Sanlam Ltd S/Adr

Good afternoon and welcome, everyone, joining us for Sunlum's interim results presentations for the six months ended June 2026. My name is Dukelo Malauzi, Head of Investor Relations here at Sunlum. I will serve as the MC for today's presentation and facilitate the discussion with our Chief Executive Officer, Paul Hanati, and our Group FD, Abigail Mukuba. They are joined by members of the Group Executive Committee, who will be available during the Q&A session. Before we begin, a few housekeeping points. Today's presentation will be followed by a Q&A session, and participants joining on the webcast may submit questions using the Q&A function. Those of you joining on the telephone line, the operator will open the lines after the formal presentation. The presentation slides and interim announcements released today are available on Sunland's investor relations website. With that, it is my pleasure to hand over to our Group CEO, Paul Hanratty.

Takello, thank you very much and good afternoon, ladies and gentlemen, and welcome to the presentation of Sunlum's 2026 Annual Interim Result. As Takello said, we're joined today by Abigail Makuba and Milonda Lozi-Moslangeni, our Chief Actuary. I'll take us through an overview of the six months and our strategy, and then Abigail will cover our new reporting framework, our financial results, the business performance in a little bit more detail, as well as our priorities and some guidance for the balance of the year. This 2026 first half has been characterised by the impacts of the US-Iran war and its effect on energy prices and the consumers' cost of living. Global markets have held up during the first half of 2026, although recently we're seeing markets reacting to government debt levels, ongoing elevated energy prices, and fluctuating views on the investment into the broader AI infrastructure. Despite consumers feeling considerable pressure across our markets, our new business flows and net client cash flows have been extremely robust. and this helps with our future profit growth. South Africa, East Africa and Morocco were all subject to abnormally high claims from severe weather events and this has put the current year earnings under pressure. Strong earnings growth from our life insurance, asset management and credit lines have meant that excluding weather claims and in the general insurance line some setbacks, the group earnings were in line with our expectations, even after allowing for the loss of the Bonitas contract at Afrocentric and poor earnings out of Malaysia as a result of elevated medical expense insurance claims. The loss of the Bonitas contract will impact second half earnings more than in the first half. The group has also been working extremely hard to improve the efficient use of cash generated in operations, and as a result the cash conversion during the current year will improve over that in the previous year. This is extremely important as it shields our dividend from the shorter term earnings impacts that I've just referred to. The first half of 2026 has seen us make excellent strategic progress. In particular, we're delighted with the reshaping of our Indian portfolio and the new partnership with 91 in Active Asset Management. both sets of transactions having fully completed in the first half of 2026. Both of these transactions set us up for improved growth and performance going forward. Despite the short-term earnings pressure, we've seen a strong value creation in the first half of 2026. Profitable new business, excellent operating experience, and uplifts in the value of the group from increased value of Shriram Finance Stake and our asset management businesses have driven a strong return on group equity value on an adjusted basis. Core earnings grew by just 1% in the first half of 2026 on a comparable basis, eliminating the effects of the stronger RAND and changes in corporate structure. We estimate that the true sustainable underlying earnings growth was around 7%, but that weather-related and other abnormal large claims of the general insurance operations in Africa eroded earnings by around 8%. And the group stepped up investment in organic growth initiatives that eroded earnings by a further 3%. Changes to the way we are hedging our risk-adjusted non-financial risk liabilities improved earnings by about 5%. And while this will also impact positively in the second half of 2026, These changes to the hedging of the RAN-FR will not impact earnings materially in subsequent years, although of course the whole purpose of it is to reduce the volatility of investment variances going forward. Return on equity on an adjusted basis was 18.4%, and we do expect to be able to lift this by 2030 to above our 20% target as our earnings grow and the cash efficiency in our business improves. The adjusted return on group equity value is 15.5% on an annualized basis, reflecting, as I explained, the strong operational performance of the businesses and the positive impact of strategic initiatives in India and asset management. The return on group equity value is dampened by the write-off of the group's investment in Afrocentric and the impairment to the value of the Malaysian business. Group solvency and discretionary capital both remain sound. Despite the tough macro conditions for consumers, in total new business was 22% up, and net client cash flow was R78 billion, representing a very strong increase in the group's assets under management. We saw decent life insurance growth in South Africa and India, with strong growth from the Sun Lam Allianz business across the continent. General Insurance also had a good year, but the growth of Sunlum Alliance and the General Insurance line remains disappointing, and this is an area for attention going forward. Our asset management business grew strongly and retained assets well, despite the shift to the partnership with 91 in the active asset management space. In South Africa, we continue to see a shift of life insurance sales to living annuities rather than immediate annuities, and as a result, the value of new business margin was 1.8%. The growth in the living annuity business creates future asset management profits for the group. Turning now to some of the strategic highlights of the half year. India is increasingly becoming an important long-term growth platform for the group. In the first half of 2026, we completed a series of transactions that has strengthened this platform by enhancing its growth trajectory and changing the mix of business within the Sriram ecosystem that Sunlum is exposed to. The introduction of a strong banking partner in the form of MUFG positions the newly capitalized Sriram Finance to strengthen its growth profile by accessing the new vehicle segment of the market, thereby further supporting cross-sell in insurance businesses. As I said, Sanlang's focus is increasingly on the higher ROE and more cash generative life insurance, general insurance and capital markets business. And the increased exposure to life in general positions the group well in the fast growing and under-penetrated Indian insurance market. The continued participation in the broader financial system of Sriram has been strengthened further by increased insurance stakes and the addition of the capital markets business and it's expected to support future growth in earnings as well as improved capital efficiency and an increase in the overall India return on equity over time. The completion of the transactions of 91 in both the UK and South Africa has enabled us to focus on being a purely solutions-led wealth and asset manager, positioned to deliver the best possible investment outcomes for our clients I'm very pleased to say that we've eliminated the majority of the so-called stranded costs from the business, and a combination of focused businesses, a leaner cost structure, and very strong flows has created a more valuable business for the group. With the completion of the Morocco in-country merger of Sunlum and Allianz's businesses, the group has finally completed the integration of two very large and diverse insurance portfolios across the continent. The operating performance of Sunlum Allianz has been mixed. The life insurance line and asset management line has performed well since inception, but the general insurance line has proved more challenging. Post the integration, we're going to focus hard on driving our businesses with a much greater focus on clients and on operating efficiency. We're delighted that the Sunlum Allianz joint venture has delivered its maiden dividend during 2026. As the structure has matured post the original transaction with Allianz, dividends have worked their way through the corporate structure and we expect to see dividends now growing steadily over time out of the joint venture. I want to take a moment today just to thank Heini Wirt in particular, who has been responsible for developing Sunlum's African portfolio over many years, and who has led the formation and establishment of the Sunlum Alliance joint venture. Heini can be very proud about building the leading platform on the continent, and we now have a base to drive growth from for many years to come. Heini is retiring at the end of 2026, and we have appointed Heni Nel, previously the Chief Financial Officer at Suntum, to succeed Heine from the 1st of September this year. Suntum, as you know, has started to diversify its business into the international markets via the Suntum Syndicate 1918, and this has transitioned to a business-as-usual operation following the final approval from Lloyds. The team in London has now been fully capacitated during the first half of 2026 and it has started to write new business. The unusual accounting for Lloyd syndicates where premiums and profits are only recognised over a longer period whereas costs are recognised fully up front in the current year does create a drag on reported group earnings while the syndicate gets to maturity. Turning now to South Africa. Financial services in South Africa are undergoing a profound change, much as in other places in the world. Banks have increasingly entered the insurance market for simple products, requiring limited advice, and we've seen ongoing disintermediation in general insurance personal lines, extensive digital engagement and the growing use of passive investment solutions. Our Indian franchise relies very heavily on an ecosystem approach to servicing its customers across multiple product lines, and we are gradually moving our South African operations to be much more customer-centric. Our partnership with GoTime has finally had approval to offer banking services to Sunlum clients, and we will extend these in the coming years to offer better value for money to customers and to permit a more integrated approach to financial services. Ltd Ltd Ltd Ltd and will continue to do this for the rest of the year. This will allow us to kick off with confidence early in 2027 as we take our products, systems and processes to our customers. On that note, I'm going to hand over to Abigail and she will take you through the detailed financial results. Abigail, thanks very much.

Thank you, Paul. Good afternoon, everyone. Before turning to the group's financial performance, I want to spend a few minutes on how we're embedding our reporting framework, which is being entrenched to provide a clearer, more transparent, and more comparable picture of our performance. When we introduced the new earnings framework, we committed to simplifying and evolving our disclosure in line with investor experience. The measures we introduced are critical to answering three different but equally important questions. How we are doing and therefore how we compare. How performance is trending and how sustainable the earnings are in the long term. The framework provides different lenses through which the group's earnings can be assessed. More clearly, more comfortably and more transparently. We've clarified what each measure shows and how these work together to assess sustainable earnings growth, cash conversion and dividend capacity, returns on capital, and value creation through the cycle. IFRS-aligned operating profit and dividends remain our anchor for peer comparability, supported obviously by enhanced disclosure on investment returns and performance drivers. Core earnings, the measure we use to manage the business, provides a clearer view of sustainable underlying performance in dividend capacity. The simplest way to think about the three earnings measures is operating profit including investment variances gives you a basis for comparison with peers. Operating profit before investment variances gives you a view of our performance over time. showing the underlying trend without short-term investment market movements. Core earnings is our sustainable earnings lens. It reflects the underlying earnings performance of the businesses and is the earnings on which we incur dividend capacity determination. Lastly, adjusted headline earnings include shareholder investment returns and it represents the shareholder outcome we have achieved. The targets for operating profit and core earnings are aligned because target setting assumes your expected investment returns. In any reporting period, actual operating profit may differ from core earnings as market returns vary from these assumptions. Core earnings, therefore, provides the clearest reference point for assessing performance against target. It smooths short-term market volatility and reflects the underlying earnings capacity of the business. The evolution of our framework is designed to give you a clearer picture of three things. What is operational, what is market-driven, and what underpins our dividend capacity. The historical view of net results from financial services is closely aligned with our view of core earnings. The difference now is that we expressly include project expenses in determining core earnings, which was not the case in the past. We have also removed non-cash asset mismatch reserves, especially the releases across PEN Africa and India. Operating profits, including investment variances, will over time align closely with core earnings. but it is much more volatile and therefore more difficult to judge progress from year to year. I must reiterate that there has been no change in the economics of the business resulting from the change in reporting. And also there will be ample opportunity to engage with investors on our roadshows as well as in the Q&A as well as on the roadshows over the next few days. With that, enough of the framework for one afternoon. If we can then turn to the actual financial results. The group created strong value in the first half of 26. We achieved a healthy adjusted return on group equity value comfortably ahead of our hurdle rate and the balance sheet remains in good shape with solvency firmly within our target range. New business volumes and net client cash flows were strong with margins intact. so the base of future profits were strengthened in the period. The foundation of growth within the business is in place. And on the back of management's cash generation and remittance focus, we expect to be able to meet our dividend expectations for full year 26. Core earnings, however, came under pressure this period with several factors weighing on the results. I will talk you through these in the next slide. When we look at our businesses, our focus is on sustainable earnings, separating what is specific to this period from underlying earnings generation capacity. On that basis, if we exclude a number of identifiable period-specific items, earnings would have been up 7%. However, several factors weighed on the reported results. A stronger RAND, which reduced the contribution from our offshore operations, severe weather events across general insurance business, operational underperformance in Sanlam Alliance General Insurance, our South African health business, and our non-core operations in Malaysia, as well as other deliberate investments in our growth initiatives, a strategic choice we have made to build future earnings capacity. This shows in the near-term losses incurred in credit, banking, and rewards investment as well as the investment in diversification of our India distribution and the Syndicate 1918 at Lloyds. The revised approach to asset liability management was undertaken to reduce future volatility in investment variances. This helped reduce some of the drag from the growth initiatives and the general insurance experience. This change is a permanent structural refinement to hedging. We have additional slides in the back of the pack that I won't go through now, but it does give you full reconciliation of earnings for anyone that's interested in the detail. While the weather events and the currency movements were outside management's control, the other sectors were within management's control. Management is committed to organic investment as a way to deliver future growth. Areas of weakness in performance are receiving attention. And finally, on top of all this, market movement and strategic project spend weighed on the reported operating profit, which ended at down 7.3%. Looking at performance by line of business also confirms that this pressure is concentrated, not broad-based. Three of our four core earnings engines still grew on a comparable basis. General insurance was the exception, where severe weather and large loss events weighed on the results. We also continue to invest in modernizing and improving our client experience systems, and that shows up in the higher corporate expenses and other line. This investment is clearly scoped, governed, and tracked, and is not representative of unmanaged cost growth, but it's a deliberate choice to build future capability. The earnings pressure is concentrated. General insurance was impacted by weather and large losses. and corporate expenses, on the other hand, reflect deliberate investment for future capability. Let me now turn to the decline in net investment return during the period. The largest single driver was in the Saint-Lamaliens business in Pan-Africa, where we saw weaker equity markets, particularly in Morocco, which weighed on returns. The second driver was the unrealized mark-to-market losses on the 1991 investment, following the listed share price decline from levels over 50 Rand to levels just over 40 Rand at the end of the reporting period. In India, bond and equity markets were softer, largely on the back of geopolitical tensions in the Middle East. As a reminder, we report our Indian business with a three-month lag. Partly offsetting all these movements were a number of positives Higher net investment income from stronger interest and dividends across the portfolio, a closed-out rupee hedge position, and lower floating rates on funding costs relative to the prior period. These market moves were absorbed by the capital portfolio while the underlying income streams held up. On this adjusted basis, Roge was over 15% comfortably above our hurdle rate. This is an important outcome because it shows that despite the short-term earnings pressure, the group continued to create real economic value in the first half. The main positive contributors were new business growth, favorable operating experience across the group, the uplift in the SFL valuation, and the valuation uplift from the 1991 transaction. Together, these reinforce the quality of the value created in the period. This was partly offset by the write-downs and weaker non-covered experience in the South African health and credit business, together with pressure in PEN Africa. Operating experience was positive overall, led by favourable risk experience across the South African life businesses. This was partly offset by adverse medical claims in Malaysia, which remains an area of active management focus. Persistency remained slightly negative, mainly due to a one-off clean-up of non-paying policies in the retail mass business. And this was partly offset by stronger experiences in retail affluent, corporate, and pan-Africa. The covered business benefited from healthy working capital and credit spread profits, while non-covered experience was negative, mainly from South African retail credit lending and the Sandlam Investment Fund flows Operating assumption changes were positive overall during this period, supported by contributions from the India credit business as well as Sundam Investments. These were partly offset by a revised 10 Africa General Insurance Outlook, adverse South African retail credit assumptions and the health business write-down, and modestly negative covered business assumption changes in Malaysia. Santam also contributed positively and it outperformed its return on capital target for the period, despite the severe weather claims experienced in the first half. Other earnings were positive, largely driven by the GEV uplift on the completion of the 1991 transaction. Actual ROGEV was lower because of the stronger RAND and RITA listed equity prices that we already mentioned. For similar reasons, I already described adjusted return on equity of just over 18% is above our five-year average performance of just about 17% and is comfortably above our cost of capital. The group is making solid progress towards its longer-term target of 20%. And as the claims experience normalizes, the growth in investments begin to deliver returns and cash efficiency improves, we see a credible path to achieving the 20% target. Our sovereignty remains firmly within target, even after the 2025 dividend and the capital that we deployed into growth. We closed the half year at a cover ratio comfortably within our target range, with the position further supported by 2.4 billion of new subordinated debt that was issued earlier in the year. Discretionary capital reduced from $8 billion to just over $2 billion, now back within our target range as well. This is after roughly the $5 billion that we ring-fenced to increase our interest in the Sriram life and general insurance businesses, aligned with our high-growth markets positioning ambition. As we previously communicated, the growth vector platforms have largely been built. Our emphasis now shifts to returns, cash conversion and remittance discipline. That is also why the reduction in discretionary capital should not be read as a weakening of the balance sheet. Rather, it reflects the capital being deployed into agreed strategic priorities while the group solvency ratio remains comfortably within the target range. So in short, we have the solvency strength and funding flexibility to keep investing behind the group strategy while maintaining a disciplined balance sheet. As I move into the business performance detail, six months can tell you a lot, but not everything should be annualized. So allow me to remind you that our focus is on sustainable underlying earnings, cash generation capacity, and separating period-specific items from the underlying earnings base. Our life business was a strong contributor to earnings in the period. Core earnings of just below $5 billion were up, on a comparable basis driven by favorable mortality experience, higher asset fee income, cost efficiencies in South Africa and Pan-Africa, and the run-of-hour reassessment. New business was up 14% on a comparable basis with net client cash flows up 24%, reflecting genuinely higher client activity and solid retentions across all regions. If we focus on the quality of the growth, the pressure on VNB was mainly product-mix related, particularly market-linked annuities in the South African affluent market, with additional pressure from India and Malaysia. India was impacted by regulation changes, as we previously advised, and the loss of two credit life schemes, while escalating medical claims and restricted premium increases continued to put the Malaysia business under pressure. This was partly offset by stronger retail mass, corporate, and PAN Africa performance, all contributing strong double-digit growth. Overall client demand remains intact. This line of business earnings growth was further impacted by the headwinds in the health business from the loss of the large contract and subsequent full impairment of the Afrocentric investment. Looking into the second half, Our management focus is clear to improve product mix in retail affluent to improve margins as well as conversion into future fee income and cash This is in conjunction with repricing and remediation in Malaysia and the right sizing of the medical schemes administration business in South Africa At year end we committed to reviewing the ALM strategy for the run of our liability We have now progressed significantly on that work. We have moved most of the assets betting this liability to fixed rate exposure, materially reducing interest rate sensitivity and improving the stability of operating profit. Post the change, our NFR interest rate exposure is down by around 60%. Importantly, is that the cash flows and the risk appetite remain unchanged. This is about improving the quality and predictability of reported earnings. If we move to the general insurance business, this is where the pressure on our first half earnings emanated from, and it's most visible, though the underlying performance remains strong despite these external pressures. In South Africa, Sanctum absorbed just below $700 million of flood and wildfire claims, net of reinsurance, and this was partly offset by 147 million rands of General Reserve release. Even so, the underwriting margin of this business came in above the midpoint of its target range, supported by favorable attritional claims and disciplined expense management. Stanton is also investing deliberately in the syndicate 1918, which has written just below 500 million of gross premiums to date, and remains on track for full year 1.3 billion. And Africa GI also deserves a more detailed update. Our main concern is not only the weather impact, obviously, but whether the underwriting discipline and margin recovery are where they need to be. We need to be clear on both the external events and the actions that are under management's control. Weather and large loss events, such as flooding in Morocco, cyclone in Madagascar and large losses in Mauritius, totaling just below 200 million, contributed materially to the underperformance. The results also reflect operational issues in the underwriting discipline, claims management, reinsurance execution, and some of the overall controls. Higher prescribed bodily injury claims in Morocco and weaker performance in Ivory Coast added further pressure. taking the net insurance margin down to 9%, which is below the 10% to 15% target range. So the proof points now must be recovering that margin back towards our target range, tighter controls and more consistent cash remittances over the renewal period. There has been real progress. Morocco regulatory integration is complete. Overlapping country integrations are done. and we are pleased that the business has declared its inaugural dividend. The business that remained in the stable after the disposal of the active asset management business 291, all those businesses are quality operations and have had a stellar performance during this period. Core earnings were up 48% despite transferring just over $400 billion of assets under management 291. Net client cash flow increased significantly, and new business volumes were also up 29% on a comparable basis. The AUMs closed at around $1.3 trillion, and this, along with focused cost efficiencies, lifted the fee income led by our multi-manager and Satrix index businesses. Panafrica, on the other hand, also benefited from strong prior-year retail net flows in Kenya and Namibia. Our investment management line of business earnings base is now more focused on solutions, platforms, indexation, alternatives, private wealth and distribution. Any remaining stranded costs are being managed and will be addressed by year end 26. If we move to the credit and structuring business, it remained resilient on a comparable basis with India once again our main engines. India's earnings grew 18% on the back of stronger Shriram Finance loan book and improved net interest margin. In Pan-Africa, earnings were weighed down by higher credit write-offs in Southern Africa. A further first half impact was deliberate technology development spend that we put in the South Africa business to support our digital ecosystem through the Sanlam GoTime credit TV. We expect this business to play an important role in scaling our South African ecosystem strategy, but we're clear that growth must be delivered with appropriate risk discipline. The technology spent is therefore a strategic choice to build capability, not evidence of cost slippage. Our focus is discipline scaling, credit quality, affordability, technology execution, and responsible customer acquisitions. while closely monitoring Southern Africa credit impairments and borrower quality. That covers the financial results and the line of business deep dives. Allow me to now bring this together into the outlook, what gives us confidence, what affected the first half, and what management is focused on for the remainder of the year. Our first half was characterized by strong values and resilient cash generation despite the earnings pressure from identifiable items. We are proud that new businesses are up. Net client cash flows are also at $78 billion. Sanlam Alliance has commenced its dividend and cash remittance cycle. All 11 of 10 Africa regulatory integrations are complete. Sanlam Syndicate 1918 has gone live. and even with the severe weather storms, Sunlum continued to declare 10% growth in its interim dividend. Sunlum Gold Time Credit JV is up and running and lastly, that we have received banking approval which means we are well on our way to offering transactional banking services to our clients through the Sunlum app. Each of the growth engines that are running simultaneously already passed their build gate. For the second half, The management focus is clear. Cash conversion, remittances, efficiency and continued disciplined capital allocation. So in summary, underlying growth across our businesses is in place. We don't expect weather-related events of the same severity. We are taking actions to address areas of weaker performance. Cash generation is strong. So the performance in the first half earnings is not expected to affect our dividend capacity. In total, we still expect to meet our guidance for the full year. And that brings us to the end of the formal presentation. Thank you for your time and your continued interest in Sandam. I'll hand back to Duken. Thank you.