Transcript Presentation to Investment Analysts Society of Southern Africa
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Presentation to Investment Analysts’ Society
3 rd /4 th March 2004 www.liberty.co.za
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Operating climate
• Increasing compliance and regulatory requirements • Low interest rate/low inflation environment • Strengthening of the Rand • Volatile investment markets • Risk averse investors • Perception of industry 3
Operations
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Liberty Personal Benefits market share
• Strong Excelsior investment product sales • Property-backed products very popular • Risk product launched – Lifestyle Protector R120 million sales since launch 5
Liberty Personal Benefits – average recurring premiums
All offices Large offices Liberty Personal Benefits LPB as % of all offices LPB as % of large offices
30 Sept 2003* Rm
2 141 2 843 6 796 316,2% 238,1%
31 Dec 2002 Rm % Change
2 298 2 754 6 443 280,4% 234,0% (7 ) 3 5
* Source: LOA statistics
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Liberty Personal Benefits
• Represents 70% of total business based on value of liabilities (low percentage smoothed bonus business) Focus on: • Integration of Healthcare operations • Restructuring of operations • Customer service and costs • Implementation of FAIS legislation • Partial commission uncapping • Further leveraging channel capabilities 7
Liberty Corporate Benefits
• 9% reduction in headcount • Building on packaged product model • Focusing on service delivery • Risk margins maintained (despite HIV/AIDS) • Standard Bank opportunity • Small pension fund audit exemption withdrawal 8
Liberty Corporate Benefits
(continued) • IEB purchase price: R130 million • Smooth integration to date • 2-3 years to rationalise fully • Efficiency opportunity • Current performance approximating expectations 9
Consultancy
• Agency Division – Introduction of graduated managers from the Academy – Additional branches created • Franchise Division – Elimination of non-producing franchises – Productivity enhanced 10
Consultancy
(continued) • Broker Division – Expanded number of supporting brokers – Gauteng focus – Administration hubs provide a higher level of service • SBFC – Increased manpower – benefits in 2004 – Consumer consultants strategy 11
• Legislation – FAIS implementation – Commission de-regulation – FICA implemented
Consultancy
(continued) 12
Portfolio value (Rm) Comprising: Office buildings (%) Shopping malls (%) Hotels (%) Other (%)
2003
10 449,8
Properties 2002
9 601,8
% Change
9 20 65 12 3 100 22 64 11 3 100 5 year compound annual bonus rate to RA policy holders of 11,6% vs headline CPI of 5,2% 13
Properties
(continued) • Property sales amounted to R150,1 million in 2003 • Liberty Midlands Mall completed in 2003 valued at R325 million • 50% of Greenacres Shopping Centre acquired for R150 million • Vacancies at 31 December 2003: 13,9% (2002 : 12,1%) 14
STANLIB Total assets under management (excluding common assets) 2003 Rbn 2002 Rbn % Change
Life funds Segregated funds Unit trusts Structured products and other Money market as % of total 59 55 40 24 178 14% 53 48 29 19 149 11% 12 15 38 26 19 15
STANLIB
(continued) • Net inflows positive R12 billion • Investment performance mixed: – Good fixed interest performance – Balanced portfolios underperformed median by 1% to 2% – Returns generally acceptable in absolute terms • Normalised earnings up 4% to R136 million 16
STANLIB
(continued) • Integration costs and other once-off costs higher than expected • Staff numbers reduced by 98 people (net) • Annualised cost saving of approximately R30 million • STANLIB brand now well-established in both retail and institutional markets • Looking for improved investment performance 17
Hedge funds Long-only funds Money funds
Ermitage Assets under management 2003 US$m 2002 US$m % Change
1 292,7 1 059,5 600,3 2 952,5 806,8 791,6 667,3 2 265,7 60 34 (10 ) 30 Third party funds as % of total funds 41% 44%
Operating profit up 117% in Pounds Sterling
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The year in numbers
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Features – 2003/2002 2003 Rm
• Indexed new business – Individual – Corporate • Value of new business 3 807,8 3 184,3 623,6 608,9 • Net cash inflows from insurance operations 4 497,0 • New business margin 20%
2002 Rm
3 634,2 3 090,2 544,1 604,6 4 501,3 20%
% Change
5 3 15 1 20
Features – 2003/2002
(continued)
2003 2002 % Change
• Headline earnings per share (cents) • Headline earnings per share pre AC 133 (cents) • Final dividend per share • Embedded value per share: (Rand) • Capital adequacy requirement (times covered) 346,4 359,6 116,0 57,58 2,6 391,5 391,5 116,0 55,28 3,0 (11 ) (8 ) 4 21
Operating profit from insurance operations net of tax Revenue earnings – shareholders’ funds Preference dividend Headline earnings Headline earnings pre-AC 133
Headline earnings 2003 Rm 2002 Rm % Change
719,5 889,1 324,8 (95,2 949,1 ) 261,6 (81,9 1 068,8 ) 985,5 1 068,8 (19 ) 24 16 (11 ) (8 ) 22
Operating profit from insurance operations 2003 Rm 2002 Rm % Change
Operating profit from insurance operations Before AC 133 adjustment AC 133 adjustment 719,5 755,9 (36,4 ) 889,1 889,1 (19 (15 ) ) • 2002 includes releases from the life fund of approximately R350 million after tax • Improvement in weighted policyholder investment portfolio in 2003 • Implementation of AC 133 23
Investment returns
(Weighted average of equity, managed and foreign assets portfolios) 24
Total group expenses Subsidiaries Company expenses Insurance expenses Individual Corporate Benefits
2003 Expenses 2002 % Change
1 860,9 (381,8 ) 1 479,1 1 281,8 935,1 346,7 * 1 690,9 (462,6 ) 1 228,3 1 150,6 864,4 286,2 10 (17 ) 20 11 8 21 *Includes IEB costs of R33 million 25
Expenses – cost per policy 2003 % 2002 %
Renewal cost per policy increased/(decreased) by Acquisition cost per policy increased/(decreased) by 6,5 7,2 (1,6 ) (1,3 )
Significant non-recurring expenses incurred in 2003
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Non-recurring expenses
• Non-recurring expenses of R111,3 million in 2003 – Retrenchment and discontinued salary costs – Previously incurred corporate activity costs – Pension fund provision – Post-retirement medical liability increase – Retention bonuses – Non-capitalised renovation costs – Impairments and other provisions 27
Revenue earnings – shareholders’ funds 2003 Rm 2002 Rm % Change
Financial services operations Listed investments Other 199,9 32,9 92,0 324,8 159,6 39,9 62,1 261,6 • Electric Liberty investment portfolio trading profit of R47 million in 2003 • Liberty Ermitage headline earnings of R43 million up 54% • Higher cash balances and preference shares increased other earnings 28 25 (18 ) 48 24
Future earnings
• International Accounting Standards • Stochastic modelling of investment guarantees • Investment returns impact 10% entitlements 29
Embedded value
Shareholders’ funds Net value of life business in-force Fair value adjustment Total Embedded value per share (Rand)
2003 Rm
8 782,2
2002 Rm
8 588,1
% Change
2 6 493,8 540,9 15 816,9 5 700,4 838,1 15 126,6 57,58 55,28 14 (36 ) 5 4 30
Fair value adjustment
Liberty Group Properties Liberty Ermitage Jersey STANLIB Carrying value of in-force business acquired from Investec Employee Benefits
2003 Rm
216,0 140,0 306,9 (122,0 540,9 )
2002 Rm
240,0 190,4 407,7 838,1 • Liberty Ermitage multiple reduced from 15 to 10 • STANLIB valued at approximately R1,4 billion 31
New business – percentage increase
Recurring Single Total Index
Individual Business %
6 (7 ) (4 )
Corporate Business* %
1 63 47
Total %
6 3 3 3 15 5
*Excludes IEB business acquired
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Market share individual business
(including Charter) Individual recurring Individual singles
30 Sept 2003 %
23,5 22,4
31 Dec 2002 %
23,6 20,2 • Sales force productivity • Independent broker support • Investment performance • Property portfolio • Lifestyle protector Source: LOA stats plus Charter Life 33
Value of new business
Value of new business (Rm) New business margin (%) Individual (%) Corporate (%)
2003
608,9 20 22 8
2002
604,6 20 22 11 34
Net fund inflows 2003 Rm
Total premiums and inflows under investment contracts Claims, policyholder benefits and payments under investment contracts Net fund inflows 18 121,8 13 624,8 4 497,0
2002 Rm
16 415,1 11 913,8 4 501,3
% Change
10 14 • Two investment only funds to STANLIB of approximately R700 million 35
Capital adequacy requirement (Rm) Times covered
Capital adequacy cover 2003 2002
3 402,7 2,6 2 856,6 3,0
Charter Life investment guarantees
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Interim Final
Dividend 2003 cents per share
162 116 278
2002 cents per share
162 116 278 37
When we last spoke…
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Focus areas for second half 2003
• Improve service levels • Emphasis on cost reduction • Domestic operations/other market segments and Africa • Renewed emphasis on people • Address capital situation 39
Since we last spoke…
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Improve service levels
• Appointed MD Group Customer Service – Alan Woolfson • Appointed internal ombudsman • Launching staff initiative • Tracking system for complaints 41
Cost reduction
• Cost reduction initiated – second half 2003 • Cost savings of approximately R75 million for Liberty • Reduced net headcount – Liberty: 135 – STANLIB: 98 • General staff incentive scheme introduced based on cost reduction targets • No real cost growth budgeted for 2004 42
Domestic operations/other market segments and Africa
• Some internal issues – – LPB restructure – IT centralised (again) – Finalised Healthcare integration into LPB • Charter explores new opportunities (see next slide) • Namibia life license • Stanbic Africa footprint offers future opportunity • Canned future offshore expansion for now • Western Cape?
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Business as usual Charter Life – eventually doing something New business initiatives Grow CC’s aggressively Continue IFA’s, networking and Liberty Agency/Franchise Charter Life 2004 (Long-term repositioning strategy) - LSM 5-8 - Products - Administration - Marketing - Distribution Customer service Cost management Right people - right jobs
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People
• Four new board appointments • Appointed MD Charter Life – Bobby Malabie • Appointed CEO STANLIB – Bruce Hemphill • Looking for marketing head • IEB staff integrated well • Employment equity remains an issue • Restructured STANLIB 45
Capital management
• More proactive capital management • Capital committee formed • Sold 2 million Edcon and 1 million GoldFields • Restructured and cleaned up portfolios • Overcapitalised – but – BEE contingency – stochastic modeling – be patient!
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In addition…
• Market uptick – thank heavens! • Financial Sector Charter signed – Dedicated Exco member heading initiative – Implementation committee set up • STANLIB BEE deal finalised • AC 133 implemented • Life product launched 47
Liberty Foundation – focus on education
• Mindset Network began broadcasting • Pilot programme initiated for Health Channel and we continued with – – Liberty Learning Channel on SABC – Learn.co.za website – Liberty/Sunday Times ReadRight project • Working closely with Standard Bank 48
Focus areas for next six months – nothing complicated
Continue • to improve service levels • emphasis on cost reduction • focus on domestic operations/other market segments and Africa • emphasis on people 49
Focus areas for next six months – nothing complicated
Continue – • monitoring capital position • Financial Sector Charter implementation and in addition we will – • reposition brand • focus on product development 50
Focus areas for next six months – nothing complicated
Everything we do must focus on adding value for our customer
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Panel
Myles Ruck Andrew Lonmon-Davis Deon de Klerk Chief Executive Statutory Actuary Chief Financial Officer 52
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