Sanlam’s Investment Case – 1H10 Sanlam’s Investment Case – 1H10 Slide # 1 Slide # 1
Clear strategy (firm commitment to deliver on promises) 1. Profitable growth opportunities 2. Diversification (reducing risk of overall portfolio) 3. Cost efficiency focus 4. Capital efficiencies 5. Prudence underpins quality and sustainability of base 6. Creation of shareholder value (share price performance) 7. Solid operational track-record (enhancing profitability and returns) 8. Sanlam’s Investment Case – 1H10 Slide # 2
Maximise profitable growth Maximise capital efficiencies Net Business Flows Growth / Diversification Earnings Operational Efficiencies Returns (ROGEV) Optimal Application Capital Strategic Investments Efficiency Return of Excess Sanlam’s Investment Case – 1H10 Slide # 3
Under penetrated lower income market in South Africa Sanlam’s customer mix is best aligned with growth segments in South Africa SA attractive demographics represent an opportunity for insurers Africa is an emerging insurance market and offers an attractive growth story Sanlam has the widest Pan-African presence and offers an excellent platform for expansion Growth in high net worth / mass affluent segments within SA Resulting in profitable growth for Sanlam Sanlam’s Investment Case – 1H10 Slide # 4
Access to life insurance products by customer segments Access to life insurance products by population group Source: Credit Suisse research. Source: Finscope. Note: High income defined as LSM 9-10, Middle income LSM 6-8, Low income 1-5. Note: Data based on survey results of South African financial habits. Monthly household income Living standards improvement 26% 6% 9% 18% CAGR CAGR CAGR CAGR Living Standard Measure (“LSM”) is a categorization ranging from 1 to 10 used extensively by marketers and advertisers as a means to Note: segment the population. It is crude proxy for wealth, with the lower LSM groups comprising the most impoverished end of the spectrum. 5 A rising middle class Black population represents a sizable market for insurance products Sanlam’s Investment Case – 1H10 Slide # 5
Customer breakdown by company Source: Credit Suisse research. Sanlam individual life APE development in South Africa Sanlam 1H10 PVNBP margins in South Africa by segment 06 – 10 Personal Finance CAGR : 7,6% Entry Level Mid-affluent Income Group 06 – 10 Developing Market CAGR: 17,6% (ZAR in millions) Source: Company filings and analyst presentation. Source: Company filings and analyst presentation. Note: Sanlam Personal Finance caters towards middle, affluent and self employed markets while Note: Sanlam Personal Finance caters towards middle, affluent and self employed markets while Sanlam Developing Markets caters entry-level markets in South Africa through Sanlam Sky and Sanlam Developing Markets caters entry-level markets in South Africa through Sanlam Sky Channel Life. and Channel Life. Sanlam Developing Markets, Sanlam‟s entry level proposition, has experienced strong growth and profitability Sanlam’s Investment Case – 1H10 Slide # 6
Demographics comparison Population Population Working age Median age Literacy Urbanization GDP per Income per National (mm) growth population (mm) (years) rate rate capita (US$) capita (US$) South Africa 48.8 0.8% 17.8 24.2 82.4% 60.7% 10 100 3 633 China 1 328.0 0.5% 807.3 37.6 90.9% 43.1% 6 140 1 804 India 1 148.0 1.6% 458.0 24.4 61.0% 29.5% 2 930 838 United States 304.1 0.9% 154.3 36.8 NA 81.7% 47 496 42 858 Indonesia 237.5 1.2% 112.0 27.5 61.0% 51.4% 3 820 1 774 Brazil 191.9 1.3% 93.7 27.6 88.6% 85.6% 10 320 6 285 Nigeria 146.3 2.1% 46.3 18.3 69.1% 50.6% 2 170 841 Russia 141.8 (0.4%) 75.8 37.6 99.4% 72.8% 15 940 7 863 Egypt 81.5 1.8% 24.7 23.4 91.0% 43.3% 5 440 1 920 United Kingdom 61.4 0.7% 31.2 39.2 99.0% 89.9% 35 760 41 341 Australia 21.0 1.2% 11.3 36.9 99.0% 88.7% 37 840 32 535 Source: Euromonitor (Data as of December 2008) Income per capita in South Africa (ZAR) GDP per capita in South Africa (ZAR) Source: EIU. Source: EIU. Sanlam’s Investment Case – 1H10 Slide # 7
Population in South Africa (in Millions) Ratio of working age to population above 60 2000 – 2010 CAGR 2010 – 2020 CAGR 49.1% #1 Brazil (2.0%) #1 China (3.7%) 48.3% 48.3% 47.5% 45.1% #2 China (1.5%) #2 Russia (3.3%) #3 India (1.3%) #3 Indonesia (2.9%) #4 Indonesia (1.2%) #4 Brazil (2.8%) #5 South Africa (1.2%) #5 South Africa (2.7%) #6 Russia 0.6% #6 India (1.9%) 8.6 8.5 8.3 8.0 6.4 6.2 5.7 5.4 4.9 3.8 3.4 2.6 2000A 2005A 2010E 2015E 2020E South Africa India Indonesia Brazil China Russia Source: US Census Bureau. Source: US Census Bureau.a Demand for savings and protection products is expected to increase as the number of working people supporting an aging population decreases Sanlam’s Investment Case – 1H10 Slide # 8
South Africa‟s contribution to Life insurance penetration of Projected size of life insurance Sub-Saharan African countries (2009) premium in Africa (2009) market in Africa in 2010 (US$ in billions) 2009A BRIC average: 1.2% Global average: 4.0% 2010E Rest 37.9 of 35.5 South Africa 10.0% 32.6 32.6 Africa 10.0% Namibia 5.2% Botswana 1.5% Kenya 0.9% Ghana 0.5% Zambia 0.5% South Africa Tanzania 0.1% 90.0% Nigeria 0.1% 2009A total premiums: US$ 34bn Source: Swiss Re and AXCO. Source: Swiss Re. Note: Potential market size calculated assuming that those countries above the targeted penetration rate will maintain its current penetration rate. Sanlam’s Investment Case – 1H10 Slide # 9
Number of markets present in Sub-Saharan Africa New business volumes* 06 – 10 Africa CAGR : 14,6% 06 – 10 Overall CAGR : 7,2% 47.2 48.7 (ZAR in millions) 45.4 35.8 Source: Company filings. Source: Company filings. Note: Excluding South Africa. * Note : excluding white Label Value of new business 1H10 PVNBP margins 06 – 10 Overall CAGR : 16,8% 06 – 10 Africa CAGR: 29,4% 290 (ZAR in millions) 276 260 172 Source: Company filings. Source: Company filings, analyst presentation. South Africa includes SPF, Sky, Channel Life and Employee Benefits. UK based on Sanlam UK. Sanlam has achieved strong growth and profitability from its Sub-Saharan operations Sanlam’s Investment Case – 1H10 Slide # 10
Markets of potential interest Population and real GDP growth 3.5% 2008 – 2011 Population CAGR 3.0% Tanzania Kenya Angola 2.5% Nigeria Ghana 2.0% 1.5% Gabon Zambia 1.0% 0.5% South Africa 0.0% 0 2 4 6 8 10 12 14 16 2008 - 2011 Real GDP Growth Ghana Nigeria Uganda Kenya Insurance penetration Tanzania Zambia Angola Malawi Zimbabwe Mozambique Namibia Botswana Countries with Sanlam operations Potential target Source: EIU, AXCO and Swiss Re. Sanlam’s Investment Case – 1H10 Slide # 11
f EV Breakdown (1H10) – R50,2bn Cross-sell opportunities Traditional life assurance Short-term Investment insurance management EV : ZAR 50,2 billion Other financial services Source: Company filings. Source: Company presentation Clients with a single provider (% untapped) Source: Company presentation as of June 2009 Sanlam’s Investment Case – 1H10 Slide # 12
Amidst a difficult business environment, VNB in 1H10 grew by 16% yoy (CAGR 17%pa), while average margins continued to rise Value of new business (Rm) vs new business margins (%) 350 2.50% 300 2.30% 250 2.10% 200 150 1.90% 100 1.70% 50 - 1.50% 1H06 1H07 1H08 1H09 1H10 South Africa Africa Other International Margins (net) - rhs Slide # 13 Sanlam’s Investment Case – 1H10 Slide # 13
Group net operating profit (Rm) 1H10 - R1 448m 1H03 - R736m SNT 18% SNT 10% SCM 5% SICM SI 4% 11% SPF 49% SEB SPF 9% SI 65% 17% SEB SUK 4% SDM 2% 6% Accelerated success towards providing a wide range of client-centric solutions (reducing risk of portfolio) Sanlam’s Investment Case – 1H10 Slide # 14
Intensified focus on costs in light of Sanlam’s expansionary mode Group administration ratio (%) Sanlam’s Investment Case – 1H10 Slide # 15
21.1 7.1 3.9 3.3 3.3 2.3 1.2 Over R21bn of capital earmarked for redeployment since 2005 Sanlam’s Investment Case – 1H10 Slide # 16
Capital efficiency / optimisation remains a priority : Capital allocated to business units in a manner which will achieve optimal ROGEV targets Application of current discretionary capital of R2,8bn: Value-adding strategic initiatives (maximise return on GEV) Consider capital redistribution options Timeframe: Strategic projects assessed on an ongoing basis Sanlam’s Investment Case – 1H10 Slide # 17
“De - risking” at Sanlam – shifting the „Efficient Frontier‟ Based on principles of optimal asset allocation Obtaining similar returns, but at a lower level of risk Long-term decision (not based on weaker equities) Expected Return Standard Deviation (Risk) Sanlam’s Investment Case – 1H10 Slide # 18
Note : Returns based on 5-year averages - Special dividends (All-in returns for the SA Financial Index), Share buy- back (Sanlam’s all -in returns), Return on new business (5 yr average IRR of new business strain) Sanlam’s Investment Case – 1H10 Slide # 19
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