Sanlam maintains strategic focus as satisfactory performance is sustained in first half
Ian Kirk, Sanlam Group Chief Executive.
The Sanlam Group released overall satisfactory results for the six months to 30 June 2015 given a persistent challenging business environment in key markets where the Group operates, including South Africa which is the region with the largest contribution to the Group’s results. Exceptional results in 2014 and previous years set a relatively high base for the Group.
New business volumes increased by 22% to R100 billion compared to the same period in 2014. Net result from financial services increased by 5% on the first half of 2014; up 11% excluding certain one-off items. The annualised Return on Group Equity Value (RoGEV) per share of 13% exceeded the target of 12,1%. RoGEV is the Group’s primary performance target for measuring shareholder value creation.
Other features of the results are as follows:
• Normalised headline earnings per share up 4%
• Net fund inflows of R7 billion
• Net value of new covered business increased by 5%
Commenting on the results, new Sanlam Group Chief Executive, Ian Kirk said: “We are satisfied that we were able to deliver an overall sound operational performance despite unfavourable conditions. The medium to long term growth potential of all the regions remains intact.”
SPF had a solid first half, increasing new business volumes by 23%, with strong growth in the entry level (15%) and mass affluent (30%) market segments. The middle income market segment bore the brunt of the economic pressure in South Africa and achieved more subdued growth of 4% in new business sales. SPF’s net result from financial services increased by 11%.
SEM grew new business volumes by 34%, supported by an exceptional performance in Botswana and the first time contribution of acquisitions concluded after 30 June 2014. These include MCIS Insurance in Malaysia, Enterprise General Insurance in Ghana and the Soras Group in Rwanda. Net result from financial services declined by 10%, largely attributable to a particularly difficult operating environment in Zambia and abnormal bad debt experienced at Shriram Equipment Finance in India.
This business granted credit to its clients in anticipation of the roll-out of infrastructure projects by the Indian government. Delays in the release of government funding for these projects, however, resulted in an abnormal proportion of the clients not being able to meet repayments. The growth prospects for SEM remains intact despite the headwinds faced in the first half of 2015.
SI’s operational performance was impacted by a number of factors, including lower performance fees and higher administration costs relating to outsourcing projects and capacity building, resulting in a 2% decline in the cluster’s net result from financial services. Excluding these factors, the cluster increased net result from financial services by 12%. SI increased new business volumes by 23% with most business units contributing to the growth.
Santam increased gross written premium by 7%. MiWay performed well with gross premium growth of 17%. Santam’s net result from financial services increased by 17% with a particularly favourable claims experience in the second quarter of 2015. The current favourable claims environment is not expected to continue for the remainder of 2015 due to the risk of weather related events traditional in the fourth quarter.
A net amount of R285 million of capital was utilised during the six months to 30 June 2015 for a number of small transactions concluded during the period while a further R2 billion has been earmarked for transactions in an advanced stage of completion.
Some R1,6 billion was added to surplus capital from investment return earned on the discretionary capital portfolio, excess capital released from Group businesses and the realisation of some illiquid investments, leaving unallocated discretionary capital of some R2,5 billion at 30 June 2015. This remains earmarked for investment in value-accretive investment opportunities.
The Sanlam Limited Board reaffirmed the Group’s strategy which remains focussed on five pillars:
• Improving performance through top-line growth
o Increasing market share in key segments
o Diversifying the base (including geographical presence, products, market segments and distribution platforms)
• Improved operating and cost efficiencies, including quality of business written
• Prioritising Sanlam’s international positioning through diversification
• Improving capital efficiency on an on-going basis
• Embracing and accelerating transformation of the Group.
Commenting on the outlook for the remainder of 2015, Kirk concluded: “We expect the operating environment to remain challenging for the rest of our financial year, which is likely to impact on most of our performance measures. Despite the short-term pressure on operating earnings growth, we remain confident our strategy is sound and that it will enable us to deliver on our medium to longer term growth targets.”
