JOHANNESBURG - Financial services group Sanlam said on Thursday it remained upbeat about its growth prospects outside of South Africa as it reported a 19% decline in diluted headline earnings per share.
The group was optimistic that an improvement in economic conditions was likely to persist in the medium term across most regions where it operates. However, it said prospects for South Africa would remain muted for the remainder of 2017 and 2018 as political and economic policy uncertainty was not likely to dissipate before the December elective conference of the ANC.
“Until policy certainty returns, low business and investor confidence will prevail. We do not expect an improvement in the performance of the South African businesses for the remainder of the year. The risk of further downgrades to South Africa’s sovereign credit ratings must be recognised, which will likely result in equity market, interest rate and currency volatility,” the group said.
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In the results for the six months to end June, the group reported 19% decline in diluted headline earnings per share (Dheps) to 225.3 cents a share, down from 277.2c, while normalised headline earnings were up 5% to R4.5 billion. Sanlam was also negatively effected by some of its underlying business like Santam. The insurer had to pay a large number of property claims in Knysna and Plettenberg Bay after the fires destroyed a number of properties.
As a result Santam’s overall underwriting margin declined from 6.4 percent to 4 percent by the end June 2017. However, there were positive signs with general insurance earned premiums increasing by 16%.
New business sales in personal finance dropped 7%, while Sanlam emerging markets’ net result from financial services declined 2%. The Sanlam Corporate cluster achieved exceptional growth of 31 percent in its net result from financial services.
Group risk profit increased 55%, supporting overall growth of 26% in Sanlam Employee Benefits’ net result from financial services. The group said a highlight for the period was the strong growth in value of new life covered business written, with the net value increasing by 11% at a margin of 2.61%, which exceeds the comparable 2016 margin.
Chief executive Ian Kirk said the group was satisfied with the results and it believed that its focus on strategic execution continued to support its business performance and its delivery of value to all its stakeholders. “We expect the economic and operating environment to remain challenging for various reasons across our footprint for the remainder of the year,” Kirk said.
Daniel Spoormaker, a portfolio manager at Citadel, said the divergent growth between normalised headline earnings and headline earnings was attributable to one-off deferred tax assets raised in the 2016 results in respect of assessed losses in certain policyholder funds following the implementation of the new Risk Policy Fund for South African insurers, which increased the comparative base.
“Sanlam missed forecasts a bit, but all things considered and relative to other insurers who have reported, this was actually quite a decent set of results. This is especially significant considering the very challenging economic environment in which this performance was achieved,” Spoormaker said.