To view the PDF file, sign up for a MySharenet subscription.

LIBERTY HOLDINGS LIMITED - Financial results for the six months ended 30 June 2021 Short form announcement

Release Date: 04/08/2021 07:15
Code(s): LBH     PDF:  
Wrap Text
Financial results for the six months ended 30 June 2021 – Short form announcement

Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 1968/002095/06)
Share code: LBH
ISIN code: ZAE0000127148
Share Code: LBHP
ISIN Code: ZAE000004040
 ("Liberty" or "group")

Financial results for the six months ended 30 June 2021 – Short form announcement

Implementation of strategy on track with initial milestones achieved

Financial highlights:
                                                                                   30          30
                                                                                 June        June         %
 Rm (unless otherwise stated)                                                    2021        2020     change
 
 Profit/(loss) before taxation                                                  1 660     (4 069)       >100
 Normalised headline earnings/(loss)(1)                                           288     (2 173)       >100
 Normalised headline earnings/(loss) per share (cents)(1)                       107,3     (802,5)       >100
 Headline earnings/(loss) per share (cents) (2)                                  84,3     (855,2)       >100
 Basic earnings/(loss) per share (cents)                                         84,3     (902,4)       >100
 Normalised return on IFRS equity (%)(1),(4)                                      2,7      (19,7)
 Normalised group equity value per share (R)(1)                                132,34      128,80          3
 Normalised return on group equity value (%)(1), (4)                              5,8      (18,9)
 Solvency capital requirement cover ratio of Liberty Group Limited
 (times covered)(3)                                                              1,73        1,83
 Embedded value of new business                                                    46          24         92
 New business margin (%)                                                           0,2        0,2
 Interim dividend                                                                    -          -

 (1) Normalised: headline earnings/(loss), headline earnings/(loss) per share, return on IFRS equity, group
 equity value per share and return on group equity value. These measures reflect the economic substance
 of the consolidation of the listed REIT Liberty Two Degrees (L2D) and the Black Economic Empowerment
 (BEE) transaction, as opposed to the required IFRS accounting treatment.
 (2) Headline earnings/(loss) includes adjustments for impairment of intangible assets.
 (3) Solvency capital requirement cover is the excess of assets over liabilities required by an insurer to
 ensure that its assets remain larger than its liabilities with a 99.5% level of certainty over a one-year time
 horizon, with assets and liabilities valued in accordance with the Insurance Act, 2017.
 (4) Annualised.

A severe second and the start of a third wave of the COVID-19 pandemic (the pandemic) resulted
in continued challenging health and economic conditions during the first half of 2021. South Africa,
Liberty’s largest market, has been subject to government-imposed lockdown restrictions designed
to curb the spread of the virus for almost 17 months. The mass COVID-19 vaccine rollout has
commenced in South Africa and is intensifying, but uncertainty related to the evolution and impact
of the pandemic and associated waves remains.
Subsequent to 30 June 2021, the KwaZulu Natal and Gauteng provinces of South Africa
experienced significant protest action in July 2021. These protests were characterised by deplorable
violence, theft and destruction of property, and are also sadly a reflection of the desperation of many
South Africans during these difficult times. Regrettably, these actions have been disruptive to the
broader South African society and to the country’s struggling economy. We were fortunate that
Liberty related assets and premises did not suffer damage and we continue to work with our business
partners to safeguard our assets.

We extend our sincere condolences to members of the Liberty community who have lost family and
friends and are struggling with the trauma and stress induced by these extremely difficult times.

Liberty is proud to have opened a vaccination site to the public at our head office in Braamfontein to
assist the South African Government with its vaccination programme. Working in collaboration with
Dis-Chem, over 600 vaccinations are being administered per day at our site.

The global economic environment continued to recover in the first half of 2021. This has positively
impacted global and South African financial market conditions and contributed positively to returns
from the Shareholder Investment Portfolio (SIP) during the period.

Supporting our clients and their families at those most profound moments of human vulnerability lies
at the heart of our purpose. As evidence of this, total death and disability claims paid during the six
months ended 30 June 2021 amounted to R8,5 billion, a 61,4% increase over the first half of 2020,
which is reflective of the severe impact of the pandemic on our clients. Total annuity payments to
clients during the period were R4,5 billion, a 10,3% increase on the comparative period representing
a critical injection of income into society to sustain many vulnerable people in the latter years of their
lives.

A pandemic reserve of R3,1 billion (before tax and non-controlling interests' share in respect of our
Liberty Africa Insurance business) was established in 2020 to provide for the expected impact of
COVID-19 on Liberty’s business. The reserve was calculated on a prospective basis to cover the
expected increase in mortality and retrenchment claims together with reduced persistency and
increased expense impacts attributable to the pandemic. At 31 December 2020, the reserve
amounted to R2 291 million before tax and the share of non-controlling interests’.

Additional death and funeral claims, adverse persistency experience and specific qualifying
pandemic related expenditure absorbed within the pandemic reserve during the six-month period to
30 June 2021 amounted to R1 761 million before tax and non-controlling interests. Liberty’s actual
experience for the six months to 30 June 2021 together with emerging SA population statistics were
considered in reassessing the appropriateness of the pandemic reserve at 30 June 2021 which
resulted in an increase in the reserve at 30 June 2021 of R1 022 million before tax and non-
controlling interests. The pandemic reserve amounted to R1 552 million before tax and non-
controlling interests at 30 June 2021.

In addition, risk claims on short contract boundary business not absorbed by the pandemic reserve
amounted to R388 million after tax and non-controlling interests’ share. This represents claims that
were not covered through the pandemic reserve and represent excess claims not anticipated in the
pricing of these books of business.

A proposed transaction was announced on 15 July 2021, whereby Standard Bank Group (SBG) is
proposing to buy 100% of Liberty Holdings Limited and to integrate Liberty more closely into the
greater group. This will, subject to shareholder and regulatory approvals, lead to the de-listing of
Liberty Holdings Limited and Liberty becoming a wholly owned subsidiary of SBG. SBG currently
owns 54% of Liberty’s issued ordinary shares. This proposed transaction is a strong vote of
confidence by SBG in the strength of Liberty’s business, its client franchise, and very importantly its
adviser networks and teams of people. Further details of the proposed transaction are outlined in
the firm intention announcement that was released on 15 July 2021.

The current operating environment has reinforced the importance of our purpose and has led to a
deepened focus on, and acceleration of, key initiatives to develop a more competitive and future
ready enterprise.

In this context, we have three key focus areas:
- Significantly enhancing the quality of our client and adviser experience;
- Delivering transparent and intuitive risk and investment solutions suitable for the digital age; and
- Aggressively simplifying our whole organisation.

Good progress in advancing our plans was made during the current period, with investments of
R169 million net of tax (30 June 2020: R94 million net of tax) made to expedite the build of our client
and adviser engagement and investment platforms. These developments represent important
milestones in achieving our strategy for the future Liberty and include:
-   The launch of the Liberty Adviser Workbench powered by Salesforce to our tied adviser force
    (Liberty Advisory Partners), which automates, simplifies and digitalises processes, effectively
    reducing duplication of effort and expediting the sales process. Over 1 500 advisers and sales
    leaders have already been onboarded and are using the workbench since late May 2021;
-   We also recently launched Advice Plus, our new generation goal based financial needs analysis
    tool, to our advisers. This digital tool allows for best-in-class advice across risk and investment
    propositions. Over 8 000 client financial needs analysis reports have been issued since the
    launch of Advice Plus in late May 2021;
-   Investment solutions have been enhanced through the launch in early 2021 of our Multi-Strategy
    portfolio range linked to our revised advice model, as well as a portfolio range launched on
    STANLIB's LISP, built in conjunction with STANLIB Multi-Manager. This facilitates personalised
    advice to be provided and customised solutions to be identified to meet the needs of our clients;
-   A more refined approach to pricing and risk selection, based on additional risk factors in our
    commercial and actuarial models, was introduced in the second half of 2020 and continues to
    be refined. This capability places Liberty in a more competitive position by providing significant
    agility in both the rating and pricing of our risk solutions; and
-   In terms of simplification initiatives, we have continued to retire legacy products, and continued
    reducing the complexity and streamlining of our SA Retail business both from a product and
    architecture point of view. 81 products have been rationalised with over 200 000 clients migrated
    to new generation products, and 31 portfolios have been rationalised with assets of R500 million
    in respect of 4 000 clients switched into other suitable portfolios in the first half of 2021.


The introduction of digital enablement tools, particularly the Liberty Adviser Workbench and Advice
Plus, has significantly improved sales channel support and has started to contribute to the improved
SA Retail new business sales performance across all major channels. We will continue with the
focused execution of our plans to enhance the client and adviser experience, provide digital tools
and solutions to our advisers and clients and to simplify our business.

Liberty’s operations remain financially sound and well capitalised, with the Solvency Capital
Requirement ('SCR') cover ratio of Liberty Group Limited, the group’s main long-term insurance
licence, at 1,73 times at 30 June 2021 (31 December 2020: 1,81 times). The 30 June 2021 SCR
cover takes account of the required increase in the pandemic reserve, underpinning our ability to
fulfil our promises to policyholders and other stakeholders.

Normalised operating earnings before COVID-19 impacts amounted to R652 million, compared to
the equivalent prior period earnings of R633 million.
After including the cost of increasing the prospective COVID-19 pandemic reserve net of taxation
and non-controlling interests' share of R729 million (30 June 2020: R2 175 million) and current
period claims that were not covered through the pandemic reserve amounting to R388 million (net
of taxation and non-controlling interests' share), Liberty reflects a normalised operating loss for the
six-month period ended 30 June 2021 of R465 million compared to a normalised operating loss of
R1 542 million for the comparative period.

The SIP generated a profit of R753 million for the current period, compared to a loss of R631 million
reported for the six-month period ended 30 June 2020.

Liberty is accordingly reporting normalised headline earnings for the six-month period ended
30 June 2021 of R288 million, compared to a normalised headline loss of R2 173 million in the prior
period. Normalised annual return on equity was positive 2,7% compared to negative 19,7% for the
six-month period ended 30 June 2020.

Headline earnings for the period of R222 million, which includes a negative adjustment of R64 million
(30 June 2020: negative R88 million) arising from the consolidation of the Liberty Two Degrees listed
REIT, compares to a headline loss of R2 263 million for the six-month period ended 30 June 2020.

The normalised annual return on group equity value (RoGEV) was positive 5,8% compared to
negative 18,9% in the prior period. The improvement in the RoGEV was largely attributable to the
impact of better investment returns on the SIP earnings in the current period and the effect of higher
than anticipated investment returns on the value of in-force business. In addition, the comparative
period was more adversely impacted by the initial establishment of the pandemic reserve.

Group long-term insurance indexed new business of R4 281 million was 24,8% above the
comparative period of R3 430 million. This improvement was underpinned by a 30,9% increase in
SA Retail indexed new business supported by all major distribution channels.

The group value of new business (VoNB) increased to R46 million from R24 million in the
comparative period. Improved overall sales volumes contributed positively, offset by increased
acquisition expenses due to increased sales activities.

Group net external third party client cash inflows amounted to R10,3 billion compared to prior period
inflows of R14,3 billion, supported mainly by STANLIB South Africa net external third party client
cash inflows of R12,8 billion, which were below comparative period net inflows of R14,7 billion. Total
group assets under management increased to R823 billion (31 December 2020: R776 billion) due
mainly to the increase in STANLIB South Africa assets under management.

The strategically important bancassurance agreement with SBG is applicable across the group’s
operations. The total indexed new business premiums sold under the agreement increased by
40,0% compared to the prior period, largely due to increased credit life sales in South Africa.

Liberty and SBG have enjoyed a long-standing strategic relationship, with Standard Bank as a
majority shareholder, as well as having a highly successful and valuable bancassurance
arrangement in place. The proposed transaction is a natural progression in this special relationship,
increasing our ability to collaborate to provide the best financial service offerings to our clients
through the most effective means.

Dividend
Despite the group’s strong capital position, the uncertainty that still exists regarding the ongoing
spread of the COVID-19 virus in South Africa in the short term and its economic consequences
resulted in the Board deciding to retain its prudent approach to support capital strength, and not to
declare a dividend in respect of the six-month period ended 30 June 2021.

Prospects
We expect the South African macro environment to remain challenging for the remainder of the year,
with consumers and businesses remaining under pressure. Notwithstanding economic headwinds,
we remain committed to the execution of our strategy, which at its core is the delivery of an excellent
client and adviser experience. The group is expected to remain well capitalised and able to provide
uninterrupted service to our clients and advisers, continuing to fulfil our purpose.

We are committed to the simplification and transformation of our business to ensure its long-term
competitiveness. We remain confident in our strategy to focus on our client and adviser experience,
providing transparent, accessible digital risk and investment solutions, and an unremitting drive for
simplicity. We will continue to live by our purpose and play a meaningful role in making our clients’
financial freedom possible.

Should Liberty’s non-controlling shareholders and the relevant regulatory authorities approve the
proposed transaction with SBG, we anticipate the finalisation of all conditions precedent by the first
quarter of 2022. We expect that the existing strong alignment of Standard Bank and Liberty’s goals
should allow for an accelerated and seamless integration of the businesses.

We would like to thank all members of the Liberty community for their extraordinary commitment,
resilience and hard work, and our clients for their continued support.



Short form statement
This short form announcement is the responsibility of the directors. It is only a summary of the
information contained in the full announcement and does not contain full or complete details. Any
investment decision should be based on the full announcement accessible from Wednesday,
4 August 2021, via the JSE link and available on the Company’s website at
https://www.libertyholdings.co.za/investor/Pages/Results-and-Reports.aspx.

This announcement does not include the information required pursuant to paragraph 16A(j) of IAS
34. The full interim report is available on the issuer’s website, at the issuer’s registered offices and
upon request.

Copies of the full announcement may also be requested by contacting Investor Relations by email
at sharon.steyn@liberty.co.za and are available for inspection by appointment and observing the
necessary COVID-19 restrictions, at the Company’s registered office at no charge, weekdays during
office hours.

The JSE link is as follows:
https://senspdf.jse.co.za/documents/2021/jse/isse/LBH/HY21RESULT.pdf

4 August 2021
Sponsor:
Merrill Lynch South Africa (Pty) Limited t/a BofA Securities

Date: 04-08-2021 07:15:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story