Financial services group Liberty has embarked upon a retrenchment process that it says is vital to the delivery of the turnaround strategy developed to fix the company.
In response to questions from Moneyweb, a Liberty spokesperson said the retrenchment process is part of creating “a new organisational design that enables us to dedicate significant resources and capacity to our South African business where we have a strong and competitive franchise.
“In addition, it [the redesign] will deliver new ways of working which will put our clients at the heart of all we do, reduce complexity, enhance governance and will also establish a reconnected client, financial advisor, and employee value chain. Our intent regarding this process is to realign our focus and improve the way we work.”
Liberty would not confirm how many people will be retrenched. The company says this is because consultation is underway and the new organisational design process has not been completed.
However, according to staff, who are understandably on edge, up to 800 people could be affected.
While Liberty couches the retrenchments as a consequence of ‘organisational redesign’, it seems simpler to say that the company is not making sufficient progress on meeting the targets set by CEO David Munro earlier this year.
Munro took over as CEO in 2017 following the resignation of his predecessor Thabo Dloti who fell out with the board over the future direction of the group. Dloti’s vision had been to build a pan-African financial services group. While Africa remains an important part of the strategy, Munro wants to fix the core Liberty business first.
Four targets – to be achieved over the next two years – were announced in March as part of this overhaul of group strategy:
- Value of new business margin: 1-1.5% range
- Growth in embedded value in excess of 12%
- Return on equity: 15-18% range
- Maintain robust capital within target range: 2.5-3x
Considerable work was done prior to this point, and more has been done since then. This included product repricing and rationalisation of portfolios; tight expense management; recognising the customer as a human being rather than a number on a portfolio; improving the performance of Stanlib SA and converting Liberty Two Degrees into a corporate real estate investment trust (Reit).
In August, when the company released its results for the six months to end-June, group FD Yuresh Maharaj noted that the muted economic environment was impacting the company’s growth prospects. “Vat, fuel and utility price increases mean that consumers are under increasing pressure,” he said.
Munro added that while the results reflected a stabilisation of the business “no-one should be fooled that 18% growth [for normalised operating earnings] off a very low base is a laudable thing.”
He added that Liberty is still some distance from where it needs to be, especially given weak new business volumes. Indexed new business sales were 3% down on the prior period impacted by the competitive environment together with the current tough economic conditions, he said.
Actions taken in 2017 and the first half of 2018 to improve margins and new business volumes, including product changes and repricing, were gaining traction, he said. “The real evidence of our actions will come through in 2019 and 2020.”
However, Liberty is now at the point where the rubber hits the road.
“The only way to meet the targets [that have been] set is to increase sales,” says Adrian Cloete, a portfolio manager at PSG. “If you are not increasing sales and you are not getting your market share back you have to look at your overhead structure. In an economy such as this, it seems that is the likely solution.”
While Liberty will release more information in due course, according to staff, the process will be complete by December.
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