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Sanlam CEO cautiously sees rand stabilising

Mar 11 2017 10:34
Matthew le Cordeur
Ian Kirk, the group chief executive of Sanlam. (Pi

Ian Kirk, the group chief executive of Sanlam. (Picture supplied).

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Sanlam Limited [JSE:SLM]

Last traded 60
Change 1
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Cumulative volume 4725050
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Cape Town – Sanlam Group CEO Ian Kirk said the rand should stabilise to the September 2016 level (between R14.40 and R13.80 to the dollar), but warned that emerging market currencies were difficult to predict.

Following weeks of strong performance, the rand on Thursday succumbed to dollar strength as the US unit gained momentum against most of its peers on the back of remarkably strong US employment numbers for February. It was trading at R13.29 at 13:30 on Friday.

Kirk was speaking to Fin24 on Friday after Sanlam’s [JSE:SLM] annual results released on Thursday showed a 6% decline in normalised headline earnings.

The company said the decline was as a result of negative foreign currency translation differences and weak equity market performance during 2016.

However, Kirk pointed out that Sanlam views its net operating profit as the main indicator of the performance of the insurance group. Here, net result from financial services increased by 10% from R7.3bn in 2015 to R8bn in 2016.

Sanlam Investments achieved overall growth of 4% in its net result from financial services. However, Kirk said “our investment earnings on capital was negative… and that had an impact on the overall normalised headline earnings per share, which was down 6%”.

“We hold capital to back our insurance liabilities so we can operate and that’s invested in various assets in various geographies,” he said. “The equities didn’t perform for us. Bonds had a reasonable performance, but the assets inside of South Africa in terms of the strength in the rand, particularly towards the end of the year, was negative.”

“So the investment account was down around 60%, which translated into the normalised headline earnings decline of 6%.”

Referring to the rand’s performance, Kirk said: “We do see stability and a normalisation back to the level of September 2016.

“Predicting the rand is a very difficult process,” he said. “We have a diversified business – it is a key part of our strategy and so we will continue to diversify.

“One of the consequences of that is outside of your control like exchange rates and interest rates. You have to sort of live with the rough and the smooth.”

GRAPH: Weekly exchange rate of rand/dollar

Source: Bloomberg

Looking towards Sanlam’s operation in 34 countries in Africa, Kirk said there were different levels of success in each country, where they have a minimum of two businesses: life insurance and general insurance.

New business volumes increased by 11%, with Sanlam Emerging Markets outperforming targets for the year and the other clusters coming in only slightly below stretched targets.

“Nigeria was a real struggle economically in 2016, mostly because of its over-dependence on oil. There was a decline in GDP, yet our business did extremely well, because we have a good partner and because insurance levels are very low.”

WATCH: Ian Kirk on 2016 results



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