9 June 2011
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.
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.
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.
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#