Wrap Text
Condensed Group results for the six months ended 31 December 2013
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Condensed Group results for the six months ended 31 December 2013
Highlights
Major improvement in new business volumes and quality
Headline earnings increased by 21% from R147,8 million to R179,4 million
Net insurance premiums increased by 11% from R572,3 million to R636,9 million
Annualised return on average shareholders interest of 71%
Value of New Business increased by 128% from R142,3 million to a record level of R325,2 million
New Business profit margin increased from 20% to 27%
Recurring Embedded Value Earnings increased by 29% from R312,9 million to R403,5 million
Annualised Recurring Return on Embedded Value of 24%
Comments
Introduction
The Clientèle Group ("the Group") has achieved good results for the reporting period. The strong production experienced in the second half of the 2013 financial year has continued during this
six month reporting period and the quality of new business written has improved on the comparative period to 31 December 2012.
This has translated into a major increase in the Value of New Business ("VNB") of 128% from R142,3 million for the comparative period to R325,2 million this period, and an increase in
Recurring Embedded Value Earnings of 29% from R312,9 million for the comparative period to R403,5 million this period.
Headline earnings for the Group of R179,4 million has been impacted by the release of a discretionary margin and the expensing of acquisition costs related to the strong VNB, as discussed
below, and is 21% higher than the headline earnings of R147,8 million for the comparative period.
The Group achieved an annualised return on average shareholder's interests of 71% for the period compared to 72% for the comparative period.
Operating Results
Group Statement of Comprehensive Income
The Group increased its headline earnings per share for the period by 21% from 45,23 cents to 54,67 cents.
Investments achieved an annualised return of 20% for the period, compared to an annualised return of 26% for the comparative period.
Net insurance premium revenue, on the back of the increase in the production of good quality business, has increased by 11% from R572,3 million to R636,9 million.
Net insurance benefits and claims of R156,3 million have decreased by 9% from R172,1 million for the comparative period. The majority of the decrease is in respect of a reduction in
policyholder cash-back payments becoming due compared to the comparative period as well as lower policyholder benefit payments in respect of unitised endowment policies for the current
period.
Policyholder liabilities under insurance contracts decreased by R34,1 million (2012: increase of R17,9 million). Stripping out the release of the discretionary margin referred to above, reveals an
increase of R15,8 million for the period.
The increase in marketing and other acquisition costs incurred to support the major VNB growth has resulted in operating expenses for the period increasing by 15% from R397,1 million
for the comparative period to R455,2 million this period, which should be viewed in conjunction with the Group's 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 R2,05 billion
(June 2013: R1,9 billion).
The Group has now released the portion of the discretionary margin in the Life Company's Actuarial Liabilities, of R49,9 million (R35,9 million after tax), which was held in respect of policyholder
unit-linked business as experience has shown that this discretionary margin is no longer required. This change in estimate has resulted in a once-off release of this discretionary margin which
has increased the net profit after tax for the Group by R35,9 million (2012: Nil) for the period. Although the Group's net asset value per share increases as a result of releasing this discretionary
margin, the Group's Capital Adequacy Requirement ("CAR") also increases by a similar amount and thus has little impact on dividend paying capacity.
Group Embedded Value
The sustained momentum in the production of good quality business has driven the 128% increase in the VNB to R325,2 million (2012: R142,3 million) referred to above.
The Recurring Embedded Value Earnings of R403,5 million translates into an annualised Recurring Return on Embedded Value ("ROEV") of 24% (2012: 21%) and the profit margin on new
business has increased from 20% for the comparative period to 27% this period. Whilst withdrawal experience on new business has been better than expectation the withdrawal experience
on existing business has been worse than assumption which has resulted in a change in withdrawal and unpaid premium assumptions on existing business of R64,3 million for the period. This
is receiving management's attention.
The Risk Discount Rate ("RDR"), has been set at 10,7% (2012: 9,3%). The calculation is comprehensively explained in the Group EV results section of the results and a sensitivity analysis is
also provided.
The release of this discretionary margin has had an immaterial impact on the Embedded Value ("EV").
Segment Results
Clientèle Life - Long-term insurance
Clientèle Life's Long-term insurance segment remains the major contributor to Group performance. It accounts for 86% (2012: 85%) or R280,9 million (2012: R120,9 million) of the Group's
R325,2 million of VNB, and recorded Recurring EV Earnings of R328,1 million (2012: R252,9 million) for the period. The segment generated R157,0 million (2012: R131,9 million) net profit for the
period, an increase of 19% which has been impacted by the release of the discretionary margin and the expensing of acquisition costs related to the strong VNB.
The Investment Contracts operating segment reported a R3,3 million net profit for the period (2012: R2,9 million). "Financial liabilities - investment contracts" has shown a material reduction,
this relates to five year insurance contracts that have matured. These contracts are matched by financial assets and consequently "Financial assets held at fair value through profit and loss"
has shown a similar reduction.
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal accounts for 13% (2012: 14%) or R43,5 million (2012: R19,3 million) of the Group's VNB for the period, and recorded Recurring EV Earnings of R66,8 million (2012: R56,2 million)
and generated R18,1 million net profit for the period, an 8% increase on the R16,7 million net profit for the comparative period. This has also been impacted primarily by the expensing of
acquisition costs on new business as reflected in the 35% increase in operating expenses.
Other Segments
The personal loans business, Clientèle Loans Direct Proprietary Limited ("CLD"), as previously reported, no longer enters into new business contracts as reflected by the major decrease in
both the "Loans and receivables including insurance receivables" and "Financial liabilities - loans at amortised cost" balances as reflected in the Condensed Group Statement of Financial
Position. New business contracts are now 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.
Prospects
The Board's focus for the future will be to continue the momentum that has been built in production and to maintain the quality of new business written together with initiatives to improve
withdrawals in respect of older duration policies. The Board remains focused on providing products and services that are relevant to its policyholders' needs and thereby continue to build a
sustainable Financial Services Group and create on-going value for all of its Stakeholders.
G Q Routledge B W Reekie
Chairman Managing Director
Johannesburg
17 February 2014
UNAUDITED
Condensed Group Statement of Comprehensive Income
Six months Audited
ended % Year ended
31 December Change 30 June
(R'000's) 2013 2012 2013
Revenue
Insurance premium revenue 684 364 608 853 12 1 224 459
Reinsurance premiums (47 432) (36 538) (78 596)
Net insurance premiums 636 932 572 315 11 1 145 863
Other income 88 277 87 249 1 168 847
Interest income 30 586 35 787 (15) 76 320
Fair value adjustment to financial
assets at fair value through profit or loss 127 119 165 050 (23) 249 881
Net income 882 914 860 401 3 1 640 911
Net insurance benefits and claims (156 326) (172 087) (9) (339 755)
Decrease/(increase) in policyholder liabilities under insurance contracts 34 092 (17 892) 44 074
Decrease in reinsurance assets (38) (100) (508)
Fair value adjustment to financial liabilities at fair value through profit or loss - investment contracts (35 636) (50 258) (29) (71 222)
Interest expense (7 466) (9 212) (19) (19 139)
Impairment of advances (18 060) (16 480) 10 (38 194)
Operating expenses (455 183) (397 109) 15 (818 555)
Profit before tax 244 297 197 263 24 397 612
Tax (64 325) (50 226) (104 206)
Profit for the period 179 972 147 037 22 293 406
Attributable to:
Non-controlling interest
- ordinary shareholders 437 (552) 311
Equity holders of the Group
- ordinary shareholders 179 535 147 589 22 293 095
Net profit for the period 179 972 147 037 22 293 406
Other comprehensive income:
Gains on property revaluation 10 599
Income tax relating to gains on property revaluation (3 218)
Other comprehensive income for the period - net of tax - - 7 381
Total comprehensive income for the period 179 972 147 037 22 300 787
Total comprehensive income attributable to:
Non-controlling interest
- ordinary shareholders 437 (552) 311
Equity holders of the Group
- ordinary shareholders 179 535 147 589 22 300 476
Condensed Group Statement of Financial Position
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2013 2012 2013
Assets
Intangible assets 22 232 21 083 19 657
Property and equipment 25 302 31 523 25 962
Owner-occupied properties 188 848 176 994 188 240
Deferred tax 25 463 22 018 26 856
Inventories 1 364 644 1 123
Reinsurance assets 3 299 3 745 3 337
Financial assets held at fair value through profit or loss 2 101 419 2 246 094 2 287 980
Loans and receivables including insurance receivables 161 653 269 224 223 304
Current tax 1 046 4 271 643
Cash and cash equivalents 165 536 144 734 180 011
Total assets 2 696 162 2 920 330 2 957 113
Total equity and reserves 471 028 371 018 529 420
Liabilities
Policyholder liabilities under insurance contracts 712 559 808 617 746 651
Financial liabilities - investment contracts 1 191 522 1 360 608 1 326 415
- At fair value through profit or loss 1 145 832 1 319 906 1 283 311
- At amortised cost 45 690 40 702 43 104
Financial liabilities - loans at amortised cost 80 018 183 908 134 996
Employee benefits 52 970 31 858 66 383
Deferred tax 31 334 27 299 27 420
Accruals and payables including insurance payables 138 351 136 785 120 962
Current tax 18 380 237 4 866
Total liabilities 2 225 134 2 549 312 2 427 693
Total equity and liabilities 2 696 162 2 920 330 2 957 113
Tax
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2013 2012 2013
Current and deferred tax (64 145) (46 678) (98 877)
Capital gains tax (180) (3 548) (3 702)
Underprovision in prior periods (1 627)
Tax (64 325) (50 226) (104 206)
The Individual Policyholder Fund has an estimated tax loss of R2,1 billion (2012: R2,0 billion).
Reconciliation of Net Profit to Headline Earnings
Six months Audited
ended % Year ended
31 December Change 30 June
(R'000's) 2013 2012 2013
Net profit for the period attributable to equity holders of the Group 179 535 147 589 22 293 095
Less: Profit on disposal of property and equipment (93) (43) (46)
Add: Investment in associate written off 291 291
Headline earnings for the period 179 442 147 837 21 293 340
Ratios per Share
Six months Audited
ended % Year ended
31 December Change 30 June
(Cents) 2013 2012 2013
Headline earnings per share 54,67 45,23 21 89,62
Diluted headline earnings per share 54,62 44,82 22 89,57
Earnings per share 54,70 45,15 21 89,54
Diluted earnings per share 54,65 44,74 22 89,49
Net asset value per share 143,50 113,51 26 161,41
Diluted net asset value per share 143,39 112,48 27 161,65
Dividends per share - paid 74,00 67,00 10 67,00
Dividends per share - declared - - 74,00
Weighted average ordinary
shares ('000) 328 241 326 850 327 325
Diluted average ordinary shares ('000) 328 505 329 848 327 508
Condensed Group Statement of Cash Flows
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2013 2012 2013
Cash flows from operating activities (87) (16 433) 28 235
Profit from operations adjusted for non-cash items 199 928 231 145 330 090
Working capital changes (51 644) (94 504) (144 286)
Separately disclosable items1 (23 589) (23 932) (48 120)
Decrease in financial liabilities2 (173 115) (43 256) (100 815)
Net disposal of investments3 313 680 159 083 265 808
Interest received 14 978 15 522 31 606
Dividends received 8 611 8 410 16 514
Dividends paid (243 029) (219 009) (219 012)
Tax paid (45 907) (49 892) (103 550)
Cash flows from investing activities4 (14 388) (7 346) (16 737)
Net (decrease)/increase in cash and cash equivalents (14 475) (23 779) 11 498
Cash and cash equivalents at beginning of the period 180 011 168 513 168 513
Cash and cash equivalents at end of the period 165 536 144 734 180 011
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 not been reviewed or audited by the Group's auditors, PricewaterhouseCoopers Incorporated. The change in policyholder liabilities has been based on best estimates after
providing for compulsory and discretionary margins and has been actuarially certified by Aon Hewitt (Actuarial).
The Condensed Group Results were prepared under the supervision of Mr I B Hume (CA(SA), ACMA), the Group Financial Director.
Changes to the Board
Mrs F F T De Buck resigned on 3 September 2013.
Segment Assets and Liabilities
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2013 2012 2013
Assets
Long-term insurance 1 307 089 1 261 885 1 371 736
Investment contracts 1 191 898 1 360 818 1 328 452
Short-term insurance 123 082 115 289 129 408
Other 160 492 261 762 211 196
Inter segment (86 399) (79 424) (83 679)
Total Group Assets 2 696 162 2 920 330 2 957 113
Liabilities
Long-term insurance 915 110 960 935 933 280
Investment contracts 1 191 522 1 360 608 1 326 415
Short-term insurance 31 674 25 394 26 102
Other 173 227 281 799 225 575
Inter segment (86 399) (79 424) (83 679)
Total Group Liabilities 2 225 134 2 549 312 2 427 693
Accounting Policies
Statement of Compliance
The condensed consolidated interim Financial Statements are prepared in accordance with the JSE Limited Listings Requirements for interim reports and the requirements of the
Companies Act of South Africa. The Listings Requirements require interim 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 interim 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 interim 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. The Group has now
released the portion of the discretionary margin in the Life Company's Actuarial Liabilities, of R49,9 million (R35,9 million after tax), which was held in respect of policyholder unit-linked business
as experience has shown that this discretionary margin is no longer required. This change in estimate has resulted in a once-off release of this discretionary margin.
Apart from the discretionary margin referred to above, there was no significant impact due to changes in previous assumptions and estimates 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 Group's results are analysed across South Africa ("SA") - geographical segment.
The Group's main operating segments are Long-term insurance, Investment contracts, Short-term insurance, and Other (which is predominantly Clientèle Loans). The vast majority of policies
written are in respect of individuals.
Segment Statements of Comprehensive Income
Inter segment
Long-term Investment Short-term (revenue)/
(R'000's) insurance contracts insurance Other expense Group
31 December 2013
Insurance premium revenue 590 427 93 937 684 364
Reinsurance premiums (47 217) (215) (47 432)
Net insurance premiums 543 210 93 722 636 932
Other income 77 276 6 875 48 6 685 (2 607) 88 277
Interest income 6 623 420 27 410 (3 867) 30 586
Fair value adjustment to financial assets at fair value through profit or loss 81 001 38 495 7 623 127 119
Segment revenue 708 110 45 370 101 813 34 095 (6 474) 882 914
Segment expenses and claims (494 806) (40 842) (77 631) (31 812) 6 474 (638 617)
Net insurance benefits and claims (145 082) (11 244) (156 326)
Increase in policyholder liabilities under insurance contracts 33 893 199 34 092
Decrease in reinsurance assets (38) (38)
Fair value adjustment to financial liabilities at fair value through profit or loss (35 636) (35 636)
Interest expense (2 586) (8 747) 3 867 (7 466)
Impairment of advances (18 060) (18 060)
Operating expenses (383 579) (2 620) (66 586) (5 005) 2 607 (455 183)
Profit before tax 213 304 4 528 24 182 2 283 - 244 297
Tax (56 338) (1 268) (6 080) (639) (64 325)
Net profit for the period 156 966 3 260 18 102 1 644 - 179 972
Attributable to:
Non-controlling interest - ordinary shareholders 437 437
Equity holders of the Group - ordinary shareholders 156 966 3 260 18 102 1 207 - 179 535
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 8 796 (2 404) 87 249
Interest income 5 518 330 33 346 (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 42 142 (5 811) 860 401
Segment expenses and claims (505 069) (54 696) (60 858) (48 326) 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) (21 530) 2 404 (397 109)
Profit/(loss) before tax 177 296 4 016 22 135 (6 184) - 197 263
Tax (45 405) (1 125) (5 427) 1 731 (50 226)
Net profit/(loss) for the period 131 891 2 891 16 708 (4 453) - 147 037
Attributable to:
Non-controlling interest - ordinary shareholders (552) (552)
Equity holders of the Group - ordinary shareholders 131 891 2 891 16 708 (3 901) - 147 589
Condensed Group Statement of Changes in Equity
SAR
Common and Bonus Non-
Share Share control Sub- Retained Right Scheme NDR: Sub- controlling
(R'000's) capital premium deficit total earnings Reserve* Revaluation total interest Total
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 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 and Bonus Rights Scheme allocated 3 034 3 034 3 034
Transfer from shares issued (5 863) (1 232) (7 095) (7 095)
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
Balance as at 1 January 2012 6 547 260 763 (220 273) 47 037 279 081 11 759 38 559 376 436 (5 418) 371 018
Total comprehensive income 145 506 7 381 152 887 863 153 750
- Net profit/(loss) for the period 145 506 145 506 863 146 369
- Other comprehensive income 7 381 7 381 7 381
Transfer to contingency reserve
Shares issued 13 8 219 8 232 8 232 8 232
SAR and Bonus Rights Scheme allocated 4 655 4 655 4 655
Transfer from shares issued (6 887) (1 348) (8 235) (8 235)
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
Balance as at 1 July 2013 6 560 268 982 (220 273) 55 269 417 700 15 066 45 940 533 975 (4 555) 529 420
Ordinary dividends (243 069) (243 069) (243 069)
Total comprehensive income 179 535 179 535 437 179 972
- Net profit/(loss) for the period 179 535 179 535 437 179 972
Shares issued 15 10 060 10 075 10 075 10 075
SAR and Bonus Rights Scheme allocated 4 705 4 705 4 705
Transfer from shares issued (8 789) (1 286) (10 075) (10 075)
Balance as at 31 December 2013 6 575 279 042 (220 273) 65 344 345 377 18 485 45 940 475 146 (4 118) 471 028
*SAR scheme - the Clientèle Limited Share Appreciation Rights Scheme, Bonus Rights Scheme - the Clientèle Limited Bonus 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 ("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 31 December 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:
Six months
ended Year ended
31 December 30 June
(R'000's) 2013 2012 2013
Free surplus 191 861 187 794 311 614
Required capital 282 090 193 680 231 817
Adjusted Net Worth ("ANW") of covered business 473 950 381 474 543 431
CoC (51 211) (45 840) (44 959)
PVIF 3 216 414 3 122 162 3 048 168
EV of covered business 3 639 153 3 457 796 3 546 640
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
(R'000's) 2013 2012 2013
Total equity and reserves per the
Statement of Financial Position 471 028 371 018 529 420
Removal of Deferred Profits and impact of compulsory margins on investment business
(net impact after tax) 14 667 17 022 16 449
Removing minority interests 4 118 5 418 4 555
Adjusting subsidiaries to Net Asset Value 15 129 11 911 15 129
Share Appreciation Rights ("SAR") and Bonus Rights Scheme adjustment (30 991) (23 896) (22 122)
ANW 473 950 381 474 543 431
The CoC is the opportunity cost of having to hold the Required Capital of R282,1 million as at 31 December 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 ("CAR") cover ratio at 31 December 2013 was 1,67 times (30 June 2013: 2,44 times) on the statutory valuation basis.
Clientèle General Insurance's Statutory ("CAR") cover ratio at 31 December 2013 was 1,42 times (30 June 2013: 1,83 times) on the statutory valuation basis.
Value of New Business ("VNB")
Six months
ended Year ended
31 December 30 June
(R'000's) 2013 2012 2013
Total VNB 325 218 142 340 302 140
Present Value of New Business premiums 1 194 892 719 913 1 509 582
New Business profit margin 27,2% 19,8% 20,0%
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 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
Six months
ended Year ended
31 December 30 June
(%) 2013 2012 2013
Risk discount rate 10,7 9,3 10,4
Overall investment return 7,2 5,8 6,9
Expense inflation 5,7 4,3 5,4
Corporate tax 28,0 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 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 3,5%. 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 0,12, 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 RDRs.
The resulting RDR utilised for the South African business as at 31 December 2013 was 10,7% (30 June 2013: 10,4%).
RDR Sensitivities
(R'000's) EV VNB
RDR 8,7% 4 285 444 418 266
RDR 9,3% (RDR as at December 2012) 4 066 619 386 328
RDR 9,7% 3 934 216 367 097
RDR 10,4% (RDR as at June 2013) 3 724 784 336 830
RDR 10,7% (RDR as at December 2013) 3 639 153 325 218
RDR 11,7% 3 397 285 289 897
RDR 12,7% 3 188 006 260 175
Demographic assumptions and other changes
A small withdrawal and unpaid premium profit was experienced during the year. This number consists of two main items: a loss on existing business and a profit on new business, which
roughly offset each other. The assumptions were adjusted to allow for the adverse experience on existing business, resulting in a decrease in the EV of R64,3 million. The impact of the
assumption changes made for new business is allowed for in the VNB.
A discretionary margin in respect of unit-linked policies has been released. This discretionary margin of R49,9 million before tax was released during the current financial year. The release of this
margin has an immaterial impact on EV, but has resulted in a move between the components of the EV, i.e. between ANW, PVIF and COC.
The once-off item of R6,6 million in the 'EV earnings Analysis' section below relates to the once-off EV impact of the release in the discretionary margin as mentioned above, as well as small
modeling refinements.
EV per Share
Six months ended Year ended
31 December 30 June
(cents) 2013 2012 2013
EV per share 1 106,90 1 056,38 1 081,27
Diluted EV per share 1 106,01 1 048,30 1 080,67
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
31 December 2013
SA - Long-term insurance 391 288 2 723 115 (36 086) 3 078 317
SA - Short-term insurance 91 408 479 133 (15 125) 555 415
SA - Investment contracts - 3 618 - 3 618
Other (8 746) 10 549 - 1 803
Total 473 950 3 216 414 (51 211) 3 639 153
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
Other (14 747) 6 186 - (8 561)
Total 381 474 3 122 162 (45 840) 3 457 796
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
Other (9 953) 11 827 - 1 874
Total 543 431 3 048 168 (44 959) 3 546 640
The VNB can be split between segments as follows:
Six months ended Year ended
31 December 30 June
(R'000's) 2013 2012 2013
SA - Long-term insurance 280 904 120 888 227 788
SA - Short-term insurance 43 511 19 330 65 309
SA - Investment contracts 383 988 2 479
Other 420 1 132 6 564
Total 325 218 142 340 302 140
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 2013 Six months ended Year ended
31 December 30 June
(R'000's) ANW PVIF CoC Total 2012 2013
A: EV at the end of the period 473 950 3 216 414 (51 211) 3 639 153 3 457 796 3 546 640
EV at the beginning of the period 543 431 3 048 168 (44 959) 3 546 640 3 259 044 3 259 044
Dividends paid (243 069) - - (243 069) (219 060) (219 060)
B: Adjusted EV at the beginning of the period 300 362 3 048 168 (44 959) 3 303 572 3 039 985 3 039 985
EV earnings (A - B) 173 588 168 246 (6 252) 335 582 417 811 506 655
Impact of once-off economic assumption changes 107 62 699 (1 480) 61 326 (104 925) 129 294
Impact of other once-off items (35 872) 35 882 6 597 6 607 - -
Recurring EV earnings (before once-off items) 137 823 266 827 (1 135) 403 514 312 886 635 949
Recurring Return on EV (before once-off items) 24.4% 20,6% 20,9%
Return on EV 20.3% 27,5% 16,7%
Components of EV earnings
VNB (146 517) 474 687 (2 953) 325 218 142 340 302 140
Expected return on covered business (unwinding of RDR) - 159 848 1 706 161 554 135 014 276 146
Expected profit transfer 275 876 (275 876) - - - -
Withdrawal and unpaid premium experience variance (891) 5 840 (1 138) 3 811 21 059 14 770
Claims and reinsurance experience variance (486) 197 - (289) (1 347) (9 656)
Sundry experience variance (589) 1 116 1 528 9 398 (730)
Change in withdrawals and unpaid premium assumptions 4 303 (69 823) 1 248 (64 271) - 44 592
Other Changes in modelling/basis (1 427) (12 570) 1 (13 996) 1 129 (28 431)
Once-off costs - - - - (4 328) (9 057)
Expected return on ANW 12 338 - - 12 338 9 456 24 510
SAR and Bonus Rights Scheme dilution (4 304) - - (4 304) (2 351) 7 909
Goodwill and Medium-term incentive schemes (20 715) (16 592) - (37 307) (11 294) (27 322)
EV operating return 117 590 266 827 (1 135) 383 281 299 075 594 871
Investment return variances on ANW 20 233 - - 20 233 13 811 41 078
Effect of economic assumption changes (107) (62 699) 1 480 (61 326) 104 925 (129 294)
Impact of other once-off items 35 872 (35 882) (6 597) (6 607) - -
EV earnings 173 588 168 246 (6 252) 335 582 417 811 506 655
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); 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
Sponsor:
PricewaterhouseCoopers
Corporate Finance Proprietary Limited
website: www.clientele.co.za e-mail: info@clientele.co.za
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