| Thu 11 Aug 2005, 10:16 | | Liberty Group - Unaudited Interim Results for the |
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Liberty Group Limited
Incorporated in the Republic of South Africa
Registration number: 1957/002788/06
Alpha code: LGL
Issuer code: LIBU
ISIN code: ZAE000057360
Liberty Group Limited Unaudited Interim Results for the six months ended 30 June
2005
Financial performance for the six months ended 30 June 2005
2005 2004 % change
Indexed new business (Rm) 2 257 1 968 15
New business margin (%) 20 21 (4)
Net cash inflows from insurance
operations (Rm) 2 669 2 382 12
BEE normalised headline earnings
per share before IFRS adjustments 1
(cents) 257,5 167,2 54
Headline earnings per share 2 (cents) 303,4 157,3 93
Management expenses (Rm) 1 281 972 32
Normalised management expenses 3 (Rm) 936 916 2
Embedded value per share (R) 4 68,34 65,07 5
BEE normalised embedded value
per share (R) 1,4 66,50 63,72 4
Statutory capital adequacy
requirement cover (times covered) 4 1,78 2,46
Interim divided per share - newly
adopted policy (cents) 5 126
Interim dividend per share - previous
(cents) 162
1 BEE normalised headline earnings per share and BEE normalised embedded
value per share are shown after adjusting the accounting treatment required
for statutory financial statement purposes to reflect the economic reality
of the BEE transaction.
2 In compliance with International Financial Reporting Standards (IFRS).
3 Excludes the expenses of Capital Alliance since acquisition (with no
comparative) IFRS adjustments (mainly share based payment costs) and merger,
integration and other non-recurring expenses.
4 The comparatives are at 31 December 2004.
5 As communicated to shareholders at 31 December 2004, the group has adopted a
new dividend policy which aligns the growth of the annual total dividend with
the medium-term growth in embedded value. Interim dividends are declared as 40%
of the previous full year's dividend.
Commentary on results
The first six months of 2005 have been characterised by stronger local equity
markets and a weaker rand. Yet the overriding consideration in the minds of
all industry observers is that the life insurance industry remains under
pressure as a result of general negative publicity fuelled by the rulings made
against it by the Pension Funds Adjudicator (PFA), discussed below.
In a challenging first half of 2005, Liberty Life grew indexed new business
premiums by 15% to R2 257 million (11% excluding Capital Alliance (CAHL)),
albeit at slightly lower margins mainly as a result of using a higher risk
discount rate in the calculation (The risk discount rate has been increased
by 50 basis points to ensure consistency between the Liberty Life and CAHL
books and to better align the methodology with the rest of the industry). New
business embedded value profits of R370 million were 12% higher than the
corresponding period in 2004 (5% excluding CAHL). The margin of Liberty
Corporate Benefits improved to 1,3% at 30 June 2005 compared with the negative
margin at 31 December 2004 of -0,9%, as a result of a pick-up in new business
volumes in the first half of 2005. Liberty Life's new risk products and loyalty
program AddLib, were launched late in June 2005 and early indications are that
the products have been well received by the market.
Liberty Life's market share of new individual life single premiums at 31 March
2005 improved to 32% from 27% at 31 December 2004. Market share of new
individual life recurring premiums at 31 March 2005 was 25% versus
26% at 31 December 2004.
Net cash inflows from life insurance operations remained firm, growing by 12%
to R2 669 million (17% to R2 779 million excluding CAHL). Cash inflows of
STANLIB and Liberty Ermitage (not included in the previous measure) amounted
to R6 387 million and US$120 million (R745 million) respectively.
Normalised management expenses of the group increased by 2% to R936 million.
Liberty Life's renewal cost per policy increased by 4% (annualised) to R259
from R248 reported at 31 December 2004. Liberty Active's cost per policy
declined marginally from R154 per policy to R153. CAHL's cost per policy
for complex products increased by 1% from R217 at 31 March 2005 to R220
and simple products from R80 at 31 March 2005 to R81.
Embedded value per share rose 5% to R68,34 on a restated basis since the 2004
year end, after taking the impairment of goodwill on acquisition of CAHL
(amounting to R312 million) into account. The BEE normalised embedded value per
share rose by 4% to R66,50. The statutory capital adequacy cover of 1,78 remains
strong and is slightly above the group's medium-term target range of between 1,5
and 1,7.
Headline earnings per share
1st half 1st half % 2nd half %
2005 2004 change 2004 change
Operating profit from
insurance operations 591 335 76 594 (1)
Operating profit from
shareholders' funds 79 100 (21) 172 (54)
Net income on assets
utilised to fund BEE
transaction - 25 (100) 26 (100)
Headline earnings pre IFRS 670 460 46 792 (15)
Net income on BEE
transaction preference
shares accounted for in equity 44 - 31 41
BEE normalised
headline earnings
pre IFRS 714 460 55 823 (13)
Headline earnings pre IFRS 670 460 46 792 (15)
IFRS adjustments 93 (27) (441) 30 244
Share-based payments (20) (5) 300 (11) 81
Owner-occupied properties (17) (22) (22) 41 (14) Net
realised and
unrealised gains on
shareholders' funds 130
Headline earnings
post IFRS adjustments 763 433 76 822 (7)
Net income on BEE
transaction preference
shares accounted for in equity 44 31 41
BEE normalised
headline earnings post
IFRS adjustments 807 433 86 853 (5)
Weighted average
number of shares
in issue 251,5 275,3 (9) 271,9 (8)
Reinstatement of BEE shares 25,8 3,8 578
BEE normalised
weighted average
number of shares in issue 277,3 275,3 1 275,7 1
Headline earnings
per share pre IFRS 266,4 167,2 59 291,1 (8)
BEE normalised
headline earnings per
share pre IFRS 257,5 167,2 54 298,5 (14)
Headline earnings
per share post IFRS 303,4 157,3 93 302,3 -
BEE normalised
headline earnings per share
post IFRS 291,0 157,3 85 309,4 (6)
BEE normalised headline earnings per share for 2005, before taking account of
any IFRS adjustments, at 257,5 cents per share, were 54% higher than the 167,2
cents per share recorded for the six months ended 30 June 2004, but were 14%
lower than the 298,5 cents per share recorded for the second six months of
2004. The weighted average investment return used as a proxy to calculate
shareholders' 10% share of policyholder capital bonuses on certain classes of
business was 11,5% at 30 June 2005 compared with 0,2% at 30 June 2004 and
22,7% at 31 December 2004. Due to the significant impact of investment market
performance on the Group's earnings, it is considered appropriate to
contextualise the resultant volatility by including a comparison of earnings
against the second six months of 2004.
Headline earnings in compliance with IFRS increased by 93% to 303,4 cents per
share, mainly due to the inclusion in 2005 of both realised and unrealised
investment surpluses on shareholders' investments following the
reclassification of these assets as "held at fair value through profit and
loss" (previously classified as "available-for-sale" with realised surpluses
included in the income statement below headline earnings and unrealised
investment surpluses taken directly to equity).
An interim dividend for 2005 of 126 cents per share has been declared in line
with the group's newly adopted dividend policy, as communicated in the 2004
year end results, which indicated that the interim dividend would be based on
40% of the 2004 full year dividend of 315 cents.
Pension Fund Adjudicator (PFA) rulings
There continues to be negative publicity surrounding the number of rulings
made against the life insurance industry by the PFA's office. Liberty Life's
Lifestyle Retirement Annuity fund and/or Liberty Life has had four rulings made
against it, for a total amount of less than R0,3 million. Liberty Life,
together with the industry, continues to regard the PFA rulings in a serious
light and is working towards an equitable solution for the future that ensures
an environment that fosters certainty. Furthermore, Liberty Life is intent on
promoting a resolution to the current situation that will address concerns
relating to both past practice and future business written by the group.
Liberty Life is committed to reducing its costs per policy to
benefit both policyholders and shareholders.
No provisions have been made for any potential impact resulting from the recent
PFA rulings.
Capital Alliance acquisition and group restructuring
The Liberty Life interim results to 30 June 2005 include the results of CAHL
for the 3 months since the acquisition, which was effective 1 April 2005.
Liberty Life acquired 100% of the issued share capital of CAHL for R3 047
million, thereby utilising its excess capital in a potentially earnings
return on equity and embedded value enhancing transaction. As the intention
remains to integrate CAHL and Liberty Life, goodwill at acquisition amounting
to R312 million has been fully impaired in terms of IFRS 3 Business Combinations
which requires impairment tests to be carried out at each separate cash
generating entity level, which is unlikely to be possible going forward.
The CAHL integration and group restructuring is proceeding in line
withmanagement's expectations. Integration, restructuring and other non-
recurring
costs of R135 million (before tax) have been charged to the income statement
for the 6 months ended 30 June 2005. It is expected that the majority of the
integration and restructuring process will take approximately 24 months and
consequently further integration costs will be incurred during that period.
Further details in this regard and an update on the progress of the CAHL
integration and group restructuring will be communicated in due course.
Liberty Active's entry into the emerging market (Project Khula)
Project Khula has performed broadly in line with expectations, however it is
still too early to pronounce the venture successful and we continue to monitor
its progress closely. During the first six months of 2005:
* A total sales management complement of 61, as well as 245 tied agents have
been recruited;
* 22 branches have been opened - mainly in locations not previously covered by
the Liberty group;
* The "Active Series" of six products appropriate to this market has been
launched;
* Sales of 12 335 Active Series policies, with indexed new business premiums of
R24 million, have been made. Production should be skewed towards the second half
of the year, as the sales force is now established. In the month of June, over
5 600 policies were issued; and
* 7 broker networks in the Eastern Cape have been contracted and produced
encouraging funeral policy sales in less than two months.
As expected however, premium collection has proven to be difficult in this
market.
Dividend
In line with the group's newly adopted dividend policy communicated to
shareholders at 31 December 2004, an interim dividend of 126 cents has been
declared, representing 40% of the 2004 full year's dividend of 315 cents.
The important dates pertaining to this dividend are:
Last day to trade cum dividend on the JSE Friday, 2 September 2005
First trading day ex dividend on the JSE Monday, 5 September 2005
Record date Friday, 9 September 2005
Payment date Monday, 12 September 2005
Share certificates may not be dematerialised or rematerialised between Monday,
5 September 2005 and Friday, 9 September 2005 both days inclusive. 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 shares will have
their accounts with their CSDP or broker credited on Monday, 12 September
2005.
Prospects
Liberty Life's focus for the next 24 months is to ensure the success of the
CAHL integration and group restructuring initiatives while continuing to
manage the group's `business as usual' activities.
Earnings continue to be impacted by the performance and volatility of local
and international financial markets. Given the exceptional performance of
markets in the second half of 2004, earnings for the second half of 2005
are not expected to show the same rate of growth over the comparative
period. Earnings for the full 2005 year are nevertheless expected to show
real growth over 2004 if markets maintain current performance trends.
Resolution of the uncertainty that the PFA rulings have created also remains a
significant focus area for the group and we continue to strive to improve our
product offerings and service to our clients. We re-iterate that
the Capital Alliance and Liberty Life restructuring and integration is
expected to generate benefits for policyholders and shareholders alike.
Derek Cooper Myles Ruck
Chairman Chief Executive
10 August 2005
Transfer Secretaries
Computershare Investor Services 2004 (Pty) Limited
(Registration number: 2004/003647/07)
Ground Floor, 70 Marshall Street, Johannesburg 2000
PO Box 61051, Marshalltown, 2107
Telephone +27 11 370 5000
Sponsor
Merrill Lynch
Summarised group balance sheet
30 June 31 December 31 December
2005 2004 2004
As restated As previously
under reported under
IFRS SA GAAP
Rm (unaudited) (audited) (audited)
Assets
Investments 128 388 103 356 100 205
Intangible assets 1 301 284 272
Current assets 12 560 9 218 8 778
Other assets 2 186 343 343
Total assets 144 435 113 201 109 598
Liabilities
Policyholders' liabilities 1 124 177 97 500 98 049
Insurance contracts 89 897 65 479 65 921
Investment contracts 34 280 32 021 32 128
Third party liabilities
arising on consolidation
of mutual funds 4 585 3 523 -
Deferred taxation 1 1 719 1 185 636
Current liabilities 4 470 2 306 2 258
Other liabilities 383 160 160
Total liabilities 135 334 104 674 101 103
Equity
Ordinary shareholders'
interests 8 728 8 526 8 494
Minority interests 373 1 1
Total equity 9 101 8 527 8 495
Total equity and
liabilities 144 435 113 201 109 598
Capital adequacy requirements
Statutory capital adequacy
requirement (CAR) 2 3 114 3 013 3 013
CAR cover 1,78 2,46 2,46
1 Under IAS 12 Income Taxes, deferred taxation should be provided for at the
use rate (income tax rate) in respect of revaluation surpluses on investment
properties. Liberty Life has been providing deferred taxation on these surpluses
at the capital gains tax rate. The Board believes that the additional deferred
tax liability now created does not reflect economic reality as the fair (open
market) values of the investment properties already discounts the income tax
consequences in respect of rental income.
While the amounts required by the accounting standards have been recognised
(R736 million at 30 June 2005, R549 million at 31 December 2004 and R655 million
at 1 January 2004), we will continue to engage the International Accounting
Standards Board to revise the standards in order to address this anomaly.
Investment property assets back policyholder liabilities and consequently
the amounts in question have been debited to policyholders' liabilities
for accounting purposes, as has been the case in the past - albeit at
different (CGT) rates. The amounts will be reversed in the actuarial
balance sheet in order to reflect the economic reality.
2 Previously, the capital adequacy requirement (CAR) and the CAR cover ratio
were quantified using values as published in the financial statements. With
the implementation of IFRS and the divergence of published accounting and
statutory (regulatory) bases, these measures are now reported on the statutory
(regulatory) basis.
Summarised group income statement
30 June 30 June 30 June
2005 2004 2004
As restated As previously
under reported under
Rm (unaudited) IFRS SA GAAP
Net insurance premiums
and service fees 9 068 6 115 6 115
Investment returns 10 989 2 043 1 722
Total revenue 20 057 8 158 7 837
Net insurance benefits and claims (6 350) (5 006) (5 006)
Transfer and fair value
adjustment to policyholder
liabilities (8 517) (137) (84)
Fair value adjustment on
third party mutual fund liabilities (1 115) (332) -
Commissions (1 159) (997) (997)
Expenses (1 281) (972) (967)
Results of operating activities 1 635 714 783
Preference dividend in subsidiaries (69) (41) (41)
Taxation (800) (183) (237)
Goodwill impairment/amortisation (312) - (6)
Total earnings 454 490 499
Attributable to:
Equity holders 451 490 499
Minority interest 3 - -
454 490 499
Reconciliation of total
earnings attributable
to equity holders
Headline earnings 763 433 460
Insurance operations 566 313 335
Shareholders' fund investments 197 120 125
Non-headline earnings (312) 57 39
Total earnings 451 490 499
Cents Cents Cents
Headline earnings per share
Basic 303,4 157,3 167,2
Fully diluted 297,2 156,8 166,3
Total earnings per share
Basic earnings 179,3 178,0 181,3
Fully diluted 175,7 177,5 179,2
Summarised statement of changes in group shareholders' funds
30 June 31 December
2005 2004
As restated
under IFRS
Rm (unaudited) (audited)
Shareholders' funds at 1 January
as restated under IFRS 8 526 8 778
IFRS adjustments at 1 January 2005 (4) -
Total earnings 451 1 843
Net unrealised investment losses
movements on available for
sale assets - (15)
Ordinary dividends (423) (766)
Repayment of redeemable bonds - (79)
Subscription for shares 59 83
Black Economic Empowerment transaction 38 (1 273)
Reversal of fair value
adjustment on Capital Alliance
Holdings Limited's existing shares (19) -
Share based payments 22 16
Owner occupied properties
net fair value adjustments 17 (19)
Foreign currency translation
movement on subsidiaries 61 (42)
Shareholders' funds 8 728 8 526
Summarised group cash flow statement
30 June 30 June 30 June
2005 2004 2004
As previously
As restated reported under
Rm (unaudited) under IFRS SA GAAP
Cash flows from
operating activities 3 801 2 481 2 481
Acquisition of Capital
Alliance Holdings Limited (3 047) - -
Cash flows from
investing activities (467) (3 382) (2 624)
Cash flows from
financing activities 59 52 52
Net increase/(decrease)
in cash and cash
equivalents 346 (849) (91)
Cash and cash equivalents
at beginning of period 6 058 5 545 346
Cash acquired on acquisition
of Capital Alliance
Holdings Limited 1 445 - -
Foreign exchange
movements on cash balances 7 (40) (40)
Cash and cash equivalents
at end of period 7 856 4 656 215
Group embedded value
30 June 31 December 31 December
2005 2004 2004
Restated As previously
Rm (unaudited) (unaudited) reported
Risk discount rate 10,75% 10,75% 10,25%
Net worth 8 137 8 200 8 494
Shareholders' funds
on published basis 18 8 728 8 526
Adjustment of shareholders'
funds from
published basis 2 (591) (326)
Financial services
subsidiaries fair value
adjustment 9 1 075 875 766
Adjustment for carrying
value of in-force
business acquired 10 (1 054) (109) -
Allowance for fair
value of share options 1 (144) (191) -
Net value of life
business in force 9 219 7 544 7 607
Value of life
business in force 9 856 8 157 8 193
Cost of solvency capital (637) (613) (586)
Embedded value 17 233 16 319 16 867
Embedded value per share information
30 June 31 December 31 December
2005 2004 2004
As previously
(unaudited) Restated reported
Embedded value (Rm) 17 233 16 319 16 867
Number of shares in issue
less shares in respect
of the BEE transaction
(millions) 252,2 250,8 250,8
Embedded value per
ordinary share (R) 68,34 65,07 67,25
Embedded value before
BEE impairment (Rm) 18 484 17 623 18 171
Number of shares in
issue including shares in
respect of the BEE
transaction (millions) 277,9 276,6 276,6
BEE adjusted embedded
value per share (R) 66,50 63,72 65,69
Value of new business and new business margins
30 June 30 June
Rm (unaudited) 2005 2004 % change
Value of new business
written during the period 370 330 12,1
Gross of cost of solvency capital 407 343
Cost of solvency capital (37) (13)
New business index excluding natural
increases 1 841 1 576 16,8
New business margin 20,1% 20,9%
Embedded value profits
30 June 30 June
Rm (unaudited) 2005 2004
Embedded value at the end of the period 17 233 15 887
Less capital raised (59) (53)
Plus dividends paid 423 319
Less restated embedded value at the
beginning of the period (16 319) (15 817)
Embedded value profits 1 278 336
Return on net worth (annualised) 33,6% 7,8%
Return on embedded value (annualised) 16,3% 4,3%
Analysis of embedded value profits
30 June 30 June
Rm (unaudited) 2005 2004
Investment return on shareholders'
funds and fair value
adjustment 328 335
Translation gains/(losses)
in respect of foreign assets 60 (24)
Other investment returns
on shareholders' funds 268 359
Expected return on value
of life business 6 436 361
Investment experience
variation on life business 386 (219)
Other experience variations 11 (149) (11)
Changes in economic assumptions 13 9 (88)
Changes in non-economic assumptions 14 (251) (223)
Changes in company tax rate 15 118 -
Value of new business 370 330
Changes in modelling methodology (16) (149)
Change in fair value of share options 16 47 -
Embedded value profits 1 278 336
Bases and assumptions
1 The restatement of the Embedded Value at 31 December 2004 can be broken
down into the following components:
- Changes as a result of using the Statutory Valuation Method rather than the
Published Valuation basis previously used. This resulted in an increase of
R11 million to the embedded value.
- Changes as a result of the increase in the margin of the risk discount rate
over the equity investment return. This resulted in a decrease of R368
million to the embedded value.
- Allowance for the fair value of share options outstanding as at the
valuation date. This resulted in a decrease in R191 million to the embedded
value.
2 The amounts of R591 million and R326 million reflected as the adjustment
of shareholders' funds from the Published basis, represent the change in
these assets as a result of moving from a Published Valuation basis to the
Statutory Valuation Method used to calculate the net value of the life
business in force.
3 Future investment returns on the major asset classes were set with reference
to the market yield on medium-term South African government stock. The
investment returns used are:
Investment return p.a. 30 June 2005 31 Dec 2004
Government stock 8,25% 8,25%
Equities 10,25% 10,25%
Property 9,25% 9,25%
Cash 6,75%
4 The risk discount rate has
been set equal to 0,5% in excess
of the investment return on
equity assets at 30 June 2005
and equal to the investment
return on equity assets at
31 December 2004. 10,75% 10,25%
5 Maintenance expense inflation rate 4,25% 4,25%
6 The expected return on the value of life business is obtained by
applying the discount rate for half a year to the value of life business in
force at the beginning of the year and for a quarter of a year to the value of
new business.
7 Taxation has been allowed for at rates and on bases applicable to
Section 29A of the Income Tax Act. Full taxation relief on expenses to the
extent permitted was assumed. Capital Gains Taxation has been taken into
account in the embedded value. Allowance has been made for future Secondary
Taxation on Companies. The taxation changes announced in the Budget on 23
February 2005 have also been taken into account.
8 Other bases, bonus rates and assumptions:
In general, parameters reflect best estimates of future experience, consistent
with the valuation basis used by the statutory actuary, excluding any
compulsory or discretionary margins. However, in contrast to the valuation
basis assumption, the embedded value does make allowance for automatic premium
and benefit increases.
9 Basis of calculation of the fair value adjustment:
The fair value adjustment reflects the excess of the fair value over the value
of the net assets of entities as included in the shareholders' funds.
This adjustment consisted of the following:
30 June 2005 31 Dec 2004
Liberty Group Properties (Proprietary) Limited 230 240
Liberty Ermitage Jersey Limited 300 290
STANLIB Limited 545 345
1 075 875
In the case of Liberty Group Properties (Proprietary) Limited and Liberty
Ermitage Jersey Limited a price earnings ratio multiplier was applied to the
net after tax recurring earnings of the subsidiaries. The multipliers used
were 10 and 10 (2004: 10 and 10) respectively.
In the case of STANLIB Limited a price earnings multiplier was applied to the
net after taxation recurring earnings of STANLIB Limited. The multiplier used
was maintained at 10x. The R545 million represents Liberty Life's share of the
excess over the net asset value of STANLIB Limited and effectively values
STANLIB Limited at R 2,2 billion in total.
10 The carrying value of business acquired by Liberty Life (analysed below)
has been deducted from shareholders' funds in order to avoid double counting
as this is included in the net value of life business in force in the embedded
value calculation.
30 June 2005 31 Dec 2004
Investec Employee Benefits (102) (109)
Capital Alliance (920) -
Business previously acquired
by CAHL (32) -
(1 054) (109)
The Australian insurance operations owned by Capital Alliance have been
included at fair value within shareholders' funds which has been taken at
cost, plus since acquisition retained earnings.
11 The amount of R149 million shown for other experience variations arises
from actual individual life withdrawal experience being worse than expected as
well as non-recurring expenses incurred. These non-recurring expenses amounted
to R135 million for the first six months of 2005 and were largely due to
restructuring and integration costs. These expenses are included in the analysis
of embedded value profits but do not form part of the future projections.
12 The value of in force business has not been reduced by future
shareholders' expenses in respect of CAHL. For the period 1 April
2005 to 30 June 2005 these amounted to R10 million of which R6 million
were non-recurring.
13 The amount of R9 million shown for changes in economic assumptions
arises mainly from a change in the mix of assets supporting policyholder
funds.
14 The amount of R251 million shown for the changes in non-economic
assumptions arises mainly from changes to the withdrawal bases, a reduction in
fees on certain portfolios of business as well as changes to the assumed rate
of take-up of automatic contribution increases in respect of risk only
products.
15 The amount of R118 million shown for change in company tax rate arises
from the change in the corporate tax rate from 30% to 29%.
16 The amount of R47 million in respect of the change in the fair value of
share options arises from the change in the number of shares under option and
the decrease in the market value of the Liberty Life share over the reporting
period.
17 The assets backing the Capital Adequacy Requirement (CAR) are 60%
equities, 20% preference shares and 20% gilts (previously 50% equities, 25%
preference shares and 25% cash).
18 Shareholders' funds on the published basis is stated after the full
impairment of goodwill amounting to R312 million arising on the acquisition
of CAHL at 1 April 2005.
New business
Recurring Single Total
premiums premiums premiums
Six months Six months Six months
ended 30 June ended 30 June ended 30 June
Rm
(unaudited) 2005 2004 2005 2004 2005 2004 % change
Individual 1 337 1 265 5 227 4 096 6 564 5 361 22,4
Corporate 310 217 870 764 1 180 981 20,3
Total
new
business 1 647 1 482 6 097 4 860 7 744 6 342 22,1
% change 11,1% 25,5% 22,1%
Indexed
new
business 2 257 1 968 14,7
Natural
increases 416 392 416 392 6,1
Indexed
new
business
excluding
natural
increases 1 841 1 576 16,8
Net cash flow from insurance operations
Individual Corporate
business business Total
Six months Six months Six months
ended 30 June ended 30 June ended 30 June
Rm (unaudited) 2005 2004 2005 2004 2005 2004 % change
Net premiums and
inflows from
investment contracts 9 612 7 755 2 642 1 968 12 254 9 723 26,0
Net claims
and benefits (6 784) (5 424)(2 801) (1 917) (9 585) (7 341) 30,6
Total net
cash inflows 2 828 2 331 (159) 51 2 669 2 382 12,0
Analysis of shareholders' funds
Contribution to
headline earnings
Group funds for the six
invested at months ended
30 June
30 June 31 December
2005 2004 2005 2004
Restated Restated
(unau- (unau- (unau-
Rm dited) (audited) dited) dited)
Life insurance
Operations 3 537 1 125 20 23
Capital Alliance 2 810 - 42 -
Less included in life
operating profit (41) -
Liberty Active 727 1 125 163 79
Less included in life
operating profit (144) (56)
Financial services
operations 897 1 223 111 68
Electric Liberty 14 423 14 1
Liberty Ermitage
Jersey 450 375 33 21
Liberty Group
Properties 17 4 12 13
STANLIB 401 405 53 31
Other 15 16 (1) 2
Listed investments 1 208 2 019 25 26
Edcon 88 91 4 2
GoldFields - 113 - 1
Metoz
(previously Metro
Cash and Carry) - 242 - -
SABMiller 522 919 - 15
Other 598 654 21 8
Other investments 3 086 4 159 59 142
Cash, preference
shares and
unit trusts 383 1 412 22 59
Foreign assets - - - 43
Convertible bonds - - - (51)
Fixed assets and
working capital 359 641 - -
Short-term
cash balances 25 601 19 14
Share of
pooled portfolios
and unlisted
investments 2 319 1 505 18 77
Management expenses - - (67) (51)
Normal taxation - - (3) (16)
Preference
dividend in
subsidiary - - (65) (41)
Capital gains tax - - (50) -
Secondary tax
on companies - - (21) (31)
Investment gains
included in
headline earnings
from 1 January 2005 - - 188 -
8 728 8 526 197 120
Group
investment
gains/(losses)
for the six
months ended
30 June
2005 2004
Restated
(unau- (unau-
Rm dited) dited)
Life insurance
Operations 30 1
Capital Alliance 12 -
Less included in life
operating profit
Liberty Active 18 1
Less included in life
operating profit
Financial services
operations 4 (40)
Electric Liberty - -
Liberty Ermitage
Jersey 3 (37)
Liberty Group
Properties - -
STANLIB 1 (2)
Other - (1)
Listed investments 66 86
Edcon (4) 6
GoldFields 9 (47)
Metoz
(previously Metro
Cash and Carry) 28 (9)
SABMiller 57 115
Other (24) 21
Other investments 88 (57)
Cash, preference
shares and
unit trusts - 1
Foreign assets - (94)
Convertible bonds - 98
Fixed assets and
working capital - -
Short-term
cash balances - -
Share of
pooled portfolios
and unlisted
investments 88 (62)
Management expenses - -
Normal taxation - -
Preference
dividend in
subsidiary - -
Capital gains tax - -
Secondary tax
on companies - -
Investment gains
included in
headline earnings (188) -
- (10)
Related parties
There have been no significant changes to the related party disclosure as
described in note 33 to the 31 December 2004 annual financial statements.
Contingent liabilities
Refer to the commentary regarding the Pension Fund Adjudicator rulings.
Commitments
30 June 31 December
2005 2004
Rm (unaudited) Restated
Operating lease commitments 162 151
Within 1 year 39 46
1 to 5 years 107 78
6 to 10 years 16 27
Capital commitments
Capital Alliance Holdings
Limited acquisition - 3 094
Tangible assets 167 203
Under contracts 154 178
Authorised by the directors
but not contracted 13 25
Investment properties under contracts - 290
Total commitments 329 3 738
Accounting policies and presentation
The interim financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as well as the South
African Companies Act, 1973. This may differ from IFRS actually in effect
at 31 December 2005 as a result of ongoing review and possible amendment by
interpretive guidance from the International Accounting Standards Board (IASB)
and the International Financial Reporting Interpretations Committee (IFRIC)
and may therefore be subject to change.
The operating profit from insurance operations, embedded value, capital
adequacy requirement and value of new business reflect the Statutory Actuary's
best estimate for interim reporting purposes as a full actuarial valuation
is not performed at half year.
These are Liberty Life's first IFRS interim financial statements and the
provisions of IFRS 1 First-time adoption of International Financial Reporting
Standards, have been applied. The interim financial statements do not include
all of the information required for full annual financial statements.
Shareholders are referred to the annexure regarding details of the financial
restatement impact and accounting policy changes as a consequence of the IFRS
adoption.
Acquisition of Capital Alliance Holdings Limited (CAHL)
On 1 April 2005, Liberty acquired 100% of the issued share capital of CAHL
(excluding existing holdings), at a purchase price consideration of R3 047
million, utilising excess shareholder funds.
CAHL is a proven integrator of life books that specialises in the reduction of
back office and administration costs through the improvement of service levels
and operational efficiencies.
The summarised assets and liabilities arising from the acquisition are as
follows:
Total Value of
recognised in force Net asset
Rm values acquired value
Investments 16 533 - 16 533
Intangible assets 1 067 945 122
Other assets 290 - 290
Insurance and other receivables 1 472 - 1 472
Cash and cash equivalents 1 445 - 1 445
Policyholders' liabilities (16 591) - (16 591)
Minority interest (361) - (361)
Insurance and other payables (1 120) - (1 120)
Net identifiable assets
and liabilities 2 735 945 1 790
Goodwill on acquisition 312
Consideration paid 3 047
Less cash acquired (1 445)
Net cash outflow 1 602
The goodwill is attributed to cost of control.
In the three months ended 30 June 2005, CAHL contributed earnings of
R54 million (including investment gains on shareholders' funds of R12 million)
to the total earnings of R454 million.
Earnings, cash flows and other numbers incorporated for the 3 months ended
30 June 2005 represent estimates as this is not the traditional reporting period
of CAHL.
CAHL has adopted IFRS with effect from 1 April 2005. The relevant IFRS
adjustments relating to CAHL have been incorporated into the assets and
liabilities at acquisition.
The accounting for the CAHL business combination is provisional, as in
particular actuarial alignment with regard to assumptions and underlying
fair values are still in progress. It is however not anticipated that
subsequent significant adjustments will be required.
Audit opinion
The 30 June 2004 restatements are unaudited. The restatements of financial
information for the opening 2004 and 2005 balance sheets, financial information
for the year ended 31 December 2004 have been audited by the group's auditors,
PricewaterhouseCoopers Inc. and their audit opinion is available for inspection
at the group's registered office. Their report includes an emphasis of matter
that the scope of their review does not include the presentation and disclosure
aspects of IFRS and was limited to the recognition and measurement criteria of
IFRS only. They further note that amendments to the interpretive guidance issued
by the IASB, between the date of this announcement and the finalisation of the
financial statements for the year ending 31 December 2005, may result in changes
to the restatements published.
These results and an overview of the Liberty Group are available at
www.liberty.co.za.
Date: 11/08/2005 07:30:23 AM Produced by the JSE SENS Department
