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Skip Navigation Linksoperational-update-jun-2011 Operational Update June 2011

Skip Navigation LinksFinancial Results

Operational Update for the 4 Months ended 30 April 2011

9 June 2011

The Group achieved overall satisfactory results for the first four months of 2011. New life insurance business volumes increased by 12% at sustained margins, overall net business inflows amounted to R8,6 billion (with improved net life cash inflows) and the underlying net result from financial services increased by some 15%. These results were achieved amidst ongoing challenging financial and economic conditions.

Challenging business environment remains

The Group’s 2010 annual report indicated that we did not expect the South African economy to stage a large-scale recovery in 2011, but rather to experience slow, yet steady progress. This has been the theme for the first four months of 2011. Relatively high salary increases and a low interest rate environment enabled consumers to reduce some of their debt. Consumer debt levels in South Africa however remain high and together with sharp cost of living increases continue to impact on the level of discretionary expenditure. This is reflected in new retail business volumes for the period, although some improvement has been experienced in discretionary savings in the mass middle market. The low interest rate environment also continues to impact negatively on demand for guaranteed and money market solutions and has a marked impact on interest earned on Group companies’ working capital. Higher resource prices provide support for the African resources-based economies, although some territories are still experiencing recessionary conditions.

The reported results of our international businesses were negatively impacted by the strong average South African rand exchange rate when compared to the first four months of 2010.

Global investment market uncertainty continued during the first four months of 2011, exacerbated by political unrest in North Africa and the Middle East and the natural disaster in Japan. Sovereign risk in the Euro zone also flared up again. This contributed to daily market volatility in international as well as the South African equity markets during the period.

Highlights

  • Total new business volumes were 11% up on the first four months of the 2010 financial year. This was the combined effect of a satisfactory increase in both new investment as well as new life insurance business flows.
  • Overall net inflows for the Group of R8,6 billion are a 27% improvement on the R6,8 billion achieved in the first four months of 2010, supported by a continuing positive trend in net life cash inflows.
  • The underlying net result from financial services to April 2011 is some 15% higher than in the comparable period in 2010.

Capital

As disclosed in the Group’s 2010 annual report, the Group remains well capitalised with identified discretionary capital of some R4 billion as at the end of December 2010. The optimal utilisation of capital is a priority in the Group. 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. This includes discussions with our Indian partners on a possible additional investment in the financial services businesses of the Shriram Group. Further detail on this and other potential ventures will be disclosed in due course. Some R730 million of the discretionary capital has been utilised during the year to date, essentially in respect of the buy-back of Sanlam shares. For the year to date - up to the end of May 2011 – we have acquired 26.9 million Sanlam shares at an average price of R27.18 per share. All of the Group operations remain well capitalised. Sanlam Life Insurance Limited’s statutory capital covered its Capital Adequacy Requirements by 3,2 times on 31 March 2011, after allowing for the dividend payable to Sanlam in respect of the 2010 financial year. The Group remains well positioned to take advantage of growth opportunities.

New Business Volumes

  • Overall new business volumes are up by 11% on the comparable period in 2010, with satisfactory growth in both life insurance and investment fund flows.
  • New life business volumes increased by 12% compared to the first four months of 2010.
    • Sanlam Personal Finance recorded an 8% increase in new life business sales, supported by particularly strong growth in Glacier single premium business and a 12% increase in South African recurring premium life business. This was partly offset by continued weak demand for single premium guaranteed solutions.
    • Sanlam Developing Markets reported growth of 35% in its new business volumes for the first four months of 2011. South African recurring premium new business was in line with 2010, affected by a focus on writing quality new business. A reduction in roll-overs of the discontinued single premium business also impacted on the cluster’s new business growth in South Africa. The African operations continue on their growth path and most recorded increases in new business sales in excess of 50%, driven by strong single premium volumes in most operations and continued good annuity sales in Botswana.
    • The strong equity market performance in the United Kingdom during 2010 continues to support improved investor confidence and demand for the Group’s solutions. Sanlam UK’s new life business volumes increased by 32%.
    • Sanlam Employee Benefits recorded a 25% increase in new recurring premium business, a particularly satisfactory result in a very competitive market. Volatility in single premium business continues, driven partly by the Group’s focus on only writing quality business that meets internal return hurdle rates. This contributed to a 27% decrease in new single premium business and an overall 19% reduction in new business.
    • Overall, the average life new business margin for the four months has been maintained at a level similar to that achieved for the first four months of 2010, and broadly in line with the disclosed 1H10 average margin.
    • Persistency in all markets remains within acceptable levels.
    • Life net inflows improved threefold on those of 2010.
  • Gross investment business inflows were 10% higher than in 2010.
    • Glacier achieved strong growth in sales of new single premium investment solutions, supporting a 17% increase in Sanlam Personal Finance’s new South African investment business. This was however offset by a 26% reduction in Namibian sales volumes as unit trust sales decreased in a very competitive environment and from a high base in 2010.
    • Gross investment flows in Sanlam Investments were up by 12%, with strong contributions from Sanlam Collective Investments, Sanlam Private Investments and the non-South African operations. This was partly offset by lower volumes of Multi-Manager and South African segregated inflows.
    • Sanlam UK’s new investment business inflows almost doubled on the 2010 comparable base.
    • Net investment inflows of some R4,9 billion (excluding white label) for the four months, versus R4,5 billion in 2010, are particularly satisfactory in the current environment. SIM’s assets under management amounted to R503 billion on 30 April 2011, up from R491 billion at the end of December 2010.

Earnings

  • The underlying net result from financial services for the four months is up some 15% on 2010.
    • Sanlam Personal Finance, Sanlam Developing Markets, Sanlam Employee Benefits and Sanlam Investments Capital Management all achieved a solid performance.
    • The favourable Santam underwriting experience continued for the first four months of 2011.
    • Once off items and an increase in new venture expenditure offset the positive effect of the higher average equity market levels on the Sanlam Investments results.
  • Simil​​arly, normalised headline earnings are also up on the comparable period in 2010 due to the strong operating performance as well as an increase in investment returns on the shareholder funds.

Outlook

Global economic growth is expected to remain sluggish for the rest of the 2011 financial year. The subdued global economic conditions are likely to also reflect in the economies within which the Group operates and to impact on growth in the Group’s key operational performance indicators for the remainder of the year.

The operating earnings growth reported for the four months to April 2011 to some extent reflect a relatively slow start in the comparable period in 2010. The acceleration in earnings growth achieved during the latter part of 2010, in many instances on the back of stronger equity markets, an increase in fund-based earnings and strong underwriting results, will not necessarily be repeated in 2011. Shareholders also need to be aware of the impact of financial market returns and volatility on the investment return component of the Group’s 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 2011 financial year compared to the four months ended 30 April 2011.

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 2011 are due to be released on 8 September 2011. Shareholders are advised that this is not a trading statement as per section 3.4 of the JSE Listings Requirements.

Conference call

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:

Audio dial-in facility

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.

Access numbers for participants dialing live from their country:


South Africa Toll
Toll-free
+27 (0)11 535 3600
0800 200 648
USA Toll
Toll-free
1 412 858 4600
0800 917 7042
UK Toll-free 0800 917 7042

Recorded playback will be available for three days after the conference.

Access Numbers for Recorded Playback:

Access code for recorded playback: 2560#

South Africa Toll 011 305 2030
USA Toll 1 412 317 0088
UK Toll 0 808 234 6771

 

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