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Salient features

Earnings

  • Net result from financial services per share decreased by 1%
  • Core earnings per share down 3%
  • Normalised headline earnings per share up 133%
  • Dividend per share up 6% to 104 cents per share

Business volumes

  • New business volumes up 3% to R103 billion
  • Value of new covered business down 1% to R689 million
  • New covered business margin of 2,61%
  • Net fund inflows of R15,5 billion, up 70%

Group Equity Value

  • Group Equity Value per share up 12% to R24,73
  • Return on Group Equity Value per share of 16,2%

Capital management

  • Discretionary capital of R3,5 billion at 31 December 2009
  • Sanlam Life CAR cover of 3,1 times

Dr Johan van Zyl, Group Chief Executive of Sanlam comments on the Group’s strategy behind these results:

“In the context of the challenging environment caused by the turmoil in world financial markets, the Sanlam Group achieved a pleasing operational performance for the 2009 financial year.

“Our strategy, which has proved to be resilient and sustainable, was fundamental in distinguishing our performance from that of many of our peers in 2009. Our strategy will therefore continue to centre around five pillars: optimal capital utilisation, earnings growth, costs and efficiencies, diversification and transformation.

“We maintained our prudent approach to the application of discretionary capital and focused on further optimising the capital base of the Group. Limited investments were made in existing operations and future growth markets during the period under review. As a result Sanlam now has access to discretionary capital of R3,5 billion. While it was prudent to use this capital as a buffer during 2009, we will be looking for profitable growth opportunities and other ways of efficiently redistributing some of this capital in 2010.

Van Zyl said that the Group’s ongoing focus on reducing costs, while at the same time upping efficiencies, significantly buffered its operations when the economy and financial markets were placed under intense pressure by global events. Given the increased strain on capital in 2009, the Group intensified its cost-saving efforts. Sanlam Investments and Sanlam Personal Finance, which have been impacted most by lower assets under management and new business volumes, made a concerted effort to reduce costs even further. Containment of costs in all other business units was also a priority, although not to the detriment of future growth opportunities.

“Diversification is key to ensuring sustainable future growth. The successful diversification of our business since 2003 has helped us achieve a significant rebalancing of our mix of new business, with an increasing contribution (83%) channelled via our non-life operations. Our geographic diversification through Sanlam Developing Markets once again paid off. The majority of operations within this business cluster delivered reasonable new business results in 2009 despite the tough economic conditions experienced by most of the markets in which these businesses operate,” Van Zyl added.

“In 2009 Sanlam International Investment Partners formed an investment partnership with UK-based investment manager, FOUR Capital Partners. The transaction is in line with our strategy of acquiring stakes in specialist asset managers in selected global markets.”

Van Zyl said that transformation remains one of the key pillars of Sanlam’s business strategy, because only true qualitative change across all spheres of our business will facilitate sustainable growth into the future and it therefore remains a focus area for the Group.

“While 2010 will not be an easy year, we do believe that we are well placed to deliver another set of solid results this year. We remain well positioned to aim for growth and will therefore start accelerating slowly to start achieving the sustainable growth for which we have positioned the Group over the past seven years”, Van Zyl concluded.

 

Summarised performance review

The primary performance target of the Group is to optimise shareholder value through maximising the return on Group Equity Value (ROGEV) per share. This measure of performance is regarded as the most appropriate given the nature of the Group’s business and incorporates the result of all the major value drivers in the business. A target has been set for the ROGEV per share to exceed the Group’s cost of capital on a sustainable basis. Cost of capital is set at the government (9-year) bond yield at the start of each financial year plus 3%, with a target to exceed this return by at least 1%. The ROGEV per share of 16,2% achieved in 2009 comfortably exceeded the target of 11,3%, in part owing to the positive impact of the strong equity market. The adjusted ROGEV, i.e. assuming a normalised investment market performance and excluding any once-off items, for 2009 amounted to 13,1%, also well ahead of target.

Total new business volumes for 2009 of R103 billion are 3% higher than in 2008. After a relatively flat first-half performance, new business volumes improved by 5% in the latter half on those achieved in the comparable period in 2008. Net inflows of R15,5 billion are well up on the R9,1 billion achieved in 2008, which is testimony to the Group’s positive fund retention and persistency experience.

Core earnings of R3 690 million are 5% lower than in 2008, the combined effect of a 3% decrease in the net result from financial services and a 9% decline in net investment income earned on the capital portfolio. The relatively lower base of assets under management impacted on the growth in fee income and the profitability of especially the investment management businesses. This was further aggravated by a number of large commercial property claims at Santam. Core earnings per share decreased by 3%, attributable to a 2% reduction in the weighted average number of shares in issue.

The investment return earned on the Group’s capital portfolio improved significantly compared to the negative performance in 2008, supported by the strong investment market gains in particularly the latter half of the 2009 financial year. Normalised headline earnings per share benefited from the turnaround in investment returns and increased by 133% on 2008.

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