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LBH
LBH
LBH - Liberty Holdings Limited - Annual results presentation
For the year ended 31 December 2011
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE0000127148
Annual results presentation
For the year ended 31 December 2011
This announcement on Liberty Holdings Limited`s annual results for the year
ended 31 December 2011 has been prepared and supervised by JC Hubbard (Group
Chief Financial Officer) BCom CA(SA) and CG Troskie (Group Financial Director)
BCom (Hons) CA(SA)
Highlights
- return on group equity value 15,3%
- BEE normalised group equity value up 10%
- long-term insurance indexed new business up 19%
- value of long-term insurance new business up 57%
- STANLIB headline earnings up 15%
- BEE normalised headline earnings R2 663 million
- long-term insurance cash inflows R4,2 billion
- Liberty Group Limited CAR cover 2,9 times
Financial performance indicators
for the year ended 31 December 2011
2011 % change 2010
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) 997,6 8,6 918,6
BEE normalised headline earnings per share
(cents) 930,8 2,6 907,6
Adjusted core operating earnings 2 636 15,5 2 283
BEE normalised return on equity (%) 19,6 (7,5) 21,2
Group equity value
BEE normalised group equity value per
share (R) 100,15 10,0 91,01
BEE normalised return on group equity
value (%) 15,3 14,2 13,4
Distributions per share (cents) 259(1) n/a(1) 455
Interim capital reduction 182 11,0 164
Part final dividend (2010: full final dividend) 77(1) n/a(1) 291
Total assets under management (Rbn) 455 2,9 442
Long-term insurance operations
Indexed new business (excluding contractual
increases) (Rm) 5 152 19,1 4 327
New business margin (%) 1,4 16,7 1,2
Net customer cash inflows/(outflows) (Rm) 4 230 >100 (287)
Capital adequacy cover of Liberty Group
Limited (times covered) 2,89 8,2 2,67
Asset management - STANLIB and Liberty Africa
Assets under management (Rbn) 380 (1,0) 384
Net cash (outflows)/inflows including money
market (Rm) (91) (>100) 22 179
Retail and institutional net cash inflows
excluding money market (Rm) 13 598 >100 1 323
Money market net cash (outflows)/inflows (Rm) (13 689) (>100) 20 856
Comparison to 2010 is not applicable as the full final distribution is not yet
determined.
Commentary on results
for the year ended 31 December 2011
Overview
In 2011 the group produced a return on equity of 20%, supported by strong
operational earnings offset by lower returns on available capital invested in
the market. In addition, we delivered substantial improvements in persistency,
sales and investment performance. A very pleasing aspect of this year`s result
is the contribution to earnings achieved by management`s successful
implementation of operational strategy in the core South African insurance and
asset management businesses.
A key positive feature has been the resolution of the policyholder persistency
issue in Retail SA and the substantial improvement in the value of in-force
contracts. New long-term insurance business sales were very pleasing across all
the operations with indexed new business up 19%. Long-term insurance client net
cash flows were positive R4 billion, which is an excellent result considering
the current consumer environment.
Our market leading balance sheet management capability continues to ensure
shareholder exposures to asset/liability mismatching are well within risk
parameters. Fund performance at STANLIB has continued to improve and we are
proud of the 6 Raging Bull awards recently received. STANLIB headline earnings
improved by 15% over 2010. Our property division produced another solid result
and was widely acclaimed on the successful completion of various development
projects, including the extension to the premier African Sandton City shopping
complex. For a variety of reasons the Growth Initiatives have not performed as
well as we would have liked but a number of legacy issues were resolved.
Investment markets extended their volatility largely due to the debt crisis in
Europe. However, a strong final quarter local equity performance supported a
gross return of 8,1% on the shareholder investment portfolio. This was, however,
lower than the 11% achieved in 2010 and largely offset the increase in
operational earnings. Group BEE normalised headline earnings ended at R2 663
million, 3% higher than 2010. This converts to a BEE normalised headline
earnings per ordinary share of R9,31 (2010: R9,08). Through this result,
combined with the effective risk management of the balance sheet, the group has
enhanced its capital position with its main life licence entity, Liberty Group
Limited, further strengthening its capital adequacy cover ratio. BEE normalised
equity value has improved by 10% to more than R100 per share and return on group
equity value was 15,3%, which is at the higher end of our stated target range.
Update on strategy
Our focus remains on managing the core South African insurance operations 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. The steps taken to improve asset management
capability leveraging off the strong property, fixed income and money market
franchises are starting to gain traction, 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 Initiatives.
We have made good progress towards readiness for the proposed new long-term
insurance solvency regime (Solvency Assessment and Management(SAM)) and we have
set aside a R165 million reserve for associated project costs. Preliminary
assessments through participation in the first South African SAM quantitative
impact study indicate that Liberty has a surplus capital position over expected
future minimum requirements.
Business unit financial review
2011 % 2010
Contributions to earnings by business unit Rm change Rm
South African long-term insurance
Retail SA 1 314 46,2 899
Corporate 36 (65,0) 103
LibFin 1 124 (22,1) 1 443
Asset management
STANLIB 414 14,7 361
Liberty Properties 96 - 96
Growth initiatives
Liberty Africa 21 >100 10
Liberty Health (65) (51,2) (43)
Frank (47) (6,8) (44)
Central overheads and sundry income (296) 2,3 (303)
Headline earnings 2 597 3,0 2 522
BEE preference share adjustment 66 (12,0) 75
BEE normalised headline earnings 2 663 2,5 2 597
South African long-term insurance
Retail SA
Headline earnings for the year were R1 314 million, up 46% compared to 2010,
reflecting our considerable achievement in improving policyholder persistency.
Besides the positive impact of persistency assumption changes, other assumption
changes included the positive impact of an improved estimate of the illiquidity
premium used in liability valuations, offset by strengthening mortality
assumptions on certain annuity books and increased expense reserving to maintain
the in-force book. The total impact of all assumption changes was a positive
contribution to earnings of R292 million.
The implementation of a new value proposition for financial advisers, which
recognises the important balance between persistency, book size and quality of
new business has been well received and is producing the ideal balance of
selling quality new business and enhancing the value of the existing client
base. Various significant developments in the products and distribution area
occurred, including the May and October 2011 launches of a revised set of risk
products. In addition, Liberty was voted best risk product provider by the
Financial Intermediaries Association of Southern Africa in May 2011.
Indexed new business sales (excluding contractual increases) of R4,4 billion
have improved by 18% over 2010 (R3,7 billion) despite significantly lower
emerging consumer market sales as a consequence of the remedial action taken to
remove unprofitable business. Increases in our flagship investment products and
the credit life sales under the bancassurance agreement with Standard Bank are
particularly pleasing. The new business margin of 1,6% is a good improvement
from the 1,3% achieved last year. Acquisition overhead cost efficiency remains a
challenge and further improvements to margin through increased volume of quality
sales and better cost efficiency are our top priorities.
Net cash flows into our Retail SA insurance operations were excellent at R4,8
billion supported by strong contributions from our sales of single premium
investment products and good extensions of maturing policies.
Policy service costs remain well within actuarial assumptions. Certain retention
and project capacity costs, which were previously excluded from the maintenance
cost assumption, have now been fully capitalised as recurring costs as they are
now integrated into operational processes.
Corporate
The past practice of selling employee retirement fund solutions to small and
medium enterprises has unfortunately increasingly led to an inefficient business
model after the recent introduction of substantial regulatory compliance
requirements. Liberty Corporate is effectively in a process of transition,
migrating its client base to more cost efficient umbrella funds whilst
establishing a service capability to larger corporates and retirement funds.
Corporate headline earnings at R36 million have been impacted by an increase to
the retirement fund administration project provision of R60 million. This was
due to a scope increase of the project following the adopted strategy of
converting small retirement schemes to more efficient umbrella structures.
Normalising for the additional provision, earnings at R96 million are marginally
lower than the R103 million in 2010. An 18% increase in indexed new business was
achieved, including higher enhancement sales to existing umbrella clients.
The business unit still has negative net cash outflows of R661 million for the
year, however, these are improved from the equivalent 2010 net outflow of R1 517
million.
LibFin
Over the period under review, our low risk balanced shareholder investment
portfolio returned 8,1% pre taxation in line with benchmark reflecting the
investment return environment.
LibFin Markets continued to manage market risk exposures within a narrow range.
Headline earnings of R155 million flowed mainly from improving credit margins on
assets backing annuities and guaranteed capital bonds and included certain one
off positive items. 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 R25 billion
of asset portfolios at 31 December 2011.
Asset management
STANLIB
Following a sustained period of inflows, STANLIB, as expected due to the
increasing risk appetite of investors, experienced net outflows of R13 billion
from its money market funds. However, higher margin retail inflows were strong
at R10 billion. Total assets under management are R341 billion (2010: R355
billion).
The multi-specialist franchise operating model has now been implemented. The
majority of previously under performing funds under management are now
reflecting significantly improved investment performance. STANLIB`s performance
in the Alexander Forbes Global Best Investment View Survey for global balanced
funds has placed STANLIB in the 1st quartile over 1 and 2 years and 2nd quartile
over 3 years.
STANLIB`s 15% increase in headline earnings to R414 million (2010: R361 million)
reflects higher performance fees and a higher weighting to higher margin retail
average assets under management. STANLIB will continue to embed investment
processes and disciplines to ensure short-term improvements are sustained over
the longer term.
Liberty Properties
Liberty Properties continues to return excellent investment performance on the
policyholder property portfolio, as evidenced by 28 consecutive years of double
digit returns.
Liberty Properties` earnings after taxation of R96 million remained at 2010
levels with development capacity build costs offsetting the improved property
portfolio management fees. Liberty Properties successfully completed extensions
to the Sandton City complex, as well as the development of a third party
property in Zambia. The focus in 2012 is to increase our third party development
mandates in the key African market.
Growth initiatives
Liberty Africa
The purchase of a 57% interest in CfC Insurance Holdings Limited (CfC) for R199
million effective 1 April 2011, provides us with significant growth
opportunities in the East African region. CfC, which is listed on the Nairobi
Stock Exchange, is a leading Kenyan life, health and general insurance group.
The deterioration of the Kenyan economic environment in the second half of 2011
has negatively impacted the nine month result, however the medium term prospects
in this region remain encouraging.
Liberty Africa`s asset management operations continued to attract very good
positive net cash inflows of R5,4 billion for the period (2010: R6,5 billion)
bringing assets under management to R38,7 billion. Attributable headline
earnings of R21 million are substantially up on 2010, reflecting the CfC
contribution as well as a pleasing improvement in earnings from asset
management.
Liberty Health
A number of one off costs associated with past operational issues have affected
the earnings performance in 2011. Liberty Health has in past reporting periods
experienced a loss of customer contracts within the information technology
services area. However, the rate of loss has slowed and towards the end of the
year a significant client returned, which resulted in an increase of 22 000
lives over the year. Sales of health risk products in the rest of Africa
continue to grow, increasing our in-force book to 68 000 lives (December 2010:
33 000). Underwriting losses are being experienced on this book, however
remedial action on pricing and risk management has been taken.
The new management team is now able to focus its efforts on sustainability and
growth opportunities including achieving acceptable margins on our flagship
medical expense risk products.
Direct Financial Services (incorporating Frank)
The direct IT platform capability is now being leveraged to support a broader
direct strategy, which will be housed under a Direct Financial Services business
unit. Besides Frank, this initially includes supporting the transactional
opportunity under the Standard Bank bancassurance agreement.
After commencing business in November 2010, Frank, which currently provides
simple life cover products through an alternative direct distribution channel,
has achieved pleasing brand presence, however, conversion of leads and
persistency of business needs to be improved.
Bancassurance
The recently agreed revised terms of the commercial bancassurance joint venture
relationship with Standard Bank, which broaden the available distribution
channels, product sets and geographies are already starting to bear fruit. Sales
on an indexed basis of insurance products from bancassurance channels were 19%
higher than 2010. Earnings from credit life were R111 million (2010: R97
million) and STANLIB received net asset management fees of R357 million (2010:
R333 million) related to assets acquired by Standard Bank distribution. The
total embedded value of in-force contracts sold under the agreement,
attributable to Liberty, has grown 11% to R1,1 billion.
Capital adequacy cover
The capital adequacy cover of Liberty Group Limited is strong at 2,89 times the
statutory requirement (2010: 2,67 times). All the other group subsidiary life
licences are well capitalised.
Part final dividend for the year ended 31 December 2011
Due to the changes relating to dividend taxation, the board has decided to
declare a part final dividend of 77 cents per ordinary share representing the
equivalent value of available STC credits. The board intends to supplement this
with a further distribution as soon as possible after 1 April 2012 and
shareholders will be advised accordingly, in due course. These combined
distributions, along with the previously declared interim capital reduction,
will be in accordance with the stated dividend policy. The board will not be
adjusting the level of the dividend for the changes in the dividend taxation.
The directors have approved a part final dividend of 77 cents per ordinary
share.
The important dates pertaining to the part final dividend are as follows:
Last date to trade cum dividend on the JSE Thursday, 15 March 2012
First trading day ex dividend on the JSE Friday, 16 March 2012
Record date Friday, 23 March 2012
Payment date Monday, 26 March 2012
Share certificates may not be de-materialised or re-materialised between Friday,
16 March 2012 and Friday, 23 March 2012, 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, 26 March 2012.
Events after the reporting period
The South African Minister of Finance has announced as part of the Budget 2012
tax proposals that the effective capital gains tax rates will increase for all
disposals of qualifying assets from 1 March 2012. The inclusion rate for
individuals and special trusts will increase to 33,3% (previously 25%). In the
context of a long-term insurer it means that the effective capital gains tax
rate applicable to the individual policyholder fund will increase to 10%
(previously 7,5%). The inclusion rate for other entities, which includes the
company policyholder fund of a long-term insurer, will increase to 66,6%
(previously 50%), raising the effective rate for companies to 18,6% (previously
14%).
The unrealised capital gains tax provision as at 31 December 2011 would have
increased by R418 million to R1 669 million, had the group applied the new
increased inclusion rates. This increase in taxation liability will largely be
absorbed by the group`s policyholders in terms of the provisions of their
respective policies and therefore the group`s liability to policyholders at 31
December 2011 would be reduced. The net exposure to shareholders is likely to be
less than R100 million in both earnings and shareholders` funds.
Prospects
The significant operating improvements in our core insurance and asset
management businesses position the group well to manage volatility in investment
markets and the anticipated decline in consumer disposable income. The group has
a good base off which to drive growth in its traditional markets while
leveraging the investments it has made in new markets.
Bruce Hemphill Saki Macozoma
Chief Executive Chairman
1 March 2012
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 SA (Pty) Limited
A Subsidiary of Bank of America Corporation
These results are available at www.liberty.co.za
Accounting policies
The 2011 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 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 South African Companies Act No. 71 of
2008.
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 year except for the following:
The group has adopted for the first time, effective 1 January 2011, an
accounting policy for cash flow hedge accounting. Cash flow hedges are hedges of
highly probable future cash flows attributable to a recognised asset or
liability or a forecast transaction. The group applies cash flow hedge
accounting to match the profit or loss emergence of the hedge instrument and
hedged item in respect of changes in future cash flows resulting from the
conversion to rand of contracted foreign currency denominated cash flows
associated with financial instrument assets.
Several other amendments to IFRS standards or interpretations were made by the
International Accounting Standards Board, which are effective for the period
under review. These amendments or interpretations are either not significant or
not applicable to the 2011 results of the group.
Audit opinion
The company`s auditors, PricewaterhouseCoopers Inc., have issued their opinion
on the consolidated financial statements and the group equity value report for
the year ended 31 December 2011. 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, 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.
Adjusted core operating earnings
This represents the group`s BEE normalised headline earnings adjusted for the
expected long-term rate of return on the shareholder investment portfolio and
excludes LibFin Markets portfolio performance.
Capital adequacy requirement (CAR)
The capital adequacy requirement 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 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 31 December 2011
Audited 2011 2010
Rm Rm
Assets
Equipment and owner-occupied properties under development 897 957
Owner-occupied properties 1 598 1 513
Investment properties 23 470 21 521
Intangible assets 933 1 046
Defined benefit pension fund employer surplus 199 202
Deferred acquisition costs 403 364
Interests in joint ventures 626 605
Reinsurance assets 1 104 847
- long-term 902 847
- short-term 202
Operating leases - accrued income 1 085 1 107
Derivative assets 3 790 2 659
Interests in associates - mutual funds 11 697 5 814
Financial investments 197 959 192 317
Deferred taxation 183 147
Prepayments, insurance and other receivables 2 620 2 884
Cash and cash equivalents 6 664 5 858
Total assets 253 228 237 841
Liabilities
Long-term policyholder liabilities 208 565 197 878
Insurance contracts 145 558 138 873
Investment contracts with discretionary participation
features 3 447 2 634
Financial liabilities under investment contracts 59 560 56 371
Short-term insurance liabilities 466
Financial liabilities at amortised cost 2 195 2 143
Third party financial liabilities arising on consolidation
of mutual funds 11 164 11 000
Employee benefits 1 082 830
Deferred revenue 159 139
Deferred taxation 2 819 2 437
Provisions 371 172
Operating leases - accrued expense 93 144
Derivative liabilities 3 113 1 909
Insurance and other payables 6 304 6 070
Current taxation 614 740
Total liabilities 236 945 223 462
Equity
Ordinary shareholders` interests 13 211 11 716
Share capital 26 26
Share premium 6 133 6 654
Retained surplus 7 683 5 842
Other reserves (631) (806)
Non-controlling interests 3 072 2 663
Total equity 16 283 14 379
Total equity and liabilities 253 228 237 841
Statement of comprehensive income
for the year ended 31 December 2011
2011 2010
Audited Rm Rm
Revenue
Insurance premiums 27 302 22 812
Reinsurance premiums (909) (699)
Net insurance premiums 26 393 22 113
Service fee income from policyholder investment contracts 863 868
Investment income 11 079 10 910
Hotel operations sales 679 687
Investment gains 8 148 15 290
Fee revenue and reinsurance commission 1 560 1 487
Adjustment to defined benefit pension fund employer
surplus (4) 11
Total revenue 48 718 51 366
Claims and policyholder benefits under insurance
contracts (22 897) (22 096)
Insurance claims recovered from reinsurers 627 558
Change in long-term policyholder liabilities (6 210) (8 991)
Insurance contracts (6 336) (9 108)
Investment contracts with discretionary
participation features 73 58
Applicable to reinsurers 53 59
Fair value adjustment to policyholder liabilities under
investment contracts (4 089) (6 257)
Fair value adjustment on third party mutual fund
interests (1 230) (549)
Acquisition costs (3 268) (2 906)
General marketing and administration expenses (6 498) (5 931)
Finance costs (271) (265)
Profit share allocations under bancassurance and
other agreements (628) (504)
Goodwill impairment (114)
Equity accounted earnings from joint ventures 9 45
Profit before taxation 4 263 4 356
Taxation (1 383) (1 717)
Total earnings 2 880 2 639
Other comprehensive income/(loss) 158 (96)
Owner-occupied properties - fair value adjustment 115 (99)
Net change in fair value on cash flow hedges 14
Foreign currency translation 74 (28)
Income and capital gains tax relating to:
- owner-occupied properties fair value adjustment (41) 31
- net change in fair value on cash flow hedges (4)
Total comprehensive income 3 038 2 543
Total earnings attributable to:
Liberty shareholders` interests 2 599 2 393
Non-controlling interests 281 246
2 880 2 639
Total comprehensive income attributable to:
Liberty shareholders` interests 2 736 2 302
Non-controlling interests 302 241
3 038 2 543
Cents Cents
Basic earnings per share 997,6 918,6
Fully diluted basic earnings per share 954,3 883,3
Headline earnings and earnings per share
for the year ended 31 December 2011
2011 2010
Audited Rm Rm
Reconciliation of total earnings to headline earnings
attributable to equity holders
Total earnings attributable to equity holders 2 599 2 393
Adjustments
Preference share dividend (2) (2)
Basic earnings attributable to ordinary shareholders 2 597 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 2 597 2 522
Net income earned on BEE preference shares 66 75
BEE normalised headline earnings attributable to ordinary
shareholders 2 663 2 597
Weighted average number of shares in issue (`000) 260 306 260 196
BEE normalised weighted average number of shares in
issue (`000) 286 102 285 992
Fully diluted weighted average number of shares in
issue (`000) 272 113 270 589
Cents Cents
Earnings per share attributable to ordinary shareholders
Basic 997,6 918,6
Headline 997,6 968,8
BEE normalised headline 930,8 907,6
Fully diluted earnings per share attributable to ordinary
equity holders
Basic 954,3 883,3
Headline 954,3 931,6
Condensed statement of changes in shareholders` funds
for the year ended 31 December 2011
2011 2010
Audited Rm Rm
Balance of ordinary shareholders` funds at 1 January 11 716 10 515
Dividend/capital reduction(1) (1 353) (1 301)
Total comprehensive income 2 736 2 302
Share buy-back (40) (30)
Subscription for shares 21 20
Black Economic Empowerment transaction 112 117
Share-based payments 55 60
Payment on settlement of share options/rights (2) (2)
Acquisition of additional interests in subsidiaries (3) (2)
Preference dividend (2) (2)
FCTR recycled through profit or loss 21
Profit on partial disposal of a subsidiary 8 18
Acquisition of CfC Insurance Holdings Limited (37)
Ordinary shareholders` funds 13 211 11 716
Balance on non-controlling interests at 1 January 2 663 2 420
Total comprehensive income 302 241
Unincorporated property partnerships 4 (1)
Non-controlling share of subsidiary dividend (13) (3)
Acquisition of additional interests in subsidiaries (24) (16)
Issue of shares in subsidiary 40
Profit on partial disposal of a subsidiary 10 (18)
Acquisition of CfC Insurance Holdings Limited 130
Non-controlling interests 3 072 2 663
Total shareholders` funds 16 283 14 379
(1) 31 December 2011: 2010 final dividend of 291 cents per share and 2011
interim capital reduction of 182 cents per share, 31 December 2010: interim and
final capital reduction of 455 cents per share.
Condensed statement of cash flows
for the year ended 31 December 2011
2011 2010
Audited Rm Rm
Operating activities 5 469 1 632
Investing activities (5 008) (6 480)
Financing activities 148 67
Net increase/(decrease) in cash and cash equivalents 609 (4 781)
Cash and cash equivalents at the beginning of the year 5 858 10 637
Foreign currency translation 29
Cash and cash equivalents acquired through business
acquisition 168 2
Cash and cash equivalents at the end of the period 6 664 5 858
Condensed segment information
for the year ended 31 December 2011
Audited Short-
2011 Long-term insurance term
Rm Retail Corporate insurance
Total revenue 41 649 10 836 319
Profit/(loss) before taxation 3 050 77 (88)
Taxation (1 269) 19 (7)
Total earnings/(loss) 1 781 96 (95)
Other comprehensive income 106 6 15
Total comprehensive income/(loss) 1 887 102 (80)
Attributable to:
Non-controlling interests (31) (19) 26
Equity holders 1 856 83 (54)
Reconciliation of total earnings/(loss) to
headline earnings/(loss) attributable to
equity holders
Total earnings/(loss) 1 781 96 (95)
Attributable (to)/from non-controlling
interests (23) (14) 33
Preference dividend
Headline earnings/(loss) 1 758 82 (62)
Net income earned on BEE preference shares
BEE normalised headline earnings/(loss) 1 758 82 (62)
Asset
2011 manage- Health
Rm ment services Other
Total revenue 2 064 279 1 174
Profit/(loss) before taxation 751 (117) 292
Taxation (209) 7 76
Total earnings/(loss) 542 (110) 368
Other comprehensive income 8 1 22
Total comprehensive income/(loss) 550 (109) 390
Attributable to:
Non-controlling interests (16) 36
Equity holders 534 (73) 390
Reconciliation of total earnings/(loss) to
headline earnings/(loss) attributable to
equity holders
Total earnings/(loss) 542 (110) 368
Attributable (to)/from non-controlling interests (15) 36
Preference dividend (2)
Headline earnings/(loss) 527 (74) 366
Net income earned on
BEE preference shares 66
BEE normalised headline earnings/(loss) 527 (74) 432
Reporting
2011 adjust- IFRS
Rm Total ments(1) reported
Total revenue 56 321 (7 603) 48 718
Profit/(loss) before taxation 3 965 298 4 263
Taxation (1 383) (1 383)
Total earnings/(loss) 2 582 298 2 880
Other comprehensive income 158 158
Total comprehensive income/(loss) 2 740 298 3 038
Attributable to:
Non-controlling interests (4) (298) (302)
Equity holders 2 736 - 2 736
Reconciliation of total earnings/(loss) to
headline earnings/(loss) attributable to
equity holders
Total earnings/(loss) 2 582 298 2 880
Attributable (to)/from non-controlling
interests 17 (298) (281)
Preference dividend (2) (2)
Headline earnings/(loss) 2 597 - 2 597
Net income earned on
BEE preference shares 66 66
BEE normalised headline earnings/(loss) 2 663 - 2 663
(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 Asset
2010 Long-term insurance 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 earnings/(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
or 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
2010 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 earnings/(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
or 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.
Group equity value report
1. Introduction
Liberty presents a "group equity value" report to reflect the combined value of
the various components of Liberty`s businesses.
Sections 2 and 3 below describe the valuation bases 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:
2.1 South African covered business:
The wholly owned subsidiary, Liberty Group Limited, comprises the cluster of
South African long-term insurance entities and related asset holding entities.
The embedded value methodology 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 group`s statutory actuary and audited by PricewaterhouseCoopers
Inc. The full embedded value report is available on request from the company
secretary.
2.2 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: As Liberty Health has yet to establish a history to support a
sustainable earnings calculation, IFRS net asset value is applied.
Liberty Africa: Liberty Africa is an emerging cluster of wealth businesses
located outside 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.
2.3 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 the South African covered businesses and allowance for certain
shareholder recurring costs incurred in Liberty Holdings Limited capitalised at
a multiple of 9 times (2010: 6 times).
3. BEE normalised group equity value
3.1 Analysis of BEE normalised group equity value
SA Other Group
Audited covered busi- funds Adjust-
business nesses invested ments
31 December 2011 (Rm)
SA insurance operations
(excluding Frank) 7 227 7 227 (3 857)
Retail SA
Corporate
Frank 116 116 (14)
Value of in-force acquired 325 325 (325)
Working capital 3 994 3 994 (291)
South African insurance operations 11 662 11 662 (4 487)
Other group businesses:
STANLIB 234 234 3 566
Properties (including Fountainhead) 270 270 684
Liberty Health (including Total
Health Trust) 81 97 178
Liberty Africa 31 354 385
Liberty Holdings 482 482 54
Cost of capital
Net equity as reported under IFRS 11 774 1 437 13 211 (183)
BEE preference funding 1 075 1 075
Allowance for future shareholders
costs (145) (145)
Allowance for employee share
options/rights (180) (142) (322)
BEE normalised equity value 12 669 1 150 13 819 (183)
Summary of adjustments:
Negative rand reserves (3 857) (3 857)
Deferred acquisition costs (389) (389)
Deferred revenue liability 152 152
Internally generated software (54) 54
Frank allowance for future expenses (14) (14)
Carrying value of in-force
business acquired (325) (325)
Fair value adjustment of
non SA covered business 4 250 4 250
(4 487) 4 304 (183)
Value of
in-force:
SA
Net covered
worth business Total
31 December 2011 (Rm)
SA insurance operations
(excluding Frank) 3 370 17 789 21 159
Retail SA 16 175
Corporate 1 614
Frank 102 38 140
Value of in-force acquired
Working capital 3 703 3 703
South African insurance operations 7 175 17 827 25 002
Other group businesses:
STANLIB 3 800 3 800
Properties (including Fountainhead) 954 954
Liberty Health (including Total Health Trust) 178 178
Liberty Africa 385 33 418
Liberty Holdings 536 536
Cost of capital (1 167) (1 167)
Net equity as reported under IFRS 13 028 16 693 29 721
BEE preference funding 1 075 1 075
Allowance for future shareholders costs (145) (1 690) (1 835)
Allowance for employee share
options/rights (322) (322)
BEE normalised equity value 13 636 15 003 28 639
Summary of adjustments:
Negative rand reserves
Deferred acquisition costs
Deferred revenue liability
Internally generated software
Frank allowance for future expenses
Carrying value of in-force business acquired
Fair value adjustment of
non SA covered business
SA Other Group
covered busi- funds Adjust-
Audited business nesses invested ments
31 December 2010 (Rm)
SA insurance operations
(excluding Frank) 7 043 7 043 (3 125)
Retail SA
Corporate
Frank 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 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
Value of
in-force:
SA
Net covered
worth business Total
31 December 2010 (Rm)
SA insurance operations
(excluding Frank) 3 918 16 522 20 440
Retail SA 14 807
Corporate 1 715
Frank 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 allowance for future expenses
Carrying value of in-force business acquired
Fair value adjustment of non SA
covered business
Other
3.2 BEE normalised group equity value earnings and value per share
31 December 2011
SA Other
covered busi-
Audited business nesses Total
Rm Rm Rm
BEE normalised equity value at end of the
year 23 185 5 454 28 639
BEE preference shares 1 075 1 075
Equity value at the end of the year 22 110 5 454 27 564
Adjustments from group restructure 15 (15)
Capital transactions 19 19
Intergroup dividends 1 283 (1 283)
Dividends paid 1 353 1 353
BEE normalised equity value at beginning of
the year (21 504) (4 526) (26 030)
Equity value at beginning of the year (20 385) (4 526) (24 911)
BEE preference shares (1 119) (1 119)
BEE normalised equity value earnings 2 979 1 002 3 981
BEE normalised return on group equity value 13,9% 22,1% 15,3%
BEE normalised number of shares (000`s) 285 961
Number of shares in issue (000`s) 260 165
Adjustment for BEE ordinary shares (000`s) 25 796
BEE normalised group equity value per share (Rand) 100,15
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 (000`s) 286 022
Number of shares in issue (000`s) 260 226
Adjustment for BEE ordinary shares (000`s) 25 796
BEE normalised group equity value per share (Rand) 91,01
3.3 Sources of BEE normalised group equity value earnings
31 December 2011
SA Other
covered busi-
business nesses Total
Audited
Rm Rm Rm
Value of new business 389 21 410
Expected return on value of in-force 1 640 1 640
Operating assumptions 949 (55) 894
Operating experience variances 286 (11) 275
Operating assumption changes 273 (44) 229
Changes in modelling methodology 390 390
Headline earnings of other businesses (108) 527 419
Operational equity value profits 2 870 493 3 363
Non headline loss of other businesses
Development costs (61) (61)
Investment return on net worth 458 174 632
Investment variances (279) (279)
Changes in economic assumptions (12) (12)
Increase in fair value adjustments on value of
other businesses 145 145
Change in allowance for share options/rights 3 (67) (64)
Change in STC allowance 257 257
Group equity value earnings 2 979 1 002 3 981
31 December 2010
SA Other
covered busi-
business nesses Total
Rm Rm Rm
Value of new business 252 9 261
Expected return on value of in-force 1 619 1 619
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 (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
3.4 Analysis of value of long-term insurance, new business and margin
Audited 31 Dec 31 Dec
Rm 2011 2010
South African covered business:
Retail SA
- Traditional Life 793 663
- Emerging Consumer Markets 111 87
- Credit Life 86 65
Liberty Corporate 95 86
Frank 51
Gross value of new business 1 136 901
Overhead acquisition costs impact on value of new business (687) (616)
Cost of required capital (60) (33)
Net value of South African covered new business 389 252
Present value of future expected premiums 28 329 22 498
Margin 1,4% 1,1%
Liberty Africa:
Net value of new business 21 9
Present value of future expected premiums 229 173
Margin 9,2% 5,2%
Total group net value of new business 410 261
Total group margin 1,4% 1,2%
3.5 Notes and definitions
BEE normalised:
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.
Value of new business and margin
Value of new business is 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.
Margin is calculated using the value of new business divided by the present
value of future modelled premiums.
Development costs
Represents project costs incurred on developing or enhancing future revenue
opportunities.
Negative rand reserves
A portion of expected future management and administration fees are present
valued at and recognised at point of sale. Prospective measurement takes place
at each valuation date until received.
Long-term insurance new business
for the year ended 31 December 2011
2011 2010
Unaudited Rm Rm
Retail SA 16 229 12 672
Single 13 171 9 950
Recurring 3 058 2 722
Corporate 1 586 1 488
Single 1 053 1 051
Recurring 533 437
Liberty Africa(1) 140 220
Single 32 169
Recurring 108 51
Frank 28
Recurring 28
Total new business 17 983 14 380
Single 14 256 11 170
Recurring 3 727 3 210
Sources of insurance operations total new business by
customer segment:
Retail 16 367 12 722
Single 13 198 9 966
Recurring 3 169 2 756
Corporate 1 616 1 658
Single 1 058 1 204
Recurring 558 454
Total new business 17 983 14 380
Indexed new business 5 152 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 year ended 31 December 2011
2011 2010
Unaudited Rbn Rbn
Managed by group business units 432 419
STANLIB 341 355
Liberty Africa(2) 39 29
Liberty Properties 27 25
LibFin 25 10
Externally managed 23 23
Total assets under management 455 442
(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 year ended 31 December 2011
2011 2010
Audited Rm Rm
Premiums
Recurring 20 853 19 473
Retail 14 817 13 719
Corporate 6 036 5 754
Single 14 858 11 382
Retail 8 561 6 098
Corporate 1 629 1 376
Immediate annuities 4 668 3 908
Net premium income from insurance contracts and inflows
from investment contracts 35 711 30 855
Claims and policyholders benefits
Retail (23 086) (22 666)
Death and disability claims (4 199) (4 043)
Policy maturity claims (4 717) (4 373)
Policy surrender claims (10 754) (11 054)
Annuity payments (3 416) (3 196)
Corporate (8 395) (8 476)
Death and disability claims (1 745) (1 718)
Scheme terminations and member withdrawals (6 349) (6 478)
Annuity payments (301) (280)
Net claims and policyholders benefits (31 481) (31 142)
Long-term insurance net cash flows 4 230 (287)
Sources of insurance operations cash flows by business unit:
Retail SA 4 767 990
Corporate (661) (1 517)
STANLIB Multi-manager (109) (19)
Frank 17
Liberty Africa(1) 216 259
(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 year ended 31 December 2011
2011 2010
Audited Rm Rm
Premiums 343 77
Liberty Health - medical risk 162 77
Liberty Africa - motor, property and other 179
- medical risk 2
Claims (235) (63)
Liberty Health - medical risk (144) (63)
Liberty Africa - motor, property and other (85)
- medical risk (6)
Net cash inflows from short-term insurance 108 14
Asset management net cash flows - STANLIB and
Liberty Africa
for the year ended 31 December 2011
2011 2010
Unaudited Rm Rm
STANLIB before money market 7 919 (3 431)
Retail 10 004 5 908
Institutional (2 085) (9 339)
Money market (13 407) 19 130
Retail 1 027 4 840
Institutional (14 434) 14 290
Net STANLIB cash (outflows)/inflows(1) (5 488) 15 699
Liberty Africa before money market 5 679 4 754
Retail 295 318
Institutional 5 384 4 436
Money market (282) 1 726
Net Liberty Africa cash inflows (2) 5 397 6 480
Net cash (outflows)/inflows from asset management (91) 22 179
(1) STANLIB cash flows exclude intergroup life funds.
(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.
Capital commitments
as at 31 December 2011
2011 2010
Audited Rm Rm
Business acquisitions(1) 57 143
Equipment 300 236
Investment and owner-occupied property 1 486 1 654
Total capital commitments 1 843 2 033
Under contracts 646 458
Authorised by the directors but not contracted 1 182 1 445
Under agreement with material conditions outstanding 15 130
(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 and R122 million
(2010: R313 million) from non-controlling interests in unincorporated property
partnerships. The group`s share of commitments of joint ventures amounts to R12
million (2010: R7 million) and is to be financed by the existing facilities in
the joint venture operations.
Retirement benefit obligations
as at 31 December 2011
Audited
Post-retirement medical benefit
The group operates an unfunded post-retirement medical aid benefit for permanent
employees who joined the group prior to 1 February 1999 and agency staff who
joined prior to 1 March 2005.
As at 31 December 2011, the Liberty post-retirement medical aid benefit
liability was R459 million (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 31 December 2011
Audited
The following selected significant related party transactions have occurred in
the 31 December 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:
Fair
Number value Ownership
`000 Rm %
Standard Bank Group Limited
Balance at 1 January 2011 17 364 1 868 1,10
Purchases 2 500 252
Sales (7 708) (768)
Fair value adjustments (151)
Balance at 31 December 2011 12 156 1 201 0,77
2) Bancassurance
Liberty 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 Standard Bank`s African distribution
capability. New business insurance premium income in respect of this business in
2011 amounted to R5 404 million (2010 full year: R4 407 million). In terms of
the agreements, Liberty`s 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 net profit share calculated as payable to the Standard Bank group for
2011 is R608 million (2010: R463 million).
During 2010 Liberty and Standard Bank conducted a detailed review of the
existing bancassurance agreement and 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 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 56,8% controlling stake in CfC. The effective date of the
transaction was 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.
Previously CfC 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 US$1 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 US$4 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:
2011
Rm
Equipment and owner-occupied properties under development 55
Owner-occupied properties 51
Investment properties 43
Goodwill 26
Intangible assets 51
Deferred acquisition costs 13
Deferred taxation asset 5
Reinsurance assets 111
Financial investments 1 340
Prepayments, insurance and other receivables 109
Long-term policyholder liabilities (1 070)
Short-term insurance liabilities (339)
Financial liabilities at amortised cost (41)
Employee benefits (1)
Deferred revenue (7)
Deferred taxation liability (59)
Insurance and other payables (160)
Current taxation (3)
Net assets and liabilities assumed 124
Cash acquired 168
Non-controlling interests(1) (130)
Net asset value attributable to ordinary shareholders 162
Acquisition price 199
Capital contribution 84
Cash paid to Standard Bank 108
Contingent consideration 7
Excess purchase price accounted for directly in equity (37)
(1) Non-controlling interests represent their proportionate share of the assets
and liabilities assumed from the Standard Bank Group.
Subsequent to the 30 June 2011 interim disclosures, these items were adjusted to
reflect corrections arising from a review of the 31 March 2011 management
accounts:
As
reported at
Revised 30 June 2011 Difference
Rm Rm Rm
Cash acquired 168 210 (42)
Deferred taxation liability (59) (71) 12
Non-controlling interests (130) (142) 12
Total (21) (3) (18)
Since acquisition date, CfC has contributed R325 million to the group`s total
revenue and R9 million to the group`s total earnings (of which R5 million was
Liberty`s share) for the year ended 31 December 2011.
Date: 01/03/2012 07:05:04 Produced by the JSE SENS Department.
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