Liberty CE David Munro launched straight into a turnaround-strategy speech at Friday’s results, assuring investors the insurer had "all the ingredients for success" as it reported its second consecutive double-digit drop in full-year earnings.
Munro, parachuted in as Mr Fix It from Liberty’s majority shareholder, Standard Bank, nine months ago, said he expected to deliver "real performance" by 2019/20. The plan involves a simplification of Liberty’s product set, cost cuts, a new hire at asset manager Stanlib, and increased automation.
The interventions are long overdue considering Liberty’s operating earnings have halved over the past two years to R1.4bn. "Liberty has tried to do too many new things, which has layered in complexity and distracted us from serving customers," said Munro, who replaced Thabo Dloti in June.
Product launches over the past 60 years in the name of innovation were not coupled with upgrades of existing products, leading to too many versions of the same product, uncompetitive offerings and unhappy customers, he said.
Liberty’s results for the year to December 2017 reflect this. The value of new business tumbled 52% to R233m – a drop from R729m in 2015. The new business margin, a measure of profitability of new business, halved to 0.5%.
Lifting this to 1%-1.5% in the next two years would be an immediate priority, said Munro. Other bold short-term targets included growth in embedded value that exceeds 12% — from virtually zero growth over the past year as embedded value flatlined at R34.6bn — and a return on equity of 15%-18%.
"The strategic intent to reduce complexity and become more efficient is refreshing and makes sense, but we wait with interest for some tangible evidence of progress," said Justin Floor, a portfolio manager at Kagiso Asset Management.
"The question is how long [the turnaround] takes," said Warwick Bam, analyst at Avior Capital Markets. Healthy growth in bancassurance new business and a 46% increase in net customer cashflows to R1.6bn were some early "green shoots".
"If you look at the long-term potential, it’s quite hard not to recognise what Standard Bank can do for Liberty," Bam said.
Liberty would drive greater collaboration with its parent, particularly in the mass market, where it held a very small share of premiums, and through a short-term insurance joint venture, said Munro. To address its "cost challenge" it had instituted a hiring freeze and reduced discretionary spend, he said.
Automating administrative functions would free up middle management to focus on strategy execution, said Bam.
Resuscitating Stanlib, where earnings dropped 45%, was a critical priority, said Munro. In addition to appointing Derrick Msibi and Giles Heeger last year as CEO and asset management executive respectively, Stanlib had a new head of investment.
A Briton whose work permit is awaiting approval, the appointee was most recently head of equities at a €330bn-in-assets (R4.8-trillion) fund manager.
"It’s early days for Liberty. This year will be an important one to demonstrate the traction of remedial actions," Bam said.