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Net operating profit of R4 billion increased by 11% compared to the same period in 2015. This was supported by a strong performance by Sanlam Emerging Markets (SEM) and solid growth at Sanlam Personal Finance (SPF). SEM and SPF both reported maiden contributions from recently acquired businesses, namely Saham Finances (R95 million) and Afrocentric (R43 million).

Some of the key features for the six months to 30 June 2016 included:

  • Return on Group Equity Value per share for the six months of 7.9%;
  • Net operating profit increased by 11%;
  • Normalised headline earnings per share down 7%;
  • New Business volumes increased by 15% to R115 billion; and
  • Net fund inflows of R22 billion compared to R7 billion in 2015.

Headline earnings growth was negatively affected by lower investment returns on shareholder funds due to a relatively weaker performance during the first six months of 2016 from local and some of the non-South African equity markets to which the Group has an exposure. The effect of the latter was aggravated by the sharp appreciation in the Rand exchange rate over the reporting period, while the increase in the Capital Gains Tax inclusion rate in South Africa also required a once-off adjustment to the related tax provision.

The Group considers Return on Group Equity Value (RoGEV) as the most appropriate measure of long-term performance and value creation, given the diversified nature of Sanlam’s operations. For the six months it achieved RoGEV of 7.9%, well in excess of its internal return target.

The Group has attributed its strong performance to the sustained focus on its strategy and the resilience of its operations despite an unsupportive business environment during the period.

Says Sanlam Group Chief Executive Officer, Mr Ian Kirk: “We are pleased with this solid set of results and believe that our strategy and our business operations continue to be resilient in the face of a persistently unsupportive business environment. We remain committed to the strategy and are confident that our management and staff have the requisite skills to effectively implement it.”

  • SPF continued to achieve particularly satisfactory growth for a largely mature business in a challenging South African business environment. Its Individual Life unit grew its net operating profit by 8% in the first half of 2016, notwithstanding a marked increase in the number of mortality claims. Glacier grew its net profit contribution by 20% with fund-based fee income benefiting from an increase in assets under management due to good net fund inflows, while Sanlam Sky increased its net operating profit by 7%, broadly in line with the growth in the size of the in-force book.
  • SEM grew its net operating profit by 40%. Excluding Saham Finances, net operating profit increased by 24%. Strong contributions were reported from India (growth of 73% or 14% in constant currency terms and excluding the abnormal equipment finance bad debt provisions recognised in the first half of 2015); Namibia (29% growth); and Botswana (19% growth).

    The Rest of Africa operations (excluding Saham Finances) recorded a 23% decline in net operating profit. A first-time contribution by Zimbabwe and good growth in Ghana, Nigeria and Tanzania were more than offset by a lower profit contribution from Zambia, Malawi and Rwanda, lower residential property sales in Kenya and an increase in cluster level cost allocations based on the expanded central support capacity. In Malaysia, net operating profit decreased by 43%, the aggregate of 55% growth in general insurance earnings and a net loss of R10 million from the life insurance operations.
  • Sanlam Investments’ (SI) net result from financial services increased by 1% to R721 million. The cluster’s results were impacted by significant investment market volatility that resulted in a decline in the average level of most asset class indices during the first half of 2016 compared to the same period in 2015. Net of fund inflows, in particular strong retail flows, average assets under management increased by only 2%. Sanlam Employee Benefits (SEB) also experienced a material increase in mortality and disability claims, which had a negative effect on its reported results.
  • Santam experienced a normalisation in underwriting margins after an exceptional 2015 reporting period. The claims ratio increased from 63.7% in the first six months of 2015 to 64.8% in the first half of 2016, attributable to a number of large corporate claims in 2016 and an increase in drought-related agricultural claims. Sales remuneration increased by 25%, substantially due to a change in business mix and the related commission expense. Focus on cost efficiencies and the disposal of Indwe contributed to a decline in the administration cost ratio during the first half of 2016. The net effect was a decline in the underwriting margin from 8.9% in the first half of 2015 to 6.4% in 2016.
  • The newly established Sanlam Corporate cluster made progress in developing and implementing its strategy.

As at 30 June 2016, the Group had unallocated discretionary capital of R3.1 billion which is earmarked for value-accretive investment opportunities.

“We expect the economic and operating environment to remain challenging for the remainder of 2016. However, we expect that our continued focus on strategy implementation will see us through,” Kirk concluded.

Details of the results for the six months ended 30 June 2016 are available at www.sanlam.com.

Sanlam Life Insurance is a licensed financial service provider.
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