20180403-liberty-groupltd-afs-i

200 Pages·2017·1.09 MB·English

LIBERTY GROUP LIMITED
AUDITED GROUP AND COMPANY ANNUAL FINANCIAL STATEMENTS
for the year ended 31 December 2017
1_LGL_2017 March 16, 2018 10:43 AM
CONTENTS
GROUP AND COMPANY ANNUAL FINANCIAL STATEMENTS Page
Directorate and administration 1
Directors’ responsibility for financial reporting 2
Independent auditor’s report 3
Directors’ report 9
Report of the group audit and actuarial committee 12
Report of the statutory actuary 14
Accounting principles 19
Key judgements in applying assumptions on application of accounting policies 20
Guide to the group annual financial statements and notes 22
Statement of financial position 24
Statement of comprehensive income 25
Statement of changes in group equity 26
Statement of changes in company equity 27
Statement of cash flows 28
Notes to the annual financial statements 29
RISK MANAGEMENT 127
1 Enterprise risk management 128
2 Strategic and business risk 136
3 Operational risk 138
4 Insurance risk 140
5 Market risk 145
6 Liquidity risk 155
7 Credit risk 161
8 Concentration risk 166
9 Sensitivity analysis 168
APPENDICES 171
Appendix A – Detailed accounting policies 172
Appendix B – List of companies within the Liberty Group Limited group 193
Appendix C – Abbreviations and definitions 194
Preparation of annual financial statements
The annual financial statements of the Liberty Group Limited group and company for the year ended 31 December 2017 were:
Prepared by: Melanie Natsas CA(SA)
Luiz Torres CA(SA)
Laura Kirker FASSA
Supervised by: Yuresh Maharaj CA(SA)
These financial statements have been audited by PricewaterhouseCoopers Inc. in accordance with the requirements of the Companies Act No. 71 of 2008.
Liberty Group Limited
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DIRECTORATE AND ADMINISTRATION
Directors
JH Maree (Chairman)
AWB Band (Lead independent director)
SL Botha
AP Cunningham
T Dloti (resigned 30 May 2017)
MW Hlahla
MG Ilsley (resigned 31 July 2017)
NY Khan (appointed 15 December 2017)
Y Maharaj (appointed 12 February 2018)
MP Moyo (resigned 3 April 2017)
DC Munro (appointed 15 February 2017)
CL Roskruge Cele
SP Sibisi
YGH Suleman
JH Sutcliffe
CG Troskie (resigned 31 December 2017)
SK Tshabalala
Company Secretary
JM Parratt
Statutory Actuary
DH Booysen
Business address and registered office
Liberty Centre, 1 Ameshoff Street, Braamfontein 2001
PO Box 10499, Johannesburg, 2000
Tel: [phone]
Auditors
PricewaterhouseCoopers Inc.
4 Lisbon Lane, Waterfall City, Jukskei View, 2090
Tel: [phone]
PricewaterhouseCoopers Inc. will continue in office in accordance with section 90 of the Companies Act No. 71 of 2008.
Registration number
1957/002788/06
Incorporated in Republic of South Africa
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DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING
for the year ended 31 December 2017
The directors are responsible for the preparation and fair The independent auditor is responsible for reporting on whether
presentation of the annual financial statements of the group and the financial statements are fairly presented, in all material respects,
company. These financial statements comprise the statements in accordance with International Financial Reporting Standards and
of financial position as at 31 December 2017, the statements of the requirements of the Companies Act of South Africa.
comprehensive income, changes in equity and cash flows for the
period ended, the accounting policies and the notes to the financial Approval of the financial statements
statements, in accordance with International Financial Reporting
The annual financial statements of the group and company, as
Standards (IFRS) and the requirements of the Companies Act No. 71
identified in the first paragraph, were approved by the board of
of 2008. In addition, the directors are responsible for preparing the
directors on 1 March 2018 and are signed by
Directors’ report.
The directors are also responsible for such internal control as they
determine necessary to enable the preparation of the annual
financial statements that are free from material misstatement,
whether due to fraud or error, and for maintaining adequate
accounting records and an effective system of risk management.
JH Maree DC Munro
Chairman Chief executive
The directors have made an assessment of the ability of the group
and company to continue as a going concern and have no reason
Johannesburg
to believe that the business will not be a going concern in the
1 March 2018
year ahead.
COMPANY SECRETARY COMPLIANCE STATEMENT
In terms of Section 88(2)(e) of the Companies Act No. 71 of 2008, as amended, I certify that the company has lodged with the Registrar of
Companies all such returns as are required of a public company in terms of the Companies Act No. 71 of 2008 in respect of the year ended
31 December 2017, and that all such returns are true, correct and up-to-date.
JM Parratt
Company secretary
Johannesburg
1 March 2018
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INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Liberty Group Limited
Report on the audit of the consolidated and separate financial statements
Our opinion Our audit approach
In our opinion, the consolidated and separate financial statements Overview
present fairly, in all material respects, the consolidated and separate
Overall group materiality
financial position of Liberty Group Limited (the company) and
its subsidiaries (together the group) as at 31 December 2017, R235 million, which represents 5% of the three year average
and its consolidated and separate financial performance and its adjusted consolidated profit before taxation.
consolidated and separate cash flows for the year then ended in
accordance with International Financial Reporting Standards and Group audit scope
the requirements of the Companies Act of South Africa. • Full scope audit for five reporting components based on their
financial significance, one component represents 100% of the
What we have audited
results of operations of the group.
Liberty Holdings Limited’s consolidated and separate financial
• Specified audit procedures on one reporting component and
statements set out on pages 19 to 21, 24 to 125, 128 to 170 and 172
analytical reviews on the remaining.
to 192 comprise:
• the consolidated and separate statements of financial position as Key audit matters
at 31 December 2017;
• Long-term policyholder assets and liabilities – insurance
• the consolidated and separate statements of comprehensive contracts; and
income for the year then ended;
• Valuation of investment properties at year end of R20,6 billion.
• the consolidated and separate statements of changes in equity
As part of designing our audit, we determined materiality and
for the year then ended;
assessed the risks of material misstatement in the consolidated
• the consolidated and separate statements of cash flows for the and separate financial statements. In particular, we considered
year then ended; and where the directors made subjective judgements; for example, in
respect of significant accounting estimates that involved making
• the notes to the financial statements, which include a summary
assumptions and considering future events that are inherently
of significant accounting policies.
uncertain. As in all of our audits, we also addressed the risk of
management override of internal controls, including among other
Basis for opinion
matters, consideration of whether there was evidence of bias that
We conducted our audit in accordance with International Standards represented a risk of material misstatement due to fraud.
on Auditing (ISAs). Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit Materiality
of the consolidated and separate financial statements section of The scope of our audit was influenced by our application of
our report. materiality. An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
We believe that the audit evidence we have obtained is sufficient
misstatement. Misstatements may arise due to fraud or error. They
and appropriate to provide a basis for our opinion.
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of
Independence
users taken on the basis of the consolidated financial statements.
We are independent of the group in accordance with the
Independent Regulatory Board for Auditors Code of Professional Based on our professional judgement, we determined certain
Conduct for Registered Auditors (IRBA Code) and other quantitative thresholds for materiality, including the overall group
independence requirements applicable to performing audits of materiality for the consolidated financial statements as a whole
financial statements in South Africa. We have fulfilled our other as set out in the table below. These, together with qualitative
ethical responsibilities in accordance with the IRBA Code and considerations, helped us to determine the scope of our audit
in accordance with other ethical requirements applicable to and the nature, timing and extent of our audit procedures and
performing audits in South Africa. The IRBA Code is consistent with to evaluate the effect of misstatements, both individually and in
the International Ethics Standards Board for Accountants Code of aggregate on the financial statements as a whole.
Ethics for Professional Accountants (Parts A and B).
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INDEPENDENT AUDITOR’S REPORT
(CONTINUED)
Overall group materiality R235 million
How we determined it 5% of the three year average adjusted consolidated profit before taxation.
Rationale for the materiality We chose profit before taxation as the benchmark because, in our view, it is the most commonly used
benchmark applied benchmark against which the performance of profit orientated listed entities in the financial services
industry is measured by users, and is a generally accepted benchmark.
Since 2016, the group’s profit before taxation has fluctuated significantly resulting in the need for us to
average profit before taxation over the last three years for purposes of determining materiality.
We chose 5% which is consistent with quantitative materiality thresholds used for profit oriented
companies in this sector.
How we tailored our group audit scope eliminations, gave us the evidence we needed for our opinion on
the group financial statements as a whole.
We tailored the scope of our audit in order to perform sufficient
work to enable us to provide an opinion on the consolidated In establishing the overall approach to the group audit, we
financial statements as a whole, taking into account the structure of determined the type of work that needed to be performed by us,
the group, the accounting processes and controls, and the industry as the group engagement team, or component auditors from other
in which the group operates. PwC network firms or other firms operating under our instruction.
Where the work was performed by component auditors, we
The group has two principal reportable operating segments that
determined the level of involvement we needed to have in the
align with its organisational design namely Individual Arrangements
audit work at those components to be able to conclude whether
and Group Arrangements.
sufficient appropriate audit evidence had been obtained as a basis
The group’s financial statements are a consolidation of twelve for our opinion on the group financial statements as a whole.
reporting components, which together comprise the group’s
principal operating segments. Of these reporting components, Key audit matters
we selected eight for full scope audit testing due to their financial
Key audit matters are those matters that, in our professional
significance, one of these components, Liberty Group Limited
judgment, were of most significance in our audit of the consolidated
(LGL), represents 100% of the results of operations of the group
and separate financial statements of the current period. These
and forms part of the group engagement team’s responsibility.
matters were addressed in the context of our audit of the
Specified audit procedures on certain balances and transactions
consolidated and separate financial statements as a whole, and in
were performed at one reporting component. For the remaining
forming our opinion thereon, and we do not provide a separate
components we performed analytical reviews.
opinion on these matters.
This together with additional procedures performed at the group
level, including testing of consolidation journals and intercompany
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INDEPENDENT AUDITOR’S REPORT
(CONTINUED)
KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Long term policyholder assets and liabilities To test the valuation of the policyholder assets and liabilities our actuarial experts
– Insurance contracts (Refer to note 15 in the performed amongst other the following procedures:
financial statements)
• Considered Liberty’s actuarial control environment and governance including
The company and group measure the valuation of
the functioning of the Actuarial Committee, which approves the methodology
policyholder assets and liabilities from insurance
and assumption changes against industry practice and regulatory requirements.
contracts (policyholder assets and liabilities) in
accordance with SAP 104. As at 31 December 2017, • Attended management meetings where valuation principles were agreed. We
the value of the policyholder assets and liabilities was performed tests on a sample basis to corroborate that these principles were
R7,5 billion and R209,2 billion respectively. applied in the valuation model as approved.
• Compared valuation methodology changes against the requirements of SAP 104
Within the life business, complex and subjective
and industry practice.
judgement is required over a variety of uncertain
future operating assumptions such as expense • Compared the assumptions applied by management against recent actual
inflation, tax assumptions, investment return, discount long term experience, industry trends and economic market trends and the
rate, mortality and withdrawals. The assumptions assumptions applied were comparable with these benchmarks.
applied by management, as disclosed in note 15, in
• Assessed the sources of profit against expectations and the accounting policies.
determining the value of the policyholder liabilities
and changes to these assumptions, may result in a • Examined and corroborated management’s Analysis of Surplus, as defined on
material adjustment to the valuation and the results page 195, by analysing the sources of profit and how it relates to the change in
of the group and company. the policyholder liabilities and the impact on the income statement.
We consider the valuation of the policyholder assets To test the underlying data used in the valuations we performed amongst other on
and liabilities as a matter of most significance to our a sample basis, the following:
current year audit because of the:
• Tested the classification of expenses between maintenance and acquisition
• significant judgement required in determining the and how they are capitalised in the valuation by considering the nature of the
value and expenses and inspecting the source document of the expense; and
• the magnitude of policyholder asset and liabilities • Traced the policyholder valuation input data, such as premiums, claims and
in relation to total assets and liabilities. expense data used in the valuation model back to information contained in the
administration and accounting systems.
To test the changes in assumptions as it relates to policyholder behaviour (expected
future withdrawals), we performed amongst others, the following procedures:
• Understood management’s view of the drivers of the withdrawal experience and
assessed the effectiveness of management actions to address the withdrawal
experience;
• Examined management’s investigation into actual withdrawals experience and
the long-term trends in the experience as it impacts the withdrawal assumption;
compared it with recent long-term experience and industry trends; and
• Examined the proposed basis changes against actual experience; taking into
account management’s view of the potential impact of management actions on
future withdrawal rates and found that the changes made by management were
supported by available evidence.
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INDEPENDENT AUDITOR’S REPORT
(CONTINUED)
KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Valuation of investment properties at year end We obtained the latest independent property market reports to understand the
of R20,6 billion (Refer to note 3.3 in the financial prevailing market conditions in which the group invests.
statements)
We updated our understanding of and tested the relevant controls related to:
Majority of the group and company’s investment
property is comprised of retail investment property. • Entering and amending of leases in support of contractual rental income;
At 31 December 2017, the carrying value of the group
• Setting and approval of budgets by management;
and company’s total investment property portfolio
was R20,6 billion and R19,1 billion respectively • Detailed analysis of forecasts and trends against actual results that inform
representing a R1,8 billion decrease (group) and management of the business; and
R1,9 billion decrease (company) compared to the
• Board approval of the valuations obtained.
prior year. The decrease mainly relates to the disposal
of an additional 9% undivided share in investment
In respect of the appraisers we:
properties to Liberty Two Degrees, a listed Real
• considered their objectivity, independence and expertise by inspecting the
Estate Investment Trust fellow subsidiary of the
external appraisers’ valuation reports for a statement of independence and
company, and R296 million (group) and R283 million
compliance with generally accepted valuation standards; and
(company) representing an increase in the fair value
of the properties. • confirmed the external appraisers’ affiliation with the relevant professional body.
The group’s and company’s accounting policy is to On a risk based sample basis, we independently tested the calculation of the fair
measure investment properties at fair value using values in the appraisers’ valuation reports by performing, the following procedures,
the discounted cash flow approach. The value of which included:
investment properties is dependent on the valuation • Using our internal property valuation experts to assess the appropriateness of
methodology adopted and the inputs into the the valuation methodology;
valuation model. Factors such as prevailing market
• Assessing the reasonableness of the cash flows, growth, exit capitalisation and
conditions, the individual nature, condition and
discount rates against market related data for similar investment properties
location of each property and the expected future
noting no exceptions;
income for each property directly impact fair values.
• Independent recalculation of the accuracy of the valuations; and
Amongst others, the following assumptions are key
in determining the fair value: • We inspected the final valuation reports and agreed the fair value to the group’s
and company’s accounting records noting no exceptions.
• exit capitalisation rates; and
• discount rates.
The fair value of the investment properties were
determined with reference to the group’s valuation
policy. This policy requires all properties to be
externally valued by qualified real estate appraisers
(the appraisers).
We considered the year end valuation of the
properties a matter of most significance to our
current year audit because of the:
• significant judgement required in determining the
exit capitalisation and discount rates;
• relative size of the investment properties
compared to the total unlisted investments in the
statement of financial position; and
• the decrease in the investment property balance
as a result of the additional undivided share
disposed of to Liberty Two Degrees as well as the
valuation gain during the year.
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INDEPENDENT AUDITOR’S REPORT
(CONTINUED)
Other information
The directors are responsible for the other information. The material misstatement when it exists. Misstatements can arise
other information comprises the information included in the from fraud or error and are considered material if, individually or
Liberty Group Limited audited group and company annual financial in the aggregate, they could reasonably be expected to influence
statements, which includes the Company secretary compliance the economic decisions of users taken on the basis of these
statement, the Directors’ Report, the Report of the group audit and consolidated and separate financial statements.
actuarial committee as required by the Companies Act of South
As part of an audit in accordance with ISAs, we exercise professional
Africa. Other information does not include the consolidated and
judgement and maintain professional scepticism throughout the
separate financial statements and our auditor’s report thereon.
audit. We also:
Our opinion on the consolidated and separate financial statements • Identify and assess the risks of material misstatement of the
does not cover the other information and we do not express an consolidated and separate financial statements, whether due to
audit opinion or any form of assurance conclusion thereon. fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and
In connection with our audit of the consolidated and separate
appropriate to provide a basis for our opinion. The risk of not
financial statements, our responsibility is to read the other
detecting a material misstatement resulting from fraud is higher
information identified above and, in doing so, consider whether the
than for one resulting from error, as fraud may involve collusion,
other information is materially inconsistent with the consolidated
forgery, intentional omissions, misrepresentations, or the
and separate financial statements or our knowledge obtained in the
override of internal control.
audit, or otherwise appears to be materially misstated.
• Obtain an understanding of internal control relevant to the
If, based on the work we have performed, we conclude that there is
audit in order to design audit procedures that are appropriate
a material misstatement of this other information, we are required
in the circumstances, but not for the purpose of expressing an
to report that fact. We have nothing to report in this regard.
opinion on the effectiveness of the group’s and the company’s
internal control.
Responsibilities of the directors for the
• Evaluate the appropriateness of accounting policies used and the
consolidated and separate financial statements
reasonableness of accounting estimates and related disclosures
The directors are responsible for the preparation and fair made by the directors.
presentation of the consolidated and separate financial statements
• Conclude on the appropriateness of the directors’ use of the
in accordance with International Financial Reporting Standards
going concern basis of accounting and, based on the audit
and the requirements of the Companies Act of South Africa, and
evidence obtained, whether a material uncertainty exists
for such internal control as the directors determine is necessary
related to events or conditions that may cast significant doubt
to enable the preparation of consolidated and separate financial
on the group’s and the company’s ability to continue as a going
statements that are free from material misstatement, whether due
concern. If we conclude that a material uncertainty exists, we are
to fraud or error.
required to draw attention in our auditor’s report to the related
disclosures in the consolidated and separate financial statements
In preparing the consolidated and separate financial statements,
or, if such disclosures are inadequate, to modify our opinion. Our
the directors are responsible for assessing the group and the
conclusions are based on the audit evidence obtained up to the
company’s ability to continue as a going concern, disclosing, as
date of our auditor’s report. However, future events or conditions
applicable, matters related to going concern and using the going
may cause the group and/or company to cease to continue as a
concern basis of accounting unless the directors either intend to
going concern.
liquidate the group and/or the company or to cease operations, or
have no realistic alternative but to do so. • Evaluate the overall presentation, structure and content of the
consolidated and separate financial statements, including the
Auditor’s responsibilities for the audit of the disclosures, and whether the consolidated and separate financial
statements represent the underlying transactions and events in
consolidated and separate financial statements
a manner that achieves fair presentation.
Our objectives are to obtain reasonable assurance about whether
• Obtain sufficient appropriate audit evidence regarding the
the consolidated and separate financial statements as a whole are
financial information of the entities or business activities within
free from material misstatement, whether due to fraud or error, and
the group to express an opinion on the consolidated financial
to issue an auditor’s report that includes our opinion. Reasonable
statements. We are responsible for the direction, supervision and
assurance is a high level of assurance, but is not a guarantee that
performance of the group audit. We remain solely responsible for
an audit conducted in accordance with ISAs will always detect a
our audit opinion.
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INDEPENDENT AUDITOR’S REPORT
(CONTINUED)
We communicate with the directors regarding, among other Report on other legal and regulatory
matters, the planned scope and timing of the audit and significant
requirements
audit findings, including any significant deficiencies in internal
In terms of the IRBA Rule published in Government Gazette
control that we identify during our audit.
Number 39475 dated 4 December 2015, we report that
We also provide the directors with a statement that we PricewaterhouseCoopers Inc. has been the auditor of Liberty
have complied with relevant ethical requirements regarding Group Limited for 21 years.
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine
those matters that were of most significance in the audit of the
consolidated and separate financial statements of the current
period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation PricewaterhouseCoopers Inc.
precludes public disclosure about the matter or when, in extremely Director: A du Preez
rare circumstances, we determine that a matter should not be Registered Auditor
communicated in our report because the adverse consequences Johannesburg 1 March 2018
of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
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