Wrap Text
Condensed preliminary group results for the year ended 30 June 2017
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Condensed preliminary group RESULTS
For the year ended 30 June 2017
Diluted headline earnings per share increased by 13% to 139.06 cents
Net insurance premiums increased by 8% to R1.9 billion
Return on average shareholders' interest of 53%
Dividends declared per share increased by 15% to 115.00 cents
Value of New Business of R527.18 million
Recurring Embedded Value Earnings of R939.01 million
Recurring Return on Embedded Value of 19.20%
Embedded Value per share of 1 746 cents
Comments
Introduction
The Board is pleased to report that Clientèle's operating results improved in the second half of the financial year with production in
all traditional channels returning to expected levels. Withdrawals in the second half have improved, but as always remain a risk and
thus a focus of attention.
The new agency distribution channel is growing in line with the business plan, which is very encouraging. The broker distribution
channel, which was started in October 2016, has found traction but it is still in its infancy.
South Africa's economic environment remains very tough, particularly for Clientèle's customers, and this demands and gets much
management time and energy.
Operating Results
Group Statement of Comprehensive Income
Net insurance premiums increased by 8% to R1.9 billion (2016: R1.7 billion), on the back of strong production in prior years and
higher average premiums on new business, with a consequent diluted headline earnings per share increase of 13% over last year.
Net insurance benefits and claims of R359.5 million (2016: R325.8 million) were 10% higher than the previous year.
Investment returns of R86.5 million (2016: R65.1 million) were 33% higher than last year and include an amount of R18.4 million
(2016: R nil) in respect of the fair value adjustment of African Bank (renamed Residual Debt Services) unsubordinated stub paper.
Headline earnings for the Group increased by 14% to R466.3 million (2016: R410.6 million) which has resulted in a return on
average shareholders' interests of 53% (2016: 55%).
Group Embedded Value and Value of New Business
Although Group Embedded Value was negatively impacted by higher withdrawals during the year, this increased from R5.2 billion
to R5.8 billion. Recurring Embedded Value Earnings ("REVE") were also impacted and reduced by 6% to R939.0 million (2016:
R1 billion).
The Value of New Business ("VNB") was negatively impacted by lower than expected production in the first half of the year and by
the higher withdrawals referred to above. This has resulted in a decrease in VNB of 20% to R527.2 million (2016: R660.3 million).
New business profit margins have consequently declined to 21.4% (2016: 26.5%).
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 R3.1 billion (2016: R2.8 billion).
Segment Results
Clientèle Life - Long-term insurance
Clientèle Life's Long-term insurance segment remains the major contributor to the Group's performance. Clientèle Life's VNB of
R408.8 million (2016: R519.6 million) decreased by 21% as a consequence of increased withdrawals (largely as a result of an
increase in disputes). Nonetheless, Clientèle Life recorded REVE of R760.2 million (2016: R746.5 million) due to strong production
in prior years and generated a 17% increase in net profit for the year to R404.4 million (2016: R344.2 million).
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal's VNB of R117.3 million (2016: R138.5 million) decreased by 15% and as a consequence of this and increased
withdrawals (largely as a result of an increase in disputes) felt more acutely in the general insurance segment, Clientèle Legal
recorded REVE of R141.6 million (2016: R232.4 million). Nonetheless, due to strong production in prior years, Clientèle Legal
generated an 11% increase in net profit for the year to R61.8 million (2016: R55.6 million).
Outlook
The discussions with the Payments Association of South Africa, the Association for Savings and Investment and individual Banks
concerning the increase in withdrawals due to the increase in debit order disputes by policyholders are ongoing with the intention
of achieving an outcome which is in the best interests of policyholders and Clientèle.
Management's focus is currently directed at continuing the recent momentum built up in production, encouraging the growth of the
new distribution channels, introducing new products and further improving withdrawals.
Dividend Declared
Notice is hereby given that the directors have declared a final gross dividend of 115.00 cents (2016: 100.00 cents) per share on 17
August 2017 for the year ended 30 June 2017.
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 20% (twenty percent) (2016: 15% (fifteen percent));
- The gross local dividend amount is 115.00 cents (2016: 100.00 cents) per ordinary share for shareholders exempt from the
dividends tax;
- The net local dividend amount is 92.00 cents (2016: 85.00 cents) per ordinary share for shareholders liable to pay the
dividends tax;
- The local dividends tax amount is 23.00 cents (2016: 15.00 cents) per ordinary share for shareholders liable to pay the dividend
withholding tax;
- Clientèle Limited currently has 334,003,379 (2016: 331,805,599) 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, 19 September 2017
Shares commence trading "ex" dividend Wednesday, 20 September 2017
Record date Friday, 22 September 2017
Payment date Tuesday, 26 September 2017
Share certificates may not be dematerialised or rematerialised between Wednesday, 20 September 2017 and Friday,
22 September 2017, both days inclusive.
By order of the Board
G Q Routledge B W Reekie
Chairman Managing Director
Johannesburg
17 August 2017
Condensed Group Statement of Financial Position
Year ended 30 June
(R'000's) Reviewed 2017 2016
Assets
Intangible assets 35,751 36,435
Property and equipment 46,518 47,509
Owner-occupied properties^ 422,013 408,651
Deferred tax 42,817 45,666
Inventories 1,894 1,148
Reinsurance assets 2,504 2,789
Financial assets at fair value through profit or loss*** 2,196,020 1,854,928
Financial assets at amortised cost* 288,627 264,023
Loans and receivables including insurance receivables 34,891 44,396
Current tax 990 1,459
Cash and cash equivalents 221,047 209,848
Total assets 3,293,072 2,916,852
Total equity and reserves 1,015,996 865,548
Liabilities
Policyholder liabilities under insurance contracts 652,614 690,102
Financial liabilities at fair value through profit or loss -
investment contracts*** 1,159,676 909,819
Financial liabilities - Loans at amortised cost** 113,043 98,932
Employee benefits# 97,339 139,586
Deferred tax 43,855 38,977
Accruals and payables including insurance payables 210,180 168,469
Current tax 369 5,419
Total liabilities 2,277,076 2,051,304
Total equity and liabilities 3,293,072 2,916,852
^ Owner-occupied properties are disclosed at level 3 in the fair value measurement
hierarchy. An earnings yield valuation method was applied with capitalisation rates of
between 8.25% and 9.00% (2016: 8.25% and 9.50%).
* Zero coupon fixed deposits held in African Bank Limited have been classified as financial
assets at amortised cost. The fair value approximates amortised cost.
** The increase in loans at amortised cost relates to financing of owner-occupied properties.
*** The increase in "financial assets at fair value through profit or loss" and "financial liabilities
at fair value through profit and loss - investment contracts" relates to increased production
of single premium business during the year.
# The reduction in "Employee benefits" relates to a reduction in benefits in respect of the
"medium term" and "goodwill" staff incentive schemes.
Condensed Group Statement of Comprehensive Income
Year ended 30 June
%
(R'000's) Reviewed 2017 2016 Change
Revenue
Insurance premium revenue 2,003,255 1,852,516 8
Reinsurance premiums (130,690) (126,525)
Net insurance premiums 1,872,565 1,725,991 8
Other income 156,113 157,495
Interest income 40,090 21,209
Fair value adjustment to financial assets at fair value through
profit or loss 136,881 120,916
Net income 2,205,649 2,025,611 9
Net insurance benefits and claims (359,470) (325,777)
Gross insurance benefits and claims (460,145) (425,313)
Insurance claims recovered from reinsurers 100,675 99,536
Decrease in policyholder liabilities under insurance contracts 37,488 8,780
Decrease in reinsurance assets (285) (226)
Fair value adjustment to financial liabilities at fair value through
profit or loss (99,346) (90,401)
Interest expense (9,866) (4,135)
Reversal of impaired advances 12,349
Operating expenses (1,132,005) (1,061,901) 7
Profit before tax 642,165 564,300 14
Tax (175,468) (149,579) 17
Net profit for the year 466,697 414,721 13
Attributable to:
- Non-controlling interest - ordinary shareholders 199 4,235
- Equity holders of the Group - ordinary shareholders 466,498 410,486 14
Profit for the year 466,697 414,721 13
Other comprehensive income:
Gains on property revaluation# 8,475 8,727
Income tax relating to gains on property revaluation# (2,155) (9,544)*
Other comprehensive income for the year net of tax 6,320 (817)
Total comprehensive Income for the year 473,017 413,904 14
Attributable to:
- Non-controlling interest - ordinary shares 199 4,235
- Equity holders of the Group 472,818 409,669 15
# Items that cannot be recycled to profit or loss.
* The higher amount in 2016 was primarily in respect of the difference in accounting and tax treatment of the new
office development.
Condensed Group Statement of Changes in Equity
SAR and*
Common Bonus Right Non-
Share Share control Sub- Retained Schemes NDR: Sub- controlling
(R'000's) Reviewed capital premium deficit total earnings reserves 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 - - - - 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
SARs 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
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) (1,050) (332,947)
Total comprehensive income - - - - 466,498 - 6,320 472,818 199 473,017
- Net profit for the year - 466,498 466,498 199 466,697
- Other comprehensive income - 6,320 6,320 6,320
Shares issued 44 37,013 37,057 37,057 37,057
SARs and Bonus Rights Schemes allocated - 10,378 10,378 10,378
Transfer from shares issued - (19,448) (17,609) (37,057) (37,057)
Balance as at 30 June 2017 6,680 365,888 (220,273) 152,295 770,432 21,293 71,694 1,015,714 282 1,015,996
* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme.
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme.
* 2.2 million (2016: 1.2 million) shares were issued in terms of the SAR and Bonus Rights Schemes.
Condensed Group Statement of Cash Flows
Year ended 30 June
(R'000's) Reviewed 2017 2016
Cash flows from operating activities 41,503 73,061
Profit from operations adjusted for non-cash items 632,279 645,910
Working capital changes (29,753) (51,906)
Separately disclosable items(1) (96,040) (99,959)
Increase/(Decrease)in financial liabilities(2) 150,511 (122,918)
Net (acquisition)/disposal of investments(3) (204,210) 59,375
Interest received 80,023 63,421
Dividends received 16,017 36,538
Dividends paid (332,846) (297,713)
Tax paid (174,478) (159,687)
Cashflows from investing activities(4) (34,549) (146,854)
Cashflows from financing activities(5) 4,245 59,702
Net increase/(decrease) in cash and cash equivalents 11,199 (14,091)
Cash and cash equivalents at beginning of the year 209,848 223,939
Cash and cash equivalents at end of the year 221,047 209,848
1. Interest and dividends received.
2. Financial liabilities - investment contracts.
3. Investment 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.
Condensed segment Information
The Group's results are analysed across South Africa ("SA") - geographical segment.
The Group's main operating segments are Long-term insurance, Short-term insurance (legal insurance policies) and Other
(Clientèle Limited and Clientèle Loans Direct). The vast majority of policies written are in respect of individuals.
Segment Assets and Liabilities
Year ended 30 June
(R'000's) Reviewed (2016 Restated) 2017 2016
Long-term Insurance 2,932,597 2,624,384
Short-term Insurance 251,861 216,278
Other 121,292 84,442
Inter segment (12,678) (8,252)
Total Group Assets 3,293,072 2,916,852
Long-term Insurance 2,225,884 1,993,868
Short-term Insurance 61,617 60,852
Other 2,253 4,836
Inter segment (12,678) (8,252)
Total Group Liabilities 2,277,076 2,051,304
Segment Statements of Comprehensive Income
Inter
segment
Long-term Short-term (revenue)/
(R'000's) Reviewed insurance insurance Other expense Total
30 June 2017
Insurance premium revenue 1,651,594 351,661 2,003,255
Reinsurance premiums (130,690) (130,690)
Net insurance premiums 1,520,904 351,661 - - 1,872,565
Other income 164,253 564 360,343 (369,047) 156,113
Interest income 37,234 1,262 1,594 40,090
Fair value adjustment to financial assets at fair value through
profit and loss 123,375 10,250 3,256 136,881
Segment revenue 1,845,766 363,737 365,193 (369,047) 2,205,649
Segment expenses and claims (1,290,946) (278,681) (6,200) 12,343 (1,563,484)
Net insurance benefits and claims (319,313) (40,157) (359,470)
Decrease in policyholder liabilities under insurance contracts 36,130 1,358 37,488
Decrease in reinsurance assets (285) (285)
Fair value adjustment to financial liabilities at fair value through
profit and loss (99,346) (99,346)
Interest expense (9,866) (9,866)
Operating Expenses (898,266) (239,882) (6,200) 12,343 (1,132,005)
Profit before tax 554,820 85,056 358,993 (356,704) 642,165
Tax (150,465) (23,222) (1,781) (175,468)
Net profit for the year 404,355 61,834 357,212 (356,704) 466,697
Attributable to:
Non-controlling interest - ordinary shareholders 199 199
Equity holders of the Group - ordinary shareholders 404,355 61,834 357,013 (356,704) 466,498
Inter
segment
Long-term Short-term (revenue)/
(R'000's) Reviewed insurance insurance Other expense Total
30 June 2016 (Restated)
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 156,196 498 315,034 (314,233) 157,495
Interest income 18,365 1,394 3,103 1,653 21,209
Fair value adjustment to financial assets at fair value through
profit or loss 110,556 8,355 2,005 120,916
Segment revenue 1,709,159 312,196 320,142 (315,886) 2,025,611
Segment expenses and claims (1,238,701) (235,300) 4,703 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 impaired advances 12,349 12,349
Operating expenses (861,595) (200,730) (5,910) 6,334 (1,061,901)
Profit before tax 470,458 76,896 324,845 (307,899) 564,300
Tax (126,240) (21,252) (2,087) (149,579)
Net profit for the year 344,218 55,644 322,758 (307,899) 414,721
Attributable to:
Non-controlling interest - ordinary shareholders 4,235 4,235
Equity holders of the Group - ordinary shareholders 344,218 55,644 318,523 (307,899) 410,486
Notes to the Results
These condensed consolidated financial results for the year ended 30 June 2017 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.
Changes to the Board
Mr PG Nkadimeng was appointed as a Director of Clientèle Limited on 1 March 2017.
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 report has been so prepared.
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.
Tax
Year ended 30 June
(R'000's) Reviewed 2017 2016
Current and deferred tax (176,204) (146,708)
Capital gains tax 1,065 (2,400)
Underprovision in prior years (329) (471)
Tax (175,468) (149,579)
The Individual Policyholder Fund has an estimated tax loss of R2.8 billion (2016: R2.8 billion).
Reconciliation of Net Profit to Headline Earnings
Year ended 30 June
%
(R'000's) Reviewed 2017 2016 Change
Net profit for the year attributable to equity holders of the Group 466,498 410,486 14
(Less)/Add: (Profit)/loss of disposal of property and equipment (207) 81
Headline earnings for the year 466,291 410,567 14
Ratios per Share
Year ended 30 June %
(Cents) Reviewed 2017 2016 Change
Headline earnings per share 140.29 124.00 13
Diluted headline earnings per share 139.06 122.99 13
Earnings per share 140.35 123.98 13
Diluted earnings per share 139.12 122.97 13
Net asset value per share 304.19 260.86 17
Diluted net asset value per share 303.00 259.29 17
Dividends per share - paid 100.00 90.00 11
Dividends per share - declared 115.00 100.00 15
Ordinary shares in issue ('000) 334,003 331,806
Weighted average ordinary shares ('000) 332,381 331,093
Diluted weighted average ordinary shares ('000) 335,312 333,809
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 2017:
(R'000's) Reviewed Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 491,916 491,916
Unlisted equity securities 3,850 3,850
Promissory notes and fixed deposits 793,220 169,434 962,654
Funds on deposit 618,226 618,226
Fixed interest securities 45,316 4,013 49,329
Government and public authority bonds 70,045 70,045
Total assets 491,916 1,530,657 173,447 2,196,020
Liabilities
Financial liabilities at fair value through profit of loss 990,242 169,434 1,159,676
Total Liabilities - 990,242 169,434 1,159,676
Policyholders' linked exposure to African Bank Limited through investments in zero coupon fixed deposits of R169.4 million as at
30 June 2017 are disclosed at level 3 on the hierarchy as values are estimated indirectly using techniques and models. Key inputs
include the zero coupon risk free yield curve.
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 financial year Clientèle Limited provided further financial assistance through the issuance of a guarantee in the
amount of R223 million (with an exposure of R155 million) in respect of additional Ordinary Shares which YTI purchased.
Restatement of comparative segments results
The Group has incorporated the "Investment Contracts" segment into the "Long-term Insurance" segment and Clientèle Limited
into the "other" segment to align with internal reporting practices.
The corresponding amounts have been restated accordingly.
Events after the Reporting Date
No material items to report after the reporting date.
Related Party Transactions
Transactions between Clientèle Limited and its subsidiaries have been eliminated on consolidation. There were no new material
related party transactions during the year.
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 2017.
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) Unaudited 2017 2016
Required capital 425,232 377,076
Free surplus 632,484 495,969
Adjusted Net Worth ("ANW") of covered business 1,057,716 873,045
CoC (84,267) (83,190)
PVIF 4,858,112 4,440,788
EV of covered business 5,831,561 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
Year ended 30 June
(R'000's) Unaudited 2017 2016
Total equity and reserves per the Statement of Financial Position 1,015,996 865,548
Adjusted for deferred profits and impact of compulsory margins
on investment business 29,326 11,820
Adjusted for minority interests (282) (1,133)
Adjusting subsidiaries to Net Asset Value 33,583 31,427
SAR and Bonus Rights Schemes adjustment (20,907) (34,617)
ANW 1,057,716 873,045
The CoC is the opportunity cost of having to hold the Required Capital of R425.2 million as at 30 June 2017 (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 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 2017 was 2.43 times (30 June 2016: 2.35 times) on the statutory
valuation basis.
Clientèle General Insurance's Statutory CAR cover ratio at 30 June 2017 was 1.44 times (30 June 2016: 1.35 times) on the
statutory valuation basis.
Value of New Business ("VNB")
Year ended 30 June
(R'000's) Unaudited 2017 2016
Total VNB 527,184 660,328
Present Value of New Business premiums 2,466,148 2,488,674
New Business profit margin 21.4% 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 year ended 30 June 2017 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
(%) Unaudited 2017 2016
Risk discount rate 12.2 12.1
Non-unit investment return 8.7 8.6
Unit investment return 9.7 9.8
Expense inflation 6.1 7.1
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% (2016: 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 0.1333 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 2017 was 12.2% (30 June 2016: 12.1%).
RDR Sensitivities
(R'000's) Unaudited EV VNB
RDR 10.2% 6,673,123 666,784
RDR 11.2% 6,212,644 589,983
RDR 12.1% (as at June 2016) 5,861,327 534,179
RDR 12.2% (as at June 2017) 5,831,561 527,184
RDR 13.2% 5,503,661 465,022
RDR 14.2% 5,222,306 415,064
EV per Share
Year ended 30 June
(Cents) Unaudited 2017 2016
EV per share 1,745.96 1,576.42
Diluted EV per share 1,739.15 1,563.62
Segment Information
The EV can be split between segments as follows:
(R'000's) Unaudited ANW PVIF CoC EV
30 June 2017
Long-term insurance 774,375 3,963,841 (57,575) 4,680,641
Short-term insurance 187,134 887,721 (26,692) 1,048,163
Other 96,207 6,550 - 102,757
Total 1,057,716 4,858,112 (84,267) 5,831,561
30 June 2016 (Restated)
Long-term insurance 664,848 3,623,279 (54,990) 4,233,137
Short-term insurance 152,490 810,689 (28,200) 934,979
Other 55,707 6,820 - 62,527
Total 873,045 4,440,788 (83,190) 5,230,643
The VNB can be split between segments as follows:
Year ended 30 June
(R'000's) Unaudited (2016 Restated) 2017 2016
Long-term insurance 408,763 519,649
Short-term insurance 117,321 138,545
Other 1,100 2,134
Total 527,184 660,328
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 2017 Year ended
30 June 2016
(R'000's) Unaudited ANW PVIF CoC EV EV
Closing EV 1,057,716 4,858,112 (84,267) 5,831,561 5,230,643
Opening EV 873,045 4,440,788 (83,190) 5,230,643 4,601,300
Dividends (331,897) (331,897) (297,759)
Adjusted EV at the beginning of the year 541,148 4,440,788 (83 190) 4,898,746 4,303,541
EV earnings 516,568 417,324 (1,077) 932,815 927,102
Impact of once-off economic assumption changes (1,340) 6,703 833 6,196 75,384
Recurring EV earnings 515,228 424,027 (244) 939,011 1,002,486
Recurring Return on EV 19.2% 23.3%
Return on EV 19.0% 21.5%
Components of EV earnings
VNB (371,368) 910,991 (12,439) 527,184 660,328
Expected return on covered business - 543,786 9,824 553,610 498,133
Expected profit transfer 838,432 (838,432) - - -
Withdrawal and unpaid premium experience variance (12,477) (83,317) (3,664) (99,458) (50,393)
Changes in withdrawals & other decrement assumptions 10,498 (120,114) (13,110) (122,726) -*
Other changes in non-economic assumptions and modelling 1,040 16,987 19,289 37,316 (132,366)
Claims and reinsurance experience variance 2,920 - - 2,920 (5,499)
Sundry experience variance (1,177) 982 - (195) 5,076
Expected return on ANW 59,945 - - 59,945 47,899
SAR and Bonus Rights Schemes 24,087 - - 24,087 28,286
Goodwill and Medium-term incentive schemes (13,251) 466 - (12,785) (20,730)
Benefit enhancements (156) (7,322) (144) (7,622) -
EV operating return 538,493 424,027 (244) 962,276 1,030,734
Investment return variances on ANW (23,265) - - (23,265) (28,248)
Recurring EV earnings 515,228 424,027 (244) 939,011 1,002,486
Effect of economic assumption changes 1,340 (6,703) (833) (6,196) (75,384)
EV earnings 516,568 417,324 (1,077) 932,815 927,102
* This item was not split out in the 2016 results.
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, First Floor, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196 South Africa
Sponsor: PricewaterhouseCoopers Corporate Finance Proprietary Limited
Directors: GQ Routledge BA LLB (Chairman); BW Reekie BSc(Hons), FASSA* (Managing Director);
ADT Enthoven BA, PhD (Political Science); B Frodsham BCom*; PR Gwangwa BProc LLB, LLM;
IB Hume CA(SA), ACMA*; BY Mkhondo BCom, MBA; D Molefe MCom, CA(SA); BA Stott CA(SA);
RD Williams BSc(Hons), FASSA, PG Nkadimeng BSc Comp Scie & E Eng. (* Executive Director)
Company secretary: W van Zyl CA(SA)
Date of release: 21 August 2017
Date: 21/08/2017 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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