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LBH
LBH
LBH - Liberty Holdings Limited - Financial Results For The Year Ended 31
December 2009
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE000127148
Financial results
Liberty Holdings Limited
For the year ended 31 December 2009
Contents
Financial performance indicators
Definitions
Commentary on results
Accounting policies
Statement of financial position
Statement of comprehensive income
Headline earnings and earnings per share
Condensed statement of changes in shareholders` funds
Condensed statement of cash flows
Condensed segment information
Group embedded value report
New business
Net cash inflows
Assets under management
Analysis of ordinary shareholders` funds invested
Capital commitments
Related parties
Retirement benefit obligations
Financial performance indicators
for the year ended 31 December 2009
2009 2008
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) 16,4 709,3
BEE normalised headline earnings per share (cents) 47,2 740,8
Embedded value
BEE normalised embedded value per share (R) 84,32 95,12
BEE normalised return on embedded value (%) (6,5) n/a
Distributions per share (cents) 455 312
Interim capital reduction 164
Final capital reduction 291 291
Extraordinary dividend 21(2)
Capital adequacy cover of Liberty Group Limited
(times covered) 2,81 2,66
Long-term insurance operations (3)
Indexed new business (excluding contractual
increases) (Rm) 4 412 4 782
New business margin (%) 1,3 2,6
Net cash inflows/(outflows) (Rm) 1 267 (2 861)
Asset management
Assets under management (Rbn) 363 337
Net cash outflows before money market (Rm) (8 676) (6 689)
Net cash inflows including money market (Rm) 2 755 13 374
Health services
Lives under administration (`000) 460 267
Normalised(1)
% change 2008
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) (97,7) 586,8
BEE normalised headline earnings per share
(cents) (93,6) 574,6
Embedded value
BEE normalised embedded value per share (R) (11,4) n/a
BEE normalised return on embedded value (%) n/a 3,7
Distributions per share (cents) 45,8 455
Interim capital reduction 164
Final capital reduction 291
Extraordinary dividend
Capital adequacy cover of Liberty Group Limited
(times covered) 5,6
Long-term insurance operations (3)
Indexed new business (excluding contractual
increases) (Rm) (7,7)
New business margin (%)
Net cash inflows/(outflows) (Rm) >100
Asset management
Assets under management (Rbn) 7,7
Net cash outflows before money market (Rm) (29,7)
Net cash inflows including money market (Rm) (79,4)
Health services
Lives under administration (`000) 72,3
(1) Normalised for the Liberty Group Limited section 311 transaction effective
1 December 2008 in order to provide relevant comparisons.
(2) Restated to adjust for the 3:1 share split in 2008 as if it occurred at the
beginning of 2008.
(3) Includes insurance business written under all of the group`s life licences.
n/a: not applicable.
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.
Capital adequacy requirement (CAR)
Capital adequacy is the minimum amount by which the Financial Services Board
requires an insurer`s assets to exceed its liabilities. The assets, liabilities
and capital adequacy requirement must be calculated using a method which meets
the Financial Services Board`s requirements. Capital adequacy cover refers to
the amount of capital the insurer has as a multiple of the minimum requirement.
Long-term insurance operations - 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.
Long-term insurance operations - New business margin
This is the embedded value of new business in insurance operations expressed as
a percentage of the present value of future expected premiums.
Commentary on results
Operational and strategic update
The effects of the 2008 global financial markets crisis continued into the
early parts of 2009. Despite synchronised efforts by major governments to ward
off the effects of risk aversion, mass de-leveraging occurred and placed
significant liquidity pressure on the markets in early 2009.
Subsequent to the first quarter, markets started to respond to the combined
state remedial measures and cautious optimism led to some recovery in most
major world equity markets for the remainder of 2009.
Although South Africa returned to positive real GDP growth in the third quarter
of 2009, consumers` disposable incomes remain under pressure.
Group BEE normalised headline earnings for the 2009 year ended at R135 million
compared to the reported first half loss of R1 207 million.
The year can be characterised by the cost of de-risking the balance sheet in
the first half and the impact of a significant decline in policyholder
persistency. The group however returned to profitability in the second half of
the year, mainly due to persistency not deteriorating and improved financial
markets.
De-risking the group`s balance sheet
Given the extreme volatility in the investment markets in 2008 and the early
part of 2009, management focused on risk reduction to protect policyholders`
funds. This resulted in a once off equity loss of R519 million in the first
half of the year, as markets recovered from their lows in the first quarter.
This action met the group`s objective of protecting capital, and as a result of
this strategy, Liberty Group Limited`s CAR cover remained robust at 2,81 times
the statutory requirement at 31 December 2009 (2008: 2,66 times).
Policyholder persistency
The SA Retail insurance business, as indicated in the group`s half year
results, has experienced declining policyholder persistency. The total impact
on the group`s earnings of the related negative experience variances combined
with the strengthening of actuarial assumptions was R930 million after tax for
2009.
Various operational initiatives implemented in the second half of the year are
starting to produce positive results. As such, no further significant
adjustments to lapse assumptions were required in the 31 December 2009
liability valuations. Nonetheless, modelling was improved for some blocks of
business.
Management continue to invest in actions to limit the loss of in-force policies
and prepare the business to take advantage of the next economic upturn.
Strategic review
In the second half, a strategic review of the business was conducted and
consequently the business has been restructured to improve end-to-end ownership
and accountability of the SA Retail insurance business. Effective December
2009, the group was restructured into SA Retail (including Individual Life and
STANLIB Retail), Asset Management and Institutional (including Properties,
STANLIB Institutional and Corporate) and new Business Development clusters.
Growth and diversification
Progress continued in terms of diversifying the business, with the group`s
product and service offerings now extending into eight African countries
outside of South Africa.
Liberty Health and Liberty Africa continue to make progress in implementing
their strategies. However, from an earnings perspective they continue to be
impacted by initial development costs and regulatory delays in targeted
business acquisitions. In total they reflected a R36 million loss for the year.
Subsequent to year end regulatory approval has been received which will enable
the group to complete phase two of the group restructure, enabling the transfer
of existing non long-term insurance legal entities from Liberty Group Limited
to Liberty Holdings Limited. This will allow for optimisation of the group`s
capital structure.
The new group structure combined with the adoption and implementation of world
class enterprise-wide value and risk management is a solid foundation upon
which to continue implementing the group`s long term strategy of diversifying
the business in terms of product, services and geography.
Financial performance
Overview
The group reported BEE normalised headline earnings of R135 million (2008: R1
175 million) for the year ended 31 December 2009. The year`s performance can
best be explained in two halves. The group reported a first half year BEE
normalised headline loss of R1 207 million which included three significant and
unrelated loss events, namely the estimated R519 million impact of actions to
reduce equity market risk, the required strengthening of policyholder
withdrawal, paid up and lapse assumptions of R685 million and an unrealised
loss estimated at R531 million due to the rand`s strength at 30 June 2009. In
the second half, local equity markets recovered, demonstrated by the SWIX index
increasing by 25%, interest rates ended the year at similar levels to 30 June
while the rand strengthened further by 4,7% against the US$ to 31 December
2009. In the second half the group took some downside protection against the
rand and continued to run other open market positions at similar levels to
30 June 2009. The impact of the investment markets combined with limited
additional policyholder persistency assumption changes resulted in the group
achieving a second half BEE normalised headline earnings of R1 342 million.
The group`s BEE normalised headline earnings per share for the year was 47,2
cents (compared to 2008 Liberty Group Limited`s published 574,6 cents).
The prevailing recessionary environment impacted the ability of the insurance
operations to attract investment flows and total indexed new business at R4 412
million was 7,7% lower than 2008. Retail risk product sales held up relatively
well, increasing by 8% on an indexed basis.
The net cash flows of the group`s asset management operations benefited from
strong money market and dividend income fund flows. Several institutional
mandates were lost, including the anticipated Public Investment Corporation
(PIC) amount of R8,3 billion. Excluding the PIC withdrawal, group asset
management net cash inflows totalled R11,1 billion (2008: R13,4 billion).
Earnings from the group`s South African asset management operations (STANLIB,
Liberty Properties and Fountainhead) are 3,7% lower than last year reflecting
the lower average values of assets under management and reduced fee income.
Cost discipline ensured that cost to income ratios remained competitive and
partially offset the lower fees. Liberty Properties benefited from development
fees related to the R801 million extensions to the group`s flagship Eastgate
and Sandton City property complexes, and a third party development in Zambia.
Capital adequacy of the group`s main life licence, Liberty Group Limited,
continued to benefit from the group`s market risk mitigation strategies and
remained strong at 2,81 times the required cover (2008: 2,66 times). The
group`s BEE normalised return on embedded value per share for the year is
negative 6,5% (2008: 3,7% for Liberty Group Limited) and the BEE normalised
embedded value per share has decreased by 11,4% to R84,32 from the R95,12
reported at 31 December 2008.
Contributions to earnings by business unit
2009 2008
Rm Rm % change
SA Retail 171 1 255 (86,4)
Corporate (7) 152 (>100)
LibFin (investment and asset/liability
matching) (248) (67) (>100)
Asset management (STANLIB, Properties
and Fountainhead) 442 459 (3,7)
Business development initiatives
(Liberty Africa and Liberty Health) (36) (1) (>100)
Central overheads and sundry income (190) (277) 31,4
Secondary taxation on companies (88) (63) (39,7)
Attributed to minority shareholders in
Liberty Group Limited(1) (346) >100
Preference share dividend (2) (2) -
Headline earnings 42 1 110 (96,2)
Adjustment for Liberty Group Limited
minority shareholders (1) 346 (>100)
BEE preference share adjustment 93 117 (20,5)
BEE normalised headline earnings 135 1 573 (2) (91,4)
(1) Until 1 December 2008, Liberty Holdings Limited owned approximately 51% of
Liberty Group Limited.
(2) Relevant base to compare 2009 earnings.
South African long-term insurance
Retail
Indexed new business (excluding contractual increases) decreased by 4% to R3
995 million (2008: R4 154 million). Whilst good growth was recorded in risk and
entry level products, individual investment product sales were down 15%,
reflecting the pressure on consumer disposable incomes. The new business
embedded value profit margin of 1,5% (31 December 2008: 3,0%) has decreased,
mainly due to lower volumes, the impact of strengthened withdrawal, paid up and
lapse assumptions and the 185 bps increase in the risk discount rate. The
group`s entry level products, whilst encouraging from a sales growth
perspective produced negative margins. Remedial action is being taken which
should lead to a higher overall margin in 2010.
Net cash flows were positive R2,8 billion for the period (2008: R0,4 billion),
with lower claim values contributing to a 13,6% lower overall claim outflow.
Premium income flows at R23,4 billion were marginally lower by 3,7% compared to
2008.
The increasingly difficult consumer conditions combined with the impacts of new
commission regulations on investment products from 1 January 2009, led to an
increased churn in risk products. Negative persistency experience variances were
recorded across most products in the first half of the year and resulted in the
strengthening of related assumptions at 30 June 2009. This resulted in a net
R685 million earnings strain in the six months to 30 June 2009. Second half
experience remained broadly in line with first half trends, although
encouragingly some improvements were observed in the key flagship risk products
as a result of the various remedial actions implemented. In the second half an
additional persistency strain of R245 million was incurred mainly relating to
more accurate modelling of partial surrenders on investment products. No
further significant assumption changes were required at 31 December 2009.
Risk claim experience remains positive. Effective cost control meant that no
significant changes to cost assumptions were required.
Mainly as a consequence of the persistency strain, the earnings for the year
are disappointing at R171 million compared to R1 255 million in 2008.
Corporate
Corporate, which represents 8,7% of total insurance indexed new business
(excluding contractual increases), experienced a 33% decrease in indexed new
business compared to 2008.
Net cash outflows for the year were R1 764 million (2008: R3 319 million) and
were impacted by further scheme terminations and member withdrawals,
particularly those associated with the small business segment which has
experienced higher levels of liquidations in the current depressed economic
climate.
A number of administered retirement funds are in the process of deregistration
or liquidation. A project has been instituted to accelerate the process of
winding up these funds and a provision of R125 million has been raised,
representing the expected cost of the project less related fee recoveries.
Corporate earnings, excluding the retirement fund administration project, are
lower at R118 million (2008: R152 million) mainly due to lower asset management
fees.
Investment markets
In the early part of March 2009 the SWIX declined by 17,6% from opening January
levels reflecting the ongoing nervousness following the financial crisis that
emerged in 2008. As advised in the half year results this triggered stop loss
levels and the group`s equity exposure was reduced, which resulted in a one off
R519 million loss. Subsequently equity markets have improved and the SWIX rose
25% in the six months to 31 December 2009. The group maintained a local equity
exposure over the second six months of between R2 billion and R3 billion and
therefore second half earnings benefited by approximately R460 million.
GRAPH APPEARS HERE
The bond market in the early part of the year was characterised by increasing
yields off the low levels evidenced in the latter part of 2008. However, since
30 June 2009 the long term bond rates have traded in a relatively narrow band
with the reference BEASSA curve bond (used as the base for determining risk
discount rates in insurance liability valuations) yielding 9,30% at 31 December
2009 compared to 9,25% at 30 June 2009 and 7,50% at 31 December 2008.
The group has maintained the levels of interest rate protection implemented at
the end of 2008. Basis risk, being the difference between the reference curves
used to value policyholder liabilities and the instruments available to
practically apply hedging, continues to provide some volatility in earnings.
This risk has been reduced with various annuity and guaranteed product
liabilities being valued off the same reference curve as the backing assets in
the 2009 year end valuations. The impact to 2009 earnings as a result of this
change was insignificant.
GRAPH APPEARS HERE
The currency market was relatively stable until early April when a combination
of renewed foreign investment inflows and general weakness in major currencies
resulted in a significant strengthening of the rand to 30 June 2009, ending at
R7,73 to the US$. This represented a 17,0% increase over the six months
resulting in an estimated R531 million loss in the group`s first half earnings.
Subsequently the rand has continued to strengthen and ended the year at R7,37
to the US$. The group took some downside protection in the latter part of 2009
and the impact of exchange rates on earnings in the second half was not
material.
GRAPH APPEARS HERE
Asset management (STANLIB, Liberty Properties and Fountainhead)
STANLIB contributed R362 million (2008: R395 million) to group headline
earnings. Operating profit before investment income, finance costs and taxation
was R470 million which is 10,3% lower than the R524 million achieved in 2008.
This was as a consequence of the 8,3% decline in net service fees earned off
the lower average value of assets under management and lower performance
management fees. Average assets under management were impacted by lower opening
values arising from the 2008 market declines and the loss of several
institutional mandates.
STANLIB net cash outflows for the period were R1,6 billion (2008: R5,1 billion
inflows), including the loss of R8,3 billion of PIC funds. Money market
attracted strong net inflows of R10,8 billion (2008: R19,2 billion). The
recovery in local equity markets, particularly in the second half of the year,
combined with the strong money market and dividend income product flows
resulted in total assets under management (including intergroup life funds)
increasing to R318 billion at 31 December 2009 compared to the R290 billion
reported at 30 June 2009.
Liberty Properties, which earns development and management fees from managing
the group`s property portfolio, performed well. Development fees combined with
satisfactory management fees resulted in earnings after taxation increasing by
24% to R72 million. Liberty Properties are currently managing extensions to the
flagship Eastgate and Sandton City complexes as well as the development of a
third party owned shopping complex in Lusaka, Zambia.
Business Development initiatives
Liberty Health
Liberty Health is making steady progress in its build initiatives and recently
was granted the administration agreement of Spectramed with effect from 1
January 2010, adding 110 000 administration lives. Sales of health risk
products in the rest of Africa is progressing satisfactorily. The group
acquired a 35,3% interest in Total Health Trust Limited, a leading health
management organisation in Nigeria, for R31 million. Both Liberty Africa and
Liberty Health will benefit from this entry into the Nigerian market. With
effect from 1 November 2009 Liberty acquired a further 24,8% ownership in
Liberty Health Holdings from minority shareholders for R10 million, bringing
the group`s total ownership in Liberty Health to 74,9%.
The health operations reflected a R111 million loss (R75 million loss excluding
amortisation and derecognition of intangible assets) for the year of which the
group`s share is R65 million. Capacity building combined with delays in
targeted administrative mandates have contributed to the loss. Lives under
administration total 460 000 (2008: 267 000).
Liberty Africa
Liberty Africa`s asset management operations continue to enjoy positive net
cash inflows of R4 327 million for the year (2008: R8 259 million). Earnings
from insurance operations improved resulting in a group earnings contribution
of R29 million against a loss of R1 million in 2008.
The process of finalising the business unit`s targeted acquisition transactions
during 2009 has proved to be more time consuming than expected. However, the
recently announced acquisition of the insurance and asset management businesses
of CfC Insurance Holdings from Standard Bank is anticipated to be completed in
the first half of 2010. The group, with effect from 31 January 2010 acquired a
75% interest in United Funeral Insurance Limited (UFI) in Namibia for an
effective R68 million. UFI are life insurers and provide burial insurance to
the Namibian Government Employees` Pension Fund.
Group embedded value
The group`s BEE normalised embedded value per share at year-end is R84,32,
compared to R95,12 at 31 December 2008. Embedded value has been affected by the
185 bps increase in the risk discount rate, the low earnings for the year, the
capital reductions of R1 301 million paid in lieu of 2008 final and 2009
interim dividends, a reduction in STANLIB`s entity valuation and the
consequences of strengthened persistency assumptions. The return on BEE
normalised embedded value was negative 6,5% compared to the published Liberty
Group Limited`s 31 December 2008 positive return of 3,7%.
Capital adequacy cover
The capital adequacy cover of the group`s main life licence, Liberty Group
Limited, has increased marginally from 2,66 at 31 December 2008 to 2,81 at 31
December 2009. After taking into account the final shareholder distribution and
the expected strategic spend, the CAR cover is still well above Liberty Group
Limited`s historic target of 1,7 times.
The CAR cover of the group`s other life licences remains within coverage
targets.
Capital reduction out of share premium in lieu of a final dividend
2009 was an extraordinary year, well below normal expectations. However, the
capital base has been strengthened, the balance sheet has been significantly
derisked and necessary corrective actions have been taken on persistency. In
this context, the board has decided that an appropriate balance is achieved by
declaring an unchanged cash distribution. Therefore, in terms of the general
authority granted to the directors at the 2009 annual general meeting, the
directors have approved a capital reduction out of share premium of 291 cents
per ordinary share in lieu of a final dividend.
The important dates pertaining to the capital reduction of 291 cents per
ordinary share are as follows:
Last date to trade cum capital distribution on the
JSE Thursday, 18 March 2010
First trading day ex capital distribution on the JSE Friday, 19 March 2010
Record date Friday, 26 March 2010
Payment date Monday, 29 March 2010
Share certificates may not be dematerialised or rematerialised between Friday,
19 March 2010 and Friday, 26 March 2010, both days inclusive. Where applicable,
the capital reduction payment in respect of certificated shareholders will be
transferred electronically to shareholders` bank accounts on payment date. In
the absence of specific mandates, capital reduction cheques will be posted to
shareholders. Shareholders who have dematerialised their shares will have their
accounts with their CSDP or broker credited on Monday, 29 March 2010.
Prospects
The economic outlook for 2010 is positive as the global economy emerges from
recession, however, there is still some uncertainty about economic stability
in certain developed economies.
Our key domestic focus areas for 2010 will be to grow our core insurance
business by improving policyholder persistency and new business margins.
We believe that this, together with the impact of corrective actions taken at
STANLIB, growth in Liberty Africa, the development of Liberty Health and the
positive economic climate positions the group favourably for the future.
Bruce Hemphill Saki Macozoma
Chief Executive Chairman
25 February 2010
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE0000127148
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
A subsidiary of Bank of America Corporation
These results are available at www.liberty.co.za
Accounting policies
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 Listings Requirements
of the JSE Limited and the Companies Act of South Africa.
The following sets out the changes to the accounting policies from those
applied in the year ended 31 December 2008:
The group adopted IFRS 7: Financial Instruments: Disclosures (amendment) which
is effective prospectively for annual periods beginning on or after 1 January
2009. The amendment enhances fair value measurement disclosures and clarifies
the scope of items to be included in the maturity analyses for liquidity risk
disclosures. The change in accounting policy only results in additional
disclosures, and does not impact the results, financial position or cash flows
of the group.
There were various amendments to IFRS standards as part of the IASB`s annual
improvements project, which are effective for periods beginning on or after 1
January 2009. The only amendment which is applicable to the group is that
investment property under development for future use now falls within the scope
of IAS 40 Investment Property, and no longer IAS 16 Property, Plant and
Equipment. Consequently the measurement of investment property under
development changes from cost to fair value at the measurement date. This
amendment has prospective application and has had no significant impact on the
group in the year under review.
Several other amendments to standards or interpretations were also effective
for the year under review, but are either not applicable to the group`s
operations or the group has already complied with the changes.
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 2009. They have issued unmodified audit opinions. Copies of their
audit reports are available for inspection at the company`s registered office.
Statement of financial position
as at 31 December 2009
2009 2008
Audited Rm Rm
Assets
Equipment and owner-occupied properties under
development 1 176 946
Owner-occupied properties 1 345 1 282
Investment properties 19 058 16 771
Intangible assets 1 210 1 444
Defined benefit pension fund employer surplus 170 144
Deferred acquisition costs 337 344
Interests in joint ventures 575 505
Reinsurance assets 788 827
Operating leases - accrued income 1 156 1 067
Pledged assets 1 559 1 622
Interests in associates - mutual funds 4 979 4 726
Financial instruments 173 603 170 968
Deferred taxation 152 131
Prepayments, insurance and other receivables 2 655 5 884
Cash and cash equivalents 10 637 5 112
Total assets 219 400 211 773
Liabilities
Policyholder liabilities 183 544 172 069
Insurance contracts 129 254 122 091
Investment contracts with discretionary participation
features 2 692 2 648
Financial liabilities under investment contracts 51 598 47 330
Financial liabilities at amortised cost 2 211 2 430
Third party financial liabilities arising on
consolidation of mutual funds 10 557 10 481
Employee benefits 660 642
Deferred revenue 126 114
Deferred taxation 2 755 2 897
Provisions 204 64
Operating leases - accrued expense 185 215
Derivative financial liabilities 58 77
Insurance and other payables 5 604 8 210
Current taxation 561 748
Total liabilities 206 465 197 947
Equity
Ordinary shareholders` interests 10 515 11 633
Share capital 26 26
Share premium 7 965 9 276
Retained surplus 3 304 3 166
Other reserves (780) (835)
Minority interests 2 420 2 193
Total equity 12 935 13 826
Total equity and liabilities 219 400 211 773
Statement of comprehensive income
for the year ended 31 December 2009
2009 2008
Audited Rm Rm
Revenue
Insurance premiums 22 630 22 986
Reinsurance premiums (632) (727)
Net insurance premiums 21 998 22 259
Service fee income from policyholder investment
contracts 823 799
Investment income 12 255 13 552
Hotel operations sales 620 714
Investment gains/(losses) 7 125 (15 476)
Fee revenue 1 404 1 144
Defined benefit pension fund employer surplus 13
Total revenue 44 238 22 992
Claims and policyholders` benefits under insurance
contracts (20 488) (23 596)
Insurance claims recovered from re-insurers 603 535
Change in policyholder liabilities (7 246) 10 173
Insurance contracts (7 163) 9 461
Investment contracts with discretionary participation
features (44) 705
Applicable to re-insurers (39) 7
Fair value adjustment to policyholder liabilities
under investment contracts (5 949) 1 025
Fair value adjustment on third party mutual fund
interests (835) (134)
Acquisition costs (3 114) (2 822)
General marketing and administration expenses (5 434) (5 151)
Finance costs (343) (356)
Preference dividend in subsidiary (366) (308)
Equity accounted earnings from joint ventures 47 40
Profit before taxation 1 113 2 398
Taxation (877) (607)
Total earnings 236 1 791
Other comprehensive loss (11) (20)
Owner-occupied properties - fair value adjustment 25 26
Foreign currency translation (27) (40)
Income and capital gains tax relating to owner
occupied properties
- fair value adjustment (9) (6)
Total comprehensive income 225 1 771
Total earnings attributable to:
Ordinary shareholders` interests 44 1 112
Minority interest 192 679
236 1 791
Total comprehensive income attributable to:
Ordinary shareholders` interests 37 1 072
Minority interest 188 699
225 1 771
Cents Cents
Basic earnings per share 16,4 709,3
Fully diluted basic earnings per share 15,9 683,3
Capital reduction in lieu of dividends/dividends per
ordinary share 455,0 259,3(1)
(1) Adjusted for 2008 3:1 share split.
Headline earnings and earnings per share
for the year ended 31 December 2009
2009 2008
Audited Rm Rm
Reconciliation of total earnings to headline earnings
attributable
to equity holders
Total earnings attributable to equity holders 44 1 112
Adjustments
Preference share dividend (2) (2)
Basic and headline earnings attributable to ordinary
shareholders (1) 42 1 110
Net income earned on BEE preference shares 93 65
BEE normalised headline earnings attributable to
ordinary equity holders 135 1 175
Weighted average number of shares in issue (`000) 260 222 156 530
BEE normalised weighted average number of shares in
issue (`000) 286 018 158 644
Cents Cents
Earnings per share attributable to ordinary equity
holders
Basic 16,4 709,3
Headline 16,4 709,3
BEE normalised headline 47,2 740,8
Fully diluted
Basic 15,9 683,3
Headline 15,9 683,3
(1) Liberty applies the long-term insurance industry exemption contained in
circular 3/2009 which allows for no headline earnings adjustment in respect of
realised or unrealised remeasurements of investment properties.
Condensed statement of changes in shareholders`
funds for the year ended 31 December 2009
2009 2008
Audited Rm Rm
Balance of ordinary shareholders` funds at 1 January 11 633 5 288
Increase in ownership of Liberty Health Holdings (9)
Capital reduction (1 301)
Section 311 Liberty transaction costs 1 (10)
Total comprehensive income 37 1 072
Share buy-back (34)
Subscription for shares 23 8 395
Black Economic Empowerment transaction 101 57
Share-based payments 68 31
Payment on settlement of share options (2)
Ordinary dividends (372)
Preference dividend (2) (2)
Excess purchase price over NAV of Liberty Group Limited (3 145)
Treasury shares 324
Change in effective ownership (5)
Ordinary shareholders` funds 10 515 11 633
Balance on minority interests at 1 January 2 193 7 203
Increase in ownership of Liberty Health Holdings (1)
Total comprehensive income 188 699
Unincorporated property partnerships 42 (90)
Minority share of subsidiary dividend (2) (230)
Black Economic Empowerment transaction 56
Share-based payments 30
Sale of Nelson Mandela Square (230)
Issue of shares in subsidiary 50
Capital reduction in subsidiary (368)
Change in effective ownership 5
Treasury shares 318
Liberty Group Limited minorities acquired by ordinary
shareholders (5 250)
Minority interests 2 420 2 193
Total shareholders` funds 12 935 13 826
Condensed statement of cash flows
for the year ended 31 December 2009
2009 2008
Audited Rm Rm
Operating activities 5 006 1 907
Investing activities 562 (1 702)
Financing activities (43) 203
Net increase in cash and cash equivalents 5 525 408
Cash and cash equivalents at the beginning of the year 5 112 4 688
Cash and cash equivalents acquired through business
acquisition 16
Cash and cash equivalents at the end of the year 10 637 5 112
Condensed segment information
The audited segment results for the year ended 31 December 2009 are as follows:
Asset
Long-term insurance manage- Health
Rm Individual Corporate ment services
Total revenue 36 443 11 243 1 663 332
Profit/(loss) before taxation 186 (35) 636 (161)
Taxation (594) 2 (185) 51
Total (loss)/profit (408) (33) 451 (110)
Other comprehensive
(loss)/income 11 2 (6) (2)
Total comprehensive
(loss)/income (397) (31) 445 (112)
Attributable to:
Minorities (3) (7) 46
Equity holders (400) (31) 438 (66)
Reconciliation of total
(loss)/earnings to headline
(loss)/earnings attributable
to equity holders
Total (loss)/earnings (408) (33) 451 (110)
Attributable (to)/from
minorities (4) (10) 46
Preference dividend
Headline (loss)/earnings (412) (33) 441 (64)
Net income earned on
BEE preference shares
BEE normalised
headline (loss)/earnings (412) (33) 441 (64)
Reporting
adjust- IFRS
Rm Other Total ments(1) reported
Total revenue 819 50 500 (6 262) 44 238
Profit/(loss) before taxation 243 869 244 1 113
Taxation (131) (857) (20) (877)
Total (loss)/profit 112 12 224 236
Other comprehensive
(loss)/income (16) (11) (11)
Total comprehensive
(loss)/income 96 1 224 225
Attributable to:
Minorities 36 (224) (188)
Equity holders 96 37 37
Reconciliation of total
(loss)/earnings to headline
(loss)/earnings attributable
to equity holders
Total (loss)/earnings 112 12 224 236
Attributable (to)/from
minorities 32 (224) (192)
Preference dividend (2) (2) (2)
Headline (loss)/earnings 110 42 42
Net income earned on
BEE preference shares 93 93 93
BEE normalised
headline (loss)/earnings 203 135 135
(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 as IFRS defined
`investment` contracts in the reporting adjustments column is to recognise
premiums on investment contracts as revenue in the long-term insurance segment.
Audited for the year ended 31 December 2008
Asset
Long-term insurance manage- Health
Rm Individual Corporate ment services
Total revenue 22 304 5 928 1 699 57
Profit before taxation 1 143 217 649 (65)
Taxation (399) (61) (198) 46
Total earnings 744 156 451 (19)
Other comprehensive income (24) 2
Total comprehensive income 720 158 451 (19)
Attributable to:
Minorities (187) (38) (114) 19
Equity holders 533 120 337 -
Reconciliation of total
earnings to headline
earnings attributable
to equity holders
Total earnings 744 156 451 (19)
Attributable (to)/from
minorities (178) (37) (114) 19
Preference dividend
Headline earnings 566 119 337 -
Reporting
adjust- IFRS
Rm Other Total ments(1) reported
Total revenue 625 30 613 (7 621) 22 992
Profit before taxation 88 2 032 366 2 398
Taxation 30 (582) (25) (607)
Total earnings 118 1 450 341 1 791
Other comprehensive
income 2 (20) (20)
Total comprehensive
income 120 1 430 341 1 771
Attributable to:
Minorities (38) (358) (341) (699)
Equity holders 82 1 072 - 1 072
Reconciliation of total
earnings to headline
earnings attributable
to equity holders
Total earnings 118 1 450 341 1 791
Attributable (to)/from
minorities (28) (338) (341) (679)
Preference dividend (2) (2) (2)
Headline earnings 88 1 110 - 1 110
(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 as IFRS defined
`investment` contracts in the reporting adjustments column is to recognise
premiums on investment contracts as revenue in the long-term insurance segment.
Group embedded value report
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 Professional Guidance Note 107 (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 Group 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.
3. Description of embedded value
The current version of PGN 107 came 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 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 from
distribution to shareholders. This comprises the statutory CAR calculated in
accordance with PGN 104 plus any additional capital considered appropriate by
the board given the risks in the business. For Liberty Group Limited, 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 period 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 period. 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 period 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
31 December 2009
BEE
normalised
Embedded embedded
value value
Audited Rm Rm
Risk discount rate (e) 12,1% 12,1%
Net worth 10 412 11 571
Ordinary shareholders` funds on published basis 10 513 11 672
Adjustment of ordinary shareholders` funds
from published basis(a) (3 021) (3 021)
Financial service subsidiaries fair value
adjustment(b) 3 703 3 703
Adjustment for carrying value of in-force
business acquired(c) (555) (555)
Allowance for fair value of share options/rights (228) (228)
Net value of life business in-force 12 547 12 547
Value of life business in-force 13 957 13 957
Cost of required capital (1 410) (1 410)
Embedded value 22 959 24 118
Number of applicable shares (`000) 260 226 286 022
Embedded value per ordinary share (R) 88,23 84,32
31 December 2008
BEE
normalised
Embedded embedded
value value
Audited Rm Rm
Risk discount rate (e) 10,25% 10,25%
Net worth 11 860 13 019
Ordinary shareholders` funds on published basis 11 633 12 792
Adjustment of ordinary shareholders` funds
from published basis(a) (3 012) (3 012)
Financial service subsidiaries fair value
adjustment(b) 4 107 4 107
Adjustment for carrying value of in-force
business acquired(c) (683) (683)
Allowance for fair value of share options/rights (185) (185)
Net value of life business in-force 14 188 14 188
Value of life business in-force 14 640 14 640
Cost of required capital (452) (452)
Embedded value 26 048 27 207
Number of applicable shares (`000) 260 226 286 022
Embedded value per ordinary share (R) 100,10 95,12
4.2 Embedded value and value of new business
Value of new business and new business margins
31 December
2009 2008
Audited Rm Rm
Gross value of new business 323 763
Cost of required capital (22) (39)
Net value of new business written in the period 301 724
Individual 288 701
Corporate 13 23
Present value of future expected premiums 23 082 28 180
New business margin 1,3% 2,6%
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 (less the cost of required capital) as a
percentage of the present value of future expected premiums.
4.3 Embedded value (loss)/profit
The embedded value (loss)/profit is equal to the change in the embedded value
over the period increased by any dividends paid, capital reductions or share
buy-backs made during the period and decreased by any capital raised during the
period. The embedded value (loss)/profit provides a measure of the group`s
financial value added over the period.
Embedded value
Liberty Liberty
Holdings Group
Limited Limited
31 Dec 31 Dec
2009 2008
Audited Rm Rm
Embedded value at the end of the period 22 959 25 889
Less capital raised (23)
Plus impact of share buy-backs 34
Less share options/rights exercised (18)
Plus net capital reduction paid 1 200 694
Plus dividends paid 412
Less embedded value at the beginning of the year (26 048) (26 091)
Embedded value (loss)/profit (1 878) 886
Annualised return on embedded value (7,2%) 3,4%
BEE normalised
Liberty Liberty
Holdings Group
Limited Limited
31 Dec 31 Dec
2009 2008
Audited Rm Rm
Embedded value at the end of the period 24 118 27 048
Less capital raised (23)
Plus impact of share buy-backs 34
Less share options/rights exercised (18)
Plus net capital reduction paid 1 301 754
Plus dividends paid 466
Less embedded value at the beginning of the year (27 207) (27 250)
Embedded value (loss)/profit (1 777) 1 000
Annualised return on embedded value (6,5%) 3,7%
4.4 Analysis of embedded value loss
An analysis of the components of the embedded value loss for the year ended 31
December 2009 is summarised below.
Value of
in-force
covered
Net worth business
Audited Rm Rm
Embedded value loss for the period
Embedded value at the end of the period 10 412 13 957
Less capital raised (23)
Plus impact of share buy-backs 34
Plus net capital reduction paid 1 200
Embedded value at the beginning of the period (11 860) (14 640)
Embedded value loss (237) (683)
Components of embedded value loss
Value of new business written in the period (1 062) 1 385
Expected return on value of life business(g) 1 465
Expected net of tax profit transfer to net worth 1 849 (1 888)
Operating experience variances(j) 81 (307)
Operating assumption changes(k) (612) (1 308)
Embedded value loss from operations 256 (653)
Investment return on net worth 217
Investment variances (280) 104
Changes in economic assumptions(l) (257) (196)
Changes in modelling methodology (130) 62
Change in allowance for fair value of share
options/rights(m) (43)
Total embedded value loss (237) (683)
Cost of
required Embedded
capital value
Audited Rm Rm
Embedded value loss for the period
Embedded value at the end of the period (1 410) 22 959
Less capital raised (23)
Plus impact of share buy-backs 34
Plus net capital reduction paid 1 200
Embedded value at the beginning of the period 452 (26 048)
Embedded value loss (958) (1 878)
Components of embedded value loss
Value of new business written in the period (22) 301
Expected return on value of life business(g) (47) 1 418
Expected net of tax profit transfer to net worth 39
Operating experience variances(j) 19 (207)
Operating assumption changes(k) (1 920)
Embedded value loss from operations (11) (408)
Investment return on net worth 217
Investment variances 19 (157)
Changes in economic assumptions(l) (966) (1 419)
Changes in modelling methodology (68)
Change in allowance for fair value of share
options/rights(m) (43)
Total embedded value loss (958) (1 878)
4. Liberty Holdings Limited (continued)
4.5 Bases, assumptions and additional information
a) The amounts of R3 021 million and R3 012 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.
b) The value of financial service subsidiaries is calculated for embedded value
purposes at a multiple of net after-tax earnings. The increase from the
published value is shown as the "financial service subsidiaries fair value
adjustment".
This adjustment consists of the following:
2009 2008
Rm Rm
STANLIB Limited 3 091 3 603
Liberty Group Properties (Proprietary) Limited 532 504
Liberty Health Holdings (Proprietary) Limited 80
3 703 4 107
For STANLIB Limited a multiple of 10 is consistently 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 is consistently used. For Liberty Health Holdings (Proprietary)
Limited the adjustment represents the increase in value supported by the
valuation utilised for the recent additional acquisition of the 24,8% of
Liberty Health Holdings (Proprietary) Limited, bringing the total ownership to
74,9%.
c) The carrying value of business acquired (analysed below) has been deducted
from shareholders` funds in order to avoid double counting. For embedded value
purposes the value in respect of this is included in the net value of life
business in-force.
2009 2008
Rm Rm
Investec Employee Benefits (36) (58)
Capital Alliance Holdings Limited (CAHL) (491) (590)
Business previously acquired by CAHL (28) (35)
(555) (683)
d) Future investment returns on the major asset 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. (%)
2009 2008
Government stock 9,30 7,50
Equities 12,80 11,00
Property 10,30 8,50
Cash 7,80 6,00
e) The risk discount rate has been set equal to
the risk free rate plus 80% of the equity risk premium 12,10 10,25
f) Maintenance expense inflation rate 6,30 4,50
g) 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.
h) 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.
i) 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.
j) Operating experience variances consist of the combined effect on net worth
and value of in-force of operating experience proving different from that
anticipated at the prior year end.
The net 2009 operating experience variance of negative R207 million is mainly
made up of three principal components being a positive variance of R427 million
in respect of mortality experience, offset by a negative variance of R474
million arising mainly from lapses, paid up and surrenders and a negative R297
million of non-recurring expenses.
Long-term assumptions have been strengthened in line with experience
investigations.
k) Operating assumption changes of R1 920 million comprise:
Rm
Shareholder expenses (321)
Withdrawal, paid up and lapses (1 811)
Other 212
(1 920)
l) The amount of R1 419 million relates to changes in economic assumptions, as
described in notes (d), (e) and (f).
m) The amount of R43 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/share rights and the decrease in the market value of Liberty Holdings
Limited share price over the reporting period.
n) The assets backing the required capital are consistent with that approved
by the Liberty Holdings Board in November 2009 for the long-term strategic
asset mix of shareholder funds.
New business
for the year ended 31 December 2009
2009 2008
Unaudited Rm Rm
Insurance operations (1)
Individual 13 700 14 911
Single 10 748 11 891
Recurring 2 952 3 020
Corporate 1 467 1 984
Single 1 202 1 567
Recurring 265 417
Total new business 15 167 16 895
Single 11 950 13 458
Recurring 3 217 3 437
Indexed new business 4 412 4 782
Sources of insurance operations indexed new business by
business unit:
SA Retail 3 995 4 154
Corporate 385 573
Liberty Africa 32 55
Asset management operations
Total STANLIB sales excluding money market(2) 37 712 42 880
Retail sales excluding money market 32 952 37 551
Institutional sales excluding money market 4 760 5 329
Money market 113 446 95 266
Total STANLIB sales 151 158 138 146
Total Liberty Africa sales excluding money market (2) 10 643 14 695
Retail sales excluding money market 574 2 954
Institutional sales excluding money market 10 069 11 741
Money market 5 866 4 809
Total Liberty Africa sales (3) 16 509 19 504
Total asset management sales 167 667 157 650
(1) Includes Liberty Africa.
(2) Excludes intercompany life fund sales.
(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.
Net cash inflows
for the year ended 31 December 2009
2009 2008
Unaudited Rm Rm
Insurance operations (1)
Individual 3 031 458
Inflows and premiums 23 291 24 387
Claims and benefits (20 260) (23 929)
Corporate (1 764) (3 319)
Inflows and premiums 6 784 6 959
Claims and benefits (8 548) (10 278)
Net cash inflows/(outflows) from insurance operations 1 267 (2 861)
Sources of insurance operations cash flows by
business unit:
SA Retail 2 764 407
Corporate (1 776) (3 319)
STANLIB Multi-manager 202 1
Liberty Africa 77 50
Asset management
STANLIB before money market (12 344) (14 157)
Retail net cash inflows/(outflows) 6 178 (3 830)
Institutional net cash outflows (18 522) (10 327)
Money market inflows 10 772 19 272
Net STANLIB cash (outflows)/inflows (1 572) 5 115
Liberty Africa before money market 3 668 7 468
Retail net cash inflows 306 2 046
Institutional net cash inflows 3 362 5 422
Money market inflows 659 791
Net Liberty Africa inflows (2) 4 327 8 259
Net cash inflows from asset management 2 755 13 374
Total net cash inflows 4 022 10 513
(1) Includes Liberty Africa.
(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.
Assets under management
for the year ended 31 December 2009
2009 2008
Unaudited Rbn Rbn
Life funds 126 111
Segregated funds 54 62
Unit trusts (including money market) 120 109
Linked investment and structured products 41 36
Properties 22 19
Total assets under management(1) 363 337
Total assets under management split by business unit:
STANLIB 318 299
Liberty Africa 23 19
Liberty Properties 22 19
363 337
(1) Includes funds under administration.
Analysis of ordinary shareholders` funds invested
for the year ended 31 December 2009
Group
funds invested
2009 2008
Unaudited Rm Rm
Ordinary shareholders` interests
Analysis of shareholders` interests:
South African insurance operations 555 681
Insurance operating surplus
Present value of in-force business 555 681
Liberty Active preference dividend
Working capital charge(1)
Asset management operations 762 576
Liberty Properties 118 46
STANLIB 454 343
Fountainhead 190 187
Business development initiatives 548 321
Liberty Africa 163 87
Liberty Health 385 234
Shareholder investment returns 8 650 10 055
Financing of South African
insurance operations (695) (314)
Fixed assets and working capital (1) 1 305 1 686
Callable capital bonds (2 000) (2 000)
Investment portfolios 9 345 10 369
Listed equities 686 1 992
Foreign exchange hedges 76 (58)
Interest bearing deposit instruments 6 197 4 831
Preference shares 1 450 1 323
Mutual funds 429 1 788
Share of pooled portfolios 216 285
Unlisted investments 291 208
Related taxation
Net investment losses
Shareholder expenses and sundry income
Administration expenses -
shareholder allocation
Sundry - other operations
Secondary tax on companies
Related taxation
Preference share dividend
Treasury shares adjustment
Attributed to minority shareholders
in Liberty Group
Headline earnings
Preference share dividend
Liberty Holdings shareholders`
funds/total earnings 10 515 11 633
Contribution
to earnings
2009 2008
Unaudited Rm Rm
Ordinary shareholders` interests
Analysis of shareholders` interests:
South African insurance operations (482) 885
Insurance operating surplus 200 1 511
Present value of in-force business (126) (118)
Liberty Active preference dividend (366) (308)
Working capital charge(1) (190) (200)
Asset management operations 442 459
Liberty Properties 72 58
STANLIB 362 395
Fountainhead 8 6
Business development initiatives (36) (1)
Liberty Africa 29 (1)
Liberty Health (65)
Shareholder investment returns 499 382
Financing of South African
insurance operations 11 21
Fixed assets and working capital (1) 190 200
Callable capital bonds (179) (179)
Investment portfolios 682 752
Listed equities 82 92
Foreign exchange hedges
Interest bearing deposit instruments 394 433
Preference shares 122 108
Mutual funds 11 38
Share of pooled portfolios 58 76
Unlisted investments 15 5
Related taxation (103) (121)
Net investment losses (91) (270)
Shareholder expenses and sundry income (379) (269)
Administration expenses -
shareholder allocation (319) (296)
Sundry - other operations (28) 16
Secondary tax on companies (88) (63)
Related taxation 56 74
Preference share dividend (2) (2)
Treasury shares adjustment 2
Attributed to minority shareholders
in Liberty Group (346)
Headline earnings 42 1 110
Preference share dividend 2 2
Liberty Holdings shareholders`
funds/total earnings 44 1 112
Capital investment
(losses)/gains
2009 2008
Unaudited Rm Rm
Ordinary shareholders` interests
Analysis of shareholders` interests:
South African insurance operations
Insurance operating surplus
Present value of in-force business
Liberty Active preference dividend
Working capital charge(1)
Asset management operations
Liberty Properties
STANLIB
Fountainhead
Business development initiatives
Liberty Africa
Liberty Health
Shareholder investment returns
Financing of South African
insurance operations
Fixed assets and working capital (1)
Callable capital bonds
Investment portfolios (92) (373)
Listed equities 216 (540)
Foreign exchange hedges (52) (93)
Interest bearing deposit instruments (316) 113
Preference shares (33) (18)
Mutual funds 39 101
Share of pooled portfolios 30 (89)
Unlisted investments 24 153
Related taxation 1 103
Net investment losses 91 270
Shareholder expenses and sundry
income
Administration expenses -
shareholder allocation
Sundry - other operations
Secondary tax on companies
Related taxation
Preference share dividend
Treasury shares adjustment
Attributed to minority shareholders
in Liberty Group
Headline earnings
Preference share dividend
Liberty Holdings shareholders`
funds/total earnings
(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 31 December 2009
2009 2008
Audited Rm Rm
Capital commitments 3 141 3 843
Business acquisitions (1) 360 194
Equipment 296 391
Investment and owner-occupied property 2 485 3 258
Under contracts 1 385 1 767
Authorised by the directors but not contracted 1 756 2 076
3 141 3 843
The above 2009 capital commitments will be financed by available bank
facilities, existing cash resources, internally generated funds, R403 million
(2008: R429 million) from minorities in unincorporated property partnerships,
and R7 million (2008: 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
as at 31 December 2009
The following selected significant related party transactions have occurred in
the 2009 financial year:
1) 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 2008 30 911 2 566 2,03
Purchases 12 229 934
Sales (17 416) (1 539)
Fair value adjustments 663
Balance at 31 December 2009 25 724 2 624 1,65
2) Acquisition of CfC Insurance Holdings Limited
As announced on SENS on 3 December 2009, Liberty has entered into
agreements subject to completion of outstanding conditions precedent in terms
of which it will acquire control of CfC Insurance Holdings Limited (CfCIH),
currently effectively a subsidiary of Standard Bank Group Limited. CfCIH is a
leading Kenyan wealth company that comprises life, general and health insurance
businesses in Kenya and Tanzania. The group will acquire approximately 57%
ownership through subscribing for KES880 million of new equity capital and an
initial payment of USD14 million with deferred payments capped at an additional
USD4,9 million. At 31 December 2009 exchange rates, the rand equivalent of
these transactions is R225 million. The CfCIH acquisition is a related party
transaction, as Standard Bank Group Limited is both a majority shareholder of
Liberty with a holding of 53,65% and the ultimate controlling shareholder of
CfCIH.
3) Bancassurance
Liberty has entered into profit share agreements (renegotiated on 25 April 2002
for a period until 31 December 2010) with Standard Bank of South Africa Limited
for the sale and promotion of insurance products. New business premium income
in respect of this business in 2009 amounted to R4 812 million (2008: R5 091
million). In terms of the agreement Liberty Active Limited pays 90% of profits
on simple products and 50% of profits on complex products through a preference
share dividend to Standard Bank of South Africa Limited. The preference
dividend accrued for 2009 is R366 million (2008: R308 million).
Retirement benefit obligations
as at 31 December 2009
Post-retirement medical benefit
The group operates an unfunded post-retirement medical aid benefit for
employees who joined the group prior to 1998.
As at 31 December 2009, the Liberty post-retirement medical aid benefit
liability was R354 million (31 December 2008: R344 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: 25/02/2010 07:05:05 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
