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Business environment

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.

Highlights

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.

Capital

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.

New Business volumes

Salient features of the Group’s performance for the ten months to October 2010 are:

  • Overall new business volumes (excluding white label business) are up 4% on the comparable period in 2009.
  • New life business volumes increased by 5% compared to the first ten months of 2009.
  • Sanlam Personal Finance recorded a marginal increase in new life business sales, with satisfactory growth of 15% in new recurring premiums being offset by flat single premium volumes. The low interest rate environment erodes demand for single premium annuity and guarantee plan solutions. Risk underwriting business remains resilient in the current conditions and recorded a 15% increase compared to the first ten months of 2009.
  • Sanlam Developing Markets reported growth of 14% in its new business volumes for the first ten months of 2010. Excluding discontinued single premium business in South Africa, new business sales were 17% up on 2009. All geographical regions contributed to the growth, despite the strengthening of the rand.
  • Improving economic conditions in the United Kingdom contributed to a 10% increase in Sanlam UK’s new life business volumes, after allowing for a 14% strengthening in the average exchange rate of the rand against pound sterling.
  • Sanlam Employee Benefits recorded a 70% increase on 2009 in new business sales for the ten months. This is driven by single premium sales. This level of growth is not expected to be maintained for the full financial year.
  • Persistency in all markets remains within acceptable levels, with the core operations reflecting improvements.
  • Life net flows remained positive.
  • Gross investment business inflows are 4% higher than the first ten months of 2009.
  • Despite ongoing strain on discretionary retail savings, Sanlam Personal Finance recorded a 5% increase in new investment business in South Africa. This was, however, offset by lower unit trust sales in Namibia against a high base in 2009.
  • Gross investment flows in Sanlam Investments were up by 3%. Sanlam Multi Manager and the international businesses achieved strong new business volumes, offset by lower money market collective investment and private investment inflows.
  • Net investment inflows of some R12 billion (excluding white label) for the ten months, versus R8,8 billion in 2009, are particularly satisfactory in the current business climate. Sanlam Investments’ assets under management amounted to R482 billion on 31 October 2010, up from R441 billion at the end of December 2009.

Earnings

  • Net result from financial services for the ten months is up 15% on 2009.
  • Sanlam Personal Finance and Sanlam Developing Markets achieved a solid performance.
  • The Santam results continue to reflect positive underwriting experience.
  • Core earnings per share for the ten months are 9% up on 2009, the combined result of the increase in the net result from financial services and lower net investment income, which continues to be impacted by a lower capital base and the low short-term interest rate environment.
  • Normalised headline earnings per share are up marginally as the equity markets performed weaker relative to the first ten months of 2009.

Outlook

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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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
Toll-free 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
Toll-free
1 412 858 4600
1 800 860 2442
UKToll-free0800 917 7042
Other countriesToll+27 (0)11 535 3600

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
USA and CanadaToll1 412 317 0088
Other CountriesToll-free+27 (0)11 305 2030
UkToll0 808 234 6771
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