Sanlam CEO Paul Hanratty looked quite happy in front of the camera that connected him to shareholders and analysts during the company’s results presentation for the year to end December 2020. “Sanlam did extremely well in the context in which we found ourselves,” he said, before listing a few achievements that are bound to make most other companies envious.
He noted that the net result from financial services, the key measure of operating earnings performance, declined by 13%, affected by several factors owing to the Covid-19 pandemic.
“These included the downturn in equity markets across most markets where the group operates, an increase in doubtful debt provisions regarding the group’s institutional and retail credit books, Santam’s contingent business interruption (CBI) claims experience, higher mortality claims from the Covid-19 pandemic, as well as substantial Covid-19-related relief offered to clients and intermediaries,” says Hanratty.
Listen: Nompu Siziba talks the insurer’s results with CEO Paul Hanratty
However, Sanlam reported a 24% increase in headline earnings to nearly R9.3 billion compared with R7.5 billion in the previous financial year. This translated to headline earnings of R4.48 per share, while a dividend of R3 per share was also declared to end the year off.
Surprisingly, most of the business units within the group performed quite well, with the exception of the life insurance business that “really struggled” as restrictions prevented financial advisers from operating for weeks on end during the second and third quarter of 2020.
“But things recovered strongly towards the end of the year.
“The investment business was really strong. We are excited about the volumes of new business,” says Hanratty.
The supplementary information to the results discloses that new business volumes increased by 25% to R311 billion, exceeding R300 billion for the first time.
Overall, the group achieved net fund inflows of R62 billion (an increase of 8% over the previous year) in what Hanratty described as “extremely challenging economic conditions”.
“Still, we never forgot we were really there for our clients. We paid an unprecedented level of claims across the group, settling half a billion extra in claims in 2020 than in 2019,” says Hanratty.
Indirectly, Sanlam also paid and provided for R3 billion worth of business interruption claims in Santam, the short-term insurer in which it hold an interest of nearly 60%.
Hanratty says that it involved payments to around 4 000 businesses which employs “many, many employees” in the tourism and hospitality industry.
Like all companies worldwide, Sanlam was hit bit by the global health crisis. Management says that the economic effect of preventative measures taken by governments globally impacted operating results in several key areas:
- Increased mortality claims;
- Lower new business volumes in face-to-face distribution channels;
- Significant investment and credit market volatility;
- Contingent business interruption claims; and
- Increased provisions for doubtful debts in the credit businesses.
Hanratty says that the impact of lower new business flows and volatility in investment and credit markets was severe in the first half of the year and improved in the second half, while the other impacts were felt more in the second half.
Concerning the future, Sanlam expects a slow recovery in GDP and is mindful of further impacts from the Covid-19 pandemic.
The year ahead
“We continue to proactively manage the consequences of Covid-19. Despite a tough 2020 and realisation that we have much to do going forward, we are optimistic about what we can achieve in 2021. The environment will continue to be extremely difficult but we have a strategy, committed people and some momentum behind our strategic plans,” says Hanratty.
Abigail Mukhuba, Sanlam’s chief financial officer, told Moneyweb in an interview that management expects another tough year, but better than 2020. “We are more prepared from a business point of view,” she says, adding that the roll out of a vaccination programme would largely determine what happens in the business world in the foreseeable future.
“We are on track to recover, using 2019 as a base. Sanlam has proved itself to be resilient and has adapted to circumstances,” she says.
She reiterated that Sanlam views returns to shareholders as important, indicating that Sanlam aims to continue paying dividends.
Stephen Meintjes, head of research at Momentum Securities, says that although Sanlam announced that the net result from financial services decreased by 13%, it achieved good growth of 17% growth if one excludes the impact of the Covid-19 pandemic.
“New business growth was impressive, despite the inability to maintain face to face sales,” says Meintjes.
“A solid result in the circumstances with the impact of Covid-19 mainly restricted to investment market returns, increased mortality claims, doubtful debt provisions, Santam CBI and relief offered to clients and intermediaries.”
He says that group equity value was 8% lower and below-consensus forecasts can be ascribed to Covid-19-related changes to operating assumptions and changes made to reflect higher persistency risk, the impairments at Saham (the Beirut explosion was a factor) and Shriram, as well as the decline in the Santam share price.
Shareholders seemed pleased, with the share price posting a small gain on Thursday to R62.84, while the financial index lost half a percent.
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