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LIBERTY HOLDINGS LIMITED - Financial results for the year ended 31 December 2015

Release Date: 29/02/2016 09:30
Code(s): LBHP     PDF:  
Wrap Text
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBHP
ISIN code: ZAE000004040
Telephone +27 11 408 3911
                                
Financial results
For the year ended 31 December 2015

Financial performance indicators      
for the year ended 31 December 2015   


2015 2014 % change Liberty Holdings Limited Earnings
BEE normalised operating earnings (Rm) 2 772 2 586 7 Basic earnings per share (cents) 1 493,5 1 523,5 (2) BEE normalised headline earnings per share (cents) 1 464,5 1 403,3 4 BEE normalised return on IFRS equity (%) 19,5 20,4 (4) Group equity value
BEE normalised group equity value per share (R) 145,96 139,85 4 BEE normalised return on group equity value (%) 10,5 16,9 (38) Distributions per share (cents)
Normal dividend 691 634 9 Interim dividend 254 232 9 Final dividend 437 402 9 Total assets under management (Rbn) 668 633 5 Long-term insurance operations
Indexed new business (excluding contractual increases) (Rm) 7 515 7 789 (4) Embedded value of new business (Rm) 729 941 (23) New business margin (%) 1,8 2,1 (14) Net customer cash inflows (Rm) 5 402 9 870 (45) Capital adequacy cover of Liberty Group Limited (times covered) 3,03 3,07 (1) Asset management ' STANLIB
Assets under management (Rbn) 579 551 5 Net cash inflows/(outflows) including money market(1) (Rm) 8 454 (7 321) >100 Retail and institutional net cash inflows excluding money market(1) (Rm) 7 343 6 417 14 Money market net cash inflows/(outflows)(1) (Rm) 1 111 (13 738) > 100 (1) Excludes intergroup life funds. Preparation and supervision:
This announcement on Liberty Holdings Limited annual financial results for year ended 31 December 2015 has been prepared and supervised by Y Maharaj (Executive: Group Finance) CA (SA) and CG Troskie (Financial Director) CA (SA). Financial review for the year ended 31 December 2015
Liberty produced a solid increase in earnings with strong net customer cash flows and good cash generation.
This result has been produced against the backdrop of challenging
operating conditions and a slowdown in equity markets.
Group BEE normalised headline earnings of R4 128 million were
4% higher, representing 7% growth in BEE normalised operating
earnings and a 2% decrease in earnings from LibFin Investments
' Shareholder Investment Portfolio (SIP). The growth in operating
earnings was supported by strong performances from Individual
Arrangements, Liberty Corporate, a division of Group Arrangements,
and LibFin Markets. The SIP gross performance of 9,6%
(2014: 10,3%) was substantially ahead of benchmark, supported
by overweight exposure to foreign assets. The BEE normalised
return on equity at 19,5% (2014: 20,4%) reflects ongoing efficient
capital management. The life operations benefited from continued
positive operating variances against modelled expectations which supported good cash generation in 2015.
Net customer cash inflows were substantially higher at R15,2 billion
(2014: R4,2 billion) due to significantly improved STANLIB
asset management cash flows. This included external inflows
of R8,4 billion (2014: outflows of R7,3 billion) into the asset
management operations. Long-term insurance net customer cash
inflows of R5,4 billion remained strong, however, were lower than
the 2014 inflows of R9,9 billion due mainly to significantly reduced
large single premium Corporate customer flows during the year, which are typically sporadic in nature.
In the group's long-term insurance operations, indexed new business
was 4% lower at R7 515 million, impacted by the reduced single
premium business in Liberty Corporate. The group's retail Evolve
investment product range and linked-life annuities continued to
deliver good sales growth. Recurring premium risk product sales were at similar levels to 2014.
New business margins at 1,8% (2014: 2,1%) were lower, mainly as a
result of a change in the product mix to lower margin products as well as the increase in the risk discount rate to 12,8% (2014: 10,8%). The
insurance business continues to be managed well within the long-
term actuarial expense and policyholder behaviour assumptions.
Total assets under management increased to R668 billion
(2014: R633 billion), reflecting net external customer inflows and
relatively low incremental growth from investment market returns.
BEE normalised group equity value per share of R145,96 was up
4% on 2014, and reflected R4 120 million of equity value profits for
the year. This represents an annualised 10,5% (2014: 16,9%) return
on opening group equity value. The significantly higher risk discount
rate which negatively impacted the value of the in-force book,
together with lower investment returns and the lower earnings
growth from STANLIB, accounted for the lower return compared to 2014.
The group was managed within the board approved risk appetite
and the capital position of the group's main long-term insurance
licence, Liberty Group Limited, remained strong with the capital
adequacy ratio at 3,03 (2014: 3,07) times the regulatory minimum.
This has been achieved despite higher capital requirements arising
from the increased exposure to credit assets as well as rating downgrades of certain credit assets.
Good progress continues to be made in transitioning Liberty's
organisational design to a more relevant operating model to
support the recently adopted strategy with a time horizon to 2020. Key elements of this strategy are:
- A greater focus on customer centricity ' with three customer
facing units now formed, namely Individual Arrangements,
Group Arrangements and Asset Management, with the LibFin
Markets balance sheet management competency being retained as a specialist unit;
- Recognising the significant changes in the regulatory
environment and government's social agenda in South Africa
which are likely to lead to a higher demand for products and services of Group Arrangements;
- Managing the core South African insurance operations within sustainable long-term assumption sets;
- Launching innovative new products to service targeted customer
segments and profitably capture greater market shares;
- Optimising the balance sheet within board approved risk appetite limits;
- Accelerating the asset management strategy into increasing
our alternative asset franchise offerings and capturing a greater share of flows into Africa;
- Expanding our geographical footprint into expected high growth regions of sub-Saharan Africa; and
- Maximising opportunities under the Standard Bank bancassurance agreement.
We are well positioned to implement the Solvency Assessment
and Management (SAM) framework (the proposed new long-term
insurance solvency regime) which is expected to become effective
during 2017. Our 31 December 2015 capital calculations under the
draft SAM guidelines confirm that the group is well positioned from a solvency and capital perspective.
We remain actively focused on adapting our business model
to accommodate and favourably position the group in respect
of a number of significant regulatory developments, including
the recently announced tax changes for insurance companies,
retirement and health reform and the expected consequences of
the Financial Services Board's Retail Distribution Review. Earnings by business unit
2015 2014 % Unaudited Rm Rm change Insurance
Individual Arrangements 1 869 1 689 11 Group Arrangements 225 199 13 Liberty Corporate 219 170 29 Liberty Africa Insurance 25 59 (58) Liberty Health (19) (30) 37 Balance sheet management 260 220 18 LibFin Markets ' credit portfolio 260 189 38 LibFin Markets ' asset/liability matching portfolio 31 (100) Asset Management 629 662 (5) STANLIB South Africa(1) 567 603 (6) STANLIB Other Africa 62 59 5 Central overheads and sundry income (211) (184) (15) Central overheads and sundry income (254) (225) (13) Liberty Properties(1) 43 41 5 BEE normalised operating earnings 2 772 2 586 7 LibFin Investments ' SIP 1 356 1 382 (2) BEE normalised headline earnings 4 128 3 968 4 BEE preference share adjustment (26) (53) 51 Headline earnings 4 102 3 915 5
(1) Liberty has entered into a strategic partnership with the retail division of JHI combining the collective property management service capabilities under a new joint venture entity, JHI Retail (Pty) Ltd. The transaction was effective 1 May 2015 with Liberty's interest in JHI Retail being 49%. Earnings from the 49% interest in JHI Retail are included in STANLIB South Africa's earnings. The results of operations to 30 April 2015 and the ongoing portfolio liquidity charge total of R43 million were reflected in central overheads and sundry income.
Commentary on the earnings by business unit follows on the pages below. Additional information is contained in the summary consolidated segment information. Individual Arrangements
Headline earnings from the group's South African retail operations
were 11% up on the prior year to R1 869 million. The main
contributors to the good earnings performance were returns on
a higher asset base together with on-going positive persistency
and risk variances. Net customer cash flows were positive at
R7,8 billion (including the Gateway LISP). The challenging consumer
environment has led to indexed new business sales growing by
1% over 2014. The innovative Evolve product range continued to
attract strong sales volumes and the new Agile product launch
proved very successful in the last quarter of the year. Value of new
business of R654 million was 17,5% below prior year mainly due to
higher acquisition costs, a change in the mix of business and the
increase in the risk discount rate to 12,8% (2014: 10,8%). The new business margin declined by 30 basis points. Group Arrangements Liberty Corporate
Earnings of R219 million were 29% up on 2014. The increase was
attributable to good underwriting experience, higher fee income
and lower new business strain due to significantly lower large single
premium liability-driven solutions business. Indexed new business
of R790 million was down 34% on 2014 with net cash outflows of R891 million. Liberty Africa Insurance
Earnings of R25 million were below the prior year of R59 million.
Poor East African investment markets performance negatively
impacted earnings in both the long-term and short-term insurance
businesses. Earnings from the life insurance operations were
slightly up on 2014, however the short-term insurance business
was impacted by high claims on the retail motor book and tax
legislation changes. Indexed new business in the life businesses
was 39% up at R304 million with significant contributions from
Zambia, Namibia, Uganda, Botswana and Kenya. The value of
new business was up 67% to R45 million with the increase in new
business margin to 6,6% supported by sales of higher margin
products mainly through bancassurance and affinity channels. The
group continues to evaluate business opportunities for acquisitions throughout the sub-Saharan African region. Liberty Health
Liberty's share of Liberty Health's headline loss for the year
was R19 million which was a substantial improvement on the
R30 million loss in 2014. Results were assisted by rand weaknesses
on the US dollar based float in the risk business which offset the
underperformance in the South African administration business,
impacted by lower growth in the serviced medical aid schemes.
Management is exploring alternative business models for the
South African administration capability. Lives covered by the
Liberty Health Cover product increased by 17% to over 105 000.
Effective 1 August 2015, Liberty acquired the remaining non-
controlling interest in Total Health Trust Limited in Nigeria for R142 million. Balance sheet management LibFin Markets ' Asset liability management and credit portfolio
The credit portfolio, a diversified portfolio of government,
state owned enterprise and corporate securities backing the
guaranteed investment product set, contributed R260 million
(2014: R189 million) in line with the growth of the portfolio and improved portfolio diversification.
The asset liability management portfolio, which consists of the
market and liquidity risk exposures arising from the guaranteed
investment product set, produced a breakeven result despite the
market volatility experienced in December 2015, although negating profits of R17 million reported at 30 June 2015.
LibFin assets under management were higher at R50 billion (2014: R45 billion). LibFin Investments ' Shareholder Investment Portfolio
The SIP includes the assets backing capital in the insurance
operations as well as the group's investment market exposure to the
90:10 book of business. This portfolio has a conservative balanced
mandate and is managed with a long term investment horizon.
During the year, the portfolio benefited from an overweight
exposure to foreign assets (especially developed market equity)
and an underweight exposure to the local equity market, resulting
in a gross return of 9,6% (2014: 10,3%), which was ahead of the
strategic benchmark for the year. The SIP contributed R1 356 million
(2014: R1 382 million) to the group's headline earnings, which was ahead of expectation. Asset Management STANLIB
Challenging economic conditions, extreme market volatility,
particularly towards the end of the year, and lower than anticipated
market growth resulted in STANLIB's headline earnings of
R629 million being 5% lower than the prior year. Total assets
under management by STANLIB increased by 5% to R579 billion (2014: R551 billion).
With effect from 1 May 2015, Liberty entered into a strategic
partnership with the retail division of JHI combining the collective
property management service capabilities under a new joint
venture entity, JHI Retail (Pty) Ltd. Liberty's 49% interest in JHI Retail is managed by STANLIB.
Net customer cash flows (excluding intergroup) have shown a
marked improvement from outflows of R7,3 billion in 2014 to
inflows of R8,4 billion in 2015. This result was mainly driven by
improved flows from group channels, improved retention in
the STANLIB Retail business, an increase in passive investment
mandates secured and the launch of the Fahari I-REIT in Kenya.
Short-term investment performance relative to peer quartile
performance improved largely due to STANLIB's conservative
positioning at the start of 2015. The STANLIB Infrastructure Fund also produced exceptional investment returns.
STANLIB continued to develop new capabilities such as global
distribution and capital raising competencies and is making good
progress on diversifying its income streams by increasing the
focus on alternative investment classes e.g. direct property, private
equity and infrastructure funds. STANLIB's expansion into the rest of Africa is progressing well.
Cost control will remain a priority and STANLIB's shared service implementation remains on track. 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.
The total indexed new business premiums sold under the
agreement amounted to R2,9 billion (2014: R2,8 billion). Tax legislation
The 2014 Taxation Laws Amendment Act, has introduced a fifth
tax fund with effect from 1 January 2016. Insurance entities are
required from the effective date to write risk policies in this fund.
Liberty has successfully implemented the required changes and
allocated risk policies to the new fund in accordance with the
requirements. The 2015 year-end actuarial assumption sets for
insurance liabilities have been aligned to this new legislation. Capital adequacy cover
The capital adequacy cover of Liberty Group Limited remained
strong at 3,03 times the statutory requirement (2014: 3,07 times).
All other group subsidiary life licences were adequately capitalised.
Capital adequacy requirements in South Africa are set at the higher
of the "termination" (TCAR) basis or "ordinary" (OCAR) basis. Both
31 December 2015 and 2014 reflected OCAR as the higher amount. Dividends 2015 final dividend
In line with the group's dividend policy, the board has approved and
declared a gross final dividend of 437 cents per ordinary share. The
final dividend will be paid out of income reserves and is payable on
Monday, 11 April 2016 to all ordinary shareholders recorded in the
books of Liberty Holdings Limited on the record date.
The dividend of 437 cents per ordinary share will be subject to a
local dividend tax rate of 15% which will result in a net final dividend, to those shareholders who are not exempt from paying dividend
tax, of 371,45 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 are as follows:
Last date to trade cum dividend Friday, 1 April 2016 on the JSE
First trading day ex dividend on Monday, 4 April 2016 the JSE
Record date Friday, 8 April 2016
Payment date Monday, 11 April 2016
Share certificates may not be dematerialised or rematerialised
between Monday, 4 April 2016 and Friday, 8 April 2016, 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, 11 April 2016. Prospects
Our strategy places significant emphasis on growth throughout
sub-Saharan Africa and a single minded focus on delivering value
to our customers. Inherent in this strategy is to better leverage
existing and develop new capabilities, as well as our ability to adapt to and favourably position ourselves in respect of the fast changing regulatory and consumer environment.
Given more challenging economic conditions, this strategic focus
combined with our proven ability to deliver on our long-term
targets supports our ambition to grow our business sustainably.
Thabo Dloti Jacko Maree
Chief Executive Chairman 25 February 2016 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
These results are available at www.libertyholdings.co.za Accounting policies
The 2015 consolidated annual financial statements of Liberty
Holdings Limited have been prepared in accordance with and containing information required by:
- International Financial Reporting Standards (IFRS) including
IAS 34 Interim Financial Reporting (with the exception of
disclosures required under IAS 34 16A (j) relating to fair value
measurement, which are not required by the JSE Listing Requirements);
- the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee;
- Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council;
- the Listings Requirements of the JSE Limited; and - the South African Companies Act No. 71 of 2008.
The consolidated annual financial statements have been prepared
in compliance with IFRS and interpretations for year ends
commencing on or after 1 January 2015. The accounting policies
are consistent with those adopted in the previous year except
for the mandatory adoption of minor amendments to IFRS,
which are effective for years commencing 1 January 2015 and
the measurement of policyholder liabilities noted below. These
changes have not resulted in any material impacts to the group's
2015 reported results, comparative periods or disclosures.
Regarding the measurement of long-term policyholder insurance
liabilities, with effect from 1 January 2015, certain categories of
expenses previously defined as general overheads were redefined
as maintenance and asset management expenses consistent with
the expenses definition developments in the proposed South
African Solvency Assessment and Management framework.
Simultaneously, discretionary margins held largely to fund
these overheads were also adjusted. The change in definitions
resulted in a change to the accounting policy with respect to the
measurement of the long-term policyholder insurance liabilities.
The cumulative net impact to the overall measurement of the long-
term policyholder insurance liabilities was considered immaterial
and there were no resultant restatements to the prior period
consolidated statement of financial position, comprehensive income and statement of cash flows. Auditor statement
PricewaterhouseCoopers Inc. (PwC) have audited the consolidated
annual financial statements of Liberty Holdings Limited from which
the summary consolidated financial results have been extracted.
These summary consolidated financial results comprise the
consolidated statement of financial position at 31 December 2015,
the consolidated statements of comprehensive income, summary
consolidated changes in equity and summary consolidated cash
flows for the year then ended and selected explanatory notes.
These statements and related notes are marked as 'audited'. This announcement itself is not audited.
The financial results contained in this announcement have
been prepared in accordance with the requirements of the JSE
Limited Listings Requirements for preliminary reports, and the
requirements of the Companies Act applicable to summary financial
statements. The Listings Requirements require preliminary reports
to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International
Financial Reporting Standards (IFRS), SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting
Standards Council and also, as a minimum, to contain the
information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the
consolidated annual financial statements, from which the
summary consolidated financial results were extracted, are in
terms of IFRS and are consistent with the accounting policies
applied in the preparation of the prior year's consolidated annual
financial statements except for the changes outlined in the
Accounting policies above. This announcement does not include
the information required pursuant to paragraph 16A (j) of IAS 34.
The full IAS 34 compliant summary consolidated financial results
announcement and a copy of the auditors' report is available
on request or on the company's website and at the company's registered office.
The auditors have expressed an unmodified audit opinion on the
consolidated annual financial statements. PwC have also issued an
unmodified assurance opinion on Liberty Holdings Limited's group
equity value report, which has also been marked as 'audited' in this financial results announcement.
Shareholders are advised that in order to obtain a full understanding
of the nature of the auditors' engagement, they should obtain a
copy of the auditors' reports together with the accompanying
financial information which is available upon request from Liberty Holdings Limited's registered office. Directors' responsibility
The summary consolidated annual financial statements included
in this announcement are the full responsibility of the directors.
The directors confirm that the financial information has been
correctly extracted from the underlying 2015 audited consolidated
Liberty Holdings Limited annual financial statements which are
available for inspection at the company's registered office on request. 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. Consolidated statement of financial position as at 31 December 2015
2015 2014 Audited Rm Rm Assets
Equipment 1 178 975 Owner-occupied properties 1 540 1 464 Investment properties 30 508 27 022 Intangible assets 317 368 Defined benefit pension fund employer surplus 301 277 Deferred acquisition costs 673 590 Interests in joint ventures 979 Reinsurance assets 1 658 1 558 Long-term insurance 1 317 1 302 Short-term insurance 341 256 Operating leases ' accrued income 1 273 1 261 Pledged assets measured at fair value through profit or loss(1) 19 225 6 991 Assets held for trading and for hedging 11 890 7 777 Interests in associates ' measured at fair value through profit or loss 16 967 16 497 Financial investments 308 818 292 844 Deferred taxation 326 455 Prepayments, insurance and other receivables 4 360 3 668 Cash and cash equivalents 19 305 13 985 Total assets 419 318 375 732 Liabilities
Long-term policyholder liabilities 298 232 287 516 Insurance contracts 198 523 195 356 Investment contracts with discretionary participation features 11 250 10 177 Financial liabilities under investment contracts 88 459 81 983 Short-term insurance liabilities 937 683 Financial liabilities 3 914 3 575 Third party financial liabilities arising on consolidation of mutual funds 46 329 34 501 Employee benefits 1 400 1 371 Deferred revenue 247 216 Deferred taxation 4 436 4 131 Deemed disposal taxation liability 268 Provisions 168 173 Derivative liabilities 11 125 5 148 Repurchase agreements liabilities and collateral received(1) 16 159 5 191 Insurance and other payables 10 041 9 060 Current taxation 337 265 Total liabilities 393 325 352 098 Equity
Shareholders' interests 21 739 19 487 Share capital 26 26 Share premium 5 524 5 755 Retained surplus 16 615 14 599 Other reserves (426) (893) Non-controlling interests 4 254 4 147 Total equity 25 993 23 634 Total equity and liabilities 419 318 375 732
(1) The increase in pledged assets reflects higher utilisation of asset repurchase agreements and scrip lending activities. To enhance disclosure, repurchase agreements liabilities and collateral received, which was previously included in insurance and other payables, is shown as a separate category. Consolidated statement of comprehensive income for the year ended 31 December 2015
2015 2014 Audited Rm Rm Revenue
Insurance premiums 39 245 42 139 Reinsurance premiums (1 673) (1 415) Net insurance premiums 37 572 40 724 Service fee income from long-term policyholder investment contracts 1 145 916 Investment income 19 634 15 796 Hotel operations sales 524 673 Investment gains 12 425 19 274 Fee revenue and reinsurance commission 2 695 2 322 Total revenue 73 995 79 705 Claims and policyholder benefits under insurance contracts (34 362) (32 629) Insurance claims recovered from reinsurers 1 203 898 Change in long-term policyholder liabilities (3 725) (15 469) Insurance contracts (2 933) (14 559) Investment contracts with discretionary participation features (802) (1 050) Applicable to reinsurers 10 140 Fair value adjustment to long-term policyholder liabilities under investment contracts (6 181) (7 473) Fair value adjustment to financial liabilities (14) Fair value adjustment on third party mutual fund interests (7 301) (3 585) Acquisition costs (4 760) (4 579) General marketing and administration expenses (10 149) (9 376) Finance costs (1 196) (407) Profit share allocations under bancassurance and other agreements (933) (876) Equity accounted earnings from joint venture 13 Profit before taxation 6 590 6 209 Taxation(1) (2 303) (1 926) Total earnings 4 287 4 283 Other comprehensive income/(loss) 62 (47) Items that may be reclassified subsequently to profit or loss 71 (52) Net change in fair value on cash flow hedges (150) (129) Income and capital gains tax relating to net change in fair value on cash flow hedges 37 36 Foreign currency translation 184 41 Items that may not be reclassified subsequently to profit or loss (9) 5 Owner-occupied properties ' fair value adjustment 54 22 Income and capital gains tax relating to owner-occupied properties fair value adjustment (17) (25) Change in long-term policyholder insurance liabilities (application of shadow accounting) (37) (12) Actuarial losses on post-retirement medical aid liability (34) (16) Income tax relating to post-retirement medical aid liability 10 4 Net adjustments to defined benefit pension fund(2) 20 62 Income tax relating to defined benefit pension fund (5) (30) Total comprehensive income 4 349 4 236 Total earnings attributable to:
Shareholders' interests 4 011 3 917 Non-controlling interests 276 366 4 287 4 283 Total comprehensive income attributable to:
Shareholders' interests 4 010 3 864 Non-controlling interests 339 372 4 349 4 236 Basic and fully diluted earnings per share Cents Cents Basic earnings per share 1 493,5 1 523,5 Fully diluted basic earnings per share 1 428,0 1 392,4
(1) IFRS requires both policyholder and shareholder taxation to be reported in the taxation line. This therefore distorts the effective tax charge relative to profit before taxation. (2) 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. Summary consolidated statement of changes in shareholders' funds for the year ended 31 December 2015
2015 2014 Audited Rm Rm Balance of ordinary shareholders' interests at 1 January 19 487 17 654 Ordinary dividends (1 874) (1 719) Total comprehensive income 4 010 3 864 Share buy-backs net of share subscriptions(1) (444) (355) Black Economic Empowerment transaction 520 153 Share-based payments 140 133 Preference dividends (2) (2) Transactions between owners (98) (230) Common control transaction (11) Ordinary shareholders' interests 21 739 19 487 Balance of non-controlling interests at 1 January 4 147 3 702 Total comprehensive income 339 372 Unincorporated property partnerships net distributions (144) (79) Non-controlling share of subsidiary dividend (43) (38) Transactions between owners (44) 190 Non-controlling interests capital reduction (1) Non-controlling interests 4 254 4 147 Total equity 25 993 23 634
(1) Share buy-backs are purchases of shares from the market to meet employee share-based payment obligations. Summary consolidated statement of cash flows for the year ended 31 December 2015
2015 2014 Audited Rm Rm Operating activities 13 489 5 832 Investing activities(1) (19 298) (1 928) Financing activities(1) 10 937 179 Net increase in cash and cash equivalents 5 128 4 083 Cash and cash equivalents at the beginning of the year 13 985 9 870 Cash and cash equivalents acquired through business acquisition 5 Foreign currency translation 192 27 Cash and cash equivalents at the end of the year 19 305 13 985
(1) Both financing and investing activities have increased substantially due to the higher utilisation of asset repurchase agreements and scrip lending activities. Headline earnings and earnings per share for the year ended 31 December 2015
2015 2014 Audited Rm Rm Reconciliation of total earnings to headline earnings attributable to shareholders Total earnings attributable to shareholders 4 011 3 917 Preference share dividend (2) (2) Basic earnings attributable to ordinary shareholders 4 009 3 915 Impairment of intangible assets 110 Tax on headline earnings adjustable item (17) Headline earnings attributable to ordinary shareholders 4 102 3 915 Net income earned on BEE preference shares 26 53 BEE normalised headline earnings attributable to ordinary shareholders 4 128 3 968 Weighted average number of shares in issue ('000) 268 423 256 975 BEE normalised weighted average number of shares in issue ('000) 281 864 282 771 Fully diluted weighted average number of shares in issue ('000) 280 736 281 165 Earnings per share Cents Cents Total earnings attributable to ordinary shareholders
Basic 1 493,5 1 523,5 Headline 1 528,2 1 523,5 BEE normalised headline 1 464,5 1 403,3 Fully diluted earnings attributable to ordinary shareholders
Basic 1 428,0 1 392,4 Headline 1 461,2 1 392,4 Summary consolidated segment information for the year ended 31 December 2015
In line with the implementation of the new operating model in 2015 and the stated intention to manage the business primarily around customer groupings, the group's reportable operating segments have been aligned to the new organisational design, namely Individual Arrangements, Group Arrangements and Asset Management. In order to assist in comparison, the segment information for the year ended 31 December 2014 has been restated. The customer facing units are supported by shared service functions (Group Enablement) and LibFin (incorporating LibFin Markets and LibFin Investments), which is a strategic competency unit. The impact of LibFin Markets is disclosed in the relevant customer grouping.
Individual Group Asset Reporting Arrange- Arrange- Manage- adjust- IFRS Audited 2015 (Rm) ments ments ment Other Total ments(1) reported
Total revenue 57 694 18 527 3 436 2 169 81 826 (7 831) 73 995 Profit before taxation 3 427 499 842 1 599 6 367 223 6 590 Taxation (1 737) (193) (205) (168) (2 303) (2 303) Total earnings 1 690 306 637 1 431 4 064 223 4 287 Other comprehensive (loss)/income (136) 138 44 16 62 62 Total comprehensive income 1 554 444 681 1 447 4 126 223 4 349 Attributable to non-controlling interests (106) (10) (116) (223) (339) Shareholders 1 554 338 671 1 447 4 010 4 010 Reconciliation of total earnings to headline earnings attributable to shareholders
Total earnings 1 690 306 637 1 431 4 064 223 4 287 Attributable to non-controlling interests (45) (8) (53) (223) (276) Preference share dividend (2) (2) (2) Impairment of intangible assets 51 21 21 93 93 Headline earnings 1 741 282 629 1 450 4 102 4 102 Net income earned on BEE preference shares 26 26 26 BEE normalised headline earnings 1 741 282 629 1 476 4 128 4 128
Individual Group Asset Reporting Arrange- Arrange- Manage- adjust- IFRS Audited restated 2014 (Rm) ments ments ment Other Total ments(1) reported
Total revenue 62 496 22 175 3 575 1 812 90 058 (10 353) 79 705 Profit before taxation 3 558 470 956 930 5 914 295 6 209 Taxation (1 606) (133) (245) 58 (1 926) (1 926) Total earnings 1 952 337 711 988 3 988 295 4 283 Other comprehensive (loss)/income (116) 27 10 32 (47) (47) Total comprehensive income 1 836 364 721 1 020 3 941 295 4 236 Attributable to non-controlling interests (69) (8) (77) (295) (372) Shareholders 1 836 295 713 1 020 3 864 3 864 Reconciliation of total earnings to headline earnings attributable to shareholders
Total earnings 1 952 337 711 988 3 988 295 4 283 Attributable to non-controlling interests (63) (8) (71) (295) (366) Preference share dividend (2) (2) (2) Headline earnings 1 952 274 703 986 3 915 3 915 Net income earned on BEE preference shares 53 53 53 BEE normalised headline earnings 1 952 274 703 1 039 3 968 3 968
(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 31 December 2015 1. Introduction
Liberty presents a "group equity value" report to reflect the combined value of the various components of Liberty's businesses.
Section 3 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 Change in measurement basis of LibFin Markets ' credit portfolio (Libfin Credit) and certain shareholder recurring costs
In order to improve relevance of sources of equity value earnings and to better align to future statutory guidance on expense modelling, with effect from 1 January 2015 the method to value the contribution of LibFin Credit and the treatment of certain recurring shareholder costs was changed as follows: 2.1 Recurring shareholder expenses
With effect from 1 January 2015 certain expenses, which previously were modelled as recurring shareholder expenses, have been reallocated to either maintenance or acquisition expenses within the SA covered business embedded value. In addition, the implementation of the group's new target operating model has led to other recurring shareholder expenses, previously incurred in Liberty Group Limited, now being incurred in Liberty Holdings Limited. The net result of this change is that Liberty Group Limited (included in SA covered business) no longer has a recurring shareholder expense category. This now aligns to the approach under the proposed South African Solvency Assessment and Management framework.
The net impact to group equity value at 1 January 2015 was a decrease of R165 million. 2.2 LibFin Credit
LibFin Credit originates illiquid assets that generate a margin over the risk-free rate. The value of these margins was previously calculated as a 10 times multiple of sustainable earnings, adjusted for related expenses and a prudential margin and included in group equity value. With effect from 1 January 2015, the value placed on LibFin Credit is now included in the SA covered business embedded value. This change aligns the valuation of LibFin Credit with the emergence of revenue, expenses and the cost of capital associated with this business, all of which arise within Liberty Group Limited. In addition, this change aligns the treatment of credit assets backing liabilities to the treatment of all other asset classes within the South African covered business embedded value.
The net impact to group equity value at 1 January 2015 was a decrease of R24 million.
These changes have been applied retrospectively with the cumulative effect recognised at 1 January 2015. The effect of these changes at 1 January 2015 was a decrease in the BEE normalised group equity value of R189 million. The 2014 results have not been restated.
3 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: 3.1 South African (SA) covered business:
The wholly owned subsidiary, Liberty Group Limited, comprises the 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 Liberty Holdings Limited annual financial statements and supporting information for the year ended 31 December 2015. 3.2 Other businesses:
STANLIB Valued using a 10 times (2014: 10 times) multiple of estimated sustainable earnings.
Liberty Properties No longer a separate business, 31 December 2014 valued using a 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 Liberty Africa Insurance is an emerging cluster of both long and short-term insurance businesses located in Insurance 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 31 December 2015 and 2014 the combined valuations approximated the group's IFRS net asset value. Therefore the IFRS net asset value was used.
LibFin Credit LibFin Credit originates appropriate illiquid assets that provide acceptable illiquidity premiums. The value from 1 January 2015, is now included in SA covered business (31 December 2014: 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. 3.3 Other adjustments:
These comprise the fair value of share rights allocated to staff not employed by the South African covered businesses, adjusting certain deferred tax assets to current values and allowance for certain shareholder recurring costs incurred in Liberty Holdings Limited capitalised at a multiple of 9 times (2014: 9 times). 4 BEE normalised group equity value 4.1 Analysis of BEE normalised group equity value
Value of in-force SA Group SA covered Other funds Adjust- covered Audited business businesses invested ments Net worth business Total 31 December 2015 Rm Rm Rm Rm Rm Rm Rm
SA insurance operations 14 427 14 427 (6 216) 8 211 23 857(3) 32 068 Individual Arrangements 21 353 Liberty Corporate 2 504 Value of in-force acquired 30 30 (30) Working capital and other assets(2) 4 806 4 806 (517) 4 289 168 4 457 South African insurance operations 19 263 19 263 (6 763) 12 500 24 025 36 525 Asset Management 805 805 5 825 6 630 6 630 STANLIB South Africa(2) 546 546 5 454 6 000 6 000 STANLIB Other Africa 259 259 371 630 630 Liberty Health 373 373 373 373 Liberty Africa Insurance 736 736 736 736 Liberty Holdings 562 562 (100) 462 462 Cost of required capital (1 518) (1 518) Net equity reported under IFRS 19 263(1) 2 476 21 739 (1 038) 20 701 22 507 43 208 BEE preference funding 322 322 322 322 Allowance for future shareholder costs (1 786) (1 786) (1 786) (1 786) Allowance for employee share rights (61) (48) (109) (109) (109) BEE normalised equity value 19 524 642 20 166 (1 038) 19 128 22 507 41 635 Summary of adjustments:
Negative rand reserves (6 216) (6 216) Deferred acquisition costs (651) (651) Deferred revenue liability 234 234 Frank Financial Services allowance for future
expenses (100) (100) Carrying value of in-force business acquired (30) (30) Fair value adjustment of non SA covered
business(2) 5 825 5 825 Impact of discounting on deferred tax asset (100) (100) (6 763) 5 725 (1 038) (1) Reconciliation to SA covered business net worth as per analysis in supplementary information
Net equity of SA covered business as reported under IFRS 19 263
Adjustments as above (6 763)
Allowance for employee share rights (61)
BEE preference share funding 322
Net worth as reported in supplementary information 12 761
(2) Liberty Properties was previously valued as a separate business unit. After the transaction with JHI, the development operations and Liberty's interest (49%) in the JHI Retail Proprietary Limited entity are included in the STANLIB South Africa valuation at R150 million. In addition, the liquidity fee component charge to the property portfolio is valued (R168 million) as part of the Liberty Group Limited value of in-force and disclosed as an adjustment to working capital and other assets. (3) Includes the value of LibFin Credit, previously disclosed separately in group equity value.
Value of in-force SA Group SA covered Other funds Adjust- covered Audited business businesses invested ments Net worth business Total 31 December 2014 Rm Rm Rm Rm Rm Rm Rm
SA insurance operations 10 958 10 958 (5 508) 5 450 22 941 28 391
Individual Arrangements 20 927 Liberty Corporate 2 014 Value of in-force acquired 74 74 (74) Working capital and other assets 6 183 6 183 (466) 5 717 5 717 South African insurance operations 17 215 17 215 (6 048) 11 167 22 941 34 108 Asset Management 649 649 5 751 6 400 6 400 STANLIB South Africa 444 444 5 356 5 800 5 800 STANLIB Other Africa 205 205 395 600 600 Liberty Property joint venture 45 45 280 325 325 Liberty Health 342 342 342 342 Liberty Africa Insurance 586 586 586 586 LibFin Credit 900 900 900 Liberty Holdings 650 650 (100) 550 550 Cost of required capital (1 456) (1 456) Net equity reported under IFRS 17 215(1) 2 272 19 487 783 20 270 21 485 41 755 BEE preference funding 807 807 807 807 Allowance for future shareholder costs (356) (356) (356) (1 952) (2 308) Allowance for employee share rights (136) (94) (230) (230) (230) BEE normalised equity value 17 886 1 822 19 708 783 20 491 19 533 40 024 Summary of adjustments:
Negative rand reserves (5 508) (5 508) Deferred acquisition costs (573) (573) Deferred revenue liability 207 207 Frank Financial Services allowance for future
expenses (100) (100) Carrying value of in-force business acquired (74) (74) Fair value adjustment of non SA covered
business 6 931 6 931 Impact of discounting on deferred tax asset (100) (100) (6 048) 6 831 783 (1) Reconciliation to SA covered business net worth as per analysis in supplementary information
Net equity of SA covered business as reported under IFRS 17 215
Adjustments as above (6 048)
Allowance for employee share options/rights (136)
BEE preference share funding 807
Net worth as reported in supplementary information 11 838
4.2 BEE normalised group equity value earnings and value per share
2015 2014 SA covered Other SA covered Other business businesses Total business businesses Total Audited Rm Rm Rm Rm Rm Rm BEE normalised equity value at the end
of the year 35 268 6 367 41 635 31 371 8 653 40 024 Equity value at the end of the year 34 946 6 367 41 313 30 564 8 653 39 217 BEE preference shares 322 322 807 807 Net share buy-backs 444 444 355 355 Funding of restricted share plan 112 (112) 117 (117) Intergroup dividends 2 250 (2 250) 1 290 (1 290) Dividends paid 1 876 1 876 1 719 1 719 Restated equity value at the beginning of
the year (33 562) (6 273) (39 835) (27 959) (8 108) (36 067) Equity value at the beginning of the year (30 564) (8 653) (39 217) (27 054) (8 108) (35 162) Change in measurement basis: recurring
shareholder expenses (1 315) 1 480 165 Change in measurement basis: LibFin Credit (876) 900 24 BEE preference shares (807) (807) (905) (905) BEE normalised equity value earnings 4 068 52 4 120 4 819 1 212 6 031 BEE normalised return on group
equity value (%) 12,2 0,9 10,5 17,3 15,4 16,9 BEE normalised number of shares (000's) 285 259 286 201 Number of shares in issue (000's) 270 371 256 946 Shares held for the employee restricted share
scheme (000's) 3 780 3 459 Adjustment for BEE shares (000's) 11 108 25 796 BEE normalised group equity value
per share (R) 145,96 139,85
4.3 Sources of BEE normalised group equity value earnings
2015 2014 SA SA covered Other covered Other business businesses Total business businesses Total Audited Rm Rm Rm Rm Rm Rm
Value of new business written in the year(1) 684 45 729 914 27 941 Expected return on value of in-force business(1) 2 538 2 538 2 131 2 131 Variances/changes in operating assumptions 756 (129) 627 729 (176) 553 Operating experience variances (including
incentive outperformance)(1) 421 25 446 709 (40) 669 Credit portfolio variance(1) 161 161 189 189 Property portfolio liquidity fee 182 182 Transfer of shareholder expense reserve 69 (69) Operating assumption changes (111) (154) (265) (184) (67) (251) Changes in modelling methodology 103 103 (54) (54) Headline earnings of other businesses 635 635 732 732 Operational equity value profits 3 978 551 4 529 3 774 583 4 357 Non headline earnings adjustments (71) (22) (93) Development costs (41) (41) (52) (25) (77) Economic adjustments 86 (231) (145) 997 (338) 659 Investment return on net worth 927 (231) 696 965 (285) 680 Internally generated software 53 (53) Investment variances(2) 37 37 (79) (79) Change in economic assumptions(1) (878) (878) 58 58 (Decrease)/increase in fair value adjustments
on value of other businesses(1) (251) (251) 911 911 Change in allowance for share options/rights 75 46 121 100 81 181 Group equity value earnings 4 068 52 4 120 4 819 1 212 6 031
(1) 2014 comparative figures for these items are not directly comparable to 2015 actuals, due to the change in measurement bases for LibFin Credit and certain recurring shareholder expenses. Refer to section 2 above.
(2) Includes effect of negative R133 million (2014: negative R93 million) in respect of change in fair value of cash flow hedges supporting LibFin Credit.
4.4 Analysis of value of long-term insurance new business and margins Audited
Rm (unless otherwise stated) 2015 2014 South African covered business:
Individual Arrangements 1 761 1 640 Traditional Life 1 463 1 472 Direct Channel 54 77 Credit Life 71 91 LibFin Credit uplift to Individual Arrangements 173 Group Arrangements: Liberty Corporate 134 249 Traditional Business 117 249 LibFin Credit uplift to Group Arrangements 17 Gross value of new business 1 895 1 889 Overhead acquisition costs impact on value of new business (1 116) (874) Cost of required capital (95) (101) Net value of South African covered new business 684 914 Present value of future expected premiums 38 886 44 916 Margin (%) 1,8 2,0 Group Arrangements: Liberty Africa Insurance
Net value of new business 45 27 Present value of future expected premiums 679 413 Margin (%) 6,6 6,5 Total group net value of new business 729 941 Total group margin (%) 1,8 2,1
2014 comparative amounts for value of new business for South African covered business are not directly comparable to 2015 actuals, due to the change in measurement bases for LibFin Credit and certain recurring shareholders expenses. Refer to section 2 above. Long-term insurance new business for the year ended 31 December 2015
2015 2014 Unaudited Rm Rm Sources of insurance operations total new business by product type Retail 25 790 25 334 Single 21 392 20 987 Recurring 4 398 4 347 Institutional 2 114 6 029 Single 1 262 5 207 Recurring 852 822 Total new business 27 904 31 363 Single 22 654 26 194 Recurring 5 250 5 169 Sources of insurance indexed new business 7 515 7 789 Individual Arrangements 6 421 6 375 Group Arrangements: 1 094 1 414 Liberty Corporate 790 1 195 Liberty Africa Insurance(1) 304 219
(1) Liberty owns less than 100% of certain 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 year ended 31 December 2015
2015 2014 Audited Rm Rm Net premiums by product type
Recurring 27 610 26 610 Retail 19 386 18 921 Institutional 8 224 7 689 Single 25 061 27 806 Retail 21 146 20 511 Institutional 3 915 7 295 Net premium income from insurance contracts and inflows from investment contracts 52 671 54 416 Net claims and policyholders benefits by product type
Retail (33 917) (33 209) Death and disability claims (5 947) (5 613) Policy surrender and maturity claims (22 682) (22 978) Annuity payments (5 288) (4 618) Institutional (13 352) (11 337) Death and disability claims (2 305) (1 966) Scheme terminations and member withdrawals (10 358) (8 971) Annuity payments (689) (400) Net claims and policyholders benefits (47 269) (44 546) Unaudited
Long-term insurance net cash flows 5 402 9 870 Sources of insurance operations net cash flows by customer facing unit: Individual Arrangements 6 288 5 921 Group Arrangements: (496) 3 875 Liberty Corporate (891) 3 438 Liberty Africa Insurance(1) 395 437 Asset Management:
STANLIB Multi-manager (390) 74
(1) Liberty owns less than 100% of certain of the 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 31 December 2015
2015 2014 Unaudited Rbn Rbn Managed by group business units 641 605 STANLIB South Africa 529 510 STANLIB Other Africa(2) 50 41 LibFin 50 45 Other internal managers 12 9 Externally managed 27 28 Total assets under management(3) 668 633 (1) Includes funds under administration.
(2) Liberty owns less than 100% of certain of the entities that make up STANLIB Other Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership.
(3) Included in total assets under management are the following LISP (2015) amounts: Unit trusts listed (Rbn) STANLIB Other
managed managed Total
STANLIB 41 67 108
Gateway 2 3 5 Asset management net cash flows ' STANLIB(1) for the year ended 31 December 2015
2015 2014 Unaudited Rm Rm South Africa
Non-money market 6 366 6 211 Retail 8 511 5 319 Institutional (2 145) 892 Money market (672) (11 353) Retail (1 413) (3 359) Institutional 741 (7 994) Net South Africa cash inflows/(outflows)(1) 5 694 (5 142) Other Africa
Non-money market 977 206 Retail (62) 517 Institutional 1 039 (311) Money market 1 783 (2 385) Net other Africa cash inflows/(outflows)(1)(2) 2 760 (2 179) Net cash inflows/(outflows) from asset management 8 454 (7 321)
(1) Cash flows exclude intergroup segregated life fund mandates.
(2) Liberty owns less than 100% of certain of the entities that make up STANLIB Other Africa. The information is recorded at 100% and is not adjusted for proportional legal ownership. Short-term insurance indicators for the year ended 31 December 2015
2015 2014 Audited Rm Rm Net premiums 1 249 1 037 Liberty Health ' medical risk 778 694 Liberty Africa Insurance ' motor, property, medical and other 471 343 Net claims (771) (612) Liberty Health ' medical risk (554) (471) Liberty Africa Insurance ' motor, property, medical and other (217) (141) Net cash inflows from short-term insurance 478 425 Unaudited Claims loss ratio (%)
Liberty Health 71 68 Liberty Africa Insurance 46 41 Combined loss ratio (%)
Liberty Health 101 96 Liberty Africa Insurance 97 94 Capital commitments
for the year ended 31 December 2015
2015 2014 Audited Rm Rm Equipment 401 379 Investment and owner-occupied property 1 495 4 427 Unconsolidated structured entities(1) 482 Total capital commitments 1 896 5 288 Under contracts 903 3 486 Authorised by the directors but not contracted 993 1 802
(1) These were undrawn commitments to various unconsolidated structured entities and mainly form part of the ongoing build of LibFin Credit asset portfolio. Drawing was subject to covenant checks by Liberty.
The above 2015 capital commitments will be financed by available bank facilities, existing cash resources, internally generated funds and R225 million (31 December 2014: R160 million) from non-controlling interests in unincorporated property partnerships in respect of investment properties. Business acquisition
With effect from 12 January 2016, Liberty acquired a 51% equity stake in East Africa Underwriters Limited (EAUL) for R45 million. EAUL is a short term insurance business in Uganda. The impact of this transaction has an insignificant impact on the group financial results. Corporate actions for the year ended 31 December 2015 Audited
Acquisition of a share in an unincorporated joint operation
During 2014, Liberty Group Limited, through a 100% held subsidiary, Liberty PropCo Proprietary Limited, 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 R1,7 billion. The final condition precedent, being the legal transfer of the properties, was met on 9 June 2015.
The partnership is classified as a joint operation. Liberty accounts for the assets, liabilities, revenues and expenses in relation to its interest in the joint operation in terms of IFRS 11 Joint Arrangements. Liberty will accordingly recognise in relation to its interest in the joint operation, its share of assets and liabilities, and revenue and expenses relating to its 25% interest in the joint operation.
The purchase amount was funded through the group's own funds of R1,4 billion and external debt issues of R0,3 billion. The portion funded by the group is entirely held as matching assets for policyholder obligations. Therefore the group's interests and net share in income of the joint operation is allocated to policyholders, with shareholders earning contracted fees. The anticipated net investment return yield is in the region of 7,5%.
2015 Rm
The following is the fair value of the asset acquired in the joint operation:
Investment properties (25% share in Melrose Arch precinct) at fair value 1 744 Cash paid (1 744)
The fair value of the investment properties on acquisition includes any operating leases and accrued income or expenses. These are separately disclosed as required under IAS 17 Leases post acquisition. There are no other assets or liabilities in the joint operation at the date of acquisition and no intangible assets were identified that would require measurement.
The external debt issues (senior secured debt) were subscribed for by the following related parties: 329
The Standard Bank of South Africa Limited 223 Mutual funds administered and managed by STANLIB:
STANLIB Aggressive Income Fund(1) 20 STANLIB Income Fund(1) 70 STANLIB Flexible Income Fund 16
(1) Designated as interests in associates measured at fair value through profit or loss.
The external debt issues attract a funding rate of 3-month JIBAR plus a margin of 1,6%, payable quarterly on 5th January, April, July and October each year.
The annual net revenue (after satisfying policyholder obligations and debt requirements) estimated to be attributable to shareholders is less than R40 million. Formation of JHI Retail Proprietary Limited
Liberty Holdings Limited entered into a strategic partnership with the retail management division of JHI (Properties) Proprietary Limited (JHI Properties), which is a subsidiary of Excellerate Holdings Limited.
In terms of this partnership, Liberty and JHI Properties transferred their property management service capabilities into a new entity, JHI Retail Proprietary Limited (JHI). Liberty subscribed for 49% and JHI Properties 51% in the shareholding of JHI. The cost of the shares held by Liberty was R3 million. No gain or loss was incurred in the formation of the joint venture.
The rationale for the transaction is that the creation of JHI will create additional capacity and enhance Liberty's ability to deliver world- class property management services through a business solely focused on property management services. The joint venture demonstrates Liberty's strategic intent to focus on its core businesses and become a truly customer focused business, as well as establish strategic partnerships to grow its non-core businesses. This is now managed by STANLIB.
JHI is classified as a joint venture under IFRS 11 Joint Arrangements and has been equity accounted from the effective date, being 1 May 2015.
Acquisition of additional interests in subsidiaries Change in ownership of Total Health Trust Limited
Effective 1 August 2015, Liberty Holdings Limited acquired the
remaining non-controlling interest of 48,79% in Total Health Trust
Limited. A cash consideration of R142 million was paid for the share
of the net asset value of R44 million. This acquisition has been accounted for as a transaction between owners. Retirement benefit obligations as at 31 December 2015 Audited 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 31 December 2015, the Liberty post-retirement medical aid
benefit liability was R480 million (2014: R423 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 year ended 31 December 2015 Audited
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 31 December 2015 financial year:
1. Summary of movement in investment in ordinary shares held by the group in the group's holding company is as follows:
Number Fair value Ownership
'000 Rm % Standard Bank Group Limited
Balance at 1 January 2015 12 244 1 757 0,77
Purchases 10 076 1 486
Sales (11 819) (1 594)
Fair value adjustments (457)
Balance at 31 December 2015 10 501 1 192 0,66 2. Bancassurance
The Liberty group has 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 2015 amounted to R7 503 million (2014: R7 984 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 year to 31 December 2015 is R896 million (2014: R866 million).
The bancassurance agreements are evergreen agreements with a 24-month notice period for termination ' as at the date of the approval of these financial results, neither party had given notice.
A binder agreement was 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 year to 31 December 2015 is R110 million (2014: R100 million). 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 process.
As at 31 December 2015 a total of R14 billion in assets (2014: R24 billion) have been traded with Standard Bank under a repurchase agreement with various repurchase dates. Open contracts totalled R1 942 million as at 31 December 2015 (2014: R26 million). Finance costs recognised in respect of these agreements for the year ended 31 December 2015 was R119 million (2014: R174 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. Offsetting for the year ended 31 December 2015
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.
Subject to master netting Per financial position arrangements Audited
Rm 2015 2014 2015 2014 Assets held for trading and hedging 11 890 7 777 11 727 7 552 Derivative liabilities (11 125) (5 148) (10 982) (5 106)
Net exposure 765 2 629 745 2 446 Sponsor Merrill Lynch South Africa (Pty) limited
Date: 29/02/2016 09:30:00 Supplied by www.sharenet.co.za 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.

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