Liberty's growth strategy on-track; markets dent first-half earnings

06 August 2008 Liberty Life

Showing clear progress in implementing its long-term strategy to become Africa’s leading wealth manager, Liberty is well positioned for SA’s economic up-turn


    • BEE-normalised EPS* (after accounting for investment gains and losses) down 44,8% to 321,8c
    • BEE-normalised EPS*(before accounting for investment gains and losses) down 10,3% to 431,5c
    • BEE-normalised embedded value* up 4,9% to R94.08
    • Indexed life new business up 12,1% to R2172m
    • Assets under management grow 3,7% to R334bn
    • Capital Adequacy Ratio increased to 2.49 times requirements
    • Capital management innovations will unlock shareholder value
    • Interim dividend increased by 13,9%

Liberty Group today released its unaudited interim financial results for the half-year ended 30 June 2008.

Presenting his group’s interims in Johannesburg, Chief Executive Bruce Hemphill (pictured) said that Liberty was making good progress towards its long-term strategic vision of becoming the leading broad-based wealth manager in Africa and other select emerging markets.

At the same time, Hemphill said that in the short term, Liberty was not immune to the current South African economic downturn; nor to the volatility that has been a feature of local and global investment markets so far in 2008.

"Our performance does largely correlate to market conditions and interest rates", said Hemphill, emphasising that Liberty views current conditions as a relatively short-term trough in the economic cycle.

Compared to the half-year to June 2007, Liberty’s BEE-normalised headline earnings per share (HEPS) – before accounting for investment gains and losses – were 10,3% lower, at 431,5c per share.

After taking account of investment gains and losses however, BEE-normalised HEPS were 44,8% lower than at the halfway stage last year, at 321,8c per share.

Liberty’s dividend policy was maintained – the dividend of 164c per share represents a 13,9% increase over 2007’s interim.

The group’s Capital Adequacy Ratio (CAR) – another key metric for policyholder security – also improved, from 2.07 times to 2.49 times requirements since the last financial year-end.

Despite difficult market conditions, Hemphill said he was satisfied with the strategic progress Liberty had made during the period. "The business is far better positioned for growth and a return to a longer-term trend of increasing earnings than it was six months ago," he said.

Hemphill said that a major achievement of the first half of 2008 had been the green-fields establishment of an Enterprise Value and Risk Management (EVRM) framework. EVRM seeks to apply investment banking and actuarial skills to unlock additional value for shareholders, through the active management of Liberty’s balance sheet.

During the first half of 2008, Liberty also invested in identified growth areas of its broader wealth business. These included:

Diversifying Liberty Properties’ strategy and operations, creating development and asset management opportunities, both in the Republic and in the rest of Africa;

Through Liberty Africa, extending the group’s financial services interests into Southern, West and East Africa; and

Embedding Liberty’s new technology-enabled health strategy, opening the way to providing efficient front- and back-office administration.

A good contribution to earnings from market-leading asset manager STANLIB, whose pre-tax profit before financing rose 18% to 309 million.

Hemphill said that Liberty’s embedded value held up well in a tough operating period for the traditional life business, advancing 4,9% to R94.08 compared to June 2007. He added that the group’s core Return on Embedded Value performance remained in line with Liberty’s stated medium-term target of 14.5 – 15.5%.

Liberty’s first-half new business production advanced satisfactorily, with indexed total production up 11% over the equivalent period in 2007, and total indexed new life volumes showing firm growth of 12%. However, new business embedded value profits declined sharply, largely due to the higher risk discount rate.

Hemphill also pointed out that pressure on consumers’ disposable income had seen an increase in Liberty’s lapses and surrenders.

He added that in such challenging market conditions, management attention to operating costs remained intense, and said that the annualised expense increment in the continuing operations of Liberty’s core individual life operations had been contained to 10,9%.

He concluded by saying that notwithstanding the short-term earnings effects of prevailing economic conditions, Liberty’s strategic course had been substantially re-directed over the past two years, to building and growing a broader and more sustainable business.

He also suggested that Standard Bank’s second-quarter offer to buy out minorities in Liberty Holdings was a substantial vote of confidence, both in Liberty’s long-term strategy, and in the group’s executive management team.

Hemphill also told investors that Liberty expected to be able to finance its growth strategy from its own resources.

While Liberty expects the current tough conditions for both markets and consumers to continue at least to the year-end, Chief Executive Hemphill said that the group’s executives were upbeat about longer-term prospects, and energised by the opportunities they see for both shareholders and customers.

* BEE normalised headline earnings per share and embedded value per share reflect the economic reality of Liberty’s Black Economic Empowerment transaction as a share buy-back. Dividends received on the group’s BEE preference shares (which are recognised as an asset for this purpose) are included in income and shares in issue relating to the transaction are re-instated.


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