Liberty delivers improved results, increasing dividend by 3%, for the year ended 31 December 2019

27 February 2020 Liberty

Resilience demonstrated in the current economic climate, while continuing to invest for the future

Financial highlights:
• Normalised headline earnings increased 42% to R3 205 million
• Shareholder Investment Portfolio (SIP) earnings of R1 004 million
• Normalised operating earnings increased 10% to R2 201 million
• Group Value of New Business increased 10% to R407 million
• Capital adequacy ratio strong at 1.99 times
• Group net external client cash inflows increased to R13.3 billion
• Normalised headline earnings per share increased 44% to 1 174.2 cents
• Total Group assets under management of R738 billion
• Full year dividend of 712 cents per share up 3%

Commenting on the results, David Munro Liberty Group CEO said:

“Today’s results reflect continued progress towards our medium-term financial targets and Liberty's resilience in a tough operating environment. The improved performance evidences execution on our strategy to deliver exceptional client and adviser experiences through investment in new digital capabilities, underpinned by a stronger and more simplified business.

“Liberty is well positioned to navigate the current economic cycle and will continue to invest for the future. Management’s focus remains on offering our clients and advisers the best service, delivering STANLIB’s investment performance in the top quartile, concluding outcomes for the remaining operations under ownership review and optimising our relationship with the Standard Bank Group.”

Resilient financial performance in a tough operating environment
Normalised operating earnings for the year ended 31 December 2019 of R2 201 million increased by 10% on 2018, reflecting a good operational performance in the current economic climate, particularly in STANLIB South Africa and the Africa Regions continuing businesses. The SIP earnings of R1 004 million benefitted from improved investment market returns, particularly in respect of foreign and local equities in 2019. Normalised headline earnings of R3 205 million were 42% up on the previous year. Annualised return on equity was 14,0%, compared to 10,1% in 2018.

Headline earnings for 2019 of R3 254 million, which includes a positive adjustment of
R55 million (31 December 2018: R397 million positive adjustment) arising from the accounting mismatch on the consolidation of the Liberty Two Degrees listed REIT, were 23% above 2018 headline earnings of R2 645 million.

Normalised group equity value per share increased by 7% to R147,82 (31 December 2018: R138,64). The RoGEV increased to 11,5% from 3,8% in the prior year. The higher RoGEV was mainly attributable to higher investment market returns during 2019 and a substantially improved performance from STANLIB South Africa.

The group Value of New Business of R407 million was 10% up from R371 million in the prior year with margin improvement from 0,9% to 1,0%. This outcome was mainly attributable to product enhancements and margin management supported by continued cost discipline, which mitigated the impact of low new business growth.

Group net external third party client cash inflows increased to R13,3 billion from R10,2 billion in 2018, supported mainly by good STANLIB South Africa net external third party client cash inflows. Total group assets under management amounted to R738 billion (31 December 2018: R718 billion). Group assets under management reduced by the transfers to other external managers of R25.4 billion in respect of the STANLIB Africa entities which were disposed of during the year and discontinued segregated mandates in STANLIB Kenya and Uganda. These outcomes are consistent with the decision to exit asset management in these regions.

Group long-term insurance indexed new business of R8 125 million was 2% above 2018. Focus remains on sales efforts and new business volumes in the prevailing consumer environment in South Africa

The group remains well capitalised 1,99 times at 31 December 2019, which is at the upper end of the target range and underpins our ability to fulfil our promises to policyholders and other stakeholders.

The 2019 final dividend of 436 cents increased by 5% over the 2018 final dividend of 415 cents. This represents a 3% increase in the 2019 full year dividend of 712 cents over the 2018 full year dividend of 691 cents. This dividend is in line with the group’s dividend policy, reflecting the strong capital position and the board’s confidence in the business following the group’s improving operational performance

South African insurance operations
SA Retail
Earnings from the group’s South African Retail business amounted to R1 505 million compared to R1 544 million in the prior year. The business experienced lower than anticipated risk profits in the second half of 2019. Lower persistency experience continued throughout the year, reflective of the current South African economic climate. This was partly offset by active and disciplined cost management which reduced new business strain.

Indexed new business sales of R6 558 million were 1% up on 2018. Growth in sales volumes remains management’s highest priority with low new business volumes being experienced in the group’s tied channels, while strong growth was evidenced in the embedded credit and direct channels. Various product enhancements within the investment and risk product suite were launched during 2019. This included the launch of the Liberty Advanced Global Equity 3
Tranches 2 and 3 portfolios on the Evolve Investment Plan, the Wellness Bonus Benefit and enhanced income disability features on the Lifestyle Protector risk proposition.

The SA Retail Value of New Business increased by 7% to R290 million (31 December 2018: R271 million), and the margin improved to 0,9% (31 December 2018: 0,8%). This result is attributable to the positive impact of product enhancements and margin management. Net client cash inflows of R197 million reflected the impact of increased death, surrender and maturity values paid on investment policies following improved market returns over the year.

Liberty Corporate
Liberty Corporate earnings increased to R85 million from R34 million in 2018. This reflects improved disability claims experience and annuitant mortality coupled with tight expense discipline.

Indexed new business of R1 124 million (31 December 2018: R1 132 million) decreased marginally due to lower recurring premiums written during the year. Product enhancements include the refresh of the Liberty Stable Growth investment strategy and the launch of a comprehensive suite of new investment propositions. Value of New Business of R68 million was broadly in line with 2018.

Net client cash outflows of R1 030 million (31 December 2018: outflows of R449 million) were impacted by client investment outflows increasing through positive market returns over the year and higher umbrella scheme terminations experienced in line with the current South African economic environment.

Asset Management
STANLIB South Africa earnings were up 30% to R460 million. Fee income was higher in the current period due primarily to strong cash inflows throughout the year and favourable investment market performance. Cost to income ratios have also improved.

Net external third party client cash inflows amounted to R15,2 billion compared to R16,1 billion in 2018. This result was largely attributable to good institutional inflows to both money market and non-money market funds. Intragroup cash outflows for the year amounted to R5,1 billion.

Total assets under management by STANLIB South Africa amounted to R568 billion (31 December 2018: R529 billion).

Africa Regions
Africa Regions comprise Liberty Africa Insurance and the STANLIB asset management continuing operations in the Southern African region.

Earnings of R54 million (31 December 2018: R8 million) was mainly supported by an improved short-term insurance claims experience in Kenya.

Operations under ownership review
Good progress has been made with the successful completion of the sale of Liberty’s short-term insurance technology platform announced in February 2019 and the sale of the STANLIB Ghana and Botswana businesses effective 1 December 2019 and 31 December 2019 respectively. The sale of the asset management businesses in Kenya and Uganda is progressing according to plan and expected to be completed by 30 June 2020.

The loss of R147 million includes the Liberty Health loss of R126 million. Efforts continue to find a suitable outcome for the health business, however these are taking longer than anticipated.

Shareholder Investment Portfolio (SIP)
The performance of the SIP was mainly attributable to good performance of local and developed market equities during 2019, which resulted in the SIP producing a gross return of 8,0% (31 December 2018: 3,7%) and delivering earnings of R1 004 million (31 December 2018: R250 million). The SIP exposure to investment markets remains appropriate in the context of the group’s risk appetite.

Liberty Two Degrees (L2D)
The 2019 full year distribution was in line with L2D’s guidance to the market. The balance sheet capacity and continued operational performance of L2D's defensive portfolio are key differentiators in a difficult trading environment. L2D's South African retail strategy has been validated by the good trading performance in the core retail portfolio evidenced by low retail vacancy rates and positive trading density growth.

The bancassurance agreement with Standard Bank Group, 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 year, reflecting a good increase in credit life sales. We continue leveraging our joint capabilities with Standard Bank to capture appropriate opportunities.

Although we expect South African economic conditions to remain weak and are not anticipating an improvement in the economic environment, we are confident that our focus is appropriately directed to create sustainable longer-term value for all stakeholders.

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