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FINANCIAL
RESULTS
Group equity value report
as at 31 December 2014
1. Introduction
Liberty presents a “group equity value” report to reflect the combined value of the various components of Liberty’s businesses.
Section 2 below describes the valuation bases used for each reported component. It should be noted the group equity value is presented to
provide additional information to shareholders to assess performance of the group. The total equity value is not intended to be a fair value
calculation of the group but should provide indicative information of the inherent value of the component parts.
2. Component parts of the group equity value and valuation techniques used
Group equity value has been calculated as the sum of the following component parts:
2.1 South African covered business:
The wholly owned subsidiary, Liberty Group Limited, comprises the South African long-term insurance entities and related asset holding
entities. The embedded value methodology in terms of Actuarial Practice Note 107 issued by the Actuarial Society of South Africa continues
to be used to derive the value of this business cluster described as “South African covered business”. The embedded value report of the
South African covered business has been reviewed by the group’s statutory actuary. The full embedded value report is included in the
supplementary information section.
2.2 Other businesses:
STANLIB
Valued using a 10 times (2013: 10 times) multiple of estimated sustainable earnings.
Liberty Properties
Valued using a 10 times (2013: 10 times) multiple of estimated sustainable earnings.
Liberty Health
s Liberty Health has yet to establish a history to support a sustainable earnings calculation, adjusted IFRS
A
net asset value is applied.
Liberty Africa Insurance
L iberty Africa Insurance is an emerging cluster of both long and short-term insurance businesses located
in various African countries outside of South Africa. A combination of valuation techniques including
embedded value, discounted cash flow and earnings multiples have been applied to value these
businesses. The combined value of this cluster is not material relative to the other components of group
equity value and therefore a detailed analysis of this valuation has not been presented. At 31 December
2014 and 2013 the combined valuations approximated the group’s IFRS net asset value. Therefore the
IFRS net asset value was used.
LibFin Credit
LibFin originates appropriate illiquid assets that provide acceptable illiquidity premiums. The value of this
origination is reflected at a 10 times (2013: 10 times) multiple of estimated sustainable earnings adjusting
for related expenses and prudential margin.
Liberty Holdings
The net market value of assets and liabilities held by the Liberty Holdings Limited company excluding
investments in any subsidiaries which are valued separately.
2.3 Other adjustments:
These comprise the fair value of share rights allocated to staff not employed by the South African covered businesses, adjusting certain
deferred tax assets to current values and allowance for certain shareholder recurring costs incurred in Liberty Holdings Limited capitalised
at a multiple of 9 times (2013: 9 times).
Liberty Holdings Limited Financial results for the year ended 31 December 2014
39
Group equity value report
as at 31 December 2014 (continued)
3. BEE normalised group equity value
3.1 Analysis of BEE normalised group equity value
Audited
2014
Rm
SA insurance operations
SA
covered
business
Other
businesses
10 958
Group
funds
invested
Adjustments
Net
worth
Value of
in-force:
SA
covered
business
10 958
(5 508)
5 450
22 941
South African insurance operations
Other group businesses:
STANLIB
28 391
20 927
2 014
Individual arrangements
Group arrangements
Value of in-force acquired
Working capital and other assets
Total
74
6 183
74
6 183
(74)
(466)
5 717
17 215
17 215
(6 048)
11 167
5 717
22 941
34 108
649
649
5 751
6 400
6 400
South Africa
Other Africa
444
205
444
205
5 356
395
5 800
600
5 800
600
Liberty Properties
Liberty Health
Liberty Africa Insurance
LibFin Credit
Liberty Holdings
Cost of required capital
45
342
586
45
342
586
280
650
650
325
342
586
900
550
Net equity as reported under IFRS
BEE preference funding
Allowance for future shareholders costs
Allowance for employee share rights
BEE normalised equity value
Summary of adjustments:
Negative rand reserves
Deferred acquisition costs
Deferred revenue liability
Frank Financial Services allowance for
future expenses
Carrying value of in-force business acquired
Fair value adjustment of non SA covered
business
Impact of discounting on deferred tax asset
17 215(1)
807
(136)
17 886
Adjustments as above
Allowance for employee share options/rights
BEE preference share funding
Net worth as reported in supplementary information
40
Liberty Holdings Limited
Financial results for the year ended 31 December 2014
1 822
783
19 708
783
(5 508)
(573)
207
(100)
(74)
(100)
(74)
Reconciliation to SA covered business net worth
as per analysis in supplementary information
Net equity of SA covered business as reported under IFRS
(356)
(94)
19 487
807
(356)
(230)
(5 508)
(573)
207
(6 048)
(1)
2 272
17 215
(6 048)
(136)
807
11 838
900
(100)
6 931
(100)
6 931
(100)
6 831
783
(1 456)
20 270
807
(356)
(230)
21 485
20 491
19 533
(1 952)
325
342
586
900
550
(1 456)
41 755
807
(2 308)
(230)
40 024
FINANCIAL
RESULTS
3. BEE normalised group equity value (continued)
3.1 Analysis of BEE normalised group equity value (continued)
Audited
2013
Rm
SA
covered
business
SA insurance operations
10 775
Other
businesses
Group
funds
invested
Adjustments
Net
worth
Value of
in-force:
SA
covered
business
10 775
(5 350)
5 425
21 637
South African insurance operations
Other group businesses:
STANLIB
27 062
19 830
1 807
Individual arrangements
Group arrangements
Value of in-force acquired
Working capital and other assets
Total
150
4 145
150
4 145
(150)
(381)
3 764
15 070
15 070
(5 881)
9 189
3 764
21 637
30 826
570
570
5 080
5 650
5 650
South Africa
Other Africa
396
174
396
174
4 854
226
5 250
400
5 250
400
Liberty Properties
Liberty Health (including Total Health Trust)
Liberty Africa Insurance
LibFin Credit
Liberty Holdings
Cost of required capital
50
87
488
50
87
488
400
400
1 389
1 389
2 584
(247)
17 654
905
(247)
(175)
(411)
Net equity as reported under IFRS
BEE preference funding
Allowance for future shareholders costs
Allowance for employee share
options/rights
BEE normalised equity value
Summary of adjustments:
Negative rand reserves
Deferred acquisition costs
Deferred revenue liability
Internally generated software
Carrying value of in-force business
acquired
Fair value adjustment of non SA covered
business
Liberty Health loan impairment
15 070(1)
905
(236)
15 739
(5 350)
(513)
185
(53)
17 901
650
(47)
65
488
650
1 342
17 719
905
(247)
(1 566)
20 071
(1 970)
(411)
65
17 966
488
650
1 342
(1 566)
37 790
905
(2 217)
(411)
18 101
36 067
(5 350)
(513)
185
(150)
5 993
(100)
5 946
5 993
(100)
65
Reconciliation to SA covered business net worth
as per analysis in supplementary information
Net equity of SA covered business as reported under
IFRS
15 070
Adjustments as above
(5 881)
Allowance for employee share options/rights
BEE preference share funding
Net worth as reported in supplementary information
53
(150)
(5 881)
(1)
2 162
350
(87)
(236)
905
9 858
Liberty Holdings Limited Financial results for the year ended 31 December 2014
41
Group equity value report
as at 31 December 2014 (continued)
3. BEE normalised group equity value (continued)
3.2 BEE normalised group equity value earnings and value per share
2014
SA
covered
business
Other
businesses
BEE normalised equity value at the
end of the year
31 371
Equity value at the end of the year
BEE preference shares
30 564
807
Audited
Rm (unless otherwise stated)
2013
Total
SA
covered
business
Other
businesses
Total
8 653
40 024
27 959
8 108
36 067
8 653
39 217
807
27 054
905
8 108
35 162
905
(6)
6
15
(87)
(1 653)
1 939
Adjustments from group restructure
Capital transactions
Funding of restricted share plan
Intergroup dividends
Dividends paid
BEE normalised equity value at the
beginning of the year
(27 959)
(8 108)
(36 067)
(25 574)
(7 166)
(32 740)
Equity value at the beginning of the year
BEE preference shares
(27 054)
(905)
(8 108)
(35 162)
(905)
(24 562)
(1 012)
(7 166)
(31 728)
(1 012)
4 819
1 212
6 031
4 119
1 162
5 281
17,3
15,4
16,9
286 201
16,2
16,1
16,1
286 057
BEE normalised equity value earnings
BEE normalised return on group
equity value (%)
BEE normalised number of shares (000’s)
Number of shares in issue (000’s)
Shares held for the employee restricted
share scheme (000’s)
Adjustment for BEE shares (000’s)
BEE normalised group equity value
per share (rand)
42
Liberty Holdings Limited
Financial results for the year ended 31 December 2014
117
1 290
355
(117)
(1 290)
1 719
355
1 719
87
1 653
15
1 939
256 946
257 801
3 459
25 796
2 460
25 796
139,85
126,08
FINANCIAL
RESULTS
3. BEE normalised group equity value (continued)
3.3 Sources of BEE normalised group equity value earnings
2014
Audited
Rm
Value of new business written in the year
Expected return on value of in-force business
Variances/changes in operating assumptions
Operating experience variances (including
incentive outperformance)
Transfer of shareholder expense reserve
Operating assumption changes
Changes in modelling methodology
One period replacement of shareholder
expenses and inflating expenses
Headline earnings of other businesses
Operational equity value profits
Non headline earnings adjustments
Development costs
Economic adjustments
Investment return on net worth
Internally generated software
Credit portfolio earnings
Change in fair value on cash flow hedges
Investment variances
Change in economic assumptions
Increase in fair value adjustments on value
of other businesses
Change in allowance for fair value of
share rights
Group equity value earnings
SA
covered
business
Other
businesses
914
2 131
662
27
(109)
2013
Total
SA
covered
business
Other
businesses
941
2 131
553
806
1 843
99
33
(15)
839
1 843
84
249
(15)
234
709
69
(62)
(54)
(40)
(69)
669
(62)
(54)
54
(204)
(122)
(67)
732
(189)
732
(113)
17
4 168
54
(204)
(38)
672
(151)
689
3 304
(126)
(82)
1 625
1 198
3 585
583
(52)
1 186
(25)
(338)
(77)
848
(53)
1 451
652
(126)
(29)
174
965
53
189
(93)
14
58
(285)
(53)
680
1 024
174
189
(93)
14
58
132
(130)
1 028
(603)
911
911
100
81
181
4 819
1 212
6 031
2 652
Total
132
(130)
1 028
(603)
484
484
69
7
76
4 119
1 162
5 281
Liberty Holdings Limited Financial results for the year ended 31 December 2014
43
Group equity value report
as at 31 December 2014 (continued)
3. BEE normalised group equity value (continued)
3.4 Analysis of value of long-term insurance, new business and margins
Audited
Rm (unless otherwise stated)
2014
2013
South African covered business:
Individual arrangements
1 640
1 580
Traditional Life
Direct channel
Credit Life
1 472
77
91
1 387
91
102
249
141
1 889
(874)
(101)
1 721
(833)
(82)
Group arrangements
Gross value of new business
Overhead acquisition costs impact on value of new business
Cost of required capital
914
44 916
2,0
806
37 753
2,1
Liberty Africa Insurance:
Net value of new business
Present value of future expected premiums
Margin (%)
27
413
6,5
33
362
9,1
Total group net value of new business
Total group margin (%)
941
2,1
839
2,2
Net value of South African covered new business
Present value of future expected premiums
Margin (%)
44
Liberty Holdings Limited
Financial results for the year ended 31 December 2014
Appendix B – Group equity value report and independent
auditor’s report
To the shareholders of Liberty Holdings Limited
We have audited the group equity value report of Liberty Holdings
Limited for the year ended 31 December 2014 on pages 204 to 209,
which has been prepared in accordance with the equity value basis
set out in section 2 of the group equity value report. This report
should be read in conjunction with the audited annual financial
statements where the policyholder liabilities are determined in
terms of International Financial Reporting Standards, which are
contained in the annual financial statements and supporting
information.
Directors’ responsibility for the group equity value
report
The company’s directors are responsible for the preparation and
presentation of the group equity value report in terms of the group
equity value basis set out in section 2 of the group equity value
report, for determining that the basis of preparation is acceptable
in the circumstances and for such internal control as the directors
determine is necessary to enable the preparation of the group
equity value report that is free from material misstatements,
whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on the group equity value
report. We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain
reasonable assurance whether the group equity value report is free
from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the group equity value report.
PricewaterhouseCoopers Inc.
Director: J Goncalves Registered auditor
The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement
of the group equity value report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of
the group equity value report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of
the group equity value principles used and the reasonableness
of valuation estimates made by the directors, as well as evaluating
the overall presentation of the group equity value report.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the group equity value report has been prepared
in all material respects in accordance with the basis set out in
section 2 of the group equity value report.
Basis of accounting and restriction on use
Without qualifying our opinion, we draw attention to section 2
of the group equity value report, which describes the basis of
accounting. The group equity value report is prepared to reflect the
combined value of the various components of Liberty’s businesses.
As a result, the group equity value report may not be suitable for
another purpose. Our report is intended solely for the directors
of Liberty Holdings Limited and should not be used by any other
parties. We agree to the publication of our report provided it is
clearly understood by the recipients of the report that they enjoy
such receipt for information only and that we accept no duty of
care to them in respect of our report.
Johannesburg
25 February 2015
Liberty Holdings Limited
Annual financial statements and supporting information 2014
Liberty Holdings Limited Assurance 2014
S7