Renée Bonorchis
5 September 2008
Johannesburg — SANLAM, the insurance company, yesterday released its interim results to June with its CE, Johan van Zyl, describing the absolute numbers as being "disappointing" as normalised headline earnings dropped 57% to 58,8c per share.
But Van Zyl said the core of the business was sound (with core earnings per share up 4%) and that Sanlam needed to execute and be nimble.
"You don't need to outrun the lion," Van Zyl said, "you just have to be faster than some of your competitors".
The proverbial lion was made up of volatile equity markets, the fall-off in consumers' disposable income, Sanlam's heavy investments in falling financial and industrial stocks, and widening credit spreads.
Sanlam's results showed declining profit across many of its businesses yesterday, but its share price rose along with the JSE all share index.
Sarine Barnard, an analyst at one of Sanlam's shareholders, Investec Asset Management, said yesterday the insurer's embedded value earnings, which rose 7,1%, were in line with expectations but the performance of Sanlam Investment Management (SIM) had been disappointing.
In SA, SIM's profit after tax fell 4%, but in SIM's international operations profit fell 63% mainly due to a large reduction in performance fees and the effect of the discount rate.
SIM was also underweight in resources during the first half of the year when resource stocks gained up to 32%. The total value of SIM's business had declined almost R1bn.
But Van Zyl pointed out yesterday that since July, and particularly in the past three days, financials were making a comeback while resources were losing ground.
In the period under review Sanlam invested R885m in various divisions and spent a further R1,6bn on buying back its shares. Van Zyl said yesterday the company would continue to go for growth and diversification while carrying on with its buyback programme.
There had been a slight increase in lapse rates but Barnard said this did not yet appear to be a worrying trend. However, Van Zyl said he expected consumers' disposable income levels would decrease further and that interest rates and inflation would still be a challenge.
He expected a continuation of the credit crisis, which meant Sanlam would not be able to grow its credit business "at all".
Sanlam said the tough macroeconomic and volatile financial market conditions were not expected to abate for the remainder of the year. As Barnard pointed out, Sanlam's fortunes were closely tied to equity market movements, making the future difficult to predict.
But if Van Zyl's views are correct, Sanlam could have an even tougher six months to December than it did in the first half of this year.
But by sharing certain resources with short-term insurer Santam, tightening up its mortgage and vehicle lending books, investing across the business and expanding on the continent, Van Zyl thought Sanlam could confront market challenges and get ready for an improvement in economic conditions.
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