Outgoing Liberty CEO delivers record results

27 February 2014 Liberty

Financial highlights summary 2013

Group financial highlights:
- BEE normalised operating earnings are up 28%
- The SIP return of 15% is substantially ahead of benchmark
- BEE normalised headline earnings are up 11%
- BEE normalised return on equity of 23%
- Return on BEE normalised group equity value of 16%
- The value of long-term insurance new business is up 21%
- Retail long-term insurance new business margin is 2.4%
- Long term insurance indexed new business is up 15%
- Customer net cash flows are R22 billion
- Total normal dividend for 2013 of 581 cent per share, up 10%
- Liberty Group limited CAR cover remains strong at 2.56 times
Retail segment (includes Retail SA and Direct Financial Services)
• Retail SA headline earnings up 24%
• Indexed new business up 13%
• Insurance net customer cash flows R6.1 billion
• Value of new business R742 million
• Retail SA new business margin of 2.4%
Liberty Corporate
• Headline earnings up 83%
• Indexed new business up 29%
Africa Insurance
• Liberty’s share of headline earnings up >100% to R52 million
• Indexed new business up 15%
• Insurance net customer cash inflows of R325 million
Asset Management
• Headline earnings up 17%
• Asset management net client cash flows R21.6 billion
• AUM R507 billion up 16%
• Share of headline earnings up 29%
• AUM R38 billion up 5%
• Shareholder Investment Portfolio produced a 14.6% gross return, ahead of benchmark.
Liberty Holdings Limited (Liberty) has reported a record set of results, the strongest in 10 years. For the year ended December 2013, BEE normalised headline earnings are up 11% to R4.1 billion. Operating earnings are up 28% to R2.2 billion. The group’s performance has been driven by a combination of product innovation, robust new business, investment growth and the continued increase in assets under management. Indexed new business in the insurance business was up 14.7% to R6.9 billion while cash in-flows in the asset management division grew by 10% to R15.7 billion. Total assets under management grew 15.7% to R611 billion. The group reported a return on equity of 23.3%, which was ahead of target.
The Shareholder Investment Portfolio (SIP) benefited from strong developed market equity performance and significant Rand depreciation, with an overall portfolio return of 14.6%. LibFin’s management of the group’s market risk within risk appetite has supported the maintenance of the group’s strong capital position, with a capital adequacy ratio 2.56 times the regulatory minimum.
Liberty declared a final dividend of 369 cents per share, bringing the total normal dividend for 2013 to 581 cents per share, up 10% in 2012.
Commenting on the results for the period, outgoing Chief Executive Bruce Hemphill said:
"I am pleased to report an excellent set of financial results for the 2013 financial year. The value of long-term insurance new business, client cash flows, operating earnings growth and the group’s Shareholder Investment Portfolio (SIP) are particularly impressive.

This set of results is testament to our strategic focus on the retail affluent market, while simultaneously pursuing revenue diversification for long term sustainability. It also demonstrates the value of the strategic focus on risk management and balance sheet optimisation, which provides Liberty with a unique advantage in the sector.”
Retail segment

Retail SA produced another set of excellent results. BEE normalised headline earnings increased by 24% to R1 467 million underpinned by strong policy retention rates and annual contractual escalations. Strong cost control and higher management fees provided a further boost.
There was a significant increase in the value of new business and new business margins, which increased to R742 million and 2.4% respectively.
The business continued to focus on product innovation in line with its strategy of developing low cost and relevant investment propositions for consumers. Indexed new business sales (excluding contractual increases) increased 13% to R6 billion. The new Evolve range of products provided robust new business sales of R3.6 billion. Credit life sales from the Standard Bank partnership were up 17%.
For the second consecutive year, Retail SA reported strong net cash inflows in excess of R6 billion. This is despite the higher claim values paid in 2013 as a result of the higher investment performance achieved in 2012 and 2013. Net cash flows are a key barometer of the health of the business as they capture and reflect a number of important factors, including customer satisfaction, which improved significantly in 2013.
Sales momentum continued, supported by new and innovative products as well as improved distribution capacity, especially experienced advisors. This has driven the growth of new business volumes over the past few years at levels significantly higher than the inflation rate. At the same time there has been an improvement in the new business margin and the cost of distribution, while delivering positive experience variance.
This result has been underpinned by excellent single premium investment business sales on top of the successful launch of a Liberty Retail LISP (GateWay) which, since inception in October, has attracted almost R1 billion of cash inflows.

Libfin continued to make a positive contribution to group profit through the management of market volatility and the risks associated with products sold.
The Shareholder Investment Portfolio (SIP), which Libfin Investments manages, delivered a gross investment return of 14.6%, translating to earnings of R1.9 billion.
LibFin Markets continued to contain market risk exposure despite significant interest rate and emerging market volatility. The credit portfolio assets, which back guaranteed products, contributed R132 million to headline earnings.

STANLIB’s transformation, which has seen the creation of a sustainable multi-Franchise model and strategy, is evident in yet another set of good results.
STANLIB South Africa

The business delivered a robust performance, reporting headline earnings of R571 million, 17% higher than the comparable period last year. This was achieved despite the increased costs associated with additional investment capabilities developed in late 2012.

Earnings have benefited from gross fee income growth of 16% driven by a higher opening asset base and a better fund mix reflecting the higher proportion of retail flows in recent periods.
Cash inflows of R21.7 billion brought assets under management to R507 billion
STANLIB’s four prestigious Raging Bull Awards are testament to its performance.

STANLIB Africa also performed well, reporting headline earnings of R62 million, 29% higher than in 2012. The performance was supported by strong retail flows in Namibia; strict cost control and improved margins in East Africa. This was achieved despite a R7 billion withdrawal of government mandates, which also had a bearing on fees.
Assets under management remained high at R38 billion (2012: R36 billion).
Liberty Properties

Liberty Properties, which comprises property management and development, has benefited from growth in property management fees supported by increases in rentals at the flagship shopping centres. Earnings were R44 million for the year compared to R39 million in 2012, excluding Fountainhead which was sold in 2012.
Institutional segments

Liberty Corporate

Liberty Corporate delivered a strong performance, with headline earnings increasing by 83% to R121 million, a function of improved risk claims, higher management fees and cost efficiency. This followed some fundamental changes aimed at fixing the business and improving the customer experience.
The business increased its presence in the corporate market, winning several large mandates in the second half of the year which translated into indexed new business growth of 29% to R789 million.
Following last year’s launch of the new flagship investment product, the Liberty Stable Growth Fund, as well as a unique index tracking investment range, Liberty Corporate was recognised by the Financial Intermediary Association as the best employee benefits product supplier.
Liberty Africa Insurance

Liberty’s strategy of bulk acquisition and diversifying distribution channels is progressing well. The Africa Insurance business reported earnings of R52 million, well above prior year earnings of R21 million. This was driven by short-term operations in East Africa which saw strong premium growth from most lines.
The result has been supported by higher investment markets and consistent claims loss ratios in the short-term insurance business. Long-term insurance new business margins at 9.2% remain pleasing.

Liberty Health has reported, as anticipated, a loss of R40 million, an improvement on last year’s loss. During the year a number of important strategic milestones were achieved. Whilst recent operational efficiencies are producing better cost ratios, the business does not, as yet, have sufficient scale to leverage the investment in systems and processes.

The partnership with Standard Bank continues to positively contribute to new business development and new business. Indexed new business from Standard Bank channels amounted to R2.9 billion, a 17.2% increase over the prior year. This was achieved mainly through strong complex product sales (multi-access endowment and Evolve) as well as an increase in credit life sales. STANLIB also benefited from the partnership, with a reported 14% growth in net asset management fees related to assets acquired through the Standard Bank distribution channel.
Hemphill concludes: "The results reflect good progress in the transformation of Liberty into a sub-Saharan Africa financial services organisation, while regaining market leadership in the Retail SA affluent sector.
"We are seeing strong new business performance through innovative, customer appropriate products and bottom line growth through strong cost containment and retention. We have a unique asset and liability management capability that helps us to better manage market volatility. It also helps us to better manage liabilities and optimise our balance sheet; we have strong fund management that combines institutional rigour with talent flexibility. These are attributes that will create sustainable value for Liberty customers and shareholders.”
"Together we have delivered great shareholder returns against a backdrop of volatile capital markets and tough economic conditions and the team is poised to lead the group through its next phase of its growth and expansion.”

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