Wrap Text
Financial Results for the year ended 31 December 2018
Liberty Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1968/002095/06)
JSE code: LBH
ISIN code: ZAE000012714
Preference share code: LBHP
ISIN code: ZAE000004040
Telephone +27 11 408 3911
FINANCIAL PERFORMANCE INDICATORS
for the year ended 31 December 2018
%
Rm (unless otherwise stated) 2018 2017 change
Liberty Holdings Limited
Earnings
Normalised headline earnings(1) 2 256 2 719 (17,0)
Normalised headline earnings per share (cents)(1) 817,9 982,1 (16,7)
Normalised return on IFRS equity (%)(1) 10,1 12,3
Group equity value
Normalised group equity value per share (R)(1) 138,64 140,31 (1,2)
Normalised return on group equity value (%)(1) 3,8 1,1 >100
Distributions per share (cents)
Normal dividend 691 691
Interim dividend 276 276
Final dividend 415 415
Total assets under management (Rbn) 718 720 (0,3)
Long-term insurance operations
Indexed new business (excluding contractual increases) 8 051 8 018 0,4
Embedded value of new business 371 233 59,2
New business margin (%) 0,9 0,5
Net customer cash inflows 2 001 1 634 22,5
Solvency capital requirement cover of Liberty Group Limited (times covered)(2) 1,87
Asset management - STANLIB South Africa
Assets under management (Rbn) 549 556 (1,3)
Net cash inflows including money market(3) 16 149 4 731 >100
Retail and institutional net cash inflows excluding money market(3) 9 155 4 815 90,1
Money market net cash inflows/(outflows)(3) 6 994 (84) >100
(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) Solvency capital requirement cover (effective from 1 July 2018) 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. This replaces the capital adequacy requirement cover that was reported previously under the old regime, hence no comparative
information is provided.
(3) Excludes intergroup life funds.
Preparation and supervision:
This announcement on Liberty Holdings Limited annual financial results for the year ended 31 December 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 year ended 31 December 2018
Good progress made
in delivering Liberty's
turnaround strategy
Highlights
In supporting our clients through their life journeys and fulfilling
our promises to them, annuity payments made by Liberty in
2018 increased by 7% to R5,8 billion and death and disability
payments increased by 11% to R9,4 billion.
Progress made on the key strategic objectives to better support
our clients by improving the investment performance of STANLIB
and restoring the health of the South African Retail insurance
business is starting to manifest in the group's financial performance.
Normalised operating earnings were up 42% on 2017. Strong cost
discipline together with product and margin enhancements resulted
in a 59% improvement in group value of new business (VoNB) to
R371 million, with margin improvement to 0.9%. STANLIB South
Africa reflected improved investment performance in its core retail
equity and balanced funds, achieving top quartile performance
over the 12 months ended 31 December 2018. STANLIB South
Africa's net external third party client cash inflows increased
significantly to R16,1 billion. Supporting these outcomes was the
organisational re-design exercise to reconnect the value chains in
our business. In addition, certain operations identified as no longer
central to Liberty's revised strategy are under ownership review.
The group's capital position remains strong, with the Solvency
Capital Requirement cover of Liberty Group Limited, the
group's main long-term insurance licence, at 1,87 times at
31 December 2018 which is at the upper end of the target range and
underpins our commitment to fulfil our promises to policyholders
and other stakeholders.
Group financial performance
Normalised operating earnings for the year ended
31 December 2018 of R2 006 million were up 42% on 2017,
reflecting an improved operational performance in the South
African Insurance Operations and STANLIB South Africa
businesses. LibFin Investments - Shareholder Investment Portfolio
(SIP) earnings of R250 million were however impacted by volatile
market conditions and lower market returns which resulted
in normalised headline earnings of R2 256 million for the year
(31 December 2017: R2 719 million). This resulted in a return on
equity of 10,1% (31 December 2017: 12,3%).
The group VoNB of R371 million was 59% up from R233 million in
the prior year with margin improvement from 0.5% to 0.9%.
Group net external third party client cash inflows amounted to
R10,2 billion, up 57% on 2017 inflows of R6,5 billion, supported
mainly by good STANLIB South Africa net external third party client
inflows as well as lower policy maturities and withdrawals in the
SA Insurance Operations. Total group assets under management
amounted to R718 billion (31 December 2017: R720 billion).
Continued focus on sales efforts and volumes resulted in an
improved second half sales performance, with the group long-term
insurance indexed new business of R8 051 million at similar levels to
2017 despite a slow start to the year.
The group remains well capitalised in respect of the new prudential
regulatory regime, which became effective from 1 July 2018.
The Solvency Capital Requirement Cover of Liberty Group Limited,
the group's main long-term insurance licence, of 1,87 times at
31 December 2018 is at the upper end of our target range and
underpins our commitment to fulfil our promises to policyholders
and other stakeholders.
Group equity value per share was R139 (31 December 2017: R140)
with the small reduction attributable to lower investment returns
in line with investment markets.
Headline earnings for 2018 amounted to R2 645 million compared
to R3 252 million in 2017. Liberty's headline earnings include the
positive earnings impact of R397 million (31 December 2017:
R543 million) arising from the accounting mismatch on the
consolidation of the Liberty Two Degrees listed REIT.
Earnings by business unit
%
Rm (Unaudited) 2018 2017 change
South African operations
South African Insurance Operations 2 009 1 665 20,7
SA Retail 1 581 1 208 30,9
Liberty Corporate 52 81 (35,8)
LibFin Markets - credit portfolio 302 330 (8,5)
LibFin Markets - asset/liability matching portfolio 74 46 60,9
South African Asset Management
STANLIB South Africa 355 252 40,9
Africa regions 8 7 14,3
Liberty Africa Insurance (19) 41 (>100)
STANLIB Africa 27 22 22,7
Business development support(1) ( 56) 100
Operations under ownership review(2) (166) (322) 48,4
Central costs and sundry income (200) (190) (5,3)
Normalised operating earnings 2 006 1 412 42,1
LibFin Investments - SIP 250 1 307 (80,9)
Normalised headline earnings 2 256 2 719 (17,0)
BEE preference share adjustment (8) (10) 20,0
Reversal of accounting mismatch arising on consolidation of L2D(3) 397 543 (26,9)
Headline earnings 2 645 3 252 (18,7)
(1) 2017 includes the costs associated with the terminated long-term licence acquisition in Nigeria.
(2) The cash-generating units impacted are asset management operations in Ghana, Uganda, Kenya and Botswana, Health solutions,
the short-term insurance technology start up and Liberty Africa Insurance short-term insurance business in Malawi and Namibia.
Under IFRS these are disclosed as disposal groups classified as held for sale.
(3) Refer to Explanation of terms.
Commentary on the earnings by business unit follows on the pages below. Additional information is contained in the summary consolidated
segment information.
South African Insurance Operations
South African Insurance Operations comprise the SA Retail
(previously Individual Arrangements), Liberty Corporate and LibFin
Markets (credit portfolio and asset liability matching portfolio)
businesses. Headline earnings of R2 009 million were up 21%.
SA Retail
Headline earnings from the group's South African Retail
business of R1 581 million were 31% up on the prior year. This
increase was supported by stringent cost management, together
with positive experience variances and the positive impact of
basis changes.
Indexed new business sales of R6 495 million were 1% down on
2017. The tough economic conditions continued to impact sales
volumes in 2018. However, the second half sales performance
reflected an improvement over the first half of 2018. Growth in
sales volumes and VoNB remains management's highest priority.
VoNB increased by 75% from R155 million in the prior year
to R271 million, and the margin improved from 0,5% at
31 December 2017 to 0,8%. This result is attributable to the
positive impact of product and margin enhancements and focused
cost management. Net client cash inflows of R2 065 million were
lower than 31 December 2017 of R2 846 million. Ongoing retention
initiatives reflecting favourable withdrawal experience were offset
by higher mortality and morbidity claims and annuity payments.
Liberty Corporate
Earnings of R52 million reflected high death claims in the
second half of the year and lower annuity and asset based fee
income. Following repricing, underwriting margin on the group risk
book did, however, improve compared to 2017.
Indexed new business was 2% above the prior year at R1 192 million,
reflecting increased single premium sales. VoNB increased to
R73 million from R57 million in 2017, reflecting an improvement in
product mix and good expense management. Lower net client cash
outflows of R0,4 billion (31 December 2017: outflows of R1,5 billion)
were due to increased single premium sales and reduced member
retirements and scheme terminations.
LibFin Markets - Asset liability management and credit
portfolio
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 R74 million
(31 December 2017: R46 million). Earnings from the credit portfolio
amounted to R302 million (31 December 2017: R330 million). LibFin
Markets assets under management amounted to R65 billion
(31 December 2017: R62 billion).
South African Asset Management
STANLIB South Africa
STANLIB South Africa earnings were up 41% to R355 million.
Fee income was lower in 2018 mainly due to weak investment
market returns. The prior year earnings were impacted by once off
operational write-offs. Costs were well managed during 2018 and
management has continued to strengthen the control environment
with a focus on improving the overall financial results.
Net external third party client cash inflows grew to
R16,1 billion from R4,7 billion in 2017. This result was attributable
to good institutional non-money market as well as retail and
institutional money market inflows. Intragroup cash outflows for
the year amounted to R17,0 billion.
Total assets under management by STANLIB South Africa
amounted to R549 billion (31 December 2017: R556 billion) with the
reduction from 2017 mainly attributable to weak market returns.
Africa regions
Africa Regions comprises Liberty Africa Insurance and the STANLIB
asset management operations in the Southern African region.
Earnings for the year of R8 million from these businesses
were negatively impacted by generally lower investment market
returns and adverse claims experience in the short-term insurance
businesses in East Africa. The asset management operations
performed according to expectation.
Operations under ownership review
As part of the strategy refresh exercise, various operations have
been identified as no longer central to Liberty's revised strategy.
Consequently a process of negotiations with potential partners
has commenced.
These operations include the asset management businesses in
East and West Africa, Liberty Health, Liberty Africa Insurance's
short-term insurance businesses in Malawi and Namibia and the
short-term insurance technology platform being developed in
South Africa.
The 2018 loss of R166 million is significantly reduced compared to
the prior year loss of R322 million due to the successful remedial
action taken in the STANLIB East African businesses. The Liberty
Heath loss of R78 million was attributable to the lower number of
risk lives under management.
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.
The performance of the SIP was impacted by volatile market
conditions resulting in lower market returns. These conditions
resulted in the SIP producing a gross return of 3,7% and
delivering earnings of R250 million (31 December 2017:
R1 307 million). The SIP exposure to investment markets remains
appropriate in the context of the group's risk appetite.
Liberty Two Degrees (L2D)
L2D was restructured and converted to a corporate REIT
on 1 November 2018. L2D's results for the year ended
31 December 2018 were released on 25 February 2019.
The operational performance of the property portfolio
remained solid notwithstanding a difficult consumer environment.
The total distribution declared for 2018 amounted to 60,00 cents
per share which was in line with previously reported guidance (2017:
59,22 cents per share). Portfolio vacancies decreased to 3,4% from
6,4% with retail vacancies at 1,2%. Further details on the results are
available on the L2D website and in the L2D results announcement.
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 4% on the prior year. We continue
leveraging our joint capabilities with Standard Bank to capture
appropriate opportunities.
Liberty's short-term insurance technology platform has been sold
to Standard Bank Group effective 2 January 2019. Notwithstanding
the sale of the technology platform to Standard Bank Group, the
transaction ensures that Liberty's short-term insurance offering will
still be available to Liberty's financial advisers in the South African
market to enhance the comprehensive product offering available
to clients.
Capital adequacy cover
The group remains well capitalised in respect of the new prudential
regulatory regime, which became effective from 1 July 2018.
The Solvency Capital Requirement cover of Liberty Group Limited,
the group's main long-term insurance licence, of 1,87 times at
31 December 2018 is at the upper end of the target range and
underpins our commitment to fulfil our promises to policyholders
and other stakeholders.
All other group subsidiary life licences were adequately capitalised.
Dividends
2018 final dividend
In line with the group's dividend policy, the board has approved
and declared a gross final dividend of 415 cents per ordinary share.
The final dividend will be paid out of income reserves and is payable
on Monday, 8 April 2019 to all ordinary shareholders recorded in
the books of Liberty Holdings Limited on the record date.
The dividend of 415 cents per ordinary share will be subject to a local
dividend tax rate of 20%, which will result in a net final dividend, to
those shareholders who are not exempt from paying dividend tax,
of 332 cents per ordinary share. Liberty Holdings Limited's income
tax number is 9050/191/71/8. The number of ordinary shares in
issue in the company's share capital at the date of declaration is
286 202 373.
The important dates pertaining to the dividend are as follows:
Last date to trade cum dividend on Tuesday, 2 April 2019
the JSE
First trading day ex dividend on the JSE Wednesday, 3 April 2019
Record date Friday, 5 April 2019
Payment date Monday, 8 April 2019
Share certificates may not be dematerialised or rematerialised
between Wednesday, 3 April 2019 and Friday, 5 April 2019, both
days inclusive. Where applicable, in terms of instructions received
by the company from certificated shareholders, the payment
of the dividend will be made electronically to shareholders' bank
accounts on payment date.
In the absence of specific mandates, cheques will be posted to
shareholders. Shareholders who have dematerialised their shares
will have their accounts with their CSDP or broker credited on
Monday, 8 April 2019.
Prospects
In summary, good progress is being made in implementing Liberty's
turnaround strategy.
Management's focus for 2019 will be on driving SA Retail
performance and VoNB growth by delivering exceptional client
and adviser experiences, continuing to improve the investment
performance of STANLIB, finalising outcomes for each of the
group's operations under ownership review and continuing to
maximise our relationship with the Standard Bank Group.
We expect the South African economic environment to remain
subdued for the first half of 2019, however, we remain confident
that focus is on the right areas of the business to create value for
all stakeholders.
David Munro Jacko Maree
Chief Executive Chairman
28 February 2019
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
ACCOUNTING POLICIES
The 2018 consolidated annual financial statements of Liberty
Holdings Limited 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 consolidated annual financial statements have been prepared
in compliance with IFRS and interpretations for year ends
commencing on or after 1 January 2018.
The accounting policies are consistent with those applied in the
prior year except for the mandatory adoption of IFRS 9 Financial
Instruments and IFRS 15 Revenue from Contracts with Customers.
The group has elected to apply the hedge accounting requirements
of IAS 39 in the adoption of IFRS 9.
Under the transitional approach adopted by the group for these
standards, there was no change to comparative period primary
financial statements or note disclosures. The impact to the group's
opening retained income as at 1 January 2018 was a reduction of
R121 million, after taxation (relating to IFRS 9 only). Consequential
amendments to IAS 1 Presentation of Financial Statements and
IFRS 7 Financial Instruments: Disclosures impacted only the
2018 annual financial statements.
Presentation change due to IFRS 9, adopted in line with the
group's transition approach
The group re-assessed its accounting presentation policy of all
IFRS 9 related transactions. As part of the IFRS 9 implementation,
all income statement movements, including interest income,
dividends and finance costs, on financial instruments held at fair
value through profit or loss are prospectively presented as fair value
adjustments. This has led to a decrease in 'investment income' and
'finance costs' for the year ended 31 December 2018, with the
corresponding amounts recognised in fair value adjustments to
financial assets held at fair value through profit or loss and to fair
value adjustments to financial liabilities respectively.
Restatement of cash flow statement
During 2018 a comprehensive review of the group's long-term
insurance business model was undertaken in light of the adoption
of IFRS 9. In addition consideration was also given to the new
regulatory capital regime effective 1 July 2018 and the enterprise risk
management framework. All of the above support a change in key
judgement relating to the appropriateness of cash flows relating to
investment portfolios backing policyholder liabilities and supporting
regulatory and group risk adjusted minimum capital levels. It was
determined that these would be better reflected as cash flows
from operating activities rather than as previously reflected as cash
flows from investing activities. Due to the materiality of items, the
cash flow statement for 2017 has been restated.
Segment reporting
The Liberty group underwent a strategy refresh during 2018.
Consequently Liberty has reduced emphasis on growth
opportunities across Africa as well as other diversification initiatives
and increased remedial efforts on its core long-term insurance
and asset management business in South Africa. There are no
longer specific customer facing units (previously being Individual
Arrangements, Group Arrangements and Asset Management).
The primary segments, aligned to the new operating model,
operate within two main geographic clusters, being South African
operations and Africa regions (defined as all operations in Africa,
excluding South Africa).
The South African operations consists of long-term insurance
business, namely SA Retail and Liberty Corporate segments, asset
management, namely STANLIB South Africa and other operations
(governance and strategic execution and certain investment
portfolios), supporting these businesses. Businesses managed in
Africa regions, are segmented as Liberty Africa Insurance, Liberty
Health and STANLIB Africa (asset management).
As a result, the segment reporting information has been aligned
to the information used by the chief operating decision makers.
2017 comparative information has been restated.
New standards not yet effective
Based on Liberty's current lease obligations, IFRS 16 Leases
(effective 1 January 2019) does not have a material impact to profit
or loss on adoption in 2019. IFRS 17 Insurance Contracts (effective
1 January 2022, following IASB due process) will have significant
financial reporting impact for the group. Management is assessing
this impact under a focussed project.
AUDITOR STATEMENT
PricewaterhouseCoopers Inc. (PwC) have audited the consolidated
annual financial statements of Liberty Holdings Limited from which
the summary consolidated financial results have been extracted.
These summary consolidated financial results comprise the
consolidated statement of financial position at 31 December 2018,
the consolidated statement of comprehensive income, summary
consolidated changes in equity and summary consolidated cash
flows for the year then ended and selected explanatory notes.
These statements and related notes are marked as 'audited'. This
announcement itself is not audited.
The financial results contained in this announcement have
been prepared in accordance with the requirements of the JSE
Limited Listings Requirements for preliminary reports, and the
requirements of the Companies Act applicable to summary financial
statements. The Listings Requirements require preliminary reports
to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International
Financial Reporting Standards (IFRS), SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting
Standards Council and also, as a minimum, to contain the
information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the
consolidated annual financial statements, from which the summary
consolidated financial results were extracted, are in terms of
IFRS and are consistent with the accounting policies applied in
the preparation of the prior year's consolidated annual financial
statements except for the changes outlined in the Accounting
policies above.
This announcement does not include the information required
pursuant to paragraph 16A (j) of IAS 34. The full IAS 34 compliant
summary consolidated financial results announcement and a copy
of the auditors' report is available on request or on the company's
website and at the company's registered office.
The auditors have expressed an unmodified audit opinion on the
consolidated annual financial statements. PwC have also issued an
unmodified assurance opinion on Liberty Holdings Limited's group
equity value report, which has also been marked as 'audited' in this
financial results announcement.
Shareholders are advised that in order to obtain a full understanding
of the nature of the auditors' engagement, they should obtain a
copy of the auditors' reports together with the accompanying
financial information which is available upon request from Liberty
Holdings Limited's registered office.
DIRECTORS' RESPONSIBILITY
The summary consolidated annual financial statements included in this announcement are the full responsibility of the directors.
The directors confirm that the financial information has been correctly extracted from the underlying 2018 audited consolidated Liberty
Holdings Limited annual financial statements which are available for inspection at the company's registered office on request.
EXPLANATION OF TERMS
Development costs
Represents project costs incurred on developing or enhancing
future revenue opportunities.
FCTR
Foreign Currency Translation Reserve.
FVOCI
Fair value through other comprehensive income
FVPL
Fair value through profit or loss
"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 (VONB)
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.
Solvency capital requirement (SCR)
The prudential regulatory regime governing South African
assurance companies changed on 1 July 2018. This has necessitated
a change to Liberty's capital requirement coverage methodology.
The SCR 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.
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 shares.
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 shares 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 share price.
Summary of impact
Below is a summary of the L2D transaction impact on the ordinary shareholders' equity:
Group SIP equity
equity value IFRS net asset value
Rm Total value adjustment
Opening adjustment at 1 January 2018 597 340 257
IFRS profit or loss 397 397
Group equity value earnings 207 207
Transaction between owners (260) (214) (46)
Share issue costs (1) (1)
Closing adjustment at 31 December 2018 940 522 418
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2018
Rm (Audited) 2018 2017
Assets
Intangible assets 572 231
Defined benefit pension fund employer surplus 140 171
Properties 35 961 34 768
Equipment 1 038 1 128
Interests in joint ventures 1 353 1 244
Interests in associates 13 834 15 197
Deferred taxation 245 336
Deferred acquisition costs 777 737
Long-term policyholder assets - insurance contracts 6 708 7 484
Reinsurance assets 2 119 1 774
Long-term insurance 1 699 1 481
Short-term insurance 420 293
Financial investments 328 365 338 534
Loans and receivables 340 1 222
Assets held for trading and for hedging 10 340 7 871
Repurchase agreements, scrip and collateral assets 12 658 11 900
Prepayments, insurance and other receivables 4 953 6 361
Cash and cash equivalents 16 974 15 169
Disposal group assets classified as held for sale 897
Total assets 437 274 444 127
Liabilities
Long-term policyholder liabilities 310 994 322 918
Insurance contracts 200 744 210 554
Investment contracts with discretionary participation features 10 437 11 845
Financial liabilities under investment contracts 99 813 100 519
Reinsurance liabilities 283 663
Third-party financial liabilities arising on consolidation of mutual funds 48 186 49 713
Provisions 145 76
Deferred taxation 2 694 3 386
Deferred revenue 314 291
Deemed disposal taxation liability 436
Short-term insurance liabilities 984 780
Financial liabilities 8 104 5 581
Liabilities held for trading and for hedging 8 457 6 311
Repurchase agreements, liabilities and collateral deposits payable 11 747 9 097
Employee benefits 1 377 1 446
Insurance and other payables 11 971 11 995
Current taxation 347 1 043
Disposal group liabilities classified as held for sale 278
Total liabilities 405 881 413 736
Equity
Ordinary shareholders' equity 23 003 22 444
Share capital 26 26
Share premium 5 104 5 157
Retained surplus 18 661 18 163
Other reserves (788) (902)
Non-controlling interests 8 390 7 947
Total equity 31 393 30 391
Total equity and liabilities 437 274 444 127
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
Rm (Audited) 2018 2017
Revenue
Insurance premiums 40 611 39 970
Reinsurance premiums (2 090) (1 950)
Net insurance premiums 38 521 38 020
Revenue from contracts with customers 4 073
Fee income and reinsurance commission 3 683
Hotel operations sales 532
Investment income 3 316 21 652
Interest income on financial assets using the effective interest rate method 1 516
Fair value adjustment to assets held at fair value through profit or loss 3 078
Investment gains 18 835
Total income 50 504 82 722
Claims and policyholder benefits under insurance contracts (39 504) (38 819)
Insurance claims recovered from reinsurers 1 571 1 800
Change in long-term policyholder assets and liabilities 11 449 (6 829)
Liabilities under insurance contracts 10 024 (6 504)
Policyholder assets related to insurance contracts (776) 170
Investment contracts with discretionary participation features 1 607 (521)
Applicable to reinsurers 594 26
Fair value adjustment to long-term policyholder liabilities under investment contracts 1 273 (9 116)
Fair value adjustment to financial liabilities (1 381)
Fair value adjustment on third party mutual fund interests (2 407) (4 619)
Acquisition costs (4 413) (4 935)
General marketing and administration expenses (11 184) (11 345)
Finance costs ( 110) (1 344)
Profit share allocations under bancassurance and other agreements (1 284) (972)
Remeasurement of disposal groups classified as held for sale (249)
Equity accounted earnings from joint ventures 32 25
Profit before taxation 4 297 6 568
Taxation(1) (1 255) (2 864)
Total earnings 3 042 3 704
Other comprehensive income/(loss) 369 (233)
Items that may be reclassified subsequently to profit or loss 269 (95)
Net change in fair value on cash flow hedges (9) 75
Income and capital gains tax relating to net change in fair value on cash flow hedges 3 (21)
Net change in debt instruments measured at FVOCI 42
Income tax relating to movement in debt instument measured at FVOCI (12)
Foreign currency translation 245 (149)
Items that may not be reclassified subsequently to profit or loss 100 (138)
Owner-occupied properties - fair value adjustment 19 (67)
Income and capital gains tax relating to owner-occupied properties fair value adjustment 2 (14)
Change in long-term policyholder insurance liabilities (application of shadow accounting) 2 (32)
Actuarial gains on post-retirement medical aid liability 70 45
Income tax relating to post-retirement medical aid liability (20) (13)
Net adjustments to defined benefit pension fund(2) (30) (41)
Income tax relating to defined benefit pension fund 8 (16)
Fair value adjustments to financial liabilities arising from own credit 68
Income tax relating to fair value adjustments to financial liabilities arising from own credit (19)
Total comprehensive income 3 411 3 471
Total earnings attributable to:
Shareholders' equity 2 398 3 118
Non-controlling interests 644 586
3 042 3 704
Total comprehensive income attributable to:
Shareholders' equity 2 680 2 932
Non-controlling interests 731 539
3 411 3 471
Basic and fully diluted earnings per share Cents Cents
Basic earnings per share 889,1 1 152,6
Fully diluted basic earnings per share 863,7 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 year ended 31 December 2018
Rm (Audited) 2018 2017
Balance of ordinary shareholders' equity at 1 January 22 444 21 676
IFRS 9 transition adjustment (121)
Ordinary dividends (1 941) (1 942)
Total comprehensive income 2 680 2 932
Cash flow hedge recycled through profit and loss on early settlement 12
Share buy-back(1) (247) (350)
Black economic empowerment transaction 33 32
Share-based payments 94 99
Preference dividends (2) (2)
Share issue costs in subsidiary (1)
Transactions between owners 52 (1)
Ordinary shareholders' equity 23 003 22 444
Balance of non-controlling interests at 1 January 7 947 7 330
Total comprehensive income 731 539
Acquisition of unincorporated property partnerships 87
Unincorporated property partnerships net distributions (222) (238)
Non-controlling interests' share of subsidiary distributions (314) (133)
Non-controlling interests' share of shares issued in subsidiary 2
Share issue costs in subsidiary (1)
Transactions between owners 249 360
Non-controlling interests 8 390 7 947
Total equity 31 393 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 year ended 31 December 2018
Restated
Rm (Audited) 2018 2017(1)
Cash flows from operating activities (379) 1 829
Cash utilised by operations (9 805) (6 953)
Interest and dividends received(2) 1 516 18 841
Distributions paid (3 196) (3 075)
Taxation paid (3 092) (1 946)
Net disposal/(purchase) of investments(2) 13 293 (2 495)
Net disposal/(purchase) of other assets 215 (668)
Deposits received on/(repayments of) collateral deposits payable 1 098 (258)
Other operating cash flows (408) (1 617)
Cash flows from investing activities (512) (289)
Net disposal of investments 23 128
Net purchase of other assets (524) (375)
Acquisition of associate (10)
Acquisition of equity accounted joint ventures (1) (42)
Cash flows from financing activities 2 785 (1 280)
Net funding from financial liabilities 1 927 980
Net proceeds on/(repayment of) repurchase agreements liabilities 730 (2 393)
Net cash flows from equity transactions with non-controlling interests 377 483
Share issue cost in subsidiary (2)
Share buy-back (247) (350)
Net increase in cash and cash equivalents 1 894 260
Cash and cash equivalents at the beginning of the year 15 169 14 994
Foreign currency translation 129 (85)
Disposal group cash classified as held for sale (218)
Cash and cash equivalents at the end of the year 16 974 15 169
(1) Refer to Accounting policies.
(2) Included in the movemnet on investments for 2018 was R5 200 million related to dividends received and R11 003 million related to interest income.
HEADLINE EARNINGS AND EARNINGS PER SHARE
for the year ended 31 December 2018
Rm (unless otherwise stated)/(Audited) 2018 2017
Reconciliation of total earnings to headline earnings attributable to shareholders
Total earnings attributable to shareholders 2 398 3 118
Preference share dividend (2) (2)
Basic earnings attributable to ordinary shareholders 2 396 3 116
Remeasurement of disposal groups classified as held for sale 249
Impairment of intangible assets 164
Tax on headline earnings adjustable item (28)
Headline earnings attributable to ordinary shareholders 2 645 3 252
Net income earned on BEE preference shares 8 10
Reversal of the accounting mismatch arising on consolidation of L2D(1) (397) (543)
Normalised headline earnings attributable to ordinary shareholders 2 256 2 719
Weighted average number of shares in issue ('000) 269 496 270 348
Normalised weighted average number of shares in issue ('000) 275 842 276 847
Fully diluted weighted average number of shares in issue ('000) 277 407 278 030
Earnings per share Cents Cents
Total earnings attributable to ordinary shareholders
Basic 889,1 1 152,6
Headline 981,5 1 202,9
Normalised headline 817,9 982,1
Fully diluted earnings attributable to ordinary shareholders
Basic 863,7 1 120,7
Headline 953,5 1 169,7
(1) Refer to Explanation of terms.
SUMMARY CONSOLIDATED SEGMENT INFORMATION
for the year ended 31 December 2018
The audited segment results for the year ended 31 December 2018 are as follows:
South African operations Africa regions
Insurance Asset
operations management
Liberty
SA Liberty Other STANLIB Africa Liberty STANLIB Reporting IFRS
Rm (Audited) Retail Corporate operations(1) South Africa Insurance Health Africa Total adjustments(2) reported
Total income 43 890 11 544 2 485 2 802 2 329 912 288 64 295 (13 791) 50 504
Profit/(loss) before taxation 1 971 199 1 544 493 5 (351) 53 3 914 383 4 297
Taxation(3) (803) (44) (209) (138) (67) 47 (41) (1 255) (1 255)
Total earnings 1 168 155 1 335 355 (62) (304) 12 2 659 383 3 042
Reconciliation of total earnings to headline earnings/(loss) attributable
to shareholders
Total earnings/(loss) 1 168 155 1 335 355 (62) (304) 12 2 659 383 3 042
Attributable to non-controlling interests (259) 2 (4) (261) (383) (644)
Remeasurement of disposal groups classified as held for sale 23 226 249 249
Preference share dividend (2) (2) (2)
Headline earnings/(loss) 1 168 155 1 074 355 (37) (78) 8 2 645 2 645
Net income earned on BEE preference shares 8 8 8
Reversal of the accounting mismatch arising on consolidation of L2D (397) (397) (397)
Normalised headline earnings/(loss) 1 168 155 685 355 (37) (78) 8 2 256 2 256
Reconciliation of business unit earnings/(loss) to segment result
South African operations
South African Insurance Operations 1 860 149 2 009
SA Retail 1 581 1 581
Liberty Corporate 52 52
LibFin Markets - credit portfolio 208 94 302
LibFin Markets - asset/liability matching 71 3 74
South African Asset Management
STANLIB South Africa 355 355
Africa regions (37) (78) 8 (107)
Liberty Africa Insurance (37) (37)
Liberty Health (78) (78)
STANLIB Africa 8 8
LibFin Investments - SIP (699) 6 943 250
Central costs and sundry income(4) 7 (258) (251)
Normalised headline earnings/(loss) 1 168 155 685 355 (37) (78) 8 2 256
(1) Includes shareholders' equity, not allocated to the other operating segments, specifically invested to maximise the investment yield within the group's risk appetite and
regulatory requirements and costs associated with the group's governance, investor relations, strategy co-ordination and certain corporate social investment and black economic
empowerment activities.
(2) 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.
(3) 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.
(4) Includes the short-term insurance technology start-up.
The operating segments are supported by LibFin Markets (manages the asset/ liability mismatch risk and also originates and manages credit
assets backing the guaranteed investment product set arising in the South African insurance operations) and LibFin Investments (manages
the performance of shareholder investment exposures in the South African life insurance operations). The impact of LibFin Markets and
LibFin Investments is disclosed in the relevant segment grouping.
The audited segment results for the year ended 31 December 2017 are as follows:
South African operations Africa regions
Insurance Asset
operations management
Liberty
Restated(6) SA Liberty Other STANLIB Africa Liberty STANLIB Reporting IFRS
Rm (Audited) Retail Corporate operations(1) South Africa Insurance Health Africa Total adjustments(2) reported
Total income 68 161 15 676 4 625 2 798 2 420 929 287 94 896 (12 174) 82 722
Profit/(loss) before taxation 2 957 223 2 793 386 121 (134) (123) 6 223 345 6 568
Taxation(3) (1 819) (62) (725) (134) (74) 28 (78) (2 864) (2 864)
Total earnings 1 138 161 2 068 252 47 (106) (201) 3 359 345 3 704
Reconciliation of total earnings to headline earnings/(loss) attributable
to shareholders
Total earnings/(loss) 1 138 161 2 068 252 47 (106) (201) 3 359 345 3 704
Attributable to non-controlling interests (1) (179) (58) (3) (241) (345) (586)
Remeasurement of disposal groups classified as held for sale (2) (2) (2)
Preference share dividend 13 71 52 136 136
Headline earnings/(loss) 1 150 232 1 887 252 (11) (54) (204) 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 1 354 252 (11) (54) (204) 2 719 2 719
Reconciliation of business unit earnings/(loss) to segment result
South African operations
South African Insurance Operations 1 435 220 10 1 665
SA Retail 1 208 1 208
Liberty Corporate 81 81
LibFin Markets - credit portfolio 192 138 330
LibFin Markets - asset/liability matching 35 1 10 46
South African Asset Management
STANLIB South Africa 252 252
Africa regions (11) (54) (204) (269)
Liberty Africa Insurance(4) (11) (11)
Liberty Health (54) (54)
STANLIB Africa (204) (204)
LibFin Investments - SIP (365) 12 1 660 1 307
Central costs and sundry income(5) 80 (316) (236)
Normalised headline earnings/(loss) 1 150 232 1 354 252 (11) (54) (204) 2 719
(1) Includes shareholders' equity, not allocated to the other operating segments, specifically invested to maximise the investment yield within the group's risk appetite and
regulatory requirements and costs associated with the group's governance, investor relations, strategy co-ordination and certain corporate social investment and black economic
empowerment activities.
(2) 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.
(3) 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.
(4) Includes costs associated with central management support. 2017 includes the costs associated with the terminated long-term licence acquisition in Nigeria.
(5) Includes the short-term insurance technology start-up.
(6) Refer to Accounting policies.
GROUP EQUITY VALUE REPORT
for the year ended 31 December 2018
1. Introduction
Liberty presents a group equity value 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 provides 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 Head of Actuarial Function.
The full embedded value report is included in the supplementary information section.
The prudential regulatory regime governing South African assurance companies changed on 1 July 2018. This has necessitated a
change to Liberty's embedded value methodology, in particular:
- The assessment of the net worth and value of in-force covered business has been changed to reference the published liabilities
in order to improve alignment between the embedded value and published reporting bases. This change has led to an increase
in the net worth and a decrease in the value of in-force; and
- The approach used for assessing the cost of required capital has been adjusted to reflect the new solvency regime which has
led to an increase in the cost of required capital.
2.2 Other businesses
STANLIB South Africa Valued using a 10 times (2017: 10 times) multiple of estimated sustainable earnings.
STANLIB Africa Valued using a combination of estimated sales price where available, if held for sale, or a 10 times (2017: 10 times)
multiple of estimated sustainable earnings, adjusted for country risk.
Liberty Health As Liberty Health is under disposal groups held for sale, the IFRS net asset value has been used which
includes remeasurement to fair value, less cost to sell.
Liberty Africa Liberty Africa Insurance is an emerging cluster of both long- and short-term insurance businesses located
Insurance 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 31 December
2018 the combined valuations were approximately equal to 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 (2017: 9 times).
3. Normalised group equity value
3.1 Analysis of normalised group equity value
2018 SA covered Other
Rm (Audited) business businesses Total
Liberty Group Limited consolidated 18 088 18 088
STANLIB South Africa(1) 852 852
STANLIB Africa(1) 84 84
Liberty Africa Insurance 926 926
Liberty Holdings 1 731 1 731
Operations under ownership review(3) 382 382
Liberty Two Degrees adjustment to net asset value(2) 932 8 940
Shareholders' equity reported under IFRS 19 020 3 983 23 003
Reverse deferred acquisition cost and deferred revenue liability (328) (328)
Reverse value of in-force acquired (7) (7)
Frank Financial Services allowance for future expenses (100) (100)
Impact of discounting on deferred tax asset (100) (100)
BEE preference funding 99 99
Liberty Two Degrees adjustment(2) (932) (8) (940)
Allowance for employee share rights (46) (36) (82)
Normalised net worth 17 706 3 839 21 545
Value of in-force - SA Retail 16 054 16 054
Value of in-force - Liberty Corporate 2 965 2 965
Cost of required capital (3 038) (3 038)
Fair value adjustment - STANLIB South Africa(1) 2 948 2 948
Fair value adjustment - STANLIB Africa(1) 200 200
Allowance for future shareholder expenses (1 990) (1 990)
Normalised equity value 33 687 4 997 38 684
(1) STANLIB valuation (Rm) 2018
STANLIB South Africa 3 800
Value at 31 December 2017 4 450
Sale of STANLIB REIT Fund Managers (RF) (Pty) Ltd (307)
Fair value adjustment - 2018 (343)
STANLIB Africa(i) 330
Value at 31 December 2017 150
Fair value adjustment - 2018 180
Total 4 130
(i) This includes R46m in respect of Stanlib Africa which is included in the operations under ownership review line item in the table above.
(2) 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 shares multiplied by the number
of shares 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) Under IFRS these are disclosed as disposal groups classified as held for sale.
2017 SA covered Other
Rm (Audited) business businesses Total
Liberty Group Limited consolidated 18 412 18 412
STANLIB South Africa(2) 795 795
STANLIB Africa(2) 100 100
Liberty Health (including Total Health Trust) 299 299
Liberty Africa Insurance 813 813
Liberty Holdings 1 428 1 428
Liberty Two Degrees adjustment to net asset value(3) 597 597
Shareholders' equity reported under IFRS 18 412 4 032 22 444
Difference between statutory and published valuation methods (7 253) (7 253)
Negative rand reserves (6 806) (6 806)
Deferred acquisition costs (730) (730)
Deferred revenue liability 283 283
Subordinated notes 5 581 5 581
CAR of subsidiaries (10) (10)
Reverse value of in-force acquired (12) (12)
Inadmissible assets (1 018) (1 018)
Statutory excess assets over liabilities(1) 15 700 4 032 19 732
Reverse CAR of subsidiaries 10 10
Reverse subordinated notes (5 581) (5 581)
Reverse inadmissible assets 1 018 1 018
Frank Financial Services allowance for future expenses (100) (100)
Impact of discounting on deferred tax asset (100) (100)
BEE preference funding 123 123
Liberty Two Degrees adjustment(3) (597) (597)
Allowance for employee share rights (36) (36) (72)
Normalised net worth 11 134 3 299 14 433
Value of in-force - SA Retail 22 088 22 088
Value of in-force - Liberty Corporate 3 049 3 049
Cost of required capital (1 690) (1 690)
Fair value adjustment - STANLIB South Africa(2) 3 655 3 655
Fair value adjustment - STANLIB Africa(2) 50 50
Allowance for future shareholder expenses (2 217) (2 217)
Normalised equity value 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) STANLIB valuation (Rm) 2017
STANLIB South Africa 4 450
STANLIB Africa 150
Total 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
2018 2017
SA SA
covered Other covered Other
Rm (Audited) business businesses Total business businesses Total
Normalised equity value at the end of
the period 33 687 4 997 38 684 34 581 4 787 39 368
Equity value at the end of the period 34 520 5 005 39 525 34 458 5 384 39 842
Liberty Two Degrees adjustment(1) (932) (8) (940) (597) (597)
BEE preference shares 99 99 123 123
Net share buy-backs 247 247 350 350
Funding of restricited share plan 80 (80) 92 (92)
Intragroup dividends(2) 2 252 (2 252) 2 600 (2 600)
Dividends paid 1 943 1 943 1 944 1 944
Normalised equity value at the beginning of
the period (34 599) (4 787) (39 386) (34 470) (6 751) (41 221)
Equity value at the beginning of the period (34 458) (5 384) (39 842) (34 322) (6 421) (40 743)
Beginning of year adjustment for
introduction of new prudential regime(3) (139) (139)
IFRS 9 transition adjustment 121 121
Liberty Two Degrees adjustment(1) 597 597 (330) (330)
BEE preference shares (123) (123) (148) (148)
Normalised equity value earnings 1 420 68 1 488 2 803 (2 362) 441
Normalised return on group equity
value (%) 4,1 1,5 3,8 8,2 (36,4) 1,1
Normalised number of shares ('000) 279 025 280 573
Number of shares in issue ('000) 268 418 270 120
Shares held for the employee restricted
share scheme ('000) 4 353 4 014
Adjustment for BEE shares ('000) 6 254 6 439
Normalised group equity value per share
(R) 138,64 140,31
(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 shares multiplied by the number
of shares 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.
In the prior period this adjustment was applied at a Liberty Holdings level. As a result of the transaction between L2D and Liberty Group Limited in 2018 and the
consequential reassessment of control as defined under IFRS this adjustment is now required at a Liberty Group Limited consolidated level.
(2) Dividends paid by Liberty Group Limited to Liberty Holdings Limited.
(3) This adjustment and the consequential impact on the components of the embedded value earnings analysis are explained in section 1 of the South African covered
business embedded value report.
3.3 Sources of normalised group equity value earnings
2018 2017
SA SA
covered Other covered Other
Rm (Audited) business businesses Total business businesses Total
Value of new business written in the period 344 27 371 212 21 233
Expected return on value of
in-force business 2 433 2 433 2 926 2 926
Variances/changes in
operating assumptions 507 507 109 109
Operating experience variances 423 423 330 330
Operating assumption changes 103 103 30 30
Changes in modelling methodology (19) (19) (251) (251)
New operating model - expense impact(1) (372) 372
Development costs (9) (99) (108) (55) (166) (221)
Liberty Holdings shareholder expenses(2) (369) (369) (584) (584)
Headline earnings of other
businesses/intragroup transfers 246 246 46 100 146
Operational equity value profits 2 903 177 3 080 3 238 (629) 2 609
Economic adjustments (1 473) 417 (1 056) (432) (139) (571)
Return on net worth 2 417 419 (14) (139) (153)
Investment variances (1 225) (1 225) (594) (594)
Change in economic assumptions (250) (250) 176 176
Change in fair value adjustments on value of
other businesses(3) (526) (526) (1 585) (1 585)
Change in allowance for share rights (10) (10) (3) (9) (12)
Group equity value earnings 1 420 68 1 488 2 803 (2 362) 441
(1) This is the anticipated impact of reserving for expenses that currently reside in Liberty Holdings Limited that will be transferred to Liberty Group Limited with effect
1 January 2019, in line with the change to the group's operating model which came into effect on the same date.
(2) This includes the actual shareholder expenses incurred by Liberty Holdings of R223 million (31 December 2017: R260 million) plus the change in the allowance for future
shareholder expenses over the period.
(3) The negative R526 million comprises STANLIB South Africa negative R400 million, STANLIB Africa positive R150 million, operations under ownership review
remeasurement of negative R249 million and R27 million Liberty Africa Insurance VONB offset.
3.4 Analysis of value of long-term insurance new business and margins
Rm (unless otherwise stated) (Audited) 2018 2017
South African covered business
SA Retail 1 710 1 445
Traditional Life 1 317 1 159
Direct Channel 82 67
Credit Life 98 83
LibFin Credit uplift to SA Retail 213 136
Liberty Corporate 168 162
Traditional business 132 137
LibFin Credit uplift to Liberty Corporate 36 25
Gross value of new business 1 878 1 607
Overhead acquisition (including underwriting) costs impact on value of new business (1 341) (1 305)
Cost of required capital (193) (90)
Net value of South African covered business 344 212
Present value of future expected premiums 42 417 42 782
Margin (%) 0,8 0,5
Liberty Africa Insurance
Net value of new business 27 21
Present value of future expected premiums 972 528
Margin (%) 2,8 3,9
Total group net value of new business 371 233
Total group margin (%) 0,9 0,5
LONG-TERM INSURANCE NEW BUSINESS
for the year ended 31 December 2018
Rm (Unaudited) 2018 2017
Sources of insurance operations total new business by product type
Retail 26 641 27 132
Single 22 131 22 660
Recurring 4 510 4 472
Institutional 2 377 2 034
Single 1 166 838
Recurring 1 211 1 196
Total new business 29 018 29 166
Single 23 297 23 498
Recurring 5 721 5 668
Insurance indexed new business 8 051 8 018
Sources of insurance indexed new business
SA Retail 6 495 6 570
Liberty Corporate 1 192 1 171
Liberty Africa Insurance(1) 364 277
(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 year ended 31 December 2018
Rm (Audited) 2018 2017
Net premiums by product type
Retail 43 553 43 467
Single 21 836 22 191
Recurring 21 717 21 276
Institutional 11 522 10 673
Single 2 062 1 416
Recurring 9 460 9 257
Net premium income from insurance contracts and inflows from investment contracts 55 075 54 140
Single 23 898 23 607
Recurring 31 177 30 533
Net claims and policyholders benefits by product type
Retail (41 263) (40 436)
Death and disability claims (7 277) (6 567)
Policy surrender and maturity claims (27 579) (27 984)
Annuity payments (6 407) (5 885)
Institutional (11 811) (12 070)
Death and disability claims (2 285) (2 118)
Scheme terminations and member withdrawals (8 726) (9 139)
Annuity payments (800) (813)
Net claims and policyholders benefits (53 074) (52 506)
Long-term insurance net customer cash flows(1) 2 001 1 634
Rm (Unaudited)
Sources of insurance operations net cash flows:
SA Retail 2 065 2 846
Liberty Corporate (449) (1 536)
Liberty Africa Insurance(2) 385 324
(1) This excludes net cash inflows attributed to the off balance sheet GateWay LISP of R524 million (2017: R350 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 31 December 2018
Rbn (Unaudited) 2018 2017
Managed by group business units 682 684
STANLIB South Africa 549 556
STANLIB Africa(2) 51 53
Remaining operations 19 20
Operations under ownership review(4) 32 33
LibFin Markets 65 62
Other internal managers 17 13
Externally managed 36 36
Total assets under management(3) 718 720
(1) Includes funds under administration.
(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 December 2018 amounts:
STANLIB Other
Unit trusts listed (Rbn) managed managed Total
STANLIB 39 78 117
Gateway 4 5 9
(4) Under IFRS these are disclosed as disposal groups classified as held for sale.
ASSET MANAGEMENT NET CASH FLOWS(1)
as at 31 December 2018
Rm (Unaudited) 2018 2017
STANLIB South Africa
Non-money market 9 155 4 815
Retail 6 146 8 249
Institutional 3 009 (3 434)
Money market 6994 (84)
Retail (48) (1 400)
Institutional 7 042 1 316
Net South Africa cash inflows 16 149 4 731
STANLIB Africa
Non-money market (7 696) (1 156)
Retail 19 738
Institutional (7 715) (1 894)
Money market (868) 676
Net Africa cash outflows (8 564) (480)
Net cash inflows from asset management 7 585 4 251
(1) Cash flows exclude intergroup segregated life funds mandates.
SHORT-TERM INSURANCE INDICATORS
for the year ended 31 December 2018
Rm (Audited) 2018 2017
Net premiums 1 347 1 297
Liberty Health - medical risk 808 777
Liberty Africa Insurance - motor, property, medical and other 539 520
Net claims (943) (886)
Liberty Health - medical risk (650) (637)
Liberty Africa Insurance - motor, property, medical and other (293) (249)
Net cash inflows from short-term insurance 404 411
Unaudited
Claims loss ratio (%)
Liberty Health 80 82
Liberty Africa Insurance 54 48
Combined loss ratio (%)
Liberty Health 117 102
Liberty Africa Insurance 108 99
CAPITAL COMMITMENTS
as at 31 December 2018
Rm (Audited) 2018 2017
Equipment 543 741
Investment and owner-occupied property 1 497 1 432
Committed capital(1) 1 337 1 071
Total capital commitments 3 377 3 244
Under contracts 808 430
Authorised by the directors but not contracted 2 569 2 814
(1) Liberty has committed capital to certain infrastructure and development funds through consolidated mutual fund subsidiaries. The committed funds are drawn down
when required.
The above 2018 capital commitments will be financed by available bank facilities, existing cash resources, internally generated funds and
R482 million (2017: R452 million) from non-controlling interests in respect of investment properties.
RETIREMENT BENEFIT OBLIGATIONS
as at 31 December 2018
Audited
Post-retirement medical benefit
The group operates an unfunded post-retirement medical aid benefit for permanent employees who joined the group prior to
1 February 1999 and agency staff who joined prior to 1 March 2005. As at 31 December 2018, the Liberty post-retirement medical aid
benefit liability was R471 million (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 year ended 31 December 2018
Audited
Standard Bank Group Limited and any subsidiary (excluding Liberty) is referred to as Standard Bank in the context of this section.
The following selected significant related party transactions have occurred in the 31 December 2018 financial period:
1. Summary of related party transactions with Standard Bank
1.1 Summary of movement in investment in ordinary shares held by the group in the group's holding company is as follows:
Number Fair value Ownership
'000 Rm %
Standard Bank Group Limited
Balance at 1 January 2018 16 180 3 166 1,02
Purchases 12 301 2 445
Sales (7 863) (1 491)
Fair value adjustments (433)
Balance at 31 December 2018 20 618 3 687 1,29
1.2 Bancassurance
Liberty has extended the bancassurance business
agreements with Standard Bank group for the manufacture,
sale and promotion of insurance, investment and health
products through the Standard Bank's African distribution
capability. New business premium income in respect of
this business in 2018 amounted to R8 895 million (2017:
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 year to 31 December 2018 is R1 266 million
(2017: 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.
1.4 Business operations contracted sale to Standard Bank
As released on the JSE SENS on 27 February 2019, Liberty Holdings
Limited has entered into a sale and purchase agreement
with the Standard Bank of South Africa to dispose of 100%
of the technology that supports and enables its short-term
insurance business, which is operated as a division of
Liberty Holdings Limited, including all moveable assets
used and intellectual property. The purchase consideration
is R145 million, which will realise a profit on sale of
R51 million to be recognised in 2019. The transaction
enables the Liberty group to continue to provide
short-term products to its customers, while reducing
future capital requirements, and to focus on the objective
of its strategy refresh being to concentrate on long-term
insurance and asset management businesses.
2. Other related party transaction - Liberty
Two Degrees (L2D)
Effective 6 November 2018, Liberty sold a 100% owned
subsidiary in STANLIB REIT Fund Managers (RF) (Pty) Ltd
(an asset manager company) to L2D for R307 million.
In addition, Liberty Group Limited disposed of a R1,2 billion
share in its property portfolio to L2D. The existing put
option that Liberty Group Limited previously had, which
allowed it to sell further portions of its undivided shares in
existing properties to L2D, was cancelled for no value.
DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE
as at 31 December 2018
Audited
As part of the strategy refresh exercise conducted during 2018, various cash-generating units were identified as either sub scale or no longer
applicable to Liberty's revised strategy. Consequently the board approved a process of disposals and strategic partnership negotiations
which is likely to lead to loss of control of these cash-generating units during 2019.
The cash-generating units impacted are asset mangement operations in Ghana, Uganda, Kenya and Botswana, Health risk solutions, the
short-term insurance technology start up and short-term insurance in Malawi and Namibia.
These entities were included in the consolidated financial statements of Liberty Holdings Limited in 2017.
Based on the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities have been
disclosed as disposal groups, and are separately disclosed on the statement of financial position. The disposal groups are measured at the
lower of carrying amount and fair value less costs to sell, which lead to various impairments, as set out below.
The classes of assets and liabilities comprising the disposal groups classified as held for sale are as follows:
2018
Rm Gross Impairment Net
Total assets classified as held for sale 1 146 (249) 897
Intangibles assets 183 (85) 98
Properties 17 (2) 15
Equipment 24 (16) 8
Deferred taxation 118 (118)
Reinsurance assets - short-term insurance 18 (7) 11
Financial investments 71 71
Prepayments, insurance and other receivables 497 (21) 476
Cash and cash equivalents 218 218
Total liabilities classified as held for sale 278 278
Short-term insurance liabilities 116 116
Employee benefits 40 40
Insurance and other payables 116 116
Current taxation 6 6
Net assets of disposal groups held for sale 868 (249) 619
The potential sales are not discontinued operations as defined as they are not disposals of separate major lines of business or geographical
areas of operation. Profit or loss from cash-generating units within disposal groups have not been separately identified in the income
statement.
OFFSETTING, ENFORCEABLE MASTER NETTING
ARRANGEMENTS OR SIMILAR AGREEMENTS
as at 31 December 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 (Audited) Total agreements agreements collateral(1) Net
2018
Assets
Assets held for trading and for hedging 10 340 (1 496) 8 844 (8 008) 836
Total assets 10 340 (1 496) 8 844 (8 008) 836
Liabilities
Liabilities held for trading and for hedging 8 457 (133) 8 324 (8 008) 316
Repurchase agreements liabilities 5 771 5 771 (5 680) 91
Collateral deposits payable 5 976 5 976 (5 976)
Total liabilities 20 204 (133) 20 071 (19 664) 407
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 31 December 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
Rm (Audited) cost adjustment profit 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 31 December 2018
Fair value through profit or loss
Total per
Held for Other statement
trading and Desig- Total fair Amortised measurement of financial
Rm (Audited) hedging nated Default FVOCI value cost basis position
Financial assets
Interests in joint ventures 1 297 1 297 56 1 353
Interests in associates 13 824 13 824 10 13 834
Financial investments 2 486 308 339 16 803 327 628 327 628
Loan receivables 737 737 340 1 077
Assets held for hedging
and for trading 10 340 10 340 10 340
Repurchase agreements,
scrip and collateral assets 12 658 12 658 12 658
Prepayments, insurance
and other receivables 3 037 3 037 664 1 252 4 953
Cash and cash equivalents 10 024 10 024 6 950 16 974
Total 10 340 2 486 349 916 16 803 379 545 7 954 1 318 388 817
Financial liabilities
Financial liabilities under
investment contracts 99 813 99 813 99 813
Third-party financial
liabilities arising on
consolidation of
mutual funds 48 186 48 186 48 186
Financial liabilities 6 478 6 478 1 626 8 104
Liabilities held for trading
and for hedging 8 457 8 457 8 457
Repurchase agreements
liabilities and collateral
deposits payable 11 747 11 747 11 747
Insurance and other
payables 4 628 4 628 708 6 635 11 971
Total 8 457 170 852 179 309 2 334 6 635 188 278
The table above reflects the classification of the group's financial assets and financial liabilities as at 31 December 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
A subsidiary of
Bank of America Corporation
Date: 28/02/2019 07:10:00 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.