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Release Date: 06/08/2002 16:00:54Code(s): LGL © 2002 SharenetClick CODE for more details on the companyLiberty Group Limited - interim results - 30 June 2002
Liberty Group Limited
(Registration number 1957/002788/06)
(JSE Share code LGL)
(Issuer code LIBU)
(ISIN: ZAE000024543)
(Incorporated in the Republic of South Africa)
These results and additional actuarial information are available at
www.liberty.co.za.
FEATURES
-Indexed new business up 22%
-New business up 18%
-New business margin of 18%
-Significant gains in market share
-Bancassurance new business up 81% to R1,2 billion
-Headline earnings per share down 5%
-Net cash inflow from insurance operations of R1,6 billion up 60%
-Embedded value per share up 5% to R56,68
-Dividend cover amended
-Dividend per share of 162 cents up 27%
* Commentary on results
Liberty Group has performed well in all aspects under its control during the
six months ended 30 June 2002. The Group has grown new business in testing
markets and substantial progress has been made in creating further value in
the in force insurance portfolio. This good operational performance could
however not escape the investment market trends experienced throughout the
world which have had the effect of reducing life fund earnings.
* Life fund operating surplus
The life fund operating surplus for the half year ended 30 June 2002 of
R563,0 million decreased by R30,5 million (5,1%) compared with the life fund
operating surplus for the half year ended 30 June 2001 of R593,5 million. The
decrease in the life fund operating surplus is directly attributable to the
impact of significantly lower returns on investment portfolios. The weighted
average return used for the six months to 30 June 2002 was -0,4% compared
with +10,2% for the six months to 30 June 2001.
The lower life fund earnings were offset by benefits arising from better than
assumed costs per policy.
* Headline earnings
Headline earnings from continuing operations decreased by 4,7% from R694,2
million for the half year ended 30 June 2001 to R661,5 million in respect of
the half year ended 30 June 2002. The decrease is mainly attributable to the
effect that the weak investment markets have had on the life fund operating
surplus, which reduced by 5,1%.
The current period also includes a R44,2 million Secondary Tax on Companies
(STC) charge in respect of the payment of the 2001 final dividend, whereas
the comparative period had no charge for STC in headline earnings as the 2000
final dividend was incorporated in the capital reduction which was paid on 4
April 2001.
* New business production
On-balance sheet new business increased in total by 18,4% from R4 824,0
million for the half year ended 30 June 2001 to R5 712,5 million for the half
year ended 30 June 2002. Indexed new business increased by 21,6% from R1
378,2 million to R1 676,4 million. This level of increase is most pleasing as
it reflects the efforts and commitment of the sales force and strategies
deployed by the Group in recent years to maintain the medium term growth rate
at 12% above inflation in our target market. New business sales have been
supported by attractive new product developments and STANLIB Asset
Management`s (STANLIBAM`s) strong track record of investment performance.
Liberty continues to gain market share. This is confirmed in recently
published statistics for 2001. Liberty`s market share for new recurring
individual premiums increased from 15,72% for the twelve months ended 31
December 2000 to 17,86% for the same period ended 31 December 2001. Market
share for new individual single premiums increased from 11,49% to 14,76%
compared with all life offices during this period. Over the same period,
Liberty`s market share for group premiums increased from 7,50% to 8,78%.
Total Liberty Group new business from Bancassurance increased by 81,3%
compared with the same period in 2001.
* Net insurance cash flow
Net cash flow from insurance operations for the Group (net premium inflow
less claims and policyholder benefits) was positive at R1 636,5 million for
the half year ended 30 June 2002 compared with a positive R1 024,3 million
for the same period in 2001. Net premium income increased by 11,4% from R6
781,6 million to R7 551,7 million.
Group business scheme member withdrawals and group terminations and
withdrawals decreased by 40,6% and by 10,4% respectively for the six months
ended 30 June 2002 compared with the same period in 2001. Liberty Personal
Benefits` surrender and maturity claims increased by 8,7% for the six months
ended 30 June 2002 compared with the same period in 2001. The lapse
experience in Liberty Personal Benefits has improved considerably relative to
the same period in 2001.
Charter Life`s net cash flow increased by 21,9% from R253,1 million for the
half year to 30 June 2001 to R308,6 million in the current period under
review, as a result of increased single premium income.
* Embedded value and value of new business
Embedded value increased by 4,8% from R14 767,4 million at 31 December 2001
to R15 477,5 million at 30 June 2002 despite poor market performance. The
increase in the value of life business in force is due to higher new business
volumes and better retention of policies. Lower than anticipated expenses
also contributed to the increase in embedded value. The embedded value also
reflects the impact of the change in the dividend cover with higher STC
charges being taken into account.
Embedded value per share increased by 4,6% from R54,21 at 31 December 2001 to
R56,68 at 30 June 2002.
The value of new business increased by 10,3% from R224,8 million for the
period ended 30 June 2001 to R247,9 million for the period ended 30 June
2002.
The new business margin (value of new business expressed as a percentage of
indexed new business excluding natural increases) of 18% compares with 19% in
respect of the year ended 31 December 2001. Margins on all lines of business
have been sustained other than on Liberty Corporate business. Higher volumes
of Bancassurance sales, where Standard Bank shares in the new business
profits, also led to lower margins.
* Financial services activities
Income from the Group`s financial services activities of R80,2 million for
the half year ended 30 June 2002 was substantially higher than the R20,3
million recorded for the comparative period in 2001. Lower expenditure in
Electric Liberty as a result of the repositioning of MyLife, as well as
profits generated in the Group`s shareholder treasury operations and
investment trading portfolio contributed to this increase.
Liberty Healthcare generated higher fees from increased membership and costs
were well contained. Liberty Healthcare`s contribution to Group headline
earnings of R6,9 million to 30 June 2002 compares with a loss of R8,6 million
in respect of the same period in 2001.
Headline earnings of Liberty Ermitage increased threefold from R3,1 million
in respect of the six months ended 30 June 2001 to R9,2 million in 2002 as a
result of a higher asset base as well as the conversion of Sterling into
Rand.
* STANLIB
The implementation of the STANLIB merger of asset and wealth management
activities of Liberty and Standard Bank is progressing according to plan.
STANLIBAM`s assets under management have grown by 4% or R5,7 billion from
R129,4 billion at 31 December 2001 to R135,1 billion at 30 June 2002. STANLIB
Wealth Management generated positive cash inflows of R4,4 billion in the six
months to 30 June 2002 compared with R3,1 billion in respect of the
comparative period in 2001. The merger transaction has had no material impact
on the headline earnings of Liberty in respect of the six months ended 30
June 2002.
* Investment performance
The managed and equity portfolios performed well on a relative basis for the
half year ended 30 June 2002 in volatile and weak investment markets, which
was offset by a negative return of 16,5% on the foreign assets portfolio for
the half year ended 30 June 2002 as a result of the strengthened Rand and
weak offshore markets. The weighted average return of -0,4% of these
portfolios is one of the key drivers of the life fund operating surplus.
STANLIBAM has continued to perform exceptionally well compared with its peers
and benchmarks. STANLIBAM ranks second out of the nine largest asset managers
for the 12 months ended 30 June 2002.
* Liberty Healthcare
On 23 April 2002 Liberty announced that administration of the Liberty Medical
Scheme would be transferred to Medscheme from 1 August 2002. In terms of this
arrangement Liberty has retained the following involvement in the Liberty
Medical Scheme:
- Liberty`s distribution forces will continue to market membership of the
Liberty Medical Scheme.
- Liberty will continue to reinsure some of the risk of the Liberty Medical
Scheme in terms of the reinsurance contract currently in place between
Liberty and the Liberty Medical Scheme.
- Liberty Healthcare will continue to provide input to product development
and benefit design.
* Capital and dividend cover
Shareholders` funds increased from R8 345,8 million at 31 December 2001 to
R9 136,1 million at 30 June 2002. The annualised headline return on equity in
respect of continuing operations of 16,9% for the six months to 30 June 2002
compares with 24,9% at 31 December 2001 and is attributable to the decrease
in the life fund operating surplus together with a higher level of capital.
The Group`s level of capital adequacy cover (shareholders` capital and
reserves divided by the capital adequacy requirement) has reduced marginally
from 3,5 at 31 December 2001 to 3,4 at 30 June 2002. As part of the ongoing
review of the level of capital and the cash earnings trends of the Group, the
board has resolved to change the dividend cover by retaining only one third
of headline earnings on continuing operations (previously 50%).
* Dividend
Notice is hereby given that interim ordinary dividend No. 73 of 162 cents per
share has been declared in respect of the year ending 31 December 2002. This
represents an increase of 27% over the interim dividend for 2001 of 128 cents
per share.
The important dates pertaining to this dividend are:
Last day to trade cum dividend on the JSE and Friday, 23 August 2002
LSE.
First trading day ex dividend on the JSE and Monday, 26 August 2002
LSE.
Record date. Friday, 30 August 2002
Payment date. Monday, 2 September 2002
Share certificates may not be dematerialised or rematerialised between
Monday, 26 August 2002 and Friday, 30 August 2002, both days inclusive.
Payment in respect of dividends issued by the United Kingdom transfer
secretaries will be converted from Rand to the Sterling equivalent on Monday,
2 September 2002.
Where applicable, dividends in respect of certificated shareholders will be
transferred electronically to shareholders` bank accounts on payment date.
In the absence of specific mandates, dividend cheques will be posted to
shareholders. Shareholders who have dematerialised their share certificates
will have their bank accounts, which are linked to their CSDP or broker`s
safe custody accounts, credited on Monday, 2 September 2002.
* Prospects
Profitable new business growth, market share improvements and operating
efficiencies will continue to be the focus of attention during the remainder
of the year.
The life fund operating surplus has been negatively impacted by weak
investment markets. Since the half year end markets have continued to weaken
and this will have a negative impact on earnings should these conditions
prevail to the end of the year.
Derek Cooper Roy Andersen
Chairman Group Chief Executive
6 August 2002
Transfer secretaries:
South Africa
Computershare Investor Services Limited
(Registration number 1958/003546/06)
11 Diagonal Street, Johannesburg, 2001.
PO Box 1053, Johannesburg, 2000.
Telephone +27 11 370-5000
United Kingdom
Capita IRG plc,
Bourne House,
34 Beckenham Road, Beckenham,
Kent BR34TU.
Telephone +44 208 639-2000
Sponsor: Merrill Lynch (Pty) Ltd
Registration number 1995/001805/07
Registered Sponsor and Member of the JSE Johannesburg Securities Exchange
South Africa
Accounting policies and presentation
The accounting policies adopted, comply with South African Statements of
Generally Accepted Accounting Practice, as well as the South African
Companies Act of 1973 and the Long-term Insurance Act of 1998.
These accounting policies are consistent with those applied at 31 December
2001, except for the determination of the life fund operating surplus and
capital adequacy requirement, which reflect the Statutory Actuary`s best
estimate for interim reporting purposes. A full actuarial valuation is not
performed at the half year.
The income statement reflects earnings from continuing operations separately
from proforma earnings attributable to the capital reduction in order to make
comparison of results more meaningful. The proforma earnings attributable to
the capital reduction for the six months ended 30 June 2001 represent the
earnings that were attributed to shareholders` assets that were utilised to
fund the capital reduction on 4 April 2001.
The results for the six months to 30 June 2002 include 50% of STANLIB
Limited`s consolidated results. Liberty`s investment in STANLIB has been
equity accounted both at company level and at Group level from the
implementation date of the merger. The Liberty entities that now form part of
STANLIB were previously consolidated.
* Related party transactions
* Holding company
Liberty Group Limited`s immediate holding company is Liberty Holdings
Limited, which in turn is controlled by Standard Bank Group Limited
(Stanbank), the company`s ultimate holding company. Liberty provides certain
administrative and secretarial services to Liberty Holdings Limited for which
it is reimbursed at cost.
* Banking arrangements
The Group makes use of banking facilities provided by The Standard Bank of
South Africa Limited (Standard Bank). At 30 June 2002 substantially all of
the cash and cash equivalents amounting to R771,6 million (31 December 2001:
R485,2 million) were held with Standard Bank. In addition, term deposits and
other money market securities with Standard Bank amounted to R234,0 million
at 30 June 2002 (31 December 2001: R257,4 million). These deposits were made
in the normal course of business at prevailing market rates.
* Asset management
The Group makes use of asset management facilities provided by STANLIB
Limited (A joint venture between Liberty and Stanbank). At 30 June 2002 R54,8
billion of life fund assets were held with STANLIB. The asset management fee
for the six months to 30 June 2002 amounted to R51,1 million.
* Insurance policies
Inter-group insurance policies amounting to R1 114,4 million (2001: R1 004,0
million) have been eliminated on consolidation. No premium income was
received in this regard in respect of the six months ended 30 June 2002
(2001: Rnil).
* Liberty Ermitage fee income
During the period Liberty Ermitage earned administration and management fee
income of R0,9 million (30 June 2001: Rnil) from the Standard Liberty
Distressed Securities Fund. The Standard Bank group has provided seed capital
for this fund.
Summarised Continuing Capital Total
group Operations Reduction# Operations
income (unaudited) (unaudited) (unaudited)
statement Six months ended Six months Six months ended
30 June ended 30 June 30 June
2002 2001 % 2002 2001 2002 2001
Rm Rm Change Rm Rm Rm Rm
Life fund 563,0 593,5 (5,1) 563,0 593,5
operating
surplus
Revenue 170,7 120,5 41,7 47,0 170,7 167,5
earnings
attributab
le to
shareholde
rs` funds
Secondary (44,2) (44,2)
tax on
companies
relating
to
ordinary
dividends
Preference (28,0) (19,8) 41,4 (28,0) (19,8)
dividend
in
subsidiary
company
Headline 661,5 694,2 (4,7) 47,0 661,5 741,2
earnings
Goodwill (23,4) (7,7) 203,9 (23,4) (7,7)
amortisati
on
Investment 617,2 515,1 19,8 12,9 617,2 528,0
surpluses
attributab
le to
shareholde
rs` funds
Secondary (232,8) (232,8)
tax on
companies
relating
to capital
reduction
Capital (56,0) (56,0)
Gains Tax
on
shareholde
rs`
investment
s
Total 1199,3 1201,6 (0,2) (172,9) 1199,3 1028,7
earnings
Per share
details
Headline
earnings
per share
(cents)
Basic 242,5 255,7 (5,2) 17,3 242,5 273,0
Fully 241,2 248,2 (2,8) 15,8 241,2 264,0
diluted
Total
earnings
per share
(cents)
Basic 439,7 442,2 (0,6) (63,6) 439,7 378,6
Fully 422,8 418,3 1,1 (58,0) 422,8 360,3
diluted
Weighted 272,8 271,8 0,3 271,8 272,8 271,8
average
number of
shares in
issue
(millions)
Number of 273,1 271,9 0,4 271,9 273,1 271,9
ordinary
shares in
issue
(millions)
Fully 298,6 298,1 0,2 298,1 298,6 298,1
diluted
weighted
average
number of
shares in
issue
(millions)
#The proforma earnings attributable to the capital reduction for the six
months ended 30 June 2001 represent the earnings on shareholders` assets that
were utilised to fund the capital reduction on 4 April 2001.
Summarised group balance (unaudited) (audited)
sheet 30 June 31 December
2002 2001
Rm Rm
Assets
Investments 84 871,6 84 984,1
Owner-occupied properties 663,0 633,4
Goodwill * 397,5 112,9
Intangible assets 43,9 69,9
Office furniture, computer 337,9 371,9
equipment and other
tangible assets
Current assets 3 474,5 3 229,2
Total assets 89 788,4 89 401,4
Capital, reserves and
liabilities
Shareholders` funds 9 136,1 8 345,8
Minority interests 1,0 1,0
Life funds 75 521,4 75 918,4
Convertible bonds 2 432,6 2 874,2
Retirement benefit 138,8 135,4
obligation
Deferred tax 169,8 118,5
Current liabilities 2 388,7 2 008,1
Total capital, reserves 89 788,4 89 401,4
and liabilities
*The increase in goodwill results from the implementation of the STANLIB
merger and now includes goodwill in respect of Liberty`s acquisition of 50%
of the former Standard Bank entities.
Returns on equity (ROE) (unaudited) (audited)
and embedded value (ROEV) Annualised 31 December
30 June 2001
2002
Headline return on equity 16,9% 24,9%
Total return on equity 31,6% 40,4%
Return on embedded value 15,4% 26,4%
Statement of changes in (unaudited) (unaudited)
shareholders` funds 30 June 30 June
2002 2001
Rm Rm
Shareholders` funds as 6 152,4
previously published
Changes in accounting
policies
Capital reduction of 1 200 3 260,0
cents - LDR 30 March 2001
Secondary Tax on Companies 232,8
relating to capital
reduction
Provision for leave pay (29,6)
net of deferred tax
Shareholders` funds 8 345,8 9 615,6
restated at the beginning
of period
Total earnings 1 199,3 1 028,7
Final 2001 ordinary (408,6)
dividend No.72 of 150
cents - LDR 20 March 2002
Capital reduction of 1 200 (3 260,0)
cents - LDR 30 March 2001
Translation difference (23,7) 3,2
relating to the equity
component of convertible
bonds
Subscriptions for shares 23,3 9,4
Shareholders` funds at end 9 136,1 7 396,9
of period
Group embedded value and (unaudited) (audited) %
value of new business 30 June 31 December Change
2002 2001
Rm Rm
Risk discount rate 14,50% 13,75%
Shareholders` funds 9 136,1 8 345,8 9,5%
Net value of life business 5 506,2 5 111,9 7,7%
in force
Value of life business in 5 636,7 5 235,1 7,7%
force
Cost of solvency capital (130,5) (123,2) 5,9%
(1)
Financial services 835,2 1 309,7 (36,2%)
subsidiaries fair value
adjustment
Embedded value 15 477,5 14 767,4 4,8%
Embedded value per share R56,68 R54,21 4,60%
(Rand)
Six Six %
months months Change
ended 30 ended 30
June June
2002 2001
Rm Rm
Total value of new 247,9 224,8 10,3%
business
(1)The cost of solvency capital arises from the difference between the net
after-tax expected return on the shareholders` assets backing the capital
adequacy requirement and the risk discount rate.
The principal bases and 30 June 31 December
assumptions used are: 2002 2001
Government stocks 12,50% 11,75%
Equity return 14,50% 13,75%
Property return 13,50% 12,75%
Risk discount rate 14,50% 13,75%
Maintenance expense 8,67% 7,90%
inflation rate
Analysis Group Group Group investment
of funds invested net revenue earned surpluses/
sharehold at (unaudited) (deficits)
ers` Six months (unaudited)
funds ended 30 June Six months
ended 30 June
30 June 31 2002 2001 2002 2001
2002 December Rm Rm Rm Rm
unaudited 2001
Rm audited
Rm
Charter 680,2 645,1 17,1 14,0 14,4 37,9
Life
(excludin
g life
fund
operating
surplus)
Financial 879,2 947,6 80,2 20,3 367,8 12,0
services
activitie
s
Listed 1459,8 1526,3 24,9 56,0 387,0 431,9
investmen
ts
Edcon 81,5 58,1 2 1,5 23,3 7,3
GoldField 320,1 292,9 5 5,4 356,6 53,7
s
Metro 221,7 194,7 26,6 54,3
Cash and
Carry
SABMiller 767,2 934,8 18 47,0 15,2 320,8
Other 69,3 45,8 1 2,1 (34,7) (4,2)
Other 6116,9 5226,8 85,6 120,0 (152,0) 46,2
investmen
ts
Cash and 995,9 1066,8 54 65,0 1,8 (2,8)
cash
equivalen
ts
Cash and 2574,6 2993,0 82 75,4 (501,7) 120,2
cash
equivalen
ts -
Jersey
assets
Convertib (2432,6) (2874,2) (100) (76,0) 468,0 (119,8)
le bonds
Fixed 1120,4 1110,3
assets
and
working
capital
Pooled 3858,6 2930,9 50 55,6 (120,1) 48,6
portfolio
s and
unlisted
investmen
ts
Managemen (25,9) (23,3)
t
expenses
Taxation (55,4) (19,5)
Total 9136,1 8345,8 126,5 167,5 617,2 528,0
Summarised group (unaudited)
cash flow Six months
statement ended 30 June
2002 2001
Rm Rm
Cash flow from 1 651,0 (1 649,2)
operating
activities
Net (1 395,3) 743,0
(acquisition)/disp
osal of
investments
Cash flow from 22,4 12,6
financing
activities
Net 278,1 (893,6)
increase/(decrease
) in cash and cash
equivalents
Cash and cash 912,1 1 424,3
equivalents at
beginning of
period
Cash balances of (389,8)
subsidiaries sold
Foreign exchange (13,7) (1,1)
movements on cash
balances
Cash and cash 786,7 529,6
equivalents at end
of period
Commitments (unaudited) (audited)
30 June 31 December
2002 2001
Rm Rm
Capital Commitments 317,3 41,0
Under contracts 46,4 24,7
Authorised by the 270,9 16,3
directors but not
contracted
Operating lease 69,9 32,2
commitments - 1 to 5 years
Total commitments 387,2 73,2
Analysis Single Recurring Total
of new premiums premiums premiums
business (unaudited) (unaudited) (unaudited)
sales Six months Six months Six months
ended 30 June ended 30 June ended 30 June
2002 2001 2002 2001 2002 2001 %
Rm Rm Rm Rm Rm Rm Change
Personal 3804,7 2936,6 1044,9 829,0 4849,6 3765,6 28,8
Benefits
Corporate 679,9 892,0 183,0 166,4 862,9 1058,4 (18,5)
Benefits
Total 4484,6 3828,6 1227,9 995,4 5712,5 4824,0 18,4
Change 17,1% 23,4% 18,4%
Index 1676,4 1378,2 21,6
Net cash Individual Corporate Total
flows business business (unaudited)
from (unaudited) (unaudited) Six months
insuranc Six months Six months ended 30 June
e ended 30 June ended 30 June
operatio
ns
2002 2001 2002 2001 2002 2001 %
Rm Rm Rm Rm Rm Rm Change
Total 5967,7 5131,7 1584,0 1649,9 7551,7 6781,6 11,4
premiums
Single 3550,6 2800,7 654,4 892,2 4205,0 3692,9 13,9
Recurrin 2417,1 2331,0 929,6 757,7 3346,7 3088,7 8,4
g
Totalcla (4715,2) (4338,2) (1200,0) (1420,1) (5915,2 (5757,3) 2,7
ims )
Netcashi 1252,5 793,5 384,0 229,8 1636,5 1024,3 59,8
nflow
Date: 06/08/2002 04:00:00 PM Produced by the JSE SENS Department
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