Wrap Text
Condensed Preliminary Group Result for the year ended 30 June 2015
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Condensed Preliminary Group results for the year ended 30 June 2015
Highlights
Diluted headline earnings per share increased by 15% to 108 cents
Return on average shareholders' interest of 56%
Dividend declared per share increased by 15% to 90 cents
Net insurance premiums increased by 17% to R1.5 billion
Recurring Return on Embedded Value of 30%
Recurring Embedded Value Earnings increased by 36% to R1.1 billion
Value of New Business increased by 12% to R717.6 million
Comments
Introduction
The Board is pleased to announce that the Clientèle Group ("the Group") has achieved another year of good operating results
despite the ongoing tough economic environment. The strong production achieved during the 2014 financial year has continued
this year 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.
Profit before tax increased by 19% to R501.9 million (2014: R422.4 million) and headline earnings for the Group increased by 17%
to R360.6 million (2014: R307.6 million). The profit before tax and headline earnings for last year were positively impacted by the
once-off discretionary margin release of R49.9 million (R35.9 million after-tax) and negatively by the R32.5 million (R23.5 million
after-tax) fair value adjustment to the zero coupon fixed deposits in African Bank Limited ("ABL").
Recurring Embedded Value Earnings has increased by 36% to R1.1 billion (2014: R805.3 million) and the Value of New Business
("VNB") has increased by 12% to R717.6 million (2014: R638.2 million) despite the negative impact of the increase in the Risk
Discount rate ("RDR”) referred to below. Had the RDR remained at the 30 June 2014 level, VNB would have increased by 21%.
New Business profit margins have improved to 28.9% (2014: 27.5%) as a result of continued cost control, strong production of
good quality new business and an increase in average premiums.
This performance resulted in the Group achieving a return on average shareholders' interests of 56%.
The dividend declared per share increased by 15% to 90.00 cents (2014: 78.00 cents).
Operating Results
Group Statement of Comprehensive Income
Diluted headline earnings per share for the year increased by 15% to 107.67 cents (2014: 93.53 cents).
Net insurance premium revenue increased by 17% to R1.5 billion (2014: R1.3 billion), on the back of the ongoing increase in the
production of good quality business and good withdrawal experience.
Investment returns of R154.9 million, although being above the market's returns, are lower than last year's returns of R181.6
million.
Net insurance benefits and claims of R300.5 million (2014: R311.1 million) are 3.4% lower than last year due to lower
encashments of unitised endowment policies.
Despite the increase in marketing and other acquisition costs incurred to support the VNB growth, the increase in operating
expenses has been restricted to 7% in comparison to the 17% increase in net insurance premiums mentioned above.
The Group follows a conservative accounting practice of eliminating negative reserves. As acquisition costs are expensed upfront,
the recovery of these costs and the profits are deferred over the policy life. The present value of this discretionary margin amounts
to R2.5 billion (2014: R2.3 billion).
Group Embedded Value and Value of New Business
As mentioned above, the sustained momentum in the production of good quality business has driven the increase in the VNB to
R717.6 million (2014: R638.2 million). The Recurring Embedded Value Earnings of R1.1 billion translates into a Recurring Return
on Embedded Value ("ROEV") of 30% (2014: 24%). The Group Embedded Value ("EV") has increased by 17% to R4.6 billion
(2014: R3.9 billion). Withdrawal experience on new business as well as most tranches of existing business was better than
assumption and an improvement on the prior year resulting in a withdrawal profit of R19 million (2014: a loss of R17 million).
The RDR has been set at 11.8% (2014: 11.1%). 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 84% (2014:
86%) or R602.3 million (2014: R550.6 million) of the Group's R717.6 million (2014: R638.2 million) of VNB and recorded Recurring
EV Earnings of R911.4 million (2014: R677.0 million) for the year. The segment generated R303.6 million (2014: R283.4 million)
net profit for the year, an increase of 7%, a pleasing result given the once-off positive after-tax impact of R35.9 million in the
comparative year resulting from the release of the discretionary margin.
Clientèle Life - Investment contracts
The Investment contracts operating segment reported a R4.6 million net profit for the year (2014: R13.9 million net loss). This
should be viewed in conjunction with the R19.9 million (2014: R21.7 million) of deferred profits included in the Statement of
Financial Position. The prior year net profit for the year was impacted by the fair value adjustment of R22.5 million (after-tax) to
zero coupon fixed deposits in ABL.
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal accounts for R111.4 million (2014: R85.5 million) of the Group's VNB for the year, and recorded Recurring EV
Earnings of R184.4 million (2014: R135.5 million). The segment generated a 15% increase in net profit for the year to R47.0
million (2014: R40.8 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 policyholder's 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. The Board remains
convinced that there remain attractive opportunities for growth and value creation in Clientèle's target market.
Dividend Declared
Notice is hereby given that the directors have declared a final gross dividend of 90.00 cents (2014: 78.00 cents) per share on 13
August 2015 for the year ended 30 June 2015.
The Board of Clientèle Limited confirms that the Group will satisfy the solvency and liquidity tests immediately after completion of
the dividend distribution.
The dividend will be subject to dividends tax. In accordance with the JSE Listings Requirements, the following additional
information is disclosed:
- The dividend has been declared out of income reserves;
- The local dividends tax rate is 15% (fifteen percent);
The gross local dividend amount is 90.00 cents (2014: 78.00 cents) per ordinary share for shareholders exempt from the
- dividends tax;
The net local dividend amount is 76.50 cents (2014: 66.30 cents) per ordinary share for shareholders liable to pay the
- dividends tax;
The local dividends tax amount is 13.50 cents (2014: 11.70 cents) per ordinary share for shareholders liable to pay the
- dividend withholding tax;
- No STC credits are utilised;
- Clientèle Limited currently has 330,629,599 (2014: 329,218,449) ordinary shares in issue;
Clientèle Limited's income tax reference number is 9465071166.
In compliance with the requirements of STRATE Limited, the electronic settlement and custody system used by the JSE Limited,
the following salient dates for the payment of the dividend are applicable:
Last day to trade Friday, 11 September 2015
Shares commence trading "ex" dividend Monday, 14 September 2015
Record date Friday, 18 September 2015
Payment date Monday, 21 September 2015
Share certificates may not be dematerialized or rematerialized between Monday, 14 September 2015 and Friday, 18 September
2015, both days inclusive.
By order of the Board
G Q Routledge B W Reekie
Chairman Managing Director
Johannesburg
17 August 2015
REVIEWED
Condensed Group Statement of Comprehensive Income
Year ended 30 June %
(R'000's) 2015 2014 Change
Revenue
Insurance premium revenue 1,641,189 1,406,175 17
Reinsurance premiums (114,001) (100,005)
Net insurance premiums 1,527,188 1,306,170 17
Other income 170,652 171,194
Interest income 22,759 53,169
Fair value adjustment to financial assets at fair value through profit or loss 154,889 181,556
Net income 1,875,488 1,712,089
Net insurance benefits and claims (300,499) (311,102)
Decrease in policyholder liabilities under insurance contracts 5,042 42,727
Decrease in reinsurance assets (227) (95)
Fair value adjustment to financial liabilities at fair value through profit or loss -
investment contracts (72,275) (49,184)
Interest expense (2,752) (12,393)
Impairment of advances (12,380) (31,719)
Operating expenses (990,505) (927,937) 7
Profit before tax 501,892 422,386 19
Tax (137,501) (115,870) 19
Net profit for the year 364,391 306,516 19
Attributable to:
- Non-controlling interest - ordinary shareholders 2,748 (1,295)
Equity holders of the Group - ordinary shareholders 361,643 307,811 17
Net profit for the year 364,391 306,516 19
Other comprehensive income:
Gains on property revaluation# 6,711 20,296
Income tax relating to gains on property revaluation# (1,742) (5,014)
Other comprehensive income for the year - net of tax 4,969 15,282
Total comprehensive income for the year 369,360 321,798 15
Attributable to:
- Non-controlling interest - ordinary shareholders 2,748 (1,295)
Equity holders of the Group - ordinary shareholders 366,612 323,093 13
# Items that cannot be recycled to profit or loss.
Condensed Group Statement of Financial Position
Year ended 30 June
(R'000's) 2015 2014
Assets
Intangible assets 27,088 23,461
Property and equipment 26,487 23,389
Owner-occupied properties^ 308,715 224,009
Deferred tax 31,395 25,744
Inventories 1,484 1,860
Reinsurance assets 3,015 3,242
Financial assets at fair value through profit or loss 2,051,487 2,043,394
Loans and receivables including insurance receivables 76,138 113,348
Current tax 5,258 6,317
Cash and cash equivalents 223,939 183,246
Total assets 2,755,006 2,648,010
Total equity and reserves 740,195 618,846
Liabilities
Policyholder liabilities under insurance contracts 698,882 703,924
Financial liabilities - investment contracts 942,336 1,046,721
- at fair value through profit or loss 942,336 998,337
- at amortised cost 48,384
Financial liabilities - loans at amortised cost 35,177 10,000
Employee benefits 122,308 98,423
Deferred tax 30,071 33,727
Accruals and payables including insurance payables 181,620 134,909
Current tax 4,417 1,460
Total liabilities 2,014,811 2,029,164
Total equity and liabilities 2,755,006 2,648,010
^ Owner-occupied properties are disclosed at level 2 in the fair value measurement hierarchy.
Tax
Year ended 30 June
(R'000's) 2015 2014
Current and deferred tax (129,301) (114,734)
Capital gains tax (5,811) (714)
Underprovision in prior years (2,389) (422)
Tax (137,501) (115,870)
The Individual Policyholder Fund has an estimated tax loss of R2.7 billion (2014: R2.4 billion)
Reconciliation of Net Profit to Headline Earnings
Year ended 30 June %
(R'000's) 2015 2014 Change
Net profit for the year attributable to equity holders of the Group 361,643 307,811 17
Less: Profit on disposal of property and equipment (282) (202)
Add: Impairment of intangible assets 1,234
Less: Taxation effects on loan write-off (2,037)
Headline earnings for the year 360,558 307,609 17
Ratios per Share
Year ended 30 June %
(Cents) 2015 2014 Change
Headline earnings per share 109.33 93.58 17
Diluted headline earnings per share 107.67 93.53 15
Earnings per share 109.66 93.64 17
Diluted earnings per share 107.99 93.59 15
Net asset value per share 223.87 187.97 19
Diluted net asset value per share 221.04 188.16 17
Dividends per share - paid 78.00 74.00 5
Dividends per share - declared 90.00 78.00 15
Ordinary shares in issue ('000) 330,630 329,218
Weighted average ordinary shares ('000) 329,799 328,722
Diluted average ordinary shares ('000) 334,877 328,901
Condensed Group Statement of Cash Flows
Year ended 30 June
(R'000's) 2015 2014
Cash flows from operating activities 128,721 49,245
Profit from operations adjusted for non-cash items 553,120 418,720
Working capital changes 9,350 (95,884)
Separately disclosable items(1) (61,082) (49,005)
Decrease in financial liabilities(2) (178,930) (334,158)
Net disposal of investments(3) 146,796 426,142
Interest received 44,435 30,145
Dividends received 16,647 18,860
Dividends paid (257,081) (243,030)
Tax paid (144,534) (122,545)
Cashflows from investing activities(4) (113,205) (46,010)
Cashflows from financing activities(5) 25,177
Net increase in cash and cash equivalents 40,693 3,235
Cash and cash equivalents at beginning of the year 183,246 180,011
Cash and cash equivalents at end of the year 223,939 183,246
1. Interest and dividends received
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
Segment Assets and Liabilities
Year ended 30 June
(R'000's) 2015 2014
Long-term insurance 1,653,027 1,454,656
Investment contracts 942,702 1,047,977
Short-term insurance 173,805 150,153
Other* 24,146 86,105
Inter segment (38,674) (90,881)
Total Group Assets 2,755,006 2,648,010
Long-term insurance 1,026,336 933,007
Investment contracts 942,336 1,046,721
Short-term insurance 50,328 36,085
Other* 34,485 104,232
Inter segment (38,674) (90,881)
Total Group Liabilities 2,014,811 2,029,164
* The decrease in other segment assets and liabilities relates to the decrease in advances of Clientèle Loans Direct
Notes to the Results
The results have been reviewed by the Group's external auditors, PricewaterhouseCoopers Incorporated, in terms of International
Standards on Review Engagements 2410. The scope of the review was to enable the external auditors to report that nothing
came to their attention to cause them to believe that the accompanying condensed preliminary consolidated financial information
is not presented, in all material respects, in accordance with the South African Companies Act 71 of 2008, as amended and the
JSE Limited Listings Requirements. A copy of the unqualified review opinion is available on request at the Company's registered
offices.
The condensed consolidated preliminary Financial Statements were prepared under the supervision of Mr I B Hume (CA(SA),
ACMA), the Group Financial Director.
Accounting Policies
Statement of compliance
The condensed consolidated preliminary Financial Statements are prepared in accordance with the JSE Limited Listings
Requirements for preliminary reports and the requirements of the Companies Act of South Africa. The Listings Requirements
require preliminary reports to be prepared in accordance with the framework concepts, the measurement and recognition
requirements of International Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and
must also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied
in the preparation of the condensed consolidated preliminary Financial Statements are in terms of IFRS and are consistent with
those applied in the previous consolidated Annual Financial Statements.
The preparation of the condensed consolidated preliminary Financial Statements in accordance with IFRS requires the use of
certain critical accounting estimates and judgments. The reported amounts in respect of the Group's insurance contracts,
employee benefits and unquoted financial instruments are affected by accounting estimates and judgments.
Related Party Transactions
Transactions between Clientèle Limited and its subsidiaries have been eliminated on consolidation. There were no material related
party transactions during the year except for financial assistance provided to the Group's wholly-owned subsidiary, Clientèle
Properties East in respect of the new office building development.
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.
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 R108.8 million has been capitalised since inception. It is the Group's intention that the building will be
occupied by the Group in November 2015.
Commitments and events after the reporting date
The Group intends to provide financial assistance by means of a net exposure through guarantees of R45 million for the purchase
of 3.92% of Clientèle's issued shares by Yellowwoods Trust Investments (Pty) Ltd ("YTI") a wholly owned subsidiary of the Hollard
Foundation Trust, a BBBEE Trust. This will be voted on by shareholders' at the AGM on 29 October 2015. Full details will be
provided in the Integrated Annual Report.
Financial Assets and Liabilities 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 30
June 2015.
(R'000's) Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 573,385 573,385
Unlisted equity securities 3,850 3,850
Promissory notes and fixed deposits 488,926 410,386 899,312
Funds on deposit 484,464 484,464
Fixed interest securities 85,528 4,948 90,476
Total assets 573,385 1,062,768 415,334 2,051,487
Liabilities
Financial liabilities at fair value through profit or loss 802,653 139,683 942,336
Total liabilities 802,653 139,683 942,336
Shareholders' and policyholders' linked exposure to ABL through investments in zero coupon fixed deposits of R275.7 million and
R139.7 million respectively as at 30 June 2015 have been reclassified to level 3 (from level 2) on the fair value hierarchy as
values are estimated indirectly using valuation techniques or models. The most relevant inputs to the level 3 discounted cash flow
fair value model applied to the ABL fixed deposits are the risk premium (28.3% to the average zero coupon risk free yield curve)
and the extension of maturities as announced by the ABL curator in the SENS Announcement dated 28 May 2015. The model
yields a value of approximately 90% of the face value of these fixed deposits. If the key inputs are adjusted in the valuation
models, to illustrate sensitivities, between an upper and lower range this would illustrate an adjusted face value of between 95%
and 75% respectively. The net profit before taxation would, as a result of the sensitivity illustrations, then change in a range of R15
million higher to R45 million lower, depending on the inputs used.
Segment Statements of Comprehensive Income
Inter
segment
Long-term Investment Short-term (revenue)/
(R'000's) insurance contracts insurance Other expense Total
30 June 2015
Insurance premium revenue 1,397,393 243,796 1,641,189
Reinsurance premiums (114,001) (114,001)
Net insurance premiums 1,283,392 - 243,796 - - 1,527,188
Other income 145,170 12,750 363 17,647 (5,278) 170,652
Interest income 13,777 1,018 14,088 (6,124) 22,759
Fair value adjustment to financial assets at fair value
through profit or loss 71,428 73,497 9,964 154,889
Segment revenue 1,513,767 86,247 255,141 31,735 (11,402) 1,875,488
Segment expenses and claims (1,091,975) (79,774) (190,799) (22,450) 11,402 (1,373,596)
Net insurance benefits and claims (275,677) (24,822) (300,499)
Decrease/(increase) in policyholder liabilities under
insurance contracts 5,877 (835) 5,042
Decrease in reinsurance assets (227) (227)
Fair value adjustment to financial liabilities at fair
value through profit or loss (72,275) (72,275)
Interest expense (2,270) (6,606) 6,124 (2,752)
Impairment of advances (12,380) (12,380)
Operating expenses (821,948) (5,229) (165,142) (3,464) 5,278 (990,505)
Profit before tax 421,792 6,473 64,342 9,285 - 501,892
Tax (118,172) (1,812) (17,367) (150) (137,501)
Net profit for the year 303,620 4,661 46,975 9,135 - 364,391
Attributable to:
Non-controlling interest - ordinary shareholders 2,748 2,748
Equity holders of the Group - ordinary shareholders 303,620 4,661 46,975 6,387 - 361,643
30 June 2014
Insurance premium revenue 1,211,029 195,146 1,406,175
Reinsurance premiums (99,568) (437) (100,005)
Net insurance premiums 1,111,461 - 194,709 - - 1,306,170
Other income 151,740 13,071 102 11,469 (5,188) 171,194
Interest income 14,478 916 45,636 (7,861) 53,169
Fair value adjustment to financial assets at fair value
through profit or loss 140,741 26,726 14,089 181,556
Segment revenue 1,418,420 39,797 209,816 57,105 (13,049) 1,712,089
Segment expenses and claims (1,033,869) (59,132) (154,897) (54,854) 13,049 (1,289,703)
Net insurance benefits and claims (287,212) (23,890) (311,102)
Decrease in policyholder liabilities under insurance
contracts 41,396 1,331 42,727
Decrease in reinsurance assets (95) (95)
Fair value adjustment to financial liabilities at fair
value through profit or loss (49,184) (49,184)
Interest expense (5,280) (14,974) 7,861 (12,393)
Impairment of advances (31,719) (31,719)
Operating expenses (787,958) (4,668) (132,338) (8,161) 5,188 (927,937)
Profit/(loss) before tax 384,551 (19,335) 54,919 2,251 - 422,386
Tax (101,130) 5,414 (14,155) (5,999) (115,870)
Net profit/(loss) for the year 283,421 (13,921) 40,764 (3,748) - 306,516
Attributable to:
Non-controlling interest - ordinary shareholders (1,295) (1,295)
Equity holders of the Group - ordinary shareholders 283,421 (13,921) 40,764 (2,453) - 307,811
Condensed Group Statement of Changes in Equity
SAR
and Bonus
Common Rights NDR: Non-
Share Share control Sub- Retained Schemes Reva- Sub- controlling
(R'000's) capital premium deficit total earnings reserve~ luation 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 307,811 15,282 323,093 (1,295) 321,798
- Net profit/(loss) for the year 307,811 307,811 (1,295) 306,516
- Other comprehensive income 15,282 15,282 15,282
Shares issued 24 16,636 16,660 16,660 16,660
SAR and Bonus Rights Schemes allocated 10,697 10,697 10,697
Transfer from shares issued (14,078) (2,582) (16,660) (16,660)
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 361,643 4,969 366,612 2,748 369,360
- Net profit for the year 361,643 361,643 2,748 364,391
- Other comprehensive income 4,969 4,969 4,969
Shares issued 29 24,567 24,596 24,596 24,596
SAR and Bonus Rights Schemes allocated 9,020 9,020 9,020
Transfer from shares issued (20,094) (4,502) (24,596) (24,596)
Balance as at 30 June 2015 6,613 310,185 (220,273) 96,525 552,882 27,699 66,191 743,297 (3,102) 740,195
~ SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme
~ Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme
~ 1.4 million (2014: 1.2 million) shares were issued in terms of the SAR and Bonus Rights Schemes
UNAUDITED GROUP EMBEDDED VALUE RESULTS
Group Embedded Value
The Embedded Value ("EV") represents an estimate of the value of the Group, exclusive of goodwill attributable to future new
business. The EV comprises:
- the Free Surplus; plus,
- the Required Capital identified to support the in-force business; plus,
- the Present Value of In-force ("PVIF") business; less,
- the Cost of Required Capital ("CoC").
The PVIF business is the present value of future after tax profits arising from covered business in force as at 30 June 2015.
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 business where EV Methodology has been used to determine future shareholder entitlements.
The EV calculations have been certified by the Group's independent actuaries, QED Actuaries & Consultants (Pty) Ltd. The EV
can be summarised as follows:
Year ended 30 June
(R'000's) 2015 2014
Required capital 335,208 312,387
Free surplus 387,605 287,353
Adjusted Net Worth ("ANW") of covered business 722,813 599,740
PVIF 3,952,657 3,397,262
CoC (74,170) (58,308)
EV of covered business 4,601,300 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
Year ended 30 June
(R'000's) 2015 2014
Total equity and reserves per the
Statement of Financial Position 740,195 618,846
Adjusted for deferred profits and impact of compulsory margins on investment business 11,327 12,793
Adjusted for minority interests 3,102 5,850
Adjusting subsidiaries to Net Asset Value 21,884 20,148
SAR and Bonus Rights Schemes adjustment (53,695) (57,897)
ANW 722,813 599,740
The CoC is the opportunity cost of having to hold the Required Capital of R335.2 million as at 30 June 2015 (30 June 2014:
R312.4 million). The Required Capital has been set at the greater of the Statutory Termination Capital Adequacy Requirement
(TCAR) and 1.25 times the Statutory Ordinary Capital Adequacy Requirement (OCAR) for the Life company plus the Statutory
Capital Requirement 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 Schemes.
Clientèle Life's Statutory Capital Adequacy Requirement (CAR) was calculated as the maximum of TCAR, OCAR and MCAR, with
TCAR being the highest of the three. The credit risk component of OCAR includes an amount of R90 million specifically pertaining
to the credit risk on ABL assets backing Policyholder liabilities.
Clientèle Life's Statutory CAR cover ratio at 30 June 2015 was 2.32 times (30 June 2014: 2.03 times) on the statutory valuation
basis.
Clientèle General Insurance's Statutory Capital Adequacy Requirement cover ratio at 30 June 2015 was 1.33 times (30 June
2014: 1.57 times) on the statutory valuation basis.
Value of New Business ("VNB")
Year ended 30 June
(R'000's) 2015 2014
Total VNB 717,574 638,154
Present Value of New Business premiums 2,482,780 2,319,368
New Business profit margin 28.9% 27.5%
The VNB (excluding any allowance for the Management 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 year ended 30 June 2015 less the CoC pertaining to this business.
The New Business profit margin is the VNB expressed as a percentage of the present value of future premiums (and other annuity
fee income) pertaining to the same business.
Long-term Economic Assumptions
Year ended 30 June
(%) 2015 2014
Risk discount rate 11.8 11.1
Non-unit investment return 8.3 7.6
Unit investment return 9.3 9.0
Expense inflation 6.8 6.1
Corporate tax 28.0 28.0
The risk discount rate ("RDR") has been determined using a top-down weighted average cost of capital approach, with the equity
return calculated using Capital Asset Pricing Model ("CAPM") theory. In terms of current actuarial guidance, the RDR has been set
as the risk free rate plus a beta multiplied by the assumed equity risk premium. It has been assumed that the equity risk premium
(i.e. the long-term expected difference between equity returns and the risk free rate) is 3.5%. The beta pertaining to the Clientèle
share price is relatively low, which is partially a consequence of the relatively small free-float of shares. After consideration, the
Board has decided to continue to use a more conservative beta of 1, as opposed to its actual beta of 0.013 in the calculation of
the RDR. The Board draws the reader's attention to the RDR sensitivity analysis in the table below which allows for sensitivity
comparisons using various alternative RDR's.
The resulting RDR utilised for the South African business as at 30 June 2015 was 11.8% (30 June 2014: 11.1%).
RDR Sensitivities
(R'000's) EV VNB
RDR 9.8% 5,332,103 902,672
RDR 10.8% 4,932,427 800,815
RDR 11.1% (as at June 2014) 4,826,710 774,042
RDR 11.8% 4,601,300 717,574
RDR 12.8% 4,322,874 647,370
RDR 13.8% 4,085,615 588,226
EV per Share
Year ended 30 June
(Cents) 2015 2014
EV per share 1,391.68 1,196.38
Diluted EV per share 1,370.63 1,195.73
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
30 June 2015
SA - Long-term insurance 609,521 3,306,547 (53,314) 3,862,754
SA - Short-term insurance 120,532 639,592 (20,856) 739,268
SA - Investment contracts - 2,629 - 2,629
Other (7,240) 3,889 - (3,351)
Total 722,813 3,952,657 (74,170) 4,601,300
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:
Year ended 30 June
(R'000's) 2015 2014
SA - Long-term insurance 602,313 550,551
SA - Short-term insurance 111,360 85,507
SA - Investment contracts 3,037 745
Other 864 1,351
Total 717,574 638,154
Embedded Value Earnings Analysis
EV earnings (per APN 107) comprises the change in EV for the year after adjusting for capital movements and dividends paid.
Year ended 30 June 2015 Year ended
30 June 2014
(R'000's) ANW PVIF CoC EV EV
A: EV at the end of the year 722,813 3,952,657 (74,170) 4,601,300 3,938,694
EV at the beginning of the year 599,740 3,397,262 (58,308) 3,938,694 3,546,640
Ordinary dividends (257,031) - - (257,031) (243,069)
B: Adjusted EV at the beginning of the year 342,709 3,397,262 (58,308) 3,681,663 3,303,572
EV earnings (A - B) 380,104 555,395 (15,862) 919,637 635,122
Impact of once-off economic assumption changes (1,628) 171,997 7,636 178,005 139,436
Impact of other once-off items - - - - 30,718
Recurring EV earnings 378,476 727,392 (8,226) 1,097,642 805,276
Recurring Return on EV 29.8% 24.4%
Return on EV 25.0% 19.2%
Components of EV earnings
VNB (250,093) 976,333 (8,665) 717,574 638,154
Expected return on covered business - 404,319 6,973 411,292 344,233
Expected profit transfer 617,648 (617,648) - - -
Withdrawal and unpaid premium experience variance (2,452) 23,312 (1,843) 19,017 (16,975)
Claims and reinsurance experience variance (3,416) - - (3,416) (2,259)
Sundry experience variance 4,233 (66) - 4,167 5,212
Changes in modelling/basis and non-economic assumptions 11,012 (38,272) (4,691) (31,951) (144,313)
Expected return on ANW 34,987 - - 34,987 29,385
SAR and Bonus Rights Scheme 13,221 - - 13,221 (25,078)
Goodwill and Medium-term incentive schemes (47,912) (20,586) - (68,498) (63,827)
EV operating return 377,228 727,392 (8,226) 1,096,394 764,532
Investment return variances on ANW 1,248 - - 1,248 40,744
Recurring EV earnings 378,476 727,392 (8,226) 1,097,642 805,276
Effect of economic assumption changes 1,628 (171,997) (7,636) (178,005) (139,436)
Impact of other once-off items - - - - (30,718)
EV earnings 380,104 555,395 (15,862) 919,637 635,122
website: www.clientele.co.za e-mail: results@clientele.co.za
Registered office: Clientèle Office Park, Cnr Rivonia and Alon Roads, Morningside 2196, South Africa
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
Sponsor:
PricewaterhouseCoopers Corporate Finance Proprietary Limited
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