3 December 2008
Notwithstanding the challenging financial market and economic conditions, the Group achieved satisfactory operating results for the ten months to October 2008, as reflected in the growth in new business volumes and continued Group net cash inflows. The resilience of the Group's results bears testimony to an entrenched strategy of diversifying the Group's operations, market segmentation and solutions offering. The Group remains well capitalised and is well positioned to take advantage of growth opportunities.
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.
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.
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.
Salient features of the Group's performance for the ten months to October 2008 are:
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.
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:
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.
Recorded playback will be available for three days after the conference.
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