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CLI
CLI
CLI - Clientele Limited - Reviewed summarised group results for the year ended
30 June 2011
Clientele Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Reviewed summarised group results for the year ended 30 June 2011
Highlights
Value of New Business increased by 30% from R353,1 million to R457,6
million
Recurring Embedded Value Earnings increased by 29% from R428,4 million to R552,9
million
Return (recurring) on Embedded Value of 30%
Return on average shareholders interest of 64%
Headline earnings per share increased by 25% from 49.31 cents to 61.65 cents
Dividends declared per share increased by 14% from 47.00 cents to 53.50 cents
Comments
Introduction
The Clientele Group ("the Group") has recorded a good set of results for the
year against the backdrop of an ongoing challenging economic environment.
Production volumes showed meaningful improvement, investment returns exceeded
expectation and expenses were well controlled. Withdrawals continue to be an
area of focus, and experience for the last six months was within assumptions.
This has enabled the Group to report an increase in Recurring Embedded Value
Earnings from R428,4 million last year to R552,9 million this year resulting in
a Return (recurring) on Embedded Value of 30%. This was supported by the Value
of New Business which increased by 30% from R353,1 million to R457,6 million.
The return on average shareholders` interest for the year amounted to 64% and
headline earnings per share increased by 25% from 49.31 cents to 61.65 cents.
On the strength of this performance the Board has declared a dividend per share
of 53.50 cents, an increase of 14% over last year`s dividend of 47.00 cents.
Nigeria - Long-term brokerage (IFA Nigeria)
After year end, the Clientele Limited Board, together with the Board of KC2008,
our minority partner, decided to close the IFA Nigeria business and to place it
into voluntary liquidation with effect from 29 July 2011. As has been
previously communicated to shareholders, the biggest challenge and threat to the
viability and sustainability of the IFA business in Nigeria has been the high
level of unpaid premiums. Despite every effort to try and improve the level of
collections, the level of unpaid premiums on existing business continued to
exceed acceptable levels due to factors unique to the Nigerian market. The Board
did not envisage that this situation would change significantly in the
foreseeable future, and reluctantly made the decision to close IFA Nigeria.
Clientele Life fully impaired its R17,5 million loan to IFA Nigeria as at 30
June 2011, as disclosed in the Segment Statements of Comprehensive Income.
Operating Results
Group Embedded Value
The Group has experienced good growth during the year under review and Group
Embedded Value ("EV") has increased from R2 026,8 million (before the dividend
payment) last year to R2 520,3 million at 30 June 2011. This reflects EV
earnings of R661,2 million (2010: R478,3 million), including once-off economic
and other adjustments and Recurring EV Earnings of R552,9 million (2010: R428,4
million) (refer to EV Earnings analysis) and translates into a Return on EV
("ROEV") of 36% (2010: 31%) and a Return (recurring) on EV of 30% (2010: 28%).
The Group`s Value of New Business ("VNB") has increased by 30%, on the back of
good production volumes, from R353,1 million for the previous financial year to
R457,6 million this year and New Business profit margins have improved to 25%
(2010: 24%).
The challenging economic environment has had an effect on withdrawal experience
which resulted in a negative variance of R29,5 million for the year. This
resulted in a change in EV assumptions for certain durations of business at 31
December 2010, as previously reported. Experience in the second half of the year
was in line with the revised assumptions.
The Group has experienced good investment returns for the year from its
investment portfolios as evidenced by the R18,5 million positive investment
return variance on Adjusted Net Worth ("ANW").
The Board has adopted current actuarial guidance in respect of the risk discount
rate, now set at 11.3% (2010: 12.6%). The calculation is comprehensively
explained in the Group EV section of the results and a sensitivity analysis is
also provided showing an extended range in the light of the prevailing
uncertainty in global economies.
Group Statement of Comprehensive Income
Headline earnings for the Group of R199,5 million are 25% higher than the
headline earnings of R159,5 million achieved last year. As a result, diluted
headline earnings per share have increased by 25% to 61.25 cents, up from
49.10 cents and the return on average shareholders` interests amounted to 64%
(2010: 54%).
It should be noted that headline earnings last year includes the reversal of the
deferred tax asset of R7,8 million, in respect of IFA Nigeria.
Insurance premium revenue for the year is up by 11% from R1,0 billion to R1,1
billion and other income of R158,0 million, which mainly comprises annuity fees
from Clientele Life`s
Independent Field Advertisers, is 1% down in comparison to last year`s figure of
R160,0 million.
Operating expenses have increased by 14% over last year which should be viewed
in the context of Clientele`s conservative accounting treatment of expensing
acquisition costs up front and the 30% increase in VNB.
As referred to in the 2010 Annual Report, Clientele adopts the conservative
accounting practice of eliminating negative reserves and thus expensing
acquisition costs upfront and deferring profit release over the life of the
policy. This means that the higher profits reflected in Embedded Value Earnings
are not replicated in the financial statements as a consequence of the strain of
strong new business growth. The total value of negative reserves eliminated now
amounts to R1,6 billion in comparison to R1,1 billion at 30 June 2010.
Net insurance benefits and claims of R209,3 million have increased by 24% from
R169,4 million for 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. During the year the average
value per benefit payment has increased in line with improved investment returns
and the ageing of the policy book.
The change in policyholder liabilities under insurance contracts amounted to
R84,0 million (2010: R109,7 million) for the year. This reduction mainly relates
to the refinement in modelling used to determine liabilities for cash-back
benefits and the increase in policyholder benefit payments referred to above.
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 95% or R433,2
million of the Group`s R457,6 million of VNB and generated R186,6 million net
profit for the year which accounts for 98% of the Group`s net profit for the
year of R190,2 million. It should be noted that Clientele Life fully impaired
its R17,5 million loan to IFA Nigeria as at 30 June 2011 as disclosed in the
Segment Statements of Comprehensive Income. Ignoring this impairment, net profit
increased by 8% despite the upfront expensing of acquisition costs in respect of
the high VNB generated.
The Life segment has experienced strong production for the year which has
resulted in the significant growth in VNB.
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).
This operating segment reported a R0,9 million profit for the year. This should
be viewed in conjunction with the R37,1 million (2010: R24.0
million) of deferred profits included in the Statement of Financial Position.
SA Short term insurance - Clientele General Insurance (Clientele Legal)
VNB for the year is down when compared to last year. Withdrawal assumption
changes and lower production volumes, in the first half of the year, have had a
negative effect on the VNB variance for the year.
Despite this, Clientele Legal now has an EV of R241,0 million (2010:
R204,5 million) and has recorded a R17,7 million net profit for the year
compared to the R6,2 million net profit achieved last year.
Clientele Legal is now an established business in its own right and is expected
to continue to make an increasing contribution to the overall Group performance
into the future.
SA Loans - Clientele Loans
The personal loans business, of which Clientele owns 70%, is progressing in line
with expectations and in accordance with its conservative credit assessment and
lending approach. The gross advances book at 30 June 2011 amounted to R122,1
million (2010: R43,3 million) and impairment experience from the book is as
expected.
SA Mobile - Clientele Mobile
Clientele Mobile has made steady progress, recording net profit for the year of
R0,5 million (2010: R0,1 million).
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. 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
initiatives will continue to be strictly managed and monitored to ensure that
the overall Group results remain favourably intact.
By order of the Board
GQ Routledge
Chairman
GJ Soll
Managing Director
Johannesburg
22 August 2011
Dividend declared
The Board has declared the following dividend per ordinary share:
Ordinary dividend (cents per share) 53.50
Ordinary shares in issue at record date (000`s) 323 971
The dividend will be paid on Monday, 12 September 2011.
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, 2 September
2011. The shares will commence trading ex dividend on Monday, 5 September 2011
and the record date will be Friday, 9 September 2011.
Share certificates may not be dematerialised or rematerialised between Monday, 5
September 2011 and Friday, 9 September 2011 both days inclusive.
By order of the Board
GQ Routledge
Chairman
GJ Soll
Managing Director
Johannesburg
19 August 2011
Condensed Group Statements of Comprehensive Income
Year ended 30 June %
(R`000`s) 2011 2010 Change
Revenue
Insurance premium revenue 1 114 995 1 005 660 11
Reinsurance premiums (56 673) (42 755)
Net insurance premiums 1 058 322 962 905 10
Other income 157 972 160 025
Interest income 25 357 15 141
Fair value adjustment to financial assets 224 686 185 064 21
at fair value through profit or loss
Net income 1 466 337 1 323 135 11
Net insurance benefits and claims (209 319) (169 434) 24
Change in policyholder liabilities under (84 032) (109 697) (23)
insurance contracts
Decrease in reinsurance assets (2 401) (15 568)
Fair value adjustment to financial (99 960) (98 705)
liabilities at fair value through profit
or loss - investment contracts
Interest expense (6 085) (2 326)
Impairment of advances (11 558) (5 608)
Operating expenses (766 258) (674 438) 14
Profit from operations 286 724 247 359 16
Equity accounted (loss)/earnings (81) 23
Profit before tax 286 643 247 382 16
Tax* (96 417) (98 923)
Net profit for the year 190 226 148 459 28
Attributable to:
- Non-controlling interest - ordinary (4 731) (11 280)
shareholders
- Equity holders of the Group - ordinary 194 957 159 739 22
shareholders
Net profit for the year 190 226 148 459 28
Other comprehensive income:
Exchange differences on translating 261 (2 691)
foreign operation
Gains on property revaluation 5 937 5 509
Income tax relating to gains on property (1 230) (1 345)
revaluation
Other comprehensive income for the year - 4 968 1 473
net of tax
Total comprehensive income for the year 195 194 149 932 30
Total comprehensive income attributable
to:
- Non-controlling interest - ordinary (4 586) (11 953)
shareholders
- Equity holders of the Group - ordinary 199 780 161 885 23
shareholders
Condensed Group Statements of Financial Position
Year ended 30 June
(R`000`s) 2011 2010
Assets
Intangible assets 24 762 37 036
Property and equipment 47 822 50 893
Owner-occupied properties 150 329 134 300
Investment in associates 291 372
Deferred tax 30 270 22 367
Inventories 839 1 412
Reinsurance assets 4 178 6 579
Financial assets held at fair value 1 940 210 1 607 713
through profit or loss
Loans and receivables including insurance 154 255 65 814
receivables
Cash and cash equivalents 145 681 77 983
Total assets 2 498 637 2 004 469
Total equity and reserves 353 220 304 903
Liabilities
Policyholder liabilities under insurance 776 979 693 725
contracts
Financial liabilities - investment 1 049 988 811 979
contracts
- at fair value through profit or loss 1 015 790 781 513
- at amortised cost 34 198 30 466
Financial liabilities - loans at 93 488 14 790
amortised cost
Finance leases 319 778
Employee benefits 86 293 64 676
Accruals and payables including insurance 113 456 92 429
payables
Deferred tax 23 083 16 483
Current tax 1 811 4 706
Total liabilities 2 145 417 1 699 566
Total equity and liabilities 2 498 637 2 004 469
Tax*
Year ended 30 June
(R`000`s) 2011 2010
SA Operations:
Current and deferred tax (80 211) (80 315)
Secondary tax on companies ("STC") (15 538) (11 996)
Capital gains tax (1 108) (76)
Overprovision in prior years 440 1 244
IFA Nigeria+ - (7 780)
Tax (96 417) (98 923)
The Individual Policyholder Fund has an estimated tax loss of R1.68
billion (2010: R1.42 billion).
+ In 2010, the deferred tax asset of R7,8 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 has been raised
in 2011.
Reconciliation of Net Profit to Headline Earnings
Year ended 30 June
(R`000`s) 2011 2010 % change
Net profit for the year attributable 194 957 159 739
to equity holders of the Group
Less: Profit on disposal of fixed (250) (234)
assets
Add: Impairment of intangible assets 4 790
Headline earnings 199 497 159 505 25
Ratios per Share
Year ended 30 June
2011 2010 % change
Headline earnings per share (cents) 61.65 49.31 25
Diluted headline earnings per share 61.25 49.10 25
(cents)
Earnings per share (cents) 60.24 49.38 22
Diluted earnings per share (cents) 59.86 49.17 22
Net asset value per share (cents) 109.15 94.25 16
Diluted net asset value per share 108.45 93.86 16
(cents)
Dividends per share (cents) - paid 47.00 42.00 12
Dividends per share (cents) - 53.50 47.00 14
declared
Weighted average ordinary shares 323 616 323 505
(`000)
Diluted average ordinary shares 325 698 324 857
(`000)
Notes to the Results
The results have been reviewed by the Group`s external auditors,
PricewaterhouseCoopers Incorporated, 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 71 of 2008, 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.
The Group Results were prepared under the supervision of Mr IB Hume (CA(SA),
ACMA), the Group Financial Director.
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, the AC500 Standards as issued by the
Accounting Practices Board and the Companies Act 71 of 2008, 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, Short-term insurance, Investment contracts, Loans business,
Mobile business and Long-term brokerage segments. Policies written are in
respect of individuals.
Condensed Group Statements of Cash Flows
Year ended 30 June
(R`000`s) 2011 2010
Cash flows from operating activities 90 497 4 060
Profit from operations adjusted for non cash items 353 909 346 689
Working capital changes (37 295) (48 562)
Separately disclosable items 1 (44 737) (43 263)
Increase/(decrease) in financial liabilities 2 134 317 (5 916)
Net acquisition of investments 3 (107 811) (25 459)
Interest received 1 30 437 32 992
Dividends received 1 14 300 10 271
Dividends paid (152 009) (135 870)
Tax paid (100 614) (126 822)
Cash flows from investing activities 4 (35 130) (37 427)
Cash flows from financing activities 12 331 (1 283)
Net increase/(decrease) in cash and cash equivalents 67 698 (34 650)
Cash and cash equivalents at beginning of the year 77 983 112 633
Cash and cash equivalents at end of the year 145 681 77 983
1. Interest and dividends
2. Investment contracts
3. Investments in respect of insurance operations: investment contracts
and shareholders
4. Mainly relates to the acquisition of intangible assets; property and
equipment
Segment Assets & Liabilities
Year ended 30 June
(R`000`s) 2011 2010
Assets
SA - Long term insurance 1 297 286 1 119 300
SA - Investment contracts 1 050 131 817 627
SA - Short term insurance 72 773 54 166
SA - Loans 123 494 45 999
SA - Mobile 1 369 574
Nigeria - Long term brokerage 18 416 23 672
Inter segment (64 832) (56 869)
Total Group assets 2 498 637 2 004 469
Liabilities
SA - Long term insurance 970 756 843 590
SA - Investment contracts 1 049 988 811 979
SA - Short term insurance 20 453 19 584
SA - Loans 140 344 56 725
SA - Mobile 875 577
Nigeria - Long term brokerage 27 833 23 980
Inter segment (64 832) (56 869)
Total Group liabilities 2 145 417 1 699 566
Segment Statements of Comprehensive Income
(R`000`s) SA - Long SA - SA - Short SA -
term Invest- term Loans
insur- ment insur-
ance con- ance
tracts
30 June 2011
Insurance premium 1 004 877 110 118
revenue
Reinsurance premiums (56 673)
Net insurance premiums 948 204 110 118
Other income 130 622 8 234 5 6 911
Loan waived #
Interest income 16 929 260 14 753
Fair value adjustment 115 030 103 692 5 964
to financial assets
held at fair value
through profit or loss
Segment revenue 1 210 785 111 926 116 347 21 664
Segment expenses and (932 048) (110 704) (92 583) (30 007)
claims
Net insurance benefits (199 595) (9 724)
and claims
Change in policyholder (86 347) 2 315
liabilities under
insurance contracts
Decrease in reinsurance (2 401)
assets
Fair value adjustment (99 960)
to financial assets
held at fair value
through profit or loss
Interest expense (3 732) (8 969)
Impairment of advances (11 558)
Loan write off # (17 519)
Operating expenses (626 186) (7 012) (85 174) (9 480)
Results from operating 278 737 1 222 23 764 (8 343)
activities
Equity accounted loss (81)
Profit/(loss) before 278 656 1 222 23 764 (8 343)
tax
Tax (92 075) (342) (6 026) 2 220
Net profit/(loss) for 186 581 880 17 738 (6 123)
the year
Attributable to:
Non controlling (1 837)
interest - ordinary
shareholders
Equity holders of the 186 581 880 17 738 (4 286)
Group - ordinary
shareholders
30 June 2010
Insurance premium 930 046 75 614
revenue
Reinsurance premiums (42 755)
Net insurance premiums 887 291 75 614
Other income 145 723 2 852
Interest income 7 629 345 10 749
Fair value adjustment 79 762 103 806 1 496
to financial assets
held at fair value
through profit or loss
Segment revenue 1 120 405 103 806 77 455 13 601
Segment expenses and (839 921) (107 363) (68 883) (20 801)
claims
Net insurance benefits (161 688) (7 746)
and claims
Change in policyholder (101 744) (7 953)
liabilities under
insurance contracts
Decrease in reinsurance (15 568)
assets
Fair value adjustment (98 705)
to financial
liabilities held at
fair value through
profit or loss
Interest expense (1 630) (4 591)
Impairment of advances (5 608)
Operating expenses (560 921) (7 028) (53 184) (10 602)
Results from operating 280 484 (3 557) 8 572 (7 200)
activities
Equity accounted 23
earnings
Profit/(loss) before 280 507 (3 557) 8 572 (7 200)
tax
Tax (91 734) 996 (2 371) 2 016
Net profit/(loss) for 188 773 (2 561) 6 201 (5 184)
the year
Attributable to:
Non-controlling (1 555)
interest - ordinary
shareholders
Equity holders of the 188 773 (2 561) 6 201 (3 629)
Group - ordinary
shareholders
(R`000`s) SA - Nigeria - Inter Group
Mobile Long segment
term (revenue)/
broke- expense
rage
30 June 2011
Insurance premium 1 114 995
revenue
Reinsurance premiums (56 673)
Net insurance premiums 1 058 322
Other income 3 498 10 718 (2 016) 157 972
Loan waived # 17 519 (17 519) -
Interest income 137 23 (6 745) 25 357
Fair value adjustment to 224 686
financial assets held at
fair value through
profit or loss
Segment revenue 3 635 28 260 (26 280) 1 466 337
Segment expenses and (2 943) (37 608) 26 280 (1 179
claims 613)
Net insurance benefits (209 319)
and claims
Change in policyholder (84 032)
liabilities under
insurance contracts
Decrease in reinsurance (2 401)
assets
Fair value adjustment to (99 960)
financial assets held at
fair value through
profit or loss
Interest expense (129) 6 745 (6 085)
Impairment of advances (11 558)
Loan write off # 17 519 -
Operating expenses (2 943) (37 479) 2 016 (766 258)
Results from operating 692 (9 348) - 286 724
activities
Equity accounted loss (81)
Profit/(loss) before tax 692 (9 348) - 286 643
Tax (194) (96 417)
Net profit/(loss) for 498 (9 348) - 190 226
the year
Attributable to:
Non controlling interest (2 894) (4 731)
- ordinary shareholders
Equity holders of the 498 (6 454) 194 957
Group - ordinary
shareholders
30 June 2010
Insurance premium 1 005 660
revenue
Reinsurance premiums (42 755)
Net insurance premiums 962 905
Other income 2 722 9 848 (1 120) 160 025
Interest income 97 460 (4 139) 15 141
Fair value adjustment to 185 064
financial assets held at
fair value through
profit or loss
Segment revenue 2 819 10 308 (5 259) 1 323 135
Segment expenses and (2 640) (41 427) 5 259 (1 075
claims 776)
Net insurance benefits (169 434)
and claims
Change in policyholder (109 697)
liabilities under
insurance contracts
Decrease in reinsurance (15 568)
assets
Fair value adjustment to (98 705)
financial liabilities
held at fair value
through profit or loss
Interest expense (244) 4 139 (2 326)
Impairment of advances (5 608)
Operating expenses (2 640) (41 183) 1 120 (674 438)
Results from operating 179 (31 119) - 247 359
activities
Equity accounted 23
earnings
Profit/(loss) before tax 179 (31 119) - 247 382
Tax (50) (7 780) (98 923)
Net profit/(loss) for 129 (38 899) - 148 459
the year
Attributable to:
Non-controlling interest (9 725) (11 280)
- ordinary shareholders
Equity holders of the 129 (29 174) 159 739
Group - ordinary
shareholders
Condensed Group Statements of Changes in Equity
(R`000`s) Share Share Common Sub- Retained
capital premium control total earnings
deficit
Balance as at 1 6 470 218 656 (220 273) 4 853 200 615
July 2009
Ordinary dividend (135 870)
paid
Total - 159 739
comprehensive
income
- Net - 159 739
profit/(loss) for
the year
- Other
comprehensive
income/(expense)
Transfer to - (6 454)
contingency
reserve
Shares issued 1 201 202
SAR scheme -
allocated
Transfer from
shares issued
Balance as at 30 6 471 218 857 (220 273) 5 055 218 030
June 2010
Balance as at 1 6 471 218 857 (220 273) 5 055 218 030
July 2010
Ordinary dividend (152 058)
paid
Total - - - - 194 957
comprehensive
income
- Net - 194 957
profit/(loss) for
the year
- Other -
comprehensive
income
Transfer to - (3 401)
contingency
reserve
Shares issued 8 4 313 4 321
SAR scheme -
allocated
Transfer from -
shares issued
Shares issued by -
subsidiary
Balance as at 30 6 479 223 170 (220 273) 9 376 257 528
June 2011
(R`000`s) SAR NDR: NDR: NDR:
scheme Contin- Foreign Changes
reserve? gency currency in
Short term translation ownership
insurance reserve
Balance as at 1 12 115 1 156 (7 428) 45 326
July 2009
Ordinary dividend
paid
Total comprehensive - - (2 018) -
income
- Net profit/(loss)
for the year
- Other comprehensive (2 018)
income/(expense)
Transfer to 6 454
contingency reserve
Shares issued -
SAR scheme allocated 2 883
Transfer from shares (202)
issued
Balance as at 30 14 796 7 610 (9 446) 45 326
June 2010
Balance as at 1 14 796 7 610 (9 446) 45 326
July 2010
Ordinary dividend
paid
Total comprehensive - - 116 -
income
- Net profit/(loss)
for the year
- Other comprehensive 116
income
Transfer to 3 401
contingency reserve
Shares issued
SAR scheme allocated 5 181
Transfer from shares (4 321)
issued
Shares issued by (1 420)
subsidiary
Balance as at 30 15 656 11 011 (9 330) 43 906
June 2011
(R`000`s) NDR: Sub- Non- Total
Reva- total controlling
luation interest
Balance as at 1 22 663 279 300 8 658 287 958
July 2009
Ordinary dividend (135 870) (135 870)
paid
Total comprehensive 4 164 161 885 (11 953) 149 932
income
- Net profit/(loss) 159 739 (11 280) 148 459
for the year
- Other comprehensive 4 164 2 146 (673) 1 473
income/(expense)
Transfer to - -
contingency reserve
Shares issued 202 - 202
SAR scheme allocated 2 883 2 883
Transfer from shares (202) (202)
issued
Balance as at 30 26 827 308 198 (3 295) 304 903
June 2010
Balance as at 1 26 827 308 198 (3 295) 304 903
July 2010
Ordinary dividend (152 058) (152 058)
paid
Total comprehensive 4 707 199 780 (4 586) 195 194
income
- Net profit/(loss) 194 957 (4 731) 190 226
for the year
- Other comprehensive 4 707 4 823 145 4 968
income
Transfer to - -
contingency reserve
Shares issued 4 321 4 321
SAR scheme allocated 5 181 5 181
Transfer from shares (4 321) (4 321)
issued
Shares issued by (1 420) 1 420 -
subsidiary
Balance as at 30 31 534 359 681 (6 461) 353 220
June 2011
? SAR scheme - the Clientele Limited Group Share Appreciation Rights
Scheme
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 30 June 2011.
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 and Mobile business where EV Methodology has been used to
determine future shareholder entitlements.
Subsequent to year end, the IFA Nigeria Board of Directors, the Clientele
Limited Board of Directors and the KC2008 Directors resolved to terminate the
IFA Nigeria operations with effect from 29 July 2011. The Board has continued to
set the EV of the Nigerian operation at its Net Asset Value.
The EV calculations have been certified by the Group`s independent actuaries,
QED Actuaries & Consultants Proprietary Limited. The EV can be summarised as
follows:
Year ended 30 June
(R`000`s) 2011 2010
Free surplus 199 505 179 637
Required capital 139 565 116 429
Adjusted Net Worth ("ANW") of covered 339 070 296 066
business
CoC (36 747) (38 166)
PVIF 2 218 010 1 768 859
EV of covered business 2 520 332 2 026 760
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 Year ended 30 June
(R`000`s) 2011 2010
Total equity and reserves per the 353 220 304 903
Statement of Financial Position
Adjustment for Deferred Profits and 17 095 12 377
impact of compulsory margins on
investment business (net impact after
tax)
Adjustment for minority interests 6 462 3 295
Adjusting subsidiaries to Net Asset Value 2 422 (6 266)
SAR Scheme adjustment (40 129) (18 243)
ANW 339 070 296 066
The CoC is the opportunity cost of having to hold the Required Capital of R139.6
million as at 30 June 2011. 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 Statutory 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 CAR cover ratio at 30 June 2011 was 2.94 times
(30 June 2010: 3.03 times) on the statutory valuation basis.
Value Of New Business
Year ended 30 June
(R`000`s) 2011 2010
Total Value of New Business ("VNB") 457 587 353 127
Present Value of New Business premiums 1 859 123 1 503 558
New Business profit margin 24.6% 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 year ended 30 June 2011 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 EconomicAssumptions (South Africa)
Year ended 30 June
2011 2010
Risk discount rate % 11.30 12.60
Overall investment return % 7.80 8.10
Expense inflation % 5.80 6.10
Corporate tax % 28.00 28.00
The risk discount rate ("RDR") 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 RDR 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%. Two and a half years ago PGN107 was revised and the
approach to setting the risk discount rate was defined via a formula based on
the risk free rate plus a margin. At this time Clientele added an additional
explicit margin of 1% to the RDR used in the EV calculation. Despite the current
market conditions the Board believe it more appropriate to align its
determination of the RDR with the basic formula outlined in PGN107 so as to be
consistent with the industry and produce comparable results. This explicit
additional margin has thus been removed effective 30 June 2011. The Board draws
the reader`s attention to the risk discount rate sensitivity analysis in the
table below which allows for sensitivity comparisons using various alternative
RDR`s. 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 decided to continue to use a more
conservative beta of 1, as opposed to its actual beta of 0.49, in the
calculation of the RDR.
The resulting risk discount rate utilised for the South African business as at
30 June 2011 was 11.30%.
Risk Discount Rate Sensitivities
(R`000`s) EV VNB
Risk discount rate 9.30% 2 783 644 535 972
Risk discount rate 10.30% 2 626 091 494 384
Risk discount rate 11.30% 2 520 332 457 587
Risk discount rate 12.30% 2 401 147 422 944
Risk discount rate 12.60% 2 371 525 413 997
Risk discount rate 13.30% 2 298 606 393 520
Risk discount rate 15.30% 2 125 179 342 829
EV per share
Year ended 30 June
2011 2010
EV per share (cents) 778.80 626.46
Diluted EV per share (cents) 773.82 623.91
Segment Information
The EV can be split between segments as follows:
ANW PVIF CoC EV
(R`000`s)
30 June 2011
SA - Long term 314 681 2 011 667 (32 582) 2 293 766
insurance
SA - Short term 44 252 200 875 (4 166) 240 962
insurance
SA - Investment 4 663 4 663
contracts
SA - Loans (11 809) 805 (11 004)
Nigeria - Long-term (8 054) (8 054)
brokerage
Total 339 070 2 218 010 (36 747) 2 520 332
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:
Year ended 30 June
(R`000`s) 2011 2010
SA - Long term insurance 433 203 295 349
SA - Short term insurance 43 084 72 408
SA - Investment contracts 6 777 5 381
SA - Loans (3 293) (1 247)
SA - New venture costs (22 185) (18 764)
Total 457 587 353 127
Embedded Value Earnings
EV earnings (per PGN 107) comprises the change in EV for the year after
adjusting for capital movements and dividends paid as they pertain to Clientele
Limited.
Year ended 30 June 2011
(R`000`s) ANW PVIF CoC Total
A : EV at the end of 339 070 2 218 010 (36 747) 2 520 332
the year
EV at the beginning of 296 066 1 768 859 (38 166) 2 026 760
the year
Dividends and STC (167 596) (167 596)
accrued or paid
A : Adjusted EV at the 128 470 1 768 859 (38 166) 1 859 164
beginning of the year
EV earnings (A - 210 599 449 150 1 419 661 168
B)
Impact of once-off 7 281 (139 045) (4 768) (136 532)
economic assumption
and other 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
an isolated system
error*
EV earnings before 217 880 338 382 (3 349) 552 912
once-off items
Return on EV excluding 29.7%
once-off items
Return on EV 35.6%
Components of EV
earnings (R`000`s)
Value of New Business (159 817) 622 385 (4 981) 457 587
Expected return on 216 766 (4 809) 211 957
covered business
(unwinding of risk
discount rate)
Expected profit 382 157 (382 157) -
transfer
Withdrawal experience 9 430 (45 966) 7 049 (29 486)
variance
Claims and reinsurance 317 317
experience variance
Sundry experience 16 829 (5 540) 11 290
variance
Operating assumption 6 569 (24 751) 46 (18 135)
and model changes
Extraordinary non- (4 790) (4 790)
recurring
expenses/development
cost
Expected return on ANW 19 865 19 865
SAR Scheme dilution (16 705) (16 705)
Goodwill and Medium (37 095) (2 217) (39 313)
Term incentive schemes
Reduction in Net Asset (22 659) (22 659)
Value on Nigerian
operation
EV operating return 194 103 378 520 (2 694) 569 928
Investment return 18 540 18 540
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
an isolated system
error*
Net effect of writing (2 665) (2 665)
off a loan in respect
of the Nigerian
operations
Effect of economic 621 98 907 4 113 103 642
assumption changes
EV earnings 210 599 449 150 1 419 661 168
* 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 an isolated 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 Proprietary Limited,70
Marshall Street, Johannesburg 2001, South AfricaPO 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
Website:
www.clientele.co.za
E-mail:
services@clientele.co.za
Clientele Life
Clientele Legal
Clientele Loans
IFA A division of Clientele Life
Clientele Mobile
Clientele Life Investments
Date: 22/08/2011 17:00:03 Produced by the JSE SENS Department.
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