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Liberty Group Inaugural subordinated unsecured callable bond Presentation to investors

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Liberty Group Inaugural subordinated unsecured callable bond Presentation to investors May 2005 Roadshow team Liberty Myles Ruck, Chief Executive Officer Deon de ... – PowerPoint PPT presentation

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Title: Liberty Group Inaugural subordinated unsecured callable bond Presentation to investors


1
Liberty Group Inaugural subordinated unsecured
callable bondPresentation 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
Corporate Structure (as at 31-12-2004)
Standard Bank Rated AA(zaf) Long Term Issuer
(54,65)
Liberty Holdings Limited
(50,17)
Liberty Group Limited Rated AA(zaf) - Insurer
Financial Strength Rated AA-(zaf) Long Term
Issuer
Life Assurance
Asset Management
  • STANLIB (37,4)
  • Liberty Ermitage
  • Liberty Properties
  • Liberty Personal Benefits
  • Liberty Corporate Benefits
  • Liberty Active

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
  • Libertys 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 (contd)
  • 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
Overview of the Groups embedded value (proxy for
cash flow drivers)
2004
2003
12
Business units
Individual Life (LPB and Liberty Active)
Liberty Corporate Benefits (LCB)
  • 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)
  • 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

Key performance indicators
Key performance indicators
Rm 2004 2003 change
Indexed new business 3,544 3,184 11
New single premiums 8,700 6,808 25
New 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
Rm 2004 2003 change
Indexed new business 643 624 3
New single premiums 1,582 1,924 -18
New 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
1 One client maturity of R2.1 billion in a
property-backed portfolio (2004)
13
Business units (contd)
Liberty Ermitage (Jersey)
STANLIB
  • Jersey-based fund management company,
    specialising in hedge funds
  • 41 third party funds
  • Representative offices in London, Luxembourg,
    Bermuda and New York
  • 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

Key performance indicators
Key performance indicators
Rm 2004 2003 change
Net cash flows 15,300 12,100 26
Assets under mgmt1 137,926 113,978 21
Headline earnings 119 80 49
Rm 2004 2003 change
Net cash flows 3,681 1,653 123
Assets under mgmt1 20,533 18,513 11
Headline earnings 46 43 7
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
Income statement (Rm)
1 The sum of new recurring premiums plus 10 of
new single premiums 2 The present value, at the
time of sale, of the projected stream of
after-tax profits from that business 3 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)
Key features
  • 10 shareholders participation
  • Higher average asset base
  • Investment guarantee reserves
  • Management expenses
  • Strong underlying Stanlib, Ermitage growth

17
Financial summary (contd)
Balance Sheet (Rm)
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)
16,867
15,817
15,127
14,767
11,941
19
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Summary and Questions
Appendix
20
Capital management strategy
Liberty Lifes capital adequacy (prior to Capital
Alliance acquisition)
Comments on level of capital
Impact of the BEE and CAL transactions on CAR
  • Libertys 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
  • 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 1.60x1.70x by December
    2005.
  • This assumes no additional benefits from pooling
    the CAR levels of the two integrated companies

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 Africas 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 2bn,
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 Klerk
  • Tel (011) 408 2572
  • E-mail deon.deklerk_at_liberty.co.za
  • John Sturgeon
  • Tel (011) 408 2872
  • E-mail john.sturgeon_at_liberty.co.za
  • Stewart Rider
  • Tel (011) 408 3260
  • E-mail stewart.rider_at_liberty.co.za
  • Samuel Sathekge
  • Tel (011) 408 3063
  • E-mail samuel.sathekge_at_liberty.co.za
  • Arranger contacts
  • Andrew Pamphilon
  • Tel (011) 378 7003
  • E-mail andrew.pamphilon_at_standardbank.co.za
  • Marc Hussey
  • Tel (011) 507 0730
  • E-mail marc.j.hussey_at_jpmorgan.com
  • Chris Clarkson
  • Tel (011) 374 1291
  • E-mail clarksonc_at_standardbank.co.za

30
Agenda
Overview
Operating review
Financial review
Capital management strategy
The proposed bond instrument
Issue process and deal contacts
Appendix
31
Comparison of debt-to-capital ratio with European
peers
Source JPMorgan estimates
32
Peer comparison - total new business
Rm
2002
2003
2004
I Individual G Group Source company
financial statements
33
Peer comparison - indexed new life business
Rm
2002
2003
2004
Indexed new business as per embedded value
statement Source company financial statements
34
Peer comparison - net flow of funds from life
insurance operations
Liberty
Sanlam
Old Mutual
Momentum
Discovery (Life)
Rm
2002
2003
2004
Source company financial statements
35
Peer comparison - embedded value
Rm
LGL
SLM
OML
MOM
DSY
NAV and subs
VIF
Source company financial statements
36
Gross investment returns
22.7
Actuarial assumption
12.5
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