The Sanlam Group
Sanlam was established in 1918 and is a major financial services
company in South Africa. It demutualised in 1998 and Sanlam Limited
listed on the JSE Securities Exchange in Johannesburg and on the
Namibian Stock Exchange.
On 31 December 2003 the Group had assets of R283 billion under
management and administration.
The Sanlam Group conducts its business from five main clusters.
Sanlam has taken substantive action to position itself
for sustained, profitable growth into the future. We have
scrutinised our businesses, identified strategic focus areas and
launched initiatives to unlock inherent value and ensure improved
delivery. We have made definitive progress in implementing a
wide-reaching transformation strategy to regain market share and
establish a leading position as a world-class and truly South
African business.
We understand the extent of the challenges we face, and we are
committed to take the necessary action to turn those challenges
into opportunities to create wealth for all our stakeholders.
page 1
sanlam annual report 2003
group
structure
Sanlam Limited has five operational clusters. This is part of our strategy of improving operational focus and delivery.
Each cluster operates autonomously with set targets and each is headed by an executive with strong operational
experience. Sanlam Limited is reponsible for the Group’s centralised functions, such as the strategic direction,
financial and risk management, and Group services.
Life Insurance
cluster
Short-term Insurance
cluster (53%)
The Life Insurance cluster is a major provider of a
wide range of life insurance, retirement annuities,
saving, investment and risk products to individuals
and group funds and schemes in Southern Africa.
It also provides administration, actuarial and
consulting services to the Group retirement industry.
In 2003 the Life cluster established a presence in the
United Kingdom with the acquisition of Merchant
Investors Assurance Company Ltd.
The Short-term Insurance cluster is comprised of
a 53,3% shareholding in Santam Limited, the
leading short-term insurer in South Africa. Santam
focuses on the corporate, commercial and personal
markets. It has a market share of about 25%, total
assets of more than R10 billion, a country-wide
infrastructure and broker network with more than
650 000 personal lines policyholders. Santam has
strategic investments in the insurance industry in
Namibia, Malawi, Zimbabwe and Zambia and the
United Kingdom.
adding value
to our group
21%
17%
25%
26%
17%
57%
37%
group operations
absa
other assets
value of in-force
page 2
sanlam group
embedded value
life insurance
investment
short-term insurance
contribution to new business inflows
2003
Sanlam Limited
Absa (21%)
One of the largest commercial banks
in South Africa
Investment
cluster
Banking
cluster
Independent Financial Services
cluster
The Investment cluster incorporates Sanlam’s
investment-related businesses, ensuring that
business practices and performance are
aligned to service the Group’s predominantly
South African client base. The areas of
expertise include traditional asset
management, alternative investment products,
property asset management, private client
investment management and stockbroking,
multi-manager management, and investment
administration for local and international
clients. Sanlam Multi Managers International,
based in London and Dublin, conducts the
Cluster’s international business.
The Banking cluster is comprised of Gensec
Bank which is being restructured to focus on
areas that are complementary and value
enhancing to Sanlam’s core businesses.
The process is scheduled for completion by
the end of June 2004, when Gensec will be
renamed Sanlam Capital Markets (SCM).
SCM will provide risk management and
structured product solutions and associated
capital market activities for the South African
savings industry, public sector enterprises
and corporates.
The Independent Financial Services (IFS)
cluster was established towards the end of
2003 and invests in independent customerfacing entities and intermediary businesses
operating within the financial services
industry. The Cluster’s key priority is to
enhance Sanlam’s profitability by making
investments that provide an appropriate
(risk adjusted) real return on capital invested
as well as improving business volumes to
the Group.
7%
11%
5%
30%
7%
53%
17%
operating return
investment income
equity-accounted income
contribution to headline earnings
2003
sanlam life
segregated
international
private investments
collective investments
innofin
53%
17%
assets under management
by sim
page 3
sanlam annual report 2003
strategic
achievements
● Group restructured into five clusters to enable
individual market relevance and optimal operating
efficiency. Each cluster operates autonomously
with set targets and is headed by an executive
with strong operational experience. The clusters
include life insurance, short-term insurance,
investment, banking and independent financial
services.
● A comprehensive re–engineering strategy
implemented at Sanlam Life delivered
approximately R250 million annualised
cost savings.
● Employee Benefits business
revitalised to deliver appropriate
products and services to its
targeted customer base via
improved sales channels and
a specialised team of advisors.
page 4
● Sanlam Investment Management (SIM)
delivered a significant improvement in
investment performance and investment
management ratings, resulting in the
reversal of net negative investment flows
to significant net positive investment
flows.
● A refined international
strategy with simplified and
decentralised overseas
interests, giving each cluster
the responsibility for
developing and expanding
their international activities
most applicably.
● Formal co-operation
agreement reached with Absa
to facilitate the unlocking of
value from Sanlam’s 21%
shareholding through
increased distribution
capability and cross-selling
initiatives.
● Acquisition of a specialist
provider of individual pension
and life products in the UK,
Merchant Investor Assurance,
gaining access to a highly
efficient and scalable
administration system.
page 5
sanlam annual report 2003
strategic
achievements
continued
● Banking cluster streamlined to focus on areas
complementary to Sanlam’s current businesses. Core
activities were grouped into a new entity, Sanlam Capital
Markets, to capitalise on the potential of a centralised
treasury, structured products and brokerage capability to
serve the Group and its clients. Non-core
investment banking activities are being
terminated.
● Santam’s continued scrutiny of business
basics and successful integration of
strategic international acquisitions
contributed to exceptional results
● Proposed BEE transaction with UbuntuBotho Investments will enable Sanlam to
secure significant long-term growth
opportunities and effect true broad-based
empowerment by involving a
representative spectrum of community
groups in Sanlam’s future.
page 6
salient
features
for the year ended 31 December 2003
2003
2002
sanlam limited group
Earnings:
Operating profit before restructuring cost before tax
R million
2 466
2 149
Operating profit before tax
R million
2 405
2 149
Core earnings(1)
R million
2 641
2 280
Headline earnings(2)
R million
2 351
2 127
(3)
R million
3 291
3 227
Net operating profit per share
cents
53,2
56,3
(1)
cents
100,2
86,7
Headline earnings per share(2)
cents
89,2
80,8
(3)
cents
124,9
122,7
Dividend per share
cents
40
37
(4)
%
33,6
34,7
Group operating margin(5)
%
17,5
16,9
New business volumes
R million
38 786
32 257
Net inflow/(outflow) of funds
R million
4 956
(3 934)
Adjusted headline earnings based on the LTRR
Core earnings per share
Adjusted headline earnings per share based on the LTRR
Group administration cost ratio
Business volumes:
Embedded value of new business
R million
218
320
Life insurance new business APE(6)
R million
1 729
2 179
New business embedded value margin
%
12,6
14,7
cents
1 147
1 032
Embedded value:
Embedded value per share
Growth from life business
%
24,7
12,7
Return on embedded value(7)
%
15,3
(8,8)
%
15
13
sanlam life insurance limited
Shareholders’ funds to total policy liabilities
Shareholders’ funds to non-market-related policy liabilities
%
22
20
Capital adequacy requirements covered
times
2,7
1,7
notes
(1)
Core earnings = net operating profit, investment income and equity accounted earnings.
(2)
Headline earnings = core earnings after assistance to policyholder funds.
(3)
Adjusted headline earnings based on the LTRR = net operating profit and total investment return based on a long-term rate of return.
(4)
Administration costs (excluding Sanlam Life restructuring cost) as a percentage of income earned by the shareholders’ funds less sales remuneration.
(5)
Operating profit (excluding Sanlam Life restructuring cost) as a percentage of income earned by the shareholders’ funds less sales remuneration.
(6)
APE = Annual premium equivalent and is equal to new recurring premiums (excluding indexed growth premiums) plus 10% of single premiums.
(7)
Growth in embedded value per share (with dividends paid added back) as a percentage of embedded value at the beginning of the year, reduced by
dividends paid.
page 7
sanlam annual report 2003
financial
performance
for the year ended 31 December
R4 956 million
15,3%
2002: Net outflow of R3 934 million
2002: (8,8%)
A significant improvement of R8 228 million
in net investment inflows was experienced
Growth in embedded value per share (with
dividends paid added back) as a percentage of
embedded value at the beginning of the year,
reduced by dividends paid
R38 786 million
100,2 cents
net inflows received from clients
total new business inflows received from clients
return on embedded value
per share core earnings for the year
2002: R32 257 million
2002: 86,7 cents per share
due to the strong improvement in
investment inflows
showing an improvement of 16%
R2 405 million
17,5 %
gross operating profit for the year
2002: R2 149 million
reflecting improvement of 12%
operating margin represents an
improvement on 2002
2002: 16,9%
Operating profit (excluding Sanlam Life
restructuring cost), as a percentage of income
earned by the shareholders’ funds less sales
remuneration
page 8
Headline earnings in R million
Gross operating profit in R million
4 000
3 000
2 500
3 534
3 495
3 500
2 092
3 000
2 149
2 000
1 722
3 291
3 227
2 405
2 721
2 628
2 406
2 500
2 351
2 127
1 656
2 000
1 500
1 955
1 237
1 500
1 000
1 000
500
500
0
0
1998
1999
2000
2001
2002
1999
2003
2002
2003
ltrr adjusted earnings
The headline earnings used for JSE record purposes
combine net operating profit, investment income
and equity accounted income after assistance to the
policyholder funds. In addition, we also provide a
LTRR adjusted headline earnings figure that
includes net operating income and an assumed
investment return (income and market movement)
based on an expected long-term investment return
(LTRR) of 12% (2002: 13%) pre-tax.
Value of Sanlam shares in cents
45
1 400
40
40
1 167
1 200
37
35
35
1 067
1 004
1 000
30
30
25
2001
headline earnings
Operating profit before tax and minorities increased
by an annual compound rate of 11% since
demutualisation.
Dividend per share in cents
2000
860
810
827
25
956
927
919
831
600
883
880
798
760
800
20
1 147
1 032
630
585
15
400
10
200
5
0
0
1999
2000
2001
2002
2003
It is the Sanlam board’s intention to declare only annual
dividends, to maintain a two and a half times dividend
cover on headline earnings and to achieve stable
growth in dividend payments and the dividend pattern
The dividend pattern will therefore not strictly follow
the earnings pattern.
1998
1999
2000
embedded value
closing share price
2001
2002
2003
net asset value
Sanlam shares traded at a 23% discount to embedded
value at year-end. Embedded value represents the net
assets of a life company together with the value of the
portfolio of business in force, net of the cost of capital
at risk in relation to this business.
page 9
sanlam annual report 2003
group
nine-year review
2003
R million
2002
R million
2001
R million
2000
R million
2 405
2 641
2 351
3 291
21 687
134 441
282 568
883
33,6%
17,5%
2 149
2 280
2 127
3 227
20 651
129 329
245 953
798
34,7%
16,9%
2 092
2 628
2 628
3 534
22 231
145 248
256 396
927
35,2%
18,4%
1 656
2 406
2 406
3 495
19 012
133 952
224 911
831
32,3%
16,5%
New business
Long-term insurance business
Individual insurance
7 577
10 375
9 735
9 795
• Recurring premiums – indexed growth
– other
• Single premiums
• Continuations
643
861
4 513
1 560
564
976
7 033
1 802
558
974
6 009
2 194
525
1 149
5 881
2 240
Group Life
2 435
2 748
3 562
4 399
• Recurring premiums
• Single premiums – gross
– intergroup switches
127
2 373
(65)
156
2 618
(26)
171
3 466
(75)
219
4 180
—
10 012
28 774
13 123
19 134
13 297
23 284
14 194
23 506
4 370
5 103
6 014
1 627
1 032
1 363
6 755
2 510
4 388
4 199
673
830
—
1 521
5 548
1 975
4 908
3 450
3 479
276
—
2 382
5 307
3 482
9 342
1 687
7 973
—
—
—
4 504
—
38 786
32 257
36 581
37 700
8 771
2 744
8 634
2 903
8 336
2 910
8 455
3 050
11 515
11 537
11 246
11 505
9 570
9 716
10 024
9 709
Extracts from financial statements
Operating profit
Core earnings
Headline earnings
Headline earnings based on the LTRR
Shareholders’ funds
Policy liabilities
Total assets under management
Net asset value per share (cents)(2)
Group administration cost ratio (%)
Group operating margin (%)
Total long-term insurance business
Other business
• Unit trust
• Linked products
• Segregated funds – Sanlam Investment Management
• Segregated funds – Sanlam International
• SIM Multi Manager
• Unit Trust Wholesale business
• Short-term insurance
• Unit Trust White Label
Total new business
Recurring premiums
Long-term insurance business
Individual insurance
Group Life
Total recurring premiums
Staff
Office staff (excluding marketing staff)
(1)
Pro forma figures to reflect the demutualisation and restructuring of Sanlam in 1998.
Shareholders’ interest in strategic businesses adjusted from net asset value to fair value.
(3)
Figures not readily available as the definition of new business was only introduced in 1999.
(2)
page 10
Average
annual
growth
rate %
1999
R million
1998
R million
1997(1)
R million
1996(1)
R million
1995(1)
R million
1 722
1 955
1 955
2 721
18 075
134 319
215 924
810
29,8%
17,9%
1 237
—
—
—
14 904
114 176
176 792
630
27,8%
12,9%
1 026
—
—
—
10 172
119 506
166 382
528
—
—
1 070
—
—
—
9 005
114 647
147 969
466
—
—
1 079
—
—
—
7 182
107 839
135 984
376
—
—
7 704
6 319
7 743
6 733
7 244
1
527
749
4 804
1 624
500
830
3 107
1 882
500
1 039
5 458
746
425
1 301
4 376
631
385
1 366
4 862
631
7
(6)
(1)
12
2 633
5 247
5 154
3 503
2 252
1
139
2 494
—
137
5 110
—
(3)
(3)
(3)
5 154
—
3 503
—
2 252
—
(2)
1
(7)
10 337
15 473
11 566
18 280
12 897
12 214
10 236
8 757
9 496
5 978
1
22
8 154
1 706
2 310
—
—
—
3 303
—
8 266
1 423
4 498
—
—
—
4 093
—
2 957
431
5 519
—
—
—
3 307
—
1 164
—
4 666
—
—
—
2 927
—
890
—
2 714
—
—
—
2 374
—
22
51
10
143
—
(24)
14
(15)
25 810
29 846
25 111
18 993
15 474
12
8 344
3 029
8 496
2 740
8 354
3 000
7 781
2 958
6 961
2 579
3
1
11 373
11 236
11 354
10 739
9 540
2
10 159
11 669
12 756
12 635
12 406
(4)
11
8
5
5
15
3
10
11
—
—
page 11
sanlam annual report 2003
improved focus
Group structure re-aligned for strategic
relevance
Renewed focus on leveraging core
competencies
“Back to basics” operational strategy to
ensure competitiveness
Strong focus on clients for responsive
products and services
page 13
sanlam annual report 2003
chairman’s
report
Dear shareholders,
Operating environment
Full credit is due to the South African government for
The year to December 2003 was marked by
their consistent and disciplined application of fiscal
considerable turbulence. This was particularly true of
policy. The adoption of a three-year view in terms of
the first half, largely due to concerns over the
policy consideration is supportive of the aims of
outcome of the war in Iraq. The uncertainty that
business, making for greater certainty and confidence,
gripped global markets resulted in volatile equity and
particularly given our emerging market status.
currency markets, and coupled with relatively high
However, on a more specific note, the ongoing delays
short-term interest rates, saw the drift towards
in the government’s investigation into the promotion
liquidity and cash-based investment products
of savings, and the related issue of taxing retirement
continue. These factors had a negative effect on
provisions, have been disappointing. We therefore
individual equity investments and new life inflows,
welcome the announcement in the 2004/05 National
and exacted a heavy toll on the insurance industry
Budget that this issue will be brought to a conclusion
worldwide. The negative effects carried into the local
in the coming fiscal year, and we trust that
economy, with the decline in equities and currency
government will meet its self-imposed deadline.
volatility persisting.
page 14
However, global economic conditions stabilised in the
A decisive response
second half of the year. On the whole, the South
Against this challenging economic backdrop, and facing
African economy once again displayed significant
intensifying competition from the profusion of
comparative resilience. Inflation fell steadily and
alternative financial instruments becoming available to
moved within the range targeted by the South African
investors, the insurance industry has had to come to
Reserve Bank, leading to a significant fall in interest
terms with rapid modernisation or face increasing
rates. Although this indicated an improvement in the
irrelevance as an attractive means to create and preserve
overall health of the local business environment and
wealth. The race is on to scrutinise and align business
assisted in rolling back investors’ aversion to risk,
models and product offerings to constantly shifting
lower short-term interest rates present a double-
market forces and escalating customer expectations.
edged sword for Sanlam by curbing interest-linked
In South Africa, the deepening need to make
operating and investment income.
substantive progress in the transformation of socio-
Sanlam’s chief economist, Jac Laubscher, who was
economic structures, to effect the broadening of the
voted Economist of the Year for 2002 by respected
fiscal base and the reduction of wide-scale poverty
financial newspaper group Naspers’ Sake, provides a
and unemployment, presents an additional and
more detailed appraisal of market conditions on page 44.
particular challenge to local businesses.
Sanlam has scrutinised its business, its structures
and the way it deals with all its stakeholders, and
has made significant headway implementing a
comprehensive strategy to transform and position
the business for sustained relevance and
improving performance into the future.
Ton Vosloo
Chairman
It is most gratifying to reflect on the progress that Sanlam has made in meeting these
A historic transaction
complex challenges head-on in the past year. The Group has made decisive strategic
The announcement of the proposed black
moves to align its businesses both to the national agenda and global industry trends
economic empowerment (BEE) transaction
for broad-based transformation.
between Sanlam and Ubuntu-Botho
Sanlam management has systematically scrutinised its business, its structures and
Investments, marked a defining moment in
the way it deals with all its stakeholders, and has made significant headway in
Sanlam’s history and represents an integral part
implementing a comprehensive strategy to transform and position the business for
of the Group’s long-term growth strategy. The
sustained relevance and improving performance into the future.
highly respected businessman, Mr Patrice
We have seen substantial improvements in operational focus in our local and
Motsepe, leads Ubuntu-Botho Investments.
international businesses, improved efficiency – particularly in Sanlam Life – and
The transaction, if approved by shareholders, will
our investment performance at Sanlam Investment Management has come on
result in Ubuntu-Botho acquiring a 10% equity
strongly. We have formalised a co-operation agreement with Absa, which will see
holding in Sanlam and playing a direct and
value-enhancing synergies realised between the two groups. Moreover, Sanlam
visible role in Sanlam’s leadership and future
has managed to establish a strong position to access important domestic
development. The structure of the transaction,
emerging markets.
and the business imperative on which it is based,
For Sanlam, as a business whose core value has always been the creation of wealth,
focuses clearly on creating value for existing
South Africa’s socio-economic transformation presents significant opportunities for
and new shareholders. The transaction will
long-term domestic growth. Conversely, we are well placed to contribute considerably
position Sanlam as a leading financial services
to the broader economic and social transformation of this country. Sanlam is proud to
institution with excellent black leadership and
be a South African business and is deeply committed to playing a leading role in the
a comprehensive strategy to ensure
future success of this country.
meaningful and broad-based participation
In this regard, I am pleased to point stakeholders to our inaugural Transformation
in Sanlam’s future.
Report. The Transformation Report details our responses to local transformation
With just over a decade to go before Sanlam
objectives and lays out an initial framework for non-financial reporting, to be
celebrates its centenary, it is indeed interesting
developed further as we move forward. It is our hope that a more detailed and
to note how the intent of this transaction
integrated evaluation of our performance will fulfil the information needs of all our
mirrors Sanlam’s beginnings as an empowerment
many stakeholders, in line with best practice reporting and consistent with our desire
vehicle for the Afrikaner. Sanlam began in the
to engage fully and transparently with all who are involved with Sanlam.
difficult economic times following the First
page 15
sanlam annual report 2003
chairman’s
r e p o r t continued
World War and by staying close to its client base and
It is clear that full and effective compliance with the
responding innovatively to their need for economic
set benchmarks will be challenging for most
upliftment, became a seminal force in the
companies. What is important, however, is that we
development of the South African economy. Today,
have now reached a significant point of interaction
with an expanded view of South Africa’s future and
within our economy – a point where government and
the need to adopt a fully inclusive approach, the same
the private sector maintain active relationships with
lessons apply.
regard to fundamental aspects of transformation and
The Ubuntu-Botho transaction reflects Sanlam’s
sustainability. At Sanlam we believe that such
resolve to remain a defining force in the economic
interaction, even if it may prove difficult at times, is
and social development of South Africa. It represents
the key to unlocking the profound commercial and
the opportunity to grow the business on broader
social potential of South African society.
foundations and to harness the full economic power
Sanlam fully embraces the aims and benchmarks of
of our diverse society by servicing existing markets
the Charter and is already making steady progress in
more effectively and gaining access to new
complying with the framework. Given the importance
growth markets.
of BEE to the future of Sanlam, however, we are
resolved to go beyond compliance in our delivery of
Financial Sector Charter
transformational objectives.
A significant point in the transformation of the South
page 16
African financial services sector was reached with the
Results and dividend
release of the Financial Sector Charter (the Charter) in
There was notable progress in Sanlam’s financial
October 2003. The balanced scorecard approach
performance as the changes implemented over the
adopted by the Charter will allow every player in the
year took effect. Core earnings were up by 16% and
sector to analyse their own performance and standing
new fund inflows by 20% on the previous year. The
in relation to competitors. This is significant as it
net negative fund flows of 2002 were reversed with
moves the sector from the realm of transformation
positive net fund flows of R5 billion recorded for the
theory towards the realities of application.
year under review. The downside came from low new
We are indeed thankful for the responsible, multi-
business volumes in Sanlam Life, which resulted in a
lateral approach, which characterised the formulation
significant decrease in the embedded value of new
of the Charter. This approach avoided any potential
Life business and a marginal reduction in the average
damage to the sector, given the significant destruction
new business margin.
of value that followed the unfortunate events around
In view of this performance, the board has declared a
the release of the Mining Charter.
dividend of 40 cents per share. This represents an
A significant point in the transformation of the
financial services sector was reached with the
release of the Financial Sector Charter. The
balanced scorecard approach will allow every
player to analyse their own performance and
standing in relation to competitors and move the
sector from the realm of transformation theory
towards the realities of application.
increase of 8% over the 37 cents per share declared in respect of
board’s effectiveness, its committees and individual
2002. The dividend is covered 2,2 times by headline earnings.
directors has been enhanced.
Detailed information on the Group’s financial results is available in the
The operating clusters in the Group each have their
Group financial review on page 30.
own board structures comprising executive, nonexecutive and independent directors as well as the
Corporate governance
appropriate committees, in line with King II.
The Sanlam board subscribes to and is fully committed to complying
A detailed section on corporate governance can be
with the King Committee Report on Corporate Governance (King II). In
found on page 54 of the Annual Report.
our support of King II, the directors recognise the need to conduct our
business with integrity, transparency, accountability and in accordance
with generally accepted corporate practices.
During the year under review, an independent external evaluation
of the Group’s corporate governance practices was completed.
The board remains ever cognisant of developments
in corporate governance thinking and is committed
to adopt best practice in a sensible and rational way,
balancing our obligations with the need to ensure
The review found that Sanlam was for the most part compliant.
an entrepreneurial and creative approach to
In those areas where we were found to be lacking, we have
growing our business.
reacted swiftly to make the necessary changes.
The main board has been reconstituted to further strengthen the
expertise and strategic insight necessary to take the Group forward,
as well as to reflect the race and gender representation called for in
the Charter. We have also restructured and strengthened the various
subsidiary boards, ensuring greater independence and compliance
with King II.
The board is currently considering a revised board charter, which
regulates the way business is to be conducted by the board in
Board changes
In view of the changes outlined, non-executive
directors Johan Alberts, Dawn Mokhobo,
Prof Andre Perold and Peter Swartz stepped
down with effect from 31 December 2003.
From 1 January 2004, Advocate Fran du Plessis,
director of LDP Inc. in Stellenbosch, and
accordance with the principles of good corporate governance. The
Prof Manana Bakane-Tuoane, Director-General
board charter sets out the duties and responsibilities to be discharged
of the Office of the Premier, North West Province,
by board members collectively as well as the individual roles they are
took up the posts of non-executive directors.
expected to fulfil. The existing annual self-evaluation process of the
Advocate du Plessis is a non-executive director
page 17
sanlam annual report 2003
chairman’s
r e p o r t continued
of the IDC (chairperson of the audit committee),
inflation. The interest rate environment, therefore,
KWV, KWV International, and Naspers.
is likely to remain benign. The global economy also
Prof Bakane-Tuoane is a non-executive director
appears to be coping relatively well with the recent
of Harmony and has extensive experience in
currency realignment centering on the US dollar.
economic development and transformation.
On the local front, short-term interest rates are
Prof Wilmot James joined the board as a non-
expected to remain steady. An acceleration in
executive director on 1 March 2004. He is an
economic growth and a pick-up in disposable
executive director of the Human Sciences
income are forecast, which should see steady
Research Council and also serves as chairman
savings flows. Equity markets should improve,
of the Immigration Advisory Board to the
Minister of Home Affairs.
especially in the first half of the year, and the
weakening trend in the rand exchange rate should
be held in check by the improving trend in net
I will retire as a director and non-executive
chairman at Sanlam’s AGM in June 2004. Pending
shareholder approval of the Ubuntu-Botho
transaction, Mr Patrice Motsepe will be appointed
as deputy chairman of the board. Furthermore, two
additional representatives of Ubuntu-Botho will be
appointed as non-executive directors to the
Sanlam board, and another vacancy will be filled
after June to accommodate an independent
foreign exchange reserves.
With the significant strategic and operational
advances made in the past year to position the
Group for improved delivery and greater efficiency,
and with the costs of restructuring having been
largely accounted for in the 2003 fiscal year, the
expected economic upturn should result in an
improvement in financial performance.
director. The board has instituted a review process
Looking further forward, the proposed transaction
to appoint my successor.
with Ubuntu-Botho should enable Sanlam to make
strong inroads into new markets, translating these
Prospects
advances into sustained volume growth over the
mid- to longer-term.
The economic outlook for 2004 is promising, and
page 18
gives ground for cautious optimism.
Appreciation
The global economic expansion is gaining traction
Under the leadership of Dr Johan van Zyl, Sanlam
and its positive effect is being more widely felt.
has entered one of the most exciting phases in its
Although the fear of global deflation has subsided,
history. With his dynamism and vision, Johan has
there is likewise minimal risk of a resurgence in
taken Sanlam from a time of uncertainty and
The announcement of the proposed BEE
transaction between Sanlam and Ubuntu-Botho
Investments marked a defining moment in
Sanlam’s history and represents an integral part
of the Group’s long-term growth strategy.
declining confidence to a position of renewed strength and
look forward to being a part of a dynamic, leading
tangible optimism for the future. His proactive approach to setting
business.
clear, strategic targets and aggressively pursuing them has reenergised management teams and boosted morale across the
Group. This has quickly translated into the significant milestones
and performance gains achieved over the past year.
A special welcome goes to the newly appointed
directors and our deepest gratitude is extended to
those directors who have stepped down. Your
tireless dedication during your time with Sanlam
An important part of Sanlam’s strategy to position itself for the
has been exemplary.
future has been to ensure that the right people are in the right
To all my fellow board members in the almost
positions, and Johan’s success thus far has certainly justified the
15 years of my association with Sanlam, I thank
extensive local and international search to fill this position. Our
you for a period that has challenged, rewarded and
thanks go to him for a truly exceptional first year at the helm.
inspired me. I will certainly miss the Sanlam group,
Special thanks must go to Flip Rademeyer, our financial director,
but I know I leave it in a state of strong recovery
for his capable leadership as acting CEO, without which we would
and in extremely capable hands. I am confident
not have been able to weather an extremely difficult time. Flip has
that the new board and executive management
subsequently also been instrumental in the structuring of the
team has the necessary experience and ability to
Ubuntu-Botho transaction and is an important player on Sanlam’s
take the Group forward decisively and responsibly.
executive committee.
To the shareholders, policyholders, staff and brokers of Sanlam, we
convey sincere appreciation for your fortitude through a very tough
time. To all our people, thank you for the commitment to change
shown over the last year to achieve such significant progress and
Ton Vosloo
for not losing faith in what this group can be. I believe you can
Chairman
page 19
sanlam annual report 2003
chairman’s
r e p o r t continued
Board of directors at the date of this report
Non-executive directors
T Vosloo (Ton) (66)
AS du Plessis (Attie) (60)
D Phil (hc) UOFS; D Econ (hc) US
CA (SA), Adv Dip Tax Law, AMP (Harvard),
Appointed: 1989
AEP (Unisa)
Chairman since 2002
Appointed: 2002
Chairman of Naspers Limited, MIH Holdings Limited
Chairman of Gencor Limited, director of Absa Limited
MIH Limited, WWF SA and Cape Philharmonic Orchestra
and serveral other companies
and director of several other companies
JJM van Zyl (Boetie) (65)
FA du Plessis (Fran) (49)
Pr Eng, BSc Eng
BCom (LLB), CA (SA)
Appointed: 1995
Appointed: 1 January 2004
Lead director
Director of LDP Inc.
Director of Sanlam Life Insurance Limited,
Non-executive director of IDC (chairperson of the audit
Naspers Limited, Murray and Roberts Holdings Limited
committee), KWV, KWV International and Naspers
and other companies
MMM Bakane-Tuoane (Manana) (55)
PhD (Econ) (Saskatshewan, Canada)
Appointed: 1 January 2004
Director-General of the Office of the Premier,
North West Province
WG James (Wilmot) (50)
PhD (Wisconsin)
Appointed: 1 March 2004
Executive director of the Human Sciences Research
Council, chairman of Immigration Advisory Board to the
Minister of Home Affairs
Non-executive director of Harmony
page 20
DC Brink (Dave) (65)
VP Khanyile (Vusi) (53)
MSc Eng (Mining), Dcom (hc) (UPE)
BCom (Hons)
Appointed: 1994
Appointed: 2002
Chairman of Unitrans Limited, deputy chairman of
Chairman of Thebe Investment Corporation Limited and
Absa Limited and director of several companies
chairman/director of several other companies
CE Maynard (Carmen) (51)
Executive directors
MCom (Wits)
J van Zyl (Johan) (47)
Appointed: 2001
Group chief executive: Sanlam Limited
Director of Sanlam Investment Management,
PhD, DSc (Agric)
Trans Caledon Tunnel Authority and other companies
Appointed on Sanlam board and exco: 2001
Appointed as chief executive 31 March 2003
GE Rudman (George) (60)
Sanlam service: 2 years
BSc, FFA, FASSA, ISMP (Harvard)
Director of several other companies
Appointed: 2001
P de V Rademeyer (Flip) (56)
Non-executive director of Sanlam Life and several other companies
Financial director: Sanlam Limited
CA (SA), SEP (Stanford)
E van As (Eugene) (65)
Appointed: 1998
Appointed: 15 January 2003
Sanlam service: 6 years
Chairman of Sappi Limited (SA) and director of several other companies
Director of several other companies
page 21
sanlam annual report 2003
improved efficiency
Focus on aligning capacity to business
volumes
Comprehensive re-engineering of Sanlam Life
reduces cost base
Banking cluster restructured and capital
more effectively applied
International strategy refined for improved
profitability and returns
page 23
sanlam annual report 2003
group chief
executive’s report
Thinking ahead
Sanlam is transforming. Despite the complexity of strategic
repositioning and operational restructuring that this entails,
our vision for the future is clear. Sanlam’s future success rests
simply on two interrelated business imperatives: to be a
financial services organisation that is both world-class and
truly South African, in every respect.
We are moving decisively towards this vision. In this report we
discuss the wide-reaching initiatives undertaken to put the
Group firmly on the path to sustainable world-class
performance and profitability. In our first Transformation
Report, released in tandem with the Annual Report, we deal in
detail with our responses to local imperatives in our desire to
be a truly South African business at the forefront of economic
and social transformation.
We are confident that the internal scrutiny, tough decisions
and action of the past year will have begun to bring clarity
and build confidence, notwithstanding the intricacies of
extensive transformation.
Taking action
In the past year, our efforts reflected a robust back-to-basics
approach. This aimed to tackle the internal and external factors
that have inhibited Group performance, resulting in the Sanlam
share trading at a significant discount to embedded value.
Our actions were guided by three main objectives:
• Unlock inherent value
• Focus operations and improve delivery
• Target profitability
Fundamentally, all our initiatives centred on sharpening our
focus on the changing service and product needs of our clients,
rightsizing the Group to weather ongoing economic volatility
and realising the opportunities open to us to deliver value to
shareholders.
Unlocking value
To unlock the inherent value in the Group meant removing the
uncertainty around key strategic and operational issues, and
page 24
setting a clear path forward in each of our businesses to
support sustained delivery.
We have made strong progress on all these fronts.
Structural realignment
Our first priority was to simplify and further decentralise the
Group by restructuring operations into five focused business
clusters, with greater autonomy to enable individual market
relevance and optimal operating efficiency.
The realignment process was based on our firm belief that
sustainability is best served by reinforcing the federal
structure of the Group. This allows entrepreneurship and the
application of relevant strategies in the different operating
clusters, with each business backed by the assurance of the
powerful Sanlam brand.
Head office was downsized to focus on functions where
centralisation made sense. These included strategic decisionmaking, financial and risk management, and other group
services. During this process, attempts were made wherever
possible to redeploy people into the different clusters to avoid
all but the necessary retrenchments.
Re-energising teams
Management across the Group was stringently appraised to
ensure that all cluster and divisional leadership demonstrated
the specialised operational experience necessary to deliver on
targets and take their businesses forward. Rising confidence
over the year restored the Group’s ability to attract and retain
best industry talent, which supported our strategy of putting
the right people in the right jobs to deliver consistent
excellence. Where necessary, appointments were made to
strengthen our cadre of strong leaders, increase our
employment equity profile and deepen the succession pool.
Agreeing co-operation
One of the strategic issues that required urgent attention was
our position in relation to our investment in Absa. Our
relationship was clarified in a formal co-operation agreement
reached during the year. This agreement will facilitate the
We are confident that the internal scrutiny,
tough decisions and action of the past year will
have begun to bring clarity and build confidence,
notwithstanding the intricacies of extensive
transformation.
Johan van Zyl
Group chief executive
extraction of tangible value from the relationship by way of dedicated
support, training and service structures. The first co-operation project,
Sanlam Home Loans, was announced in February 2004. Through this
joint venture, Sanlam will be able to offer its clients home loans at
preferential rates.
Good progress is being made on a number of other projects, which will
assist Sanlam to regain a meaningful share of Absa brokers’ sales
volumes. Improving our access to this new distribution channel
underpins our intention to strengthen the Group’s ability to deliver
increased business volumes.
Securing long-term growth
Demonstrating Sanlam’s commitment to being a truly South African
business, we announced a seminal black economic empowerment
(BEE) deal with Ubuntu-Botho Investments, led by Mr Patrice Motsepe.
Pending shareholder approval, this transaction will enable Sanlam to
secure significant long-term growth opportunities and effect true
broad-based empowerment by involving a representative spectrum of
community groups in Sanlam’s future.
Through the Ubuntu-Botho transaction we will obtain access to crucial
new markets and, once finalised, we will begin to aggressively pursue
the institutional and retail opportunities open to us in our life insurance,
short-term insurance and investment management businesses. These
opportunities will extend to individual market segments as well as
institutional, corporate, parastatal and government business.
The transaction is indicative of Sanlam’s commitment to a
commercially sound, broad-based empowerment strategy and is based
both on business and social imperatives. It will allow Sanlam to stay
competitive and retain its leadership position in the financial services
sector through value-enhancing alliances with established
entrepreneurs and the broader community.
To ensure meaningful and sustainable BEE participation throughout
South Africa, Ubuntu-Botho comprises various interest groups
representing the nine provinces. These groups include respected
business, traditional and community leaders, women, church,
youth and trade union groups, and other successful
empowerment companies.
Poor and unemployed South Africans will in time also benefit from
the transaction through the Sanlam Ubuntu-Botho Community
Development Trust, which will support community upliftment and
development projects, BEE initiatives and corporate social
investment programmes.
Refining internationalisation
We have refined our international strategy by simplifying and
decentralising our overseas interests, giving each cluster the
responsibility for developing and expanding their international
activities most appropriately.
Furthermore, we made acquisitions to improve our ability to
service high-value niche markets requiring access to international
investment opportunities. This focused integration of international
and local businesses was directed at leveraging existing operational
strengths to provide cost effective, relevant product and service
offerings to clients, while delivering investment returns guided
by the appropriate South African benchmarks.
Focusing delivery
Each business was refocused on clear profit targets in areas with
strong prospects and where core competencies could be leveraged
most effectively. The appropriate internal structures were implemented
to support greater client-centricity and the development of responsive
product and service offerings, based on ongoing market segmentation.
Focusing the different businesses on clearly defined roles and
responsibilities have better positioned them to extract top-line synergies
from each other by supporting integrated and unambiguous cross-selling.
A process of rightsizing was undertaken in each business to ensure
ongoing efficiency, a reduction in the cost of acquiring new business
and improved profitability.
page 25
sanlam annual report 2003
group chief
executive’s report
continued
• Life Insurance cluster
• Investment cluster
The comprehensive re-engineering strategy implemented in
Sanlam’s largest business has already shown a significant
reduction in its cost base, delivering around R250 million in
annualised cost savings.
The Investment cluster, comprising Sanlam Investment
Management (SIM), delivered solidly in 2003 with a significant
improvement in investment performance and total investment flows.
The ongoing restructuring programme will enable the Life
cluster to remain competitive in turbulent market conditions.
The restructuring of the staff base to support the future
success of the business has been largely completed. As we
move forward, our decisions in this regard will be based on
the group-wide imperative of ensuring the right people are in
the right positions, and that the demographics of the markets
we serve are properly represented in our staff complement.
An imperative of the re-engineering strategy has been to
focus the Life business strongly on its clients. This will improve
access to products and services better aligned to client needs.
Under these auspices, a number of new products were
launched into identified growth markets, with some existing
products being remodelled to ensure targeted relevance.
A process of systematic market segmentation underpinned
the focusing of the Life cluster’s distribution network and
significant advances were made to strengthen distribution
capability over the year. Thirty-nine new service centres were
opened or upgraded during the year to improve visibility and
access. Furthermore, as indicated, the finalisation of projects
in co-operation with Absa is progressing to plan.
The Group’s employee benefits business was identified as a
major growth area in the Life cluster. As such, we appointed a
dedicated and experienced executive to drive performance and
implement a comprehensive restructuring programme. This
has aimed to give the business its own identity and focus its
deliverables. The gains made in the Group’s BEE strategy have
provided a crucial platform for future success in this area.
On the international front, we acquired a specialist provider of
individual pension and life products in the UK, Merchant
Investors Assurance Company, thereby gaining access to a
highly efficient and scaleable administration system. This
capability is expected to be an important catalyst in the
further development of the group’s international businesses.
page 26
The integration of Sanlam’s investment-related businesses was aimed
at further improving cost containment and optimising synergy
across local and international business units. During the year,
Sanlam Collective Investments and Innofin were moved to the
Investment cluster and responsibility for Sanlam’s South African
sourced international funds were transferred to a new business unit
in the Investment cluster, Sanlam Multi-Manager International,
operating from the UK and Ireland.
The simplification of the investment offering, particularly the
international component, has allowed local resources to be
properly leveraged to ensure increased profitability in the
managing of South African sourced international funds.
Sanlam Investment Management's (SIM) vigorous application of a
pragmatic value-based investment philosophy and its first-rate
supporting processes, steadily refined over the last two years,
continued to translate into improved investment performance.
The net negative investment flows of the preceding 18 months were
effectively reversed with net positive investment flows recorded
for the year under review. SIM also continued to improve its standing
in all the relevant investment management ratings significantly.
These achievements have been particularly gratifying given enduring
uncertainty in the global economy and volatile equity markets.
As a key factor in stimulating growth across our businesses, these
improvements have been a crucial feature of inspiring the renewed
confidence in Sanlam needed to lift overall group performance.
SIM has managed to acquire one of the strongest investment
teams in the industry and with the upturn in internal morale and
market confidence, together with its focus on cultivating a robust,
high-performance culture, continues to attract top industry talent.
• Banking cluster
The back-to-basics strategy applied throughout the Group
underpinned the streamlining of the Banking cluster, comprising
Gensec Bank. Non-core investment banking activities were
terminated, while certain long-term investments and activities
were retained, but not expanded.
Each business was refocused on clear profit targets
in areas with strong prospects and where core
competencies could be leveraged most effectively.
Clearly defined roles and responsibilities have
better positioned them to extract top-line
synergies from each other by supporting
integrated and unambiguous cross-selling.
The restructuring aimed to enhance value by refocusing the cluster on those
areas complementary to Sanlam’s current businesses. Core activities were
grouped into a new entity, Sanlam Capital Markets, to capitalise on the
potential of a centralised treasury, structured products and brokerage
capability to serve the Group and its clients. This renewed focus has resulted
in enhanced operational performance and has allowed the business to
optimise returns and redeploy capital more effectively. We expect to rescind
Gensec’s banking licence in the second quarter of 2004.
• Short-term Insurance cluster
The Short-term Insurance cluster comprises Sanlam’s 53% holding in Santam.
In line with group strategy, Santam continued to scrutinise and improve business
basics, seeking improved efficiencies and ways to better their offering to clients.
This involved making sure the right people were in the right positions, starting
with the appointment of a highly experienced CEO, and restructuring operations
to ensure the full extraction of benefits across the insurance value chain. On the
international front, the acquisition early in the year of Westminster Motor
Insurance Association Ltd in the UK was successfully incorporated. These focus
points combined to support the exceptional results posted by Santam for the year.
Although different business areas will take longer to translate
improved sentiment and investment returns into performance gains,
by the half-year mark real improvement could already be seen
throughout the Group. By year-end, the strategies implemented
across the Group had created the positive momentum needed to help
boost overall performance considerably, notwithstanding the
persistence of poor market conditions.
Sanlam achieved satisfactory results for 2003. Core earnings improved
by 16% to 100,2 cents per share, new fund inflows increased by 20%
and net fund flows improved to R5 billion from a net outflow of R4 billion
in 2002. Disappointing new Life business volumes, however, led to a
32% decrease in the embedded value of new Life business and a
reduction of 2,1 percentage points in the average new business margin.
As the benefits of our progress begin to flow through more strongly
in the next financial year, and given that we have taken most of the
restructuring costs upfront, all these aspects will coalesce to improve
new business inflows and boost performance.
• Independent Financial Services cluster
Moving forward
In our fifth and newest business cluster, we continue to secure partnerships
with independent customer facing entities and intermediary businesses operating
in the financial services industry, to further strengthen our distribution network.
This innovative model provides access to a wider customer base and an
opportunity to channel new business flows into the Group. The business will
be further developed in the year ahead, given the broad-based access provided
by our empowerment deal with Ubuntu-Botho Investments.
Considering the complexities of our business and business environment,
we have achieved a lot in a short time span and are well ahead of our
anticipated schedule. However, to complete this process of positioning
our businesses solidly for sustainable profitable growth is likely to
take a further three to five years. We are confident that the positive
changes will accrue to accelerate our progress in the years ahead.
Our strategy over this period will have three main thrusts:
Getting results
• Client-centric rather than product-centric orientation
With greater clarity, strategic direction and operational focus, sentiment
improved steadily over the year. Internally, morale and motivation improved
noticeably across the Group and the confidence of our advisors and brokers in
Sanlam and its products has been restored. In a poll conducted among Absa
brokers, feedback indicated a return of confidence and positivity. The market
also responded positively to the actions taken over the year and the share
price has shown satisfactory gains, from 760 cents on 1 January 2003 to 880
cents by the end of December 2003.
• Provide a full financial services offering
• Maintain a value-enhancing international presence
As we move forward, we will continue to align our business to our
desired positioning, strategically and structurally. We will continue
thinking ahead to anticipate the trends in constantly shifting and
increasingly competitive markets, and move decisively into defined
new market segments where we can leverage our strengths to
page 27
sanlam annual report 2003
group chief
executive’s report
continued
provide cost-effective, responsive financial solutions. We will
continue to respond innovatively in our traditional markets,
accelerating the shift in our organisational mindset to deliver
higher returns on capital and enhanced profitability, rather
than only pursuing market share.
In each of the key areas we addressed in the past year, we
have achieved favourable outcomes that must now be
translated into profitable new business inflows. This will entail
building on the positives we have achieved thus far:
• A greatly improved image
• A formidable and growing brand
• Exceptional, committed people
• Refocused, right-sized operations
• Enhanced client-centricity
• A wide-reaching, focused distribution network
• A world-class product and service offering
Having realigned the Group structure, we now have the
appropriate operating platforms in each cluster to build
profitable and diversified income streams and pursue local
and international growth opportunities.
Sanlam Life’s business should benefit from the expected
improvement in economic conditions and the much improved
investment performance from SIM. With a steadily increasing
focus on targeted market segments, a better understanding of
changing service and product needs, and strong focus on
cost-efficient distribution and support structures, we should
see a sustained improvement in performance and an increase
in new Life inflows.
We will concentrate on capitalising fully on the co-operation model
with Absa, through jointly developed products and more crossselling, which buffered by improved service to and confidence
amongst Absa brokers, should result in strong volume growth.
At SIM, the challenge will be to build strongly on its
reputation to sustain improved investment performance and
ratings, and translate these gains into new business inflows.
This business is now well balanced and able to adjust nimbly
to changing market conditions, which should see a
consistently competitive performance.
page 28
In Sanlam Capital Markets, the renewed focus on the core areas of
risk management solutions, product innovation and associated
capital market activities will continue to boost its operational
performance and optimise its return on capital.
From a solid foundation of well-aligned and refocused operational
structures, a reinvigorated team and an established geographical
spread, Santam will concentrate on leveraging its strong brand
and market leading position for sustained profitable growth.
The pursuit of appropriate local and international expansion
opportunities will continue in the year ahead.
Recently formed Independent Financial Services cluster will begin
to provide an important alternative revenue stream for the Group
in the medium to long-term.
Sanlam’s commitment to value-enhancing and broad-based BEE
has potentially secured significant long-term opportunities. In the
retail market, the high volume potential in commodity segments such
as group schemes will be pursued vigorously. Given the appropriate
opportunities, various structures will be considered to strengthen
our interface with our new markets where the aim will be to enhance
our capability and competitive position in the fast growing emerging
middle market. In the institutional market, we will leverage our
BEE credentials and competence in retirement funds, investment
management and financial solutions to win new business.
Internally, Sanlam’s investment in employment equity and training
and development will raise the competency and quality of life of
all Sanlam people, making for a more inclusive and diverse
organisation, able to service diverse markets. Our broad-based
investment in society will help to keep us close to our markets as
we work for the creation of wealth for all South Africans.
We have a great deal to be optimistic about. We have strong
prospects in each of our businesses. We are less hierarchical
and more agile. We know what is required of us. And we are
hungry to succeed.
Johan van Zyl
Group chief executive
Executive committee: Sanlam Limited
J van Zyl (Johan) (47)
PhD, DSc (Agric)
Appointed to Sanlam Exco: August 2001
Group chief executive: Sanlam Limited (from April 2003)
Sanlam service: 2 years
Executive director: Sanlam Limited
TI Mvusi (Temba) (48)
BA (Unisa), ELP (Wharton School of Business),
MAP (Wits Business School),
PDP (UCT Graduate School of Business)
Appointed to Exco: January 2004
Chief executive: Group Services
Sanlam service: 5 years
NT Christodoulou (Nick) (55)
BSc Eng (Ind), MBA
Appointed to Exco: October 1996
Chief executive: Independent Financial Services
Sanlam service: 8 years
Alternate director: Sanlam Limited
S Gilbert (Steffen) (42)
FIA
Appointed to Sanlam Exco: July 2003
Chief executive: Santam
Santam service: 8 months
Alternate director: Sanlam Limited
P de V Rademeyer (Flip) (56)
CA (SA), SEP (Stanford)
Appointed to Exco: July 1998
Financial director
Sanlam service: 6 years
Executive director: Sanlam Limited
CG Swanepoel (Chris) (53)
BSc (Hons), FIA, FASSA
Appointed to Exco: October 1998
Chief actuary
Sanlam service: 32 years
L Lambrechts (Lizé) (40)
BSc (Hons), FIA
Appointed to Exco: April 2002
Chief executive: Sanlam Life
Sanlam service: 19 years
Alternate director: Sanlam Limited
JHP van der Merwe (Johan) (39)
MCom, M.Phil, CA (SA)
Appointed to Exco: July 2002
Chief executive: Sanlam Investment Management
Sanlam service: 1 year
Alternate director: Sanlam Limited
JP Möller (Kobus) (44)
CA (SA), AMP (Harvard)
Appointed to Sanlam Exco: May 2003
Chief executive: Finance
Sanlam service: 6 years
page 29
sanlam annual report 2003
group
financial review
Highlights
● Satisfactory overall new business inflows, but a major reduction in Life new business volumes
❏ Total new inflows 20% up on 2002
• Investment inflows up 62% on 2002
• Life business inflows 24% down on 2002
❏ Net fund inflow of R4 956 million vs R3 934 million outflow in 2002
❏ New business embedded value substantially down on 2002
● Gross operating profit 12% up on 2002
❏ Exceptional performance by Santam – up 186% on 2002
● Core earnings up 16% on 2002
❏ Net operating results (after tax & minorities) down 5% on 2002
❏ Substantial increase in equity-accounted income from Absa
❏ Investment income up 14%
page 30
Overview of results
embedded value improved by 15,3% to 1 147 cents
Sanlam achieved satisfactory overall financial results
per share, in line with Sanlam’s growth target.
in 2003. Core earnings improved by 16% to
The discount of the share price to embedded value
100,2 cents per share and new fund inflows increased
amounted to 23% on 31 December 2003.
by 20%. Net fund flows were highly satisfactory,
Headline earnings
improving to R5 billion in 2003 from a net outflow of
Headline earnings comprise the Group’s operating
R4 billion in 2002. Disappointing new Life business
results, equity-accounted income and investment
volumes, however, led to a 32% decrease in the
income. Headline earnings recorded for the year of
embedded value of new life business and a 2,1%
R2 351 million were 11% up on the R2 127 million
reduction in the average new business margin.
achieved in 2002. Headline earnings is stated net of
The Sanlam share price improved from 760 cents per
a R290 million (2002: R153 million) assistance to
share on 1 January 2003 to 880 cents per share by the
policyholder portfolios – accounted for as a fully
end of December 2003. This, including the dividend of
provided loan to the particular portfolios. A prudent
37 cents per share paid during the year, offered a
valuation of the financial position of certain portfolios
return of 21,7% to shareholders. Over the same period,
identified a requirement to bolster their funding level.
taking dividend payments into account, Sanlam’s
The relinquishing of this support will be determined by
Sanlam achieved satisfactory results, with
core earnings improving by 16%, new fund
inflows increasing by 20% and net fund flows
improving to R5 billion from a net outflow
of R4 billion in 2002.
Components of
headline earnings
in rand millions
Kobus Möller
Financial director
Chief executive: Finance
the future performance of the assets in the
2003
2002
%∆
2 405
(724)
(279)
2 149
(549)
(118)
12
(32)
(136)
Net operating income
Equity-accounted earnings
Investment income
1 402
781
458
1 482
396
402
(5)
97
14
Core earnings
Financial assistance to
policyholder funds
2 641
2 280
16
(153)
(89)
Headline earnings
2 351
2 127
11
Net operating income
Equity-accounted earnings
LTRR Investment return
1 402
781
1 108
1 482
396
1 349
(5)
97
(18)
LTRR-adjusted earnings
3 291
3 227
2
cents per share
Headline earnings
Core earnings
LTRR-adjusted earnings
89,2
100,2
124,9
80,8
86,7
122,7
10
16
2
Gross operating profit
Taxation
Minorities
Flip Rademeyer
(290)
portfolios and will be reviewed on a regular
basis. Core earnings of R2 641 million, which
excludes the financial assistance and is
consistent with the headline earnings figure
reported in 2002, were 16% up on the
R2 280 million achieved in 2002. The major
contribution to core earnings growth in 2003
came from a substantial improvement in equityaccounted income.
Gross operating income increased by 12% on
2002. An exceptional performance for the year
by Santam was in part offset by one-off
restructuring expenditure incurred in Sanlam
Life and the performances of Gensec and Sanlam
Financial Services. After accounting for taxation
and the Santam minorities’ share of income, net
operating income reduced by 5% on 2002.
Equity-accounted income largely represents
the Sanlam shareholder funds’ proportionate
share of Absa’s earnings for the twelve-month
period to September 2003, which period
coincides with the Absa reporting cycle. Equityaccounted income doubled to R781 million in
2003. Absa’s results were positively impacted by
an improved operating performance over the
period, and by the introduction of AC133 at the
beginning of their financial year on 1 April 2003.
page 31
sanlam annual report 2003
group
financial review
continued
In line with Sanlam’s accounting practice, Sanlam’s
portfolio. This is partly due to the lower assumed yield
proportionate share of a direct AC133 related
referred to above, but is also the result of the lower
adjustment to Absa’s opening reserves on 1 April 2003
actual base on which the expected yield is applied, as
has been set off against the carrying value of the Absa
markets stayed depressed for most of the year.
investment. Equity-accounted income in 2002
Due to a further reduction in long-term interest rates
included a one-off negative impact of R189 million
the long-term investment yield to be applied in the
that Unifer had on Absa’s 2002 results.
2004 financial year will be reduced to 11% before
Investment income for the full year increased by 14%
taxation.
on 2002. Investment income accounts for only
page 32
dividends, rental and interest earned, net of taxation,
Attributable earnings
on the Sanlam shareholder funds’ balanced
Attributable earnings for the year of R1,9 billion
investment portfolio. Changes in the composition of
(71,5 cent per share) are R2,5 billion higher than in
the investment portfolio, eg an increase in interest
2002. This is largely impacted by a change in
bearing investments, had a positive impact on this
accounting practice upon the introduction of AC133,
income line.
as discussed below, and is therefore not directly
Earnings based on a long-term rate of return
comparable.
(‘LTRR’) improved by 2% from R3 227 million in 2002
Investment surpluses in 2003 therefore only reflect
to R3 291 million. LTRR adjusted earnings comprise
surpluses actually realised during the financial year.
net operating income, equity-accounted income,
Unrealised net surpluses in 2003 of R693 million were
as well as an assumed overall investment return on
directly charged to equity.
the Sanlam shareholder funds’ balanced investment
Attributable earnings are reported net of goodwill
portfolio. The latter, which includes both capital
amortisation and any specifically required
appreciation and dividend, rental and interest income,
impairment of strategic investments. Goodwill raised
is determined by using an expected long-term return
on the acquisition of strategic investments is
yield. In line with the trend in long-term interest
capitalised and amortised over periods of up to
rates, the expected yield has been reduced from 13%
10 years. The consolidated amortisation charge for
before taxation used in 2002 to 12% in 2003.
2003 amounted to R277 million. Unamortised
The reduction had a negative impact on the 2003
goodwill as at the end of 2003 amounted to
reported results.
R1 855 million. A review of the fair value and the
The relatively small increase in LTRR earnings can
carrying value of the strategic Group investments
largely be attributed to an 18% reduction in the
indicated a potential value shortfall of some
expected long-term return on the investment
R248 million. This is largely in respect of Gensec’s
Gross operating profit of R2 405 million
is a 12% improvement on 2002, mainly
ascribed to Santam’s excellent results
Attributable earnings
in rand millions
Headline earnings
Investment surpluses
Retrenchment and closure cost
Goodwill and investment
impairments
Goodwill amortised
The long-term insurance industry assisted the South
2003
2002
%∆
2 351
134
(77)
2 127
(2 468)
—
11
(248)
(277)
—
(259)
Attributable earnings
1 883
(600)
cents per share
Attributable earnings
71,5
(22,8)
African Institute of Chartered Accountants in
developing a guideline on the application of AC133 to
insurance contracts. This guidance has been applied in
the 2003 financial statements and in compliance, the
liabilities in terms of insurance and investment
(7)
contracts are disclosed separately in the balance
sheet. Judging by the timetables on the issuing of new
exposure drafts and standards, the migration to
International Financial Reporting Standards for
insurers will last a number of years. Future results and
exposure to the Safair Lease Finance joint venture (‘SLF’)
(R100 million) and Fieldstone (R129 million).
disclosure for Sanlam may be impacted, as the
development of guidance for the industry, both from
an accounting and actuarial perspective is an ongoing
The restructuring of Gensec resulted in the formal closure of certain
parts of its business. Separately identifiable costs of R77 million
incurred in respect of the termination of these businesses, including
retrenchment and related staff cost, are, in terms of ruling accounting
practice, excluded from headline earnings.
Accounting policies and presentation
process. We are fully supportive of the process but are
cautious of a hasty or unconditional approach to the
new standards, which might place onerous
requirements on companies without a commensurate
increase in the value of information.
The introduction of AC133 forced a revisit of Sanlam’s
treatment of investment surpluses. In the past all
Accounting developments
investment surpluses were taken through the income
Sanlam adopted AC133: Financial Instruments – Recognition and
statement. All applicable investments of the
Measurement in 2003. In line with the accounting standard,
shareholders’ portfolio are now classified as available-
comparative figures were not restated, but the effect of revaluing
for-sale in terms of the standard. Sanlam elected to
financial instruments at the beginning of the year by R13 million was
charge unrealised investment surpluses directly to
adjusted against opening retained income. This did not have a material
equity, while realised investment surpluses will be
effect on group results.
recycled to the income statement, but do not form
page 33
sanlam annual report 2003
group
financial review
continued
part of headline earnings. Since the 2002 results we
International, a new wholly owned entity in the
present two headline earnings figures, the primary
Investment cluster. The remaining businesses,
figure being based on the JSE definition and the
primarily actuarial and investment consulting, is
secondary (‘LTRR adjusted earnings’) being based on
retained in the Sanlam Financial Services UK group
operating profit and total investment return adjusted
(‘SFS’), in which Sanlam’s interest is diluted to 60%,
for a long-term rate of investment return.
and form part of the Independent Financial Services
Except for the adoption of AC133 as discussed
cluster. Sanlam’s 82% interest in the previous Sanlam
above, no changes were made to the Group’s
International’s results up to 30 June 2003, before the
Accounting Policies.
restructuring, is reported in the Independent Financial
Services cluster.
Changes in reporting structures
The cluster approach to operations, as discussed in the
Operational performance
CEO report and depicted in the Group structure on
This report provides an overview of the Group
page 2, was announced in May 2003 as part of the
operational results. Detailed reviews that cover the
Group’s strategy of improving operational focus and
operational performance of the different Group
delivery. As part of the restructuring, the Group has
businesses are provided from page 68.
been aligned into five clusters, namely life insurance,
short-term insurance, investment, banking and
independent financial services. In line with the
Business volumes
New business flows
changing management responsibilities of these
clusters, the results of Innofin and Sanlam Collective
Investments (formerly Sanlam Unit Trusts) have been
transferred from the Life cluster to the Investment
cluster. Certain corporate functions were transferred
to the Clusters as part of the creation of a small
streamlined central function. Operating results of
prior periods have been restated to reflect the
New business 2003
life insurance
investment
short-term insurance
above changes.
The restructuring of Sanlam’s international businesses
was undertaken with effect from 1 July 2003. This
resulted in the international investment management
business being transferred to Sanlam Multi Manager
page 34
New business 2002
The re-engineering of the investment process
and new senior appointments at SIM are
bearing fruit as is reflected in the improved
new business inflows.
New business
A 20% increase in total new inflows was achieved for
in rand millions
2003
2002
%∆
Life business
10 012
13 123
(24)
Individual single
6 073
8 835
(31)
Individual recurring
1 504
1 540
(2)
Group business
2 435
2 748
(11)
Investment
22 019
13 586
62
The re-engineering of the investment process and new
Short-term insurance
6 755
5 548
22
senior appointments at SIM are bearing fruit as is
New business inflows
38 786
32 257
20
reflected in the improved new business inflows. SIM’s
the year. This is due to a major improvement in
investment inflows and strong growth in Santam’s
premium income. SIM’s wholesale segregated fund
inflows, in particular, exceeded R5 billion for the year,
compared to R403 million in 2002, while Sanlam
Multi Manager attracted new inflows of R1 billion.
position on the Alexander Forbes Large Manager
Watch ranking is within the stated objective of
consistent top-half performance as SIM now ranks
fourth and fifth out of ten on the Global and Domestic
ranking respectively, compared with ranking eighth
and sixth a year ago respectively.
New Life insurance inflows were disappointing with
an overall reduction of 24%. Individual single
Net fund flows
premiums, constituting approximately 60% of new
in rand millions
2003
2002
%∆
Net flows
Life insurance inflows, were in particular affected by
external constraints and were down by 31% on 2002.
Life business
(5 027)
Investment
7 603
(4 932)
(625)
(2)
Short-term insurance
2 380
1 623
Net business flows
4 956
(3 934)
Total inflows
48 883
42 098
16
Total outflows
43 927
46 032
5
Client appetite for contractual equity linked saving,
both local and international, were severely impacted
47
by market and currency volatility and adverse
investment returns experienced in the recent past.
This was aggravated by the negative impact of an
inverse yield curve on the competitiveness of some of
the major single premium product offerings. The
page 35
sanlam annual report 2003
group
financial review
continued
recent stock market recovery, coupled with a return to
appropriate reward for the improved investment
more competitive investment management results by
results reported on funds managed by SIM.
SIM, should increase the attraction of equity-linked
Santam’s excellent underwriting performance is
products. New individual recurring business is down
reflected in the strong improvement in short-term
2% as a 10% fall in new business written, is partly
insurance net fund flows. The net outflow of Life
offset by the premium growth due to index-linked
funds remains disappointing, substantially as a
adjustments. Group Life business experienced an 11%
result of the lower level of new business. The net
fall in new business flows. The overall Life Annual
flows, however, improved in the second half of
Premium Equivalent of R1 729 million is down by 21%
2003 and were only marginally negative. Total
on 2002.
outflows for the year are down by 10%, assisted
New business embedded value
In line with the lower new business inflows, the
embedded value of new Life business written during
the year, at R218 million, is down 32% on 2002. The
profitability of new Life business, as measured by the
by a 36% reduction in individual policy surrenders.
Net Group Life business flows, although still
negative, are 38% up on 2002, while the
Individual Life flows were negatively impacted by
one major policy of R1,4 billion that matured
during the year.
ratio of the embedded value of the new business to
the annual premium equivalent (APE), is also lower at
12,6% from 14,7% in 2002.
This excludes the embedded value of new life business
written by Innofin (R14 million), which is not reported
as part of the Life cluster.
page 36
Operating results
Group gross operating profit of R2 405 million is a
12% improvement on 2002. The increase can mainly
be ascribed to an excellent performance by Santam,
which was partly offset by the results of Gensec and
Net fund inflows
Sanlam Financial Services in the UK.
Net fund inflows of almost R5 billion represents
Financial services income, the overall aggregate of net
a welcome improvement on the 2002 outflows
fees earned, underwriting premiums received and net
of R4 billion. The major contributor to the
interest earned on working capital, is 11% up on 2002.
turnaround is net wholesale third party
This increase is mainly attributable to an increase in
investment inflows of R1,5 billion, compared to a
risk premium income and net interest received on
R5,6 billion net outflow in 2002. Sanlam Private
working capital. Net underwriting benefits paid by
Investments, Sanlam Collective Investments and
both Sanlam Life and Santam increased by some 12%.
Innofin all achieved satisfactory increases in net
Administration expenditure increased by 8% on 2002.
inflows. These results are most gratifying and
Santam’s expenditure increased in line with their
Net fund inflows of almost R5 billion represents a
welcome improvement on the 2002 outflows of
R4 billion.
Operating profit
higher business volumes. Excluding Santam,
in rand millions
2003
2002
%∆
Financial services income
Underwriting benefits
Administration cost
14 078
(6 877)
(4 796)
12 734
(6 162)
(4 423)
11
(12)
(8)
Gross operating profit
2 405
2 149
12
expenses in the remainder of the Group
increased by only 3%, of which a major part can
be attributed to one-off restructuring expenses
in Sanlam Life.
Sanlam Life’s results reflect the impact of lower
sales volumes and equity markets for the year.
This has been compensated for by improved
underwriting results and effective cost
management. A restructuring process
implemented during the last quarter of 2003,
which is aimed at Sanlam Life attaining
Operating profit contributions
in rand millions
annualised cost savings of at least R250 million,
2003
2002
%∆
1 445
1 451
—
Normal operations
Restructuring cost
1 506
(61)
1 451
—
4
Santam
Gensec Bank
Investments
Ind. Financial Services
735
(19)
292
(1)
257
112
243
99
186
(117)
20
(101)
4% increase over 2002.
SFS
Gensec Properties
(20)
19
75
24
(127)
(21)
management income further attributed to total
Corporate income
73
101
(28)
2 525
(120)
2 263
(114)
12
(5)
2 405
2 149
12
necessitated a one-off associated cost of
Sanlam Life
Corporate expenses
Gross operating profit
R61 million, which has been accounted for in
full in the 2003 results. Excluding these
restructuring costs, Sanlam Life’s profit shows a
Santam achieved excellent underwriting results
in 2003, which led to underwriting profit more
than doubling over 2002. Improved cash flow
operating profit for the year of R735 million,
compared to R257 million in 2002.
SIM’s improved asset base led to a 17% overall
increase in fee income. Following the
restructuring of the international business, the
results of the international multi-manager
page 37
sanlam annual report 2003
group
financial review
continued
(SMMI) are included in the Investment cluster for the
Gensec’s operating results, both in terms of the loss of
second half of 2003. This contribution, as well as that
revenue while scaling down the operations and the
of the other businesses in the Cluster, especially
costs incurred to retain key staff during that period.
Innofin and Sanlam Property Asset Management,
Included in the discontinuing operations’ results for
resulted in the Investment cluster delivering a 20%
the period is a net loss of R78 million incurred by
improvement in profit to R292 million for the year
Fieldstone. This includes a reversal of prior year profits
compared to 2002.
to write the carrying value of the investment down to
Gensec Bank’s performance had a material effect on
zero, as well as a provision for the estimated legal
Sanlam’s results for the year. As part of its restructuring,
costs associated with a claim instituted against
a distinction is made between the ongoing operations
Fieldstone. Details of the claim are provided in the
that will in future be the core of Sanlam Capital
note on contingent liabilities in the financial
Markets, and those operations to be discontinued.
statements. In addition, a prudent view is taken on
Gensec recorded an operating loss before tax of
the recoverability of additional loan funding
R19 million for the twelve months to December 2003,
provided to cover current-year expenditure by
after accounting for an operating loss of R74 million
Fieldstone. Although assets have been accepted as
by the discontinuing operations. Building down the
collateral, the funding is expensed in full in the
discontinuing operations had a major impact on
year’s operating results.
Gensec Bank
Continuing
Discontinuing
Headline
Total
Non-headline
termination
Total
Business revenues
Expenses
234
(179)
162
(158)
396
(337)
—
—
396
(337)
Profit before tax
Fieldstone net loss
55
—
4
(78)
59
(78)
—
—
59
(78)
Total profit before tax
Taxation
55
13
(74)
(10)
(19)
3
—
—
(19)
3
Net operating profit
Closure cost
Impairment
68
—
—
(84)
—
—
(16)
—
—
—
(77)
(229)
(16)
(77)
(229)
Attributable income
68
(84)
(16)
(306)
(322)
in rand millions
page 38
The statutory capital requirement of the Life
business amounted to R7,3 billion at the end of
2003. Qualifying capital held by Life covered this
requirement 2,7 times.
Chris Swanepoel
Chief actuary
Overall, Gensec incurred an attributable loss of R322 million for the period.
25%
21%
In addition to the headline loss of R16 million, a R306 million loss relates to
expenditure of R77 million directly incurred in the closure of part of the operations,
17%
37%
which is excluded from operating profit and headline earnings, and a potential value
shortfall of some R229 million in respect of Gensec’s exposure to the Safair Lease
Finance joint venture (‘SLF’) and Fieldstone. This impairment is accounted for in full.
Embedded value
The fair value of the SLF investment is sensitive to changes in the R/$ exchange rate
group operations
absa
other assets
value of in-force
and the recent strengthening of the Rand versus the Dollar contributed to a value
shortfall of R100 million on a fairly discounted mark to market basis. The carrying
value of Gensec’s total exposure to Fieldstone amounts to R129 million. Based on the
most prudent view of any potential future benefit that may be derived from the sale
of Fieldstone’s business to management, this investment is written off in full.
The growth in the Group Shareholders’ funds is
mainly due to the impact of improved investment
markets on investment return, and in particular,
The results of Sanlam Financial Services UK (‘SFS’), the remaining advisory and
the performance of the investments in Absa and
related activities business in the UK, are now included in the Independent Financial
Santam. Corporate activity during the year impacted
Services cluster and recorded a loss of R20 million for the period. Its results, in
on the composition of the Shareholders’ funds.
particular brokerage and private client business, were affected by lower fee income
on a lower level of investments under management. Restructuring costs, legal fees,
etc incurred in respect of the restructuring of the businesses also negatively
impacted on the results.
The 28% fall in corporate income is in part attributable to a reduction in margin on
the corporate preference share book.
• The Shareholders’ funds’ interest in Santam
increased from 44% in December 2002 to
46% in December 2003.
• In terms of a restructuring agreement entered
into with the minority shareholders of Sanlam
Financial Services (SFS), responsibility for
the South African sourced international funds
Capital
under management was transferred to a new
Embedded value
wholly-owned offshore business unit in the
At the end of December 2003 Sanlam’s embedded value amounted to R29,66 billion.
Investment cluster, Sanlam Multi Manager
This represents an increase in value of R3,55 billion on the R27,09 billion as at the
International (SMMI). At the same time
end of December 2002 after taking into account the dividend of R972 million paid
Sanlam reduced its interest in the remaining
during the year.
SFS business to 60%.
page 39
sanlam annual report 2003
group
financial review
continued
• Sanlam acquired Merchant Investors Assurance
Solvency
Company Ltd, a specialist provider of individual
The solvency position of the capital intensive
pensions and life products in the UK from the
operations in the Group remains sound.
Allianz group late in 2003. The investment was
funded from existing off-shore cash resources. The
Sanlam Life Insurance
company became a subsidiary of the Sanlam group’s
At 31 December 2003 the total capital allocated to
offshore holding company, Sanlam Netherlands
Sanlam Life amounted to R19,7 billion. The statutory
Holding BV, and will form part of the Life cluster.
capital requirement (‘CAR’) of the Life business
• Sanlam acquired the remaining one third of
amounted to R7,3 billion at the end of 2003.
Innofin, from Macquarie Bank for R90 million.
Qualifying capital held by Life covered this
Innofin is part of the Investment cluster.
requirement 2,7 times (1,7 at the end of 2002).
• The Shareholder Funds’ interest in Absa reduced
The improved cover can be attributed to improved
marginally from 19,2% in December 2002 to 18,9%
equity markets as well as the active management of
in December 2003.
the shareholders’ funds’ exposure to equities.
The net value of Sanlam Life’s in-force book increased
Management actions assumed in determining CAR
by 9% to R7,3 billion. The growth from Life Insurance
are less severe than in 2002.
business as a percentage of the starting value of the
in-force Life business amounted to 24,7%, assisted by
positive operational experience variances for the year,
most notably improved risk profits and interest earned
on working capital.
The Group accepted return on embedded value as
a primary performance measure. This takes account
of both the return earned on capital employed and
the growth in the value of the Life group’s in-force
page 40
During the course of the year a prudent valuation of
the financial position of the Participating Annuity
Portfolio in terms of prevailing actuarial guidelines,
indicated a need to bolster the funding level of the
portfolio by an additional R190 million (2002: R153
million). In addition, it was decided during the year to
support the Monthly Bonus Fund with R100 million in
view of this portfolio’s relatively low funding level at
book of business. A target has been set to
the time. The repayment of the support will in both
outperform the 10-year bond yield by between
instances be determined by the future performance of
3% and 4% per annum on a sustained basis,
its underlying assets and will be reviewed on a regular
providing a target of approximately 13% for 2003.
basis. The funding levels of these portfolios still meet
Taking into account the dividend of 37 cents per
the prescribed requirements in terms of the Long-Term
share paid during the year, the net growth in 2003
Insurance Act and the professional guidelines of the
on the December 2002 embedded value of
ASSA on the elimination of under funded positions.
1 032 cents per share amounted to 15,3%.
The under funded positions have already improved
The restructuring of Gensec will lead to a
much lower capital requirement of some
R400 million and the eventual handing back
of the banking licence.
towards the end of the year in line with a
Embedded value
in rand millions
2003
2002
%∆
Group operations at fair value
6 237
5 447
15
Santam
Investment cluster
Gensec Bank and SCM
Sanlam Financial Services
Gensec Properties
2 688
2 118
1 001
378
52
1 581
2 044
1 186
576
60
70
4
(16)
(34)
(13)
Absa
Other
5 181
11 401
3 957
11 543
31
(1)
Group shareholders’ fund
at fair value
NAV adjustments
Adjusted net assets
Net value of in-force business
Gross value of in-force business
Cost of capital at risk
recovery in equity markets. At the end of
December 2003 the funding level of all the
policyholder funds were in excess of the
minimum disclosure requirement of 92,5%.
Santam
Santam remains adequately capitalised. Its
solvency level on 31 December 2003 amounted
to 56%, which is marginally down from the 60%
in 2002, but well in excess of regulatory
22 819
(501)
20 947
(600)
9
17
requirements. The reduction is due to the
22 318
7 344
20 347
6 740
10
9
Gensec
8 251
(1 511)
5
12
8 669
(1 325)
substantial increase in business written in 2003.
To support Gensec Bank’s external rating and to
ensure its competitive market position, Sanlam
provides a capital maintenance guarantee to
Embedded value (EV)
29 662
27 087
10
EV cents per share
NAV cents per share
Share price discount to EV
1 147
883
23%
1 032
798
26%
11
11
Genbel Securities Limited (Gensec) to maintain
its capital at R2 billion, but with a limited
obligation in terms of the guarantee of a
maximum of R5 billion. Gensec, in return,
provided a similar guarantee to Gensec Bank.
As a result of the loss incurred for the year, the
capital level of Gensec fell to R1,87 billion by the
end of December 2003. Even at the reduced level,
the Bank’s capital is well in excess of its current
estimated economic capital requirement of
R500 million. Sanlam Limited subordinated a loan
page 41
sanlam annual report 2003
group
financial review
continued
to Gensec of R300 million in favour of Gensec’s
Ubuntu-Botho transaction. The optional deployment
creditors to augment the capital level in terms of the
of capital will receive specific attention. Improving the
capital maintenance guarantee.
return on capital will be a principal objective in
considering internal and external opportunities as well
The restructuring of Gensec will lead to a much lower
as potential share buy-backs.
capital requirement of some R400 million and the
eventual handing back of the banking licence.
Contingencies
A suitable alternative shareholder support will then
The note on Contingencies (note 31 on page 155) in
be put in place, without infringing on the existing
the annual financial statements provides detail of
rights and security of third parties.
certain significant legal and tax claims against the
Group. The relevant Group companies are contesting
Capital efficiency
Sanlam recognises the importance of the efficient
all of these claims.
Dividend
deployment of the Group’s capital as a key component
of its drive towards improving operational
performance and optimising capital utilisation.
The Board has declared a dividend of 40 cents per
share payable on 19 May 2004 to shareholders. The
last date of trade to qualify for this dividend will be
As Sanlam Life’s business represents by far the largest
16 April 2004. This represents an increase of 8% over
single component of the capital requirement,
the 37 cents per share dividend declared in respect of
extensive work is continuously being done to
2002. The dividend is covered 2,2 times by headline
determine and confirm its appropriate capital levels.
earnings.
New FSB regulations that limit the extent to which
life insurers are able to take account of strategic
investments in satisfying their prudential valuation
requirements is an important consideration in the
process. This affects the value to be placed on
investments in subsidiaries and associated companies,
Flip Rademeyer
Financial director
and impacts on Sanlam Life’s holdings in Absa,
Santam and SIM. The optimal structuring of these
holdings in the Group is receiving due attention.
The Group’s capital position will be enhanced by the
release of capital as a result of the Gensec
page 42
restructuring over the next eighteen months as well as
Kobus Möller
a capital inflow on implementation on the proposed
Chief executive Finance
Group Finance Management
Flip Rademeyer
Actuarial and risk
Financial director
Chris Swanepoel
Finance
Chief actuary
Kobus Möller
Sias de Kock
Chief executive Finance
Risk management
ML Carstens
Jacques Marnewicke
Group reporting
Forensic
Danie Claassen
Tax services
Helet Malherbe
Chief economist
Jac Laubscher
Investor relations
Jeanne Masson
Corporate finance
Company secretary
Johan Bester
page 43
sanlam annual report 2003
economic review
Business conditions in the financial services
economic growth and financial markets, the
sector improved markedly in the second half of
strength of the rand contributed to a lack of
2003 following a poor start to the year.
investor interest in foreign investments. This was
The slow start was mostly due to the uncertainty
regarding the outcome of the looming war in
negatively impacting the return on these funds.
Iraq, which sapped global business, consumer
As the deflation scare subsided, global bond
and investor confidence. War fears were
yields rose sharply and once again South African
exacerbated by economic uncertainty, with
yields did not escape. However, the sharp fall in
the possibility of a global deflationary trend
the repurchase rate of the South African Reserve
taking hold.
Bank that commenced in June 2003, prevented a
The result was a lethargic performance from the
bear trend from taking hold and the downward
financial markets, with the share market coming
trend in bond yields resumed in the fourth
under particular pressure due to the negative
quarter. The decline in bond yields was
implications this would hold for company profits.
supported by a general narrowing in spreads on
Once the uncertainty was removed, international
more risky asset classes, including emerging
share markets recovered strongly, but share
market debt.
prices on the JSE Securities Exchange were held
back by the appreciation in the value of the
rand, causing the profitability of exporters to
fall. However, the JSE ended the year on a strong
note, and the extremely low valuations that
prevailed in the first half of the year have now
page 44
mainly due to the strength of the rand
The fall in interest rates in South Africa was
made possible by the equally sharp decline in
inflation, which once again brought home the
need for the financial services sector to adapt to
a low inflation environment.
been largely corrected. The recovery in equity
Household disposable income and the resultant
markets will bring welcome relief to the balance
discretionary savings benefited from substantial
sheets of financial institutions.
tax relief, falling inflation and real wage and
The strength in the rand gained momentum as
salary increases. The improvement in the
the long awaited depreciation in the US dollar to
financial position of households was also evident
correct a growing current account deficit,
in the decline in insolvencies, summonses and
unfolded. However, the appreciation in the
judgments for debt. However, it is disappointing
trade-weighted value of the rand was
that the possibility of job losses has reared its
significantly lower due to the strength of the
head again due to the effect of the strong rand
euro. Apart from its negative impact on
on the manufacturing sector.
The JSE ended the year on a strong note, and the
extremely low valuations that prevailed in the first
half of the year have now been largely corrected.
The recovery in equity markets will bring welcome
relief to the balance sheets of financial
institutions.
Jac Laubscher
Chief economist
The uncertain economic and financial conditions, together
The outlook for 2004 is promising. Although inflation
with the recent history of financial market turbulence, have
is close to its lower turning point, short-term interest
however caused an increase in risk aversion, with savers and
rates are expected to move largely sideways for the
investors preferring the safety of fixed interest investments.
remainder of the year. Only limited upward pressure
The booming property market also attracted a lot of interest.
on bond yields is expected, and equity markets should
There were also tentative signs towards the end of the year
continue to perform well, especially in the first half of
that equity investments were coming back into favour, helped
the year. The expected weakening bias in the
along by the low returns offered by fixed interest investments.
exchange rate of the rand should be held in check by
The adoption of the Financial Sector Charter late in 2003,
the improving trend in net foreign exchange reserves.
after a constructive period of industry negotiation, will forever
Economic growth is set to accelerate, although not to
change the business environment for the financial services
a level that would be sufficient to start rolling back
sector. Putting black economic empowerment at the heart of
the frontiers of poverty and unemployment.
the future development of the financial sector in South Africa,
Household disposable income is likely to continue
presents new challenges and opportunities to the established
growing at a moderate pace, and the improving
institutions to ensure they fully realise the economic potential
financial position of households should contribute to
of South Africa.
steady savings.
page 45
sanlam annual report 2003
group
services review
The Group services division of Sanlam Limited
human resources (HR) function within the
comprises the group functions of human resources,
organisation.
public affairs, corporate social investment (CSI), black
Employer of choice
economic empowerment (BEE), information
technology (IT), operational services and
communications.
Over the course of 2003, a marked change in the
market perception of Sanlam as a preferred employer
was effected. This created a more favourable climate
In line with the realignment and further
decentralisation of the Sanlam group structure
undertaken in 2003, those areas that remained
centralised have been grouped into a service division,
with a dedicated executive at the helm.
for the recruitment of top talent at most levels of the
organisation and specifically at the executive level,
and also influenced the Group’s ability to retain top
skills in a competitive market. To manage the risk of
potential skills losses in critical executive positions, a
This divisional report provides an outline of the
strategy to ensure the retention of the Group’s top
achievements in the areas of group human resources,
talent was formulated and implemented. This strategy
CSI and BEE over the course of the year under review.
makes provision for initiatives both at group and
individual business levels.
Group human resources
The Sanlam group employs around 10 700 people in
Succession planning
South Africa, Namibia and the UK. Apart from guiding
Sanlam has an internationally benchmarked, group-
human resources policies and practices for the Group,
wide succession management process in place aimed
group human resources is primarily responsible for the
at identifying, developing and retaining Sanlam’s
core functions of managing Sanlam’s human
future leadership. In this regard, group human
intellectual capital, business transformation, in
resources has developed individually focused learning
particular employment equity, and the Group’s
plans, as well as interventions and development
HIV/Aids strategy.
programmes aimed at the group as a whole.
Group level development programmes include the
page 46
Management of intellectual capital
Sanlam Executive Development Programme (EDP), the
The management of Sanlam’s intellectual capital is
Sanlam Senior Management Development Programme
one of the Group’s most important strategic priorities.
(MDP), the Sanlam Future Business Leaders workshop,
The Group’s executives and the human resources
and our participation in the South African Insead
committee drive it, with support from the dedicated
consortium.
The management of Sanlam’s intellectual
capital is one of the group’s most important
strategic priorities. It has an internationally
benchmarked, group-wide succession
management process in place aimed at
identifying, developing and retaining its future
leadership.
Temba Mvusi
Chief executive: Group services
Steady progress has been made at improving the diversity in the Group through these
During the review year, focus areas included a
leadership development programmes:
response to the Department of Labour’s EE audit
• Of the 40 executives that participated in the EDP, 30% of the participants were
of Sanlam, the expansion of EE forums, diversity
black (compared to 3% in the first programme in 2001) and 32,5% were female
management initiatives, the introduction of
(compared to 7% in 2001);
three-year EE plans for each of Sanlam’s
• During 2003, 54 middle and senior managers completed the Sanlam MDP of which
34% were black and 34% were female participants;
businesses, and the aggressive recruitment from
designated groups.
• 30% of the participants in the Sanlam Future Business Leaders workshop were
black and 45% were female; and
• 33% of the participants in the Insead consortium were black and 16%
were female.
The Department of Labour (DoL) EE audit
The DoL conducted a procedural audit of Sanlam
offices countrywide, interviewing management,
EE forum members, human resources staff, and
Training and skills development
randomly selected employees. The audit was
Training and skills development remains an important mechanism to enhance the
informative and assisted Sanlam in identifying
Group’s competitive advantage. Through the actions of skills development facilitators
and removing potential barriers to EE. The DoL
at group and individual business levels, Sanlam complies with the requirements laid
has indicated that it will perform a substantive
out in the skills development legislation and recoups the claimable portion of the
EE audit at Sanlam offices throughout South
skills levy.
Africa during 2004. Sanlam views this as a
Initiatives aimed at supporting education continued throughout 2003 and included
constructive means of assessing its progress
bursaries at school and university levels, and initiatives such as Sanlam’s sponsorship
with regard to EE.
of the Brightest Young Minds initiative. This project brings 100 of the brightest finalyear students from South Africa’s universities together for a week-long development
Sanlam EE forums
programme.
Sanlam established its first EE forum in 1996.
Since then, all of Sanlam’s businesses have
Employment equity
established EE forums, and during 2003, Sanlam
In line with the Employment Equity (EE) Act, Sanlam’s EE initiatives have come under
developed and distributed comprehensive EE
intense internal and external scrutiny.
manuals with information on how to establish
page 47
sanlam annual report 2003
group
services review
continued
EE forums, legislative parameters, training
recruiting and retaining employees from designated
requirements, EE forum codes of conduct and all
groups. This included an extensive study to analyse and
Sanlam EE policies, plans, reports and research studies.
address recruitment practices and policies in the Group.
Diversity management
Sanlam has long recognised that diversity is central to
the creation of a proactive workforce, whilst naturally
contributing to reaching set EE goals. During 2003,
Sanlam continued with its diversity management
initiatives by contracting various external experts to
host diversity workshops for all employees and to
HIV/Aids
In accordance with the Sanlam HIV/Aids strategy and
the HIV/Aids and Sexually Transmitted Disease (STD)
strategic plan for South Africa, Sanlam focused on
Aids education during 2003. In addition, the Group
sought to consolidate its relations with external
HIV/Aids role players.
provide management training dealing with both the
benefits and challenges a diverse workforce presents.
HIV/Aids education
This initiative was further advanced with various
Whilst acknowledging progress made with the
businesses hosting "diversity days".
ongoing research into possible HIV vaccines, Sanlam
sees education as one of the most important ways of
EE plans and reports
stemming the HIV/Aids tide. Sanlam has therefore
Sanlam submitted its fourth annual EE report to the
carefully selected staff members from across the
DoL during 2003, which is on public display at Sanlam
country to attend a rigorous six-month training
offices countrywide. The company is currently in
programme as HIV/Aids peer educators, enabling them
possession of a DoL letter of acknowledgement, which
to offer HIV/Aids training to all staff members. In
allows it to tender for government and parastatal
addition, all new employees are provided with basic
contracts. Sanlam and all of its subsidiaries have
HIV/Aids awareness training at Sanlam’s monthly
subsequently developed their second round of three-
induction programme.
year EE plans, and have made these available to all
Sanlam employees.
Support for HIV positive employees
Sanlam’s peer counsellors continued to provide
page 48
Recruitment of designated groups
counselling and support to Sanlam’s HIV positive
Taking cognisance of the newly adopted Financial
employees and antiretroviral medication is being made
Sector Charter, Sanlam revised its EE targets during
available to all HIV positive employees via the Aid for
2003, responding positively to the challenges of
Aids programme.
During 2003, the Group invested R21,5 million in
40 CSI projects in the fields of education,
economic empowerment, HIV/Aids, cultural
environmental and sports development.
Talking about HIV/Aids
Corporate social investment
During 2003, Sanlam embarked on a comprehensive HIV/Aids communication
At a group level, corporate social investment
campaign, including posters, brochures, articles in selected publications and special
(CSI) focuses on projects in the fields of
events. External communication included the highly successful Sanlam Aids
education, economic empowerment
exhibition at an international Aids conference in Durban.
(entrepreneurship), HIV/Aids and social
External partnerships
development. Businesses within the Group
have supplementary focus areas like the
Sanlam continued to put its weight behind the national fight against HIV/Aids by
consolidating its external relationships with the following role players:
environment, sports development and arts
and culture.
• LoveLife: Sanlam developed and facilitated an innovative financial services
programme for the LoveLife Groundbreakers, a leadership development programme
for matriculated volunteers;
• Congress of South African Trade Unions (COSATU) Western Cape: Sanlam sponsored
the post of a COSATU HIV/Aids educator, who provides basic HIV/Aids training at
affiliated factories in the region;
• Santos Professional Football Club: Sanlam established its groundbreaking and
During 2003, the Group invested R21,5 million
in 40 programmes from these categories.
Some of these programmes are detailed in
Sanlam’s Transformation Report for 2003.
Sanlam’s proposed BEE transaction, the
Ubuntu-Botho transaction, makes specific
highly successful "Take Control" role model project with selected Santos football
provision for an extensive CSI component,
players, training them to provide HIV/Aids training at historically disadvantaged
which will raise the intensity and scope of
schools on the Cape Flats; and
current activities.
• The South African Business Coalition against HIV and Aids: Sanlam co-sponsors
this national organisation which provides useful HIV/Aids information to small,
medium and micro enterprises (SMMEs).
If shareholders approve the transaction,
a new CSI strategy will be implemented
in 2004, which will seek to further integrate
the activities of the separate businesses
External recognition
into a coherent group CSI programme
During 2003, Sanlam’s HIV/Aids initiatives resulted in the group receiving an award
with a strong emphasis on staff involvement.
from the prestigious African Heritage Foundation Trust as one of the top five HIV/Aids
The full extent of CSI activities will then be
companies of the year.
available on the Group’s website
(www.sanlam.co.za).
page 49
sanlam annual report 2003
group
services review
continued
Political party funding
As a strategic imperative for Sanlam, BEE forms a
Sanlam views the continuing development of multi-
crucial part of the Group’s transformation strategy.
party democracy as imperative for sustainable
As such, our reporting on the issue is interspersed
development, economic and business growth.
throughout the Annual Report and is extensively dealt
In view of the general election in 2004 and
celebrating the tenth anniversary of South Africa’s
new democracy, Sanlam for the first time since its
listing in 1998, supported political parties financially.
with in our Transformation Report. The progress in
advancing BEE ownership and control has been
comprehensively discussed by the chairman and CEO
in their reports. For the sake of stakeholders who
require an overview of those BEE initiatives not dealt
A total amount of R1,55 million was allocated in 2004
to political parties represented in parliament.
In considering the matter, the Sanlam board consulted
with its independent CSI Advisory board and also
applied the recommendations of the National Business
Initiative for broad-based corporate contributions to
the development of multi-party democracy in South
Africa, in its decision.
outline covers our efforts in funding economic
development and BEE procurement:
Sanlam is a pioneer in the financing of empowerment
transactions. Beginning in 1996 with the creation of
the Sanlam Development Fund and Community
Development Fund, and continuing in 2003 with the
formation of Sanlam Development Fund-of-Funds (the
Black economic empowerment
country’s first private equity fund-of-funds), Sanlam
The chief executive of Group services also has the
has demonstrated a sincere commitment to promoting
responsibility to co-ordinate delivery on the BEE
black economic empowerment throughout southern
initiatives of the Group and, in particular, with the
Africa. The Sanlam Development Fund of Funds
implementation of the proposed Ubuntu-Botho
(SDFoF) is managed by a dedicated team at Sanlam
transaction.
Investment Management and promotes empowerment
Sanlam is committed to all the different components
of BEE as per the balanced scorecard approach of the
Financial Sector Charter and is making progress
responding to each of these areas. Sanlam’s BEE
strategy rests on four main pillars, namely BEE
page 50
with elsewhere in the Annual Report, the following
by funding infrastructure, private equity and venture
capital funds led by empowerment groups. At the
same time it aims to facilitate the development of a
significant pool of black fund managers in the private
equity industry.
ownership and control, employment equity (EE),
Through its targeted group procurement policy,
funding economic development and BEE procurement.
Sanlam strives to ensure that its suppliers are diverse
by race, gender and disability status. Sanlam supports the emergence
of SMMEs, with particular emphasis on historically disadvantaged
groups. The overarching objective of the policy is to change
the composition of Sanlam’s service providers by way of defined
targets that reflect both the regional and national demographics
of South Africa.
The policy is tightly linked to the aims of the Financial Sector Charter
and outlines Sanlam’s main intentions to:
Group services management
Temba Mvusi
Chief executive
Marlene Bossett
Public affairs
Jan de Klerk
Information technology
Nontando Dube
Corporate social investment and black economic empowerment
• Set targets (based on the Charter) for procurement from BEE
accredited companies;
Tienie le Roux
Operational services
• Disclose the BEE accredited status of all suppliers tendering for
business;
• Encourage existing suppliers to address BEE;
• Provide support to black SMMEs and black businesses to enable
Frans van Rensburg
Group communications
Vic van Vuuren
Human resources
them to benefit from targeted procurement programmes, such as
those designed to assist black SMMEs and black businesses in
tendering for business; and
• Promote early payment of services provided by small and medium
enterprises.
page 51
sanlam annual report 2003
improved delivery
Significant improvement in investment
performance and ratings
Absa co-operation to unlock value through
increased distribution capability
Employee Benefits business revitalised to
service major growth market
Proposed BEE transaction will secure long-term
relevance in emerging domestic markets
page 53
sanlam annual report 2003
corporate
governance statement
Introduction
The board charter
The Sanlam board subscribes to and is fully committed
The board is currently considering a revised board
to complying with the King Committee Report on
charter to regulate the way business is conducted by
Corporate Governance (King II). The directors
the board in accordance with the principles of sound
continuously consider the implications of best practice
corporate governance. The charter sets out the duties
corporate governance and are of the opinion that
and responsibilities of board members collectively
Sanlam complies with the requirements of King II in
and individually. The existing annual self-evaluation
all material respects. An external service provider
process of the effectiveness of the board, its
recently reviewed corporate governance practices in
committees and individual directors has also
the Sanlam group and its findings supported this
been enhanced.
view. Those areas requiring attention have been
swiftly addressed.
In our full support of King II, the directors
recognise the need to conduct the enterprise
with integrity, transparency, accountability
and in accordance with generally accepted
The Sanlam board of directors
(as at 29 February 2004)
Composition of the board
Particulars of the members of the Sanlam board are
set out on pages 20 and 21 of Sanlam's Annual Report.
corporate practices.
The roles of chairman and chief executive officer are
page 54
Group structure
separated, with Mr Ton Vosloo and Dr Johan van Zyl
The Sanlam group operates according to a
appointed to these positions respectively. A third of all
decentralised business model and on a partnering
board members retire every year at Sanlam's annual
basis with its individual business clusters. Each
general meeting. The board meets at least five times
business cluster has its own governance structures
a year to consider business philosophy and strategic
to ensure strategic relevance. These are supported
issues, set risk parameters, approve budgets and
by clear approval frameworks and agreed upon
monitor the implementation of delegated
principles, which ensure a coherent governance
responsibilities. Feedback from its committees, as well
approach throughout the group. The Group
as a number of key performance indicators, variance
monitors developments in the corporate
reports and industry trends are considered. A range of
governance arena, both nationally and
non-financial information is also provided to the board
internationally, with a view to reviewing and
to enable it to evaluate qualitative performance factors.
adapting corporate governance structures and
The independent and non-executive directors on the
practices as appropriate.
Sanlam board are high-calibre individuals with the
The directors continuously consider the
implications of best practice corporate
governance and are of the opinion that Sanlam
complies with the requirements of King II in all
material aspects.
JP Bester
Company secretary
The board of directors of Sanlam
Name of
director
Male (M)
Female (F)
T Vosloo (Chairman)
JPL Alberts(1)
MMM Bakane-Tuoane(2)
DC Brink
AS du Plessis
FA du Plessis(2)
W James(3)
VP Khanyile
CE Maynard
DNM Mokhobo(1)
AF Perold(1)
P de V Rademeyer (CFO)
GE Rudman
PEI Swartz(1)
E van As
J van Zyl (CEO)
JJM van Zyl
M
M
F
M
M
F
M
M
F
F
M
M
M
M
M
M
M
necessary integrity, skills and experience to make sound
Independent (I)
NonBlack (B) executive (N)
White (W) Executive (E)
W
W
B
W
W
W
B
B
W
B
W
W
W
B
W
W
W
I
I
I
I
N
I
I
I
I
I
I
E
N
I
I
E
I
judgements on various key issues relevant to the business of
Sanlam, independent of management. Senior members of
management attend or are invited to certain board meetings.
Non-executive sessions are held at the end of all board meetings.
The major operating companies in the Group each have
their own board structures comprising both executive and
non-executive directors, as well as appropriate committees, in
line with King II.
Board committees
(i) Audit and risk committee
On 31 December 2003 the committee comprised three
independent directors and one non-executive director. All the
directors are financially literate, with the majority possessing
(1)
Resigned 31/12/2003
(2)
Appointed 01/01/2004
(3)
Appointed 01/03/2004
strong financial expertise.
The committee meets at least four times a year. Members of
Board committees
senior management, the chief internal auditor and the external
(i) Audit and
risk committee
Name of
committee member
Male (M)
Female (F)
JPL Alberts (Chairman)
CE Maynard
GE Rudman(2)
PEI Swartz(3)
FA du Plessis(4)
(1); (3)
(1)
M
F
M
M
F
Independent (I)
NonBlack (B) executive (N)
White (W) Executive (E)
W
W
W
B
W
I
I
N
I
I
audit partners attend committee meetings.
This committee’s charter has recently been reviewed to bring it in
line with the requirements of King II and international best
practice. South African GAAP is followed for financial reporting.
The committee is satisfied that it has fulfilled its responsibilities
in compliance with the terms of reference that govern its activities.
Chairman until 31/12/2003
(2)
Chairman from 03/02/2004
(3)
Resigned 31/12/2003
(4)
Appointed 03/02/2004
page 55
sanlam annual report 2003
corporate governance
s t a t e m e n t continued
(ii) Human resources committee
(v) Black economic empowerment (BEE) committee
Three independent directors constitute this
As at 31 December 2003, this committee comprised
committee, which is responsible for managing the
two independent directors. The main responsibilities
Group’s intellectual human capital and transformation
of the committee are to recommend, monitor and
process. In particular, the committee approves
advise on matters pertaining to BEE throughout
executive appointments and reviews succession
the Group.
planning, including the position of CEO. The
committee is also responsible for the remuneration
(vi) Ad hoc board committees
strategy of the Group, the approval of guidelines for
The board has the right to appoint and authorise
incentive schemes and the annual determination of
special ad hoc board committees to perform specific
remuneration packages for Sanlam’s executive
tasks. These committees are constituted by the
committee. This is done in relation to local and
appropriate board members.
international industry benchmarks. The committee
ensures that the incentive schemes are in line with good
The executive committee
business practice and that it adequately rewards for
The executive committee, which functions under the
excellent performance. It also makes recommendations
leadership of the Group CEO, is responsible for the
to the board regarding directors’ remuneration.
operational management of the Group. The committee
(iii) Nominations committee
comprises the Group CEO, the business heads, the
chief financial officer, the chief actuary and Group
Both committee members are independent directors.
The committee is responsible for identifying
appropriate board candidates and evaluating them
against the specific disciplines and areas of expertise
required. The board approves all interim appointments.
function heads. Two of the members are also
executive directors and four are alternate directors.
The committee generally meets every fortnight.
The authority of the members and committees is limited
to those powers delegated to them by the board.
(iv) Special committee
page 56
The Special committee comprises all independent
Company secretary and professional advice
directors, with the exclusion of the chairman of the
The Sanlam board appoints the company secretary.
board. The chairman of the committee is an
This official is also the public officer, compliance
independent director. This committee is responsible for
officer, the delegated information officer and is
evaluating the effectiveness of the chairman of the
responsible for the execution of all statutory
board on an annual basis.
requirements applicable to those positions.
Board committees
(ii) Human resources
committee
Name of committee member
T Vosloo (Chairman)
DC Brink
JJM van Zyl
All directors have unlimited access to the services of the
company secretary, who is accountable to the board for
Male (M)
Female (F)
M
M
M
Black (B)
White (W)
W
W
W
ensuring that proper corporate governance principles are
adhered to.
Board orientation or training is conducted as appropriate.
All directors are entitled to seek independent professional
advice concerning the affairs of the Group at Sanlam’s expense.
Business ethics
(iii) Nominations
committee
Name of committee member
DC Brink (Chairman)
DNM Mokhobo (resigned
31/12/2003)
Male (M)
Female (F)
M
F
Black (B)
White (W)
W
B
The Sanlam group is committed to the highest standards
of integrity and ethical conduct in dealing with all its
stakeholders. A representative group ethics committee,
under the chairmanship of the chief actuary and comprising
employees of the Group, monitors adherence to the precepts
of the code of ethics, and investigates matters brought to
its attention when necessary. Adequate grievances and
(iv) Special
committee
Name of committee member
JJM van Zyl (Chairman)
JPL Alberts(1)
MMM Bakane-Tuoane(2)
DC Brink
FA du Plessis(2)
W James(3)
VP Khanyile
CE Maynard
DNM Mokhobo(1)
AF Perold(1)
PEI Swartz(1)
E van As
disciplinary procedures are in place to enable the
Male (M)
Female (F)
M
M
F
M
F
M
M
F
F
M
M
M
Black (B
White (W)
W
W
B
W
W
B
B
W
B
W
B
W
enforcement of the ethics code.
To evaluate the current procedures, an internal climate study
was undertaken at the end of 2003. Although Sanlam is
satisfied with the overall levels of integrity within the
organisation, the committee is currently revising the
company code of ethics to further improve the process. The
changes will be implemented after a consultation process to
ensure best practice in terms of enforcement, presentation
and content.
Relations with stakeholders
The board aims to properly understand the information needs
(1)
Resigned 31/12/2003
(2)
Appointed 01/01/2004
(3)
Appointed 01/03/2004
of all stakeholders, and places great importance on an open
and meaningful dialogue with all who are involved with
page 57
sanlam annual report 2003
corporate governance
s t a t e m e n t continued
Sanlam. It ensures that stakeholders are kept
are of the opinion that Sanlam will remain a going
appropriately informed on matters affecting the
concern in the year ahead. The board’s statement to
Group. Reports and announcements to all audiences,
this effect is also contained in the statement on the
meetings with analysts and journalists and the Sanlam
responsibility of directors in the annual financial
website are used to provide relevant information.
statements.
Open lines of communication are maintained to
ensure transparency and optimal disclosure. All board
members are requested to attend Sanlam’s annual
general meeting, to which all shareholders are invited.
Share dealing
Strategic risk management
Sanlam is committed to best practice risk
management. Various risk management and
compliance standards are reviewed and adopted on an
ongoing basis to enhance all aspects of risk
In terms of Sanlam’s closed period policy, directors,
officers, participants in the share incentive scheme
and staff who may have access to price sensitive
information, are precluded from dealing in Sanlam
securities from 31 December and 30 June, until the
release of the Group’s final and interim results
management. During 2003, the Group risk
management function was further integrated
throughout the Group. Various initiatives were
implemented to enhance the risk management process
and improve the co-ordination of information
reported at a group level.
respectively. The same arrangements apply for periods
during value sensitive transactions. A pre-approval
Following a review in 2002 of the risk management
process for all dealings in Sanlam securities by
processes within the Sanlam group, conducted by an
directors and selected key employees has been
independent service provider, Sanlam’s internal audit
implemented. Details of directors’ dealings in Sanlam
department followed up with an internal review in
securities are disclosed to the JSE Securities Exchange
2003. The review found Sanlam’s processes in this
through SENS. Stringent trading policies regarding
regard to be effective. It is intended that either an
personal transactions in all financial instruments are
external service provider or Sanlam’s internal audit
enforced at Sanlam Investment Management and
department will regularly review the risk management
Gensec Bank.
process going forward.
In late 2003 and early 2004, a risk management
page 58
Going concern
system was assessed and subsequently acquired. This
The board regularly considers and records the facts
system will support further improvements in the risk
and assumptions on which it relies to conclude that
management process, in particular, in risk reporting.
Sanlam will continue as a going concern. The directors
Tested and documented processes are in place to
Board committees
ensure efficient business continuity plans exist in all critical areas
in the event of a disaster.
(v) Black economic
empowerment committee
Name of committee member
Male (M)
Female (F)
Black (B)
White (W)
The board accepts ultimate responsibility for risk management
within the Group. To ensure that this responsibility is carried out
DC Brink (Chairman)
M
W
effectively, they have delegated supervisory authority and
DNM Mokhobo (resigned)
31/12/2003)
F
B
responsibility to various specialists and committees.
TS Gcabashe (resigned 1/5/2003)
M
B
The audit and risk committee evaluates information provided by
specialist committees to provide regular feedback to the board.
The charter governing the audit and risk committee specifically
includes risk management, allowing the board to monitor and
evaluate both the risk management process and the risks
themselves.
The Group’s primary objective with strategic risk management
(SRM) is to optimise its risk adjusted return on capital and
embedded value.
To ensure an optimal return, it is necessary for an organisation to
assume an acceptable level of risk in conducting its operations.
The level of risk deemed acceptable is dependent on the
The executive committee
Male (M)
Female (F)
Name of committee member
Black (B)
White (W)
organisation’s appetite for risk, which in Sanlam’s case is
determined by its board. Sound risk management enhances the
J van Zyl (CEO)*
M
W
organisation’s ability to manage risks and ensures that risks are,
NT Christodoulou**
M
W
to an extent, mitigated or avoided to maintain an acceptable
SC Gilbert**
M
W
overall risk profile.
L Lambrechts**
F
W
The SRM policy addresses the significant risk categories facing
JP Möller
M
W
the Group and evaluates risks in a combination of impact and
TI Mvusi
M
B
likelihood. Risks characterised by a low likelihood in conjunction
P de V Rademeyer (CFO)*
M
W
with a catastrophic impact are regarded as unacceptable, and are
CG Swanepoel (Chief actuary)
M
W
actively avoided as far as possible. The SRM policy is enforced as
JHP van der Merwe**
M
W
a minimum standard in the various decentralised businesses.
*Executive directors
**Alternate directors
Certain businesses, due to the nature of their operations, have
implemented policies and procedures that are even more rigorous.
page 59
sanlam annual report 2003
corporate governance
s t a t e m e n t continued
The Group risk management function, headed by the
risk management. The chief audit executive of Sanlam
chief risk officer, has to ensure adherence to the SRM
Limited is appointed in consultation with the
policy on a group-wide basis. The chief risk officer has
chairman of the audit and risk committee and has
direct access to the Sanlam Limited audit and risk
unrestricted access to the chairman of the audit and
committee, Sanlam Limited executive committee
risk committee. The authority, resources, scope of work
members, and the executive committee members of
and effectiveness of the function are reviewed
the various businesses.
annually.
Regular interaction between the business clusters and
group risk management is formalised, and ensures
Statutory actuary
that risks affecting the Group are suitably monitored
The chief actuary of Sanlam Limited, who is the
and addressed. Risks are either reported in terms of
statutory actuary of Sanlam Life Insurance Limited
the formal escalation policy or as part of regular
(Sanlam Life), is subject to the disciplines of
feedback by the various businesses to the Group risk
professional conduct and guidance. He reports to the
management team. The escalation policy has been
directors of Sanlam Life and the regulatory
adopted on a group-wide basis and ensures that risks
authorities. He has full access to the board and must
meeting criteria set by the Sanlam board receive the
report completely and impartially to these bodies on
necessary attention.
the financial soundness of Sanlam Life based on the
Risks are also constantly evaluated in the various
businesses and reported to their respective audit and
risk committees, executive committees and to group
actuarial valuations of its assets and policy liabilities.
He is the ultimate guardian of the interests of the life
insurance policyholders.
risk management. The results of these processes are
reported to the Sanlam Limited audit and risk
committee and the board.
Remuneration philosophy
The Group human resources committee is responsible
for the remuneration strategy of the Group, the
Internal audit
The Group’s internal audit function operates on
a decentralised basis co-ordinated at group level by
the chief audit executive of Sanlam Limited. A board
approved internal audit charter governs internal audit
page 60
approval of mandates for incentive schemes within
the Group and the determination of the remuneration
of Sanlam directors and executive committee
members, relative to local and international industry
benchmarks.
activity within the Group. It carries out regular risk-
The Group believes appropriate remuneration for
focused reviews of the systems of internal control and
directors is inextricably linked to the further
development and retention of executives and the
payment and an allocation of share options. All of
ability to attract people of the highest calibre.
these are established in terms of the remuneration
Employees in general
principles outlined above. In line with the Group
remuneration philosophy, remuneration is reviewed
The following principles are used to determine the
proper remuneration levels:
• All remuneration practices are structured to provide
annually by the human resources committee after
evaluating each executive director’s performance,
including that of the Group chief executive.
clear differentiation between individuals with
regard to performance.
Non-executive directors
• A clear and meaningful distinction is made between
Fee structures are recommended to the board by the
high performers, average performers and under-
group human resources committee and are reviewed
performers and remuneration is distributed
annually with the assistance of external service
accordingly.
providers. In doing so, the committee takes
• Strong incentives are created for superior
performance by individuals and teams.
• Top contributors are awarded significantly higher
bonuses.
• Under-performers are not rewarded and active
cognisance of market norms and practices, as well
as the additional responsibilities placed on board
members by new acts, regulations and corporate
governance guidelines.
Non-executive directors receive an annual fee for
steps are taken to either encourage the individual
their knowledge, experience and insight given to
to improve performance or to leave the company, in
the boards and board committees of which they
line with accepted practices.
are members. A further fee is paid for attending
and contributing to board meetings. The company
Executive and alternate directors
pays for all travelling and accommodation costs.
The package for executive and alternate directors
The chairman receives a fixed annual fee that
includes a base salary, a variable performance-linked
is all-inclusive.
page 61
sanlam annual report 2003
corporate governance
s t a t e m e n t continued
Record of attendance of board meetings
Committees
Number of meetings planned/held
Board
meetings
Meetings planned
5
Meetings held 9 (4 special)
Executive directors
Le Roux PC (Resigned 31/05/2003)
Rademeyer P de V
Van Zyl J
4
8
9
Non-executive directors
Vosloo T
Alberts JPL (Resigned 31/12/2003)
Brink DC
Du Plessis AS
Gcabashe TS (Resigned 01/05/2003)
Khanyile VP
Maynard CE
Mokhobo DNM (Resigned 31/12/2003)
Perold AF (Resigned 31/12/2003)
Rudman GE
Swartz PEI (Resigned 31/12/2003)
Van As E
Van Zyl JJM
9
8
8
8
2
7
9
4
4
9
9
8
9
Alternate directors
Christodoulou NT
Gilbert SC (Appointed 14/07/2003)
Lambrechts L
(Appointed 31/05/2003)
Van der Merwe JHP
(Appointed 31/05/2003)
Ferreira M (Resigned 28/08/2003)
Mohale BF (Resigned 31/05/2003)
Samuels JAA (Resigned 31/05/2003)
Swanepoel CG (Resigned 31/05/2003)
page 62
8
2
5
5
5
4
3
4
Audit
and risk
Human
resources
Nominations
Special
BEE
4
4
4 7 (3 special)
1
1
1
1
1
1
1
1
1
1
7
4
7
4
1
4
4
7
1
0
0
0
1
1
0
1
0
1
Directors’ emoluments for the year ended 31 December 2003 (R’000)
Name
Executive directors
PC le Roux(1)
P de V Rademeyer
J van Zyl
Total executive directors
Alternate directors
NT Christodoulou
M Ferreira(2)
SC Gilbert(3)
L Lambrechts(4)
BF Mohale(1)
JAA Samuels(1), (5)
CG Swanepoel(1)
JHP van der Merwe(4)
Total alternate directors
Bonus
Company
contributions
Other
benefits
Total
872
2 062
3 003
5 937
—
1 600
4 697
6 297
92
238
260
590
3 000
—
69
3 069
3 964
3 900
8 029
15 893
1 094
889
715
839
452
1 231
529
854
6 603
560
—
1 600
810
—
—
—
2 875
5 845
243
177
—
125
87
231
80
133
1 076
—
—
120
—
523
189
—
—
832
1 897
1 066
2 435
1 774
1 062
1 651
609
3 862
14 356
Months
in office
Salary/
Fees
5
12
12
12
8
6
7
5
5
5
7
Bonuses reflected are payable in 2004, based on the 2003 results and the formulae applicable for the different
businesses.
Refer to page 67 for details of changes in directorships.
(1)
(5)
Resigned 31 May 2003 (2)Resigned 28 August 2003 (3)Appointed 14 July 2003 (4)Appointed 31 May 2003
Payment is made in pound sterling. Conversion to rand was done at the average exchange rate for the period
Name
Non-executive directors
JPL Alberts(1)
DC Brink
AS du Plessis
TS Gcabashe(2)
V Khanyile
CE Maynard
DNM Mokhobo(1)
AF Perold(1), (3)
GE Rudman
PEI Swartz(1)
E van As(4)
JJM van Zyl
T Vosloo (Chairman)
Travel and subsistence
Total non-executive directors
Directors’ Attendance &
fees
committees
161
161
161
54
161
161
161
377
161
161
155
161
631
405
3 071
238
144
90
33
70
154
77
32
141
174
104
146
—
—
1 403
Fees from
group
Total
244
—
266
—
52
361
101
362
304
—
—
127
—
—
1 817
643
305
517
87
283
676
339
771
606
335
259
434
631
405
6 291
(1)
Resigned 31 December 2003 (2)Resigned 1 May 2003
Payment is made in US dollars. Conversion to rand was done at the applicable exchange rates on payment dates
(4)
Appointed 15 January 2003
(3)
page 63
sanlam annual report 2003
corporate governance
s t a t e m e n t continued
Directors’ emoluments for the year ended 31 December 2002 (R’000)
Name
Executive directors
AS du Plessis(1)
PC le Roux
P de V Rademeyer
J van Zyl
L Vermaak(2)
Other
benefits
Total
257
1 965
1 360
1 454
2 024
—
272
—
48
—
39
205
187
186
403
—
—
—
—
2 500
296
2 442
1 547
1 688
4 927
7 060
320
1 020
2 500
10 900
1 020
1 142
1 105
3 906
1 193
—
—
—
1 166
—
218
171
154
694
181
—
—
—
390
—
1 238
1 313
1 259
6 156
1 374
8 366
1 166
1 418
390
11 340
Salary/
Fees
2
12
12
12
12
Total executive directors
Alternate directors
NT Christodoulou
M Ferreira
BF Mohale
JAA Samuels(3)
CG Swanepoel
Bonus
Company
contributions
Months
in office
12
12
12
12
12
Total alternate directors
Bonuses reflected are payable in 2003, based on the 2002 results and the formulae applicable for the different
businesses, apart from J van Zyl where the actual payment at Santam in 2002 is reflected.
(1)
(3)
Executive director until 28 February 2002, appointed non-executive director from 1 March 2002 (2)Resigned 31 December 2002
Payment is made in pound sterling. Conversion to rand was done at the average exchange rate for the year
Directors’
fees
Attendance &
committees
Other
fees
Fees from
group
Total
Non-executive directors
JPL Alberts
AC Bawa(1)
DC Brink
AS du Plessis(2)
TS Gcabashe
V Khanyile(3)
CE Maynard
DNM Mokhobo
AF Perold(4)
GE Rudman
PEI Swartz
JJM van Zyl
T Vosloo
BP Vundla(5)
Travel and subsistence
126
23
126
111
111
67
111
126
460
111
126
126
630
8
410
70
13
20
54
20
20
72
52
34
62
30
80
—
—
—
—
—
—
688
—
—
—
—
—
—
—
—
—
—
—
—
—
—
630
—
—
—
—
515
66
—
—
—
22
—
196
36
146
1 483
131
87
183
178
1 009
239
156
206
630
30
410
Total non-executive directors
2 672
527
688
1 233
5 120
Name
(1)
(2)
Resigned 31 March 2002
Executive director until 28 February 2002, appointed non-executive director from 1 March 2002
Appointed 7 August 2002 (4)Payment is made in US dollars. Conversion to rand was done at the applicable exchange rates on
(5)
payment dates
Resigned 31 March 2002
(3)
page 64
Interest of directors in share capital
at the date of this report
Interest of directors in share capital
at the date of the previous report
Beneficial
Nonbeneficial
Options
Executives
P de V Rademeyer
J van Zyl
52 657
1 051
24 061
—
1 611 169
4 063 018
Total executives
53 708
24 061
5 674 187
Non-executives
DC Brink
AS du Plessis
VP Khanyile
CE Maynard
GE Rudman
E van As
JJM van Zyl
T Vosloo
38 899
—
—
—
135 661
1 904
9 559
12 976
—
—
—
—
119 364
—
—
—
—
666 666
—
—
495 935
—
—
—
Total non-executives
198 999
119 364
1162 601
Alternate directors
NT Christodoulou
SC Gilbert
L Lambrechts
J van der Merwe
13 116
—
15 234
1 168
40 319
—
—
—
1 013 496
—
1 196 367
4 580 928
Total alternate directors
29 518
40 319
6 790 791
Total
282 225
183 744 13 627 579
Beneficial
Nonbeneficial
Options
Executives
PC le Roux
P de V Rademeyer
J van Zyl
726 728
52 657
1 051
—
24 061
—
1 250 000
1 246 327
—
Total executives
780 436
24 061
2 496 327
Non-executives
JPL Alberts
DC Brink
AS du Plessis
TS Gcabashe
VP Khanyile
CE Maynard
DNM Mokhobo
AF Perold
GE Rudman
PEI Swartz
JJM van Zyl
T Vosloo
23 294
38 899
—
300
—
—
20 780
—
128 661
41 402
9 559
12 976
—
—
—
—
—
—
—
—
90 000
—
—
—
—
—
666 666
—
—
—
—
—
728 750
—
—
—
Total non-executives
275 871
90 000
1 395 416
Alternate directors
NT Christodoulou
M Ferreira
BF Mohale
JAA Samuels
CG Swanepoel
13 116
558 043
—
274 204
409 998
40 319
—
—
—
—
947 162
2 758 213
643 369
2 544 451
895 395
Total alternate directors 1 255 361
40 319
7 788 590
Total
2 311 668
154 380 11 680 333
page 65
sanlam annual report 2003
corporate governance
s t a t e m e n t continued
Directors’ share incentives
Details regarding the directors’ restricted shares and share options held under the Sanlam Limited Share Incentive Scheme and the financial years
during which they become unconditional, are as follows (in thousands):
31 Dec
2002
Executive directors
P de V Rademeyer
– restricted fully paid shares
– share options
J van Zyl
– restricted fully paid shares
– share options
Totals: executive directors
– restricted fully paid shares
– share options
Non-executive directors
AS du Plessis
– restricted fully paid shares
– share options
GE Rudman
– restricted fully paid shares
– share options
Totals: non-executive directors
– restricted fully paid shares
– share options
Totals
Released
New
Becoming unrestricted in
31 Dec
Unre2003 stricted
2004
2005
2006
2007
2008
Strike Average
price range
price
—
1 246
—
—
—
365
—
1 611
—
450
—
225
—
349
—
245
—
171
—
—
171 R6,00–R8,26
—
R6,83
—
—
—
—
—
4 063
—
4 063
—
—
—
507
—
417
—
1 489
—
839
—
811
—
R6,03
—
R6,03
—
1 246
—
—
—
4 428
—
5 674
—
450
—
732
—
766
—
1 734
—
1 010
—
982
—
667
—
—
—
—
—
667
—
667
—
—
—
—
—
—
—
—
—
—
—
R6,00
—
R6,00
—
729
—
233
—
—
—
496
—
496
—
—
—
—
—
—
—
—
—
—
—
R8,00
—
R8,00
—
1 396
—
233
—
—
—
1 163
—
1 163
—
—
—
—
—
—
—
—
—
—
10
947
10
—
—
66
—
1 013
—
502
—
147
—
202
—
67
—
48
—
47 R6,00–R8,26
R6,71
Alternate directors
NT Christodoulou
– restricted fully paid shares
– share options
L Lambrechts
– restricted fully paid shares
– share options
JHP van der Merwe
– restricted fully paid shares
– share options
4
508
3
—
—
688
1
1 196
—
166
1
116
—
148
—
314
—
226
—
—
226 R6,00–R8,26
R6,45
—
4 100
—
—
—
481
—
4 581
—
—
—
—
—
1 640
—
1 012
—
965
—
—
964 R6,03–R7,49
—
R7,34
Totals: alternate directors
– restricted fully paid shares
– share options
14
5 555
13
—
—
1 235
1
6 790
—
668
1
263
—
1 990
—
1 393
—
1 239
—
1 237
Grand totals
– restricted fully paid shares
– share options
14
8 197
13
233
—
5 663
1
13 627
—
2 281
1
995
—
2 756
—
3 127
—
2 249
—
2 219
Note: SC Gilbert (alternate director) only participates in Santam’s Share Incentive Scheme.
page 66
Sanlam board of directors
Executive directors
Dr J van Zyl
(Group chief executive)
Appointed as director in 2001, became
Group chief executive
31 March 2003
P de V Rademeyer
Financial director
Appointed 2001
Alternate directors
NT Christodoulou
Appointed 2001
SC Gilbert
Appointed 14 July 2003
L Lambrechts
Appointed 31 May 2003
JHP van der Merwe
Appointed 31 May 2003
Non-executive directors appointed after year end
Dr MMM Bakane-Tuoane
Appointed 1 January 2004
Adv FA du Plessis
Appointed 1 January 2004
Prof WG James
Appointed 1 March 2004
Directors resigning in 2003
PC le Roux
Resigned as executive director 31 May 2003
TS Gcabashe
Resigned as non-executive director 1 May 2003
Prof AF Perold
(USA citizen)
Resigned as non-executive director 31 December 2003
DNM Mokhobo
Resigned as non-executive director 31 December 2003
Non-executive directors
JPL Alberts
Resigned as non-executive director 31 December 2003
AS du Plessis
Appointed 2002
PEI Swartz
Resigned as non-executive director 31 December 2003
CE Maynard
Appointed 2001
CG Swanepoel
Resigned as alternate director 31 May 2003
DC Brink
Appointed 1998
BF Mohale
Resigned as alternate director 31 May 2003
GE Rudman
Appointed 2001
JAA Samuels
(UK citizen)
Resigned as alternate director 31 May 2003
E van As
Appointed 15 January 2003
JJM van Zyl
Appointed 1998
M Ferreira
Resigned as alternate director 28 August 2003
T Vosloo (Chairman)
Appointed 1998
VP Khanyile
Appointed 2002
page 67
sanlam annual report 2003
business cluster reviews
life insurance cluster
A large-scale restructuring of the Individual Life business, aimed
at rightsizing the business to align its capacity to expected
volumes has been largely completed.
Salient features
• Employee Benefits new business volumes for second half of 2003
improving 36% on first half to R1,3 billion
• Significant reduction in net outflows to R196 million in second half
compared to first half R3 billion outflow
• Administration costs of R1,9 billion slightly lower than in 2002,
improving administration cost ratio to 32,3% (34,5% in 2002)
• Operating profit of R1,4 billion on levels similar to 2002
notwithstanding lower volumes and difficult trading conditions
• Cost reduction initiative of R250 million annualised saving largely
completed
Key results
R million
New business
Net outflow of funds
Operating profit
(before restructuring)
New business embedded
value (NUBev)
NUBev margin
2003
2002
%∆
9 063
(3 196)
12 278
(2 569)
(26)
1 506
1 451
4
218
12,6%
320
14,7%
(32)
Themba Gamedze,
chief executive of Employee
Benefits and Lizé Lambrechts,
chief executive of Sanlam Life
Group profile and shareholding structure
Merchant Investors Assurance
Sanlam Life
Multi Data
Sanlam Customised Insurance
Sanlam Trust
Sanlam Namibia Group
Total Care Strategy
Direct Axis
100%
100%
100%
100%
100%
100%
60%
70%
UK based insurance company
Individual life and group life insurance
Money transfer
Cell captive
Estates and trusts
Financial services in Namibia
Group retirement fund administration
Personal loans
23%
60%
Contribution to Group
profit before tax
Contribution to Group new
business inflows
page 69
sanlam annual report 2003
business cluster reviews
l i f e i n s u r a n c e c l u s t e r continued
The Life Insurance cluster shares the Sanlam group’s vision to be
the leader in wealth creation and protection. To achieve our vision
we provide credible financial advice, innovative solutions and
build long-term relationships with clients.
Nature of business
The Life Insurance cluster operates in South Africa and Namibia and
is a major provider of life insurance, retirement annuities, saving and
investment products, personal loans and trust services to individuals.
It also provides investment and risk products to group funds and
schemes in South Africa, administration, actuarial and consulting
services to the Group retirement industry and electronic money
transfer services. The Life Insurance cluster recently established an
international presence through the acquisition of the United Kingdom
based Merchant Investors Assurance Company Limited in December 2003.
Vision and strategy
The Life Insurance cluster shares the Sanlam group’s vision to be the leader in
wealth creation and protection. To achieve our vision we provide credible financial
advice, innovative solutions and build long-term relationships with clients.
We foster a culture of passion for our clients, valuing diversity and differentiation,
and encourage innovation.
Business environment and operational review
The South African Life industry has faced challenging conditions over the past few
years including volatile stock markets, increased regulatory and transparency
requirements and sustained competition from non-life providers as boundaries
become increasingly blurred. The higher short-term interest rates over the past
year also favour the more liquid and shorter-term non-life products and with
the stronger rand has made international investments less favoured with
South African investors.
There has been an improvement in sentiment towards Sanlam amongst our
employees and customer base. This positive sentiment has been largely
underpinned by the decisive actions by the Group’s leadership and the Investment
cluster’s significantly improved investment performance.
Our strategy to increase our customer base resulted in the Life Insurance cluster
successfully entering or growing in the following markets during the past year:
• A Group Solutions Channel was established which provides small premium funeral
and savings products which are distributed by salaried advisors into an emerging
growth market. Results to date have exceeded initial targets.
• The re-launch of the Sanlam Matrix series, a new generation risk product,
during the second half of 2003 has significantly increased our pure-life new
business volumes.
• Acquisition of Merchant Investors Assurance Company Limited (MIA) in the
United Kingdom during December 2003. MIA is a specialist provider of individual
pension and life products and has a highly efficient scaleable administration
system. MIA will be a catalyst in building the Sanlam group’s different
international businesses into a more coherent offering.
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sanlam annual report 2003
business cluster reviews
l i f e i n s u r a n c e c l u s t e r continued
Initiatives were launched to address customer needs and
accessibility to our products and services. We have refined our
product development strategy, which has seen a number of new
products and investment funds being launched.
Initiatives were launched to address customer needs and accessibility to our products and services. These included
a better understanding and prioritisation of our product development strategy, which has seen a number of new
products and investment funds being launched. Our advisor force has been rightsized and there has been a strong
focus on improving productivity. Our distribution capabilities will be further enhanced through the co-operation
agreement with Absa. We have also increased the number of client service points countrywide to 56.
Employee Benefits (EB) has been identified as a major growth area within the Life business and increased focus has
been placed on these activities. Themba Gamedze, a qualified actuary with extensive international experience, was
appointed as chief executive of this business in September 2003. His objective is to deliver appropriate products and
services to its targeted customer base via improved sales channels and a specialised team of advisors. This, together
with the recently announced BEE transaction with Ubuntu-Botho and the improved investment performance from
the Investment cluster, will further enhance EB’s results going forward.
A large-scale restructuring of the Individual Life business, aimed at rightsizing the business to align its capacity to
expected volumes and including a structured retrenchment programme, was initiated and largely completed towards
the end of 2003. The restructuring is expected to reduce costs in nominal terms in excess of R250 million in 2004.
The reduced costs and improved operating processes will improve competitiveness and position us favourably in a
low inflation environment while also improving shareholder returns.
New Individual Life products
During 2003 much effort went into establishing the new generation Matrix risk cover product in the market. An
innovative Matrix option with increasing premiums and unique features was launched.
New funds were added to improve the Stratus fund menu, including the Nur Equity Fund (which is Shari’ah
compliant for the Muslim market), a Bond Fund, an Absolute Return Fund, a Multi-Manager Equity Fund and three
offshore Money Market Funds.
A unique five-year single premium investment was introduced for the high net-worth
market. It tracks the ALSI40 and provides a capital guarantee and annual lock-in of investment growth.
page 72
The International Endowment product, which enables South Africans to use their
R750 000 foreign allowances, was adapted in 2003 to capture part of the offshore
market resulting from the foreign exchange amnesty introduced by Government.
New Employee Benefit products
The older Impetus range of pooled market linked products was replaced by a new
range of pooled products namely Sanlam Cash, Sanlam Absolute Return, Sanlam
Moderate, Sanlam Diversified and Sanlam High Equity. These portfolios were well
received by the market and commended for their clear differentiated mandates.
The establishment of Sanlam Multi Managers (‘SMM’) in 2002 has positioned us to
promote multi management as an in-house product to the retirement fund market
and increased our ability to retain funds as well as attract new funds. During 2003
we launched the SMM Absolute Return, SMM Diversified and SMM High Equity
products.
Two new smoothed bonus products were also launched in 2003 namely the SMM
Vesting Fund and the SMM Non Vesting Fund. These products are the first of their
kind in South Africa and are building a good investment track record.
Products providing benefits on death and disability are highly commoditised and
little real product development takes place in South Africa. An exception is our Aids
Assist product which was launched in 2003 and assists employers to provide
financial assistance to employees with Aids. It is a new concept and the market is
showing a growing interest in this product.
Further achievements during the period under review included:
• Our Client Contact Centre was named SA Client Contact Centre of the year.
• Takalani Sesame won the Grand Jury Award for the best children’s programme in
the world at the International World Media Festival.
• The launch of Sanlam Home Loans – a bank product in a joint venture with Absa.
• The successful Sanlam Money Game television programme won the Raptor
Award.
page 73
sanlam annual report 2003
business cluster reviews
l i f e i n s u r a n c e c l u s t e r continued
Financial review
Summary of results
The 2003 financial year started off with challenging internal as well as difficult external
market factors that influenced the results negatively, particularly during the first half of the
year. The internal factors were addressed with the adoption of a “back to basics” strategy,
which together with other strategic initiatives had a positive impact on our activities.
This is reflected in an improvement in some of our results during the second half of 2003
compared to the first half. Most notably was the 36% improvement in EB new business
premiums; the significant improvement in the net outflow of funds from R3 000 million in
the first half to R196 million in the second half and a 18% increase in the new business
embedded value (NUBev) together with an increased NUBev margin of 13,2% compared to
12,0% in the first half.
New business
Total new business declined by 26% largely due to a reduction in individual life single premiums by 43%.
The table below analyses new business per product line.
Analysis of new business
R million
2003
2002
%∆
Individual Life
6 297
9 069
(31)
Recurring
Index growth
Single
Continuations
847
631
3 263
1 556
953
559
5 765
1 792
(11)
13
(43)
(13)
Employee Benefits
2 291
2 642
(13)
Recurring
Single
127
2 164
156
2 486
(19)
(13)
Namibia
475
567
(16)
Life business
Unit trust
80
395
112
455
(29)
(13)
Total new business
9 063
12 278
(26)
Inflows into the longer-term Individual life single premium products were significantly impacted by the
difficult operating conditions mentioned before while recurring premiums were affected particularly
severely by the strengthening rand, where inflows into offshore products reduced by 82%. This was to some
extent offset by improved sales of our new generation risk product, Matrix, which exceeded expectations
and resulted in a 51% increase in sales of our pure risk products.
The 13% increase in indexed growth premiums, a portion of which is linked to inflation, is attributable to
the increase in the average inflation rate applicable to these products from 7,1% to 10,1% during 2003
compared to 2002.
In the first half of the year inflows into EB products continued to be influenced by negative perceptions of
past investment performance. The increased focus of our EB business and the improvement in investment
returns has resulted in a 36% growth in sales in the second half of 2003 compared to the first half.
page 75
sanlam annual report 2003
business cluster reviews
l i f e i n s u r a n c e c l u s t e r continued
Net flow of funds
The disappointing new business inflows, particularly into the Individual Life single premium products, contributed
significantly to the increase in the total net outflow of funds of R3 196 million (2002: R2 569 million). The table
below analyses the net flow of funds.
Net flow of funds
R million
2003
2002
%∆
(2 411)
13 362
(1 002)
15 963
(16)
8 543
4 819
8 406
7 557
2
(36)
Outflow
(15 773)
(16 965)
7
Death and disability
Maturities
Annuities
Surrenders
(1 545)
(8 668)
(2 479)
(3 081)
(1 553)
(7 950)
(2 665)
(4 797)
1
(9)
7
36
Employee Benefits
Inflow
(603)
4 784
(1 388)
4 998
(4)
Recurring premiums
Single premiums
2 620
2 164
2 512
2 486
4
(13)
Outflow
(5 387)
(6 386)
16
Benefit payments
Terminations
(4 131)
(1 256)
(4 353)
(2 033)
5
38
Namibia
Inflow
Outflow
(182)
802
(984)
(179)
862
(1 041)
(7)
5
Total outflow of funds
(3 196)
(2 569)
Individual Life
Inflow
Recurring premiums
Single premiums
A positive factor is that our focus on the retention of business is paying dividends and is reflected in the 36%
reduction in surrenders and 38% decrease in terminations. It is also encouraging to note the growth in our total
recurring premiums for both Individual Life and the EB business, notwithstanding the lower new business figures.
page 76
Income statement
Notwithstanding the difficult operating conditions our operating profit before one-off restructuring costs
grew by 4%. Our administration cost ratio, which is a barometer for operational efficiency, improved to 32,3%
(2002: 34,5%) and our operating margin was maintained at around 25%.
Income statement
R million
2003
2002
%∆
Financial services income
Sales remuneration
7 023
(1 103)
6 794
(1 165)
3
5
Income after sales remuneration
Underwriting policy benefits
Administration costs
5 920
(2 502)
(1 912)
5 629
(2 237)
(1 941)
5
(12)
1
Profit before restructuring costs
Restructuring costs
1 506
(61)
1 451
—
4
—
Profit before tax
1 445
1 451
—
Admin cost ratio
Operating margin
(before restructuring)
32,3%
34,5%
25,4%
25,8%
Financial services income, which consists largely of fees earned on new and existing business, risk
underwriting premiums, asset mismatch profits or losses and interest earned on working capital, grew by
only 3% due to the low new business volumes and declining in-force book.
This necessitated an increased focus on operational efficiency and resulted in the improved administration
cost ratio and 1% reduction in administration costs. Notwithstanding this increased efficiency, our
administration structure is not aligned with new business levels and the in-force book and we have
embarked on a comprehensive business-wide re-engineering programme aimed at reducing costs in 2004.
This restructuring process has already commenced and was largely completed in the last quarter of 2003
and estimated one-off restructuring costs of R61 million have been provided against current earnings.
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sanlam annual report 2003
business cluster reviews
l i f e i n s u r a n c e c l u s t e r continued
Analysis of operating profit
R million
2003
2002
%∆
Per component
Administration profit
(29)
(131)
78
Risk
624
589
6
Market related
911
993
(8)
Profit before restructuring costs
1 506
1 451
4
—
—
1 445
1 451
—
Individual Life
1 267
1 295
(2)
Employee Benefits
182
122
49
Other
57
34
68
Profit before restructuring
1 506
1 451
4
—
—
1 451
—
Restructuring costs
Total operating profit
(61)
Per business
Restructuring costs
Total operating profit
(61)
1 445
Analysis of operating profit
Our administration loss of R29 million improved significantly from the R131 million loss incurred
last year due to the reduction in administration costs, together with an increase in fees
mentioned before.
The reduction in market related profits is due to a decrease in profits earned from the non-profit
sharing portfolio. In this portfolio we carry the underlying investment risk as well as costs paid for
honouring investment guarantees offered for certain policies where maturity values fell below the
guarantee values due to volatile equity markets. Our investment guarantee reserve, which has
been built up over the past few years, complies with the minimum requirements in terms of the
Actuarial Guideline PGN 110. This reduction was offset to a certain extent by a 2% increase in our
cash flow management profits which is earned on the management of working capital balances
and which are sensitive to the level of short-term interest rates, which were on average slightly
higher in 2003.
The growth in risk profits is due to the EB risk profits reverting back to the expected levels after a
particularly poor 2002 where higher than expected claims were experienced. Individual Life risk
profits declined slightly in line with our expectation that the high margins of the past few years
Top:
A radio outreach programme of
Takalani Sesame was launched in
2003
Above:
Themba Siyolo, executive director
distribution
will continue to come under pressure.
The renewed focus on the EB business has contributed to the 49% increase in its profits.
Improved risk profits were the main contributor to this growth as well as a 26% increase in
members under administration. The 2% reduction in the Individual Life business profits is
attributable to lower risk profits, lower non-profit sharing portfolio profits and minimum
investment guarantees paid. The other profits relate to our Namibia, trust, electronic payment
and loan finance activities and the growth over 2002 is due to the non-recurrence of set-up
costs incurred in respect of the loan finance activities during 2002 as well as good growth
in the trust activities.
Strain on the sustainability of certain income streams are experienced due to changing product
profiles. The impact of this has been taken into account in the embedded value calculation and
strategic initiatives are under way to enhance and increase new revenue streams.
New business embedded value (NUBev)
The NUBev of R218 million is 32% lower than 2002 and is largely due to the lower new business
volumes discussed above. Although our total Individual Life acquisition costs reduced by 3%, this
was not enough to offset the impact of the reduced new business volumes and our acquisition
unit cost increased by 12%. The result is a decrease in the new business embedded value margin
to 12,6% (2002: 14,7%).
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sanlam annual report 2003
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l i f e i n s u r a n c e c l u s t e r continued
New business embedded value
(NUBev)
R million
2003
2002
%∆
Annual premium equivalent
1 386
1 774
(22)
NUBev
172
247
(30)
NUBev margin
12,4%
13,9%
Annual premium equivalent
343
405
(15)
NUBev
46
73
(37)
NUBev margin
13,4%
18,0%
—
Annual premium equivalent
1 729
2 179
(21)
NUBev
218
320
(32)
NUBev margin
12,6%
14,7%
—
Individual Life*
Employee Benefits
Total
*includes Sanlam Namibia Limited
Funding position of participating portfolios
None of our participating portfolios had negative bonus stabilisation reserves which exceeded 7,5% of the relevant
investment account at 31 December 2003. At the June 2003 interim reporting stage the shareholders’ fund provided
financial assistance of R290 million (2002 full year: R153 million) to certain participating portfolios. It is considered
prudent to maintain this assistance, which is repayable should the funding position recover sufficiently. Full provision
has been made for this assistance against the earnings of the shareholders' fund.
Prospects
The Life Insurance cluster has a motivated workforce with the appropriate capacity, distribution channels and
product offering to meet the changing product and service needs of clients in a volatile economic environment.
Looking forward, equity markets are expected to stabilise which should have a positive impact on equity-based
products and which should increase new business flows. The Cluster will also continue to drive new business
volumes, to improve operational processes and pursue opportunities that provide alternative sources of revenue
and profitability.
page 80
Sanlam Life executive committee and board
Executive committee
Board of directors
Lizé Lambrechts
Non-executive directors
Chief executive
Johan van Zyl
Hennie de Villiers
Chairman
Individual life
George Rudman
Themba Gamedze
Lead director
Chairman of the audit committee
Employee benefits
Manana Bakane-Tuoane
Anton Gildenhuys
Client solutions
Wilmot James
Vusi Khanyile
Deon Lessing
Carmen Maynard
Marketing
Member of the audit committee
Themba Siyolo
Flip Rademeyer
Distribution
Member of the audit committee
Heinie Werth
Chris Swanepoel
Finance
Member of the audit committee
André Zeeman
Boetie van Zyl
Actuarial
Executive directors
Lizé Lambrechts
Heinie Werth
Alternate director
Kobus Möller
page 81
sanlam annual report 2003
business cluster reviews
short-term insurance cluster
Santam concluded its most profitable financial year ever and
achieved exceptional results on all fronts. Underwriting surplus
amounted to R530 million, 273% higher than 2002, while
operating profit increased by 186% to R735 million.
Salient features
• Benefits of “back to basics” strategy flowing through
• New leadership and restructured business
• Continued excellent financial performance
– Underwriting surplus 273% higher
– Operating profit increased by 186%
– Gross written premiums up 16% and net written premiums up 25%
– Contribution to Sanlam headline earnings up 113% to R306 million
Key results
Gross written premiums
Underwriting surplus
Investment return on
insurance funds
Gross operating profit
2003
2002
%∆
9 513
530
8 197
142
16
273
205
735
115
257
78
186
Steffen Gilbert,
chief executive, and
Eltie Links,
executive head of corporate
citizenship
Business lines: % Contribution to gross written premiums
Motor
39
Property
28
Liability
6
Crop
7
Miscellaneous
4
Engineering
4
Alternative risk
4
Transportation
3
Accident and health
3
Guarantee
2
31%
Contribution to Group
operating profit before tax
17%
Contribution to Group new
business inflows
page 83
sanlam annual report 2003
business cluster reviews
short-term insurance cluster
continued
Nature of business
Santam Limited (Santam) is the leading short-term insurer in South Africa with a
market share of about 25%. The company focuses on the corporate, commercial and
personal markets. Santam has total assets of more than R10 billion, a countrywide
infrastructure and broker network with more than 650 000 personal lines
policyholders.
Over 90% of Santam’s business comes from brokers. The Group has more than
100 client service offices in South Africa and Namibia to support its network of
about 7 000 intermediaries.
Santam also has strategic investments in various companies in the insurance
industry, including the subsidiary Santam Namibia Ltd, and business interests in
Zimbabwe, Malawi and Zambia.
In January 2003 the company acquired a UK niche insurer Westminster Motor
Insurance Association Ltd, which specialises in insurance for taxis and private motor
rental companies. In March 2003 Santam extended its British business interests by
obtaining a 47,5% share in the British personal lines broker Bluesure.
Sanlam Limited currently owns 53,3% of Santam through its policyholders – and
shareholders’ funds.
Business review
During the period under review, Santam continued with its “back to basics”
programme to enhance the efficiencies in the business. The Group evaluated how it
deals with all its audiences and how they can further improve their offering. Focus
was placed on improving the efficiency of the core elements of the business, putting
the right people in the right jobs and ensuring the Group extracts benefits from
across the insurance value-chain. This stringent focus has once again allowed
Santam to achieve exceptional results.
On 14 July 2003, Steffen Gilbert became Santam’s chief executive officer after
the previous CEO, Johan van Zyl, was appointed to the position of Sanlam CEO.
Under the new leadership, Santam refocused its operations and split its businesses
into two distinct areas, Broker Portfolios and Specialist Portfolios. The Broker
Portfolios, comprising personal and commercial business and the Specialist
page 84
Portfolios, comprising Corporate, Alternative Risk Transfer (ART)
and niche portfolios, are now better aligned in terms of their
selling strategies.
The new structure will further enhance Santam’s ability to cover
all segments of the insurance value-chain, from broking to broker
support and administration, underwriting, reinsurance, claims
management and procurement. The restructuring will also ensure
it remains relevant in a changing market to continue generating
sustainable, profitable growth going forward.
Financial review
Santam concluded a most profitable financial year, with an
underwriting surplus of R530 million. This was 273% higher than
2002 levels, and supported the 186% increase in operating profit
to R735 million.
Gross written premiums increased by 16%, with the international
component doubling from 2002 levels. Net written premiums
were up 25%, largely due to an improved focus on reducing
reinsurance cost without any undue increase in exposure.
Several factors contributed towards the substantial increase in
underwriting profits, of which the lower claims ratio, especially in
Southern Africa, was the largest contributor. The net claims ratio
reduced by 6% to 64,8% in 2003, largely due to the strength of
the underwriting cycle and continued strict underwriting
discipline. This was further enhanced by favourable climatic
conditions and fewer man-made disasters, all of which favourably
impacted on the crop, motor and property insurance classes
respectively. The typically more volatile class of insurance
business, such as liability and guarantee, also achieved low
claims ratios.
On the international front, Westminster Motor Insurance
Association Ltd in the UK has been successfully integrated with
Santam and its results were included in the Group’s underwriting
results for the first time in 2003. These, together with the
page 85
sanlam annual report 2003
business cluster reviews
short-term insurance cluster
continued
participation in the Beazley Syndicate (a Lloyds syndicate), contributed R65 million
to the Group's underwriting results.
The net acquisition cost rose by 0,7% compared to 2002 and included higher
performance bonuses and profit sharing provisions because of higher profitability.
Higher than expected short-term interest rates in the first nine months combined
with increased focus on cash management, increased operational activity and the
acquisition of Westminster’s float saw the investment return on insurance funds
increase by 78% to R205 million.
The recovery of equity markets in the second half of 2003 largely contributed to
investment return being 68% higher. The negative equity income from associated
companies is attributable to Santam’s share of start-up costs incurred by
Bluesure Ltd, an associated company in the UK.
Following the favourable underwriting results and high investment return, the
contribution to Sanlam’s headline earnings are up 113% at R306 million compared
to R144 million in 2002.
Cash generated by operating activities exceeded R1,5 billion, up 52% as a result of
increased profitability and improved management of working capital. Due to the
strong growth in net written premium, the solvency margin reduced from its 2002
level of 60% to a still healthy 56%.
Prospects
The focus on the “back to basics” approach implemented last year laid the
foundation for enforcing effective underwriting disciplines which will continue in the
future. There will be continued focus on cash management and cost control in 2004.
Although the favourable conditions will most likely not be repeated it is expected
that there will be a continuation of the firm underwriting cycle during 2004.
Low interest rates for the first half of 2004 will have an adverse impact on interest
bearing investment returns. Indications are that the equity markets will remain
strong, which will have a favourable effect on equity returns.
The favourable results, backed by a balanced portfolio, well aligned operational
structures and geographical spread give Santam a solid platform for profitable
growth in future.
page 86
Santam executive management and board of directors
Executive management
Board of directors
Steffen Gilbert
Non-executive directors
Chief executive
Desmond Smith
Eltie Links
Chairman
Corporate citizenship
Jurie Geldenhuys
Chris Mostert
Information technology
Jannie le Roux
Hendri Nigrini
Namane Magai
Risk services and specialist portfolios
Pankajkumar Ranchod
Insurance services
Machiel Reyneke
Alwyn Martin
John Newbury
Flip Rademeyer
Finance
George Rudman
Joe Roux
Johan van Zyl
Broker services
Peter Vundla
Nico Swart
Human resources
Koos van Tonder
Executive directors
Steffen Gilbert
Santam International
Steve Zietsman
Machiel Reyneke
Marketing and communication
page 87
sanlam annual report 2003
business cluster reviews
investment cluster
2003 has been a year of solid delivery for the Investment cluster.
Investment performance improved significantly and net fund
inflows were R4,3 billion compared to net fund outflows in 2001
and 2002.
Salient features
• A considerable improvement in market confidence
• Significant improvement in investment management rating and
strong growth in fund inflows
• Consistent and committed application of our pragmatic value
philosophy and processes
• A top-class investment team with the best industry talent
• A high-performance culture and a hunger to succeed
Key results
in rand millions
Operating profit before tax
Gross inflow of funds
Net inflow of funds
Funds under management
2003
2002
%∆
292
21 685
4 347
241 200
243
14 054
(3 661)
220 200
20
54
10
Group structure
Armien Tyer,
head of external interface and
Johan van der Merwe,
chief executive of Sanlam
Investment Management
Sanlam Investment Management (SIM)
The second largest investment manager in South Africa
measured by assets under management. It provides
traditional and alternative investment products to
institutional clients
Innofin
A wholly-owned subsidiary that focuses on investment
products and services for the high net-worth market
Octane Management
(Octane)
Sanlam Collective Investments (SCI)
Sanlam Multi Managers (SMM)
The designated alternative investment specialist
within the Sanlam group. Its focus is to provide
customised alternative investment solutions for its
clients. Octane’s head office is in Switzerland, with its
research team based in New York
Manages Sanlam’s collective investments (unit trusts)
Independent manager-of-managers operation
Sanlam Multi Managers
International (SMMI)
A wholly-owned subsidiary, based in London and
Dublin, responsible for SIM’s international investment
management
Sanlam Property Asset
Management (SPAM)
Specialises in strategic property services like portfolio
management, development, sales and listings
Sanlam Private Equity (SPE)
Sanlam Private Investments (SPI)
Tasc
12%
Contribution to Group
operating profit before tax
Private equity fund and fund-of-funds manager
Manages assets for individuals and entities on a local
and global basis, including stockbroking
Independent outsourced investment administration
55%
Contribution to Group new
business inflows
page 89
sanlam annual report 2003
business cluster reviews
i n v e s t m e n t c l u s t e r continued
We have focused strongly on creating an environment that
engenders a culture of high performance that attracts the best
talent in the industry, whilst remaining committed to enhancing
employment equity.
Nature of business
The Investment cluster incorporates Sanlam’s related investment businesses, ensuring that business practices and
performance criteria are aligned to service Sanlam’s predominantly South African client base. Our areas of expertise
cover traditional asset management, alternative investment products, property asset management, private client
investment management and stockbroking, multi-manager management and investment administration for local and
international clients.
Vision and strategy
Over the medium term, we aim to achieve the following goals:
• Become the aspirational brand of a quality investment house for all stakeholders.
• Deliver sustained competitive investment results.
• Achieve top quartile investment performance over three and five years.
• Meet or exceed the Financial Sector Charter targets.
Business environment and operational review
Despite global economic uncertainty and volatile equity markets, 2003 has been a year of solid delivery for the
Investment cluster. Our improved performance has been underpinned by the continued application of a pragmatic
value investment philosophy and robust investment processes.
Investment performance improved significantly and net fund inflows were R4,3 billion compared to net fund
outflows in 2001 and 2002.
Key achievements include:
• Sanlam Select Fund was the top overall performing unit trust in South Africa for 2003;
• Sanlam Income Fund, the Sanlam Gilt Fund, the Namibian Income Fund and the Namibian
Managed Prudential Fund achieved first places and the Inflation Linked Fund and the Provider
Fund achieved second places in their respective categories;
• Institutional Funds moved up from 8/10 to 4/10 on the Alexander Forbes Global Large Manager
Watch over the 12 month period;
• 6th out of 19 in the Plexus (Collective Investments) survey for the 12 month period ending
December (18th out of 27 for 2002)
• R6,4 billion institutional inflows during 2003 and an overall net inflow of business.
page 90
The incorporation of Sanlam’s investment related businesses into the Investment cluster
as part of the Group’s overall restructuring, has ensured improved cost containment,
investment returns that are guided by relevant South African benchmarks and the ability to
optimise synergies. In May 2003 Sanlam Unit Trusts and Innofin moved to the Investment
cluster and in August 2003 the responsibility for Sanlam’s South African sourced
international funds of approximately R18 billion were transferred to a new business unit in
the Investment cluster, Sanlam Multi Managers International, operating from London
and Dublin.
Our business is now well balanced and able to adjust to changing market conditions.
This will allow us to deliver a consistently competitive performance.
We have focused strongly on creating an environment that engenders a culture of high
performance that attracts the best talent in the industry, whilst remaining committed to
enhancing employment equity. 34,2% of our employees are currently from previously
disadvantaged backgrounds and there is a strong dedication amongst employees to transfer
skills. The Investment Professional Development Programme (IPDP) started in January 2003
is progressing well. The programme is aimed at fast tracking candidates from previously
disadvantaged communities with high potential into skilled investment professionals. The
candidates have attended in-house lectures on a wide range of investment related topics
and are currently obtaining practical work experience in several departments within the
investment process on a rotational basis. SIM is currently further enhancing the IPDP
programme.
SIM is also in the process of implementing an exciting Fast Tracking programme and has
selected eleven highly talented, young individuals who will participate in this programme
throughout 2004. Seven of the candidates are from designated groups. The Fast Trackers
will be exposed to a range of initiatives to broaden their perspectives, provide them with
insights and experience that would normally only be gained after a number of years within
a business and prepare them for future leadership roles. Relevant mentorship will also be
included in this programme.
page 91
sanlam annual report 2003
business cluster reviews
i n v e s t m e n t c l u s t e r continued
Financial review
Fund flows
The reported fund flows of the Investment cluster improved significantly compared to 2002, with total new inflows
improving by 56% to R21,5 billion and outflows decreasing by 2%. The net fund inflow of R4,3 billion reflected this
turnaround when compared to the R3,7 billion net outflow reported last year. The improved investment performance
described earlier and a strategic focus on client centricity contributed to this turnaround.
Total funds received
R million
2003
Increase/
2002 (decrease)
Segregated
Group business
Private investments
Collective investments
(incl White labels)
Innofin
International
6 072
361
974
403
402
270
5 669
(41)
704
7 848
6 303
127
7 429
5 393
157
419
910
(30)
Total
21 685
14 054
7 631
2003
2002
(Increase)/
decrease
Segregated
Group business
Private investments
Collective investments
(incl White labels)
Innofin
International
4 482
2 623
239
5 024
3 603
—
542
980
(239)
6 634
3 178
182
6 494
2 594
—
(140)
(584)
(182)
Total
17 338
17 715
377
Funds outflows
R million
Net fund flows
R million
2003
Segregated
Group business
Private investments
Collective investments
(incl White labels)
Innofin
International
Total
page 92
Increase/
2002 (decrease)
1 590
(2 262)
735
(4 621)
(3 201)
270
6 211
939
465
1 214
3 125
(55)
935
2 799
157
279
326
(212)
4 347
(3 661)
8 008
Operating profit
The Investment cluster, which includes the international investment businesses with effect from
1 July 2003, increased operating profit before tax by 20% to R292 million. Prior year figures are
not strictly comparable, because 2002 figures were not adjusted for the transfer of the international
businesses due to the integrated business model that existed prior to the transfer.
The South African operations increased operating profit by 12% compared to 2002. Revenues were affected
by the lacklustre financial markets of the first nine months of 2003 and remained largely flat for this
period. Revenues for the full year increased by 17%, mainly as a result of the turnaround in fund flows that
gained momentum in the second half of the year, together with the positive equity markets of the last
quarter of 2003. The improved investment performance that supported the fund inflows also resulted in an
increase in incentive fees. The positive markets of the fourth quarter supported growth in brokerage and
commissions in Sanlam Private Investments and Sanlam Property Asset Management who managed the
listing of a large property fund, the MICC Property Income Fund. Innofin continued to grow strongly,
gaining market share as a result of a strategy of excellent client service, which led to an increase in
revenue of 28%.
Expenses, which increased by 8% in the South African operations, were negatively affected by
a R12 million provision for an onerous contract. This relates to a 20-year lease on a building that
was vacated by SIM. Excluding this item, expenses increased by 5% compared to 2002.
The reorganisation of the SMMI product offering and the restructuring of its operational capabilities,
aligning them with the requirements of SA based clients, were largely completed by the end of
the year. Octane’s funds performed well ahead of benchmark and the business was profitable in its first
year of operation.
Net operating profit
R million
2003
2002
%⌬
740
56
50
2
630
46
47
3
17
22
6
(33)
Financial services income
Administration cost
848
(556)
726
(483)
17
(15)
Operating profit before tax
Tax and minorities
292
(87)
243
(77)
20
(13)
Operating profit after tax
205
166
23
Fee income
Brokerage
Net interest income
Net equity accounting
page 93
sanlam annual report 2003
business cluster reviews
i n v e s t m e n t c l u s t e r continued
as at 19 February 2004
Net operating profit –
geographical split
R million
South Africa
International
2003
2002
%⌬
186
19
166
—
12
205
166
23
2003
2002
%⌬
73
16
47
50
19
73
2
48
43
—
—
700
(2)
16
—
205
166
23
Net operating profit –
summary per business
R million
SIM
Innofin
Collective investments
Other
International
*Other includes the following businesses:
Private Investments, Property Asset Management, Multi Managers and Tasc
Administration
Strategic focus areas
The key focus areas going forward are to deliver a sustained improvement in investment performance and to provide
competitive products and services to our target client base, whilst continuing with the transformation required to
become leaders in our market. We aim to achieve this through:
• Attracting the right people, investing in the training and development of investment professionals and fostering a
culture of leading in-house research;
• Effectively managing our single manager and multi-manager solutions businesses to meet the needs of our clients;
• Continuing to extract the top line synergies between the different businesses in the Investment cluster. We will
also focus on further integrating the international operations into the Cluster and implementing the new
international investment strategy;
• Seeking to achieve the targets set out by the Financial Sector Charter through a structured process, by the
required dates; and
• Continuing to optimise all processes, especially the IT platform, to further develop decision support systems.
page 94
Prospects
The Investment cluster has a highly motivated workforce with the appropriate people, investment
philosophy and processes in place to ensure the delivery of sustained competitive investment results.
We aim to continue making value-adding appointments and improving our competitive advantage by
developing our in-house proprietary research. Black economic empowerment (BEE) remains an important
component of the future success of our business and we are excited about working with the Group’s new
BEE partners. We believe that the improved investment performance will continue to drive positive fund
flows. Our international operation is poised for strong growth after the period of consolidation in 2003,
with the potential benefits from the Merchant Investors Assurance transaction adding to the prospects of
these businesses.
Sanlam Investment cluster
Executive committee
Board of directors
Johan van der Merwe
Non-executive
Chief executive
Johan van Zyl
Anton Raath
Chairman
Chief operating officer
Attie du Plessis
Robbie Alexander
Chairman of the audit committee
Octane
David Ladds
Johan du Preez
Member of the audit committee
Innofin
Carmen Maynard
Deon Gouws
Member of the audit committee
SMMI
Flip Rademeyer
Thando Mhlambiso
Member of the audit committee
Private equity
Executive directors
Hank Pienaar
Tasc
Hendrik Pfaff
Johan van der Merwe
Anton Raath
Armien Tyer (designate)
SMM
Vekuii Rukuro
SIM Namibia
Armien Tyer
External interface
Tienie van der Mescht
Collective investments
Banus van der Walt
SPAM
page 95
sanlam annual report 2003
business cluster reviews
banking cluster
The restructuring of Gensec into Sanlam Capital Markets with a
focus on risk management solutions and associated capital market
activities will enhance its operational performance and optimise
return on capital.
Salient features
• Gensec Bank has been restructured to optimise its return on
capital. Capital-intensive businesses were closed and its risk
management and trading platform was grouped together to form
Sanlam Capital Markets (SCM).
• The arbitrage division delivered an exceptional performance.
• Gensec’s banking licence is expected to be returned by the end of
the first half of 2004.
Key results
in rand millions
2003
2002
%∆
396
402
(1)
55
(74)
50
62
10
—
Revenue
Gross operating profit:
Continuing operations
Discontinuing operations
Peter Cook,
deputy chief executive
Anton Botha,
chief executive
Steve Muller,
head of investment banking of
Gensec Bank
Group structure: Prior to the restructuring in August 2003, Gensec Bank included the
following operations:
Investment Banking
Arbitrage
equity underwriting, corporate
finance, debt finance and private
equity
fixed interest, foreign exchange and
money market activities
structured products and Gensec
Trading (brokerage)
hedge fund operations
Investments
Fieldstone and Safair Lease Finance
Treasury
Risk Management Solutions
Following the restructuring, SCM will consist of:
Market Activity
Structured Products
Stockbroking
focuses on the core financial product
groups within Sanlam, which include
equity derivatives, fixed interest,
arbitrage and treasury (money
market operations)
market solutions, structured
investment products, debt
origination and structuring,
alternative risk products and risk
management solutions
discount brokerage, market making
and technology
page 97
sanlam annual report 2003
business cluster reviews
b a n k i n g c l u s t e r continued
The strategic objectives for SCM are to extract synergies from
within the Sanlam group through closer working relationships
in a co-operative model.
Nature of business
In August 2003, Sanlam announced that it was restructuring Gensec Bank to focus on areas within the
bank that are complementary and value enhancing to Sanlam’s core businesses. This process is scheduled
for completion by the end of June 2004, when Gensec will be renamed Sanlam Capital Markets.
Sanlam Capital Markets (SCM) will provide risk management and structured product solutions and
associated capital market activities for the South African savings industry, public sector enterprises and
corporates.
Vision and strategy
The strategic objectives for SCM is to extract synergies from within the Sanlam group through closer
working relationships in a co-operative model.
Business environment and operational review
The restructuring has involved reducing the staff component from 290 to 130 people, while managing to
retain people with key skills aligned to SCM’s core businesses. SCM will provide a treasury, structured
products and brokerage service to Sanlam and other clients. Gensec’s non-core investment banking
activities were terminated during the process of restructuring.
SCM has a solid platform from which to grow, with clear direction and support from the Sanlam group.
Sanlam Limited will continue its existing capital guarantees, providing SCM with the ability to trade off a
larger balance sheet. SCM will co-operate on product development and asymmetrical access to
information from both the Investment and Life cluster and will receive an increase in brokerage
allocation and funding support from the Investment cluster.
page 98
Financial review
The total revenue for Gensec Bank was 1% lower than the previous year. The investment banking income
was higher than the year before, mostly as a result of the better equity markets. In the risk management
solutions area, opportunities were reduced and as a result, income was lower.
Market activity income was higher than the previous year as the significant equity derivative losses of the
previous year were curtailed. The arbitrage division increased their contribution and the Safair Lease
Finance business’ contribution increased, as a result of accounting for the investment for the full year
compared to only six months for the previous year. Normal recurring expenses for the year increased by 8%,
in line with expectations.
In light of the significant uncertainty that prevailed in Gensec for the major part of the year, the results of
the operations, excluding Fieldstone, were satisfactory.
Continuing businesses within SCM
Market activity
Treasury had a good year with the decline in short-term interest rates increasing trading activity, adding to
Top:
Mark Murning,
chief executive,
Nico Siebrits,
CFO, and
Sabir Munshi,
CIO of Sanlam Capital Markets
the unit’s profitability. However, overall revenue of R39 million was 47% lower than that of the previous
year (2002: R74 million) due to less revenue being generated by the lower capital employed within the
division after the investments in Safair Lease Finance and Fieldstone. Treasury’s activities focus on funding
programmes for SCM and going forward, the unit will play a greater part in the funding of the wider
Sanlam group.
Equity Derivatives create and transact structured equity derivative products that are able to hedge risks
being absorbed by Sanlam and other clients.
As a result of the reduced deal flow from the Structured Products division, combined with the complexities
of installing completely new information systems, the Equity Derivatives business has been scaled back
until the new environment has been completely settled. This is expected to be early in 2004 and an
important contribution is expected from this business in the year ahead. The significant losses that were
incurred during 2002 were curtailed in the year under review.
The Fixed Interest business focuses on the management of interest rate risk, including complex derivatives,
to hedge both the Sanlam group and external clients’ interest rate risk profiles. The division also acts as a
liquidity provider in the capital markets. The division had revenues of R49 million in 2003 (2002: R51 million),
delivering a satisfactory performance in line with expectations.
The Arbitrage business is a type of hedge fund that exposes limited capital to risk. It focuses on
opportunistic and analytical risk taking in the equity markets. The unit’s exceptional performance during
the year with revenues of R64 million (2002: R52 million) was achieved by taking advantage of a large
number of mis-pricing opportunities within the South African equity market.
page 99
sanlam annual report 2003
business cluster reviews
b a n k i n g c l u s t e r continued
2003
Continuing
Disconoperations
tinued
(SCM) operations
Income statement
R million
Total
Total
%⌬
234
(179)
162
(158)
396
(337)
402
(311)
(1)
(8)
Operating profit
(excluding Fieldstone)
Fieldstone operating (loss)/profit
Fieldstone legal costs
55
—
—
4
(50)
(28)
59
(50)
(28)
91
21
—
(34)
(338)
—
Operating profit
Taxation
55
13
(74)
(10)
(19)
3
112
53
(117)
(94)
Headline earnings
68
(84)
(16)
165
(110)
Financial services income
Administration expenses
Revenue distribution
2003
19%
41%
14%
10%
page 100
2002
16%
Revenue distribution
2002
investment banking
safair lease finance
arbitrage
stockbroker
structured products
market activity
22%
19%
32%
14%
13%
Structured products
Structured Products offers structured investment products for the savings industry, structured
risk management products for the corporate sector and structured debt products for both the
savings industry and the corporate sectors. Revenue of R56 million was below expectations
(2002: R76 million). This was due to the uncertainty surrounding the restructuring and a
reduction in structuring opportunities as a result of the lower interest rate environment.
Stockbroking
The stockbroking business, Gensec Trading (Proprietary) Limited, has been renamed Sanlam
Securities (Proprietary) Limited. Its business model is to trade as a discount broker for the
Sanlam group companies, as well as external brokerage clients.
Due to the subdued activity on the JSE Securities Exchange during 2003, this business did not
achieve its expected performance. Consequently, revenues of R40 million were 30% lower than
that of the previous year (2002: R57 million).
Review of discontinued operations
Investment Banking (IB): Prior to the decision to discontinue this capital-intensive business,
the results of the debt structuring business were in line with expectations. In an environment
of few opportunities, the equity finance and underwriting division also had a reasonable year
under review. The corporate finance advisory and private equity management divisions
performed in line with budgets and expectations until they were closed down towards the
end of the financial year. Revenue for the period was R115 million (2002: R158 million).
Certain loans and advances, as well as other market positions that emanated from the
IB division will be taken over or managed out by the continuing businesses within SCM.
Treasury: Within the bank’s Treasury, the discontinued activities will include foreign exchange
trading and funding from the general public. Although the foreign exchange desk delivered
good results for the year under review, it cannot continue trading within a non-banking
environment and its activities have already ceased. Taking deposits from the general public is
also not permitted without a banking licence and this division will therefore be managed
downward in co-operation with clients ahead of the cancellation of the banking licence.
The Fieldstone Group: The investment in this international advisory business was problematic
for Gensec Bank, with the business incurring a loss for 2003. Gensec funded Fieldstone up to
the end of 2003 and has written off the total equity and loan finance investments in the
Fieldstone group. The business was sold to certain management members of the company
after the year-end.
page 101
sanlam annual report 2003
business cluster reviews
b a n k i n g c l u s t e r continued
Safair Lease Finance: In 2003, Gensec Bank indicated to its partners in Safair Lease Finance (SLF)
that it would not partake in the further funding of aircraft beyond the current commitments, pending
a review of the Sanlam group’s future involvement in this business. Past commitments will be honoured.
As a result of the strengthening rand, the return on the investment in SLF was lower than expected
and Gensec has revalued the investment downwards in line with the expected lower future returns.
Revenue from this investment was R24 million (2002: R11 million).
Prospects
Sanlam Capital Markets’ management team is optimistic that the renewed focus on SCM’s core
businesses of risk management solutions and associated capital market activities will enhance its
operational performance and optimise its return on capital. SCM is a well-managed business, with loyal
clients that will benefit significantly from the increased level of activity within the South African and
international capital markets.
Sanlam Limited remains committed to providing SCM with the ability to trade off a large balance sheet
and we expect to see increased benefits through improved transaction flow from Sanlam’s BEE partners.
page 102
Banking cluster executive committees and boards
Gensec Bank (until cancellation of banking licence in 2004)
Executive committee
Board of directors
Anton Botha
Chief executive
Non-executive directors
Tom de Beer
Peter Cook
Chairman
Deputy chief executive
Div Geeringh
Gerhard Erasmus
Structured products
Deputy Chairman
Chairman audit committee
Steve Müller
David Ladds
Investment banking
Member of audit committee
Sabir Munshi
Oyama Mabandla
Information services
Flip Rademeyer
Mark Murning
Member of audit committee
Treasury & market activities
Johan van Zyl
Francois Oosthuizen
Risk
Nico Siebrits
Finance
Sibusiso Vil-Nkomo
Executive directors
Anton Botha
Peter Cook
Alternate directors
Kobus Möller
Steve Müller
Mark Murning
Sanlam Capital Markets (after cancellation of banking licence in 2004)
Executive committee
Board of directors
Mark Murning
Chief executive
Non-executive directors
Flip Rademeyer
Nico Siebrits
Chairman
Finance
Peter Cook
Gerhard Erasmus
Structured products
Sabir Munshi
David Ladds
Kobus Möller
Information services
Francois Oosthuizen
Risk
Thomas Reilly
Market activity
Daron Walker
Sanlam securities
Executive directors
Mark Murning
Nico Siebrits
page 103
sanlam annual report 2003
business cluster reviews
independent financial services cluster
The creation of the Independent Financial Services cluster will
provide an important alternative revenue stream for the Group in
the medium to long-term.
Nature of business
The Independent Financial Services cluster (IFS) was established towards the end of 2003 and invests in independent customer facing
entities and intermediary businesses operating within the financial services industry. The Cluster’s key priority is to enhance Sanlam’s
profitability by making investments that provide an appropriate (risk adjusted) real return on capital invested, as well as improving
business volumes to the Group.
The businesses selected for investment are not Sanlam branded but have their own brand loyalty, well-defined customer bases and
appropriate BEE credentials. They offer independent financial advice, as well as the distribution and packaging of financial services
products to high growth segments. The businesses will provide Sanlam with access to a wider customer base and an opportunity to
channel new business flows to the Group.
IFS will maintain an appropriate shareholding in the businesses, retaining sufficient ownership to influence strategic decisions
without compromising on the independence of advice, customer choice and innovative product solutions.
Net operating profit
in rand millions
2003
2002
%∆
35
Operating profit before tax
Tax on operating profit
(1)
(11)
99
(17)
Operating profit after tax
Minority shareholders’ interest
(12)
9
82
(10)
Net operating profit
(3)
72
Liezl Myburgh,
financial manager, and
Nick Christodoulou,
chief executive
Group profile and shareholding structure
Sanlam Financial Services
60%
UK based advice and client solutions offerings
Octogen
28%
Debt management, insurance and financial planning
Gensec Property Services 100% Property services
Operating profit
Sanlam Financial Services
Actuarial and investment
consulting
Independent financial advisory
Investment management
Stockbroking
Private client
Centralised management expense
2003
GBP’000
2002
GBP’000
5 660
149
(545)*
(2 799)
(1 309)
(1 852)
3 279
(2)
4 452
(160)
(502)
(2 124)
Operating profit before
interest and tax
Interest
(696)
(871)
4 943
(216)
Operating profit before tax
(1 567)
4 727
R’000
R’000
Operating profit before tax
Gensec Property Services
Cluster management expenses
(18 913)
18 890
(1 309)
75 122
24 390
—
Total operating profit before tax
(1 332)
99 512
*Exclude profits of io asset management and Octane for the second
half of the year. It is reported in the Investment cluster.
page 105
sanlam annual report 2003
business cluster reviews
independent financial services cluster
continued
PSolve is now regarded as a credible competitor among the small
number of long-established names serving the UK institutional
investment market.
IFS will maintain a small core management team. The Cluster will consult the Sanlam group executive committee for
key decisions, as the focus on business flows to other clusters remains a key driver. IFS will utilise additional
resources within the Group as and when required.
Financial review
The restructuring of SFS with the associated one-off costs, the closing of Sanlam International during the year, as
well as the underperformance of certain business units in SFS, resulted in a loss for the year.
Review of investments
Sanlam Financial Services
The effect of the restructuring of Sanlam Financial Services (SFS) during 2003 has resulted in the majority of
Sanlam’s overseas investments now being managed by Sanlam Multi Managers International. The remaining
activities of SFS are now managed through a UK-based holding company, to be renamed Sanlam Financial Services
Ltd, rather than through the former Sanlam Financial Services bv in Holland. Since the majority of the remaining SFS
activities are based in the UK this new structure is designed to yield significant cost savings.
The SFS business model has not significantly changed as a result of the restructuring. It continues to combine
financial consulting activities and specialist investment services in a way that supports the delivery of integrated
solutions and not just products to clients. SFS provides these services in varying forms to both institutional and
retail investors.
Business environment
The early part of the year saw investment markets reach a low point that sapped confidence and led to a slowing in
decision-making by both institutional and retail clients. This created a difficult environment in which to market
direct investment services and generate income in the form of commission on investment product sales. It also
prolonged an already difficult period for stockbroking activities. Conversely, the situation created demand for
consulting services to support clients as they made the complicated decisions required to move through this difficult
period.
Where 2002 involved several acquisitions by SFS, 2003 was a year of consolidation. Headcount increased slightly
from around 450 to around 475, mainly driven by organic growth within the consulting operations. There were a
small number of redundancies as a result of the restructuring.
page 106
Actuarial consulting
The demand for corporate pensions advisory and consulting services
remained strong. During this period, the integration of the actuarial
consulting firm, BGJ, acquired during 2002, with Punter Southall & Co
took place. The result was an increase in UK revenues of 16% with a
60% increase in operating profit as the benefits of the increased scale
of the business flowed through. Continuing change in the legislation
and regulations governing UK corporate pensions provision, and the
issues arising from disappointing investment returns in recent years,
suggest that the market for these services will continue to be healthy
in the foreseeable future.
Jonathan Punter
chief executive
Sanlam Financial Services (UK)
Investment consulting
PSolve, the investment consulting business, was established during 2001
and had a very satisfactory first year of performance during 2002. It has
continued to perform exceptionally well during 2003. Revenues grew by over
100%, well in excess of an already demanding budget, while, despite such
rapid growth, the business achieved a healthy operating margin. In less than
three years PSolve is now regarded as a credible competitor among the small
number of long-established names serving the UK institutional investment
consulting market. At the same time PSolve is developing a number of
innovative models to serve its clients more effectively, which should support
continued rapid growth in the future.
The full effect of the increase in personnel costs will flow through in 2004
and will underpin revenue growth in future years.
Independent financial advisory
The IFA business, PSFM Ltd, grew its revenues by almost 60% in a difficult
market and returned to a reasonable level of operating profitability during
2003, after a difficult 2002. The company’s growth in revenue supports the
view that there is significant demand for high quality independent financial
advice for individuals. During 2004, we will focus on consolidating the recent
recovery in profitability and extending the range of the company’s
interaction with its sister businesses.
Manager-of-managers and fund-of-funds investment management
The restructuring of SFS during 2003 involved the bulk of the assets advised
by io investors Ltd being transferred to the London operations of Sanlam
Multi-Managers International. However, io investors Ltd had a successful year in
page 107
sanlam annual report 2003
business cluster reviews
independent financial services cluster
continued
Gensec Property Services has delivered one of its best
performances in years.
growing the volume of assets from external clients within the io Alternatives range of fund-of-hedge-funds from
£44 million to £95 million. In addition, a new subsidiary, io Unit Trusts Ltd, was created in the UK to develop and
market a range of unit trusts, the first of which, the io Income and Growth Fund, has already been launched.
Private client
Hichens Investment Management, established in June 2002, had a successful 2003 which involved building up
its assets under management to reach some £135 million by year-end. It is planned to reach break-even during
2004 and the growth of assets under management is on track to achieve this.
Brokerage
Hichens Harrison, the stockbroker, reported a loss for 2003 due to low trading volumes continuing during the year.
A new team was taken on to cover a range of activities, some of which are counter-cyclical to the main stock
market. Results are encouraging and the business is expected to recover to break-even volumes of activity
during 2004.
Outlook for 2004
A solid platform has now been established to significantly improve the profit of SFS in 2004, which will capitalise on
the growing revenue base proven during 2003. The advisory businesses continued to show revenue growth, and
coupled with the increasing assets under management of the investment businesses, will provide a differentiated
solution for clients. The role of Hichens Harrison in the group will be evaluated during the year.
Gensec Property Services
Nature of business
Gensec Property Services offers property services to a wide range of clients, including landlords, corporates, asset
managers, listed funds and government, on a national basis.
Property service offerings include: property management services, facilities management, space and office planning,
office layouts and move co-ordination, asset management, portfolio management, property consulting, retail redevelopments, project management, procurement and logistics and corporate lease management.
Financial and operational overview
Gensec Property Services has delivered one of its best performances in years. Rental collection was in excess of 90%
by the fifth working day of each month, while the number of outstanding renewals reduced from 800 at the
beginning of 2002 to 45 at the end of 2003. During 2003, 257 000 gross m2 was let. Gensec Property Services has
property valued in excess of R11 billion and lettable area of 3,2 million m2 under management.
page 108
Operating profit before tax decreased to R18,9 million in 2003 (2002: R24,4 million), mainly because of a
loss of income during 2003 due to higher property sales in the Sanlam portfolio and additional
commissions earned during 2002 on lease renewals.
Outlook for 2004
The property industry will continue to come under pressure, dominated by high percentages of vacant space
in all spheres of the market. However, the strengthening of the rand coupled with lower inflation and
interest rates could boost consumer spending in 2004.
During 2003, Gensec Property Services repositioned itself as an independent property services company
aiming to deliver multiple revenue streams through diversified service offerings whilst growing its
businesses, delivering exceptional performances for all portfolios under its management and continually
delivering on the unique needs of clients.
Temba Vundla, general manager
business development, and
Marna van der Walt, chief
executive Gensec Property
Services.
Overall prospects
IFS is proactively investigating a number of proposals and opportunities for further investment and is
confident that it will provide an important alternative revenue stream for the Group in the medium to
long term.
All the issues that weighed on the Cluster’s results in the year under review have been addressed and
a significant improvement in performance is expected for 2004.
Independent financial services
Executive management
Nick Christodoulou
Chief executive: IFS
Liezl Myburgh
Financial manager: IFS
Jonathan Punter
Sanlam Financial Services (UK)
Marna van der Walt
Gensec Property Services
Phillip van den Heever
Octogen
page 109
sanlam annual report 2003
sanlam limited
group annual financial statements
contents
directors’ responsibility for financial reporting 111
certificate by company secretary 111
report of the statutory actuary 112
report of the independent auditors 113
directors’ report 114
basis of presentation and accounting policies 115
group income statement 126
group balance sheet 127
group statement of changes in equity 128
group cash flow statement 129
notes to the group financial statements 130
statement of actuarial values of assets and liabilities 157
sanlam limited financial statements 161
principal subsidiaries 166
financial information for the shareholders’ funds 167
page 110
directors’ responsibility
for financial reporting
The Board of Sanlam Limited accepts responsibility for the integrity, objectivity and reliability of the group and company
financial statements of Sanlam Limited. Adequate accounting records have been maintained. The Board endorses the principle
of transparency in financial reporting. The responsibility for the preparation and presentation of the financial statements has
been delegated to management.
The responsibility of the external auditors, Ernst & Young and PricewaterhouseCoopers Inc, is to express an independent
opinion on the fair presentation of the financial statements based on their audit of Sanlam Limited and its subsidiaries.
The audit committees have confirmed that adequate internal financial control systems are being maintained. There were no
material breakdowns in the functioning of the internal financial control systems during the year. The Board is satisfied that the
financial statements fairly present the financial position, the results of operations and cash flows in accordance with relevant
accounting policies, based on South African Statements of Generally Accepted Accounting Practice.
The Board of Sanlam Limited accepts responsibility for the integrity, objectivity and reliability of the Report on the Sanlam
Group Embedded Value. The responsibility for the preparation and presentation of the Report on the Sanlam Group Embedded
Value has been delegated to management.
The responsibility of the appointed external auditors, Ernst & Young, is to express an independent opinion on the fair
presentation of the Report on the Sanlam Group Embedded Value.
The Board is of the opinion that Sanlam Limited is financially sound and operates as a going concern. The financial statements
have accordingly been prepared on this basis.
The financial statements on pages 114 to 180 and the Report on the Sanlam Group Embedded Value on pages 183 to 188 were
approved by the Board and signed on its behalf by:
Ton Vosloo
Johan van Zyl
Chairman
Group Chief Executive
3 March 2004
certificate by
company secretary
In my capacity as Company Secretary, I hereby certify, in terms of the Companies Act, that for the year ended 31 December 2003,
the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this
Act, and that all such returns are, to the best of my knowledge and belief, true, correct and up to date.
Johan Bester
Company Secretary
3 March 2004
page 111
sanlam annual report 2003
report of the statutory actuary
of sanlam life insurance limited
Financial soundness valuation
The Sanlam Life Insurance Limited group has been consolidated in the Sanlam Limited group financial statements set out on pages
114 to 180. My opinion hereunder is in respect of the financial soundness of the Sanlam Life Insurance Limited group, as set out in
the Statement of Actuarial Values of Assets and Liabilities on pages 157 to 160.
I certify that:
• the valuation of Sanlam Life Insurance Limited group as at 31 December 2003, has been performed on the bases as set out on
pages 122 to 125. The valuation has been prepared and the results are presented in accordance with the guidelines (Professional
Guidance Notes 103, 104 and 110) of the Actuarial Society of South Africa;
• the Statement of Actuarial Values of Assets and Liabilities fairly presents the financial position of the Sanlam Life Insurance
Limited group;
• Sanlam Life Insurance Limited group was financially sound as at the valuation date, and in my opinion is likely to remain
financially sound for the foreseeable future; and
• the management actions assumed for the calculation of the capital adequacy requirements have been approved by the board of
directors of Sanlam Life Insurance Limited and I expect that these actions would be taken if the corresponding risks were to
materialise.
Embedded value
In my view the Sanlam Limited group embedded value and the value of the new life insurance business, as set out on pages
183 to 188, fairly present these values as defined. The embedded value and the value of new life insurance business have been
calculated and presented in accordance with the applicable guidelines (Professional Guidance Note 107) of the Actuarial Society
of South Africa.
Chris Swanepoel FIA, FASSA
Statutory Actuary
Sanlam Life Insurance Limited
3 March 2004
page 112
report of the
independent auditors
To the members of Sanlam Limited
We have audited the annual financial statements and the group annual financial statements of Sanlam Limited for the year ended
31 December 2003 as set out on pages 114 to 180. These annual financial statements are the responsibility of the directors of
Sanlam Limited. It is our responsibility to express an opinion on these financial statements based on our audit.
Scope
We conducted our audit in accordance with statements of South African Auditing Standards. These standards require that we plan
and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatements.
An audit includes:
• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;
• assessing the accounting principles used and significant estimates made by management; and
• evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit opinion
In our opinion, the annual financial statements and the group annual financial statements of Sanlam Limited fairly present in all
material respects the financial position of the company and group at 31 December 2003 and the results of their operations and
cash flows for the year then ended, in accordance with South African Statements of Generally Accepted Accounting Practice, and
in the manner required by the Companies Act in South Africa.
Ernst & Young
PricewaterhouseCoopers Inc.
Chartered Accountants
(SA)
Chartered Accountants
(SA)
Registered accountants
and auditors
Registered accountants
and auditors
Cape Town
3 March 2004
page 113
sanlam annual report 2003
directors’ report
for the year ended 31 December 2003
Nature of business
Subsidiaries
The Sanlam group is one of the largest established financial
Details of the company’s principal subsidiaries are set out on
services groups in South Africa. Its core activities are set out
page 166.
in the annual report.
Directors’ interest in contracts
Corporate governance
No material contracts involving directors’ interests were
The Board of Sanlam endorses the Code of Corporate
entered into in the year under review.
Practice and Conduct recommended in the King II Report on
Corporate Governance. Disclosures with regard to
compliance with the Code are provided in the corporate
governance statement in the annual report.
Group results
Interest of directors and officers in share capital
Details of the shareholding by directors at the date of this
report are provided in the corporate governance statement
in the annual report.
Headline earnings increased from R2 127 million (80,8 cents
per share) in 2002 to R2 351 million (89,2 cents per share) in
Directors and secretary
2003. Further details regarding the Group’s results are
Particulars of the directors and secretary of the company at
included in the financial review and the business reviews.
the date of this report, as well as changes in directorships,
The information in the financial review and corporate
are set out in the corporate governance statement in the
governance statement, requiring disclosure in the directors’
annual report.
report in terms of the Companies Act, has been audited.
Post-balance sheet events
Share capital
No material facts or circumstances have arisen between the
There were no changes in the authorised and issued share
dates of the balance sheet and this report which affect the
capital of the company during the financial year. Shares with
financial position of the Sanlam Limited group as reflected in
a cost of R293 million were purchased by a subsidiary,
these financial statements.
Sanlam Life Insurance Limited, in terms of the general
approval granted by shareholders at the previous annual
general meeting. The purchases were made in anticipation of
making the shares available to empowerment partners in a
transaction envisaged early in 2004. Approval for this
transaction will be sought at a special general meeting of
Sanlam Limited shareholders on 1 April 2004.
The attention of shareholders is drawn to the black
economic empowerment transaction proposed by the
company as elaborated on in the annual report.
Approval for this transaction will be sought at a special
general meeting of Sanlam Limited shareholders on
1 April 2004.
An estimate of the financial effect (in cents per share) of the
Dividends and dividend policy
transaction, based on the 31 December 2003 results, is as
It is the Board’s intention to declare only annual dividends
follows:
and to maintain a two and a half times dividend cover on
Before
After
%∆
100,2
96,7
(3,5)
Headline earnings
89,2
86,4
(3,1)
Attributable earnings*
71,5
69,7
(2,5)
1 147
1 107
(3,5)
headline earnings. The objective of the Board is to achieve
Core earnings
stable growth in dividend payments and the dividend pattern
will therefore not strictly follow the earnings pattern.
The Board has declared a dividend of 40 cents per share
Embedded value
(2002: 37 cents), payable on 19 May 2004. The last date to
trade to qualify for this dividend is 16 April 2004.
page 114
*Excludes the one-off effect of a donation to the Sanlam UbuntoBotho Development Trust.
basis of presentation and
accounting policies
Basis of presentation
All segregated fund inflows, unit trust inflows and shortterm insurance premiums are regarded as new business.
Policyholders’ and shareholders’ activities
The assets, liabilities and activities of the policyholders and
shareholders in respect of the life insurance business are
managed separately and are governed by the valuation bases
for policy liabilities and profit entitlement rules which are
determined in accordance with prevailing legislation,
generally accepted actuarial practice and the stipulations
contained in the demutualisation proposal. The valuation
bases in respect of policy liabilities and profit entitlement of
shareholders are set out on pages 122 to 125.
Financial services income
The Group financial statements set out on pages 126 to 156
include the consolidated activities of the policyholders and
shareholders. Separate financial information on the activities
of the shareholders of the Sanlam Limited Group is disclosed
on pages 167 to 180. The Statement of Actuarial Values of
Assets and Liabilities of the life insurance business of the
Group is disclosed on pages 157 to 160.
• income from banking activities such as realised and
unrealised gains or losses on trading accounts, unsecured
corporate bonds and money market assets and liabilities,
other securities related income and fees, and
commissions; and
Actuarial values of assets and liabilities
Financial services income for the shareholders’ funds consists of:
• income earned from long-term insurance activities such
as investment and administration fees, risk underwriting
premiums , asset mismatch profits or losses in respect of
non-participating business and income earned on
working capital;
• income from short-term insurance business, including
income earned on working capital;
• income from other financial services such as collective
investment administration, trust services and linkedproduct business.
The actuarial values of assets and liabilities are the
consolidated financial position of the Sanlam Life Insurance
Limited Group, excluding Sanlam Investment Management,
which is included at fair value as determined by the Board of
Directors. Associated companies are treated as investments
and are not equity-accounted.
Segregated funds
Funds received from clients
Term finance
Funds received from clients include single and recurring
long- and short-term insurance premium income, received
on both insurance and investment policy contracts, which
are included in the financial statements. It also includes unit
trust contributions, inflow for assets managed and
administered on behalf of clients and non-life insurance
linked-product contributions, which are not included in the
financial statements as they are funds held on behalf of and
at the risk of clients. Transfers between the various types of
business, other than those transacted at arm’s length, are
eliminated.
The portion of term finance, which is repayable within one
year, is not transferred to current liabilities. As these
liabilities are matched with investments, they are treated
consistent with investments redeemable within one year that
are not included in current assets.
New business
In the case of long-term insurance business the value of all
new policies that have been issued during the financial year
and have received at least one premium is regarded as new
business.
Sanlam also manages and administers assets for the account
of and at the risk of clients. As these are not the assets of
the Sanlam Group, they are not reflected in the Sanlam
Group balance sheet but are disclosed in a footnote to the
balance sheet.
Changes in reporting structures and accounting
policies
Following the restructuring of the Sanlam businesses into
five distinct clusters, the results of Innofin and Sanlam
Collective Investments (formerly Sanlam Unit Trusts) have
been transferred from the Life cluster to the Investment
cluster. Certain corporate functions were transferred into the
businesses as part of the creation of a small streamlined
central function.
Operating results of prior periods have been restated to
reflect the above changes.
page 115
sanlam annual report 2003
basis of presentation and
a c c o u n t i n g p o l i c i e s continued
The Group’s international advisory and asset management
business has been restructured. Sanlam has, with effect from
1 July 2003, reduced its holding in the advisory and related
businesses (PSigma Group based in the UK) to 60%. Sanlam’s
Investment cluster regained a 100% holding in the asset and
multi-manager components of SFS. The full results of these
operations for the first six months of the year are included in
the Independent Financial Services cluster, whereas the
results of the investment manager for the second half of the
year is included with the Investment cluster. Because of the
change in business model, operating results of prior periods
have not been restated to reflect this transaction.
The adoption of AC133 Financial Instruments: Recognition
and Measurement in the 2003 financial year resulted in
certain changes in presentation for the Sanlam group:
• Sanlam Life has categorised its life policies between
investment contracts, which fall within the scope of
AC133, and insurance contracts.
An insurance contract is a contract under which Sanlam
accepts significant insurance risk by agreeing with the
policyholder to compensate the policyholder or other
beneficiary if a specified uncertain future event (the
insured event) adversely affects the policyholder or other
beneficiary. Insurance contracts fall outside the scope of
AC133 and will continue to be valued on the current
financial soundness valuation basis.
Investment contracts are measured at fair value, as
specified by AC133. Currently the financial soundness
approach is considered to be an appropriate valuation
model for investment contracts issued by long-term
insurers. This is in accordance with interim solutions
developed in conjunction with the South African Institute
of Chartered Accountants, which are being implemented
in order to limit significant temporary changes to the
treatment of investment and insurance contracts within
South Africa, while adhering to the principles of AC133.
The liabilities under insurance and investment contracts
are disclosed separately on the balance sheet.
The migration to new International Financial Reporting
Standards (IFRS) for insurers will last a number of years, as
there is currently no such standard. The exposure draft on
the first phase of the proposals for IFRS on insurance
contracts was only recently issued. Future results may
page 116
however be impacted, as the development of guidance for
the long-term insurance industry, both from an
accounting and actuarial perspective, is an ongoing
process.
• As detailed in the accounting policies below, the fair value
basis of accounting was applied for the following financial
assets and liabilities:
• Financial assets and liabilities held for trading;
• Financial assets and liabilities classified as available-forsale; and
• Derivative financial instruments
Those interest-bearing assets and liabilities classified as
held to maturity are valued on an amortised cost basis.
• Gensec Bank has revisited all financial instruments that
were previously carried at historical or amortised cost
(excluding instruments originated by the Bank) and for
which the Bank does not have the intent and ability to
keep to maturity. These will now be marked-to-market
with the effective date being 1 January 2003. The net
effect on implementation date is, in accordance with
AC133, reflected as an adjustment to opening retained
earnings for the year.
• Since the 2002 results two headline earnings figures are
presented, the primary figure being based on operating
profit and actual investment income earned for the period
and the secondary being headline earnings adjusted for
the long-term rate of return. The introduction of AC133
forced us to revisit the treatment of investment surpluses.
In the past all investment surpluses were taken through
the income statement. We have now classified all
investments of the shareholders’ portfolio as availablefor-sale in terms of the standard and elected to take
unrealised investment surpluses directly to equity.
Realised investment surpluses are recognised in the
income statement, but do not form part of headline
earnings.
Consistent with the treatment in 2003, headline earnings
for 2002 now include the financial assistance provided to
policyholders previously included in investment surpluses.
Core earnings comprise the Group’s operating results,
equity-accounted income and investment income, and as
such it represents the headline earnings previously
published for 2002.
The unrealised investment surpluses included in the
opening balance of retained earnings were transferred to
the revaluation reserve.
The results of associated companies have been accounted for
using the equity method of accounting, where the Group’s
share of the associated companies’ earnings before dividends
• In line with the practice prescribed in AC133, prior year
results have not been restated.
is included in earnings.
Accounting policies
headline earnings are included in investment income with a
The Sanlam Limited Group financial statements are prepared
applying the principal accounting policies below, which are
in accordance with and comply with South African
Statements of Generally Accepted Accounting Practice, and
some of which apply specifically to the life insurance
industry. Apart from the introduction of AC133 referred to
above, the accounting policies applied in preparing the
financial statements are consistent with those of the
previous year.
In respect of the investment in Absa, the equity-accounted
corresponding adjustment to the carrying value of the
investment in associated companies. This carrying value is
adjusted to fair value with a corresponding adjustment to
investment surpluses which is consistent with the treatment
of other investments designated as available-for-sale.
Joint ventures
A joint venture is a contractual arrangement whereby two or
more parties undertake an economic activity that is subject
to joint control. The results of joint ventures have been
Basis of consolidation
accounted for using the equity method of accounting, where
Subsidiaries are enterprises that are controlled by Sanlam
Limited or by any of its subsidiaries.
the Group’s share of the joint ventures’ earnings before
The results of consolidated subsidiaries are included from the
effective dates of acquisition to the effective dates of
disposal. Inter-company profits and losses are eliminated
from the Group results. Inter-company transactions at arm’s
length, which do not influence the Group’s net earnings, are
not eliminated from the results.
investment in a joint venture is reviewed annually and
In certain instances, a portion of the Sanlam Group’s interest
in consolidated subsidiaries is held by the policyholders’ fund
to fund future benefits in terms of its policyholders’
contracts. The excess of the fair value of the policyholders’
interest in these consolidated subsidiaries over their
proportionate share of the subsidiaries’ net assets is
recognised in the Group balance sheet as equity investments.
holding ("adjustment") in a subsidiary company or the
Shares held in Sanlam Limited by subsidiary companies are
eliminated against equity on consolidation where these
shares are held by the shareholders’ funds of the Sanlam
Limited Group. Where these shares are held as investments
for policyholder benefits they are not eliminated on
consolidation, but reflected at fair value as equity
investments in the balance sheet.
dividends is included in earnings. The carrying amount of the
written down for impairment where this is considered
necessary.
Goodwill
Goodwill may arise on the acquisition or change in the
acquisition of a business. It represents the excess of the cost
of an acquisition or adjustment over the fair value of the
Group’s share of the net assets of the subsidiary or business
at the date of acquisition or adjustment. Where applicable,
goodwill is translated to South African rand using historical
exchange rates. Goodwill is written off on a straight-line
basis over the lesser of its estimated useful life or twenty
years. The carrying amount of goodwill is reviewed biannually and written down for impairment where this is
considered necessary.
Intangible assets
No value is attributed to internally developed trademarks or
Associated companies
similar rights and assets. Costs incurred on these items,
An associated company is a company, not being a subsidiary,
in which the Sanlam Group has a long-term investment and
over which it has the ability to exercise significant influence.
whether purchased or created by the Group, are charged to
the income statement in the period in which they are
incurred.
page 117
sanlam annual report 2003
basis of presentation and
a c c o u n t i n g p o l i c i e s continued
Financial instruments
Investments are classified as available-for-sale in terms of
Financial instruments carried on the balance sheet include
AC133 and are reflected at fair value, with the following
cash and bank balances, term finance liabilities, investments,
exceptions:
receivables and trade creditors. These instruments are
• Certain classes of interest-bearing assets are held to maturity
and consequently valued on an amortised cost basis.
generally carried at their fair value. The particular
policy statements associated with each item.
• Derivative financial instruments are classified as held for
trading and reflected at fair value.
Owner-occupied property
• Certain classes of interest-bearing assets are loans and
receivables originated by the company and consequently
valued on an amortised cost basis.
recognition methods adopted are disclosed in the individual
Owner-occupied property is property held for use in the
supply of services or for administration purposes. These
properties are valued at carrying amount less provisions for
impairment in value, where appropriate. Depreciation is
provided against the gross carrying amount of the
properties, taking into account the residual value and
estimated life of the property.
Investments
Fair values of investments have been determined on the
following bases:
• The value of fixed properties, that generate income, is
determined by discounting expected future cash flows at
appropriate market interest rates. Other fixed property is
valued at cost less provision for impairment in value, where
appropriate.
• Listed shares and units in unit trusts are valued at the
stock exchange and net asset value prices respectively.
The value of unlisted shares is determined by the directors
using appropriate valuation bases.
• Interest-bearing investments are valued by discounting
expected future cash flows at appropriate market interest
rates.
• Listed bonds are valued at the stock exchange prices.
• Listed derivative instruments are valued at the South
African Futures Exchange prices and the value of unlisted
derivatives is determined by the directors using generally
accepted valuation models.
• Loans of investment scrip to and from third parties are
not treated as sales and purchases.
page 118
Derivative instruments
Derivative financial instruments include foreign exchange
contracts, interest rate futures, forward rate agreements,
currency and interest rate swaps, currency, interest rate and
equity options and other derivative financial instruments
that are marked-to-market. Fair values are obtained from
quoted market prices, discounted cash flow models and
option pricing models, as appropriate. Accounting for these
instruments is dependent upon whether the transactions are
undertaken for trading or non-trading purposes.
Trading transactions undertaken by Gensec Bank include
transactions undertaken for market making, to service
customer needs and for proprietary purposes, as well as
any related hedging transactions. These transactions are
marked-to-market (fair values) and any profits or losses
arising are recognised in the income statement as operating
profit or loss on dealing activities. The fair values related to
such contracts and commitments are reported on a gross
basis in the balance sheet as positive and negative
replacement values.
Non-trading transactions are those which are held for
hedging purposes as part of the Group’s risk management
strategy against assets, liabilities, positions or cash flows
measured at fair value as well as structures incorporated in
the product design of policyholder products. Derivative
financial instruments used for hedging purposes by the
shareholders’ funds are marked-to-market and any gains or
losses are recognised in the income statement as net
investment surpluses.
Gains and losses on derivative financial instruments
incorporated in policyholder products are included in policy
liabilities.
Revaluation reserve
operating leases. Payments made under operating leases are
Based on the classification of investments held by the
charged to the income statement on a straight-line basis
shareholders’ funds as available-for-sale, net realised
over the period of the lease. When an operating lease is
investment surpluses are recognised in the income
terminated, any payment required by the lessor by way of
statement and the Group elected to transfer net unrealised
penalty is recognised as an expense in the period in which
investment surpluses directly to equity. The total of net
termination takes place.
unrealised investment surpluses on the revaluation of
investments attributable to shareholders' funds are
Investment return
transferred to a revaluation reserve. Realised and unrealised
Investment income
investment surpluses attributable to policyholders are
Interest income is accounted for on a time proportionate
basis that takes into account the effective yield on the asset.
included in policy liabilities.
The exchange differences arising on the translation of
foreign entities are transferred to the non-distributable
foreign currency revaluation reserve. On disposal of the net
investment, the income is released to the income statement.
A negative revaluation reserve will not be created.
Trading account and money market assets and liabilities
Trading account and money market assets and liabilities are
reflected at fair value, which is determined on the bases set
out above for investments. As these assets are categorised as
held for trading by Gensec Bank, the investment surpluses
Rental income is accounted for on an accrual basis and is
reflected net of property expenditure.
Dividend income is recognised once the last day for
registration has passed. Capitalisation shares received in
terms of a capitalisation issue from reserves, other than
share premium or a reduction in share capital, are treated as
dividend income. Dividend income from subsidiaries is
recognised when the dividends are declared by the
subsidiary.
Investment income earned on working capital is included in
operating profit.
are taken to the income statement and form part of the
operating result of the Group.
Investment surpluses
be made.
Investment surpluses consist of net realised surpluses and
deficits on the sale of investments and net unrealised
surpluses and deficits on the valuation of investments at fair
value. These surpluses are recognised in the income
statement or taken directly to equity, based on classification
of shareholder investments, or recognised in policy liabilities
for policyholder investments on the date of sale or upon
valuation to fair value.
Property and equipment
Long-term rate of return
Property and equipment are reflected at their depreciated
The long-term rate of return (LTRR) is determined at the
beginning of the year by the directors and is primarily based
on the actuarial assumptions, taking into account historical
experience and current market conditions having regard to
inflation expectations and consensus economic and
investment forecasts. The directors have selected this rate
with a view to ensuring that investment returns credited to
LTRR headline earnings are consistent with the actual
returns expected to be earned over the long-term.
Provisions
Provisions are recognised when the Group has a present
legal or constructive obligation as a result of a past event, it
is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation
and a reliable estimate of the amount of the obligation can
cost prices. Depreciation is provided for on a straight-line
basis, taking into account the residual value and estimated
useful lives of the assets, which vary from two to twenty
years.
Leases
Leases of assets, under which the lessor effectively retains all
the risks and benefits of ownership, are classified as
page 119
sanlam annual report 2003
basis of presentation and
a c c o u n t i n g p o l i c i e s continued
The long-term investment return is calculated on a monthly
basis on the fair value of the investments held in the
shareholders’ funds.
Premium income
The full annual premiums on individual insurance policies
that are receivable in terms of the policy contracts are
accounted for on policy anniversary dates, notwithstanding
that premiums are payable in instalments. The monthly
premiums in respect of certain new products are in terms of
their policy contracts accounted for when due.
Group life insurance premiums are accounted for when
receivable. Where premiums are not determined in advance
they are accounted for upon receipt.
Short-term insurance premiums are accounted for when
receivable, net after a provision for unearned premiums
relating to risk periods that extend to the following year.
Premiums outstanding for more than sixty days are not
accounted for. Inward short-term reinsurance agreement
premiums are accounted for on an intimated basis.
Gross premium income is reduced by reinsurance premiums
applicable to the same period.
Consulting fees earned
Consulting fees are accounted for on the accrual basis.
Policy benefits
Life insurance policy claims received up to the last day of
each financial period and claims incurred but not reported
(IBNR) are provided for and included in policy benefits. Past
claims experience is used as the basis for determining the
extent of the IBNR claims.
Underwriting policy benefits in respect of long-term
insurance business include the change in the corresponding
actuarial liabilities.
Commission on long-term insurance business is accounted
for on all in-force policies in the financial period during
which it is incurred.
Acquisition cost for short-term insurance business is
deferred over the period in which the related premiums are
earned.
Administration costs
Administration costs include, inter alia, indirect taxes such as
revenue stamps payable on insurance policy contracts and
VAT, property and administration expenses relating to
owner-occupied property, property and investment expenses
related to the management of the policyholders’
investments, product development and training costs.
Internal systems development costs and purchased systems
costs are included in administration expenses when incurred.
Deferred income tax
Deferred normal income tax is provided at current tax rates
for all temporary differences arising between the tax bases
of assets and liabilities and their carrying values for financial
reporting purposes. Deferred tax assets relating to unused
tax losses are recognised to the extent that it is probable
that future taxable profit will be available against which the
unused tax losses can be utilised.
Deferred capital gains tax relating to the assets underlying
the policyholders’ funds is included in policy liabilities.
Deferred tax balances are reflected at current values and
have not been discounted.
Foreign currencies
Transactions and balances
Policy benefits are reflected net of amounts recovered from
reinsurers.
Assets and liabilities in foreign currencies are converted
to South African rand at exchange rates ruling at the
financial period end. Foreign currency income statement
items are translated at the weighted average exchange rates
for the period.
Sales remuneration
Foreign entities
Sales remuneration consists of commission payable to nonsalaried sales staff on long-term and short-term insurance
business and expenses directly related thereto, bonuses
payable to sales staff and the Group’s contribution to their
retirement and medical aid funds.
All foreign subsidiaries are regarded as foreign entities due
to the nature of their relationship with the holding
company. Income statement items of foreign subsidiaries
are converted to South African rand at the weighted average
exchange rates for the financial year. The closing rate is
page 120
used for the assets and liabilities. At acquisition, equity is
translated at the rate ruling on the date of acquisition.
Post-acquisition equity is translated at the rates prevailing
when the change in equity occurred. Exchange differences
arising on translation of foreign entities’ results are
transferred to a non-distributable reserve until the
disposal of the net investment when it is released to
the income statement.
there are material benefits available in the form of refunds
and reductions in contributions.
Defined contribution plans
Group contributions to the pension and provident funds are
based on a percentage of the payroll and are charged against
income as incurred.
Medical aid benefits
Retirement benefits
Retirement benefits for employees are provided by a number
Group contributions to medical aid funds are charged to the
income statement in the year in which they are incurred.
of defined benefit and defined contribution pension and
provident funds. The assets of these funds, including those
Post-retirement medical aid benefits
relating to any actuarial surpluses, are held separately from
The present value of this post-retirement medical aid
those of the Group. The retirement plans are funded by
obligation is actuarially determined annually and any deficit
payments from employees and the relevant Group
or surplus is immediately recognised in the income
companies, taking into account the recommendations of the
statement. The Group recognises the estimated liability using
pension fund valuator.
the projected unit credit method. The Group has no
The Group’s contributions to the defined contribution and
significant exposure to any other post-retirement benefit
defined benefit funds are charged to the income statement
obligation.
in the year in which they are incurred. A valuation in
accordance with AC116 is performed on the balance sheet
Equity compensation plans
date. For the purpose of calculating pensions, medical
Sanlam operates a staff share incentive scheme through
contributions are deemed to be a part of pensionable salary.
Sanlam Limited Share Incentive Trust. Shares are offered on
Retirement fund contributions are made on the pensionable
a combined option and deferred delivery basis, which staff
salary. Therefore, pensioners fund post-retirement medical
can take up in tranches over a period of up to six years. The
contributions themselves from their increased pensions.
beneficiaries under the scheme are executive directors,
The Group has provided in full for its medical contribution
management and sales advisors employed on a full-time
commitments in respect of pensioners and disabled members
basis. There is currently no income statement effect when
who are not covered under the current scheme.
such benefits are granted.
Defined benefit plans
Segmental reporting
The schemes are valued using the valuation basis for past
For management purposes, the Group is organised into a
service cost. Any deficits advised by the actuaries are funded
number of business clusters based on the operating activities
either immediately or through increased contributions to
of these businesses.
ensure the ongoing soundness of the schemes. Contributions
The segments are based on the type of business, namely
are expended during the year in which they are funded. The
life insurance, investment management, banking
net surplus or deficit in the benefit obligation is the
activities, short-term insurance and independent
difference between the present value of the funded
financial services.
obligation and the fair value of plan assets. The Group
recognises the estimated liability using the projected unit
Dividends
credit method. The present value of the overfunded portion
Dividends proposed or declared after the balance sheet date
of these schemes is recognised as an asset to the extent that
are not recognised at the balance sheet date.
page 121
sanlam annual report 2003
basis of presentation and
a c c o u n t i n g p o l i c i e s continued
Policy liabilities and profit entitlement
The financial soundness method is considered to be an
appropriate fair value valuation method for this purpose,
Introduction
The valuation bases used to calculate the policy liabilities
of all material lines of long-term insurance business and
the corresponding shareholder profit entitlement are set
out below. Changes to the Long-term Insurance Act,
1998 and the Regulations to the Act, the implementation
of AC133 and additional actuarial guidance regarding the
given that there is no deep, liquid market for the trading of
insurance policies.
Assets are valued at fair value as set out in the
accounting policy for investments. There are no
intangible assets included in the fair value of the assets
of the life insurance business of the Group.
valuation of investment return guarantees affected the
The asset valuation method prescribed in the Long-term
valuation of assets and liabilities.
Insurance Act for the purpose of returns to the Registrar
The actuarial value of the policy liabilities is determined
using the financial soundness valuation method, which is
consistent with the valuation method prescribed in the
of Long-term Insurance, will normally produce a value
lower than fair value for investments in group
undertakings (as defined in the Act). The effect of
Long-term Insurance Act and consistent with the
valuing group undertakings on this basis is disclosed in
valuation of assets at fair value. The underlying
the Statement of Actuarial Values of Assets and
philosophy is to recognise profits prudently over the term
Liabilities of Sanlam Life Insurance Limited Group on
of each contract consistent with the work done and risk
pages 157 to 160.
borne. In the valuation of liabilities, provision is made for:
• The best estimate of future experience;
• The margins prescribed in the Long-term Insurance Act
and the guidelines of the Actuarial Society of South
Africa ("ASSA"); and
• Second-tier margins determined to release profits to
shareholders consistent with policy design and
company policy.
Application of valuation methodology
A number of changes were made to the valuation
methodology and assumptions, inter alia in view of the
new requirements noted above. The overall effect of
these changes on the policy liabilities and earnings
reported for 2003 was not material. The same valuation
methodology is applied for Sanlam Namibia Limited.
The liabilities exceeded the minimum requirements in
Best estimate of future experience
terms of the Long-term Insurance Act and actuarial
The best estimate of future experience is determined as
guidance notes PGN 104 and PGN 110.
follows:
As a result of the implementation of AC133, a distinction is
• Future investment return assumptions are derived
made between investment contracts (which fall within the
from market-related interest rates on fixed-interest
scope of AC133) and insurance contracts. A contract is
securities. The asset composition of the various asset
classified as insurance where Sanlam accepts significant
funds, investment management expenses, taxes at
insurance risk by agreeing with the policyholder to
current tax rates and charges for investment
compensate the policyholder or other beneficiary if a
guarantees are taken into account.
specified uncertain future event (the insured event)
adversely affects the policyholder or other beneficiary.
• Unit expenses are based on the 2003 experience of
Sanlam Life Insurance Limited on a going-concern
Liabilities in respect of investment contracts are valued at
basis and escalated at estimated expense inflation
fair value to be consistent with the valuation of assets.
rates per annum.
page 122
• Assumptions with regard to future mortality,
annuities where 1% per annum lower than the last
disability and disability payment termination rates
declared bonus rates was assumed. Bonus rates equal to
and surrender and lapse rates are consistent with
the assumed future investment returns less provision for
the experience for the four and a half years up to
expense recoveries thereafter were assumed after the
30 June 2003. Mortality and disability rates are
next three bonus declarations.
adjusted to allow for expected deterioration in
mortality rates as a result of Aids and for expected
Reversionary bonus business
improvements in mortality rates in the case of
The liability is set equal to the fair value of the underlying
annuity business.
assets. This is equivalent to a best estimate prospective
Asset funds
Separate asset funds are maintained for each of the
liability calculation using the bonus rates as set out in the
previous paragraph, and allowing for the shareholders’
share of one-ninth of the cost of these bonuses.
major lines of business. Bonus rates are declared for
each class of participating business in relation to the
The present value of the shareholders’ entitlement is
funding level of each portfolio and the expected future
sufficient to cover the margins prescribed in the Long-
net investment return on the assets of the particular
term Insurance Act and the ASSA guidelines for the
investment portfolio.
valuation of policy liabilities. The prescribed margins are
thus not provided for in addition to the shareholders’
Bonus stabilisation reserves
entitlement.
The group and individual stabilised bonus portfolios are
valued on a retrospective basis. If the fair value of the
Individual stable bonus and market-related business
assets in such a portfolio is greater than the net
For investment policies where the bonuses are stabilised
premiums invested plus declared bonuses, a positive
or directly related to the return on the underlying
bonus stabilisation reserve is created which will be used
investment portfolios, the liabilities are equated to the
to enhance future bonuses. Conversely, if assets are less
retrospectively accumulated fair value of the underlying
than the net premiums invested plus declared bonuses, a
assets less any unrecouped expenses. These retrospective
negative bonus stabilisation reserve is created. A
liabilities are higher than the prospective liabilities
negative bonus stabilisation reserve will be limited to the
amount that the Statutory Actuary expects will be
recovered through the declaration of lower bonuses
during the ensuing three years, if investment returns are
in line with long-term assumptions.
calculated at the present value of expected future
benefits and expenses less future premiums at the
relevant discount rates.
To the extent that the retrospective liabilities exceed the
prospective liabilities, the basis contains second-tier
Provision for future bonuses
margins. The valuation methodology results in the
It was assumed for reversionary bonus business that the
release of these margins to shareholders on a fee minus
last declared bonus rates would be maintained over the
expenses basis consistent with the work done and risks
lifetime of the policies, except that part of the non-
borne over the lifetime of the policies.
vested bonuses, equal in total to 3% of liabilities, would
be cancelled during the next two bonus declarations if
Group stable bonus and linked business
investment conditions do not improve.
In the case of group linked business and group policies
For the remainder of the participating business the last
where bonuses are stabilised, the liabilities are equated
declared bonus rates were assumed for the next three
to the fair value of the retrospectively accumulated
bonus declarations, except in the case of participating
underlying assets.
page 123
sanlam annual report 2003
basis of presentation and
a c c o u n t i n g p o l i c i e s continued
To the extent that future fees exceed expenses, including
mismatch provision is maintained. The interest and
allowance for the prescribed margins, the basis contains
asset profits arising from the non-participating
second-tier margins. These margins are released to
portfolio are added to this provision. The asset
shareholders consistent with the work done and risks
mismatch provision accrues to shareholders at the rate
borne over the lifetime of the policies.
of 1,33% monthly, based on the balance of the
provision at the end of the previous quarter. The effect
Participating annuities
of holding this provision is to dampen the impact on
The liabilities are equated to the fair value of the
earnings of short-term fluctuations in fair values of
retrospectively accumulated underlying assets. This is
assets underlying these liabilities. The asset mismatch
equivalent to a best estimate prospective liability
provision represents a second-tier margin. A negative
calculation allowing for future bonus rates as described
asset mismatch provision will not be created, but such
above and expected future investment returns.
shortfall will accrue to shareholders in the year in
Shareholder entitlements emerge on a fees minus
which it occurs.
expenses basis consistent with work done and risks
borne over the lifetime of the annuities. The present
HIV/Aids
value of the shareholders’ entitlement is sufficient to
A specific provision for HIV/Aids-related claims is
cover the prescribed margins for the valuation of policy
maintained. A prospective calculation according to the
liabilities. The prescribed margins are thus not provided
relevant guidelines is performed for non-participating
for in addition to the shareholders’ entitlement.
individual policies. The provision for other individual
Non-participating annuity business
policies (80% of the total HIV/Aids provision for
Non-participating life and term annuity instalments and
future expenses in respect of these instalments are
discounted at market-related interest rates. All profits or
losses accrue to the shareholders when incurred.
individual policies) is built up by increasing the
opening provision by the HIV/Aids risk premiums and
investment returns on the underlying assets. It is then
reduced by claims attributed to HIV/Aids and further
limited to a maximum of the prospective calculation
Guaranteed plans
without allowance for future increases in HIV/Aids risk
Guaranteed maturities and expected future expenses are
premiums. This retrospectively built-up provision is
discounted at market-related interest rates. All profits or
higher than a prospective calculation done according
losses accrue to the shareholders when incurred.
to the relevant guidelines allowing for possible
increases in future HIV/Aids risk premiums. This
Other non-participating business
difference can be regarded as a second-tier margin. It
Other non-participating business forms less than 6% of
is the intention of the Sanlam Group to re-rate
the total liabilities. The greater part of the other non-
premiums as experience develops.
participating business liabilities is valued on a
Premium rates for group business are reviewed more
retrospective basis. The remainder is valued prospectively
frequently. The HIV/Aids provision is based on the
and contains second-tier margins via an explicit interest
expected Aids claims in a year and the time that may
rate deduction of approximately 3% on average.
elapse before premium rates and underwriting
For non-participating business other than life and term
conditions can be suitably adjusted should actual
annuity business and guaranteed plans, an asset
experience be worse than expected.
page 124
Provisions for minimum investment return guarantees
Insurance Act, PGN 104 and PGN 110. The capital
In addition to the liabilities described above, provision is
adequacy requirements provide a buffer against
made consistent with actuarial guidance note PGN 110
experience worse than that assumed in the financial
for the possible cost of minimum investment return
soundness valuation.
guarantees provided by some participating and market-
On the valuation date the ordinary capital adequacy
related policies.
requirements (OCAR) were used as they exceeded the
Working capital
To the extent that the management of working capital
gives rise to profits, no credit is taken for this in
termination capital adequacy requirements (TCAR).
The largest element of the capital adequacy
requirements relates to stabilised bonus business.
determining the policy liabilities. This could be viewed as
Consistent with an assumed fall in the fair value of the
a second-tier margin.
assets (the resilience scenario), which is prescribed in the
ASSA guidance notes, the calculation of the capital
Capital adequacy requirements
adequacy requirements takes into account a reduction in
The excess of assets over liabilities of life insurance
non-vesting bonuses and future bonus rates and for the
operations should be sufficient to cover its capital
capitalisation of some expected future profits (held as
adequacy requirements in terms of the Long-term
part of the liabilities as second-tier reserves).
page 125
sanlam annual report 2003
sanlam group
income statement
for the year ended 31 December 2003
Note
2003
R million
2002
R million
Funds received from clients
1
48 883
42 098
Financial services income
Sales remuneration
2
15 970
(1 892)
14 597
(1 863)
Income after sales remuneration
Underwriting policy benefits
Administration costs
3
4
14 078
(6 877)
(4 796)
12 734
(6 162)
(4 423)
Operating profit before tax
Tax on operating profit
5
6
2 405
(724)
2 149
(549)
1 681
(279)
1 600
(118)
1 402
458
1 482
402
Operating profit from ordinary activities after tax
Minority shareholders’ interest
Net operating profit
Net investment income
Investment income
Tax on investment income
Minority shareholders’ interest
7
6
699
(131)
(110)
620
(110)
(108)
8
781
396
6
1 025
(244)
471
(75)
Core earnings
Financial assistance provided to policyholders’ funds
2 641
(290)
2 280
(153)
Headline earnings
Net investment surpluses(1)
2 351
134
2 127
(2 468)
Net equity-accounted earnings
Equity-accounted earnings
Tax on equity-accounted earnings
Investment surpluses
Tax on investment surpluses
Minority shareholders’ interest
Net discontinuance costs
Discontinuance costs
Tax on discontinuance costs
Impairment of investments and goodwill
Amortisation of goodwill
7
6
215
(56)
(25)
(2 669)
177
24
9
(77)
—
6
(108)
31
—
—
15
(248)
(277)
—
(259)
Attributable earnings
1 883
(600)
Diluted earnings per share:
• Net operating profit from ordinary activities
• Core earnings
• Headline earnings
• Attributable earnings
Basic attributable earnings per share
Dividend per share
11
11
11
11
11
12
Cents
53,2
100,2
89,2
71,5
72,1
40,0
Cents
56,3
86,7
80,8
(22,8)
(22,8)
37,0
Adjusted headline earnings based on the long-term rate
of return (LTRR) (R million)
Adjusted headline earnings based on the LTRR (cents per share)
10
11
3 291
124,9
3 227
122,7
(1)
Upon the introduction of AC133, investments were classified as available-for-sale and Sanlam elected to take unrealised investment
surpluses directly to equity. In terms of the requirements of AC133, prior year results were not restated.
page 126
sanlam group
balance sheet
at 31 December 2003
Assets
Non-current assets
Property and equipment
Owner-occupied properties
Goodwill
Investments
Note
2003
R million
2002
R million
13
14
15
16
220
390
1 855
156 622
260
381
1 992
149 276
11 315
6 000
309
70 519
36 992
16 004
15 483
11 128
4 786
408
73 174
31 052
13 246
15 482
Investment properties
Associated companies
Joint ventures
Equities
Public sector stocks and loans
Debentures, insurance policies and other loans
Cash, deposits and similar securities
Deferred tax
Short-term insurance technical assets
Current assets
17
18
257
2 302
34 410
237
2 072
29 339
Trade and other receivables
Cash, deposits and similar securities
19
22 602
11 808
16 614
12 725
196 056
183 557
3 111
9 415
9 161
3 455
9 415
7 781
21 687
1 931
20 651
1 624
134 441
129 329
Total assets
Equity and liabilities
Capital and reserves
Share capital and premium
Non-distributable reserves
Retained earnings
Shareholders’ funds
Minority shareholders’ interest
Non-current liabilities
Long-term policy liabilities
20
22
Insurance contracts
Investment contracts
Term finance
Deferred tax
Short-term insurance technical provisions
Current liabilities
94 800
39 641
23
17
18
4 200
289
5 156
28 352
5 382
35
4 226
22 310
24
25
26 926
499
927
21 121
463
726
Total equity and liabilities
196 056
183 557
Segregated funds not included in the above balance sheet
Total assets under management and administration
Net asset value per share (cents)
86 512
282 568
883
62 396
245 953
798
Trade and other payables
Provisions
Taxation
28
page 127
sanlam annual report 2003
sanlam group
statement of changes in equity
for the year ended 31 December 2003
R million
Note
Share
capital
Non-disReShare tributable valuation Retained
premium
reserve(1) reserve(2) earnings
Total
Balance at 1 January 2002
Attributable earnings for the year
Transfer from revaluation reserve
Dividends paid
Cost of treasury shares acquired
27
—
—
—
—
3 487
—
—
—
(59)
9 415
—
—
—
—
2 145
—
(2 145)
—
—
7 157
(600)
2 145
(921)
—
22 231
(600)
—
(921)
(59)
Balance at 31 December 2002
Attributable earnings for the year
Transfer from retained income
(unrealised surpluses)
Adoption of AC133
Net unrealised investment
surpluses
27
—
3 428
—
9 415
—
—
—
7 781
1 883
20 651
1 883
—
—
—
—
—
—
(1 070)
—
1 070
(13)
—
(13)
—
—
—
693
—
693
7
—
—
—
1 047
—
1 047
6
—
—
—
—
—
—
(289)
(65)
—
—
(289)
(65)
Movement in foreign currency
translation reserve
Transfer to revaluation reserve
Dividends paid
Cost of treasury shares acquired(3)
—
—
—
—
—
—
—
(344)
—
—
—
—
(211)
588
—
—
—
(588)
(972)
—
(211)
—
(972)
(344)
Balance at 31 December 2003
27
3 084
9 415
—
9 161
21 687
Unrealised investment surpluses
Tax on unrealised investment
surpluses
Minority shareholders’ interest
(1)
Pre-acquisition reserve arising upon demutualisation of Sanlam Life Insurance Ltd.
Upon the introduction of AC133, investments were classified as available-for-sale and Sanlam elected to take unrealised investment
surpluses directly to equity. The revaluation reserve is used for this purpose. In terms of the requirements of AC133, prior year results were
not restated. The revaluation reserve also includes the exchange differences arising on the translation of foreign entities.
(3)
Comprises shares acquired by a subsidiary of R293 million and the consolidation of the share incentive trust stock of R51 million.
(2)
page 128
sanlam group
cash flow statement
for the year ended 31 December 2003
Note
Net cash flow from operating activities
Cash generated from operations before working capital changes
Working capital changes
Interest received
Interest paid
Taxation
Dividends received
Dividends paid
33.1
2003
R million
2002
R million
748
3 192
1 027
(31)
3 156
(2 096)
(693)
357
(972)
1 352
2 353
2 432
(1 613)
(549)
138
(921)
Net cash flow from investment activities
(495)
(1 130)
Net acquisition of investments
Interest received
Taxation
Dividends received
Rental income received
Acquisition of subsidiaries
Acquisition of treasury shares
(519)
263
(331)
511
18
(144)
(293)
(1 814)
332
57
390
65
(101)
(59)
(1 170)
354
33.2
Net cash flow from financing activities
Net term finance (repaid)/raised
Cash flow from movement in policyholders’ funds
Cash utilised in policyholders’ activities
Taxation
Interest received
Dividends received
Other investment income
Net realised and unrealised investment surpluses
—
(10 972)
(194)
4 757
2 112
1 071
8 338
(9 353)
(215)
4 267
2 295
1 128
(14 041)
5 112
(5 112)
(15 919)
15 919
Net (decrease)/increase in cash and cash equivalents
Cash, deposits and similar securities at beginning of year
(917)
12 725
2 416
10 309
Cash, deposits and similar securities at end of year
11 808
12 725
Increase/(decrease) in policyholders’ investments
(Increase)/decrease in policy liabilities
33.3
22.1
22.3
22.3
22.3
22.3
—
page 129
sanlam annual report 2003
notes to the
group financial statements
for the year ended 31 December 2003
1.
2003
R million
2002
R million
26 864
28 512
20 174
(65)
6 755
22 990
(26)
5 548
22 019
13 586
8 243
5 103
8 673
7 884
4 199
1 503
48 883
42 098
The funds received from clients are disclosed net of the following
reinsurance premiums:
Long-term insurance
Short-term insurance
153
2 491
151
2 562
Financial services income
Analysis per revenue category
Long-term insurance
Short-term insurance
Other financial services
7 270
6 960
1 740
7 271
5 663
1 663
Total financial services income
15 970
14 597
Included in financial services income is
Dividend income
Interest received
Interest paid and term finance costs
Equity-accounted earnings
365
3 088
(2 096)
19
145
2 317
(1 613)
11
2 502
2 237
Individual insurance
Group life insurance
1 222
1 280
1 084
1 153
Short-term insurance
4 375
3 925
Total underwriting policy benefits
6 877
6 162
4,2
21,5
4,7
16,4
2,5
8,3
0,2
4,8
36,5
26,1
Funds received from clients
Analysis per product (refer to page 174 for analysis per cluster)
Insurance business – Premium income
Long-term insurance (note 22.2)
Transfer to segregated funds
Short-term insurance
Other business
Unit trusts
Linked products
Segregated funds
Total funds received from clients
2.
Financial services income for 2002 has been restated to exclude investment
fees payable, which was previously netted against income, but is now
included in administration costs.
3.
4.
Underwriting policy benefits
Long-term insurance: death, disability and cash bonuses
Administration costs include:
Directors’ remuneration
Total remuneration paid by Sanlam Limited and its consolidated
subsidiaries to present and previous directors of Sanlam Limited:
Present
Directors’ fees
Other services (basic remuneration, pensions and bonuses)
Previous
Directors’ fees
Other services (basic remuneration, pensions and bonuses)
Total directors’ remuneration
page 130
4.
2003
R million
2002
R million
Administration costs include: (continued)
Analysis of directors’ remuneration
Executive and alternate directors
Non-executive directors
30,2
6,3
21,0
5,1
Total directors’ remuneration
36,5
26,1
Directors’ remuneration paid by subsidiaries
31,8
22,2
28
22
10
14
38
36
79
271
195
24
2 650
9 570
96
162
223
29
2 176
9 716
1 445
1 451
1 506
(61)
1 451
—
735
292
(19)
257
243
112
55
(74)
112
—
Independent Financial Services
(1)
99
Sanlam Financial Services
Gensec Property Services
(20)
19
75
24
73
(120)
101
(114)
Auditors’ remuneration
Audit fees
Other services
Total auditors’ remuneration
Depreciation
Operating leases
Consultancy fees
Technical, administrative and secretarial fees
Office staff costs
Office staff (number of persons)
The 2002 comparable figures have been adjusted to include VAT previously
shown as a separate expense item.
5.
Analysis of operating profit
Life insurance
Normal operations
Restructuring costs
Short-term insurance
Investment management
Banking
Continuing operations (Sanlam Capital Markets)
Discontinuing operations
Corporate income
Corporate costs
Operating profit
2 405
2 149
Geographical analysis
Southern African
International
2 385
20
1 970
179
Operating profit
2 405
2 149
page 131
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
5.
6.
Sanlam
Life
2002
R million
Sanlam
Investments
2002
R million
Corporate
costs
2002
R million
Operating profit before tax – previously disclosed
Reallocations
Sanlam Collective Investments
Innofin
Corporate costs
1 533
185
(138)
(56)
(2)
(24)
56
2
—
—
—
24
Restated comparatives
1 451
243
(114)
2003
R million
2002
R million
Taxation: Shareholders’ funds
Analysis of income tax on earnings of shareholders’ funds
Operating profit
724
549
current year
prior year
equity-accounted earnings included in operating profit
714
9
1
553
(7)
3
Investment income – current year
131
110
Equity-accounted earnings included in investment return
Realised investment surpluses
244
56
75
(177)
—
56
—
15
(182)
(10)
Analysis of operating profit (continued)
Comparatives: Operating profit before tax
As part of the restructuring of business clusters in 2003,
some businesses have been reallocated to a different
cluster than before. The table below shows the effect
of restating the analysis of the 2002 operating profit:
Net investment surpluses – normal
– capital gains tax
Investment surplus on investment in associated company – capital gains tax
Tax on discontinuance costs
Income tax charged to income statement
Tax on unrealised investment surpluses (taken to equity)
Net investment surpluses – capital gains tax
Investment surplus on investment in associated company – capital gains tax
Total income tax
page 132
(31)
—
1 124
289
557
—
145
144
—
—
1 413
557
6.
Taxation: Shareholders’ funds (continued)
Income tax
Normal income tax
RSA – current year
RSA – prior year
Foreign
Capital gains tax
Deferred tax
Normal tax – current year
– prior year
Capital gains tax on investment surpluses included in income statement
Capital gains tax on unrealised investment surpluses
Share of associated companies’ tax charge
Tax on discontinuance costs
Total income tax
2003
R million
2002
R million
963
858
805
44
58
56
781
—
37
40
(52)
(376)
9
2
(63)
(144)
—
(232)
289
244
(31)
—
75
—
1 413
557
In addition to income tax the following indirect taxes and levies were paid,
which are included in the appropriate items:
Included in administration costs
Included elsewhere in the income statement
Included in policyholders’ investment return
144
35
16
155
48
12
Total indirect taxes and levies
195
215
%
30,0
%
30,0
(2,2)
1,5
0,2
—
0,6
(3,2)
—
(0,3)
(1,1)
0,2
30,1
25,6
30,0
30,0
(4,8)
0,4
(0,3)
(0,4)
0,5
(3,5)
0,3
4,6
—
—
(38,7)
—
3,9
(0,3)
22,2
(0,5)
Indirect taxes and levies include value-added tax, revenue stamps paid on
insurance policy contracts and statutory levies payable to the Regional Services
Councils and the Financial Services Board.
Tax of R194 million (2002: R215 million) was also paid on policyholders’ funds
(refer note 22.5).
Reconciliation of tax rate on operating profit
Standard rate of taxation
Adjusted for:
Non-taxable income
Disallowable expenses
Prior year adjustments
Foreign tax rate differential
Other
Effective tax rate on operating profit
Reconciliation of tax rate on investment return
Standard rate of taxation
Adjusted for:
Non-taxable income
Disallowable expenses
Foreign tax rate differential
Investment surpluses
Prior year adjustments
Equity-accounted earnings
Other
(1)
Effective tax rate on investment return
(1)
The 2002 reconciliation is based on a net investment loss.
page 133
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
7.
2003
R million
2002
R million
Investment return: shareholders’ funds
Investment income
699
620
Interest-bearing investments
Equities
Properties
326
312
61
319
236
65
Investment surpluses included in income statement
215
(2 669)
914
1 047
(2 049)
—
371
676
—
—
1 961
(2 049)
1 313
(223)
532
(619)
676
(144)
(629)
10
781
396
Investment return included in income statement
Investment surpluses taken directly to equity
Unrealised investment surpluses
Surplus on investment in associated company
Investment return: shareholders’ funds
8.
Net equity-accounted earnings
Investment surplus and dividends received on investment in associated companies
Less: Balance over equity accounted earnings transferred to/(from) net
investment return
Investment surplus
Capital gains tax
Net equity-accounted earnings
9.
Discontinuing operations
Gensec Bank was refocused around the areas that are complementary and
value enhancing to Sanlam’s current businesses. The core activities are being
grouped in a new entity, Sanlam Capital Markets, which will leverage its
capability to capitalise on the potential of a centralised treasury, structured
products and brokerage capability to serve the Group’s clients. The balance of
the activities will be disposed of, on a structured basis.
The initial announcement was made in August 2003 and the discontinuance
is expected to be completed in the 2004 financial year.
The amounts of revenue, expenses, and income tax from ordinary activities
attributable to the discontinuing operations during the current and previous
financial periods are disclosed separately in the segmental income statement
on page 168.
The assets and liabilities of the discontinuing operations are disclosed
separately in the segmental balance sheet on page 170.
page 134
2003
R million
2002
R million
1 402
1 889
1 482
1 745
Net equity-accounted earnings
Investment return after taxation
781
1 108
396
1 349
LTRR adjusted headline earnings
3 291
3 227
Reconciliation of headline earnings and LTRR adjusted headline earnings
Headline earnings per income statement
Investment surpluses per income statement
Investment surpluses taken directly to equity
Net LTRR adjustment
2 351
134
693
113
2 127
(2 468)
—
3 568
LTRR adjusted headline earnings
3 291
3 227
10. Long-term rate of return adjusted headline earnings
Headline earnings adjusted for the long-term rate of return (LTRR)
Net operating profit
LTRR investment return
Analysis of net LTRR adjustment
Investment return
Equities
(Surplus)/deficit on investment in associated company
Interest-bearing investments
Properties
(61)
4 054
168
(676)
461
(14)
3 081
629
301
43
Tax
Minority shareholders’ interest
163
11
(364)
(122)
Net LTRR adjustment
113
3 568
A comparison of the aggregate actual and calculated longer-term returns
(after tax and minorities) since 1 January 1999 is set out below:
Actual returns
Longer-term returns
5 740
(9 417)
3 964
(7 528)
Deficit aggregate short-term fluctuations
(3 677)
(3 564)
page 135
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
2003
R million
2002
R million
26 010
5 391
309
4 454
1 568
289
24 026
4 002
408
4 731
1 136
154
13 999
13 595
9 101
2 880
1 395
623
8 472
2 238
2 226
659
13 999
13 595
12%
13%
Net operating profit from ordinary activities
1 402
1 482
Core earnings
2 641
2 280
Headline earnings
2 351
2 127
Adjusted headline earnings based on the long-term rate of return
3 291
3 227
Attributable earnings
1 883
(600)
million
million
2 654,6
(44,1)
2 655
(29)
million
million
2 610,5
157,8
2 626
141
10. Long-term rate of return adjusted headline earnings (continued)
A reconciliation of the investments included in the calculation of the
LTRR adjusted headline earnings is as follows:
Investments per shareholders’ funds balance sheet (refer page 172)
Less: Investment in associated companies
Investment in joint venture
Investments held in respect of term finance
Investments held in respect of banking activities
Other
LTRR investments
Analysis of LTRR investments
Equities
Securities
Cash, deposits and similar securities
Properties
LTRR investments
LTRR yield applied to balanced portfolio
The enhanced disclosure regarding investment assets, whereby the
investments in associated companies and joint ventures are disclosed
separately on the face of the balance sheet, necessitated reclassifications
in the comparable numbers of the LTRR investment reconciliation.
11. Earnings per share
For basic earnings per share the weighted average number of ordinary shares
is adjusted for the treasury shares held by subsidiaries. Basic earnings per
share is calculated by dividing earnings by the adjusted weighted average
number of shares in issue.
For diluted earnings per share the weighted average number of ordinary
shares is adjusted for the shares not yet issued under the Sanlam Share
Incentive Scheme as well as treasury shares held by subsidiaries. Diluted
earnings per share is calculated by dividing earnings by the adjusted
weighted average number of shares in issue.
Number of ordinary shares in issue
Less: Weighted Sanlam shares held by subsidiaries
Adjusted weighted average number of shares for basic
earnings per share
Add: Total number of shares under option (see note 20)
Less: Number of shares (under option) that would have
been issued at fair value
Adjusted weighted average number of shares for diluted
earnings per share
page 136
million
million
(133,8)
2 634,5
(136)
2 631
2003
R million
2002
R million
11. Earnings per share (continued)
Basic earnings per share
Net operating profit from ordinary activities
Core earnings
Headline earnings
Adjusted headline earnings based on the long-term rate of return
Attributable earnings
cents
cents
cents
cents
cents
53,7
101,2
90,1
126,1
72,1
56,4
86,8
81,0
122,9
(22,8)
Diluted earnings per share
Net operating profit from ordinary activities
Core earnings
Headline earnings
Adjusted headline earnings based on the long-term rate of return
Attributable earnings
cents
cents
cents
cents
cents
53,2
100,2
89,2
124,9
71,5
56,3
86,7
80,8
122,7
(22,8)
—
74
29
80
335
(261)
334
(254)
146
151
Cost
Accumulated depreciation
333
(187)
333
(182)
Total property and equipment
220
260
381
17
(6)
(2)
—
52
333
(4)
390
381
12. Dividends
A dividend of 40 cents per share (2002: 37 cents per share) was declared in
March 2004 in respect of the 2003 earnings. It is envisaged that the company
will have sufficient Secondary Tax on Companies (STC) credits not to incur
any STC liability when the dividend is paid.
13. Property and equipment
Land and buildings
Computer equipment
Cost
Accumulated depreciation
Furniture, equipment and vehicles
The reconciliation of the movement in the book value of property and equipment is
not provided, as it is not considered material in relation to the Group’s activities.
14. Owner-occupied properties
Balance at beginning of year
Transfer from property and equipment at depreciated value
Transfer (to)/from investment properties at fair value
Depreciation
Balance at end of year
Depreciation is provided for over the useful life of owner-occupied properties,
taking into account an expected residual value. If the expected residual value
is equal to or greater than the carrying value, no depreciation is provided for.
Register of owner-occupied properties
A register containing details of all owner-occupied properties, is available for
inspection at the registered office at Sanlam Limited.
page 137
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
15. Goodwill
Balance at beginning of year
Additions during the year
Net consideration paid
Fair value of net assets acquired
Minority shareholders’ interest
Amortisations
Amortisation per income statement
Share of associated companies’ goodwill amortisation
Minority shareholders’ interest
Impairments
Impairment included in income statement
Share of associated companies’ goodwill impairment
Minority shareholders’ interest
Balance at end of year
The estimated useful life of goodwill is between five and ten years and it is
amortised with effect from the acquisition dates.
The additions to goodwill during 2003 arose from the acquisition of
Westminster Motor Insurance, Agri Risk Specialists, the minority
shareholders’ interest in Innofin and the restructuring of the international
businesses.
The impairment of the goodwill relates mainly to Gensec Bank’s exposure to
Fieldstone. The change in economic circumstances necessitated a review of
the viability of the business model. Based on the most prudent view of any
potential future benefit that may be derived from the sale of this business,
the goodwill on this investment is written off in full.
page 138
2003
R million
2002
R million
1 992
298
1 840
416
605
(360)
53
409
7
—
(295)
(264)
(277)
6
(24)
(259)
—
(5)
(140)
—
(145)
9
(4)
—
—
—
1 855
1 992
16. Investments
Total investment mix
2003
10%
24%
10%
7%
4%
45%
Total investment mix
2002
investment properties
associated companies
joint ventures
equities
public sector stocks and loans
debentures, insurance policies and other loans
cash, deposits and simialr securities
Investment properties comprise the following:
Office buildings
Retail buildings
Industrial buildings
Property developments
Undeveloped land
Namibian properties
Listed property unit trusts
Other
Total investment properties
9%
10%
21%
8%
3%
49%
2003
R million
2002
R million
4 228
4 877
577
28
111
233
798
463
4 345
4 764
550
29
130
248
674
388
11 315
11 128
Investments in associated companies:
Absa
Other associated companies
5 848
152
4 741
45
Total investment in associated companies
6 000
4 786
5 848
138 788
4 741
150 059
18,9
2,2
19,2
3,8
793
136
396
82
198
50
153
46
1 733
1 138
4 040
283 909
265 762
2 094
253 278
236 884
Details of material associated company:
Absa Limited(1)
Fair value of interest
Number of shares held
Interest in issued share capital
Shareholders’ funds
Policyholders’ funds
Share of earnings after tax for current year
Shareholders’ funds
Policyholders’ funds
Distributions received
Shareholders’ funds
Policyholders’ funds
Aggregate post-acquisition reserves attributable to
shareholders’ funds
R million
000s
%
R million
R million
R million
The financial year-end of Absa Limited is 31 March. The equity-accounted
earnings for Absa Limited included in the Sanlam Limited group results are
for the twelve-month period ended 30 September and were derived from
their published annual financial statements and interim results. The Sanlam
group’s share of these earnings is included in investment income.
Absa Limited financial information as at 30 September:
Headline earnings
Total assets
Total liabilities
R million
R million
R million
(1)
Interest in associated company excludes segregated funds’ interest.
page 139
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
2003
R million
2002
R million
309
44
1 897
1 490
408
8
1 505
1 112
Equity investments
Listed on the JSE – at market value
Unlisted – at directors’ valuation
Derivative equity investments
Offshore equity investments
Unit trusts
Other investments
46 946
2 425
3 552
10 645
6 585
366
43 211
4 521
2 177
14 770
8 495
—
Total equity investments
70 519
73 174
16. Investments (continued)
Investment in joint venture
The Group holds a 50% interest in a jointly controlled entity, Safair Lease Finance
(Proprietary) Limited. The interest is accounted for on an equity-accounted basis.
Carrying value of interest(1)
Share of earnings after tax
Share of aggregate assets
Share of aggregate liabilities
(1)
The appreciation in the value of the rand necessitated a review of the value placed on
this investment, resulting in an impairment of R100 million (2002: nil).
Equity investments mix
2003
1%
15%
5%
9%
67%
3%
Equity investments mix
2002
listed on the JSE – at market value
unlisted – at directors’ valuation
derivative equity investments
offshore equity investments
unit trusts
other investments
12%
20%
59%
6%
3%
2003
%
2002
%
40
32
28
39
28
33
100
100
Direct offshore investments
Equities
Interest-bearing investments
10 645
7 635
14 770
6 220
Total offshore investments
18 280
20 990
153
1 344
143
1 089
Spread of investments in equities listed on JSE by sector (2):
Industrial
Financial
Resources
(2)
Includes the appropriate underlying investments of Santam.
Shares held in holding company
Sanlam Limited shares held by policyholders’ funds reflected as investments
Number
million
Fair value
R million
page 140
16. Investments (continued)
Maturity analysis of:
Public sector stocks and loans; debentures, insurance policies and other loans; cash, deposits and similar securities as
at 31 December 2003
Percentage of instruments
⬍1
year
1-5
years
⬎5
years
Open
ended
30
22
40
8
Register of investments
A register containing details of all investments, including fixed property investments, is available for inspection at the
registered office of Sanlam Limited.
Investments encumbered
No investments were encumbered on 31 December 2003. On 31 December 2002 term loans and deposits of
R278 million were encumbered as detailed in note 23.
In order to enhance disclosure, comparative numbers for investment assets were reclassified on the face of the balance
sheet, to disclose investments in associated companies and joint ventures separately. For the same reason, more
detail on investment assets has been provided in the note above.
Income tax
Capital gains tax
Asset Liability
Asset Liability
R million R million R million R million
17. Deferred tax
Details of the deferred tax balances are as follows:
Balance at 1 January 2002
Charged to income statement
82
74
(116)
70
64
3
(230)
229
Additional provisions – normal
– capital gains tax
74
—
70
—
—
3
—
229
—
14
12
—
—
—
—
—
170
19
(34)
(30)
67
68
(1)
(5)
19
—
(30)
—
—
68
—
(5)
(11)
—
—
—
6
—
(64)
—
8
—
—
(225)
(58)
79
(231)
Prior year adjustment by subsidiary
Utilised during the year
Balance at 31 December 2002
Charged to income statement
Additional provisions – normal
– capital gains tax
Prior year adjustment by subsidiary
Acquisition of subsidiaries
Additional provision – capital gains tax on investment surplus
Balance at 31 December 2003
178
page 141
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
2003
R million
2002
R million
5 156
4 226
Outstanding claims
Provision for unearned premiums
Deferred reinsurance acquisition revenue
2 989
2 036
131
2 392
1 695
139
Less: Short-term insurance technical assets
2 302
2 072
1 283
865
154
1 093
834
145
Net short-term insurance technical provisions
2 854
2 154
19. Trade and other receivables
Premiums receivable
Accrued investment income
Trading account and money market investments
Accounts receivable
4 048
1 048
10 896
6 610
4 499
1 080
6 459
4 576
22 602
16 614
40
40
18. Short-term insurance technical provisions
Short-term insurance technical provisions
Outstanding claims
Unearned premiums
Deferred acquisition cost
Total trade and other receivables
Trading account investments of R159 million (2002: R980 million) are
encumbered as detailed in note 24.
20. Share capital and premium
Authorised share capital
4 000 million ordinary shares of 1 cent each
R million
Issued share capital and premium
Number of ordinary shares in issue
Total shares in issue
Shares held by subsidiaries
million
million
2 654,6
(69,4)
2 654,6
(29,2)
Balance at end of year
million
2 585,2
2 625,4
Nominal value and share premium
Nominal value of 1 cent per share
Share premium
Treasury shares (held by subsidiaries)
R million
R million
R million
27
3 487
(403)
27
3 487
(59)
Total nominal value and share premium
R million
3 111
3 455
Authorised and unissued shares
Subject to the restrictions imposed by the Companies Act, the authorised
and unissued shares, to a maximum of 264 million shares, are under the control
of the directors until the forthcoming annual general meeting.
page 142
20. Share capital and premium (continued)
Executive share incentive scheme
Restricted shares and share options
at the beginning of the year
New options granted
Unconditional options and shares released,
available for release, or taken up
Options lapsed or cancelled
Cash dividends received on restricted
shares and converted into shares
Restricted shares and share options
at the end of the year
Unrestricted shares at the end of the year
Total number of options at the end
of the year
Less: Shares issued
Outstanding shares
Outstanding share options as a
percentage of total issued shares
2003
Shares
000’s
2003
Options
000’s
2002
Shares
000’s
2002
Options
000’s
6 746
—
109 865
35 757
12 024
—
118 171
37 581
(4 039)
—
(28 226)
(7 883)
(4 930)
(472)
(36 386)
(9 501)
98
—
124
—
2 805
1 101
109 513
60 571
6 746
1 878
109 865
43 668
3 906
(3 906)
170 084
(12 236)
8 624
(8 624)
153 533
(12 282)
—
141 251
—
157 848
5,9%
5,3%
Details regarding the restricted shares and share options outstanding on 31 December 2003 and the financial years
during which they become unconditional, are as follows:
Number of
Unconditional during year ending
31 December 2004
31 December 2005
31 December 2006
31 December 2007
31 December 2008 and later
Shares
000’s
Options
000’s
Average
option price
R
1 829
712
262
—
2
22 364
25 224
26 993
19 050
15 882
7,75
7,97
7,21
7,22
6,88
21. Contingency reserves
Contingency reserves in respect of short-term insurance business of R266 million are included in shareholders’
reserves (2002: R227 million) and R42 million (2002: R53 million) in the net assets underlying policy liabilities.
page 143
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
2003
R million
2002
R million
36 452
16 639
Premium income (note 22.2)
Investment return (note 22.3)
20 174
16 278
22 990
(6 351)
Outflow
(31 340)
(32 558)
Policy benefits (note 22.4)
Retirement fund terminations
Transfer to segregated assets
Taxation (note 22.5)
Fees, risk premiums and other payments to shareholders’ funds
(19 159)
(3 475)
(1 815)
(194)
(6 697)
(21 136)
(4 523)
(109)
(215)
(6 575)
Net movement for the year
Balance at beginning of the year
5 112
129 329
(15 919)
145 248
Balance at end of the year
134 441
129 329
14 838
17 469
Recurring
Single
Continuations
8 771
4 507
1 560
8 634
7 033
1 802
Group business
5 336
5 521
Recurring
Single
2 952
2 384
2 903
2 618
20 174
22 990
22.3 Investment return: policyholders’ funds
Investment income
7 940
7 690
Interest-bearing investments
Equities
Properties
4 757
2 112
1 071
4 267
2 295
1 128
8 338
(14 041)
16 278
(6 351)
22. Long-term policy liabilities
22.1 Analysis of movement in policy liabilities
Income
22.2 Analysis of premium income
Individual insurance
Total premium income
Net investment surpluses
Investment return
page 144
2003
R million
2002
R million
15 587
16 521
8 778
3 136
3 165
443
65
8 082
4 867
2 872
593
107
3 572
4 615
1 685
1 098
535
112
93
49
2 061
1 378
877
161
96
42
19 159
21 136
—
—
194
4
7
204
163
31
—
114
65
25
194
215
22. Long-term policy liabilities (continued)
22.4 Analysis of long-term policy benefits
Individual insurance
Maturity benefits
Surrenders
Life and term annuities
Death and disability benefits(1)
Cash bonuses(1)
Group business
Withdrawal benefits
Pensions
Lump-sum retirement benefits
Taxation paid on behalf of certain retirement funds
Death and disability benefits(1)
Cash bonuses(1)
Total long-term policy benefits
(1)
Excludes death and disability benefits and cash bonuses underwritten
by the shareholders (refer note 3).
22.5 Taxation: policyholders’ funds
Normal tax – RSA
– Foreign
Other
Taxation on retirement funds
Withholding tax on foreign investments
Indirect taxation
Total taxation: policyholders’ funds
A deferred tax asset has not been recognised for estimated assessed
losses in the policyholders’ tax funds as it is uncertain whether and
when these losses will be utilised.
page 145
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
22. Long-term policy liabilities (continued)
22.6 Composition of policy liabilities
Individual insurance
Market-related liabilities
Stable bonus fund
Reversionary bonus policies
Non-participating annuities
Other non-market-related liabilities
Group business
Market-related liabilities
Stable bonus portfolios
Participating annuities
Non-participating annuities
Other non-market-related liabilities
Total policy liabilities
2003
R million
2002
R million
98 449
92 342
30 300
25 955
8 372
15 352
18 470
27 919
26 564
8 376
13 797
15 686
35 992
36 987
13 098
10 817
8 111
2 421
1 545
15 110
10 807
7 823
2 038
1 209
134 441
129 329
22.7 Maturity analysis of investment policy contracts
2003 (R million)
<1 year
1–5 years
Linked: indeterminable term
Market related and smoothed bonus
Guarantee plans
Annuities
Liabilities that cannot be split by
outstanding term
—
790
2 495
105
—
4 273
6 315
1 383
—
4 536
—
406
17 201
1 757
—
—
17 201
11 356
8 810
1 894
—
—
—
380
380
Total investment policies
3 390
11 971
4 942
19 338
39 641
22.8 Policy liabilities include the following:
HIV/Aids reserve
Reduction in earnings caused by using a retrospective HIV/Aids
valuation basis instead of a prospective valuation basis
Asset mismatch reserve
Deferred capital gains tax
Within the comparative figures for net investment return on the
policyholders’ funds, there have been reclassifications without affecting
the total net return.
page 146
>5 years Open ended
Total
2003
R million
2002
R million
2 075
1 799
(127)
636
362
(71)
494
76
2003
R million
2002
R million
3 968
4 094
199
201
—
—
278
311
—
475
25
8
—
23
Total term finance
4 200
5 382
Portion potentially repayable within one year included above
1 949
1 928
18 758
5 868
1 569
731
14 283
4 517
1 631
690
26 926
21 121
23. Term finance
Redeemable cumulative non-voting preference shares issued by subsidiary
companies with dividend terms which are mostly linked to prime interest rates
(between 62% and 68% of prime) and with different redemption dates up to 2012.
These liabilities are matched by investments held.
Obligation for post-retirement medical fund contributions in respect of clients
– matched by assets held in this regard.
Secured bank loans at interest rates of between 6,4% and 19,85% and
repayable in equal monthly and six-monthly instalments over three to thirteen
years. Secured by term loans and deposits included in investments.
Unsecured debt securities with interest rates varying between 13% and 16%.
Secured loan notes in the amount of CHF67 million and GBP4 million, bearing
interest at variable interest rates. At 2002 year-end these rates were 1,56% and
2,08% respectively.
Guaranteed unsecured convertible and non-convertible loan notes. At 2003
year-end these rates were 3,13% and 1,43% respectively.
Other
24. Trade and other payables
Trading account and money market liabilities
Accounts payable
Policy benefits payable
Claims incurred but not reported
Total trade and other payables
Trading assets with a total value of R159 million (2002: R980 million) have
been pledged as security for trading account liability positions of Gensec
Bank (refer note 19).
To enhance disclosure, provisions have been disclosed separately on the face
of the balance sheet, with the consequent adjustment to the comparatives of
trade and other payables.
25. Provisions
Details of the different classes of provisions are as follows:
Restructuring
R million
PostPossible retirement
claims medical aid
R million
R million
Onerous
contracts
R million
Other
R million
Total
R million
Balance at 1 January 2002
Charged to income statement –
additional provisions
Utilised during the year
8
115
44
71
124
362
9
(5)
74
(7)
42
(2)
6
(15)
27
(28)
158
(57)
Balance at 31 December 2002
12
182
84
62
123
463
Charged to income statement
Additional provisions
Unused amounts reversed
112
24
(23)
12
(3)
122
112
24
—
12
12
160
—
—
(23)
—
(15)
(38)
Utilised during the year
(12)
(4)
(16)
(16)
(38)
(86)
Balance at 31 December 2003
112
202
45
58
82
499
page 147
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
25. Provisions (continued)
Restructuring
Provision is made for employee termination costs in terms of announced restructuring plans for Sanlam Life and
Gensec Bank.
The restructuring will be completed during 2004.
Possible claims
The group provides for possible claims that may arise as a result of past events, transactions or investments.
Estimates are reviewed annually and adjusted as appropriate for new circumstances.
Post-retirement medical aid contribution
The group provides for the future medical aid contributions for certain pensioners, disabled staff members and
disabled advisors.
The provision represents the present value of future contributions which is actuarially determined on an annual basis.
Refer to note 29: Retirement benefits for employees.
Onerous contracts
Provision is made for the full term of the contractual rental payable in respect of vacated offices where the lease term
has not yet expired. A provision for related costs (eg. electricity) is also included.
Other
Includes sundry provisions for possible outflows of resources from the group arising from past events. None of the
items are individually material.
2003
R million
2002
R million
26 036
27 298
Long-term insurance
Underwriting (note 3)
Other (note 22.4)
Short-term insurance (note 3)
2 502
19 159
4 375
2 237
21 136
3 925
Retirement fund terminations (note 22.1)
Other payments (off-balance sheet activities)
3 475
14 416
4 523
14 211
6 941
5 041
2 434
6 907
5 024
2 280
43 927
46 032
117
1 037
143
1 038
26. Payments to clients
Analysis per product
(refer to page 176 for analysis per Sanlam cluster)
Insurance business – policy benefits paid
Unit trust repurchases
Segregated funds withdrawn
Linked products withdrawn
Total payments to clients
Payments to clients are disclosed net of the following reinsurance claims:
Long-term insurance
Short-term insurance
page 148
27. Financial instruments
Derivative financial instruments
In connection with its current operating activities, the group is exposed to various financial risks, such as foreign
currency risk, interest rate risk, credit risk, market risk and liquidity risk. For the management of financial risks, the
group uses derivative financial instruments as follows:
• Gensec Bank, in its trading activities, acts as a dealer in derivative instruments to satisfy the risk management needs
of its clients and assume trading positions based on its market expectations, to benefit from price differentials
between instruments and markets.
• Sanlam Life and Santam primarily uses derivative financial instruments for the preservation of its capital base.
2003
Residual term to contractual maturity
R million
< 1 year
Analysed by use
Asset
Total
liability
1–5
notional
manageyears > 5 years amounts Trading
ment
Total
fair
value of
amounts
Interest rate products over the counter
Swap contracts
Purchased options
Written options
28 536
20
—
48 634
—
—
23 729 100 899 100 899
—
20
20
—
—
—
—
—
—
100
—
—
Total interest rate products
28 556
48 634
23 729 100 919 100 919
—
100
—
—
—
956
14
419
—
—
—
956
14
419
—
—
—
956
14
419
159
—
(80)
Market risk products
Cliquet structures
Futures
Collar structures
Forward purchase of shares
Local
International
Fence structures
Local
International
—
—
—
102
—
—
—
102
—
—
—
102
—
52
805
249
—
—
—
—
805
249
—
—
805
249
—
—
Total market risk products
1 054
1 491
—
2 545
—
2 545
131
Foreign exchange products
over the counter
Spot and forward contracts (purchases)
Spot and forward contracts (selling)
Currency hedges
1 302
(623)
—
225
—
—
7
—
—
1 534
(623)
—
679
225
7
Total foreign exchange products
911
1 534
(623)
—
911
—
—
8
(116)
—
—
(108)
page 149
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
27. Financial instruments (continued)
Derivative financial instruments (continued)
2002
R million
Residual term to contractual maturity Analysed by use
Asset
Total
Total
liability
fair
1-5
notional
manage- value of
< 1 year
years > 5 years amounts Trading
ment amounts
Interest rate products over the counter
Swap contracts
Purchased options
Written options
(2 963)
235
(236)
(1 803)
—
—
(241)
—
—
(5 007)
235
(236)
(5 007)
235
(236)
—
—
—
(48)
3
3
Total interest rate products
(2 964)
(1 803)
(241)
(5 008)
(5 008)
—
(42)
—
100
—
656
—
419
—
—
—
656
100
419
—
—
—
656
100
419
57
19
(83)
Market risk products
Cliquet structures
Forward sale
Collar structures
Forward purchase of shares
Local
International
Fence structures
Local
International
14
—
—
102
—
—
14
102
—
—
14
102
13
62
350
261
—
—
—
—
350
261
—
—
350
261
13
(12)
Total market risk products
725
1 177
—
1 902
—
1 902
69
1 170
(1 097)
300
—
—
—
—
—
—
1 170
(1 097)
300
1 170
(1 097)
—
—
—
300
1 170
(1 097)
14
373
—
—
373
73
300
87
Foreign exchange products over
the counter
Spot and forward contracts (purchases)
Spot and forward contracts (selling)
Currency hedges
Total foreign exchange products
Securities lending
The Sanlam group conducts securities lending activities in respect of some of its listed equities and bonds. The
exposure to these activities was approximately 30% of the shareholders’ funds of Sanlam Life Insurance Limited and
collateral security and guarantees of between 105% and 150% of the value of the loaned securities are held.
page 150
27. Financial instruments (continued)
Market risk – interest and equities
Sanlam’s operations are exposed to market risk. Market risk arises from the uncertain movement in fair value or net
asset value of the investments that stems principally from potential changes in sentiment towards the investment, the
variability of future earnings that is reflected in the current perceived value of the investment and the fluctuations in
interest rates and foreign currency exchange rates. Policyholders’ and shareholders’ investments in equities are valued
at fair value and are therefore susceptible to market fluctuations. Shareholders’ investments in listed subsidiaries are
reflected at net asset value based on the market value of the underlying investments. Investments subject to equity
risk are analysed in the balance sheet and in note 16.
The acquisition of policyholders’ assets is based on the contract entered into and the preferences expressed by the
policyholder. Within these parameters, investments are managed with the aim of maximising policyholder returns
while limiting risk to acceptable levels within the framework of statutory requirements. The focus of risk measurement
and management is to ensure that the potential risks inherent in an investment are reasonable for the future potential
reward. Comprehensive measures and limits are in place to control the exposure to market risk of the investments of
Sanlam. Continuous monitoring takes place to ensure that appropriate assets are held where the liabilities are
dependent upon the performance of specific portfolios of assets and that a suitable match of assets exists for all nonmarket-related liabilities.
Such risk measurements are performed through the application of various statistical techniques – Value at Risk (“VaR”)
and position limits are supplemented with stress testing and scenario analysis. Sanlam believes that statistical models
alone do not provide a reliable method of monitoring and controlling market risk. While VaR models are relatively
sophisticated, the quantitative market risk information generated is limited by the assumptions and parameters
established in creating the related models. Therefore, such models are tools and do not substitute for the experience or
judgement of senior management but is used as input in the decision making process.
Operational risk
Operational risk is the risk of loss due to factors such as inadequate systems, management failure, inadequate internal
controls, fraud or human error. The company mitigates these risks through its culture and values, a comprehensive
system of internal controls, internal audit, forensic and compliance functions and other measures such as back-up
facilities, contingency planning and insurance.
The initiation of transactions and their administration is conducted on the basis of the segregation of duties, designed
to ensure the correctness, completeness and validity of all transactions. Control is further strengthened through the
settlement of transactions through custodians. The custodians are also responsible for the safe custody of the group’s
securities. To ensure validity, all transactions are confirmed with counterparties independently from the initial
executors. Sanlam has a risk-based internal audit approach, in terms of which priority is given to the audit of higher
risk areas, as identified in the planning phase of the audit process. The internal control systems and procedures are
subject to regular internal audit reviews.
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate in Rand owing to changes in foreign
exchange rates. The group’s exposure to currency risk is mainly in respect of foreign investments made on behalf of
policyholders and shareholders for the purpose of seeking desirable international diversification of investments.
Exposure to different foreign currencies is benchmarked against the currency composition of the Morgan Stanley
Capital International World Equity Index and the JP Morgan Government Bond Index.
Property risk
Property risk is the risk that the value of the investment properties will fluctuate as a result of changes in the
environment. Property investments are made on behalf of policyholders, shareholders and other investment clients and
are all reflected at market value. Diversification in property type, geographical location and tenant exposure are all
used to reduce this risk.
page 151
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
27. Financial instruments (continued)
Credit risk
Credit risk arises from the inability or unwillingness of a counterparty to a financial instrument to discharge its
contractual obligations. Sanlam determines counterparty credit quality by reference to ratings from independent
ratings agencies or, where such ratings are not available, by internal analysis. Sanlam seeks to avoid unacceptable
concentration of credit risk to groups of counterparties, business sectors, product types, etc.
The Sanlam group’s financial instruments do not represent a concentration of credit risk because the Group deals with a
variety of major banks and its accounts receivable and loans are spread among a number of major industries, customers
and geographic areas. Amounts receivable in terms of long-term insurance business are secured by the underlying value
of the unpaid policy benefits in terms of the policy contract. Short-term insurance premiums outstanding for more than
60 days are not accounted for in premiums. An appropriate level of provision is maintained. Exposure to outside
financial institutions concerning deposits and similar transactions is monitored against approved limits.
The value of the short-term fixed interest stock at 31 December 2003 was R15 227 million (2002: R14 631 million),
consisting mostly of promissory notes R7 506 million (2002: R5 425 million) and loans R3 070 million (2002: R1 701
million). Deposits for 2003 were R1 897 million (2002: R4 605 million). For short-term fixed instruments the credit risk
is very important. The table below summarises the credit exposure and the credit rating of the institutions:
Credit exposure of short-term
fixed interest stock 2003
1%
5% 4% 4%
19%
67%
Credit exposure of short-term
fixed interest stock 2002
aaa
aa
a
bbb
lower
not rated
1%
17%
9%
73%
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with
financial instruments. Liquidity risk arises when there are mismatching between the maturities of liabilities and assets.
All policyholder funds are invested in appropriate assets to meet the reasonable benefit expectations of policyholders,
which includes the expectation that funds will be available to pay out benefits as required by the policy contract.
Approximately 90% of term finance liabilities are backed by appropriate assets with the same maturity profile. Details
of term finance liabilities are provided in note 23 and current liabilities in note 24. The Group has significant liquid
resources and substantial unutilised banking facilities.
Underwriting risk
Underwriting risk is the risk that the actual exposure to mortality, disability and medical risks in respect of policyholder
benefits will exceed prudent exposure. The statutory actuary of Sanlam Life Insurance Limited reports annually on the
financial soundness of the premium rates in use and the profitability of the business, taking into consideration the
reasonable benefit expectation of policyholders. All new rate tables are approved and authorised by the statutory
actuary prior to being issued. Regular investigations into mortality and morbidity experience are conducted.
Catastrophe insurance is in place for single-event disasters. All applications for risk cover in excess of specified limits
are reviewed by experienced underwriters and evaluated against established standards. Specific testing for HIV/Aids is
carried out in all cases where the applications for risk cover exceed a set limit. All risk-related liabilities in excess of
specified monetary or impairment limits are reinsured.
page 152
27. Financial instruments (continued)
Claims risk
Claims risk is represented by the fact that Sanlam may incur inordinate mortality and morbidity losses on any group of
policies. Pro-active training of client service staff takes place to ensure that fraudulent claims are identified and
investigated timeously. The legitimacy of claims is verified by internal, financial and operating controls that are
designed to contain and monitor claims risks. The forensic investigation team also advises on improvements to internal
control systems.
Legal risk
Legal risk is the risk that the Group will be exposed to contractual obligations which have not been provided for. The
risk arises from the uncertainty of the enforceability, through legal or juridicial processes, of the obligations of
Sanlam’s clients and counterparties, including contractual provisions intended to reduce credit and product exposure
by providing for the netting of mutual obligations.
During the development stage of any new product and for material transactions entered into by the Group, the legal
resources of the Group monitor the drafting of the contract document to ensure that rights and obligations of all
parties are clearly set out. Sanlam seeks to minimise uncertainties through continuous consultation with internal and
external legal advisers, to understand the nature of risks and to ensure that transactions are appropriately structured
and documented.
Capital adequacy risk
Capital adequacy risk is the risk that there are insufficient reserves to provide for variations in actual future experience
worse than that which have been assumed in the financial soundness valuation. The Group must maintain a capital
balance that will be at least sufficient to meet obligations in the event of substantial deviations from the main risk
assumptions affecting the Group’s business. Capital adequacy requirements were covered 2,7 times at 31 December 2003
(2002: 1,7 times) and are determined according to the guidelines of the Actuarial Society of South Africa.
28. Net asset value per share
Net asset value per share is calculated on the group shareholders’ funds of R22 819 million (2002: R20 947 million),
after adjusting for the shareholders’ interest in Santam, Gensec Bank, Sanlam Investments, Sanlam International
and Gensec Property Services from net asset value to fair value (refer to balance sheet on page 173), divided by
2 585,2 million (2002: 2 625 million) shares (refer note 20).
29. Retirement benefits for employees
Retirement provision
The Sanlam group provides for the retirement benefits of full-time employees and for certain part-time employees by
means of defined benefit and defined contribution pension and provident funds. These funds are governed by the
Pension Funds Act.
Defined contribution funds
There are separate defined contribution funds for advisers, full-time and part-time office staff. The Sanlam group
contributed R149 million to these funds during 2003 (2002: R156 million).
Defined benefit funds
The Sanlam group has two defined benefit funds. These funds relate to the office staff that did not elect to transfer to
the defined contribution funds and are closed to new entrants. The Sanlam group contributed R9 million during 2003
to these funds (2002: R9 million). These contributions relate to current service costs and are included in administration
costs. According to the latest valuation in accordance with AC116 as at 31 December 2003 the funds were financially
sound.
Sanlam office
BGJ Pension
Principal actuarial assumptions at 31 December 2003 were as follows:
personnel
Scheme
Pre-retirement discount rate
Post-retirement discount rate
Future salary increases
Expected return on assets
11% per annum
5% per annum
8% per annum
12% per annum
5,5% per annum
5,5% per annum
3,5% per annum
8% per annum
Based on reasonable actuarial assumptions about future experience, the employers’ contribution as a fairly constant
percentage of the remuneration of the members of the funds should be sufficient to meet the promised benefits of
the funds.
page 153
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
29. Retirement benefits for employees (continued)
Medical aid funds
The actuarially determined present value of medical aid obligations for disabled members and certain pensioners is
fully provided for at year end. The Group has no further unprovided post-retirement medical aid obligations for
current or retired employees.
Principal actuarial assumptions at 31 December 2003:
Sanlam
Santam
Pre-retirement discount rate
Returns for All bond index (ALBI)
Expected increase in medical aid contributions
11%
10,45%
11%
Defined
benefit funds
2003
2002
R million R million
9,5%
10,45%
5,5%
Post-retirement
medical aid
2003
2002
R million R million
Funded status
The funded status of the funds were as follows:
Actuarial value of fund assets
Present value of accrued retirement benefits
Present value of unfunded obligation
688
596
—
617
569
—
(45)
(84)
Net assets
Unrecognised surplus
92
(92)
48
(48)
(45)
—
(84)
—
Net liability included on balance sheet
—
—
(45)
(84)
Movements in the net liability recognised in the
balance sheet are as follows:
Net liability at start of year
Net expenses recognised in the income statement
Contributions
—
—
—
—
—
—
(84)
23
16
(44)
(42)
2
Net liability at end of year
—
—
(45)
(84)
The actual return on the market value of the assets as at
31 December 2003 was 16,01%.
The above value of fund assets includes an investment of
R15 million in Sanlam shares.
The actuarial surplus is currently not recognised as an asset
by the Group, as the extent of the surplus available to the
company cannot be determined with certainty.
30. Borrowing powers
In terms of the articles of association of Sanlam Limited, the directors may at their discretion raise or borrow money
for the purpose of the business of the company without limitation.
Material borrowings of the Sanlam Limited group are disclosed in note 23.
2003
R million
2002
R million
155
168
Future operating lease commitments:
Lease rentals due within one year
Lease rentals due within two to five years
Lease rentals due within more than five years
123
252
144
111
152
29
Total operating lease commitments
519
292
31. Commitments and contingencies
Commitment in respect of private equity investments
page 154
31. Commitments and contingencies (continued)
South African Revenue Services (“SARS”) had issued revised tax assessments totalling R240 million normal tax due in respect of the
1997, 1998 and 1999 tax years of a subsidiary of Genbel Securities Limited (Gensec). In terms of the revised assessments certain
surpluses arising from the disposal of certain assets are subjected to tax as SARS contends that such surpluses are not of a capital
nature. Gensec lodged objections in respect of all three revised assessments. The company’s objections that these amounts are in fact
of a capital nature have been disallowed and penalties and interest were imposed in addition to the tax payable. SARS afforded the
company the opportunity to make representations with respect to the imposition of penalties and interest. No resolution has as yet
been reached on this matter. Gensec intends to challenge the assessments in court should the ongoing discussions with SARS on the
merits of their case not be successful. No provision has been created for the revised assessments.
Sanlam embarked on a restructuring of the group of companies during 2002, the result of which being that the capital and reserve
funds of Gensec was reduced. Gensec is registered as the controlling company of Gensec Bank Limited (Gensec Bank) in terms of the
Banks Act and required a guarantee to maintain its allocated capital and reserve funds in order to conduct and grow the business of
Gensec and Gensec Bank in a competitive manner. An agreement was entered into, in terms of which the boards of the companies
approved that an amount of R2 billion be assigned as capital to Gensec and that Sanlam Limited will provide a capital maintenance
guarantee of R5 billion. Gensec has in turn provided an unconditional guarantee in favour of the creditors of Gensec Bank. The
guarantee wil be reviewed upon the expiry of Gensec’s banking licence, which is expected to be returned to the authorities during 2004.
Summons has been issued against Gensec Bank and others in the Supreme Court of the State of New York, United States of America. The
allegations in the summons are connected to the acquisition by Gensec Bank’s parent, Gensec, in 2002 of Fieldstone Incorporated
(Fieldstone), a niche financial services advisory firm incorporated in the United States. The plaintiffs include Mr Charles J. Hill, the former
head of Fieldstone, prior to its acquisition by Gensec, and companies through which Mr Hill and the other former shareholders of
Fieldstone held their shares in Fieldstone, which were sold to Gensec. The plaintiffs have claimed an amount of USD10 million on account
of various contract related issues as well as punitive damages of USD30 million. Gensec Bank is not in a position to comment on the
specific merits of the claims. However, it believes that the plaintiff’s allegations are without foundation, and that even if they had merit
the amounts claimed are grossly excessive. Gensec Bank therefore intends defending the matter vigorously.
Two medical aid schemes formerly administered by Sanlam Health have sued it, claiming that the court should issue orders that they are
entitled to share in profits accumulated by Sanlam Health during the period May 1975 to December 1997 and accounting, debatement
and payment in respect thereof. The claims are defended by Sanlam Health on the basis that the plaintiffs are not entitled to such orders,
that accounting has been made in accordance with the obligations of Sanlam Health and that prescription has taken place.
Gensec has subordinated their investment in the Safair Lease Finance (Proprietary) Limited joint venture of R309 million to third
parties’ liabilities.
There are no other material commitments or contingencies.
32. Related party transactions
Major shareholders
Sanlam Limited is the ultimate holding company in the Group. None of the Sanlam shareholders have a significant influence and thus not
one of the shareholders is a related party. The shares are widely held by public and non-public shareholders. Details of transactions between
the policyholders of Sanlam Life Insurance Limited and the shareholders’ funds of the Sanlam Limited group are disclosed in note 22.
Transactions with directors
Remuneration is paid to directors in the form of fees to non-executive directors and remuneration to executive and alternate directors
of the company. All directors of Sanlam Limited have notified that they did not have a material interest in any contract of significance
with the company or any of its subsidiaries, which could have given rise to a conflict of interests during the year. Details relating to
directors’ emoluments are included in note 4 and their shareholdings and share options granted in the company are disclosed as part
of the corporate governance report in the annual report.
Transactions with entities in the group
During the year the company and its subsidiaries in the ordinary course of business entered into various transactions with other group
companies, associated companies and other stakeholders. These transactions occurred at arm’s length.
The company advanced, repaid and received loans from other entities in the Group during the current and previous years. These loans
have been eliminated on consolidation.
Details of investments in associated companies are disclosed in note 16 and details of investments in subsidiaries are disclosed on page 166.
Administration and management
Certain companies in the Group carry out third party administration and management activities for other related parties in the Group. These
transactions are entered into in the normal course of business, under terms that are no more favourable than those arranged with third parties.
page 155
sanlam annual report 2003
notes to the
group financial statements
continued
for the year ended 31 December 2003
2003
R million
33. Notes to the cash flow statement
33.1 Cash generated from operations
Operating profit before tax per income statement
Gross discontinuance costs
Non-cash items
Depreciation
Bad debts written off and provided for
Items disclosed separately
Dividends received
Interest received
Interest paid and term finance costs
Equity-accounted earnings
Net purchase of fixed assets
Cash generated from operations before working capital changes
33.2 Acquisition of subsidiaries
During the year, various subsidiaries were acquired within the group.
The fair value of assets acquired are as follows:
Fixed assets
Investments
Deferred tax
Trade and other receivables
Short-term insurance technical assets
Cash, deposits and similar securities
Current liabilities
Short-term insurance technical provisions
Goodwill
Minority shareholders’ interest
Total purchase price
Less: Increase in long-term liabilities
Cash, deposits and similar securities acquired
Cash component of acquisition of subsidiaries
33.3 Cash utilised in policyholder activities (per note 22.1)
Premium income
Policy benefits
Retirement fund terminations
Transfer to segregated assets
Payments to shareholders
Cash utilised in policyholder activities
page 156
2 405
(108)
167
79
88
2002
R million
2 149
—
96
96
—
(1 376)
(849)
(365)
(3 088)
2 096
(19)
(145)
(2 317)
1 613
—
(61)
(44)
1 027
1 352
15
242
18
38
54
461
(70)
(398)
298
(53)
17
2
14
863
315
228
(1 026)
(398)
416
(22)
605
—
(461)
409
(80)
(228)
144
101
20 174
(19 159)
(3 475)
(1 815)
(6 697)
22 990
(21 136)
(4 523)
(109)
(6 575)
(10 972)
(9 353)
statement of actuarial values of assets
and liabilities of sanlam life insurance
limited group
as at 31 December 2003
2003
R million
2002
R million
Assets
Fair value of assets
164 625
155 998
Less: Liabilities
144 889
138 997
Actuarial value of policy liabilities (per note 22.1)
134 441
129 329
Note
– Investment contracts
– Insurance contracts
39 641
94 800
Long-term and current liabilities
10 448
9 668
Excess of assets over liabilities
2
19 736
17 001
Analysis of movement in excess of assets over liabilities
Operating profit
Investment return on excess of assets over liabilities
3
1 448
3 427
1 476
(3 022)
843
2 584
474
(3 496)
Investment income
Realised and unrealised investment surpluses
Financial assistance provided to policyholders
Taxation
4
5
Income tax
Capital gains tax
Normal dividends paid
Movement in excess of assets over liabilities
Capital adequacy and ratios
Capital adequacy requirements (CAR) before management actions
Management actions assumed
CAR after management actions assumed
Times CAR covered by excess of assets over liabilities
Excess of assets over liabilities as percentage of:
Total policy liabilities
Non-market-related policy liabilities
(290)
(800)
(153)
(309)
(500)
(300)
(496)
187
(1 050)
(900)
6
2 735
(2 908)
7
16 425
(9 175)
22 425
(12 525)
7 250
9 900
2,7
1,7
15%
22%
13%
20%
page 157
sanlam annual report 2003
notes to the statement of actuarial values
of assets and liabilities of sanlam life
insurance limited group
as at 31 December 2003
1.
Sanlam Life Insurance Limited Group
All information presented is in respect of the Sanlam Life Insurance Limited group and includes the actuarial values of
assets and liabilities relating to Sanlam Namibia Limited.
2.
Excess of assets over liabilities
Refer to page 173 for an analysis of the Sanlam Life Insurance Limited group shareholders’ fund at fair value (Sanlam
Investment Management (Pty) Limited not consolidated, but reflected at fair value).
Assets must be adjusted for group undertakings for regulatory purposes. The excess of assets over liabilities reduces to
R18 720 million if this adjustment is made.
3.
Operating profit
A number of changes were made to the valuation methodology and assumptions, inter alia with regard to:
— provision for investment guarantees in accordance with new actuarial guidance;
— considering universal life products that provide very high levels of life cover separately when testing for the
maximum of the prospective and retrospective liabilities; and
— restricting the retrospective build-up for the HIV/Aids reserve to a maximum of the prospective reserve assuming no
re-rating of risk premiums.
Overall the changes in the valuation methodology and assumptions did not have a material effect on the operating
profit for 2003 and 2002.
The operating profit reconciles as follows with the Sanlam Life segmental operating profit:
2003
R million
2002
R million
Sanlam Life Insurance Limited group statutory operating profit
1 448
1 476
Sanlam Life segmental operating profit (page 168)
1 445
1 451
3
25
Included with operating profit of other business
4.
Realised and unrealised investment surpluses
A special dividend, relating to extraordinary investment surpluses realised during the rationalisation of group
companies, was paid to Sanlam Limited in 2002 and is included in realised and unrealised investment surpluses
for 2002.
5.
Financial assistance provided to policyholders
During the course of the year a prudent valuation of the financial position of the Participating Annuity Portfolio
indicated the need to bolster the funding level of the portfolio by an additional R190 million (R153 million in 2002).
In addition, it was decided during the year to support the Monthly Bonus Fund with R100 million in view of this
portfolio’s relatively low funding level at the time. Full provision has been made for this assistance against the
shareholders’ fund. The possible repayment of the support will in both instances be determined by the future
performance of its underlying assets and will be reviewed on a regular basis.
page 158
6.
Movement in excess assets
The change in the excess assets of the Sanlam Life Insurance Limited group can
be reconciled to the attributable earnings per the segmental income statement
on page 168, as follows:
Excess of assets over liabilities at the beginning of the year
Movement in excess assets for the Sanlam Life Insurance Limited group
Attributable earnings of Sanlam Life business
Dividends paid
Net unrealised investment surpluses taken directly to equity
Attributable earnings included in other businesses
Excess of assets over liabilities at the end of the year
7.
8.
9.
2003
R million
2002
R million
17 001
2 735
19 909
(2 908)
1 675
(1 050)
2 134
(24)
(1 953)
(900)
—
(55)
19 736
17 001
Management actions
The management actions assumed to offset the negative impact on the
capital adequacy requirement should the resilience scenario occur, are set out
below. The resilience scenario assumes that equity values decline by 30%,
property values by 15% and that fixed interest yields increase or decrease by
3% (whichever yields the worst result) on the valuation date and do not
subsequently recover within the short-term.
Reduction in non-vested bonuses (on average 4,4% of non-vested bonuses)
Reduction in future bonus rates (on average 2,9% per annum below
expected long-term rates, for three years)
Capitalisation of future profits
Reduction in grossing up for the assets covering CAR
Independence credits
606
678
3 944
2 104
2 755
(234)
5 915
2 611
3 497
(176)
Total management actions
9 175
12 525
%
%
9
15
35
9
32
5
8
19
7
61
100
100
9,4
11,4
8,4
10,4
7,4
5,4
3,9
10,8
12,8
9,8
11,8
8,8
6,3
4,8
Asset composition
The assets backing the capital adequacy requirements, used for the purpose of
grossing up the intermediate ordinary capital adequacy requirements
(as defined in PGN104) to determine the ordinary capital adequacy
requirements, were invested as follows:
Cash
Fixed-interest securities
Hedged equities
Property
Equities
Investment return and inflation assumptions
Pre-tax investment returns by major asset category and inflation assumptions
were as follows:
Fixed-interest securities
Equities and offshore investments
Hedged equities
Property
Cash
Future expense inflation (excluding margin)
Consumer Price Index inflation for premium indexation
page 159
sanlam annual report 2003
notes to the statement of actuarial values
of assets and liabilities of sanlam life
i n s u r a n c e l i m i t e d g r o u p continued
as at 31 December 2003
10. Discount rates used in calculating
prospective policy liabilities
Reversionary bonus business
Retirement annuity business
Individual policyholder business
Individual stable bonus business
Retirement annuity business
Individual policyholder business
Non-taxable business
Corporate policyholder business
Individual market-related business
Retirement annuity business
Individual policyholder business
Non-taxable business
Corporate policyholder business
Participating annuity business
Non-participating annuity business*
Guaranteed plans*
2003
%
2002
%
9,4
8,7
10,8
10,2
9,3
8,5
9,9
8,2
10,7
10,1
11,6
9,7
9,4
8,6
10,6
8,3
8,4
8,6
8,7
11,1
10,4
12,0
10,0
10,3
10,0
11,0
*The calculation of policy liabilities is based on discount rates derived from the zero-coupon yield curve. This is the
average rate that produces the same result.
11. Bonus stabilisation reserves
No portfolio had a negative bonus stabilisation reserve which exceeded 7,5% of the relevant investment accounts at
31 December 2003.
page 160
sanlam limited
financial statements
for the year ended 31 December 2003
2003
R million
2002
R million
2
13 505
748
14 687
1 451
2
683
65
1 397
54
14 253
16 138
3 514
9 342
671
3 514
9 342
1 340
13 527
726
14 196
1 942
648
78
1 885
57
14 253
16 138
Note
Balance sheet at 31 December 2003
Assets
Non-current assets
Investment in group companies
Current assets
Loans to subsidiaries
Accounts receivable
Total assets
Equity and liabilities
Share capital and premium
Non-distributable reserves
Retained earnings
3
4
Shareholders’ funds
Current liabilities
Loans from subsidiaries
Accounts payable
2
Total equity and liabilities
Income statement
for the year ended 31 December 2003
Dividends received
Impairment of investments in group companies
Expenditure
Attributable earnings
5
6
1 419
(1 099)
(7)
313
1 348
(54)
(5)
1 289
page 161
sanlam annual report 2003
sanlam limited
financial statements
continued
for the year ended 31 December 2003
2003
R million
Note
2002
R million
Cash flow statement
for the year ended 31 December 2003
Cash flow from operating activities
Cash utilised in operations
Dividends received
Dividends paid
Cash flow from investment activities
Change in investment in subsidiary companies
Investment in joint venture
10
3
1 419
(982)
7
(27)
1 348
(929)
83
—
(970)
30
Increase/(decrease) in cash and cash equivalents
Net loans to subsidiaries – beginning of the year
2
523
(488)
(548)
60
Net loans to subsidiaries – end of the year
2
35
(488)
NonShare distributable
premium
reserve(1)
Note
Share
capital
Retained
earnings
Total
7
27
—
—
3 487
—
—
9 342
—
—
980
1 289
(929)
13 836
1 289
(929)
7
27
—
—
3 487
—
—
9 342
—
—
1 340
313
(982)
14 196
313
(982)
27
3 487
9 342
671
13 527
Statement of changes in
equity for the year ended
31 December 2003
Balance at 1 January 2002
Attributable earnings for the year
Dividends paid
Balance at 31 December 2002
Attributable earnings for the year
Dividends paid
Balance at 31 December 2003
Pre-acquisition reserve arising on demutualisation of Sanlam Life Insurance Limited in 1998
(1)
page 162
notes to the sanlam limited
financial statements
for the year ended 31 December 2003
1.
Accounting policies
The accounting policies of the Sanlam Limited group as set out on pages 115 to 121 are also applicable to Sanlam
Limited except for investments in subsidiary companies which are reflected at the lower of cost or an impaired value.
2.
Subsidiary companies
Investment in group companies – shares at cost less impairments
Current loans with group companies
Loans to subsidiaries
Loans from subsidiaries
2003
R million
2002
R million
13 505
14 687
35
(488)
683
(648)
1 397
(1 885)
Book value of investment in subsidiaries
13 540
14 199
Fair value of net investment in subsidiaries
23 370
21 175
9 342
9 342
Loans to subsidiaries
The loans to subsidiaries are unsecured and not subject to any fixed terms
of repayment. No interest is charged but these arrangements are subject
to revision from time to time. Details regarding the principal subsidiaries of
Sanlam Limited are set out on page 166.
Fair value of subsidiaries are determined on the following bases:
• Listed subsidiaries at stock exchange prices;
• Sanlam Life Insurance Limited at net asset value; and
• Other unlisted subsidiaries at the directors’ valuation
3.
Share capital
Details of share capital and premium are reflected in note 20 on page 142 of
the Sanlam Limited group financial statements.
4.
Non-distributable reserves
Pre-acquisition reserves arising on demutualisation of
Sanlam Life Insurance Limited
page 163
sanlam annual report 2003
notes to the sanlam limited
f i n a n c i a l s t a t e m e n t s continued
for the year ended 31 December 2003
5.
2003
R million
2002
R million
1 050
—
290
79
900
350
—
98
—
—
3 596
1 799
—
—
(3 596)
(1 799)
1 419
1 348
2,9
3,8
1,8
0,1
Total directors’ remuneration
4,7
3,9
Analysis of directors’ remuneration
Executive directors
Non-executive directors
0,4
4,3
0,4
3,5
Total directors’ remuneration
4,7
3,9
Audit fees
2,1
0,4
Dividends received
Normal dividends
Sanlam Life Insurance Limited
Sanlam Collective Investments Limited
Genbel Securities Limited
Other
Special dividends
Sanlam Life Insurance Limited
Genbel Securities Limited
Reversal of extraordinary investment surpluses in excess
of book values
Sanlam Life Insurance Limited
Genbel Securities Limited
Total dividends received
The rationalisation of group companies in 2002 resulted in extraordinary
investment surpluses being realised by certain subsidiaries, which were
subsequently distributed as special dividends.
6.
Expenditure includes:
Directors’ remuneration
Total remuneration paid by Sanlam Limited to its present and previous directors:
Present
Directors’ Fees
Previous
Directors’ Fees
page 164
notes to the sanlam limited
f i n a n c i a l s t a t e m e n t s continued
for the year ended 31 December 2003
7.
Dividends paid
Details of dividends paid are reflected in the directors’ report on page 114 and in note 12 of the Sanlam Limited group
financial statements.
8.
Report of the directors
The directors’ report is included on page 114 of the Sanlam Limited group financial statements.
9.
Commitments and contingencies
As detailed in note 31 of the Sanlam Limited group financial statements,
the company provided a capital maintenance guarantee of R5 billion to
Genbel Securities Limited.
Sanlam Limited also subordinated a loan of R300 million to Genbel Securities
Limited in favour of creditors of Genbel Securities Limited.
10. Cash utilised in operations
Attributable earnings
Non-cash item – impairment of investments in group companies
Items separately disclosed – dividends received
Increase in accounts receivable
Increase in accounts payable
Cash utilised in operations
2003
R million
313
1 099
(1 419)
(11)
21
3
2002
R million
1 289
54
(1 348)
(45)
23
(27)
page 165
sanlam annual report 2003
principal subsidiaries
as at 31 December 2003
Long-term insurance
Sanlam Life Insurance Ltd
Investment banking
Genbel Securities Ltd
Investment management
and consulting
Sanlam Investment
Management (Pty) Ltd
Sanlam Independent
Financial Services (Pty) Ltd
Sanlam Investment Holding Ltd
Sanlam Netherlands Holdings BV(4)
Property management
Gensec Property Services (Pty) Ltd
Investment administration
Tasc Administration (Pty) Ltd
Short-term insurance
Santam Ltd (listed)
Investment companies
Beldiv Investments (Pty) Ltd
Sanlam Spec (Pty) Ltd
Sanlam Investments (Pty) Ltd
Other
%
interest
Issued
ordinary
capital
2003
R million
100
5 000
19 736
17 001
(310)
(182)
100
253
1 894
2 327
87
(531)
100
(1)
(1)
(1)
—
—
100
100
100
(3)
(3)
(2)
(3)
514
1 289
(2)
2 042
—
—
—
—
—
—
2 309
Fair value of interest in subsidiaries
Shares
2003
2002
R million
R million
Loans
2003
2002
R million
R million
100
(3)
52
60
—
—
100
(3)
61
12
—
15
5
1 130
300
189
—
—
100
100
100
(3)
(6)
(486)
(18)
—
10
56
(29)
(4)
—
257
—
—
(57)
—
258
4
23 336
21 664
34
(493)
Total
(3)
(3)
The interest is held indirectly by Sanlam Life Insurance Ltd.
Was previously held by Sanlam Life Insurance Ltd.
(3)
Issued share capital is less than R1000.
(4)
Incorporated in The Netherlands.
A register of all subsidiary companies is available for inspection at the registered office of Sanlam Limited. All investments above are unlisted
and incorporated in South Africa unless otherwise indicated.
(1)
(2)
Analysis of the group’s holding in Santam:
Shareholders’ funds
• Sanlam Life Insurance Ltd
• Sanlam Ltd
Policyholders’ funds
• Sanlam Life Insurance Ltd
page 166
2003
%
2002
%
41
5
39
5
7
10
53
54
sanlam limited group
financial information
for the shareholders’ funds
for the year ended 31 December 2003
contents
segmental income statement 168
segmental shareholders’ funds balance sheet 170
balance sheet with all businesses consolidated at net asset value 172
balance sheets with businesses not consolidated, but reflected at fair value 173
notes to the financial statements 174
stock exchange performance 181
auditors’ report on the group embedded value report 182
report on the sanlam group embedded value 183
page 167
sanlam annual report 2003
sanlam limited group
segmental income statement
for the year ended 31 December 2003
Sanlam Life
R million
Santam
2003
2002
2003
2002
Financial services income
Sales remuneration
7 023
(1 103)
6 794
(1 165)
6 960
(789)
5 663
(698)
Income after sales remuneration
Underwriting policy benefits
Administration costs
Restructuring expenses
5 920
(2 502)
(1 912)
(61)
5 629
(2 237)
(1 941)
—
6 171
(4 375)
(1 061)
—
4 965
(3 925)
(783)
—
Operating profit before tax
Tax on operating profit
1 445
(399)
1 451
(404)
735
(231)
257
(85)
Operating profit after tax
Minority shareholders’ interest
1 046
—
1 047
—
504
(282)
172
(108)
Net operating profit
Net Investment income
1 046
769
1 047
419
222
96
64
81
Investment income
Tax on investment income
Minority shareholders’ interest
Net equity-accounted earnings
Equity-accounted earnings
Tax on equity-accounted earnings
843
(74)
—
472
(53)
—
229
(23)
(110)
218
(29)
(108)
—
—
(12)
(1)
—
—
—
—
(12)
—
(1)
—
Core earnings
Financial assistance to policyholders’ funds
1 815
(290)
1 466
(153)
306
—
144
—
Headline earnings
Net investment surpluses
1 525
150
1 313
(3 266)
306
24
144
(18)
(3 451)
185
—
71
(22)
(25)
(39)
(2)
23
—
—
—
—
—
—
—
—
(17)
—
—
(3)
1 675
(1 953)
313
123
32,3%
25,4%
34,5%
25,8%
17,2%
11,9%
15,8%
5,2%
39,7
39,8
8,4
2,4
Investment surpluses
Tax on investment surpluses
Minority shareholders’ interest
Net discontinuance costs
Impairment of investments and goodwill
Amortisation of goodwill
Attributable earnings
Ratios
Admin ratio(1)
Net operating margin(2)
Net operating profit eps
Adjusted weighted average number of shares (million)
Net operating profit
(1)
184
(34)
—
Administration costs (excluding Sanlam Life restructuring cost) as a percentage of income earned by the shareholers’ funds less sales remuneration.
Operating profit (excluding Sanlam Life restructuring cost) as a percentage of income earned by the shareholders’ funds less sales remuneration.
(2)
page 168
Sanlam Investments
Sanlam Capital
Markets
Discontinuing
operations
Independent
Financial Services
Corporate and other
Total
2003
2002
2003
2002
2003
2002
2003
2002
2003
2002
2003
2002
848
—
726
—
234
—
187
—
197
—
366
—
635
—
755
—
73
—
106
—
15 970
(1 892)
14 597
(1 863)
848
—
(556)
—
726
—
(483)
—
234
—
(179)
—
187
—
(137)
—
197
—
(271)
—
366
—
(304)
—
635
—
(636)
—
755
—
(656)
—
73
—
(120)
—
106
—
(119)
—
14 078
(6 877)
(4 735)
(61)
12 734
(6 162)
(4 423)
—
292
(81)
243
(77)
55
13
50
22
(74)
(10)
62
31
(1)
(11)
99
(17)
(47)
(5)
(13)
(19)
2 405
(724)
2 149
(549)
211
(6)
166
—
68
—
72
—
(84)
—
93
—
(12)
9
82
(10)
(52)
—
(32)
—
1 681
(279)
1 600
(118)
205
4
166
2
68
—
72
—
(84)
—
93
—
(3)
—
72
—
(52)
(411)
(32)
(100)
1 402
458
1 482
402
5
(1)
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(378)
(33)
—
(72)
(28)
—
699
(131)
(110)
620
(110)
(108)
—
—
—
—
—
—
—
—
793
397
781
396
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1 037
(244)
472
(75)
1 025
(244)
471
(75)
209
—
168
—
68
—
72
—
(84)
—
93
—
(3)
—
72
—
330
—
265
—
2 641
(290)
2 280
(153)
209
3
168
(25)
68
—
72
(230)
(84)
—
93
—
(3)
—
72
268
330
(43)
265
803
2 351
134
2 127
(2 468)
3
—
—
(31)
6
—
—
—
—
(230)
—
—
—
—
—
—
—
—
—
—
—
268
—
—
(43)
—
—
814
(12)
1
215
(56)
(25)
(2 669)
177
24
—
(12)
(15)
—
—
(10)
—
—
—
—
—
(6)
(77)
(229)
—
—
—
—
—
(7)
(74)
—
—
(69)
—
—
(171)
—
—
(171)
(77)
(248)
(277)
—
—
(259)
185
133
68
(164)
(390)
93
(84)
271
116
897
1 883
(600)
65,6%
34,4%
66,5%
33,5%
76,5%
23,5%
73,3%
26,7%
137,6%
(37,6%)
83,1%
16,9%
100,2%
(0,2%)
86,9%
13,1%
164,4%
(64,4%)
112,3%
(12,3%)
33,6%
17,5%
34,7%
16,9%
7,8
6,3
2,6
2,7
(3,2)
3,5
(0,1)
2,7
(2,0)
(1,2)
2 634,5
53,2
2 631
56,3
page 169
sanlam annual report 2003
sanlam limited group
segmental shareholders’ funds
b a l a n c e s h e e t (All business consolidated
at Net Asset Value)
at 31 December 2003
R million
Assets
Non-current assets
Property and equipment
Owner-occupied properties
Goodwill
Investments
Sanlam Life(1)
2003
2002
Santam
2003
2002
Sanlam
Investments(2)
2003
2002
113
327
—
23 512
120
333
—
20 315
54
17
109
3 974
41
—
33
3 424
22
—
136
79
34
—
40
14
607
10 260
5 181
—
1 702
3 073
2 689
659
8 821
3 957
—
1 473
1 993
3 412
—
2 668
208
—
—
958
140
—
2 623
31
—
133
421
216
55
14
2
—
—
4
4
—
—
14
—
—
—
—
—
5 445
—
5 099
—
6 543
14
5 404
12
587
16
293
Total assets
29 397
25 867
10 697
8 916
836
397
Equity and liabilities
Shareholders’ funds
Minority shareholders’ interest
Term finance
Deferred tax liability
Current liabilities
19 736
—
4 861
269
4 531
17 001
—
4 691
1
4 174
1 821
2 189
—
121
6 566
1 479
1 935
—
34
5 468
520
—
56
6
254
223
—
17
—
157
Total equity and liabilities
29 397
25 867
10 697
8 916
836
397
Investment properties
Equities
Associated companies
Joint ventures
Public sector stocks and loans
Mortgages, debentures and other loans
Cash, deposits and similar securities
Deferred tax asset
Current assets
Notes
(1)
Included in the 2003 Sanlam Life balance sheet, as part of equity investments, are the investments in Sanlam Investment Management, Santam and
Sanlam, at the fair values of R1 218 million, R2 388 million and R482 million respectively. For 2002 Sanlam Collective Investments was also included
as an investment at fair value, while Innofin was consolidated.
(2)
Included in Investment Management for 2003 is Sanlam Investment Management, Sanlam Collective Investments (previously Sanlam Unit Trusts),
Innofin, Tasc, io asset management and Octane Group. The 2002 figures only include Sanlam Investment Management and Tasc.
(3)
Independent Financial Services for 2003 includes Sanlam Financial Services UK (previously Sanlam PSigma Holdings) and Gensec Property Services
consolidated, as well as an investment in Octogen. For 2002 the figures also included the international asset management business.
(4)
Corporate and other includes the assets of Genbel Securities and Sanlam Limited Corporate on a see-through basis and an investment in Merchant
Investors Assurance.
(5)
Within the consolidation column the investment in subsidiaries, treasury stock and capital gains tax on Santam, which are included in Sanlam Life
are reversed. The intercompany balances, other investments and term finance between companies within the Group are also consolidated.
page 170
Sanlam Capital
Markets
2003
2002
Discontinuing
operations
2003
2002
Independent
Financial Services(3)
2003
2002
Corporate and
other(4)
2003
2002
Consolidation
entries(5)
2003
2002
Total
2003
2002
1
3
—
761
9
7
—
1 010
5
—
10
1 169
10
19
112
534
25
—
402
12
35
—
438
413
—
43
1 198
1 333
11
22
1 369
1 750
—
—
—
(4 830)
—
—
—
(3 434)
220
390
1 855
26 010
260
381
1 992
24 026
—
54
—
—
—
707
—
—
—
—
–
—
1 010
—
—
—
—
309
—
860
—
—
—
—
408
—
126
—
—
12
—
—
—
—
—
—
—
—
—
—
386
27
—
848
—
—
214
—
271
—
137
—
—
147
—
1 466
—
(4 830)
—
—
—
—
—
—
(3 434)
—
—
—
—
—
662
9 026
5 391
309
1 916
5 602
3 104
659
8 147
4 002
408
1 753
3 936
5 121
119
18 898
16
13 868
120
446
133
1 767
4
727
7
561
1
1 884
50
1 668
—
(2 147)
—
(1 749)
256
32 383
236
26 911
19 782
14 910
1 750
2 575
1 170
1 454
4 459
4 870
(6 977)
(5 183)
61 114
53 806
398
—
—
—
19 384
304
—
589
—
14 017
603
—
—
—
1 147
1 155
—
—
—
1 420
430
28
25
—
687
488
34
475
—
457
2 146
—
—
14
2 299
3 031
—
—
—
1 839
(3 967)
—
(742)
(121)
(2 147)
(3 030)
—
(390)
—
(1 763)
21 687
2 217
4 200
289
32 721
20 651
1 969
5 382
35
25 769
19 782
14 910
1 750
2 575
1 170
1 454
4 459
4 870
(6 977)
(5 183)
61 114
53 806
page 171
sanlam annual report 2003
shareholders’ funds
balance sheet
at 31 December 2003
(All businesses consolidated at net asset value)
Assets
Non-current assets
Property and equipment
Owner-occupied properties
Goodwill
Investments
Note
2003
R million
2002
R million
6
220
390
1 855
26 010
260
381
1 992
24 026
662
5 391
309
9 026
1 916
5 602
3 104
659
4 002
408
8 147
1 753
3 936
5 121
256
2 302
30 081
236
2 072
24 839
18 273
11 808
12 114
12 725
61 114
53 806
3 111
9 415
9 161
3 455
9 415
7 781
21 687
2 217
20 651
1 969
1 931
286
1 623
346
4 200
289
5 156
27 565
5 382
35
4 226
21 543
61 114
53 806
Investment properties
Investment in associated companies
Investment in joint ventures
Equities
Public sector stocks and loans
Debentures, insurance policies and other loans
Cash, deposits and similar securities
Deferred tax
Short-term insurance technical assets
Current assets
Trade and other receivables
Cash, deposits and similar securities
7
8
Total assets
Equity and liabilities
Capital and reserves
Share capital and premium
Non-distributable reserves
Retained earnings
9
Shareholders’ funds
Minority shareholders’ interest
Outside shareholders
Sanlam policyholders
Non-current liabilities
Term finance
Deferred tax
Short-term insurance technical provisions
Current liabilities
Total equity and liabilities
page 172
7
10
shareholders’ funds
balance sheets at fair value
at 31 December 2003
(Group businesses listed below not consolidated, but reflected as investments at fair value)
Note
Assets
Property and equipment
Owner-occupied properties
Investments
Sanlam businesses
Sanlam Limited
2003
2002
R million
R million
Sanlam Life
Insurance Limited
2003
2002
R million
R million
113
370
153
333
113
327
120
333
6 237
5 447
3 606
2 941
2 118
2 044
1 218
1 549
1 218
325
300
214
61
1 190
495
359
—
—
1 218
—
—
—
—
1 190
—
359
—
—
378
52
1 001
2 688
576
60
1 186
1 581
—
—
—
2 388
—
—
—
1 392
5 181
3 957
5 181
3 957
6 670
—
1 916
607
6 033
3
5 296
5 772
—
1 611
659
6 859
50
5 028
6 172
482
1 702
607
5 762
—
5 445
5 745
222
1 464
659
5 393
—
5 033
Total assets
32 426
29 869
29 397
25 867
Equity and liabilities
Shareholders’ funds
Term finance
Deferred tax
Current liabilities
22 819
4 501
298
4 808
20 947
4 581
1
4 340
19 736
4 861
269
4 531
17 001
4 691
1
4 174
Total equity and liabilities
32 426
29 869
29 397
25 867
• Investment Management
SIM Wholesale
International (SMMI & Octane)
Sanlam Collective Investments
Innofin
Tasc
•
•
•
•
Sanlam Financial Services
Gensec Properties
Gensec Bank
Santam
Associated company – Absa
Other investments
• Other equities(1)
• Shares in holding company
• Public sector stocks and loans
• Investment properties
• Other interest-bearing investments
Deferred tax
Current assets
5
(1)
Other equities include the investment in a subsidiary, Merchant Investors Assurance, which is treated as an equity investment, as the
acquisition was finalised shortly before year-end.
page 173
sanlam annual report 2003
notes to the shareholders’ funds
financial statements
for the year ended 31 December 2003
1.
Basis of presentation and accounting policies
The basis of presentation and accounting policies in respect of the financial statements for the shareholders’ funds of
the Sanlam Limited group are the same as those set out on pages 115 to 121.
Basis of consolidation
Sanlam Life, Santam, Sanlam Investment Management, Sanlam Netherlands Holdings, Gensec Bank and Gensec
Property Services are consolidated in the Sanlam Limited group shareholders’ financial statements at net asset value.
The policyholders’ and outside shareholders’ interests in these companies are treated as minority shareholders’
interest on consolidation. A separate balance sheet reflecting the investment in these companies, other than Sanlam
Life, at fair value is presented for information purposes. The embedded value of Sanlam Life (including the value of
in-force life business) is not reflected in this balance sheet, but shown separately in the Embedded Value Report
on pages 183 to 188.
2.
Analysis of new business and total funds received
Analysed per cluster, reflecting the split between Life and other business
Total
Life Insurance*
R million
2003
2002
2003
2002
Sanlam Life
Individual Life
Life Licence*
2003
2002
Other
2003
2002
9 063
6 297
12 278
9 069
8 668
6 297
11 823
9 069
—
—
—
—
395
—
455
—
1 478
3 263
1 556
1 512
5 765
1 792
1 478
3 263
1 556
1 512
5 765
1 792
—
—
—
—
—
—
—
—
—
—
—
—
2 291
2 642
2 291
2 642
—
—
—
—
127
2 164
156
2 486
127
2 164
156
2 486
—
—
—
—
—
—
—
—
Sanlam Namibia
475
567
80
112
—
—
395
455
Life business
Unit Trust
80
395
112
455
80
—
112
—
—
—
—
—
—
395
—
455
21 473
149
13 758
106
—
—
—
—
1 349
149
1 300
106
20 124
—
12 458
—
132
(26)
—
—
—
—
214
(65)
132
(26)
—
—
—
—
7 848
7 429
—
—
—
—
7 848
7 429
3 092
883
1 363
2 510
3 079
854
1 521
1 975
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3 092
883
1 363
2 510
3 079
854
1 521
1 975
7 046
673
—
—
—
—
7 046
673
8 796
(1 750)
756
(83)
—
—
—
—
—
—
—
—
8 796
(1 750)
756
(83)
5 393
157
—
—
—
—
1 200
—
1 194
—
Recurring
Single
Continuations
Group Life
Recurring
Single
Sanlam Investment
Management
Life
Single
Less: Intergroup switches
Unit Trust
Cash funds
Equity funds
Wholesale business
White label
Segregated funds
Total inflow
Less: Intergroup switches
Innofin
International
214
(65)
6 303
127
5 103
127
4 199
157
(continued)
page 174
2.
Analysis of new business and total funds received (continued)
Total
Life Insurance*
R million
2003
2002
2003
2002
UK private client
Santam
Consolidation
1 500
6 755
(5)
673
5 548
—
—
—
—
—
—
—
Life Licence*
2003
2002
—
—
(5)
Other
2003
2002
—
—
—
1 500
6 755
—
673
5 548
—
Total new business
38 786
32 257
8 668
11 823
1 344
1 300
28 774
19 134
Recurring premiums
on existing funds:
Sanlam Life
Sanlam Investment
Management
9 885
9 545
9 885
9 545
—
—
—
—
212
296
—
—
212
296
—
—
Total funds received
48 883
42 098
18 553
21 368
1 556
1 596
28 774
19 134
* Life licence business relates to investment products provided by Sanlam Investment Management and Innofin by means of a life
insurance policy where there is very little or no insurance risk.
2003
R million
2002
R million
Analysed per type of business or licence
Life insurance
Investments
Short-term insurance
10 012
22 019
6 755
13 123
13 586
5 548
Total new business
Premiums on existing business
38 786
10 097
32 257
9 841
Total funds received
48 883
42 098
1 026
1 166
1 478
(631)
38
127
14
1 512
(559)
34
156
23
The new business premiums used in the calculation of Annual Premium
Equivalent (APE) is detailed below
Recurring premiums
Individual Life
Less: index growth
Add: optional reductions
Group Life
Sanlam Namibia
Single premiums
7 033
10 129
4 819
2 164
50
7 557
2 486
86
Total premiums used to calculate APE
8 059
11 295
APE
1 729
2 179
Individual Life
Group Life
Sanlam Namibia
page 175
sanlam annual report 2003
notes to the shareholders’ funds
financial statements
continued
for the year ended 31 December 2003
3.
Analysis of payments to clients
Analysed per cluster, reflecting the split between Life and other business
R million
Total
2003
2002
Life Insurance(1)
2003
2002
Life Licence(1)
2003
2002
Other
2003
2002
Sanlam Life
Individual Life
22 144
15 773
24 392
16 965
21 837
15 773
23 979
16 965
—
—
—
—
307
—
413
—
Surrenders
Other
3 081
12 692
4 797
12 168
3 081
12 692
4 797
12 168
—
—
—
—
—
—
—
—
Group Life
5 387
6 386
5 387
6 386
—
—
—
—
Terminations(2)
Other benefits
1 256
4 131
2 033
4 353
1 256
4 131
2 033
4 353
—
—
—
—
—
—
—
—
Sanlam Namibia
984
1 041
677
628
—
—
307
413
Life
Unit Trust
677
307
628
413
677
—
628
—
—
—
—
—
—
307
—
413
17 338
2 623
17 715
3 603
—
—
—
—
3 367
2 623
3 917
3 603
13 971
—
13 798
—
3 909
529
(1 815)
2 602
1 110
(109)
—
—
—
—
—
—
3 909
529
(1 815)
2 602
1 110
(109)
—
—
—
—
—
—
6 634
6 494
—
—
—
—
6 634
6 494
2 235
1 228
1 563
1 608
2 377
922
1 841
1 354
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2 235
1 228
1 563
1 608
2 377
922
1 841
1 354
4 721
5 024
—
—
—
—
4 721
5 024
4 721
—
5 045
(21)
—
—
—
—
—
—
—
—
4 721
—
5 045
(21)
3 178
182
2 594
—
—
—
—
—
744
—
314
—
2 434
182
2 280
—
138
—
—
—
—
—
138
—
4 375
3 925
—
—
—
—
4 375
3 925
—
—
—
(68)
—
—
—
46 032
21 837
23 979
3 917
18 791
18 136
Sanlam Investment
Management
Life
Terminations(2)
Other benefits
Less: Intergroup switches(3)
Unit Trust
Cash funds
Equity funds
Wholesale business
White label
Segregated funds
Total outflow
Less: Intergroup switches
Innofin
International
UK private client
Santam
Consolidation
Total payments to clients
(68)
43 927
3 299
Life licence business relates to investment products provided by Sanlam Investment Management and Innofin by means of a life
insurance policy where there is very little or no insurance risk.
(2)
Includes taxation paid on behalf of certain retirement funds.
(3)
Included in terminations.
(1)
2003
R million
2002
R million
Analysed per type of business or licence
Life insurance
Investments
Short-term insurance
25 136
14 416
4 375
27 896
14 211
3 925
Total payments to clients
43 927
46 032
page 176
4.
Analysis of net inflow/(outflow) of funds
Analysed per cluster, reflecting the split between Life and other business
R million
Total
2003
2002
Life Insurance*
2003
2002
Sanlam Life
Individual Life
Group Life
Namibia
(3 196)
(2 411)
(603)
(182)
(2 569)
(1 002)
(1 388)
(179)
Sanlam Investment
Management
Life
4 347
(2 262)
(3 661)
(3 201)
—
—
—
—
(4 012)
1 750
(3 284)
83
—
—
—
—
935
—
—
702
(68)
(320)
621
—
—
—
—
2 325
(4 351)
4 075
(1 750)
Innofin
International
3 125
(55)
UK private client
Santam
Total
Less: Intergroup switches
Unit Trust
Cash funds
Equity funds
Wholesale business
White label
Segregated funds
Total
Less: Intergroup switches
Consolidation
Total net inflow/(outflow)
88
—
—
88
42
—
—
42
(1 806)
(2 262)
(2 321)
(3 201)
6 153
—
(1 340)
—
(4 012)
1 750
(3 284)
83
—
—
—
—
—
—
1 214
935
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2 325
(4 351)
(4 289)
(62)
—
—
—
—
—
—
—
—
4 075
(1 750)
(4 289)
(62)
2 799
157
—
—
—
—
456
—
880
—
2 669
(55)
1 919
157
1 362
673
—
—
—
—
1 362
673
2 380
1 623
—
—
—
—
2 380
1 623
63
—
—
—
63
—
—
—
4 956
(3 934)
(2 321)
9 983
998
857
(345)
(200)
902
(3 284)
(2 611)
(1 002)
(1 388)
(221)
(2 611)
—
—
—
—
Other
2003
2002
—
—
—
—
1 214
(3 284)
(2 411)
(603)
(270)
Life Licence*
2003
2002
(1 743)
857
(345)
(200)
902
702
(68)
(320)
621
* Life licence business relates to investment products provided by Sanlam Investment Management and Innofin by means of a life
insurance policy where there is very little or no insurance risk.
2003
R million
Analysed per type of business or licence
Life insurance
Investments
Short-term insurance
Total net inflow/(outflow)
2002
R million
(5 027)
7 603
2 380
(4 932)
(625)
1 623
4 956
(3 934)
page 177
sanlam annual report 2003
notes to the shareholders’ funds
financial statements
continued
for the year ended 31 December 2003
5.
Excess of fair value over net asset value of subsidiaries
The shareholders’ funds balance sheets at fair value include the value of the companies below based on directors’
valuation, apart from Santam which is valued according to ruling share prices.
2003
2002
R million
R million
Fair value of businesses per the fair value balance sheet
Less: Net asset value(1)
6 237
3 772
5 447
3 782
520
366
230
42
78
152
18
223
10
133
—
—
402
28
1 001
1 821
429
49
1 459
1 479
1 198
1 369
135
—
1 132
296
40
Santam
29
16
91
402
10
109
Total goodwill included in the net asset value
657
Investment Management
SIM Wholesale
International (SMMI & Octane)
Sanlam Collective Investments
Innofin
Tasc
Sanlam Financial Services
Gensec Properties
Gensec Bank
Santam
Less: Goodwill in respect of above businesses
Less: Deferred capital gains tax on investments at fair value
Revaluation adjustment of interest in businesses to fair value
(1)
Goodwill included in the net asset value of the respective businesses, is as follows:
SIM wholesale
International (SMMI & Octane)
Innofin
Sanlam Financial Services
Gensec Bank
page 178
—
—
438
112
33
623
6.
Investments
Total shareholders’ funds
investment mix
2003
12%
3%
35%
21%
7%
21%
1%
Total shareholders’ funds
investment mix
2002
investment properties
equities
investment in associated companies
investment in joint ventures
public sector stocks and loans
debentures, insurance policies and other loans
cash, deposits and simialr securities
21%
3%
34%
16%
17%
7%
2%
2003
R million
2002
R million
Investment in associated companies
Absa Limited
Other associated companies
5 181
210
3 957
45
Total investment in associated companies
5 391
4 002
Equity investments
Listed on the JSE — at market value
Unlisted — at directors’ valuation
Derivative equity investments
Offshore equity investments
Unit trusts
6 133
1 592
41
1 190
70
5 361
1 037
21
1 457
271
Total equity investments
9 026
8 147
Details of the investment in the material associated company, Absa Limited, are
reflected in note 16 on page 139 of the Sanlam Limited group financial statements.
Investment in joint venture
Details of the investment in the joint venture, Safair Lease Finance (Proprietary)
Limited, are reflected in note 16 on page 140 of the Sanlam Limited group
financial statements.
Total shareholders’ funds
equity investments mix
2003
Total shareholders’ funds
equity investments mix
2002
1%
13%
18%
68%
listed on the JSE – at market value
unlisted – at directors’ valuation
derivative equity investments
offshore equity investments
unit trusts
18%
13%
3%
66%
page 179
sanlam annual report 2003
notes to the shareholders’ funds
financial statements
continued
for the year ended 31 December 2003
6.
2003
%
2002
%
36
29
35
25
52
23
100
100
2003
R million
2002
R million
Offshore investments
Equities
Interest-bearing investments
1 190
1 198
1 457
1 901
Total offshore investments
2 388
3 358
Investments (continued)
Spread of investments in equities listed on JSE by sector:(1)
Industrial
Financial
Resources
(1)
Includes the appropriate underlying investments of Santam.
Register of investments
A register containing details of all investments, including fixed property
investments, is available for inspection at the registered office of Sanlam Limited.
7.
Short-term insurance technical provisions
Details of short-term insurance technical provisions are reflected in note 18
on page 142 of the Sanlam Limited group financial statements.
8.
Trade and other receivables
Premiums receivable
Accrued investment income
Trading account and money market investments
Accounts receivable
504
262
10 896
6 611
930
217
6 459
4 508
Total trade and other receivables
18 273
12 114
18 758
5 812
499
1 569
927
14 284
4 439
463
1 631
726
27 565
21 543
9.
Share capital and premium
Details of share capital and premium are reflected in note 20 on page 142 of
the Sanlam Limited group financial statements.
10. Current liabilities
Trading account and money market liabilities
Accounts payable
Provisions
Policy benefits payable
Taxation
Total current liabilities
page 180
stock exchange performance
Number of shares traded (million)
Value of shares traded (R million)
Percentage of issued shares traded
Price/Headline earnings ratio
Price/LTRR earnings ratio (times)
Return on Sanlam share price since listing(2) (%)
Headline earnings return on equity (%)
Market price per share (cents)
• Year-end closing price
• Highest closing price
• Lowest closing price
Net asset value per share (cents)
Embedded value per share (cents)
Market capitalisation at year-end (R million)
2003
2002
2001
2000
1999
1998(1)
1 709
12 550
64
9,9
7,0
11
15,1
1 531
12 807
58
9,4
6,2
9
15,6
1 118
10 780
42
9,3
6,9
17
17,4
1 030
8 578
39
10,6
7,3
27
18,7
1 463
9 451
55
11,7
8,4
41
16,3
350
2 035
13
—
—
—
—
880
880
585
883
1 147
23 360
760
1 000
700
798
1 032
20 175
919
1 145
830
927
1 167
24 192
956
1 000
675
831
1 067
25 381
860
890
440
810
1 004
22 833
585
599
567
630
827
15 531
(1)
Sanlam Limited was listed on 30 November 1998.
Annualised growth in the Sanlam share price since listing plus dividends paid.
(2)
Sanlam share price (SLM) vs embedded value (EV)
Sanlam share price relative to FINDI30
160
1 200
1 100
140
1 000
900
120
800
100
700
600
80
500
400
60
Dec
98
Jun
99
SLM
Dec
99
Jun
00
Dec
00
Jun
01
Dec
01
Jun
02
Dec
02
Jun
03
Dec
03
Dec Jun
98 99
EV
Dec
99
Jun
00
Dec
00
Jun
01
Dec
01
Jun
02
Dec Jun
02 03
Dec
03
Sanlam share price relative to FINDI30
Sanlam share price (SLM) relative to All Share Index
(ALSI) and to Life Assurance Index (LAI)
250
200
150
100
50
Dec Jun
98 99
SLM
Dec
99
Jun
00
Dec
00
Jun
01
Dec
01
ALSI
Jun
02
Dec Jun
02 03
Dec
03
LAI
page 181
sanlam annual report 2003
report of the independent auditors on the
sanlam group embedded value report
To the directors of Sanlam Limited
Our audit included:
We have audited the Report on the Sanlam Group
• an examination, on a test basis, of evidence supporting the
Embedded Value for the year ended 31 December 2003 on
amounts and disclosures in the Report on the Sanlam
pages 183 to 188 which has been prepared in accordance
Group Embedded Value,
with the applicable guidelines of the Actuarial Society of
• an assessment of the significant assumptions, estimates
South Africa (PGN107) and the policies of the group set out
and judgements made by management in the preparation
on pages 115 to 121. This report should be read in
of the Report on the Sanlam Group Embedded Value, and of
conjunction with the audited annual financial statements
whether the guidelines of the Actuarial Society of South
where the policy liabilities, calculated on the financial
Africa, the methodologies and the policies of the group,
soundness valuation basis, and the profit entitlement rules
were consistently applied and adequately disclosed, and
are set out on pages 122 to 125.
Respective responsibilities of directors and auditors
The directors are responsible for the annual financial
statements, as described on page 111, as well as the Report
on the Sanlam Group Embedded Value. Our responsibilities
in relation to the annual financial statements are set out on
page 113.
Our responsibilities, as independent auditors, in
relation to the Report on the Sanlam Group
Embedded Value are to report to the Board of
Directors as to whether the embedded value and the
value of new life insurance business were calculated
in accordance with the applicable guidelines of the
Actuarial Society of South Africa and the policies of
the group as set out in the Report on the Sanlam
• an evaluation of the overall adequacy of the presentation of
information in the Report on the Sanlam Group Embedded
Value in accordance with the guidelines of the Actuarial
Society of South Africa.
We believe our audit provided a reasonable basis for our opinion.
Opinion
In our opinion the Group embedded value and the value of
the new life insurance business at 31 December 2003 and
the embedded value earnings and analysis of earnings for
the year then ended fairly presents, in all material respects,
these values in accordance with the guidelines of the
Actuarial Society of South Africa for the preparation and
presentation of such a report and the policies and
assumptions of the group as set out on pages 183 to 188 of
the Report on the Sanlam Group Embedded Value.
Group Embedded Value.
Scope of audit
We conducted our audit in accordance with
Statements of South African Auditing Standards.
Those standards require that we plan and perform the
audit to obtain reasonable assurance that the Report
Ernst & Young
Chartered Accountants (SA)
Registered Accountants and Auditors
on the Sanlam Group Embedded Value is free of
Cape Town
material misstatement.
3 March 2004
page 182
report on the sanlam group
embedded value
for the year ended 31 December 2003
1. Introduction
stream of future after-tax profits. The profits are determined
The life policy liabilities in the financial statements are based
on the financial soundness valuation basis for life business
on the financial soundness valuation. The financial
in force at the valuation date. This value excludes the
soundness valuation includes both prescribed and
discounted value of the release of the risk capital over the
discretionary margins, which can be expected to emerge as
life of the in-force business.
profits in the future. The value placed on these future
3.2 Cost of capital at risk
expected profits after taxation is the value of the in-force
life business.
The cost of capital at risk is calculated as the capital at risk at
year-end less the discounted value, using a risk-adjusted
The embedded value (EV) is defined as the net assets of the
discount rate, of the expected annual release of the capital
shareholders, plus the value of the in-force business less the
over the life of the in-force business, allowing for the after-
cost of the capital at risk.
tax investment return on the expected level of capital held in
The economic value of the company is then derived by
each year.
adding to the embedded value an estimate of the value of
the future sales of new life insurance business, often
calculated as a multiple of the value of new business written
over the past year.
2. Presentation
3.3 Net assets of shareholders
The net assets of the shareholders equal the excess of the
assets at fair value over liabilities on the financial soundness
valuation basis. The net assets are adjusted for the following:
• The subsidiaries, other than life insurance subsidiaries, are
This report presents the embedded value of the Sanlam
included at fair value (refer to shareholders’ funds balance
group, rather than that of Sanlam Life Insurance Limited. In
sheet on page 173);
addition, the report also presents the net value of new life
insurance business.
3. Basis of preparation
• A delay before incurring the capital gains tax liability
included in the fair value; and
• A reduction of the present value of corporate expenses by
The embedded value is determined in accordance with
multiplying the cost after tax by the market price per
generally accepted actuarial practice described by the
share of Sanlam Ltd and dividing it by the headline
Actuarial Society of South Africa, as set out in its
earnings per share based on the long-term rate of return.
Professional Guidance Note (PGN) 107.
3.4 Value of new business
The value of the in-force business, the cost of capital at risk
The value of new business is calculated as the discounted
and the value of new business are based on the best
value at point of sale, using a risk-adjusted discount rate, of
estimate assumptions used for determining the financial
the projected stream of after-tax financial soundness
soundness value of the policy liabilities in the financial
valuation profits for new business issued during the financial
statements. The embedded value does not place a value on
future new business.
The embedded values are net of company tax and do not
allow for the tax position of an investor in Sanlam Ltd.
3.1 Value of in-force business
year under review. The value of new business is reduced by
the cost of capital at risk over the life of this business to
obtain the net embedded value of new business.
In determining the value of new business –
• a policy is only taken into account if at least one premium
The value of in-force business is calculated as the discounted
that was not subsequently refunded was recognised in the
value, using a risk-adjusted discount rate, of the projected
financial statements;
page 183
sanlam annual report 2003
report on the sanlam group
e m b e d d e d v a l u e continued
for the year ended 31 December 2003
• premium increases that have been allowed for in the value
position and perception of the risk associated with the
of in-force business are not counted again as new
realisation of the future profits of Sanlam Life Insurance
business at inception;
Limited. For each sensitivity, all other assumptions have been
• premium increases in existing recurring premium contracts
associated with indexation arrangements are not included,
but instead are allowed for in the value of in-force
left unchanged. The different sensitivities do not indicate
that they have a similar chance of occurring.
3.7 Share incentive scheme
business;
• the expected value of future premium increases resulting
from premium indexation on the new recurring premium
business written during the financial year under review is
included;
The embedded values do not include an allowance for the
cost of the share incentive scheme. In respect of share options,
where shares have not yet been issued, the number of shares
used to calculate the embedded value per share will be
increased as and when these options are converted to shares.
• continuations of individual policies and deferrals of
retirement annuity policies after the maturity dates in the
4. Assumptions
contract are treated as new business if they have been
4.1 Investment return and inflation
included in the exits at their respective maturity dates;
• for group business, increases in business from new
schemes or new benefits on existing schemes are included
and new members or salary-related increases under
existing schemes are excluded and form part of the
in-force value; and
• the renewable recurring premiums under group insurance
The investment return on assets supporting the capital at
risk is based on the long-term asset mix for these funds.
Inflation indexation for individual life premiums is assumed
to be equal to consumer price index inflation, while that for
group business is assumed to equal expected salary inflation.
Unit cost inflation is assumed to be at the same level as
salary inflation.
contracts are treated as in-force business.
Profitability of new business is measured by the ratio of the net
4.2 Cost of capital at risk
value of new business to the annual premium equivalent (APE).
The assumed composition of the assets backing the capital at
The APE is calculated as new recurring premiums excluding
risk is consistent with Sanlam’s practice and with the asset
indexed growth premiums plus 10% of single premiums.
distribution assumed when calculating the capital
requirements.
3.5 Embedded value earnings
The return on embedded value is calculated as the embedded
value earnings before dividends paid as a percentage of the
embedded value at the beginning of the year, reduced by
dividends paid.
The growth from life business is expressed as a percentage of
the value of in-force business at the beginning of the year.
4.3 Decrements, expenses and bonuses
Future mortality, morbidity and discontinuance rates and
future expense levels were based on recent experience where
appropriate.
Future rates of bonuses for traditional participating business,
stable bonus business and participating annuities were set at
levels that were supportable by the assets backing the
3.6 Sensitivity analysis
respective product asset funds at the respective valuation
Sensitivities have been determined at the indicated risk
dates.
discount rate. The risk discount rate appropriate to an
Sanlam Life Insurance’s current surrender and paid-up bases
investor will depend on the investor’s own requirements, tax
were assumed to be maintained in the future.
page 184
4.4 HIV/Aids
4.7 Sensitivity analysis
Allowance was made, where appropriate, for the impact of
Risk premiums relating to mortality are assumed to be
expected HIV/Aids-related claims, consistent with the
increased consistent with mortality (where appropriate).
recommendations of the Actuarial Society of South Africa as
Mortality of annuities is decreased, because a decrease in
set out in its latest proposed Professional Guidance Note
mortality increases the mortality risk on annuities.
(PGN) 105.
Premiums were assumed to be rerated, where applicable, in
Maintenance expense charges are assumed to increase in line
with expense increases.
line with deterioration in mortality, with a three-year delay
from the point where mortality losses would be experienced.
5. Embedded value methodology
The embedded value methodology applied in preparing the
4.5 Recurring expenses and project costs
Future investment expenses were based on the current scale
embedded value report is consistent with the methodology
used in the previous year.
of fees in place between Sanlam Investment Management and
the Sanlam Life business. To the extent that this scale of fees
6. Sanlam group embedded value
includes profit margins for Sanlam Investment Management,
2003
these margins have not been included in the value of in-force
and new business.
Risk discount rate
In determining the value of in-force business, the value of
expenses for certain planned projects focusing on both
Sanlam Group shareholders’
funds at fair value (per page 173)
administration and distribution aspects of the life insurance
Adjustment for discounting
capital gains tax(1)
business has been deducted. These projects are of a short-term
nature, although similar projects may be undertaken from
time to time. No allowance has been made for the expected
Present value of strategic
corporate expenses(2)
Sanlam Group shareholders’
adjusted net assets
2002
11,9%
13,3%
R million
R million
22 819
20 947
91
0
(592)
(600)
22 318
20 347
operating experience of Sanlam Life.
Net value of life insurance
business in force
7 344
6 740
4.6 Taxation
• Value of life insurance
business in force
• Cost of capital at risk
8 669
(1 325)
8 251
(1 511)
Sanlam Group
embedded value
29 662
27 087
1 147
2 585
1 032
2 625
positive impact these projects may have on the future
Projected corporate tax was allowed for at a rate of 30%.
Allowance was made for capital gains tax. The assumed
rollover period for realisation of investments is five years for
property and equity assets supporting capital at risk and policy
reserves. For strategic equity assets the assumed rollover
• Embedded value per
share (cents)
• Number of shares (million)
period is ten years.
Allowance for secondary tax on companies was made by
placing a present value on the tax liability generated by the
net cash dividends paid out that are attributable to the life
company. It was assumed that over the long-term the
proportion of cash dividends paid out would fall to a level of
Notes:
(1)
Adjustment to allow for the delay before incurring the capital
gains tax liability included in the fair value.
(2)
The December 2003 value was calculated by multiplying the
2003 corporate expenses not related to life business (after tax)
of R84 million by the share price of 880 cents and dividing by
the headline earnings per share based on the long-term rate
of return of 124,9 cents.
50% from the current 100% level.
page 185
sanlam annual report 2003
report on the sanlam group
e m b e d d e d v a l u e continued
for the year ended 31 December 2003
7. Embedded value earnings
8. Value of new life insurance business
2003
R million
Embedded value from new life
insurance business
Earnings from existing life
insurance business
• Expected return
• Operating experience variations(1)
• Operating assumption changes
Embedded value earnings from
life operations
Economic assumption changes
Tax changes
Investment variances (including
change in long-term asset mix)
218
2002
R million
320
2003
R million
2002
R million
Value of new business
Gross value of new business
246
365
189
57
266
99
Cost of capital at risk
(28)
(45)
Individual business
Group business
(17)
(11)
(19)
(26)
218
320
1 729
1 386
343
2 179
1 774
405
218
172
46
320
247
73
12,6%
14,7%
12,4%
13,4%
13,9%
18,0%
1 404
1 153
241
10
1 353
1 208
96
49
Individual business
Group business
1 622
99
(6)
1 673
117
0
Net value of new business(1)
(50)
(907)
Net value of new business as
a percentage of the annual
premium equivalent
Annual Premium Equivalent (APE)
Individual business
Group business
Growth from life
insurance business
Investment return on shareholders’
adjusted net assets
Treasury shares acquired(2)
2 226
(344)
(3 553)
(59)
Total embedded value earnings
before dividends paid
Dividends paid
Net value of new business
Individual business
Group business
3 547
(972)
(2 729)
(921)
APE margin
Change in Sanlam Group
embedded value
2 575
(3 650)
Return on embedded value
13,6%
(9,2%)
Growth from life insurance
business as a % of beginning
value of in-force
24,7%
12,7%
1 665
883
Notes:
(1)
The main contributors to the operating experience variation
were positive risk experience and profit on working capital
balances, offset by higher than expected one-off expenses
and the cost of increasing the maturity guarantee reserves.
(2)
Total embedded value earnings is net of the purchase
consideration of treasury shares acquired during the year.
The number of shares used in the calculation of embedded
value per share was consequently reduced.
page 186
Individual business
Group business
Notes:
(1)
The net value of new business excludes the value of
Investment Linked Life Annuities sold by Innofin of R14 million
(APE margin 13,6%). It is not included in the embedded value
earnings. Furthermore, the fair value of the Innofin business
(including an allowance for goodwill) is included in the
shareholders’ net assets and not in the value of in-force
business. This value is given purely for information purposes.
9. New business premiums
2003
R million
Financial statements
New business premiums (per note 2 on page 175)
Less: Premium increases (index growth)
Plus: Optional reduction in premiums
Less: Other life business(1)
2002
R million
10 012
(643)
38
(1 344)
13 123
(564)
34
(1 300)
Premiums used in the calculation of annual premium equivalent
8 063
11 293
New business embedded value premiums
Recurring premiums
Single premiums
1 026
7 037
1 166
10 127
Premiums used in the calculation of annual premium equivalent
8 063
11 293
Notes:
(1)
The majority of profits in respect of these premiums accrue to Sanlam Investment Management and Innofin.
10. Sensitivity analysis at 31 December 2003
Gross value
of in-force
business
R million
Value of in-force business
Base value
Increase risk discount rate by 1,0% to 12,9%
Decrease risk discount rate by 1,0% to 10,9%
Investment return (and inflation) decreased by 1,0%, coupled
with a 1,0% decrease in risk discount rate to 10,9%, and with bonus
rates changing commensurately
Investment return (and inflation) decreased by 1,0% with bonus
rates changing commensurately
Non-commission maintenance expenses (excluding investment
expenses) increase by 10%
Discontinuance rates increase by 10%
Mortality and morbidity increased by 10% for assurances, coupled
with a 10% decrease in mortality for annuities
Value of new business
Base value
Increase risk discount rate by 1,0% to 12,9%
Decrease risk discount rate by 1,0% to 10,9%
Investment return (and inflation) decreased by 1,0%, coupled
with a 1,0% decrease in risk discount rate to 10,9%, and with bonus
rates changing commensurately
Investment return (and inflation) decreased by 1,0% with bonus
rates changing commensurately
Non-commission maintenance expenses (excluding investment expenses)
increase by 10%
Non-commission acquisition expenses increase by 10%
Discontinuance rates increase by 10%
Mortality and morbidity increased by 10% for assurances, coupled
with a 10% decrease in mortality for annuities
New business volumes decrease by 10%
Cost of Net value of
capital
in-force
at risk
business
R million
R million
%
change
8 669
8 173
9 231
(1 325)
(1 594)
(1 023)
7 344
6 579
8 208
(10)
12
8 704
(1 294)
7 410
1
8 197
(1 507)
6 690
(9)
8 423
8 527
(1 323)
(1 283)
7 100
7 244
(3)
(1)
8 220
(1 315)
6 905
(6)
246
214
283
(28)
(32)
(22)
218
182
261
(17)
20
252
(27)
225
3
219
(32)
187
(14)
225
204
227
(28)
(28)
(26)
197
176
201
(10)
(19)
(8)
197
187
(28)
(25)
169
162
(22)
(26)
page 187
sanlam annual report 2003
report on the sanlam group
e m b e d d e d v a l u e continued
for the year ended 31 December 2003
11. Assumptions
Gross investment return and inflation
Fixed-interest securities
Equities and offshore investments
Hedged equities(1)
Property
Cash
Risk discount rate
Return on capital at risk(2)
Unit cost and salary inflation
Consumer price index inflation
2003
% p.a.
2002
% p.a.
9,4
11,4
8,4
10,4
7,4
11,9
10,0
5,4
3,9
10,8
12,8
9,8
11,8
8,8
13,3
11,9
6,3
4,8
Notes:
(1)
The assumed future return for these assets is lower than that
of equities, which are not hedged, reflecting the cost of
derivative instruments.
(2)
The investment return on assets supporting the capital at risk
is based on the long-term asset mix for these funds.
page 188
Long-term asset mix for assets supporting the capital
at risk
2003
%
2002
%
Equities and offshore investments
42
58
Hedged equities
26
18
Property
Fixed-interest securities
Cash
8
12
20
10
4
2
100
100
definitions and glossary of
technical terms
"billion"
–
one thousand million;
"bonus pension"
–
a bonus pension is a policy which provides immediate annuities, the benefits of which are
increased annually with bonuses declared;
"capital adequacy"
–
capital adequacy implies the existence of a buffer against experience worse than that
assumed in the financial soundness valuation. The sufficiency of the buffer is measured
by comparing available capital with the capital adequacy requirement. The main element
in the calculation of the capital adequacy requirement is the determination of the effect
of an assumed fall in asset values on the excess of assets over liabilities;
"embedded value"
–
embedded value represents the net assets of a life company together with the value of
the portfolio of business in force, net of the cost of capital at risk in relation to this
business;
"immediate annuity"
–
a policy which provides that, in consideration for a single premium, a series of regular
benefit payments will be made for a defined period;
"linked policy"
–
a non-participating policy which is allotted units in an investment portfolio. The value of
the policy at any stage is equal to the number of units multiplied by the unit price at that
stage less the value of unrecouped expenses;
"market-related policy"
–
a participating policy which participates in non-vesting investment growth. This growth
reflects the volatility of the market value of the underlying assets of the policy;
"new business embedded value"
–
the value of new business is calculated as the discounted value, using a risk-adjusted
discount rate, of the projected stream of after-tax financial soundness valuation profits
for new business issued during the financial year under review, net of the cost of capital
at risk over the life of this business;
"non-participating policy"
–
a policy which provides benefits that are fixed contractually, either in monetary terms or
by linking them to the return of a particular investment portfolio, eg a linked or fixedbenefit policy;
"participating policy"
–
a policy which provides guaranteed benefits as well as discretionary bonuses. The
declaration of such bonuses will take into account the return of a particular investment
portfolio. Reversionary bonus, stable bonus, market-related and bonus pension policies
are participating policies;
"policy"
–
unless the context indicates otherwise, a reference to a policy in this report means an
insurance policy issued by Sanlam Life Insurance Limited in accordance with the Long
Term Insurance Act;
"reversionary bonus policy"
–
a conventional participating policy which participates in reversionary bonuses, i.e.
bonuses of which the face amounts are only payable at maturity or on earlier
death or disability. The present value of such bonuses is less than their face amounts;
"Sanlam Life"
–
a business consisting of Sanlam Life Insurance Limited, Sanlam Trust and Multi Data.
"Sanlam Life Insurance Limited"
–
a wholly owned subsidiary of Sanlam Limited conducting mainly life insurance business;
"Sanlam Limited"
–
the holding company listed on the JSE Securities Exchange South Africa and the
Namibian Stock Exchange;
"Sanlam" and "Sanlam group"
–
Sanlam Limited and its subsidiaries;
"stable bonus policy"
–
a participating policy under which bonuses tend to stabilise short-term volatility in
investment performance;
"surrender value"
–
the surrender value of a policy is the cash value, if any, which is payable in respect of
that policy upon cancellation by the policyholder.
page 189
sanlam annual report 2003
notice of
annual general meeting
Sanlam Limited
(Incorporated in the Republic of South Africa)
(Registration number 1959/001562/06)
Notice is hereby given that the sixth Annual General
Meeting of the Members of Sanlam Limited (“the company”)
will be held on Wednesday, 2 June 2004 at 14:30 in the
CR Louw Auditorium, Sanlam Head Office, 2 Strand Road,
Bellville for the following purposes:
1. To consider and adopt the annual financial statements of
the group and the company for the year ended
31 December 2003.
2. To re-appoint the external auditors of the company.
3. To re-elect the following retiring directors* appointed by
the board of directors of the company (“the Board”) in
casual vacancies or as additional directors in terms of
article 13.2 of the company’s articles of association (“the
articles”), and who are eligible and offer themselves for reelection:
MMM Bakane-Tuoane;
FA du Plessis; and
W James.
4. To re-elect the following director*, retiring in terms of
article 14 of the articles, and who is eligible and offers
himself for re-election:
JJM van Zyl.
5. To re-elect the three retiring directors**, who will be
appointed by the Board in casual vacancies or as additional
directors of the company in terms of article 13.2 of the
articles, as well as in terms of the provisions of the
empowerment transaction (“the transaction”) between the
company and Ubuntu-Botho Investments (Proprietary)
Limited (“Ubuntu-Botho”). In terms of the agreement,
Ubuntu-Botho will have the right to nominate three nonexecutive directors acceptable to the company, to the
Board, post completion of the transaction.
6. To authorise the Board to determine the remuneration of
the external auditors.
7. To consider and approve the total amount of directors’
remuneration.
8. To consider and, if approved, to pass, with or without
modification, the following ordinary resolution number 1:
“Resolved that the authorised but unissued ordinary shares
in the share capital of the company, subject to a maximum
of 275 million shares, be and are hereby placed at the
disposal and under the control of the Board, and such
directors are hereby authorised and empowered to allot,
issue or otherwise dispose thereof to such person or persons
and on such terms and conditions as the directors may from
time to time determine, but subject to the provisions of the
Companies Act, No 61 of 1973, as amended (“the Companies
Act”), the requirements of the JSE Securities Exchange South
Africa (“the JSE”) and any other Stock Exchange upon which
the shares of the company may be quoted or listed from
time to time.”
9. To consider and, if approved, to pass, with or without
modification, the following special resolution number 1:
“Resolved that the boards of directors of the company and any
subsidiary of the company be authorised by way of a general
authority, up to and including the date of the following annual
general meeting of the company, to approve:
(a) the purchase of any of its securities by the company
or its subsidiaries, including ordinary shares of R0,01
each in the capital of the company; and
(b) the purchase of such securities by the company in any
holding company of the company, if any, and any
subsidiary of any such holding company,
subject to the provisions of the Companies Act and the
requirements of the JSE and any other Stock Exchange
upon which the shares of the company may be quoted or
listed from time to time, and subject to such other
conditions as may be imposed by any other relevant
authority, provided that:
• the general authority shall only be valid until the
company’s next annual general meeting, provided that it
does not extend beyond 15 months from the date of this
resolution;
• the general authority to repurchase be limited to a
maximum of 10% of the relevant company’s issued share
capital of that class at the time the authority is granted;
and
* Brief curriculum vitae appear on pages 20 and 21.
** The names of the three directors will be published in the press after their appointment, and they will be introduced at the meeting.
page 190
• repurchases must not be made at a price more than 5%
above the weighted average of the market value of the
securities for the five business days immediately
preceding the date of the repurchases.”
Street, Johannesburg 2001 (Private Bag X105,
Marshalltown 2107). Duly completed proxy forms must
be received by the company’s transfer secretaries not
less than 48 hours before the time of the meeting.
The reason for and effect of special resolution number 1 is
to grant the directors a general authority to enable the
company to acquire shares which have been issued by it,
or its holding company, if any, and any subsidiary of any
such holding company.
• The duly completed Instruction for Representation forms
applicable to all other shareholders must be lodged with
their chosen CSDP’s or brokers in time for proxy forms to
be received by the company’s transfer secretaries not less
than 48 hours before the time of the meeting.
Statement of intent:
The Board shall implement a general repurchase of the
company's shares, only if prevailing circumstances
(including the tax dispensation and market conditions)
warrant same, and should they be of the opinion, after
considering the effect of such repurchase of shares, that
the following requirements have been and will be met:
• the company will be able to pay its debts in the ordinary
course of business;
• the consolidated assets of the company, fairly valued in
accordance with generally accepted accounting
practice, are in excess of the consolidated liabilities of
the company;
• the company will have adequate capital; and
• the working capital of the company will be sufficient
for the company's requirements for the year ahead.
General notes
1. A member entitled to attend and vote at the meeting may
appoint a proxy to attend, speak and vote in his or her
stead.
2. A Proxy Form or an Instruction for Representation Form
(whichever is applicable) is enclosed for use by members
who are unable to attend the meeting, or wish to be
authorised by their CSDP to attend the meeting. Same is
also obtainable from the registered office of the company.
The said forms must be lodged as follows:
• Proxy forms from holders of share certificates or holders
of share account statements from Sanlam Share
Account (Proprietary) Limited (“Sanlam Share Account”)
or Sanlam Fundshares Nominee (Proprietary) Limited
(“Sanlam Fundshares Nominee”), or holders holding their
dematerialised shares in their own names, must be
lodged with or posted to the company’s transfer
secretaries being Computershare Limited, 70 Marshall
3. A person representing a corporation/company is not
deemed to be a proxy as such corporation/company can
only attend a meeting through a person, duly authorised
by way of a resolution to act as representative. A notarially
certified copy of such power of attorney or other
documentary evidence establishing the authority of the
person signing as proxy must be attached to the proxy
form. Such person enjoys the same rights at the meeting as
the shareholding company.
4. A member whose shares are held by Sanlam Share Account
or Sanlam Fundshares Nominee is empowered by such
relevant nominee company to act and vote at the meeting.
5. On a show of hands, every shareholder shall have only one
vote, irrespective of the number of shares he/she holds or
represents, provided that a proxy shall, irrespective of the
number of shares he/she holds or represents, have only
one vote.
6. On a poll, every shareholder present in person or
represented by proxy shall have one vote for every Sanlam
share held by such shareholder.
7. A resolution put to the vote shall be decided on a show of
hands unless, before or on the declaration of the results of
the show of hands, a poll shall be demanded by any person
entitled to vote at the meeting. If a poll is so demanded,
the resolution put to the vote shall be decided on a poll.
By order of the Board
JP Bester
Company Secretary
Bellville
8 March 2004
page 191
sanlam annual report 2003
shareholding and administration
analysis of shareholders
on 31 December 2003
Shareholders
Number
%
Shares held
Number
%
Distribution of shareholding
1 – 1 000
1 001 – 5 000
5 001 – 10 000
10 001 – 50 000
50 001 – 100 000
100 001 – 1 000 000
1 000 000 and over
573 896
107 721
9 525
4 117
253
653
244
82,40
15,47
1,37
0,59
0,04
0,09
0,04
235 950 369
214 963 684
65 247 329
72 041 714
18 368 866
245 749 460
1 802 249 245
8,89
8,10
2,46
2,71
0,69
9,26
67,89
Total
696 409
100,00
2 654 570 667
100,00
Public and non-public shareholders
%
Shareholder structure
%
Institutional shareholding
Public shareholders
99,01
Non-public shareholders
• Offshore
19,50
• South Africa
58,30
• Directors’ interest
0,04
Individuals
20,05
• Employee pension fund
0,34
Demutualisation Trust
• Sanlam Limited Share Incentive Trust
0,61
Other SA shareholding
Total
Holdings of five per cent or more
• Public Investment Commissioner (SA)
page 192
100,00
Total
2,15
100,00
13,3