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CLI
CLI
CLI - Clientele - Summarised Group results for the six months ended 31 December
2009
Clientele Limited
(Registration number 2007/023806/06)
Share code: CLI
ISIN: ZAE000117438
("Clientele" or "the Group")
SUMMARISED GROUP RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2009
Highlights
* Headline earnings per share increased by 30% from 18.32 cents to 23.76
cents
* Annualised return on average shareholders interest of 62%
* Annualised return on Embedded Value of 30%
* Value of New Business for the six months of R190 million
COMMENTS
INTRODUCTION
Clientele has again recorded pleasing results in circumstances which were
challenging for most businesses across the world.
Although equity markets have improved, business and consumer activity in South
Africa is still subdued; this has tempered production volumes and embedded value
earnings for the period.
In spite of the effects of the challenging environment, net recurring insurance
premiums have increased by 8% over the same period last year which together with
favourable investment returns and rigorous control of expenses has resulted in
profit before tax for the Group increasing by 30% in comparison to the same six
month period last year.
OPERATING RESULTS
Group Statement of Comprehensive Income
Headline earnings for the Group of R76,9 million are 30% higher than the
headline earnings of R59,3 million for the comparative period.
As a result, diluted headline earnings per share have increased by 29% to 23.71
cents, up from 18.32 cents for the comparative period.
The annualised return on average shareholders` interests has increased to 62% up
from 55% for the same period last year.
Net recurring insurance premiums for the period are up by 8% from R445,7 million
to R482,2 million and other income of R84.3 million, which mainly comprises
annuity fees from Clientele Life`s Independent Field Advertisers ("IFA"), is 3%
up on the comparable six month figure of R81.4 million.
Operating expenses for the period have increased by 8% over the comparable six
month period which is in line with the 8% increase in net recurring insurance
premiums for the period.
The first six months of the financial year to 31 December 2009 evidenced a
significant improvement in investment returns, during this period Clientele
achieved an 11% return from its conservative investment portfolios which is
significantly up on the negative 6% returns for the comparative period.
The increase in policyholder liabilities under insurance contracts of R75,0
million should be viewed in conjunction with the fair value adjustment to
financial assets at fair value through profit and loss. The majority of the
increase relates to the movement in the value of the policyholders unitised
market related investment portfolio which is correlated to investment returns
for the period.
The increase in taxation is mainly attributable to the reversal of the deferred
tax asset of R7.4 million, previously raised in respect of IFA Nigeria`s net
loss since inception as future profits, in the foreseeable future, are difficult
to forecast with certainty.
Group Embedded Value
The Group has continued to grow satisfactorily during the period under review.
Although production volumes have been impacted by the state of the economy, this
has not negatively impacted business profit margins which have remained in line
with the profit margin of 23,7% reported for the comparative period. The Value
of New Business has decreased from R209 million for the comparative six month
period to R190.3 million this period - R12.6 million of this reduction was due
to a 1% increase in the Risk Discount Rate from December 2008. In addition, we
have adopted more conservative withdrawal assumptions for IFA Nigeria due to the
infancy of this business. The production for IFA in South Africa was however
lower than expected.
The Embedded Value ("EV") has increased from R1 573,2 million (after adjusting
for dividends and related STC) to R1 807,3 million at 31 December 2009. This
reflects EV earnings of R234,1 million and translates into an annualised Return
on EV of 29.8%.
The withdrawal experience for Clientele Life was only marginally higher than
expected during the period. This is considered a pleasing result in the current
environment.
The risk discount rate of 13.25% (2008: 12.25%) 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.
SEGMENT RESULTS
Clientele General Insurance (Clientele Legal)
The personal lines legal insurance business has recorded a R0,6 million profit
after tax for the six months compared to the R2,9 million loss for the
comparable six month period. Lapse experience has been better than expected and
profit margins have, as a result, improved. The company now has an Embedded
Value of R153,2 million (2008 : R33,0 million) and Value of New Business of
R34,1 million (2008 : R15,9 million) was created during the six month period.
Investment Contracts
In terms of IFRS expenses in respect of the Group`s Investment Contracts (Single
Premium business) are expensed as and when incurred. The related revenue is
however amortised over the term of the contract (usually 60 months).
The result is that with our growing book this operating segment usually reports
a net loss for the period. This should be viewed in conjunction with the R17,9
million of deferred profits included in the Statement of Financial Position.
IFA Nigeria
Clientele launched IFA Nigeria, its Life Insurance Brokerage business of which
the Group effectively owns 75%, in July 2008 and commenced policy sales from
August 2008.
The consolidated loss before tax of R10,3 million is equivalent to 49% of the
loss reported for the full year to 30 June 2009. In order to ensure that the
business model is developed on a more sustainable basis, without placing undue
strain on the Group`s resources, both production and expenses were curtailed
during the period. Clientele believes that its proven IFA distribution model is
well suited to Nigeria and the importance of premium collections remains
paramount.
The reduction in the Group`s share of IFA Nigeria`s EV compared to the previous
reporting period is mainly due to the more conservative withdrawal assumptions
and the reversal of the deferred tax asset of R7,4 million.
Clientele Loans Direct
The personal loans business, of which Clientele owns 70%, operated in
partnership with Direct Axis (SA) (Pty) Ltd., is progressing in accordance with
its conservative credit assessment and lending approach. The advances book at 31
December 2009 amounted to R27,2 million and experience from the book is as
expected.
Operating results are improving in line with forecasts and the net loss for the
period of R1,7 million (after minorities` share of losses) has reduced by R0,2
million or 11%.
PROSPECTS
The Group has continued to build positively on its transformation from a life
insurance company to a financial services group over the last six months. 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. The Group intends to continue 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
15 February 2010
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months Audited
ended Year ended
31 December % 30 June
(R`000`s) 2009 2008 Change 2009
Revenue
Insurance premium revenue 502 807 461 560 9 938 226
Reinsurance premiums (20 587) (15 900) (36 096)
Net insurance premiums 482 220 445 660 8 902 130
Other income 84 254 81 447 161 432
Interest income 6 813 7 790 14 283
Fair value adjustment to 118 294 (50 120) 88 465
financial assets at fair
value through profit and
loss
Total revenue 691 581 484 777 43 1 166 310
Net insurance benefits (77 294) (79 766) (153 063)
and claims
(Increase)/decrease in (74 981) 9 073 (45 519)
policyholder liabilities
under insurance contracts
Decrease in reinsurance (13 387) (1 140) (1 648)
assets
Fair value adjustment to (48 602) 6 346 (112 010)
financial liabilities at
fair value through profit
and loss - investment
contracts
Impairment of advances (2 299) (260) (1 830)
Operating expenses (347 (321 268) 8 (649 394)
568)
Results from operating 127 450 97 762 30 202 846
activities
Equity accounted earnings 32 18 165
Profit before tax 127 482 97 780 30 203 011
Tax (56 416) (41 044) 38 (65 051)
Net profit for the 71 066 56 736 25 137 960
period/year
Attributable to:
Minorities - ordinary (5 999) (2 619) (6 327)
shareholders
Equity holders of the 77 065 59 355 30 144 287
Group - ordinary
shareholders
Net profit for the 71 066 56 736 137 960
period/year
Other comprehensive
income:
Exchange differences on (3 648) 1 514 (10 071)
translating foreign
operation
Gains on property - - 50
revaluation
Income tax relating to - - 70
gains on property
revaluation
Other comprehensive (3 648) 1 514 (9 951)
income for the
period/year net of tax
Total comprehensive 67 418 58 250 128 009
income for the
period/year
Total other comprehensive
income attributable to:
Minorities - ordinary (6 911) (2 241) (8 970)
shareholders
Equity holders of the 74 329 60 491 136 979
Group - ordinary
shareholders
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Six months Audited
ended Year ended
31 December 30 June
(R`000`s) 2009 2008 2009
Assets
Intangible assets 45 784 3 753 31 367
Property and equipment 37 277 45 106 41 452
Owner-occupied properties 129 510 126 579 129 600
Investment in associates 381 541 349
Deferred tax 16 167 15 127 24 201
Inventories 2 192 1 718 2 653
Reinsurance assets 8 760 28 168 22 147
Financial assets held at fair 1 421 118 1 132 030 1 404 549
value through profit and loss
Loans and receivables 53 673 81 931 50 559
including insurance
receivables
Cash and cash equivalents 121 455 88 880 112 633
Total assets 1 836 317 1 523 833 1 819 510
Total equity and reserves 222 203 215 262 287 958
Liabilities
Policyholder liabilities 659 008 529 262 584 027
under insurance contracts
Financial liabilities held at 741 225 614 020 717 561
fair value through profit and
loss
Loan at amortised cost 14 342 18 866 15 505
Finance leases 964 - 1 303
Employee benefits 46 715 39 805 73 724
Accruals and payables 102 653 92 995 88 511
including insurance payables
Deferred tax 11 688 12 797 11 682
Current tax 37 519 826 39 239
Total liabilities 1 614 114 1 308 571 1 531 552
Total equity and liabilities 1 836 317 1 523 833 1 819 510
TAX
Six months Audited
ended Year ended
31 December 30 June
(R`000`s) 2009 2008 2009
Current tax (37 395) (38 825) (73 453)
Deferred tax (6 425)* 8 933 20 018
Secondary tax on companies (11 996) (12 150) (11 952)
("STC")
Capital gains tax - - (662)
(Under)/Overprovision in prior (600) 998 998
period/year
Tax (56 416) (41 044) (65 051)
The Individual Policyholder Fund has an estimated tax loss of R1.2 billion
(2008: R1.0 billion).
* The increase in tax is mainly attributable to the reversal of the deferred tax
asset of R7.4 million, previously raised in respect of IFA Nigeria`s net loss
since inception as future profits, in the foreseeable future, are difficult to
forecast with certainty.
RECONCILIATION OF NET PROFIT TO HEADLINE EARNINGS
Six months Audited
ended Year ended
31 December 30 June
(R`000`s) 2009 2008 2009
Net profit for the period/year 77 065 59 355 144 287
attributable to equity holders
of the Group
Less: Profit on disposal of (211) (82) (254)
fixed assets
Headline earnings 76 854 59 273 144 033
RATIOS PER SHARE
Six months Audited
ended Year ended
31 December 30 June
2009 2008 2009
Headline earnings per share 23.76 18.32 44.52
(cents)
Diluted headline earnings per 23.71 18.32 44.52
share (cents)
Earnings per share (cents) 23.82 18.35 44.60
Diluted earnings per share (cents) 23.77 18.35 44.60
Net asset value per share (cents) 68.69 66.54 89.01
Diluted net asset value per share 68.55 66.54 89.01
(cents)
Dividends per share (cents) 42.00 39.00 39.00
Weighted average ordinary shares 323 500 323 500 323 500
(`000)
Diluted average ordinary shares 324 169 323 500 323 500
(`000)
NOTES TO THE RESULTS
The results have not been reviewed or audited by the Group`s auditors
PricewaterhouseCoopers Inc. The (increase)/decrease in policyholder liabilities
has been based on best estimates after providing for compulsory and
discretionary margins and have been actuarially certified by QED Actuaries &
Consultants (Pty) Ltd.
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 2009. 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 STATEMENT OF CASH FLOWS
Six months Audited
ended Year ended
31 December 30 June
(R`000`s) 2009 2008 2009
Cash flows from operating 31 268 (128 200) (98 846)
activities
Profit from operations 182 983 168 914 337 814
adjusted for non cash items
Separately disclosable items 1 (24 020) (27 420) (68 883)
Working capital changes (43 939) (134 563) (100 240)
(Decrease)/increase in (23 533) 109 793 115 080
financial liabilities held at
fair value through profit and
loss 2
Net disposal/(acquisition) of 101 724 (69 653) (250 087)
investments 3
Interest received 1 20 177 9 710 45 136
Dividends received 1 3 843 17 710 23 747
Dividends paid (135 870) (126 165) (126 095)
Tax paid (50 097) (76 526) (75 318)
Cash flows from investing (20 808) 19 690 (65 122)
activities
Cash flows from financing (1 638) - 79 211
activities
Net increase/(decrease) in 8 822 (108 510) (84 757)
cash and cash equivalents
Cash and cash equivalents at 112 633 197 390 197 390
beginning of the period/year
Cash and cash equivalents at 121 455 88 880 112 633
end of the period/year
1. Interest and dividends
2. Investment contracts
3. Investments in respect of insurance operations and investment contracts
SEGMENT INFORMATION
The Group`s results are analysed across two geographical segments which are
South Africa ("SA") and Nigeria.
The Group`s main operating 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
Six months Audited
ended Year ended
31 December 30 June
(R`000`s) 2009 2008 2009
Assets
SA - Long term insurance 1 022 129 793 380 1 013 507
SA - Short term insurance 40 489 29 883 21 310
SA - Investment contracts 741 232 620 284 721 836
SA - Loans 31 128 7 139 30 034
Nigeria - Long term brokerage 36 414 92 423 70 827
Inter segment (35 075) (19 276) (38 004)
Total Group Assets 1 836 317 1 523 833 1 819 510
Liabilities
SA - Long term insurance 832 437 633 494 768 945
SA - Short term insurance 16 556 35 190 17 928
SA - Investment contracts 741 225 621 028 717 561
SA - Loans 39 058 9 872 35 577
Nigeria - Long term brokerage 19 913 28 263 29 545
Inter segment (35 075) (19 276) (38 004)
Total Group Liabilities 1 614 114 1 308 571 1 531 552
Segment results
SA SA SA
Long term Short term Investment SA
(R`000`s) insurance insurance contracts Loans
31 December 2009
Net insurance premiums 448 934 33 286
Other income 75 846 1 185
Interest income 3 495 196 2 721
Fair value adjustment 67 080 653 50 561
to financial assets at
fair value through
profit and loss
Segment revenue 595 355 34 135 50 561 3 906
Segment expenses and (449 966) (33 370) (52 187) (7 220)
claims
Net insurance benefits (76 831) (463)
and claims
Increase in (69 908) (5 073)
policyholder
liabilities under
insurance contracts
Decrease in (13 387)
reinsurance assets
Fair value adjustment (48 602)
to financial
liabilities at fair
value through profit
and loss
Impairment of advances (2 299)
Operating expenses (289 840) (27 834) (3 585) (4 921)
Results from operating 145 389 765 (1 626) (3 314)
activities
Equity accounted 32
earnings
Profit/(loss) before 145 421 765 (1 626) (3 314)
tax
Tax (50 216) (214) 455 929
Net profit/(loss) for 95 205 551 (1 171) (2 385)
the period
Attributable to:
Minorities - ordinary (715)
shareholders
Equity holders of the 95 205 551 (1 171) (1 670)
Group - ordinary
shareholders
* The increase in tax is mainly attributable to the reversal of the
deferred tax asset of R7.4 million, previously raised in respect of
IFA Nigeria`s net loss since inception as future profits, in the
foreseeable future, are difficult to forecast with certainty.
31 December 2008
Net insurance premiums 432 615 13 045
Other income 73 222 552 836 49
Interest income 7 484 306
Fair value adjustment (43 774) (6 346)
to financial assets at
fair value through
profit and loss
Segment revenue 469 547 13 597 (5 510) 355
Segment expenses and (353 030) (17 298) 4 443 (4 151)
claims
Net insurance benefits (79 723) (43)
and claims
Decrease in 9 073
policyholder
liabilities under
insurance contracts
Decrease in (1 140)
reinsurance assets
Fair value adjustment 1 903 4 443
to financial
liabilities at fair
value through profit
and loss
Impairment of advances (260)
Operating expenses (283 143) (17 255) (3 891)
Results from operating 116 517 (3 701) (1 067) (3 796)
activities
Equity accounted 18
earnings
Profit/(loss) before 116 535 (3 701) (1 067) (3 796)
tax
Tax (47 237) 838 299 1 063
Net profit/(loss) for 69 298 (2 863) (768) (2 733)
the period
Attributable to:
Minorities - ordinary (820)
shareholders
Equity holders of the 69 298 (2 863) (768) (1 913)
Group - ordinary
shareholders
Nigeria Inter
Long term segment Total
(R`000`s) brokerage (revenue)/expense Group
31 December 2009
Net insurance premiums 482 220
Other income 6 610 613 84 254
Interest income 401 6 813
Fair value adjustment to 118 294
financial assets at fair
value through profit and
loss
Segment revenue 7 011 613 691 581
Segment expenses and (20 775) (613) (564 131)
claims
Net insurance benefits and (77 294)
claims
Increase in policyholder (74 981)
liabilities under
insurance contracts
Decrease in reinsurance (13 387)
assets
Fair value adjustment to (48 602)
financial liabilities at
fair value through profit
and loss
Impairment of advances (2 299)
Operating expenses (20 775) (613) (347 568)
Results from operating (13 764) 127 450
activities
Equity accounted earnings 32
Profit/(loss) before tax (13 764) 127 482
Tax (7 370)* (56 416)
Net profit/(loss) for the (21 134) 71 066
period
Attributable to:
Minorities - ordinary (5 284) (5 999)
shareholders
Equity holders of the (15 850) 77 065
Group - ordinary
shareholders
* The increase in tax is mainly attributable to the reversal of the deferred tax
asset of R7.4 million, previously raised in respect of IFA Nigeria`s net loss
since inception as future profits, in the foreseeable future, are difficult to
forecast with certainty.
31 December 2008
Net insurance premiums 445 660
Other income 7 128 (340) 81 447
Interest income 7 790
Fair value adjustment to (50 120)
financial assets at fair
value through profit and
loss
Segment revenue 7 128 (340) 484 777
Segment expenses and (17 319) 340 (387 015)
claims
Net insurance benefits and (79 766)
claims
Decrease in policyholder 9 073
liabilities under
insurance contracts
Decrease in reinsurance (1 140)
assets
Fair value adjustment to 6 346
financial liabilities at
fair value through profit
and loss
Impairment of advances (260)
Operating expenses (17 319) 340 (321 268)
Results from operating (10 191) 97 762
activities
Equity accounted earnings 18
Profit/(loss) before tax (10 191) 97 780
Tax 3 993 (41 044)
Net profit/(loss) for the (6 198) 56 736
period
Attributable to:
Minorities - ordinary (1 799) (2 619)
shareholders
Equity holders of the (4 399) 59 355
Group - ordinary
shareholders
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Common
Share Share control Sub- Retained
(R`000`s) capital premium (deficit) total earnings
Balance as at 1 July 6 470 218 656 (220 273) 4 853 183 403
2008
Ordinary dividend (126 165)
paid
Total comprehensive 59 355
income
- Net profit/(loss) 59 355
for the period
- Other comprehensive
income/(expense)
Transfer to (1 336)
contingency reserve
SAR scheme allocated
Shares issued by
subsidiary
Balance as at 31 6 470 218 656 (220 273) 4 853 115 257
December 2008
Balance as at 1 6 470 218 656 (220 273) 4 853 115 257
January 2009
Total comprehensive 84 932
income
- Net profit/(loss) 84 932
for the period
- Other comprehensive
income/(expense)
Transfer to 426
contingency reserve
SAR scheme allocated
Balance as at 30 June 6 470 218 656 (220 273) 4 853 200 615
2009
Balance as at 1 July 6 470 218 656 (220 273) 4 853 200 615
2009
Ordinary dividend (135 870)
paid
Total comprehensive 77 065
income
- Net profit/(loss) 77 065
for the period
- Other comprehensive
income/(expense)
Transfer to (3 399)
contingency reserve
SAR scheme allocated
Balance as at 31 6 470 218 656 (220 273) 4 853 138 411
December 2009
NDR:
Foreign
SAR currency NDR:
scheme NDR: translation Changes in
(R`000`s) reserve* Contingency reserve ownership
Balance as at 1 July 6 744 246
2008
Ordinary dividend
paid
Total comprehensive 1 136
income
- Net profit/(loss)
for the period
- Other comprehensive 1 136
income/(expense)
Transfer to 1 336
contingency reserve
SAR scheme allocated 2 433
Shares issued by 45 326
subsidiary
Balance as at 31 9 177 1 582 1 136 45 326
December 2008
Balance as at 1 9 177 1 582 1 136 45 326
January 2009
Total comprehensive (8 564)
income
- Net profit/(loss)
for the period
- Other comprehensive (8 564)
income/(expense)
Transfer to (426)
contingency reserve
SAR scheme allocated 2 938
Balance as at 30 June 12 115 1 156 (7 428) 45 326
2009
Balance as at 1 July 12 115 1 156 (7 428) 45 326
2009
Ordinary dividend
paid
Total comprehensive (2 736)
income
- Net profit/(loss)
for the period
- Other comprehensive (2 736)
income/(expense)
Transfer to 3 399
contingency reserve
SAR scheme allocated 2 697
Balance as at 31 14 812 4 555 (10 164) 45 326
December 2009
Non-
NDR: Sub- controlling
(R`000`s) Revaluation total interest Total
Balance as at 1 July 22 543 217 789 217 789
2008
Ordinary dividend paid (126 165) (126 165)
Total comprehensive 60 491 (2 241) 58 250
income
- Net profit/(loss) for 59 355 (2 619) 56 736
the period
- Other comprehensive 1 136 378 1 514
income/(expense)
Transfer to contingency - -
reserve
SAR scheme allocated 2 433 2 433
Shares issued by 45 326 17 629 62 955
subsidiary
Balance as at 31 22 543 199 874 15 388 215 262
December 2008
Balance as at 1 January 22 543 199 874 15 388 215 262
2009
Total comprehensive 120 76 488 (6 730) 69 758
income
- Net profit/(loss) for 84 932 (3 708) 81 224
the period
- Other comprehensive 120 (8 444) (3 022) (11 466)
income/(expense)
Transfer to contingency -
reserve
SAR scheme allocated 2 938 2 938
Balance as at 30 June 22 663 279 300 8 658 287 958
2009
Balance as at 1 July 22 663 279 300 8 658 287 958
2009
Ordinary dividend paid (135 870) (135 870)
Total comprehensive 74 329 (6 911) 67 418
income
- Net profit/(loss) for 77 065 (5 999) 71 066
the period
- Other comprehensive (2 736) (912) (3 648)
income/(expense)
Transfer to contingency -
reserve
SAR scheme allocated 2 697 2 697
Balance as at 31 22 663 220 456 1 747 222 203
December 2009
* SAR scheme - the Clientele Limited Group Share Appreciation Rights Scheme
EMBEDDED VALUE
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 31 December 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:
Six months ended Year ended
31 December 30 June
(R`000`s) 2009 2008 2009
Free Surplus 108 988 121 879 186 554
Required Capital 102 579 75 995 91 021
Adjusted Net Worth ("ANW") of 211 567 197 874 277 575
covered business
Cost of Required Capital (33 069) (25 557) (30 938)
Present Value of In-force 1 628 791 1 349 209 1 474 414
business ("PVIF")
EV of covered business 1 807 289 1 521 526 1 721 051
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 ADJUSTED NET WORTH
Six months ended Year ended
31 December 30 June
(R`000`s) 2009 2008 2009
Total equity and reserves per 222 203 215 262 287 958
balance sheet
Removal of deferred profits and 8 849 5 045 4 603
impact of compulsory margins on
investment business (net impact
after tax)
Removing minority interests (1 746) (15 220) (8 658)
Adjusting subsidiaries to Net (4 556) (2 908) (1 157)
Asset Value
SAR Scheme adjustment (13 183) (4 306) (5 171)
Adjusted Net Worth 211 567 197 874 277 575
The Cost of Required Capital is the opportunity cost of having to hold assets to
cover the Required Capital of R102.6 million as at 31 December 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 the required capital needed 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.
Clientele Life`s Statutory CAR cover ratio at 31 December 2009 was 2.37 times
(31 December 2008: 2.2 times) on the statutory valuation basis.
Six months ended Year ended
31 December 30 June
2009 2008 2009
EV per share (cents) 558.67 470.33 532.01
Diluted EV per share (cents) 558.67 470.33 532.01
VALUE OF NEW BUSINESS
Total Value of New Business 190 308 209 133 420 018
Present Value of New Business 803 267 883 112 1 728 887
premiums
New Business profit margin % 23.7% 23.7% 24.3%
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 six months ended 31
December 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)
Six months ended Year ended
31 December 30 June
2009 2008 2009
Risk discount rate % 13.25 12.25 13.25
Overall investment return % 8.75 7.75 8.75
Expense inflation % 6.75 5.75 6.75
Corporate tax % 28.00 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, a year ago, the Board decided it prudent, in light
of economic conditions and the global financial crisis, to add some additional
conservatism to the EV calculation. This was achieved via the addition of an
explicit 1% margin to the risk discount rate. This margin has been retained at
31 December 2009. 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
31 December 2009 was 13.25%.
RISK DISCOUNT RATE SENSITIVITIES
Value of
New
(R`000`s) EV Business
Risk discount rate 11.25% 1 965 881 216 057
Risk discount rate 12.25% 1 882 428 202 661
Risk discount rate 13.25% 1 807 289 190 308
Risk discount rate 14.25% 1 738 265 179 126
Risk discount rate 15.25% 1 675 535 168 965
Long-term economic
assumptions (Nigeria)
Six months ended Year ended
31 December 30 June
2009 2008 2009
Risk discount rate % 25% 25% 25%
Overall investment return % 12% 7% 13%
Expense inflation % 12% 7% 12%
Corporate and other tax % 33% 33% 33%
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)
31 December 2009 ANW CoC PVIF EV
SA - Long-term 185 365 (31 137) 1 478 700 1 632 928
insurance
SA - Short-term 19 377 (1 932) 135 335 152 780
insurance
SA - Investment - - 1 819 1 819
contracts
SA - Loans (5 551) - 35 (5 516)
Nigeria - Long- 12 375 - 12 902 25 278
term brokerage
Total 211 567 (33 069) 1 628 791 1 807 289
31 December 2008
SA - Long-term 158 031 (25 557) 1 283 252 1 415 726
insurance
SA - Short-term (8 277) - 41 308 33 031
insurance
SA - Investment - - 2 038 2 038
contracts
Nigeria - Long- 48 120 - 22 610 70 730
term brokerage
Total 197 874 (25 557) 1 349 209 1 521 526
The Value of New
Business can be
split between
segments as
follows:
31 December 31 December
(R`000`s) 2009 2008
SA - Long-term insurance 161 526 190 932
SA - Short-term insurance 34 372 15 892
SA - Investment contracts 2 517 1 942
SA - Loans (321) -
Nigeria - Long-term brokerage 463 13 319
Nigeria costs incurred in South Africa (8 248) (12 951)
Total 190 308 209 133
EMBEDDED VALUE EARNINGS
EV earnings (per PGN 107) comprise the change in EV for the period after
adjusting for capital movements and dividends paid as they pertain to Clientele
Limited.
Six months ended 31 December 2009
EV earnings for the period (R`000`s) ANW PVIF CoC
A: EV at the end of the period 211 567 1 628 791 (33 069)
Embedded Value at the beginning of the 277 575 1 474 414 (30 938)
period
Dividends and STC accrued or paid (147 866) - -
B: Adjusted EV at the beginning of the 129 708 1 474 414 (30 938)
period
EV earnings (A - B) 81 858 154 377 (2 131)
Impact of once-off economic assumption - - -
changes
EV earnings 81 858 154 377 (2 131)
Annualised Embedded Value earnings 163 716 308 754 (4 262)
As a percentage of Adjusted EV at the
beginning of the period - Return on EV
Six months ended 31 December 2009
EV earnings for the period Total South Africa Nigeria
(R`000`s)
A: EV at the end of the period 1 807 289 1 782 011 25 278
Embedded Value at the 1 721 051 1 665 331 55 720
beginning of the period
Dividends and STC accrued or (147 866) (147 886) -
paid
B: Adjusted EV at the 1 573 185 1 517 465 55 720
beginning of the period
EV earnings (A - B) 234 104 264 546 (30 442)
Impact of once-off economic - - -
assumption changes
EV earnings 234 104 264 546 (30 442)
Annualised Embedded Value 468 208 529 092 (60 884)
earnings
As a percentage of Adjusted EV 29.8%
at the beginning of the period
- Return on EV
Six months ended 31 December 2009
Components of EV earnings (R`000`s) ANW PVIF CoC
Value of New Business at point of (73 881) 264 754 (564)
sale
Expected return on Covered Business - 96 940 (1 986)
(unwinding of risk discount rate)
Expected profit transfer 180 133 (180 133) -
Withdrawal experience variance (9 150) (30 795) -
Claims and reinsurance experience 8 096 - -
variance
Sundry experience variance (4 445) (7 483) 893
Operating assumption and model (1 005) 1 011 (474)
changes
Expected return on ANW 10 819 - -
SAR scheme dilution (8 012) - -
Goodwill and medium term incentive (19 676) 11 874 -
schemes
Embedded Value operating return 82 879 156 168 (2 131)
Investment return variances on ANW 7 136 - -
Effect of foreign currency movements (2 629) (1 792) -
Effect of economic assumption changes - - -
Effect of changing treatment of (5 527) - -
deferred taxation
Embedded Value Earnings 81 858 154 376 (2 131)
Six months ended 31 December 2009
Components of EV earnings (R`000`s) Total South Africa Nigeria
Value of New Business at point of 190 308 189 845 463
sale
Expected return on Covered Business 94 954 91 248 3 706
(unwinding of risk discount rate)
Expected profit transfer - - -
Withdrawal experience variance (39 946) (23 799) (16 146)
Claims and reinsurance experience 8 096 8 096 -
variance
Sundry experience variance (11 034) (7 423) (3 611)
Operating assumption and model (468) 4 543 (5 011)
changes
Expected return on ANW 10 819 9 877 942
SAR scheme dilution (8 012) (8 012) -
Goodwill and medium term incentive (7 802) (7 802) -
schemes
Embedded Value operating return 236 916 256 573 (19 657)
Investment return variances on ANW 7 136 7 975 (839)
Effect of foreign currency movements (4 421) - (4 421)
Effect of economic assumption changes - - -
Effect of changing treatment of (5 527) - (5 527)
deferred taxation
Embedded Value Earnings 234 104 264 546 (30 442)
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), P R Gwangwa BProc LLB LLM#,
B A Stott CA(SA)#, I B Hume CA(SA), ACMA*, B Frodsham BCom*,
B W Reekie BSc(Hons), Fia*
Company secretary:
W Van Zyl CA(SA)
*Executive director
# Appointed 4 January 2010
Sponsor: PricewaterhouseCoopers Corporate Finance (Pty) Ltd
Date: 15/02/2010 17:00:02 Produced by the JSE SENS Department.
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