Transcript Slide 1

Liberty Life
Interim Results Presentation
11 August 2005
www.liberty.co.za
-1-
Agenda
What we said
What we’ve done
Operating climate
Financial and operating results
Focus areas for remainder of the year
Questions
-2-
What we said…
• Operational restructuring opportunities
• Capital Alliance (CAHL)
- new business
- efficiency
• Products
• Capital structuring
• Liberty Active
and, as always ... people ... service … costs
-3-
What we’ve done …
operational restructuring
The past
Insurance operations
Other operations
Liberty Group Limited
Liberty Active
CAHL
LCB
Individual Life
Individual Life
Liberty Properties
LPB
Bancassurance
Group Life
Liberty Ermitage
Consultancy
Project Khula
Distribution
Liberty Healthcare
Support Services
Support Services
Support Services
-4-
What we’ve done …
operational restructuring
Shortcomings of the old structure
• Processes evolved differently leading to inefficiency
• Many different products and services
• Slow customer response times
• Duplication of structures leading to additional costs
• Varying and different customer contact points
• Potentially higher operational risk environment
-5-
What we’ve done …
operational restructuring
The present
Asset
management
Marketing
and
distribution
Operations
Group support services
-6-
What we’ve done …
Capital Alliance
Implement
acquisition
Implement
new structure
Plan phase I
Integration and methodology – phase I – start with Liberty Active
Plan phase II
Integration phase II
2005
2006
2007
… people … service … costs …
-7-
What we’ve done …
products and distribution channels
• Continued focus on broker relationships
• Regional head office in Cape Town being established
• Individual life bancassurance model continues to deliver
• Recruitment in agency and franchise progressing well
-8-
What we’ve done …
products and distribution channels
• Productivity of sales force remains a focus
• Launch of AddLib loyalty program
• Introduction of new risk product options
• Continue advertising campaign - ‘let’s keep working on it’
-9-
What we’ve done …
capital management
• Approval by FSB to issue bond of up to R2bn
- Took cautious approach post PFA rulings
- Still committed to issuing debt, but at the right time
• Bought CAHL, with statutory CAR cover now at 1,78x (our range 1,5-1,7x)
• Sold significant portion of SAB
• Liquidated trading portfolio
- 10 -
What we’ve done …
Liberty Active
Early days
• Sales management 61 with 245 tied agents
• 22 branches have been opened-mainly new areas
• 7 broker networks in the Eastern Cape
• “Active Series” of six products has been launched
• Sales of 12 335 Active Series policies (API R24m)
- 11 -
What we’ve done …
Liberty Active
Keeping a watchful eye
• Premium collection is difficult in this market as expected
• Management of persistency is critical
• Steering committee meets monthly ensuring tight management
• Reiterate that we would rather focus on build, not buy strategy
• This ‘investment’ should not be more than R50–R100m
- 12 -
Operating climate
It’s getting even tougher
• PFA rulings have negatively impacted sentiment
• Compliance and regulatory requirements continue
• IFRS
• Low interest rate/low inflation environment
• Investors remain risk averse
• Poor perception of industry (media and consumers)
- 13 -
Operating climate (continued)
PFA rulings have cast the industry in a very poor light
• Liberty’s Lifestyle Retirement Annuity Fund has had 4 rulings against it
• Total rulings to date <R0,3m
• We are taking it very seriously
• The industry is introducing new flexible products
• We need to resolve both the past and the future
• There is still uncertainty
• Working with the industry to resolve the issues
- 14 -
Operating climate (continued)
But…
• South African economy - the success story continues
• Strong local investment returns
• Weakness in the rand has helped, but offshore product demand still poor
• Cash still being accumulated by investors = opportunity
• We welcome the move to greater transparency
- 15 -
Deon De Klerk
- 16 -
Operational features – 2005/2004
with no CAHL comparatives
Rm
June
20051
June
2004
%
Total new business
7 744
6 342
+22
Indexed new business
2 257
1 968
+15
Indexed new business excl contractual increases
1 841
1 576
+17
Value of new business
370
330
+12
New business margin
20%
21%
-4
2 669
2 382
+12
Net cash inflows from insurance operations2
1
2
Includes CAHL numbers for 3 months since acquisition with no comparatives in 2004
Excludes STANLIB and Ermitage net cash inflows
- 17 -
Life insurance operations
New business premiums (6 months to June)
• Total +22% to R7 744m
• Individual life +22% to R6 564m
• Corporate benefits +20% to R1 180m
8000
7000
+22%
+21%
(ex CAHL)
6000
5000
4000
3000
2000
+20%
+16%
(ex CAHL)
1000
0
Rm
2002
2003
Individual life
2004
2005
Corporate benefits
- 18 -
Life insurance operations
Indexed new business premiums (6 months to June)
• Total +15% to R2 257m
• Individual life +11% to R1 860m
• Corporate benefits +35% to R397m
2000
+11%
+9%
(ex CAHL)
1500
1000
500
+35%
+22%
(ex CAHL)
0
Rm
2002
2003
Individual life
2004
2005
Corporate benefits
- 19 -
Life insurance operations
Embedded value of new business (6 months to June)
• Total +12% to R370m
• Individual life ex CAHL +8% to R344m
• Corporate benefits ex CAHL = R3m
400
+12%
+26%
300
200
100
0
Rm
2002
2003
Individual life
2004
Group benefits
2005
CAHL
- 20 -
Life insurance operations
New business EV margins
• Total = 20% (June 2004: 21%)
• Individual life ex CAHL = 22% (June 2004: 23%)
• Corporate benefits ex CAHL = 1% (June 2004: 6%)
35%
30%
25%
20%
15%
10%
5%
0%
-5%
Jun 2003
6 months
Dec 2003
12 months
Individual life
Jun 2004
6 months
Dec 2004
12 months
Jun 2005
6 months
Group benefits
- 21 -
Life insurance operations
Net cash flows from insurance operations (6 months to June)
• Total +12% to R2 669m
• Individual life +21% to R2 828
• Corporate benefits -R159m vs +R51m
R2828m
3000
2000
1000
0
-R159m
-1000
Rm
2002
2003
Individual life
2004
2005
Group benefits
- 22 -
Life insurance operations
New business market share
35%
32.0%
30%
25.3%
25%
20%
22.8%
26.0%
27.2%
25.3%
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 2002
Year ended 31 December 2004
Single Individual
Year ended 31 December 2001
Year ended 31 December 2003
Three months ended 31 March 2005
Source: LOA market share statistics for all life offices
- 23 -
Other operations
STANLIB: assets under management and funds under administration
June
2005
Dec
2004
%
Life funds
76
72
+6
Segregated funds
69
66
+5
Unit trusts
52
51
+2
Structured products and other
40
34
+18
237
223
+6
16%
16%
Rbn
Total AUM and FUA
Money market as % of total
• Net cash inflows of R6,4 billion (R5,8bn in June 2004)
• Earnings before tax of R197 million up 65%
- 24 -
Other operations
Ermitage: assets under management
US$m
June
2005
Dec
2004
%
Hedge funds
1 517
1 500
+1
Long-only funds
1 388
1 382
0
749
762
-2
3 654
3 644
0
41%
41%
Money funds
Total AUM
Third party funds as % of total funds
• Net cash inflows of US$120m vs US$379m
• Headline earnings of £2,8m +64% (R33m)
- 25 -
Financial results – 2005/2004
Rm
June
2005
June
2004
%
BEE normalised headline earnings per share before
IFRS (cents)
257,5
167,2
+54
Headline earnings per share (cents)
303,4
157,3
+93
BEE normalised embedded value per share (Rand)
66,50
*63,72
+4
Embedded value per share (Rand)
68,34
*65,07
+5
Statutory capital adequacy requirement
(times covered)
1,78
*2,46
Interim dividend per share - new policy (cents)
126
Interim dividend per share - previous (cents)
162
* Refers to adjusted Dec 2004
- 26 -
Headline earnings
Rm
Operating profit from insurance operations
Operating profit from shareholders’
investments
Income on assets utilised to fund BEE
transaction
Headline earnings before IFRS
Net income on BEE prefs accounted for in
equity
BEE normalised headline earnings before
IFRS
BEE normalised headline earnings per
share before IFRS (cents)
1st half
2005
1st half
2004
%
2nd half
2004
%
591
335
+76
594
-1
79
100
-21
172
-54
-
25
-100
26
-100
670
460
+46
792
-15
44
-
-
31
41
714
460
+55
823
-13
257,5
167,2
+54
298,5
-14
- 27 -
Headline earnings (continued)
1st half
2005
1st half
2004
Headline earnings before IFRS
670
460
+46
792
-15
IFRS adjustments
-37
-27
+37
30
-
Net realised and unrealised gains on
shareholders’ funds1
130
-
-
-
-
Headline earnings
763
433
+76
822
-7
Headline earnings per share (cents)
303,4
157,3
+93
302,3
0
BEE normalised headline earnings per
share (cents)
291,0
157,3
+85
309,0
-6
Rm
1
%
2nd half
2004
%
Now included in headline earnings with no restatement of the comparative
- 28 -
Operating profit from life insurance
operations – major influencing factors
• Inclusion of CAHL for 3 months
• Shareholders’ 10% participation and higher asset base
• Investment guarantee reserve
• Expenses
- Costs per policy
- Non-recurring expenses
- 29 -
Inclusion of CAHL for 3 months
Rm
1
2
June
2005
June
2004
%
Revenue earnings on assets utilised to fund CAHL
acquisition
311
CAHL revenue earnings
42
-
-
‘CAHL effect’ on revenue earnings
73
55
+33
552
-44
Revenue earnings on R3,1 billion for the period up to implementation date – 26 April 2005
Revenue earnings on R3,1 billion for the six months ended 30 June 2004
- 30 -
Gross investment returns
30%
25%
22.7%
20%
15%
11.5%
10%
9.7%
5%
0.2%
0%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Release from guarantee reserves of R91 million after tax mainly due to better than expected
investment performance (2004: increase in reserves of R29 million after tax)
Year-to-date return 2005
Year-to-date return 2004
Actuarial assumption 2005
- 31 -
Expenses
Rm
June
2005
June
2004
%
Total Liberty Group expenses
1 281
972
+32
(20)
(5)
>100
(135)
(50)
>100
(14)
(1)
>100
(176)
-
-
936
916
+2
IFRS 2 adjustments – share based payments
Business restructuring, integration and other nonrecurring costs
Project Khula costs
CAHL costs for 3 months with no comparative
Normalised group expenses
- 32 -
Restructuring, integration
and other non-recurring expenses
-
June
2005
June
2004
Retrenchment costs
47
6
Consultants, systems and process costs
37
-
Non-capitalised relocation and renovation costs
34
6
-
20
17
18
135
50
Rm
Systems impairments
Various other
Policyholders’ non-recurring: R106 million (2004: R39 million)
Shareholders’ non-recurring: R29 million (2004: R11 million)
- 33 -
Maintenance costs per policy
June
2005
Dec
2004
%
Liberty Life
R 259
R 248
+4
Liberty Active
R 153
R 154
-1
CAHL Complex
R 220
R 2171
+1
R 81
R 801
+1
Individual annual maintenance costs per policy
CAHL Simple
1
For the year ended 31 March 2005
- 34 -
Operating profit from shareholders’
funds
June
2005
June
2004
%
131
91
+44
Listed investments
25
26
-
Other investments
59
142
-58
Preference dividend in subsidiary
(65)
(41)
+59
Shareholders’ management expenses
(67)
(51)
+31
Shareholders’ tax
(24)
(47)
-49
Investment gains net of CGT
138
-
N/a
Operating profit post IFRS adjustments
197
120
+64
Rm
Financial services operations
- 35 -
Embedded value
Rm
Restated
June
Dec
2005
2004
Published
%
Dec
2004
8 137
8 200
-1
8 494
21
766
>100
766
(144)
(191)
-25
-
9 219
7 544
+22
7 607
17 233
16 319
+6
16 867
Embedded value per share (Rand)
68,34
65,07
+5
67,25
BEE normalised embedded value per
share (Rand)
66,50
63,72
+4
65,69
Net worth
Fair value adjustments
Fair Value of share options
Net value of in-force business
Embedded value
- 36 -
Capital adequacy cover
June
2005
Dec
2004
3 114
3 013
Times covered
1,78
2,46
Times covered without BEE impairment
2,18
2,88
Statutory capital adequacy requirement
(Rm)
- 37 -
Dividend
Cents per share
Interim - new dividend policy
June
2005
June
2004
126
Interim - previous
162
• At 2004 year end new dividend policy established
• Interim dividend set at 40% of previous year’s full annual dividend
- 38 -
Conclusion
- 39 -
Focus areas for remainder of the
year and beyond, much the same
• Capital management continues
• Compliance, IFRS …
• Address PFA issues
• ... people ... service … costs
- 40 -
Focus areas for remainder of the
year and beyond, much the same
• Operational restructuring and CAHL integration continues
• Marketing and distribution restructuring
- Products
- Channels
- Project Khula continues
• Group support service restructuring and integration
• … Hug our customers!
- 41 -
Questions
Panel
Myles Ruck
Chief Executive
Andrew Lonmon-Davis
Statutory Actuary
Deon de Klerk
Chief Financial Officer
- 42 -
Appendices
- 43 -
Operational features –
2005/2004 with CAHL comparatives
1
2
Rm
June
20051
June
20041
%
Total new business
7 744
6 444
+20
Indexed new business
2 257
2 016
+12
Net cash inflows from insurance operations2
2 669
2 206
+21
Includes CAHL numbers for 3 months, both in 2005 and 2004
Excludes STANLIB and Ermitage net cash inflows
- 44 -
Embedded value (EV) reconciliation
and ROEV build up
June 2005
Rm
June 2005 ROEV
Build up (%)
Annualised
Investment return on shareholders funds
328
4.1
Expected return on life business
436
5.4
Investment experience
386
4.8
-149
-1.8
9
0.1
-251
-3.1
Change in company tax rate
118
1.5
Change in modeling
-16
-0.2
New business
370
4.6
47
0.6
1 278
16.3
-118
-1.4
312
3.9
1 472
18.9
Other experience
Changes in economic assumptions
Changes in non-economic assumptions
Allowance for fair value of options
EV Profit
Less Abnormal
Change in company tax rate
Write off of CAHL goodwill
EV Profit
- 45 -
Stanlib Detailed Earnings Analysis
June
2005
June
2004
% Change
350
278
+26
39
23
+70
Total income
389
301
+29
Operating expenses
192
182
+5
Income before tax
197
119
+66
Normal tax
56
40
+40
STC
11
4
+175
130
75
+73
30
33
-9
100
42
138
55,0%
65,5%
Rm
Net fee income
Investment and other income
Income after tax
Preference dividends
Earnings
Cost to income ratio
- 46 -
Financial services and subsidiaries
Rm
Fair Value Adjustment
*
June 2005
December 2004
Total
Goodwill
Carrying
Tangible
net of
Fair Value
value in % Change
NAV
amortisUplift
EV excl
ation
VIF
Tangible
NAV
Goodwill
net of
amortisation
Total
Fair Value Carrying
Uplift
value in EV
excl VIF
Liberty Group Properties
17
0
230
247
1%
4
0
240
244
Liberty Ermitage Jersey
450
81
300
831
13%
375
69
290
734
Stanlib
401
0
545
946
29%
387
0
345
732
Carrying value of VIF business
acquired from IEB
102
0
-102
0*
n/a
109
0
-109
Carrying value of VIF business
acquired from CAHL
952
0
-952
0*
n/a
-
-
-
-
1 922
81
21
18%
875
69
766
1 710
2 024
0*
The value of the IEB & CAHL business is included in the group's estimates of the VIF
- 47 -
New business excluding contractual increases ex
CAHL
Recurring Premiums
Single Premiums
% Change
Total Premiums
Rm
June
2005
June
2004
June
2005
June
2004
June
2005
June
2004
Individual
1 025
992
5 165
4 096
6 190
5 088
+22
Corporate
137
98
868
764
1 005
862
+17
1 162
1 090
6 033
4 860
7 195
5 950
+21
Indexed new business
1 766
1 576
+12
Indexed Individual new business
1 542
1 401
+10
Indexed Individual new business
224
175
+28
Total new business
% Change
+7
+24
- 48 -
New business EV Analysis-ex CAHL
Rm
June
2005
June
2004
%
Change
Indexed Individual new business
1 542
1 401
+10
224
175
+28
1 766
1 576
+12
344
320
+8
3
10
-73
347
330
+5
22.3%
22.8%
1.3%
5.9%
19.7%
20.9%
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 R75m (Recurring R69m, single R64m)
• NB embedded value of R23m
• CAHL NB embedded value and volumes for 3 months only
- 49 -
Effect of the BEE transaction on headline earnings
June
2005
June
2004
%
Change
Earnings before before IFRS
670
460
+46
Preference shares accrued 1
44
714
460
+55
251.5
275.3
Rm
Headline earnings including preference dividends before IFRS
Weighted average number of shares in issue (millions)
Reinstatement of weighted average number of shares reduced for BEE transaction (millions)
2
25.8
Weighted average number of shares after reinstatement of the transaction shares (millions)
277.3
275.3
BEE normalised headline earnings per share (R)
257.5
167.2
+54
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 25.8m shares. The transaction was
implemented on 8 November 2004
- 50 -
Effect of the BEE transaction on EV per share
June
2005
Dec
2004 4
%
Change
17 233
16 319
6%
-
40
1 251
1 251
-
13
18 484
17 191
252,2
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 (R)
66,50
63,72
Rm
EV per EV statement
Costs of transaction included in headline earnings net of tax & debited against reserves 1
Reinstatement of impaired empowerment preference shares
Preference dividends accrued 2
Embedded value before impairment
Total number of shares in issue (millions)
Reinstatement of number of shares reduced for BEE transaction (millions) 3
5%
4%
1. Preference dividends for the period to June 2005
2. Preference dividends received in six months to June 2005 of R38 million have been credited directly to equity
3. 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 in issue has been reduced by 25 796 143 shares at 30 June 2005 and 31 December 2004
4. Restated
- 51 -
Claims & policyholder benefits-Liberty ex CAHL
Group
Rm
June
2005
June
2004
%
Change
Individual
6 053
5 424
+12
956
953
0
Policy maturity claims
1 757
1 899
-7
Policy surrender claims
2 574
1 866
+38
766
706
+8
2 553
1 917
+33
Death & disability
249
250
0
Scheme terminations
135
124
+8
Scheme member withdrawals
851
731
+16
20
21
-4
Investment only terminations and withdrawals
1 298
791
+64
Total claims & policyholder benefits
8 606
7 341
+17
Death & disability
Annuity payments
Group
Annuity payments
• Surrenders appear significantly higher due to the higher level of assets since 30 June 2004
• Actual surrender policy count up 2.6%
- 52 -
Claims & policyholder benefits-CAHL only (3 months)
Group
June
2005
June
2004
%
Change
Individual
731
689
+6
Death & disability
117
108
+8
Policy maturity claims
265
230
+15
Policy surrender claims
196
160
+23
Annuity payments
153
191
-20
Group
248
61
+313
Death & disability
228
46
+407
4
8
-50
16
7
+129
979
750
+31
Rm
Scheme terminations
Scheme member withdrawals
Total claims & policyholder benefits
- 53 -
New business detailed analysis
New Business
Rm
Recurring Premiums
June
2005
June
2004
Incl CAHL
Single Premiums
June
2005
June
2004
Incl CAHL
Total Premiums
Total % Change
June
2005
June
2005
June
2004
Incl CAHL
Incl CAHL
June
2005
Excl CAHL
Individual
1 337
1 265
5 227
4 096
6 564
5 361
22,4
20,7
Corporate
310
217
870
764
1 180
981
20,3
16,0
1 647
1 482
6 097
4 860
7 744
6 342
22,1
20,0
1 968
14,7
10,8
Total
% Change
% Change Ex CAHL
Indexed new business
11,1
25,5
22,1
6,4
24,1
20,0
2 257
- 54 -
Net cash flows detailed analysis
Net Cash Flows
Rm
Recurring Premiums
June
2005
June
2004
Incl CAHL
Single Premiums
June
2005
June
2004
Incl CAHL
Total Premiums
Total % Change
June
2005
June
2005
June
2004
Incl CAHL
Incl CAHL
June
2005
Excl CAHL
Net Premiums
9 612
7 755
2 642
1 968
12 254
9 723
26,0
17,1
Net claims and benefits
6 784
5 424
2 801
1 917
9 585
7 341
30,6
17,2
Net cash flows
from assurance ops
2 828
2 331
-159
51
2 669
2 382
12,0
16,7
% Change
21,3
N/a
% Change Ex CAHL
31,3
N/a
- 55 -
New business by distribution channel-Ex CAHL
Recurring Premiums
Single Premiums
Total Premiums
Rm
June
2005
June
2004
June
2005
June
2004
June
2005
June
2004
Individual
1 308
1 264
5 164
4 096
6 472
5 361
Broker
459
440
2 199
1 623
2 658
2 063
Bancassurance
465
429
1 653
1 254
2 118
1 683
Agency
226
254
902
839
1 128
1 093
Franchise & other
158
141
410
380
568
521
Corporate
270
218
868
764
1 138
981
Broker
139
95
259
186
398
281
Bancassurance
11
5
5
0
16
5
Agency
92
77
129
144
221
221
Franchise & other
28
41
475
434
503
475
1 578
1 482
6 032
4 860
7 610
6 342
Total new business
- 56 -
CAR Cover-historical analysis
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
Dec 2001
Dec 2002
Dec 2003
Jun 2004
Dec 2004
Jun 2005
Since Dec 2004 CAR cover shown as statutory CAR cover
Times covered
Times covered incl BEE
- 57 -
EV-Historical analysis (Rand per share)
80
R68,34
70
R65,07
60
50
40
30
20
10
0
Dec 2002
Jun 2003
Dec 2003
Jun 2004
Dec 2004
Jun 2005
53% of the group’s EV is represented by value of in force compared to December 2004 where it was 46%
NAV per share
VIF per share
- 58 -
Liberty headcount analysis
• CAHL administration staff of 636 included at 30 June 2005
• 61 administration staff at project Khula at 30 June 2005
4000
3920
3800
3600
3370
3400
3320
3308
3223
3200
3000
2800
Dec 03
Mar 04
Jun 04
Sep 04
Liberty excluding new initiatives
Dec 04
Mar 05
Jun 05
Liberty total
- 59 -
Liberty Life
Interim Results Presentation
11 August 2005
www.liberty.co.za
- 60 -