Wrap Text
Condensed Unaudited Group Results For the six months ended 31 December 2018
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI
ISIN: ZAE000117438
Condensed Unaudited Group Results For the six months ended 31 December 2018
Net insurance premiums increased by 4% to R1.1 billion
Diluted headline earnings per share decreased by 26% to 57.62 cents
Annualised return on average shareholders' interest of 38%
Value of New Business of R204.1 million
Recurring Embedded Value Earnings of R345.7 million
Annualised Recurring Return on Embedded Value of 11.7%
Embedded Value per share of R18.55
Introduction
The Clientèle Group ("Clientèle") has produced a disappointing set of results for the six month period against the backdrop of a
particularly challenging economic and investment environment which has placed continued pressure on our clients' disposable
income.
New business production volumes, although marginally higher than the same period last year, are below expectation for the
traditional Telesales and Independent Field Advertisers ("IFAs") channels. However, this was partially offset by good production from
the new Agency and Mass Market Broker distribution channels, which, as expected, attract up-front acquisition costs on the new
business written. These new channels, established two years ago, are both producing volumes ahead of the business plan.
The additional increase in expenses for the period is mostly attributable to the new business acquisition costs for the Agency and
Mass Market Broker distribution channels.
Over the past two years Clientèle has underwritten co-branded single premium investment products with Old Mutual and Absa,
which have been well supported by clients. This business accounts for most of the R2.5 billion increase in financial assets during
the period.
Investment returns for the period were poor and produced a positive 1.3% (2017: positive 16.6%) annualised return from the
Group's portfolios with a conservative equity content. The JSE achieved a negative 13.8% annualised return for the period.
A major contributor to the dissapointing results is withdrawals, particularly in respect of new business written, which has fallen far
short of management's expectations and has affected insurance premium revenue, the Value of New Business ("VNB") and
Recurring Embedded Value Earnings ("REVE"). As a result, withdrawal assumptions were reviewed and the impact on existing
business is included in the "Other changes in non-economic assumptions and modelling" item, as disclosed in the Embedded
Value Earnings Analysis, which reduced the Embedded Value ("EV") by R113.6 million.
Clientèle recently introduced a loyalty program, Clientèle Rewards, currently offering benefits redeemable at Shoprite, Checkers,
Edgars, Jet, CNA, Greyhound and Citiliner. This exciting development has been well subscribed to by clients and the management
team is excited about the value proposition and its prospects for the future.
The Clientèle Application ("the App") was also recently launched and has been keenly adopted by our clients, employees and
intermediaries. The App opens up many exciting avenues for better fulfilling Clientèle's various stakeholder needs in future, and
enables a more interactive relationship with clients.
Operating Results
Group Statement of Comprehensive Income
Net insurance premiums increased by 4% to R1.1 billion (2017: R1.0 billion). Lower production from our traditional Telesales and
IFA channels over the period was partially offset by good production from the new Agency and Mass Market Broker distribution
channels.
Net insurance benefits and claims of R170.6 million (2017: R194.7 million) were 12% lower than the comparative period.
Operating expenses of R751.2 million (2017: R644.6 million) were 17% higher than the comparative period. If the Agency, Mass
Market Broker and other new venture expenses are excluded, the operating expenses would have increased by 2%.
Due to the volume of co-branded single premium business written (refer below), it is probable that a portion of the assessed loss in
the Individual Policyholders' fund will be utilised. In terms of IAS12, a deferred tax asset of R97.4 million (Dec 2017: R Nil) has
accordingly been recognised. This impacts the taxation charge in the Condensed Group Statement of Comprehensive Income,
which will reverse over five years. The corresponding transfer to liabilities at amortised cost in the Group Statement of
Comprehensive Income has accordingly been increased by R86.0 million (Dec 2017: R Nil). The net after tax impact on headline
earnings is an increase of R8.2 million.
Diluted headline earnings per share decreased by 26% over the comparative period, mainly as a result of annualised returns of
1.3% in the Group's investment portfolios for the period contrasted with good annualised investment returns in the comparative
period of 16.6%.
Headline earnings for the Group decreased by 26% to R193.7 million (2017: R262.1 million), generating an annualised return on
average shareholders' interests of 38% (2017: 55%). If net investment returns for the period were the same as the corresponding
period last year then headline earnings would have decreased by approximately 6% as opposed to 26%.
Group Embedded Value and Value of New Business
The Group Embedded Value ("EV") increased from R5.9 billion (after deducting the R418.7 million annual dividend payment during
the period) at 30 June 2018 to R6.2 billion at 31 December 2018. Recurring Embedded Value Earnings ("REVE") of R345.7 million
were recorded for the period (2017: R571.0 million), a decrease of 39%.
The VNB was negatively impacted by lower quality new business and decreased by 35% to R204.1 million for the six months
ending 31 December 2018 (2017: R313.5 million).
New business profit margins (excluding single premium investment business) have decreased to 13.5% (2017: 23.0%).
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 R3.21 billion (2017: R3.19 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 recorded a 22%
decrease in net profit for the period to R175.1 million (2017: R224.5 million). The majority of the decrease in profit for the period is
in respect of attributable shareholders' investment returns, excluding policyholder investment returns which have a corresponding
liability, which recorded a R4.3 million return for the current period, compared to a R37.4 million return for the comparative period.
A further contributing factor is the increase in withdrawals in respect of new business written. Clientèle Life's VNB of R160.0 million
(2017: R243.9 million) decreased by 34%. Clientèle Life recorded REVE of R283.9 million (2017: R439.8 million), a decrease of
35%.
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal recorded a 37% decrease in net profit for the period to R21.6 million (2017: R34.5 million). The majority of the
decrease in profit for the period is in respect of investment returns which recorded a R2.0 million negative return for the current
period compared to a R15.1 million positive return for the comparative period. Clientèle Legal's VNB of R43.4 million
(2017: R69.1 million) decreased by 37%. Clientèle Legal recorded REVE of R46.4 million (2017: R121.5 million), a decrease of 62%.
Outlook
The economic environment has been challenging over this period and remains so. The board is not expecting any major
improvement in the economic environment for the remainder of the financial year.
Management have introduced new initiatives aimed at improving the quality of new business written over time, and will continue to
focus on increasing production levels, particularly in our traditional Telesales and IFA distribution channels.
The new Agency and Mass Market Broker distribution channels are expected to create meaningful value for the Group in future.
Clientèle launched a project with the Landile Shembe Foundation ("LSF") under which it will provide Clientèle products to the
Shembe community. This initiative has commenced and will be nurtured during its early years.
Clientèle Rewards and the Clientèle App are important ingredients in offering our clients improved value, convenience and service
which we believe will further enhance and differentiate the Clientèle business model in future.
Clientèle remains committed to providing products and services that are relevant and meet our clients' needs and will continue to
improve on the delivery of them to the market conveniently and efficiently.
The Board is disappointed by the results for the period, however it is encouraged by the new initiatives and their prospects for
growth and value creation over time.
By order of the Board
GQ Routledge BW Reekie
Chairman Managing Director
Johannesburg
28 February 2019
Condensed Group Statement of Financial Position
Audited
31 December 30 June
(R'000's) 2018 2017 2018
Assets
Intangible assets 36,759 48,479 41,099
Property and equipment 44,169 49,021 45,877
Owner-occupied properties* 424,840 423,475 423,513
Deferred tax** 162,011 37,058 46,309
Inventories 1,215 2,190 2,765
Reinsurance assets 2,999 2,580 2,925
Financial assets held at fair value through profit or loss* 1,161,390 2,999,208 3,591,715
Financial assets at amortised cost*~ 5,116,731 146,398 153,185
Loans and receivables including insurance receivables 43,187 43,436 41,862
Current tax 4,890 2,429
Cash and cash equivalents 320,570 266,714 372,656
Total assets 7,318,761 4,020,988 4,721,906
Total equity and reserves 905,109 897,114 1,129,667
Liabilities
Policyholder liabilities under insurance contracts 594,905 670,110 630,496
Financial liabilities held at fair value through profit or loss
- investment contracts*** 2,009,281 2,464,295
Financial liabilities - investment contracts at amortised cost***# 5,279,932
Loans at amortised cost 113,046 116,829 113,009
Employee benefits 49,609 57,034 92,990
Deferred tax 73,021 48,950 50,061
Accruals and payables including insurance payables 301,025 210,984 234,585
Current tax 2,114 10,686 6,803
Total liabilities 6,413,652 3,123,874 3,592,239
Total equity and liabilities 7,318,761 4,020,988 4,721,906
* Owner-occupied properties are disclosed at level 3 in the fair value measurement hierarchy.
** Deferred tax includes R97.4 million (December 2017: R Nil; June 2018: R Nil) in respect of tax losses which are now expected
to be utilised in the foreseeable future related to Clientèle Life's individual policyholders' tax fund ("IPF").
*** In terms of IFRS 9, financial assets backing single premium liabilities have been reclassified from "financial assets held at fair
value through profit or loss" to "financial assets at amortised cost". The corresponding liabilities have also been reclassified
from "financial liabilities held at fair value through profit or loss" to "financial liabilities at amortised cost".
# The increase in "Financial liabilities held at amortised cost" relates to the increase in single premium business underwritten
during the period, particularly in respect of co-branded single premium policies, together with the liability of R86 million
(December 2017: R Nil; June 2018: R Nil) in respect of the IPF deferred tax asset mentioned above.
Condensed Group Statement of Comprehensive Income
Six months Audited
ended Year ended
31 December 30 June
2018 2017 %
(R'000's) Actual Actual Change 2018
Revenue
Insurance premium revenue 1,148,067 1,095,728 5 2,199,439
Reinsurance premiums (69,589) (60,052) (123,112)
Net insurance premiums 1,078,478 1,035,676 4 2,076,327
Other income 85,813 83,534 167,560
Interest income 12,995 18,964 34,276
Interest income on financial assets at amortised cost** 158,670
Fair value adjustment to financial assets at fair value through profit or loss** (20,471) 181,958 280,311
Net income 1,315,485 1,320,132 2,558,474
Net insurance benefits and claims (170,590) (194,667) (384,490)
Gross insurance benefits and claims (224,341) (244,346) (486,195)
Insurance claims recovered from reinsurers 53,751 49,679 101,705
Decrease/(increase) in policyholder liabilities under insurance contracts 35,591 (17,344) 22,118
Increase/(decrease) in reinsurance assets 74 (76) 421
Interest expense on financial liabilities at amortised cost**# (254,275)
Fair value adjustment to financial liabilities at fair value through profit or loss** (95,729) (172,115)
Interest expense (4,914) (4,960) (9,819)
Operating expenses (751,204) (644,596) 17 (1,335,172)
Profit before tax# 170,167 362,760 679,417
Tax† 22,301 (100,555) (189,094)
Net profit for the period 192,468 262,205 (27) 490,323
Attributable to:
- Non-controlling interest - ordinary shareholders (5) 21
- Equity holders of the Group - ordinary shareholders 192,468 262,210 490,302
Profit for the period 192,468 262,205 (27) 490,323
Other comprehensive income:
Gains on property revaluation* (1,535)
Income tax relating to gains on property revaluation* 460
Other comprehensive income for the period - net of tax 192,468 262,205 (1,075)
Total comprehensive income for the period 192,468 262,205 (27) 489,248
Attributable to:
- Non-controlling interest - ordinary shareholders (5) 21
- Equity holders of the Group - ordinary shareholders 192,468 262,210 (27) 489,227
* Items that cannot be recycled to profit or loss.
** In terms of IFRS 9, financial assets backing single premium liabilities have been reclassified from "assets held at fair value
through profit or loss" to "financial assets at amortised cost". The corresponding liabilities have now been reclassified from
"financial liabilities held at fair value through profit or loss" to "financial liabilities at amortised cost". Finance income on financial
assets at amortised cost has accordingly increased and "Fair value adjustment to financial assets at fair value through profit or
loss" has decreased.
# Includes R86.05 million related to the IPF deferred tax asset of R97.42 million.
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 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
Balance as at 1 January 2018 6,689 373,598 (220,273) 160,014 645,725 19,665 71,694 897,098 16 897,114
Ordinary dividends (42) (42)
Total comprehensive income - - - - 228,092 - (1,075) 227,017 26 227,043
- Net profit for the period - 228,092 228,092 26 228,118
- Other comprehensive income - (1,075) (1,075) (1,075)
Shares issued 5 4,159 4,164 4,164 4,164
SAR and Bonus Rights Scheme allocation - 5,552 5,552 5,552
Transfer from shares issued - (1,919) (2,245) (4,164) (4,164)
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
Balance as at 1 July 2018 6,694 377,757 (220,273) 164,178 871,898 22,972 70,619 1,129,667 - 1,129,667
Ordinary dividends - (418,670) (418,670) (418,670)
Total comprehensive income - - - - 192,468 - - 192,468 - 192,468
- Net profit for the period - 192,468 192,468 192,468
Shares issued 10 9,794 9,804 9,804 9,804
SAR and Bonus Rights Scheme allocation - 1,644 1,644 1,644
Transfer from shares issued - 116 (9,920) (9,804) (9,804)
Balance as at 31 December 2018 6,704 387,551 (220,273) 173,982 645,812 14,696 70,619 905,109 - 905,109
* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme.
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme.
* 0.5 million shares were issued during the period (2017: 0.4 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) 2018 2017 2018
Cash flows from operating activities (31,712) 74,437 200,483
Profit from operations adjusted for non-cash items 299,799 346,205 661,631
Working capital changes (5,498) (93,260) (70,137)
Separately disclosable items(1) (50,853) (56,725) (111,335)
Increase in financial liabilities(2) 2,561,363 753,877 1,132,504
Net acquisition of investments(3) (2,389,234) (467,045) (960,431)
Interest received 38,729 43,964 88,568
Dividends received 12,123 12,761 22,767
Dividends paid (418,123) (384,517) (384,588)
Tax paid (80,018) (80,823) (178,496)
Cash flows from investing activities(4) (15,496) (23,701) (35,126)
Cash flows from financing activities (4,878) (5,069) (13,748)
Net (decrease)/increase in cash and cash equivalents(5) (52,086) 45,667 151,609
Cash and cash equivalents at beginning of the period 372,656 221,047 221,047
Cash and cash equivalents at end of the period 320,570 266,714 372,656
1. Interest and dividends received.
2. Financial liabilities - investment contracts.
3. Investments in respect of insurance operations and investment contracts.
4. Mainly relates to the acquisition of intangible assets, property and equipment.
5. The first half of the year is characterised by large cash outflows and ordinarily has net cash outflows.
Segment Information
The Group's results are analysed across South Africa ("SA") - geographical segment.
The Group's main operating segments are Long-term insurance, Short-term insurance (legal insurance policies) and Other
(Clientèle Limited and Switch2 Cover). The vast majority of policies written are in respect of individuals.
Segment Assets and Liabilities
Audited
31 December 30 June
(R'000's) 2018 2017 2018
Assets
Long-term insurance 6,940,897 3,657,319 4,318,004
Short-term insurance 259,629 246,572 291,898
Other 133,681 129,685 126,212
Inter segment (15,446) (12,588) (14,208)
Total Group Assets 7,318,761 4,020,988 4,721,906
Liabilities
Long-term insurance 6,360,102 3,072,840 3,532,806
Short-term insurance 60,671 56,794 69,238
Other 8,325 6,828 4,403
Inter segment (15,446) (12,588) (14,208)
Total Group Liabilities 6,413,652 3,123,874 3,592,239
Segment Statements of Comprehensive Income
Long-term Short-term Inter
(R'000's) insurance insurance Other segment Total
31 December 2018
Insurance premium revenue 926,325 221,742 1,148,067
Reinsurance premiums (69,589) (69,589)
Net insurance premiums 856,736 221,742 - - 1,078,478
Other income 93,495 35 422,591 (430,308) 85,813
Interest income 11,622 633 740 12,995
Interest income on financial assets at
amortised cost 158,670 158,670
Fair value adjustment to financial assets at fair
value through profit or loss (16,795) (2,617) (1,059) (20,471)
Segment income 1,103,728 219,793 422,272 (430,308) 1,315,485
Segment expenses and claims (958,615) (189,719) (2,778) 5,794 (1,145,318)
Net insurance benefits and claims (149,974) (20,616) (170,590)
Decrease/(increase) in policyholder liabilities
under insurance contracts 35,913 (322) 35,591
Increase in reinsurance assets 74 74
Interest expense on financial liabilities at
amortised cost (254,275) (254,275)
Interest expense (4,914) (4,914)
Operating expenses (585,439) (168,781) (2,778) 5,794 (751,204)
Profit before tax 145,113 30,074 419,494 (424,514) 170,167
Tax 30,015 (8,449) 735 22,301
Net profit for the period 175,128 21,625 420,229 (424,514) 192,468
Attributable to:
Equity holders of the Group -
ordinary shareholders 175,128 21,625 420,229 (424,514) 192,468
Long-term Short-term Inter
(R'000's) insurance insurance Other segment Group
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)
(Increase)/decrease 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
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 Head of Actuarial Function.
The Condensed Group Results were prepared under the supervision of Mr IB Hume (CA(SA), ACMA), the Group Financial Director.
Changes to the Board
Mrs D Molefe resigned as a Director on 30 November 2018.
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, No. 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, other than indicated
below.
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.
Estimates and judgments
The calculation of the deferred tax asset in respect of the assessed loss in the IPF and future utilisation of the assessed loss is
subject to estimates and judgments. The input with the largest effect on the calculations is the attrition of business. Management
has used an attrition rate of 20% in respect of the co-branded single premium business as the behaviour of this book of business,
which has been written in large tranches, is similar to group business. Management will monitor this assumption annually as there
is currently not sufficient statistical data or experience to inform another view. If the attrition rate decreased to 17.5%, the deferred
tax asset would increase to R114.9 million, with an R14.4 million impact on net profit after tax.
Besides the assumptions in respect of the deferred tax asset mentioned above, there were no other major impacts due to changes
in previous assumptions and estimates used in deriving amounts referred to above.
Adoption of new and amended standards
IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers is effective for Clientèle for the 2019 financial
year. Clientèle has applied both standards retrospectively without restating comparatives.
In terms of IFRS 9, certain financial assets at fair value through profit or loss in respect of investment contracts have been
reclassified as Financial Assets at amortised cost. An analysis of the business model informed this decision. Management's
business model is to hold the assets to maturity in order to collect contractual cash flows and these cash flows consist solely of
payments of principal and interest on the principal amount outstanding. There is no difference between the previous carrying
amount (R2.5 billion) and the revised carrying amount at 1 July 2018 to be recognised in opening retained earnings. Financial
liabilities at fair value through profit or loss relating to investment contracts have been reclassified as Financial Liabilities at
amortised cost.
IFRS 9 introduces a new impairment model which will result in earlier recognition of losses based on the expected credit loss
("ECL") method. A total expected credit loss was calculated for financial assets at amortised cost (excluding insurance receivables)
and financial guarantees issued by Clientèle. As the ECL was very small, no provision was raised.
As the majority of Clientèle's revenue is accounted for in terms of IFRS 4 Insurance Contracts and IFRS 9 Financial Instruments,
which are all scoped out of IFRS 15, and there are no major changes to the revenue recognition for IFA annuity fee income which
is recognised under IFRS 15. There was no financial impact to Clientèle on 1 July 2018 upon adoption of IFRS 15.
Tax
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2018 2017 2018
Current and deferred tax (74,968) (100,157) (190,203)
Policyholder deferred tax recognised in terms of IAS 12* 97,420
Capital gains tax (151) (398) (27)
Overprovision in prior period 1,136
Tax 22,301 (100,555) (189,094)
The Individual Policyholder Fund has an estimated tax loss of R2.74 billion (2017: R2.83 billion).
* It is currently probable that future taxable profits in the Clientèle Life Individual Policyholder Fund will be available against which
the assessed loss can be utilised.
Reconciliation of Net Profit to Headline Earnings
Six months Audited
ended Year ended
31 December 30 June
%
(R'000's) 2018 2017 Change 2018
Net profit for the period attributable to equity holders of the Group 192,468 262,210 (27) 490,302
Add: Impairment of intangible asset 1,246 2,177
Less: Profit on disposal of property and equipment (43) (131) (175)
Headline earnings for the period 193,671 262,079 (26) 492,304
Ratios per Share
Six months Audited
ended Year ended
31 December 30 June
%
(Cents) 2018 2017 Change 2018
Headline earnings per share 57.84 78.44 (26) 147.22
Diluted headline earnings per share 57.62 78.27 (26) 146.83
Earnings per share 57.49 78.48 (27) 146.62
Diluted earnings per share 57.26 78.31 (27) 146.24
Net asset value per share 270.00 268.22 1 337.51
Diluted net asset value per share 269.27 267.91 1 336.93
Dividends per share - paid 125.00 115.00 9 115.00
Dividends per share - declared - - 125.00
Ordinary shares in issue ('000) 335,222 334,475 334,708
Weighted average ordinary shares ('000) 334,811 334,107 334,392
Diluted average ordinary shares ('000) 336,138 334,855 335,282
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 2018:
(R'000's) Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 543,100 543,100
Unlisted equity securities 3,850 3,850
Funds on deposit 482,412 482,412
Fixed interest securities 42,234 6,192 48,426
Government and public authority bonds 83,602 83,602
Total assets 543,100 612,098 6,192 1,161,390
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 2018, both guarantees remained in place.
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 2018.
The majority of 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 calculation has been reviewed by the Group's Head of Actuarial Function. The EV can be summarised as follows:
31 December 30 June
(R'000's) 2018 2017 2018
Required capital 479,338 467,042 474,317
Free surplus 523,199 451,714 686,638
Adjusted Net Worth ("ANW") of covered business 1,002,537 918,756 1,160,955
CoC (108,370) (97,150) (108,092)
PVIF 5,324,944 5,218,738 5,268,725
EV of covered business 6,219,111 6,040,344 6,321,588
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.
The PVIF business is the present value of future after-tax profits arising from covered business in force as at 31 December 2018 on
the Published Reporting Basis. The Published Reporting Basis is based on IFRS, as published in the Financial Statements above.
Reconciliation of Total Equity to ANW
31 December 30 June
(R'000's) 2018 2017 2018
Total equity and reserves per the Statement of Financial Position 905,109 897,114 1,129,667
Adjusted for Deferred Profits and impact of compulsory margins
on investment business* 89,906 25,617 33,792
Adjusted for minority interests (16)
Adjusting subsidiaries to Net Asset Value 33,123 33,583 33,123
Bonus Rights Schemes adjustment (11,306) (23,968) (26,434)
Reversal of Switch2 intangible asset (6,106) (13,574) (9,193)
Net of tax impact of adjusting Single Premium business to market value (8,189)
ANW 1,002,537 918,756 1,160,955
* Impact of compulsory margins only applicable to comparatives.
The CoC is the opportunity cost of having to hold the Required Capital of R479.3 million as at 31 December 2018 (30 June 2018:
R474.3 million).
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.
The Required Economic Capital is based on the Published Reporting Basis and has been set as one times the Economic Capital
Requirement for the Life Company (R346.7 million) and for the General Company (R132.7 million) as at 31 December 2018.
Value of New Business ("VNB")
Six months ended Year ended
31 December 30 June
(R'000's) 2018 2017 2018
Total VNB 204,072 313,513 447,981
Present Value of New Business premiums 4,049,463 2,181,702 3,747,458
New Business profit margin 5.0% 14.4% 12.0%
Total VNB (single premium investment business only) 57,637 15,232 27,141
Present Value of New Business premiums (single premium investment
business only) 2,944,403 885,553 1,450,102
New Business profit margin (single premium investment business only) 2.0% 1.7% 1.9%
Total VNB (excluding single premium investment business) 146,435 298,281 420,840
Present Value of New Business premiums (excluding single premium
investment business) 1,105,060 1,296,149 2,297,356
New Business profit margin (excluding single premium investment business) 13.3% 23.0% 18.3%
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 2018 on the Published Reporting Basis, less the CoC pertaining to the specific business
lines. The assumptions used in the VNB calculations were consistent with the VIF assumptions as at 31 December 2018, and the
actual cash flows in the period are from the Published Reporting Basis.
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
(%) 2018 2017 2018
Risk discount rate 12.5 12.1 12.4
Non-unit investment return 9.0 8.6 8.9
Unit investment return 9.9 9.6 10.0
Expense inflation 5.8 6.1 6.1
Corporate tax 28.0 28.0 28.0
Gross of tax Equity Return 11.5 11.1 11.4
Gross of tax Cash Return 7.0 6.6 6.9
Gross of tax Bond Return 8.5 8.1 8.4
Gross of tax Risk Free Return 9.0 8.6 8.9
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% (June 2018: 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 0.4244, 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 as at 31 December 2018 was 12.5% p.a. (30 June 2018: 12.4% p.a.).
RDR Sensitivities
(R'000's) EV VNB
RDR 10.5% 7,104,765 264,011
RDR 11.5% 6,628,192 231,918
RDR 12.1% (as at December 2017) 6,373,272 214,928
RDR 12.4% (as at June 2018) 6,256,419 206,598
RDR 12.5% (as at December 2018) 6,219,111 204,072
RDR 13.5% 5,862,436 180,573
RDR 14.5% 5,569,853 159,594
EV per Share
31 December 30 June
(Cents) 2018 2017 2018
EV per share 1,855.22 1,805.92 1,888.69
Diluted EV per share 1,850.17 1,803.87 1,885.45
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
31 December 2018
Long-term insurance 698,296 4,261,356 (81,872) 4,877,780
Short-term insurance 196,415 1,058,650 (26,498) 1,228,567
Other 107,826 4,938 112,764
Total 1,002,537 5,324,944 (108,370) 6,219,111
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
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
The VNB can be split between segments as follows:
Six months ended Year ended
31 December 30 June
(R'000's) 2018 2017 2018
Long-term insurance 160,044 243,905 339,162
Short-term insurance 43,418 69,135 108,203
Other 610 473 616
Total 204,072 313,513 447,981
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 2018 Six months
ended Year ended
31 December 30 June
(R'000's) ANW VIF CoC EV 2017 2018
Closing EV 1,002,537 5,324,944 (108,370) 6,219,111 6,040,344 6,321,588
Opening EV 1,160,955 5,268,725 (108,092) 6,321,588 5,831,561 5,831,561
Dividends declared (418,670) (418,670) (384,261) (384,261)
Adjusted EV at the beginning of the year 742,285 5,268,725 (108,092) 5,902,918 5,447,300 5,447,300
EV Earnings 260,252 56,219 (278) 316,193 593,044 874,288
Impact of once-off economic assumption changes 576 24,921 4,051 29,548 (34,826) 67,978
Impact of once-off debit order submission failure* 19,320
Reversing impact of Switch2 purchase & costs 12,729 17,433
Annualised Recurring EV Earnings 260,828 81,140 3,773 345,741 570,947 979,019
Recurring Return on EV 11.7% 21.0% 18.0%
Annualised Return on EV 10.7% 21.8% 16.0%
Components of
EV earnings
VNB (275,723) 485,551 (5,756) 204,072 313,513 447,981
Expected return on covered business 316,346 3,827 320,173 294,454 606,928
Expected profit transfer 524,692 (524,692) -
Withdrawal and unpaid premium experience variance (13,532) (70,404) 1,379 (82,557) (51,048) (81,634)
Other changes in non-economic assumptions and modelling 20,256 (137,690) 3,813 (113,621) (11,281) (43,949)
Claim and reinsurance experience variance 1,117 1,117 955 3,420
Sundry experience variance 1,581 (557) 1,024 (948) (11,329)
Expected return on ANW 40,688 40,688 35,969 73,470
Set-up costs for new ventures (2,333) (2,333) (6,087)
YTI guarantee costs (1,606) (1,606) (4,461)
SAR and Bonus Rights Schemes 15,831 15,831 (88) 3,460
Goodwill and Medium-term incentive schemes (13,552) 12,586 (966) (15,900) (5,956)
EV operating return 297,419 81,140 3,263 381,822 565,626 981,843
Investment return variances on ANW (36,591) 510 (36,081) 5,321 (2,824)
Recurring EV earnings 260,828 81,140 3,773 345,741 570,947 979,019
Effect of Economic assumption changes (576) (24,921) (4,051) (29,548) 34,826 (67,978)
Impact of once-off debit order submission failure* (19,320)
Reversing impact of Switch2 purchase (12,729) (17,433)
EV earnings 260,252 56,219 (278) 316,193 593,044 874,288
* Impact of an operational breakdown at a service provider responsible for the monthly processing of policyholder premiums.
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
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 du Toit BCom*; PR Gwangwa BProc LLB, LLM;
IB Hume CA(SA), ACMA*; BY Mkhondo BCom, MBA; 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
28 February 2019
Date: 28/02/2019 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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