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SNT
SNT
Santam - Reviewed Interim Report for the six months ended 30 June 2006
SANTAM LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1918/001680/06
JSE Share code: SNT
NSX share code: SNM
ISIN number: ZAE000006854
("Santam")
Santam Limited and its Subsidiaries
Reviewed Interim Report for the six months ended 30 June 2006
Highlights
* Return on shareholders" funds of 22%
* Growth in gross written premium of 17% in challenging market
* 9% increase in interim dividend
* R1 billion cash generated by operations
CONSOLIDATED BALANCE SHEETS
Restated Audited
Reviewed Reviewed At
At 30 June At 30 June 31 December
Notes 2006 2005 2005
R million R million R million
Assets
Non-Current assets
Property and equipment 57 51 57
Intangible assets 107 86 80
Deferred income tax 35 16 22
Investments in 254 228 239
associates
Financial assets
Equity securities:
- at fair value through 3 5 139 3 837 5 046
income
Debt securities:
- at fair value through 3 1 329 1 209 831
income
Current assets
Reinsurance assets 2 302 1 704 2 194
Deferred acquisition 203 160 181
costs
Loans and receivables 1 458 1 125 1 281
including insurance
receivables
Cash and cash 4 564 3 984 4 927
equivalents
Total assets 15 448 12 400 14 858
Equity
Capital and reserves
attributable to the
company"s
equity holders
Share capital 67 37 42
Other reserves 982 731 763
Distributable reserves 4 405 4 045 4 922
5 454 4 813 5 727
Minority interest 110 63 125
Total equity 5 564 4 876 5 852
Liabilities
Non-Current liabilities
Cell owners" interest 286 86 268
Deferred income tax 224 184 256
Financial liabilities
Investment contracts 250 - 250
Current liabilities
Insurance liabilities 7 483 5 549 6 607
Deferred reinsurance 68 83 109
acquisition revenue
Provisions for other 150 141 145
liabilities and charges
Trade and other 1 348 1 301 1 345
payables
Current income tax 75 180 26
liabilities
Total liabilities 9 884 7 524 9 006
Total shareholders" 15 448 12 400 14 858
equity and liabilities
CONSOLIDATED INCOME STATEMENTS
Restated
Reviewed Reviewed Audited
Six Six Year ended
months months
ended ended % 31 December
30 June 30 June
Notes 2006 2005 Change 2005
R million R million R million
Gross written 5 879 5 034 17 11 355
premium
Less: reinsurance 934 779 2 011
premium
Net premium 4 945 4 255 16 9 344
Less: change in
unearned premium
Gross amount 57 7 371
Reinsurers" share (9) 203 102
Net insurance 4 897 4 045 21 8 871
premium revenue
Investment income 4 246 269 (9) 482
Income from 190 192 404
reinsurance
contracts ceded
Net realised 682 151 263
gains on
financial assets
Net fair value
(losses)/gains on
assets at
fair value (267) 92 742
through income
Net income 5 748 4 749 21 10 762
Insurance claims 3 838 2 980 6 905
and loss
adjustment
expenses
Insurance claims
and loss
adjustment
expenses
recovered from
reinsurers
(328) (364) (1 112)
Net insurance 3 510 2 616 34 5 793
benefits and
claims
Expenses for the 863 749 1 586
acquisition of
insurance
contracts
Expenses for 537 496 1 121
marketing and
administration
Expenses for 20 16 42
asset management
services
Amortisation of 1 - 4
intangible
assets/Goodwill
impairment
Expenses 4 931 3 877 27 8 546
Results of 817 872 2 216
operating
activities
Finance costs (6) (14) (12)
Share of profit 52 44 117
of associates
Profit before tax 863 902 (4) 2 321
Income tax 5 (281) (196) (520)
expense
Profit for the 582 706 (17) 1 801
period
Attributable to:
- equity holders 577 694 1 778
of the company
- minority 5 12 23
interest
582 706 1 801
Earnings
attributable to
equity
shareholders cents cents % cents
change
Earnings per 6
share
Basic earnings 493 599 (18) 1 535
per share
Diluted earnings 483 586 (18) 1 506
per share
Weighted average 117.1 115.8 115.8
number of shares
- millions
CONSOLIDATED STATEMENT OF CHANGES
Attributable to equity holders Minority Total
of the company interest
Share Other Distribu-
table
capital reserves reserves
IN EQUITY R million R million R million R million R million
Balance as at 1 171 636 3 615 60 5 482
1 January
2005
Share issue 27 27
Return of (1 156) (1 156)
surplus
capital
Retained 1 778 23 1 801
income for
the period
Transfer to 131 (131) -
reserves
Share-based 10 10
payments
Currency (4) (4)
translation
differences
Dividends (350) (10) (360)
paid
Additional 52 52
interest
acquired by
minorities
Balance as at 42 763 4 922 125 5 852
31 December
2005
Share issue 25 25
Retained 577 5 582
income for
the period
Transfer to 70 (70) -
reserves
Share-based 8 8
payments
Currency 149 149
translation
differences
Dividends (1 032) (9) (1 041)
paid
Interest (11) (11)
acquired from
minorities
Balance as at 67 982 4 405 110 5 564
30 June 2006
Balance as at 1 171 636 3 615 60 5 482
1 January
2005
Share issue 22 22
Return of (1 156) (1 156)
surplus
capital
Retained 694 12 706
income for
the period
Transfer to 41 (41) -
reserves
Share-based 5 5
payments
Currency 54 54
translation
differences
Dividends (228) (9) (237)
paid
Balance as at 37 731 4 045 63 4 876
30 June 2005
CONSOLIDATED CASH FLOW STATEMENTS
Restated
Reviewed Reviewed Audited
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2006 2005 2005
R million R million R million
Cash generated from 1 013 1 359 2 377
operations
Interest paid (6) (14) (12)
Income tax paid (277) (367) (778)
Net cash from operating 730 978 1,587
activities
Cash flows from
investing activities
Cash (utilised)/ (205) 364 578
generated in investment
activities
Acquisition of (30) - (61)
subsidiary, net of cash
acquired
Cash acquired through - - 281
acquisition of
subsidiary
Purchases of equipment (12) - (21)
Proceeds from sale of - 3 2
equipment
Capital refund from 1 - 4
associated companies
Proceeds from sale of 23 5 7
associated companies
Proceeds from sale of 1 - 20
subsidiary, net of cash
sold
Acquisition of book of (2) - -
business
Net cash from investing (224) 372 810
activities
Cash flows from
financing activities
Proceeds from issuance 25 22 27
of ordinary shares
Return of surplus - (1 156) (1 156)
capital to shareholders
Dividends paid to (1 032) (228) (350)
company"s shareholders
Dividends paid to (9) (9) (10)
minority interest
Increase in cell 19 40 88
owners" interest
Net cash used in (997) (1 331) (1 401)
financing activities
Net (decrease)/increase (491) 19 996
in cash and cash
equivalents
Cash and cash 4 927 3 927 3 927
equivalents at
beginning of period
Exchange gains on cash 128 38 4
and cash equivalents
Cash and cash 4 564 3 984 4 927
equivalents at end of
period
Notes to the consolidated financial statements
1. Basis of presentation and accounting policies
The consolidated condensed financial statements for the six months ended 30
June 2006 were prepared in accordance with International Financial Reporting
Standards ("IFRS") IAS 34 - Interim Financial Reporting and in compliance
with the Listing Requirements of the JSE Limited. The consolidated condensed
interim financial statements do not include all of the information required
by IFRS for full annual financial statements.
The principal policies used in the preparation of the reviewed results for
the period ended 30 June 2006 are consistent with those applied in the
annual financial statements for the year ended 31 December 2005 and for the
results for the six months ended 30 June 2005 in terms of IFRS.
Restatement of comparative numbers
Comparatives for the six months ended 30 June 2005 have been amended with
the accounting of cell activity and operating lease costs. These adjustments
have been set out in detail in note 6 to the annual financial statements for
the year ended 31 December 2005 and had no significant impact on the
reported results.
2. Segment report
For the six months ended Insurance Investment
30 June 2006
activities activities Total
R million R million R million
2.1 Business activity
Gross written premium 5 879 5 879
Net written premium 4 945 4 945
Net earned premium 4 897 4 897
Claims incurred 3 510 3 510
Net commission 673 673
Management expenses 537 537
Underwriting result 177 - 177
Investment return on insurance 127 127
funds
Net insurance result 304 - 304
Investment income net of 508 508
management fee
Income from associates 52 52
Amortisation of intangible (1) (1)
assets
Income before taxation 303 560 863
Total assets 8 727 6 721 15 448
Total liabilities 9 884 - 9 884
For the six Gross Underwriting Total Total
months ended written
30 June 2006
premium result assets liabilities
R million R million R million R million
2.2 Insurance
class
Accident and 153 (5) 39 132
health
Alternative risk 585 (2) 301 1 445
Crop 96 46 22 27
Engineering 230 64 458 605
Guarantee 9 14 51 65
Liability 332 16 731 1 328
Miscellaneous 61 25 55 119
Motor 2 490 96 156 1 693
Property 1 789 (109) 702 2 038
Transportation 134 32 64 171
Unallocated - - 12 869 2 261
TOTAL 5 879 177 15 448 9 884
Comprising:
Commercial 3 076 212 2 249 5 767
insurance
Personal 2 218 (33) 29 411
insurance
Alternative 585 (2) 301 1 445
risk
Unallocated - - 12 869 2 261
TOTAL 5 879 177 15 448 9 884
2.3
Geographical
Southern Africa 5 589 198 13 217 8 461
UK & Europe 290 (21) 2 231 1 423
TOTAL 5 879 177 15 448 9 884
For the six months ended Insurance Investment
30 June 2005
activities activities Total
R million R million R million
2.1 Business activity
Gross written premium 5 034 5 034
Net written premium 4 255 4 255
Net earned premium 4 045 4 045
Claims incurred 2 616 2 616
Net commission 557 557
Management expenses 496 496
Underwriting result 376 - 376
Investment return on 120 120
insurance funds
Net insurance result 496 - 496
Investment income net of 362 362
management fee
Income from associates 44 44
Income before taxation 496 406 902
Total assets 7 126 5 274 12 400
Total liabilities 7 524 - 7 524
For the six months Gross Underwriting Total Total
ended 30 June 2005 written
premium result assets liabilities
R million R million R million R million
2.2 Insurance
class
Accident and 153 14 37 110
health
Alternative risk 264 5 134 868
Crop 87 27 50 60
Engineering 202 33 234 332
Guarantee 39 13 99 103
Liability 327 46 632 955
Miscellaneous 44 2 83 128
Motor 2 215 177 111 1 531
Property 1 564 26 434 1 396
Transportation 139 33 51 149
Unallocated - - 10 535 1 892
TOTAL 5 034 376 12 400 7 524
Comprising:
Commercial 2 823 304 1 720 4 324
insurance
Personal insurance 1 947 67 11 440
Alternative risk 264 5 134 868
Unallocated - - 10 535 1 892
TOTAL 5 034 376 12 400 7 524
2.3 Geographical
Southern Africa 4 790 395 10 825 6 645
UK & Europe 244 (19) 1 575 879
TOTAL 5 034 376 12 400 7 524
For the year ended 31 December Insurance Investment
2005
activities activities Total
R million R million R million
2.1 Business activity
Gross written premium 11 355 11 355
Net written premium 9 344 9 344
Net earned premium 8 871 8 871
Claims incurred 5 793 5 793
Net commission 1 182 1 182
Management expenses 1 121 1 121
Underwriting result 775 - 775
Investment return on insurance 241 241
funds
Net insurance result 1 016 - 1 016
Investment income net of 1 192 1 192
management fee
Income from associates 117 117
Goodwill impairment (4) (4)
Income before taxation 1 012 1 309 2 321
Total assets 8 742 6 116 14 858
Total liabilities 8 987 19 9 006
For the year ended Gross Underwriting Total Total
31 December 2005 written
premium result assets liabilities
R million R million R million R million
2.1 Insurance class
Accident and health 315 14 40 126
Alternative risk 983 12 243 1 332
Crop 286 39 91 156
Engineering 457 80 413 568
Guarantee 88 28 69 90
Liability 712 99 812 1 287
Miscellaneous 130 33 88 141
Motor 4 620 293 118 1 400
Property 3 492 118 451 1 455
Transportation 272 59 51 161
Unallocated - - 12 482 2 290
TOTAL 11 355 775 14 858 9 006
Comprising:
Commercial 6 343 689 2 121 4 682
insurance
Personal insurance 4 029 74 12 702
Alternative risk 983 12 243 1 332
Unallocated - - 12 482 2 290
TOTAL 11 355 775 14 858 9 006
2.2 Geographical
Southern Africa 10 578 761 13 118 7 937
UK & Europe 777 14 1 740 1 069
TOTAL 11 355 775 14 858 9 006
Restated Audited
Reviewed Reviewed At
At 30 June At 30 June 31 December
2006 2005 2005
R million R million R million
3. Financial assets
The group"s financial assets
are summarised below by
measurement category.
Fair value through income 6 468 5 046 5 877
Loans and receivables 1 458 1 125 1 281
Total financial assets 7 926 6 171 7 158
Financial assets at fair
value through income
Equity securities:
- quoted 4 423 3 312 4 285
- unquoted 716 525 758
5 139 3 837 5 043
Debt securities - fixed
interest rate:
- government and other bonds 1 017 1 114 755
- unquoted 312 95 76
1 329 1 209 831
Derivative
- Exchange traded futures - - 3
Total financial assets at 6 468 5 046 5 877
fair value through income
4. Investment income
Dividend income 88 97 185
Interest income 141 155 293
Foreign exchange differences 17 17 4
246 269 482
Restated
Reviewed Reviewed Audited
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2005
2006 2005
R million R million R million
5. Income tax expense
South African normal taxation
Current year 307 151 367
Current 194 131 347
STC 113 20 20
Prior year - 2 2
Foreign taxation
Current year 2 16 55
Prior year - 2 1
Income taxation for the year 309 171 425
Deferred taxation (28) 25 95
Current year (28) 29 99
Prior year - (4) (4)
Total taxation as per the 281 196 520
Income Statement
6. Earnings per share
Basic earnings per share
Profit attributable to the 577 694 1 778
company"s equity holders
(R million)
Weighted average number of 117.1 115.8 115.8
ordinary shares in issue
(million)
Earnings per share (cents) 493 599 1 535
Diluted earnings per share
Profit attributable to the 577 694 1 778
company"s equity holders
(R million)
Weighted average number of 117.1 115.8 115.8
ordinary shares in issue
(million)
Adjusted for share-options 2.3 2.6 2.2
Weighted average number of
ordinary shares for diluted
earnings per share (million) 119.4 118.4 118.0
Diluted basic earnings per 483 586 1 506
share (cents)
Headline earnings per share
Profit attributable to the 577 694 1 778
company"s equity holders
Adjust for:
Impairment of goodwill in - - 4
subsidiaries
Loss on sale of subsidiaries 6 - 2
and associates
Headline earnings (R million) 583 694 1 784
Weighted average number of 117.1 115.8 115.8
ordinary shares in issue
(million)
Headline earnings per share 498 599 1 540
(cents)
Diluted headline earnings per
share
Headline earnings per share 583 694 1 784
(cents)
Weighted average number of
ordinary shares for diluted
earnings per share (million) 119.4 118.4 118.0
Diluted headline earnings per 488 586 1 512
share (cents)
Comments
Santam"s underwriting performance came under pressure during the first half
of 2006 due to the continued softening of the insurance cycle as well as an
escalation in the average claims cost. Despite this, the group generated an
annualised return on weighted average shareholders" funds of 21.6% compared
to 27.6% in June 2005. This was predominantly due to excellent investment
return on the back of firmer equity markets during the period. Headline
earnings of R583 million for the six months were 16% lower compared to the
same period in 2005, equating to headline earnings per share of 498 cents
against 599 cents in 2005.
Following on the growth momentum of 2005, Santam achieved a 17% increase in
gross written premiums during the first six months of the year.
On the local front, growth was achieved across most classes of business,
while at group level, growth in net written premium was 16% up.
International premiums increased by 19%, with both Westminster Motor
Insurance Association and Santam Europe achieving similar growth in GBP
terms.
The short-term insurance environment in South Africa continued to normalise,
with the company experiencing a sharp increase in claims in the personal and
commercial lines of business, placing underwriting margins under pressure.
The group"s net claims ratio of 71.7% was 7% higher compared to the first
half of 2005. Commercial property and personal line insurance classes were
negatively affected by adverse weather conditions, floods in Namibia, theft
and a high number of commercial and private property fire incidents. In
addition, the profitability of the motor insurance class came under pressure
due to increased motor vehicle accidents, higher repair costs particularly
on imported vehicles, as well as increased cost due to car theft and
hijackings. On the other hand, specialist underwriting classes experienced
more favourable claims ratios. Steps are being implemented to stabilise
underwriting margins and address unprofitable business. As part of Santam"s
ongoing assessment of insurance liabilities in terms of claims experience,
the Incurred but not reported (IBNR) reserve was reduced by R45 million
during the period. Continued initiatives to improve efficiencies, timing,
and the increased level of activity contributed towards the reduction in the
acquisition cost ratio from 26% to 24.7%.
During the first quarter of the year, Santam launched its new Multihome
insurance product directed at insuring low-cost houses in previously
disadvantaged communities. To date business volumes are still low with a
favourable claims experience.
In line with the company"s ongoing strategy of optimising the retention of
more business at an acceptable risk profile, the level of reinsurance earned
premium declined to 15.9% of gross earned premium compared to 19.5% for the
equivalent period in 2005. If the impact of insurance cell business is
excluded, the year-to-date ratio for 2006 decreased to 11.1% against 17.2%
for 2005.
The underwriting performance of Westminster Motor Insurance Association was
disappointing in the first half of 2006. The company incurred an
underwriting loss due to increases in the actuarial estimates of a few large
liability claims incurred in prior years. The company continued to
experience increased competition in its market sector from new entrants,
which put pricing under pressure and eroded margins. Santam Europe has
increased its business activity, although volumes are still below
expectations. A decision was taken to wind down the Bluesure joint venture
and the business was absorbed by a strategic partner to improve utilisation
of resources.
The combined effect of all insurance activities resulted in a net insurance
margin of 6.2% compared to 12.2% in 2005.
Investment return on insurance funds exceeded those of the previous year by
6% due to a 10% higher average float level (funds generated by insurance
activities). This was primarily attributable to a continued focus on cash
and working capital management and the impact of the refinements made to the
reinsurance programme. Although R1 billion of cash was generated from
operations during the first six months of 2006, this was 25% less than 2005
due to the overall lower underwriting profitability to date.
Investment-related income, excluding the investment return on insurance
funds was 40% higher in the first six months of 2006 compared to the
equivalent period in 2005, despite Santam"s R1 billion dividend payment in
April 2006, which reduced its capital base. This performance was due to the
stronger equity markets during the period under review. Earnings from
associated companies were higher than the comparable period mainly due to
the very good results of Credit Guarantee Insurance Corporation of Africa
Limited and Lion of Africa Insurance Company Limited.
The high effective tax rate of 32.5% was due to secondary tax on companies
(STC) of R95 million on the special dividend of 650 cents per share that was
paid in April 2006.
The group"s solvency level is currently a sound 54%, a reduction from 61% at
the end of 2005, due to the R1 billion in dividends paid to shareholders
earlier in the year. In line with this, the net asset value per share
decreased from 4927 cents at the end of 2005 to 4645 cents at the end of the
first six months of 2006.
The board would like to extend its gratitude to Santam"s management, staff,
brokers and other business partners for their efforts and contributions
during the past six months.
PROSPECTS
It is anticipated that underwriting margins will continue to come under
pressure due to the softer market, and the further deterioration of claims.
Recent floods in the southern and Eastern Cape will put further pressure on
underwriting margins.
Santam will concentrate on growing its market share without compromising
sustainable profitability. Growth will be slower for the remainder of the
year as there will be increased focus on managing the profitability of
certain lines of business.
International businesses will remain focused on achieving a balance between
growth and profitability to ensure that operations return to profit. It is
expected that Westminster Motor Insurance Association will return to
positive underwriting margins, whilst Santam Europe should achieve break-
even during the second half.
In line with market expectations, it is anticipated that higher interest
rates during the remainder of the year will have a positive effect on cash-
related investments, while equity markets will remain volatile in the short-
term with an overall sideways movement.
DECLARATION OF DIVIDEND (NUMBER 104)
Notice is hereby given that the board has declared an interim dividend of
118 cents per share (2005: 108 cents). Shareholders are advised that the
last day to trade "cum dividend" will be Friday, 15 September 2006. The
shares will trade "ex dividend" from the commencement of business on Monday,
18 September 2006. The record date will be Friday, 22 September 2006, and
the payment date will be Tuesday, 26 September 2006. Shareholders may not
dematerialise or rematerialise their shares between Monday, 18 September
2006, and Friday, 22 September 2006, both dates inclusive.
REVIEW BY AUDITORS
The company"s external auditors, PricewaterhouseCoopers Inc., have reviewed
the condensed 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
23 August 2006
Non-executive Directors
JJ Geldenhuys, JG le Roux, NM Magau, AR Martin, EA Moolla,
JE Newbury, P de V Rademeyer, GE Rudman,
DK Smith (Chairman), J van Zyl, BP Vundla
Executive Directors
SC Gilbert (Chief executive), MJ Reyneke
Sponsor
Investec Securities Limited
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg 2000
PO Box 61051, Marshalltown 2107
Tel (011) 370 5000, Fax (011) 688 7721
http://www.computershare.com
Company secretary
Sana-Ullah Bray
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
Registration number 1918/001680/06
ISIN ZAE000006854
JSE share code: SNT
NSX share code: SNM
Date: 23/08/2006 02:59:17 PM Produced by the JSE SENS Department
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