The business environment during the first half of 2006 was characterised by volatile equity and currency markets, an increasing interest rate environment as well as contracting underwriting margins in the short-term insurance industry. Despite these challenges the group continued to deliver strong results. Core earnings, a measure of the group's "normalised" earnings, of R1 582 million for the six months, are marginally up on the corresponding period in 2005. The marginal increase in core earnings is the result of a 16% increase in net operating profit for the period being offset by a 24% decline in net investment income over the same period. All group businesses, apart from Santam and Sanlam Employee Benefits, contributed to the improvement in net operating profit. Gross operating profit of R1 768 million for the first six months of 2006 is 12% higher than the comparative period in 2005. An exceptional performance by Sanlam's Investment Management businesses was in part offset by the anticipated reduction in the Santam underwriting performance as well as a lower Sanlam Employee Benefits contribution. Net of taxation and minority interests, operating profit is 16% higher than 2005. As part of the group's capital management strategy some R7 billion of excess capital was utilised for the share buy-back programme and acquisitions during the latter part of 2005. A further R1.3 billion was used to buy back shares in the market during the first six months of 2006. The resulting lower investment asset base, combined with the impact of the R249 million extraordinary Absa dividend received in June 2005, contributed to a 24% decline in net investment income. Excluding the 2005 Absa dividend, net investment income increased by 39%. Headline earnings of R3 130 million are 17% up on the first six months of 2005, benefiting from the relatively stronger equity markets during the period. The reduction in the weighted average number of issued shares resulted in a 35% increase in Headline earnings per share.
Dividend
In line with the group policy no interim dividend has been declared. Sanlam only declares an annual dividend.
Prospects
Sanlam shall continue to build on its achievements and shall focus on its four key strategies of growth, effective capital utilisation, cost efficiencies and transformation. The acquisition of the minority shareholders' interest in Santam will be persued on acceptable and value enhancing terms, while operational focus will remain on the settling down and integration of the newly acquired group business.
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