Upload
edwina-curtis
View
215
Download
0
Tags:
Embed Size (px)
Citation preview
Liberty Group Inaugural subordinated unsecured
callable bond
Presentation to investors
May 2005
2
Roadshow team
Liberty
• Myles Ruck, Chief Executive Officer
• Deon de Klerk, Chief Financial Officer
• Stewart Rider, Group Executive – Finance and Investor relations
• Samuel Sathekge, Financial Accountant – Group Finance
JPMorgan – Joint Lead Arranger and Bookrunner
• Marc Hussey, Head of Debt Capital Markets
Standard Bank – Joint Lead Arranger and Bookrunner
• Andrew Pamphilon, Debt Origination
Andisa Securities – Co-arranger
• Chris Clarkson, Head of Debt & Capital Markets Group
3
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Summary and Questions
Appendix
4
Liberty Holdings Limited
Liberty Group LimitedRated AA(zaf) - Insurer Financial Strength
Rated AA-(zaf) – Long Term Issuer
Corporate Structure (as at 31-12-2004)
Standard BankRated AA+(zaf) – Long Term Issuer
(54,65%)
(50,17%)
Life Assurance Asset Management
• Liberty Personal Benefits
• Liberty Corporate Benefits
• Liberty Active
• STANLIB (37,4%)
• Liberty Ermitage
• Liberty Properties
5
Industry issues
• Increasing compliance and regulatory requirements
• Volatile investment markets
• Risk averse investors
• Perception of industry
• AIDS (not as much an issue for Liberty Life)
6
Industry positives
• Industry has started recognising its shortcomings
• Emerging middle class - a reality, but net spenders
• South African economy - a success story
• Investors becoming more bullish
• Good local investment returns
• Cash being accumulated by investors = opportunity
7
Nature of the business
Liberty’s business is conceptually simple and generic
• We develop products
• We sell products
• We receive money
• We invest the money according to product specification
• We administer according to product specification
• We pay benefits
8
Key strengths
• Strong business franchise
– Pure SA life insurance play, revised management team– Very high investment-grade credit ratings from Fitch (AA Insurer
Financial Strength Rating and AA- Long Term Issuer Rating)– Strong parent in Standard Bank Group (AA+/F1+)– Limited exposure to smoothed bonus business– Market positioning (trend of increasing market share) and solid brand
recognition
• Competitive advantages
– Diversification of business mix and breadth of product range– Distribution channels and resources
9
Key strengths (cont’d)
• Solid financial indicators
– Increasing market share– Positive net cash flows from insurance operations– Strong capital base with good CAR cover– Inroads being made on expense base– Proven resilience in times of tough operating environments
• Potential for growth
- Upper income market (traditional Liberty)
- Emerging market (Liberty Active)
- Bancassurance (Standard Bank)
10
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Summary and Questions
Appendix
11
Value of in -
force
45%
Ermitage
4%
Stanlib
4%
Shareholder
NAV
46%
Liberty
Properties
1%
Overview of the Group’s embedded value (proxy for cash flow drivers)
2004
Value of in -
force
41%
Ermitage
4%
Stanlib
4%
Shareholder
NAV
50%
Liberty
Properties
1%
2003
12
Business units
• Individual insurance and investment products
• Life, disability, local investments, offshore investments, retirement savings, preservation schemes and annuities
• Middle and upper income, and high net worth clients
• Targeting lower income group through Liberty Active
• Uses four channels of distribution (viz. Agents, Franchises, Brokers and Standard Bank Financial Consultants)
Individual Life (LPB and Liberty Active)Individual Life (LPB and Liberty Active) Liberty Corporate Benefits (LCB)Liberty Corporate Benefits (LCB)
• Markets and administers flexible, comprehensive and packaged solutions to the retirement funding and insured needs of small-to-medium size companies (staff of between 10 and 300)
• Also manages larger corporate funds
• Client funds spread across geographic regions and industries
Rm 2004 2003%
change
Indexed new business 3,544 3,184 +11
New single premiums 8,700 6,808 +25New recurring premiums
2,674 2,504 +8
Net cash flows 5,492 3,120 +76
Claims and benefits 10,867 10,436 +4
Value of new business
819 571 +43
Key performance indicatorsKey performance indicators
Rm 2004 2003%
change
Indexed new business 643 624 +3
New single premiums 1,582 1,924 -18New recurring premiums
484 431 +12
Net cash flows1 (1,852) 1,377 235
Claims and benefits 6,048 3,189 +90
Value of new business
(4) 37 -111
Key performance indicatorsKey performance indicators
1 One client maturity of R2.1 billion in a property-backed portfolio (2004)
13
Business units (cont’d)
• Jersey-based fund management company, specialising in hedge funds
• 41% third party funds
• Representative offices in London, Luxembourg, Bermuda and New York
Liberty Ermitage (Jersey)Liberty Ermitage (Jersey)
Key performance indicatorsKey performance indicators
Rm 2004 2003%
change
Net cash flows 3,681 1,653 123
Assets under mgmt120,53
318,51
3+11
Headline earnings 46 43 +7
• Established in 2002, combining the asset and wealth management businesses of Liberty and Standard Bank
• Liberty Group and Standard Bank each hold 37.5%, with BEE partners holding 25%
• Focus on asset management of retail and institutional investments
STANLIBSTANLIB
Rm 2004 2003%
change
Net cash flows 15,300 12,100 26
Assets under mgmt1 137,926113,97
8+21
Headline earnings 119 80 +49
Key performance indicatorsKey performance indicators
1 Excluding common assets 1 Excluding common assets
14
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Summary and Questions
Appendix
15
Financial summary – 4 year history
For the year ended December 2004 2003 2002 2001
Total new business 13,440 11,667 11,301 9,819
Indexed new business1 4,186 3,808 3,634 2,944
Value of new business written2 815 609 605 455
New business margin3 24% 20% 20% 18%
Net cash flow from insurance operations4 3,640 4,497 4,501 2,931
Headline earnings 1,251 949 1,069 1,499
Headline EPS 460c 346c 391c 551c
Dividends per ordinary share 315c 278c 312c 278.0c
Headline RoE 16% 12% 13% 25%
Maintenance cost per policy
Liberty Life
Liberty Active
248
154
240
161
225
152
-
-
Income statement (Rm)Income statement (Rm)
1 The sum of new recurring premiums plus 10% of new single premiums2 The present value, at the time of sale, of the projected stream of after-tax profits from that business3 Expresses the embedded value of new business as a percentage of indexed new business (net of natural increases)4 The excess of total premiums over total policyholder claims and benefits
16
Headline earnings
Headline earnings (Rm)Headline earnings (Rm)
1,153 1,320889 720 929
323230
180
179162
2000 2001 2002 2003 2004
Revenue earnings attributable to shareholders’ funds
Operating profit from insurance operations
• 10% shareholders’ participation
• Higher average asset base
• Investment guarantee reserves
• Management expenses
• Strong underlying Stanlib, Ermitage growth
Key featuresKey features
17
Financial summary (cont’d)
For the year ended December 2004 2003 2002 2001
Shareholders’ funds 8,494 8,782 8,588 8,346
Embedded value 16,867 15,817 15,127 14,767
Capital adequacy requirement 3,954 3,403 2,857 2,391
Embedded value per share 67.25 57.58 55.28 54.21
Capital adequacy cover (x covered) 2.1x 2.6x 3.0x 3.5x
75.6 73.683.8
98.089.4 86.396.6
109.6
2001 2002 2003 2004
Policyholder liabilities Total assets
Balance Sheet (Rm)Balance Sheet (Rm)
Policyholder liabilities and total assets (Rbn)Policyholder liabilities and total assets (Rbn)
• BEE technical impairment of R1,251m in FY2004
• Only 40% of shareholders’ funds in equities – equity concentration now largely resolved
18
Embedded value
Embedded value (Rm)Embedded value (Rm)
4,822 5,111 5,7016,494
7,607
1,310838
541
766
6,123
8,3468,588
8,782
8,494996
2000 2001 2002 2003 2004
Value of in-force business Shareholders' funds Fair value adjustment
14,767
11,941
15,12715,817
16,867
19
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Summary and Questions
Appendix
20
Capital management strategy
31 December (Rm) 2004 CAR cover 2003 CAR cover
Capital adequacy requirement (CAR) 3,954 3,403
Shareholder's funds
(Empowerment transaction)
9,745
(1,251)
2.6 8,782
2.6
Shareholders' funds after empowerment transaction
8,494 2.1
• Liberty’s capital covers potential additional charges, fraud, errors, uninsured risks, etc.
• Stochastic modelling of embedded guarantees results in volatility (pricing policyholder put)
• New risk product requires more capital
• International accounting standards could influence ratios
• Liberty endeavours to find a balance between ROE/ROEV and security, and our capital takes into account our lower risk business mix
• Medium term CAR target levels are 1.5x – 1.7x
• Dividend policy introduced in line with medium term EV growth
Liberty Life’s capital adequacy (prior to Capital Alliance acquisition) Liberty Life’s capital adequacy (prior to Capital Alliance acquisition)
Comments on level of capitalComments on level of capital
• Pre the proposed takeover of Capital Alliance Limited (CAL) and allowing for full impairment for the BEE capital, CAR cover was 2.1x.
- In line with what was communicated to the market after the BEE transaction
- More than adequate allowing for the CAL deal to follow
• Estimated CAR post the CAL deal and dividend payments due to Liberty and CAL shareholders, would be in the range of 1.60x—1.70x by December 2005.
- This assumes no additional benefits from pooling the CAR levels of the two integrated companies
Impact of the BEE and CAL transactions on CARImpact of the BEE and CAL transactions on CAR
21
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Summary and Questions
Appendix
22
The subordinated, unsecured secondary capital issue
• We believe Liberty is the first South African insurance company to be granted FSB approval to issue regulatory capital in the form of a bond
- Approval was given early in May 2005
• The benefits of the instrument to Liberty include:
- Enhancing regulatory capital adequacy ratios
- Diversifying funding sources
- Reducing the cost of capital and
- This evolution is similar to the bank market where all of South Africa’s major banks have successfully raised regulatory capital in the form of bonds
• The proposed form of debt instrument is virtually identical to the secondary capital issued by all of the four major banks in South Africa
23
Summary terms
Issuer: Liberty Group Limited
Insurer Financial Strength Rating AA (zaf)
Long-term Issuer Rating: AA- (zaf)
Amount: Up to ZAR [2]bn, subject to market conditions
Status: Subordinated, unsecured secondary capital
Legal Maturity: [12 years, due 2017]
Step-up/call date: [7 years, 2012]
Coupon [ ]% semi-annual fixed rate, stepping up to 3M Jibar + [100bps and the initial swap rate] after
the Step-up/call date
Pricing: R153 + spread
Listing: BESA
Governing Law: South African law
24
Comparison between the new LG01 bond and the SBK5 bond
SBK5 LG01
Maturity 12 non-call 7 12 non-call 7
Pricing at launch R153 + 95 TBD
Subordinated to senior credits Callable after 7 years Step-up +100bps Call subject to regulatory approval Qualifying regulatory capital
25
Impact of the bond on key ratios (pro forma 2004)
Pre-bond Post-bond
Weighted average cost of capital 12.8% 11.9%
CAR cover 2.1x 2.7x
Debt/Equity N/A 23.5%
Debt/Total Capital N/A 19.1%
Interest cover ratio N/A 8.6x
Source: Company estimates. Based on December 31, 2004 financials
26
Why Liberty paper
• Strong cash flows
• High interest cover and low debt ratios
• Conservative regulator
• Sustainable growing business
• Track record of delivery
27
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Issue process and deal contacts
Appendix
28
Issue process
• Roadshow: [May 25 - 27]
• Bookbuild, launch and price: June [6] (begin 9am)
• All bonds will be allocated at the same clearing spread
• Early, firm and aggressive bids to be rewarded during allocations
29
Contacts
Issuer contacts•Deon de KlerkTel: (011) 408 2572E-mail: [email protected]
•John SturgeonTel: (011) 408 2872E-mail: [email protected]
•Stewart RiderTel: (011) 408 3260E-mail: [email protected]
•Samuel SathekgeTel: (011) 408 3063E-mail: [email protected]
Arranger contacts•Andrew PamphilonTel: (011) 378 7003E-mail: [email protected]
•Marc HusseyTel: (011) 507 0730E-mail: [email protected]
•Chris ClarksonTel (011) 374 1291E-mail: [email protected]
30
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Issue process and deal contacts
Appendix
31
17% 19% 22% 24% 25%31% 31% 33%
40%
50% 52%
0%
20%
40%
60%
Comparison of debt-to-capital ratio with European peers
Source: JPMorgan estimates
32
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
LGL I LGL G SLM I SLM G OML I OML G MOM I MOM G
2002
Peer comparison - total new business
2003 2004
I = Individual; G = Group; Source: company financial statements
Rm
33
0
1,000
2,000
3,000
4,000
Liberty Sanlam Old Mutual Momentum Discovery (Life)
2002 2003 2004
Peer comparison - indexed new life business*
* Indexed new business as per embedded value statement; Source: company financial statements
Rm
34
Peer comparison - net flow of funds from life insurance operations
-12,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
2002 2003 2004
Liberty Sanlam Old Mutual Momentum Discovery (Life)Rm
Source: company financial statements
35
Peer comparison - embedded value
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
02 03 04 02 03 04 02 03 04 02 03 04 02 03 04
NAV and subs VIF
LGL SLM OML MOM DSY
Rm
Source: company financial statements
36
Gross investment returns
-15
-10
-5
0
5
10
15
20
25
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
year-to-date return 2003 year-to-date return 2004
12.5%
22.7%
Actuarial assumption