| Thu 20 Nov 2008, 9:04 | | LGL - Liberty Group - Overview of trading for the nine months ended 30 September |
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LGL
LIBU
LGL - Liberty Group - Overview of trading for the nine months ended 30 September
2008
Liberty Group
Registration number 1957/002788/06
Incorporated in the Republic of South Africa
Share code: LGL
ISIN code: ZAE000057360
(Liberty Group)
Liberty Group Limited - Overview of trading for the nine months ended 30
September 2008
Introduction
Capital market conditions were extremely volatile during the third quarter of
2008 and negatively impacted the Group`s financial performance. Trading
conditions for the insurance and asset management businesses continued to be
challenging, as reflected by lower net cash flows, although total Group new
business volumes were strong.
Strategies to diversify the business both geographically and into the broader
wealth services market continue as planned.
Group Earnings
As previously disclosed, the Group is exposed to falls in local (and to a
limited extent, offshore) equity markets and long term interest rates, and
associated volatilities.
Management has been monitoring these positions, and has to some extent reduced
the level of market risk on the balance sheet.
Notwithstanding this, the extent of the fall in equities and long term interest
rates, partly offset by the weakening rand, has resulted in a slightly higher
level of earnings decline than disclosed at the half year. Earnings for the year
will be negatively impacted by the declining equity markets.
Life Assurance
Although consumers` disposable incomes remained under pressure, Liberty`s
indexed new business, excluding premium escalations, totalled R3.5bn, up 13.9%
over the same period in 2007. Although this has shown a pleasing improvement on
the rate of growth in the first half of 2008, current market conditions may lead
to a slow down in sales activity, over the last quarter.
Individual Life
Indexed individual new business premiums grew by 14.0%, with recurring premiums
up 20%. Sales of recurring premium risk products continue to improve, with
particular strength in the Group`s entry level markets in both risk and savings
products. While single premiums showed more muted growth, this was as a result
of lower sales of multi-access endowments which were offset by very strong sales
in guaranteed capital bonds and life annuity products. Excluding multi-access
endowment sales, single premiums increased by 40%.
Pressure on consumers` disposable income has led to a slight worsening in
persistency experience although retail cash flows remain marginally positive.
This has to some extent been offset by the continuing positive strength in
mortality experience.
The life assurance cost base is expected to increase in line with current
inflation forecasts, and remains within the actuarial assumptions applied at
half year.
Embedded value new business margins are trending higher than at the half year
assisted by lower discount rates, but are still below 2007 year end levels.
Corporate Benefits
Indexed corporate new business premiums increased by 12.9%, with reasonable
growth in both recurring and single premium new business. Group Risk new
business has remained strong, with a continued focus on scheme profitability.
Asset Management
Stanlib
Assets under management have not changed materially since the half year as a
result of strong cash inflows into money market funds. However, the weaker
equity market has resulted in a shift away from equity based retail funds. While
operating profit continues to be in line with expectations, earnings growth
rates are expected to decline in light of the ongoing market conditions.
Properties
Good cost management and reasonable growth in fee income, has resulted in
Liberty Properties continuing to perform well though this period.
Health
The Competition Commission has now approved the acquisition of a controlling
interest in Neil Harvey and Associates (NHA). The Group`s progress in rolling
out a South African and African expansion strategy is progressing as expected.
Africa
Liberty Africa is evaluating a number of opportunities to increase the strategic
reach on the African continent. Asset management flows have remained firm, with
R4.5bn in asset management net cash flows for the first nine months of 2008.
Group Capital Adequacy
The extreme movements in capital markets in the month of October, makes it more
appropriate to give investors an estimate of the capital adequacy cover at the
end of October 2008. Capital adequacy ratio (CAR) cover was estimated at 2.5
times, notwithstanding the interim dividend paid in September 2008. CAR cover
remains in line with that disclosed at 30 June 2008, partly as a result of
interest rate hedges limiting the Group`s exposure to a decrease in long term
interest rates.
Group Embedded Value
The estimated BEE normalised group embedded value per share at the end of
October 2008 was R88 per share. This is lower than the BEE normalised group
embedded value of R94.08 per share disclosed at the half year. The difference is
largely attributable to the payment of the interim dividend and negative
investment variances.
Conclusion
Sales, margins and earnings from operating businesses remain broadly in line
with forecasts, although ongoing market volatility will continue to have a
significant impact on the Group`s level of reported earnings. The Group remains
well capitalised and it is committed to its strategy.
Actuarial Valuation
No actuarial valuation was performed for any of the periods.
Audit/Review
None of the figures have been audited or reviewed by the Group`s auditors.
Table 1 Liberty Life on
balance sheet new business
for the nine months to 30
September 2008 1
2008 2007 % change
Rm Rm
Single premium new 10,169 9,828 3.5%
business
Individual Life 8,967 8,805 1.8%
Corporate Operations 1,202 1,023 17.5%
Recurring premium new 2,466 2,075 18.8%
business
Individual Life 2,158 1,798 20.0%
Corporate Operations 308 277 11.2%
12,635 11,903 6.1%
Total new business
Individual Life 11,125 10,603 4.9%
Corporate Operations 1,510 1,300 16.2%
3,483 3,058 13.9%
Indexed new business
Individual Life 3,055 2,679 14.0%
Corporate Operations 428 379 12.9%
1 Excluding premium
escalations, including
Liberty Africa
Table 2 STANLIB net cash
flows for the
nine months to 30 September
2008 2
2008 2007 % change
Rm Rm
Retail net cash flows n/a
-5,365 8,040
Multi-manager 22.9%
758 617
Institutional net cash n/a
flows -6,739 -2,813
- n/a
Total net cash flows excl 11,346 5 844
money market
>100
Money market 13,887 5,260
Total net cash -77.1%
inflows/(outflows) 2,541 11,104
2 Excluding life funds,
including Liberty Africa
20 November 2008
Johannesburg
Sponsor
Merrill Lynch South Africa (Proprietary) Limited
Date: 20/11/2008 09:04:10 Produced by the JSE SENS Department.
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