Companies

Sh1.5bn Sanlam loss linked to ARM woes

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Sanlam Group Chief Executive Officer Patrick Tumbo. FILE PHOTO | NMG

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Summary

  • Insurer was forced to write off Sh1.15bn largely linked to investments in firms in financial distress
  • Some of the impaired assets include Sh574 million it had with troubled ARM Group and Sh398 million in Real People Kenya

Sanlam Kenya sank into a shock Sh1.53 billion net loss in the six months ended June largely on bad investment decisions, the non-bank financial services firm's books show.

The company was forced to write off Sh1.15 billion mainly related to bond investments in firms in financial distress, plunging it into losses from a Sh90.53 million net profit in the same period last year.

Some of the impaired assets include Sh574 million it had with troubled ARM Group (under administration) and Sh398 million in Real People Kenya – a credit-only micro-finance firm with links in South Africa.

ARM was placed under administration by Nigerian-owned UBA Bank over default of a Sh500 million overdraft on August 17, while Real People said earlier in the month it was unable to service the Sh1.26 billion bond issued in 2015 and was seeking to convert it into equity.

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Revised business model

Sanlam Kenya, controlled by South Africa’s Sanlam through Hubris Holdings, also disclosed that it has written off Sh169 million in Kaluworks, a manufacturer of aluminium utensils and roofing sheets.

“These facilities are at various stages of financial distress and it remains prudent for us to maintain a balance sheet that reflects this status as collection and recovery efforts progress,” chief executive Patrick Tumbo said in a statement.

The decision to impair the investments, he added, was in line with prudential standards.

Sanlam, Mr Tumbo said, will be adopting remedial interventions, including an enhanced investment policy, to facilitate sustained growth and turn around its performance.

“It will no longer be business as usual. We have adopted a revised business model and we will be pursuing key initiatives geared at elevating the business back on a profitability path,” he said.

“On this journey, we shall be anchoring our business operations on an enhanced investment policy to secure the interests of all our stakeholders.”

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Depressed market

Income from investment and other non-core streams in the review period fell by Sh377.42 million, or 24.02 per cent, to Sh1.19 billion, the firm report.

Sanlam blamed Sh230.22 million, or 8.45 per cent, fall in net earned premiums to Sh2.45 billion – its core revenue stream – on “prevailing depressed market climate for non-bank financial services providers”.

Despite a Sh303.47 million, or 11.03 per cent, dip in net claims to nearly Sh2.45 billion, operating costs shot up by 27.99 per cent to Sh1.78 billion, further eating into profit.

Mr Tumbo took over as Sanlam Group Chief Executive this month, replacing Mugo Kibati who resigned in March.