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Shall the throne of iniquity which devices evil by law, have fellowship with You – Psalm 94 verse 20

Regulation 29 compels institutional investors to repatriate 3.5% of total assets and invest these in unlisted companies through so-called Special Purpose Vehicles, a legal framework for investment which is supposed to make all investments transparent and subject to constant monitoring. The only problem, as expressed so elegantly by the MD of Stimulus Investments, is “you know as well as I that there are no liquid assets in the Namibian market.”
This statement from a company that specialises in Private Equity sums up the huge conundrum local investors face when they chase the few local investment opportunities. And the shortage is so massive, compared to the amount of capital that must find a new home, that it distorts local asset prices, upsets local liquidity and leads to all sorts of investment gymnastics.
It is clear that the policy makers in the Ministry of Finance must have put their minds to this problem. If there is ample capital chasing a limited supply of goods, it does not take a degree in flow dynamics (rocket science) to figure out, first, that Regulation 29 has the potential for significant financial disruption, and second, that the capital will probably always exceed the value of the available assets, the goods.
Enter someone with a clever solution, but with much unintended consequences. Let us simply force all business owners to sell 25% of their shareholding. The government has the political mandate to force through any legislation they want regardless how ill conceived. Furthermore, the government is such an overbearing player in the economy, the 44% they contribute to the economic cake has slowly eroded and reduced the role of the private sector. In a very simplified way, it can be said that the government is now almost half of the economy while private business is crowded out more and more every year.
So basically, the government can do what it wants, and cloak everything in a pretence of legality by using the Parliament to approve any law whatsoever. However, consideration for immediate disruption is often absent while the long-term unintended consequences are far beyond the radar of short-term expedience.
Then the solution becomes simple. If there is so much capital looking for a home but the assets are rather restricted in both volume and value, then let us simply create another law, forcing the capital to find the goods. And if we wait long enough, future economic growth and expansion will eventually enable us to catch up with inflated asset valuations that will be a direct consequence of restricting the already impeded free-market mechanisms.
The New Equitable Economic Empowerment Framework is a noble work based on good intentions and clear expectations. The execution and implementation of these expectations are a different kettle of fish. The bill based on the framework, in its current format, is a disaster.
In the first sign of rational minds returning to the debate, the Ministry of Finance this week extended the deadline for response and submission from the end of March to the end of April this year. This, at least, is a good sign, indicating that there must be some individuals with savvy among the army of advisers, both local and foreign, serving the ministry.
I think what few people has considered so far, is that the mechanism proposed by the NEEEF Bill is exactly the same as that of Private Equity as an asset class, except that it functions irrespective and independent of any willing seller, willing buyer principle. The ministry knows that if it does not force all enterprises to sell part of its shareholding, the problem it has created through Regulation 29, will not go away in the next decade.
One specific problem is that the availability of Private Equity is very restricted as can be attested by all companies that specialise in this asset class. Another obstacle is that valuations for Private Equity are often subjective and divorced from free market principles. But it still boils down to the fact that Private Equity investors will be favoured massively by the NEEEF Bill as the skills required to invest in and manage private companies, simply does not exists in a sufficiently large segment of the population.
In a round-about way, this is a form of corruption.

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Sanlam 2018 Annual Results

7 March 2019


Sanlam’s 2018 annual results provides testimony to its resilience amid challenging operating conditions and negative investment markets

Sanlam today announced its operational results for the 12 months ended 31 December 2018. The Group made significant progress in strategic execution during 2018. This included the acquisition of the remaining 53% stake in SAHAM Finances, the largest transaction concluded in the Group’s 100-year history, and the approval by Sanlam shareholders of a package of Broad-based Black Economic Empowerment (B-BBEE) transactions that will position the Group well for accelerated growth in its South African home market.

Operational results for 2018 included 14% growth in the value of new life insurance business (VNB) on a consistent economic basis and more than R2 billion in positive experience variances, testimony to Sanlam’s resilience in difficult times.

The Group relies on its federal operating model and diversified profile in dealing with the challenging operating environment, negative investment markets and volatile currencies. Management continues to focus on growing existing operations and extracting value from recent corporate transactions to drive enhanced future growth.

The negative investment market returns and higher interest rates in a number of markets where the Group operates had a negative impact on growth in operating earnings and some other key performance indicators. This was aggravated by weak economic growth in South Africa and Namibia and internal currency devaluations in Angola, Nigeria and Zimbabwe.

Substantial growth in Santam’s operating earnings (net result from financial services) and satisfactory growth by Sanlam Emerging Markets (SEM) and Sanlam Corporate offset softer contributions from Sanlam Personal Finance (SPF) and Sanlam Investment Group (SIG).

Key features of the 2018 annual results include:

Net result from financial services increased by 4% compared to the same period in 2017;

Net value of new covered business up 8% to R2 billion (up 14% on a consistent economic basis);

Net fund inflows of R42 billion compared to R37 billion in 2017;

Adjusted Return on Group Equity Value per share of 19.4% exceeded the target of 13.0%; and

Dividend per share of 312 cents, up 8%.

Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with our performance in a challenging operating environment. We will continue to focus on managing operations prudently and diligently executing on our strategy to deliver sustainable value to all our stakeholders. The integration of SAHAM Finances is progressing well. In addition, Sanlam shareholders approved the package of B-BBEE transactions, including an equity raising, at the extraordinary general meeting held on 12 December 2018. Our plan to implement these transactions this year remains on track.”

Sanlam Personal Finance (SPF) net result from financial services declined by 5%, largely due to the impact of new growth initiatives and dampened market conditions. Excluding the new initiatives, SPF’s contribution was 1% down on 2017 due to the major impact that the weak equity market performance in South Africa had on fund-based fee income.

SPF’s new business sales increased by 4%, an overall satisfactory result under challenging conditions. Sanlam Sky’s new business increased by an exceptional 71%. Strong growth of 13% in the traditional individual life channel was augmented by the Capitec Bank credit life new business recognised in the first half of 2018, and strong demand for the new Capitec Bank funeral product. The Recurring premium and Strategic Business Development business units also achieved strong growth of 20%, supported by the acquisition of BrightRock in 2017. Glacier new business grew marginally by 1%. Primary sales onto the Linked Investment Service Provider (LISP) platform improved by 5%, an acceptable result given the pressure on investor confidence in the mass affluent market. This was however, offset by lower sales of wrap funds and traditional life products.

The strong growth in new business volumes at Sanlam Sky had a major positive effect on SPF’s VNB growth, which increased by 7% (14% on a comparable basis).

Sanlam Emerging Markets (SEM) grew its net result from financial services by 14%. Excluding the impact of corporate activity, earnings were marginally up on 2017 (up 8% excluding the increased new business strain).

New business volumes at SEM increased by 20%. Namibia performed well, increasing new business volumes by 22% despite weak economic conditions. Both life and investment new business grew strongly. Botswana underperformed with the main detractor from new business growth being the investment line of business, which declined by 24%. This line of business is historically more volatile in nature.

The new business growth in the Rest of Africa portfolio was 68% largely due to corporate activity relating to SAHAM Finances, with the East Africa portfolio underperforming.

The Indian insurance businesses continued to perform well, achieving double-digit growth in both life and general insurance in local currency. The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New business production is not yet meeting expectations, but the mix of business improved at both businesses.

SEM’s VNB declined by 3% (up 6% on a consistent economic basis and excluding corporate activity). The relatively low growth on a comparable basis is largely attributable to the new business underperformance in East Africa.

Sanlam Investment Group’s (SIG) overall net result from financial services declined by 6%, attributable to lower performance fees at the third party asset manager in South Africa, administration costs incurred for system upgrades in the wealth management business and lower earnings from equity-backed financing transactions at Sanlam Specialised Finance. The other businesses did well to grow earnings, despite the pressure on funds under management due to lower investment markets.

New business volumes declined by 13% mainly due to market volatility and low investor confidence in South Africa. Institutional new inflows remained weak for the full year, while retail inflows also slowed down significantly after a more positive start to the year. The international businesses, UK, attracted strong new inflows (up 57%).

Sanlam Corporate’s net result from financial services increased by 4%, with the muted growth caused by a continuation of high group risk claims experience. Mortality and disability claims experience weakened further in the second half of the year, which is likely to require more rerating of premiums in 2019. The administration units turned profitable in 2018, a major achievement. The healthcare businesses reported satisfactory double-digit growth in earnings, while the Absa Consultants and Actuaries business made a pleasing contribution of R39 million.

New business volumes in life insurance more than doubled, reflecting an exceptional performance. Single premiums grew by 109%, while recurring premiums increased by a particularly satisfactory 56%.

The good growth in recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable economic basis) increase in the cluster’s VNB contribution.

Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017).

As at 31 December 2018, discretionary capital amounted to a negative R3.7 billion before allowance for the planned B-BBEE share issuance. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the US$1 billion (R13 billion) SAHAM Finances transaction. Cash proceeds from the B-BBEE share issuance will restore the discretionary capital portfolio to between R1 billion and R1.5 billion depending on the final issue price within the R74 to R86 price range approved by shareholders.

Looking forward, the Group said economic growth in South Africa would likely remain weak in the short to medium term future, and would continue to impact efforts to accelerate organic growth. The outlook for economic growth in other regions where the Group operates is more promising. Recent acquisitions such as the SAHAM transaction should also support operational performance going forward.

“We remain focused on executing our strategy. We are confident that we have the calibre of management and staff to prudently navigate the anticipated challenges going forward,” Mr Kirk concluded.

Details of the results for the 12 months ended 31 December 2018 are available at