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Weekly overview and short-term outlook to Wednesday 20 March 2019

Weekly overview and short-term outlook to Wednesday 20 March 2019

Visual: Synoptic map for southern Africa at Friday 15 March

Source: South African Weather Service

Recent Developments

The visual for this week show only two significant items in what is otherwise a fairly regular synoptic pattern.

The first is the remnant of Tropical Cyclone Idai which migrated down the Mozambican Channel from Monday to Wednesday when it made landfall in central Mozambique. From there it degenerated quickly into a tropical depression with heavy rain north of Beira but restricted to a small area. The impact further inland was minimal.

The second important feature which is far more important to Namibia, is the position of the 1024mB cores of the three high pressure cells spread from west to east of the continent. Note that all three cores are more or less at the 40°S latitude.

The continental high south of the continent is for us the most significant because its core has shifted by a good 1000 km, very similar to its movement three weeks ago. The South Atlantic high’s normal summer trajectory usually takes it around Cape Agulhas so it is not always a reliable indicator of what the position of the next approaching South Atlantic high will be but when all three cores are at a similar latitude, it provides a fairly reliable indicator that the high pressure belt’s main activity has shifted south.

This is corroborated by the other high pressure cells in the rest of the hemisphere and can readily be seen on any of the NOAA charts that map the entire southern half of the globe. This is potentially a good sign for Namibia albeit very late in the season.

This small beacon of hope is unfortunately neutralised by the 30-day Southern Oscillation Index of the Australian Bureau of Meteorology. It has almost gone off the charts over the past month reading minus 15 this week. This is a very negative signal for southern Africa as there is a strong observed correlation between the Southern Oscillation Index and summer rainfall in southern Africa. The only consolation is that the western fringe of the sub-continent sometimes receives more rain when the index is strongly negative, but this is not based on empirical evidence. It has been observed only intermittently and not document in any scientific study.

For the first part of this week, coastal conditions were marked by a fresh to strong southwesterly wind which tended to pick up in intensity as the day progressed and then subsided around midnight This is the result of the significant pressure differential between central Botswana, where it is unseasonally hot, and the Namibian coastline, where it is unseasonally cold with foggy conditions that push deep inland, almost like a winter pattern.

A weak mid-level trough ran through Namibia from north to south for the duration of the week but it was only by Wednesday, when the South Atlantic high has migrated to a position south of the continent, that good cloud formation started to appear. This was followed by widespread showers on Thursday and positive conditions carrying on into Friday. But the rainfall continued to be very isolated and brief.

The typical measurements were between 5 and 15 mm. Severe drought conditions that are now exacerbated by the ongoing poor season are firmly established over the entire country.

On the Radar

Over the weekend, the tropical depression over Mozambique fizzles out and moves deeper inland. Heavy rain is expected to continue over central Mozambique moving to eastern Zimbabwe.

In Namibia the signature north south mid-level trough remains in place, extending west to the edge of the escarpment, same as it has done on Thursday and Friday this week.

Overall conditions are rather static with a hot central Botswana and higher pressure just off the Namibian coastline. This indicates that the south-westerly fresh to strong winds at the coast will continue.

With the trough remaining over Namibia, cloud formation will again be good over the interior reaching west to the escarpment, but alto conditions are negative so convection is suppressed. As with this season so far, it can literally rain anywhere over the north, the central high ground and into the south-eastern corner (not further south than Gochas), but it will at most be jaloersreen. A good, well-developed system is not in the outlook.

The outlook for next week is very similar: hot interior, strong south-westerly winds at the coast, much cloudiness east of the escarpment, and intermittent, isolated, brief showers. Even the northern regions, from Kunene in the west to Zambezi in the east, are not expected to see much rain, if any at all.


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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