8 December 2010
The Group achieved overall satisfactory results for the ten months ended 31 October 2010, despite a continuance of challenging operating conditions, most evident in pressure on disposable income of the middle market. Strong net fund inflows and sustained new business margins are particularly satisfactory.
The challenging business conditions persisted since June 2010. The outlook remains for a fragile and delayed global recovery, with renewed sovereign risk in Europe. A second round of quantitative easing by the Federal Reserve in the United States should aid economic recovery.
The South African equity market followed international trends and recorded a strong 4 months since June 2010. The FTSE/JSE All Share Index at the end of October 2010 closed 10% up on its 31 December 2009 level. This compares to a 23% increase during the first 10 months of 2009. Positive growth indicators in the South African economy, combined with a low interest rate environment, should provide some relief for consumers’ disposable income and discretionary spending. Above-inflation increases in the cost of living, particularly electricity prices and healthcare costs, however, continue to put pressure on the middle market. The commodity-based African economies in which the Group operates are gradually benefiting from higher resource prices, with early signs of increased operational activity emerging. The reported results from the Group’s international businesses are however negatively impacted by the relative strength of the South African rand. Prevailing low short-term interest rates continue to have a marked impact on interest earned on group companies’ working capital as well as the investment income on shareholder funds.
In the context of the difficult business environment satisfactory growth of 4% in new business volumes was achieved. Gross investment flows are 4% up while life insurance new business volumes increased by 5% on the comparable period in 2009. Growth in recurring premiums remains strong, being partially offset by marginal growth in South African retail single premiums. The value of new life business for the ten months is some 7% up on the first ten months of 2009 before allowing for the positive impact of lower long-term interest rates. On a similar basis, margins were maintained at approximately the levels reported in the group’s interim results. Overall net inflows for the group of R17,2 billion (excluding white label business) are substantially better than the R13,5 billion achieved in the first ten months of 2009, supported by strong net investment flows as well as continued net life cash inflows. This is a particularly satisfactory result. Core earnings per share for the ten months to October 2010 are 9% higher than for the comparable period in 2009. Normalised headline earnings per share for the same period are marginally up on the comparable ten months of 2009, with the relatively weaker investment market performance in 2010 offsetting the growth in core earnings.
As disclosed in the Group’s interim results report, the Group remains well capitalised with identified discretionary capital of some R2,8 billion as at the end of June 2010. The optimal utilisation of capital is a priority in the Group, and is receiving significant management attention in the current lower short-term interest rate environment. 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. No significant utilisation of discretionary capital occurred since the end of June 2010. 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 30 September 2010.
Sanlam and Santam have reached agreement to consolidate the Group’s interest in MiWay, the new direct insurance venture, as a wholly owned Santam subsidiary. This decision will enable the Sanlam Group to improve the coordination of its short-term insurance coverage across all consumer market segments. Santam will reimburse Sanlam’s investment to date in the venture of R240 million, while a basis has been agreed in terms of which Sanlam will share in any increase in the valuation of MiWay up to December 2013. Sanlam will also retain access to the MiWay structures to distribute other financial services products. The transaction is still subject to regulatory approval.
Salient features of the Group’s performance for the ten months to October 2010 are:
The challenging and volatile financial and economic conditions are expected to continue for the remainder of the year and are likely to impact on growth in the Group’s key operational performance indicators. Shareholders need to be aware of the effect 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 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 affect the full year growth in earnings compared to the ten months ended 31 October 2010.
The information in this operational update has not been reviewed or reported on by Sanlam's auditors. Sanlam’s results for the year ended 31 December 2010 are due to be released on 10 March 2011. Shareholders are advised that this is not a trading statement as per section 3.4 of the JSE Listings Requirements.
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