CONTENTS
YOUR FUTURE IN GOOD HANDS
PAG E i Group Profile
PAG E 1 Financial Highlights
PAG E 2 Salient Features
PAG E 3 Business Structure
PAG E 4 Five-Year Review
PAG E 6 Executive Committee
PAG E 7 Chairmans Statement
PA G E 14 Non-Executive Directors
PA G E 16 Financial Review and Corporate Governance
PA G E 22 Business Review Sanlam Personal Finance Sanlam Employee Benefits Sanlam Health Gensec New Business Development, Support Services, Corporate and Namibia
PA G E 48 Human Resources
PA G E 50 Corporate Social Involvement
PA G E 52 Annual Financial Statements
PA G E 87 Financial Review and Corporate Governance
PA G E 92 Definitions and Glossary of Technical Terms
PA G E 93 Notice of Annual General Meeting
PA G E 97 Shareholder Information
1999 SANLAM ANNUAL REPORT G R O U P P R O F I L E
The Sanlam Group is one of the longest-established financial serv i c e s g roups in South Africa with its head office in Bellville near Cape Town.
The gro u p’s main activities are conducted by four c o re businesses, namely:
• Sanlam Personal Finance (“SPF”) is a major provider of life insurance, retirement annuities, savings products, unit trusts, linked products and trust services to individuals through Sanlam Life, Sanlam Unit Trusts, Sanlam Personal Portfolios 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 consulting services to the group retirement industry and payroll administration and money transfer services.
• Sanlam Health provides underwriting and risk management to medical schemes. Its scheme administration services to the members of medical schemes were successfully outsourced during the year.
• Gensec is a leading investment bank and South Africa’s second largest asset manager, measured by assets under management. Its operations also include equity-related activities, investment banking and property services.
A new business, New Business Development, was established at the end of 1999 to increase Sanlam’s focus on structured growth. It will explore opportunities for investment and launch new initiatives for the development of new business in the Sanlam group.
The Sanlam group also ow n s :
• 56,9% of Santam, the largest short-term insurance company and the market leaders in the motor and personal insurance sector in South Africa after the acquisition of Guardian National Insurance Company Limited on 30 December 1999. This acquisition is subject to approval by the regulatory authorities; and
• 23,7% of Absa, one of the largest commercial banks in South Africa. FINANCIAL HIGHLIGHTS
• Business base established • Launching new initiatives • Exploring opportunities
• 39% increase in operating profit
• 65% increase in headline earnings
• 26% increase in headline earnings per share
• 26% adjusted attributable return on equity
• 24% return on embedded value
• Turnaround of Sanlam Health achieved
• Final dividend of 15 cents per share. Total annual dividend of 25 cents per share
p a g e 1 1999 SANLAM ANNUAL REPORT SALIENT FEAT U R E S
1999 1998
S A N L A M L I M I T E D G R O U P Funds received from clients R million 34 144 37 733 Headline earnings R million 1 955 1 186 Diluted headline earnings per share cents 73,4 58,4 Operating profit R million 1 722 1 237 Embedded value of new business R million 101 57 Embedded value per share cents 1 004 827 Total assets under management and administration R million 215 924 176 792
S A N L A M L I F E I N S U R A N C E L I M I T E D Shareholders’ funds to total policy liabilities % 12% 12% Shareholders’ funds to non-market-related policy liabilities % 20% 20% Capital adequacy requirement covered(1) times 2,7 1,7
F I N A N C I A L R AT I O S Returns • Headline return on equity(2) 13% 12% • Attributable return on equity(3) 23% 4% • Adjusted return on equity(4) 26% 27% • Five-year average return on equity(5) 23% 22% • Return on embedded value(6) 24% -2% (9) Group administration cost ratio(7) 30% 28% Group operating margin(8) 18% 13%
Notes (1) Represents the times which the shareholders’ funds of Sanlam Life Insurance Limited covers the capital adequacy requirements (refer to definitions on page 92). (2) Headline earnings as a percentage of shareholders’ funds at the beginning of the year. (3) Attributable earnings as a percentage of shareholders’ funds at the beginning of the year. (4) Adjusted return is the attributable return after adjusting the interest of the shareholders’ fund in Gensec and Santam from net asset value to market value. (5) Five-year average return is the adjusted return using the average investment return over the past five years. (6) Growth in embedded value (before dividends paid) as a percentage of embedded value at the beginning of the year. (7) Administration cost as a percentage of income earned by the shareholders less sales remuneration. (8) Operating profit as a percentage of income earned by the shareholders less sales remuneration. (9) Based on the pro-forma embedded value calculated in 1997 and which reflected the demutualisation and restructuring of Sanlam and the sale of Sanlam’s asset management activities to Gensec in 1998.
p a g e 2 1999 SANLAM ANNUAL REPORT BUSINESS STRU C T U R E
S A N L A M G R O U P
C o r e B u s i n e s s
100% 100% 100% 65,1% 100%
S a n l a m S a n l a m G e n s e c Ne w S a n l a m Pe r s o n a l E m p l oy e e B u s i n e s s He a l t h 49,5% held by shareholders F i n a n c e B e n e f i t s 15,6% held by policyholders D e ve l o p m e n t
• Risk underwriting • Group risk • Underwriting and • Equity activities • Development of new
• Unit trusts underwriting risk management • Asset management businesses in the Sanlam group • Personal portfolio • Investment products • Scheme • Investment banking management • Growth opportunities administration • Retirement fund • Property services • Trust services administration • New initiatives and alliances • Savings products • Actuarial and consulting services • Innovative products
• Payroll administration and services
• Money transfer services
56,9% S A N TA M 23,7% 32,2% held by shareholders 24,7% held by policyholders A B S A
• Short-term insurance 13,8% held by shareholders 9,9% held by policyholders
• Retail banking
• Wholesale banking
• Other financial services
p a g e 3 1999 SANLAM ANNUAL REPORT F I V E-YEAR REV I EW
Average annual 1999 1998 1997(1) 1996(1) 1995(1) growth R million R million R million R million R million rate %
S U M M A R I S E D G R O U P I N C O M E S TAT E M E N T Funds received from clients 34 144 37 733 34 180 27 375 22 632 11%
Operating profit 1 722 1 237 1 026 1 070 1 079 12% Investment income 1 186 893 723 685 513 23%
Headline earnings before taxation 2 908 2 130 1 749 1 755 1 592 16% Income tax on earnings (386) (427) (449) (321) (162) 24%
Headline earnings after taxation 2 522 1 703 1 300 1 434 1 430 15% Minority shareholders’ and policyholders’ interest (567) (517) (153) (124) (108) 51%
Headline earnings 1 955 1 186 1 147 1 310 1 322 10%
Headline earnings per share (cents) 73,4 58,4 58,0 66,3 66,9 2%
FUNDS RECEIVED FROM CLIENTS Insurance business Long-term insurance • Individual insurance 13 148 11 603 13 812 12 157 11 823 3%
• Recurring premiums 8 344 8 496 8 354 7 781 6 961 5% • Single premiums 4 804 3 107 5 458 4 376 4 862 0%
• Employee benefits 5 523 7 850 8 154 6 461 4 831 3%
• Recurring premiums 3 029 2 740 3 000 2 958 2 579 4% • Single premiums 2 494 5 110 5 154 3 503 2 252 3%
Total long-term insurance 18 671 19 453 21 966 18 618 16 654 3% Short-term insurance 3 303 4 093 3 307 2 927 2 374 9%
Total insurance business 21 974 23 546 25 273 21 545 19 028 4% Other business 12 170 14 187 8 907 5 830 3 604 36%
Unit trusts 8 154 8 266 2 957 1 164 890 74% Managed assets 2 310 4 498 5 519 4 666 2 714 -4% Linked products 1 706 1 423 431 — — —
Total funds received from clients 34 144 37 733 34 180 27 375 22 632 11%
(1) Pro-forma figures to reflect the demutualisation and restructuring of Sanlam in 1998.
p a g e 4 1999 SANLAM ANNUAL REPORT F I V E - Y E A R R E V I E W ( CO N T I N U E D )
Average annual 1999 1998 1997(1) 1996(1) 1995(1) growth R million R million R million R million R million rate %
A N A L Y S I S O F N E W B U S I N E S S Long-term insurance business Individual business 6 144 4 502 7 056 6 151 6 649 -2%
• Recurring premiums – indexed growth 591 565 559 474 421 9% – other 749 830 1 039 1 301 1 366 -14% • Single 4 804 3 107 5 458 4 376 4 862 0%
Employee benefits 2 600 5 247 5 154 3 503 2 252 4%
• Recurring premiums 106 137 — (2) — (2) — (2) — • Single premiums 2 494 5 110 5 154 3 503 2 252 3%
Total long-term insurance business 8 744 9 749 12 210 9 654 8 901 0% Other business 15 473 18 280 12 214 8 757 5 978 27%
• Unit trusts 8 154 8 266 2 957 1 164 890 74% • Managed assets 2 310 4 498 5 519 4 666 2 714 -4% • Linked products 1 706 1 423 431 — — — • Short-term insurance 3 303 4 093 3 307 2 927 2 374 9%
Total new business 24 217 28 029 24 424 18 411 14 879 13%
Annual premium equivalent (APE)(3) • Individual business 1 820 1 706 2 144 2 213 2 273 -5%
E X T R AC TS F R O M G R O U P B A LANCE SHEET Shareholders’ funds 17 677 14 904 10 172 9 005 7 182 25% Policy liabilities 134 319 114 176 119 506 114 647 107 839 6% Total assets under management 215 924 176 792 166 382 147 969 135 984 12% Net tangible asset value per share (cents)(4) 771 630 528 466 376 20%
P E R S O N N E L Office staff (excluding marketing staff) 10 159 11 669 12 756 12 635 12 406 -5%
(2) Figures not readily available as the definition of new business was only introduced in 1999. (3) APE is equivalent to new recurring premiums plus 10% single premiums. (4) Shareholders’ interest in Santam and Gensec adjusted from net asset value to fair value.
p a g e 5 1999 SANLAM ANNUAL REPORT EXECUTIVE CO M M I TT E E
[ F ROM LEFT] Flip Ra d e m eyer an d Jo hn Mo a l u s i
Anto n Bo t h a
[ F RO M LEFT] [ F ROM LEFT] Chri s Swanep oel an d Geo rge Ru d m a n Attie du Plessis and Nick Christodoulou
M H D A L I N G ( M a r i n u s ) ( 5 4 ) * BSc, FFA, FASSA, AEP (Unisa) Executive Chairman of Sanlam Limited Years of service: 33
H S C B E S T E R ( H e n d r i k ) (49)** BCom (Hons), FIA, FASSA, AMP (Harvard) Chief Executive of Sanlam Personal Finance Years of service: 26 [ F ROM LEFT] Charl le Roux and AD BOTHA (Anton) ( 4 6 ) * * Hendrik Bester BProc, BCom (Hons), SEP (Stanford) Chief Executive of Gensec Years of service: 21 (19 years with Gensec)
N T C H R I S TO D O U L O U ( N i c k ) (51) BSc Eng (Ind), MBA P D E V R A D E M E Y E R ( F l i p ) ( 5 2 ) * * Chief Executive of Sanlam Employee Benefits CA (SA), SEP (Stanford) Years of service: 4 Financial Director of Sanlam Limited A S D U P L E S S I S ( A t t i e ) ( 5 6 ) * * Years of service: 2 CA (SA), Adv Dip Tax Law, AMP (Harvard), AEP (Unisa) G E R U D M A N ( G e o r g e ) ( 5 6 ) * * Executive Director of Associated Companies and BSc, FFA, FASSA, ISMP (Harvard) Services of Sanlam Limited Executive Director: Strategy of Sanlam Limited Years of service: 14 Years of service: 35
PC LE ROUX (Charl) ( 4 5 ) CG SWANEPOEL (Chris) (49) BSc BSc (Hons), FIA, FASSA Chief Executive: New Business Development of Chief Actuary of Sanlam Life Insurance Limited Sanlam Limited Years of service: 28 Years of service: 21
J M O A L U S I ( J o h n ) ( 4 7 ) BProc (Unisa), HDPM (Wits), EDP (North Western – USA), EDP (GSB – Cape Town) Deputy Chief Executive of Sanlam Employee Benefits *Executive director Years of service: 2 **Alternate and executive director
p a g e 6 1999 SANLAM ANNUAL REPORT CHAIRMAN’S STAT E M E N T
EXECUTIVE CHAIRMAN Marinus Da l i n g In a first for South Africa, Sanlam announced its 1999 interim results on 1 September 1999 live on satelite television
p a g e 7 1999 SANLAM ANNUAL REPORT CHAIRMAN’S STAT E M E N T ( CO N T I N U E D )
“ Our results show that our business base i ssufficiently established to start launching n ew initiatives and exploring opport u n i t i e s for structural grow t h”
It is a privilege to present to you this report on Sanlam’s and the embedded value of the year’s new business was eventful first year as a listed company. The energy R101 million (R200 million before changes in the taxation released by our listing in 1998 and the focus achieved by basis of life offices). This compares to R57 million for 1998. decentralising into four distinct businesses is evident These results, as well as key operational performance throughout our organisation. Our 1999 results show that indicators and the returns achieved, are further detailed in our business base is sufficiently established to start the financial and business reviews. launching new initiatives and exploring opportunities for structural growth. Dividends Sanlam declared a (maiden) interim dividend in September R E S U LT S 1999 of 10 cents per share. On 8 March 2000 the Board Earnings declared a final dividend of 15 cents per share payable in Headline earnings per share increased to 73,4 cents for 1999 May 2000 to shareholders registered on 28 April 2000, (reflecting growth of 26%) and total headline earnings bringing the total dividend for the year to 25 cents per share. increased to R1 955 million, which is 65% up on earnings Sanlam will in future pay an annual dividend after finalisation in 1998. Sanlam’s embedded value amounted to R26 656 of the results for the financial year. Our policy is to maintain million, or 1 004 cents per share on 31 December 1999. The a dividend cover of between two and three times the headline growth in the value of in-force business amounted to 19% earnings and we aim to achieve stable real growth in dividends.
p a g e 8 1999 SANLAM ANNUAL REPORT CHAIRMAN’S STAT E M E N T ( CO N T I N U E D )
Share price 1999 and its capability to post a turnaround to a profit of The Sanlam share price, after declining to 440 cents in R11 million from a loss of R220 million in 1998. Sanlam February 1999, increased significantly to 860 cents by the Health is now rebuilding its business in a challenging end of 1999 and 838 cents on 8 March 2000. The market is environment. recognising that our financial performance is improving and that management is delivering on the Group’s transition in Growth in new individual life business order to generate excellent returns for shareholders. This Our new individual life insurance premiums showed good process is ongoing and the results of the past year show growth during 1999, especially during the second half of the substantial progress. year. Single premiums were up by 55% on the figures for 1998 and were 28% higher in the second half of 1999 Shareholders compared to the first half. Recurring premiums, though As expected, many individuals sold the shares they received slightly lower than in 1998, were 14% higher in the second as part of Sanlam’s demutualisation during this first year as a six months of 1999 compared to the first. listed company. By 31 December 1999 Sanlam had 1,2 million shareholders, compared to the 2,2 million shareholders noted at the time of listing. I can report strong institutional Investment awards support – both local and foreign – in the face of this For the second consecutive year, Sanlam Unit Trusts, policyholder flow-back. It is clearly important to inform our whose assets are managed by Gensec, has received the shareholders, both large and small, of the progress of the prestigious Standard and Poor’s Micropal Award for the best company, but the cost of servicing a shareholder register of unit trust management company over three years and the this magnitude remains an issue to be resolved – during Plexus/Raging Bull Awards for the best unit trust 1999 it amounted to R52 million. management company over a weighted one, two and three A resolution will be proposed to the Annual General year period. Meeting to authorise the Board to buy back shares in order Several of Sanlam Unit Trust’s funds also received for it to do so under appropriate circumstances. Shareholders Standard and Poor’s Micropal and Raging Bull Awards for will be kept informed of developments. the best performance in their categories.
Bonuses Outsourcing Our good results and sound investment returns enabled us The outsourcing of our computer hardware and networks to declare substantial increases in our bonus rates for 1999. Our positive outlook for 2000 and the good funding levels and corporate facilities was completed during the year, of our portfolios should provide stable growth in the enabling increased focus on our core businesses. Some 475 investments of our policyholders. of our staff were transferred to the outsourced operations during this process, while some staff members elected to take
N O TA B L E A C H I EV E M E N T S retrenchment packages. The completion of these exercises in The past year saw notable achievements in all our businesses such a short period of time is a major achievement, especially as discussed in the business reviews. However, some were if the comprehensive consultation process conducted with all exceptional and deserve special mention. stakeholders concerned is taken into account. I sincerely thank the employees concerned – some of whom have Sanlam Health worked for Sanlam for many years. We look forward to a A telling example of management’s ability to deliver was healthy working relationship with our new corporate the completion of the restructuring of Sanlam Health in suppliers and all their staff.
p a g e 9 1999 SANLAM ANNUAL REPORT CHAIRMAN’S STAT E M E N T ( CO N T I N U E D )
Transparency U N S AT I S F A C TO R Y P E R F O R M A N C E S Transparency is a prerequisite for the investment community There are areas that were less satisfactory and will receive to properly rate our performance. I am indeed pleased with specific attention in 2000. Although the second half of the the award presented to us by the Investment Analysts Society year showed improvement, we achieved lower than expected for the Most Improved Reporting and Communications of growth in sales over the year. We also experienced a higher all companies listed on the JSE. We have for the second time than expected outflow of funds – including maturity claims, announced our results live on DStv, and for the first time surrenders and termination of retirement funds. In total, we also through a live Internet transmission, on the same day as have paid out more to our clients than we received, and the Board meeting where the results were finalised. we intend to turn this unsatisfactory scenario around. Notwithstanding progress, our investment performance in Santam some portfolios was unsatisfactory – mainly owing to the Santam, in which Sanlam has a strategic stake of 57%, reached fact that they are overweight in properties. agreement with the controlling shareholders of Guardian National Insurance Company Limited (“Guardian”) to acquire R E L AT I O N S H I P W I T H A B S A – with effect from 30 December 1999 – the total issued share Sanlam and Absa have a long-term relationship and we both capital of Guardian. This transaction, subject to approval by announced last year that we have decided against a full the regulatory authorities, will make Santam the clear market merger. Sanlam has decided to maintain its 24% shareholding leader in the short-term insurance industry in South Africa. in Absa. We are also working closely with Universa as joint Sanlam facilitated this transaction by underwriting the issue of controlling shareholders to assist in improving the the new Santam shares, and the shareholders’ fund of Sanlam performance of Absa relative to its competitors. We are Limited will invest R354 million at R27 per share in Sa ntam, continuing to explore areas of co-operation and the using some of the capital raised at the time of the listing that strengthening of our relationship. This process will not be was earmarked for funding the growth of the Group. driven at a corporate level but by the respective businesses of The challenge for Santam and Guardian’s management the groups focusing on the areas of mass market insurance, is to ensure that potential synergies are achieved as soon as life insurance, financial planning management and asset possible to realise the benefits of the merger and increase management. For both Sanlam and Absa, the point of shareholder returns. departure in this closer co-operation is that products, programs and services must provide new business and profit PERFORMANCE MEASURES opportunities. There are currently no generally accepted ratios to measure the efficiency of a financial services organisation such as THE ENVIRONMENT IN WHICH W E Sanlam which is dominated by life insurance. O PE R A T E We introduced an administration cost to income ratio Two main reasons influenced Sanlam’s decision to have its which we will use to measure and manage the cost-efficiency primary listing in South Africa after its demutualisation in of our operations. This ratio reflects the administration costs 1998. The first was the acknowledgement that most of our as a percentage of income after sales remuneration. Sales business stems from this country. The second was our belief remuneration is deducted to remove volatility. that the country and its people had the potential to move We have also introduced an operating margin ratio out of the doldrums of apartheid and economic stagnation which we will use to measure and manage our profitability. into a vibrant society and economy. It reflects our operating profit as a percentage of the It is satisfying to experience the manifestation of this aforementioned income figure. An analysis of this ratio per belief, for which the people and Government of South Africa business is provided on page 18. must take credit.
p a g e 1 0 1999 SANLAM ANNUAL REPORT CHAIRMAN’S STAT E M E N T ( CO N T I N U E D )
Political milieu time for such investors to increasingly become part of the In 1999, the people of South Africa again proved, in a success of South Africa and ultimately Africa. Unfortunately, peaceful second democratic general election that they have many observers remain sceptical and will probably only the ability and intention to live the miracle of our infant be convinced of South Africa’s potential when we have democracy. For a country blessed with such a rich diversity another few years of success behind us. Far-sighted investors of peoples – the overwhelming majority of whom want will reap the rewards of moving before the success is peace and prosperity to prevail – the nation-building process self-evident. and a maturing democracy is well on track. There are still constraints in the economy, such as President Thabo Mbeki succeeded Mr Nelson Mandela, exchange controls. I believe that the total abolition of the one of the world’s most popular heads of state and existing exchange controls will, apart from ridding us of some conciliator par excellence, after the election. In this new era of of the remaining shackles of a siege economy, counter many government, President Mbeki’s hands-on leadership and of the reasons for the growing number of local companies management style, as well as his proactive interaction with wanting to list overseas. I urge the Government to move business, are indeed commendable. This augurs well for the speedily towards taking this step. rightful international reconfirmation of South Africa as the economic powerhouse of Africa and the continent’s beacon Statutory matters of hope. We support the principles of the Promotion of Equality and Prevention of Unfair Discrimination Bill and subscribe to Economy their fundamental aims. This is evident in the current On the economic front, the difficult investment enviro nment practice of Sanlam and indeed the whole insurance industry. which has prevailed since the financial markets crash of If the abovementioned act is promulgated in its present August/September 1998 and the economic crises that form, however, without provision for acceptable underwriting impacted emerging markets in December 1998, abated differentiation on reasonable grounds, it could have a during the year under review. South Africa’s sound financial devastating impact on the insurance industry. The industry systems stood us in good stead, as the effects of these crises represents one of the cornerstones of our economy and any were less dramatic here than in other developing markets. damage to it could have serious consequences for the Our stability was also demonstrated in the reduction in economy of the country. Canada and New Zealand interest rates, particularly in the last quarter of 1999, successfully implemented human rights codes that provide resulting in an environment generally more conducive to for differentiation on objective criteria and I would urge the demand and particularly suited to our insurance and saving Government to amend those relevant sections of this Bill in products. accordance with these international standards. Furthermore, Credit must be given to the Government, the Minister the existing Long-term Insurance Act, 1998, already of Finance and the Reserve Bank for introducing and regulates the extent to which differentiation in rates and annually adding to the process of improving our economic, benefits is allowed. fiscal and monetary policies, which have already enhanced The Financial Advisory and Intermediary Services Bill, South Africa’s rating as an investment destination. These expected to be promulgated by the end of this year, provides policies have also delivered improved short- to medium-term mainly for the regulation of advice provided by financial growth prospects in South Africa, which bodes well for a advisers. Because of our concerns in this field of operations, renewal of real growth in the economy and in the financial Sanlam appointed its own compliance officer in 1998 and services industry. we thus fully support the aims of the Bill, which in our view South Africa is fast becoming a very attractive area represents sound business principles that will be in the for foreign investment, and now may well be an excellent interests of the industry and all its stakeholders.
p a g e 1 1 1999 SANLAM ANNUAL REPORT CHAIRMAN’S STAT E M E N T ( CO N T I N U E D )
Social issues To p repare new entrants into the business world, another Against the background of sound overall economic progress, portion of our budget will promote business preparedness. The the Government and the people of South Africa still have to Sanlam Future Business Leaders’ project was launched last year. deal with significant social issues. It aims at demystifying business for senior learners, students The alarming crime rate and lawlessness continue to and emerging entrepreneurs. This led to the establishment of demoralise, and New York-style “zero tolerance” intervention the Sanlam Future Business Leaders Foundation this year to seems to be the only alternative. promote and develop business leadership in southern Africa. While the new initiatives in addressing aspects of the In addition to these two focus areas, we are involved in crisis in education are laudable, there remain issues of a number of other community initiatives, as well as being a concern, not least of all being the lack of discipline among funding partner of the Business Trust – a commitment teachers and learners. We wish Minister Kader Asmal the of business and the Government to transform human very best in the execution of his stated priorities to address development and job creation in the country. Through the this and other issues in education. special demutualisation levy of R278 million in 1998, we The recent statistics that about 1 600 people in South also support the aims of the Umsobomvu Fund, which aims Africa are infected daily with HIV underline the ominous at job creation. threat of Aids – a threat that appears to be handled haphazardly by the various authorities involved. Initiatives S A N L A M ’ S F O C U S F O R 2 0 0 0 should be co-ordinated, and focused and intensified Internationalisation awareness campaigns and care programmes are now Our businesses are now ready to start looking at international priorities. opportunities. Gensec already has an international presence I am confident that we will make progress in solving – it will take a few years before our other businesses have a these and other issues – as long as we can continue and meaningful presence abroad. We firmly believe that our core expand the ability of the Government, business, labour and competencies are better suited to the emerging than the the people of the country to work together. The days when developed markets and that there are still significant we could blame one another for the problems that exist are opportunities in these markets. long gone, as are the days when all waited for the Government to take action. For the road ahead, we must all Investment performance accept joint responsibility for analysing and defining the Our investment focus for 2000 is to grow Gensec Asset problems and for working towards lasting solutions. Management as a leader in its industry. Although Gensec enjoys significant market share in the traditional, C O R P O R A T E S O C I A L I N V O LV E M E N T institutional, product and unit trust markets, it is currently In recognising the educational needs in the country, we have underrepresented in the multi-manager and private client decided to focus the main thrust of our corporate social segments, where it will be seeking opportunities to involvement budget on school readiness. In partnership with strengthen its position. the Department of Education, the SABC, Children’s Gensec has completed its new investment process, Television Workshop in the USA and USAID, our which is based on the firm belief that specialists outperform R25 million investment will bring the educational generalists. Multidisciplinary investment teams now cut programme Takalani Sesame, to the children of South Africa. across all investment functions. Based on the world-renowned Sesame Street, Takalani (Venda On the international front, the assets managed by for “to be happy”) Sesame is a truly South African multi- Gensec are currently sourced primarily from South African media programme that brings together television, radio and clients. Its focus will continue to be on building a credible community outreach. and effective set of investment products, which will position
p a g e 1 2 1999 SANLAM ANNUAL REPORT C H A I R M A N ’ S S T A T E M E N T ( CO N T I N U E D )
it strongly as a business based on the solid foundations of Over the past two years we have concentrated on investment performance and client service. These initiatives, building a solid base in each of our businesses before together with a firm base that Gensec managed to build up embarking on structural growth. Sufficient progress has been during 1999, should provide satisfactory real growth in our made in this regard for us to start new initiatives and to seek investment business for 2000. opportunities for investment. These developments will take time to come to fruition and will contribute to reducing the Employment equity discount to embedded value to levels where the use of We are creating a working environment conducive to Sanlam paper for funding structural growth will be attracting, training and retaining skilled people from all appropriate. In this regard Charl le Roux, who managed the sectors of the community. Our culture of empowerment turnaround of Sanlam Health, has been appointed at Sanlam applies as much to our employees as it does to other Limited as chief executive: New Business Development. stakeholders and this, together with the development of all our employees and a challenging working environment, will A P P R E C I AT I O N enable us to further build our human resource capability. I sincerely thank my fellow directors for their commitment We approach employment equity from a business and support throughout the year. I thank my executive perspective and consider this a further opportunity to build a committee and all our staff for their continued dedication more competitive business. and diligence regarding the continuing transition of our company. Their contributions remain overwhelmingly crucial Building the brand in our endeavours to generate excellent returns for our Strengthening the power of our brand is essential for shareholders and to serve our clients with the passion they mobilising our full potential; moving away from perceptions deserve. based on historic stereotypes and promoting unity of Dr Chris Stals retired in August 1999 following an purpose in all our interactions with our staff, other outstanding tenure of ten years as Governor of the Reserve stakeholders and group activities. Bank. We wish him good health and happiness in his well- Our brand is already strong in all sectors of the deserved retirement. The smooth handover from Dr Stals to community. Our commitment to South Africa, leadership, the incoming Governor, Mr Tito Mboweni, was most pleasing innovation and our culture of empowerment will be reflected and should further enhance confidence in the country. in our actions to build the brand. Good service and products I extend my best wishes and support to Mr Mboweni in his to our clients will support this. difficult task – the job of a central banker is, at the best of times, a thankless one. Growth I also thank the analysts for their research and Our aim for 2000 is to increase our market share and sales commentary, the media for their fair reporting on our activities and to reverse the outflow of funds. Returns on equity and and you, our shareholder, for your investment in Sanlam. embedded value are key performance measures in our industry. We have set ourselves targets of at least 10% real return (above core inflation) for both, as well as for growth in headline earnings. In addition, we still aim to achieve embedded value in excess of R200 million on one year’s new business by no later than 2001 – despite the fact that life Marinus Daling offices are expected to pay significantly increased tax. Executive Chairman Specific objectives have been set for each of the businesses, as discussed in their individual reviews. 8 March 2000
p a g e 1 3 1999 SANLAM ANNUAL REPORT NON-EXECUTIVE DIRECTO R S
[ F ROM LEFT] De rek Keys, Murray Gr i n d rod and Ahmed Ba w a
[ F ROM LEFT] Kate Jowell, Da ve Brink and Johan Albert s
J P L A L B E R T S ( J o h a n ) ( 5 7 ) SSAS, BCom, CA (SA), IAMP (Geneva)
Appointed 1995 WM G RI N D RO D ( Mu r r a y ) ( 6 4 ) D N M M O KH O BO ( Da w n ) ( 5 1 ) Businessman and director of various BA (Mech Sc), DEcon (hc) BA (Social Sciences) companies. Appointed 1993 Appointed 1996 Chairman of Grindrod Unicorn Group Managing Director of MBM Change P RO F AC BAWA ( A h m e d ) ( 4 5 ) Limited and director of other companies. Agents (Proprietary) Limited MSc, PhD Chairperson of The Fedics Group Limited Appointed 1997 K J O W E L L ( Ka t e ) ( 6 0 ) Director of Nozala Investments Deputy Vice-Chancellor of University BSc, MBA (Proprietary) Limited, Engen Limited of Natal Appointed 1993 and other companies. Director of Telkom SA Limited and Director of Cadbury Schweppes SA Atomic Energy Corporation of South Limited and Foschini Limited. P RO F P S M I T ( Fl i p ) ( 6 3 ) Africa Limited. MA, DLitt et Phil D L K E Y S ( De re k ) ( 6 8 ) Appointed 1990 D C B R I N K ( Da ve ) ( 6 0 ) BCom, CA (SA), FIBSA, Dr Econ Sc (hc) Former Vice-Chancellor and Rector of MSc Eng (Mining), DCom (hc) First appointed 1989 to 1991 University of Pretoria. Appointed 1994 Reappointed 1995 P E I S WA RT Z ( Pe t e r ) ( 5 8 ) Executive Chairman of Murray & Director of Billiton Plc, Sandvik SA, Ad Ed Dip Roberts Holdings Limited Munich Reinsurance of Africa and Deputy Chairman of Absa and director other companies. Appointed 1994 of other companies. Director of Absa, Distillers Corporation (SA) Limited, Ellerine Holdings Limited, New Clicks Holdings Limited, Sancino Projects Limited and other companies.
p a g e 1 4 1999 SANLAM ANNUAL REPORT NON-EXECUTIVE DIRECTO R S ( CO N T I N U E D )
[ F RO M L E F T] Flip Smit and To n Vo s l o o
[ F RO M L E F T ] Peter Sw a rtz, Dawn Mokhobo and Boetie van Zy l
J J M VA N Z Y L ( Bo e t i e ) ( 6 1 ) Pr Eng, BSc Eng Appointed 1995 Chairman of Distillers Corporation ( S A )L i m i t e d Director of Naspers Limited, Murray & B OAR D COMMITT E E S B OARD COMMIT T E E S Roberts Holdings Limited and other companies. A U D I T C O M M I TT E E S PE C I A L C O M M I T T E E JJM van Zyl (chairman) T Vosloo (chairman) T V O S LO O ( To n ) ( 6 2 ) D Phil (hc) JPL Alberts JPL Alberts Prof AC Bawa Prof AC Bawa Appointed 1989 Deputy Chairman since 1998 PEI Swartz DC Brink Chairman of Naspers Limited, MIH WM Grindrod Holdings Limited, MIH Limited and H U M A N R E S O U R C E S K Jowell C O M M I TT E E Electronic Media Network Limited. DL Keys T Vosloo (chairman) DNM Mokhobo DC Brink Prof P Smit K Jowell PEI Swartz
N O M I N AT I O N C O M M I TT E E JJM van Zyl Prof P Smit (chairman) DC Brink WM Grindrod DL Keys
p a g e 1 5 1999 SANLAM ANNUAL REPORT F I N A N C I A L R E V I E W A N D C O R P O R A T E G O V E R N A N C E
FINANCIAL RESULTS Operating profit Headline earnings Group operating profit grew by 39% to R1 722 million We are pleased to report that headline earnings increased by from R1 237 million in 1998. 65% from R1 186 million to R1 955 million and diluted The turnaround in Sanlam Health from a R220 million headline earnings per share by 26% from 58,4 cents to operating loss in 1998 to a profit of R11 million in 1999 73,4 cents. Weighted average total shares in issue for 1999 contributed significantly to this growth and confirms amounted to 2 664 million compared with 2 030 million for Sanlam’s commitment to overcoming daunting challenges. 1998 following the capital raising at the end of 1998. These Sanlam Personal Finance and Sanlam Employee Benefits also results confirm that Sanlam is realising its potential and is achieved sound growth and their operating profit increased now favourably placed to build on these foundations and by 29% from R608 million to R783m illion, and by 46% generate excellent returns for our shareholders. from R115 million to R168 million respectively.
Funds received from clients Gensec’s profits were adversely influenced by the poor Single premiums received from long-term individual insurance performance of unlisted and small capitalisation stocks and business showed good growth and increased by 55% from their operating profit increased by only 5% from R710 million R3 107 million in 1998 to R4 804 million but the total funds to R747 million. received from clients of R34 144 million in 1999 were 10% lower than the R37 733 million received in 1998. This was Corporate costs largely due to lower inflows at Sanlam Employee Benefits and In line with our philosophy that our core businesses are segregated fund inflows at Gensec Asset Management owing to empowered to operate autonomously, the group corporate increased competition from multimanager fund administrators activities focus mainly on group strategic matters and functions. and below-a verage investment performance. These factors also The costs in respect of these activities are as follows: led to a large increase in retirement fund terminations. Short- term insurance premiums of R3 303 million were 19% below Corporate costs the R4 093 million received in 1998. Owing toa change in year-end in 1998, the Santam premiums cove red a 15-month R million 1999 1998 Var % period compared with 12 months in 1999. Sanlam Health’s Corporate functions 61 50 22% premiums also decreasedby1 6% owing to the reduction in Corporate marketing 62 48 29% membership resulting fro mt h ea d m i n i s t r a t i ve problems prior to Shareholder services 52 —— 1999 which have now been resolved. Shared services and other costs 71 72 -1% Total 246 170 45% Payments to clients Payments to clients increased by 32% from R33 732 million Corporate functions comprise the group finance, to R44 571 million in 1999 owing mainly to retirement actuarial, human resources, secretarial, statutory and fund terminations which increased from R3 645 million to information technology activities. R10 812 million. Unit trust repurchases also increased by The 45% increase in corporate costs is largely due 59% from R4 261 million to R6 769 million mainly owing to shareholder services costs of R52 million which to outflows from cash-based unit trusts. Although the payments to clients exceeded the funds were incurred for the first time in 1999 following the received by R10 427 million in 1999, the total client funds listing in November 1998 and reflect the cost of servicing managed by the Sanlam group increased by R33 068 million after our estimated 1,2 million shareholders. The management taking into consideration the investment return, tax, expenses and reduction of corporate costs will remain an important and other adjustments for 1999 in respect of these funds. issue.
p a g e 1 6 1999 SANLAM ANNUAL REPORT F I N A N C I A L R E V I E W A N D C O R P O R A T E G O V E R N A N C E ( CO N T I N U E D )
Corporate income Investment income Corporate income increased by 15% from R174 million to Investment income, which consists of interest, dividends and R200 million in 1999. These profits arise primarily from rental income earned on the investments of the shareholders’ leveraging assets using structured finance transactions which fund, increased by 33% to R1 186 million from involve the issue of preference shares by Sanlam group R893 million in 1998. This increase was largely attributable subsidiaries. These profits were previously included in SPF to the income earned on the net capital of R3,4 billion and SEB’s operating profits but are now disclosed separately raised in November 1998 and relatively high interest rates. as it is managed as a corporate activity. SPF and SEB’s Investment income has been reduced by one-off costs in operating profit for 1998 has been adjusted accordingly. respect of the maintenance of the head office building amounting to R33 million and a provision for general Administration costs investment-related risks of R53 million. Group administration costs amounted to R2 875 million, which is 8% higher than in 1998. The administration costs Income tax to income ratio increased to 30% in 1999 compared with The income tax charge was 10% lower than in 1998 and the 28% in 1998. This increase is largely owing to Gensec’s effective tax rate on headline earnings was 13%, compared administration costs, which increased by 57% as a result of with 20% in 1998. This is attributable to the reduction in the increased systems expenditure and human resources costs corporate tax rate from 35% to 30% in 1999 and Gensec’s arising from growing business activities and the 45% tax charge, which amounted to a net credit of R41 million increase in corporate costs. The administration cost ratio for owing to the reversal of a R100 million over-provision for SEB, SPF and Sanlam Health improved in 1999. This ratio tax in prior years in respect of one of its offshore subsidiaries. represents group administration cost as a percentage of the The effective tax rate excluding Gensec was 20% compared income received by the shareholders’ fund less sales with 26% in 1998. remuneration. We introduced this ratio for the first time in 1999 to measure and manage the cost-efficiency of our Attributable earnings operations. Attributable earnings increased more than eightfold to R3 437 million from R364 million in 1998, and diluted Operating margin attributable earnings per share were 129,0 cents compared The group operating margin was also introduced in 1999 with 17,9 cents in 1998. Attributable earnings include the and will measure our profitability. It represents the group realised and unrealised investment surpluses on the operating profit as a percentage of income received by the investments of the shareholders’ fund. This surplus was shareholders’ fund less sales remuneration, and improved to R1 414 million in 1999 compared with a deficit of 18% from 13% in 1998. Comparable ratios are included in R822 million in 1998 and is mainly the result of the stro nger the business reviews. stock market conditions in 1999 after the stock market crash in the second half of 1998.
p a g e 1 7 1999 SANLAM ANNUAL REPORT FINANCIAL REV I EW AND CO R P O R ATE GOV E R N A N C E ( CO N T I N U E D )
Earnings contribution In our continuing endeavour to provide useful and appropriate information, an analysis of the headline and attributable earnings per business is included in the table below. Earnings contribution
SPF(1) SEB(2) Gensec Health Santam Corporate(4) Total
R million 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
Financial services income 4 619 4 279 1 426 1 262 1 247 1 029 854 970 2 603 3 261 239 215 10 988 11 016 Sales remuneration 915 881 3251— — — — 390 479 16 21 1 353 1 432
Income after sales remuneration 3 704 3 398 1 394 1 211 1 247 1 029 854 970 2 213 2 782 223 194 9 635 9 584 Underwriting policy benefits 1 142 1 201 929 819 — — 673 884 1 823 2 381 2 2 4 569 5 287 Administration costs 1 367 1 312 271 249 500 319 165 264 331 371 241 148 2 875 2 663 Operating profit before exceptional items 1 195 885 194 143 747 710 16 (178) 59 30 (20) 44 2 191 1 634 Exceptional items 412 277 26 28 — — 5 42 — 10 26 40 469 397
Operating profit after exceptional items 783 608 168 115 747 710 11 (220) 59 20 (46) 4 1 722 1 237 Investment income(3) 467 364 308 236 — — 23 11 216 266 172 16 1 186 893
Earnings before tax 1 250 972 476 351 747 710 34 (209) 275 286 126 20 2 908 2 130 Income tax (276) (250) (77) (63) 41 (62) — — (61) (50) (13) (2) (386) (427) Earnings after tax 974 722 399 288 788 648 34 (209) 214 236 113 18 2 522 1 703 Minorities’ interest — — — — (421) (353) — —(146) (164) — — (567) (517)
Headline earnings 974 722 399 288 367 295 34 (209) 68 72 113 18 1 955 1 186 Investment surpluses(3) 1 301 1 237 850 803 48 (118) 112 (44) 98 (145) (927) (2 555) 1 482 (822)
Attributable earnings 2 275 1 959 1 249 1 091 415 177 146 (253) 166 (73) (814) (2 537) 3 437 364
% Headline contribution 50% 61% 20% 24% 19% 25% 2% -18% 3% 6% 6% 2% 100% 100%
Admin cost to income ratio 37% 39% 19% 21% 40% 31% 19% 27% 15% 13% — — 30% 28%
Operating margin 21% 18% 12% 10% 60% 69% 1% -23% 3% 1% — — 18% 13%
(1) SPF = Sanlam Personal Finance. (2) SEB = Sanlam Employee Benefits. (3) The investments of SPF and SEB are managed on a pooled basis and the investment income and investment surpluses earned on these investments have been allocated to these businesses proportionally in relation to their capital at the beginning of the year. Investment surpluses for SPF and SEB include Santam and Gensec at market value as their interests in these group companies are held as investments. (4) Includes results of Sanlam Namibia Limited. The investment surpluses include consolidation adjustments to adjust the group’s investment in Santam and Gensec from market value to net asset value.
S A N T A M R E S U LT S Santam’s underwriting surplus increased significantly The comparisons of the Santam results included in the from R19 million (unadjusted 1998: R20 million) to Sanlam group results is distorted as the earnings for the R59 million in 1999 which compares favourably with the period to 31 December 1998 covered a 15-month period short-term industry underwriting results. These results owing to a change in their year-end and a change in their followed specific focus on the management of claims costs accounting policy. Sanlam has not restated its prior year and the introduction of measures to address weaker group results for this accounting policy change on consolidation underwriting risks. The performance was further assisted by of Santam, as the effect on the Sanlam group results is immaterial (refer to note 7, page 67). a lower level of large natural catastrophes during the year. The comments below relate to a comparable Investment income earned on Santam’s investments 12-month period for 1998 and have also been restated for amounted to R216 million which is in line with that earned the change in accounting policy. in 1998 (unadjusted 1998: R266 million).
p a g e 1 8 1999 SANLAM ANNUAL REPORT F I N A N C I A L R E V I E W A N D C O R P O R A T E G O V E R N A N C E ( CO N T I N U E D )
The abovementioned, after tax, resulted in Santam’s for the long-term insurance industry which may have an earnings per share of 293 cents which is 7% higher than the impact on the disclosure of earnings. We will monitor these comparable 275 cents achieved in 1998. developments. Santam acquired Guardian National Insurance Company Limited (“Guardian”) with effect from 30 December 1999. R ET U R N S This acquisition is still subject to formal acceptance by the Headline return on equity was 13% compared with 12% in Guardian shareholders and the approval of the regulatory 1998 and the attributable return on equity was 23% authorities. Consequently, Guardian has not been consolidated compared with 4% in 1998. Attributable return on equity in the 1999 Santam or Sanlam group financial statements. includes the short-term fluctuations in the stock market and is therefore volatile. The five-year average return, which A S S O C I A T E D C O M PA N Y – A B S A includes the average investment return of the past five years Absa’s equity accounted results attributable to the and takes into account the adjustment for the investment in shareholders are determined from Absa’s results for the Gensec and Santam from net asset value to market value, is a 12-month period ended 30 September 1999. These equity more appropriate measure and improved to 23% in 1999 accounted earnings amounted to R264 million in 1999, a compared with 22% in 1998. 10% increase on the R239 million earned in 1998. The return on embedded value was 24% compared with a pro forma -2% in 1998. HEADLINE EARNINGS BASED ON A LONGER TERM RATE OF RETURN CHANGE IN TA X ATION BASIS FOR We have taken note of the Statement of Recommended LONG-TERM INSURERS Practice (SORP) in the United Kingdom where a longer The four-fund taxation basis for long-term insurers was term rate of return on the investments of the shareholders’ amended with effect from 1 January 2000. These changes fund is included in headline earnings. The purpose is to have an impact on the income tax payable by both the eliminate the short-term volatility of the stock markets from shareholders’ fund and the policyholders’ funds of an insurer. headline earnings. The new basis will not have an impact on the way that Our headline earnings include investment income but we account for tax on earnings as our accounting policy in exclude all net realised and unrealised surpluses on the the past in respect of income and deferred tax already investments of the shareholders’ fund which are included in accounted for income tax on the amended basis. However, attributable earnings. If we applied a longer term rate of the actual payment of tax by the shareholders’ fund will be return (LTRR) based on the actual average investment return made earlier than in the past and should not be as volatile as achieved on the investments of the shareholders’ fund over it was in previous years. the past five years, our headline earnings would have been as There are also one-off transitional measures in respect of follows: the introduction of the amended basis and we do not anticipate that these measures will have a negative impact on our earnings
1999 1998 Var % in 2000 or on policyholders’ current or future benefits.
Current headline earnings – R million 1 955 1 186 65% – cps 73,4 58,4 26% C A PI T A L S G A I N S TA X
Headline earnings based on LTRR The Minister of Finance announced the introduction of – R million 2 618 1 507 74% capital gains tax with effect from 1 April 2001 in his budget – cps 98,3 74,2 32% speech. This annual report does not address the possible impact of this new tax on our 1999 results. Sanlam is well The International Accounting Standards Board is represented on industry committees who will take part in currently developing an international accounting standard discussions with the authorities in this regard.
p a g e 1 9 1999 SANLAM ANNUAL REPORT FINANCIAL REV I EW AND CO R P O R ATE GOV E R N A N C E ( CO N T I N U E D )
EMBEDDED VA LUE AND EMBEDDED Directors VA LUE OF ONE-YEAR NEW BUSINESS The composition of the board of directors and its committees The embedded value of the Sanlam group increased by 21% appears on pages 6, 14 and 15. The Board comprises an from R21 952 million to R26 656 million in 1999 and the executive chairman, 11 non-executive directors and value of in-force business increased by 19% from five alternate and executive directors. R5 221 million to R6 193 million in 1999. The embedded An independent director has been appointed as the value of new life business improve dby 77% from R57million non-executive deputy chairman. The audit and human to R101 million in 1999. The 1999 value of new business resources committees consist of non-executive directors. includes the negative impact of the amendments to the four- A special committee under the chairmanship of the deputy fund tax basis for life insurers. This value would have been chairman consisting of non-executive directors evaluates the R200 million if it had been determined on the old tax basis. effectiveness of the executive chairman. The Board members The assumptions for investment return, expense inflation have diverse backgrounds and expertise and in this way and the risk discount rate used in the determination of the 1999 enhance the overall governance of Sanlam. embedded value were between 2,4% and 3,4% lower than The Board meets at least six times a year to monitor those used in the 1998 embedded value. Further details on the that delegated responsibilities are properly executed by embedded va l u ea re included in the report on pages 87 to 90. management and to consider strategic issues. Senior members The full effect of the amendments to the four-fund tax of management are present at Board meetings. The various basis for long-term insurers which came into effect from committees of the Board meet regularly for in-depth 1 January 2000, has been taken into account in the value of consideration of relevant matters. in-force business for 1999 and resulted in a reduction in Management responsibility for the day-to-day value of approximately R512 million. operations of the group rests with the executive committee, which consists of the chief executives of the various YEAR 2000 (Y 2 K ) businesses and the heads of corporate functions. This The extensive preparation and testing of the computer and committee functions under the leadership of the executive associated business systems were completed in accordance chairman. with our Y2K programme. The transition into 2000 occurred with no material Y2K-related problems. We will monitor all Auditors and audit committee systems until the end of March 2000 and do not anticipate The audit committee, consisting of non-executive directors, any problems. The estimated expenditure incurred on the Y2K project is approximately R110 million and consists meets at least three times a year with the external and internal largely of business-as-usual costs. auditors and members of senior management to evaluate matters regarding accounting practices, internal control C O R P O R ATE GOV E R N A N C E systems, auditing, financial reporting and management of Principles critical risk areas. The audit committee has a clear mandate The Board of Sanlam Limited endorses the Code of and reports to the Board. The internal and external auditors Corporate Practice and Conduct recommended in the King have unrestricted access to the audit committee. During the Report on Corporate Governance and has satisfied itself that second half of 1998 audit committees were established for Sanlam has observed and applied the Code consistently the newly decentralised businesses. This has enhanced the during 1999. Developments in national and international control environment and increased the re achand penetration corporate governance are by definition dynamic, and the of the Sanlam audit committee. Board will continue to adopt those principles which most Sanlam has an effective internal audit function which effectively advance corporate governance and add value has the respect and co-operation of both the Board of within the group’s field of operations. directors and management.
p a g e 2 0 1999 SANLAM ANNUAL REPORT F I N A N C I A L R E V I E W A N D C O R P O R A T E G O V E R N A N C E ( CO N T I N U E D )
Actuarial valuation • adequate internal financial control systems are developed In his capacity as statutory actuary, the chief actuary to provide reasonable certainty of the completeness and monitors the financial soundness of Sanlam Life Insurance accuracy of the accounting records, the integrity and Limited based on the actuarial valuation of assets and policy reliability of the financial statements and the safeguarding liabilities and reports to the Board of Sanlam Life Insurance of assets. Limited as well as the Sanlam Limited Board every quarter. Code of ethics Risk management Management and the Board, in consultation with staff, have The focus of risk management in the Group is on accepted a code of ethics and conduct that requires the identifying, assessing, managing and monitoring all highest ethical standards to ensure that business practices are important risk areas of the group. Management is involved conducted in a manner that fosters public trust and in a continuous process of developing and enhancing its risk confidence. and control procedures to improve the mechanisms for identifying, monitoring and managing risks. These risks Employment equity encompass such areas as skills and people risks, technology, Sanlam has recognised the business imperative of competition, corporate reputation, compliance with employment equity and is fully committed to complying regulations and legislation, professional liability and business with the Employment Equity Act. Its employment equity as well as general operating and financial risks. policy was ratified by the Board after extensive consultation The management of risk is decentralised to the various with staff. businesses but is in compliance with overall group policies. All businesses have appointed risk managers and their own Employee participation audit committees to consider material risk areas, plans to A broad spectrum of participative structures exist for manage risks and the adequate implementation of these handling issues which affect employees directly and plans. materially. These structures are designed to promote Compliance is measured through periodic risk reports, employer/employee relations through effective sharing of which are considered by the various audit committees. At relevant information, consultation and the identification and operational level, senior management identifies critical and resolution of conflicts. major business risks, promotes awareness, introduces A range of internal communication media is used to applicable control environments and procedures, and applies help motivate employees, allow them to gain a better risk-monitoring techniques. understanding of the business and to keep them abreast of important developments. Financial statements and internal financial controls The directors’ responsibility for the financial statements is included on page 53. The Boards accept responsibility for the existence of P de V Rademeyer internal financial control systems. Management ensures that • clear objectives are defined, Financial Director • progress against these objectives is monitored and reported, • the re l e vant legislation and regulations are adhered to, and 8 March 2000
p a g e 2 1 1999 SANLAM ANNUAL REPORT Themba Si yolo GENERAL MANAGER HUMAN RESOURC E S Hendrik Bester CHIEF EXECUTIVE
p a g e 2 2 1999 SANLAM ANNUAL REPORT [ F ROM LEFT] S A N LAM PERSONAL FINANCE Ko b u s M ö l l e r, Leon Watkins an d EXECUTIVE CO M M I TT E E A n d r é Ze e m a n
[ F RO M L E F T] Deon Lessing and In us Ma r a i s [ F RO M L E F T] L i ze Lambrechts and Fa n i e L a t e g a n
S A L I E N T F E AT U R E S support structures. These started to bear fruit in the • 35% increase in headline earnings year and, coupled with a favourable turn in market conditions, contributed to a satisfactory improve- • 28% attributable return on capital ment in operating results. A revitalised sales function • Business volumes improving delivered a turnaround in new business volumes. • First phase of new life administration system implemented Both single and new recurring premiums recovered strongly, although the turnaround in recurring premium business only gained momentum in the
N AT U R E O F B U S I N E S S second half of the year. Sanlam Personal Finance (SPF) is a separate business in the Sanlam group aimed at individual clients. Net new recurring premium income (R million) In 1999 it comprised the businesses of Sanlam Life, Sanlam Unit Trusts (SUT), Sanlam Personal Portfolios (SP2) and Sanlam Trust as well as a multi- channelled distribution function and certain administrative and support services. SPF aims to generate excellent returns for Sanlam and its shareholders. Its business is to provide high-quality financial advice, services and products to its individual clients, through empowered staff and intermediaries, offering competitive life insurance, savings, investment and guaranteed products, as well as trust, will and estate Sanlam Life embarked on several successful services. SPF’s vision is to be the benchmark of initiatives during the year. The transition from excellence and the preferred provider of these traditional walk-in centres to two central call-i ns e rv i c e products and services in its target markets. centres is almost complete with minimal disruption to client service. Call centre service levels comparable BUSINESS ENVIRONMENT AND with international best practice were achieved within O PE R A T I O N A L R E V I EW a short period of commencing operations. The 1999 financial year has been the first full year of An important strategy shift was to move away operation for the combined SPF business. The from in-house IT software development to the creation of SPF as a separate business entity brought acquisition of off-the-shelf software packages with about dedicated and focused management and the resulting saving in development time and
p a g e 2 3 1999 SANLAM ANNUAL REPORT p a g e 2 4 1999 SANLAM ANNUAL REPORT S A N LAM PERSONAL FINANCE ( CO N T I N U E D )
quicker implementation of new systems. The first phase of a new life administration system (Lamda) that will eventually replace the existing cumbersome life system has been implemented in record time. The new system provides more flexibility and quicker product development and customisation, and will enable improved cost efficiencies. The first policies produced by the new system were issued in November 1999. This first phase offers investment products while risk products will follow in 2001. • E X E C U T I V E Several new and amended life products were C O M M I TT E E : JH Brown (Jean) (48) introduced during the year, including differentiated HSC Bester (Hendrik) (49) BCom BCom (Hons) FIA, FASSA, Sales – Direct (23 years) life tariffs for non-smokers and light smokers. AMP (Harvard) Selection criteria for risk products were improved J du Preez (Johan) (52) Chief Executive (26 years) while some disability cover definitions were BCom, LLB reformulated. Increasing competition for clients’ L Lambrechts (Lizé) (36) Sanlam Trust (10 years) BSc (Hons), FIA discretionary investment funds necessitates a review Sanlam Life (14 years) BL Venter (Leon) (49) of product ranges and the introduction of higher MBA levels of transparency and product flexibility. The SA Lategan (Fanie) (48) Sales – Brokers (28 years) new Stratus range of investment policies which BCom (Hons), MBA Sanlam Unit Trusts (23 years) provide, inter alia, flexible investment options, daily • D I R E C TO R S : access to current market values and a transparent fee MH Daling (Marinus) D Lessing (Deon) (40) arrangement, was successfully launched during the DCom (chairman) year. The Stratus range is the first of the products Marketing (2 years) JP Alberts (Johan) produced on the new administration system. Other JA Marais (Inus) (41) existing products will in time be migrated to or HSC Bester (Hendrik) BA, LLB, ILPA replaced on the new platform. Sales (15 years) D Lessing (Deon) The retention of the funds paid out to clients on the surrender or maturity of policies w as identified JP Möller (Kobus) (40) JA Marais (Inus) CA(SA) as an important area of focus in 1999. Competitive Finance (2 years) DNM Mokhobo (Dawn) continuation options are offered in the Stratus product range while a secondary policy trading facility T Siyolo (Themba) (37) JP Möller (Kobus) has also been established. Initial results from these BJuris, IRDP Human Resources (1 year) P de V Rademeyer (Flip) initiatives have been encouraging but are not yet sufficient to stem the high level of outflow s. L Watkins (Leon) (36) CG Swanepoel (Chris) BSc JJM van Zyl (Boetie) Sanlam Unit Trusts (SUT) experienced mixed Information Technology (1 year) fortunes during the year. It reconfirmed its position AP Zeeman (André) (39) as a leader in the unit trust industry in terms • AU D I T C O M M I TT E E : BCom, FIA JP Alberts (Johan) of investment performance. An independent Risk Management (18 years) (chairman) assessment by Plexus placed SUT in overall first place for the second consecutive year among all unit • OTHER SENIOR P de V Rademeyer (Flip) M A N AG E M E N T: trust management companies operating in the South G Botha (Gys) (48) CG Swanepoel (Chris) African market measured over a weighted one, two Sales – Advisers (29 years) and three-year period. The Sanlam Technology Fund
p a g e 2 5 1999 SANLAM ANNUAL REPORT S A N LAM PERSONAL FINANCE ( CO N T I N U E D )
“ S P F ’s contribution to Sa n l a m’s operating profit i m p roved by 29% in 1999”
achieved the highest return of all funds in the industry over performance and to report an operating profit for the first the last quarter of 1999. Micropal awards for the best time in 1999. performance in their respective categories went to the Value Fund (one-year performance) and to the Gilt, Global and Sanlam Trust complements SPF’s product range and plays a Income Funds for their three-year performance. supporting role to SPF’s distribution capability, offering Given these positive investment performances, the trust, will and estate services to individual SPF clients. An funds attracted by SUT were somewhat disappointing. alliance entered into with Lloyds Bank expanded SPF’s Market preferences for cash-based investments changed in capability to provide certain offshore services to SPF clients. 1999 as the stock market improved and interest rates came down, resulting in a reversal of the strong cash fund inflows Sales ended a difficult year on an encouraging note. A con- experienced in 1998. New equity investments equalled the certed effort produced a substantial improvement in new levels achieved in 1998. Assets under management increased business volumes in the second half of the year, with by 43% to R13,2 billion, although SUT’s market share of improvements of 27% and 19% respectively on first-half assets declined slightly from 12,8% in December 1998 to performances for single and new recurring life premiums. 11,5%. SUT’s share of industry net cash inflows for the year This success is attributed to the finalising of functional was lower at 8,5%, but during the last quarter of 1999 changes and the restoration of staff morale, coupled with a it attracted a dominant share of industry inflows (32%) revitalised focus on achieving results. including almost 25% of equity fund inflows. The unit trust business is experiencing a substantial F I N A N C I A L R E V I EW shift towards wholesale buying as linked-product companies Funds received from clients are controlling an increasing share of the unit trust cash flows. This trend contributes to a substantial increase in the R million 1999 1998 Var % short-term movement of funds and consequently also a Life 12 356 11 275 10% stronger emphasis on short-term investment performance. Single premiums 4686 3 044 54% Gensec, SUT’s asset manager, performs an important Less: Included in linked-product function in the interaction with wholesale clients. inflows 640 249 157%
4046 2795 45% Sanlam Personal Portfolios (SP2), SPF’s linked-product Recurring premiums 8 310 8 480 -2% company, benefited from this industry trend, and managed Unit trust inflow 7 926 8 337 -5% to sustain growth in new business volumes in a competitive Linked-product inflow 2 346 1 672 40% market. The growth in business and the value of assets under Total 22 628 21 284 6% management, assisted by the improvement in the equity market, enabled SP2 to improve on its operating p a g e 2 6 1999 SANLAM ANNUAL REPORT S A N LAM PERSONAL FINANCE ( CO N T I N U E D )
Funds received from clients in 1999 were 6% Benefits paid by Sanlam Life increased by 25% to higher than in 1998. Life single premiums, excluding those R14 billion for the year, of which policy maturities comprised attributable to linked-product business, grew by 45% to 39% (up by 47% on 1998) and policy surre n d e r s2 5 % . R4 046 million, a substantial recovery after the fall in single premiums experienced in 1998. Recurring premiums Payments to clients amounted to R8 310 million. After a disappointing start, new recurring premium business showed a strong recovery in R million 1999 1998 Var % the latter half of 1999. Total recurring premiums received for Death and disability claims 1 691 1699 1% Maturity benefits 5446 3696 -47% the year were, however, still 2% less than in 1998. Life and term annuities 3 260 3 497 7% Surrenders 3 427 2 122 -61% Lapse rates (%) Cash bonuses 175 144 -22% Total 13 999 11 158 -25%
SPF contributed R783 million to Sanlam’s operating profit before tax for 1999, an improvement of R175 million (29%) on its performance in 1998. Income after sales remuneration increased by 9% to R3 704 million. Administration costs for SPF were only 4% up on 1998 and the administration cost to income after sales remuneration ratio improved to 37% from 39% in 1998.
Income statement
R million 1999 1998 Var % SPF’s policy lapse experience improved further during 1999 with 15,8% of life policies lapsing in their first year Financial services income 4 619 4 279 8% compared with 17,6% a year ago. This contributed to a 27% Sales remuneration 915 881 -4% reduction in recurring premium losses owing to lapses in the Income after sales remuneration 3 704 3 398 9% first policy year. The improvement is attributed to a more Underwriting policy benefits 1 142 1 201 5% Administration costs 1 367 1 312 -4% stringent screening process which will be enhanced in 2000. A substantial number of five-year and ten-year policies Operating profit before exceptional items 1 195 885 35% reached maturity during 1999 with a consequent reduction Systems/projects 206 137 -50% in premium income. Policy surrenders were at exceptionally Other exceptional items 206 140 -47% high levels in 1999. This can partly be attributed to an Operating profit 783 608 29% expected rebound after the relatively low levels of surrenders Investment income 467 364 28% experienced during the demutualisation share qualification Headline earnings before tax 1 250 972 29% period but is also a reflection of the growing trend of policy Taxation 276 250 -10% replacement in the industry as well as the impact of difficult Headline earnings after tax 974 722 35% economic circumstances experienced by some SPF Investment surpluses 1 301 1 237 5% policyholders. Attributable earnings 2 275 1 959 16% SP2 achieved satisfactory growth in both gross and net inflows. The unit trust industry, however, experienced a lean Headcount 4 484 5 259 1999 and SUT’s gross inflows were marginally down on 1998. A major increase in outflows from substantially cash- SPF’s capital of R8 247 million earned investment based funds restricted SUT’s net inflows to only 30% of income of R467 million (1998: R364 million) for the year. those achieved in 1998. After taxation, SPF’s headline earnings amounted to
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“ Gi ven favourable market conditions, SPF can grow its attributable earnings at a 10% real rate”
R974 million, a 35% improvement on 1998. Net realised and overheads and also do not take into account any possible unrealised investment surpluses on the investment of SPF’s negative impact of the proposed introduction of a capital capital amounted to R1 301 million and attributable earnings gains tax. amounted to R2 275 million for 1999. The attributable earnings represent a re t u r no n SPF’s c a p i t a lf o r the year of 28%. Operating profit before exceptional items
Financial ratios R million 1999 1998 Var % Administration surplus 343 274 25% Percentage 1999 1998 Risk profits 352 184 91% Administration cost: income 37% 39% Market-related income 500 427 17% Operating profit: income 21% 18% Return on capital – Headline 12% 11% Total 1 195 885 35% – Attributable 28% 31%
SPF recorded a net administration surplus of Embedded value (EV) R343 million for 1999, a 25% improvement on 1998. This surplus reflects the difference between the remuneration of R million 1999 intermediaries and administration costs incurred, and the EV of new business 86 related policy recoveries and fee income. Payments to EV of in-force business 5 857 intermediaries rose in line with sales volumes, while Shareholders’ fund 10 071 administration expenditure decreased in real terms. Cost Total EV 15 928 savings realised on the closing of offices and the reduction of staff partly compensated for inflationary and other Embedded value added by new business written during administration cost adjustments. Risk profits increased by 1999 amounted to R86 million, after assuming that the 91% and include both underwriting surpluses and the negative impact of the changes announced during 1999 in income earned on guaranteed products. A favourable claims the tax regime for life insurance companies, applicable from experience, in particular a reduction in the number of death 1 January 2000, also applied in 1999. Calculated on the old claims, contributed to the substantial improvement in tax basis, the value of new business written in 1999 underwriting results. amounted to R170 million. A total return of 25% was Market-related income improved by 17%. A period of earned on embedded value for the year. These embedded sustained high interest rates, as well as the stock market value calculations do not provide for Sanlam corporate recovery, contributed to a satisfactory performance on this
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line. This category of income includes, inter alia, net interest improve as a result of interest rates almost halving in the past received on working capital as well as income attributable to 12 months, the low inflation rate and lower personal tax the non-participating portfolios where SPF carries the rates. It can, however, be expected that prospects of rising underlying investment risk. The reported results take into economic prosperity will also attract other local and account expenditure incurred during the year to improve the international players, providing increased market asset composition in the non-participating annuity portfolio. competition. This should improve the matching of the assets and SPF’s objective is to grow its attributable earnings at a associated liabilities in the portfolio and will reduce the risk real rate of 10% per annum, and at the same time provide an of mismatching losses. average 10% per annum real return on embedded value over Expenditure on new systems and projects was up by time. Current estimates indicate that, given favourable more than 50% at R206 million. Major projects such as the market conditions, these are achievable targets for 2000. new life administration system and the electronic sales aid A high premium is being placed on the embedded value of S.net gained momentum during the year, while, as part of new business. This value is a combination of the volume of a comprehensive Y2K compliance project, resources were new business written and the level of acquisition costs. Due allocated for upgrading both software and hardware. New emphasis will be placed on both these items in 2000. New projects include the creation of a centralised client infor- business volumes are expected to continue the recent mation management capability and system improvements in recovery trend, while plans are in place which are aimed at the Sanlam Direct sales environment. Project expenditure on keeping operating costs constant in real terms. A sustained the call centres was finalised during the year. upturn in the stock market should contribute to an A further amount of R206 million is accounted for as improvement in market-linked operating results, compensating exceptional costs in 1999. This was substantially in respect for the negative impact of lower interest rates. of the restructuring of the sales function and the cost of The expenditure in recent years on IT and other retrenching sales staff, the closure of offices and the write-off systems has probably reached a peak and should start to of redundant office equipment. A provision was also made decline, although a relatively high level of expenditure on IT- for the outstanding contractual rental commitments in related projects is still planned for 2000. The life respect of excess office space. The 1998 exceptional costs administration system, S.net and the central client management included provisions and write-offs of R102 million and system will be drawing the largest portion of capital. R39 million for the restructuring of the sales function. One of the building blocks of the SPF strategy for 2000 is an empowered employee and sales force. Training P RO S PE C T S and the retention of key players are a priority. At the same General optimism about the stock markets and the South time diversity in employment is proactively encouraged. African economy in general bodes well for SPF and the A programme of employment equity, supporting and industry in 2000. The spending capacity of clients should complementing SPF’s business initiatives, is in place for SPF.
p a g e 2 9 1999 SANLAM ANNUAL REPORT [ F RO M L E F T ] Ja c q u e s d e Villiers and Anto n K ru ger
Nick Christodoulou CHIEF EXECUTIVE John Moalusi D E P U T Y C H I E F E X E C U T I V E
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[ F RO M L E F T] Sa f i a L a g e rd ien, Hei nie We r th and Wo u t e r T h o m
[ F RO M L E F T] Francois Ve n t e r, Bax No m vete an d Neels Pre t o r i u s
bonus declarations in 1998. This raised questions in the investment community on the appropriateness S A L I E N T F E A T U R E S of smoothed bonus products and participating • 46% increase in operating profit annuities. These negative perceptions are expected to be temporary given the shift from defined benefit • 39% increase in headline earnings funds to defined contribution funds, along with the • 23% attributable return on capital increased accountability of trustees. • New product offerings SEB responded to these market changes by introducing a Monthly Bonus Fund declaring monthly fully vesting bonuses enhancing the transparency of guaranteed products. Following N AT U R E O F B U S I N E S S stock market improvements throughout 1999, SEB 1999 was the first full year for Sanlam Employee also increased its interim bonus rate on its Benefits (SEB) as an independent business in the guaranteed products in the middle of the year. Sanlam group. This resulted in improved focus on Taking the above into account, SEB is pleased its main product lines: to report that these products are once again • risk products comprising life and disability gaining popularity and are well-funded. SEB will cover provided to group funds and schemes; continue to focus on developing new improved and • investment products consisting of smoothed more transparent guaranteed products as this is bonus products, participating annuities and regarded as the backbone of a sound retirement fund market-linked investment policies for group industry. funds; The shift from pooled portfolios to segregated • administration business comprising retirement portfolios managed by different asset managers also fund administration, money transfer business continued. SEB formed Matrix Portfolios to supply and payroll administration; a range of multi-managed investment products in • actuarial and consultation services to the alliance with m3 Capital Asset Management retirement fund industry. Limited, whose experience and knowledge in specialised asset manager selection and multi- BUSINESS ENVIRONMENT AND manager administration are widely recognised. O PE R AT I O N A L R EV I E W The growing importance of the small business The retirement fund industry remains highly sector in South Africa and the general inability of competitive with a wide variety of players satisfying large insurance companies to satisfy the retirement client needs. Stock market volatility towards the end fund needs of such companies are also widely of 1998 caused severe pressure on funding levels of acknowledged. SEB exploited this opportunity and guaranteed investment products, which impacted on acquired a 60% interest in Total Care Strategy
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Holdings Limited, a specialist administrator of small retirement funds. SEB is giving its small clients the option to be transferred to this subsidiary in order to provide a better service to them and to optimise opportunities in this market segment. An area of concern, however, is finding suitable products and mechanisms to address the retirement needs of low income earners. Alternatives are being explored. The shift towards defined contribution funds • E X E C U T I V E • D I R E C TO R S : C O M M I TT E E : MH Daling (Marinus) stimulated the demand for flexible individual NT Christodoulou(Nick) (51) (chairman) choices for investment options and risk benefit BSc Eng (Ind), MBA levels. With the implementation of a new Chief Executive (4 years) Prof AC Bawa (Ahmed) internationally proven fund administration platform J Moalusi (John) (47) NT Christodoulou (Nick) SEB is well-positioned to address these demands in BProc, HDPM, EDP the coming year. Deputy Chief Executive & K Jowell (Kate) Distribution (2 years) SEB has embarked on the development of an J Moalusi (John) Internet-based human resources administration J de Villiers (Jacques) (45) system to fulfil the needs of employers wanting BCom, FIA P de V Rademeyer (Flip) Consulting Services (23 years) to outsource these services. This outsourcing CG Swanepoel (Chris) alternative also provides exciting opportunities for A Kruger (Anton) (42) other products to be linked to payroll administration BA (Hons), HGD, MBA TW Thom (Wouter) Marketing (2 years) and is being explored as a future growth area. HC Werth (Heinie) This development is in line with SEB’s strategy S Lagerdien (Safia) (38) BA (Hons), MA (Ind Psych) to capitalise on various e-business initiatives in its quest to remain a leader in the retirement fund Human Resources (2 years) • A U D I T C O M M I TT E E : P de V Rademeyer (Flip) industry. B Nomvete (Bax) (46) Dip Comp Science (UK) (chairman) All the aforementioned trends are, however, Multi-Data & Administration driven on the back of client demands for quality Prof AC Bawa (Ahmed) (2 years) reliable service and enhanced transparency. CG Swanepoel (Chris) CP Pretorius (Neels) (42) Consequently SEB is focusing on expanding and BCom, FILPA, CAT enhancing its consultation capacity, electronic Product Research & Development interfaces and communication with its clients. (21 years) Focused client service is also seen as the most TW Thom (Wouter) (43) important factor for SEB’s future success. BCom (Hons), FIA Risk & Investment Products (21 years) F I N A N C I A L R E V I EW Funds received from clients F Venter (Francois) (42) BCom (Hons) R million 1999 1998 Var % Information Technology (2 years) Recurring premiums 2 859 2 603 10% Single premiums 2 441 5 064 -52%
HC Werth (Heinie) (36) Total 5 300 7 667 -31% CA (SA), MBA Finance (2 years)
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“SEB is well-positioned to aggre s s i ve l y pursue growth opportunities in deve l o p i n g m a rkets, including black business, trade unions and gove r n m e n t”
Recurring premiums increased by 10% to Income statement R2 859 million, a welcome turnaround after a 9% decline in R million 1999 1998 Var % the previous year. This increase reflects real growth in new Financial services income 1 426 1 262 13% business and SEB is well-positioned with its wide and Sales remuneration 32 51 37% improved range of product offerings to continue this growth Income after sales in 2000. remuneration 1 394 1 211 15% Single premiums of R2 441 million are, however, 52% Underwriting policy benefits 929 819 -13% Administration costs 271 249 -9% lower than the R5 064 million achieved in 1998 and well below expectations. The stock market decline during 1998, Operating profit before exceptional items 194 143 36% increased competition from multi-managers, below average Systems/projects 20 8-150% investment returns and the negative perceptions on the Other exceptional items 6 20 70% appropriateness of guaranteed products all contributed to this. Operating profit 168 115 46% Various actions mentioned earlier have already been introduced Investment income 308 236 31% and growth from this low base is anticipated in 2000. Headline earnings before tax 476 351 36% Taxation 77 63 -22%
Payments to clients Headline earnings after tax 399 288 39% Investment surpluses 850 803 6%
R million 1999 1998 Var % Attributable earnings 1 249 1 091 14%
Policyholder benefits 6 105 6 625 -8% Headcount 1 075 990 Fund terminations* 11 266 4 052 178%
Total 17 371 10 677 63% SEB has achieved a substantial 46% increase in its
*Includes transfers to assets managed on behalf of clients by Gensec Asset operating profit to R168 million notwithstanding the Management and taxation paid on behalf of certain retirement funds. negative fund flows discussed above. Income received after sales remuneration increased by 15% to R1 394 million. Policyholder benefits paid or payable in terms of Underwriting policy benefits increased by 13% in line with insurance contracts decreased by 8% to R6 105 million. increases in risk insurance premiums received. Administration Fund terminations, however, amounted to R11 266 million costs increased by 9% following the establishment of SEB as (R4 052 million in 1998) for the same reasons that resulted a separate business in the Sanlam group, but decreased in the low single premiums and the anticipated outflows from 21% to 19% as a percentage of income after sales following demutualisation. Initiatives mentioned earlier should remuneration. SEB experienced an increase in system/project result in a significant decrease in terminations in 2000. expenditure while implementing its new fund administration
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system. Such expenditure will continue in 2000, after which Embedded value (EV) benefits are foreseen. R million 1999 SEB’s headcount increased to 1 075 mainly as a result EV of new business 64 of increasing the sales force and building out its administration capacity. EV of in-force business 720 Shareholders’ fund 6 403
Total EV 7 123 Financial ratios
Percentage 1999 1998 Embedded value added by new business acquired
Administration costs: income 19% 21% during 1999 amounted to R64 million after assuming that Operating profit: income 12% 9% the negative impact of the changes announced during 1999 Return on capital – Headline 7% 7% in the tax regime for life insurance companies applicable – Attributable 23% 26% from 1 January 2000 also applied in 1999. Calculated on the old tax basis, the value of new business written in 1999 Investment income of R308 million (1998: amounted to R84 million. A total return of 26% was earned R236 million) was earned on the investments of SEB’s on embedded value for the year. These embedded value capital of R5 356 million which is managed on a pooled calculations do not include Sanlam corporate overheads and basis with SPF. Headline earnings increased by 39% to also do not take into account any possible negative impact of R399 million. Attributable earnings after allowing for the proposed introduction of a capital gains tax. investment surpluses amounted to R1 249 million (1998: R1 091 million) which represents a 23% return on capital. P RO S PE C T S SEB is well positioned to aggressively pursue growth Operating profit before exceptional items opportunities in developing markets, including black R million 1999 1998 Var % business, trade unions and Government. Potential markets Risk profits 59 14 321% in selected African countries are being explored and Administration business 29 19 53% decisions on expanding into these areas will be taken in the Investment business 103 110 -6% Consulting unit 3 ——first half of 2000.
Total 194 143 36% The retention and improvement of market share in SEB’s traditional markets are a priority and in this regard The growth in operating profit is mainly due to the reliable, high-quality service and quick responses to client significant increase in the profits from risk business – needs receive ongoing attention. increasing by 321% to R59 million. Focused market and These strategies, combined with SEB’s responses to the product analysis resulted in repricing, which caused a major changes in the marketplace discussed earlier, position SEB improvement in profits. The investment policy to match well for continued growth in 2000. assets with liabilities for risk business, supported by hedging SEB’s objective is to provide a steady, growing strategies, also bore fruit. Administration profits increased by operating profit in order to render a 10% real return on 53% to R29 million following increased fee income and equity and embedded value. This will be achieved by fewer write-offs compared with 1998’s stock market focusing on increased profitable turnover, developing new volatility. Contributions from investment business declined business activities and cutting costs in non-productive areas slightly by 6% to R103 million in line with expectations – all supported by cost-effective administration platforms notwithstanding large outflows from the market linked focused on reliable, efficient service. portfolios, which represent low margin business. More Most significantly, SEB’s staff are highly valued and emphasis is being placed on fee-generating consulting will be developed to support SEB’s objective of quality services and further profit improvements are foreseen. service to a diversified South African market.
p a g e 3 5 1999 SANLAM ANNUAL REPORT Paul Zondagh G E N E R A L M A N A G E R U N D E RW R I T I N G Johan du Preez CHIEF EXECUTIVE
p a g e 3 6 1999 SANLAM ANNUAL REPORT S A N L A M H E A L T H EXECUTIVE CO M M I TT E E
[ F RO M L E F T] Kobus White and Hanneke Louw employer groups (via the Topmed medical scheme), had a less prosperous year. Clients’ exposure to poor administration over an extended period resulted in further membership losses during 1999. In response, Sanlam Health has adapted its marketing structure and strategy. The challenge is now to shift the predominantly inward focus of correcting what was [ F RO M L E F T ] wrong to an outward focus, where the emphasis is Desmo nd Fred ericks and Thi nu s De l p o rt placed on exceptional client service, public relations and marketing. 1999 was a year of stable adminis- tration that will support the future growth of Topmed and Selfmed. S A L I E N T F E A T U R E S
• Turnaround from R220 million loss in 1998 to R11 million profit FINANCIAL REV I EW • Claims ratio down from 101% in 1998 to 85% in 1999 Income statement
• Successful completion of major restructuring R million 1999 1998 Var %
• 57% attributable return on capital Underwriting risk premiums 700 832 -16% Fee income 109 78 40% Interest income 45 60 -25%
Income 854 970 -12% Underwriting policy benefits 673 884 24% N AT U R E O F B U S I N E S S Administration costs 165 264 38%
Sanlam Health provides underwriting, risk and quality management, as well Operating profit/(loss) before as scheme administration services to members of medical schemes. Its exceptional items 16 (178) 109% administration services were outsourced in 1999 and they now focus on the Exceptional items 5 42 88% underwriting and management of medical risk. The business is positioned to Operating profit/(loss) 11 (220) 105% meet the need in the South African market for a health insurance Investment income 23 11 109% underwriter with the expertise to effectively manage the quality and Headline earnings 34 (209) 116% affordability of health-care services. Investment surpluses 112 (44) 355%
The key drivers of profitability are business volumes measured in Attributable earnings 146 (253) 158% premium income and the ability to effectively manage risk. Sanlam Health has Headcount 265 975 therefore made significant investments in actuarial, analytical and clinical skills, as well as managed health-care software and services required for effective underwriting and risk management. Financial ratios
Percentage 1999 1998 O PE R A T I O N A L R E V I EW The successful combination of risk and quality management led Sanlam Health Claims ratio 85% 101% Administration costs: income 19% 27% to f u rt h e rd e velop this concept into a product for the medical schemes market Operating profit: income 1% -23% in South Africa. A new product, Solutio, was launched in the second quarter of Return on capital – Headline 13% — 1999 and generated premium income of R150 million in 1999. This product – Attributable 57% — reinsures certain major medical risks of medical schemes in exchange for a fixe d premium per member per month. There are high barriers of entry into the After three consecutive years of suffering huge reinsurance market as m ajori nvestments in terms of technology and time need losses, the business has been successfully turned to be made in order to be competitive and profitable in this sector. Sanlam around. An operating profit of R11 million was Health’s core competency in this area provides a competitive advantage and will achieved for the year (1998: R220 million loss). allow Solutio to grow and compete profitably in the medium term. Effective administration and benefit management Sanlam Health’s further product line, namely the provision of medical resulted in the claims ratio decreasing from 101% in scheme products to individuals (via the Selfmed medical scheme) and 1998 to 85% in 1999. Changes to the allocation of
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total contributions to fee income and risk premium resulted in a decrease in risk premium and increase in fee income. The decrease of 12% in income is a result of further membership losses in 1999. The successful outsourcing of Sanlam Health’s administration functions and cost-effective restruc- turing of the business contributed to a 38% decrease in administration costs. Administration costs as a percentage of income decreased from 27% in 1998 to 19% in 1999. Restructuring costs of R42 million “The challenge is now to were recorded as an exceptional item in 1998. Adequate provisions were created in 1998 for shift our inward focus, of the outsourcing and restructuring of the business. Not all of these provisions have been fully utilised and have not been reversed in the 1999 results. c o r recting what was wrong, to Investment income of R23 million was earned on the investment of Sanlam Health’s capital of an outward focus of exc e p t i o n a l R256 million. Headline earnings amounted to R34 million (1998: R209 million loss) and after client service and mark e t i n g” taking into account the very high investment surpluses of R112 million, which are not expected to be repeated on a regular basis, attributable earnings amounted to R146 million (1998: R253 million loss). This represents a 57% attributable return on capital.
P RO S PE C T S • E X E C U T I V E • D I R E C TO R S : The new Medical Schemes Act, aimed at making C O M M I TT E E : GE Rudman (George) health-care accessible to a large proportion of the J v D du Preez (Johan) (34) (chairman) population and regulating the financial soundness of M Pharm, MBA Chief Executive (3 years) medical schemes, took effect on 1 January 2000. MH Daling (Marinus) Among other things, the Act calls for open enrolment M Delport (Thinus) (44) and community rating whereby medical schemes must J v D du Preez (Johan) BCom (Hons) Comp Science, BOP allow any person to join as a member and premium Information Technology tables may not differentiate on the basis of age or (4 years) P de V Rademeyer (Flip) health status. DG Fredericks (Desmond) (34) PC le Roux (Charl) Although this legislation poses certain challenges B Admin, Dip (personnel, training, to the industry, the increase in uncertainty it causes industrial relations) PEI Swartz (Peter) enhances the attractiveness of products such as So lutio. Marketing and Sales (0 years) We are confident that the business is well-positioned Prof P Smit (Flip) H Louw (Hanneke) (28) to meet the need in the South African market for a CA (SA) health insurance underwriter with the expertise to manage risks effectively – a competency that is Finance (3 years) • A U D I T C O M M I TT E E : becoming indispensable in the changing health-care GE Rudman (George) K White (Kobus) (39) industry. BCom (Hons) (chairman) Sanlam Health will continue to focus on Corporate Affairs (7 years) PC le Roux (Charl) improving its core competencies of underwriting PK Zondagh (Paul) (31) and risk management and increase profitability BCom, FIA, FASSA P de V Rademeyer (Flip) towards a target that will ensure the required return Risk Management (5 years) to meet our shareholders’ expectations.
p a g e 3 9 1999 SANLAM ANNUAL REPORT Anton Botha CHIEF EXECUTIVE
p a g e 4 0 1999 SANLAM ANNUAL REPORT G E N S E C EXECUTIVE CO M M I TT E E
[ F ROM L EFT] [ F ROM LEFT] Angus Samuels and Peter Cook an d Marius Fe r re i r a Gerald Go n ze n b a c h
Ro b e rt Ma y
[ F ROM LEFT] Johan van Reenen and Banus van der Wa l t
S A L I E N T F E A T U R E S The fourth quarter, however, saw a repeat of the first • 15% increase in headline earnings per share quarter’s robust performance with both equities and • Significant growth for Gensec Bank bonds performing well as investors shed their Y2K fears. For 1999 as a whole, however, some sectors of • Banking and equity activities merged into investment banking activities the equity market to which Gensec is exposed, • Excellent progress on transformation of Gensec Asset Management underperformed. While it was a year of excellent performance for the resources sector and large-cap and internationalisation stocks, Gensec suffered from the poor performance of certain small capitalisation and unlisted companies. The 1999 financial year was characterised by further transformation of the Gensec group. N AT U R E O F B U S I N E S S Management’s attention was focused not only on Genbel Securities Limited (Gensec) is a South optimising immediate returns for shareholders, but African-based financial services group active in three also on establishing and integrating the asset principal areas of operation: management and private equity businesses acquired • asset management in 1998. Towards the end of the year, a comprehensive • investment banking reorganisation of the company was announced, • property services resulting in the establishment of two clearly focused Gensec aspires to be the leading financial businesses – Gensec Asset Management and Gensec services provider in its chosen areas of business, Bank. Gensec also progressed well in exploiting the producing focused solutions for its clients, whom it new opportunities arising from its closer relationship regards as partners. with Sanlam, which contributed to the significant Each of Gensec’s businesses is commonly growth of Gensec Bank. found in investment banks and, with the exception of Gensec Property Services, its businesses all generate FINANCIAL REV I EW revenue by advising on, intermediating and absorbing Attributable income for the year was R788 million, financial risk. As such they fit in well with Gensec’s an increase of 21% on 1998’s R648 million. On a business definition of discerning, selecting and per share basis, both attributable and headline managing attractively priced financial risk for reward. earnings increased by 15% from 271 to 312 cents as a result of a 6% increase in the weighted number of B U S I N E S S E N V I RO N M E N T shares in issue during the 1999 financial year. The The financial markets had an excellent first quarter growth in total assets of 44% from the end of 1998 in 1999, with a sharp decline in short-term interest to the end of 1999, reflects the increased activities of rates and bond yields, an improved outlook for the investment banking business. Gensec regards commodity prices and significant foreign portfolio these results as satisfactory, especially given the inflows into both the bond and equity markets. unfavourable market conditions during the year for Equity prices also rose sharply. several of its businesses and in particular the In the second and third quarters the JSE extremely difficult market conditions experienced in moved sideways, while bond yields drifted higher. small capitalisation and unlisted companies.
p a g e 4 1 1999 SANLAM ANNUAL REPORT p a g e 4 2 1999 SANLAM ANNUAL REPORT G E N S E C ( CO N T I N U E D )
The annuity income portion of total income increased from 71% to 78% during 1999. The growth in fee-based income in the equities, investment banking and property services businesses was particularly pleasing. It is, howe ver, disappointing that fee income in asset management declined marginally from the previous year. The most significant positive contributions to Gensec’s performance over the past year were the excellent growth in the bank’s business, the commissions earned on property transactions and developments • E X E C U T I V E • D I R E C TO R S : by Gensec Property Services and the high returns C O M M I TT E E : MH Daling (Marinus) achieved in most of the equities business. The AD Botha (Anton) (46) (chairman) expenses ofall business units, as well as the corporate BCom (Hons), BProc, SEP (Stanford) division, increased significantly during the year. The Chief Executive (20 years) AD Botha (Anton) increases related mostly to increased expenditure on PJ Cook (Peter) (53) PJ Cook (Peter) systems and human resources as a result of growth in BSc, MBA Gensec’s business activities and the higher costs Executive Director (3 years) TL de Beer (Tom) associated with its drive to internationalise. Earnings were also boosted by the reversal of a AS du Plessis (Attie) M Ferreira (Marius) (45) provision for R100 million for taxation on foreign BCom (Hons) M Ferreira (Marius) operations made in previous financial periods. The Managing Director: Gensec Bank provision was originally made as a particularly (17 years) DR Geeringh (Div) conservative approach to the provision for taxation on certain of our foreign operations. GC Gonzenbach (Gerald) (45) D Ladds (David) PhD (law), MBA Divisional contributions based on profit Chief International Officer R Masson (Ronnie) (2 years) before taxation RW May (Robert) RW May (Robert) (52) BSc (Hons), MBA Prof AF Perold (André) Executive Director (23 years) P de V Rademeyer (Flip)
JAA Samuels (Angus) (50) 1997 1998 1999 Managing Director: Gensec Asset BA Smith (Bernard) ■ ■ ■ Management (1 year) 3% Asset 47% Asset 38% Asset JC van Reenen (Johan) management management management 81% Equities 33% Equities 38% Equities UJ van der Walt (Banus) (49) 16% Investment 14% Investment 15% Investment BEcon (Hons) Prof S Vil-Nkoma (Sibusiso) banking banking banking 6% Property 9% Property Managing Director: Gensec services services Property Services (32 years) • AU D I T C O M M I TT E E : Sources of income JC van Reenen (Johan) (44) AS du Plessis (Attie) BSc (Hons), MBA (chairman) Executive Director (10 years) TL de Beer (Tom)
DR Geeringh (Div) 1997 1998 1999 D Ladds (David) ■ ■ ■ 5% Fees and 56% Fees and 62% Fees and commissions commissions commissions R Masson (Ronnie) 85% Principal 29% Principal 22% Principal transactions transactions transactions 10% Net interest 15% Net interest 16% Net interest P de V Rademeyer (Flip) and dividends and dividends and dividends
p a g e 4 3 1999 SANLAM ANNUAL REPORT G E N S E C ( CO N T I N U E D )
“We are particularly pleased to h a ve been ranked 20th among a nestimated 250 global asset managers in the Reuters Su rvey on Gl o b a l Emerging Ma rk e t s”
D I V I S I O N A L A C H I EV E M E N T S A N D Assets under management (R billion) D EV E LO P M E N T S Asset Management progressed well with its business transformation and the re-engineering of its investment process. These projects have now largely been completed and positive results are already evident. For the second consecutive year Sanlam Unit Trusts w as awarded the Plexus Raging Bull Award based on the performance of the entire range of unit trusts overa weighted one, two and three-year period. As portfolio manager to Sanlam Unit Trusts, Gensec Asset Management is proud of this achievement. The assets under management within the Assets under management at Gensec Asset Management, excluding Gensec’s unit trusts grew by 43% during 1999, giving Sanlam a own capital 11,5% share of this expanding market. Further growth is anticipated in 2000 based on the consistent performance of The structured products unit in the investment bank the unit trust range. During the year the range of unit trusts gained significant momentum during the year and became was increased with the addition of four new funds. the largest contributor to the bank’s profits. The equity- Gensec is particularly pleased to have been ranked 20th backed loan business was highly profitable and the trading among an estimated 250 global asset managers in emerging activities also performed well. markets by the independent Reuters Survey 1999 on Global Two factors impacted negatively on the overall contribution from the equities business: Emerging Markets. • private equity, as with its competitors, had to deal with Gensec has had strong inflows to some of the key extremely difficult conditions in its particular markets for performing funds whose performance is indicative of the most of the year. Nevertheless, this unit still managed to success of the specialisation units introduced as part of a re- show a positive return on capital; and engineered investment process at asset management. The • to prepare for potential international acquisitions and international funds also performed excellently. The Global expansion, Gensec had accumulated over $100 million in Technology Fund delivered an outstanding 94,6% from its cash or near cash offshore by the end of 1999. The foreign launch in August 1999 to 31 December 1999. currency interest income earned on these investments was Although excellent returns were achieved in many lower than would have been earned locally and was depressed portfolios managed by asset management, the general further on translation to the stronger rand at year-end. performance of the larger funds was less than satisfactory. If the effect of these two factors is excluded, the This was largely as a result of a decision to conservatively equities business generated a return on capital in excess of 30%. devalue the property portfolio, and the poor performance of Property Services again performed well in 1999. Its the Development Fund. This fund invests mainly in recurring income increased at a steady rate and, through empowerment projects, a sector of the market that commissions earned on the sale and development of underperformed significantly in the past year. properties, the division significantly exceeded its total profit
p a g e 4 4 1999 SANLAM ANNUAL REPORT G E N S E C ( CO N T I N U E D )
Divisional results for the year ended 31 December
Asset Investment Property R million Management Bank Equities Services Corporate Total
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
Fees, commissions and negotiated margins 429 435 105 27 91 2 146 113 1 1 772 578 Dividend income 1 3 64 32 81 70 — — 5 — 151 105 Principal transactions — 5 (50) 18 320 278 — — — — 270 301
Income 430 443 119 77 492 350 146 113 6 1 1 193 984 Net interest income/(expense) 50 30 99 71 (113) (71) 23 15 (5) — 54 45 Administration costs (173) (114) (92) (44) (68) (32) (93) (79) (74) (50) (500) (319)
Operating profit before taxation 307 359 126 104 311 247 76 49 (73) (49) 747 710
Growth (%) (14) — 21 — 26 — 55 — (49) — 5 — Group contribution (%) 41 50 17 15 42 35 10 7 (10) (7) 100 100 Cost to income (%) 36 24 42 30 18 12 55 62 — — 40 31 Recurring income (%) 100 99 123 88 16 — 100 100 — — 78 71 target. Property Services also managed to progress satisfactorily segments during this year. The final stages of its transformation in its objective of acquiring additional clients. process will also be completed early in 2000. Internationally, a major objective would be to expand its product range and R E S T R U C T U R I N G O F T H E G R O U P increase its distribution. The division expects its contribution Gensec undertook a project during 1999 to ensure that each to Gensec’s earnings to grow in 2000. of its businesses had sufficient but not excessive capital to The investment bank is again set for significant growth meet its growth objectives, and to transfer the capital in this year. The business outlook for the equity finance excess of these needs to the centre. Following completion of division is promising, based on accumulated demand carried the quantitative analysis of the minimum requirements for over from last year when Y2K fears curtailed corporate capital in each business, the focus shifted to the wider activity. Structured products will continue to build on the strategic and organisational implications for Gensec. momentum created during 1999. Good progress was made This project prompted a comprehensive review of its last year with the creation of the infrastructure to enter the businesses and organisational structure leading to an asset-backed finance business and the bank will persist with announcement in November 1999 that the company would its focus on this potentially lucrative market during 2000. be restructured into two clearly focused businesses – Gensec Property Services will continue to diversify its business Asset Management and Gensec Bank. Good progress has through management contracts. Its contribution from been achieved with this restructuring. recurring profit is forecast to be slightly ahead of that of These two focused businesses will have the freedom to 1999. Commissions on transactions aimed at reducing determine their own strategies and operations within the Sanlam’s exposure to property and further property scope of Gensec’s business definition, but recognising the development could lead to another good year for profits. business definitions of other companies in the Gensec and Income on Gensec’s proprietary capital will, for the time Sanlam groups. being, continue to contribute significantly to its total income. This income is directly influenced by conditions in the P RO S PE C T S financial markets in which Gensec operates. While Gensec Gensec’s earnings should benefit from increased business budgeted for increased income from this source in the year volumes in the year ahead and the company is confident of ahead (based on the expectation of reasonable returns in the satisfactory growth in the profit contributions of the banking, JSE sectors in which they act as proprietary investors and asset management and property services businesses. In 1999, underwriters), due recognition must as always be given to the 76% of Gensec’s profits was earned by these businesses. uncertainty associated with the behaviour of financial markets. The asset management business will seek to increase Overall, Gensec is budgeting for satisfactory growth in market share in the multi-manager and private client earnings per share in 2000.
p a g e 4 5 1999 SANLAM ANNUAL REPORT N EW BUSINESS DEV E LO P M E N T, SUPPORT SERVICES, CO R P O R ATE AND NAMIBIA
N EW BU S I N E S S D EV E LO P M E N T GJ Gehle (Gillie) (53) BA, LLB PC le Roux (Charl) (45) Legal Adviser (17 years) BSc Chief Executive (21 years) CE le Grange (Coenie) (54) BCom New Business Development was established to increase Corporate Facilities (34 years) Sanlam’s focus on structural growth. It will be responsible to Support Services continued to render a variety of specialised explore opportunities for investment and to launch new services to the businesses in the Sanlam group. initiatives. Growth opportunities outside the current Good progress was made during 1999 in refocusing activities of the core businesses in the Sanlam group will be the business activities of this division to add further value for targeted. Businesses will be established as new initiatives and Sanlam. Some major achievements were: alliances with local and international partners which can add • Major business restructuring of IT Infrastructure Services value, using the best expertise and technology. The focus will and Corporate Facilities to unlock shareholder value, be on innovative products and services in markets where improve quality of service to clients and enhance Sanlam’s Sanlam will be able to increase its market share significantly. focus on its core business. These functions are being outsourced to reputable service providers effective from 1January 2000. Strategic and essential governance activities S U P P O RT SERV I C E S will remain within Sanlam. Sanlam prides itself on having
AS du Plessis (Attie) (56) successfully completed these outsourcing exercises, which CA(SA), Adv Dip Tax Law, AMP (Harvard), AEP (Unisa) have led not only to the redeployment of most of the staff Executive Director (14 years) concerned, but also to the creation of economic empowerment opportunities. JP Bester (Johan) (47) BCom (Hons), CA(SA), AEP (Unisa), Registered Accountant and Auditor • Following the demutualisation, a shareholder services Company Secretary (19 years) function was established to render services to Sanlam’s policyholders who had become shareholders. Special PM Nea1e-May (Patrick) (53) attention was also given to locating the eligible BCom (Hons) (Business Data Processing), CA(SA) policyholders whose share allocations are kept in the IT Infrastructure Services (8 years) demutualisation trust. V van Vuuren (Vic) (42) • The Group IT function, which is responsible for Sanlam’s BJuris, AEP (Unisa) IT strategy, architecture and standards, was established. Corporate Human Resources (3 years) A Group IT governance policy was developed to enhance JD Venter (Kobus) (40) synergies and economy of scale benefits within the Sanlam BSc group. Group IT (16 years) • A corporate human resources philosophy was developed and implemented to govern strategic human resources JP Liebenberg (Koos) (52) BCom, EDP practices, such as succession planning, employment equity Business Adviser (14 years) and remuneration. • Owing to effective programme management and pro- JN Ackermann (Jan) (55) CA(SA) active contingency plans, the Year 2000 business Shareholder Services (12 years) requirements were fully met. As a result, no adverse consequences impacted on Sanlam’s business and all operational systems functioned satisfactorily.
p a g e 4 6 1999 SANLAM ANNUAL REPORT N EW BUSINESS DEV E LO P M E N T, SUPPORT SERVICES, CO R P O R ATE AND NAMIBIA ( CO N T I N U E D )
C O R P O R AT E • Public Affairs L Koen (Leon) (56) • Actuarial BA, Std (US) BEJ (UPE), MPA (UPE), APR CG Swanepoel (Chris ) (49) (16 years) BSc (Hons), FIA, FASSA Chief Actuary (28 years) Public Affairs is responsible for the communication function and public relations activities for Sanlam Limited Corporate Actuarial is responsible for the co-ordination as well as for the Sanlam Foundation for Future Business and development of the actuarial function in the Sanlam Leaders. group. In particular it is responsible for the valuation of Sanlam Life Insurance Limited’s insurance business. • Business Strategy GE Rudman (George) (56) • Finance BSc, FFA, FASSA, ISMP (Harvard) P de V Rademeyer (Flip) (52) Executive Director: Strategy (35 years) CA(SA), SEP (Stanford) Financial Director (2 years)
DG Claassen (Danie) (35) CA(SA), BCom (Hons) (Taxation) S A N LAM NAMIBIA L I M I T E D Tax Services (8 years) AS du Plessis (Attie) (56) CA (SA), Adv Dip Tax Law, AMP (Harvard), AEP (Unisa) WJ Harris (Wally) (40) CA(SA) Chairman (14 years) Financial Accounts (12 years) HAR Meiring (Bob) (62) BSc (Hons) (Chemistry) HS Malherbe (Helet) (30) CA(SA) Managing Director (3 years) Investor Relations (5 years) • Sanlam Namibia continued to render a wide range of L van der Walt (Lukas) (39) financial services in the highly competitive Namibian B Com (Hons), CA(SA) market. The company underwent major business Corporate Finance (1 year) restructuring early in 1999 to refocus itself on the markets and clients to be served. AC Nortier (André) (29) CA(SA) • Since 1998, Sanlam’s Namibian business has been Chief Internal Auditor (4 years) managed according to the stringent financial practices that apply to a subsidiary with its own markets, products and Finance is responsible for the overall Sanlam group profit margins. The previous loss situation was turned financial strategy, investor relations and internal audit around to almost break-even in the 1999 financial year. function. Sanlam Namibia is now geared to remain a major force in the Namibian market and to conclude alliances to enhance its strategy.
p a g e 4 7 1999 SANLAM ANNUAL REPORT HUMAN RESOURC E S
S A N L A M A N D I T S P E O P L E The decentralisation of the Sanlam businesses in 1998 “We recognise that the challenges of an increasingly necessitated the realignment of the way in which the globalised market require us to develop all our human company’s human resources were being managed. The resources. This will not only strategically position us to previously centralised operational human resources function meet our business objectives, but also contribute towards was decentralised to the businesses. the reconstruction of our fledgling South African The corporate human resources office now focuses democracy.” solely on strategy. A corporate human resources philosophy
– Marinus Daling, Executive Chairman that was developed in conjunction with the businesses, supports the overall business strategy of Sanlam.
S A N L A M ’ S P H I LO S O P H Y W I T H R E G A R D S T R A T E G I C S TA F F I N G TO ITS HUMAN RESOURCES IS DERIVED The development of top management is of great importance F RO M O U R V I S I O N and requires regular assessment. Succession pools are created • “... continue our culture of empowerment; from which future business leaders are recruited. Sanlam has • ... make innovative use of our experience and our been successful in balancing these pools with internal skills and human skills; skills acquiredf rom the external market. In addition, our • ... create a working environment conducive to attracting, executive development programme has led to the successful training and retaining skilled people from all sectors of the development of senior management at both international community.” and local business schools. “High fliers” (top performers) are identified in each of the businesses to participate in M A N A G E M E N T O F I N T E L L E C T UA L development programmes. C A PI TA L During the year a number of initiatives were launched The management of our intellectual capital plays a major to provide employees with exposure to guest speakers and role in the success of our businesses and to this end we have consultants, including the Tom Peters seminar and the reformed the management of our human resources. Worldwide Lessons in Leadership Teleconference. We focus on the following: Approximately R2 million was spent on bursaries • The recruitment and retention of employees who during 1999. Seventeen new bursaries were allocated at the constitute our skills base beginning of 1999, bringing the total number of bursaries in • The development of employees to world-class standards of operation during the year to 89. Bursaries were awarded competence mostly in the actuarial, accounting, information technology • The transformation of the company in line with the and systems fields. labour market, with specific reference to employment equity and transformation processes • The enhancement and measurement of levels of productivity.
p a g e 4 8 1999 SANLAM ANNUAL REPORT HUMAN RESOURC E S ( CO N T I N U E D )
E M P L O Y M E N T E Q U I T Y LABOUR MARKET “We view the process of employment equity as much more We focused on two primary areas in the labour market: than mere compliance with the Employment Equity Act. • The management of downsizing within some businesses Instead, we firmly believe that employment equity will and the outsourcing of the company’s corporate facilities strategically position the Sanlam group in order to achieve and information technology functions. Sanlam prides its business objectives.” itself on having successfully undertaken these two major
– Marlene Bossett, Employment Equity Manager projects, which have led not only to the redeployment of most of the staff concerned but also to the creation of business opportunities for black staff. Em p l oyment equity is being managed and • The preparation of the company in order to meet the implemented as a business imperative over and above the statutory requirements of the Employment Equity Act and requirements of the Employment Equity Act. An the Skills Development Act. Sanlam has made its technical organisational audit was conducted which included a policy expertise available in the creation of the Sector Education audit, an accessibility audit, a qualitative analysis and a and Training Authority, placing great emphasis on statistical analysis. In addition to this, consultation structures developing people for future investment in human capital. have been created and are functional. These structures will assist in finalising employment equity plans in the first R E M U N E R AT I O N quarter of 2000. Remuneration plays a key role in the successful management Key senior black and women appointments have been of our intellectual capital, and benchmarking ensures that made and will assist us in accelerating the process. Sanlam offers competitive remuneration as well as flexible Education programmes were conducted throughout and creative remuneration packages. Incentive remuneration the company and included diversity workshops with the for all employees and the selective use of share option active involvement of the Executive Chairman. As part of an schemes, are well-established and have led to an increase in awareness campaign, an art exhibition focusing on black productivity. artists was held at Sanlam Head Office. Other programmes featured International Day, persons with disabilities and the WA Y F O RWA R D education of employees on Aids. Sanlam acknowledges the value of its employees and will continue to empower each one, and in so doing will unlock the potential that will enable Sanlam to become the benchmark of excellence for financial services.
p a g e 4 9 1999 SANLAM ANNUAL REPORT p a g e 5 0 1999 SANLAM ANNUAL REPORT C O R P O R A T E S O C I A L I N V O LV E M E N T
and caregivers in rural and disadvantaged areas. With CTW we will be jointly involved in this multi-million rand initiative by the SABC, the National Department of Education and USAID. Takalani Sesame, as it is to be known, promises to bring much-needed parity to school- preparedness in our country, and our hope is that it will ultimately lead to an increasing number of learners being competitive in Grade 1. The establishment of the Sanlam Future Business Leaders Foundation of Southern Africa, is a natural progression from the highly successful Future Business Leaders project launched in 1999. The Foundation will be the driving force behind the latter initiative, with Sanlam providing the seed capital to enable it to become the benchmark of excellence in the development of business leadership. Its mission will S E R I O U S C O M M I T M E N T T O C O R P O R AT E be to bring business and education together in a C I T I Z E N S H I P positive, empowering relationship to develop the business The road ahead will see a significant shift in emphasis with leaders our country so sorely needs. the group channelling its social responsibility into two main Responding to the needs of the broader community, thrusts – school-readiness and the promotion of business the Group will continue to support other key areas, with leadership. resources mainly directed at empowering those in need and School-readiness is expected to be given a tremendous reaching out to the physically impaired. boost by Sanlam and the US-based Children’s Television Whether it’s honouring entrepreneurs, helping to Workshop (CTW) with the arrival in SA of the acclaimed improve learners’ general knowledge, promoting literacy and educational television programme Sesame Street, which is literature, supporting Aids awareness initiatives, raising successful in more than 140 countries. With Sanlam’s funds for the fight against cancer, helping to foster cultural backing the series will be given a uniquely South African understanding or providing funding for mobile police flavour, and will for the first time be extended to include stations, Sanlam joins hands with the community in actively radio broadcasts and outreach programmes to assist families campaigning for a better environment for South Africans.
Mosh e, Zi k we, Marinus Dalin g and Pro fessor Kad ar As m a l , Minister of Education, at the launch of Sa n l a m’s sponsorship of Tak a la ni Se s a m e. p a g e 5 1 1999 SANLAM ANNUAL REPORT S A N LAM LIMITED AND S A N LAM LIFE INSURANCE LIMITED
YOUR FUTURE IN GOOD HANDS
PAGE 53 D i re c t o r s ’ Responsibility for Financial R e p o rt i n g
PAGE 53 Ce rtificate by Company S e c re t a r y
PAGE 54 Re p o rt of the Chief A c t u a r y
PAGE 54 Re p o rt of the Independent A u d i t o r s
PAGE 55 Basis of Presentation and Accounting P o l i c i e s
PAGE 60 Group Income S t a t e m e n t s
PAGE 61 Group Balance S h e e t s
PAGE 62 Group S t a t e m e n t s of Changes in E q u i t y
PAGE 63 Group C a s h - f l o w St a t e m e n t s
PAGE 64 Notes to the Group Financial S t a t e m e n t s
PAGE 83 Principal S u b s i d i a r i e s
PAGE 84 Sanlam Limited Financial S t a t e m e n t s
p a g e 5 2 1999 SANLAM ANNUAL REPORT D I R E C TORS’ RESPONSIBILITY FOR FINANCIAL REPORTING
The boards of Sanlam Limited and Sanlam Life Insurance The audit committee has confirmed that adequate internal Limited accept responsibility for the integrity, objectivity financial control systems are being maintained. There were and reliability of the group and company financial no material breakdowns in the functioning of the internal statements of Sanlam Limited and Sanlam Life Insurance financial control systems during the year. The boards are Limited respectively. In this regard, adequate accounting satisfied that the financial statements fairly present the records have been maintained. The boards endorse financial position, the results of operations and cash flows in the principle of transparency in financial reporting. accordance with relevant accounting policies, based on The responsibility for the preparation and presentation generally accepted accounting practice. of the financial statements has been delegated to The boards are of the opinion that Sanlam Limited management. and Sanlam Life Insurance Limited are financially sound and The responsibility of the external auditors is to express operate as going concerns. The financial statements have an independent opinion on the fair presentation of the accordingly been prepared on this basis. financial statements based on their audit of Sanlam Limited, The financial statements on pages 55 to 86 were Sanlam Life Insurance Limited and their subsidiaries. approved by the boards and signed on their behalf by:
MH Daling P de V Rademeyer Executive Chairman Financial Director
8 March 2000
C E RT I F I C ATE BY CO M PANY SECRETA RY
In my capacity as Company Secretary, I hereby certify, in of Companies all such returns as are required of a public terms of the Companies Act, 1973, that for the year ended company in terms of this Act, and that all such returns are, to the 31 December 1999, the company has lodged with the Registrar best of my knowledge and belief, true, correct and up to date.
JP Bester Company Secretary
8 March 2000
p a g e 5 3 1999 SANLAM ANNUAL REPORT R E P O RT OF THE CHIEF AC T UA RY
F I N A N C I A L S O U N D N E S S VA L UA T I O N sufficient to cover its capital adequacy requirements. In my I have valued the policy liabilities on bases (set out on view, the financial statements fairly present the financial pages 58 to 59 and note 15 on pages 73 to 76) consistent position of Sanlam Life Insurance Limited as at with the fair value of the corresponding assets.The valuation 31 December 1999. was conducted in accordance with the applicable guidelines of the Actuarial Society of South Africa. As at 31 December E M B E D D E D VA LU E 1999, the operations of Sanlam Life Insurance Limited were In my view, the Sanlam group embedded value and the value financially sound and the excess of the assets over the of new life insurance business as set out on pages 87 to 90, liabilities of Sanlam Life Insurance Limited was more than fairly present these values as defined.
CG Swanepoel FIA, FASSA Statutory Actuary Sanlam Life Insurance Limited
8 March 2000
R E P O RT OF THE INDEPENDENT AU D I TO R S
TO THE MEMBERS OF SANLAM LIMITED An audit includes: AND SANLAM LIFE INSURANCE LIMITED • examining, on a test basis, evidence supporting the amounts We have audited the annual financial statements of Sanlam and disclosures in the financial statements; Limited and the group annual financial statements of • assessing the accounting principles used and significant Sanlam Limited and Sanlam Life Insurance Limited for the estimates made by management; and year ended 31 December 1999 as set out on pages 55 to 86. • evaluating the overall financial statement presentation. These annual financial statements are the responsibility of We believe that our audit provides a reasonable basis the directors of Sanlam Limited and Sanlam Life Insurance for our opinion. Limited. It is our responsibility to express an opinion on these financial statements based on our audit. A U D I T O P I N I O N In our opinion, the annual financial statements of Sanlam S CO P E Limited and the group annual financial statements of Sanlam We conducted our audit in accordance with statements of Limited and Sanlam Life Insurance Limited fairly present in South African Auditing Standards. These standards require all material respects the financial position of the company that we plan and perform the audit to obtain reasonable and groups at 31 December 1999 and the results of their assurance that the financial statements are free of material operations and cash flows for the year then ended in accordance misstatement. with South African 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
8 March 2000
p a g e 5 4 1999 SANLAM ANNUAL REPORT BASIS OF PRESENTATION AND ACCOUNTING POLICIES
BASIS OF PRESENTAT I O N Previously the building was treated as a fixed asset and FUNDS RECEIVED FROM CLIENTS was reflected at book value and depreciation was provided on Funds received from clients consist of single and recurring the straight-line basis over its useful lifetime of 40 years. long- and short-term insurance premium income which is included in the financial statements and unit trust C O M PA R AT I V E S contributions, inflow for assets managed on behalf of clients Where necessary, comparative figures have been adjusted to and linked-product contributions, which are not included in conform with changes in presentation in the current year. the financial statements as they are funds held on behalf of and at the risk of clients. Internal transfers between the ACCOUNTING POLICIES various types of business, other than those transacted at arm’s The Sanlam Limited group and Sanlam Life Insurance length, are eliminated. Limited group financial statements are prepared applying the principal accounting policies below, which are in accordance POLICY LIABILITIES with South African generally accepted accounting practice, The policy liabilities under unmatured policies are computed and some of which apply specifically to the life insurance at the balance sheet date by the Sanlam Life Insurance industry. The accounting policies have been consistently Limited statutory actuary according to prevailing legislation applied in preparing the financial statements. and generally accepted actuarial practice. It is included in the balance sheet on page 61. Therefore a separate actuarial B A S I S O F C O N S O L I D AT I O N balance sheet is not required. The results of consolidated subsidiaries are included from the effective dates of acquisition to the effective dates of A S S E T S M A N A G E D A N D A D M I N I S T E R E D disposal. Inter-company transactions, other than those O N B E H A L F O F C L I E N T S ( S E G R E G A T E D transacted at arm’s length, are eliminated from the results. All F U N D S ) material inter-company profits and losses, unless these losses Sanlam also manages and administers assets for the account cannot be recovered, are eliminated from the group results. of and at the risk of clients. As these are not the assets of the Santam and Gensec are consolidated in the Sanlam Sanlam group, they are not reflected in the Sanlam group Limited group financial statements. On consolidation of these balance sheet but are disclosed in a footnote to the balance companies in the Sanlam Limited group financial statements sheet. Assets received for management and administration on at net asset value, the portion attributable to the policyholders behalf of clients during the year are included in “Funds is treated as investments and reflected at fair value in the received from clients”. financial statements. The interest in Santam and Gensec held by the policyholders’ and shareholders’ fund of Sanlam TERM FINANCE Life Insurance Limited group are treated as investments and The portion of term finance which is repayable within one reflected at fair value in their financial statements. year is not transferred to current liabilities. This is consistent Guardian National Insurance Company Limited became with the treatment of investments redeemable within one a wholly-owned subsidiary of Santam on 30 December 1999. year that are not included in current assets. This acquisition is still subject to the formal acceptance by the Guardian shareholders and approval of the authorities. HEAD OFFICE BUILDING Consequently Guardian has not been consolidated in the The head office building was reclassified as an investment Santam or Sanlam group financial statements. property during 1999 and its fair value has been determined accordingly. This reflects the effective treatment of the A S S O C I A T E D C O M PA N I E S building by Sanlam in its activities. The fair value of the An associated company is a company, not being a subsidiary, head office building reduced by R150 million in 1999. This in which the Sanlam group has a long-term investment and reduction is included in the unrealised investment surpluses over which it has the ability, because of the extent of its attributable to the shareholders. investment, to exercise significant influence.
p a g e 5 5 1999 SANLAM ANNUAL REPORT BASIS OF PRESENTATION AND ACCOUNTING POLICIES ( CO N T I N U E D )
Investments in associated companies are stated at fair • the value of investments held for resale, trading account value. The results of associated companies have been and money market investments held by Gensec are accounted for using the equity method of accounting, where determined on the abovementioned bases. When the the group’s share of the associated company’s earnings before Gensec group’s holding in equity investments in a dividends is included in earnings. Previously these earnings particular security exceeds that which the directors regard after dividends were treated as equity-accounted earnings as being disposable within a reasonable time horizon, an and dividends were treated as investment income. The 1998 appropriate liquidity adjustment is made to determine the comparatives have been adjusted accordingly. The equity- fair value. accounted earnings are included in net investment income Loans of investment scrip to and from third parties are and the the adjustment to fair value is included in the not treated as sales and purchases. investment surpluses as part of investment return. The holdings in Santam and Gensec by Sanlam Life INVESTMENT RESERV E Insurance Limited have been treated as investments and have Net realised and unrealised investment surpluses on the not been equity accounted for in its financial statements. revaluation or sale of investments attributable to shareholders are transferred to an investment reserve. G O O DW I L L However, the Board may transfer realised investment Goodwill may arise on the acquisition or change in the surpluses to retained income. A negative investment reserve holding (“adjustment”) in a subsidiary company. It represents will not be created and any shortfall will remain in retained the excess of the cost of an acquisition or adjustment over income. Unrealised investment surpluses in the investment the fair value of the group’s share of the net assets of the reserve in respect of investments held for resale are released subsidiary at the date of acquisition or adjustment. Goodwill to operating income on realisation of these investments. is written off against share premium where the acquisition or Realised and unrealised investment surpluses adjustment was financed by a share issue and in all other attributable to policyholders are included in policyholders’ cases it is written off against attributable earnings and is liabilities. included in unrealised investment surpluses. TRADING ACCOUNT AND MONEY I N V E S T M E N T S MARKET LIABILITIES Investments are reflected at fair value, which has been Trading account and money market liabilities are reflected at determined on the following bases: fair value which is determined on the bases set out above for • the value of fixed property which generates income investments. is determined by discounting expected future cash flows at appropriate market interest rates. Other fixed property FIXED ASSETS is valued at cost less provision for permanent diminution Fixed assets are reflected at their depreciated cost prices. in value, where appropriate; Depreciation is provided for on the straight-line basis, taking • listed shares and units in unit trusts are valued at the stock into account the residual value and estimated useful lives of exchange and repurchase prices respectively. The value of the assets, which vary from two to ten years. unlisted shares is determined by the directors using appropriate valuation bases; PREMIUM INCO M E • interest-bearing investments are valued by discounting The full annual premiums on individual insurance policies expected future cash flows at appropriate market interest that are receivable in terms of the policy contracts are rates; accounted for on policy anniversary dates, notwithstanding • listed derivative instruments are valued at the South that premiums are payable in instalments. African Futures Exchange price and the value of unlisted Employee benefit premiums are accounted for when derivatives is determined by the directors using generally receivable. Where premiums are not determined in advance, accepted models; and they are accounted for upon receipt.
p a g e 5 6 1999 SANLAM ANNUAL REPORT BASIS OF PRESENTATION AND ACCOUNTING POLICIES ( CO N T I N U E D )
Short-term insurance premiums are accounted for Underwriting policy benefits in respect of long-term when receivable, with an appropriate adjustment for unearned insurance business also include the movement in the actuarial premiums. liabilities backing the risk underwriting business. Gross premium income is reduced by reinsurance Policy benefits are reflected net of amounts recovered premiums applicable to the same period. from reinsurers.
F I N A N C I A L S E R V I C E S I N CO M E S A L E S R E M U N E R AT I O N Financial services income for the shareholders consists of: Sales remuneration consists of commission on new insurance • income earned from long-term insurance activities such as business, renewal commission, and expenses directly related investment and administration fees, risk underwriting thereto, including bonuses payable to sales staff and the premiums, asset mismatch profits or losses and income group’s contribution to their retirement and medical aid earned on working capital; funds and excludes salaried sales staff. • income from short-term health, medical insurance and Commission is generally payable in the first and general insurance business; and second year of a policy’s existence. Commission is accounted • income from other financial services such as banking, for in the financial period during which it is incurred. equity activities, unit trust administration, trust services and linked-product business. A D M I N I S T R A T I O N C O S TS Administration costs include, inter alia, indirect taxes such as I N V E S T M E N T I N C O M E revenue stamps payable on insurance policy contracts and Rental income, including rentals in respect of space occupied VAT, rental of space occupied in own buildings which are in owned buildings, is reflected net of property expenditure. mainly held as property investments of the policyholders, Previously rental income in respect of space occupied in property and investment expenses related to the owned buildings was eliminated and the related property management of the policyholders’ investments, product expenses were included in administration expenses. development and training costs. Internal systems Dividend income is recognised once the last day for development costs and purchased systems costs are included registration has passed. Capitalisation shares received in in administration expenses when incurred. terms of a capitalisation issue from reserves, other than share premium or a reduction in share capital, are treated as TA X AT I O N dividend income. Income earned on working capital is Deferred taxation is provided at current tax rates on the included in operating profit. comprehensive basis in respect of all timing differences arising from differences in the accounting and tax treatment T E R M F I N A N C E C O S TS of income and expenditure. Deferred taxation debit balances Term finance costs consist mainly of dividends paid by arising from taxation losses are not brought to account. subsidiaries on redeemable cumulative non-voting preference The deferred tax liability balance is largely attributable shares. Term finance costs are set off against investment to the different policy liability valuation bases used for income earned on the investment of the related fund. accounting and taxation purposes.
POLICY BENEFITS FOREIGN CURRENCIES Policy claims received up to the last day of each financial period Assets and liabilities in foreign currencies are converted to and claims incurred but not reported (IBNR) are provided for South African rand at exchange rates ruling at the financial and included in policy benefits. Previously the I BNRclaims in period end. Foreign currency income items are translated at the respect of long-term insurance business were provided for by weighted average exchange rates for the period. Differences the statutory actuary in the determination of policy liabilities. arising from the translation of foreign currencies are included Past claims experience is used as the basis for IBNR claims. in investment surpluses as these transactions relate to investments.
p a g e 5 7 1999 SANLAM ANNUAL REPORT BASIS OF PRESENTATION AND ACCOUNTING POLICIES ( CO N T I N U E D )
POLIC Y LIABILITIES AND PRO F I T R EV E R S I O N A R Y B O N U S B U S I N E S S E N T I T L E M E N T The liability is set equal to the fair value of the underlying I N T RO D U C T I O N assets. This is equivalent to a best estimate prospective The valuation bases used to calculate the policy liabilities of liability calculation using a bonus rate supportable by the all material lines of long-term insurance business and the underlying assets and expected future investment returns, corresponding shareholder profit entitlement are set out and allowing for the shareholders’ share of a maximum of below. one-ninth of the cost of the bonus. The actuarial valuation of the policy liabilities is The present value of the shareholders’ entitlement is determined using the Financial Soundness Valuation sufficient to cover the margins prescribed in the ASSA method. Under this method either a retrospective or guidelines for the valuation of policy liabilities. The prospective approach can be used. The underlying prescribed margins are thus not provided for in addition to philosophy is to recognise profits prudently over the term of the shareholders’ entitlement. each contract consistent with the work done and risks borne. Policy liabilities are valued on bases consistent with the I N D I V I D U A L S TA B L E B O N U S A N D fair value of assets. The liabilities exceeded the minimum M A R K E T- R E L AT E D B U S I N E S S requirements in terms of actuarial guidance note PGN 104 For investment policies for which the bonuses are stabilised issued by the Actuarial Society of South Africa (“ASSA”). or directly related to the return on the underlying investment portfolios, the liabilities are equated to the In the valuation of liabilities, provision is made for: retrospectively accumulated fair value of the underlying • the best estimate of future experience; assets less any unrecouped expenses. These retrospective • the margins prescribed in the ASSA guidelines; and liabilities are higher than the prospective liabilities calculated • second-tier margins determined to release profits to share- at the present value of expected future benefits and expenses holders consistent with policy design and company policy. less future premiums at market-related interest rates, net of expected income tax. The prospective liabilities provide for A P P L I C AT I O N O F VA L U AT I O N bonus rates supportable by the underlying assets and M E T H OD O LO G Y expected future investment returns. The valuation methodology has been consistently applied for To the extent that the retrospective liabilities exceed 1998 and 1999. The changes in the discount rates, bonus the prospective liabilities, the basis contains second-tier rates and other assumptions did not have a material net margins. The valuation methodology results in the release of effect on the liabilities and the earnings reported for 1999. these margins to shareholders on a fees minus expenses basis consistent with the work done and risks borne over the B E S T E S T I M AT E O F F U T U R E lifetime of the policies. E X PE R I E N C E The best estimate of future experience is determined as G ROUP STABLE BONUS AND LINKED follows: B U S I N E S S • unit expenses are based on Sanlam Life Insurance Limited’s In the case of group linked business and group policies recent experience on a going-concern basis and escalated where bonuses are stabilised, the liabilities are equated to the at estimated inflation rates per annum; fair value of the re trospectively accumulated underlying assets. • assumptions with regard to future surrender, lapse, To the extent that future fees exceed expenses, mortality, medical claim, disability and disability payment including allowance for the prescribed ASSA margins, the termination rates are consistent with the rates experienced basis contains second-tier margins. These margins are over the recent past; and released to shareholders consistent with the work done and • future investment return assumptions are consistent with risks borne over the lifetime of the policies. market-related interest rates.
p a g e 5 8 1999 SANLAM ANNUAL REPORT BASIS OF PRESENTATION AND ACCOUNTING POLICIES ( CO N T I N U E D )
PA RT I C I PAT I N G A N N U I T I E S H I V / A I D S The liabilities are equated to the fair value of the A specific provision for HIV/Aids-related claims is retrospectively accumulated underlying assets. This is maintained. The provision for individual policies (more than equivalent to a best estimate prospective liability calculation 80% of the total HIV/Aids provision) is built up by allowing for future growth in annuity instalments increasing the opening provision with the HIV/Aids risk supportable by the underlying assets and expected future premiums and investment returns on the underlying assets. investment returns. This approach implicitly allows for the It is then reduced by claims attributable to HIV/Aids. This effect of the margins prescribed in the ASSA guidelines. retrospectively built-up provision is higher than a prospective Shareholder entitlements emerge on a fees minus calculation done according to the ASSA guidelines allowing expenses basis consistent with work done and risks borne for possible increases in future HIV/Aids risk premiums. over the lifetime of the annuities. This difference can be regarded as a second-tier margin. It is the intention of Sanlam Life Insurance Limited to rerate N O N - PA RT I C I PA T I N G A N N U I T Y premiums as experience develops. For group business, where B U S I N E S S rates are reviewed more frequently, a percentage of risk Non-participating life and term annuity instalments and premiums is held as an HIV/Aids reserve. future expenses in respect of these instalments are discounted at market-related interest rates. All profits or losses accrue to W O R K I N G C A P I TA L the shareholders when incurred. To the extent that the management of working capital gives rise to profits, no credit is taken for this in determining the G UA R A N T E E D P LA N S policy liabilities. This could be viewed as a second-tier Guaranteed maturities are discounted at market-related margin. interest rates. All profits or losses accrue to the shareholders when incurred. ASSET FUNDS Separate asset funds are maintained for each of the major O T H E R N O N - PA RT I C I PAT I N G B U S I N E S S lines of business. Operating costs are allocated to the major Part of the other non-participating business liabilities is lines of business by reference to the accounting records. valued on a retrospective basis. The remainder of the non- participating liabilities is valued prospectively. This part (less C A PI T A L A D E Q U A C Y R E Q U I R E M E N T S than 1% of Sanlam Life Insurance Limited’s liabilities) The excess of assets over liabilities of Sanlam Life Insurance contains second-tier margins via an explicit interest rate Limited’s operations is sufficient to cover its capital adequacy deduction of approximately 2,75% on average. requirements. The capital adequacy requirements provide a For non-participating business other than life and buffer against experience worse than that assumed in the term annuity business, an asset mismatch provision is financial soundness valuation. Consistent with an assumed maintained. The interest and asset profits arising from the fall in the fair value of the assets, which is prescribed in the non-participating portfolio are added to this provision. The ASSA guidance notes, the calculation of the capital adequacy asset mismatch provision accrues to shareholders at the rate of requirements takes into account a reduction in non-vesting 1,33% monthly, based on the balance of the provision at the bonuses and future bonus rates. The assumed reduction in previous quarter-end. The effect of holding this provision is bonuses and other assumed management actions varied at to dampen the impact on earnings of short-term fluctuations the 1998 and 1999 year-ends, according to the level of the in fair values of underlying assets. The asset mismatch fair value of assets at these dates relative to the expected provision represents a second-tier margin. A negative asset asset values. mismatch provision will not be created. The shortfall will accrue to shareholders in the year in which it occurs.
p a g e 5 9 1999 SANLAM ANNUAL REPORT G ROUP INCOME STAT E M E N TS FOR THE YEAR ENDED 31 DECEMBER 1999
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 Note R million R million R million R million
Funds received from clients 1 34 144 37 733 20 377 20 876
Financial services income 2 10 988 11 016 6 057 5 567 Sales remuneration 1 353 1 432 963 951
Income after sales remuneration 9 635 9 584 5 094 4 616 Underwriting policy benefits 3 4 569 5 287 2 073 2 022 Administration costs 4 2 875 2 663 1 775 1 606
Operating profit before exceptional items 2 191 1 634 1 246 988 Exceptional items 4 469 397 452 338
Operating profit after exceptional items 1 722 1 237 794 650 Investment income 5 1 186 893 810 658
Headline earnings before taxation 2 908 2 130 1 604 1 308 Income tax on headline earnings 6 (386) (427) (300) (304)
Headline earnings after taxation 2 522 1 703 1 304 1 004 Minority shareholders’ and policyholders’ interest (567) (517) — —
Headline earnings 1 955 1 186 1 304 1 004 Net investment surpluses 7 1 414 (822) 2 076 1 957 Accounting policy change by subsidiary 7 68 — — —
Earnings attributable to shareholders 3 437 364 3 380 2 961
Fully diluted attributable earnings per share (cents) 8 129,0 17,9 Fully diluted headline earnings per share (cents) 8 73,4 58,4
Dividend per share (cents) 9 25 —
S E G M E N T A L A N A L Y S I S O F O P E R AT I N G P R O F I T • Sanlam Personal Finance 783 608 677 543 • Sanlam Employee Benefits 168 115 163 103 • Gensec 747 710 — — • Sanlam Health 11 (220) — — • Santam 59 20 — — • Corporate income 200 174 200 174 • Corporate costs (246) (170) (246) (170)
Total operating profit 1 722 1 237 794 650
(The financial statements of Sanlam Limited are included on pages 84 to 86.)
p a g e 6 0 1999 SANLAM ANNUAL REPORT G ROUP BALANCE SHEETS AT 31 DECEMBER 1999
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 Note R million R million R million R million
A S S E T S Non-current assets Fixed assets 10 328 322 101 100 Investments 11 155 498 133 354 152 807 131 155
• Properties (including head office building) 12 432 12 960 12 432 12 959 • Equities 90 903 67 073 91 812 69 003 • Public sector stocks and loans 29 306 29 418 28 615 28 860 • Mortgages, debentures and other loans 6 746 5 160 6 721 5 120 • Cash, deposits and similar securities 14 651 16 847 13 227 15 213 • Investments held for resale 1 460 1 896 — —
Deferred tax 37 88 — — Current assets 12 19 705 15 597 7 797 7 527
Total assets 175 568 149 361 160 705 138 782
E QU I T Y A N D L I A B I L I T I E S Capital and reserves Share capital and premium 13 3 514 3 514 5 000 5 000 Non-distributable reserves 10 289 10 289 5 429 5 429 Investment reserve 592 — 4 033 1 957 Retained income 3 282 1 101 1 692 1 004
Shareholders’ funds 17 677 14 904 16 154 13 390 Minority interest 2 387 1 846 — — Non-current liabilities Policy liabilities 15 134 319 114 176 134 319 114 176 Term finance 16 4 062 5 598 4 807 5 681 Deferred tax 693 668 663 657 Current liabilities 17 16 430 12 169 4 762 4 878
Total equity and liabilities 175 568 149 361 160 705 138 782
Assets managed and administered on behalf of clients not included in the above balance sheet (segregated funds) 40 356 27 431
Total assets under management and administration 215 924 176 792
Tangible net asset value per share (cents) 22 771 630
p a g e 6 1 1999 SANLAM ANNUAL REPORT S A N LAM LIMITED GROUP STATEMENT OF CHANGES IN EQU I TY FOR THE YEAR ENDED 31 DECEMBER 1999
Non- Share Share Investment distributable Retained R million capital premium reserve reserve income Total
Balance at 1 January 1998 20 — — 9 415 737 10 172 NDR on acquisition of subsidiary — — — 874 — 874 Attributable earnings for the year — — — — 364 364 Issue of share capital 7 3 947 — — — 3 954 Demutualisation and capital-raising expenses — (460) — — — (460)
Balance at 31 December 1998 27 3 487 — 10 289 1 101 14 904 Attributable earnings for the year — — — — 3 437 3 437 Transfer to investment reserve — — 592 — (592) — Dividends paid and payable — — — — (664) (664)
Balance at 31 December 1999 27 3 487 592 10 289 (1) 3 282 17 677
(1)Non-distributable reserve arising at acquisition of subsidiaries.
S A N LAM LIFE INSURANCE LIMITED STATEMENT OF CHANGES IN EQU I TY FOR THE YEAR ENDED 31 DECEMBER 1999
Non- Share Share Investment distributable Retained R million capital premium reserve reserve income Total
Balance at 1 January 1998 1 4 999 — 5 429 — 10 429 Attributable earnings for the year — — — — 2 961 2 961 Transfer to investment reserve — — 1 957 — (1 957) — Issue of share capital — 72 — — — 72 Demutualisation and capital-raising expenses — (72) — — — (72)
Balance at 31 December 1998 1 4 999 1 957 5 429 1 004 13 390 Attributable earnings for the year — — — — 3 380 3 380 Transfer to investment reserve — — 2 076 — (2 076) — Dividends paid and payable — — — — (616) (616)
Balance at 31 December 1999 1 4 999 4 033 5 429 (2) 1 692 16 154
(2)Represents the transfer from the Sanlam mutual capital fund on demutualisation.
p a g e 6 2 1999 SANLAM ANNUAL REPORT G R O U P C A S H - F L O W S TA T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 1999
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 Note R million R million R million R million
Cash flow from operating activities Cash generated by operations 32 1 423 11 020 1 847 10 866 Increase in net current assets 33 (1 469) 1 058 (1 169) 2 152 Fixed assets – additions and replacements (137) (131) (25) (9) Net term finance repaid (1 536) (183) (874) (233)
Cash flow from operating activities (1 719) 11 764 (221) 12 776 Cash flow from financing activities Proceeds from share issue — 3 455 — —
Cash available for investment activities (1 719) 15 219 (221) 12 776
The main categories in which the cash available for investment activities was invested were: Properties (459) (28) (458) (27) Equities 4 086 5 996 3 713 5 896 Public sector stocks and loans (2 364) 3 797 (2 488) 3 911 Mortgages, debentures and other loans 1 052 (500) 1 068 (508) Investments held for resale (839) 46 — — Cash, deposits and similar securities (3 195) 5 908 (2 056) 3 504
Cash invested (1 719) 15 219 (221) 12 776
The cash-flow statements have been prepared in accordance with generally accepted accounting practice specific to the life insurance industry and reflect the combined cash flows to shareholders and policyholders. Cash is received mainly from premium and investment income and is used to pay benefits, expenses and taxation.
p a g e 6 3 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
1 . FUNDS RECEIVED FROM CLIENTS Insurance business Premium income 21 974 23 546 18 671 19 453
• Long-term insurance* (note 15.2) 18 671 19 453 18 671 19 453 • Short-term insurance 3 303 4 093 — —
Other business 12 170 14 187 1 706 1 423
• Unit trusts 8 154 8 266 — — • Managed assets 2 310 4 498 — — • Linked products* 1 706 1 423 1 706 1 423
Total funds received from clients 34 144 37 733 20 377 20 876
*Included in long-term insurance single premiums is R640 million (1998: R249 million) in respect of linked-product business.
2 . FINANCIAL SERVICES INCOME Financial services income received in respect of: • Long-term insurance 6 355 5 863 5 995 5 537 • Short-term insurance 3 348 4 153 — — • Other financial services 1 285 1 000 62 30
Total financial services income 10 988 11 016 6 057 5 567
Included in the other financial services income is banking and equity activities conducted by Gensec which includes: • Dividend income 151 105 — — • Interest received 448 303 — — • Interest paid (394) (258) — —
205 150 — —
p a g e 6 4 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
3 . U N D E RW R I T I N G P O L I C Y B E N E F I T S Long-term insurance: death, disability and cash bonuses 2 073 2 022 2 073 2 022
• Individual insurance 1 144 1 203 1 144 1 203 • Employee benefits 929 819 929 819
Short-term insurance 2 496 3 265 — —
• Sanlam Health medical insurance benefits 673 884 — — • Santam general insurance benefits 1 823 2 381 — —
Total underwriting policy benefits 4 569 5 287 2 073 2 022
4 . A D M I N I S T R A T I O N C O S TS A N D E XCEPTIONAL ITEMS INCLU D E: • Directors’ remuneration Total remuneration paid by Sanlam Limited’s consolidated subsidiaries to its present, retired and previous directors: Directors’ fees 2,4 1,7 Other services (basic remuneration, pensions and bonuses) 19,3 5,1
Total directors’ remuneration 21,7 6,8
Paid by subsidiaries 19,9 6,8
Executive directors 19,7 4,7 Non-executive directors 2,0 2,1
Total directors’ remuneration 21,7 6,8
• Auditors’ remuneration Audit fees 11,5 8,4 8,2 5,6 Consulting fees 10,8 4,1 2,8 1,0
Total auditors’ remuneration 22,3 12,5 11,0 6,6
• Depreciation 133 139 24 18
• Operating leases 99 92 48 55
• Consultancy fees 177 139 170 131
• Fees paid Technical, administrative and secretarial fees paid outside the group 81 13 17 —
p a g e 6 5 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S T A T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
5. INVESTMENT INCOME: S H A R E H O L D E R S Investment income • Interest-bearing investments 724 498 364 217 • Equities 135 109 120 155 • Properties 63 47 63 47 • Equity-accounted earnings of associated company 264 239 263 239
Investment income 1 186 893 810 658
6 . TA X AT I O N : S H A R E H O L D E R S Income and other taxes Normal income tax: RSA 464 203 250 —
• Current year 456 203 250 — • Prior year 8 — — —
Deferred tax 109 83 112 241
• Current year 214 169 112 327 • Prior year (105) (86) — (86)
Effect of change in tax rate (47) — (62) — Secondary tax on companies 3 — — —
Income tax on earnings 529 286 300 241
In addition, the shareholders paid the following indirect taxes and levies which are included in the appropriate items in the income statement:
Indirect taxation and levies – included in administration costs 173 151 172 142 – included elsewhere 79 70 76 64
252 221 248 206
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.
p a g e 6 6 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
• Analysis of income tax on earnings of shareholders Operating profit 204 281 192 217
• Current year 301 281 192 217 • Prior year (97) — — —
Investment income 182 146 108 87
Headline earnings 386 427 300 304 Investment surpluses 143 (141) — (63)
• Current year 143 (55) — 23 • Prior year — (86) — (86)
Income tax on earnings 529 286 300 241
• Reconciliation of tax rate on headline earnings % % % % Standard rate of taxation 30,0 35,0 30,0 35,0 Adjusted for: • Non-taxable income (6,8) (11,5) (2,3) (4,6) • Equity-accounted earnings (2,7) (3,9) (4,9) (6,4) • Prior years’ adjustments (3,3) (0,2) — — • Effect of change in tax rate (1,6) — (3,9) — • Foreign tax rate differential (1,9) — — — • Other (0,4) 0,6 (0,2) (0,8)
Effective income tax rate on headline earnings 13,3 20,0 18,7 23,2
7 . A D JU S T M E N T S T O H E A D L I N E E A R N I N G S R million R million R million R million • Net investment surpluses 1 414 (822) 2 076 1 957
• Realised and unrealised investment surpluses 1 715 (1 433) 2 076 1 894 • Income tax (143) 141 — 63 • Minority shareholders’ and policyholders’ interest (158) 470 — —
• Accounting policy change by subsidiary (refer note 20) 68 — — —
• Accumulated prior years’ effect of policy change 212 — — — • Minority shareholders’ and policyholders’ interest (144) — — —
p a g e 6 7 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S T A T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Limited 1999 1998
8 . F U L LY D I LU T E D E A R N I N G S P E R S H A R E For the diluted earnings per share the weighted average number of ordinary shares is adjusted for the shares not yet issued under the share incentive scheme. Diluted earnings per share are calculated by dividing earnings by the adjusted weighted average number of shares in issue. Headline earnings R million 1 955 1 186
Attributable earnings R million 3 437 364
Weighted average number of ordinary shares in issue million 2 655 2 030 Incentive shares not issued million 9 —
Adjusted weighted average number of shares million 2 664 2 030
Diluted earnings per share • Headline cents 73,4 58,4 • Attributable cents 129,0 17,9 Shares in terms of the share incentive scheme had no effect on the adjusted weighted average number of shares in issue in 1998 as the average option price attached to the incentive shares was higher than the average market price at that date.
Sanlam Limited Cents per share R million 1999 1998 1999 1998
9. DIVIDENDS Ordinary 25 — 664 —
• Special interim dividend 10 — 266 — • Final dividend 15 — 398 —
No dividends were paid for the 1998 financial year as the demutualisation, restructuring and capital raising in terms of the demutualisation proposal took place towards the end of 1998 and a special interim cash dividend was paid during 1999. It is the Board’s intention to declare only annual dividends in future.
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
1 0 . F I X E D A S S E T S Computer equipment 137 148 16 2
Cost 604 601 54 54 Accumulated depreciation (467) (453) (38) (52)
Furniture, equipment and vehicles 191 174 85 98
Cost 358 315 195 200 Accumulated depreciation (167) (141) (110) (102)
Total fixed assets 328 322 101 100
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.
p a g e 6 8 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
1 1 . I N V E S T M E N T S • Composition of the assets of the shareholders (1) (1) (2) (2) Absa 2 444 2 395 2 428 2 308 Gensec (1) (1) 2 488 1 932 Santam (1) (1) 256 143 Other equities 6 515 3 818 5 305 3 203 Long-term interest-bearing investments 3 060 1 942 2 335 1 427 Properties 864 783 864 783 Offshore investments 2 626 1 448 2 626 1 448 Investments held for resale 780 837 — — Net short-term interest-bearing investments 1 388 3 681 (148) 2 146
• Short-term interest-bearing investments 4 214 5 631 2 933 4 561 • Other net assets/liabilities (2 826) (1 950) (3 081) (2 415)
Net assets of shareholders 17 677 14 904 16 154 13 390
(1)Includes the shareholders’ share of the underlying net assets of Santam and Gensec which are consolidated in the Sanlam group results. (2)Santam and Gensec not consolidated and reflected as investments.
• Composition of the assets of the shareholders: (Santam and Gensec not consolidated and reflected as investments at fair value) Gensec 4 846 3 447 Absa 2 444 2 308 Santam 710 414 Other equities 5 730 3 498 Long-term interest-bearing investments 2 436 1 681 Properties 864 783 Offshore investments 2 626 1 448 Net short-term interest-bearing investments 807 3 152
• Short-term interest-bearing investments 4 214 5 631 • Other net assets/liabilities (3 407) (2 479)
Total shareholders’ assets 20 463 16 731
• Spread of investments in equities by sector(1) % % % % Policyholders (3) (3) (3) (3) Industrial 46 53 46 53 Financial 33 31 33 31 Resources 21 16 21 16
Total spread of policyholders’ investments 100 100 100 100
(1) and (3) – refer next page.
p a g e 6 9 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S T A T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited Spread of investments in equities 1999 1998 1999 1998 by sector (continued) % % % %
Shareholders (2) (2) (3) (3) Industrial 37 34 25 21 Financial 48 57 64 73 Resources 15 9 11 6
Total spread of shareholders’ investments 100 100 100 100
(1) Spread of investments in equities per sector excludes offshore equities, derivatives, unit trusts, unlisted investments and investments held for resale. (2) Includes the appropriate underlying investments of Santam and Gensec. (3) Santam and Gensec not consolidated and reflected as investments.
Unlisted equity investments as a percentage of the total investment in equities Shareholders 4% 4% 0% 1% Policyholders 4% 5% 4% 5%
R million R million R million R million
• Offshore investments Policyholders Equities 13 002 11 585 13 002 11 585 Interest-bearing investments 4 817 3 679 4 817 3 679
Total policyholders’ offshore investments 17 819 15 264 17 819 15 264
Shareholders Equities 1 900 1 097 1 900 1 097 Interest-bearing investments 726 351 726 351
Total shareholders’ offshore investments 2 626 1 448 2 626 1 448
• Number of Sanlam Limited shares held by policyholders (million) 169 177 169 177
• Investment in associated company – Absa Fair value of interest 4 195 4 113 4 179 4 113 Number of shares held (thousand) 151 985 147 427 151 380 147 427 Interest in issued share capital (%) • Shareholders 13,8 13,1 13,8 13,1 • Policyholders 9,9 10,1 9,9 10,1 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 12-month period ended 30 September and were derived from their published annual financial statements and their interim results. • Aggregate post-acquisition reserves attributable to shareholders 377 137 377 137
• A register containing details of all investments including fixed property investments and the head office building is available for inspection at the registered office of Sanlam Limited.
p a g e 7 0 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
12. CURRENT ASSETS Premiums receivable 4 556 4 499 4 455 4 385 Accrued investment income 1 495 1 718 1 460 1 691 Trading account and money market investments 8 068 4 041 — — Accounts receivable 3 119 2 224 1 473 923 Amounts owing by group companies — — 105 230 Cash 2 467 3 115 304 298
Total current assets 19 705 15 597 7 797 7 527
13. SHARE CAPI TAL 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 50 million ordinary shares issued at • Nominal value of 1 cent each 1 1 • Premium 4 999 4 999 2 654,6 million ordinary shares issued at • Nominal value of 1 cent each 27 27 • Premium 3 487 3 487
Total share capital and premium 3 514 3 514 5 000 5 000
Executive share incentive scheme Selected employees are given the opportunity to acquire shares in the company by means of the Sanlam Limited Share Incentive Scheme (“the Scheme”). The purpose is to retain, motivate and allow these employees to share in the growth of the company. In terms of the rules of the Scheme, a maximum of 5% of the issued share capital of Sanlam Limited may be used for this purpose. In line with market trends, the period in which new and existing share incentive options can be released was shortened during 1999.
p a g e 7 1 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Limited 1999 1998 Executive share incentive scheme (continued) 000s 000s
The movement in the number of shares and share options held by the Scheme for the benefit of eligible participants was as follows: Restricted shares and share options at the beginning of the year 46 029 — Options granted and restricted shares allocated for the conversion of pre-demutualisation share incentive scheme — 36 228 New options granted 19 322 15 363 Unconditional options and shares released, available for release, or taken up (8 477) (5 553) Options lapsed or cancelled (1 536) (9) Cash dividends received on restricted shares and converted into shares 206 —
Restricted shares and share options at the end of the year 55 544 46 029
As a percentage of total issued shares 2,1% 1,7%
Details regarding the restricted shares and share options outstanding on 31 December 1999 and the financial years during which they become unconditional, are as follows: Date unconditional during Number of shares and options Average option price year ended 000s R
31 December 2000 5 640 6,00 31 December 2001 3 179 6,00 31 December 2002 9 764 6,41 31 December 2003 11 473 6,34 31 December 2004 16 727 5,64 31 December 2005 8 316 6,48 31 December 2006 and later 445 6,00
55 544
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.
1 4 . C O N T I N G E N C Y R E S E R V E S Included in shareholders’ reserves are contingency reserves in respect of short-term insurance business of R160 million (1998: R184 million).
p a g e 7 2 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
15. POLICY LIABILITIES 15.1 Analysis of movement in policy liabilities Balance at beginning of the year 114 176 119 506 114 176 119 506 Income 56 551 20 713 56 551 20 713
Premium income (refer note 15.2) 18 671 19 453 18 671 19 453 Investment return (refer note 15.3) 37 880 1 260 37 880 1 260
Outgo 36 408 26 043 36 408 26 043
Policy benefits (refer note 15.4) 18 429 16 043 18 429 16 043 Retirement fund terminations 10 812 3 645 10 812 3 645 Transfer to assets managed on behalf of clients 637 287 637 287 Taxation (refer note 15.5) 283 248 283 248 Payments to shareholders 6 247 5 820 6 247 5 820
Balance at end of the year 134 319 114 176 134 319 114 176
15.2 Analysis of premium income Individual insurance 13 148 11 603 13 148 11 603
Recurring premiums 8 344 8 496 8 344 8 496 Single premiums 4 804 3 107 4 804 3 107
Employee benefits 5 523 7 850 5 523 7 850
Recurring premiums 3 029 2 740 3 029 2 740 Single premiums 2 494 5 110 2 494 5 110
Total premium income 18 671 19 453 18 671 19 453
15.3 Investment return: policyholders Investment income Net interest-bearing investments 5719 5 615 5 719 5 615 Equities 1 391 1 443 1 391 1 443 Properties 1 234 1 274 1 234 1 274
Total investment income 8 344 8 332 8 344 8 332 Equity-accounted earnings 199 184 199 184 Net realised and unrealised investment surpluses 29 337 (7 256) 29 337 (7 256)
Total investment return 37 880 1 260 37 880 1 260
p a g e 7 3 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
15.4 Analysis of long-term insurance policy benefits Individual insurance 12 898 9 964 12 898 9 964
• Death and disability benefits* 549 498 549 498 • Maturity benefits 5 453 3 697 5 453 3 697 • Life and term annuities 3 278 3 502 3 278 3 502 • Surrenders 3 443 2 123 3 443 2 123 • Cash bonuses* 175 144 175 144
Employee benefits 5 531 6 079 5 531 6 079
• Death and disability benefits* 63 54 63 54 • Lump-sum retirement benefits 1 089 1 931 1 089 1 931 • Pensions 1 163 938 1 163 938 • Withdrawal benefits 2 980 2 967 2 980 2 967 • Cash bonuses* 29 33 29 33 • Taxation paid on behalf of certain retirement funds 207 156 207 156
Total long-term insurance policy benefits 18 429 16 043 18 429 16 043
*Excludes death and disability benefits and cash bonuses underwritten by the shareholders (refer note 3).
15.5 Taxation: policyholders Normal tax 9 19 9 19 • Republic of South Africa • current year — 20 — 20 • prior year — (11) — (11) • Foreign 9 10 9 10
Deferred (44) 41 (44) 41
• current year — 15 — 15 • prior year (44) 26 (44) 26
Other 318 188 318 188
• Taxation on retirement funds 261 153 261 153 • Withholding tax on foreign investments 23 17 23 17 • Indirect taxation 34 18 34 18
Total taxation 283 248 283 248
p a g e 7 4 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
15.6 Composition of policy liabilities Individual insurance 86 339 68 267 86 339 68 267
• Market-related liabilities 25 699 18 608 25 699 18 608 • Stable bonus fund 32 905 27 469 32 905 27 469 • Reversionary bonus policies 10 060 7 986 10 060 7 986 • Non-participating annuities 9 954 9 393 9 954 9 393 • Other non-market-related liabilities 7 721 4 811 7 721 4 811
Employee benefits 47 980 45 909 47 980 45 909
• Market-related liabilities 28 702 28 457 28 702 28 457 • Stable bonus portfolios 10 530 11 788 10 530 11 788 • Participating annuities 6 975 5 271 6 975 5 271 • Other non-market-related liabilities 1 773 393 1 773 393
Total policy liabilities 134 319 114 176 134 319 114 176
Shareholders’ fund as percentage of: Policy liabilities 12% 12% Non-market-related liabilities 20% 20%
15.7 Provisions included in policy liabilities • HIV/Aids provision 1 266 1 008 1 266 1 008 • Increase/(reduction) in earnings caused by using a retrospective HIV/Aids provision instead of a prospective provision (21) 78 (21) 78 • Asset mismatch provision 419 158 419 158
15.8 Discount rates used in calculating prospective % % % % policy liabilities Reversionary bonus business • Retirement annuity business 14,0 15,00 14,0 15,00 • Taxable business 13,7 14,75 13,7 14,75 Individual stable bonus business • Retirement annuity business 13,5 14,75 13,5 14,75 • Taxable business 13,3 14,50 13,3 14,50 Individual market-related business • Retirement annuity business 13,9 15,05 13,9 15,05 • Taxable business 13,7 14,80 13,7 14,80 Participating annuity business 13,6 15,25 13,6 15,25 Non-participating annuity business 14,0 17,10 14,0 17,10 Guaranteed plans 12,1 13,4 12,1 13,4
15.9 Future expense inflation rate assumption 8,4 8,8 8,4 8,8
p a g e 7 5 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S T A T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
15.10 Capital adequacy requirements (CAR) 5 925 8 000
Times CAR covered by shareholders’ fund 2,7 1,7
16. 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 3 163 4 740 4 272 5 080 • Obligation for post-retirement medical fund contributions in respect of clients 220 286 220 286 • Unsecured loan from an associated company at 17% per annum interest and repayable on 30 September 2001 300 300 300 300 • Unsecured bank loan at interest linked to the Bankers’ Acceptance rate and repayable on 25 August 2004 231 197 — — • Other 148 75 15 15
Total term finance 4 062 5 598 4 807 5 681
Portion potentially repayable within one year included above 1 269 2 280 2 139 2 375
Term finance costs 565 645 613 684
17. CURRENT LIABILITIES Trading account and money market liabilities 7 263 3 973 — — Accounts payable 5 759 4 351 2 130 1 970 Policy benefits payable 1 656 2 545 1 322 2 046 Claims incurred but not reported 842 820 505 459 Taxation 512 480 455 403 Shareholders for dividend 398 — 350 —
Total current liabilities 16 430 12 169 4 762 4 878
1 8 . A N A L Y S I S O F M O V E M E N T I N C L I E N T S ’ FUNDS (POLICY LIABILITIES AND S E G R E G AT E D F U N D S ) Funds received from clients (note 1) 34 144 37 733 20 377 20 876 Investment return, tax, expenses and other adjustments 43 495 (7 441) 33 106 (3 263)
Net income before payments to clients 77 639 30 292 53 483 17 613 Payments to clients (note 19) 44 571 33 732 31 988 21 991
Net increase in clients’ funds 33 068 (3 440) 21 495 (4 378)
p a g e 7 6 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
1 9 . PA Y M E N T S T O C L I E N T S Insurance benefits paid • Policy benefits 22 998 21 330 20 502 18 065
Long-term insurance* • underwriting (note 3) 2 073 2 022 2 073 2 022 • other (note 15.4) 18 429 16 043 18 429 16 043 Short-term – medical and general (note 3) 2 496 3 265 — —
Other payments 10 761 8 757 674 281
• Unit trust repurchases 6 769 4 261 — — • Managed assets withdrawn 3 318 4 215 — — • Linked products withdrawn* 674 281 674 281
Total payments to clients 33 759 30 087 21 176 18 346 Retirement fund terminations (refer note 15.1) 10 812 3 645 10 812 3 645
Total payments to clients and retirement fund terminations 44 571 33 732 31 988 21 991
*Included in long-term insurance policy benefits is R63 million (1998: R9 million) in respect of linked-product business.
2 0. CHANGE IN ACCOUNTING POLICY Santam, a subsidiary company, changed its accounting policy in respect of the determination of its insurance funds. The effect of this policy change on Sanlam’s current and previous results is immaterial and consequently the prior years’ results have not been restated for this change in policy. The accumulated prior years’ effect of this change attributable to Sanlam amounted to R68 million (refer note 7).
2 1 . F I N A N C I A L I N S T R U M E N T S 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.
p a g e 7 7 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S T A T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
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 11. 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 16, and current liabilities in note 17. The group has significant liquid resources and substantial unutilised banking facilities.
Underwriting risk Underwriting risk is the risk that the actual exposure to mortality, disability and medical risks in respect of policyholder benefits will exceed prudent exposure. The statutory actuary 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 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.
p a g e 7 8 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
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 2,7 times at 31 December 1999 (1998: 1,7 times).
22. TANGIBLE NET ASSET VA LUE PER SHARE: SANLAM LIMITED GRO U P Tangible net asset value per share is calculated on the group shareholders’ funds of R20 463 million (1998: R16 731 million), after adjusting for the shareholders interest in Santam and Gensec from net asset value to fair value, divided by 2 655 million (1998: 2 655 million) shares issued at the year-end.
23. RETIREMENT BENEFITS FOR EMPLOYEES 23.1 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 R150 million to these funds during 1999 (1998: R159 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 R9 million to these funds during 1999 (1998: R15 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 employer’s 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.
23.2 Post-retirement benefits other than pensions For the purpose of calculating pensions, medical contributions are deemed to be a part of pensionable salary. Retirement fund contributions are made on these increased amounts. Therefore pensioners will fund post-retirement medical contributions from the increased pensions. The retirement funds are adequately funded so that the Sanlam Limited group has no further obligation for post-retirement benefits in respect of the past service of present employees and pensioners.
p a g e 7 9 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S T A T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
24 . CONTINGENT LIABILITIES • During 1999 the Heath Special Investigating Unit completed its investigation into the loans and financial assistance provided by the Reserve Bank and Sankorp to Bankorp and has decided not to proceed with the matter. In October 1998, Sanlam received a letter from the South African Revenue Services (“SARS”) questioning the treatment by the Sanlam group of the loans and financial assistance provided by Sankorp to Bankorp from an income and donations tax point of view. SARS has indicated that, unless it receives satisfactory explanations on these questions, it intends to pursue the matter. The Sanlam group made the necessary representations to SARS early in 1999 justifying the treatment by the Sanlam group and is still awaiting a response. Given the nature and detail of the assistance provided by the Sanlam group, the Board believes that no provision is required in the group’s financial statements. • Santam made an offer for the entire issued share capital of Guardian National Insurance Company Limited for approximately R1,6 billion on 30 December 1999. The offer consideration was partially funded by a R1 billion vendor placing of Santam shares which was underwritten by Sanlam. Sanlam offered these shares to existing Santam shareholders in proportion to their respective shareholdings on similar terms on which they are entitled to purchase the consideration shares. At the date of this report R966 million in respect of this offer was committed, of which R320 million is attributable to the Sanlam shareholders’ fund leaving a R34 million exposure. The offer is subject to certain regulatory suspensive conditions, which must be fulfilled before 30 June 2000.
2 5 . B O R R O W I N G P O W E R S 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 16.
2 6 . C O M M I T M E N T S Gensec has a commitment in respect of underwriting and private equity commitments amounting to R271 million (1998: R426 million). There are no other material commitments.
2 7 . P O S T- B A L A N C E S H E E T E V E N T S No material facts or circumstances have arisen between the dates of the balance sheet and this report which affect the financial position of the Sanlam Limited group and the Sanlam Life Insurance Limited group as reflected in these financial statements.
2 8 . I N T E R E S T O F D I R E C T O R S I N C O N T R AC TS All directors of Sanlam Limited and Sanlam Life Insurance Limited have notified that they were not materially interested in any contract of significance with the companies or any of their subsidiaries which could have given rise to a conflict of interest during the year.
p a g e 8 0 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
29. SHAREHOLDING AND RELATED INTERESTS OF DIRECTO R S A N D O F F I C E R S I N S H A R E C A P I TA L The shareholdings, direct and indirect, of the directors and officers holding office at the date of this report aggregated as to beneficial interest and non-beneficial interest, as well as options granted, are as follows:
Ordinary shares Beneficial Non-beneficial Options
Number of shares 3 224 663 2 431 246 9 990 313
Comprising Non-executive directors 209 934 17 470 — Executive directors 1 623 425 2 377 126 7 041 149 Officers 1 391 304 36 650 2 949 164
Disclosures by the directors indicate that at 31 December 1999 and at the date of this report, their interests did not, in aggregate, exceed 5% in respect of either the share capital or voting control of the company. No material change in the foregoing interests has taken place between 31 December 1999 and the date of this report.
3 0 . R E L AT E D PA RT Y T R A N S AC T I O N S Related party relationships exist between the group, fellow subsidiaries, associated companies and the holding company. All material transactions are concluded at arm’s length.
3 1 . R E P O R T O F T H E D I R E C T O R S A separate report is not considered appropriate as the required disclosure is contained in the group annual financial statements and the accompanying notes, except for the following unaudited information presented elsewhere in the Annual Report: Review of business and operations (pages 7 to 51), particulars of directors (pages 6, 14 and 15) and particulars of secretary (page 97).
p a g e 8 1 1999 SANLAM ANNUAL REPORT N O T E S T O T H E G R O U P F I N A N C I A L S TA T E M E N T S YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
Sanlam Life Sanlam Limited Insurance Limited 1999 1998 1999 1998 R million R million R million R million
3 2 . C A S H G E N E R AT E D B Y O P E R AT I O N S Earnings attributable to shareholders per income statement 3 437 364 3 380 2 961 Increase in policy liabilities per note 15.1 20 143 (5 330) 20 143 (5 330)
Income 56 551 20 713 56 551 20 713 Outgo (36 408) (26 043) (36 408) (26 043)
Minority shareholders’ interest 541 29 — — Dividends paid (266) — (266) —
23 855 (4 937) 23 257 (2 369) Adjustment for non-cash items Unrealised investment surpluses and other adjustments (22 432) 15 957 (21 410) 13 235
Total cash generated by operations 1 423 11 020 1 847 10 866
33. INCREASE IN NET CURRENT ASSETS Current assets (4 872) (2 739) (549) 590
Premiums receivable (57) 42 (70) 30 Accrued investment income (39) 23 (53) 28 Trading account and money market investments (3 832) (2 367) — — Accounts receivable (944) (437) (552) 13 Amounts owing by group companies — — 126 519
Current liabilities 3 403 3 797 (620) 1 562
Trading account and money market liabilities 3 229 1 912 — — Accounts payable 1 009 504 6 230 Policy benefits payable (867) 998 (678) 998 Taxation 32 383 52 334
Total increase in net current assets (1 469) 1 058 (1 169) 2 152
p a g e 8 2 1999 SANLAM ANNUAL REPORT P R I N C I P A L S U B S I D I A R I E S YEAR ENDED 31 DECEMBER 1999
Issued Book value of ordinary interest in subsidiary capital Shares Loans % 1999 1999 1998 1999 1998 interest R million R million R million R million R million
S A N L A M L I M I T E D Long-term insurance Sanlam Life Insurance Limited 100 5 000,0 10 172 10 172 — — Asset management, equity activities and banking Genbel Securities Limited (Gensec) 65 1 726,1 (3) (3) (3) (3) Short-term insurance Santam Limited 57 61,8 (3) (3) (3) (3) Investment company Beldiv Investments (Proprietary) Limited 100 (1) — — 2 893 (3) 2 202 Computer hardware holding company Sanlam Computer Holdings (Proprietary) Limited 100 (1) 10 10 (7) — Money transfer business Multi-Data (Proprietary) Limited 100 (4) — — — — Managed health care Sanlam Health (Proprietary) Limited 100 (1) — — 630 1 169 Management of unit trust schemes Sanlam Trust Managers Limited 100 2,6 192 192 (184) (96) Trust services Sanlam Trust Limited 100 1,0 — — 23 15 Management companies Sanlam Personal Finance Limited 100 (1) — — — — Sanlam Employee Benefits Limited 100 (1) — — — — Total 10 374 10 374 3 355 3 290 S A N L A M L I F E I N S U R A N C E L I M I T E D Fair value Investment companies U.R.D. Investments (Proprietary) Limited 100 81,0 30 989 18 540 (8 974) (5 151) Electra Investments (South Africa) Limited 100 76,0 8 347 6 553 (4 050) (3 199) Property investment company Rycklof Investments (Proprietary) Limited 100 (2) 3 579 3 650 4 337 4 654 Management of Namibian business Sanlam Namibia Limited 100 5,0 101 114 (11) (68) Other 1 018 993 330 311 Total 44 034 29 850 (8 368) (3 453) (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 A register of all subsidiary companies is available for inspection at the registered office of Sanlam Limited
Gensec Santam Percentage holding at 31 December 1999 1998 1999 1998 An analysis of the holding in Santam and Gensec by the Sanlam group is as follows: Shareholders • Sanlam Life Insurance Limited 25% 24% 12% 11% • Sanlam Limited 24% 20% 20% 20% Policyholders • Sanlam Life Insurance Limited 16% 21% 25% 25% 65% 65% 57% 56%
P A G E 8 3 1999 SANLAM ANNUAL REPORT S A N LAM LIMITED FINANCIAL STAT E M E N TS YEAR ENDED 31 DECEMBER 1999
B A LANCE SHEET AT 31 DECEMBER 1999 1999 1998 Note R million R million
A S S E T S Non-current assets • Investment in group companies 2 12 547 12 110 Current assets 1 723 1 655
• Loans to subsidiaries 1 373 1 650 • Accounts receivable — 5 • Dividends receivable 350 —
Total assets 14 270 13 765
E Q U I TY A N D L I A B I L I T I E S Share capital and premium 3 3 514 3 514 Non-distributable reserves 4 9 342 9 342 Retained income 737 737
Shareholders’ funds 13 593 13 593 Current liabilities 677 172
• loans from subsidiaries 191 96 • accounts payable 88 76 • shareholders for dividend 398 —
Total equity and liabilities 14 270 13 765
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 1999 Dividends received 666 — Dividends paid and proposed 5 (664) — Expenditure (2) —
Retained income for the year 0 — Transfer from non-distributable reserve — 488 Retained income at the beginning of the year 737 249
737 737
p a g e 8 4 1999 SANLAM ANNUAL REPORT S A N LAM LIMITED FINANCIAL STAT E M E N TS YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
C A S H - F LOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 1999 1999 1998 Note R million R million
Cash flow from operating activities 7 65 — Cash flow from investing activities Investment in subsidiary companies (437) (2 011) Cash flow from financing activities Net proceeds from issue of share capital — 3 494 Decrease in net current assets — 71
Decrease in cash and cash equivalents (372) 1 554 Net loans to subsidiaries – beginning of year 1 554 —
Net loans to subsidiaries – end of year 1 182 1 554
N OTES TO THE FINANCIAL STAT E M E N TS FOR THE YEAR ENDED 31 DECEMBER 1999
1 . ACCOUNTING POLICIES The accounting policies of the Sanlam Limited group as set out on pages 55 to 59 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 a permanent diminution in va lue.
1999 1998 R million R million
2 . S U B S I D I A R Y C O M PA N I E S Shares at cost 10 374 10 374 Amounts owing by subsidiaries 2 173 1 736
12 547 12 110
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 83.
3 . S H A R E C A P I TA L Details of share capital are reflected in note 13 on page 71 of the Sanlam Limited group financial statements.
p a g e 8 5 1999 SANLAM ANNUAL REPORT S A N LAM LIMITED FINANCIAL STAT E M E N TS YEAR ENDED 31 DECEMBER 1999 (CO N T I N U E D )
N OTES TO THE FINANCIAL STAT E M E N TS (continued) 1999 1998 R million R million
4 . N O N - D I S T R I B U T A B L E R E S E R V E S Balance at beginning of year 9 342 488 Transfer to distributable reserves — (488) Pre-acquisition reserves arising on acquisition of subsidiaries — 9 342
Balance at end of year 9 342 9 342
5 . D I V I D E N D S Details of dividends paid are reflected in note 9 on page 68 of the Sanlam Limited group financial statements.
6 . R E P O R T O F T H E D I R E C T O R S A separate report is not considered appropriate as the required disclosure is contained in the group annual financial statements together with the notes thereto. Refer to note 31 on page 81.
7 . C A S H F L O W F R O M O P E R AT I N G A C T I V I T I E S Retained income for the year 0 — Non-cash items – dividend receivable (350) — – dividend payable 398 —
48 — Decrease in accounts receivable 5 — Increase in accounts payable 12 —
65 —
p a g e 8 6 1999 SANLAM ANNUAL REPORT R E P O RT ON THE SANLAM GROUP EMBEDDED VA LU E YEAR ENDED 31 DECEMBER 1999
1 . D E F I N I T I O N O F T H E S A N L A M G R O U P the expected release of these reserves over the life of EMBEDDED VA LUE AND VA LUE OF the in-force business. N EW LIFE INSURANCE BUSINESS The value of new life insurance business is calculated In estimating the economic value of a life insurance as the discounted value at issue, using a risk-adjusted company, it is common to use a concept known as the discount rate, of the projected stream of after-tax FSV “embedded value” of the company. This represents the profits for new business, reduced by the cost of holding shareholders’ net assets plus the value of the life insurance prudential reserves over the life of the block of business. business in force, net of the cost of holding prudential reserves in relation to this business. The economic value 2 . A S S E S S M E N T O F T H E S A N L A M G R O U P of the company is then derived by adding to the EMBEDDED VA LUE AND VA LUE OF embedded value an estimate of the value of future sales of N EW LIFE INSURANCE BUSINESS new life insurance business, sometimes calculated by TABLE 1 applying a multiple to the value of one year’s sales. The Sanlam group embedded value value of one year’s sales is a measure of the economic value added by a life insurance company during the 1999 1998 course of the year as a result of writing new business. R million R million Var % In this report the embedded value of the Sanlam Risk discount rate 16,1% 19,0% group is presented, rather than the embedded value of Sanlam group shareholders’ net assets 17 677 14 904 Sanlam Life Insurance Limited (“Sanlam Life Insurance”). • Revaluation of shareholders’ The Sanlam group embedded value is defined as: interest in Santam and Gensec • the adjusted shareholders’ net assets of the Sanlam to fair value 2 786 1 827 group (see balance sheet on page 61), plus Sanlam group shareholders’ adjusted net assets 20 463 16 731 22% • the value of in-force life insurance business, less Net value of in-force life • the cost of holding prudential reserves (the insurance business 6 193 5 221 19% prudential reserves are the capital adequacy • Value of in-force business 7 774 7 185 requirement, which changes with time – the values • Cost of holding prudential reserves (1 581) (1 964) for 1998 and 1999 are set out on page 76) in relation Sanlam group embedded value 26 656 21 952 21% to the in-force life insurance business. Sanlam group embedded value The value of in-force life insurance business is per share (cents) 1 004 827 21% calculated as the discounted value, using a risk-adjusted Value of new life insurance business(1) discount rate, of the projected stream of future after-tax Net value of new life insurance profits determined on the financial soundness valuation business on the old tax basis 200 57 (2) 251% basis (“FSV”) for business in force at the valuation date. Net value of new life insurance business on the new tax basis 101 (3) This value excludes the discounted value of the release of prudential reserves over the life of the in-force business. Notes While the above values are net of company tax, they include no The cost of holding prudential reserves in relation to allowance for the tax position of an investor in Sanlam Limited. the in-force life insurance business is calculated as follows: (1) Based on sales volumes, business mix and acquisition expenses for the respective years, and assumptions at the respective year-ends. • the amount of prudential reserves as at the valuation The old tax basis refers to the tax basis that was applicable for date, less Sanlam up to 31 December 1999. The calculation basis changed from 1998 to 1999. In particular, the changes to the economic • the discounted value, using a risk-adjusted discount assumptions and the new business definition together increased the new business value by approximately R49 million. rate, of expected after-tax investment income on (2) After the cost of holding prudential reserves of R44 million. these reserves, together with the discounted value of (3) After the cost of holding prudential reserves of R31 million.
P A G E 8 7 1999 SANLAM ANNUAL REPORT R E P O RT ON THE SANLAM GROUP EMBEDDED VA LU E YEAR ENDED 31 DECEMBER 1999 ( CO N T I N U E D )
TABLE 2 TABLE 4 Value allowing for cost of holding prudential reserve s: Components of embedded value earnings Analysis per business 1999 1998 (1) In-force New R million R million business business Embedded value from new life R million R million insurance business 101 57
Sanlam Personal Finance 5 857 86 • Embedded value of new business Sanlam Employee Benefits 720 64 on the old tax basis 200 57 Corporate costs (384) (49) • Change to new tax basis and resulting management actions (99) — Sanlam group 6 193 101 Earnings from existing business 1 056 1 488 3 . EMBEDDED VA LUE EARNINGS • expected return 1 219 967 Embedded value earnings are defined as the embedded • operating experience variations (101)(2) 353 value at the end of the year less the embedded value at • operating assumption changes (62)(3) 168 the beginning of the year plus any dividend paid or proposed. Embedded value earnings from operations 1 157 1 545 TABLE 3 Investment return on adjusted net worth 3 794 (1 649) Embedded value earnings Investment variances 408 (821) Economic and other assumption changes 521 (4) (173) 1999 1998 Tax changes (512) 599 R million R million Total embedded value earnings 5 368 (499) Embedded value at end of year 26 656 21 952 Return on embedded value(5) 24% -2% Dividends paid or proposed 664 —
Embedded value at beginning of year (21 952) (22 451) Notes Embedded value earnings for the year 5 368 (499) The above values are based on the assumptions at the respective year-ends. (1) In this analysis the Sanlam group embedded value as at 31 December 1997 has been determined on a pro forma basis and assumes that the corporate structure that was in place at 31 December 1998 had been in place prior to 31 December 1997. The 1998 values for operating experience variation, investment return on adjusted net worth and investment variances have been restated. (2) The negative experience was predominantly caused by higher than assumed expenses of a one-off nature. (3) This amount includes the effect of management actions such as fee increases, responding inter alia to the tax change of R437 million. It also includes the negative effect of a higher future allowance for expenses of R436 million. (4) In addition to the change in economic assumptions and the risk discount rate, this value includes the effect of the change in expectations of the long-term level of prudential reservesamounting to R472 million and the negative effect of a 0,5% relative increase in the risk discount rate amounting to R303 million. (5) The return on embedded value is the embedded value earnings (before payment of dividends) as a percentage of the embedded value at the beginning of the year.
p a g e 8 8 1999 SANLAM ANNUAL REPORT R E P O RT ON THE SANLAM GROUP EMBEDDED VA LU E YEAR ENDED 31 DECEMBER 1999 ( CO N T I N U E D )
TABLE 5 • Future mortality, morbidity and discontinuance Growth from life business rates and future expense levels were based on recent experience where appropriate. The description of 1999 1998 the FSV basis on pages 58 to 59 provides further R million R million details. Value of in-force at end of year 6 193 5 221 • Allowance was made, where appropriate, for the Net operating profit transferred to impact of expected Aids-related claims. The basis current year’s earnings 602 426 adopted was consistent with that recommended by 6 795 5 647 the Actuarial Society of South Africa as set out in its Value of in-force at beginning of year 5 221 4 497 Professional Guidance Note (PGN) 105. However, premiums were assumed to be rerated, where Growth from life business for the year 1 574 1 150 applicable, in line with deteriorations in mortality, Percentage growth from life business 30% 26% with a three-year delay from the point where mortality losses would be experienced. 4 . D I S C O U N T R AT E • The basis for handling Sanlam’s corporate costs has changed. Previously, these costs were allocated to The risk discount rate was set with reference to the each business, but now they are shown separately as assumed future equity returns described in 5 below. corporate costs. For December 1998 it was set at 0,5% lower than the equity return, while for December 1999 it equals the • Future investment expenses were based on the equity return. current scale of fees in place between Gensec Asset Management and Sanlam Life Insurance. To the extent that this scale of fees includes profit margins 5 . P R I N C I PA L B A S E S A N D A S S U M P T I O N S for Gensec Asset Management, these margins have The assessment of the value of in-force business, the not been included in the assessment of the value of cost of holding prudential reserves and the value of new in-force business and the value of new business. business is based on the “best estimate” assumptions, • In determining the value of in-force business, the which exclude any margins, used for determining the value of certain planned future expenses of a one-off FSV policy liabilities. At 31 December 1998 the nature has been deducted. These relate to special investment return assumptions used in determining projects focusing on both administration and the embedded value did not correspond with the distribution aspects of Sanlam’s life insurance best estimate assumptions of the FSV basis. For business. No allowance has been made for the 31 December 1999, the same investment assumptions impact these projects may have on the future were used in both the embedded value basis and the operating experience of Sanlam Life Insurance. FSV basis. • In determining the value of one year’s new business, The principal bases and assumptions used in the increases in existing premiums associated with calculations are described below: indexation arrangements were not included, but • Assumed pre-tax investment returns by major asset instead were allowed for in the value of in-force category and assumed inflation were based on the business. For Sanlam Employee Benefits’ business, return for fixed-interest securities, and are as follows: the definition of new business has changed from
TABLE 6 that of 1998 to include single premiums from existing clients. Pre-tax investment return and inflation assumptions • Future rates of bonuses for traditional participating 1999 1998 business, stable bonus business and participating % % annuities were set at levels which were supportable by the assets backing the respective product sub- Equities 16,1 19,5 funds at the respective valuation dates. Property 15,1 18,5 Fixed-interest securities 14,1 16,5 • Sanlam Life Insurance’s current prudential Cash 12,1 15,0 reserving, surrender and paid-up bases were assumed Inflation 7,6 10,0 to be maintained in the future. The expected long-
p a g e 8 9 1999 SANLAM ANNUAL REPORT R E P O RT ON THE SANLAM GROUP EMBEDDED VA LU E YEAR ENDED 31 DECEMBER 1999 ( CO N T I N U E D )
term level of the prudential reserves used to 6 . S E N S I T I V I T Y A N A LY S I S calculate the cost of holding prudential reserves has To illustrate the effect of using different assumptions, reduced since the previous valuation. This change the sensitivity of the values to changes in key has resulted in lower projected prudential reserves assumptions is shown in Table 8. All of the and consequently lower amounts of non-equity sensitivities have been determined at a risk discount assets in the shareholders’ fund. To reflect the rate of 16,1% per annum (except where indicated overall higher volatility of earnings which will result otherwise). The risk discount rate appropriate to an from this change, the risk discount rate used has investor will depend on the investor’s own been increased by 0,5% relative to the assumed requirements, tax position and perception of the risks equity return. associated with the realisation of the future profits of • The following asset mix was assumed for funds Sanlam Life Insurance. For each sensitivity illustrated, supporting Sanlam Life Insurance’s prudential all other assumptions have been left unchanged. reserves (this mix has remained unchanged from 31 December 1998): TABLE 8 Sensitivity analysis TABLE 7 Asset mix for funds supporting prudential reserve s % change from base % Net value of in-force business R million value
Equities 32 Base value 6 193 (1) Hedged equities 17 Increase risk discount rate by Property 10 1,5% to 17,6% 5 221 -16% Fixed-interest securities 33 Decrease risk discount rate by Cash 8 1,5% to 14,6% 7 337 18% Increase risk discount rate and pre-tax 100 investment return for all asset classes and increase inflation by 1,5% with (1) Derivative instruments are used to limit the potential fall in bonus rates changing commensurately 5 923 -4% market value for these equities. The assumed future return for Increase inflation by 1,5% 6 152 -1% these assets is lower than that of equities which are not hedged, reflecting the cost of the derivative instruments. Non-commission expenses increase by 10% 6 010 -3% Assets held in the shareholders’ fund of Sanlam Life Discontinuance rates increase by 10% 5 999 -3%
Insurance in excess of the prudential reserves are % change assumed to be invested in local equities or in foreign from base assets. Net value of 1999 new business R million value
• Projected corporate tax payable was allowed for at a Base value 101 rate of 30% at both 31 December 1998 and Increase risk discount rate by 31 December 1999. The South African Revenue 1,5% to 17,6% 74 -27% Service has amended the four-fund tax basis of life Decrease risk discount rate by insurers with effect from 1 January 2000. The full 1,5% to 14,6% 128 27% effect of the amended legislation was taken into Non-commission expenses increase account in calculating the 1999 values of in-force by 10% 56 -45% and new life insurance business. No allowance has New business volumes decrease by 10% 59 -42% been made for the tax adjustments announced by the Minister of Finance in his February 2000 budget The above table illustrates the effect of deteriorations speech. in future experience assumptions (except for decreasing • The embedded values at 31 December 1998 and the risk discount rate). The effect of equivalent 31 December 1999 contain no allowance for the improvements in experience would be to increase the share incentive scheme. values by an amount approximately equal to the reductions shown above.
p a g e 9 0 1999 SANLAM ANNUAL REPORT CO N S U LTING AC T UARIES REPORT
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
8 March 2000
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 1999 and the value of one year’s new life insurance business, are set out on pages 87 to 90 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 1999.
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 1999 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 87 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 Insitute of Actuaries Fellow of the Insitute of Actuaries Fellow of the Actuarial Society of South Africa Fellow of the Actuarial Society of South Africa
p a g e 9 1 1999 SANLAM ANNUAL REPORT DEFINITIONS AND GLO S S A RY OF TECHNICAL T E R M S
“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 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 for individuals; “Sanlam Life Insurance Limited” – a wholly-owned subsidiary of Sanlam Limited conducting mainly life insurance business; “Sanlam Limited” – the holding company listed on the South African and Namibian Stock Exchanges; “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.
p a g e 9 2 1999 SANLAM ANNUAL REPORT N OTICE OF ANNUAL GENERAL MEETING
S A N LAM LIMITED on such terms and conditions as the directors may from (Incorporated in the Republic of South Africa) time to time determine, but subject to the provisions of (Registration No 1959/001562/06) the Companies Act, No 61 of 1973, as amended (“the Companies Act”), and the requirements of the Johannesburg Stock Exchange and any other stock Notice is hereby given that the Annual General Meeting of exchange upon which the shares of the company may Members of Sanlam Limited (“the company”) will be held at be quoted or listed from time to time”. Sandton Sun, 5th Street, Sandhurst, Sandton on 14 June 2000 at 09:30, for the following purposes: 5. To consider and, if deemed fit, to pass, without modification, the following resolution as Special 1. To consider and adopt the annual financial statements Resolution No 1: and the group annual financial statements of the “That in terms of section 62 of the Companies company for the financial year ended 31 December Act, article 10.2 of the articles of association of the 1999. company be and is hereby amended in the following manner: 2. To elect directors in accordance with the provisions of • the first sentence, “Business may be transacted at any the company’s articles of association. The following meeting of members only when a quorum is retiring directors are eligible and offer themselves for re- present”, shall be replaced with “No business shall be election: transacted at a general meeting unless a quorum is JPL Alberts present at the commencement of the meeting”, DC Brink • and in the same article 10.2 the words “and by PEI Swartz proxy” shall be inserted after the words “personally T Vosloo present”. The reason for and effect of Special Resolution 3. To table and approve the total amount of directors’ No 1 is to amend the articles of association of the remuneration. company to include proxies when constituting a quorum, which quorum is to be determined at the commencement 4. To consider and, if deemed fit, to pass, with or without of the annual general meeting. modification, the following resolution as Ordinary Resolution No 1: 6. To consider and, if deemed fit, to pass, without “That the authorised but unissued ordinary shares in modification, the following resolution as Special the share capital of the company be and are hereby Resolution No 2: placed at the disposal and under the control of the “That, subject to the provisions of the Companies board of directors of the company, and such directors Act, the articles of association of the company be and are hereby authorised and empowered to allot, issue or are hereby amended by the insertion of the following otherwise dispose thereof to such person or persons and new article 36 after article 35:
p a g e 9 3 1999 SANLAM ANNUAL REPORT N OTICE OF ANNUAL GENERAL MEETING ( C O N T I N U E D )
“ 3 6 . S H A R E T R A N S A C T I O N S T O TA L LY 37.1.1 make any payment to its members (including E L E C T R O N I C ( S T R A T E ) the payment of dividends) in accordance with and subject Notwithstanding anything to the contrary contained in to the provisions of section 90 of the Companies Act; the aforegoing provisions of these articles of association, 37.1.2 effect a reduction of its share capital but subject to the Companies Act and the requirements (including its share premium account, or if applicable, of the Johannesburg Stock Exchange and any other its capital redemption reserve fund) in any manner stock exchange upon which the shares of the company authorised; may be quoted or listed from time to time, all share 37.1.3 approve the acquisition of shares by the transactions may be settled totally electronically.” company in accordance with and subject to the provisions The reason for and effect of Special Resolution of section 85 of the Companies Act and also, in the No 2 is to amend the company’s articles of association manner contemplated in and permitted by the Companies to enable all share transactions of the company to be Act, acquire shares in its holding company, if any, and settled totally electronically. in any subsidiary of any such holding company. 37.2 If there is any conflict or inconsistency 7. To consider and, if deemed fit, to pass, without between the provisions of this article 37 and any other modification, the following resolution as Special article contained herein, the provisions of this article 37 Resolution No 3: shall prevail. In addition, any subsidiary of the “That in terms of the Companies Amendment company would also be entitled to acquire shares in the Act (Act No 37 of 1999) the company’s articles of company in accordance with the provisions of the association be and are hereby amended by the insertion Companies Act, the approval of and such conditions of the following new article 37 after the new article 36: imposed from time to time by any relevant authority including the Johannesburg Stock Exchange and any “ 3 7 . A C Q U I S I T I O N B Y C O M PA N Y O F other stock exchange upon which the shares of the S H A R E S I S S U E D B Y I T A N D I T S company may be quoted or listed from time to time, H O L D I N G C O M PA N Y and subject to its shareholders’ approval in general 37.1 Notwithstanding anything to the contrary meeting, if necessary.” contained in these articles, the company is, subject to The reason for and effect of Special Resolution the provisions of the Companies Act, the approval of No 3 is to amend the articles of association of the and such conditions imposed from time to time by any company to allow the company or its subsidiaries to relevant authority including the Johannesburg Stock acquire shares which have been issued by it or its Exchange and any other stock exchange upon which holding company, if any, and any subsidiary of any the shares of the company may be quoted or listed from such holding company, and to effect a reduction of time to time, and subject to its shareholders’ approval share capital (including its share premium account or, if in general meeting, if necessary, authorised to take the applicable, its capital redemption reserve fund). relevant steps to –
p a g e 9 4 1999 SANLAM ANNUAL REPORT N OTICE OF ANNUAL GENERAL MEETING ( CO N T I N U E D )
8. To consider and, if deemed fit, to pass, without of the securities for the five business days immediately modification, the following resolution as Special preceding the date of the repurchases.” Resolution No 4: The reason for and effect of Special Resolution “That, subject to the passing and registration of No 4 is to grant the directors a general authority to Special Resolution No 3, the board of directors of the enable the company to acquire shares which have been company and any subsidiary of the company be issued by it, or its holding company, if any, and any authorised by way of a general authority, up to and subsidiary of any such holding company. including the date of the following annual general
meeting of the company, to approve – S TATEMENT OF INTENT (a) the purchase of any of its securities by the company The board of directors of the company shall implement a or its subsidiaries, including ordinary shares of general repurchase of the company’s shares, only if prevailing R0,01 each in the capital of the company; and circumstances (including the tax dispensation and market (b) the purchase of such securities by the company in conditions) warrant same, and should they be of the opinion, any holding company of the company, if any, and after considering the effect of such repurchase of shares, that any subsidiary of any such holding company, the following requirements have been and will be met: subject to the provisions of the Companies Act and the • the company will be able to pay its debts in the ordinary requirements of the Johannesburg Stock Exchange and course of business; any other stock exchange upon which the shares of the • the consolidated assets of the company, fairly valued in company may be quoted or listed from time to time, accordance with generally accepted accounting practice, and subject to such other conditions as may be imposed are in excess of the consolidated liabilities of the company; by any other relevant authority, • the company will have adequate capital; and provided that: • the working capital of the company will be sufficient for • the general authority shall only be valid until the the company’s requirements for the year ahead. company’s next annual general meeting, provided
that it does not extend beyond 15 months from the P R O X I E S A N D R E P R E S E N TA T I V E S date of this resolution; 1. In the absence of a quorum of 25% of the voting rights • the general authority to repurchase be limited to a of all members entitled to attend and vote, which is maximum of 10% of the relevant company’s issued required for a special resolution to be passed, the meeting share capital of that class at the time the authority is shall stand adjourned to the same day in the next week granted; and and at the same time and place, and this notice and the • repurchases will not be made at a price more than enclosed proxy form shall also be valid for such 5% above the weighted average of the market value adjourned meeting.
p a g e 9 5 1999 SANLAM ANNUAL REPORT N OTICE OF ANNUAL GENERAL MEETING ( CO N T I N U E D )
2. A member entitled to attend and vote at the meeting 6. A member whose shares are held by Sanlam Share may appoint a proxy to attend, speak and vote in his or Account (Proprietary) Limited or Sanlam Fundshare her stead. A proxy includes a person appointed under a Nominee (Proprietary) Limited is empowered by such general or special power of attorney. A notarially certified relevant nominee company to attend and vote at the copy of such power of attorney or other documentary meeting. evidence establishing the authority of the person signing as proxy must be attached to the proxy form. By order of the Board 3. A proxy form is enclosed for use by members who are unable to attend the meeting. Same is also obtainable from the registered office of the company. Duly completed proxy forms must be deposited at the registered office of the company not less than 48 hours JP Bester before the time of holding the meeting. Company Secretary 27 March 2000 4. The proxy need not be a member of the company.
5. A person representing a corporation/company is not deemed to be a proxy as such corporation/company can Registered Office only attend a meeting through a person, duly authorised 2 Strand Road by way of a resolution to act as representative. Such Bellville person enjoys the same rights at the meeting as the shareholding company and must at least 48 hours Postal address before the meeting provide the company with PO Box 1 satisfactory documentary evidence (the resolution) that Sanlamhof he or she is entitled to act. 7532
p a g e 9 6 1999 SANLAM ANNUAL REPORT SHAREHOLDER INFORMAT I O N
A N A LYSIS OF SHAREHOLDERS ON 31 DECEMBER 1999 Shareholders Shares held Number % Number %
DISTRIBUTION OF SHAREHOLDING 1 – 1 000 1 055 638 84,75 426 008 265 16,05 1 001 – 5 000 169 215 13,59 332 988 512 12,54 5 001 – 10 000 14 129 1,13 96 053 252 3,62 10 001 – 50 000 6 031 0,48 100 839 593 3,80 50 001 – 100 000 265 0,02 18 783 804 0,71 100 001 – 1 000 000 329 0,03 94 458 178 3,56 1 000 000 and over 60 0,00 1 585 439 063 59,72
1 245 667 100,00 2 654 570 667 100,00
P R I N C I PA L S H A R E H O L D I N G S Individuals 1 228 259 98,61 935 592 022 35,20 Companies 10 599 0,85 56 207 196 2,20 Pension and Retirement Funds 6 480 0,52 178 267 522 6,70 Nominee Companies 268 0,02 1 482 075 366 55,80 Insurance Companies 7 0,00 1 328 474 0,10 Other 54 0,00 1 100 087 0,00
1 245 667 100,00 2 654 570 667 100,00
PUBLIC AND NON-PUBLIC SHAREHOLDERS Public shareholders 98,28 Non-public shareholders • Directors’ interest 0,19 • Employee pension fund 0,67 • Sanlam Limited Share Incentive Trust 0,86
100,00
SHARE PRICE PERFORMANCE ON THE JOHANNESBURG S TOCK EXC H A N G E 1999 Share price (cents) • Year-end closing price 860 • Highest closing price 890 • Lowest closing price 440 Number of shares traded (million) 1 721 Value of shares traded (R million) 11 103
SHAREHOLDERS’ DI A RY A D M I N I S T R AT I O N
F I N A N C I A L Y E A R - E N D 31 December S A N L A M L I M I T E D INTERNET ADDRESS Registration no 1959/001562/06 http://www.sanlam.co.za A N N UA L G E N E R A L M E E T I N G [email protected] 14 June 2000 S A N L A M L I F E INSURANCE LIMITED T R A N S F E R R E P O R T S Registration no 1998/021121/06 S E C R E TA R I E S • Interim report for 30 June 2000 September 2000 Mercantile Registrars Limited G RO U P S E C R E TA RY • Announcement of the results (Registration no. 87/03382/06) JP Bester 10th Floor for the year ended 31 December 2000 March 2001 11 Diagonal Street R E G I S T E R E D O F F I C E • Annual report for year ended 31 December 2000 April 2001 Johannesburg 2 Strand Road, Bellville Telephone (021) 947-9111 2001 D I V I D E N D S South Africa Fax (021) 947-3670 • Final dividend for 1999 declared 8 March 2000 • LDR for 1999 final dividend 28 April 2000 P O S TA L A D D R E S S PO Box 1053 PO Box 1 Johannesburg • Payment of final dividend for 1999 24 May 2000 Sanlamhof 2000 • Declaration of dividend for 2000 March 2001 7532 South Africa • Payment of dividend for 2000 May 2001 South Africa
p a g e 9 7 1999 SANLAM ANNUAL REPORT