To view the PDF file, sign up for a MySharenet subscription.

CLIENTELE LIMITED - Condensed Group results for the six months ended 31 December 2013

Release Date: 17/02/2014 17:00
Code(s): CLI     PDF:  
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

Clientèle Life
Clientèle Legal
Clientèle Loans
IFA
Clientèle Life Investments

Date: 17/02/2014 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story