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Liberty delivers a solid operational result

08 August 2014 Thabo Dloti, Liberty

Key financial highlights • BEE normalised operating earnings up 12% • BEE normalised headline earnings up 10% • BEE normalised return on equity 19.9% • Return on BEE normalised group equity value 14.7% • Value of long-term insurance new business up 13% • Retail long-term insurance new business margin 2% • Long-term insurance indexed new business up 10% • Customer net cash inflows R16 billion • Liberty Group Limited CAR cover 2.58 times

Overview

Liberty Holdings (“Liberty”) BEE normalised headline earnings increased 10% to R1.9 billion, representing a 12% growth in operating earnings and an 8% improvement in earnings from the Shareholder Investment Portfolio (“SIP”). The group’s long-term insurance operations saw a 10% increase in indexed new business to R3.4 billion. Net customer cash inflows currently stand at R4.5 billion. Asset management operations attracted R11.6 billion in net external customer cash inflows, which were up 29% from the same period last year. Accordingly, assets under management increased 5% to R639 billion from 31 December 2013.

Commenting on the group’s performance, CEO Thabo Dloti said: “We have delivered another good set of results with solid operational growth. We continue to maintain sales momentum in our targeted customer segments through product innovation and distribution management; we are improving our asset management capability and delivering on our expansion objectives in sub-Sahara Africa, supported by our bancassurance relationship with Standard Bank. Our management of risks is excellent and our costs well managed which is contributing positively to our operating earnings.”

Business Unit Performance

Insurance

Retail SA headline earnings grew 3% to R795 million driven by increased management fees arising from a higher asset base, cost containment and positive risk variances. The LISP attracted approximately R1 billion in net new investments and the Evolve product attracted R2.4 billion in single premium investment sales.

The institutional segment saw a doubling of earnings from R44 million in June 2013 to R90 million in the current period driven largely by solid performances from Liberty Corporate and Liberty Africa Insurance.

Balance sheet management

LibFin Markets contributed R108 million to earnings (June 2013: R54 million) largely driven by the growth in the credit portfolio assets under management and the diversification away from less efficient legacy assets. The asset liability management earnings contributed positively as a result of low equity and interest rate volatility during 2014.

The SIP contributed R707 million (June 2013: R656 million) to the group’s first half headline earnings. The portfolio produced a gross return of 5.1% (June 2013: 5.5%) benefiting from favourable local and international equity markets and a relatively stable currency and interest rate environment. Tactical asset allocations to infrastructure assets also benefited the portfolio.

Asset management

Liberty’s asset management business, STANLIB, increased total assets under management to R561 billion (December 2013: R545 billion). Headline earnings of R284 million were recorded, a 5% increase from the comparable period last year. The lower earnings growth was a function of the decision to cease initial fees and a change in the sales mix. The current environment has also made attracting significant increases in non-money market retail flows a challenge. Despite this, STANLIB’s strategic decision to invest in building alternative asset class capabilities is attracting significant investor interest, with committed capital already in their new infrastructure and direct property funds. Over the past year, absolute returns have been good. Investment teams have made high conviction calls backed up by sound analytics and risk controls. STANLIB’s longer term track record remains compelling.

Liberty Properties contributed R12 million (June 2013: R17 million) to headline earnings reflecting lower development fee income, the reduced portfolio size and one off restructure costs.

Bancassurance

The bancassurance relationship with Standard Bank continues to contribute to new business and earnings within Liberty’s asset management and insurance operations. Indexed new business premiums of Liberty insurance products (excluding credit life) for the year from bancassurance channels were 7% higher than 2013. STANLIB’s net asset management fees acquired through the Standard Bank distribution channel grew by 8%.

Looking forward

Dloti, appointed as Chief Executive from March of this year, concluded: “Although the Group has delivered well against stated objectives, we believe there is still far greater potential for growth. We have defined our focus areas and are clear about the shifts we need to make to achieve this growth. With a vision of becoming the trusted leader in insurance and investment in Africa, we aim to continue our focus in the retail affluent market; build a business of scale in the corporate market; continue to strengthen our asset management capability in SA and the rest of the continent; and will further optimize our relationship with Standard Bank. I am confident that we have a strong platform, sufficient expertise and a proven track record of delivery, to build a business for the future in a changing regulatory, economic and consumer environment.”

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