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Challenging business environment remains

Amidst signs of a global economic upturn, the recovery remains fragile and has been mired by fears of the contagious impact of sovereign debt problems experienced in the European Union. This is reflected in a sharp increase in risk margins in Europe and a return to significant international equity market volatility.

The FTSE/JSE All Share Index gained 3,5% (excluding dividends) for the four months to 30 April 2010, compared to a loss of 4% in the first four months of the 2009 financial year, but has since lost some 5% to return to the levels experienced in late 2009 . Although there are positive growth indicators in the South African economy, pressure on consumers’ disposable income and discretionary spending remains. Deal flow and new business activity levels in a number of our institutional businesses also remain low compared to the relatively high base in 2009. As anticipated, the commodity based African economies in which the Group operates are experiencing some lag effect of the global economic crisis which is evident from a slowdown in the level of new business. The reported results from most of our international businesses are also negatively impacted by the relative strengthening of the South African rand. A sharp reduction in short-term interest rates had a marked impact on interest earned on Group companies’ working capital as well as the investment income on shareholder funds.

Highlights

In a difficult business environment total new business volumes were 6% lower than for the first four months of the 2009 financial year. This is substantially due to lower new institutional fund inflows, albeit a satisfactory performance against the high base in 2009. Life insurance new business volumes however performed exceptionally well to be 21% up on the same period in 2009, a combination of strong growth in South Africa and a welcome recovery in the United Kingdom, somewhat offset by a lower contribution from the rest of Africa. The value of new life business for the four months is 18% up on 2009. Gross investment flows are 11% down on 2009 but compensated for through a major improvement on a net basis. Overall net inflows for the Group of R6,8 billion are substantially better than the R2,1 billion achieved in the first four months of 2009, supported by a continuing trend of net life cash inflows. Core earnings per share to April 2010 are 8% higher than for the comparable period in 2009. Normalised headline earnings per share are up some 70%, substantially due to the positive return in equity markets relative to a negative performance in the first four months of 2009.

Capital

As disclosed in the Group’s 2009 annual report, the Group remains well capitalised with identified discretionary capital of some R3,5 billion as at the end of December 2009. The optimal utilisation of capital is a priority in the Group. In the current financial and economic environment 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. Some R100 million has been invested in the year to date. At the same time we have recommenced the buy-back of Sanlam shares. For the year to date - up to the end of May 2010 – we have utilised R460 million to acquire 19,2 million Sanlam shares in a subsidiary at an average price of some R24 per share. A total of 60 million Sanlam shares held as treasury shares were cancelled and the listing of these shares terminated during March 2010, reducing Sanlam’s issued share capital to 2 100 million shares. All of the Group operations remain well capitalised. Sanlam Life Insurance Limited’s statutory capital covered its Capital Adequacy Requirements by 3,0 times on 31 March 2010, after allowing for the dividend payable to Sanlam in respect of the 2009 financial year. The Group remains well positioned to take advantage of growth opportunities.

New Business volumes

Salient features of the Group’s performance for the four months to April 2010 are:

  • Overall new business volumes (based on 100% of recurring and single business volumes), excluding white label, are up 2% on the comparable period in 2008, with a strong contribution from institutional fund flows.
  • New life business volumes decreased by 6% compared to the first ten months of 2008.
  • Sanlam Personal Finance recorded a 6% decrease in new life business sales, with both Glacier and Topaz South African business reflecting improved levels of growth compared to those reported in the 2009 interim results. The impact of the continued pressure on consumers’ disposable income is, however, still evident. Risk underwriting business remains more resilient in the current environment and recorded a 10% increase compared to the first ten months of 2008.
  • Sanlam Developing Markets reported growth of 13% in its new business volumes for the first ten months of 2009, a particularly satisfactory result. South African recurring premiums increased by 6%, with the deliberate scaling down of low margin direct sales continuing to limit the overall level of growth. The African operations recorded strong growth of 37%, with recurring premiums increasing by 33% and single premiums by 40%. Shriram Life’s new business performance remained in line with that of the first half of the year.
  • The economic environment in the United Kingdom remained weak, with investor risk aversion being prevalent. Sanlam UK’s new life business volumes decreased by 43% as a result.
  • Sanlam Employee Benefits’ new business performance improved since the end of June. New business volumes decreased by 5% on the first ten months of 2008, compared to a decrease of 47% for the first six months of the year. Recurring premiums increased by 66%, with single premiums decreasing by 33%.
  • The average life new business margin for the ten months increased marginally compared to the first half of 2009.
  • Persistency in the middle market remains within acceptable levels, with no marked negative experience variances for the Group.
  • Gross investment business inflows are 4% higher than in 2008.
  • The strain on disposable income is also evident in Sanlam Personal Finance’s new investment business in South Africa, which decreased by 7%. Unit trust sales in Namibia remained resilient and were only marginally down on the high base of 2008.
  • Gross investment flows in Sanlam Investments increased by 7%, supported by strong performances from Sanlam Private Investments and the International operations. The Sanlam Private Investments performance includes a once-off, low margin inflow of some R1 billion. However, even excluding this inflow, its performance reflects a significant improvement since the end of June. Institutional collective investments new business volumes slowed down, as expected. This contributed to an overall slowdown in Sanlam Collective Investments growth, but still positive on an overall basis. Sanlam Investments’ assets under management amounted to R443 billion on 31 October 2009.
  • Net fund inflows of R13,5 billion (excluding white label) are particularly satisfactory in the current environment. Life net fund flows improved from a marginal net inflow in 2008 to R1,6 billion in 2009.

Earnings

  • Net result from financial services for the ten months to 31 October 2009 is down 7% on 2008.
  • Sanlam Personal Finance achieved a solid performance taking cognisance of the impact of lower interest rates and fund based fee income on its financial services income.
  • Sanlam Capital Markets continued to outperform significantly compared to its 2008 results.
  • Sanlam Developing Markets’ contribution was negatively impacted by once-off items, including restructuring costs associated with the integration of the Channel Life and Sanlam Sky operations.
  • Santam’s results continue to be impacted by the large commercial claims during the first few months of 2009.
  • Volatile equity markets and overall lower market levels continue to have an adverse impact on Sanlam Investment’s results, with net operating profit decreasing in line with the overall lower average level of assets under management.
  • Core earnings per share are 1% lower than 2008.
  • Normalised headline earnings per share for the ten months to October 2009 increased five-fold, primarily due to the relatively strong investment market performance for the period compared to a very low comparative base in 2008. Markets were at a low point at the end of October 2008 but recovered towards the end of the 2008 financial year which should, together with continued market volatility, impact on the headline earnings growth to be reported for the full year.

Outlook

Despite recent upbeat data releases on the global real economy, an important conclusion from the European difficulties is that the balance of risks for the global (and South African) economy is tilted to the downside for the foreseeable future. The challenging and volatile financial and economic environments are therefore expected to continue for the remainder of the year and into 2011 and are likely to impact on growth in the Group’s key operational performance indicators. Shareholders need to be aware of the impact 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 interim as well as 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 impact on the full year growth in earnings compared to the four months ended 30 April 2010.

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 2010 are due to be released on 9 September 2010. Shareholders are advised that this is not a trading statement as per section 3.4 of the JSE Listings Requirements.

Conference call

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 advice 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 AfricaToll
Jhb Telkom+27 (0)11 535 3600
Jhb Neotel+27 (0)11 581 2002
CT Neotel+27 (0)21 819 0900
Durban Neotel+27 (0)31 812 7600
Toll-free0800 200 648
USAToll-free1 412 858 4600
1 800 860 2442
UKToll-free0800 917 7042
AustraliaToll-free1800 350 100
CanadaToll-free1866 605 3852

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

 

Access Numbers for Recorded Playback:

Access code for recorded playback: 2560#

South Africa and otherToll011 305 2030
USAToll1 412 317 0088
UKToll-free0 808 234 6771
AustraliaToll1800 091 250
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