Liberty puts a brave face on declining profit
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Warning against knee-jerk reaction'
Chief Reporter
LIBERTY, SA's second-largest life insurance company, issued a profit warning yesterday, saying stock market weakness and the rand's strength could cause headline earnings to be considerably lower than last year.
Market reaction to the announcement was modest, but immediate, with the stock falling more than 4% on the JSE Securities Exchange SA before gaining slightly in a reflection of the market's appreciation that the factors causing the decline are largely outside the company's control.
But Liberty's position will inevitably be closely scrutinised going forward, while the market will now be on the lookout for similar announcements by rivals Old Mutual and Sanlam.
Liberty chief financial officer Deon de Klerk said although the rand's strength and market declines were in the public domain, Liberty felt it prudent to remind investors that they could have an effect on the company's results.
He described the fall in the stock price as an "immediate knee-jerk reaction", arguing that serious long-term investors would tend to focus on the company's "embedded value", or its overall trading position.
On this front, Liberty assured investors that its trading position was holding up, with new business sales remaining positive, although the rate of increase was lower than last year.
Costs were under control and new business margins had been maintained at last year's levels.
Liberty said its capital position remained strong, with its statutory capital adequacy requirement covered 2,7 times by shareowners' funds. However, Liberty warned that investment returns on equity, managed and foreign assets portfolios for the threemonth period ending in March were down 11,9%.
This compares to a 17% fall in the Johannesburg Securities Exchange SA over the same period.
"The outlook on investment markets and the rand for the year is uncertain. But if they continue at current levels, the effect on the life fund operating surplus will be that headline earnings to 30 June 2003 and 31 December 2003 will be considerably below last year's," Liberty said.
The Liberty share closed 2,74% lower on the JSE at R47,65.
May 14 2003 06:49:12:000AM Tim Cohen Business Day 1st Edition
Wednesday
14 May 2003
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