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Car sales as a proxy reveal a host of underlying influences and trends not always so readily detectable

Car sales as a proxy reveal a host of underlying influences and trends not always so readily detectable

This graph showing new vehicle sales in South Africa, landed on my desk last week. The author is Reuters but the statistics come from the National Association of Automobile Manufacturers, or as it is known in the industry, Naamsa.

It is not a very reliable starting point to assume South African vehicle sales are pro-rata directly related to Namibian sales, but the graph serves as a good proxy to illustrate market trends. Applying it to a wider scope of enquiry, it is not farfetched to say that this same graph can be used as a proxy for the entire South African economy, at least as far as year to year comparisons go. I am using it also as a proxy for Namibian conditions because of the close correlation (up to the middle of last year) between SA and Namibian vehicle sales, and because of the very obvious linkages connecting the two economies.

The first observation is that there was a very significant low point in sales in the first half of 2009, mirrored by another low point in the first half of 2017. This is shown most clearly by the blue curve which is the plot based on actual sales. This is corroborated by local sales statistics.

The second observation is that the market was unprecedentedly robust from 2012 to 2015 with the largest amplitude somewhere close to the end of 2014. This is also revealed by the blue curve and again correlates well with the local market. From this observation, it is implied that 2015, or at least the second half of it, was already a downturn year.

This does not necessarily conform to our local market but it was corroborated by the growing spreads on the Namibian Rand-denominated Government Bonds listed on the JSE. It is also corroborated by another, often overlooked, statistic: – the precipitous plunge in our foreign reserves which began earlier in 2015 but which was politely ignored by our government. Remember, it was only on 27 October 2015 with the launch of our first Eurobond, that Namibians woke up to the fact that our foreign reserves were dangerously below the IMF-prescribed peer-country level, and that something may be amiss. It was however, another year before the Ministry of Finance realised it and slammed on the brakes.

But it is looking at the red curve, the smoothed line based on the one-year moving average, that a whole new birds’ eye view of the South African economy, and by extrapolation, ours, emerges. And this so-called bigger picture may just hold the clues to what we can expect for 2019.

If my view is correct that the downswing started in 2015 and accelerated during 2016, then it implies that the only true growth years were 2012, 2013 and 2014. Here it is necessary to bring in some more local detail, to put 2010 and 2011 in context.

At the beginning of 2010, our finance minister surprised us all with the novelty concept of counter-cyclical budgetting. This notion, to my mind, she defended well especially considering that our government debt was at a paltry 16% or 17% of Gross Domestic Product. The only thing she left out was to define the exit strategy.

At that time, it was my opinion that we will not see clear results from the additional budgetary stimulus, but that it will take at least 24 months to start having an effect, and 36 months before we would see a meaningful change in the statistics. This is also reflected in the car sales graph. Although there was a strong rising trend in 2010 and 2011, it was only in 2012 that the South African automotive market posted new record highs.

From an analysis point of view, it is academic whether I regard 2012, 13, 14 as the high end of the curve, or rather 2013, 14, 15. Overall the two segments from the curve show a very close correlation.

The red line also shows me that 2016 was the disastrous year, in other words, the year of biggest market retraction in a calendar 12-month period, and that is was only during 2017 that conditions settled somewhat with an upward blip towards the end of the year. Again, the validity of this graph as a proxy is confirmed by general economic activity, both here and in South Africa.

In 2016 we only suspected that we were in trouble and there were many proponents who argued that there was no reason for the finance minister to have slammed the brakes so hard at the end of 2016.

But indeed there were many good reason why he did that, or rather why he was forced to do it, to save the Namibian economy from a complete and total implosion. Again this is corroborated by the same graph. In 2017, we started realising, in a quantifiable way, that we were really in trouble, confirmed by the year-long sideways move of the red line in 2018.

The most important observation from the red curve, however, is that in 2017, the economy was basically back to its 2012 level with the only major difference being the incline. In 2012 it was upwards – easy to hide all sorts of sin, while in 2016, it was steeply downward, revealing all sorts of dark sins which could not longer be covered up by profits, over-pricing, tenderpreneuring, and all manners of financial manipulation.

What are we to make of this graph?

I can not tell how big or how fast the expected revival will be this year. Going by the macro side of the economy, it should have been there already in 2018 but it stubbornly refused to materialise. This indicates that there are variables on the micro side, the impact of which I underestimated, or the lack of proper statistics hiding their effect on the bigger economy.

Be that as it may. The only sound advice I can offer business owners and managers, is to use the graph as a proxy for a predictive tool; to assume that 2012 is a good budgetary and financial planning base, and to disregard the three back to back years of exceptional performance.

I am sure the finance minister sits with the same conundrum, i.e. the obvious discrepancy between what to expect in the economy based on the macro figures, and the sticky micro side which just do not want to get unstuck.

PS. – A comparable graph based on vehicle sales has been published by IJG. The major difference is that in their graph, the correlation is between 2018 and 2011, not 2012. But it is difficult to read this graph accurately as the progressive curves are so closely shaded.


About The Author

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