Transcript Presentation to Investment Analysts Society of Southern Africa

International Roadshow
Presentation
April 2005
www.liberty.co.za
Liberty Life
Shareholder structure
Structure
Standard Bank
(54,65%)
Liberty Holdings Limited
(50,17%)
Liberty Group Limited
Life Assurance
Asset Management
• Liberty Personal Benefits
• STANLIB (37,4%)
• Liberty Corporate Benefits
• Liberty Ermitage
• Liberty Active (Charter)
• Liberty Properties
3
Liberty Life
People the cornerstone of our business
Liberty Life
Overview of business
Mix of business (2004)
Total new indexed premiums *
17%
Total in force indexed premiums *
7%
7%
19%
5%
6%
71%
Reversionary bonus
Market related (linked)
68%
Smoothed bonus
Non profit
* Indexed refers to recurring premiums plus 10% of single
6
Overview of premiums (2004)
Total new indexed premiums *
Total in force indexed premiums *
15%
24%
85%
Individual
76%
Group
* Indexed refers to recurring premiums plus 10% of single
7
New individual API premiums
by channel
API new business
2004
2003
Broker
37%
39%
Bancassurance
32%
26%
Agency
20%
21%
Franchise & other
11%
14%
100%
100%
8
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
Single individual
Year ended 31 December 2001
Year ended 31 December 2003
Nine months ended 30 September 2004
Source: LOA market share statistics for all life offices
9
Individual average new recurring
premiums
3 months
Sep 2004
3 months
Sep 2003
%
Change
All offices (R)
2,301
1,896
21%
Large offices (R)
2,992
2,859
5%
Liberty Personal Benefits (R)
7,326
6,487
13%
LPB as % of all offices
318%
342%
LPB as % of large offices
245%
227%
Source: LOA market share statistics for all life offices
10
Market share – corporate benefits
• Not comparable due to size of funds targeted
• Number of schemes: 9 500
• Number of members: 287 000
• Typically funds with 10 to 300 employees
• Scale of business to change significantly
11
Liberty Life
Our key financial value drivers
Driving improved performance
through higher ROEV’s
• ROEV = EV earnings/EV
• EV earnings drivers

new business profits

managing the in-force
- costs
- mortality/morbidity
- persistency

investment performance
• Capital management

capital management committee

Capital Alliance

debt
13
Seven key financial measures
#
Description
Performance
1
New business volume growth as measured
NB volume up 10% on API basis
by indexed premiums
2
Value of new business and new business
margin
VNB at R815m up 34%, NB margin at 24% up
from 20%
3
Net cash flows
+R3638m vs +R4497m
4
Headline EPS
460.4cps (+ 33%)
5
Management expenses
Renewal cost per policy R248 (+3.5%), Group
Manex up 5%
6
Embedded value [EV] per share
EV/ps at R67.25 (+17%)
7
Capital adequacy cover [CAR]
CAR cover of 2.1x
These items drive ROEV
14
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
2003
2004
Corporate benefits
15
Life insurance operations
Total in force business premiums
Indexed in force business premiums
• Total +13% to R20 544m
• Total +17% to R11 343m
• Individual life +21% to R16 359m
• Individual life +17% to R8 571m
• Corporate benefits -8% to R4 195m
• Corporate benefits +18% to R2 771m
18000
18000
+21%
15000
15000
12000
12000
9000
9000
6000
-8%
6000
3000
3000
0
0
Rm
2001
2002
2003
2004
Individual life
+17%
Rm
+18%
2001
2002
2003
2004
Corporate benefits
16
New business
• CAGR of 11,3% in total new business (5yrs)
• Consistent market share gains
• Upper income segment – growing disposable income
• Standard Bank’s client base presents further opportunities
• Changing model for corporate benefits business
• Liberty Active (Charter) for the future
• New product development unit
17
Value of new business
and new business margins*
900
800
700
600
500
400
300
200
100
0
Rm
815
30%
28%
24%
455
24.4%
391
2000
22%
20%
20.3%
17.6%
26%
609
605
19.9%
18%
18.5%
16%
2001
2002
2003
2004
14%
• Margins exceeded our longer term average of 18-22%
• Individual margins range 20-24%
• Corporate margins range from 6-10%
Value of new business
New business margin
* Value of new business divided by indexed new business premium
18
Headline earnings
1,600
179
1,400
1,200
162
323
1,000
180
230
800
600
1,320
1,153
929
889
400
720
200
0
2000
2001
Revenue earnings attributable to shareholders’ funds
2002
2003
2004
Operating profit from insurance operations
19
Headline earnings
Operating profit from insurance operations:
• Reasons for volatility and decrease since 2000
 10% shareholders’ participation in investment returns
 once off items capitalised by valuation basis e.g. expense profits (or losses)
 stochastic modelling of guarantee reserves
 AC133 (to be followed by IFRS4 and IAS compliance)
Other earnings contributors:
• STANLIB, Liberty Ermitage, trading portfolio and Liberty Properties
• Return on other shareholders’ investments
 equities
 bonds
 cash/preference shares
 offshore
20
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
2004
Net cash inflows from individual life business
Net cash inflows from corporate benefits business
21
Net cash inflows from
insurance operations
• Useful when read together with new business growth
• In-force book is being managed better
• Customer service drive and STANLIB’s investment performance should
improve retention
• Maturities of property backed products in second half of 2004 of R2bn
• Total inflows of R22.6bn (2003 R18.3bn) including asset management inflows
2004
2003
% Change
STANLIB net inflows
15,300
12,100
26%
Ermitage net inflows
3,681
1,653
123%
Rm
22
Expenses
• Business structure to be restructured into front and back office eliminating
duplication
• Capital Alliance assists with focusing on efficiencies
• Expect once off restructuring costs, but enduring benefit
• Targeting expense cost per policy increase at 4.25%
• Headcount for Liberty Life & Stanlib reduced by >400 since 30 June 2003,
but…
• Growing headcount in Liberty Active
23
Expenses – controlling headcount
• 251 people taken on in October 2003 as part of IEB acquisition
• IT outsourcing and HR restructuring - reduction of 95 people
• Group expenses increased 5%
• Maintenance cost per policy increased +3.5% in Liberty and -4.9% in Liberty Active
3600
3472
3500
3400
3353
3320
3300
3221
3200
3069
3100
3000
2900
2800
Dec 02
Mar 03
Jun 03
Sep 03
Liberty headcount excluding IEB
Dec 03
Mar 04
Jun 04
Sep 04
Dec 04
Liberty headcount including IEB
24
Embedded value
20,000
16,000
1,310
12,000
8,588
8,782
6,123
4,000
0
Rm
541
8,494
996
8,346
8,000
838
1273
766
4,822
5,111
5,701
6,494
2000
2001
2002
2003
Value of in force business
Shareholders’ finds
Fair value adjustment
BEE impairment
7,607
2004
25
Capital adequacy
6.0
5.0
4.0
3.0
5.7
2.0
2.5
3.5
3.0
2.6
1.0
0.0
times
2000
2001
Times covered
2002
2003
2.2
2004
Times covered incl BEE
26
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
27
Capital management-dividend policy
• Objectives:

predictable growth

less volatility

leave room for new business growth

strong capital adequacy
• Yield on EV per share of approximately 4,75% as a base
• 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
28
Risks and issues
• Increasing compliance and regulatory requirements
• Volatile investment markets
• Risk averse investors
• Perception of industry
• AIDS (not as much an issue for Liberty Life)
29
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
30
A simple business model
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
31
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
32
Why Liberty Life?
• Pure, focussed South African life insurance company
• Strong parent
• Strong equity play
• Low smoothed bonus business
• Improved returns through better capital management and efficiencies
• A history of delivery
33
Why Liberty Life?
• High dividend yield at current price
• Future growth opportunities (market segments)
• Revised top team – good mix of insurance and general management
experience
• Uncomplicated strategy
• Share price offers value!
34
Appendix
Insurance industry in South Africa
Competitors
Market capitalisation *
Old Mutual (listed on the LSE)
R60 667m
Sanlam
R33 598m
Liberty Life
R17 932m
Discovery
R11 192m
Momentum
not listed
* As at 31 March 2005
36
Total new business
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Rm
LGL I
LGL G
SLM I
2002
OML I
SLM G
2003
OML G
MOM I
MOM G
2004
I = Individual; G = Group
37
Indexed new business *
4,000
3,000
2,000
1,000
0
Rm
Liberty
Sanlam
Old Mutual
2002
2003
Momentum
Discovery (Life)
2004
* Indexed new business as per embedded value statement
38
Net flow of funds from life insurance
operations
6,000
4,000
2,000
0
-2,000
-4,000
-6,000
-8,000
-10,000
-12,000
Rm
Liberty
Sanlam
2002
Old Mutual
2003
Momentum
Discovery (Life)
2004
39
Embedded value
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Rm
02
03
LGL
04
02
03
04
02
03
SLM
OML
NAV and subs
VIF
04
02
03
MOM
04
02
03
04
DSY
40
JSE Securities Exchange statistics
12 months Dec 2004 12 months Dec 2003
Share price (Rand)
High
67,00
57,00
Low
48,00
45,00
Closing
56,60
54,00
Codes
Share code
LGL
I-Net Bridge
LGL
Bloomberg
LGL.SJ
Reuters
LGL.J.J
ISN ordinary shares
ZAE000024543
41
JSE Securities Exchange statistics
Shares traded
12 months Dec 2004 12 months Dec 2003
Average monthly volume traded (m)
9,0
8,7
Average monthly value traded (Rm)
500,3
443,8
276 592 907
274 671 040
Shares in issue
42
Contact details
Myles Ruck
Deon de Klerk
Stewart Rider
Chief Executive
Chief Financial Officer
Group Executive
Investor Relations
Tel:
+27 11 408-2001
Tel:
+27 11 408-2572
Tel:
+27 11 408-3260
e-mail:
e-mail:
[email protected]
[email protected]
e-mail:
[email protected]
43
International Roadshow
Presentation
April 2005
www.liberty.co.za