RNS Number:6931Z
Liberty Group Ld
07 August 2002
Liberty Group Limited interim results - 30 June 2002
(Registration number 1957/002788/06)
(JSE Share code LGL)
(Issuer code LIBU)
(ISIN: ZAE000024543)
(Incorporated in the Republic of South Africa)
These results and additional actuarial information are available at
www.liberty.co.za.
FEATURES
-Indexed new business up 22%
-New business up 18%
-New business margin of 18%
-Significant gains in market share
-Bancassurance new business up 81% to R1,2 billion
-Headline earnings per share down 5%
-Net cash inflow from insurance operations of R1,6 billion up 60%
-Embedded value per share up 5% to R56,68
-Dividend cover amended
-Dividend per share of 162 cents up 27%
* Commentary on results
Liberty Group has performed well in all aspects under its control during the six
months ended 30 June 2002. The Group has grown new business in testing markets
and substantial progress has been made in creating further value in the in force
insurance portfolio. This good operational performance could however not escape
the investment market trends experienced throughout the world which have had the
effect of reducing life fund earnings.
* Life fund operating surplus
The life fund operating surplus for the half year ended 30 June 2002 of R563,0
million decreased by R30,5 million (5,1%) compared with the life fund operating
surplus for the half year ended 30 June 2001 of R593,5 million. The decrease in
the life fund operating surplus is directly attributable to the impact of
significantly lower returns on investment portfolios. The weighted average
return used for the six months to 30 June 2002 was -0,4% compared with +10,2%
for the six months to 30 June 2001.
The lower life fund earnings were offset by benefits arising from better than
assumed costs per policy.
* Headline earnings
Headline earnings from continuing operations decreased by 4,7% from R694,2
million for the half year ended 30 June 2001 to R661,5 million in respect of the
half year ended 30 June 2002. The decrease is mainly attributable to the effect
that the weak investment markets have had on the life fund operating surplus,
which reduced by 5,1%.
The current period also includes a R44,2 million Secondary Tax on Companies
(STC) charge in respect of the payment of the 2001 final dividend, whereas the
comparative period had no charge for STC in headline earnings as the 2000 final
dividend was incorporated in the capital reduction which was paid on 4 April
2001.
* New business production
On-balance sheet new business increased in total by 18,4% from R4 824,0 million
for the half year ended 30 June 2001 to R5 712,5 million for the half year ended
30 June 2002. Indexed new business increased by 21,6% from R1 378,2 million to
R1 676,4 million. This level of increase is most pleasing as it reflects the
efforts and commitment of the sales force and strategies deployed by the Group
in recent years to maintain the medium term growth rate at 12% above inflation
in our target market. New business sales have been supported by attractive new
product developments and STANLIB Asset Management's (STANLIBAM's) strong track
record of investment performance.
Liberty continues to gain market share. This is confirmed in recently published
statistics for 2001. Liberty's market share for new recurring individual
premiums increased from 15,72% for the twelve months ended 31 December 2000 to
17,86% for the same period ended 31 December 2001. Market share for new
individual single premiums increased from 11,49% to 14,76% compared with all
life offices during this period. Over the same period, Liberty's market share
for group premiums increased from 7,50% to 8,78%.
Total Liberty Group new business from Bancassurance increased by 81,3% compared
with the same period in 2001.
* Net insurance cash flow
Net cash flow from insurance operations for the Group (net premium inflow less
claims and policyholder benefits) was positive at R1 636,5 million for the half
year ended 30 June 2002 compared with a positive R1 024,3 million for the same
period in 2001. Net premium income increased by 11,4% from R6 781,6 million to
R7 551,7 million.
Group business scheme member withdrawals and group terminations and withdrawals
decreased by 40,6% and by 10,4% respectively for the six months ended 30 June
2002 compared with the same period in 2001. Liberty Personal Benefits' surrender
and maturity claims increased by 8,7% for the six months ended 30 June 2002
compared with the same period in 2001. The lapse experience in Liberty Personal
Benefits has improved considerably relative to the same period in 2001.
Charter Life's net cash flow increased by 21,9% from R253,1 million for the half
year to 30 June 2001 to R308,6 million in the current period under review, as a
result of increased single premium income.
* Embedded value and value of new business
Embedded value increased by 4,8% from R14 767,4 million at 31 December 2001 to
R15 477,5 million at 30 June 2002 despite poor market performance. The increase
in the value of life business in force is due to higher new business volumes and
better retention of policies. Lower than anticipated expenses also contributed
to the increase in embedded value. The embedded value also reflects the impact
of the change in the dividend cover with higher STC charges being taken into
account.
Embedded value per share increased by 4,6% from R54,21 at 31 December 2001 to
R56,68 at 30 June 2002.
The value of new business increased by 10,3% from R224,8 million for the period
ended 30 June 2001 to R247,9 million for the period ended 30 June 2002.
The new business margin (value of new business expressed as a percentage of
indexed new business excluding natural increases) of 18% compares with 19% in
respect of the year ended 31 December 2001. Margins on all lines of business
have been sustained other than on Liberty Corporate business. Higher volumes of
Bancassurance sales, where Standard Bank shares in the new business profits,
also led to lower margins.
* Financial services activities
Income from the Group's financial services activities of R80,2 million for the
half year ended 30 June 2002 was substantially higher than the R20,3 million
recorded for the comparative period in 2001. Lower expenditure in Electric
Liberty as a result of the repositioning of MyLife, as well as profits generated
in the Group's shareholder treasury operations and investment trading portfolio
contributed to this increase.
Liberty Healthcare generated higher fees from increased membership and costs
were well contained. Liberty Healthcare's contribution to Group headline
earnings of R6,9 million to 30 June 2002 compares with a loss of R8,6 million in
respect of the same period in 2001.
Headline earnings of Liberty Ermitage increased threefold from R3,1 million in
respect of the six months ended 30 June 2001 to R9,2 million in 2002 as a result
of a higher asset base as well as the conversion of Sterling into Rand.
* STANLIB
The implementation of the STANLIB merger of asset and wealth management
activities of Liberty and Standard Bank is progressing according to plan.
STANLIBAM's assets under management have grown by 4% or R5,7 billion from R129,4
billion at 31 December 2001 to R135,1 billion at 30 June 2002. STANLIB Wealth
Management generated positive cash inflows of R4,4 billion in the six months to
30 June 2002 compared with R3,1 billion in respect of the comparative period in
2001. The merger transaction has had no material impact on the headline earnings
of Liberty in respect of the six months ended 30 June 2002.
* Investment performance
The managed and equity portfolios performed well on a relative basis for the
half year ended 30 June 2002 in volatile and weak investment markets, which was
offset by a negative return of 16,5% on the foreign assets portfolio for the
half year ended 30 June 2002 as a result of the strengthened Rand and weak
offshore markets. The weighted average return of -0,4% of these portfolios is
one of the key drivers of the life fund operating surplus.
STANLIBAM has continued to perform exceptionally well compared with its peers
and benchmarks. STANLIBAM ranks second out of the nine largest asset managers
for the 12 months ended 30 June 2002.
* Liberty Healthcare
On 23 April 2002 Liberty announced that administration of the Liberty Medical
Scheme would be transferred to Medscheme from 1 August 2002. In terms of this
arrangement Liberty has retained the following involvement in the Liberty
Medical Scheme:
- Liberty's distribution forces will continue to market membership of the
Liberty Medical Scheme.
- Liberty will continue to reinsure some of the risk of the Liberty Medical
Scheme in terms of the reinsurance contract currently in place between Liberty
and the Liberty Medical Scheme.
- Liberty Healthcare will continue to provide input to product development and
benefit design.
* Capital and dividend cover
Shareholders' funds increased from R8 345,8 million at 31 December 2001 to R9
136,1 million at 30 June 2002. The annualised headline return on equity in
respect of continuing operations of 16,9% for the six months to 30 June 2002
compares with 24,9% at 31 December 2001 and is attributable to the decrease in
the life fund operating surplus together with a higher level of capital.
The Group's level of capital adequacy cover (shareholders' capital and reserves
divided by the capital adequacy requirement) has reduced marginally from 3,5 at
31 December 2001 to 3,4 at 30 June 2002. As part of the ongoing review of the
level of capital and the cash earnings trends of the Group, the board has
resolved to change the dividend cover by retaining only one third of headline
earnings on continuing operations (previously 50%).
* Dividend
Notice is hereby given that interim ordinary dividend No. 73 of 162 cents per
share has been declared in respect of the year ending 31 December 2002. This
represents an increase of 27% over the interim dividend for 2001 of 128 cents
per share.
The important dates pertaining to this dividend are:
Last day to trade cum dividend on the JSE and LSE. Friday, 23 August 2002
First trading day ex dividend on the JSE and LSE. Monday, 26 August 2002
Record date. Friday, 30 August 2002
Payment date. Monday, 2 September 2002
Share certificates may not be dematerialised or rematerialised between Monday,
26 August 2002 and Friday, 30 August 2002, both days inclusive. Payment in
respect of dividends issued by the United Kingdom transfer secretaries will be
converted from Rand to the Sterling equivalent on Monday, 2 September 2002.
Where applicable, dividends in respect of certificated shareholders will be
transferred electronically to shareholders' bank accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
shareholders. Shareholders who have dematerialised their share certificates
will have their bank accounts, which are linked to their CSDP or broker's safe
custody accounts, credited on Monday, 2 September 2002.
* Prospects
Profitable new business growth, market share improvements and operating
efficiencies will continue to be the focus of attention during the remainder of
the year.
The life fund operating surplus has been negatively impacted by weak investment
markets. Since the half year end markets have continued to weaken and this will
have a negative impact on earnings should these conditions prevail to the end of
the year.
Derek Cooper Roy Andersen
Chairman Group Chief Executive
6 August 2002
Transfer secretaries:
South Africa
Computershare Investor Services Limited
(Registration number 1958/003546/06)
11 Diagonal Street, Johannesburg, 2001.
PO Box 1053, Johannesburg, 2000.
Telephone +27 11 370-5000
United Kingdom
Capita IRG plc,
Bourne House,
34 Beckenham Road, Beckenham,
Kent BR34TU.
Telephone +44 208 639-2000
Sponsor:
Merrill Lynch (Pty) Ltd
Registration number 1995/001805/07
Registered Sponsor and Member of the JSE Johannesburg
Securities Exchange South Africa
Accounting policies and presentation
The accounting policies adopted, comply with South African Statements of
Generally Accepted Accounting Practice, as well as the South African Companies
Act of 1973 and the Long-term Insurance Act of 1998.
These accounting policies are consistent with those applied at 31 December 2001,
except for the determination of the life fund operating surplus and capital
adequacy requirement, which reflect the Statutory Actuary's best estimate for
interim reporting purposes. A full actuarial valuation is not performed at the
half year.
The income statement reflects earnings from continuing operations separately
from proforma earnings attributable to the capital reduction in order to make
comparison of results more meaningful. The proforma earnings attributable to the
capital reduction for the six months ended 30 June 2001 represent the earnings
that were attributed to shareholders' assets that were utilised to fund the
capital reduction on 4 April 2001.
The results for the six months to 30 June 2002 include 50% of STANLIB Limited's
consolidated results. Liberty's investment in STANLIB has been equity accounted
both at company level and at Group level from the implementation date of the
merger. The Liberty entities that now form part of STANLIB were previously
consolidated.
* Related party transactions
* Holding company
Liberty Group Limited's immediate holding company is Liberty Holdings Limited,
which in turn is controlled by Standard Bank Group Limited (Stanbank), the
company's ultimate holding company. Liberty provides certain administrative and
secretarial services to Liberty Holdings Limited for which it is reimbursed at
cost.
* Banking arrangements
The Group makes use of banking facilities provided by The Standard Bank of South
Africa Limited (Standard Bank). At 30 June 2002 substantially all of the cash
and cash equivalents amounting to R771,6 million (31 December 2001: R485,2
million) were held with Standard Bank. In addition, term deposits and other
money market securities with Standard Bank amounted to R234,0 million at 30 June
2002 (31 December 2001: R257,4 million). These deposits were made in the normal
course of business at prevailing market rates.
* Asset management
The Group makes use of asset management facilities provided by STANLIB Limited
(A joint venture between Liberty and Stanbank). At 30 June 2002 R54,8 billion of
life fund assets were held with STANLIB. The asset management fee for the six
months to 30 June 2002 amounted to R51,1 million.
* Insurance policies
Inter-group insurance policies amounting to R1 114,4 million (2001: R1 004,0
million) have been eliminated on consolidation. No premium income was received
in this regard in respect of the six months ended 30 June 2002 (2001: Rnil).
* Liberty Ermitage fee income
During the period Liberty Ermitage earned administration and management fee
income of R0,9 million (30 June 2001: Rnil) from the Standard Liberty Distressed
Securities Fund. The Standard Bank group has provided seed capital for this
fund.
Summarised group income statement
Continuing Capital Total
Operations Reduction# Operations
(unaudited) (unaudited) (unaudited)
Six months Six months Six months
ended ended ended
30 June 30 June 30 June
2002 2001 % 2002 2001 2002 2001
Rm Rm Change Rm Rm Rm Rm
Life fund
operating surplus 563,0 593,5 (5,1) 563,0 593,5
Revenue earnings
attributable to
shareholders' funds 170,7 120,5 41,7 47,0 170,7 167,5
Secondary tax
on companies
relating to
ordinary dividends (44,2) (44,2)
Preference dividend
in subsidiary
company (28,0) (19,8) 41,4 (28,0) (19,8)
Headline earnings 661,5 694,2 (4,7) 47,0 661,5 741,2
Goodwill
amortisation (23,4) (7,7) 203,9 (23,4) (7,7)
Investment surpluses
attributable to
shareholders' funds 617,2 515,1 19,8 12,9 617,2 528,0
Secondary tax
on companies
relating to
capital reduction (232,8) (232,8)
Capital Gains
Tax on
shareholders'
investments (56,0) (56,0)
Total earnings 1199,3 1201,6 (0,2) (172,9) 1199,3 1028,7
Per share details
Headline earnings
per share (cents)
Basic 242,5 255,7 (5,2) 17,3 242,5 273,0
Fully diluted 241,2 248,2 (2,8) 15,8 241,2 264,0
Total earnings
per share (cents)
Basic 439,7 442,2 (0,6) (63,6) 439,7 378,6
Fully diluted 422,8 418,3 1,1 (58,0) 422,8 360,3
Weighted average
number of shares
in issue (millions) 272,8 271,8 0,3 271,8 272,8 271,8
Number of ordinary
shares in issue
(millions) 273,1 271,9 0,4 271,9 273,1 271,9
Fully diluted
weighted average
number of shares
in issue (millions) 298,6 298,1 0,2 298,1 298,6 298,1
#The proforma earnings attributable to the capital reduction for the six months
ended 30 June 2001 represent the earnings on shareholders' assets that were
utilised to fund the capital reduction on 4 April 2001.
Summarised group balance sheet
(unaudited) (audited)
30 June 2002 31 December 2001
Rm Rm
Assets
Investments 84 871,6 84 984,1
Owner-occupied properties 663,0 633,4
Goodwill* 397,5 112,9
Intangible assets 43,9 69,9
Office furniture, computer equipment
and other tangible assets 337,9 371,9
Current assets 3 474,5 3 229,2
Total assets 89 788,4 89 401,4
Capital, reserves and liabilities
Shareholders' funds 9 136,1 8 345,8
Minority interests 1,0 1,0
Life funds 75 521,4 75 918,4
Convertible bonds 2 432,6 2 874,2
Retirement benefit obligation 138,8 135,4
Deferred tax 169,8 118,5
Current liabilities 2 388,7 2 008,1
Total capital, reserves and liabilities 89 788,4 89 401,4
*The increase in goodwill results from the implementation of the STANLIB merger
and now includes goodwill in respect of Liberty's acquisition of 50% of the
former Standard Bank entities.
Returns on equity (ROE) and embedded value (ROEV)
(unaudited)
Annualised (audited)
30 June 31 December
2002 2001
Headline return on equity 16,9% 24,9%
Total return on equity 31,6% 40,4%
Return on embedded value 15,4% 26,4%
Statement of changes in shareholders' funds
(unaudited) (unaudited)
30 June 30 June
2002 2001
Rm Rm
Shareholders' funds as previously published 6 152,4
Changes in accounting policies
Capital reduction of 1 200 cents
- LDR 30 March 2001 3 260,0
Secondary Tax on Companies relating
to capital reduction 232,8
Provision for leave pay net of deferred tax (29,6)
Shareholders' funds restated at
the beginning of period 8 345,8 9 615,6
Total earnings 1 199,3 1 028,7
Final 2001 ordinary dividend No.72 of 150 cents
- LDR 20 March 2002 (408,6)
Capital reduction of 1 200 cents
- LDR 30 March 2001 (3 260,0)
Translation difference relating to the
equity component of convertible bonds (23,7) 3,2
Subscriptions for shares 23,3 9,4
Shareholders' funds at end of period 9 136,1 7 396,9
Group embedded value and value of new business
(unaudited) (audited)
30 June 31 December
2002 2001 %
Rm Rm Change
Risk discount rate 14,50% 13,75%
Shareholders' funds 9 136,1 8 345,8 9,5%
Net value of life business in force 5 506,2 5 111,9 7,7%
Value of life business in force 5 636,7 5 235,1 7,7%
Cost of solvency capital(1) (130,5) (123,2) 5,9%
Financial services subsidiaries
fair value adjustment 835,2 1 309,7 (36,2%)
Embedded value 15 477,5 14 767,4 4,8%
Embedded value per share (Rand) R56,68 R54,21 4,60%
Six months Six months
ended ended
30 June 30 June
2002 2001 %
Rm Rm Change
Total value of new business 247,9 224,8 10,3%
(1)The cost of solvency capital arises from the difference between the net
after-tax expected return on the shareholders' assets backing the capital
adequacy requirement and the risk discount rate.
The principal bases and assumptions used are:
30 June 2002 31 December 2001
Government stocks 12,50% 11,75%
Equity return 14,50% 13,75%
Property return 13,50% 12,75%
Risk discount rate 14,50% 13,75%
Maintenance expense inflation rate 8,67% 7,90%
Analysis of
shareholders'
funds
Group funds Group net Group investment
invested at revenue earned surpluses/(deficits)
30 June 31 Dec (unaudited) (unaudited)Six months
2002 2001 ended 30 June ended 30 June
unaudited audited 2002 2001 2002 2001
Rm Rm Rm Rm Rm Rm
Charter Life
(excluding life
fund operating
surplus) 680,2 645,1 17,1 14,0 14,4 37,9
Financial services
activities 879,2 947,6 80,2 20,3 367,8 12,0
Listed investments 1459,8 1526,3 24,9 56,0 387,0 431,9
Edcon 81,5 58,1 2 1,5 23,3 7,3
GoldFields 320,1 292,9 5 5,4 356,6 53,7
Metro Cash and Carry 221,7 194,7 26,6 54,3
SABMiller 767,2 934,8 18 47,0 15,2 320,8
Other 69,3 45,8 1 2,1 (34,7) (4,2)
Other investments 6116,9 5226,8 85,6 120,0 (152,0) 46,2
Cash and cash
equivalents 995,9 1066,8 54 65,0 1,8 (2,8)
Cash and cash
Equivalents
- Jersey assets 2574,6 2993,0 82 75,4 (501,7) 120,2
Convertible bonds (2432,6) (2874,2) (100) (76,0) 468,0 (119,8)
Fixed assets and
working capital 1120,4 1110,3
Pooled portfolios
and unlisted
investments 3858,6 2930,9 50 55,6 (120,1) 48,6
Management expenses (25,9) (23,3)
Taxation (55,4) (19,5)
Total 9136,1 8345,8 126,5 167,5 617,2 528,0
Summarised group cash flow statement
(unaudited)
Six months
ended 30 June
2002 2001
Rm Rm
Cash flow from operating activities 1 651,0 (1 649,2)
Net (acquisition)/disposal of investments (1 395,3) 743,0
Cash flow from financing activities 22,4 12,6
Net increase/(decrease) in cash
and cash equivalents 278,1 (893,6)
Cash and cash equivalents at beginning of period 912,1 1 424,3
Cash balances of subsidiaries sold (389,8)
Foreign exchange movements on cash balances (13,7) (1,1)
Cash and cash equivalents at end of period 786,7 529,6
Commitments
(unaudited) (audited)
30 June 31 December
2002 2001
Rm Rm
Capital Commitments 317,3 41,0
Under contracts 46,4 24,7
Authorised by the directors but not contracted 270,9 16,3
Operating lease commitments - 1 to 5 years 69,9 32,2
Total commitments 387,2 73,2
Analysis Single Recurring Total
of new premiums premiums premiums
business (unaudited) (unaudited) (unaudited)
sales Six months Six months Six months
ended ended ended
30 June 30 June 30 June %
2002 2001 2002 2001 2002 2001 Change
Personal
Benefits 3804,7 2936,6 1044,9 829,0 4849,6 3765,6 28,8
Corporate
Benefits 679,9 892,0 183,0 166,4 862,9 1058,4 (18,5)
Total 4484,6 3828,6 1227,9 995,4 5712,5 4824,0 18,4
Change 17,1% 23,4% 18,4%
Index 1676,4 1378,2 21,6
Net cash Individual Corporate
flows from business business Total
insurance (unaudited) (unaudited) (unaudited)
operations Six months Six months Six months
ended ended ended
30 June 30 June 30 June %
2002 2001 2002 2001 2002 2001 Change
Total premiums 5967,7 5131,7 1584,0 1649,9 7551,7 6781,6 11,4
Single 3550,6 2800,7 654,4 892,2 4205,0 3692,9 13,9
Recurring 2417,1 2331,0 929,6 757,7 3346,7 3088,7 8,4
Totalclaims (4715,2) (4338,2) (1200,0) (1420,1) (5915,2) (5757,3) 2,7
Netcashinflow 1252,5 793,5 384,0 229,8 1636,5 1024,3 59,8
This information is provided by RNS
The company news service from the London Stock Exchange
END
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