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CLI
CLI
CLI - Clientele Limited - Summarised group results for the six months ended 31
December 2010
Clientele Limited
(Registration number 2007/023806/06)
Share code: CLI?ISIN: ZAE000117438
Summarised group results for the six months ended 31 December 2010
- Embedded Value Earnings increased by 33% from R234.1 million to R312.4
million
- Return on Embedded Value of 34%
- Value of New Business increased by 14% from R189.8 million to R215.9
million
- Return on annualised average shareholders interest of 66%
- Headline earnings per share increased by 12% from 23.76 cents
to 26.69 cents
Comments
Introduction
The six months to 31 December 2010 has been a period of strong production for
Clientele`s traditional operations, which, together with a withdrawal experience
relatively close to expectation, tight control of expenses and improved
investment returns have resulted in Clientele posting solid results.
Operating Results
Group Embedded Value
The Group has experienced pleasing growth during the period under review and
Group Embedded Value (EV) has increased from R1 859,2 million (after adjusting
for dividends and related Secondary Tax on Companies (STC)) to R2 171,5 million
at 31 December 2010. This reflects EV earnings of R312,4 million (2009: R234,1
million), after taking into account once off economic and other adjustments (See
EV Earnings analysis) and translates into an annualised Return on EV (ROEV) of
33.6% (2009: 29.8%). The Group`s VNB has increased by 14%, on the back of good
production volumes, from R189,8 million for the comparative six month period to
R215,9 million this period and New Business profit margins have remained healthy
at 23.8% (2009: 24.2%). Clientele Life`s strong increase in VNB this period was,
to an extent, countered by the decrease in VNB for Clientele Legal, as expanded
on in the Segment results below.
The main component of the withdrawal experience variance (negative R17,6 million
for the period) is a R11,8 million negative variance in respect of Clientele
Legal which has experienced withdrawals higher than assumptions for its older
policies. This also resulted in a change in assumptions for the EV calculation.
Refer to the comment under Segment results below.
The Group has experienced good investment returns for the six months from its
conservative investment portfolios as evidenced by the R21,3 million positive
investment return variance on Adjusted Net Worth (ANW). A major contributor to
the positive experience variance was the improved investment performance across
most asset classes during the six months.
The risk discount rate of 11.9% (2009: 13.25%) 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 economic climate. The calculation is comprehensively
explained and a sensitivity analysis is provided under the Group EV section of
the results.
Group Statement of Comprehensive Income
Headline earnings for the Group of R86,3 million are 12% higher than the
headline earnings of R76,9 million for the comparative period.
As a result, diluted headline earnings per share have increased by 12% to 26.54
cents, up from 23.71 cents and the annualised return on average shareholders`
interests amounted to 66% compared to 62% for the same period last year.
Insurance premium revenue for the period is up by 8% from R502,8 million to
R543,4 million and other income of R78,6 million, which mainly comprises annuity
fees from Clientele Life`s Independent Field Advertisers (IFAs), is 7% down on
the comparable six month figure of R84,3 million.
Operating expenses for the period have increased by 9% over the comparable six
month period which compares reasonably to the 8% increase in insurance premium
revenue for the period.
As referred to in the 2010 Annual Report, Clientele adopts the conservative
accounting practice of not recognising policies where the actuarial valuation
results in an asset (negative reserve). This means that acquisition costs are
expensed up front and profits in this regard are thus deferred over the life of
the policy. The total value of negative reserves now amounts to R1,3 billion in
comparison to R1,1 billion at 30 June 2010.
Net insurance benefits and claims of R104,0 million have increased by 35% from
R77,3 million for the same period last year. The majority of the increase is in
respect of policyholders benefit payments in respect of unitised endowment
contracts, many of which have now been held for 10 years or more.
The increase in policyholder liabilities under insurance contracts of R108,2
million (2009: R75,0 million) should be viewed in conjunction with the fair
value adjustment to financial assets at fair value through profit and loss. A
significant portion 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.
Segment results
SA Long term insurance - Clientele Life
Clientele Life`s Long term insurance segment (The Life segment) remains the
major contributor to overall Group performance. It accounts for 96% or R207,9
million of the Group`s R215,9 million of VNB and generated R92,0 million net
profit for the period which exceeds the Group`s net profit for the period of
R82,1 million.
The Life segment has experienced strong production for the period which together
with withdrawal experience close to assumptions (R6,7 million negative
experience variance)and good investmentreturns has resulted in its VNB
increasing from R161,5 million to R207,9 million, an increase of 29%.
SA Investment contracts - Clientele Life
In terms of International Financial Reporting Standards (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 a growing book this operating segment usually reports a
net loss for the period. This should be viewed in conjunction with the R29,5
million (2009: R17,9 million) of deferred profits included in the Statement of
Financial Position.
SA Short term insurance - Clientele General Insurance (Clientele Legal)
Clientele Legal now has an EV of R199,8 million (2009: R152,8 million) and has
recorded a R7,2 million net profit for the six months compared to the R0,6
million net profit for the comparable period last year.
VNB of R17,3 million for the period is down 50% from R34,4 million for the same
period last year. Withdrawal assumption changes (refer below) have had a R7
million negative effect on the VNB variance for the period, when compared to
last year, and lower production volumes relative to expenses have affected the
VNB variance for the period by R9 million.
Withdrawal experience in respect of older policies, which is being closely
monitored, has been worse than assumption resulting in a negative R11,8 million
withdrawal experience variance for the period.
In Clientele Legal`s first years of operation it applied the Financial Services
Board`s (FSB`s) general statutory percentage when determining its Incurred But
Not Reported (IBNR)claims
provision.
This provision has now been statistically determined by Clientele Legal`s
independent actuaries and has been approved by the FSB.
The effect of this change in estimate of R3,3 million (net of tax) is reflected
in the current year`s Statement of Comprehensive Income and in the Statement of
Financial Position.
Despite some setbacks during the reporting period, Clientele Legal is now an
established business in its own right and it is expected to make an important
contribution to the overall Group performance into the future.
SA Loans - Clientele Loans
The personal loans business, of which Clientele owns 70%, operated in
partnership with Direct Axis (SA) (Pty) Ltd., is progressing in line with
expectations and in accordance with its conservative
credit assessment and lending approach. The gross advances book at 31 December
2010 amounted to R74,3 million (2009: R27,2 million) and experience from the
book is as expected.
Operating results are in line with forecasts and the attributable net loss for
the period, after minorities share of losses, of R1,8 million (2009: R1,7
million loss) has increased by R0,1 million.
Impairments of advances of R4,4 million (2009: R2,3 million) are at expectation
and are in line with the growing advances book.
During the period loan funding of R30 million was raised from an external party
associated with Direct Axis (Pty) Ltd, as reflected in the increase in Loans at
amortised cost in the Statement of Financial Position as well as the cash flows
from financing activities.
SA Mobile - Clientele Mobile
Clientele Mobile recorded its maiden net profit for the period of R0,4 million
(2009: R0,2 million loss).
Nigeria - Long term brokerage (IFA Nigeria)
The IFA Nigeria consolidated loss before tax for the period amounted to R14.9
million and was in line with expectations. Production was also in line with
expectations and a number of new collection methods are in the process of being
tested, although premium collections and persistency remain the biggest
challenges.
By 31 December 2010, KC2008 Limited, Clientele`s Nigerian shareholder in IFA
Nigeria, was required to exercise its option to retain its 25% shareholding.
KC2008 has elected not to exercise its option and is therefore obliged to offer
Clientele Life (Netherlands) Cooperative U.A., a 100% subsidiary of Clientele
Limited, as many shares in the capital of IFA Nigeria as constitutes 10% of the
entire issued share capital. Clientele Netherlands provided written notice on 31
January 2011 to accept the offer and will own 85% of IFA Nigeria effective from
01 January 2011 for a nominal amount.
As we have limited experience in respect of our Nigerian operation, the
underlying assumptions that would be used for the Value of In-force and VNB
numbers are not yet reliable. The Board has, as a result, followed the approach,
in determining the EV for IFA Nigeria, whereby the EV is equal to the Net Asset
Value. This is the same approach as was used in 30 June 2010 results.
Prospects
We believe a firm foundation for future growth and value creation has been laid
by improving production capacity and the further diversification of products in
Clientele`s traditional Life Insurance business.
This is further enhanced by the value creation and improving performance of the
Group`s new ventures in South Africa (Clientele Legal, Clientele Loans Direct
and Clientele Mobile).
Whilst the Nigerian market offers considerable potential, it also has its
challenges, particularly in the area of collections. Clientele will continue to
monitor IFA Nigeria very closely.
In conclusion, the Group will remain focused on creating value through its
traditional business models and will add new businesses and products on a
conservative basis going forward. New ventures will be strictly managed and
monitored to ensure that the overall Group results remain favourably intact.
By order of the Board
G Q Routledge G J Soll
Chairman Managing Director
Johannesburg
21 February 2011
UNAUDITED
Condensed Group Statement of Comprehensive Income
Six months % Audited
ended Change Year ended
31 December 30 June
(R`000`s) 2010 2009 2010
Revenue
Insurance premium 543 409 502 807 8 1 005 660
revenue
Reinsurance premiums (27 192) (20 587) (42 755)
Net insurance premiums 516 217 482 220 7 962 905
Other income 78 643 84 254 160 025
Interest income 9 840 6 813 15 141
Fair value adjustment 170 598 118 294 44 185 064
to financial assets at
fair value through
profit or loss
Net income 775 298 691 581 12 1 323 135
Net insurance benefits (104 038) (77 294) 35 (169 434)
and claims
Increase in (108 214) (74 981) (109 697)
policyholder
liabilities under
insurance contracts
Increase/(decrease) in 22 321 (13 387) (15 568)
reinsurance assets
Fair value adjustment (60 407) (48 602) 24 (98 705)
to financial
liabilities at fair
value through profit or
loss - investment
contracts
Interest expense (2 163) (824) (2 326)
Impairment of advances (4 387) (2 299) (5 608)
Operating expenses (379 202) (346 744) 9 (674 438)
Profit from operations 139 208 127 450 9 247 359
Equity accounted (15) 32 23
earnings
Profit before tax 139 193 127 482 9 247 382
Tax+ (57 108) (56 416) (98 923)
Net profit for the 82 085 71 066 16 148 459
period
Attributable to:
Non-controlling
interest
- ordinary shareholders (4 490) (5 999) (11 280)
Equity holders of the
Group
- ordinary shareholders 86 575 77 065 12 159 739
Net profit for the 82 085 71 066 16 148 459
period
Other comprehensive
income:
Exchange differences on 1 105 (3 648) (2 691)
translating foreign
operations
Gains on property 5 509
revaluation
Income tax relating to (1 345)
gains on property
revaluation
Other comprehensive
income for the period -
net of tax 1 105 (3 648) 1 473
Total comprehensive 83 190 67 418 23 149 932
income for the period
Total comprehensive
income attributable to:
Non-controlling
interest
- ordinary shareholders (4 207) (6 911) (11 953)
Equity holders of the
Group
- ordinary shareholders 87 397 74 329 18 161 885
Condensed Group Statement of Financial Position
Six months Audited
ended Year ended
31 December 30 June
(R`000`s) 2010 2009 2010
Assets
Intangible assets 33 802 45 784 37 036
Property and equipment 47 542 37 277 50 893
Owner-occupied properties 136 108 129 510 134 300
Investment in associates 357 381 372
Deferred tax 25 637 16 167 22 367
Inventories 905 2 192 1 412
Reinsurance assets 28 900 8 760 6 579
Financial assets held at fair 1 769 489 1 421 118 1 607 713
value through profit or loss
Loans and receivables 99 463 53 673 65 814
including insurance
receivables
Cash and cash equivalents 106 389 121 455 77 983
Total assets 2 248 592 1 836 317 2 004 469
Total equity and reserves 238 832 222 203 304 903
Liabilities
Policyholder liabilities 802 060 659 008 693 725
underinsurance contracts
Financial liabilities - 951 866 741 225 811 979
investment contracts
- At fair value through profit 919 572 741 225 781 513
or loss
- At amortised cost 32 294 30 466
Financial liabilities - loans 52 582 14 342 14 790
at amortised cost
Finance leases 586 964 778
Employee benefits 52 574 46 715 64 676
Accruals and payables 128 371 102 653 92 429
including insurance payables
Deferred tax 16 073 11 688 16 483
Current tax 5 648 37 519 4 706
Total liabilities 2 009 760 1 614 114 1 699 566
Total equity and liabilities 2 248 592 1 836 317 2 004 469
Tax+
Six months Audited
ended
31 December
Year ended
30 June
(R`000`s) 2010 2009 2010
SA Operations:
Current and deferred tax (40 583) (36 450) (80 315)
Secondary tax on companies (15 538) (11 996) (11 996)
(STC)
Capital gains tax (987) (76)
(Under)/overprovision in prior (600) 1 244
periods
IFA Nigeria+ (7 370) (7 780)
Tax (57 108) (56 416) (98 923)
The Individual Policyholder Fund has an estimated tax loss of
R1.60 billion (2009: R1.20 billion).
+ In the six months to December 2009, the deferred tax asset of
R7,4 million, previously raised in respect of IFA Nigeria`s net
loss since inception was reversed due to the uncertainty of
foreseeable future taxable profits. As a result, no deferred tax
asset has been raised for the six months ended 31 December 2010.
Reconciliation of Net Profit to Headline Earnings
Six months % Audited
ended Change
31 December
Year ended
30 June
(R`000`s) 2010 2009 2010
Net profit for the period 86 575 77 065 12 159 739
attributable to equity
holders of the Group
Less: Profit on disposal (237) (211) (234)
of fixed assets
Headline earnings 86 338 76 854 12 159 505
Ratios per share
Six months % Audited
ended Change
31 December
Year ended
30 June
2010 2009 2010
Headline earnings per 26.69 23.76 12 49.31
share(cents)
Diluted headline earnings 26.54 23.71 12 49.10
per share (cents)
Earnings per share 26.76 23.82 12 49.38
(cents)
Diluted earnings per 26.62 23.77 12 49.17
share (cents)
Net asset value per share 73.82 68.69 7 94.25
(cents)
Diluted net asset value 73.43 68.55 7 93.86
per share (cents)
Dividends per share cents 47.00 42.00 12 47.00
Weighted average ordinary 323 527 323 500 323 505
shares (`000)
Diluted average ordinary 325 261 324 169 324 857
shares (`000)
Notes to the results
The results have not been reviewed or audited by the Group`s auditors,
PricewaterhouseCoopers. The increase in policyholderliabilities has been based
on best estimates after providing for compulsory and discretionary margins and
have been actuarially certified by QED Actuaries and 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 2010. 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.
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, Investment
contracts, Short term insurance, Loans business, Mobile business and Long term
brokerage segments. Policies written are in respect of individuals.
Condensed Group Statement of Cash Flows
Six months Audited
ended
31 December
Year ended
30 June
(R`000`s) 2010 2009 2010
Cash flows from operating (3 278) 31 268 4 060
activities
Profit from operations adjusted 182 352 182 983 346 689
for non cash items
Working capital changes (58 365) (43 939) (48 562)
Cash generated from operations 123 987 139 044 298 127
after working capital changes
Separately disclosable items1 (20 818) (24 020) (43 263)
Increase/(decrease) in financial 77 653 (23 533) (5 916)
liabilities2
Net disposal/(acquisition) of 6 997 101 724 (25 459)
investments3
Interest received1 15 505 20 177 32 992
Dividends received1 5 314 3 843 10 271
Dividends paid (152 071) (135 870) (135 870)
Tax paid (59 845) (50 097) (126 822)
Cash flows from investing (7 838) (20 808) (37 427)
activities
Cash flows from financing 39 523 (1 638) (1 283)
activities
Net increase/(decrease) in cash 28 407 8 822 (34 650)
and cash equivalents
Cash and cash equivalents at 77 983 112 633 112 633
beginning of the period
Cash and cash equivalents at end 106 390 121 455 77 983
of the period
1. Interest and dividends
2. Investment contracts
3. Investments in respect of insurance operations and investment
contracts
Segment Assets & Liabilities
Six months Audited
ended
31 December
Year ended
30 June
(R`000`s) 2010 2009 2010
Assets
SA - Long term insurance 1 198 507 1 021 100 1 119 300
SA - Investment contracts 954 846 741 232 817 627
SA - Short term insurance 59 362 40 489 54 166
SA - Loans 79 574 31 128 45 999
SA - Mobile 1 505 1 029 574
Nigeria - Long term brokerage 19 736 36 414 23 672
Inter segment (64 938) (35 075) (56 869)
Total Group Assets 2 248 592 1 836 317 2 004 469
Liabilities
SA - Long term insurance 976 656 831 123 843 590
SA - Investment contracts 951 866 741 225 811 979
SA - Short term insurance 18 213 16 556 19 584
SA - Loans 92 832 39 058 56 725
SA - Mobile 1 077 1 314 577
Nigeria - Long term brokerage 34 054 19 913 23 980
Inter segment (64 938) (35 075) (56 869)
Total Group Liabilities 2 009 760 1 614 114 1 699 566
Segment Statements of Comprehensive Income
(R`000`s) SA - Long SA - SA - SA -
term Investment Short Loans
insurance contracts Term
Insurance
31 December 2010
Insurance premium 491 849 51 560
revenue
Reinsurance premiums (27 192)
Net insurance premiums 464 657 51 560
Other income 66 589 3 759 4 2 789
Interest Income 8 173 5 297
Fair value adjustment 103 269 62 234 5 095
to financial assets
through profit or loss
Segment revenue 642 688 65 993 56 659 8 086
Segment expenses and (495 514) (66 061) (46 720) (11 602)
claims
Net insurance benefits (98 771) (5 267)
and claims
(Increase)/decrease in (111 497) 3 283
policyholder
liabilities under
insurance contracts
Increase in 22 321
reinsurance assets
Fair value adjustment (60 407)
to financial
liabilities at fair
value through profit
or loss
Interest expense (1 827) (3 969)
Impairment of advances (4 387)
Operating expenses (307 567) (3 827) (44 736) (3 246)
Results from operating 147 174 (68) 9 939 (3 516)
activities
Equity accounted (15)
earnings
Profit/(loss) before 147 159 (68) 9 939 (3 516)
tax
Tax (55 161) 19 (2 783) 985
Net profit/(loss) for 91 998 (49) 7 156 (2 531)
the period
Attributable to:
Non-controlling (760)
interest
Equity holders of the 91 998 (49) 7 156 (1 771)
Group
31 December 2009
Insurance premium 469 521 33 286
revenue
Reinsurance premiums (20 587)
Net insurance premiums 448 934 33 286
Other income 75 086 1 185
Interest Income 4 994 196 2 721
Fair value adjustment 67 080 50 561 653
to financial assets
held at fair value
through profit or loss
Segment revenue 596 094 50 561 34 135 3 906
Segment expenses and (450 494) (52 187) (33 370) (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
or loss
Interest expense (2 207)
Impairment of advances (2 299)
Operating expenses (290 368) (3 585) (27 834)? (2 714)
Results from operating 145 600 (1 626) 765 (3 314)
activities
Equity accounted 32
earnings
Profit/(loss) before 145 632 (1 626) 765 (3 314)
tax
Tax (50 275) 455 (214) 929
Net profit/(loss) for 95 357 (1 171) 551 (2 385)
the period
Attributable to:
Non-controlling (715)
interest
Equity holders of the 95 357 (1 171) 551 (1 670)
Group
Segment Statements of Comprehensive Income
(R`000`s) SA - Nigeria - Inter Group
Mobile Long term segment
brokerage (revenue)/
expense
31 December 2010
Insurance premium 543 409
revenue
Reinsurance premiums (27 192)
Net insurance premiums 516 217
Other income 1 991 4 488 (977) 78 643
Interest Income 59 12 (3 701) 9 840
Fair value adjustment 170 598
to financial assets
through profit or loss
Segment revenue 2 050 4 500 (4 678) 775 298
Segment expenses and (1 450) (19 421) 4 678 (636 090)
claims
Net insurance benefits (104 038)
and claims
(Increase)/decrease in (108 214)
policyholder
liabilities under
insurance contracts
Increase in 22 321
reinsurance assets
Fair value adjustment (60 407)
to financial
liabilities at fair
value through profit
or loss
Interest expense (68) 3 701 (2 163)
Impairment of advances (4 387)
Operating expenses (1 450) (19 353) 977 (379 202)
Results from operating 600 (14 921) 139 208
activities
Equity accounted (15)
earnings
Profit/(loss) before 600 (14 921) 139 193
tax
Tax (168) (57 108)
Net profit/(loss) for 432 (14 921) 82 085
the period
Attributable to:
Non-controlling (3 730) (4 490)
interest
Equity holders of the 432 (11 191) 86 575
Group
31 December 2009
Insurance premium 502 807
revenue
Reinsurance premiums (20 587)
Net insurance premiums 482 220
Other income 760 6 610 613 84 254
Interest Income 20 401 (1 519) 6 813
Fair value adjustment 118 294
to financial assets
held at fair value
through profit or loss
Segment revenue 780 7 011 (906) 691 581
Segment expenses and (991) (20 775) 906 (564 131)
claims
Net insurance benefits (77 294)
and claims
Increase in (74 981)
policyholder
liabilities under
insurance contracts
Decrease in (13 387)
reinsurance assets
Fair value adjustment (48 602)
to financial
liabilities at fair
value through profit
or loss
Interest expense (136) 1 519 (824)
Impairment of advances (2 299)
Operating expenses (991) (20 639) (613) (346 744)
Results from operating (211) (13 764) 127 450
activities
Equity accounted 32
earnings
Profit/(loss) before (211) (13 764) 127 482
tax
Tax 59 (7 370) (56 416)
Net profit/(loss) for (152) (21 134) 71 066
the period
Attributable to:
Non-controlling (5 284) (5 999)
interest
Equity holders of the (152) (15 850) 77 065
Group
Condensed Group Statement of Changes in Equity
(R`000`s) Share Share Common Sub-
capital premium control total
deficit
Balance as at 1 July 6 470 218 656 (220 273) 4 853
2009
Ordinary dividend
Total comprehensive
income
- Net profit/(loss)
for the period
- Other comprehensive
expense
Transfer to
contingency reserve
Shares issued
SAR scheme allocated
Balance as at 31 6 470 218 656 (220 273) 4 853
December 2009
Balance as at 1 6 470 218 656 (220 273) 4 853
January 2010
Ordinary dividend
Total comprehensive
income
- Net profit/(loss)
for the period
- Other comprehensive
income
Transfer to
contingency reserve
Shares issued 1 201 202
SAR scheme allocated
Transfer from shares
issued
Balance as at 30 June 6 471 218 857 (220 273) 5 055
2010
Balance as at 1 July 6 471 218 857 (220 273) 5 055
2010
Ordinary dividend
Total comprehensive
income
- Net profit/(loss)
for the period
- Other comprehensive
income
Transfer to
contingency reserve
SAR scheme allocated
Balance as at 31 6 471 218 857 (220 273) 5 055
December 2010
Condensed Group Statement of Changes in Equity
(R`000`s) Retained SAR NDR: NDR:
earnings scheme Contin- Foreign
reserve gency currency
Short term translatio
insurance n
reserve
Balance as at 1 July 200 615 12 115 1 156 (7 428)
2009
Ordinary dividend (135 870)
Total comprehensive 77 065 (2 736)
income
- Net profit/(loss) 77 065
for the period
- Other comprehensive (2 736)
expense
Transfer to (3 399) 3 399
contingency reserve
Shares issued
SAR scheme allocated 2 697
Balance as at 31 138 411 14 812 4 555 (10 164)
December 2009
Balance as at 1 138 411 14 812 4 555 (10 164)
January 2010
Ordinary dividend
Total comprehensive 82 674 718
income
- Net profit/(loss) 82 674
for the period
- Other comprehensive 718
income
Transfer to (3 055) 3 055
contingency reserve
Shares issued
SAR scheme allocated 186
Transfer from shares (202)
issued
Balance as at 30 June 218 030 14 796 7 610 (9 446)
2010
Balance as at 1 July 218 030 14 796 7 610 (9 446)
2010
Ordinary dividend (152 071)
Total comprehensive 86 575 829
income
- Net profit/(loss) 86 575
for the period
- Other comprehensive 829
income
Transfer to (1 778) 1 778
contingency reserve
SAR scheme allocated 2 810
Balance as at 31 150 756 17 606 9 388 (8 617)
December 2010
Condensed Group Statement of Changes in Equity
(R`000`s) NDR: NDR: Sub- Non- Total
Changes Revalua- total Control-
in tion ing
owner- interest
ship
Balance as at 1 45 326 22 663 279 300 8 658 287 958
July 2009
Ordinary dividend (135 870) (135 870)
Total 74 329 (6 911) 67 418
comprehensive
income
- Net 77 065 (5 999) 71 066
profit/(loss) for
the period
- (2 736) (912) (3 648)
Other
comprehensive
expense
Transfer to
contingency
reserve
Shares issued
SAR scheme 2 697 2 697
allocated
Balance as at 31 45 326 22 663 220 456 1 747 222 203
December 2009
Balance as at 1 45 326 22 663 220 456 1 747 222 203
January 2010
Ordinary dividend
Total 4 164 87 556 (5 042) 82 514
comprehensive
income
- Net 82 674 (5 281) 77 393
profit/(loss) for
the period
- Other 4 164 4 882 239 5 121
comprehensive
income
Transfer to
contingency
reserve
Shares issued 202 202
SAR scheme 186 186
allocated
Transfer from (202) (202)
shares issued
Balance as at 30 45 326 26 827 308 198 (3 295) 304 903
June 2010
Balance as at 1 45 326 26 827 308 198 (3 295) 304 903
July 2010
Ordinary dividend (152 071) (152 071)
Total 87 404 (4 214) 83 190
comprehensive
income
- Net 86 575 (4 490) 82 085
profit/(loss) for
the period
- 829 276 1 105
Other
comprehensive
income
Transfer to
contingency
reserve
SAR scheme 2 810 2 810
allocated
Balance as at 31 45 326 26 827 246 341 (7 509) 238 832
December 2010
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 business (PVIF); 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 2010.
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; and
-?Loans business where EV Methodology has been used to determine future
shareholder entitlements.
As we have limited experience investigations in respect of our Nigerian
operation, the underlying assumptions that would be used for the Value of In-
force and Value of New Business (VNB) numbers are not yet reliable. The Board,
in June 2010, decided to follow the approach of setting the EV for the Nigerian
operation equal to the Net Asset Value. The 31 December 2009 numbers have been
re-stated(*) to follow a similar approach.
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
31 December
Year ended
30 June
(R`000`s) 2010 2009 2009 2010
Re-stated* Reported
Free surplus 90 724 108 988 108 988 179 637
Required capital 133 730 102 579 102 579 116 429
Adjusted Net Worth 224 454 211 567 211 567 296 066
(ANW)of covered
business
CoC (39 705) (33 069) (33 069) (38 166)
PVIF 1 986 753 1 615 889 1 628 791 1 768 859
EV of covered 2 171 502 1 794 387 1 807 289 2 026 760
business
The ANW of covered business is defined as the excess value of all assets
attributed to the covered business, but not required to back the liabilities of
covered business. Free Surplus is the ANW less the Required Capital attributed
to covered business.
Reconciliation of Total Equity to ANW
Six months
ended
31 December
Year ended
30 June
(R`000`s) 2010 2009 2010
Total equity and reserves per the 238 832 222 203 304 903
Statement of Financial Position
Removal of Deferred Profits and 15 816 8 849 12 377
impact of compulsory margins on
investment business (net impact
after tax)
Removing minority interests 7 526 (1 746) 3 295
Adjusting subsidiaries to Net (8 044) (4 556) (6 266)
Asset Value
SAR scheme adjustment (29 677) (13 183) (18 243)
ANW 224 454 211 567 296 066
The CoC is the opportunity cost of having to hold the Required Capital of R133.7
million as at 31 December 2010. The Required Capital has been set at the greater
of the Statutory Termination Capital Adequacy Requirement and 1.25 times the
Statutory Ordinary Capital Adequacy Requirement for the Life company plus the
Required Capital for the Short Term company.
The SAR scheme adjustment recognises the future dilution in EV, on a mark to
market basis, as a result of the SAR scheme.
Clientele Life`s Statutory Capital Adequacy Requirement (CAR) cover ratio at 31
December 2010 was 2.20 times (30 June 2010: 3.03 times) on the statutory
valuation basis.
EV per share
Six months
ended
31 December
Year ended
30 June
2010 2009 2009 2010
Re-stated* Reported
EV per share (cents) 671.20 554.68 558.67 626.46
Diluted EV per share 667.62 553.53 558.67 623.91
(cents)
Value of New Business
Six months
ended
31 December
Year ended
30 June
(R`000`s) 2010 2009 2009 2010
Re-stated* Reported
Total VNB 215 947 189 845 190 308 353 127
Present VNB premiums 906 849 786 035 803 267 1 503 558
New Business profit margin 23.8% 24.2% 23.7% 23.5%
The VNB (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 period ended 31 December 2010 less the
CoC pertaining to this business.
The New Business profit margin is the VNB expressed as a percentage of the
present value of future premiums (and other annuity fee income) pertaining to
the same business.
Long term economic assumptions (South Africa)
Six months
ended
31 December
Year ended
30 June
2010 2009 2010
Risk discount rate % 11.90 13.25 12.60
Overall investment return % 7.40 8.75 8.10
Expense inflation % 5.40 6.75 6.10
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, 24 months ago, the Board decided it
prudent, in light of the prevailing 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 this stage. 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 2010 was 11.90%.
Risk Discount Rate Sensitivities
(R`000`s) EV VNB
Risk discount rate ?9.90% 2 405 781 254 515
Risk discount rate 10.90% 2 281 138 234 679
Risk discount rate 11.90% 2 171 502 215 947
Risk discount rate 12.60% 2 102 478 205 968
Risk discount rate 12.90% 2 072 897 201 691
Risk discount rate 13.25% 2 042 093 196 841
Risk discount rate 13.90% 1 984 887 187 833
Segment Information
The EV can be split between segments as follows:
(R`000`s) ANW PVIF CoC EV
31 December 2010
SA - Long term 212 090 1 812 587 (35 685) 1 988 991
insurance
SA - Short term 32 350 171 499 (4 019) 199 830
insurance
SA - Investment 4 554 4 554
contracts
SA - Loans (9 295) (1 888) (11 183)
Nigeria - Long term (10 691) (10 691)
brokerage
Total 224 454 1 986 753 (39 705) 2 171 502
Restated 31 December
2009*
SA - Long term 185 365 1 478 700 (31 137) 1 632 928
insurance
SA - Short term 19 377 135 335 (1 932) 152 780
insurance
SA - Investment 1 819 1 819
contracts
SA - Loans (5 551) 35 (5 516)
Nigeria - Long term 12 375 12 375
brokerage
Total 211 567 1 615 889 (33 069) 1 794 387
Reported 31 December
2009
SA - Long term 185 365 1 478 700 (31 137) 1 632 928
insurance
SA - Short term 19 377 135 335 (1 932) 152 780
insurance
SA - Investment 1 819 1 819
contracts
SA - Loans (5 551) 35 (5 516)
Nigeria - Long term 12 375 12 902 25 278
brokerage
Total 211 567 1 628 791 (33 069) 1 807 289
30 June 2010
SA - Long term 276 907 1 584 474 (34 892) 1 826 489
insurance
SA - Short term 26 973 180 816 (3 274) 204 513
insurance
SA - Investment 4 133 4 133
contracts
SA - Loans (7 527) (564) (8 091)
Nigeria - Long term (286) (286)
brokerage
Total 296 066 1 768 859 (38 166) 2 026 760
The VNB can be split between segments as follows:
Six months
ended
31 December
Year ended
30 June
(R`000`s) 2010 2009 2009 2010
Re- Reported
stated*
SA - Long term insurance 207 923 161 526 161 526 295 349
SA - Short term insurance 17 250 34 372 34 372 72 408
SA - Investment contracts 3 637 2 517 2 517 5 381
SA - Loans (2 091) (321) (321) (1 247)
Nigeria - Long term - 463
brokerage
SA - New venture costs (10 772) (8 248) (8 248) (18 764)
Total 215 947 189 845 190 308 353 127
Embedded Value Earnings Analysis
EV earnings (per PGN 107) comprises 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 2010
(R`000`s) ANW PVIF CoC Total
A: EV at the end of the 224 454 1 986 753 (39 705) 2 171 502
period
EV at the beginning of 296 066 1 768 859 (38 166) 2 026 760
the period
Dividends and STC (167 609) (167 609)
accrued or paid
B: Adjusted EV at the 128 458 1 768 859 (38 166) 1 859 150
beginning of the period
EV earnings (A - B) 95 996 217 893 (1 538) 312 352
Impact of once-off (1 768) (66 862) 773 (67 857)
economic assumption
changes
SA - Short term 10 009 10 009
insurance: Impact of
fraud
SA - Long term 6 101 6 101
insurance: Impact of
fraud
SA - Short term 12 167 12 167
insurance: Impact of
once-off system error
EV earnings before once- 94 228 179 309 (765) 272 772
off items
Return on EV excluding 29.3%
once-off items (%)
Return on EV (%) 33.6%
Components of EV
earnings
VNB (99 564) 318 301 (2 791) 215 947
Expected return on - 106 000 (2 333) 103 667
covered business
(unwinding of risk
discount rate)
Expected profit transfer 204 190 (204 190) - -
Withdrawal experience 1 658 (21 301) 2 059 (17 584)
variance
Claims and reinsurance (4 281) (1 841) - (6 122)
experience variance
Sundry experience (3 404) 5 609 2 261 4 465
variance
Operating assumption and 2 182 (4 096) 8 (1 906)
model changes
Expected return on ANW 7 541 - - 7 541
SAR scheme dilution (8 624) - - (8 624)
Goodwill and Medium Term (16 395) (8 004) - (24 399)
incentive schemes
Increase/(reduction) in (10 406) - - (10 406)
Net Asset Value on
Nigerian operation
EV operating return 72 897 190 478 (796) 262 579
Investment return 21 295 - - 21 295
variances on ANW
SA - Short term (10 009) (10 009)
insurance: Impact of
fraud#
SA - Long term (6 101) (6 101)
insurance: Impact of
fraud#
SA - Short term (12 167) (12 167)
insurance: Impact of
once-off system error#
Effect of economic 1 804 55 692 (742) 56 755
assumption changes
EV earnings 95 996 217 893 (1 538) 312 352
#Fraud was detected during the reporting period relating to policy sales in the
last quarter of the 2010 financial year. Whilst the cash loss and impact on IFRS
earnings to the Group was negligible, it did result in a reduction of Group EV
earnings for the period of R16,1 million. The related internal controls to
prevent and detect sales related fraud will continue to be enhanced to mitigate
the possibility of future fraud of this nature.
In addition, a batch of Legal policies was erroneously reflected as active at 30
June 2010 due to a once-off system error which also resulted in a reduction of
EV earnings for the period of R12,2 million.
Sponsor:
PricewaterhouseCoopers Corporate Finance (Proprietary) 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)*, 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), FASSA*
Company secretary: W van Zyl CA(SA) *Executive director
Date: 21/02/2011 17:00:01 Produced by the JSE SENS Department.
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