurance due to climatic conditions and
lower crop prices, hampered growth in this area. Although international premium
income was on par with 2003 in GBP terms, the strong rand depressed the levels
reported.
The low claims ratios experienced in southern Africa across most classes of
insurance were the biggest contributor to the group`s favourable underwriting
results. The group`s net claims ratio of 57 percent was 7.8 percentage points
lower than in 2003 mainly due to benign weather patterns, the absence of
catastrophes, a lower frequency of motor accident claims, a reduction in theft
claims, and fewer man-made disasters.
The company continued its strategy to retain more business at acceptable risk
profiles. Consequently, the level of reinsurance premiums declined to 19.4
percent of gross written premiums from 26.2 percent in 2003. Optimising
reinsurance spend remains a focus area for the future.
On the international front, Westminster Motor Insurance Association ended its
second year as part of the Santam Group on a sound note. Despite increased
competition, Westminster maintained high levels of profitability, and achieved a
net underwriting margin of 12.5 percent. Prospects for Santam Europe, which
commenced business in October 2004, are encouraging. Bluesure`s entry into the
UK insurance market took longer than anticipated and, following Santam Europe`s
registration, business started flowing towards the end of the year.
The combined effect of all insurance activities resulted in a net insurance
margin of 17.7 percent against 10.9 percent for 2003.
Despite lower interest rates for 2004, the investment return on insurance funds
was in line with returns achieved in 2003. This was primarily attributable to a
continued focus on cash and working capital management, which resulted in the 31
percent higher average float level (funds generated by insurance activities).
The strong performance of the local equity market during the second half of the
year, in particular the financial and industrial sectors, contributed towards
the 105 percent increase in investment income. Equity earnings from associated
companies were also significantly higher in 2004 due to good earnings from
Credit Guarantee Insurance Corporation of Africa Ltd and Lion of Africa Ltd.
Headline earnings per share improved by 107 percent to 1556 cps based on the
favourable underwriting results and higher investment return.
Cash generated by operating activities exceeded R2.1 billion, up by 41 percent
from 2003, as a result of increased profitability and improved working capital
management. The group solvency level increased from 56 percent at the end of
2003 to 69 percent for the year under review.
As reported in our interim results, Santam embarked on an extensive exercise in
2004 to increase its capital efficiency in order to optimise return to
shareholders. For this purpose, Santam`s optimal levels of capital were
determined, taking into account the combined underwriting and investment risk
profile and business growth opportunities. As Santam`s solvency margin at year-
end is far in excess of its optimal risk adjusted capital requirements, the
board approved the return of excess capital of R1.15 billion to shareholders,
translating in a payment of R10 per share. The capital reduction is subject to
shareholder and regulatory approval.
The board would like to extend its thanks to Santam`s management, staff,
brokers, and other business partners for their efforts and contributions during
this year.
PROSPECTS
The year under review was an exceptional one for Santam. Although we expect a
more normal claims pattern and keener pricing in 2005, factors such as the
strong underwriting cycle, the positive economic and financial outlook for South
Africa, as well as Santam`s history of successful risk management point to
continued firm performance.
In 2005 Santam will focus specifically on growing its market share without
compromising sustainable profitability. The company is in the process of
redefining its long-term strategy in order to remain the dominant player in the
South African short-term insurance market.
The international businesses will remain focussed on ensuring that operations
yield profitable results and the required return on capital.
Anticipated low interest rates in 2005 will continue to dampen returns on cash-
related investment. However, indications are that equity markets will remain
firm, delivering good returns over the next period.
DECLARATION OF NORMAL DIVIDEND (NUMBER 101)
Notice is hereby given that the board has declared a final dividend of 195 cents
a share (2003: 148 cents). Shareholders are advised that the last day to trade
`cum dividend` will be Friday, 11 March 2005. The shares will trade `ex
dividend` from the commencement of business on Monday, 14 March 2005. The record
date will be Friday, 18 March 2005 and the payment date will be Tuesday, 22
March 2005. Certificated shareholders may not dematerialise or rematerialise
their shares between Monday, 14 March 2005, and Friday, 18 March 2005, both
dates inclusive.
PROPOSED CASH PAYMENT TO SHAREHOLDERS
Notice is hereby given that the board has approved a cash payment of 1000 cents
per share to shareholders by way of a reduction of Santam`s stated capital
account. The proposed cash payment is subject to the passing of a special
resolution at a meeting of shareholders and regulatory approval. A circular
containing full details of the proposed cash payment is currently being prepared
and will be posted to Santam shareholders on or about Friday, 4 March 2005.
Shareholders are advised of the following anticipated dates in respect of the
proposed payment:
Last day to trade `cum proposed payment` Friday, 8 April 2005. Santam shares
trade `ex proposed payment` Monday, 11 April 2005, with record date Friday, 15
April 2005 and payment date Monday, 18 April 2005.
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
22 February 2005
NON-EXECUTIVE DIRECTORS SANTAM HEAD OFFICE AND
REGISTERED ADDRESS
JJ Geldenhuys, JG Le Roux, NM Magau, 1 Sportica Crescent, Tyger
Valley,
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
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