Wrap Text
Financial Results for the year ended 31 December 2016
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE0000127148
Preference share code: LBHP
ISIN Code: ZAE000004040
("Liberty Holdings" or "Group" or "Company")
Financial Results for the year ended 31 December 2016
Financial performance indicators for the year ended 31 December 2016
%
Rm (unless otherwise stated) 2016 2015 change
Liberty Holdings Limited
Earnings
Normalised operating earnings(1) 1 740 2 772 (37)
Basic earnings per share (cents) 811,7 1 493,5 (46)
Fully diluted basic earnings per share (cents) 788,9 1 428,0 (55)
Normalised headline earnings per share (cents)(1) 904,5 1 464,5 (38)
Normalised return on IFRS equity (%)(1) 11,4 19,5 (42)
Group equity value
Normalised group equity value per share (R)(1) 145,86 145,96
Normalised return on group equity value (%)(1) 5,1 10,5 (51)
Distributions per share (cents)
Normal dividend 691 691
Interim dividend 276 254 9
Final dividend 415 437 (5)
Total assets under management (Rbn) 676 668 1
Long-term insurance operations
Indexed new business (excluding contractual increases) 7 892 7 515 5
Embedded value of new business 483 729 (34)
New business margin (%) 1,1 1,8 (39)
Net customer cash inflows 1 119 5 402 (79)
Capital adequacy cover of Liberty Group Limited (times covered) 2,95 3,03 (3)
Asset Management - STANLIB
Assets under management (Rbn) 586 579 1
Net cash inflows including money market(2) 5 764 8 454 (32)
Retail and institutional net cash inflows excluding money market(2) 4 488 7 343 (39)
Money market net cash inflows(2) 1 276 1 111 15
(1) Normalised: operating earnings, 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 consolidation of the listed REIT Liberty Two Degrees (L2D) and the Black Economic Empowerment (BEE) transaction, as opposed to the required technical accounting treatment.
(2) Excludes intergroup life funds.
Preparation and supervision:
This announcement on Liberty Holdings Limited annual financial results for the year ended 31 December 2016 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 2016
Lower returns from investment markets and a challenging consumer environment
contributed to weaker earnings in 2016. Group equity value has however been preserved
and the capital position remains strong. Second half sales and cash flows improved whilst
margins remained under pressure.
Overview
Group equity value per share was maintained at the prior year level
at R145,86 (31 December 2015: R145,96) Operating variances, and
modelling and assumptions changes were net positive although
lower than the prior year, supporting the assumptions underlying
the group's equity value. However, the growth in group equity
value was offset by significantly lower investment returns and
the impact of capitalisation of reduced earnings from the asset
management business.
Headline earnings for the year ended 31 December 2016 amounted
to R2 207 million, down 46,2% compared to R4 102 million in 2015.
Liberty's 2016 headline earnings were impacted by the first time
consolidation of the Liberty Two Degrees listed REIT (L2D). This
resulted in a negative earnings impact of R304 million due to an
accounting mismatch, which has been adjusted for in calculating
normalised headline earnings, as advised to shareholders in the
trading statement released on 27 January 2017.
Normalised headline earnings for the 2016 year of R2 527 million
were 38,8% lower, representing a 37,2% decline in normalised
operating earnings and a 42,0% decline in earnings from the
shareholder investment portfolio (SIP). Normalised return on equity
was 11,4% (31 December 2015: 19,5%) due to the lower earnings
in 2016.
The group was managed within the board approved risk appetite
throughout 2016 and the capital position of the group's main long-
term insurance licence, Liberty Group Limited, remained strong with
the capital adequacy ratio at 2,95 (31 December 2015: 3,03) times
the regulatory minimum.
Group sales improved in the second half of 2016 with indexed new
business growth improving to 5,0%. Various new and enhanced
product offerings, including the Guaranteed Investment Product,
a more competitive offshore investment product offering and the
launch of the Bold Living annuity, supported this result.
Management is continuing to execute on growth and geographic
expansion strategies. We are in the advanced stages of acquiring a
life licence in Nigeria.
The group successfully listed L2D in December 2016, providing an
additional investment proposition to our customers.
Normalised headline earnings
The main items contributing to the decrease in normalised headline
earnings between 2015 and 2016 were as follows:
- Strengthening of assumption sets in the SA insurance business
reduced earnings by R572 million from the prior year. In line
with recent customer trends and regulatory developments, the
retail business significantly strengthened its assumptions by
R414 million (2015: weakened assumptions by R122 million) in the
year. The impact of assumption changes in Liberty Corporate was
a further strain of R36 million. These changes have strengthened
the balance sheet, significantly improved management of interest
rate risk and reduced future hedging costs.
- The impact of lower investment returns on the earnings of the
SIP amounted to R569 million. Weak local equity markets coupled
with the rand strengthening significantly against the US dollar and
other major currencies during 2016, resulted in a 5.7% return on
the SIP assets. The negative mark-to-market adjustment of certain
infrastructure investments held in the alternatives portfolio in the
second half of 2016 negated the positive performance of these
assets reported in the first half. The extent of the SIP exposure
to investment markets remains appropriate in the context of the
group's risk appetite.
- STANLIB earnings were R267 million lower than 2015, resulting
from decreases in the earnings from the South African operations
of R108 million and earnings from the other African operations,
which were R159 million down on 2015. STANLIB South Africa
results were impacted by continued low market returns and
positive but lower external net cash inflows, higher once off
costs relating to the implementation of the outsourcing of its
retail and institutional administration business and costs relating
to provisioning for tax and client exposures. The other Africa
business was mainly impacted by impaired bank exposures, the
curtailment of guaranteed cash mandate business and provisions
raised for client and operational exposures in Kenya.
- New business strain increased by R219 million in 2016, driven
primarily by the geared effects of lower volumes, the introduction
of the new risk tax fund and worse business mix.
Sales
In the group's long-term insurance operations, indexed new business
was 5,0% higher at R7 892 million. Recurring premium business
increased by 4,1% over the prior year. Single premium investment
business was up 7,1%. Management continues to actively address
the priorities highlighted in the half year financial review, leading to
second half Individual Arrangements indexed new business sales up
15,0% on the first half. Various new and enhanced product offerings
were taken to market. These included continued strong support for
the Guaranteed Investment Product, a more competitive offshore
investment product offering, launch of the Bold living annuity and
further policyholder investment choice following the listing of L2D.
Net customer cash inflows amounted to R7,7 billion
(31 December 2015: R15,2 billion) within which long-term
insurance net customer cash inflows amounted to R1,1 billion
(31 December 2015: R5,4 billion). Long-term insurance cash inflows
reflected an improvement compared to the outflows of R353 million
reported at the half year despite higher claims and surrenders, but
remained subdued. Strong fourth quarter new business inflows in
Individual Arrangements, lower scheme terminations and lower
member withdrawals in Liberty Corporate contributed to the
encouraging improvement in the second half of 2016. STANLIB net
cash inflows of R5,8 billion (31 December 2015: R8,5 billion) were
lower than prior year due mainly to lower South African non-money
market flows, partly offset by improved non-money market inflows
from the African businesses. The asset management cash inflows
improved considerably from the net cash inflows of R453 million
reported at 30 June 2016.
New business margins at 1,1% (31 December 2015: 1,8%) remained
under pressure in the second half of 2016 due to writing of new
risk business in the new risk tax fund and delayed re-pricing of
these products as well as a continued change in the mix of business
sold. The value of new business reduced to R483 million from
R729 million at 31 December 2015. The improvement of the value
of new business and related margin has been set as a key priority for
2017 and a number of actions are being implemented.
Total assets under management increased marginally to R676 billion
(31 December 2015: R668 billion), due to low market returns
combined with lower net customer cash inflows during the year.
Management action
Management has taken active steps to address some of the shorter
term challenges and made a number of executive management
changes to improve the execution of the group's strategy and to
ensure that key initiatives are prioritised. These are:
- Various management actions are underway to improve margins
and grow the value of new business within the Individual
Arrangements business. This is management's key priority for 2017.
- The focus on achieving cost savings across the group is ongoing.
- In line with the simplification of operations, projects continue
to be delivered to enable product and customer efficiencies,
providing more flexibility and reduced policy administration
complexity.
- Liberty Corporate continues to drive a multiyear project which
will deliver a simplified suite of cost effective and flexible risk and
investment umbrella products.
- Ongoing focus on ensuring that the group remains within risk
appetite.
Earnings by business unit
%
Rm (Unaudited) 2016 2015 change
Insurance
Individual Arrangements 1 119 1 869 (40)
Group Arrangements 149 204 (27)
Liberty Corporate 191 219 (13)
Liberty Africa Insurance 41 25 64
Liberty Health (45) (19) >100
Growth initiatives (38) (21) 81
Balance sheet management 318 260 22
LibFin Markets - credit portfolio 300 260 15
LibFin Markets - asset/liability management portfolio 18
Asset Management 362 629 (42)
STANLIB South Africa 459 567 (19)
STANLIB Other Africa (97) 62 >(100)
Central overheads and sundry income (208) (190) 9
Normalised operating earnings 1 740 2 772 (37)
LibFin Investments - SIP 787 1 356 (42)
Normalised headline earnings 2 527 4 128 (39)
BEE preference share adjustment (16) (26) (38)
Reversal of accounting mismatch arising on consolidation of L2D(1) (304)
Headline earnings 2 207 4 102 (46)
(1) Refer Corporate actions.
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
of R1 119 million were 40,1% down compared to 2015. The primary
contributors to this result were the significant strengthening of
forward looking assumptions to take account of recent customer
trends and regulatory developments, increased new business strain,
lower positive operating variances due to worsening persistency on
investment business as well as on risk business at early durations.
Net customer cash inflows of R1,9 billion (31 December 2015:
R6,3 billion) were below the prior year primarily due to the higher
value of policy surrenders and maturities experienced during 2016,
attributable to the challenging consumer environment.
Indexed new business grew by 3,4% over 2015, reflecting an
improvement on the 1,2% year on year increase reported at
30 June 2016. Strong support for the Guaranteed Investment
Product, a more competitive offshore investment product offering,
launch of the Bold Living annuity and offering policyholders further
investment choice following the successful listing of L2D contributed
to the improved performance.
Value of new business of R426 million was below the prior year
amount of R654 million due to the positive impact of the reduction
in the risk discount rate being muted by the effect of the year end
basis changes, the introduction of the new risk tax fund together
with the delayed repricing of the risk products and the impact of
acquisition expense growth exceeding new business growth. In
addition, the value of new business was negatively affected by the
business mix. The new business margin declined to 1,2% from 2,0%
at 31 December 2015.
Despite the tough environment, the business continued to deliver
positive, but lower, operating variances and was managed to better
than model. The strengthening of the forward looking assumption
sets has strengthened the balance sheet, significantly improved
management of interest rate risk and reduced future hedging costs.
Group Arrangements
Liberty Corporate
Earnings of R191 million were achieved after a once-off R36 million
charge related to strengthening of longevity improvement
assumptions. Despite the higher volume of risk claims reported
in the year, the underwriting result was slightly better than the
prior year and reflected good risk selection. Good expense control
continued during 2016. Indexed new business was 7% higher at
R842 million, with recurring premium new business up 14% due to
strong umbrella sales. Net cash outflows amounted to R751 million
(31 December 2015: R891 million), reflecting low single premium
new business and high risk claims linked to the challenging economic
environment and associated job losses.
Liberty Africa Insurance
Earnings of R41 million were above prior year earnings of R25 million.
Poor investment markets, mainly in Kenya, Namibia and Botswana,
negatively impacted shareholder investment income and fees.
However the short-term insurance businesses produced good
underwriting results demonstrating good pricing and claims
management. Indexed new business in the long-term insurance
businesses grew by 35,2% to R411 million with the value of new
business lower at R29 million (31 December 2015: R45 million) at a
margin of 5,6%. Customer cash flows of R483 million were 22,3%
up on the prior year. During 2016, three short-term insurance
acquisitions were successfully concluded in Uganda, Malawi and
Botswana and a long-term business commenced in Lesotho.
Management is continuing to execute on growth and geographic
expansion strategies. We are in the advanced stages of acquiring a
life licence in Nigeria.
Liberty Health
The business has been strategically repositioned to focus primarily
on providing health risk value solutions to employers and their
employees across the African continent. Growth of 16% per
annum in the number of Liberty Health Cover product lives has
been achieved over the last three years. Total lives serviced now
amount to 121 000. Claims loss ratios have deteriorated in line with
declining economic conditions across Africa, in particular Nigeria.
The loss of R45 million includes the impact of the curtailment of the
Liberty Medical Scheme (LMS) contracts in South Africa following
LMS's scheme amalgamation with Bonitas Medical Aid and the
consequential restructure of the administration business.
Balance sheet management
LibFin Markets - Asset liability management and
credit portfolio
Earnings from the credit portfolio, a diversified portfolio of
government, state owned enterprise and corporate securities
backing the guaranteed investment product sets, increased
to R300 million (31 December 2015: R260 million) in line with
the continued 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 profit of R18 million for the year
compared to a break even result in 2015 despite a volatile trading
environment.
LibFin assets under management were higher at R58 billion
(31 December 2015: R50 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 through the cycle
investment horizon.
Market returns experienced in 2016 were muted and the portfolio
accordingly delivered a gross return of 5,7% (31 December 2015:
9,6%) which was below the strategic benchmark for the year.
The extent of the SIP exposure to investment markets remains
appropriate in the context of the group's risk appetite. The SIP
contributed R787 million (31 December 2015: R1 356 million) to the
group's normalised headline earnings.
Asset Management
STANLIB
STANLIB's headline earnings of R362 million were 42% lower than
the prior year. Continued low market returns and positive but
lower external net cash inflows, higher once off costs relating to
the implementation of the outsourcing of its retail and institutional
administration business and costs relating to provisioning for tax
and client exposures contributed to this result. The other Africa
business was mainly impacted by impaired bank exposures and
the curtailment of guaranteed cash mandate business in Kenya.
Costs incurred in identifying, resolving and providing for potential
exposures and write offs further impacted the results of the
business in Kenya. Operations in the other African territories tracked
expectation.
Total assets under management by STANLIB increased by 1% to
R586 billion (31 December 2015: R579 billion), as a result of low
growth from investment market returns and low net cash inflows.
Net customer cash inflows (excluding intergroup) amounted to
R5,8 billion compared to R8,5 billion in the prior year. This result was
mainly driven by lower South African non-money market flows and
was partly offset by improved non-money market inflows from the
African businesses. The asset management cash inflows improved
considerably from the net cash inflows of R453 million reported at
30 June 2016. Intergroup cash outflows for the year amounted to
R10,0 billion.
Bancassurance
The bancassurance partnership arrangement with Standard Bank,
which is applicable across the group's asset management and
insurance operations, continues to make a positive contribution
to new business volumes and earnings. The total indexed new
business premiums sold under the agreement increased by 6,3% to
R3,1 billion (31 December 2015: R2,9 billion).
Capital adequacy cover
The capital adequacy cover of Liberty Group Limited remained
strong at 2,95 times the statutory requirement (31 December 2015:
3,03 times). The group remains well capitalised at the upper end of
its target range in respect of the current capital regime and in respect
of capital requirements under the impending Solvency Assessment
and Management (SAM) regime. 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 2016 and 2015 reflected OCAR as the higher amount.
The board remains confident of the group's ability to support its
dividend policy.
Dividends
2016 final dividend
In line with the group's dividend policy, the board has approved and
declared a gross final dividend of 415 cents per ordinary share. The
final dividend will be paid out of income reserves and is payable on
Monday, 10 April 2017 to all ordinary shareholders recorded in the
books of Liberty Holdings Limited on the record date.
The dividend of 415 cents per ordinary share will be subject to a local
dividend tax rate of 20% which will result in a net interim dividend,
to those shareholders who are not exempt from paying dividend tax,
of 332 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 on the JSE Tuesday, 4 April 2017
First trading day ex dividend on the JSE Wednesday,
5 April 2017
Record date Friday, 7 April 2017
Payment date Monday, 10 April 2017
Share certificates may not be dematerialised or rematerialised
between Wednesday, 5 April 2017 and Friday, 7 April 2017, 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, 10 April 2017.
Prospects
Management's immediate priorities are to address shorter term
challenges relating to sales, the ongoing competitiveness of
Liberty's product suite and ongoing cost management.
Operating conditions are expected to remain tough and the
pressure on consumer disposable income is likely to continue in
the short term. However, our strategy remains intact and we are
resolute in developing competitive value propositions for our
customers, driving efficiency through simplifying our operations,
managing risk appropriately, deploying capital effectively and
pursuing profitable growth opportunities over the long term.
Thabo Dloti Jacko Maree
Chief Executive Chairman
23 February 2017
Transfer Secretaries
Computershare Investor Services Proprietary Limited
(Registration number 2004/003647/07)
Rosebank Towers, 15 Biermann Avenue, Rosebank
Johannesburg 2196
Tel: +27 (11) 370 5000
Sponsor:
Merrill Lynch South Africa (Pty) Limited
These results are available at http://www.libertyholdings.co.za
Telephone +27 11 408 3911
Accounting policies
The 2016 consolidated annual financial statements of Liberty
Holdings Limited have been prepared in accordance with and
contains 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 2016. The accounting policies
are consistent with those adopted in the previous year except for
the mandatory adoption of minor amendments, early adoption
of amendments to IFRS and voluntary changes in presentation
policies, as set out below. The minor amendments have not
resulted in any material impacts to the group's 2016 reported
results or comparative periods.
Reinsurance liabilities were included within the aggregate
policyholder liabilities for insurance contracts. To provide more
relevant and useful information to the user, these reinsurance
liabilities have been separately disclosed on the face of the statement
of financial position, as this class of liabilities represents the effect of
management's risk mitigation action on policyholder contracts.
In addition, certain individual pure risk contracts, where the present
value of expected future inflows exceeded the present value
of expected future outflows at a portfolio level, were included
as negative liability amounts (policyholder assets) within the
aggregate policyholder liabilities for insurance contracts. A change
in presentation was adopted for the year ended 31 December 2016
to disclose portfolio level negative policyholder liabilities as
policyholder assets.
As a result of these two voluntary presentation changes, R7 314 million
(2015: R7 579 million) is disclosed separately in the statement of
financial position as long-term policyholder assets and R555 million
(2015: R617 million) is disclosed as reinsurance liabilities with a net
adjustment to long-term policyholder liabilities of R6 579 million (2015:
R6 962 million). The impact is a presentation change only and there
is no resultant change to the group's total earnings, comprehensive
income, shareholders' equity or net asset value.
The change in presentation provides more relevant and meaningful
information and closer aligns the treatment of insurance contracts
with the prescribed reporting requirements expected under IFRS 17,
the new standard on insurance contracts.
In addition, amendments to IAS 1 Presentation of Financial
Statements, effective 1 January 2016, clarify that materiality applies
to the complete set of financial statements and that the inclusion
of immaterial information can inhibit the usefulness of financial
disclosures. As a consequence, the group undertook a project
to assess the effectiveness of disclosures in the annual financial
statements and removed or amended immaterial disclosures,
resulting in a more streamlined and concise set of annual
financial statements.
Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative
and IAS 12 Income Taxes: Recognition of Deferred Tax Assets for
Unrealised Losses, effective 1 January 2017, have been early adopted
as at 1 January 2016. These amendments have not impacted on the
group results, however increased disclosure relating to financing
activities is required under the Disclosure Initiative amendments for
annual financial statements. Upon review of the financing activities
presented in the statement of cash flows, collateral deposits payable
(not related to repurchase agreements) included in 'Net proceeds
on repurchase agreements liabilities and collateral deposits payable'
would be more accurately presented as part of investing activities.
The statement of cash flows has been restated to reflect this for 2015.
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 2016,
the consolidated statement 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 2016 audited consolidated
Liberty Holdings Limited annual financial statements which are
available for inspection at the company's registered office on
request.
Explanation of terms
Normalised: operating earnings, 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 consolidation of
the listed REIT Liberty Two Degrees (L2D) and the Black Economic
Empowerment (BEE) transaction, as opposed to the required
technical accounting treatment.
Reversal of accounting mismatch arising on consolidation of L2D
An accounting mismatch arises on consolidation of L2D in the
group annual financial statements, resulting from the different
measurement bases applied to L2D's assets and Liberty Group
Limited's (100% subsidiary of Liberty Holdings Limited) policyholder
liabilities. Specifically:
- the investment property assets of L2D are included in the group
annual financial statements at fair value; whereas
- the corresponding obligations to Liberty Group Limited's
policyholder assets are required under IFRS to continue to be
measured in the group annual financial statements at the listed
price of the L2D units.
The result of this accounting mismatch is that any increase in the
premium at which L2D's listed units trade relative to the underlying
net asset value will result in a reported loss in the group annual
financial statements. Conversely, any decrease in the premium (or
change from a premium to a discount) will result in a reported profit
in the group annual financial statements.
BEE transaction
IFRS reflects the BEE transaction as a share buy-back. Dividends
received on the group's 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.
Development costs
Represents project costs incurred on developing or enhancing
future revenue opportunities.
FCTR
Foreign Currency Translation Reserve.
"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.
Consolidated statement of financial position
as at 31 December 2016
Restated Restated
31 December 1 January
Rm (Audited) 2016 2015 2015
Assets
Intangible assets 390 317 368
Defined benefit pension fund employer surplus 215 301 277
Properties 33 828 33 321 29 747
Equipment 1 105 1 178 975
Interests in joint ventures 1 229 979
Interests in associates 12 995 16 967 16 497
Deferred taxation 358 326 455
Deferred acquisition costs 713 673 590
Long-term policyholder assets - insurance contracts 7 314 7 579 6 507
Reinsurance assets 1 674 1 658 1 558
Long-term insurance 1 352 1 317 1 302
Short-term insurance 322 341 256
Financial investments 316 441 307 608 291 517
Loans and receivables 1 242 1 210 1 327
Assets held for trading and for hedging 8 609 11 890 7 777
Repurchase agreements, scrip and collateral assets 15 483 19 225 6 991
Prepayments, insurance and other receivables 5 300 4 360 3 668
Cash and cash equivalents 14 994 19 305 13 985
Total assets 421 890 426 897 382 239
Liabilities
Long-term policyholder liabilities 307 230 305 194 293 617
Insurance contracts 204 155 205 485 201 457
Investment contracts with discretionary participation features 11 462 11 250 10 177
Financial liabilities under investment contracts 91 613 88 459 81 983
Reinsurance liabilities 555 617 406
Third-party financial liabilities arising on consolidation of mutual funds 44 046 46 329 34 501
Provisions 191 168 173
Deferred taxation 2 586 4 436 4 131
Deferred revenue 268 247 216
Deemed disposal taxation liability 873 268
Short-term insurance liabilities 925 937 683
Financial liabilities 4 601 3 914 3 575
Liabilities held for trading and for hedging 6 798 11 125 5 148
Repurchase agreements liabilities and collateral deposits payable 11 748 16 159 5 191
Employee benefits 1 369 1 400 1 371
Insurance and other payables 11 213 10 041 9 060
Current taxation 481 337 265
Total liabilities 392 884 400 904 358 605
Equity
Ordinary shareholders' equity 21 676 21 739 19 487
Share capital 26 26 26
Share premium 5 296 5 524 5 755
Retained surplus 16 990 16 615 14 599
Other reserves (636) (426) (893)
Non-controlling interests 7 330 4 254 4 147
Total equity 29 006 25 993 23 634
Total equity and liabilities 421 890 426 897 382 239
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Restated
Rm (Audited) 2016 2015
Insurance premiums 41 288 39 245
Reinsurance premiums (1 922) (1 673)
Net insurance premiums 39 366 37 572
Fee income and reinsurance commission 3 731 3 840
Investment income 20 885 19 634
Hotel operations sales 585 524
Investment (losses)/gains (1 823) 12 425
Total revenue 62 744 73 995
Claims and policyholder benefits under insurance contracts (39 664) (34 362)
Insurance claims recovered from reinsurers 1 450 1 203
Change in long-term policyholder assets and liabilities 598 (3 725)
Liabilities under insurance contracts 1 164 (3 794)
Policyholder assets related to insurance contracts (265) 1 072
Investment contracts with discretionary participation features (404) (802)
Applicable to reinsurers 103 (201)
Fair value adjustment to long-term policyholder liabilities under investment contracts (3 891) (6 181)
Fair value adjustment to financial liabilities (27) (14)
Fair value adjustment on third party mutual fund interests 619 (7 301)
Acquisition costs (4 723) (4 760)
General marketing and administration expenses (10 733) (10 149)
Finance costs (1 415) (1 196)
Profit share allocations under bancassurance and other agreements (1 029) (933)
Equity accounted earnings from joint venture 22 13
Profit before taxation 3 951 6 590
Taxation(1) (1 325) (2 303)
Total earnings 2 626 4 287
Other comprehensive income (148) 62
Items that may be reclassified subsequently to profit or loss (101) 71
Net change in fair value on cash flow hedges 218 (150)
Income and capital gains tax relating to net change in fair value on cash flow hedges (56) 37
Foreign currency translation (263) 184
Items that may not be reclassified subsequently to profit or loss (47) (9)
Owner-occupied properties - fair value adjustment (1) 54
Income and capital gains tax relating to owner-occupied properties fair value adjustment (17)
Change in long-term policyholder insurance liabilities (application of shadow accounting) 1 (37)
Actuarial gains/(losses) on post-retirement medical aid liability 30 (34)
Income tax relating to post-retirement medical aid liability (8) 10
Net adjustments to defined benefit pension fund(2) (96) 20
Income tax relating to defined benefit pension fund 27 (5)
Total comprehensive income 2 478 4 349
Total earnings attributable to:
Shareholders' equity 2 209 4 011
Non-controlling interests 417 276
2 626 4 287
Total comprehensive income attributable to:
Shareholders' equity 2 128 4 010
Non-controlling interests 350 339
2 478 4 349
Basic and fully diluted earnings per share Cents Cents
Basic earnings per share 811,7 1 493,5
Fully diluted basic earnings per share 788,9 1 428,0
(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 2016
Rm (Audited) 2016 2015
Balance of ordinary shareholders' interests at 1 January 21 739 19 487
Ordinary dividends (2 022) (1 874)
Total comprehensive income 2 128 4 010
Share buy-back(1) (477) (444)
Black economic empowerment transaction 195 520
Share-based payments 132 140
Transaction costs of issuing units in Liberty Two Degrees (78)
Preference dividends (2) (2)
Transactions between owners (40) (98)
Transactions between owners - Liberty Two Degrees 101
Ordinary shareholders' interests 21 676 21 739
Balance of non-controlling interests at 1 January 4 254 4 147
Total comprehensive income 350 339
Acquisition of Liberty Two Degrees 3 000
Transactions between owners - Liberty Two Degrees (101)
Acquisition of unincorporated property partnership 98
Acquisition of subsidiaries 33
Unincorporated property partnerships net distributions (219) (144)
Non-controlling interests' share of subsidiary dividend (21) (43)
Non-controlling interests' share of shares issued/(capital reduction) in subsidiary 3 (1)
Transaction costs of issuing units in Liberty Two Degrees (38)
Transactions between owners (29) (44)
Non-controlling interests 7 330 4 254
Total equity 29 006 25 993
(1) Share buy-backs are purchases from the market to meet employee share-based payment obligations.
Summary consolidated statement of cash flows
for the year ended 31 December 2016
Restated
Rm (Audited) 2016 2015
Cash flows from operating activities 2 443 13 489
Cash (utlised)/generated by operations (9 157) 2 033
Interest and dividends received 18 242 17 181
Dividends paid (2 717) (2 255)
Taxation paid (2 260) (2 055)
Other operating cash flows (1 665) (1 415)
Cash flows from investing activities (6 607) (16 052)
Net purchase of investments (4 937) (16 759)
Net purchase of other assets (288) (650)
Proceeds on collateral deposits payable (1 236) 3 246
Acquisition of subsidiaries (146) (1 889)
Cash flows from financing activities (18) 7 691
Net advance of financial liabilities 687 339
Net proceeds on repurchase agreements liabilities (3 175) 7 722
Net cash flows from equity transactions with non-controlling interests 3 063 74
Transaction costs of issuing units in Liberty Two Degrees (116)
Share buy-back (477) (444)
Net increase in cash and cash equivalents (4 182) 5 128
Cash and cash equivalents at the beginning of the year 19 305 13 985
Cash and cash equivalents acquired through business acquisitions 61
Foreign currency translation (190) 192
Cash and cash equivalents at the end of the year 14 994 19 305
Headline earnings and earnings per share
for the year ended 31 December 2016
Rm (Audited) 2016 2015
Reconciliation of total earnings to headline earnings attributable to shareholders
Total earnings attributable to shareholders 2 209 4 011
Preference share dividend (2) (2)
Basic earnings attributable to ordinary shareholders 2 207 4 009
Impairment of intangible assets 110
Tax on headline earnings adjustable item (17)
Headline earnings attributable to ordinary shareholders 2 207 4 102
Net income earned on BEE preference shares 16 26
Reversal of the accounting mismatch arising on consolidation of L2D(1) 304
Normalised headline earnings attributable to ordinary shareholders 2 527 4 128
Weighted average number of shares in issue ('000) 271 883 268 423
Normalised weighted average number of shares in issue ('000) 279 373 281 864
Fully diluted weighted average number of shares in issue ('000) 279 760 280 736
Earnings per share Cents Cents
Total earnings attributable to ordinary shareholders
Basic 811,7 1 493,5
Headline 811,7 1 528,2
Normalised headline 904,5 1 464,5
Fully diluted earnings attributable to ordinary shareholders
Basic 788,9 1 428,0
Headline 788,9 1 461,2
(1) Refer Corporate actions.
Summary consolidated segment information
for the year ended 31 December 2016
Individual Group Asset Reporting
2016 Arrange- Arrange- Manage- adjust- IFRS
Rm (Audited) ments ments ment Other Total ments(1) reported
Total revenue 56 583 18 050 3 384 1 097 79 114 (16 370) 62 744
Profit before taxation 2 018 446 517 653 3 634 317 3 951
Taxation (950) (162) (148) (65) (1 325) (1 325)
Total earnings 1 068 284 369 588 2 309 317 2 626
Other comprehensive income/(loss) 181 (131) (31) (167) (148) (148)
Total comprehensive income 1 249 153 338 421 2 161 317 2 478
Attributable to non-controlling interests 5 (7) (31) (33) (317) (350)
Shareholders 1 249 158 331 390 2 128 2 128
Reconciliation of total earnings to headline
earnings attributable to shareholders
Total earnings 1 068 284 369 588 2 309 317 2 626
Attributable to non-controlling interests (62) (7) (31) (100) (317) (417)
Preference share dividend (2) (2) (2)
Headline earnings 1 068 222 362 555 2 207 2 207
Net income earned on BEE preference shares 16 16 16
Reversal of the accounting mismatch arising
on consolidation of L2D 304 304 304
Normalised headline earnings 1 068 222 362 875 2 527 2 527
(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 customer facing units are supported by shared service functions (Group Enablement) and LibFin (incorporating LibFin Markets and
LibFin Investments), which are strategic competency units. The impact of LibFin Markets is disclosed in the relevant customer grouping.
Refer to supplementary information included in the full results announcement available on the Liberty website for the reconciliation of
business unit earnings to segment result.
Individual Group Asset Reporting
2015 Arrange- Arrange- Manage- adjust- IFRS
Rm (Audited) 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
Normalised headline earnings 1 741 282 629 1 476 4 128 4 128
(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
for the year ended 31 December 2016
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 that 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 the 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 described in the 31 December 2015 annual financial statements.
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 normalised group equity value of R189 million.
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 Advisory 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.
3.2 Other businesses:
STANLIB Valued using a 10 times (2015: 10 times) multiple of estimated sustainable earnings.
Liberty Health As Liberty Health has yet to establish a history to support a sustainable earnings calculation, an 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 various
Insurance 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 2016 and 31 December 2015 the combined valuations approximated the group's
IFRS net asset value. Therefore the IFRS net asset value was used.
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 (2015: 9 times).
4 Normalised group equity value
4.1 Analysis of normalised group equity value
31 December 2016 SA covered Other
Rm (Audited) business businesses Total
Liberty Group Limited 18 505 18 505
STANLIB South Africa(2) 777 777
STANLIB Other Africa(2) 104 104
Liberty Health (including Total Health Trust) 404 404
Liberty Africa Insurance 808 808
Liberty Holdings 1 408 1 408
Liberty Two Degrees normalisation adjustment(1) (330) (330)
Shareholders' equity reported under IFRS 18 505 3 171 21 676
Difference between statutory and published valuation methods (6 786) (58) (6 844)
Negative rand reserves (6 344) (6 344)
Deferred acquisition costs (698) (698)
Deferred revenue liability 256 256
Other (58) (58)
Subordinated notes (including accrued interest) 4 601 4 601
CAR of subsidiaries (10) (10)
Reverse value of in-force acquired (17) (17)
Inadmissible assets (807) (85) (892)
Statutory excess assets over liabilities 15 486 3 028 18 514
Reverse difference between statutory and published valuation methods 58 58
Reverse CAR of subsidiaries 10 10
Reverse subordinated notes (including accrued interest) (4 601) (4 601)
Reverse inadmissible assets 807 85 892
Frank Financial Services allowance for future expenses (100) (100)
Impact of discounting on deferred tax asset (100) (100)
BEE preference funding 148 148
Liberty Two Degrees normalisation adjustment(1) 330 330
Allowance for employee share options/rights (33) (27) (60)
Normalised net worth 11 717 3 374 15 091
Value of in-force - Individual Arrangements 21 635 21 635
Value of in-force - Group Arrangements: Liberty Corporate 2 759 2 759
Cost of required capital (1 641) (1 641)
Fair value adjustment - STANLIB South Africa(2) 5 013 5 013
Fair value adjustment - STANLIB Other Africa(2) 256 256
Allowance for future shareholder costs (1 892) (1 892)
Normalised equity value 34 470 6 751 41 221
(1) Represents the difference between Libertys' share of the net asset value of L2D as at 31 December 2016 and the listed
price of L2D units multiplied by the number of units in issue to Liberty at 31 December 2016.
(2) STANLIB total valuation: Rm
South Africa 5 790
Other Africa 360
Total 6 150
31 December 2015 SA covered Other
Rm (Audited) business businesses Total
Liberty Group Limited 19 263 19 263
STANLIB South Africa(2) 546 546
STANLIB Other Africa(2) 259 259
Liberty Health (including Total Health Trust) 373 373
Liberty Africa Insurance 736 736
Liberty Holdings 562 562
Shareholders' equity reported under IFRS 19 263 2 476 21 739
Difference between statutory and published valuation methods (6 633) (112) (6 745)
Negative rand reserves (6 216) (6 216)
Deferred acquisition costs (651) (651)
Deferred revenue liability 234 234
Other (112) (112)
Subordinated notes (including accrued interest) 3 579 3 579
CAR of subsidiaries (10) (10)
Reverse value of in-force acquired (30) (30)
Inadmissible assets (584) 3 (581)
Statutory excess assets over liabilities 15 585 2 367 17 952
Reverse difference between statutory and published valuation methods 112 112
Reverse CAR of subsidiaries 10 10
Reverse subordinated notes (including accrued interest) (3 579) (3 579)
Reverse inadmissible assets 584 (3) 581
Frank Financial Services allowance for future expenses (100) (100)
Impact of discounting on deferred tax asset (100) (100)
BEE preference funding 322 322
Allowance for employee share options/rights (61) (48) (109)
Normalised net worth 12 761 2 328 15 089
Value of in-force - Individual Arrangements(1) 21 521 21 521
Value of in-force - Group Arrangements: Liberty Corporate 2 504 2 504
Cost of required capital (1 518) (1 518)
Fair value adjustment - STANLIB South Africa(2) 5 454 5 454
Fair value adjustment - STANLIB Other Africa(2) 371 371
Allowance for future shareholder costs (1 786) (1 786)
Normalised equity value 35 268 6 367 41 635
(1) Includes property liquidity fee.
(2) STANLIB total valuation: Rm
South Africa 6 000
Other Africa 630
Total 6 630
4.2 Normalised group equity value earnings and value per share
2016 2015
SA SA
covered Other covered Other
Rm (Audited) business businesses Total business businesses Total
Normalised equity value at the end of the year 34 470 6 751 41 221 35 268 6 367 41 635
Equity value at the end of the year 34 322 6 421 40 743 34 946 6 367 41 313
Liberty Two Degrees normalisation adjustment(1) 330 330
BEE preference shares 148 148 322 322
Net share buy-backs 477 477 444 444
Funding of restricted share plan 92 (92) 112 (112)
Intragroup dividends 3 500 (3 500) 2 250 (2 250)
Dividends paid 2 024 2 024 1 876 1 876
Normalised equity value at the beginning of
the year (35 268) (6 367) (41 635) (33 562) (6 273) (39 835)
Equity value at the beginning of the year (34 946) (6 367) (41 313) (30 564) (8 653) (39 217)
Change in measurement basis: recurring
shareholder expenses (1 315) 1 480 165
Change in measurement basis: LibFin Credit (876) 900 24
BEE preference shares (322) (322) (807) (807)
Normalised equity value earnings 2 794 (707) 2 087 4 068 52 4 120
Normalised return on group equity value (%) 7,9 (11,8) 5,1 12,2 0,9 10,5
Normalised number of shares 282 615 285 259
Number of shares in issue (000s) 272 247 270 371
Shares held for the employee restricted share
scheme (000s) 3 794 3 780
Adjustment for BEE shares (000s) 6 574 11 108
Normalised group equity value per share (R) 145,86 145,96
(1) Represents the difference between Libertys' share of the net asset value of L2D as at 31 December 2016 and the listed
price of L2D units multiplied by the number of units in issue to Liberty at 31 December 2016.
4.3 Sources of normalised group equity value earnings
2016 2015
SA SA
covered Other covered Other
Rm (Audited) business businesses Total business businesses Total
Value of new business written in the year 454 29 483 684 45 729
Expected return on value of in-force business 2 997 2 997 2 538 2 538
Variances/changes in operating assumptions 43 12 55 756 (129) 627
Operating experience variances 477 76 553 582 25 607
Property portfolio liquidity fee/STANLIB REIT
Fund Managers(1) (167) 240 73 182 182
Operating assumption changes (295) (304) (599) (111) (154) (265)
Changes in modelling methodology 28 28 103 103
Development costs (45) (62) (107) (41) (41)
Headline earnings of other businesses 185 185 635 635
Operational equity value profits 3 449 164 3 613 3 978 510 4 488
Non headline earnings adjustments (71) (22) (93)
Economic adjustments (683) (67) (750) 86 (231) (145)
Investment return on net worth 153 (67) 86 927 (231) 696
Investment variances(2) (963) (963) 37 37
Change in economic assumptions 127 127 (878) (878)
(Decrease)/increase in fair value adjustments
on value of other businesses (825) (825) (251) (251)
Change in allowance for share options/rights 28 21 49 75 46 121
Group equity value earnings 2 794 (707) 2 087 4 068 52 4 120
(1) Following the listing of Liberty Two Degrees in December 2016, STANLIB REIT Fund Managers (RF) Proprietary Limited (the Manager),
a 100% held subsidiary of LHL, was appointed as the Manager of L2D. The property portfolio liquidity fee which was previously earned
in Liberty Group Limited will be used to fund the asset management fee paid to STANLIB REIT Fund Managers. STANLIB REIT Fund Managers has
been valued using a 10 times multiple of the estimated sustainable earnings.
(2) Includes effect of R178 million (2015: negative R133 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
Rm (unless otherwise stated) (Audited) 2016 2015
South African covered business:
Individual Arrangements 1 652 1 761
Traditional Life 1 306 1 463(1)
Direct Channel 96 54
Credit Life 86 71
LibFin Credit uplift to Individual Arrangements 164 173
Group Arrangements: Liberty Corporate 131 134
Traditional Business 113 117
LibFin Credit uplift to Group Arrangements 18 17
Gross value of new business 1 783 1 895
Overhead acquisition (including underwriting) costs impact on value of new business (1 243) (1 116)
Cost of required capital (86) (95)
Net value of South African covered new business 454 684
Present value of future expected premiums 42 370 38 886
Margin (%) 1,1 1,8
Group Arrangements: Liberty Africa Insurance
Net value of new business 29 45
Present value of future expected premiums 519 679
Margin (%) 5,6 6,6
Total group net value of new business 483 729
Total group margin (%) 1,1 1,8
(1) 2015 Traditional Life new business includes R71 million relating to Direct Channel new business, the equivalent of which
has been included under Direct Channel new business in 2016.
Long-term insurance new business
for the year ended 31 December 2016
Rm (Unaudited) 2016 2015
Sources of insurance operations total new business by product type
Retail 27 435 25 790
Single 22 916 21 392
Recurring 4 519 4 398
Institutional 2 296 2 114
Single 1 350 1 262
Recurring 946 852
Total new business 29 731 27 904
Single 24 266 22 654
Recurring 5 465 5 250
Insurance indexed new business 7 892 7 515
Sources of insurance indexed new business:
Individual Arrangements 6 639 6 421
Group Arrangements: 1 253 1 094
Liberty Corporate 842 790
Liberty Africa Insurance(1) 411 304
(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 2016
Rm (Audited) 2016 2015
Net premiums by product type
Retail 43 150 40 532
Single 22 522 21 146
Recurring 20 628 19 386
Institutional 11 889 12 139
Single 3 170 3 915
Recurring 8 719 8 224
Net premium income from insurance contracts and inflows from investment contracts 55 039 52 671
Single 25 692 25 061
Recurring 29 347 27 610
Net claims and policyholders benefits by product type
Retail (40 924) (33 917)
Death and disability claims (6 570) (5 947)
Policy surrender and maturity claims (28 870) (22 682)
Annuity payments (5 484) (5 288)
Institutional (12 996) (13 352)
Death and disability claims (3) (1 912) (2 305)
Scheme terminations and member withdrawals(3) (10 280) (10 358)
Annuity payments (804) (689)
Net claims and policyholders benefits (53 920) (47 269)
Long-term insurance net cash flows(2) 1 119 5 402
Rm (Unaudited)
Sources of insurance operations net cash flows:
Individual Arrangements 1 948 6 288
Group Arrangements: (268) (496)
Liberty Corporate (751) (891)
Liberty Africa Insurance(1) 483 395
Asset Management:
STANLIB Multi-manager (561) (390)
(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.
(2) This excludes net cash inflows attributed to the off balance sheet GateWay LISP of R557 million (2015: R1 502 million).
(3) 2015 death and disability claims include R530 million claims relating to STANLIB Multi-Manager, the equivalent of which
have been included under scheme terminations and member withdrawals in 2016.
Assets under management(1)
as at 31 December 2016
Rbn (Unaudited) 2016 2015
Managed by group business units 653 641
STANLIB South Africa 535 529
STANLIB Other Africa(2) 51 50
LibFin Markets 58 50
Other internal managers 9 12
Externally managed 23 27
Total assets under management(3) 676 668
(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 December 2016 amounts:
Unit trusts listed (Rbn)
STANLIB Other
managed managed Total
STANLIB 36 72 108
Gateway 3 4 7
Asset management net cash flows - STANLIB(1)
for the year ended 31 December 2016
Rm (Unaudited) 2016 2015
South Africa
Non-money market 764 6 366
Retail (2 327) 8 511
Institutional 3 091 (2 145)
Money market 2 037 (672)
Retail 1 007 (1 413)
Institutional 1 030 741
Net South Africa cash inflows 2 801 5 694
Other Africa(2)
Non-money market 3 724 977
Retail (422) (62)
Institutional 4 146 1 039
Money market (761) 1 783
Net Other Africa cash inflows 2 963 2 760
Net cash inflows from asset management 5 764 8 454
(1) Cash flows exclude intergroup segregated life fund mandates and Delta LISP with effect from June 2016.
(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 2016
Rm (Audited) 2016 2015
Net premiums 1 484 1 249
Liberty Health - medical risk 919 778
Liberty Africa Insurance - motor, property, medical and other 565 471
Net claims (994) (771)
Liberty Health - medical risk (743) (554)
Liberty Africa Insurance - motor, property, medical and other (251) (217)
Net cash inflows from short-term insurance 490 478
Unaudited
Claims loss ratio (%)
Liberty Health 77 71
Liberty Africa Insurance 44 46
Combined loss ratio (%)
Liberty Health 104 101
Liberty Africa Insurance 94 97
Capital commitments
as at 31 December 2016
Rm (Audited) 2016 2015
Equipment 823 401
Investment and owner-occupied properties 1 485 1 495
Business acquisitions 45
Committed capital(1) 636 197
Total capital commitments 2 944 2 138
Under contracts 657 903
Authorised by the directors but not contracted 2 287 1 235
(1) Liberty has committed capital to certain infrastructure and development funds. The committed funds are only drawn down when required.
The above 2016 capital commitments will be financed by available bank facilities, existing cash resources, internally generated funds,
R60 million (2015: R255 million) from non-controlling interests in unincorporated property partnerships in respect of investment properties
and in 2016, R300 million from non-controlling interests in Liberty Two Degrees.
Business acquisition
Liberty has entered into agreements that will result in acquiring 75% of ownership in a Nigerian long-term insurer through an injection of
capital of R160 million. The transaction is subject to certain regulatory approvals. The impact of this transaction is not expected to have a
significant impact on the group's results.
Corporate actions
for the year ended 31 December 2016
Audited
Liberty Two Degrees
In order to improve policyholder investment options and to
provide access to Liberty's prestige direct property portfolio
to non policyholder investors, a portion of the Liberty Property
Portfolio (LPP) and Liberty PropCo Proprietary Limited (Liberty
PropCo - which owned 25% undivided share in the Melrose Arch
precinct in Johannesburg) was sold into a Real Estate Investment
Trust named Liberty Two Degrees (L2D).
L2D was successfully listed on the JSE on 6 December 2016.
A summary of the transactions leading to the listing are as follows:
- LGL and Liberty PropCo sold 22% undivided shares in
certain properties in LPP and the Melrose Arch precinct for
626 315 789 units (526 315 789 units priced at R9,50 per unit
and 100 000 000 units priced at R10 per unit) in L2D for a total
of R6 billion. In addition LGL subscribed for 82 127 545 units
priced at R9,50 per unit totalling R780 million.
- 315 789 474 units (R3 billion) were allocated to a new
investment portfolio, Liberty Real Estate Portfolio (LREP) to
match obligations to policyholders who voluntarily switched to
this portfolio.
- 82 127 545 units (R780 million) were allocated to LREP to match
obligations to policyholders who entered into new policies of
insurance as part of a pre-listing offer.
- The balance of 210 526 316 units priced at R9,50 per unit and
100 000 000 units priced at R10 per unit (totalling R3 billion)
were invested in the Shareholder Investment Portfolio of which
R1 billion was sold to external investors on the listing day, at the
market listing price of R10 per unit.
- In addition, on listing, external investors subscribed for
200 000 000 units at R10 per unit, totalling R2 billion.
Liberty is currently the most significant investor in L2D, with 67%
economic interest as at 31 December 2016. STANLIB REIT Fund
Managers (RF) Proprietary Limited (the Manager), a 100% held
subsidiary of Liberty Holdings Limited (LHL), was appointed as
manager of L2D. The Manager was also appointed as the asset
manager of LGL's remaining interest in the LPP.
On application of IFRS 10 Consolidated Financial Statements L2D is
consolidated by LHL.
LHL continues to disclose all of the previously directly owned
properties (prior to the listing of L2D), however with an increase
in external investors (disclosed as non-controlling interests).
Any transactions between external investors and LGL are regarded
as transactions between owners.
Certain insurance contracts in LGL have returns which are
contractually linked to the L2D units that are measured at fair value
(as defined under IFRS 13 Fair Value Measurement). The obligation
to the policyholder depends on the performance of the underlying
units. To match the obligations of the insurance policies, LGL has
invested in the L2D units.
Earnings volatility on consolidation of L2D
An accounting mismatch arises on consolidation of L2D as a result
of the different measurement bases required to be applied in the
Liberty Holdings Limited group annual financial statements for
L2D assets and for the corresponding LGL policyholder liabilities.
Specifically:
- the investment property assets of L2D are included in the Liberty
Holdings group annual financial statements at fair value; whereas
- the corresponding obligations to LGL's policyholders in respect
of the REIT units are required under IFRS to continue to be
measured in the Liberty Holdings Limited group annual financial
statements at the listed price of the L2D units.
The result of this accounting mismatch is that any increase in the
premium at which L2D's listed units trade relative to the underlying
net asset value (based on the underlying fair value of the properties)
of L2D, will result in a reported loss in the Liberty Holdings Limited
group annual financial statements.
The difference between the net asset value and the fair value of the
units held as part of the shareholder portfolio, where the market has
priced in a premium, results in a negative economic mismatch on
consolidation (representing the opportunity cost of consolidating a
listed entity in a group).
Presentation of normalised earnings
For the year ended 31 December 2016, an adjustment of
R304 million has been recognised under normalised earnings
to reverse the accounting mismatch arising on consolidation of
listed REIT, net of tax. The normalised adjustment relates only to
the accounting mismatch arising from the policyholder insurance
contract obligations linked to L2D units on consolidation.
Retirement benefit obligations
as at 31 December 2016
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 2016, the Liberty post-retirement medical aid
benefit liability was R493 million (31 December 2015: R480 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 2016
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 or have been contracted in the 31 December 2016 financial year:
1. Summary of related party transactions with Standard Bank
1.1 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 2016 10 501 1 192 0,66
Purchases 6 926 918
Sales (7 855) (1 083)
Fair value adjustments 427
Balance at 31 December 2016 9 572 1 454 0,60
1.2 Bancassurance
The bancassurance business agreements with the Standard Bank
group caters 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 2016 amounted to R7 973 million
(2015: R7 503 million). In terms of the agreements, Liberty's group
subsidiaries pay 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 2016 is
R1 005million (2015: R896 million).
The bancassurance business agreements are evergreen
agreements with a 24-month notice period for termination - as at
the date of the approval of these financial statements, 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
business 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 2016 is R150 million (2015: R110 million).
1.3 Purchases and sales of financial instruments
As per Liberty's 2016 group annual financial statements, in the
normal course of conducting business, Liberty deposits cash with
Standard Bank, purchases and sells financial instruments issued by
Standard Bank and enters into sale and repurchase agreements
and 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.
There are no other significant changes to related party transactions
as reported in Liberty's 2016 annual financial statements.
Offsetting, enforceable master
netting arrangements or similar agreements
as at 31 December 2016
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. The table below sets out the nature of agreements and the types of rights relating to items which do not qualify
for offset but that are subject to a master netting arrangement (MNA) or similar agreement.
NATURE OF AGREEMENT RELATED RIGHTS
Derivative assets and liabilities International swaps and derivatives associations
The agreement allows for offset
Repurchase agreements Global master repurchase agreements in the event of default
Collateral deposits payable Global master securities lending arrangements
Not subject Subject
to MNA to MNA
or similar or similar Financial
Rm (Audited) Total agreements agreements collateral Net
2016
Assets
Assets held for trading and for hedging 8 609 (595) 8 014 (6 532) 1 482
Total assets 8 609 (595) 8 014 (6 532) 1 482
Liabilities
Liabilities held for trading and for hedging 6 798 (49) 6 749 (6 532) 217
Repurchase agreements liabilities 7 064 7 064 (7 064)
Collateral deposits payable 4 684 4 684 (4 684)
Total liabilities 18 546 (49) 18 497 (18 280) 217
2015
Assets
Assets held for trading and for hedging 11 890 (163) 11 727 (9 979) 1 748
Total assets 11 890 (163) 11 727 (9 979) 1 748
Liabilities
Liabilities held for trading and for hedging 11 125 (143) 10 982 (9 979) 1 003
Repurchase agreements liabilities 10 239 10 239 (10 233) 6
Collateral deposits payable 5 920 5 920 (5 920)
Total liabilities 27 284 (143) 27 141 (26 132) 1 009
Financial collateral relates to these instruments that are subject to MNA or similar agreements.
Date: 24/02/2017 07:14:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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