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LBH
LBH
LBH - Liberty Holdings Limited - Financial performance indicators for the year
ended 31 December 2008
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
Alpha code: LBH
ISIN code: ZAE000127148
FINANCIAL RESULTS
LIBERTY HOLDINGS LIMITED
2008 ANNUAL RESULTS PRESENTATION
Financial performance indicators
for the year ended 31 December 2008
December December
2008 % change 2007
Liberty Holdings Limited
Basic earnings per share (cents) 709,3 (32,6) 1 051,8(4)
BEE normalised embedded value per
share (R) 95,12 n/a
Final capital reduction/dividends per
share (cents) 291 22,3 238(4)
Liberty Group Limited
BEE normalised headline earnings per
share (cents) 574,6 (47,8) 1 100,4
BEE normalised headline earnings per
share before net
capital gains/(losses) on shareholder
investment portfolios (cents) 670,5 (33,1) 1 001,7
BEE normalised embedded value per
share (R) 95,27 (0,9) 96,10(5)
BEE normalised return on embedded
value (%) 3,7 (82,9) 21,6(5)
Capital adequacy requirement cover
(times covered) 2,66 31,0 2,03(7)
Insurance operations(1)
Indexed new business (excluding
contractual increases) (Rm) 4 782 9,9 4 351
New business margin (%) 2,6 (7,1) 2,8(5)
Net cash (outflows)/inflows (Rm) (2 861) (>100) (207)(6)
Asset management
Assets under management (Rbn)(2) 337 (5,6) 357
Net cash inflows (Rm)(3) 13 374 2,0 13 107
(1) Includes insurance business written under any of the group`s life licences.
(2) Includes STANLIB, Liberty Africa and Liberty Properties asset management
operations.
(3) Includes STANLIB and Liberty Africa excluding intergroup life fund cash
flows.
(4) Restated to adjust for the 3:1 share split in 2008 as if it occurred at the
beginning of 2007.
(5) Restated on application of revised actuarial practice guidance note 107.
(6) Excluding IEB positive transfer of R4 487 million.
(7) Restated for the regulator deeming the defined pension fund surplus asset
as an inadmissable asset.
Relevant definitions
BEE normalised headline earnings per share, embedded value per share and return
on embedded value
These measures reflect 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. Shares in issue relating to the transaction
are reinstated.
Indexed new business
This is a measure of new business in insurance operations which is calculated
as the sum of twelve months of recurring premium policies and one tenth of
single premium sales.
New business margin
This is expressed as the embedded value of new business as a percentage of the
present value of future expected premiums.
Commentary on results
Introduction
During the fourth quarter, shareholders of Liberty Holdings Limited (Liberty or
"group") and Liberty Group Limited (LGL) approved a restructure which
effectively resulted in LGL becoming a wholly owned subsidiary of Liberty from
1 December 2008. Therefore to assist in understanding comparative performance,
the consolidated results of Liberty and additional information on the
consolidated results of LGL are presented.
Financial markets in 2008
During 2008, the international banking sector developed three inter-linked
problems: a huge pool of troubled or `toxic` assets, partly in the form of
mortgage backed securities, inadequate levels of capital given the extensive
write-downs in asset values and a lack of liquidity.
The resultant global credit and banking sector turmoil severely impacted
global financial markets particularly in the latter part of 2008. The rush to
low risk assets by investors led to a sudden, broad-based weakening in
financial markets.
Currently all the major developed economies are in recession including the
United States, United Kingdom, Euro-area and Japan. In spite of massive
government support in these countries for ailing industries and consumers, the
current economic environment remains extremely challenging, with the greatest
concern being the escalation in numbers of job losses.
Against the backdrop of a sharply weakening global economy, economic activity
in South Africa (SA) has slowed in recent months, especially consumer spending
and export activity. Furthermore, the outlook for the next few quarters
point to ongoing weakness, with the current slowdown expected to broaden
across most components of the economy.
As indicated in the graphs below, the bond market was characterised by
increasing yields in the first half with an equally rapid decline in the second
half.
The SA equity market declined by 23,2% in 2008, making it the second worst
annual (calendar) equity performance since 1960, and hence a rare event.
Interestingly, the equity market was actually up 6,4% in the first half of
2008.
In line with the trend of decreased liquidity and de-risking, investment
flows from foreigners have been negative in recent months, driving the Rand
weaker. The Rand ended the year at R9,31 to the US$ representing a 36,7%
decline over the year.
2008 performance review
Management of the market crisis
As the global economic crisis unfolded, management was able to utilise the risk
and capital management framework and capabilities that were implemented over
the twelve months preceding the crisis to manage market and credit risk.
With the establishment of Liberty Financial Services (LibFin) in mid 2008,
the group was positioned to protect solvency and mitigate earnings impacts
through hedging activities. As a result, the group`s capital position was
strengthened and earnings were protected.
Strategy implementation continues notwithstanding . . .
Liberty`s intention is to become the leading wealth management company in
Africa and other select emerging markets. Liberty intends to succeed by having
distinct areas of specialised financial skill, which combine to create a
powerful collective wealth group.
The objective is diversification not only in terms of the wealth solutions
offered, but also diversification in terms of targeted countries and markets,
and in distribution channels.
The Board do not see the need to change the strategic direction despite the
current global financial crisis. These conditions only serve to confirm that
diversification is a business imperative.
During 2008 key foundations to achieve this goal have been put in place,
including the following:
Liberty Holdings restructure
After Standard Bank increased its effective ownership of Liberty to 53,7%,
and to facilitate the group`s diversification strategy, shareholders in LGL
were offered and accepted a share swop for Liberty shares. LGL was
subsequently delisted, leaving Liberty as the remaining listed entity.
Significant capital efficiency and operational benefits will be realised from
this restructure over future years.
Business unit structures
Business unit structures were formed to ensure more focus on strategy and
operational execution. Three business units were created from the traditional
life business, being Individual Life, Corporate Benefits and LibFin. This has
already brought benefits including a more effective focus on product
innovation, investment management and improved client retention strategies.
LibFin was established in July 2008 to specifically focus on the strategic
management of the group`s market, credit and liquidity risks. This business
unit will also focus on the management of policyholder assets (at the
strategic level) as well as the maximisation of risk adjusted returns on
shareholder investments and insurance contract mismatch positions.
Strengthening the executive team
The senior management team was strengthened during 2008. Key appointments were
made in the new business units as well as Liberty Africa, Liberty Health and
Group Information Technology, providing Liberty with a renewed level of
leadership ability.
Diversification strategy
The following diversification successes were realised:
Liberty Health: Significant progress was made during 2008 in achieving the
health strategy of becoming a technology-enabled, multiple-revenue health
solutions business. The acquisition of the key strategic enabler, Neil Harvey
and Associates (NHA) - the largest independent health IT vendor in Africa,
providing technology solutions to over 1 000 000 lives - was concluded after
approval was obtained from the Competition Commission. Furthermore, Liberty
Health acquired V Medical Aid Administrators (VMed) - an accredited medical aid
administrator that uses the NHA system and provides administration and managed
care to Medical Schemes, Health Insurers and Health Maintenance Organisations.
The growth objectives in South Africa were achieved through the take-on of
Medicover, Selfmed, Libcare and Liberty Health Medical Scheme. Good progress
has been made in expanding this business into Africa.
Liberty Africa: During 2008 the group pursued its strategy of expanding into
the rest of Africa with Liberty Africa being used as the vehicle to begin
building the leading wealth management company in the rest of the continent.
Footprints have been established in the following African countries: Namibia,
Botswana, Swaziland, Lesotho, Kenya and Uganda. Progress is being made to
expand further into East, South and West Africa. In light of the market
turmoil, certain targeted acquisitions were delayed or not pursued.
Financial performance highlights
Lower equity markets, and an approximate 100 basis points reduction in the ten
year government bond yield were the main contributors to the group`s basic
earnings per share decrease of 32,6% and LGL`s BEE normalised headline
earnings per share decrease of 47,8%. Interest rate derivatives entered into
in the second half of 2008 shielded the group`s earnings from the sharp fall
(350 bps) in long-term rates in the second half to the extent of R1 billion
(before tax). Although shareholder long-term and 90-10 equity portfolio
exposures remained largely unchanged, other equity exposures were reduced
where possible, and some hedging was undertaken.
Earnings were also impacted by a persistency strain arising from higher
policyholder withdrawals, offset by good risk profits.
Embedded value was also affected by markets, risk profits and persistency
expenses, resulting in LGL`s return on BEE normalised embedded value reducing
from 21,6% (restated) in 2007 to 3,7%. LGL BEE normalised embedded value per
share decreased slightly to R95,27 at 31 December 2008 compared to the R96,10
(restated) at 31 December 2007.
Insurance operations, excluding the results of investment market exposures,
continue to contribute the major portion of the group`s earnings and remained
strong. Insurance new business sales in the context of an increasingly
difficult consumer environment performed well and on an indexed basis were 9,9%
higher than 2007. Cost control in the second half was excellent and no further
strengthening of actuarial assumptions in this regard were required to those
reported at the half year.
Risk products continued to show positive experience variances to actuarial
assumptions which allowed for a positive change in forward looking assumptions,
together contributing R1 191 million to group embedded value.
However, the increasingly difficult consumer conditions combined with the
impacts of the increased ability of policyholders to transfer, or make paid up
retirement annuity products, have contributed to higher withdrawal experience
variances of R940 million, of which R557 million impacted value of in force and
R383 million earnings. Future withdrawal assumptions have therefore been
strengthened which resulted in a further R1 040 million negative effect to
embedded value, split R709 million in respect of value in force and R331
million reduction to net asset value.
The net cash flows of the group`s asset management operations benefited from
strong money market and dividend income fund flows and ended R13,4 billion
positive (2007: R13,1 billion positive).
Profits from the group`s asset management operations (STANLIB, Liberty Africa,
Liberty Properties and Fountainhead) are similar to last year. Negative
equity markets impacted on the values of assets under management particularly
in the second half of 2008 putting pressure on fee income. Strong performance
fees and good cost discipline offset this effect.
Contributions to earnings
December December
2008 2007 %
Audited Rm Rm change
Insurance operations(1) 885 1 784 (50,4)
- Individual Life 729 1 555 (53,1)
- Corporate 156 229 (31,9)
Asset management operations 459 453 1,3
Shareholders` investment returns
(LibFin) 334 819 (59,2)
Shareholder expenses and sundry income (175) (155) (12,9)
Growth initiatives (Liberty Africa and
Liberty Health) (1) 13 (>100)
Net income on BEE preference shares
accounted for in equity 117 100 17,0
Defined benefit pension fund employer
surplus - 115 (100,0)
Liberty Group Limited BEE normalised
headline earnings 1 619 3 129 (48,3)
BEE preference share dividend accrual (117) (100)
Liberty Group Limited headline earnings 1 502 3 029 (50,4)
Attributed to minority shareholders in
Liberty Group Limited (346) (1 512) (77,1)
Liberty Holdings Limited company net
loss (44) (54) 18,5
Preference share dividend (2) (2) -
Loss on sale of subsidiaries - (3) 100,0
Liberty Holdings Limited headline
earnings 1 110 1 458 (23,9)
(1) R522 million loss (2007: R297 million profit) is included in insurance
operations relating to the activities of LibFin`s management of market risks
within the Life funds.
Individual Life
Indexed new business (excluding contractual increases) rose by 9,0% to R4 154
million. Whilst good growth was recorded in risk and ELM products, individual
investment products are only marginally up on 2007.
The new business embedded value profit margin of 3,1% (2007: 3,2% restated) has
decreased as a result of strengthened persistency assumptions.
Net cash flows were positive R407 million for the year, lower sales of single
premium investment business being the main reason for the decline over last
year`s R1 868 million.
Due to high short-term equity volatilities, poor equity returns and lower
long-term interest rates, the valuation of the embedded investment guarantees,
contained in certain investment and risk products, gave rise to a
mark-to-market loss of R410 million, after taxation and net of interest rate
derivatives. This was further offset by the economic assumption change of R232
million.
The weighted average investment return, used as a proxy in relation to
policyholder bonuses on portfolios where shareholders have a 10%
participation, ended the year negative 12,4%, compared to the 14,8% positive
performance in 2007.
Corporate
Corporate, which represents 12,0% of total new insurance business, grew
indexed new business (excluding contractual increases) by 11,5%.
Net cash outflows for the year are however negative at R3 319 million (2007: R2
115 million negative) and were impacted by certain scheme terminations and
scheme member withdrawals.
Liberty Financial Solutions (LibFin)
In light of the financial market turmoil most of LibFin`s activities to date
have been focussed on managing market and credit risk to protect the group`s
capital. Utilising various strategies, the group`s on-balance sheet exposure to
interest rate risk has been significantly reduced. In addition these risk
mitigation positions allowed for the reduction in LGL`s minimum required
capital.
Asset management operations
STANLIB contributed R395 million to LGL`s headline earnings. Operating profit
before interest and taxation was R585 million which is 2,3% lower than the R599
million achieved for 2007. These results were lower as a consequence of the
lower value of assets under management in the second half, which decreased by
8,7% to R299 billion. Net cash inflows for the period were R5 115 million
benefiting from the flight to cash and the oversubscribed interest in the newly
launched dividend income fund. There has been a net outflow from retail and
institutional funds.
Liberty Properties, which earns development and management fees from
managing the group`s property portfolio, performed well and earnings after
taxation increased by 26,1% to R58 million. Liberty Properties is managing a
number of property developments and consequently development fees were higher.
As announced to shareholders on 27 March 2008, a 50% interest in Fountainhead
was acquired with effect from 1 April 2008. Net earnings to 31 December 2008
attributable to the group were R6 million.
Shareholders` investment returns (LibFin)
Earnings on shareholders` funds of R334 million for 2008 were R485 million
lower than the R819 million reported in 2007.
Assets, not specifically held to match policyholder liabilities or utilised in
asset management operations, are held to back regulatory capital and minimise
liquidity risk. Currently, portfolios are balanced between long-term equity
holdings and interest related investments to achieve an investment portfolio
designed to maximise long-term returns for shareholders. Equity portfolios
are currently biased towards financial and industrial sectors which performed
negatively, partly offset by currency profits on foreign assets. These
combined effects resulted in the group`s earnings being negatively impacted
to the extent of R270 million (net of taxation) (2007: R281 million profit).
However, interest revenue has benefited from the higher average short-term
rates experienced during 2008.
Shareholder expenses
Shareholder expenses relate to shareholder corporate activity including costs
associated with implementing the group`s diversification strategy and
developing its risk management capabilities.
Growth initiatives
Growth initiatives include Liberty Africa and Liberty Health.
The newly formed Liberty Africa business unit incurred a loss of R1 million
to 31 December 2008. Liberty Africa has spent substantial time seeking out
business opportunities within Africa and it is expected results will be more
positive going forward. The existing asset management businesses operating
under the Stanbic brand enjoyed positive net cash flows of R8 259 million.
Liberty Health completed the announced acquisition of the technology services
provider, NHA. Due to delays in obtaining Competition Commission approval, the
purchase was only effective from 1 December 2008. Consequently, the
acquisition did not add appreciably to the business unit`s results. Various
contracts to administer medical schemes were obtained in the latter part of
2008 and there were associated one-off costs incurred to build the required
capacity. The business unit broke even in 2008, but is now well placed to
contribute positive earnings going forward.
Group embedded value
LGL BEE normalised embedded value per share is R95,27, comparable to the
R96,10 (restated) at 31 December 2007. Liberty BEE normalised embedded value
per share is very similar at R95,12.
Capital adequacy requirement (CAR)
The statutory CAR of LGL was covered 2,66 times at 31 December 2008 compared
to the 2,03 times (restated) at 31 December 2007. After taking into account the
final shareholder distribution and the expected strategic spend, the CAR cover
is well above LGL`s historic target of 1,7 times.
Capital reduction in lieu of a final dividend
In terms of the authority granted to the directors at the 2008 annual general
meeting and in accordance with the group`s dividend policy, the directors have
approved a capital reduction of 291 cents per ordinary share in lieu of a
final dividend.
Share certificates may not be dematerialised or rematerialised between Monday,
23 March 2009 and Friday, 27 March 2009, both days inclusive. Where applicable,
dividends in respect of certificated shareholders will be transferred
electronically to shareholders` bank accounts on payment date. In the absence
of specific mandates, dividend cheques will be posted to shareholders.
Shareholders who have dematerialised their shares will have their accounts with
their CSDP or broker credited on Monday, 30 March 2009.
The important dates pertaining to the capital reduction of 291 cents per
ordinary share are as follows:
Last date to trade cum dividend on the JSE Friday, 20 March 2009
First trading day ex dividend on the JSE Monday, 23 March 2009
Record date Friday, 27 March 2009
Payment date Monday, 30 March 2009
Prospects
Globally, the economic outlook for 2009 remains uncertain and as yet no strong
signals are evident that a turning point has been reached. South Africa
appears to have been shielded from the worst of the international crisis,
but the local environment could deteriorate further during 2009.
The expectation is that the current difficult economic situation will
continue for at least the first half of 2009, making trading conditions
challenging. In these circumstances the focus on managing market risks and
capital will continue. Plans include reducing volatility in shareholders`
investment returns where possible and, in addition, the group will continue
with its approved diversification strategy.
Bruce Hemphill Saki Macozoma
Chief Executive Chairman
25 February 2009
Accounting policies and presentation
The results have been prepared in accordance with International Financial
Reporting Standards (IFRS) including full compliance with IAS 34 Interim
Financial Reporting. They are also in compliance with the Listing
Requirements of the JSE Limited and the Companies Act of South Africa. There
have been no changes to accounting policies from those applied in the year
ended 31 December 2007.
The group has chosen to adopt early the amendments to IAS 1 Presentation of
Financial Statements and the IFRS 8 Operating Segments standard.
The IAS 1 amendment requires a statement of comprehensive income which is more
relevant to Liberty as it helps eliminate current mismatches in the income
statement between the measurement of policyholder attributable assets and
liabilities. Comprehensive income for a period includes profit or loss for that
period plus other income or expense items that are not recognised in profit or
loss as required or permitted by other standards. The standard does not change
the recognition or measurement of specific transactions, but only where they
are presented in the primary statements. All owner changes in equity remain
recognised in the statement of changes in ordinary shareholders` funds.
Accordingly, the statement of comprehensive income now includes the foreign
currency translation of subsidiaries, the revaluation of owner-occupied
properties and the related taxation expenses with the profit or loss for the
period.
The balance sheet is now referred to as the statement of financial position.
The IFRS 8 Standard requires an entity to report financial and descriptive
information about its reportable segments based on information provided to
key management.
Restatement of comparatives
The December 2008 and 2007 statements have been restated to reflect the above
changes.
No prior year restatements to the group`s assets, liabilities or equity were
required as a consequence of adopting the amendments to IAS 1 or IFRS 8
standard.
Audit opinion
The auditors, PricewaterhouseCoopers Inc., have issued their opinion on the
group`s financial statements and embedded value report for the year ended 31
December 2008. They have issued unmodified audit opinions. A copy of their
audit reports are available for inspection at the company`s registered office.
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
Alpha code: LBH
ISIN code: ZAE000004032
Transfer Secretaries
Computershare Investor Services (Pty) Limited
(Registration number: 2004/003647/07)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Telephone +27 11 370 5000
Sponsor
Merrill Lynch
Statement of financial position
at 31 December 2008
Liberty Holdings Limited
2008 2007
Audited Rm Rm
Assets
Equipment and properties under development 946 519
Owner-occupied properties 1 282 1 276
Investment properties 16 771 14 937
Intangible assets 1 444 1 137
Defined benefit pension fund employer surplus 144 162
Deferred acquisition costs 344 325
Interests in joint ventures 505 295
Reinsurance assets 827 820
Operating leases - accrued income 1 067 1 180
Pledged assets 1 622 5 209
Interests in associates - mutual funds 4 726 10 297
Financial instruments 170 968 176 223
Deferred taxation 131 51
Prepayments, insurance and other receivables 5 884 3 528
Cash and cash equivalents 5 112 4 688
Total assets 211 773 220 647
Liabilities
Policyholders` liabilities 172 069 186 137
Insurance contracts 122 091 131 552
Investment contracts with discretionary
participation features 2 648 3 353
Financial liabilities under investment contracts 47 330 51 232
Financial liabilities at amortised cost 2 430 2 418
Third party financial liabilities arising on
consolidation of mutual funds 10 481 8 040
Employee benefits 642 524
Deferred revenue 114 95
Deferred taxation 2 897 3 484
Provisions 64 60
Operating leases - accrued expense 215 238
Derivative financial instruments 77 66
Insurance and other payables 8 210 5 993
Current taxation 748 1 101
Total liabilities 197 947 208 156
Equity
Ordinary shareholders` interests 11 633 5 288
Share capital 26 14
Share premium 9 276 903
Retained surplus 3 166 4 906
Other reserves (835) (535)
Minority interests 2 193 7 203
Total equity 13 826 12 491
Total equity and liabilities 211 773 220 647
Statement of comprehensive income
for the year ended 31 December 2008
Liberty Holdings Limited
2008 2007
Audited Rm Rm
Revenue
Insurance premium revenue 22 986 23 709
Reinsurance premiums (727) (693)
Net insurance premiums 22 259 23 016
Service fee income from investment contracts 799 837
Investment income 13 552 10 372
Hotel operations sales 714 597
Investment (losses)/gains (15 476) 14 346
Fee revenue 1 144 1 005
Defined benefit pension fund employer surplus 162
Total revenue 22 992 50 335
Claims and policyholders` benefits under insurance
contracts (23 596) (20 739)
Insurance claims recovered from re-insurers 535 610
Change in policyholder liabilities 10 173 (10 554)
Insurance contracts 9 461 (8 838)
Investment contracts with discretionary
participation features 705 (1 634)
Applicable to reinsurers 7 (82)
Fair value adjustment to policyholders`
liabilities under investment contracts 1 025 (6 281)
Fair value adjustment on third party mutual fund
interests (134) (189)
Acquisition costs (2 822) (2 894)
General marketing and administration expenses (5 151) (4 297)
Finance costs (356) (392)
Preference dividend in subsidiary (308) (274)
Profit on sale of subsidiary 6
Equity accounted earnings from joint ventures 40 51
Profit before taxation 2 398 5 382
Taxation (607) (2 105)
Total earnings 1 791 3 277
Other comprehensive income (20) 102
Owner occupied properties - fair value adjustment 26 127
Foreign currency translation (40) 16
Income tax relating to components of other
comprehensive income (6) (41)
Total comprehensive income 1 771 3 379
Total earnings attributable to:
Ordinary shareholders` interests 1 112 1 463
Minority interest 679 1 814
1 791 3 277
Total comprehensive income attributable to:
Ordinary shareholders` interests 1 072 1 516
Minority interest 699 1 863
1 771 3 379
Restated(1)
Cents Cents
Basic earnings per share 709,3 1 051,8
Fully diluted basic earnings per share 683,3 1 051,8
Dividends per share 259,3 352,3
(1) 2007 earnings and dividends per share amounts have been restated to adjust
for the 3:1 share split in 2008 as if it occurred at the beginning of 2007.
Headline earnings
for the year ended 31 December 2008
31 December 31 December
2008 2007
Audited Rm Rm
Liberty Holdings Limited
Headline earnings and earnings per share
Reconciliation of total earnings to headline
earnings attributable to equity holders
Total earnings attributable to equity holders 1 112 1 463
Adjustments
Preference share dividend (2) (2)
Total earnings attributable to ordinary
shareholders 1 110 1 461
Profit on sale of subsidiaries (3)
Headline earnings(2) 1 110 1 458
Weighted average number of shares in issue
(`000) 156 530 138 957
Restated(1)
Cents Cents
Earnings per share
Total earnings attributable to ordinary
equity holders
Basic 709,3 1 051,8
Headline 709,3 1 049,7
Fully diluted
Basic 683,3 1 051,8
Headline 683,3 1 049,7
31 December 31 December
2008 2007
Audited Rm Rm
Liberty Group Limited
Headline earnings and earnings per share
Reconciliation of total earnings to headline
earnings attributable to equity holders
Total earnings attributable to equity holders 1 502 3 035
Profit on sale of subsidiaries (6)
Headline earnings(2) 1 502 3 029
Net income earned on BEE preference shares 117 100
BEE normalised headline earnings attributable
to ordinary shareholders 1 619 3 129
Weighted average number of shares in issue
(`000) 255 947 258 613
BEE normalised weighted average number of
shares in issue (`000) 281 743 284 409
Cents Cents
Earnings per share
Total earnings attributable to ordinary
equity holders
Basic 586,8 1 173,5
Headline 586,8 1 171,3
BEE normalised headline 574,6 1 100,4
(1) 2007 shares in issue and earnings per share figures have been restated to
adjust for the 3:1 share split in 2008 as if it occurred at the beginning of
2007.
(2) Liberty elected to early adopt the long-term insurance industry
exemption contained in the addition to circular 8 of 2007 dated 22 February
2008 which allows for no headline earnings adjustment in respect of realised
or unrealised remeasurements of investment properties.
Condensed statement of changes in ordinary shareholders` funds
for the year ended 31 December 2008
Liberty Holdings Limited
31 December 31 December
2008 2007
Audited Rm Rm
Balance at 1 January on ordinary
shareholders` funds 5 288 5 247
Total comprehensive income 1 072 1 516
Excess purchase price over net asset value of
STANLIB (1 148)
Excess purchase price over net asset value of
Liberty Group (3 145)
Ordinary dividends (372) (503)
Preference dividend (2) (2)
Black economic empowerment transaction 57 49
Share based payments 31 28
Treasury shares 324 (269)
Change in effective ownership (5) 370
Subscription for shares 8 395
Section 311 Liberty transaction costs (10)
Balance at 31 December on ordinary
shareholders` funds 11 633 5 288
Minority interests 2 193 7 203
Total shareholders` funds 13 826 12 491
Condensed statement of cash flows
for the year ended 31 December 2008
Liberty Holdings Limited
31 December 31 December
2008 2007
Audited Rm Rm
Operating activities 1 907 7 989
Investing activities (1 702) (7 711)
Financing activities 203 (957)
Net increase/(decrease) in cash and cash
equivalents 408 (679)
Cash and cash equivalents at the beginning of
the year 4 688 5 242
Cash and cash equivalents acquired through
business acquisition 16 166
Cash and cash equivalents disposed through
business disposal (41)
Cash and cash equivalents at the end of the year 5 112 4 688
Condensed segment information
for the year ended 31 December 2008
Liberty Holdings Limited
Long-term insurance Asset
Audited manage- Health
Rm Individual Corporate ment services
Segment revenue 22 304 5 928 1 699 57
Segment expenses (21 161) (5 711) (1 050) (122)
Profit before taxation 1 143 217 649 (65)
Taxation (399) (61) (198) 46
Total earnings 744 156 451 (19)
Attributable to:
Equity holders 566 119 337 -
Minorities 178 37 114 (19)
For the year ended
31 December 2007
Segment revenue 42 060 15 872 1 417
Segment expenses (38 764) (15 554) (759)
Profit before taxation 3 296 318 658
Taxation (1 727) (89) (205)
Total earnings 1 569 229 453
Attributable to:
Equity holders 803 117 229
Minorities 766 112 224
Reporting
Audited adjust-
ments(1) IFRS
Rm Other Total reported
Segment revenue 625 30 613 (7 621) 22 992
Segment expenses (537) (28 581) 7 987 (20 594)
Profit before taxation 88 2 032 366 2 398
Taxation 30 (582) (25) (607)
Total earnings 118 1 450 341 1 791
Attributable to:
Equity holders 90 1 112 - 1 112
Minorities 28 338 341 679
For the year ended
31 December 2007
Segment revenue 1 360 60 709 (10 374) 50 335
Segment expenses (577) (55 654) 10 701 (44 953)
Profit before taxation 783 5 055 327 5 382
Taxation (121) (2 142) 37 (2 105)
Total earnings 662 2 913 364 3 277
Attributable to:
Equity holders 314 1 463 - 1 463
Minorities 348 1 450 364 1 814
(1) Reporting adjustments include the consolidation of unincorporated property
partnerships, the consolidation of third party mutual fund liabilities,
providing additional deferred taxation on investment property revaluations,
the classification of long-term insurance into defined IFRS `investment` and
`insurance` products, and the elimination of inter-group transactions. The
effect of the classification of long-term investment products in the reporting
adjustments column is to recognise premiums on investment contracts as revenue.
Group embedded value report
Audited
1. Introduction
The embedded value is a determination of the economic value of a life
insurance company before making allowance for any value which may be attributed
to future new business. The embedded value and value of new business have been
prepared in accordance with PGN 107, the guidance note on embedded values and
value of new business issued by the Actuarial Society of South Africa.
2. Group structure
The structure of the group changed with effect from 1 December 2008. Prior to
that date Liberty Holdings Limited housed Standard Bank Limited`s controlling
interest in Liberty Group Limited. Both Liberty Holdings Limited and Liberty
Group Limited were listed on the Johannesburg Stock Exchange (JSE). The
restructure resulted in Liberty Group Limited becoming a wholly owned
subsidiary of Liberty Holdings Limited and was delisted from the JSE.
3. Adoption of revised PGN 107
A revised version of Professional Guidance Note PGN 107 comes into force for
all financial year ends on or after 31 December 2008. PGN 107 governs the way
in which embedded values are reported. The main changes are:
A reassessment of the equity risk premium. This has been assessed at 3,5% (2%
previously).
The setting of the risk discount rate as the risk free rate plus a
proportion of the equity risk premium. The proportion has been determined by
assessing the beta (volatility of Liberty`s share price to that of the equity
market) and the weighted average cost of capital of the group. Previously the
risk discount rate was set as the risk free rate plus 2,5%. This has resulted
in the risk discount rate increasing by 0,25%.
The use of required capital, being the target multiple of statutory capital.
The embedded value consists of:
The free surplus attributed to the covered business; plus
The required capital identified to support the in-force covered
business; plus
The present value of future shareholder cash flows from in-force covered
business (PVIF); less
The cost of required capital.
The PVIF is the discounted value of the projected stream of after tax
shareholder profits arising from existing in force covered business. These
shareholder profits arise from the release of margins under the statutory
basis of valuing liabilities. This value is reduced by the present value of
after tax future shareholder recurring and non-recurring expenses. Covered
business is defined as business regulated by the FSB as long-term insurance
business. This business comprises life assurance policies, investment
policies (smooth bonus, reversionary bonus, market-related and linked),
annuities and group pensions business.
For reversionary and smoothed bonus business, the value of in force covered
business has been calculated assuming that bonuses are changed over time so
that the full amount of the bonus stabilisation reserves are distributed to
policyholders over the lifetime of the in force policies.
The required capital is defined as the level of capital that is restricted for
distribution to shareholders. This comprises the statutory CAR calculated in
accordance with PGN 104 plus any additional capital considered by the Board
appropriate given the risks in the business. For Liberty Group Ltd, required
capital is calculated as 1,7 x CAR. The cost of required capital is the present
value, at the risk discount rate, of the projected release of the required
capital allowing for investment returns on the assets supporting the
projected required capital.
The value of new business written over the year is the present value at the
point of sale of the projected stream of after tax profits from that business,
reduced by the cost of required capital. New business is defined as covered
business arising from the sale of new policies and once off premium increases
in respect of in force covered business during the year. Only policies where at
least one premium has been received are included. This definition is consistent
with that used in the financial statements.
The value of new business has been calculated on the closing assumptions.
Investment yields at the point of sale have been used for new fixed annuities
and Guaranteed Capital Bonds; for all other business the investment yields at
the end of the year have been used.
No adjustment has been made for the discounting of tax provisions in the
embedded value.
4. Liberty Holdings Limited
4.1 Embedded value and embedded value per share
Embedded value per share information
31 December 2008
BEE normalised
Embedded embedded
value value
Liberty Group Limited embedded value (Rm) 25 889 27 048
Liberty Holdings net asset value (Rm) 159 159
Liberty Holdings embedded value (Rm) 26 048 27 207
Number of applicable shares (`000) 260 226 286 022
Embedded value per ordinary share (R) 100,10 95,12
5. Liberty Group Limited
5.1 Embedded value and value of new business
Group embedded value
Restated(1)
31 December 31 December
2008 2007
Rm Rm
Risk discount rate 10,25% 11,25%
Net worth 11 701 11 900
Ordinary shareholders` funds on published basis 11 474 11 062
Adjustment of ordinary shareholders` funds
from published basis(1) (3 012) (2 197)
Financial service subsidiaries fair value
adjustment(2) 4 107 4 124
Adjustment for carrying value of in-force
business acquired(3) (683) (789)
Allowance for fair value of share options/rights (185) (300)
Net value of life business in-force 14 188 14 191
Value of life business in-force 14 640 15 282
Cost of required capital (452) (1 091)
Embedded value 25 889 26 091
(1) Refer to note 3 for details of the restatement.
Value of new business and new business margins
Restated(1)
31 December 31 December
2008 2007
Rm Rm
Gross value of new business 763 845
Cost of required capital (39) (60)
Net value of new business written in the year 724 785
Individual 701 756
Group 23 29
New business index excluding natural increases 4 782 4 351
Present value of future expected premiums 28 180 28 337
Margin 2,6% 2,8%
(1) Refer to note 3 for details of the restatement.
The value of new business is the value at the point of sale derived from the
new business premium income net of contractual increases. The new business
margin is the value of new business as a percentage of the present value of
future expected premiums.
5.2 Embedded value profits
Embedded value profits are equal to the change in the embedded value over the
year increased by any dividends paid, capital reductions or share buy backs
made during the year and decreased by any capital raised during the year.
Embedded value profits provide a measure of a company`s financial performance
over the year.
Embedded value
Restated (1)
2008 2007
Rm Rm
Embedded value at the end of the year 25 889 26 091
Less capital raised (846)
Plus impact of share buy backs 583
Less share options/rights exercised (18) (68)
Plus net capital reduction paid 640 372
Plus dividends paid 466 588
Less embedded value at the beginning of the
year (26 091) (21 857)
Embedded value profits 886 4 863
Return on net worth 7,4% 51,5%
Return on embedded value 3,4% 22,2%
BEE normalised
Restated(1)
2008 2007
Rm Rm
Embedded value at the end of the year 27 048 27 250
Less capital raised (846)
Plus impact of share buy backs 583
Less share options/rights exercised (18) (68)
Plus net capital reduction paid 754 416
Plus dividends paid 466 642
Less embedded value at the beginning of the
year (27 250) (23 016)
Embedded value profits 1 000 4 961
Return on net worth 8,4% 52,6%
Return on embedded value 3,7% 21,6%
(1) Refer to note 3 for details of the restatement.
5.3 Analysis of embedded value profits
An analysis of the components of embedded value profits for the year ended 31
December 2008 is summarised below.
Value of
in-force
covered
Net worth business
Rm Rm
Embedded value profits for the year
Embedded value at the end of the year 11 701 14 640
Less capital raised
Plus impact of share buy backs
Less share options/rights exercised (18)
Plus net capital reduction paid 640
Plus dividends paid 466
Less restated embedded value at the beginning
of the year (11 900) (15 282)
Embedded value at the beginning of the year (11 867) (14 655)
PGN 107 restatement (33) (627)
Embedded value profits 889 (642)
Components of embedded value profits
Value of new business written in the year (915) 1 678
Expected return on value of life business(7) 1 626
Expected net of tax profit transfer to net worth 1 895 (2 104)
Operating experience variances(10) (47) (426)
Operating assumption changes(11) (298) (208)
Change in respect of allowance for STC(12) 351
Embedded value profits from operations 635 917
Investment return on net worth 640
Exchange rate movements (42)
Investment variances (120) (1 340)
Changes in economic assumptions(13) 71 74
Changes in modelling methodology(14) (293)
Change in allowance for fair value of share
options/rights(15) 115
Change in respect of investment guarantees(16) (410)
Total embedded value profits 889 (642)
Cost of
required Embedded
capital value
Rm Rm
Embedded value profits for the year
Embedded value at the end of the year (452) 25 889
Less capital raised
Plus impact of share buy backs
Less share options/rights exercised (18)
Plus net capital reduction paid 640
Plus dividends paid 466
Less restated embedded value at the beginning
of the year 1 091 (26 091)
Embedded value at the beginning of the year 900 (25 622)
PGN 107 restatement 191 (469)
Embedded value profits 639 886
Components of embedded value profits
Value of new business written in the year (39) 724
Expected return on value of life business(7) (128) 1 498
Expected net of tax profit transfer to net worth 209
Operating experience variances(10) 212 (261)
Operating assumption changes(11) (2) (508)
Change in respect of allowance for STC(12) 351
Embedded value profits from operations 252 1 804
Investment return on net worth 640
Exchange rate movements (42)
Investment variances 27 (1 433)
Changes in economic assumptions(13) 361 506
Changes in modelling methodology(14) (1) (294)
Change in allowance for fair value of share
options/rights(15) 115
Change in respect of investment guarantees(16) (410)
Total embedded value profits 639 886
5.4 Bases, assumptions and additional information
1. The amounts of R3 012 million and R2 197 million, reflected as the
adjustment of shareholders` funds from the published basis, represent 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:
31 December 31 December
2008 2007
Rm Rm
Liberty Group Properties (Proprietary)
Limited 504 400
STANLIB Limited 3 603 3 724
4 107 4 124
For STANLIB Limited a multiple of 10 was used, less the embedded value of its
life business which has been included in the value of life business in-force.
For Liberty Group Properties (Proprietary) Limited a multiple of 10 was
used (both same as in 2007).
3. The carrying value of business acquired by Liberty (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.
2008 2007
Rm Rm
Investec Employee Benefits (58) (71)
Capital Alliance Holdings Limited (CAHL) (590) (679)
Business previously acquired by CAHL (35) (39)
(683) (789)
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. (%)
2008 2007
Government stock 7,50 8,50
Equities 11,00 12,00
Property 8,50 9,50
Cash 6,00 7,00
5. The risk discount rate has been set equal to
the risk free rate plus 80% of the equity risk premium 10,25 11,25
6. Maintenance expense inflation rate 4,5 5,0
7. 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 half a year to
the value of new business.
8. 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 at 10%. No allowance has
been made for the likely replacement of STC with a withholding tax on
shareholders.
9. 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.
10. Operating experience variances consist of the combined effect on net
worth and value in force of operating experience proving different from that
anticipated at the prior year end.
The net 2008 operating experience variance of negative R261 million is made
up of two principal components being a positive variance of R567 million in
respect of mortality experience, offset by a negative variance of R940 million
arising from policyholder behaviour.
Approximately R470 million of this R940 million results from an unanticipated
increase in retirement annuity policies being made paid-up. This level of
paid-ups is a recent occurrence and is thought to be connected to the
deterioration in economic conditions. As such, this effect is considered to be
cyclical and unlikely to persist at this level over the run-off of the
relevant book of policies. However, short-term assumptions have been further
strengthened to allow for potential further losses on retirement annuity
paid-ups during 2009 and 2010.
(Refer withdrawals amounts in note 11 below).
Long-term assumptions have been strengthened in line with experience
investigations.
11. Operating assumption changes of R508 million comprise:
Rm
Future project costs (139)
Net maintenance expenses (121)
Change in corporate tax rate (29% to 28%) 168
Withdrawals (1 040)
Individual - to maturity (729)
Individual - short term (270)
Corporate - to maturity (41)
Individual mortality 624
(508)
12. The amount of R351 million in respect of the change in the allowance for
STC represents the reduction in future tax payable arising from the restructure
of the group.
13. The amount of R506 million shown for changes in economic assumptions
arises from the change to a higher level of economic assumptions.
14. The amount of R294 million shown for changes in modelling methodology
arises from the transfer of a discretionary AIDS margin into the best
estimate assumptions.
15. The amount of R115 million in respect of the change in the fair value
of share options/rights arises from the change in the number of shares under
option and the decrease in the market value of the Liberty Group Limited and
Liberty Holdings Limited share prices over the reporting period.
16. The amount of R410 million in respect of the change in investment
guarantees represents the increase in the reserve over the year less the
investment return on the assets backing the reserve.
17. The assets backing the required capital are assumed to be 60% equities,
25% preference shares, 10% cash and 5% gilts (previously 60% equities, 20%
cash, 15% preference shares and 5% gilts).
New business
for the year ended 31 December 2008
Liberty Holdings Limited
31 December 31 December
2008 2007
Unaudited Rm Rm
Insurance operations (4)
Individual 14 911 14 902
Single 11 891 12 294
Recurring 3 020 2 608
Corporate 1 984 1 727
Single 1 567 1 348
Recurring 417 379
Total new business 16 895 16 629
Single 13 458 13 642
Recurring 3 437 2 987
Indexed new business(2) 4 782 4 351
Asset management operations
Total STANLIB sales excluding money market(1) 42 880 40 331
Retail sales excluding money market 37 551 32 269
Institutional sales excluding money market 5 329 8 062
Money market 95 266 65 902
Total STANLIB sales 138 146 106 233
Total Liberty Africa sales excluding money
market(1) 14 695 5 797
Retail sales excluding money market 2 954 927
Institutional sales excluding money market 11 741 4 870
Money market 4 809 4 268
Total Liberty Africa sales (3) 19 504 10 065
Total asset management sales 157 650 116 298
(1) Excludes intercompany life fund sales
(2) Restated in accordance with new definitions applied to December 2007.
(3) Liberty group owns less than 100% of the various entities that make up
Liberty Africa. Sales information is recorded at 100% and is not adjusted for
proportional legal ownership.
(4) Includes Liberty Africa
Net cash inflows/(outflows)
for the year ended 31 December 2008
Liberty Holdings Limited
31 December 31 December
2008 2007
Unaudited Rm Rm
Insurance operations (3)
Individual 458 1 908
Inflows and premiums 24 387 23 812
Claims and benefits (23 929) (21 904)
Corporate (3 319) 2 372
Inflow on IEB transfer (1) 4 487
Inflows and premiums 6 468 5 907
Claims and benefits (9 111) (7 387)
Net outflow relating to IEB book(1) (676) (635)
Net cash (outflows)/inflows from insurance
operations (2 861) 4 280
Asset management
STANLIB before money market (14 157) 5 290
Retail net cash (outflows)/inflows (3 830) 11 110
Institutional net cash outflows (10 327) (5 820)
Money market inflows 19 272 3 598
Net STANLIB cash inflows 5 115 8 888
Liberty Africa before money market 7 468 3 424
Retail net cash inflows 2 046 710
Institutional net cash inflows 5 422 2 714
Money market inflows 791 795
Net Liberty Africa inflows (2) 8 259 4 219
Net cash inflows from asset management 13 374 13 107
Total net cash inflows 10 513 17 387
(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
year to 31 December 2008.
(2) Liberty group owns less than 100% of the various entities that make up
Liberty Africa. The cash flow information is recorded at 100% and is not
adjusted for proportional legal ownership.
(3) Includes Liberty Africa
Assets under management (AUM) (1)
for the year ended 31 December 2008
Liberty Holdings Limited
31 December 31 December
2008 2007
Audited Rbn Rbn
Life funds 111 129
Segregated funds 62 69
Unit trusts (including money market) 109 100
Linked Investment and structured products 36 42
Net cash inflows from insurance operations 318 340
(1) Includes funds under administration
Liberty Africa 19 12
STANLIB 299 328
Analysis of ordinary shareholders` funds invested
for the year ended 31 December 2008
Liberty Group Limited
Group
funds invested
2008 2007
Unaudited Rm Rm
Ordinary shareholders` interests
Analysis of shareholders` interests:
Insurance operations (2) 681 789
Insurance operating surplus
Present value of in-force business 681 789
Liberty Active preference dividend
Working capital charge(1)
Statement of intent
Financing of insurance operations (252) 808
Fixed assets and working capital(1) 1 748 2 808
Callable capital bonds and preference
share liabilities (2 000) (2 000)
Financial services operations 898 255
Liberty Group Properties 46 18
STANLIB 343 196
Liberty Jersey (long only fund fees)
Liberty Africa 87
Fountainhead 187
Liberty Health 234
Other 1 41
Investments 10 147 9 177
Listed equities 1 934 2 945
Interest bearing deposits 4 609 3 073
Preference shares 1 323 1 191
Mutual funds 1 788 802
Share of pooled portfolios 285 607
Unlisted investments 208 559
Administration expenses
- shareholder allocation
Pension fund surplus
Normal taxation excluding insurance
operations
Secondary tax on companies
Capital gains taxation on shareholder
specific assets
Net investment gains
Headline earnings
Profit on sale of Saambou Life Assurers
Total shareholders` funds 11 474 11 029
Contribution
to earnings
2008 2007
Rm Rm
Ordinary shareholders` interests
Analysis of shareholders` interests:
Insurance operations (2) 885 1 784
Insurance operating surplus 1 511 2 327
Present value of in-force business (118) (119)
Liberty Active preference dividend (308) (274)
Working capital charge(1) (200) (150)
Statement of intent
Financing of insurance operations 21 (39)
Fixed assets and working capital(1) 200 150
Callable capital bonds and preference
share liabilities (179) (189)
Financial services operations 474 469
Liberty Group Properties 58 46
STANLIB 395 387
Liberty Jersey (long only fund fees) 20
Liberty Africa (1) 16
Fountainhead 6
Liberty Health (3)
Other 16 3
Investments 740 632
Listed equities 92 112
Interest bearing deposits 421 300
Preference shares 108 119
Mutual funds 38 30
Share of pooled portfolios 76 39
Unlisted investments 5 32
Administration expenses
- shareholder allocation (289) (198)
Pension fund surplus 162
Normal taxation excluding insurance
operations (31) 22
Secondary tax on companies (28) (84)
Capital gains taxation on shareholder
specific assets
Net investment gains (270) 281
Headline earnings 1 502 3 029
Profit on sale of Saambou Life Assurers 6
Total shareholders` funds 1 502 3 035
Capital
investment
gains/(losses)
2008 2007
Rm Rm
Ordinary shareholders` interests
Analysis of shareholders` interests:
Insurance operations (2)
Insurance operating surplus
Present value of in-force business
Liberty Active preference dividend
Working capital charge(1)
Statement of intent
Financing of insurance operations
Fixed assets and working capital(1)
Callable capital bonds and preference
share liabilities
Financial services operations
Liberty Group Properties
STANLIB
Liberty Jersey (long only fund fees)
Liberty Africa
Fountainhead
Liberty Health
Other
Investments (373) 284
Listed equities (633) 102
Interest bearing deposits 113 8
Preference shares (18) 32
Mutual funds 101 71
Share of pooled portfolios (89) 29
Unlisted investments 153 42
Administration expenses
- shareholder allocation
Pension fund surplus
Normal taxation excluding insurance
operations 42
Secondary tax on companies
Capital gains taxation on shareholder
specific assets 61 (3)
Net investment gains 270 (281)
Headline earnings
Profit on sale of Saambou Life Assurers
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.
(2) Includes all insurance operations in South Africa, other insurance
operations external to South Africa are included in Liberty Africa.
Capital commitments
for the year ended 31 December 2008
Liberty Holdings Limited
31 December 31 December
2008 2007
Audited Rm Rm
Capital commitments 3 843 1 090
Business acquisitions 194(1) 386
Equipment 391 216
Investment and owner-occupied property 3 258 488
Under contracts 1 767 25
Authorised by the directors but not contracted 2 076 1 065
3 843 1 090
The group`s share of commitments of joint ventures amounting to R18 million
(2007: R16 million). The above 2008 capital commitments will be financed by
available bank facilities, existing cash resources, internally generated funds,
R429 million (2007: R7 million) from minorities in unincorporated property
partnerships, and R13,5 million from minorities in Liberty Health Holdings
(Pty) Limited.
(1) The board has approved an allocated amount towards possible business
acquisitions related to its stated strategy of broadening the group`s
financial services offerings.
Related parties
for the year ended 31 December 2008
Liberty Holdings Limited
The following significant related party transactions have occurred in the
2008 financial year:
1) Acquisition of the remaining issued ordinary share capital of Liberty
Holdings Limited
On 27 May 2008, Standard Bank Group Limited announced their intention to
acquire the remaining issued ordinary share capital of Liberty Holdings
Limited.
The consideration offered was 21 925 cents per ordinary share. Liberty Group
Limited sold 2 717 247 shares for a total consideration of R596 million in
Liberty Holdings Limited in terms of this offer.
2) Acquisition of Fountainhead Property Trust Management Limited and Evening
Star Trading 768 (Pty) Limited
Liberty Group Limited, with effect from 1 April 2008, acquired from Standard
Bank South Africa Limited, a wholly-owned subsidiary of Standard Bank Group
Limited, 50% of the issued share capital of Fountainhead Property Trust
Management Limited and Evening Star Trading 768 (Pty) Limited for a
consideration of R46,7 million.
Liberty Group Limited also acquired from Standard Bank Properties (Pty)
Limited, a wholly-owned subsidiary of Standard Bank Group Limited, equity loan
claims of R139,5 million against Evening Star Trading 768 (Pty) Limited.
3) Derivatives
Certain derivative transactions were entered into between Liberty Group
Limited and the Corporate & Investment Banking Division of Standard Bank Group
Limited (CIB).
These include interest rate swaps, swaptions, bond forwards and equity options.
All transactions were entered into in order to mitigate the market risk
Inherent in the group`s assets and liabilities.
Interest rate swaps on a notional amount of R2 915 million were entered into
during the year for various terms between 12 years and 20 years. All of these
were outstanding at year end.
Swaptions, which give an option to enter into a swap in the future, were
entered into with CIB during the year. The total notional of the swaptions is
R3 400 million and cover various terms from 10 years to 30 years. All were
outstanding at year end and the premium paid for these options amounted to R100
million in total.
Bond forwards were entered into to purchase BESA listed government gilts at
future dates with the forward yield being set at current market rates.
These are all less than 6 months in duration and for a total notional amount of
R2 200 million.
Premiums paid for equity options amounted to R25 million in total. These were
for a total notional amount of R1 100 million.
The transactions were entered into on an arm`s length basis and only after
obtaining competitive pricing quotations from several market players who
conduct business in these markets.
The total fair value of these instruments at 31 December 2008 is R593 million
(2007: R186 million).
4) Summary of movement in investment in ordinary shares held by the group in
the group`s holding company is as follows:
Number Market value Ownership
`000 Rm %
Standard Bank Group Limited
Balance at 31 December 2007 41 182 4 122 3,00
Purchases 7 892 697
Sales (18 163) (1 771)
Fair value adjustments (482)
Balance at 31 December 2008 30 911 2 566 2,03
5) Construction contracts
Certain of the group`s investment properties namely the Liberty Promenade,
Sandton City and Eastgate complexes are undergoing refurbishments and
extensions. Grinaker-LTA Limited, a subsidiary of Aveng Limited, has been
awarded construction contracts to the value of R1 455 million. Angus Band, who
through his directorship of Liberty is defined as a key manager, is currently
the chairman of Aveng Limited.
Retirement benefit obligations
for the year ended 31 December 2008
Liberty Holdings Limited
Post-retirement medical benefit
The group operates an unfunded post-retirement medical aid benefit for
employees who joined the group prior to 1 July 1998. Medical aid costs are
included in the statement of comprehensive income within general marketing
and administration expenses in the period during which the employees render
services to the group. For past service the group recognises and provides for
the actuarially determined present value of post-retirement medical aid
employer contributions on an accrual basis using the projected unit credit
method.
As at 31 December 2008, the Liberty post-retirement medical aid benefit
liability was R344 million (31 December 2007: R293 million).
Defined benefit retirement funds
The group operates a number of defined benefit pension schemes on behalf of
employees. All these funds are closed to new membership and are well funded
with no deficits reported.
Date: 26/02/2009 07:05:14 Produced by the JSE SENS Department.
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