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Presentation to Investment Analysts’ Society

Presentation to Investment Analysts’ Society. 3 rd /4 th March 2004 www.liberty.co.za. Operating climate. Increasing compliance and regulatory requirements Low interest rate/low inflation environment Strengthening of the Rand Volatile investment markets Risk averse investors

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Presentation to Investment Analysts’ Society

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  1. Presentation toInvestment Analysts’ Society 3rd/4th March 2004 www.liberty.co.za

  2. Operating climate • Increasing compliance and regulatory requirements • Low interest rate/low inflation environment • Strengthening of the Rand • Volatile investment markets • Risk averse investors • Perception of industry

  3. Operations

  4. Liberty Personal Benefits -market share • Strong Excelsior investment product sales • Property-backed products very popular • Risk product launched – Lifestyle Protector R120 million sales since launch

  5. Liberty Personal Benefits –average recurring premiums % Change 30 Sept 2003* Rm 31 Dec 2002 Rm All offices Large offices Liberty Personal Benefits LPB as % of all offices LPB as % of large offices 2 141 2 843 6 796 316,2% 238,1% 2 298 2 754 6 443 280,4% 234,0% (7 3 5 ) * Source: LOA statistics

  6. Liberty Personal Benefits • Represents 70% of total business based on value of liabilities (low percentage smoothed bonus business) Focus on: • Integration of Healthcare operations • Restructuring of operations • Customer service and costs • Implementation of FAIS legislation • Partial commission uncapping • Further leveraging channel capabilities

  7. Liberty Corporate Benefits • 9% reduction in headcount • Building on packaged product model • Focusing on service delivery • Risk margins maintained (despite HIV/AIDS) • Standard Bank opportunity • Small pension fund audit exemption withdrawal

  8. Liberty Corporate Benefits(continued) • IEB purchase price: R130 million • Smooth integration to date • 2-3 years to rationalise fully • Efficiency opportunity • Current performance approximating expectations

  9. Consultancy • Agency Division • Introduction of graduated managers from the Academy • Additional branches created • Franchise Division • Elimination of non-producing franchises • Productivity enhanced

  10. Consultancy(continued) • Broker Division • Expanded number of supporting brokers • Gauteng focus • Administration hubs provide a higher level of service • SBFC • Increased manpower – benefits in 2004 • Consumer consultants strategy

  11. Consultancy(continued) • Legislation • FAIS implementation • Commission de-regulation • FICA implemented

  12. Properties % Change 2003 2002 Portfolio value (Rm) Comprising: Office buildings (%) Shopping malls (%) Hotels (%) Other (%) 10 449,8 20 65 12 3 100 9 601,8 22 64 11 3 100 9 5 year compound annual bonus rate to RA policy- holders of 11,6% vs headline CPI of 5,2%

  13. Properties (continued) • Property sales amounted to R150,1 million in 2003 • Liberty Midlands Mall completed in 2003 - valued at R325 million • 50% of Greenacres Shopping Centre acquired for R150 million • Vacancies at 31 December 2003: 13,9%(2002 : 12,1%)

  14. STANLIBTotal assets under management(excluding common assets) 2003 Rbn 2002 Rbn % Change Life funds Segregated funds Unit trusts Structured products and other Money market as % of total 59 55 40 24 178 14% 53 48 29 19 149 11% 12 15 38 26 19

  15. STANLIB(continued) • Net inflows positive R12 billion • Investment performance mixed: • Good fixed interest performance • Balanced portfolios underperformed median by 1% to 2% • Returns generally acceptable in absolute terms • Normalised earnings up 4% to R136 million

  16. STANLIB(continued) • Integration costs and other once-off costs higher than expected • Staff numbers reduced by 98 people (net) • Annualised cost saving of approximately R30 million • STANLIB brand now well-established in both retail and institutional markets • Looking for improved investment performance

  17. ErmitageAssets under management % Change 2003 US$m 2002 US$m Hedge funds Long-only funds Money funds Third party funds as % of total funds 1 292,7 1 059,5 600,3 2 952,5 41% 806,8 791,6 667,3 2 265,7 44% 60 34 (10 30 ) Operating profit up 117% in Pounds Sterling

  18. The year in numbers

  19. Features – 2003/2002 2003 Rm 2002 Rm % Change • Indexed new business • Individual • Corporate • Value of new business • Net cash inflows from insurance operations • New business margin 3 807,8 3 184,3 623,6 608,9 4 497,0 20% 3 634,2 3 090,2 544,1 604,6 4 501,3 20% 5 3 15 1 - -

  20. Features – 2003/2002(continued) % Change 2003 2002 • Headline earnings per share (cents) • Headline earnings per share pre AC 133 (cents) • Final dividend per share • Embedded value per share: (Rand) • Capital adequacy requirement (times covered) • 346,4 • 359,6 • 116,0 • 57,58 • 2,6 • 391,5 • 391,5 • 116,0 • 55,28 • 3,0 • (11 • (8 • - • 4 • ) • )

  21. Headline earnings 2003 Rm 2002 Rm % Change Operating profit from insurance operations netof tax Revenue earnings – shareholders’ funds Preference dividend Headline earnings Headline earnings pre-AC 133 719,5 324,8 (95,2 949,1 985,5 889,1 261,6 (81,9 1 068,8 1 068,8 (19 24 16 (11 (8 ) ) ) ) )

  22. Operating profit from insurance operations 2003 Rm 2002 Rm % Change Operating profit from insuranceoperationsBefore AC 133 adjustmentAC 133 adjustment • 719,5 • 755,9 • (36,4 • 889,1 • 889,1 • (19 • (15 ) ) ) • 2002 includes releases from the life fund of approximately R350 million after tax • Improvement in weighted policyholder investment portfolio in 2003 • Implementation of AC 133

  23. Investment returns(Weighted average of equity, managed and foreign assets portfolios)

  24. Expenses % Change 2003 2002 Total group expenses Subsidiaries Company expenses Insurance expenses Individual Corporate Benefits 1 860,9 (381,8 1 479,1 1 281,8 935,1 346,7 1 690,9 (462,6 1 228,3 1 150,6 864,4 286,2 10 (17 20 11 8 21 ) ) ) * *Includes IEB costs of R33 million

  25. Expenses – cost per policy 2003 % 2002 % Renewal cost per policyincreased/(decreased) by Acquisition cost per policyincreased/(decreased) by 6,5 7,2 (1,6 (1,3 ) ) Significant non-recurring expenses incurred in 2003

  26. Non-recurring expenses • Non-recurring expenses of R111,3 million in 2003 • Retrenchment and discontinued salary costs • Previously incurred corporate activity costs • Pension fund provision • Post-retirement medical liability increase • Retention bonuses • Non-capitalised renovation costs • Impairments and other provisions

  27. Revenue earnings – shareholders’ funds 2003 Rm 2002 Rm % Change Financial services operations Listed investments Other 199,9 32,9 92,0 324,8 159,6 39,9 62,1 261,6 25 (18 48 24 ) • Electric Liberty investment portfolio trading profit of R47 million in 2003 • Liberty Ermitage headline earnings of R43 million up 54% • Higher cash balances and preference shares increased other earnings

  28. Future earnings • International Accounting Standards • Stochastic modelling of investment guarantees • Investment returns impact 10% entitlements

  29. Embedded value 2003 Rm 2002 Rm % Change Shareholders’ funds Net value of life businessin-force Fair value adjustment Total Embedded value per share(Rand) 8 782,2 6 493,8 540,9 15 816,9 57,58 8 588,1 5 700,4 838,1 15 126,6 55,28 2 14 (36 5 4 )

  30. Fair value adjustment 2003 Rm 2002 Rm 216,0 140,0 306,9 (122,0 540,9 ) 240,0 190,4 407,7 838,1 Liberty Group Properties Liberty Ermitage Jersey STANLIB Carrying value of in-force business acquired from Investec Employee Benefits • Liberty Ermitage multiple reduced from 15 to 10 • STANLIB valued at approximately R1,4 billion

  31. New business – percentage increase Corporate Business* % Total % Individual Business % Recurring Single Total Index 6 (7 (4 3 ) ) 1 63 47 15 6 3 3 5 *Excludes IEB business acquired

  32. Market share individual business(including Charter) 30 Sept 2003 % 31 Dec 2002 % Individual recurring Individual singles 23,5 22,4 23,6 20,2 • Sales force productivity • Independent broker support • Investment performance • Property portfolio • Lifestyle protector Source: LOA stats plus Charter Life

  33. Value of new business 2003 2002 Value of new business (Rm) New business margin (%) Individual (%) Corporate (%) 608,9 20 22 8 604,6 20 22 11

  34. Net fund inflows 2003 Rm 2002 Rm % Change Total premiums and inflowsunder investment contracts Claims, policyholder benefits andpayments under investmentcontracts Net fund inflows • 18 121,8 • 13 624,8 • 4 497,0 • 16 415,1 • 11 913,8 • 4 501,3 • 10 • 14 • - • Two investment only funds to STANLIB of • approximately R700 million

  35. Capital adequacy cover 2002 2003 Capital adequacy requirement (Rm) Times covered 3 402,7 2,6 2 856,6 3,0 Charter Life investment guarantees

  36. Dividend 2002 cents per share 2003 cents per share Interim Final 162 116 278 162 116 278

  37. When we last spoke…

  38. Focus areas for second half 2003 • Improve service levels • Emphasis on cost reduction • Domestic operations/other market segments and Africa • Renewed emphasis on people • Address capital situation

  39. Since we last spoke…

  40. Improve service levels • Appointed MD Group Customer Service – Alan Woolfson • Appointed internal ombudsman • Launching staff initiative • Tracking system for complaints

  41. Cost reduction • Cost reduction initiated – second half 2003 • Cost savings of approximately R75 million for Liberty • Reduced net headcount • Liberty: 135 • STANLIB: 98 • General staff incentive scheme introduced based on cost reduction targets • No real cost growth budgeted for 2004

  42. Domestic operations/other market segments and Africa • Some internal issues – • LPB restructure • IT centralised (again) • Finalised Healthcare integration into LPB • Charter explores new opportunities (see next slide) • Namibia life license • Stanbic Africa footprint offers future opportunity • Canned future offshore expansion for now • Western Cape?

  43. Charter Life – eventually doing something Businessas usual New business initiatives (Long-term repositioning strategy) - LSM 5-8 - Products - Administration - Marketing - Distribution - Grow CC’s aggressively - Continue IFA’s, networking and Liberty Agency/Franchise Charter Life 2004 Customer service Cost management Right people - right jobs

  44. People • Four new board appointments • Appointed MD Charter Life – Bobby Malabie • Appointed CEO STANLIB – Bruce Hemphill • Looking for marketing head • IEB staff integrated well • Employment equity remains an issue • Restructured STANLIB

  45. Capital management • More proactive capital management • Capital committee formed • Sold 2 million Edcon and 1 million GoldFields • Restructured and cleaned up portfolios • Overcapitalised – but • BEE contingency • stochastic modeling • be patient!

  46. In addition… • Market uptick – thank heavens! • Financial Sector Charter signed • Dedicated Exco member heading initiative • Implementation committee set up • STANLIB BEE deal finalised • AC 133 implemented • Life product launched

  47. Liberty Foundation – focus on education • Mindset Network began broadcasting • Pilot programme initiated for Health Channel and we continued with – • Liberty Learning Channel on SABC • Learn.co.za website • Liberty/Sunday Times ReadRight project • Working closely with Standard Bank

  48. Focus areas for next six months – nothing complicated Continue - • to improve service levels • emphasis on cost reduction • focus on domestic operations/other market segments and Africa • emphasis on people

  49. Focus areas for next six months – nothing complicated Continue – • monitoring capital position • Financial Sector Charter implementation and in addition we will – • reposition brand • focus on product development

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