Results

The constant currency information included in this operational update has been presented to illustrate the impact of changes in currency exchange rates and is the responsibility of the Group’s board of directors. It is presented for illustrative purposes only and because of its nature may not fairly present the company’s financial position, changes in equity, result of operations or cash flows. All references to constant currency information are based on the translation of foreign currency results for the four months to 30 April 2017 at the weighted average exchange rate for the four months to 30 April 2016, which is also applied for the translation of comparative information. The major currencies contributing to the exchange rate movements are the British Pound, Indian Rupee, Botswana Pula and the Nigerian Naira.

The salient features of the Group’s performance for the four months to 30 April 2017 are:

• New business volumes of R71 billion, down 4% on the first four months of the 2016 financial year (down 3% in constant currency and 4% lower in constant currency and excluding the impact of structural growth), largely due to lower lump-sum inflows at Glacier, Sanlam Investments Retail and Sanlam Private Wealth.
  • Sanlam Personal Finance achieved strong growth in the more profitable recurring premium risk business lines. This was, however, more than offset by a decline in discretionary single premium business in the mass affluent market, as investor risk aversion remain elevated in the uncertain political and economic environment. Overall new business sales at Sanlam Personal Finance declined by 10% as a result.
    
    Sanlam Sky new business sales increased by an exemplary 27% on the comparable 2016 period. The change in mix towards risk business continued to yield positive results, contributing to 18% growth in Sanlam Sky’s individual life risk business sales. Sales of savings products declined by 49%, with overall individual life new recurring business increasing by 5%. A large new scheme written by Safrican in the first four months of 2017 supported a more than doubling in new Group recurring premium business at Sanlam Sky.
    
    New business volumes in the middle-income market increased by 4%. Solid demand for products providing an investment guarantee supported growth of 4% in new life insurance single premium sales. New recurring premium life business increased by 7%. Lower demand for traditional recurring premium endowments was more than offset by solid growth in retirement annuities and tax free savings products, as well as a 16% increase in new recurring premium risk business.
    
    As highlighted above, Glacier new business volumes remained under pressure and declined by a disappointing 14%.
  • Sanlam Emerging Markets recorded overall new business growth of 20%, with structural growth more than offsetting the negative impact of a stronger average Rand exchange rate. In constant currency, new business volumes increased by 29% (up 2% in constant currency and excluding structural growth). Economic conditions in Namibia are placing pressure on new business performance, with overall new business volumes in line with 2016. Namibia also experienced a change in mix from individual life business to the less profitable group life line of business. Annuity sales in Botswana declined significantly during the period, the combined effect of a reduction in the value of retirement funds becoming available as well as competitive pressures. This contributed to a 2% decline in Botswana new business volumes in constant currency (8% decline at actual exchange rates).
    
    Excluding Saham Finances, Rest of Africa new business volumes increased by 6% in constant currency (10% lower at actual exchange rates). Most regions contributed to the growth in constant currency, apart from Tanzania, Nigeria, Zimbabwe and Zambia, which had slow starts to the year. Saham Finances’ new business production was in line with the business plan, with the Angola operations in particular holding up well in a difficult environment.
    
    The Indian operations delivered strong growth, more than doubling its new business contribution in constant currency and at actual exchange rates. In Malaysia, delayed new product launches at both the life and general insurance businesses contributed to a disappointing 23% decline in constant currency new business sales. A number of new products are planned to be launched during 2017, subject to regulatory approval, which should support an improved performance over the medium term.
  • Sanlam Investments achieved good growth in institutional fund inflows. The uncertain political and economic environment, however, had a severe impact on demand for implemented consulting and Sanlam Private Wealth solutions. This was aggravated by lacklustre demand in the United Kingdom, contributing to a 2% decline in overall new business volumes in constant currency (down 3% at actual exchange rate).
  • Sanlam Employee Benefits achieved a pleasing threefold increase in new recurring premium business. The more volatile single premium new business declined from a high base in the first four months of 2016.
  • Net value of new life business (“VNB”) on a consistent economic basis increased by 24% on the comparable period in 2016 (28% on constant economic and currency basis). VNB margins have been largely maintained on a per product basis with changes in mix towards the more profitable lines of business supporting an overall increase in margins. Sanlam Personal Finance’s VNB increased by more than 20% on a consistent economic basis, with the overall VNB margin improving on 2016. This performance is primarily attributable to the substantial growth in Individual Life risk and Sanlam Sky new business. The decline in Glacier single premium new business had a muted overall effect given the lower margin of this line of business. Sanlam Emerging Markets’ net VNB grew by a moderate 7% on a consistent economic and currency basis. A lower VNB contribution from Namibia, Botswana and Malaysia partly offset strong performances from the other regions. Sanlam Employee Benefits also achieved a much improved performance, supported by the growth in recurring premium Group Risk business.
  • Overall net fund inflows of R12 billion were down on the R16 billion achieved in the comparable four-month period in 2016, largely due to the decline in Sanlam Personal Finance single premium new business. Despite the pressure on Sanlam Investments new business inflows, retention of funds under management was well managed with the cluster’s net inflows increasing marginally on 2016.
  • Persistency is under pressure in some lines of business, but overall persistency experience remained broadly in line with actuarial assumptions.
• Net result from financial services up 5% on the first four months of the 2016 financial year in constant currency (up 3% at actual exchange rates). Excluding the rise in new business strain at Sanlam Personal Finance, net result from financial services increased by 10% in constant currency.
  • The strong growth in risk business at Sanlam Sky and Individual Life generated a significant increase in the new business strain recognised in terms of the Group’s prudent accounting policies. This limited growth in Sanlam Personal Finance’s net result from financial services to 3%. Excluding the increase in new business strain, Sanlam Personal Finance achieved commendable growth of 11% on the first four months of 2016. Mortality claims experience remained within the actuarial assumption base.
  • Sanlam Emerging Markets’ net result from financial services declined by 11%, with a stronger average Rand exchange rate, the impact of demonetisation in India and a decline in profitability in Namibia and Botswana offsetting the positive impact of structural growth. In constant currency, net result from financial services declined by 1% (down 16% in constant currency and excluding structural growth). Saham Finances’ operating earnings were in line with the business plan. As anticipated, demonetisation in India in the latter half of 2016 had a negative impact on the arrears position of the Shriram credit businesses, requiring an increase in provisioning in terms of International Financial Reporting Standards of some R110 million after tax and allowing for Sanlam Emerging Markets’ effective shareholding. This impact is temporary in nature, with improvements in performance already evident. Excluding the impact of demonetisation, Sanlam Emerging Markets’ net result from financial services increased by 10% on a comparable basis (constant currency and excluding structural growth).
    
    Profitability is under pressure in Namibia, Botswana, Kenya and Malaysia, with a solid performance from the other regions. In Namibia, higher group life claims experience and the difficult economic environment were the main detractors. Botswana earnings were significantly affected by the decline in new annuity business and credit-related provisioning in the annuity portfolio, partly offset by good growth in investment management earnings. High claims experience, lower property sales and negative expense variances are impacting on the Kenya results. General insurance earnings in Malaysia remained depressed due to a decline in net earned premiums, offsetting a good performance by the life business.
  • Sanlam Investments’ contribution to net result from financial services increased by 1% (up 6% in constant currency). The South African asset and wealth management businesses did well to record only a marginal decline in operating earnings despite no real growth in assets under management due to lacklustre investment return on the foreign exposure in the portfolios and net outflows from the South African life and discretionary capital asset base managed by the cluster. The restructuring of the Sanlam UK business during 2016 is delivering cost efficiency, supporting a 38% increase in the international operations’ net earnings in constant currency. Capital management earnings declined marginally from a high comparative base in 2016.
  • Santam’s net underwriting margin for the four-month period was within the target range of 4% to 8%, but below the midpoint. The personal and commercial business was impacted by fire related losses and an increase in the frequency of claims. The Specialist business was in turn impacted by a number of large corporate property claims. Other specialist insurance classes, in particular Agriculture, reported solid results. MiWay also reported excellent underwriting results, with Santam Re achieving an acceptable performance.
  • Sanlam Employee Benefits and Sanlam Healthcare achieved strong growth in net result from financial services, supporting overall growth of more than 30% for the Sanlam Corporate Cluster. Risk claims experience at Sanlam Employee Benefits remained higher than historic levels, but improved on 2016.
• Normalised headline earnings per share increased by 9% compared to the first four months of the 2016 financial year. A relatively stronger investment market performance in 2017 supported investment return earned on the capital base.
• Diluted headline earnings per share, which include fund transfers recognised in respect of Sanlam shares held in policyholder portfolios, increased by 15% compared to the first four months of the 2016 financial year.