Liberty turnaround gains traction as half year profits rise; maintains dividend third year running

By Roxanne Henderson

(Bloomberg) – Liberty Holdings Ltd., the South African insurer midway through an overhaul to improve profit, plans to build on momentum achieved in the first half even as the market remains challenging.

“We certainly feel our business is poised to take advantage of any growth that will come through in the economy,” Chief Executive Officer David Munro in a telephone interview. “We expect a subdued outlook for the South African economy at this point in time.”

The insurer on Thursday posted a slight drop in first-half profit to R1.52 billion ($114 million) from R1.54 billion a year earlier as its turnaround strategy maintained earnings. The company is in the middle of a revamp which has helped to stabilise the business in a weak local economy, Liberty said in a statement.

The company managed to boost new business by 57 percent from a year earlier by simplifying its product range and controlling costs, Munro said. Margins also widened to 0.7 percent from 0.4 percent. This came after the insurer improved and simplified its product range and controlled costs, he said.

Shares rise

Shares in the Johannesburg-based insurer rose 1.8 percent by 10:14 a.m. in the city, the only one of six members in the FTSE/JSE Africa Life Assurance Index to post gains.

The company, which suffered a data breach in June, will work on improving its risk and control management, as well as turning around its struggling asset manager Stanlib. Liberty has delayed plans to expand across Africa to focus on growing in its home market, Munro said.


Liberty media statement:

Financial Highlights

  • Normalised operating earnings increased 18% to R958 million
  • Normalised headline earnings increased 5% to R1,332 million
  • Capital adequacy ratio strong at 2.67 times the regulatory minimum
  • Group long-term insurance net customer cash inflows are R262 million
  • Long-term insurance indexed new business R3,773 million
  • Group equity value per share at R138,66
  • Assets under management of R719 billion
  • Interim dividend of 276 cents per share

Commenting on the results, David Munro Liberty Group CEO said:

“Over the past six months we have made meaningful progress to turn Liberty around. Our results for the half year reflect a stabilisation of our business, but we are still some distance from where we need to be, especially given weak new business volumes. While the tough economic environment is impacting the recovery of our South African businesses, we are making significant strategic shifts to support our financial advisers and deliver excellent customer experience. We have made progress in reducing organisational complexity, improving the resilience of STANLIB, enhancing risk and compliance and optimising our growth initiatives. Our working relationship with the Standard Bank Group continues to grow stronger, enabling us to unlock new opportunities as part of the Universal Financial Services Organisation (UFSO).

“Looking forward, we will continue to prioritise our business in South Africa where we have a robust core franchise. We have a clear strategy, which is progressing to plan and we believe the real evidence of our actions will come through in 2019 and 2020. We are confident that we are on track to deliver.”

Liberty Group CEO David Munro
Stabilised operating performance

Our results for the half year reflect a stabilisation of our business, with normalised operating earnings up by 18%, supported by increased earnings from the South African insurance operations and the STANLIB businesses. We also delivered a 5% growth in normalised headline earnings. The Shareholder Investment Portfolio (SIP) remains under pressure reflecting weak investment markets.

The South African economy contracted by 2.2% in the first quarter of the year with consumer spending constrained by increases in taxes and administered prices, notably multiple fuel price increases. In July 2018, the SARB revised its growth forecast for 2018 down to 1.2%. This suggests that consumer spending could struggle to gain meaningful traction in 2018.

The Value of New Business (VoNB) increased from R86 million for the first half of 2017 to R135 million for the current period, and the new business margin improved from 0.4% to 0.7%.

Group long-term insurance net customer cash inflows amounted to R262 million compared to cash outflows of R665 million in the prior period. This was a result of lower policy withdrawals and maturities in Individual Arrangements and lower scheme termination outflows in Liberty Corporate. STANLIB South Africa net customer cash inflows increased to R8.4 billion from R5.6 billion in the prior period.

The group’s capital position remains strong with the capital adequacy ratio at 2.67 times the regulatory minimum at 30 June 2018.

Individual arrangements

Headline earnings from the group’s South African retail business of R704 million were 18% up on the prior period, assisted by improved persistency experience and lower assumption and modelling changes.

Indexed new business sales were 3% down on the prior period impacted by the competitive environment together with the current tough economic conditions. VoNB increased from R62 million in the prior period to R111 million, while the margin improved from 0, 5% at 31 December 2017 to 0.7%. Action taken in 2017 and the first half of 2018 to improve the VoNB and new business margin, including product changes and repricing, are starting to manifest in the result. This has been further supported by an improvement in the product mix and good expense control.

Net customer cash inflows of R750 million reflect favourable withdrawal experience, highlighting the success of ongoing retention initiatives. This was partly offset by lower single premium business, which is the main contributor to net cash inflows being 3% below the prior period.

Asset management

At STANLIB, the leadership team has taken significant steps to improve investment performance and the general resilience of the business.  Actions taken included improving the quality of the investment teams, interrogating investment philosophies and processes, and strengthening the oversight functions.

STANLIB South Africa earnings increased to R175 million from R115 million in the prior period.  Fee income was marginally lower in the period mainly due to muted investment market returns. The prior period earnings were impacted by operational write-offs. Management has continued to strengthen the control environment with a focus on improving the overall financial results.

Net customer cash inflows (excluding intergroup) grew to R8.4 billion from R5.6 billion in the prior period. This result was mainly attributable to improved non-money market inflows. Intergroup cash outflows for the period amounted to R6.2 billion.

Total assets under management by STANLIB South Africa amounted to R559 billion.

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