Sanlam posts satisfactory operational performance in first four months of 2018

Ian Kirk, CEO of the Sanlam Group.

The Sanlam Group today announced a satisfactory operational performance for the four months ended 30 April 2018. This was achieved despite the challenging operating conditions in many markets in which the Group operates.

Sanlam, which celebrates 100 years this Friday, June 8, attributed the performance to its well-diversified profile.

Some of the key features from the first four months of 2018 included:

• Net result from financial services per share increased by 11%;
• Normalised headline earnings per share up 5%;
• Net VNB increased by 2%;
• New business volumes declined by 3% to R69 billion; and
• Overall net fund inflows of R10.1 billion compared to R12 billion in 2017.

Said Sanlam Group CEO, Mr Ian Kirk: “We are satisfied with the overall performance of the Group in the first four months of the year. This reaffirms the value of our diversification strategy. We are also looking forward to the completion of the Saham Finances acquisition as it will provide us with an opportunity to further enhance Sanlam’s empowerment credentials through a 5% empowerment share issuance as part of the funding model for the transaction. As we celebrate our centenary, we acknowledge all our stakeholders with whom we share mutually beneficial partnerships. We also pay tribute to our staff, past and present, who have contributed to our success over the years.”

Sanlam Personal Finance (SPF) achieved overall new business growth of 11%. Strong growth in the recurring premium sub cluster was augmented by good recovery at Glacier, which benefited from the improved investor sentiment in South Africa. Glacier grew new business volumes by 11%. Sanlam Sky’s more profitable individual life recurring premium risk business achieved strong growth of 18% compared to the same period in 2017. However, the group life risk business at Sanlam Sky declined by 59% due to lower new business sales at Safrican, who wrote two large schemes in the first four months of 2017. Overall, risk business sales at Sanlam Sky declined by 15% as a result.

Sanlam Emerging Markets (SEM) recorded overall new business growth of 19%, supported by structural activity in 2017. In constant currency, new business volumes increased by 23% (up 17% in constant currency and excluding structural growth).

Namibia had a solid start to the year with 18% new business growth in the first four months of 2018. Strong growth of 31% in investment business was partially offset by a 17% decline in new life business flows.

A recovery in annuity market share in Botswana supported overall growth of 13% in new business volumes from this market (15% in constant currency).

In the Rest of Africa, new business volumes increased by 34% (43% in constant currency and 27% excluding structural activity in constant currency). Most regions contributed to the growth in constant currency, apart from Malawi, which had a slow start to the year. SAHAM Finances’ new business production was in line with the business plan, with the Angola operations, in particular, holding up well in a difficult environment.

The Indian operations delivered growth of 3% (11% in constant currency) with double-digit contributions from both the life and general insurance businesses in constant currency. The life insurance business in Malaysia achieved some traction and reported new business growth of 12% (10% in constant currency) during the first four months of 2018. The Malaysian general insurance business’ new business performance remained below expectations, but its profitability improved by more than 20%.

Sanlam Investments (SI) experienced a 16% decline in new business volumes from a high base in 2017. The Group anticipates that the improved investor sentiment in the South African market will not reflect in institutional inflows before the end of 2018.

Sanlam Employee Benefits (SEB) had a slow start to 2018, experiencing a decline in both life recurring premium risk business and single premiums of some 20%. The Group reported that the future pipeline of new business appears promising.

Net result from financial services increased by 11% on the first four months of the 2017 financial year (up 13% in constant currency), a solid performance.

SPF’s net result from financial services declined by 2%. This is due to increased new business strain, the first-time inclusion of BrightRock’s operational losses, costs associated with the MiWay Life and Indie new initiatives and lower market-related fee income in Glacier from products where shareholders share in the underlying portfolio investment returns. Excluding these, SPF achieved net operating profit growth of 7% on the first four months of 2017. SEM grew net result from financial services by 34% with good growth in most key regions. The comparative 2017 period included provisions of R110 million (SEM’s share net of tax) relating to de-monetisation in India, which supported the overall growth. Saham Finances delivered good growth in operating earnings and remains in line with the business plan.

SI’s contribution to net result from financial services decreased by 4%, attributable to lower performance fees, the impact of the stronger average rand exchange rate and a high comparative base in the capital markets business.

SEB and Sanlam Healthcare achieved strong growth in net result from financial services, supporting overall growth of 22% for the Sanlam Corporate Cluster. Sanlam Employee Benefits benefited from lower new business strain due to lower new business levels.

Santam experienced a particularly benign claims environment, compared to the first four months of 2017 that included a number of large catastrophe claims. This resulted in a substantial increase in its underwriting margin for the four-month period to above the 4% to 8% target range.

In the first four months of 2018, the discretionary capital portfolio was augmented by:

• The new share issuance in April (R5.5 billion after allowing for the dividend payable in respect of the new shares);
• The excess dividend cover relating to the dividend payment in April 2018 (R690 million); and
• The release of R1.5 billion from the capital allocated to the South African life insurance operations (as indicated in the 2017 results announcement).

This increased the level of available discretionary capital to R9.6 billion as at 30 April 2018. This capital has been earmarked for the SAHAM Finances acquisition, which will require cash resources of R13.9 billion based on the average hedged rate of USD/R13.24. The deficit will be funded from short-term debt facilities as previously communicated to the market.

A second share issuance of some 5% is planned for the second half of the year, with the intention to use it as an opportunity to further enhance the Group’s empowerment credentials. Proceeds from this issuance will be used to redeem the short-term debt facilities and to augment the discretionary capital pool. The Group intents proposing the planned share issuance to shareholders for approval in the fourth quarter of 2018.

“While business and consumer sentiment is improving in South Africa and the economic outlook in other parts of the African continent is looking more positive, we expect that the economic and operating environment will remain subdued in our largest markets for the remainder of the year, impacting on our key operational performance indicators,” Mr Kirk concluded.