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Promised ‘synergies’ between Sanlam and Saham delayed

By Aurélie M'Bida
Posted on Friday, 26 March 2021 15:17

The insurance group’s priorities for 2020 had to be reviewed. © Naoufal Sbaoui - Mike Hutchings / REUTERS

The pan-African insurance leader has managed to maintain its revenues despite the ongoing health crisis, but its margin is collapsing and the integration of Moroccan Saham's African assets is dragging on.

In the end, this is not a surprise. 2020 and the consequences of the ongoing health crisis on the insurance sector have somewhat slowed down the pan-African ambitions of the South African financial services group Sanlam.

Admittedly, the latter managed to maintain or even slightly improve its revenues last year (R87.2bn, or nearly €5bn, compared to R84.25bn in 2019), but the benefits of its Moroccan mega-acquisition, which took effect on 1 October 2018, are still slow to bear fruit.

“The valuations of all the group’s operations were affected by the Covid-19 operating environment, contributing to a negative return on equity,” says the group.

Sanlam’s return on equity was negative (-2.8%) in 2020, compared to a positive return the previous year (6.4%), according to the latest published figures. This is a key indicator for assessing the group’s ability to continue to grow – particularly from an integration perspective, with a necessary capacity for innovation and other associated investments.

An economic slowdown in sub-Saharan Africa

As anticipated at the time of the publication of its interim results last September, “Sanlam is going through the most difficult period that the group has faced in many decades,” said Paul Hanratty, the group’s CEO, at the time.

The South African insurer is now giving no further indication as to when the integration of the former Saham Finances into its operations – originally scheduled for 2020 – will be completed.

“The realisation of the synergies will take longer than initially expected due to the slowdown in economic growth in Saham’s area of influence following Covid-19. We remain confident that the synergies can be achieved, but we have decided to view them as learning opportunities for the future,” said the group in its financial statement, which was made public in mid-March.

According to market observers, Sanlam suffered in 2020 from the “scissors effect” on its revenues, which are challenged both by Covid-19 and the economic health of (its clients’) players. As a result, Sanlam’s net profit fell to R2.9bn last year, compared to R7.1bn in 2019. The net margin, meanwhile, narrowed to 3.28% (from 8.5% in 2019).

South Africa’s share is still largely dominant

As a reminder, Sanlam – historically established in Southern Africa with a strong focus on life insurance – wishes to develop this segment within the former Saham’s markets (about 30 countries in sub-Saharan Africa and Morocco), which are dominated by non-life insurance.

On this last point, there is also a risk of a delay since, according to Sanlam’s 2020 annual report, its South African activities still account for a large majority of its revenues. At least the scope of revenue outside of South Africa has not changed. This is all the more so as it was decided last May to suspend expansion plans in Egypt and Ethiopia.

In fact, of the R87.2bn made in revenue in 2020, R57.3bn (65.7%) comes from South Africa and R23.2bn (26.7%) from “other African operations.” This ratio was 65.3% in South Africa and 27.2% for the rest of the continent in 2019.

However, this is not a cause for alarm among analysts who have anticipated a clear recovery in net profit to 2018 levels as early as 2021-2022, ever since the publication of the group’s latest results. See you at the halfway point, next September.

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