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Financial results for the year ended 31 December 2020 – Short form announcement
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 1968/002095/06)
Share Code: LBHP ISIN Code: ZAE000004040
Share code: LBH ISIN code: ZAE0000127148
("Liberty Holdings" or “Group”)
Financial results for the year ended 31 December 2020 – Short form announcement
LIBERTY FULFILS ITS PURPOSE WHILST MAINTAINING CAPITAL STRENGTH
Financial highlights:
%
Rm (unless otherwise stated) 2020 2019 change
(Loss)/profit before taxation (2 219) 6 297 (>100)
Normalised headline (loss)/earnings(1) (1 572) 3 205 (>100)
Normalised headline (loss)/earnings per share (cents)(1) (582,9) 1 174,2 (>100)
Headline (loss)/earnings per share (cents)(2) (582,9) 1 220.0 (>100)
Basic (loss)/earnings per share (cents) (611,7) 1 153,2 (>100)
Normalised return on IFRS equity (%)(1) (7,3) 14,0
Normalised group equity value per share (R)(1) 128,32 147,82 (13)
Normalised return on group equity value (%)(1) (10,2) 11,5
Solvency capital requirement cover ratio of Liberty Group
Limited (times covered) (3) 1,81 1,99
Embedded value of new business 24 407 (94)
New business margin (%) 0,1 1,0
Final dividend - 436 (100)
(1) Normalised: headline (loss)/earnings, headline (loss)/earnings per share, return on IFRS equity, group equity
value per share and return on group equity value. These measures reflect the economic substance of the
consolidation of the listed Liberty Two Degrees REIT and the Black Economic Empowerment transaction which
differs from the required IFRS accounting treatment.
(2) Headline (loss)/earnings includes adjustments for impairment of intangible assets, the remeasurement of disposal
groups classified as held for sale and the profit on sale of subsidiary.
(3) Solvency capital requirement cover is the excess of assets over liabilities required by an insurer to ensure that
its assets remain larger than its liabilities with a 99.5% level of certainty over a one-year time horizon, with assets
and liabilities valued in accordance with the Insurance Act, 2017.
The COVID-19 pandemic ('the pandemic') created extraordinary health, economic and financial
challenges during 2020, a year that will live long in the memories of all of humanity. South Africa,
Liberty’s largest market, has been subject to government-imposed lockdown restrictions
designed to curb the spread of the virus for almost a year, with COVID-19 related deaths having
increased to over 50 000.
We extend our sincere condolences to members of the Liberty community who have lost family
and friends and are struggling with the trauma and stress induced by these extremely difficult
times.
Our main priority in dealing with the pandemic was to ensure the health and safety of our
employees and advisers and to provide undisrupted service to our clients. Support measures and
digital initiatives adopted during the year helped sustain adviser practices across the business.
Various premium relief measures were implemented to assist our clients in managing their
financial circumstances during these times.
Being there to support our clients and their families at those most profound moments of human
vulnerability lies at the heart of our purpose. As evidence of this, total death and disability claims
paid during 2020 amounted to R11,7 billion, an 11,4% increase.
Total annuity payments to clients in the year were R8,6 billion, a 9,3% increase on 2019. This
was a critical injection of income into society to sustain many vulnerable people in the latter years
of their lives.
By leveraging our recent technology investments, the majority of our employees and advisers
have worked, and continue to work, from home with a significant increase in the adoption of digital
channels.
A pandemic reserve of R3 billion (before tax) was established at 30 June 2020 to prudently
recognise the financial impact of the pandemic. This will give our clients the confidence that we
are ready to support them in their times of need, while still remaining financially strong. The
reserve is calculated on a prospective basis to cover the expected increase in mortality and
retrenchment claims together with reduced persistency and increased expense impacts directly
attributable to the pandemic. Judgement was applied to determine a reference scenario to
estimate the financial impact on Liberty’s business due to the elevated insurance risks. This
reference scenario was then applied to the measurement models under the respective IFRS,
regulatory capital and group equity value frameworks. We have applied a key judgement that the
majority of the remaining impact of the pandemic at 31 December 2020 will be evident within the
next twelve months.
The reserve has been modelled using trends in actual infections from official government
statistics and age-based COVID-19 mortality experience as evidenced in published research
studies. Based on these studies and more recent data over the last few months, the reserve was
reassessed on a prospective basis at 31 December 2020, resulting in a marginal increase at year
end of R73 million (before tax).
Liberty’s operations remain financially sound and well capitalised, with the Solvency Capital
Requirement ('SCR') cover ratio of Liberty Group Limited, the Group’s main long-term insurance
licence, at 1,81 times at 31 December 2020 (31 December 2019: 1,99 times). The
31 December 2020 SCR cover takes account of the operational and investment market impacts
of the pandemic and the establishment of the pandemic reserve, underpinning our ability to fulfil
our promises to policyholders and other stakeholders.
Operational results for the year were materially impacted by the pandemic in various ways.
Besides the establishment of a pandemic reserve, the significantly lower new business volumes
in the absence of face-to-face sales and consequently lower value of new business, had a
material influence on the results. Other major factors included the impact of adverse and volatile
equity and interest rate market movements on the insurance book and on the LibFin Markets
asset liability management portfolio.
As mentioned above, premium relief measures were implemented to assist clients experiencing
financial hardship. Unplanned pandemic related expenses were incurred to protect the safety of
our employees and advisers in order to allow them to continue providing undisrupted services to
our clients. Acceleration of the rollout of digital tools to our advisers enabled improved sales
productivity in the second half of 2020.
The extraordinary financial market volatility and the resultant impact, particularly on long-term
illiquid asset values including the Liberty Property Portfolio, was evident in negative investment
returns from the Shareholder Investment Portfolio (SIP) for the first half of the year. The SIP
however delivered significantly improved investment returns in the second half of 2020 relative to
the first half, particularly in the final quarter of 2020.
Liberty has not changed its strategy or purpose as a result of the pandemic. Indeed the crisis has
reinforced the importance of our purpose and has led to a deepened focus on, and acceleration
of, key initiatives to develop a more competitive and future ready enterprise.
In this context, we have three key focus areas:
- Significantly enhancing the quality of our client and adviser experience;
- Delivering transparent and intuitive risk and investment solutions suitable for the digital age;
and
- Aggressively simplifying our whole organisation.
In this way, we aim to produce a Liberty that meets our clients’ needs more effectively and
efficiently, and is capable of producing appropriate long-term returns on equity for shareholders.
Good progress was made in advancing these plans in 2020, particularly in the second half, and
these efforts will continue in 2021.
While we expect continued restrictions and other pandemic related impacts in the year ahead,
we are confident that we will continue to make meaningful progress in advancing our strategic
investment in the future Liberty, while providing excellent service to our clients and advisers.
Liberty incurred a normalised operating loss for the year ended 31 December 2020 of
R1 599 million compared to normalised operating earnings of R2 201 million for the year ended
31 December 2019. The normalised operating loss includes the R2 227 million net after tax cost
of establishing the pandemic reserve which, if excluded from the result, would reflect normalised
operating earnings for the year of R628 million.
The SIP generated a profit of R27 million for the year.
Accordingly, Liberty is reporting a normalised headline loss for the year ended 31 December 2020
of R1 572 million, compared to normalised headline earnings of R3 205 million in the prior year.
Normalised annual return on equity was negative 7,3% compared to positive 14,0% for 2019.
The headline loss for the year of R1 539 million, which includes a positive adjustment of
R37 million (2019: positive R55 million) arising from the consolidation of the Liberty Two Degrees
listed REIT, compares to headline earnings of R3 254 million for the prior year.
Normalised group equity value per share decreased from R147,82 in the prior year to R128,32.
The normalised annual return on group equity value (RoGEV) was negative 10,2% compared to
positive 11,5% in the prior year. The negative RoGEV is largely attributable to the operational
impacts of COVID-19, which includes the impact of the establishment of the pandemic reserve,
certain long-term actuarial assumption changes in the SA insurance operations and the impact
of lower investment returns on the SIP earnings.
Group long-term insurance indexed new business of R7 302 million has been significantly
impacted by the lockdown restrictions and is 10,1% below the prior year of R8 125 million. Adviser
productivity, in the absence of face-to-face sales, was significantly impacted during the initial lock
down period. Following the relaxation of South African lockdown restrictions, indexed new
business has reflected an encouraging improvement in the second half of 2020, particularly in
the fourth quarter of 2020.
The group value of new business ('VoNB') declined to R24 million from R407 million in 2019. This
decline is mainly attributable to the decline in the SA Retail VoNB from R290 million in the prior
year to R30 million, due largely to lower sales volumes whilst acquisition expenses continue to
increase at inflationary levels.
Group net external third party client cash inflows increased to R30,2 billion from R13,3 billion in
2019, supported mainly by robust STANLIB South Africa net external third party client cash
inflows. Total group assets under management increased to R776 billion (31 December 2019:
R738 billion) due mainly to the increase in STANLIB South Africa assets under management,
partly offset by the exit of asset management operations in other African territories and the
associated transfers of mandates to other external managers of R3,9 billion (31 December 2019:
R25,4 billion).
Dividends
The significant uncertainty that currently exists regarding the spread of the COVID-19 virus in
South Africa in the short term and its economic consequences resulted in the Board deciding not
to declare any dividends in respect of the year ended 31 December 2020, despite the Group’s
strong capital position and marginally positive core operating earnings.
Prospects
These extraordinary times demand extraordinary responses, from our employees, advisers and
clients. As a community, we have weathered this storm so far, and intend to continue on the
strategic path we have chosen.
The year ahead is likely to be unpredictable, and filled with uncertainty and challenge. New
business volumes and margins are likely to remain under pressure given the financial challenges
facing households and businesses in South Africa in the current health and socio-economic
environment. Earnings are consequently also likely to be constrained.
Notwithstanding these uncertainties, the Group is expected to remain well capitalised and able to
provide uninterrupted service to our clients and advisers, continuing to fulfil our purpose.
We remain confident in our strategy to focus on our client and adviser experience, transparent,
accessible digital risk and investment solutions, and an unremitting drive for simplicity. We are
accelerating the work to become more competitive and flexible, to service and support clients and
advisers of the future, offering them simple and intuitive solutions on their journeys towards
securing financial freedom.
We would like to thank the Liberty community for their extraordinary commitment, resilience and
hard work, and our clients for their continued support.
Short form statement
The annual financial statements including the audit opinion which sets out the key audit matters
and the basis for the unqualified opinion is available at:
https://www.libertyholdings.co.za/investor/Pages/Results-and-Reports.aspx.
This short form announcement is the responsibility of the directors. It is only a summary of the
information contained in the full announcement and does not contain full or complete details. Any
investment decision should be based on the full announcement accessible from Thursday,
4 March 2021, via the JSE link and available on the Company’s website at
https://www.libertyholdings.co.za/investor/Pages/Results-and-Reports.aspx.
Copies of the full announcement may also be requested by contacting Investor Relations by email
at sharon.steyn@liberty.co.za and are available for inspection at the Company’s registered office
at no charge, weekdays during office hours.
The JSE link is as follows:
https://senspdf.jse.co.za/documents/2021/jse/isse/LBH/FY20RESULT.pdf
4 March 2021
Sponsor:
Merrill Lynch South Africa (Pty) Limited
Date: 04-03-2021 07:10:00
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