Wrap Text
Condensed Group Results For The Six Months Ended 31 December 2014
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Condensed Group results for the six months ended 31 December 2014
Highlights
Value of New Business increased by 23% to R400,5 million
Annualised Recurring Return on Embedded Value of 33%
Recurring Embedded Value Earnings increased by 50% to R603,7 million
Annualised return on average shareholders' interest of 62%
Net insurance premiums increased by 17% to R742,1 million
Diluted headline earnings per share increased by 1% to 54,99 cents
Comments
Introduction
The Board is pleased to announce that the Clientèle Group ("the Group") has achieved good operating results for the period, despite the ongoing tough economic environment. Investment returns,
although being in line with the market, are lower than the comparative period. The strong production achieved during the 2014 financial year has continued during this period whilst the quality of
new business written has been maintained. This is the result of the Group's continued focus on ingraining sustainability practices and principles and maintaining strict controls.
This has translated into a material increase in the Value of New Business ("VNB") of 23% to a record level of R400,5 million (2013: R325,2 million), and a 50% increase in Recurring Embedded
Value Earnings to R603,7 million (2013: R403,5 million). New Business profit margins have also improved to 29,7% (2013: 27,2%) as a result of continued cost control, strong production of good
quality new business and an increase in average premiums.
Profit before tax increased by 3% to R251,5 million (2013: R244,3 million) over the comparative period, however after reversing the once-off discretionary margin release of R49,9 million in the
prior period, profit before tax increases by 29%.
Headline earnings for the Group increased by 1% to R181,3 million (2013: R179,4 million). This is a commendable achievement considering the fact that headline earnings for the prior period were
positively impacted by the once-off release of the discretionary margin of R35,9 million (after tax).
This performance resulted in the Group achieving an annualised return on average shareholders' interests of 62%.
Operating Results
Group Statement of Comprehensive Income
Diluted headline earnings per share for the period increased by 1% to 54,99 cents (2013: 54,62 cents), despite the once-off release of the discretionary margin in the prior period.
Net insurance premium revenue increased by 17% to R742,1 million (2013: R636,9 million), on the back of the ongoing increase in the production of good quality business and improved withdrawal
experience.
Despite the increase in marketing and other acquisition costs incurred to support the material VNB growth, the increase in operating expenses has been restricted to 8% in contrast to the 17%
increase in net insurance premiums mentioned above.
The Group follows a conservative accounting practice of eliminating negative reserves (a discretionary margin). As acquisition costs are expensed upfront, this defers the recovery of these costs
and the profits over the policy life. The present value of this discretionary margin amounts to R2,43 billion (2013: R2,05 billion).
Group Embedded Value
The sustained momentum in the production of good quality business has driven the 23% increase in the VNB to the record level of R400,5 million (2013: R325,2 million). The Recurring Embedded
Value Earnings of R603,7 million translates into an annualised Recurring Return on Embedded Value ("ROEV") of 33% (2013: 24%) and the profit margin on New Business has increased to 29,7%
(2013: 27,2%). The Group Embedded Value ("EV") has increased by 17% to R4,26 billion (2013: R3,64 billion). Withdrawal experience on new business as well as existing business was better
than assumption and an improvement on the prior period resulting in a withdrawal profit of R34,6 million (2013: R3,8 million).
The Risk Discount Rate ("RDR"), has been set at 11,2% (2013: 10,7%). The calculation is comprehensively explained in the Group EV results section of the results and a sensitivity analysis is also
provided.
Segment Results
Clientèle Life - Long-term insurance
Clientèle Life's Long-term insurance segment remains the major contributor to Group performance. It accounts for 86% (2013: 86%) or R343,6 million (2013: R280,9 million) of the Group's R400,5
million of VNB and recorded Recurring EV Earnings of R511,4 million (2013: R328,1 million) for the period. The segment generated R153,9 million (2013: R157,0 million) net profit for the period, a
decrease of 2%, nevertheless a pleasing result given the once-off positive after tax impact of R35,9 million in the comparative period resulting from the release of the discretionary margin.
Clientèle Life - Investment contracts
The Investment Contracts operating segment reported a R4,5 million net profit for the period (2013: R3,3 million). This should be viewed in conjunction with the R18,4 million (2013: R24,4 million)
of deferred profits included in the Statement of Financial Position.
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal accounts for R55,0 million (2013: R43,5 million) of the Group's VNB for the period, and recorded Recurring EV Earnings of R95,2 million (2013: R66,8 million). The segment generated
a 17% increase in net profit for the period to R21,2 million (2013: R18,1 million).
Prospects
The Board's focus for the future will remain on building on the positive momentum that has been achieved in the production of good quality business and on customer service. In addition, the
Board is committed to providing products that are relevant and meet the individual policyholders' needs and delivering these to the market conveniently and efficiently as well as creating and
nurturing mutually beneficial partnerships with all its stakeholders that add value on a sustainable basis.
By order of the Board
G Q Routledge B W Reekie
Chairman Managing Director
Johannesburg
16 February 2015
UNAUDITED
Condensed Group Statement of Comprehensive Income
Six months Audited
ended % Year ended
31 December Change 30 June
(R'000's) 2014 2013 2014
Revenue
Insurance premium revenue 798 302 684 364 1 406 175
Reinsurance premiums (56 192) (47 432) (100 005)
Net insurance premiums 742 110 636 932 17 1 306 170
Other income 88 952 88 277 171 194
Interest income 16 123 30 586 53 169
Fair value adjustment to financial
assets at fair value through profit or loss 74 654 127 119 181 556
Net income 921 839 882 914 1 712 089
Net insurance benefits and claims (145 896) (156 326) (311 102)
Decrease in policyholder liabilities under insurance contracts after discretionary margin release 16 789 34 092 42 727
Decrease/(increase) in policyholder liabilities under insurance contracts before discretionary
margin release 16 789 (15 774) (7 139)
Once-off release of discretionary margin 49 866 49 866
Decrease in reinsurance assets (74) (38) (95)
Fair value adjustment to financial liabilities at fair value through profit or loss - investment contracts (42 492) (35 636) (49 184)
Interest expense (2 546) (7 466) (12 393)
Impairment of advances (5 889) (18 060) (31 719)
Operating expenses (490 187) (455 183) 8 (927 937)
Profit before tax 251 544 244 297 3 422 386
Tax (69 318) (64 325) 8 (115 870)
Net profit for the period 182 226 179 972 1 306 516
Attributable to:
Non-controlling interest
- ordinary shareholders 790 437 (1 295)
Equity holders of the Group
- ordinary shareholders 181 436 179 535 1 307 811
Net profit for the period 182 226 179 972 1 306 516
Other comprehensive income:
Gains on property revaluation 20 296
Income tax relating to gains on property revaluation (5 014)
Other comprehensive income for the period - net of tax - - 15 282
Total comprehensive income for the period 182 226 179 972 1 321 798
Total comprehensive income attributable to:
Non-controlling interest
- ordinary shareholders 790 437 (1 295)
Equity holders of the Group
- ordinary shareholders 181 436 179 535 1 323 093
Condensed Group Statement of Financial Position
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2014 2013 2014
Assets
Intangible assets 24 601 22 232 23 461
Property and equipment 23 041 25 302 23 389
Owner-occupied properties 249 843 188 848 224 009
Deferred tax 23 829 25 463 25 744
Inventories 1 380 1 364 1 860
Reinsurance assets 3 168 3 299 3 242
Financial assets held at fair value through profit or loss 1 942 009 2 101 419 2 043 394
Loans and receivables including insurance receivables 87 879 161 653 113 348
Current tax 689 1 046 6 317
Cash and cash equivalents 124 588 165 536 183 246
Total assets 2 481 027 2 696 162 2 648 010
Total equity and reserves 549 995 471 028 618 846
Liabilities
Policyholder liabilities under insurance contracts 687 135 712 559 703 924
Financial liabilities - investment contracts 975 554 1 191 522 1 046 721
- at fair value through profit or loss 963 359 1 145 832 998 337
- at amortised cost 12 195 45 690 48 384
Financial liabilities - loans at amortised cost 28 380 80 018 10 000
Employee benefits 75 776 52 970 98 423
Deferred tax 29 909 31 334 33 727
Accruals and payables including insurance payables 133 929 138 351 134 909
Current tax 349 18 380 1 460
Total liabilities 1 931 032 2 225 134 2 029 164
Total equity and liabilities 2 481 027 2 696 162 2 648 010
Tax
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2014 2013 2014
Current and deferred tax (64 154) (64 145) (114 734)
Capital gains tax (5 164) (180) (714)
Underprovision in prior periods (422)
Tax (69 318) (64 325) (115 870)
The Individual Policyholder Fund has an estimated tax loss of R2,5 billion (2013: R2,1 billion).
Reconciliation of Net Profit to Headline Earnings
Six months Audited
ended % Year ended
31 December Change 30 June
(R'000's) 2014 2013 2014
Net profit for the period attributable to equity holders of the Group 181 436 179 535 1 307 811
Less: Profit on disposal of property and equipment (133) (93) (202)
Headline earnings for the period 181 303 179 442 1 307 609
Ratios per Share
Six months Audited
ended % Year ended
31 December Change 30 June
(Cents) 2014 2013 2014
Headline earnings per share 55,02 54,67 1 93,58
Diluted headline earnings per share 54,99 54,62 1 93,53
Earnings per share 55,07 54,70 1 93,64
Diluted earnings per share 55,03 54,65 1 93,59
Net asset value per share 166,79 143,50 16 187,97
Diluted net asset value per share 166,83 143,39 16 188,16
Dividends per share - paid 78,00 74,00 5 74,00
Dividends per share - declared 78,00
Ordinary shares in issue ('000) 329 761 328 771 329 218
Weighted average ordinary
shares ('000) 329 494 328 241 328 722
Diluted average ordinary shares ('000) 329 682 328 505 328 901
Condensed Group Statement of Cash Flows
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2014 2013 2014
Cash flows from operating activities (49 201) (87) 49 245
Profit from operations adjusted for non-cash items 268 178 199 928 418 720
Working capital changes (53 844) (51 644) (95 884)
Separately disclosable items1 (25 811) (23 589) (49 005)
Decrease in financial liabilities2 (115 907) (173 115) (334 158)
Net disposal of investments3 176 039 313 680 426 142
Interest received 18 500 14 978 30 145
Dividends received 7 311 8 611 18 860
Dividends paid (256 963) (243 029) (243 030)
Tax paid (66 704) (45 907) (122 545)
Cash flows from investing activities4 (37 837) (14 388) (46 010)
Cash flows from financing activities5 28 380
Net (decrease)/increase in cash and cash equivalents (58 658) (14 475) 3 235
Cash and cash equivalents at beginning of the period 183 246 180 011 180 011
Cash and cash equivalents at end of the period 124 588 165 536 183 246
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.
5. External funding for new office building development.
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 reviewed by the Group's internal Statutory Actuary.
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
Mr M P Matlwa was appointed as a Non-Executive Director on 1 July 2014 and resigned on 5 January 2015, to assume a full time senior position at the South African Revenue Services.
Segment Assets and Liabilities
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2014 2013 2014
Assets
Long-term insurance 1 382 040 1 307 089 1 454 656
Investment contracts 976 008 1 191 898 1 047 977
Short-term insurance 135 980 123 082 150 153
Other* 57 197 160 492 86 105
Inter segment (70 198) (86 399) (90 881)
Total Group Assets 2 481 027 2 696 162 2 648 010
Liabilities
Long-term insurance 914 709 915 110 933 007
Investment contracts 975 554 1 191 522 1 046 721
Short-term insurance 38 254 31 674 36 085
Other* 72 713 173 227 104 232
Inter segment (70 198) (86 399) (90 881)
Total Group Liabilities 1 931 032 2 225 134 2 029 164
* The decrease in other segment assets and liabilities relates to the decrease in advances of Clientèle Loans Direct
Accounting Policies
Statement of compliance
The condensed consolidated interim Financial Statements are prepared in accordance with the JSE Listing 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 policies and judgments.
There was no major impact due to changes in previous assumptions and estimates used in deriving the amounts referred to above.
Capital Commitments
The Group's wholly owned subsidiaries, Clientèle Properties East and Clientèle Properties North, are in the process of developing a new office building and parking structure within the Clientèle
Office Park. The capitalised costs of this are estimated to be R213,0 million, of which R56,0 million has been capitalised since inception. It is the Group's intention that the building will be
occupied by the Group in December 2015.
Financial Assets held at Fair Value through profit or loss - Fair Value Hierarchy Disclosure
The following table presents the Group's financial assets and liabilities that are measured at fair value through profit or loss at 31 December 2014.
(R'000's) Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 576 135 576 135
Unlisted equity securities 3 850 3 850
Promissory notes and fixed deposits 495 202 401 042 896 244
Funds on deposit 396 857 396 857
Fixed interest securities 68 923 68 923
Total Assets 576 135 964 832 401 042 1 942 009
Liabilities
Financial liabilities at fair value through profit or loss 829 486 133 873 963 359
Total Liabilities 829 486 133 873 963 359
Shareholders' and policyholders' linked exposure to African Bank Limited ("ABL") through investments in zero coupon fixed deposits of R267,2 million and R133,9 million respectively as at 31
December 2014 have been reclassified to level 3 (from level 2) on the fair value hierarchy as values are estimated indirectly using valuation techniques or models for which one or more of the
significant inputs are assumptions (based on unobservable market inputs).
The Group establishes fair value by using a valuation technique if the market for a financial instrument is not quoted in an active market. Valuation techniques include using transactions
between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing
models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices
obtained in actual market transactions, the Group uses that technique. Fair value is estimated on the basis of the results of a valuation technique that makes maximum use of market inputs,
and relies as little as possible on entity-specific inputs.
The value of the unlisted equity securities represents shares in share block companies which are valued with reference to a written valuation by management of the administration company for
the shareblock company, which is based on recent market related prices between willing buyers and sellers.
Related Party Transactions
Transactions between Clientèle Limited and its subsidiaries have been eliminated on consolidation. There were no major 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 2014
Insurance premium revenue 682 192 116 110 798 302
Reinsurance premiums (55 957) (235) (56 192)
Net insurance premiums 626 235 115 875 742 110
Other income 80 331 7 854 216 3 190 (2 639) 88 952
Interest income 7 913 399 11 664 (3 853) 16 123
Fair value adjustment to financial assets at fair value through profit or loss 24 342 45 502 4 810 74 654
Segment revenue 738 821 53 356 121 300 14 854 (6 492) 921 839
Segment expenses and claims (525 127) (47 039) (92 528) (12 093) 6 492 (670 295)
Net insurance benefits and claims (133 676) (13 060) 840 (145 896)
Decrease in policyholder liabilities under insurance contracts 16 470 319 16 789
Decrease in reinsurance assets (74) (74)
Fair value adjustment to financial liabilities at fair value through profit or loss (42 492) (42 492)
Interest expense (2 247) (4 152) 3 853 (2 546)
Impairment of advances (5 889) (5 889)
Operating expenses (407 847) (2 300) (79 787) (2 052) 1 799 (490 187)
Profit before tax 213 694 6 317 28 772 2 761 - 251 544
Tax (59 782) (1 769) (7 616) (151) (69 318)
Net profit for the period 153 912 4 548 21 156 2 610 - 182 226
Attributable to:
Non-controlling interest - ordinary shareholders 790 790
Equity holders of the Group - ordinary shareholders 153 912 4 548 21 156 1 820 - 181 436
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)
Decrease in policyholder liabilities under insurance contracts after discretionary margin release 33 893 199 34 092
(Increase)/decrease in policyholder liabilities under insurance contracts before discretionary margin release (15 973) 199 (15 774)
Once-off release of discretionary margin 49 866 49 866
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
Condensed Group Statement of Changes in Equity
SAR and
Common Bonus Rights Non-
Share Share control Sub- Retained Schemes NDR: Sub- controlling
(R'000's) capital premium deficit total earnings Reserve* Revaluation total interest Total
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 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 Schemes 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
Balance as at 1 January 2014 6 575 279 042 (220 273) 65 344 345 377 18 485 45 940 475 146 (4 118) 471 028
Total comprehensive income 128 276 15 282 143 558 (1 732) 141 826
- Net profit/(loss) for the period 128 276 128 276 (1 732) 126 544
- Other comprehensive income 15 282 15 282 15 282
Shares issued 9 6 576 6 585 6 585 6 585
SAR and Bonus Rights Schemes allocated 5 992 5 992 5 992
Transfer from shares issued (5 289) (1 296) (6 585) (6 585)
Balance as at 30 June 2014 6 584 285 618 (220 273) 71 929 468 364 23 181 61 222 624 696 (5 850) 618 846
Balance as at 1 July 2014 6 584 285 618 (220 273) 71 929 468 364 23 181 61 222 624 696 (5 850) 618 846
Ordinary dividends (257 031) (257 031) (257 031)
Total comprehensive income 181 436 181 436 790 182 226
- Net profit for the period 181 436 181 436 790 182 226
Shares issued 11 9 458 9 469 9 469 9 469
SAR and Bonus Rights Schemes allocated 5 954 5 954 5 954
Transfer from Shares issued (7 973) (1 496) (9 469) (9 469)
Balance as at 31 December 2014 6 595 295 076 (220 273) 81 398 384 796 27 639 61 222 555 055 (5 060) 549 995
* 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 2014.
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 calculation have been reviewed by the Group's internal Statutory Actuary. The EV can be summarised as follows:
Six months
ended Year ended
31 December 30 June
(R'000's) 2014 2013 2014
Free surplus 186 822 191 861 287 353
Required capital 334 438 282 090 312 387
Adjusted Net Worth ("ANW") of covered business 521 260 473 950 599 740
CoC (67 257) (51 211) (58 308)
PVIF 3 802 279 3 216 414 3 397 262
EV of covered business 4 256 281 3 639 153 3 938 694
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) 2014 2013 2014
Total equity and reserves per the Statement of Financial Position 549 995 471 028 618 846
Adjusted for Deferred Profits and impact of compulsory margins on investment business 10 313 14 667 12 793
Adjusted for minority interests 5 060 4 118 5 850
Adjusting subsidiaries to Net Asset Value 20 148 15 129 20 148
SAR and Bonus Rights Schemes adjustment (64 257) (30 991) (57 897)
ANW 521 260 473 950 599 740
The CoC is the opportunity cost of having to hold the Required Capital of R334,4 million as at 31 December 2014 (30 June 2014: R312,4 million). 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 Schemes adjustment recognises the future dilution in EV, on a mark to market basis, as a result of the SAR and Bonus Rights Schemes.
Clientèle Life's Statutory Capital Adequacy Requirement cover ratio at 31 December 2014 was 1,66 times (30 June 2014: 2,03 times) on the statutory valuation basis.
Clientèle General Insurance's Statutory Capital Adequacy Requirement cover ratio at 31 December 2014 was 1,19 times (30 June 2014: 1,57 times) on the statutory valuation basis.
Value of New Business ("VNB")
Six months
ended Year ended
31 December 30 June
(R'000's) 2014 2013 2014
Total VNB 400 454 325 218 638 154
Present Value of New Business premiums 1 350 435 1 194 892 2 319 368
New Business profit margin 29,7% 27,2% 27,5%
The VNB (excluding allowance for the Goodwill and Medium Term incentive schemes which is shown as a separate component of EV Earnings) 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 2014 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
(%) 2014 2013 2014
Risk discount rate 11,2 10,7 11,1
Non-unit investment return 7,7 7,2 7,6
Unit investment return 9,0 7,2 9,0
Expense inflation 6,2 5,7 6,1
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 0,0815, 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 2014 was 11,2% p.a. (30 June 2014: 11,1% p.a.).
RDR Sensitivities
(R'000's) EV VNB
RDR 9.2% 4 979 304 500 052
RDR 10.2% 4 592 868 455 112
RDR 10.7% (RDR as at December 2013) 4 595 613 430 954
RDR 11.1% (RDR as at June 2014) 4 289 939 405 920
RDR 11.2% (RDR as at December 2014) 4 256 281 400 454
RDR 12.2% 3 980 139 362 226
RDR 13.2% 3 744 599 330 254
Demographic and other changes
A withdrawal and unpaid premium profit was experienced during the period. The results allow for worse withdrawal experience in the second half of the financial year, as per historic experience.
EV per Share
Six months ended Year ended
31 December 30 June
(Cents) 2014 2013 2014
EV per share 1 290,72 1 106,90 1 196,38
Diluted EV per share 1 289,98 1 106,01 1 195,73
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
31 December 2014
SA - Long-term insurance 437 210 3 202 133 (45 750) 3 593 593
SA - Short-term insurance 94 505 594 863 (21 507) 667 861
SA - Investment contracts - 2 799 - 2 799
Other (10 456) 2 484 - (7 972)
Total 521 260 3 802 279 (67 257) 4 256 281
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
30 June 2014
SA - Long-term insurance 500 170 2 868 411 (41 066) 3 327 515
SA - Short-term insurance 111 976 518 714 (17 242) 613 448
SA - Investment contracts - 3 051 - 3 051
Other (12 406) 7 086 - (5 320)
Total 599 740 3 397 262 (58 308) 3 938 694
The VNB can be split between segments as follows:
Six months ended Year ended
31 December 30 June
(R'000's) 2014 2013 2014
SA - Long-term insurance 343 611 280 904 550 551
SA - Short-term insurance 55 038 43 511 85 507
SA - Investment contracts 792 383 745
Other 1 014 420 1 351
Total 400 454 325 218 638 154
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 2014 Six months ended Year ended
31 December 30 June
(R'000's) ANW PVIF CoC Total 2013 2014
A: EV at the end of the period 521 260 3 802 279 (67 257) 4 256 281 3 639 153 3 938 694
EV at the beginning of the period 599 740 3 397 262 (58 308) 3 938 694 3 546 640 3 546 640
Ordinary dividends (257 031) - - (257 031) (243 069) (243 069)
B: Adjusted EV at the beginning of the period 342 709 3 397 262 (58 308) 3 681 663 3 303 572 3 303 572
EV earnings (A - B) 178 550 405 017 (8 949) 574 618 335 582 635 122
Impact of once-off economic assumption changes (135) 26 150 3 096 29 111 61 326 139 436
Impact of other once-off items - - - - 6 607 30 718
Recurring EV earnings 178 416 431 166 (5 854) 603 729 403 514 805 276
Recurring Return on EV 32,8% 24,4% 24,4%
Return on EV 31,2% 20,3% 19,2%
Components of EV earnings
VNB (159 500) 563 435 (3 480) 400 454 325 218 638 154
Expected return on covered business - 194 251 3 906 198 158 161 554 344 233
Expected profit transfer 329 038 (329 038) - - - -
Withdrawal and unpaid premium experience variance 1 029 37 978 (4 408) 34 599 3 811 (16 975)
Claims and reinsurance experience variance 56 - - 56 (289) (2 259)
Sundry experience variance 4 975 (277) (0) 4 698 528 5 212
Changes in modelling/basis and non-economic assumptions 11 681 (8 691) (1 872) 1 118 (78 267) (144 313)
Expected return on ANW 14 280 - - 14 280 12 338 29 385
SAR and Bonus Rights Schemes dilution (4 865) - - (4 865) (4 304) (25 078)
Goodwill and Medium-term incentive schemes (22 571) (26 492) - (49 063) (37 307) (63 827)
EV operating return 174 123 431 166 (5 854) 599 436 383 281 764 532
Investment return variances on ANW 4 293 - - 4 293 20 233 40 744
Recurring EV earnings 178 416 431 166 (5 854) 603 729 403 514 805 276
Effect of economic assumption changes 135 (26 150) (3 096) (29 111) (61 326) (139 436)
Impact of other once-off items - - - - (6 607) (30 718)
EV earnings 178 550 405 017 (8 949) 574 618 335 582 635 122
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) (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
website: www.clientele.co.za e-mail: info@clientele.co.za
Sponsor: PricewaterhouseCoopers Corporate Finance Proprietary Limited
Date: 16/02/2015 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.