Liberty Holdings Limited Financial results presentation for the year ended 31 December

Transcription

1 Liberty Holdings Limited Financial results presentation 2016 for the year ended 31 December

2 Results agenda Annual results 2016 Group financial Operational activities Conclusion preview and strategic performance review aligned to create update efficiencies Thabo Dloti Group CE Casper Troskie Group FD Thabo Dloti Group CE Thabo Dloti Group CE Strategic intent to 2020 remains on track with renewed focus Focus on preserving value in tough markets Decisive actions to preserve current value and invest for future value Focus areas Strengthened our base in a tough operating environment 2

3 Preserving value in tough markets Firm actions were taken to protect value and ensure sustainable growth in our core earnings Normalised group equity value per share (R) Significantly strengthened assumptions to protect value Successfully listed Liberty Two Degrees - improved customer proposition and de-risked the balance sheet Continued product innovation Bold, Liber8, Alternatives Fund of Funds Action taken to address challenges in OYLR, DFS and Liberty Health South Africa Continued focus on cost savings recurring cost growth below inflation for three consecutive years Firm action taken to protect the value of the existing businesses 3

4 Strategic intent to 2020 remains on track, with renewed focus Contribution to operating earnings 64% Individual Arrangements 76% 9% New geographies Group Arrangements (2%) 21% New capabilities Asset management 6% 31% (5%) Other 2016 Operating earnings 31% normalised earnings SIP earnings 35% normalised earnings Expansion initiatives to drive value by increasing our exposure to growth markets Invest in markets with higher growth than traditional markets Invest in businesses increasing penetration of existing markets Grow operating earnings faster than SIP Launch new products that are more capital efficient Ensure the business is responsive to changing environments and consumer behaviours Broader Omni-channel customer engagement platforms Relevant customer propositions Protect current value and maximise advantages of regulatory change Individual Arrangements Group Arrangements Asset management Other 2011 Operating earnings SIP earnings 4

5 Sharpened our focus Continue on our journey Transformation Protect and grow the Lay the foundations for towards being a initiatives with existing franchise our long-term growth customer centric immediate impact (medium-term value) organisation on growth Our customers are at Invest in initiatives Accelerate Establish building the heart of our that deliver value in simplification in blocks that will business decisions short-to-medium our operations deliver our long-term term growth Mandatory initiatives (comply and adapt) 5

6 Group financial performance review Liberty Holdings Limited Casper Troskie, Group Financial Director

7 Lower investment returns Lacklustre local equity market returns Average bond yields reduced from the high in January % Dec % Jan 2014 Jan 2015 Jan 2016 Dec 2016 Jan 2014 Jan 2015 Jan 2016 Dec 2016 JSE SWIX ZAR/USD 10 year SA bond (RHS) Unexpected political developments in a number of key global economies contributed to significant uncertainty in financial markets and bond yields Local equity markets were largely flat compared to 2015 impacting local equity portfolios (returns on the shareholder and policyholder portfolios) a continuing trend observed in 2015 Rand strength has a negative impact on foreign asset returns and foreign subsidiary offshore earnings Source: I-Net Bridge and Bloomberg 7

8 Group financial summary Rm (unless stated otherwise) Dec 16 Dec 15 % D Normalised headline earnings (39) Normalised operating earnings (37) LibFin Investments (42) Normalised headline earnings per share (c) (38) Embedded value of insurance new business (34) Indexed long-term insurance new business Long-term insurance net customer cash flows (79) Asset management net cash flows (32) Retail and institutional excluding money market (39) Money market LGL CAR cover (times covered) (3) Normalised Group Equity Value per share (R) Normalised RoGEV (%) (51) Normalised RoE (%) (42) 8

9 Preserving value in tough markets Normalised group equity value per share (R) Group operating experience variances and assumptions remain positive (Rm) Group Equity Value was preserved whilst absorbing the impact of a number of headwinds during the year Group operating variances and assumption changes were net positive although lower Operating variances remained substantially positive at R553m - offset by assumption changes that strengthened the balance sheet 9

10 Sources of normalised Group Equity Value earnings Rm Dec 16 Dec 15 % D Value of long-term insurance new business (34) Expected return on SA covered business Variances / changes in operating assumptions (98) Development costs (107) (41) >100 Headline earnings of other businesses (71) Operational Equity Value earnings (19) Non headline earnings adjustment - (93) - Economic adjustments (750) (145) >100 Decrease in fair value adjustment on value of other businesses (825) (251) >100 Change in allowance for share rights (60) Group Equity Value earnings (49) 10

11 SA covered business net worth delivery on assumption Net worth (Rm) Expected net of tax transfer to net worth Operating experience variances, assumption and modelling changes Development expenses (45) (24) (52) (53) (78) (61) Incentives - (64) (103) (154) (181) (131) Change in allowance for fair value of share options / rights (125) 3 Actual net of tax transfer to net worth Performance in line with expectation (%) Continued positive delivery on actuarial assumptions 11

12 Capital position 31 December 2016 Rm IFRS Liberty Holdings Limited Liberty Group Limited IFRS shareholder equity BEE preference shares Liberty Two Degrees Normalised shareholder equity Regulatory capital Shareholder assets Regulatory capital requirement Surplus above regulatory requirement Risk appetite capital coverage ratio Capital buffer in excess of risk appetite Capital ratio at period end Appropriate capital levels despite lower IFRS earnings 12

13 Distributions Per cycle cents per share Dec 16 Dec 15 % D Interim Final (5) Total The dividend has been declared in line with Liberty s dividend policy 13

14 R million Liberty Two Degrees consolidation Accounting mismatch arises on consolidation due to different measurement bases required for corresponding Liberty Group Limited (LGL) policyholder liabilities: Investment property assets are included in Liberty Holdings financial statements at open market value (OMV); Corresponding obligations to LGL s policyholders in the REIT units, under IFRS are required to be measured at the listed price of the L2D units 2016 Headline earnings BEE Transaction L2D 2016 Normalised headline earnings The premium at which L2D s listed units traded increased relative to the underlying NAV (based on OMV of the properties) at 31 December 2016, resulted in a loss at Liberty Holdings L2D loss is anomalous and adjusted for in normalised headline earnings BEE transaction normalisation as previously disclosed 14

15 Normalised headline earnings Rm Dec 16 Dec 15 % D Individual Arrangements (40) Group Arrangements (27) Liberty Corporate (13) Liberty Africa Insurance Liberty Health (45) (19) >100 Africa growth initiatives (38) (21) 81 Asset Management (42) Balance sheet management LibFin Markets Credit portfolio LibFin Markets Asset / liability management portfolio Central overheads and sundry income (208) (190) 9 Normalised operating earnings (37) Shareholder Investment Portfolio (42) Normalised headline earnings (39) 15

16 R million Significant earnings impacts to 2016 results (572) (569) (267) (219) Normalised headline earnings Assumption changes SIP STANLIB New business strain Net other 2016 Normalised headline earnings Significantly strengthened assumptions resulting in a negative impact to normalised earnings. SIP impact occurred mostly in 2H16, managed within risk appetite, strategy, and long term performance ahead of benchmark STANLIB impacted by lower investment returns, higher once off costs and the difficult banking environment in Kenya New business strain impacted by volumes, new business mix and the new risk fund 16

17 Changes in key assumptions Assumption changes were made to strengthen the balance sheet Changing consumer trends Longer term longevity assumptions Firming regulatory trends Adviser remuneration Changes made to reflect negative experience relative to assumptions Retirement annuity withdrawals Re-insurance cash flows and guarantees on joint life annuitants Changes also made at the half year to enable Liberty to better manage its business to model The adoption of a curve to value the risk book allowed for better hedging of NRR s and embedded derivatives Narrowing the inflation gap in the investment business to be consistent with the risk book Key assumptions changed to improve ability to manage the business going forward 17

18 Shareholder Investment Portfolio 120 Asset class performance in Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Local equity Local bonds Foreign Shareholder Investment Portfolio Gross return (%) Selection of indices SWIX ALBI (3.9) 15.5 STEFI R/$ exchange (11.2) SIP gross return SIP Earnings (Rm)

19 STANLIB Non-money market net client cashflows remain positive, significant contribution from rest of Africa operations (Rm) SA RoA South African operations impacted by; Reduced blended investment return for the second consecutive year compressed margins Increased distribution costs Higher once off project costs relating to the outsourcing of the retail administration business Rest of Africa operations impacted by; The difficult banking environment in Kenya, the curtailment of cash mandate business and the capping of interest rates by the regulator Provisions for other exposures 19

20 Long-term insurance metrics Indexed new business (Rm) Dec 16 Dec 15 % D Individual Arrangements Group Arrangements Liberty Corporate Liberty Africa Insurance Total New business margin (%) Dec 16 Dec 15 % D Individual Arrangements (40) Group Arrangements (36) Liberty Corporate (20) Liberty Africa Insurance (15) Total (39) Value of new business (Rm) Dec 16 Dec 15 % D Individual Arrangements (35) Group Arrangements (24) Liberty Corporate (7) Liberty Africa Insurance (36) Total (34) 20

21 Group net customer cash flows and assets under management Rm 1H16 2H16 Dec 16 Dec 15 % D STANLIB net customer cash flows (32) Retail and institutional (39) Money market (2 716) Insurance net customer cash flows (353) (79) Individual Arrangements* (69) Group Arrangements (955) 687 (268) (496) 46 STANLIB multi-manager 5 (566) (561) (390) (44) Total (50) Rbn Dec 16 Dec 15 % D Assets under management excluding intergroup Life Funds STANLIB LibFin Other internal, external managers & GateWay LISP (18) * Excludes Gateway LISP R557m for FY2016 (2015: R1.5bn) 21

22 LibFin Investments Shareholder Investment Portfolio Rm Dec 16 % Dec 15 2 % South African Rand Equities¹ Bonds Cash Preference shares Property¹ Other Foreign currency Total Assets backing capital Assets backing life funds :10 exposure Listed property was reclassified from property to equity on 30 June 2016 based on some refinements to the equity mandate 2. Dec 2015 restated to consolidate all shareholder assets and exposures, including those held for short-term liquidity management 22

23 20% 1.5% 2.6% LibFin Markets ALM SWIX40 10 year swap 3 year SWIX40 implied volatility Rally in a globally supportive environment as SA risk concerns subsided Muted returns in a volatile equity trading environment Long-term implied volatility higher in volatile equity environment Cautious positioning for ALM in a volatile trading environment 23

24 LibFin Markets Credit Diversified corporates LibFin assets 2016 Industrials Banks and Sovereign Portfolio diversification continues Greater allocation to corporate, property, asset backed and project finance sectors SOE Dec 16 Dec 15 % D Net earnings from Credit portfolio (Rm) Total LibFin assets Credit portfolio assets (Rbn) Banks, treasuries and shorter dated assets (Rbn) Increased diversification continues to improve the risk adjusted return 24

25 Individual Arrangements Rm (unless stated otherwise) Dec 16 Dec 15 % D Headline earnings (40) Gross sales Indexed new business Insurance net customer cash flows (including LISP) (68) Value of new business (35) Retail margin excluding STANLIB (%) (39) Retail margin including STANLIB (%) (40) Performance metrics reflect difficult operating environment 25

26 Group Arrangements Rm Dec 16 Dec 15 % D Headline earnings (6) South Africa (16) Other African territories Indexed new business South Africa Other African territories Value of new business (24) South Africa (7) Other African territories (36) Long-term insurance net cash flows (268) (496) 46 South Africa (751) (891) 16 Other African territories Challenging economic environment, expansion initiatives continue earnings normalised to reflect recurring shareholder expenses 2. Includes Liberty Health and excludes growth initiatives 26

27 STANLIB Rm Dec 16 Dec 15 % D Headline earnings (42) South Africa (19) Other African territories (97) 62 (>100) Net cash flows (32) South Africa (51) Other Africa Rbn Dec 16 Dec 15 % D Assets under management (AUM) South Africa Other Africa Impacted by lacklustre markets and once-off operational challenges 27

28 Operational activities aligned to create efficiencies Liberty Holdings Limited Thabo Dloti, Group Chief Executive

29 Preserving for current value, investing for future value Continue on our journey Transformation Protect and grow the Lay the foundations for towards being a initiatives with existing franchise our long-term growth customer centric immediate impact (medium-term value) organisation on growth Our customers are at Invest in initiatives Accelerate Establish building the heart of our that deliver value in simplification in blocks that will business decisions short-to-medium our operations deliver our long-term term growth Mandatory initiatives (comply and adapt) 29

30 Improved our customer propositions Continue on our journey towards being a customer centric organisation Our customers are at the heart of our business decisions Individual Arrangements indexed new business (Rm) Offshore 1H vs. 2H % growth Bold L2D Continued product innovation to improve customer offering; Bold Living Annuity; high watermark returns Liber8; improved online umbrella solutions Alternatives Fund of Funds; easy access to private equity investing GIP Enhanced products; GIP, Offshore SBFC Digitising our processes to create exceptional customer and adviser experiences Digitised the on boarding process for risk products Q1 Q2 Q3 Q policies migrated providing customers a more flexible product range and reduced policy administration complexity FullView capability extended to the broader group products Improved investment proposition to SBG clients Successfully launched co-branded retail funds 30

31 Aligned to ensure we extract efficiencies and grow Transformation initiatives with immediate impact on growth Invest in initiatives that deliver value in the short-to-medium term Medical Risk premium income, reflects geographic growth and improved group synergies (Rm) Combined Liberty and STANLIB LISP LibFin and STANLIB passive capabilities combined to establish a single group passives business Aligned sales and distribution capability for efficiencies and increased capacity 919 Re organised executive team to optimise opportunities; IA strengthened the team to continue managing to model GA and STANLIB Africa to unlock growth in new markets STANLIB to strengthen investment teams 35% indexed premium growth in Liberty Africa Insurance Cost growth below inflation for 3 rd consecutive year 31

32 Prioritise investments to deliver immediate value Protect and grow the existing franchise (medium-term value) Accelerate simplification in our operations Non-money market net client cashflows reflect significant contribution from rest of Africa operations (Rm) SA RoA Established pan-african alternative capabilities Multi-Manager launched Alternatives Fund of Funds Launched a range of Standard Bank co-branded retail funds Improved umbrella capability and servicing Listed Liberty Two Degrees Outsourced the STANLIB retail administration business Improved Liberty Health medical cover offering Increased insurance footprint and product capability in sub-saharan Africa; Uganda, Malawi, Botswana short-term insurance and Lesotho life insurance Most territories have a Transactional Product range to diversify offerings and enable cross-sell across segments The infrastructure franchise acquired a R1.5 billion SA toll road companies portfolio 32

33 Invested for future growth Lay the foundations for our long term growth Establish building blocks that will deliver our long-term growth Invested in establishing a short-term insurance proposition for South Africa Advanced stage of acquiring a long term insurance licence in Nigeria Invested in growing the digital capability in Individual Arrangements 33

34 Conclusion Liberty Holdings Limited Thabo Dloti, Group Chief Executive

35 In conclusion 1 Decisive actions to preserve the value of the business 2 We continue to innovate and ensure relevance to our customers 3 Accelerated initiatives to ensure alignment and extract value from existing businesses and emerging opportunities 4 Continue to selectively invest in initiatives that will deliver long term growth 35

36 Questions