9 June 2010
Amidst signs of a global economic upturn, the recovery remains fragile and has been mired by fears of the contagious impact of sovereign debt problems experienced in the European Union. This is reflected in a sharp increase in risk margins in Europe and a return to significant international equity market volatility.
The FTSE/JSE All Share Index gained 3,5% (excluding dividends) for the four months to 30 April 2010, compared to a loss of 4% in the first four months of the 2009 financial year, but has since lost some 5% to return to the levels experienced in late 2009 . Although there are positive growth indicators in the South African economy, pressure on consumers’ disposable income and discretionary spending remains. Deal flow and new business activity levels in a number of our institutional businesses also remain low compared to the relatively high base in 2009. As anticipated, the commodity based African economies in which the Group operates are experiencing some lag effect of the global economic crisis which is evident from a slowdown in the level of new business. The reported results from most of our international businesses are also negatively impacted by the relative strengthening of the South African rand. A sharp reduction in short-term interest rates had a marked impact on interest earned on Group companies’ working capital as well as the investment income on shareholder funds.
In a difficult business environment total new business volumes were 6% lower than for the first four months of the 2009 financial year. This is substantially due to lower new institutional fund inflows, albeit a satisfactory performance against the high base in 2009. Life insurance new business volumes however performed exceptionally well to be 21% up on the same period in 2009, a combination of strong growth in South Africa and a welcome recovery in the United Kingdom, somewhat offset by a lower contribution from the rest of Africa. The value of new life business for the four months is 18% up on 2009. Gross investment flows are 11% down on 2009 but compensated for through a major improvement on a net basis. Overall net inflows for the Group of R6,8 billion are substantially better than the R2,1 billion achieved in the first four months of 2009, supported by a continuing trend of net life cash inflows. Core earnings per share to April 2010 are 8% higher than for the comparable period in 2009. Normalised headline earnings per share are up some 70%, substantially due to the positive return in equity markets relative to a negative performance in the first four months of 2009.
Salient features of the Group’s performance for the four months to April 2010 are:
As disclosed in the Group’s 2009 annual report, the Group remains well capitalised with identified discretionary capital of some R3,5 billion as at the end of December 2009. The optimal utilisation of capital is a priority in the Group. In the current financial and economic environment prudence remains an important consideration in the application of the Group’s discretionary capital. As indicated before, our preferred utilisation of excess capital is an investment in value adding growth opportunities. A number of strategic ventures are currently being pursued. Some R100 million has been invested in the year to date. At the same time we have recommenced the buy-back of Sanlam shares. For the year to date - up to the end of May 2010 – we have utilised R460 million to acquire 19,2 million Sanlam shares in a subsidiary at an average price of some R24 per share. A total of 60 million Sanlam shares held as treasury shares were cancelled and the listing of these shares terminated during March 2010, reducing Sanlam’s issued share capital to 2 100 million shares. All of the Group operations remain well capitalised. Sanlam Life Insurance Limited’s statutory capital covered its Capital Adequacy Requirements by 3,0 times on 31 March 2010, after allowing for the dividend payable to Sanlam in respect of the 2009 financial year. The Group remains well positioned to take advantage of growth opportunities.
Despite recent upbeat data releases on the global real economy, an important conclusion from the European difficulties is that the balance of risks for the global (and South African) economy is tilted to the downside for the foreseeable future. The challenging and volatile financial and economic environments are therefore expected to continue for the remainder of the year and into 2011 and are likely to impact on growth in the Group’s key operational performance indicators. Shareholders need to be aware of the impact of financial market returns and volatility on Group earnings and Group Equity Value. Relative market movements may have a major impact on the growth in Group earnings to be reported for the interim as well as the full 2010 financial year. The strong market performance in the second half of the 2009 financial year, in particular, may not be repeated in 2010, which will impact on the full year growth in earnings compared to the four months ended 30 April 2010.
The information in this operational update has not been reviewed or reported on by Sanlam's auditors. Sanlam’s interim results for the six months ended 30 June 2010 are due to be released on 9 September 2010. Shareholders are advised that this is not a trading statement as per section 3.4 of the JSE Listings Requirements.
A conference call for analysts, investors and the media will take place at 17h00 (South African time) today. Investors and media who wish to participate in the conference call should dial the following numbers:
A toll free dial-in facility will be available. We kindly advice callers to dial in 5 - 10 minutes before the conference call starts at 17:00.
Recorded playback will be available for three days after the conference.
Access code for recorded playback: 2560#