liberty life presentation to investment analysts’ society of southern africa 2 march 2005
TRANSCRIPT
Liberty Life
Presentation toInvestment 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
RoyAndersen
HyltonAppelbaum
MarkBloom
Deonde Klerk
LeanneDewey
ThembaGamedze
MikeGarbutt
LeeIzikowitz
CraigLawrence
AndrewLonmon-Davis
IanMaron
MikeJackson
JimMcLean
RonMitchell
DavidNohr
DanPienaar
MartinSmale
AlanWoolfson
What we’ve done …people
Executive management committee
RoyAndersen
HyltonAppelbaum
MarkBloom
Deonde Klerk
LeanneDewey
ThembaGamedze
MikeGarbutt
LeeIzikowitz
CraigLawrence
AndrewLonmon-Davis
IanMaron
MikeJackson
JimMcLean
RonMitchell
DavidNohr
DanPienaar
MartinSmale
AlanWoolfson
BruceHemphill
BobbyMalabie
MarkAlexander
Rex Tomlinson
Replaced byMylesRuck
Replaced byDeon
de Klerk
Not replaced
Replaced byAudrey Mothupi
Employed Employed Joined Exco Employed
Replaced byPeter
Laburn
Replaced byRogerCorlett
Replaced byIan
Cadby
Replaced byAndrew
Lonmon-Davis
Not replaced
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 McLean 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
3500
3400
3300
3200
3100
3000
2900
2800
3353
Liberty excluding IEB Liberty including IEB
Dec 02 Mar 03 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04
3221
3472
3320
3069
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 … FinancialSector Charter implementation
• Board transformation sub-committee established
• Favourable progress against scorecard
• Need more black senior managers
• Black managers’ ownership scheme should help
• SizweNtsaluba 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 R50m to R100m 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 – R1 251m now
R1 677m
• 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
Rm 2004 2003 %
Total new business 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%
Net cash inflows from insurance operations * 3 640 4 497 -19
Operational features – 2004/2003
* Maturity of R2 090m in respect of one large client.Excludes STANLIB and Ermitage net cash inflows.
Life insurance operations
New business premiums
• Total +15% to R13 440m
• Individual life +22% to R11 374m
• Corporate benefits -12% to R2 066m
Indexed new business premiums
• Total +10% to R4 186m
• Individual life +11% to R3 544m
• Corporate benefits +3% to R642m
Individual life Corporate benefits
2001Rm 2002 2003 2004
12000
10000
8000
6000
4000
2000
02001Rm 2002 2003 2004
12000
10000
8000
6000
4000
2000
0
+22%
-12%
+11%
+3%
Life insurance operations
Embedded value of new business
• Total +34% to R815m
• Individual life +43% to R819m
• Corporate benefits -110% to -R4m
New business EV margins
• Total = 24%
• Individual life = 28%
• Corporate benefits = -1%
2001Rm 2002 2003 2004
Individual life Corporate benefits
2001Rm 2002 2003 2004
900
700
500
300
100
-100
R819m
-R4m
800
600
400
200
0
-5%
0%
5%
10%
15%
20%
25%
30% +28%
-1%
Net cash inflows from insurance operations
• Total -19% to R3 640m
• Individual life +76% to R5 492m
• Corporate benefits -234% to -R1 852m
6000
5000
4000
3000
2000
1000
0
-1000
-2000
R5 492m
Net cash inflows from individual life business
Net cash inflows from corporate benefits business
Life insurance operations
Rm 20032001 20042002
-R1 852m
Source: LOA market share statistics for all life offices
Year ended 31 December 2000 Year ended 31 December 2001
35
30
25
20
15
10
5
0
Life insurance operations
New individual business market share (including Liberty Active)
%
Single individual
Year ended 31 December 2002 Year ended 31 December 2003
Nine months ended 30 September 2004
20
2324 25
26
1517
20
2527
Recurring individual
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
Total AUM and FUA 223 178 +25
Money market as % of total 16% 14%
• Net cash inflows of R15,3 billion• Normalised earnings after tax of R192m up 62%
Other operations
STANLIB: net cash inflows
% 2004 2003
Money market and flexi-cash 62 72
Fixed interest funds 8 18
Equity 29 16
Other 1 -6
Total 100 100
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
Money funds 762 600 +27
Total AUM 3 644 2 791 +31
Third party funds as % of total funds 41% 39%
• Net cash inflows of US$572m +160% (R3 681m)• Headline earnings of £4m +11% (R46m)
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 = R65,69 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
20
15
10
5
0
-5
-10
-15
Year-to-date return 2003 Year-to-date return 2004 Actuarial assumption 2004
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
12,5%
22,7%
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) = R148m
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 1 828 +5
Including non-recurring expenses
Non-recurring expenses
Non-recurring expenses of R137m in 2004 (2003 : R111m)
-
Rm 2004 2003
Retrenchment costs 35 11
Pension contribution shortfall 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
Policyholders’ non-recurring: R116m (2003: R84m)Shareholders’ non-recurring: R21m (2003: R27m)
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
R74m after tax release to profit
Operating profit from shareholders’ funds
Rm 2004 2003 %
Financial services operations 265 200 +33
Listed investments 81 33 +145
Other (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
Fair value adjustment 766 541 +42
Total 16 867 15 817 +7
Embedded value per share (Rand) 67,25 57,58 +17
BEE normalised embedded value per share = R65,69 up 14%
Rm 2004 2003
Liberty Group Properties 240 216
Liberty Ermitage Jersey 290 140
STANLIB 345 307
Carrying value of in-force business acquired from IEB
(109) (122)
766 541
Financial services subsidiariesfair value adjustment
2004 2003
Capital adequacy requirement (Rm) 3 954 3 403
Times covered 2,1 2,6
Times covered without BEE impairment 2,5
Capital adequacy cover
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
Cents per share 2004 2003 %
Interim 162 162 -
Final 153 116 +32
315 278 +13
Dividend
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 toInvestment Analysts’ Society
of Southern Africa
2 March 2005
www.liberty.co.za