7 September 2017
A highlight for the period was the strong growth in value of new life (covered) business written. The net value of new covered business (VNB) increased by 11% (17% in constant currency) at a margin of 2.61%, which exceeds the comparable 2016 margin.
The Group was particularly pleased with the double-digit annualised Adjusted Return on Group Equity Value (RoGEV) of 16.2%. This exceeded the target of 13.2% for 2017 by a healthy margin. The Group considers RoGEV as the most appropriate measure of long-term performance and value creation, given the diversified nature of Sanlam’s operations.
Some of the other key features for the six months to 30 June 2017 included:
The Group reported an increase of 1% in net result from financial services compared to the same period in 2016. The relatively low level of growth was largely attributable to the significantly stronger average Rand exchange rate; higher new business strain at Sanlam Personal Finance following good growth in risk business; catastrophe claims experience at Santam; and one-off credit provisioning in Shriram Capital following demonetisation in India. This was partly offset by the contributions from structural growth. Excluding these, net result from financial services increased by a satisfactory 11%.
New business volumes declined by 4%, an acceptable performance under difficult conditions. Good growth in recurring premium business was more than offset by lower single premium discretionary investment business inflows as the uncertain environment in South Africa continued to impact on consumer and investor confidence. The Group did particularly well to achieve net fund inflows of R19 billion given the significant pressure on single premium business.
Says Sanlam Group Chief Executive Officer, Mr Ian Kirk: “We are satisfied with the results for the first six months of the financial year and we believe that our focus on strategic execution continues to support our business performance and our delivery of value to all our stakeholders.”
Sanlam Personal Finance achieved solid growth for a largely mature business in a challenging South African business environment. Sanlam Individual Life grew its net result from financial services by 2% in the first half of 2017. Excluding the increase in new business strain, Individual Life net result from financial services grew by a healthy 9%.
Sanlam Sky’s net result from financial services increased by 3% (8% excluding increased new business strain) and Glacier grew its net profit contribution by 8%. Glacier’s growth in assets under management slowed down, attributable to lower net fund inflows and a lacklustre South African investment market performance since the end of 2015. Its earnings growth was largely in line with the growth in assets under management.
Sanlam Emerging Markets’ net result from financial services declined by 2%. Excluding structural growth, the impact of a stronger Rand exchange rate and demonetisation-related credit provisioning in India, net result from financial services grew by 18%.
Namibia had a difficult six months, resulting in a marginal 2% increase in its net result from financial services and Botswana’s net result from financial services declined by 23% (down 16% in constant currency). The Rest of Africa operations, excluding Saham Finances, grew their contribution by 37% (doubling in constant currency) with most businesses achieving strong growth. Saham Finances’ contribution of R116 million increased by 27% on 2016 (up more than 50% in constant currency) and remains in line with expectations.
Net result from financial services in India declined by 5% due to the stronger Rand exchange rate and demonetisation-related credit provisioning, partly offset by structural growth. Excluding these, underlying organic growth amounted to 30% in constant currency. Malaysia experienced a decrease of 17% (up 21% in constant currency).
Sanlam Investments’ net result from financial services declined by 1% (up 6% in constant currency). Investment management increased its net result from financial services by 13% in constant currency. The international businesses achieved strong growth from a low base in the first half of 2016, which included restructuring costs. Sanlam Capital Markets’ profitability declined by 11% net of tax. This is largely attributable to large one-off items in 2017 and 2016.
Santam had a difficult first six months in 2017 with a number of commercial property claims and catastrophe events including a severe winter storm that caused widespread damage in Cape Town and strong winds from the same storm that drove runaway wildfires in the Knysna and Plettenberg Bay areas, resulting in significant property damage.
Santam’s overall underwriting margin declined from 6.4% in the first half of 2016 to 4% in 2017, a resilient performance in these circumstances, assisted by Santam’s diversified book. Higher float income and the structural impact of the Shriram General and Saham Finances acquisitions limited the decline in Santam’s net result from financial services to 13%.
The Sanlam Corporate cluster achieved exceptional growth of 31% in its net result from financial services. Group risk profit increased by 55%, supporting overall growth of 26% in Sanlam Employee Benefits’ net result from financial services. Sanlam Healthcare Management, which predominantly includes the Group’s stake in Medscheme, also achieved sterling growth of 49%, benefiting from new schemes and an increase in the number of members under administration.
The Group utilised discretionary capital for some strategic transactions during the first half of 2017. These included, among others, the acquisition of an additional 16.6% stake in Saham Finances and the acquisition of a controlling stake in PineBridge Investments East Africa, now called Sanlam Investments East Africa.
As at 30 June 2017, the Group had unallocated discretionary capital of R2 billion, of which R100 million will be utilised for the acquisition of a 30% stake in EasyEquities, an innovative investment platform business. The balance of the discretionary capital available remains earmarked for value-accretive investment opportunities.
“We expect the economic and operating environment to remain challenging for various reasons across our footprint for the remainder of the year. However, we are confident that our staff and management will continue to diligently execute on the strategic priorities we have identified and we believe this will sustain our performance going forward,” Mr Kirk concluded.
Details of the results for the six months ended 30 June 2017 are available at www.sanlam.com.