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Liberty – an Authorised Financial Services Provider In terms of the FAIS Act (Licence No. 2409).
Liberty Holdings Limited
For the year ended 31 December 2018Financial results presentation
Liberty Holdings Limited Financial results for the year ended 31 December 2018 1
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Strategic updateDavid Munro, Chief Executive
Liberty Holdings LimitedFinancial results presentation for the year ended 31 December 2018
2
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Supporting our clients in their life journeys
3
Good progress made in delivering Liberty’s turnaround strategy
Improving people’s lives by making their financial freedom possible
SEE = Social, economic and environmental
We measure our progress using five strategic value drivers
Transforming Liberty to be the trusted leader in South Africa and chosen markets by delivering superior value through exceptional client and adviser experiences
Group purpose
Group vision
Clientand Adviserexperience
Employeeengagement
Risk andconduct
Financialoutcome+ + =
SEEimpact
In executing our Group strategy our key focus areas are
Client & Adviser experience
Deliver an exceptional client and financial adviser experience
Digitisation via digital platforms
Standard Bank Group
Integral part of the Standard Bank Group
Liberty Holdings Limited Financial results for the year ended 31 December 2018 3
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Strategic delivery in 2018, continued
3 Optimise our growth initiatives
Liberty Corporate strategic direction confirmed
L2D converted to a corporate REIT
Negotiations underway to sell majority stake in Liberty Health
Sold Short-term Insurance technology platform to SBSA
Actively pursuing disposal options or strategic partnerships
for STANLIB operations in East and West Africa
Liberty Africa Insurance undergoing a strategic review
4 Leverage further opportunitieswith the Standard Bank group
Continue to prioritise collaboration for business growth,and leverage joint capabilities for the group
Bancassurance
Assurance Banking
Collaboration across Africa
5
Strategic delivery in 2018
1 Restore the performance of the SA Retail business 2 Improved investment performance in
STANLIB South Africa
Enhanced customer and adviser self service capabilities
Adviser experience and productivity
Product enhancements
Margin management
Organisational redesign
Appointment of Head of Investments (HOI)
Restructured equity and multi-asset capabilities
Improved risk and performance analytics
Strengthening the quality of oversight
Simplified uncompetitive product set
EARNINGS R1 581 million 31%VALUE OF NEW BUSINESS R271 million 75%
EARNINGS R355 million 41%EQUITY AND BALANCED CORE RETAIL FUNDS
FIRST QUARTILE1 year return
4
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Group financial highlights
Significant progress across key metrics
NORMALISED OPERATING EARNINGS
R2 006 million 42%(Dec 2017: R1 412 million)
EMBEDDED VALUE OF NEW BUSINESS
R371 million 59%(Dec 2017: R233 million)
NEW BUSINESS MARGIN
0.9% 40 bps(Dec 2017: 0.5%)
THIRD PARTY CASH FLOWS
R10 168 million 56%(Dec 2017: R6 503 million)
CAPITAL COVERAGE RATIO
LIBERTY GROUP LIMITED
1.87 times covered
FULL YEAR DISTRIBUTION PER SHARE
691 cents
Review of the financial results for 2018Yuresh Maharaj, Group Financial Director
Liberty Holdings Limited Financial results for the year ended 31 December 2018 5
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155
27157
73
21
27
2017 2018SA Retail Liberty Corporate Liberty Africa Insurance
Group value of new business
• Group value of new business improvement of 59% driven by:
› Product enhancement and margin initiatives
› Disciplined cost management
› Improved single premium sales in Liberty Corporate and Liberty Africa Insurance
Value of new business key drivers (Rm) Dec 2018
December 2017 233
Margin initiatives, volumes and expenses 90
Modelling, assumption and basis changes 48
Value of new business for the year 371
Value of new business margin (%) 0.9
Value of new business contribution (Rm)
+
+
371
233
9
Contribution to normalised headline earnings
1. Comprises – Liberty Africa Insurance and STANLIB Africa within Southern African region
Normalised headline earnings Rm Dec 18 Dec 17 % ∆
South African Insurance Operations 2 009 1 665 21SA Retail (previously Individual Arrangements) 1 581 1 208 31Liberty Corporate 52 81 (36)LibFin Markets 376 376 -
South African Asset Management – STANLIB 355 252 41Africa regions¹ 8 7 14Operations under ownership review (166) (322) 48
Liberty Africa Insurance (18) 4 (>100)STANLIB Africa (19) (226) 92Liberty Health (78) (54) (44)Short-term insurance (51) (46) (11)
Central costs and sundry income (200) (190) (5)Normalised operating earnings 2 006 1 412 42LibFin Investments - SIP 250 1 307 (81)Normalised headline earnings 2 256 2 719 (17)
+ Positive experience variances, stringent cost management and positive basis changes
+ Strong third party net cash flows
+ Negotiations underway
- Lower market returns
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582
477
330
423
2015 2016 2017 2018
Consistently managed to better than model
SA insurance operations embedded value
• Consistent positive experience variances driven by:
› Positive mortality and morbidity variances› Continued emergence of positive credit portfolio variances
Positive operating experience variances (Rm)
1.86
1.35
0.96
1.22
2015 2016 2017 2018
Contribution to return on embedded value from positive operating experience variances (%)
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Insurance key indicators
Signs of improvement with better second half performance
Insurance indexed new business (Rm) 2H18 1H18 Dec 18 Dec 17 % ∆
South African Insurance operations 4 060 3 627 7 687 7 741 (0.7)SA Retail (previously Individual Arrangements) 3 384 3 111 6 495 6 570 (1.1)Liberty Corporate 676 516 1 192 1 171 1.8
Liberty Africa Insurance 218 146 364 277 31.4Total insurance indexed new business 4 278 3 773 8 051 8 018 0.4
Insurance net customer cash flows (Rm) 2H18 1H18 Dec 18 Dec 17 % ∆
South African Insurance operations 1 555 61 1 616 1 310 23.3SA Retail (previously Individual Arrangements) 1 315 750 2 065 2 846 (27.4)Liberty Corporate 240 (689) (449) (1 536) 70.8
Liberty Africa Insurance 184 201 385 324 18.8Total insurance net customer cash flows 1 739 262 2 001 1 634 22.5
Liberty Holdings Limited Financial results for the year ended 31 December 2018 7
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STANLIB South Africa
Investment performance reflecting early signs of improvement
Additional resources added to the teamwith significant industry experience, startingto bear fruit
Improved investment oversight and governance processes
Good start to restore investment track record
Net cash inflows (Rm) Dec 2018 Dec 2017
Retail and Institutional 16 149 4 731
Non-money market 9 155 4 815
Money market 6 994 (84)
Core retail funds - quartile performance
2018 2017 2016
Fund name 1 year 3 years 1 year 3 years 1 year 3 years
STANLIB Equity Fund
STANLIB Balanced
1 2 4
1
3 3 3
3 3 4 4 4
13
Normalised group equity value earnings
Operational equity value profits increased 18%, driven by management actions
Expected return on VIF
Value of newbusiness
Experience variances
and assumptionchanges
Headline earningsof other
business units
Developmentcosts
1 year replacement
of shareholderexpenses
Investment variances, economic
and fair valueadjustments
Change in share option
allowance
Group Equity Value earnings
Influenced byinvestment market returns
Influenced by management action
2 433
1 488
371
507246
(108)
(369)
(1 582) (10)
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16* 2017 comparative not applicable due to the new prudential regulatory regime effective 1 July 2018
Measure of progress
Value ofnew business margin
0.9%Dec 2017: 0.5%
Robust capitalat upper end of range
1.87 timesDec 2017: *
Return on Group Equity Value
3.8%Dec 2017: 1.1%
Returnon equity
10.1%Dec 2017: 12.3%
1 2 3 4
1% - 1.5% target range 1.5 - 2.0x target range RoGEV >12% 15 - 18% target range
+ Stringent cost management
+ Product and margin initiatives
+ Improved sales volume in second half 2018
+ Robust balance sheet + Improved variances and basis changes +
Improved earnings from SA Retail and STANLIB South Africa
+ Strong risk management capability
+ Dividend maintained
+ Stringent cost management
- Low investment market returns
+ Improving value of new business
- Investment variances, economic basis changes
- Low investment market returns
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Capital position at upper end of target range
Capital position
S&P Ratings
• Robust balance sheet
• Strong capital and risk management capability
Rm (unless stated otherwise) Liberty Group Limited
Regulatory capital
Available Solvency Capital 32 586
Solvency Capital Requirement 17 400
Surplus above solvency requirement 15 186
Capital ratio at year end (times covered) 1.87
S&P Ratings Feb 2019
Long Term Counter-party Rating zaAAA
Subordinated Debt Rating zaAA-
Liberty Holdings Limited Financial results for the year ended 31 December 2018 9
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In conclusion
• Strategy and priorities are clear:
› Exceptional client and adviser experiences
› Advanced digital capabilities
› Simplification
› Motivated workforce
• Business focus remains:
› SA Retail
› STANLIB South Africa
› Growth initiatives
› Standard Bank Group
ConclusionDavid Munro, Chief Executive
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Liberty Holdings Limited
For the year ended 31 December 2018Financial results
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HIGHLIGHTS
NORMALISED OPERATING EARNINGS
R2,0 billion42%
EMBEDDED VALUE OF NEW BUSINESS
R371 million59%
OPERATIONAL GROUP EQUITY VALUE PROFITS
R3,1 billion18%
LIBERTY GROUP LIMITEDSCR COVER
1,87 times
LONG-TERM INSURANCE NET CUSTOMER CASH INFLOWS
R2,0 billion22%
STANLIB SOUTH AFRICA NETCUSTOMER CASH INFLOWS
R16,2 billion>100%
CONTENTS Page
Financial performance indicators 13
Financial review 14
Accounting policies 18
Auditor statement 19
Directors' responsibility 19
Explanation of terms 20
Consolidated statement of financial position 21
Consolidated statement of comprehensive income 22
Summary consolidated statement of changes in equity 23
Summary consolidated statement of cash flows 24
Headline earnings and earnings per share 25
Summary consolidated segment information 26
Group equity value report 30
Long-term insurance new business 36
Long-term insurance net customer cash flows 37
Assets under management 38
Asset management net cash flows 38
Short-term insurance indicators 39
Capital commitments 39
Retirement benefit obligations 40
Related parties 40
Disposal groups classified as held for sale 41
Offsetting, enforceable master netting arrangements or similar agreements 42Accounting classifications of financial instruments under IFRS 9 43
Liberty Holdings Limited Financial results for the year ended 31 December 2018 13
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FINANCIAL PERFORMANCE INDICATORSfor 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 >100Distributions 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 0,4Embedded value of new business 371 233 59,2New business margin (%) 0,9 0,5 Net customer cash inflows 2 001 1 634 22,5Solvency 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 >100Retail and institutional net cash inflows excluding money market(3) 9 155 4 815 90,1Money 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).
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Good progress made in delivering Liberty’s turnaround strategy
HighlightsIn 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 performanceNormalised 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%.
FINANCIAL REVIEWfor the year ended 31 December 2018
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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 15
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FINANCIAL REVIEW (CONTINUED)for the year ended 31 December 2018
Earnings by business unit
Rm (Unaudited) 2018 2017%
change
South African operations South African Insurance Operations 2 009 1 665 20,7SA Retail 1 581 1 208 30,9Liberty Corporate 52 81 (35,8)LibFin Markets – credit portfolio 302 330 (8,5)LibFin Markets – asset/liability matching portfolio 74 46 60,9South African Asset Management STANLIB South Africa 355 252 40,9Africa regions 8 7 14,3Liberty Africa Insurance (19) 41 (>100)STANLIB Africa 27 22 22,7Business development support(1) ( 56) 100Operations under ownership review(2) (166) (322) 48,4Central costs and sundry income (200) (190) (5,3)Normalised operating earnings 2 006 1 412 42,1LibFin Investments – SIP 250 1 307 (80,9)Normalised headline earnings 2 256 2 719 (17,0)BEE preference share adjustment (8) (10) 20,0Reversal 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 OperationsSouth 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 RetailHeadline 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 CorporateEarnings 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.
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FINANCIAL REVIEW (CONTINUED)for the year ended 31 December 2018
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 ManagementSTANLIB South AfricaSTANLIB 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 reviewAs 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.
BancassuranceThe 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 coverThe 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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 17
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FINANCIAL REVIEW (CONTINUED)for the year ended 31 December 2018
Dividends2018 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 the JSE
Tuesday, 2 April 2019
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.
ProspectsIn 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 MareeChief Executive Chairman
28 February 2019
Liberty Holdings Limited Incorporated in the Republic of South Africa (Registration number: 1968/002095/06)JSE code: LBHISIN code: ZAE000012714Preference share code: LBHPISIN code: ZAE000004040Telephone +27 11 408 3911
These results are available at www.libertyholdings.co.za
Transfer Secretaries
Computershare Investor Services Proprietary Limited(Registration number 2004/003647/07)Rosebank Towers, 15 Biermann Avenue, RosebankJohannesburg 2196Tel: +27 (11) 370 5000
Sponsor
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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.
ACCOUNTING POLICIES
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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 19
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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.
AUDITOR STATEMENT
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Development costsRepresents project costs incurred on developing or enhancing future revenue opportunities.
FCTRForeign Currency Translation Reserve.
FVOCIFair value through other comprehensive income
FVPLFair value through profit or loss
“Liberty” or “group”Represents the collective of Liberty Holdings Limited and its subsidiaries.
Long-term insurance operations – Indexed new businessThis 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 ratioThis 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 valueThese 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:
Rm
Group equity value
TotalIFRS net asset
value
SIP equity value
adjustment
Opening adjustment at 1 January 2018 597 340 257IFRS profit or loss 397 397 Group equity value earnings 207 207Transaction between owners (260) (214) (46) Share issue costs (1) (1) Closing adjustment at 31 December 2018 940 522 418
EXPLANATION OF TERMS
Liberty Holdings Limited Financial results for the year ended 31 December 2018 21
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Rm (Audited) 2018 2017
Assets Intangible assets 572 231Defined benefit pension fund employer surplus 140 171Properties 35 961 34 768Equipment 1 038 1 128Interests in joint ventures 1 353 1 244Interests in associates 13 834 15 197Deferred taxation 245 336Deferred acquisition costs 777 737Long-term policyholder assets – insurance contracts 6 708 7 484Reinsurance assets 2 119 1 774Long-term insurance 1 699 1 481Short-term insurance 420 293Financial investments 328 365 338 534Loans and receivables 340 1 222Assets held for trading and for hedging 10 340 7 871Repurchase agreements, scrip and collateral assets 12 658 11 900Prepayments, insurance and other receivables 4 953 6 361Cash and cash equivalents 16 974 15 169Disposal group assets classified as held for sale 897 Total assets 437 274 444 127Liabilities Long-term policyholder liabilities 310 994 322 918Insurance contracts 200 744 210 554Investment contracts with discretionary participation features 10 437 11 845Financial liabilities under investment contracts 99 813 100 519Reinsurance liabilities 283 663Third-party financial liabilities arising on consolidation of mutual funds 48 186 49 713Provisions 145 76Deferred taxation 2 694 3 386Deferred revenue 314 291Deemed disposal taxation liability 436Short-term insurance liabilities 984 780Financial liabilities 8 104 5 581Liabilities held for trading and for hedging 8 457 6 311Repurchase agreements, liabilities and collateral deposits payable 11 747 9 097Employee benefits 1 377 1 446Insurance and other payables 11 971 11 995Current taxation 347 1 043Disposal group liabilities classified as held for sale 278 Total liabilities 405 881 413 736Equity Ordinary shareholders’ equity 23 003 22 444Share capital 26 26Share premium 5 104 5 157Retained surplus 18 661 18 163Other reserves (788) (902)Non-controlling interests 8 390 7 947Total equity 31 393 30 391Total equity and liabilities 437 274 444 127
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 31 December 2018
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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.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 23
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Rm (Audited) 2018 2017
Balance of ordinary shareholders’ equity at 1 January 22 444 21 676IFRS 9 transition adjustment (121) Ordinary dividends (1 941) (1 942)Total comprehensive income 2 680 2 932Cash flow hedge recycled through profit and loss on early settlement 12 Share buy-back(1) (247) (350)Black economic empowerment transaction 33 32Share-based payments 94 99Preference dividends (2) (2)Share issue costs in subsidiary (1) Transactions between owners 52 (1)Ordinary shareholders’ equity 23 003 22 444Balance of non-controlling interests at 1 January 7 947 7 330Total comprehensive income 731 539Acquisition of unincorporated property partnerships 87Unincorporated property partnerships net distributions (222) (238)Non-controlling interests' share of subsidiary distributions (314) (133)Non-controlling interests' share of shares issued in subsidiary 2Share issue costs in subsidiary (1) Transactions between owners 249 360Non-controlling interests 8 390 7 947Total 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 CHANGES IN EQUITYfor the year ended 31 December 2018
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Rm (Audited) 2018Restated
2017(1)
Cash flows from operating activities (379) 1 829Cash utilised by operations (9 805) (6 953)Interest and dividends received(2) 1 516 18 841Distributions 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 128Net 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 980Net proceeds on/(repayment of) repurchase agreements liabilities 730 (2 393)Net cash flows from equity transactions with non-controlling interests 377 483Share issue cost in subsidiary (2) Share buy-back (247) (350)
Net increase in cash and cash equivalents 1 894 260Cash and cash equivalents at the beginning of the year 15 169 14 994Foreign 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 movement on investments for 2018 is R5 200 million related to dividends received and R11 003 million related to interest income.
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 25
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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 118Preference share dividend (2) (2)Basic earnings attributable to ordinary shareholders 2 396 3 116Remeasurement of disposal groups classified as held for sale 249 Impairment of intangible assets 164Tax on headline earnings adjustable item (28)Headline earnings attributable to ordinary shareholders 2 645 3 252Net income earned on BEE preference shares 8 10Reversal of the accounting mismatch arising on consolidation of L2D(1) (397) (543)Normalised headline earnings attributable to ordinary shareholders 2 256 2 719Weighted average number of shares in issue (‘000) 269 496 270 348Normalised weighted average number of shares in issue ('000) 275 842 276 847Fully diluted weighted average number of shares in issue (‘000) 277 407 278 030Earnings per share Cents CentsTotal earnings attributable to ordinary shareholders Basic 889,1 1 152,6Headline 981,5 1 202,9Normalised headline 817,9 982,1Fully diluted earnings attributable to ordinary shareholders Basic 863,7 1 120,7Headline 953,5 1 169,7(1) Refer to Explanation of terms.
HEADLINE EARNINGS AND EARNINGS PER SHAREfor the year ended 31 December 2018
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SUMMARY CONSOLIDATED SEGMENT INFORMATIONfor 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
operations Asset
management
Rm (Audited) SA
RetailLiberty
CorporateOther
operations(1) STANLIB
South Africa
Liberty Africa
InsuranceLiberty Health
STANLIB Africa Total
Reporting adjustments(2)
IFRS reported
Total income 43 890 11 544 2 530 2 802 2 329 912 288 64 295 (13 791) 50 504Profit/(loss) before taxation 1 971 199 1 544 493 5 (351) 53 3 914 383 4 297Taxation(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 042Reconciliation 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 042Attributable to non-controlling interests (259) 2 (4) (261) (383) (644)Remeasurement of disposal groups classified as held for sale 23 226 249 249Preference share dividend (2) (2) (2)Headline earnings/(loss) 1 168 155 1 074 355 (37) (78) 8 2 645 2 645Net income earned on BEE preference shares 8 8 8Reversal 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 256Reconciliation 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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 27
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SUMMARY CONSOLIDATED SEGMENT INFORMATION(CONTINUED)
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
operations Asset
management
Rm (Audited) SA
RetailLiberty
CorporateOther
operations(1) STANLIB
South Africa
Liberty Africa
InsuranceLiberty Health
STANLIB Africa Total
Reporting adjustments(2)
IFRS reported
Total income 43 890 11 544 2 530 2 802 2 329 912 288 64 295 (13 791) 50 504Profit/(loss) before taxation 1 971 199 1 544 493 5 (351) 53 3 914 383 4 297Taxation(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 042Reconciliation 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 042Attributable to non-controlling interests (259) 2 (4) (261) (383) (644)Remeasurement of disposal groups classified as held for sale 23 226 249 249Preference share dividend (2) (2) (2)Headline earnings/(loss) 1 168 155 1 074 355 (37) (78) 8 2 645 2 645Net income earned on BEE preference shares 8 8 8Reversal 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 256Reconciliation 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.
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The audited segment results for the year ended 31 December 2017 are as follows:
South African operations Africa regions
Insurance
operations Asset
management
Restated(6)
Rm (Audited) SA
RetailLiberty
CorporateOther
operations(1) STANLIB
South Africa
Liberty Africa
InsuranceLiberty Health
STANLIB Africa Total
Reporting adjustments(2)
IFRS reported
Total income 68 161 15 676 4 625 2 798 2 420 929 287 94 896 (12 174) 82 722Profit/(loss) before taxation 2 957 223 2 793 386 121 (134) (123) 6 223 345 6 568Taxation(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 704Reconciliation 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 704Attributable 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 136Headline earnings/(loss) 1 150 232 1 887 252 (11) (54) (204) 3 252 3 252Net income earned on BEE preference shares 10 10 10Reversal 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 719Reconciliation 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.
SUMMARY CONSOLIDATED SEGMENT INFORMATION (CONTINUED)
for the year ended 31 December 2018
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The audited segment results for the year ended 31 December 2017 are as follows:
South African operations Africa regions
Insurance
operations Asset
management
Restated(6)
Rm (Audited) SA
RetailLiberty
CorporateOther
operations(1) STANLIB
South Africa
Liberty Africa
InsuranceLiberty Health
STANLIB Africa Total
Reporting adjustments(2)
IFRS reported
Total income 68 161 15 676 4 625 2 798 2 420 929 287 94 896 (12 174) 82 722Profit/(loss) before taxation 2 957 223 2 793 386 121 (134) (123) 6 223 345 6 568Taxation(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 704Reconciliation 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 704Attributable 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 136Headline earnings/(loss) 1 150 232 1 887 252 (11) (54) (204) 3 252 3 252Net income earned on BEE preference shares 10 10 10Reversal 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 719Reconciliation 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.
SUMMARY CONSOLIDATED SEGMENT INFORMATION(CONTINUED)
for the year ended 31 December 2018
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1. IntroductionLiberty 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 usedGroup 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 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 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).
GROUP EQUITY VALUE REPORTfor the year ended 31 December 2018
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GROUP EQUITY VALUE REPORT (CONTINUED)
for the year ended 31 December 2018
3. Normalised group equity value 3.1 Analysis of normalised group equity value
2018Rm (Audited)
SA covered business
Other businesses Total
Liberty Group Limited consolidated 18 088 18 088STANLIB South Africa(1) 852 852STANLIB Africa(1) 84 84Liberty Africa Insurance 926 926Liberty Holdings 1 731 1 731Operations under ownership review(3) 382 382Liberty Two Degrees adjustment to net asset value(2) 932 8 940Shareholders’ equity reported under IFRS 19 020 3 983 23 003Reverse 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 99Liberty Two Degrees adjustment(2) (932) (8) (940)Allowance for employee share rights (46) (36) (82)Normalised net worth 17 706 3 839 21 545Value of in-force – SA Retail 16 054 16 054Value of in-force – Liberty Corporate 2 965 2 965Cost of required capital (3 038) (3 038)Fair value adjustment – STANLIB South Africa(1) 2 948 2 948Fair value adjustment – STANLIB Africa(1) 200 200Allowance 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 450Sale of STANLIB REIT Fund Managers (RF) (Pty) Ltd (307)Fair value adjustment - 2018 (343)
STANLIB Africa(i) 330
Value at 31 December 2017 150Fair 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.
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GROUP EQUITY VALUE REPORT (CONTINUED)
for the year ended 31 December 2018
3. Normalised group equity value (continued)3.1 Analysis of normalised group equity value (continued)
2017Rm (Audited)
SA covered business
Other businesses Total
Liberty Group Limited consolidated 18 412 18 412STANLIB South Africa(2) 795 795STANLIB Africa(2) 100 100Liberty Health (including Total Health Trust) 299 299Liberty Africa Insurance 813 813Liberty Holdings 1 428 1 428Liberty Two Degrees adjustment to net asset value(3) 597 597Shareholders’ equity reported under IFRS 18 412 4 032 22 444Difference 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 283Subordinated notes 5 581 5 581CAR 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 732Reverse CAR of subsidiaries 10 10Reverse subordinated notes (5 581) (5 581)Reverse inadmissible assets 1 018 1 018Frank Financial Services allowance for future expenses (100) (100)Impact of discounting on deferred tax asset (100) (100)BEE preference funding 123 123Liberty Two Degrees adjustment(3) (597) (597)Allowance for employee share rights (36) (36) (72)Normalised net worth 11 134 3 299 14 433Value of in-force – SA Retail 22 088 22 088Value of in-force – Liberty Corporate 3 049 3 049Cost of required capital (1 690) (1 690)Fair value adjustment – STANLIB South Africa(2) 3 655 3 655Fair value adjustment – STANLIB Africa(2) 50 50Allowance 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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 33
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GROUP EQUITY VALUE REPORT (CONTINUED)
for the year ended 31 December 2018
3. Normalised group equity value (continued)3.2 Normalised group equity value earnings and value per share
2018 2017
Rm (Audited)
SA covered
businessOther
businesses Total
SA covered
businessOther
businesses Total
Normalised equity value at the end of the period 33 687 4 997 38 684 34 581 4 787 39 368Equity value at the end of the period 34 520 5 005 39 525 34 458 5 384 39 842Liberty Two Degrees adjustment(1) (932) (8) (940) (597) (597)BEE preference shares 99 99 123 123Net share buy-backs 247 247 350 350Funding 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 944Normalised 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) 441Normalised return on group equity value (%) 4,1 1,5 3,8 8,2 (36,4) 1,1Normalised number of shares ('000) 279 025 280 573Number of shares in issue ('000) 268 418 270 120Shares held for the employee restricted share scheme ('000) 4 353 4 014Adjustment for BEE shares ('000) 6 254 6 439Normalised 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.
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GROUP EQUITY VALUE REPORT (CONTINUED)
for the year ended 31 December 2018
3. Normalised group equity value3.3 Sources of normalised group equity value earnings
2018 2017
Rm (Audited)
SA covered
businessOther
businesses Total
SA covered
businessOther
businesses Total
Value of new business written in the period 344 27 371 212 21 233Expected return on value of in-force business 2 433 2 433 2 926 2 926Variances/changes in operating assumptions 507 507 109 109Operating experience variances 423 423 330 330Operating assumption changes 103 103 30 30Changes 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 146Operational equity value profits 2 903 177 3 080 3 238 (629) 2 609Economic 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 176Change 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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 35
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GROUP EQUITY VALUE REPORT (CONTINUED)
for the year ended 31 December 2018
3 Normalised group equity value (continued) 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 445Traditional Life 1 317 1 159Direct Channel 82 67Credit Life 98 83LibFin Credit uplift to SA Retail 213 136Liberty Corporate 168 162Traditional business 132 137LibFin Credit uplift to Liberty Corporate 36 25
Gross value of new business 1 878 1 607Overhead 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 212Present value of future expected premiums 42 417 42 782Margin (%) 0,8 0,5Liberty Africa Insurance Net value of new business 27 21Present value of future expected premiums 972 528Margin (%) 2,8 3,9Total group net value of new business 371 233Total group margin (%) 0,9 0,5
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Rm (Unaudited) 2018 2017
Sources of insurance operations total new business by product type Retail 26 641 27 132Single 22 131 22 660Recurring 4 510 4 472Institutional 2 377 2 034Single 1 166 838Recurring 1 211 1 196
Total new business 29 018 29 166Single 23 297 23 498Recurring 5 721 5 668
Insurance indexed new business 8 051 8 018Sources of insurance indexed new business SA Retail 6 495 6 570Liberty Corporate 1 192 1 171Liberty 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 NEW BUSINESSfor the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 37
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Rm (Audited) 2018 2017
Net premiums by product type Retail 43 553 43 467Single 21 836 22 191Recurring 21 717 21 276Institutional 11 522 10 673Single 2 062 1 416Recurring 9 460 9 257
Net premium income from insurance contracts and inflows from investment contracts 55 075 54 140
Single 23 898 23 607Recurring 31 177 30 533Net 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 634Rm (Unaudited) Sources of insurance operations net cash flows: SA Retail 2 065 2 846Liberty 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.
LONG-TERM INSURANCE NET CUSTOMER CASH FLOWSfor the year ended 31 December 2018
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Rbn (Unaudited) 2018 2017
Managed by group business units 682 684STANLIB South Africa 549 556STANLIB Africa(2) 51 53Remaining operations 19 20Operations under ownership review(4) 32 33LibFin Markets 65 62Other internal managers 17 13Externally managed 36 36Total 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:
Unit trusts listed (Rbn)STANLIB
managedOther
managed Total
STANLIB 39 78 117Gateway 4 5 9
(4) Under IFRS these are disclosed as disposal groups classified as held for sale.
ASSETS UNDER MANAGEMENT(1)
as at 31 December 2018
ASSET MANAGEMENT NET CASH FLOWS(1)
as at 31 December 2018
Rm (Unaudited) 2018 2017
STANLIB South Africa Non-money market 9 155 4 815Retail 6 146 8 249Institutional 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 731STANLIB Africa Non-money market (7 696) (1 156)Retail 19 738Institutional (7 715) (1 894)Money market (868) 676Net 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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 39
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Rm (Audited) 2018 2017
Net premiums 1 347 1 297Liberty Health – medical risk 808 777Liberty Africa Insurance – motor, property, medical and other 539 520Net 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 411Unaudited Claims loss ratio (%) Liberty Health 80 82Liberty Africa Insurance 54 48Combined loss ratio (%) Liberty Health 117 102Liberty Africa Insurance 108 99
CAPITAL COMMITMENTSas at 31 December 2018
SHORT-TERM INSURANCE INDICATORSfor the year ended 31 December 2018
Rm (Audited) 2018 2017
Equipment 543 741Investment and owner-occupied property 1 497 1 432Committed capital(1) 1 337 1 071Total capital commitments 3 377 3 244Under contracts 808 430Authorised 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.
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AuditedPost-retirement medical benefitThe 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 fundThe group operates a defined benefit pension scheme on behalf of employees. The fund is closed to new membership and is well funded.
RETIREMENT BENEFIT OBLIGATIONSas at 31 December 2018
RELATED PARTIESfor the year ended 31 December 2018
AuditedStandard 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 Bank1.1 Summary of movement in investment in ordinary shares held by the group in the group’s holding company is as follows:
Number
’000Fair value
RmOwnership
%
Standard Bank Group Limited Balance at 1 January 2018 16 180 3 166 1,02Purchases 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.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 41
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AuditedAs 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:2018Rm Gross Impairment Net
Total assets classified as held for sale 1 146 (249) 897Intangibles assets 183 (85) 98Properties 17 (2) 15Equipment 24 (16) 8Deferred taxation 118 (118) Reinsurance assets - short-term insurance 18 (7) 11Financial investments 71 71Prepayments, insurance and other receivables 497 (21) 476Cash and cash equivalents 218 218 Total liabilities classified as held for sale 278 278Short-term insurance liabilities 116 116Employee benefits 40 40Insurance and other payables 116 116Current 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.
DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALEas at 31 December 2018
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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 defaultRepurchase agreements Global master repurchase agreements
Collateral deposits payable Global master securities lending arrangements
Rm (Audited) Total
Not subject to MNA
or similar agreements
Subject to MNA
or similar agreements
Financial collateral(1) Net
2018 Assets Assets held for trading and for hedging 10 340 (1 496) 8 844 (8 008) 836Total assets 10 340 (1 496) 8 844 (8 008) 836Liabilities Liabilities held for trading and for hedging 8 457 (133) 8 324 (8 008) 316Repurchase agreements liabilities 5 771 5 771 (5 680) 91Collateral deposits payable 5 976 5 976 (5 976) Total liabilities 20 204 (133) 20 071 (19 664) 4072017 Assets Assets held for trading and for hedging 7 871 (1 356) 6 515 (6 016) 499Total assets 7 871 (1 356) 6 515 (6 016) 499Liabilities Liabilities held for trading and for hedging 6 311 (56) 6 255 (6 016) 239Repurchase 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.
OFFSETTING, ENFORCEABLE MASTER NETTING ARRANGEMENTS OR SIMILAR AGREEMENTSas at 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 43
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Opening transition adjustment as at 1 January 2018
Rm (Audited)
As previously
reported under IAS 39 at amortised
costTransition
adjustment
As classified under IFRS 9
at fair value through
profit or loss
Loan receivables 894 (63) 831Financial 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 fair value
Amortised cost
Other measurement
basis
Total per statement
of financial positionRm (Audited)
Held for trading and
hedgingDesig- nated Default FVOCI
Financial assets Interests in joint ventures 1 297 1 297 56 1 353Interests in associates 13 824 13 824 10 13 834Financial investments 2 486 308 339 16 803 327 628 327 628Loan receivables 737 737 340 1 077Assets held for hedging and for trading 10 340 10 340 10 340Repurchase agreements, scrip and collateral assets 12 658 12 658 12 658Prepayments, insurance and other receivables 3 037 3 037 664 1 252 4 953Cash and cash equivalents 10 024 10 024 6 950 16 974Total 10 340 2 486 349 916 16 803 379 545 7 954 1 318 388 817Financial liabilities Financial liabilities under investment contracts 99 813 99 813 99 813Third-party financial liabilities arising on consolidation of mutual funds 48 186 48 186 48 186Financial liabilities 6 478 6 478 1 626 8 104Liabilities held for trading and for hedging 8 457 8 457 8 457Repurchase agreements liabilities and collateral deposits payable 11 747 11 747 11 747Insurance and other payables 4 628 4 628 708 6 635 11 971Total 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.
ACCOUNTING CLASSIFICATIONS OF FINANCIAL INSTRUMENTS UNDER IFRS 9as at 31 December 2018
NOTES
SUPPLEM
ENTA
RY INFO
RMATIO
N45
Liberty Holdings Limited
For the year ended 31 December 2018Supplementary information
SUPPLEM
ENTA
RY INFO
RMATIO
N45
46
SUPPLEM
ENTA
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RMATIO
N
Page
Analysis of ordinary shareholders’ equity 47
Analysis of group earnings – core earnings 48
South African covered business embedded value 49
Bancassurance – Benefit to Liberty 56
90:10 Shareholder exposure 56
Long-term policyholder liabilities IFRS reconciliation 57
South African insurance distribution headcount 57
Long-term insurance – New business by distribution channel 58
Total long-term insurance premiums 59
LibFin – Shareholder Investment Portfolio 59
LibFin – Shareholder Investment Portfolio percentage allocation 60
LibFin – Shareholder Investment Portfolio return 60
LibFin – Markets Credit portfolio 60
SA Retail – Headline earnings 61
SA Retail – Key performance indicators 61
SA Retail – Indexed new business 61
SA Retail – Maintenance cost per policy 62
SA Retail – Negative rand reserves 62
Liberty Corporate – Headline earnings 62
Liberty Corporate – Key performance indicators 63
Reconciliation of Africa regions and operations under ownership review earnings 63
Liberty Health – Headline earnings 63
Liberty Health Cover Product – Lives serviced 64
Liberty Africa Insurance – Headline earnings 64
Liberty Africa Insurance – Key performance indicators 64
Liberty Africa Insurance – Long-term insurance net cash flows 65
Summary of group long-term indexed new business, VONB and VONB margin 65
STANLIB South Africa – Headline earnings 66
STANLIB South Africa – Net cash flows and assets under management by asset category 66
STANLIB South Africa – Assets under management breakdown by source and asset type 67
STANLIB South Africa – Retail investment performance 68
STANLIB South Africa – Institutional investment performance 68
STANLIB South Africa – Investment performance 69
STANLIB Africa – Assets under management 70STANLIB Africa – Assets under management by asset type 70
CONTENTS
Liberty Holdings Limited Financial results for the year ended 31 December 2018 47
SUPPLEM
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RMATIO
N
Group funds invested Contribution to earnings
Rm 2018 2017 2018 2017
South African Insurance Operations(1) 18 088 18 412 2 259 2 972Insurance operating surplus 1 647 1 808Present value of in-force business 7 12 (5) (5)Investment portfolios 15 029 17 235 984 1 480Fixed assets and working capital 8 684 6 665 Subordinated notes (excluding accrued interest)(2) (5 500) ( 311)Subordinated notes at fair value(2) (5 632) (367) South African Asset Management STANLIB South Africa 852 795 355 252Africa regions 1 298 1 212 (107) (269)Liberty Africa Insurance 926 797 (19) ( 15)STANLIB Africa 84 106 27 22Operations under ownership review(3) 288 309 (115) (276)Central costs and sundry income (206) (198)Liberty Holdings Limited 1 731 1 398 Operations under ownership review(3) 94 30 (51) ( 46)Liberty Two Degrees consolidation adjustment(4),(5) 940 597 397 543Preference share dividend (2) (2)Headline earnings 2 645 3 252Preference share dividend 2 2Impairment of intangible assets (net of tax) (136)Remeasurement of disposal groups classified as held for sale (249) Liberty Holdings shareholders’ equity/total earnings 23 003 22 444 2 398 3 118Normalised Liberty Holdings shareholders’ equity/headline earnings 23 003 22 444 2 645 3 252BEE preference shares 99 123 8 10Liberty Two Degrees normalisation adjustment(4),(5) (522) (340) (397) (543)Normalised shareholders’ equity/headline earnings 22 580 22 227 2 256 2 719(1) Reconciliation to the Liberty Group Limited IFRS shareholders' equity:
Rm 2018 2017
Liberty Group Limited group's IFRS shareholders' equity 19 020 18 412
Insurance group funds 18 088 18 412 Liberty Two Degrees(5) 932
(2) Subordinated notes previously measured at amortised cost.(3) The cash-generating units impacted are asset mangement operations in Ghana, Uganda, Kenya and Botswana, Health solutions, the short-term insurance technology start up
and short-term insurance in Malawi and Namibia. Under IFRS these are disclosed as disposal groups classified as held for sale.(4) Reversal of the accounting mismatch arising on consolidation of the policyholders obligation linked to L2D units.(5) Represents the difference between Libertys’ share of the net asset value of L2D at the end of the period and the listed price of L2D shares multiplied by the number of shares in
issue to Liberty at the end of the period. Comprises R932 million at Liberty Group Limited level plus additional R8 million at a Liberty group level.
ANALYSIS OF ORDINARY SHAREHOLDERS’ EQUITYfor the year ended 31 December 2018
48
SUPPLEM
ENTA
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RMATIO
N
Rm 2018 2017
South African operations
South African Insurance Operations 2 652 2 590
SA Retail planned margin release including annual contribution increases 2 028 1 971 SA Retail credit life 201 167 SA Retail VIF amortisation (5) (5) Liberty Corporate 52 81 LibFin Markets 376 376
Expected long-term rate of return on Shareholder Investment Portfolio(1) 1 389 1 464 South African Asset Management STANLIB South Africa 380 445
Africa regions 8 (50)
Liberty Africa Insurance (19) (11) Liberty Health (54) STANLIB Africa 27 15
Central costs and sundry income (200) (236)
Centre costs and sundry income (208) (246) BEE preference share income 8 10
Core operating earnings 4 229 4 213 SA Retail new business strain (667) (675) SA Retail operating variances, assumption changes and other 24 (250)
Adjusted core operating earnings 3 586 3 288 Operations under ownership review(2) (166) Variance to long-term rate of return on Shareholder Investment Portfolio (1 139) (157) STANLIB South Africa sustainable earnings adjustment (25) (193) STANLIB Africa sustainable earnings adjustment (219)
Normalised headline earnings 2 256 2 719
(1) The expected long-term rate of return on the SIP portfolio is based on the long-term view to avoid volatility in the core operating earnings.(2) The cash-generating units impacted are asset mangement operations in Ghana, Uganda, Kenya and Botswana, Health solutions, the short-term insurance technology start up
and short-term insurance in Malawi and Namibia. Under IFRS these are disclosed as disposal groups classified as held for sale.
ANALYSIS OF GROUP EARNINGS – CORE EARNINGSfor the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 49
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1. Description of embedded value of South African covered business
SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE for the year ended 31 December 2018
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.
The impact of this change is an increase in embedded value of R139 million and has been assessed as at 31 December 2017. Embedded value earnings and value of new business for 2018 are reported on the revised basis. 2017 comparatives for embedded value earnings have not been restated.
The table below provides an indication of the impact of this change on the components of the embedded value earnings analysis in section 4:
Net worth Value of in-forceCost of required capital
Embedded value earnings
Value of new business written in the year
Less new business strain due to lower liabilities raised at point of sale
Smaller value of in-force contributed due to up-fronting of earnings into new business strain
Greater cost of required capital allocated to new business
Broadly similar
Expected return on value of in-force business
Decrease due to lower value of in-force
Larger unwind due to larger absolute level of cost
Decrease
Expected net of tax profit transfer to net worth
Smaller expected transfer from value of in-force to net worth due to smaller margins in liabilities
Neutral
Operating experience variances and assumption changes
More sensitive due to additional up-fronting of earnings
Less sensitive due to smaller size of value of in-force
Variable Broadly similar
Return on net worth Increase due to size of net worth, improved alignment with published earnings
Increase
Investment variances Reduced volatility due to better alignment with hedging programme
Broadly similar Variable Variable
The current version of Advisory Practice Note (APN) 107 became effective for financial years ending on or after 31 December 2018. APN 107 governs the way in which embedded values of life assurance companies are reported.
The embedded value consists of:
• The net worth; plus• The value of in-force covered business; less• The cost of required capital.
The net worth represents the excess of assets over liabilities on the published basis, adjusted for the elimination of the carrying value of covered business acquired, removal of the value of any deferred acquisition cost (DAC) and deferred revenue liability (DRL) and the fair value of share rights granted to Liberty Group Limited employees.
The value of in-force covered business is the discounted value of the projected stream of after-tax shareholder profits arising from existing in-force covered business. These shareholder profits arise from the release of margins under the published valuation basis. Covered business is defined as business regulated by the Prudential Authority as long-term insurance business written in Liberty Group Limited.
The required capital is defined as the level of capital that is restricted from distribution to shareholders, comprising an assessment of the likely long-term regulatory capital requirements and any additional capital considered appropriate by the board given the risks in the business. Required capital has been set in line with risk appetite, adjusted for differences between the published and regulatory balance sheet. The cost of required capital is the present value, at the risk discount rate, of the projected release of the required capital allowing for investment returns on the assets supporting the projected required capital.
50
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1. Description of embedded value of South African covered business (continued)
The value of new business written is the present value at the point of sale of the projected stream of after-tax profits from that business on the published basis, reduced by the cost of required capital allocated to new business. When assessing the cost of required capital, allowance is made for diversification benefits between new and existing business. New business is defined as covered business arising from the sale of new policies, once-off premium increases in respect of in-force covered risk business, and once-off contributions in respect of in-force covered investment business during the reporting period. Risk policies with an inception date prior to the reporting date where no premium has been received are included in the embedded value and value of new business. The contractual terms of these policies state that Liberty Group Limited is on risk from the inception date, even though a premium may not have been received. This definition is consistent with that used in the financial statements.
The value of new business has been calculated on the end of period assumptions. Investment yields at the point of sale have been used for new fixed annuities, guaranteed investment plans, and embedded derivatives; for all other business the investment yields at the date of reporting have been used.
2. Normalised embedded value Rm (unless otherwise stated) 2018 2017
Risk discount rate %(1) 12,22 11,79 Net worth 17 706 11 134 Ordinary shareholders’ funds on published basis 19 020 18 412 BEE preference share funding 99 123 Adjustment of ordinary shareholders’ funds from published basis(2) (328) (7 253) Liberty Two Degrees normalisation(3) (932) Adjustment for carrying value of in-force business acquired(4) (7) (12) Allowance for fair value of share rights (46) (36) Frank Financial Services allowance for future expenses (100) (100) Net value of life business in-force 15 981 23 447 Value of life business in-force 19 019 25 137 Cost of required capital (3 038) (1 690)
Normalised embedded value 33 687 34 581 3. Normalised embedded value earnings Embedded value at the end of the period 33 687 34 581 Intragroup dividends(5) 2 252 2 600 Funding of restricted share plan 80 92 Beginning of year IFRS 9 transition adjustment 121 Beginning of year adjustment for introduction of new prudential regime(6) (139) Embedded value at the beginning of the period (34 581) (34 470) Embedded value earnings 1 420 2 803 Return on embedded value (%) 4,1 8,2
SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE(CONTINUED)
for the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 51
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SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE(CONTINUED)
for the year ended 31 December 2018
4. Analysis of normalised embedded value earnings 2018 2017
RmNet
worth
Value of in-force covered
business
Cost of required
capital
Em-bedded
valueNet
worth
Value of in-force covered
business
Cost of required
capital
Em-bedded
value
Embedded value at the end of the period 17 706 19 019 (3 038) 33 687 11 134 25 137 (1 690) 34 581Intragroup dividends(5) 2 252 2 252 2 600 2 600Funding of restricted share plan 80 80 92 92Beginning of year IFRS 9 transition adjustment 121 121 Beginning of year adjustment for introduction of new prudential regime(6) (6 932) 5 300 1 493 (139) Embedded value at the beginning of the period (11 134) (25 137) 1 690 (34 581) (11 717) (24 394) 1 641 (34 470)Embedded value earnings 2 093 (818) 145 1 420 2 109 743 (49) 2 803Components of embedded value earnings Value of new business written in the period (868) 1 405 (193) 344 (1790) 2 092 (90) 212Expected return on value of in-force business(7) 2 312 121 2 433 2 888 38 2 926Expected net of tax profit transfer to net worth 3 160 (3 160) 4 112 (4 112) Variances/changes in operating assumptions 290 161 56 507 110 (8) 7 109Operating experience variances(8) 253 114 56 423 225 105 330Operating assumption changes(9) 52 51 103 (45) 75 30Changes in modelling methodology(10) (15) (4) (19) (70) (188) 7 (251)Development expenses (9) (9) (55) (55)New operating model - expense impact(11) (332) (40) (372) Intragroup transfers 46 46Embedded value earnings from operations 2 241 678 (16) 2 903 2 423 860 (45) 3 238Economic adjustments (138) (1 496) 161 (1 473) (311) (117) (4) (432)Return on net worth and other adjustments(12) 2 2 (14) (14)Investment variances(13) (250) (1 149) 174 (1 225) (393) (201) (594)Changes in economic assumptions(14) 110 (347) (13) (250) 96 84 (4) 176Change in allowance for fair value of share rights(15) (10) (10) (3) (3)Normalised embedded value earnings 2 093 (818) 145 1 420 2 109 743 (49) 2 803
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N 5. Notes to embedded value(1) Certain books of business are valued with reference to the entire yield curve while others are valued with reference to the market
yield on medium-term South African government stock as shown below.
Investment return p.a.
% 2018 2017
Government stock 9,42 8,99Equities 12,92 12,49Property 10,42 9,99Cash 7,92 7,49The risk discount rate has been set equal to the risk-free rate plus 80% of the equity risk premium 12,22 11,79Maintenance expense inflation rate 7,67 7,24
(2) In the current period the amount represents the removal of the DAC and DRL that is held on the published basis. In addition to the above, in the prior period this item also included the difference in the shareholder funds as a result of moving
from the published basis to the previous statutory valuation basis. This was largely due to the elimination of certain negative rand reserves on the statutory valuation basis.
In both instances the reduction in net worth results in an increase in the value of in-force.
(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 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.
(4) The carrying value of business acquired by Liberty has been deducted from shareholders’ funds in order to avoid double counting. For embedded value purposes, the value in respect of this acquired business is included in the value of in-force covered business. The net adjustment was R7 million (31 December 2017: R12 million).
(5) These are dividends paid by Liberty Group Limited to Liberty Holdings Limited.
(6) This adjustment and the consequential impact on the components of the embedded value earnings analysis are explained in section 1.
(7) The expected return on the value of in-force covered business is obtained by applying the previous year’s risk discount rate to the value of in-force covered business at the beginning of the period and the current year’s risk discount rate from the point of sale to the valuation date in respect of the value of new business.
SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE(CONTINUED)
for the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 53
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(8) Operating experience variances consist of the combined effect on net worth and value of in-force of operating experience being different to that anticipated at the prior year end.
The net 31 December 2018 operating experience variance of R423 million (31 December 2017: R330 million) comprised:
Operating experience variances (Rm) Net worth
Value of in-force covered
business
Cost of required
capitalEmbedded
value
2018 SA Retail 263 57 56 376Mortality and morbidity 189 61 250Policyholder behaviour (115) 50 (65)Other(i) 189 (54) 56 191Liberty Corporate (140) 57 (83)Credit portfolio variance 130 130Total 253 114 56 4232017 SA Retail 117 140 257Mortality and morbidity 255 78 333Policyholder behaviour (8) 93 85Other(ii) (130) (31) (161)Liberty Corporate (70) (35) (105)Credit portfolio variance 178 178Total 225 105 330
(i) The amount of R189 million relates to tax and other miscellaneous variances.(ii) The amount of negative R130 million is primarily related to strengthening in respect of regulatory and other simplification projects.
(9) The amount of R103 million (31 December 2017: R30 million) is due to a number of assumption changes including demographic, expense and tax assumptions.
(10) The amount of negative R19 million (31 December 2017: negative R251 million) is due to a number of offsetting modelling changes.(11) 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.
(12) Reconciliation of embedded value return on net worth and other adjustments to LibFin Investments earnings:
Rm 2018 2017
LibFin Investments after consolidation of L2D 250 1 307Adjustment to reflect L2D at listed share price (207) (394)LibFin Investments earnings 43 913Adjustments for differences between the statutory and published basis (604)90:10 book 27 (194)Frank Financial Services (39) (50)Bancassurance obligations relating to Liberty Africa and STANLIB(i) (54)BEE preference scheme 8 7Central treasury investments 61 115Software asset impairment (71)Other (98) (76)Return on net worth and other adjustments 2 (14)
(i) This item is now settled in the underlying entity.
5. Notes to embedded value (continued)
SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE(CONTINUED)
for the year ended 31 December 2018
54
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5. Notes to embedded value (continued)
(13) The amount of negative R1 225 million (31 December 2017: negative R594 million) arises from the negative investment variance on the 90:10 book (both in net worth and value of in-force) and the loss of expected future fee income in the value of in-force on investment linked business.
(14) The amount of negative R250 million (31 December 2017: R176 million) relates to changes in economic assumptions as described in note (1).
(15) The amount of negative R10 million (31 December 2017: negative R3 million) in respect of the change in the fair value of share rights arises from the change in the number of share rights for staff employed by Liberty Group Limited and the change in the market value of Liberty Holdings Limited share price over the reporting period.
Other bases and assumptions Taxation has been allowed for at rates and on bases applicable to Section 29A of the Income Tax Act. Full taxation relief on expenses
to the extent permitted was assumed. Capital gains taxation has been taken into account in the embedded value. No adjustment has been made for the discounting of tax provisions in the embedded value.
Assumptions reflect best estimates of future experience consistent with the published basis excluding any compulsory or discretionary margins. However, in contrast to the assumptions in the published basis, the embedded value makes allowance for all non-compulsory automatic premium, benefit increases and renewals post maturity where appropriate.
The assets backing the required capital are consistent with the long-term strategic mix of shareholder funds approved by the Liberty Holdings board.
For reversionary and smoothed bonus business, the value of in-force covered business has been calculated assuming that bonuses are changed over time so that the full amount of the bonus stabilisation reserves is distributed to policyholders over the lifetime of the in-force policies.
SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE(CONTINUED)
for the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 55
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SOUTH AFRICAN COVERED BUSINESS EMBEDDED VALUE(CONTINUED)
for the year ended 31 December 2018
6. Sensitivity to risk discount rate and other assumptionsIn order to indicate sensitivity to varying assumptions, the value of the in-force life business less cost of required capital and the value of the new business written for Liberty Group Limited are shown below for various changes in assumptions. The liabilities and required capital as at the valuation date has been kept constant. Certain of the sensitivities not only change future experience but also future reserving levels and this has been captured through the change in the value of in-force covered business. Management action has been assumed for demographic sensitivities on risk contracts where appropriate. Sensitivities are calculated independently of each other.
Rm
Value of in-force life
business less cost of
required capital at
31 December 2018
Value of new
business written in
2018
Base value 15 981 344Value of in-force/new business 19 019 537Cost of required capital (3 038) (193)100 basis point increase in risk discount rate 14 251 216Value of in-force/new business 17 954 450Cost of required capital (3 703) (234)100 basis point decrease in interest rate environment 16 385 456Value of in-force/new business 19 391 648Cost of required capital (3 006) (192)10% fall in equity and property market values 15 435 Value of in-force 18 473 Cost of required capital (3 038) 100 basis point increase in equity and property returns 17 004 386Value of in-force/new business 19 624 552Cost of required capital (2 620) (166)10% decrease in maintenance expenses 16 889 422Value of in-force/new business 19 927 615Cost of required capital (3 038) (193)10% decrease in new business acquisition expenses (other than commissions) 478Value of new business 671Cost of required capital (193)10% decrease in withdrawal rates 17 624 528Value of in-force/new business 20 662 721Cost of required capital (3 038) (193)5% decrease in mortality and morbidity for life assurance business 17 464 468Value of in-force/new business 20 502 661Cost of required capital (3 038) (193)5% decrease in mortality for annuity business 15 751 339Value of in-force/new business 18 789 532Cost of required capital (3 038) (193)
56
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BANCASSURANCE – BENEFIT TO LIBERTYas at 31 December 2018
Liberty share (Rm) 2018 2017
Credit Life IFRS headline earnings 201 167Embedded value of in-force contracts 505 506Other insurance products Embedded value of new business 49 32Embedded value of in-force contracts(1) 811 1 198STANLIB Net service fees on assets under management sourced from Standard Bank distribution 460 422(1) 2018 was impacted by the change in embedded value methodology for the South African covered business.
90:10 SHAREHOLDER EXPOSUREas at 31 December 2018
The “90:10 exposure” refers to the shareholders exposure to certain policyholder portfolios on which a fee arrangement exists whereby the investment return on the portfolios is shared between the policyholders and shareholders in a 90:10 ratio.
As a result of the market risk that arises for shareholders on this exposure it is managed as part of the Shareholders Investment Portfolio (SIP) and consequently the earnings form part of the SIP returns and are included in the LibFin Investments revenue account.
Because of its nature as a management fee the present value of these 90:10 fees are included in the value of in force of the business and the expected amount for the period forms part of the expected transfer to Net Worth in the AoEV. There is therefore an inconsistency between the IFRS revenue account (shown as LibFin Investments revenue) and the AoEV (shown as expected Life Fund Operating earnings).
Rm 2018 2017
Exposure as at the beginning of the period 3 920 4 142Expected earnings 287 303Variance (314) (109)Total net earnings (27) 194Exposure as at the end of the period 3 472 3 920
Liberty Holdings Limited Financial results for the year ended 31 December 2018 57
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N
Rm 2018 2017
Policyholder liabilities at beginning of the period net of reinsurance 314 616 299 119Policyholder liabilities 322 918 307 230Reinsurance liabilities 663 555Policyholder assets (7 484) (7 314)Reinsurance assets (1 481) (1 352)Transfers to policyholder liabilities (12 157) 15 767Net premium income from insurance contracts and inflows from investment contracts 55 075 54 140Net insurance premiums 37 174 36 723Fund inflows from investment contracts 17 901 17 417Investment returns 1 485 31 102Net claims and policyholder benefits (53 073) (52 506)Net insurance claims (36 990) (36 133)Fund outflows from investment contracts (16 083) (16 373)Acquisition costs (3 831) (4 326)Management expenses, finance costs and profit share allocations (9 916) (9 441)Taxation (876) (1 906)Operating profit from insurance operations (1021) (1 296)Foreign currency translation reserve 411 (270)Policyholder liabilities at end of period net of reinsurance 302 870 314 616Policyholder liabilities 310 994 322 918Reinsurance liabilities 283 663Policyholder assets (6 708) (7 484)Reinsurance assets (1 699) (1 481)
LONG-TERM POLICYHOLDER LIABILITIES IFRS RECONCILIATIONas at 31 December 2018
SOUTH AFRICAN INSURANCE DISTRIBUTION HEADCOUNTas at 31 December 2018
0
300
600
900
1200
1500
SOUTH AFRICAN INSURANCE DISTRIBUTION HEADCOUNT
Agency(1) Liberty entrepreneurs(1) Liberty@work(1) Standard BankFinancial Consultants
Broker Consultants
1 092
1 207
653
501
133
(1)Tied agents December 2014 December 2015 December 2016 December 2017 December 2018
58
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N
Recurring premiums Single premiums Total premiums Indexed premiums
Rm 2018 2017 2018 2017 2018 2017 2018 2017
Retail 5 899 5 817 22 131 22 660 28 030 28 477 8 112 8 084Broker 1 149 1 236 5 552 5 527 6 701 6 763 1 704 1 789Bancassurance 2 787 2 601 6 126 6 519 8 913 9 120 3 399 3 253Tied channels(2) 1 717 1 732 10 179 10 359 11 896 12 091 2 736 2 768Other 246 248 274 255 520 503 273 274Institutional 1 211 1 196 1 166 838 2 377 2 034 1 328 1 280Broker 740 691 515 398 1 255 1 089 792 731Bancassurance 17 22 17 22 17 22Tied channels(2) 443 462 583 419 1 026 881 501 504Other 11 21 68 21 79 42 18 23
Total new business 7 110 7 013 23 297 23 498 30 407 30 511 9 440 9 364Split between: South Africa(1) SA Retail 5 687 5 657 21 962 22 583 27 649 28 240 7 884 7 916Broker 1 143 1 234 5 483 5 527 6 626 6 761 1 691 1 787Bancassurance 2 722 2 547 6 111 6 494 8 833 9 041 3 333 3 196Tied channels(2) 1 585 1 652 10 177 10 359 11 762 12 011 2 604 2 688Other 237 224 191 203 428 427 256 245Liberty Corporate 1 077 1 089 1 151 816 2 228 1 905 1 192 1 171Broker 675 648 500 376 1 175 1 024 725 686Bancassurance 17 22 17 22 17 22Tied channels(2) 385 419 583 419 968 838 443 461Other 68 21 68 21 7 2
Total new business 6 764 6 746 23 113 23 399 29 877 30 145 9 076 9 087Liberty Africa Insurance Retail 212 160 169 77 381 237 228 168Broker 6 2 69 75 2 13 2Bancassurance 65 54 15 25 80 79 66 57Tied channels(2) 132 80 2 134 80 132 80Other 9 24 83 52 92 76 17 29Institutional 134 107 15 22 149 129 136 109Broker 65 43 15 22 80 65 67 45Tied channels(2) 58 43 58 43 58 43Other 11 21 11 21 11 21
Total new business 346 267 184 99 530 366 364 277(1) Includes premium escalations for SA Retail; excludes STANLIB Multi-manager.(2) Tied channels include Agency, Liberty entrepreneurs and Liberty@work.
LONG-TERM INSURANCE – NEW BUSINESS BY DISTRIBUTION CHANNEL(1)
for the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 59
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N
Recurring premiums Single premiums Total premiums
Rm 2018 2017 2018 2017 2018 2017
SA Retail 21 224 20 824 21 745 22 151 42 969 42 975Liberty Corporate 8 959 8 784 1 859 1 222 10 818 10 006Liberty Africa Insurance 994 925 294 234 1 288 1 159Total premiums 31 177 30 533 23 898 23 607 55 075 54 140Indexed premiums 33 567 32 893SA Retail 23 399 23 039Liberty Corporate 9 145 8 906Liberty Africa Insurance 1 023 948
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.
TOTAL LONG-TERM INSURANCE PREMIUMSfor the year ended 31 December 2018
LIBFIN – SHAREHOLDER INVESTMENT PORTFOLIOas at 31 December 2018
2018 2017
Local Foreign Total Local Foreign Total Exposure category Rm Rm Rm % Rm Rm Rm %
Equities 4 403 3 736 8 139 30 4 431 4 787 9 218 33Bonds 8 051 734 8 785 32 7 197 304 7 501 27Cash 4 602 213 4 815 18 5 385 49 5 434 20Property 2 533 2 533 9 3 093 3 093 11Other 1 762 1 158 2 920 11 1 649 937 2 586 9Total 21 351 5 841 27 192 100 21 755 6 077 27 832 100Assets backing capital 15 029 55 17 235 62Assets backing policyholder liabilities 8 691 32 6 677 2490:10 exposure 3 472 13 3 920 14Reconciliation to IFRS shareholders' equity Shareholder Investment Portfolio 27 192 27 832 Less: 90:10 exposure (3 472) (3 920) Less: Subordinated notes (5 632) (5 500) South African insurance operations group funds 18 088 18 412 Liberty Group Limited group's IFRS shareholders' equity 19 020 18 412 Insurance group funds 18 088 18 412 Liberty Two Degrees(1) 932
(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.
60
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2018 2017
Exposure category %
Assets backing
capital
Assets backing
policyholder liabilities
90:10 exposure Total
Assets backing
capital
Assets backing
policyholder liabilities
90:10 exposure Total
Local assets Equities 10 6 16 9 1 6 16Bonds, cash and property 31 22 3 56 41 12 3 56Other 7 7 4 1 1 6Foreign assets Equities 3 9 2 14 4 10 3 17Bonds, cash and property 1 2 3 1 1 2Other 4 4 3 3Total 55 32 13 100 62 24 14 100
LIBFIN – SHAREHOLDER INVESTMENT PORTFOLIO PERCENTAGE ALLOCATIONas at 31 December 2018
LIBFIN – SHAREHOLDER INVESTMENT PORTFOLIO RETURNas at 31 December 2018
Rm 2018 2017
Realised gross result 1 027 2 328Taxation (194) (512)Subordinated notes finance costs(1) (432)Subordinated notes at fair value(1) (525) Expenses (including asset management fees) (58) (77)Net profit 250 1 307Gross return (%) 3,7 8,5(1) Subordinated notes previously measured at amortised cost.
Taxation note:
The taxation treatment of income derived from assets backing capital is the normal taxation rules applicable to life investment portfolios. The taxation applicable to income derived from assets backing life funds and the 90:10 exposure is determined by the tax rates pertaining to each life tax fund to which the assets are allocated (I-E tax). In addition there is transfer tax at 28% on the net surplus, after the applicable I-E tax.
LIBFIN – MARKETS CREDIT PORTFOLIOas at 31 December 2018
Rm (unless otherwise stated) 2018 2017
Net earnings from credit portfolio 302 330Total LibFin assets (Rbn) 65 62Credit portfolio assets (Rbn) 45 42Banks, treasuries and shorter dated assets (Rbn) 20 20
Liberty Holdings Limited Financial results for the year ended 31 December 2018 61
SUPPLEM
ENTA
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RMATIO
N
Rm 2018 2017
Expected profit and premium escalations 2 111 2 040Variances, modelling and assumption changes 116 (144)New business strain (667) (675)Project and non-cost per policy expenses (172) (286)Direct financial services (31) (8)Other(1) 109 176Earnings before bancassurance 1 466 1 103Liberty share of credit life bancassurance (net of all taxes) 201 167Complex bancassurance preference dividend (86) (62)Headline earnings 1 581 1 208(1) 2018 includes anticipated reserving impact of moving expenses from Liberty Holdings Limited to Liberty Group Limited as a result of a change to the operating model
SA RETAIL – HEADLINE EARNINGSfor the year ended 31 December 2018
SA RETAIL – KEY PERFORMANCE INDICATORSas at 31 December 2018
Rm (unless stated otherwise) 2018 2017
Net customer cash flows 2 589 3 196Insurance products 2 065 2 846LISP 524 350Gross sales (excluding LISP) 26 260 26 895Indexed new business (excluding LISP) 6 495 6 570Value of new business 271 155Retail margin excluding STANLIB (%) 0,9 0,5Retail new business margin including STANLIB (%) 0,8 0,5
SA RETAIL – INDEXED NEW BUSINESSas at 31 December 2018
Rm 2018 2017
SA Retail Insurance (excluding emerging consumer market) 5 860 5 844Emerging consumer market 252 264Total SA Retail Insurance 6 112 6 108Direct Financial Services 84 79STANLIB ‘on balance sheet’ sales 299 383Total ‘on balance sheet’ sales 6 495 6 570STANLIB ‘off-balance sheet’ sales 3 169 2 398GateWay LISP ‘off-balance sheet’ sales 258 220Total SA Retail distribution 9 922 9 188
62
SUPPLEM
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N
SA RETAIL – MAINTENANCE COST PER POLICYas at 31 December 2018
R 2018 2017
Valuation basis Complex 671 636Simplex 335 318Annuities 335 318
SA RETAIL – NEGATIVE RAND RESERVES(1)
as at 31 December 2018
Rm 2018 2017
Published IFRS basis 14 903 16 767(1) Gross of taxation.
By their nature "negative rand reserves" includes offsets between policies with positive and negative reserves.
LIBERTY CORPORATE – HEADLINE EARNINGSfor the year ended 31 December 2018
Rm 2018 2017
Gross contribution 1 036 1 072Underwriting margin 455 417Fee income 559 589Pension businesses and other income 22 66Expenses and other items (963) (960)Profit before taxation 73 112Taxation (21) (31)Headline earnings 52 81
Liberty Holdings Limited Financial results for the year ended 31 December 2018 63
SUPPLEM
ENTA
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RMATIO
N
LIBERTY HEALTH – HEADLINE EARNINGSfor the year ended 31 December 2018
Rm 2018 2017
Loss before depreciation and amortisation (116) (78)Amortisation and depreciation (7) (11)Loss before taxation (123) (89)Taxation 45 35Headline loss (78) (54)Headline loss attributable to Liberty (78) (54)
LIBERTY CORPORATE – KEY PERFORMANCE INDICATORSfor the year ended 31 December 2018
Rm (unless stated otherwise) 2018 2017
Gross sales 2 228 1 905Indexed new business 1 192 1 171Value of new business 73 57New business margin (%) 0,8 0,6Net customer cash flows (449) (1 536)
RECONCILIATION OF AFRICA REGIONS AND OPERATIONS UNDER OWNERSHIP REVIEW EARNINGSfor the year ended 31 December 2018
2017
Rm
Africa regions -
remaining operations
Operations under
ownership review(1) Total
Africa regions -
remaining operations
Operations under
ownership review(1)
Nigeria Insurance
discontinued Total
Liberty Africa Insurance (19) (18) (37) 41 4 45Liberty Health (78) (78) (54) (54)STANLIB Africa 27 (19) 8 22 (226) (204)Business development central support (7) (49) (56)Total Africa regions 8 (115) (107) 56 (276) (49) (269)Short-term insurance (51) (46) Total operations under ownership review (166) (322) (1) Under IFRS these are disclosed as disposal groups classified as held for sale.
64
SUPPLEM
ENTA
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RMATIO
N
LIBERTY HEALTH COVER PRODUCT – LIVES SERVICEDas at 31 December 2018
Thousands 2018 2017 2016 2015
Region Eastern Africa 56 57 55 48Western Africa 30 36 35 36Southern Africa 32 29 31 21Total 118 122 121 105
Liberty-owned licenses 69 79 81 67Third-party licenses 49 43 40 38
Rm 2018 2017
Insurance entities earnings(1) Long-term insurance 60 100Short-term insurance (7) 58Headline earnings (before head office expenses) 53 158Non-controlling shareholders share of headline earnings (24) (61)Liberty share of headline earnings 29 97Head office costs (66) (52)Net headline earnings attributable to Liberty (37) 45(1) The headline earnings result is shown at 100% of the earnings of certain of the entities that make up Liberty Africa Insurance.
LIBERTY AFRICA INSURANCE – HEADLINE EARNINGSfor the year ended 31 December 2018
LIBERTY AFRICA INSURANCE – KEY PERFORMANCE INDICATORSfor the year ended 31 December 2018
Rm (unless stated otherwise) 2018 2017
Embedded value of new business written in period 27 21New business margin (%) 2,8 3,9Long term: Gross sales 530 366Indexed new business 364 277Net customer cash flows 385 324Short term: Net customer cash flows 246 271Claims loss ratio (%) 54 48
Liberty Holdings Limited Financial results for the year ended 31 December 2018 65
SUPPLEM
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RY INFO
RMATIO
N
LIBERTY AFRICA INSURANCE – LONG-TERM INSURANCE NET CASH FLOWSfor the year ended 31 December 2018
Rm 2018 2017
Net premiums by product type Retail 584 492Single 91 40Recurring 493 452Institutional 704 667Single 203 194Recurring 501 473
Net premium income from insurance contracts and inflows from investment contracts 1 288 1 159Net claims and policyholders benefits by product type Retail (359) (307)Death, critical illness and disability claims (58) (61)Policy surrender and maturity claims (289) (242)Annuity payments (12) (4)Institutional (544) (528)Death, critical illness and disability claims (118) (110)Scheme terminations and member withdrawals (426) (418)
Net claims and policyholders benefits (903) (835)Net cash flow split as follows: 385 324Retail 225 185Institutional 160 139
SUMMARY OF GROUP LONG-TERM INDEXED NEW BUSINESS, VONB AND VONB MARGINfor the year ended 31 December 2018
2018 2017 2018 2017 2018 2017
Indexed new
businessIndexed new
business VONB VONBVONB
marginVONB
marginBusiness unit Rm Rm Rm Rm % %
SA Retail 6 495 6 570 271 155 0,8 0,5Liberty Corporate 1 192 1 171 73 57 0,8 0,6Liberty Africa Insurance 364 277 27 21 2,8 3,9Total 8 051 8 018 371 233 0,9 0,5
66
SUPPLEM
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RMATIO
N
Rm (unless stated otherwise) 2018 2017
Net fee income 1 672 1 704Base fees 1 651 1 676Performance fees 21 28Total operating expenses (1 295) (1 390)Operating expenses (1 237) (1 262)Non-recurring projects and expenses (58) (128)
Profit before investment income 377 314Other income 116 57Profit before taxation 493 371Taxation (138) (119)Total headline earnings 355 252Average margin (bps) 34 32Average assets under management (Rbn) 558 546
STANLIB SOUTH AFRICA – HEADLINE EARNINGSfor the year ended 31 December 2018
STANLIB SOUTH AFRICA – NET CASH FLOWS AND ASSETS UNDER MANAGEMENT BY ASSET CATEGORYas at 31 December 2018
Net cash flows Assets under management
Rm 2018 2017 2018 2017
Retail 6 098 6 849 221 297 228 202Fixed interest 5 722 7 846 55 056 48 940Equity (562) (752) 9 881 13 504Property (1 146) 325 9 661 14 954Money market (48) (1 400) 24 754 24 794Absolute return 2 710 2 572 8 220 6 008Balanced 242 (3 818) 22 919 24 819International (808) (855) 10 565 11 308Retail Life 20 211LISP 360 3 280 77 829 80 093Structured (372) (369) 2 412 3 571Institutional 10 051 (2 118) 119 450 103 831Fixed interest 5 577 (5) 26 489 19 905Equity (624) 1 021 9 837 6 743Property 1 151 (641) 8 340 8 539Money market 7 042 1 316 64 309 56 217Absolute return (647) (687) 869 514Balanced (2 267) (2 481) 7 273 9 494International (181) (641) 1 701 1 711Other 632 708Liberty – Delta LISP (397) 483 39 425 41 877Liberty – intragroup (16 567) (16 346) 168 753 181 753Total (815) (11 132) 548 925 555 663
Liberty Holdings Limited Financial results for the year ended 31 December 2018 67
SUPPLEM
ENTA
RY INFO
RMATIO
N
STANLIB SOUTH AFRICA – ASSETS UNDER MANAGEMENT BREAKDOWN BY SOURCE AND ASSET TYPEas at 31 December 2018Rm
Mon
ey m
arke
t (in
clud
ing
cash
)Fi
xed
inte
rest
Equi
tyPr
oper
tyO
ther
Abso
lute
retu
rnBa
lanc
edIn
ter-
natio
nal
Stru
c-tu
red
Reta
illif
eLI
SPTo
tal
2018
Reta
il
Co
llect
ive
inve
stm
ents
50
730
6 75
76
826
7
453
14 4
3810
565
96
769
Link
ed in
vest
men
t and
st
ruct
ured
pro
duct
s
2
412
77
829
80 2
41M
oney
mar
ket
24 7
54
24
754
Mul
ti-m
anag
er
colle
ctiv
e in
vest
men
ts
4 32
63
124
2 83
5
767
8 48
1
19
533
Inst
itutio
nal
Segr
egat
ed fu
nds
26
489
9 83
78
340
632
869
7 27
31
701
55
141
Mon
ey m
arke
t64
309
64 3
09Li
bert
y – D
elta
LIS
P
39
425
39 4
25Li
bert
y – i
ntra
grou
p4
186
33 7
3455
840
23 1
63 5
637
113
18 1
1824
576
1 46
0
16
8 75
3ST
ANLI
B to
tal
93 2
4911
5 27
975
558
41 1
641
195
16 2
0248
310
36 8
423
872
11
7 25
454
8 92
520
17
Re
tail
Colle
ctiv
e in
vest
men
ts
46 5
6111
010
11 1
02
5 16
419
010
11 3
08
104
155
Link
ed in
vest
men
t and
st
ruct
ured
pro
duct
s
3
571
80
093
83 6
64M
oney
mar
ket
24 7
94
24
794
Mul
ti-m
anag
er
colle
ctiv
e in
vest
men
ts
2 37
92
494
3 85
2
844
5 80
9
2
11
15 5
89In
stitu
tiona
l
Se
greg
ated
fund
s
19 9
056
743
8 53
9 7
08 5
149
494
1 71
1
47 6
14M
oney
mar
ket
56 2
17
56
217
Libe
rty
– Del
ta L
ISP
41 8
7741
877
Libe
rty
– int
ragr
oup
5 19
832
877
53 1
6924
032
645
6 85
928
441
29 0
261
506
181
753
STAN
LIB
tota
l86
209
101
722
73 4
1647
525
1 35
313
381
62 7
5442
045
5 07
7 2
1112
1 97
055
5 66
3
68
SUPPLEM
ENTA
RY INFO
RMATIO
N
STANLIB SOUTH AFRICA – RETAIL INVESTMENT PERFORMANCEfor the year ended 31 December 2018
STANLIB SOUTH AFRICA – INSTITUTIONAL INVESTMENT PERFORMANCEfor the year ended 31 December 2018
Rolling period
One year Three-year Five-yearSurvey funds (Alexander Forbes Surveys – quartile performance) 2018 2017 2018 2017 2018 2017
Stanlib Core Bond 3 2 1 1 2 2Money Market 4 2 3 4 4 4STANLIB Property Income Fund(1) 4 4 4 Large Manager – Global 1 4 4 4 4 4Full Global Mandate 1 4 4 4 4 4Domestic Only Mandate 4 4 4 4 4 4 Stanlib Core Equity 4 4 4 4 4 4Stanlib Enhanced Index 3 1 3 4 3 4 STANLIB Absolute Plus Fund(1) 1 3 1
The Stanlib Institutional Property, Stanlib Growth Equity, Stanlib Value, Absolute Return and Domestic Absolute Return Funds have been removed from the table as they have been rationalised or are in the process of being rationalised.(1) New representative portfolio.
Rolling period
One year Three-year Five-yearCore retail funds – quartile performance Fund name 2018 2017 2018 2017 2018 2017
STANLIB Equity 1 2 3 3 3 2STANLIB SA Equity 3 3 4 4 4 4 STANLIB Balanced 1 3 3 4 4 3STANLIB Balanced Cautious 3 4 4 3 3 3STANLIB Absolute Plus 1 1 1 1 1 2 STANLIB Bond 3 1 1 1 2 2STANLIB Income 1 2 1 1 1 2STANLIB Money Market 2 2 2 2 2 2STANLIB Flexible Income 4 1 4 2 4 3STANLIB Aggressive Income 3 2 1 1 2 3 STANLIB Property Income 4 2 3 2 3 2
The STANLIB Growth, Stanlib Value, STANLIB Inflation Plus 5% and STANLIB Inflation Plus 3% Funds have been removed from the table as they have been rationalised or are in the process of being rationalised.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 69
SUPPLEM
ENTA
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RMATIO
N
STANLIB SOUTH AFRICA – INVESTMENT PERFORMANCEas at 31 December 2018
■ December 2015 ■ December 2016 ■ December 2017 ■ December 2018
5 Year3 Year1 Year
% OF CORE RETAIL PRODUCTS IN 1ST AND 2ND QUARTILE
0
20
40
60
80
5555 5555
6464
■ December 2015 ■ December 2016 ■ December 2017 ■ December 2018
0
20
40
60
80
5656
4444
6767
5 Year3 Year1 Year
% OF INSTITUTIONAL FUNDS IN 1ST AND 2ND QUARTILE
70
SUPPLEM
ENTA
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RMATIO
N
Assets under management (Rm) 2018 2017
Opening market value 52 531 50 787Net cash inflows (7 735) (756)External (8 564) (480)Liberty – intragroup 829 (276)Capital appreciation 6 408 2 500Closing market value 51 204 52 531Segregated funds 31 232 31 683Unit trusts 7 264 7 364Money market 12 708 13 484Total assets under management 51 204 52 531
STANLIB AFRICA – ASSETS UNDER MANAGEMENTas at 31 December 2018
STANLIB AFRICA – ASSETS UNDER MANAGEMENT BY ASSET TYPEas at 31 December 2018
Assets under management (Rm) 2018 2017
Remaining operations(1) 19 136 20 071Fixed interest 4 756 4 904Equity 4 429 5 060Money market 8 596 8 491Other 1 355 1 616Operations under ownership review(2) 32 068 32 460Fixed interest 15 181 12 448Equity 4 963 9 848Property 2 810 1 864Money market 4 112 4 993Other 5 002 3 307
Total assets under management 51 204 52 531Combined Fixed interest 19 937 17 352Equity 9 392 14 908Property 2 810 1 864Money market 12 708 13 484Other 6 357 4 923 51 204 52 531(1) Remaining operations include STANLIB Namibia, STANLIB Namibia Unit Trust Management Company, STANLIB Swaziland and STANLIB Lesotho.(2) Operations under ownership review include STANLIB Botswana, STANLIB Ghana, STANLIB Kenya and STANLIB Uganda. Under IFRS these are disclosed as disposal groups
classified as held for sale.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 71
APPEN
DIX
Fair value hierarchy
1. Asset hierarchyThe table below analyses the fair value measurement of applicable assets by level.2018Rm (Audited) Level 1 Level 2 Level 3 Total
Equity instruments 106 606 1 3 248 109 855Listed equities on the JSE or foreign exchanges 99 978 99 978Unlisted equities 1 1 951 1 952Scrip assets – listed equities on the JSE 6 628 6 628Interests in joint ventures 1 297 1 297Debt instruments 85 890 51 351 186 137 427Listed preference shares on the JSE or foreign exchanges 3 138 3 138Unlisted preference shares 110 186 296Listed term deposits on BESA, JSE or foreign exchanges 77 377 8 374 85 751Unlisted term deposits 42 212 42 212Repurchase agreements and collateral assets 5 375 655 6 030Mutual funds(1) 6 127 91 003 1 533 98 663Property 12 938 950Equity instruments 1 449 13 824 760 16 033Interest-bearing instruments 107 17 231 17 338Mixed asset classes 4 559 59 010 773 64 342Investment policies 8 219 1 243 9 462Derivative assets held for trading and for hedging 6 235 6 235Equity instruments 793 793Currency exchange instruments 1 039 1 039Interest rate instruments 4 403 4 403Policy loans receivable(2) 737 737Collateral deposits receivable 4 105 4 105Prepayments and other receivables held at FVPL(2) 3 037 3 037Cash and cash equivalents held at FVPL 10 024 10 024Properties 35 961 35 961Total assets subject to fair value hierarchy analysis 198 623 170 938 45 945 415 506Other assets not subject to fair value hierarchy analysis: Intangible assets 572Defined benefit pension fund employer surplus 140Equipment 1 038Interest in joint venture – equity accounted 56Interest in associates – equity accounted 10Deferred taxation 245Deferred acquisition costs 777Long-term policyholder assets – insurance contracts 6 708Reinsurance assets 2 119Policy loans receivable(3) 340Prepayments other receivables held at amortised cost 664Insurance contract receivables 1 252Cash and cash equivalents held at amortised cost 6 950Disposal groups classified as held for sale 897Total assets as per statement of financial position 437 274(1) Mutual funds are categorised into property, equity or interest-bearing instruments based on a minimum of 80% of the underlying asset composition of the fund by
value being of a like category. In the event of “no one category meeting this threshold” it is classified as mixed assets class.(2) FVPL: Fair value through profit or loss(3) Certain loan receivables were reclassified as fair value through profit or loss upon adoption of IFRS 9. Previously these were measured at amortised cost.
FAIR VALUE MEASUREMENT DISCLOSURESfor the year ended 31 December 2018
72
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DIX
Fair value hierarchy (continued)
1. Asset hierarchy (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
The table below analyses the fair value measurement of applicable assets by level.
2017Rm (Audited) Level 1 Level 2 Level 3 Total
Equity instruments 132 122 13 2 902 135 037Listed equities on the JSE or foreign exchanges 125 243 125 243Unlisted equities 13 1 709 1 722Scrip assets – listed equities on the JSE 6 879 6 879Interests in joint ventures 1 193 1 193Debt instruments 71 546 50 721 206 122 473Listed preference shares on the JSE or foreign exchanges 401 401Unlisted preference shares 135 180 315Listed term deposits on BESA, JSE or foreign exchanges 67 449 11 235 78 684Unlisted term deposits 38 026 26 38 052Repurchase agreements and collateral assets 3 696 1 325 5 021Mutual funds(1) 4 819 94 092 699 99 610Property 10 1 897 1 907Equity instruments 816 14 885 347 16 048Interest-bearing instruments 1 22 173 22 174Mixed asset classes 3 992 55 137 352 59 481Investment policies 8 528 1 176 9 704Derivative assets held for trading and for hedging 6 053 6 053Equity instruments 380 380Currency exchange instruments 496 496Interest rate instruments 5 177 5 177Properties 34 768 34 768Total assets subject to fair value hierarchy analysis 208 487 159 407 39 751 407 645Fair value assets not subject to hierarchy analysis: Collateral deposits receivable 1 818Prepayments, insurance and other receivables 6 361Cash and cash equivalents 15 169Total fair value assets 430 993Other assets not subject to fair value hierarchy analysis: Intangible assets 231Defined benefit pension fund employer surplus 171Equipment 1 128Interest in joint venture – equity accounted 51Deferred taxation 336Deferred acquisition costs 737Long-term policyholder assets – insurance contracts 7 484Reinsurance assets 1 774Loans and receivables 1 222Total assets as per statement of financial position 444 127(1) Mutual funds are categorised into property, equity or interest-bearing instruments based on a minimum of 80% of the underlying asset composition of the fund by
value being of a like category. In the event of “no one category meeting this threshold” it is classified as mixed assets class.
Liberty Holdings Limited Financial results for the year ended 31 December 2018 73
APPEN
DIX
2. Liability hierarchyThe table below analyses the fair value measurement of applicable liabilities by level. 2018Rm (Audited) Level 1 Level 2 Level 3 Total
Policyholder long-term investment contract liabilities 99 813 99 813Third-party financial liabilities arising on consolidation of mutual funds 46 628 1 558 48 186Financial liabilities(1) 6 478 6 478Repurchase agreements liabilities 5 771 5 771Liabilities held for trading and for hedging 8 457 8 457Insurance and other payables at FVPL 4 628 4 628Collateral deposits payable 5 976 5 976Total liabilities subject to fair value hierarchy analysis 173 123 6 186 179 3092017 Rm (Audited) Policyholder long-term investment contract liabilities 100 519 100 519Third-party financial liabilities arising on consolidation of mutual funds 48 484 1 229 49 713Repurchase agreements liabilities 4 671 4 671Liabilities held for trading and for hedging 6 311 6 311Total liabilities subject to fair value hierarchy analysis 159 985 1 229 161 214Fair value liabilities not subject to fair value hierarchy analysis: Policyholder long-term insurance contract liabilities – embedded derivatives 1 411Collateral deposits payable 4 426Employee benefits 951Insurance and other payables at FVPL 11 995Total fair value liabilities 179 997(1) Financial liabilities were reclassified as designated fair value through profit or loss upon adoption of IFRS 9. Previously these were measured at amortised cost.
Fair value hierarchy (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
74
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DIX
3. Fair value disclosure of financial assets and liabilities that are measured at amortised costThe fair value of financial assets and liabilities which are measured at amortised cost is categorised into the following fair value hierarchies:
2018Rm (Audited)
Amortised cost Fair value Level 1 Level 2 Level 3
Financial assets measured at amortised cost Policy loans receivables – net carrying value 340 316 316Financial liabilities measured at amortised cost Loan facilities(1) 1 626 1 626 1 626
2017 Rm (Audited) Financial assets measured at amortised cost Loans and receivables – net carrying value 1 222 1 137 1 137Gross carrying value 1 259 Less: Accumulated impairment (37)
Financial liabilities measured at amortised cost Subordinated notes 5 576 5 681 5 681 Redeemable preference shares 5 5 5(1) The loan facilities were drawn down on 1 November 2018, therefore the amortised cost and fair value is materially the same.
The fair value of prepayments and other receivables, cash and cash equivalents and other payables that are all held at amortised cost approximate their carrying value and are not included in the above hierarchy table as their settlement terms are short-term and therefore from a materiality perspective fair values are not required to be modelled.
Fair value hierarchy (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 75
APPEN
DIX
4. Reconciliation of level 3 assets and liabilities The table below analyses the movement of level 3 assets for the period.
Rm (Audited) 2018 2017
Balance at the beginning of the year 39 751 39 113IFRS 9 reclassification from amortised cost to FVPL of loan receivables 831 Balance restated after IFRS 9 adjustment 40 582 Fair value adjustment recognised in profit or loss as part of investment gains(1) 823 71Fair value adjustment recognised in other comprehensive income(1) 19 (67)Reclassification to level 3(2) 26Foreign currency translation 41 (26)Additions 1 456 811Disposals (276) (128)Movements on third-party share of financial instruments in mutual funds 263 ( 49)Balance at the end of the year 42 908 39 751Financial instruments - prepayments and other receivables(3) 3 037 Balance at the end of the year, including prepayments and other receivables 45 945 39 751Properties 35 961 34 768Financial instruments – equity and mutual funds 4 781 3 601Financial instruments – debt 186 206Financial instruments – policy loan receivables 737 Financial instruments – prepayments and other receivables 3 037 Financial instruments – investment policies 1 243 1 176
(1) Included in the fair value adjustments is a R713 million unrealised gain (2017: R1 656 million unrealised loss).(2) These movements were assessed based on the latest information available and one or more changes in the observability of valuation inputs. These changes were
effective at the beginning of the year.(3) No movement analysis is provided for prepayments and other receivables that are included as level 3 assets in the fair value hierarchy. These amounts are typically short
term trade debtors and arise in the ordinary course of business. It is impracticable to separate additions and disposals.
The liabilities categorised as level 3 relate to the mutual fund third party portion. The movement in the year is prepared below.
Rm 2018 2017
Balance at the beginning of the year 1 229 1 271Unrealised fair value adjustments and net movements on consolidated mutual funds 329 ( 42)Balance at the end of the year 1 558 1 229
No movement analysis is provided for insurance and other payables that are included as level 3 assets in the fair value hierarchy. These amounts are typically short term trade creditors and arise in the ordinary course of business. It is impracticable to separate additions and disposals.
Fair value hierarchy (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
76
APPEN
DIX
5 Sensitivity analysis of level 3 assets 5.1 Investment and owner-occupied property
Investment and owner-occupied properties fair values were derived by determining sustainable net rental income, to which an appropriate exit capitalisation rate is applied. Exit capitalisation rates are adjusted for occupancy levels, age of the building, location and expected future benefit of recent alterations.
The exit capitalisation rates applied at 31 December 2018 range between 6,3% to 9,5% (2017: between 6,3% to 11,0%). This compares to the ten year government yield of 8.875% (2017: 8,06%). The non observable adjustments included in the valuation can therefore be referenced to the variance to the ten year government rate. Discount rates in 2018 were between 12,0% to 16,5%.
Both the investment and the owner-occupied properties are largely linked to policyholder benefits and consortium non-controlling interests which limits the impact to group ordinary shareholder comprehensive income or equity for any changes in the fair value measurement.
The tables below indicate the sensitivity of the aggregate market values for a 1% change in the exit capitalisation rate.
Change in exit capitalisation
rate
2018Rm (Audited) Total
1%increase
1%decrease
Properties below 6,8% capitalisation rate 31 033 26 933 36 015Properties between 6,8 – 8,5% capitalisation rate 1 867 1 660 2 133Properties between 8,6 – 9,5% capitalisation rate 3 061 2 757 3 441Total 35 961 31 350 41 5892017 Rm (Audited) Properties below 6,8% capitalisation rate 26 157 22 029 30 969Properties between 6,8% – 8,5% capitalisation rate 5 177 4 558 5 991Properties between 8,6% – 11,0% capitalisation rate 3 434 3 094 3 858Total 34 768 29 681 40 818
The table below indicates the sensitivity of the aggregate market values for a 1% (2017: 0,5%) change in the discount rate.
Change in discount rate
2018Rm (Audited) Total
1%increase
1%decrease
Total properties 35 961 34 558 37 170
2017 Rm (Audited) Total
0,5%
increase
0,5%
decreaseTotal properties 34 768 34 063 35 414
Fair value hierarchy (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 77
APPEN
DIX
Impact on investment property valuations as a result of media reports relating to Edcon Limited (Edcon)
During December 2018 and, as reported in the media, Edcon requested a rental holiday from its landlords totaling 40.9% of gross rental over a 24 month period commencing 1 April 2019, in return for an equity subscription. The proposal further required contributions from its lender group as well as a new equity subscription from an institutional investor. At 31 December 2018, and at the time of reporting, significant uncertainty remains on whether the proposal will be accepted by all stakeholders as various conditions precedent have not been met. Based on the proposal and subsequent information provided by Edcon, Liberty management believe that the restructure proposed is likely to be successful if all the conditions are met.
Management has considered and evaluated two scenarios proposed by Edcon:
Scenario 1• Base case with 40.9% rental reduction and receipt of equity for rental forfeited.• The impact on the investment property valuation is an estimated R98 million decrease (excluding property consortiums) for
Liberty Holdings Limited. • Market value of equity received – to be determined. • The Liberty group is unlikely to accept this scenario.Scenario 2• Equity subscription in Edcon, with rental remaining at the current level.• Impact on investment property valuation – no impact on portfolio valuation if equity subscription and rental agreement are
not linked.Management is actively monitoring developments relating to Edcon and plans are in place to mitigate any potential adverse impact. Management concluded that no adjustment should be made to the year-end valuations in line with the second scenario which assumes that Edcon will remain a going concern.
Both the investment and the owner-occupied properties are linked to policyholder benefits and consortium non-controlling interests which limits the impact to company or group ordinary shareholder comprehensive income or equity for any changes in the fair value measurement.
Fair value hierarchy (continued)
5. Sensitivity analysis of level 3 assets (continued)5.1 Investment and owner-occupied property (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
78
APPEN
DIX
5.2 Financial instrument assets
Audited
2018Audited
2017
Rm
Discount rate
% Rm
Discount rate
%
Equities and mutual funds Unlisted equities 1 951 10–14 1 709 14 – 35Interests in joint venture 1 297 14 1 193 14Mutual funds 1 533 10–19 699 15 – 19Investment policies 1 243 11 1 176 11Debt Unlisted preference shares 186 12 180 12Unlisted term deposits 26 Policy loan receivables 737 12
Approximately 97% (2017: 99%) of these assets are allocated to policyholder investment-linked portfolios and therefore changes in estimates would be offset by equal changes in liability values.
Audited
2018Audited
2017
Change in discount rate Change in discount rate
Net shareholder
exposure Rm
1% increase
Rm
1% decrease
Rm
Net shareholder
exposure Rm
1% increase
Rm
1% decrease
Rm
After tax net impact to profit or loss and shareholder equity 1 191 (83) 97 372 (22) 26
Fair value hierarchy (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
Liberty Holdings Limited Financial results for the year ended 31 December 2018 79
APPEN
DIX
Fair value hierarchy (continued)
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
6 Group’s valuation processThe group’s appointed asset managers have qualified valuators that perform the valuations of financial assets and appointed independent valuators to determine fair values of properties required for financial reporting purposes, including level 3 fair values. These valuations are reviewed and approved every reporting period by the group balance sheet committee. The committee is chaired by the group’s financial director.
The fair values of level 3 instruments are determined using valuation techniques that incorporate certain assumptions that are not supported by prices from observable current market transactions in the same instruments and are not based on available observable market data. Such assumptions include the assumed risk adjusted discount rate applied to estimate future cash flows and the liquidity and credit spreads applied to debt instruments. Changes in these assumptions could affect the reported fair value of the financial instruments.
6.1 Valuation techniques used in determining the fair value of assets and liabilities classified within level 2
INSTRUMENT VALUATION BASIS/TECHNIQUES MAIN ASSUMPTIONS
Unlisted preference shares
Discounted cash flow model (DCF) Bond and interbank swap interest rate curves Agreement interest rate curves Issuer credit ratings Liquidity spreads
Unlisted term deposits, illiquid listed term deposits and senior secured term facility
DCF Bond and interbank swap interest rate curves Issuer credit ratings Liquidity spreads
Mutual funds Quoted put (exit) price provided by the fund manager
Price – not applicable
Notice period – bond interest rate curves
Investment policies Quoted put/surrender price provided by the issuer, adjusting for any applicable notice periods (DCF)
Price – not applicable
Bond interest rate curves
Derivative assets and liabilities Option pricing models Volatility and correlation factors DCF Bond and interbank swap interest rate curves Forward equity and currency rates
Policyholder investment contracts liabilities
– unit-linked policies
Current unit price of underlying unitised financial asset that is linked to the liability, multiplied by the number of units held
Not applicable
– fixed term annuities DCF Bond and interbank swap interest rate curves Own credit/liquidity
Subordinated notes DCF and listed bond prices 3-month JIBAR (floating rate notes)
Bond Spread (Own credit/liquidity)
Yield curves, with implied credit spreads
Different cash flows of various bonds, with fixed and floating rates
Commercial paper DCF Discount curve
Credit spread
Cash equivalents - short term deposits
Market to market
Yield curves
Bonds and interbank swap interest curve
Cash on hand Face value Not applicable
Third-party financial liabilities arising on the consolidation of mutual funds
Quoted put (exit) price provided by the fund manager
Not applicable
80
APPEN
DIX
Fair value hierarchy (continued)
6. Group’s valuation process (continued)
6.2 Valuation techniques used in determining the fair value of assets and liabilities classified within level 3
INSTRUMENT VALUATION BASIS/TECHNIQUES MAIN ASSUMPTIONS
Investment and owner-occupied properties
DCF Exit capitalisation and discount rates Price per square meter
Long-term net operating income margin Vacancies
Market rental trends (Market Rental Growth Ranges Retail: 5.5% to 5.75%; Office: 4.5% to 6%)
Economic outlook Location Hotel income trends/inflation based Hotel occupancy (range between 60% – 75%) Sale price (if held for sale) Not applicable
Unlisted equities and debt, including associates and joint ventures – measured at fair value
DCF/earnings multiple Cost of capital Bond and interbank swap interest rate curves Consumer price index
Gross domestic product
If a property investment entity, then assumptions applied are as above under investment and owner-occupied property
Net asset value Not applicable Recent arm’s length transactions Not applicable
Unlisted preference shares DCF Bond and interbank swap interest rate curves Agreement interest rate curves Issuer credit ratings Liquidity spreads
Unlisted term deposits and illiquid listed term deposits
DCF Bond and interbank swap interest rate curves Issuer credit ratings Liquidity spreads
Mutual funds Quoted put (exit) price provided by the fund manager, adjusted for liquidity
Price – not applicable
Notice periods and estimated repayment – bond interest rate curves Liquidity spreads
Investment policies Probalistic valuation methodology Face value DCF Premium burden Life expectancy Bond and interbank swap interest rate curves
Policy loans receivable DCF Prime interest rate Term
Prepayments and other receivables DCF
Age analysis
Applicable risk-free rate
Applicable credit margin
Expected cash flows
Other payables DCF
Age analysis
Applicable credit margin including Liberty's own credit risk
Third-party financial liabilities arising on the consolidation of mutual funds
Quoted put (exit) price provided by the fund manager
Not applicable
FAIR VALUE MEASUREMENT DISCLOSURES (CONTINUED)
for the year ended 31 December 2018
FINA
NCIA
L RESULTS
Financial DirectorYuresh MaharajTel: +27 (11) 408 [email protected]
Executive: Group FinanceMichael NorrisTel: +27 (11) 408 [email protected]
Investor RelationsSharon SteynTel: +27 (11) 408 [email protected] [email protected]
Company SecretaryJill ParrattTel: +27 (11) 408 [email protected]
Website: www.libertyholdings.co.zaCustomer Call Centre Tel: 0860 456 789
Head Office and Registered Address Liberty Life Centre, 1 Ameshoff Street Braamfontein, Johannesburg 2001Postal address: PO Box 10499, Johannesburg 2000 Tel: +27 (11) 408 3911Registration number: 1968/002095/06
Auditors PricewaterhouseCoopers Inc. 4 Lisbon Lane, Waterfall CityJukskei View 2090Tel: +27 (11) 797 4000
Transfer SecretariesComputershare Investor Services Proprietary Limited (Registration number 2004/003647/07)Rosebank Towers, 15 Biermann Avenue, Rosebank Johannesburg 2196Tel: +27 (11) 370 5000
Contact details
www.libertyholdings.co.za