| Mon 19 Feb 2001, 0:00 | | Clientele Life Assurance Company Ltd - Interim Rep |
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Clientele Life Assurance Company Limited
(Registration number 1973/016606/06)
Interim Report to Shareholders for the six months ended 31 December 2000
* Net recurring premium income increased by 60%
* Surplus from life operations increased by 53%
* Annualised return on period-end shareholders' interests: 56%
* Headline earnings per share increased by 38%
* Embedded value of new business: R37 million
* Special cash distribution to shareholders of 94,34 cents per share during the
period (R30 million)
The following are the unaudited results for the company for the six months
ended 31 December 2000.
Summarised Income Statements
Six months ended Year ended
31 December 30 June
(R'000's) 2000 1999 % Increase 2000
Net premium income
- Recurring 58 112 36 334 60 83 340
Investment income 2 340 2 574 3 421
Policyholders'
benefits (4 265) (2 926) 46 (6 846)
Transfer to life fund (8 617) (9 407) (11 422)
Expenses (33 938) (17 656) (46 962)
- Operating expenses (5 113) (4 720) 8 (9 595)
- New business
acquisition
expenses (28 825) (12 936) 123 (37 367)
SURPLUS FROM LIFE
OPERATIONS 13 632 8 919 53 21 531
Long term return
on free assets 5 159 4 699 10 10 800
HEADLINE EARNINGS 18 791 13 618 38 32 331
Reconciliation
of headline
earnings to
total earnings
Headline earnings 18 791 13 618 32 331
Short term variance on
long term return on
free assets 2 005 4 460 4 750
Total earnings
including
short term variance 20 796 18 078 37 081
Headline earnings includes an expected Long Term Rate of Return on free assets
of 12%, which is consistent with the actuaries long term economic assumptions
for embedded value. The total rate of return on free assets for the six month
period to December 2000 outperformed the market and amounted to 16.66%.
The exceptional performance of 23.39% for the comparable period last year
resulted in a 28.76% reduction in the total rate of return on free assets for
the current period and as a result the growth in earnings after short term
variance has been affected. In addition total investment return on free assets
was reduced by the R30 million special cash distribution to shareholders during
the period.
Summarised Balance Sheets
As at As at As at
31 Dec. 31 Dec. 30 June
(R'000's) 2000 1999 2000
Funds employed
Share capital 4 770 4 770 4 770
Share premium 9 690 39 690 39 690
Retained surplus 59 448 39 280 38 652
Shareholders' interests 73 908 83 740 83 112
Life fund 45 169 33 450 36 617
119 077 117 190 119 729
Employment of funds
Investments 95 116 109 234 113 652
Fixed assets 8 414 4 810 5 937
Current assets 19 669 6 721 25 134
Total assets 123 199 120 765 144 723
Current liabilities (4 122) (3 575) (24 994)
119 077 117 190 119 729
STATEMENTS OF CHANGES IN EQUITY
Share Share Retained
capital premium earnings Total
30 June 2000
Balance at
the beginning
of year 4 770 39 690 21 202 65 662
Net surplus
attributable
to shareholders 34 901 34 901
Dividend declared (17 451) (17 451)
Balance at the
end of year 4 770 39 690 38 652 83 112
31 December 2000
Balance at
the beginning
of period 4 770 39 690 38 652 83 112
Net surplus
attributable
to shareholders 20 796 20 796
Cash distribution (30 000) (30 000)
Balance at the
end of period 4 770 9 690 59 448 73 908
SUMMARISED CASH FLOW STATEMENTS
Six months ended Year ended
31 December 30 June
(R'000's) 2000 1999 2000
Cash generated by operations 17 277 16 123 32 606
Adjusted by:
Returns on investments 1 825 4 434 11 399
Dividends paid (17 318) (12 456) (12 456)
Secondary tax on
companies paid (2 180) (1 555) (1 555)
Cash flow from
operating activities (396) 6 546 29 994
Cash flow from
investing activities* 22 533 (5 680) (21 239)
Cash flow from
financing activities* (30 370) (3 889) (4 977)
(Decrease)/Increase in
cash on hand (8 233) (3 023) 3 778
*Cash flow from financing activities and cash flow from investing activities
include a cash distribution of R30 million (1999: Nil) paid to shareholders out
of the share premium account.
Earnings per share
Six months ended Year ended
31 December % Increase/ 30 June
(R'000's) 2000 1999 (decrease) 2000
Operating surplus
per share (cents) 42.87 28.05 53 67.71
Long term return
on free
assets per
share (cents) 16.22 14.78 10 33.96
Headline earnings
per share (cents) 59.09 42.82 38 101.67
Short term variance
per share (cents) 6.31 14.03 (55) 14.94
Total earnings
including
short term
variance (cents) 65.40 56.85 15 116.61
Weighted ordinary
shares
in issue ('000's) 31 800 31 800 31 800
Notes:
Headline earnings are determined on a Long-Term Rate of Return (LTRR) and are
based on the Statement of Recommended Practice (SORP) in the United Kingdom.
These earnings include an expected long-term investment return of 12% on the
investments held in the shareholders' fund. Short-term variances in the
investment return, which represent the differences between the actual return
and the long-term investment return, are included in total earnings.
The principal accounting policies and valuation bases adopted by the company
remain consistent with those applied in previous reporting periods.
The transfer to the life fund has been based on best estimates after providing
for first and second tier margins, which basis is consistent with that used in
previous reporting periods. The transfer to the life fund is actuarially
certified at the year end.
The company has no major capital commitments for the foreseeable future.
The nature of the company's business remains unchanged.
Embedded value
The embedded value represents an estimate of the value of the company exclusive
of goodwill attributable to future new business.
The embedded value comprises:
- the value of excess assets attributable to shareholders
- the value of in force business.
The value of in force business is the present value of future after tax profits
arising from business in force at the calculation date.
The embedded value calculations have been certified by the company's
independent actuaries, Hymans Robertson & Co. (Pty)Limited.
December June
2000 2000
R'000 R'000
Embedded value
Value of excess assets
attributable to shareholders 80 003 87 881
Value of in force business 208 967 171 544
Embedded value 288 970 259 425
Six months Year
ended ended
31 December 30 June
2000 2000
R'000 R'000
Value of new business 33 182 58 048
The value of new business represents
the present value of projected after
tax profits at the point of sale
on new policies sold during the six
month period ended 31 December 2000.
Analysis of change in embedded value
Embedded value at 30 June 2000 259 425
Unwinding of discount rate 14 965
Value added by management 44 580
- Value of new business 33 182
- Investment return on free assets 7 164
- Experience adjustments 4 235
- Return of share premium (30 000)
Embedded value at 31 December 2000 288 970
Main assumptions:
Long term economic assumptions % p.a.
Risk discount rate 18
Overall investment return 12
Expense inflation 8
Other assumptions
The assumptions for future mortality, persistency and premium escalations were
based on recent experience adjusted for anticipated future trends and are
consistent with those used at 30 June 2000. Allowance has been made for future
taxation on the new taxation basis for life assurers which came into force on 1
January 2000. The company expects to start paying normal tax in the corporate
fund in the short term. No allowance has been made for secondary tax on
companies in the embedded value calculations. On a pre-tax basis, total
embedded value is reflected at R355,8 million, the value of in force business
at R275,8 million and the value of new business at R48,1 million. No future
benefit has been anticipated in the embedded value calculation for the
estimated tax loss of R189 million in the individual policyholder fund.
CommentS
Operating results for the six months ended 31 December 2000 continue to reflect
solid growth and profitability due to Clientele's distribution strengths, low
cost structure and focused approach.
Net recurring premium income for the six months of R58 million represents an
increase of 60% over the comparable period last year, profits from life
assurance business attained an impressive increase of 53% rising from R8,9
million to R13,6 million. Headline earnings rose by 38% from 42,8 cents per
share to 59,1 cents per share and are determined on a Long Term Rate of Return
(LTRR) for Investments. These earnings include an expected long-term investment
return of 12% on the investments held in the shareholders' fund. New business
acquisition costs increased, largely due to commissions paid on increased new
business introduced by our independent field advertisers. These commissions are
only paid as and when premiums are received resulting in no new business
strain. Growth in operating expenses was well contained at 8% and the average
cost per policy continues to decline.
Clientele's conservative investment strategy, in the prevailing volatile
markets, has again been justified and actual returns have significantly
exceeded the LTRR of 12% both in 1999 and 2000.
On 21 November 2000, R30 million of share premium was returned to shareholders.
This will improve the company's return on capital and supports Clientele's
conservative investment strategy.
The embedded value of new business written during the six months period
amounted to R33 million and the total value of in force business increased by
R37 million. A distinguishing feature of Clientele Life's embedded value is
that the value of new business is significant relative to the value of total
in-force business. Clientele's current rate of new business growth, the
profitability of this new business and future favourable expense ratios point
to good growth in embedded value in future.
Prospects
The company remains well positioned to continue its steady rate of growth and
to benefit from the resultant economies of scale, while maintaining its
strategy of providing low cost life assurance products to its target market
through low cost distribution channels.
Clientele does not place any reliance on acquisitions for growth. Focused
organic growth, the use of technology, careful cost control and effective
distribution channels will remain the driving force of its operations in the
future.
Clientele has an option to acquire, on favourable terms, 33,3% of an
international holding company associated with the Hollard Group, which sells
life assurance products in Australia and the USA. Although the prospects of the
venture look promising, Clientele sees no advantage in exercising its option at
this time.
By order of the board
GQ Routledge
Chairman
G J Soll Johannesburg
Managing Director 20 February 2001
Registered office: Clientele House, Morning View Office Park, Cnr, Rivonia and
Alon Roads, Morningside, PO Box 1316, Rivonia 2128
Transfer secretaries: Mercantile Registrars Limited, 10th Floor, 11 Diagonal
Street, Johannesburg 2001, PO Box 1053, Johannesburg 2000
Directors: GQ Routledge (Chairman), B D Howard (Deputy Chairman), G J Soll
(Managing Director), P JA Cunningham, PR Enthoven, PW Felton.
Company secretary: BV Moore.
Website: www.clientelelife.com
E-mail: services@clientelelife.com
