Wrap Text
Summarised Group results for the six months ended 31 December 2012
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI
ISIN: ZAE000117438
Summarised Group results for the six months ended 31 December 2012
Highlights
Diluted headline earnings per share from continuing operations increased by 27% from 35,32 cents to 44,82 cents
Diluted headline earnings per share increased by 31% from 34,15 cents to 44,82 cents
Headline earnings per share from continuing operations increased by 11% after adjusting for STC in the comparative period
Annualised return on average shareholders interest of 72%
Recurring Embedded Value Earnings increased from R260,3 million to R312,9 million
Annualised Recurring Return on Embedded Value of 21%
Value of New Business Focus on sustainability including quality has resulted in a positive withdrawal experience for the period of R142,3 million
Comments
Introduction
The Clientèle Group (the Group) increased its diluted headline earnings per share for the period by 31% and its diluted headline earnings from continuing operations by 27%. On a
comparative basis, after adjusting for Secondary Tax on Companies (STC) last year, headline earnings per share from continuing operations increased by 11%.
The annualised return on average shareholders interests for the period amounted to 72%.
As previously reported the Group has placed special focus on addressing the quality of business written and we are pleased to report that these initiatives are bearing fruit, as indicated in the
positive withdrawal experience for the period of R21,1 million (2011: negative R68,9 million).
As anticipated this improvement in the quality of business written has impacted Production and the Value of New Business (VNB) in the short-term but the foundation for creating long-term
sustainable value for the Group has been established.
An annualised Recurring Return on Embedded Value (Recurring ROEV) of 21% has been achieved on the back of Recurring Embedded Value Earnings of R312,9 million (2011: R260,3
million), which contributed to Group Embedded Value (EV) increasing from R3,3 billion as at 30 June 2012 to R3,5 billion as at 31 December 2012.
Operating Results
Group Statement of Comprehensive Income
Headline earnings for the Group of R147,8 million are 32% higher than the headline earnings of R111,9 million for the comparative period. As a result, diluted headline earnings per share have
increased by 31% to 44,82 cents, up from 34,15 cents and the annualised return on average shareholders interests amounted to 72% compared to 64% for the same period last year.
Insurance premium revenue for the period has been tempered by the conscious reigning in of production, which was offset by the improvement in withdrawal experience as a result of the focus
on quality production and is up by 2% from R598,5 million to R608,9 million. Other income of R87,2 million, which mainly comprises annuity fees from Clientèle Lifes Independent Field
Advertisers (IFAs), is 4% up on the comparable six month figure of R83,8 million.
Operating expenses for the period have been well controlled, increasing by 4% from R383,1 million last year to R397,1 million this period.
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 R172,1 million have increased by 50% from R114,5 million for the same period last year. The majority of the increase is in respect of policyholder
cash-back payments which have now 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 have a contra impact on the increase in policyholder liabilities under insurance contracts.
The increase in policyholder liabilities under insurance contracts amounted to R17,9 million (2011: R22,7 million).
Over the reporting period investments achieved a return of 13%, compared to a return of 5% for the similar period last year. A substantial portion of investment returns are attributable to
policyholders which has a direct impact on the increase in policyholder liabilities under insurance contracts.
Group Embedded Value
The increase in Group EV reflects EV Earnings of R417,8 million (2011: R469,9 million) for the period, including once-off economic and other adjustments (refer to the EV Earnings analysis) and
translates into an annualised Return on Embedded Value (ROEV) of 28% (2011: 35%). An annualised Recurring ROEV of 21% (2011: 22%) has been achieved on the back of Recurring EV
Earnings of R312,9 million (2011: R260,3 million), which contributed to Group EV, after adjusting for the dividend payment, increasing from R3,0 billion at 30 June 2012 to R3,3 billion as at 31
December 2012.
The VNB has decreased by 37% over the corresponding period last year from R226,0 million to R142,3 million as a result of lower production, largely due to the initiatives with regards to
quality, as mentioned above, as well as the difficult economic trading environment.
The Board has adopted current actuarial guidance in respect of the Risk Discount Rate, now set at 9,3% (2011: 10,5%). The calculation is comprehensively explained in the Group EV section
of the results and a sensitivity analysis is also provided.
Segment Results
SA Long-term Insurance - Clientèle Life
Clientèle Lifes Long-term insurance segment remains the major contributor to overall Group performance. It accounts for 85% or R120,9 million of the Groups R142,3 million of VNB, and
recorded Recurring EV Earnings of R252,9 million (2011: R210,8 million) for the period and generated, on a continuing basis, R131,9 million (2011: R105,4 million) net operating profit for the
period, an increase of 25%.
SA Investment Contracts - Clientèle Life
This operating segment reported a R2,9 million net profit for the period (2011: R1,6 million). This should be viewed in conjunction with the R31,1 million (2011: R34,2 million) of deferred profits
included in the Statement of Financial Position.
SA Short-term Insurance - Clientèle General Insurance (Clientèle Legal)
Clientèle Legal now accounts for 14% or R19,3 million of the Groups VNB for the period, and recorded Recurring EV Earnings of R56,2 million (2011: R41,3 million) and generated R16,7 million
net profit for the period, a 90% increase on the R8,8 million net profit for the same period last year.
SA Loans - Clientèle Loans
The personal loans business, Clientèle Loans Direct Proprietary Limited, of which the Group owns 70%, has progressed in line with expectations and in accordance with its conservative credit
assessment and lending approach and now has an advances book of R234,6 million (2011: R169,7 million).
SA Loans - New Development
Clientèle has entered into a Profit Sharing Agreement (PSA) in respect of future unsecured personal loans with WesBank (a division of FirstRand Bank Limited) and Direct Axis (SA) Proprietary
Limited. The business will be 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, Clientèle Loans Direct Proprietary Limited, will be run down to closure which will result in a reduction in expenses, mostly related to acquisition costs, and
the emergence of profits in respect of business previously written.
SA Mobile
The mobile business produced a net loss for the period of R2,6 million in comparison to the net profit of R0,3 million for the same period last year. This is mainly as a result of the development
and operational costs associated with a digital application incorporating a communication platform which is being developed for use by IFAs and policyholders.
Prospects
It is pleasing that the process of ingraining sustainability principles and practices into the Groups operations, which includes a special focus on addressing the quality of business written, is
yielding the desired results which will add long-term value to the Group and its stakeholders, including the Groups policyholders. This has created the foundation on which improvements in
production can be built on a sustainable basis. The Board believes that trading conditions in South Africa will continue to be difficult this year and our planning for the year ahead does not rely
on significantly improved conditions.
Mr. G Q Routledge
Chairman
Mr. G J Soll
Managing Director
Johannesburg
18 February 2013
UNAUDITED
Condensed Group Statement of Comprehensive Income
Six months Audited
ended % Year ended
31 December Change 30 June
(R000s) 2012 2011 2012
Revenue
Insurance premium revenue 608 853 598 542 2 1 194 852
Reinsurance premiums (36 538) (33 253) (68 916)
Net insurance premiums 572 315 565 289 1 125 936
Other income 87 249 83 774 164 222
Interest income 35 787 24 037 49 56 046
Fair value adjustment to financial assets at fair value through profit or loss 165 050 110 929 49 252 189
Net income 860 401 784 029 10 1 598 393
Net insurance benefits and claims (172 087) (114 513) 50 (291 024)
Increase in policyholder liabilities under insurance contracts (17 892) (22 662) (21) (13 746)
Decrease in reinsurance assets (100) (256) (333)
Fair value adjustment to financial liabilities at fair value through profit or loss
- investment contracts (50 258) (69 096) (27) (139 415)
Interest expense (9 212) (6 486) 42 (14 565)
Impairment of advances (16 480) (9 234) 78 (21 642)
Operating expenses (397 109) (383 066) 4 (739 165)
Profit before tax 197 263 178 716 10 378 503
Tax (50 226) (63 135) (118 434)
Profit from continuing operations 147 037 115 581 27 260 069
Loss from discontinued operation - (9 937) (21 694)
- Loss from discontinued operation (9 937) (9 916)
- Foreign currency translation reserve realised (11 778)
Net profit for the period 147 037 105 644 39 238 375
Attributable to:
Non-controlling interest
- ordinary shareholders (552) 1 370 (57)
Equity holders of the Group
- ordinary shareholders 147 589 104 274 42 238 432
Net profit for the period 147 037 105 644 39 238 375
Other comprehensive income:
Exchange differences on translating foreign operation (744) 100 (796)
Gains on property revaluation 9 081
Income tax relating to gains on property revaluation (2 056)
Other comprehensive income for the period - net of tax - (744) 100 6 229
Total comprehensive income for the period 147 037 104 900 40 244 604
Total comprehensive income attributable to:
Non-controlling interest
- ordinary shareholders (552) 1 259 (173)
Equity holders of the Group
- ordinary shareholders 147 589 103 641 42 244 777
Condensed Group Statement of Financial Position
Six months Audited
ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
Assets
Intangible assets 21 083 22 734 20 865
Property and equipment 31 523 41 425 37 198
Owner-occupied properties 176 994 167 787 176 873
Investment in associate 291 291
Deferred tax 22 018 31 899 20 801
Inventories 644 888 1 371
Reinsurance assets 3 745 3 922 3 845
Financial assets held at fair value through profit or loss 2 246 094 2 087 455 2 303 907
Loans and receivables including insurance receivables 269 224 185 680 209 591
Current tax receivables 4 271 3 885
Cash and cash equivalents 144 734 129 965 168 513
Total assets 2 920 330 2 672 046 2 947 140
Total equity and reserves 371 018 285 723 440 004
Liabilities
Policyholder liabilities under insurance contracts 808 617 782 963 790 725
Financial liabilities - investment contracts 1 360 608 1 228 898 1 351 303
- At fair value through profit or loss 1 319 906 1 192 648 1 312 904
- At amortised cost 40 702 36 250 38 399
Financial liabilities - loans at amortised cost 183 908 138 283 138 219
Employee benefits 31 858 70 795 60 178
Accruals and payables including insurance payables 136 785 140 326 141 112
Deferred tax 27 299 23 643 25 400
Current tax 237 1 415 199
Total liabilities 2 549 312 2 386 323 2 507 136
Total equity and liabilities 2 920 330 2 672 046 2 947 140
Tax
Six months Audited
ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
Continuing Operations:
Current and deferred tax (46 678) (46 055) (95 641)
Secondary tax on companies (STC) (16 686) (16 686)
Capital gains tax (3 548) (394) (1 594)
Underprovision in prior periods (4 513)
Tax (50 226) (63 135) (118 434)
The Individual Policyholder Fund has an estimated tax loss of R2,0 billion (2011: R1,8 billion).
Reconciliation of Results from Continuing Operations and the Discontinued Operation
Six months Audited
ended % Year ended
31 December Change 30 June
(R000s) 2012 2011 2012
Continuing operations
Net profit for the period attributable to equity holders of the Group 147 589 104 274 42 238 432
(Less)/add: Attributable (profit)/loss from the discontinued operation (8 647) 2 077
Add: Loan written off - IFA Nigeria 20 110 19 250
Net profit related to the continuing operation attributable to equity holders of
the Group 147 589 115 737 28 259 759
Discontinued operation
Net profit for the period - 10 173 9 334
Foreign currency translation reserve realised (11 778)
Less: Loan written off by Clientèle Life (20 110) (19 250)
Loss for the period related to the discontinued operation - (9 937) (21 694)
(Less)/add: Net (profit)/loss attributable to non-controlling interest (1 526) 367
Net loss related to the discontinued operation attributable to equity holders
of the Group - (11 463) (21 327)
Reconciliation of Net Profit to Headline Earnings
Six months Audited
ended % Year ended
31 December Change 30 June
(R000s) 2012 2011 2012
Continuing operations
Net profit for the period attributable to equity holders of the Group 147 589 115 737 28 259 759
Less: Profit on disposal of property and equipment (43) (41) (78)
Add: Investment in associate written off 291
Headline earnings from continuing operations 147 837 115 696 28 259 681
Discontinued operation
Net loss for the period attributable to equity holders of the Group - (11 463) (21 327)
Add: Impairment of property and equipment 4 045 4 045
Add: Foreign currency translation reserve realised 10 010
Add: Impairment of intangible assets 3 596 3 596
Headline earnings from discontinued operation - (3 822) (3 676)
Headline earnings for the period 147 837 111 874 32 256 005
Ratios per Share
Six months Audited
ended % Year ended
31 December Change 30 June
Cents 2012 2011 2012
Headline earnings per share 45,23 34,52 31 78,89
- Continuing operations 45,23 35,70 27 80,02
- Discontinued operation (1,18) (1,13)
Diluted headline earnings per share 44,82 34,15 31 77,76
- Continuing operations 44,82 35,32 27 78,88
- Discontinued operation (1,17) (1,12)
Earnings per share 45,15 32,18 40 73,47
- Continuing operations 45,15 35,72 26 80,04
- Discontinued operation (3,54) (6,57)
Diluted earnings per share 44,74 31,83 41 72,43
- Continuing operations 44,74 35,33 27 78,91
- Discontinued operation (3,50) (6,48)
Net asset value per share 113,51 88,17 29 135,58
Diluted net asset value per share 112,48 87,21 29 133,66
Dividends per share - paid 67,00 53,50 25 53,50
Dividends per share - declared - - 67,00
Weighted average ordinary shares (000) 326 850 324 047 324 540
Diluted average ordinary shares (000) 329 848 327 638 329 201
Condensed Group Statement of Cash Flows
Six months Audited
ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
Profit from operations adjusted for non-cash items 231 145 218 013 372 809
Working capital changes (94 504) (15 446) (45 258)
Separately disclosable items1 (23 932) (22 298) (49 625)
(Decrease)/increase in financial liabilities2 (43 256) 107 760 157 699
Net disposal/(aquisition) of investments3 159 083 (36 208) (111 508)
Interest received 15 522 15 627 32 579
Dividends received 8 410 6 671 17 046
Dividends paid (219 009) (173 329) (173 261)
Tax paid (49 892) (64 603) (114 201)
Cash flows from operating activities - Continuing operations (16 433) 36 187 86 280
Cash flows from operating activities - Discontinued operation - (12 122) (13 314)
Cash flows from operating activities (16 433) 24 065 72 966
Cash flows from investing activities4
Continuing operations (7 346) (30 609) (40 944)
Cash flows from investing activities (7 346) (30 609) (40 944)
Cash flows from financing activities
Discontinued operation (9 172) (9 190)
Cash flows from financing activities - (9 172) (9 190)
Net (decrease)/increase in cash and cash equivalents (23 779) (15 716) 22 832
Cash and cash equivalents at beginning of the period 168 513 145 681 145 681
Cash and cash equivalents at end of the period 144 734 129 965 168 513
Notes to the Results
The results have not been reviewed or audited by the Groups auditors, PricewaterhouseCoopers. The change in policyholder liabilities has been based on best estimates after providing for
compulsory and discretionary margins and have been actuarially certified by Aon Hewitt (Actuarial).
The Summarised Group Results were prepared under the supervision of Mr IB Hume (CA(SA), ACMA), the Group Financial Director.
Changes to the Board
Mrs FFT De Buck was appointed on 1 November 2012. Mr RD Williams was appointed on 1 January 2013.
Segment Assets & Liabilities
Six months Audited
ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
Assets
SA - Long-term insurance 1 261 885 1 223 306 1 367 002
SA - Investment contracts 1 360 818 1 228 962 1 351 741
SA - Short-term insurance 115 289 82 214 95 412
SA - Loans 259 076 167 421 197 668
SA - Mobile 2 686 1 774 1 282
Continuing operations 2 999 754 2 703 677 3 013 105
Discontinued operation
IFA Nigeria - discontinued operation - 3 972 -
Inter segment (79 424) (35 603) (65 965)
Total Group Assets 2 920 330 2 672 046 2 947 140
Liabilities
SA - Long-term insurance 960 935 982 249 985 037
SA - Investment contracts 1 360 608 1 228 898 1 351 303
SA - Short-term insurance 25 394 21 097 22 226
SA - Loans 276 732 184 790 213 485
SA - Mobile 5 067 955 1 050
Continuing operations 2 628 736 2 417 989 2 573 101
Discontinued operation
IFA Nigeria - discontinued operation - 3 937 -
Inter segment (79 424) (35 603) (65 965)
Total Group Liabilities 2 549 312 2 386 323 2 507 136
Accounting Policies
Statement of Compliance
The accounting policies adopted for the purpose of the Group Financial Statements comply with International Financial Reporting Standards (IFRS), the JSE Limited Listings Requirements, the
AC 500 Standards as issued by the Accounting Practices Board and the Companies Act 2008 (Act 71 of 2008), as amended, and are consistent with those used in the Annual Financial
Statements for the year ended 30 June 2012. Where the Group has inter-company transactions and balances between continued and discontinued operations, those transactions are eliminated
or disclosed as part of discontinued operations. The results have been prepared in terms of IAS 34 (Interim Financial Reporting).
The preparation of Financial Statements in accordance with IFRS requires the use of certain critical accounting estimates and judgement. The reported amounts in respect of the Groups
insurance contracts, employee benefits and unquoted financial instruments are affected by accounting estimates and judgement.
There was no significant impact due to changes in previous assumptions used in deriving the amounts referred to above.
Related Party Transactions
Transactions between Clientèle Limited and its subsidiaries have been eliminated on consolidation. There were no significant related party transactions during the period.
Segment Information
The Groups results are analysed across South Africa (SA) - geographical segment.
The Groups main operating segments are Long-term insurance, Investment contracts, Short-term insurance, Loans business, Mobile business and IFA Nigeria - Long-term brokerage
(discontinued operation) segments. Policies written are in respect of individuals.
Segment Statements of Comprehensive Income
IFA
SA SA SA Nigeria Inter segment
- Long-term - Investment - Short-term SA - SA - - discontinued (revenue)/
(R000s) insurance contracts insurance Loans Mobile operation expense Group
31 December 2012
Insurance premium revenue 534 100 74 753 608 853
Reinsurance premiums (36 373) (165) (36 538)
Net insurance premiums 497 727 74 588 572 315
Other income 74 740 6 114 3 7 220 1 576 (2 404) 87 249
Interest income 5 518 330 33 332 14 (3 407) 35 787
Fair value adjustment to financial assets at fair value through profit or loss 104 380 52 598 8 072 165 050
Segment revenue 682 365 58 712 82 993 40 552 1 590 - (5 811) 860 401
Segment expenses and claims (505 069) (54 696) (60 858) (43 106) (5 220) - 5 811 (663 138)
Net insurance benefits and claims (163 108) (8 979) (172 087)
Increase in policyholder liabilities under insurance contracts (15 331) (2 561) (17 892)
Decrease in reinsurance assets (100) (100)
Fair value adjustment to financial liabilities at fair value through profit or loss (50 258) (50 258)
Interest expense (2 303) (10 316) 3 407 (9 212)
Impairment of advances (16 480) (16 480)
Operating expenses (326 530) (2 135) (49 318) (16 310) (5 220) 2 404 (397 109)
Profit/(loss) before tax 177 296 4 016 22 135 (2 554) (3 630) - - 197 263
Tax (45 405) (1 125) (5 427) 715 1 016 (50 226)
Net profit/(loss) for the period 131 891 2 891 16 708 (1 839) (2 614) - - 147 037
Attributable to:
Non-controlling interest (552) (552)
Equity holders of the Group 131 891 2 891 16 708 (1 287) (2 614) - - 147 589
31 December 2011
Insurance premium revenue 532 795 65 747 598 542
Reinsurance premiums (33 253) (33 253)
Net insurance premiums 499 542 65 747 565 289
Other income 71 774 5 255 5 872 2 057 301 (1 184) 84 075
Interest income 4 180 241 22 116 58 2 (2 558) 24 039
Fair value adjustment to financial assets at fair value through profit or loss 37 321 71 147 2 461 110 929
Segment revenue 612 817 76 402 68 449 27 988 2 115 303 (3 742) 784 332
Segment expenses and claims (448 245) (74 204) (56 231) (28 710) (1 665) (24 945) 3 742 (630 258)
Net insurance benefits and claims (108 599) (5 914) (114 513)
Increase in policyholder liabilities under insurance contracts (19 882) (2 780) (22 662)
Decrease in reinsurance assets (256) (256)
Fair value adjustment to financial liabilities at fair value through profit or loss (69 096) (69 096)
Interest expense (2 051) (6 993) (23) 2 558 (6 509)
Impairment of advances (9 234) (9 234)
Operating expenses (319 508) (3 057) (47 537) (12 483) (1 665) (24 922) 1 184 (407 988)
Profit/(loss) before tax 164 572 2 198 12 218 (722) 450 (24 642) - 154 074
Tax (59 174) (616) (3 421) 202 (126) (63 135)
Net operating profit/(loss) for the period 105 398 1 582 8 797 (520) 324 (24 642) - 90 939
Loans waived - discontinued operation* (20 110) 34 815 14 705
Net profit/(loss) for the period 85 288 1 582 8 797 (520) 324 10 173 - 105 644
Attributable to:
Non-controlling interest (156) 1 526 1 370
Equity holders of the Group 85 288 1 582 8 797 (364) 324 8 647 - 104 274
* The loan written off by Clientèle Life was in respect of the discontinued operation (IFA Nigeria).
Condensed Group Statement of Changes in Equity
NDR: NDR:
Contin- Foreign NDR:
Common SAR gency currency Changes Non-
Share Share control Sub- Retained scheme Short-term translation in NDR: Sub- controlling
(R000s) capital premium deficit total earnings reserve* insurance reserve ownership Revaluation 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 104 274 (633) 103 641 1 259 104 900
- Net profit for the period 104 274 104 274 1 370 105 644
- Other comprehensive income (633) (633) (111) (744)
Transfer to contingency reserve (1 419) 1 419
Shares issued 11 5 528 5 539 5 539 5 539
SAR scheme allocated 932 932 932
Transfer from shares issued (5 539) (5 539) (5 539)
Balance as at 31 December 2011 6 490 228 698 (220 273) 14 915 187 054 11 049 12 430 (9 963) 43 906 31 534 290 925 (5 202) 285 723
Balance as at 1 January 2012 6 490 228 698 (220 273) 14 915 187 054 11 049 12 430 (9 963) 43 906 31 534 290 925 (5 202) 285 723
Total comprehensive income 134 158 (47) 7 025 141 136 (1 432) 139 704
- Net profit/(loss) for the period 134 158 134 158 (1 427) 132 731
- Other comprehensive income (47) 7 025 6 978 (5) 6 973
Transfer to contingency reserve 12 430 (12 430)
Shares issued 44 24 980 25 024 25 024 25 024
SAR scheme allocated 2 799 2 799 2 799
Transfer from shares issued (21 133) (3 891) (25 024) (25 024)
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 (219 057) (219 057) (219 057)
Total comprehensive income 147 589 147 589 (552) 147 037
- Net profit/(loss) for the period 147 589 147 589 (552) 147 037
Shares issued 13 7 085 7 098 7 098 7 098
SAR scheme allocated 3 034 3 034 3 034
Transfer from shares issued (5 866) (1 232) (7 098) (7 098)
Balance as at 31 December 2012 6 547 260 763 (220 273) 47 037 279 081 11 759 - - - 38 559 376 436 (5 418) 371 018
* SAR scheme - the Clientèle Limited Group Share Appreciation Rights Scheme.
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 business (PVIF); 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 31 December 2012.
All material business written by the Group has been covered by EV Methodology as outlined in Advisory Practice Note, 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;
- annuity income arising from non-insurance contracts where EV Methodology has been used to determine future shareholder entitlements;
- Legal insurance business 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 Groups independent actuaries, Aon Hewitt (Actuarial). The EV can be summarised as follows:
Six months
ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
Free surplus 187 794 98 414 271 252
Required capital 193 680 148 334 182 633
Adjusted Net Worth (ANW) of covered business 381 474 246 748 453 885
CoC (45 840) (36 421) (42 391)
PVIF 3 122 162 2 589 888 2 847 550
EV of covered business 3 457 796 2 800 215 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
Six months
ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
Total equity and reserves per the Statement of
Financial Position 371 018 285 723 440 004
Removal of Deferred Profits and impact of
compulsory margins on investment business (net
impact after tax) 17 022 12 428 18 647
Removing minority interests 5 418 5 201 4 868
Adjusting subsidiaries to Net Asset Value 11 911 905 11 911
SAR scheme adjustment (23 896) (57 509) (21 545)
ANW 381 474 246 748 453 885
The CoC is the opportunity cost of having to hold the Required Capital of R193,7 million as at 31 December 2012. 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 scheme adjustment recognises the future dilution in EV, on a mark to market basis, as a result of the SAR scheme.
Clientèle Lifes Statutory Capital Adequacy Requirement (CAR) cover ratio at 31 December 2012 was 2,10 times (30 June 2012: 2,95 times) on the statutory valuation basis.
Value of New Business
Six months
ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
Total Value of New Business (VNB) 142 340 226 035 365 496
Present Value of New Business
premiums 719 913 961 457 1 749 447
New Business profit margin 19,8% 23,5% 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 31 December 2012 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
Six months
ended Year ended
31 December 30 June
(%) 2012 2011 2012
Risk discount rate 9,30 10,50 9,80
Overall investment return 5,80 7,00 6,30
Expense inflation 4,30 5,00 4,30
Corporate tax 28,00 28,00 28,00
The risk discount rate (RDR) has been determined using a top-down weighted average cost of capital approach, with the equity return calculated using the 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 3,50%. The Board draws the readers attention to the RDR sensitivity analysis in the
table below which allows for sensitivity comparisons using various alternative RDRs. 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 0,41, in the calculation
of the RDR.
The resulting RDR utilised for the South African business as at 31 December 2012 was 9,30% (30 June 2012: 9,80%).
With effect from the reporting date the gap between the investment return and the inflation assumption was reduced from 2,00% to 1,50% as consequence of the continuing downward trend
of the risk free rate.
Risk Discount Rate Sensitivities
(R000s) EV VNB
Risk discount rate 7,30% 4 103 158 199 427
Risk discount rate 8,30% 3 747 863 168 171
Risk discount rate 9,30% 3 457 796 142 340
Risk discount rate 9,80% 3 332 016 132 121
Risk discount rate 10,30% 3 216 873 122 233
Risk discount rate 10,50% 3 173 564 118 518
Risk discount rate 11,30% 3 013 610 104 865
Demographic Assumptions
A withdrawal profit was experienced over the period under review; however, no changes were made to the underlying long-term withdrawal assumptions at this stage. If the assumptions are
adjusted at year end, it should be noted that the new business portion of the withdrawal profit will move into the VNB number, which will result in a lower withdrawal profit number and a higher
VNB.
Embedded Value per Share
Six months ended Year ended
31 December 30 June
(cents) 2012 2011 2012
EV per share 1 056,38 864,14 1 004,20
Diluted EV per share 1 048,30 854,67 989,99
Segment Information
The EV can be split between segments as follows:
(R000s) ANW PVIF CoC EV
31 December 2012
SA - Long-term insurance 306 326 2 726 873 (33 388) 2 999 810
SA - Short-term insurance 89 895 384 388 (12 451) 461 832
SA - Investment contracts - 4 715 - 4 715
SA - Loans (12 366) 5 353 - (7 013)
SA - Mobile (2 381) 833 - (1 549)
Total 381 474 3 122 162 (45 840) 3 457 796
31 December 2011
SA - Long-term insurance 211 970 2 325 266 (32 742) 2 504 494
SA - Short-term insurance 46 099 256 220 (3 679) 298 639
SA - Investment contracts - 5 462 - 5 462
SA - Loans (12 164) 1 544 - (10 620)
SA - Mobile 819 1 396 - 2 215
Nigeria - Long-term brokerage 25 - - 25
Total 246 748 2 589 888 (36 421) 2 800 215
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
The VNB can be split between segments as follows:
Six months ended Year ended
31 December 30 June
(R000s) 2012 2011 2012
SA - Long-term insurance 120 888 194 540 305 878
SA - Short-term insurance 19 330 30 786 58 190
SA - Investment contracts 988 2 524 4 110
SA - Loans 1 273 (1 766) (2 154)
SA - Mobile (141) (48) (528)
Total 142 340 226 035 365 496
Embedded Value Earnings Analysis
EV earnings (per APN 107) comprises the change in EV for the period after adjusting for capital movements and dividends paid as they pertain to the Group.
Six months ended 31 December 2012 Six months
ended Year ended
31 December 30 June
(R000s) ANW PVIF CoC Total 2011 2012
A: EV at the end of the period 381 474 3 122 161 (45 840) 3 457 796 2 800 215 3 259 044
EV at the beginning of the period 453 885 2 847 550 (42 391) 3 259 044 2 520 332 2 520 332
Dividends and STC paid (219 060) - - (219 060) (190 015) (190 015)
B: Adjusted EV at the beginning of the period 234 826 2 847 551 (42 391) 3 039 985 2 330 317 2 330 318
EV earnings (A - B) 146 648 274 611 (3 449) 417 811 469 898 928 726
Impact of once-off economic assumption changes (excluding STC) (585) (101 223) (3 116) (104 925) (93 705) (215 694)
Impact of once-off STC tax change - - - - (132 452) (129 981)
Impact of other once-off items - - - - 16 555 19 318
Recurring EV earnings (before once-off items) 146 063 173 388 (6 565) 312 886 260 296 602 369
Recurring Return on EV (before once-off items) 20,6% 22,3% 25,8%
Return on EV 27,5% 35,4% 39,9%
Components of EV earnings (R000s)
VNB (138 875) 284 594 (3 379) 142 340 226 035 365 496
Expected return on covered business (unwinding of RDR) - 137 043 (2 029) 135 014 121 695 253 438
Expected profit transfer 259 817 (259 816) - - - -
Withdrawal experience variance 11 671 9 408 (20) 21 059 (68 891) (115 042)
Claims and reinsurance experience variance (1 347) - - (1 347) 1 335 (4 148)
Sundry experience variance 7 425 1 973 - 9 398 15 134 45 767
Change in withdrawals and unpaid premium assumptions - - - - - (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 2 531 (265) (1 138) 1 129 (14 552) (10 808)
Development costs (4 328) - - (4 328) - -
Expected return on ANW 9 456 - - 9 456 9 066 23 465
SAR scheme dilution (2 351) - - (2 351) (12 856) 23 108
Goodwill and Medium-term incentive schemes (11 747) 452 - (11 294) (16 044) (6 150)
EV operating return 132 252 173 388 (6 565) 299 075 260 923 591 540
Investment return variances on ANW 13 811 - - 13 811 (627) 10 829
Effect of economic assumption changes (excluding STC) 585 101 223 3 116 104 925 93 705 215 694
Impact of once-off STC change - - - - 132 452 129 981
Impact of other once-off items - - - - (16 555) (19 318)
EV Earnings 146 648 274 611 (3 449) 417 811 469 897 928 726
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) (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 W Reekie BSc(Hons), FASSA*; B A Stott CA(SA); R D Williams, BSc(Hons), FASSA
Company secretary:
W van Zyl CA(SA)
*Executive Director
Date: 18/02/2013 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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