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Investment market returns improved significantly since the end of June 2013, despite periods of volatility emanating from concerns around a tapering of Quantitative Easing by the US Federal Reserve. This supported an increase in the Group’s assets under management as well as investment return earned on the capital portfolio. The operating results reported for the 10 months to October include maiden contributions from the increase in the Group’s holding in Shriram Capital in India, the acquisition of a 49% stake in Pacific & Orient in Malaysia during May 2013 and the equity-accounted earnings of Capricorn Investment Holdings (CIH), the Group’s insurance partner in Namibia and also the holding company of Bank Windhoek, with effect from 1 July 2013. This follows an increase in the Group’s interest in CIH to a strategic stake of 22% (“the CIH transaction”).

Results

The salient features of the Group’s performance for the 10 months to October 2013 are:

  • New business volumes of R128 billion (excluding white label), up 26% on 2012.
    • Personal Finance recorded a 33% increase in new business sales. Entry level new business in South Africa increased by 24%, with a satisfactory improvement in the growth of individual life new business from 5% at 30 June 2013 to 11% for the 10 months to the end of October 2013. Growth in sales of the agency channel remains in excess of 20%. Middle income volumes increased by 15%, with a continuance of strong growth in single premium business. Affluent market sales increased by some 40%.
    • Emerging Markets’ results are impacted by the volatility of single premium business, as well as the CIH transaction referred to above. As part of the CIH transaction, the Group disposed of its interest in Capricorn Unit Trust with a commensurate decrease in investment new business. Excluding Capricorn Unit Trust, Emerging Markets’ new business volumes increased by 18% on the first 10 months of 2012. This solid result was supported by good growth in Rest of Africa’s contribution as well as Shriram General Insurance’s net earned premiums.
    • The Investments cluster increased its new business volumes by 35%, with Wealth Management, Investment Services and International operations achieving strong growth in excess of 50%. Despite very good investment performance, the South African Asset management business achieved growth of only some 4%, reflecting the challenging and competitive market conditions. Net business flows were negatively impacted by a R10 billion withdrawal by the Public Investment Corporation as well as the R4 billion withdrawals by two institutional clients as part of the restructuring of their portfolios earlier in the year, as referred to in the interim results announcement for the six months ended 30 June 2013. Excluding these, net fund inflows (excluding white label) of R13,5 billion were achieved compared to R7,7 billion in 2012.
    • Net value of new life business (VNB) increased by 13%, impacted by the increase in South African long-term interest rates. On a comparable basis, VNB increased by some 18%. Overall VNB margins (at actual long-term interest rates) were marginally higher than those reported for the first six months of the year.
    • Overall net fund inflows (excluding white label) of R18 billion were achieved compared to R21.3 billion in the comparable 10-month period in 2012, despite the large outflows referred to above.
    • No deterioration in persistency levels was experienced since the end of June 2013.
  • Net result from financial services up 25% (24% on a per share basis).
    • All business clusters apart from Santam reported strong earnings growth.
    • The increase in operating profit is in general supported by a relatively higher level of assets under management as well as maiden contributions from the corporate activity referred to above. Excluding the latter, the net result from financial services increased by 15%.
    • Santam’s underwriting performance improved since the end of June 2013, but the severity of claims experienced in the first six months of 2013 continues to impact on its operating earnings growth.
  • Normalised headline earnings up 33% (33% on a per share basis).
    • Normalised headline earnings in 2012 included a Secondary Tax on Companies (‘STC’) charge. STC is no longer applicable and without the 2012 STC charge the comparable increase in normalised headline earnings for the 10 months to 31 October 2013 is 27%. The investment return earned on the capital portfolio was supported by the strong investment market performance since the end of June 2013, the positive impact of the weaker rand exchange rate on the returns from the international exposure in the portfolio as well as the R215 million once-off items referred to in the interim results announcement for the six months ended 30 June 2013.
  • Diluted headline earnings per share, which includes fund transfers recognised in respect of Sanlam shares held in policyholder portfolios, increased by 35%

Capital

All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory capital covered its Capital Adequacy Requirements by 4.2 times on 30 September 2013.

The Group had excess capital of some R3.2 billion available for redeployment at the end of June 2013. Utilisation since then included the acquisition of an additional interest in Shriram Transport Finance Company for some R200 million and increasing the Group’s stake in CIH to 22% (refer above) for R243 million. Net of these transactions and investment return, available discretionary capital amounts to some R3 billion. This remains earmarked for growth opportunities in mainly Africa and South-East Asia.

Outlook

We do not anticipate any material improvement in the economic environment for the remainder of the year. General operating conditions are therefore expected to remain challenging with a resulting impact on the Group’s key operational performance indicators. Investment market volatility is expected to continue as the debate on the tapering of Quantitative Easing unfolds.

Shareholders need to be aware of the impact of the level of interest rates and financial market returns and volatility on the Group’s earnings and Group Equity Value. Relative movements in these elements may have a major impact on the growth in normalised headline earnings and Group Equity Value to be reported for the full year to 31 December 2013.

The information in this operational update has not been reviewed and reported on by Sanlam's external auditors. Sanlam’s financial results for the year ending 31 December 2013 are due to be released on 6 March 2014. Shareholders are advised that this is not a trading statement as per section 3.4 of the JSE Limited 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:

Audio dial-in facility

A toll free dial-in facility will be available. We kindly advise 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 and other countries
Toll +27 (0)11 535 3600
Toll-free 0800 200 648

USA
Toll-free 1 866 652 5200

UK
Toll-free 0808 162 4061

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

Access Numbers for Recorded Playback:

Access code for recorded playback: 24049#

South Africa and other countries
Toll +27 (0)11 305 2030

USA
Toll 1 412 317 0088

UK
Toll 0808 234 6771

Sponsor
Deutsche Securities (SA) (Proprietary) Limited

Click here to read the press release.

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