Sanlam Limited (SLM) Earnings Call Transcript & Summary

[Audio Gap] The independent nonexec Chair with effect from 10 June, which is the AGM date, Paul Hanratty be appointed as group CEO 1 July 2020, and Ms. Abigail Mukhuba be appointed as group FD from the 1st of October 2020. Now each of these appointments were made following a rigorous and thorough board process. We had internal and external candidates for each of the 3 positions, and we required and received the requisite approval from the PA. Vacancies in our most senior positions have created the opportunity to find the best available candidates as well as advancing the transformation agenda at the most senior level in the organization. Let me just say a few words first on Elias as the new nonexec Chair, former CEO of the PIC, serves on a number of boards and co-manages the consultancy, which is focused on strategy, economics, business development as a leading commissioner at the NPC. Now many of you may not know this, but Elias was at Sanlam. He was a senior executive, and he was head of the policy analysis back in the mid- to late 2000s. He worked at treasury and made a solid contribution to our growth strategies in various capacity. He joined PIC as CEO. I've have always felt that at some point in the future, we'd welcome him back, served in a number of executive positions. And we regard Elias as the valued insider, he's worked his way up in the Sanlam ranks to the pinnacle position of Chair within the group. He has an extensive network of key stakeholders in the private and public sector and beyond. He's viewed as very valuable to Sanlam's existing strategy of becoming leading financial services company in South Africa and in the rest of Africa. I must just record for the record that we announced the change in the Chair, potential change in the Chair in March 2019. And we said it would take place in June 2020, which is now the announcement we made today. On Paul, let me say a few words about Paul. It follows rigorous deliberation by a special ad hoc board committee, which is led by Dr. Shirley Zinn who is a seasoned HR professional and an independent NED on the Sanlam Board. The committee was assisted by relevant external service providers, evaluating appropriate internal and external candidates and was guided by the experience to successfully manage a complex financial services business, experience an insight into the broader financial services sector. And given our scale and our diversity, the committee recommended to the Board that Mr. Hanratty be considered to be appointed as the new group CEO. Paul, as many of you will know, is a qualified actuary, has served on the Sanlam Board as an NED for the first 3 years since April 2017. And he's very familiar with the group's key opportunities, its challenges, of the resources to give effect to the strategy. Paul has made a solid contribution and a telling difference to the Board on key matters, and he's now had 3 years to study and understand the many moving parts within the group and the strategic opportunities on our radar. We regard Paul as a Sanlam person, someone who has a deep understanding of our strategy and has significantly contributed since coming on board. Before he joined our Board in 2017, he held key leadership positions at Old Mutual including the CEO of Old Mutual, South Africa; Chief Operating Officer of the group, the Old Mutual group, and also involved and steered a range of strategic projects at Old Mutual PLC. I'll remain available to the organization after Paul takes over on the 1st of July. As I announced at the results, I will fulfill various responsibilities until the end of December. That's when my contract ends. We're facing a number of challenges now, as you know. So I'll continue to play a role leading the group up until the end of June and a role at the ASISA level, dealing with the banking industry, with government in addressing these challenges. And then I'll be available thereafter to continue those external roles. Hopefully, the situation will have normalized, and then I'll continue to support Paul in that handover. Just from my side, I'd just like to say a big thank you to Johan for the support and to the Board and to the colleagues for their support over my 15 years now at Sanlam. I think we've achieved a great deal, a clear leadership position in insurance groups operating in South Africa and on the African continent. And I think we're in a very strong position to implement our growth strategy across the continent following the Sanlam deal. So if I could just hand over now to Paul just to make a few comments.

I thank you very much. I'll just make a few remarks, and I'm more than happy to provide some more color to any questions that people may have on the line. I think, firstly, I'd like to thank Ian very much for his support and also for agreeing to stay on for a while and really help me navigate these very choppy waters early on. I have to say that I'm very honored in order to be able to have the opportunity to join the management team at Sanlam. Sanlam's played an enormously important part in our industry and in South Africa's economic development for over 100 years. And since its demutualization and listing in '99, Sanlam has built an enviable track record of consistent shareholder value creation. I know that all of you on the call know that Sanlam has a well-communicated and sound group strategy in place today, and this continues to drive value creation for all our stakeholders. The existing strategy creates a sound base for Sanlam to operate off. But I'm sure that as the environment changes, the management and the Board will continue to adapt this strategy over time to ensure that Sanlam remains relevant and competitive. I really do believe that all the building blocks are in place to continue to create value for all our stakeholders. I really am looking very much forward to working with Sanlam's Group Chief Executive Committee and the Sanlam Board as well as engaging with its various stakeholders in time to come. I'll now hand back to Ian.

Thank you, Paul. Then dealing now with the third appointment, which is Ms. Abigail Mukhuba as incoming group Financial Director. Our previous group Financial Director, Heinie Werth, we asked Heinie in the middle of last year to take on the role of CEO of Sanlam emerging markets. That's the role she's had before. But to ensure that we have a very, very strong person driving that process to unlock value from our acquisition of SAHAM. And then since that date, it was in the middle of last year, Wikus Olivier, who was Head of Finance, has been acting as Chief Financial Officer. We'd really like to thank Wikus for a huge contribution that he's made handing -- handling this role. He's done it with excellence. And we're very pleased that he remains on with us in the group executive position as Chief Executive strategic projects. But just a bit more on Abigail. She joins us from African Rainbow Minerals. She was FD there since 2017. She had a number of important positions before that. She's a CA and a host of qualifications in commerce. She's got extensive experience in listed companies in financial reporting. She's a tax specialist, and she's also got considerable corporate finance experience. And we are confident with the support that she will get from a very strong team, she's a really hard worker. She'll immerse herself in a short period of time and add value to the group. Now I'll just remind people, some of us who are a bit older will remember that [ Globus Mora ] and Heinie Werth both joined us from the mining industry. And with the strong support that's available in Sanlam, we think this will work really, really well. So we look forward to joining us on the 1st of October 2020 and to the contribution she'll make. She's a young person, and together with some of the more recent appointments we've made, we really have people who can take us for the next 10, 15 years. And we're very excited that she's coming on board and to share a diverse experience with us. We wish her well as we wish Paul and Elias every success in their new roles. I know that all my executive colleagues and myself will be available to provide our full support to them in their respective roles. So it's a big day for the Sanlam Group. These are important appointments that we've made today. It's been a very, very thorough professional process, and we think we've made a very, very strong package of appointments today. So I want to open the line now for -- to take questions. It's fine, I think, if you just ask that -- if somebody who wants to specifically point the question too, that's fine. Otherwise, I'll just make the call once I hear the question. Thank you.

[Operator Instructions] The first question comes from Michael Christelis from UBS.

All right. Can you hear me now?

Yes.

Right. Just one question from me, please. Paul must have you back, I guess, in a listed environment and then dealing with you. Is there a fixed turn to your contract? And can you give us an idea of how long that is expected to be? How long you are available to the Board for?

Yes, I'm excited to be back in South Africa. Yes, I've made commitments for a minimum of a 5-year term to the Board.

The next question comes from Rob Lewenson from Old Mutual Investment Group.

Congrats to the new appointments to the Board. Just a quick question from me in terms of succession planning for the nonexecutive Board members, what would that look like going forward?

Johan, do you want to deal with that one?

Yes, Ian. We have a whole pipeline of people that we're considering. We've seen in the last year, we brought on 5 new Board members on the nonexecutive side. And the plan is to down -- further down the line this year to bring on board another 2 or maybe 3 members. Unfortunately, as it goes with the Board, you have these patents, where the patent being passed over and with terms being shortened through King and so forth, there is much more turnover at the Board. What we've done and then what we've announced is that we are keeping a number of older Board members on the board together with the new Board members. So although I'm stepping down as Chair, I will stay a Board member. And then 2 older Board members, who have been with us for quite a while, Anton Botha and Sipho Nkosi who has been very valuable in guiding the business in the past, will stay on in the capacity of ordinary nonexecutive Board members moving from independent to ordinary nonexecs. Actually, the idea there is, although we can't regard them because of the length of tenure on the Board as independent anymore, they're completely valuable in guiding the business while we're [ breeding ] a number of newer members on the Board. So all of this has been planned over the past number of years. And together with these changes that we see now, they've been announced a while ago that we will make the changes, and we believe in having a proper managed sort of handover process, while we keep the incumbents in place, handover and so forth, like we've done over the past decade or 2, and going forward, this is essentially just another step in that direction.

Rob, does that answer your question?

It does. Quickly though just a follow-up. And the [ requisites ] even with the previous Board members now falling into a sort of a nonindependent capacity, do you feel there will be sufficient independent nonexecutive directors on the Board going forward this year [indiscernible]?

Yes. At all times, the independent directors will be more of -- the nonexec independent directors won't be a majority on the Board, which is what was in the King code and its recommendation. And we'll adhere strictly to that. We have done so in the past, and moving forward, we will make sure that we stay within that recommendation.

The next question comes from [ Jovan Djordjevic ] from [indiscernible].

How are we there?

Yes, yes, we can hear you.

First and foremost, I thank Johan and Ian for the great leadership of the group. And the incoming [ female ] directors, of course, had expectation on your leadership in this current environment that we're working with. I wanted to ask the movement from -- of measurement of performance of management from a normalized group earnings to that of operating earnings, net operating earnings, tied to obviously release of reserves [ from management ] through the business. But more importantly, strategically, going forward, just your thoughts as to how important that measure would be to the market?

Okay. Let me have a go at that. I mean, that's one of the key measures that we do apply in running the business here, and therefore, we think it's appropriate measure to put into the remuneration arrangements that we have in place. So yes, I mean, that plus the return on the group equity value and then the -- obviously, the dividend growth, those are the key metrics that we use at Sanlam. So I think it's appropriate for the management.

Yes, Ian, may I just add something? In Sanlam, over the last 20 years, we've measured the group's performance actually on the return on group embedded value. We believe because you sit with a big asset base, it is really about the return and how well you do in getting the return as high as possible. Now we deviated a year or 2 ago, moving away from normalized return towards the actual return. And I think, personally, that is a mistake. We are going to try and rectify that going forward because so much of what happens in the markets are completely out of control of management, and we should measure them not if the wind comes from behind or the front and so forth, but really the value that they've been adding. So our premium measurement going forward will be the normalized return on group embedded value. And together with, as Ian has said, how we grow the dividends to make sure that it's fully aligned with shareholders, and of course, the operating profit. So we think that mix is really the appropriate way, but with a premium measure being the return measure.

The next question comes from [ Karl Janetzki ] from Business Life.

My question [indiscernible]

You may proceed with your question. Unfortunately, we cannot hear anything from [ Karl's ] line. We'll go on to the next question, it's from Francois Du Toit from Renaissance Capital.

My first question relates to -- this has been asked, so I'll just try to elaborate a bit on that as well. Specifically more about the Board contents that you've mentioned. Clearly, they would need to be independent in order to maintain the majority of [ risk ] payments. But can you also just mention other criteria that you're considering given that all of these independent group of Board members and then actually, I'd say you've got many PhDs, I think about 5 PhDs, but what criteria would you consider from your Board member in terms of operations and industry experience? Then second question, just for some multi-pivot [indiscernible] mentioned, right, that is normalized number, which is more important. That can [ smoother ] that because we do not want to encourage the release of provisions in order to reach target. Can you confirm that you would normalize by excluding any basis changes, any provision release? In other words, and this management team can't take credit for past management teams' conservatism, and that wouldn't be impacting on remuneration levels?

Okay. Ian, let me take this one. Francois, thank you for that. I can absolutely -- let me start with the last part. The whole idea is not to -- let the market decide what -- and the market conditions actually decide what the remuneration will be, but people's own efforts. And that includes, of course, the base that you start off with by just releasing from that base, it's not new work, it's someone else that compiled that base. So if you normalize correctly, those things should be -- the best changes should be taken out of the normal -- normalized type of return. So to actually make sure that people get rewarded for their own efforts are not simply releasing somebody else's effort into the income stream. So that is a key part of it. The other part of the question is really to make -- to how do we look at who to bring on the Board and so forth. As an ex-academic, we haven't really looked at 5 people with PhDs. I would normally regard this -- whether this [ patient ] being too academic and so forth. We want people that really drives the issue that we've -- the issues that we face. You would have seen quite a few actuaries coming on board with a substantial experience of management, not only in South Africa but across the board to address the issues that we face. As we go into IFRS 17 and these other measures, you have one opportunity of getting things right and nothing like experience in accounting, but in the actuarial skills and so to really guide us through that difficult issue. This is you know why suddenly you've seen more of actuaries coming on board. Similarly, people with experience in managing in Africa and elsewhere because this is where the issues are, and this is what our aspirations really drive towards. So there's a big chunk of where we see holes, where we see opportunities and really finding people around that. And looking forward, I think the 2 or 3 people that will come on board will also be in that train, getting people on board, it will really illustrate what our intent is, and then we try to get the best people to really deliver on that. [Audio Gap] bending the rules. And I think some shareholders and other stakeholders should. We have to be fair to everybody. And this is the role of the Board. And this is what we've been trying to do for quite some time. And nothing like looking at the incentive to see at the growth pattern and so forth, whether the success of the company can actually be related or is in sync and in tandem with the performance and how performance is actually rewarded within it. I think we've been pretty good over the last 20 years to reward performance appropriately, and therefore, to drive the right kind of behavior.

The next question comes from [ Sarine Barnard ] from [ 91 ].

Can you hear me?

We can, [ Sarine ].

Okay. Congratulations, Paul, and welcome back. 2 questions from my side. I just want to find out Elias seemed to be quite a busy man. Is he planning to relinquish some of its current role to make enough time available for this new role? And the second question is the position of Chair after Audit Committee, who will step into that?

Johan, you want to handle this one?

Yes. Let me talk to that. Elias has been fairly busy in the past and so forth. He's stepping off all the financial services board that he has been on, of course, which I believe has been at our financial services and quite a few others. So that is already stepped off because of conflict and so. He will retain one board membership of a listed entity. I think it's not related to us. That is MultiChoice one. And his main job will effectively being Chair at Sanlam, which gives you much more time than what, for instance, I had available to Sanlam. Not that that should be the measure. Just looking at my time here at Sanlam over the past 20 years, he would be the Chairman with most time available to do that. So we feel that is not really an issue. The Board has identified -- we haven't made any announcements yet on the new Chair of audit once Paul moves across. But you would have seen that we've strengthened the audit committee quite a bit with bringing back now that he's gone through his sort of 3.5 years of rest with group at Kobus Möller who worked as a lead for a long time. We believe he has been very good in managing [ as an Hansen HD ] and he's certainly available together with quite a few others, new blood being independent and moving forward and being able to help.

[Operator Instructions] Ian, we have no further questions in the queue. Do you have any closing comments before we conclude?

I would just like to thank everybody for their participation on the call. This is a big day for us, important announcements. And we'd like to welcome and give our support to Elias, to Abigail and to Paul. I wish them all the best in their time and their new roles at Sanlam. Thank you.

Ian, thanks a lot.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.