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CLIENTELE LIMITED - Condensed Preliminary Group Results for the year ended 30 June 2016

Release Date: 15/08/2016 17:00
Code(s): CLI     PDF:  
Wrap Text
Condensed  Preliminary Group Results for the year ended 30 June 2016

Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438


Condensed Preliminary Group results for the year ended 30 June 2016

Net insurance premium increased by 13% to R1.7 billion
Diluted headline earnings per share increased by 14% to 122.99 cents
Return on average shareholders' interest of 55%
Dividend declared per share increased by 11% to 100 cents
Recurring Embedded Value Earnings of R1 billion
Value of New Business of R660 million
Recurring Return on Embedded Value of 23%


Comments
Introduction

The current challenging economic environment, with flat GDP growth in 2016, continues to negatively affect Clientèle's target market. Marginally lower
new business volumes for the year and higher withdrawals than expected in the second half of the year, have impacted the Clientèle Group ("The
Group") results for the year. At the same time investment markets have been, and continue to be, characterised by volatility and poor returns. The
increase in the risk discount rate ("RDR") since June 2015 has also negatively impacted the Group Embedded Value ("EV") results. Taking into account
these factors, the Board is satisfied with the results that the Group has managed to achieve this year.


Operating Results
Group Statement of Comprehensive Income

Net insurance premiums increased by 13% to R1.7 billion, on the back of the production of good quality business in recent years and higher average
premiums on new business, with a consequent diluted headline earnings per share increase of 14% on last year.

Net insurance benefits and claims of R325.8 million (2015: R300.5 million) were 8% higher than the previous year.

Investment returns of R120.9 million (2015: R154.9 million) were 22% down on last year but were nevertheless better than the return on the ALSI.

Headline earnings for the Group increased by 14% to R410.6 million (2015: R360.6 million) which has resulted in a return on average shareholders'
interest of 55% (2015: 56%).

The dividend declared per share increased by 11% to 100.00 cents (2015: 90.00 cents).


Group Embedded Value and Value of New Business

The higher withdrawals and an increase in reinsurance rates together with an increase in the RDR negatively impacted our increase in Group EV which
nevertheless increased from R4.6 billion to R5.2 billion. Recurring Embedded Value Earnings ("REVE") were also impacted and reduced by 9% to 
R1 billion (2015: R1.1 billion).

The Value of New Business ("VNB") has been negatively impacted by the increase in the RDR to 12.1% (2015:11.8%) and this, together with the
factors referred to above have resulted in a decrease in VNB of 8% to R660.3 million (2015: a record R717.6 million).

New business profit margins have declined to 26.5% (2015: 28.9%).

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 R2.8 billion (2015: R2.5 billion).

The RDR 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 the Group's performance. It accounts for 78% (2015: 84%) or R517.0
million (2015: R602.3 million) of the Group's R660.3 million (2015: R717.6 million) VNB and recorded REVE of R763.3 million (2015: R911.4 million) for
the year. The segment generated R342.5 million (2015: R303.6 million) net profit for the year, an increase of 13%.


Clientèle General Insurance (Clientèle Legal) - Short-term insurance

Clientèle Legal's VNB of R138.5 million (2015: R111.4 million) increased by 24% due to good quality new business volumes for most of the year.
Clientèle Legal recorded REVE of R232.4 million (2015: R184.4 million), a commendable increase of 26%, and generated an 18% increase in net profit
for the year to R55.6 million (2015: R47.0 million).

Clientèle Loans Direct

The entire Clientèle Loans Direct (Pty) Ltd ("CLD") book consisting of all advances written up to 15 February 2013 has been sold and has resulted in a
reversal of previous impairments.

Advances subsequent to 16 February 2013 were concluded by way of a Profit Sharing Arrangement ("PSA") with WesBank (a division of FirstRand
Bank Limited) and Direct Axis (SA) (Pty) Ltd. These unsecured personal loans are on WesBank's statement of financial position and Clientèle will share
in profits when the PSA is in a cumulative net profit position.


Outlook

Management's immediate focus is on managing the recent increase in withdrawals with the aim of returning these to expected levels. The Board is
solidly behind Management in this endeavour and will continue to focus on a deeper understanding of customer needs and behaviour, customer
service and the production of quality and sustainable business.

The Group is committed to providing products that are relevant and meet 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 are attractive opportunities for growth and value creation in the Group's target market.


Dividend Declared

Notice is hereby given that the Directors have declared a final gross dividend of 100.00 cents (2015: 90.00 cents) per share on 11 August 2016 for the
year ended 30 June 2016.

The Board 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 100.00 cents (2015: 90.00 cents) per ordinary share for shareholders exempt from the dividends tax;
- The net local dividend amount is 85.00 cents (2015: 76.50 cents) per ordinary share for shareholders liable to pay the dividends tax;
- The local dividends tax amount is 15.00 cents (2015: 13.50 cents) per ordinary share for shareholders liable to pay the dividend withholding tax;

Clientèle Limited currently has 331,805,999 (2015: 330,629,599) 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                                   Tuesday, 13 September 2016
Shares commence trading "ex" dividend               Wednesday, 14 September 2016
Record date                                         Friday, 16 September 2016
Payment date                                        Monday, 19 September 2016


Share certificates may not be dematerialised or rematerialised between Wednesday, 14 September 2016 and Friday, 16 September 2016, both days
inclusive.

By order of the Board

G Q Routledge                                       B W Reekie
Chairman                                            Managing Director


Johannesburg
15 August 2016


Reviewed

Condensed Group Statement of Comprehensive Income
                                                                                                            Year ended 30 June               %
(R'000's)                                                                                                  2016             2015        Change
Revenue
Insurance premium revenue                                                                             1,852,516        1,641,189            13
Reinsurance premiums                                                                                   (126,525)        (114,001)
Net insurance premiums                                                                                1,725,991        1,527,188            13
Other income                                                                                            157,495          170,652
Interest income                                                                                          21,209           22,759
Fair value adjustment to financial assets at fair value through profit or loss                          120,916          154,889
Net income                                                                                            2,025,611        1,875,488
Net insurance benefits and claims                                                                      (325,777)        (300,499)
Decrease in policyholder liabilities under insurance contracts                                            8,780            5,042
Decrease in reinsurance assets                                                                             (226)            (227)
Fair value adjustment to financial liabilities at fair value through profit or loss - investment
contracts                                                                                               (90,401)         (72,275)
Interest expense                                                                                         (4,135)          (2,752)
Reversal of impairment/(impairment of advances)                                                          12,349          (12,380)
Operating expenses                                                                                   (1,061,901)        (990,505)            7
Profit before tax                                                                                       564,300          501,892            12
Tax                                                                                                    (149,579)        (137,501)            9
Net profit for the year                                                                                 414,721          364,391            14
Attributable to:
- Non-controlling interest - ordinary shareholders                                                        4,235            2,748
Equity holders of the Group - ordinary shareholders                                                     410,486          361,643            14
Net profit for the year                                                                                 414,721          364,391            14
Other comprehensive income:
Gains on property revaluation#                                                                            8,727            6,711
Income tax relating to gains on property revaluation#                                                    (9,544)*         (1,742)
Other comprehensive income for the year - net of tax                                                       (817)           4,969
Total comprehensive income for the year                                                                 413,904          369,360            12
Attributable to:
- Non-controlling interest - ordinary shareholders                                                        4,235            2,748
Equity holders of the Group - ordinary shareholders                                                     409,669          366,612            12

# Items that cannot be recycled to profit or loss
* The increase is primarily in respect of the difference in accounting and tax treatment of the new office development



Condensed Group Statement of Financial Position
                                                                                                            Year ended 30 June
(R'000's)                                                                                                  2016             2015
Assets
Intangible assets                                                                                        36,435           27,088
Property and equipment                                                                                   47,509           26,487
Owner-occupied properties^                                                                              408,651          308,715
Deferred tax                                                                                             45,666           31,395
Inventories                                                                                               1,148            1,484
Reinsurance assets                                                                                        2,789            3,015
Financial assets at fair value through profit or loss                                                 1,854,928        2,051,487
Financial assets at amortised cost+                                                                     264,023
Loans and receivables including insurance receivables                                                    44,396           76,138
Current tax                                                                                               1,459            5,258
Cash and cash equivalents                                                                               209,848          223,939
Total assets                                                                                          2,916,852        2,755,006
Total equity and reserves                                                                               865,548          740,195
Liabilities
Policyholder liabilities under insurance contracts                                                      690,102          698,882
Financial liabilities at fair value through profit or loss - investment contracts                       909,819          942,336
Financial liabilities - loans at amortised cost ~                                                        98,932           35,177
Employee benefits                                                                                       139,586          122,308
Deferred tax                                                                                             38,977           30,071
Accruals and payables including insurance payables                                                      168,469          181,620
Current tax                                                                                               5,419            4,417
Total liabilities                                                                                     2,051,304        2,014,811
Total equity and liabilities                                                                          2,916,852        2,755,006

^ Owner-occupied properties are disclosed at level 3 in the fair value measurement hierarchy
+ Zero coupon fixed deposits held in African Bank Limited ("Old Bank") were exchanged for new fixed deposits in new ABL ("Good Bank") on 04 April
  2016 (restructuring date). These have been classified as financial assets at amortised cost. The fair value approximates amortised cost. In the prior year
  the assets were held at fair value through profit or loss and disclosed at level 3 in the fair value measurement hierarchy
~ The increase in loans at amortised cost relates to financing of owner-occupied property

Tax
                                                                                                            Year ended 30 June
                                                                                                           2016             2015
(R'000's)
Current and deferred tax                                                                               (146,708)        (129,301)
Capital gains tax                                                                                        (2,400)          (5,811)
Underprovision in prior years                                                                              (471)          (2,389)
Tax                                                                                                    (149,579)        (137,501)
The Individual Policyholder Fund has an estimated tax loss of R2.8 billion (2015: R2.7 billion)



Reconciliation of Net Profit to Headline Earnings
                                                                                                            Year ended 30 June               %                                                                                                                                             
(R'000's)                                                                                                  2016             2015        Change
Net profit for the year attributable to equity holders of the Group                                     410,486          361,643            14
Add/(Less): Loss/(Profit) of disposal of property and equipment                                              81             (282)
Add: Impairment of intangible assets                                                                                       1,234
Less: Taxation effects on loan write-off                                                                                  (2,037)
Headline earnings for the year                                                                          410,567          360,558            14



Ratios per Share
                                                                                                            Year ended 30 June               %                                                                                                                                             
(Cents)                                                                                                    2016             2015        Change
Headline earnings per share                                                                              124.00           109.33            13
Diluted headline earnings per share                                                                      122.99           107.67            14
Earnings per share                                                                                       123.98           109.66            13
Diluted earnings per share                                                                               122.97           107.99            14
Net asset value per share                                                                                260.86           223.87            17
Diluted net asset value per share                                                                        259.29           221.04            17
Dividends per share - paid                                                                                90.00            78.00            15
Dividends per share - declared                                                                           100.00            90.00            11
Ordinary shares in issue ('000)                                                                         331,806          330,630
Weighted average ordinary shares ('000)                                                                 331,093          329,799
Diluted average ordinary shares ('000)                                                                  333,809          334,877
Condensed Group Statement of Cash Flows
                                                                                                            Year ended 30 June
(R'000's)                                                                                                  2016             2015
Cash flows from operating activities                                                                     73,061          128,721
Profit from operations adjusted for non-cash items                                                      645,910          553,120
Working capital changes                                                                                 (51,906)           9,350
Separately disclosable items1                                                                           (99,959)         (61,082)
Decrease in financial liabilities2                                                                     (122,918)        (178,930)
Net disposal of investments3                                                                             59,375          146,796
Interest received                                                                                        63,421           44,435
Dividends received                                                                                       36,538           16,647
Dividends paid                                                                                         (297,713)        (257,081)
Tax paid                                                                                               (159,687)        (144,534)
Cash flows from investing activities4                                                                  (146,854)        (113,205)
Cash flows from financing activities5                                                                    59,702           25,177
Net (decrease)/increase in cash and cash equivalents                                                    (14,091)          40,693
Cash and cash equivalents at beginning of the year                                                      223,939          183,246
Cash and cash equivalents at end of the year                                                            209,848          223,939

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)                                                                                                  2016             2015
Long-term insurance                                                                                   1,791,430        1,653,027
Investment contracts                                                                                    910,647          942,702
Short-term insurance                                                                                    216,278          173,805
Other*                                                                                                    6,749           24,146
Inter segment                                                                                            (8,252)         (38,674)
Total Group Assets                                                                                    2,916,852        2,755,006
Long-term insurance                                                                                   1,085,912        1,026,336
Investment contracts                                                                                    909,819          942,336
Short-term insurance                                                                                     60,852           50,328
Other*                                                                                                    2,973           34,485
Inter segment                                                                                            (8,252)         (38,674)
Total Group Liabilities                                                                               2,051,304        2,014,811

* The decrease in other segment assets and liabilities is as a result of the disposal of the CLD advances book



Notes to the Results

These condensed consolidated financial results for the year ended 30 June 2016 have been reviewed, in terms of International Standards on Review
Engagements, (ISRE 2410), by PricewaterhouseCoopers Inc., who expressed an unmodified review conclusion. A copy of the auditor's review report is
available for inspection at the company's registered office together with the financial results identified in the auditor's report.

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.

There was no major impact due to changes in previous assumptions and estimates used in deriving the amounts referred to above.


Changes to the Board

Messrs B Y Mkhondo and D Molefe were appointed as Non-Executive Directors on 01 January 2016 and 01 March 2016 respectively.
Mr G J Soll retired as a Non-Executive Director and Vice Chairman with effect 31 August 2016.


Capital and Other Commitments

The Group's wholly owned subsidiaries, Clientèle Properties East and Clientèle Properties North completed the new office building and parking
structure development within the Clientèle Office Park. The capitalised costs since inception amounted to R213 million of which R114 million was
guaranteed by Clientèle Limited.

Clientèle Limited has provided financial assistance by means of a net exposure through guarantees of R45 million for the purchase of approximately
3.92% of Clientèle's issued shares ("Ordinary Shares") by Yellowwoods Trust Investments (Pty) Ltd ("YTI") a wholly owned subsidiary of the Hollard
Foundation Trust, a BBBEE Trust.


Events After the Reporting Date

Clientèle Limited intends to provide further financial assistance through the issuance of a guarantee in the amount of R223 million (with a net unhedged
exposure of R155 million) in respect of additional Ordinary Shares which YTI has purchased or will purchase, the majority of which have already been
purchased. This will be voted on by shareholders at the next Annual General Meeting. 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 2016.


(R'000's)                                                                               Level 1        Level 2      Level 3      Total
Assets
Listed equity securities                                                                505,416                                505,416
Unlisted equity securities                                                                               3,850                   3,850
Promissory notes and fixed deposits                                                                    575,128      147,895    723,023
Funds on deposit                                                                                       532,141                 532,141
Fixed interest securities                                                                               47,256        3,893     51,149
Government and public authority bonds                                                                   39,349                  39,349
Total assets                                                                            505,416      1,197,724      151,788  1,854,928
Liabilities

Financial liabilities at fair value through profit or loss                                             761,924      147,895    909,819
Total liabilities                                                                             -        761,924      147,895    909,819


Policyholders' linked exposure to ABL through investments in zero coupon fixed deposits of R147.9 million as at 30 June 2016 are disclosed at level 3
on the fair value hierarchy as values are estimated indirectly using valuation techniques or models. Key inputs include the zero coupon risk free yield
curve.


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 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 Direct).
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         Total
30 June 2016
Insurance premium revenue                                                             1,550,567                     301,949                              1,852,516
Reinsurance premiums                                                                   (126,525)                                                          (126,525)
Net insurance premiums                                                                1,424,042              -      301,949          -             -     1,725,991
Other income                                                                            150,012          9,351          498      3,968        (6,334)      157,495
Interest income                                                                          19,284                       1,394      2,184        (1,653)       21,209
Fair value adjustment to financial assets at fair value through profit or loss           22,160         90,401        8,355                                120,916
Segment revenue                                                                       1,615,498         99,752      312,196      6,152        (7,987)    2,025,611
Segment expenses and claims                                                          (1,147,067)       (96,335)    (235,300)     9,404         7,987    (1,461,311)
Net insurance benefits and claims                                                      (292,741)                    (33,036)                              (325,777)
Decrease/(increase) in policyholder liabilities under insurance contracts                10,314                      (1,534)                                 8,780
Decrease in reinsurance assets                                                             (226)                                                              (226)
Fair value adjustment to financial liabilities at fair value through profit or loss                    (90,401)                                            (90,401)
Interest expense                                                                         (4,052)                                (1,736)        1,653        (4,135)
Reversal of impairment of advances                                                                                              12,349                      12,349
Operating expenses                                                                     (860,362)        (5,934)    (200,730)    (1,209)        6,334    (1,061,901)
Profit before tax                                                                       468,431          3,417       76,896     15,556             -       564,300
Tax                                                                                    (125,933)          (957)     (21,252)    (1,437)                   (149,579)
Net profit for the year                                                                 342,498          2,460       55,644     14,119             -       414,721
Attributable to:
Non-controlling interest - ordinary shareholders                                                                                 4,235                       4,235
Equity holders of the Group - ordinary shareholders                                     342,498          2,460       55,644      9,884             -       410,486
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

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 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
Balance as at 1 July 2015                                 6,613   310,185   (220,273)    96,525   552,882    27,699    66,191    743,297       (3,102)     740,195
Ordinary dividends                                                                               (297,759)                      (297,759)                 (297,759)
Total comprehensive income                                                                        410,486                (817)   409,669        4,235      413,904
- Net profit for the year                                                                         410,486                        410,486        4,235      414,721
- Other comprehensive income                                                                                             (817)      (817)                     (817)
Shares issued                                                23    18,690                18,713                                   18,713                    18,713
SAR and Bonus Rights Schemes allocated                                                                        9,208                9,208                     9,208
Transfer from shares issued                                                                       (10,330)   (8,383)             (18,713)                  (18,713)
Balance as at 30 June 2016                                6,636   328,875   (220,273)   115,238   655,279    28,524     65,374   864,415        1,133      865,548

* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme
* 1.2 million (2015: 1.4 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 2016.

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)                                                                                 2016         2015
Required capital                                                                       377,076      335,208
Free surplus                                                                           495,969      387,605
Adjusted Net Worth ("ANW") of covered business                                         873,045      722,813
CoC                                                                                    (83,190)     (74,170)
PVIF                                                                                 4,440,788    3,952,657
EV of covered business                                                               5,230,643    4,601,300


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)                                                                                 2016         2015
Total equity and reserves per the Statement of Financial Position                      865,548      740,195
Adjusted for deferred profits and impact of compulsory margins on
investment business                                                                     11,820       11,327
Adjusted for minority interests                                                         (1,133)       3,102
Adjusting subsidiaries to Net Asset Value                                               31,427       21,884
SAR and Bonus Rights Schemes adjustment                                                (34,617)     (53,695)
ANW                                                                                    873,045      722,813


The CoC is the opportunity cost of having to hold the Required Capital of R377.1 million as at 30 June 2016 (30 June 2015: R335.2 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.

Clientèle Life's Statutory CAR cover ratio at 30 June 2016 was 2.35 times (30 June 2015: 2.32 times) on the statutory valuation basis.

Clientèle General Insurance's Statutory Capital Adequacy Requirement cover ratio at 30 June 2016 was 1.35 times (30 June 2015: 1.33 times) on the
statutory valuation basis.


Value of New Business ("VNB")

                                                                                         Year ended 30 June
(R'000's)                                                                                 2016         2015
Total VNB                                                                              660,328      717,574
Present Value of New Business premiums                                               2,488,674    2,482,780
New Business profit margin                                                               26.5%        28.9%


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 2016 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
(%)                                                                                       2016         2015
Risk discount rate                                                                        12.1         11.8
Non-unit investment return                                                                 8.6          8.3
Unit investment return                                                                     9.8          9.3
Expense inflation                                                                          7.1          6.8
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 0.0812 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 2016 was 12.1% (30 June 2015: 11.8%).


RDR Sensitivities

(R'000's)                                                                                   EV          VNB
RDR 10.1%                                                                            6,021,044      836,915
RDR 11.1%                                                                            5,596,384      740,258
RDR 11.8% (as at June 2015)                                                          5,341,679      682,357
RDR 12.1%                                                                            5,230,643      660,328
RDR 13.1%                                                                            4,940,989      591,335
RDR 14.1%                                                                            4,683,275      532,802



EV per Share

                                                                                       Year ended 30 June
(Cents)                                                                                   2016         2015
EV per share                                                                          1,576.42     1,391.68
Diluted EV per share                                                                  1,563.62     1,370.63


Segment Information

The EV can be split between segments as follows:

(R'000's)                                                         ANW          PVIF        CoC           EV
30 June 2016
SA - Long-term insurance                                      717,911     3,626,886    (54,990)   4,289,807
SA - Short-term insurance                                     152,490       810,689    (28,200)     934,979
SA - Investment contracts                                           -         3,213          -        3,213
Other                                                           2,644             -          -        2,644
Total                                                         873,045     4,440,788    (83,190)   5,230,643
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



The VNB can be split between segments as follows:

                                                                Year ended 30 June
(R'000's)                                                        2016          2015
SA - Long-term insurance                                      517,003       602,313
SA - Short-term insurance                                     138,545       111,360
SA - Investment contracts                                       3,090         3,037
Other                                                           1,690           864
Total                                                         660,328       717,574


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 2016                Year ended
                                                                                                             30 June 2015
(R'000's)                                                         ANW          PVIF         CoC           EV           EV
A: EV at the end of the year                                  873,045     4,440,788     (83,190)   5,230,643    4,601,300
EV at the beginning of the year                               722,813     3,952,657     (74,170)   4,601,300    3,938,694
Ordinary dividends                                           (297,759)            -           -     (297,759)    (257,031)
B: Adjusted EV at the beginning of the year                   425,054     3,952,657     (74,170)   4,303,541    3,681,663
EV earnings (A - B)                                           447,991       488,131      (9,020)     927,102      919,637
Impact of once-off economic assumption changes                 (6,474)       77,208       4,650       75,384      178,005
Recurring EV earnings                                         441,517       565,339      (4,370)   1,002,486    1,097,642
Recurring Return on EV                                                                                 23.3%        29.8%
Return on EV                                                                                           21.5%        25.0%
Components of EV earnings
VNB                                                          (290,897)      963,021     (11,796)     660,328      717,574
Expected return on covered business                                 -       489,057       9,076      498,133      411 292
Expected profit transfer                                      735,344      (735,344)          -            -            -
Withdrawal and unpaid premium experience variance              (2,604)      (46,038)     (1,751)     (50,393)      19,017
Claims and reinsurance experience variance                     (5,499)            -           -       (5,499)      (3,416)
Sundry experience variance                                      5,699          (623)          -        5,076        4,167
Changes in modelling/basis and non-economic assumptions         1,768      (134,235)        101     (132,366)     (31,951)
Expected return on ANW                                         47,899             -           -       47,899       34,987
SAR and Bonus Rights Schemes                                    28,286             -           -       28,286       13,221
Goodwill and Medium-term incentive schemes                    (50,231)       29,501           -      (20,730)     (68,498)
EV operating return                                           469,765       565,339      (4,370)   1,030,734    1,096,394
Investment return variances on ANW                            (28,248)            -           -      (28,248)       1,248
Recurring EV earnings                                         441,517       565,339      (4,370)   1,002,486    1,097,642
Effect of economic assumption changes                           6,474       (77,208)     (4,650)     (75,384)    (178,005)
EV earnings                                                   447,991       488,131      (9,020)     927,102      919,637


Registered office: Clientèle Office Park, Cnr Rivonia and Alon Roads, Morningside, Johannesburg 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

Sponsor: PricewaterhouseCoopers Corporate Finance Proprietary Limited

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 Y Mkhondo BCom, MBA; D Molefe
MCom, CA(SA); 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: results@clientele.co.za

Date: 15/08/2016 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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