Liberty takes decisive steps to address challenges
• BEE normalised return on equity 16,4% • BEE normalised headline earnings of R1,8 billion down 9% • BEE normalised headline earnings per share 650c • BEE normalised Group Equity Value per share up 5% • Group Assets Under Management (AUM) R679 billion • Indexed long-term insurance new business R3,6 billon • Capital adequacy ratio strong at 2,95 times statutory requirement • The Shareholder Investment Portfolio (SIP) contribution to earnings R721 million in volatile markets, remains ahead of three year cumulative benchmark
The Group was managed to model throughout the first half of 2016 and its capital position remains strong with a capital adequacy ratio at 2.95 times the statutory requirement. Liberty remains strongly focused on Strategy 2020, which is our long term strategy for ensuring the business remains relevant and positioned for growth. Our customers remain a key focus as we continue to develop appropriate solutions which will make a tangible difference to their lives.
Operating conditions during the first six months of 2016 were difficult with the continuation of the challenging macro-economic environment and trends observed in the final quarter of 2015. Liberty’s performance and cash flows in particular were impacted by these developments which in combination, compounded the negative impact of the challenging market conditions on Liberty’s performance for the first half of the year. These related to the implementation of the new risk tax fund with effect from 1 January 2016, the lack of capacity to provide competitively priced guaranteed investment plans and the trend of financial institutions shifting business to in-house product providers. However, the once-off nature of some of the events and the actions taken by management will lessen the impact of these developments going forward.
Commenting on the results, Liberty Group Chief Executive Thabo Dloti said: “Management has responded decisively by implementing measures to address some of the shorter term challenges including the launch of new products such as guaranteed and offshore domiciled investment offerings, close monitoring of customer trends and a continued focus on cost efficiency and ensuring the Group operates within our risk appetite.”
Group BEE normalised headline earnings of R1 821 million were 9% lower, representing a 15% decline in BEE normalised operating earnings and a 4% increase in earnings from LibFin Investments – Shareholder Investment Portfolio (SIP). The SIP gross performance of 4,0% (30 June 2015: 4,4%) was below benchmark as a result of the impact of the rand strengthening over the period on the overweight exposure to foreign assets. It, however, remains ahead of the three year cumulative benchmark. BEE normalised return on equity was 16,4% (30 June 2015: 19,4%) due to lower earnings in the period.
Net customer cash inflows amounted to R0,1 billion (30 June 2015: positive R13,2 billion). Long-term insurance net customer cash outflows of R0,3 billion (30 June 2015: inflows of R2,9 billion) resulted from lower single premium inflows, increased individual policy surrenders and scheme member withdrawals. In the Group’s long-term insurance operations, indexed new business was 1% higher at R3 569 million. The recurring premium business was higher, increasing by 4% over the prior half year. The single premium investment business was down 8%.
New business margins at 1,4% (30 June 2015 restated: 2,0%) were lower, mainly as a result of the writing of new business in the new risk tax fund prior to re-pricing the risk products, an increase in the risk discount rate to 11,79% (2015: 11,21%) and a changed new business mix reflecting lower single premium volumes. Total assets under management increased moderately to R679 billion (31 December 2015: R668 billion), due to net external customer outflows offset by positive, albeit lower, market returns.
BEE normalised group equity value per share of R148,44 was up 5% on the 30 June 2015 restated amount, and reflected R2 061 million of equity value profits for the period. This represents an annualised 10,3% (30 June 2015 restated: 10,8%) return on opening group equity value. Lower investment returns and reduced operating earnings from Individual and Group Arrangements as well as STANLIB accounted for the lower return compared to 2015.
Dloti concluded: “We expect operating conditions to remain tough and the ongoing pressure on consumer disposable income is likely to continue in the short term. We believe that our strategy remains appropriate and are resolute in developing appropriate solutions for our customers, managing risk, deploying capital effectively and pursuing profitable growth opportunities over the long term.”
