1. 2 presentation to investment analysts’ society 3 rd /4 th march 2004
TRANSCRIPT
3
Operating climate
• Increasing compliance and regulatory requirements
• Low interest rate/low inflation environment
• Strengthening of the Rand• Volatile investment markets• Risk averse investors• Perception of industry
5
Liberty Personal Benefits -market share
• Strong Excelsior investment product sales• Property-backed products very popular• Risk product launched – Lifestyle Protector R120 million sales since launch
6
Liberty Personal Benefits –average recurring premiums
All officesLarge officesLiberty Personal BenefitsLPB as % of all officesLPB as % of large offices
30 Sept2003*
Rm
31 Dec2002Rm
%Change
2 1412 8436 796316,2
%238,1
%
2 2982 7546 443280,4
%234,0
%
(735
)
* Source: LOA statistics
7
Liberty Personal Benefits
• Represents 70% of total business based on value of liabilities (low percentage smoothed bonus business)
Focus on:• Integration of Healthcare operations• Restructuring of operations• Customer service and costs• Implementation of FAIS legislation• Partial commission uncapping• Further leveraging channel capabilities
8
Liberty Corporate Benefits
• 9% reduction in headcount• Building on packaged product model• Focusing on service delivery• Risk margins maintained (despite
HIV/AIDS)• Standard Bank opportunity• Small pension fund audit exemption
withdrawal
9
Liberty Corporate Benefits(continued)
• IEB purchase price: R130 million• Smooth integration to date• 2-3 years to rationalise fully• Efficiency opportunity• Current performance approximating
expectations
10
Consultancy
• Agency Division– Introduction of graduated managers from
the Academy– Additional branches created
• Franchise Division– Elimination of non-producing franchises– Productivity enhanced
11
Consultancy(continued)
• Broker Division– Expanded number of supporting brokers– Gauteng focus– Administration hubs provide a higher level
of service
• SBFC– Increased manpower – benefits in 2004– Consumer consultants strategy
12
Consultancy(continued)
• Legislation– FAIS implementation– Commission de-regulation– FICA implemented
13
Properties
Portfolio value (Rm)Comprising: Office buildings (%) Shopping malls (%) Hotels (%) Other (%)
2003 2002 %
Change
10 449,8
20 65 12
3100
9 601,8
22 64 11 3
100
9
5 year compound annual bonus rate to RA policy- holders of 11,6% vs headline CPI of 5,2%
14
Properties (continued)
• Property sales amounted to R150,1 million in 2003
• Liberty Midlands Mall completed in 2003 - valued at R325 million
• 50% of Greenacres Shopping Centre acquired for R150 million
• Vacancies at 31 December 2003: 13,9%(2002 : 12,1%)
15
STANLIBTotal assets under management
(excluding common assets)
Life fundsSegregated fundsUnit trustsStructured products and other
Money market as % of total
59554024
17814%
53482919
14911%
1215382619
2003Rbn
2002Rbn
%Chang
e
16
STANLIB(continued)
• Net inflows positive R12 billion• Investment performance mixed:
– Good fixed interest performance– Balanced portfolios underperformed median
by 1% to 2%– Returns generally acceptable in absolute
terms
• Normalised earnings up 4% to R136 million
17
STANLIB(continued)
• Integration costs and other once-off costs higher than expected
• Staff numbers reduced by 98 people (net)• Annualised cost saving of approximately
R30 million• STANLIB brand now well-established in
both retail and institutional markets• Looking for improved investment
performance
18
ErmitageAssets under management
Hedge fundsLong-only fundsMoney funds
Third party funds as % of total funds
1 292,71 059,5
600,32 952,5
41%
806,8791,6667,3
2 265,7
44%
6034
(1030
)
2003US$m
2002US$m
%Change
Operating profit up 117% in Pounds Sterling
20
Features – 2003/2002
• Indexed new business– Individual– Corporate
• Value of new business• Net cash inflows from
insurance operations• New business margin
3 807,83 184,3
623,6608,9
4 497,020%
3 634,23 090,2
544,1604,6
4 501,320%
53
151
--
2003Rm
2002Rm
%Change
21
Features – 2003/2002(continued)
• Headline earnings per share (cents)
• Headline earnings per share pre AC 133 (cents)
• Final dividend per share• Embedded value per
share: (Rand)• Capital adequacy
requirement (times covered)
346,4
359,6
116,0
57,58
2,6
391,5
391,5
116,0
55,28
3,0
(11
(8-
4
2002%
Change2003
)
)
22
Headline earnings
Operating profit from insurance operations netof tax
Revenue earnings – shareholders’ funds
Preference dividendHeadline earningsHeadline earnings
pre-AC 133
2003Rm
2002Rm
%Change
)
)
719,5
324,8 (95,2949,1
985,5
889,1
261,6 (81,9
1 068,8 1
068,8
(19
24 16(11
(8
)
) )
23
Operating profit from insurance operations
Operating profit from insuranceoperationsBefore AC 133 adjustmentAC 133 adjustment
2003Rm
2002Rm
%Change
• 2002 includes releases from the life fund of approximately R350 million after tax• Improvement in weighted policyholder investment portfolio in 2003• Implementation of AC 133
719,5755,9(36,4
889,1889,1
(19(15
)
))
25
Expenses
Total group expensesSubsidiariesCompany expensesInsurance expensesIndividualCorporate Benefits
2003 2002 %
Change
1 860,9(381,8
1 479,11 281,8
935,1346,7
1 690,9(462,6
1 228,31 150,6
864,4286,2
10(1720118
21
) ))
*Includes IEB costs of R33 million
*
26
Expenses – cost per policy
Renewal cost per policyincreased/(decreased) by
Acquisition cost per policyincreased/(decreased) by
2003%
2002%
Significant non-recurring expenses incurred in 2003
6,5
7,2
(1,6
(1,3
)
)
27
Non-recurring expenses
• Non-recurring expenses of R111,3 million
in 2003– Retrenchment and discontinued salary costs– Previously incurred corporate activity costs– Pension fund provision– Post-retirement medical liability increase– Retention bonuses– Non-capitalised renovation costs– Impairments and other provisions
28
Revenue earnings – shareholders’ funds
Financial services operationsListed investmentsOther
2003Rm
2002Rm
%Change
199,932,992,0
324,8
159,639,962,1
261,6
25(184824
)
• Electric Liberty investment portfolio trading profit of R47 million in 2003• Liberty Ermitage headline earnings of R43 million up 54%• Higher cash balances and preference shares increased other earnings
29
Future earnings
• International Accounting Standards• Stochastic modelling of investment
guarantees• Investment returns impact 10%
entitlements
30
Embedded value
Shareholders’ fundsNet value of life business
in-forceFair value adjustmentTotalEmbedded value per
share(Rand)
2003Rm
2002Rm
%Change
8 782,2
6 493,8540,9
15 816,9
57,58
8 588,1
5 700,4838,1
15 126,6
55,28
)
2
14(36
5
4
31
Fair value adjustment
Liberty Group PropertiesLiberty Ermitage JerseySTANLIBCarrying value of in-force business acquired from Investec Employee Benefits
2003Rm
2002Rm
216,0140,0306,9
(122,0540,9
240,0190,4407,7
838,1
)
• Liberty Ermitage multiple reduced from 15 to 10• STANLIB valued at approximately R1,4 billion
32
New business – percentage increase
RecurringSingleTotal
Index
IndividualBusiness
%
CorporateBusiness*
%
Total
%
6(7(4
3
16347
15
633
5
))
*Excludes IEB business acquired
33
Market share individual business
(including Charter)
Individual recurring Individual singles
30 Sept2003
%
31 Dec2002
%
23,522,4
23,620,2
• Sales force productivity• Independent broker support• Investment performance• Property portfolio• Lifestyle protector
Source: LOA statsplus Charter Life
34
Value of new business
Value of new business (Rm)New business margin (%)Individual (%)Corporate (%)
2003 2002
608,92022
8
604,6202211
35
Net fund inflows
Total premiums and inflowsunder investment contracts
Claims, policyholder benefits andpayments under investmentcontracts
Net fund inflows
2003Rm
2002Rm
%Change
18 121,8
13 624,8
4 497,0
16 415,1
11 913,84 501,3
10
14-
• Two investment only funds to STANLIB of approximately R700 million
36
Capital adequacy cover
Capital adequacy requirement (Rm)Times covered
3 402,7
2,6
2 856,6
3,0
2003 2002
Charter Life investment guarantees
39
Focus areas for second half 2003
• Improve service levels• Emphasis on cost reduction• Domestic operations/other market
segments and Africa• Renewed emphasis on people• Address capital situation
41
Improve service levels
• Appointed MD Group Customer Service
– Alan Woolfson
• Appointed internal ombudsman• Launching staff initiative• Tracking system for complaints
42
Cost reduction
• Cost reduction initiated – second half 2003• Cost savings of approximately R75 million
for Liberty• Reduced net headcount
– Liberty: 135– STANLIB: 98
• General staff incentive scheme introduced based on cost reduction targets
• No real cost growth budgeted for 2004
43
Domestic operations/other market segments and Africa
• Some internal issues – – LPB restructure– IT centralised (again)– Finalised Healthcare integration into LPB
• Charter explores new opportunities (see next slide)
• Namibia life license• Stanbic Africa footprint offers future
opportunity• Canned future offshore expansion for now• Western Cape?
44
Businessas usual
New businessinitiatives
Charter Life2004
Customerservice
Cost management
Right people- right jobs
- Grow CC’s aggressively- Continue IFA’s, networking and Liberty Agency/Franchise
(Long-term repositioningstrategy)- LSM 5-8- Products - Administration- Marketing- Distribution
Charter Life – eventually doing something
45
People
• Four new board appointments• Appointed MD Charter Life – Bobby
Malabie• Appointed CEO STANLIB – Bruce Hemphill• Looking for marketing head• IEB staff integrated well• Employment equity remains an issue• Restructured STANLIB
46
Capital management
• More proactive capital management• Capital committee formed• Sold 2 million Edcon and 1 million GoldFields• Restructured and cleaned up portfolios• Overcapitalised – but
– BEE contingency– stochastic modeling– be patient!
47
In addition…
• Market uptick – thank heavens! • Financial Sector Charter signed
– Dedicated Exco member heading initiative– Implementation committee set up
• STANLIB BEE deal finalised• AC 133 implemented• Life product launched
48
Liberty Foundation – focus on education
• Mindset Network began broadcasting• Pilot programme initiated for Health
Channel and we continued with –– Liberty Learning Channel on SABC– Learn.co.za website– Liberty/Sunday Times ReadRight project
• Working closely with Standard Bank
49
Focus areas for next six months – nothing complicated
Continue -• to improve service levels• emphasis on cost reduction• focus on domestic operations/other
market segments and Africa• emphasis on people
50
Focus areas for next six months – nothing complicated
Continue –• monitoring capital position• Financial Sector Charter implementation
and in addition we will –• reposition brand• focus on product development
51
Focus areas for next six months – nothing complicated
Everything we do mustfocus on adding value forour customer
52
Panel
Myles Ruck Chief Executive
Andrew Lonmon-Davis Statutory Actuary
Deon de Klerk Chief Financial Officer