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Financial Performance Indicators
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
June June December
2008 2007 % change 2007
Group
BEE normalised headline earnings per share (cents) 321,8 583,1 (44,8) 1 100,4
1
BEE normalised headline earnings per share before net
capital gains/(losses) on shareholder investment
portfolios (cents) 431,5 481,1 (10,3) 1 002,4
BEE normalised embedded value per share (R) 94,08 89,68 4,9 94,44
BEE normalised return on embedded value (%) 5,0 24,7 (79,7) 19,5
Dividends per share/capital reduction in lieu
of dividends (cents)(1) 164 144 13,9 410
Net cash (outflows)/inflows (Rm) (2 031) 9 754 (>100) 17 387
Capital adequacy requirement cover (times covered) 2,49 2,13 2,07
Insurance operations(2)
Indexed new business (excluding contractual increases) (Rm) 2 172 1 937(3) 12,1 4 351
New business margin (%) 1,7 2,6 2,5
Net cash (outflows)/inflows (Rm) (1 486) 4 513 (>100) 4 280
(4)
Asset management
Assets under management (Rbn) 334 322 3,7 340
Net cash (outflows)/inflows excluding money market (Rm)(5) (7 422) 1 999 (>100) 8 714
Net cash (outflows)/inflows (Rm) (545) 5 241 (>100) 13 107
(1)
Represents total declarations in relation to the financial period
(2)
Includes insurance business written under any of the group’s life licences
(3)
Restated in accordance with new definitions applied to December 2007
(4)
Includes STANLIB and Liberty Africa asset management operations
(5)
Excludes intergroup life fund cash flows
Relevant Definitions
BEE normalised headline earnings per share, embedded value per share and return on embedded value
These measures reflect the economic reality of the Black Economic Empowerment (BEE) transaction as opposed to the required
technical accounting treatment that reflects the BEE transaction as a share buy back. Dividends received on the group’s BEE preference
shares (which are recognised as an asset for this purpose) are included in income. Shares in issue relating to the transaction are reinstated.
Indexed new business
Is a measure of new business in insurance operations representing annualised recurring premium business (at the first full year’s
premium value) and one tenth of a single premium deposit.
New business margin
Embedded value of new business as a percentage of the present value of future expected premiums.
Commentary on Results
Liberty Group Interim Results 2008
In the commentary that follows, Liberty Group Limited and its subsidiaries is referred to as “Liberty” or “group”.
Good progress on strategic growth path
Against a backdrop of significant turbulence in global financial markets, Liberty has continued to drive its strategic vision – to become
the leading broad-based wealth management company in Africa and other select emerging markets.
Although the group’s short-term earnings performance is correlated to market conditions, Liberty’s commitment to sound business and
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risk policies has seen an already strong capital position at the 2007 year-end improve further by 30 June 2008, in spite of the volatile
markets.
Key advantages for shareholders from the broadening of Liberty’s strategic approach over the last two years include:
• A fundamental shift in Liberty’s strategic direction onto a clear growth path, with progress evident across the group on operational,
geographic and cultural levels.
• Liberty’s strategic partnership with Standard Bank has been significantly strengthened by Standard Bank’s offer to buy out minority
shareholders in Liberty Holdings – a strong vote of confidence.
• Subject to market conditions, we expect to be in a position to finance our growth strategy from internal resources and alternative
non-equity funded structures.
Liberty’s growth strategy is essentially driven through a three-pronged approach:
• Optimising existing operations – “Business as Usual” – Focusing core businesses on superior customer service, product and
operational excellence and cost management.
• Developing current opportunities – “Leverage and Build” – Taking Liberty’s business to new levels, building on existing
competencies and operations.
• Exploring new horizons – “Extend and Grow” – Expanding the group’s product manufacturing, distribution capabilities and
geographic footprint, both organically and by acquisition.
2008 highlights of Liberty’s growth path towards becoming a broader wealth company included:
• new injections of proven business acumen at senior executive level;
• establishing Liberty Financial Solutions (Libfin), a new business unit that will manage the group’s balance sheet from an investment
and market risk perspective – enhancing our existing sound risk management principles by introducing investment banking skills;
• the acquisition of 50% of Fountainhead’s asset management business – further broadening the ambit of property services offered
by the group;
• moving the implementation of the new joint venture with kulula.com forward, through the acquisition of an experienced
management team;
• implementation of the group’s technology-driven healthcare strategy and the announcement of the acquisition of Neil Harvey and
Associates (subject to Competition Commission approval);
• significant progress in the take-on of new health scheme members – both in South Africa and elsewhere on the continent – with
volumes estimated to grow from 45 000 to 250 000 lives by end-2008;
• extensive preparatory work ahead of Liberty’s expansion into the rest of Africa, and the announcement of operational start-ups in
Botswana and Namibia; and
• STANLIB continued to deliver strong relative equity market returns, cementing its reputation as South Africa’s leading fund manager
of 2007.
Period to 30 June in brief
After a four-year period of strong equity market performance, the first half of 2008 has been characterised by volatility in the financial
and industrial sectors of the equity market, significant imported price pressures, particularly the food and oil prices and consumer
inflation increasing substantially to levels in excess of 10%. These circumstances led to the Reserve Bank increasing short-term interest
rates. In addition concerns over the financial turmoil flowing from the sub prime lending issues has added to the negative sentiment
over emerging markets.
Due mainly to lower investment returns, the group’s BEE normalised headline earnings per share is 44,8% lower than the same period
in 2007. The return on the BEE normalised embedded value has reduced from 19,5% to 5,0%, reflecting the difficult trading and
economic environment. BEE normalised embedded value per share declined slightly to R94,08 at 30 June 2008 compared to the
R94,44 reported at 31 December 2007. Group new business production increased by 27,8% to R78,7 billion due to significant inflows in
the retail asset management sector. However, this has been offset by similar increases in withdrawals and group net investment cash
flows were negative at R2,0 billion (2007: R9,8 billion positive).
In this environment, the weighted average investment return, used as a proxy in relation to policyholder bonuses on portfolios where
shareholders have a 10% participation, ended the half year at 2,7%, compared to 10,4% for the 2007 half year. The shareholder equity
portfolios are strongly biased towards financial and industrial stocks where performance was negative. The FINDI index, which is a
broadly representative benchmark for these portfolios, showed an 11,9% decline for the six months to 30 June 2008. Consequently, the
group’s first half earnings were negatively impacted to the extent of R311 million capital losses (net of capital gains taxation) on the
shareholder investment portfolios (2007: R289 million profit).
The increasingly difficult consumer conditions have resulted in higher lapses and surrenders in the Individual Life business unit and
consequently actuarial assumptions used in the valuation of the policyholder liabilities have had to be strengthened. This has been
offset by above-expectation risk profits.
Profits from the group’s asset management operations (STANLIB, Liberty Africa, Liberty Properties and Fountainhead Property Trust
Management Limited (Fountainhead)) are in line with expectations and holding up well despite the volatile investment market.
The government proposed Social Security and Retirement Reform continues to be debated, although no significant developments have
emerged from the policymaker. The group remains an active participant in the reform process through various industry bodies.
We expect the implementation of the revised commission regulations will be completed during the second half of 2008, and have plans
in place to manage any potential impact on the group’s new business volumes.
Commentary on Results
Liberty Group Interim Results 2008
(continued)
Contribution to BEE normalised headline earnings
June June December
2008 2007 % change 2007
Rm Rm Rm
Insurance operations 753 984 (23,5) 1 798
3
– Individual 705 893 (21,1) 1 569
– Corporate 48 91 (47,3) 229
Asset management operations 237 201 17,9 453
Shareholders’ funds (23) 492 (>100) 818
Shareholder expenses (94) (71) (32,4) (155)
Growth initiatives (17) (>100)
Net income on BEE preference shares accounted
for in equity 57 48 18,8 100
Defined benefit pension fund employer surplus 115
Total 913 1 654 (44,8) 3 129
Individual Life (including Liberty Africa insurance operations)
Indexed new business (excluding contractual increases) increased by 11,1% to R1 901 million. Whilst good growth was recorded in risk
and annuity products, individual investment products are only marginally up on 2007. It would appear that decreases to individual
disposable income have impacted investment volumes, particularly single premium investment products.
The new business embedded value profit margin has reduced from 2,8% for full year 2007 to 2,0%, mainly as a consequence of the
impact of the higher risk discount rates. The value of new business amounted to R203 million.
Net cash outflows for the half year have been impacted by lower sales of single premium business and amounted to R331 million (2007:
inflow of R1 117 million).
The higher lapse rates have resulted in a slightly lower policy count to that at 31 December 2007 and consequently the maintenance
cost per policy has increased by 9,5%.
As part of the ongoing improvements in half year reporting, the maintenance cost reserving at the half year was done on the same basis
as a typical year end reserve calculation. The negative effect on earnings arising from this was R148 million after taxation.
Due to the increase in long-term interest rates the valuation of the embedded investment guarantees, contained in certain investment
and risk products, gave rise to positive mark-to-market earnings of R590 million (after taxation). However, this was offset by the negative
economic assumption change of the 250bps increase in the risk discount rate.
Corporate
The corporate market, which represents 12,7% of total new insurance business, grew indexed new business (excluding contractual
increases) by 19,4%. Recurring and single premiums showed strong growth for the period, increasing by 19,6% and 20,1% respectively.
Net cash outflows for the half year are however negative at R1 155 million and were impacted by higher scheme member withdrawals.
The comparative net positive cash flow of R3 396 million includes a single premium transfer of the Investec Employee Benefit closed
book of R4 487 million.
Total insurance earnings
Total insurance operations headline earnings decreased by 23,5% to R753 million compared to June 2007, representing 82,5% of the
group’s headline earnings for the period. The decrease in the earnings reflects mainly the reduced 10% participation in certain
policyholder investment portfolios and the strengthening of persistency and related maintenance cost assumptions.
Asset management operations
This includes earnings from STANLIB, Liberty Africa, Liberty Properties and the newly acquired 50% interest in Fountainhead.
STANLIB contributed R206 million to the group’s headline earnings. Operating profit before interest and taxation was R309 million
which is 18,4% higher than the R261 million achieved for half year 2007. This results mainly from a combination of higher assets under
management and higher performance fees. Assets under management increased by 1,6% to R318 billion. Net cash outflows for the
period were R3 054 million. Given the high interest rate environment and weaker equity markets, the cash flows into money market
were strong, while there has been a net outflow from retail and institutional funds. Sales, excluding money market, decreased by 4,5%
to R21 280 million.
Liberty Properties, which earns development and management fees from managing the group’s property portfolio, performed well,
and earnings after taxation increased by 40% to R35 million. Liberty Properties is managing a number of property developments and
consequently development fees are higher.
As announced to shareholders on 27 March 2008, a 50% interest in Fountainhead was acquired with effect from 1 April 2008.
Fountainhead manage the listed Fountainhead Property Trust. Net earnings to 30 June 2008 attributable to the group are R3 million.
The newly formed Liberty Africa business unit incurred a loss of R7 million to 30 June 2008. Liberty Africa is currently in the process of
seeking opportunities and building capacity.
Commentary on Results
Liberty Group Interim Results 2008
(continued)
Liberty Financial Solutions (Libfin)
A new business unit, Liberty Financial Solutions, has been established to specifically focus on strategic shareholder balance sheet
management. This includes the management of policyholder assets (at the strategic level) as well as the maximisation of risk adjusted
returns on shareholder investments and potential mismatch positions.
Shareholders’ funds
Assets, not specifically held to match policyholder liabilities or utilised in asset management operations, are held to meet the need to
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back regulatory capital and minimise liquidity risk. Currently, the capital assets are balanced between long-term equity holdings and
interest related investments to achieve an investment portfolio designed to maximise long-term returns for shareholders. Equity
portfolios are currently biased towards financial and industrial sectors but may change over time. Unfortunately, the recent world wide
economic concerns have negatively affected these equity portfolios in the first half of the year. Interest revenue has, however, benefited
from the higher rates.
South African equity markets returned 6,4% (ALSI) in first half 2008, well below the 19,2% returned in full year 2007. However the returns
are distorted by the relatively good performance in the resource sector. Returns for industrial and financial stocks were 11,9% lower at
30 June 2008 against 31 December 2007.
Despite having a higher interest rate environment, shareholders’ funds headline loss of R23 million was R515 million lower than the
R492 million profit reported in 2007, due to the capital losses experienced on the equity portfolios. Realised and unrealised capital losses
(net of capital gains taxation) on the shareholder portfolios were R311 million compared to a R289 million profit in first half 2007.
Shareholder expenses
Shareholder expenses relate to shareholder corporate activity including costs associated with developing a risk based capital methodology.
Growth initiatives
Growth initiatives include Liberty Africa, Liberty Health and other start up initiatives. Most of the first half activity in these operations has
been to build capacity, develop business models and identify possible markets. The results therefore mainly reflect net costs associated
with these activities. It is anticipated that in 2009 meaningful contributions to the group’s revenue will begin to flow from these
operations.
Group embedded value
The group’s BEE normalised embedded value per share is R94,08, comparable to the R94,44 reported at 31 December 2007.
Lower value of new insurance business, reduced shareholder fund returns and the effects of the 250bps increase in the risk discount
rate are the main negative contributors to the reported lower annualised BEE normalised return on embedded value of 5,0%.
Capital adequacy requirement (CAR)
The statutory capital adequacy requirement of Liberty Group Limited was covered 2,49 times at 30 June 2008 compared to the 2,07
times at 31 December 2007. After taking into account the group’s interim dividend and the expected strategic spend, the CAR cover is
above the group’s target of 1,7 times.
Proposed changes to group structure
As announced on the securities exchange news service on 21 July 2008, Liberty is considering the merits of implementing a holding
company structure which would facilitate its strategic intent of forming a wealth management group. The restructure would result in
Liberty and other group operating companies being held by a listed holding company.
Standard Bank Group Limited has been approached by Liberty to consider facilitating this structure by allowing Liberty Holdings Limited
(Liberty Holdings) to become such a listed holding company. If such a holding company structure were implemented, this would entail
existing Liberty shareholders, other than Liberty Holdings, exchanging their Liberty shares for an economically equivalent shareholding
in Liberty Holdings via a scheme of arrangement. Standard Bank, Liberty Holdings, Liberty and their advisers are considering this proposal
as well as other alternatives in relation to Liberty Holdings and a further announcement will be made in due course.
Dividend
In terms of the authority granted to the directors at the 2008 annual general meeting and in accordance with the group’s dividend
policy, the directors have approved an interim dividend of 164 cents per ordinary share.
The important dates pertaining to the interim dividend of 164 cents per ordinary share are as follows:
Last date to trade cum dividend on the JSE Friday, 29 August 2008
First trading day ex dividend on the JSE Monday, 1 September 2008
Record date Friday, 5 September 2008
Payment date Monday, 8 September 2008
Prospects
Markets have continued to see significant volatility in the first half of 2008, reflecting increased uncertainties in the global and South
African economic outlook. Liberty’s earnings and embedded value remain correlated to the performance of local capital markets,
whereas the group’s new business and persistency are broadly influenced by such factors as disposable income, inflation, debt servicing
costs and employment.
We, however, remain confident of the long-term prospects for South Africa and Africa and are confident that the group will achieve actuarial
assumptions over the medium term, leading to real returns on BEE normalised embedded value in line with our stated return targets.
Bruce Hemphill Saki Macozoma
Chief Executive Chairman
5 August 2008
Commentary on Results
Liberty Group Interim Results 2008
(continued)
Accounting policies and presentation
The results have been prepared in accordance with International Financial Reporting Standards (IFRS) including full compliance with
IAS 34 Interim Financial Reporting. There have been no changes to accounting policies from those applied for the year ended
31 December 2007. The group has chosen to early adopt the amendments to IAS 1 Presentation of Financial Statements.
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This amendment requires a statement of comprehensive income which is more relevant to Liberty as it helps eliminate current
mismatches in the income statement between the measurement of policyholder attributable assets and liabilities.
Comprehensive income for a period includes profit or loss for that period plus other income or expense items that are not
recognised in profit or loss as required or permitted by other standards. The standard does not change the recognition or
measurement of specific transactions, but only where they are presented in the primary statements. All owner changes in equity
remain recognised in the statement of changes in equity.
Accordingly, the statement of comprehensive income now includes the foreign currency translation of subsidiaries, the revaluation
of owner-occupied properties and the related taxation expenses with the profit or loss for the period.
The balance sheet is now referred to as the statement of financial position.
Restatement of comparatives
The June and December 2007 statements have been restated to reflect the above change.
There are no required prior year restatements to the group’s assets, liabilities or equity as a consequence of the amendment.
Key estimates
An actuarial valuation of policyholder liabilities is completed at the group’s half year end. The group completes annual
comprehensive policyholder experience investigations in the second half of each year. Consequently the valuation of policyholder
liabilities at half year reflects a higher level of estimation.
Audit opinion
These results have not been audited or reviewed by the group’s auditors, PricewaterhouseCoopers Inc. Consequently no opinion
has been issued.
Share certificates
Share certificates may not be dematerialised or rematerialised between Monday, 1 September 2008 and Friday, 5 September 2008,
both days inclusive. Where applicable, dividends in respect of certificated shareholders will be transferred electronically to
shareholders’ bank accounts on payment date. In the absence of specific mandates, dividend 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 September 2008.
Liberty Group Limited Transfer Secretaries
Incorporated in the Republic of South Africa Computershare Investor Services (Pty) Limited
(Registration number: 1957/002788/06) (Registration number: 2004/003647/07)
Alpha code: LGL Ground Floor, 70 Marshall Street, Johannesburg, 2001
Issuer code: LIBU PO Box 61051, Marshalltown, 2107
ISIN code: ZAE000057360 Telephone +27 11 370 5000
Sponsor
Group Statement of Financial Position
Liberty Group Interim Results 2008
as at 30 June 2008
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
6
Assets
Equipment and properties under development 538 675 519
Owner-occupied properties 1 272 875 1 276
Investment properties 15 405 13 506 14 937
Intangible assets 1 047 1 234 1 137
Defined benefit pension fund employer surplus 165 162
Deferred acquisition costs 347 322 325
Interests in joint ventures 493 286 295
Reinsurance assets 742 851 820
Operating leases – accrued income 1 080 1 206 1 180
Pledged assets 5 448 3 528 5 209
Interests in associates – mutual funds 10 121 8 883 10 297
Financial instruments 171 398 179 332 176 860
Deferred taxation 24 75 51
Prepayments, insurance and other receivables 3 941 4 741 3 528
Cash and cash equivalents 3 729 2 060 4 659
Total assets 215 750 217 574 221 255
Liabilities
Policyholders’ liabilities 180 493 182 817 186 137
Insurance contracts 126 846 129 655 131 552
Investment contracts with DPF 3 233 2 883 3 353
Financial liabilities under investment contracts 50 414 50 279 51 232
Financial liabilities at amortised cost 2 267 2 610 2 418
Third party financial liabilities arising on consolidation of mutual funds 8 326 8 560 8 040
Employee benefits 468 437 524
Deferred revenue 105 87 95
Deferred taxation 3 210 3 366 3 447
Provisions 37 60 60
Operating leases – accrued expense 227 246 238
Derivative financial instruments 113 108 66
Insurance and other payables 6 146 6 163 5 970
Current taxation 890 897 1 100
Total liabilities 202 282 205 351 208 095
Equity
Ordinary shareholders’ interests 11 263 10 350 11 029
Share capital 29 29 29
Share premium 1 022 2 206 1 790
Retained surplus 11 147 8 721 10 205
Other reserves (935) (606) (995)
Minority interests 2 205 1 873 2 131
Total equity 13 468 12 223 13 160
Total equity and liabilities 215 750 217 574 221 255
Group Statement of Comprehensive Income
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
Revenue
7
Insurance premiums 11 015 11 970 23 709
Reinsurance premiums (362) (329) (693)
Net insurance premiums 10 653 11 641 23 016
Service fee income from policyholder investment contracts 403 453 837
Investment income 5 549 5 063 10 396
Hotel operation sales 346 273 597
Investment (losses)/gains (4 670) 10 486 14 390
Management fees on assets under management 552 442 1 005
Defined benefit pension fund employer surplus 162
Total revenue 12 833 28 358 50 403
Claims and policyholders’ benefits under insurance contracts (11 757) (9 662) (20 739)
Insurance claims recovered from reinsurers 240 243 610
Change in policyholders’ liabilities under insurance contracts 4 748 (8 158) (10 554)
Insurance contracts 4 706 (6 942) (8 838)
Investment contracts with DPF 120 (1 164) (1 634)
Reinsurance assets (78) (52) (82)
Fair value adjustment to policyholders’ liabilities under investment contracts (218) (4 217) (6 281)
Fair value adjustment on third party mutual fund interests (286) (1) (189)
Acquisition costs (1 263) (1 355) (2 894)
General marketing and administration expenses (2 428) (1 976) (4 293)
Finance costs (161) (175) (392)
Preference dividend in subsidiary (172) (136) (274)
Profit on sale of subsidiaries 2 6
Equity accounted earnings from joint ventures 16 17 51
Profit before taxation 1 552 2 940 5 454
Taxation (574) (1 225) (2 049)
Total earnings 978 1 715 3 405
Other comprehensive income 32 31 102
Owner-occupied properties – fair value adjustment 22 21 127
Foreign currency translation 17 16 16
Income tax relating to components of other comprehensive income (7) (6) (41)
Total comprehensive income 1 010 1 746 3 507
Total earnings attributable to:
Equity holders 856 1 606 3 035
Minority interests 122 109 370
978 1 715 3 405
Total comprehensive income attributable to:
Equity holders 887 1 637 3 137
Minority interests 123 109 370
1 010 1 746 3 507
Earnings per share
Total (cents) 332,0 623,6 1 173,5
Diluted (cents) 319,8 594,3 1 119,1
Dividends per share (cents)(1) 230 230
Capital reduction per share (cents)(1) 266 144
(1)
Represents the cash payments in the period.
Headline Earnings
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
8
Reconciliation of total earnings to headline earnings attributable
to equity holders
Total earnings attributable to equity holders 856 1 606 3 035
Profit on sale of subsidiaries (2) (6)
Headline earnings(1) 856 1 604 3 029
Net income on BEE preference shares accounted for in equity 57 48 100
BEE normalised headline earnings 913 1 652 3 129
BEE normalised weighted average number of shares in issue (’000) 283 641 283 336 284 409
Headline earnings per share Cents Cents Cents
Basic 332,0 622,8 1 171,3
Fully diluted 319,8 593,4 1 116,9
BEE normalised 321,8 583,1 1 100,4
(1)
Liberty elected to early adopt the long-term insurance industry exemption contained in the addition to circular 8 of 2007 dated 22 February 2008 which allows
for no headline earnings adjustment in respect of realised or unrealised remeasurements of investment properties.
Condensed Statement of Changes in Group Ordinary
Shareholders’ Funds
for the six months ended 30 June 2008
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
Balance at 1 January 11 029 10 665 10 665
Total comprehensive income 887 1 637 3 137
Excess purchase price over net asset value of STANLIB (2 194) (2 198)
Ordinary dividends (642) (642)
Capital reduction (754) (416)
Subscriptions for shares 846 846
Black Economic Empowerment transaction 60 54 98
Share-based payments 33 26 54
Treasury shares 8 (42) (515)
Ordinary shareholders’ funds 11 263 10 350 11 029
Condensed Statement of Cash Flows
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
Operating activities (233) 5 503 8 189
9
Investing activities 167 (9 556) (7 726)
Financing activities (864) 751 (1 166)
Net decrease in cash and cash equivalents (930) (3 302) (703)
Cash and cash equivalents at beginning of year 4 659 5 237 5 237
Cash acquired on acquisition of STANLIB Limited 166 166
Cash disposed of on sale of Saambou Life Assurers Limited (41) (41)
Cash and cash equivalents at end of period 3 729 2 060 4 659
Condensed Segment Information
for the six months ended 30 June 2008
Corporate Individual Other
Asset
Partici- Non-partici- manage- Shareholder Mutual
Risk Non-risk pating pating Prudential ment operations funds Total
Rm Rm Rm Rm Rm Rm Rm Rm Rm
Unaudited segment results for the six months ended 30 June 2008
Segment revenue 778 814 7 916 1 698 201 786 153 487 12 833
Segment expenses (731) (798) (7 062) (1 242) (151) (380) (113) (487) (10 964)
Segment result 47 16 854 456 50 406 40 – 1 869
Profit before taxation 47 15 860 284 50 344 (48) 1 552
Taxation (9) (5) (352) (124) (13) (103) 32 (574)
Total earnings 38 10 508 160 37 241 (16) 978
Attributable to:
Equity holders 38 10 508 160 37 237 (134) 856
Minorities 4 118 122
Unaudited segment results for the six months ended 30 June 2007
Segment revenue 836 4 125 17 709 2 335 1 283 1 231 773 66 28 358
Segment expenses (797) (4 033) (16 200) (1 931) (1 186) (883) (30) (66) (25 126)
Segment result 39 92 1 509 404 97 348 743 – 3 232
Profit before taxation 39 91 1 509 250 97 304 650 2 940
Taxation (10) (29) (789) (106) (68) (103) (120) (1 225)
Total earnings 29 62 720 144 29 201 530 1 715
Attributable to:
Equity holders 29 62 720 144 29 201 421 1 606
Minorities 109 109
Audited segment results for the year ended 31 December 2007
Segment revenue 1 787 6 794 31 031 5 607 1 830 1 417 1 390 385 50 241
Segment expenses (1 561) (6 700) (28 561) (4 694) (1 663) (666) (110) (385) (44 340)
Segment result 226 94 2 470 913 167 751 1 280 – 5 901
Profit before taxation 226 92 2 460 632 167 658 1 219 5 454
Taxation (62) (27) (1 359) (219) (112) (205) (65) (2 049)
Total earnings 164 65 1 101 413 55 453 1 154 3 405
Attributable to:
Equity holders 164 65 1 101 413 55 447 790 3 035
Minorities 6 364 370
Embedded Value and Value of New Business
Liberty Group Interim Results 2008
as at 30 June 2008
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
10
Group embedded value
Risk discount rate 13,5% 11,0% 11,0%
Net worth 12 390 11 276 11 867
Ordinary shareholders’ funds on published basis 11 263 10 350 11 029
Adjustment of ordinary shareholders’ funds from published basis(1) (2 297) (1 584) (2 197)
Financial services subsidiaries fair value adjustment(2) 4 336 3 678 4 124
Adjustment for carrying value of in-force business acquired(3) (741) (847) (789)
Allowance for fair value of share options/rights (171) (321) (300)
Net value of life business in-force 13 147 13 467 13 755
Value of life business in-force 13 984 14 230 14 655
Cost of solvency capital (837) (763) (900)
Embedded value 25 537 24 743 25 622
Embedded value per share information
Number of shares in issue less shares in respect of the BEE transaction (’000) 257 965 263 024 257 773
Embedded value per ordinary share (R) 98,99 94,07 99,40
Embedded value before BEE impairment (Rm) 26 696 25 902 26 781
Number of shares including shares in respect of the BEE transaction (’000) 283 761 288 820 283 569
BEE normalised embedded value per share (R) 94,08 89,68 94,44
Value of new business and new business margins Rm Rm Rm
Gross value of new business 255 352 749
Cost of solvency capital (32) (23) (49)
Net value of new business written in the period 223 329 700
Individual 203 310 671
Corporate 20 19 29
Present value of future expected premiums 12 964 12 662 28 337
New business margin 1,7% 2,6% 2,5%
Indexed new business excluding contractual increases 2 172 1 937 4 351
Embedded Value Profits
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
Embedded value BEE normalised
Unaudited Unaudited Audited Unaudited Unaudited Audited
30 June 30 June 31 December 30 June 30 June 31 December
2008 2007 2007 2008 2007 2007
Rm Rm Rm Rm Rm Rm
11
Embedded value at end of period 25 537 24 743 25 622 26 696 25 902 26 781
Less capital raised (846) (846) (846) (846)
Plus impact of share buy backs 583 583
Less share options/rights exercised (8) (68) (8) (68)
Plus net capital reduction paid 694 372 754 416
Plus dividends paid 588 588 642 642
Less embedded value
at beginning of period (25 622) (21 857) (21 857) (26 781) (23 017) (23 016)
Embedded value profits 601 2 628 4 394 661 2 681 4 492
Return on embedded value
(annualised) 4,7% 25,5% 20,1% 5,0% 24,7% 19,5%
Analysis of Embedded Value Profits
for the six months ended 30 June 2008
Net value of Cost of
life business solvency Embedded
Net worth in-force capital value
Rm Rm Rm Rm
Embedded value profits for period
Embedded value at end of period 12 390 13 984 (837) 25 537
Less share options/rights exercised (8) (8)
Plus net capital reduction paid 694 694
Less embedded value at beginning of period (11 867) (14 655) 900 (25 622)
Embedded value profits 1 209 (671) 63 601
Components of embedded value profits
Value of new business written in the period (532) 787 (32) 223
Expected return on value of life business(7) 768 (54) 714
Expected net of tax profit transfer to net worth 1 084 (1 090) 6 –
Operating experience variances(10) 46 (304) (24) (282)
Operating assumption changes(11) (120) (207) (72) (399)
Embedded value profits from operations 478 (46) (176) 256
Investment return on net worth 429 429
Exchange rate movements 16 16
Investment variances(12) 705 (328) 182 559
Changes in economic assumptions(13) (547) (272) 57 (762)
Changes in modelling methodology (25) (25)
Change in allowance for fair value of share option/rights(14) 128 128
Total embedded value profits 1 209 (671) 63 601
Bases, Assumptions and Additional Information
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
1. The amount of R2 297 million (2007: 30 June R1 584 million, 31 December R2 197 million), reflected as the adjustment of
shareholders’ funds from the published basis, represents the change in these assets as a result of moving from a published
valuation basis to the statutory valuation method. This is largely due to the elimination of certain negative rand reserves on the
statutory valuation basis. The reduction in net worth results in a corresponding increase in the value of in-force.
2. The published value of financial services subsidiaries is enhanced for embedded value purposes to hold these subsidiaries at a
12
multiple of net after tax earnings. This adjustment is shown as the ‘financial services subsidiaries fair value adjustment’.
This adjustment consists of the following:
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
Liberty Group Properties (Proprietary) Limited 500 400 400
STANLIB Limited 3 836 3 278 3 724
4 336 3 678 4 124
For STANLIB Limited a multiple of 10 was used, less the embedded value of its life business which has been included in the value
of life business in-force. Liberty Jersey are asset managers of certain group offshore investment portfolios arising from the sale of
Liberty Ermitage Jersey Limited and is included in the value of STANLIB Limited.
For Liberty Group Properties (Proprietary) Limited a multiple of 10 was used.
3. The carrying value of business acquired by Liberty Life (analysed below) has been deducted from shareholders’ funds in order to
avoid double counting. For embedded value purposes, the value in respect of this amount is included in the net value of life
business in-force.
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
Investec Employee Benefits (65) (77) (71)
Capital Alliance Holdings Limited (CAHL) (639) (727) (679)
Business previously acquired by CAHL (37) (43) (39)
(741) (847) (789)
4. Future investment returns on the major asset classes were set with reference to the market yield on medium-term South African
government stock. The investment returns used are:
Investment return p.a.
30 June 30 June 31 December
2008 2007 2007
Government stock 11,0% 8,5% 8,5%
Equities 13,0% 10,5% 10,5%
Property 12,0% 9,5% 9,5%
Cash 9,5% 7,0% 7,0%
5. The risk discount rate has been set equal to 0,5% in excess of the
investment return on equity assets 13,5% 11,0% 11,0%
6. Maintenance expense inflation rate 7,5% 5,0% 5,0%
Bases, Assumptions and Additional Information
Liberty Group Interim Results 2008
for the six months ended 30 June 2008 (continued)
7. The expected return on the value of life business is obtained by applying the previous year’s discount rate to the value of life
business in-force at the beginning of the year and the current year’s discount rate for a quarter of a year to the value of new
business.
8. 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.
13
Allowance has been made for future secondary taxation on companies at 10%. No allowance has been made for the likely
replacement of STC with a withholding tax on shareholders.
9. Other bases, bonus rates and assumptions:
Parameters reflect best estimates of future experience, excluding any compulsory or discretionary margins. However, in contrast
to the assumptions in the valuation bases, the embedded value does make allowance for automatic premium and benefit
increases.
10. The amount of R282 million shown for operating experience variances arises from worse than expected persistency experience on
the individual life business, offset by actual risk experience being better than expected.
11. Included in the R399 million shown for operating assumption changes is allowance for the strengthening of the withdrawal basis
(R300 million) and the transfer of a discretionary AIDS margin into the best estimate assumptions (R295 million). These are offset
by the effect of the reduction in company tax rate (R195 million) and an allowance for improved future mortality (R132 million).
12. The amount of R559 million shown for investment variances includes an amount of R604 million in respect of investment
guarantees, the impact of lower than expected investment returns on the value of in-force business and an increase in the
allowance for STC.
13. The amount of R762 million shown for changes in economic assumptions arises from the change to a higher level of economic
assumptions.
14. The amount of R128 million in respect of the change in the fair value of share options arises from the change in the number of
shares under option and the decrease in the market value of the Liberty Group Limited share price over the reporting period.
15. The assets backing the capital adequacy requirement (CAR) are assumed to be 60% equities, 10% cash, 25% preference shares and
5% gilts (unchanged from December 2007).
New Business
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
30 June 30 June 31 December
2008 2007 2007
Unaudited Rm Rm Rm
Insurance operations – excluding contractual increases
Individual 6 956 7 032(2) 14 902
14
Single 5 616 5 913 12 294
Recurring 1 340 1 119 2 608
Corporate 1 013 844 1 727
Single 824 686 1 348
Recurring 189 158 379
Total new business 7 969 7 876 16 629
Single 6 440 6 599 13 642
Recurring 1 529 1 277 2 987
Indexed new business 2 172 1 937(2) 4 351
Asset management operations
Total STANLIB sales excluding money market(1) 21 280 22 285 40 331
Retail sales excluding money market 18 245 15 657 32 269
Institutional sales excluding money market 3 035 6 628 8 062
Money market 40 781 28 009 65 902
Total STANLIB sales 62 061 50 294 106 233
Total Liberty Africa sales excluding money market(1) 5 473 685 5 797
Retail sales excluding money market 2 177 184 927
Institutional sales excluding money market 3 296 501 4 870
Money market 2 125 1 737 4 267
(3)
Total Liberty Africa sales 7 598 2 422 10 064
Total asset management sales 69 659 52 716 116 297
(1)
Excludes intercompany life fund sales.
(2)
Restated in accordance with new definitions applied to December 2007.
(3)
The Liberty group owns less than 100% of the various entities that make up Liberty Africa. Sales information is recorded at 100% and is not adjusted for
proportional legal ownership.
Net Cash (Outflows)/Inflows
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
30 June 30 June 31 December
2008 2007 2007
Unaudited Rm Rm Rm
Insurance operations
15
Individual (331) 1 117 1 908
Inflows and premiums 11 665 11 469 23 812
Claims and benefits (11 996) (10 352) (21 904)
Corporate (1 155) 3 396 2 372
Inflow on IEB transfer(1) 4 487 4 487
Inflows and premiums 3 038 2 770 5 907
Claims and benefits (3 744) (3 384) (7 387)
Net outflow relating to IEB book(1) (449) (477) (635)
Net cash (outflows)/inflows from insurance operations (1 486) 4 513 4 280
Asset management
STANLIB before money market (10 137) 1 603 5 290
Retail net cash inflows (3 872) 3 115 11 110
Institutional net cash outflows (6 265) (1 512) (5 820)
Money market inflows 7 083 2 992 3 598
Net STANLIB cash (outflows)/inflows (3 054) 4 595 8 888
Liberty Africa before money market 2 715 396 3 424
Retail net cash inflows 1 962 98 710
Institutional net cash outflows 753 298 2 714
Money market (outflows)/inflows (206) 250 795
(2)
Net Liberty Africa inflows 2 509 646 4 219
Net cash (outflows)/inflows from asset management (545) 5 241 13 107
Total net cash (outflows)/inflows (2 031) 9 754 17 387
(1)
The inflow represents a single premium transfer of the IEB closed book purchased in 2003, the net outflows refer to the movement on that book for the six
months ended 30 June 2008.
(2)
Liberty group owns less than 100% of the various entities that make up Liberty Africa. The cash flow information is recorded at 100% and is not adjusted for
proportional legal ownership.
Assets Under Management (AUM)
as at 30 June 2008
30 June 30 June 31 December
2008 2007 2007
Unaudited Rbn Rbn Rbn
Life funds 142 135 129
Segregated funds 69 67 69
Unit trusts (including money market) 83 72 100
Linked investment and structured products 40 48 42
Total AUM(1) 334 322 340
(1)
Includes funds under administration
Liberty Africa 16 9 12
STANLIB 318 313 328
Analysis of Investment of Ordinary Shareholders’ Funds
Liberty Group Interim Results 2008
for the six months ended 30 June 2008
Capital investment
Group funds invested Contribution to earnings gains/(losses)
30 June 30 June 30 June 30 June 30 June 30 June
2008 2007 2008 2007 2008 2007
16
Rm Rm Rm Rm Rm Rm
Insurance operations 740 847 753 984
Operating surplus 1 094 1 218
Present value of in-force business
acquired 740 847 (47) (61)
Liberty Active preference dividend (172) (136)
Working capital charge(1) (122) (37)
Financing of insurance operations (1 152) (518) 33 (61)
Fixed assets and working capital 848 1 682 122 37
Callable capital bonds and preference
share liabilities (2 000) (2 200) (89) (98)
Asset management 397 230 237 201
Liberty Group Properties 23 29 35 25
STANLIB 170 201 206 160
Liberty Jersey 16
Fountainhead 189 3
Liberty Africa 15 (7)
Growth initiatives 9 (17)
Other operations 1 31 (1) 4
Investments 11 268 9 760 332 365 (382) 322
Listed equity investments 2 314 2 780 49 42 (419) 222
Interest bearing deposits 4 844 3 101 191 164 65 –
Preference shares 1 151 1 569 53 66 (51) (28)
Mutual funds 1 952 923 16 40 (42) 48
Share of pooled portfolios 701 1 002 20 39 (1) 26
Unlisted investments 306 385 3 14 66 54
Administration expenses – shareholder
allocation (133) (92)
Normal taxation excluding insurance
operations (20) (16)
Secondary tax on companies (17) (70)
Capital gains taxation on specific
shareholder assets 71 (33)
Net investment (losses)/gains (311) 289 311 (289)
Profit on sale of subsidiaries 2
Total shareholders’ funds 11 263 10 350 856 1 606 – –
(1)
With effect from 1 July 2005 Liberty Group Limited established a working capital funding loan between insurance operations and shareholder assets,
subsequently supported by the callable capital bonds issue. Inter-divisional interest is charged at 8,77% nacm which is equivalent to the callable capital bond’s
interest rate.
Capital Commitments
Liberty Group Interim Results 2008
as at 30 June 2008
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Rm Rm Rm
17
Capital commitments 1 228 288 1 090
Business acquisitions(1) 263 386
Equipment 302 89 216
Investment and owner-occupied property 663 199 488
Under contracts 566 33 –
Authorised by the directors but not contracted 662 255 1 090
1 228 288 1 090
Funding for the 30 June 2008 commitments will be from shareholders’ funds and where applicable with proportionate recovery from
minority interests. Capital commitments in respect of investment and owner-occupied property and a portion of equipment
(R78 million) is intended to be used to match policyholder liabilities.
(1)
The board of directors has approved the following transactions consistent with its stated intent to transform the group into a broader wealth services
organisation.
• As announced at the 2007 year end results presentation the group has acquired a 51% interest in the operations of Neil Harvey and Associates (Pty) Limited
(NHA) for an initial cash amount of R120 million and potentially for a further R80 million dependent on earnings performance over two years. NHA are
recognised as a leading technology solutions provider to the health care administration sector. The transaction is agreed between the respective parties, and
is awaiting Competition Commission approval. NHA will be recognised as a subsidiary of the group when the approval is received.
• The board has approved the acquisition of the administration capability of a large privately administered medical aid for R63 million. It is likely the
transaction will be completed during the third quarter of 2008.
The acquisition prices payable are largely attributable to intangible assets, in the nature of intellectual property, key-man contracts and customer contracts
and related customer relationships.
The transactions are not likely to have a material impact on the group’s earnings or net asset value.
Related Parties
as at 30 June 2008
In addition to the nature of the related party transactions as described in note 42 to the 31 December 2007 annual financial statements,
the following related party transactions have subsequently occurred:
1) As announced on the securities exchange news service on 27 March 2008, Liberty Group Limited, with effect from 31 March 2008,
acquired from Standard Bank South Africa Limited, a wholly-owned subsidiary of Standard Bank Group Limited, 50% of the issued
share capital of Fountainhead Property Trust Management Limited and Evening Star Trading 768 (Pty) Limited for a consideration
of R46,7 million.
Liberty Group Limited also acquired from Standard Bank Properties (Pty) Limited, a wholly-owned subsidiary of Standard Bank
Group Limited, loan claims of R139,5 million against Evening Star Trading 768 (Pty) Limited.
Standard Bank Group Limited is the ultimate holding company of Liberty Group Limited.
2) On 27 May 2008, Standard Bank Group Limited announced their intention to acquire the remaining issued ordinary share capital
of Liberty Holdings Limited, the direct holding company of Liberty Group Limited.
The consideration offered was 21 925 cents per ordinary share. Full details of the offer were contained in the circular issued to
Liberty Holdings Limited’s ordinary shareholders on 26 June 2008. The offer closed on 18 July 2008.
As detailed below, Liberty Group Limited at 30 June 2008, owned 2 717 247 shares in Liberty Holdings Limited. These shares are
managed by the respective fund managers at STANLIB Limited, a wholly-owned subsidiary of Liberty Group Limited, and are held
to match policyholder liabilities. The fund managers have accepted the offer in full.
Related Parties
Liberty Group Interim Results 2008
as at 30 June 2008 (continued)
Summary of movement in investments in ordinary shares held by the group in the group’s holding companies is as follows:
Number Market value Ownership
’000 Rm %
Liberty Holdings Limited
18
Balance at 31 December 2007 2 819 637 5,74%
Purchases 14 3
Sales (116) (22)
Fair value adjustments (26)
Balance at 30 June 2008 2 717 592 5,54%
Standard Bank Group Limited
Balance at 31 December 2007 41 182 4 122 3,00%
Purchases 5 820 525
Sales (8 145) (947)
Fair value adjustments (735)
Balance at 30 June 2008 38 857 2 965 2,54%
Retirement Benefit Obligations
as at 30 June 2008
Post-retirement medical benefit
The group operates an unfunded post-retirement medical aid benefit for employees who joined the group prior to 1July 1998. Medical
aid costs are included in the income statement within general marketing and administration expenses in the period during which the
employees render services to the group. For past service the group recognises and provides for the actuarially determined present value
of post-retirement medical aid employer contributions on an accrual basis using the projected unit credit method.
As at 30 June 2008, the Liberty Group post-retirement medical aid benefit liability was R292 million (31 December 2007: R293 million).
Defined benefit retirement funds
The group operates a number of defined benefit pension schemes on behalf of employees. All these funds are closed to new membership
and are well funded with no deficits reported.
19 Liberty Group Interim Results 2008
Notes
