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LGL
LIBU
LGL - Liberty Group Limited - Revised version - Unaudited interim results for
the six months ended 30 June 2007
Liberty Group Limited
(Liberty Life)
Registration number 1957/002788/06
Incorporated in the Republic of South Africa
Share code: LGL
ISIN code: ZAE000057360
Revised version - Unaudited interim results for the six months ended 30 June
2007
Financial performance indicators
for the six months ended 30 June 2007
June June December
2007 2006 % change 2006
GROUP
BEE normalised headline 583,1 384,9 51,5 930,2
earnings per share (cents)
BEE normalised embedded value 89,68 73,62 21,8 82,55
per share (R)
BEE normalised return on 24,7 17,4 22,4
embedded value (%)
Total distributions per share 144 130 10,8 720
(cents)
Capital reduction in lieu of 144 130(1) 360(1)
dividends/dividends per share
(cents)
Additional capital reduction - - 360
per share (cents)
Net cash inflows(Rm) 9 754 5 929 64,5 (2 156)
Capital adequacy requirement 2,1 2,1 2,3
cover (times covered)
INSURANCE OPERATIONS
Indexed new business 2 620 2 294 14,2 4 908
(including contractual
increases) (Rm)
Indexed new business 2 020 1 775 13,8 3 762
(excluding contractual
increases) (Rm)
New business margin (%) 2,6 2,4 2,5
Net cash inflows(Rm) 4 513 1 987 >100 3 627
Normalised recurring 1 024 1 015 0,9 2 069
management expenses for life
operations (Rm)
STANLIB2
Assets under management (Rbn) 322 296 8,8 294
New business excluding money 22 970 26 094 (12,0) 45 479
market (Rm)
Net cash inflows (Rm) 6 659 2 332 > 100 (7 690)
Net cash inflows (excluding 5 241 3 942 33,0 (5 783)3
intergroup life funds)(Rm)
1 Rebased for dividend paid on previous capital reduction of R912 million on 12
June 2006. Total 2006 interim dividend paid was 140 cents per share, of which 10
cents per share related to the 2006 capital reduction of 360 cents per share
resulting in an effective 130 cents per share for the first half 2006.
2 STANLIB became a wholly owned subsidiary of Liberty Life effective from 1
January 2007 (previously held 37,4%). To enhance comparability 2006 numbers have
been restated to reflect 100% of STANLIB`s performance.
3 Excludes withdrawal of PIC investment and in December 2006.
Relevant definitions
BEE normalised headline earnings per share and embedded value per share
This measure reflects the economic reality of the Black Economic Empowerment
(BEE) transaction as opposed to the required technical accounting treatment that
reflects the BEE transaction as a share buy back. Dividends received on the
group`s BEE preference shares (which are recognised as an asset for this
purpose) are included in income and shares in issue relating to the transaction
are reinstated.
Indexed new business
Is a measure of new business in insurance operations representing annualised
recurring premium business (at the first year`s monthly premium value) and one
tenth of a single premium deposit.
New business margin
Embedded value of new business as a percentage of the present value of future
expected premiums.
Normalised recurring management expenses for life operations
Represents recurring expenses incurred to administer insurance operations and
excludes non-recurring expenses, such as restructuring and integration.
Commentary on results
This year marks Liberty Life`s first half century in business. Liberty has grown
from Donald Gordon`s vision into the third largest life assurer in South Africa
with a market capitalisation of R25 billion.
It is fitting that as we celebrate the achievements of the past 50 years, and
recognise our predecessors for their foresight in building the company to where
it is today, we are in a position to share our vision for growth and expansion
in what is a very different competitive and operating landscape to the one that
gave rise to the successes of the past.
Liberty needs to be able to provide its customers with everything they expect
from a wealth focused financial services company. We intend to selectively
expand our offerings from those of a life company to a far broader-based range
of wealth management solutions. Liberty is therefore continually assessing
opportunities to both grow existing sales channels organically, and develop
entirely new distribution sources.
Our growth vision sees Liberty becoming a wealth management group; gathering and
managing assets, through the provision of wealth, health and protection
solutions.
We aim to transform into a family of financial services businesses, operating
with separate identities where advantageous in their fields of specialisation,
yet also complementing each other by sharing values, data and back office
services - together creating a powerful financial services group.
Although this strategy is still young, we are already seeing the benefits of
some of the early initiatives.
STANLIB
Firstly, given the strong shift from a defence driven insurance approach to a
constructive wealth building culture, the decision to buy 100% of STANLIB was
logical and was concluded in early 2007. The integration of the sales, marketing
and technical support teams of Liberty Life and STANLIB is complete.
Twelve months ago, STANLIB set out to establish an equity franchise and the
performance turnaround in the past year has been impressive relative to the
financial markets.
STANLIB is now a significant contributor to the Liberty Group`s bottom line, and
with 4-5% market share in equity unit trust and institutional products, there is
still significant scope for growth.
New business
New life sales have shown substantial improvement in the first half of 2007, as
a number of initiatives we took this time last year started to bear fruit. We
are comfortable with a 14% increase in indexed life new business volumes,
although new corporate volumes remain disappointing.
It is critically important that the sales and distribution machine distributes
all the group`s products, not just its life products. We therefore measure
ourselves on the total of both on-balance sheet and off-balance sheet sales.
This basis shows an increase in overall indexed production of 17%, illustrating
the benefits of leveraging existing sales and distribution channels to sell off-
balance sheet products.
Bancassurance continues to deliver, with significant opportunities for further
growth. It is also pleasing to again report increases in headcount numbers
across all sales channels.
Rest of Africa
With operations already in Namibia, Uganda, Kenya, Swaziland, Lesotho and
Botswana, the Board has approved an African expansion strategy. A
number of opportunities in these and other countries are at due diligence stage,
or under early evaluation. We have appointed a Chief Executive - Rest of Africa,
and a Rest of Africa team is fully operational.
To maximise our options and our impact in other African markets in which we
choose to compete, the respective in-country business units of Liberty Life and
STANLIB have been integrated. We are also collaborating closely with Standard
Bank in all these developments.
The impact on the group`s bottom line is currently small, but all businesses in
countries in which we have operations are profitable, showing healthy margins
and good returns. Sales are ahead of target, and to the end of June 2007, we had
accumulated total assets under management of approximately R9.3 billion.
Existing business operations
While there is a strong focus on new growth opportunities for the group, this
has not been at the expense of the effective management of our existing business
operations.
The Statement of Intent exercise was delivered within the set time frames. The
two key regulatory issues currently are the proposed State Retirement Fund and
the commission regulations. There is insufficient clarity on the former although
it is likely that there will be some reduction in retirement fund scheme
membership. However, it is also probable there will be opportunities as more new
entrants join the retirement savings market. We expect the implementation of
commission regulations to be completed by mid 2008.
From a service perspective, Individual Business Operations provided one of the
success stories of 2006, and it is pleasing to report that these service levels
have been maintained or improved in the first half of 2007. Service levels in
Corporate Benefits Operations are still not where we want them to be, though
definite progress is being made.
We see the issue of retaining clients` policy funds at maturity or at retirement
as a key business objective, and one that we have been driving at executive
level. It is still early days, but we are seeing some meaningful improvements
for example, in a pilot exercise on endowments, we saw increased retention of
11,5% by number of clients, and 18,5% by value of funds retained.
Our Single Platform Strategy, aimed at migrating all our legacy IT systems to a
Compass-based platform, remains on schedule to deliver in line with the costs
and value outlined to the market in November 2005.
Life recurring costs increased by just 0,9% in first half 2007, which is a very
pleasing result. Costs are a major issue for any business and the group`s costs
will remain tightly managed. However, we need to accept that implementing our
growth strategy will inevitably require investment.
Transformation within the group is making good progress, although there is much
still to be achieved. The fund management team at STANLIB, in our view, has one
of the most fundamentally and successfully transformed teams in South Africa.
Overall, we are satisfied that our growth vision is taking shape and is already
starting to deliver results. Our existing business operations remain strong, and
this is reflected in what we believe is a highly satisfactory first-half
financial performance.
Contribution to headline earnings
June June December
2007 2006 % change 2006
Rm Rm Rm
Insurance operations 984 723 36 1 395
Asset management operations 201 96 109 196
Shareholders` funds 419 207 102 910
Total 1 604 1 026 56 2 501
Insurance operations
Indexed new business of R2 620 million including contractual increases has
increased 14,2% over the R2 294 million achieved for the six months to 30 June
2006. Individual indexed retail sales strengthened and grew 16,3%. However the
corporate market, which represents 12,4% of total new business, grew by 5,0%.
Retail service levels are indicating considerable improvement following several
years of concerted effort. Service delivery and regulatory compliance within
the corporate division are not yet at optimum levels and remedial action is in
progress.
Present value of premium new business margin has improved to 2,6% from the 2,5%
achieved for the year ended 31 December 2006 (June 2006: 2,4%). The margin has
mainly benefited from a more profitable mix of new business combined with the
higher new business volumes.
Net cash flows are R4 513 million compared to R1 987 million reported for the
half year 2006. Cash flows include a single premium transfer of the Investec
Employee Benefit (IEB) closed book purchased in 2003 for which court approval
was only granted in 2007. On 2 January 2007, the transfer resulted in a R4 487
million single premium inflow with subsequent net outflows of R477 million to 30
June 2007. Excluding the IEB closed book, the Corporate Benefits Operations
experienced a net outflow of R614 million mainly due to single premiums being
26,9% lower than the previous year as well as a 78% increase in group scheme
member withdrawals. Retail cash flows of R1 117 million remain firm especially
in light of the strong equity market performance.
Normalised recurring management expenses for the half year are marginally higher
increasing by 0,9%. Management is confident that normalised life recurring costs
in the second six months will remain within the group`s target of increasing at
a rate materially lower than inflation.
Economic assumption changes to the investment guarantee reserve, in particular
the removal of retirement funds taxation, decrease in market volatilities and
the increase in interest rates, led to a reduction in the reserve and
contributed approximately R196 million to the increase in headline earnings
achieved by the insurance operations.
The weighted average investment return used as a proxy to calculate
shareholders` 10% share of policyholder bonuses on certain classes of business
was 21,95% (annualised) compared with 31,91% (annualised) reported at 30 June
2006 and 33,0% at 31 December 2006.
Insurance operations total headline earnings increased by 36,1% to R984 million,
representing 61,3% of the group`s headline earnings for the half year.
Asset management operations
Asset management includes the group`s wholly owned asset managers, STANLIB and
Liberty Properties.
Liberty Properties earns development and management fees from managing the
group`s property portfolio. Earnings after taxation were R25 million for the six
months (2006: R20 million).
STANLIB, which is now wholly owned (2006: 37,4%) contributed R160 million to the
group`s half year headline earnings. Operating profit before interest and
taxation is R261 million which is 4% higher than the R251 million achieved last
year. The reasons for the lower growth in pre-tax earnings were due to investing
in skilled staff and the discontinuance of certain revenue streams.
Assets under management grew 8,8% to R322 billion. Sales excluding money market
remained strong at R21 855 million compared to R24 892 million in the prior
year. Net cash flows for the period increased by 33,0%.
STANLIB continued to improve its investment performance against its peers as
evidenced by being ranked third in the Alexander Forbes SA large manager watch
over the 12 months to June 2007. Further evidence of the improvement in the
equity performance of STANLIB`s funds was that for the twelve months ended 30
June 2007, ten out of twelve of STANLIB`s largest equity portfolios were ranked
in the first or second quarter of the relevant Alexander Forbes survey.
Fees after taxation earned by Liberty Jersey on long only funds previously
managed by Liberty Ermitage were R16 million (2006: R11 million).
Shareholders` funds
The group`s capital management committee manages capital not specifically held
in Insurance or Asset Management Operations. The management process balances the
needs for qualifying regulatory capital, liquidity risk and an effective
investment portfolio to maximise returns for shareholders. Expenses related to
shareholder corporate activity, including those relating to dividend and capital
flows, are netted off these investment returns.
Due in particular to a strong performance in the long-term equity portfolio and
R1,9 billion higher average levels of investment related capital held,
shareholders` fund headline earnings of R419 million are 104% higher than those
reported for the same period last year.
Group embedded value
The group`s BEE normalised embedded value per share has increased 8,6% from the
R82,55 reported at 31 December 2006 to R89,68 at 30 June 2007, notwithstanding
the payment of the 2006 final dividend.
Increased fair value adjustments on financial services subsidiaries, improved
new business, strong investment performance and related earnings growth combined
with the removal of retirement funds taxation and the reduced STC rate of 10%
are the main contributors to the reported annualised BEE normalised return on
embedded value of 24,7%.
Capital adequacy requirement (CAR)
The statutory capital adequacy requirement was covered 2,13 times at 30 June
2007 compared to the 2,27 times cover at 31 December 2006. As explained in our
year end results, the goodwill associated with the STANLIB acquisition does not
qualify for statutory capital and consequently resulted in a 0,33 times
reduction in the CAR cover at the 29 January 2007 acquisition date.
Nevertheless, the CAR cover is still well ahead of the group`s target of 1,7
times.
Dividends and capital reduction
In terms of the authority granted to the directors at the 2007 annual general
meeting, the directors have approved a capital reduction of 144 cents per
ordinary share in lieu of the interim dividend.
In line with the group`s stated dividend policy this represents a distribution
of 40% of the 2006 dividend levels (normalised for the 2006 capital reduction).
Subject to regulatory approvals, the important dates pertaining to the capital
reduction of 144 cents per ordinary share are as follows:
Last date to trade cum capital reduction Friday, 7 September 2007
on the JSE
First trading day ex capital reduction on Monday, 10 September2007
the JSE
Record date Friday, 14 September 2007
Payment date Monday, 17 September 2007
The directors have approved an ordinary share buy back programme of up to R 500
million.
Prospects
The strategic initiatives commented on in this report are still in their infancy
and will not materially affect earnings performance for the remainder of the
2007 financial year. Assuming investment performance remains at levels
equivalent to the first half and no significant actuarial assumption changes are
required, we anticipate a similar performance for the second half.
Bruce Hemphill Derek Cooper
Chief Executive Chairman
7 August 2007
Accounting policies and presentation
The results have been prepared in accordance with International Financial
Reporting Standards (IFRS). There have been no changes to accounting policies
from those applied for the year ended 31 December 2006, except for adopting IFRS
7: Financial Instruments: Disclosures, which deals mainly with disclosure of
financial instruments and the related quantitative and qualitative risks; and
formulating an accounting policy, resulting from the STANLIB acquisition, for
business combinations involving businesses under common control.
There are no required prior year restatements to the group`s assets, liabilities
or equity as a consequence of the new policies.
A comprehensive actuarial valuation is only completed once a year (at the
company`s year end). Operating profit from life insurance operations for interim
purposes consequently reflects the statutory actuary`s estimate for the period
under review.
Restatement of 30 June comparatives
Comparatives for the six months ended 30 June 2006 have been restated to include
certain mutual fund associates and subsidiaries. These results have been updated
for certain IFRS reclassifications and gross ups which were disclosed in the
annual financial statements for the year ended 31 December 2006. There is no
impact on shareholder earnings, net asset value or statement of changes in
shareholders` funds.
Refer to the addendum attached to the interim results for more details.
Audit opinion
These results have not been audited or reviewed by the group`s auditors,
PricewaterhouseCoopers Inc. Consequently no opinion has been issued.
Share certificates
Share certificates may not be dematerialised or rematerialised between Monday,
10 September 2007 and Friday, 14 September 2007 both days inclusive. Where
applicable, distributions in respect of certificated shareholders will be
transferred electronically to shareholders` bank accounts on payment date. In
the absence of specific mandates, distribution cheques will be posted to
shareholders. Shareholders who have dematerialised their shares will have their
accounts with their CSDP or broker credited on Monday, 17 September 2007.
Liberty Group Limited Transfer Secretaries
"Liberty Life" Computershare Investor Services
2004 (Pty) Limited
Incorporated in the Republic of (Registration number:
South Africa 2004/003647/07)
(Registration number: Ground Floor, 70 Marshall Street,
1957/002788/06) Johannesburg, 2001
Alpha code: LGL PO Box 61051, Marshalltown, 2107
Issuer code: LIBU Telephone +27 11 370 5000
ISIN code: ZAE000057360
Sponsor
Merrill Lynch
Global Markets & Investment Banking Group
Merrill Lynch South Africa (Pty) Ltd
Registration number 1995/001805/07
Registered Sponsor and Member of the JSE Securities Exchange South Africa
Condensed group balance sheet
as at 30 June 2007
Unaudited
Unaudited as restated Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Assets
Investments 207 616 162 096 189 263
Intangible assets 1 234 1 433 1 331
Reinsurance assets 851 977 1 065
Deferred taxation 75 116 40
Prepayments, insurance and 4 741 4 733 3 188
other receivables
Cash and cash equivalents 2 060 10 192 5 237
Other assets 997 668 872
Total assets 217 574 180 215 200 996
Liabilities
Policyholder`s liabilities 182 817 150 282 168 898
Insurance contracts 129 655 109 687 122 875
Investment contracts with 2 883 1 588 1 719
discretionary participation
features
Investment contracts through 50 279 39 007 44 304
profit or loss
Financial liabilities 2 718 2 368 2 357
Third party liabilities arising 8 560 7 810 8 559
on consolidation of mutual
funds
Deferred taxation 3 366 2 781 3 262
Insurance and other payables 6 163 4 806 4 242
Other liabilities 1 727 977 1 185
Total liabilities 205 351 169 024 188 503
Equity
Ordinary shareholders` funds 10 350 9 472 10 665
Minority interests 1 873 1 719 1 828
Total equity 12 223 11 191 12 493
Total equity and liabilities 217 574 180 215 200 996
Liberty Group Limited capital
adequacy requirements
Statutory capital adequacy 4 008 3 849 3 945
requirement (CAR)
Statutory CAR cover (times 2,13 2,10 2,27
covered)
Condensed group income statement
for the six months ended 30 June 2007
Unaudited
Unaudited as restated Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Total revenue 28 358 24 409 59 281
Net insurance benefits and (17 577) (15 804) (38 140)
claims
Fair value adjustment to
policyholder liabilities under
investment contracts (4 217) (2 730) (8 276)
Fair value adjustment on third (1) (731) (1 480)
party mutual fund liabilities
Acquisition costs associated (1 355) (1 196) (2 413)
with insurance and investment
contracts
Expenses (2 151) (1 902) (3 899)
Preference dividend in (136) (71) (184)
subsidiary
Profit on sale of subsidiaries 2 378 374
Equity accounted earnings from 17 53 150
joint ventures
Profit before taxation 2 940 2 406 5 413
Taxation (1 225) (904) (2 249)
Total earnings 1 715 1 502 3 164
Attributable to:
Equity holders 1 606 1 404 2 875
Minority interests 109 98 289
Weighted average number of 257 540 251 956 252 545
shares in issue (`000)
Earnings per share Cents Cents Cents
Basic earnings 623,6 557,2 1 138,3
Fully diluted 594,3 531,9 1 091,4
Headline earnings
for the six months ended 30 June 2007
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Reconciliation of headline
earnings
Total earnings attributable to 1 606 1 404 2 875
equity holders
Profit on sale of subsidiaries (2) (378) (374)
Headline earnings 1 604 1 026 2 501
Net income on BEE preference 48 43 88
shares accounted for in equity
BEE normalised headline 1 652 1 069 2 589
earnings
BEE normalized weighted average 283 336 277 752 278 341
number of shares in issue(`000)
Headline earnings per share Cents Cents Cents
Basic 622,8 407,2 990,4
Fully diluted 593,4 388,7 949,5
BEE normalised 583,1 384,9 930,2
Condensed statement of changes in group ordinary shareholders` funds
for the six months ended 30 June 2007
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Balance at 1 January 10 665 9 434 9 434
Total earnings 1 606 1 404 2 875
Excess purchase price over net (2 194)
asset value of STANLIB
Ordinary dividends (642) (623) (1 013)
Capital reduction (912) (912)
Subscriptions for shares 846 32 52
Black Economic Empowerment 54 51 89
transaction
Share-based payments 26 26 51
Owner-occupied properties - net 15 13 35
fair value adjustments
Treasury shares (42) 5 6
Foreign currency translation 16 42 48
movement on subsidiaries
Ordinary shareholders` funds 10 350 9 472 10 665
Condensed group cash flow statement
for the six months ended 30 June 2007
Unaudited
Unaudited as restated Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Operating activities 5 503 669 5 125
Investing activities (9 556) (2 017) (11 423)
Financing activities 751 (925) (916)
Net decrease in cash and cash (3 302) (2 273) (7 214)
equivalents
Cash and cash equivalents at 5 237 12 451 12 451
beginning of year
Cash acquired on acquisition of 166
STANLIB Limited
Cash disposed of on sale of (41)
Saambou Life Assurers Limited
Foreign exchange movements in 14
cash balances
Cash and cash equivalents at 2 060 10 192 5 237
end of period
Condensed segment information
For the six months ended 30 June 2007
Group
Risk Non-risk
Rm Rm
Segment revenue 836 4 125
Segment expenses (797) (4 033)
Segment operating
result 39 92
Profit before 39 91
taxation
Taxation (10) (29)
Total earnings 29 62
Restated unaudited segment results for the six
months ended 30 June 2006
Segment revenue 710 2 767
Segment expenses (642) (2 652)
Segment operating
result 68 115
Profit before
taxation 68 115
Taxation (14) (85)
Total earnings 54 30
Audited segment results for the year ended 31
December 2006
Segment revenue 1 776 7 430
Segment expenses (1 514) (7 293)
Segment operating
result 262 137
Profit before
taxation 262 135
Taxation (77) (73)
Total earnings 185 62
Individual
Partici- Non-
partici-
pating pating Prudential
Rm Rm Rm
Segment revenue 17 709 2 335 1 283
Segment expenses (16 200) (1 931) (1 186)
Segment operating
result 1 509 404 97
Profit before 1 509 250 97
taxation
Taxation (789) (106) (68)
Total earnings 720 144 29
Restated unaudited segment
results for the six months
ended 30 June 2006
Segment revenue 16 833 1 419 1 063
Segment expenses (15 892) (1 039) (991)
Segment operating
result 941 380 72
Profit before
taxation 941 307 72
Taxation (505) (119) (57)
Total earnings 436 188 15
Audited segment results
for the year ended 31
December 2006
Segment revenue 38 184 5 554 2 631
Segment expenses (35 950) (4 872) (2 424)
Segment operating
result 2 234 682 207
Profit before
taxation 2 275 496 207
Taxation (1 504) (176) (150)
Total earnings 771 320 57
Other
Asset
manage- Shareholder Mutual
ment operations funds Total
Rm Rm Rm Rm
Segment revenue 1 231 773 66 28 358
Segment expenses (883) (30) (66) (25 126)
Segment operating
result 348 743 - 3 232
Profit before 304 650 - 2 940
taxation
Taxation (103) (120) - (1 225)
Total earnings 201 530 - 1 715
Restated unaudited segment
results for the six months
ended 30 June 2006
Segment revenue 91 707 819 24 409
Segment expenses (32) (194) (819) (22 261)
Segment operating
result 59 513 - 2 148
Profit before
taxation 109 794 2 406
Taxation (13) (111) (904)
Total earnings 96 683 - 1 502
Audited segment results
for the year ended 31
December 2006
Segment revenue 123 1 880 1 703 59 281
Segment expenses (3) (234) (1 703) (53 993)
Segment operating
result 120 1 646 - 5 288
Profit before
taxation 221 1 817 5 413
Taxation (25) (244) (2 249)
Total earnings 196 1 573 - 3 164
Embedded value and value of new business
as at 30 June 2007
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Group embedded value
Risk discount rate 11,0% 11,25% 10,5%
Net worth 11 276 8 244 9 437
Ordinary shareholders` funds on 10 350 9 472 10 665
published basis
Adjustment of ordinary (1 584) (1 275) (1 470)
shareholders` funds from
published basis1
Financial services subsidiaries 3 678 1 229 1 406
fair value adjustment2
Adjustment for carrying value (847) (964) (908)
of in-force business acquired3
Allowance for fair value of (321) (218) (256)
share options
Net value of life business in - 13 467 11 108 12 420
force
Value of life business in -force 14 230 11 984 13 163
Cost of solvency capital (763) (876) (743)
Embedded value 24 743 19 352 21 857
Embedded value per share
information
Number of shares in issue less 263 024 252 795 253 032
shares in respect of the BEE
transaction (`000)
Embedded value per ordinary share 94,07 76,55 86,38
(R)
Embedded value before BEE 25 902 20 511 23 017
impairment (Rm)
Number of shares including shares 288 820 278 591 278 827
in respect of the BEE transaction
(`000)
BEE normalised embedded value per 89,68 73,62 82,55
share (R)
Value of new business and new Rm Rm Rm
business margins
Gross value of new business 352 288 647
Cost of solvency capital (23) (31) (40)
Net value of new business written 329 257 607
in the period
Individual 310 249 572
Group 19 8 35
Present value of future expected 12 662 10 853 24 588
premiums
New business margin 2,6% 2,4% 2,5%
Embedded value profits
for the six months ended 30 June 2007
Embedded value
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Embedded value at end of period 24 743 19 352 21 857
Less capital raised (846) (32) (52)
Plus net capital reduction paid 912 912
Plus dividends paid 588 571 924
Less embedded value
at beginning of period (21 857) (19 153) (19 153)
Embedded value profits 2 628 1 650 4 488
Return on embedded value
(annualised) 25,5% 18,0% 23,4%
BEE normalised
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Embedded value at end of period 25 902 20 511 23 017
Less capital raised (846) (32) (52)
Plus net capital reduction paid 1 004 1 004
Plus dividends paid 642 623 1 013
Less embedded value
at beginning of period (23 017) (20 404) (20 404)
Embedded value profits 2 681 1 702 4 578
Return on embedded value
(annualised) 24,7% 17,4% 22,4%
Analysis of embedded value profits
for the six months ended 30 June 2007
Net value
of life
Net worth business Embedded
in force value
Rm Rm Rm
Embedded value profits for period
Embedded value at end of period 11 276 13 467 24 743
Less capital raised (846) (846)
Plus dividends paid 588 588
Less embedded value at beginning (9 437) (12 420) (21 857)
of period
Embedded value profits 1 581 1 047 2 628
Components of embedded value
profits
Value of new business written in 329 329
the period
Expected return on value of life 654 654
business5
Expected net of tax profit 434 (434) -
transfer to net worth8
Operating experience variances9 56 9 65
Operating assumption changes10 16 128 144
Change in respect of STC 107 107
Embedded value profits from 506 793 1 299
operations
Investment return on net worth 817 817
Exchange rate movements 16 16
Investment variances 245 335 580
Changes in economic assumptions11 (134) (93) (227)
Changes in +modelling methodology 12 12
Change in allowance for fair value (65) (65)
of share options12
Change in respect of investment 196 196
guarantees13
Total embedded value profits 1 581 1 047 2 628
Bases, assumptions and additional information for the six months ended 30 June
2007
1. The amount of R1 584 million (2006: 30 June R1 275 million, 31 December R1
470 million), reflected as the adjustment of shareholders` funds from the
published basis, represents the change in these assets as a result of moving
from a published valuation basis to the statutory valuation method. This is
largely due to the elimination of certain negative rand reserves on the
statutory valuation basis. The reduction in net worth results in a corresponding
increase in the value of in-force.
2. The published value of financial service subsidiaries is enhanced for
embedded value purposes to hold these subsidiaries at a multiple of net after
tax earnings. This adjustment is shown as the `financial service subsidiaries
fair value adjustment`.
This adjustment consists of the following:
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Liberty Group Properties 400 330 350
(Proprietary) Limited
Liberty Jersey 140 115 140
STANLIB Limited 3 138 784 916
3 678 1 229 1 406
For Liberty Group Properties (Proprietary) Limited and STANLIB Limited a
multiple of 10 was used. Liberty Jersey are asset managers of certain group
offshore investment portfolios arising from the sale of Liberty Ermitage Jersey
Limited, for which a multiple of 5 was used.
The multiples are the same as in 2006 with the exception of STANLIB Limited
which was valued at Liberty Life`s share of the excess of the transaction value
over the net carrying value.
3. The carrying value of business acquired by Liberty Life (analysed below) has
been deducted from shareholders` funds in order to avoid double counting. For
embedded value purposes, the value in respect of this amount is included in the
net value of life business in-force.
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Investec Employee Benefits (77) (91) (85)
Capital Alliance Holdings (727) (824) (775)
Limited (CAHL)
Business previously acquired by (43) (49) (48)
CAHL
(847) (964) (908)
4. Future investment returns on the major classes were set with reference to the
market yield on medium-term South African government stock. The investment
returns used are:
Investment
return
p.a.
30 June 30 June 31 December
2007 2006 2006
% % %
Government stock 8,5 8,75 8,0
Equities 10,5 10,75 10,0
Property 9,5 9,75 9,0
Cash 7,0 7,25 6,5
The risk discount rate has been 11,0 11,25 10,5
set equal to 0,5% in excess of the
investment return on equity assets
Maintenance expense inflation rate 5,0 5,25 4,5
5. The expected return on the value of life business is obtained by applying the
previous year`s discount rate to the value of life business in force at the
beginning of the year and the current year`s discount rate for a quarter of a
year to the value of new business.
6. Taxation has been allowed for at rates and on bases applicable to Section 29A
of the Income Tax Act. Full taxation relief on expenses to the extent permitted
was assumed. Capital gains taxation has been taken into account in the embedded
value. Allowance has been made for future secondary taxation on companies (STC)
at 12,5% for the balance of 2007 and 10% thereafter. No allowance has been made
for the likely replacement of STC with a withholding tax on shareholders.
7. Other bases, bonus rates and assumptions:
Parameters reflect best estimates of future experience, consistent with the
valuation bases used by the statutory actuaries, excluding any compulsory or
discretionary margins. However, in contrast to the assumptions in the valuation
bases, the embedded value does make allowance for automatic premium and benefit
increases.
8. The expected net of tax transfer to net worth includes a negative amount of
R366 million arising due to the new business strain experienced on the statutory
valuation basis.
9. The amount of R65 million shown for operating experience variations arises
from actual risk experience being better than expected but being offset by worse
than expected withdrawal experience on certain classes of business.
10. The largest component making up the amount of R144 million shown for
operating assumption changes is the removal of retirement funds tax (RFT).
11. The amount of R227 million shown for changes in economic assumptions arises
from the change to a higher level of economic assumptions as indicated in 4
above.
12. The amount of R65 million in respect of the change in the fair value of
share options arises from the change in the number of shares under option and
the increase in the market value of the Liberty Group Limited share price over
the reporting period.
13. The reserve in respect of investment guarantees has fallen over the
reporting period mainly as a result of an increase in the level of the yield
curve, good investment performance, removal of RFT and policy maturities. This
has resulted in a R196 million increase in embedded value.
14. The assets backing the capital adequacy requirement (CAR) are assumed to be
60% equities, 20% cash, 15% preference shares and 5% gilts. This mix is the same
as at 31 December 2006 and 30 June 2006.
New business
for the six months ended 30 June 2007
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
INSURANCE OPERATIONS INCLUDING
CONTRACTUAL INCREASES
Individual 7 529 6 511 14 121
Single 5 948 5 156 11 172
Recurring 1 581 1 355 2 949
Group 1 061 1 268 2 556
Single 686 938 1 905
Recurring 375 330 651
Insurance operations total new 8 590 7 779 16 677
business
Insurance operations indexed new 2 620 2 294 4 908
business including contractual
increases
INSURANCE OPERATIONS EXCLUDING
CONTRACTUAL INCREASES
Individual 7 146 6 154 13 317
Single 5 948 5 156 11 172
Recurring 1 198 998 2 145
Group 844 1 105 2 214
Single 686 938 1 905
Recurring 158 167 309
Insurance operations total new 7 990 7 259 15 531
business
Insurance operations indexed new 2 020 1 755 3 762
business excluding contractual
increases
STANLIB1
Retail sales excluding money 15 841 18 757 33 577
market
Institutional sales excluding 7 129 7 337 11 902
money market
Total sales excluding money 22 970 26 094 45 479
market
Money market 29 746 33 886 53 488
Total STANLIB new business 52 716 59 980 98 967
1 Restated for comparative purposes to reflect 100% of STANLIB sales for the
six months ended 30 June 2006 and year ended 31 December 2006.
2 Excludes intercompany life fund sales.
Net cash inflows
for the six months ended 30 June 2007
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
INSURANCE OPERATIONS
Individual 1 117 1 754 3 608
Inflows and premiums 11 469 10 413 21 810
Claims and benefits (10 352) (8 659) (18 202)
Group 3 396 233 19
Inflow on IEB transfer1 4 487
Inflows and premiums 2 770 3 096 6 092
Claims and benefits (3 384) (2 863) (6 073)
Net outflow relating to IEB (477)
book1
Net cash inflows from insurance 4 513 1 987 3 627
operations
STANLIB2,3
Retail net cash inflows 3 213 5 760 4 022)3
Institutional net cash outflows (1 214) (703) (4 825)
Net cash inflows/(outflows) 1 999 5 057 (803)
before money market
Money market inflows/(outflows) 3 242 (1 115) (4 980)
Net STANLIB cash 5 241 3 942 (5 783)
inflows/(outflows)
1 The inflow represents a single premium transfer of the IEB closed book
purchased in 2003, the net outflows refer to the movement on that book for the
six months ended 30 June 2007.
2 Restated for comparative purposes to reflect 100% of STANLIB cash flows for
the six months ended 30 June 2006 and year ended 31 December 2006.
3 Excludes withdrawal of PIC investment of R32,6 billion in December 2006, and
intercompany life fund cash flows.
STANLIB: assets under management (AUM) and funds under administration (FUA)
as at 30 June 2007
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rbn Rbn Rm
Life funds 135 104 122
Segregated funds 67 89 65
Unit trusts 72 62 63
Structured products and other 48 41 44
Total AUM and FUA 322 296 294
Analysis of ordinary shareholders` funds invested
for the year ended 30 June 2007
Group funds invested
Unaudited Audited as
30 June 31 December
2007 2006
Rm Rm
Insurance operations 847 908
Operating surplus - Group
- Individual
Present value of in-force business 847 908
acquired
Liberty Active preference dividend
Working capital charge1
Financing of insurance operations (518) (1 722)
Fixed assets and working capital 1 682 478
Callable capital bonds and preference
share liabilities (2 200) (2 200)
Asset management 230 494
Liberty Group Properties 29 35
STANLIB 201 459
Liberty Jersey
Other operations 31 31
Investments 9 760 10 954
Listed equity investments 2 780 2 418
Interest bearing deposits 3 101 4 275
Preference shares 1 569 1 361
Mutual funds 923 1 460
Share of pooled portfolios 1 002 943
Unlisted investments 385 497
Administration expenses - shareholder
allocation
Normal taxation excluding insurance
operations
Secondary tax on companies
Capital gains taxation on specific
shareholder
assets
Net investment gains
Profit on sale of subsidiaries
Total shareholders` funds 10 350 10 665
Contribution to earnings
Unaudited Unaudited
30 June 30 June
2007 2006
Rm Rm
Insurance operations 984 723
Operating surplus - Group 112 125
- Individual 1 106 836
Present value of in-force business (61) (56)
acquired
Liberty Active preference dividend (136) (71)
Working capital charge1 (37) (111)
Financing of insurance operations (61) 15
Fixed assets and working capital 37 111
Callable capital bonds and preference
share liabilities (98) (96)
Asset management 201 96
Liberty Group Properties 25 20
STANLIB 160 65
Liberty Jersey 16 11
Other operations 4 (14)
Investments 365 236
Listed equity investments 42 30
Interest bearing deposits 164 127
Preference shares 66 16
Mutual funds 40 9
Share of pooled portfolios 39 49
Unlisted investments 14 5
Administration expenses - shareholder
allocation (92) (84)
Normal taxation excluding insurance (16) (17)
operations
Secondary tax on companies (70) (44)
Capital gains taxation on specific
shareholder
assets
Net investment gains 289 115
Profit on sale of subsidiaries 2 378
Total shareholders` funds 1 606 1 404
Group investment
gains/(losses)
Unaudited Unaudited
30 June 30 June
2007 2006
Rm Rm
Insurance operations
Operating surplus - Group
- Individual
Present value of in-force business
acquired
Liberty Active preference dividend
Working capital charge1
Financing of insurance operations
Fixed assets and working capital
Callable capital bonds and preference
share liabilities
Asset management
Liberty Group Properties
STANLIB
Liberty Jersey
Other operations
Investments 322 135
Listed equity investments 222 78
Interest bearing deposits - -
Preference shares (28) (2)
Mutual funds 48 15
Share of pooled portfolios 26 59
Unlisted investments 54 (15)
Administration expenses - shareholder
allocation
Normal taxation excluding insurance
operations
Secondary tax on companies
Capital gains taxation on specific
shareholder
assets (33) (20)
Net investment gains (289) (115)
Profit on sale of subsidiaries
Total shareholders` funds - -
1 With effect from 1 July 2005 Liberty Group Limited established a working
capital funding loan between insurance operations and shareholder assets,
subsequently supported by the callable capital bonds issue. Inter-divisional
interest is charged at 8,77% nacm which is equivalent to the callable capital
bond`s interest rate.
Capital commitments
as at 30 June 2007
Unaudited Unaudited Audited
30 June 30 June 31 December
2007 2006 2006
Rm Rm Rm
Capital commitments 288 287 1 987
STANLIB Limited acquisition 1 575
Equipment 89 163 101
Investment and owner-occupied 199 124 311
property
Under contracts 33 132 139
Authorised by the directors but 255 155 1 848
not contracted
288 287 1 987
Funding for the 30 June 2007 commitments will be from shareholders` funds and
where applicable with proportionate recovery from minority interests.
Related parties
as at 30 June 2007
The acquisition of STANLIB Limited is a significant related party transaction
which was approved by shareholders on 29 January 2007. The consideration paid to
the group`s ultimate holding company, Standard Bank Group Limited for their
37,4% of the shares was R384 million in cash and the issue of 7 246 005 Liberty
Group Limited ordinary shares. As a result of this acquisition, STANLIB is now a
100% held subsidiary and any transactions between Standard Bank and STANLIB are
now related party transactions from a Liberty Group perspective. These
transactions currently are:
Asset management fees (30 June 2007: R10 million) paid to STANLIB Asset
Management Limited by The Standard Bank Group Retirement Fund and Standard Bank
(Pty) Limited;
STANLIB makes use of banking facilities provided by Standard Bank of South
Africa, in the normal course of business at prevailing market rates.
There have been no further significant changes to the nature of the related
party transactions as described in note 44 to the 31 December 2006 annual
financial statements.
Summary of movement in investments in ordinary shares held by the group in the
group`s holding companies is as follows:
Number Market value Ownership
`000 Rm %
Liberty Holdings Limited
Balance at 31 December 2006 2 724 572 5,55%
Purchases 298 69
Sales (219) (51)
Fair value adjustments 29
Balance at 30 June 2007 2 803 619 5,71%
Standard Bank Group Limited
Balance at 31 December 2006 38 588 3 647 2,83%
Purchases 3 979 432
Sales (3 426) (357)
Fair value adjustments 126
Balance at 30 June 2007 39 141 3 848 2,85%
Retirement benefit obligation
as at 30 June 2007
As at 30 June 2007, the Liberty Group post retirement medical aid benefit
liability was R271 million (31 December 2006: R261 million). The surplus on the
Liberty Defined Benefit Pension Fund is estimated to be in excess of R1.1
billion at 30 June 2007. The application for apportionment of the surplus amount
at 1 January 2003 has been submitted in terms of the Pension Fund Second
Amendment Act, 39 of 2001. Approval has not yet been received. It is uncertain
as to the amount of the surplus that may be allocated to the employer surplus
account.
Addendum - Restatement of comparatives
Condensed group balance sheet for the six months ended 30 June 2006
Reclassifications
Unaudited as and effect of
previously IFRS
reported interpretations Restated
Rm Rm Rm
Assets
Investments 159 771 2 325 162 096
Intangible assets 1 433 1 433
Reinsurance assets 977 977
Deferred taxation 116 116
Prepayments, insurance 4 639 94 4 733
and other receivables
Cash and cash equivalents 9 901 291 10 192
Other assets 629 39 668
Total assets 177 466 2 749 180 215
Liabilities
Policyholders` 150 282 - 150 282
liabilities
Insurance contracts 111 275 (1 588) 109 687
Investment contracts 1 588 1 588
with discretionary
participation
features(DPF)
Investment contracts 39 007 39 007
through profit or loss
Financial liabilities 2 368 2 368
Third party liabilities 5 090 2 720 7 810
arising on consolidation
of mutual funds
Deferred taxation 2 781 2 781
Insurance and other 4 777 29 4 806
payables
Other liabilities 977 977
Total liabilities 166 275 2 749 169 024
Equity
Ordinary shareholders` 9 472 9 472
interest
Minority interests 1 719 1 719
Total equity 11 191 - 11 191
Total equity and 177 466 2 749 180 215
liabilities
Condensed group income statement for the six months ended 30 June 2006
Reclassifications
Unaudited as and effect of
previously IFRS
reported interpretations Restated
Rm Rm Rm
Total revenue 23 744 665 24 409
Net insurance benefits (15 804) (15 804)
and claims
Fair value adjustment to
policyholders`
liabilities under
investment contracts (2 730) (2 730)
Fair value adjustment on (213) (518) (731)
third party mutual fund
liabilities
Acquisition costs (1 196) (1 196)
associated with
insurance and investment
contracts
Expenses (1 755) (147) (1 902)
Preference dividend in (71) (71)
subsidiary
Profit on sale of 378 378
subsidiaries
Equity accounted 53 53
earnings from joint
ventures
Profit before taxation 2 406 - 2 406
Taxation (904) (904)
Total earnings 1 502 - 1 502
Reclassifications and effect of IFRS interpretations:
Properties under development included in owner-occupied properties (R23
million) and investment properties (R16 million) have been reclassified as
equipment and properties under development.
Short-term employee benefit liabilities comprising incentive scheme and leave
pay of R79 million have been reclassified from provisions to employee benefits.
Certain rental income relating to hotel operations was stated net of operating
expenses. Investment income and general marketing and administration expenses
have both increased by R164 million for the six months ended 30 June 2006.
Inter-company management fees on assets under management of R59 million were
previously not eliminated. Management fees on assets under management have
decreased by R59 million with a corresponding decrease in general marketing and
administration expenses for the six months ended 30 June 2006.
Reclassification of R1 588 million from policyholders` liabilities under
insurance contracts to policyholders` liabilities under investment contracts
with DPFs.
On further analysis of the group`s investment portfolio, it was considered more
appropriate to adopt a look through approach to underlying interests in certain
investments. This resulted in a reclassification of a number of mutual funds the
group invests in, into associates and subsidiaries. 30 June 2006 reported
amounts were consequently restated. This impact can be summarised as follows:
Mutual fund subsidiaries
Increase in financial instruments of R2 364 million;
Increase in prepayments, insurance and other receivables of R94 million;
Increase in cash and cash equivalents of R291 million;
Increase in third party liabilities arising on consolidation of mutual funds of
R2 720 million;
Increase in insurance and other payables of R29 million;
Increase in investment income of R138 million;
Increase in investment gains of R422 million;
Increase in fair value adjustment on third party mutual fund interests of R518
million; and
Increase in general marketing and administration expenses of R42 million.
Mutual fund associates
Reclassification of R1 841 million from financial instruments to interest in
associates.
There is no impact on shareholder earnings, net asset value or statement of
changes in shareholders` funds from the above adjustments.
Date: 08/08/2007 08:59:04 Produced by the JSE SENS Department.
