Wrap Text
Summarised audited results for the year ended 31 December 2018
Sanlam Limited
Incorporated in the Republic of South Africa JSE Share code (Primary listing): SLM
(Registration number 1959/001562/06) NSX share code: SLA
"Sanlam", "Sanlam Group", or "the Company" ISIN: ZAE000070660
A2X share code: SLM
Summarised audited results for the year ended 31 December 2018
Key features
Earnings
- Net result from financial services increased by 4%
- Dividend per share of 312 cents, up 8%
Business volumes
- Net value of new covered business up 7.8% to R2 billion (up 14% on consistent economic basis)
- Net new covered business margin of 2.67% on consistent economic basis (2.94% in 2017)
- New business volumes increased by 1% to R223 billion
- Net fund inflows of R42 billion compared to R37 billion in 2017
Group Equity Value
- Group Equity Value per share of R63.41
- Return on Group Equity Value per share of 11.6%
- Adjusted Return on Group Equity Value per share of 19.4%; exceeding target of 13.0%
Capital management
- R7.9 billion of capital raised and released; R13.5 billion deployed in strategic investments
- Acquisition of remaining 53% stake in Saham Finances finalised
- Package of BBBEE transactions approved by shareholders; planned implementation 1H2019
- Sanlam Group SAM cover ratio of 215%; Sanlam Life Insurance Limited SAM cover ratio for covered business of 221%
Salient results
for the year ended 31 December 2018 2018 2017 Change
Sanlam Group
Earnings
Net result from financial services per share cents 423,6 417,2 2%
Normalised headline earnings per share (1) cents 431,7 480,0 -10%
Diluted headline earnings per share cents 441,1 481,3 -8%
Net result from financial services R million 8 890 8 549 4%
Normalised headline earnings (1) R million 9 056 9 835 -8%
Headline earnings R million 9 162 9 757 -6%
Dividend per share cents 312 290 8%
Business volumes
New business volumes R million 223 029 221 172 1%
Net fund inflows R million 41 539 37 143 12%
Net new covered business
Value of new covered business R million 1 985 1 841 8%
Covered business PVNBP (2) R million 74 378 62 604 19%
New covered business margin (3) % 2,67 2,94
Group Equity Value
Group Equity Value R million 134 052 121 763 10%
Group Equity Value per share cents 6 341 5 940 7%
Return on Group Equity Value per share (4) % 11,6 14,8
SOLVENCY
Sanlam Group SCR cover ratio % 215 218
Sanlam Life Insurance SCR cover
ratio - covered business % 221 233
Notes
(1) Normalised headline earnings = headline earnings, excluding fund transfers.
(2) PVNBP = present value of new business premiums and is equal to the present value of new recurring premiums plus single premiums.
(3) New covered business margin = value of new covered business as a percentage of PVNBP.
(4) Growth in Group Equity Value per share (with dividends paid, capital movements and cost of treasury shares acquired reversed) as a percentage
of Group Equity Value per share at the beginning of the year.
EXECUTIVE REVIEW
We made major progress in executing on our strategic pillars during 2018. Our federal model and diversified profile are major contributors, enabling a dual focus
on growing our existing operations while also concluding new corporate transactions to drive enhanced future growth. This diligent focus on strategic execution
enabled us to achieve solid growth in 2018 and double-digit average growth rates in most key performance indicators over the last 10 years. Highlights for the
year include two major transformative transactions that positions us well for sustainable future growth: the acquisition of the remaining stake in Saham Finances
in October 2018 and the approval of a package of Broad-Based Black Economic Empowerment (BBBEE) transactions by shareholders in December 2018. Growth of 14% in
the value of new covered business (VNB) on a consistent economic basis and more than R2 billion in positive experience variance is testimony to Sanlam's resilience
in difficult times.
We entered 2018 with renewed optimism in South Africa. The election of Mr Cyril Ramaphosa as president of the African National Congress and South Africa boded
well for an improved operating environment. Corporate and individual investor confidence soared, but it was unfortunately short lived. It was soon realised that
it will take longer than expected to transform the positive changes into enhanced economic growth. Investor confidence faded as a result, compounded by international
developments including a steady rise in the US Federal Reserve policy interest rate, the uncertainties surrounding Brexit and an escalating trade war between the
US and China. Operating conditions in South Africa remained challenging as a result, with pedestrian economic growth, negative returns on the local equity market
and currency volatility. The negative return of 9% for the JSE/FTSE All Share index compared to a positive return of 21% in 2017 had a pronounced impact on RoGEV
and earnings growth in 2018.
Economic growth in a number of the other key emerging markets where we operate were also constrained. In addition, equity markets across most of these markets
recorded declines, placing severe pressure on our ability to grow earnings and create value for our clients. The currencies of oil-producing countries, Nigeria and
Angola in particular, remained weak.
Despite these challenges, the Group delivered robust overall growth in key performance indicators, supported by our diversification across geographies, market
segments and lines of business.
The key highlights and challenges for the year are:
HIGHLIGHTS CHALLENGES
Adjusted RoGEV of 19.4% per Weak investment markets impacted on Sanlam Investment Group (SIG) and Sanlam Personal Finace (SPF)
share exceeded the target of 13% profitability
Exceptional underwriting performance by Santam New business volumes at SIG and Glacier under pressure from low investor confidence
Strong growth in VNB, with a sterling performance Adverse group risk claims experience continued in 2018
by Sanlam Sky and Sanlam Corporate Underperformance in East Africa and Letshego
Continuation of track record of positive experience Saham Finances 2H18 results impacted by adverse claims experience and lower investment markets
variances from covered business - exceeding R2 billion
for the first time. Positive variances from all
clusters and from various sources
Saham Finances acquisition concluded and consolidated
from 1 October 2018
Package of BBBEE transactions approved and successful
book build of R5,5 billion in March 2018, increasing
issued share capital by 3%
CORPORATE GOVERNANCE
The board of directors of Sanlam ("Board") is committed to ensuring the continued practice of good corporate governance and have decided on the following:
i) Independent non-executive directors who have served on the board beyond 9 years would come up for rotation at the AGM on an annual basis going forward.
Mr Anton Botha and Mr Sipho Nkosi would stand for re-election at the Annual General Meeting ("AGM") of the Company being held on 05 June 2019.
ii) Dr Van Zyl would step down as chair of the Board on or before the AGM of 03 June 2020. A suitable independent non-executive chairman would take his place.
He would remain a non-executive director of the Board. He would step down as a member of the nominations committee.
iii) Mr Chris Swanepoel will officially retire in November 2020 (when he reaches the age of 70 - Sanlam's retirement age) and he has requested that he formally
retire on 03 June 2020 at the AGM.
iv) The intention of the Board is to appoint further independent non-executive directors in order to strengthen the independence at the board and board committee
levels.
The above steps and timeframes is to ensure that Sanlam attracts the highest caliber of independent non-executive Board directors to the Company and this would take
some time to implement through its structures. Sanlam continues to ensure the highest levels of corporate governance as governance standards develop in South Africa.
Forward-looking statements
In this report we make certain statements that are not historical facts and relate to analyses and other information based on forecasts of future results
not yet determinable, relating, amongst others, to new business volumes, investment returns (including exchange rate fluctuations) and actuarial assumptions.
These statements may also relate to our future prospects, developments and business strategies. These are forward-looking statements as defined in the
United States Private Securities Litigation Reform Act of 1995. Words such as "believe", "anticipate", "intend", "seek", "will", "plan", "could", "may",
"endeavour" and "project" and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying
such statements. Forward-looking statements involve inherent risks and uncertainties and, if one or more of these risks materialise, or should underlying
assumptions prove incorrect, actual results may be very different from those anticipated. Forward-looking statements apply only as of the date on which they
are made, and Sanlam does not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.
Any forward-looking information contained in this announcement has not been reviewed and reported on by Sanlam's external auditors.
COMMENTS ON THE RESULTS
Basis of presentation and accounting policies
The Sanlam Group IFRS financial statements for the year ended 31 December 2018 are presented based on and in compliance with International Financial Reporting
Standards (IFRS). The basis of presentation and accounting policies for the IFRS financial statements are in all material respects consistent with those applied
in the 2017 Integrated Report and Annual Financial Statements, apart from the adoption of IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts
with Customers. The basis of presentation and accounting policies for the Shareholders' Information are also in all material respects consistent with those
applied in the 2017 Integrated Report, apart from the following
- The SIG cluster was restructured with effect from 1 January 2018. Following the creation of the Central Credit Manager (CCM) within Sanlam Capital Markets (SCM),
it was decided to further enhance focus on the management of Sanlam assets within the SIG cluster, while at the same time creating a third party asset manager
that can more effectively compete with leading independent asset managers. The Sanlam Asset Management division and the part of Sanlam Structured Solutions
responsible for the Sanlam assets were accordingly combined with SCM to form the new Sanlam Specialised Finance sub cluster.
Comparative Shareholders' Information has been restated accordingly, apart from Group Equity Value (GEV) that has not been restated for Sanlam Asset Management.
The valuation of Sanlam Asset Management as a separate business was only finalised during 2018. Comparative GEV valuations are not available with the business
accordingly transferred to Sanfin with effect from 1 January 2018 for GEV purposes. As it is an intra cluster transfer, it does not have an impact on GEV or
RoGEV for the overall SIG cluster. As part of the restructuring, operational responsibility for the Group's term finance margin business was also transferred
from the Group Office to Sanlam Specialised Finance. Comparative information was not restated for this change in operational responsibility based on materiality.
- Non-annuity assets and business flows at Sanlam Private Wealth have been reclassified from Assets under Management to Assets under Administration in line with
industry practice. Business flows relating to these assets are commensurately excluded from new business volumes and net fund flows. Comparative 2017 information
for SIG and the Group has been restated as follows:
- New business volumes decreased by R9 016 million
- Net fund flows increased by R2 568 million
- Reclassification of assets amounting to R98 446 million from assets under management to assets under administration.
- Savings business written through the Sanlam Sky distribution channels are recognised within the SPF Savings business with effect from 2018. Comparative
information has not been restated. The 2018 SPF Savings results include new business volumes of R118 million and VNB of negative R15 million relating to business
formerly recognised in Sanlam Sky.
All growth percentages reflected in this review are relative to the 12 months ended 31 December 2017, unless otherwise indicated.
The 3% new shares issued through an accelerated book build in the first quarter (refer Capital management section) had a 2.3% dilutive effect on earnings per share
metrics due to an increase in the weighted average number of shares in issue during the year. In addition, the acquisition of the remaining stake in Saham Finances,
for which the capital was raised, only completed and started contributing to earnings from 1 October 2018.
Corporate activity during 2017 and 2018 impacts on the comparability of the Group's results. The following were the largest transactions:
- SPF acquired a 53% stake in BrightRock with effect from 1 September 2017. Shares acquired subsequent to the initial acquisition has increased Sanlam's stake
to 55.1% at 31 December 2018.
- SPF started Indie as a new greenfields business in 2017, with initial losses recognised in earnings in both 2018 and 2017.
- SEM sold its stake in the Enterprise Group in Ghana with an effective date of 1 July 2017.
- Absa Consultants and Actuaries (renamed ACA Employee Benefits (ACA)) was acquired effective 1 April 2018.
- Saham Finances is consolidated with effect from 1 October 2018; before this date, the Group's investment in Saham Finances was recognised as an equity-accounted
investment. The table below provides a summary of Sanlam's participation in Saham Finances' earnings, new business volumes, VNB and net fund flows based on the
changes in shareholding:
Period Sanlam Group SEM Santam
1/1/2017 - 30/4/2017 30% 22.5% 7.5%
1/5/2017 - 31/12/2017 46.6% 39.63% 6.97%
1/1/2018 - 30/9/2018 46.6% 39.63% 6.97%
1/10/2018 - 31/12/2018 100% 90% 10%
The impact of corporate activity is highlighted in the remainder of this review where relevant.
The structural information included in this results announcement has been presented to illustrate the impact of changes in the group structure and is the
responsibility of the Group's board of directors ("Board"). It is presented for illustrative purposes only and because its nature may not fairly present the Group's
financial position, changes in equity, result of operations or cash flows.
Sanlam's external auditor, Ernst & Young Inc., issued a limited assurance report in respect of the structural information in terms of section 8 of the JSE Listings
Requirements. The limited assurance report is available for inspection at Sanlam Limited's registered addresss.
Group Equity Value
GEV amounted to R134 billion or 6 341 cents per share at 31 December 2018. Including the dividend of 290 cents per share paid during the year, a RoGEV per share
of 11.6% was achieved. This was lower than the 13% target for the year. Strong growth in VNB, all-time high positive experience variances from covered business,
good returns from the investment in Santam, the profit realised from the foreign exchange hedge implemented for the Saham Finances acquisition and the benefit of
a weaker rand exchange rate on the valuation of non-South African operations provided support to returns in 2018. This was, however, not sufficient to compensate
for the pronounced negative impact of weaker equity markets across most regions, higher risk discount rates (RDR) and the write-off of goodwill recognised in
respect of the Saham Finances and other smaller acquisitions in terms of the Embedded Value methodology. The capital raising during 2018 (refer Capital management section below)
occurred at a price of R87 per share, in excess of GEV per share at the time. This supported RoGEV per share by some 1% compared to the absolute RoGEV of 10.6%
for 2018.
Adjusted RoGEV per share, which excludes the impact of lower investment return than the long-term assumptions, interest rate changes and other one-off effects
not under management control, and assuming normalised exchange rate movements, amounted to 19.4% - well in excess of the target.
Group Equity Value at 31 December 2018
GEV RoGEV
R million December 2018 December 2017 %
Group operations 132 658 113 829 13 526 11.6
Sanlam Personal Finance 43 185 43 401 4 832 11.4
Sanlam Emerging Markets 44 659 27 621 4 580 14.8
Sanlam Investments 18 703 18 331 682 3.7
Santam 20 102 18 108 2 658 14.7
Sanlam Corporate 6 009 6 368 774 12.8
Covered business 56 234 54 283 5 933 11.0
Value of in-force business 41 456 39 245 5 137 12.9
Adjusted net worth 14 778 15 038 796 5.8
Other operations 76 424 59 546 7 593 12.2
Group operations 132 658 113 829 13 526 11.6
Discretionary capital and other 1 394 7 934 (668) -12.3
Group equity value 134 052 121 763 12 858 10.6
Per share (cents) 6 341 5 940 691 11.6
Group operations yielded an overall return of 11.6% in 2018, the combination of 11% return on covered business and 12.2% on other Group operations. All clusters
achieved satisfactory growth in GEV, apart from SIG, where valuations were severely suppressed by the negative equity market performance. Adjusted RoGEV for group
operations amounted to 20.1% and 14.5% for SIG, which better reflects the underlying operational performance.
The covered business operations delivered a very strong operational performance. Adjusted RoGEV amounted to 19.9%, with all businesses exceeding the Group
hurdle rate by a healthy margin, apart from the SIG businesses. The latter is predominantly due to negative expense experience variances and assumption changes
at Sanlam Investments and Pensions in the UK.
The main components contributing to the return on covered business are included in the table below:
Return on covered business for the year ended 31 December 2018
% 2018 2017
Expected return - unwinding of the RDR 9,2 9,0
Value of new covered business 3,7 3,6
Operating experience variances 3,9 3,0
Operating assumption changes 0,6 -0,8
Economic assumption changes -1,4 0,5
Expected investment return on capital portfolio 1,7 2,0
Investment variances -5,1 1,2
Value of in-force -4,9 1,4
Capital portfolio -0,2 -0,2
Foreign currency translation differences and other -1,6 0,3
Return on covered business 11,0 18,8
The main items contributing to the return from covered business are:
- Expected return on covered business increased in 2018 relative to 2017 based on the slightly higher RDR applied at the end of 2017 and the change in mix of
the book to the higher-RDR SEM businesses.
- Value of new covered business: Despite the higher RDR in 2018, VNB still contributed 3.7% to the overall return. As highlighted in the Business volumes section,
Sanlam Sky, Sanlam Corporate and SEM Namibia made particularly satisfactory progress in growing their VNB.
- Operating experience variances reached an all-time high, exceeding R2 billion for the first time (2017: R1.6 billion), up 35%.
- Risk experience variances of R535 million increased by 20% on 2017, driven by favourable experience across most lines of business in SPF, including Sanlam Sky.
SEM also achieved overall positive experience, albeit slightly lower than 2017. Claims experience weakened further at SEB, contributing to negative experience
variances of R96 million compared to negative R43 million in 2017.
- Our focus on client centricity is a major factor in our success to maintain good persistency under challenging economic conditions. Positive persistency
experience variances of R147 million in 2018 (up from R67 million in 2017) is a particularly satisfactory achievement. SPF's negative variance of R45 million
is largely due to lower than expected continuations of single premium savings products. Persistency across risk products remained resilient. Dedicated focus
on managing the in-force book contributed to an improvement in SEM's experience from negative R3 million in 2017 to positive R99 million in 2018.
- Working capital experience variances include a one-off reserve release of R47 million. Excluding this, experience was in line with 2017, commensurate with
short-term interest rate trends during the year.
- Credit spread experience increased by 10% in line with growth in the corporate debt book managed by Sanfin.
- Other experience variances of R436 million include an amount of R272 million relating to a reduction in cost of capital following the release of R1.5 billion
of allocated capital from Sanlam Life's covered business (refer Capital management section below), which should be regarded as one-off. The remainder
comprises of a number of smaller variances.
- After strengthening the persistency and maintenance expense bases in 2017, no significant operating assumption changes were required in 2018. Modelling
improvements and other result from the continuous refinement of actuarial models and are small relative to the size of the in-force book.
- RDR's increased across most of the portfolio in 2018 compared to a decline in the prior year. RoGEV from economic assumption changes were accordingly
negative in 2018 compared to a positive contribution in 2017.
- Negative returns from equity markets in a number of countries in 2018 had a 5.1% negative impact on RoGEV in 2018 (1.2% positive in 2017). The hedging
strategy applied in the Sanlam Life capital portfolio, the largest component of adjusted net worth, provided downside protection to returns on the overall
capital portfolio.
- Foreign currency translation differences and other include forex gains from a weaker rand exchange rate (R393 million), which was more than offset by the
write-off of goodwill acquired in terms of actuarial guidance (R1.2 billion). The goodwill write-off is net of R300 million of profit realised on the Saham
Finances forex hedge that is attributable to covered business.
The main components contributing to the return on other Group operations are:
Return on other Group operations for the year ended 31 December 2018
% 2018 2017
Return on investments valued at net asset value -3,0 14,8
Return on investment in Santam 14,7 18,0
Return on investments valued at discounted cash flows 11,7 10,5
Expected return - unwinding of the RDR 14,2 14,1
Operating experience variances -0,3 1,0
Operating assumption changes -4,3 -0,6
Economic assumption changes -3,7 -1,2
Foreign currency translation differences and other 5,8 -2,8
Weighted return on other Group operations 12,2 12,9
Other Group operations achieved a return of 12.2%:
- Sanlam Capital Markets within Sanfin is valued at net asset value for GEV purposes, with profits earned in this business the main contributor to RoGEV from
investments valued at net asset value. Losses recognised against equity-backed empowerment transactions and the non-recognition of income on the Mayfair
collateralised loan (refer Earnings section below) are the main drivers behind the decline in RoGEV in 2018.
- The Group's investment in Santam is valued at its listed share price, which significantly outperformed the market with a return of more than 14% in 2018,
compared to the 9% negative return of the JSE/FTSE All Share Index.
- The majority of the Group's other operations (excluding Santam and Nucleus) is valued on a discounted cash flow (DCF) basis. The benefits of the Group's diversified
profile are evident in the overall 11.7% return earned from these businesses, with negative operating and economic assumption changes largely offset by
foreign currency translation gains.
The impact of lower equity markets is noticeable in the 4.3% negative operating assumption changes. More than half of this relates to SIG, where future fee
income assumptions were reduced in line with lower than expected assets under management. A prudent valuation approach was also followed for Saham Finances
and the Indian businesses. It is our usual approach to keep valuations at or close to transaction prices shortly after acquisitions, which was applied for
Saham Finances' local currency valuation. Valuations of the Indian credit businesses were kept broadly unchanged in local currency given recent liquidity
constraints in the Indian market. This is also in line with movements in the listed share prices.
Economic assumption changes (-3.7%) reflect the higher RDR as referred to above.
The valuation of the non-South African operations benefited from the weaker rand exchange rate. This was augmented by some R1 billion of profit realised
on the Saham Finances forex hedge. The total hedge profit amounted to R1.3 billion after tax, of which R300 million is attributable to covered
business (refer above). Overall, foreign currency translation gains contributed 5.8% to the RoGEV of businesses valued on a DCF basis.
The low return on discretionary and other capital is essentially the combined effect of the following:
- Net corporate expenses of R109 million recognised in net result from financial services.
- The low-yielding nature of liquid assets held in the discretionary capital portfolio.
- Funding cost in respect of the temporary debt incurred for the Saham Finances acquisition.
- An increase in the present value of future corporate expenses, with additional investment in capacity, including new appointments to the Executive committee.
Earnings
Normalised attributable earnings increased by 5% in 2018, the aggregate of an 8% decline in normalised headline earnings and a substantial increase in profit
recognised on the (deemed and actual) disposal of subsidiaries and associates.
Shareholders' fund income statement for the year ended 31 December 2018
R million 2018 2017 Change
Net result from financial services 8 890 8 549 4%
Sanlam Personal Finance 4 033 4 235 -5%
Sanlam Emerging Markets 2 038 1 793 14%
Sanlam Investment Group 1 152 1 227 -6%
Santam 1 196 851 41%
Sanlam Corporate 580 558 4%
Group office and other (109) (115) 5%
Net investment return 707 1 663 -57%
Net investment income 644 846 -24%
Net investment surpluses 63 817 -92%
Project costs and amortisation (536) (375) -43%
Equity participation costs (5) (2) >-100%
Normalised headline earnings 9 056 9 835 -8%
Profit on disposal of subsidiaries and associates 2 773 1 335 >-100%
Impairments (305) (303) -
Net equity-accounted non-headline earnings (3) 134 >-100%
Normalised attributable earnings 11 521 11 001 5%
Net result from financial services
Net result from financial services (net operating profit) of R9 billion increased by 4% on 2017, with substantial growth in Santam's contribution.
Corporate activity supported the results, as well as a benign claims environment at Santam in 2018 compared to large catastrophe events during June and
October 2017 in the comparable period. Normalising for these, net result from financial services were marginally up on 2017.
SPF net result from financial services declined by 5% (also down 5% on a gross basis). Excluding corporate activity and new growth initiatives, SPF's contribution
were 1% down on 2017 due to the major impact that the weak equity market performance had on fund-based fee income at Glacier, the Closed Book and
Savings business units.
SPF net result from financial services for the year ended 31 December 2018
R million 2018 2017 Change
Sanlam Sky and African Rainbow Life Insurance 1 268 1 228 3%
Recurring premium sub cluster 2 780 2 568 8%
Glacier 1 190 1 753 -32%
Life investments 651 1 260 -48%
LISP 539 493 9%
Strategic business development 374 351 7%
Sanlam Personal Loans 422 375 13%
Other (48) (24) -100%
Gross result from financial services 5 612 5 900 -5%
Tax on gross result from financial services (1 636) (1 679) 3%
Non-controlling interest 57 14 >100%
Net result from financial services 4 033 4 235 -5%
Sanlam Sky and African Rainbow Life Insurance's gross profit contribution increased by 3%, the combination of 5% growth at Sanlam Sky and initial expenses of
R25 million incurred in 2018 to create the new African Rainbow Life Insurance business (planned launch date in the first half of 2019). Strong new business
growth at Sanlam Sky (refer Business volumes section) contributed to higher new business strain being recognised in 2018 in terms of the Group's prudent
accounting policies, which recognise upfront acquisition costs incurred in respect of insurance contracts in earnings as opposed to capitalising and spreading
it over the duration of the policies. Excluding the additional new business strain, Sanlam Sky's gross result from financial services increased by 10%, reflecting
the increase in the size of the in-force book. Mortality experience improved in 2018, but was more than offset by a slight weakening in persistency experience and
negative investment and other variances.
The Recurring premium sub cluster's gross result from financial services grew by 8%. Excluding BrightRock, gross result from financial services was 15% higher
than 2017. BrightRock is experiencing very strong growth as a relatively young company, with new business strain exceeding profit releases from the in-force book.
It therefore still contributes operating losses to the SPF earnings. Strong growth in risk profits (excluding BrightRock) was partially offset by 3% and 4%
respective declines in the profit contributions of the Savings and Closed Book businesses. Risk profits benefited from the increased size of the in-force book,
improved claims experience and flat new business strain following no growth in new business volumes from the traditional risk business channels (excluding BrightRock).
Earnings from the Savings and Closed Book businesses were negatively affected by the weak investment market performance that depressed growth in assets under management,
and declining units in the Closed Book.
Glacier's Life investments profit was severely impacted by the weak investment market performance as well as negative modelling and assumption changes. The Life
investments portfolio includes products where Glacier participates in the absolute investment return earned on the underlying asset base. These products experienced
marginal negative investment returns in 2018 compared to double digit positive returns in 2017, contributing to a R317 million decline in fee income. Weak investment
returns and net outflows of guaranteed business also placed pressure on fee income from the other lines of savings business. The Linked Investment Savings Plan (LISP)
business's profit increased by 9%. The weakening in the rand exchange rate and good demand for international products protected the overall assets under management
of the LISP business from the weak South African equity market performance. Cost saving initiatives also had a positive effect.
Strategic business development (SBD) profits increased by 7%. Growth in the size of the Sanlam Personal Loans book supported 12% growth in the business's profit
contribution. Bad debt provisioning increased in line with the requirements of IFRS 9, which was adopted with effect from 2018.
SEM grew its net result from financial services by 14%; up 21% excluding the increase in new business strain recognised in terms of the Group's prudent
accounting policies. Excluding corporate activity, earnings were marginally up on 2017 (up 8% excluding increased new business strain). Gross of tax and
non-controlling interest, result from financial services also increased by 14%. Changes in the rand exchange rate did not have a significant impact on the
translated SEM earnings, apart from India as indicated below.
SEM net result from financial services for the year ended 31 December 2018
R million 2018 2017 Change
Namibia 412 535 -23%
Botswana 916 872 5%
Rest of Africa 1 166 790 48%
Saham Finances (including Lebanon) 1 055 545 94%
Enterprise Group Ghana - 30 -100%
Other 111 215 -48%
Pan-Africa portfolio 2 494 2 197 14%
Other emerging markets 1 241 1 192 4%
India 1 169 1 134 3%
Malaysia 72 58 24%
Corporate - South Africa 38 (78) >100%
Gross result from financial services 3 773 3 311 14%
Tax on gross result from financial services (1 109) (936) -18%
Non-controlling interest (626) (582) -8%
Net result from financial services 2 038 1 793 14%
Gross result from financial services from the Pan-Africa portfolio increased by 14%:
- Namibia's gross result from financial services declined by 23%. Corporate activity resulted in Bank Windhoek changing from a subsidiary to an associated
company of Capricorn Investment Holdings (CIH) in 2017. As a subsidiary, Bank Windhoek's gross earnings were included in the CIH gross result from
financial services, with the Bank Windhoek non-controlling interest being recognised as a separate component in net result from financial services. As an
associate, only CIH's effective stake in Bank Windhoek's earnings is recognised in gross result from financial services. Excluding this change in accounting
treatment, as well as the additional new business strain in the life insurance business (refer below), gross result from financial services increased by 9%.
Life insurance gross result from financial services declined by 22%, primarily due to a significant increase in new business strain emanating from the strong
growth in entry-level market new business volumes. Excluding this, operating earnings increased by 24%. Group life claims experience improved in the second
half of the year, with overall risk profit increasing on 2017. Fund withdrawals by the Government Institutions Pension Fund of R2 billion at the end of 2017
and a further R1 billion in 2018, combined with a weak equity market performance, depressed fee income and gross result from financial services of the asset
management business, with the latter declining by 10%. Santam Namibia struggled to grow its premium base under challenging operating conditions, with gross
written premiums declining by 5% and gross result from financial services declining by 17%. Earnings from credit business declined by 22% (up 7% excluding the
impact of the change in accounting treatment of Bank Windhoek), with the relatively low growth reflecting the weak general operating environment in Namibia and
liquidity constraints within the banking sector.
- The Botswana operations achieved mixed results with an overall increase of 5% in gross result from financial services. Life insurance profit increased by 14%.
Annuities underperformed due to low new business volumes, but this was more than offset by good growth in the funeral, group credit life and term
assurance lines. Letshego's gross earnings were in line with 2017, the combined effect of limited growth in the size of the loan book, additional bad
debt provisions recognised in terms of IFRS 9 and some one-off expenses. A new business plan has been developed under the auspices of a new chief executive
to address the underperformance. The decline in the Botswana equity market placed pressure on the asset base and fee income of the investment management
business, which did well to increase its gross earnings by 1% despite the challenging conditions. Earnings contributions from the other Botswana businesses
were broadly in line with the prior year.
- The Rest of Africa gross result from financial services increased by 48%:
- The Saham Finances contribution almost doubled, supported by corporate activity in 2018 and 2017. The table below provides an analysis of the Saham Finances
earnings on a 100% basis for both years, which eliminates the distortion caused by changes in shareholding at a Sanlam level. The average exchange rates used
for translation purposes were R/MAD 1.417 and R/MAD 1.388 for 2018 and 2017 respectively.
Saham Finances net result from financial services for the year ended 31 December 2018
R million 2018 2017 Change
Gross written premiums 16 569 15 975 4%
Net earned premiums 13 843 12 723 9%
Net claims incurred (9 448) (8 537) -11%
Net commission (1 454) (1 289) -13%
Management expenses (2 645) (2 572) -3%
Underwriting result 296 325 -9%
Investment return on insurance funds 951 1 734 -45%
Non-insurance earnings 52 116 -55%
Gross result from financial services 1 299 2 175 -40%
Taxation and non-controlling interest (609) (1 078) 44%
Net result from financial services 690 1 097 -37%
Key features for 2018:
- Gross written premiums increased by 4% (8% in local currency). Refer Business volumes section below for more information.
- Gross underwriting profit decreased by 9%, with life insurance earnings decreasing to a loss of R448 million (2017: loss of R419 million) due to
investments in growth, and general insurance earnings being in line with 2017.
- The general insurance combined ratio amounted to 95.9% (2017: 94.4%). The following items impacted on the general insurance results:
- One-off incentives of R28 million were paid to staff as part of the post-acquisition integration process.
- General insurance claims experience weakened at Saham Maroc during the year, impacted by an increase in motor claims frequency and one-off fire claims in
the fourth quarter of 2018, which is traditionally a strong quarter for the Moroccan business.
- Angola's loss declined from R40 million in 2017 to R29 million in 2018. An improvement in claims experience was partially offset by a higher cost base.
Exchange rate weakness contributed to higher expense inflation.
- Lebanon also experienced a better claims environment, with a combined ratio of 88.2% in 2018 (2017: 91.2%). Underwriting profit increased by 107% as a
result, despite the pressure on premium growth (refer Business volumes section below).
- The other regions recorded lower earnings from direct insurance, primarily due to pressure on premium growth in Cote d'Ivoire.
- Reinsurance profit increased by 11% from R232 million on 2017 to R257 million in 2018.
- Investment return earned on insurance funds declined by 45%. The underlying portfolios included legacy equity exposures, which benefited from positive
investment market returns in 2017, while most markets declined in 2018. The difference in relative market performance contributed R725 million to the
decline. The strategic asset allocation of these portfolios will be reassessed as part of the planned capital management activities following the
acquisition and Saham Finances becoming a wholly-owned subsidiary.
Relative investment market returns and a number of one-off items impacted on the Saham Finances earnings for 2018. The table below provides an analysis of
the Saham Finances attributable and normalised earnings in context of the purchase consideration:
Analysis of Saham Finances earnings
R million 2018 2017
Net result from financial services 690 1 097
Net investment return 172 110
Net finance cost (160) (76)
Attributable earnings 702 1 131
Foreign currency translation differences (124) 151
Comprehensive income 578 1 282
Operational adjustments 68 -
Prior year tax adjustment 49 -
Post-acquisition incentives 28 -
Profit on disposal of subsidiary (80) -
Net reduction in funding cost post acquisition 71 -
Investment market volatility 387 (271)
Marked-to-market adjustments - return on insurance funds 86 (371)
Marked-to-market adjustments - net investment return 123 215
One-off currency gains and losses 178 (115)
Normalised comprehensive income 1 033 1 011
Purchase price at hedged rate - 100% holding 25 914
Transaction Price/Earnings ratio 25 26
A number of synergies have been identified during the acquisition phases. Good progress has already been made, with net synergies of USD1 million after tax
and minorities realised in 2018, after allowing for integration costs.
- The other Rest of Africa operations had a disappointing year. Nigeria, Uganda and Zimbabwe achieved strong growth, with their combined gross earnings
increasing by 66%. This was, however, more than offset by underperformance in other large regions and the impact of the Ghana disposal in 2017. Ghana contributed
R30 million to the 2017 gross earnings.
- The Zambian health business experienced one-off losses of R32 million, which includes bad debt provisions in respect of amounts owing by the former
outsourced partner. The health business was transferred to Saham Finances in the latter part of 2018, who has a strong track record of managing this
line of business profitably in Africa. A turnaround in prospects is already evident. The Zambian life business also had a difficult year, with low new
business production and one-off costs relating to a cost reduction initiative contributing to a break-even position. Corrective actions have been implemented,
including the pending appointment of a new chief executive as well as increased distribution support from a SEM cluster level.
- Gross result from financial services of the Malawian life business exceeded the 2018 budget, but still declined by 23% from a high base in 2017. Profitability
of the general insurance business was under pressure from high claims and expense experience.
- The Tanzanian life business had a good year and grew its earnings contribution by 15%. This was, however, not sufficient to compensate for underperformance
in the general insurance business. Regulatory changes in the general insurance industry in Tanzania included a change to a "no premium no cover" regime.
This had a one-off impact on both current year production and terminations within the in-force book. Combined with weaker claims experience, it reduced the
2018 general insurance earnings by R36 million compared to 2017.
- The Kenya operations recorded a 17% decrease to R25 million. The life insurance business gained traction and achieved strong growth. The asset management
business exceeded expectations for the year and more than doubled its contribution, partly assisted by the acquisition of a controlling stake in the former
Pinebridge investment management business during 2017. These good performances were, however, more than countered by one-off restructuring and administration
costs of some R20 million. A new group chief executive with in depth insurance experience has been appointed, augmenting the appointment of the new life
insurance chief executive in 2017. This substantially strengthens the management team and prospects of the business. Cluster level distribution support will
also be provided in 2019 to accelerate new business production.
Other emerging markets delivered 4% growth in gross result from financial services.
- The Indian businesses had a solid year, increasing their gross result from financial services by 3% in rand terms (10% in local currency). Shriram Transport
Finance delivered growth of 14% in local currency, supported by good growth in its loan book. The Shriram City Union Finance loan book also grew by double
digits, but a decline in net interest margin limited its operating earnings growth to 9% in local currency. Liquidity constraints in the Indian market
increased funding costs for the business. Shriram General Insurance earnings grew by 13% in local currency, attributable to an improvement in underwriting
margin. Expansion costs incurred by the life insurance business were recognised as project expenses in the initial two years of the initiative to take
cognisance of the fact that the growing in-force book will take some time to reflect in higher earnings. Recognition of these costs within project expenses
was discontinued on 30 June 2018 and reallocated to gross result from financial services with effect from 1 July 2018, limiting growth in life insurance
operating earnings to 2% in local currency.
- The Malaysian operations achieved satisfactory growth in 2018. Life insurance profit increased by 23% (17% in local currency), benefiting from positive
investment variances and lower administration costs. A more diversified book of business contributed to an improvement in the general insurance claims experience,
with operating earnings from this line of business increasing by 12% (6% in local currency).
The 18% increase in tax on financial services income includes prior year tax adjustments in Botswana and Kenya.
SIG overall net result from financial services declined by 6%:
SIG gross result from financial services for the year ended 31 December 2018
R million 2018 2017 Change
Sanlam Investments (3rd party business) 377 396 -5%
Wealth Management 170 203 -16%
International 515 401 28%
Corporate services (16) (5) >-100%
Investment management 1 046 995 5%
Sanlam Specialised Finance 496 582 -15%
Sanlam Asset Management 204 196 4%
Central Credit Manager and other 292 386 -24%
Gross result from financial services 1 542 1 577 -2%
Tax on gross result from financial services (326) (336) 3%
Non-controlling interest (64) (14) >-100%
Net result from financial services 1 152 1 227 -6%
The 3rd party Sanlam Investments gross result from financial services declined by 5% on 2017, attributable to a R47 million decrease in performance fees
from R58 million in 2017 to R11 million in 2018. This is due to a slight underperformance of some 0.3% in the larger portfolios, attributable to the severe
devaluation of properties in the first quarter of 2018 and underperformance in the emerging markets fund. Excluding performance fees, gross operating
earnings increased by 8%, a particularly satisfactory result given no growth in the average level of the South African equity market in 2018. Satrix
achieved meaningful earnings growth, with the positive impact of net fund inflows more than offsetting fee pressures in a highly competitive market. The
third party component of Sanlam Structured Solutions also had a good year, benefiting from a number of new structuring transactions. The other business
units experienced a decline in earnings in line with generally no growth in assets under management, but with administration costs increasing in line with
inflation.
Wealth Management gross result from financial services decreased by 16% (3% down excluding Summit Trust that was disposed of during 2017 and one-off
performance fees earned from a specific client arrangement in 2017). The 3% decline is substantially due to administration costs incurred in respect of
operational system upgrades.
The International business' gross results were positively impacted by Nucleus being consolidated after its listing (compared to equity-accounting as an
associate up to 30 June 2018), strong growth in assets under administration at the Ireland-based platform business due to third party inflows and increased
international allocation in the South African portfolios, and property development profits earned by Artisan. Excluding the change in accounting treatment
of Nucleus, gross results were up 12%.
Sanlam Specialised Finance did well to grow the profit contribution of the Sanlam Asset Manager and the related division of Sanlam Structured Solutions by
4% against the backdrop of weak equity markets. The Structured Solutions business earned higher structuring fee income and recognised its share in the
margin earned on the Sanlam Life bond that matured in August 2018. The proceeds from the Sanlam Life bonds are invested in a portfolio of matching assets,
with Structured Solutions sharing in the net margin earned over the period until maturity. The remainder of the operations were negatively impacted by
losses of some R40 million relating to equity-backed empowerment transactions following a decline in the underlying share prices and some R70 million in
respect of the non-recognition of income on the Mayfair collateralised loan. A prudent approach is followed in respect of the exposure during the winding
up of Mayfair Holdings and Mayfair Speculators.
Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in
net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The
conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017), well in excess of its 4% to 8% target range. Profit from the motor
and property books, the largest lines of business, increased by 144%. This was driven by an absence of large catastrophe events and fewer large commercial
fires. The aggregate profit contribution from other insurance classes declined by 32%. Engineering and accident and health did well due to limited claims
activity. Liability business experienced a number of large claims, including the listeriosis outbreak early in 2018, while the Guarantee business
experienced losses in the difficult economic environment.
The management expense ratio increase compared to 2017, mainly due to increased variable incentive costs in 2018, increased direct acquisition costs to
support growth initiatives at MiWay, as well as additional underwriting risk management costs incurred to improve the loss ratio across all lines. A
provision was also raised to account for the liquidity concerns at a third-party collection agency that went into voluntary curatorship. The 16% increase
in gross result from financial services from the SEM investments reflect the benefit of the Saham Finances corporate activity. Excluding Saham Finances,
gross earnings from the SEM investments were in line with 2017 due to the weaker general insurance performance in the SEM Rest of Africa portfolio and
solid results from SGI in India (refer SEM section above).
Sanlam Corporate's net result from financial services increased by 4% (3% on a gross basis), with the muted growth caused by ongoing high group risk claims
experience. This conceals an overall good operational performance. SEB earnings declined by 3% due to a R66 million (39%) decline in risk profits.
Mortality and disability claims experience weakened significantly in the second half of the year, which is likely to require further rerating of premiums
in 2019. The administration units turned profitable in 2018, a major achievement after many years of operating losses. The healthcare businesses reported
satisfactory double digit growth in gross earnings, while ACA made a first time contribution of R54 million, well in excess of the business plan. The new
corporate solutions team established in 2018 contributed to an increase in cluster costs from R7 million in 2017 to R32 million in 2018.
Normalised headline earnings
Normalised headline earnings of R9,1 billion are 8% down on 2017. This is the combined effect of the 4% increase in net result from financial services, a
57% decline in net investment return earned on the capital portfolio, a 53% (R139 million) increase in amortisation of intangible assets as well as an
increase in net project expenses from R114 million in 2017 to R136 million in 2018.
Net investment return was negatively impacted by:
- A decline in equity and fixed interest markets across most regions where the Group operates;
- Impairment of corporate credit exposures in Kenya of some R86 million; and
- Investment return lost on capital redeployed for strategic acquisitions in 2017 and 2018.
The amortisation of the value of business acquired intangible asset recognised upon the consolidation of Saham Finances contributed R117 million to the
R139 million increase in the amortisation charge.
Net project expenses include R56 million one-off expenses incurred by SIG on new data capabilities and platforms (including big data and advanced
analytics) (2017: R8 million), R22 million due diligence and related expenses in respect of the Saham Finances acquisition (2017: R8 million), Shriram Life
Insurance expansion cost of R8 million up to 30 June 2018 (2017: R26 million) and R44 million of SEM cluster level project-related expenses
(2017: R42 million).
Normalised attributable earnings
Normalised attributable earnings increased by 5% from R11 billion in 2017 to R11.5 billion in 2018. The biggest contributors to profit on disposal of
subsidiaries and associates of R2.8 billion is the change in accounting treatment of Saham Finances (R1.8 billion) and Nucleus (R0.7 billion) from
associated companies to subsidiaries. In terms of IFRS, when an associated company becomes a subsidiary, the former investment in the associated company
must be derecognised as a deemed disposal at fair value, with the subsidiary being fully recognised as an acquisition at fair value. In essence, the profit
on disposal of the associate is reflected in higher intangible assets being recognised on acquisition date of the subsidiary. The 2017 comparative profit
on disposal of subsidiaries and associates comprised substantially of R1.2 billion realised on the disposal of the Enterprise Group in Ghana. Impairment
charges largely relate to the impairment of the investments in Letshego (R105 million) and CIH (R96 million). Letshego's operational performance did not
improve in 2018, requiring a further impairment of the investment. The CIH impairment follows the decline in the Bank Windhoek performance and share price
due to pressure in the Namibian banking sector.
Business volumes
New business volumes increased by 1% amidst pressure on investor confidence in South Africa and a high comparative base in Botswana. Life insurance new
business volumes increased by 21%, investment business inflows declined by 8% and general insurance earned premiums increased by 19%, with the latter in
particular benefiting from corporate activity. Net fund flows increased by 12%, with all clusters apart from SIG achieving sterling growth.
Business volumes for the year ended 31 December 2018
R million New business Net inflows
2018 2017 Change 2018 2017 Change
Sanlam Personal Finance 60 971 58 615 4% 10 294 8 454 22%
Sanlam Emerging Markets 26 224 21 903 20% 8 607 2 140 302%
Sanlam Investment Group 99 696 114 391 -13% 7 214 18 678 -61%
Santam 22 812 21 435 6% 8 986 7 265 24%
Sanlam Corporate 13 326 4 828 176% 6 438 606 962%
Total 223 029 221 172 1% 41 539 37 143 12%
Life insurance business 53 815 44 615 21% 16 814 10 235 64%
Investment business 136 529 149 000 -8% 11 779 17 491 -33%
General insurance 32 685 27 557 19% 12 946 9 417 37%
Total 223 029 221 172 1% 41 539 37 143 12%
SPF's new business sales increased by 4%, an overall satisfactory result under challenging conditions.
SPF new business volumes for the year ended 31 December 2018
R million 2018 2017 Change
Sanlam Sky 2 494 1 455 71%
Recurring premium sub cluster and Strategic business development 3 412 2 838 20%
BrightRock 410 64 >100%
Other 3 002 2 774 8%
Glacier 55 065 54 322 1%
Life investments 10 082 10 219 -1%
LISP 44 983 44 103 2%
New business volumes 60 971 58 615 4%
Sanlam Sky's new business increased by an exceptional 71% (83% excluding the savings business transferred to the SPF Savings business). The annual
R566 million Capitec credit life new business recognised in the first half of the year was augmented by strong demand for the new Capitec funeral product,
which generated new business of R433 million. The traditional individual life intermediary channel continued on its growth path, growing new business sales
by 13%. Safrican's performance improved in the second half of the year, achieving 9% growth for the full year.
New business volumes in the Recurring premium sub cluster and Strategic Business Development increased by 20%. Risk business sales increased by 51%. Strong
organic growth at BrightRock was augmented by the structural impact of the acquisition concluded during the course of 2017. Excluding BrightRock, new risk
business sales were up 3%, with MiWayLife providing the growth. Savings and personal loans credit life sales increased by 10%, with strong demand for
retirement annuities partially offset by lower traditional endowment sales.
Glacier new business grew marginally by 1%. Primary sales onto the LISP platform improved by 5%, an acceptable result given the pressure on investor
confidence in the mass affluent market. Secondary sales into Glacier funds declined by 4% - wrap inflows were down 7% as conversions of platform assets
slowed, but with good demand for global stock feeder funds and the artificial intelligence fund providing some relief. Life investments sales experienced
an overall decline of 1% with a significant change in mix of business from endowments to guaranteed plans and life annuities.
The BrightRock contribution and good sales of single premium LISP business supported an overall 22% rise in SPF's net fund inflows.
SEM new business volumes increased by 20%.
SEM new business volumes for the year ended 31 December 2018
R million 2018 2017 Change
Namibia 6 802 5 593 22%
Botswana 5 833 7 137 -18%
Rest of Africa 10 655 6 360 68%
Saham Finances (including Lebanon) 7 569 3 385 124%
Enterprise Group Ghana - 130 -100%
Other 3 086 2 845 8%
Pan-Africa portfolio 23 290 19 090 22%
Other emerging markets 2 934 2 813 4%
India 2 329 2 224 5%
Malaysia 605 589 3%
New business volumes 26 224 21 903 20%
Namibia did exceptionally well to increase new business volumes by 22% despite weak economic conditions. Both life and investment new business grew
strongly. Within the life insurance segment, the mix of business changed to the more profitable entry-level market.
The main detractor from new business growth in the Botswana business was the investment line of business, which declined by 24%. This line of business is
historically more volatile in nature. Life insurance new business volumes declined by 3%, with lower funeral and annuity sales offsetting good growth in
group life business.
The 68% new business growth in the Rest of Africa portfolio is largely due to corporate activity relating to Saham Finances.
- The Saham Finances growth of 124% was supported by corporate activity. On a 100% basis, gross written premiums increased by 4% (8% in local currency)
(life insurance up 8%, general insurance up 3% and reinsurance up 1%) and net earned premiums by 9%.
- Morocco achieved 10% growth in gross written premiums, an acceptable performance in a competitive market. Renewals of contracts with national banks
supported 11% growth in Saham Assistance gross written premiums.
- Saham Angola gross written premiums decreased by 31%, entirely attributable to a weaker Kwanza exchange rate. In local currency, the business continued to
deliver good growth. All lines of business achieved double digit growth rates.
- The Lebanese insurance market contracted by 3% in 2018, reflective of the weak economic environment. The Saham Finances business did well to limit its
decline to only 1.5%, half of the industry average. The motor class had a particularly difficult year as a slowdown in retail credit extension depressed
vehicle sales.
- The CIMA region experienced competitive pressures in the motor market and lower demand for fire insurance from exploration companies. This contributed to
growth of only 4% in general insurance gross written premiums from the other Saham Finances regions. Life and health insurance provided some support, with
overall growth of 7% across all lines of business.
- Reinsurance premiums were broadly in line with 2017.
- The remainder of the Rest of Africa portfolio (excluding the Ghana disposal) increased by 8%. Kenya, Malawi and Rwanda underperformed, with strong growth
in the other regions. The areas of underperformance are receiving attention, through a combination of management changes and cluster level distribution
support.
The Indian insurance businesses continued to perform well, achieving double digit growth in both life and general insurance. Within the life insurance
business, group single premiums from the credit businesses' client bases did particularly well.
The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New
business production is not yet meeting expectations, but the mix of business improved at both businesses.
Net fund flows increased threefold, with most regions contributing to the strong growth.
Low investor confidence had a pronounced effect on SIG's new business volumes, which declined by 13%. The international businesses attracted strong new
inflows (up 57%), but this was more than offset by declines in South Africa across all business units. Institutional new inflows remained weak for the
full year, while retail inflows also slowed down significantly after a more positive start to the year. A number of strategic initiatives aimed at gaining
market share are being implemented, including closer cooperation with Glacier and the package of BBBEE transactions approved by shareholders in
December 2018. Improved investor confidence will, however, remain a key determinant of future growth. Lower new business volumes, coupled with an
R8.5 billion withdrawal of a low margin index tracking fund managed for an institutional client on an outsourced basis, contributed to a 61% reduction
in net fund flows from R18.7 billion in 2017 to R7.2 billion in 2018.
Gross written premiums at Santam increased by 11% (9.5% excluding the impact of the Santam Structured Insurance acquisition in 2017); 6% on a net earned
basis. Conventional insurance gross written premiums increased by a satisfactory 7%, while alternative risk transfer premiums grew by 40% (26% excluding
corporate activity). Intermediated personal and commercial lines of business, MiWay and Namibia experienced pressure on growth amidst difficult economic
conditions. The property class grew by 12% following strong growth in the corporate property market due to reinsurance capacity constraints. The motor
class grew by 6%, with an 8% higher contribution from MiWay. Within the specialist classes, accident and health grew by 11% on the back of strong demand
for travel insurance. Crop insurance premiums declined by 12% following lower take-up. The liability and transportation classes recorded growth of 2% and
1% respectively amidst a focus on profitability. Growth of 3% in engineering reflects the impact of fewer large construction contracts within an industry
under pressure.
Sanlam Corporate had an exceptional year, more than doubling life insurance new business volumes. Single premiums grew by 109%, while recurring premiums
increased by a particularly satisfactory 56%. Life licence business has been reclassified from SIG to Sanlam Corporate in 2018, which supported overall
new business growth of 176%. The new business performance also reflects a substantial improvement in net fund inflows.
Overall Group net fund inflows of R41.5 billion in 2018 is a particularly satisfactory performance given the challenging market conditions and large
institutional withdrawal at SIG.
Value of new covered business
The discount rate used to determine VNB is directly linked to long-term interest rates. The 50bps and 60bps increase in the South African nine- and five-
year benchmark rates respectively during 2018 resulted in a commensurate rise in the risk discount rate, with a 6% negative effect on overall VNB growth.
VNB margins were also some 13 basis points lower due to the higher discount rate. The strong growth in Sanlam Sky and SEB new business volumes were the
main contributors to particularly satisfactory growth of 14% in net VNB on a consistent economic basis (CEB) (8% based on the actual economic basis at the
end of 2018). Overall net VNB margins declined from 2.94% in 2017 to 2.8% in 2018 (on a CEB), largely due to the underperformance in East Africa and a
relatively larger contribution from the lower margin SEB business.
Value of new covered business for the year ended 31 December 2018
R million 2018 2017 Change CEB
Net value of new covered business 1 985 1 841 8% 14%
Sanlam Personal Finance 1 504 1 407 7% 14%
Sanlam Emerging Markets 338 347 -3% -1%
Sanlam Investment Group - - - -
Sanlam Corporate 143 87 64% 71%
Gross of non-controlling interest 2 187 2 008 9% 14%
Net present value of new business premiums 74 378 62 604 19% 20%
Sanlam Personal Finance 48 790 43 940 11% 12%
Sanlam Emerging Markets 8 366 7 146 17% 17%
Sanlam Investment Group 3 334 3 259 2% 2%
Sanlam Corporate 13 888 8 259 68% 70%
Gross of non-controlling interest 78 085 65 377 19% 20%
Net new covered business margin 2,67% 2,94% 2,80%
Sanlam Personal Finance 3,08% 3,20% 3,26%
Sanlam Emerging Markets 4,04% 4,86% 4,11%
Sanlam Investment Group - - -
Sanlam Corporate 1.03% 1.05% 1,06%
Gross of non-controlling interest 2,80% 3,07% 2,92%
SPF achieved overall growth of 7% (14% on a comparable basis). The strong growth in new business volumes at Sanlam Sky had a major positive effect on VNB,
which increased by 16% (25% on a comparable basis). Capitec contributed R80 million. The Sanlam Sky VNB margin declined slightly from 8.88% in 2017 to
8.30% in 2018 due to a change in mix of business to lower margin group business. The Recurring premium sub cluster and Strategic Business Development
achieved growth of 13% (23% on a CEB, and 20% on an CEB and excluding BrightRock). MiWayLife made a welcome first contribution of R11 million, augmented by
good growth at BrightRock, a change in mix to more profitable lines of business, positive modelling changes and lower acquisition costs. VNB margins
improved commensurately. Glacier experienced an 8% decline in VNB (6% on a comparable basis) due to the change in mix from higher margin endowment business
to guaranteed and annuity business.
Net VNB at SEM declined by 3% (up 6% on a CEB and excluding Ghana and Saham Finances). Namibia did exceptional well pursuant to the strong growth in
entry-level market sales, growing its net VNB by more than 20%. Most other businesses contributed satisfactory growth, apart from Botswana, Kenya, Uganda
and Malawi that underperformed in line with their weak new business production and declining file sizes. Nigeria's contribution was broadly in line with
2017 despite strong new business growth, due to a one-off regulatory increase in capital requirements that resulted in a higher cost of capital charge.
Saham Finances contributed R38 million compared to R20 million in 2017.
The good growth in Sanlam Corporate recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable
basis) increase in the cluster's VNB contribution.
Capital management
The Group started the year with discretionary capital of R2 billion, after allowing for the ACA acquisition. A number of capital management actions during
2018 affected the balance of available discretionary capital, including the $1 billion (R13 billion) Saham Finances transaction. Discretionary capital at
the end of 2018 was negative due to the approved BBBEE share issuance not being concluded before year-end as we are still awaiting regulatory approvals.
Sanlam shareholders approved a BBBEE equity raising at the extraordinary general meeting held on 12 December 2018, with the cash raised from this issuance
earmarked to repay the internal (R1.7 billion) and external (R2 billion) debt incurred as partial funding for the Saham Finances acquisition and to restore
the discretionary capital portfolio to an appropriate level. All regulatory approvals have been received, apart from Mauritius. [Once these approvals are
granted, we will proceed with the issuance, subject to the Sanlam share price being within the R74 - R86 range approved by shareholders.]
Discretionary capital amounted to a negative R3.7 billion at 31 December 2018, equal to the combined internal and external debt. Cash proceeds of
R4.6 billion will be raised at the lower end of the share issuance range (R74), which will restore the discretionary capital portfolio to some R1 billion.
Discretionary capital at 31 December 2018
R million
Discretionary capital at 31 December 2017 2 000
Excess dividend cover 693
Capital released from Sanlam Life 1 813
Allocated capital 1 500
Excess investment return 313
Capital raised through accelerated book build 5 455
Investment return and other (104)
Corporate activity (13 535)
South Africa (267)
Catalyst Fund Managers SA (168)
Sanlam Private Wealth (96)
Other (3)
Other emerging markets (12 913)
Saham Finances (12 983)
Sanlam Investments East Africa 101
Sanlam General Insurance Uganda (19)
Other (12)
Developed markets (355)
Catalyst Fund Managers Foreign (250)
Phoenix Infraworks (102)
Other (3)
Discretionary capital at 31 December 2018* (3 678)
* Before planned BBBEE issuance referred to above.
Movements in discretionary capital during 2018 included the following:
- The excess cash operating earnings cover in respect of the dividend paid in 2018.
- Capital of R1.8 billion released from the covered business operations in Sanlam Life. As communicated in the Group's 2017 annual results announcement,
capital allocated to the covered business operations on the Sanlam Life balance sheet was reduced by R1.5 billion in the first half of 2018. Investment
return earned on the Sanlam Life capital base in 2018 (R313 million) was also available for release.
- Capital of R5.5 billion was raised through an accelerated book build at the end of March 2018 as partial funding for the acquisition of the remaining stake
in Saham Finances.
- Corporate activity during 2018 included:
- The acquisition of the remaining 53% stake in Saham Finances for R12.9 billion at the hedged rate of R13.24 (after allowing for Santam's contribution to
increase its effective stake in Saham Finances from 7% to 10%). The actual exchange rate on payment date was R14.77, with the forex hedges providing
protection of some R1.5 billion on close-out.
- SIG acquired 69% and 100% stakes in Catalyst Fund Managers' South African and foreign operations respectively for a total consideration of R418 million.
The acquisition significantly enhances SIG's property management offering in line with the strategic investment in alternative asset management
capabilities. In line with this strategy, SIG also invested R102 million for a 30% stake in Phoenix Infraworks, a specialist infrastructure investment
business.
- Sanlam Private Wealth acquired a wealth management book for R96 million.
- SEM sold a stake in the Kenyan-based Sanlam Investments East Africa asset management business to its local partner, realising R101 million. This disposal
compliments SEM's Pan-Africa partnership model.
- Investment return, taxation on the forex hedges and other small movements utilised R104 million.
Solvency
All of the major life insurance businesses within the Group were sufficiently capitalised at the end of December 2018. The Sanlam Group SCR cover ratio of
215% remained largely in line with the 218% cover at 31 December 2017. As indicated in previous results announcements, a Solvency Capital Requirement (SCR)
target cover range of between 170% and 210% has been set for Sanlam Life Insurance Limited's (Sanlam Life) covered business. The R8 billion of IFRS-based
required capital allocated to these operations at the end of December 2018 translated into a SCR cover of 221%. The SCR cover ratio for the Sanlam Life
entity as a whole at 264% exceeded the covered business ratio at the end of December 2018 due to the inclusion of discretionary and other capital held on
the Sanlam Life balance sheet as well as investments in Santam and other Group operations that are not allocated to Sanlam Life's covered business
operations (i.e. not included in the R8 billion allocated capital referred to above).
Dividend
Applying the Group's dividend policy, the Board decided to increase the normal dividend per share by 7.6% to 312 cents. This is well within our target
range of 2% to 4% real growth given the 2018 average inflation rate of 4.6%. It will maintain a cash operating earnings cover of approximately 1.05 times.
The South African dividend withholding tax regime applies in respect of this dividend. The dividend will in full be subject to the 20% withholding tax,
where applicable, which will result in a net final dividend, to the shareholders who are not exempt from paying dividend tax, of 249.6 cents per share.
The number of ordinary shares in issue in the company's share capital as at the date of the declaration is 2 070 079 299 excluding treasury shares of
161 909 748 at 31 December 2018. The company's tax reference number is 9536/346/84/5.
Shareholders are advised that the final cash dividend of 312 cents for the year ended 31 December 2018 is payable on Monday, 15 April 2019 by way of
electronic bank transfers to ordinary shareholders recorded in the register of Sanlam at close of business on Friday, 12 April 2019. The last date to trade
to qualify for this dividend will be Tuesday, 9 April 2019, and Sanlam shares will trade ex-dividend from Wednesday, 10 April 2019. Share certificates may
not be dematerialised or rematerialised between Wednesday, 10 April 2019 and Friday, 12 April 2019, both days included.
Sanlam Group
Summarised financial statements for the year ended 31 December 2018
Accounting policies and basis of presentation
Basis of presentation
Introduction
The consolidated financial statements are prepared on the historical-cost basis, unless otherwise indicated, in accordance with The JSE Listings Requirements,
the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), SAICA Financial Reporting Guides
as issued by the Accounting Practices Committee, Financial Pronouncements as issued by the Financial Reporting Standards Council , the information required by
IAS 34 Interim Financial Reporting and the requirements of the Companies Act , No. 71 of 2008 (as amended), in South Africa. The financial statements are
presented in South African rand rounded to the nearest million, unless otherwise stated.
The following new or revised IFRS and interpretations became effective in the current financial year and have therefore been applied:
- IFRS 9 - Financial Instruments (effective 1 January 2018)
- IFRS 15 - Revenue from Contracts with Customers (effective 1 January 2018)
The following new or revised IFRS and interpretations have effective dates applicable to future financial years and have not been early adopted:
- IFRS 16 - Leases (effective 1 January 2019)
- IFRIC 23 - Uncertainty over Income Tax Treatments (effective 1 January 2019)
- IFRS 17- Insurance Contracts (effective 1 January 2022)
IFRS 16: Leases was issued by the IASB in January 2016 and replaces IAS 17: Leases for reporting periods beginning on or after 1 January 2019. The group
does not intend to adopt the standard before its effective date. IFRS 16 has one model for lessees which will result in almost all leases being included on
the statement of financial position. Under the new standard, an asset (the right to use the leased item) and the liability to pay rentals are recognised.
The only exceptions are short-term and low-value leases. In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces
the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. The accounting for
lessors will not significantly change.
As lessor: This new standard is not expected to have a significant impact on how the group (as lessor) accounts for leases due to the carry forward of the
lessor accounting model from IAS 17. However, the group anticipates an impact as a result of the enhanced disclosures for lessors required by IFRS 16
namely: components of lease income and risk management with respect to exposure to residual asset risk.
As lessee: The standard will affect primarily the accounting of the group's operating leases. As at the reporting date, the group has non-cancellable
operating lease commitments of R2 765 million. However, the group has not yet determined to what extent these commitments will result in recognition of an
asset and a liability for future payments and how this affects the group's profit and classification of cash flows.
Some of the commitments may be covered by the exception for short-term and low-value assets and some commitments may relate to arrangements that will not
qualify as leases under IFRS 16.
As lessee, the Group can either apply the standard using a:
- Retrospective approach; or
- Modified retrospective approach with optional practical expedients.
The lessee applies the election consistently to all of its leases. The Group plans to apply IFRS 16 using the modified retrospective approach. Therefore,
the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no
restatement of comparative information.
When applying the modified retrospective approach the leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-
lease basis, whether to apply a number of practical expedients on transition. The Group is assessing the potential impact of using these practical
expedients.
The Group is not required to make any adjustments for any leases in which it is a lessor except where it is an intermediate lessor in a sub-lease.
IFRIC 23: Uncertainty over Income Tax Treatments was issued in June 2017. The Interpretation addresses the accounting for income taxes when tax
treatments involve uncertainty that affects the application of IAS 12. Initial work performed, indicates that there will be limited impact on the financial
statements as a result of this standard interpretation.
IFRS 17: Insurance Contracts was issued in May 2017. The standard establishes the principles for the recognition, measurement, presentation and disclosure
of insurance contracts within the scope of the standard. Initial work performed on the impact of IFRS 17 indicates that there will be a significant impact
on the underlying valuation models, systems and processes. The Group is in the process of assessing the requirements of the standard against current data,
processes and valuation models and is expected to finalise this assessment during 2019.
Other: The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.
External audit
This summarised report is extracted from audited information, but is not itself audited. The annual financial statements were audited by
Ernst & Young Inc., who expressed an unmodified opinion thereon. The audited annual financial statements and the auditor's report thereon are available
for inspection at the company's registered office. The shareholders' information was audited by Ernst & Young Inc., who expressed an unmodified opinion
thereon. The audited shareholders' information and the auditor's report thereon are available for inspection at the company's registered office.
The directors take full responsibility for the preparation of the summarised report and that the financial information has been correctly extracted from
the underlying annual financial statements and shareholders' information.
Summarised shareholders' information for the year ended 31 December 2018
Contents
Group Equity Value
Shareholders' fund income statement
Notes to the shareholders' information
Embedded value of covered business
Group equity value
at 31 December 2018
2018 2017
R million R million
Embedded value of covered business 56 234 54 283
Sanlam Personal Finance 39 209 39 546
Adjusted net worth 5 351 6 256
Value of in-force 33 858 33 290
Sanlam Emerging Markets 9 151 6 686
Adjusted net worth 4 257 3 021
Value of in-force 4 894 3 665
Sanlam Investment Group 2 797 2 768
Adjusted net worth 2 803 2 644
Value of in-force (6) 124
Sanlam Corporate 5 077 5 283
Adjusted net worth 2 367 3 117
Value of in-force 2 710 2 166
Other Group operations 76 424 59 546
Sanlam Personal Finance 3 976 3 855
Sanlam Emerging Markets 35 508 20 935
Sanlam Investment Group 15 906 15 563
Santam 20 102 18 108
Sanlam Corporate 932 1 085
Other capital and net worth adjustments 5 072 5 934
137 730 119 763
Discretionary capital (3 678) 2 000
Group equity value 134 052 121 763
Group equity value per share (cents) 6 341 5 940
Shareholders' fund income statement
for the year ended 31 December 2018
2018 2017
R million R million
Result from financial services before tax 14 544 13 558
Sanlam Personal Finance 5 612 5 900
Sanlam Emerging Markets 3 773 3 311
Sanlam Investments 1 542 1 577
Santam 2 978 2 173
Sanlam Corporate 804 779
Group office and other (165) (182)
Tax on financial services income (4 116) (3 726)
Non-controlling interest (1 538) (1 283)
Net result from financial services 8 890 8 549
Net investment return 707 1 663
Net investment income 638 808
Net investment surpluses 63 817
Net equity-accounted headline earnings 6 38
Net project expenses (136) (114)
Equity participation costs (5) (2)
Amortisation of intangibles (400) (261)
Normalised headline earnings 9 056 9 835
Profit on disposal of operations 2 773 1 335
Net equity-accounted non-headline earnings (3) 134
Impairments (305) (303)
Normalised attributable earnings 11 521 11 001
Fund transfers 106 (78)
Attributable earnings per Group statement of comprehensive income 11 627 10 923
Notes to the shareholders' information
for the year ended 31 December 2018
2018 2017
R million R million
1. New business
Analysed per licence:
Life Insurance 53 815 44 615
Sanlam Personal Finance 34 112 31 182
Sanlam Emerging Markets 6 410 5 468
Sanlam Corporate 10 074 4 828
Sanlam Investment Group 3 219 3 137
Investment business and other 169 214 176 557
Sanlam Personal Finance 26 859 27 433
Sanlam Emerging Markets 19 814 16 435
Sanlam Investment Group 96 477 111 254
Santam 22 812 21 435
Sanlam Corporate 3 252 -
Total new business 223 029 221 172
2. Net flows of funds
Analysed per licence:
Life Insurance 16 814 10 235
Sanlam Personal Finance 8 719 6 840
Sanlam Emerging Markets 4 226 3 146
Sanlam Corporate 4 257 606
Sanlam Investment Group (388) (357)
Investment business and other 24 725 26 908
Sanlam Personal Finance 1 575 1 614
Sanlam Emerging Markets 4 381 (1 006)
Sanlam Investment Group 7 602 19 035
Sanlam Corporate 2 181 -
Santam 8 986 7 265
Total net flow of funds 41 539 37 143
3. Normalised earnings per share
In terms of IFRS, a consolidation reserve is created for differences in the valuation bases of long-term policy liabilities and assets supporting those
liabilities. Certain investments held in policyholder portfolios may not be recognised at fair value in terms of IFRS, whereas the valuation of the related
policy liabilities is based on the assets at fair value. Similarly, deferred tax assets recognised in respect of assessed tax losses in policyholder funds
increases the Group's net assets without a corresponding increase in policy liabilities. These create mismatches with a corresponding impact on the
shareholders' fund. A separate reserve is created for these valuation differences owing to the fact that they represent accounting differences and not
economic gains or losses for the shareholders' fund. The number of shares in issue must also be reduced with the treasury shares held by the
policyholders' fund for the calculation of IFRS basic and diluted earnings per share. This is, in management's view, not a true representation of the
earnings attributable to the Group's shareholders, specifically in instances where the share prices and/or the number of shares held by the policyholders'
fund varies significantly. The Group therefore calculates normalised earnings per share to eliminate these impacts.
2018 2017
cents cents
Normalised diluted earnings per share:
Net result from financial services 423,6 417,2
Headline earnings 431,7 480,0
Profit attributable to shareholders' fund 548,9 536,9
R million R million
Analysis of normalised earnings (refer shareholders' fund income statement):
Net result from financial services 8 890 8 549
Headline earnings 9 056 9 835
Profit attributable to shareholders' fund 11 521 11 001
Million Million
Adjusted number of shares:
Weighted average number of shares for diluted earnings per share 2 077,3 2 027,3
Add: Weighted average Sanlam shares held by policyholders 21,5 21,8
Adjusted weighted average number of shares for normalised diluted earnings per share 2 098,8 2 049,1
Number of ordinary shares in issue 2 232,0 2 166,5
Shares held by subsidiaries in shareholders' fund (137,7) (137,4)
Outstanding shares and share options in respect of Sanlam Limited long-term incentive scheme 21,0 20,8
Adjusted number of shares for value per share 2 115,3 2 049,9
Embedded value of covered business at 31 December 2018
2018 2017
Note R million R million
Sanlam Personal Finance 39 209 39 546
Adjusted net worth 5 351 6 256
Net value of in-force covered business 33 858 33 290
Value of in-force covered business 35 336 34 840
Cost of capital (1 242) (1 400)
Non-controlling interest (236) (150)
Sanlam Emerging Markets 9 151 6 686
Adjusted net worth 4 257 3 021
Net value of in-force covered business 4 894 3 665
Value of in-force covered business 7 654 5 962
Cost of capital (842) (593)
Non-controlling interest (1 918) (1 704)
Sanlam Investment Group 2 797 2 768
Adjusted net worth 2 803 2 644
Net value of in-force covered business (6) 124
Value of in-force covered business 781 828
Cost of capital (787) (704)
Sanlam Corporate 5 077 5 283
Adjusted net worth 2 367 3 117
Net value of in-force covered business 2 710 2 166
Value of in-force covered business 3 376 3 065
Cost of capital (666) (899)
Embedded value of covered business 56 234 54 283
Adjusted net worth (1) 14 778 15 038
Net value of in-force covered business 41 456 39 245
Embedded value of covered business 56 234 54 283
(1) Excludes subordinated debt funding of Sanlam Life. At 1 January 2018, capital allocated to Sanlam Personal Finances and Sanlam Employee
Benefits were reduced as follows:
- From Sanlam Personal Finance: R969 million;
- From Sanlam Employee Benefits: R531 million.
Change in embedded value of covered business for the year ended 31 December 2018
2018 2017
Net Value of Adjusted
R million Note Total in-force net worth Total
Embedded value of covered business at the beginning of the year 54 283 39 245 15 038 51 246
Value of new business 2 1 985 4 552 (2 567) 1 841
Net earnings from existing covered business 7 389 (806) 8 195 5 771
Expected return on value of in-force business 4 937 4 937 - 4 620
Expected transfer of profit to adjusted net worth - (6 831) 6 831 -
Operating experience variances 3 2 114 625 1 489 1 558
Operating assumption changes 4 338 463 (125) (407)
Expected investment return on adjusted net worth 921 - 921 1 020
Embedded value earnings from operations 10 295 3 746 6 549 8 632
Economic assumption changes 5 (755) (762) 7 234
Tax changes 6 (36) (20) (16) -
Investment variances - value of in-force (2 603) (2 176) (427) 691
Investment variances - investment return on adjusted net worth (125) - (125) (90)
Profit on disposal of subsidiaries and associated companies - - - 789
Goodwill from business (1 223) (1 212) (11) (485)
Exchange rate movements 393 393 - (163)
Net project expenses (13) - (13) -
Embedded value earnings from covered business 5 933 (31) 5 964 9 608
Acquired value of in-force 3 124 2 242 882 1 443
Transfer (to)/from other Group operations - - - -
Disposal of businesses - - - (1 331)
Net transfers from covered business (7 106) - (7 106) (6 683)
Embedded value of covered business at the end of the year 56 234 41 456 14 778 54 283
Analysis of earnings from covered business
Sanlam Personal Finance 4 372 544 3 828 6 659
Sanlam Emerging Markets 417 (748) 1 165 1 476
Sanlam Investment Group 305 (130) 435 403
Sanlam Corporate 839 303 536 1 070
Embedded value earnings from covered business 5 933 (31) 5 964 9 608
Value of new business for the year ended 31 December 2018
R million Note 2018 2017
Value of new business (at point of sale):
Gross value of new business 2 426 2 217
Sanlam Personal Finance 1 630 1 512
Sanlam Emerging Markets 592 550
Sanlam Investment Group 7 7
Sanlam Corporate 197 148
Cost of capital (239) (209)
Sanlam Personal Finance (1) (95) (96)
Sanlam Emerging Markets (83) (45)
Sanlam Investment Group (7) (7)
Sanlam Corporate (54) (61)
Value of new business 2 187 2 008
Sanlam Personal Finance 1 535 1 416
Sanlam Emerging Markets 509 505
Sanlam Investment Group - -
Sanlam Corporate 143 87
Value of new business attributable to:
Shareholders' fund 2 1 985 1 841
Sanlam Personal Finance 1 504 1 407
Sanlam Emerging Markets 338 347
Sanlam Investment Group - -
Sanlam Corporate 143 87
Non-controlling interest 202 167
Sanlam Personal Finance 31 9
Sanlam Emerging Markets 171 158
Sanlam Investment Group - -
Sanlam Corporate - -
Value of new business 2 187 2 008
Geographical analysis:
South Africa 1 678 1 503
Africa 405 424
Other international 104 81
Value of new business 2 187 2 008
Analysis of new business profitability:
Before non-controlling interest:
Present value of new business premiums 78 085 65 377
Sanlam Personal Finance 49 764 44 101
Sanlam Emerging Markets 11 099 9 758
Sanlam Investment Group 3 334 3 259
Sanlam Corporate 13 888 8 259
New business margin 2,80% 3,07%
Sanlam Personal Finance 3,08% 3,21%
Sanlam Emerging Markets 4,59% 5,18%
Sanlam Investment Group - -
Sanlam Corporate 1,03% 1,05%
After non-controlling interest:
Present value of new business premiums 74 378 62 604
Sanlam Personal Finance 48 790 43 940
Sanlam Emerging Markets 8 366 7 146
Sanlam Investment Group 3 334 3 259
Sanlam Corporate 13 888 8 259
New business margin 2,67% 2,94%
Sanlam Personal Finance 3,08% 3,20%
Sanlam Emerging Markets 4,04% 4,86%
Sanlam Investment Group - -
Sanlam Corporate 1,03% 1,05%
Notes to the embedded value of covered business
for the year ended 31 December 2018
1. VALUE OF IN-FORCE COVERED BUSINESS SENSITIVITY ANALYSIS
Gross value of Net value of
in-force Cost of in-force Change from
business capital business base value
R million R million R million %
BASE VALUE 44 744 (3 288) 41 456
Risk discount rate increase by 1% 42 475 (3 708) 38 767 (6)
Investment return and inflation decrease by 1%,
coupled with a 1% decrease in risk discount rates,
and with bonus rates changing commensurately 45 812 (3 342) 42 470 2
Equity and property values decrease by 10%,
without a corresponding change in dividend and
rental yields 43 504 (3 231) 40 273 (3)
Expected return on equity and property
investments increase by 1%, without a
corresponding change in discount rates 45 377 (2 981) 42 396 2
Rand exchange rate depreciation by 10% 45 227 (3 356) 41 871 1
Non-commission maintenance expenses
(excluding investment expenses) decrease by 10% 46 571 (3 316) 43 255 4
Discontinuance rates decrease by 10% 46 147 (3 364) 42 783 3
Mortality and morbidity decrease by 5% for life
assurance business 46 641 (3 287) 43 354 5
Mortality and morbidity decrease by 5% for
annuity business 44 492 (3 285) 41 207 (1)
2. VALUE OF NEW COVERED BUSINESS SENSITIVITY ANALYSIS
Gross value of Cost of Net value of Change from
new business capital new business base value
R million R million R million %
Base value 2 191 (206) 1 985
Risk discount rate increase by 1% 1 945 (235) 1 710 (14)
Investment return and inflation decrease by 1%,
coupled with a 1% decrease in risk discount rates,
and with bonus rates changing commensurately 2 316 (205) 2 111 6
Non-commission maintenance expenses
(excluding investment expenses) decrease by 10% 2 396 (208) 2 188 10
Acquisition expenses (excluding commission and
commission related expenses) decrease by 10% 2 405 (208) 2 197 11
Discontinuance rates decrease by 10% 2 477 (219) 2 258 14
Mortality and morbidity decrease by 5% for life
assurance business 2 441 (207) 2 234 13
Mortality and morbidity decrease by 5% for
annuity business 2 183 (208) 1 975 (1)
2018 2017
R million R million
3. OPERATING EXPERIENCE VARIANCES
Risk experience 535 447
Persistency 147 67
Maintenance expenses 43 (9)
Working capital management 507 452
Credit spread 437 396
Other 445 205
Total operating experience variances 2 114 1 558
4. OPERATING ASSUMPTION CHANGES
Risk experience 177 183
Persistency 66 (115)
Maintenance expenses 20 (239)
Modelling changes and other 75 (236)
Total operating assumption changes 338 (407)
5. ECONOMIC ASSUMPTION CHANGES
Investment yields (717) 260
Long-term asset mix assumptions and other (38) (26)
Total economic assumption changes (755) 234
Summarised Group IFRS financial statements for the year ended 31 December 2018
Contents
Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Cash flow statement
Notes to the financial statements
STATEMENT OF FINANCIAL POSITION at 31 December 2018
Restated
2018 2017
R million R million
ASSETS
Equipment 1 587 876
Owner-occupied properties 2 010 963
Goodwill 19 985 4 158
Value of business acquired 9 985 1 930
Other intangible assets 1 082 517
Deferred acquisition costs 3 446 3 659
Long-term reinsurance assets 1 971 1 063
Investments 690 744 656 020
Properties 21 349 11 505
Equity-accounted investments 18 361 26 476
Equities and similar securities 184 787 201 095
Interest-bearing investments 211 770 185 363
Structured transactions 21 341 15 381
Investment funds 190 005 177 235
Cash, deposits and similar securities 43 131 38 965
Deferred tax 2 249 2 083
Assets of disposal groups classified as held for sale 139 321
General insurance technical assets 9 540 6 400
Working capital assets 72 863 55 593
Trade and other receivables 44 712 33 633
Cash, deposits and similar securities 28 151 21 960
Total assets 815 601 733 583
Equity and liabilities
Shareholders' fund 69 506 57 420
Non-controlling interest 12 111 6 017
Total equity 81 617 63 437
Long-term policy liabilities 543 785 524 441
Insurance contracts 188 448 178 868
Investment contracts 355 337 345 573
Term finance 7 413 6 426
Margin business 3 654 1 918
Other interest-bearing liabilities 3 759 4 508
Structured transactions liabilities 15 629 4 187
External investors in consolidated funds 66 146 62 329
Cell owners' interest 3 305 3 217
Deferred tax 5 460 2 435
General insurance technical provisions 37 950 18 668
Working capital liabilities 54 296 48 443
Trade and other payables 50 761 46 507
Provisions 450 333
Taxation 3 085 1 603
Total equity and liabilities 815 601 733 583
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
2018 2017
R million R million
Net income 77 721 113 976
Financial services income 73 619 63 930
Reinsurance premiums paid (11 262) (9 546)
Reinsurance commission received 2 166 1 685
Investment income 31 208 30 288
Investment surpluses (16 447) 33 423
Finance cost - margin business (164) (134)
Change in fair value of external investors liability (1 399) (5 670)
Net insurance and investment contract benefits and claims (29 524) (72 576)
Long-term insurance contract benefits (18 566) (26 863)
Long-term investment contract benefits 2 999 (32 588)
General insurance claims (20 662) (21 036)
Reinsurance claims received 6 705 7 911
Expenses (31 701) (26 279)
Sales remuneration (10 139) (8 832)
Administration costs (21 562) (17 447)
Impairments (449) (395)
Amortisation of intangibles (659) (350)
Net operating result 15 338 14 376
Equity-accounted earnings 2 424 2 646
Finance cost - other (846) (690)
Profit before tax 16 966 16 332
Taxation (4 164) (4 342)
Shareholders' fund (3 510) (3 087)
Policyholders' fund (654) (1 255)
Profit for the year 12 802 11 990
Other comprehensive income
Movement in foreign currency translation reserve (1) 2 002 (1 217)
Movement in cash flow hedge 166 (602)
Other comprehensive income of equity accounted investments (1) 126 21
Employee benefits re-measurement loss 4 (12)
Comprehensive income for the year 15 100 10 180
Allocation of comprehensive income:
Profit for the year 12 802 11 990
Shareholders' fund 11 627 10 923
Non-controlling interest 1 175 1 067
Comprehensive income for the year 15 100 10 180
Shareholders' fund 13 698 9 272
Non-controlling interest 1 402 908
Earnings attributable to shareholders of the company (cents):
Basic earnings per share 565,4 544,4
Diluted earnings per share 559,7 538,8
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
2018 2017
R million R million
Shareholders' fund:
Balance at beginning of the year 57 420 53 390
IFRS Transitional adjustments (4) (429) -
Comprehensive income 13 698 9 272
Profit for the year 11 627 10 923
Other comprehensive income (3) 2 071 (1 651)
Net (acquisition)/disposal of treasury shares (2) (1 022) (119)
Shares issued 5 635 -
Share-based payments 358 340
Dividends paid (1) (6 053) (5 400)
Acquisitions, disposals and other movements in interests (101) (63)
Balance at end of the year 69 506 57 420
Non-controlling interest:
Balance at beginning of the year 6 017 5 696
IFRS Transitional adjustments (4) (12) -
Comprehensive income 1 402 908
Profit for the year 1 175 1 067
Other comprehensive income (3) 227 (159)
Net (acquisition)/ disposal of treasury shares (2) (29) (19)
Share-based payments 26 36
Dividends paid (1) (867) (796)
Acquisitions, disposals and other movements in interests 5 574 192
Balance at end of the year 12 111 6 017
Shareholders' fund 57 420 53 390
Non-controlling interest 6 017 5 696
Total equity at beginning of the year 63 437 59 086
Shareholders' fund 69 506 57 420
Non-controlling interest 12 111 6 017
Total equity at end of the year 81 617 63 437
(1) A dividend of 312 cents per share (2017: 290 cents per share) was declared in 2019 in respect of the 2018 earnings.
Based on the number of shares in issue on declaration date, the total dividend is expected to amount to R6.5 billion,
but may vary depending on the number of shares in issue on the last day to trade. Dividends proposed or declared after
the statement of financial position date are not recognised at the statement of financial position date.
(2) Comprises movement in cost of shares held by subsidiaries, the share incentive trust and other consolidated funds.
(3) Other comprehensive income include, a realisation of cash flow hedging adjustment of R1 500 million (gross and net
of tax) in respect of the acquisition of interests in Saham Finances.
(4) The following new standards have been adopted in the 2018 financial year:
- IFRS 9
- IFRS 15
CASH FLOW STATEMENT
for the year ended 31 December 2018
Restated(1)
2018 2017
R million R million
Cash flow from operating activities 10 760 6 356
Cash utilised in operations (7 286) (12 101)
Interest and preference share dividends received 18 199 18 343
Interest paid (1 136) (868)
Dividends received 12 307 11 343
Dividends paid (6 844) (6 118)
Taxation paid (4 480) (4 243)
Cash flow from investment activities (6 764) (3 221)
Acquisition of subsidiaries and associated companies (7 254) (4 917)
Disposal of subsidiaries and associated companies 490 1 696
Cash flow from financing activities 4 052 (215)
Shares issued 5 635 -
Movement in treasury shares (1 051) (138)
Disposal/(acquisition) of non-controlling interest 90 (113)
Term finance raised 2 455 1 388
Term finance repaid (3 077) (1 352)
Net increase in cash and cash equivalents 8 048 2 920
Net foreign exchange difference (124) (122)
Cash and cash equivalents at beginning of the year 55 419 52 621
Cash and cash equivalents at end of the year 63 343 55 419
(1) Comparative information has been restated. Refer to note 8.2 for additional information.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2018
2018 2017
cents cents
EARNINGS PER SHARE
Basic earnings per share:
Headline earnings 445,6 486,3
Profit attributable to shareholders' fund 565,4 544,4
Diluted earnings per share:
Headline earnings 441,1 481,3
Profit attributable to shareholders' fund 559,7 538,8
R million R million
Analysis of earnings:
Profit attributable to shareholders' fund 11 627 10 923
Less: Net profit on disposal of operations (2 773) (1 335)
Less: Equity-accounted non-headline earnings (17) (134)
Plus: Impairments 325 303
Headline earnings 9 162 9 757
million million
Number of shares:
Weighted number of ordinary shares in issue 2 215,6 2 166,5
Less: Weighted Sanlam shares held by subsidiaries and
consolidated investment funds (including policyholders) (159,3) (160,0)
Adjusted weighted average number of shares for basic earnings
per share 2 056,3 2 006,5
Add: Total number of shares in respect of Sanlam Limited
long-term incentive schemes 21,0 20,8
Adjusted weighted average number of shares for diluted
earnings per share 2 077,3 2 027,3
2. SEGMENTAL INFORMATION
2018 2017
R million R million
Segment financial services income (per shareholders' fund
information) 66 529 58 700
Sanlam Personal Finance 19 136 17 823
Sanlam Emerging Markets 11 526 7 978
Sanlam Investment Group 6 396 5 581
Santam 23 693 22 327
Sanlam Corporate 5 622 4 825
Group Office and other 156 166
IFRS adjustments 7 090 5 230
Total financial services income 73 619 63 930
Segment result (per shareholders' fund information after
tax and non-controlling interest) 11 521 11 001
Sanlam Personal Finance 4 218 4 680
Sanlam Emerging Markets 3 561 3 057
Sanlam Investment Group 1 693 1 401
Santam 1 609 1 122
Sanlam Corporate 637 845
Group Office and other (197) (104)
Reverse Non-controlling interest included in segment result 1 175 1067
Fund transfers 106 (78)
Total profit for the year 12 802 11 990
Segment IFRS 15 revenue from contracts with customers(1) 2018
Sanlam Personal Finance 3 874
Sanlam Emerging Markets 704
Sanlam Investment Group 6 060
Santam 234
Sanlam Corporate 1 747
Total IFRS 15 revenue 12 619
(1) Comparative information not required in terms of IFRS 15.
Disaggregation of revenue
According to primary geography
Other
South Rest of Inter-
Africa Africa national Total
IFRS 15 Revenue 9 148 738 2 733 12 619
Administration fees 5 093 438 498 6 029
Asset management and performance fees 2 832 228 1 744 4 804
Commissions 372 57 479 908
Consulting fees 367 12 1 380
Actuarial and risk management fees 198 - - 198
Other(1) 286 3 11 300
Revenue not within the scope of IFRS 15 51 710 8 217 1 073 61 000
Financial services income 60 858 8 955 3 806 73 619
3. SHARE REPURCHASES
The Sanlam shareholders granted general authorities to the Group at the 2017 and 2016 annual general meetings to repurchase Sanlam shares in the market.
The Group did not acquire any shares in terms of these general authorities.
4. CONTINGENT LIABILITIES
Shareholders are referred to the contingent liabilities disclosure in the 2018 annual financial statements. The circumstances surrounding the contingent
liabilities remain materially unchanged.
5. SUBSEQUENT EVENTS
No other material facts or circumstances have arisen between the date of the statement of financial position and this report which materially affects the
financial position of the Sanlam Limited Group at 31 December 2018 as reflected in these financial statements.
6. FAIR VALUE DISCLOSURES
Determination of fair value and fair value hierarchy
Below follows required disclosure of fair value measurements, using a three-level fair value hierarchy that reflects the significance of the inputs used in
determining the measurements. It should be noted that these disclosure only cover assets and liabilities measured at fair value.
Included in level 1 category are assets and liabilities that are measured by reference to unadjusted, quoted prices in an active market for identical assets
and liabilities.
Included in level 2 category are assets and liabilities measured using inputs other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). For example, instruments measured using a valuation technique
based on assumptions that are supported by prices from observable current market transactions are categorised as level 2.
Assets and liabilities measured using inputs that are not based on observable market data are categorised as level 3.
R million
Recurring fair value measurements
31 December 2018 Level 1 Level 2 Level 3 Total
Properties - - 21 349 21 349
Investment in joint ventures - - 539 539
Equities and similar securities 179 365 4 918 504 184 787
Interest-bearing investments 30 137 174 617 69 204 823
Structured transactions 8 013 13 328 - 21 341
Investment funds 182 926 6 347 732 190 005
Trade and other receivables 10 855 5 653 - 16 508
Cash deposits and similar securities:
Investments - 43 131 - 43 131
Cash deposits and similar securities:
Working capital assets - 2 359 - 2 359
Total assets at fair value 411 296 250 353 23 193 684 842
Investment contract liabilities - 353 672 1 665 355 337
Term finance - 3 085 - 3 085
Structured transactions liabilities - 15 629 - 15 629
Trading account liabilities 5 595 11 088 - 16 683
External investors in consolidated funds 61 573 3 960 613 66 146
Total liabilities at fair value 67 168 387 434 2 278 456 880
R million
Recurring fair value measurements
31 December 2017 Level 1 Level 2 Level 3 Total
Properties - - 11 505 11 505
Equities and similar securities 198 226 2 436 433 201 095
Interest-bearing investments 42 154 141 825 30 184 009
Structured transactions 7 130 8 251 - 15 381
Investment funds 173 802 3 103 330 177 235
Trading account assets 11 090 5 233 - 16 323
Cash deposits and similar securities:
Investments 24 353 14 572 - 38 925
Investment in joint ventures - - 359 359
Total assets at fair value 456 755 175 420 12 657 644 832
Investment contract liabilities - 343 368 2 205 345 573
Term finance - 4 300 - 4 300
Structured transactions liabilities - 4 187 - 4 187
Trade and other payables 11 547 11 447 - 22 994
External investors in consolidated funds 61 882 - 527 62 329
Total liabilities at fair value 73 349 363 302 2 732 439 383
R million
Reconciliation of movements in level 3 assets and liabilities measured at fair value
31 December 2018
Assets Equities and Interest Investment
similar bearing Investment in joint
Properties securities investments funds ventures Total Assets
Balance at 1 January 2018 11 505 433 30 330 359 12 657
Total gains/(loss) in statement of comprehensive income 309 20 3 33 180 545
Acquired through business combinations 7 446 - - - - 7 446
Acquisitions 2 165 131 36 368 - 2 700
Disposals (171) (100) - - - (271)
Reclassified from disposal groups classified as held for sale (128) - - - - (128)
Foreign exchange movements 224 20 - 1 - 245
Transfer to owner-occupied properties (1) - - - - (1)
Balance at 31 December 2018 21 349 504 69 732 539 23 193
31 December 2017
Balance at 1 January 2017 10 664 420 392 467 423 12 366
Total gains/(loss) in statement of comprehensive income 499 1 - (19) (64) 417
Acquisitions 544 21 - - - 565
Disposals (501) (2) - (118) - (621)
Reclassified as disposal groups classified as held for sale 551 - - - - 551
Settlements - - (362) - - (362)
Foreign exchange movements (239) (7) - - - (246)
Transfer from owner-occupied properties (13) - - - - (13)
Balance at 31 December 2017 11 505 433 30 330 359 12 657
Liabilities External
Investment investors in
contract Term consolidated Total
liabilities finance funds liabilities
R million
31 December 2018
Balance at 1 January 2018 2 205 - 527 2 732
Total gains in statement of comprehensive income 25 - 1 26
Acquisitions 65 - - 65
Disposals (797) - - (797)
Foreign exchange movements 167 - 85 252
Settlements - - - -
Balance at 31 December 2018 1 665 - 613 2 278
31 December 2017
Balance at 1 January 2017 2 312 201 604 3 117
Total gains in statement of comprehensive income 72 - (38) 34
Acquisitions 36 - - 36
Disposals (189) - - (189)
Foreign exchange movements (26) (37) (39) (102)
Settlements - (164) - (164)
Balance at 31 December 2017 2 205 - 527 2 732
Gains and losses (realised and unrealised) included in profit and loss
R million 2018 2017
Total gains or losses included in profit or loss for the period 519 383
Total unrealised gains or losses included in profit or loss for the period for
assets held at the end of the reporting period 89 258
(1) The market for the shares to which the external investors in consolidated funds relate became inactive during the year.
Transfers between categories
Assets
Equities and Interest- Cash, deposits
similar bearing Structured Investment and similar Total
securities investments (1) transactions funds securities assets
R million
2018
Transfer from level 1 to level 2 - 142 - - - 142
Transfer from level 2 to level 1 - - - - - -
2017
Transfer from level 1 to level 2 - 169 - - - 169
Transfer from level 2 to level 1 - 107 - - - 107
Liabilities External Term Total
investors (2) finance liabilities
2018
Transfer from level 2 to level 1 - - -
2017
Transfer from level 1 to level 2 328 - 328
(1) Instruments that were not actively traded in the market have been transferred from level 1 to level 2. Conversely, instrument that have become actively traded
in the market have been transferred from level 2 to level 1.
(2) External investors in consolidated funds transfers relate to investment funds that listed during the year ended December 2017. As a result, those funds are
now classified as level 1.
Valuation techniques used in determining the fair value of assets and liabilities
Instrument Applicable to level Valuation basis Main assumptions Significant Unobservable input
Properties 3 Recently contracted prices, Bond and interbank Capitalisation rate
Discounted cash flow swap interest rate
model (DCF), Earnings curve, Cost of Capital, Discount rate
multiple Consumer price index,
Cash flow forecasts Cash flow forecasts
(including vacancy rates) (including vacancy rates)
Equities and similar securities 2 and 3 DCF,Earnings multiple Cost of Capital, Cost of Capital
Consumer price index Adjusted earnings multiple
Interest bearing investments 2 and 3 DCF,Quoted put/surrender Bond and interbank swap Discount rate
price by issuer interest rate curve,
Cost of Capital,
Consumer price index
Trade and other receivables/ 2 DCF, Earnings multiple Bond and interbank swap n/a
payables Quoted put/surrender price interest rate curve,
by issuer Cost of Capital,
Consumer price index
Investment contract liabilities 2 and 3 Current unit price of Bond and interbank swap Earnings Multiple
and Investment funds underlying unitised asset, interest rate curve
multiplied by the number Cost of capital
of units held. Consumer price index
Earnings multiple Bond interest rate curve
DCF
Term finance 2 DCF Bond and forward rate n/a
Credit ratings of issuer
Liquidity spread
Agreement interest curves
Structured transactions assets 2 Option pricing models Bond and interbank swap n/a
and liabilities DCF interest rate curve
Forward equity and
currency rates
Volatility risk
adjustments
External investors in
consolidated funds 2 and 3 Current unit price of Bond and interbank swap Based on underlying
underlying unitised asset, interest rate curve, assets
multiplied by the number Cost of Capital,
of units held Consumer price index,
unit prices
Cash, deposits and similar securities 2 Mark-to-market Bond and interbank swap n/a
Yield curve interest rate curve
Investment in joint ventures 3 DCF Bond and interbank swap Cost of Capital
interest rate curve,
Cost of Capital,
Consumer price index
Sensitivity of level 3 assets and liabilities measured at fair value to changes in key assumptions
Assets
Effect of a Effect of a
Effect of a Effect of a 1% increase 1% decrease
10% increase 10% decrease in base/ in base/
in risk in risk Carrying capitalisation capitalisation
R million Carrying amount adjustments adjustments amount rate rate
Properties (1)
2018
Cash flow risk adjustments 21 349 (2 135) 2 135 - -
Base rate - - - 9 864 (240) 258
Capitalisation rate - - - 9 864 (297) 364
Effect of a Effect of a
Carrying 10% increase 10% decrease
amount in earnings in earnings
Earnings multiple 11 477 1 002 (969)
2017
Cash flow risk adjustments 11 505 (1 151) 1 151 - - -
Base rate - - 8 091 (264) 284
Capitalisation rate - - 8 091 (357) 437
Effect of a Effect of a Effect of a 1% Effect of a 1%
Carrying 10% increase 10% decrease Carrying increase in decrease in
R million amount(2) in multiple in multiple amount(3) discount rate discount rate
Other Investments
2018
Equities and similar securities 504 (50) 50 - - -
Interest-bearing investments - - - 69 (1) 2
Investment funds 732 (73) 73 - - -
Investment in joint ventures - - - 539 (44) 50
Total 1 236 (123) 123 608 (45) 52
2017
Equities and similar securities
433 43 (43) - - -
Interest-bearing investments - - - 30 (1) 1
Investment funds 330 33 (33) - - -
Investment in joint ventures - - - 359 (32) 36
Total 763 76 (76) 389 (33) 37
Liabilities
Effect of a 10% Effect of a 10%
Carrying increase in decrease in
R million amount(2) value value
2018
Investment contract liabilities 1 665 167 (167)
External investors in
consolidated funds 613 61 (61)
Total Liabilities 2 278 228 (228)
2017
Investment contract liabilities 2 205 221 (221)
External investors in
consolidated funds 527 53 (53)
Total Liabilities 2 732 274 ( 274)
(1) Investment Properties comprise a majority of Sanlam Life properties valued using capitalisation and discount rates, with sensitivities
based on these two unobservable inputs.
(2) Represents mainly private equity investments valued on earnings multiple, with sensitivities based on the full valuation.
(3) Represents mainly instruments valued on a discounted cash flow basis, with sensitivities based on changes in the discount rate.
7. BUSINESS COMBINATIONS
Material acquisitions of the Group consolidated in the 2018 financial year
Saham Finances Group
Effective 1 October 2018, The Sanlam Group acquired the remaining stake (53,37%) in Saham Finances, gaining control for the first time.
The acquisition supports the Group's vision to be a leading Pan-African financial services group. Sanlam Emerging Markets and Santam Limited
hold an effective interest of 90% and 10% respectively. The Saham Finances Group provides financial services (predominately general insurance)
across various countries in Africa.
The goodwill arising on the acquisition is attributable to synergies and future opportunities expected.
Details of the assets acquired and liabilities assumed, at fair value, are as follows:
R million
NAV Recognise Recognise deferred
acquired intangibles tax/Cash flow hedge Total
Assets
Equipment 702 - - 702
Owner-occupied properties 971 - - 971
Value of business acquired 73 7 400 - 7 473
Other intangible assets 460 213 - 673
Deferred acquisition costs 170 - - 170
Long-term reinsurance assets 832 - - 832
Investments 29 296 - - 29 296
Deferred tax 566 - - 566
General insurance technical assets 2 662 - - 2 662
Working capital assets
Trade and other receivables 13 881 - - 13 881
Cash, deposits and similar securities 8 959 - - 8 959
Total identifiable assets 58 572 7 613 - 66 185
Liabilities
Long-term policy liabilities (15 037) - - (15 037)
Term finance (1 683) - - (1 683)
General insurance technical provisions (17 486) - - (17 486)
Deferred tax liability (1 690) - (2 290) (3 980)
Trade and other payables (9 059) - - (9 059)
Provisions (361) - - (361)
Taxation (919) - - (919)
Total identifiable liabilities (46 235) - (2 290) (48 525)
Equity
Non-controlling interest (4 278) (1 795) 550 (5 523)
Total Equity and Liabilities (50 513) (1 795) (1 740) (54 048)
Total identifiable net assets 8 059 5 818 (1 740) 12 137
Goodwill arising on acquisition 4 822 10 359 240 15 421
Net purchase consideration 12 881 16 177 (1 500) 27 558
Purchase consideration 29 058
Cash flow hedge (1 500)
Less: Previously held interest at fair value (13 550)
Net consideration 14 008
Cash element of consideration 15 508
Cash flow hedge (1 500)
Refer to the Shareholder's Fund Information for the analysis of Saham Finances results. The post acquisition profits for the 3 month period
amounted to R154 million.
8. Restatements
8.1 IFRS Transitional adjustments
STATEMENT OF FINANCIAL POSITION
At 31 December 2017
Previously reported Adjustments Restated
Audited IFRS 9 Reviewed
R million
ASSETS
Investments 656 020 (434) 655 586
Properties 11 505 11 505
Investment in associated and joint ventures 26 476 (428) 26 048
Equities and similar securities 201 095 201 095
Interest-bearing investments 185 363 (6) 185 357
Structured transactions 15 381 15 381
Investment funds 177 235 177 235
Cash, deposits and similar securities 38 965 38 965
Working capital assets 55 593 (7) 55 586
Trade and other receivables 33 633 (7) 33 626
Cash, deposits and similar securities 21 960 21 960
Other assets 21 970 21 970
Total asset 733 583 (441) 733 142
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 22 22
Treasury shares (3 811) (3 811)
Other reserves 9 084 9 084
Retained earnings 52 125 (429) 51 696
Shareholders' fund 57 420 (429) 56 991
Non-controlling interests 6 017 (12) 6 005
Total equity 63 437 (441) 62 996
Total liabilities 670 146 670 146
Total equity and liabilities 733 583 (441) 733 142
IFRS 9 - Financial Instruments
The principles with regards to the classification and measurement of financial assets and liabilities,measuring impairment allowances for
financial assets, and hedge accounting have been amended due to the implementation of the new accounting standard, IFRS 9 - Financial Instruments,
applicable to all accounting periods beginning on or after 1 January 2018. Sanlam has implemented the standard, other than the hedging provisions
which have not yet been adopted, on a modified retrospective basis and therefore comparatives are not restated and the impact of the adoption is
recognised in equity on 1 January 2018.
The key changes introduced by IFRS 9 are as follows:
1. Classification and measurement - financial assets are required to be measured and classified based on the cash flow characteristics of the
instrument and the business model under which the asset is managed. The classification and measurement of financial liabilities is largely
unchanged, with the exception of the amendment requiring that the own credit risk component of fair value movements on liabilities designated
at fair value through profit or loss now be presented in other comprehensive income.
2. Impairment - IFRS 9 introduces an expected credit loss model. This entails the recognition of an allowance for expected credit loss looking
one year into the future or over the lifetime of the financial asset if the credit risk relating to the financial asset has increased
significantly. The impairment model is therefore "forward looking", replacing the incurred loss model as previously required by IAS 39.
The adoption of IFRS 9 has resulted in a reduction in total equity of R441 million on 1 January 2018. The impact is primarily a result of the
recognition of expected credit losses in associated entities as well as isolated incidents of changes in the classification and measurement of
certain financial instruments.
The majority of financial assets were measured at fair value through profit and loss under IAS 39, and continue to be under IFRS 9, either
because they are mandatorily measured as such, or through designation.
The changes in classification and measurement are as follows:
- Certain financial assets, predominantly interest bearing investments, previously measured at amortised cost under IAS 39, have been reclassified
to fair value through profit or loss under IFRS 9. The remeasurement impact on opening retained earnings is an increase of R6 million.
- The change in fair value that is attributable to changes in the credit risk of financial liabilities designated at fair value through profit or
loss is presented in other comprehensive income under IFRS 9. In the current period, this portion of the movement in such instruments was immaterial.
Impairment of financial assets
Based on the impairment methodology described above, the Group has determined that the application of IFRS 9's impairment requirements at 1 January 2018
results in additional impairment allowances in a number if equity-accounted associates.
The total impact on the balance of associates and opening retained earnings at 1 January 2018 is negative R428 million. The impact of applying the
expected credit losses model in subsidiary entities resulted in a decrease in net asset value of R19 million.
IFRS 15 - Revenue from Contracts with Customers
This standard relates to the measurement, classification and disclosure of revenue from contracts with customers of the Sanlam Group.
The key factors in the application of IFRS 15 are as follows:
- A five-step model is applied to determine when to recognise revenue from contracts with customers, and at what amount.
- Revenue is recognised when (or as) Sanlam satisfies a performance obligation and transfers control of goods or services to a customer at the
amount to which the company expects to be entitled and that is allocated to that specific performance obligation.
- Depending on whether certain criteria are met, revenue is recognised either over time or at a point in time, as or when control of the goods or
services is transferred to the customer.
- More extensive and detailed disclosure are required in terms of IFRS 15.
The Group has assessed the impact of the adoption of IFRS 15 on opening retained earnings and concluded that there is no quantitative impact for Sanlam.
8.2 Restatement of Group cash flow statement
Management reassessed the presentation of the Group's cash flow statement in respect of cash flows relating to the acquisition and disposal
of investments that are backing its core operations. These were previously classified as investing cash flows and created a disconnect between
operating and investing cash flows, as these investments are funded by cash flows associated with the origination of insurance and investment
contracts, which are treated as operating cash flows. Management concluded that presenting acquisitions and disposals of investments as part of
operating cash flows more accurately reflects to the users of the financial statements, the link between the ability to generate cash from
investment and insurance contracts and the utilisation of those cash flows on various investments.
2017
As previously reported Adjustments Restated
Cash flows from operating activities 23 402 (17 046) 6 356
Cash flows from investing activities (20 267) 17 046 (3 221)
Net acquisition of investments (17 046) 17 046 -
Acquisition of subsidiaries and associates (4 917) - (4 917)
Disposal of subsidiaries and associated companies 1 696 - 1 696
The above restatements did not have any impact on the Group's statement of financial position, statement of comprehensive income and statement of
changes in equity.
Bellville
7 March 2019
JSE Sponsor
The Standard Bank Group of South Africa Limited
Date: 07/03/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.