STEPHEN CRANSTON: Sanlam comes up roses

It is perhaps not too surprising that between the boardroom shenanigans of Old Mutual and the market’s Hollywood-style fascination with Discovery’s Adrian Gore, Sanlam gets little airtime.

Yet at the time of its demutualisation in 1998 nobody would have said Sanlam would ever have a market capitalisation 50% higher than its historic rival Old Mutual, or even that it would be considered a “quality” share.

Former CEO Johan van Zyl said he would be delighted if the financial media considered Sanlam to be dull, as interesting usually means trouble. So Sanlam does not reinvent itself every few years. The current CEO, Ian Kirk, who is three years into the job, has much the same message as Van Zyl.

Sanlam wants to lead in (inevitably) client-centric wealth creation, management and protection. It is now the leading African nonbanking financial institution after the purchase of Saham Finances in Morocco, but it uses the term “leading” rather modestly as it is now “dominant”. And unlike Old Mutual, which bet the farm on the US and UK, it has only a small presence in the UK to provide investment management and wealth management services for its SA clients. It needs that to compete with the wealth management operations of Standard Bank, Nedbank, Old Mutual and others.

There is scope for a substantial increase in the size of Sanlam investment management (SIM) once African Rainbow Capital is introduced as a shareholder.

Overall Sanlam has grown its dividends at a compound rate of 12.3% over 10 years. In its latest interim results operating profit was up 13%. Liberty used to turn its nose up at Sanlam as a country bumpkin organisation from Bellville, where English was barely spoken. Now Sanlam has a new covered business margin of 2.79%, compared with Liberty’s 0.9%. And Liberty chair Jacko Maree undoubtedly speaks better Afrikaans than Sanlam boss Ian Kirk.

Sanlam is catching up with one area in which Old Mutual remains dominant — the mass and foundation cluster (MFC), where sales were down 6% but Sanlam Sky, the group’s entry level business, was up 3% to R1,2bn driven by the success of the new funeral policy sold through Capitec. In the affluent market discretionary capital is drying up, as Kirk says, with most of it going into cash or into fully externalised offshore portfolios — bearing in mind that Sanlam maintains a close relationship with the SA taxman. But the new business into single premium operation Glacier, though down 11%, was still a hefty R25.2bn.

The Sanlam emerging markets business still has about half the new business volumes of SA, but they were up 36% to R1.5bn. It might not take too long to catch up as the net flows of R5.5bn are almost double those in Sanlam personal finance. Life companies tend not to watch off-balance sheet sales such as unit trusts so closely, as historically they have not provided the same level of profitability. But Sanlam investment group’s net flows doubled to R10.4bn, and much of this was into higher margin alternate products, and R1bn into the lucrative international range.

There is scope for a substantial increase in the size of Sanlam investment management (SIM) once African Rainbow Capital is introduced as a shareholder — including the Ubuntu-Botho shareholding in Sanlam it will have majority control. SIM will become the largest black controlled asset manager by far.

Sanlam still lags behind Old Mutual in employee benefits but it is an enthusiastic booster of umbrella funds. They say Sanlam corporate’s David Gluckman knows more about umbrellas than anyone since Mary Poppins. Corporate increased its sales by 32% to R3.4bn but its operating profit of R254m is still a quarter of Old Mutual corporate’s.

Sanlam’s secret, after Van Zyl was appointed CEO in 2003, was to accept that managing capital was a serious fiduciary responsibility. It was quite a change from the Sanlam of the 1980s, which followed the National Party’s instructions and was used as the buyer of last resort for failed businesses such as Checkers, Nissan and Murray & Roberts. As a mutual company, Sanlam’s accountability to its stakeholders was nebulous.

At the time of the listing Sanlam made some zany decisions, selling its asset manager to Gensec, a poor man’s Rand Merchant Bank. But there were some astute moves. Short-term insurer Santam acquired Guardian National in 2000, propelling it to first place in the market, and the lead has kept on growing.

At Santam Van Zyl, who was probably watching too many Robert de Niro films, bought Westminster Insurance, a specialist taxi insurer in the UK, and when he moved to Sanlam bought an obscure life company in Western England called Merchant Investors. These investments gave the businesses a platform to build a wider business in the UK — though Santam abandoned the general insurance market there a decade ago.

Van Zyl's somewhat off-the-wall move was to sell the 19% stake in Absa in 2005 — ending speculation on whether the businesses would merge — and to use a portion of the funds to buy African Life, by then an unwanted orphan of the FirstRand Group. This solved two issues. It provided a bridgehead into the entry-level market; Sanlam had abandoned this market segment when it sold Metropolitan Life in 1993, and for some years was restrained from coming back.

But just as important was Aflife’s portfolio of African businesses, including Botswana Life, the dominant life office and asset manager in that country, as well as one or two also-rans such as the greenfields operation Namib Life. All these acquisitions were incremental and supported a logical organic growth strategy, except perhaps Westminster, the London taxi driver’s friend.

There was no following of Old Mutual’s strategy of buying non-discretionary stockbrokers at huge multiples just to boast about the size of the assets, nor F&G Life in the US, where not a single actuary in Pinelands understood the business model.

Recent events can only make Sanlam the more likely employer of choice.             

• Cranston is a Financial Mail associate editor.