| Thu 24 Feb 2011, 7:07 | | LBH - Liberty Holdings Limited - Financial Results for the year ended 31 |
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LBH
LBH
LBH - Liberty Holdings Limited - Financial Results for the year ended 31
December 2010
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE0000127148
("Liberty" or the "company" or the "group")
Financial Results for the year ended 31 December 2010
Financial performance indicators
for the year ended 31 December 2010
31 Dec 31 Dec
2010 % change 2009
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) 918,6 >100 16,4
BEE normalised headline earnings per
share (cents) 907,6 >100 47,2
Group Embedded Value
BEE normalised Group Embedded Value per
share (R) 91,01 7,9 84,32
BEE normalised return on Group Embedded
Value (%) 13,4 >100 (6,5)
Distributions per share (cents) 455 455
Interim capital reduction 164 164
Final dividend (2009: capital reduction) 291 291
Long-term insurance operations
Indexed new business (excluding contractual
increases) (Rm) 4 327 (1,9) 4 412
New business margin (%) 1,2 (7,7) 1,3
Net customer cash (outflows)/inflows (Rm) (273) (>100) 1 267
Capital adequacy cover of Liberty Group Limited
(times covered) 2,67 (5,0) 2,81
Asset management
Assets under management (Rbn) 409 12,7 363
Net cash inflows including money market (Rm) 22 179 >100 2 755
Health (`000 lives)
Under administration 528 14,8 460
Licensed on proprietary information technology
platforms 1 085 25,7 863
Insured 33 94,1 17
Commentary on results
The 2010 results are reflective of the significant operational progress
achieved, particularly in the Retail business, supported by positive investment
markets. Material progress has been made on customer retention, the ability to
manage the balance sheet within risk appetite, the appointment of a new
management team in STANLIB and the extended scope of the bancassurance agreement
with Standard Bank.
While the group has not yet achieved its full potential the focus is clear and a
strong management team is in place to deliver against strategy.
Update on strategy
The group has made substantial progress in its three strategic focus areas:
Strengthen the insurance business
Improving policyholder retention has been the insurance business`s main priority
over the past eighteen months. The various management interventions, following
extensive analytics on policyholder behaviour, have had very pleasing results
with retention experience well ahead of set targets. These interventions are now
entrenched in "business as usual".
Management focus has turned to the current low value of new business and new
business margins and various innovative initiatives are at an advanced stage of
completion. Although insurance new business is lower than 2009, the focus has
been on improved quality, however acquisition costs remain a concern.
Excellence in balance sheet management
The formation of LibFin to specifically focus on the balance sheet, associated
improvements in information delivery and the implementation of risk mandates and
hedging policies have all been achieved. The group`s strong capital position
reflects the success of this strategic focus area and our earnings are expected
to be less volatile. There have been one-off profits arising from derisking in
2010.
Growth strategies
Growth strategies have had mixed success.
Liberty Properties made good progress in diversifying income through extending
its property development management capabilities. STANLIB`s recent fund
performance indicated significant improvement and its prominence in fixed
interest, money market and property franchises was maintained with excellent
cash inflows.
The alternative direct distribution channel, Frank Financial Services, was
successfully launched in November 2010 and is achieving its sales targets. The
CfC Insurance Holdings Limited (CfC) acquisition was further delayed into 2011,
however progress was made in extending the group`s wealth service offerings into
selected African countries.
Liberty Health has faced significant operational challenges and the achievement
of the value proposition is likely to take longer than originally intended.
The result of the renegotiated bancassurance agreement with Standard Bank is a
broadening of the applicable product and distribution opportunities. There is
mutual commitment to maximise these opportunities and considerable value add to
Liberty is anticipated in the medium term.
Financial overview
Liberty recorded a strong earnings result with BEE normalised headline earnings
being R2 597 million for the year ended 31 December 2010, compared to the R135
million reported for 2009. This is a significant improvement indicating a return
to relatively normal levels of earnings from core insurance operations and a
positive investment performance, despite the sluggish South African economic
recovery and the lingering investment market uncertainty throughout 2010.
The progress made by Retail SA in improving policyholder persistency is well
ahead of initial estimates and whilst it is still too early to adjust long-term
persistency assumptions, persistency operating variances were net positive
excluding any release of short-term provisions. Management is confident of
ongoing progress in this area.
The focus on quality in Retail SA insurance sales has, as expected, resulted in
lower volumes and lower new business margins. Margins have been negatively
affected by acquisition cost inefficiency combined with continuing conservative
persistency assumptions. Improving new business margin is a matter of priority.
Returns on the shareholder investment portfolio reflect strong fourth quarter
equity market performance and by design are comparable to a low risk balanced
portfolio. The asset/liability positions were managed within mandated risk
limits and capital ratios remain strong. The substantial equity derisking costs
of R519 million included in the 2009 result, as anticipated, were a once-off
event.
STANLIB and Liberty Africa asset management operations continued to attract
excellent net cash inflows, of R15,7 billion and R6,5 billion respectively.
Particular strength was evidenced in the money market funds and fixed interest
franchise.Total assets under management have reached R409 billion, with growth
achieved by all asset managers (STANLIB, Liberty Properties and Liberty Africa).
BEE normalised headline earnings per ordinary share is 907,6 cents (2009: 47,2
cents) and a final dividend of 291 cents (2009: capital reduction of 291 cents)
has been declared.
Contributions to earnings by business unit
31 Dec 31 Dec
2010 2009
Rm % change Rm
South African long-term insurance
Retail SA 899 >100 (82)
Corporate 103 >100 (29)
LibFin 1 443 >100 (8)
Asset management
STANLIB 361 (0,3) 362
Liberty Properties 96 20,0 80
Business development
Liberty Africa 10 (65,5) 29
Liberty Health (43) 8,5 (47)
Frank Financial Services (44) (>100) (11)
Central overheads and sundry income (303) (20,2) (252)
Headline earnings 2 522 >100 42
BEE preference share adjustment 75 (19,4) 93
BEE normalised headline earnings 2 597 >100 135
South African long-term insurance
Retail SA
Following the recent significant deterioration in operational results, Retail
SA`s key objectives are to bring policyholder persistency back to acceptable
levels, regain market share in the traditional risk and investment markets and
achieve improvements in the value of new business margin through product
innovation, appropriate pricing, improved quality of sales and cost efficiency.
The recovery of headline earnings to R899 million for the year compared to the
2009 loss of R82 million is reflective of the considerable improvement in
persistency and sales quality.
Management`s action has resulted in the flagship risk products` persistency
improving well ahead of expectations, leading to overall positive net operating
variances. Experience on investment products has improved over 2009 and
following the closure of the unprofitable call centre distribution channel,
entry level market (ELM) risk products have stabilised broadly in line with
assumption. Experience investigations performed on major product lines for the
31 December 2010 policyholder liability valuations indicated that no changes to
long-term persistency assumptions were required.
Death claims on complex products were marginally higher than previously assumed,
resulting in the strengthening of liability assumptions at the older ages in the
respective mortality curves.
The reduction in ELM sales, lower guaranteed capital bond (GCB) sales and the
decision to focus on quality has led to indexed new business (excluding
contractual increases) decreasing by 7,0% to R3 717 million (2009: R3 995
million). However, good growth was recorded in retirement savings products. The
new business embedded value profit margin of 1,3% (2009: 1,5%) predictably
decreased slightly, mainly due to the lower policy volumes and proportionately
higher sales of lower margin investment products.
Net cash flows were positive at R990 million for the period (2009: R2 764
million), lower than 2009 as a result of the lower single premium GCB sales and
higher per policy claim values following the recovery of the investment markets.
A key focus for management in 2011 is improving acquisition cost efficiency and
managing increases in maintenance costs within actuarial inflation assumptions.
Corporate
Corporate`s earnings were R103 million compared to the 2009 loss of R29 million,
which included the once-off provision of R125 million relating to the retirement
fund administration project. A 40,8% increase in indexed new business was
achieved and embedded value profit margin was 0,4%.
A combination of winding up retirement funds under the administration project,
significant redemptions of older generation investment products and continued
consumer job losses for most of the year impacted withdrawal levels on corporate
funds. This resulted in net cash outflows for the period of R1 517 million
(2009: outflow of R1 776 million).
LibFin
The revised shareholder investment portfolio of approximately R16 billion,
formulated in the second half of 2009, was fully transitioned during the year
and contributed R1 814 million before tax to headline earnings. This represents
a return of 11,2% for the period, which is reflective of a low risk balanced
portfolio construct and is broadly in line with the relevant benchmarks.
LibFin markets continued to manage market risk exposures within the risk
framework implemented and enjoyed favourable earnings of R269 million. Core
earnings include some positive one-off items arising from further risk reduction
and favourable asset management performance relative to liability assumptions.
Ongoing progress has been made in improving hedging effectiveness and management
are endeavouring to ensure that the volatility of asset/liability mismatch
earnings will continue to reduce in the future.
Asset management (STANLIB and Liberty Properties)
STANLIB`s headline earnings totalling R361 million (2009: R362 million) were
adversely impacted by lower performance fees and loss of institutional mandates
including the Public Investment Corporation of R9,5 billion.
STANLIB`s net cash inflows (excluding inter group flows) for the period were
R15,7 billion (2009: outflow of R1,6 billion). Money market products attracted
strong net inflows of R19,1 billion (2009: R10,8 billion) resulting in total
assets under management (including inter-company life funds) increasing to
R355,2 billion at 31 December 2010 compared to the R317,8 billion reported at 31
December 2009.
Liberty Properties` earnings after taxation increased by 20,0% to R96 million,
driven mostly by increased property development fees. Liberty Properties is
currently managing extensions to the 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`s results were impacted by a highly competitive South African
environment and consequential margin pressure, particularly in the second half,
as well as high early utilisation of annual limits on the risk business. The
business unit recorded a headline loss of which Liberty`s share is R43 million.
The goodwill asset within the business unit of R114 million (Liberty share: R85
million) has been fully impaired.
Health management during 2011 will focus on margin through reduced costs and
improved pricing for risk.
Liberty Africa
The acquisition of CfC has been further delayed, and will now take place in the
first half of 2011 (all regulatory approvals have now been received). Good
operational earnings were reported by CfC in 2010.
Liberty Africa`s asset management operations enjoyed positive net cash inflows
of R6,5 billion for the year (2009: R4,3 billion) bringing assets under
management to R29,0 billion (2009: R22,3 billion). Progress was made in
extending insurance and asset management operations in Namibia, Botswana and
Swaziland.
Attributable headline earnings of R10 million are lower than 2009 due mainly to
the inclusion of the relevant bancassurance profit share payments previously
expensed in Retail SA.
Frank Financial Services
Frank Financial Services, which is a direct distribution channel offering simple
risk products, utilising the internet medium and inbound call centres, was
launched in November 2010. The R44 million loss (2009: R11 million loss)
reflects expensed start up costs.
Group Embedded Value
The BEE normalised Group Embedded Value per share at 31 December 2010 is R91,01
compared to R84,32 at 31 December 2009. Positive operating variances, lower risk
discount rates, the sustained recovery of investment markets and good earnings
more than offset the capital reductions of R1 301 million paid during 2010.
Capital adequacy cover
Despite the group restructure, which transferred qualifying assets representing
0,16 ratio of cover to Liberty Holdings Limited, the capital adequacy cover of
Liberty Group Limited remains good at 2,67 times the statutory requirement (31
December 2009: 2,81). This capital adequacy cover is well ahead of the internal
target of 1,7 times. All the group subsidiary life licences are well
capitalised.
Return on equity
The group`s strong earnings result reflects a return on equity of 21,2% compared
to the 1,1% achieved in 2009.
Final dividend
The directors have agreed to maintain the final distribution, balancing
shareholder expectations with the need to fund growth and taking account of the
previous distributions which were paid in less favourable circumstances.
The directors have approved a final dividend of 291 cents per ordinary share.
The important dates pertaining to the final dividend are as follows:
Last date to trade cum dividend on the JSE Thursday, 17 March 2011
First trading day ex dividend on the JSE Friday, 18 March 2011
Record date Friday, 25 March 2011
Payment date Monday, 28 March 2011
Share certificates may not be de-materialised or re-materialised between Friday,
18 March 2011 and Friday, 25 March 2011, both days inclusive. Where applicable,
in terms of instructions received by the company from certificated shareholders,
the payment of the dividend will be made electronically to shareholders` bank
accounts on payment date. In the absence of specific mandates, cheques will be
posted to shareholders. Shareholders who have de-materialised their shares will
have their accounts with their CSDP or broker credited on Monday, 28 March 2011.
Prospects
The group`s results are linked to the performance of the economies and
investment markets in which the group operates with South Africa being the most
important. The significant progress made in our core operations in 2010
positions the group favourably for continued delivery of good operational
performance and to take advantage of any improvements in these markets.
Our focus will be on lowering unit costs and improving new business sales and
margins in the insurance business. In our asset management businesses, we will
continue to build the capacity to deliver superior investment returns.
Bruce Hemphill Saki Macozoma
Chief Executive Chairman
23 February 2011
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE0000127148
Telephone +27 11 408 3911
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 South Africa (Pty) Limited
A Subsidiary of Bank of America Corporation
These results are available at www.liberty.co.za
Accounting policies
The 2010 consolidated financial statements have been prepared in accordance with
and containing information required by 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 accounting policies adopted in the preparation of the consolidated financial
statements are consistent with those adopted in the previous year, except for
the following:
Liberty elected to early adopt the Amendments to IAS 12 Income Taxes - Deferred
Tax: Recovery of Underlying Assets which requires retrospective application. The
result has been the restatement of the deferred tax liability in respect of
revaluation surpluses of long-term strategic investment properties at the sale
income tax rate and not the use income tax rate. Policyholder liabilities
consequently were also adjusted. The financial statement impact of this change
as at 31 December 2009 was an increase in policyholder liabilities under
insurance contracts of R511 million (2008: R533 million) and policyholder
liabilities under investment contracts of R245 million (2008: R203 million),
with a corresponding decrease to deferred taxation of R756 million (2008: R736
million). There is no impact to profit or loss arising from the change.
Several other amendments to IFRS standards or interpretations were made by the
International Accounting Standards Board which are effective for the period
under review or which were early adopted by the group. These amendments or
interpretations are not significant or applicable to the 2010 results of the
group.
Audit opinion
The company`s auditors, PricewaterhouseCoopers Inc., have issued their opinion
on the group`s financial statements and group embedded value report for the year
ended 31 December 2010. They have issued unmodified audit opinions. Copies of
their audit reports are available for inspection at the company`s registered
office.
Definitions
BEE normalised: headline earnings per share, Group Embedded Value per share and
return on Group 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.
Health lives under administration
This reflects the number of natural persons covered for medical risk insurance
(either through medical aids or directly), for which Liberty Health provides
administration services.
FCTR: Foreign Currency Translation Reserve
Statement of financial position
as at 31 December 2010
Restated Restated
2010 2009 2008
Audited Rm Rm Rm
Assets
Equipment and owner-occupied properties
under development 957 1 176 946
Owner-occupied properties 1 513 1 345 1 282
Investment properties 21 521 19 058 16 771
Intangible assets 1 046 1 210 1 444
Defined benefit pension fund employer surplus 202 170 144
Deferred acquisition costs 364 337 344
Interests in joint ventures 605 575 505
Reinsurance assets 847 788 827
Operating leases - accrued income 1 107 1 156 1 067
Pledged assets 1 559 1 622
Held for trading assets 2 659 457 1 208
Interests in associates - mutual funds 5 814 4 979 4 726
Financial investments 192 317 173 146 169 760
Deferred taxation 147 152 131
Prepayments, insurance and other receivables 2 884 2 655 5 884
Cash and cash equivalents 5 858 10 637 5 112
Total assets 237 841 219 400 211 773
Liabilities
Policyholder liabilities 197 878 184 300 172 805
Insurance contracts 138 873 129 765 122 624
Investment contracts with discretionary
participation features 2 634 2 692 2 648
Financial liabilities under investment
contracts 56 371 51 843 47 533
Financial liabilities at amortised cost 2 143 2 211 2 430
Third party financial liabilities arising on
consolidation of mutual funds 11 000 10 557 10 481
Employee benefits 830 660 642
Deferred revenue 139 126 114
Deferred taxation 2 437 1 999 2 161
Provisions 172 204 64
Operating leases - accrued expense 144 185 215
Held for trading liabilities 1 909 58 77
Insurance and other payables 6 070 5 604 8 210
Current taxation 740 561 748
Total liabilities 223 462 206 465 197 947
Equity
Ordinary shareholders` interests 11 716 10 515 11 633
Share capital 26 26 26
Share premium 6 654 7 965 9 276
Retained surplus 5 842 3 304 3 166
Other reserves (806) (780) (835)
Non-controlling interests 2 663 2 420 2 193
Total equity 14 379 12 935 13 826
Total equity and liabilities 237 841 219 400 211 773
Statement of comprehensive income
for the year ended 31 December 2010
Restated
2010 2009
Rm Rm
Audited
Revenue
Insurance premiums 22 812 22 630
Reinsurance premiums (699) (632)
Net insurance premiums 22 113 21 998
Service fee income from policyholder investment contracts 868 823
Investment income 10 910 12 255
Hotel operations sales 687 620
Investment gains 15 290 7 125
Fee revenue 1 487 1 404
Defined benefit pension fund employer surplus 11 13
Total revenue 51 366 44 238
Claims and policyholders` benefits under insurance
contracts (22 096) (20 488)
Insurance claims recovered from reinsurers 558 603
Change in policyholder liabilities (8 991) (7 224)
Insurance contracts (9 108) (7 141)
Investment contracts with discretionary participation
features 58 (44)
Applicable to reinsurers 59 (39)
Fair value adjustment to policyholder liabilities under
investment contracts (6 257) (5 991)
Fair value adjustment on third party mutual fund
interests (549) (835)
Acquisition costs (2 906) (3 114)
General marketing and administration expenses (5 931) (5 434)
Finance costs (265) (343)
Profit share allocations under bancassurance and other
agreements (504) (366)
Goodwill impairment (114)
Equity accounted earnings from joint ventures 45 47
Profit before taxation 4 356 1 093
Taxation (1 717) (857)
Total earnings 2 639 236
Other comprehensive loss (96) (11)
Owner-occupied properties - fair value adjustment (99) 25
Foreign currency translation (28) (27)
Income and capital gains tax relating to owner-occupied
properties
- fair value adjustment 31 (9)
Total comprehensive income 2 543 225
Total earnings attributable to:
Ordinary shareholders` interests 2 393 44
Non-controlling interests 246 192
2 639 236
Total comprehensive income attributable to:
Ordinary shareholders` interests 2 302 37
Non-controlling interests 241 188
2 543 225
Cents Cents
Basic earnings per share 918,6 16,4
Fully diluted basic earnings per share 883,3 15,9
Headline earnings and earnings per share
for the year ended 31 December 2010
2010 2009
Audited Rm Rm
Reconciliation of total earnings to headline earnings
attributable
to equity holders
Total earnings attributable to equity holders 2 393 44
Adjustments
Preference share dividend (2) (2)
Basic earnings attributable to ordinary shareholders 2 391 42
Goodwill and intangible assets impairments 96
Impairment of investment in joint venture 14
FCTR recycled through profit and loss 21
Headline earnings attributable to ordinary shareholders 2 522 42
Net income earned on BEE preference shares 75 93
BEE normalised headline earnings attributable to ordinary
equity holders 2 597 135
Weighted average number of shares in issue (`000) 260 196 260 222
BEE normalised weighted average number of shares in
issue (`000) 285 992 286 018
Cents Cents
Earnings per share attributable to ordinary equity holders
Basic 918,6 16,4
Headline 968,8 16,4
BEE normalised headline 907,6 47,2
Fully diluted earnings per share attributable to ordinary
equity holders
Basic 883,3 15,9
Headline 931,6 15,9
Condensed statement of changes in shareholders` funds
for the year ended 31 December 2010
2010 2009
Audited Rm Rm
Balance of ordinary shareholders` funds at 1 January 10 515 11 633
Increase in ownership of Liberty Health Holdings (9)
Capital reduction (1 301) (1 301)
Section 311 Liberty transaction costs 1
Total comprehensive income 2 302 37
Share buy-back (30) (34)
Subscription for shares 20 23
Black Economic Empowerment transaction 117 101
Share-based payments 60 68
Payment on settlement of share options (2) (2)
Acquisition of additional interests in subsidiary (2)
Preference dividend (2) (2)
FCTR recycled through profit and loss 21
Profit on partial disposal of a subsidiary 18
Ordinary shareholders` funds 11 716 10 515
Balance on non-controlling interests at 1 January 2 420 2 193
Increase in ownership of Liberty Health Holdings (1)
Total comprehensive income 241 188
Unincorporated property partnerships (1) 42
Non-controlling share of subsidiary dividend (3) (2)
Acquisition of additional interests in subsidiary (16)
Issue of shares in subsidiary 40
Profit on partial disposal of a subsidiary (18)
Non-controlling interests 2 663 2 420
Total shareholders` funds 14 379 12 935
Condensed statement of cash flows
for the year ended 31 December 2010
2010 2009
Audited Rm Rm
Operating activities 1 632 5 006
Investing activities (6 498) 562
Financing activities 85 (43)
Net (decrease)/increase in cash and cash equivalents (4 781) 5 525
Cash and cash equivalents at the beginning of the year 10 637 5 112
Cash and cash equivalents acquired through business
acquisition 2
Cash and cash equivalents at the end of the year 5 858 10 637
Condensed segment information
for the year ended 31 December 2010
The audited segment results for the year ended 31 December 2010 are as follows:
Long-term insurance
Asset
manage- Health
Rm Retail Corporate ment services
Total revenue 43 419 11 853 1 834 353
Profit/(loss) before taxation 2 913 240 680 (232)
Taxation (1 380) (61) (187) 10
Total profit/(loss) 1 533 179 493 (222)
Other comprehensive loss (66) (7) (7)
Total comprehensive
income/(loss) 1 467 172 486 (222)
Attributable (to)/from
non-controlling interests 5 (10) 51
Equity holders 1 472 172 476 (171)
Reconciliation of total
earnings/(loss) to headline
earnings/(loss) attributable
to equity holders
Total earnings/(loss) 1 533 179 493 (222)
Attributable (to)/from non-
controlling interests 2 (13) 52
Preference share dividend
Goodwill and intangible assets
impairments 96
Impairment of investment in
joint venture
FCTR recycled through profit
and loss
Headline earnings/(loss) 1 535 179 480 (74)
Net income earned on
BEE preference shares
BEE normalised
headline earnings/(loss) 1 535 179 480 (74)
Reporting
adjust- IFRS
Rm Other Total ments(1) reported
Total revenue 1 194 58 653 (7 287) 51 366
Profit/(loss) before taxation 469 4 070 286 4 356
Taxation (99) (1 717) (1 717)
Total profit/(loss) 370 2 353 286 2 639
Other comprehensive loss (16) (96) (96)
Total comprehensive
income/(loss) 354 2 257 286 2 543
Attributable (to)/from
non-controlling interests (1) 45 (286) (241)
Equity holders 353 2 302 2 302
Reconciliation of total
earnings/(loss) to headline
earnings/(loss) attributable
to equity holders
Total earnings/(loss) 370 2 353 286 2 639
Attributable (to)/from non-
controlling interests (1) 40 (286) (246)
Preference share dividend (2) (2) (2)
Goodwill and intangible assets
impairments 96 96
Impairment of investment in
joint venture 14 14 14
FCTR recycled through profit
and loss 21 21 21
Headline earnings/(loss) 402 2 522 2 522
Net income earned on
BEE preference shares 75 75 75
BEE normalised
headline earnings/(loss) 477 2 597 2 597
(1) Reporting adjustments include the consolidation of unincorporated property
partnerships, the consolidation of third party mutual fund liabilities, the
classification of long-term insurance into defined IFRS `investment` and
`insurance` products, and the elimination of inter-group transactions.
Condensed segment information
for the year ended 31 December 2010
The audited segment results for the year ended 31 December 2009 are as follows
(restated):
Long-term insurance
Asset
manage- Health
Rm Retail 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)/from
non-controlling interests (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
non-controlling interests (4) (10) 46
Preference share 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 243 869 224 1 093
Taxation (131) (857) (857)
Total (loss)/profit 112 12 224 236
Other comprehensive
(loss)/income (16) (11) (11)
Total comprehensive
(loss)/income 96 1 224 225
Attributable (to)/from
non-controlling interests 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
non-controlling interests 32 (224) (192)
Preference share 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, the
classification of long-term insurance into defined IFRS `investment` and
`insurance` products, and the elimination of inter-group transactions.
Audited Group Embedded Value report
1. Introduction
Following regulatory approval, phase two of Liberty Holdings` legal entity
reorganisation was implemented effective 1 January 2010. This entailed the
transfer of non long-term insurance legal entities from Liberty Group Limited to
Liberty Holdings Limited. In addition, as part of the strategy to expand the
geographical footprint in chosen African countries, a sub group of both
insurance and asset management entities has been established in Namibia
controlled by Liberty Holdings Namibia (Pty) Limited, in which Liberty Holdings
Limited owns 75%.
Liberty now presents a "Group Embedded Value" report to reflect the combined
value of the various components of Liberty`s businesses. Group Embedded Value as
described below has been calculated on a basis consistent with that used in past
reporting periods.
2. Component parts of the Group Embedded Value and valuation techniques used
Group Embedded Value has been calculated as the sum of three component parts:
Liberty Group Limited
After the reorganisation, Liberty Group Limited (LGL) comprises the cluster of
South African long-term insurance entities and related asset holding entities.
The embedded value methodology applied historically in terms of Professional
Guidance Note 107 issued by the Actuarial Society of South Africa will continue
to be used to derive the value of this business cluster. The embedded value
report of the covered business of LGL has been reviewed by the company`s
statutory actuary (refer 3 below).
Liberty Africa
Liberty Africa is an emerging cluster of wealth businesses located outside of
South Africa. A combination of valuation techniques including embedded value
discounted cash flow and earnings multiples have been applied to value these
businesses. The combined value of this cluster is not material relative to the
other components of Group Embedded Value and therefore a detailed analysis of
this valuation has not been presented.
Balance of Liberty Holdings
This comprises the following:
STANLIB: Valued using a 10 times (2009: 10 times) multiple of estimated
sustainable earnings.
Liberty Properties: Valued using a 10 times (2009: 10 times) multiple of
estimated sustainable earnings.
Liberty Health: Liberty Health is in a growth phase and has yet to establish a
history to support a sustainable earnings calculation. A valuation has not been
used and the group embedded value includes Liberty Health at net asset value.
Liberty Holdings` net asset value: The net market value of assets and
liabilities held by the Liberty Holdings Limited company excluding investments
in subsidiaries valued separately.
Other adjustments: This comprises the present value of future secondary tax on
companies at 10% on future anticipated dividends, the fair value of share
options/rights allocated to staff not employed by LGL and allowance for certain
shareholder recurring costs incurred in Liberty Holdings capitalised by a
multiple of 6 times.
3. Description of embedded value of covered business of Liberty Group Limited
The current version of Professional Guidance Note PGN107 came into force for all
financial years ending on or after 31 December 2008. PGN107 governs the way in
which embedded values of life assurance companies are reported.
The embedded value consists of:
- The net worth; plus
- The value of in-force covered business; less
- The cost of required capital
The net worth represents the excess of assets over liabilities on the statutory
valuation method, adjusted for the elimination of the carrying value of covered
business acquired and for the fair value of share options/rights granted to
Liberty Group Limited employees.
The value of in force covered business 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, which differs from the release of
profits on the published accounting basis. 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 written in Liberty Group Limited or its subsidiary life
companies.
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 PGN104 plus any additional capital considered by the Board
appropriate given the risks in the business. For Liberty Group Limited, required
capital has been calculated at 1,7 x CAR. For subsidiary life companies a
multiple of 1,5 x CAR has been used. 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 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 reporting period. Risk policies with an
inception date prior to the reporting date where no premium has been received
are included in the embedded value and value of new business. The contractual
terms of these policies state that Liberty Group Limited is on risk from the
inception date, even though a premium may not have been received. 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 date of reporting have been used.
No adjustment has been made for the discounting of tax provisions in the
embedded value.
4. Group Embedded Value
4.1 Group Embedded Value
31 December 2010
Liberty Balance
Group Liberty of Liberty
Limited Africa Holdings
Rm Rm Rm
Group Embedded Value 20 385 132 4 394
Adjusted for BEE preference shares 1 119
BEE normalised Group
Embedded Value 21 504 132 4 394
Number of applicable shares (`000)
Adjustment for BEE ordinary shares
BEE normalised number of applicable shares (`000)
Group Embedded Value per share (R)
BEE normalised Group
Embedded Value per share (R)
31 December
2009
Total Total
Rm Rm
Group Embedded Value 24 911 22 959
Adjusted for BEE preference shares 1 119 1 159
BEE normalised Group
Embedded Value 26 030 24 118
Number of applicable shares (`000) 260 226 260 226
Adjustment for BEE ordinary shares 25 796 25 796
BEE normalised number of applicable shares (`000) 286 022 286 022
Group Embedded Value per share (R) 95,73 88,23
BEE normalised Group
Embedded Value per share (R) 91,01 84,32
4.2 BEE normalised Group Embedded Value profits
31 December 2010
Liberty Balance
Group Liberty of Liberty
Limited Africa Holdings
Rm Rm Rm
Group Embedded Value at
the end of the period 21 504 132 4 394
Adjustments arising from the group
restructure 3 979 (108) (3 871)
Business acquisitions (18) 18
Intergroup dividends 1 092 (1 092)
Less capital raised (20)
Plus impact of share buy backs 30
Plus net capital reduction paid 1 301
Less group Embedded Value
at the beginning of the period (24 051) (67)
Group Embedded Value profit/(losses) 2 524 6 693
Return on Group
Embedded Value 12,6%
31 December
2009
Total Total
Rm Rm
Group Embedded Value at
the end of the period 26 030 24 118
Adjustments arising from the group restructure -
Business acquisitions -
Intergroup dividends -
Less capital raised (20) (23)
Plus impact of share buy backs 30 34
Plus net capital reduction paid 1 301 1 301
Less group Embedded Value at the beginning
of the period (24 118) (27 207)
Group Embedded Value profit/(losses) 3 223 (1 777)
Return on Group
Embedded Value 13,4% (6,5%)
4.3 Group Embedded Value of new business and new business margins
31 December 2010
Liberty 31 December
Group Liberty 2009
Limited Africa Total Total
Rm Rm Rm Rm
Gross value of new business 285 9 294 323
Cost of required capital (33) - (33) (22)
Net value of new business written in
the period 252 9 261 301
Retail(1) 236 9 245 288
Corporate(2) 16 - 16 13
Present value of future expected
premiums 22 498 173 22 671 23 082
Margin 1,1% 5,2% 1,2% 1,3%
(1) Retail margin: 1,3% (2009: 1,5%)
(2) Corporate margin: 0,4% (2009: 0,3%)
4.4 Balance of Liberty Holdings
31 December
2010 2009
Rm Rm
STANLIB 3 600
Liberty Properties 750
Liberty Health -
Liberty Holdings` net asset value 477 67
Share options allowance (75)
STC allowance (257)
Shareholder expense allowance (101)
4 394 67
4.5 Analysis of balance of Liberty Holdings Group Embedded Value profits
31 December
2010
Rm
Change in STC allowance (32)
Change in capitalised value of non-financial service subsidiaries 70
Change in allowance for fair value of employee share options/rights (2)
Change in shareholder expense allowance (101)
Investment return including earnings of non long-term insurance
subsidiaries 758
693
4.6 Liberty Group Limited embedded value
31 December 2010 31 December 2009
BEE BEE
normalised normalised
Embedded embedded Embedded embedded
value value value value
Rm Rm Rm Rm
Risk discount rate (a) 11,07% 11,07% 12,10% 12,10%
Net worth 6 836 7 955 10 345 11 504
Ordinary shareholders`
funds on published basis 10 870 11 989 10 446 11 605
Adjustment of ordinary
shareholders` funds
from published basis(b) (3 411) (3 411) (3 021) (3 021)
Financial services
subsidiaries fair value
adjustment(c) - - 3 703 3 703
Adjustment for carrying
value of in-force
business acquired(d) (440) (440) (555) (555)
Allowance for fair value
of share options (183) (183) (228) (228)
Net value of life business
in-force 13 549 13 549 12 547 12 547
Value of business in-force 14 982 14 982 13 957 13 957
Cost of required capital (1 433) (1 433) (1 410) (1 410)
Embedded value 20 385 21 504 22 892 24 051
4.7 Sensitivity to risk discount rate and other assumptions
In order to indicate sensitivity to varying assumptions, the value of the life
business in-force less cost of required capital and the value of the new
business written for Liberty Group Limited are shown below for various changes
in assumptions. Each value is shown with only the indicated parameter being
changed.
Value of life
business in force
less cost of Value of
required capital at new business
31 December written in
2010 2010
Rm Rm
Base value 13 549 252
Value of in-force/new business 14 982 285
Cost of required capital (1 433) (33)
100 basis point increase in risk discount rate 12 367 180
Value of in-force/new business 14 182 231
Cost of required capital (1 815) (51)
100 basis point decrease in interest rate
environment 13 524 298
Value of in-force/new business 14 991 331
Cost of required capital (1 467) (33)
10% fall in equity and property market values 13 105
Value of in-force 14 538
Cost of required capital (1 433)
100 basis point increase in equity and
property returns 14 564 259
Value of in-force/new business 15 868 289
Cost of required capital (1 304) (30)
10% decrease in maintenance expenses 14 157 289
Value of in-force/new business 15 590 322
Cost of required capital (1 433) (33)
10% decrease in new business acquisition expenses
(other than commissions) 309
Value of new business 342
Cost of required capital (33)
10% decrease in withdrawal rates 14 548 354
Value of in-force/new business 16 015 387
Cost of required capital (1 467) (33)
5% improvement in mortality and morbidity
for assurances 14 306 338
Value of in-force/new business 15 742 371
Cost of required capital (1 436) (33)
5% improvement in mortality for annuities 13 413 250
Value of in-force/new business 14 846 283
Cost of required capital (1 433) (33)
4.8 Analysis of Liberty Group Limited embedded value profits
31 December 2010
Value of
in-force Cost of Embed-
Net covered required ded
worth business capital value
Rm Rm Rm Rm
Embedded value at the end
of the period 6 836 14 982 (1 433) 20 385
Plus dividends paid 975 975
Adjustments arising from group
restructure 4 074 (93) (2) 3 979
Embedded value at the beginning
of the period (10 345) (13 957) 1 410 (22 892)
Embedded value profits 1 540 932 (25) 2 447
Components of embedded
value profits:
Value of new business written
in the period (936) 1 221 (33) 252
Expected return on value of
life business(e) 1 611 8 1 619
Expected net of tax profit
transfer to net worth 2 371 (2 371) - -
Operating experience variance (h) 64 270 (7) 327
Operating assumption changes (i) (163) (249) 22 (390)
Embedded value profits/(loss)
from operations 1 336 482 (10) 1 808
Investment return on net worth 270 270
Investment variances (125) 84 (41)
Changes in economic assumptions(j) 121 225 (15) 331
Changes in modelling methodology (34) 141 107
Change in allowance for fair value
of share options/rights(k) (28) (28)
Embedded value profits/(loss) 1 540 932 (25) 2 447
BEE preference dividends 77 77
BEE normalised embedded value
profits/(loss) 1 617 932 (25) 2 524
31 December 2009
Value of
in-force Cost of Embed-
Net covered required ded
worth business capital value
Rm Rm Rm Rm
Embedded value at the end
of the period 10 345 13 957 (1 410) 22 892
Plus dividends paid 1 054 1 054
Adjustments arising from group
restructure
Embedded value at the beginning
of the period (11 701) (14 640) 452 (25 889)
Embedded value profits (302) (683) (958) (1 943)
Components of embedded
value profits:
Value of new business written
in the period (1 062) 1 385 (22) 301
Expected return on value of
life business(e) 1 465 (47) 1 418
Expected net of tax profit
transfer to net worth 1 849 (1 888) 39
Operating experience variance (h) 81 (307) 19 (207)
Operating assumption changes (i) (612) (1 308) (1 920)
Embedded value profits/(loss)
from operations 256 (653) (11) (408)
Investment return on net worth 152 152
Investment variances (280) 104 19 (157)
Changes in economic assumptions(j)(257) (196) (966) (1 419)
Changes in modelling methodology (130) 62 (68)
Change in allowance for fair value
of share options/rights(k) (43) (43)
Embedded value profits/(loss) (302) (683) (958) (1 943)
BEE preference dividends 101 101
BEE normalised embedded value
profits/(loss) (201) (683) (958) (1 842)
Notes to Liberty Group Limited embedded value
a) Future investment returns on major asset classes and other economic
assumptions have been set with reference to the market yield on medium-term
South African government stock.
Investment return p.a.
31 Dec 31 Dec
2010 2009
% %
Government stock 8,27 9,30
Equities 11,77 12,80
Property 9,27 10,30
Cash 6,77 7,80
The risk discount rate has been set equal to the risk free
rate plus 80% of the equity risk premium 11,07 12,10
Maintenance expense inflation rate 5,27 6,30
b) Adjustment of shareholders` funds from the published basis
The amounts represent the change in the amount of shareholder funds as a
result of moving from a published valuation basis to the statutory valuation
basis. 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.
c) Financial service subsidiaries fair value adjustment
As a result of the legal entity reorganisation of Liberty Holdings, the non
long-term insurance legal entities were transferred to Liberty Holdings
Limited. Therefore, this adjustment is no longer applicable to Liberty Group
Limited (refer 4.4).
d) Adjustment for carrying value of business acquired
The carrying value of business acquired by Liberty has been deducted from
shareholders` funds in order to avoid double counting. For embedded value
purposes, the value in respect of this acquired business is included in the
value of life business in-force.
31 Dec 31 Dec
2010 2009
Rm Rm
Investec Employee Benefits (IEB) (25) (36)
Capital Alliance Holdings Limited (CAHL) (393) (491)
Business previously acquired by CAHL (22) (28)
(440) (555)
e) 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 period and the current year`s discount rate for half a year to
the value of new business.
f) 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.
g) 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
basis, the embedded value makes allowance for automatic premium and benefit
increases.
h) Operating experience variances consist of the combined effect on net worth
and value of in-force of operating experience being different to that
anticipated at the prior year end.
The net 2010 operating experience variance of R327 million comprised:
Value of in- Cost of
Operating experience force covered required Embedded
variances Net worth business capital value
Rm Rm Rm Rm
Mortality and Morbidity 196 6 202
Persistency (1) 274 273
Expenses (248) (248)
Other 117 (10) (7) 100
Total 64 270 (7) 327
The mortality and morbidity variance includes profits of R131 million on credit
life net of the preference dividend payable to Standard Bank in terms of the
joint venture agreement.
The expense variance mainly comprises project costs which are not reserved for
in the embedded value.
i) The amount of negative R390 million operating assumption changes comprises:
Value of in- Cost of
Operating assumption force covered required Embedded
changes Net worth business capital value
Rm Rm Rm Rm
Expenses (66) (304) (370)
Retail SA (66) (19) (85)
Corporate (93) (93)
Shareholder (192) (192)
Mortality (192) (152) (344)
Persistency (30) 83 53
Other 125 124 22 271
Total (163) (249) 22 (390)
The expense assumption changes comprise:
- A small increase in the assured future maintenance costs of retail business;
- An increase in the allocation of maintenance expenses to corporate business;
and
- An increase to the allowance for future shareholder expenses.
Mortality assumption changes comprise mainly a strengthening of the assured
future mortality for annuitants (R102 million) and a recalibration of the
mortality curve at older ages for universal life business where previously
little experience was available when setting the assumptions (R218 million).
Persistency assumption changes are mainly on corporate business where scheme
termination assumptions have been reduced in line with experience.
Other assumption changes largely comprise an increase in the assumed tax relief
on expense ratio and the rebasing of some discretionary margins.
j) The amount of R331 million (2009: negative R1 419 million) relates to changes
in economic assumptions as described in note a).
k) The amount of negative R28 million (2009: negative 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 for staff employed by Liberty
Group Limited and the increase in the market value of Liberty Holdings Limited
share price over the reporting period.
l) The assets backing the required capital are consistent with the long-term
strategic mix of shareholder funds approved by the Liberty Holdings Board in
November 2009.
Insurance new business
for the year ended 31 December 2010
2010 2009
Unaudited Rm Rm
Retail 12 722 13 700
Single 9 966 10 748
Recurring 2 756 2 952
Corporate 1 658 1 467
Single 1 204 1 202
Recurring 454 265
Total new business 14 380 15 167
Single 11 170 11 950
Recurring 3 210 3 217
Indexed new business 4 327 4 412
Sources of insurance operations indexed new business by
business unit:
Retail SA 3 717 3 995
Corporate 542 385
Liberty Africa(1) 68 32
(1) 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 2010
2010 2009
Unaudited Rbn Rbn
Retail 105 89
Institutional 59 63
Money market 97 72
Liberty inter-group 123 117
Properties 25 22
Total assets under management(1) 409 363
Total assets under management split by business unit:
STANLIB 355 318
Liberty Africa(2) 29 23
Liberty Properties 25 22
(1) Includes funds under administration.
(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.
Net cash inflows
for the year ended 31 December 2010
2010 2009
Unaudited Rm Rm
Insurance operations
Retail 1 059 3 031
Inflows and premiums 23 725 23 291
Claims and benefits (22 666) (20 260)
Corporate (1 346) (1 764)
Inflows and premiums 7 130 6 784
Claims and benefits (8 476) (8 548)
Medical risk 14
Inflows and premiums 77
Claims and benefits (63)
Net cash (outflows)/inflows from insurance operations (273) 1 267
Sources of insurance operations cash flows by business unit:
Retail SA 990 2 764
Corporate (1 517) (1 776)
STANLIB Multi-manager (19) 202
Liberty Health Holdings 14
Liberty Africa 259 77
Asset management
STANLIB before money market (3 431) (12 344)
Retail net cash inflows 5 908 5 632
Institutional net cash outflows (9 339) (17 976)
Money market inflows 19 130 10 772
Net STANLIB cash inflows/(outflows) 15 699 (1 572)
Liberty Africa before money market 4 754 3 668
Retail net cash inflows 318 306
Institutional net cash inflows 4 436 3 362
Money market inflows 1 726 659
Net Liberty Africa inflows (1) 6 480 4 327
Net cash inflows from asset management 22 179 2 755
Total net cash inflows 21 906 4 022
(1) 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.
Capital commitments
as at 31 December 2010
2010 2009
Audited Rm Rm
Capital commitments
Business acquisitions(1) 143 360
Equipment 236 296
Investment and owner-occupied property 1 654 2 485
Total capital commitments 2 033 3 141
Under contracts 458 1 385
Authorised by the directors but not contracted 1 445 1 426
Under agreement with material conditions outstanding 130 330
The above 2010 capital commitments will be financed by available bank
facilities, existing cash resources, internally generated funds, R313 million
(2009: R403 million) from non-controlling interests in unincorporated property
partnerships and R5 million (2009: R7 million) from non-controlling interests in
Liberty Health Holdings (Pty) Limited.
(1) The board has approved an allocated amount towards possible business
acquisitions (including an amount of R125 million relating to CfC Insurance
Holdings Limited) related to its stated strategy of broadening the group`s
financial services offerings.
Related parties
as at 31 December 2010
The following selected significant related party transactions have occurred in
the 2010 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 1 January 2010 25 724 2 624 1,65
Purchases 11 594 1 121
Sales (19 954) (2 014)
Fair value adjustments 137
Balance at 31 December 2010 17 364 1 868 1,10
2) Acquisition of CfC Insurance Holdings Limited (CfC)
As announced on SENS dated 3 December 2009 Liberty has entered into agreements
in terms of which Liberty will acquire control of CfC, currently a subsidiary of
Standard Bank Group Limited. CfC 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. The new equity
capital subscription has been settled during 2010 and at 31 December 2010
exchange rates the rand equivalent of the outstanding transactional commitments
is R125 million. The CfC acquisition is a related party transaction, as Standard
Bank is both a majority shareholder of Liberty with a holding of 53,65% and the
ultimate controlling shareholder of CfC.
3) Bancassurance
Liberty has entered into profit share agreements 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 2010 amounted to R4 407 million
(2009: R4 812 million). In terms of the agreement Liberty Active Limited pays
between 80% and 90% of profits on simple products and 50% of profits on complex
products sold in South Africa through a preference share dividend to Standard
Bank of South Africa Limited. Various other African group entities pay the
relevant profit share directly. The profit share calculated for 2010 is R463
million (2009: R366 million).
During 2010 Liberty and Standard Bank have conducted a detailed review of the
existing bancassurance agreement and have agreed with effect from 1 January 2011
to expand the scope thereof to include asset management, investment and health
products in addition to the insurance products. The agreement remains an
evergreen agreement with a 24-month notice period for termination, but neither
party may give notice of termination until February 2013.
Retirement benefit obligations as at 31 December 2010
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 2010, the Liberty post-retirement medical aid benefit
liability was R400 million (31 December 2009: R354 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.
Analysis of ordinary shareholders` funds invested
for the year ended 31 December 2010
Group
funds invested
2010 2009
Rm Rm
South African insurance operations 10 310 9 138
Insurance operating earnings excluding VIF amortisation
Secondary tax on companies - bancassurance dividends
Value of in-force (VIF) business acquired 440 555
Investment portfolio`s backing capital 9 043 9 345
Fixed assets and working capital(1) 2 827 1 238
Callable capital bonds (2 000) (2 000)
Asset management operations 503 762
STANLIB 230 454
Liberty Properties 79 118
Fountainhead 194 190
Business development initiatives 518 548
Liberty Africa 152 133
Total Health Trust 21 30
Liberty Health 246 385
Frank Financial Services 99
Shareholder expenses and sundry income
Secondary tax on companies
Preference share dividend
Liberty Holdings 385 67
Headline earnings
Preference share dividend
Goodwill and intangible assets impairments
Impairment of investment in joint venture
FCTR recycled through profit and loss
Liberty Holdings shareholders` funds/total earnings 11 716 10 515
BEE normalised:
Liberty Holdings shareholders` funds/headline earnings 11 716 10 515
BEE preference shares 1 119 1 159
BEE normalised shareholders` funds/headline earnings 12 835 11 674
Contribution to earnings
2010 2009
Rm Rm
South African insurance operations 2 478 (40)
Insurance operating earnings excluding VIF amortisation 1 826 (356)
Secondary tax on companies - bancassurance dividends (42) (35)
Value of in-force (VIF) business acquired (115) (126)
Investment portfolio`s backing capital 698 466
Fixed assets and working capital(1) 290 190
Callable capital bonds (179) (179)
Asset management operations 457 442
STANLIB 361 362
Liberty Properties 86 72
Fountainhead 10 8
Business development initiatives (77) (36)
Liberty Africa 9 28
Total Health Trust 1 1
Liberty Health (43) (65)
Frank Financial Services (44)
Shareholder expenses and sundry income (334) (269)
Secondary tax on companies (53)
Preference share dividend (2) (2)
Liberty Holdings
Headline earnings 2 522 42
Preference share dividend 2 2
Goodwill and intangible assets impairments (96)
Impairment of investment in joint venture (14)
FCTR recycled through profit and loss (21)
Liberty Holdings shareholders` funds/total earnings 2 393 44
BEE normalised:
Liberty Holdings shareholders` funds/headline earnings 2 522 42
BEE preference shares 75 93
BEE normalised shareholders` funds/headline earnings 2 597 135
(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.
Date: 24/02/2011 07:07:02 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.
