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Liberty produced ‘respectable’ results, says management

Not really, answer investors, knocking 7% off the share price.
The group adapted to the pandemic by ‘leveraging its recent technology investments’. Management says operations remain financially sound and well capitalised. Image: Moneyweb

Despite a hefty loss of nearly R2.7 billion compared with the profit of R3.6 billion in the previous financial year, Liberty Holdings CEO David Munro told shareholders in a presentation of the group’s results for the year to end December on Thursday that Liberty achieved “respectable results”.

“The crisis did not deviate us from the execution of our strategy,” said Munro, referring to the global Covid-19 pandemic.

“Liberty truly lived its purpose. Being there to support our clients and their families at those most profound moments of human vulnerability lies at the heart of our purpose.

“As evidence of this, total death and disability claims paid during 2020 amounted to R11.7 billion, an 11.4% increase. Total annuity payments to customers in the year amounted to R8.6 billion, a 9.2% increase on 2019.

“This was a critical injection of income into society to sustain many vulnerable people in the latter years of their lives,” Munro said in his commentary to the results.

He also outlined Liberty’s response to the crisis and its positioning for a different future against a background of the exceptional impact the Covid-19 pandemic had on the group.

‘Extraordinary challenges’

“The pandemic created extraordinary health, economic and financial challenges during 2020, a year that will live long in the memories of all of humanity,” says management, adding that Liberty was hit hard due to the strict lockdown in SA, still Liberty’s largest market by far.

The group adapted to the pandemic by “leveraging its recent technology investments” so that the majority its employees and advisors could continue working and earning an income.

In addition, it established a pandemic reserve of R3 billion – already provided for with the interim results for the year to June – to head off the financial impact of the pandemic.

Read: Covid-19 provision pushes Liberty into the red (Aug 2020)

The reserve was calculated to cover potential claims due to an increase in mortality and a potential rise in claims against policies that include a retrenchment benefit. It also makes provision for higher operating expenses directly attributable to the pandemic.

“This reserve will give our clients the confidence that we are ready to support them when needed, while still remaining financially strong,” noted Munro.

Confidence for clients

As for the future, he said Liberty has not changed its strategy or purpose.

“Indeed, the crisis has reinforced the importance of our purpose and has led to a deepened focus on and acceleration of key initiatives to develop a more competitive business that is ready for the future,” he told shareholders.

He explained how the past year panned out: “We started the year with high optimism and made good progress towards achieving our targets. Then, in March to April, heartbreak and fear, a nationwide lockdown and high levels of uncertainty.

“The business stabilised in May to June as management evaluated the impacts and took corrective action.

“By July [and until] September, we returned to our strategic plans and implemented new initiatives [from what] we have learned,” said Munro.

Figures presented by Liberty chief financial officer Yuresh Maharaj showed the success of the initiatives.

New business up

The last three months of the past financial year were much better than the previous few quarters. In the last quarter, Liberty reported R2.1 billion worth of new insurance business compared with R1.7 billion in the preceding quarter.

Maharaj put the loss of the last year into perspective, saying that the R3 billion reserve (before accounting for tax) to provide for the impact of the pandemic was largely the reason.

“The normalised operating loss includes the R2.2 million after-tax cost of establishing the pandemic reserve which, if excluded from the result, would reflect normalised operating earnings for the year of R628 million,” noted Maharaj. This compares with normalised headline earnings of R3.2 billion in the previous financial year.

Reserve modelling

Maharaj explained that management assumed that most of the impact of the pandemic will be evident within the next 12 months.

“The reserve has been modelled using trends in actual infections from official government statistics and age-based mortality experience as evidenced in published research studies.

“Based on these studies and more recent data over the last few months, the reserve was reassessed on a prospective basis at end December 2020, resulting in a marginal increase at year end of R73 million [before tax],” said Maharaj.

Financially sound, says management

Despite the difficult year, additional costs, lower sales and a volatile investment environment, management maintains that Liberty’s operations remain financially sound and well capitalised.

The solvency capital requirement ratio decreased only slightly, from 1.99 times a year ago to 1.81 times at the end of the past financial year, including the large pandemic reserve.

Munro and Maharaj both referred to additional expenses during the past year that impacted on the results, such as expenses incurred to ensure the safety of employees and advisors, and accelerating the rollout of digital tools to them.

Meanwhile, income was significantly lower.

Policy sales slumped due to the increased pressure on household income and higher unemployment, as well as the absence of face-to-face sales.

Liberty also offered existing clients relief in paying premiums to assist those experiencing financial hardship.

Relief was also extended to struggling tenants in Liberty’s property portfolio.

But management noted that there had been a recovery in both foot count and trading activity towards the end of the financial year.

‘Aggressively simplifying’ from here

Munro ended his presentation with a rather positive promise, that Liberty has made good progress to recover and take on the challenges of the future by “aggressively simplifying our whole organisation”.

“We aim to produce a Liberty that meets our clients’ needs more effectively and efficiently, and is capable of producing appropriate long-term returns to our shareholders,” said Munro.

Looking at the share price, it seems investors are not nearly as upbeat as management.

The share price dropped quite sharply after the announcement of the results, by nearly 7% to close at R68.35.

This compares to levels comfortably above R120 at the end of 2019, before the pandemic hit Liberty.

Listen: Liberty CEO David Munro discusses Liberty’s annual results to end December 2020

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Liberty still suffering after being klapped by Discovery.

So why has the share price been falling for YEARS

Best thing would be for Standard Bank to sell Liberty so the SBK share price would improve a little.

The SHP and SBK are my worst performers in my portfolio.

End of comments.

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