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“the largest 3D seismic campaign never ever before carried out in offshore Namibia”

Sometime between the Samba dances at HRT’s launch and this week’s investment forum, someone must have whispered into the Energy Minister’s ear that a seismic anomaly is not equivalent to an oil discovery. But at last, the Minister said on a public platform that no oil has been discovered yet.
Since Reuters (mis)quoted the Minister on the fantastic discovery of 11 billion barrels of oil, I was flooded with enquiries from Brazil, South Africa, Europe, the UK, the USA and even one from India.
If one goes by the Minister’s statement he made in July in parliament, it is clear he did not explicitly say any oil has been discovered. But the ambiguous way he presented his information, certainly lent itself to misinterpretation. This was also rather soon after HRT flew in the Brazilian Samba dancers and I suppose it was important to create and maintain the appearance of a local oil discovery.
HRT’s IPO in October 2010 raised US$1.4 billion in capital of which US$300 million is earmarked for exploration offshore Namibia. HRT wanted to raise US$1.7 billion but could not convince the market of the value of its future operations. A Brazilian analyst later told me investors only saw value in HRT’s Amazon basin concessions, and regarded the Namibian appendix as a bonus if any actual discoveries were to materialise.
The other two explorers, Chariot Oil & Gas, and Tower Resources through its partner Arcadia, through yet another operation, Neptune Exploration, also reported rock morphologies with the potential to house hydro carbon reservoirs.
Both Chariot and Arcadia were not nearly as vocal as HRT. At least they did not host flashy launches of local operations; they did not fly in a troupe of dancers, and they did not register local companies loaded with political fat cats.
But the pervasive ignorance among government politicians was amply demonstrated, and later documented through all the claims and counter claims that originated from the so-called oil discovery. The headline to this column is pirated from the Minister’s statement which gives an indication that although there are many clever words in his statement, he does not know his elbow from his eyebrow, where it concerns oil.
Oil exploration in Namibian waters did not start with the first acreage auction around 1992. It started in 1972 when Soekor started a systematic magnetic survey of the entire southern African coastline from the Kunene river mouth all the way to Kosi Bay on the opposite side of the continent. This is how Kudu was discovered.
Much more exploration has been done since and in the years from 1992 to about 2000, several large international oil firms were involved in prospecting blocks on the northern arch of the Walvis Ridge, the southern rim of the Namibe Basin (more or less on the 18th parallel), and the Nimrod fields north of Kudu. However, after almost a decade, the big companies lost interest and the Ministry battled to find buyers for its prospecting acreage at its much publicised auctions.
Massive amounts of two dimensional seismic data have been accumulated and lately I see the focus has shifted to three dimensional modelling based on the vertical integration of the many 2D cuts.
There is another “small” snag often overlooked. Typical oil exploration and extraction take place in water depths ranging from 150 to 350 metres. 600 metres is regarded as deep and there are not many drill operators that can work at these depths. Brazil’s Petrobraz was the first explorer to drill a well in 1000 metre water depth but in the process, they lost a rig. The basic fact is: It is not easy to operate in water depth of more than 600 metres. There is a host of logistical and technical considerations. Often targeted reservoirs are another 2000 or 3000 metres below the sea floor so one gets an idea of how complicated deep-sea drilling is.
But since I am not prepared to forsake prosperity on the idiocy of fat cats, I need to point out that there probably is oil below our ocean. It is just a matter of time before a well finds a target. But then again, from 1972 to 2011, that well has not been drilled yet.
And as a last teaser: In the early nineties I visited a previous Minister of Finance in his office, some time after the first acreage auction. On his window sill stood a row of small sample bottles with what looked to me like crumbly black soil. “We know there is oil” he said, “but the big petroleum companies will not tell us. They will seal the well with a radioactive beacon, and one day when it suits them, will they come back and open it!”

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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 www.sanlam.com.