The level of capital allocated to the Group’s operations is determined to ensure that regulatory solvency levels will be maintained within a set target range, taking into account potential volatility in investment market returns. Investment market volatility therefore does not have an impact on Sanlam’s dividend paying capability, with the exception of extreme scenarios. The key features of Sanlam’s dividend policy, and the interaction with discretionary capital, can be summarised as follows:
As highlighted above, the cash component of net result from financial services is the key driver of Sanlam’s dividend potential. This is defined as: Net result from financial services less non-cash earnings included in net result from financial services less retained cash earnings.
Given the Group’s prudent accounting policies (expensing of upfront acquisition costs), the non-cash earnings included in the reported net result from financial services is negligible. Wholly owned subsidiaries are not allowed to retain any earnings, unless required for solvency purposes or to fund future growth. Pre-approval by the Group Financial Director is required in these instances. Businesses with minority shareholders have their own dividend policies, but aligned with the Sanlam policy as far as possible. Most of the net result from financial services generated by the South African operations are available for dividends due to the mature nature of these businesses. The same applies for the developed markets earnings in SIG. The exception in South Africa is Santam, which has its own dividend policy as a separately listed entity. SEM’s operations, however, retain a large part of their operational earnings for investment in future growth. As these operations mature over time, the cash generation will increase with a commensurate increase in cash available for Sanlam dividend payments. In addition, balance sheet efficiencies and enhancing the dividend payment capability of the SEM businesses have been identified as a strategic focus area for 2019.
The graph below provides an indication of cash earnings generation from the Sanlam clusters in 2018.
Applying the Group’s dividend policy, the Board decided to increase the normal dividend per share by 7,6% to 312 cents. This is well within our target range of 2% to 4% real growth given the 2018 average inflation rate of 4,6%. It will maintain a cash operating earnings cover of approximately 1 times.
The South African dividend withholding tax regime applies in respect of this dividend. The dividend does not carry any STC credits and will in full be subject to the 20% withholding tax, where applicable.
Shareholders are advised that the final cash dividend of 312 cents for the year ended 31 December 2018 is payable on Monday, 15 April 2019 by way of electronic bank transfers to ordinary shareholders recorded in the register of Sanlam at close of business on Friday, 12 April 2019. The last date to trade to qualify for this dividend will be Tuesday, 9 April 2019, and Sanlam shares will trade ex-dividend from Wednesday, 10 April 2019. Share certificates may not be dematerialised or rematerialised between Wednesday, 10 April 2019 and Friday, 12 April 2019, both days included.