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Business environment

The unfolding financial markets crisis continues to have marked repercussions in the global economies. Although South African financial institutions have been weathering the adverse conditions relatively well, the local economy with its liquid currency and open investment markets is not impervious to these international events. Weakening economic growth in South Africa, as well as the impact of the high interest rate and inflation environment on consumers' disposable income, has a commensurate unfavourable impact on Sanlam's business environment.

Highlights

Total new business volumes (excluding low margin white label business) increased by some 7% on the first ten months of the 2007 financial year. The underlying trends in the new business performance remained broadly similar to those reported in the Group's interim results announcement, with strong performances in Sanlam Developing Markets recurring premium and Sanlam Personal Finance single premium business in particular. The exception is some deterioration in the level of growth in Sanlam Employee Benefits and Sanlam UK's business volumes. Core earnings per share for the ten months are in line with the comparable period in 2007. Normalised headline earnings per share are down 86%, reflecting the unfavourable investment returns on shareholders' funds. The JSE All Share Index fell by 28% for the ten months to 31 October 2008 (compared to an increase of 26% in the first ten months of the 2007 financial year) and by more than 30% during the four months since 30 June 2008.

Capital

The Sanlam Board remains committed to optimising the capital structure of the Group while sustaining acceptable solvency levels. Given the recent market conditions, a prudent approach has been followed in the application of the Group's discretionary capital. Share buy-backs for the period since 30 June 2008 have been limited to 30,4 million Sanlam shares for a total consideration of R526 million. A total of 50 million Sanlam shares held as treasury shares were cancelled during September 2008, reducing Sanlam's issued share capital to 2 190 million shares. The estimated Group Equity Value per share amounted to approximately R20,50 per share on 31 October 2008, with the Sanlam share price of R15,90 on that date representing a 22% discount compared to Group Equity Value per share. Despite the prevailing market and economic conditions, all of the Group operations remained well capitalised. Sanlam Life Insurance Limited's statutory capital covered its Capital Adequacy Requirements by 2,7 times on 30 September 2008.

New Business volumes

Salient features of the Group's performance for the ten months to October 2008 are:

  • Overall new business volumes are up 4% on 2007 (7% before white label), with the strong growth in new life insurance business continuing at a level of some 15%.
  • Sanlam Personal Finance recorded a 35% increase in SA single premiums, with the strong demand for Glacier retirement and Topaz guaranteed plan and contractual preservation fund solutions continuing. The high interest rate and inflation environment also continues to impact on SA recurring premiums, which are marginally up on the comparable period in 2007.
  • Sanlam Developing Markets continued its strong performance of the first six months of 2008. SA new recurring premiums increased by 27%, with the underlying growth trends of the first six months also continuing. Single premiums are lower, as expected, following the focus on recurring premium business. New business volumes of the African operations are up more than 30% on 2007, with an approximately equivalent contribution by recurring and single premiums.
  • Sanlam UK new business sales increased by 19%.
  • Sanlam Employee Benefits is adversely impacted by the extremely competitive environment and recorded a decrease in new business sales.
  • Overall, the average life new business margin for the ten months has been retained at levels similar to the first six months of the financial year.
  • Persistency in the middle market continues to show some strain, as expected in the current environment.
  • Gross investment business inflows are marginally up on 2007.
  • Sanlam Personal Finance's new investment business increased by more than 20%, including good growth in Namibian unit trust flows. Demand continues to favour money market solutions in the current volatile investment market environment.
  • Gross investment flows in Sanlam Investments are down by 5%, mainly due to lower multi-manager, international and collective investments business flows. SIM's assets under management amounted to R415 billion on 31 October 2008.
  • Net fund inflows of some R10,4 billion (excluding white label) are particularly satisfactory in the current environment. Individual life net flows remain positive, with a deterioration in Sanlam Employee Benefits net outflows, as a result of the lower new business performance, contributing to a marginal overall net outflow of life business.

Earnings

  • Net result from financial services for the ten months is down 6% on 2007.
  • Sanlam Personal Finance, Sanlam Employee Benefits and Santam achieved solid performances.
  • Sanlam Developing Markets' performance continues to be impacted by new business strain from its strong new recurring premium performance, some costs associated with the closure of the Channel call centre and lower equity markets in Botswana. Excluding the impact of new business strain, Sanlam Developing Markets recorded a strong result.
  • As expected, volatile equity markets and a reduction in performance fees earned continues to have an adverse impact on Sanlam Investments' results, with growth in net operating profit in line with the interim results. Sanlam Capital Markets experienced some deterioration in performance due to a substantial slowdown in deal flow as well as the unprecedented level of market volatility.
  • MiWay continues to perform in line with expectations.
  • Core earnings per share are in line with 2007.
  • Normalised headline earnings per share are down 86%, primarily due to the negative investment market performance but also partially attributable to a lower capital base following the share buy backs in 2007 and 2008.
  • Share buy backs resulted in an 8% reduction in the comparable adjusted weighted average number of shares in issue (net of treasury shares).

Outlook

The challenging financial and economic conditions are not expected to abate for the remainder of the year, and are likely to impact on growth in the Group's key operational performance indicators. The overall level of growth in new business volumes is slowing down in a difficult business environment and is not expected to persist at the levels of the first ten months. Sanlam Developing Markets' full year low margin single premium business in South Africa will be down on 2007, in line with the refocusing of their business.

Shareholders need to be aware of the impact of financial market volatility on Group earnings and Group Equity Value. Market movements towards the end of December 2008 may have a major impact on the level of Group earnings to be reported for the full 2008 financial year.

The information in this operational update has not been reviewed or reported on by Sanlam's auditors. Sanlam's annual results for the year ended 31 December 2008 are due to be released on 5 March 2009. Shareholders are advised that this is not a trading statement as per section 3.4(b) 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
Toll-free
+27 (0)11 535 3600
0800 200 648
USAToll
Toll-free
1 412 858 4600
0800 917 7042

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

 

Access Numbers for Recorded Playback:

Access code for recorded playback: 2560#

South AfricaToll011 305 2030
USA and CanadaToll1 412 317 0088
UKToll0 808 234 6771
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