In the media
'Even in tough times, the elephant must dance' - Sanlam boss20 March 2016
If Ian Kirk is having a tough time adapting to his relatively new job as the group chief executive of Sanlam, he knows how to hide it.
|Ian Kirk, the group chief executive of Sanlam.|
Taking over from Johan van Zyl was never going to be easy. Van Zyl, an academic-turned-business superstar who ran the group from 2003 to 2015, transformed it from a South Africa-focused company where 85% of business came from the Afrikaans community into a pan-African business with operations in India and Malaysia.
Yet Kirk’s timing could hardly be worse, taking the hot seat as SA’s economy comes grinding to a halt and the world seems to move into bear market territory.
2015 was a tough year, as the group’s recently released results show. While diluted headline earnings per share were up a respectable 12% to 459.5c, Sanlam’s shareholders have been getting used to more, and the share price dropped 5.8% following the announcement on 10 March.
“I think in the short term, we’ll face a tough 2016. But medium- to long-term, I think the outlook is a little bit more promising,” Kirk says. “We have a very solid business here at Sanlam. We know what we’re doing. We know what we don’t do, which helps, and we’ve got great people. One can’t ask for more than that.”
It’s often in tough times that organisations can get ahead of the competition, Kirk says.
“In the easy times, when the wind is at the back, the weaker players can also survive. When the wind is in the front, it can be tougher for everyone.”
Another benefit of the tough economic climate in Africa is that international competitors, who have been very active in East Africa in particular, “tend to back off a bit”, Kirk says.
The other thing that people often get wrong is that economic conditions don’t affect Sanlam’s operations that much in every market in which it operates on the continent, he says.
“In the countries where our market position is big and insurance penetration is high, there we are impacted, like South Africa (which accounted for 67% of net operating profit in 2015), Botswana (5%) and Namibia (5%). In other countries, where insurance penetration is very low, we can still keep busy in difficult economic times.
“Take Nigeria, for example. The country goes head over heels [due to the drop in oil prices]; we’re still selling policies. Why? Because the insurance penetration is extremely low. Our partner there – First Bank of Nigeria – has a significant base of 7m retail customers. They’ve hardly had any insurance. So you can get busy [despite the economic climate]. So it’s not every place that we are that is hit hard.”
By building a brownfield business that didn’t require much capital, Sanlam is also better positioned than many other South African businesses operating in Nigeria.
It has no need to import goods, such as Shoprite or Truworths – which recently announced its withdrawal from the country – or have to struggle to repatriate dividends, given the country’s current foreign exchange controls.
“We opted to build a brownfield business with First Bank of Nigeria. We’re not in a situation where we’re looking to pay a dividend. We’re reinvesting in the business. So I guess you might say we were fortunate there; you might say we were clever. We have great partners but these are things that you have to manage.”
Despite the current economic challenges, Sanlam believes the continent’s growth story “remains intact”.
The group has just finalised its acquisition of a 30% stake for $375m in Morocco-headquartered Saham Finances, which sells insurance across 26 countries in north, east and west Africa. Saham Finances recorded a turnover of more than $1bn in 2014.
“They’ve really assisted us in putting an unrivalled footprint on the ground,” Kirk says. The deal came about after a two-year engagement with the Saham team.
“We were all trekking around the continent looking at the same transaction opportunities, competing in the same countries, staying at the same hotels, travelling through the same airports. Eventually we said, ‘Listen guys, maybe we’ll be better together.’ That’s where the discussion started.”
It’s premature to speculate on whether Sanlam would want to further increase its stake in Saham in future, Kirk says. But what is certain is that the group has a R2.3bn war chest available for “strategic initiatives”, and that this cash pile can be leveraged for even larger transactions, should the opportunity arise.
(Its other major capital commitments in 2015 included R969m to increase its stake in Indian joint venture Shriram's insurance businesses from 26% to 49% (which is yet to be concluded) and R703m to acquire 28.7% of Afrocentric Healthcare, Medscheme's holding company, its largest acquisition in SA since it bought African Life in 2005.)
For now, the focus is on building its business in Africa, Kirk says. “We’re going to turn up the dial on Africa, and maybe turn down the dial a bit elsewhere for a period of time. We see an opportunity to build a footprint for corporate and retail business that’s pretty much unrivalled on the African continent."
With a number of regulatory changes, such as the Retail Distribution Review, which will change the way customers can get face-to-face financial advice, and the impact of the internet on traditional business models, there is a constant need for Sanlam to adapt its business models.
“The whole point for us is: are we going to adapt, and are we going to be there for the client at their time of need? And we’ve done it before. You used to only be able to get a Sanlam or Santam policy through an intermediary. Now you can get it from a broader distribution footprint.
“So we ask: what does the client want? What makes sense for the client in terms of product, in terms of service? People think the elephant can’t dance, because it’s too big, and it’s got too much legacy. Well, we have to dance. Because if you don’t, the competitors will take your business.”
Kirk is currently spending considerable time on the joint business/government initiative that is aimed at fixing the economy and preventing a junk sovereign credit rating. “We have to do what we can to ensure that the plans that are there to prevent the downgrade – then we do what’s necessary to implement the plans.”
There are clear plans on how to fix the economy, such as the National Development Plan (NDP). The challenge is implementation, he says.
Irrespective of the downgrade, it is time that we fix the things that need to be fixed, Kirk believes.
“The state-owned enterprises, governance, financial accountability, leadership, efficiency, corruption, procurement problems- ALL that stuff that needs to get fixed. Let’s do it. […] Even if we don’t have the time to get the downgrade sorted, we can get these other things sorted.”