Liberty Life Presentation to Investment Analysts’ Society of Southern Africa 2 March 2005 www. liberty. co. za
Agenda What we said What we’ve done Operating climate Operations Financial results Focus areas for next twelve months Questions
What we said … more of the same • People • Customer service • Business structure and efficiency • Capital management • Product development • Financial Sector Charter implementation • Domestic operations/other market segments and Africa • Distribution channels • Implement BEE transaction
What we’ve done … people Executive management committee Roy Andersen Hylton Appelbaum Mark Bloom Andrew Lonmon-Davis Ian Maron Mike Jackson Deon de Klerk Leanne Dewey Themba Gamedze Jim Mc. Lean Ron Mitchell David Nohr Mike Garbutt Lee Izikowitz Craig Lawrence Dan Pienaar Martin Smale Alan Woolfson
What we’ve done … people Executive management committee Replaced by Myles Ruck Roy Andersen Replaced by Deon de Klerk Andrew Lonmon-Davis Ian Maron Mike Jackson Replaced by Roger Corlett Replaced by Ian Cadby Replaced by Andrew Lonmon-Davis Themba Gamedze Jim Mc. Lean Ron Mitchell David Nohr Replaced by Audrey Mothupi Leanne Dewey Mark Bloom Not replaced Deon de Klerk Hylton Appelbaum Replaced by Peter Laburn Not replaced Martin Smale Alan Woolfson Mike Garbutt Lee Izikowitz Craig Lawrence Dan Pienaar Employed Joined Exco Employed Bruce Hemphill Bobby Malabie Mark Alexander Rex Tomlinson
What we’ve done … people Executive management Previous New Roy Andersen Myles Ruck Mark Bloom Deon de Klerk Dave Nohr Andrew Lonmon-Davis Ron Mitchell Ian Cadby Jim Mc. Lean Roger Corlett Craig Lawrence Audrey Mothupi Peter Laburn Not replaced Mike Jackson Not replaced Themba Gamedze Not replaced Dan Pienaar Not replaced Rex Tomlinson Bruce Hemphill Bobby Malabie Mohale Ralebitso
What we’ve done … people More new names John Sturgeon Divisional director: Corporate finance Christo Landman Divisional director: Tax Caswell Rampheri Divisional director: Properties Jeff Hubbard Divisional director: Financial accounting Craig Pilgrim Divisional director: Internal audit Stewart Rider Group executive: Investor relations and strategic analysis David Jewell Divisional director: Group actuarial
What we’ve done … people • 251 people taken on in October 2003 as part of IEB acquisition • IT outsourcing - reduction of 70 people • HR restructuring - reduction of 25 people • 16 Graduates employed under new scheme 3600 3472 3500 3400 3353 3320 3300 3221 3200 3069 3100 3000 2900 2800 Dec 02 Mar 03 Jun 03 Sep 03 Liberty excluding IEB Dec 03 Mar 04 Jun 04 Liberty including IEB Sep 04 Dec 04
What we’ve done … customer service • Customer service campaign • Internal ombudsman and MD of customer service • Internal campaign to staff • Noticeable improvement, but a long way to go
What we’ve done … business structure and efficiency Implemented during 2004 - benefits not yet fully realised: • Group HR • IT • Group Finance • Central Group product development unit formed • Central Group customer service unit formed Implemented in 2003 - benefits evident in 2004: • Liberty Healthcare rationalised into LPB • STANLIB restructure
What we’ve done … capital management • Capital management committee • Long-term shareholder portfolio established • Successful Liblife B. V. bond redemption • Application to the FSB to issue debt - Conditional approval received • BEE transaction successfully implemented • Offer made for Capital Alliance • Dividend policy introduced
What we’ve done … Financial Sector Charter implementation • Board transformation sub-committee established • Favourable progress against scorecard • Need more black senior managers • Black managers’ ownership scheme should help • Sizwe. Ntsaluba VSP appointed - FSC auditors - STANLIB entities – more to follow
What we’ve done … domestic operations, other market segments and Africa • Repositioning of Charter Life (now Liberty Active) • Bobby Malabie and team developed project Khula during 2004 • A build strategy (as opposed to buy) has been developed • Expected R 50 m to R 100 m investment in the next 18 to 24 months • We have some time to get the model right
What we’ve done … domestic operations, other market segments and Africa • Namibian operation small, but profitable • Investigating opportunities in Uganda and Kenya • Liberty Life offshore model discontinued • Capital Alliance closed book offshore model will be considered in due course
What we’ve done … distribution channels • Continued focus on broker relationships • We’re working on it campaign • Regional head office in Cape Town being established • Individual life bancassurance model continues to deliver • Restructured corporate benefits bancassurance model implemented • Focused on productivity of agency and franchise in 2004 - will recruit and develop in 2005 • Well established, stable agency force
What we’ve done … BEE transaction • Implemented on 8 November 2004 • Community/educational trust to be finalised in 2005 • Black management allocations done • General staff scheme in place • Timing was good – R 1 251 m now R 1 677 m • Capital repayments could commence in 18 months
Operating climate Increasingly we’ve been dealing with: • More compliance and regulatory requirements • Low interest rate/low inflation environment • Strengthening of the Rand • Volatile investment markets • Risk averse investors • Poor perception of industry (media and consumers)
Operating climate (continued) Some positives are emerging: • Industry has started recognising its shortcomings • Emerging middle class - a reality, but net spenders • South African economy - a success story • Investors becoming more bullish • Good local investment returns • Cash being accumulated by investors = opportunity
Deon de Klerk
Operational features – 2004/2003 Rm 2004 2003 % 13 440 11 667 +15 Indexed new business 4 186 3 808 +10 Indexed new business excl contractual increases 3 340 3 060 +9 Value of new business 815 609 +34 New business margin 24% 20% 3 640 4 497 Total new business Net cash inflows from insurance operations * * Maturity of R 2 090 m in respect of one large client. Excludes STANLIB and Ermitage net cash inflows. -19
Life insurance operations New business premiums Indexed new business premiums • Total +15% to R 13 440 m • Total +10% to R 4 186 m • Individual life +22% to R 11 374 m • Individual life +11% to R 3 544 m • Corporate benefits -12% to R 2 066 m • Corporate benefits +3% to R 642 m 12000 +22% 12000 10000 8000 6000 4000 -12% 2000 0 Rm 2001 2002 2003 2004 Individual life +11% 2000 0 Rm +3% 2001 2002 Corporate benefits 2003 2004
Life insurance operations Embedded value of new business New business EV margins • Total +34% to R 815 m • Total = 24% • Individual life +43% to R 819 m • Individual life = 28% • Corporate benefits -110% to -R 4 m • Corporate benefits = -1% 900 800 700 600 500 400 300 200 100 0 -100 Rm R 819 m 30% +28% 25% 20% 15% 10% 5% 0% -R 4 m 2001 2002 2003 2004 Individual life -5% Rm -1% 2001 2002 Corporate benefits 2003 2004
Life insurance operations Net cash inflows from insurance operations • Total -19% to R 3 640 m • Individual life +76% to R 5 492 m • Corporate benefits -234% to -R 1 852 m 6000 R 5 492 m 5000 4000 3000 2000 1000 -R 1 852 m 0 -1000 -2000 Rm 2001 2002 2003 Net cash inflows from individual life business Net cash inflows from corporate benefits business 2004
Life insurance operations New individual business market share (including Liberty Active) % 35 30 25 20 23 24 25 27 26 25 20 20 17 15 15 10 5 0 Recurring individual Year ended 31 December 2000 Year ended 31 December 2002 Source: LOA market share statistics for all life offices Single individual Year ended 31 December 2001 Year ended 31 December 2003 Nine months ended 30 September 2004
Other operations STANLIB: assets under management and funds under administration Rbn 2004 2003 % Life funds 72 59 +22 Segregated funds 66 55 +20 Unit trusts 51 40 +28 Structured products and other 34 24 +42 223 178 +25 16% 14% Total AUM and FUA Money market as % of total • Net cash inflows of R 15, 3 billion • Normalised earnings after tax of R 192 m up 62%
Other operations STANLIB: net cash inflows % 2004 2003 62 72 8 18 Equity 29 16 Other 1 -6 Total 100 Money market and flexi-cash Fixed interest funds
Other operations Ermitage: assets under management US$m 2004 2003 % Hedge funds 1 500 1 131 +33 Long-only funds 1 382 1 060 +30 762 600 +27 3 644 2 791 +31 41% 39% Money funds Total AUM Third party funds as % of total funds • Net cash inflows of US$572 m +160% (R 3 681 m) • Headline earnings of £ 4 m +11% (R 46 m)
Financial results – 2004/2003 Rm 2004 2003 % Headline earnings per share (cents) 460, 4 346, 4 +33 Embedded value per share (Rand) * 67, 25 57, 58 +17 Capital adequacy requirement (times covered) 2, 1 2, 6 Final dividend per share (cents) 153 116 +32 Total dividend per share (cents) 315 278 +13 * BEE normalised embedded value per share = R 65, 69 up 14%
Headline earnings Rm 2004 2003 % Operating profit from insurance operations net of tax 929 720 +29 Operating profit from shareholders’ funds 323 230 +40 Headline earnings 1 252 950 +32 Headline eps (cents) 460, 4 346, 4 +33
Operating profit from life insurance operations – major influencing factors • Shareholders’ 10% participation and higher asset base • Investment guarantee reserve • Expenses - Costs per policy - Non-recurring expenses • Liberty Corporate Benefits
Gross investment returns 25 22, 7% 20 15 12, 5% 10 5 0 -5 -10 -15 Jan Feb Mar Apr Year-to-date return 2003 May Jun Jul Year-to-date return 2004 Aug Sep Oct Nov Actuarial assumption 2004 Dec
Main factors affecting the guarantee reserves Rm Change in reserve Economic basis change 313 Better than expected overall investment performance in 2004 (44) 269 Volatility basis change (set up as a second-tier margin) = R 148 m
Expenses Rm 2004 2003 % Total group expenses per AFS 2 036 1 860 +9 IEB expenses incurred since October 2003 (93) (32) BEE transaction expenses (before tax) (15) Total group expenses 1 928 Including non-recurring expenses 1 828 +5
Non-recurring expenses of R 137 m in 2004 (2003 : R 111 m) Rm 2004 2003 35 11 2 30 Non-capitalised renovation costs 13 10 Systems impairments 37 15 BEE transaction 15 - Discontinued salaries (50%) 14 15 Various other 21 30 137 111 Retrenchment costs Pension contribution shortfall Policyholders’ non-recurring: R 116 m (2003: R 84 m) Shareholders’ non-recurring: R 21 m (2003: R 27 m)
Expenses Costs per policy 2004 2003 % Assumption Individual maintenance costs per policy Liberty Life R 248 R 240 +3, 5 +5, 5 Liberty Active R 154 R 162 -4, 9 +5, 5 R 74 m after tax release to profit
Operating profit from shareholders’ funds Rm Financial services operations Listed investments Other 2004 2003 % 265 200 +33 81 33 +145 (23) (3) >100 323 230 +40
Embedded value Rm 2004 2003 % Shareholders’ funds 8 494 8 782 -3 Net value of life business in-force 7 607 6 494 +17 766 541 +42 16 867 15 817 +7 67, 25 57, 58 +17 Fair value adjustment Total Embedded value per share (Rand) BEE normalised embedded value per share = R 65, 69 up 14%
Financial services subsidiaries fair value adjustment Rm 2004 2003 Liberty Group Properties 240 216 Liberty Ermitage Jersey 290 140 STANLIB 345 307 (109) (122) 766 541 Carrying value of in-force business acquired from IEB
Capital adequacy cover 2004 2003 3 954 3 403 Times covered 2, 1 2, 6 Times covered without BEE impairment 2, 5 Capital adequacy requirement (Rm)
Dividend policy Objectives: • Predictable growth • Less volatility • Leave room for new business growth • Strong capital adequacy
Dividend policy Policy: • Yield on EV per share of approximately 4, 75% • Going forward – aligned to medium term growth of EV • Taking into account: - economic conditions; and - CAR cover >1, 5 • Interim dividend at 40% of previous full year
Dividend Cents per share 2004 2003 % Interim 162 - Final 153 116 +32 315 278 +13
Conclusion
Focus areas for next twelve months Exciting opportunities • Operational restructuring opportunities • Capital Alliance - new business - efficiency • Products • Capital structuring • Liberty Active and, as always. . . people. . . service … costs
Focus areas for next twelve months Liberty’s business is conceptually simple and generic • We develop products • We sell products • We receive money • We invest the money according to product specification • We administer according to product specification • We pay benefits
Focus areas for next twelve months Exciting opportunities • Operational restructuring opportunities • Capital Alliance - new business - efficiency • Products • Capital structuring • Liberty Active and, as always. . . people. . . service … costs
Questions Panel Myles Ruck Chief Executive Andrew Lonmon-Davis Statutory Actuary Deon de Klerk Chief Financial Officer
Liberty Life Presentation to Investment Analysts’ Society of Southern Africa 2 March 2005 www. liberty. co. za
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