Sanlam announces resilient 2017 financial results and a major acquisition in Africa
The Sanlam Group released its financial results for the year ended 31 December 2017, which reflects a resilient operational performance underpinned by good progress across all of the Group’s strategic pillars. This follows a decade of double-digit average growth rates in most key performance indicators.
The Group also announced today that it has reached an agreement to purchase the remaining 53.37% shareholding in SAHAM Finances for USD1 050 million. The transaction is subject to the fulfilment of a number of conditions precedent, including, among others, various regulatory approvals.
Following the conclusion of this transaction, the Sanlam Group, which celebrates its centenary this year, will own 100% of SAHAM Finances, firming its position as the largest non-banking financial services group in Africa. Sanlam and its general insurance subsidiary, Santam, first acquired a joint 30% stake in SAHAM Finances in February 2016 and a further 16.6% in May 2017. Santam is evaluating its options with respect to the current transaction but remains fully committed to and supportive of the partnership and will confirm the extent of its participation before the transaction becomes effective.
SAHAM Finances is one of the largest insurers in Africa and is the market leader in most of the 26 countries in which it operates in North, West and East Africa as well as in the Middle East. The company owns 58.48% of SAHAM Assurance Morocco, which is listed on the Casablanca Stock Exchange.
Sanlam Group Chief Executive Officer, Mr Ian Kirk, said: “The acquisition of the remaining 53% of SAHAM Finances, which increases our shareholding to 100% in the Group, is the next logical step for Sanlam and enables us to have an even more meaningful presence across sub-Saharan and North Africa, in line with our strategy. Since our partnership began in 2016, we have developed a number of projects to unlock synergies between SAHAM Finances and Sanlam. Given our footprint, the transaction positions Sanlam as the ‘go to’ financial services provider for multinationals, brokers, banks, other distribution entities as well as a preferred network of partners for international insurers with no African footprint.”
Mr Kirk added that the transaction would allow Sanlam to extract further synergies and to become a truly pan-African insurance provider, increasing its exposure to high-growth markets as well as general insurance products.
Commenting on the transaction, SAHAM Group’s spokesperson, Mr Moulay Mhamed Elalamy, said: Saham Group values greatly the partnership with Sanlam, a company that shares the same values and the same ambition for the continent. We wish to deepen and diversify this kind of alliance with other major players in order to fast-track our development.”
2017 annual results
Some of the highlights from the 2017 financial year included:
Net result from financial services per share increased by 7% (up 10% in constant currency);
Normalised headline earnings per share up 18%;
Value of new life business increased by 15% (up 17% in constant currency);
New business volumes declined by 1% to R230 billion;
Net fund inflows of R35 billion compared to R41 billion in 2016;
Adjusted Return on Group Equity Value per share of 15.8%, exceeding its target of 13.2%; and
Dividend per share increased by 8.2% to 290 cents per share.
Structural activity that influenced growth in 2017 included:
The acquisition of a 30% stake in SAHAM Finances at the end of February 2016, followed by an additional 16.6% investment in May 2017;
Direct stakes of 23% acquired in Shriram Life Insurance and Shriram General Insurance at the end of September 2016;
The disposal of SEM’s interests in the Enterprise Group in Ghana with effect from 1 July 2017;
The acquisition of a 75% interest in PineBridge’s East African investment management business, effective July 2017; and
The acquisition of a 53% interest in BrightRock with effect from October 2017.
Commenting on the results, Mr Kirk said: “We are pleased with the overall solid performance of the Group, which is the result of our sustained focus on executing our strategy, supported by our committed staff and multi-level management team. Despite the challenging economic and political environments in recent years, we have achieved pleasing growth rates in most key performance indicators.
“This is a fitting tribute to those who came before us in building and sustaining this resilient business in the past 100 years and we are grateful to our various stakeholders and partners who have been part of Sanlam over the years.”
New business volumes declined by 1%, amid pressure on single premiums in South Africa, Namibia and Botswana. Low investor confidence in South Africa had a particularly negative effect. Life insurance new business volumes increased by 2%, investment business inflows declined by 5% and general insurance-earned premiums increased by 16%. Excluding structural activity, exchange rate differences and the R4.6 billion new mandate received from the Botswana Public Officers’ Pension Fund in 2016, new business volumes increased by 1%. A decline in lower-margin single premium business conceals strong growth in the more profitable lines of recurring premium business. Sanlam Sky and Individual Life within SPF achieved sterling growth in sales of recurring premium risk business, which contributed to an exceptional value of new life business performance.
Net result from financial services (net operating profit) increased by 7% (10% in constant currency) to R8.5 billion compared to the same period in 2016, with substantial growth in Sanlam Emerging Markets (SEM) and Sanlam Investments’ (SI) contributions.
Sanlam Personal Finance (SPF) once again delivered a solid performance for a mature business in an environment of stagnant economic growth, low investor confidence and a lacklustre equity market performance for a large part of 2017. Net result from financial services increased by 3%.
The cluster was restructured into a more agile and focused business comprising of Sanlam Sky, the funeral insurance business; the Recurring Premiums sub cluster - which includes Sanlam Individual Life, Sanlam Savings, Closed Book, BrightRock (which SPF acquired in 2017), MiWay Life and Indie - Glacier, and Strategic Business Development (Sanlam Personal Loans, Sanlam Reality, ancillary financial services and an incubator for new initiatives).
Sanlam Sky grew its profit contribution by 3%. Excluding additional new business strain emanating from the growth in new risk business, its gross result from financial services increased by 10%. Mortality experience weakened slightly, albeit still positive overall, while positive expense assumption changes recognised in 2016 did not repeat in 2017.
The Recurring Premium sub cluster’s gross result from financial services declined by 4%. Excluding additional new business strain and the BrightRock maiden contribution, the gross result from financial services was 6% higher than 2016.
Glacier achieved sterling growth of 17%. Life investments achieved profit growth of 29%, largely due to positive annuity mortality experience. The LISP business’ profit declined by 5% due to lacklustre investment market performance for most of the year and a reallocation of expenses to Glacier as part of the SPF restructuring.
Strategic Business Development profits increased by 3%. Growth in the size of the Sanlam Personal Loans book supported 13% growth in the business’ profit contribution. This was largely offset by investments to improve the benefits and attractiveness of the Reality loyalty scheme.
Sanlam Emerging Markets (SEM) grew its net result from financial services by 15% including structural activity and exchange rate differences. Organic growth in constant currency amounted to 10%.
Namibia’s net result from financial services increased by 14%, while the Botswana operations achieved mixed results with an overall decline of 6% in net result from financial services (-1% in constant currency). Lower annuity business sales in a competitive environment and credit-related provisioning had a negative impact on life insurance earnings. The other businesses achieved good growth.
The Rest of Africa operations achieved growth of 26% in net result from financial services. Excluding the structural impact of the Saham Finances and PineBridge acquisitions and the disposal of the Enterprise Group investments in Ghana, net result from financial services decreased by 5% (up 20% in constant currency). All businesses achieved growth in excess of 20% in constant currencies, apart from Kenya and Tanzania that reported declines in operating earnings. Saham Finances tracked the business plan, contributing net result from financial services of R243 million in 2017 (R264 million in constant currency) compared to R88 million in 2016.
Net result from financial services in India rose 42% (54% in constant currency) - 19% (29% in constant currency) excluding profit contributed by the 23% direct stakes acquired in Shriram Life Insurance and Shriram General Insurance during 2016.
The Malaysian businesses had another disappointing year. Net result from financial services declined by 61% (48% in constant currency), the aggregate of a 56% decline in general insurance earnings and a 4% lower contribution from the life insurance business. Low top-line growth was aggravated by the impact of a one-off IBNR release in 2016 that increased the comparative base.
Sanlam Investments (SI) achieved overall growth of 12% in its net result from financial services (17% in constant currency), with sterling performances from Capital Management and the International businesses.
The Investment Management SA net result from financial services declined by 20%, attributable to low growth in assets under management and lower performance fees.
Wealth Management net result from financial services increased by 14%, supported by strong growth in performance fees and lower start-up losses incurred in new business units. The International business experienced a sharp turnaround in profitability following the restructuring in 2016. Net result from financial services grew by 92% (116% in constant currency).
Capital Management achieved 19% growth in its net result from financial services. One-off income from equity structuring and financing deals and the revaluation of property finance deals contributed some R50 million (after tax).
Santam performed exceptionally well, increasing its net result from financial services by 5% despite the major catastrophe events in 2017. Underwriting results increased by 1%, while the contributions from float income and SEM investments grew by 5% and 50% respectively.
Santam Commercial and Personal experienced the costliest 12 months for natural catastrophe losses in Santam’s history. The business was challenged by the Western Cape storms, devastating Garden Route fires, further large commercial and corporate fire claims and flash flooding, and hail events in Gauteng and KwaZulu-Natal.
Santam Specialist experienced competitive trading conditions, with underwriting results negatively impacted by a number of large corporate property claims. The crop insurance business was negatively affected by significant hail claims during the weekend of 30 December 2017. However, it still achieved an excellent underwriting result, mainly due to low incidents of drought claims during this period.
MiWay delivered solid premium growth on the back of new business offerings, although a slowdown in growth occurred during the second half of the year due to the increased focus on profitability during 2017. Santam Re continued to contribute to Santam’s diversification strategy and its ability to create long-term value. It remains the main vehicle for Santam reinsurance optimisation.
Santam continued to provide comprehensive technical support to the SEM business partnerships. This included product, pricing, underwriting and reinsurance input, which together with Saham Finances’ structural growth contributed to strong earnings growth from the SEM investments.
Sanlam Corporate, which includes Sanlam Employee Benefits (SEB) and Sanlam Health, increased its net result from financial services by 9%, an aggregate of 29% growth in the Healthcare contribution and 4% growth at SEB. The Healthcare businesses benefited from income earned on new business as well as cost efficiencies. At SEB, increased allowance for one-off project expenses and high disability and mortality claims experience partly offset good growth at the investments business, which benefited from positive annuity mortality experience and asset mismatch profits.
The Group redeployed a net total of R2.8 billion in 2017 in respect of new and bolt-on transactions, including the following major acquisitions:
The Group entered into agreements for the acquisition of Absa’s employee benefits and actuarial consulting business to add scale to SEB’s offering for a consideration of R285 million. The transaction remains subject to final regulatory approval.
Sanlam Investments acquired a 30% stake in EasyEquities, an innovative low-cost investment platform, which significantly enhanced the Cluster’s reach into the lower income markets and complements its Satrix index-tracking offering.
The acquisition of an additional 16.6% stake in SAHAM Finances for a consideration of R1.9 billion. This was in addition to approximately R2.6bn already earmarked in the previous year for this transaction. The disposal of the Group’s stakes in the Enterprise Group in Ghana enabled full settlement of the acquisition in cash.
The acquisition of a controlling stake in PineBridge Investments East Africa, now Sanlam Investments East Africa, and other smaller transactions utilised some R260 million.
SEM acquired the non-controlling interests in the Soras Group in Rwanda for R113 million and invested R94 million to capitalise its Ugandan business, which expanded its product lines through the acquisition of Lion Assurance, a general insurance business.
As at 31 December 2017, Sanlam had unallocated discretionary capital of R2 billion. The Group will continue to utilise discretionary capital for value-accretive investment opportunities.
In March 2018, Sanlam once again achieved a Level 2 Broad-based Black Economic Empowerment rating as determined by the Financial Sector Charter. Transformation underpins the strategic pillars of the Group’s business strategy and is an ongoing priority.
Looking ahead, Mr Kirk said the Group would continue its focus on strategy execution to sustain growth and deliver value to all Sanlam stakeholders.
“Following some positive developments in the South African environment, we look forward to gradual improvement in the operating environment and economic climate in 2018. As we celebrate Sanlam’s centenary, we will continue to focus on our strategy and we believe we have the foundation to sustain our performance going forward,” Mr Kirk concluded.
Details of the results for the year ended 31 December 2017 are available at www.sanlam.com.
Issued by Sanlam Group Communications
ABOUT THE SANLAM GROUP
Sanlam is a leading financial services group listed on the Johannesburg and the Namibian stock exchanges. Established in 1918 as a life insurance company, the South Africa-based Sanlam Group has transformed into a diversified Pan-African financial services business.
Through its business clusters – Sanlam Personal Finance, Sanlam Emerging Markets, Sanlam Investments, Santam and the newly established Sanlam Corporate - the Group provides comprehensive and tailored financial solutions to individual and institutional clients across all market segments. The Group’s areas of expertise include insurance (life and general), financial planning, retirement, investments and wealth.
The Group has a direct stake in operations based in South Africa, Namibia, Botswana, Swaziland, Zimbabwe, Mozambique, Mauritius, Malawi, Zambia, Tanzania, Rwanda, Uganda, Kenya, Nigeria, India, Malaysia and the United Kingdom and has business interests in the USA, Australia, Burundi, Lesotho and the Philippines. Through a strategic stake in the SAHAM Finances Group, it has exposure to insurance operations in Morocco, Angola, Algeria, Tunisia, Ghana, Niger, Mali, Senegal, Guinea, Burkina Faso, Cote D’Ivoire, Togo, Benin, Cameroon, Gabon, Republic of the Congo, Madagascar, Lebanon and Saudi Arabia. For further information, visit www.sanlam.com or follow us @sanlam.
Pearl Majola, Sanlam Group Communications
Tel: +27 11 778-6305 or +27 83 286-7476
Petra Steenkamp, Sanlam Group Communications
Tel: +27 21 947-2490