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Drought and levies impact cereals

Three senior delegates from the Agronomic Board recently attended the Grain SA conference in South Africa where the status of cereal production and the level of maize stocks were discussed.
Agronomic Board CEO, Christof Brock, accompanied by the board’s White Maize and Wheat manager, Antoinette Venter, and Vice Chair, Andre Compion, attended the annual conference where the focus is on the production and availability of staples, especially white maize.
“The drought in South Africa and how it has impacted production is extremely bad” said Brock. “We were given presentations that illustrate how badly the different production areas have been affected and it is clear that South Africa will be importing about 1.1 million tonnes of maize to meet its own needs as well as those to whom they regularly export,” he stated.
In normal years South Africa produces enough grain for its own needs as well as for export to neighbouring countries. Factored into the 1.1 million tonnes is what South Africa will need to meet its own demand plus the demand from countries to which it normally exports. Namibian millers normally procure a significant volume of white maize from South Africa annually while Zambia and Malawi that do not normally have to import white maize now have no choice but to do so.
Under the current circumstances, these sporadic importers will need to import much larger volumes than Namibian millers and South African suppliers are faced with prioritising their supply to Namibian millers whose needs are smaller yet whose annual patronage is constant, consistent and loyal versus a supply of much higher volumes to countries that normally do not import.
Namibia’s annual imports from South Africa to meet national consumption has resulted in a streamlined and effective distribution chain from producers to millers and finally to consumers.
This includes import permits to millers, the smooth operation of grain carriers and logistics that support the grain sector, the effective storage of grain and the milling, packaging and supply of the processed product for retail. For countries that do not import as frequently, this kind of smooth process flow could prove to be a challenge and affects how quickly processed product is made available for consumption.
Under normal conditions, local producers of white maize grow half of national demand. Irrigated crops and dryland crops contribute about 50/50 to the total maize harvest. During a normal year, Namibia produces an average of 65,000 tonnes. While production under irrigation is anticipated to yield only slightly less this year, the total harvest is estimated at 45,000 tonnes. This number has been adjusted recently up from 37,000 and is in line with an anticipated slight increase in yield due to late rains that have led to a more optimistic outlook by dryland producers.
Nevertheless, this pushes up the import requirement from 85,000 tonnes during a normal year to 135,000 to meet consumer demand for the rest of 2016 and the first quarter of 2017.
Despite the reduced local production, millers are confident that they will secure enough white maize from South Africa to fulfil their milling needs after local production has been processed.
There is also the option for some of the larger millers to import white maize direct from other countries through Walvis Bay bypassing the supply from South African producers and importers.
The international price of white maize is determined by so-called futures, mostly traded in the United States on the Chicago Board of Trade but there are also some agricultural commodities exchanges in other financial centra, however futures here typically follow the Chicago benchmark.
For Namibian importers, it poses a complex pricing problem since the cost of maize in South Africa is based on export parity meaning the domestic price of maize is determined by what exporters would earn when they export South African maize to other markets.
However, once a country is forced to import maize from an origin outside the Southern African Customs Union, the price is quoted in US Dollar. With the very weak Rand, this obviously has a negative impact on the cost of imported maize. Additionally, imported maize carries a bigger transport ticket, adding to the landed cost. The domestic cost of milling remains the same.
In Namibia, cereal prices are further impacted by the 5% grain import levy on wheat and maize, the import VAT on wheat plus the 1.5% general import levy. Bread is therefore more than 20% more expensive than in South Africa due to government levies. Ultimately, the consumer pays for this.

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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