Liberty Holdings Limited - For the year ended 31 December 2017
Liberty Holdings Limited - For the year ended 31 December 2017
Financial results presentation Liberty Holdings Limited For the year ended 31 December 2017
Liberty Holdings Limited Financial results for the year ended 31 December 2017 1 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � Financial results presentation Liberty Holdings Limited For the year ended 31 December 2017 Liberty Holdings Limited David Munro, Chief Executive Taking stock
2 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � 3 Challenges led to pressure on margins and the ability to generate value from new business LIBERTY’S PURPOSE Improving people’s lives by making their financial freedom possible Liberty has a broad range of products that deliver for a large and loyal customer base Operating in a challenging macro environment with increased competitor activity Too many new efforts layered in complexity and distracted from core capabilities > Some products have become uncompetitive and difficult for advisers to deliver customer value > Customer experience and service to financial advisers needs attention > Poor investment performance from asset management operations > 4 A journey that will take time and hard work – prioritising the right actions Addressing the immediate priorities in the next two years This can be achieved by; • Increasing sales volumes • Reduction in acquisition and maintenance costs • Managing to better than assumptions and models • Efficient management of capital Value of new business margin 1% - 1.5% range 1 Growth in embedded value that exceeds 12% 2 RoE 15% - 18% range 3 Maintain robust capital within our target range 2.5 - 3.0 times 4
Liberty Holdings Limited Financial results for the year ended 31 December 2017 3 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � 5 Devising the path forward for Liberty Horizon 1 Here and now Manage the present Horizon 2 The following years through to 2020 Horizon 3 Beyond 2020 6 • Simplification program › Improve customer service, reduce complexity and simplify processes for our clients and financial advisers › Reduce costs and improve efficiencies and effectiveness through intelligent automation • Modernise and improve reporting systems and processes • Enhance the risk and control environment • Improve investment performance in asset management operations Immediate priorities for the leadership team – horizon 1 Initiatives to improve short- to medium-term performance reflect early signs of progress
4 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � 7 • Restore financial performance › Sales force effectiveness › Margins › Product and portfolio rationalisation › Expense management • Working with Liberty Two Degrees management to assess alternatives to the existing structure • Terminated the intended acquisition in Nigeria • Optimise outcomes from Liberty Africa Insurance, Liberty Health and the Short-term insurance joint venture with Standard Bank Group Immediate priorities for the leadership team – horizon 1 continued 8 • Evolve our strategy › Understand and anticipate the changing market and evolving customer needs › Leverage unique data sets and invest in technology to shape customer engagement • Identify opportunities to grow › Maximise our relationship with Standard Bank Group, leverage capacity and resources to increase access to customers › Digitisation, improve the way we support clients and advisers and prioritise existing initiatives › Modernise Liberty through culture, people and brand Looking at our time frame to 2020 – horizon 2
Liberty Holdings Limited Financial results for the year ended 31 December 2017 5 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � Financial results review Liberty Holdings Limited Yuresh Maharaj, Financial Director 10 Group financial highlights Improved normalised headline earnings, higher investment returns and strong capital position Rm (unless stated otherwise) Dec 17 Dec 16 % Δ Normalised headline earnings 2 719 2 527 8 Long-term insurance net customer cash flows 1 634 1 119 46 Long-term insurance indexed new business 8 018 7 892 2 Total assets under management (Rbn) 720 676 7 Shareholder Investment Portfolio (SIP) – gross of tax return (%) 8.5 5.7 Liberty Group Limited capital adequacy cover (times covered) 2.92 2.95 Dividend per share (cents) 691 691
6 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � 11 5 year track record since 2013 of consistently managing insurance operations to model SA insurance operations • Continued positive risk, persistency and credit variances partially offset by: › Basis changes to better reflect the expectation of future cash flows given policy terms, conditions and regulatory landscape • SA covered business embedded value maintained R34 billion, generating a return of 8.2% 109 21 43 2017 1H17 2016 Operating experience variances and basis changes remain positive (Rm) SA covered business net worth (Rm) Dec 17 Dec 16 Expected transfer to net worth 4 112 4 217 Operating experience variances and basis changes 110 264 Development expenses (55) (45) Change in allowance for fair value share rights (3) 28 Actual net of tax transfer to net worth 4 164 4 464 Performance in line with expectation (%) 101 106 12 Capital position at 31 December 2017 Capital levels remain strong post the sovereign credit ratings downgrade Rm (unless stated otherwise) Liberty Holdings Limited Liberty Group Limited IFRS IFRS shareholder equity 22 444 18 412 BEE preference shares 123 123 Liberty Two Degrees normalisation (340) - Normalised shareholder equity 22 227 18 535 Regulatory capital Shareholder assets 19 144 15 700 Regulatory capital requirement 6 022 5 378 Surplus above regulatory requirement 13 122 10 322 Risk appetite capital coverage ratio 1.50 1.50 Capital buffer in excess of risk appetite 10 111 7 633 Capital ratio at period end (times covered) 3.18 2.92
Liberty Holdings Limited Financial results for the year ended 31 December 2017 7 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � 13 1 208 1 412 2 719 16 376 252 1 307 (204) (236) Business unit earnings • Individual Arrangements earnings largely driven by positive risk variances • Group Arrangements had increased IPP claims experience and once-off Nigeria acquisition termination costs • STANLIB SA impacted by margin pressure from less favourable sales mix and increased costs • Remediation program in STANLIB Rest of Africa continued, with risk of further operational losses significantly reduced Business unit contribution to normalised earnings (Rm) FY16 : 8 (89) 18 (45) >(100) (13) (19) 66 8 Individual Arrangements Group Arrangements LibFin Markets STANLIB SA STANLIB Rest of Africa Central 2017 normalised operating earnings SIP 2017 normalised headline earnings 14 • Improved persistency in Individual Arrangements risk business, retention initiatives having positive impact on withdrawals and maturities • Increased new recurring premium sales offset by umbrella scheme outflows in Liberty Corporate Insurance operations Key performance indicators (Rm unless stated otherwise) 2H17 1H17 2017 2016 % Δ Value of new business 147 86 233 483 (52) New business margin (%) 0.5 0.4 0.5 1.1 Indexed new business 4 088 3 930 8 018 7 892 2 Individual Arrangements 3 365 3 205 6 570 6 639 (1) Group Arrangements 723 725 1 448 1 253 16 Net customer cash flows 2 299 (665) 1 634 1 119 46 Individual Arrangements 2 072 774 2 846 1 948 46 Group Arrangements 227 (1 439) (1 212) (268) >(100) STANLIB Multi-manager* (561) * Arrangement terminated in 2016, no flows are recorded for 2017 and going forward
8 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � 16 • Value of new business and margins are priorities for the insurance operations: › Focus on meaningful cost efficiencies with prudent expense management › Continue to innovate on new higher margin products › Product enhancements to improve margin – risk, critical illness, investment builder › Retention initiatives Financial performance – focus areas remain Committed to deliver on short-term performance targets 15 South African operations • Improved non-money market inflows: › Fixed income, property, absolute return funds and LISP • Ongoing initiatives to address investment performance and financial control Rest of Africa operations • Strengthened control environment in East Africa • Curtailment of cash mandate business • Other territories performed to expectation Asset management operations Remediation of operations remains an immediate priority for the new leadership at STANLIB AUM and cash flows Dec 17 Dec 16 % Δ Assets under management (Rbn) 609 586 4 STANLIB SA 556 535 4 STANLIB Rest of Africa 53 51 4 Net customer cash flows (Rm) 4 251 5 764 (26) STANLIB SA 4 731 2 801 69 STANLIB Rest of Africa (480) 2 963 >(100)
Liberty Holdings Limited Financial results for the year ended 31 December 2017 9 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � In closing Liberty Holdings Limited David Munro, Group Chief Executive 18 We have diagnosed the challenges and put plans in place to restore Liberty Early signs of progress are emerging • Financial advisers and distribution partners are critical to success • Renewed sense of optimism in the organisation • Focused on delivering exceptional client and adviser experience • Critical capabilities have been replaced • Strategy workstreams are driving high levels of engagement • Emerging confidence and sentiment in South Africa again
10 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS PRESENTATION Notes � � � � � � � � 19 Liberty has all the ingredients for success Source: 2017 Integrated Annual Report 1 We have been trusted partners to our clients and advisers for over 60 years 2 A diversified multichannel distribution capability 3 We have a track record of pioneering financial solutions in South Africa 4 An integral part of Standard Bank Group with a meaningful bancassurance arrangement 5 Staffed by more than 6 000 people who are passionately committed to the organisation 6 A strong capital base, a unique ability to manage risk, and disciplined cost management More than 2.5 million in-force policies Paid R8.7bn in death and disability claims We administer over 10 000 retirement schemes, and 500 000 individual and institutional investment customers More than 3 500 tied financial advisers Retirement Annuity offering Insurer to build shopping malls JSE-listed Life assurer Insurer to introduce Nurses on the Road To introduce Umbrella Funds First Liberty Group Limited CAR cover 2.92 times the statutory requirement LibFin facilitates differentiating features in product offerings Largest provider of long-term insurance solutions to the SA retail affluent market Questions
Liberty Holdings Limited Financial results for the year ended 31 December 2017 11 FINANCIAL RESULTS PRESENTATION NOTES � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
12 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS PRESENTATION NOTES � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
FINANCIAL RESULTS Financial results Liberty Holdings Limited For the year ended 31 December 2017
FINANCIAL RESULTS HIGHLIGHTS NORMALISED HEADLINE EARNINGS R2,7 billion LIBERTY GROUP LIMITED CAR COVER 2,92 times LONG-TERM INSURANCE INDEXED NEW BUSINESS R8 billion GROUP ASSETS UNDER MANAGEMENT R720 billion CONTENTS Page Financial performance indicators 15 Financial review 16 Accounting policies 20 Auditor statement 20 Directors’ responsibility 21 Explanation of terms 21 Consolidated statement of financial position 23 Consolidated statement of comprehensive income 24 Summary consolidated statement of changes in equity 25 Summary consolidated statement of cash flows 26 Headline earnings and earnings per share 27 Summary consolidated segment information 28 Group equity value report 32 Long-term insurance new business 38 Long-term insurance net cash flows 39 Assets under management 40 Asset management net cash flows 40 Short-term insurance indicators 41 Capital commitments 41 Retirement benefit obligations 42 Related parties 42 Offsetting, enforceable master netting arrangements or similar agreements 43
Liberty Holdings Limited Financial results for the year ended 31 December 2017 15 FINANCIAL RESULTS FINANCIAL PERFORMANCE INDICATORS for the year ended 31 December 2017 Rm (unless otherwise stated) 2017 2016 % change Liberty Holdings Limited Earnings Basic earnings per share (cents) 1 152,6 811,7 42 Fully diluted basic earnings per share (cents) 1 120,7 788,9 42 Normalised headline earnings(1) 2 719 2 527 8 Normalised headline earnings per share (cents)(1) 982,1 904,5 9 Normalised return on IFRS equity (%)(1) 12,3 11,4 Group equity value Normalised group equity value per share (R)(1) 140,31 145,86 (4) Normalised return on group equity value (%)(1) 1,1 5,1 Distributions per share (cents) Normal dividend 691 691 Interim dividend 276 276 Final dividend 415 415 Total assets under management (Rbn) 720 676 7 Long-term insurance operations Indexed new business (excluding contractual increases) 8 018 7 892 2 Embedded value of new business 233 483 (52) New business margin (%) 0,5 1,1 Net customer cash inflows 1 634 1 119 46 Capital adequacy cover of Liberty Group Limited (times covered) 2,92 2,95 Asset management Assets under management (Rbn) 609 586 4 Net cash inflows including money market(2) 4 251 5 764 (26) Retail and institutional net cash inflows excluding money market(2) 3 659 4 488 (18) Money market net cash inflows(2) 592 1 276 (54) (1) Normalised: headline earnings, headline earnings per share, return on equity, group equity value per share and return on group equity value.
These measures reflect the economic reality of the consolidation of the listed REIT Liberty Two Degrees (L2D) and the Black Economic Empowerment (BEE) transaction, as opposed to the required IFRS accounting treatment.
(2) Excludes intergroup life funds. Preparation and supervision: This announcement on Liberty Holdings Limited annual financial results for the year ended 31 December 2017 has been prepared by M Natsas CA(SA) and D Wichmann CA(SA) and supervised by Y Maharaj (Financial Director) CA(SA).
16 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS FINANCIAL REVIEW for the year ended 31 December 2017 Normalised headline earnings increased by 8% supported by improving SA retail insurance earnings and higher returns from investment markets.
The group’s capital position remains strong. Decisive actions are being taken to improve profitability and place Liberty on a sound strategic footing. The group remained resilient during the year, as evidenced by the stronger capital position of the group’s main long-term insurance licence, Liberty Group Limited, with a capital adequacy ratio at 2,92 times the regulatory minimum compared to 2,82 at 30 June 2017. This remains at the upper end of our target range at 31 December 2017 despite the impact of downgrades of the South African sovereign credit rating during the year. The group’s SA covered insurance business continued to deliver positive operating variances and be managed to better than model supporting the core assumptions underlying the insurance book.
The SA covered business embedded value was preserved, maintaining embedded value earnings of R2,8 billion compared to the prior year and generating a return of 8,2%. The value of new business (VoNB) and new business margin however ended the year below expectation. Actions are being taken to restore the new business margin. The economic environment favoured flows into guaranteed products, which manifested in a weaker mix of business from a margin perspective. The improvement in VoNB in the second half of 2017, despite lower volumes, shows signs that the focused initiatives commenced in the second quarter 2017 are starting to deliver the desired outcome.
Group equity value per share was lower at R140,31 (31 December 2016: R145,86). The lower group equity value per share was attributable to weaker earnings from the group’s non-covered businesses particularly within the STANLIB businesses and the resultant capitalisation impact of reduced earnings. Group net customer cash inflows, including the Gateway LISP, were positive at R6,5 billion despite the poor economic backdrop. Long-term insurance net customer cash inflows of R1,6 billion reflected an improvement on the prior year inflows of R1,1 billion, supported by lower policy withdrawals and maturities in Individual Arrangements.
Long-term insurance indexed new business sales grew marginally to R8 billion. Competitive retail market pricing and the tough economic environment continued to place significant pressure on retail sales volumes, partially offset by growth in Liberty Corporate recurring premiums during the year. Total group assets under management increased to R720 billion (31 December 2016: R676 billion). Normalised headline earnings for the year ended 31 December 2017 of R2 719 million were 8% up on 2016, supported by a higher contribution of R1 307 million (31 December 2016: R787 million) from the shareholder investment portfolio (SIP).
Normalised operating earnings however were 19% down on the prior year. The improved earnings contribution from Individual Arrangements was offset by the lower underwriting result from Liberty Corporate. STANLIB SA’s earnings continued to be impacted by margin pressure due to a less favourable sales mix and operational write-offs. STANLIB Rest of Africa earnings were impacted by operational losses. Normalised return on equity was 12,3% (31 December 2016: 11,4%). Headline earnings for 2017 amounted to R3 252 million, up 47% compared to R2 207 million in 2016. Liberty’s headline earnings include the positive earnings impact of R543 million arising from the accounting mismatch on the consolidation of the Liberty Two Degrees listed REIT.
Liberty Holdings Limited Financial results for the year ended 31 December 2017 17 FINANCIAL RESULTS FINANCIAL REVIEW (CONTINUED) for the year ended 31 December 2017 Earnings by business unit Rm (Unaudited) 2017 2016 % change Insurance Individual Arrangements 1 208 1 119 8 Group Arrangements 16 149 (89) Liberty Corporate 81 191 (58) Liberty Africa Insurance 45 41 10 Liberty Health (54) (45) (20) Nigeria(3) and project support costs (56) (38) (47) Balance sheet management 376 318 18 LibFin Markets – credit portfolio 330 300 10 LibFin Markets – asset/liability management portfolio 46 18 >100 Asset management(1) STANLIB South Africa 252 459 (45) STANLIB Rest of Africa (204) (97) (>100) Central overheads and sundry income (236) (208) (13) Normalised operating earnings 1 412 1 740 (19) LibFin Investments – SIP 1 307 787 66 Normalised headline earnings 2 719 2 527 8 BEE preference share adjustment (10) (16) 38 Reversal of accounting mismatch arising on consolidation of L2D(2) 543 (304) >100 Headline earnings 3 252 2 207 47 (1) Asset management customer facing unit includes the asset management capabilities under STANLIB South Africa and STANLIB Rest of Africa business units, which are managed separately, with each business having its own accountable executive.
(2) Refer Explanation of terms on page 21. (3) Costs associated with the termination of a long-term licence acquisition in Nigeria and project management costs of the Group Arrangements CFU. Commentary on the earnings by business unit follows below. Additional information is contained in the summary consolidated segment information. Individual Arrangements Headline earnings from the group’s South African retail operations of R1 208 million were 8% up on the prior year. Positive risk variances in the year were partly offset by modelling and assumption changes to better reflect the expectation of future cash flows given policy terms and conditions.
New business strain arising from the geared effects of increased costs relative to new business volumes with a weaker business mix continued to place pressure on earnings. This, together with the impact of the new tax risk fund and basis changes resulted in the value of new business reducing to R155 million in the current year (31 December 2016: R426 million), while the new business margin declined to 0,5% from 1,2% in the prior year. The improvement in the value of new business from R62 million for the six months to 30 June 2017 to R155 million for the year to 31 December 2017 indicates that initiatives implemented in 2017 to improve the value of new business are starting to have the desired effect.
Indexed new business of R6 570 million was 1% down on 2016. Competitive retail market pricing and the tough economic environment continued to place significant pressure on sales volumes. The economic environment favoured flows into guaranteed products, as evidenced by strong demand for the Guaranteed Investment Product and the Bold Living Annuity throughout the year.
Net customer cash inflows of R2,8 billion were 46% up on prior year inflows of R1,9 billion, driven by lower policy withdrawals and maturities. This also reflects a significant improvement over the R0,8 billion inflows reported at 30 June 2017 and confirms that the ongoing initiatives to improve retention are delivering the required results. Despite the tough environment, the business continued to deliver positive operating variances and has been managed to “better than model” consistently for the last five years.
18 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS FINANCIAL REVIEW (CONTINUED) for the year ended 31 December 2017 Group Arrangements Liberty Corporate Earnings of R81 million were impacted by a considerably lower underwriting result due to a high level of risk claims experienced, particularly an increase in income protection plan (IPP) claims in the second half of 2017.
Indexed new business was 39% higher than the prior year at R1 171 million, with recurring premium new business up 42% due to good risk and umbrella enhancement sales. Single premium new business was up 6%. This resulted in the value of new business increasing to R57 million. Net cash outflows amounted to R1,5 billion reflecting a small number of high asset value scheme terminations and higher risk and IPP claims linked to the challenging economic environment and associated job losses, partially offset by increased recurring premium inflows. Liberty Africa and Liberty Health Insurance Liberty Africa Insurance earnings of R45 million were 10% up on the prior year despite negative exchange rate movements.
Indexed new business in the long-term insurance businesses of R277 million was 33% down on the prior year due to exchange rate movements and a large once off deal in 2016. The value of new business was lower at R21 million at a margin of 3,9%. The short-term insurance businesses have experienced considerable pricing pressure. The recessionary environment in Nigeria significantly impacted Liberty Health’s short-term profitability. Management remains focused on growing the operations to scale.
Asset management STANLIB South Africa STANLIB South Africa earnings were R252 million for the year (31 December 2016: R459 million). Earnings were impacted by margin pressure due to a less favourable sales mix, costs associated with the termination of the institutional administration outsourcing programme, the launch of new franchises and operational write-offs. Total assets under management by STANLIB South Africa increased by R21 billion to R556 billion at 31 December 2017. Net customer cash inflows (excluding intergroup) grew to R4,7 billion from inflows of R2,8 billion in the prior year.
This result was mainly attributable to strong non-money market inflows. Intergroup cash outflows for the year amounted to R15,9 billion. STANLIB Rest of Africa STANLIB Rest of Africa incurred a loss of R204 million for the year (31 December 2016: loss of R97 million). The business continued to be affected mainly by operational losses identified during the remedial programme in East Africa. Efforts to strengthen the operational and control environments have progressed well and risks of further operational losses are significantly reduced. Operations in the other African territories tracked broadly to expectation.
Total assets under management by STANLIB Rest of Africa increased by R1,7 billion to R52,5 billion at 31 December 2017. Liberty Two Degrees (L2D) L2D’s results for the year ended 31 December 2017 were released on 19 February 2018. The operational performance of the property portfolio remained strong notwithstanding a difficult consumer environment. Together with L2D management, we are assessing alternatives to deal with the limitations of the existing structure. Bancassurance The bancassurance agreement with Standard Bank, which is applicable across the group’s asset management and insurance operations, continues to make a positive contribution to new business volumes and earnings.
The total indexed new business premiums sold under the agreement increased by 7% to R3,3 billion for the year. Good progress is being made with the implementation of the 10 point bancassurance plan and we continue leveraging our relationship with Standard Bank to capture appropriate opportunities.
Balance sheet management LibFin Markets – Asset liability management and credit portfolio Earnings from the credit portfolio increased by 10% to R330 million as a result of growth in the credit portfolio notwithstanding the impact of the sovereign ratings downgrades. The asset liability management profit amounted to R46 million due to favourable market positioning (31 December 2016: R18 million). LibFin assets under management were higher at R62 billion (31 December 2016: R58 billion). LibFin Investments – Shareholder Investment Portfolio (SIP) The SIP includes the assets backing capital in the insurance operations as well as the group’s investment market exposure to the 90:10 book of business.
The current risk profile of the SIP is similar to a conservative balanced portfolio and is managed with a long-term through the cycle investment horizon. Market returns experienced in 2017 were higher and the portfolio accordingly delivered a gross return of 8,5% (31 December 2016: 5,7%) which was marginally below the portfolio benchmark. The extent of the SIP exposure to investment markets remains appropriate in the context of the group’s risk appetite. Earnings of R1 307 million were well above 2016 earnings of R787 million despite the significant rand appreciation in December 2017 which reduced the returns on offshore assets.
Liberty Holdings Limited Financial results for the year ended 31 December 2017 19 FINANCIAL RESULTS FINANCIAL REVIEW (CONTINUED) for the year ended 31 December 2017 Capital adequacy cover The capital adequacy cover of Liberty Group Limited remained strong at 2,92 times the statutory requirement (31 December 2016: 2,95 times). The group remains well capitalised at the upper end of its target range in respect of the current capital regime and in respect of capital requirements under the impending Solvency Assessment and Management regime.
All other group subsidiary life licences were adequately capitalised.
Dividends 2017 final dividend In line with the group’s dividend policy, the board has approved and declared a gross final dividend of 415 cents per ordinary share. Thefinaldividendwillbepaidoutofincomereservesandispayable on Monday, 9 April 2018 to all ordinary shareholders recorded in the books of Liberty Holdings Limited on the record date. The dividend of 415 cents per ordinary share will be subject to a local dividend tax rate of 20% which will result in a net final dividend, to those shareholders who are not exempt from paying dividend tax, of 332 cents per ordinary share. Liberty Holdings Limited’s income tax number is 9050/191/71/8.
The number of ordinary shares in issue in the company’s share capital at the date of declaration is 286 202 373.
The important dates pertaining to the dividend are as follows: Last date to trade cum dividend on the JSE Tuesday, 3 April 2018 First trading day ex dividend on the JSE Wednesday, 4 April 2018 Record date Friday, 6 April 2018 Payment date Monday, 9 April 2018 Share certificates may not be dematerialised or rematerialised between Wednesday, 4 April 2018 and Friday, 6 April 2018, both days inclusive. Where applicable, in terms of instructions received by the company from certificated shareholders, the payment of the dividend will be made electronically to shareholders’ bank accounts on payment date.
In the absence of specific mandates, cheques will be posted to shareholders. Shareholders who have dematerialised their shares will have their accounts with their CSDP or broker credited on Monday, 9 April 2018. Prospects Liberty’s business is built on our deep relationships with our customers and advisers which is core to creating value for all stakeholders. We are taking decisive actions to improve profitability and place our business on a sound strategic footing. In 2018, management will focus on restoring the financial performance of the SA Retail insurance business, improving the investment performance of STANLIB, simplifying the group’s overall operations and expanding our relationship with the Standard Bank Group.
We are confident that the group will emerge from this period of change with significantly greater potential to serve the needs of all stakeholders.
David Munro Jacko Maree Chief Executive Chairman 1 March 2018 Transfer Secretaries Computershare Investor Services Proprietary Limited (Registration number 2004/003647/07) Rosebank Towers, 15 Biermann Avenue, Rosebank Johannesburg 2196 Tel: +27 (11) 370 5000 Liberty Holdings Limited Incorporated in the Republic of South Africa (Registration number: 1968/002095/06) JSE code: LBH ISIN code: ZAE000012714 Preference share code: LBHP ISIN code: ZAE000004040 Telephone +27 11 408 3911 These results are available at www.libertyholdings.co.za www.libertyholdings.co.za Sponsor
20 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS ACCOUNTING POLICIES The 2017 consolidated annual financial statements of Liberty Holdings Limited have been prepared in accordance with and contains information required by: • International Financial Reporting Standards (IFRS) including IAS 34 Interim Financial Reporting (with the exception of disclosures required under IAS 34 16A (j) relating to fair value measurement, which are not required by the JSE Listing Requirements); • theSAICAFinancialReportingGuidesasissuedbytheAccounting Practices Committee; • Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council; • the Listings Requirements of the JSE Limited; and • the South African Companies Act No.
71 of 2008. The consolidated annual financial statements have been prepared in compliance with IFRS and interpretations for year ends commencing on or after 1 January 2017. Theaccountingpoliciesareconsistentwiththoseappliedintheprior year except for the mandatory adoption of minor amendments or early adoption of amendments to IFRS. These amendments have not resulted in any material impacts to the group’s 2017 reported results or comparative periods.
Amendments to IFRS 2 Share-based Payments and IAS 40 Investment Properties, effective 1 January 2018, have been early adopted as at 1 January 2017. These amendments have not resulted in any impact to the group’s 2017 reported results, comparative periods or disclosures. AUDITOR STATEMENT PricewaterhouseCoopers Inc. (PwC) have audited the consolidated annual financial statements of Liberty Holdings Limited from which the summary consolidated financial results have been extracted. These summary consolidated financial results comprise the consolidated statement of financial position at 31 December 2017, the consolidated statement of comprehensive income, summary consolidated changes in equity and summary consolidated cash flows for the year then ended and selected explanatory notes.
These statements and related notes are marked as ‘audited’. This announcement itself is not audited.
The financial results contained in this announcement have been prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, and the requirementsoftheCompaniesActapplicabletosummaryfinancial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and also, as a minimum, to contain the information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the consolidated annual financial statements, from which the summary consolidated financial results were extracted, are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the prior year’s consolidated annual financial statements except for the changes outlined in the Accounting policiesabove.Thisannouncementdoesnotincludetheinformation required pursuant to paragraph 16A (j) of IAS 34. The full IAS 34 compliant summary consolidated financial results announcement and a copy of the auditors’ report is available on request or on the company’s website and at the company’s registered office.
The auditors have expressed an unmodified audit opinion on the consolidated annual financial statements. PwC have also issued an unmodified assurance opinion on Liberty Holdings Limited’s group equity value report, which has also been marked as ‘audited’ in this financial results announcement.
Shareholdersareadvisedthatinordertoobtainafullunderstanding of the nature of the auditors’ engagement, they should obtain a copy of the auditors’ reports together with the accompanying financial information which is available upon request from Liberty Holdings Limited’s registered office.
Liberty Holdings Limited Financial results for the year ended 31 December 2017 21 FINANCIAL RESULTS DIRECTORS’ RESPONSIBILITY The summary consolidated annual financial statements included in this announcement are the full responsibility of the directors. The directors confirm that the financial information has been correctly extracted from the underlying 2017 audited consolidated Liberty Holdings Limited annual financial statements which are available for inspection at the company’s registered office on request.
EXPLANATION OF TERMS Capital adequacy requirement (CAR) The capital adequacy requirement is the minimum amount by which the Financial Services Board requires an insurer’s assets to exceed its liabilities. The assets, liabilities and CAR must be calculated using a method which meets the Financial Services Board’s requirements. Capital adequacy cover refers to the amount ofcapitaltheinsurerhasasamultipleoftheminimumrequirement. Development costs Represents project costs incurred on developing or enhancing future revenue opportunities.
FCTR Foreign Currency Translation Reserve. “Liberty” or “group” Represents the collective of Liberty Holdings Limited and its subsidiaries.
Long-term insurance operations – Indexed new business This is a measure of new business which is calculated as the sum of twelve months’ premiums on new recurring premium policies and one tenth of single premium sales. Long-term insurance operations – Value of new business and margin The present value, at point of sale, of the projected stream of after tax profits for new business issued, net of the cost of required capital. The present value is calculated using a risk adjusted discount rate. Margin is calculated using the value of new business divided by the present value of future modelled premiums.
Short-term insurance operations – Claims loss ratio This is a measure of underwriting risk and is measured as a ratio of claims incurred divided by the net premiums earned. Normalised: headline earnings, headline earnings per share, return on equity, group equity value per share and return on group equity value These measures reflect the economic reality of the Black Economic Empowerment (BEE) transaction and the consolidation of the listed REIT Liberty Two Degrees (L2D) as opposed to the required IFRS accounting treatment.
BEE transaction IFRS reflects the BEE transaction as a share buy-back. Dividends received on the group’s preference shares (which are recognised as an asset for this purpose) are included in income. Shares in issue relating to the transaction are reinstated.
22 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS EXPLANATION OF TERMS (CONTINUED) Normalised: headline earnings, headline earnings per share, return on equity, group equity value per share and return on group equity value (CONTINUED) Reversal of accounting mismatch arising on IFRS profit or loss consolidation of L2D An accounting mismatch arises on consolidation of L2D in the group annual financial statements, resulting from the different measurement bases applied to L2D’s assets and Liberty Group Limited’s(100%subsidiaryofLibertyHoldingsLimited)policyholder liabilities.
Specifically: • on a consolidated look through basis the investment property assets of L2D are included in the group annual financial statements at fair value; whereas • the corresponding linked obligations to Liberty Group Limited’s policyholders are required under IFRS to continue to be measured in the group annual financial statements at the listed price of the L2D units.
The result of this is an accounting mismatch that represents any difference in the profit and loss movement in the price at which L2D’s listed units trade relative to the underlying net asset value. L2D adjustment in group equity value In addition to the reversal of the accounting mismatch in IFRS profit or loss described above, the group equity value adjusts the exposures in the shareholder investment portfolios (SIP) to the listed unit price. Summary of impact Below is a summary of the L2D transaction impact on the ordinary shareholders interest: Rm Group equity value Total IFRS net asset value SIP equity value adjustment Opening adjustment at 1 January 2017 (330) (193) (137) IFRS profit or loss 543 543 Group equity value earnings 394 394 Transaction between owners (10) (10) Closing adjustment at 31 December 2017 597 340 257
Liberty Holdings Limited Financial results for the year ended 31 December 2017 23 FINANCIAL RESULTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2017 Rm (Audited) 2017 2016 Assets Intangible assets 231 390 Defined benefit pension fund employer surplus 171 215 Properties 34 768 33 828 Equipment 1 128 1 105 Interests in joint ventures 1 244 1 229 Interests in associates 15 197 12 995 Deferred taxation 336 358 Deferred acquisition costs 737 713 Long-term policyholder assets – insurance contracts 7 484 7 314 Reinsurance assets 1 774 1 674 Long-term insurance 1 481 1 352 Short-term insurance 293 322 Financial investments 338 534 316 441 Loans and receivables 1 222 1 242 Assets held for trading and for hedging 7 871 8 609 Repurchase agreements, scrip and collateral assets 11 900 15 483 Prepayments, insurance and other receivables 6 361 5 300 Cash and cash equivalents 15 169 14 994 Total assets 444 127 421 890 Liabilities Long-term policyholder liabilities 322 918 307 230 Insurance contracts 210 554 204 155 Investment contracts with discretionary participation features 11 845 11 462 Financial liabilities under investment contracts 100 519 91 613 Reinsurance liabilities 663 555 Third-party financial liabilities arising on consolidation of mutual funds 49 713 44 046 Provisions 76 191 Deferred taxation 3 386 2 586 Deferred revenue 291 268 Deemed disposal taxation liability 436 873 Short-term insurance liabilities 780 925 Financial liabilities 5 581 4 601 Liabilities held for trading and for hedging 6 311 6 798 Repurchase agreements liabilities and collateral deposits payable 9 097 11 748 Employee benefits 1 446 1 369 Insurance and other payables 11 995 11 213 Current taxation 1 043 481 Total liabilities 413 736 392 884 Equity Ordinary shareholders’ equity 22 444 21 676 Share capital 26 26 Share premium 5 157 5 296 Retained surplus 18 166 16 990 Other reserves ( 905) ( 636) Non-controlling interests 7 947 7 330 Total equity 30 391 29 006 Total equity and liabilities 444 127 421 890
24 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2017 Rm (Audited) 2017 2016 Insurance premiums 39 970 41 288 Reinsurance premiums (1 950) (1 922) Net insurance premiums 38 020 39 366 Fee income and reinsurance commission 3 683 3 731 Investment income 21 652 20 885 Hotel operations sales 532 585 Investment gains/(losses) 18 835 (1 823) Total revenue 82 722 62 744 Claims and policyholder benefits under insurance contracts (38 819) (39 664) Insurance claims recovered from reinsurers 1 800 1 450 Change in long-term policyholder assets and liabilities (6 829) 598 Liabilities under insurance contracts (6 504) 1 164 Policyholder assets related to insurance contracts 170 (265) Investment contracts with discretionary participation features (521) (404) Applicable to reinsurers 26 103 Fair value adjustment to long-term policyholder liabilities under investment contracts (9 116) (3 891) Fair value adjustment to financial liabilities (27) Fair value adjustment on third party mutual fund interests (4 619) 619 Acquisition costs (4 935) (4 723) General marketing and administration expenses (11 345) (10 733) Finance costs (1 344) (1 415) Profit share allocations under bancassurance and other agreements (972) (1 029) Equity accounted earnings from joint venture 25 22 Profit before taxation 6 568 3 951 Taxation(1) (2 864) (1 325) Total earnings 3 704 2 626 Other comprehensive income (233) (148) Items that may be reclassified subsequently to profit or loss (95) (101) Net change in fair value on cash flow hedges 75 218 Income and capital gains tax relating to net change in fair value on cash flow hedges (21) (56) Foreign currency translation (149) (263) Items that may not be reclassified subsequently to profit or loss (138) (47) Owner-occupied properties – fair value adjustment (67) (1) Income and capital gains tax relating to owner-occupied properties fair value adjustment (14) Change in long-term policyholder insurance liabilities (application of shadow accounting) (32) 1 Actuarial gains on post-retirement medical aid liability 45 30 Income tax relating to post-retirement medical aid liability (13) (8) Net adjustments to defined benefit pension fund(2) (41) (96) Income tax relating to defined benefit pension fund (16) 27 Total comprehensive income 3 471 2 478 Total earnings attributable to: Shareholders 3 118 2 209 Non-controlling interests 586 417 3 704 2 626 Total comprehensive income attributable to: Shareholders 2 932 2 128 Non-controlling interests 539 350 3 471 2 478 Basic and fully diluted earnings per share Cents Cents Basic earnings per share 1 152,6 811,7 Fully diluted basic earnings per share 1 120,7 788,9 (1) IFRS requires both policyholder and shareholder taxation to be reported in the taxation line.
This therefore distorts the effective tax charge relative to profit before taxation. (2) Net adjustments to defined benefit pension fund include actuarial gains or losses, return on plan assets, reduced by the interest on the net defined benefit asset and the effect of the application of the asset ceiling.
Liberty Holdings Limited Financial results for the year ended 31 December 2017 25 FINANCIAL RESULTS SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2017 Rm (Audited) 2017 2016 Balance of ordinary shareholders’ equity at 1 January 21 676 21 739 Ordinary dividends (1 942) (2 022) Total comprehensive income 2 932 2 128 Share buy-back(1) (350) (477) Black economic empowerment transaction 32 195 Share-based payments 99 132 Transaction costs of issuing units in Liberty Two Degrees (78) Preference dividends (2) (2) Transactions between owners 9 (40) Transactions between owners – Liberty Two Degrees (10) 101 Ordinary shareholders’ equity 22 444 21 676 Balance of non-controlling interests at 1 January 7 330 4 254 Total comprehensive income 539 350 Acquisition of Liberty Two Degrees 3 000 Transactions between owners – Liberty Two Degrees 351 (101) Acquisition of unincorporated property partnership 87 98 Acquisition of subsidiaries 33 Unincorporated property partnerships net distributions (238) (219) Non-controlling interests’ share of subsidiary distributions (133) (21) Non-controlling interests’ share of shares issued in subsidiary 2 3 Transaction costs of issuing units in Liberty Two Degrees (38) Transactions between owners 9 (29) Non-controlling interests 7 947 7 330 Total equity 30 391 29 006 (1) Share buy-backs are purchases from the market to meet employee share-based payment obligations.
26 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2017 Rm (Audited) 2017 2016 Cash flows from operating activities 5 121 2 443 Cash utilised by operations (7 082) (9 157) Interest and dividends received 18 841 18 242 Distributions paid (3 075) (2 717) Taxation paid (1 946) (2 260) Other operating cash flows (1 617) (1 665) Cash flows from investing activities (3 581) (6 607) Net purchase of investments (2 906) (4 937) Net purchase of other assets (375) (288) Repayment of collateral deposits payable (258) (1 236) Acquisition of subsidiaries (146) Acquisition of equity accounted joint ventures (42) Cash flows from financing activities (1 280) (18) Net advance of financial liabilities 980 687 Net repayment of repurchase agreements liabilities (2 393) (3 175) Net cash flows from equity transactions with non-controlling interests 483 3 063 Transaction costs of issuing units in Liberty Two Degrees (116) Share buy-back (350) (477) Net increase/(decrease) in cash and cash equivalents 260 (4 182) Cash and cash equivalents at the beginning of the year 14 994 19 305 Cash and cash equivalents acquired through business acquisitions 61 Foreign currency translation (85) (190) Cash and cash equivalents at the end of the year 15 169 14 994
Liberty Holdings Limited Financial results for the year ended 31 December 2017 27 FINANCIAL RESULTS HEADLINE EARNINGS AND EARNINGS PER SHARE for the year ended 31 December 2017 Rm (unless otherwise stated) (Audited) 2017 2016 Reconciliation of total earnings to headline earnings attributable to shareholders Total earnings attributable to shareholders 3 118 2 209 Preference share dividend (2) (2) Basic earnings attributable to ordinary shareholders 3 116 2 207 Impairment of intangible assets 164 Tax on headline earnings adjustable item (28) Headline earnings attributable to ordinary shareholders 3 252 2 207 Net income earned on BEE preference shares 10 16 Reversal of the accounting mismatch arising on consolidation of L2D(1) (543) 304 Normalised headline earnings attributable to ordinary shareholders 2 719 2 527 Weighted average number of shares in issue (‘000) 270 348 271 883 Normalised weighted average number of shares in issue (‘000) 276 847 279 373 Fully diluted weighted average number of shares in issue (‘000) 278 030 279 760 Earnings per share Cents Cents Total earnings attributable to ordinary shareholders Basic 1 152,6 811,7 Headline 1 202,9 811,7 Normalised headline 982,1 904,5 Fully diluted earnings attributable to ordinary shareholders Basic 1 120,7 788,9 Headline 1 169,7 788,9 (1) Refer Explanation of terms on page 21.
28 Liberty Holdings Limited Financial results for the year ended 31 December 2017 FINANCIAL RESULTS SUMMARY CONSOLIDATED SEGMENT INFORMATION for the year ended 31 December 2017 The audited segment results for the year ended 31 December 2017 are as follows: Group Arrangements Rm (Audited) Individual Arrange ments Liberty Corporate Liberty Africa Insurance Liberty Health Total revenue 68 161 15 676 2 420 929 Profit before taxation 2 957 223 121 (134) Taxation(3) (1 819) (62) (74) 28 Total earnings 1 138 161 47 (106) Reconciliation of total earnings to headline earnings attributable to shareholders Total earnings 1 138 161 47 (106) Attributable to non-controlling interests (1) (58) Preference share dividend Impairment of intangible assets 13 71 52 Headline earnings 1 150 232 (11) (54) Net income earned on BEE preference shares Reversal of the accounting mismatch arising on consolidation of L2D Normalised headline earnings 1 150 232 (11) (54) Reconciliation of business unit earnings to segment result Individual Arrangements 1 208 Group Arrangements 81 (11) (54) Liberty Corporate 81 Liberty Africa Insurance 45 Liberty Health (54) Nigeria(2) and project support costs (56) LibFin (Markets and Investments) (138) 151 LibFin Markets – credit portfolio 192 138 LibFin Markets – asset/liability matching 35 1 LibFin Investments – SIP (365) 12 Asset management STANLIB South Africa STANLIB Rest of Africa Central overheads and sundry income 80 Normalised headline earnings 1 150 232 (11) (54) (1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term insurance into defined IFRS ‘investment’ and ‘insurance’ products, the application of shadow accounting for the change in long-term policyholder insurance liabilities and the elimination of intergroup transactions.
(2) Costs associated with the termination of a long-term licence acquisition in Nigeria and project management costs of the Group Arrangements CFU. (3) IFRS requires both policyholder and shareholder taxation to be reported in the taxation line. This therefore distorts the effective tax charge relative to profit before taxation. The customer facing units are supported by shared service functions (Group Enablement) and LibFin (incorporating LibFin Markets and LibFin Investments), which are strategic competency units. The impact of LibFin Markets is disclosed in the relevant customer grouping.