Liberty Holdings Limited Analyst day 10 April 2019 Agenda 12:00 - - PowerPoint PPT Presentation

Liberty Holdings Limited

Analyst day – 10 April 2019

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Agenda

12:00 – Session 1: The why and what, defined and measured David Munro, Liberty Holdings Ltd, CEO

• Welcome and introductions
• Strategy Visualisation and the way forward

Johan Minnie, Managing Executive: Client and Adviser Experience

• Client and Adviser centricity principles that support our purpose

Yuresh Maharaj, Group FD

• Financial metrics and targets

13:35 – Session 2: How Liberty is changing the ways of working Benjamin Marais, CIO / Sunil Nagar, Executive Retail Operations

• Liberty's digital journey

14:45 – Session 3: Understanding the SIP Brian Kipps, Executive: LibFin

• The Shareholder Investment Portfolio (SIP)

15:00 – Break

• Refreshments will be served

15:15 – Session 4: Fulfilling our investment promise Derrick Msibi, STANLIB CEO

• STANLIB's strategic journey

Giles Heeger, Executive: Asset Management

• STANLIB's investment strategy and philosophy

16:15 – Session 5: Regulatory update Philip Harrison, Chief Risk Officer

• Prudential regulatory regime SAM

16:30 – Closing comments Yuresh Maharaj, Group FD

Strategic overview (The why?)

David Munro, Johan Minnie and Yuresh Maharaj

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5

Strategy visualisation

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Client and Adviser centricity principles that support our purpose

We will build trust by doing the right things, first time, every time, with a can-do attitude

Clients Financial Advisers Employees

We are people obsessed and will differentiate everything we do through our touch of humanity We build partnerships to the benefit of our clients in pursuit of making their financial freedom possible We empower our employees, advisers and partners to deliver exceptional and intuitive human experiences We understand our clients and their unique responses to life events We deliver solutions tailored to their life journeys We use smart technology as a seamless and intuitive enabler

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Advice philosophy

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Our advice philosophy is centered around you

“MAKING YOU THE AUTHOR OF YOUR OWN LIFE STORY” Wherever you are in your life, we meet you in your reality Guiding you through life’s moments, holding your dreams as if they were our own Empowering you to achieve your goals and live your best life

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Strategy visualisation

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Our Exco goals are aligned to our strategic delivery

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Liberty strategic value driver model

The metrics are seeking to measure client, financial adviser and employee experience to deliver the desired financial outcome.

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Strategic value driver model: Metrics used to measure value

Client and Adviser Experience

• Client Net promoter score
• Client satisfaction Index
• STANLIB SA investment

performance

• IFA Net Promoter Score
• IFA Satisfaction Score
• Long term insurance net

customer cash flows

• Asset management net customer

cash flows

• IT system stability

Employee Engagement

• Employee net promoter score
• Staff turnover
• Employee equity

Risk and Conduct

• LGL Capital coverage
• Group operational losses

Financial Outcome1

• 1Normalised operating earnings
• 1Normalised Return on Equity
• 1VoNB
• 1Margin
• 1Sales production
• 1Indexed new business (Rm)
• 1RoGEV
• SA Retail gross VoNB
• SA Retail acquisition costs
• Management expenses

SEE impact

• Policy maturities and surrenders
• Claims paid (death and disability)
• Annuity payments
• Group skills development spend
• Unclaimed benefits

1References to Liberty Holdings Ltd consolidated financial results

13

* 2017 comparative not applicable due to the new prudential regulatory regime effective 1 July 2018

Measures of progress on financial outcomes

Value of new business margin 0.9%

Dec 2017: 0.5%

Robust capital at upper end of range 1.87 times

Dec 2017: *

Return on Group Equity Value 3.8%

Dec 2017: 1.1%

Return

• n equity

10.1%

Dec 2017: 12.3%

1 2 3 4

1% - 1.5% target range 1.5 - 2.0x target range RoGEV >12% 15 - 18% target range

+

Stringent cost management

+

Product and margin initiatives

+

Improved sales volume in second half 2018

+

Robust balance sheet

+

Improved variances and basis changes

+

Improved earnings from SA Retail and STANLIB South Africa

+

Strong risk management capability

+

Dividend maintained

+

Stringent cost management

• Low investment market

returns

+

Improving value of new business

• Investment variances,

economic basis changes

• Low investment market

returns

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Setting and delivering towards strategy is a continuous process

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Our Exco goals aligned to our strategic delivery

Session 2 Session 4

Questions

Liberty’s digital journey

Benjamin Marais

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Liberty’s information technology strategy - 2019

Key focus areas Client and Adviser Centricity

• Partner with our clients through their life journey, and in so doing

to differentiate Liberty in terms of advice, trust, smart technology, strategic partners and empowered advisers and employees Digitalisation

• Provide access to reliable and relevant information and services,

to our clients, advisers and employees, any time and any place they want it

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WE ARE HERE!

The data and analytics journey

Stocktake

 Stocktake of data and analytics initiatives  Rationalise list of initiatives for delivery

Drive outcomes

 Refreshed data and analytics strategy  Objectives  Principles

Lay foundation

 Ways of working  Capability build roadmaps  Data ownership  Capacity and skills

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• Generate value

Setting direction

 What we have banked

1 2 3 4

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Digital transformational framework

FROM

A product centric organisation

TO

A digital insurer, centred around the client and adviser

Products Channel Operations Corporate Services Information Technology

Horizon 1 Horizons 2 and 3

Source: MIT CISR

Integrated experience

• Customer gains a

(simulated) experience despite complex operations

• Strong design and UX
• Rich mobile experiences

including purchasing products Future ready

• Both innovative and low cost
• Great customer experience
• Modular and agile
• Data is a strategic asset
• Ecosystems ready

Silos and Spaghetti

• Product driven
• Complex landscape
• f processes,

systems and data

• Perform via heroics

Industrialised

• Plug and play products

/services

• Service enabled ‘crown

jewels’

• One best way to do each

key task

• Single source of truth

Traditional Transformed Traditional Transformed

Operational efficiency Improving operating margins Customer experience Increasing NPS

Liberty Liberty

Enablement Operations Solutions Advice Client and Adviser

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Cloud journey

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• Integration management capability through MuleSoft enables feature teams to deliver faster by

removing the complexity of integration into legacy systems

• MuleSoft allows for faster integration with third parties (e.g. atWORK) while managing security and

usage – “bring your own software”

• Partnered with Standard Bank to leverage learnings and fast track the creation of a robotics process

automation capability

Building enabling capabilities

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Implementing foundational IT capabilities

Always On and Always Available

• Provide available and reliable tools

and systems, at the right time for our clients, advisers and employees Always Secure - Information Security and Cyber Resilience

• Gain the trust of our clients, advisers,

employees and 3rd parties as it pertains to the security of our business platforms and the security of the information they share with us Simplification (Simplicity for Clients, Advisers and Employees)

• Develop and implement a simplified

architecture and principles guiding all simplification efforts

• Simplicity in all solutions developed for

use by clients, advisers and employees, making engagement with the

• rganisation easy
• Eliminate redundant, duplicated and

fragmented capabilities, encourage reuse

• f developed capabilities

Data and Analytics

• Establish data as an asset to the
• rganisation by making data

services, which are used to create value for clients and advisers easily accessible New Ways of Work (IT and Business Collaboration)

• Develop and implement the approach

and structures that will enable the most efficient way for IT and Business to collaboratively drive the same outcomes IT Employee Engagement

• Create an environment that is

inclusive, values diversity and allows staff to realise their true potential whilst meaningfully participating in living out our vision

Customer experience

Sunil Nagar

25

Connected experience - Context

Disbursements Complex Servicing Onboarding Simple Servicing Complaints Collections Claims

• 2. OBJECTIVES
• 3. CUSTOMER JOURNEY DESIGNS

EXPERIENCE DESIGN PRINCIPLES CUSTOMER EXPERIENCE OUTCOMES KEY CONCEPTS CUSTOMER JOURNEYS

• 1. STRATEGIC CONTEXT

Focusing on delivering a simplified, connected & enhanced customer experience through better enabling our advisers & employees who ultimately deliver the experience This will support the vision of transforming Liberty to be the trusted leader in South Africa and chosen markets by delivering superior value through exceptional client and adviser experiences

IMPROVE CUSTOMER & ADVISER EXPERIENCE DRIVE SELF-SERVICE SCALE & ADOPTION REDUCE COSTS IN THE SERVICE ENVIRONMENT

Reverse the downward trend in Net Promotor Score, while improving experience for advisers. Drive more consistent service quality scores across channels Drive scale of customer self-service, with a focus on transferring ‘view’ and ‘basic do’ transactions from contact centre and email channels to self-service. A key imperative is onboarding customers to self-service Generate costs savings in the servicing environment through the iterative deployment of self-service and automation related to customer and adviser servicing

$

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Connected experience - Programme overview

DIGITAL ENGAGEMENT & SERVICING CARING CLAIMS EXPERIENCE EASY IN’S & STREAMLINED OUTS

CONNECTED EXPERIENCE FOCUS AREAS DELIVERED THROUGH 6 AGILE FEATURE TEAMS

Service Management Claims Management Requirements Management Automation Management Group API Services Data & Analytics Risk Onboarding Knowledge Factories Regulatory Management

• Communication through

Journeys

• Servicing quote refresh
• Bulk Digital Signatures
• Debit order tool
• NITIATIVES

FAST TRACK EXECUTION INITIATIVES

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Adopting new ways of work and agile frameworks

• Co-located cross functional feature teams with genuine collaboration between IT and business areas
• Greater visibility of work
• Better coordination across teams through joint planning, retrospectives and scrum ceremonies
• Ongoing stakeholder engagement and showcasing of solutions
• Ensuring client centricity through the adoption of user experience design and testing
• Continuous improvement approach
• Ability to respond to change quickly

Questions

Shareholder Investment Portfolio (SIP)

Brian Kipps

30

The majority of the assets that constitute the Shareholder Investment Portfolio are held in a conservative, long-term investment portfolio

• The portfolio is managed within a Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA) framework
• SAA is set using long term investment assumptions, and optimised with the group’s risk appetite and regulatory constraints
• STANLIB, as the appointed TAA manager, has a mandate to manage the portfolio around the SAA (within the TAA limits) taking into

account prevailing market conditions.

Overview

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Portfolio construction

Earnings at Risk Economic Value At Risk

Portfolio Construction

Opportunity Set Set within EVAR Appetite Set within EAR Appetite SIP

Portfolio SAA constructed within risk and balance sheet constraints

The portfolio construct is designed within group risk appetite and other balance sheet constraints Balance sheet constraints include, for example:

• Regulatory constraints
• Liquidity constraints
• Strategic investments

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Example of projecting earnings using opening position

The estimated earnings differ due to actual earnings as a result of (amongst other things):

• Capital inflows/outflows related to dividends, tax etc.
• Tactical asset allocation
• Tax estimate being fairly crude as a weighted average
• Subordinated debt fair value adjustments

Component Asset Base ‐ 31 Dec 2016 (R'm) Estimated Return (%) Estimated (R'm) Actual 2017 (R'm) Asset Base ‐ 31 Dec 2017 (R'm) Estimated Return (%) Estimated (R'm) Actual 2018 (R'm) SIP Total 27,147 2,703 2,328 27,832 1,340 1,027 Local Equity 3,971 16% 655 4,431 ‐11% ‐485 Local Bonds 6,016 10% 611 7,197 8% 557 Local Cash 6,779 8% 510 5,385 7% 393 Property 3,561 9% 306 3,093 6% 187 Foreign Equity 3,891 15% 580 4,787 4% 177 Foreign Bonds 289 ‐3% ‐10 304 15% 44 Foreign Cash 457 ‐5% ‐21 49 13% 6 Other 2,183 3% 72 2,586 18% 461 Subordinated Notes 4,500 10% ‐450 ‐432 5,500 10% ‐550 ‐525 Expenses 0.3% ‐81 ‐77 0.3% ‐83 ‐58 Taxation 30% ‐651 ‐512 30% ‐212 ‐194 Net Profit 1,520 1,307 494 250

Questions

STANLIB

Derrick Msibi, Giles Heeger and Mark Lovett

Strategic update

Derrick Msibi

36

Strategic update

Strengthened the Executive leadership Comprehensive review and improvements of investment capabilities Specific actions to address investment performance in Equity and Balanced

Appointment of:

• Derrick Msibi (CEO) 2017
• Giles Heeger (Exec Asset Management) 2017
• Mark Lovett (HOI) 2018
• Ntobeko Nyawo (COO) 2018
• Avashnee Ramdial (CFO) 2018

External review highlighted gaps to institutional quality Development of a multi-year road map

1 2 3

STANLIB: Investment strategy

Giles Heeger and Mark Lovett

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Context to STANLIB’s strategy refresh

To be the leading asset manager in Africa and other emerging markets that we serve. We need to deliver: Investment Alpha Service Alpha

Group

2

3rd party

To get the time to build a credible 3rd party offering, we need to deliver investment performance to maintain continued Group support

Requirement: Long-term, consistent risk adjust returns, with flexibility on time horizons  Deliver high quality equity and multi-asset offering using innovative solutions by combining active, (including 3rd party specialists), passive and multi manager capabilities  Creation of a multi-strategy capability Requirement: Improved focus on understanding Liberty and SBK and delivering more appropriately  Appointment of dedicated Liberty and SBK teams for more focused engagement and delivery Requirement: Top quartile, peer relative returns over the long term  Remove Liberty institutional funds from Equity and Balanced franchises:

 Reduce complexity by removing focus on short term goals  Eliminate impact of operating model  Allow Investment professionals to focus on delivering long term client outcomes

Requirement: Focus on retail offering versus tied

• ffering

 Professionalise teams to service retail offering  Simplified product offering Focus on operational platform to deliver improved client experience through increased digitization, minimising errors, upgrading technologies, leverage group where possible, and improved client and client onboarding experience

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2018 Investments - priority initiatives

Articulation of investment philosophy and process Strengthen executive leadership Strengthen the investment oversight function and improve analytics capability

1 2 3 Progress update Appointment of experienced international HOI Investment analytics capability strengthened by appointment of

new Head and additional resources

Formation of a multi-strategy dynamic asset allocation capability Identified a number of recruitment requirements Refresh ESG Work to improve articulation of philosophy and process

across franchises

Actions taken towards developing a performance culture:

• Semi annual FOC’s
• Quarterly investment and risk reviews
• Forums to improve cross franchise collaboration

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Improvements in Equity and Balanced performance

Progress update Consolidation of equity teams into a single team under Herman van Velze Equity stock picking in the balanced fund moved to the Equity team in 2017 Assumption of responsibility for the balanced fund (in additional to equities) by Herman van Velze in July 2018 A significantly enhanced quarterly Tactical Asset Allocation meeting which encourages robust, open debate and sharing of views

across the franchises. Improving the forum to leverage asset class expertise.

Source: STANLIB performance data as at 31 December 2018

1 Year 3 Year Franchise Fund Return % Bmk % Alpha % Quartile Ranking Return % Bmk % Alpha % Quartile Ranking Equity STANLIB Equity Fund

• 5,1
• 11,7

6,6 1 1,5 3,7

• 2,2

3 Multi-Asset STANLIB Balanced Fund

• 0,9
• 3,7

2,8 1 2,9 5,7

• 2,8

3 Liberty Liberty Preferred Assets

• 1,2
• 3,3

2,1 1 2,9 4,6

• 1,7

4

Whilst this performance is a desirable outcome, the team is aware that short-term (12 month) returns can be volatile and focus remains on improving long-term investment performance and strengthening the team

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Fixed Income and Absolute Return performance remain consistent

1 Year 3 Year Franchise Fund Return % Bmk % Alpha % Quartile Ranking Return % Bmk % Alpha % Quartile Ranking Fixed Income STANLIB Bond Fund 8,3 7,7 0,6 3 12,6 11,1 1,6 1 STANLIB Income Fund 9,6 7,2 2,4 1 10,2 7,4 2,8 1 STANLIB Money Market 8,1 7,2 0,8 2 8,3 7,4 0,9 2 Absolute return Absolute Plus 1,8 7,8

• 6,1

1 6,6 6,1 0,2 1

Source: STANLIB performance data as at 31 December 2018

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Listed Property had a challenging year

Source: STANLIB performance data as at 31 December 2018

1 Year 3 Year Franchise Fund Return % Bmk % Alpha % Quartile Ranking Return % Bmk % Alpha % Quartile Ranking Listed Property STANLIB Property Income Fund

• 27,4
• 27,0
• 0,4

4

• 1,5
• 2,0

0,4 3 STANLIB Global Property Fund

• 4,8
• 5,6

0,8 1 1,0 2,3

• 1,3

3

Industry trends, revenue and cost implications

Derrick Msibi

44

Industry trends: Changes across customer, investments and business models

Customer segments

• Evolving customer segments - different sources of growth. Retail AuM

growing faster than Institutional

• Technology savvy – digital everything
• Decline in revenue margins visible across client segments.
• Institutional, driven by intense market competition and increasing

vigilance by institutional investors over fees. Growth in Retail distributors’ power and regulator’s push for fee transparency and fairness, compressing margins

Investments

• The elusive alpha, tepid net flows and general negative and turbulent

performance of global financial markets

• Solutions focus to meet specific client risk return requirements over

specified time horizon

• Greater awareness and focus on socially responsible investing
• Movement of AuM from traditional active to passives and on a lesser

scale alternatives

Business models

• Trend to outsource back-office operations
• Move to more digital, technology based solutions – long payback

periods

• Platform solutions that capture client and earn sticky administration fees

premised on value added services (low cost)

Implications

• Reliance on rising financial markets to boost asset

values, no longer relevant – need to focus on long- term competitive advantage to generate net new flows

• Need to look at cost as a competitive advantage to

delivering growing profits

• Business models need to cope with cost constraints

– margin pressures and migration to lower margin product range, impacting profitability

• Competence in advanced data and analytics is seen

as a differentiator and potential competitive advantage

• Need to design a comprehensive approach to risk

management – alignment of regulatory compliance

• Acquire scale and capability (including data

analytics)

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Structural industry changes have resulted in negative earnings jaws

• Low revenue growth and drop in revenue margin

driven by intense market competition and increasing vigilance by investors over fees.

• Growing power of distributors and regulator’s

push for fee transparency and fairness compressing margins

• Changing asset mix with the introduction of

passives and trend towards LDI solutions

• Market volatilities

5 10 15 20 25 30 35 40 45 2011 2012 2013 2014 2015 2016 2017 2018 Net Revenue Operating expenses

• 20%

+16%

Net revenues and operating expenses as a share of AuM (bps) Industry dynamics

• Operational write-off’s
• Manual environment contributing to operational

risk incidents

• Vendor / outsource management

STANLIB dynamics

• Optimising business processes, increased automation and digital initiatives to

reduce risk of operational error including a system architecture review

• Simplify the business to reduce layers of complexity
• Instilling ZBB rigour into the business, redirecting savings to extract efficiencies
• Managing retention of critical skills while allowing for natural attrition

STANLIB initiatives to contribute to a more agile business

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Restoring revenue is important

500 1000 1500 2000 2500 Revenue (Rm) Cost (Rm) STANLIB Peer comparison

• R300m
• R30m

When benchmarked to peers STANLIB lags to a larger extent on a revenue basis and to a lesser extent on the cost base Revenue impacted by:

*Benchmarking using STANLIB 2018 budget and 2017 peer comparative

1. Distribution charge to market 2. Legacy pricing on the Liberty book 3. Liberty outflows 4. Poor investment performance in core equity and multi-asset offerings 5. Decreasing margin through changing margin mix rotating to lower margin products Addressing legacy pricing and distribution economics has a long lead time to extract business

• benefits. In the interim STANLIB is implementing

initiatives to optimize its cost base

STANLIB Peer Cost to income ratio 73% 61%

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Focused initiatives to optimise the cost base

Increased digital initiatives to extract benefits  Increased automation across the business  Increase in retail straight through processing and a reduction in costs per transaction  On-line Broker transacting capability significantly reducing cost per transaction  Reduced basic queries to call centre through improved digital access  Improving efficiencies reduced errors on transactions Optimising business processes, increased automation and digital initiatives to reduce operational risk incidents

Questions

SAM prudential regime

Philip Harrison

50

• The prudential regulatory regime changed to SAM on 1 July 2018
• Liberty incorporated the SAM basis into its management approach several years ago:

› Liberty (along with other industry players) supported the FSB in developing the SAM standards › Liberty has been calculating economic balance sheets for approximately ten years › The business has been managed on an economic basis for a number of years (e.g. SCR coverage is

• ne of the dimensions used to measure group risk appetite); and

› Liberty submitted regulatory returns to the FSB during a parallel run period of four years

• Liberty was fully prepared for SAM by the time it was implemented

Change in prudential regime

51

• The Liberty Group Ltd (LGL) Solvency Capital Requirement

(SCR) coverage level was 1,87 times at 31 December 2018

• While this is lower than the capital coverage at 30 June 2018 on

the previous prudential regime the surplus capital above the regulatory requirement on the SAM basis is materially higher

• We believe that this is a strong coverage level and it is close to

the upper end of our target range

• As SAM is new and industry practice still needs to emerge, our

relative competitive position will become more evident over time

• While we focus on delivering on Liberty’s turnaround strategy we

are comfortable with this coverage level

How has the introduction of SAM affected Liberty?

Assets Liabilities Required capital R17,4bn Surplus capital R15,2bn Assets Liabilities Required capital R5,3bn Surplus capital R8,9bn

June 2018 2,67x CAR December 2018 1,87x SCR

52

• The new Actuarial Practice Note 107 (which governs the calculation of EV) became effective on

31 December 2018 effectively requiring companies to move to a SAM based EV calculation

• Liberty implemented the new EV basis as follows:

› The net worth and VIF calculations now reference the published liabilities (previously the SVM basis). This removed the need for the material and complex reconciliation items between the published NAV and the EV net worth. This further aligns with how Liberty manages market risk and reduces the volatility in the investment variances reported in the EV net worth. As noted in the year-end analyst booklet, this increased the net worth and reduced the VIF; and › The approach used to determine the cost of required capital was adjusted to reference the SCR which led to an increase in the cost of required capital

• The impact of this change was an increase to the EV of R139m at 31 December 2017. Implementing the

change as a year-open change meant that the EV earnings analysis for 2018 was disclosed on the new basis aiding understanding of the impact of the change on the various components in the EV analysis

Impact on embedded value (EV)

Questions

Thank you