Posted: 2007-03-02 23:56 Liberty earnings up 36%  Presenter: Hilary Joffe Guest(s): Bruce Hemphill Liberty Group headline earnings move up 36% to R2.5billion, and embedded value is up 12% for the full year 2006. Classic Business Day gets Liberty chief executive Bruce Hemphill on the line HILARY JOFFE: Bruce, new business sales were down 1% one percent? BRUCE HEMPHILL: On balance these are a good results, with earnings per share and embedded up quite nicely. Embedded value is up despite the fact that there was a return of capital to shareholders last year - if you factor that in it’s quite a bit more than the 12% - but I guess the real issue is the question of new business. Liberty traditionally has always generated very healthy growth in new business, but last year proved to be the exception with overall indexed new business was down 1%. That’s a disappointing result but I think it needs to be contextualised - at the half year that was down 3% and the reason for that was in the second quarter of 2006 we commenced a major restructuring of the distribution area involving the closure of various channels and the amalgamation of various service functions. I think inevitably with these things it has an impact on morale - ultimately the business is dependent on people, and when people aren’t feeling good about what they’re doing they generally don’t perform as well as they could. I think that’s the reason for the downturn in new business. You will probably have seen the presentation we did this morning where in the third quarter the new business downturn started to reverse, and in the fourth quarter it picked up very nicely indeed. The real question now is whether or not that turnaround is sustainable, and as I said this morning it looks like in January 2007 and early February that turnaround was sustained. The question is will it be sustained beyond that? We’re confident that it will be, but time will tell… HILARY JOFFE: The worry I suppose is that other people are growing new business faster - your rivals - and that you may be losing market share. Is that what’s happening? BRUCE HEMPHILL: I think that is what’s happening. At the half-year last year I said that it had always been stated that Liberty would continue to battle to grow market share off the levels it had at the end of 2005 and that statement has not been proved incorrect, but it’s important to appreciate the extent of the restructuring we embarked on last year. When you undertake a restructuring of that kind it’s almost inevitable that you will suffer some kind of downturn in your business. No doubt the competition capitalised on that, but that’s not to say they haven’t been doing good work, and good things in their businesses. I think it’s fair to say that some of our bigger competitors have invested significantly in their distribution networks over the last two or three years, and as we all know it takes time for those investments to pay off - I would suggest that the hard work and investment that they’ve put into their channels over the last few years is now starting to pay. HILARY JOFFE: Life assurance is something which is sold and not bought they always used to say? BRUCE HEMPHILL: That’s what they say. HILARY JOFFE: So it’s all about your broker network and so on… BRUCE HEMPHILL: I don’t think people wake up and say: “Today I must buy life insurance.” It’s something that’s in the back of people’s minds, and it’s something that people feel comfortable having once they’ve gone out and got it but ultimately it takes someone to prompt them to make the decision to do it. HILARY JOFFE: At the moment how is the market looking? Given the buoyant economic conditions where is the market growing - is it individual or corporate? BRUCE HEMPHILL: I think it’s growing in both spaces, but we are certainly seeing a very buoyant individual market. I think as more and more people move up the wealth curve the requirement for asset, health and life protection grows and I think the industry is benefiting from that. HILARY JOFFE: Do you think the whole backdrop to that is going to change as government starts introducing its new social security dispensation? BRUCE HEMPHILL: It’s very difficult to tell. I don’t think it will. I have a contrary view - I think that the introduction of compulsory savings will in fact benefit the entire savings industry, and the life companies will benefit as a result. I think it will be pushed much higher up the agenda, and people will hopefully be much more conscious of the need to start providing for their own and their dependants’ futures. HILARY JOFFE: Is that going to be good or bad for players such as yourselves? BRUCE HEMPHILL: It’s difficult to tell at this stage, but I would suggest to the extent that the overall savings pool is increased - and people are aware of the need to save and to buy products which protect wealth and assets etcetera - that will benefit the overall industry. I think that we need to engage with government on this whole issue, but I have no doubt in my mind that government is of the view that we need to arrive at a situation where all the stakeholders benefit from the proposed changes. HILARY JOFFE: You’ve raised your stake in Stanlib to 100% - what can you do with Stanlib now that you couldn’t do before? BRUCE HEMPHILL: When we owned 37% of Stanlib one of the difficulties was that it was quite difficult to push a whole lot of our product through their channels with 100% of the costs of that endeavour but we were only getting 37% of the earnings back from it. Now that we own 100% of course it’s different. I think the real opportunity lies in what we’ve done which is combining the distribution arrangements between the two businesses. It’s early days obviously - we’ve just announced the restructuring of the distribution areas - so it’s going to take time to see the benefits of that. In addition the point to be made about Stanlib is that I think there are opportunities for it to grow organically - unlike some of the big asset managers in South Africa it’s under-represented in terms of market share in equity products in both the retail and wholesale market. Transcripts editor: onsub1@johncom.co.za jhb Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :