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LBH
LBH
LBH - Liberty Holdings Limited - Financial Results For the six months ended 30
June 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
Liberty Holdings Limited
Financial Results For the six months ended 30 June 2011
Contents
Financial performance indicators
Commentary on results
Accounting policies
Definitions
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 equity value report
Long-term insurance new business
Assets under management
Long-term insurance net cash flows
Short-term insurance net cash flows
Asset management net cash flows - STANLIB and
Liberty Africa
Capital commitments
Retirement benefit obligations
Related parties
Financial performance indicators
for the six months ended 30 June 2011
30 June 30 June
2011 2010
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) 440,2 371,9
BEE normalised headline earnings per share (cents) 412,4 351,9
BEE normalised return on equity (%) 18,1 17,1
Group equity value
BEE normalised group equity value per share (R) 93,79 84,62
BEE normalised return on group equity value (%) 13,0 7,8
Distributions per share (cents) 182 164
Interim capital reduction 182 164
Final dividend n/a n/a
Total assets under management (Rbn) 449 411
Long-term insurance operations
Indexed new business (excluding contractual increases) (Rm) 2 289 2 135
New business margin (%) 1,3 1,1
Net customer cash inflows/(outflows) (Rm) 1 118 (265)
Capital adequacy cover of Liberty Group Limited
(times covered) 2,88 2,79
Asset management - STANLIB and Liberty Africa
Assets under management (Rbn) 386 350
Net cash (outflows)/inflows including money market (Rm) (42) 11 733
Health (`000 lives)
Under administration 515 561
Licensed on proprietary information technology platforms 1 081 1 101
Insured 59 26
31 Dec
% change 2010
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) 18,4 918,6
BEE normalised headline earnings per share (cents) 17,2 907,6
BEE normalised return on equity (%) 5,8 21,2
Group equity value
BEE normalised group equity value per share (R) 10,8 91,01
BEE normalised return on group equity value (%) 66,7 13,4
Distributions per share (cents) 11,0 455
Interim capital reduction 11,0 164
Final dividend 291
Total assets under management (Rbn) 9,2 442
Long-term insurance operations
Indexed new business (excluding contractual increases) (Rm) 7,2 4 327
New business margin (%) 18,2 1,2
Net customer cash inflows/(outflows) (Rm) >100 (287)
Capital adequacy cover of Liberty Group Limited
(times covered) 3,2 2,67
Asset management - STANLIB and Liberty Africa
Assets under management (Rbn) 10,3 384
Net cash (outflows)/inflows including money market (Rm) (>100) 22 179
Health (`000 lives)
Under administration (8,2) 528
Licensed on proprietary information technology platforms (1,8) 1 085
Insured >100 33
n/a: not applicable
Commentary on results
The first six months of 2011 have clearly demonstrated that our key operational
strategies implemented over the past two years are achieving their objectives
and incrementally generating value. This is particularly evident in the core
South African insurance and asset management operations, which have reported
improved operational results for the period. In addition, the positive results
being produced by our balance sheet management capability further validates the
strategic investment in LibFin.
Our focus in the core South African insurance operations is to manage the
business within acceptable sustainable long-term assumption sets, whilst
profitably capturing greater shares of both the existing and developing markets.
The ability of the business to manage within board approved risk appetite limits
continues to be enhanced and tightly monitored. Actions to improve asset
management capability leveraging off the strong property, fixed income and money
market franchises have commenced, with the objective being to capture a larger
share of the retail and institutional fund flows. We remain committed to
diversifying our earnings stream through achieving the business cases of the
recent investments in growth operations.
A raft of legislative developments including the proposed new long-term
insurance solvency regime (Solvency Assessment and Management) and the ongoing
South African government social benefits policy review are presenting
significant challenges to the industry as a whole. We are prioritising efforts
to influence, understand and, where applicable, comply with these developments.
We are confident of adapting Liberty`s business model to maximise opportunities
that may arise.
Update on strategy
Retail SA
The improvement in policyholder retention has been sustained and remains ahead
of targets. Significant developments in the products and distribution area have
occurred. For example, we launched a revised set of risk products with enhanced
and innovative benefit design. The Financial Intermediaries Association recently
recognised our risk product "Lifestyle Protector" as the best product in the
long-term insurance risk product category. In addition, the implementation of a
new value proposition for financial advisers recognises the important balance
between persistency, book size and quality of new business. Further initiatives
in sales and distribution are planned including remedial actions to improve
acquisition overhead cost efficiency. We believe that these actions will lead to
improved quality sales and achieve the critical objectives of improving the
quantum of the value of new business and new business margin.
LibFin, in the delivery of its risk mandates in balance sheet management,
continues to improve hedge effectiveness through additional data analytics and
the use of suitable hedge instruments. Our ability to manage these risks within
acceptable limits has become a core competency. Attention is now increasingly
being placed by LibFin on the support of investment product design to the
insurance business and the establishment of investment portfolios that can
enhance yield through taking advantage of suitable assets that provide
illiquidity premiums.
Institutional cluster (STANLIB, Liberty Properties and Corporate)
We have made substantial progress at STANLIB in embedding the operating model of
the multi-specialist franchise system. The majority of previously
underperforming funds under management are now reflecting improved investment
performance and there have been positive net cash flows into our non-money
market products. Our Balanced Fund performance moved to the top quartile for the
one and two year rolling period to June 2011. STANLIB will continue to embed
investment processes and disciplines to ensure short-term improvements are
sustained over the longer term.
Liberty Properties continues to return excellent investment performance on the
policyholder property portfolio, as evidenced by 27 consecutive years of double
digit returns. Our property development capability has been extended with the
successful execution of externally owned property development mandates in Zambia
and Swaziland. This is in addition to delivery of extensive developments at our
flagship Eastgate and Sandton City shopping centre complexes.
Liberty Corporate continues to improve cost efficiencies and product
development. We are in the process of developing the future strategy for this
segment of the market in light of the anticipated significant changes arising
from consumer needs, tax regulations and the South African government`s
implementation of their widely debated retirement reform policies.
Growth cluster (Liberty Africa, Liberty Health, Frank.net and Bancassurance)
Liberty Africa`s geographical reach and size has increased substantially with
the completion, effective 1 April 2011, of the purchase of a 57% interest in CfC
Insurance Holdings Limited (CfC) for R199 million. CfC, which is listed on the
Nairobi Stock Exchange, is a leading Kenyan life, health and general insurance
group servicing policyholders in East Africa and provides us with significant
growth opportunities in the region.
Progress has been made in addressing Liberty Health`s operational challenges and
pleasing growth in sales of our flagship medical expense risk products has been
achieved.
After commencing business in November 2010 Frank.net, which currently provides
simple life cover products through an alternative direct distribution channel,
is tracking against business plan.
Liberty has profited significantly from the commercial bancassurance joint
venture relationship with Standard Bank and the recently agreed revised terms
broaden the available distribution channels, product sets and geographies. Plans
are well advanced to implement joint strategies that will optimise the growth
opportunity to the benefit of both joint venture parties. The governance forums
and agreements around the joint venture are overseen by both management and
independent directors of Liberty.
Financial overview
Strong operational earnings from our core operations, namely Retail SA and
STANLIB, have resulted in the group`s BEE normalised headline earnings 2011
first half performance of R1 180 million being 17,2% up on the 2010 comparative
period.
Retail SA`s recent excellent improvement in policyholder persistency has
continued at levels similar to the second half of 2010 resulting in positive
persistency variances. If this trend is sustained to the financial year-end
positive revisions may be made to the long-term persistency assumptions.
South African insurance indexed new business sales have improved by 7,1% over
2010 despite significantly lower entry level market (ELM) sales as a consequence
of the remedial action taken last year. Increases in our flagship investment
products and the credit life sales under the bancassurance agreement with
Standard Bank are particularly pleasing. Overall group insurance new business
margin has improved from 1,2% to 1,3% and is still influenced by the
conservative persistency assumptions and relatively low new business contract
volumes which has affected acquisition overhead cost efficiency. Improving
margin through increased volume of quality sales and better cost efficiency is
our top priority. Various initiatives have either been implemented or are in the
process of finalisation which we expect will deliver continued progress in this
area.
Continued concerns over sovereign debt in Europe and the United States, together
with robust South African economic policy debate, have influenced local
investment markets resulting in high uncertainty and low equity and bond returns
for the period. Returns on the shareholder investment portfolio (constructed as
a low risk balanced portfolio), whilst lower in quantum relative to a through
the cycle long-term expectation, were pleasing in that they are ahead of the
benchmark. The asset/liability positions were managed within mandated risk
limits and capital ratios have improved and remain strong.
The group`s net cash flows into our insurance operations and asset managers
remain positive at R1,1 billion supported by the strong contributions from our
Retail SA and Liberty Africa operations.
Following a sustained period of inflows, STANLIB, as expected due to the
increasing risk appetite of investors, experienced some net outflows from its
money market funds. Total assets under group management are R427 billion, up
from R419 billion at 31 December 2010.
BEE normalised headline earnings per ordinary share is 412,4 cents (2010: 351,9
cents) and an interim capital reduction of 182 cents (2010: 164 cents) per
ordinary share has been declared.
Contributions to earnings by business unit
30 June 30 June
2011 2010
Rm Rm
South African long-term insurance
Retail SA 650 472
Corporate 47 65
LibFin 345 358
Asset management
STANLIB 190 164
Liberty Properties 44 43
Business development
Liberty Africa 16 2
Liberty Health (10) (11)
Frank.net (18) (14)
Central overheads and sundry income (118) (111)
Headline earnings 1 146 968
BEE preference share adjustment 34 39
BEE normalised headline earnings 1 180 1 007
31 Dec
% 2010
change Rm
South African long-term insurance
Retail SA 37,7 899
Corporate (27,7) 103
LibFin (3,6) 1 443
Asset management
STANLIB 15,9 361
Liberty Properties 2,3 96
Business development
Liberty Africa >100 10
Liberty Health 9,1 (43)
Frank.net (28,6) (44)
Central overheads and sundry income (6,3) (303)
Headline earnings 18,4 2 522
BEE preference share adjustment (12,8) 75
BEE normalised headline earnings 17,2 2 597
South African long-term insurance
Retail SA
Headline earnings for the half year were R650 million, up 38% compared to 2010
reflecting our considerable efforts in improving persistency, net positive
impacts of assumption changes (R112 million) and improved mortality claims
experience. The assumption changes include inter alia the positive impact of an
improved estimate of the illiquidity premium used in liability valuations offset
by strengthening mortality assumptions on certain annuity books.
Indexed new business (excluding contractual increases) has increased by 6,4% to
R1 976 million (2010: R1 857 million). Excluding ELM sales, indexed new business
increased by 11,0%. We are encouraged by the growth in retirement savings
products, credit life and guaranteed capital bonds. Our May 2011 launch of the
new series of risk products with innovative benefit design has been well
received by the market and should assist in an improved performance in the
second half of the year. The new business margin increased to 1,5% from the 1,3%
achieved for the full 2010 year.
Net cash flows were positive at R1 408 million for the period (2010: R418
million). The main contributors are an increase in single premiums of 15,7% and
a relatively low increase of 1,2% in claims and withdrawals.
One of our key focus areas is to improve cost efficiency, particularly in
acquiring new business. The entire cost base is under review with the intention
of realigning available resources to better support our strategies. Policy
service costs remain well within actuarial assumptions.
Corporate
Corporate earnings at R47 million are lower compared to 2010 (R65 million). A
6,9% increase in indexed new business was achieved, including a high mix of
small to medium schemes.
A combination of winding up retirement funds under the backlog project and
sustained consumer pressure has continued to impact withdrawal levels on
corporate funds. This resulted in net cash outflows for the period of R323
million, however these are improved from the equivalent 2010 net outflow of R742
million.
LibFin
Over the period under review, our low risk shareholder investment portfolio
returned 2,7% pre taxation reflecting the low investment return environment.
However, the return was ahead of benchmark and demonstrated our ability to
manage within prescribed risk limits.
LibFin Markets continued to manage market risk exposures within a narrow range.
Headline earnings of R70 million flowed mainly from improving credit margins on
assets backing annuities and guaranteed capital bonds. Due to the complexities
of valuation and policyholder behaviour combined with limitations of available
hedging instruments, it is unlikely that LibFin Markets will achieve fully
hedged positions. However, the progress made to date has considerably reduced
the exposure to volatility. We continue to seek acceptable illiquidity premium
assets using the advantage of our ability to hold longer term assets, with the
key objectives of steadily increasing net earnings and improving the
competitiveness of our policyholder investment product proposition.
In line with the capacity created by LibFin, several portfolios backing
policyholder annuity and guaranteed capital investment products have been moved
from STANLIB fund management to LibFin. LibFin now directly manages R15 billion
of asset portfolios at 30 June 2011.
Asset management (STANLIB and Liberty Properties)
STANLIB`s increased headline earnings of R190 million (2010: R164 million)
reflect higher average assets under management and improved performance fees.
STANLIB`s net cash outflows (excluding intergroup flows) for the period were
R1,1 billion (2010: net inflow R6,5 billion). As anticipated the gradual
increase in appetite for higher risk assets led to a net outflow in money market
funds of R2,9 billion. Positive flows totalling R1,8 billion were evidenced
across the other portfolios. Resulting total assets under management (including
intergroup life funds) were maintained at R355 billion (31 December 2010: R355
billion).
Liberty Properties` earnings after taxation increased to R44 million, driven
mostly by higher property development fees. Liberty Properties is currently
managing extensions to the Sandton City complex, as well as the development of
third party properties in Zambia and Swaziland.
Business development initiatives
Liberty Health
Liberty Health has in past reporting periods experienced loss of customer
contracts within the information technology serviced lives. However, the rate of
loss has slowed and cost management has improved. Sales of health risk products
in the rest of Africa continue to grow, increasing our in-force book to 59 000
lives (December 2010: 33 000). We continue to focus on improving margins through
reduced costs and improved pricing for risk.
Liberty Africa
Our acquisition of a 57% ownership in CfC was completed and is effective 1 April
2011. CfC`s estimated operational results are satisfactory, with growth in
earnings and new business. After adjusting for amortisation of acquisition
intangibles, CfC`s contribution to the group`s headline earnings for the three
months since acquisition is R6 million.
Liberty Africa`s asset management operations continued to attract positive net
cash inflows of R1,1 billion for the period (2010: R5,3 billion) bringing assets
under management to R30,7 billion. Attributable headline earnings of R16 million
are substantially up on 2010, reflecting the CfC contribution as well as a
pleasing improvement in overall cost control and asset management fees.
Group equity value (previously named Group Embedded Value)
The BEE normalised group equity value per share at 30 June 2011 is R93,79
compared to R91,01 at 31 December 2010. Positive operating variances, removal of
the STC allowance following tax legislation announcements and improvements in
the core operations more than offset the final dividend of R832 million paid in
April 2011.
Capital adequacy cover
The capital adequacy cover of Liberty Group Limited is strong at 2,88 times the
statutory requirement (31 December 2010: 2,67 times). All the other group
subsidiary life licences are well capitalised.
Dividend policy
The directors reviewed the group`s existing dividend policy and considered it to
no longer be appropriate. Henceforth the new dividend policy is as follows:
The group`s dividend is set with reference to underlying core operating earnings
taking cognisance of the need to (i) balance capital and legislative
requirements, (ii) retain earnings and cash flows to support future growth (iii)
and provide a sustainable dividend for shareholders. Subject to the
consideration of the above, the targeted dividend cover based on underlying core
operating earnings is between 2,0 and 2,5 times. The interim dividend is
targeted as 40% of the previous year`s final dividend.
Capital reduction out of share premium in lieu of an interim dividend for six
months period ended 30 June 2011.
In terms of the general authority granted to the directors at the 2011 annual
general meeting, the directors have approved a capital reduction out of share
premium of 182 cents per ordinary share in lieu of an interim dividend. This is
in accordance with the new dividend policy and is 40% of the 2010 full
distribution. In relation to the capital reduction the directors are satisfied
that the company will satisfy the solvency and liquidity test contained in
Section 4 of the Companies Act of South Africa immediately after completing the
proposed capital reduction.
Return on equity
The impact of the capital reduction on the Company as at 30 June 2011 is a
reduction of share premium attributable to ordinary shareholders of R521
million.
The important dates pertaining to the capital reduction of 182 cents per
ordinary share are as follows:
Last date to trade cum capital distribution on the JSE Friday, 26 August 2011
First trading day ex capital distribution on the JSE Monday, 29 August 2011
Record date Friday, 2 September 2011
Payment date Monday, 5 September 2011
Share certificates may not be de-materialised or re-materialised between Monday,
29 August 2011 and Friday, 2 September 2011, both days inclusive (from ex-
dividend to record date). Where applicable, in terms of instructions received by
the Company from certificated shareholders, the payment of the capital reduction
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, 5 September 2011.
Prospects
Ongoing volatility in the South African investment market, in which the group
mainly operates, will continue to affect the returns achieved on the
shareholders` investment portfolio. However, the group`s improved balance sheet
management process coupled with the enhancements in the core operating
businesses should help mitigate some of this impact. Our focus remains on
increasing new business sales and margins, delivering the business case within
our growth cluster, as well as continuing delivery of superior investment
returns in our asset management business.
Bruce Hemphill Saki Macozoma
Chief Executive Chairman
3 August 2011
Liberty Holdings Limited Transfer Secretaries
Incorporated in the Republic of South Africa Computershare Investor
Services (Pty) Limited
(Registration number: 1968/002095/06) (Registration number: 2004/003647/07)
JSE code: LBH Ground Floor, 70 Marshall Street,
Johannesburg 2001
ISIN code: ZAE0000127148 PO Box 61051, Marshalltown 2107
Telephone +27 11 408 3911 Telephone +27 11 370 5000
Sponsor:
Merrill Lynch South Africa (Pty) Limited
These results are available at www.liberty.co.za
Accounting policies
The 2011 interim results 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 as well as the
AC 500 standards as issued by the Accounting Practices Board or its successor.
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 in terms of IFRS and are consistent with those adopted in the
previous financial year.
However, in preparing the full annual 2010 financial results, Liberty elected to
early adopt the Amendments to IAS 12 Income Taxes - Deferred Tax: Recovery of
Underlying Assets which requires retrospective application. The result was 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. In light of this election the 30 June 2010 published results require a
restatement. The financial statement impact of this change as at 30 June 2010
was an increase in policyholder liabilities under insurance contracts of R511
million and policyholder liabilities under investment contracts of R245 million,
with a corresponding decrease to deferred taxation of R756 million. There is no
impact to total 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 either not significant or not applicable to the 2011 interim
results of the group.
Review/Audit
These interim results have not been reviewed or audited by the company`s
auditors, PricewaterhouseCoopers Inc.
Definitions
BEE normalised: headline earnings per share, return on equity, group equity
value per share and return on group equity 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.
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.
Long-term insurance operations - Indexed new business
This is a measure of new business which is calculated as the sum of twelve
months of premiums on new recurring premium policies and one tenth of single
premium sales.
Long-term insurance operations - New business margin
This is the value of new business as defined below, expressed as a percentage of
the present value of future expected premiums at the point of sale.
Long-term insurance operations - Value of new business
The present value, at point of sale, of the projected stream of after tax
profits for new business issued, net of the cost of required capital. The
present value is calculated using a risk adjusted discount rate.
FCTR: Foreign Currency translation Reserve
Statement of financial position
as at 30 June 2011
Restated
Unaudited unaudited Audited
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Assets
Equipment and owner-occupied properties
under development 956 913 957
Owner-occupied properties 1 508 1 712 1 513
Investment properties 22 095 19 520 21 521
Intangible assets 1 034 1 255 1 046
Defined benefit pension fund employer surplus 194 162 202
Deferred acquisition costs 387 355 364
Interests in joint ventures 630 597 605
Reinsurance assets 862 856 847
Operating leases - accrued income 1 186 1 143 1 107
Pledged assets 1 572
Held for trading assets 2 992 2 659
Interests in associates - mutual funds 15 745 4 849 5 814
Financial investments 185 642 174 235 192 317
Deferred taxation 161 193 147
Prepayments, insurance and other receivables 4 859 4 775 2 884
Cash and cash equivalents 6 024 8 316 5 858
Total assets 244 275 220 453 237 841
Liabilities
Policyholder liabilities 199 744 182 349 197 878
Insurance contracts 140 040 128 231 138 873
Investment contracts with discretionary
participation features 2 567 2 431 2 634
Financial liabilities under investment
contracts 57 137 51 687 56 371
Financial liabilities at amortised cost 2 182 2 139 2 143
Third party financial liabilities arising
on consolidation of mutual funds 12 126 10 281 11 000
Employee benefits 747 552 830
Deferred revenue 146 128 139
Deferred taxation 2 513 2 050 2 437
Short-term insurance liabilities 208
Provisions 145 206 172
Operating leases - accrued expense 120 166 144
Held for trading liabilities 2 341 533 1 909
Insurance and other payables 8 031 8 399 6 070
Current taxation 1 010 368 740
Total liabilities 229 313 207 171 223 462
Equity
Ordinary shareholders` interests 12 107 10 780 11 716
Share capital 26 26 26
Share premium 6 662 7 127 6 654
Retained surplus 6 231 4 353 5 842
Other reserves (812) (726) (806)
Non-controlling interests 2 855 2 502 2 663
Total equity 14 962 13 282 14 379
Total equity and liabilities 244 275 220 453 237 841
Statement of comprehensive income
for the six months ended 30 June 2011
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Revenue
Insurance premiums 12 366 10 991 22 812
Reinsurance premiums (424) (334) (699)
Net insurance premiums 11 942 10 657 22 113
Service fee income from policyholder
investment contracts 416 388 868
Investment income 5 705 5 401 10 910
Hotel operations sales 320 286 687
Investment gains 661 (2 122) 15 290
Fee revenue 801 727 1 487
Defined benefit pension fund employer
surplus (9) 11
Total revenue 19 836 15 337 51 366
Claims and policyholders benefits under
insurance contracts (10 950) (10 879) (22 096)
Insurance claims recovered from reinsurers 288 278 558
Change in policyholder liabilities (93) 1 863 (8 991)
Insurance contracts (174) 1 534 (9 108)
Investment contracts with discretionary
participation features 67 261 58
Applicable to reinsurers 14 68 59
Fair value adjustment to policyholder
liabilities under
investment contracts (1 300) (555) (6 257)
Fair value adjustment on third party
mutual fund interests (755) (96) (549)
Acquisition costs (1 497) (1 374) (2 906)
General marketing and administration
expenses (3 048) (2 689) (5 931)
Finance costs (135) (128) (265)
Profit share allocations under
bancassurance and other
agreements (292) (216) (504)
Goodwill impairment (114)
Equity accounted earnings from joint
ventures and associates 17 14 45
Profit before taxation 2 071 1 555 4 356
Taxation (832) (478) (1 717)
Total earnings 1 239 1 077 2 639
Other comprehensive (loss)/income (19) 10 (96)
Owner-occupied properties - fair value
adjustment 17 20 (99)
Foreign currency translation (26) (8) (28)
Income and capital gains tax relating to
owner-occupied
Properties - fair value adjustment (10) (2) 31
Total comprehensive income 1 220 1 087 2 543
Total earnings attributable to:
Ordinary shareholders` interests 1 147 969 2 393
Non-controlling interests 92 108 246
1 239 1 077 2 639
Total comprehensive income attributable to:
Ordinary shareholders` interests 1 142 981 2 302
Non-controlling interests 78 106 241
1 220 1 087 2 543
Cents Cents Cents
Basic earnings per share 440,2 371,9 918,6
Fully diluted basic earnings per share 422,9 358,2 883,3
Headline earnings and earnings per share
for the six months ended 30 June 2011
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Reconciliation of total earnings to
headline earnings attributable to equity holders
Total earnings attributable to equity holders 1 147 969 2 393
Adjustments
Preference share dividend (1) (1) (2)
Basic earnings attributable to ordinary
shareholders 1 146 968 2 391
Goodwill and intangible assets impairments 96
Impairment of investment in joint venture 14
FCTR recycled through profit or loss 21
Headline earnings attributable to ordinary
shareholders 1 146 968 2 522
Net income earned on BEE preference shares 34 39 75
BEE normalised headline earnings
attributable to ordinary equity holders 1 180 1 007 2 597
Weighted average number of shares in
issue (`000) 260 298 260 216 260 196
BEE normalised weighted average number of
shares in issue (`000) 286 094 286 012 285 992
Fully diluted weighted average number of
shares in issue (`000) 270 965 270 165 270 589
Cents Cents Cents
Earnings per share attributable to
ordinary equity holders
Basic 440,2 371,9 918,6
Headline 440,2 371,9 968,8
BEE normalised headline 412,4 351,9 907,6
Fully diluted earnings per share
attributable to ordinary equity holders
Basic 422,9 358,2 883,3
Headline 422,9 358,2 931,6
Condensed statement of changes in shareholders` funds
for the six months ended 30 June 2011
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Balance of ordinary shareholders` funds at
1 January 11 716 10 515 10 515
Dividend/capital reduction (1) (832) (832) (1 301)
Total comprehensive income 1 142 981 2 302
Share buy-back (19) (30)
Subscription for shares 8 11 20
Black Economic Empowerment transaction 67 80 117
Share-based payments 27 31 60
Payment on settlement of share
options/rights (1) (1) (2)
Acquisition of additional interests in
subsidiary (3) (2)
Preference dividend (1) (1) (2)
FCTR recycled through profit or loss 21
Profit on partial disposal of a subsidiary 18 18
Acquisition of CfC Insurance Holdings Limited (19)
Ordinary shareholders` funds 12 107 10 780 11 716
Balance on non-controlling interests at
1 January 2 663 2 420 2 420
Total comprehensive income 78 106 241
Unincorporated property partnerships (21) (31) (1)
Non-controlling share of subsidiary
dividend (7) (1) (3)
Acquisition of additional interests in
subsidiary (14) (16)
Issue of shares in subsidiary 40 40
Profit on partial disposal of a subsidiary (18) (18)
Acquisition of CfC Insurance Holdings Limited 142
Non-controlling interests 2 855 2 502 2 663
Total shareholders` funds 14 962 13 282 14 379
(1) (30 June 2011: 2010 final dividend of 291 cents per share, 30 June 2010:
2009 final capital reduction of 291 cents per share, 31 December 2010 :
interim and final capital reduction of 455 cents per share)
Condensed statement of cash flows
for the six months ended 30 June 2011
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Operating activities 1 645 1 041 1 632
Investing activities (1 731) (3 333) (6 498)
Financing activities 57 (31) 85
Net (decrease)/increase in cash and cash
equivalents (29) (2 323) (4 781)
Cash and cash equivalents at the beginning
of the year 5 858 10 637 10 637
Foreign currency translation (15)
Cash and cash equivalents acquired through
business acquisition 210 2 2
Cash and cash equivalents at the end of
the period 6 024 8 316 5 858
Condensed segment information
for the six months ended 30 June 2011
The unaudited segment results for the six months ended 30 June 2011 are as
follows:
Long-term insurance
Asset
manage-
Rm Retail Corporate ment
Total revenue 16 731 4 748 987
Profit/(loss) before taxation 1 462 96 356
Taxation (701) (27) (95)
Total earnings 761 69 261
Other comprehensive
income/(loss) (22) 1 (3)
Total comprehensive
income/(loss) 739 70 258
Attributable to:
Non-controlling interests 11 (6)
Equity holders 750 70 252
Reconciliation of total earnings
to headline earnings/(loss)
attributable to equity holders
Total earnings/(loss) 761 69 261
Attributable (to)/from
non-controlling interests (1) (8)
Preference dividend
Headline earnings/(loss) 760 69 253
Net income earned on
BEE preference shares
BEE normalised
headline earnings/(loss) 760 69 253
Health
Rm services Other Total
Total revenue 155 596 23 217
Profit/(loss) before taxation (45) 114 1 983
Taxation (9) (832)
Total earnings (45) 105 1 151
Other comprehensive
income/(loss) 5 (19)
Total comprehensive
income/(loss) (45) 110 1 132
Attributable to:
Non-controlling interests 13 (8) 10
Equity holders (32) 102 1 142
Reconciliation of total earnings
to headline earnings/(loss)
attributable to equity holders
Total earnings/(loss) (45) 105 1 151
Attributable (to)/from
non-controlling interests 13 (8) (4)
Preference dividend (1) (1)
Headline earnings/(loss) (32) 96 1 146
Net income earned on
BEE preference shares 34 34
BEE normalised
headline earnings/(loss) (32) 130 1 180
Reporting
adjust- IFRS
Rm ments(1) reported
Total revenue (3 381) 19 836
Profit/(loss) before taxation 88 2 071
Taxation (832)
Total earnings 88 1 239
Other comprehensive
income/(loss) (19)
Total comprehensive
income/(loss) 88 1 220
Attributable to:
Non-controlling interests (88) (78)
Equity holders 1 142
Reconciliation of total earnings
to headline earnings/(loss)
attributable to equity holders
Total earnings/(loss) 88 1 239
Attributable (to)/from
non-controlling interests (88) (92)
Preference dividend (1)
Headline earnings/(loss) 1 146
Net income earned on
BEE preference shares 34
BEE normalised
headline earnings/(loss) 1 180
(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.
The unaudited segment results for the six months ended 30 June 2010 are as
follows:
Long-term insurance
Asset
manage-
Rm Retail Corporate ment
Total revenue 13 892 3 547 862
Profit/(loss) before taxation 902 114 300
Taxation (354) (32) (82)
Total earnings 548 82 218
Other comprehensive income/(loss) 14 2 (2)
Total comprehensive income/(loss) 562 84 216
Attributable to:
Non-controlling interests (7)
Equity holders 562 84 209
Reconciliation of total earnings
to headline earnings/(loss)
attributable to equity holders
Total earnings/(loss) 548 82 218
Attributable (to)/from
non-controlling interests (1) (8)
Preference dividend
Headline earnings/(loss) 547 82 210
Net income earned on
BEE preference shares
BEE normalised headline earnings/(loss) 547 82 210
Health
Rm services Other Total
Total revenue 152 465 18 918
Profit/(loss) before taxation (33) 165 1 448
Taxation 2 (12) (478)
Total earnings (31) 153 970
Other comprehensive
income/(loss) (4) 10
Total comprehensive
income/(loss) (31) 149 980
Attributable to:
Non-controlling interests 8 1
Equity holders (23) 149 981
Reconciliation of total earnings
to headline earnings/(loss)
attributable to equity holders
Total earnings/(loss) (31) 153 970
Attributable (to)/from
non-controlling interests 8 (1)
Preference dividend (1) (1)
Headline earnings/(loss) (23) 152 968
Net income earned on
BEE preference shares 39 39
BEE normalised headline earnings/(loss) (23) 191 1 007
Reporting
adjust- IFRS
Rm ments(1) reported
Total revenue (3 581) 15 337
Profit/(loss) before taxation 107 1 555
Taxation (478)
Total earnings 107 1 077
Other comprehensive
income/(loss) 10
Total comprehensive
income/(loss) 107 1 087
Attributable to:
Non-controlling interests (107) (106)
Equity holders - 981
Reconciliation of total earnings
to headline earnings/(loss)
attributable to equity holders
Total earnings/(loss) 107 1 077
Attributable (to)/from
non-controlling interests (107) (108)
Preference dividend (1)
Headline earnings/(loss) - 968
Net income earned on
BEE preference shares 39
BEE normalised headline earnings/(loss) 1 007
(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.
The audited segment results for the year ended 31 December 2010 are as follows:
Long-term insurance
Asset
manage-
Retail Corporate ment
Rm
Total revenue 43 419 11 853 1 834
Profit/(loss) before taxation 2 913 240 680
Taxation (1 380) (61) (187)
Total profit/(loss) 1 533 179 493
Other comprehensive loss (66) (7) (7)
Total comprehensive
income/(loss) 1 467 172 486
Attributable (to)/from
non-controlling interests 5 (10)
Equity holders 1 472 172 476
Reconciliation of total
earnings/(loss) to headline
earnings/(loss) attributable
to equity holders
Total earnings/(loss) 1 533 179 493
Attributable (to)/from
non-controlling interests 2 (13)
Preference share dividend
Goodwill and intangible assets
impairments
Impairment of investment in
joint venture
FCTR recycled through profit or loss
Headline earnings/(loss) 1 535 179 480
Net income earned on
BEE preference shares
BEE normalised headline earnings/(loss) 1 535 179 480
Health
services Other Total
Rm
Total revenue 353 1 194 58 653
Profit/(loss) before taxation (232) 469 4 070
Taxation 10 (99) (1 717)
Total profit/(loss) (222) 370 2 353
Other comprehensive loss (16) (96)
Total comprehensive
income/(loss) (222) 354 2 257
Attributable (to)/from
non-controlling interests 51 (1) 45
Equity holders (171) 353 2 302
Reconciliation of total
earnings/(loss) to headline
earnings/(loss) attributable
to equity holders
Total earnings/(loss) (222) 370 2 353
Attributable (to)/from
non-controlling interests 52 (1) 40
Preference share dividend (2) (2)
Goodwill and intangible assets
impairments 96 96
Impairment of investment in
joint venture 14 14
FCTR recycled through profit
or loss 21 21
Headline earnings/(loss) (74) 402 2 522
Net income earned on
BEE preference shares 75 75
BEE normalised headline earnings/(loss) (74) 477 2 597
Reporting
adjust- IFRS
ments(1) reported
Rm
Total revenue (7 287) 51 366
Profit/(loss) before taxation 286 4 356
Taxation (1 717)
Total profit/(loss) 286 2 639
Other comprehensive loss (96)
Total comprehensive
income/(loss) 286 2 543
Attributable (to)/from
non-controlling interests (286) (241)
Equity holders 2 302
Reconciliation of total
earnings/(loss) to headline
earnings/(loss) attributable
to equity holders
Total earnings/(loss) 286 2 639
Attributable (to)/from
non-controlling interests (286) (246)
Preference share dividend (2)
Goodwill and intangible assets
impairments 96
Impairment of investment in joint venture 14
FCTR recycled through profit or loss 21
Headline earnings/(loss) 2 522
Net income earned on
BEE preference shares 75
BEE normalised
headline earnings/(loss) 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.
Group equity value report (previously Group Embedded Value)
1. Introduction
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
was established in Namibia controlled by Liberty Holdings Namibia (Pty) Limited,
in which Liberty Holdings Limited owns 75%. With effect from 1 April 2011
Liberty Holdings Limited acquired a 57% controlling interest in CfC Insurance
Holdings Limited (CfC) based in Kenya and listed on the Nairobi Stock Exchange.
CfC conducts short and long-term insurance business in East Africa.
Liberty now presents a "group equity value" report to reflect the combined value
of the various components of Liberty`s businesses. In light of the increasing
contributions of non long-term insurance businesses it was decided to change the
description to group equity value to better reflect the purpose of the report.
Sections 2 and 3 below describe the valuation basis used for each reported
component. It should be noted the group equity value is presented to provide
additional information to shareholders to assess performance of the group. The
total equity value is not intended to be a fair value calculation of the group
but should provide indicative information of the inherent value of the component
parts.
2. Component parts of the group equity value and valuation techniques used
Group equity value has been calculated as the sum of the various component
parts:
South African covered business:
The wholly owned subsidiary, 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
continues to be used to derive the value of this business cluster described as
"South African covered business". The embedded value report of the South African
covered business has been reviewed by the company`s statutory actuary (refer 3
below).
Other businesses:
STANLIB: Valued using a 10 times (2010: 10 times) multiple of estimated
sustainable earnings.
Liberty Properties: Valued using a 10 times (2010: 10 times) multiple of
estimated sustainable earnings.
Fountainhead: Fountainhead has been valued on an earnings yield basis.
Liberty Health: Liberty Health is in a growth phase and has yet to establish a
history to support a sustainable earnings calculation. The group equity value
includes Liberty Health at IFRS net asset value.
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 equity value and therefore a detailed
analysis of this valuation has not been presented. The newly acquired CfC
Insurance Holdings group has been valued at purchase price.
Other adjustments: These comprise the net market value of assets and liabilities
held by the Liberty Holdings Limited company excluding investments in
subsidiaries valued separately, 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 at a multiple of 6 times.
3. Description of embedded value of South African covered business
The current version of Professional Guidance Note (PGN)107 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. BEE normalised group equity value
4.1 Analysis of BEE normalised group equity value
SA Other Group
covered busi- funds Adjust-
business nesses invested ments
30 June 2011 Rm Rm Rm Rm
SA insurance operations
(excluding Frank.net) 7 341 7 341 (3 237)
Retail SA
Corporate
Frank.net 90 90 (28)
Value of in-force acquired 383 383 (383)
Working capital 2 803 2 803 (260)
South African insurance operations 10 617 10 617 (3 908)
Other group businesses:
STANLIB 272 272 3 528
Properties (including
Fountainhead) 160 108 268 682
Liberty Health (including Total
Health Trust) 256 256
Liberty Africa 22 302 324 76
Liberty Holdings 370 370 55
Cost of capital
Net equity as reported under IFRS 11 055 1 052 12 107 433
BEE preference funding 1 090 1 090
Allowance for future shareholders
costs (156) (156)
Allowance for STC
Allowance for employee share
options/rights (171) (111) (282)
BEE normalised equity value 11 974 785 12 759 433
Summary of adjustments:
Negative rand reserves (3 237) (3 237)
Deferred acquisition costs (387) (387)
Deferred revenue liability 146 146
Internally generated software (55) 55
Frank.net allowance for
future expenses (28) (28)
Carrying value of in-force
business acquired (383) (383)
Fair value adjustment of
non SA covered business 4 286 4 286
Other 36 36
(3 908) 4 341 433
(1) Reconciliation to SA covered
business net worth as per
analysis in
supplementary information
Liberty Group Limited IFRS
consolidated net asset value 11 055
Adjustments as above (3 908)
Allowance for employee share
options/rights (171)
Net worth as reported 6 976
Value of
in-force:
SA
Net covered
worth(1) business Total
30 June 2011 Rm Rm Rm
SA insurance operations
(excluding Frank.net) 4 104 16 448 20 552
Retail SA 14 778
Corporate 1 670
Frank.net 62 24 86
Value of in-force acquired
Working capital 2 543 2 543
South African insurance operations 6 709 16 472 23 181
Other group businesses:
STANLIB 3 800 3 800
Properties (including Fountainhead) 950 950
Liberty Health (including Total Health Trust) 256 256
Liberty Africa 400 19 419
Liberty Holdings 425 425
Cost of capital (1 336) (1 336)
Net equity as reported under IFRS 12 540 15 155 27 695
BEE preference funding 1 090 1 090
Allowance for future shareholders costs (156) (1 504) (1 660)
Allowance for STC
Allowance for employee share
options/rights (282) (282)
BEE normalised equity value 13 192 13 651 26 843
Summary of adjustments:
Negative rand reserves
Deferred acquisition costs
Deferred revenue liability
Internally generated software
Frank.net allowance for
future expenses
Carrying value of in-force business acquired
Fair value adjustment of
non SA covered business
Other
(1) Reconciliation to SA covered
business net worth as per analysis in
supplementary information
Liberty Group Limited IFRS
consolidated net asset value
Adjustments as above
Allowance for employee share
options/rights
Net worth as reported
SA Other Group
covered busi- funds Adjust-
business nesses invested ments
31 December 2010 Rm Rm Rm Rm
SA insurance operations
(excluding Frank.net) 7 043 7 043 (3 125)
Retail SA
Corporate
Frank.net 99 99 (42)
Value of in-force acquired 440 440 (440)
Working capital 2 827 2 827 (244)
South African insurance operations 10 409 10 409 (3 851)
Other group businesses:
STANLIB 230 230 3 370
Properties (including
Fountainhead) 152 121 273 671
Liberty Health (including Total
Health Trust) 267 267
Liberty Africa 42 110 152 22
Liberty Holdings 385 385 50
Cost of capital
Net equity as reported under IFRS 10 870 846 11 716 262
BEE preference funding 1 119 1 119
Allowance for future shareholders
costs (101) (101)
Allowance for STC (257) (257)
Allowance for employee share
options/rights (183) (75) (258)
BEE normalised equity value 11 806 413 12 219 262
Summary of adjustments:
Negative rand reserves (3 125) (3 125)
Deferred acquisition costs (364) (364)
Deferred revenue liability 139 139
Internally generated software (50) 50
Frank.net allowance for
future expenses (42) (42)
Carrying value of in-force
business
acquired (440) (440)
Fair value adjustment of non SA
covered business 4 063 4 063
Other 31 31
(3 851) 4 113 262
(1) Reconciliation to SA covered
business net worth as per
analysis in
supplementary information
Liberty Group Limited IFRS
consolidated net asset value 10 870
Adjustments as above (3 851)
Allowance for employee share
options/rights (183)
Net worth as reported 6 836
Value of
in-force:
SA
Net covered
worth(1) business Total
31 December 2010 Rm Rm Rm
SA insurance operations
(excluding Frank.net) 3 918 16 522 20 440
Retail SA 14 807
Corporate 1 715
Frank.net 57 57
Value of in-force acquired
Working capital 2 583 2 583
South African insurance operations 6 558 16 522 23 080
Other group businesses:
STANLIB 3 600 3 600
Properties (including Fountainhead) 944 944
Liberty Health (including Total Health
Trust) 267 267
Liberty Africa 174 21 195
Liberty Holdings 435 435
Cost of capital (1 433) (1 433)
Net equity as reported under IFRS 11 978 15 110 27 088
BEE preference funding 1 119 1 119
Allowance for future shareholders costs (101) (1 561) (1 662)
Allowance for STC (257) (257)
Allowance for employee share
options/rights (258) (258)
BEE normalised equity value 12 481 13 549 26 030
Summary of adjustments:
Negative rand reserves
Deferred acquisition costs
Deferred revenue liability
Internally generated software
Frank.net allowance for
future expenses
Carrying value of in-force business
acquired
Fair value adjustment of non SA
covered business
Other
(1) Reconciliation to SA covered
business net worth as per analysis in
supplementary information
Liberty Group Limited IFRS
consolidated net asset value
Adjustments as above
Allowance for employee share
options/rights
Net worth as reported
4.2 BEE normalised group equity value earnings and value per share
30 June 2011
SA Other
covered busi-
business nesses Total
Rm Rm Rm
BEE normalised equity value at end of
the period 21 717 5 126 26 843
BEE preference shares 1 090 1 090
Equity value at the end of the period 20 627 5 126 25 753
Adjustments from group restructure 15 (15)
Capital transactions (8) (8)
Intergroup dividends 850 (850)
Dividends paid 832 832
BEE normalised equity value at beginning of
the period (21 504) (4 526) (26 030)
Equity value at beginning of the period (20 385) (4 526) (24 911)
BEE preference shares (1 119) (1 119)
BEE normalised equity value earnings 1 078 559 1 637
BEE normalised return on group equity value 10,3% 26,1% 13,0%
BEE normalised number of shares 286 189
Number of shares in issue 260 393
Adjustment for BEE ordinary shares 25 796
BEE normalised group equity value
per share (Rand) 93,79
31 December 2010
SA Other
covered busi-
business nesses Total
Rm Rm Rm
BEE normalised equity value at end of
the period 21 504 4 526 26 030
BEE preference shares 1 119 1 119
Equity value at the end of the period 20 385 4 526 24 911
Adjustments from group restructure 3 979 (3 979)
Capital transactions 10 10
Intergroup dividends 1 092 (1 092)
Dividends paid 1 301 1 301
BEE normalised equity value at beginning of
the period (24 051) (67) (24 118)
Equity value at beginning of the period (22 892) (67) (22 959)
BEE preference shares (1 159) (1 159)
BEE normalised equity value earnings 2 524 699 3 223
BEE normalised return on group equity value 12,6% 17,3% 13,4%
BEE normalised number of shares 286 022
Number of shares in issue 260 226
Adjustment for BEE ordinary shares 25 796
BEE normalised group equity value
per share (Rand) 91,01
4.3 Sources of BEE normalised group equity value earnings
30 June 2011
SA Other
covered busi-
business nesses Total
Rm Rm Rm
Value of new business written in the period 137 7 144
Expected return on value of in-force business 825 825
Variances/changes in operating assumptions 364 (99) 265
Operating experience variances 266 (44) 222
Operating assumption changes 30 (55) (25)
Changes in modelling methodology 68 68
Headline earnings of other businesses (17) 239 222
Operational equity value profits 1 309 147 1 456
Non headline loss of other businesses
Development costs (non-recurring project
cost of future developments) (24) (24)
Investment return on net worth 157 (18) 139
Investment variances (261) (261)
Changes in economic assumptions (115) (115)
Increase in fair value adjustments on value
of other businesses 209 209
Change in allowance for share options/rights 12 (36) (24)
Change in STC allowance 257 257
Group equity value earnings 1 078 559 1 637
31 December 2010
SA Other
covered busi-
business nesses Total
Rm Rm Rm
Value of new business written in the period 252 9 261
Expected return on value of in-force business 1 619 1 619
Variances/changes in operating assumptions 116 (101) 15
Operating experience variances 399 399
Operating assumption changes (390) (101) (491)
Changes in modelling methodology 107 107
Headline earnings of other businesses (74) 454 380
Operational equity value profits 1 913 362 2 275
Non headline loss of other businesses (110) (110)
Development costs (non-recurring project
cost of future developments) (72) (72)
Investment return on net worth 573 146 719
Investment variances (41) (41)
Changes in economic assumptions 331 331
Increase in fair value adjustments on value
of other businesses (42) 225 183
Change in allowance for share options/rights (28) (2) (30)
Change in STC allowance (32) (32)
Group equity value earnings 2 524 699 3 223
4.4 Analysis of value of long-term insurance, new business and margin
30 June 31 Dec
Unaudited 2011 2010
South African covered business:
Retail SA
- Traditional Life 336 663
- Emerging Markets 48 87
- Credit Life 24 65
Corporate 24 86
Frank.net 24
Gross value of new business 456 901
Overhead acquisition costs impact on value of new business (299) (616)
Cost of required capital (20) (33)
Net value of South African covered new business written in
the period 137 252
Present value of future expected premiums 11 451 22 498
Margin 1,2% 1,1%
Liberty Africa:
Net value of new business written in the period 7 9
Present value of future expected premiums 52 173
Margin 13,5% 5,2%
Total group net value of new business written 144 261
Total group margin 1,3% 1,2%
Long-term insurance new business
for the six months ended 30 June 2011
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Unaudited
Retail SA 6 903 6 048 12 672
Single 5 475 4 657 9 950
Recurring 1 428 1 391 2 722
Corporate 644 676 1 488
Single 422 477 1 051
Recurring 222 199 437
Liberty Africa (1) 49 35 220
Single 14 5 169
Recurring 35 30 51
Frank.net 13
Recurring 13
Total new business 7 609 6 759 14 380
Single 5 911 5 139 11 170
Recurring 1 698 1 620 3 210
Sources of insurance operations total new
business by customer
segment:
Retail 6 954 6 083 12 722
Single 5 488 4 662 9 966
Recurring 1 466 1 421 2 756
Corporate 655 676 1 658
Single 423 477 1 204
Recurring 232 199 454
Total new business 7 609 6 759 14 380
Indexed new business 2 289 2 135 4 327
(1) Liberty group owns less than 100% of the various entities that make up
Liberty Africa. The information is recorded at 100% and is not adjusted for
proportional legal ownership.
Assets under management(1)
for the six months ended 30 June 2011
30 June 30 June 31 Dec
2011 2010 2010
Rbn Rbn Rbn
Unaudited
Managed by group business units 427 380 419
STANLIB 355 321 355
Liberty Africa(2) 31 29 29
Liberty Properties 26 23 25
LibFin 15 7 10
Externally managed 22 31 23
Total assets under management 449 411 442
(1) Includes funds under administration.
(2) Liberty group owns less than 100% of the various entities that make up
Liberty Africa. The information is recorded at 100% and is not adjusted for
proportional legal ownership.
Long-term insurance net cash flows
for the six months ended 30 June 2011
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Unaudited
Premiums
Recurring 10 217 9 585 19 473
Retail 7 195 6 832 13 719
Corporate 3 022 2 753 5 754
Single 6 169 5 221 11 382
Retail 3 406 2 780 6 098
Corporate 693 487 1 376
Immediate annuities 2 070 1 954 3 908
Net premium income from insurance contracts
and inflows from
investment contracts 16 386 14 806 30 855
Claims and policyholders benefits
Retail (11 199) (11 089) (22 666)
Death and disability claims (2 072) (1 987) (4 043)
Policy maturity claims (2 177) (2 216) (4 373)
Policy surrender claims (5 263) (5 308) (11 054)
Annuity payments (1 687) (1 578) (3 196)
Corporate (4 069) (3 982) (8 476)
Death and disability claims (787) (746) (1 718)
Scheme terminations and member withdrawals (3 135) (3 095) (6 478)
Annuity payments (147) (141) (280)
Total claims and policyholders benefits (15 268) (15 071) (31 142)
Long-term insurance net cash flows 1 118 (265) (287)
Sources of insurance operations cash flows
by business unit:
Retail SA 1 408 418 990
Corporate (323) (742) (1 517)
STANLIB Multi-manager (50) 4 (19)
Frank.net 1
Liberty Africa (1) 82 55 259
(1) Liberty group owns less than 100% of the various entities that make up
Liberty Africa. The information is recorded at 100% and is not adjusted for
proportional legal ownership.
Short-term insurance net cash flows
for the six months ended 30 June 2011
30 June 31 Dec
2011 2010
Rm Rm
Unaudited
Premiums 138 77
Liberty Health - medical risk 76 77
Liberty Africa - motor, property and other 39
- medical risk 23
Claims (87) (63)
Liberty Health - medical risk (53) (63)
Liberty Africa - motor, property and other (17)
- medical risk (17)
Net cash inflows from short-term insurance 51 14
Asset management net cash flows - STANLIB and Liberty Africa
for the six months ended 30 June 2011
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Unaudited
STANLIB before money market 1 821 (4 854) (3 431)
Retail 4 177 1 129 5 908
Institutional (2 356) (5 983) (9 339)
Money market (2 933) 11 304 19 130
Retail (696) 1 594 4 840
Institutional (2 237) 9 710 14 290
Net STANLIB cash (outflows)/inflows(2) (1 112) 6 450 15 699
Liberty Africa before money market 852 4 290 4 754
Retail 173 109 318
Institutional 679 4 181 4 436
Money market 218 993 1 726
Net Liberty Africa cash inflows(1) 1 070 5 283 6 480
Net cash (outflows)/inflows from asset
management (42) 11 733 22 179
(1) Liberty group owns less than 100% of the various entities that make up
Liberty Africa. The information is recorded at 100% and is not adjusted for
proportional legal ownership.
(2) STANLIB cash flows exclude intergroup life funds.
Capital commitments
as at 30 June 2011
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Business acquisitions(1) 38 292 143
Equipment 180 198 236
Investment and owner-occupied property 1 515 1 999 1 654
Total capital commitments 1 733 2 489 2 033
Under contracts 961 1 390 458
Authorised by the directors but not
contracted 772 1 099 1 445
Under agreement with material conditions
outstanding 130
(1) The board has approved an allocated amount towards possible business
acquisitions.
The above 2011 capital commitments will be financed by available bank
facilities, existing cash resources, internally generated funds, R276 million
(31 December 2010: R313 million) from non-controlling interests in
unincorporated property partnerships and R4 million (31 December 2010: R5
million) from non-controlling interests in Liberty Health Holdings (Pty)
Limited.
Retirement benefit obligations
as at 30 June 2011
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 30 June 2011, the Liberty post-retirement medical aid benefit liability
was R413 million (31 December 2010: R400 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.
Related parties
as at 30 June 2011
The following selected significant related party transactions have occurred in
the 30 June 2011 financial period:
1) Summary of movement in investment in ordinary shares held by the group in the
group`s holding company is as follows:
Market
Number value Ownership
`000 Rm %
Standard Bank Group Limited
Balance at 1 January 2011 17 364 1 868 1,10
Purchases 310 32
Sales (6 013) (614)
Fair value adjustments (120)
Balance at 30 June 2011 11 661 1 166 0,74
2) Bancassurance
The Liberty group has entered into joint venture bancassurance agreements with
the Standard Bank group for the manufacture, sale and promotion of insurance,
investment and health products through the Standard Bank`s African distribution
capability. New business premium income in respect of this business in the first
half of 2011 amounted to R2 288 million (December 2010: R4 407 million). In
terms of the agreements, Liberty`s group subsidiaries pay joint venture profit
shares to various Standard Bank operations. The amounts to be paid are in most
cases dependent on source and type of business and are paid along geographical
lines. The total combined net profit share amounts accrued as payable to the
Standard Bank group for the six months to 30 June 2011 are R281 million
(December 2010: R463 million).
The agreements are evergreen agreements with a 24-month notice period for
termination, but neither party may give notice of termination until February
2013. As the joint venture bancassurance relationship provides commercial
benefits to both Liberty and Standard Bank, a governance framework is in place
to protect the interests of minority shareholders.
In order to provide enhanced transparency and further detail in respect of
Liberty`s joint venture bancassurance arrangements with Standard Bank, a summary
document has been published on the investor relations page of Liberty`s website
(www.liberty.co.za).
3) Acquisition of CfC Insurance Holdings Limited (CfC)
To continue the execution of the group`s strategy to extend its market share of
the wealth management business in African countries outside of South Africa,
Liberty has acquired a 57% controlling stake in CfC. The effective date of the
transaction is 1 April 2011.
CfC is a leading Kenyan life, health and general insurance group consisting of
CfC Life Assurance and the Heritage Insurance Company in Kenya and Tanzania.
CfC previously was a directly owned subsidiary of the Standard Bank Group and
the transaction is therefore defined as a common control transaction. In terms
of the group`s accounting policies Liberty accounts for the respective assets
and liabilities acquired at the Standard Bank Group Limited carrying values at
the date of the transaction. The excess paid over the net carrying value is
accounted for directly in equity.
The purchase price is R199 million consisting of R84 million of new equity
capital, a R108 million payment to Standard Bank and an expected additional
amount of USD1 million (rand equivalent of R7 million) relating to an earn out
based on an asset base improvement impact on net value. The maximum possible
amount of the earn out is USD4 million and the latest possible settlement date
for the earn out is 31 March 2013.
The assets and liabilities arising from the acquisition are as follows:
Rm
Equipment and owner-occupied properties under development 55
Owner-occupied properties 51
Investment properties 43
Goodwill 26
Intangible assets 51
Financial investments 1 340
Prepayments, insurance and other receivables 122
Other assets 5
Policyholder liabilities (1 070)
Short-term insurance liabilities (228)
Insurance and other payables (169)
Deferred taxation (71)
Other liabilities (43)
Net assets and liabilities assumed 112
Cash acquired 210
Non-controlling interests(1) (142)
Net asset value attributable to ordinary shareholders 180
Acquisition price 199
Capital contribution 84
Cash paid to Standard Bank 108
Contingent consideration 7
Excess purchase price accounted for directly in equity (19)
(1) Non-controlling interests represent their proportionate share of the assets
and liabilities assumed from the Standard Bank Group.
Since acquisition date, CfC have contributed R92 million to the group`s total
revenue and R10 million to the group`s total earnings (of which R6 million was
Liberty`s share) for the six months ended 30 June 2011.
Date: 04/08/2011 07:05:19 Produced by the JSE SENS Department.
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