| Mon 17 Aug 2009, 17:00 | | CLI - Clientele Limited - Summarised Group Results For The Year Ended 30 June |
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CLI
CLI
CLI - Clientele Limited - Summarised Group Results For The Year Ended 30 June
2009
Clientele Limited
(Registration number 2007/023806/06)
Share code: CLI
ISIN: ZAE000117438
Highlights
Return on average shareholders` interest of 57%
Return on Embedded Value of 62%
Embedded Value Earnings increased by 102% from R326 million to R657 million
Value of New Business increased by 31% from R321 million to R420 million
Embedded Value per share increased by 43%
Improved lapse experience in South Africa
Investment losses on insurance assets limited to 2%
Diluted headline earnings per share increased by 8% from 41.21 cents to 44.52
cents
Dividends per share increased by 8% from 39 cents to 42 cents
SUMMARISED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2009
COMMENTS
Introduction
What a year it has been! Clientele Limited ("Clientele") and its subsidiaries
("the Group") have recorded results of which we are proud; reflecting a return
on average shareholders` interest of 57%, a return on Embedded Value of 62% and
an increase in the Value of New Business of 31%.
These results have been achieved in a year of turmoil for global financial
markets, a recession in South Africa, a decline in investment returns from the
JSE All Share Index of negative 25% and the first full year of operations for
Clientele`s newly established businesses which include: Independent Field
Advertisers Limited Nigeria, Clientele Legal and Clientele Loans Direct.
Operating Results
The Group has continued to create significant value this year. Although
production volumes have been impacted by the state of the economy this has been
countered by improved new business profit margins which have increased from 21%
last year to 24% this year and enhanced premium collections management resulting
in improved lapse experience this year in South Africa. The Value of New
Business has increased from R320.6 million for last year to R420.0 million this
year.
The Embedded Value ("EV") has increased from R1.06 billion (after adjusting for
dividends and related STC) to R1.72 billion at 30 June 2009. This reflects EV
earnings of R657.0 million and translates into a Return on EV of 62%. This
return can be broken down into a return of 51% per annum before allowing for any
economic assumption changes and 11% being the impact of once-off items
(including economic assumption changes).
The increase in EV from R1.20 billion to R1.72 billion represents a 43% increase
in EV per share.
The risk discount rate of 13.25% (2008: 15.00%) has been set in terms of current
actuarial guidance and includes a conservative adjusted beta of 1, an equity
risk premium of 3.5% and an additional risk margin of 1% to allow for some
conservatism given the current economic climate. The calculation is
comprehensively explained and a sensitivity analysis is provided under the Group
Embedded Value section of the results.
Headline earnings for the Group of R144.0 million is 7% higher than the headline
earnings of R134.0 million for last year despite the reduction in investment
income related to insurance assets, start up costs as budgeted in respect of the
newly established businesses and the higher STC charge in respect of the 30%
increase in dividends paid during the year. Net profit before the results of
newly established businesses has increased by 19% from R139.0 million last year
to R165.4 million this year.
Diluted headline earnings per share has increased by 8% from 41.21 cents for the
year ended 30 June 2008 to 44.52 cents for the year ended 30 June 2009.
The three new ventures, which, as budgeted, have incurred start up costs ahead
of income, have together contributed a net loss after tax of R21.3 million after
adjusting for minority interests.
The return on average shareholders` interests for the year has decreased from
70% for last year to 57% for this year. The decrease is due to the start-up
costs for new ventures and the decrease in investment returns from last year.
Net recurring insurance premiums for the year are up by 15% from R784.0 million
to R902.1 million and other recurring income which comprises mainly of annuity
fees from Clientele Life`s Independent Field Advertisers, of R145.9 million is
23% up on last year`s other income of R118.4 million.
Investment returns on insurance assets for the year, although negative, have
been limited to negative 2% in comparison to the negative 25% return of the JSE
All Share Index for the year. Prompt action in revising and adjusting the asset
allocation for the year has sheltered the Group from the effects of the
turbulent markets during the year.
* The fair value adjustment to financial assets at fair value through profit and
loss of R88.5 million consist of a loss in respect of insurance assets of R25.6
million and a gain in respect of investment contract assets (Single Premium
Business) of R114.1 million which should be viewed in conjunction with the fair
value adjustment to financial liabilities at fair value through profit and loss
in respect of investment contracts of R112.0 million.
During the year significant investment contract business was written which is
evidenced by the increase in financial assets held at fair value through profit
and loss increasing from R488.4 million last year to R721.8 million this year.
This is also evidenced in the net acquisition of investments of R250.8 million,
as reflected in the cash flow statement.
Net insurance benefits and claims of R153.1 million (2008: R161.5 million) have
decreased by 5% over last year. The majority of the net insurance benefits and
claims relate largely to payments in respect of linked endowment products whose
unit price has decreased by 3% over the year.
The active ongoing management of expenses has continued to support the growth in
New Business Profit margins and the strong growth in EV. Expenses for the year
have increased by 24% due to the inclusion of expenses related to the new
subsidiaries. The increase in expenses prior to the inclusion of the new
ventures amounted to 8% from R512.7 million to R554.5 million, which is lower
than the corresponding increase in net insurance premiums and other income from
R899.1 million to R1 009.3 million, an increase of 12%.
Intangible assets of R31.4 million comprises mainly of software development
costs for IFA Nigeria of R5.4 million and purchased software and television
production costs for Clientele Life of R25.1 million.
The increase in the deferred tax asset of R18.2 million is mainly attributable
to deferred tax raised in respect of the IFA Nigeria net loss for the year.
The cash flows from financing activities comprises mainly of R15.5 million of
loans at amortised cost from minority shareholders in IFA Nigeria and R62.8
million in respect of shareholder funds received from minority shareholders in
IFA Nigeria.
The cash and cash equivalents of the Group has decreased to R112.6 million as a
result of the acquisition of property, equipment and intangible assets,
dividends and related STC, taxation payments and the acquisition of investments.
New Ventures
IFA Nigeria
Clientele launched a new Life Insurance Brokerage business in Nigeria, IFA
Nigeria, in July 2008 and commenced policy sales from August 2008.
The EV results for IFA Nigeria have been based on a risk discount rate of 25%
per annum, a long-term investment return of 13% per annum and a long-term
inflation rate of 12% per annum. The Present Value of In-force Business at 30
June 2009 amounts to R24.8 million and Value of New Business amounts to negative
R0.4 million. The business has a total EV of R57.4 million. Production is in
line with expectations and expenses have been more favourable than expected;
however, collections are lower than expected. Management believes that
controlling and improving the premium collection process will play an important
role in the overall success of IFA Nigeria.
Clientele Legal
The personal lines legal insurance business is performing as expected with a
Value of In-force Business of R73.6 million and a Value of New Business of R31.3
million.
Clientele Loans Direct
The unsecured personal loans business, of which Clientele owns 70%, operated in
co-operation with Direct Axis (SA) (Pty) Ltd., is progressing in line with its
conservative credit assessment and lending approach. R20.2 million has been
advanced in the first ten months of operation and experience from the loans book
has been as expected. The advances book has been impaired by R1.8 million which
is in line with expectations. Direct Axis is a fully integrated and centralised
direct marketing business that offers selected financial products. Direct Axis
has established joint ventures with other insurance and banking partners that
utilise its risk management intellectual property, marketing tools, IT
infrastructure, database and risk assessment expertise, customer management
skills and distribution ability. Direct Axis prides itself on its extensive loan
portfolio management skills acquired since inception in 1995.
Prospects
This year has seen the progress of the Group`s transformation from a life
insurance company to a financial services group. At the same time its core
traditional business continues to enjoy the success it has achieved in the past.
This has paved the way for Clientele to offer other financial services products
to its existing customers and for it to use its existing direct distribution
channels to market these additional products. Clientele believes that its proven
IFA distribution model is well suited to other African markets and the
acceptance of IFA in Nigeria has been encouraging. The new group intends to
leverage off its existing customers and distribution methods and to remain a
highly focused organisation in order to further enhance the creation of value
for shareholders.
By order of the Board
G Q Routledge G J Soll
Chairman Managing Director
Johannesburg
13 August 2009
DIVIDEND DECLARATION
Notice is hereby given that the Board is declaring the following dividend per
ordinary share:
Ordinary dividend (cents per share) 42
Ordinary shares in issue at record date (000`s) 323 500
The dividend will be paid on Monday, 14 September 2009.
To comply with the procedures of Strate Limited the last day to trade in the
shares for purposes of entitlement to the dividend is Friday, 4 September 2009.
The shares will commence trading ex dividend on Monday, 7 September 2009 and the
record date will be Friday, 11 September 2009.
Share certificates may not be dematerialised or rematerialised between Monday, 7
September 2009 and Friday, 11 September 2009 both days inclusive.
By order of the Board
G Q Routledge G J Soll
Chairman Managing Director
Johannesburg
13 August 2009
CONDENSED GROUP INCOME STATEMENTS
Year ended
30 June %
(R`000`s) 2009 2008 Change
Revenue
Insurance premium revenue 938 226 815 232 15
Reinsurance premiums (36 096) (31 195) 16
Net insurance premiums 902 130 784 037 15
Other income 145 949 118 395 23
Interest income 14 283 10 207 40
Income from brokerage (Nigeria) 15 483 -
Fair value adjustment to financial 88 465 53 792 64
assets at fair value through profit
and loss*
Total revenue 1 166 310 966 431 21
Net insurance benefits and claims (153 063) (161 485) (5)
Increase in policyholder (45 519) (40 315) 13
liabilities under insurance
contracts
Decrease in reinsurance assets (1 648) (10 564)
Fair value adjustment to financial* (112 010) (31 770)
liabilities at fair value through
profit and loss - investment
contracts
Impairment of advances (1 830) -
Operating expenses (649 394) (522 029) 24
Results from operating activities 202 846 200 268 1
Equity accounted earnings 165 74
Profit before tax 203 011 200 342 1
Tax (65 051) (66 136) (2)
Net profit for the year 137 960 134 206 3
Attributable to:
Minorities - ordinary shareholders (6 327) -
Equity holders of the Group - 144 287 134 206 8
ordinary shareholders
CONDENSED GROUP BALANCE SHEETS
Year ended
30 June
(R`000`s) 2009 2008
Assets
Intangible assets 31 367 3 848
Property and equipment 41 452 21 476
Owner-occupied properties 129 600 127 600
Investment in associates 349 626
Deferred tax 24 201 5 966
Inventories 2 653 712
Reinsurance assets 22 147 23 795
Financial assets held at fair value through 1 404 549 1 065 997
profit and loss*
Loans and receivables including insurance 50 559 45 113
receivables
Current tax receivables - 1 742
Cash and cash equivalents 112 633 197 390
Total assets 1 819 510 1 494 265
Total equity and reserves 287 958 217 789
Liabilities
Policyholder liabilities under insurance 584 027 538 335
contracts
Financial liabilities held at fair value 717 561 490 469
through profit and loss
Loans at amortised cost 15 505 -
Finance leases 1 303 -
Employee benefits 73 724 65 941
Accruals and payables including insurance 88 511 137 036
payables
Deferred tax 11 682 13 168
Current tax 39 239 31 527
Total liabilities 1 531 552 1 276 476
Total equity and liabilities 1 819 510 1 494 265
TAX
Year ended
30 June
(R`000`s) 2009 2008
Current and deferred tax (53 435) (58 250)
Secondary tax on companies ("STC") (11 952) (9 288)
Capital gains tax (662) (340)
Overprovision in prior years 998 1 742
Tax (65 051) (66 136)
The Individual Policyholder Fund has an estimated tax loss of R1.20 billion
(2008: R1.03 billion).
RECONCILIATION OF NET PROFIT TO HEADLINE EARNINGS
Year ended
30 June
(R`000`s) 2009 2008
Net profit for the year attributable to 144 287 134 206
equity holders of the Group
Less: Profit on disposal of fixed assets (254) (202)
Headline earnings 144 033 134 004
RATIOS PER SHARE
Year ended
30 June
2009 2008
Headline earnings per share (cents) 44.52 41.42
Diluted headline earnings per share (cents) 44.52 41.21
Earnings per share (cents) 44.60 41.49
Diluted earnings per share (cents) 44.60 41.27
Net asset value per share (cents) 89.01 67.32
Diluted net asset value per share (cents) 89.01 66.98
Dividends per share (cents) 42.00 39.00
Weighted average ordinary shares (`000) 323 500 323 500
Diluted average ordinary shares (`000) 323 500 323 500
NOTES TO THE RESULTS
The results have been reviewed by the Group`s auditors, PricewaterhouseCoopers
Inc., in terms of International Standards on Review Engagements 2410. The scope
of the review was to enable the auditors to report that nothing came to their
attention that caused them to believe that the accompanying condensed
preliminary consolidated financial information is not presented in all material
respects, in accordance with the South African Companies Act 1973 (Act 61 of
1973), as amended, and section 8.57 of the JSE Limited Listings Requirements. A
copy of the review opinion is available on request at the Company`s registered
offices.
ACCOUNTING POLICIES
Statement of compliance
The accounting policies adopted for the purpose of the Group Financial
statements comply with International Financial Reporting Standards ("IFRS"), the
JSE Limited Listings Requirements and the Companies Act 1973 (Act 61 of 1973),
as amended, and are consistent with those used in the Annual Financial
statements for the year ended 30 June 2008. During the year the Group has
transacted with minority shareholders and consequently accounted for these
transactions based on the economic entity model method. The results have been
prepared in terms of IAS 34 (Interim Financial Reporting).
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.
CONDENSED GROUP CASH FLOW STATEMENTS
Year ended
30 June
(R`000`s) 2009 2008
Cash flows from operating activities (98 846) 182 518
Cash generated by operations 283 771 252 229
Net (acquisition)/disposal of investments (250 087) 40 061
Interest received 45 136 10 084
Dividends received 23 747 12 536
Dividends paid (126 095) (97 116)
Tax paid (75 318) (35 276)
Cash flows from investing activities (65 122) (74 823)
Cash flows from financing activities 79 211 -
Net (decrease)/increase in cash and cash (84 757) 107 695
equivalents
Cash and cash equivalents at beginning of 197 390 89 695
the year
Cash and cash equivalents at end of the year 112 633 197 390
SEGMENT INFORMATION
The Group`s results are analysed across two geographical segments which are
South Africa ("SA") and Nigeria.
The Group`s main business segments are Long term insurance, Short term
insurance, Investment contracts, Loans business and Long term brokerage
segments. Policies written are in respect of individuals.
SEGMENT ASSETS & LIABILITIES
Year ended
30 June
(R`000`s) 2009 2008
Assets
SA - Long term insurance 1 013 507 1 007 164
SA - Short term insurance 21 310 6 662
SA - Investment contracts 721 836 488 375
SA - Loans 30 034 -
Nigeria - Long term brokerage 70 827 2 898
Inter segment (38 004) (10 834)
Total Group Assets 1 819 510 1 494 265
Liabilities
SA - Long term insurance 768 945 778 736
SA - Short term insurance 17 928 8 342
SA - Investment contracts 717 561 494 480
SA - Loans 35 577 -
Nigeria - Long term brokerage 29 545 5 752
Inter segment (38 004) (10 834)
Total Group Liabilities 1 531 55 2 1 276 476
SEGMENT INCOME STATEMENTS
SA SA SA
Long term Short term Investment SA
(R`000`s) insurance insurance contracts* Loans
30 June 2009
Net insurance 866 232 35 898
premiums
Other income 143 140 7 554
Interest income 9 135 1 303 2 391
Income from brokerage
Fair value adjustment (25 160) 114 111
to financial assets
at fair value through
profit and loss
Segment revenue 993 347 37 208 114 111 2 945
Segment expenses and (750 618) (41 934) (113 596) (10 644)
claims
Net insurance (152 781) (282)
benefits and claims
Increase in (41 676) (3 843)
policyholder
liabilities under
insurance contracts
Decrease in (1 648)
reinsurance assets
Fair value adjustment (112 010)
to financial
liabilities at fair
value through profit
and loss
Impairment of (1 830)
advances
Operating expenses (554 513) (37 809) (1 586) (8 814)
Results from 242 729 (4 726) 515 (7 699)
operating activities
Equity accounted 165
earnings
Profit/(loss) before 242 894 (4 726) 515 (7 699)
tax
Tax (77 911) 534 (144) 2 156
Net profit/(loss) for 164 983 (4 192) 371 (5 543)
the year
30 June 2008
Net insurance 781 566 2 471
premiums
Other income 117 565 830
Interest income 10 067 140
Fair value adjustment 21 883 31 909
to financial assets
at fair value through
profit and loss
Segment revenue 931 081 2 611 32 739 -
Segment expenses and (725 095) (5 335) (31 770) -
claims
Net insurance (161 484) (1)
benefits and claims
Increase in (40 315)
policyholder
liabilities under
insurance contracts
Decrease in (10 564)
reinsurance assets
Fair value adjustment (31 770)
to financial
liabilities at fair
value through profit
and loss
Operating expenses (512 732) (5 334)
Results from 205 986 (2 724) 969 -
operating activities
Equity accounted 74
earnings
Profit/(loss) before 206 060 (2 724) 969 -
tax
Tax (67 737) 763 (271) -
Net profit/(loss) for 138 323 (1 961) 698 -
the year
Nigeria Inter
Long term segment Total
(R`000`s) brokerage (revenue)/expense Group
30 June 2009
Net insurance premiums 902 130
Other income 2 728 (480) 145 949
Interest income 968 486 14 283
Income from brokerage 15 483 15 483
Fair value adjustment to (486) 88 465
financial assets at fair value
through profit and loss
Segment revenue 19 179 (480) 1 166 310
Segment expenses and claims (47 152) 480 (963 464)
Net insurance benefits and (153 063)
claims
Increase in policyholder (45 519)
liabilities under insurance
contracts
Decrease in reinsurance assets (1 648)
Fair value adjustment to (112 010)
financial liabilities at fair
value through profit and loss
Impairment of advances (1 830)
Operating expenses (47 152) 480 (649 394)
Results from operating (27 973) - 202 846
activities
Equity accounted earnings 165
Profit/(loss) before tax (27 973) - 203 011
Tax 10 314 (65 051)
Net profit/(loss) for the year (17 659) - 137 960
30 June 2008
Net insurance premiums 784 037
Other income 118 395
Interest income 10 207
Fair value adjustment to 53 792
financial assets at fair value
through profit and loss
Segment revenue - - 966 431
Segment expenses and claims (3 963) - (766 163)
Net insurance benefits and (161 485)
claims
Increase in policyholder (40 315)
liabilities under insurance
contracts
Decrease in reinsurance assets (10 564)
Fair value adjustment to (31 770)
financial liabilities at fair
value through profit and loss
Operating expenses (3 963) (522 029)
Results from operating (3 963) - 200 268
activities
Equity accounted earnings 74
Profit/(loss) before tax (3 963) - 200 342
Tax 1 109 - (66 136)
Net profit/(loss) for the year (2 854) - 134 206
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Common
control
Share Share surplus/ Sub- Retained
(R`000`s) capital premium (deficit) total earnings
Balance as at 1 4 853 4 853 146 493
July 2007
Issue of share 6 470 218 656 (225 126) -
capital
Ordinary dividend (97 050)
paid
Net profit for the 134 206
year
Transfer to (246)
contingency
reserve
SAR scheme
allocated
Revaluation of
owner occupied
properties
Gross
Deferred tax
Balance as at 30 6 470 218 656 (220 273) 4 853 183 403
June 2008
Balance as at 1 6 470 218 656 (220 273) 4 853 183 403
July 2008
Ordinary dividend (126 165)
paid
Net profit/(loss) 144 287
for the year
Transfer to (910)
contingency
reserve
SAR scheme
allocated
Currency
translation
differences
Shares issued by
subsidiary
Revaluation of
owner occupied
properties
Gross
Deferred tax
Balance as at 30 6 470 218 656 (220 273) 4 853 200 615
June 2009
NDR:
Foreign NDR:
SAR currency Changes
scheme NDR: translation in
(R`000`s) reserve Contingency reserve ownership
Balance as at 1 July 2007 2 099 - -
Issue of share capital
Ordinary dividend paid
Net profit for the year
Transfer to contingency 246
reserve
SAR scheme allocated 4 645
Revaluation of owner
occupied properties
Gross
Deferred tax
Balance as at 30 June 2008 6 744 246 - -
Balance as at 1 July 2008 6 744 246
Ordinary dividend paid
Net profit/(loss) for the
year
Transfer to contingency 910
reserve
SAR scheme allocated 5 371
Currency translation (7 428)
differences
Shares issued by subsidiary 45 326
Revaluation of owner
occupied properties
Gross
Deferred tax
Balance as at 30 June 2009 12 115 1 156 (7 428) 45 326
Non-
NDR: controlling
(R`000`s) Revaluation Sub-total interest Total
Balance as at 1 July 2007 16 101 169 546 169 546
Issue of share capital - -
Ordinary dividend paid (97 050) (97 050)
Net profit for the year 134 206 134 206
Transfer to contingency - -
reserve
SAR scheme allocated 4 645 4 645
Revaluation of owner
occupied properties
Gross 8 524 8 524 8 524
Deferred tax (2 082) (2 082) (2 082)
Balance as at 30 June 22 543 217 789 - 217 789
2008
Balance as at 1 July 2008 22 543 217 789 217 789
Ordinary dividend paid (126 165) (126 165)
Net profit/(loss) for the 144 287 (6 327) 137 960
year
Transfer to contingency - -
reserve
SAR scheme allocated 5 371 5 371
Currency translation (7 428) 378 (7 050)
differences
Shares issued by 45 326 14 607 59 933
subsidiary
Revaluation of owner
occupied properties
Gross 50 50 50
Deferred tax 70 70 70
Balance as at 30 June 22 663 279 300 8 658 287 958
2009
GROUP EMBEDDED VALUE
EMBEDDED VALUE
The methodology and assumptions used to determine the Group Embedded Value
("EV") have been adjusted to comply with the revised Embedded Value Guidance
from the Actuarial Society of South Africa that applies for reporting periods
ending on or after 31 December 2008.
The 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 business less
- the Cost of Required Capital ("CoC")
The Present Value of In-force business is the present value of future after tax
profits arising from covered business in force as at 30 June 2009.
All material business written by the Group has been covered by EV Methodology as
outlined in Professional Guidance Note, PGN 107 of the Actuarial Society of
South Africa, including:
- all long-term insurance business regulated in terms of the Long-Term Insurance
Act, 1998;
- annuity income arising from non-insurance contracts where EV Methodology has
been used to determine future shareholder entitlements;
- Legal insurance business where EV Methodology has been used to determine
future shareholder entitlements;
- Loans business where EV Methodology has been used to determine future
shareholder entitlements; and
- business conducted via IFA Nigeria (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) 2009 2008
Free Surplus 186 554 158 065
Required Capital 91 021 50 001
Adjusted Net Worth ("ANW") of covered 277 575 208 066
business
Cost of Required Capital (30 938) (15 761)
Present Value of In-force business 1 474 414 1 009 836
("PVIF")
EV of covered business 1 721 051 1 202 141
The Adjusted Net Worth 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 Adjusted Net Worth less the
Required Capital attributed to covered business.
Reconciliation of Total Equity to Year ended
Adjusted Net Worth 30 June
(R`000`s) 2009 2008
Total equity and reserves per balance sheet 287 958 217 789
Removal of Deferred Profits liability (net 4 603 2 888
impact)
Removing minority interests (8 658) -
Adjusting subsidiaries to Net Asset Value (1 157) (1 397)
SAR Scheme adjustment (5 171) (11 214)
Adjusted Net Worth 277 575 208 066
The Cost of Required Capital is the opportunity cost of having to hold assets to
cover the Required Capital of R91 million as at 30 June 2009. The Required
Capital has been set at the greater of the Statutory Termination Capital
Adequacy Requirement and 1.5 times the Statutory Ordinary Capital Adequacy
Requirement for the Life company plus R5 million for the short term company.
The SAR scheme adjustment recognises the future dilution in Embedded Value, on a
mark to market basis, as a result of the SAR scheme referred to above.
Clientele Life`s Statutory CAR cover ratio at 30 June 2009 was 2.98 times (30
June 2008: 4.4 times) on the statutory valuation basis.
Year ended
30 June
2009 2008
EV per share (cents) 532.01 371.60
Diluted EV per share (cents) 532.01 369.71
VALUE OF NEW BUSINESS
Total Value of New Business 420 018 320 602
Present Value of New Business premiums 1 728 887 1 548 802
New Business profit margin % 24.3% 20.7%
The Value of New Business (excluding any allowance for the Management Incentive
scheme) 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 2009
less the Cost of Required Capital pertaining to this business.
The New Business profit margin is the Value of New Business 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 (SOUTH AFRICA)
Year ended
30 June
2009 2008
Risk discount rate % 13.25 15.00
Overall investment return % 8.75 11.25
Expense inflation % 6.75 8.00
Corporate tax % 28.00 28.00
The risk discount rate 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 risk
discount rate 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%. In addition, the Board decided it prudent, in light of the
current economic conditions and the global financial crisis, to add some
additional conservatism to the EV calculation as at 30 June 2009. This was
achieved via the addition of an explicit 1% margin to the risk discount rate.
The beta pertaining to the Clientele share price is relatively low, which is
partially a consequence of the relatively small free-float of shares. After
careful consideration, the Board has opted, at this stage, to use a more
conservative beta of 1 in the calculation of the risk discount rate.
The resulting risk discount rate utilised for the South African business as at
30 June 2009 was 13.25%. The theoretical risk discount rate using this same
methodology, as at 30 June 2008, would have been 14.75% (a 25 basis point
difference from the risk discount rate that was actually used at that time).
This difference combined with other minor changes to EV Methodology required in
terms of the latest version of the Actuarial Society of South Africa`s Guidance
Note (PGN107 - version 4) would have made an immaterial difference to the
published EV results as at 30 June 2008 (less than 0.5% of EV). As a
consequence, comparative results have not been restated.
The Board is of the view that the risk margin used in calculating the risk
discount rate is more conservative than the approach used by the rest of the
market. Investors may want to consider this in conjunction with the impact of
the change in methodology and form their own view on an appropriate allowance
for the non-financial risks which have not been modelled explicitly. The
sensitivity of the Embedded Value of covered business and the Value of New
Business to changes in the risk discount rate are shown in the "Risk Discount
Rate Sensitivities" section below.
RISK DISCOUNT RATE SENSITIVITIES
Value of
New
(R`000`s) EV Business
Risk discount rate 11.25% 1 862 492 469 809
Risk discount rate 12.25% 1 787 788 443 563
Risk discount rate 13.25% 1 721 051 420 018
Risk discount rate 14.25% 1 658 248 398 458
Risk discount rate 15.25% 1 601 719 378 910
Long-term economic assumptions (Nigeria)
Year ended
30 June
2009 2008
Risk discount rate % 25% N/A
Overall investment return % 13% N/A
Expense inflation % 12% N/A
Corporate and other tax % 33% N/A
The economic assumptions for Nigeria were set by IFA Nigeria`s independent
external actuary (H.R. Nigeria Limited) and reviewed by the Group`s external
actuaries, QED Actuaries & Consultants (Pty) Ltd. The assumptions were set at a
conservative level which was deemed to be appropriate as this is a new venture
and, as such, is more risky than an established business.
SEGMENT INFORMATION
The EV can be split between segments as follows:
(R`000`s)
30 June 2009 ANW CoC PVIF EV
SA - Long-term 248 270 (29 498) 1 375 204 1 593 976
insurance
SA - Short-term 2 224 (1 440) 72 781 73 565
insurance
SA - Investment - - 1 440 1 440
contracts
SA - Loans (5 543) - 230 (5 313)
Nigeria - Long-term 32 624 - 24 759 57 383
brokerage
Total 277 575 (30 938) 1 474 414 1 721 051
30 June 2008
SA - Long-term 208 066 (15 761) 994 813 1 187 118
insurance
SA - Short-term - - 13 600 13 600
insurance
SA - Investment - - 1 423 1 423
contracts
Total 208 066 (15 761) 1 009 836 1 202 141
The Value of New Business can be split between segments as follows:
30 June 30 June
(R`000`s) 2009 2008
SA - Long-term insurance 383 799 312 586
SA - Short-term insurance 31 275 6 919
SA - Investment contracts 5 621 1 097
SA - Loans (364)
Nigeria - Long-term brokerage (313)
Total 420 018 320 602
EMBEDDED VALUE EARNINGS
EV earnings (per PGN 107) comprises the change in EV (after minority interests)
for the year after adjusting for capital movements and dividends paid as they
pertain to Clientele Limited. EV earnings explicitly include the impact of
changes in minority shareholder interests.
Year ended to 30 June 2009
EV earnings for the ANW CoC PVIF EV
year (R`000`s)
A: EV at the end of 277 575 (30 938) 1 474 414 1 721 051
the year
Embedded Value at the 208 066 (15 761) 1 009 836 1 202 141
beginning of the year
Dividends and STC (138 117) - - (138 117)
accrued or paid
B: Adjusted EV at the 69 949 (15 761) 1 009 836 1 064 024
beginning of the year
EV earnings (A - B) 207 626 (15 178) 464 578 657 026
Impact of once-off 1 946 (4 020) 74 377 72 303
economic assumption
changes
Once-off equity 44 755 - - 44 755
impact of introducing
a minority interest
into IFA Nigeria
EV earnings before 160 925 (11 158) 390 201 539 968
once-off items
As a percentage of 50.7%
Adjusted EV at the
beginning of the year
- Return on EV
Return on EV 61.7%
including once-off
items
Year ended to 30 June 2009
Components of EV ANW CoC PVIF EV
earnings (R`000`s)
Value of New Business (85 452) (4 633) 510 103 420 018
at point of sale
Expected return on - (2 365) 155 959 153 594
Covered Business
(unwinding of risk
discount rate)
Expected profit 280 986 - (280 986) -
transfer
Withdrawal experience (19 869) - 13 789 (6 081)
variance
Claims and reinsurance 16 238 - - 16 238
experience variance
Sundry experience (15 876) (605) 1 346 (15 135)
variances
Operating assumption 1 639 (3 555) (485) (2 401)
and model changes
Expected return on ANW 21 581 - - 21 581
SAR scheme dilution 6 043 - - 6 043
Goodwill and medium (38 685) - (3 494) (42 179)
term incentive schemes
EV operating return 166 605 (11 158) 396 232 551 678
Investment return (250) (250)
variances on ANW
Equity impact of 44 755 - - 44 755
introducing a minority
interest into IFA
Nigeria
Effect of foreign (5 430) - (6 031) (11 461)
currency movements
Effect of economic 1 946 (4 020) 74 377 72 304
assumption changes
EV earnings 207 626 (15 178) 464 578 657 026
Sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Limited
Registered office:
Clientele Office Park,
Cnr Rivonia and Alon Roads, Morningside,
PO Box 1316, Rivonia 2128, South Africa
Transfer secretaries:
Computershare Investor Services (Pty) Ltd,
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), A D T Enthoven BA,
PhD (Political Science), I B Hume CA(SA), ACMA*,
B Frodsham BCom*, B W Reekie BSc(Hons), Fia*
Company secretary:
W Van Zyl CA(SA) *Executive director
Website: www.clientele.co.za
E-mail: services@clientele.co.za
Date: 17/08/2009 17:00:01 Produced by the JSE SENS Department.
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