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Reviewed Condensed Group Results for the year ended 30 June 2013
CLIENTELE LIMITED
Incorporated in the Republic of South Africa)
Registration Number: 2007/023806/06)
Share code: CLI
ISIN: ZAE000117438
(“Clientele”)
Reviewed Condensed Group Results for the year ended 30 June 2013
Highlights
Diluted headline earnings per share increased by 15% from 77,76 cents to 89,57 cents
Dividend declared per share increased by 10% from 67,00 cents to 74,00 cents
Return on average shareholders interest of 65%
Recurring Embedded Value Earnings increased from R602,4 million to R635,9 million
Recurring Return on Embedded Value of 20,9%
Improvements in volumes and quality of new business
Comments
Introduction
We are pleased to advise that the process of ingraining sustainability principles and practices into the Clientèle Group's ("the Group") operations, which includes a special focus on addressing the
quality of business written, is yielding the desired results and we are also pleased to report an increase in production over the second half of the year.
The improvement in withdrawals is reflected in the positive withdrawal experience for the year of R14,8 million (2012 : negative R115,0 million) and the Value of New Business ("VNB"), on equivalent
economic and demographic assumptions, has increased by 40% in the second half of the year in comparison to the first half of the year.
The Group increased its diluted headline earnings per share for the year by 15%. This resulted in a return on average shareholders' interests for the year of 65% and enabled another healthy
dividend to be declared; the dividend declared per share increased by 10% from 67,00 cents to 74,00 cents.
Recurring Embedded Value Earnings increased to R635,9 million from R602,4 million last year, resulting in a recurring Return on Embedded Value ("ROEV") of 21%.
Operating Results
Group Statement of Comprehensive Income
Headline earnings for the Group of R293,3 million are 15% higher than the headline earnings of R256,0 million last year. As a result, diluted headline earnings per share have increased by 15% to
89,57 cents, up from 77,76 cents.
Headline earnings per share from continuing operations, after adjusting for Secondary Tax on Companies ("STC”) in the prior year to ensure comparability, increased by 5% from 85,16 cents per
share to 89,62 cents per share.
Insurance premium revenue has been tempered by the conscious reining in of production in the first half of the year, which was offset, to some extent, by the improvement in withdrawal experience.
The second half of the year experienced a meaningful increase in production volumes, together with a sustained improvement in the quality of sales in the telesales area, which is expected to
improve insurance premium revenue next year. Insurance premium revenue for the year is up by 2% from R1 194,9 million to R1 224,5 million. Other income of R168,8 million, which mainly
comprises annuity fees from Clientèle Life's Independent Field Advertisers ("IFAs"), is 3% up on the comparable year's figure of R164,2 million.
Operating expenses have increased by 11% from R739,2 million last year to R818,6 million this year. This increase can be ascribed to a conscious decision to increase advertising spend in the
second half of the year on better quality sales leads. This has had the desired effect of increasing VNB in the second half of the year.
The Group adopts the conservative accounting practice of eliminating negative reserves (a discretionary margin) and thus expensing acquisition costs upfront and deferring profit release over the life
of the policy. The total present value of discretionary margins amounts to R1,9 billion (June 2012: R1,8 billion).
Net insurance benefits and claims of R339,8 million have increased by 17% from R291,0 million for the prior financial year. The majority of the increase is in respect of policyholder cash-back
payments which have become due as well as policyholders' benefit payments for unitised endowment policies, many of which have now been held for 10 years or more. Both these items reduce
policyholder liabilities under insurance contracts.
As a consequence, policyholder liabilities under insurance contracts decreased by R44,1 million (2012: Increase of R13,7 million).
Investments achieved a return of 19% in the current year, compared to a return of 14% last year.
Group Embedded Value
The increase in Group Embedded Value ("EV") reflects Recurring EV Earnings of R635,9 million (2012: R602,4 million) for the year, and translates into an annualised Recurring ROEV of 21% (2012:
26%) which contributed to Group EV, after adjusting for the dividend payment and changes to economic assumptions, increasing from R3,0 billion at 30 June 2012 to R3,5 billion as at 30 June 2013.
The VNB has decreased in comparison to the previous year from R365,5 million to R302,1 million (or R331,2 million on a comparable set of economic assumptions) as a result of lower production in
the first half of the year, largely due to the initiatives with regards to quality, as mentioned above. Production has improved in the second half of the year and the VNB of R176,2 million in the second
half of the year is 40% higher than the VNB of R125,9 million (on similar economic and demographic assumptions) in the first half of the year.
The Board adopts current actuarial guidance in respect of the Risk Discount Rate, now set at 10,4% (2012: 9,8%). The calculation is comprehensively explained in the Group EV results section of the
results and a sensitivity analysis is also provided.
Segment Results
Clientèle Life
Clientèle Life's Long-term insurance segment still remains the major contributor to overall Group performance. It accounts for 75% or R227,8 million of the Group's R302,1 million of VNB, and
recorded Recurring EV Earnings of R475,2 million (2012: R487,1 million) for the year and generated R257,0 million (2012: R235,8 million) net operating profit for the year, an increase of 9%.
The Investment Contracts operating segment experienced slower production in the lower interest rate environment and reported a R5,1 million net profit for the year (2012: R2,7 million) due to the
higher rate of release of deferred profits.
Clientèle General Insurance (Clientèle Legal)
Clientèle Legal now accounts for 22% (2012: 16%) or R65,3 million of the Group's VNB for the year, and recorded Recurring EV Earnings of R124,0 million (2012: R130,2 million) and generated
R30,1 million net profit for the year, a 44% increase on the R20,9 million net profit for last year, resulting in its maiden dividend of R30 million to be paid to Clientèle Limited in September 2013.
Other Segments
The personal loans business, Clientèle Loans Direct Proprietary Limited ("CLD"), is no longer entering into new business contracts. All new business contracts as of 16 February 2013 are being
concluded in accordance with a Profit Sharing Arrangement ("PSA") in respect of unsecured personal loans with WesBank (a division of FirstRand Bank Limited) and Direct Axis (SA) Proprietary
Limited. This business is funded and conducted by WesBank as a separate business unit and administered by Direct Axis.
Clientèle believes the PSA will result in a sustainable and value-adding business for the future. The existing personal loans business is being run down to closure which results in a reduction in
expenses, mostly related to acquisition costs, and the emergence of profits in respect of business previously written. The business, including impairments, is performing in line with expectations.
Clientèle Mobile's current strategic focus is to assist the Group in the development of a mobile communications and self-service application for the benefit of IFAs and policyholders.
Prospects
The Board's focus for the future will be to continue the initiatives with regard to sustainability which include, amongst others, sustaining the momentum that has been built in production without
compromising on the quality of business written. These on-going initiatives are expected to create sustainable value for the Group in the years ahead despite the expected difficult trading conditions
in the short term.
Dividend Declared
Notice is hereby given that the Board has declared a final gross dividend of 74,00 cents per share on 19 August 2013 for the year ended 30 June 2013.
The Board of Clientèle Limited confirms that the Group will satisfy the solvency and liquidity tests immediately after completion of the dividend distribution.
The dividend will be subject to dividends tax. In accordance with the JSE Listings Requirements, the following additional information is disclosed:
– The dividend has been declared out of income reserves;
– The local dividends tax rate is 15% (fifteen percent);
– The gross local dividend amount is 74,00 cents per ordinary share for shareholders exempt from the dividends tax;
– The net local dividend amount is 62,90 cents per ordinary share for shareholders liable to pay the dividends tax;
– The local dividends tax amount is 11,10 cents per ordinary share for shareholders liable to pay the dividends tax;
– No STC credits are utilised;
– Clientèle Limited currently has 328 007 083 ordinary shares in issue;
– Clientèle Limited's income tax reference number is 9465071166.
In compliance with the requirements of Strate Limited, the electronic settlement and custody system used by the JSE Limited, the following salient dates for the payment of the dividend are
applicable:
Last day to trade
Friday, 6 September 2013
Shares commence trading "ex" dividend
Monday, 9 September 2013
Record date
Friday, 13 September 2013
Payment date
Monday, 16 September 2013
Share certificates may not be dematerialised or rematerialised between Monday, 9 September 2013 and Friday, 13 September 2013, both days inclusive.
By order of the Board
G Q Routledge
Chairman
B W Reekie
Managing Director
Johannesburg
19 August 2013
Reviewed
Condensed Group Statement of Comprehensive Income
Year ended 30 June %
(R'000's) 2013 2012 Change
Revenue
Insurance premium revenue 1 224 459 1 194 852 2
Reinsurance premiums (78 596) (68 916)
Net insurance premiums 1 145 863 1 125 936 2
Other income 168 847 164 222 3
Interest income 76 320 56 046
Fair value adjustment to financial assets at fair value through profit or loss 249 881 252 189
Net income 1 640 911 1 598 393 3
Net insurance benefits and claims (339 755) (291 024) 17
Decrease/(increase) in policyholder liabilities under insurance contracts 44 074 (13 746)
Decrease in reinsurance assets (508) (333)
Fair value adjustment to financial liabilities at fair value through profit or loss - investment contracts (71 222) (139 415)
Interest expense (19 139) (14 565) 31
Impairment of advances (38 194) (21 642) 76
Operating expenses (818 555) (739 165) 11
Profit before tax 397 612 378 503 5
Tax (104 206) (118 434)
Profit from continuing operations 293 406 260 069 13
Loss from discontinued operation - (21 694)
- Loss from discontinued operation (9 916)
- Foreign currency translation reserve realised (11 778)
Profit for the year 293 406 238 375 23
Attributable to:
- Non-controlling interest - ordinary shareholders 311 (57)
Equity holders of the Group - ordinary shareholders 293 095 238 432 23
Profit for the year 293 406 238 375 23
Other comprehensive income:
Exchange differences on translating foreign operation (796)
Gains on property revaluation 10 599 9 081
Income tax relating to gains on property revaluation (3 218) (2 056)
Other comprehensive income for the year - net of tax 7 381 6 229
Total comprehensive income for the year 300 787 244 604 23
Attributable to:
- Non-controlling interest - ordinary shareholders 311 (173)
Equity holders of the Group - ordinary shareholders 300 476 244 777 23
Condensed Group Statements of Financial Position
Year ended 30 June
(R'000's) 2013 2012
Assets
Intangible assets 19 657 20 865
Property and equipment 25 962 37 198
Owner-occupied properties 188 240 176 873
Investment in associates 291
Deferred tax 26 856 20 801
Inventories 1 123 1 371
Reinsurance assets 3 337 3 845
Financial assets at fair value through profit or loss 2 287 980 2 303 907
Loans and receivables including insurance receivables 223 304 209 591
Current tax 643 3 885
Cash and cash equivalents 180 011 168 513
Total assets 2 957 113 2 947 140
Total equity and reserves 529 420 440 004
Liabilities
Policyholder liabilities under insurance contracts 746 651 790 725
Financial liabilities - investment contracts 1 326 415 1 351 303
- at fair value through profit or loss 1 283 311 1 312 904
- at amortised cost 43 104 38 399
Financial liabilities - loans at amortised cost 134 996 138 219
Employee benefits 66 383 60 178
Accruals and payables including insurance payables 120 962 141 112
Deferred tax 27 420 25 400
Current tax 4 866 199
Total liabilities 2 427 693 2 507 136
Total equity and liabilities 2 957 113 2 947 140
Tax
Year ended 30 June
(R'000's) 2013 2012
Current and deferred tax (98 877) (95 641)
STC (16 686)
Capital gains tax (3 702) (1 594)
Underprovision in prior years (1 627) (4 513)
Tax (104 206) (118 434)
The Individual Policyholder Fund has an estimated tax loss of R2,1 billion (2012: R1,9 billion)
Reconciliation of Results from Continuing Operations and the Discontinued Operation
Year ended 30 June %
(R'000's) 2013 2012 Change
Continuing operations
Net profit for the year attributable to equity holders of the Group 293 095 238 432 23
Add: Attributable loss from the discontinued operation 2 077
Add: Loan written off - IFA Nigeria+ 19 250
Net profit related to continuing operations attributable to equity holders of the Group 293 095 259 759 13
Discontinued operation
Net profit for the year - 9 334
Foreign currency translation reserve realised (11 778)
Less: Loan written off by Clientèle Life+ (19 250)
Loss for the year related to the discontinued operation - (21 694)
Add: Net loss attributable to non-controlling interest 367
Net loss related to the discontinued operation attributable to equity holders of the Group - (21 327)
+ The loan written off by Clientèle Life last year was in respect of the discontinued operation (IFA Nigeria)
Reconciliation of Net Profit to Headline Earnings
Year ended 30 June %
(R'000's) 2013 2012 Change
Continuing operations
Net profit for the year attributable to equity holders of the Group 293 095 259 759 13
Less: Profit on disposal of property and equipment (46) (78)
Add: Investment in associate written off 291
Headline earnings from continuing operations 293 340 259 681 13
Discontinued operation
Net loss for the year attributable to equity holders of the Group - (21 327)
Add: Impairment of property and equipment 4 045
Add: Impairment of intangible assets 3 596
Add: Foreign currency translation reserve realised 10 010
Headline earnings from discontinued operation - (3 676)
Headline earnings for the year 293 340 256 005 15
Ratios per Share
Year ended 30 June %
(Cents) 2013 2012 Change
Headline earnings per share 89,62 78,89 14
- Continuing operations 89,62 80,02 12
- Discontinued operation - (1,13)
Diluted headline earnings per share 89,57 77,76 15
- Continuing operations 89,57 78,88 14
- Discontinued operation - (1,12)
Earnings per share 89,54 73,47 22
- Continuing operations 89,54 80,04 12
- Discontinued operation - (6,57)
Diluted earnings per share 89,49 72,43 24
- Continuing operations 89,49 78,91 13
- Discontinued operation - (6,48)
Net asset value per share 161,41 135,58 19
Diluted net asset value per share 161,65 133,66 21
Dividends per share - paid 67,00 53,50 25
Dividends per share - declared 74,00 67,00 10
Ordinary shares in issue ('000) 328 007 326 704
Weighted average ordinary shares ('000) 327 325 324 540
Diluted average ordinary shares ('000) 327 508 329 201
Condensed Group Statement of Cash Flows
Year ended 30 June
(R'000's) 2013 2012
Profit from operations adjusted for non-cash items 330 090 372 809
Working capital changes (144 286) (45 258)
Separately disclosable items1 (48 120) (49 625)
(Decrease)/Increase in financial liabilities2 (100 815) 157 699
Net disposal/(acquisition) of investments3 265 808 (111 508)
Interest received 31 606 32 579
Dividends received 16 514 17 046
Dividends paid (219 012) (173 261)
Tax paid (103 550) (114 201)
Cash flows from operating activities - Continuing operations 28 235 86 280
Cash flows from operating activities - Discontinued operation (13 314)
Cash flows from operating activities 28 235 72 966
Cash flows from investing activities4
Continuing operations (16 737) (40 944)
Cash flows from investing activities (16 737) (40 944)
Cash flows from financing activities
Discontinued operation (9 190)
Cash flows from financing activities (9 190)
Net increase in cash and cash equivalents 11 498 22 832
Cash and cash equivalents at beginning of the year 168 513 145 681
Cash and cash equivalents at end of the year 180 011 168 513
1. Interest and dividends
2. Financial liabilities - investment contracts
3. Investments in respect of insurance operations and investment contracts
4. Mainly relates to the acquisition of intangible assets, property and equipment
Notes to the Results
The results have been reviewed by the Group's external auditors, PricewaterhouseCoopers Incorporated, in terms of International Standards on Review Engagements 2410. The scope of the review
was to enable the auditors to report that nothing came to their attention to cause them to believe that the accompanying condensed preliminary consolidated financial information is not presented in
all material respects, in accordance with the South African Companies Act 71 of 2008, as amended and the JSE Limited Listings Requirements. A copy of the unqualified review opinion is available
on request at the Company's registered offices.
The condensed consolidated preliminary Financial Statements was prepared under the supervision of I B Hume (CA(SA), ACMA), the Group Financial Director.
Accounting Policies
Statement of compliance
The condensed consolidated preliminary Financial Statements are prepared in accordance with the JSE Limited Listings Requirements for preliminary reports and the requirements of the Companies
Act of South Africa. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts, the measurement and recognition requirements of International
Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and must also, as a minimum, contain the information required by
IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the condensed consolidated preliminary Financial Statements are in terms of IFRS and are consistent with
those applied in the previous consolidated annual Financial Statements.
The preparation of the condensed consolidated preliminary Financial Statements in accordance with IFRS requires the use of certain critical accounting estimates and judgments. The reported
amounts in respect of the Group's insurance contracts, employee benefits and unquoted financial instruments are affected by accounting estimates and judgments.
There was no significant impact due to changes in previous assumptions used in deriving the amounts referred to above.
Segment Assets & Liabilities
Year ended 30 June
(R'000's) 2013 2012
SA - Long-term insurance 1 371 736 1 367 002
SA - Investment contracts 1 328 452 1 351 741
SA - Short-term insurance 129 408 95 412
SA - Loans 210 301 197 668
SA - Mobile 895 1 282
Inter segment (83 679) (65 965)
Total Group Assets 2 957 113 2 947 140
SA - Long-term insurance 933 280 985 037
SA - Investment contracts 1 326 415 1 351 303
SA - Short-term insurance 26 102 22 226
SA - Loans 225 076 213 485
SA - Mobile 499 1 050
Inter segment (83 679) (65 965)
Total Group Liabilities 2 427 693 2 507 136
Related Party Transactions
Transactions between Clientèle Limited and its subsidiaries have been eliminated on consolidation. There were no significant related party transactions during the year.
Segment Information
The Group's results are analysed across two geographical segments which are South Africa ("SA") and Nigeria (discontinued operation).
The Group's main operating segments are Long-term insurance, Investment contracts, Short-term insurance, Loans business, Mobile business and Long-term brokerage (discontinued operation)
segments. Policies written are in respect of individuals.
Segment Statements of Comprehensive Income
IFA Inter
SA - SA - SA - Nigeria - segment
Long-term Investment Short-term SA - SA - discontinued (revenue)/
(R'000's) insurance contracts insurance Loans Mobile operation expense Total
30 June 2013
Insurance premium revenue 1 069 000 155 459 1 224 459
Reinsurance premiums (78 240) (356) (78 596)
Net insurance premiums 990 760 155 103 1 145 863
Other income 143 461 12 482 3 14 709 7 864 (9 672) 168 847
Interest income 11 943 834 70 545 28 (7 030) 76 320
Fair value adjustment to financial assets at fair value through profit or loss 162 195 75 926 11 760 249 881
Segment revenue 1 308 359 88 408 167 700 85 254 7 892 - (16 702) 1 640 911
Segment expenses and claims (959 886) (81 304) (127 339) (83 807) (7 665) - 16 702 (1 243 299)
Net insurance benefits and claims (320 719) (19 036) (339 755)
Decrease/(increase) in policyholder liabilities under insurance contracts 43 581 493 44 074
Decrease in reinsurance assets (508) (508)
Fair value adjustment to financial liabilities at fair value through profit or loss (71 222) (71 222)
Interest expense (4 704) (21 465) 7 030 (19 139)
Impairment of advances (38 194) (38 194)
Operating expenses (682 240) (5 378) (108 796) (24 148) (7 665) 9 672 (818 555)
Profit before tax 348 473 7 104 40 361 1 447 227 - - 397 612
Tax (91 507) (1 989) (10 242) (405) (63) (104 206)
Net profit for the year 256 966 5 115 30 119 1 042 164 - - 293 406
Attributable to:
Non-controlling interest - ordinary shareholders 311 311
Equity holders of the Group - ordinary shareholders 256 966 5 115 30 119 731 164 - - 293 095
30 June 2012
Insurance premium revenue 1 059 006 135 846 1 194 852
Reinsurance premiums (68 765) (151) (68 916)
Net insurance premiums 990 241 135 695 1 125 936
Other income 140 735 11 046 12 845 3 944 460 (4 348) 164 682
Interest income 10 634 580 49 964 75 2 (5 207) 56 048
Fair value adjustment to financial assets at fair value through profit or loss 101 800 143 616 6 773 252 189
Segment revenue 1 243 410 154 662 143 048 62 809 4 019 462 (9 555) 1 598 855
Segment expenses and claims (897 795) (150 953) (114 939) (61 375) (4 383) (25 257) 9 555 (1 245 147)
Net insurance benefits and claims (274 400) (16 624) (291 024)
Increase in policyholder liabilities under insurance contracts (12 430) (1 316) (13 746)
Decrease in reinsurance assets (333) (333)
Fair value adjustment to financial liabilities at fair value through profit or loss (139 415) (139 415)
Interest expense (4 201) (15 571) (41) 5 207 (14 606)
Impairment of advances (21 642) (21 642)
Operating expenses (610 632) (7 337) (96 999) (24 162) (4 383) (25 216) 4 348 (764 381)
Profit/(loss) before tax 345 615 3 709 28 109 1 434 (364) (24 795) - 353 708
Tax (109 854) (1 038) (7 242) (402) 102 (118 434)
Net operating profit/(loss) for the year 235 761 2 671 20 867 1 032 (262) (24 795) - 235 274
Loans waived - discontinued operation (19 250)+ 34 129 14 879
Foreign currency translation reserve realised (11 778) (11 778)
Net profit/(loss) for the year 216 511 2 671 20 867 1 032 (262) (2 444) - 238 375
Attributable to:
Non-controlling interest - ordinary shareholders 310 (367) (57)
Equity holders of the Group - ordinary shareholders 216 511 2 671 20 867 722 (262) (2 077) - 238 432
+ The loan written off by Clientèle Life last year was in respect of the discontinued operation (IFA Nigeria)
Reviewed
Condensed Group Statement of Changes in Equity
SAR NDR: NDR:
and Bonus Contin- Foreign
Common Rights gency currency NDR: NDR: Non-
Share Share control Sub- Retained Scheme Short-term translation Changes in Reva- Sub- controlling
(R'000's) capital premium deficit total earnings reserve+ insurance* reserve ownership luation total interest Total
Balance as at 1 July 2011 6 479 223 170 (220 273) 9 376 257 528 15 656 11 011 (9 330) 43 906 31 534 359 681 (6 461) 353 220
Ordinary dividends (173 329) (173 329) (173 329)
Total comprehensive income 238 432 (680) 7 025 244 777 (173) 244 604
- Net profit/(loss) for the year 238 432 238 432 (57) 238 375
- Other comprehensive income/(expense) (680) 7 025 6 345 (116) 6 229
Transfer of contingency reserve 11 011 (11 011) -
Shares issued 55 30 508 30 563 30 563 30 563
SAR and Bonus Rights Scheme allocated 3 731 3 731 3 731
Transfer from shares issued (21 133) (9 430) (30 563) (30 563)
Transfer to Statement of Comprehensive Income 10 010 10 010 1 768 11 778
Transfer of NDR to Retained earnings 43 906 (43 906)
Balance as at 30 June 2012 6 534 253 678 (220 273) 39 939 356 415 9 957 - - - 38 559 444 870 (4 866) 440 004
Balance as at 1 July 2012 6 534 253 678 (220 273) 39 939 356 415 9 957 - - - 38 559 444 870 (4 866) 440 004
Ordinary dividends (219 060) (219 060) (219 060)
Total comprehensive income 293 095 7 381 300 476 311 300 787
- Net profit for the year 293 095 293 095 311 293 406
- Other comprehensive income 7 381 7 381 7 381
Shares issued 26 15 304 15 330 15 330 15 330
SAR and Bonus Rights Scheme allocated 7 689 7 689 7 689
Transfer from shares issued (12 750) (2 580) (15 330) (15 330)
Balance as at 30 June 2013 6 560 268 982 (220 273) 55 269 417 700 15 066 - - - 45 940 533 975 (4 555) 529 420
+ SAR scheme - the Clientèle Limited Share Appreciation Rights Scheme, Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme
* The contingency reserve is no longer a Statutory Capital Adequacy Requirement
UNAUDITED GROUP EMBEDDED VALUE RESULTS
Group Embedded Value
The Embedded Value ("EV") represents an estimate of the value of the Group, exclusive of goodwill attributable to future new business. The EV comprises:
– the Free Surplus; plus,
– the Required Capital identified to support the in-force business; plus,
– the Present Value of In-force ("PVIF") business; less,
– the Cost of Required Capital ("CoC").
The PVIF business is the present value of future after tax profits arising from covered business in force as at 30 June 2013.
All material business written by the Group has been covered by EV Methodology as outlined in Advisory Practice Notice, APN 107 of the Actuarial Society of South Africa, including:
– all long-term insurance business regulated in terms of the Long-Term Insurance Act, 1998;
– Legal insurance business where EV Methodology has been used to determine future shareholder entitlements;
– annuity income arising from non-insurance contracts where EV Methodology has been used to determine future shareholder entitlements; and
– Loans and Mobile business where EV Methodology has been used to determine future shareholder entitlements.
The EV calculations have been certified by the Group's independent actuaries, AON Hewitt (Actuarial). The EV can be summarised as follows:
Year ended 30 June
(R'000's) 2013 2012
Free surplus 311 614 271 252
Required capital 231 817 182 633
Adjusted Net Worth ("ANW") of covered business 543 431 453 885
CoC (44 959) (42 391)
PVIF 3 048 168 2 847 550
EV of covered business 3 546 640 3 259 044
The ANW of covered business is defined as the excess value of all assets attributed to the covered business, but not required to back the liabilities of covered business. Free Surplus is the ANW less
the Required Capital attributed to covered business.
Reconciliation of Total Equity to ANW
Year ended 30 June
(R'000's) 2013 2012
Total equity and reserves per the
Statement of Financial Position 529 420 440 004
Removal of Deferred Profits and impact of compulsory margins on investment business (net impact after tax) 16 449 18 647
Removing minority interests 4 555 4 868
Adjusting subsidiaries to Net Asset Value 15 129 11 911
SAR and Bonus Rights Scheme adjustment (22 122) (21 545)
ANW 543 431 453 885
The CoC is the opportunity cost of having to hold the Required Capital of R231,8 million as at 30 June 2013. The Required Capital has been set at the greater of the Statutory Termination Capital
Adequacy Requirement and 1,25 times the Statutory Ordinary Capital Adequacy Requirement for the Life company plus the Required Statutory Capital for the Short-term company.
The SAR and Bonus Rights Scheme adjustment recognises the future dilution in EV, on a mark to market basis, as a result of the SAR and Bonus Rights Scheme.
Clientèle Life's Statutory Capital Adequacy Requirement cover ratio at 30 June 2013 was 2,44 times (30 June 2012: 2,95 times) on the statutory valuation basis.
Clientèle General Insurance's Statutory Capital Adequacy Requirement cover ratio at 30 June 2013 was 1,83 times (30 June 2012: 1,46 times) on the statutory valuation basis.
Value of New Business ("VNB")
Year ended 30 June
(R'000's) 2013 2012
Total VNB 302 140 365 496
Present Value of New Business premiums 1 509 582 1 749 447
New Business profit margin 20,0% 20,9%
The VNB (excluding any allowance for the Management Incentive scheme) represents the present value of projected after tax profits at the point of sale on new covered business commencing during
the period ended 30 June 2013 less the CoC pertaining to this business.
The New Business profit margin is the VNB expressed as a percentage of the present value of future premiums (and other annuity fee income) pertaining to the same business.
Long-term Economic Assumptions
Year ended 30 June
(%) 2013 2012
Risk discount rate 10,4 9,8
Overall investment return 6,9 6,3
Expense inflation 5,4 4,3
Corporate tax 28,0 28,0
The risk discount rate ("RDR") has been determined using a top-down weighted average cost of capital approach, with the equity return calculated using Capital Asset Pricing Model ("CAPM")
theory. In terms of current actuarial guidance, the RDR has been set as the risk free rate plus a beta multiplied by the assumed equity risk premium. It has been assumed that the equity risk premium
(i.e. the long-term expected difference between equity returns and the risk free rate) is 3,5%. The beta pertaining to the Clientèle share price is relatively low, which is partially a consequence of the
relatively small free-float of shares. After careful consideration, the Board has decided to continue to use a more conservative beta of 1, as opposed to its actual beta of 0,3 in the calculation of the
RDR. The Board draws the reader's attention to the RDR sensitivity analysis in the table below which allows for sensitivity comparisons using various alternative RDR's.
The resulting RDR utilised for the South African business as at 30 June 2013 was 10,4% (30 June 2012: 9,8%).
The gap between the investment return and the inflation assumptions was reduced from 2,0% to 1,5% during the year.
RDR Sensitivities
(R'000's) EV VNB
RDR 8,4% 4 145 936 414 284
RDR 9,4% 3 816 454 352 554
RDR 9,8% 3 702 441 331 170
RDR 10,4% 3 546 640 302 140
RDR 11,4% 3 316 096 260 018
RDR 12,4% 3 122 268 224 593
Demographic Assumptions
A withdrawal profit was experienced over the period under review. The underlying long-term withdrawal assumptions were adjusted to reflect the better than expected experience. Prior to changing any withdrawal assumptions,
around R71 million of withdrawal profits were made. Withdrawal profits for new business were capitalised in the VNB resulting in an increase in VNB of R58 million. The withdrawal and unpaid premium profits of R14,8 million
shown in the analysis below includes R10,3 million of withdrawal profits attributable to existing business. The "Change in withdrawals and unpaid premium assumptions” line item of R44,6 million is the capitalised impact of
changing the withdrawal and unpaid premium assumptions for future existing business experience. The "Other changes in modelling/basis” of R28,4 million includes R21,2 million in respect of changes to reinsurance arrangements
and rates.
EV per Share
Year ended 30 June
(Cents) 2013 2012
EV per share 1 081,27 1 004,20
Diluted EV per share 1 080,67 989,99
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
30 June 2013
SA - Long-term insurance 450 078 2 592 886 (31 249) 3 011 714
SA - Short-term insurance 103 306 439 375 (13 709) 528 972
SA - Investment contracts - 4 080 - 4 080
SA - Loans (CLD) (10 349) 10 795 - 446
SA - Loans (PSA: Wesbank/ Direct Axis) - 269 - 269
SA - Mobile 396 763 - 1 160
Total 543 431 3 048 168 (44 959) 3 546 640
30 June 2012
SA - Long-term insurance 392 274 2 506 381 (31 126) 2 867 528
SA - Short-term insurance 73 187 332 587 (11 265) 394 508
SA - Investment contracts - 5 383 - 5 383
SA - Loans (11 078) 2 105 - (8 973)
SA - Mobile 232 1 094 - 1 326
Nigeria - Long-term brokerage* (729) - - (729)
Total 453 885 2 847 550 (42 391) 3 259 044
* Discontinued operations
The VNB can be split between segments as follows:
Year ended 30 June
(R'000's) 2013 2012
SA - Long-term insurance 227 788 305 878
SA - Short-term insurance 65 309 58 190
SA - Investment Contracts 2 479 4 110
SA - Loans (CLD) 6 650 (2 154)
SA - Loans (PSA: Wesbank/Direct Axis) 203
SA - Mobile (289) (528)
Total 302 140 365 496
Embedded Value Earnings Analysis
EV Earnings (per APN 107) comprises the change in EV for the year after adjusting for capital movements and dividends paid as they pertain to the Group.
Year ended 30 June 2013 Year ended Year ended
30 June 2013 30 June 2012
(R'000's) ANW PVIF CoC EV EV
A: EV at the end of the year 543 431 3 048 168 (44 959) 3 546 640 3 259 044
EV at the beginning of the year 453 886 2 847 550 (42 391) 3 259 044 2 520 332
Dividends and STC paid (219 060) - - (219 060) (190 015)
B: Adjusted EV at the beginning of the year 234 826 2 847 550 (42 391) 3 039 985 2 330 318
EV Earnings (A - B) 308 605 200 618 (2 568) 506 655 928 726
Impact of once-off economic assumption changes (excluding STC tax) (989) (129 005) 700 (129 294) (215 694)
Impact of once-off STC tax change - (129 981)
Impact of other once-off items - - - - 19 318
Recurring EV earnings (before once-off items) 309 594 329 623 (3 267) 635 949 602 369
Recurring Return on EV (before once-off items) 20,9% 25,8%
Return on EV 16,7% 39,9%
Components of EV Earnings
VNB (255 166) 562 133 (4 827) 302 140 365 496
Expected return on covered business (unwinding of RDR) - 280 300 (4 154) 276 146 253 438
Expected profit transfer 489 317 (489 317) - - -
Withdrawal and unpaid premium experience variance 17 606 (8 452) 5 617 14 770 (115 042)
Claims and reinsurance experience variance (6 276) (3 380) - (9 656) (4 148)
Sundry experience variance (943) - 213 (730) 45 767
Change in withdrawals and unpaid premiums assumptions 21 076 4 294 19 222 44 592 (62 650)
Change in Short-term and annuity income from non-insurance business modelling term - - - - 81 934
Change in Short-term business reserving and capital requirements basis - - - - (2 869)
Other changes in modelling/basis 10 944 (4 197) (35 178) (28 431) (10 808)
Once-off costs (9 057) - - (9 057) -
Expected return on ANW 24 510 - - 24 510 23 465
SAR and Bonus Rights Scheme dilution 7 909 - - 7 909 23 108
Goodwill and Medium-term incentive schemes (31 403) 4 081 - (27 322) (6 150)
EV operating return 268 516 329 623 (3 267) 594 871 591 540
Investment return variances on ANW 41 078 - - 41 078 10 829
Effect of economic assumption changes (excluding STC tax change) (989) (129 005) 700 (129 294) 215 694
Impact of once-off STC tax change - - - - 129 981
Impact of other once-off items - - - - (19 318)
EV Earnings 308 605 200 618 (2 568) 506 655 928 726
website: www.clientele.co.za e-mail: info@clientele.co.za
Sponsor: PricewaterhouseCoopers Corporate Finance Proprietary Limited
Registered office:
Clientèle Office Park, Cnr Rivonia and Alon Roads, Morningside, PO Box 1316, Rivonia 2128, South Africa
Transfer secretaries:
Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg 2001, South Africa PO Box 61051, Marshalltown 2107, South Africa
Directors:
G Q Routledge BA LLB (Chairman); G J Soll CA(SA)* (Executive Vice Chairman); B W Reekie BSc(Hons), FASSA* (Managing Director); F F T De Buck FCCA (UK); A D T Enthoven BA, PhD (Political
Science); B Frodsham BCom*; P R Gwangwa BProc LLB, LLM; I B Hume CA(SA), ACMA*; B A Stott CA(SA); R D Williams, BSc(Hons), FASSA
Company secretary:
W van Zyl CA(SA)
*Executive Director
19 August 2013
Date: 19/08/2013 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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