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LGL
LIBU
Liberty Group Limited - Unaudited Interim Results For The Six Months
Ended 30 June 2006
Liberty Group Limited
"Liberty Life"
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 2006
Financial performance
for the six months ended 30 June 2006
2006 2005 % change
Total sales (Rm) 30 356 26 210 +16
Liberty Life new business (Rm)1 7 779 7 907 -2
Attributable portion of STANLIB sales
excluding money market (Rm) 8 647 5 410 +60
Attributable portion of STANLIB money
market sales (Rm) 13 930 12 893 +8
Liberty Life new business margin 2 (%)3 2,4 2,8
Total net cash inflows (Rm) 3 417 4 510 -24
Liberty Life net cash inflows (Rm)1 1 987 2 171 -8
Attributable portion of STANLIB net cash
inflows excluding
money market (Rm) 1 270 635 +100
Attributable portion of STANLIB net money
market inflows (Rm) 160 1 704 -91
Management expenses (Rm) 1 653 1 716 -4
Normalised4 management expenses (Rm) 1 015 984 +3
Headline earnings per share (cents) 407,2 303,4 +34
BEE normalised5 headline earnings per
share (cents) 384,9 291,0 +32
Embedded value per share (R)6 7 76,55 75,96 +1
BEE normalised5 embedded
value per share (R) 6 7 73,62 73,41 -
Capital adequacy requirement cover (times
covered) 6 7 2,1 2,0
Interim dividend per share (cents) 140 126 +11
Annualised return on embedded value (%) 18,6 16,3
1 Restated to include Capital Alliance sales/cash flows for the full six
months ended 30 June 2005.
2 Embedded value of new business as a percentage of future net present value
expected premiums.
3 Restated to estimate the impact of the statement of intent (SOI) signed
during 2005 between National Treasury and the life offices regarding minimum
values on savings products.
4 Certain IFRS adjustments and restructuring, integration and other
non-recurring expenses are excluded.
5 This measure reflects 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 and shares in issue relating to the
transaction are reinstated.
6 After paying a capital reduction of R3,60 per share on 12 June 2006.
7 At 31 December 2005.
Commentary on results
The life insurance industry continues to be challenged by an increasingly
dynamic marketplace where product, pricing and distribution are facing major
revisions.
On the legislative and regulatory front, significant challenges are posed by
the Financial Sector Charter (FSC), Financial Advisory and Intermediary
Services Act (FAIS), the Financial Intelligence Centre Act (FICA), the National
Credit Act, as well as the Pension Fund Adjudicator (PFA) rulings and National
Treasury"s reform proposals for the industry. In addition, there has also been
a Financial Services Board (FSB) investigation and parliamentary hearings
in relation to the issue of "bulking" and "secret profits". As a result the
reputational risk facing the industry has increased.
Customers are increasingly demanding not only products wrapped in a life
insurance policy (on-balance sheet), but also unit trust and linked-type
investments (off-balance sheet). Liberty Life has recognised that in order to
meet this market shift, it needs to continue increasing operational efficiency
and review its products on offer.
In this regard, the Liberty Life board has mandated management to pursue the
acquisition of the remaining 62,6% stake in STANLIB Limited, currently owned by
Standard Bank Group Limited (37,4%) and Quantum Leap Investments 740
(Proprietary) Limited (25.2%).
Standard Bank has indicated support for the proposal, subject to agreement of
the purchase consideration and on condition that settlement takes place by way
of an issue of Liberty Life shares.
Quantum Leap Investments has indicated that it would give consideration to the
proposal, subject to agreement of the purchase consideration and has indicated
that its preference is to be settled primarily in cash.
Shareholders will be kept informed of further developments.
The difficult environment, fierce competition and the necessary internal review
process caused by the above environmental changes have had a dampening effect on
on-balance sheet new business sales for the period under review.
Both individual life and corporate benefits indexed new business sales of
R1 871 million and R424 million respectively for the six months to 30 June 2006
were 3% lower than in 2005.
Sales of on-balance sheet individual single premium investment products were 2%
or R128 million lower than in 2005, mainly as a result of pricing competition
in the market and the move to off-balance sheet products. Indexed sales of
Capital Alliance products amounted to R121 million in 2006, 35% lower than the
R186 million in 2005, mainly due to the expected loss of First National Bank
business.
Due to lower volumes of Liberty Life new business and increased acquisition
costs, Liberty Life"s new business margin has reduced from 2,8%, restated for
the impact of the statement of intent (SOI), in respect of the six months ended
30 June 2005 to 2,4% in respect of the six months ended 30 June 2006.
Liberty"s attributable portion of STANLIB"s gross sales (excluding money
market) increased by 60% from R5 410 million in 2005 to R8 647 million in 2006.
Notwithstanding the difficult operating environment outlined above, Liberty
Life recorded pleasing financial results for the period:
BEE normalised headline earnings per share increased by 32% from
291,0 cents in 2005 to 384,9 cents in 2006;
Despite having paid a capital reduction of R3,60 per share and a final
dividend of R2,24 per share during the period, BEE normalised embedded value
per share increased marginally from R73,41 at 31 December 2005 to R73,62 at
30 June 2006;
Return on embedded value improved from 16,3% in respect of the six months
ended 30 June 2005 to 18,6% in respect of the six months ended 30 June 2006;
and
Capital adequacy requirement cover was re-built to 2,1 - a slightly higher
level than before the capital reduction of R1,0 billion was paid (net amount
R912 million after BEE preference share redemption).
The results were positively impacted by continued strong investment market
performance, higher average asset levels on which management fees are earned
and better risk experience. The weighted average investment return used as a
proxy to calculate shareholders" 10% share of policyholder capital bonuses on
certain classes of business was 14,9% for the six months to 30 June 2006,
compared with 11,5% for the six months to 30 June 2005 and 33,2% for the year
ended 31 December 2005.
On-balance sheet cash flows remained positive at R1 987 million during the
period under review. Individual life net cash inflows amounted to
R1 754 million compared with R2 312 million in 2005, while corporate benefits
cash inflows of R233 million in 2006 compared with an outflow of R141 million
in 2005.
Liberty Life"s attributable portion of STANLIB"s net cash inflows (excluding
money market) increased by 100% from R635 million in 2005 to R1 270 million in
2006. Net retail cash inflows of R1 733 million in 2006 were 6% lower than the
R1 837 million recorded in 2005 while institutional cash outflows decreased by
61% from R1 202 million in 2005 to R463 million in 2006.
An interim dividend of 140 cents per share has been declared which represents
an increase of 11%. This dividend declaration however notionally includes
10 cents per share in respect of the earnings impact that the capital reduction
will have in the future. Shareholders are consequently advised that the new
base for comparison will be 130 cents per share.
As
restated
30 June 30 June % 31 December
BEE normalised headline
earnings per share 2006 2005 change 2005
Rm Rm Rm
Operating profit from
insurance operations 723 441 64 882
As reported 723 501 942
Working capital loan
interest 1 (60) (60)
Revenue profit from
shareholders funds 188 210 (10) 494
As reported 188 124 408
Working capital loan
interest 1 86 86
Capital profit from
shareholders" funds 115 112 3 465
As reported 115 138 491
Working capital loan
interest 1 (26) (26)
Net income on BEE
preference shares accounted
for in equity 43 44 88
BEE normalised headline
earnings 1 069 807 32 1 929
BEE normalised weighted
average number of shares in
issue 277,8 277,3 277,6
Weighted average number of
shares in issue 252,0 251,5 251,8
Reinstatement of BEE shares 25,8 25,8 25,8
BEE normalised headline
earnings per share (cents) 384,9 291,0 32 694,8
1 With effect from 1 July 2005, a working capital loan was established to
support insurance operations following the issue of R2 billion capital
qualifying callable bonds. In order to improve comparability the impact on
the comparative is shown as if the loan was established from 1 January 2005.
Significant events in the first six months of 2006
The sales of Liberty Ermitage and Prefsure were successfully completed.
Group profit on sale amounted to R378 million, slightly above the values
included in the group"s embedded value at 31 December 2005.
The capital reduction of R3,60 per share was paid on 12 June 2006.
Mr Bruce Hemphill was appointed a director and Chief Executive with effect
from 2 June 2006. Mr Rex Tomlinson (Deputy Chief Executive) was also
appointed a director on the same date.
Liberty Group Limited"s National Insurer Financial Strength rating of "AA"
and National Long-term rating of "AA-" was affirmed by rating agency Fitch.
During March 2006, National Treasury issued a discussion paper on
Contractual Savings in the Life Insurance Industry. Liberty Life is actively
pursuing appropriate solutions to ensure a positive outcome for the industry
and the overall retirement savings environment in South Africa.
The group"s objectives regarding efficiencies and a single IT platform
remain a priority and good progress is being made in achieving the target
date for implementation at the end of 2009.
STANLIB"s performance remains pleasing, boosted by higher levels of assets
under management. Profit before taxation and interest at R251 million was
27% up from the 2005 comparative period, with the group"s share being
R94 million. Assets under management grew by 7% from 31 December 2005 to
R296 billion as at 30 June 2006.
Dividend and capital reduction
Cents per share 2006 2005 %
Dividend
Interim 140 126 11
Final 224
Total 140 350
Base for future dividend 130 325
Capital reduction impact 10 25
Capital reduction paid on 12 June 2006 360
A 2006 interim dividend of 140 cents per share has been declared which
represents 40% of the 2005 annual dividend, in line with the group"s recently
adopted dividend policy. As the capital reduction was paid on 12 June 2006, it
was decided not to adjust the interim dividend for the impact, and shareholders
are accordingly advised that the new base for future dividend declarations is
130 cents per share.
The important dates pertaining to this dividend are:
Last day to trade cum dividend on the JSE Friday, 1 September 2006
First trading day ex dividend on the JSE Monday, 4 September 2006
Record date Friday, 8 September 2006
Payment date Monday, 11 September 2006
Share certificates may not be dematerialised or rematerialised between Monday,
4 September 2006 and Friday, 8 September 2006 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, 11 September 2006.
Prospects
While investment markets have continued to deliver higher than the actuarially
assumed investment returns, recent volatility has introduced uncertainty
regarding future investment returns. Despite the increased volatility, if
investment returns are in line with actuarial assumptions as detailed in the
embedded value report, the group believes that the medium term growth rate of
embedded value, as noted in March 2006, of approximately 10% per annum remains
achievable.
Bruce Hemphill
Chief Executive
Derek Cooper
Chairman
8 August 2006
Transfer Secretaries
Computershare Investor Services 2004 (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 South Africa (Pty) Ltd
Registration number 1995/001805/07
Registered Sponsor and Member of the JSE Securities Exchange South Africa
Accounting policies and presentation
The interim results are unaudited and have been prepared in accordance with
International Financial Reporting Standards (IFRS). There have been no changes
to accounting policies from those applied for the year ended 31 December 2005.
We do not anticipate any significant change to accounting policies for the
remainder of 2006.
A full actuarial valuation is only completed once a year (at the company"s year
end). Operating profit from life insurance operations for interim purposes
consequently reflects the statutory actuary"s estimate for the period under
review.
Restatement of comparatives
The following tables reflect the various changes to comparatives with
explanations below.
Condensed group balance sheet
at 30 June 2005
Effect Consolidation
of IFRS of
Unaudited interpretations unincorporated
As previously in second half property
reported 2005 partnerships
Rm Rm Rm
Assets
Other assets 567 50 58
Investments 128 388 278 2 456
Intangible assets 1 301 433
Reinsurance assets 1 387
Deferred taxation 232
Prepayments, insurance
and other
receivables 4 704 (1 146) 63
Cash and cash
equivalents 7 856
Total assets 144 435 (385) 2 577
Liabilities
Policyholders"
liabilities 124 177 (1 096)
Insurance contracts 89 897 349
Investment contracts 34 280 (1 445)
Financial liabilities 217
Third party liabilities
arising on
consolidation
of mutual funds 4 585
Deferred taxation 1 719 433
Insurance and other
payables 4 306 73
Other liabilities 547 261
Total liabilities 135 334 (185) 73
Equity
Ordinary shareholders"
interest 8 728
Minority interests 373 (200) 2 504
Total equity 9 101 (200) 2 504
Total equity and
liabilities 144 435 (385) 2 577
CAHL
goodwill
adjustment
on
acquisition Restated
Rm Rm
Assets
Other assets 675
Investments 131 122
Intangible assets 1 734
Reinsurance assets 1 387
Deferred taxation 232
Prepayments, insurance
and other
receivables 3 621
Cash and cash equivalents 7 856
Total assets 146 627
Liabilities
Policyholders" liabilities 123 081
Insurance contracts 90 246
Investment contracts 32 835
Financial liabilities 217
Third party liabilities
arising on
consolidation
of mutual funds 4 585
Deferred taxation 2 152
Insurance and other payables 85 4 464
Other liabilities 808
Total liabilities 85 135 307
Equity
Ordinary shareholders" interest (85) 8 643
Minority interests 2 677
Total equity (85) 11 320
Total equity and liabilities - 146 627
Condensed group income statement
for the six months ended 30 June 2005
Effect Consolidation
of IFRS of
Unaudited interpretations unincorporated
As previously in second half property
reported 2005 partnerships
Rm Rm Rm
Total revenue 20 014 82 166
Net insurance benefits
and claims (14 867) 3 919
Fair value adjustment
to policyholders"
liabilities under
investment contracts (2 565)
Fair value adjustment
on third party
mutual fund liabilities (1 115) 54
Acquisition costs
associated with
insurance and
investment contracts (1 159) (1 095)
Expenses (1 281) (409) (26)
Preference dividend
in subsidiary (69)
Goodwill impairment (312)
Equity accounted
earnings from joint
ventures 43
Profit before taxation 1 254 (14) 140
Taxation (800) 14
Total earnings 454 - 140
Attributable to:
Equity holders 451
Minority interests 3 140
454 140
Cents
Total earnings per share
Basic 179,3
Fully diluted 175,7
CAHL
goodwill
adjustment
on
acquisition Restated
Rm Rm
Total revenue 20 262
Net insurance benefits
and claims (10 948)
Fair value adjustment
to policyholders"
liabilities under
investment contracts (2 565)
Fair value adjustment
on third party
mutual fund liabilities (1 061)
Acquisition costs
associated with
insurance and
investment contracts (2 254)
Expenses (1 716)
Preference dividend
in subsidiary (69)
Goodwill impairment (85) (397)
Equity accounted
earnings from joint
ventures 43
Profit before taxation (85) 1 295
Taxation (786)
Total earnings (85) 509
Attributable to:
Equity holders (85) 366
Minority interests 143
(85) 509
Cents
Total earnings per share
Basic 145,5
Fully diluted 142.6
Effect of IFRS interpretations in second half 2005
At 30 June 2005 certain interpretations of IFRS were outstanding and the
group"s interim results were released on the understanding that changes may
occur. These interpretations were finalised prior to 31 December 2005 and
changes were made for operating lease straight-lining, the treatment of certain
investments in mutual funds, deferred taxation adjustments on acquired value of
in-force business, prepaid commission and certain grossing up of like items
previously netted off. Consequently certain comparatives at 30 June 2005 have
been restated. Shareholders are referred to the 31 December 2005 annual report
for specific details.
Consolidation of unincorporated property partnerships
The group has certain investments in properties and related property management
in which the benefit is shared with external parties in terms of partnership
agreements. The group previously accounted for the relevant income and share of
assets and liabilities on a proportional consolidation basis. On review of the
existing agreements, in conjunction with IFRS, it is now considered that these
unincorporated partnerships are subsidiary entities and therefore full
consolidation is appropriate. The external parties" beneficial ownership is
accounted for as minority interests.
CAHL goodwill adjustment on acquisition
In terms of IFRS 3 Business Combinations, an adjustment of R85 million was made
at 31 December 2005 to net assets acquired on acquisition of CAHL. This was as
a consequence of the SOI and effectively increased goodwill arising on
acquisition to R397 million (previously R312 million). IFRS 3 requires the
30 June 2005 amounts to be restated to reflect this adjustment. Consequently,
total earnings have reduced by R85 million for the six months ended 30 June
2005.
Restatement of 31 December 2005 reported results
As a result of the consolidation of unincorporated property partnerships, as
detailed above, the 31 December 2005 reported results have also been restated.
This has resulted in increases in other assets of R45 million, investments of
R1 687 million, prepayments, insurance and other receivables of R41 million,
insurance and other payables of R45 million and minority interests of
R1 728 million as at 31 December 2005.
The effect on the income statement for the year ended 31 December 2005 is an
increase in total revenue of R343 million and an increase in general marketing
and administration expenses of R61 million, with the net amount of R282 million
being earnings attributable to minority interests.
There is no impact on the earnings attributable to equity holders from the
above adjustments.
Condensed group balance sheet
as at 30 June 2006
Unaudited Audited
Unaudited as restated as restated
30 June 30 June 31 December
2006 2005 2005
Rm Rm Rm
Assets
Other assets 629 675 652
Investments 159 771 131 122 147 136
Intangible assets 1 433 1 734 1 534
Reinsurance assets 977 1 387 946
Deferred taxation 116 232 88
Disposal groups held for sale 2 380
Prepayments, insurance
and other receivables 4 639 3 621 2 788
Cash and cash equivalents 9 901 7 856 12 313
Total assets 177 466 146 627 167 837
Liabilities
Policyholders" liabilities 150 282 123 081 140 835
Insurance contracts 111 275 90 246 103 979
Investment contracts 39 007 32 835 36 856
Financial liabilities 2 368 217 2 235
Third party liabilities arising
on consolidation of mutual funds 5 090 4 585 4 877
Deferred taxation 2 781 2 152 2 454
Disposal groups held for sale 1 267
Insurance and other payables 4 777 4 464 3 654
Other liabilities 977 808 1 186
Total liabilities 166 275 135 307 156 508
Equity
Ordinary shareholders" interest 9 472 8 643 9 434
Minority interests 1 719 2 677 1 895
Total equity 11 191 11 320 11 329
Total equity and liabilities 177 466 146 627 167 837
Liberty Group Limited
capital adequacy requirements
Statutory capital
adequacy requirement (CAR) 3 849 3 114 3 782
Statutory CAR cover 2,1 1,8 2,0
Condensed group income statement
for the six months ended 30 June 2006
Unaudited Audited
Unaudited as restated as restated
30 June 30 June 31 December
2006 2005 2005
Rm Rm Rm
Total revenue 23 744 20 262 52 159
Net insurance benefits and claims (15 804) (10 948) (32 816)
Fair value adjustment to
policyholder
liabilities under investment
contracts (2 730) (2 565) (6 834)
Fair value adjustment on
third party mutual fund
liabilities (213) (1 061) (1 354)
Acquisition costs associated with
insurance and investment contracts (1 196) (2 254) (3 594)
Expenses (1 755) (1 716) (3 754)
Preference dividend in subsidiary (71) (69) (138)
Goodwill impairment (397) (397)
Profit/(loss) on sale
of subsidiaries 378 (2)
Equity accounted earnings
from joint ventures 53 43 91
Profit before taxation 2 406 1 295 3 361
Taxation (904) (786) (1 623)
Total earnings 1 502 509 1 738
Attributable to:
Equity holders 1 404 366 1 442
Minority interests 98 143 296
1 502 509 1 738
Earnings per share Cents Cents Cents
Basic earnings 557,2 145,5 572,8
Fully diluted 531,9 142,6 560,3
Headline earnings
for the six months ended 30 June 2006
Unaudited Audited
Unaudited as restated as restated
30 June 30 June 31 December
2006 2005 2005
Rm Rm Rm
Reconciliation of headline
earnings
Total earnings attributable
to equity holders 1 404 366 1 442
Goodwill impairment 397 397
(Profit)/loss on sale of
subsidiaries (378) 2
Headline earnings 1 026 763 1 841
Insurance operations 723 501 942
Shareholders" fund investments 303 262 899
Headline earnings per share Cents Cents Cents
Basic 407,2 303,4 731,2
Fully diluted 388,7 297,2 715,3
Condensed statement of changes in group shareholders" funds
for the six months ended 30 June 2006
Unaudited Audited
Unaudited as restated as restated
30 June 30 June 31 December
2006 2005 2005
Rm Rm Rm
As previously reported 9 601 8 525 8 525
Minority interests in
unincorporated
property partnerships 1 728 2 449 2 449
Restated balance at 1 January 11 329 10 974 10 974
Total earnings 1 502 509 1 738
Minority interests arising from
acquisition of Capital Alliance
Holdings Limited 161 161
Acquisition of minorities in
Prefsure Holdings Limited (166)
Ordinary dividends (623) (423) (773)
Capital reduction (1 004)
Minority capital contribution
in unincorporated property
partnerships 3 1 2
Minority capital reduction in
unincorporated property
partnerships (48)
Distribution to minority
interests in unincorporated
property partnerships (63) (86) (149)
Change in effective ownership of
minority interests in
unincorporated
property partnerships (856)
Subscriptions for shares 32 59 68
Black Economic Empowerment
transaction 143 38 72
Share-based payments 26 22 45
Owner-occupied properties
- net fair value adjustments 13 17 94
Reversal of fair value adjustment
on Capital Alliance Holdings
Limited existing shares (17) (17)
Treasury shares 5 (25)
Foreign currency translation
movement on subsidiaries 42 65 (5)
Shareholders" funds 11 191 11 320 11 329
Ordinary shareholders" interest 9 472 8 643 9 434
Minority interests 1 719 2 677 1 895
Condensed group cash flow statement
for the six months ended 30 June 2006
Unaudited Audited
Unaudited as restated as restated
30 June 30 June 31 December
2006 2005 2005
Rm Rm Rm
Operating activities 232 3 807 7 840
Investing activities (1 733) (3 521) (4 961)
Financing activities (925) 60 2 070
Net (decrease)/increase in
cash and cash equivalents (2 426) 346 4 949
Cash and cash equivalents
at beginning of period 12 313 6 058 6 057
Net cash acquired on business
acquisition and disposals 1 445 1 444
Reclassified to disposal
groups held for sale (137)
Foreign exchange movements
on cash balances 14 7
Cash and cash equivalents
at end of period 9 901 7 856 12 313
Segment information
Unaudited segment results for the six months ended 30 June 2006
Group
Risk Non-risk
Rm Rm
Total revenue 710 2 767
Net insurance benefits and claims (560) (496)
Expenses (82) (2 156)
Segment result 68 115
Profit before taxation 68 115
Taxation (14) (85)
Total earnings 54 30
Individual
Prudential
Non- partici-
Partici- parti- pating
pating cipating business
Rm Rm Rm
Total revenue 16 833 1 419 1 063
Net insurance
benefits and
claims (13 700) (75) (973)
Expenses (2 192) (964) (18)
Segment result 941 380 72
Profit before
taxation 941 307 72
Taxation (505) (119) (57)
Total earnings 436 188 15
Other
Share-
Asset holder
manage- opera- Mutual
ment tions funds Total
Rm Rm Rm Rm
Total revenue 15 678 259 23 744
Net insurance benefits and claims (15 804)
Expenses (121) (259) (5 792)
Segment result 15 557 - 2 148
Profit before taxation 65 838 2 406
Taxation (124) (904)
Total earnings 65 714 - 1 502
Audited segment results for the year ended 31 December 2005
Group
Risk Non-risk
Rm Rm
Total revenue 1 546 6 417
Net insurance benefits and claims (1 094) (1 326)
Expenses (166) (4 978)
Segment result 286 113
Profit before taxation 285 111
Taxation (96) (104)
Total earnings 189 7
Individual
Prudential
Non- partici-
Partici- parti- pating
pating cipating business
Rm Rm Rm
Total revenue 32 015 6 045 2 152
Net insurance benefits and
claims (24 868) (3 386) (1 947)
Expenses (6 312) (1 610) (28)
Segment result 835 1 049 177
Profit before taxation 839 911 176
Taxation (678) (376) (154)
Total earnings 161 535 22
Other
Share-
Asset holder
manage- opera- Mutual Disposal
ment tions funds groups
Rm Rm Rm Rm
Total revenue 30 1 542 1 490 922
Net insurance benefits and claims (195)
Expenses (304) (1 490) (567)
Segment result 30 1 238 - 160
Profit before
taxation 107 774 158
Taxation (188) (27)
Total earnings 107 586 - 131
Total
Rm
Total revenue 52 159
Net insurance benefits and claims (32 816)
Expenses (15 455)
Segment result 3 888
Profit before taxation 3 361
Taxation (1 623)
Total earnings 1 738
Total new sales
for the six months ended 30 June 2006
Comparatives include continuing operations of Capital Alliance for six months
Unaudited Unaudited
30 June 30 June
2006 2005
Rm Rm % change
Retail sales 12 506 10 870 +15
Life licence 6 511 6 685 -3
Attributable portion of STANLIB 5 995 4 185 +43
Institutional sales 3 920 2 447 +60
Life licence 1 268 1 222 +4
Attributable portion of STANLIB 2 652 1 225 +116
Total sales ex money market 16 426 13 317 +23
Attributable portion of money market 13 930 12 893 +8
Total new sales 30 356 26 210 +16
Net cash inflows
for the six months ended 30 June 2006
Comparatives include continuing operations of Capital Alliance for six months
Unaudited Unaudited
30 June 30 June
2006 2005
Rm Rm % change
Retail cash inflows 3 487 4 149 -16
Life licence 1 754 2 312 -24
Attributable portion of STANLIB 1 733 1 837 -6
Institutional cash outflows (230) (1 343) +83
Life licence 233 (141) +265
Attributable portion of STANLIB (463) (1 202) +61
Net cash inflows ex money market 3 257 2 806 +16
Attributable portion of money market 160 1 704 -91
Net cash inflows 3 417 4 510 -24
Analysis of ordinary shareholders" funds invested
for the six months ended 30 June 2006
Group
funds invested
Unaudited Audited
30 June 31 December
2006 2005
Rm Rm
Insurance operations 963 1 019
Operating surplus
Present value of
in force business
acquired 963 1 019
Liberty Active
preference dividend
Working capital charge1
Financing of
insurance operations (101) 683
Fixed assets and
working capital 1 2 159 2 883
Callable capital
bonds and preference
share liabilities (2 260) (2 200)
Financial services operations 473 449
Liberty Group Properties 17 11
STANLIB 422 407
Other 34 31
Listed investments 1 597 1 797
Other investments 6 540 4 540
Cash, preference
shares and mutual funds 5 528 4 052
Share of pooled portfolios 911 373
Unlisted investments 101 115
Disposal groups held for sale 946
Prefsure Holdings 400
Liberty Ermitage Jersey 546
Administration expenses
- shareholder allocation
Normal taxation
excluding insurance
operations
Secondary tax on companies
Capital gains taxation
on shareholder
specific assets
Net investment gains
Goodwill impairment
Profit on sale of subsidiaries
Total shareholders" funds 9 472 9 434
Contribution
to earnings
As restated
Unaudited unaudited
30 June 30 June
2006 2005
Rm Rm
Insurance operations 723 501
Operating surplus 905 566
Present value of
in force business
acquired
Liberty Active
preference dividend (71) (65)
Working capital charge1 (111)
Financing of
insurance operations 15
Fixed assets and
working capital 1 111
Callable capital
bonds and preference
share liabilities (96)
Financial services operations 87 78
Liberty Group Properties 20 12
STANLIB 65 53
Other 2 13
Listed investments 30 31
Other investments 206 110
Cash, preference
shares and mutual funds 152 72
Share of pooled portfolios 49 38
Unlisted investments 5
Disposal groups held for sale 33
Prefsure Holdings
Liberty Ermitage Jersey 33
Administration expenses
- shareholder allocation (84) (82)
Normal taxation
excluding insurance
operations (22) (25)
Secondary tax on companies (44) (21)
Capital gains taxation
on shareholder
specific assets
Net investment gains 115 138
Goodwill impairment (397)
Profit on sale of subsidiaries 378
Total shareholders" funds 1 404 366
Group investment
gains/(losses)
As restated
Unaudited unaudited
30 June 30 June
2006 2005
Rm Rm
Insurance operations
Operating surplus
Present value of
in force business
acquired
Liberty Active
preference dividend
Working capital charge1
Financing of
insurance operations
Fixed assets and
working capital 1
Callable capital
bonds and preference
share liabilities
Financial services operations 1
Liberty Group Properties
STANLIB 1
Other
Listed investments 78 71
Other investments 57 113
Cash, preference
shares and mutual funds (3)
Share of pooled portfolios 75 50
Unlisted investments (15) 63
Disposal groups held for sale 3
Prefsure Holdings
Liberty Ermitage Jersey 3
Administration expenses
- shareholder allocation
Normal taxation
excluding insurance
operations
Secondary tax on companies
Capital gains taxation
on shareholder
specific assets (20) (50)
Net investment gains (115) (138)
Goodwill impairment
Profit on sale of subsidiaries
Total shareholders" funds
1 With effect from 1 July 2005 Liberty Life established a working capital
funding loan between insurance operations and shareholder assets,
subsequently supported by the callable capital bonds issue. Inter divisional
interest is charged at 8,58% nacm which is equivalent to the bond interest
rate.
Embedded value and value of new business
as at 30 June 2006
Unaudited Audited
30 June 31 December
2006 2005
Rm Rm
Group embedded value
Risk discount rate4 11,25% 10,00%
Net worth 8 244 8 279
Ordinary shareholders" funds on published basis 9 472 9 434
Adjustment of ordinary shareholders"
funds from published basis1 (1 275) (1 236)
Financial services subsidiaries fair value
adjustment 2 1 229 1 345
Adjustment for carrying value of
in force business acquired3 (964) (1 019)
Allowance for fair value of share options (218) (245)
Net value of life business in force 11 108 10 874
Value of life business in force 11 984 11 563
Cost of solvency capital (876) (689)
Embedded value 19 352 19 153
Embedded value per share information
Embedded value (Rm) 19 352 19 153
Number of shares in issue less shares
in respect of the BEE transaction (millions) 252,8 252,2
Embedded value per ordinary share (R) 76,55 75,96
Embedded value before BEE impairment (Rm) 20 511 20 404
Number of shares including shares in
respect of the BEE transaction (millions) 278,6 277,9
BEE normalised embedded value per share (R) 73,62 73,41
Value of new business and new business margins
(31 December 2005 post SOI)
Net value of new business written in the period 257 777
Gross value of new business 288 858
Cost of solvency capital (31) (81)
Present value of future expected premiums 10 853 26 216
Value of new business as a percentage
of future expected premiums 2,4% 3,0%
Embedded value profits
Unaudited Unaudited
30 June 30 June
2006 2005
Rm Rm
Embedded value at the end of the period 19 352 17 233
Less capital raised (32) (59)
Plus effect of capital reduction 912
Plus dividends paid 623 423
Less restated embedded value at the beginning of
the period (19 153) (16 319)
Embedded value profits 1 702 1 278
Return on net worth (annualised) 45,3% 33,6%
Return on embedded value (annualised) 18,6% 16,3%
Analysis of embedded value profits
Net value of
life business Embedded
Net worth in force value
Rm Rm Rm
Embedded value profits for the
period
Embedded value at the end of the
period 8 244 11 108 19 352
Less capital raised (32) (32)
Plus effect of capital reduction 912 912
Plus dividends paid 623 623
Less restated embedded value at
the beginning of the period (8 279) (10 874) (19 153)
Embedded value profits 1 468 234 1 702
Components of embedded value
profits
Value of new business written in
the period 257 257
Expected return on value of life
business 5 541 541
Expected net of tax profit
transfer to net worth 8 257 (257)
Operating experience variances9 60 (53) 7
Operating assumption changes10 (17) (9) (26)
Change in respect of STC allowance (96) (96)
Embedded value profits from
operations 300 383 683
Investment return on net worth 741 741
Exchange rate movements 42 42
Investment variances 436 199 635
Changes in economic assumptions11 (64) (386) (450)
Changes in modelling methodology (15) 38 23
Change in allowance for fair value
of share options 12 28 28
Total embedded value profits 1 468 234 1 702
Bases, assumptions and additional information
1. The amounts of R1 275 million and R1 236 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. This is largely due to the elimination of
certain negative rand reserves on the statutory valuation basis. The
reduction in net worth results in a corresponding increase in the value of
in force.
2. The published value of financial services subsidiaries is adjusted for
embedded value purposes to essentially hold these subsidiaries as a multiple
of earnings.
This adjustment is shown as the "financial services subsidiaries fair value
adjustment".
Unaudited Audited
30 June 31 December
2006 2005
Rm Rm
Liberty Group Properties 330 300
Liberty Ermitage Jersey 305
Libgroup Jersey Holdings 115
STANLIB 784 710
Prefsure Holdings 30
1 229 1 345
In the case of Liberty Group Properties, Liberty Ermitage Jersey, Libgroup
Jersey Holdings and STANLIB, a price earnings ratio multiplier was applied to
the net after taxation recurring earnings of the subsidiaries.
For Liberty Group Properties and STANLIB a multiplier of 10 was used and for
Libgroup Jersey Holdings a multiplier of 5 (2005: all 10). In the case of
STANLIB the R784 million represents Liberty Life"s share of the excess over the
net asset value of STANLIB and effectively values STANLIB Limited at R2,9
billion in total.
3. The carrying value of business acquired by Liberty Life (analysed below) has
been deducted from shareholders" funds in order to avoid double counting.
For embedded value purposes, the value in respect of this amount is included
in the net value of life business in force.
Unaudited Audited
30 June 31 December
2006 2005
Rm Rm
Investec Employee Benefits (91) (96)
Capital Alliance Holdings Limited (CAHL) (824) (872)
Business previously acquired by CAHL (49) (51)
(964) (1 019)
4. Future investment returns on the major 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 31 December
2006 2005
Government stock 8,75% 7,50%
Equities 10,75% 9,50%
Property 9,75% 8,50%
Cash 7,25% 6,00%
The risk discount rate has
been set equal to 0,5%
in excess of the
investment return
on equity assets 11,25% 10,00%
Maintenance expense
inflation rate 5,25% 4,00%
5. The expected return on the value of life business is obtained by applying
the previous year"s discount rate for half a year to the value of life
business in force at the beginning of the year and the current year"s
discount rate for a quarter of a year to the value of new business.
6. Taxation has been allowed for at the latest 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
Tax on Companies.
7. Other bases, bonus rates and assumptions:
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.
8. The expected net of tax transfer to net worth includes a negative amount of
approximately R297 million arising due to the new business strain
experienced on the statutory valuation basis.
9. The net amount of R7 million includes amongst other variances the effect of
better than expected risk experience.
10.The R26 million shown for operating assumption changes includes the effect
of reduced management fees on certain portfolios of business.
11.The amount of R450 million shown for changes in economic assumptions arises
from the change to a higher level of economic assumptions.
12.The amount of R28 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 change in the market value of the Liberty Life share price over the
reporting period.
13.The assets backing the Capital Adequacy Requirement (CAR) are 60% equities,
20% cash, 15% preference shares and 5% gilts. The mix is the same as at 31
December 2005.
Commitments
as at 30 June 2006
Unaudited Unaudited Audited
30 June 30 June 31 December
2006 2005 2005
Rm Rm Rm
Capital commitments
Equipment 163 167 288
Under contracts 132 154 248
Authorised by the directors
but not contracted 31 13 40
Total capital commitments 163 167 288
Related parties
As at 30 June 2006
There have been no significant changes to the nature of the related party
transactions as described in note 44 to the 31 December 2005 annual financial
statements.
Summary of movement in investments in ordinary shares held by the group in the
group"s holding companies is as follows:
Liberty Holdings Limited
Number Market value
"000 Rm Ownership %
Balance at 31 December 2005 2 630 497 5,36
Purchases 295 61
Sales (390) (79)
Fair value adjustments (28)
Balance at 30 June 2006 2 535 451 5,16
Standard Bank Group Limited
Balance at 31 December 2005 46 489 3 525 3,44
Purchases 3 536 267
Sales (5 790) (453)
Fair value adjustments 67
Balance at 30 June 2006 44 235 3 406 3,26
Retirement benefit obligation
As at 30 June 2006
As at 31 December 2005, the Liberty Group post retirement medical aid benefit
liability was R196 million and the Alnet post retirement defined benefit
pension shortfall was R23 million. A review by the group"s actuaries at 30 June
2006 does not indicate that any significant adjustment to the liability is
currently required.
No asset is recognised in respect of the surplus on the Liberty pension fund,
as the apportionment of the surplus between the respective company and members
still needs to be approved by the Registrar of Pension Funds in terms of the
Pension Fund Second Amendment Act, 39 of 2001.
Date: 10/08/2006 07:30:33 AM Produced by the JSE SENS Department
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