Wrap Text
Condensed unaudited group results for the six months ended 31 December 2016
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Condensed unaudited group results
For the six months ended 31 December 2016
Diluted headline earnings per share increased by 10% to 66.45 cents
Net insurance premiums increased by 7% to R924.7 million
Annualised return on average shareholders' interest of 55%
Value of New Business of R246.7 million
Recurring Embedded Value Earnings of R340.0 million
Annualised Recurring Return on Embedded Value of 13.9%
Comments
Introduction
The ongoing challenging economic environment continues to negatively affect Clientèle Limited's ("Clientèle's") target market. New business
volumes for the period, although slightly higher than the comparative period, were below expectation. This together with withdrawals which
were higher than assumption have impacted the Clientèle Group ("The Group") results for the period. Investment markets continue to be
characterised by volatility and poor returns.
Operating Results
Group Statement of Comprehensive Income
Net insurance premiums increased by 7% to R924.7 million driven by the prior periods' production and higher average premiums. Expenses,
which increased by 5%, were well controlled, and this, together with the increase in net premium income contributed to diluted headline
earnings per share increasing by 10% to 66.45 cents compared to 60.50 cents achieved for the same period last year.
Net insurance benefits and claims of R172.9 million (2015: R156.2 million) were 11% higher than the comparative period.
Investment returns of R35.5 million (2015: R13.4 million), although 165% higher than the comparative period's return and better than the
return on the ALSI of negative 1.6% over this period were, nevertheless, disappointing.
Headline earnings for the Group increased by 9% to R222.2 million (2015: R203.1 million) which has resulted in an annualised return on
average shareholders' interest of 55% (2015: 58%).
Group Embedded Value and Value of New Business
The higher withdrawals and subdued production have negatively impacted Recurring Embedded Value Earnings ("REVE") which reduced by
27% to R340.0 million (2015: R463.6 million). The Group Embedded Value ("EV") increased to R5.2 billion from R4.4 billion at 31 December
2015.
The Value of New Business ("VNB") has been negatively impacted by the factors referred to above which, offset to some extent by a reduction
in the risk discount rate ("RDR"), has resulted in a decrease in VNB of 18% to R246.7 million (2015: R300.9 million).
New business profit margins have also declined to 19.2% (2015: 26.1%).
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 R2.9 billion (2015:
R2.5 billion).
These results should be viewed in the context of the RDR of 12.3% p.a., compared to 13.4% p.a. at December 2015, and 12.1% p.a. at
June 2016. 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. Its VNB accounts for 74% (2015:
77%) of the Group's VNB or R183.7 million (2015: R232.2 million), a decrease of 21% from the comparative period. It recorded REVE of
R282.4 million (2015: R345.8 million) for the period, a decrease of 18%. The segment generated R191.8 million (2015: R175.1 million) net
profit for the period, an increase of 10%.
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal's VNB of R60.5 million (2015: R66.7 million) decreased by 9% mainly due to withdrawal experience which was higher than
assumption for the period. The withdrawal experience also impacted its REVE of R60.2 million (2015: R116.6 million), a decrease of 48%.
Nevertheless, net profit for the period increased to R30.0 million (2015: R25.1 million), an increase of 20% on the back of strong new business
in prior periods.
Outlook
Management's immediate focus is on reducing withdrawals and increasing production volumes, with the aim of returning these to expected
levels. The majority of the increase in withdrawals is due to an increase in spurious debit order disputes by policyholders. Clientèle is engaged
in positive and constructive discussions with the Payments Association of South Africa ("PASA"), the Association for Savings and Investment
South Africa ("ASISA") and individual Banks in this regard to achieve an outcome which is in the best interests of policyholders and Clientèle.
Management has taken action and will continue to address the production volumes which are largely within Management's influence and
control. The Board supports Management in this endeavour as they continue to focus on a deeper understanding of customer's needs,
personal circumstances and behaviour, together with maintaining high customer service levels and the production of quality and sustainable
business.
During the period Clientèle launched an agency distribution channel and a broker distribution channel and is encouraged by the progress to
date.
The Group remains 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 is convinced that there remain attractive opportunities for growth and value creation in the Group's target
market.
By order of the Board
G Q Routledge B W Reekie
Chairman Managing Director
Sandton
20 February 2017
Condensed Group Statement of Comprehensive Income
Six months Audited
ended Year ended
31 December 30 June
2016 2015 %
(R'000's) Actual Actual Change 2016
Revenue
Insurance premium revenue 989,545 921,408 7 1,852,516
Reinsurance premiums (64,806) (59,191) (126,525)
Net insurance premiums 924,739 862,217 7 1,725,991
Other income 77,436 81,801 157,495
Interest income 19,287 8,370 21,209
Fair value adjustment to financial assets at fair value through profit or loss 35,500 13,381 120,916
Net income 1,056,962 965,769 9 2,025,611
Net insurance benefits and claims (172,868) (156,180) (325,777)
Decrease in policyholder liabilities under insurance contracts 20,312 16,757 8,780
Decrease in reinsurance assets (78) (161) (226)
Fair value adjustment to financial liabilities at fair value through profit or loss -
investment contracts (37,579) (20,697) (90,401)
Interest expense (4,863) (50) (4,135)
Reversal of impairment 65 1,541 12,349
Operating expenses (553,393) (526,736) 5 (1,061,901)
Profit before tax 308,558 280,243 10 564,300
Tax (86,161) (76,617) (149,579)
Net profit for the period 222,397 203,626 9 414,721
Attributable to:
Non-controlling interest - ordinary shareholders 58 672 4,235
Equity holders of the Group - ordinary shareholders 222,339 202,954 10 410,486
Net profit for the period 222,397 203,626 9 414,721
Other comprehensive income:
Gains on property revaluation# 8,727
Income tax relating to gains on property revaluation (9,544)
Other comprehensive income for the period - net of tax - - (817)
Total comprehensive income for the period 222,397 203,626 9 413,904
Attributable to:
Non-controlling interest - ordinary shareholders 58 672 4,235
Equity holders of the Group - ordinary shareholders 222,339 202,954 10 409,669
# Items that cannot be recycled to profit or loss.
Condensed Group Statement of Financial Position
Audited
31 December 30 June
(R'000's) 2016 2015 2016
Assets
Intangible assets 37,238 26,897 36,435
Property and equipment 47,151 41,762 47,509
Owner-occupied properties^ 410,752 392,139 408,651
Deferred tax 37,797 33,079 45,666
Inventories 2,080 1,999 1,148
Reinsurance assets 2,711 2,854 2,789
Financial assets held at fair value through profit or loss 1,611,044 1,841,809 1,854,928
Financial assets at amortised cost** 276,426 - 264,023
Loans and receivables including insurance receivables 40,935 52,181 44,396
Current tax 3,991 269 1,459
Cash and cash equivalents 255,389 244,159 209,848
Total assets 2,725,514 2,637,148 2,916,852
Total equity and reserves 761,835 650,819 865,548
Liabilities
Policyholder liabilities under insurance contracts 669,789 682,125 690,102
Financial liabilities at fair value through profit or loss - investment contracts 882,048 905,300 909,819
Financial liabilities - loans at amortised cost* 113,076 93,999 98,932
Employee benefits 81,965 104,978 139,586
Deferred tax 35,904 25,574 38,977
Accruals and payables including insurance payables 174,178 160,473 168,469
Current tax 6,719 13,880 5,419
Total liabilities 1,963,679 1,986,329 2,051,304
Total equity and liabilities 2,725,514 2,637,148 2,916,852
^ Owner-occupied properties are disclosed at level 3 in the fair value measurement hierarchy.
Zero coupon fixed deposits held in African Bank Limited 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 properties.
Tax
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2016 2015 2016
Current and deferred tax (85,420) (74,666) (146,708)
Capital gains tax (741) (1,951) (2,400)
Underprovision in prior periods - - (471)
Tax (86,161) (76,617) (149,579)
The Individual Policyholder Fund has an estimated tax loss of R2.8 billion (2015: R2.9 billion)
Reconciliation of Net Profit to Headline Earnings
Six months Audited
ended Year ended
31 December 30 June
%
(R'000's) 2016 2015 Change 2016
Net profit for the period attributable to equity holders of the Group 222,339 202,954 10 410,486
(Less)/Add : (Profit)/Loss on disposal of property and equipment (173) 108 81
Headline earnings for the period 222,166 203,062 9 410,567
Ratios per Share
Six months Audited
ended Year ended
31 December 30 June
%
(Cents) 2016 2015 Change 2016
Headline earnings per share 66.94 61.40 9 124.00
Diluted headline earnings per share 66.45 60.50 10 122.99
Earnings per share 67.00 61.36 9 123.98
Diluted earnings per share 66.50 60.47 10 122.97
Net asset value per share 229.38 196.58 17 260.86
Diluted net asset value per share 227.88 193.90 17 259.29
Dividends per share - paid 100.00 90.00 11 90.00
Dividends per share - declared - - 100.00
Ordinary shares in issue ('000) 332,122 331,075 331,806
Weighted average ordinary shares ('000) 331,870 330,739 331,093
Diluted average ordinary shares ('000) 334,320 335,644 333,809
Condensed Group Statement of Cash Flows
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2016 2015 2016
Cash flows from operating activities 53,131 71,363 73,061
Profit from operations adjusted for non-cash items 324,720 341,719 645,910
Working capital changes (71,230) (69,629) (51,906)
Separately disclosable items 1 (46,485) (37,249) (99,959)
Decrease in financial liabilities 2 (65,350) (57,733) (122,918)
Net disposal of investments 3 279,384 223,059 59,375
Interest received 38,377 30,072 63,421
Dividends received 8,108 7,177 36,538
Dividends paid (331,796) (297,707) (297,713)
Tax paid (82,597) (68,346) (159,687)
Cash flows from investing activities 4 (16,870) (109,965) (146,854)
Cash flows from financing activities 5 9,280 58,822 59,702
Net increase/(decrease) in cash and cash equivalents 45,541 20,220 (14,091)
Cash and cash equivalents at beginning of the period 209,848 223,939 223,939
Cash and cash equivalents at end of the period 255,389 244,159 209,848
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.
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
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.
Capital and Other Commitments
During the 2016 financial year Clientèle Limited provided financial assistance resulting in 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.
During the current period Clientèle Limited provided 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 purchased or will purchase, the
majority of which have already been purchased.
Related Party Transactions
Transactions between Clientèle Limited and its subsidiaries have been eliminated on consolidation. There were no material 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.
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 31 December 2016:
(R'000's) Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 495,431 495,431
Unlisted equity securities 3,850 3,850
Promissory notes and fixed deposits 520,106 153,206 673,312
Funds on deposit 329,841 329,841
Fixed interest securities 40,973 3,773 44,746
Government and public authority bonds 63,864 63,864
Total assets 495,431 958,634 156,979 1,611,044
Liabilities
Financial liabilities at fair value through profit or loss 728,842 153,206 882,048
Total liabilities 728,842 153,206 882,048
Policyholders' linked exposure to African Bank Limited (ABL) through investments in zero coupon fixed deposits of R153.2 million as at 31 December 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.
Accounting Policies
Statement of compliance
The condensed consolidated interim Financial Statements are prepared in accordance with the JSE Listings Requirements for interim reports and the
requirements of the Companies Act, Act 71 of 2008, 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 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 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, besides the impact on
estimates affected by the increase in the valuation interest rate.
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 Assets and Liabilities
Audited
31 December 30 June
(R'000's) 2016 2015 2016
Assets
Long-term insurance 1,640,388 1,569,160 1,791,430
Investment contracts 882,586 905,916 910,647
Short-term insurance 209,777 174,933 216,278
Other 4,229 12,694 6,749
Inter segment (11,466) (25,555) (8,252)
Total Group Assets 2,725,514 2,637,148 2,916,852
Liabilities
Long-term insurance 1,041,265 1,035,335 1,085,912
Investment contracts 882,048 905,300 909,819
Short-term insurance 51,572 50,456 60,852
Other 260 20,793 2,973
Inter segment (11,466) (25,555) (8,252)
Total Group Liabilities 1,963,679 1,986,329 2,051,304
Segment Statements of Comprehensive Income
Inter
segment
Long-term Investment Short-term (revenue)/
(R'000's) insurance contracts insurance Other expense Group
31 December 2016
Insurance premium revenue 819,777 169,768 989,545
Reinsurance premiums (64,806) (64,806)
Net insurance premiums 754,971 169,768 924,739
Other income 77,673 4,516 728 178 (5,659) 77,436
Interest income 18,567 578 142 19,287
Fair value adjustment to financial assets at fair
value through profit or loss (5,973) 37,579 3,894 35,500
Segment income 845,238 42,095 174,968 320 (5,659) 1,056,962
Segment expenses and claims (578,939) (41,534) (133,538) (52) 5,659 (748,404)
Net insurance benefits and claims (152,789) (20,079) (172,868)
Decrease/(increase) in policyholder liabilities
under insurance contracts 20,418 (106) 20,312
Decrease in reinsurance assets (78) (78)
Fair value adjustment to financial liabilities at fair
value through profit or loss (37,579) (37,579)
Interest expense (4,863) (4,863)
Reversal of impairment of advances 65 65
Operating expenses (441,627) (3,955) (113,353) (117) 5,659 (553,393)
Profit before tax 266,299 561 41,430 268 - 308,558
Tax (74,514) (157) (11,415) (75) (86,161)
Net profit for the period 191,785 404 30,015 193 - 222,397
Attributable to:
Non-controlling interest - ordinary shareholders 58 58
Equity holders of the Group - ordinary
shareholders 191,785 404 30,015 135 - 222,339
31 December 2015
Insurance premium revenue 774,783 146,625 921,408
Reinsurance premiums (59,191) (59,191)
Net insurance premiums 715,592 146,625 862,217
Other income 78,903 4,710 239 659 (2,710) 81,801
Interest income 6,805 679 2,153 (1,267) 8,370
Fair value adjustment to financial assets at fair
value through profit or loss (7,875) 20,697 559 13,381
Segment income 793,425 25,407 148,102 2,812 (3,977) 965,769
Segment expenses and claims (551,333) (23,633) (113,968) (569) 3,977 (685,526)
Net insurance benefits and claims (140,879) (15,301) (156,180)
Decrease/(increase) in policyholder liabilities
under insurance contracts 17,347 (590) 16,757
Decrease in reinsurance assets (161) (161)
Fair value adjustment to financial liabilities at fair
value through profit or loss (20,697) (20,697)
Interest expense (1,317) 1,267 (50)
Reversal of impairment of advances 1,541 1,541
Operating expenses (427,640) (2,936) (98,077) (793) 2,710 (526,736)
Profit before tax 242,092 1,774 34,134 2,243 - 280,243
Tax (67,036) (497) (9,084) (76,617)
Net profit for the period 175,056 1,277 25,050 2,243 - 203,626
Attributable to:
Non-controlling interest - ordinary shareholders 672 672
Equity holders of the Group - ordinary
shareholders 175,056 1,277 25,050 1,571 - 202,954
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 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 202,954 202,954 672 203,626
- Net profit for the year 202,954 202,954 672 203,626
Shares issued 9 7,859 7,868 7,868 7,868
SAR and Bonus Rights Schemes allocated 4,757 4,757 4,757
Transfer from shares issued (5,959) (1,909) (7,868) (7,868)
Balance as at 31 December 2015 6,622 318,044 (220,273) 104,393 452,118 30,547 66,191 653,249 (2,430) 650,819
Balance as at 1 January 2016 6,622 318,044 (220,273) 104,393 452,118 30,547 66,191 653,249 (2,430) 650,819
Total comprehensive income 207,532 (817) 206,715 3,563 210,278
- Net profit for the period 207,532 207,532 3,563 211,095
- Other comprehensive income/(expense) (817) (817) (817)
Shares issued 14 10,831 10,845 10,845 10,845
SAR and Bonus Rights Schemes allocated 4,451 4,451 4,451
Transfer from shares issued (4,371) (6,474) (10,845) (10,845)
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
Balance as at 1 July 2016 6,636 328,875 (220,273) 115,238 655,279 28,524 65,374 864,415 1,133 865,548
Ordinary dividends (331,897) (331,897) (331,897)
Total comprehensive income 222,339 222,339 58 222,397
- Net profit for the period 222,339 222,339 58 222,397
Share issued 6 4,866 4,872 4,872 4,872
SAR and Bonus Rights Schemes allocated 5,787 5,787 5,787
Transfer from shares issued (1,083) (3,789) (4,872) (4,872)
Balance as at 31 December 2016 6,642 333,741 (220,273) 120,110 544,638 30,522 65,374 760,644 1,191 761,835
* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme
* 0.3 million shares were issued during the period (2015: 0.4 million) in terms of the SAR and Bonus Rights Schemes
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 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 calculation has been reviewed by the Group's internal Statutory Actuary. The EV can be summarised as follows:
31 December 30 June
(R'000's) 2016 2015 2016
Required capital 398,587 360,151 377,076
Free surplus 366,709 274,756 495,969
Adjusted Net Worth ("ANW") of covered business 765,296 634,907 873,045
CoC (87,375) (85,433) (83,190)
PVIF 4,517,220 3,811,118 4,440,788
EV of covered business 5,195,141 4,360,592 5,230,643
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
31 December 30 June
(R'000's) 2016 2015 2016
Total equity and reserves per the Statement of Financial Position 761,835 650,819 865,548
Adjusted for Deferred Profits and impact of compulsory margins on investment business 13,988 12,179 11,820
Adjusted for minority interests (1,190) 2,430 (1,133)
Adjusting subsidiaries to Net Asset Value 31,427 21,884 31,427
SAR and Bonus Rights Schemes adjustment (40,764) (52,405) (34,617)
ANW 765,296 634,907 873,045
The CoC is the opportunity cost of having to hold the Required Capital of R398.6 million as at 31 December 2016 (30 June 2016: R377.1
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 (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 31 December 2016 was 1.83 times (30 June 2016: 2.35 times) on the statutory valuation basis.
Clientèle General Insurance's Statutory CAR cover ratio at 31 December 2016 was 1.30 times (30 June 2016: 1.35 times) on the statutory
valuation basis.
Value of New Business ("VNB")
Six months ended Year ended
31 December 30 June
(R'000's) 2016 2015 2016
Total VNB 246,718 300,934 660,328
Present Value of New Business premiums 1,287,930 1,154,695 2,488,674
New Business profit margin 19.2% 26.1% 26.5%
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 period ended
31 December 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
31 December 30 June
(%) 2016 2015 2016
Risk discount rate 12.3 13.4 12.1
Non-unit investment return 8.8 9.9 8.6
Unit investment return 9.9 10.7 9.8
Expense inflation 6.8 8.4 7.1
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 0.112, in the calculation of the RDR. The Board draws the reader's attention to the
RDR sensitivity analysis in the next table, which allows for sensitivity comparisons using various alternative RDRs.
The resulting RDR utilised for the South African business as at 31 December 2016 was 12.3% p.a. (30 June 2016: 12.1% p.a.).
RDR Sensitivities
(R'000's) EV VNB
RDR 10.3% 5,949,086 314,124
RDR 11.3% 5,534,280 273,043
RDR 12.1% (as at June 2015) 5,251,075 252,337
RDR 12.3% (as at December 2016) 5,195,141 246,718
RDR 13.3% 4,890,830 220,460
RDR 13.4% (as at December 2015) 4,877,400 216,629
RDR 14.3% 4,635,423 198,616
EV per Share
31 December 30 June
(Cents) 2016 2015 2016
EV per share 1,564.22 1,317.10 1,576.42
Diluted EV per share 1,552.77 1,297.88 1,563.62
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
31 December 2016
SA - Long-term insurance 608,082 3,676,180 (57,523) 4,226,739
SA - Short-term insurance 154,436 837,623 (29,852) 962,207
SA - Investment contracts - 3,417 - 3,417
Other 2,778 - - 2,778
Total 765,296 4,517,220 (87,375) 5,195,141
31 December 2015
SA - Long-term insurance 519,645 3,130,063 (59,875) 3,589,833
SA - Short-term insurance 120,931 675,405 (25,558) 770,778
SA - Investment contracts - 2,544 - 2,544
Other (5,669) 3,106 - (2,563)
Total 634,907 3,811,118 (85,433) 4,360,592
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
The VNB can be split between segments as follows:
Six months ended Year ended
31 December 30 June
(R'000's) 2016 2015 2016
SA - Long-term insurance 183,749 232,164 517,003
SA - Short-term insurance 60,471 66,666 138,545
SA - Investment contracts 2,138 1,784 3,090
Other 360 320 1,690
Total 246,718 300,934 660,328
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.
Six months ended 31 December 2016 Six months
ended Year ended
31 December 30 June
(R'000's) ANW PVIF CoC EV 2015 2016
Closing EV 765,296 4,517,220 (87,375) 5,195,141 4,360,592 5,230,643
Opening EV 873,045 4,440,788 (83,190) 5,230,643 4,601,300 4,601,300
Dividends (331,897) - - (331,897) (297,759) (297,759)
Adjusted opening EV 541,148 4,440,788 (83,190) 4,898,746 4,303,541 4,303,541
EV Earnings 224,148 76,432 (4,185) 296,395 57,052 927,102
Economic assumptions (1,103) 46,452 (1,737) 43,612 406,524 75,384
Recurring EV Earnings 223,045 122,884 (5,922) 340,007 463,576 1,002,486
Recurring Return on EV 13.9% 21.5% 23.3%
Return on EV 12.1% 2.7% 21.5%
Components of EV earnings
VNB (229,613) 481,704 (5,373) 246,718 300,934 660,328
Expected return on covered business - 263,740 1,995 265,735 243,277 498,133
Expected profit transfer 449,988 (449,988) - - - -
Withdrawal and unpaid premiums experience
variance 2,612 (83,910) (594) (81,892) 5,284 (50,393)
Claims and reinsurance experience variance 338 - - 338 (1,405) (5,499)
Sundry experience variance 1,815 841 - 2,656 21,412 5,076
Change in modelling/basis and non-economic
assumptions 4,585 (104,128) (1,806) (101,349) (83,604) (132,366)
Expected return on ANW 29,355 - - 29,355 22,567 47,899
SAR and Bonus Rights Schemes (360) - - (360) 6,047 28,286
Goodwill and Medium-term incentive schemes (10,127) 21,947 - 11,820 (29,630) (20,730)
Benefit enhancements (156) (7,322) (144) (7,622) -
EV operating return 248,437 122,884 (5,922) 365,399 484,882 1,030,734
Investment variance (25,392) - - (25,392) (21,306) 28,248
Recurring EV Earnings 223,045 122,884 (5,922) 340,007 463,576 1,002,486
Effect of economic assumption changes 1,103 (46,452) 1,737 (43,612) (406,524) (75,384)
EV Earnings 224,148 76,432 (4,185) 296,395 57,052 927,102
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); 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 (* Executive Director)
Company secretary: W van Zyl CA(SA)
website: www.clientele.co.za - e-mail: results@clientele.co.za
Date: 20/02/2017 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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