Sanlam on Thursday (10 September), reported a big drop in earnings for the six months ended June 2020, as the group battled through its most challenging period in its history, caused by the global coronavirus pandemic.
“This has been just the most unbelievably difficult period, probably the most challenging in the group’s more than 100 year history,” said Paul Hanratty, chief executive officer of the financial services group.
All of Sanlam’s key markets are currently experiencing a period of contraction, with a recovery to 2019 levels of economic activity only expected in the medium term, the group said.
- Net result from financial services decreased by 22%, to R3.9 billion;
- Net operational earnings decreased by 39%, to R3.51 billion;
- Diluted headline earnings per share of 185.8 cents, was up 10%;
- New business volumes increased by 40% to R157 billion;
- Net value of new covered business decreased by 29% to R666 million;
- Net new covered business margin of 2.06% (2.79% in 2019);
- No interim dividend declared in line with Group policy;
Net operating profit increased by 18% excluding the impact of Covid-19 on certain earnings components. Sanlam Personal Finance’s net result from financial services decreased by 12%, but was up 2% excluding the Covid-19 impact, and up 6% also excluding the R70 million one-off prior year tax adjustment at Sanlam Personal Loans in 2019.
Sanlam’s intermediated distribution channels were generally not regarded as essential services in those countries that imposed lockdowns to prevent the spread of the coronavirus, severely hampering the group’s sales forces reliant on face-to-face client interactions, it said.
As a result, life insurance sales were most severely impacted, with monthly sales volumes lagging targets by between 50% and 90% across many lines of business in the months of April, May and June 2020.
Digital and direct businesses, such as Sanlam Indie, MiWayLife and Sanlam Direct, and digital sales tools available to certain retail distribution channels provided some relief, but could not mitigate against markedly lower sales from the other traditional channels, the group said.
Requests for new business quotes at Sanlam Corporate stalled in the second quarter, despite the business being able to support clients remotely through the peak of the South African lockdown.
Sanlam said that the operating environment will remain challenging for the rest of 2020, with the eventual outcome of Covid-19 a significant uncertainty.
“Pressure on new business volumes is persisting as varying restrictions on the movement of people remain in force. This is aggravated by deteriorating economic conditions and rising unemployment in South Africa, materially eroding personal disposable income and the affordability of Sanlam’s offerings. These conditions also dampen client investor confidence,” it said.
Growth in new business volumes is therefore expected to reduce towards the end of the year.
“Our focus will remain on strategic execution and utilising the strength of Sanlam’s balance sheet to pursue value-enhancing opportunities. We have the necessary depth of talent to continue delivering value to our shareholders and other stakeholders despite the current headwinds,” said Hanratty.