Sanlam delivers double-digit operational earnings and new business growth in a challenging 2016 environment

09 March 2017 Sanlam

The Sanlam Group has released its financial results for the year ended 31 December 2016, announcing that it had achieved a satisfactory performance with double-digit growth in all key operational performance indicators despite a challenging environment. The Group increased its dividend by 9.4% to 268 cents per share.

The Group attributed the sustained performance to a well-executed and sustainable strategy, despite the challenging operating and economic conditions.

Some of the highlights for the 2016 financial year included:

• Net result from financial services per share increased by 10%;
• Normalised headline earnings per share down by 6%;
• Headline earnings per share increased by 6%;
• New Business volumes increased by 11% to R233 billion;
• Net fund inflows of R41 billion;
• Value of new life business increased by 18%;
• Adjusted Return on Group Equity Value (RoGEV) per share of 17,8% exceeded the Group’s target of 14,1%; and
• Dividend increased by 9,4% to 268 cents per share.

Net result from financial services increased by 10% from R7,3 billion in 2015 to R8 billion in 2016, a particularly satisfactory performance, with all businesses contributing to the growth, except for Santam where underwriting margins normalised after an exceptional performance in 2015.

New business volumes increased by 11%, with Sanlam Emerging Markets (SEM) outperforming targets for the year and the other clusters coming in only slightly below stretched targets. The Group noted that this was a commendable performance under difficult operating conditions. The new business performance contributed to net fund inflows of R41 billion in 2016 compared to R19 billion in 2015, with net inflows across all clusters during the year increasing their future earnings bases.

The Group ascribed the 18% increase in the Value of New Life Business (10% on a consistent economic basis) to growth in new life business as well as an improvement in the business mix.

Commenting on the results, Sanlam Group’s Chief Executive Officer, Mr Ian Kirk, said that the Group’s five-pillar strategy introduced in 2003 had transformed it into a business diversified across business lines, geographies, market segments and products, with a strong capital base.

“Over the years we have maintained a strong focus on the execution of our strategy across the Group operations,” Kirk said. “We have supported this by attracting and retaining the best technical skills available, coupled with a multi-level management team with some of the best financial services expertise and experience available in the market.”

Sanlam Personal Finance (SPF) delivered a solid performance for a largely mature business in an environment of stagnant economic growth and a weak equity market performance. Sanlam Individual Life remains the largest contributor to SPF’s operating earnings with growth in its net result from financial services of 6% in 2016. Glacier grew its profit contribution by 25%, with fund-based fee income benefiting from an increase in average assets under management. Sanlam Sky’s net result from financial services increased by 6%, benefiting from, among others, growth in the size of the in-force book.

SEM grew its net result from financial services by 30%, comprising organic growth of 18% and a 12% contribution from structural growth. All countries delivered strong growth, apart from Malawi and Zambia. The general insurance operations in Malawi experienced pressure on claims, while Zambia continues to be impacted by a difficult operating environment. The Zimbabwean and Nigerian operations exceeded expectations.

Sanlam Investments (SI) achieved overall growth of 4% in its net result from financial services, with an exceptional performance from Capital Management largely offset by a lower profit contribution from the investment management businesses. Investment Management net result from financial services declined by 10% compared to the same period in 2015, predominantly due to lower performance fees in the South African Asset Management business and a lower profit contribution from Sanlam UK.

The newly established business cluster, Sanlam Corporate, which includes Sanlam Employee Benefits (SEB) and Sanlam Health, grew net result from financial services by 36%, including a first-time contribution of R82 million by Afrocentric (14% growth excluding Afrocentric).

The underwriting margin at Santam normalised during 2016 to 6,4% from an exceptionally high base of 9,6% in 2015. The 2016 performance is in the middle of the target range of 4% to 8%, representing a solid performance. The benign claims environment of 2015 reversed with higher claims experienced across most lines of business. The crop and property business lines were severely affected by drought-related and large corporate claims respectively.

The Group deployed a net total of R3,4 billion in 2016 in respect of new transactions, which included, among others:

• An additional investment in Saham Finances in which Sanlam will acquire a further 16,6% stake for some R4,6 billion. At least R2,7 billion will be funded from discretionary capital and has been formally allocated as such from the available discretionary capital, with the remainder to be funded through the raising of debt.
• An SPF acquisition of a 53% stake in BrightRock for some R700 million announced in January 2017.
• SEM invested some R140 million to bolster the capital position of its Rwanda operations and to expand its bancassurance arrangement with Standard Chartered Bank to general insurance business.
• SI concluded a number of smaller transactions, including, among others:

o A R150 million investment in Brackenham, a private client wealth management business;
o An effective 49% shareholding for R56 million in FirstGlobal Asset Management; and
o The acquisition of the non-minority shareholders’ interest in Blue Ink for R39 million.

As at 31 December 2016, Sanlam had unallocated discretionary capital of R550 million. The Group announced that further discretionary capital was expected to be generated in 2017 through a release from the Sanlam Life balanced portfolio and the 2016 excess dividend cover of some R700 million. The Group would continue to utilise discretionary capital for value-accretive investment opportunities.

On 1 March 2017, Sanlam once again achieved a Level 2 Broad-based Black Economic Empowerment rating as determined by the Financial Sector Charter. Driven at both Group and individual business unit levels, transformation is one of the five strategic pillars of the Group’s business strategy and an ongoing priority. It includes the Group’s diversification efforts across the territories in which it operates and facilitates Sanlam’s contribution to black economic empowerment and other socio-economic development initiatives in South Africa.

Looking ahead, Kirk said the Group would continue its focus on strategy execution to sustain growth and deliver value to all Sanlam stakeholders.

“We expect the challenging operating environment and economic climate to persist in 2017. However, with the support and commitment from our staff, management and partners, we believe we have the opportunity to sustain our performance going forward,” Kirk concluded.

Click here for full details of the results for the year ended 31 December 2016.

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