Sanlam now eyeing South-East Asia

Sanlam's group chief executive, Johan van Zyl, said on Thursday (8 September 2011) that one of the group's major initiatives in 2011 had been to pursue profitable growth opportunities with the aim of efficiently utilising discretionary capital.

To this end, Sanlam had reached an agreement with the Shriram Group, its partner in India, to increase Sanlam's exposure to the financial services activities of the Shriram Group. These are held through Shriram Capital and include commercial financing, retail financing, a distributor of wealth products and stock broking businesses, as well as a majority holding in each of the life and general insurance joint ventures with Sanlam.

"A Sanlam investment in Shriram Capital better aligns the Group's interest with that of our Indian partner and provides Sanlam with access to the strong growth and profit generating capacity of the financing entities. This investment is in line with our strategy to diversify both geographically and into broader financial services. We are pleased to build on our already strong relationship with Shriram, which has developed through our involvement with the two insurance entities over the past five years," Van Zyl said.

In terms of the agreement with Shriram, Sanlam will subscribe for an effective 26% interest in Shriram Capital through a cash contribution of R1.9 billion, while Sanlam's 26% interest in both Shriram Life Insurance and Shriram General Insurance will also be transferred to Shriram Capital. The existing management and governance arrangements in the insurance ventures, as well as Sanlam's entitlement to acquire a further 23% in both ventures, will remain unchanged, according to Van Zyl.

The transaction is still subject to regulatory and SA Reserve Bank approval.

Van Zyl also reaffirmed that Sanlam was investigating a number of opportunities for expansion in Africa and that the potential for expansion into South East Asia would also be considered. This includes potential consolidation in some markets as well as expansion into new countries, with Mozambique likely to be added in 2011.

Any further information on developments will be provided when appropriate, according to Van Zyl.

"As far as South-East Asia is concerned, we're not in a hurry, but we are looking and focusing on opportunities there in countries like Indonesia and Malaysia and so on."

Van Zyl added that the group still had about 800 million rand available in discretionary capital. Capital efficiency was a major strategic focus of the group, and any discretionary capital not used for corporate activity within a reasonable timeframe would be returned to shareholders, he said. Further share buy-backs would also be considered in periods of share price weakness.

Van Zyl said that to ensure appropriate strategic focus across the Sanlam group, the management structure had been changed with effect from 1 July 2011. He said that emerging markets outside of South Africa had been identified as a strategic future growth accelerator for the group.

To ensure appropriate management attention on these markets, all of the operations in Africa (excluding South Africa) and India had been combined into a Sanlam Emerging Markets cluster under the leadership of Heinie Werth (former chief executive of Sanlam Developing Markets). This included operations formerly managed within the Sanlam Personal Finance, Short-term Insurance and Institutional clusters, thereby effectively transforming the group's product-based approach in emerging markets into a holistic country-based approach.

"This will enable structured and focused development of the Group's exposure in these markets and contribute to leveraged growth opportunities," Van Zyl said.

He added that the South African consumer landscape was continuously transforming, with particularly entry-level clients migrating to the middle-income market.

"In line with the Group's client centric strategy to provide clients with a superior `Journey For Life' experience, it became appropriate to merge the South African operations of Sanlam Developing Markets with that of Sanlam Personal Finance under the leadership of Lize Lambrechts.

"This will ensure improved client service and the opportunity for a seamless addition of Sanlam solutions to clients' portfolios as their needs and level of disposable income change. At the same time it will ensure better coordination in targeting the full spectrum of the South African retail client market."

Van Zyl continued that the group's presence in the developed markets was primarily aimed at providing South African retail and institutional clients with international investment opportunities, while augmenting these niche operations with some local distribution footprint to enhance efficiency and economies of scale.

"The Sanlam UK operations are essentially investment management businesses and directly linked to the Institutional clusters' operations in these markets.

"The potential exists to extract further synergies from the Group's different UK operations. Management responsibility for Sanlam UK has accordingly been transferred to the Institutional cluster under Johan van der Merwe to ensure focused management of the Group's developed market exposure," Van Zyl explained.

"We are confident that the new management structure will contribute to enhanced growth and value creation for all our stakeholders," he added.

Sanlam on Thursday reported a 30% rise in diluted headline earnings per share to 109.6 cents for the six months ended June 2011 from 84.1 cents a year ago.

New business volumes were up 11% to R55 billion, while the net value of new covered business was up 26% to R356 million. The group reported net fund inflows of R11 billion, up 72%.

The company said despite overall positive economic growth in South Africa, the economy remains fragile with many consumers still struggling with high debt levels despite historic low lending rates. Increases in administered prices aggravate the pressure on disposable income and are also expected to reflect in an increase in inflation over the next year.

Looking ahead, Van Zyl said operating conditions for the rest of 2011 were expected to remain difficult.

"The economies of developed markets are likely to remain weak with downside risk increasing significantly since the end of June. This elevates the risk of a slowdown in demand for commodities, which will impact on growth in the resource-based economies in which the Group operates. Volatility in investment markets is commensurately also expected to remain. The outlook for the remainder of the 2011 financial year therefore remains cautious," he said.