liberty holdings limited 2018 · liberty – an authorised financial services provider in terms of...

Liberty – an Authorised Financial Services Provider In terms of the FAIS Act (Licence No. 2409).

Liberty Holdings Limited

For the six months ended 30 June 2018Financial results presentation

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Business performance stabilised

> Operational challenges being addressed• Meaningful progress made on strategic priorities • Robust plan in place

> Tough economic environment• Impacts recovery of South African businesses• New business volumes remain under pressure

> Strong team effort to deliver on goals• Normalised operating earnings increase 18%

> Challenging financial market conditions• Impacts Shareholder Investment Portfolio earnings

Liberty Holdings LimitedFinancial results presentation for the six months ended 30 June 2018

Liberty Holdings Limited Financial results for the six months ended 30 June 2018 1FIN

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Leverage further opportunities with theStandard Bank group✔ Expand the relationship with SBG to unlock

opportunities

✔ Volume growth on bancassurance initiatives:

› Credit life premiums

› SBFC risk premium new business

› STANLIB bancassurance AUM

› Direct Life gross written premiums

› Short-term motor insurance policies sold

› Africa bancassurance gross written premiums

✔ Progress continues on higher value opportunities

Reflecting on progress, continued

Opportunities from the bancassurance collaboration plan

Bancassurance

Assurance Banking

Collaboration across Africa

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• Restore the performance of the SA retail business✔ Product repricing and rationalisation of portfolios

✔ Tight expense management with margin improvement

✔ Simplification program to improve customer service, reduce complexity, simplify processes and reduce costs

• Improve investment performance in STANLIB SA✔ Continue to improve the operational control environment

✔ Consolidated Equity Franchises

✔ Enhanced investment philosophies and processes

✔ Significantly strengthened oversight and analytics functions

• Optimise our growth initiatives✔ Transaction announced to convert L2D to a corporate

REIT, to restore value

✔ Confirm each business, accelerate value realisation by actively pursuing options including strategic partnerships

• Enhance the risk and control environment ✔ Strengthened the control environment

✔ Business normalised, no significant operational losses for the period

Reflecting on progress

2 Liberty Holdings Limited Financial results for the six months ended 30 June 2018

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SWIX*

Operating environment

Source: Bloomberg * SWIX Total Return Index - rebased to 100

SA growth outlook revised and consumer spend constrained

Jan 2017 Jun 2017 Jun 2018Jan 2018

Local equity markets US$ / ZAR

Jan 2017 Jun 2017 Jun 2018Jan 2018

12.38

• South Africa is expected to remain in a muted economic growth climate for the short term

• Consumers under increasing pressure

› Vat, fuel and utility price increases

• Low equity market returns combined with volatile currency movements

Average 1H18

13.72

12.31

Financial overviewYuresh Maharaj, Group Financial Director


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Contribution to normalised operating earnings

Improved operating earnings driven by SA insurance operations and STANLIB businesses

814

958

1H17 1H18

Normalised operating earnings (Rm) Contribution by business unit (Rm) Jun 18 Jun 17 % D

Individual Arrangements 704 597 18

Group Arrangements

Liberty Corporate 77 80 (4)

Liberty Africa Insurance (5) 20 (>100)

Liberty Health (45) (19) (>100)

Group arrangements support (2) (20) 90

STANLIB South Africa 175 115 52

STANLIB Africa 10 (118) >100

LibFin Markets 169 168 1

Central overheads and sundry income (125) (9) (>100)

Normalised operating earnings 958 814 18

18%

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Financial highlights (Rm unless stated otherwise) Jun 18 Jun 17 % D

Normalised operating earnings 958 814 18

LibFin Investments - SIP 374 453 (17)

Normalised headline earnings 1 332 1 267 5

Normalised return on IFRS equity (%) 12.1 11.7

Normalised group equity value per share (R) 138.66 143.16 (3)

Long-term insurance net customer cash inflows 262 (665) >100

Liberty Group Limited capital adequacy cover (times covered) 2.67 2.82

Dividend per share (cents) 276 276

Group financial highlights

Stabilising operational performance reflects progress


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Long-term insurance operations

Key performance indicators (Rm unless stated otherwise) Jun 18 Jun 17

Value of new business increased by 57% 135 86

Individual Arrangements 111 62

Group Arrangements 24 24

New business margin (%) 30bps improvement 0.7 0.4

Individual Arrangements 0.7 0.4

Liberty Corporate 0.4 0.3

Liberty Africa Insurance 1.3 4.3

Insurance indexed new business lower by 4% 3 773 3 930

Individual Arrangements 3 111 3 205

Group Arrangements 662 725

Insurance net customer cash flows >100% improvement 262 (665)

Individual Arrangements 750 774

Group Arrangements (488) (1 439)

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Consistently managing insurance operations to better than model

SA covered business

• Variances improved in a tough environment, due to:

› Improved withdrawal experience supported by sustained retention initiatives

› Positive risk variances maintained

› Continued positive credit portfolio variance

49

320

1H17 1H18

Net worth operating experience variances (Rm) Net worth – delivery on assumption(Rm unless stated otherwise) Jun 18 Jun 17

Expected transfer to net worth 2 196 2 138

Operating experience variances 320 49

Development expenses - (30)

Change in allowance for fair value share rights (26) -

Actual net of tax transfer to net worth 2 490 2 157

Performance in line with expectation (%) 113 101

>100%


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Liberty Group Limited - Capital position

Rm (unless stated otherwise) Jun 18 Jun 17

IFRS

IFRS shareholder equity 18 068 18 369

BEE preference shares 117 142

Normalised shareholder equity 18 185 18 511

Regulatory capital

Shareholder assets 14 265 14 849

Regulatory capital requirement 5 343 5 262

Surplus above regulatory requirement 8 922 9 587

Risk appetite capital coverage ratio 1.50 1.50

Capital buffer in excess of risk appetite 6 251 6 956

Capital ratio at period end (times covered) 2.67 2.82

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• Earnings improve from stabilisation of control environment

• Lower fee income from muted investment market returns

• Oversight of franchises strengthened, new Head of Investment

• Improved net cash inflows, mainly in STANLIB multi-manager and retail unit trusts

STANLIB South Africa

115

175

1H17 1H18

Earnings Rm Net cash flows Rm (excludes intergroup) Jun 18 Jun 17

Non-money market 8 949 5 705

Retail 5 479 3 345

Institutional 3 470 2 360

Money market (549) (59)

Retail (352) (1 461)

Institutional (197) 1 402

Net South Africa cash inflows 8 400 5 646

52%


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Update on specific mattersDavid Munro, Chief Executive

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Review our measures of progress

• Improving the value of new business and margin remain a priority for the insurance operations;

› Extracting cost efficiencies and prudent expense management continues

› Initiatives to enhance product propositions continue

• Strong focus on actions to grow sales volumes

Target to 2020

Value of new business margin 1%- 1.5% target range

Capital cover within target range 2.5 - 3.0 times

RoE 15% - 18% range

Growth in embedded value >12%

June 2018

New business margin: 0.7%

Capital cover: 2.67x

RoE: 12%

Embedded value growth: 5%

December 2017 - baseline

New business margin: 0.5%

Capital cover: 2.92x

RoE: 12%

Embedded value growth: 1%


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Unclaimed benefits:• Liberty Corporate provides a pension and provident fund administration capability• Unclaimed benefits exist in both Unclaimed Benefit Funds, and other administered occupational funds• In terms of Liberty’s Unclaimed Benefit Funds

› Significantly increased tracing capability and resources

› Actively locating 75 000 unclaimed fund members out of a total of c100 000

• Working with trustees of administered occupational funds to improve their unclaimed benefit outcome

Fund deregistration project initiated in 2007:• Liberty secured the deregistration of just over 4 600 funds• Liberty found 130 funds to have been deregistered in error with cR100m in assets• To date successfully applied to reinstate 25 of these funds and commenced payments• Remaining 105 in process of rectification

Liberty Corporate retirement fund administration

Committed to ongoing efforts to ensure fund members receive their benefits

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The incident

• Illegal and unauthorised access of IT infrastructure

• Unstructured data stolen, limited to the South African insurance operations

• Proactive communications plan with key stakeholders within 36 hours

Update: IT infrastructure has been further strengthened to safeguard customer and company data

• Impacted employees and customers contacted and assisted

• No customer suffered financial loss

• An opportunity that unified Liberty through extensive collaborative efforts

• The matter remains subject to a criminal investigation

• Regulators and authorities kept informed throughout the process, with support received

Criminal data breach

Data and information of our customers taken very seriously


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A plan is in place, starting with our revised vision and purpose

Improving people’s lives by making their financial freedom possible

SEE = Social, economic and environmental

We measure our progress using five strategic value drivers

Transforming Liberty to be the trusted leader in South Africa and chosen markets by delivering superior value through exceptional client and adviser experiences

Group purpose

Group vision

Clientand Adviser

focus

Employeeengagement

Risk andconduct

Financialoutcome+ + =

SEEimpact

In executing our Group strategy our key focus areas are

Client & Adviser centricity

putting the client at the heartof what we do in partnership with the advisers

Digitisation via digital platforms

Universal financial services organisation

delivering a seamless universal financial services proposition

Strategy refresh updateDavid Munro, Chief Executive


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Revised organisational design

Previous operating structure Revised business unit structure

Our new structure enables us to achieve:

• Increased efficiencies

• Reduced complexity

• Enhanced governance, and

• A reconnected client, financial adviser and employee value chain

Customer facing units

Individual arrangements

Grouparrangements STANLIB

Standard Bank bancassurance partnership

Supported and enabled by

Strategic competency units

LibFin Investment platform Group distribution

Strategic oversight by Group Governance and Execution

SA RetailBusiness

Development portfolio

ECM & Direct STANLIB

Supported and enabled by corporate functions

Integral part of Standard Bank Group

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Executed through a revised organisational design

Not changing what we do… but shifting how we do it

Support the delivery of our strategyReconnect the value chain

All teams in Liberty alignedAs we put the advisors and clients at the heart

A combination of capabilitiesFor the greatest impact on our advisors and clients

Core focus on the South African retail mass affluentA fully integrated business, single delivery mechanism

R


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In conclusion

Considerable work done in the first six months on initiatives to turn the business around

Organisation has shifted 1H18 highlights Going forward

✔ Progress on remediation initiatives

✔ Stabilised operations progress evident

• Strategy refresh execution

✔ Decisions taken on non-core operations

✔ Operating earnings growth in a tough economic environment

• Implement a revised organisational design that addresses shortcomings of operational structure

✔ Relentless approach to costs✔ Managed to model and

assumption• A company fit for a competitive digital world

with clients, advisors and employees at the heart

✔ Building a connected customer and advisor experience

✔ Strong capital position


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For the six months ended 30 June 2018Financial results

CONTENTS Page

Financial performance indicators 15

Financial review 16

Accounting policies 20

Explanation of terms 21

Consolidated statement of financial position 23

Consolidated statement of comprehensive income 24

Summary consolidated statement of changes in equity 25

Summary consolidated statement of cash flows 26

Headline earnings and earnings per share 27

Summary consolidated segment information 28

Group equity value report 34

Long-term insurance new business 40

Long-term insurance net customer cash flows 41

Assets under management 42

Asset management net customer cash flows 42

Short-term insurance indicators 43

Capital commitments 43

Retirement benefit obligations 44

Related parties 44

Offsetting, enforceable master netting arrangements or similar agreements 45

Accounting classifications of financial instruments under IFRS 9 46

HIGHLIGHTS

NORMALISED HEADLINE EARNINGS

NORMALISED OPERATING EARNINGS

LIBERTY GROUP LIMITEDCAR COVER

R958 million

2,67 times

R1,3 billion5%

18%

STANLIB SOUTH AFRICAASSETS UNDER MANAGEMENT

STANLIB SOUTH AFRICA NETCUSTOMER CASH INFLOWS

R559 billion

R8,4 billion

4%

49%

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Liberty Holdings Limited Financial results for the six months ended 30 June 2018

FINANCIAL PERFORMANCE INDICATORSfor the six months ended 30 June 2018

Rm (unless otherwise stated)30 June

201830 June

2017%

change

12 months 31 December

2017

Liberty Holdings Limited Earnings Basic earnings per share (cents) 563,5 568,5 (1) 1 152,6Fully diluted basic earnings per share (cents) 547,5 553,3 (1) 1 120,7Normalised headline earnings(1) 1 332 1 267 5 2 719Normalised headline earnings per share (cents)(1) 482,0 456,7 6 982,1Normalised return on IFRS equity (%)(1) 12,1 11,7 12,3Group equity value Normalised group equity value per share (R)(1) 138,66 143,16 (3) 140,31Normalised return on group equity value (%)(1) 5,0 2,3 >100 1,1Distributions per share (cents) Normal dividend 276 276 691Interim dividend 276 276 276Final dividend n/a n/a 415Total assets under management (Rbn) 719 688 5 720

Long-term insurance operations Indexed new business (excluding contractual increases) 3 773 3 930 (4) 8 018Embedded value of new business 135 86 57 233New business margin (%) 0,7 0,4 0,5Net customer cash inflows 262 (665) >100 1 634Capital adequacy cover of Liberty Group Limited (times covered) 2,67 2,82 2,92

Asset management – STANLIB South Africa Assets under management (Rbn) 559 540 4 556Net cash inflows including money market(2) 8 400 5 646 49 4 731Retail and institutional net cash inflows excluding money market(2) 8 949 5 705 57 4 815Money market net cash outflows(2) (549) (59) (>100) (84)

(1) Normalised: headline earnings, headline earnings per share, return on equity, group equity value per share and return on group equity value. These measures reflect the economic reality of the consolidation of the listed REIT Liberty Two Degrees (L2D) and the Black Economic Empowerment (BEE) transaction, as

opposed to the required IFRS accounting treatment.(2) Excludes intergroup life funds.

Preparation and supervision:This announcement on Liberty Holdings Limited interim financial results for the six months ended 30 June 2018 has been prepared and supervised by M Norris (Executive: Group Finance) CA (SA) and Y Maharaj (Financial Director) CA (SA).


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FINANCIAL REVIEW for the six months ended 30 June 2018

Results reflect a stabilising operational performance. Management actions showing signs of progress.

Normalised operating earnings were 18% up on the first half of 2017 (the prior period). Weak investment markets detracted from the Shareholder Investment Portfolio (SIP) earnings, resulting in normalised headline earnings increasing by 5% over the prior period.

During the first half of 2018, management efforts in restoring the financial performance of the SA Retail insurance business, improving the investment performance of STANLIB, simplifying the group’s overall organisational design and expanding the relationship with the Standard Bank Group continued to gain traction. The financial results discussed below evidence that the remedial actions are yielding the necessary outcomes. Management’s medium term focus will remain on these initiatives.

In the SA Retail insurance business, product, service and sales initiatives in place to improve the value of new business (VoNB), together with strict expense discipline, contributed to continued improvement in the VoNB. This improvement was achieved despite new business volumes remaining under pressure in 2018 in the tough consumer environment. Weak economic growth in South Africa coupled with increases in taxes and administered prices suggests that consumer spending could struggle to gain meaningful traction in 2018. The business however continued to deliver positive operating experience variances and has been managed to “better than model” consistently for the last five years.

STANLIB South Africa continues to produce good fixed interest franchise investment returns and has made progress on improving investment performance within the multi-asset and equity franchises, with increased third party net customer cash inflows into non-money market portfolios.

As part of Liberty’s strategy refresh, a revised organisational design was announced internally in mid-July with implementation commencing in the second half of the year. The key element of the group’s new way of working is to place the customers and financial advisers at the heart of everything we do, with a strong focus on the South African insurance and asset management businesses.

Collaboration with the Standard Bank Group continues to provide opportunities to grow new business and provide joint product offerings as evidenced in our bancassurance results.

Group financial performanceNormalised headline earnings for the six months to 30 June 2018 of R1 332 million (30 June 2017: R1 267 million) were 5% up on the prior period, with normalised operating earnings up 18% to R958 million (30 June 2017: R814 million). The normalised operating earnings were supported by increased earnings from the South African insurance operations and the STANLIB businesses. SIP earnings were however 17% down on the prior period due to weak investment market performance in the first half of 2018. Normalised return on equity was 12,1% (30 June 2017: 11,7%).

Group long-term insurance net customer cash inflows amounted to R262 million in contrast to prior period outflows of R665 million, supported by lower policy withdrawals and maturities in Individual Arrangements and lower scheme terminations in Liberty Corporate. STANLIB South Africa net customer cash inflows increased to R8,4 billion from R5,6 billion in the prior period. STANLIB Africa however experienced outflows of R7.0 billion, mainly related to the termination of one large institutional mandate.

Long-term insurance indexed new business of R3 773 million is 4% below the prior period. The tough economic environment has continued to place significant pressure on retail single and recurring premium investment and risk sales volumes.

Group VoNB increased from R86 million for the first half of 2017 to R135 million for the current period and the new business margin improved from 0,4% to 0,7%.

Total group assets under management amounted to R719 billion (31 December 2017: R720 billion).

The group’s capital position remained strong during the period with the capital adequacy ratio of the group’s main long-term insurance licence, Liberty Group Limited at 2,67 times the regulatory minimum at 30 June 2018 (31 December 2017: 2,92). The group remains well capitalised within its target range at 30 June 2018.

Group equity value per share was lower at R138,66 (31 December 2017: R140,31). The lower group equity value per share was attributable to lower investment returns, economic assumption changes due to the higher interest rate environment and the 2017 final dividend paid in April 2018.

Headline earnings for the first half of 2018 amounted to R1 521 million compared to R1 540 million in the prior period. Liberty’s headline earnings include the positive earnings impact of R193 million (30 June 2017: R278 million) arising from the accounting mismatch on the consolidation of the Liberty Two Degrees listed REIT.


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FINANCIAL REVIEW (CONTINUED)

for the six months ended 30 June 2018

Earnings by business unit

Individual ArrangementsHeadline earnings from the group’s South African retail business of R704 million were 18% up on the prior period, assisted by improved persistency experience and lower assumption and modelling changes.

Indexed new business sales of R3 111 million were 3% down on the prior period. The competitive environment coupled with the current tough economic conditions continued to impact sales volumes.

VoNB increased from R62 million in the prior period to R111 million, while the margin improved from 0,5% at 31 December 2017 to 0,7%. Action taken in 2017 and the first half of 2018 to improve the VoNB and new business margin, including product changes and repricing, are starting to manifest in the result. This has been further supported by an improvement in the product mix and good expense control. Further initiatives are scheduled to be delivered in the second half of 2018 and 2019.

Net customer cash inflows of R750 million reflect favourable withdrawal experience, highlighting the success of ongoing

retention initiatives. This has been offset by lower single premium business, which is the main contributor to net cash inflows being 3% below the prior period.

Group ArrangementsLiberty CorporateEarnings of R77 million reflected an improved underwriting result supported by stringent expense management. The income protection plan book, which experienced high claim levels in the second half of 2017, has reverted to an acceptable underwriting margin.

Indexed new business was 8% below the prior period at R516 million, with increased single premium new business, attributable to improved umbrella investment sales, offset by lower recurring premium new business. VoNB increased to R19 million from R13 million in the prior period, reflecting an improvement in product mix and good expense management. Net cash outflows reduced to R0,7 billion, with increased umbrella single premium sales partly offset by reduced scheme terminations.

Rm (Unaudited)30 June

201830 June

2017%

change


2017

Insurance Individual Arrangements 704 597 18 1 208Group Arrangements 25 61 (59) 16Liberty Corporate 77 80 (4) 81Liberty Africa Insurance (5) 20 (>100) 45Liberty Health (45) (19) (>100) (54)Business development support(1) (2) (20) 90 (56)Balance sheet management 169 168 1 376LibFin Markets – credit portfolio 150 138 9 330LibFin Markets – asset/liability matching portfolio 19 30 (37) 46Asset management STANLIB South Africa 175 115 52 252STANLIB Africa 10 (118) >100 (204)Central overheads and sundry income (125) (9) (>100) (236)Normalised operating earnings 958 814 18 1 412LibFin Investments – SIP 374 453 (17) 1 307Normalised headline earnings 1 332 1 267 5 2 719BEE preference share adjustment (4) (5) 20 (10)Reversal of accounting mismatch arising on consolidation of L2D(2) 193 278 (31) 543Headline earnings 1 521 1 540 (1) 3 252(1) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture.

2017 includes the costs associated with the terminated long-term licence acquisition in Nigeria.(2) Refer Explanation of terms on page 22.

Commentary on the earnings by business unit follows on the pages below. Additional information is contained in the summary consolidated segment information.


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Liberty Africa and Liberty Health InsuranceLiberty Africa Insurance incurred a loss of R5 million mainly as a result of high claims in the Kenyan short-term insurance business. Indexed new business in the long-term insurance businesses of R146 million was 13% down on the prior period due to weaker economic conditions and aggressive competitor activity. The value of new business amounted to R5 million at a margin of 1,3%. The short-term insurance businesses continued to experience considerable pricing pressure.

The decline in risk lives serviced together with exchange rate movements has significantly impacted Liberty Health’s short-term profitability with a loss of R45 million reported for the period ended 30 June 2018.

Management remains focused on actively realising the value of this portfolio of businesses by pursuing various options, including strategic partnerships.

Asset managementSTANLIB South AfricaSTANLIB South Africa earnings increased to R175 million from R115 million in the prior period. Fee income was marginally lower in the period mainly due to muted investment market returns. The prior period earnings were impacted by operational write-offs. Management has continued to strengthen the control environment with a focus on improving the overall financial results.

Net customer cash inflows (excluding intergroup) grew to R8,4 billion from R5,6 billion in the prior period. This result was mainly attributable to improved non-money market inflows. Intergroup cash outflows for the period amounted to R6,2 billion.

Total assets under management by STANLIB South Africa amounted to R559 billion (31 December 2017: R556 billion).

STANLIB AfricaSTANLIB Africa earnings of R10 million reflect a significant improvement from the loss of R118 million reported in the prior period. The remedial programme implemented in the STANLIB East African business is in the final stages of completion, with no further operational losses reported in the current period.

Net customer cash outflows amounted to R7 billion, mainly due to the loss of a large institutional mandate in the Southern Africa region. Total assets under management by STANLIB Africa amounted to R50 billion (31 December 2017: R53 billion).

Liberty Two Degrees (L2D)L2D’s results for the six months to 30 June 2018 were released on 23 July 2018. The operational performance of the property portfolio remained strong notwithstanding a difficult consumer environment. A proposed transaction to transfer the existing L2D portfolio to a corporate REIT, in order to restore value and provide a more compelling investment proposition, was also announced. Further details on the results and proposed transaction are available on the L2D website and in the L2D results announcement released on SENS on 23 July 2018.

BancassuranceThe bancassurance agreement with Standard Bank, which is applicable across the group’s operations, continues to make a positive contribution to new business volumes and earnings. The total indexed new business premiums sold under the agreement increased by 3% on the prior period in a tough economic environment. We continue leveraging our relationship with Standard Bank to capture appropriate opportunities.

Balance sheet managementLibFin Markets – Asset liability management and credit portfolio Earnings from the credit portfolio increased by 9% to R150 million as a result of growth in the credit portfolio since the first half of 2017.

The asset liability management portfolio, which consists of the market and liquidity risk exposures arising from the guaranteed investment product set, produced a profit of R19 million (30 June 2017: R30 million).

LibFin Markets assets under management amounted to R61 billion (31 December 2017: R62 billion).

LibFin Investments – Shareholder Investment Portfolio (SIP)The SIP includes the assets backing capital in the insurance operations as well as the group’s investment market exposure to the 90:10 book of business. The current risk profile of the SIP is similar to a conservative balanced portfolio and is managed with a long-term through the cycle investment horizon.

Weak market returns experienced in the first half of 2018 resulted in the SIP producing a gross return of 3,3%. Earnings of R374 million were below prior period earnings of R453 million. The SIP exposure to investment markets remains appropriate in the context of the group’s risk appetite.

Capital adequacy coverThe group’s capital position remained strong during the period with the capital adequacy ratio of the group’s main long-term insurance license, Liberty Group Limited at 2,67 times the regulatory minimum at 30 June 2018 (31 December 2017: 2,92). The decrease since 31 December 2017 is mainly attributable to the R1 billion subordinated debt redemption on 3 April 2018. The group remains well capitalised within its target range in respect of the current capital regime and also in respect of capital requirements under the Solvency Assessment and Management (SAM) regime which is effective from 1 July 2018.

All other group subsidiary life licences were adequately capitalised.




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Dividends2018 interim dividend In line with the group’s interim dividend policy of paying 40% of the prior full year dividend, the board has approved and declared a gross interim dividend of 276 cents per ordinary share. The interim dividend will be paid out of income reserves and is payable on Monday, 3 September 2018 to all ordinary shareholders recorded in the books of Liberty Holdings Limited on the record date.

The dividend of 276 cents per ordinary share will be subject to a local dividend tax rate of 20%, which will result in a net interim dividend, to those shareholders who are not exempt from paying dividend tax, of 220,8 cents per ordinary share. Liberty Holdings Limited’s income tax number is 9050/191/71/8. The number of ordinary shares in issue in the company’s share capital at the date of declaration is 286 202 373.

The important dates pertaining to the dividend are as follows:

Last date to trade cum dividend on the JSETuesday,

28 August 2018

First trading day ex dividend on the JSE Wednesday, 29 August 2018

Record dateFriday,

31 August 2018

Payment dateMonday,

3 September 2018

Share certificates may not be dematerialised or rematerialised between Wednesday, 29 August 2018 and Friday, 31 August 2018, both days inclusive. Where applicable, in terms of instructions received by the company from certificated shareholders, the payment of the dividend will be made electronically to shareholders’ bank accounts on payment date.

In the absence of specific mandates, cheques will be posted to shareholders. Shareholders who have dematerialised their shares will have their accounts with their CSDP or broker credited on Monday, 3 September 2018.

ProspectsThe planned enhancements to Liberty’s organisational design will ensure focus on our customers and advisers.

Management’s focus in the medium term will remain on restoring the financial performance of the SA Retail insurance business, improving the investment performance of STANLIB, simplifying the group’s overall operations and expanding our relationship with the Standard Bank Group.

We expect that the economic and operating environment will remain subdued for the remainder of the year, suggesting that pressure on sales volumes could continue in the short term.

We however remain confident that the group is on track to emerge from this period of change with significantly greater potential to create value for all stakeholders.

David Munro Jacko MareeChief Executive Chairman

1 August 2018

Liberty Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1968/002095/06)JSE Code: LBHISIN: ZAE000012714Preference share code: LBHPISIN: ZAE000004040Telephone +27 11 408 3911

These results are available at www.libertyholdings.co.za.

Transfer SecretariesComputershare Investor Services Proprietary Limited(Registration number 2004/003647/07)Rosebank Towers, 15 Biermann Avenue, RosebankJohannesburg, 2196Tel: +27 11 370 5000



Sponsor


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ACCOUNTING POLICIES

The unaudited condensed interim consolidated financial statements of Liberty Holdings Limited for the six months ended 30 June 2018 have been prepared in accordance with and contain information required by:• International Financial Reporting Standards (IFRS) including

IAS 34 Interim Financial Reporting (with the exception of disclosures required under IAS 34 16A(j) relating to fair value measurement, which are not required by the JSE Listings Requirements);

• the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee;

• Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council;

• the Listings Requirements of the JSE Limited; and• the South African Companies Act, No. 71 of 2008.

The accounting policies applied in the preparation of these interim financial statements are in terms of IFRS and are consistent with those applied in the previous consolidated annual financial statements except for the mandatory adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. The group has applied both standards retrospectively without restating comparative figures. The group has elected not to apply the general hedge accounting principles under IFRS 9 and will continue to apply IAS 39 hedge accounting.

Various minor annual improvements issued by the IASB were early adopted which had no impact on the group’s financial results, disclosures or comparative information.

IFRS 15 Revenue from Contracts with Customers

The significant majority of the group's revenue is accounted for in terms of IFRS 4 Insurance Contracts, IFRS 9 Financial Instruments and IAS 17 Leases, which are all scoped out of IFRS 15.

There are no material changes to revenue recognition for fee income and hotel operation sales which are recognised under IFRS 15. Consequently there was no financial impact to the consolidated group on 1 January 2018 upon adoption of IFRS 15.

IFRS 9 Financial Instruments

Financial assets

IFRS 9 applies two criteria to determine how financial assets should be classified and measured, namely:

a. the entity’s business model for managing the financial assets; and

b. the contractual cash flow characteristics of the financial asset.

Liberty Holdings Limited is the holding company of various operating subsidiaries engaged in the provision of financial services including long-term, short-term and health insurance, investment holdings and asset management. Under IAS 39 Financial Instruments: Recognition and Measurement, the group designated the significant majority of financial assets at fair value through profit or loss. The group has applied IFRS 9’s classification and measurement requirements based on the facts and circumstances of the various business models at the date of adoption of IFRS 9 in determining the transition adjustment.

• The business model of Liberty Group Limited, the group's South African long-term insurance operations, is default fair value through profit or loss for all financial assets. The only exception being intercompany funding loans which are held to collect contractual cash flows and classified at amortised cost. These loans are eliminated on consolidation into Liberty Holdings Limited consolidated financial statements. Policyholder loan assets within Liberty Group Limited, which were previously held at amortised cost under IAS 39, are now default measured at fair value through profit or loss under IFRS 9.

• Application of the business model approach for the various other operating subsidiaries (being long-term insurance in other Africa territories, short-term and health insurance, asset management and investment holding entities) results in changes to classification for certain components of “Prepayments and other receivables” and “Cash and cash equivalents”. Under IFRS 9 they are all now classified at amortised cost. Previously certain components were designated at fair value through profit or loss under IAS 39. Due to the short-term nature of these financial instruments, there was no material impact on the change in measurement nor were there any impairment provisions on adoption of IFRS 9 as at 1 January 2018.

Financial liabilities

Financial liabilities classification and measurement under IFRS 9 has not changed significantly from IAS 39. Financial liabilities are either held at fair value (either required or designated) or at amortised cost. A summary of changes from those adopted under IAS 39 are:

• Subordinated notes and redeemable preference shares included in Liberty Group Limited's financial liabilities, previously measured at amortised cost, have been irrevocably designated at fair value through profit or loss on 1 January 2018. Any effects of changes in the liability’s own credit risk will be presented in other comprehensive income effective from 1 January 2018.

• The classification and measurement of subcomponents of “Other payables” (related to those entities outside of Liberty Group Limited) are classified at amortised cost under IFRS 9, rather than as previously designated at fair value through profit or loss under IAS 39.

• Intercompany funding loans, previously designated at fair value through profit or loss under IAS 39, will be measured at amortised cost. These loans are eliminated on consolidation into Liberty Holdings Limited consolidated financial statements.

Impact on adoption of IFRS 9

The net financial impact of the changes in classification and measurement after tax is a reduction of opening retained earnings on 1 January 2018 of R121 million. Upon adoption of IFRS 9, the group has no financial instruments that will be measured at fair value through other comprehensive income. Refer to "Accounting classifications of financial instruments under IFRS 9" for more detail.


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EXPLANATION OF TERMS

Long-term insurance operations – Value of new business and margin The present value, at point of sale, of the projected stream of after tax profits for new business issued, net of the cost of required capital. The present value is calculated using a risk-adjusted discount rate. Margin is calculated using the value of new business divided by the present value of future modelled premiums.

Short-term insurance operations – Claims loss ratioThis is a measure of underwriting risk and is measured as a ratio of claims incurred divided by the net premiums earned.

Normalised: headline earnings, headline earnings per share, return on equity, group equity value per share and return on group equity valueThese measures reflect the economic reality of the Black Economic Empowerment (BEE) transaction and the consolidation of the listed REIT Liberty Two Degrees (L2D) as opposed to the required IFRS accounting treatment.

BEE transactionIFRS reflects the BEE transaction as a share buy-back. Dividends received on the group’s preference shares (which are recognised as an asset for this purpose) are included in income. Shares in issue relating to the transaction are reinstated.

New standards not yet effective

IFRS 16 Leases (effective 1 January 2019) and IFRS 17 Insurance Contracts (effective 1 January 2021) will have significant financial reporting impacts for the group. Management is assessing these impacts under focused projects. Based on Liberty's current lease obligations, IFRS 16 is unlikely to have a material impact to profit or loss on adoption in 2019.

Review/auditThese interim results have not been reviewed or audited by the company’s auditors PricewaterhouseCoopers Inc.

Capital adequacy requirement (CAR)The capital adequacy requirement is the minimum amount by which an insurer’s assets are required to exceed its liabilities. The assets, liabilities and CAR must be calculated using a method prescribed in terms of the Long-term Insurance Act. Capital adequacy cover refers to the amount of capital the insurer has as a multiple of the minimum requirement.

Development costsRepresents project costs incurred on developing or enhancing future revenue opportunities.

FCTRForeign Currency Translation Reserve.

“Liberty” or “group”Represents the collective of Liberty Holdings Limited and its subsidiaries.

Long-term insurance operations – Indexed new businessThis is a measure of new business which is calculated as the sum of 12 months’ premiums on new recurring premium policies and one tenth of single premium sales.

ACCOUNTING POLICIES (CONTINUED)


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EXPLANATION OF TERMS (CONTINUED)

Reversal of accounting mismatch arising on IFRS profit or loss consolidation of L2DAn accounting mismatch arises on consolidation of L2D in the group annual financial statements, resulting from the different measurement bases applied to L2D’s assets and Liberty Group Limited’s (100% subsidiary of Liberty Holdings Limited) policyholder liabilities. Specifically: • on a consolidated look through basis the investment

property assets of L2D are included in the group annual financial statements at fair value; whereas

• the corresponding linked obligations to Liberty Group Limited’s policyholders are required under IFRS to continue to be measured in the group annual financial statements at the listed price of the L2D units.

The result of this is an accounting mismatch that represents any difference in the profit and loss movement in the price at which L2D’s listed units trade relative to the underlying net asset value.

L2D adjustment in group equity valueIn addition to the reversal of the accounting mismatch in IFRS profit or loss described above, the group equity value adjusts the exposures in the shareholder investment portfolios (SIP) to the listed unit price.

Summary of impactBelow is a summary of the L2D transaction impact on the ordinary shareholders’ equity:

Rm

Group equity value Total

IFRS net asset value

SIP equity value

adjustment

Opening adjustment at 1 January 2018 597 340 257IFRS profit or loss 193 193 Group equity value earnings 152 152Transaction between owners (95) (95) Closing adjustment at 30 June 2018 847 438 409

Normalised: headline earnings, headline earnings per share, return on equity, group equity value per share and return on group equity value (CONTINUED)


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CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 30 June 2018

Unaudited Unaudited Audited

Rm 30 June

201830 June

201731 December

2017

Assets Intangible assets 430 367 231Defined benefit pension fund employer surplus 151 203 171Properties 34 723 34 182 34 768Equipment 1 064 1 079 1 128Interests in joint ventures 1 382 1 244 1 244Interests in associates 13 862 14 054 15 197Deferred taxation 368 264 336Deferred acquisition costs 779 741 737Long-term policyholder assets – insurance contracts 7 159 7 689 7 484Reinsurance assets 1 967 1 801 1 774Long-term insurance 1 532 1 390 1 481Short-term insurance 435 411 293Financial investments 334 423 326 976 338 534Loan receivables 1 182 1 242 1 222Assets held for trading and for hedging 9 757 9 459 7 871Repurchase agreements, scrip and collateral assets 13 075 16 886 11 900Prepayments, insurance and other receivables 6 960 5 938 6 361Cash and cash equivalents 9 976 9 327 15 169Total assets 437 258 431 452 444 127

Liabilities Long-term policyholder liabilities 319 280 309 200 322 918Insurance contracts 206 782 203 703 210 554Investment contracts with discretionary participation features 10 783 11 732 11 845Financial liabilities under investment contracts 101 715 93 765 100 519Reinsurance liabilities 652 543 663Third party financial liabilities arising on consolidation of mutual funds 41 832 48 557 49 713Provisions 76 68 76Deferred taxation 3 060 2 675 3 386Deferred revenue 314 285 291Deemed disposal taxation liability 437 436Short-term insurance liabilities 1 089 1 016 780Financial liabilities 5 387 4 602 5 581Liabilities held for trading and for hedging 8 591 7 428 6 311Repurchase agreements, liabilities and collateral deposits payable 11 261 13 962 9 097Employee benefits 1 178 1 132 1 446Insurance and other payables 12 337 11 443 11 995Current taxation 1 017 711 1 043Total liabilities 406 074 402 059 413 736

Equity Ordinary shareholders’ equity 22 767 21 778 22 444Share capital 26 26 26Share premium 5 154 5 243 5 157Retained surplus 18 414 17 400 18 166Other reserves (827) (891) (905)Non-controlling interests 8 417 7 615 7 947Total equity 31 184 29 393 30 391Total equity and liabilities 437 258 431 452 444 127


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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the six months ended 30 June 2018

Audited

Rm

Unaudited30 June

2018

Unaudited30 June

2017


2017Revenue Insurance premiums 18 386 19 438 39 970Reinsurance premiums (1 019) (969) (1 950)Net insurance premiums 17 367 18 469 38 020Fee income and reinsurance commission 1 803 1 812 3 683Investment income 10 306 11 170 21 652Hotel operations sales 261 253 532Investment (losses)/gains (2 312) 4 082 18 835Total income 27 425 35 786 82 722Claims and policyholder benefits under insurance contracts (18 667) (19 648) (38 819)Insurance claims recovered from reinsurers 808 868 1 800Change in long-term policyholder assets and liabilities 4 901 479 (6 829)Liabilities under insurance contracts 3 952 394 (6 504)Policyholder assets related to insurance contracts (325) 375 170Investment contracts with discretionary participation features 1 216 (341) (521)Applicable to reinsurers 58 51 26Fair value adjustment to long-term policyholder liabilities under investment contracts ( 880) (2 861) (9 116)Fair value adjustment to financial liabilities (270) Fair value adjustment on third party mutual fund interests (2 237) (2 578) (4 619)Acquisition costs (2 239) (2 532) (4 935)General marketing and administration expenses (5 420) (5 417) (11 345)Finance costs (408) (652) (1344)Profit share allocations under bancassurance and other agreements (553) (486) (972)Equity accounted earnings from joint venture 20 14 25Profit before taxation 2 480 2 973 6 568Taxation(1) (780) (1 171) (2 864)Total earnings 1 700 1 802 3 704Other comprehensive income/(loss) 251 (7) (233)Items that may be reclassified subsequently to profit or loss 153 (19) (95)Net change in fair value on cash flow hedges (17) 46 75Income and capital gains tax relating to net change in fair value on cash flow hedges 5 (15) (21)Foreign currency translation 165 (50) (149)Items that may not be reclassified subsequently to profit or loss 98 12 (138)Owner-occupied properties – fair value adjustment 18 18 (67)Income and capital gains tax relating to owner-occupied properties fair value adjustment (2) (3) (14)Change in long-term policyholder insurance liabilities (application of shadow accounting) (9) (6) (32)Actuarial gains on post-retirement medical aid liability 39 14 45Income tax relating to post-retirement medical aid liability (11) (4) (13)Net adjustments to defined benefit pension fund(2) (20) (10) (41)Income tax relating to defined benefit pension fund 5 3 (16)Fair value adjustments to financial liabilities arising from own credit 108 Income tax relating to fair value adjustments to financial liabilities arising from own credit (30)

Total comprehensive income 1 951 1 795 3 471Total earnings attributable to: Shareholders' equity 1 522 1 541 3 118Non-controlling interests 178 261 586 1 700 1 802 3 704Total comprehensive income attributable to: Shareholders' equity 1 725 1 549 2 932Non-controlling interests 226 246 539 1 951 1 795 3 471Basic and fully diluted earnings per share Cents Cents CentsBasic earnings per share 563,5 568,5 1 152,6Fully diluted basic earnings per share 547,5 553,3 1 120,7(1) IFRS requires both policyholder and shareholder taxation to be reported in the taxation line. This therefore distorts the effective tax charge relative to profit before taxation.(2) Net adjustments to defined benefit pension fund include actuarial gains or losses, return on plan assets, reduced by the interest on the net defined benefit asset and the effect of

the application of the asset ceiling.


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SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2018

Audited

Rm

Unaudited30 June

2018

Unaudited30 June

2017


2017

Balance of ordinary shareholders’ equity at 1 January 22 444 21 676 21 676IFRS 9 transition adjustment (121) Ordinary dividends (1 167) (1 167) (1 942)Total comprehensive income 1 725 1 549 2 932Cash flow hedge recycled through profit and loss on early settlement 12 Share buy-back(1) (65) (335) (350)Black economic empowerment transaction 11 10 32Share-based payments 24 28 99Preference dividends (1) (1) (2)Transactions between owners 9 9Transactions between owners – Liberty Two Degrees (95) 9 (10)Ordinary shareholders’ equity 22 767 21 778 22 444

Balance of non-controlling interests at 1 January 7 947 7 330 7 330Total comprehensive income 226 246 539Acquisition of unincorporated property partnerships 87Unincorporated property partnerships net distributions (109) (112) (238)Non-controlling interests' share of subsidiary distributions (112) (30) (133)Non-controlling interests' share of shares issued in subsidiary 2 2Transactions between owners 9 9Transactions between owners – Liberty Two Degrees 465 170 351Non-controlling interests 8 417 7 615 7 947Total equity 31 184 29 393 30 391(1) Share buy-backs are purchases of shares from the market to meet employee share-based payment obligations.


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SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS for the six months ended 30 June 2018

Audited

Rm

Unaudited30 June

2018

Unaudited30 June

2017


2017

Cash flows from operating activities (9 982) 1 854 5 121Cash utilised by operations (14 476) (3 773) (7 082)Interest and dividends received 8 781 9 796 18 841Distributions paid (2 182) (2 174) (3 075)Taxation paid (1 557) (1 213) (1 946)Other operating cash flows ( 548) ( 782) (1 617)

Cash flows from investing activities 3 011 (8 134) (3 581)Net disposal/(purchase) of investments 2 950 (9 409) (2 906)Net purchase of other assets (266) (123) (375)Deposits received on/(repayment of) collateral deposits payable 327 1 438 (258)Acquisition of equity accounted joint ventures (40) (42)

Cash flows from financing activities 1 712 659 (1 280)Net (repayments)/advance of financial liabilities (461) 1 980Net proceeds on/(repayment of) repurchase agreements liabilities 1 837 776 (2 393)Net cash flows from equity transactions with non-controlling interests 401 217 483Share buy-back (65) (335) (350)

Net (decrease)/increase in cash and cash equivalents (5 259) (5 621) 260Cash and cash equivalents at the beginning of the period 15 169 14 994 14 994Foreign currency translation 66 (46) (85)Cash and cash equivalents at the end of the period 9 976 9 327 15 169


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HEADLINE EARNINGS AND EARNINGS PER SHARE for the six months ended 30 June 2018

Audited

Rm (unless otherwise stated)

Unaudited30 June

2018

Unaudited30 June

2017


2017

Reconciliation of total earnings to headline earnings attributable to shareholders Total earnings attributable to shareholders 1 522 1 541 3 118Preference share dividend (1) (1) (2)Basic earnings attributable to ordinary shareholders 1 521 1 540 3 116Impairment of intangible assets 164Tax on headline earnings adjustable item ( 28)Headline earnings attributable to ordinary shareholders 1 521 1 540 3 252Net income earned on BEE preference shares 4 5 10Reversal of the accounting mismatch arising on consolidation of L2D(1) (193) (278) (543)Normalised headline earnings attributable to ordinary shareholders 1 332 1 267 2 719Weighted average number of shares in issue (‘000) 269 925 270 876 270 348Normalised weighted average number of shares in issue ('000) 276 333 277 415 276 847Fully diluted weighted average number of shares in issue (‘000) 277 803 278 306 278 030Earnings per share Cents Cents CentsTotal earnings attributable to ordinary shareholders Basic 563,5 568,5 1 152,6Headline 563,5 568,5 1 202,9Normalised headline 482,0 456,7 982,1Fully diluted earnings attributable to ordinary shareholders Basic 547,5 553,3 1 120,7Headline 547,5 553,3 1 169,7(1) Refer Explanation of terms on page 22.


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SUMMARY CONSOLIDATED SEGMENT INFORMATION for the six months ended 30 June 2018

The unaudited segment results for the six months ended 30 June 2018 are as follows:

Group Arrangements

RmIndividual

ArrangementsLiberty

CorporateLiberty Africa

Insurance Liberty Health Asset

management Other TotalReporting

adjustments(1) IFRS reported

Total revenue 22 971 6 229 1 181 429 1 490 1 679 33 979 (6 554) 27 425Profit/(loss) before taxation 916 206 48 (64) 265 1 024 2 395 85 2 480Taxation(2) (399) (56) (37) 19 (78) (229) (780) (780)Total earnings 517 150 11 (45) 187 795 1 615 85 1 700Reconciliation of total earnings to headline earnings/(loss) attributable to shareholders Total earnings/(loss) 517 150 11 (45) 187 795 1 615 85 1 700Attributable to non-controlling interests (17) (2) (74) (93) (85) (178)Preference share dividend (1) (1) (1)Headline earnings/(loss) 517 150 (6) (45) 185 720 1 521 1 521Net income earned on BEE preference shares 4 4 4Reversal of the accounting mismatch arising on consolidation of L2D (193) (193) (193)Normalised headline earnings/(loss) 517 150 (6) (45) 185 531 1 332 1 332

Reconciliation of business unit earnings/(loss) to segment result Individual Arrangements 704 704 Group Arrangements 76 (6) (45) 25 Liberty Corporate 77 77 Liberty Africa Insurance (5) (5) Liberty Health (45) (45) Business development support(3) (1) (1) (2) LibFin (Markets and Investments) (180) 74 649 543 LibFin Markets – credit portfolio 50 36 64 150 LibFin Markets – asset/liability matching 12 37 (30) 19 LibFin Investments – SIP (242) 1 615 374 Asset management STANLIB South Africa 175 175 STANLIB Africa 10 10 Central overheads and sundry income (7) (118) (125) Normalised headline earnings/(loss) 517 150 (6) (45) 185 531 1 332 (1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term

insurance into defined IFRS ‘ investment’ and ‘ insurance’ products, the application of shadow accounting for the change in long-term policyholder insurance liabilities and the elimination of intergroup transactions.

(2) IFRS requires both policyholder and shareholder taxation to be reported in the taxation line. This therefore distorts the effective tax charge relative to profit before taxation.(3) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture.

The customer facing units are supported by shared service functions (Group Enablement) and LibFin (incorporating LibFin Markets and LibFin Investments), which are strategic competency units. The impact of LibFin Markets is disclosed in the relevant customer grouping.


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SUMMARY CONSOLIDATED SEGMENT INFORMATION (CONTINUED)



Group Arrangements

RmIndividual

ArrangementsLiberty





Total revenue 22 971 6 229 1 181 429 1 490 1 679 33 979 (6 554) 27 425Profit/(loss) before taxation 916 206 48 (64) 265 1 024 2 395 85 2 480Taxation(2) (399) (56) (37) 19 (78) (229) (780) (780)Total earnings 517 150 11 (45) 187 795 1 615 85 1 700Reconciliation of total earnings to headline earnings/(loss) attributable to shareholders Total earnings/(loss) 517 150 11 (45) 187 795 1 615 85 1 700Attributable to non-controlling interests (17) (2) (74) (93) (85) (178)Preference share dividend (1) (1) (1)Headline earnings/(loss) 517 150 (6) (45) 185 720 1 521 1 521Net income earned on BEE preference shares 4 4 4Reversal of the accounting mismatch arising on consolidation of L2D (193) (193) (193)Normalised headline earnings/(loss) 517 150 (6) (45) 185 531 1 332 1 332

Reconciliation of business unit earnings/(loss) to segment result Individual Arrangements 704 704 Group Arrangements 76 (6) (45) 25 Liberty Corporate 77 77 Liberty Africa Insurance (5) (5) Liberty Health (45) (45) Business development support(3) (1) (1) (2) LibFin (Markets and Investments) (180) 74 649 543 LibFin Markets – credit portfolio 50 36 64 150 LibFin Markets – asset/liability matching 12 37 (30) 19 LibFin Investments – SIP (242) 1 615 374 Asset management STANLIB South Africa 175 175 STANLIB Africa 10 10 Central overheads and sundry income (7) (118) (125) Normalised headline earnings/(loss) 517 150 (6) (45) 185 531 1 332 (1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term



The customer facing units are supported by shared service functions (Group Enablement) and LibFin (incorporating LibFin Markets and LibFin Investments), which are strategic competency units. The impact of LibFin Markets is disclosed in the relevant customer grouping.


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Group Arrangements

RmIndividual

ArrangementsLiberty





Total revenue 28 847 7 329 1 260 495 1 514 1 709 41 154 (5 368) 35 786Profit/(loss) before taxation 1 149 210 54 (26) 138 1 307 2 832 141 2 973Taxation(2) (576) (58) (33) 9 (140) (373) (1 171) (1 171)Total earnings 573 152 21 (17) (2) 934 1 661 141 1 802Reconciliation of total earnings/(loss) to headline earnings attributable to shareholders Total earnings/(loss) 573 152 21 (17) (2) 934 1 661 141 1 802Attributable to non-controlling interests (21) (2) (1) (96) (120) (141) (261)Preference share dividend (1) (1) (1)Headline earnings/(loss) 573 152 (19) (3) 837 1 540 1 540Net income earned on BEE preference shares 5 5 5Reversal of the accounting mismatch arising on consolidation of L2D (278) (278) (278)Normalised headline earnings/(loss) 573 152 (19) (3) 564 1 267 1 267

Reconciliation of business unit earnings/(loss) to segment result Individual Arrangements 597 597 Group Arrangements 80 (19) 61 Liberty Corporate 80 80 Liberty Africa Insurance 20 20 Liberty Health (19) (19) Business development support(3) (20) (20) LibFin (Markets and Investments) (118) 72 667 621 LibFin Markets – credit portfolio 87 51 138 LibFin Markets – asset/liability matching 24 15 (9) 30 LibFin Investments – SIP (229) 6 676 453 Asset management STANLIB South Africa 115 115 STANLIB Africa (118) (118) Central overheads and sundry income 94 (103) (9) Normalised headline earnings/(loss) 573 152 (19) (3) 564 1 267 (1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term



2017 includes the costs associated with the terminated long-term licence acquisition in Nigeria.


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Group Arrangements

RmIndividual

ArrangementsLiberty





Total revenue 28 847 7 329 1 260 495 1 514 1 709 41 154 (5 368) 35 786Profit/(loss) before taxation 1 149 210 54 (26) 138 1 307 2 832 141 2 973Taxation(2) (576) (58) (33) 9 (140) (373) (1 171) (1 171)Total earnings 573 152 21 (17) (2) 934 1 661 141 1 802Reconciliation of total earnings/(loss) to headline earnings attributable to shareholders Total earnings/(loss) 573 152 21 (17) (2) 934 1 661 141 1 802Attributable to non-controlling interests (21) (2) (1) (96) (120) (141) (261)Preference share dividend (1) (1) (1)Headline earnings/(loss) 573 152 (19) (3) 837 1 540 1 540Net income earned on BEE preference shares 5 5 5Reversal of the accounting mismatch arising on consolidation of L2D (278) (278) (278)Normalised headline earnings/(loss) 573 152 (19) (3) 564 1 267 1 267

Reconciliation of business unit earnings/(loss) to segment result Individual Arrangements 597 597 Group Arrangements 80 (19) 61 Liberty Corporate 80 80 Liberty Africa Insurance 20 20 Liberty Health (19) (19) Business development support(3) (20) (20) LibFin (Markets and Investments) (118) 72 667 621 LibFin Markets – credit portfolio 87 51 138 LibFin Markets – asset/liability matching 24 15 (9) 30 LibFin Investments – SIP (229) 6 676 453 Asset management STANLIB South Africa 115 115 STANLIB Africa (118) (118) Central overheads and sundry income 94 (103) (9) Normalised headline earnings/(loss) 573 152 (19) (3) 564 1 267 (1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term



2017 includes the costs associated with the terminated long-term licence acquisition in Nigeria.


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The audited segment results for the year ended 31 December 2017 are as follows:

Group Arrangements

Rm (Audited)Individual

ArrangementsLiberty





Total revenue 68 161 15 676 2 420 929 3 085 4 625 94 896 (12 174) 82 722Profit/(loss) before taxation 2 957 223 121 (134) 263 2 793 6 223 345 6 568Taxation(2) (1 819) (62) (74) 28 (212) (725) (2 864) (2 864)Total earnings/(loss) 1 138 161 47 (106) 51 2 068 3 359 345 3 704Reconciliation of total earnings/(loss) to headline earnings attributable to shareholders Total earnings/(loss) 1 138 161 47 (106) 51 2 068 3 359 345 3 704Attributable to non-controlling interests (1) (58) (3) (179) (241) (345) (586)Preference share dividend (2) (2) (2)Impairment of intangible assets 13 71 52 136 136Headline earnings/(loss) 1 150 232 (11) (54) 48 1 887 3 252 3 252Net income earned on BEE preference shares 10 10 10Reversal of the accounting mismatch arising on consolidation of L2D (543) (543) (543)Normalised headline earnings/(loss) 1 150 232 (11) (54) 48 1 354 2 719 2 719

Reconciliation of business unit earnings(loss) to segment result Individual Arrangements 1 208 1 208 Group Arrangements 81 (11) (54) 16 Liberty Corporate 81 81 Liberty Africa Insurance 45 45 Liberty Health (54) (54) Business development support(3) (56) (56) LibFin (Markets and Investments) (138) 151 1 670 1 683 LibFin Markets – credit portfolio 192 138 330 LibFin Markets – asset/liability matching 35 1 10 46 LibFin Investments – SIP (365) 12 1 660 1 307 Asset management STANLIB South Africa 252 252 STANLIB Africa (204) (204) Central overheads and sundry income 80 (316) (236) Normalised headline earnings/(loss) 1 150 232 (11) (54) 48 1 354 2 719 (1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term


(2) IFRS requires both policyholder and shareholder taxation to be reported in the taxation line. This therefore distorts the effective tax charge relative to profit before taxation.(3) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture. 2017

includes the costs associated with the terminated long-term licence acquisition in Nigeria.


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The audited segment results for the year ended 31 December 2017 are as follows:

Group Arrangements

Rm (Audited)Individual

ArrangementsLiberty





Total revenue 68 161 15 676 2 420 929 3 085 4 625 94 896 (12 174) 82 722Profit/(loss) before taxation 2 957 223 121 (134) 263 2 793 6 223 345 6 568Taxation(2) (1 819) (62) (74) 28 (212) (725) (2 864) (2 864)Total earnings/(loss) 1 138 161 47 (106) 51 2 068 3 359 345 3 704Reconciliation of total earnings/(loss) to headline earnings attributable to shareholders Total earnings/(loss) 1 138 161 47 (106) 51 2 068 3 359 345 3 704Attributable to non-controlling interests (1) (58) (3) (179) (241) (345) (586)Preference share dividend (2) (2) (2)Impairment of intangible assets 13 71 52 136 136Headline earnings/(loss) 1 150 232 (11) (54) 48 1 887 3 252 3 252Net income earned on BEE preference shares 10 10 10Reversal of the accounting mismatch arising on consolidation of L2D (543) (543) (543)Normalised headline earnings/(loss) 1 150 232 (11) (54) 48 1 354 2 719 2 719

Reconciliation of business unit earnings(loss) to segment result Individual Arrangements 1 208 1 208 Group Arrangements 81 (11) (54) 16 Liberty Corporate 81 81 Liberty Africa Insurance 45 45 Liberty Health (54) (54) Business development support(3) (56) (56) LibFin (Markets and Investments) (138) 151 1 670 1 683 LibFin Markets – credit portfolio 192 138 330 LibFin Markets – asset/liability matching 35 1 10 46 LibFin Investments – SIP (365) 12 1 660 1 307 Asset management STANLIB South Africa 252 252 STANLIB Africa (204) (204) Central overheads and sundry income 80 (316) (236) Normalised headline earnings/(loss) 1 150 232 (11) (54) 48 1 354 2 719 (1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term


(2) IFRS requires both policyholder and shareholder taxation to be reported in the taxation line. This therefore distorts the effective tax charge relative to profit before taxation.(3) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture. 2017



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GROUP EQUITY VALUE REPORTfor the six months ended 30 June 2018

1 IntroductionLiberty presents a “group equity value” report to reflect the combined value of the various components of Liberty’s businesses.

Section 2 below describes the valuation bases used for each reported component. It should be noted that the group equity value is presented to provide additional information to shareholders to assess performance of the group. The total equity value is not intended to be a fair value calculation of the group but should provide indicative information of the inherent value of the component parts.

2 Component parts of the group equity value and valuation techniques usedGroup equity value has been calculated as the sum of the following component parts:

2.1 South African (SA) covered business:The wholly-owned subsidiary, Liberty Group Limited, comprises the South African long-term insurance entities and related asset holding entities. The embedded value methodology in terms of Advisory Practice Note 107 issued by the Actuarial Society of South Africa continues to be used to derive the value of this business cluster described as “South African covered business”. The embedded value report of the South African covered business has been reviewed by the group’s statutory actuary. The full embedded value report is included in the supplementary information section.

2.2 Other businesses:

STANLIB South Africa Valued using a 10 times (31 December 2017 and 30 June 2017: 10 times) multiple of estimated sustainable earnings.

STANLIB Africa Valued using a 10 times (31 December 2017 and 30 June 2017: 10 times) multiple of estimated sustainable earnings.

Liberty Health As Liberty Health has yet to establish a history to support a sustainable earnings calculation, an adjusted IFRS net asset value is applied.

Liberty Africa Insurance Liberty Africa Insurance is an emerging cluster of both long- and short-term insurance businesses located in various African countries outside of South Africa. A combination of valuation techniques including embedded value, discounted cash flow and earnings multiples have been applied to value these businesses. The combined value of this cluster is not material relative to the other components of group equity value and therefore a detailed analysis of this valuation has not been presented. At 30 June 2018 the combined valuations approximated the group’s IFRS net asset value. Therefore the IFRS net asset value was used.

Liberty Holdings The net market value of assets and liabilities held by the Liberty Holdings Limited company excluding investments in any subsidiaries which are valued separately.

2.3 Liberty Two Degrees (L2D) normalisation adjustment:This represents the difference between Liberty’s share of the net asset value of L2D as at the reporting date and the listed price of L2D units multiplied by the number of units in issue to Liberty at the reporting date. Adjusting the valuation from net asset value to share price is required to ensure consistency between policyholder liabilities and their backing assets, and to provide a market consistent valuation of the L2D shares held within the shareholder investment portfolio.

2.4 Other adjustments:These comprise the fair value of share rights allocated to staff not employed by the South African covered businesses, adjusting certain deferred tax assets to current values and allowance for certain shareholder recurring expenses incurred in Liberty Holdings Limited capitalised at a multiple of 9 times (31 December 2017 and 30 June 2017: 9 times).


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GROUP EQUITY VALUE REPORT (CONTINUED)for the six months ended 30 June 2018

3 Normalised group equity value

3.1 Analysis of normalised group equity value

Unaudited

30 June 2018

RmSA covered

businessOther

businesses Total

Liberty Group Limited 18 068 18 068STANLIB South Africa(2) 809 809STANLIB Africa(2) 187 187Liberty Health (including Total Health Trust) 251 251Liberty Africa Insurance 921 921Liberty Holdings 1 684 1 684Liberty Two Degrees adjustment to net asset value 847 847Shareholders’ equity reported under IFRS 18 068 4 699 22 767Difference between statutory and published valuation methods (7 119) (7 119)Negative rand reserves (6 663) (6 663)Deferred acquisition costs (753) (753)Deferred revenue liability 297 297Subordinated notes 4 576 4 576CAR of subsidiaries (10) (10)Reverse value of in-force acquired (9) (9)Inadmissible assets (1 242) (1 242)Statutory excess assets over liabilities(1) 14 264 4 699 18 963Reverse CAR of subsidiaries 10 10Reverse subordinated notes (4 576) (4 576)Reverse inadmissible assets 1 242 1 242Frank Financial Services allowance for future expenses (100) (100)Impact of discounting on deferred tax asset (100) (100)BEE preference funding 117 117Liberty Two Degrees normalisation adjustment(3) (847) (847)Allowance for employee share rights (62) (47) (109)Normalised net worth 10 895 3 705 14 600Value of in-force – Individual Arrangements 21 698 21 698Value of in-force – Group Arrangements: Liberty Corporate 2 927 2 927Cost of required capital (1 657) (1 657)Fair value adjustment – STANLIB South Africa(2) 3 691 3 691Fair value adjustment – STANLIB Africa(2) 13 13Allowance for future shareholder expenses (2 296) (2 296)Normalised equity value 33 863 5 113 38 976(1) The adjustments between the IFRS and statutory net asset values for the Liberty Africa subsidiaries have not been included. This is because the group equity value for these

entities is set to their IFRS net asset value and so these adjustments do not affect group equity value.

(2)

STANLIB valuation (Rm)30 June

2018

STANLIB South Africa 4 500 STANLIB Africa 200

Total 4 700

(3) This represents the difference between Liberty’s share of the net asset value of L2D as at the reporting date and the listed price of L2D units multiplied by the number of units in issue to Liberty at the reporting date. Adjusting the valuation from net asset value to share price is required to ensure consistency between policyholder liabilities and their backing assets, and to provide a market consistent valuation of the L2D shares held within the shareholder investment portfolio.


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3 Normalised group equity value (continued)

3.1 Analysis of normalised group equity value (continued)

Unaudited

30 June 2017

Audited12 months

31 December 2017

RmSA covered

businessOther

businesses TotalSA covered

businessOther

businesses Total

Liberty Group Limited 18 369 18 369 18 412 18 412STANLIB South Africa(2) 809 809 795 795STANLIB Africa(2) (19) (19) 100 100Liberty Health (including Total Health Trust) 373 373 299 299Liberty Africa Insurance 815 815 813 813Liberty Holdings 1 273 1 273 1 428 1 428Liberty Two Degrees adjustment to net asset value 158 158 597 597Shareholders’ equity reported under IFRS 18 369 3 409 21 778 18 412 4 032 22 444Difference between statutory and published valuation methods (7 175) (7 175) (7 253) (7 253)Negative rand reserves (6 723) (6 723) (6 806) (6 806)Deferred acquisition costs (725) (725) (730) (730)Deferred revenue liability 273 273 283 283Subordinated notes 4 602 4 602 5 581 5 581CAR of subsidiaries (10) (10) (10) (10)Reverse value of in-force acquired (14) (14) (12) (12)Inadmissible assets (922) (922) (1 018) (1 018)Statutory excess assets over liabilities(1) 14 850 3 409 18 259 15 700 4 032 19 732Reverse CAR of subsidiaries 10 10 10 10Reverse subordinated notes (4 602) (4 602) (5 581) (5 581)Reverse inadmissible assets 922 922 1 018 1 018Frank Financial Services allowance for future expenses (100) (100) (100) (100)Impact of discounting on deferred tax asset (100) (100) (100) (100)BEE preference funding 142 142 123 123Liberty Two Degrees normalisation adjustment(3) (158) (158) (597) (597)Allowance for employee share rights (33) (38) (71) (36) (36) (72)Normalised net worth 11 189 3 113 14 302 11 134 3 299 14 433Value of in-force – Individual Arrangements 21 840 21 840 22 088 22 088Value of in-force – Group Arrangements: Liberty Corporate 2 838 2 838 3 049 3 049Cost of required capital (1 640) (1 640) (1 690) (1 690)Fair value adjustment – STANLIB South Africa(2) 4 491 4 491 3 655 3 655Fair value adjustment – STANLIB Africa(2) 319 319 50 50Allowance for future shareholder expenses (1 960) (1 960) (2 217) (2 217)Normalised equity value 34 227 5 963 40 190 34 581 4 787 39 368(1) The adjustments between the IFRS and statutory net asset values for the Liberty Africa subsidiaries have not been included. This is because the group equity value for these

entities is set to their IFRS net asset value and so these adjustments do not affect group equity value.

(2)

STANLIB valuation (Rm) 30 June

2017 31 December

2017 STANLIB South Africa 5 300 4 450 STANLIB Africa 300 150 Total 5 600 4 600

(3) This represents the difference between Liberty’s share of the net asset value of L2D as at the reporting date and the listed price of L2D units multiplied by the number of units in issue to Liberty at the reporting date. Adjusting the valuation from net asset value to share price is required to ensure consistency between policyholder liabilities and their backing assets, and to provide a market consistent valuation of the L2D shares held within the shareholder investment portfolio.


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3.2 Normalised group equity value earnings and value per share

Audited

Unaudited

30 June 2018Unaudited

30 June 2017


2017

Rm

SA covered

businessOther

businesses Total

SA covered

businessOther

businesses Total Total

Normalised equity value at the end of the period 33 863 5 113 38 976 34 227 5 963 40 190 39 368Equity value at the end of the period 33 746 5 960 39 706 34 085 6 121 40 206 39 842Liberty Two Degrees normalisation adjustment(1) (847) (847) (158) (158) (597)BEE preference shares 117 117 142 142 123Net share buy-backs 65 65 335 335 350Funding of restricited share plan 108 (108) 112 (112) Intragroup dividends(2) 1 350 (1 350) 1 400 (1 400) Dividends paid 1 168 1 168 1 168 1 168 1 944Normalised equity value at the beginning of the period (34 460) (4 787) (39 247) (34 470) (6 751) (41 221) (41 221)Equity value at the beginning of the period (34 458) (5 384) (39 842) (34 322) (6 421) (40 743) (40 743)IFRS 9 transition adjustment 121 121 Liberty Two Degrees normalisation adjustment(1) 597 597 (330) (330) (330)BEE preference shares (123) (123) (148) (148) (148)

Normalised equity value earnings 861 101 962 1 269 (797) 472 441Normalised return on group equity value (%) 5,1 4,2 5,0 7,5 (22,9) 2,3 1,1Normalised number of shares ('000) 281 081 280 734 280 573Number of shares in issue ('000) 269 699 269 541 270 120Shares held for the employee restricted share scheme ('000) 5 050 4 713 4 014Adjustment for BEE shares ('000) 6 332 6 480 6 439Normalised group equity value per share (R) 138,66 143,16 140,31(1) This represents the difference between Liberty’s share of the net asset value of L2D as at the reporting date and the listed price of L2D units multiplied by the number of units in

issue to Liberty at the reporting date. Adjusting the valuation from net asset value to share price is required to ensure consistency between policyholder liabilities and their backing assets, and to provide a market consistent valuation of the L2D shares held within the shareholder investment portfolio.

(2) Dividends paid by Liberty Group Limited to Liberty Holdings Limited.



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3.3 Sources of normalised group equity value earnings

Audited

Unaudited

30 June 2018Unaudited

30 June 2017


2017

Rm

SA covered

businessOther

businesses Total

SA covered

businessOther

businesses Total Total

Value of new business written in the period 130 5 135 75 11 86 233Expected return on value of in-force business 1 460 1 460 1 446 1 446 2 926Variances/changes in operating assumptions 246 246 21 21 109Operating experience variances 277 277 174 174 330Operating assumption changes (20) (20) (7) (7) 30Changes in modelling methodology (11) (11) (146) (146) (251)Development costs (31) (31) (30) (52) (82) (221)Liberty Holdings shareholder expenses(1) (200) (200) (156) (156) (584)Headline earnings of other businesses/intragroup transfers 135 135 46 59 105 146Operational equity value profits 1 836 (91) 1 745 1 558 (138) 1 420 2 609Economic adjustments (949) 209 (740) (289) (178) (467) (571)Return on net worth and other adjustments(2) (113) 209 96 94 (178) (84) (153)Investment variances(2) (470) (470) (479) (479) (594)Change in economic assumptions (366) (366) 96 96 176Change in fair value adjustments on value of other businesses (6) (6) (470) (470) (1 585)Change in allowance for share rights (26) (11) (37) (11) (11) (12)Group equity value earnings 861 101 962 1 269 (797) 472 441(1) This includes the actual shareholder expenses incurred by Liberty Holdings of R121 million (31 December 2017: R259 million, 30 June 2017: R88 million) plus the change in the

allowance for future shareholder expenses over the period.(2) The return on net worth includes an amount of R12 million (31 December 2017: negative R7 million, 30 June 2017: negative R17 million) in respect of the change in the fair value of

cash flow hedges supporting LGL subordinated notes. With the change in classification of the LGL subordinated notes to fair value on the adoption of IFRS 9, the cash flow hedges on these bonds were recycled to IFRS earnings. The investment variances also include an amount of negative R12 million (31 December 2017: R61 million, 30 June 2017: R48 million) in respect of the change in the fair value of cash flow hedges supporting LibFin Credit.



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3.4 Analysis of value of long-term insurance new business and margins

Audited

Rm

Unaudited30 June

2018

Unaudited30 June

2017


2017

South African covered business: Individual Arrangements 737 667 1 445Traditional Life 567 528 1 159Direct Channel 33 30 67Credit Life 45 43 83LibFin Credit uplift to Individual Arrangements 92 66 136Group Arrangements: Liberty Corporate 66 66 162Traditional Business 54 56 137LibFin Credit uplift to Group Arrangements: Liberty Corporate 12 10 25

Gross value of new business 803 733 1 607Overhead acquisition (including underwriting) costs impact on value of new business (627) (615) (1 305)Cost of required capital (46) (43) (90)Net value of South African covered business 130 75 212Present value of future expected premiums 20 045 20 628 42 782Margin (%) 0,6 0,4 0,5Group Arrangements: Liberty Africa Insurance Net value of new business 5 11 21Present value of future expected premiums 405 266 528Margin (%) 1,3 4,3 3,9Total group net value of new business 135 86 233Total group margin (%) 0,7 0,4 0,5



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LONG-TERM INSURANCE NEW BUSINESSfor the six months ended 30 June 2018


201830 June

2017


2017

Sources of insurance operations total new business by product type Retail 12 280 13 177 27 132Single 10 080 10 973 22 660Recurring 2 200 2 204 4 472Institutional 1 045 915 2 034Single 533 319 838Recurring 512 596 1 196

Total new business 13 325 14 092 29 166Single 10 613 11 292 23 498Recurring 2 712 2 800 5 668

Insurance indexed new business 3 773 3 930 8 018Sources of insurance indexed new business Individual Arrangements 3 111 3 205 6 570Group Arrangements: 662 725 1 448Liberty Corporate 516 558 1 171Liberty Africa Insurance(1) 146 167 277

(1) Liberty owns less than 100% of certain entities that make up Liberty Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership.

The difference between the single premiums reported under total long-term insurance premiums and single premiums reported under long-term insurance new business by distribution channel arises mainly from different treatment for extensions of matured policies, reinvestment of fund withdrawals, conversions of standalone funds to umbrella funds and fund member movements within Liberty administered funds.


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LONG-TERM INSURANCE NET CUSTOMER CASH FLOWSfor the six months ended 30 June 2018

Audited

Rm

Unaudited30 June

2018

Unaudited30 June

2017


2017

Net premiums by product type Retail 20 609 21 282 43 467Single 9 857 10 720 22 191Recurring 10 752 10 562 21 276Institutional 5 454 5 187 10 673Single 799 588 1 416Recurring 4 655 4 599 9 257

Net premium income from insurance contracts and inflows from investment contracts 26 063 26 469 54 140

Single 10 656 11 308 23 607Recurring 15 407 15 161 30 533Net claims and policyholders benefits by product type Retail (19 747) (20 390) (40 436)Death and disability claims (3 596) (3 117) (6 567)Policy surrender and maturity claims (12 991) (14 392) (27 984)Annuity payments (3 160) (2 881) (5 885)Institutional (6 054) (6 744) (12 070)Death and disability claims (1 098) (1 082) (2 118)Scheme terminations and member withdrawals (4 565) (5 244) (9 139)Annuity payments (391) (418) (813)

Net claims and policyholders benefits (25 801) (27 134) (52 506)Long-term insurance net customer cash flows(1) 262 (665) 1 634Rm (Unaudited) Sources of insurance operations net cash flows: Individual Arrangements 750 774 2 846Group Arrangements: (488) (1 439) (1 212)Liberty Corporate (689) (1 609) (1 536)Liberty Africa Insurance(2) 201 170 324

(1) This excludes net cash inflows attributed to the off balance sheet GateWay LISP of R242 million (31 December 2017: R350 million, 30 June 2017: R122 million).(2) Liberty owns less than 100% of certain entities that make up Liberty Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership.


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ASSETS UNDER MANAGEMENT(1)

as at 30 June 2018

Rbn (Unaudited)30 June

201830 June

201731 December

2017

Managed by group business units 684 662 684STANLIB South Africa 559 540 556STANLIB Africa(2) 50 53 53LibFin Markets 61 58 62Other internal managers 14 11 13Externally managed 35 26 36Total assets under management(3) 719 688 720(1) Includes funds under adminstration.(2) Liberty owns less than 100% of certain of the entities that make up STANLIB Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership.(3) Included in total assets under management are the following LISP (June 2018) amounts:

Unit trusts listed (Rbn)STANLIB

managedOther

managed Total

STANLIB 41 80 121 Gateway 3 5 8

ASSET MANAGEMENT NET CASH FLOWS(1)



201830 June

2017


2017

STANLIB South Africa Non-money market 8 949 5 705 4 815Retail 5 479 3 345 8 249Institutional 3 470 2 360 (3 434)Money market (549) (59) (84)Retail (352) (1 461) (1 400)Institutional (197) 1 402 1 316

Net South Africa cash inflows 8 400 5 646 4 731STANLIB Africa Non-money market (6 164) (347) (1 156)Retail 285 437 738Institutional (6 449) (784) (1 894)Money market (830) 791 676Net Africa cash (outflows)/inflows (6 994) 444 (480)Net cash inflows from asset management 1 406 6 090 4 251(1) Cash flows exclude intergroup segregated life funds mandates.


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SHORT-TERM INSURANCE INDICATORSfor the six months ended 30 June 2018

Audited

Rm

Unaudited30 June

2018

Unaudited30 June

2017


2017

Net premiums 634 675 1 297Liberty Health – medical risk 387 420 777Liberty Africa Insurance – motor, property, medical and other 247 255 520Net claims (447) (426) (886)Liberty Health – medical risk (307) (299) (637)Liberty Africa Insurance – motor, property, medical and other (140) (127) (249)

Net cash inflows from short-term insurance 187 249 411Unaudited Claims loss ratio (%) Liberty Health 79 71 82Liberty Africa Insurance 57 50 48Combined loss ratio (%) Liberty Health 112 101 102Liberty Africa Insurance 111 98 99

CAPITAL COMMITMENTSas at 30 June 2018

Audited

Rm

Unaudited30 June

2018

Unaudited30 June

2017


2017

Equipment 471 658 741Investment and owner-occupied property 1 418 1 237 1 432Committed capital(1) 1 382 1 168 1 071Total capital commitments 3 271 3 063 3 244Under contracts 617 546 430Authorised by the directors but not contracted 2 654 2 517 2 814

(1) Liberty has committed capital to certain infrastructure and development funds. The committed funds are only drawn down when required.

The above 2018 capital commitments will be financed by available bank facilities, existing cash resources, internally generated funds and R442 million (31 December 2017: R452 million, 30 June 2017: R296 million) from non-controlling interests in respect of investment properties.


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RETIREMENT BENEFIT OBLIGATIONSas at 30 June 2018

UnauditedPost-retirement medical benefitThe group operates an unfunded post-retirement medical aid benefit for permanent employees who joined the group prior to 1 February 1999 and agency staff who joined prior to 1 March 2005. As at 30 June 2018, the Liberty post-retirement medical aid benefit liability was R480 million (31 December 2017: R495 million).

Defined benefit retirement fundThe group operates a defined benefit pension scheme on behalf of employees. The fund is closed to new membership and is well funded.

RELATED PARTIESfor the six months ended 30 June 2018

UnauditedStandard Bank Group Limited and any subsidiary (excluding Liberty) is referred to as Standard Bank in the context of this section.

The following selected significant related party transactions have occurred in the 30 June 2018 financial period:

1. Summary of movement in investment in ordinary shares held by the group in the group’s holding company is as follows:

Number

’000Fair value

RmOwnership

%

Standard Bank Group Limited Balance at 1 January 2018 16 180 3 166 1,02Purchases 8 589 1 768 Sales (4 586) (952) Fair value adjustments (109) Balance at 30 June 2018 20 183 3 873 1,27

1.2 BancassuranceThe bancassurance business agreements with the Standard Bank group caters for the manufacture, sale and promotion of insurance, investment and health products through the Standard Bank’s African distribution capability. New business premium income in respect of this business in 2018 amounted to R3 948 million (2017 full year: R9 129 million). In terms of the agreements, Liberty’s group subsidiaries pay profit shares to various Standard Bank operations. The amounts to be paid are in most cases dependent on source and type of business and are paid along geographical lines. The total combined net profit share amounts accrued as payable to the Standard Bank group for the six months to 30 June 2018 is R534 million (2017 full year: R948 million).

The bancassurance business agreements are evergreen agreements with a 24-month notice period for termination – as at the date of the approval of these financial statements, neither party had given notice.

1.3 Purchases and sales of financial instrumentsAs per Liberty’s 2017 group annual financial statements, in the normal course of conducting business, Liberty deposits cash with Standard Bank, purchases and sells financial instruments issued by Standard Bank and enters into sale and repurchase agreements and derivative transactions with Standard Bank. These transactions are at arm’s length and are primarily used to support investment portfolios for policyholders and shareholders’ capital.

2. Other related party transaction – Liberty Two Degrees (L2D)

In terms of a proposed transaction between L2D and Liberty Holdings Limited (LHL), LHL has agreed to sell all of the shares in STANLIB REIT Fund Managers (RF) (Pty) Ltd to New L2D. In addition Liberty Group Limited will dispose of R1,2 billion of the property portfolio to New L2D and the existing put option will be cancelled for no value. These transactions remain subject to regulatory approval with the L2D unitholder vote scheduled for 28 August 2018. More detail is available at www.liberty2degrees.co.za.


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OFFSETTING, ENFORCEABLE MASTER NETTING ARRANGEMENTS OR SIMILAR AGREEMENTSas at 30 June 2018

The group does not have any financial assets or financial liabilities that are currently subject to offsetting in accordance with IAS 32 Financial Instruments: Presentation. The table below sets out the nature of agreements and the types of rights relating to items which do not qualify for offset but that are subject to a master netting arrangement (MNA) or similar agreement.

NATURE OF AGREEMENT RELATED RIGHTS

Derivative assets and liabilities International swaps and derivatives associations The agreement allows for offset in the event of defaultRepurchase agreements Global master repurchase agreements

Collateral deposits payable Global master securities lending arrangements

Rm (Unaudited) Total

Not subject to MNA

or similar agreements

Subject to MNA


Financial collateral(1) Net

30 June 2018 Assets Assets held for trading and for hedging 9 757 (1 727) 8 030 (7 751) 279Total assets 9 757 (1 727) 8 030 (7 751) 279Liabilities Liabilities held for trading and for hedging 8 591 (147) 8 444 (7 751) 693Repurchase agreements liabilities 6 404 6 404 (6 404) Collateral deposits payable 4 857 4 857 (4 857) Total liabilities 19 852 (147) 19 705 (19 012) 693

Rm (Unaudited) Total

Not subject to MNA


Subject to MNA



30 June 2017 Assets Assets held for trading and for hedging 9 459 (934) 8 525 (6 970) 1 555Total assets 9 459 (934) 8 525 (6 970) 1 555Liabilities Liabilities held for trading and for hedging 7 428 (26) 7 402 (6 970) 432Repurchase agreements liabilities 7 840 7 840 (7 840) Collateral deposits payable 6 122 6 122 (6 122) Total liabilities 21 390 (26) 21 364 (20 932) 432

Rm (Audited) Total

Not subject to MNA


Subject to MNA



31 December 2017 Assets Assets held for trading and for hedging 7 871 (1 356) 6 515 (6 016) 499Total assets 7 871 (1 356) 6 515 (6 016) 499Liabilities Liabilities held for trading and for hedging 6 311 (56) 6 255 (6 016) 239Repurchase agreements liabilities 4 671 4 671 (4 671) Collateral deposits payable 4 426 4 426 (4 426) Total liabilities 15 408 (56) 15 352 (15 113) 239(1) Financial collateral relates to these instruments that are subject to MNA or similar agreements.


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Opening transition adjustment as at 1 January 2018

Rm (Unaudited)

As previously reported

under IAS 39 at amortised

costTransition

adjustment

As classified under IFRS 9

at fair value through profit

or loss

Loan receivables 894 (63) 831Financial liabilities (5 581) (105) (5 686)Gross transition adjustment (168) Taxation 47 Net transition adjustment (121)

as at 30 June 2018 Fair value through profit or loss

Total fair value

Amortised cost

Other measurement

basis

Total per statement

of financial positionRm (Unaudited)

Held for trading

Designated at fair value

Fair value through

profit or loss (default)

Financial assets Interests in joint ventures 1 316 1 316 66 1 382Interests in associates 13 862 13 862 13 862Financial investments 2 646 331 777 334 423 334 423Loan receivables 803 803 379 1 182Assets held for hedging and for trading 9 757 9 757 9 757Repurchase agreements, scrip and collateral assets 13 075 13 075 13 075Prepayments, insurance and other receivables 4 914 4 914 244 1 802 6 960Cash and cash equivalents 6 396 6 396 3 580 9 976Total financial assets 9 757 2 646 372 143 384 546 4 203 1 868 390 617Financial liabilities Financial liabilities under investment contracts 101 715 101 715 101 715Third-party financial liabilities arising on consolidation of mutual funds 41 832 41 832 41 832Financial liabilities 5 387 5 387 5 387Liabilities held for trading and for hedging 8 591 8 591 8 591Repurchase agreements liabilities and collateral deposits payable 11 261 11 261 11 261Insurance and other payables 4 644 4 644 634 7 059 12 337Total financial liabilities 8 591 164 839 173 430 634 7 059 181 123

The table above reflects the classification of the group's financial assets and financial liabilities as at 30 June 2018 split into the IFRS 9 measurement categories. The financial assets categories have been determined based on the contractual cash flow characteristics and business model of the entity.

ACCOUNTING CLASSIFICATIONS OF FINANCIAL INSTRUMENTS UNDER IFRS 9 as at 30 June 2018


Business Word Template Cover.indd 1 2018/07/16 14:48


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For the six months ended 30 June 2018Supplementary information

CONTENTS

Page

Analysis of ordinary shareholders’ equity 49Analysis of group earnings – core earnings 50South African covered business embedded value 51Bancassurance – Benefit to Liberty 5790:10 Shareholder exposure 57Long-term policyholder liabilities IFRS reconciliation 58South African insurance distribution headcount 59Total long-term insurance premiums 59Long-term insurance – New business by distribution channel 60LibFin – Shareholder Investment Portfolio 62LibFin – Shareholder Investment Portfolio percentage allocation 62LibFin – Shareholder Investment Portfolio return 63LibFin – Markets Credit portfolio 63Individual Arrangements – Headline earnings 64Individual Arrangements – Key performance indicators 64Individual arrangements – Indexed new business 64Individual arrangements – Maintenance cost per policy 65Individual Arrangements – Negative rand reserves 65Liberty Corporate – Headline earnings 65Liberty Corporate – Key performance indicators 66Liberty Health – Headline earnings 66Liberty Health Cover Product – Lives serviced 66Liberty Africa Insurance – Headline earnings 67Liberty Africa Insurance – Key performance indicators 67Liberty Africa Insurance – Long-term insurance net cash flows 68Our presence in Africa 68STANLIB South Africa – Headline earnings 69STANLIB South Africa – Net cash flows and assets under management by asset category 69STANLIB South Africa – Assets under management breakdown by source and asset type 70STANLIB South Africa – Retail investment performance 71STANLIB South Africa – Institutional investment performance 71STANLIB South Africa – Investment performance 72STANLIB Africa – Assets under management 73STANLIB Africa – Assets under management by geographical location 73


SUPPLEM

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N

ANALYSIS OF ORDINARY SHAREHOLDERS’ EQUITYfor the six months ended 30 June 2018

Group funds invested Contribution to earnings

Rm30 June

201830 June

2017


201730 June

201830 June

2017


2017

South African insurance 18 068 18 369 18 412 1 324 1 298 2 972Insurance operating surplus 856 776 1 618Present value of in-force business 9 14 12 (3) (3) (5)Investment portfolios 14 682 15 560 17 235 579 552 1 480Fixed assets and working capital(1) 7 948 7 295 6 665 70 115 190Subordinated notes (excluding accrued interest)(2) (4 500) (5 500) (142) (311)Subordinated notes at fair value(2) (4 571) (178) Other insurance 1 172 1 188 1 112 (52) (19) (65)Liberty Africa Insurance 921 815 813 (5) 20 45Business development support(3) (2) (20) (56)Liberty Health 251 373 299 (45) (19) (54)Asset management STANLIB South Africa 809 809 795 175 115 252STANLIB Africa 187 (19) 100 10 (118) (204)Central overheads and sundry income (128) (13) (244)Liberty Holdings Limited 1 684 1 273 1 428 Liberty Two Degrees consolidation adjustment(4),(5) 847 158 597 193 278 543Preference share dividend (1) (1) (2)Headline earnings 1 521 1 540 3 252Preference share dividend 1 1 2Impairment of intangible assets (net of tax) (136)Liberty Holdings shareholders’ equity/total earnings 22 767 21 778 22 444 1 522 1 541 3 118Normalised: Liberty Holdings shareholders’ equity/headline earnings 22 767 21 778 22 444 1 521 1 540 3 252BEE preference shares 117 142 123 4 5 10Liberty Two Degrees normalisation adjustment(4),(5) (438) (158) (340) (193) (278) (543)Normalised shareholders’ equity/headline earnings 22 446 21 762 22 227 1 332 1 267 2 719(1) With effect from 1 July 2005 Liberty Group Limited established a working capital funding loan between insurance operations and shareholder assets, subsequently supported by

the subordinated notes issue. Inter-divisional interest is charged at 8,77% nacm. (2) Subordinated notes previously measured at amortised cost.(3) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture. 2017

includes the costs associated with the terminated long-term licence acquisition in Nigeria.(4) Reversal of the accounting mismatch arising on consolidation of the policyholders obligation linked to L2D units(5) Represents the difference between Libertys’ share of the net asset value of L2D at the end of the period and the listed price of L2D units multiplied by the number of units in issue

to Liberty at the end of the period.

Liberty Holdings Limited Financial results for the six months ended 30 June 2018 49SU

PPLEMEN

TARY IN

FORM

ATION

ANALYSIS OF GROUP EARNINGS – CORE EARNINGS for the six months ended 30 June 2018

Rm30 June

201830 June

2017


2017

Individual Arrangements planned margin release including annual contribution increases 1 025 1 008 1 971Individual Arrangements credit life 93 81 167Individual Arrangements VIF amortisation (3) (3) (5)LibFin Markets 169 168 376Expected long-term rate of return on Shareholder Investment Portfolio(1) 679 779 1 464Other businesses headline earnings 111 49 240Group Arrangements 25 61 16Liberty Corporate 77 80 81Liberty Africa Insurance (5) 20 45Liberty Health (45) (19) (54)Business development support(2) (2) (20) (56)Asset management STANLIB South Africa 201 115 445STANLIB Africa 10 (118) 15Central overheads and sundry income (125) (9) (236)Centre expenses and sundry income (129) (14) (246)BEE preference share income 4 5 10

Core operating earnings 2 074 2 082 4 213Individual Arrangements new business strain (379) (397) (675)Individual Arrangements operating variances, assumption changes and other (32) (92) (250)Adjusted core operating earnings 1 663 1 593 3 288Variance to long-term rate of return on Shareholder Investment Portfolio (305) (326) (157)STANLIB South Africa sustainable earnings adjustment (26) (193)STANLIB Africa sustainable earnings adjustment (219)Normalised headline earnings 1 332 1 267 2 719(1) The expected long-term rate of return on the SIP portfolio is based on the long-term view to avoid volatility in the core operating earnings.(2) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture. 2017



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SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUEfor the six months ended 30 June 2018

1 Description of embedded value of South African covered business

The prudential regulatory regime governing South African insurance companies changed on 1 July 2018 to the Solvency Assessment and Management (SAM) regime. As at 30 June 2018 the previous basis remained in force. Liberty has continued to report embedded value on the same basis as previously reported. The 31 December 2018 reported embedded value will reference a new basis and hence will differ from the current embedded value.

The current version of Advisory Practice Note (APN) 107 came into force for all financial years ending on or after 31 December 2012. APN 107 governs the way in which embedded values of life assurance companies are reported.

The embedded value consists of:• the net worth; plus• the value of in-force covered business; less• the cost of required capital.

The net worth represents the excess of assets over liabilities on the statutory valuation method, adjusted for the elimination of the carrying value of covered business acquired and for the fair value of share rights granted to Liberty Group Limited employees.

The value of in-force covered business is the discounted value of the projected stream of after-tax shareholder profits arising from existing in-force covered business. These shareholder profits arise from the release of margins under the statutory basis of valuing liabilities, which differs from the release of profits on the published accounting basis. Covered business is defined as business regulated by the Prudential Authority as long-term insurance business written in Liberty Group Limited.

For reversionary and smoothed bonus business, the value of in-force covered business has been calculated assuming that bonuses are changed over time so that the full amount of the bonus stabilisation reserves is distributed to policyholders over the lifetime of the in-force policies.

The required capital is defined as the level of capital that is restricted for distribution to shareholders. This comprises the statutory CAR calculated in accordance with Standard of Actuarial Practice (SAP) 104 plus any additional capital considered appropriate by the board given the risks in the business. Required capital has been calculated at 1,5 x CAR, consistent with risk appetite. The cost of required capital is the present value, at the risk discount rate, of the projected release of the required capital allowing for investment returns on the assets supporting the projected required capital.

The value of new business written is the present value at the point of sale of the projected stream of after-tax profits from that business, reduced by the cost of required capital. New business is defined as covered business arising from the sale of new policies, once-off premium increases in respect of in-force covered risk business, and once-off contributions in respect of in-force covered investment business during the reporting period. Risk policies with an inception date prior to the reporting date where no premium has been received are included in the embedded value and value of new business. The contractual terms of these policies state that Liberty Group Limited is on risk from the inception date, even though a premium may not have been received. This definition is consistent with that used in the financial statements.

The value of new business has been calculated on the closing assumptions. Investment yields at the point of sale have been used for new fixed annuities, guaranteed investment plans, and embedded derivatives; for all other business the investment yields at the date of reporting have been used.

No adjustment has been made for the discounting of tax provisions in the embedded value.


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SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE(CONTINUED)


2 Normalised embedded value


201830 June

201731 December

2017

Risk discount rate %(1) 12,03 11,89 11,79 Net worth 10 895 11 189 11 134 Ordinary shareholders’ funds on published basis 18 068 18 369 18 412 BEE preference share funding 117 142 123 Adjustment of ordinary shareholders’ funds from published basis(2) (7 119) (7 175) (7 253) Adjustment for carrying value of in-force business acquired(3) (9) (14) (12) Allowance for fair value of share rights (62) (33) (36) Frank Financial Services allowance for future expenses (100) (100) (100) Net value of life business in-force 22 968 23 038 23 447 Value of life business in-force 24 625 24 678 25 137 Cost of required capital (1 657) (1 640) (1 690)

Normalised embedded value 33 863 34 227 34 581

3 Normalised embedded value earnings Embedded value at the end of the period 33 863 34 227 34 581 IFRS 9 transition adjustment 121 Funding of restricted share plan 108 112 92 Intragroup dividends(4) 1 350 1 400 2 600 Less embedded value at the beginning of the period (34 581) (34 470) (34 470) Embedded value earnings 861 1 269 2 803 Return on embedded value (%) 5,1 7,5 8,2


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4 Analysis of normalised embedded value earnings

30 June 2018 30 June 2017


2017

RmNet

worth

Value of in-force covered

business

Cost of required

capital

Em-bedded

valueNet

worth

Value of in-force covered

business

Cost of required

capital

Em-bedded

valueEmbedded

value

Embedded value at the end of the period 10 895 24 625 (1 657) 33 863 11 189 24 678 (1 640) 34 227 34 581Plus dividends paid(4) 1 350 1 350 1 400 1 400 2 600Plus funding of restricted share plan 108 108 112 112 92Less beginning of year IFRS 9 transition adjustment 121 121 Embedded value at the beginning of the period (11 134)(25 137) 1 690 (34 581)(11 717)(24 394) 1 641 (34 470) (34 470)Embedded value earnings 1 340 (512) 33 861 984 284 1 1 269 2 803Components of embedded value earnings Value of new business written in the period (884) 1 060 (46) 130 (963) 1 081 (43) 75 212Expected return on value of in-force business(5) 1 444 16 1 460 1 423 23 1 446 2 926Expected net of tax profit transfer to net worth 2 196 (2 196) 2 138 (2 138) Variances/changes in operating assumptions 320 (135) 61 246 49 (53) 25 21 109Operating experience variances(6) 267 (51) 61 277 72 102 174 330Operating assumption changes(7) (9) (11) (20) (2) (5) (7) 30Changes in modelling methodology(8) 62 (73) (11) (21) (150) 25 (146) (251)Development expenses (30) (30) (55)Intragroup transfers 46 46 46Embedded value earnings from operations 1 632 173 31 1 836 1 240 313 5 1 558 3 238Economic adjustments (266) (685) 2 (949) (256) (29) (4) (289) (432)Return on net worth and other adjustments(9) (113) (113) 94 94 (14)Investment variances(10) (57) (413) (470) (361) (118) (479) (594)Changes in economic assumptions(11) (96) (272) 2 (366) 11 89 (4) 96 176Change in allowance for fair value of share rights(12) (26) (26) (3)Normalised embedded value earnings 1 340 (512) 33 861 984 284 1 1 269 2 803


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5 Notes to embedded value

(1) Future investment returns on major asset classes and other economic assumptions have been set with reference to the market yield on medium-term South African government stock.

Investment return p.a.

%30 June

201830 June

201731 December

2017

Government stock 9,23 9,09 8,99Equities 12,73 12,59 12,49Property 10,23 10,09 9,99Cash 7,73 7,59 7,49The risk discount rate has been set equal to the risk free rate plus 80% of the equity risk premium 12,03 11,89 11,79Maintenance expense inflation rate 7,48 7,34 7,24

(2) Adjustment of ordinary shareholders’ funds from the published basis

The amounts represent the change in the amount of shareholder funds as a result of moving from a published valuation basis to the statutory valuation basis. 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.

(3) Adjustment for carrying value of in-force business acquired

The carrying value of business acquired by Liberty has been deducted from shareholders’ funds in order to avoid double counting. For embedded value purposes, the value in respect of this acquired business is included in the value of life business in-force. The net adjustment was R9 million (31 December 2017: R12 million, 30 June 2017: R14 million).

(4) Dividends paid by Liberty Group Limited to Liberty Holdings Limited.

(5) The expected return on the value of life business is obtained by applying the previous year’s risk discount rate to the value of life business in force at the beginning of the period and the current year’s risk discount rate from the point of sale to the valuation date in respect of the value of new business.


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(6) Operating experience variances consist of the combined effect on net worth and value of in-force of operating experience being different to that anticipated at the prior year end.

The net 30 June 2018 operating experience variance of R277 million (31 December 2017: R330 million, 30 June 2017: R174 million) comprised:

Value of in-

force covered Cost of

required Embedded Operating experience variances (Rm) Net worth business capital value

30 June 2018 Individual Arrangements 219 43 61 323Mortality and morbidity 105 57 162Policyholder behaviour 39 (18) 21Other(i) 75 4 61 140Group Arrangements: Liberty Corporate(ii) (17) (94) (111)Credit portfolio variance 65 65Total 267 (51) 61 27730 June 2017 Individual Arrangements (11) 83 72Mortality and morbidity 101 50 151Policyholder behaviour (47) 17 (30)Other (65) 16 (49)Group Arrangements: Liberty Corporate 17 19 36Credit portfolio variance 66 66Total 72 102 17431 December 2017 Individual Arrangements 117 140 257Mortality and morbidity 255 78 333Policyholder behaviour (8) 93 85Other(iii) (130) (31) (161)Group Arrangements: Liberty Corporate (70) (35) (105)Credit portfolio variance 178 178Total 225 105 330(i) The amount of R75 million primarily relates to tax variances.(ii) The amount of negative R94 million is mainly a result of switches out of high margin portfolios into low margin portfolios.(iii) The amount of negative R130 million is primarily related to strengthening the basis in respect of regulatory and other simplification projects.

5 Notes to embedded value (continued)


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(7) The amount of negative R20 million (31 December 2017: R30 million, 30 June 2017: negative R7 million) is due to a number of offsetting assumption changes, primarily relating to tax changes.

(8) The amount of negative R11 million (31 December 2017: negative R251 million, 30 June 2017: negative R146 million) is due to a number of minor offsetting modelling changes.

(9) Reconciliation of embedded value return on net worth and other adjustments to LibFin Investments earnings

30 June

201830 June

201731 December

2017 Rm Rm Rm

LibFin Investments after consolidation of L2D 374 453 1 307Adjustment to reflect L2D at listed unit price (152) (201) (394)LibFin Investments earnings 222 252 913Adjustments for differences between the statutory and published bases (286) (202) (604)90:10 book (24) (71) (194)Frank Financial Services (21) (21) (50)Bancassurance obligations relating to Liberty Africa and STANLIB (16) (23) (54)BEE preference scheme 5 4 7Central treasury investments 27 53 115Software asset impairment (71)Other (20) 102 (76)Return on net worth and other adjustments (113) 94 (14)

The return on net worth and other adjustments includes an amount of R12 million (31 December 2017: negative R7 million, 30 June 2017: negative R17 million) in respect of the change in the fair value of cash flow hedges supporting LGL subordinated notes. With the change in classification of the LGL subordinated notes to fair value on adoption of IFRS 9, the cash flow hedges on these bonds were recycled to IFRS earnings.

(10) The amount of negative R470 million (31 December 2017: negative R594 million, 30 June 2017: negative R479 million) arises from the mismatch created by hedging market risk on the IFRS basis and the negative investment variance on the 90:10 book. The investment variances also include an amount of negative R12 million (31 December 2017: R61 million, 30 June 2017: R48 million) in respect of the change in the fair value of cash-flow hedges supporting LibFin Credit.

(11) The amount of negative R366 million (31 December 2017: R176 million, 30 June 2017: R96 million) relates to changes in economic assumptions as described in note (1).

(12) The amount of negative R26 million (31 December 2017: negative R3 million, 30 June 2017: R0 million) in respect of the change in the fair value of share rights arises from the change in the number of share rights for staff employed by Liberty Group Limited and the change in the market value of Liberty Holdings Limited share price over the reporting period.

Other bases, bonus rates and assumptions

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.

Assumptions reflect best estimates of future experience consistent with the statutory valuation basis excluding any compulsory or discretionary margins. However, in contrast to the assumptions in the statutory valuation basis, the embedded value makes allowance for non-compulsory automatic premium and benefit increases.

The assets backing the required capital are consistent with the long-term strategic mix of shareholder funds approved by the Liberty Holdings board.

5 Notes to embedded value (continued)


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BANCASSURANCE – BENEFIT TO LIBERTYas at 30 June 2018

Liberty share (Rm)30 June

201830 June

2017


2017

Credit Life IFRS headline earnings 93 81 167Embedded value of in-force contracts 528 490 506Other insurance products Embedded value of new business 14 7 32Embedded value of in-force contracts 1 196 1 124 1 198STANLIB Net service fees on assets under management sourced from Standard Bank distribution 222 212 422

90:10 SHAREHOLDER EXPOSURE as at 30 June 2018

The “90:10 exposure” refers to the shareholders exposure to certain policyholder portfolios on which a fee arrangement exists whereby the investment return on the portfolios is shared between the policyholders and shareholders in a 90:10 ratio.

As a result of the market risk that arises for shareholders on this exposure it is managed as part of the Shareholders Investment Portfolio (SIP) and consequently the earnings form part of the SIP returns and are included in the LibFin Investments revenue account.

Because of its nature as a management fee the present value of these 90:10 fees are included in the Value of In Force of the business and the expected amount for the period forms part of the expected transfer to Net Worth in the AoEV. There is therefore an inconsistency between the IFRS revenue account (shown as LibFin Investments revenue) and the AoEV (shown as expected Life Fund Operating earnings).

Rm30 June

201830 June

2017


2017

Exposure as at the beginning of the period 3 920 4 142 4 142Expected earnings 145 155 303Variance (121) (84) (109)Total net earnings 24 71 194Exposure as at the end of the period 3 740 3 973 3 920


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LONG-TERM POLICYHOLDER LIABILITIES IFRS RECONCILIATION as at 30 June 2018

Rm30 June

201830 June

2017


2017

Policyholder liabilities at beginning of the period net of reinsurance 314 616 299 119 299 119Policyholder liabilities 322 918 307 230 307 230Reinsurance liabilities 663 555 555Policyholder assets (7 484) (7 314) (7 314)Reinsurance assets (1 481) (1 352) (1 352)Transfers to policyholder liabilities (3 696) 1 679 15 767Net premium income from insurance contracts and inflows from investment contracts 26 063 26 469 54 140Net insurance premiums 16 733 17 794 36 723Fund inflows from investment contracts 9 330 8 675 17 417Investment returns 3 812 10 476 31 102Net claims and policyholder benefits (25 801) (27 134) (52 506)Net insurance claims (17 412) (18 354) (36 133)Fund outflows from investment contracts (8 389) (8 780) (16 373)Acquisition costs (1 971) (2 219) (4 326)Management expenses, finance costs and profit share allocations (4 651) (4 607) (9 441)Taxation (482) (633) (1 906)Operating profit from insurance operations (666) (673) (1 296)Foreign currency translation reserve 321 ( 134) ( 270)Policyholder liabilities at end of period net of reinsurance 311 241 300 664 314 616Policyholder liabilities 319 280 309 200 322 918Reinsurance liabilities 652 543 663Policyholder assets (7 159) (7 689) (7 484)Reinsurance assets (1 532) (1 390) (1 481)


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SOUTH AFRICAN INSURANCE DISTRIBUTION HEADCOUNTas at 30 June 2018SOUTH AFRICAN INSURANCE DISTRIBUTION HEADCOUNT

0

300

600

900

1 200

1 500

Agency(1) Liberty entrepreneurs(1) Liberty@work(1) Standard BankFinancial Consultants

Broker Consultants

1 062

1 345

651

502

143

June 2014 June 2015 June 2016 June 2017 June 2018(1)Tied agents

TOTAL LONG-TERM INSURANCE PREMIUMS for the six months ended 30 June 2018

Recurring premiums Single premiums Total premiums

Rm30 June

201830 June

2017


201730 June

201830 June

2017


201730 June

201830 June

2017


2017

Individual Arrangements 10 517 10 323 20 824 9 829 10 704 22 151 20 346 21 027 42 975Liberty Corporate 4 384 4 307 8 784 717 530 1 222 5 101 4 837 10 006Liberty Africa Insurance 506 531 925 110 74 234 616 605 1 159Total premiums 15 407 15 161 30 533 10 656 11 308 23 607 26 063 26 469 54 140Indexed premiums 16 473 16 291 32 893Individual Arrangements 11 500 11 393 23 039Liberty Corporate 4 456 4 360 8 906Liberty Africa Insurance 517 538 948

The difference between the single premiums reported under total long-term insurance premiums and single premiums reported under long-term insurance new business by distribution channel arises mainly from different treatment for extensions of matured policies, reinvestment of fund withdrawals, conversions of standalone funds to umbrella funds and fund member movements within Liberty administered funds.


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LONG-TERM INSURANCE – NEW BUSINESS BY DISTRIBUTION CHANNEL(1)


Recurring premiums Single premiums Total premiums Indexed premiums

Rm30 June

201830 June

2017


201730 June

201830 June

2017


2017 30 June

201830 June

2017


201730 June

201830 June

2017


2017

Retail 2 824 2 818 5 817 10 080 10 973 22 660 12 904 13 791 28 477 3 832 3 916 8 084Broker 539 572 1 236 2 496 2 819 5 527 3 035 3 391 6 763 788 854 1 789Bancassurance 1 350 1 290 2 601 2 585 2 683 6 519 3 935 3 973 9 120 1 609 1 558 3 253Tied channels(2) 809 833 1 732 4 880 5 365 10 359 5 689 6 198 12 091 1 297 1 370 2 768Other 126 123 248 119 106 255 245 229 503 138 134 274Institutional 512 596 1 196 533 319 838 1 045 915 2 034 565 628 1 280Broker 322 388 691 394 150 398 716 538 1 089 361 403 731Bancassurance 13 8 22 13 8 22 13 8 22Tied channels(2) 161 143 462 94 163 419 255 306 881 170 159 504Other 16 57 21 45 6 21 61 63 42 21 58 23

Total new business 3 336 3 414 7 013 10 613 11 292 23 498 13 949 14 706 30 511 4 397 4 544 9 364Split between: South Africa(1) Individual Arrangements 2 735 2 725 5 657 9 998 10 936 22 583 12 733 13 661 28 240 3 735 3 819 7 916Broker 535 571 1 234 2 453 2 819 5 527 2 988 3 390 6 761 780 853 1 787Bancassurance 1 329 1 248 2 547 2 579 2 673 6 494 3 908 3 921 9 041 1 587 1 515 3 196Tied channels(2) 753 792 1 652 4 875 5 365 10 359 5 628 6 157 12 011 1 241 1 329 2 688Other 118 114 224 91 79 203 209 193 427 127 122 245Liberty Corporate 464 528 1 089 524 297 816 988 825 1 905 516 558 1 171Broker 305 359 648 385 128 376 690 487 1 024 343 372 686Bancassurance 13 8 22 13 8 22 13 8 22Tied channels(2) 145 118 419 94 163 419 239 281 838 154 134 461Other 1 43 45 6 21 46 49 21 6 44 2

Total new business 3 199 3 253 6 746 10 522 11 233 23 399 13 721 14 486 30 145 4 251 4 377 9 087Liberty Africa Insurance Retail 89 93 160 82 37 77 171 130 237 97 97 168Broker 4 1 2 43 47 1 2 8 1 2Bancassurance 21 42 54 6 10 25 27 52 79 22 43 57Tied channels(2) 56 41 80 5 61 41 80 56 41 80Other 8 9 24 28 27 52 36 36 76 11 12 29Institutional 48 68 107 9 22 22 57 90 129 49 70 109Broker 17 29 43 9 22 22 26 51 65 18 31 45Tied channels(2) 16 25 43 16 25 43 16 25 43Other 15 14 21 15 14 21 15 14 21

Total new business 137 161 267 91 59 99 228 220 366 146 167 277(1) Includes premium escalations for Individual Arrangements; excludes STANLIB Multi-manager.(2) Tied channels include Agency, Liberty entrepreneurs and Liberty@work.


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Recurring premiums Single premiums Total premiums Indexed premiums

Rm30 June

201830 June

2017


201730 June

201830 June

2017


2017 30 June

201830 June

2017


201730 June

201830 June

2017


2017

Retail 2 824 2 818 5 817 10 080 10 973 22 660 12 904 13 791 28 477 3 832 3 916 8 084Broker 539 572 1 236 2 496 2 819 5 527 3 035 3 391 6 763 788 854 1 789Bancassurance 1 350 1 290 2 601 2 585 2 683 6 519 3 935 3 973 9 120 1 609 1 558 3 253Tied channels(2) 809 833 1 732 4 880 5 365 10 359 5 689 6 198 12 091 1 297 1 370 2 768Other 126 123 248 119 106 255 245 229 503 138 134 274Institutional 512 596 1 196 533 319 838 1 045 915 2 034 565 628 1 280Broker 322 388 691 394 150 398 716 538 1 089 361 403 731Bancassurance 13 8 22 13 8 22 13 8 22Tied channels(2) 161 143 462 94 163 419 255 306 881 170 159 504Other 16 57 21 45 6 21 61 63 42 21 58 23

Total new business 3 336 3 414 7 013 10 613 11 292 23 498 13 949 14 706 30 511 4 397 4 544 9 364Split between: South Africa(1) Individual Arrangements 2 735 2 725 5 657 9 998 10 936 22 583 12 733 13 661 28 240 3 735 3 819 7 916Broker 535 571 1 234 2 453 2 819 5 527 2 988 3 390 6 761 780 853 1 787Bancassurance 1 329 1 248 2 547 2 579 2 673 6 494 3 908 3 921 9 041 1 587 1 515 3 196Tied channels(2) 753 792 1 652 4 875 5 365 10 359 5 628 6 157 12 011 1 241 1 329 2 688Other 118 114 224 91 79 203 209 193 427 127 122 245Liberty Corporate 464 528 1 089 524 297 816 988 825 1 905 516 558 1 171Broker 305 359 648 385 128 376 690 487 1 024 343 372 686Bancassurance 13 8 22 13 8 22 13 8 22Tied channels(2) 145 118 419 94 163 419 239 281 838 154 134 461Other 1 43 45 6 21 46 49 21 6 44 2

Total new business 3 199 3 253 6 746 10 522 11 233 23 399 13 721 14 486 30 145 4 251 4 377 9 087Liberty Africa Insurance Retail 89 93 160 82 37 77 171 130 237 97 97 168Broker 4 1 2 43 47 1 2 8 1 2Bancassurance 21 42 54 6 10 25 27 52 79 22 43 57Tied channels(2) 56 41 80 5 61 41 80 56 41 80Other 8 9 24 28 27 52 36 36 76 11 12 29Institutional 48 68 107 9 22 22 57 90 129 49 70 109Broker 17 29 43 9 22 22 26 51 65 18 31 45Tied channels(2) 16 25 43 16 25 43 16 25 43Other 15 14 21 15 14 21 15 14 21

Total new business 137 161 267 91 59 99 228 220 366 146 167 277(1) Includes premium escalations for Individual Arrangements; excludes STANLIB Multi-manager.(2) Tied channels include Agency, Liberty entrepreneurs and Liberty@work.


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LIBFIN – SHAREHOLDER INVESTMENT PORTFOLIO as at 30 June 2018

30 June 2018 31 December 2017

Local Foreign Total Local Foreign Total Exposure category Rm Rm Rm % Rm Rm Rm %

Equities 3 630 4 113 7 743 30 4 431 4 787 9 218 33Bonds 6 444 717 7 161 27 7 197 304 7 501 27Cash 5 378 374 5 752 22 5 385 49 5 434 20Property 2 912 2 912 11 3 093 3 093 11Other 1 677 1 134 2 811 10 1 649 937 2 586 9Total 20 041 6 338 26 379 100 21 755 6 077 27 832 100Assets backing capital 14 682 56 17 235 62Assets backing policyholder liabilities 7 957 30 6 677 2490:10 exposure 3 740 14 3 920 14Reconciliation to IFRS shareholders' equity Shareholder Investment Portfolio 26 379 27 832 Less: 90:10 exposure (3 740) (3 920) Less: Subordinated notes (4 571) (5 500) SA Insurance IFRS shareholders' equity 18 068 18 412

LIBFIN – SHAREHOLDER INVESTMENT PORTFOLIO PERCENTAGE ALLOCATION as at 30 June 2018

30 June 2018 31 December 2017

%

Assets backing

capital

Assets backing

life funds90:10

exposure Total

Assets backing

capital

Assets backing

life funds90:10

exposure Total

Local assets Equities 8 1 5 14 9 1 6 16Bonds, cash and property 36 17 3 56 41 12 3 56Other 4 1 1 6 4 1 1 6Foreign assets Equities 4 8 4 16 4 10 3 17Bonds, cash and property 3 1 4 1 1 2Other 4 4 3 3Total 56 30 14 100 62 24 14 100


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LIBFIN – SHAREHOLDER INVESTMENT PORTFOLIO RETURNas at 30 June 2018

Rm30 June

201830 June

2017


2017

Realised gross result 880 920 2 328Taxation (205) (230) (512)Subordinated notes finance costs(1) (197) (432)Subordinated notes at fair value(1) (264) Expenses (including asset management fees) (37) (40) (77)Net profit 374 453 1 307Gross return (%) 3,3 3,4 8,5(1) Subordinated notes previously measured at amortised cost.

Taxation note: The taxation treatment of income derived from assets backing capital is the normal taxation rules applicable to life investment portfolios. The taxation applicable to income derived from assets backing life funds and the 90:10 exposure is determined by the tax rates pertaining to each life tax fund to which the assets are allocated (I-E tax). In addition there is transfer tax at 28% on the net surplus, after the applicable I-E tax.

LIBFIN – MARKETS CREDIT PORTFOLIO as at 30 June 2018


201830 June

2017


2017

Net earnings from credit portfolio 150 138 330Total LibFin assets (Rbn) 61 58 62Credit portfolio assets (Rbn) 45 39 42Banks, treasuries and shorter dated assets (Rbn) 16 19 20


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INDIVIDUAL ARRANGEMENTS – HEADLINE EARNINGSfor the six months ended 30 June 2018

Rm30 June

201830 June

2017


2017

Expected profit and premium escalations 1 077 1 030 2 040Variances, modelling and assumption changes 5 (74) (144)New business strain (379) (397) (675)Project, outperformance incentive and non-cost per policy expenses (28) (50) (286)Direct Financial Services (12) (4) (8)Other (12) 29 176Earnings before bancassurance 651 534 1 103Liberty share of credit life bancassurance (net of all taxes) 93 81 167Complex bancassurance preference dividend (40) (18) (62)Headline earnings 704 597 1 208

INDIVIDUAL ARRANGEMENTS – KEY PERFORMANCE INDICATORSas at 30 June 2018

Rm (unless stated otherwise)30 June

201830 June

2017


2017

Net customer cash flows 992 896 3 196 Insurance products 750 774 2 846 LISP 242 122 350

Gross sales (excluding LISP) 12 109 13 047 26 895Indexed new business (excluding LISP) 3 111 3 205 6 570Value of new business 111 62 155Retail margin excluding STANLIB (%) 0,8 0,4 0,5Retail new business margin including STANLIB (%) 0,7 0,4 0,5

INDIVIDUAL ARRANGEMENTS – INDEXED NEW BUSINESSas at 30 June 2018

Rm30 June

201830 June

2017


2017

Individual Arrangements Insurance (excluding emerging consumer market) 2 780 2 843 5 844Emerging consumer market 125 127 264Total Individual Arrangements Insurance 2 905 2 970 6 108Direct Financial Services 36 35 79STANLIB ‘on balance sheet’ sales 170 200 383Total ‘on balance sheet’ sales 3 111 3 205 6 570STANLIB ‘off balance sheet’ sales 1 563 1 298 2 398GateWay LISP ‘off balance sheet’ sales 120 101 220Total Individual Arrangements distribution 4 794 4 604 9 188


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INDIVIDUAL ARRANGEMENTS – MAINTENANCE COST PER POLICYas at 30 June 2018

R30 June

201830 June

2017


2017

Valuation basis Complex 658 616 636Simplex 329 308 318Annuities 329 308 318

INDIVIDUAL ARRANGEMENTS – NEGATIVE RAND RESERVES(1)

as at 30 June 2018

Rm30 June

201830 June

2017


2017

Published IFRS basis 15 639 16 514 16 767Statutory basis 6 398 7 177 7 379(1) Gross of taxation

By their nature "negative rand reserves" includes offsets between policies with positive and negative reserves. The Directive 145 adjustment is applied only to policies with negative reserves.

LIBERTY CORPORATE – HEADLINE EARNINGS for the six months ended 30 June 2018

Rm30 June

201830 June

2017


2017

Gross contribution 589 583 1 072Underwriting margin 307 247 417Fee income 278 294 589Pension businesses and other income 4 42 66Expenses and other items (482) (474) (960)Profit before profit 107 109 112Taxation (30) (29) (31)Headline earnings 77 80 81


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LIBERTY CORPORATE – KEY PERFORMANCE INDICATORS for the six months ended 30 June 2018


201830 June

2017


2017

Gross sales 988 825 1 905Indexed new business 516 558 1 171Value of new business 19 13 57New business margin (%) 0,4 0,3 0,6Net customer cash flows (689) (1 609) (1 536)

LIBERTY HEALTH – HEADLINE EARNINGS for the six months ended 30 June 2018

Rm30 June

201830 June

2017


2017

Loss before depreciation and amortisation (60) (26) (78)Amortisation and depreciation (4) (6) (11)Loss before taxation (64) (32) (89)Taxation 19 15 35Headline loss (45) (17) (54)Headline loss attributable to Liberty (45) (19) (54)

LIBERTY HEALTH COVER PRODUCT – LIVES SERVICED as at 30 June 2018

Thousands30 June

201831 December

201731 December

201631 December

2015

Region Eastern Africa 51 57 55 48Western Africa 34 36 35 36Southern Africa 31 29 31 21Total 116 122 121 105

Liberty owned licenses 75 79 81 67Third party licenses 41 43 40 38


SUPPLEM

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RMATIO

N

LIBERTY AFRICA INSURANCE – HEADLINE EARNINGSfor the six months ended 30 June 2018

Rm30 June

201830 June

2017


2017

Insurance entities earnings(1) Long-term insurance 48 44 100Short-term insurance 4 32 58Headline earnings (before head office expenses) 52 76 158Non-controlling shareholders share of headline earnings (20) (21) (61)Liberty share of headline earnings 32 55 97Liberty owned businesses > 3 years 32 53 100Liberty owned businesses < 3 years 2 (3)Head office costs (36) (35) (52)Net headline earnings attributable to Liberty ( 4) 20 45(1) The headline earnings result is shown at 100% of the earnings of certain of the entities that make up Liberty Africa Insurance.

LIBERTY AFRICA INSURANCE – KEY PERFORMANCE INDICATORSfor the six months ended 30 June 2018


201830 June

2017


2017

Embedded value of new business written in period 5 11 21New business margin (%) 1,3 4,3 3,9Long-term: Gross sales 228 220 366Indexed new business 146 167 277Net customer cash flows 201 170 324Short-term: Net customer cash flows 107 128 271Claims loss ratio (%) 57 50 48


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LIBERTY AFRICA INSURANCE – LONG-TERM INSURANCE NET CASH FLOWS for the six months ended 30 June 2018

Rm30 June

201830 June

2017


2017

Net premiums by product type Retail 263 255 492Single 28 16 40Recurring 235 239 452Institutional 353 350 667Single 82 58 194Recurring 271 292 473

Net premium income from insurance contracts and inflows from investment contracts 616 605 1 159Net claims and policyholders benefits by product type Retail (151) (137) (307)Death, critical illness and disability claims (30) (16) (61)Policy surrender and maturity claims (120) (119) (242)Annuity payments (1) (2) (4)Institutional (264) (298) (528)Death, critical illness and disability claims (55) (84) (110)Scheme terminations and member withdrawals (209) (214) (418)

Net claims and policyholders benefits (415) (435) (835)Net cash flow split as follows: 201 170 324Retail 112 118 185Institutional 89 52 139

1 Senegal2 Mali3 Guinea Conakry4 Ivory Coast5 Burkina Faso6 Ghana7 Togo8 Benin9 Niger10 Nigeria11 Chad12 Cameroon13 Equatorial Guinea14 Gabon15 Congo16 Democratic Republic of Congo17 Uganda

18 Kenya

19 Tanzania

20 Zambia21 Malawi

22 Mozambique23 Madagascar24 Mauritius25 Zimbabwe26 Botswana

27 Namibia28 Swaziland29 Lesotho30 South Africa

KEY

Life insuranceAsset managementShort-term insurancePropertyHealth

OUR PRESENCE IN AFRICA

30 29

28

27 26

25 2423

2221

20

19

1817

151413

12

11

10

9

64

5

1

16

87

2

3


SUPPLEM

ENTA

RY INFO

RMATIO

N

STANLIB SOUTH AFRICA – HEADLINE EARNINGSfor the six months ended 30 June 2018


201830 June

2017


2017

Net fee income 819 823 1 704Base fees 819 821 1 676Performance fees 2 28Total operating expenses (671) (664) (1 390)Operating expenses (646) (617) (1 262)Non-recurring projects and expenses (25) (47) (128)

Profit before investment income 148 159 314Other income 64 43 57Profit before taxation 212 202 371Taxation (37) (87) (119)Total headline earnings 175 115 252Average margin (bps) 31 33 32Average assets under management (Rbn) 557 538 546

STANLIB SOUTH AFRICA – NET CASH FLOWS AND ASSETS UNDER MANAGEMENT BY ASSET CATEGORY as at 30 June 2018

Net cash flows Assets under management

Rm

6 months 30 June

2018

6 months 30 June

2017


201730 June

201830 June

201731 December

2017

Retail 5 127 1 884 6 849 229 770 213 378 228 202Fixed interest 4 498 2 980 7 846 53 502 44 060 48 940Equity (3 429) (64) (752) 10 839 12 673 13 504Property (345) 375 325 11 265 13 678 14 954Money Market (352) (1 461) (1 400) 24 437 24 767 24 794Absolute Return 2 020 464 2 572 7 760 3 785 6 008Balanced 2 552 (1 110) (3 818) 26 853 25 687 24 819International (592) (557) (855) 11 553 11 230 11 308Retail Life 1 16 20 219 197 211LISP 916 1 280 3 280 80 606 73 804 80 093Structured (142) (39) (369) 2 736 3 497 3 571Institutional 3 273 3 762 (2 118) 110 416 104 386 103 831Fixed interest (226) 2 244 (5) 20 415 21 794 19 905Equity 1 432 284 1 021 10 948 5 549 6 743Property 1 991 29 (641) 8 696 8 221 8 539Money Market (197) 1 402 1 316 56 534 53 047 56 217Absolute Return (802) 436 (687) 516 1 584 514Balanced 949 (623) (2 481) 10 624 11 278 9 494International 126 (10) (641) 2 047 2 297 1 711Other 636 616 708Liberty – Delta LISP (585) 411 483 40 738 38 689 41 877Liberty – intergroup (5 605) (9 100) (16 346) 178 238 183 019 181 753Total 2 210 (3 043) (11 132) 559 162 539 472 555 663


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ATION

STANLIB SOUTH AFRICA – ASSETS UNDER MANAGEMENT BREAKDOWN BY SOURCE AND ASSET TYPE as at 30 June 2018

Rm

Mon

ey m

arke

t (in

clud

ing

cash

)Fi

xed

inte

rest

Equi

tyPr

oper

tyO

ther

Abso

lute

retu

rnBa

lanc

edIn

ter-

natio

nal

Stru

c-tu

red

Reta

illif

eLI

SPTo

tal

30 Ju

ne 2

018

Reta

il

Co

llect

ive In

vest

men

ts

49 6

837

657

7 99

6

6 90

719

657

11 5

53

103

453

Link

ed In

vest

men

t and

St

ruct

ured

Pro

duct

s

2

736

80

606

83 3

42M

oney

mar

ket

24 4

37

24

437

Mul

ti-m

anag

er C

olle

ctive

In

vest

men

ts

3 81

93

182

3 26

9

853

7 19

6

2

19

18 5

38In

stitu

tiona

l

Se

greg

ated

fund

s

20 4

1510

948

8 69

6 6

36 5

1610

624

2 04

7

53 8

82M

oney

mar

ket

56 5

34

56

534

Libe

rty

– Del

ta L

ISP

40 7

3840

738

Libe

rty

– int

ergr

oup

7 45

232

002

57 7

3022

156

642

6 23

519

004

31 4

811

536

178

238

STAN

LIB

tota

l88

423

105

919

79 5

1742

117

1 27

814

511

56 4

8145

081

4 27

2 2

1912

1 34

455

9 16

231

Dec

embe

r 201

7

Re

tail

Colle

ctive

Inve

stm

ents

46

561

11 0

1011

102

5

164

19 0

1011

308

10

4 15

5Li

nked

Inve

stm

ent a

nd

Stru

ctur

ed P

rodu

cts

3 57

1

80 0

9383

664

Mon

ey m

arke

t24

794

24 7

94M

ulti-

man

ager

Col

lect

ive

Inve

stm

ents

2

379

2 49

43

852

8

445

809

211

15

589

Inst

itutio

nal

Segr

egat

ed fu

nds

19

905

6 74

38

539

708

514

9 49

41

711

47

614

Mon

ey m

arke

t56

217

56 2

17Li

bert

y – D

elta

LIS

P

41

877

41 8

77Li

bert

y – i

nter

grou

p5

198

32 8

7753

169

24 0

32 6

456

859

28 4

4129

026

1 50

6

18

1 75

3ST

ANLI

B to

tal

86 2

0910

1 72

273

416

47 5

251

353

13 3

8162

754

42 0

455

077

211

121

970

555

663


SUPPLEM

ENTA

RY INFO

RMATIO

N

STANLIB SOUTH AFRICA – RETAIL INVESTMENT PERFORMANCEfor the six months ended 30 June 2018

Rolling period

One year Three-year Five-year

Core retail funds – quartile performance Fund name 2018 2017 2018 2017 2018 2017

STANLIB Bond 1 2 1 2 2 2STANLIB Income 2 1 1 2 1 1STANLIB Money Market 2 2 2 2 2 2STANLIB Flexible Income 4 1 4 3 4 3STANLIB Aggressive Income 4 1 2 1 4 3

STANLIB Property Income 4 1 4 2 3 2

STANLIB SA Equity 2 4 4 4 4 4STANLIB Equity 2 4 2 3 3 2

STANLIB Balanced 2 4 3 4 3 3STANLIB Balanced Cautious 4 4 3 3 3 3STANLIB Absolute Plus 4 1 1 1 2 2

The STANLIB Growth, Stanlib Value, STANLIB Inflation Plus 5% and STANLIB Inflation Plus 3% Funds have been removed from the table as they have been rationalised or are in the process of being rationalised.

STANLIB SOUTH AFRICA – INSTITUTIONAL INVESTMENT PERFORMANCE for the six months ended 30 June 2018

Rolling period

One year Three-year Five-year

Survey funds (Alexander Forbes Surveys – quartile performance) 2018 2017 2018 2017 2018 2017

Stanlib Core Bond 1 2 1 2 2 2Money Market 2 3 3 4 4 4STANLIB Property Income Fund(1) 4 4 4

Large Manager – Global 4 4 4 4 4 4Full Global Mandate 4 4 4 4 4 4Domestic Only Mandate 4 4 4 4 4 4

Stanlib Core Equity 3 4 4 4 4 4Stanlib Enhanced Index 1 4 4 4 4 4

STANLIB Absolute Plus Fund(1) 4 1 2

The Stanlib Institutional Property, Stanlib Growth Equity, Stanlib Value, Absolute Return and Domestic Absolute Return Funds have been removed from the table as they have been rationalised or are in the process of being rationalised.

(1) New representative portfolio.


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STANLIB SOUTH AFRICA – INVESTMENT PERFORMANCEas at 30 June 2018

■ June 2015 ■ June 2016 ■ June 2017 ■ June 2018

0

20

40

60

80

100

5555 5555

3636

5 Year2 Year1 Year

% OF CORE RETAIL PRODUCTS IN 1ST AND 2ND QUARTILE

■ June 2015 ■ June 2016 ■ June 2017 ■ June 2018

0

10

20

30

40

50

60

70

3333

2222 2222

5 Year2 Year1 Year

% OF INSTITUTIONAL FUNDS IN 1ST AND 2ND QUARTILE


SUPPLEM

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RY INFO

RMATIO

N

STANLIB AFRICA – ASSETS UNDER MANAGEMENTas at 30 June 2018

STANLIB AFRICA – ASSETS UNDER MANAGEMENT BY GEOGRAPHICAL LOCATIONas at 30 June 2018

Assets under management (Rm)30 June

201830 June

201731 December

2017

Southern region(1) 23 903 29 693 30 729Fixed interest 5 168 6 673 6 395Equity 6 123 10 539 11 096Money Market 11 133 11 572 11 587Other 1 479 909 1 651Eastern region(2) 20 070 19 049 17 408Fixed interest 11 942 10 967 9 939Equity 4 273 3 347 3 812Property 2 421 2 979 1 864Money Market 1 434 1 756 1 793Western region(3) 5 755 4 360 4 394Fixed interest 1 409 1 063 1 018Money Market 138 364 104Other 4 208 2 933 3 272

Total assets under management 49 728 53 102 52 531Combined Fixed interest 18 519 18 703 17 352Equity 10 396 13 886 14 908Property 2 421 2 979 1 864Money Market 12 705 13 692 13 484Other 5 687 3 842 4 923 49 728 53 102 52 531(1) Southern region includes Botswana, Swaziland, Lesotho and Namibia. (2) Eastern region includes Kenya and Uganda.(3) Western region is Ghana.

Assets under management (Rm)30 June

201830 June

2017


2017

Opening market value 52 531 50 787 50 787Net cash inflows (6 509) 454 (756)External (6 994) 444 (480)Liberty – intergroup 485 10 (276)Capital appreciation 3 706 1 861 2 500Closing market value 49 728 53 102 52 531Segregated funds 29 188 32 746 31 683Unit trusts 7 835 6 664 7 364Money market 12 705 13 692 13 484Total AUM 49 728 53 102 52 531


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ATION

NOTES


SUPPLEM

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RMATIO

N

NOTES


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FAIR VALUE MEASUREMENT DISCLOSURESfor the six months ended 30 June 2018

Fair value hierarchy1 Asset hierarchy

The table below analyses the fair value measurement of applicable assets by level.

30 June 2018Rm (Unaudited) Level 1 Level 2 Level 3 Total

Equity instruments 110 874 27 2 979 113 880Listed equities on the JSE or foreign exchanges 104 677 104 677Unlisted equities 27 1 663 1 690Scrip assets – listed equities on the JSE 6 197 6 197Interests in joint ventures 1 316 1 316Debt instruments 78 489 51 666 176 130 331Listed preference shares on the JSE or foreign exchanges 383 383Unlisted preference shares 113 176 289Listed term deposits on BESA, JSE or foreign exchanges 72 659 7 578 80 237Unlisted term deposits 42 544 42 544Repurchase agreements and collateral assets 5 447 1 431 6 878Mutual funds(1) 3 714 104 359 1 203 109 276Property 12 4 155 4 167Equity instruments 622 16 993 534 18 149Interest-bearing instruments 21 547 21 547Mixed asset classes 3 080 61 664 669 65 413Investment policies 7 860 1 329 9 189Derivative assets held for trading and for hedging 7 051 7 051Equity instruments 513 513Currency exchange instruments 1 642 1 642Interest rate instruments 4 896 4 896Loan receivables(2) 803 803Properties 34 723 34 723Total assets subject to fair value hierarchy analysis 193 077 170 963 41 213 405 253Fair value assets not subject to hierarchy analysis: Collateral deposits receivable 2 706Prepayments, insurance and other receivables 4 914Cash and cash equivalents 6 396Total fair value assets 419 269Other assets not subject to fair value hierarchy analysis: Intangible assets 430Defined benefit pension fund employer surplus 151Equipment 1 064Interest in joint venture – equity accounted 66Deferred taxation 368Deferred acquisition costs 779Long-term policyholder assets – insurance contracts 7 159Reinsurance assets 1 967Loan receivables 379Prepayments, insurance and other receivables 2 046Cash and cash equivalents 3 580Total assets as per statement of financial position 437 258(1) Mutual funds are categorised into property, equity or interest-bearing instruments based on a minimum of 80% of the underlying asset composition of the fund by value

being of a like category. In the event of “no one category meeting this threshold” it is classified as mixed assets class.

(2) Certain loan receivables were reclassified as fair value through profit or loss upon adoption of IFRS 9. Previously these were measured at amortised cost.


APPEN

DIX

FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)for the six months ended 30 June 2018

1 Asset hierarchy (continued)The table below analyses the fair value measurement of applicable assets by level.

31 December 2017Rm (Audited) Level 1 Level 2 Level 3 Total

Equity instruments 132 122 13 2 902 135 037Listed equities on the JSE or foreign exchanges 125 243 125 243Unlisted equities 13 1 709 1 722Scrip assets – listed equities on the JSE 6 879 6 879Interests in joint ventures 1 193 1 193Debt instruments 71 546 50 721 206 122 473Listed preference shares on the JSE or foreign exchanges 401 401Unlisted preference shares 135 180 315Listed term deposits on BESA, JSE or foreign exchanges 67 449 11 235 78 684Unlisted term deposits 38 026 26 38 052Repurchase agreements and collateral assets 3 696 1 325 5 021Mutual funds(1) 4 819 94 092 699 99 610Property 10 1 897 1 907Equity instruments 816 14 885 347 16 048Interest-bearing instruments 1 22 173 22 174Mixed asset classes 3 992 55 137 352 59 481Investment policies 8 528 1 176 9 704Derivative assets held for trading and for hedging 6 053 6 053Equity instruments 380 380Currency exchange instruments 496 496Interest rate instruments 5 177 5 177Properties 34 768 34 768Total assets subject to fair value hierarchy analysis 208 487 159 407 39 751 407 645Fair value assets not subject to hierarchy analysis: Collateral deposits receivable 1 818Prepayments, insurance and other receivables 6 361Cash and cash equivalents 15 169Total fair value assets 430 993Other assets not subject to fair value hierarchy analysis: Intangible assets 231Defined benefit pension fund employer surplus 171Equipment 1 128Interest in joint venture – equity accounted 51Deferred taxation 336Deferred acquisition costs 737Long-term policyholder assets – insurance contracts 7 484Reinsurance assets 1 774Loans and receivables 1 222Total assets as per statement of financial position 444 127(1) Mutual funds are categorised into property, equity or interest-bearing instruments based on a minimum of 80% of the underlying asset composition of the fund by value

being of a like category. In the event of “no one category meeting this threshold” it is classified as mixed assets class.

Fair value hierarchy (continued)

Liberty Holdings Limited Financial results for the six months ended 30 June 2018 77A

PPEND

IX


2 Liability hierarchyThe table below analyses the fair value measurement of applicable liabilities by level.

30 June 2018Rm (Unaudited) Level 1 Level 2 Level 3 Total

Policyholder long-term investment contract liabilities 101 715 101 715Third-party financial liabilities arising on consolidation of mutual funds 40 495 1 337 41 832Financial liabilities(1) 5 387 5 387Repurchase agreements liabilities 6 404 6 404Liabilities held for trading and for hedging 8 591 8 591Total liabilities subject to fair value hierarchy analysis 162 592 1 337 163 929Fair value liabilities not subject to fair value hierarchy analysis: Policyholder long-term insurance contract liabilities – embedded derivatives 1 505Collateral deposits payable 4 857Employee benefits 697Other payables 4 644Total fair value liabilities 175 63231 December 2017 Rm (Audited) Policyholder long-term investment contract liabilities 100 519 100 519Third-party financial liabilities arising on consolidation of mutual funds 48 484 1 229 49 713Repurchase agreements liabilities 4 671 4 671Liabilities held for trading and for hedging 6 311 6 311Total liabilities subject to fair value hierarchy analysis 159 985 1 229 161 214Fair value liabilities not subject to fair value hierarchy analysis: Policyholder long-term insurance contract liabilities – embedded derivatives 1 411Collateral deposits payable 4 426Employee benefits 951Insurance and other payables 11 995Total fair value liabilities 179 997(1) Financial liabilities were reclassified as designated fair value through profit or loss upon adoption of IFRS 9. Previously these were measured at amortised cost.



APPEN

DIX


3 Fair value disclosure of financial assets and liabilities that are measured at amortised costThe fair value of financial assets and liabilities which are measured at amortised cost is categorised into the following fair value hierarchies:

30 June 2018Rm (Unaudited)

Amortised cost Fair value Level 1 Level 2 Level 3

Financial assets measured at amortised cost Loan receivables – net carrying value 379 352 35231 December 2017 Rm (Audited) Financial assets measured at amortised cost Loans and receivables – net carrying value 1 222 1 137 1 137Gross carrying value 1 259 Less: accumulated impairment (37)

Financial liabilities measured at amortised cost Subordinated notes 5 576 5 681 5 681 Redeemable preference shares 5 5 5

4 Reconciliation of level 3 assets and liabilities The table below analyses the movement of level 3 assets for the period.

Rm

Unaudited30 June

2018

Audited12 months

31 December 2017

Balance at the beginning of the year 39 751 39 113Fair value adjustment recognised in profit or loss as part of investment gains(1) (147) 71Fair value adjustment recognised in other comprehensive income(1) 18 (67)IFRS 9 reclassification from amortised cost to fair value through profit and loss of loan receivables 894 Reclassification to level 3(2) 26Foreign currency translation 29 (26)Additions 666 811Disposals (112) (128)Movements on third-party share of financial instruments in mutual funds 114 ( 49)Balance at the end of the year 41 213 39 751Properties 34 723 34 768Financial instruments – equity and mutual funds 4 182 3 601Financial instruments – debt 176 206Financial instruments – loan receivables 803 Financial instruments – investment policies 1 329 1 176

(1) Included in the fair value adjustments is a R165 million unrealised loss (31 December 2017: R1 656 million unrealised gain). (2) These movements were assessed based on the latest information available and one or more changes in the observability of valuation inputs. These changes were effective

at the beginning of the year.

The liabilities categorised as level 3 relate to the mutual fund third party portion. The balance is currently immaterial and therefore a reconciliation is not provided.



PPEND

IX


5 Sensitivity analysis of level 3 assets 5.1 Investment and owner-occupied property

Investment and owner-occupied properties fair values were derived by determining sustainable net rental income, to which an appropriate exit capitalisation rate is applied. Exit capitalisation rates are adjusted for occupancy levels, age of the building, location and expected future benefit of recent alterations.

The exit capitalisation rates applied at 30 June 2018 range between 6,3% and 11% (31 December 2017: between 6,3% and 11%). This compares to the ten year government yield of 8,84% (31 December 2017: 8,06%). The non-observable adjustments included in the valuation can therefore be referenced to the variance to the ten year government rate.

Both the investment and the owner-occupied properties are largely linked to policyholder benefits and consortium non-controlling interests which limits the impact to group ordinary shareholder comprehensive income or equity for any changes in the fair value measurement.

The tables below indicates the sensitivity of the aggregate market values for a 1% change in the exit capitalisation rate.

Change in exit capitalisation rate

30 June 2018Rm (Unaudited) Total

1%increase

1%decrease

Properties below 6,8% capitalisation rate 26 001 22 475 30 840Properties between 6,8 – 8,5% capitalisation rate 5 040 4 440 5 831Properties between 8,6 – 11,0% capitalisation rate 3 682 2 405 4 075Total 34 723 29 320 40 74631 December 2017 Rm (Audited) Properties below 6,8% capitalisation rate 26 157 22 029 30 969Properties between 6,8% – 8,5% capitalisation rate 5 177 4 558 5 991Properties between 8,6% – 11,0% capitalisation rate 3 434 3 094 3 858Total 34 768 29 681 40 818

The table below indicates the sensitivity of the aggregate market values for a 0,5% change in the discount rate.

Change in discount rate

30 June 2018Rm (Unaudited) Total

0,5%increase

0,5%decrease

Total properties 34 723 34 118 35 38231 December 2017 Rm (Audited) Total properties 34 768 34 063 35 414



APPEN

DIX


5.2 Financial instrument assets

Unaudited

30 June 2018Audited

31 December 2017

Rm

Discount rate

% Rm

Discount rate

%

Equities and mutual funds Unlisted equities 1 663 14 – 35 1 709 14 – 35Interests in joint venture 1 316 14 1 193 14Mutual funds 1 203 15 – 19 699 15 – 19Investment policies 1 329 11 1 176 11Debt Unlisted preference shares 176 12 180 12Unlisted term deposits 26 Loan receivables 803 12

Approximately 99% (31 December 2017: 99%) of these assets are allocated to policyholder investment-linked portfolios and therefore changes in estimates would be offset by equal changes in liability values.

Unaudited

30 June 2018Audited

31 December 2017

Change in discount rate Change in discount rate

Net shareholder

exposure Rm

1% increase

Rm

1% decrease

Rm

Net shareholder

exposure Rm

1% increase

Rm

1% decrease

Rm

After tax net impact to profit or loss and shareholder equity 372 (22) 26 372 (22) 26



PPEND

IX


6 Group’s valuation processThe group’s appointed asset managers have qualified valuators that perform the valuations of financial assets and appointed independent valuators to determine fair values of properties required for financial reporting purposes, including level 3 fair values. These valuations are reviewed and approved every reporting period by the group balance sheet committee. The committee is chaired by the group’s financial director.

The fair values of level 3 instruments are determined using valuation techniques that incorporate certain assumptions that are not supported by prices from observable current market transactions in the same instruments and are not based on available observable market data. Such assumptions include the assumed risk adjusted discount rate applied to estimate future cash flows and the liquidity and credit spreads applied to debt instruments. Changes in these assumptions could affect the reported fair value of the financial instruments.

6.1 Valuation techniques used in determining the fair value of assets and liabilities classified within level 2

INSTRUMENT VALUATION BASIS/TECHNIQUES MAIN ASSUMPTIONS

Unlisted preference shares Discounted cash flow model (DCF) Bond and interbank swap interest rate curves Agreement interest rate curves Issuer credit ratings Liquidity spreads

Unlisted term deposits, illiquid listed term deposits and senior secured term facility

DCF Bond and interbank swap interest rate curves Issuer credit ratings Liquidity spreads

Mutual funds Quoted put (exit) price provided by the fund manager

Price – not applicableNotice period – bond interest rate curves

Investment policies Quoted put/surrender price provided by the issuer, adjusting for any applicable notice periods (DCF)

Price – not applicableBond interest rate curves

Derivative assets and liabilities Option pricing models Volatility and correlation factors DCF Bond and interbank swap interest rate curves Forward equity and currency rates

Policyholder investment contracts liabilities– unit-linked policies

Current unit price of underlying unitised financial asset that is linked to the liability, multiplied by the number of units held

Not applicable

– annuity certains DCF Bond and interbank swap interest rate curves Own credit/liquidity

Subordinated notes DCF 3-month JIBAR (floating rate notes) Bond spread (Own credit/liquidity)

Commercial paper DCF Discount curveCredit spread

Third-party financial liabilities arising on the consolidation of mutual funds

Quoted put (exit) price provided by the fund manager

Not applicable



APPEN

DIX


6.2 Valuation techniques used in determining the fair value of assets and liabilities classified within level 3

INSTRUMENT VALUATION BASIS/TECHNIQUES MAIN ASSUMPTIONS

Investment and owner-occupied properties

DCF Exit capitalisation and discount rates Price per square meter

Long-term net operating income margin Vacancies Market rental trends (average net rental

growth of between 2,3% – 2,5%) Economic outlook Location Hotel income trends/inflation based Hotel occupancy (range between 50% – 75%) Sale price (if held for sale) Not applicable

Unlisted equities and debt, including associates and joint ventures – measured at fair value

DCF/earnings multiple Cost of capital Bond and interbank swap interest rate curves Consumer price index

Gross domestic product If a property investment entity, then

assumptions applied are as above under investment and owner-occupied property

Net asset value Not applicable Recent arm’s length transactions Not applicable

Unlisted preference shares DCF Bond and interbank swap interest rate curves Agreement interest rate curves Issuer credit ratings Liquidity spreads

Unlisted term deposits and illiquid listed term deposits

DCF Bond and interbank swap interest rate curves Issuer credit ratings Liquidity spreads

Mutual funds Quoted put (exit) price provided by the fund manager, adjusted for liquidity

Price – not applicableNotice periods and estimated repayment –

bond interest rate curves Liquidity spreads

Investment policies Probalistic valuation methodology Face value DCF Premium burden Life expectancy Bond and interbank swap interest rate curves

Loan receivables DCF Prime interest rate Term

Third-party financial liabilities arising on the consolidation of mutual funds

Quoted put (exit) price provided by the fund manager

Not applicable



PPEND

IX

NOTES


FINA

NCIA

L RESULTS

CONTACT DETAILS

Financial DirectorYuresh MaharajTel: +27 (11) 408 [email protected]

Executive: Group FinanceMichael NorrisTel: +27 (11) 408 [email protected]

Investor RelationsSharon SteynTel: +27 (11) 408 [email protected] [email protected]

Company SecretaryJill ParrattTel: +27 (11) 408 [email protected]

Website: www.libertyholdings.co.zaCustomer Call Centre Tel: 0860 456 789

Head Office and Registered Address Liberty Life Centre, 1 Ameshoff Street Braamfontein, Johannesburg 2001Postal address: PO Box 10499, Johannesburg 2000 Tel: +27 (11) 408 3911Registration number: 1968/002095/06

Auditors PricewaterhouseCoopers Inc. 4 Lisbon Lane, Waterfall City, Jukskei View 2090Tel: +27 (11) 797 4000

Transfer SecretariesComputershare Investor Services Proprietary Limited (Registration number 2004/003647/07)Rosebank Towers, 15 Biermann Avenue, Rosebank Johannesburg 2196Tel: +27 (11) 370 5000

FINA

NCIA

L RESULTS

Liberty Holdings Limited Financial results for the six months ended 30 June 2018

www.libertyholdings.co.za

liberty holdings limited 2018 · liberty – an authorised financial services provider in terms of...

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