Transcript Slide 1

2005 Results Presentation to the Investment Analysts’ Society of Southern Africa
2 March 2006
www.liberty.co.za
1
Agenda
What we said
What we’ve done
Financial and operating results
Focus areas
Questions
2
What we said …
• Capital management continues
• Compliance, IFRS …
• Address PFA issues
• ... people ... service … costs
3
What we said …
• Operational restructuring and CAHL integration continues
• Marketing and Distribution restructuring
- Products
- Channels
- Project Khula continues
• Group professional services restructuring and integration
• … Hug our customers!
4
What we’ve done … Capital management
• Bought CAHL utilising some excess capital
• First life company in SA to issue capital qualifying bond
• Sold significant portion of SAB - no remaining concentration risks
• Sale of Prefsure and Hightree
• Ermitage sale in progress
• New dividend policy implemented
• Capital reduction
5
What we’ve done … PFA issues
• Statement of Intent signed with National Treasury
• What the industry agreed to
- Minimum standards applied to early termination values
- Retrospective and prospective
• Treasury’s promises
- New commission regulations
- Jurisdictional clarity (PFA, FSOS Ombudsman, LTI Ombudsman)
- Recognition of application of Long-Term Insurance Act to RA policies
- Resolution of other regulatory matters
6
What we’ve done … PFA issues
• All business with savings as the primary purpose, is included
- RA’s (with and without life cover)
- Endowments
- Whole of life (where savings is primary purpose)
- Reversionary bonus business
• Policies intended primarily to provide risk benefits, are excluded
- Pure risk products (eg Lifestyle Protector)
- Whole life business not included
• A number of outstanding practicalities still to be finalised
• Full provision for Statement of Intent (SOI) made at 31 December 2005
7
What we’ve done … Operational restructuring
• Overview of new structure given at the interim results
• Updated restructuring and integration progress given in November 2005
- Marketing and Distribution
- Operations
- Group Professional Services
- Asset Management (Stanlib and Properties)
8
What we’ve done … Operational restructuring
• Choice of IT platform finalised and project started
• Life licenses under review
• Recap of numbers
- Restructuring and integration costs of R500m over 3-4 years
- Anticipated cost reduction of R300m pa by 2008
- Estimated after tax net benefit of approximately R1bn
• Restructuring and integration on track
9
What we’ve done … Products
• New risk product (Lifestyle Protector) performing well
• Sought more clarity on PFA rulings before launching new savings products
• New long term savings product launch planned for later this month
- Policyholder value proposition
- Internal culture ‘we should only sell a product that we would be happy to
sell to our mothers!’
• Increased advertising awareness of real benefits of RA’s
10
What we’ve done … Distribution
• Agency restructured
• Continued focus on broker relationships
• Entry level market
- Khula performance
- CAHL Commercial/Khula agents consolidated (Liberty@Work)
• Individual life bancassurance model still delivering
• Awaiting finalisation of the commission proposal
• SAFSIA Awards
11
Deon de Klerk
12
Operational features – 2005/2004
20051
20042
%
16 673
13 748
+21
4 870
4 336
+12
Value of new business pre SOI costs
882
815
+8
New business margin pre SOI costs
23%
24%
-1
5 726
3 186
+80
Rm
Total new business
Indexed new business
Net cash inflows from insurance operations3
1.
Includes CAHL numbers for 9 months since acquisition
2.
Includes CAHL numbers for 9 months for comparability where appropriate
3.
Excludes STANLIB and Ermitage net cash inflows
13
Impact of SOI
Rm
Net asset value
(406)
Headline earnings
(321)
Goodwill impairment
(85)
Value of in-force
(193)
Embedded value
(599)
• Value of new business margins reduced to 20%
14
Life insurance operations
New business premiums
• Total R16 673m (+21%)
• Individual life R13 721m (+18%)
• Corporate benefits R2 952m (+39%)
Indexed new business premiums
• Total R4 870m (+12%)
• Individual life R4 004m (+10%)
• Corporate benefits R866m (+26%)
15 000
5 000
12 500
4 000
10 000
3 000
7 500
2 000
5 000
2 500
1 000
0
Rm
0
Rm
2002
2003
2004
2005
Inc CAHL Inc CAHL
Individual
2002
2003
2004
2005
Inc CAHL Inc CAHL
Corporate
15
Life insurance operations
Embedded value of new business*
• Total R882m (+8%)
• Individual life R845m (+3%)
• Corporate benefits increased from -R4m
to +R37m
1 000
New business EV margins
• Total = 23%* → 20% after SOI
• Individual life = 25%* → 23% after SOI
• Corporate benefits = 6%* → 6% unchanged
30%
25%
800
20%
600
15%
400
10%
5%
200
0
Rm
0%
-5%
2002
2003
2004
2005
Inc CAHL
Individual
* Before SOI impact
2002
2003
2004
2005
Inc CAHL
Corporate
16
New business EV margins – PV of premiums basis
Rm
Value of new business
PV of future expected premiums
Value of new business as a % of PV of
future expected premiums
After SOI
2005
Before SOI
2005
2004
777
882
815*
26 216
26 902
24 030
3,0%
3,3%
3,4%
* As reported
17
Life insurance operations
Net cash flows from insurance operations (excluding Stanlib & Ermitage)
• Total R5 726m (+80%)
• Individual life R4 948m (+4%)
• Corporate benefits R778m (+149%)
6 000
4 000
2 000
0
-2 000
Rm
2002
2003
Individual
Inc CAHL 2004
Inc CAHL 2005
Corporate
18
Life insurance operations
New business market share
35%
30,6%
30%
27,2%
25,3% 26,0% 25,4%
25%
20%
22,8%
24,5%
23,6%
20,3%
19,6%
15,5%
16,5%
15%
10%
5%
0%
Recurring Individual
Year ended 31 December 2000
Year ended 31 December 2003
Source: LOA
Year ended 31 December 2001
Year ended 31 December 2004
Single Individual
Year ended 31 December 2002
9 months ended 30 September 2005
19
Other operations
STANLIB: assets under management and funds under administration
Rbn
2005
2004
%
Life funds
90
72
+25
Segregated funds
83
66
+26
Unit trusts
53
51
+4
Structured products and other
50
34
+47
276
223
+24
12%
16%
Total AUM and FUA
Money market as % of total
Net cash inflows of R13,3bn (R15,3bn in 2004)
Earnings before tax of R407m up 46%
20
Financial results – 2005/2004
Rm
2005
Restated
2004
BEE normalised headline earnings per share
before IFRS & SOI (cents)
665,4
465,3
+43
BEE normalised embedded value per share
before SOI (Rand)
75,56
63,72
+19
2,0
2,5
Statutory capital adequacy requirement
(times covered)
%
21
BEE normalised headline earnings before IFRS and SOI
Rm
2005
Restated
2004
Insurance operations
1 308
827
+58
942
841
+12
45
(14)
>100
321
-
n/a
451
425
+6
899
409
>100
(448)
16
<100
88
31
>100
BEE normalised earnings before IFRS &
SOI
1 847
1 283
+44
Per share (cents)
665,4
465,3
+43
Per financial statements
IFRS adjustments
SOI provisions
Shareholders’ funds
Per financial statements
IFRS adjustments
BEE funding
%
22
Operating profit from life insurance operations
– major influencing factors
• Inclusion of CAHL for 9 months
• Shareholders’ 10% participation and higher asset base
• Risk profits
• Investment guarantee reserve
• Expenses
- Costs per policy
- Non-recurring expenses
23
Gross investment returns
35%
30%
25%
20%
15%
10%
9,7%
5%
0%
Jan
Feb
Mar
Apr
Year-to-date return 2004
May
Jun
Jul
Aug
Year-to-date return 2005
Sep
Oct
Nov
Dec
Actuarial assumption 2005
24
Expenses
Rm
2005*
Restated
2004*
Total Liberty Group expenses
3 612
3 370
+7
(40)
(14)
>100
(137)
(116)
+18
(27)
(6)
>100
VIF amortisation
(120)
(18)
>100
Restructuring, integration and other nonrecurring costs
(199)
(137)
+45
Normalised group expenses
3 089
3 079
0
IFRS 2 adjustments – share based
payments
Mutual funds on consolidation
Project Khula costs
%
* CAHL costs included for 9 months in 2004 and 2005
25
Restructuring, integration and other non-recurring expenses
Actual
Rm
Estimated
2005
2005
2006
2007
Total
Retrenchments and other staff costs
80
50
20
-
70
Systems and process costs
32
100
150
70
320
Infrastructure and office relocation costs
70
50
20
-
70
Consolidation of Marketing & Distribution
integration
2
20
20
-
40
184
220
210
70
500
Total
Incurred to date
Expenses still to be incurred
(184)
316
Other non-recurring expenses of R36m
26
Maintenance costs per policy
2005
2004
%
Assumption
Individual annual maintenance costs per policy
Liberty Life
R258
R248
+4,0
+4,25
Liberty Active
R139
R154
-9,7
+4,25
CAHL Complex
R221
R2171
+2,52
+4,25
CAHL Simple3
R98
R801
+30,02
+4,25
1.
For the year ended 31 March 2005
2.
Annualised
3.
Consolidation of 63 000 policies into 1 policy during 2005 impacted per policy statistics
27
Embedded value
Rm
2005
Restated
2004
Shareholders’ funds – statutory basis
8 198
8 200
0
326
766
-57
(245)
(191)
-28
Net value of in-force business
10 874
7 544
+44
Embedded value
19 153
16 319
+17
Embedded value per share (Rand)
75,96
65,07
+17
BEE normalised embedded value per
share before SOI (Rand)
75,56
63,72
+19
Fair value adjustments
Fair value of share options
%
28
Capital adequacy cover
2005
Restated
2004
Statutory capital adequacy requirement (Rm)
3 782
3 013
Statutory capital (Rm)
7 734
7 417
Times covered
2,0
2,5
Times covered without BEE impairment
2,4
2,9
29
Capital reduction
• Target CAR cover of 1,7 times
• Excess capital of approximately R1bn
• Capital reduction of R1bn or 360 cents per share
• Subject to shareholder and regulatory approval
30
Dividend
Cents per share
2005
2004
%
Interim
126
162
-22
Final
224
153
+46
Total
350
315
+11
Annual
350
Base for future dividend declarations
Capital reduction impact
325
25
• At 2004 year end new dividend policy established
• Dividend growth in line with current estimated medium term growth in embedded value
(after normal dividends)
31
Bruce Hemphill
32
Addressing market concerns …
• Insurance skills
• Integration and restructuring
- Good progress made in 2005
- CAHL staff relocated to Liberty
- One team, good mix of CAHL and Liberty
• Continuity
- Group Executive
- Rex Tomlinson/Bruce Hemphill on Exco for 24 months
33
Liberty priorities for the next 12 months
Customers
• Customer service
• Moral high ground
• Leading product innovators
• Real value to policyholders
34
Liberty priorities for the next 12 months
Systems and processes
• Single IT platform
• Efficient business model
• Scalable
35
Liberty priorities for the next 12 months
People
• Our people are the critical ingredient
• Positive energy
• Team environment
• Enjoyable workplace
36
Questions
Panel
Myles Ruck
Chief Executive
Bruce Hemphill
Chief Executive Designate
Andrew Lonmon-Davis
Statutory Actuary
Deon de Klerk
Chief Financial Officer
37
Appendices
38
Operating profit from shareholders’ funds
Rm
2005
Restated 2004
%
149
172
-13
Listed investments
62
94
-34
Disposal groups held for sale
77
46
+67
319
319
0
(163)
(128)
+27
Shareholders’ tax
(36)
(94)
-62
Investment gains net of CGT
491
-
n/a
Operating profit post IFRS adjustments
899
409
+120
Financial services operations
Other investments
Shareholders’ management expenses
39
Embedded value (EV) reconciliation and ROEV build up
2005 Yr
Rm
2005 ROEV
Build Up (%)
1 416
8,9
938
5,9
1 292
8,2
(23)
-0,1
60
0,4
Changes in economic assumptions
457
2,9
Value of in-force acquired
167
1,1
(603)
-3,8
882
5,6
46
0,3
4 632
29,4
Implementation of minimum values for savings products
(599)
-3,8
Future non-recurring costs
(216)
-1,4
118
+0,8
(397)
-2,5
3 538
22,5
Investment return on shareholders funds*
Expected return on life business
Investment experience
Other experience
Operating assumption changes
Change in modeling
New business
Exchange rate movements
EV Profit before Abnormal items
Less Abnormal
Change in company tax rate
Write off of CAHL goodwill
EV Profit
* Net of allowance for fair value of options of -R54m
40
Embedded value (EV) reconciliation – 1H05 vs 2H05
2H05
Rm
1H05
Rm
2005 Yr
Rm
Investment return on shareholders funds*
729
687
1 416
Expected return on life business
502
436
938
Investment experience
906
386
1 292
Other experience
126
(149)
(23)
Operating assumption changes
311
(251)
60
Changes in economic assumptions
448
9
457
Value of in-force acquired
167
-
167
(587)
(16)
(603)
512
370
882
46
-
46
3 160
1 472
4 632
Implementation of minimum values for savings products
(599)
-
(599)
Future non-recurring expenses
(216)
-
(216)
-
118
118
(85)
(312)
(397)
2 260
1 278
3 538
Change in modeling
New business
Exchange rate movements
EV Profit before Abnormal items
Less Abnormal
Change in company tax rate
Write off of CAHL goodwill
EV Profit
* Net of allowance for fair value of options of –R101m in 2H05 (1H05 R47m)
•
Annualised ROEV for 2H05 is 28% (1H05 16%)
41
IFRS NAV vs Statutory NAV
Rm
2005
Restated 2004
Shareholders’ funds – published basis
9 434
8 526
(1 212)
(376)
2 200
-
(1 429)
(430)
-
(32)
(1 259)
(271)
7 734
7 417
CAR requirements of subsidiaries
Debt and preference shares
Differences between statutory and published valuation methodologies
IFRS adjustments
Inadmissible assets
Shareholders’ funds – statutory basis
42
Stanlib detailed earnings analysis
Rm
2005
2004
% Change
753
630
+20
67
67
-
Total income
820
697
+18
Operating expenses
413
419
-1
Income before tax
407
278
+46
Normal tax
142
97
+46
Income after tax
265
181
+46
62
65
-5
203
116
+75
55%
64%
Net fee income
Investment and other income
Preference dividends
Earnings
Cost to income ratio
43
Ermitage - assets under management
US$m
2005
2004
%
Hedge funds
1 789
1 500
+19
Long-only funds
1 329
1 382
-4
646
762
-15
3 764
3 644
+3
41%
41%
Money funds
Total AUM
Third party funds as % of total funds
•
Net cash inflows of US$69m
•
Headline earnings of £6,67m (R77m) up 138%
44
Financial services and subsidiaries
Rm
Fair Value Adjustment
December 2005
Tangible
NAV
December 2004**
Goodwill
Total
net of
Fair Value Carrying
% Change
amortisUplift
value in EV
ation
excl VIF
Tangible
NAV
Goodwill
net of
amortisation
Total
Fair Value Carrying
Uplift
value in EV
excl VIF
Liberty Group Properties
11
0
300
311
+27
4
0
240
244
Liberty Ermitage Jersey
546
81
305
932
+14
456
69
290
815
Stanlib
406
0
710
1 116
+48
407
0
345
752
Prefsure
400
0
30
430
-
-
-
-
-
Carrying value of VIF business
acquired from IEB
96
0
(96)
0*
n/a
109
0
(109)
0*
Carrying value of VIF business
acquired from CAHL
923
(923)
0*
n/a
-
-
-
-
326
2 789
+54
976
69
766
1 811
2 382
*
81
The value of the IEB & CAHL business is included in the group's estimates of the VIF
** Restated for IFRS
45
New business excluding contractual increases - ex CAHL
Recurring Premiums
Single Premiums
Total Premiums
Rm
2005
2004
2005
2004
2005
2004
% Change
Individual
2 142
2 064
10 485
8 700
12 627
10 764
+17
Corporate
288
248
2 311
1 582
2 599
1 830
+42
2 430
2 312
12 796
10 282
15 226
12 594
+21
Total new business
% Change
+5
+24
+21
Indexed new business
3 710
3 340
+11
Indexed Individual new business
3 191
2 934
+9
Indexed Corporate new business
519
406
+28
46
Total premiums
Recurring Premiums
Single Premiums
Total Premiums
Inc CAHL
2005
Inc CAHL
2004
Inc CAHL
2005
Inc CAHL
2004
Inc CAHL
2005
Inc CAHL
2004
% Change
Individual
9 762
8 746
11 030
8 918
20 792
17 664
+18
Corporate
4 134
2 941
2 365
1 759
6 499
4 700
+39
13 896
11 687
13 395
10 677
27 291
22 364
+22
Rm
Total premiums
% Change
+19
+25
+22
Indexed total business
15 236
12 755
+19
Indexed Individual total business
10 865
9 652
+13
Indexed Corporate total business
4 371
3 103
+41
47
New business EV analysis - ex CAHL
Rm
2005 (After SOI)
2005 (Before SOI)
2004
% Change
3 191
3 191
2 934
+9
519
519
406
+28
3 710
3 710
3 340
+12
701
806
819
-2
7
7
-4
>100
708
813
815
-0,2
22%
25%
28%
-3
1%
1%
-1%
+2
19%
22%
24%
-2
Indexed Individual new business
Indexed Group new business
Indexed new business
Individual NB EV
Group NB EV
Total NB EV
NB Individual Margin
NB Group Margin
Total Margin
•
Indexed new business of CAHL for EV purposes R201m (Recurring R170m, single R31m)
•
CAHL NB embedded value of R69m
•
CAHL NB embedded value and volumes for 9 months only
48
Effect of the BEE transaction on headline earnings
Rm
2005
2004
% Change
Earnings before IFRS
1 438
1 252
+15
-
18
88
13
Headline earnings including preference dividends before IFRS
1 526
1 283
Weighted average number of shares in issue (millions)
251,8
271,9
25,8
3,78
Weighted average number of shares after reinstatement of the
transaction shares (millions)
277,6
275,7
BEE normalised headline earnings per share (cents)
549,8
465,3
Costs of transaction included in headline earnings net of tax
Preference shares accrued1
Reinstatement of weighted average number of shares reduced for BEE
transaction (millions)2
+19
+18
1.
As a consequence of utilising Liberty Life’s own cash flows (in the form of ordinary dividends paid) to service the empowerment transaction
financing structure (in the form of dividends on preference shares), the dividends received on the empowerment preference shares will be
accounted for directly in reserves, thereby offsetting the dividends so received against the ordinary dividends paid by the company
2.
Due to the fact that the Black Economic Empowerment transaction is effectively accounted for as a share buy back (until such time that all
funding is repaid), the weighted average number of shares in issue for 2004 has been reduced by 25,8million shares. The transaction was
implemented on 8 November 2004
49
Effect of the BEE transaction on EV per share
Rm
2005
2004
% Change
19 153
16 319
+17
-
40
1 251
1 251
-
13
20 404
17 623
252,1
250,8
25,8
25,8
Total number of shares after reinstatement of the transaction
shares (millions)
277,9
276,6
BEE normalised EV per share (Rand)
73,41
63,72
EV per EV statement
Costs of transaction included in headline earnings net of tax & debited
against reserves1
Reinstatement of impaired empowerment preference shares
Preference dividends accrued
Embedded value before impairment
Total number of shares in issue (millions)
Reinstatement of number of shares reduced for BEE transaction
(millions)1
1.
+16
+15
Due to the fact that the Black Economic Empowerment transaction is effectively accounted for as a share buy back (until such time that all
funding is repaid), the total number of shares has been reduced by 25 796 143 shares at 31 December 2005 and 31 December 2004
50
Claims & policyholder benefits - Liberty ex CAHL
Group
Rm
2005
2004
% Change
13 240
10 867
+22
Death & disability
2 165
1 895
+14
Policy maturity claims
3 548
3 427
+4
Policy surrender claims
5 873
4 005
+47
Annuity payments
1 654
1 540
+7
Group
4 921
6 047
-19
Death & disability
543
489
+11
Scheme terminations
258
276
-7
1 884
1 448
+30
269
251
+7
1 967
3 583
-45
18 161
16 914
+7
Individual
Scheme member withdrawals
Annuity payments
Investment only terminations and withdrawals
Total claims & policyholder benefits
51
New business detailed analysis - Rm
New Business
Single Premiums
Total Premiums
Total % Change
2005
2004
2005
2004
2005
2004
2005
2005
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Ex CAHL
Individual
2 924
2 759
10 797
8 870
13 721
11 629
18%
17%
Corporate
635
531
2 317
1 588
2 952
2 119
39%
38%
3 559
3 290
13 114
10 458
16 673
13 748
21%
20%
Total
% Change
% Change Ex CAHL
Indexed new business
•
Recurring Premiums
8%
25%
21%
13%
28%
24%
4 870
4 336
Includes premium escalations
52
Net cash flows detailed analysis - Rm
Net cash flows
Individual business
Corporate business
2005
2004
2005
2004
2005
2004
2005
2005
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Inc CAHL
Ex CAHL
Net Premiums
20 792
17 664
6 499
4 700
27 291
22 364
22%
20%
Net claims and benefits
15 844
12 892
5 721
6 286
21 565
19 178
12%
7%
4 948
4 772
778
(1 586)
5 726
3 186
80%
77%
Net cash flows
% Change
% Change Ex CAHL
Total Premiums
11%
149%
80%
9%
125%
77%
Total % Change
53
New business by distribution channel
Recurring Premiums
Single Premiums
Rm
2005
2004
2005
2004
Individual
2 924
2 759
10 797
8 870
13 721
11 629
Broker
1 025
979
4 234
3 365
5 259
4 344
Bancassurance
927
862
3 545
2 694
4 472
3 557
Agency
578
556
1 856
1 760
2 434
2 316
Franchise & other
394
362
1 162
1 061
1 556
1 413
Corporate
635
531
2 317
1 588
2 952
2 119
Broker
341
255
847
407
1 188
662
29
16
12
36
41
52
Agency
149
171
254
224
403
395
Franchise & other
116
89
1 204
921
1 320
1 010
3 559
3 290
13 114
10 458
16 673
13 748
Bancassurance
Total new business
2005
2004
Total Premiums
54
CAR Cover - Historical analysis
4,0
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0
2001
2002
2003
Times covered
•
2004
2005
Times covered Incl BEE
Since December 2004, CAR cover is shown as statutory CAR cover
55
EV - Historical analysis
100
90
80
70
60
50
40
30
20
10
0
Dec 2001
Dec 2002
Dec 2003
NAV
•
Dec 2004
Dec 2005
Dec 2005 (ACR)
VIF
After the capital reduction (ACR) 60% of the group’s EV will be represented by the value of in-force
56
Headcount analysis
• 61 administration staff at project Khula at 30 March 2005
• CAHL administration staff of 636 included at 30 June 2005
4 000
3 800
3 600
3 400
IEB
3 200
3 000
2 800
Dec 2003
Mar 2004
Jun 20004
Sep 2004
Dec 2004
Liberty excl CAHL
Mar 2005
Jun 2005
Sep 2005
Dec 2005
Liberty Incl CAHL
57
2005 Results Presentation to the Investment Analysts’ Society of Southern Africa
2 March 2006
www.liberty.co.za
58