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SNT
SNT
SNT - Santam - Abridged Financial Report for the year ended 31 December 2006
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 2006
Highlights
* Return on capital of 33%
* Gross written premium increased by 12%
* Headline earnings per share of 1555 cps
* Total dividend increased by 13% to 380 cps
* R2.2 billion in cash generated by operations
CONSOLIDATED BALANCE SHEETS
Audited Audited
At 31 December At 31 December
Notes 2006 2005
R million R million
Assets
Non-Current assets
Property and equipment 59 57
Intangible assets 108 80
Deferred income tax 27 22
Investments in associates 215 239
Financial assets
Equity securities:
- at fair value through 3 5 435 4 305
income
Debt securities:
- at fair value through 3 2 106 1 572
income
Current assets
Reinsurance assets 2 080 2 194
Deferred acquisition costs 211 181
Loans and receivables 3 1 394 1 281
including insurance
receivables
Income tax assets 39 -
Cash and cash equivalents 5 142 4 927
Total assets 16 816 14 858
Equity
Capital and reserves
attributable to the
company`s equity holders
Share capital 71 42
Other reserves 1 119 763
Distributable reserves 5 437 4 922
6 627 5 727
Minority interest 123 125
Total equity 6 750 5 852
LIABILITIES
Non-Current liabilities
Cell-owners` interest 329 268
Deferred income tax 297 256
Financial liabilities
Investment contracts 276 250
Current liabilities
Insurance liabilities 7 694 6 607
Deferred reinsurance 74 109
acquisition revenue
Provisions for other 148 145
liabilities and charges
Trade and other payables 1 213 1 345
Income tax liabilities 35 26
Total liabilities 10 066 9 006
Total shareholders` equity 16 816 14 858
and liabilities
CONSOLIDATED INCOME STATEMENTS
Audited Audited
Year ended Year ended
31 December 31 December %
Notes 2006 2005 Change
R million R million
Gross written premium 12 736 11 355 12
Less: reinsurance premium 2 052 2 011
Net premium 10 684 9 344 14
Less: change in unearned
premium
Gross amount 428 371
Reinsurers` share 53 102
Net insurance premium 10 203 8 871 15
revenue
Investment income 4 540 482 12
Income from reinsurance 342 404
contracts ceded
Net gains on financial 1 265 1 005 26
assets at fair value
through income
Net income 12 350 10 762 15
Insurance claims and loss 8 089 6 905
adjustment expenses
Insurance claims and loss (1 052) (1 112)
adjustment expenses
recovered from reinsurers
Net insurance benefits 7 037 5 793 21
and claims
Expenses for the 1 764 1 586
acquisition of insurance
contracts
Expenses for marketing 1 117 1 121
and administration
Expenses for asset 46 42
management services
Amortisation of 2 4
intangible
assets/Impairment of
goodwill
Expenses 9 966 8 546 17
Results of operating 2 384 2 216
activities
Finance costs (7) (12)
Share of profit of 105 117
associates
Profit before tax 2 482 2 321 7
Income tax expense 5 (615) (520)
Profit for the year 1 867 1 801 4
Attributable to:
- equity holders of the 1 844 1 778
company
- minority interest 23 23
1 867 1 801
Earnings attributable to cents cents
equity shareholders
Earnings per share 6
Basic earnings per share 1 574 1 535 3
Diluted basic earnings 1 553 1 506 3
per share
Headline earnings per 1 555 1 540 1
share
Diluted headline earnings 1 535 1 512 2
per share
Weighted average number 117.13 115.82
of shares - millions
Dividend per share 380 335 13
Special dividend per - 650
share
CONSOLIDATED STATEMENT OF CHANGES
Attributable to equity holders
of the company
Share Other Distribu- Minority
table
capital reserves reserves interest Total
IN EQUITY R million R million R million R million R million
Balance as at 1 1 171 636 3 615 60 5 482
January 2005
Share issue 27 27
Return of excess (1 156) (1 156)
capital
Retained income for 1 778 23 1 801
the period
Transfer to reserves 131 (131) -
Share-based payments 10 10
Currency translation (4) (4)
differences
Dividends paid (350) (10) (360)
Additional interest 52 52
acquired by
minorities
Balance as at 31 42 763 4 922 125 5 852
December 2005
Share issue 29 29
Retained income for 1 844 23 1 867
the period
Transfer to reserves 177 (177) -
Share-based payments 13 13
Currency translation 179 179
differences
Dividends paid (1 165) (20) (1 185)
Interest sold by (5) (5)
minorities
Balance as at 31 71 1 119 5 437 123 6 750
December 2006
CONSOLIDATED CASH FLOW STATEMENTS
Audited Audited
Year ended Year ended
31 December 31 December
2006 2005
R million R million
Cash generated from operations 2 203 2 377
Interest paid (7) (12)
Income tax paid (606) (778)
Net cash from operating activities 1 590 1 587
Cash flows from investing activities
Cash (utilised)/generated in (390) 578
investment activities
Acquisition of subsidiary, net of cash (30) (61)
acquired
Proceeds from sale of subsidiary, net 183 20
of cash sold
Cash (sold)/acquired through (188) 281
sale/acquisition of subsidiary
Purchases of equipment (18) (21)
Proceeds from sale of equipment 1 2
Capital refund from associated 1 4
companies
Proceeds from sale of associated 23 7
companies
Acquisition of book of business (2) -
Net cash from investing activities (420) 810
Cash flows from financing activities
Proceeds from issuance of ordinary 29 27
shares
Return of surplus capital to - (1 156)
shareholders
Dividends paid to company`s (1 165) (350)
shareholders
Dividends paid to minority interests (20) (10)
Increase in cell-owners` interest 61 88
Net cash used in financing activities (1 095) (1 401)
Net increase in cash and cash 75 996
equivalents
Cash and cash equivalents at beginning 4 927 3 927
of year
Currency translation gains on cash and 140 4
cash equivalents
Cash and cash equivalents at end of 5 142 4 927
year
Notes to the consolidated financial statements
1. Basis of presentation and accounting policies
The consolidated financial statements for the year ended 31 December 2006 are
prepared in accordance with International Financial Reporting Standards (IFRS)
IAS34 - Interim Financial Reporting and in compliance with the Listing
Requirements of the JSE Limited. These are the group`s abridged consolidated
financial statements for the period for which annual financial statements are
prepared in terms of IFRS. The abridged consolidated financial statements do not
include all of the information required by IFRS for full annual financial
statements.
The principal accounting policies used in preparing the audited results for the
year ended 31 December 2006 are consistent with those applied in the annual
financial statements for the year ended 31 December 2005 in terms of IFRS.
2. Segment reports
Insurance Investment
activities activities Total
For the year ended 31 R million R million R million
December 2006
2.1 Business activity
Gross written premium 12 736 12 736
Net written premium 10 684 10 684
Net earned premium 10 203 10 203
Claims incurred 7 037 7 037
Net commission 1 422 1 422
Management expenses 1 117 1 117
Underwriting result 627 - 627
Investment return on 279 279
insurance funds
Net insurance result 906 - 906
Investment income net of 1 473 1 473
management fee
Income from associates 105 105
Amortisation of intangible (2) - (2)
asset
Income before taxation 904 1 578 2 482
Total assets 9 060 7 756 16 816
Total liabilities 10 044 22 10 066
Gross Underwriting Total Total
written
premium result assets liabilities
R million R million R million R million
2.2 Insurance class
Accident and health 316 20 31 123
Alternative risk 1 416 18 244 1 591
Crop 360 40 98 194
Engineering 476 77 325 538
Guarantee 26 32 48 64
Liability 809 58 700 1 494
Miscellaneous 124 65 40 107
Motor 5 171 254 179 1 801
Property 3 748 (1) 580 1 678
Transportation 290 64 46 178
Unallocated - - 14 525 2 298
Total 12 736 627 16 816 10 066
Comprising:
Commercial insurance 6 815 551 2 020 5 425
Personal insurance 4 505 58 27 752
Alternative risk 1 416 18 244 1 591
Unallocated - - 14 525 2 298
Total 12 736 627 16 816 10 066
2.3 Geographical
Southern Africa 11 864 617 14 786 8 989
UK & Europe 872 10 2 030 1 077
Total 12 736 627 16 816 10 066
Insurance Investment
For the year ended activities activities Total
31 December 2005 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 241 241
insurance funds
Net insurance result 1 016 - 1 016
Investment income net of 1 192 1 192
management fee
Income from associates 117 117
Impairment of goodwill (4) (4)
Income before taxation 1 016 1 305 2 321
Total assets 8 742 6 116 14 858
Total liabilities 8 987 19 9 006
Notes to the consolidated financial statements (continued)
2. Segment reports (continued)
Gross Underwriting Total Total
written
premium result assets liabilities
R million R million R million R million
2.2 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 insurance 6 343 689 2 121 4 682
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
2.3 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
Audited Audited
At 31 December At 31 December
2006 2005
R million R million
3. Financial assets and liabilities at fair
value through income
The group`s financial assets are summarised
below by measurement category.
Fair value through income 7 541 5 877
Loans and receivables 1 394 1 281
Total financial assets 8 935 7 158
Financial assets at fair vaue through income
Equity securities:
- quoted 5 415 4 285
- unquoted 20 17
5 435 4 302
Derivative
- Exchange-traded futures - 3
5 435 4 305
Debt securities - fixed interest rate:
- government and other bonds 1 339 755
- unquoted bonds 1 76
- unquoted redeemable preference shares 766 741
2 106 1 572
Net financial assets at fair value through 7 541 5 877
income
4. Investment income
Dividend income 192 185
Interest income 334 293
Foreign exchange differences 14 4
540 482
5. Income tax expense
South African normal taxation
Current year 578 367
Charge for the year 465 337
STC 113 30
Prior year (42) 2
Foreign taxation 43 56
Current year 43 55
Prior year - 1
Income taxation for the year 579 425
Deferred taxation 36 95
Current year 27 99
Prior year 9 (4)
Total taxation as per the income statement 615 520
6. Earnings per share
Basic earnings per share
Profit attributable to the company`s equity 1 844 1 778
holders (R million)
Weighted average number of ordinary shares 117.13 115.82
in issue (million)
Basic earnings per share (cents) 1 574 1 535
Diluted earnings per share
Profit attributable to the company`s equity 1 844 1 778
holders (R million)
Weighted average number of ordinary shares 117.13 115.82
in issue (million)
Adjusted for share-options 1.58 2.20
Weighted average number of ordinary shares 118.71 118.02
for diluted earnings per share (million)
Diluted basic earnings per share (cents) 1 553 1 506
Headline earnings per share
Profit attributable to the company`s equity 1 844 1 778
holders
Adjusted for:
Impairment of goodwill in subsidiaries - 4
(Profit)/loss on sale of subsidiaries and (22) 2
associates
Headline earnings (R million) 1 822 1 784
Weighted average number of ordinary shares 117.13 115.82
in issue (million)
Headline earnings per share (cents) 1 555 1 540
Diluted headline earnings per share
Headline earnings (R million) 1 822 1 784
Weighted average number of ordinary shares 118.71 118.02
for diluted earnings per share (million)
Diluted headline earnings per share (cents) 1 535 1 512
Commentary
Santam concluded another successful year in which it generated a 33% return on
shareholders` funds compared to 34% in 2005. This was predominantly due to
exceptional investment income on the back of firm equity markets, tempered by a
normalised underwriting performance as a direct result of a softer insurance
cycle and an escalation in the average claims cost. Headline earnings of R1.82
billion for the year were slightly higher than the R1.78 billion of the previous
year, equating to headline earnings per share of 1555 cents against the 1540
cents for 2005.
After renewed focus on retaining and procuring quality and profitable business,
gross premium growth tapered off in the second half of the year, resulting in an
overall increase of 12% for the year,while net written premium was up 14% from
2005. Growth was achieved across most classes of business. International
premiums increased by only 2% in GBP terms due to Santam Corporate experiencing
a decline in premium income, whilst positive growth was achieved in both
Westminster Motor Insurance Association and Santam Europe.
Underwriting margins remained under pressure during the year due to an increase
in claims in the personal and commercial lines of business. Results were also
adversely affected by several catastrophic events, the largest being floods in
Namibia and in the Southern and Eastern Cape, as well as a number of very large
corporate industrial claims that negatively affected the property and
engineering classes of business. Notwithstanding these unfavourable events, the
benefits of Santam`s corrective action to address unprofitable business are
becoming apparent, with profitability increasing especially in the personal
lines business. Specialist underwriting classes continue to experience
favourable claims ratios. As part of Santam`s ongoing assessment of insurance
liabilities in terms of claims experience, the level of the incurred but not
reported (IBNR) reserve was reduced by a further R43.5 million during the second
half of the year, totalling a reduction of R88.5 million for the full year.
Continued initiatives to improve efficiencies and the increased level of
activity contributed to the acquisition cost ratio declining from 26% to 25%.
In line with the company`s ongoing strategy of optimising the retention of more
business with an acceptable risk profile, the level of reinsurance earned
premium declined to 17.2% of gross earned premium compared to the 19.2% for
2005. If the impact of cell business is excluded, the ratio for 2006 decreased
to 11.2% against the 16.1% for 2005.
International operations showed a 48% improvement in pre-tax profits compared
with 2005. Notwithstanding increased competition, Westminster Motor Insurance
Association achieved a positive underwriting result for the year after a loss in
the first half. Business volumes increased in Santam Europe, albeit at a slower
than desired rate. The company achieved an after-tax profit for the year. In
line with Santam`s strategy of focusing on businesses where it is in control of
underwriting activities, the shareholding in Santam Corporate Ltd (its
participation in a Lloyds syndicate) was sold to the Beazley Syndicate for
GBP14.3 million.
The combined effect of all insurance activities resulted in a net insurance
margin of 8.8% as opposed to 11.4% in 2005.
Investment return on insurance funds exceeded that of the previous year by 16%,
mainly due to a 14% higher average float level (funds generated by insurance
activities). This was primarily due to a continued focus on cash and working
capital management and the impact of refinements made to the reinsurance
programme. Despite lower underwriting profitability for the year, the company`s
operating activities generated R2.20 billion in cash which was only 7% less than
the R2.37 billion generated in 2005.
Benefiting significantly from the continued bullish performance of local
equities, Santam increased its total investment-related income (excluding the
investment return on insurance funds) by 24% year on year, despite the R762
million special dividend paid during the year that reduced the capital base.
Earnings from associated companies were in line with 2005 earnings with very
good results reported by Credit Guarantee Insurance Corporation of Africa
Limited and Lion of Africa Insurance Company Limited.
The group ended the year with a healthy solvency ratio of 62%, which was
slightly higher than the 61% reported at the end of 2005. Net asset value per
share increased from 4927 cents to 5634 cents during the year due to the
increase in profitability.
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 year.
CAPITAL REORGANISATION AND BROAD-BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION
(BEE TRANSACTION)
We refer shareholders to the joint announcement by Santam and Sanlam released
today regarding the proposed capital restructuring, voluntary repurchase offer,
Sanlam offer to shareholders and the proposed BEE transaction.
PROSPECTS
It is anticipated that underwriting margins will remain under pressure due to
the softer market. The claims experience will most likely improve, barring a
recurrence of the abnormal number of catastrophe claims experienced in 2006.
Santam will endeavour to grow its market share without compromising sustainable
profitability.
The international businesses will remain focussed on achieving sufficient growth
to ensure that operations yield profitable results and the required return on
invested capital.
Assuming that equity markets continue to perform well, a reasonable performance
is expected in the year ahead. Anticipated higher interest rates will have a
favourable effect on cash-related investments.
The overall benefit of the capital reorganization and BEE transaction should
materialise in the medium to long term.
DECLARATION OF DIVIDEND (NUMBER 105)
Notice is hereby given that the board has declared a final dividend of 262 cents
per share (2005: 227 cents). Shareholders are advised that the last day to trade
"cum dividend" will be Thursday, 15 March 2007. The shares will trade "ex
dividend" from the commencement of business on Friday, 16 March 2007. The record
date will be Friday, 23 March 2007 and the payment date will be Monday, 26 March
2007. Shareholders may not dematerialise or rematerialise their shares between
Friday, 16 March 2007, and Friday, 23 March 2007, both dates inclusive.
AUDITORS REPORT
The results for the year have been audited by PricewaterhouseCoopers Inc and
their unqualified audit reports on 31 December 2006 annual financial statements
and the abridged financial statements are available on request at the company`s
registered office.
On behalf of the board
DK Smith SC Gilbert
Chairman Chief Executive
26 February 2007
Non-executive Directors
BTPKM Gamedze, JJ Geldenhuys, JG le Roux, NM Magau, AR Martin, JP Moller, RK
Morathi, P de V Rademeyer, JP Rowse, GE Rudman, DK Smith (Chairman), J van Zyl,
BP Vundla
Executive Directors
SC Gilbert (Chief executive), MJ Reyneke
Company secretary
Sana-Ullah Bray
Sponsor
Investec Securities Limited
Transfer secretaries
Computershare Investor Services 2004 (Pty) Ltd
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107 Tel (011) 370 5000, Fax (011) 688 7721
http://www.computershare.com
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: 27/02/2007 08:00:01 Produced by the JSE SENS Department.
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