Our vision is to be the benchmark of
PAGE 1 Business Structure
PAGE 2 Salient Features
PAGE 4 Non-executive Directors
PAGE 7 Chairman’s Statement
PAGE 15 Executive Committee
PAGE 16 Report of the Financial Director
PAGE 24 Corporate Governance Statement
PAGE 27 Human Resources Report
PAGE 30 Business Reviews • Sanlam Personal Finance contents • Sanlam Employee Benefits • Gensec • Sanlam Health • New Business Development
PAGE 60 Sanlam Corporate, Support Services and Namibia
PAGE 61 Corporate Social Involvement and Sponsorships SANLAM IS BASED PAGE 64 Annual Financial Statements IN SOUTH AFRICA
PAGE 120 BUT NOT Definitions and Glossary of Technical Terms LIMITED TO IT
PAGE 121 Notice of Annual General Meeting
PAGE 124 Shareholding and Administration business structure
sanlam personal finance
SPF is a major provider of life insurance, retirement annuities, savings products, unit trusts and trust services to individuals through Sanlam Life, Sanlam Unit Trusts and Sanlam Trust.
sanlam employee benefits
SEB is the second largest provider of investment and risk products to group funds and schemes in South Africa. It also provides administration, actuarial and con- sulting services to the group retirement industry and money transfer services.
sanlam investment management
(previously Gensec Asset Management) South Africa’s second largest asset manager measured by assets under management.
gensec bank
Providing investment banking solutions for the South African savings industry, public sector enterprises and corporates.
sanlam health
Underwriting and risk management to medical schemes. core business core
gensec property services
Property management services such as letting, rental collection, marketing, con- tracting and administration.
new business development
Explores opportunities for investment and for launching new initiatives for the development of new business in the Sanlam group.
SANTAM – 59,5% ABSA – 23,0% strategic investment associated company The largest short term insurance company and One of the largest commercial banks market leader in the motor and personal insurance in South Africa sector in South Africa 14,8% HELD BY SHAREHOLDERS 36,3% HELD BY SHAREHOLDERS 8,2% HELD BY POLICYHOLDERS 23,2% HELD BY POLICYHOLDERS PAGE 1 salient features for the year ended 31 December 2000
PAGE 2
2000 1999
SANLAM LIMITED GROUP New business volumes R million 37 700 25 810 Net inflow/(outflow) of funds R million 777 (10 427) Operating profit before tax R million 1 924 1 722 Headline earnings based on the LTRR(1) R million 3 478 2 721 Headline earnings per share based on the LTRR(1) cents 130,9 102,1 Embedded value of new business R million 209 101 New business embedded value as % of APE(2) % 8,0 5,7 Embedded value per share cents 1 035 1 004 Growth from life business % 24 30 Dividend per share cents 30 25
FINANCIAL RATIOS Returns • Operating profit before tax(3) 8,2% 7,7% • Operating profit after tax(3) 7,2% 6,4% • Headline earnings based on the long term rate of return(4) 18,7% 16,3% • Return on embedded value(5) 5,1% 24,4% • Return on the Sanlam share price(6) 27,0% 41,0% Group administration cost ratio(7) 29,7% 29,8% Group operating margin(8) 17,4% 17,9%
SANLAM LIFE INSURANCE LIMITED Shareholders’ funds to total policy liabilities 12% 12% Shareholders’ funds to non-market-related policy liabilities 20% 20% Capital adequacy requirement covered(9) times 2,4 2,7
NOTES (1) LTRR = Long term rate of return. (2) APE = Annual premium equivalent and is equal to new recurring premiums (excluding indexed growth premiums) plus 10% of single premi- ums. (3) Operating profit before and after tax as a percentage of the average monthly shareholders’ funds for the year. (4) Headline earnings based on the long term rate of return as a percentage of the average monthly shareholders’ funds for the year. (5) Growth in embedded value (before dividends paid) as a percentage of embedded value at the beginning of the year. (6) Annualised growth rate on the Sanlam share price since listing plus dividends paid. (7) Administration costs as a percentage of income earned by the shareholders’ funds less sales remuneration. (8) Operating profit as a percentage of income earned by the shareholders’ funds less sales remuneration. (9) Represents the times by which the shareholders’ funds of Sanlam Life Insurance Limited cover the capital adequacy requirements (refer to definitions on page 120). delivering on our targets
P A GE 3
“In our 1999 annual report we identified growth as one of our key financial focus areas for 2000. In this year’s annual report we report back on how we delivered against these targets.”
EXECUTIVE CHAIRMAN MARINUS DALING
The growth goals that we set:
REVERSE THE OUTFLOW OF FUNDS The outflow of funds in 1999 of R10 427 million was reversed and a net inflow of R777 million was achieved in 2000.
10% REAL GROWTH Headline earnings based on the long term rate of return grew by 28% – well in excess of our target for 2000 of 18,3%. Headline return on equity of 18,7% based on the long term rate of return and calculated on the monthly average net asset value of the shareholders’ funds, was in line with our target of 18,3%.
RETURN ON EMBEDDED VALUE The return on embedded value of 5,1% is below our target of a 10% real return and was affected by the difficult stock market conditions during 2000. The JSE ALSI was 3% lower in 2000 than in 1999. However, good growth of 24% was achieved in the value of our existing life insurance business (value of in-force) for 2000.
NEW BUSINESS EMBEDDED VALUE We set ourselves the target to achieve new business embedded value in excess of R200 million by 2001 and achieved R209 million in 2000 – one year earlier than our target date. non-executive directors
JPL Alberts (Johan) (58) K Jowell (Kate) (61) SASS, BCom, CA (SA), IAMP (Geneva) BSc, MBA
Appointed 1995 Appointed 1993 Businessman and director of various companies Director of Foschini Limited
Prof AC Bawa (Ahmed) (46) DL Keys (Derek) (69) MSc, PhD BCom, CA (SA), FIBSA, Dr Econ Sc (hc)
Appointed 1997 First appointed 1989 to 1991 – Reappointed 1995 Deputy Vice-Chancellor of University of Natal Director of Billiton Plc, Munich Reinsurance of Africa and Director of Atomic Energy Corporation of South Africa Limited other companies
DC Brink (Dave) (61) DNM Mokhobo (Dawn) (52) MSc Eng (Mining), DCom (hc) BA (Social Sciences)
Appointed 1994 Appointed 1996 Chairman of Murray & Roberts Holdings Limited Managing Director of MBM Change Agents (Proprietary) Deputy Chairman of Absa and director of other companies Limited, Chairperson of The Fedics Group Limited, Director of Nozala Investments (Proprietary) Limited, Engen Limited and WM Grindrod (Murray) (65) other companies BA (Mech Sc), DEcon (hc)
Appointed 1993 Prof P Smit (Flip) (64) Chairman of Grindrod Unicorn Group Limited and director of MA, DLitt et Phil other companies Appointed 1990 Former Vice-Chancellor and Rector of University of Pretoria
PAGE 4 P A GE 5
PEI Swartz (Peter) (59) BOARD COMMITTEES
Ad Ed Dip A UDIT COMMITTEE Appointed 1994 JJM van Zyl (chairman) JPL Alberts Director of Absa, Distell (Pty) Ltd, Ellerine Holdings Limited, Prof AC Bawa New Clicks Holdings Limited, Sancino Project Limited and PEI Swartz other companies HUMAN RESOURCES COMMITTEE T Vosloo (chairman) JJM van Zyl (Boetie) (62) DC Brink Pr Eng, BSc Eng K Jowell Appointed 1995 NOMINATIONS COMMITTEE Director of Naspers Limited, Murray & Roberts Holdings Limited Prof P Smit (chairman) and other companies DC Brink WM Grindrod DL Keys T Vosloo (Ton) (63)
D Phil (hc) SPECIAL COMMITTEE Appointed 1989 T Vosloo (chairman) JPL Alberts Deputy Chairman since 1998, Chairman of Naspers Limited, Prof AC Bawa MIH Holdings Limited, MIH Limited and Electronic Media DC Brink Network Limited WM Grindrod K Jowell On 7 March 2001, Messrs TS Gcabashe and BP Vundla and DL Keys DNM Mokhobo Professors AF Perold and J van Zyl were appointed as non- Prof P Smit executive directors. Ms K Jowell and Prof P Smit and PEI Swartz Mr WM Grindrod retired as directors on this date. JJM van Zyl Our vision is to be the benchmark of excellence for financial services wherever we operate
TO ACHIEVE OUR VISION WE WILL . . .
• Be a leading South African group reaching out to new markets
• Continue our culture of empowerment to the benefit of all our stakeholders
• Make innovative use of our experience and our human skills and technological resources to
deliver products and services of a high quality to all our clients
• Establish international structures to support these products and services
• Be performance-driven and passionate about client service, and
• Create a working environment conducive to attracting, training and retaining skilled people
from all sectors of the community
AND IN THIS WAY . . .
• Generate excellent returns for our shareholders
THE VALUES WE UPHOLD . . .
• Integrity
• Respect
• Accountability
P A GE 6 chairman’s statement
PAGE 7
INTRODUCTION Dear shareholder, It is my pleasure to report on the performance of your investment in Sanlam over the past year and to highlight certain of our achievements and activities. Although we made considerable progress in several areas and achieved our objectives for this period, we nevertheless face new challenges and need to tackle certain areas that require further attention. It remains our mission to achieve excellent returns for our shareholders – our immediate focus being to produce the results that will enable the market to convert to a premium EXECUTIVE CHAIRMAN MARINUS DALING the discount of our current share price to embedded value. we achieved most of the financial objectives for 2000
In the period since our listing, from Prof Johan van Zyl, and Mr Peter Vundla to the Board as new 30 November 1998 to 31 December 2000, non-executive directors of Sanlam. I have great confidence in the our share price grew by R3,56 from R6,00 perspectives and contributions they can bring to Sanlam. per share to R9,56. This growth together with the dividend of 25 cents paid, yielded FINANCIAL RESULTS a compound return of 27% per annum for Reaching principal targets our shareholders on their initial invest- We are pleased to report that Sanlam achieved most of the financial ments that represents a real return of objectives set a year ago and that our focus on improving approximately 17% per annum. operational efficiencies and the performance of our businesses is I congratulate and welcome paying dividends. This focus has delivered growth in profits in new Dr Leon Vermaak as chief executive of business and in a net inflow of funds. A crucial measure of success is Sanlam Limited with effect from 1 May the discount of Sanlam’s share price to embedded value. Although 2001. We underwent an extensive process we have shown progress, particularly recently, we have not yet to select the person best suited to accept the convinced the market that our performance and prospects justify a challenge of Sanlam’s strategic needs of the share price at least equal to Sanlam’s embedded value, let alone a future and have no doubt that Dr Vermaak premium. On 31 December 2000 Sanlam’s share price of 956 cents will energetically lead the Group into the reflected a discount of 8% to an embedded value of 1 035 cents per important next phase of our development. share. Our approximate embedded value on 28 February 2001 I also take pleasure in welcoming amounted to 1 075 cents per share, which reflects a widening of this Mr Thulani Gcabashe, Prof André Perold, discount to 13%. Eradicating this discount remains the key focus chairman’s statement – continued
We clearly succeeded in exceeding the reduction in net outflow of our target of 10% real growth funds and sound growth in in 2000. profits of Sanlam Employee Benefits. Gensec registered an N ew business and improved performance in the funds flow second half of 2000, overcoming I am pleased to report that we the effects of the weak financial achieved a net inflow of markets in the first half of the R777 million in 2000. During year. Sanlam Investment 1999 Sanlam had a net outflow of Management (previously Gensec funds of R10,427 million. Asset Management) succeeded in Management focused on turning securing strong inflows from this net outflow around and segregated funds and Gensec although we are certainly not Bank continued to register sound
CHIEF EXECUTIVE OFFICER satisfied with this level of net growth, as it has done since its (FROM 1 MAY 2001) DR LEON VERMAAK (39) inflows, we are confident that this launch two years ago. BCom, MBA, PhD (City University, London) turnaround has established the our results must enable the market to convert to a premium the discount of our current share price to embedded value
area to unlock value for shareholders. The message from basis for further improvement in OTHER ACHIEVEMENTS our shareholders is clear. We need to demonstrate 2001 and thereafter. Among the significant successes sustainable growth to improve Sanlam’s rating. New business volumes grew by in 2000 was the conclusion of the 46% to R37, 7 billion, improving acquisition of Guardian National D ividend the embedded value of new Insurance by Santam. The On 7 March 2001 the Board declared a dividend of business for 2000 to R209 million transaction was implemented and 30 cents per share for 2000. from R101 million in 1999. Santam and Guardian’s operations Our target of sound real growth in dividends in In 2001 we expect to further were successfully integrated. This 2000 was achieved as the dividend increased by 20% improve on this performance. amalgamation strengthens compared with the dividend of 1999. Santam’s position as the market O perational leader and provides a sturdy Earnings performance foundation for future growth. Shareholders will note that, with effect from this report, The performances of each During the year the Board we have decided to use the long term rate of return for business are discussed in detail in and Gensec management the determination of our earnings. The rationale, its the business review section of this considered the need for the benefits and the analysis of earnings are discussed in report. All businesses recorded continued listing of Gensec and the Report of the Financial Director. Applying a successes, most notably the we reached the conclusion that long-term return of 13%, our headline earnings for operational performance and significant benefits were to be had 2000 amounted to R3 478 million, 28% higher growth in new business volumes if we acquired the interests of than the earnings of R2 721 million for 1999. of Sanlam Personal Finance and minorities and established Gensec
PAGE 8 P A GE 9
as a wholly owned subsidiary. This transaction, valued at R5 billion, was completed on 22 December 2000. The exploitation of potential synergies and the profit and top-line growth. As indicated earlier, the improvement in the flow of optimisation of Sanlam and Gensec’s capital net funds will be an important focus area in the year ahead. efficiencies are receiving attention. Henceforth Sanlam Investment Manage- O rganic growth ment and Gensec Bank will be managed as Our growth objectives will be achieved by enhancing and expanding Sanlam’s separate businesses within the Sanlam value proposition to our clients, and ensuring that our product offerings and Group. This structure promises to add real client service continue to improve. First indications are that we have started value to shareholders, starting this year. regaining market share. Our sales force and brokers have done well and the Our commitment to transparent, restructuring of Sanlam’s businesses has positioned the Group to keep on comprehensive and frank communication growing in its targeted market segments. A concerted effort is being made to with our shareholders was recognised by achieve greater penetration of the emerging black salaried market. Further the Investment Analysts Society of penetration of the higher end of the market is equally important and will be Southern Africa last year, when we won pursued through Innofin as well as Sanlam Personal Finance. their overall award for Financial Reporting Since reorganising Sanlam into autonomous businesses in 1998 the first and Communication. This was the first objective has been to improve each business’ operations within its target time that this award had been made to a markets. The next phase will be to develop synergies between the various
new business
volumes grew company in its first full year of a listing on by 46% the JSE Securities Exchange SA (JSE). I have to commend our financial director, Flip Rademeyer, for his contribution towards achieving this award. businesses. This has already been achieved between Gensec Bank’s abilities in We will continue to be transparent and structuring products and Sanlam Personal Finance’s distribution capabilities. approachable, thereby improving the The increasing importance of individual choice in the markets serviced by standard of our evaluation by investors and Sanlam Employee Benefits offers significant opportunities. Sanlam Employee enabling the market to determine a Benefits’ people and technological capabilities position it to exploit these realistic value for Sanlam shares. opportunities, and we are therefore targeting this market as a source of future During 2000 we also succeeded in growth. Providing reliable administration that is able to accommodate the influencing the lives of many South individual needs of our members, backed up by sound advice, will be Africans positively through our expanded prerequisites for growing our market share. corporate social involvement and The re-engineering of the investment process of Sanlam Investment sponsorship programmes. Management to meet world-class standards has fundamentally transformed the business. We want to build on our capabilities as managers and will focus on
GROWTH STRATEGY achieving sound investment returns that out-perform relevant benchmarks, taking We believe that real growth is the key to full cognisance of the risk/reward relationship. Improved investment performance changing the discount of the share price to will contribute to our objective of growing funds flow and improving profitability. embedded value to a premium. Sanlam has set itself a target of 10% S tructural growth growth in real terms, as primarily measured Since 1998 our focus has been on improving our operational performance in by growth in headline earnings, which in existing businesses. I believe that our businesses are now ready to start seeking turn requires similar growth in operating international opportunities. chairman’s statement – continued
Innofin is in the process of optimisation of the Sanlam and launching its first product aimed Gensec capital bases, free up at the high net worth market and, capital. While the Sanlam share with SP2, expects to grow its share price trades at a discount to its of this important market segment. embedded value a buy-back of Sanlam Investment our shares makes eminently good Management acquired Punter sense. We will request shareholders Southall in the United Kingdom, to renew the existing authority at which will extend and improve its our Annual General Meeting on capability there. The expansion of 13 June 2001. A possible buy-back Sanlam Investment Management’s of shares couldn’t be considered private client business through during the past year owing to the the purchase of the private client proposed Metlife merger and the business of ABN Amro South acquisition of Gensec minorities. Africa (now Sanlam Private Shareholders will also note Investor Services) will advance its that we are devoting attention to offering in South Africa and the returns earned by our should contribute to growth in businesses, as discussed in more we have accelerated our efforts in evaluating international opportunities
2001. This will also improve its detail in the Report of the ability to attract funds offshore. Financial Director. Applying realistic bases is crucial, and we CAPITAL EFFICIENCY will therefore hold management The acquisition of the Gensec of each business responsible for minorities has enabled the Group operating profit returns on equity. to increase capital efficiency These will be augmented by the through its capital outlay of investment return on Group capital. Sanlam won the R5 billion in exchange for full The corporate asset manager is overall award for financial reporting control over the Gensec responsible for ensuring that the and communication Corporate capital of R3 billion targeted investment returns are from the Investment and its total profit and cash-flow. achieved. Net asset value Analysts Society In similar vein, we are revisiting represents about 80% of our of Southern Africa last year the capital allocation to all our market capitalisation and 75% businesses to determine whether of our embedded value, and we the current allocation is still are improving our management appropriate. This is being of capital. considered in conjunction with Improving returns obviously the deployment of assets backing starts with enhancing operational the capital, which could with the performance and optimising
PAGE 10 P A GE 11
margins but ultimately, should a business or a part of the business prove not able to deliver sustainable returns, we will sell it or close it down. employees and to attract people of the highest calibre. Success in this area will be measured by whether Sanlam will be recognised as the employer of choice. REPOSITIONING This recognition will depend on creating a culture and working Sanlam is intent on further strengthening environment that provide challenging opportunities for all employees. This its position as a truly South African process begins with our core philosophy of decentralised management providing company in the full sense which will development, stimulation and satisfaction in the working environment. It clearly require a measure of repositioning. This also requires compensation commensurate with performance and an alignment requirement is supported by extensive of employees’ objectives with those of our shareholders. market research during 2000, which again To meet these challenges we are continuously updating our remuneration confirms the strength of the Sanlam brand policies and placing more emphasis on incentives, including bonuses and share in all our target markets. This competitive incentive schemes. advantage will be aggressively deployed in the strengthening of our position as a truly INTERNATIONALISATION South African company. The drive towards the internationalisation of our businesses will come from In analysing the proposed Metlife their decentralised management teams. Their local operational successes indicate merger, which would have accelerated the that they are now ready to pursue international initiatives.
we are strengthening our
position as a truly South African company repositioning of Sanlam, we have and as the employer of choice concluded that an empowerment transaction of substance in South Africa pertaining to our business is unlikely in the near future. However, in my view, Initially we aimed at penetrating developing markets because of the particular tremendous potential exists to co-operate suitability of our core competencies to their specific requirements. It has, however, on business projects of relevance to Sanlam become clear from our investigations that we may well be able to capitalise on and empowerment organisations. opportunities in niche markets of developed markets. The information technology, Our Employment Equity Programme administrative capabilities and operational efficiencies of Sanlam’s traditional was submitted to Government and, businesses are of a First World standard and could be deployed outside although good progress was made in South Africa. This could, for instance, provide a low-risk and low-capital several areas, results are not yet satisfactory opportunity in the field of third party administration. Both Sanlam Investment and will demand a concerted effort Management and Gensec Bank will continue to focus primarily on developed throughout the Group. Mentoring and the markets to satisfy their international aspirations. While we are keen to report development of empowerment appointees heightened success and progress, we are well aware of the need to avoid the pitfalls to the fullest extent of their abilities will of over-exuberance in initiatives such as these. We remain true to our primary enjoy priority. requirement of achieving a return on equity commensurate with the risk.
EMPLOYER OF CHOICE ENVIRONMENT The Financial Services industry is particularly I ndustry related trends dependent on its people and our future Statutory achievements will be inextricably linked to There are particular regulatory trends in our industry that will impact on our the further development and retention of industry. On the statutory side the Policyholder Protection Rules and the chairman’s statement – continued
proposed Financial Advisory and and to apply them to the benefit Intermediary Services Bill have of our clients and ultimately our far-reaching implications. The shareholders. objectives of this legislation are to improve disclosure and consumer Capital gains tax protection. We fully support these Capital gains tax is expected to goals but believe that in time and come into effect on 1 October without detracting too much this year and, with the recent from the aims of the legislation, changes in the four-fund the regulations should be adjusted dispensation and the tax on to lower the cost of compliance – foreign dividends, it will a cost ultimately born by consumers. negatively affect all savings, The Medical Schemes Act directly or indirectly. The introduced on 1 January 2000 proposed effective rate of the tax prescribes, among others, is acceptably low at the current community rating and open rate of inflation, but the potential enrolment in an effort to enable of future increases in the rates of more people to have access to tax and/or inflation is of concern. our businesses are ready to comply with the terms of all relevant new Thulani Gcabashe (43) Chief Executive statutory regulations Officer of Eskom and Chairman of medical cover. These regulations Sanlam together with the rest of Eskom Enterprises introduced new risks for medical the life insurance industry is at Prof André F Perold (49) schemes by removing some of the present raising a number of issues George Gund Professor of Finance and mechanisms they previously used with the authorities. These Banking. Graduate School of Business to manage their exposure to risk. include tax cascading or double Administration: Harvard University At the end of 2000 most medical taxation where the same gain can Prof Johan van Zyl schemes had to raise their be taxed more than once in (44) contributions significantly but it certain group structures. Vice-Chancellor and Principal: remains unclear whether the The legislation on value- University of number of individuals who are added tax and secondary taxation Pretoria covered by medical schemes has on companies eliminated tax increased as envisaged. cascading to a large extent. It Peter Vundla (52) Our businesses that are would appear that in the apparent Deputy Executive Chairman: African affected by this legislation have rush to implement capital gains Merchant Bank over the past years prepared tax, such elimination has been themselves for its practical overlooked. This will, among implementation. I am pleased to others, also affect retirement new non-executive directors report that we are ready to funds, which are currently by comply with the terms of all the definition exempted from new legislation and regulations capital gains tax. Given the
PAGE 12 P A GE 13
acknowledgement by National Treasury that important policy issues still need to be clarified, I trust that capital gains tax will not be implemented until acceptable the local practical implementation of MAP. The attention in his speech to solutions have been found. economic matters was a welcome recognition of the important role of the private sector in the development of South Africa. P olitical milieu South Africa’s prominent political and E conomy economic role in Africa is progressively In the past year, the South African economy once again demonstrated its resilience and successfully being promoted under the in the face of challenges. Real gross domestic product increased by 3% in 2000, leadership of President Thabo Mbeki, for and it appears the economy will repeat this performance in 2001. The driving which he deserves credit. The President has forces behind this will, however, change. Whereas growth was driven by a strong progressed significantly in founding a performance in net exports in 2000, domestic demand will play a dominant role specific vision for the continent – the in ensuring that the economy remains on track in 2001. Millennium African Renaissance If taken into account that government consumption expenditure Programme (MAP). His briefing on MAP declined in real terms in 2000, it is clear that the private sector performed to the World Economic Forum in Davos in admirably and is continuing to do so. The decline in confidence levels has January 2001 was a reassuring confirma- to date not been reflected in household consumption expenditure, nor in tion of the commitment by African leaders fixed capital formation in the business sector. Therefore, should
our information technology, administrative
capabilities and operational efficiencies to sustainable economic development. are of a first world standard It is therefore regrettable that the actions of political leaders such as President Robert Mugabe of Zimbabwe and in some other African states seem to Government successfully improve service delivery, and should business directly oppose the very first element of confidence further recover, the South African economy could deliver a President Mbeki’s MAP, namely to promote pleasant surprise. peace, security, stability and democratic Macro-economic stability has largely been achieved, allowing the governance. As long as these actions remain emphasis to shift to much needed micro-economic reforms. These include unchallenged by the Organisation of improved labour relations – i.e. a significant reduction in work days lost as a African Unity (OAU) and African leaders result of strikes, addressing the shortage of workforce skills, improving the committed to the MAP, the realisation of execution of government policy, and more effective promotion of the small our vision for Africa – and South Africa – business sector. I believe that the Minister of Finance, Mr Trevor Manuel, will be protracted. South Africa stands out comprehensively addressed these elements in his Budget speech on 21 February as a beacon of hope for Africa with our this year. The outlook for the South African economy remains positive commitment to democracy and the rule of although the low personal saving rate of 0,6% in 2000 remains a problem. law based on our constitution. We are disappointed that the Budget did not allow more scope for life insurers Locally, and on a more positive note, to increase their foreign investment from the current ceiling of 15% to 20% of I believe that South Africa is making head- assets, and thus level the playing fields for all financial institutions. The scope way in pragmatically addressing its own for life insurers to invest abroad was actually reduced. We appreciate that the problems. While crime remains a banner reduction should attract more investments to the JSE , but we believe the long- issue, President Mbeki’s State of the Nation term effect of this limitation is to the detriment of South Africans who, for Address at the opening of Parliament on sound reasons, want the same freedom as citizens of the rest of the developed 9 February generated welcome impetus to world to spread their investments internationally. chairman’s statement – continued
We have taken measures to been a challenging year in many financially manage the ravaging ways and I am proud that our effects of this devastating virus management and staff have and have set aside an Aids reserve shown what can be done. of approximately R1,5 billion to A special word of appre- cover expected future claims from ciation goes to executive director existing business. Many of our George Rudman, who has elected policies allow us to increase risk to retire after 37 years of premiums as needed. We also commendable service and revise rates for new business from achievements. George did a time to time, in accordance with sterling job in his leadership role the expected mortality rates for in the demutualisation of Sanlam each business sector. While we are in particular and I wish him and permitted to properly underwrite his family a most wonderful and applications for life insurance our well-deserved retirement. mortality experience should Thank you to our shareholders remain within expectations. for investing in Sanlam; analysts south africa is making headway in pragmatically addressing its own problems
A further factor restraining the South African economy APPRECIATION and brokers for your research, is the lack of fixed investment, with the ratio of gross fixed The wise guidance of my fellow coverage and support; our business capital formation to GDP running at approximately 15%. directors, their commitment partners for the successes we all While Government’s stated intention to increase capital and and support over the past year achieved; our sales brokers and infrastructure spending will support an improvement in are indeed appreciated. advisers for these results we can this regard, the private sector holds the key to putting the Ms Kate Jowell, Prof Flip Smit and post for 2000; and the media for economy onto a higher growth platform. For this to Mr Murray Grindrod, who retire objective reporting on our business. happen would require the availability of profitable business as directors on 7 March 2001, Lastly, a personal thank you for opportunities, and the confidence on the part of the deserve a special word of all the good wishes and the support business sector to exploit those opportunities. It would also appreciation for their services over I received during my recent be unrealistic to expect foreign investors to take up the the years. I thank my executive illness. I am responding very well baton of investing in South Africa ahead of local businesses. committee and all our employees to treatment and, together with A social accord between all the important role players in the for their continued dedication my medical team, am indeed economy, recognising these realities, is a necessary step to and diligence towards meeting the positive about the outcome. improving the investment climate in South Africa. objective of improving the performance of Sanlam. It is Aids gratifying to be able to rely on The Aids pandemic shows no signs of abating. It will such exceptional support to achieve Marinus Daling impact on our national economy and overall productivity, excellent returns for shareholders Executive Chairman and not only the directly related industries such as health and to serve our clients with the care and life insurance. passion they deserve. This has 7 March 2001
PAGE 14 executive committee
P A GE 15
J Moalusi (John) (48) BProc (Unisa), HDPM (Wits), EDP MH Daling (Marinus) (55) (North Western, USA), EDP (GSB, Cape Town) BSc, FFA, FASSA, AEP (Unisa), DCom (hc) Deputy Chief Executive of Sanlam Employee Benefits Executive Chairman Years of service: 3 Years of service: 34
PJ Cook (Peter) (54) BSc Eng (Mining), MBA Group Risk Manager Years of service: 3
HSC Bester (Hendrik) (50)* BCom (Hons), P de V Rademeyer (Flip) (53)* CA(SA), SEP (Stanford) FIA, FASSA, AMP (Harvard) Financial Director Chief Executive of Sanlam Personal Finance Years of service: 3 Years of service: 27
AS du Plessis (Attie) (57)* BCom, CA(SA), Adv Dip Tax Law, AMP (Harvard), AEP (Unisa) Executive Director of Associated Companies and Services Years of service: 15
AD Botha (Anton) (47)* BProc, BCom (Hons), GE Rudman (George) (57)* SEP (Stanford) BSc, FFA, FASSA, ISMP (Harvard) Chief Executive of Gensec Executive Director: Strategy Years of service: 22 Years of service: 37
M Ferreira (Marius) (46) BCom (Hons) Chief Executive of Gensec Bank Years of service: 6
NT Christodoulou (Nick) (52) BSc Eng (Ind), MBA JAA Samuels (Angus) (51) Chief Executive of Sanlam Employee Benefits Chief Executive of Sanlam Investment Management Years of service: 5 Years of service: 2
PC le Roux (Charl) (46) BSc Chief Executive of New Business Development Years of service: 22
CG Swanepoel (Chris) (50) BSc (Hons), FIA, FASSA Statutory Actuary of Sanlam Life Insurance Limited Years of service: 29
*Alternate and executive director report of the financial director
OVERVIEW In the Chairman’s Statement reference is made to Sanlam’s results and the achievement of most of our key financial targets for the 2000 financial year. The results are discussed in more detail in this report and the business reviews. Sanlam’s results for the financial year ended 31 December 2000 show a sound improvement on those of 1999. The Group achieved a dramatic turnaround
FINANCIAL DIRECTOR in the net flow of funds to a net FLIP RADEMEYER inflow of R777 million compared to a net outflow of the group achieved a dramatic turnaround in the net flow of funds
R10 427 million in 1999. R110 million tax one-offs (after Headline earnings per share based minorities) in the 1999 earnings, on the long term rate of return headline earnings per share still increased by 28% from show satisfactory growth of 20%. 102,1 cents to 130,9 cents per Details on the tax one-offs are share. Operational earnings provided in this report. contributed 50,5 cents (growth of The change in the definition 26%) and investment earnings of our headline earnings to include 80,4 cents (growth of 30%) the investment return based on the to these headline earnings. long term rate of return reflects The embedded value of new our quest to provide improved business increased from and more valuable information. R101 million to R209 million In terms of the previous and we achieved a return on definition, headline earnings per equity based on the long term share amounted to 90,6 cents a rate of return of 18,7%. share, which represents a 23% If we exclude the one-off growth on 1999. An income deferred tax reversal of statement based on the previous R354 million in 2000 and headline earnings definition is
PAGE 16 P A GE 17
included on page 111 to facilitate comparison.
EARNINGS BASED ON THE LONG TERM term rate of return. This basis is recommended by the Statement of RATE OF RETURN Recommended Practice for long term insurers in the United Kingdom. Long term insurance companies are In terms of this basis, the investment return based on the long term required to hold significant regulatory investment yield expected to be earned on the underlying investments is capital adequacy reserves that serve as a included in current year earnings. (Refer to page 82 for details.) buffer against unfavourable conditions for It is our view that this basis is an appropriate measure of our headline the policyholders. These reserves are earnings and have decided to adopt it as the primary measure of headline provided by the shareholders’ funds and earnings. We also believe that it eliminates the deficiencies of the current are invested in a balanced investment definition. In order to ensure appropriate focus on the group shareholders’ portfolio, which has a large component of funds operational and investment performance, we will disclose net equity investments. These investments are operating profit (after tax and minorities) separately from the net investment reflected at fair value and unrealised return based on the long term rate of return (also after tax and minorities) in investment surpluses arising from their the income statement. This action is in our view another step forward in revaluation as well as realised investment providing quality information and will facilitate the evaluation of the surpluses constitute an important part of performance and contribution of the two major but distinct components the investment return and are included in of headline earnings.
we have taken another step
forward in providing the earnings of the shareholders’ funds. quality information These earnings are therefore subject to short term fluctuations in the stock markets. In an attempt to address this short An element of volatility is still inherent in the long term rate of return term volatility in our earnings in the past, model as this return is calculated on the monthly underlying fair value of we excluded the realised and unrealised investments that are exposed to market volatility. investment surpluses from our headline We believe this will be of value to shareholders and the investment earnings and only included the interest, community in general. dividend and rental income earned. This largely reduced the volatility of RETURN ON EQUITY our earnings but had the following Prior to 1999 the capital of the Sanlam Group was managed at a group deficiencies: level. In line with our philosophy of decentralised businesses, where the • headline earnings were understated due full responsibility for financial performance lies with the businesses, the to the exclusion of investment surpluses capital requirements of our various core businesses were determined and • investment decisions and the headline allocated in 1999. The investments supporting Sanlam Personal Finance earnings reporting model were not (SPF) and Sanlam Employee Benefits’ (SEB) capital have been managed aligned. on a pooled basis and the pooled investment return allocated in We have been reviewing the definition proportion to the capital. This was largely because the life activities of of headline earnings and in our 1999 these two businesses were conducted in one statutory company, Sanlam annual report and 2000 interim results we Life Insurance Limited. This process has borne fruit. However, the need to disclosed, as supplementary information, improve the efficiency of capital within the Group means the model must our headline earnings based on the long be adjusted. r eport of the financial director – continued
The acquisition of the minority interests in Gensec which constituted Gensec as a wholly-owned subsidiary has brought specific challenges but also opportunities to improve capital utilisation to the fore. Capital falls into two main categories: • Regulatory capital, which is required to provide safeguards for unfavourable conditions. This capital is not normally required in the operating activities of the businesses and is available for investment, and a unified structure following the gensec transaction will enhance capital efficiency within the sanlam group
• operating capital, which is is used to determine the long required in the operating term investment return included activities of the businesses. in the headline earnings in the The individual capital income statement. requirements of the various The Group’s headline businesses in respect of these two earnings return on equity based categories will be determined on a on the long term rate of return periodic basis with the businesses target of 10% in real terms will and targets will be set, taking risk therefore comprise the aggregate into account, for the net net operating profit return of the operating return on equity. The businesses and the long term cost of the regulatory capital will investment return on the be included in setting the return portfolio of investments of the targets. The investment of the shareholders’ funds. Group’s capital will be managed This model will increase the at the group level with the focus on operational and objective of achieving appropriate investment efficiency within the long term investment returns. Group whilst allocating return A current long term yield of 13% responsibility to its line authority.
PAGE 18 P A GE 19
We are currently in the process of implementation and will report on progress in our interim results for 2001. between the two companies. A unified structure will also enhance capital ACQUISITION OF GENSEC MINORITIES efficiency within the Sanlam Group. Sanlam acquired all the shares in Gensec The integration of the Gensec businesses into the Sanlam Group has which it and its subsidiaries did not already progressed well. Sanlam Investment Management (SIM) (previously Gensec own for R37 per share with effect from Asset Management), Gensec Bank and Gensec Properties will be constituted as 22 December 2000 and for financial separate core businesses of the Sanlam Group. Underwriting and private equity statement purposes with effect from activities will be incorporated as part of the investment activities of the 31 December 2000. The total net shareholders’ funds and the corporate activities of Gensec will be integrated into consideration amounted to R4 978 million the existing structures of either the Gensec businesses or into the Sanlam Group. and was financed through the utilisation of The initial stages of the redeployment of Gensec’s capital within the Sanlam existing shareholders’ funds. The value of Group has commenced, but its full implementation will have to be done as part R37 per share was determined on an of the drive towards greater capital efficiency and improving returns. intrinsic value basis of the sum of the parts of the businesses in Gensec. The transaction NEW BUSINESS AND FLOW OF FUNDS resulted in net goodwill of R1 711 million, Total new business grew significantly by 46% to R37 700 million. Life insurance which will be amortised over ten years. new business grew by 37% to R14 194 million and contributed towards the
innovative product offerings and
the re-engineering of our investment process
In the determination of embedded resulted in healthy growth value, a fair value was placed on Gensec, based on its constituent businesses and assets, which amounted to R32,48 per share at 31 December 2000. This value healthy growth in the embedded value of new business. New business from non- is determined taking cognisance of life activities such as unit trusts, segregated funds and short term insurance current market values and does not place activities grew at an even greater rate of 52% to R23 506 million, largely the same value on the longer term owing to the increase in segregated funds from R2 310 million in 1999 to strategic value as was required for the R7 973 million in 2000. The growth in total new business was as a result of acquisition. The unlisted valuation will innovative product offerings and the re-engineering of our investment process to be done monthly. world class standards. The rationale for the acquisition was The substantial growth in new business contributed significantly to the driven in the first instance by the need to increase in the gross inflow of funds, which includes recurring inflows in integrate Group activities, particularly respect of existing in-force business, for the Group of 31% to R46 926 million the core business of Asset Management from R35 768 million in 1999. Payments to clients remained fairly constant and the synergy potential with the Bank. at R46 149 million over the two years. This resulted in a net inflow of funds Under a unified structure, the product of R777 million compared to a net outflow of R10 427 million in 1999 – a capabilities of Gensec can be used to significant achievement on which we intend to build in the future. Sanlam further complement the distribution Employee Benefits reduced its net outflow of funds significantly from capabilities of Sanlam and will be R11 542 million in 1999 to R5 348 million in 2000 and aims to continue explored in order to create common its efforts to improve its flows. SIM’s segregated fund activities showed an objectives, enhance strategic excellent improvement and turned its net outflow of funds of R1 215 million development and facilitate cross-selling in 1999 around to a net inflow of R3 301 million in 2000. r eport of the financial director – continued
OPERATING PROFIT BEFORE TAX 1 044 I wish to refer shareholders to the business reviews for a
781 detailed discussion of the 747 683 activities and results of the businesses. Sanlam Personal Finance (SPF) experienced a good year
202 and grew its operating profit by 168 100 34% to R1 044 million. 59 11 15 Sanlam Employee Benefits
(44) (SEB) also posted a most (120) SPF SEB Sanlam Gensec Santam Corporate satisfactory 20% growth in its Health and other profits to R202 million and OPERATING PROFIT BEFORE TAX (R million) 1999 corporate expenses were 2000 reduced by 22% to R190 million. sanlam personal finance experienced a good year
These results were tempered tax of R411 million, which is by Gensec’s profits before tax of 51% higher than the first six R683 million, which showed months. Corporate income, a 9% reduction compared to which consists largely of profits 1999. This is in line with earned on leveraging assets using expectations published at the structured finance arrangements interim stage as their results in and involve the issue of the first half of 2000 were preference shares by Sanlam substantially lower than the Group subsidiaries, declined by corresponding period 53% from R197 million in 1999 in 1999 as a result of the to R93 million in 2000. This impact of the difficult financial decrease is largely attributable market conditions in the first half to increased competition from on equity trading and its similar products and smaller investments in private equity margins due to the lower and small capitalisation shares. level of interest rates in 2000 The second six months compared to 1999. however showed significant These varying successes improvement with profits before resulted in the group operating
PAGE 20 P A GE 21
profit increasing by 12% to R1 924 million. The discussion below of the elements of group operating profit excludes Santam’s figures as they are distorted by GROSS INVESTMENT RETURN BASED ON THE LONG TERM RATE the acquisition of Guardian National and OF RETURN the inclusion of Guardian’s results with The gross investment return based on the long term rate of return earned by the effect from 1 May 2000. Sanlam Group is set out below: Group financial services income increased by only 4% (14% including R million 2000 1999 Variance Santam) due to an 8% reduction in Sanlam Health’s income, lower corporate Investment income 950 922 3% income referred to above and lower Absa equity accounted earnings 423 327 29% Investment (deficits)/surpluses (25) 1 687 — administration fee income earned by SPF. Risk benefits remained at the same Actual investment return 1 348 2 936 -54% levels as in 1999 (20% increase including Adjustment for long term rate of return 1 255 (816) —
Santam) and contributed largely to the Gross long term investment return 2 603 2 120 23% healthy risk profits reported by SPF and SEB.
corporate
expenses reduced
Administration costs increased by 8% by 22% (14% including Santam), largely owing to a 26% increase in Gensec’s costs resulting from building their international capability and continued growth in Gensec Bank. The gross investment return based on the long term rate of The group administration ratio remained return grew by 23% from R2 120 million to R2 603 million in fairly constant at 29,7%. 2000. A long term investment return of 13% was assumed for Group exceptional items decreased by both years. The average monthly fair value of the asset base on 22% to R368 million and include which the long term return is calculated was on average 8% restructuring costs of R33 million at higher in 2000 compared to 1999 and contributed to this Gensec following the acquisition of the growth in investment return. Gensec minorities and R79 million at SPF Investment income of R950 million which increased by 3% in respect of a further phase of the compared to 1999 was affected by lower interest rates in 2000. restructuring of its sales function. Expenses The creation of an investment provision of R53 million in 1999 for new systems and projects, which are and its subsequent reversal in 2000 as it was no longer required, aimed at improving client service, product had a positive impact on the growth for 2000. Please refer below development and administration for details on Absa’s results. (The latter two items are not subject capabilities, amounted to R231 million. to the long term return basis.) The group operating margin was The reduction in investment surpluses from a positive reduced to 17,4% from 17,9 % in 1999, R1 687 million in 1999 to a negative R25 million in largely owing to Gensec’s margin, which 2000 is attributable to the JSE stock market conditions. decreased to 49,2% from 59,9% in 1999 The JSE All Share Index was 3% lower at the end of 2000 but SPF and SEB registered compared to 1999. improvements. r eport of the financial director – continued
209 The tax reversal of R354 million shareholders’ funds interest in for 2000 is in respect of an Absa from 13,8% to 14,8% overprovision of deferred tax in resulted in a 29% increase in respect of our life business. their equity accounting earnings The provision was raised in prior contribution to Sanlam.
101 years on the financial soundness Since the announcement of valuation basis on the previous Absa’s results in November 2000, tax dispensation for long term their share price and price 57 insurers. This dispensation was earnings ratio have outperformed amended with effect from the banks’ index. Absa is 1 January 2000 to bring the confident that the growth in actual tax charge more in line headline earnings achieved at with the accounting provision. the interim stage will be The tax one-offs in 1999 relate sustained for the financial year. 1998 1999 2000 to an adjustment of R62 million NEW BUSINESS EMBEDDED on the deferred tax balance SANTAM VALUE as a result of the change in the Sanlam holds a 59% interest in GROWTH (R million) corporate tax rate and Santam of which 36% is held by the santam’s favourable results for 2000 and its successful merger with guardian have created a solid platform for growth
INCOME TAX the reversal by Gensec of a Sanlam shareholders’ funds. As a result of the change in presentation of the income R100 million overprovision for Santam acquired 100% of the statement and the reversal of tax provisions in prior tax in prior years in respect of one shareholding in Guardian years, it is considered appropriate to provide an analysis of its offshore subsidiaries. At National Insurance Company of the group income tax charge: 31 December 2000 the remaining Limited in April 2000 and is now balance of the deferred tax liability South Africa’s leading short term amounted to R284 million, the insurer. R million 2000 1999 Variance application of which will be Santam’s underwriting
Income tax before one-offs considered when outstanding profits increased by 69% to • Operating profit 455 347 31% assessments have been received. R100 million and included • Investment return 349 264 32% non-recurring integration benefits Income tax before one-offs 804 611 32% ABSA of R37 million. Their total Tax one-offs (354) (162) 119% Absa’s equity accounted earnings contribution to the Sanlam Group
Income tax after one-offs 450 449 0% before tax, based on its earnings headline earnings on the long term Long term rate of for the twelve months ended rate of return basis used by Sanlam, return adjustment 23 21 10% 30 September 2000 are included amounted to R139 million Income tax on headline in the Sanlam Group headline compared to R107 million in 1999. earnings based on the earnings. Their improved interim The favourable Santam results long term rate of return 473 470 1% results for 30 September 2000 achieved in 2000, supported by a and an increase in the balanced insurance portfolio after
PAGE 22 P A GE 23
the successful merger with Guardian, have created a solid platform for future growth.
CORPORATE ACTIVITIES The Sanlam Group embedded value increased by only 2% to New Business Development, which includes R27 238 million largely because of the poor investment return earned on the the Innofin joint venture as well as Sanlam shareholders’ funds net assets due to the difficult stock market conditions in Personal Portfolios, is discussed in its 2000 compared to 1999. However, the embedded value from life insurance separate business review. During the year, business (value of in-force) grew by a satisfactory 24% during the year. the Fundamo project was initiated which proposes to use cellular telephony within the FINANCIAL INFORMATION ON SHAREHOLDERS’ FUNDS financial services arena. Although still at an Additional financial information in respect of the shareholders’ funds which we early stage of its development, we are hopeful believe will be of value to shareholders is provided on pages 102 to 119 and that this venture in which we held a 46,3% includes separate balance sheets and cash flow statements for the equity stake at year end, will prove a success shareholders’ funds and a segmental analysis of the income statement and yield attractive returns. The Cura per business. project which used the internet in providing new generation medical insurance was DIVIDENDS discontinued during the year as its viability The Board has declared a dividend of 30 cents per share payable on could not be proved. Establishment costs 16 May 2001 to shareholders registered on 20 April 2001. This represents
the embedded
value of new business of R9 million were included in the 2000 more than doubled results. Sanlam also underwrote the issue of Santam shares following their acquisition of Guardian National. a 20% increase over the 25 cents declared in 1999, of which 10 cents was paid EMBEDDED VALUE as a special interim dividend in October 1999. The dividend is covered three The embedded value of new business times by headline earnings on the previous basis, which is in line with the policy more than doubled to R209 million in as stated at the time of our listing. The new earnings basis using the long term 2000 compared to R101 million in rate of return to determine the investment return requires a revision of the 1999. In our 1999 annual report we set dividend cover policy to 3,5 to 4,5 times of these earnings. Our dividend policy the target to achieve an embedded value is included in the directors’ report on page 67. of new business in excess of R200 million by no later than 2001. We are PROSPECTS indeed pleased that this was achieved Sanlam has set itself a target of 10% real growth and is confident of meeting this one year earlier. target in respect of its net operating profit. This improvement was achieved largely as a result of increased new business volumes (embedded value new business annual premium equivalent (APE) increased by 49% over 1999) and increased margins (new business embedded value as Flip Rademeyer a percentage of APE was 8,0% compared Financial Director to 5,7% in 1999). Our target for 2001 is to continue this good growth pattern. 7 March 2001 corporate governance statement
evaluates the effectiveness of the committee, which consists of the executive chairman. The Sanlam executives of the various Board announced the businesses and the heads of appointment of Dr L Vermaak as corporate functions, some of chief executive officer with effect whom are also executive directors from 1 May 2001, resulting in of Sanlam Limited. This the separation of the function of committee functions under the the chairman and chief executive. leadership of the chairman. In addition to the Sanlam Limited Board, each of the core RELATIONS WITH operating businesses in the group SHAREHOLDERS has board structures with both The Board places a great deal of executive and non-executive importance on meaningful directors. The business reviews on dialogue with shareholders to pages 30 to 63 provide details of ensure that they are kept these boards and their committees. appropriately informed and have Non-executive directors access to the Group. Much effort bring with them diversity of is directed towards providing full the functions of chairman and chief executive officer separated
PRINCIPLES experience, insight and information to shareholders, both The Board of Sanlam Limited endorses the Code of independent judgement on existing and prospective, by way Corporate Practice and Conduct recommended in the issues of strategy, performance, of reports and announcements as King Report on Corporate Governance and has satisfied resources, key appointments well as meetings with analysts, itself that Sanlam has consistently complied with the and standards of conduct. journalists and the group’s web Code during 2000. There are continuing developments The Board meets at least site. Open lines of communica- in national and international corporate governance and six times a year to monitor tion are maintained and the the Board will consider for adoption those principles that delegated responsibilities chairman and the business that most effectively advance corporate governance and are properly executed by executives frequently meet with add value within the Group’s field of operations. management and to consider shareholders on an ongoing basis. strategic issues. Senior members A comprehensive programme DIRECTORS of management are present at of meetings with shareholders The composition of the Sanlam Limited Board of Board meetings. The various follows the release of final and directors appears on pages 4, 5, 12 and 15. The Board committees of the Board meet interim results. A computer comprises an executive chairman, 12 non-executive regularly for in-depth consideration database is utilised to monitor directors and five alternate executive directors. of relevant matters. and follow up such meetings and An independent director serves as the non-executive Management responsibility shareholders are encouraged to deputy chairman, who is also the chairman of a special for the day-to-day operations of contact the company direct with committee, consisting of non-executive directors, which the Group rests with the executive questions or concerns and,
PAGE 24 P A GE 25
subject to price sensitivity, management seeks to provide a rapid response. We are also committed to transparency and disclosure of relevant and appropriate The internal and external auditors have unrestricted access to the audit information in our Annual Report and committee. through other communication channels. Each of the core operating businesses has audit committees, which This is aimed at a full and proper operate on a similar basis to the Sanlam committee. This enhances the valuation of the Sanlam share price and is control environment and increases the reach and penetration of the Sanlam a means of monitoring management’s committee. performance. This is pursued continuously Sanlam has an effective internal audit function that has the respect and notwithstanding the complex nature of co-operation of both the Board and management. Apart from its access to Life insurance business and the lack of the audit committee, it also has direct access to the Chairman and every appropriate and consistent accounting Sanlam executive. standards both locally and internationally. • H uman resources committee COMPANY SECRETARY AND The human resources committee is responsible for the remuneration strategy PROFESSIONAL ADVICE of the Group, the long and short term incentives for executives and the senior All directors have unlimited access to the executives’ remuneration packages relative to local and international industry services of the company secretary, who is benchmarks.
open lines of
communication are responsible to the Board for ensuring that maintained with shareholders Board procedures are followed. All directors are entitled to seek inde- pendent professional advice, at the Group’s expense, concerning the affairs of the Group. • N ominations committee The nominations committee is responsible for proposing new appointments
BOARD COMMITTEES to the Board. In doing so, it considers the balance of the Board, the demands The Board committees consist of non- made on the Board and its committees and the requirements of good executive directors and their composition corporate governance. appears on page 5. The principal committees are as follows: STATUTORY ACTUARY The statutory actuary is subject to the disciplines of professional conduct and
• A udit committee guidance and has a reporting relationship with the directors of Sanlam Life Insurance The audit committee meets at least Limited and to the regulatory authorities. He has access to the Board and must report three times a year with the external fully and impartially to these bodies on the financial soundness of Sanlam Life and internal auditors and members Insurance Limited based on the actuarial valuation of its assets and policy liabilities. of senior management to evaluate matters regarding accounting RISK MANAGEMENT practices, internal control systems, The focus of risk management in the Group is on identifying, assessing, managing auditing, financial reporting and and monitoring all important risk areas of the Group. Management is involved management of critical risk areas. in a continuous process of developing and enhancing its risk and control The audit committee has a clear procedures to improve the mechanisms for identifying, monitoring and mandate and reports to the Board. managing risks. These risks include technology, competition, corporate corporate governance statement – continued
procedures, and applies risk- accepted a code of ethics and monitoring techniques. conduct that requires the highest ethical standards to ensure that FINANCIAL STATEMENTS business practices are conducted AND INTERNAL FINANCIAL in a manner that fosters public CONTROLS trust and confidence. The directors’ responsibility for the financial statements is EMPLOYMENT EQUITY described on page 67. Sanlam has recognised the The Board accepts business imperative of responsibility for the existence of employment equity and is fully internal financial control systems. committed to complying with the Management ensures that Employment Equity Act. Its • clear objectives are defined, employment equity policy was • progress in terms of these ratified by the Board after objectives is monitored and extensive consultation with reported, staff. risk management is decentralised to the various businesses
reputation, compliance with regulations and legislation, • the relevant legislation and EMPLOYEE PARTICIPATION money laundering, professional liability and business as regulations are adhered to, and A broad spectrum of well as general operating and financial risks. • adequate internal financial participative structures exists for The management of risk is decentralised to the control systems are developed handling issues that affect management and boards of the various businesses but to provide reasonable certainty employees directly and is in compliance with overall group policies. of the completeness and accuracy materially. These structures are All businesses have appointed risk managers and their of the accounting records, the designed to promote own audit committees to consider material risk areas, integrity and reliability of the employer/employee relations plans to manage risks and the adequate implementation financial statements and the through effective sharing of of these plans. A corporate risk function has been safeguarding of assets. relevant information, established to monitor group risks on a macro level, The board is satisfied with consultation and the particularly with respect to risks with a significant the integrity, objectivity and identification and resolution financial impact, a negative reputational impact or risks reliability of the financial of conflicts. that could, as a result of the scope, impact negatively statements and that all material A range of internal on Sanlam. relevant legislation has been communication media is used Compliance is measured through periodic risk reports, adhered to. to help motivate employees, which are considered by the various audit committees. allow them to gain a better At operational level, senior management identifies CODE OF ETHICS understanding of the business critical and major business risks, promotes awareness, Management and the Board, in and keep them abreast of introduces applicable control environments and consultation with staff, have important developments.
PAGE 26 human resources report
PAGE 27
EMPLOYER OF CHOICE
“The Financial Services industry is particularly dependent on its people and our future achievements will be inextricably linked to the further development and retention of employees and to attract people of the highest calibre. Success in this area will be measured by whether Sanlam will be recognised as the employer of choice” – Marinus Daling, Executive Chairman
INTRODUCTION these workshops are taken into account in Sanlam has made good progress during the processes to develop the overall group 2000 in its goal to be recognised as the strategies. The workshops also play an employer of choice. Emphasis has been important role in the personal placed on the further development of our development of these employees by intellectual capital and on creating a exposing them to strategic thinking at the challenging and exciting working highest levels.
employment
equity is a business
environment. Incentives have been imperative introduced at all levels in the group but specifically for key roles. Sustained excellent
performance is rewarded with performance Employment equity bonuses and share incentive schemes. The executive chairman and chief executive are involved in regular Good progress has also been made meetings with groups of mostly black, female and disabled employees, who with our transformation strategy. Further are selected from various levels and businesses within the group. improvement is still required and will be The purpose of these meetings is to ensure that important feedback on the driven by a concerted effort across the qualitative and quantitative aspects of employment equity reaches the spectrum of the group. highest levels of the group and can be translated into action when required. EXECUTIVE INVOLVEMENT
The executive chairman and chief executives Orientation programme of the businesses have led the way in A formal orientation programme, hosted by the executive chairman and the achieving our goals by their direct involve- chief executives, was launched in January 2000. The executives meet all new ment in a number of key interventions. entrants and introduce them to their fellow employees. The programme has encouraged a sense of unity amongst employees and has underlined the fact that High-flyer programme every employee is a valued member of a cohesive team. The executive chairman conducts strategic planning workshops with selected high- potential employees. The outcomes of human resources report – continued
MANAGEMENT OF presented by international INTELLECTUAL CAPITAL experts, has been initiated in A structured programme for the conjunction with the development of our intellectual International Center for capital is operating successfully. Management Development This programme has been and has been customised carefully formulated to ensure the according to our requirements. appropriate development of our Senior managers also skills base and to equip employees participate in a development with the skills required to operate programme presented by the in an increasingly competitive Harvard Business School and the and globalised environment. University of the Witwatersrand. Skilled people are vital to a Furthermore, a management company’s success, and also to the training programme (Smile), which future growth of the country as a focuses on the development of succession planning receives ongoing attention
whole. Sanlam fully believes that middle and first-line managers, skills development for its has been implemented within the employees is an investment in the various businesses. future and acts accordingly. S uccession planning D evelopment Succession planning receives Senior executives have attended ongoing attention within the internationally acclaimed group to ensure that sufficient advanced management leadership is in place to guide programmes such as the the group in the future. programme offered by Harvard This pool of resources is Business School. supplemented when required In addition, an executive by selective recruitment from development programme was external national and launched at the beginning of the international markets. year. This two-year programme,
PAGE 28 P A GE 29
B ursaries The use of bursaries for the development of employees and potential employees is a crucial element of our overall skills and promotion of persons from the designated development plan. In most instances, groups, particularly in key positions, is gaining bursaries are awarded in line with individual momentum and should see Sanlam being development plans that are aligned to transformed into a truly South African group. identified core business skills. Eleven bursaries for actuarial science and B lack empowerment chartered accounting were awarded at the A number of internal black empowerment beginning of the year (seven to black initiatives were launched during the year. students), bringing the total number of Non-core services, namely printing and bursaries currently in operation in these chauffeur services, were successfully outsourced fields of study to 65 (33 to black students). to internal black employees.
non-core services
were outsourced in black
TRANSFORMATION empowerment initiatives E mployment equity Sanlam considers employment equity to be a business imperative. Each business in the P ersons with disabilities Sanlam Group has embarked on a After consulting employees with disabilities, a number of structural thorough consultation process culminating adjustments have been made to the Sanlam Head Office building. The in the drafting of an employment equity nature of some of the alterations was extensive, such as the renovation and plan for the group. These plans have been altering of lifts and toilet facilities, but this has had an enormous impact on submitted to the Department of Labour in the lives of employees and visitors with disabilities. line with current legislation. Consultation forums have been LABOUR LEGISLATION initiated throughout the group and will Sanlam acts in accordance with the labour legislative requirements of the play an important role in monitoring and country in such a way that compliance is aligned to the Group’s strategic focus providing input into employment equity and also adds value to the business. initiatives. The appointment, development sanlam personal finance
SALIENT FEATURES
• 34% increase in operating profit
• New business volumes up
• New business embedded value more than doubled
CHIEF EXECUTIVE • Favourable underwriting results continued HENDRIK BESTER • Lapse rate down for third successive year another successful
NATURE OF BUSINESS Sanlam Personal Finance (SPF) is a separate business in the Sanlam Group aimed at individual clients. It comprises the operations of Sanlam Life, Sanlam Unit Trusts (SUT), and Sanlam Trust, as well as a multi-channelled distribution infrastructure and certain administrative and support services. SPF aims to generate excellent returns for Sanlam and its shareholders, while meeting the reasonable expectations of all UNLOCKING its other stakeholders. WEALTH SPF’s business is to provide financial insurance to its clients through empowered staff and intermediaries. SPF offers quality financial advice and competitive life insurance, investment, guarantee and related products,
PAGE 30 P A GE 31
backed up by professional and efficient administration services. Its vision is to be the preferred provider of these products and services in its target markets. flexibility. SPF launched its new generation 4 989 Stratus product range in response in 1999 BUSINESS ENVIRONMENT AND and continues to expand on the alternative 4 046 OPERATIONAL REVIEW products being offered. The introduction of SPF sustained its record of consistent real the South African national lottery as well as operating profit growth by producing the fast growing cellular phone industry has 2 795 another set of good operating results. had a marked impact on consumer spending, Operating profit before tax rose by 34% including savings patterns. Their initial high on the back of a 13% increase in funds attraction of cash flows should stabilise in received from clients, favourable risk due course, but their impact will remain, underwriting results, the containment of albeit at a lower level. administration expenditure, and a Government action also impacted on the reduction in exceptional expenditure on IT industry. The decision to discontinue the systems and restructuring. The embedded collection of stop order premiums from value of new business increased by 121% government employees had a limited effect to R190 million. These results were 1998 1999 2000 on SPF’s new business for the current year. achieved notwithstanding certain adverse Discussions are still taking place between SINGLE market influences. LIFE PREMIUMS (R million) embedded value
of new business
After a promising start early in 2000 increased by 121% the stock market deteriorated to levels below those of December 1999. This had a negative impact on investment income and Government and the Life Office Association 1 529 other market linked sources of revenue, as and we are fairly confident that an agreement well as the returns offered on investment will be reached that will serve the best products. A strong demand for guarantee interest of all parties involved. A prudent 1 121 1 112 products and foreign investment opport- provision was raised in the current year’s unities nevertheless continued in reaction results that will cover any potential losses that to the adverse stock market performance may result from lapses as a result of and the deteriorating value of the rand. discontinued premiums on existing policies. High levels of churning and policy surrenders Recent changes to taxation applicable to life persisted in the industry. This can, to some companies had some negative impact on the extent, be attributed to the clients’ profitability and embedded value of certain preference to switch to either potentially life products. The introduction of taxation higher yielding foreign investments or the on capital gains will further impact on net safe haven of hedged investments. investment returns offered to clients. Life companies are facing increasing Sanlam Life had a successful 2000, as competition for clients’ discretionary 1998 1999 2000 good results were achieved in most of its investment funds. Within the financial operations. The transition from traditional NET NEW RECURRING services industry various alternative LIFE PREMIUMS walk-in centres to the two client contact (R million) investment products are on offer, both centres in Pretoria and Cape Town was from local and international players. This successfully completed. Service excellence is is forcing a review of product ranges and an ongoing target in this new environment. higher levels of transparency and product sanlam personal finance – continued
making use of the individual three years. After a recent dip in policyholder’s own foreign performance the Balanced Fund investment allowance. This Stratus was the best performer over one product creates the opportunity year. The Equity Focus Fund still for smaller instalment based offers the best return on monthly offshore investments, and is investments over a ten year expected to contribute substantially period, while its one year to new business inflows, in performance has improved to a particular given the failure of the strong second place. recent Treasury Budget to increase Sanlam Unit Trusts (SUT) the foreign asset capacity of life achieved strong growth in new companies. funds received. Gross inflows The retention of funds improved by 14% to more than payable to clients on the maturity R9 billion. The Big Easy range of of policies remains an important funds that was introduced during focus area. Competitive contin- the year, and is aimed at uation options are being offered simplifying the investment choice in the Stratus product range, for individual investors, proved to while a secondary policy trading be very popular and attracted international endowment a popular addition
Continuous monitoring and training of staff members, to the stratus range as well as the optimal use of modern technology, contributes to an increasing improvement in service of products levels. Success already achieved is evident in positive client feedback, inter alia from the independent brokers facility was established late in R600 million in gross funds for making use of the facility. The streamlining of Sanlam 1999. The introduction of tax on the year, with a retention rate of Life’s back and front office processes led to an 8% capital gains has, however, reduced 72%, which is well above the reduction in staff during the year. This has been achieved the economic viability of the latter. industry average. New funds without compromising service levels. This created the The retention of non-annuity launched as part of the Big Easy potential for a lower future cost base, although maturity funds improved from range include the International increasing technology expenditure is due to offset most 25% in 1999 to 34% in 2000. Fund of Funds and the Asian of these cost savings. The implementation of the new Notwithstanding the Pacific Funds of Funds. An Life administration system (Lamda) is progressing unfavourable market conditions Enhanced Cash Fund was also according to plan. All new investment products are now the Life investment funds launched, meeting the issued on this new platform. A decision on the next performed well in 2000 compared requirements of clients with a phase of adding risk products to the new system will be to industry peers. The Offshore preference for a money market taken shortly. Equity Fund retained its first fund that invests in assets with a Product innovation is a competitive imperative. place for returns on monthly longer duration. Sanlam Life introduced several new products throughout investments over one, two and After two consecutive years as the year. Among these were a property based Stratus top investment performer, SUT investment product that exposes the policyholder to lost its number one position. the property market, but at the same time offers a Equity funds overall were guaranteed return on the investment. Complementing outperformed by cash based its existing offshore product range, SPF now also offers funds in the twelve months to an international endowment product that is unique in December 2000. Among the
PAGE 32 P A GE 33
better performing individual funds, the Sanlam Value Fund and Global Fund were in the top ten performers of all funds in the industry over two and three years respectively, while the Income Trust and Provider Trust received Moneymate consistency awards for three year performance. For the last quarter of 2000 the Sanlam Financial Fund performed best in its category and achieved a second place overall. Assets under management increased by 36% to R17 900 million, raising SUT’s market share of assets from 11,8% in December 1999 to 14%, and confirming its position as a major player in the industry. SPF Sales had a good year in which consistent growth in sales volumes was achieved, despite possible uncertainty created by the next phase of restructuring of the Advisers’ Channel. Single premiums rose by 23% and new recurring business by 38%. With one exception single and new recur- ring premiums received in every quarter of 1999 and 2000 exceeded the volumes of the corres- ponding quarter the year before. Monthly new business volumes achieved a similar growth pattern. Planning and negotiations regarding structural changes continued throughout the year, culmi- nating in the introduction of a new business model for Sanlam advisers. The creation of 87 separate distribution business units will result in a substan- tial reduction in organisational layers (replacing 26 regional and 160 branch managers) and transfer full responsibility for growth and profitability to FUNDS RECEIVED FROM CLIENTS each of these business units. At the same time a simplified remuneration structure for advisers was R million 2000 1999 Variance put in place. Administrative support for these units Life business 15 630 13 980 12% will be more centralised, aided by the online electronic selling and administration capabilities Single premiums 4 989 4 046 23% provided by S.net. These changes will become Continuations 2 240 1 624 38% effective in 2001. During the year agreements were Recurring premiums 8 401 8 310 1% also concluded with other life companies in terms of Unit Trust gross inflow 9 074 7 926 14% which selected cross selling of products by suitably qualified general agents is allowed, supplementing Total funds received 24 704 21 906 13% the total product offering to SPF clients. Net new recurring premiums 1 529 1 112 38%
FINANCIAL REVIEW F low of funds Total funds received from clients in 2000 were 13% higher than in 1999, as both the life funds and unit trusts benefited from a strong demand for offshore investments. Life inflows improved by R1 650 million (12%) on 1999. sanlam personal finance – continued
benefits. Comparative figures erosion remained high. Premiums have been restated accordingly. lost due to policies that reached In 2000 continuations increased maturity were up by 15%. This by 38% to R2 240 million. was essentially owing to a large • Recurring premiums received number of five - and ten year amounted to R8 401 million, policies that reached the end of which is marginally better than their contractual duration. Policy the R8 310 million achieved in surrenders remained at the high 1999. Net new recurring levels of 1999. premiums, after allowing for The introduction of the cancellations and first year Stratus products on the new lapses, grew by 38% to Lamda administration system R1 529 million. This includes led to more prudent profit an institutional policy with recognition. A relatively smaller an annual premium of fee income component is R250 million. recognised up front in respect of While new recurring the products on this system, while premium income grew well in premium income, in terms of the excess of 30%, premiums lost policy contract, is also accounted R5 billion received in single premiums
• Single premiums grew by 23% to R5 billion, the result of strong growth in the sale of guaranteed and offshore investment products. • Once a policy reaches maturity, the policyholder has the choice to either withdraw the funds or to continue due to lapses during the first for on a monthly basis, once to invest with Sanlam. As significant amounts are policy year were in fact down by receivable. In terms of the old reinvested with Sanlam, ‘Continuations’ will in future 20%. Similar positive trends were Legacy policy contracts, be disclosed as a separate funds inflow item, while fund also evident in second and third premiums are accounted for outflows will be shown gross of continued amounts. year lapses. The percentage of annually on the policy In the past continuations were netted against maturity policies that lapsed in their first anniversary date. This change year decreased for the third resulted in a notable deferral of successive year. This positive recognised premium income. trend is attributed to the success Policy benefits paid by of the ODDS process of Sanlam Life were marginally up managing lapse probability by R164 million compared to through analysis and prior 1999, substantially the result of screening. increasing maturity benefits. Although marginally better Outflows as a result of policy than in 1999, overall premium surrenders rose by 7%, causing an increase of R392 million in total payments to policyholders. At the same time the reinvestment of some of these benefits – continuations – grew by R616 million to R2 240 million.
PAGE 34 P A GE 35
In total, net flows from policyholders improved by R1 258 million, and were only marginally negative. SUT inflows were up by 14%, mainly as a result of a 44% increase in equity fund inflows. The bulk of these inflows were attracted to international funds. Outflows grew by 28% with the major portion flowing from cash funds and local equity funds. POLICY BENEFITS
O perating profit R million 2000 1999 Variance SPF contributed R1 044 million before tax to Death & disability claims 1 609 1 645 2% Sanlam’s 2000 operating profit, an improvement Maturity and retirement of R263 million or 34% on its performance in 1999. benefits 7 526 7 053 -7% The administration surplus of R296 million Annuities 3 145 3 418 8% is 14% lower than in 1999. This accounts for the 12 280 12 116 -1% difference between fee income and other policy Surrenders 3 672 3 444 -7% recoveries and administration costs incurred. Total policy benefits 15 952 15 560 -3% Administration fee income earned, after the remuneration of intermediaries, was 3% lower INCOME STATEMENT than in 1999. This anomaly, if viewed in the context of the increase in new business volumes, is R million 2000 1999 Variance mainly caused by the prudent change in income Financial services income 4 809 4 576 5% recognition for Stratus products that defers a Sales remuneration (1 000) (915) -9% portion of fee income that is referred to above. Income after sales remuneration 3 809 3 661 4% Other items that impacted on the fee base include Underwriting policy benefits (1 089) (1 142) 5% the relative product mix, a lower number of Administration costs (1 415) (1 330) -6% policies sold (higher unit value) and a shorter Profit before exceptional items 1 305 1 189 10% average policy duration. Administration Systems/projects (182) (203) 10% expenditure rose by R85 million or 6%, a Other exceptional items (79) (205) 61% marginal decrease in real terms. Cost savings Operating profit before tax 1 044 781 34% realised on the closing of offices and the reduction of staff partly compensated for volume related, OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS technology and other inflationary cost increases. As a result of the exceptional operational R million 2000 1999 Variance performance, additional incentive bonuses will be Administration surplus 296 343 -14% paid to SPF staff. These bonuses account for half Risk profits 404 352 15% the increase in administration expenditure. Market related income 605 494 22% Excluding these bonuses, the administration Operating profit before expenditure as a ratio to income amounted to exceptionals 1 305 1 189 10% 36,1% – marginally lower than in 1999. Risk profits increased by 15% as the FINANCIAL RATIOS favourable underwriting results experienced in 1999 continued during the year. Percentage 2000 1999 Market related income improved by 23%. Admin cost to income 37,1% 36.3% This category of income includes, inter alia, net Operating profit to income 27,4% 21,3% interest received on working capital, as well as EMBEDDED VALUE (EV) income attributable to the non profit sharing portfolios, i.e. where SPF carries the underlying R million 2000 1999 Variance investment risk. A major contribution to the EV of new business 190 86 121% EV of in-force business 6 152 5 857 5% sanlam personal finance – continued
somewhat higher than the original substantially better than the expectations for 2000, but the R86 million contributed in 1999. additional spending is the result Higher new business volumes and of a decision to accelerate some the control of expenditure projects. Three major projects, contributed to this achievement. the new Life administration The embedded value of SPF’s in- system, the electronic sales aid force business grew by S.net, and a centralised customer R295 million in 2000 to information management R6 152 million. capability accounted for almost all of the expenditure. PROSPECTS FOR 2001 An amount of R79 million The South African market remains is accounted for as other SPF’s prime focus for growth in exceptional expenditure in 2000. 2001. Efforts will be concentrated This comprises mainly costs on the continued recapturing of associated with a further phase of market share, where appropriate, the restructuring of the sales by extending its current product function and include the cost of range, as well as focusing on new operating profit increased by 34% increase came from an improvement in the performance to exceed R1 billion of the annuity portfolio. During 1999 it was necessary to incur expenditure to improve the matching of assets and associated liabilities in the portfolio, and to reduce the risk of any material future mismatching losses, while lower retrenching sales staff, the closure untapped markets. A thorough interest rates resulted in a reduction in interest earned. of offices and the write-off of market segmentation approach is Expenditure on systems and projects continued at a redundant office equipment. key to SPF’s product develop- relatively high level and at R182 million is only 10% An accrual was also raised for ment, marketing and distribution below that of 1999. This level of expenditure is the transition costs associated strategy. SPF’s infrastructure and with a simultaneous change to a technical capabilities also provide simplified remuneration model a strong base that can be capital- for advisers. ised on exploiting structural SPF identified the improve- growth opportunities, even ment of the embedded value beyond the South African borders. added by new business as a specific These will be pursued in 2001. target area for 2000. New business SPF’s objective is to grow its written during 2000 added operating profit annually at a real embedded value of R190 million, rate of 10%. Current estimates indicate that this is an achievable target for 2001, given favourable market conditions and sufficient offshore capacity to meet the demand for such products. A sustained upturn in the stock market and an improvement in market linked income is a
PAGE 36 P A GE 37
EXECUTIVE COMMITTEE prerequisite, in part to compensate for a likely normalising of the current favourable level of JA Marais (Inus)* (42) BA, LLB, ILPA underwriting results. Process improvements Sales introduced by Sanlam Investment Management (16 years) during 2000 should enable them to take advantage of an improvement in the stock market performance in 2001. A relatively high level of expenditure on L Lambrechts (Lizé) (37) BSc (Hons), FIA IT-related projects will continue in 2001, albeit at Sanlam Life a substantially lower level than in 2000. The Life (15 years) administration system will account for the bulk of the IT expenditure. One of the building blocks of SPF’s strategy is an JP Möller (Kobus)* (41) BCom (Hons), CA(SA), AMP (Harvard) empowered employee and sales force. Training and Finance the retention of key players are receiving ongoing (3 years) attention. At the same time, diversity in employ- ment is proactively encouraged. A programme of employment equity, supporting and complementing SA Lategan (Fanie) (49) BCom (Hons), MBA SPF’s business initiatives, is in place for SPF. Sanlam Unit Trusts (24 years)
T Siyolo (Themba) (38) BJuris, IRDP, SEP (Harvard) Human Resources (2 years)
DIRECTORS D Lessing (Deon)* (41) DCom MH Daling (Marinus) (Chairman) Marketing JPL Alberts (Johan) (3 years) HSC Bester (Hendrik) D Lessing (Deon) JA Marais (Inus) L Watkins (Leon) (37) BSc (Hons) Information Technology DNM Mokhobo (Dawn) (2 years) JP Möller (Kobus) P de V Rademeyer (Flip) CG Swanepoel (Chris) AP Zeeman (André) (40) BCom, FIA Risk Management JJM van Zyl (Boetie) (19 years)
AUDIT COMMITTEE
JPL Alberts (Johan) (Chairman) * Executive directors of Sanlam Personal Finance Limited P de V Rademeyer (Flip) CG Swanepoel (Chris) sanlam employee benefits
SALIENT FEATURES
• 69% increase in single premiums
• 50% reduction in net outflow of funds
• 20% increase in operating profit
CHIEF EXECUTIVE NICK CHRISTODOULOU providing quality
DESCRIPTION OF BUSINESS Sanlam Employee Benefits (SEB) is an independent business in the Sanlam group focusing on corporate clients in terms of primary decision making, premium collection and communication, but with individual member access to facilitate individual choice and flexibility. Its main product lines include: CONTINUED • risk products consisting of
GROWTH group life and disability cover provided to group funds and schemes;
PAGE 38 P A GE 39
•investment products consisting of smoothed bonus products, participating annuities and market linked investment policies for group funds; small, an increase of more than 50% was 202 • administration business consisting of achieved, which is significant when 168 retirement fund administration, money measured against the ability to leverage transfer business and payroll other services from this base.
administration; On the investment side, our Monthly 115 • actuarial and consultation services to the Bonus Fund, launched during 1999, retirement fund industry. remains the ideal investment vehicle when investment guarantees are required. THE BUSINESS ENVIRONMENT Bonuses on this product are declared AND OPERATIONAL REVIEW monthly in advance, and vest in full. The trend that large independent During 2000 the bonuses on this product intermediaries are becoming product remained the highest in the industry, competitors in traditional insurance making it a very attractive option for 1998 1999 2000 business has further increased competition trustees and members. In addition, the in the already highly competitive industry. OPERATING PROFIT (R million) reduction in
net outflow by 50%
This year saw an increased uncertainty in the handling of surpluses in retirement funds, especially in respect of the ownership and treatment of past Enhanced Capital Guaranteed Fund was 80 members. SEB’s view has been that each launched during the year, providing for the case should be assessed on its merits with needs of large funds seeking a capital 59 an equitable handling of all stakeholders. guarantee while having the flexibility of As a result of this uncertainty, and the low monthly fund flows. funding levels in retirement funds owing Our risk products were extended this to the low return on equities achieved year. Trauma benefits were improved, a during 2000, fund trustees have been wary new group risk product was launched, of moving assets into other insurance specifically designed to assist those with 14 products, especially insured annuities. HIV/Aids and other terminally ill people When the surplus issue is resolved and to cope with this difficult stage of their markets improve, we foresee a renewed disease, and our Managed Disability potential for the outsourcing of bulk Benefits unit saw good growth on the 1998 1999 2000 annuities to insurers. previous year in the number of employers RISK PROFIT SEB has embarked on a strategy of opting for this product. A risk benefit plan (R million) enhancing its consulting capacity, with for executives was also launched. further improvements during the year. During the past few years there has Although the revenue from this source is been a gradual move towards individual sanlam employee benefits – continued
funds to its new Wiz@rd admin- istration platform. This system was specifically developed to cater for member choices and is thus well placed to gain market share due to its administration capabilities. An Internet-based front-end was also developed, further enhancing the capabilities of the Wiz@rd system. A new generation umbrella fund was designed for the middle market as a packaged product providing flexible risk and investment options on our modern administration platform. Appropriate advice and 20% increase in operating profit
investment and risk benefit choice within retirement funds. The trend has been slower than originally anticipated, partly consultation is offered and a tion in a secure web-enabled owing to the necessary professional group of trustees is environment on the back of our administration platforms not also a feature of this product. Wiz@rd and HRP@c platforms, being available. During 2000 SEB SEB has progressed well with and the benefits to be derived successfully migrated its first the development of its Internet- from dealing with such based human resources individuals, was also initiated administration system HRP@c to during the year. meet the needs of employers who wish to outsource these services. FINANCIAL REVIEW Our e-business strategy, Recurring premiums increased by which is built around retirement only 1% to R2 883 million. fund members and employees The low growth follows two years being able to access their informa- of fairly high fund dissolutions, which impacted on the recurring premium levels, notwithstanding a 58% increase in new recurring premiums to R219 million. With the reversal of this outflow, future growth should return to normal
PAGE 40 P A GE 41
FUNDS RECEIVED FROM CLIENTS* levels. Single premiums of R4 146 million are a R million 2000 1999 Variance
69% improvement on 1999, mainly due to large Recurring premiums 2 883 2 850 1% single premium pre-retirement investments Single premiums 4 146 2 449 69% capitalising on new and improved product Total premiums 7 029 5 299 33% offerings on an ongoing basis. The post- New recurring premiums 219 139 58% retirement investments are still at low levels owing to the caution of trustees to invest in PAYMENTS TO CLIENTS* insured annuities before there is clarity on the R million 2000 1999 Variance surplus issue. Policyholder benefits (consisting of benefits Policy benefits 5 765 6 311 9% Funds terminations 7 271 11 060 34% paid or payable in terms of insurance contracts) decreased by 9% to R5 765 million mainly Total payments 13 036 17 371 25% owing to lower withdrawal benefits paid * Includes intergroup transactions resulting from fewer retrenchments and INCOME STATEMENT resignations by fund members compared with R million 2000 1999 Variance previous years. Fund terminations reduced by 34% to R7 271 million (R11 060 million in Financial services income 1 558 1 426 9% Sales remuneration (43) (32) -34% 1999). The resulting net R6 007 million outflow Income after sales remuneration 1 515 1 394 9% of funds is a 50% improvement on 1999’s Underwriting policy benefits (984) (929) -6% R12 072 million net outflow. This positive trend Administration costs (301) (271) -11% is expected to gain momentum in future. Profit before exceptional items 230 194 19% SEB has achieved a 20% increase in its Systems development expenditure (32) (20) -60% operating profit before tax from R168 million in Other exceptional items 4 (6) 167% 1999 to R202 million in 2000. Over the two- Operating profit before tax 202 168 20% year period a 38% average growth per annum OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS has been achieved.
Income after variable sales remuneration R million 2000 1999 Variance increased by 9% as a result of increased fees Risk business 80 59 36% following good flows into our guaranteed Investment business 125 103 21% products. This increase combined with fairly low Administration business 19 28 -32% Consulting unit 6 4 50% increases in insured policy benefits from R929 million in 1999 to R984 million in 2000 Operating profit before exceptionals 230 194 19% saw operating profits before exceptional items increasing by 19% to R230 million notwith- FINANCIAL RATIOS standing administration expenditure increasing 11% as a result of higher expenditure in sales Percentage 2000 1999 and marketing. Admin cost to income 19,9% 19,4% Systems development expenditure still Operating profit to income 13,3% 12,1% reflects the implementation of our Wiz@rd fund administration system as well as the develop- EMBEDDED VALUE (EV) ment of the web-enabled HR outsourcing R million 2000 1999 Variance system, HRP@c. These investments are planned EV of new business 70 64 9% to contribute to the bottom line from 2001 EV of in-force business 897 720 25% onwards. sanlam employee benefits – continued
Administration business profit decreased mainly as a result of losses incurred in the provision of HR services within the Sanlam group, which have since been outsourced to the various businesses, and the lower than expected income from the money transfer business. The consulting unit increased income by 50%, although still small, this is a strategic thrust to position SEB better in its target markets. Embedded value added by new business written during 2000 amounted to R70 million, wiz@rd administration platform successfully
The administration cost to launched income ratio has increased slightly to 19,9%, as a result of higher sales and marketing expenses, a 9% improvement on 1999’s expanding its consultancy which is designed to provide R64 million. The value of in- capacity, enhancing its better access to clients in future. force business grew by 25% from multimanager product, Operating profit to income has R720 million at 31 December aggressively selling its new improved from 12,1% to 13,3%, 1999 to R897 million at generation umbrella fund in the following excellent risk profits. year-end. middle market, and building on The table on the previous its successes in its risk business. page shows that the growth in PROSPECTS FOR 2001 These, together with a focus operating profit is mainly due to SEB will position itself for on improving the efficiencies in profits from the risk business continued growth in 2001 by our more mature business areas as increasing by 36%. Continued using its new e-business well as building on the success of product improvement, repricing administration platforms, continuous product innovation, and claims management should enable SEB to provide a contributed to this increase. steady growing operating profit in Investment business profits order to optimise returns on increased by 21%, mainly as a equity and embedded value. result of improved inflows in some of our higher margin product portfolios.
PAGE 42 P A GE 43
EXECUTIVE COMMITTEE In addition to optimising its current products and position in the South African BX Nomvete (Bax) (47) Dip Comp Science (UK) market, emphasis is being placed on redirecting Distribution (3 years) our focus towards high growth markets and products so that our growth and return objectives can be sustained over the longer term. J Moalusi (John)* (48) BProc, HDPM, EDP SEB is searching for opportunities, locally and Deputy Chief Executive abroad, to expand its client base using its (3 years) traditional skills, but is also considering alternative strategies to reduce its dependency on its traditional risk and guaranteed business. GR Perils (Godwin) (35) Nat Dipl Marketing Marketing In all of this, SEB’s staff are highly valued (1 year) and will be developed to support SEB’s objective of providing quality service to a diversified South African market. SEB’s success in growing J de Villiers (Jacques) (46) BCom, FIA its profits steadily over the last few years is Consulting Services (24 years) directly attributable to the quality of its staff and the emphasis on servicing its markets and clients with excellent resources. CP Pretorius (Neels) (43) BCom, FILPA, CAT Product Research & Development (22 years)
BOARD OF DIRECTORS S Lagerdien (Safia) (39) BA (Hons), MA (Ind Psych) MH Daling (Marinus) (Chairman) Human Resources Prof AC Bawa (Ahmed) (3 years) NT Christodoulou (Nick) K Jowell (Kate) DG Steyn (Douw) (54) J Moalusi (John) Retirement Fund Administration (33 years) P de V Rademeyer (Flip) CG Swanepoel (Chris) TMM Nkone (Theo) (40) BA, BSc TW Thom (Wouter) Multi-Data HC Werth (Heinie) (1 year)
AUDIT COMMITTEE HC Werth E ten Oever (Erika) (36) P de V Rademeyer (Flip) (Chairman) (Heinie)* (37) BCom, MBA CA(SA), MBA Prof AC Bawa (Ahmed) E-Business Finance (1 year) CG Swanepoel (Chris) (3 years)
TW Thom (Wouter)* (44) BCom (Hons), FIA Risk & Investment Products (22 years)
PJF Venter (Francois) (43) BCom (Hons) Information Technology * Executive directors of Sanlam Employee Benefits Limited (3 years) gensec group overview
NATURE OF BUSINESS control relaxation. As a result, Gensec (Genbel Securities share prices on the JSE declined Limited) is a South African sharply. The prices of growth and financial services group providing small capitalisation shares were knowledge-based financial particularly weak. solutions to clients in four principal During the second half of the areas, namely asset management, year the JSE recovered some of its investment banking, property losses and the All Share Index services and equity underwriting. rose by 8% on the back of a 22% During December 2000, rise in the Resources Index. In Sanlam acquired all the shares in contrast, the Financial and Gensec that it did not already Industrial Index at the end of own and Gensec was delisted December was only 1% higher from the Financial Services sector than its 30 June 2000 level. The
CHIEF EXECUTIVE of the JSE. Refer to the Report of South African Reserve Bank’s 25 ANTON BOTHA the Financial Director on page 16 basis points increase in the repo for further details of this rate in October, and the fact that providing knowledge –
transaction. The Gensec National Treasury’s Medium Term businesses have subsequently Budget Policy Statement included been integrated into the expected receipts on privatisation Sanlam Group. that were both lower and later than market expectations, BUSINESS ENVIRONMENT impacted negatively on the At the time of the release of its financial sector. half-year results Gensec reported Internationally, markets that a number of factors had were under pressure for the last negatively influenced the South six months of the year, with the African financial markets during benchmark Morgan Stanley INTEGRATED GROUP the first half of 2000. These World Index down by 11% and
ACTIVITIES FOR included, inter alia, rising global the technology-dominated interest rates, rand weakness, NASDAQ Index down by 38%. GLOBAL GROWTH soaring international oil prices, The Dow Jones Industrial Index the political turmoil in Zimbabwe rose by a marginal 3% as and increased foreign investment investors directed their cash by South African asset managers flows towards the old economy following further exchange stocks.
PAGE 44 P A GE 45
under review was R79 million, whereas in FINANCIAL RESULTS 1999 taxation contributed a net The Gensec group results for the full year R41 million to earnings. This swing, were well below management’s initial which was the result of a R100 million expectations, but were in line with the write-back of a tax provision on foreign outlook published in the interim report. operations during 1999, contributed As a result of the weak financial markets, further to the reduction in the Gensec the first half’s results were well down on group earnings in relation to 1999. the corresponding period of the previous GENSEC GROUP INCOME STATEMENT financial year. The second six months, however, showed a significant R million 2000 1999 Variance improvement with earnings after tax of Financial services income 1 387 1 247 11% R343 million, 31% higher than the first Administration costs (631) (500) -26% half’s earnings and only 2% lower than the second half of the previous year. Profit before exceptional items 756 747 1% Exceptional items (73) — — Earnings after tax for the full year amounted to R604 million, 23% lower Operating profit before tax 683 747 -9% Tax (79) 41 -293%
Operating profit after tax 604 788 -23%
the second
six months’ results showed a
significant improvement than the R788 million earned in 1999. Financial services income of R1 387 million (1999: R1 247 million) was up by 11%, but with administration GENSEC GROUP SEGMENTAL CONTRIBUTION TO EARNINGS costs which increased by 26% to R million 2000 1999 Variance R631 million (1999: R500 million) and exceptional items of R73 million, Sanlam Investment Management 205 211 -3% operating profit before tax was 9% lower Bank 234 183 28% at R683 million (1999: R747 million). Property Services 39 52 -25% Underwriting, corporate and other 126 342 -63% The significant increase in administration costs related particularly to staff costs, Earnings after tax 604 788 -23% which accounted for 47% of the total and were mainly due to the establishment of Gensec’s international operations and the continued strong growth of Gensec Bank. FINANCIAL RATIOS Refer to the separate Gensec divisional reviews in respect of Gensec Bank, Sanlam Percentage 2000 1999
Investment Management (SIM) and Admin cost to income 45,5% 40,1% Gensec Property Services which follow for Operating profit to income 49,2% 59,9% a further analysis of their activities and results. The taxation charge for the year sanlam investment management (previously gensec asset management)
SIM’s vision is to become the grew by 137% and 39% Leader in Wealth Management. respectively. The specialist approach In order to achieve this vision used to manage these products is the business will focus on core to the re-engineered invest- the following key strategic ment process, the goal of which areas: remains delivering consistent long- • Investment performance term positive investment returns. • Efficiency The transparency, scaleability and • Distribution, marketing and consistency of the investment sales process have been improved • Building the international significantly through the credentials implementation of internationally • Strengthen the retail acclaimed technology. proposition The concept of specialisation
CHIEF EXECUTIVE • Human capital development has also been incorporated within ANGUS SAMUELS client services and has resulted in greater client focus. Technology sanlam investment management buys british group
DESCRIPTION OF BUSINESS for global growth Sanlam Investment Management (SIM) is the second largest investment manager in South Africa providing the full spectrum of investment management services. This encompasses the manufacturing, distribution and BUSINESS ENVIRONMENT AND has been introduced to support servicing of investment products to individuals, OPERATIONAL REVIEW service levels, most notably the The business environment in 2000 intermediaries and institutions. availability of client reports via was dominated yet again by volatil- secure and controlled web access ity, in the local markets throughout and the introduction of a leading the year and internationally for the edge client relationship second half of the year. This clearly management system. impacted on trading conditions Efficiency is a key and market values remained sub- differentiator in the highly stantially at previous year levels. competitive and margin sensitive Despite this harsh environ- global asset management ment, funds continued to flow industry. During the year SIM into the large cap and cash undertook a fundamental review management products, which of efficiency to bring resources in line with the re-engineered processes and to increase efficiency. This led to an increase in assets under management per employee from R794 million in 1999 to R937 million in 2000 but
PAGE 46 P A GE 47
unfortunately led to the retrenchment of a number of staff members. In 2000 SIM Namibia was launched and had a number of successes, including the appointment as sole asset manager for the development capital portfolio of the largest retirement fund in Namibia. This consolidated its position as the largest asset management business in Namibia. In line with the strategic intent of internation- alisation, a number of important initiatives were undertaken during the year at Gensec International Asset Management. The most significant initiatives relate to products and resources. The product range was substantially enhanced with the restructuring of the Dublin based funds to increase the number of funds from five to twelve. This greatly increases client choice as the funds can be used in combination to create bespoke solutions. This process involved proprietary market segmentation and manager combination analyses. ASSETS UNDER MANAGEMENT The human and technical resource base was strengthened considerably during the year and now R million 2000 1999 includes risk management and performance Market value – beginning of year 197 867 161 996 attribution analysis, asset allocation and solutions Net contributions 2 263 (7 402) capabilities and transition management services. Segregated funds 2 218* (1 745) Sanlam portfolios (8 728) (15 173) FINANCIAL REVIEW Investment income 8 773 9 516 Despite the tough trading conditions during Market value appreciation 1 857 43 273 2000, SIM experienced a net inflow of funds, Market value – end of year 201 987 197 867 reversing the previous year’s outflow. The majority of inflows occurred in third *includes intergroup transactions party segregated portfolios and specifically the specialised product portfolios developed as INCOME STATEMENT part of the redesigned investment process. This resulted in a 2% increase in assets under R million 2000 1999 Variance management compared to 1999. Fee income 496 430 15% Operating profit after tax grew by 9%, Administration costs (239) (185) -29% notwithstanding the low growth in financial Profit before exceptionals 257 245 5% markets. Exceptional items (14) — — Fee income increased by 15% partly due to Profit after exceptionals 243 245 -1% the increase of funds under management and Tax (52) (69) 25% partly due to a larger component of Operating profit after tax 191 176 9% internationally managed funds at higher fees. Interest after tax 14 35 -60% The net inflows into the South African Operating profit after interest 205 211 -3% specialised mandates resulted in fee income from third parties increasing by 35% representing Admin cost to income ratio 48,2% 43,0% — 20% of South African fee income. sanlam investment management – continued
SIM had substantial surplus the Satrix range and will also be capital in 1999, which was well positioned to participate in returned to the Gensec Group at other joint ventures or white label the end of that year. This resulted manufacturing initiatives. in higher interest income in 1999 The focus on retail will compared to 2000. For continue, in particular the private comparative purposes the interest client business. The recent income should be excluded from acquisition of the private client the operating profit. business of ABN Amro South Africa introduces a further PROSPECTS FOR 2001 23 000 clients and R2 billion of The prospects for 2001 look assets to the existing private client positive on both the domestic business of SIM. The range of and international fronts services offered is also enhanced supporting the real target profit by the addition of retail growth of 10% given favourable stockbroking capabilities. market conditions. The strong branch network will despite a harsh environment, funds continued to flow into the large cap and cash management products
The 29% increase in administrative costs can be D omestic give clients access to one of the explained as follows: The communication and largest research, portfolio, risk and • The administration function of asset management promotion of the investment administration teams in the was established as an independent business (TASC) process will continue in 2001. country, offering local and from 1 January 2000. This resulted in higher and The transparency of the invest- international services. Clients will more market related administration costs. ment process is already finding also be able to access these services • Salaries and incentives were brought into line with favour in the market. In addition, through the vast network of Sanlam market practice. the launch of a new product advisers and independent brokers. • The year 2000 was the first full year that the range should also be well received international business operated on a stand-alone by clients and consultants. I nternational basis. Following on from the On the international front the Exceptional items include the following costs: success of Satrix 40, it is credentials have been substantially • The efficiency review and the resultant anticipated that SIM will be strengthened by the acquisition of retrenchment costs. supporting additional products in one of the top British-based firms • The implementation of the new investment of consulting actuaries and process technology. financial advisers, Punter Southall The effective tax rate declined during 2000, mainly & Company. The deal enhances owing to the international business, where lower the international expansion marginal tax rates apply. plans of SIM by increasing its international offering
PAGE 48 P A GE 49
and providing interesting new products and distribution opportunities. As one of the leading independent UK firms of consulting actuaries, Punter Southall has a substantial base of client funds. The deal will provide an integrated service combining the multimanager approach to asset EXECUTIVE COMMITTEE – SOUTH AFRICA management with independent actuarial expertise to create products for selected target markets as well as to provide the new group with additional AA Raath (Anton) (45) BCom, CA(SA) distribution capabilities. Retail & Operations (1 year) The new international group offers four distinct businesses: • multimanager asset management services, • actuarial consulting, RB Goldblatt (Raymond) (41) CFA • financial advice to high net worth individuals, and Marketing & Sales (3 years) • investment solutions. A unique combination of traditional actuarial consulting with product driven asset management, RT Schkolne (Raymond) (43) BSc, BBus Sc including asset liability matching. Human Development Capital (1 year)
C Greyling (Chris) (40) AUDIT COMMITTEE BCom (Hons), (Economics) Chief Investment Officer AS du Plessis (Attie) (Chairman) (2 years) DR Geeringh (Div) D Ladds (David) CA Teague (Carol) (34) BA (Hons), CA(UK) Strategic Development BOARD (2 years) MH Daling (Marinus) (Chairman) AD Botha (Anton) AS du Plessis (Attie) PJ Cook (Peter) (Alternate to AS du Plessis) EXECUTIVE COMMITTEE – INTERNATIONAL DR Geeringh (Div) D Ladds (David) KJ McKelvey (Kenneth) (44) BSc MBA, FIA Chief Operating Officer: Gensec Financial Services bv R Masson (Ronnie) JD Punter (Jonathan) (43) BSc, FIA Prof AF Perold (André) Chief Executive Officer: Gensec Financial Services bv JD Punter (Jonathan) SM Southall (Stuart) (43) MA, FIA AA Raath (Anton) Chairman: Punter Southall & Company JAA Samuels (Angus) W P Wormley (Wallace) (53) BSc, MA Harvard, PhD (Harvard) Chief Investment Officer: Gensec Financial Services bv gensec bank
SALIENT FEATURES
• Growth in revenue of 22%
• Raised international capital of R2 billion on behalf of SA corporations
• Launch of Satrix 40, Kiwane CDO fund and warrants CHIEF EXECUTIVE MARIUS FERREIRA
the bank provides products, services and skills across the broad spectrum of money,
NATURE OF BUSINESS capital, foreign exchange Gensec Bank is a specialist banker for the South African savings and equity markets industry, public sector enterprises and corporates. foreign exchange and equity BUSINESS ENVIRONMENT The wide fluctuations in interest The Bank provides products, markets, with specific focus on rate levels and the Reserve Bank’s services and skills across the broad derivative based products. tightening of liquidity in response spectrum of money, capital, Our focus on new generation financial products currently to such financial market includes securitised debt, collateral disruptions resulted in a relatively bond and loan obligations and harsh operating environment for credit derivatives. We also manage our industry. The anticipated financial risk on behalf of our Y2K problems meant that clients and advise on and execute liquidity conditions were tough mergers and acquisitions, listings, right from the beginning of 2000 restructures, unbundlings and and never really eased materially international capital raising. during the course of the year. A number of smaller banks experienced financing problems and were forced to close or to be absorbed by other institutions in rescue packages. At the same time, the bigger banks, stock- brokers and foreign financial
PAGE 50 P A GE 51
institutions progressively encroached on the business territory targeted by Gensec Bank and its counterparts, as they sought to diversify their income base.
OPERATIONAL REVIEW M arket activity Gensec Bank, in recognising the increased market risk in its chosen business environment, has sought to be proactive in adapting to the prevailing conditions. We have progressively moved away from our early business model based upon proprietary trading. During the course of 2000, we closed down our equity trading desk; consolidated the treasury and interest rate trading desks under a INCOME STATEMENT single operational entity; significantly reviewed and prescribed the trading mandates for our interest R million 2000 1999*Variance rate and equity derivatives units and combined our Revenue 481 394 22% arbitrage activities in a single specialised division Administration costs (242) (182) -33% managed separately from the trading floor. Operating profit 239 212 13% Risk management, control and measurement have been and will continue to be the object of *The 1999 comparative figures have been restated to afford a better comparison. much attention and expense. Although the Bank The effect on operating profit is an increase of R12 million from R200 million as previously reported to the restated amount of R212 million. Consolidated Gensec and its clients are exposed to market conditions, and Sanlam comparatives for 1999 were not revised as the effect at group level is volatility and flows, these risks can be defined, not significant. quantified and controlled. The South African markets are developing rapidly in sophistication FINANCIAL RATIOS concerning investment vehicles and opportunities to hedge, sell off or otherwise share credit or 2000 1999 market risk and we are well placed to participate in Admin cost to income ratio % 50% 46% the growth of this market. Revenue per employee R’000s 2 020 1 807
I nvestment banking REVENUE DISTRIBUTION With the Bank shifting its focus from proprietary trading to seeking client based and fee income 3% 4% business, the diversification of income has received 25% 39% priority. The absorption of Gensec’s corporate advisory, private equity and equity fund raising 36% activities into the Bank has been a critical element 54% towards achieving this objective. Over 50% of the 18% investment banking division’s revenue in 2000 was 21% derived from corporate fund raising activities and REVENUE PER BUSINESS REVENUE PER BUSINESS FOR THE YEAR 2000 FOR THE YEAR 1999 this division has focused on bringing merger and Investment banking Investment banking acquisition opportunities to a growing number of Risk management solutions Risk management solutions clients. Specialist teams concentrating on specific Market activity Market activity Arbitrage Arbitrage industries are a unique approach in South Africa to Equity Financing and have proved successful. gensec bank – continued
The combination of a necessary but adverse impact on initiatives such as packaging, administration costs, the objective structuring, the introduction of is to not exceed an administration new asset classes, seeking cross cost to income ratio of 50%. market opportunities and utilising derivatives where PROSPECTS FOR 2001 physical assets are scarce, forms We have adopted the following the foundation of these products. strategies for the coming year: In 2000, we were able to • Strengthening and evolving our introduce new products to the core business model by local markets such as the Kiwane diversifying our income base Collateralised Debt Obligation through exploring synergies in Fund, the first CDO fund in the Sanlam group, adding new South Africa and Satrix 40, a products, seeking additional highly successful listed Exchange clients and expanding our Traded Fund tracking the JSE geographical reach. ALSI 40 index, a first in emerging • Focusing our business on markets. servicing the needs of our we are working on a number of pioneering
Risk management products for the solutions The Structured Products team has south african markets focused on developing new products, on seeking a wider FINANCIAL REVIEW clients by concentrating on Although the growth in revenue client base and quantitative invest- managing customer of 22% is particularly pleasing, ment solutions, not only for fund relationships through constant the longer term objective is to management, but also for cash flow communication with our achieve revenue and operating problems. Such products are being clients so as to establish their profit growth of 25%. The successfully marketed. Smaller needs and to understand their process of diversifying revenue business units have been businesses. Client database streams and reducing the relative established to broaden the income systems, CRM processes and contribution of proprietary base in the fields of stockbroking, structures to provide consistent trading to total revenue gained debt origination and retail communication within the momentum during 2000. warrants. A meaningful Bank on client contacts and Operational efficiency is currently contribution to income from service have been implemented and will continue to be a focus these units is expected in the for this purpose. area. Although this obviously has coming year. • Expanding our business We are working on a number internationally with the of pioneering products for the objective of servicing our South African markets. existing and new clients globally and adapting our
PAGE 52 P A GE 53
DIVISIONAL HEADS products to markets comparable to South Africa. MS Murning (Mark) (41) BCom • Improving operational efficiencies with a view Risk Management Solutions and Market Activity to implementing trading, accounting, risk (18 years) management and reporting systems that are globally compatible and competitive. • Implementing a human resources strategy to J Latsky (Johan) (41) BA, LLB support our corporate vision. Our people are Special Projects our major resource and we are committed to (2 years) developing their skills and to providing a working environment that makes Gensec Bank FJ Oosthuizen (Francois) an employer of choice. (41) BCom (Hons) The investment banking environment will Arbitrage (15 years) remain extremely competitive in the year ahead as global banks continue to expand activities and corporate activity of South African based K Magwenthsu (Khanyisa) (35) organisations remains subdued. This, together with BJuris, LLB Corporate Services (1 year) volatile financial markets will result in an extremely challenging 2001.
SH Müller (Steve) (40) CA(SA) Investment Banking (6 years)
DIRECTORS G Erasmus (Gerhard) (36) CA (SA) AD Botha (Anton) (Chairman) Finance DR Geeringh (Div) (Vice-Chairman) (4 years) M Ferreira (Marius) PJ Cook (Peter) TL de Beer (Tom) AS du Plessis (Attie) JH Fouche (Jaco) D Ladds (David) CREDIT COMMITTEE Prof AF Perold (André) PJ Cook (Peter) (Chairman) TL de Beer (Tom) AS du Plessis (Attie) AUDIT COMMITTEE M Ferreira (Marius) A S du Plessis (Attie) (Chairman) D Ladds (David) TL de Beer (Tom) DR Geeringh (Div) D Ladds (David) gensec property services
INCOME STATEMENT
R million 2000 1999 Variance
Fee income 170 146 16% Net interest income 14 23 -39%
Financial services income 184 169 9% Administration costs (111) (97) -14%
Operating profit before exceptional items 73 72 1% Exceptional items (14) ——
MANAGING DIRECTOR Operating profit before tax 59 72 -18% BANUS VAN DER WALT (50) Tax (20) (20) 0% BEcon (Hons) Operating profit after tax 39 52 -25% (32 years) good progress made in diversifying sources of revenue
NATURE OF BUSINESS FINANCIAL AND standard portfolio management Gensec Property Services is a property management OPERATIONAL REVIEW fees earned. The reduction in company, whose activities include letting, rental Gensec Property Services’ main profits before tax compared to collection and marketing through to contracting and source of revenue continues to be 1999 is due to reduced interest administration. Other services include asset management, generated from the management income resulting from lower investment analysis, investment structuring, project of the Sanlam property portfolio. levels of capital together with management, lease administration, market research and However, our continued drive to lower interest rates and increased Geographical Information Systems (GIS). obtain business from other staff and restructuring costs. sources resulted in an increase in our revenue from external sources OUTLOOK FOR 2001 to 10% of total income. Good Prospects for the property market progress has been made in diver- during 2001 are still unfavourable. DIRECTORS sifying sources of revenue with Competitive opportunistic AD Botha (Anton) the acquisition of a company that investors are building up-market PJ Cook (Peter) delivers property-related services. properties in new development NA Siebrits (Nico) (Alternate to PJ Cook) The performance of the Sanlam nodes and are attracting tenants property portfolio and therefore from existing properties. Sanlam’s ERM Field (Eric) also Gensec Property Services strategy of reducing its exposure R Masson (Ronnie) came under pressure due to poor to property investments has placed AL Müller (Dolf) market conditions and the general more pressure on the property DK Smith (Desmond) overprovision of lettable space. portfolio and therefore on Gensec Prof S Vil-Nkomo (Sibusiso) Operating profit before tax of Property Services’ profitability. R59 million was 18% lower than During 2001 we want to build AUDIT COMMITTEE 1999 but exceeded our target for on our vision to become a leading 2000. The positive variance property management group with ERM Field (Eric) compared to the target is mostly a broad client base, diversified AL Müller (Dolf) due to an increase in fee income revenue streams and consistent NA Siebrits (Nico) owing to increased incentive and growth in profits.
PAGE 54 gensec underwriting, corporate and other activities
P A GE 55
GENSEC PROPERTY SERVICES – INCOME STATEMENT EXECUTIVE COMMITTEE R million 2000 1999 Variance G Kirchner (Gerhard) (48) MSc, Eng Fee income 3 29 -90% Portfolio Management Investment profits 163 305 -47% (11 years) Net interest income 40 (118) 134% Financial services income 206 216 -5% Administration costs (43) (36) -19% E van Niekerk (Rassie) (47) BEcon Profit before exceptional items 163 180 -9% KwaZulu Natal region Exceptional items (41) — — (21 years) Operating profit before tax 122 180 -32% Tax 4 162 -98%
Operating profit after tax 126 342 -63% TI Mvusi (Themba) (46) BA Marketing (2 years) In its equity underwriting business, Gensec utilises its own capital for selective underwriting of large transactions and V de Stadler (Vic) (41) bought deals both locally and internationally. Our clients are Gauteng South region mainly large South African corporates and investment banks. (20 years) Generally, the capital markets were very quiet during 2000 as corporate clients waited for stronger markets to raise capital. Profits realised on positions held at the start S Pieterse (Steyn) (55) of the year and Gensec’s participation in a limited number BCom, BSc Building Management of successful underwriting transactions, contributed Gauteng North region R168 million to the net divisional profit before (1 year) exceptionals of R163 million for the year.
A le Roux (Alan) (41) The Corporate division, which consisted of trading, private BSc, Eng (Hons) equity investments, corporate cash and corporate expenses, Western Cape Region incurred a loss of R5 million before exceptional items. At (8 years) 31 December 2000, corporate assets of the Gensec group consisted of a portfolio of private equity investments M de K Rall (Kokkie) (53) (R756 million) and other local investments (R918 million) BJuris and international (R919 million) cash and near cash Facilities holdings. (17 years) The trading activities, which incurred a R102 million loss in the first half of the year, were discontinued and the entire portfolio liquidated. HJ Mocke (Hugo) (45) BCom, MBA The selling off of this portfolio rendered a small profit Asset Management of R6 million in the second half of the year. Losses of (25 years) R131 million were incurred during the first half of the year on private equity investments but recovered during the second half with a profit of R67 million resulting in a M van der Walt (Marna) (32) loss for the full year of R64 million. The international CA(SA), MCom cash holdings benefited in Rand terms from the Finance depreciation of the South African currency and boosted (5 years) interest income on cash holdings to R164 million. Included in administration costs are the corporate G van Zyl (Gerhard) (41) expenses of the Gensec group of R9 million. Exceptional BSc Eng (Hons), MBA costs of R41 million include restructuring costs resulting Executive Director from the acquisition of the Gensec minorities by Sanlam (9 years) and expenses related to international acquisitions. sanlam health
NATURE OF BUSINESS role player in the wholesale Sanlam Health focuses on market during the year by providing medical risk applying its knowledge-based management services to skills and systems to enhance its medical schemes (wholesale products in order to meet market business). Its Solutio product demands. Sanlam Health’s core takes managed health care a competency in this area provides step further by guaranteeing a competitive advantage and will the outcome of managed care support the growth of its client initiatives and thereby capping base in the future. Notable value- the risks of certain major added client services initiatives for medical expenses of schemes. the year include Sanlam Health’s Sanlam Health also provides WAP-enabled provider directory,
CHIEF EXECUTIVE administration, scheme comprehensive online interaction JOHAN DU PREEZ (35) management and marketing for members and intermediaries MPharm, MBA (4 years) services to Topmed and with scheme administrators as Selfmed (retail business). well as pre-authorisation tracking
OPERATIONAL REVIEW facilities on the Web. Sanlam The medical scheme industry has Health developed a new low-cost undergone significant changes in product for Topmed to fill the the past year. Amendments to the gap in the market for affordable Medical Schemes Act introduced but quality health care and plan community rating and open to market this product enrolment, which are threatening aggressively in the coming year. the solvency of schemes. A key focus area was to provide FINANCIAL REVIEW innovative risk management Income decreased by 8% as a services to scheme clients to result of membership losses in the protect their solvency. Sanlam retail business (Topmed and PURSUING GROWTH Health positioned itself as a key Selfmed). Quality health-care OPPORTUNITIES management and administration contributed to the slight improvement in the claims ratio to 95,8% (1999: 96,1%). Due to
PAGE 56 P A GE 57
EXECUTIVE COMMITTEE effective cost management, the administration cost ratio improved from 19,3% in 1999 to 16,3% RW Schnetler (Rudolf) (40) BCom in 2000. The surplus of outsourcing and Information Technology (12 years) restructuring provisions created in the past was reversed and an Aids reserve of R5 million was created. An operating profit of R15 million was achieved for the year (1999: R11 million). DG Fredericks (Desmond) (35) BAdmin Scheme Marketing and Sales (1 year) PROSPECTS FOR 2001 Although profitability was maintained with Sanlam Health’s current business volumes, Sanlam DC Steyn (Dirk) (32) BCom (Hons) Health’s key focus area for 2001 is to grow its Strategic Initiatives (8 years) wholesale client base and to increase margins on current and new business. Further challenges are to convert Sanlam Health’s extensive knowledge H Louw (Hanneke) (29) CA(SA) capital into new revenue streams and to pursue Finance structural growth opportunities. (4 years)
K White (Kobus) (40) BCom (Hons) Medical Schemes (7 years)
DIRECTORS
GE Rudman (George) (Chairman) INCOME STATEMENT J v D du Preez (Johan) P de V Rademeyer (Flip) R million 2000 1999 Variance
PC le Roux (Charl) Underwriting risk premiums 668 700 -5% PEI Swartz (Peter) Fee income 93 109 -15% Interest income 22 45 -51% Prof P Smit (Flip) Financial services income 783 854 -8% Underwriting policy benefits (640) (673) 5% Administration costs (128) (165) 22%
Profit before exceptional items 15 16 -6% Exceptional items — (5) 100%
Operating profit before tax 15 11 36% AUDIT COMMITTEE
P de V Rademeyer (Flip) (Chairman) FINANCIAL RATIOS PC le Roux (Charl) GE Rudman (George) Percentage 2000 1999
Claims ratio 95,8% 96,1% Admin costs to income 16,3% 19,3% Operating profit to income 1,9% 1,3% new business development
INNOFIN New Business Development was established to increase Sanlam’s focus on growth in the high net worth individual market. A joint venture agreement with Macquarie Bank was signed on 27 February 2000 to form Innofin (Pty) Ltd. Macquarie Bank is a leading Australian financial services group that has developed extensive expertise and a strong reputation in Australia for product innovation and excellent client service. targeting the high net worth market with innovative products and expert service
4 907 Innofin will be a South African linked product business into investment and portfolio Innofin. SP2, previously one of management services business the product providers of SPF, was 3 618 targeting the high net worth managed as a separate business market. This will focus on during 2000 and formed part of innovative products and excep- New Business Development.
2 1 574 tional service to clients. The SP embarked on several launch of the first product is successful product initiatives planned for the first half of 2001. during the year to meet market demands. Included in these SANLAM PERSONAL initiatives is a unique combina- PORTFOLIOS (SP2) tion of private share portfolios 1998 1999 2000 Sanlam Personal Portfolios (SP2), with retirement funds and living SP2 FUNDS is the linked product provider in annuities, a combination of UNDER MANAGEMENT the Sanlam group. It is the guarantees with unit trust funds, (R million) intention to incorporate the the launch of offshore wrap
PAGE 58 P A GE 59
funds, an automatic fee discount for existing clients and combined reporting of all products per client on one statement. SP2 will continue with new initiatives in 2001. New offshore products will be developed and launched during the year to further address market demand. The introduction of interactive voice response technology in the new call centre is planned in order to further improve service to clients and intermediaries. Increased focus on tools for intermediaries to assist them with improved service to their clients and further improvement in Internet functionality to enable those clients and intermediaries who want to transact on-line with SP2. SP2/Innofin are creating a work environment conducive to innovation and excellent customer service by attracting and developing a diverse group of people. Employment equity is a business imperative INCOME STATEMENT – SP2 AND INNOFIN to build our human resource capabilities and competitive business. R million 2000 1999 Variance
Despite volatile market conditions, inflows Fee and other income 59 43 37% to SP2 increased by 4% to R2 449 million Sales expenses (18) (13) -38% Administration expenses (35) (24) -46% compared to 1999. Market share of net inflows Operating profit before remained at the high levels of 1999 resulting in exceptional items 6 6 — continuous growth of market share in respect of Exceptional items (29) (4) — funds under management. Operating profit before tax (23) 2 — Exceptional items consist of systems and development costs relating to the set-up and development costs in respect of Innofin and to a lesser extent SP2. sanlam corporate, support services and namibia
CORPORATE • Actuarial CG Swanepoel (Chris) (50)
BSc (Hons), FIA, FASSA SUPPORT SERVICES Chief Actuary AS du Plessis (Attie) (57) (29 years) CA(SA), Adv Dip Tax Law, AMP (Harvard), AEP (Unisa) • Finance Executive Director P de V Rademeyer (Flip) (53) (15 years) CA(SA), SEP (Stanford) Financial Director JD Venter (Kobus) (41) (3 years) BSc Group IT DG Claassen (Danie) (36) (17 years) CA(SA), BCom (Hons) (Taxation) Tax Services PJ Cook (Peter) (54) (9 years) BSc.Eng (Mining), MBA Group Risk Manager L van der Walt (Lukas) (40) (3 years) BCom (Hons), CA(SA) Corporate Finance JP Bester (Johan) (48) (2 years) BCom (Hons), CA(SA), AEP (Unisa) Company Secretary WJ Harris (Wally) (41) (20 years) CA(SA) Financial Accounts V van Vuuren (Vic) (43) (13 years) BJuris, AEP (Unisa) Human Resources HS Malherbe (Helet) (31) (4 years) CA(SA) Investor Relations (6 years)
NAMIBIA AC Nortier (André) (30) VR Rokoro (Vekuii) (46) CA(SA) LLM Chief Internal Auditor Managing Director: (5 years) Sanlam Namibia Limited
• Public Affairs L Koen (Leon) (57) BA, STD (US) B.Ed (UPE), MPA (UPE), APR (17 years)
PAGE 60 corporate social involvement and sponsorships
PAGE 61 The Sanlam Restoration Programme restored this fisherman’s cottage at Waenhuiskrans to its original state Big guy Moshe leading his cast in Takalani Sesame
The Sanlam Rescuer is operated by the National Sea Rescue The main thrust of our endeavours in this field is the empowerment of people. During the past year Institute in Gordons Bay we expanded our major initiatives to support the development of school readiness through the television, radio and outreach programme Takalani Sesame – a South African version of the world acclaimed TV series Sesame Street. Entrepreneurship is being developed through the Sanlam Foundation for Future Business Leaders. In addition, we are a substantial contributor to The Business Trust that works closely with partner organisations to create employment opportunities, to develop education and to reduce crime. Sanlam supported numerous projects and programmes last year and we remain committed to allocating available resources to initiatives that will positively influence the lives and aspirations of all South Africans.
Ernie Els is patron of the Sanlam Cancer Golf Challenge through which R1 million is donated to the National Cancer Association annually
Sanlam joined hands with the Eastern Cape community to develop an Aids education programme Golf Digest Golf corporate social involvement and sponsorships continued
The Sanlam/Burger annual cycling tour attracts thousands of entries
Former President Nelson Mandela officially opened the centre for disabled children in Umtata which was funded by Sanlam
In search of South Africa’s Tiger Woods. Sanlam is a major sponsor of the SA Golf Development Board
Sanlam was the official sponsor of the African Cup of Nations for Women in 2000
Young entrepreneurs were awarded for their business ideas at the convention of the Sanlam Foundation for Future Business Leaders
P A GE 62 P A GE 63
Thomas Bains Sanlam is one of South Africa’s major corporate art collectors with more than 1 500 works. These are regularly exhibited nationally and at the Sanlam Art Gallery in Bellville.
Gerard Sekoto
The annual Sanlam Music Competition for Primary Schools draws many talented entries from across the country Published manuscripts of finalists in the Sanlam Competition for Youth Literature annual financial statements
Sanlam Limited and Sanlam Life Insurance Limited
PAGE 65 Directors’ Responsibility for Financial Reporting
PAGE 65 Certificate by Company Secretary
PAGE 66 Report of the Statutory Actuary
PAGE 66 Report of the Independent Auditors
PAGE 67 Directors’ Report
PAGE 68 Basis of Presentation and Accounting Policies
PAGE 74 Group Income Statements
PAGE 75 Group Balance Sheets
contents PAGE 76 Group Statements of Changes in Equity
PAGE 77 Group Cash Flow Statements
PAGE 78 Notes to the Group Financial Statements
PAGE 99 Principal Subsidiaries
PAGE 100 A FUTURE Sanlam Limited Financial Statements FILLED WITH PAGE 102 GROWTH Financial Information for the Shareholders’ Funds
PAGE 64 directors’ responsibility for financial reporting
PAGE 65
The Boards of Sanlam Limited and Sanlam Life Insurance Limited accept responsibility for the integrity, objectivity and reliability of the group and company financial statements of Sanlam Limited and Sanlam Life Insurance Limited respectively. Adequate accounting records have been maintained. The Boards endorse 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 is to express an independent opinion on the fair presentation of the financial statements based on their audit of Sanlam Limited, Sanlam Life Insurance Limited and their subsidiaries. The audit committee has 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 Boards are 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 Boards are of the opinion that Sanlam Limited and Sanlam Life Insurance Limited are financially sound and operate as going concerns. The financial statements have accordingly been prepared on this basis. The financial statements on pages 67 to 111 were approved by the Boards and signed on their behalf by:
MH Daling P de V Rademeyer Executive Chairman Financial Director
7 March 2001
certificate by company secretary
In my capacity as Company Secretary, I hereby certify, in terms of the Companies Act, 1973, that for the year ended 31 December 2000, 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.
JP Bester Company Secretary
7 March 2001 r eport of the statutory actuary
FINANCIAL SOUNDNESS VALUATION I have valued the policy liabilities on bases (set out on pages 71 to 73 and note 19 on pages 89 to 92) consistent with the fair value of the corresponding assets. The valuation was conducted in accordance with the applicable guidelines of the Actuarial Society of South Africa. As at 31 December 2000, the operations of Sanlam Life Insurance Limited were financially sound and the excess of the assets over the liabilities of Sanlam Life Insurance Limited was more than sufficient to cover its capital adequacy requirements. In my view, the financial statements fairly present the financial position of Sanlam Life Insurance Limited as at 31 December 2000.
EMBEDDED VALUE In my view, the Sanlam Group embedded value and the value of new life insurance business as set out on pages 114 to 118, fairly present these values as defined.
CG Swanepoel FIA, FASSA Statutory Actuary Sanlam Life Insurance Limited
7 March 2001 r eport of the independent auditors
TO THE MEMBERS OF SANLAM LIMITED AND SANLAM LIFE INSURANCE LIMITED We have audited the annual financial statements of Sanlam Limited and the group annual financial statements of Sanlam Limited and Sanlam Life Insurance Limited for the year ended 31 December 2000 as set out on pages 67 to 111. These annual financial statements are the responsibility of the directors of Sanlam Limited and Sanlam Life Insurance 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 misstatement. 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 of Sanlam Limited and the group annual financial statements of Sanlam Limited and Sanlam Life Insurance Limited fairly present in all material respects the financial position of the company and groups at 31 December 2000 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 Chartered Accountants (SA) PricewaterhouseCoopers Inc. Registered accountants and auditors Bellville
7 March 2001
P A GE 66 directors’ report for the year ended 31 December 2000
P A GE 67
NATURE OF BUSINESS INTEREST OF DIRECTORS AND OFFICERS IN The Sanlam Group is one of the largest established financial SHARE CAPITAL services groups in South Africa. Its core activities are set out The shareholdings, direct and indirect, of the directors and on page 1. officers holding office at the date of this report are as follows: Ordinary shares CORPORATE GOVERNANCE Non- The Board of Sanlam endorses the Code of Corporate Beneficial beneficial Options Practice and Conduct recommended in the King Report on Number of shares 3 087 974 3 575 847 18 718 944 Corporate Governance and has satisfied itself that Sanlam Comprising consistently complied with the Code during 2000. The Non-executive directors 211 520 8 860 — corporate governance statement is set out on pages 24 to 26. Executive directors 1 281 530 3 217 855 11 804 086 Officers 1 594 924 349 132 6 914 858 GROUP RESULTS Disclosures by the directors indicate that at 31 December 2000 Headline earnings based on the long term rate of return basis and at the date of this report, their interests did not, in increased from R2 721 million (102,1 cents per share) in aggregate, exceed 5% in respect of either the share capital or 1999 to R3 478 million (130,9 cents per share) in 2000. voting control of the company. No material change in the Further details regarding the Group’s results are included in foregoing interests has taken place between 31 December 2000 the report of the financial director on pages 16 to 23 and the and the date of this report. business reviews on pages 30 to 59. DIRECTORS AND SECRETARY SHARE CAPITAL Particulars of the directors and secretary of the company are There were no changes in the authorised and issued share set out on pages 4, 5, 12, 15 and 124. capital of the company during the financial year. POST-BALANCE-SHEET EVENTS DIVIDENDS AND DIVIDEND POLICY No material facts or circumstances have arisen between the It is the Board’s intention to declare only annual dividends dates of the balance sheet and this report which affect the and to maintain a three and a half to four and a half times financial position of the Sanlam Limited group and the dividend cover on headline earnings based on the long term Sanlam Life Insurance Limited group as reflected in these rate of return. The objective of the Board is to achieve stable financial statements. growth in dividend payments and the dividend pattern will therefore not strictly follow the earnings pattern. The Board has declared a dividend of 30 cents per share payable on By order of the Board 16 May 2001 to shareholders registered on 20 April 2001.
SUBSIDIARIES Details of the company’s principal subsidiaries are set out on page 99. JP Bester DIRECTORS’ INTEREST IN CONTRACTS Secretary No material contracts involving directors’ interest were entered into in the current year. 7 March 2001 basis of presentation and accounting policies
BASIS OF PRESENTATION TERM FINANCE POLICYHOLDERS’ AND SHAREHOLDERS’ ACTIVITIES The portion of term finance which is repayable within one The activities of the policyholders and shareholders in respect year is not transferred to current liabilities. This is consistent of life insurance business are conducted in Sanlam Life with the treatment of investments redeemable within one Insurance Limited. The assets, liabilities and activities of these year that are not included in current assets. two groups of stakeholders are managed separately and are governed by the valuation bases for policy liabilities and COMPARATIVES profit entitlement rules which are determined in accordance Where necessary, comparative figures have been adjusted to with prevailing legislation and generally accepted actuarial conform with changes in presentation in the current year. practice and the stipulations contained in the demutuali- sation proposal. The accounting policies in respect of policy ACCOUNTING POLICIES liabilities and profit entitlement are set out on pages 71 to 73. The Sanlam Limited group and Sanlam Life Insurance The group financial statements set out on pages 74 to 98 Limited group financial statements are prepared applying the include the consolidated activities of the policyholders and principal accounting policies below, which are in accordance shareholders of Sanlam Life Insurance Limited. Separate with and comply with South African Statements of Generally financial information on the activities of the shareholders of Accepted Accounting Practice, and some of which apply the Sanlam Limited group is disclosed on pages 103 to 119. specifically to the life insurance industry. The accounting policies applied in preparing the financial statements are FUNDS RECEIVED FROM CLIENTS consistent with those of the previous year except for the Funds received from clients consist of single and recurring treatment of goodwill, the introduction of the long term rate long- and short-term insurance premium income which is of return adjustment and equity accounting the interest in included in the financial statements and unit trust Santam and Gensec by Sanlam Life Insurance Limited contributions, inflow for assets managed and administered described below. on behalf of clients and non-life insurance linked-product contributions, which are not included in the financial BASIS OF CONSOLIDATION statements as they are funds held on behalf of and at the The results of consolidated subsidiaries are included from the risk of clients. Internal transfers between the various types effective dates of acquisition to the effective dates of disposal. of business, other than those transacted at arm’s length, All material inter-company profits and losses are eliminated are eliminated. from the group results. Inter-company transactions at arm’s length and where there is no effect on the Group’s net FINANCIAL SERVICES INCOME earnings, are not eliminated from the results. Financial services income for the shareholders consists of: Sanlam Limited and its subsidiaries acquired all of the • income earned from long-term insurance activities such as shares in Gensec which it and its subsidiaries did not already investment and administration fees, risk underwriting own with effect from 31 December 2000. (Refer to page 19 premiums, asset mismatch profits or losses and income for details of this transaction.) As a result, Sanlam Life earned on working capital; Insurance Limited holds a controlling interest in Gensec. • income from short-term health, medical insurance and This controlling interest is intended to be temporary general insurance business; and pursuant to the integration of the Gensec operations into the • income from other financial services such as banking, Sanlam Group and therefore has not been consolidated in the equity and underwriting activities, unit trust Sanlam Life Insurance Limited group financial statements administration, trust services and linked-product business. and is treated as an unlisted associated company.
SEGREGATED FUNDS ASSOCIATED COMPANIES Sanlam also manages and administers assets for the account of An associated company is a company, not being a subsidiary, and at the risk of clients. As these are not the assets of the Sanlam in which the Sanlam Group has a long-term investment and Group, they are not reflected in the Sanlam Group balance over which it has the ability, because of the extent of its sheet but are disclosed in a footnote to the balance sheet. investment, to exercise significant influence.
PAGE 68 P A GE 69
The results of associated companies have been accounted INTANGIBLE ASSETS for using the equity method of accounting, where the Group’s No value is attributed to internally developed trademarks or share of the associated companies’ earnings before dividends similar rights and assets. Costs incurred on these items, is included in earnings. The equity-accounted earnings are whether purchased or created by the Group, are charged to included in investment income with a corresponding the income statement in the period in which they are incurred. adjustment to the carrying value of the investment in associated companies. This carrying value is adjusted to fair INVESTMENTS value with a corresponding adjustment to investment Investments are reflected at fair value, which has been surpluses on the investment in associated companies in the determined on the following bases: income statement. • The value of fixed property, including the Head Office The above policy has been applied by Sanlam Life building, which generates income is determined by Insurance Limited in respect of its interest in Santam, Gensec discounting expected future cash flows at appropriate and ABSA. Previously its interests in Santam and Gensec market interest rates. Other fixed property is valued at cost were treated as equity investments. The effect of this change less provision for impairment in value, where appropriate; in the income statement is that investment income as • Listed shares and units in unit trusts are valued at the stock previously disclosed has been increased and investment exchange and repurchase prices respectively. The value of surpluses on the investment in associated companies has been unlisted shares is determined by the directors using decreased by a corresponding amount. appropriate valuation bases; • Interest-bearing investments are valued by discounting GOODWILL expected future cash flows at appropriate market interest rates; Goodwill may arise on the acquisition or change in the • Listed derivative instruments are valued at the South holding ("adjustment") in a subsidiary company. It represents African Futures Exchange price and the value of unlisted the excess of the cost of an acquisition or adjustment over the derivatives is determined by the directors using generally fair value of the Group’s share of the net assets of the accepted models. subsidiary at the date of acquisition or adjustment. Loans of investment scrip to and from third parties are The accounting policy in respect of goodwill has been not treated as sales and purchases. changed during the current year to comply with the new Shares held in Sanlam Limited by subsidiary companies Accounting Statement implemented in South Africa (AC 131) are eliminated on consolidation where these shares are held and it is now written off on a straight-line basis over the lesser by the shareholders’ fund of the Sanlam Limited group. of its estimated useful life or twenty years. This policy has Where these shares are held as investments for policyholder been applied prospectively. In the past goodwill was written benefits they are not eliminated on consolidation but off against share premium where the acquisition or reflected at fair value as equity investments in the adjustment was financed by a share issue and in all other cases balance sheet. it was written off against unrealised investment surpluses. The carrying amount of goodwill is reviewed annually INVESTMENT RESERVE and is written down for impairment where this is considered Net realised and unrealised investment surpluses on the necessary. revaluation or sale of investments attributable to shareholders In certain instances, a portion of the Sanlam Group’s are transferred to an investment reserve. However, the Board interest in consolidated subsidiaries is held by the may transfer realised investment surpluses to retained policyholders’ fund of Sanlam Life Insurance Limited to fund income. A negative investment reserve will not be created and future benefits in terms of its policyholders’ contracts. The any shortfall will remain in retained income. Unrealised excess of the fair value of the policyholders’ interest in these investment surpluses in the investment reserve in respect of consolidated subsidiaries over their proportionate share of the investments held for resale are released to operating income subsidiaries’ net assets (including unamortised purchased on realisation of these investments. goodwill) included in the group financial statements, is Realised and unrealised investment surpluses attributable recognised in the group balance sheet as equity investments. to policyholders are included in policyholders’ liabilities. basis of presentation and accounting policies – continued
INVESTMENTS HELD FOR RESALE Investment surpluses Investments held for resale which are expected to be realised Investment surpluses consist of net realised surpluses on the in the longer term, are reflected at fair value, which is sale of investments and net unrealised surpluses on the determined on the bases set out above for investments. When valuation of investments to fair value. These surpluses are the Group’s holding in equity investments in a particular recognised in the income statement and policy liabilities on security exceeds what the directors regard as being disposable the date of sale or on the valuation to fair value date. within a reasonable time horizon, an appropriate liquidity adjustment is made to determine the fair value. LONG TERM RATE OF RETURN ADJUSTMENT The long term rate of return adjustment represents the TRADING ACCOUNT AND MONEY MARKET ASSETS AND difference between the actual investment income and surpluses LIABILITIES earned on shareholders’ funds during the year and the long Trading account and money market assets and liabilities are term investment return calculated on the basis described reflected at fair value, which is determined on the bases set below. The long term investment return is determined by the out above for investments. directors and is based on historical experience and current market conditions having regard to inflation expectations and FIXED ASSETS consensus economic and investment forecasts. Fixed assets are reflected at their depreciated cost prices. The long term investment return of 13% is calculated on Depreciation is provided for on a straight-line basis, taking a monthly basis on the fair value of the investments held in into account the residual value of estimated useful lives of the the shareholders’ fund excluding holdings in subsidiaries and assets, which vary from two to twenty years. associated companies. The directors are of the opinion that PREMIUM INCOME this rate of return is prudent and has been selected with a The full annual premiums on individual insurance policies view to ensuring that investment returns credited to that are receivable in terms of the policy contracts are earnings are consistent with the actual returns expected to accounted for on policy anniversary dates, notwithstanding be earned over the long term. (Also refer to page 17 for that premiums are payable in instalments. The monthly further details.) premiums in respect of certain new products are accounted for when due. POLICY BENEFITS Employee benefits premiums are accounted for when Policy claims received up to the last day of each financial receivable. Where premiums are not determined in advance period and claims incurred but not reported (IBNR) are they are accounted for upon receipt. provided for and included in policy benefits. Past claims Short term insurance premiums are accounted for when experience is used as the basis for determining the extent of receivable, with an appropriate adjustment for unearned the IBNR claims. premiums. Underwriting policy benefits in respect of long-term Gross premium income is reduced by reinsurance insurance business also include the movement in the actuarial premiums applicable to the same period. liabilities backing the risk underwriting business. Policy benefits are reflected net of amounts recovered from INVESTMENT RETURN reinsurers. Investment income Rental income, including rentals in respect of space occupied SALES REMUNERATION in owned buildings, is reflected net of property expenditure. Sales remuneration consists of commission payable to Dividend income is recognised once the last day for non-salaried sales staff on new insurance business, including registration has passed. Capitalisation shares received in terms renewal commission, and expenses directly related thereto, of a capitalisation issue from reserves, other than share bonuses payable to sales staff and the Group’s contribution to premium or a reduction in share capital, are treated as their retirement and medical aid funds. dividend income. Commission is generally payable in the first and second Investment income earned on working capital is included year of a policy’s existence. Commission is accounted for in in operating profit. the financial period during which it is incurred.
P A GE 70 P A GE 71
ADMINISTRATION COSTS contribution and defined benefit funds are charged to the Administration costs include, inter alia, indirect taxes such as income statement in the year in which they are incurred. revenue stamps payable on insurance policy contracts and For the purpose of calculating pensions, medical VAT, rental of space occupied in own buildings which are contributions are deemed to be a part of pensionable salary. held mainly as property investments of policyholders, Retirement fund contributions are made on these increased property and investment expenses related to the management amounts. Therefore pensioners will fund post-retirement of the policyholders’ investments, product development and medical contributions from the increased pensions. The training costs. Internal systems development costs and Group has provided in full for its medical contribution purchased systems costs are included in administration commitments in respect of a small number of employees who expenses when incurred. are not covered by the last mentioned. The group’s contributions to medical funds are charged to the income DEFERRED INCOME TAX statement in the year in which they are incurred. Deferred income tax is provided at current tax rates using the liability method for all temporary differences arising between EQUIVALENT CASH FLOWS the tax bases of assets and liabilities and their carrying values Unrealised investment surpluses arising on the valuation to fair for financial reporting purposes. Deferred tax assets relating value of investments have the same nature and financial effect to unused tax losses are recognised to the extent that it is as realised investment surpluses, as investments are reflected at probable that future taxable profit will be available against fair value in the financial statements. For the purposes of the which the unused tax losses can be utilised. cash-flow statement and consistent with the treatment of realised investment surpluses, unrealised investment surpluses FOREIGN CURRENCIES arising on the valuation to fair value of investments and Assets and liabilities in foreign currencies are converted to investments held for resale are treated as equivalent cash flows. South African rand at exchange rates ruling at the financial period end. Differences arising from this translation is POLICY LIABILITIES AND PROFIT included in investment surpluses as substantially all foreign ENTITLEMENT assets and liabilities are in respect of investments. Foreign INTRODUCTION currency income items are translated at the weighted average The valuation bases used to calculate the policy liabilities exchange rates for the period. of all material lines of long-term insurance business and the corresponding shareholder profit entitlement are set FOREIGN OPERATIONS out below. Income statement items of foreign operations are translated The actuarial valuation of the policy liabilities is into South African rand at the rates of exchange ruling at the determined using the financial soundness valuation method. dates the income and expenses and cash flows are incurred. The Under this method either a retrospective or prospective rate of exchange ruling at the transaction date is used for non- approach can be used. The underlying philosophy is to monetary balance sheet items and the closing rate for monetary recognise profits prudently over the term of each contract items. Differences arising on translation are recognised in the consistent with the work done and risk borne. income statement in the year in which they arise. Policy liabilities are valued on bases consistent with the fair value of assets. The liabilities exceeded the minimum RETIREMENT BENEFITS requirements in terms of actuarial guidance note PGN 104 Retirement benefits for employees are provided by a number issued by the Actuarial Society of South Africa ("ASSA"). of defined benefit and defined contribution pension and In the valuation of liabilities, provision is made for: provident funds. The assets of these funds, including those • The best estimate of future experience; relating to any actuarial surpluses, are held separately from • The margins prescribed in the ASSA guidelines; and those of the Group. The retirement plans are funded by • Second-tier margins determined to release profits to payments from employees and the relevant group companies, shareholders consistent with policy design and company policy. taking into account the recommendations of independent No provision has been made for capital gains tax in the actuaries. The Group’s contributions to the defined financial soundness valuation. basis of presentation and accounting policies – continued
APPLICATION OF VALUATION METHODOLOGY margins to shareholders on a fees minus expenses basis The valuation methodology has been consistently applied for consistent with the work done and risks borne over the 1999 and 2000. The changes in the discount rates, bonus rates lifetime of the policies. and other assumptions in general did not have a material net effect on the liabilities and the earnings reported for 2000. GROUP STABLE BONUS AND LINKED BUSINESS In the case of group linked business and group policies where BEST ESTIMATE OF FUTURE EXPERIENCE bonuses are stabilised, the liabilities are equated to the fair The best estimate of future experience is determined as follows: value of the retrospectively accumulated underlying assets. • Unit expenses are based on the recent experience of Sanlam To the extent that future fees exceed expenses, including Life Insurance Limited on a going-concern basis and allowance for the prescribed ASSA margins, the basis contains escalated at estimated inflation rates per annum; second-tier margins. These margins are released to • Assumptions with regard to future surrender, lapse, shareholders consistent with the work done and risks borne mortality, medical claim, disability and disability payment over the lifetime of the policies. termination rates are consistent with the rates experienced over the recent past; and PARTICIPATING ANNUITIES • Future investment return assumptions are consistent with The liabilities are equated to the fair value of the market-related interest rates. retrospectively accumulated underlying assets. This is equivalent to a best estimate prospective liability calculation REVERSIONARY BONUS BUSINESS allowing for future growth in annuity instalments supportable The liability is set equal to the fair value of the underlying by the underlying assets and expected future investment assets. This is equivalent to a best estimate prospective returns. This approach implicitly allows for the effect of the liability calculation using a bonus rate supportable by the margins prescribed in the ASSA guidelines. underlying assets and expected future investment returns, Shareholder entitlements emerge on a fees minus and allowing for the shareholders’ share of a maximum of expenses basis consistent with work done and risks borne over one-ninth of these costs of the bonus. the lifetime of the annuities. The present value of the shareholders’ entitlement is sufficient to cover the margins prescribed in the ASSA NON-PARTICIPATING ANNUITY BUSINESS guidelines for the valuation of policy liabilities. The Non-participating life and term annuity instalments and prescribed margins are thus not provided for in addition to future expenses in respect of these instalments are discounted the shareholders’ entitlement. at market-related interest rates. All profits or losses accrue to the shareholders when incurred. INDIVIDUAL STABLE BONUS AND MARKET- RELATED BUSINESS GUARANTEED PLANS For investment policies for which the bonuses are stabilised Guaranteed maturities are discounted at market-related or directly related to the return on the underlying investment interest rates. All profits or losses accrue to the shareholders portfolios, the liabilities are equated to the retrospectively when incurred. accumulated fair value of the underlying assets less any unrecouped expenses. These retrospective liabilities are higher OTHER NON-PARTICIPATING BUSINESS than the prospective liabilities calculated as the present value The majority of the other non-participating business liabilities of expected future benefits and expenses less future premiums is valued on a retrospective basis. The remainder (less than 1% at market-related interest rates, net of expected income tax. of Sanlam Life Insurance Limited’s liabilities) is valued The prospective liabilities provided for bonus rates which are prospectively and contains second-tier margins via an explicit supportable by the underlying assets and expected future interest rate deduction of approximately 2,75% on average. investment returns. For non-participating business other than life and term To the extent that the retrospective liabilities exceed the annuity business, an asset mismatch provision is maintained. prospective liabilities, the basis contains second-tier margins. The interest and asset profits arising from the non- The valuation methodology results in the release of these participating portfolio are added to this provision. The asset
P A GE 72 P A GE 73
mismatch provision accrues to shareholders at the rate of such a portfolio is greater than the net premiums invested 1,33% monthly, based on the balance of the provision at the plus declared bonuses, a positive bonus stabilisation reserve is end of the previous quarter. The effect of holding this created which will be used to enhance future bonuses. provision is to dampen the impact on earnings of short-term Conversely, if assets are less than the net premiums invested fluctuations in fair values of underlying assets. The asset plus declared bonuses, a negative bonus stabilisation reserve is mismatch provision represents a second-tier margin. created. A negative bonus stabilisation reserve will be limited A negative asset mismatch provision will not be created. to the amount that will be recovered through the distribution The shortfall will accrue to shareholders in the year in which of lower bonuses during the ensuing three years, provided it occurs. that the Statutory Actuary is satisfied that, if market values of assets do not recover, future bonuses will be reduced to the HIV/Aids extent necessary. A specific provision for HIV/Aids-related claims is maintained. The provision for individual policies (more than CAPITAL ADEQUACY REQUIREMENTS 85% of the total HIV/Aids provision) is built up by The excess of assets over liabilities of Sanlam Life Insurance increasing the opening provision by the HIV/Aids risk Limited’s operations is sufficient to cover its capital adequacy premiums and investment returns on the underlying assets. requirements. The capital adequacy requirements provide a It is then reduced by claims attributable to HIV/Aids. buffer against experience worse than that assumed in the This retrospectively built-up provision is higher than a financial soundness valuation. Consistent with an assumed prospective calculation done according to the ASSA fall in the fair value of the assets, which is prescribed in the guidelines allowing for possible increases in future HIV/Aids ASSA guidance notes, the calculation of the capital adequacy risk premiums. This difference can be regarded as a second- requirements takes into account a reduction in non-vesting tier margin. It is the intention of Sanlam Life Insurance bonuses and future bonus rates. The assumed reduction in Limited to re-rate premiums as experience develops. bonuses and other assumed management actions varied Premium rates for group business are reviewed more at the 1999 and 2000 year-ends, according to the level of frequently. An HIV/Aids provision equivalent to twice the the fair value of assets at these dates relative to the expected expected Aids claims in a year is maintained for group asset values. business as up to two years may elapse before premium rates The largest element of the capital adequacy requirements and underwriting conditions may be suitably adjusted. relates to stabilised bonus business. For individual stabilised bonus business the assumed WORKING CAPITAL management actions will be to eliminate within three years To the extent that the management of working capital gives rise the larger of (in absolute terms): to profits, no credit is taken for this in determining the policy • any negative bonus stabilisation reserve; and liabilities. This could be viewed as a second-tier margin. • 35% of the aggregate value of the bonus stabilisation reserve plus the effect of the assumed asset drop where the ASSET FUNDS assumed asset drop is taken as a negative figure. Separate asset funds are maintained for each of the major No such management action will apply if the positive lines of business. Operating costs are allocated to the major bonus stabilisation reserve exceeds the assumed asset drop. lines of business by reference to the accounting records. For group stabilised bonus business the aim is to Bonus rates are declared for each class of participating eliminate within three years the absolute value of any negative business in relation to net investment return earned on the bonus stabilisation reserve, including the increase that results assets of the particular investment portfolio. from the resilience scenario, by way of a reduction in future bonus rates. The extent to which reductions in future bonuses BONUS STABILISATION RESERVES can be used for management actions is assumed to be limited The group and individual stabilised bonus portfolios are to 60% of the expected long-term bonus rate declared for a valued on a retrospective basis. If the fair value of the assets in fully funded position. group income statements for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 Note R million R million R million R million
Funds received from clients 1 46 926 35 768 25 107 22 001
Net operating profit Financial services income 2 12 566 10 988 6 347 6 057 Sales remuneration 1 505 1 353 1 052 963
Income after sales remuneration 11 061 9 635 5 295 5 094 Underwriting policy benefits 3 5 480 4 569 2 077 2 073 Administration costs 4 3 289 2 875 1 879 1 775
Profit before exceptional items 2 292 2 191 1 339 1 246 Exceptional items 5 368 469 277 452
Operating profit before tax 6 1 924 1 722 1 062 794 Tax on operating profit 7 225 204 93 192
Operating profit from ordinary activities after tax 1 699 1 518 969 602 Minority shareholders’ interest 357 451 — —
Net operating profit 1 342 1 067 969 602
Net investment return based on the long-term rate of return Investment return 8 1 348 2 936 1 349 2 796 Tax on investment return 7 (225) (245) (157) (167) Minority shareholders’ interest (36) (190) — — Net long-term rate of return adjustment 9 1 049 (847) 835 (1 031)
Net investment return based on the long-term rate of return 2 136 1 654 2 027 1 598
Headline earnings based on the long-term rate of return 3 478 2 721 2 996 2 200 Short-term investment fluctuations 9 (1 049) 847 (835) 1 031 Other net investment (deficits)/surpluses 10 (220) (199) (1 015) 149 Accounting policy change by subsidiary — 68 — —
Attributable earnings 2 209 3 437 1 146 3 380
Diluted earnings per share: cents cents • Net operating profit from ordinary activities 12 50,5 40,1 • Headline earnings based on the long-term rate of return 12 130,9 102,1 Attributable earnings per share 12 83,1 129,0 Dividend per share 30,0 25,0
The financial statements of Sanlam Limited are included on pages 100 to 101. The group income statement on the basis as presented previously is included on page 111.
PAGE 74 group balance sheets at 31 December 2000
P A GE 75
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 Note R million R million R million R million
ASSETS Non-current assets Fixed assets 13 256 328 103 101 Goodwill 14 1 711 — — — Investments 15 150 452 151 635 151 830 150 953
Properties 12 453 12 432 12 452 12 432 Equities 87 027 90 903 91 036 91 812 Public sector stocks and loans 28 469 29 221 27 365 28 530 Mortgages, debentures and other loans 7 736 6 746 7 400 6 721 Cash, deposits and similar securities 14 767 12 333 13 577 11 458
Deferred tax 23 115 37 — — Investments held for resale 1 213 1 460 — — Current assets 16 24 318 22 108 9 143 9 651
Total assets 178 065 175 568 161 076 160 705
EQUITY AND LIABILITIES Capital and reserves Share capital and premium 17 3 514 3 514 5 000 5 000 Non-distributable reserves 9 415 10 289 5 429 5 429 Investment reserve 395 592 2 914 3 834 Retained income 4 898 3 282 3 297 1 891
Shareholders’ funds 18 222 17 677 16 640 16 154 Minority shareholders’ interest 1 215 2 387 — — Non-current liabilities Policy liabilities 19 133 952 134 319 133 952 134 319 Term finance 20 4 698 4 062 4 796 4 807 Deferred tax 23 284 693 284 663 Current liabilities 21 19 694 16 430 5 404 4 762
Total equity and liabilities 178 065 175 568 161 076 160 705
Segregated funds not included in the above balance sheet 45 572 40 356 Total assets under management and administration 223 637 215 924 Tangible net asset value per share (cents) 25 779 771 sanlam limited group statement of changes in equity for the year ended 31 December 2000
Non- Share Share Investment distributable Retained R million Note capital premium reserve reserve(1) income Total
Balance at 1 January 1999 27 3 487 — 10 289 1 101 14 904 Attributable earnings for the year — — — — 3 437 3 437 Transfer to investment reserve 11 — — 592 — (592) — Dividends paid and payable — — — — (664) (664)
Balance at 31 December 1999 27 3 487 592 10 289 3 282 17 677 Attributable earnings for the year — — — — 2 209 2 209 Transfer from investment reserve 11 — — (197) — 197 — Transfer to goodwill 14 — — — (874) — (874) Dividends paid and payable — — — — (790) (790)
Balance at 31 December 2000 27 3 487 395 9 415 4 898 18 222
(1)Non-distributable reserve arising on acquisition of subsidiaries.
sanlam life insurance limited group statement of changes in equity for the year ended 31 December 2000
Non- Share Share Investment distributable Retained R million Note capital premium reserve reserve(2) income Total
Balance at 1 January 1999 1 4 999 1 957 5 429 1 004 13 390 Attributable earnings for the year — — — — 3 380 3 380 Transfer to investment reserve 11 — — 1 877 — (1 877) — Dividends paid and payable — — — — (616) (616)
Balance at 31 December 1999 1 4 999 3 834 5 429 1 891 16 154 Attributable earnings for the year — — — — 1 146 1 146 Transfer from investment reserve 11 — — (920) — 920 — Dividends paid and payable — — — — (660) (660)
Balance at 31 December 2000 1 4 999 2 914 5 429 3 297 16 640
(2)Arising on the transfer from the Sanlam mutual capital fund on demutualisation.
P A GE 76 group cash-flow statements for the year ended 31 December 2000
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Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 Note R million R million R million R million
Net cash flow from operating activities 4 954 23 040 927 22 172
Cash utilised in operations 30.1 (8 047) (15 934) (9 777) (16 479) Decrease/(increase) in net current assets 30.2 3 192 (1 213) 887 (1 169) Decrease in investments held for resale 119 436 — — Fixed assets – additions and replacements (20) (137) (52) (25)
Cash flow from operations (4 756) (16 848) (8 942) (17 673) Cash flow from investment return 30.3 11 280 39 613 10 219 40 111
Cash flow from operating activities 6 524 22 765 1 277 22 438 (Decrease)/increase in minority shareholders’ interest (1 172) 541 — — Dividend paid (398) (266) (350) (266)
Cash flow from investment activities (1 328) (21 888) (462) (21 544)
Net sale of investments 5 912 8 571 965 9 426 Net realised and unrealised growth in investments(1) 30.4 (2 262) (30 459) (1 427) (30 970) Acquisition of Gensec minorities (4 978) — — —
Cash flow from financing activities Net term finance raised/(repaid) 628 (1 536) (11) (874)
Net increase/(decrease) in cash and cash equivalents 4 254 (384) 454 (246) Cash, deposits and similar securities at beginning of year 4 870 5 254 2 158 2 404
Cash, deposits and similar securities at end of year 16 9 124 4 870 2 612 2 158
(1)Refer to the basis of Presentation and Accounting Policies on page 71 regarding the treatment of unrealised growth in investments as equivalent cash flows. notes to the group financial statements for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
1. FUNDS RECEIVED FROM CLIENTS – Analysis per product (Refer to page 106 for analysis per Sanlam business.) Insurance business Premium income 27 924 23 598 23 420 20 295
Long-term insurance (note 19.2)(1) 23 806 20 295 23 806 20 295 Transfer from segregated funds (386) — (386) — Short-term insurance 4 504 3 303 — —
Other business 19 002 12 170 1 687 1 706
Unit trusts 9 342 8 154 — — Segregated funds(1) 7 973 2 310 — — Linked products(1) 1 687 1 706 1 687 1 706
Total funds received from clients 46 926 35 768 25 107 22 001
The funds received from clients are disclosed net of the following reinsurance premiums: • Life business 154 136 154 136 • Short-term insurance 803 187 — —
(1) Included in long-term insurance business single premiums is R762 million (1999: R640 million) in respect of linked-product business and R176 million (1999: R224 million) in respect of segregated fund business.
2. FINANCIAL SERVICES INCOME Analysis per product Long-term insurance 6 674 6 355 6 244 5 995 Short-term insurance 4 526 3 348 — — Other financial services 1 366 1 285 103 62
Total financial services income 12 566 10 988 6 347 6 057
Included in financial services income is Dividend income 159 151 1 — Interest received 1 171 1 546 808 1 144 Interest paid and term finance costs (766) (961) (544) (691)
564 736 265 453
PAGE 78 P A GE 79
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
3. UNDERWRITING POLICY BENEFITS Long-term insurance: death, disability and cash bonuses 2 077 2 073 2 077 2 073
Individual insurance 1 093 1 144 1 093 1 144 Employee benefits 984 929 984 929
Short-term insurance 3 403 2 496 — —
General insurance benefits 2 763 1 823 — — Medical insurance benefits 640 673 — —
Total underwriting policy benefits 5 480 4 569 2 077 2 073
4. ADMINISTRATION COSTS AND EXCEPTIONAL ITEMS INCLUDE: Directors’ remuneration Total remuneration paid by Sanlam Limited and its consolidated subsidiaries to its present, retired and previous directors: Directors’ fees 2,4 2,4 Other services (basic remuneration, pensions and bonuses) 20,5 15,0
Total directors’ remuneration 22,9 17,4
Analysis of directors’ remuneration Executive directors 20,9 15,4 Non-executive directors 2,0 2,0
Total directors’ remuneration 22,9 17,4
Directors’ remuneration paid by subsidiaries 20,8 15,6
Auditors’ remuneration Audit fees 14,2 11,5 9,0 8,2 Other services 10,6 10,8 5,5 2,8
Total auditors’ remuneration 24,8 22,3 14,5 11,0
Depreciation 101 133 51 24
Operating leases 76 99 8 48
Consultancy fees 249 177 237 170
Fees paid Technical, administrative and secretarial fees 86 81 16 17
Office staff costs 1 666 1 433 828 872 notes to the group financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
5. EXCEPTIONAL ITEMS Restructuring of businesses 112 236 79 236 Systems and projects 231 231 201 214 Other 25 2 (3) 2
Total exceptional items 368 469 277 452
6. SEGMENTAL ANALYSIS OF OPERATING PROFIT Sanlam Personal Finance 1 044 781 944 677 Sanlam Employee Benefits 202 168 206 163 Gensec 683 747 — — Sanlam Health 15 11 — — New Business Development (23) 2 (3) — Santam 100 59 — — Corporate income 93 197 103 200 Corporate costs (190) (243) (188) (246)
Total operating profit 1 924 1 722 1 062 794
7. TAXATION: SHAREHOLDERS Normal income tax: RSA 538 467 411 250
current year 540 459 409 250 prior year (2) 8 2 —
Deferred tax (267) 109 (304) 112
current year 88 214 50 112 prior year (355) (105) (354) —
Effect of change in tax rate — (47) — (62) Share of associate companies’ tax charge 111 63 143 59
Taxation 382 592 250 359
In addition, the shareholders’ funds paid the following indirect taxes and levies which are included in the appropriate items in the income statements: Included in administration costs 195 173 191 172 Included elsewhere 52 79 52 76
247 252 243 248
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 R283 million (1999: R336 million) was also paid on policyholders’ funds (refer note 19.5).
P A GE 80 P A GE 81
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
7. TAXATION: SHAREHOLDERS (continued) Analysis of taxation of shareholders Operating profit 225 204 93 192
current year 452 301 322 192 prior year (227) (97) (229) —
Investment return 225 245 157 167 Investment income 79 182 14 108
current year 202 182 137 108 prior year (123) — (123) —
Net investment surpluses – current year 35 — — — Equity accounted earnings 111 63 143 59 Unrealised surpluses on investments held for resale (note 10) (68) 143 — —
Income tax on earnings 382 592 250 359
Reconciliation of tax rate on operating profit Standard rate of taxation (30,0%) (30,0%) (30,0%) (30,0%) Adjusted for: Non-taxable income 3,7% 8,2% — — Prior year adjustments 12,0% 5,6% 21,7% — Effect of changes in tax rate — 1,4% — 5,4% Foreign tax rate differential 5,5% 3,3% — — Other (2,9%) (0,3%) (0,5%) 0,4%
Effective tax rate on operating profit (11,7%) (11,8%) (8,8%) (24,2%)
Reconciliation of tax rate on long-term investment return Standard rate of taxation (30,0%) (30,0%) (30,0%) (30,0%) Adjusted for: Non-taxable income 2,8% 2,2% 1,9% 1,4% Investment surpluses (1,6%) 24,1% 1,3% 28,8% Prior year adjustments 4,8% — 5,6% — Effect of changes in tax rate — 1,0% — 1,1% Equity accounted earnings — 1,7% 2,4% 6,1% Long-term rate of return adjustment 13,6% (12,8%) 9,8% (18,6%) Other 0,9% 1,3% (0,1%) (0,1%)
Effective tax rate on long-term investment return (9,5%) (12,5%) (9,1%) (11,3%) notes to the group financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
8. INVESTMENT RETURN: SHAREHOLDERS Interest bearing investments 667 724 370 364 Equities 214 135 157 80 Properties 69 63 69 63 Equity-accounted earnings 423 327 658 561 Investment income 1 373 1 249 1 254 1 068 Net investment (deficit)/surpluses (25) 1 687 95 1 728
Investment return: shareholders 1 348 2 936 1 349 2 796
9. NET LONG TERM RATE OF RETURN ADJUSTMENT Analysis of net long term rate of return adjustment Gross investment return 1 255 (816) 881 (995) Equities 1 228 (825) 730 (1 074) Interest bearing investments 12 (189) 135 (119) Properties 15 198 16 198 Tax (23) (21) (46) (36) Minority shareholders’ interest (183) (10) — —
Net long term rate of return adjustment 1 049 (847) 835 (1 031) 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 3 588 2 501 3 821 2 629 Longer term returns 3 790 1 654 3 625 1 598
(Deficit)/excess aggregate short term fluctuations (202) 847 196 1 031 A reconciliation of the investments included in the calculation of the long-term rate of return is as follows: Investments per shareholders’ balance sheet (refer page 104) 20 923 23 325 21 620 21 480 Less: Investment in Absa 2 751 2 444 2 740 2 428 Investment in Gensec — — 4 906 2 488 Investment in Santam — — 508 256 Investments held in respect of term finance 3 919 3 026 4 344 4 135 Investment in Guardian National — 1 108 — — Free float assets of subsidiary 1 814 611 — — Other 923 (156) 571 483
Long term rate of return investments 11 516 16 292 8 551 11 690 Analysis of long term rate of return investments Equities 7 522 9 110 5 510 7 227 Public sector stocks and loans 2 111 3 617 1 696 2 981 Other interest bearing investments 809 2 701 271 618 Properties 1 074 864 1 074 864
Long term rate of return investments 11 516 16 292 8 551 11 690
P A GE 82 P A GE 83
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
10. OTHER NET INVESTMENT (DEFICITS)/SURPLUSES Investment (deficits)/surpluses on investments held for resale (112) 48 — —
Unrealised investment (deficits)/surpluses (294) 275 — — Income tax (note 7) 68 (143) — — Minority shareholders’ interest 114 (84) — —
Net investment (deficits)/surpluses on investment in associated companies (108) (247) (1 015) 149
Total other net investment (deficits)/surpluses (220) (199) (1 015) 149
11. TRANSFER TO/(FROM) INVESTMENT RESERVE Net investment (deficits)/surpluses (note 8) (25) 1 687 95 1 728 Tax on investment surpluses (note 7) (35) — — — Minority interest in net investment deficits/(surpluses) 83 (74) — —
Net investment surpluses 23 1 613 95 1 728 Other net investment (deficits)/surpluses (note 10) (220) (199) (1 015) 149
(197) 1 414 (920) 1 877 Investment deficits previously included in retained income — (822) — —
Transfer (from)/to investment reserve (197) 592 (920) 1 877
12. DILUTED EARNINGS PER SHARE For the 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. Diluted earnings per share is calculated by dividing earnings by the adjusted weighted average number of shares in issue. Sanlam Limited 2000 1999
Net operating profit from ordinary activities R million 1 342 1 067
Headline earnings based on the long term rate of return R million 3 478 2 721
Attributable earnings R million 2 209 3 437
Number of ordinary shares in issue million 2 655 2 655 Add: Incentive shares not issued million 24 9 Less: Sanlam shares held by subsidiary company (note 17) million (22) —
Adjusted weighted average number of shares million 2 657 2 664
Diluted earnings per share Net operating profit from ordinary activities cents 50,5 40,1 Headline earnings based on the long-term rate of return cents 130,9 102,1 Attributable earnings per share cents 83,1 129,0 notes to the group financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
13. FIXED ASSETS Land and buildings 37 17 — — Computer equipment 114 167 58 16
Cost 385 652 165 54 Accumulated depreciation (271) (485) (107) (38)
Furniture, equipment and vehicles 105 144 45 85
Cost 236 293 127 195 Accumulated depreciation (131) (149) (82) (110)
Total fixed assets 256 328 103 101
The reduction in the computer equipment in 2000 relates largely to the sale of the mainframe computer resulting from the outsourcing of the IT Infrastructure Services to debis during the year. The reconciliation of the movement in the book value of fixed assets is not provided as it is not considered meaningful or material in relation to the Group’s activities.
14. GOODWILL The Sanlam shareholders’ fund acquired the remaining shares in Gensec which it and its subsidiaries did not already own, for a consideration of R37 per share with effect from 31 December 2000 for financial statement purposes. (Refer to page 19 for details.) Details of the net assets acquired and goodwill are as follows:
Sanlam Limited R million
Net cash purchase consideration paid to 4 978
minorities 3 625 policyholders 1 353
Fair value of net assets acquired (2 393)
Goodwill on acquisition 2 585 Transfer from non-distributable reserve (874)
Goodwill 1 711
The estimated useful life of this goodwill is ten years and will be amortised with effect from 1 January 2001. The transfer from the non-distributable reserve relates to the negative goodwill which resulted from the acquisition of a controlling interest in Gensec by Sanlam in 1998 pursuant to the sale of Sanlam’s asset management activities to Gensec.
P A GE 84 P A GE 85
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999
15. INVESTMENTS
Spread of investments in equities by sector (1) (2) (2) (3) (3) Industrial 40% 45% 40% 43% Financial 38% 35% 38% 37% Resources 22% 20% 22% 20%
Total spread of investments in equities 100% 100% 100% 100%
(1)Spread of investments in equities per sector excludes offshore equities, derivatives, unit trusts and unlisted investments. (2)Includes the appropriate underlying investments of Santam. (3)Investment in Santam and Gensec excluded.
Unlisted equity investments As a percentage of the total investment in equities 7% 4% 6%(1) 4%
(1)Excludes unlisted interest in Gensec
Offshore investments R million R million R million R million
Equities 14 846 14 902 14 791 14 902 Interest bearing investments 8 613 5 543 8 610 5 543
Total offshore investments 23 459 20 445 23 401 20 445
Shares held in holding company Sanlam Limited shares held by policyholders Number million 159 169 159 169 Fair value R million 1 523 1 453 1 523 1 453
Investment in associated companies(1) Absa Fair value of interest R million 4 277 4 195 4 266 4 179 Number of shares held 000s 149 532 151 985 149 162 151 380 Interest in issued share capital % Shareholders 14,8 13,8 14,4 13,8 Policyholders 8,2 9,9 8,2 9,9 Share of earnings after tax for current year R million Shareholders 309 263 309 263 Policyholders 200 199 200 199 Distributions received R million Shareholders 96 83 96 83 Policyholders 72 62 72 62 Aggregate post-acquisition reserves attributable to shareholders R million 590 377 590 377 The financial year-end of Absa is 31 March. The equity-accounted earnings for Absa 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 their interim results. The Sanlam Group’s share of these earnings is included in investment income.
(1) Interest in associated companies exclude segregated funds’ interest. notes to the group financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999
15. INVESTMENTS Investment in associated companies (continued) Santam Fair value of interest R million 1 321 800 Number of shares held 000s 41 294 26 423 Interest in issued share capital % Shareholders 14,4 11,6 Policyholders 23,2 24,7 Share of earnings after tax for current year R million Shareholders 59 39 Policyholders 98 84 Distributions received R million Shareholders 15 11 Policyholders 31 29
Gensec Fair value of interest R million 4 906 4 026 Number of shares held 000s 151 031 103 784 Interest in issued share capital % Shareholders 57,9 25,4 Policyholders — 15,7 Share of earnings after tax for current year R million Shareholders 147 200 Policyholders 90 145 Distributions received R million Shareholder 67 28 Policyholders 53 24
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.
16. CURRENT ASSETS R million R million R million R million
Premiums receivable 4 704 4 556 4 314 4 455 Accrued investment income 1 118 1 495 1 059 1 460 Trading account and money market investments 7 498 8 068 — — Accounts receivable 1 874 3 119 726 1 473 Amounts owing by group companies — — 432 105 Cash, deposits and similar securities 9 124 4 870 2 612 2 158
Total current assets 24 318 22 108 9 143 9 651
Cash, deposits and similar securities of R793 million (1999: R367 million) and trading account investments of R316 million (1999: R636 million) are encumbered as detailed in note 21.
P A GE 86 P A GE 87
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
17. SHARE CAPITAL AND PREMIUM Authorised share capital 4 000 million ordinary shares of 1 cent each 40 40 100 million ordinary shares of 1 cent each 1 1
Issued share capital and premium Number of ordinary shares in issue Balance at beginning of year million 2 654,6 2 654,6 50 50 Shares held by subsidiary million (22,2) — — —
Balance at end of year million 2 632,4 2 654,6 50 50
Nominal value and share premium Nominal value of 1 cent per share R million 27 27 1 1 Share premium R million 3 487 3 487 4 999 4 999
Total nominal value and share premium R million 3 514 3 514 5 000 5 000
In terms of the Demutualisation Proposal of 1998, a number of shares were held by the Sanlam Demutualisation Trust to enable adjustments to be made in the event of errors in the allocation of free shares. The period within which adjustments could be made expired on 22 October 1999. The remaining 22,2 million shares held for this purpose were returned to Sanlam Limited and are currently held as treasury stock by a wholly-owned subsidiary. These inter-group holdings are eliminated on consolidation of the Sanlam Group results.
Sanlam Limited 2000 1999 000s 000s
Executive share incentive scheme Restricted shares and share options at the beginning of the year 55 544 46 029 New options granted 18 359 19 322 Restricted shares purchased and options granted for the conversion of the Gensec share scheme 75 962 — Unconditional options and shares released, available for release, or taken up (12 324) (8 477) Options lapsed or cancelled (510) (1 536) Cash dividends received on restricted shares and converted into shares 166 206
Restricted shares and share options at the end of the year 137 197 55 544
Restricted and unrestricted share options as a percentage of total issued shares 4,8% 2,0% notes to the group financial statements – continued for the year ended 31 December 2000
Executive share incentive scheme (continued) Details regarding the restricted shares and share options outstanding on 31 December 2000 and the financial years during which they become unconditional, are as follows: Unconditional during Number of` Average year ended Shares Options option price 000s 000s R
31 December 2001 4 096 13 994 7,94 31 December 2002 3 847 22 419 7,61 31 December 2003 5 599 27 838 7,58 31 December 2004 3 720 30 113 6,91 31 December 2005 2 868 15 815 7,47 31 December 2006 and later 1 174 5 714 7,95
21 304 115 893
Following the acquisition of the Gensec minorities, the Gensec share incentive scheme was converted to the Sanlam scheme by accelerating a small number of existing Gensec options, using the net proceeds of the balance to purchase Sanlam shares to be held in terms of the Gensec scheme until the original vesting periods expire (“restricted shares”) and offering new Sanlam options for participants’ unexpired vesting period. In terms of the rules of the Sanlam Scheme, a maximum of 5% of the issued share capital of Sanlam Limited may be used for this purpose. However, as a result of the acquisition of the Gensec minorities and the conversion of the Gensec share incentive scheme, this limit is fully exhausted. Shareholders will be requested to increase this limit to 7,5% at the forthcoming annual general meeting.
Authorised and unissued shares Subject to the restrictions imposed by the Companies Act, the authorised and unissued shares are under the control of the directors until the forthcoming annual general meeting.
18. CONTINGENCY RESERVES Contingency reserves in respect of short-term insurance business of R208 million are included in shareholders’ reserves (1999: R160 million) and R90 million (1999: R65 million) in policy liabilities.
P A GE 88 P A GE 89
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
19. POLICY LIABILITIES 19.1 Analysis of movement in policy liabilities Income 33 842 57 716 33 842 57 716
Premium income (note 19.2) 23 806 20 295 23 806 20 295 Investment return (note 19.3) 10 036 37 421 10 036 37 421
Outgo 34 209 37 573 34 209 37 573
Policy benefits (note 19.4) 20 019 20 053 20 019 20 053 Retirement fund terminations 6 585 10 812 6 585 10 812 Transfer to segregated assets 1 093 637 1 093 637 Taxation (note 19.5) 283 336 283 336 Fees, risk premiums and other payments to shareholders 6 229 5 735 6 229 5 735
Net (outflow)/income for the year (367) 20 143 (367) 20 143 Balance at beginning of the year 134 319 114 176 134 319 114 176
Balance at end of the year 133 952 134 319 133 952 134 319
19.2 Analysis of premium income Individual insurance 16 576 14 772 16 576 14 772
Recurring premiums 8 455 8 344 8 455 8 344 Single premiums 5 881 4 804 5 881 4 804 Continuations 2 240 1 624 2 240 1 624
Employee benefits 7 230 5 523 7 230 5 523
Recurring premiums 3 050 3 029 3 050 3 029 Single premiums 4 180 2 494 4 180 2 494
Total premium income 23 806 20 295 23 806 20 295
19.3 Investment return: policyholders Investment income Net interest bearing investments 4 512 5 274 4 512 5 274 Equities 1 445 1 339 1 445 1 339 Properties 1 238 1 234 1 238 1 234
Total investment income 7 195 7 847 7 195 7 847 Equity-accounted earnings 494 481 494 481 Net investment surpluses 2 347 29 093 2 347 29 093
Total investment return 10 036 37 421 10 036 37 421 notes to the group financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
19.4 Analysis of long-term insurance policy benefits Individual insurance 15 080 14 522 15 080 14 522
Maturity benefits 7 539 7 060 7 539 7 060 Surrenders 3 714 3 460 3 714 3 460 Life and term annuities 3 103 3 278 3 103 3 278 Death and disability benefits (1) 576 549 576 549 Cash bonuses (1) 148 175 148 175
Employee benefits 4 939 5 531 4 939 5 531
Withdrawal benefits 2 263 2 980 2 263 2 980 Pensions 1 175 1 163 1 175 1 163 Lump-sum retirement benefits 1 232 1 089 1 232 1 089 Taxation paid on behalf of certain retirement funds 164 207 164 207 Death and disability benefits (1) 69 63 69 63 Cash bonuses (1) 36 29 36 29
Total long-term insurance policy benefits 20 019 20 053 20 019 20 053
(1)Excludes death and disability benefits and cash bonuses underwritten by the shareholders (refer note 3).
19.5 Taxation: policyholders Normal tax – foreign 8 9 8 9 Deferred (74) (44) (74) (44)
current year — — — — prior year (74) (44) (74) (44)
Share of associated companies’ tax charge 106 53 106 53 Other 243 318 243 318
Taxation on retirement funds 187 261 187 261 Withholding tax on foreign investments 39 23 39 23 Indirect taxation 17 34 17 34
Total taxation: policyholders 283 336 283 336
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.
P A GE 90 P A GE 91
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
19.6 Composition of policy liabilities Individual insurance 89 775 86 339 89 775 86 339
Market-related liabilities 28 085 25 699 28 085 25 699 Stable bonus fund 30 266 32 905 30 266 32 905 Reversionary bonus policies 9 614 10 060 9 614 10 060 Non-participating annuities 10 697 9 954 10 697 9 954 Other non-market-related liabilities 11 113 7 721 11 113 7 721
Employee benefits 44 177 47 980 44 177 47 980
Market-related liabilities 24 457 28 702 24 457 28 702 Stable bonus portfolios 10 283 10 530 10 283 10 530 Participating annuities 7 272 6 975 7 272 6 975 Other non-market-related liabilities 2 165 1 773 2 165 1 773
Total policy liabilities 133 952 134 319 133 952 134 319
19.7 Capital adequacy and ratios Capital adequacy requirements (CAR) R million 6 996 5 925 Shareholders’ funds(1) R million 16 640 16 154 Times CAR covered by shareholders’ funds times 2,4 2,7 Shareholders’ funds as percentage of: Policy liabilities % 12 12 Non-market-related liabilities % 20 20
(1)Assets of the shareholders’ funds include an investment in Gensec of R4 906 million.
% % % %
19.8 Discount rates used in calculating prospective policy liabilities Reversionary bonus business Retirement annuity business 12,9 14,0 12,9 14,0 Taxable business 12,7 13,7 12,7 13,7 Individual stable bonus business Retirement annuity business 12,8 13,5 12,8 13,5 Taxable business 12,6 13,3 12,6 13,3 Individual market-related business Retirement annuity business 13,2 13,9 13,2 13,9 Taxable business 13,0 13,7 13,0 13,7 Participating annuity business 12,6 13,6 12,6 13,6 Non-participating annuity business 12,8 14,0 12,8 14,0 Guaranteed plans 11,3 12,1 11,3 12,1 Future expense inflation rate assumptions 7,3 8,4 7,3 8,4 notes to the group financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
19.9 Provisions included in policy liabilities HIV/Aids provision 1 465 1 266 1 465 1 266 Reduction in earnings caused by using a retrospective HIV/Aids provision instead of a prospective provision (136) (2) (136) (2) Asset mismatch provision 532 419 532 419
20. TERM FINANCE Redeemable cumulative non-voting preference shares issued by subsidiary companies with dividend terms which are linked to prime interest rates and with different redemption dates up to 2005 3 886 3 163 4 311 4 272 Obligation for post-retirement medical fund contributions in respect of clients 176 220 176 220 Unsecured loan from an associated company at 17% per annum interest and repayable on 30 September 2001 300 300 300 300 Unsecured bank loan — 231 — — Secured bank loans of R132 million and R195 million at interest rates of 19,85% and 8,45% and repayable in equal monthly and six-monthly instalments over fifteen and five years respectively. 327 124 — — Other 9 24 9 15
Total term finance 4 698 4 062 4 796 4 807
Portion potentially repayable within one year included above 2 532 1 269 2 761 2 139
21. CURRENT LIABILITIES Trading account and money market liabilities 8 645 7 263 — — Accounts payable 6 431 5 759 2 116 2 130 Policy benefits payable 2 278 1 656 1 534 1 322 Claims incurred but not reported 1 028 842 597 505 Taxation 522 512 497 455 Shareholders for dividend 790 398 660 350
Total current liabilities 19 694 16 430 5 404 4 762
Trading assets with a total value of R1 109 million (1999: R1 003 million) have been pledged as security for trading account liability positions of Gensec (refer note 16).
P A GE 92 P A GE 93
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
22. PAYMENTS TO CLIENTS Analysis per product (Refer to page 107 for analysis per Sanlam business.) Insurance benefits paid Policy benefits 25 499 24 622 22 096 22 126
Long-term insurance(1) Underwriting (note 3) 2 077 2 073 2 077 2 073 Other (note 19.4) 20 019 20 053 20 019 20 053 Short-term – medical and general (note 3) 3 403 2 496 — —
Other payments 14 065 10 761 987 674
Unit trust repurchases 8 728 6 769 — — Segregated funds withdrawn(1) 4 350 3 318 — — Linked products withdrawn(1) 987 674 987 674
Total payments 39 564 35 383 23 083 22 800 Retirement fund terminations (note 19.1) 6 585 10 812 6 585 10 812
Total payments to clients 46 149 46 195 29 668 33 612
(1)Included in long-term insurance policy benefits is R146 million (1999: R63 million) in respect of linked-product business and R498 million (1999: R431 million) in respect of segregated fund business.
23. DEFERRED TAX AND PROVISIONS Details of the deferred tax balances and provisions of the Sanlam Limited group are as follows: Deferred tax Asset Liability Provisions R million R million R million
Balance at 1 January 2000 37 (693) (292) Charged to income statement (68) 335 (60)
Additional provisions (68) (20) (60) Unused amounts reversed — 355 —
Utilised during the year — — 46 Unused amounts reversed to policy liabilities — 74 — Arising on acquisition of subsidiary 146 — —
Balance at 31 December 2000 115 (284) (306)
Provisions None of the items included in the provisions is individually material. notes to the group financial statements – continued for the year ended 31 December 2000
24. FINANCIAL INSTRUMENTS Derivative financial instruments Derivative financial instruments are used by the Sanlam Group for hedging purposes to mitigate risk. Gensec, 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, and to benefit from price differentials between instruments and markets.
Scrip lending The Sanlam Group conducts scrip-lending activities in respect of some of its listed equities and bonds. The exposure to these activities was limited to less than 25% of the shareholders’ fund of Sanlam Life Insurance Limited and collateral security and guarantees of between 105% and 150% of the value of the loaned securities are held.
Market risk – interest and equities Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices or changes in market interest 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 15. 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. 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 non-market-related liabilities.
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.
Credit risk Credit risk arises from the inability or unwillingness of a counterparty to a financial instrument to discharge its contractual obligations. 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. An appropriate level of provision is maintained. Exposure to outside financial institutions concerning deposits and similar transactions is monitored against approved limits.
Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments. 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 20, and current liabilities in note 21. The Group has significant liquid resources and substantial unutilised banking facilities.
P A GE 94 P A GE 95
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 reports annually on the actuarial 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.
Legal risk Legal risk is the risk that the Group will be exposed to contractual obligations which have not been provided for. 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.
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 has been assumed in the financial soundness valuation. Capital adequacy requirements were covered 2,4 times at 31 December 2000 (1999: 2,7 times).
25. TANGIBLE NET ASSET VALUE PER SHARE: SANLAM LIMITED GROUP Tangible net asset value per share is calculated on the group shareholders’ funds of R20 512 million (1999: R20 463 million), after adjusting for the shareholders’ interest in Santam and Gensec from net asset value to fair value, divided by 2 632 million (1999: 2 655 million) shares issued at the year-end.
26. RETIREMENT BENEFITS FOR EMPLOYEES Retirement provision The Sanlam Limited 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 Limited Group contributed R171 million to these funds during 2000 (1999: R150 million).
Defined benefit funds Sanlam has two defined benefit funds. These funds relate to the office staff and advisers who did not elect to transfer to the defined contribution funds. These funds are closed to new entrants. The Sanlam Limited Group contributed R8 million to these funds during 2000 (1999: R9 million). According to the latest actuarial valuations as at 1 April 1999 the funds were financially sound. The present value of accrued retirement benefits in respect of past services at the valuation date was R704 million and the actuarial value of the assets of the funds was R761 million. 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. notes to the group financial statements – continued for the year ended 31 December 2000
27. 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. The directors of Sanlam Life Insurance Limited have the same discretion as Sanlam Limited, subject to the prior approval of the Registrar of Long-term Insurance. Material borrowings of the Sanlam Limited group are disclosed in note 20.
28. COMMITMENTS AND CONTINGENCIES Gensec has a commitment in respect of underwriting and private equity commitments amounting to R185 million (1999: R271 million) and has future operating lease commitments of R223 million (1999: R28 million). There are no other material commitments or contingencies.
29. RELATED PARTY TRANSACTIONS During the year the company and its subsidiaries in the ordinary course of business entered into various transactions with other group companies, associates and other stakeholders.These transactions occurred under terms that are no less favourable than those arranged with third parties.
Associates Details of investments in associates are disclosed in note 15.
Subsidiaries Details of investments in subsidiaries are disclosed on page 99.
Other stakeholders Details of transactions between the policyholders of Sanlam Life Insurance Limited and the shareholders’ funds of the Sanlam Limited group are disclosed in notes 2 and 19.1.
Directors All directors of Sanlam Limited and Sanlam Life Insurance 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 shareholdings in the company are disclosed in the directors’ report on page 67.
P A GE 96 P A GE 97
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
30. NOTES TO THE CASH-FLOW STATEMENTS 30.1 Operating profit on ordinary activities 1 342 1 067 969 602 Decrease in policy liabilities before investment return (10 403) (17 278) (10 403) (17 278)
Net (decrease)/increase (note 19.1) (367) 20 143 (367) 20 143 Less: Investment return (note 19.3) (10 036) (37 421) (10 036) (37 421)
Adjustment for non-cash items 1 014 277 (343) 197
Cash utilised in operations (8 047) (15 934) (9 777) (16 479)
30.2 Decrease/(increase) in net current assets Current assets 418 (4 616) 527 (549)
Premiums receivable (148) (57) 141 (70) Accrued investment income (183) (39) (46) (53) Trading account and money market investments (93) (3 832) — — Accounts receivable 842 (688) 759 (552) Amounts owing by group companies — — (327) 126
Current liabilities 2 774 3 403 360 (620)
Trading account and money market liabilities 1 382 3 229 — — Accounts payable 587 1 009 14 6 Policy benefits payable and claims incurred but not reported 808 (867) 304 (678) Taxation (3) 32 42 52
Decrease/(increase) in net current assets 3 192 (1 213) 887 (1 169) notes to the group financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
30.3 Cash flow from investment return Per income statement • Net investment return 2 136 1 654 2 027 1 598 • Adjustment for net long-term rate of return (1 049) 847 (835) 1 031 • Other net investment (deficits)/surpluses (220) (199) (1 015) 149
Net investment return attributable to shareholders 867 2 302 177 2 778 Net investment return attributable to policyholders (note 19.3) 10 036 37 421 10 036 37 421 Non-cash items 377 (110) 6 (88)
Cash from investment return 11 280 39 613 10 219 40 111
30.4 Net realised and unrealised growth in investments Net investment (deficits)/surpluses attributable to shareholders (note 11) (197) 1 414 (920) 1 877 Adjustment for surpluses/(deficits) on investments held for resale (note 10) 112 (48) — — Net investment surpluses attributable to policyholders (note 19.3) 2 347 29 093 2 347 29 093
Net realised and unrealised growth in investments 2 262 30 459 1 427 30 970
P A GE 98 principal subsidiaries for the year ended 31 December 2000
P A GE 99
Issued Fair value of ordinary interest in subsidiaries capital Shares Loans % 2000 2000 1999 2000 1999 interest R million R million R million R million R million
SANLAM LIMITED Long-term insurance Sanlam Life Insurance Limited 100 5 000 16 640 16 154 (85) — Asset management, equity activities and banking Genbel Securities Limited (Gensec) 100 1 952,5 (3) (3) (3) (3) Short-term insurance Santam Limited (listed) 59 1 045,6 (3) (3) (3) (3) Investment company Beldiv Investments (Proprietary) Limited 100 (1) 356 687 3 278 2 893 Computer hardware holding company Sanlam Computer Holdings (Proprietary) Limited 100 (1) — 1 — (7) Money transfer business Multi-Data (Proprietary) Limited 100 (4) — 3 48 — Managed health care(5) Sanlam Health (Proprietary) Limited 100 (1) 237 435 34 293 Management of unit trust schemes Sanlam Trust Managers Limited 100 2,6 389 318 (184) (184) Trust services Sanlam Trust Limited 100 1,0 — — — 2 Management companies Sanlam Personal Finance Limited 100 (1) — — — — Sanlam Employee Benefits Limited 100 (1) — — — — Total 17 622 17 598 3 091 2 997
SANLAM LIFE INSURANCE LIMITED Investment companies U.R.D. Investments (Proprietary) Limited 100 81,0 32 611 30 989 (14 096) (8 974) Electra Investments (South Africa) Limited 100 76,0 8 645 8 347 (5 216) (4 050) Property investment company Rycklof Investments (Proprietary) Limited 100 (2) 3 902 3 579 4 202 4 337 Management of Namibian business Sanlam Namibia Limited 100 5,0 113 101 (9) (11) Other 493 1 018 268 330 Total 45 764 44 034 (14 851) (8 368) (1) Issued share capital is R100. (2) Issued share capital is R2 000. (3) The interest in Santam and Gensec is held indirectly by Sanlam Life Insurance Limited and Beldiv Investments (Pty) Limited. (4) Issued share capital is R2. (5) The fair value of the shares and loan account represents the value of the underlying companies in the Sanlam Health (Pty) Limited group. A register of all subsidiary companies is available for inspection at the registered office of Sanlam Limited. All investments above are unlisted unless otherwise indicated. Gensec Santam Analysis of the Group’s holding in Santam and Gensec 2000 1999 2000 1999 Shareholders • Sanlam Life Insurance Limited 58% 25% 14% 12% • Sanlam Limited 42% 24% 22% 20% Policyholders • Sanlam Life Insurance Limited — 16% 23% 25% 100% 65% 59% 57% sanlam limited financial statements for the year ended 31 December 2000
BALANCE SHEET AT 31 DECEMBER 2000 2000 1999 Note R million R million
ASSETS Non-current assets Investment in group companies 2 13 750 12 547 Investment in joint venture 20 — Current assets 1 262 1 723
Loans to subsidiaries 452 1 373 Dividends receivable 810 350
Total assets 15 032 14 270
EQUITY AND LIABILITIES Share capital and premium 3 3 514 3 514 Non-distributable reserves 4 9 342 9 342 Retained income 980 737
Shareholders’ funds 13 836 13 593 Current liabilities 1 196 677
Loans from subsidiaries 367 191 Accounts payable 32 88 Shareholders for dividend 797 398
Total equity and liabilities 15 032 14 270
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2000 Unlisted dividends received 1 042 666 Dividends paid and proposed 5 (797) (664) Expenditure (2) (2)
Retained income for the year 243 — Retained income at beginning of the year 737 737
Retained income at end of the year 980 737
CASH-FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2000 Cash flow from operating activities 7 146 65 Cash flow from investing activities Investment in subsidiary companies (1 203) (437) Investment in joint venture (40) —
Decrease in cash and cash equivalents (1 097) (372) Net loans to subsidiaries – beginning of the year 1 182 1 554
Net loans to subsidiaries – end of the year 85 1 182
PAGE 100 P A GE 101
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000
1. ACCOUNTING POLICIES The accounting policies of the Sanlam Limited group as set out on pages 68 to 71 are also applicable to Sanlam Limited except as indicated below.
Investments Investments in subsidiary companies are reflected at book value or at a lower value if there is an impairment in value.
2000 1999 R million R million
2. SUBSIDIARY COMPANIES Investment in group companies Shares at cost 10 374 10 374 Amounts owing by subsidiaries 3 376 2 173
Total investment in group companies 13 750 12 547 Current loans with group companies Loans to subsidiaries 452 1 373 Loans from subsidiaries (367) (191)
Book value of interest in subsidiaries 13 835 13 729
Fair value of investment in subsidiaries 20 713 20 595
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 99 of the Sanlam Limited Group financial statements.
3. SHARE CAPITAL Details of share capital are reflected in note 17 on page 87 of the Sanlam Limited Group financial statements.
4. NON-DISTRIBUTABLE RESERVES Pre-acquisition reserves arising on acquisition of subsidiaries 9 342 9 342
5. DIVIDENDS Details of dividends paid are reflected in the directors’ report on page 67 of the Sanlam Limited Group financial statements.
6. REPORT OF THE DIRECTORS The directors’ report is included on page 67 of the Sanlam Limited Group financial statements.
7. CASH FLOW FROM OPERATING ACTIVITIES Retained income for the year 243 — Non-cash items – dividend receivable (810) (350) – dividend payable 797 398 – provision against investment 20 — Decrease in accounts receivable 350 5 Increase in accounts payable (454) 12
Cash flow from operating activities 146 65 financial information for the shareholders’ funds for the year ended 31 December 2000
PAGE 103 Income Statement per Business
PAGE 104 Balance Sheets
PAGE 105 Cash Flow Statements
PAGE 106 Notes to the Financial Statements
PAGE 111 Income Statement (as previously disclosed) contents
PAGE 112 Six-Year Review
PAGE 113 Stock Exchange Performance
PAGE 114 Report on the Sanlam Group Embedded Value
PAGE 102 sanlam limited shareholders’ funds – segmental income statement for the year ended 31 December 2000
P A GE 103
Corporate Investment SPF SEB Health Gensec Santam and other return(1) Total R million 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 Financial services income 4 809 4 576 1 558 1 426 783 854 1 387 1 247 3 836 2 603 193 282 — — 12 566 10 988 Sales remuneration 1 000 915 43 32 — — — — 444 390 18 16 — — 1 505 1 353
Income after sales remuneration 3 809 3 661 1 515 1 394 783 854 1 387 1 247 3 392 2 213 175 266 — — 11 061 9 635 Underwriting policy benefits 1 089 1 142 984 929 640 673 — — 2 763 1 823 4 2 — — 5 480 4 569 Administration costs 1 415 1 330 301 271 128 165 631 500 529 331 285 278 — — 3 289 2 875
Profit before exceptionals 1 305 1 189 230 194 15 16 756 747 100 59 (114) (14) — — 2 292 2 191 Exceptional items 261 408 28 26 — 5 73 — — — 6 30 — — 368 469
Operating profit before tax 1 044 781 202 168 15 11 683 747 100 59 (120) (44) — — 1 924 1 722 Tax on operating profit (105) (211) (5) (34) — — (79) 41 (21) (15) (15) 15 — — (225) (204)
Operating profit after tax 939 570 197 134 15 11 604 788 79 44 (135) (29) — — 1 699 1 518 Minority interest — — — — — — (301) (421) (56) (30) — — — — (357) (451)
Net operating profit 939 570 197 134 15 11 303 367 23 14 (135) (29) — — 1 342 1 067
Investment return based on LTRR(3) Investment return — — — — — — — — 155 320 — — 1 193 2 616 1 348 2 936 Tax on investment return — — — — — — — — (95) (46) — — (130) (199) (225) (245) Minority interest — — — — — — — — (36) (190) — — — — (36) (190) Net LTRR(3) adjustment — — — — — — — — 92 9 — — 957 (856) 1 049 (847)
Net investment return based on LTRR(3) — — — — — — — — 116 93 — — 2 020 1 561 2 136 1 654
Headline earnings based on LTRR(3) — — — — — — 303 367 139 107 — — 2 020 1 561 3 478 2 721 Short-term investment surpluses — — — — — — — — (92) (9) — — (957) 856 (1 049) 847 Net investment surpluses on: trade investments — — — — — — (112) 48 — — — — — — (112) 48 investment in associate — — — — — — — — — — — — (108) (247) (108) (247) Accounting policy change — — — — — — — — — 68 — — — — — 68
Attributable earnings — — — — — — 191 415 47 166 — — 955 2 170 2 209 3 437
Ratios Admin ratio(2) 37,1% 36,3% 19,9% 19,4% 16,3% 19,3% 45,5% 40,1% 15,6% 15,0% — — — — 29,7% 29,8% Operating margin(2) 27,4% 21,3% 13,3% 12,1% 1,9% 1,3% 49,2% 59,9% 2,9% 2,7% — — — — 17,4% 17,9% Return on equity Operating profit before tax — — — — — — — — — — — — — — 8,2% 7,7% Operating profit after tax — — — — — — — — — — — — — — 7,2% 6,4% Headline earnings based on LTRR(3) — — — — — — — — — — — — — — 18,7% 16,3%
(1) Represents the investment return earned on the Sanlam Group investments excluding Santam’s underlying investments. (2) Calculated as a percentage of income earned by the shareholders less sales remuneration. (3) LTRR = Long term rate of return. shareholders’ funds balance sheets at 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 Note R million R million R million R million
ASSETS Non-current assets Fixed assets 256 328 103 101 Goodwill 1 711 — — — Investments 20 923 23 325 21 620 21 480
Properties 1 074 864 1 074 864 Equities 4 10 337 12 712 13 664 12 399 Public sector stocks and loans 2 958 3 886 1 854 3 246 Mortgages, debentures and other loans 2 106 1 394 1 770 1 444 Cash, deposits and similar securities 4 448 4 469 3 258 3 527
Deferred tax 115 37 — — Investments held for resale 1 213 1 460 — — Current assets 5 19 729 16 398 4 554 3 952
Total assets 43 947 41 548 26 277 25 533
EQUITY AND LIABILITIES Capital and reserves Share capital and premium 6 3 514 3 514 5 000 5 000 Non-distributable reserves 9 415 10 289 5 429 5 429 Investment reserve 395 592 2 914 3 834 Retained income 4 898 3 282 3 297 1 891
Shareholders’ funds 18 222 17 677 16 640 16 154 Minority interest 1 897 3 543 — —
Outside shareholders 1 215 2 387 — — Sanlam policyholders 682 1 156 — —
Non-current liabilities Term finance 4 698 4 062 4 796 4 807 Deferred tax 284 693 284 663 Current liabilities 7 18 846 15 573 4 557 3 909
Total equity and liabilities 43 947 41 548 26 277 25 533
P A GE 104 shareholders’ funds cash flow statements for the year ended 31 December 2000
P A GE 105
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 Note R million R million R million R million
Net cash flow from operating activities 3 834 3 797 290 2 841
Cash generated by operations 8.1 2 356 1 344 626 799 Decrease/(increase) in net current assets 8.2 2 237 (218) (115) (220) Decrease in investments held for resale 119 436 — — Fixed assets – additions and replacements (20) (137) (52) (25)
Cash flow from operations 4 692 1 425 459 554 Cash flow from investment return 8.3 1 186 2 057 181 2 553
Cash flow from operating activities before 5 878 3 482 640 3 107 (Decrease)/increase in minority shareholders’ interest (1 646) 581 — — Dividend paid (398) (266) (350) (266)
Cash flow from investment activities (208) (2 642) 175 (2 210)
Net sales/(purchases) of investments 4 685 (1 276) (745) (333) Net realised and unrealised growth in investments 8.4 85 (1 366) 920 (1 877) Acquisition of Gensec minorities (4 978) — — —
Cash flow from financing activities Net term finance raised/(repaid) 628 (1 536) (11) (874)
Net increase/(decrease) in cash and cash equivalents 4 254 (381) 454 (243) Cash, deposits and similar securities at beginning of year 4 870 5 251 2 158 2 401
Cash, deposits and similar securities at end of year 5 9 124 4 870 2 612 2 158 notes to the shareholders’ funds financial statements for the year ended 31 December 2000
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 Life Insurance Limited group and Sanlam Limited group are the same as set out on pages 68 to 73.
Basis of consolidation Santam and Gensec are consolidated in the Sanlam Limited group shareholders’ financial statements. The policyholders’ and outside shareholders’ interests in these companies are treated as minority shareholders’ interest on consolidation.
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
2. FUNDS RECEIVED FROM CLIENTS (analysis per business) Sanlam Personal Finance 24 704 21 906 15 630 13 980 Individual insurance 15 630 13 980 15 630 13 980
Recurring premiums 8 401 8 310 8 401 8 310 Single premiums 4 989 4 046 4 989 4 046 Continuations 2 240 1 624 2 240 1 624
Unit trust inflows 9 074 7 926 — — SP2 (linked products) 2 449 2 346 2 449 2 346 Sanlam Employee Benefits 6 658 5 299 6 658 5 299
Recurring premiums 2 883 2 850 2 883 2 850 Single premiums 4 146 2 449 4 146 2 449
7 029 5 299 7 029 5 299 Transfer from segregated funds (371) — (371) —
Santam 3 836 2 603 — — Sanlam Health 668 700 — — SIM segregated funds 8 149 2 534 176 224 Sanlam Namibia Limited 462 380 194 152
Total funds received from clients 46 926 35 768 25 107 22 001
P A GE 106 P A GE 107
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
3. PAYMENTS TO CLIENTS (analysis per business) Sanlam Personal Finance 24 521 22 258 15 952 15 560 Individual insurance 15 952 15 560 15 952 15 560
Surrenders 3 672 3 444 3 672 3 444 Death, maturity, disability and annuity benefits 12 280 12 116 12 280 12 116
Unit trust outflows 8 569 6 698 — — SP2 (linked products) 1 133 737 1 133 737 Sanlam Employee Benefits 12 006 16 841 12 006 16 841
Fund terminations 7 271 11 060 7 271 11 060 Death, retirement, pension, disability and withdrawal benefits 5 765 6 311 5 765 6 311
13 036 17 371 13 036 17 371 Transfer to segregated funds (1 030) (530) (1 030) (530)
Santam 2 763 1 823 — — Sanlam Health 640 673 — — SIM segregated funds 4 848 3 749 498 431 Sanlam Namibia Limited 238 114 79 43
Total payments to clients 46 149 46 195 29 668 33 612
4. INVESTMENTS Analysis of equity investments (1) (1) (2) (2) Absa 2 751 2 444 2 740 2 428 Gensec — — 4 906 2 488 Santam (1) (1) 508 256 Other equities Local 5 648 8 368 3 627 5 327 Offshore 1 938 1 900 1 883 1 900
Equity investments 10 337 12 712 13 664 12 399
(1) Includes the underlying investments of Santam which are consolidated in the Sanlam Limited group results. (2) Interest in Santam and Gensec reflected as investments in associated companies and not consolidated. notes to the shareholders’ funds financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
4. INVESTMENTS (continued) Spread of investments in equities by sector (1) (2) (2) (3) (3) Industrial 28% 37% 23% 25% Financial 55% 48% 61% 64% Resources 17% 15% 16% 11%
Total spread of investment in equities 100% 100% 100% 100%
(1) Spread of investments in equities per sector excludes offshore equities, derivatives, unit trusts and unlisted investments. (2) Includes the appropriate underlying investments of Santam. (3) Investment in Santam and Gensec excluded.
Offshore investments Equities 1 938 1 900 1 883 1 900 Interest-bearing investments 1 068 726 1 065 726
Total offshore investments 3 006 2 626 2 948 2 626
Unlisted equity investments As a percentage of total investment in equities 2% 1% 1% (1) 1%
(1) Excludes unlisted interest in Gensec.
5. CURRENT ASSETS Premiums receivable 930 411 540 310 Accrued investment income 242 536 183 502 Trading account and money market investments 7 498 8 068 — — Accounts receivable 1 935 2 513 787 877 Amounts owing by group companies — — 432 105 Cash, deposits and similar securities 9 124 4 870 2 612 2 158
Total current assets 19 729 16 398 4 554 3 952
6. SHARE CAPITAL AND PREMIUM Details of share capital are reflected in note 17 on page 87 of the Sanlam Limited group financial statements.
P A GE 108 P A GE 109
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
7. CURRENT LIABILITIES Trading account and money market liabilities 8 645 7 263 — — Accounts payable 6 180 5 407 1 866 1 782 Policy benefits payable 2 278 1 656 1 534 1 322 Claims incurred but not reported 431 337 — — Taxation 522 512 497 455 Shareholders for dividend 790 398 660 350
Total current liabilities 18 846 15 573 4 557 3 909
8. NOTES TO THE CASH-FLOW STATEMENTS
8.1 Cash generated by operations per income statement 1 342 1 067 969 602 Adjustment for non-cash items 1 014 277 (343) 197
Cash generated by operations 2 356 1 344 626 799
8.2 Decrease/(increase) in net current assets Current assets (546) (3 997) (481) 217
Premiums receivable (519) 93 (230) 79 Accrued investment income (109) 51 (26) 51 Trading account and money market investments (93) (3 832) — — Accounts receivable 175 (309) 102 (38) Amounts owing by group companies — — (327) 125
Current liabilities 2 783 3 779 366 (437)
Trading account and money market liabilities 1 382 3 229 — — Accounts payable 688 1 442 112 235 Policy benefits payable and claims incurred but not reported 716 (924) 212 (724) Taxation (3) 32 42 52
Decrease/(increase) in net current assets 2 237 (218) (115) (220) notes to the shareholders’ funds financial statements – continued for the year ended 31 December 2000
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
8.3 Cash flow from investment return Per income statement • Net investment return per income statement 2 136 1 654 2 027 1 598 • Adjustment for net long-term rate of return (1 049) 847 (835) 1 031 • Other net investment (deficits)/surpluses (220) (199) (1 015) 149
Net investment return attributable to shareholders 867 2 302 177 2 778 Non-cash items 319 (245) 4 (225)
Cash from investment return 1 186 2 057 181 2 553
8.4 Net realised and unrealised growth in investments Net investment (deficits)/surpluses (note 11 on page 83) (197) 1 414 (920) 1 877 Adjust for surpluses/(deficits) on investments held for resale (note 10 on page 83) 112 (48) — —
Net realised and unrealised growth in investments (85) 1 366 (920) 1 877
P A GE 110 group income statements for the year ended 31 December 2000 (on previous basis of disclosure)
P A GE 111
Sanlam Life Sanlam Limited Insurance Limited 2000 1999 2000 1999 R million R million R million R million
Operating profit after exceptional items 1 924 1 722 1 062 794 Investment income (refer note 8 on page 82) 1 373 1 249 1 254 1 068
Headline earnings before taxation 3 297 2 971 2 316 1 862 Tax on headline earnings (415) (449) (250) (359)
Headline earnings after taxation 2 882 2 522 2 066 1 503 Minority shareholders’ interest (476) (567) — —
Headline earnings 2 406 1 955 2 066 1 503 Net investment surpluses (refer note 11 on page 83) (197) 1 414 (920) 1 877
• Investment surpluses (427) 1 715 (920) 1 877 • Income tax 33 (143) — — • Minority shareholders’ interest 197 (158) — —
Accounting policy change by subsidiary — 68 — —
• Accumulated prior years’ effect of policy change — 212 — — • Minority shareholders’ interest — (144) — —
Earnings attributable to shareholders 2 209 3 437 1 146 3 380
Diluted attributable earnings per share (cents) 83,1 129,0 Diluted headline earnings per share (cents) 90,6 73,4 six-year review
Average annual 2000 1999 1998 1997(1) 1996(1) 1995(1) growth R million R million R million R million R million R million rate %
EXTRACTS FROM FINANCIAL STATEMENTS Operating profit 1 924 1 722 1 237 1 026 1 070 1 079 12% Headline earnings based on long-term rate of return 3 478 2 721 — — — — — Shareholders’ funds 18 222 17 677 14 904 10 172 9 005 7 182 20% Policy liabilities 133 952 134 319 114 176 119 506 114 647 107 839 4% Total assets under management 223 637 215 924 176 792 166 382 147 969 135 984 10% Net tangible asset value per share (cents) (2) 779 771 630 528 466 376 16% Group administration cost ratio (%) 29,7% 29,8% 27,8% — — — — Group operating margin (%) 17,4% 17,9% 12,9% — — — —
NEW BUSINESS Long-term insurance business Individual insurance 9 795 7 704 6 319 7 743 6 733 7 244 6% • Recurring premiums – indexed growth 525 527 500 500 425 385 6% – other 1 149 749 830 1 039 1 301 1 366 –3% • Single premiums 5 881 4 804 3 107 5 458 4 376 4 862 4% • Continuations 2 240 1 624 1 882 746 631 631 29% Employee benefits 4 399 2 633 5 247 5 154 3 503 2 252 14%
• Recurring premiums 219 139 137 — (3) — (3) — (3) — • Single premiums 4 180 2 494 5 110 5 154 3 503 2 252 13%
Total long-term insurance business 14 194 10 337 11 566 12 897 10 236 9 496 8% Other business 23 506 15 473 18 280 12 214 8 757 5 978 32% • Unit trusts 9 342 8 154 8 266 2 957 1 164 890 60% • Segregated funds 7 973 2 310 4 498 5 519 4 666 2 714 24% • Linked products 1 687 1 706 1 423 431 — — 58% • Short-term insurance 4 504 3 303 4 093 3 307 2 927 2 374 14%
Total new business 37 700 25 810 29 846 25 111 18 993 15 474 19% RECURRING PREMIUMS Long-term insurance business Individual insurance 8 455 8 344 8 496 8 354 7 781 6 961 4% Employee benefits 3 050 3 029 2 740 3 000 2 958 2 579 3% Total recurring premiums 11 505 11 373 11 236 11 354 10 739 9 540 4% STAFF Office staff (excluding marketing staff) 9 709 10 159 11 669 12 756 12 635 12 406 -5%
(1) Pro forma figures to reflect the demutualisation and restructuring of Sanlam in 1998. (2) Shareholders’ interest in Santam and Gensec adjusted from net asset value to fair value. (3) Figures not readily available as the definition of new business was only introduced in 1999.
PAGE 112 stock exchange performance
PAGE 113
2000 1999 1998(1)
Number of shares traded (million) 1 030 1 463 350 Value of shares traded (R million) 8 578 9 451 2 035 Percentage of issued shares traded (%) 39 55 13 Price: earnings ratio (times) 7,3 8,4 — Shareholders’ return since listing(2) (%) 27 41 — Headline earnings return on equity (%) 18,7 16,3 — Market price per share (cents) • Year-end closing price 956 860 585 • Highest closing price 1 000 890 599 • Lowest closing price 675 440 567 Net asset value per share (cents) 779 771 630 Embedded value per share (cents) 1 035 1 004 827 Market capitalisation at year end (R million) 25 381 22 833 15 531 Sanlam share price relative to • Financial index 8,87 8,02 6,94 • Life insurance index 7,92 7,07 6,85
(1) Sanlam Limited was listed on 30 November 1998. (2) Annualised growth in the Sanlam share price since listing plus dividends paid.
SHARE PRICE vs EMBEDDED VALUE 1 150
1 000
850
700
550
400
Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 1998 1999 1999 1999 1999 1999 1999 2000 2000 2000 2000 2000 2000
Share price Embedded value
SANLAM SHARE PRICE RELATIVE TO FINANCIAL INDEX 9
8
7
6
5
4
Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 1998 1999 1999 1999 1999 1999 1999 2000 2000 2000 2000 2000 2000 report on the sanlam group embedded value for the year ended 31 December 2000
DEFINITIONS SANLAM GROUP EMBEDDED VALUE (EV)
In estimating the economic value of a life insurance company, Table 1 2000 1999 it is common to use a concept known as the “embedded Risk discount rate 15,6% 16,1% value” of the company. The embedded value represents the (R million) shareholders’ net assets plus the value of the life insurance Sanlam Group shareholders’ business in force (VIF), net of the cost of holding prudential net assets 18 222 17 677 reserves (CPR) in relation to this business. The economic Revaluation to fair value(1) 2 290 2 786 value of the company is then derived by adding to the Sanlam Group shareholders’ embedded value an estimate of the value of future sales of adjusted net assets 20 512(2) 20 463 new life insurance business, sometimes calculated by applying Net VIF 6 726 6 193 a multiple to the value of one year’s sales. The value of one Gross VIF 7 900 7 774 Less: CPR (1 174)(3) (1 581) year’s sales is a measure of the economic value added by a life insurance company during the course of the year as a result of Sanlam Group EV 27 238 26 656 writing new business. EV per share (cents) 1 035 1 004 This report presents the embedded value of the Sanlam Number of shares (million)(4) 2 632 2 655 Group, rather than that of Sanlam Life Insurance Limited. In
addition, the report also presents the net value of new life VALUE OF NEW LIFE INSURANCE BUSINESS (VNB) insurance business (VNB). Table 2 2000 1999 The VIF is calculated as the discounted value, using a (R million) risk-adjusted discount rate, of the projected stream of future Net VNB(5) 209 101 after-tax profits determined on the financial soundness Gross VNB 245 132 valuation (FSV) basis for business in force at the valuation Less: CPR (36) (31) date. This value excludes the discounted value of the release of prudential reserves over the life of the in-force business. The above values are net of company tax and do not The CPR with respect to the in-force life insurance include allowance for the tax position of an investor in business is calculated as follows: Sanlam Limited. (1) Interest in Santam and Gensec adjusted from net asset value to fair value. • the amount of prudential reserves at the valuation date, less A fair value of R32,48 per share was placed on Gensec at • the discounted value, using a risk-adjusted discount rate, of 31 December 2000 based on its constituent businesses and assets. This value is determined taking cognisance of current market values and does the expected annual release of these reserves over the life of not place a value on the longer term strategic value as was required for the the in-force business, allowing for the after-tax investment acquisition of the Gensec minorities. return on the expected level of reserves held in each year. (2) Includes 100% interest in Gensec (1999: 49%) as a result of the acquisition of the Gensec minorities during December 2000. The VNB is calculated as the discounted value at issue, (3) Decrease is largely due to changes in the asset composition underlying using a risk-adjusted discount rate, of the projected stream of prudential reserves and changes in economic assumptions and risk discount rate. after-tax FSV profits for new business issued during the (4) Refer note 17 on page 87 of the financial statements. twelve months prior to the valuation date. The VNB is (5) Based on sales volumes, business mix and acquisition expenses for the reduced by the CPR over the life of this cohort of business, to respective years and assumptions at the respective year-ends. obtain the net VNB.
PAGE 114 P A GE 115
ANALYSIS OF NET VIF BUSINESS MARGINS
Table 3 2000 Profitability of new business can be measured by the ratio of Gross Net the net value of new business to the annual premium (R million) VIF CPR VIF equivalent (APE). Sanlam Personal Finance 7 036 (884) 6 152 Sanlam Employee Benefits 1 187 (290) 897 NET VNB AS A PERCENTAGE OF APE (1) Corporate (323) — (323) Table 5 2000 Sanlam Group 7 900 (1 174) 6 726 Net (R million) VNB APE(1) Margin 1999 Sanlam Personal Finance 190 1 948 9,8% Gross Net Sanlam Employee Benefits 70 629 11,1% (R million) VIF CPR VIF Corporate (51) 41(2) — Sanlam Personal Finance 7 102 (1 245) 5 857 Sanlam Group 209 2 618 8,0% Sanlam Employee Benefits 1 056 (336) 720 Corporate (384) — (384) 1999 Sanlam Group 7 774 (1 581) 6 193 Net (R million) VNB APE(1) Margin (1) Includes R20 million for Sanlam Namibia Limited. Sanlam Personal Finance 86 1 391 6,2% ANALYSIS OF NET VNB Sanlam Employee Benefits 64 366 17,5% Table 4 2000 Corporate (49) — — Gross Net Sanlam Group 101 1 757 5,7% (R million) VNB CPR VNB (1) Annual Premium Equivalent (APE) is new recurring premiums Sanlam Personal Finance 198 (8) 190 (excluding indexed growth premiums) plus 10% of single premiums. Sanlam Employee Benefits 98 (28) 70 (2) The APE for Sanlam Namibia Limited was R41million. Corporate(1) (51) — (51) EMBEDDED VALUE EARNINGS Sanlam Group 245 (36) 209 Table 6 2000 1999 1999 (R million) Gross Net Net VNB 209 101 (R million) VNB CPR VNB Earnings from existing life Sanlam Personal Finance 101 (15) 86 insurance business 1 330 1 056 Sanlam Employee Benefits 80 (16) 64 • Expected return 1 173 1 219 Corporate (49) — (49) • Operating experience variations 137(1) (101) Sanlam Group 132 (31) 101 • Operating assumption changes 20 (62)
(1) Includes R5 million for Sanlam Namibia Limited. Embedded value earnings from operations 1 539 1 157 Sanlam Personal Finance’s increase in VNB was mainly due to Economic and other assumption a significant increase in new business and an overall changes 289(2) 521 improvement in margins. Sanlam Employee Benefit’s increase Tax changes (22) (512) Investment variances (304) 408 in VNB is the net result of Growth from life insurance • a substantial increase in new business, and business 1 502 1 574 • a relatively larger allocation of SEB corporate and marketing Investment return on adjusted (3) expenses in 2000 (an additional R34 million in 2000), net worth (130) 3 794 owing to the refinement of the expense analysis. Total embedded value earnings 1 372 5 368 Dividends paid or proposed (790) (664) Increase in Sanlam Group embedded value 582 4 704 Return on embedded value 5,1%(4) 24,4% r eport on the sanlam group embedded value – continued for the year ended 31 December 2000
The above values are based on the assumptions at the respective year ends. PRINCIPAL BASES AND ASSUMPTIONS (1) Profit and losses were incurred due to better or worse than expected expense and demographic experience on all products. The main contributor to The assessment of the VIF business, the CPR and the VNB the positive operating experience was R193 million in respect of risk is based on the “best estimate” assumptions used for underwriting. The positive values were reduced by project expenses of determining the FSV policy liabilities excluding R68 million that were not foreseen at the previous year-end. (2) The R289 million resulting from economic and other assumption changes is any margins. due to: The principal bases and assumptions used in the • R97 million in respect of the net effect of changes in the asset mix for prudential reserves resulting in an increase in unprotected equities to calculations are described below. 54% (see Table 9) and following from this, an increase in the risk discount rate to 0,5% above equity returns. Investment return and inflation • R192 million mainly in respect of the 1% reduction in assumed investment The investment assumptions used in the EV and the FSV returns (see Table 8). basis have been the same since 1999. (3) The investment return experience includes the effect of realised and unrealised investment surpluses which were negatively influenced by the The assumed pre-tax investment returns by major asset difficult stock market conditions in 2000. category and assumed inflation were based on the market (4) The return on embedded value is the embedded value earnings as a percentage of the embedded value at the beginning of the year. yield of fixed-interest securities, and are:
GROWTH FROM LIFE BUSINESS GROSS INVESTMENT RETURN AND INFLATION ASSUMPTIONS Table 7 2000 1999 (R million) Table 8 2000 1999 % % VIF at end of year 6 726 6 193 Fixed-interest securities 13,1 14,1 Plus: net operating profit transferred to current year’s earnings(1) 969 602 Equities and off-shore investments 15,1 16,1 Less: VIF at beginning of year (6 193) (5 221) Hedged equities(1) 12,1 13,1 Growth in life business 1 502 1 574 Property 14,1 15,1 Cash 11,1 12,1 Growth in life business(2) 24,3% 30,1% Risk discount rate 15,6 16,1 (1) Net operating profit after tax. Prudential reserves asset returns(2) 14,1 14,5 (2) Growth from life business expressed as a percentage of VIF at the beginning of the year. Inflation(3) 6,6 7,6
(1) The assumed future return for these assets is lower than that of equities DISCOUNT RATE which are not hedged, reflecting the cost of the derivative instruments. The long-term investment objectives for the Sanlam Life (2) The investment return on assets supporting the prudential reserves shown in Table 9, is based on the assumed long-term asset mix for these funds. Insurance Limited’s shareholders investment portfolio were (3) The inflation assumption is used for both expense inflation and for reviewed and the proportion of equities was increased. This premium indexation. increased the expected return and volatility of investment returns. The required rate of return on shareholders’ capital, Prudential reserving as represented by the risk discount rate, was increased as a The following asset mix was assumed for funds supporting result. At 31 December 1999 the risk discount rate was equal Sanlam Life Insurance Limited’s prudential reserves. to the assumed long-term equity return, whereas at 31 December 2000 it was set at 0,5% higher than the long- term equity return (see Table 8).
P A GE 116 P A GE 117
ASSUMED LONG TERM ASSET MIX FOR FUNDS Recurring expenses and project costs SUPPORTING PRUDENTIAL RESERVES The expense bases were as follows: Table 9 2000 1999 • Future investment expenses were based on the current scale % % of fees in place between Sanlam Investment Management Equities 54 32 and Sanlam Life Insurance Limited. To the extent that this Hedged equities 18 17 scale of fees includes profit margins for Sanlam Investment Property 16 10 Management, these margins have not been included in the Fixed-interest securities 10 33 Cash 2 8 assessment of the VIF business and the VNB. Total 100 100 • In determining the VIF business, the value of expenses for certain planned projects focusing on both administration Sanlam is satisfied that its capital adequacy requirement cover and distribution aspects of Sanlam’s life insurance business allows it to increase the risk profile of the assets underlying the has been deducted. These projects are of a short-term prudential reserves. The long-term asset mix for prudential nature, although similar projects may be undertaken from reserves in 2000 largely reflects the actual change in asset mix, time to time. No allowance has been made for the expected which occurred simultaneously with the acquisition of the positive impact these projects may have on the future Gensec minorities. operating experience of Sanlam Life Insurance. Assets held in the shareholders’ fund of Sanlam Life New business premiums Insurance Limited in excess of the prudential reserves are assumed to be invested in local equities or in foreign assets. • In determining the VNB with regard to new recurring premiums, increases in existing recurring premium It was assumed that the current prudential reserving basis contracts associated with indexation arrangements were not would be maintained in the future and has not changed since included, but instead were allowed for in the VIF business. the 1999 valuation. • The VNB includes the expected value of future premium Other decrements and bonuses bases increases resulting from premium indexation on the new The bases for these elements were as follows: recurring premium business written during the year to • Future mortality, morbidity and discontinuance rates and 31 December 2000. future expense levels were based on recent experience where • The value of individual policies that matured during the appropriate. year and were subsequently continued, has been included • Future rates of bonuses for traditional participating in the VNB. business, stable bonus business and participating annuities • The new Millennium and Stratus products of Sanlam were set at levels which were supportable by the assets Personal Finance, are taken into account as open-ended backing the respective product sub-funds at the respective policies. valuation dates. Taxation • Sanlam Life Insurance Limited’s current surrender and • Projected corporate tax was allowed for at 30% for both paid-up bases were assumed to be maintained in the future 1999 and 2000. The values for these years were calculated and have not changed since the December 1999 valuation. on the revised four-fund tax basis for life insurers which HIV/Aids came into effect from 1 January 2000. Allowance for the impact of expected HIV/Aids-related • Allowance has been made for the change in taxation of claims, where appropriate, was made consistent with the overseas dividends, as announced by the Minister of recommendations of the Actuarial Society of South Africa as Finance in his February 2000 budget speech. set out in its Professional Guidance Note (PGN) 105. • No allowance was made for capital gains tax owing to Premiums were assumed to be rerated, where applicable, in uncertainty regarding the implementation of this tax. line with deteriorations in mortality, with a three-year delay from the point where mortality losses would be experienced. r eport on the sanlam group embedded value – continued for the year ended 31 December 2000
Other factors SENSITIVITY ANALYSIS – 31 December 2000 The embedded values do not include an allowance for the Table 11 cost of the share incentive scheme. In respect of share Value of new business Gross Net options, where shares have not yet been issued, the number of (R million) VNB CPR VNB %(1) shares used to calculate the embedded value per share will be Base value 245 (36) 209 — increased as and when these options are granted. Granting Increase risk discount rate share options will therefore influence the embedded value per by 1,5% to 17,1% 209 (50) 159 –24% share negatively in future. Decrease risk discount rate by 1,5% to 14,1% 286 (18) 268 28% SENSITIVITY ANALYSIS Increase investment return and inflation by 1,5%, To illustrate the effect of using different assumptions, the coupled with an increase in sensitivity of the values is shown in Table 10. Sensitivities risk discount rate of 1,5% to 17,1%, and with bonus rates have been determined at a risk discount rate of 15,6% per changing commensurately 232 (37) 195 –7% annum (except where indicated otherwise). The risk discount Increase inflation by 1,5%, rate appropriate to an investor will depend on the investor’s without adjustment in nominal own requirements, tax position and perception of the risks investment return, but with index-linked premiums associated with the realisation of the future profits of Sanlam increased by 1,5% as well 241 (37) 204 –2% Life Insurance Limited. For each sensitivity illustrated, all Increase non-commission other assumptions have been left unchanged. Note that the expenses (excluding investment different sensitivities do not indicate that they each have a expenses) by 10% 182 (35) 147 –30% similar chance of occurring. The sensitivities are illustrative. Decrease new business volumes by 10%, but acquisition SENSITIVITY ANALYSIS – 31 December 2000 expenses remain unchanged 187 (35) 152 –27% Increase mortality of products Table 10 providing death benefits Value of in force Gross Net by 10%(2) 227 (35) 192 –8% (R million) VIF CPR VIF %(1) (1) Base value 7 900 (1 174) 6 726 — Percentage change from base value. (2) Risk premiums are assumed to be increased accordingly (where Increase risk discount rate appropriate), but only after a three year lag. Mortality of annuities is by 1,5% to 17,1% 7 321 (1 666) 5 655 –16% assumed to be unchanged, because a decrease rather than an increase in Decrease risk discount mortality, increases the mortality risk on annuities. rate by 1,5% to 14,1% 8 575 (586) 7 989 19% Increase investment return and inflation by 1,5%, coupled with an increase in risk discount rate of 1,5% to 17,1%, and with bonus rates changing commensurately 7 809 (1 194) 6 615 –2% Increase inflation by 1,5%, without adjustment in nominal investment return, but with index-linked premiums increased by 1,5% as well 7 894 (1 180) 6 714 0% Increase non-commission expenses (excluding investment expenses) by 10% 7 667 (1 172) 6 495 –3% Increase discontinuance rates by 10% 7 770 (1 132) 6 638 –1% Increase mortality of products providing death benefits by 10%(2) 7 743 (1,166) 6 577 –2%
P A GE 118 consulting actuaries report for the year ended 31 December 2000
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Towers, Perrin, Forster & Crosby (Inc in Pennsylvania, USA) Registered in South Africa, Registration number 97/20979/10 3rd Floor, Safmarine House, 22 Riebeek Street, Cape Town 8001, South Africa
7 March 2001
The Directors Sanlam Limited 2 Strand Road Bellville South Africa
Ladies and Gentlemen
Embedded Value of the Sanlam Group
The embedded value of the Sanlam Group, an analysis of the change in this embedded value over the twelve months to 31 December 2000 and the value of one year’s new life insurance business, are set out on pages 114 to 118 of these accounts.
We have reviewed the calculation of the Sanlam Group embedded value and the value of one year’s new life insurance business and the methodology and assumptions underlying those calculations. Based on this work, we are satisfied that the results have been prepared with due care and using sound actuarial principles, and the methodology and assumptions are appropriate for the purpose of reporting the results of the Sanlam Group. Further, the methodology has been consistently applied at each valuation date, and the analysis of change in embedded value is a fair representation of the experience over 2000.
In performing our work, we have relied on audited and unaudited information supplied to us by, or on behalf of, Sanlam Limited for periods up to 31 December 2000 and on information from other sources. The information included the amount of the adjusted shareholders’ net assets of the Sanlam Group as shown on page 114 of this report, and statistical data relating to current and recent operating experience. We have reviewed this information for overall reasonableness and consistency with our knowledge of the industry but we have not carried out independent checks of the data and other information supplied to us.
Yours faithfully
Mike Davies Joanne Atkinson Fellow of the Institute of Actuaries Fellow of the Institute of Actuaries Fellow of the Actuarial Society of South Africa Fellow of the Actuarial Society of South Africa definition 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 by the 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 holding prudential reserves 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; “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; “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 fixed-benefit 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, ie 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 of Sanlam Personal Finance mainly conducting life insurance business for individuals; “Sanlam Life – a wholly-owned subsidiary of Sanlam Limited conducting mainly life insurance Insurance Limited” business; “Sanlam Limited” – the holding company listed on the JSE Securities Exchange, SA and Namibian Stock Exchange; “Sanlam” or “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 120 notice of annual general meeting
PAGE 121
SANLAM LIMITED directors are hereby authorised and empowered to allot, (Incorporated in the Republic of South Africa) issue or otherwise dispose thereof to such person or persons (Registration No 1959/001562/06) 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 Notice is hereby given that the third Annual General Companies Act”), the requirements of the JSE Securities Meeting of the Members of Sanlam Limited (“the company”) Exchange South Africa (“the Securities Exchange”), and will be held on Wednesday 13 June 2001 at 09:00 in the any other stock exchange upon which the shares of the CR Louw Auditorium, Sanlam Head Office, 2 Strand Road, company may be quoted or listed from time to time”. Bellville, for the following purposes: 8. To consider and, if deemed fit, to pass, with or without 1. To consider and adopt the annual financial statements modification, the following ordinary resolution number 2: and the group annual financial statements of the company “1. That in terms of clause 27.1.3 of the trust deed (“the for the financial year ended 31 December 2000. Trust Deed”) of the Sanlam Limited Share Incentive Trust (“the Sanlam Share Scheme”) the Trust Deed be 2. To re-appoint the auditors of the company. and is hereby amended in the following manner: 1.1. Pursuant to the acquisition by the company of 3. To elect the following retiring directors appointed by the all of the ordinary shares for cash in Genbel Securities board of directors of the company (“the Board”) in casual Limited (“Gensec”), the reference to “5% (five percent)” vacancies or as additional directors in terms of article 13.2 in the definition of “scheme allocation” in clause 1.2.34 of the company’s articles of association (“the articles”), shall be amended to “7,5% (seven comma five percent)” and who are eligible and offer themselves for re-election: in order to allow previous participants of the Genbel Securities Limited Share Trust (“the Gensec Share TS Gcabashe, Prof AF Perold, Prof J van Zyl and Incentive Scheme”) to participate in the Sanlam BP Vundla Share Scheme, which shall amount to 199,1 million of the 2 654,6 million current issued shares. 4. To elect the following directors retiring after having held 1.2 In order to bring the Sanlam Share Scheme office for a period of three years since their last election in in accordance with current market practice, clause 17.2, terms of article 14.1 of the articles, and who are eligible which deals with the release periods before which and offer themselves for re-election: beneficiaries can dispose of their shares acquired under DL Keys, DNM Mokhobo and JJM van Zyl. the Sanlam Share Scheme, shall be amended as follows: “• 40% (forty percent) of each tranche on or after 5. To authorise the directors to determine the remuneration the third anniversary as from the offer date or the of the auditors. option date, as the case may be; • 20% (twenty percent) of each tranche on or after 6. To table and approve the total amount of directors’ the fourth anniversary as from the offer date or remuneration. the option date, as the case may be; • 20% (twenty percent) of each tranche on or after 7. To consider and, if deemed fit, to pass, with or without the fifth anniversary as from the offer date or the modification, the following ordinary resolution number 1: option date, as the case may be; “That the authorised but unissued ordinary shares in • 20% (twenty percent) of each tranche on or after the share capital of the company be and are hereby placed the sixth anniversary as from the offer date or the at the disposal and under the control of the Board, and such option date, as the case may be;” notice of annual general meeting – continued
1.3 In order to protect beneficiaries against fluctuations have decided to invoke those provisions in their in the share price and to compel them to pay the sole and absolute discretion at the date of share debt in respect of shares acquired in the event retirement, provided that these individuals will of death, retirement, early retirement, retrenchment otherwise be deemed to be employees and not or disability earlier, the provisions of clause 18.2.1 retired employees for purposes of the scheme.”. shall be amended as follows: 2. That the trustees of the Sanlam Share Scheme be “18.2.1 the share debt in respect of shares will become authorised to offer a maximum of 8 (eight) million payable within 24 (twenty four) months after options in respect of shares in the company to previous the termination date, provided, however, that if participants of the Gensec Share Incentive Scheme at a the current market price (as defined in clause price equal to R8,20 (eight rand twenty) per ordinary 1.2.25, mutatis mutandis) of the shares is lower share of the company, it being recorded that than the purchase price at the termination date, • this was the price at which shares in the company the trustees shall have the discretion to make an traded at the date that the intention by the company offer to acquire the shares concerned at their to acquire all of the ordinary shares in Gensec was original purchase price, including any interest made public; accrued on the purchase price and to set off • in order to confer upon the participants of the such purchase price against the outstanding Gensec Share Incentive Scheme the same rights and share debt on the termination date, provided, obligations as they had under the Gensec Share however, that should the individual elect not to Incentive Scheme, participants under the Gensec accept such offer from the trustees, any Share Incentive Scheme were thus offered new fluctuation of the share price thereafter shall be company options in the Sanlam Share Scheme at an for the risk and/or benefit of the individual option price of R8,20 (eight rand twenty) per concerned.” ordinary share of the company, of which 1.4 In order to provide for individuals who accept approximately 88% (eighty eight percent) have retirement or early retirement but continue to render already been accommodated within the current services thereafter to the company, a new clause restrictions of the Sanlam Share Scheme; 18.2.3 is inserted into the Trust Deed on the basis • such course of conduct has been approved by the that the same restrictions pertaining to the ability of Securities Exchange.” those individuals to deal with their shares acquired in the company, shall continue to apply consistently in 9. To consider and, if deemed fit, to pass, with or without accordance with the purpose of the Sanlam Share modification, the following Special Resolution number 1: Scheme, as follows – “That the boards of directors of the company and any – the deletion of the word “and” at the end of clause subsidiary of the company be authorised by way of a 18.2.1; general authority, up to and including the date of the – the deletion of the full stop at the end of clause following annual general meeting of the company, to 18.2.2 and the substitution thereof with “and”; approve – the introduction of a new clause 18.2.3, which (a) the purchase of any of its securities by the company or reads as follows: its subsidiaries, including ordinary shares of R0,01 “18.2.3 where individuals continue to render services to each in the capital of the company; and the company in circumstances where they have (b) the purchase of such securities by the company in any accepted retirement or early retirement, the holding company of the company, if any, and any provisions of clause 18.2.1 and clause 18.2.2 subsidiary of any such holding company, shall apply only to the extent that the trustees subject to the provisions of the Companies Act and the
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requirements of the Securities Exchange and any other PROXIES AND REPRESENTATIVES stock exchange upon which the shares of the company 1. A member entitled to attend and vote at the meeting may may be quoted or listed from time to time, and subject appoint a proxy to attend, speak and vote in his or her to such other conditions as may be imposed by any stead. A proxy includes a person appointed under a other relevant authority, general or special power of attorney. A notarially certified provided that: copy of such power of attorney or other documentary • the general authority shall only be valid until the evidence establishing the authority of the person signing company’s next annual general meeting, provided that as proxy must be attached to the proxy form. it does not extend beyond 15 months from the date of this resolution; 2. A proxy form is enclosed for use by members who are • the general authority to repurchase be limited to a unable to attend the meeting. Same is also obtainable maximum of 10% of the relevant company’s issued from the registered office of the company. Duly share capital of that class at the time the authority is completed proxy forms must be deposited at the granted; and registered office of the company not less than 48 hours • repurchases must not be made at a price more than before the time of holding the meeting. 5% above the weighted average of the market value of the securities for the five business days immediately 3. The proxy need not be a member of the company. preceding the date of the repurchases.” The reason for and effect of Special Resolution number 1 4. A person representing a corporation/company is not is to grant the directors a general authority to enable the deemed to be a proxy as such corporation/company can company to acquire shares which have been issued by it, or only attend a meeting through a person, duly authorised its holding company, if any, and any subsidiary of any such by way of a resolution to act as representative. Such person holding company. enjoys the same rights at the meeting as the shareholding company and must at least 48 hours before the meeting STATEMENT OF INTENT provide the company with satisfactory documentary The Board shall implement a general repurchase of the evidence (the resolution) that he or she is entitled to act. company’s shares, only if prevailing circumstances (including the tax dispensation and market conditions) warrant same, 5. A member whose shares are held by Sanlam Share Account and should they be of the opinion, after considering the (Proprietary) Limited or Sanlam Fundshare Nominee effect of such repurchase of shares, that the following (Proprietary) Limited is empowered by such relevant requirements have been and will be met: nominee company to attend and vote at the meeting. • the company will be able to pay its debts in the ordinary course of business; By order of the Board • 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; JP Bester • the company will have adequate capital; and Company Secretary • the working capital of the company will be sufficient for the company’s requirements for the year ahead. 12 March 2001 shareholding and administration
ANALYSIS OF SHAREHOLDERS ON 31 DECEMBER 2000 Shareholders Shares held Number % Number %
DISTRIBUTION OF SHAREHOLDING 1 – 1 000 876 427 84,47 353 607 319 13,32 1 001 – 5 000 143 664 13,85 283 105 393 10,66 5 001 – 10 000 11 990 1,16 81 327 594 3,06 10 001 – 50 000 4 957 0,48 82 077 536 3,09 50 001 – 100 000 179 0,02 12 588 708 0,47 100 001 –1 000 000 224 0,02 59 172 916 2,23 1 000 000 and over 44 0,00 1 782 691 201 67,17
1 037 485 100.00 2 654 570 667 100,00
PRINCIPAL SHAREHOLDINGS Individuals 1 021 984 98,50 778 194 738 29,31 Companies 9 412 0,91 65 076 337 2,49 Pension and retirement funds 5 765 0,56 113 714 256 4,28 Nominee companies 250 0,02 1 694 971 473 63,85 Insurance companies 7 0,00 932 074 0,04 Other 67 0,01 1 681 789 0,03
1 037 485 100,00 2 654 570 667 100,00
PUBLIC AND NON-PUBLIC SHAREHOLDERS Public shareholders 98,09 Non-public shareholders • Directors’ interest 0,18 • Employee pension fund 0,51 • Sanlam Limited Share Incentive Trust 1,22
100,00
SHAREHOLDERS’ DIARY ADMINISTRATION
FINANCIAL YEAR-END 31 December SANLAM LIMITED INTERNET ADDRESS Registration no http://www.sanlam.co.za ANNUAL GENERAL MEETING 13 June 2001 1959/001562/06 [email protected] SANLAM LIFE INSURANCE TRANSFER SECRETARIES REPORTS LIMITED Mercantile Registrars Limited • Interim report for 30 June 2001 September 2001 Registration no 1998/021121/06 (Registration no 1987/003382/06) • Announcement of the results GROUP SECRETARY 10th Floor for the year ended 31 December 2001 March 2002 JP Bester 11 Diagonal Street • Annual report for year ended 31 December 2001 April 2002 REGISTERED OFFICE Johannesburg 2 Strand Road, Bellville 2001 DIVIDENDS Telephone (021) 947-9111 South Africa • Dividend for 2000 declared 7 March 2001 Fax (021) 947-3670 PO Box 1053 • LDR for 2000 dividend 20 April 2001 POSTAL ADDRESS Johannesburg • Payment of dividend for 2000 16 May 2001 PO Box 1 2000 • Declaration of dividend for 2001 March 2002 Sanlamhof South Africa • Payment of dividend for 2001 May 2002 7532 Telephone (011) 370-5320 South Africa Fax (011) 370-5486
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