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CLE
CLE
CLE - Clientele - Summarised group results: six months ended 31 December 2007
Clientele Life Assurance Company Limited
(Registration number 1973/016606/06)
Share code: CLE
ISIN: ZAE000013397
FSP number: 15268
Summarised Group Results for the Six months ended 31 December 2007
Highlights
* Net insurance premiums up by 33%
* Headline earnings per share up by 27%
* Annualised return on Embedded Value of 40%
* Annualised return on average shareholders interest of 85%
COMMENTS
The six months to 31 December 2007 has been characterised by the introduction of
the National Credit Act ("NCA"), changes in banking system collection mechanisms
and a weakening of investment markets in November and December. These changes
have affected net production, persistency and investment returns for the six
month period.
This had an effect on Clientele Life`s results which nevertheless reflect a
healthy increase in headline earnings.
Net recurring premium income for the period of R379 million (2006: R285 million)
increased by 33%. The group earned R61 million (2006: R38 million) of other
income which represents an increase of 58% and is comprised mainly of recurring
income, prior to the allocation of related expenses, from its Independent Field
Advertiser ("IFA") distribution channel.
Fair value gains on financial assets for the six months were significantly lower
than that of the corresponding period last year and at R35 million is R45
million short of the comparative gains of R80 million. Within these fair value
gains, R9 million is attributable to shareholders which is R19 million lower
than last year. This is as a result of the weaker financial markets in November
and December.
Policyholders benefits of R80 million (2006: R53 million) have increased by 52%.
Administration expenses per policy continue to be well controlled and the
relatively low average annual administration cost per policy is in line with
actuarial assumptions. Together, acquisition costs and administration expenses
for the period have increased by 29% in comparison to the 33% increase in net
recurring premium income.
The transfer to policyholder liabilities under insurance contracts has decreased
significantly for the period mainly due to policyholder investment performance
which has been affected by lower market returns.
The effective tax rate for the period has increased in comparison to the
comparative period due to the change in mix of income with significantly less
investment income this period.
Headline earnings per share has increased by 27% from 156,89 cents to 199,45
cents for the period under review.
The above results have translated into an annualised after-tax return on average
shareholders interests of 85%.
Value of New Business for the six months amounted to R159 million (2006: R169
million) and has been affected by the introduction of the NCA and changes in
banking collection mechanisms. These changes had the most impact in the first
quarter of the financial year and good progress has been made in responding to
these changes.
Embedded Value has increased from R876 million after adjusting for dividends and
related STC at 30 June 2007 to R1 billion at 31 December 2007. This translates
into an annualised return on Embedded Value of 40% which although lower than the
same period last year is still pleasing off a significantly higher base.
The Share Appreciation Rights ("SAR") Scheme implemented in January 2007 has
required that in accordance with IFRS, Clientele Life recognises a cost of R2
million in the income statement for this period and has resulted in a cumulative
R18 million adjustment to Embedded Value since inception of the scheme, in order
to recognise the future possible dilution as a result of the Scheme. The SAR
Scheme has already had a positive result on the participants and has encouraged
behaviour and performance which has contributed to the results.
Clientele Life remains committed to servicing, empowering and educating under
serviced segments of the financial services market and will continue to consider
opportunities in this arena of the lower and middle income markets.
By order of the Board
G Q Routledge G J Soll Johannesburg
Chairman Managing Director 28 February 2008
UNAUDITED
CONDENSED GROUP BALANCE SHEETS
Six months Year
ended ended
31 December 30 June
(R`000`s) 2007 2006 2007
Assets
Property and equipment 81 288 14 981 82 512
Investment in associate 237 98 141
Loan to associate 450 - 450
Deferred taxation 2 823 4 980 3 384
Current taxation receivables - 2 064 3 295
Inventories 1 711 1 604 1 459
Reinsurance assets 29 270 33 378 34 359
Financial assets held at fair 1 069 005 992 527 1 042 059
value through profit and loss
Receivables including insurance 26 741 15 272 16 333
receivables
Cash and cash equivalents 65 543 39 810 89 695
Total assets 1 277 068 1 104 714 1 273 687
Equity
Share capital 4 853 4 853 4 853
Retained earnings 113 965 92 383 146 494
Non-Distributable Reserve: 16 101 - 16 101
Revaluation
SAR Scheme Reserve 4 449 - 2 099
Total equity 139 368 97 236 169 547
Liabilities
Policyholder liabilities under 512 571 446 648 498 020
insurance contracts
Financial liabilities held at fair 511 033 471 594 480 969
value through profit and loss
Employee benefits 37 244 25 760 32 760
Amounts due to reinsurers - 1 215 1 191
Accruals and payables including 65 074 59 808 79 781
insurance payables
Deferred taxation 11 381 2 453 11 419
Current taxation 397 - -
Total liabilities 1 137 700 1 007 478 1 104 140
Total equity and liabilities 1 277 068 1 104 714 1 273 687
CONDENSED GROUP INCOME STATEMENTS
Six months Year
ended ended
31 December % 30 June
(R`000`s) 2007 2006 Increase 2007
Revenue
Insurance premium 394 376 298 746 32 651 267
revenue - individual
recurring
Reinsurance premiums (15 479) (13 824) (27 749)
Net insurance premiums 378 897 284 922 33 623 518
Other income 60 887 38 480 58 84 765
Fair value gains on 35 372 80 229 (44) 152 675
financial assets held
at fair value through
profit and loss
Total revenue 475 156 403 631 18 860 958
Net insurance benefits (80 046) (52 506) 52 (125 450)
and claims
Policyholder benefits (93 353) (61 846) (145 662)
under insurance
contracts
Insurance claims 13 307 9 340 20 212
recovered from
reinsurers
Increase in (15 532) (66 652) (77) (118 024)
policyholder
liabilities under
insurance contracts
- Increase for the year (14 065) (66 652) (113 968)
- Impact of Statement (1 467) - (4 056)
of Intent and
Regulation 5
(Decrease)/Increase in (4 108) 4 558 5 539
reinsurance assets
Fair value adjustment (20 673) (14 569) 42 (34 332)
to financial
liabilities held at
fair value through
profit and loss
Expenses (250 668) (194 269) 29 (434 673)
Acquisition costs (225 899) (172 881) 29 (387 125)
associated with
insurance contracts
Administration expenses (27 769) (21 388) 30 (47 548)
Equity accounted 95 98 141
earnings from
associates
Profit before taxation 104 224 80 291 30 154 159
Taxation (39 703) (29 565) (49 322)
Net profit attributable 64 521 50 726 27 104 837
to ordinary
shareholders
TAXATION
Six months Year
ended ended
31 December 30 June
(R`000`s) 2007 2006 2007
Current and deferred taxation (30 089) (16 072) (33 524)
Secondary tax on companies ("STC") (9 288) (10 228) (10 228)
Capital gains tax (326) (3 265) (5 570)
(39 703) (29 565) (49 322)
The Individual Policyholder Fund has an estimated tax loss of R774 million.
RECONCILIATION OF NET PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS TO HEADLINE
EARNINGS
Six months Year
ended ended
31 December 30 June
(R`000`s) 2007 2006 2007
Net profit attributable to ordinary 64 521 50 726 104 837
shareholders
Less/add: (Profit)/Loss on disposal - 29 (5)
of fixed assets
Headline earnings 64 521 50 755 104 832
Ratios per share
Headline earnings per share (cents) 199,45 156,89 324,06
Diluted headline earnings per share 198,52 156,84 323,83
(cents)
Earnings per share (cents) 199,45 156,89 324,07
Diluted earnings per share (cents) 198,52 156,89 323,84
Net asset value per share (cents) 430,81 300,57 524,10
Diluted net asset value 428,81 300,55 523,73
per share (cents)
Weighted ordinary shares 32 350 32 350 32 350
in issue (`000)
Diluted ordinary shares 32 501 32 350 32 373
in issue (`000)
CONDENSED STATEMENT OF CHANGES IN EQUITY
Treasury
Share Retained shares
(R`000`s) capital earnings reserve
Balance as at 1 July 2006 4 853 120 344 (1 589)
Sale of treasury shares 5 423 1 589
Net profit attributable to 104 837
shareholders
Ordinary dividend paid (84 110)
SAR scheme allocated
Revaluation of owner-occupied property
Balance as at 30 June 2007 4 853 146 494 -
Balance as at 1 July 2007 4 853 146 494 -
Net profit attributable to 64 521
shareholders
Ordinary dividend paid (97 050)
SAR scheme allocated
Balance as at 31 December 2007 4 853 113 965 -
Non-
SAR distribu-
scheme table
(R`000`s) reserve reserves Total
Balance as at 1 July 2006 - - 123 608
Sale of treasury shares 7 012
Net profit attributable to 104 837
shareholders
Ordinary dividend paid (84 110)
SAR scheme allocated 2 099 2 099
Revaluation of owner-occupied property 16 101 16 101
Balance as at 30 June 2007 2 099 16 101 169 547
Balance as at 1 July 2007 2 099 16 101 169 547
Net profit attributable to 64 521
shareholders
Ordinary dividend paid (97 050)
SAR scheme allocated 2 350 2 350
Balance as at 31 December 2007 4 449 16 101 139 368
CONDENSED GROUP CASH FLOW STATEMENTS
Six months Year
ended ended
31 December 30 June
(R`000`s) 2007 2006 2007
Cash generated by operations 117 734 91 227 228 551
Net acquisition of investments (24 904) (39 404) (72 746)
Investment returns 19 394 66 409 25 321
Dividend paid (96 936) (84 089) (84 089)
Taxation paid (34 994) (41 110) (43 614)
Cash flow from operating activities (19 706) (6 967) 53 423
Cash flow from investing activities (4 446) (5 594) (16 272)
(Decrease)/Increase in cash on hand (24 152) (12 561) 37 151
SEGMENT INFORMATION
Clientele Life`s main business segments include Insurance and Investment
contract segments.
The financial effects of the Investment contract segment on revenue and profit
for the period are insignificant.
Six months Year
ended ended
31 December 30 June
Segment assets & liabilities 2007 2006 2007
Insurance segment assets 768 178 635 898 792 894
Investment contract segment assets 508 890 468 816 480 793
Total Group assets 1 277 068 1 104 714 1 273 687
Insurance segment liabilities 626 667 535 884 623 171
Investment contract segment 511 033 471 594 480 969
liabilities
Total Group Liabilities 1 137 700 1 007 478 1 104 140
Clientele Life operates in South Africa. Policies written are in respect of
individuals.
NOTES TO THE RESULTS:
The investment in associates represents a 33.3% investment in Clientele USA and
a 49% share in Legal Sense (Pty) Ltd.
The increase in policyholder liabilities has been based on best estimates after
providing for compulsory and discretionary margins and has been actuarially
certified by QED Actuaries & Consultants (Pty) Limited.
The group is awaiting transfer of the remaining four buildings in Morningview
Office Park in Rivonia Road, Sandton which have been purchased for R56 million.
The nature of the group`s business remains unchanged.
The group is however pursuing opportunities to expand its offerings within the
financial services arena.
Accounting policies
Statement of compliance
The accounting policies adopted for the purpose of the group financial
statements comply with International Financial Reporting Standards ("IFRS"), and
with the listing requirements of the JSE Limited and the Companies Act of South
Africa and are consistent with prior years.
The preparation of financial statements in accordance with IFRS requires the use
of certain critical accounting estimates and judgement. The reported amounts in
respect of the Group`s insurance contracts, employee benefits and unquoted
financial instruments are affected by accounting estimates and judgement.
There was no significant impact due to changes in previous assumptions used in
deriving the amounts referred to above.
Group Embedded Value
The Embedded Value represents an estimate of the value of the group exclusive of
goodwill attributable to future New Business. The Embedded Value comprises:
- the value of excess assets attributable to shareholders plus
- the value of in force business less
- the cost of capital.
The value of in force business is the present value of future after tax profits
arising from business in force at 31 December 2007.
The Embedded Value calculations have been certified by the company`s independent
actuaries, QED Actuaries & Consultants (Pty) Limited.
Six months Year
ended ended
31 December 30 June
(R`000`s) 2007 2006 2007
Embedded Value
Value of excess assets attributable 138 592 97 236 169 545
to shareholders
Cost of capital (16 681) (9 451) (13 683)
Value of in force business 933 410 693 377 828 707
Embedded Value before SAR Scheme 1 055 321 781 162 984 569
adjustment
SAR Scheme adjustment (18 284) - (2 099)
Embedded Value 1 037 036 781 162 982 470
Value of New Business 158 550 168 684 302 436
The Value of New Business for the six months ended 31 December 2006 of R169
million has been restated from R160 million as the annual increase in
subscribtion fees is now amortised evenly over the year.
The value of excess assets attributable to shareholders represents total equity
after adjusting for the value of subsidiaries to net asset value.
The value of New Business represents the present value of projected after tax
profits at the point of sale on new policies sold and new annuity fee income
commencing during the six months ended 31 December 2007.
The SAR Scheme adjustment recognises the future dilution in Embedded Value as a
result of the introduction of the SAR Scheme referred to above.
The Cost of Capital is the opportunity cost of having to hold assets to cover
the Capital Adequacy Requirement (CAR) of R53 million.
Clientele Life`s CAR cover ratio at 31 December 2007 was 2,6 times (30 June
2007: 3,6 times).
Analysis of change in Embedded Value 31 December 2007
Embedded Value at the beginning of the period 982 470
Dividend paid (97 050)
Secondary tax paid (9 288)
Embedded Value after adjusting for dividends and 876 132
STC
Unwinding of discount rate 61 321
SAR Scheme dilution (16 185)
Goodwill and medium-term incentive schemes (28 281)
892 987
Value added by Management 169 725
Value of New Business 158 550
Profit from associates 68
Investment experience 10 426
Withdrawal experience (8 771)
Expected secondary tax 4 622
Claims and reinsurance experience 2 021
Sundry experience 2 809
Change in basis (24 678)
Change in cost of capital (existing business) (998)
Embedded Value at the end of the period 1 037 036
Embedded Value earnings
Embedded Value at the end of the period 1 037 036
Embedded Value at the beginning of the period 876 132
(after adjusting for dividends and STC)
Embedded Value earnings for the period 160 904
As a percentage of Embedded Value (adjusted) at 18,4%
the beginning of the period
Annualised return on Embedded Value 40,1%
Six months Year
ended ended
31 December 30 June
2007 2006 2007
Embedded Value per share (cents) 3 262,20 2 414,72 3 043,49
Diluted Embedded Value per share 3 205,68 2 414,72 3 037,00
(cents)
Long-term economic assumptions % p.a. % p.a. % p.a.
Risk discount rate 14,0 14,0 14,0
Overall investment return 9,0 8,5 9,0
Expense inflation 6,5 6,0 6,5
Corporate tax 29,0 29,0 29,0
Other assumptions
The assumptions for future mortality, persistency and premium escalations were
based on recent experience adjusted for anticipated future trends. Allowance has
been made for future taxation and STC in the Embedded Value calculations.
By order of the board
G Q Routledge G J Soll Johannesburg
Chairman Managing Director 28 February 2008
Registered office:
Clientele House, Morningview Office Park, Cnr Rivonia and Alon Roads,
Morningside.
PO Box 1316, Rivonia 2128
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited, 70 Marshall Street,
Johannesburg 2001, South Africa.
PO Box 61051, Marshalltown 2107, South Africa
Directors:
G Q Routledge BA LLB (Chairman), G J Soll CA(SA) (Managing Director)*, P J A
Cunningham CA(SA), CA(Z), P R Enthoven BA, I B Hume CA(SA), ACMA*, B Frodsham
BCom*, Dr S D Molapo JSTC (SA), BSC (USA), M.Ed (USA), D.Ed (USA) B W Reekie B
Sc (Hons), FIA*
Company secretary:
W van Zyl CA(SA). *Executive director
Sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Limited
Website: www.clientelelife.com
Email: services@clientelelife.com
Date: 28/02/2008 17:00:07 Produced by the JSE SENS Department.
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