Financial Services Editor

SANLAM raised headline earnings 10,5% to R2,3bn in the year to December as big increases in contributions from Santam and Absa helped to counter flat earnings in its core life business and substantial restructuring costs in its banking and offshore operations.

The results come after a year in which Sanlam tied up an empowerment deal with the Ubuntu-Botho consortium led by Patrice Motsepe, and in which it sorted out its banking strategy and refocused its international operations.

Though net operating profit declined 5,4% to R1,4bn, the group recorded a R4,9bn net inflow of client funds, sharply reversing the R3,9bn net outflow seen in 2002.

This was mainly due to better investment performance at Sanlam Investment Management, but also reflected the success of short-term insurance subsidiary Santam.

Johan van Zyl, who took over as CE a year ago after the departure of Leon Vermaak, said the group's restructuring and cost-cutting was now done. The group had realised the R250m in cost savings it announced six months ago.

The results were a base from which Sanlam could move forward, taking advantage of the upside potential of its new focus on profitability, its new co-operation agreement with Absa and the empowerment transaction with Ubuntu-Botho, he said.

Sanlam yesterday disclosed further details of the R1,1bn empowerment deal, which will see the consortium taking 6% of Sanlam now but which links a further 2%-4% to an "earn-out" that runs until 2013.

It gives the new partners an incentive to grow profitable new life, employee benefits, asset management and unit trust business for Sanlam. The deal has been signed and the funding raised, and it is due to go to shareholders for approval.

Had the deal been in place for financial 2003, Sanlam finance director Flip Rademeyer said it would have diluted earnings and embedded value by 3,5%.

However, Sanlam shareholders stood to recover all of this over the next 10 years if the deal added the new business contemplated in the earn-out arrangement.

Van Zyl said Sanlam was already seeing trade union business coming in as a result of the deal.

New business in its core life business was down 20,7% on an indexed basis.

The group was hit particularly hard by the industry-wide decline in single premium business. Van Zyl said the life business's major worry was that the group had not been able to stem negative outflows. Bringing in new, and retaining existing business was a key focus.

In banking, Sanlam has signed a bancassurance agreement with Absa and has restructured Gensec, which has been downsized and renamed Sanlam Capital Management. Sanlam reported a R19m loss from Gensec .

There was a small loss too from the international operations. Van Zyl emphasised the group's strategy was oriented towards small, focused offshore businesses it was not seeking the big businesses it had in the past, and had cut its international cost base substantially. It had taken the full knock of restructuring and would take profits this year.

The Bottom Line: Page 12

Mar 05 2004 07:40:36:000AM Hilary Joffe Business Day 1st Edition