Wrap Text
Financial Results for the six months ended 30 June 2018
Liberty Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1968/002095/06)
JSE Code: LBH
ISIN: ZAE000012714
Preference share code: LBHP
ISIN: ZAE000004040
(Liberty Holdings or Company or Group)
Financial Results for the six months ended 30 June 2018
FINANCIAL PERFORMANCE INDICATORS
for the six months ended 30 June 2018
12 months
30 June 30 June % 31 December
Rm (unless otherwise stated) 2018 2017 change 2017
Liberty Holdings Limited
Earnings
Basic earnings per share (cents) 563,5 568,5 (1) 1 152,6
Fully diluted basic earnings per share (cents) 547,5 553,3 (1) 1 120,7
Normalised headline earnings(1) 1 332 1 267 5 2 719
Normalised headline earnings per share (cents)(1) 482,0 456,7 6 982,1
Normalised return on IFRS equity (%)(1) 12,1 11,7 12,3
Group equity value
Normalised group equity value per share (R)(1) 138,66 143,16 (3) 140,31
Normalised return on group equity value (%)(1) 5,0 2,3 >100 1,1
Distributions per share (cents)
Normal dividend 276 276 691
Interim dividend 276 276 276
Final dividend n/a n/a 415
Total assets under management (Rbn) 719 688 5 720
Long-term insurance operations
Indexed new business (excluding contractual increases) 3 773 3 930 (4) 8 018
Embedded value of new business 135 86 57 233
New business margin (%) 0,7 0,4 0,5
Net customer cash inflows 262 (665) >100 1 634
Capital adequacy cover of Liberty Group Limited (times covered) 2,67 2,82 2,92
Asset management - STANLIB South Africa
Assets under management (Rbn) 559 540 4 556
Net cash inflows including money market(2) 8 400 5 646 49 4 731
Retail and institutional net cash inflows excluding money market(2) 8 949 5 705 57 4 815
Money market net cash outflows(2) (549) (59) (>100) (84)
(1) Normalised: headline 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 IFRS accounting treatment.
(2) Excludes intergroup life funds.
Preparation and supervision:
This announcement on Liberty Holdings Limited interim financial results for the six months ended 30 June 2018 has been prepared and
supervised by M Norris (Executive: Group Finance) CA (SA) and Y Maharaj (Financial Director) CA(SA).
FINANCIAL REVIEW
for the six months ended 30 June 2018
Results reflect a stabilising
operational performance.
Management actions
showing signs of progress.
Normalised operating earnings were 18% up on the first half of
2017 (the prior period). Weak investment markets detracted from
the Shareholder Investment Portfolio (SIP) earnings, resulting
in normalised headline earnings increasing by 5% over the
prior period.
During the first half of 2018, management efforts in restoring the
financial performance of the SA Retail insurance business, improving
the investment performance of STANLIB, simplifying the group's
overall organisational design and expanding the relationship with
the Standard Bank Group continued to gain traction. The financial
results discussed below evidence that the remedial actions are
yielding the necessary outcomes. Management's medium term
focus will remain on these initiatives.
In the SA Retail insurance business, product, service and sales
initiatives in place to improve the value of new business (VoNB),
together with strict expense discipline, contributed to continued
improvement in the VoNB. This improvement was achieved
despite new business volumes remaining under pressure in
2018 in the tough consumer environment. Weak economic growth
in South Africa coupled with increases in taxes and administered
prices suggests that consumer spending could struggle to gain
meaningful traction in 2018. The business however continued
to deliver positive operating experience variances and has been
managed to "better than model" consistently for the last five years.
STANLIB South Africa continues to produce good fixed
interest franchise investment returns and has made progress on
improving investment performance within the multi-asset and
equity franchises, with increased third party net customer cash
inflows into non-money market portfolios.
As part of Liberty's strategy refresh, a revised organisational
design was announced internally in mid-July with implementation
commencing in the second half of the year. The key element of the
group's new way of working is to place the customers and financial
advisers at the heart of everything we do, with a strong focus on
the South African insurance and asset management businesses.
Collaboration with the Standard Bank Group continues to provide
opportunities to grow new business and provide joint product
offerings as evidenced in our bancassurance results.
Group financial performance
Normalised headline earnings for the six months to
30 June 2018 of R1 332 million (30 June 2017: R1 267 million) were
5% up on the prior period, with normalised operating earnings up
18% to R958 million (30 June 2017: R814 million). The normalised
operating earnings were supported by increased earnings from the
South African insurance operations and the STANLIB businesses.
SIP earnings were however 17% down on the prior period due to
weak investment market performance in the first half of 2018.
Normalised return on equity was 12,1% (30 June 2017: 11,7%).
Group long-term insurance net customer cash inflows amounted
to R262 million in contrast to prior period outflows of R665 million,
supported by lower policy withdrawals and maturities in Individual
Arrangements and lower scheme terminations in Liberty
Corporate. STANLIB South Africa net customer cash inflows
increased to R8,4 billion from R5,6 billion in the prior period.
STANLIB Africa however experienced outflows of R7.0 billion,
mainly related to the termination of one large institutional mandate.
Long-term insurance indexed new business of R3 773 million is
4% below the prior period. The tough economic environment
has continued to place significant pressure on retail single and
recurring premium investment and risk sales volumes.
Group VoNB increased from R86 million for the first half of 2017 to
R135 million for the current period and the new business margin
improved from 0,4% to 0,7%.
Total group assets under management amounted to R719 billion
(31 December 2017: R720 billion).
The group's capital position remained strong during the period with
the capital adequacy ratio of the group's main long-term insurance
licence, Liberty Group Limited at 2,67 times the regulatory
minimum at 30 June 2018 (31 December 2017: 2,92). The group
remains well capitalised within its target range at 30 June 2018.
Group equity value per share was lower at R138,66
(31 December 2017: R140,31). The lower group equity value per
share was attributable to lower investment returns, economic
assumption changes due to the higher interest rate environment
and the 2017 final dividend paid in April 2018.
Headline earnings for the first half of 2018 amounted to R1 521 million
compared to R1 540 million in the prior period. Liberty's headline
earnings include the positive earnings impact of R193 million
(30 June 2017: R278 million) arising from the accounting mismatch
on the consolidation of the Liberty Two Degrees listed REIT.
Earnings by business unit
12 months
30 June 30 June % 31 December
Rm (Unaudited) 2018 2017 change 2017
Insurance
Individual Arrangements 704 597 18 1 208
Group Arrangements 25 61 (59) 16
Liberty Corporate 77 80 (4) 81
Liberty Africa Insurance (5) 20 (>100) 45
Liberty Health (45) (19) (>100) (54)
Business development support(1) (2) (20) 90 (56)
Balance sheet management 169 168 1 376
LibFin Markets - credit portfolio 150 138 9 330
LibFin Markets - asset/liability matching portfolio 19 30 (37) 46
Asset management
STANLIB South Africa 175 115 52 252
STANLIB Africa 10 (118) >100 (204)
Central overheads and sundry income (125) (9) (>100) (236)
Normalised operating earnings 958 814 18 1 412
LibFin Investments - SIP 374 453 (17) 1 307
Normalised headline earnings 1 332 1 267 5 2 719
BEE preference share adjustment (4) (5) 20 (10)
Reversal of accounting mismatch arising on consolidation of L2D(2) 193 278 (31) 543
Headline earnings 1 521 1 540 (1) 3 252
(1) Costs associated with management support of the business development area, which includes Group Arrangements,
STANLIB Africa and Short-term Insurance Joint Venture. 2017 includes the costs associated with the terminated long-term
licence acquisition in Nigeria.
(2) Refer Explanation of terms below.
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 business
of R704 million were 18% up on the prior period, assisted by
improved persistency experience and lower assumption and
modelling changes.
Indexed new business sales of R3 111 million were 3% down on
the prior period. The competitive environment coupled with
the current tough economic conditions continued to impact
sales volumes.
VoNB increased from R62 million in the prior period to R111 million,
while the margin improved from 0,5% at 31 December 2017 to
0,7%. Action taken in 2017 and the first half of 2018 to improve
the VoNB and new business margin, including product changes
and repricing, are starting to manifest in the result. This has been
further supported by an improvement in the product mix and
good expense control. Further initiatives are scheduled to be
delivered in the second half of 2018 and 2019.
Net customer cash inflows of R750 million reflect favourable
withdrawal experience, highlighting the success of ongoing
retention initiatives. This has been offset by lower single premium
business, which is the main contributor to net cash inflows being
3% below the prior period.
Group Arrangements
Liberty Corporate
Earnings of R77 million reflected an improved underwriting result
supported by stringent expense management. The income
protection plan book, which experienced high claim levels
in the second half of 2017, has reverted to an acceptable
underwriting margin.
Indexed new business was 8% below the prior period at
R516 million, with increased single premium new business,
attributable to improved umbrella investment sales, offset by lower
recurring premium new business. VoNB increased to R19 million
from R13 million in the prior period, reflecting an improvement in
product mix and good expense management. Net cash outflows
reduced to R0,7 billion, with increased umbrella single premium
sales partly offset by reduced scheme terminations.
Liberty Africa and Liberty Health Insurance
Liberty Africa Insurance incurred a loss of R5 million mainly as a
result of high claims in the Kenyan short-term insurance business.
Indexed new business in the long-term insurance businesses of
R146 million was 13% down on the prior period due to weaker
economic conditions and aggressive competitor activity. The value
of new business amounted to R5 million at a margin of 1,3%.
The short-term insurance businesses continued to experience
considerable pricing pressure.
The decline in risk lives serviced together with exchange rate
movements has significantly impacted Liberty Health's short-term
profitability with a loss of R45 million reported for the period ended
30 June 2018.
Management remains focused on actively realising the value of
this portfolio of businesses by pursuing various options, including
strategic partnerships.
Asset management
STANLIB South Africa
STANLIB South Africa earnings increased to R175 million from
R115 million in the prior period. Fee income was marginally
lower in the period mainly due to muted investment market
returns. The prior period earnings were impacted by operational
write-offs. Management has continued to strengthen the control
environment with a focus on improving the overall financial results.
Net customer cash inflows (excluding intergroup) grew to
R8,4 billion from R5,6 billion in the prior period. This result was
mainly attributable to improved non-money market inflows.
Intergroup cash outflows for the period amounted to R6,2 billion.
Total assets under management by STANLIB South Africa
amounted to R559 billion (31 December 2017: R556 billion).
STANLIB Africa
STANLIB Africa earnings of R10 million reflect a significant
improvement from the loss of R118 million reported in the prior
period. The remedial programme implemented in the STANLIB
East African business is in the final stages of completion, with no
further operational losses reported in the current period.
Net customer cash outflows amounted to R7 billion, mainly due
to the loss of a large institutional mandate in the Southern Africa
region. Total assets under management by STANLIB Africa
amounted to R50 billion (31 December 2017: R53 billion).
Liberty Two Degrees (L2D)
L2D's results for the six months to 30 June 2018 were released
on 23 July 2018. The operational performance of the property
portfolio remained strong notwithstanding a difficult consumer
environment. A proposed transaction to transfer the existing L2D
portfolio to a corporate REIT, in order to restore value and provide
a more compelling investment proposition, was also announced.
Further details on the results and proposed transaction are available
on the L2D website and in the L2D results announcement released
on SENS on 23 July 2018.
Bancassurance
The bancassurance agreement with Standard Bank, which is
applicable across the group's 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 3% on the prior period in a tough
economic environment. We continue leveraging our relationship
with Standard Bank to capture appropriate opportunities.
Balance sheet management
LibFin Markets - Asset liability management and credit portfolio
Earnings from the credit portfolio increased by 9% to R150 million
as a result of growth in the credit portfolio since the first half of 2017.
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 R19 million
(30 June 2017: R30 million).
LibFin Markets assets under management amounted to R61 billion
(31 December 2017: R62 billion).
LibFin Investments - Shareholder Investment Portfolio (SIP)
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. The current risk profile of the SIP is
similar to a conservative balanced portfolio and is managed with a
long-term through the cycle investment horizon.
Weak market returns experienced in the first half of 2018 resulted
in the SIP producing a gross return of 3,3%. Earnings of R374 million
were below prior period earnings of R453 million. The SIP exposure
to investment markets remains appropriate in the context of the
group's risk appetite.
Capital adequacy cover
The group's capital position remained strong during the period with
the capital adequacy ratio of the group's main long-term insurance
license, Liberty Group Limited at 2,67 times the regulatory
minimum at 30 June 2018 (31 December 2017: 2,92). The decrease
since 31 December 2017 is mainly attributable to the R1 billion
subordinated debt redemption on 3 April 2018. The group remains
well capitalised within its target range in respect of the current
capital regime and also in respect of capital requirements under
the Solvency Assessment and Management (SAM) regime which
is effective from 1 July 2018.
All other group subsidiary life licences were adequately capitalised.
Dividends
2018 interim dividend
In line with the group's interim dividend policy of paying 40% of
the prior full year dividend, the board has approved and declared a
gross interim dividend of 276 cents per ordinary share. The interim
dividend will be paid out of income reserves and is payable on
Monday, 3 September 2018 to all ordinary shareholders recorded
in the books of Liberty Holdings Limited on the record date.
The dividend of 276 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 220,8 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:
Tuesday,
Last date to trade cum dividend on the JSE 28 August 2018
Wednesday,
First trading day ex dividend on the JSE 29 August 2018
Friday,
Record date 31 August 2018
Monday,
Payment date 3 September 2018
Share certificates may not be dematerialised or rematerialised
between Wednesday, 29 August 2018 and Friday, 31 August 2018,
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, 3 September 2018.
Prospects
The planned enhancements to Liberty's organisational design
will ensure focus on our customers and advisers.
Management's focus in the medium term will remain on restoring
the financial performance of the SA Retail insurance business,
improving the investment performance of STANLIB, simplifying
the group's overall operations and expanding our relationship with
the Standard Bank Group.
We expect that the economic and operating environment will
remain subdued for the remainder of the year, suggesting that
pressure on sales volumes could continue in the short term.
We however remain confident that the group is on track to emerge
from this period of change with significantly greater potential to
create value for all stakeholders.
David Munro Jacko Maree
Chief Executive Chairman
1 August 2018
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
These results are available at http://www.libertyholdings.co.za.
Telephone +27 11 408 3911
ACCOUNTING POLICIES
The unaudited condensed interim consolidated financial
statements of Liberty Holdings Limited for the six months ended
30 June 2018 have been prepared in accordance with and contain
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
Listings 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 accounting policies applied in the preparation of these interim
financial statements are in terms of IFRS and are consistent
with those applied in the previous consolidated annual financial
statements except for the mandatory adoption of IFRS 9 Financial
Instruments and IFRS 15 Revenue from Contracts with Customers.
The group has applied both standards retrospectively without
restating comparative figures. The group has elected not to apply
the general hedge accounting principles under IFRS 9 and will
continue to apply IAS 39 hedge accounting.
Various minor annual improvements issued by the IASB were early
adopted which had no impact on the group's financial results,
disclosures or comparative information.
IFRS 15 Revenue from Contracts with Customers
The significant majority of the group's revenue is accounted for in
terms of IFRS 4 Insurance Contracts, IFRS 9 Financial Instruments
and IAS 17 Leases, which are all scoped out of IFRS 15.
There are no material changes to revenue recognition for fee
income and hotel operation sales which are recognised under
IFRS 15. Consequently there was no financial impact to the
consolidated group on 1 January 2018 upon adoption of IFRS 15.
IFRS 9 Financial Instruments
Financial assets
IFRS 9 applies two criteria to determine how financial assets should
be classified and measured, namely:
a. the entity's business model for managing the financial assets; and
b. the contractual cash flow characteristics of the financial asset.
Liberty Holdings Limited is the holding company of various
operating subsidiaries engaged in the provision of financial services
including long-term, short-term and health insurance, investment
holdings and asset management. Under IAS 39 Financial
Instruments: Recognition and Measurement, the group designated
the significant majority of financial assets at fair value through
profit or loss. The group has applied IFRS 9's classification and
measurement requirements based on the facts and circumstances
of the various business models at the date of adoption of IFRS 9 in
determining the transition adjustment.
- The business model of Liberty Group Limited, the group's South
African long-term insurance operations, is default fair value
through profit or loss for all financial assets. The only exception
being intercompany funding loans which are held to collect
contractual cash flows and classified at amortised cost. These
loans are eliminated on consolidation into Liberty Holdings
Limited consolidated financial statements. Policyholder loan
assets within Liberty Group Limited, which were previously held
at amortised cost under IAS 39, are now default measured at fair
value through profit or loss under IFRS 9.
- Application of the business model approach for the various
other operating subsidiaries (being long-term insurance in
other Africa territories, short-term and health insurance, asset
management and investment holding entities) results in changes
to classification for certain components of "Prepayments and
other receivables" and "Cash and cash equivalents". Under
IFRS 9 they are all now classified at amortised cost. Previously
certain components were designated at fair value through
profit or loss under IAS 39. Due to the short-term nature of
these financial instruments, there was no material impact on
the change in measurement nor were there any impairment
provisions on adoption of IFRS 9 as at 1 January 2018.
Financial liabilities
Financial liabilities classification and measurement under IFRS 9 has
not changed significantly from IAS 39. Financial liabilities are either
held at fair value (either required or designated) or at amortised
cost. A summary of changes from those adopted under IAS 39 are:
- Subordinated notes and redeemable preference shares
included in Liberty Group Limited's financial liabilities, previously
measured at amortised cost, have been irrevocably designated
at fair value through profit or loss on 1 January 2018. Any effects
of changes in the liability's own credit risk will be presented in
other comprehensive income effective from 1 January 2018.
- The classification and measurement of subcomponents of
"Other payables" (related to those entities outside of Liberty
Group Limited) are classified at amortised cost under IFRS 9,
rather than as previously designated at fair value through profit
or loss under IAS 39.
- Intercompany funding loans, previously designated at fair
value through profit or loss under IAS 39, will be measured at
amortised cost. These loans are eliminated on consolidation into
Liberty Holdings Limited consolidated financial statements.
Impact on adoption of IFRS 9
The net financial impact of the changes in classification and
measurement after tax is a reduction of opening retained earnings
on 1 January 2018 of R121 million. Upon adoption of IFRS 9, the
group has no financial instruments that will be measured at fair
value through other comprehensive income. Refer to "Accounting
classifications of financial instruments under IFRS 9" for more
detail.
New standards not yet effective
IFRS 16 Leases (effective 1 January 2019) and IFRS 17 Insurance
Contracts (effective 1 January 2021) will have significant financial
reporting impacts for the group. Management is assessing these
impacts under focused projects. Based on Liberty's current lease
obligations, IFRS 16 is unlikely to have a material impact to profit or
loss on adoption in 2019.
Review/audit
These interim results have not been reviewed or audited by the
company's auditors PricewaterhouseCoopers Inc.
EXPLANATION OF TERMS
Capital adequacy requirement (CAR)
The capital adequacy requirement is the minimum amount
by which an insurer's assets are required to exceed its liabilities.
The assets, liabilities and CAR must be calculated using a method
prescribed in terms of the Long-term Insurance Act. 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 12 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.
Normalised: headline 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 Black
Economic Empowerment (BEE) transaction and the consolidation
of the listed REIT Liberty Two Degrees (L2D) as opposed to the
required IFRS accounting treatment.
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.
Reversal of accounting mismatch arising on IFRS profit or loss
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:
- on a consolidated look through basis the investment
property assets of L2D are included in the group annual
financial statements at fair value; whereas
- the corresponding linked obligations to Liberty Group Limited's
policyholders 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 is an accounting mismatch that represents
any difference in the profit and loss movement in the price at
which L2D's listed units trade relative to the underlying net
asset value.
L2D adjustment in group equity value
In addition to the reversal of the accounting mismatch in
IFRS profit or loss described above, the group equity value adjusts
the exposures in the shareholder investment portfolios (SIP) to
the listed unit price.
Summary of impact
Below is a summary of the L2D transaction impact on the
ordinary shareholders' equity:
Group equity SIP equity
value IFRS net value
Rm Total asset value adjustment
Opening adjustment at 1 January 2018 597 340 257
IFRS profit or loss 193 193
Group equity value earnings 152 152
Transaction between owners (95) (95)
Closing adjustment at 30 June 2018 847 438 409
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2018
Unaudited Unaudited Audited
30 June 30 June 31 December
Rm 2018 2017 2017
Assets
Intangible assets 430 367 231
Defined benefit pension fund employer surplus 151 203 171
Properties 34 723 34 182 34 768
Equipment 1 064 1 079 1 128
Interests in joint ventures 1 382 1 244 1 244
Interests in associates 13 862 14 054 15 197
Deferred taxation 368 264 336
Deferred acquisition costs 779 741 737
Long-term policyholder assets - insurance contracts 7 159 7 689 7 484
Reinsurance assets 1 967 1 801 1 774
Long-term insurance 1 532 1 390 1 481
Short-term insurance 435 411 293
Financial investments 334 423 326 976 338 534
Loan receivables 1 182 1 242 1 222
Assets held for trading and for hedging 9 757 9 459 7 871
Repurchase agreements, scrip and collateral assets 13 075 16 886 11 900
Prepayments, insurance and other receivables 6 960 5 938 6 361
Cash and cash equivalents 9 976 9 327 15 169
Total assets 437 258 431 452 444 127
Liabilities
Long-term policyholder liabilities 319 280 309 200 322 918
Insurance contracts 206 782 203 703 210 554
Investment contracts with discretionary participation features 10 783 11 732 11 845
Financial liabilities under investment contracts 101 715 93 765 100 519
Reinsurance liabilities 652 543 663
Third party financial liabilities arising on consolidation of mutual funds 41 832 48 557 49 713
Provisions 76 68 76
Deferred taxation 3 060 2 675 3 386
Deferred revenue 314 285 291
Deemed disposal taxation liability 437 436
Short-term insurance liabilities 1 089 1 016 780
Financial liabilities 5 387 4 602 5 581
Liabilities held for trading and for hedging 8 591 7 428 6 311
Repurchase agreements, liabilities and collateral deposits payable 11 261 13 962 9 097
Employee benefits 1 178 1 132 1 446
Insurance and other payables 12 337 11 443 11 995
Current taxation 1 017 711 1 043
Total liabilities 406 074 402 059 413 736
Equity
Ordinary shareholders' equity 22 767 21 778 22 444
Share capital 26 26 26
Share premium 5 154 5 243 5 157
Retained surplus 18 414 17 400 18 166
Other reserves (827) (891) (905)
Non-controlling interests 8 417 7 615 7 947
Total equity 31 184 29 393 30 391
Total equity and liabilities 437 258 431 452 444 127
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
for the six months ended 30 June 2018
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2018 2017 2017
Revenue
Insurance premiums 18 386 19 438 39 970
Reinsurance premiums (1 019) (969) (1 950)
Net insurance premiums 17 367 18 469 38 020
Fee income and reinsurance commission 1 803 1 812 3 683
Investment income 10 306 11 170 21 652
Hotel operations sales 261 253 532
Investment (losses)/gains (2 312) 4 082 18 835
Total income 27 425 35 786 82 722
Claims and policyholder benefits under insurance contracts (18 667) (19 648) (38 819)
Insurance claims recovered from reinsurers 808 868 1 800
Change in long-term policyholder assets and liabilities 4 901 479 (6 829)
Liabilities under insurance contracts 3 952 394 (6 504)
Policyholder assets related to insurance contracts (325) 375 170
Investment contracts with discretionary participation features 1 216 (341) (521)
Applicable to reinsurers 58 51 26
Fair value adjustment to long-term policyholder liabilities under investment contracts ( 880) (2 861) (9 116)
Fair value adjustment to financial liabilities (270)
Fair value adjustment on third party mutual fund interests (2 237) (2 578) (4 619)
Acquisition costs (2 239) (2 532) (4 935)
General marketing and administration expenses (5 420) (5 417) (11 345)
Finance costs (408) (652) (1 344)
Profit share allocations under bancassurance and other agreements (553) (486) (972)
Equity accounted earnings from joint venture 20 14 25
Profit before taxation 2 480 2 973 6 568
Taxation(1) (780) (1 171) (2 864)
Total earnings 1 700 1 802 3 704
Other comprehensive income/(loss) 251 (7) (233)
Items that may be reclassified subsequently to profit or loss 153 (19) (95)
Net change in fair value on cash flow hedges (17) 46 75
Income and capital gains tax relating to net change in fair value on cash flow hedges 5 (15) (21)
Foreign currency translation 165 (50) (149)
Items that may not be reclassified subsequently to profit or loss 98 12 (138)
Owner-occupied properties - fair value adjustment 18 18 (67)
Income and capital gains tax relating to owner-occupied properties fair value adjustment (2) (3) (14)
Change in long-term policyholder insurance liabilities (application of shadow accounting) (9) (6) (32)
Actuarial gains on post-retirement medical aid liability 39 14 45
Income tax relating to post-retirement medical aid liability (11) (4) (13)
Net adjustments to defined benefit pension fund(2) (20) (10) (41)
Income tax relating to defined benefit pension fund 5 3 (16)
Fair value adjustments to financial liabilities arising from own credit 108
Income tax relating to fair value adjustments to financial liabilities arising from own credit (30)
Total comprehensive income 1 951 1 795 3 471
Total earnings attributable to:
Shareholders' equity 1 522 1 541 3 118
Non-controlling interests 178 261 586
1 700 1 802 3 704
Total comprehensive income attributable to:
Shareholders' equity 1 725 1 549 2 932
Non-controlling interests 226 246 539
1 951 1 795 3 471
Basic and fully diluted earnings per share Cents Cents Cents
Basic earnings per share 563,5 568,5 1 152,6
Fully diluted basic earnings per share 547,5 553,3 1 120,7
(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 EQUITY
for the six months ended 30 June 2018
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2018 2017 2017
Balance of ordinary shareholders' equity at 1 January 22 444 21 676 21 676
IFRS 9 transition adjustment (121)
Ordinary dividends (1 167) (1 167) (1 942)
Total comprehensive income 1 725 1 549 2 932
Cash flow hedge recycled through profit and loss on early settlement 12
Share buy-back(1) (65) (335) (350)
Black economic empowerment transaction 11 10 32
Share-based payments 24 28 99
Preference dividends (1) (1) (2)
Transactions between owners 9 9
Transactions between owners - Liberty Two Degrees (95) 9 (10)
Ordinary shareholders' equity 22 767 21 778 22 444
Balance of non-controlling interests at 1 January 7 947 7 330 7 330
Total comprehensive income 226 246 539
Acquisition of unincorporated property partnerships 87
Unincorporated property partnerships net distributions (109) (112) (238)
Non-controlling interests' share of subsidiary distributions (112) (30) (133)
Non-controlling interests' share of shares issued in subsidiary 2 2
Transactions between owners 9 9
Transactions between owners - Liberty Two Degrees 465 170 351
Non-controlling interests 8 417 7 615 7 947
Total equity 31 184 29 393 30 391
(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 six months ended 30 June 2018
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2018 2017 2017
Cash flows from operating activities (9 982) 1 854 5 121
Cash utilised by operations (14 476) (3 773) (7 082)
Interest and dividends received 8 781 9 796 18 841
Distributions paid (2 182) (2 174) (3 075)
Taxation paid (1 557) (1 213) (1 946)
Other operating cash flows ( 548) ( 782) (1 617)
Cash flows from investing activities 3 011 (8 134) (3 581)
Net disposal/(purchase) of investments 2 950 (9 409) (2 906)
Net purchase of other assets (266) (123) (375)
Deposits received on/(repayment of) collateral deposits payable 327 1 438 (258)
Acquisition of equity accounted joint ventures (40) (42)
Cash flows from financing activities 1 712 659 (1 280)
Net (repayments)/advance of financial liabilities (461) 1 980
Net proceeds on/(repayment of) repurchase agreements liabilities 1 837 776 (2 393)
Net cash flows from equity transactions with non-controlling interests 401 217 483
Share buy-back (65) (335) (350)
Net (decrease)/increase in cash and cash equivalents (5 259) (5 621) 260
Cash and cash equivalents at the beginning of the period 15 169 14 994 14 994
Foreign currency translation 66 (46) (85)
Cash and cash equivalents at the end of the period 9 976 9 327 15 169
HEADLINE EARNINGS AND EARNINGS PER SHARE
for the six months ended 30 June 2018
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm (unless otherwise stated) 2018 2017 2017
Reconciliation of total earnings to headline earnings attributable to shareholders
Total earnings attributable to shareholders 1 522 1 541 3 118
Preference share dividend (1) (1) (2)
Basic earnings attributable to ordinary shareholders 1 521 1 540 3 116
Impairment of intangible assets 164
Tax on headline earnings adjustable item ( 28)
Headline earnings attributable to ordinary shareholders 1 521 1 540 3 252
Net income earned on BEE preference shares 4 5 10
Reversal of the accounting mismatch arising on consolidation of L2D(1) (193) (278) (543)
Normalised headline earnings attributable to ordinary shareholders 1 332 1 267 2 719
Weighted average number of shares in issue ('000) 269 925 270 876 270 348
Normalised weighted average number of shares in issue ('000) 276 333 277 415 276 847
Fully diluted weighted average number of shares in issue ('000) 277 803 278 306 278 030
Earnings per share Cents Cents Cents
Total earnings attributable to ordinary shareholders
Basic 563,5 568,5 1 152,6
Headline 563,5 568,5 1 202,9
Normalised headline 482,0 456,7 982,1
Fully diluted earnings attributable to ordinary shareholders
Basic 547,5 553,3 1 120,7
Headline 547,5 553,3 1 169,7
(1) Refer Explanation of terms on page 22.
SUMMARY CONSOLIDATED SEGMENT INFORMATION
for the six months ended 30 June 2018
The unaudited segment results for the six months ended 30 June 2018 are as follows:
Group Arrangements
Individual Liberty Liberty Africa Asset Reporting
Rm Arrangements Corporate Insurance Liberty Health management Other Total adjustments(1) IFRS reported
Total revenue 22 971 6 229 1 181 429 1 490 1 679 33 979 (6 554) 27 425
Profit/(loss) before taxation 916 206 48 (64) 265 1 024 2 395 85 2 480
Taxation(2) (399) (56) (37) 19 (78) (229) (780) (780)
Total earnings 517 150 11 (45) 187 795 1 615 85 1 700
Reconciliation of total earnings to headline earnings/(loss)
attributable to shareholders
Total earnings/(loss) 517 150 11 (45) 187 795 1 615 85 1 700
Attributable to non-controlling interests (17) (2) (74) (93) (85) (178)
Preference share dividend (1) (1) (1)
Headline earnings/(loss) 517 150 (6) (45) 185 720 1 521 1 521
Net income earned on BEE preference shares 4 4 4
Reversal of the accounting mismatch arising on consolidation of
L2D (193) (193) (193)
Normalised headline earnings/(loss) 517 150 (6) (45) 185 531 1 332 1 332
Reconciliation of business unit earnings/(loss) to
segment result
Individual Arrangements 704 704
Group Arrangements 76 (6) (45) 25
Liberty Corporate 77 77
Liberty Africa Insurance (5) (5)
Liberty Health (45) (45)
Business development support(3) (1) (1) (2)
LibFin (Markets and Investments) (180) 74 649 543
LibFin Markets - credit portfolio 50 36 64 150
LibFin Markets - asset/liability matching 12 37 (30) 19
LibFin Investments - SIP (242) 1 615 374
Asset management
STANLIB South Africa 175 175
STANLIB Africa 10 10
Central overheads and sundry income (7) (118) (125)
Normalised headline earnings/(loss) 517 150 (6) (45) 185 531 1 332
(1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term
insurance into defined IFRS 'investment' and 'insurance' products, the application of shadow accounting for the change in long-term policyholder insurance liabilities and the
elimination of intergroup transactions.
(2) 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.
(3) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture.
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.
The unaudited segment results for the six months ended 30 June 2017 are as follows:
Group Arrangements
Individual Liberty Liberty Africa Asset Reporting
Rm Arrangements Corporate Insurance Liberty Health management Other Total adjustments(1) IFRS reported
Total revenue 28 847 7 329 1 260 495 1 514 1 709 41 154 (5 368) 35 786
Profit/(loss) before taxation 1 149 210 54 (26) 138 1 307 2 832 141 2 973
Taxation(2) (576) (58) (33) 9 (140) (373) (1 171) (1 171)
Total earnings 573 152 21 (17) (2) 934 1 661 141 1 802
Reconciliation of total earnings/(loss) to headline earnings
attributable to shareholders
Total earnings/(loss) 573 152 21 (17) (2) 934 1 661 141 1 802
Attributable to non-controlling interests (21) (2) (1) (96) (120) (141) (261)
Preference share dividend (1) (1) (1)
Headline earnings/(loss) 573 152 (19) (3) 837 1 540 1 540
Net income earned on BEE preference shares 5 5 5
Reversal of the accounting mismatch arising on consolidation of
L2D (278) (278) (278)
Normalised headline earnings/(loss) 573 152 (19) (3) 564 1 267 1 267
Reconciliation of business unit earnings/(loss) to
segment result
Individual Arrangements 597 597
Group Arrangements 80 (19) 61
Liberty Corporate 80 80
Liberty Africa Insurance 20 20
Liberty Health (19) (19)
Business development support(3) (20) (20)
LibFin (Markets and Investments) (118) 72 667 621
LibFin Markets - credit portfolio 87 51 138
LibFin Markets - asset/liability matching 24 15 (9) 30
LibFin Investments - SIP (229) 6 676 453
Asset management
STANLIB South Africa 115 115
STANLIB Africa (118) (118)
Central overheads and sundry income 94 (103) (9)
Normalised headline earnings/(loss) 573 152 (19) (3) 564 1 267
(1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term
insurance into defined IFRS 'investment' and 'insurance' products, the application of shadow accounting for the change in long-term policyholder insurance liabilities and the
elimination of intergroup transactions.
(2) 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.
(3) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture.
2017 includes the costs associated with the terminated long-term licence acquisition in Nigeria.
for the six months ended 30 June 2018
The audited segment results for the year ended 31 December 2017 are as follows:
Group Arrangements
Individual Liberty Liberty Africa Asset Reporting
Rm (Audited) Arrangements Corporate Insurance Liberty Health management Other Total adjustments(1) IFRS reported
Total revenue 68 161 15 676 2 420 929 3 085 4 625 94 896 (12 174) 82 722
Profit/(loss) before taxation 2 957 223 121 (134) 263 2 793 6 223 345 6 568
Taxation(2) (1 819) (62) (74) 28 (212) (725) (2 864) (2 864)
Total earnings/(loss) 1 138 161 47 (106) 51 2 068 3 359 345 3 704
Reconciliation of total earnings/(loss) to headline earnings
attributable to shareholders
Total earnings/(loss) 1 138 161 47 (106) 51 2 068 3 359 345 3 704
Attributable to non-controlling interests (1) (58) (3) (179) (241) (345) (586)
Preference share dividend (2) (2) (2)
Impairment of intangible assets 13 71 52 136 136
Headline earnings/(loss) 1 150 232 (11) (54) 48 1 887 3 252 3 252
Net income earned on BEE preference shares 10 10 10
Reversal of the accounting mismatch arising on consolidation of
L2D (543) (543) (543)
Normalised headline earnings/(loss) 1 150 232 (11) (54) 48 1 354 2 719 2 719
Reconciliation of business unit earnings(loss) to
segment result
Individual Arrangements 1 208 1 208
Group Arrangements 81 (11) (54) 16
Liberty Corporate 81 81
Liberty Africa Insurance 45 45
Liberty Health (54) (54)
Business development support(3) (56) (56)
LibFin (Markets and Investments) (138) 151 1 670 1 683
LibFin Markets - credit portfolio 192 138 330
LibFin Markets - asset/liability matching 35 1 10 46
LibFin Investments - SIP (365) 12 1 660 1 307
Asset management
STANLIB South Africa 252 252
STANLIB Africa (204) (204)
Central overheads and sundry income 80 (316) (236)
Normalised headline earnings/(loss) 1 150 232 (11) (54) 48 1 354 2 719
(1) Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities, the classification of long-term
insurance into defined IFRS 'investment' and 'insurance' products, the application of shadow accounting for the change in long-term policyholder insurance liabilities and the
elimination of intergroup transactions.
(2) 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.
(3) Costs associated with management support of the business development area, which includes Group Arrangements, STANLIB Africa and Short-term Insurance Joint Venture. 2017
includes the costs associated with the terminated long-term licence acquisition in Nigeria.
GROUP EQUITY VALUE REPORT
for the six months ended 30 June 2018
1 Introduction
Liberty presents a "group equity value" report to reflect the combined value of the various components of Liberty's businesses.
Section 2 below describes the valuation bases used for each reported component. It should be noted 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 Component parts of the group equity value and valuation techniques used
Group equity value has been calculated as the sum of the following component parts:
2.1 South African (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.
2.2 Other businesses:
STANLIB South Africa Valued using a 10 times (31 December 2017 and 30 June 2017: 10 times) multiple of estimated sustainable
earnings.
STANLIB Africa Valued using a 10 times (31 December 2017 and 30 June 2017: 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 Insurance Liberty Africa Insurance is an emerging cluster of both long- and short-term insurance businesses located
in various African countries outside of South Africa. A combination of valuation techniques including
embedded value, discounted cash flow and earnings multiples have been applied to value these businesses.
The combined value of this cluster is not material relative to the other components of group equity value
and therefore a detailed analysis of this valuation has not been presented. At 30 June 2018 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.
2.3 Liberty Two Degrees (L2D) normalisation adjustment:
This represents the difference between Liberty's share of the net asset value of L2D as at the reporting date and the listed price of L2D
units multiplied by the number of units in issue to Liberty at the reporting date. Adjusting the valuation from net asset value to share price is
required to ensure consistency between policyholder liabilities and their backing assets, and to provide a market consistent valuation of the
L2D shares held within the shareholder investment portfolio.
2.4 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 expenses incurred in Liberty Holdings Limited
capitalised at a multiple of 9 times (31 December 2017 and 30 June 2017: 9 times).
3 Normalised group equity value
3.1 Analysis of normalised group equity value
Unaudited
30 June 2018
SA covered Other
Rm business businesses Total
Liberty Group Limited 18 068 18 068
STANLIB South Africa(2) 809 809
STANLIB Africa(2) 187 187
Liberty Health (including Total Health Trust) 251 251
Liberty Africa Insurance 921 921
Liberty Holdings 1 684 1 684
Liberty Two Degrees adjustment to net asset value 847 847
Shareholders' equity reported under IFRS 18 068 4 699 22 767
Difference between statutory and published valuation methods (7 119) (7 119)
Negative rand reserves (6 663) (6 663)
Deferred acquisition costs (753) (753)
Deferred revenue liability 297 297
Subordinated notes 4 576 4 576
CAR of subsidiaries (10) (10)
Reverse value of in-force acquired (9) (9)
Inadmissible assets (1 242) (1 242)
Statutory excess assets over liabilities(1) 14 264 4 699 18 963
Reverse CAR of subsidiaries 10 10
Reverse subordinated notes (4 576) (4 576)
Reverse inadmissible assets 1 242 1 242
Frank Financial Services allowance for future expenses (100) (100)
Impact of discounting on deferred tax asset (100) (100)
BEE preference funding 117 117
Liberty Two Degrees normalisation adjustment(3) (847) (847)
Allowance for employee share rights (62) (47) (109)
Normalised net worth 10 895 3 705 14 600
Value of in-force - Individual Arrangements 21 698 21 698
Value of in-force - Group Arrangements: Liberty Corporate 2 927 2 927
Cost of required capital (1 657) (1 657)
Fair value adjustment - STANLIB South Africa(2) 3 691 3 691
Fair value adjustment - STANLIB Africa(2) 13 13
Allowance for future shareholder expenses (2 296) (2 296)
Normalised equity value 33 863 5 113 38 976
(1) The adjustments between the IFRS and statutory net asset values for the Liberty Africa subsidiaries
have not been included. This is because the group equity value for these entities is set to their IFRS net
asset value and so these adjustments do not affect group equity value.
(2) 30 June
STANLIB valuation (Rm) 2018
STANLIB South Africa 4 500
STANLIB Africa 200
Total 4 700
(3) This represents the difference between Liberty's share of the net asset value of L2D as at the reporting date
and the listed price of L2D units multiplied by the number of units in issue to Liberty at the reporting date.
Adjusting the valuation from net asset value to share price is required to ensure consistency between policyholder
liabilities and their backing assets, and to provide a market consistent valuation of the L2D shares held within the
shareholder investment portfolio.
3 Normalised group equity value (continued)
3.1 Analysis of normalised group equity value (continued)
Audited
12 months
Unaudited 31 December
30 June 2017 2017
SA covered Other SA covered Other
Rm business businesses Total business businesses Total
Liberty Group Limited 18 369 18 369 18 412 18 412
STANLIB South Africa(2) 809 809 795 795
STANLIB Africa(2) (19) (19) 100 100
Liberty Health (including Total Health Trust) 373 373 299 299
Liberty Africa Insurance 815 815 813 813
Liberty Holdings 1 273 1 273 1 428 1 428
Liberty Two Degrees adjustment to net asset
value 158 158 597 597
Shareholders' equity reported under IFRS 18 369 3 409 21 778 18 412 4 032 22 444
Difference between statutory and published
valuation methods (7 175) (7 175) (7 253) (7 253)
Negative rand reserves (6 723) (6 723) (6 806) (6 806)
Deferred acquisition costs (725) (725) (730) (730)
Deferred revenue liability 273 273 283 283
Subordinated notes 4 602 4 602 5 581 5 581
CAR of subsidiaries (10) (10) (10) (10)
Reverse value of in-force acquired (14) (14) (12) (12)
Inadmissible assets (922) (922) (1 018) (1 018)
Statutory excess assets over liabilities(1) 14 850 3 409 18 259 15 700 4 032 19 732
Reverse CAR of subsidiaries 10 10 10 10
Reverse subordinated notes (4 602) (4 602) (5 581) (5 581)
Reverse inadmissible assets 922 922 1 018 1 018
Frank Financial Services allowance for future
expenses (100) (100) (100) (100)
Impact of discounting on deferred tax asset (100) (100) (100) (100)
BEE preference funding 142 142 123 123
Liberty Two Degrees normalisation adjustment(3) (158) (158) (597) (597)
Allowance for employee share rights (33) (38) (71) (36) (36) (72)
Normalised net worth 11 189 3 113 14 302 11 134 3 299 14 433
Value of in-force - Individual Arrangements 21 840 21 840 22 088 22 088
Value of in-force - Group Arrangements: Liberty
Corporate 2 838 2 838 3 049 3 049
Cost of required capital (1 640) (1 640) (1 690) (1 690)
Fair value adjustment - STANLIB South Africa(2) 4 491 4 491 3 655 3 655
Fair value adjustment - STANLIB Africa(2) 319 319 50 50
Allowance for future shareholder expenses (1 960) (1 960) (2 217) (2 217)
Normalised equity value 34 227 5 963 40 190 34 581 4 787 39 368
(1) The adjustments between the IFRS and statutory net asset values for the Liberty Africa subsidiaries have not been included.
This is because the group equity value for these entities is set to their IFRS net asset value and so these adjustments do
not affect group equity value.
(2) 30 June 31 December
STANLIB valuation (Rm) 2017 2017
STANLIB South Africa 5 300 4 450
STANLIB Africa 300 150
Total 5 600 4 600
(3) This represents the difference between Liberty's share of the net asset value of L2D as at the reporting date and the listed
price of L2D units multiplied by the number of units in issue to Liberty at the reporting date. Adjusting the valuation from
net asset value to share price is required to ensure consistency between policyholder liabilities and their backing
assets, and to provide a market consistent valuation of the L2D shares held within the shareholder investment portfolio.
3.2 Normalised group equity value earnings and value per share
Audited
12 months
Unaudited Unaudited 31 December
30 June 2018 30 June 2017 2017
SA SA
covered Other covered Other
Rm business businesses Total business businesses Total Total
Normalised equity value at the end of
the period 33 863 5 113 38 976 34 227 5 963 40 190 39 368
Equity value at the end of the period 33 746 5 960 39 706 34 085 6 121 40 206 39 842
Liberty Two Degrees normalisation
adjustment(1) (847) (847) (158) (158) (597)
BEE preference shares 117 117 142 142 123
Net share buy-backs 65 65 335 335 350
Funding of restricited share plan 108 (108) 112 (112)
Intragroup dividends(2) 1 350 (1 350) 1 400 (1 400)
Dividends paid 1 168 1 168 1 168 1 168 1 944
Normalised equity value at the beginning
of the period (34 460) (4 787) (39 247) (34 470) (6 751) (41 221) (41 221)
Equity value at the beginning of the
period (34 458) (5 384) (39 842) (34 322) (6 421) (40 743) (40 743)
IFRS 9 transition adjustment 121 121
Liberty Two Degrees normalisation
adjustment(1) 597 597 (330) (330) (330)
BEE preference shares (123) (123) (148) (148) (148)
Normalised equity value earnings 861 101 962 1 269 (797) 472 441
Normalised return on group equity
value (%) 5,1 4,2 5,0 7,5 (22,9) 2,3 1,1
Normalised number of shares ('000) 281 081 280 734 280 573
Number of shares in issue ('000) 269 699 269 541 270 120
Shares held for the employee restricted
share scheme ('000) 5 050 4 713 4 014
Adjustment for BEE shares ('000) 6 332 6 480 6 439
Normalised group equity value per
share (R) 138,66 143,16 140,31
(1) This represents the difference between Liberty's share of the net asset value of L2D as at the reporting date and the listed price
of L2D units multiplied by the number of units in issue to Liberty at the reporting date. Adjusting the valuation from net asset
value to share price is required to ensure consistency between policyholder liabilities and their backing assets, and to provide a
market consistent valuation of the L2D shares held within the shareholder investment portfolio.
(2) Dividends paid by Liberty Group Limited to Liberty Holdings Limited.
3.3 Sources of normalised group equity value earnings
Audited
12 months
Unaudited Unaudited 31 December
30 June 2018 30 June 2017 2017
SA SA
covered Other covered Other
Rm business businesses Total business businesses Total Total
Value of new business written in the
period 130 5 135 75 11 86 233
Expected return on value of in-force
business 1 460 1 460 1 446 1 446 2 926
Variances/changes in operating
assumptions 246 246 21 21 109
Operating experience variances 277 277 174 174 330
Operating assumption changes (20) (20) (7) (7) 30
Changes in modelling methodology (11) (11) (146) (146) (251)
Development costs (31) (31) (30) (52) (82) (221)
Liberty Holdings shareholder
expenses(1) (200) (200) (156) (156) (584)
Headline earnings of other businesses/
intragroup transfers 135 135 46 59 105 146
Operational equity value profits 1 836 (91) 1 745 1 558 (138) 1 420 2 609
Economic adjustments (949) 209 (740) (289) (178) (467) (571)
Return on net worth and other
adjustments(2) (113) 209 96 94 (178) (84) (153)
Investment variances(2) (470) (470) (479) (479) (594)
Change in economic assumptions (366) (366) 96 96 176
Change in fair value adjustments on
value of other businesses (6) (6) (470) (470) (1 585)
Change in allowance for share rights (26) (11) (37) (11) (11) (12)
Group equity value earnings 861 101 962 1 269 (797) 472 441
(1) This includes the actual shareholder expenses incurred by Liberty Holdings of R121 million (31 December 2017: R259 million,
30 June 2017: R88 million) plus the change in the allowance for future shareholder expenses over the period.
(2) The return on net worth includes an amount of R12 million (31 December 2017: negative R7 million, 30 June 2017: negative R17 million)
in respect of the change in the fair value of cash flow hedges supporting LGL subordinated notes. With the change in classification of
the LGL subordinated notes to fair value on the adoption of IFRS 9, the cash flow hedges on these bonds were recycled to IFRS earnings.
The investment variances also include an amount of negative R12 million (31 December 2017: R61 million, 30 June 2017: R48 million) in
respect of the change in the fair value of cash flow hedges supporting LibFin Credit.
3.4 Analysis of value of long-term insurance new business and margins
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2018 2017 2017
South African covered business:
Individual Arrangements 737 667 1 445
Traditional Life 567 528 1 159
Direct Channel 33 30 67
Credit Life 45 43 83
LibFin Credit uplift to Individual Arrangements 92 66 136
Group Arrangements: Liberty Corporate 66 66 162
Traditional Business 54 56 137
LibFin Credit uplift to Group Arrangements: Liberty Corporate 12 10 25
Gross value of new business 803 733 1 607
Overhead acquisition (including underwriting) costs impact on value of new business (627) (615) (1 305)
Cost of required capital (46) (43) (90)
Net value of South African covered business 130 75 212
Present value of future expected premiums 20 045 20 628 42 782
Margin (%) 0,6 0,4 0,5
Group Arrangements: Liberty Africa Insurance
Net value of new business 5 11 21
Present value of future expected premiums 405 266 528
Margin (%) 1,3 4,3 3,9
Total group net value of new business 135 86 233
Total group margin (%) 0,7 0,4 0,5
LONG-TERM INSURANCE NEW BUSINESS
for the six months ended 30 June 2018
12 months
30 June 30 June 31 December
Rm (Unaudited) 2018 2017 2017
Sources of insurance operations total new business by product type
Retail 12 280 13 177 27 132
Single 10 080 10 973 22 660
Recurring 2 200 2 204 4 472
Institutional 1 045 915 2 034
Single 533 319 838
Recurring 512 596 1 196
Total new business 13 325 14 092 29 166
Single 10 613 11 292 23 498
Recurring 2 712 2 800 5 668
Insurance indexed new business 3 773 3 930 8 018
Sources of insurance indexed new business
Individual Arrangements 3 111 3 205 6 570
Group Arrangements: 662 725 1 448
Liberty Corporate 516 558 1 171
Liberty Africa Insurance(1) 146 167 277
(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.
The difference between the single premiums reported under total long-term insurance premiums and single premiums reported under
long-term insurance new business by distribution channel arises mainly from different treatment for extensions of matured policies,
reinvestment of fund withdrawals, conversions of standalone funds to umbrella funds and fund member movements within Liberty
administered funds.
LONG-TERM INSURANCE NET CUSTOMER CASH FLOWS
for the six months ended 30 June 2018
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2018 2017 2017
Net premiums by product type
Retail 20 609 21 282 43 467
Single 9 857 10 720 22 191
Recurring 10 752 10 562 21 276
Institutional 5 454 5 187 10 673
Single 799 588 1 416
Recurring 4 655 4 599 9 257
Net premium income from insurance contracts and inflows from investment
contracts 26 063 26 469 54 140
Single 10 656 11 308 23 607
Recurring 15 407 15 161 30 533
Net claims and policyholders benefits by product type
Retail (19 747) (20 390) (40 436)
Death and disability claims (3 596) (3 117) (6 567)
Policy surrender and maturity claims (12 991) (14 392) (27 984)
Annuity payments (3 160) (2 881) (5 885)
Institutional (6 054) (6 744) (12 070)
Death and disability claims (1 098) (1 082) (2 118)
Scheme terminations and member withdrawals (4 565) (5 244) (9 139)
Annuity payments (391) (418) (813)
Net claims and policyholders benefits (25 801) (27 134) (52 506)
Long-term insurance net customer cash flows(1) 262 (665) 1 634
Rm (Unaudited)
Sources of insurance operations net cash flows:
Individual Arrangements 750 774 2 846
Group Arrangements: (488) (1 439) (1 212)
Liberty Corporate (689) (1 609) (1 536)
Liberty Africa Insurance(2) 201 170 324
(1) This excludes net cash inflows attributed to the off balance sheet GateWay LISP of R242 million (31 December 2017: R350 million, 30 June 2017: R122 million).
(2) 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.
ASSETS UNDER MANAGEMENT(1)
as at 30 June 2018
30 June 30 June 31 December
Rbn (Unaudited) 2018 2017 2017
Managed by group business units 684 662 684
STANLIB South Africa 559 540 556
STANLIB Africa(2) 50 53 53
LibFin Markets 61 58 62
Other internal managers 14 11 13
Externally managed 35 26 36
Total assets under management(3) 719 688 720
(1) Includes funds under adminstration.
(2) Liberty owns less than 100% of certain of the entities that make up STANLIB 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 (June 2018) amounts:
STANLIB Other
Unit trusts listed (Rbn) managed managed Total
STANLIB 41 80 121
Gateway 3 5 8
ASSET MANAGEMENT NET CASH FLOWS(1)
for the six months ended 30 June 2018
12 months
30 June 30 June 31 December
Rm (Unaudited) 2018 2017 2017
STANLIB South Africa
Non-money market 8 949 5 705 4 815
Retail 5 479 3 345 8 249
Institutional 3 470 2 360 (3 434)
Money market (549) (59) (84)
Retail (352) (1 461) (1 400)
Institutional (197) 1 402 1 316
Net South Africa cash inflows 8 400 5 646 4 731
STANLIB Africa
Non-money market (6 164) (347) (1 156)
Retail 285 437 738
Institutional (6 449) (784) (1 894)
Money market (830) 791 676
Net Africa cash (outflows)/inflows (6 994) 444 (480)
Net cash inflows from asset management 1 406 6 090 4 251
(1) Cash flows exclude intergroup segregated life funds mandates.
SHORT-TERM INSURANCE INDICATORS
for the six months ended 30 June 2018
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2018 2017 2017
Net premiums 634 675 1 297
Liberty Health - medical risk 387 420 777
Liberty Africa Insurance - motor, property, medical and other 247 255 520
Net claims (447) (426) (886)
Liberty Health - medical risk (307) (299) (637)
Liberty Africa Insurance - motor, property, medical and other (140) (127) (249)
Net cash inflows from short-term insurance 187 249 411
Unaudited
Claims loss ratio (%)
Liberty Health 79 71 82
Liberty Africa Insurance 57 50 48
Combined loss ratio (%)
Liberty Health 112 101 102
Liberty Africa Insurance 111 98 99
CAPITAL COMMITMENTS
as at 30 June 2018
Audited
Unaudited Unaudited 12 months
30 June 30 June 31 December
Rm 2018 2017 2017
Equipment 471 658 741
Investment and owner-occupied property 1 418 1 237 1 432
Committed capital(1) 1 382 1 168 1 071
Total capital commitments 3 271 3 063 3 244
Under contracts 617 546 430
Authorised by the directors but not contracted 2 654 2 517 2 814
(1) Liberty has committed capital to certain infrastructure and development funds. The committed funds are only drawn down when required.
The above 2018 capital commitments will be financed by available bank facilities, existing cash resources, internally generated funds and
R442 million (31 December 2017: R452 million, 30 June 2017: R296 million) from non-controlling interests in respect of investment properties.
RETIREMENT BENEFIT OBLIGATIONS
as at 30 June 2018
Unaudited
Post-retirement medical benefit
The group operates an unfunded post-retirement medical aid benefit for permanent employees who joined the group prior to
1 February 1999 and agency staff who joined prior to 1 March 2005. As at 30 June 2018, the Liberty post-retirement medical aid benefit
liability was R480 million (31 December 2017: R495 million).
Defined benefit retirement fund
The group operates a defined benefit pension scheme on behalf of employees. The fund is closed to new membership and is well funded.
RELATED PARTIES
for the six months ended 30 June 2018
Unaudited
Standard Bank Group Limited and any subsidiary (excluding Liberty)
is referred to as Standard Bank in the context of this section.
The following selected significant related party transactions have
occurred in the 30 June 2018 financial period:
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 2018 16 180 3 166 1,02
Purchases 8 589 1 768
Sales (4 586) (952)
Fair value adjustments (109)
Balance at 30 June 2018 20 183 3 873 1,27
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 2018 amounted
to R3 948 million (2017 full year: R9 129 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 six months to 30 June 2018 is R534 million
(2017 full year: R948 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.
1.3 Purchases and sales of financial instruments
As per Liberty's 2017 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.
2. Other related party transaction - Liberty Two Degrees (L2D)
In terms of a proposed transaction between L2D and Liberty
Holdings Limited (LHL), LHL has agreed to sell all of the shares in
STANLIB REIT Fund Managers (RF) (Pty) Ltd to New L2D. In addition
Liberty Group Limited will dispose of R1,2 billion of the property
portfolio to New L2D and the existing put option will be cancelled
for no value. These transactions remain subject to regulatory
approval with the L2D unitholder vote scheduled for 28 August
2018. More detail is available at http://www.liberty2degrees.co.za.
OFFSETTING, ENFORCEABLE MASTER NETTING
ARRANGEMENTS OR SIMILAR AGREEMENTS
as at 30 June 2018
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 in the event of
default
Repurchase agreements Global master repurchase agreements
Collateral deposits payable Global master securities lending arrangements
Not subject Subject
to MNA to MNA
or similar or similar Financial
Rm (Unaudited) Total agreements agreements collateral(1) Net
30 June 2018
Assets
Assets held for trading and for hedging 9 757 (1 727) 8 030 (7 751) 279
Total assets 9 757 (1 727) 8 030 (7 751) 279
Liabilities
Liabilities held for trading and for hedging 8 591 (147) 8 444 (7 751) 693
Repurchase agreements liabilities 6 404 6 404 (6 404)
Collateral deposits payable 4 857 4 857 (4 857)
Total liabilities 19 852 (147) 19 705 (19 012) 693
Not subject Subject
to MNA to MNA
or similar or similar Financial
Rm (Unaudited) Total agreements agreements collateral(1) Net
30 June 2017
Assets
Assets held for trading and for hedging 9 459 (934) 8 525 (6 970) 1 555
Total assets 9 459 (934) 8 525 (6 970) 1 555
Liabilities
Liabilities held for trading and for hedging 7 428 (26) 7 402 (6 970) 432
Repurchase agreements liabilities 7 840 7 840 (7 840)
Collateral deposits payable 6 122 6 122 (6 122)
Total liabilities 21 390 (26) 21 364 (20 932) 432
Not subject Subject
to MNA to MNA
or similar or similar Financial
Rm (Audited) Total agreements agreements collateral(1) Net
31 December 2017
Assets
Assets held for trading and for hedging 7 871 (1 356) 6 515 (6 016) 499
Total assets 7 871 (1 356) 6 515 (6 016) 499
Liabilities
Liabilities held for trading and for hedging 6 311 (56) 6 255 (6 016) 239
Repurchase agreements liabilities 4 671 4 671 (4 671)
Collateral deposits payable 4 426 4 426 (4 426)
Total liabilities 15 408 (56) 15 352 (15 113) 239
(1) Financial collateral relates to these instruments that are subject to MNA or similar agreements.
ACCOUNTING CLASSIFICATIONS OF FINANCIAL
INSTRUMENTS UNDER IFRS 9
as at 30 June 2018
Opening transition adjustment as at 1 January 2018
As previously As classified
reported under IFRS 9
under IAS 39 at fair value
at amortised Transition through profit
Rm (Unaudited) cost adjustment or loss
Loan receivables 894 (63) 831
Financial liabilities (5 581) (105) (5 686)
Gross transition adjustment (168)
Taxation 47
Net transition adjustment (121)
as at 30 June 2018 Fair value through profit or loss
Fair value Total per
through Other statement
Held for Designated profit or loss Total fair Amortised measurement of financial
Rm (Unaudited) trading at fair value (default) value cost basis position
Financial assets
Interests in joint
ventures 1 316 1 316 66 1 382
Interests in associates 13 862 13 862 13 862
Financial investments 2 646 331 777 334 423 334 423
Loan receivables 803 803 379 1 182
Assets held for hedging
and for trading 9 757 9 757 9 757
Repurchase
agreements, scrip and
collateral assets 13 075 13 075 13 075
Prepayments, insurance
and other receivables 4 914 4 914 244 1 802 6 960
Cash and cash
equivalents 6 396 6 396 3 580 9 976
Total financial assets 9 757 2 646 372 143 384 546 4 203 1 868 390 617
Financial liabilities
Financial liabilities under
investment contracts 101 715 101 715 101 715
Third-party financial
liabilities arising on
consolidation of mutual
funds 41 832 41 832 41 832
Financial liabilities 5 387 5 387 5 387
Liabilities held for trading
and for hedging 8 591 8 591 8 591
Repurchase agreements
liabilities and collateral
deposits payable 11 261 11 261 11 261
Insurance and other
payables 4 644 4 644 634 7 059 12 337
Total financial
liabilities 8 591 164 839 173 430 634 7 059 181 123
The table above reflects the classification of the group's financial assets and financial liabilities as at 30 June 2018 split into the
IFRS 9 measurement categories. The financial assets categories have been determined based on the contractual cash flow characteristics
and business model of the entity.
Sponsor:
Merrill Lynch South Africa (Pty) Limited
Date: 02/08/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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