Wrap Text
Condensed Preliminary Group Results and dividend announcement
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Condensed Preliminary Group Results
Net insurance premiums increased by 11% to R2.1 billion
Diluted headline earnings per share increased by 6% to 146.83 cents
Return on average shareholders' interest of 48%
Dividends declared increased by 8.7% to 125 cents per share
Value of New Business of R448 million
Recurring Embedded Value Earnings of R979 million
Recurring Return on Embedded Value of 18%
Diluted Embedded Value per share of 1 885 cents
Comments
Introduction
The results, when considered in the context of the continuing challenging economic environment and the performance of the market in
general, are acceptable. The board, however is disappointed with the results when compared to past performance.
Withdrawals, particularly in respect of new business written have not met management's expectations which has affected insurance premium
revenue, the Value of New Business ("VNB") and Embedded Value Earnings ("EVE"). This has been exacerbated by the ongoing increasing
trend in debit order disputes across the entire banking payment system.
Overall new business production volumes are in line with expectations which has been assisted by the contributions from the new Agency and
Broker distribution channels. These new channels were established over a year ago and are both growing in line with the business plan. In
addition the IFA division performed well, however business from the Telesales channel was behind expectation.
The co-branded single premium products, referred to in previous results, have been well supported by customers and accounts for most of
the increase in financial assets during the year.
Investment performance for the year was good and produced a 13% return from portfolios with a conservative equity content.
The increase in expenses above inflation is mostly attributable to the new business acquisition costs for the Agency and Broker channels as
well as increased production from the IFA distribution network. It should be noted that R15.3 million in respect of the Goodwill incentive
scheme was expensed in the current year and R36.8 million was released in the previous year. If the Goodwill incentive scheme and the
Agency, Broker and other new venture expenses are excluded, then the operating expenses would have increased by 5%.
Operating Results
Group Statement of Comprehensive Income
Net insurance premiums increased by 11% to R2.1 billion (2017: R1.9 billion) on the back of good production over the last eighteen months
and higher average premiums on new business. Diluted headline earnings per share, however, only increased by 6% over the comparative
year due to new business acquisition costs in respect of the new distribution channels and the higher withdrawals referred to above.
Net insurance benefits and claims of R384.5 million (2017: R359.5 million) were 7% higher than the previous year.
Operating expenses of R1.3 billion (2017: R1.1 billion) were 18% higher than the comparative year for the reasons explained above.
Headline earnings for the Group increased by 6% to R492.3 million (2017: R466.3 million) which has resulted in a return on average
shareholders' interests of 48% (2017: 53%).
Group Embedded Value and Value of New Business
The Group Embedded Value ("EV"), after the R384.3 million annual dividend payment during the year, increased from R5.8 billion at 30 June
2017 to R6.3 billion at 30 June 2018, an increase of 8.4%. Recurring Embedded Value Earnings ("REVE") of R979.0 million were recorded for
the year (2017: R939.0 million), an increase of 4.3%.
The VNB was negatively impacted by lower quality new business and decreased by 15% from R527.2 million in the comparative year to
R448.0 million this year.
New business profit margins (excluding single premium investment business) have decreased to 18.3% (2017: 23.2%) due to the factors
mentioned above.
The Group follows a conservative accounting practice of eliminating negative reserves. As acquisition costs are expensed upfront, the recovery
of these costs and the profits are deferred over the policy life. The present value of this discretionary margin amounts to R3.2 billion (2017:
R3.1 billion).
Segment Results
Clientèle Life - Long-term insurance
Clientèle Life's Long-term insurance segment remains the major contributor to the Group's performance and generated a 5% increase in net
profit for the year to R423.7 million (2017: R404.4 million). Clientèle Life's VNB of R339.2 million (2017: R408.8 million) decreased by 17%,
and it recorded an REVE of R734.9 million (2017: R760.2 million), a decrease of 3.3%.
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal generated a 9% increase in net profit for the year to R67.1 million (2017: R61.8 million). Clientèle Legal's VNB of R108.2 million
(2017: R117.3 million) decreased by 7.8% and its REVE recovered to R230.1 million (2017: R141.6 million), an increase of 62.5%.
Outlook
Management's primary focus is to improve the quality of new business written and to reduce withdrawals, thereby improving margins.
Growth of the Agency and Broker channels are expected to create meaningful value for the group in future.
The new initiatives, "Switch2", an innovative start-up providing niche credit life products to the South African consumer and the "Estate"
product, which were launched in the second half of the financial year are in their infancy and management will monitor their progress closely.
In an exciting development, Clientèle has signed an evergreen agreement with the Shembe Foundation under which it will provide Clientèle
products to Shembe Church members. Policy sales will commence in the next few months.
The Board is encouraged by the new initiatives and their prospects for growth and value creation in the Group's target market.
Dividend Declared
Notice is hereby given that the directors have declared a final gross dividend of 125.00 cents (2017: 115.0 cents) per share on 16 August
2018 for the year ended 30 June 2018.
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) (2017: twenty percent);
- The gross local dividend amount is 125.00 cents (2017: 115.00 cents) per ordinary share for shareholders exempt from the dividends tax;
- The net local dividend amount is 100.00 cents (2017: 92.00 cents) per ordinary share for shareholders liable to pay the dividends tax;
- The local dividends tax amount is 25.00 cents (2017: 23.00 cents) per ordinary share for shareholders liable to pay the dividend withholding tax;
- Clientèle Limited currently has 334,707,747 (2017: 334,003,379) 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, 18 September 2018
Shares commence trading "ex" dividend Wednesday, 19 September 2018
Record date Friday, 21 September 2018
Payment date Tuesday, 25 September 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 19 September 2018 and Friday, 21 September 2018,
both days inclusive.
By order of the Board
GQ Routledge BW Reekie
Chairman Managing Director
Johannesburg
20 August 2018
Condensed Group Statement of Financial Position
Year ended 30 June
(R'000's) Reviewed 2018 2017
Assets
Intangible assets 41,099 35,751
Property and equipment 45,877 46,518
Owner-occupied properties* 423,513 422,013
Deferred tax 46,309 42,817
Inventories 2,765 1,894
Reinsurance assets 2,925 2,504
Financial assets at fair value through profit or loss** 3,591,715 2,196,020
Financial assets at amortised cost*** 153,185 288,627
Loans and receivables including insurance receivables 41,862 34,891
Current tax 990
Cash and cash equivalents 372,656 221,047
Total assets 4,721,906 3,293,072
Total equity and reserves 1,129,667 1,015,996
Liabilities
Policyholder liabilities under insurance contracts 630,496 652,614
Financial liabilities at fair value through profit or loss - investment contracts** 2,464,295 1,159,676
Loans at amortised cost 113,009 113,043
Employee benefits 92,990 97,339
Deferred tax 50,061 43,855
Accruals and payables including insurance payables 234,585 210,180
Current tax 6,803 369
Total liabilities 3,592,239 2,277,076
Total equity and liabilities 4,721,906 3,293,072
* Owner-occupied properties are disclosed at level 3 in the fair value measurement hierarchy. A
discounted future cashflow method was applied with a discount rate of between 8.13% and 8.34%
(2017: 8.25% and 9%).
** The increase in "Financial liabilities at fair value through profit or loss" relates to the increase in single
premium business underwritten during the year, particularly in respect of co-branded single premium
policies. This corresponds with the increase in "Financial assets at fair value through profit or loss"
during the year and matches the policyholder liabilities.
*** 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.
Condensed Group Statement of Comprehensive Income
Year ended 30 June
%
(R'000's) Reviewed 2018 2017 Change
Revenue
Insurance premium revenue 2,199,439 2,003,255
Reinsurance premiums (123,112) (130,690)
Net insurance premiums 2,076,327 1,872,565 11
Other income 167,560 156,113
Interest income 34,276 40,090
Fair value adjustment to financial assets at fair value through profit or loss 280,311 136,881
Net income 2,558,474 2,205,649 16
Net insurance benefits and claims (384,490) (359,470)
Gross insurance benefits and claims (486,195) ( 460,145)
Insurance claims recovered from reinsurers 101,705 100,675
Decrease in policyholder liabilities under insurance contracts 22,118 37,488
Increase/(decrease) in reinsurance assets 421 (285)
Fair value adjustment to financial liabilities at fair value through profit or loss (172,115) (99,346)
Interest expense (9,819) (9,866)
Operating expenses (1,335,172) (1,132,005) 18
Profit before tax 679,417 642,165 6
Tax (189,094) (175,468) 8
Profit for the year 490,323 466,697 5
Attributable to:
- Non-controlling interest - ordinary shares 21 199
- Equity holders of the Group 490,302 466,498 5
Profit for the year 490,323 466,697 5
Other comprehensive income:
(Losses)/gains on property revaluation# (1,535) 8,475
Income tax relating to losses/(gains) on property revaluation# 460 (2,155)
Other comprehensive income for the year net of tax (1,075) 6,320
Total comprehensive income for the year 489,248 473,017
Attributable to:
- Non-controlling interest - ordinary shares 21 199
- Equity holders of the Group 489,227 472,818
# Items that cannot be recycled to profit or loss.
Condensed Group Statement of Changes in Equity
SARs and*
Common Bonus Rights 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 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
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) (303) (384,564)
Total comprehensive income - - - - 490,302 - (1,075) 489,227 21 489,248
- Net profit for the year - 490,302 490,302 21 490,323
- Other comprehensive income - (1,075) (1,075) (1,075)
Shares issued 14 11,869 11,883 11,883 11,883
SARs and Bonus Rights Schemes allocated - 8,987 8,987 8,987
Transfer from shares issued - (4,575) (7,308) (11,883) (11,883)
Balance as at 30 June 2018 6,694 377,757 (220,273) 164,178 871,898 22,972 70,619 1,129,667 - 1,129,667
* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme.
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme.
* 0.7 million (2017: 2.2 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 2018 2017
Cash flows from operating activities 200,483 41,503
Profit from operations adjusted for non-cash items 661,631 632,279
Working capital changes (70,137) (29,753)
Separately disclosable items(1) (111,335) (96,040)
Increase in financial liabilities(2) 1,132,504 150,511
Net acquisition of investments(3) (960,431) (204,210)
Interest received 88,568 80,023
Dividends received 22,767 16,017
Dividends paid (384,588) (332,846)
Tax paid (178,496) (174,478)
Cashflows from investing activities(4) (35,126) (34,549)
Cashflows from financing activities (13,748) 4,245
Net increase in cash and cash equivalents 151,609 11,199
Cash and cash equivalents at the beginning of the year 221,047 209,848
Cash and cash equivalents at the end of the year 372,656 221,047
1. Interest and dividends received.
2. Financial liabilities - investment contracts in respect of single premium contracts.
3. Investment in respect of insurance operations and investment contracts (Single premium contracts).
4. Mainly relates to the acquisition of intangible assets, property and equipment.
Segment Information
The Group's results are analysed across the South African geographical segment.
The Group's main operating segments are Long-term Insurance, Short-term Insurance (legal insurance policies) and Other (Clientèle Limited
and Switch2 Cover). The vast majority of policies written are in respect of individuals.
Segment Assets and Liabilities
Year ended 30 June
(R'000's) Reviewed 2018 2017
Assets
Long-term Insurance 4,318,004 2,932,597
Short-term Insurance 291,898 251,861
Other 126,212 121,292
Inter segment (14,208) (12,678)
Total Group Assets 4,721,906 3,293,072
Liabilities
Long-term Insurance 3,532,806 2,225,884
Short-term Insurance 69,238 61,617
Other 4,403 2,253
Inter segment (14,208) (12,678)
Total Group Liabilities 3,592,239 2,277,076
Segment Statements of Comprehensive Income
Long-term Short-term Inter
(R'000's) Reviewed Insurance Insurance Other segment Total
30 June 2018
Insurance premium revenue 1,795,433 404,006 2,199,439
Reinsurance premiums (123,112) (123,112)
Net insurance premiums 1,672,321 404,006 - - 2,076,327
Other income 180,150 717 385,032 (398,339) 167,560
Interest income 30,533 1,276 2,467 34,276
Fair value adjustment to financial assets at fair
value through profit or loss 252,988 19,815 7,508 280,311
Segment revenue 2,135,992 425,814 395,007 (398,339) 2,558,474
Segment expenses and claims (1,550,406) (334,164) (7,276) 12,789 (1,879,057)
Net insurance benefits and claims (344,573) (39,917) (384,490)
Decrease/(increase) in policyholder liabilities
under insurance contracts 22,558 (440) 22,118
Increase in reinsurance assets 421 421
Fair value adjustment to financial liabilities
at fair value through profit or loss (172,115) (172,115)
Interest expense (9,819) (9,819)
Operating expenses (1,046,878) (293,807) (7,276) 12,789 (1,335,172)
Profit before tax 585,586 91,650 387,731 (385,550) 679,417
Tax (161,918) (24,557) (2,619) (189,094)
Net profit for the year 423,668 67,093 385,112 (385,550) 490,323
Attributable to:
Non-controlling interest - ordinary shareholders 21 21
Equity holder of the Group - ordinary
shareholders 423,668 67,093 385,091 (385,550) 490,302
Long-term Short-term Inter
(R'000's) Reviewed Insurance Insurance Other segment 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 or 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 or 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
Notes to the Results
These condensed consolidated financial results for the year ended 30 June 2018 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
There were no changes to the Board for the year under review.
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, intangible
assets 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 2018 2017
Current and deferred tax (190,203) (176,204)
Capital gains tax (27) 1,065
Overprovision/(underprovision) in prior years 1,136 (329)
Tax (189,094) (175,468)
The Individual Policyholder Fund has an estimated tax loss of R2.79 billion (2017: R2.84 billion).
Reconciliation of Net Profit to Headline Earnings
Year ended 30 June
%
(R'000's) Reviewed 2018 2017 Change
Net profit for the year attributable to equity holders of the Group 490,302 466,498 5
Add: Impairment of intangible assets 2,177
Less: Profit on disposal of property and equipment (175) (207)
Headline earnings for the year 492,304 466,291 6
Ratios per Share
Year ended 30 June
%
(Cents) Reviewed 2018 2017 Change
Headline earnings per share 147.22 140.29 5
Diluted headline earnings per share 146.83 139.06 6
Earnings per share 146.62 140.35 4
Diluted earnings per share 146.24 139.12 5
Net asset value per share 337.51 304.19 11
Diluted net asset value per share 336.93 303.00 11
Dividends per share - paid 115.00 100.00 15
Dividends per share - declared 125.00 115.00 9
Ordinary shares in issue ('000) 334,708 334,003
Weighted average ordinary shares ('000) 334,392 332,381
Diluted weighted average ordinary shares ('000) 335,282 335,312
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 30 June 2018:
(R'000's) Reviewed Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 594,926 594,926
Unlisted equity securities 3,850 3,850
Promissory notes and fixed deposits 2,146,585 132,092 2,278,677
Funds on deposit 599,652 599,652
Fixed interest securities 39,424 2,620 42,044
Government and public authority bonds 72,566 72,566
Total assets 594,926 2,862,077 134,712 3,591,715
Liabilities
Financial liabilities at fair value through profit of loss 2,332,203 132,092 2,464,295
Total Liabilities 2,332,203 132,092 2,464,295
Policyholders' linked exposure to African Bank Limited through investments in zero coupon fixed deposits of R132.1 million as at 30 June
2018 are disclosed at level 3 on the fair value hierarchy as values are estimated indirectly using valuation techniques and models. Key inputs
include the zero coupon risk free yield curve.
Promissory notes and fixed deposits classified as level 3 reduced during the year as a result of fixed deposit maturities.
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 30 June 2018, both guarantees remained in place.
Events After the Reporting Date
The Board declared a final gross dividend of 125.00 cents per share on 16 August 2018 for the year ended 30 June 2018. The dividend is
subject to dividend withholding tax that was introduced with effect from 1 April 2012.
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 2018.
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; and
- Annuity income arising from non-insurance contracts 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 2018 2017
Required capital 474,317 425,232
Free surplus 686,638 632,484
Adjusted Net Worth ("ANW") of covered business 1,160,955 1,057,716
CoC (108,092) (84,267)
PVIF 5,268,725 4,858,112
EV of covered business 6,321,588 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
Year ended 30 June
(R'000's) Unaudited 2018 2017
Total equity and reserves per the Statement of Financial Position 1,129,667 1,015,996
Adjusted for deferred profits and impact of compulsory margins on
investment business 33,792 29,326
Adjusted for minority interests (282)
Adjusting subsidiaries to Net Asset Value 33,123 33,583
Bonus Rights Scheme adjustment (26,434) (20,907)
Reversal of Switch2 intangible asset (9,193)
ANW 1,160,955 1,057,716
The CoC is the opportunity cost of having to hold the Required Capital of R474.3 million as at 30 June 2018 (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 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 2018 was 2.44 times (30 June 2017: 2.43 times) on the statutory valuation basis.
Clientèle General Insurance's Statutory CAR cover ratio at 30 June 2018 was 1.47 times (30 June 2017: 1.44 times) on the statutory valuation
basis.
Value of New Business ("VNB")
Year ended 30 June
(R'000's) Unaudited 2018 2017
Total VNB 447,981 527,184
Present Value of New Business premiums 3,747,458 2,466,148
New Business profit margin 12.0% 21.4%
New Business profit Margin (excluding single premium investment
business) 18.3% 23.2%
The Present Value of New Business premiums has increased due to a considerable 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 year ended 30
June 2018, 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 2018 2017
Risk discount rate 12.4 12.2
Non-unit investment return 8.9 8.7
Unit investment return 10.0 9.7
Expense inflation 6.1 6.1
Corporate tax 28.0 28.0
The risk discount rate ("RDR") has been determined using a top-down weighted average cost of capital approach, with the equity return
calculated using Capital Asset Pricing Model ("CAPM") theory. In terms of current actuarial guidance, the RDR has been set as the risk free
rate plus a beta multiplied by the assumed equity risk premium. It has been assumed that the equity risk premium (i.e. the long-term expected
difference between equity returns and the risk free rate) is 3.5% (2017: 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 0.2674 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 RDR's.
The resulting RDR utilised for the South African business as at 30 June 2018 was 12.4% (30 June 2017: 12.2%).
RDR Sensitivities
(R'000's) Unaudited EV VNB
RDR 10.4% 7,215,465 585,162
RDR 11.4% 6,705,893 511,244
RDR 12.2% (as at June 2017) 6,396,401 459,721
RDR 12.4% (as at June 2018) 6,321,588 447,981
RDR 13.4% 5,977,652 394,216
RDR 14.4% 5,669,513 349,291
EV per Share
Year ended 30 June
(Cents) Unaudited 2018 2017
EV per share 1,888.69 1,745.96
Diluted EV per share 1,885.45 1,739.15
Segment Information
The EV can be split between segments as follows:
(R'000's) Unaudited ANW PVIF CoC EV
30 June 2018
Long-term Insurance 850,823 4,220,656 (78,395) 4,993,084
Short-term Insurance 218,497 1,042,067 (29,697) 1,230,867
Other 91,635 6,002 97,637
Total 1,160,955 5,268,725 (108,092) 6,321,588
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:
Year ended 30 June
(R'000's) Unaudited 2018 2017
Long-term Insurance 339,162 408,763
Short-term Insurance 108,203 117,321
Other 616 1,100
Total 447,981 527,184
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 2018 Year ended
30 June 2017
(R'000's) Unaudited ANW PVIF CoC EV EV
Closing EV 1,160,955 5,268,725 (108,092) 6,321,588 5,831,561
Opening EV 1,057,716 4,858,112 (84,267) 5,831,561 5,230,643
Dividends (384,261) (384,261) (331,897)
Adjusted EV at the beginning of the year 673,455 4,858,112 (84,267) 5,447,300 4,898,746
EV earnings 487,500 410,613 (23,825) 874,288 932,815
Impact of once-off economic assumption changes (3,806) 63,779 8,005 67,978 6,196
Impact of once-off debit order submission failure* 4,320 15,000 19,320 -
Reversing impact of Switch2 purchase & costs 17,544 (111) 17,433 -
Recurring EV earnings 505,558 489,281 (15,820) 979,019 939,011
Recurring Return on EV 18.0% 19.2%
Return on EV 16.0% 19.0%
Components of EV earnings
VNB (452,000) 915,299 (15,318) 447,981 527,184
Expected return on covered business 594,001 12,927 606,928 553,610
Expected profit transfer 922,667 (922,667) - -
Withdrawal and unpaid premium experience variance (12,425) (66,802) (2,407) (81,634) (99,458)
Other changes in non-economic assumptions and modelling 29,773 (62,915) (10,807) (43,949) (85,410)
Claims and reinsurance experience variance 3,420 3,420 2,920
Sundry experience variance (7,735) (3,594) (11,329) (195)
Expected return on ANW 73,470 73,740 59,945
Set-up costs for new ventures (6,087) (6,087) -
YTI guarantee costs (4,461) (4,461) -
SAR and Bonus Rights Schemes 3,460 3,460 24,087
Goodwill and Medium-term incentive schemes (41,915) 35,959 (5,956) (12,785)
Benefit enhancements - (7,622)
EV operating return 508,167 489,281 (15,605) 981,843 962,276
Investment return variances on ANW (2,609) (215) (2,824) (23,265)
Recurring EV earnings 505,558 489,281 (15,820) 979,019 939,011
Effect of economic assumption changes 3,806 (63,779) (8,005) (67,978) (6,196)
Impact of once-off debit order submission failure* (4,320) (15,000) (19,320) -
Reversing impact of Switch2 purchase and costs (17,544) 111 (17,433) -
EV earnings 487,500 410,613 (23,825) 874,288 932,815
* Impact of an operational breakdown at a service provider responsible for the monthly processing of policyholder premiums.
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
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);
B Du Toit (Nee Frodsham) BCom*; ADT Enthoven BA, PhD (Political Science); 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)
Johannesburg
Monday 20 August 2018
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