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Liberty Life Presentation to Investment Analysts’ Society of Southern Africa 2 March 2005 www.liberty.co.za Agenda What we said What we’ve done Operating climate Operations Financial results Focus areas for next twelve months Questions What we said … more of the same • People • Customer service • Business structure and efficiency • Capital management • Product development • Financial Sector Charter implementation • Domestic operations/other market segments and Africa • Distribution channels • Implement BEE transaction What we’ve done … people Executive management committee Roy Andersen Hylton Appelbaum Mark Bloom Andrew Lonmon-Davis Ian Maron Mike Jackson Deon de Klerk Leanne Dewey Themba Gamedze Jim McLean Ron Mitchell David Nohr Mike Garbutt Lee Izikowitz Craig Lawrence Dan Pienaar Martin Smale Alan Woolfson What we’ve done … people Executive management committee Replaced by Myles Ruck Roy Andersen Deon de Klerk Replaced by Deon de Klerk Hylton Appelbaum Leanne Dewey Replaced by Peter Laburn Mark Bloom Andrew Lonmon-Davis Ian Maron Mike Jackson Not replaced Replaced by Roger Corlett Replaced by Ian Cadby Replaced by Andrew Lonmon-Davis Themba Gamedze Jim McLean Ron Mitchell David Nohr Replaced by Audrey Mothupi Not replaced Martin Smale Alan Woolfson Mike Garbutt Lee Izikowitz Craig Lawrence Dan Pienaar Employed Employed Joined Exco Employed Bruce Hemphill Bobby Malabie Mark Alexander Rex Tomlinson What we’ve done … people Executive management Previous New Roy Andersen Myles Ruck Mark Bloom Deon de Klerk Dave Nohr Andrew Lonmon-Davis Ron Mitchell Ian Cadby Jim McLean Roger Corlett Craig Lawrence Audrey Mothupi Peter Laburn Not replaced Mike Jackson Not replaced Themba Gamedze Not replaced Dan Pienaar Not replaced Rex Tomlinson Bruce Hemphill Bobby Malabie Mohale Ralebitso What we’ve done … people More new names John Sturgeon Divisional director: Corporate finance Christo Landman Divisional director: Tax Caswell Rampheri Divisional director: Properties Jeff Hubbard Divisional director: Financial accounting Craig Pilgrim Divisional director: Internal audit Stewart Rider Group executive: Investor relations and strategic analysis David Jewell Divisional director: Group actuarial What we’ve done … people • 251 people taken on in October 2003 as part of IEB acquisition • IT outsourcing - reduction of 70 people • HR restructuring - reduction of 25 people • 16 Graduates employed under new scheme 3600 3472 3500 3400 3353 3320 3300 3221 3200 3069 3100 3000 2900 2800 Dec 02 Mar 03 Jun 03 Sep 03 Liberty excluding IEB Dec 03 Mar 04 Jun 04 Liberty including IEB Sep 04 Dec 04 What we’ve done … customer service • Customer service campaign • Internal ombudsman and MD of customer service • Internal campaign to staff • Noticeable improvement, but a long way to go What we’ve done … business structure and efficiency Implemented during 2004 - benefits not yet fully realised: • Group HR • IT • Group Finance • Central Group product development unit formed • Central Group customer service unit formed Implemented in 2003 - benefits evident in 2004: • Liberty Healthcare rationalised into LPB • STANLIB restructure What we’ve done … capital management • Capital management committee • Long-term shareholder portfolio established • Successful Liblife B.V. bond redemption • Application to the FSB to issue debt - Conditional approval received • BEE transaction successfully implemented • Offer made for Capital Alliance • Dividend policy introduced What we’ve done … Financial Sector Charter implementation • Board transformation sub-committee established • Favourable progress against scorecard • Need more black senior managers • Black managers’ ownership scheme should help • SizweNtsaluba VSP appointed - FSC auditors - STANLIB entities – more to follow What we’ve done … domestic operations, other market segments and Africa • Repositioning of Charter Life (now Liberty Active) • Bobby Malabie and team developed project Khula during 2004 • A build strategy (as opposed to buy) has been developed • Expected R50m to R100m investment in the next 18 to 24 months • We have some time to get the model right What we’ve done … domestic operations, other market segments and Africa • Namibian operation small, but profitable • Investigating opportunities in Uganda and Kenya • Liberty Life offshore model discontinued • Capital Alliance closed book offshore model will be considered in due course What we’ve done … distribution channels • Continued focus on broker relationships • We’re working on it campaign • Regional head office in Cape Town being established • Individual life bancassurance model continues to deliver • Restructured corporate benefits bancassurance model implemented • Focused on productivity of agency and franchise in 2004 - will recruit and develop in 2005 • Well established, stable agency force What we’ve done … BEE transaction • Implemented on 8 November 2004 • Community/educational trust to be finalised in 2005 • Black management allocations done • General staff scheme in place • Timing was good – R1 251m now R1 677m • Capital repayments could commence in 18 months Operating climate Increasingly we’ve been dealing with: • More compliance and regulatory requirements • Low interest rate/low inflation environment • Strengthening of the Rand • Volatile investment markets • Risk averse investors • Poor perception of industry (media and consumers) Operating climate (continued) Some positives are emerging: • Industry has started recognising its shortcomings • Emerging middle class - a reality, but net spenders • South African economy - a success story • Investors becoming more bullish • Good local investment returns • Cash being accumulated by investors = opportunity Deon de Klerk Operational features – 2004/2003 Rm 2004 2003 % 13 440 11 667 +15 Indexed new business 4 186 3 808 +10 Indexed new business excl contractual increases 3 340 3 060 +9 Value of new business 815 609 +34 New business margin 24% 20% 3 640 4 497 Total new business Net cash inflows from insurance operations * * Maturity of R2 090m in respect of one large client. Excludes STANLIB and Ermitage net cash inflows. -19 Life insurance operations New business premiums Indexed new business premiums • Total +15% to R13 440m • Total +10% to R4 186m • Individual life +22% to R11 374m • Individual life +11% to R3 544m • Corporate benefits -12% to R2 066m • Corporate benefits +3% to R642m 12000 +22% 12000 10000 10000 8000 8000 6000 6000 4000 4000 +11% -12% 2000 0 Rm 2000 2001 2002 2003 2004 Individual life 0 Rm +3% 2001 2002 Corporate benefits 2003 2004 Life insurance operations Embedded value of new business New business EV margins • Total +34% to R815m • Total = 24% • Individual life +43% to R819m • Individual life = 28% • Corporate benefits -110% to -R4m • Corporate benefits = -1% 900 800 700 600 500 400 300 200 100 0 -100 Rm R819m 30% +28% 25% 20% 15% 10% 5% 0% -R4m 2001 2002 2003 2004 Individual life -1% -5% Rm 2001 2002 Corporate benefits 2003 2004 Life insurance operations Net cash inflows from insurance operations • Total -19% to R3 640m • Individual life +76% to R5 492m • Corporate benefits -234% to -R1 852m 6000 R5 492m 5000 4000 3000 2000 1000 -R1 852m 0 -1000 -2000 Rm 2001 2002 2003 Net cash inflows from individual life business Net cash inflows from corporate benefits business 2004 Life insurance operations New individual business market share (including Liberty Active) % 35 30 25 23 24 25 27 26 25 20 20 20 17 15 15 10 5 0 Recurring individual Year ended 31 December 2000 Year ended 31 December 2002 Source: LOA market share statistics for all life offices Single individual Year ended 31 December 2001 Year ended 31 December 2003 Nine months ended 30 September 2004 Other operations STANLIB: assets under management and funds under administration Rbn 2004 2003 % Life funds 72 59 +22 Segregated funds 66 55 +20 Unit trusts 51 40 +28 Structured products and other 34 24 +42 223 178 +25 16% 14% Total AUM and FUA Money market as % of total • Net cash inflows of R15,3 billion • Normalised earnings after tax of R192m up 62% Other operations STANLIB: net cash inflows % 2004 2003 62 72 8 18 Equity 29 16 Other 1 -6 100 100 Money market and flexi-cash Fixed interest funds Total Other operations Ermitage: assets under management US$m 2004 2003 % Hedge funds 1 500 1 131 +33 Long-only funds 1 382 1 060 +30 762 600 +27 3 644 2 791 +31 41% 39% Money funds Total AUM Third party funds as % of total funds • Net cash inflows of US$572m +160% (R3 681m) • Headline earnings of £4m +11% (R46m) Financial results – 2004/2003 Rm 2004 2003 % Headline earnings per share (cents) 460,4 346,4 +33 Embedded value per share (Rand) * 67,25 57,58 +17 Capital adequacy requirement (times covered) 2,1 2,6 Final dividend per share (cents) 153 116 +32 Total dividend per share (cents) 315 278 +13 * BEE normalised embedded value per share = R65,69 up 14% Headline earnings Rm 2004 2003 % Operating profit from insurance operations net of tax 929 720 +29 Operating profit from shareholders’ funds 323 230 +40 Headline earnings 1 252 950 +32 Headline eps (cents) 460,4 346,4 +33 Operating profit from life insurance operations – major influencing factors • Shareholders’ 10% participation and higher asset base • Investment guarantee reserve • Expenses - Costs per policy - Non-recurring expenses • Liberty Corporate Benefits Gross investment returns 25 22,7% 20 15 12,5% 10 5 0 -5 -10 -15 Jan Feb Mar Apr Year-to-date return 2003 May Jun Jul Year-to-date return 2004 Aug Sep Oct Nov Actuarial assumption 2004 Dec Main factors affecting the guarantee reserves Rm Change in reserve Economic basis change 313 Better than expected overall investment performance in 2004 (44) 269 Volatility basis change (set up as a second-tier margin) = R148m Expenses Rm 2004 2003 % Total group expenses per AFS 2 036 1 860 +9 IEB expenses incurred since October 2003 (93) (32) BEE transaction expenses (before tax) (15) Total group expenses 1 928 Including non-recurring expenses 1 828 +5 Non-recurring expenses Non-recurring expenses of R137m in 2004 (2003 : R111m) Rm 2004 2003 35 11 2 30 Non-capitalised renovation costs 13 10 Systems impairments 37 15 BEE transaction 15 - Discontinued salaries (50%) 14 15 Various other 21 30 137 111 Retrenchment costs Pension contribution shortfall Policyholders’ non-recurring: R116m (2003: R84m) Shareholders’ non-recurring: R21m (2003: R27m) Expenses Costs per policy 2004 2003 % Assumption Individual maintenance costs per policy Liberty Life R 248 R 240 +3,5 +5,5 Liberty Active R 154 R 162 -4,9 +5,5 R74m after tax release to profit Operating profit from shareholders’ funds Rm Financial services operations Listed investments Other 2004 2003 % 265 200 +33 81 33 +145 (23) (3) >100 323 230 +40 Embedded value Rm 2004 2003 % Shareholders’ funds 8 494 8 782 -3 Net value of life business in-force 7 607 6 494 +17 766 541 +42 16 867 15 817 +7 67,25 57,58 +17 Fair value adjustment Total Embedded value per share (Rand) BEE normalised embedded value per share = R65,69 up 14% Financial services subsidiaries fair value adjustment Rm 2004 2003 Liberty Group Properties 240 216 Liberty Ermitage Jersey 290 140 STANLIB 345 307 (109) (122) 766 541 Carrying value of in-force business acquired from IEB Capital adequacy cover 2004 2003 3 954 3 403 Times covered 2,1 2,6 Times covered without BEE impairment 2,5 Capital adequacy requirement (Rm) Dividend policy Objectives: • Predictable growth • Less volatility • Leave room for new business growth • Strong capital adequacy Dividend policy Policy: • Yield on EV per share of approximately 4,75% • Going forward – aligned to medium term growth of EV • Taking into account: - economic conditions; and - CAR cover >1,5 • Interim dividend at 40% of previous full year Dividend Cents per share 2004 2003 % Interim 162 162 - Final 153 116 +32 315 278 +13 Conclusion Focus areas for next twelve months Exciting opportunities • Operational restructuring opportunities • Capital Alliance - new business - efficiency • Products • Capital structuring • Liberty Active and, as always ... people ... service … costs Focus areas for next twelve months Liberty’s business is conceptually simple and generic • We develop products • We sell products • We receive money • We invest the money according to product specification • We administer according to product specification • We pay benefits Focus areas for next twelve months Exciting opportunities • Operational restructuring opportunities • Capital Alliance - new business - efficiency • Products • Capital structuring • Liberty Active and, as always ... people ... service … costs Questions Panel Myles Ruck Chief Executive Andrew Lonmon-Davis Statutory Actuary Deon de Klerk Chief Financial Officer Liberty Life Presentation to Investment Analysts’ Society of Southern Africa 2 March 2005 www.liberty.co.za