Sanlam looks off shore for expansion
Life assurer Sanlam has launched a significant push into Africa and Asia in the past four years, with plans for further expansion, and now earns 25% of its revenue outside South Africa.
In 2012 and 2013, the 96-year-old company based in middle-class Bellville in Cape Town, spent R4.8-billion on this expansion, and spending could be even higher this year, with the purchase of a majority stake in Malaysian-based MCIS Zurich Insurance for R1.25-billion, among others, already concluded.
Sanlam chief executive Johan van Zyl, who has been named as one of the country’s top earners, taking home R140.27-million in 2012, renewed his contract for five years in 2011.
At the time, Van Zyl, who has been chief executive since 2003, said that Sanlam planned to use its discretionary capital to expand into new, untapped and niche markets, and he has proved true to his word.
Sanlam started its expansion in earnest after buying African Life in 2005 and inheriting businesses in five African countries – Botswana, Namibia, Ghana, Kenya and Zambia.
At the time, Sanlam was more interested in African Life’s access to entry-level markets in South Africa than its African holdings, and left the companies, in which it had a stake, to run themselves with existing management. This was the start of a model that Sanlam would implement with future acquisitions.
The same year, Sanlam acquired shares in India-based Shriram General Insurance.
‘Part of a deal’
Robert Dommisse, executive director of mergers and acquisitions in Sanlam’s emerging market division, said: “We got the businesses as part of the deal and we did not pay that much for them because, at the time, we did not think it was business Sanlam could use.”
But a review of business operations and strategy in 2006 and 2007 revealed that the businesses in Africa were doing better than Sanlam’s business in developed markets, where it had a presence, leading to a change in strategy.
“Sanlam changed its strategy, becoming an emerging market player, looking at servicing niche markets in developed countries,” Dommisse said.
At the time, Sanlam was concerned that growth in the South African market would begin to slow because of saturation.
India, Botswana and Namibia are now Sanlam’s biggest earners outside South Africa, which still provides the bulk of Sanlam’s profits – 75% – and is growing at about 10% annually, according to the company.
“We do not have the intention of conquering that world; we look at a market and see if Sanlam can do business in that market,” said Dommisse. He said the culture needs to be similar for Sanlam to consider the company.
“That is why we are more likely to invest in Mozambique and not Portugal, although business has to be done in Portuguese in both countries, because Mozambique has a similar culture. When you arrive there it feels like an African country.”
Thabied Majal, the company’s corporate development executive, said the main lesson learnt in its expansion into Africa is that “one size does not fit all”.
“It is not possible to transpose the way we do business in South Africa to African countries,” he said. “In South Africa, Sanlam sells lots of funeral policies but in East Africa it is not acceptable to discuss death or funerals.
Dommisee said: “We have funeral products available in Kenya but they do not sell.” It’s not impossible to sell such products, but it must be handled very sensitively.
Majal said: “When you invest in Africa, you need to pack away your ego and pack all your technical skills, because that is usually what is most needed.”
One of the fallacies about expansion into Africa is that the bulk of the sales will be low end, Dommisee said. “In Kenya, for example, they are middle-market players, where clients, mainly civil servants, are interested in saving products.”
Sanlam’s plan has been to find a good partner in the country it is interested in, to use that company’s knowledge of the market and to provide the capital required for expansion or technical know-how.
Below the radar
Majal said one of the reasons that Sanlam’s expansion has been largely below the radar is because the company does not operate in other countries, except in Botswana and Namibia, under its own name. It uses the brand of the business it acquires.
Santam, in which Sanlam has a 57% share, is brought in to provide non-life assurance when necessary.
“Our aim long term is to be represented in these countries in all areas of business, namely in the life insurance (Sanlam), non-life insurance products (through Santam) and asset management through Sanlam Investments,” Domissee said.
After announcing Sanlam’s acquisition of a majority stake in MCIS Zurich, Van Zyl said in a radio interview with Moneyweb that the attraction in Malaysia was the lower end of the market. Van Zyl said Sanlam planned to use MCIS Zurich as its life insurance company and a second Malaysian business, Pacific & Orient, to provide short-term insurance.
He said the company may eventually look “elsewhere in Southeast Asia, particularly Indonesia and the Philippines”.
Sanlam hopes to expand into a number of other African countries through Nico Life, the company’s Malawi subsidiary.
Margaret Dawes, Sanlam emerging markets executive director for Africa operations, told the Reuters African Summit in early April that Sanlam’s target was for its African operations outside Southern Africa to contribute 20% of profit in five years’ time, up from 9% in 2013.
Sanlam posted a 35% rise in headline earnings per share for the year to end December 2013, with new business volumes rising by 35% to R185-billion and Sanlam’s emerging market division reporting a 136% rise in net operating profit to R1-billion. Shareholders also received a R2 dividend per share.
The 10-year-old black economic empowerment scheme, Ubuntu Botho, led by Patrice Motsepe, matured this year and, according to Sanlam, it “created approximately R15-billion in value from an initial investment of R1.3-billion.” All debt and interest on debt was fully settled by December 2013.
The company is in talks with Motsepe to look at a further partnership, it said.