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Liberty Holdings

Deliver sustainable financial results

Liberty is committed to creating sustainable economic value to enable its long term vision. Our shareholders entrust us with their capital and expect competitive returns and capital appreciation on their investment. Maximising shareholder value is key to our sustainability.

Communicating with investors

Investors often perceive the insurance business as complicated, with complex terminology and metrics.
We therefore communicate Liberty’s insurance business model by explaining our differentiated capabilities and strategy. Refer to our integrated report for more information. Providing a detailed analysis of our financial results enables investors and analysts to compare us with our competitors on a like-for-like basis.

Consistent and effective engagement with shareholders and potential investors to align their expectations with our strategy and targets, helps ensure that our share price fairly reflects our value creation opportunity. Investors and potential investors require regular interaction and information to assist in achieving their investment goals.

We deliver this interaction and information through dedicated investor relations services, a well-directed and comprehensive plan complemented by accessible channels of enquiry and timely responses.

Direct economic value created

The group remained resilient during the year, as evidenced by the stronger capital position of the group’s main long-term insurance licence, Liberty Group Limited, with a capital adequacy ratio at 2,92 times the regulatory minimum compared to 2,82 at 30 June 2017. This remains at the upper end of our target range at 31 December 2017 despite the impact of downgrades of the South African sovereign credit rating during the year.

The SA covered business embedded value was preserved, maintaining embedded value earnings of R2,8 billion compared to the prior year and generating a return of 8,2%. The value of new business (VoNB) and new business margin however ended the year below expectation. Actions are being taken to restore the new business margin. The economic environment favoured flows into guaranteed products, which manifested in a weaker mix of business from a margin perspective. The improvement in VoNB in the second half of 2017, despite lower volumes, shows signs that the focused initiatives commenced in the second quarter 2017 are starting to deliver the desired outcome.

Group equity value of R39,4 billion reduced during the period. Group equity value per share was lower at R140,31 (31 December 2016: R145,86). The lower group equity value per share was attributable to weaker earnings from the group’s non-covered businesses particularly within the STANLIB businesses and the resultant capitalisation impact of reduced earnings. Group net customer cash inflows, including the Gateway LISP, were positive at R6,5 billion despite the poor economic backdrop. Long-term insurance net customer cash inflows of R1,6 billion reflected an improvement on the prior year inflows of R1,1 billion, supported by lower policy withdrawals and maturities in Individual Arrangements.

Long-term insurance indexed new business sales grew marginally to R8 billion. Competitive retail market pricing and the tough economic environment continued to place significant pressure on retail sales volumes, partially offset by growth in Liberty Corporate recurring premiums during the year. Total group assets under management increased to R720 billion (31 December 2016: R676 billion).

Normalised headline earnings for the year ended 31 December 2017 of R2 719 million were 8% up on 2016, supported by a higher contribution of R1 307 million (31 December 2016: R787 million) from the shareholder investment portfolio (SIP). Normalised operating earnings however were 19% down on the prior year.
The improved earnings contribution from Individual Arrangements was offset by the lower underwriting result from Liberty Corporate. STANLIB SA’s earnings continued to be impacted by margin pressure due to a less favourable sales mix and operational write-offs. STANLIB Rest of Africa earnings were impacted by operational losses. Normalised return on equity was 12,3% (31 December 2016: 11,4%).

Headline earnings for 2017 amounted to R3 252 million, up 47% compared to R2 207 million in 2016. Liberty’s headline earnings include the positive earnings impact of R543 million arising from the accounting mismatch on the consolidation of the Liberty Two Degrees listed REIT. The group declared an interim dividend of 276 cents and final ordinary dividend of 415 cents total 691 cents per ordinary share, which is unchanged from the 2016 total dividend. The ordinary dividend is in line with the group’s dividend policy and totalled R850 million paid to shareholders.


Indirect economic value created

In the year in review, we distributed the following value:
  • The group operates a number of retirement and post-retirement medical schemes for the benefit of employees. For more information on these schemes, please refer to note 23 of the annual financial statements.
  • Liberty is committed to supporting infrastructure investments in South Africa and the rest of Africa, including power generation and energy sector projects with the aim of supporting the growth and development of these areas for sustainable economic growth. To date, we have invested R3,8 billion in renewable energy projects, as well as R6,3 billion in infrastructure projects.
  • Preferential procurement aims to ensure that black businesses in South Africa have access to markets to grow into sustainable businesses. In 2017, Liberty spent R7,2 billion (2016: R17,3 billion) on the external procurement of goods and services. This purchasing power is significant and through our clear preferential procurement policy, which stipulates application criteria, we strive to meet our goal of extending spending benefits to eligible black communities. During 2017, we enhanced our supplier list with a deliberate focus on black-owned suppliers.
  • We believe our investment in enterprise and supplier development will serve to strengthen and empower Liberty-nominated suppliers, enabling them to meet our procurement requirements.
  • The financial services sector as a whole remains vulnerable to fraud and corruption, the likelihood of which increases during difficult financial times. We are mindful of these risks and use various mechanisms to prevent, detect, investigate, and remediate instances of fraud, corruption, and misconduct.
  • We actively identify and repudiate false claims before they are paid out, recognising fraudulent policy applications at the onset and recovering fraudulent payments. By tracking suspicious cases, we have reduced fraud losses significantly in comparison to last year by minimising the pay outs of fraudulent claims. During 2017, we achieved group-wide fraud savings of R152,2 million (2016: R69,4 million).
  • Liberty remains committed to understanding and addressing the impacts of climate change, from operational, social and financial perspectives.


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