Liberty Holdings reported solid results with group BEE normalised headline earnings growing 6%, representing a 10% growth in operating earnings and a 2% decrease in earnings from the Shareholder Investment Portfolio (“SIP”).
Group Financial Highlights
• BEE normalised operating earnings up 10%
• BEE normalised return on equity at 19.4%
• Assets under management across the group are R645 billion
• Net customer cash inflows of R10.3 billion into STANLIB asset management operations.
• Value of long-term insurance new business up 7%
• Capital adequacy ratio 3.07
• Interim dividend of 254 cents up 9%
Overview
The growth in operating earnings was supported by strong performances from Individual Arrangements, Liberty Corporate and LibFin Markets. This saw the BEE normalised return on equity at 19.4%, reflecting the group’s ongoing efficient capital management.
Commenting on the group’s interim results, CEO Thabo Dloti said: “This is a good set of results and points to the strength of the Group’s capabilities to deliver on key business drivers in an increasingly challenging environment. Our strategy is to focus on key markets where we have strong capabilities and a proven track record. We also continue to invest and build our business where we see strong growth opportunities. We believe that our renewed focus in understanding and better delivering to our customers will stand us in good stead to meet a number of market and regulatory challenges going forward.”
Individual arrangements
South African retail operations reported a 10% increase in headline earnings to R873 million as a result of an increased asset base on which management fees are charged, ongoing good expense management and positive risk variances, amongst other significant contributors.
The Evolve investment product range continues to grow in popularity in single premium investment sales of approximately R3 billion for the period under review, increasing the total book size to R14 billion at 30 June 2015.
Indexed new business sales (excluding the Retail LISP and contractual increases) of R3.1 billion, increased by 4% over 2014. Recurring premium business increased by 3% from the comparative period, mainly as a result of a slowdown in bank lending, which led to flat credit sales under the bancassurance agreement and partly due to an increasingly demanding risk product sales environment impacted by consumer pressure and banks shifting business to in-house product providers. The value of new business increased by 5% to R332 million at a margin of 2.1% (30 June 2014: 2.0%) which remains within the medium-term targeted range.
Net cash inflows (excluding the Retail LISP) were pleasing at R3.5 billion and were supported by lower policy withdrawals and claims.
Group arrangements
Liberty Corporate
Headline earnings rose 15% to R97 million as a result of higher asset based management fees and an improved underwriting result. While the new business pipeline for attracting large investment and bulk annuity mandates in Liability Driven Investment Solutions products remains strong, no significant deals were concluded in the first half of 2015 whereas a number of significant mandates were won in 2014. Given the sporadic nature of these deals, indexed new business declined by 25% to R318 million and the value of new business was R10 million compared to R19 million at 30 June 2014. Net customer cash outflows were R859 million impacted by higher per member withdrawal values following good recent investment performance and the reduced single premium flows.
Liberty Africa Insurance
East and Southern Africa (excluding South Africa) insurance business contributed R28 million to Liberty’s headline earnings (30 June 2014: R28 million). Both the short and long term business have been negatively impacted by poor investment markets in East Africa. Net claims loss ratios (after re-insurance) have been consistent in the short-term insurance business. The take-on of Standard Bank’s credit life book in Zambia, along with good sales in Botswana and Namibia resulted in the value of new business growing to R27 million (30 June 2014: R12 million) at a margin of 7,1%.
The group continues to evaluate business opportunities throughout the sub-Saharan African region and has reserved capital resources.
Liberty Health
Liberty’s share of Liberty Health’s headline loss remained flat at R22 million compared to the same period last year.
Liberty’s medical expense risk product, the Liberty Blue range, is receiving growing support from corporates across sub-Saharan Africa and lives covered have increased by 22% to 100 000 from 30 June 2014. Claims loss ratios remain consistent with those evidenced in 2014.
The profitability of the South African administration business remains a challenge due to underutilisation of available capacity. Solutions aligned to the newly adopted strategy are being investigated.
Balance sheet management
LibFin Markets (Asset liability management and credit portfolio)
LibFin Markets contributed R125 million to headline earnings. The Credit Portfolio, contributed R108 million to headline earnings (2013: R87 million) in line with the growth of the portfolio and through diversification away from less efficient legacy assets. The asset liability management earnings were R17 million for the half year benefiting from favourable interest rate and equity positioning despite elevated volatility in investment markets.
LibFin assets under management at 30 June 2015 were R48 billion (31 December 2014: R45 billion).
LibFin Investments (Shareholder Investment Portfolio)
The Share Investment Portfolio (“SIP”), which comprises the group’s investment market exposure, contributed R695 million (30 June 2014: R707 million) to the group’s headline earnings in line with expectations. The portfolio which is managed under a low risk balanced mandate produced a gross return of 4,4% (30 June 2014: 5,1%), which is in line with expectations for the half year period.
Asset management
STANLIB
Headline earnings of R301 million were 6% higher compared to the comparative period in 2014.
The group’s property development capability (previously housed under Liberty Properties) and the 49% interest in the JHI Retail partnership were transferred to STANLIB during the period and contributed R6 million to the half year earnings.
Total assets under management increased to R560 billion at 30 June 2015 (31 December 2014: R551 billion) reflecting the net external customer inflows, low incremental growth from investment market returns, and negative net cash flows of R6 billion in respect of internal intergroup mandates. The five year performance of over 62% of the STANLIB surveyed institutional funds is in the first or second quartiles.
Liberty Properties
Liberty has entered into a strategic partnership with the retail division of JHI combining the collective property management service capabilities under a new entity, JHI Retail (Pty) Ltd. The transaction was effective 1 May 2015 with Liberty’s interest in JHI Retail being 49%. The results of operations to 30 April 2015 and the ongoing portfolio liquidity charge amount to R18 million and are reflected in central overheads and sundry income.
Bancassurance
The bancassurance relationship with Standard Bank continues to make a considerable contribution to new business volumes and earnings. The total SA covered business embedded value of in-force contracts sold under the agreement attributable to Liberty at 30 June 2015 is R1,5 billion (31 December 2014: R1,5 billion).
Conclusion
Dloti concluded: “Looking forward we expect to see progress on expansion initiatives in South Africa and the rest of Africa combined with good sales from new products. We remain focused on what we need to deliver and our strategy will ensure we create long term value for our shareholders and sustainably grow our business.”