Santam Limited

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• 32% INCREASE IN GROSS WRITTEN PREMIUM                                                                                                                                                                  Santam Limited
                                                                                                                                                                                                                                                  and its subsidiaries
• 39% INCREASE IN OPERATING INCOME                                                                                                                                            Abridged financial results
• 16% INCREASE IN EARNINGS BASED ON LONG-TERM RATE OF RETURN                                                                                                      for the year ended 31 December 2002

                                                                    Reviewed           Audited
INCOME STATEMENT                                                  Year ended        Year ended
                                                                31 December       31 December
                                                                        2002              2001         %
                                                        Notes      R millions        R millions   Change       NOTES TO THE FINANCIAL STATEMENTS
Gross written premium                                                  8 197             6 206           32
                                                                                                               1   ACCOUNTING POLICY
Net written premium                                                    5 635             4 574           23
                                                                                                                   The abridged consolidated financial statements are prepared in accordance                  during the year and the long-term investment return calculated
Net earned premium                                                     5 548             4 760           17        with the South African Statements of Generally Accepted Accounting                         on the basis described below.
Claims incurred                                                        3 925             3 367                     Practice and are consistent with those used in the annual financial
Net commission                                                           698               635                     statements for the year ended 31 December 2001 except for the change                       The long-term investment return is determined by the directors and is
Management expenses                                                      783               661                     in the accounting policy as mentioned below.                                               based on historical experience and current market conditions, taking
                                                                                                                                                                                                              account of inflation expectations and consensus economic and
Underwriting surplus                                                       142               97          47    1.1 Change in accounting policy                                                                investment forecasts.
Investment return on insurance funds                                       115               88                    During the year the company changed its accounting policy with respect
                                                                                                                   to the treatment of investment income. Previously, the net unrealised                      To calculate the long-term investment return, the assumed long-term
Operating income                                                           257             185           39
Investment income                                           2              179             538                     surplus resulting from the revaluation of investments, and the realised                    rate of return of 13% per annum before tax, is applied to the fair value
Income from associates                                                      (1)              2                     surplus resulting from the sale of investments, were directly transferred                  of the investments held in shareholders’ funds on a monthly basis.
                                                                                                                   to equity as non-distributable or distributable reserves.                                  Holdings in associated companies are not included in shareholder funds
Income before taxation                                                     435             725                                                                                                                for this purpose. The directors are of the opinion that this rate of
Taxation                                                    3              116             142                     From this year, the realised and unrealised surpluses are recognised in the
                                                                                                                   income statement. The comparative amounts have been appropriately                          return is appropriate for indicating the earnings based on returns
Minority interest                                                           14              12
                                                                                                                   restated. As there has been no change to the opening reserve balances,                     expected to be earned over the long-term and that the disclosure of the
Headline earnings                                           4              305             571          (47)       the effect of this change on the attributable earnings is reflected in note                long-term rate of return appropriately discloses total earnings of the
Amortisation of goodwill                                                     3               –                     4 below.                                                                                   company, eliminating the short-term volatility of inter alia equity markets.
Attributable earnings to shareholders                                      302             571
                                                                                                               1.2 Accounting policy for the long-term rate of return adjustment                        1.3 Comparative figures
Earnings based on long-term rate of return                  5              516             444          16         The long-term rate of return adjustment represents the difference                        Where necessary, comparative figures have been restated to conform
                                                                      Cents             Cents                      between the actual investment return earned on shareholders' funds                       with changes in presentation in the current year.
Earnings per share
Headline earnings per share                                                274             518                                                                                                                                               Reviewed                           Audited
Earnings per share based on the long-term rate of return                   464             404                                                                                                                                             Year ended                        Year ended
Attributable earnings per share                                            271             518                                                                                                                                           31 December                       31 December
Dividends per share                                                        170             154                                                                                                                                                   2002                              2001
                                                                                                                                                                                                                                            R millions                        R millions
                                                                    Reviewed                      Audited
BALANCE SHEET                                                           As at                       As at
                                                                31 December                  31 December       2 INVESTMENT INCOME
                                                                        2002                        2001         Interest                                                                                                                            113                             102
                                                                   R millions                   R millions       Dividends                                                                                                                           114                             133
ASSETS                                                                                                           Foreign exchange differences                                                                                                        (17)                              –
Non-current assets                                                                                               Net investment deficit                                                                                                              (22)                            311
   Fixed assets                                                             41                           36      Investment management fee                                                                                                            (9)                             (8)
   Goodwill                                                                 33                            –      Investment income                                                                                                                   179                             538
   Deferred taxation                                                        14                            –
Investments                                                            3   208                      3   600    3 TAXATION
   Listed at market value                                              2   480                      2   939      Analysis of income tax
   Unlisted at directors' valuation                                        697                          620      Operating profit                                                                                                                     86                              62
   Investment in associated companies                                       31                           41      Investment income                                                                                                                    30                              80
Technical assets                                                       2   073                      1   647      Income tax                                                                                                                          116                             142
Current assets                                                         3   548                      2   022
   Amounts due by debtors, re-insurers and                                                                     4 CHANGE IN ACCOUNTING POLICY
   outstanding premiums                                                1 276                          935        Reconciliation of headline earnings
   Cash and cash equivalents                                           2 272                        1 087        Attributable earnings to shareholders                                                                                               302                             571
Total assets                                                           8 917                        7 305        Net investment deficit                                                                                                               22                            (311)
                                                                                                                 Taxation on investment income                                                                                                         7                              50
EQUITY AND LIABILITIES                                                                                           Headline and attributable earnings as stated in terms of previous policy                                                            331                             310
Capital and reserves                                                   3 375                        3 230
Minority shareholders' interest                                           39                           29        Headline earnings per share (cents) – previous policy                                                                               297                             282
Deferred taxation                                                         34                          105
Technical provisions                                                   4 226                        3 295      5 NET LONG-TERM RATE OF RETURN ADJUSTMENT
Current liabilities and provisions                                     1 243                          646        Attributable earnings to shareholders                                                                                               302                             571
Total equity and liabilities                                           8 917                        7 305        Net long-term rate of return adjustment                                                                                             214                            (127)
                                                                                                                   Gross investment return                                                                                                           255                            (140)
Number of shares in issue (millions)                                   111,8                        110,9          Tax                                                                                                                                41                             (13)
Weighted average number of shares in issue (millions)                  111,4                        110,2        Earnings based on long-term rate of return                                                                                          516                             444
Net asset value per share (cents)                                      3 018                        2 914
                                                                                                                 A comparison of the aggregate actual and calculated long-term returns after
Solvency margin (%)                                                         60                           71      tax since 1 January 2001 is set out below:
                                                                                                                 Actual returns                                                                                                                      608                             459
                                                                    Reviewed                      Audited        Long-term returns                                                                                                                  (695)                           (332)
STATEMENT OF CHANGES IN EQUITY                                          As at                       As at
                                                                31 December                  31 December         Excess aggregate short-term fluctuations                                                                                            (87)                            127
                                                                        2002                        2001
                                                                   R millions                   R millions
Balance as at beginning of period                                      3 230                        2 795      COMMENTS                                                                                  PROSPECTS
Shares issued                                                             21                           24      Operating income for the group increased by an impressive 39% in the year under           There is an expectation that the short-term insurance market will remain
Attributable earnings to shareholders                                    302                          571      review. The underwriting surplus of R142 million benefited both from improved             favourable for 2003. The cost of reinsurance is however expected to increase in
Dividends paid                                                          (178)                        (160)     underwriting margins and increased business volumes. Higher short-term interest           line with market trends and reduced capacity.
                                                                                                               rates and improved cash flow management contributed towards the increased                 During January 2003 the group concluded the acquisition of the British niche
Balance as at end of period                                            3 375                        3 230      investment return on insurance funds.                                                     insurer Westminster Motor Insurance Association Ltd, which specialises in
                                                                    Reviewed                      Audited      Climatic conditions in the second half of the year were rather trying. After a            insurance for taxis and private vehicle rental companies. The purchase of
CASH FLOW STATEMENT                                               Year ended                   Year ended      virtually storm-free first half, severe snow storms and floods in the Eastern Cape        £23.3 million was funded from own resources, and is seen as an important strategic
                                                                31 December                  31 December       as well as hail storms in Gauteng and the Western Cape late in the year caused            step for diversifying the group’s income base, especially in view of its dominant
                                                                        2002                         2001      significant damage. Conversely, 2002 was a good year for the crop insurance               position in the South African market.
                                                                   R millions                   R millions     business where far less hail damage was experienced, particularly in the first half of    The focus for 2003 will be on improved productivity and cost reduction.There will
Cash generated from operations                                           682                          (89)     the summer season.                                                                        be an increased effort to reduce the cost of reinsurance without exposing the
                                                                                                               Gross written premium increased significantly by 32% compared to an increase of           group to undue risks. Owing to the foreign acquisition and planned adjustment in
Income before taxation                                                   435                          725
Depreciation charge                                                       16                           25      23% at net written premium level. The difference in growth is mainly due to               the reinsurance programme, it is anticipated that capital utilisation will improve
Other non-cash adjustments                                                (8)                          (7)     reinsurance arrangements to protect the group from concentration risk in certain          further with solvency margins reducing mildly in 2003.We expect equity markets
Investment income                                                       (294)                        (626)     business areas.                                                                           to remain unsettled for 2003, directly affecting investment results.
Change in working capital                                                533                         (206)     The Lion of Africa, in which Santam holds 50%, reported very pleasing results for         DECLARATION OF DIVIDEND (NUMBER 97)
Investment income                                                          309                          315    the year with earnings of R19.4 million, compared to a loss of R13.5 million in 2001.     Notice is hereby given that the board has declared a final dividend of 105 cents
                                                                                                               Financial guarantees amounting to R30 million were exercised in relation to certain       per share (2001: 95 cents). Shareholders are advised that the last day to trade
Cash generated by operating and                                                                                Africa Group companies, which adversely affected this line of business. Santam
investing activities                                                     991                          226                                                                                                "cum dividend" will be Thursday 20 March 2003.The shares will trade "ex dividend"
                                                                                                               subsequently took control of four Africa Group companies which are involved in            from the commencement of business on Monday 24 March 2003.The record date
Taxation paid                                                            (96)                         (70)
                                                                                                               short-term insurance activities.                                                          will be Friday 28 March 2003 and the payment date will be Monday 31 March 2003.
Dividends paid                                                          (178)                        (162)
Cash retained from operating and                                                                               The group’s investment portfolio did not escape the torrid market conditions and          Share certificates may not be dematerialised or rematerialised between Monday
investing activities                                                       717                           (6)   compared to the exceptional performance in 2001, when the capital value                   24 March 2003 and Friday 28 March 2003, both dates inclusive.
Proceeds from ordinary shares issued                                        21                           24    increased by R311 million, the market values decreased by R22 million. However
Proceeds from disposal of associated companies                              13                            –    on a relative basis the portfolio performed satisfactorily.                               REVIEW BY AUDITORS
Investment in associated companies                                          (5)                           –                                                                                              The company’s external auditors, PricewaterhouseCoopers Inc, have reviewed the
                                                                                                               As a consequence of the poor short-term performance of the investment                     abridged financial results. A copy of their opinion is available on request at the
Investment in subsidiaries                                                 (36)                           –    portfolio, headline earnings decreased by 47% despite the favourable operating
Cash acquired on acquisition of subsidiaries                               143                            –                                                                                              company's registered office.
                                                                                                               results. Applying the long-term rate of return, which eliminates the short-term
Cash utilised in addition to fixed assets                                  (21)                          (2)   volatility, earnings increased by 16% from R444 million to R516 million.
Increase in investments and liquid assets                                  832                           16                                                                                              On behalf of the board
                                                                                                               The group generated R991 million in cash from its operating and investment
                                                Gross written premiums        Underwriting surplus             activities, reinforcing its healthy financial position. Favourable crop insurance         DK SMITH
SEGMENTAL REPORTING                              Reviewed         Audited    Reviewed        Audited           results during the last quarter as well as new businesses acquired during the             Chairman
                                               Year ended     Year ended   Year ended     Year ended           year have impacted favourably on cash flows. The solvency margin remained at
                                             31 December 31 December 31 December 31 December                   a healthy 60%, down from 71% at the end of 2001, mainly as a result of the                J VAN ZYL
                                                     2002           2001         2002           2001           increased premium volume.                                                                 Chief executive                                                 27 February 2003
                                                R millions      R millions  R millions     R millions
Insurance class
                                                                                                                                                                              NON-EXECUTIVE DIRECTORS                       TRANSFER SECRETARIES
Property                                            2 921          2 091               19                (5)                                                                  JJ Geldenhuys, EM Groeneweg,                  Computershare Investor Services Limited
Transportation                                        277            208               40                17                                                                   JG le Roux, NM Magau, AR Martin,              70 Marshall Street, Marshalltown 2001
Motor                                               3 085          2 594               53                73                                                                   JE Newbury, P de V Rademeyer,                 PO Box 61051, Marshalltown 2107
Accident and health                                   223            204               11                23                                                                   GE Rudman, DK Smith (Chairman),               Tel (011) 370 5000, Fax (011) 688 7721
Guarantee                                             210             84              (13)               21                                                                   BP Vundla                           
Liability                                             496            297               19                34
                                                                                                                                                                              EXECUTIVE DIRECTORS                           SANTAM HEAD OFFICE AND REGISTERED ADDRESS
Engineering                                           300            210               (7)                –                                                                                                                 1 Sportica Crescent,Tyger Valley, Bellville 7530
                                                                                                                                                                              JA van Tonder, J van Zyl (Chief executive),
Miscellaneous                                         685            518               20               (66)                                                                                                                PO Box 3881,Tyger Valley 7536
                                                    8 197          6 206              142                97             When life happens                                     JW Wilken
                                                                                                                                                                              COMPANY SECRETARY
                                                                                                                                                                                                                            Tel (021) 915 7000, Fax (021) 914 0700
                                                                                                                                                                              VF Malie                                      Registration number 1918/001680/06
Due to the general nature of the balance sheet, segmental reporting is limited to the income statement.
                                                                                                                                                                                                                            ISIN ZAE000006854, JSE share code: SNT, NSX share code: SNM

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                                                                                                               3/0081 – SANTAM – 54 X 10
                                                                                                                  English – 7th PROOF