Wrap Text
Financial Results for the six months ended 30 June 2014
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE0000127148
Telephone +27 11 408 3911
Financial results
For the six months ended 30 June 2014
Highlights
BEE normalised operating earnings
up 12%
BEE normalised headline earnings
up 10%
BEE normalised return on equity
20%
return on BEE normalised group equity value
15%
value of long-term insurance new business
up 13%
long-term insurance indexed new business
up 10%
long-term insurance customer net cash inflows
R4,5 billion
asset management customer net cash inflows
R11,6 billion
interim dividend
up 9%
Liberty Group Limited CAR cover
2,6 times
Financial performance indicators
for the six months ended 30 June 2014
30 June 30 June % 31 December
2014 2013 change 2013
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) 720,5 648,8 11 1 517,9
BEE normalised headline earnings per share (cents) 664,7 602,7 10 1 439,6
BEE normalised operating earnings (Rm) 1 174 1 048 12 2 198
BEE normalised return on equity (%) 19,9 21,8 (9) 23,3
Group equity value
BEE normalised group equity value per share (R) 130,42 117,16 11 126,08
BEE normalised return on group equity value (%) 14,7 13,0 13 16,1
Distributions per share (cents)
Normal dividend 232 212 9 581
Interim dividend 232 212 9 212
Final dividend n/a n/a 369
Total assets under management (Rbn) 639 566 13 611
Long-term insurance operations
Indexed new business (excluding contractual increases) (Rm) 3 437 3 122 10 6 947
Embedded value of new business (Rm) 346 307 13 839
New business margin (%) 1,8 1,8 – 2,2
Net customer cash inflows (Rm) 3 583 1 922 86 6 316
Capital adequacy cover of Liberty Group Limited (times covered) 2,58 2,75 (6) 2,56
Asset management – STANLIB
Assets under management (Rbn) 561 504 11 545
Net cash inflows (Rm) 11 618 9 012 29 15 725
Retail and institutional net cash inflows excluding money market (Rm) 4 123 7 630 (46) 13 527
Money market net cash inflows (Rm) 7 495 1 382 >100 2 198
Preparation and supervision:
This announcement on Liberty Holdings Limited's interim results for the six months ended 30 June 2014 has been
prepared and supervised by JC Hubbard (Group Chief Financial Officer) BCom CA(SA) and CG Troskie (Executive Director
– Finance and Risk) BCom (Hons) CA(SA).
The group's performance for the first half of 2014 continues to reflect
the positive momentum in operating earnings and customer new
business as evidenced in 2013. Return on group equity value at 15%
remains above our medium-term expectations.
In the group's long-term insurance operations indexed new
business grew 10% to R3 437 million, supported by very strong
single premium investment sales. Net customer cash inflows were
R4,5 billion (30 June 2013: R1,9 billion), including a R912 million
contribution from the recently launched Retail LISP. Corporate
business customer flows (R0,9 billion) were positive for the first
time since 2007. New business margin at 1,8% has been negatively
impacted by a 25bps increase in the risk discount rate and reflects
the typical lower first half sales seasonality. The business continues
to manage within the long-term actuarial expense and policyholder
behaviour assumptions.
LibFin Markets produced an improved result, due to the ongoing
build of the credit book and a positive asset liability management
contribution which benefited from low realised volatility in equity
and interest rate markets.
The group asset management operations (STANLIB) have
attracted net external customer cash inflows of R11,6 billion which
are 29% up compared to the first half of 2013, over R7,5 billion
of which were invested in the various money market offerings.
Assets under management across the group grew by 5% from
31 December 2013 to R639 billion.
The group's strategically important association with Standard Bank
through the bancassurance agreement has continued to make
significant contributions to the group's performance.
The Shareholder Investment Portfolio (SIP) gross performance
of 5,1% was supported by solid contributions from local and
international equity markets.
Group BEE normalised headline earnings of R1 881 million are
10% higher, representing a 12% growth in operating earnings and
an 8% increase in earnings from the SIP. The growth in operating
earnings was achieved without any significant assumption or
modelling changes. Performance of all business units has broadly
tracked expectation.
BEE normalised group equity value per share of R130,42 is
R4,34 up on 31 December 2013, and reflects R2 541 million of
equity value profits, or an annualised 14,7% return on opening
group equity value.
Consistent management of the group's risks within the board
approved risk appetite has supported the maintenance of the
group's strong capital position with the capital adequacy ratio
in the group's main long-term insurance licence, Liberty Group
Limited, being 2,58 times (31 December 2013: 2,56 times) the
regulatory minimum.
The group's recent positive performances are as a result of
management consistently delivering to strategy within a
comprehensive governance structure. Key elements of the group's
strategy remain to:
- manage the core South African insurance operations within
acceptable sustainable long-term assumption sets;
- launch innovative new products to service targeted customer
segments which have contributed to profitably capturing
greater market shares;
- optimise the balance sheet within board approved risk
appetite limits;
- improve asset management capability;
- expand the geographical footprint into expected high growth
regions of sub-Saharan Africa; and
- maximise opportunities under the Standard Bank bancassurance
agreement.
Liberty is far advanced with the preparation for the implementation
of Solvency Assessment and Management (SAM), the proposed
new long-term insurance solvency regime intended to come into
effect on 1 January 2016, with a parallel process in 2015. We have
recently completed the SAM QIS3 assessment and we believe the group
is well positioned from a capital perspective. A number of other proposed
regulatory changes are also facing the industry including tax, retirement
and health reform, protection of information initiatives, retail
distribution review and treating customers fairly.
Liberty has therefore invested in a substantial change management
capability. Liberty acknowledges that these changes are largely
intended to improve the sustainability of the industry and address
the past inequalities structurally evident in South Africa. The board
and management are pro-actively engaging in the process to
identify opportunities and efficiently prepare for implementation.
Earnings by business unit
for the six months ended 30 June 2014
12 months
30 June 30 June % 31 December
Rm 2014 2013 change 2013
Insurance
Retail segment 795 771 3 1 467
Institutional segment 90 44 >100 133
Liberty Corporate 84 52 62 121
Liberty Africa Insurance (1) 28 18 56 52
Liberty Health (22) (26) 15 (40)
Balance sheet management
LibFin Markets – credit portfolio 87 67 30 132
LibFin Markets – asset/liability management 21 (13) >100 5
Asset management
STANLIB 284 270 5 633
South Africa 254 243 5 571
Other Africa 30 27 11 62
Liberty Properties 12 17 (29) 44
Central overheads and sundry income (115) (108) (7) (216)
BEE normalised operating earnings 1 174 1 048 12 2 198
LibFin Investments 707 656 8 1 878
BEE normalised headline earnings 1 881 1 704 10 4 076
BEE preference share adjustment (28) (37) 24 (62)
Headline earnings 1 853 1 667 11 4 014
(1) Liberty Africa Insurance includes long-term and short-term insurance products sold to both the
retail and institutional markets. The business unit has been classified under the institutional
segment as the majority of premiums are derived from institutional clients.
Business unit financial review
for the six months ended 30 June 2014
Retail segment
Retail SA's headline earnings for the half year are R795 million
(2013: R771 million). Normalising, for the impact of positive
modelling changes in 2013 as well as the increased build costs
related to the transactional joint venture with Standard Bank and
the recently launched LISP platform, reflects an effective earnings
increase of 10%. Increased asset base on which management fees
are charged, on-going good expense management and positive risk
variances are significant contributors to the result.
The LISP, which offers direct investments into a range of collective
investment schemes available to retail customers through a cost-
efficient platform and complements the life wrapper investment
product range, attracted almost R1 billion in net new investments.
The innovative Evolve investment product range continues to
outperform expectations with single premium investment sales
totalling R2,4 billion for the half year.
Indexed new business sales (excluding the Retail LISP and
contractual increases) of R2,9 billion, increased by 7% over June
2013 including a 26% increase in single premium business. Recurring
premium business is flat on last year partly due to Standard Bank's
decision to reduce new micro loan advances which have impacted
credit life sales under the bancassurance agreement and partly due
to an increasingly demanding consumer environment. The Retail
SA new business margin of 2,2% (excluding STANLIB on balance
sheet sales) remains within the medium-term targeted range. The
margin has been negatively impacted by a 25bps increase in the
risk discount rate, due to the increase in the South African bond
yields, as well as a change in the mix of business. Typically the
first half margin is also negatively impacted by seasonality which
manifests itself in proportionately lower first half sales.
Net cash inflows (excluding the Retail LISP) are pleasing at
R2,3 billion and were supported by higher contributions from
our sales of single premium investment products offsetting the
increase in average policy withdrawal values due to recent good
investment returns.
The comprehensive loyalty programme "Own your life REWARDS"
has grown principal membership to over twenty five thousand at
30 June 2014.
Institutional segment
Liberty Corporate
Improved headline earnings of R84 million (up 62%) are mainly a
function of higher asset based management fees and cost control.
The continued innovation in Liability Driven Solutions products
has been well received in the market and has resulted in attracting
a number of large investment mandates in the first half of 2014.
Indexed new business has consequently grown by 45% to
R423 million.
Whilst acknowledging the volatility of investment mandates in
reflecting cash flows, management is encouraged by net customer
cash inflows of R949 million which are positive for the first time
since 2007.
Liberty Africa Insurance
East and Southern Africa (excluding South Africa) insurance
businesses contributed R28 million (2013: R18 million) to Liberty's
headline earnings for the half year. The result has been supported
by improved persistency in the Kenya individual life business,
higher margin business underwritten in Namibia and Uganda, good
performance in investment markets and consistent claims loss
ratios in the short-term insurance business. Long-term insurance
new business has been impacted by lower bancassurance sales in
Botswana leading to a decrease in overall margin to 5,7%.
The group continues to evaluate business opportunities throughout
the sub-Saharan African region and has reserved capital resources
to take advantage of investment opportunities as they arise.
Liberty Health
Liberty's share of Liberty Health's headline loss for the half year is
R22 million (2013: R26 million loss). As recently announced Liberty
has entered into an agreement to acquire the outside shareholder
equity interests in Liberty Health and loan claims, which together total
R133 million. This will allow for greater flexibility and enable Liberty
Health to be restructured in a manner that will be beneficial to the
group. The transaction was effective 1 August 2014.
Our health risk products targeted at employees in African countries,
excluding South Africa, provide cover for over three hundred
thousand lives (eighty two thousand of which are non-capitation).
Claims loss ratios are improving particularly in the higher margin
non-capitation business.
Balance sheet management
Asset liability management and credit portfolio
(LibFin Markets)
LibFin Markets had a positive first half, contributing R108 million to
headline earnings (2013: R54 million).
The Credit Portfolio, a diversified portfolio of government, state
owned enterprise and corporate securities backing the guaranteed
investment product set, contributed R87 million (2013: R67 million)
in line with the growth of the portfolio and through diversification
away from less efficient legacy assets.
The asset liability management earnings, the result of managing
market risk arising from the guaranteed investment product
set, was R21 million for the period (2013: negative R13 million)
benefiting from low realised volatility in equity and interest rate
markets during 2014.
LibFin assets under management at 30 June 2014 was R39 billion
(31 December 2013: R36 billion).
Shareholder Investment Portfolio (SIP)
(LibFin Investments)
LibFin Investments manages the SIP which comprises the group's
investment market exposure to the 90:10 book of business
and the assets backing capital in the insurance operations. The
portfolio which is managed under a low risk balanced mandate
produced a gross return of 5,1% (2013: 5,5%) which was slightly
behind benchmark for the half year period. This portfolio is managed
on a long term basis and in the context of the outperformance during
2013, remains significantly ahead of the past three years' cumulative
benchmarks. The return has followed the favourable performance of local
and international equity markets, a relatively stable currency
and interest rate environment during the period as well as the
benefit of tactical asset allocations to infrastructure assets.
The portfolio contributed R707 million (2013: R656 million) to the
group's first half headline earnings broadly in line with the growth
in the average asset base invested.
Asset management
STANLIB
STANLIB's headline earnings of R284 million are 5% higher
compared to the equivalent period in 2013. Net cash inflows
(excluding inter group) of R11,6 billion are 29% up on the prior half
year, but comprise a different sales mix resulting in R7,5 billion of
inflows into lower margin money market investments. This change
in sales mix combined with the decision to cease initial fees has
resulted in lower earnings growth in South Africa. An improved
sales mix and consequential margin improvement led to other
Africa earnings increasing by 11%. Whilst some good progress
has been made in securing institutional mandates, attracting
significant increases in non-money market retail flows remains
a challenge. The recent investments in building alternative asset
class capabilities are attracting significant investor interest.
Total assets under management increased to R561 billion at
30 June 2014 (31 December 2013: R545 billion).
The majority of funds under management continue to produce
satisfactory performance and STANLIB's unit trusts recently
received four Raging Bull awards. The performance over three
years of 85% of all STANLIB surveyed institutional funds is ahead
of their respective benchmarks.
Liberty Properties
Liberty Properties, which comprises property management and
development, has contributed R12 million (2013: R17 million) to
headline earnings, reflecting lower development fee income, the
reduced portfolio size and one off restructure costs. As part of the
rebalancing of the unlisted property portfolio, several wholly owned
hotels valued at R1,1 billion were sold in April 2014 to The Cullinan Hotel
(Pty) Limited, a 40% associate company of the group.
Bancassurance
The commercial bancassurance joint venture relationship with
Standard Bank, which is applicable across the group's asset
management and insurance operations, continues to make a
considerable contribution to new business volumes and earnings.
Indexed new business premiums of Liberty insurance products
(excluding credit life) for the year from bancassurance channels
are 7% higher than 2013. STANLIB received an 8% growth in net
asset management fees related to assets acquired through the
Standard Bank distribution channel.
The total SA covered business embedded value of in-force
contracts sold under the agreement attributable to Liberty
at 30 June 2014 increased to R1,4 billion (31 December 2013:
R1,3 billion) despite the higher required discount rates.
Tax legislation
The Taxation Laws Amendment Act, 2013 was promulgated on
12 December 2013. The Act included additional changes to the
expense relief formulae to those which became applicable to long-
term insurers in the 2012 Amendment Act. The 2013 changes
did not allow for the inclusion of the aggregate annual taxable
portion of unrealised capital gains in respect of assets allocated
to the policyholder funds which was contrary to the stated
intention. National Treasury have released the 2014 Taxation
Laws Amendment Bill ("the 2014 Bill"), proposing to correct the
applicable legislation with retrospective effect. The 2014 Bill will
only be tabled in Parliament during the 2014 legislative cycle.
Policyholder liabilities have been calculated using the 2014 Bill.
Using the current Act, the impact at 30 June 2014 to policyholder
liabilities and earnings is not significant.
Capital adequacy cover
The capital adequacy cover of Liberty Group Limited remains
strong at 2,58 times the statutory requirement (31 December 2013:
2,56 times). All the other group subsidiary life licences are also
well capitalised.
Capital adequacy requirements are set at the higher of the
"termination" (TCAR) basis or "ordinary" (OCAR) basis. At 30 June
2014 the higher amount is TCAR (31 December 2013: OCAR).
Dividends
2014 interim dividend
In line with the group's dividend policy, the board has approved
and declared a gross interim dividend of 232 cents per ordinary
share. The interim dividend will be payable out of income reserves
and payable to all ordinary shareholders recorded in the books
of Liberty Holdings Limited at the close of business on Friday,
5 September 2014.
The dividend of 232 cents per ordinary share will be subject to
a local dividend tax rate of 15% which will result in a net interim
dividend, to those shareholders who are not exempt from paying
dividend tax, of 197.2 cents per ordinary share. Liberty Holdings
Limited's income tax number is 9050/191/71/8. The number of
ordinary shares in issue in the company's share capital at the date
of declaration is 286 202 373.
The important dates pertaining to the dividend is as follows:
Last date to trade Friday, 29 August 2014
cum dividend on the JSE
First trading day Monday, 1 September 2014
ex dividend on the JSE
Record date Friday, 5 September 2014
Payment date Monday, 8 September 2014
Share certificates may not be dematerialised or rematerialised
between Monday, 1 September 2014 and Friday, 5 September 2014,
both days inclusive. Where applicable, in terms of instructions
received by the company from certificated shareholders, the
payment of the dividend will be made electronically to shareholders'
bank accounts on payment date.
In the absence of specific mandates, cheques will be posted to
shareholders. Shareholders who have dematerialised their shares
will have their accounts with their CSDP or broker credited on
Monday, 8 September 2014.
Prospects
The group's first half 2014 performance reinforces our
demonstrated ability to sustainably grow the business in line with
our strategy. We continue to perform above our medium term
targets and they are well positioned to attract higher levels of new
business within our targeted margin ranges.
We are confident that our proven balance sheet management
capability will continue to manage our investment market risk
exposures within risk appetite.
Thabo Dloti Saki Macozoma
Chief Executive Chairman
7 August 2014
Transfer Secretaries
Computershare Investor Services (Pty) Limited
(Registration number: 2004/003647/07)
Ground Floor, 70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Telephone +27 11 370 5000
Sponsor
Merrill Lynch
A subsidiary of Bank of America Corporation
These results are available at www.libertyholdings.co.za
Accounting policies
The unaudited condensed interim consolidated financial
statements for the six months ended 30 June 2014 are prepared
in accordance with International Financial Reporting Standards
(IFRS), IAS 34 Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council, the JSE Limited Listings
Requirements and the requirements of the Companies Act of
South Africa. The accounting policies applied in the preparation
of these interim financial statements are in terms of IFRS and are
consistent with those applied in the previous consolidated annual
financial statements, except for the mandatory adoption of minor
amendments to IFRS, which are effective for years commencing
1 January 2014. These changes have not resulted in any material
impacts to the 2014 group's reported results, comparative periods
or interim disclosures.
Review/audit
These interim results have not been reviewed or audited by the
company's auditors, PricewaterhouseCoopers Inc.
Definitions
BEE normalised: headline earnings per share, return on
equity, group equity value per share and return on group
equity value
These measures reflect the economic reality of the Black
Economic Empowerment (BEE) transaction as opposed to
the required technical accounting treatment that reflects the
BEE transaction as a share buy-back. Dividends received on the
group's BEE preference shares (which are recognised as an asset
for this purpose) are included in income. Shares in issue relating to
the transaction are reinstated.
Capital adequacy requirement (CAR)
The capital adequacy requirement is the minimum amount by
which the Financial Services Board requires an insurer's assets
to exceed its liabilities. The assets, liabilities and CAR must be
calculated using a method which meets the Financial Services
Board's requirements. Capital adequacy cover refers to the amount
of capital the insurer has as a multiple of the minimum requirement.
"Liberty" or "group"
Represents the collective of Liberty Holdings Limited and its
subsidiaries.
Long-term insurance operations – Indexed new business
This is a measure of new business which is calculated as the sum of
twelve months' premiums on new recurring premium policies and
one tenth of single premium sales.
Long-term insurance operations – Value of new business
and margin
The present value, at point of sale, of the projected stream of after
tax profits for new business issued, net of the cost of required
capital. The present value is calculated using a risk adjusted
discount rate. Margin is calculated using the value of new business
divided by the present value of future modelled premiums.
Short-term insurance operations – Claims loss ratio
This is a measure of underwriting risk and is measured as a ratio
of claims incurred divided by the net premiums earned.
FCTR
Foreign Currency Translation Reserve.
Development costs
Represents project costs incurred on developing or enhancing
future revenue opportunities.
Negative rand reserves
A portion of expected future management and administration fees
are present valued and recognised at point of sale. Prospective
measurement takes place at each valuation date until received.
Consolidated statement of financial position
as at 30 June 2014
Unaudited Unaudited Audited
30 June 30 June 31 December
Rm 2014 2013 2013
Assets
Equipment and owner-occupied properties under development 948 1 080 1 114
Owner-occupied properties 1 423 1 404 1 410
Investment properties 25 645 24 259 27 299
Intangible assets 394 667 475
Defined benefit pension fund employer surplus 215 213 210
Deferred acquisition costs 563 485 527
Interests in joint ventures 6 391 404
Reinsurance assets 1 738 1 396 1 609
Long-term insurance 1 246 1 037 1 161
Short-term insurance 492 359 448
Operating leases – accrued income 1 221 1 408 1 315
Pledged assets measured at fair value through profit or loss 6 364 1 759 1 348
Assets held for trading 6 706 4 681 6 387
Interests in associates – equity accounted 74 72 72
Interests in associates – measured at fair value 18 778 14 975 15 361
Financial investments 290 810 246 676 279 043
Deferred taxation 313 289 354
Prepayments, insurance and other receivables 4 968 4 214 3 841
Cash and cash equivalents 13 124 15 376 9 870
Total assets 373 290 319 345 350 639
Liabilities
Long-term policyholder liabilities 278 898 241 414 263 944
Insurance contracts 189 034 166 391 180 742
Investment contracts with discretionary participation features 9 867 7 951 9 056
Financial liabilities under investment contracts 79 997 67 072 74 146
Short-term insurance liabilities 901 806 846
Financial liabilities at amortised cost 3 167 2 131 3 167
Third party financial liabilities arising on consolidation of mutual funds 42 456 36 316 39 983
Employee benefits 1 002 971 1 344
Deferred revenue 206 186 194
Deferred taxation 3 827 2 771 3 586
Deemed disposal taxation liability 272 628 544
Provisions 155 257 195
Derivative liabilities 6 523 4 252 4 860
Insurance and other payables 13 089 9 618 9 716
Current taxation 678 831 904
Total liabilities 351 174 300 181 329 283
Equity
Ordinary shareholders' interests 18 351 15 978 17 654
Share capital 26 26 26
Share premium 5 919 6 034 5 985
Retained surplus 13 356 10 775 12 454
Other reserves (950) (857) (811)
Non-controlling interests 3 765 3 186 3 702
Total equity 22 116 19 164 21 356
Total equity and liabilities 373 290 319 345 350 639
Consolidated statement of comprehensive income
for the six months ended 30 June 2014
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2014 2013 2013
Revenue
Insurance premiums 18 541 16 090 35 782
Reinsurance premiums (695) (657) (1 316)
Net insurance premiums 17 846 15 433 34 466
Service fee income from investment contracts 450 417 900
Investment income 7 257 6 936 13 220
Hotel operations sales 371 377 809
Investment gains 15 019 6 649 33 554
Fee revenue and reinsurance commission 1 197 941 2 324
Total revenue 42 140 30 753 85 273
Claims and policyholder benefits under insurance contracts (15 821) (10 446) (25 904)
Insurance claims recovered from reinsurers 526 524 1 357
Change in long-term policyholder liabilities (9 014) (5 477) (20 698)
Insurance contracts (8 286) (1 623) (15 937)
Investment contracts with discretionary participation features (813) (3 911) (4 941)
Applicable to reinsurers 85 57 180
Fair value adjustment to policyholder liabilities under investment contracts (5 074) (2 754) (10 135)
Fair value adjustment on third party mutual fund interests (2 196) (3 396) (7 832)
Acquisition costs (2 135) (2 013) (4 233)
General marketing and administration expenses (4 578) (3 820) (9 079)
Finance costs (291) (114) (327)
Profit share allocations under bancassurance and other agreements (434) (441) (984)
Equity accounted earnings from joint ventures 14
Profit before taxation 3 123 2 830 7 438
Taxation (1 121) (1 041) (2 968)
Total earnings 2 002 1 789 4 470
Other comprehensive income (57) 76 88
Items that may be reclassified subsequently to profit or loss (46) 53 56
Net change in fair value on cash flow hedges (65) (109) (183)
Income and capital gains tax relating to net change in fair value on cash flow hedges 16 33 53
Foreign currency translation 3 129 186
Items that may not be reclassified to profit or loss (11) 23 32
Owner-occupied properties – fair value adjustment 13 13 28
Income and capital gains tax relating to owner-occupied properties fair value adjustment (5) (6) (10)
Change in long-term policyholder insurance liabilities (application of shadow accounting) (8) (8) (22)
Actuarial gains on post-retirement medical aid liability (18) 7 24
Income tax relating to post-retirement medical aid liability 5 (2) (7)
Net adjustments to defined benefit pension fund(1) 2 27 26
Income tax relating to defined benefit pension fund (8) (7)
Total comprehensive income 1 945 1 865 4 558
Total earnings attributable to:
Ordinary shareholders' interests 1 854 1 668 3 908
Non-controlling interests 148 121 562
2 002 1 789 4 470
Total comprehensive income attributable to:
Ordinary shareholders' interests 1 797 1 700 3 936
Non-controlling interests 148 165 622
1 945 1 865 4 558
Basic and fully diluted earnings per share Cents Cents Cents
Basic earnings per share 720,5 648,8 1 517,9
Fully diluted basic earnings per share 659,1 596,4 1 393,4
(1) Net adjustments to defined benefit pension fund include actuarial gains or losses, return on plan assets, reduced by the interest
on the net defined benefit asset, and the effect of the application of the asset ceiling.
Headline earnings and earnings per share
for the six months ended 30 June 2014
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2014 2013 2013
Reconciliation of total earnings to headline earnings attributable to equity holders
Total earnings attributable to equity holders 1 854 1 668 3 908
Preference share dividend (1) (1) (2)
Basic earnings attributable to ordinary shareholders 1 853 1 667 3 906
Derecognition and impairment of intangible assets 126
FCTR recycled through profit or loss (18)
Headline earnings attributable to ordinary shareholders 1 853 1 667 4 014
Net income earned on BEE preference shares 28 37 62
BEE normalised headline earnings attributable to ordinary shareholders 1 881 1 704 4 076
Weighted average number of shares in issue ('000) 257 181 256 954 257 334
BEE normalised weighted average number of shares in issue ('000) 282 977 282 750 283 130
Fully diluted weighted average number of shares in issue ('000) 281 138 279 490 280 329
Earnings per share Cents Cents Cents
Total earnings attributable to ordinary shareholders
Basic 720,5 648,8 1 517,9
Headline 720,5 648,8 1 559,8
BEE normalised headline 664,7 602,7 1 439,6
Fully diluted earnings attributable to ordinary shareholders
Basic 659,1 596,4 1 393,4
Headline 659,1 596,4 1 431,9
Condensed statement of changes in shareholders' funds
for the six months ended 30 June 2014
Unaudited Unaudited Audited
30 June 30 June 31 December
Rm 2014 2013 2013
Balance of ordinary shareholders' interests at 1 January 17 654 15 410 15 410
Ordinary dividends (1 056) (959) (1 566)
Special dividend (371) (371)
Total comprehensive income 1 797 1 700 3 936
Share buy-backs net of share subscriptions (224) 35 (15)
Black Economic Empowerment transaction 95 116 171
Share-based payments 68 48 109
Preference dividends (1) (1) (2)
Transaction between owners 18
FCTR recycled through profit or loss (18)
Ordinary shareholders' interests 18 351 15 978 17 654
Balance of non-controlling interests at 1 January 3 702 3 101 3 101
Total comprehensive income 148 165 622
Unincorporated property partnerships net distributions (63) (77) (6)
Non-controlling share of subsidiary dividend (4) (3) (17)
Transaction between owners (18)
FCTR recycled through profit or loss 2
Non-controlling interests 3 765 3 186 3 702
Total equity 22 116 19 164 21 356
Condensed statement of cash flows
for the six months ended 30 June 2014
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2014 2013 2013
Operating activities 5 164 2 267 8 196
Investing activities (1 723) 2 589 (10 014)
Financing activities (188) (6) 1 157
Net increase/(decrease) in cash and cash equivalents 3 253 4 850 (661)
Cash and cash equivalents at the beginning of the year 9 870 10 418 10 418
Foreign currency translation 1 108 113
Cash and cash equivalents at the end of the period 13 124 15 376 9 870
Condensed segment information
for the six months ended 30 June 2014
The unaudited segment results for the six months ended 30 June 2014 are as follows:
Short- Asset Reporting
Long-term insurance term manage- Health adjust- IFRS
Rm Retail Corporate insurance ment services Other Total ments(1) reported
Total revenue 33 829 9 636 602 1 582 143 977 46 769 (4 629) 42 140
Profit/(loss) before taxation 2 060 129 61 396 (74) 426 2 998 125 3 123
Taxation (1 002) (30) (11) (104) 12 14 (1 121) (1 121)
Total earnings/(loss) 1 058 99 50 292 (62) 440 1 877 125 2 002
Transfers between
segments (2) (11) 5 (4) 10
Total earnings/(loss)
after transfers 1 047 104 50 288 (62) 450 1 877 125 2 002
Other comprehensive
(loss)/income (59) (1) 1 2 (57) (57)
Total comprehensive
income/(loss) 988 103 50 289 (62) 452 1 820 125 1 945
Attributable to:
Non-controlling interests (23) 2 (20) (4) 17 5 (23) (125) (148)
Equity holders 965 105 30 285 (45) 457 1 797 1 797
Reconciliation of total
earnings/(loss) after
transfers to headline
earnings/(loss)
attributable to equity
holders
Total earnings/(loss) after
transfers 1 047 104 50 288 (62) 450 1 877 125 2 002
Attributable (to)/from
non-controlling interests (23) 2 (20) (4) 17 5 (23) (125) (148)
Preference share dividend (1) (1) (1)
Headline earnings/(loss) 1 024 106 30 284 (45) 454 1 853 1 853
Net income earned
on BEE preference shares 28 28 28
BEE normalised headline
earnings/(loss) 1 024 106 30 284 (45) 482 1 881 1 881
(1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities,
the classification of long-term insurance into defined IFRS 'investment' and 'insurance' products, the application of shadow accounting for the
change in long-term policyholder insurance liabilities and the elimination of intergroup transactions.
(2) Earnings reallocated as they are attributable to other segments (e.g. bancassurance agreement profit share attributable to asset management and
release of regulatory project reserves to offset related shareholder expenses in "other").
The unaudited segment results for the six months ended 30 June 2013 are as follows:
Short- Asset Reporting
Long-term insurance term manage- Health adjust- IFRS
Rm Retail Corporate insurance ment services Other Total ments(1) reported
Total revenue 23 914 6 548 499 1 272 134 698 33 065 (2 312) 30 753
Profit/(loss) before taxation 1 956 143 40 398 (82) 273 2 728 102 2 830
Taxation (886) (38) (10) (111) 30 (31) (1 046) 5 (1 041)
Total earnings/(loss) 1 070 105 30 287 (52) 242 1 682 107 1 789
Other comprehensive
(loss)/income (14) 1 37 17 35 76 76
Total comprehensive
income/(loss) 1 056 106 67 304 (52) 277 1 758 107 1 865
Attributable to:
Non-controlling interests (23) (4) (28) (5) 13 (11) (58) (107) (165)
Equity holders 1 033 102 39 299 (39) 266 1 700 1 700
Reconciliation of total
earnings/(loss) to
headline earnings/(loss)
attributable
to equity holders
Total earnings/(loss) 1 070 105 30 287 (52) 242 1 682 107 1 789
Attributable (to)/from
non-controlling interests 3 (4) (11) (4) 13 (11) (14) (107) (121)
Preference share dividend (1) (1) (1)
Headline earnings/(loss) 1 073 101 19 283 (39) 230 1 667 1 667
Net income earned
on BEE preference shares 37 37 37
BEE normalised headline
earnings/(loss) 1 073 101 19 283 (39) 267 1 704 1 704
(1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term
insurance into defined IFRS 'investment' and 'insurance' products, the application of shadow accounting for the change in long-term policyholder insurance liabilities and the
elimination of intergroup transactions.
The audited segment results for the year ended 31 December 2013 are as follows:
Short- Asset Reporting
Long-term insurance term manage- Health adjust- IFRS
Rm Retail Corporate insurance ment services Other Total ments(1) reported
Total revenue 66 124 17 319 1 076 3 064 288 1 817 89 688 (4 415) 85 273
Profit/(loss) before taxation 5 161 298 116 926 (274) 653 6 880 558 7 438
Taxation (2 585) (78) (51) (258) 46 (42) (2 968) (2 968)
Total earnings/(loss) 2 576 220 65 668 (228) 611 3 912 558 4 470
Other comprehensive
(loss)/income (44) 2 57 28 45 88 88
Total comprehensive
income/(loss) 2 532 222 122 696 (228) 656 4 000 558 4 558
Attributable to:
Non-controlling interests (46) (17) (52) (9) 57 3 (64) (558) (622)
Equity holders 2 486 205 70 687 (171) 659 3 936 3 936
Reconciliation of total
earnings/(loss) to
headline earnings/(loss)
attributable to equity
holders
Total earnings/(loss) 2 576 220 65 668 (228) 611 3 912 558 4 470
Attributable (to)/from
non-controlling interests (14) (17) (25) (8) 57 3 (4) (558) (562)
Preference share dividend (2) (2) (2)
Intangible assets
impairment 27 99 126 126
FCTR recycled through
profit or loss 6 (24) (18) (18)
Headline earnings/(loss) 2 589 203 40 660 (66) 588 4 014 4 014
Net income earned
on BEE preference shares 62 62 62
BEE normalised headline
earnings/(loss) 2 589 203 40 660 (66) 650 4 076 4 076
(1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term
insurance into defined IFRS 'investment' and 'insurance' products, the application of shadow accounting for the change in long-term policyholder insurance liabilities and the
elimination of intergroup transactions.
Group equity value report
as at 30 June 2014
1. Introduction
Liberty presents a "group equity value" report to reflect the combined value of the various components of Liberty's businesses.
Section 2 below describes the valuation bases used for each reported component. It should be noted the group equity value
is presented to provide additional information to shareholders to assess performance of the group. The total equity value is
not intended to be a fair value calculation of the group but should provide indicative information of the inherent value of the
component parts.
2. Component parts of the group equity value and valuation techniques used
Group equity value has been calculated as the sum of the following component parts:
2.1 South African covered business:
The wholly owned subsidiary, Liberty Group Limited, comprises the cluster of South African long-term insurance entities and
related asset holding entities. The embedded value methodology in terms of Actuarial Practice Note 107 issued by the Actuarial
Society of South Africa continues to be used to derive the value of this business cluster described as "South African covered
business". The embedded value report of the South African covered business has been reviewed by the group's statutory actuary.
The full embedded value report is included in the supplementary information section.
2.2 Other businesses:
STANLIB Valued using a 10 times (December and June 2013: 10 times) multiple of estimated
sustainable earnings.
Liberty Properties Valued using a 10 times (December and June 2013: 10 times) multiple of estimated
sustainable earnings.
Liberty Health As Liberty Health has yet to establish a history to support a sustainable earnings calculation,
adjusted IFRS net asset value is applied.
Liberty Africa Insurance Liberty Africa Insurance is an emerging cluster of both long and short-term insurance
businesses located in various African countries outside of South Africa. A combination
of valuation techniques including embedded value, discounted cash flow and earnings
multiples have been applied to value these businesses. The combined value of this cluster
is not material relative to the other components of group equity value and therefore a
detailed analysis of this valuation has not been presented. At 30 June 2014 the combined
valuations approximated the group's IFRS net asset value. Therefore the IFRS net asset
value was used.
LibFin Credit LibFin originates appropriate illiquid assets that provide acceptable illiquidity premiums. The
value of this origination is reflected at a 10 times (December and June 2013: 10 times) multiple
of estimated sustainable earnings adjusting for related expenses and prudential margin.
Liberty Holdings The net market value of assets and liabilities held by the Liberty Holdings Limited company
excluding investments in any subsidiaries which are valued separately.
2.3 Other adjustments:
These comprise the fair value of share options/rights allocated to staff not employed by the South African covered businesses
and allowance for certain shareholder recurring costs incurred in Liberty Holdings Limited capitalised at a multiple of 9 times
(December and June 2013: 9 times).
3. BEE normalised group equity value
3.1 Analysis of BEE normalised group equity value
Value of
in-force:
Unaudited SA Other Group SA
30 June 2014 covered busi- funds Adjust- Net covered
Rm business nesses invested ments worth business Total
SA insurance operations 9 618 9 618 (5 345) 4 273 22 091 26 364
Retail segment 20 252
Liberty Corporate 1 839
Value of in-force acquired 112 112 (112)
Working capital and other assets 6 065 6 065 (348) 5 717 5 717
South African insurance operations 15 795 15 795 (5 805) 9 990 22 091 32 081
Other group businesses:
STANLIB 609 609 5 391 6 000 6 000
South Africa 425 425 5 075 5 500 5 500
Other Africa 184 184 316 500 500
Liberty Properties 29 29 271 300 300
Liberty Health (including Total Health Trust) 45 45 (241) (196) (196)
Liberty Africa Insurance 544 544 544 544
LibFin Credit 720 720 720
Liberty Holdings 1 329 1 329 1 329 1 329
Cost of required capital (1 656) (1 656)
Net equity as reported under IFRS 15 795(1) 2 556 18 351 336 18 687 20 435 39 122
BEE preference funding 842 842 842 842
Allowance for future shareholders costs (318) (318) (318) (1 932) (2 250)
Allowance for employee share
options/rights (206) (181) (387) (387) (387)
BEE normalised equity value 16 431 2 057 18 488 336 18 824 18 503 37 327
Summary of adjustments:
Negative rand reserves (5 345) (5 345)
Deferred acquisition costs (544) (544)
Deferred revenue liability 196 196
Carrying value of in-force business acquired (112) (112)
Fair value adjustment of
non SA covered business 6 141 6 141
(5 805) 6 141 336
(1) Reconciliation to SA covered business net worth
as per analysis in supplementary information
Net equity of SA covered business as reported under IFRS 15 795
Adjustments as above (5 805)
Allowance for employee share options/rights (206)
BEE preference share funding 842
Net worth as reported in supplementary information 10 626
Value of
in-force:
Audited SA Other Group SA
31 December 2013 covered busi- funds Adjust- Net covered
Rm business nesses invested ments worth business Total
SA insurance operations 10 775 10 775 (5 350) 5 425 21 637 27 062
Retail segment 19 830
Liberty Corporate 1 807
Value of in-force acquired 150 150 (150)
Working capital and other assets 4 145 4 145 (381) 3 764 3 764
South African insurance operations 15 070 15 070 (5 881) 9 189 21 637 30 826
Other group businesses:
STANLIB 570 570 5 080 5 650 5 650
South Africa 396 396 4 854 5 250 5 250
Other Africa 174 174 226 400 400
Liberty Properties 50 50 350 400 400
Liberty Health (including Total Health Trust) 87 87 (87)
Liberty Africa Insurance 488 488 488 488
LibFin Credit 650 650 650
Liberty Holdings 1 389 1 389 (47) 1 342 1 342
Cost of required capital (1 566) (1 566)
Net equity as reported under IFRS 15 070(1) 2 584 17 654 65 17 719 20 071 37 790
BEE preference funding 905 905 905 905
Allowance for future shareholders costs (247) (247) (247) (1 970) (2 217)
Allowance for employee share
options/rights (236) (175) (411) (411) (411)
BEE normalised equity value 15 739 2 162 17 901 65 17 966 18 101 36 067
Summary of adjustments:
Negative rand reserves (5 350) (5 350)
Deferred acquisition costs (513) (513)
Deferred revenue liability 185 185
Internally generated software (53) 53
Carrying value of in-force business acquired (150) (150)
Fair value adjustment of
non SA covered business 5 993 5 993
Liberty Health loan impairment (100) (100)
(5 881) 5 946 65
(1) Reconciliation to SA covered business net worth
as per analysis in supplementary information.
Net equity of SA covered business as reported under IFRS 15 070
Adjustments as above (5 881)
Allowance for employee share options/rights (236)
BEE preference share funding 905
Net worth as reported in supplementary information 9 858
3.2 BEE normalised group equity value earnings and value per share
Unaudited Audited
6 months 12 months
30 June 2014 31 December 2013
SA Other SA Other
covered busi- covered busi-
Rm (unless otherwise stated) business nesses Total business nesses Total
BEE normalised equity value at the end of the period 29 129 8 198 37 327 27 959 8 108 36 067
Equity value at the end of the period 28 287 8 198 36 485 27 054 8 108 35 162
BEE preference shares 842 842 905 905
Adjustments from group restructure (6) 6
Capital transactions 224 224 15 15
Funding of restricted share plan 97 (97) 87 (87)
Intergroup dividends 850 (850) 1 653 (1 653)
Dividends paid 1 057 1 057 1 939 1 939
BEE normalised equity value at the beginning
of the year (27 959) (8 108) (36 067) (25 574) (7 166) (32 740)
Equity value at the beginning of the year (27 054) (8 108) (35 162) (24 562) (7 166) (31 728)
BEE preference shares (905) (905) (1 012) (1 012)
BEE normalised equity value earnings 2 117 424 2 541 4 119 1 162 5 281
BEE normalised return on group equity value (%) 15,8 10,9 14,7 16,2 16,1 16,1
BEE normalised number of shares (000's) 286 201 286 057
Number of shares in issue (000's) 256 600 257 801
Shares held for the employee restricted share
scheme (000's) 3 805 2 460
Adjustment for BEE shares (000's) 25 796 25 796
BEE normalised group equity value per
share (rand) 130,42 126,08
3.3 Sources of BEE normalised group equity value earnings
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2014 2013 2013
SA Other SA Other
covered busi- covered busi-
Rm business nesses Total business nesses Total Total
Value of new business written in the
period 334 12 346 295 12 307 839
Expected return on value of in-force
business 1 048 1 048 877 877 1 843
Variances/changes in operating
assumptions 123 (104) 19 42 (20) 22 (67)
Operating experience variances (including
incentive outperformance) 170 (19) 151 82 (2) 80 234
One period replacement of shareholder
expenses and inflating expenses (58) (21) (79) (53) (18) (71) (151)
Transfer of shareholder expense reserve 64 (64)
Operating assumption changes 8 8 27 27 54
Changes in modelling methodology (61) (61) (14) (14) (204)
Headline earnings of other businesses 302 302 5 274 279 689
Operational equity value profits 1 505 210 1 715 1 219 266 1 485 3 304
Non headline earnings adjustments (126)
Development costs (21) (14) (35) (27) (7) (34) (82)
Economic adjustments 603 (2) 601 223 66 289 1 625
Investment return on net worth 307 51 358 281 66 347 1 068
Internally generated software 53 (53)
Credit portfolio earnings 87 87 67 67 132
Investment variances 232 232 259 259 1 028
Change in economic assumptions (76) (76) (384) (384) (603)
Increase in fair value adjustments on
value of other businesses 236 236 233 233 484
Change in allowance for share
options/rights 30 (6) 24 59 36 95 76
Group equity value earnings 2 117 424 2 541 1 474 594 2 068 5 281
3.4 Analysis of value of long-term insurance, new business and margins
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rm (unless otherwise stated) 2014 2013 2013
South African covered business:
Retail segment 712 666 1 580
Traditional Life 623 573 1 387
Direct channel 45 41 91
Credit Life 44 52 102
Corporate 64 55 141
Gross value of new business 776 721 1 721
Overhead acquisition costs impact on value of new business (392) (377) (833)
Cost of required capital (50) (49) (82)
Net value of South African covered new business 334 295 806
South African life licences 334 291 806
Liberty Africa Insurance subsidiaries 4
Present value of future expected premiums 19 442 16 715 37 753
Margin (%) 1,7 1,8 2,1
Liberty Africa Insurance:
Net value of new business 12 12 33
Present value of future expected premiums 211 103 362
Margin (%) 5,7 11,7 9,1
Total group net value of new business 346 307 839
Total group margin (%) 1,8 1,8 2,2
Long-term insurance new business
for the six months ended 30 June 2014
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rm 2014 2013 2013
Sources of insurance operations total new business by customer segment
Retail segment 11 857 9 826 22 505
Single 9 862 7 827 18 270
Recurring 1 995 1 999 4 235
Institutional segment 1 721 723 2 816
Single 1 405 425 2 144
Recurring 316 298 672
Total new business 13 578 10 549 25 321
Single 11 267 8 252 20 414
Recurring 2 311 2 297 4 907
Sources of insurance indexed new business 3 437 3 122 6 947
Retail segment 2 944 2 759 6 000
Liberty Corporate 423 292 789
Liberty Africa Insurance (1) 70 71 158
(1) Liberty owns less than 100% of the various entities that make up Liberty Africa. The information is recorded
at 100% and is not adjusted for proportional legal ownership.
Long-term insurance net cash flows
for the six months ended 30 June 2014
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rm 2014 2013 2013
Premiums
Recurring 12 587 11 785 24 936
Retail 8 827 8 158 17 544
Corporate 3 760 3 627 7 392
Single 12 015 9 163 21 979
Retail 6 303 4 901 11 463
Corporate 2 116 1 286 3 798
Immediate annuities 3 596 2 976 6 718
Net premium income from insurance contracts and inflows from investment contracts 24 602 20 948 46 915
Claims and policyholders benefits
Retail (16 185) (13 811) (29 378)
Death and disability claims (2 715) (2 357) (4 879)
Policy surrender and maturity claims (11 259) (9 507) (20 374)
Annuity payments (2 211) (1 947) (4 125)
Corporate (4 834) (5 215) (11 221)
Death and disability claims (991) (941) (1 859)
Scheme terminations and member withdrawals (3 652) (4 101) (9 007)
Annuity payments (191) (173) (355)
Net claims and policyholders benefits (21 019) (19 026) (40 599)
Long-term insurance net cash flows 3 583 1 922 6 316
Sources of insurance operations cash flows by business unit:
Retail segment 2 348 2 215 6 111
Liberty Corporate 949 (401) (83)
STANLIB Multi-Manager 72 (51) (37)
Liberty Africa Insurance (1) 214 159 325
(1) Liberty owns less than 100% of the various entities that make up Liberty Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership.
Assets under management(1)
as at 30 June 2014
30 June 30 June 31 December
2014 2013 2013
Unaudited Rbn Rbn Rbn
Managed by group business units 610 543 586
STANLIB South Africa 522 468 507
STANLIB Other Africa(2) 39 36 38
LibFin 39 34 36
Other internal managers 10 5 5
Externally managed 29 23 25
Total assets under management 639 566 611
(1) Includes funds under administration.
(2) Liberty owns less than 100% of the various entities that make up Liberty Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership.
Asset management net cash flows – STANLIB
for the six months ended 30 June 2014
30 June 30 June 31 December
2014 2013 2013
Unaudited Rm Rm Rm
South Africa
Non-money market 4 778 13 548 19 433
Retail 4 425 12 545 17 584
Institutional 353 1 003 1 849
Money market 9 657 515 2 229
Retail (658) (1 095) (1 689)
Institutional 10 315 1 610 3 918
Net South Africa cash inflows(1) 14 435 14 063 21 662
Other Africa
Non-money market (655) (5 918) (5 906)
Retail 85 1 419 1 539
Institutional (740) (7 337) (7 445)
Money market (2 162) 867 (31)
Net other Africa cash outflows(1)(2) (2 817) (5 051) (5 937)
Net cash inflows from asset management 11 618 9 012 15 725
(1) STANLIB and Liberty Africa cash flows exclude intergroup life funds.
(2) Liberty owns less than 100% of the various entities that make up Liberty Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership.
Short-term insurance indicators
for the six months ended 30 June 2014
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rm 2014 2013 2013
Premiums 507 428 930
Liberty Health – medical risk 338 315 640
Liberty Africa Insurance – motor, property, medical and other 169 113 290
Claims (297) (257) (559)
Liberty Health – medical risk (224) (206) (438)
Liberty Africa Insurance – motor, property, medical and other (73) (51) (121)
Net cash inflows from short-term insurance 210 171 371
Claims loss ratio (%)
Liberty Health 66 65 68
Liberty Africa Insurance 43 45 42
Combined loss ratio (%)
Liberty Health 97 102 100
Liberty Africa Insurance 89 82 98
Capital commitments
as at 30 June 2014
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rm 2014 2013 2013
Equipment 348 382 563
Investment and owner-occupied property 2 426 1 856 3 544
Unconsolidated structured entities (1) 1 957 509
Total 4 731 2 238 4 616
Under contracts 3 637 588 944
Authorised by the directors but not contracted 1 094 1 650 3 672
(1) These are undrawn commitments to various unconsolidated structured entities and mainly form part of the ongoing build of the LibFin credit book. Drawing is subject to covenant
checks by Liberty.
The above 2014 capital commitments will be financed by available bank facilities, existing cash resources, internally generated funds and
R44 million (31 December 2013: R218 million) from non-controlling interests in unincorporated property partnerships.
Corporate actions
for the six months ended 30 June 2014
The corporate actions described below have been or will be funded from the group's existing resources and facilities.
Completed transaction:
- Change in shareholding in The Cullinan Hotel (Pty) Ltd (Cullinan)
As a result of a series of transactions that involved selling a portion (R1,1 billion) of the group's hotel portfolio to Cullinan, the group's
interest in Cullinan reduced from 50% to 40% with effect from 30 April 2014.
Cullinan was a 50% held joint venture (measured at fair value) between the group's wholly-owned subsidiary, Liberty Group Limited, and
Southern Sun Hotel Interests (Pty) Ltd (SSHI), a subsidiary of Tsogo Sun Limited.
As a result of this transaction Liberty has significant control over Cullinan and the investment is accounted for as an associate held at fair
value (at 30 June 2014 valued at R380 million). The impact to the group's profit and loss of the redesignation (from a joint venture to an
associate) is neutral as Liberty applies the IAS 28 measurement exemption to both joint ventures and associates that back investment-
linked insurance obligations. Therefore, the investment has been measured consistently at fair value throughout the period. Unrealised
fair value loss, relating to this investment, of R20 million was accounted for in the six months to 30 June 2014.
Transactions in progress at 30 June 2014:
- Transaction with owners
Liberty Holdings Limited entered into an agreement with the trustees of the NHA Trust in terms of which it acquired all of the remaining
NHA Trust's shares in Liberty Health Holdings Proprietary Limited (Liberty Health) for R40 million and loan claims of R93 million against
Liberty Health at face value, resulting in an aggregate purchase consideration of R133 million. At 30 June 2014 Liberty held 74,9% of the
total issued shares in Liberty Health with the NHA Trust holding the remaining 25,1%.
All material conditions precedent have been completed and the effective date of the transaction was 1 August 2014. As Liberty Health is
already a subsidiary of the group, the transaction will be accounted for as a transaction between owners.
- Acquisition of a share in an unincorporated property partnership
Liberty Group Limited has entered into a partnership agreement to acquire a 25% undivided share in the developed properties and
associated rental operations of the Melrose Arch precinct in Johannesburg for R1,6 billion.
The transaction is subject to various conditions which are outstanding at the date of this report.
The partnership will be designated as a joint venture and as the investment is utilised to back investment-linked insurance obligations it
will be measured at fair value (application of the measurement exemption in IAS 28).
These uncompleted transactions at 30 June 2014 are not anticipated to have a material impact to the group's total earnings, comprehensive
income or net asset value.
Retirement benefit obligations
as at 30 June 2014
Unaudited
Post-retirement medical benefit
The group operates an unfunded post-retirement medical aid benefit for permanent employees who joined the group prior to
1 February 1999 and agency staff who joined prior to 1 March 2005.
As at 30 June 2014, the Liberty post-retirement medical aid benefit liability was R408 million (31 December 2013: R375 million).
Defined benefit retirement funds
The group operates a number of defined benefit pension schemes on behalf of employees. All these funds are closed to new membership
and are well funded with no deficits reported.
Related parties
for the six months ended 30 June 2014
Unaudited
Standard Bank Group Limited and any subsidiary (excluding Liberty) is referred to as Standard Bank in the context of this section.
The following selected significant related party transactions have occurred in the 30 June 2014 financial period:
1) Summary of movement in investment in ordinary shares held by the group in Standard Bank is as follows:
Fair
Number value Ownership
'000 Rm %
Standard Bank Group Limited
Balance at 1 January 2014 7 062 914 0,44
Purchases 473 62
Sales (574) (79)
Fair value adjustments 112
Balance at 30 June 2014 6 961 1 009 0,44
2) Bancassurance
The Liberty group has extended the joint venture bancassurance agreements with the Standard Bank group for the manufacture,
sale and promotion of insurance, investment and health products through the Standard Bank's African distribution capability. New
business premium income in respect of this business in 2014 amounted to R4 080 million (2013 full year: R7 630 million). In terms of
the agreements, Liberty's group subsidiaries pay joint venture profit shares to various Standard Bank operations. The amounts to be
paid are in most cases dependent on source and type of business and are paid along geographical lines. The total combined net profit
share amounts accrued as payable to the Standard Bank group for the six months to 30 June 2014 is R434 million (2013 full year:
R868 million).
The bancassurance agreements are evergreen agreements with a 24-month notice period for termination, but neither party could have
given notice of termination until February 2014. As at 30 June 2014 neither party had given notice.
A binder agreement has been entered into with Standard Bank effective from 31 December 2012. The binder agreement is associated
with the administration of policies sold under the bancassurance agreement, and shall remain in force for an indefinite period with a
90 day notice period for termination. Fees accrued for the six months to 30 June 2014 is R48 million (2013 full year: R94 million).
In December 2013 Liberty Group Limited, a 100% held subsidiary of Liberty, issued 5 000 cumulative, participating, non-controlling
redeemable preference shares for a total value of R5 million to The Standard Bank of South Africa Limited in order to facilitate the
payment of profit shares under the bancassurance agreement. This followed the discontinuance of business in Liberty Active Limited,
which previously was contracted to make payment.
3) Sale and repurchase agreements
The group has entered into certain agreements of sale and repurchase of financial instruments as part of the group's asset/liability
matching processes.
As at 30 June 2014 a total of R15,5 billion in assets (2013 full year: R7,5 billion) have been traded with Standard Bank under a repurchase
agreement with various repurchase dates to 25 August 2014. Open contracts totalled R3,4 billion as at 30 June 2014 (31 December 2013:
R1,1 billion). Finance costs recognised in respect of these agreements as at 30 June 2014 was R79 million (2013 full year: R52 million),
with total finance costs over the term of the various agreements totalling R93 million (2013 full year: R54 million).
4) Purchases and sales of other financial instruments
In the normal course of conducting Liberty's insurance business, Liberty deposits cash with Standard Bank, purchases and sells financial
instruments issued by Standard Bank and enters into derivative transactions with Standard Bank. These transactions are at arm's length
and are primarily used to support investment portfolios for policyholders and shareholders' capital.
Financial instruments measurement
Financial instruments measurement analysis and fair value hierarchy
as at 30 June 2014
Measurement basis Fair value hierarchy
Unaudited Financial
Designation per Financial Position Amortised soundness Provided Not
Statement cost(1) value(2) Fair value Total below provided(3)
Rm Rm Rm Rm Rm Rm
Assets
Pledged assets 6 364 6 364 6 364
Derivative assets 6 706 6 706 4 688 2 018
Interest in associates – measured at fair value 18 778 18 778 18 778
Financial instruments 1 247 289 563 290 810 289 563
Prepayments, insurance and other receivables 4 968 4 968 4 968
Cash and cash equivalents 13 124 13 124 13 124
Properties (investment and owner-occupied) 28 289 28 289 28 289
Total financial instrument assets 1 247 367 792 369 039 347 682 20 110
Fair value of amortised cost assets 1 133
Liabilities
Investment contracts with discretionary
participation features 9 867 9 867
Financial liabilities under investment contracts 79 997 79 997 79 997
Financial liabilities at amortised cost 3 167 3 167
Third party financial liabilities arising on
consolidation of mutual funds 42 456 42 456 42 456
Derivative liabilities 6 523 6 523 4 500 2 023
Insurance and other payables 13 089 13 089 13 089
Total financial instrument liabilities 3 167 9 867 142 065 155 099 126 953 15 112
Fair value of amortised cost liabilities 3 084
(1) Amortised cost
The R1 247 million financial instrument asset relates to policyholder loans. The fair value has been determined by utilising a discounted cash flow model utilising discount rates
ranging between 11,3% and 18,4%. The financial liabilities comprise subordinated bonds of R3 069 million, non-controlling interests loan of R93 million and redeemable preference
shares of R5 million. The fair value of these liabilities is R2 986 million, R93 million and R5 million respectively, using discount rates ranging between 7,4% and 9,9%.
(2) Financial soundness value
The financial soundness valuation methodology is described in SAP 104 issued by the Actuarial Society of South Africa. With regards to investment contracts with discretionary
participation features, the group cannot reliably measure the fair value of the investment contracts with discretionary participation features (DPF). The DPF is a contractual right
that gives investors in these contracts the rights to receive supplementary discretionary returns through participation in the surplus arising from the assets held in the investment
DPF fund. These supplementary returns are subject to the discretion of the group. Given the discretionary nature of these investments returns and the absence of an exchange
market in these contracts, there is no generally recognised methodology available to determine fair value. These instruments are issued by the group and the intention is to hold
the instruments to full contract term.
(3) Fair value hierarchy not provided
The fair value of prepayments, insurance and other receivables, cash and cash equivalents and insurance and other payables approximate their carrying value and are not included
in the hierarchy table as their settlement terms are short-term and therefore, from a materiality perspective, fair values are not required to be modelled.
Financial instruments measurement analysis and fair value hierarchy
as at 31 December 2013
Measurement basis Fair value hierarchy
Audited Financial
Designation per Financial Position Amortised soundness Provided Not
Statement cost(1) value(2) Fair value Total below provided(3)
Rm Rm Rm Rm Rm Rm
Assets
Pledged assets 1 348 1 348 1 348
Derivative assets 6 387 6 387 4 956 1 431
Interest in joint ventures – measured at fair value 400 400 400
Interest in associates – measured at fair value 15 361 15 361 15 361
Financial instruments 1 214 277 829 279 043 277 829
Prepayments, insurance and other receivables 3 841 3 841 3 841
Cash and cash equivalents 9 870 9 870 9 870
Properties (investment and owner-occupied) 30 024 30 024 30 024
Total financial instrument assets 1 214 345 060 346 274 329 918 15 142
Fair value of amortised cost assets 1 091
Liabilities
Investment contracts with discretionary
participation features 9 056 9 056
Financial liabilities under investment contracts 74 146 74 146 74 146
Financial liabilities at amortised cost 3 167 3 167
Third party financial liabilities arising on
consolidation of mutual funds 39 983 39 983 39 983
Derivative liabilities 4 860 4 860 4 860
Insurance and other payables 9 716 9 716 9 716
Total financial instrument liabilities 3 167 9 056 128 705 140 928 118 989 9 716
Fair value of amortised cost liabilities 3 110
(1) Amortised cost
The R1 214 million financial instrument asset relates to policyholder loans. The fair value has been determined by utilising a discounted cash flow model utilising discount rates
ranging between 11,0% and 18,9%. The financial liabilities comprise subordinated bonds of R3 069 million, non-controlling interests loan of R93 million and redeemable preference
shares of R5 million. The fair value of these liabilities is R3 013 million, R92 million and R5 million respectively, using discount rates ranging between 7,2% and 8,3%.
(2) Financial soundness value
The financial soundness valuation methodology is described in SAP 104 issued by the Actuarial Society of South Africa. With regards to investment contracts with discretionary
participation features, the group cannot reliably measure the fair value of the investment contracts with discretionary participation features (DPF). The DPF is a contractual right
that gives investors in these contracts the rights to receive supplementary discretionary returns through participation in the surplus arising from the assets held in the investment
DPF fund. These supplementary returns are subject to the discretion of the group. Given the discretionary nature of these investments returns and the absence of an exchange
market in these contracts, there is no generally recognised methodology available to determine fair value. These instruments are issued by the group and the intention is to hold
the instruments to full contract term.
(3) Fair value hierarchy not provided
The fair value of prepayments, insurance and other receivables, cash and cash equivalents and insurance and other payables approximate their carrying value and are not included
in the hierarchy table as their settlement terms are short-term and therefore, from a materiality perspective, fair values are not required to be modelled.
Fair value hierarchy
The information below analyses assets and liabilities which are carried at fair value at each reporting period, by level of hierarchy as required
by IFRS 7 and IFRS 13. The different levels in the hierarchy are defined below:
Level 1 – Values are determined using readily and regularly available quoted prices in an active market for identical assets or liabilities. These
prices would primarily originate from the Johannesburg Stock Exchange, the Bond Exchange of South Africa or an international stock or
bond exchange.
Level 2 – Values are determined using valuation techniques or models, based on assumptions supported by observable market prices
or rates either directly (that is, as prices) or indirectly (that is, derived from prices) prevailing at the financial position date. The valuation
techniques or models are periodically reviewed and the outputs validated.
Level 3 – Values are estimated indirectly using valuation techniques or models for which one or more of the significant inputs are reasonable
assumptions (that is unobservable inputs), based on market conditions.
Fair value hierarchy of instruments measured at fair value
as at 30 June 2014
The table below analyses the fair value measurement of applicable assets by level:
Unaudited
Rm Level 1 Level 2 Level 3 Total
30 June 2014
Equity instruments 119 927 383 700 121 010
Listed ordinary shares on the JSE 81 255 81 255
Foreign equities listed on an exchange other than the JSE 38 672 38 672
Unlisted equities 383 320 703
Interest in associates –measured at fair value 380 380
Debt instruments 60 704 25 251 773 86 728
Preference shares listed on the JSE or foreign exchanges 1 902 1 902
Unlisted preference shares 1 026 260 1 286
Listed term deposits(1) on BESA, JSE or foreign exchanges 58 802 4 891 63 693
Unlisted term deposits(1) 19 334 19 334
Interest in associates – measured at fair value 513 513
Mutual funds(2) 173 77 779 89 78 041
Active market 173 75 502 75 675
Property 1 514 1 514
Equity 48 19 691 19 739
Interest-bearing instruments 16 491 16 491
Mixed 125 37 806 37 931
Non-active market 2 277 89 2 366
Equity 2 277 85 2 362
Mixed 4 4
Investment policies 28 926 28 926
Derivatives 4 688 4 688
Equity 1 314 1 314
Foreign exchange 9 9
Interest rate 3 365 3 365
Properties (investment and owner-occupied) 28 289 28 289
Assets subject to fair value hierarchy analysis 180 804 137 027 29 851 347 682
Comprising:
Held-for-trading 4 688 4 688
Designated as at fair value through profit or loss 180 804 132 339 1 562 314 705
Properties measured at fair value 28 289 28 289
Total assets carried at fair value 180 804 137 027 29 851 347 682
(1) Term deposits include instruments which have a defined maturity date and capital repayment. These instruments are by nature interest bearing at a predetermined rate, which is
either fixed or referenced to quoted floating indices.
(2) Mutual funds are categorised into property, equity or interest-bearing instruments based on a minimum of 80% of the underlying asset composition of the fund by value being of a
like category. In the event of "no one category meeting this threshold" it is classified as mixed assets class.
There have been no transfers between level 1, 2 or 3 during the period.
Audited
Rm Level 1 Level 2 Level 3 Total
31 December 2013
Equity instruments 111 639 6 728 112 373
Listed ordinary shares on the JSE 78 702 78 702
Foreign equities listed on an exchange other than the JSE 32 937 32 937
Unlisted equities 6 328 334
Interest in joint ventures –measured at fair value 400 400
Debt instruments 65 527 21 218 238 86 983
Preference shares listed on the JSE or foreign exchanges 1 928 1 928
Unlisted preference shares 1 012 238 1 250
Listed term deposits(1) on BESA, JSE or foreign exchanges 63 599 2 830 66 429
Unlisted term deposits(1) 17 376 17 376
Mutual funds(2) 249 68 731 246 69 226
Active market 249 66 555 66 804
Property 1 747 1 747
Equity 249 20 257 20 506
Interest-bearing instruments 14 551 14 551
Mixed 30 000 30 000
Non-active market 2 176 246 2 422
Equity 2 176 90 2 266
Mixed 156 156
Investment policies 26 356 26 356
Derivatives 4 956 4 956
Equity 1 227 1 227
Foreign exchange 17 17
Interest rate 3 712 3 712
Properties (investment and owner-occupied) 30 024 30 024
Assets subject to fair value hierarchy analysis 177 415 121 267 31 236 329 918
Comprising:
Held-for-trading 4 956 4 956
Designated as at fair value through profit or loss 177 415 116 311 1 212 294 938
Properties measured at fair value 30 024 30 024
Total assets carried at fair value 177 415 121 267 31 236 329 918
(1) Term deposits include instruments which have a defined maturity date and capital repayment. These instruments are by nature interest bearing at a predetermined rate, which is
either fixed or referenced to quoted floating indices.
(2) Mutual funds are categorised into property, equity or interest-bearing instruments based on a minimum of 80% of the underlying asset composition of the fund by value being of a
like category. In the event of "no one category meeting this threshold" it is classified as mixed assets class.
The table below analyses the fair value measurement of applicable financial instrument liabilities which are all categorised as level 2:
Unaudited Audited
30 June 31 December
Rm 2014 2013
Liabilities
Long-term investment contract liabilities 79 997 74 146
Third party financial liabilities arising on consolidation of mutual funds 42 456 39 983
Derivatives 4 500 4 860
Total financial instrument liabilities carried at fair value 126 953 118 989
Comprising:
Held-for-trading 4 500 4 860
Fair value through profit or loss 122 453 114 129
Total financial instrument liabilities carried at fair value 126 953 118 989
There were no transfers between levels 1, 2 and 3 during the period.
Reconciliation of level 3 assets
The table below analyses the movement of level 3 assets (investment and owner-occupied property and financial instruments) for the
period under review:
Unaudited Audited
30 June 31 December
Rm 2014 2013
Balance at the beginning of the year 31 236 29 791
Fair value adjustment recognised in profit or loss as part of investment gains/(losses) (1) 244 2 518
Fair value adjustment recognised in other comprehensive income 13 28
Foreign currency translation 37
Additions 782 1 752
Disposals (2 424) (2 890)
Balance at the end of the period 29 851 31 236
Investment and owner-occupied properties 28 289 30 024
Financial instruments – equity and mutual funds 789 974
– debt 773 238
(1) Included in the fair value adjustment is a R211 million (31 December 2013: R2 409 million) unrealised gain.
Level 3 – significant fair value model assumptions and sensitivities
Investment and owner-occupied property
Investment properties (including owner-occupied properties) fair values were derived by determining sustainable net rental income, to
which an appropriate capitalisation rate is applied. Capitalisation rates are adjusted for occupancy levels, age of the building, location and
expected future benefit of recent alterations.
The capitalisation rates applied at 30 June 2014 range between 7,0% to 11,0% (31 December 2013: 7,0% to 11,0%). This compares to the ten
year government yield of 8,39% (31 December 2013: 8,14%). The non observable adjustments included in the valuation can therefore be
referenced to the variance to the ten year government rate.
The table below indicates the sensitivity of the aggregate market values for a 0,5% change in the capitalisation rate. It should be noted that
as both the investment and the owner-occupied properties are entirely linked to policyholder benefits and consortium non-controlling
interests there is no impact to group ordinary shareholder comprehensive income or equity for any changes in the fair value measurement.
Change in capitalisation rate
Unaudited 0,5% 0,5%
30 June 2014 Rm increase decrease
Properties between 7,0 – 9,0% capitalisation rate 22 909 21 420 24 625
Properties between 9,1 – 11,0% capitalisation rate 5 380 5 114 5 675
Total 28 289 26 534 30 300
Audited
31 December 2013
Properties between 7,0 – 9,0% capitalisation rate 22 550 21 083 24 237
Properties between 9,1 – 11,0% capitalisation rate 7 474 7 072 7 919
Total 30 024 28 155 32 156
Financial instrument assets
Equities and mutual funds R789 million (31 December 2013: R974 million) – earnings multiples applied between 7 and 10 times.
Debt instruments R773 million (31 December 2013: R238 million) – discount rates applied between 7% and 11%.
Approximately 65% (31 December 2013: 57%) of these assets are allocated to policyholder unit linked portfolios where changes in estimates
would be offset by equal changes in liability values.
The net shareholder exposure is approximately R541 million (31 December 2013: R519 million). Changes to discount rates and implied earnings
multiples applied of 50bps would result in between positive R23 million to negative R21 million (31 December 2013: positive R22 million to
negative R20 million) after taxation net impact to profit or loss and shareholder funds.
Group's valuation process
The group's appointed asset managers have qualified valuators that perform the valuations of financial assets and properties required for
financial reporting purposes, including level 3 fair values. These valuations are reviewed and approved every reporting period by the group
balance sheet committee. The committee is chaired by the group's Executive Director – Finance and Risk.
The fair value of level 3 instruments are determined using valuation techniques that incorporate certain assumptions that are not supported
by prices from observable current market transactions in the same instruments and are not based on available observable market data.
Such assumptions include the assumed risk adjusted discount rate applied to estimate future cash flows and the liquidity and credit spreads
applied to debt instruments. Changes in these assumptions could affect the reported fair value of these financial instruments.
Valuation techniques used in determining the fair value of financial assets and liabilities classified within level 2
Instrument Valuation basis/techniques Main assumptions
Unlisted preference shares Discounted cash flow model (DCF) Bond and interbank swap interest
rate curves
Agreement interest rate curves
Issuer credit ratings
Liquidity spreads
Unlisted term deposits and DCF Bond and interbank swap interest
illiquid listed term deposits rate curves
Issuer credit ratings
Liquidity spreads
Mutual funds Quoted put (exit) price provided by the fund manager Price – not applicable
Notice period – bond interest rate curves
Investment policies Quoted put/surrender price provided by the issuer, Price – not applicable
adjusting for any applicable notice periods (DCF) Notice period – bond interest rate curves
Derivative assets and liabilities Option pricing models Volatility and correlation factors
DCF Bond and interbank swap interest
rate curves
Forward equity and currency rates
Policyholder investment
contracts liabilities
– unit-linked policies Current unit price of underlying unitised financial Prices – not applicable
asset that is linked to the liability, multiplied by the Own credit/liquidity
number of units held
– annuity certains DCF Bond and interbank swap interest
rate curves
Own credit/liquidity
Third party financial liabilities Quoted put (exit) price provided by the fund manager Not applicable
arising on the consolidation of
mutual funds
Valuation techniques used in determining the fair value of assets and liabilities classified within level 3
Instrument Valuation basis/techniques Main assumptions
Investment and owner-occupied DCF Capitalisation discount rate
properties Price per square metre
Long-term net operating income margin
Vacancies
Market rental trends (average net rental
growth of between 2,3% – 2,5%)
Economic outlook
Location
Hotel income trends/inflation based
Hotel occupancy (range between
50% – 75%)
Sale price (if held for sale) Not applicable
Unlisted equities, including DCF/earnings multiple Cost of capital
joint ventures – measured at Bond and interbank swap interest
fair value rate curves
Consumer price index
Gross domestic product
If a property investment entity, then
assumptions applied are as above
under investment and owner-occupied
properties
Recent arm's length transactions Not applicable
Unlisted preference shares DCF Bond and interbank swap interest
rate curves
Agreement interest rate curves
Issuer credit ratings
Liquidity spreads
Recent arm's length transactions Not applicable
Offsetting
as at 30 June 2014
Unaudited
The group does not have any financial assets or financial liabilities that are currently subject to offsetting in accordance with IAS 32 Financial
Instruments: Presentation.
However of the gross derivatives assets recognised of R6 706 million (31 December 2013: R6 387 million) and gross derivative liabilities
R6 523 million (31 December 2013: R4 860 million), derivative assets of R6 589 million (31 December 2013: R6 265 million) and derivative
liabilities of R6 346 million (31 December 2013: R4 671 million) are subject to master netting arrangements, with a net exposure of
R243 million (31 December 2013: R1 594 million).
Date: 08/08/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
