1. 2 liberty life interim results presentation 11 august 2004
TRANSCRIPT
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Liberty Life
Interim Results Presentation
11 August 2004
www.liberty.co.za
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Agenda
• Operating climate• Operations• Financial results• What we said• What we have done• Focus areas for next six months• Questions
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Operating climate
• Increasing compliance and regulatory requirements
• Low interest rate/low inflation environment • Strengthening of the Rand• Volatile investment markets• Risk averse investors• Perception of industry
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Operations
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Liberty Personal Benefits
• Strong Excelsior single premium investment sales
• Property, risk profiled and absolute returns popular
• Recurring premiums flat• Lifestyle Protector sales of R187 million YTD• Medical Lifestyle and Medical Lifestyle Plus
closed -existing book and policyholder rights protected
• Continued focus on cost containment• Customer service drive across the business• FICA II and preparation for FAIS legislation
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Individual Business –average recurring premiums
All officesLarge officesLiberty Personal BenefitsLPB as % of all officesLPB as % of large offices
3 months31 Mar2003
R
3 months31 Mar2004
R
%Change
2 6113 8436 341
242,9%165,0%
2 3393 1377 254
310,1%231,3%
(10(1814
))
Source: LOA market sharestatistics for all life offices
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Charter Life
On the downside• High proportion of offshore guarantees on in-force
book• Guarantees in respect of offshore business give rise
to the majority of the investment guarantee reserve On the upside• Strong sales off a low base• Recurring premium new business up 57% (credit
life)• New business model completed
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Liberty Corporate Benefits
On the downside• Lower new business volumes and margin than
in 2003• Terminating schemes amounting to R2 billion
to be paid out over next six months• Standard Bank cross selling disappointing
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Liberty Corporate Benefits(continued)
On the upside• 3% YTD reduction in headcount• Risk margins maintained• Focusing on service delivery• Back-office conversions onto a single platform
progressing to plan• IEB integration progressing to plan
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BrokerSBFCAgencyOtherFranchise
30 June2004
%
30 June2003
%
431826
76
442223
74
Channel
ConsultancyNew individual single premium
business by channel
Excludes STANLIB administered SBFC salesand Charter Life
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ConsultancyAsset classes – new single premium
CPI PlusExcelsior Risk ProfiledPropertyExcelsior IncomeOther Liberty PortfoliosGuaranteed BondOffshore InvestmentsExternal Investment Managers
30 June2004
%
30 June2003
%
116
365
245
103
221818
722
328
Portfolio
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BrokerSBFCAgencyOtherFranchise
30 June2004
%
30 June2003
%
451426
213
451327
114
Channel
ConsultancyNew individual recurring premium
business by channel
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ConsultancyAsset classes – new recurring
premiums
PropertyOther Liberty PortfoliosCPI PlusExcelsior Risk ProfiledOffshore InvestmentsExternal Investment ManagersExcelsior Income
June2004
%
June2003
%
2423
96
3431
184210
915
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Portfolio
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STANLIBTotal assets under management
Life fundsSegregated fundsUnit trustsTotal STANLIB Asset ManagementSTANLIB Wealth ManagementTotal STANLIB
June2004Rbn
Dec2003Rbn
June2003Rbn
60,055,538,8
154,330,5
184,8
58,956,037,7
152,624,9
177,5
Net cash inflows of R6 billion AUM up 18% on year ago Normalised earnings after tax of R79,2m up 43%
53,149,229,5
131,824,8
156,6
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Life fund investment performance
14,1
9,0
19,1
12,79,4
20,4
0
5
10
15
20
25
1 Yr 3 Yr 5 Yr
Liberty preferred assets Peer group median
Source: Alexander Forbes Global Manager Watch Best Investment View – 30 June 2004
%
%%
% %
%
%
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ErmitageAssets under management
Hedge fundsLong-only fundsMoney funds
Third party funds as % of total funds
1 4011 113
6593 173
41%
1 1311 060
6002 791
39%
245
1014
2004US$m
2003*US$m
%Change
Headline earnings of £1,7 million up 43%
*31 December 2003 excluding common assets
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Financial results
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Features – 2004/2003
• Total new business– Individual– Corporate
• Indexed new business• Value of new business• Net cash inflows from
insurance operations• New business margin
6 341,95 360,5
981,41 968,3
330,2
2 381,820,9%
5 437,04 185,71 251,31 779,0
261,7
1 730,218,4%
1728
(221126
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30 June2004Rm
30 June2003Rm
%Change
)
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Features – 2004/2003(continued)
• Headline earnings per share (cents)
• Interim dividend per share (cents)• Embedded value per share:
(Rand)*• Capital adequacy requirement
(times covered)
167,2162,057,59
2,55
130,0162,053,42
2,63
29-8
30 June2003
% Change
30 June2004
*Embedded value per share at 31 December 2003 of R57,58
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Headline earnings
Operating profit from insurance operations net of tax
Revenue earnings – shareholders’ funds
Preference dividendHeadline earningsHeadline eps (cents)
30 June2004Rm
30 June2003Rm
%Change
)
335,0
166,0(40,6460,4167,2
252,7
148,2(45,0355,9130,0
33
12(102929
))
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Operating profit from life insurance operations
• Lower than expected shareholders’ 10% participation – but better than first six months of 2003
• Strain in respect of investment guarantee reserve
• Small contribution to operating profit in respect of:– Lower than expected expenses– Basis changes (realignment of assumptions)
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Investment returns(Weighted average of equity, managed and
foreign assets portfolios)
(15,0)
(10,0)
(5,0)
0,0
5,0
10,0
15,0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Year-to-date return 2003 Year-to-date return 2004 Assumed return 2004
+11%
%
+0,2%
-3,6%
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Expenses
Total group expensesSubsidiariesCompany expensesInsurance expenses
30 June2004
30 June2003
% Change
926,5(195,7730,8639,1
889,8(177,8712,0627,6
410
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) )
*Excludes IEB costs of R40,3 million in 2004
*
*
*
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Expenses – cost per policy
Renewal cost per policy increased by Acquisition cost per policy increased by
30 June2004
%
30 June2003
%
Small expense profit included in operating profit for 2004
4,1
6,9
7,6
9,3
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Non-recurring expenses
• Non-recurring expenses of R50 million for six
months ended 30 June 2004– Retrenchment costs– Pension fund provision– Post-retirement medical liability increase– Non-capitalised renovation costs– Impairments and other provisions
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Dynamics of the investment guarantee reserve
Changes of basis (offshore portfolios, volatility and charges)
Higher future investment return offsetting lower than expectedactual return in six months
Net effect
58
(1741
Change inreserve
Rm
)
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Revenue earnings – shareholders’ funds
Financial services operationsListed investmentsOther
30 June2004Rm
30 June2003Rm
%Change
92,525,148,4
166,0
72,324,651,3
148,2
282
(612
)
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Embedded value
Shareholders’ fundsNet value of life business
in-forceFair value adjustmentTotalEmbedded value per share
(Rand)
30 June2004Rm
31 Dec2003Rm
8 782,2
6 493,8540,9
15 816,9
57,58
8 922,4
6 279,1685,6
15 887,1
57,59
30 Jun2003Rm
8 265,7
5 645,6711,2
14 622,5
53,42
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Financial services subsidiariesfair value adjustment
Liberty Group PropertiesLiberty Ermitage JerseySTANLIBCarrying value of in-force business acquired from IEB
30 June2004Rm
30 June2003Rm
233,0125,0353,2
-711,2
230,0184,0387,2
(115,6685,6
)
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Capital adequacy cover
Capital adequacy requirement (Rm)
Times covered
30 June2004
31 Dec2003
3 501,9
2,55
3 402,7
2,58
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Dividend
2004cents per
share
2003cents per
share
162
116
278
Interim
Final
162
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New business – percentage increase
RecurringSingleTotal
Index
IndividualBusiness
%
CorporateBusiness
%
Total
%
103528
15
(2(26(22
(10
82017
11
)))
)
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Individual Business -market share (including Charter)
Source: LOA marketshare statistics for alllife offices
19,6
15,416,6
20,2
25,3 24,5
29,6
22,723,6
28,3
0
5
10
15
20
25
30
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Recurring individual Single individual
Year ended 31 December 2000
Year ended 31 December 2001
Year ended 31 December 2002
Year ended 31 December 2003
Three months ended 31 March 2004
%
%
%
% %
%
%%
%
%
%
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Value of new business
Value of new business (Rm)New business margin (%)Individual (%)Corporate (%)
30 June2003
261,718,419,910,1
330,220,922,9
5,7
% Change
30 June2004
26
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Net cash inflowsfrom insurance operations
Total premiums and inflowsunder investment contracts
Claims, policyholder benefits andpayments under investmentcontracts
Net fund inflowsSTANLIB net inflowsErmitage net inflows
30 June2004Rm
30 June2003Rm
%Change
R2 billion Liberty Corporate Benefits outflow 2H04
9 723,2
7 341,42 381,86 072,93 404,4
8 004,1
6 273,91 730,25 485,01 013,3
22
1738
11%236%
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What we said- nothing complicated
• Improve service levels• Emphasis on cost reduction• Domestic operations/other market segments and
Africa• Renewed emphasis on people• Monitor capital position• Implement Financial Sector Charter • Reposition brand• Focus on product development
i.e. back to basics
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What we have done - improve service levels
THE EXTRA MILE… WE’RE WORKING ON IT.
• Tracking system implemented• Internal Ombudsman office established• Customer service campaign and competition
launched– Answer calls within 24 hours– Respond to e-mails within 24 hours– Reply to other mail within three days
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What we have done- emphasis on cost reduction
• Year-on-year cost increase well within target• Reduced net headcount since June 2003 by
190*• IT outsourcing to Standard Bank
– Reduction in headcount of 74– Reduction in expenses of + R30 million per annum– Memorandum of understanding being finalised
• Liberty Healthcare and Liberty Personal Benefits rationalised
• London listing (secondary) to be terminated
*Excluding IEB
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What we have done- focus on domestic operations/
other market segments and Africa
Charter Life• Comprehensive business plan covering all
aspects of Charter Life re-positioning program completed
• Executive ratification and final approval to be obtained
• Market launch planned for Q1 2005
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What we have done- focus on domestic operations/
other market segments and Africa(continued)
Namibia• Charter Life Namibia officially launched 5 May
2004• Currently only selling funeral and credit life
products• Premium income N$1,3 million to 30 June 2004• Broke even by 30 June 2004
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What we have done- focus on domestic operations/
other market segments and Africa(continued)
Uganda
• Most significant country outside of RSA for Standard Bank in terms of branch network and reach
• Currently applying for a life licence Kenya• Investigating possibilities and potential
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What we have done- emphasis on people
• BEE transaction to benefit current and future black management and other staff
• Graduate development programme initiated• Cost saving incentive to benefit “non-
incentivised” staff repeated in 2004• New ad campaign internalised• Further departures of senior management• New senior management appointments
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What we have done- monitor capital position
• BEE transaction to utilise R1,3 billion of shareholders’ funds
• Substantial cash planning and accumulation in 2004• Liblife B.V. bond to be redeemed on 30 September
2004 • Working capital under scrutiny• 11 “unnecessary” subsidiary companies being
rationalised and liquidated• Second phase of capital planning underway
(remaining level and mix)• Dividend policy to be reviewed at November Board
meeting
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What we have done- Financial Sector Charter
implemention
• Portfolios allocated to Exco members• Sub-committee of the Board appointed• On track:
– Human resources– Procurement– Corporate social investments– Direct ownership and empowerment financing
• To be progressed:– Access– Targeted investments
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Reposition brand
• Life back into Liberty• New advertising campaign launched in June -
– TV commercials, billboards, radio
• Country-wide roadshows to staff and agency force
• Public commitment to customer service• Aimed at staff, intermediaries and
policyholders
…WE’RE WORKING ON IT!
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Focus on product development
• Product development team established to identify profitable new product opportunities and enhancements to existing products
• Currently provides a focused service to Personal Benefits, Corporate Benefits and Charter Life
• Experienced team members with a mix of actuarial, legal, tax and marketing backgrounds
• Steering committee chaired by Chief Executive• Numerous focus group meetings held with
intermediaries
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Focus areas for next six months- 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
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Panel
Myles Ruck Chief Executive
Andrew Lonmon-Davis Statutory Actuary
Deon de Klerk Chief Financial Officer
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