Sanlam's earnings higher than expected

Posted On Friday, 05 March 2004 02:00 Published by
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Sanlam Limited (SLM), South Africa's second largest financial services group, has reported a rise in adjusted headline earnings per share (HEPS).

Sanlam Limited (SLM), South Africa's second largest financial services group, has reported a rise in adjusted headline earnings per share (HEPS).

This is based on a long-term rate of return (LTRR) for the year to end-December 2003 to 124.9 cents from 122.7 cents a year earlier, slightly higher than the consensus forecast.

The group declared a dividend of 40 cents per share, 8% higher than 2002 and exactly in line with forecasts.

According to a consensus of eight analysts surveyed by I-Net Bridge, Sanlam's adjusted 2003 LTRR HEPS were expected at 123.1 cents. The range of forecasts was from 100.9 cents to 127.9 cents per share.

The company warned in December that it expected its overall headline earnings on a LTRR basis to be in line with those reported in 2002, due to the impact of a lower investment base and a reduction in the LTRR used (12% versus 13%).

The company also reported an increase in its headline earnings per share to 89.2 cents compared to 80.8 cents in the year-earlier period.

Sanlam reported an improvement in new business volumes to R38.79 million in 2003 from R32.27 million in 2002, as well as a net inflow of funds to R4.96 billion, reversing the outflow of R3.93 billion of a year earlier.

The embedded value of new business, however, well to R218 million from R320 million, and life insurance new business annual premium equivalent (APE) was down to R1.73 million from R2.18 billion.

Its new business embedded value margin deteriorated to 12.6% from 14.7%.

Return on embedded value was reported at 15.3%, compared to -8.8% in 2002, and Sanlam's overall operating margin posted an improvement to 17.5% from 16.9% previously.

The company also succeeded in reducing its administration cost ratio to 33.6% from 34.7% a year earlier.

"Focusing the different businesses on clearly defined roles and responsibilities have better positioned them to extract top line synergies from each other and to ensure ongoing efficiency and improved profitability," said Sanlam CEO Johan van Zyl.

"The significant strategic and operational advances made in the past year, and with the costs of restructuring having been largely accounted for, the group is well positioned to benefit from the expected improvements in the South African economy and to deliver an improved financial performance going forward."

Van Zyl said that now that the group structure had been realigned, each cluster had strong prospects, with the appropriate operating platforms to build profitable and diversified income streams and pursue local and international growth opportunities.

Besides the formal agreement to establish Sanlam Home Loans in a joint venture with banking subsidiary Absa (ASA), Sanlam said the two companies were making good progress on a number of other projects that would help Sanlam to "regain a meaningful share" of Absa brokers' sales volumes.

"Improving access to this new distribution channel underpins Sanlam's intention to strengthen the group's ability to deliver increased business volumes," the CEO added.

Regarding the group's operations, gross operating income rose by 12% from 2002 levels to R2.4 billion, with an exceptional performance by Santam, its short-term insurance subsidiary, accounting for much of the improvement.

This was in part offset by one-off restructuring charges incurred at Sanlam Life (of R61 million), which had a flat operating profit versus 2002, and the adverse performances of Gensec Bank and Sanlam Financial Services (SFS), its offshore operations.

After accounting for taxation and the Santam minorities' share of income, net operating income fell by 5%.

Restructuring at Gensec Bank resulted in after-tax costs of R77 million, relating to the closure of some of its businesses, including retrenchment and related staff costs.

The Bank recorded an operating loss of R19 million, while SFS's loss was R20 million. Equity-accounted income doubled to R781 million in 2003, thanks to good performances from Absa and Santam (SNT) in the main.

Sanlam Life's flat gross operating profit of R1.445 billion reflected the impact of lower sales volumes and equity markets for the year, the group said.

This had been compensated for by improved underwriting results and effective cost management.

Sanlam Investment Management (SIM), the company's asset management subsidiary, saw its segregated fund inflows exceed R5 billion for the year, compared to R403 million in 2002, while Sanlam Multi-Manager attracted net inflows of R1 billion.

SIM's higher asset base led to a 17% overall increase in fee income.

I-Net Bridge 04 March 2004

Publisher: Business Day
Source: Business Day

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