Sanlam transformed from a mainly life insurance business in Cape Town two decades ago to a sophisticated multinational in 2018. This is fully aligned to our vision to be leading in Africa, including South Africa. The two transactions in 2018 give us scale and scope – we now have a deep pool of Pan-African assets which we can allocate to create value for our clients and society.
The first major transaction for 2018 was effective 9 October and concluded the acquisition of a further 53,37% shareholding in Saham Finances. Sanlam first acquired a 30% stake in Saham Finances in February 2016 and subsequently acquired a further 16,63% stake in May 2017, bringing the total shareholding prior to the implementation of the transaction to 46,63%.
The Saham Finances transaction is a strategic move that we have been working on for a number of years as we built relationship and trust between the two entities. Some people believe that we have paid too much – however the Board is confident that we have weighed the price responsibly against the long-term value that we stand to create. It is now up to us and the executive management team to create that value by moving from a partnership where we had influence, to an extended group where we have control. Saham Finances will now look to us for leadership, capital and risk management support as we embark on a new phase of Pan-African growth.
The second major milestone entailed a package of strategic empowerment transactions focused on the South African market. Sanlam still generated 72% of its net result from financial services from South Africa in 2018 – a significant portion. We remain committed to and focused on this market and recognise that our ability to create financial resilience and prosperity relies on the well-being of our home country.
To grow, we have been exploring ways to strengthen our market share in South Africa in areas where we are underweight compared to peers. This includes the entry-level market where we need to facilitate access to economic activity through new products and services – and the ways in which these are delivered – to drive higher and sustained economic growth.
Growth in the institutional space of employee benefits and investments relies increasingly on BBBEE ownership. Clients are demanding higher levels of direct BBBEE ownership when awarding business mandates, selecting an asset manager or choosing a financial solution.
Given these potential barriers to growth, we developed a long-term and multifaceted strategic solution. We structured a package of BBBEE transactions with our partners, Ubuntu-Botho, to ensure long-term sustainability at Group and operational business unit levels.
A short-term outcome of the package of transactions – which received almost unanimous support from shareholders in December – will be the issue of 5% of Sanlam shares to a new broad-based group of empowerment shareholders and Ubuntu-Botho. Sanlam will also provide Ubuntu-Botho with a R2 billion facility to enable them to acquire an interest in specific operating subsidiaries of the Sanlam Group and to acquire businesses in support of the Sanlam strategy.
In addition to the facility, Sanlam may acquire up to 25% in African Rainbow Capital Financial Services from African Rainbow Capital.
The Saham Finances acquisition and the package of BBBEE transactions go hand in hand. From the beginning Sanlam had a dual objective: creating wealth but also making a difference. When our first major BBBEE deal was concluded in 2004, we led the way in the financial services sector because we wanted to make a difference and be innovative. This is a key part of what we are trying to achieve – and we have the same intent for Saham Finances.
Becoming a truly Pan-African business and a leading empowerment company with an anchor empowerment partner, means that we can drive inclusion across the continent and create true business sustainability.
The partnership between Sanlam and Ubuntu-Botho has been one of the most successful empowerment partnerships in South Africa. It created value of over R14 billion for broad-based black shareholders when the first ten-year transaction matured in 2014. Over this time, we built a solid relationship of trust and knowledge of the industry and mutual opportunities. It is rare for empowerment partners to remain involved after a deal matured and value was unlocked. In this case, the relationship developed far beyond the initial Sanlam deal. My move from Sanlam to Ubuntu-Botho on an operational level was testimony to our intention to continue creating value on a broader scale.
The same applies to the 2018 Sanlam BBBEE transactions. With an existing partnership of trust, a commitment to a broad-based approach and a clear structure that addressed any potential conflicts, we received overwhelming support from shareholders and other stakeholders.
We established an independent committee that evaluated any matters that could potentially give rise to conflicts of interest. The committee was chaired by our lead independent director, Sipho Nkosi and reviewed and approved the transaction package before being submitted to the Board and shareholders for approval. Ubuntu-Botho refrained from voting on any of the proposed resolutions. More than 50% of our independent shareholders are international so we had to canvass them extensively to explain the rationale and context of the transactions. In the end, they overwhelmingly supported the deal, understanding that it will be defining for the business in the next 10 to 15 years. As with the Saham Finances transaction, the BBBEE transactions are only the first steps in creating a platform for growth – the hard work will have to follow through utilisation of this platform.
2018 was the toughest year I have experienced in business. There are major shifts in economic power internationally, consumers are under pressure and local unemployment is at the highest level ever. All of this means that savings are under threat from other financial priorities, including debt repayments. Savings are at the core of our business, which thus poses a challenge to the resilience of Sanlam and its stakeholders.
To add to this, South Africa’s reputation as a beacon of good governance has evaporated with the result being a direct impact on trust and legitimacy of business and government. The upcoming elections in South Africa in 2019 predict a period of turmoil at home while having to compete with global companies who are often operating from a strong and stable base – and have a much lower tax burden. We also have two new regulatory bodies in South Africa who are in the process of finding their feet on the way to a regime set for more effective regulation.
The pressure is really on. However, Sanlam has managed these cycles for 100 years and we will continue to do so. We have the values, systems and people in place to do business well and to continue creating wealth and prosperity under almost any circumstances.
Despite the size and complexity of the transactions that we initiated this year, Sanlam kept all eyes on the ball: we achieved satisfactory results despite challenging operating conditions. In this context, we were particularly pleased by Sanlam Sky’s performance following strong demand for its traditional products and the new Capitec funeral product. We were also encouraged by the recovery in Namibia and large new mandates secured by Sanlam Employee Benefits. Our strategy of diversifying has strengthened our overall position and we are becoming even more competitive in South Africa.
Sanlam was not exempt from difficult decisions and situations: we also experienced the symptoms of our current economic environment in the form of theft and fraud. We recognise that we need to invigorate ethics in Sanlam and provide clear guidelines, so employees know what and how to do the right thing, while creating wealth.
The Group remains well governed with ample capital. Risk management is a strong capability, but one that we need to mature in all subsidiaries, especially in SEM. The Board spent time to agree on the new operating model for SEM, which includes reporting and governance structures. Representatives of Saham Finances form part of operational management, whereas Sanlam and Santam have board positions and responsibilities.
There is often an assumption that a 100-year old business is at a disadvantage when facing digital disruption. This integrated report includes a range of examples that illustrate how the business remains nimble, competitive and innovative. Our Group business intelligence and omni-channel coordination projects are elements of wide-ranging initiatives to adapt and lead new client-centric choices in digital products and distribution.
As we embrace digital opportunities, the Board ensures increased vigilance around cyber-risk. The Group continuously enhances its cyber-risk intelligence to ensure that we understand the constantly morphing nature of threats. There is consensus that the Board needs to maintain a focus on being agile and innovative, with a concomitant impact on culture and risk management.
During the year we reviewed incentives to ensure that remuneration drives the right behaviour and decisions throughout the clusters. This will ensure that individuals take on the appropriate level of accountability, also for performance in other parts of Africa. We increased the scope of our remuneration disclosure in our Remuneration Report to show the alignment between strategy execution and short-term incentives for our executive team.
On an industry and national level, we continued to play our part, whether individually or through associations. We are active members of Business Leadership South Africa and ASISA where we play a leading role indriving towards solutions. We are only as good as the world we create.
On a Board level we noted criticism from certain shareholders that some of our Board membership is not suitably independent, particularly in the light of the BBBEE transactions with Ubuntu-Botho. The Board agrees that more can be done to address perceptions around independence while balancing the need for expertise and understanding of a complex business.
We conducted an external Board evaluation with excellent feedback in terms of positive and professional functioning, leadership and the Board’s relationship with the Group Chief Executive. However, the evaluation highlighted the challenge of clear independence despite recognising that each member of the Board displayed independence of thought, behaviour and contribution to the work of the Board.
The Board therefore decided on additional measures to strengthen independence. In our Governance Report we provide more specific personal detail in the Board profiles, we disclose more of our reasoning on why some members are regarded as independent despite their long tenure and we announce a decision to shorten the rotation cycles of some Board members. This means that more Board members will stand for re-election every year at the AGM — shareholders will therefore have regular opportunities to vote on Board memberships.
We also plan to appoint new independent non-executive directors in 2019 to further strengthen the Board.
Sanlam’s executive team has done well – they deserve to be applauded. We are also welcoming the Saham Finances people into the Sanlam fold. They made a significant contribution, and we have high future expectations of the collaboration.
I also thank the Board: we are a well-functioning unit with strong leadership among committee chairs. This spreads accountability across the Board and lifts the quality of debates. They all invested a lot of time and energy into debates and decisions related to the two transactions, which is appreciated.
We took leave of three stalwart independent non-executive directors who retired: Manana Bakane Tuoane,Lazarus Zim and Valli Moosa. Their contribution and commitment to our purpose as a Group were highly valued. They were replaced by two new independent directors, whom we warmly welcomed: Mathukana Mokoka and Shirley Zinn.
Yegs Ramiah resigned as an executive director.
Last, but not least, I would like to extend my thanks to our clients, employees and brokers. We cannot create resilience and prosperity without your individual and collective contributions. Thank you to stakeholders for choosing Sanlam as your value creation partner.
Market conditions will remain tough. There is a risk that the period of low economic growth might be deeper and longer than anticipated. However, Sanlam starts the new year on a stronger platform and with expanded networks of opportunity. We need to leverage our advantages and bring in the best people in Africa. We now have two major business hubs in the north and the south of the continent: we have optionality and we can give people careers.
We remain vulnerable to South African vagaries that will be part and parcel of the 2019 elections – and the potential impact on our rating as a country.
Over the longer term things look optimistic: if we can limit the impact of current challenges, we can continue to create wealth and resilience on a wider scale than ever before. If we all step up and take responsibility for the generations to come, we can make the future work for us.