CLIENTELE LIMITED - Condensed Unaudited Group Results For the six months ended 31 December 2017

Release Date: 19/02/2018 17:00
Code(s): CLI
 
Wrap Text
Condensed Unaudited Group Results For the six months ended 31 December 2017

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

Condensed Unaudited Group Results
For the six months ended 31 December 2017

Diluted headline earnings per share increased by 18% to 78.27 cents
Net insurance premiums increased by 12% to R1.0 billion
Annualised return on average shareholders' interest of 55%
Value of New Business of R313.5 million
Recurring Embedded Value Earnings of R570.9 million
Annualised Recurring Return on Embedded Value of 21.0%
Embedded value per share of 1,805.92 cents

Commentary

Introduction

The Clientèle Group has produced a good set of results for the six month period against the backdrop of a continuing challenging economic
environment. New business production volumes are in line with expectations, and have been assisted by the contributions from the new
Agency and Broker distribution channels. These new channels were established just over a year ago and are both growing in line with the
business plan.

In the last quarter of the previous financial year Clientèle launched a single premium co-branded product which accounts for most of the
increase in financial assets during the period.

Investment returns for the period were good and produced a 16.6% (2016: 3.1%) annualised return from the portfolios which have a
conservative equity content.

The increase in expenses above inflation for the period is mostly attributable to the new business acquisition costs for the Agency and Broker
channels as well as acquisition costs for the IFA distribution network as a result of higher production levels.

Withdrawals, particularly in respect of new business written, and debit order disputes have not met management's expectations which has
affected insurance premium revenues, the Value of New Business ("VNB") and Recurring Embedded Value Earnings ("REVE"). These areas
remain a focus of management attention.

Operating Results

Group Statement of Comprehensive Income

Net insurance premiums increased by 12% to R1.0 billion (2016: R0.9 billion), on the back of good production over the last twelve months
and higher average premiums on new business, with a consequent diluted headline earnings per share increase of 18% over the comparative
period.

Net insurance benefits and claims of R194.7 million (2016: R172.9 million) were 13% higher than the comparative period.

Operating expenses of R644.6 million (2016: R553.4 million) were 16% higher than the comparative period. It should be noted that
R6.4 million in respect of the Goodwill incentive scheme was expensed in the current period and R14.9 million was released in the
comparative six month period. If the Goodwill incentive scheme and the Agency, Broker and other new venture expenses are excluded, then
the operating expenses would have increased by 7%.

Headline earnings for the Group increased by 18% to R262.1 million (2016: R222.2 million) which has resulted in an annualised return on
average shareholders' interests of 55% (2016: 55%).

Group Embedded Value and Value of New Business

The Group Embedded Value ("EV"), after the R384.5 million annual dividend payment during the period, increased from R5.8 billion at 30 June
2017 to R6.0 billion at 31 December 2017. Recurring Embedded Value Earnings ("REVE") of R570.9 million were recorded for the six months
(2016: R340 million), an increase of 68% off a relatively low base.

The Value of New Business ("VNB") was negatively impacted by lower quality new business. Nevertheless, the VNB increased by 27% from
R246.7 million in the comparative period to R313.5 million this period.

New business profit margins (excluding single premium investment business) have increased to 23.0% (2016: 20.9%).

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 R3.2 billion (2016:
R2.9 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 R243.9 million
(2016: R185.6 million) increased by 31%. Clientèle Life recorded REVE of R439.8 million (2016: R275.5 million), an increase of 60% and
generated a 17% increase in net profit for the period to R224.5 million (2016: R192.2 million).

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

Clientèle Legal's VNB of R69.1 million (2016: R60.5 million) increased by 14%. Clientèle Legal recorded REVE of R121.5 million (2016: R60.2
million), an increase of 102% and generated a 15% increase in net profit for the period to R34.5 million (2016: R30.0 million) driven largely by
good investment performance.

Outlook

Management's primary focus is currently directed at improving the quality of new business written whilst maintaining production levels and
reducing the level of withdrawals and debit order disputes.

New initiatives include the acquisition of "Switch2", an innovative start-up providing niche credit life products as well as the introduction of the
"Estate Preservation" product which will be launched within a month.

The roll out of new distribution channels, particularly the Agency and Broker channels, are expected to create meaningful value for the Group
into the future.

Clientèle remains committed to providing products that are relevant and meet policyholders' needs whilst delivering these to the market
conveniently and efficiently.

The Board is encouraged by the new initiatives and their prospects for growth and value creation in the Group's target market.

By order of the Board

12 February 2018

GQ Routledge            BW Reekie
Chairman                Managing Director
Johannesburg
19 February 2018


Condensed Group Statement of Financial Position
                                                                                                                       Audited
                                                                                                31 December            30 June

(R'000's)                                                                                   2017          2016            2017

Assets
Intangible assets*                                                                        48,479        37,238          35,751
Property and equipment                                                                    49,021        47,151          46,518
Owner-occupied properties**                                                              423,475       410,752         422,013
Deferred tax                                                                              37,058        37,797          42,817
Inventories                                                                                2,190         2,080           1,894
Reinsurance assets                                                                         2,580         2,711           2,504
Financial assets held at fair value through profit or loss***                          2,999,208     1,611,044       2,196,020
Financial assets at amortised cost^                                                      146,398       276,426         288,627
Loans and receivables including insurance receivables                                     43,436        40,935          34,891
Current tax                                                                                2,429         3,991             990
Cash and cash equivalents                                                                266,714       255,389         221,047

Total assets                                                                           4,020,988     2,725,514       3,293,072

Total equity and reserves                                                                897,114       761,835       1,015,996

Liabilities
Policyholder liabilities under insurance contracts                                       670,110       669,789         652,614
Financial liabilities at fair value through profit or loss - investment contracts***   2,009,281       882,048       1,159,676
Financial liabilities - loans at amortised cost                                          116,829       113,076         113,043
Employee benefits#                                                                        57,034        81,965          97,339
Deferred tax                                                                              48,950        35,904          43,855
Accruals and payables including insurance payables                                       210,984       174,178         210,180
Current tax                                                                               10,686         6,719             369

Total liabilities                                                                      3,123,874     1,963,679       2,277,076

Total equity and liabilities                                                           4,020,988     2,725,514       3,293,072


*   Intangible assets include R13.5 million in respect of the purchase of Switch2 Cover (Pty) Ltd.
**  Owner-occupied properties are disclosed at level 3 in the fair value measurement hierarchy.
*** The increase in "Financial liabilities held at fair value through profit or loss" relates to the increase in single premium business underwritten
    during the period, particularly in respect of co-branded single premium policies. The corresponding increase in "Financial assets held at fair
    value through profit or loss" has been reduced as a result of the annual dividend payment.
^   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 reduction relates to the early surrender of fixed deposits.
#   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
                                                                                                  Six months                              Audited
                                                                                                    ended                              Year ended
                                                                                                 31 December                              30 June

                                                                                             2017            2016                %
(R'000's)                                                                                  Actual          Actual           Change           2017

Revenue
Insurance premium revenue                                                               1,095,728         989,545               11      2,003,255
Reinsurance premiums                                                                      (60,052)        (64,806)                       (130,690)

Net insurance premiums                                                                  1,035,676         924,739               12      1,872,565
Other income                                                                               83,534          77,436                         156,113
Interest income                                                                            18,964          19,287                          40,090
Fair value adjustment to financial assets at fair value through profit or loss*           181,958          35,500                         136,881

Net income                                                                              1,320,132       1,056,962                       2,205,649
Net insurance benefits and claims                                                        (194,667)       (172,868)                       (359,470)

(Increase)/decrease in policyholder liabilities under insurance contracts                 (17,344)         20,312                          37,488
Decrease in reinsurance assets                                                                (76)            (78)                           (285)
Fair value adjustment to financial liabilities at fair value through profit or loss -
investment contracts*                                                                     (95,729)        (37,579)                        (99,346)
Interest expense                                                                           (4,960)         (4,863)                         (9,866)
Reversal of impairment of advances                                                                             65
Operating expenses                                                                       (644,596)       (553,393)              16     (1,132,005)

Profit before tax                                                                         362,760         308,558               18        642,165
Tax                                                                                      (100,555)        (86,161)              17       (175,468)

Net profit for the period                                                                 262,205         222,397               18        466,697

Attributable to:
- Non-controlling interest - ordinary shareholders                                             (5)             58                             199
- Equity holders of the Group - ordinary shareholders                                     262,210         222,339               18        466,498

Profit for the period                                                                     262,205         222,397                         466,697

Other comprehensive income:
Gains on property revaluation#                                                                                                              8,475
Income tax relating to gains on property revaluation#                                                                                      (2,155)

Other comprehensive income for the period - net of tax                                    262,205         222,397                           6,320

Total comprehensive income for the period                                                 262,205         222,397               18        473,017

Attributable to:
- Non-controlling interest - ordinary shareholders                                             (5)             58                             199
- Equity holders of the Group - ordinary shareholders                                     262,210         222,339               18        472,818


# Items that cannot be recycled to profit or loss.
* R95.5 million (2016: R6.0 million) of the R182.0 million (2016: R35.5 million) relates to investment returns from shareholder and policyholder investment
  portfolios. The balance of R86.5 million (2016: R29.5 million) relates to the fair value adjustment in respect of single premium investment
  contracts which is matched within the fair value adjustment to financial liabilities at fair value through profit or loss in respect of investment
  contracts.


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      Reserves*    Revaluation        total     interest          Total

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

Shares issued                                                       6         4,866                         4,872                                                    4,872                       4,872
SAR and Bonus Rights Scheme allocation                                                                          -                        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

Balance as at 1 January 2017                                    6,642       333,741        (220,273)      120,110       544,638         30,522         65,374      760,644        1,191        761,835
Ordinary dividends                                                                                              -                                                        -       (1,050)        (1,050)
Total comprehensive income                                          -             -               -             -       244,159              -          6,320      250,479          141        250,620

- Net profit for the period                                                                                     -       244,159                                    244,159          141        244,300
- Other comprehensive income                                                                                    -                                       6,320        6,320                       6,320

Shares issued                                                      38        32,147                        32,185                                                   32,185                      32,185
SAR and Bonus Rights Scheme allocation                                                                          -                        4,591                       4,591                       4,591
Transfer from shares issued                                                                                     -       (18,365)       (13,820)                    (32,185)                    (32,185)

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

Balance as at 1 July 2017                                       6,680       365,888        (220,273)      152,295       770,432         21,293         71,694    1,015,714          282      1,015,996
Ordinary dividends                                                                                              -      (384,261)                                  (384,261)        (261)      (384,522)
Total comprehensive income                                          -             -               -             -       262,210              -              -      262,210           (5)       262,205

- Net profit/(loss) for the period                                                                              -       262,210                                    262,210           (5)       262,205

Shares issued                                                       9         7,710                         7,719                                                    7,719                       7,719
SAR and Bonus Rights Scheme allocation                                                                          -                        3,435                       3,435                       3,435
Transfer from shares issued                                                                                     -        (2,656)        (5,063)                     (7,719)                     (7,719)

Balance as at 31 December 2017                                  6,689       373,598        (220,273)      160,014       645,725         19,665         71,694      897,098           16        897,114

* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme.
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme.
* 0.4 million shares were issued during the period (2016: 0.3 million) in terms of the SAR and Bonus Rights Schemes.


Condensed Group Statement of Cash Flows
                                                                                               Six months             Audited
                                                                                                  ended            Year ended
                                                                                               31 December            30 June

(R'000's)                                                                                   2017          2016           2017

Cash flows from operating activities                                                      74,437        53,131         41,503

Profit from operations adjusted for non-cash items                                       346,205       324,720        632,279
Working capital changes                                                                  (93,260)      (71,230)       (29,753)
Separately disclosable items(1)                                                          (56,725)      (46,485)       (96,040)
Increase/(decrease) in financial liabilities(2)                                          753,877       (65,350)       150,511
Net (acquisition)/disposal of investments(3)                                            (467,045)      279,384       (204,210)
Interest received                                                                         43,964        38,377         80,023
Dividends received                                                                        12,761         8,108         16,017
Dividends paid                                                                          (384,517)     (331,796)      (332,846)
Tax paid                                                                                 (80,823)      (82,597)      (174,478)

Cash flows from investing activities(4)                                                  (23,701)      (16,870)       (34,549)
Cash flows from financing activities                                                      (5,069)        9,280          4,245

Net increase in cash and cash equivalents                                                 45,667        45,541         11,199
Cash and cash equivalents at beginning of the period                                     221,047       209,848        209,848

Cash and cash equivalents at end of the period                                           266,714       255,389        221,047

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.

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,
Switch2 Cover and 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: Restated)                                                                  2017          2016           2017

Assets
Long-term insurance                                                                    3,657,319     2,437,544      2,932,597
Short-term insurance                                                                     246,572       209,777        251,861
Other                                                                                    129,685        89,658        121,292
Inter segment                                                                            (12,588)      (11,465)       (12,678)

Total Group assets                                                                     4,020,988     2,725,514      3,293,072

Liabilities
Long-term insurance                                                                    3,072,840     1,921,467      2,225,884
Short-term insurance                                                                      56,794        51,572         61,617
Other                                                                                      6,828         2,105          2,253
Inter segment                                                                            (12,588)      (11,465)       (12,678)

Total Group liabilities                                                                3,123,874     1,963,679      2,277,076


Segment Statements of Comprehensive Income

                                                               Long-term     Short-term                   Inter
(R'000's)                                                      insurance      insurance      Other      segment        Total

31 December 2017
Insurance premium revenue                                        898,797        196,931                            1,095,728
Reinsurance premiums                                             (60,052)                                            (60,052)

Net insurance premiums                                           838,745        196,931          -            -    1,035,676
Other income                                                      89,344            469    382,024     (388,303)      83,534
Interest income                                                   16,524            723      1,717                    18,964
Fair value adjustment to financial assets at fair value
through profit or loss                                           162,454         14,360      5,144                   181,958

Segment income                                                 1,107,067        212,483    388,885     (388,303)   1,320,132
Segment expenses and claims                                     (795,752)      (165,981)    (3,253)       7,614     (957,372)

Net insurance benefits and claims                               (173,729)       (20,938)                            (194,667)
Decrease/(increase) in policyholder liabilities under
insurance contracts                                              (17,820)           476                              (17,344)
Decrease in reinsurance assets                                       (76)                                                (76)
Fair value adjustment to financial liabilities at fair value
through profit or loss                                           (95,729)                                            (95,729)
Interest expense                                                  (4,960)                                             (4,960)
Operating expenses                                              (503,438)      (145,519)    (3,253)       7,614     (644,596)

Profit before tax                                                311,315         46,502    385,632     (380,689)     362,760
Tax                                                              (86,815)       (11,993)    (1,747)                 (100,555)

Net profit for the period                                        224,500         34,509    383,885     (380,689)     262,205

Attributable to:
Non-controlling interest - ordinary shareholders                                                (5)                       (5)
Equity holders of the Group - ordinary shareholders              224,500         34,509    383,890     (380,689)     262,210



                                                                       Long-term    Short-term                    Inter
(R'000's) Restated*                                                    insurance     insurance       Other      segment        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                                                              80,654           728     337,602     (341,548)      77,436
Interest income                                                           18,026           578         683                    19,287
Fair value adjustment to financial assets at fair value through
profit or loss                                                            30,394         3,894       1,212                    35,500

Segment income                                                           884,045       174,968     339,497     (341,548)   1,056,962
Segment expenses and claims                                             (617,871)     (133,538)     (2,654)       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                                                      (442,980)     (113,353)     (2,719)       5,659     (553,393)

Profit before tax                                                        266,174        41,430     336,843     (335,889)     308,558
Tax                                                                      (73,968)      (11,415)       (778)                  (86,161)

Net profit for the period                                                192,206        30,015     336,065     (335,889)     222,397

Attributable to:
Non-controlling interest - ordinary shareholders                                                        58                        58
Equity holders of the Group - ordinary shareholders                      192,206        30,015     336,007     (335,889)     222,339

* Refer to the note below


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.

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 report has been so prepared.

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, intangible
assets 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.

Tax

                                                                          Six months           Audited
                                                                            ended           Year ended
                                                                         31 December           30 June

(R'000's)                                                           2017            2016          2017

Current and deferred tax                                        (100,157)        (85,420)     (176,204)
Capital gains tax                                                   (398)           (741)        1,065
Underprovision in prior periods                                                                   (329)

Tax                                                             (100,555)        (86,161)     (175,468)


The Individual Policyholder Fund has an estimated tax loss of R2.8 billion (2016: R2.8 billion).

Reconciliation of Net Profit to Headline Earnings

                                                                                           Six months                           Audited
                                                                                             ended                           Year ended
                                                                                          31 December                           30 June
                                                                                                                      %
(R'000's)                                                                            2017             2016       Change            2017

Net profit for the period attributable to equity holders of the Group             262,210          222,339           18         466,498
Less: Profit on disposal of property and equipment                                   (131)            (173)                        (207)

Headline earnings for the period                                                  262,079          222,166           18         466,291


Ratios per Share
                                                                                           Six months                           Audited
                                                                                             ended                           Year ended
                                                                                          31 December                           30 June
                                                                                                                      %
(Cents)                                                                              2017             2016       Change            2017

Headline earnings per share                                                         78.44            66.94           17          140.29
Diluted headline earnings per share                                                 78.27            66.45           18          139.06

Earnings per share                                                                  78.48            67.00           17          140.35
Diluted earnings per share                                                          78.31            66.50           18          139.12

Net asset value per share                                                          268.22           229.38           17          304.19
Diluted net asset value per share                                                  267.91           227.88           18          303.00

Dividends per share - paid                                                         115.00           100.00           15          100.00
Dividends per share - declared                                                          -                -                       115.00

Ordinary shares in issue ('000)                                                   334,475          332,122                      334,003
Weighted average ordinary shares ('000)                                           334,107          331,870                      332,381
Diluted average ordinary shares ('000)                                            334,855          334,320                      335,312


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
2017:

(R'000's)                                                              Level 1         Level 2         Level 3          Total

Assets
Listed equity securities                                               558,415                                        558,415
Unlisted equity securities                                                               3,850                          3,850
Promissory notes and fixed deposits                                                  1,653,593         175,960      1,829,553
Funds on deposit                                                                       501,308                        501,308
Fixed interest securities                                                               28,951           4,040         32,991
Government and public authority bonds                                                   73,091                         73,091

Total assets                                                           558,415       2,260,793         180,000      2,999,208

Liabilities
Financial liabilities at fair value through profit or loss                           1,833,321         175,960      2,009,281

Total liabilities                                                            -       1,833,321         175,960      2,009,281


Policyholders' linked exposure to African Bank Limited (ABL) through investments in zero coupon fixed deposits of R176.0 million as at
31 December 2017 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.

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 2017 financial year 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.

As at 31 December 2017, both guarantees remained in place.

Restatements of Comparative Segment 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.

Events after the Reporting Date

There are 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 material related party
transactions during the period.

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 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 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)                                                                             2017            2016           2017

Required capital                                                                   467,042         398,587        425,232
Free surplus                                                                       451,714         366,709        632,484

Adjusted Net Worth ("ANW") of covered business                                     918,756         765,296      1,057,716

CoC                                                                                (97,150)        (87,375)       (84,267)
PVIF                                                                             5,218,738       4,517,220      4,858,112

EV of covered business                                                           6,040,344       5,195,141      5,831,561


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)                                                                              2017            2016           2017

Total equity and reserves per the Statement of Financial Position                   897,114         761,835      1,015,996
Adjusted for Deferred Profits and impact of compulsory margins on investment
business                                                                             25,617          13,988         29,326
Adjusted for minority interests                                                         (16)         (1,190)          (282)
Adjusting subsidiaries to Net Asset Value                                            33,583          31,427         33,583
SAR and Bonus Rights Schemes adjustment                                             (23,968)        (40,764)       (20,907)
Reversal of Switch2 intangible asset                                                (13,574)

ANW                                                                                 918,756         765,296      1,057,716


The CoC is the opportunity cost of having to hold the Required Capital of R467.0 million as at 31 December 2017 (30 June 2017: R425.2
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 2017 was 1.81 times (31 December 2016: 1.83; 30 June 2017: 2.43) on the
statutory valuation basis.

Clientèle General Insurance's Statutory CAR cover ratio at 31 December 2017 was 1.34 times (31 December 2016:
1.30; 30 June 2017: 1.44) on the statutory valuation basis.

Value of New Business ("VNB")

                                                                                         Six months ended         Year ended
                                                                                            31 December              30 June

(R'000's)                                                                               2017            2016            2017

Total VNB                                                                            313,513         246,718         527,184
Present Value of New Business premiums                                             2,181,702       1,287,930       2,466,148
New Business profit margin                                                             14.4%           19.2%           21.4%
New Business profit margin (excluding single premium investment business)              23.0%           20.9%           23.2%


The Present Value of New Business premiums has increased due to a major increase in single premium investment business written over the
period. The relatively low profit margin on this block of business has resulted in a marked decrease in the overall New Business profit margin.

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 2017, less the CoC pertaining to this business. The VNB was adjusted for the current withdrawal experience on new 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

(%)                                                           2017            2016            2017

Risk discount rate                                            12.1            12.3            12.2
Non-unit investment return                                     8.6             8.8             8.7
Unit investment return                                         9.6             9.9             9.7
Expense inflation                                              6.1             6.8             6.1
Corporate tax                                                 28.0            28.0            28.0


The risk discount rate ("RDR") has been determined using a top-down weighted average cost of capital approach, with the equity return
calculated using the Capital Asset Pricing Model ("CAPM") theory. In terms of current actuarial guidance, the RDR has been set as the risk free
rate plus a beta multiplied by the assumed equity risk premium. It has been assumed that the equity risk premium (i.e. the long-term expected
difference between equity returns and the risk free rate) is 3.5%. The beta pertaining to the Clientèle share price is relatively low, which is
partially a consequence of the relatively small free-float of shares. After careful consideration, the Board has decided to continue to use a more
conservative beta of 1, as opposed to its actual beta of 0.112, 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 2017 was 12.1% p.a. (30 June 2017: 12.2% p.a.).


RDR Sensitivities

(R'000's)                                                              EV          VNB

RDR 10.1%                                                       6,892,739      398,565
RDR 11.1%                                                       6,435,301      352,915

RDR 12.1% (as at December 2017)                                 6,040,344      313,513

RDR 12.2% (as at June 2017)                                     6,016,056      311,535
RDR 12.3% (as at December 2016)                                 5,982,248      307,786
RDR 13.1%                                                       5,723,779      281,422
RDR 14.1%                                                       5,444,976      252,716


EV per Share

                                                                        31 December           30 June

(Cents)                                                              2017         2016           2017

EV per share                                                     1,805.92     1,564.22       1,745.96
Diluted EV per share                                             1,803.87     1,552.77       1,739.15


Segment Information

The EV can be split between segments as follows:

(R'000's)                                                ANW         PVIF          CoC             EV

31 December 2017
Long-term insurance                                  646,424    4,227,738      (67,155)     4,807,007
Short-term insurance                                 185,723      984,692      (29,995)     1,140,420
Other                                                 86,609        6,308                      92,917

Total                                                918,756    5,218,738      (97,150)     6,040,344

31 December 2016 (Restated)*
Long-term insurance                                  547,723    3,673,011      (57,523)     4,163,211
Short-term insurance                                 154,436      837,622      (29,852)       962,206
Other                                                 63,137        6,587                      69,724

Total                                                765,296    4,517,220      (87,375)     5,195,141

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


The VNB can be split between segments as follows:

                                                                     Six months ended      Year ended
                                                                       31 December            30 June

(R'000's) (2016 Restated)*                                          2017          2016           2017

Long-term insurance                                              243,905       185,635        408,763
Short-term insurance                                              69,135        60,471        117,321
Other                                                                473           612          1,100

Total                                                            313,513       246,718        527,184

* Refer to the note on page 12.


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 2017                  Six months
                                                                                                                   ended        Year ended
                                                                                                             31 December           30 June
(R'000's)                                                ANW           PVIF              CoC           EV           2016              2017

Closing EV                                           918,756      5,218,738          (97,150)   6,040,344      5,195,141         5,831,561

Opening EV                                         1,057,716      4,858,112          (84,267)   5,831,561      5,230,643         5,230,643
Dividends declared                                  (384,261)                                    (384,261)      (331,897)         (331,897)

Adjusted opening EV                                  673,455      4,858,112          (84,267)   5,447,300      4,898,746         4,898,746

EV Earnings                                          245,301        360,626          (12,883)     593,044        296,395           932,815
Reversing impact of Switch2 purchase                  13,574           (845)                       12,729
Effect of economic assumption changes                    408        (33,454)          (1,780)     (34,826)        43,612             6,196

Recurring EV Earnings                                259,283        326,327          (14,663)     570,947        340,007           939,011
Recurring Return on EV                                                                              21.0%          13.9%             19.2%

Return on EV                                                                                        21.8%          12.1%             19.0%

Components of EV earnings
VNB                                                 (254,796)       576,453           (8,144)     313,513        246,718           527,184
Expected return on covered business                                 291,945            2,509      294,454        265,735           553,610
Expected profit transfer                             492,136       (492,136)                            -
Withdrawal and unpaid premiums experience
variance                                              (3,398)       (46,971)            (679)     (51,048)       (81,892)          (99,458)
Changes in withdrawals and other decrement
assumptions*#                                                                                           -                         (122,726)
Other change in non-economic assumptions
and modelling#                                         4,205         (9,320)          (6,166)     (11,281)      (101,349)           37,316
Claims and reinsurance experience variance               955                                          955            338             2,920
Sundry experience variance                            (1,894)           946                          (948)         2,656              (195)
Expected return on ANW                                35,969                                       35,969         29,355            59,945
SAR and Bonus Rights Schemes                             (88)                                         (88)          (360)           24,087
Goodwill and Medium-term incentive schemes           (21,310)         5,410                       (15,900)        11,820           (12,785)
Benefit enhancements                                                                                              (7,622)           (7,622)

EV operating return                                  251,779        326,327          (12,480)     565,626        365,399           962,276

Investment variance                                    7,504                          (2,183)       5,321        (25,392)          (23,265)

Recurring EV Earnings                                259,283        326,327          (14,663)     570,947        340,007           939,011

Effect of economic assumption changes#                  (408)        33,454            1,780       34,826        (43,612)           (6,196)
Reversing impact of Switch2 purchase                 (13,574)           845                       (12,729)

EV Earnings                                          245,301        360,626          (12,883)     593,044        296,395           932,815

* This item was not split out in the 2016 results.
# The change in assumptions and modelling items pertains to existing business only.


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, 2106, South Africa
PO Box 61051, Marshalltown 2107, 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); PG Nkadimeng BSC Statistics and Economics, BA Stott
CA(SA); RD Williams BSc(Hons), FASSA, (*Executive Director)

Company secretary: W van Zyl CA(SA)

Release Date: Monday 19 February 2018

Date: 19/02/2018 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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