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CLI
CLI
CLI - Clientele Limited - Summarised group results for the six months ended
31 December 2011
Clientele Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Summarised group results for the six months ended 31 December 2011
Highlights
Diluted headline earnings per share increased by 29% from 26,54 cents to 34,15
cents
Diluted headline earnings per share from continuing operations increased by
18% from 29,98 cents to 35,32 cents
Return on annualised average shareholders interest of 64%
Annualised Recurring Return on Embedded Value of 22%
Value of New Business of R226,0 million
Comments
Introduction
The Clientele Group ("the Group") increased diluted headline earnings per
share for the period by 29% and has increased its headline earnings from
continuing operations by 19% for the period on the back of a 10% increase in
net insurance premiums, a 6% increase in operating expenses and investment
returns in line with expectations.
An annualised Recurring Return on Embedded Value ("EV") of 22% has been
achieved on the back of Recurring EV earnings of R260,3 million and the Value
of New Business ("VNB") has increased over the corresponding period last year
by 5% from R215,9 million to R226,0 million. Production volumes increased by
6% over the same period last year; this fell short of the Group`s initial
expectations and was partly due to managements actions to address the quality
of new business written. The Group experienced increased withdrawals during
the period. Withdrawal assumptions have not been significantly amended at 31
December 2011, however, should withdrawal experience not improve in the second
half of the financial year, an adjustment to the withdrawal assumptions will
be necessary at year end.
The return on annualised average shareholders` interest for the period
amounted to 64%.
Nigeria - Long-term Brokerage (IFA Nigeria) - discontinued operation
As reported at the 2011 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.
The closure of the business has proceeded as planned, is substantially
complete and will be finalised before year end with further costs of closure
being insignificant.
Operating Results
Group Embedded Value
Group Embedded Value ("EV") has increased from R2 171,5 million (before the
dividend payment) for the comparative period last year to R2 800,2 million at
31 December 2011. This reflects EV earnings of R469,9 million (2010: R312,4
million) for the period, including once-off economic and other adjustments and
Recurring EV Earnings of R260,3 million (2010: R272,8 million) (refer to the
EV Earnings analysis) and translates into an annualised Return on EV ("ROEV")
of 35% (2010: 34%) and an annualised ROEV (recurring) of 22% (2010: 29%). The
reduction in the ROEV (recurring) is mainly due to the withdrawal experience
mentioned above. The Group`s Value of New Business ("VNB") has increased by 5%
from R215,9 million for the comparative period last year to R226,0 million
this period.
The higher than expected withdrawal experience has resulted in a negative
experience variance of R68,9 million for the period (refer above).
The Board has adopted current actuarial guidance in respect of the risk
discount rate, now set at 10.5% (2010: 11.9%). The calculation is
comprehensively explained in the Group EV section of the results.
Group Statements of Comprehensive Income
Headline earnings for the Group of R111,9 million are 30% higher than the
headline earnings of R86,3 million for the comparative period. As a result,
diluted headline earnings per share have increased by 29% to 34.15 cents, up
from 26.54 cents and the annualised return on average shareholders` interests
amounted to 64% compared to 66% for the same period last year.
Insurance premium revenue for the period is up by 10% from R543,4 million to
R598,5 million and other income of R83,8 million, which mainly comprises
annuity fees from Clientele Life`s Independent Field Advertisers, is 13% up on
the comparable six month figure of R74,2 million.
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. The total value of negative reserves
eliminated now amounts to R1,64 billion in comparison to R1,61 billion at 30
June 2011.
Net insurance benefits and claims of R114,5 million have increased by 10% from
R104,0 million for the same period last year. The majority of the increase is
in respect of policyholders` benefit payments for unitised endowment
contracts, many of which have now been held for 10 years or more.
The increase in policyholder liabilities under insurance contracts amounted to
R22,7 million (2010: R108,2 million). It should be noted that the higher
increase last year is mainly attributable to two factors, the increase in the
value of policyholders` unitised market related investment portfolio which
are correlated to investment returns for the period and the reserving and
payment profile in respect of "cashback" policyholder liabilities which
commenced payment in this 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 86% or R194,5
million of the Group`s R226,0 million of VNB and generated R105,4 million net
operating profit for the period which accounts for 91% of the Group`s profit
for the period from continuing operations of R115,6 million. It should be
noted that Clientele Life fully impaired its R20,1 million loan to IFA Nigeria
as at 31 December 2011, as disclosed in the Segment Statements of
Comprehensive Income.
On a continuing basis the net operating profit for the period of R105,4
million was up by 15% from R92,0 million last year.
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, recognised
over the term of the contract (usually 60 months).
This operating segment reported a R1,6 million profit for the period. This
should be viewed in conjunction with the R34,2 million (2010: R29,5 million)
of deferred profits included in the Statements of Financial Position.
SA Short-term Insurance - Clientele General Insurance (Clientele Legal)
VNB for the period of R30,8 million has returned to expected levels when
compared to the unusually low VNB for the same period last year (2010: R17,3
million).
Clientele Legal now has an EV of R298,6 million (2010: R199,8 million) and has
recorded R8,8 million net profit for the period compared to the R7,2 million
net profit (which included a R4,6 million once off positive adjustment to the
IBNR claims provision) for the comparable period last year.
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 net loss attributable to equity holders
of the group improved from R1,8 million last period to R0,4 million for the
six months to December. The gross advances book at 31 December 2011 amounted
to R169,7 million (2010: R74,3 million) and impairment experience from the
book is as expected.
Prospects
The Group has placed increased focus on sustainability during this period and
has embarked on a process of ingraining sustainability principles and
practices into the Groups operations. This is expected to add additional long
term value to the Group and its stakeholders.
The Group will remain focused on creating sustainable value through its
traditional business models and will continue to evaluate new opportunities on
a conservative basis going forward.
By order of the Board
GQ Routledge GJ Soll
Chairman Managing Director
Johannesburg
20 February 2012
UNAUDITED
Condensed Group Statement of Comprehensive Income
Six months % Audited
ended Change Year
31 December ended
30 June
(R`000`s) 2011 2010# 2011#
Revenue
Insurance 598 542 543 409 10 1 114 995
premium
revenue
Reinsurance (33 253) (27 192) (56 673)
premiums
Net insurance 565 289 516 217 10 1 058 322
premiums
Other income 83 774 74 155 13 147 254
Interest 24 037 9 828 25 334
income
Fair value 110 929 170 598 224 686
adjustment to
financial
assets at
fair value
through
profit or
loss
Net income 784 029 770 798 2 1 455 596
Net insurance (114 513) (104 038) 10 (209 319)
benefits and
claims
Increase in (22 662) (108 214) (84 032)
policyholder
liabilities
under
insurance
contracts
(Decrease)/in (256) 22 321 (2 401)
crease in
reinsurance
assets
Fair value (69 096) (60 407) (99 960)
adjustment to
financial
liabilities
at fair value
through
profit or
loss -
investment
contracts
Interest (6 486) (2 095) (5 956)
expense
Impairment of (9 234) (4 387) (11 558)
advances
Operating (383 066) (359 849) 6 (728 779)
expenses
Profit from 178 716 154 129 16 313 591
operations
Equity - (15) (81)
accounted
earnings
Profit before 178 716 154 114 16 313 510
tax
Tax (63 135) (57 108) 11 (96 417)
Profit for 115 581 97 006 19 217 093
the period
from
continuing
operations
Loss for the (9 937) (14 921) (26 867)
period
related to
discontinued
operation
Net profit 105 644 82 085 29 190 226
for the
period
Attributable
to:
Non- 1 370 (4 490) (4 731)
controlling
interest
- ordinary
shareholders
Equity 104 274 86 575 20 194 957
holders of
the Group
- ordinary
shareholders
Net profit 105 644 82 085 29 190 226
for the
period
Other
comprehensive
income:
Exchange (744) 1 105 261
differences
on
translating
foreign
operation
Gains on 5 937
property
revaluation
Income tax (1 230)
relating to
gains on
property
revaluation
Other (744) 1 105 4 968
comprehensive
income for
the period -
net of tax
Total 104 900 83 190 195 194
comprehensive
income for
the period
Total
comprehensive
income
attributable
to:
Non- 1 259 (4 207) (4 586)
controlling
interest
- ordinary
shareholders
Equity 103 641 87 397 19 199 780
holders of
the Group
- ordinary
shareholders
# The comparatives are reclassified to disclose the
results of the discontinued operation separately
Condensed Group Statement of Financial Position
Six months Audited
ended Year
31 December ended
30 June
(R`000`s) 2011 2010 2011
Assets
Intangible assets 22 734 33 802 24 762
Property and equipment 41 425 47 542 47 822
Owner-occupied properties 167 787 136 108 150 329
Investment in associate 291 357 291
Deferred tax 31 899 25 637 30 270
Inventories 888 905 839
Reinsurance assets 3 922 28 900 4 178
Financial assets held at 2 087 455 1 769 489 1 940 210
fair value through profit
or loss
Loans and receivables 185 680 99 463 154 255
including insurance
receivables
Cash and cash equivalents 129 965 106 389 145 681
Total assets 2 672 046 2 248 592 2 498 637
Total equity and reserves 285 723 238 832 353 220
Liabilities
Policyholder liabilities 782 963 802 060 776 979
under insurance contracts
Financial liabilities - 1 228 898 951 866 1 049 988
investment contracts
- At fair value through 1 192 648 919 572 1 015 790
profit or loss
- At amortised cost 36 250 32 294 34 198
Financial liabilities - 138 283 52 582 93 488
loans at amortised cost
Finance leases - 586 319
Employee benefits 70 795 52 574 86 293
Accruals and payables 140 326 128 371 113 456
including insurance
payables
Deferred tax 23 643 16 073 23 083
Current tax 1 415 5 648 1 811
Total liabilities 2 386 323 2 009 760 2 145 417
Total equity and 2 672 046 2 248 592 2 498 637
liabilities
Tax
Six months Audited
ended
31 December
Year
ended
30 June
(R`000`s) 2011 2010 2011
Continuing Operations:
?Current and deferred tax (46 055) (40 583) (80 211)
?Secondary tax on (16 686) (15 538) (15 538)
companies ("STC")
?Capital gains tax (394) (987) (1 108)
Overprovision in prior - - 440
periods
(63 135) (57 108) (96 417)
Discontinued operation - - -
Tax (63 135) (57 108) (96 417)
The Individual Policyholder Fund has an estimated tax
loss of R1,80 billion (2010: R1,60 billion).
Reconciliation of Results from Continuing Operations and
the Discontinued Operation
Six months % Audited
ended Change
31 December
Year
ended
30 June
(R`000`s) 2011 2010 2011
Continuing
operations
Net profit 104 274 86 575 20 194 957
for the
period
attributable
to equity
holders of
the Group
(Less)/add: (8 647) 11 191 6 454
Attributable
(profit)/loss
from the
discontinued
operation
Add: Loan 20 110 - 17 519
written off -
IFA Nigeria*
Net profit 115 737 97 766 18 218 930
related to
the
continuing
operation
attributable
to equity
holders of
the Group
Discontinued
operation
Net 10 173 (14 921) (9 348)
profit/(loss)
for the
period
Less: Loan (20 110) - (17 519)
written off
by Clientele
Life*
Loss for the (9 937) (14 921) (26 867)
period
related to
the
discontinued
operation
(Less)/add: (1 526) 3 730 2 894
Net
(profit)/loss
attributable
to non-
controlling
interest
Net loss (11 463) (11 191) (23 973)
related to
the
discontinued
operation
attributable
to equity
holders of
the Group
Reconciliation of Net Profit to Headline Earnings
Six months % Audited
ended Change
31 December
Year
ended
30 June
(R`000`s) 2011 2010# 2011#
Continuing
operations
Net profit 115 737 97 766 18 218 930
for the
period
attributable
to equity
holders of
the Group
Less: Profit (41) (237) (250)
on disposal
of property
and equipment
Add: 4 790
Impairment of
intangible
assets
Headline 115 696 97 529 19 223 470
earnings from
continuing
operations
Discontinued
operation
Net loss for (11 463) (11 191) (23 973)
the period
attributable
to equity
holders of
the Group
Add: 4 045
Impairment of
property
andequipment
Add: 3 596
Impairment of
intangible
assets
Headline (3 822) (11 191) (23 973)
earnings from
discontinued
operation
Headline 111 874 86 338 30 199 497
earnings for
the period
Ratios per Share
Six months % Audited
ended Change
31 December
Year
ended
30 June
Cents 2011 2010# 2011#
Headline 34.52 26.69 29 61.65
earnings per
share
- Continuing 35.70 30.15 18 69.05
operations
- (1.18) (3.46) (7.40)
Discontinued
operation
Diluted 34.15 26.54 29 61.25
headline
earnings per
share
- Continuing 35.32 29.98 18 68.61
operations
- (1.17) (3.44) (7.36)
Discontinued
operation
Earnings per 32.18 26.76 20 60.24
share
- Continuing 35.72 30.22 18 67.65
operations
- (3.54) (3.46) (7.41)
Discontinued
operation
Diluted 31.83 26.62 20 59.86
earnings per
share
- Continuing 35.33 30.06 18 67.22
operations
- (3.50) (3.44) (7.36)
Discontinued
operation
Net asset 88.17 73.82 19 109.15
value per
share
Diluted net 87.21 73.43 19 108.45
asset value
per share
Dividends per 53.50 47.00 14 47.00
share - paid
Dividends per - - 53.50
share -
declared
Weighted 324 047 323 527 323 616
average
ordinary
shares (`000)
Diluted 327 638 325 261 325 698
average
ordinary
shares (`000)
Condensed Group Statement of Cash Flows
Six months Audited
ended
31 December
Year
ended
30 June
(R`000`s) 2011 2010# 2011#
Profit from operations 218 013 188 665 360 742
adjusted for non cash
items
Working capital changes (15 446) (58 365) (37 295)
Separately disclosable (22 298) (20 818) (44 737)
items1
Increase in financial 107 760 77 653 134 317
liabilities2
Net (36 208) 6 997 (107 811)
(acquisition)/disposal of
investments3
Interest received1 15 627 15 505 30 437
Dividends received1 6 671 5 314 14 300
Dividends paid (173 329) (152 071) (152 009)
Tax paid (64 603) (59 845) (100 614)
Cash flows from operating 36 187 3 035 97 330
activities
- Continuing operations
Cash flows from operating (12 122) (6 313) (6 833)
activities
- Discontinued operation
Cash flows from operating 24 065 (3 278) 90 497
activities
Cash flows from investing
activities4
Continuing operations (30 609) (7 801) (34 320)
Discontinued operation - (37) (810)
Cash flows from investing (30 609) (7 838) (35 130)
activities
Cash flows from financing
activities
Continuing operations - 32 079 4 321
Discontinued operation (9 172) 7 444 8 010
Cash flows from financing (9 172) 39 523 12 331
activities
Net (decrease)/increase (15 716) 28 407 67 698
in cash and cash
equivalents
Cash and cash equivalents 145 681 77 983 77 983
at beginning of the
period
Cash and cash equivalents 129 965 106 390 145 681
at end of the period
1. Interest and dividends
2. Investment contracts
3. Investments in respect of insurance operations and
investment contracts
4. Mainly relates to the acquisition of intangible
assets, property and equipment
Segment Assets & Liabilities
Six months Audited
ended
31 December
Year
ended
30 June
(R`000`s) 2011 2010 2011
Assets
SA - Long-term insurance 1 223 306 1 198 507 1 297 286
SA - Investment contracts 1 228 962 954 846 1 050 131
SA - Short-term insurance 82 214 59 362 72 773
SA - Loans 167 421 79 574 123 494
SA - Mobile 1 774 1 505 1 369
Continuing operations 2 703 677 2 293 794 2 545 053
Discontinued operation
Nigeria - Long-term 3 972 19 736 18 416
brokerage
Inter segment (35 603) (64 938) (64 832)
Total Group Assets 2 672 046 2 248 592 2 498 637
Liabilities
SA - Long-term insurance 982 249 976 656 970 756
SA - Investment contracts 1 228 898 951 866 1 049 988
SA - Short-term insurance 21 097 18 213 20 453
SA - Loans 184 790 92 832 140 344
SA - Mobile 955 1 077 875
Continuing operations 2 417 989 2 040 644 2 182 416
Discontinued operation
Nigeria - Long-term 3 937 34 054 27 833
brokerage
Inter segment (35 603) (64 938) (64 832)
Total Group Liabilities 2 386 323 2 009 760 2 145 417
Notes to the Results
The results have not been reviewed or audited by the Group`s auditors,
PricewaterhouseCoopers. The change in policyholder liabilities has been based
on best estimates after providing for compulsory and discretionary margins and
have been actuarially certified by QED Actuaries and Consultants Proprietary
Limited.
The Summarised 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 AC 500 Standards as issued by the
Accounting Practices Board and the Companies Act 2008 (Act 71 of 2008), as
amended, and are consistent with those used in the Annual Financial Statements
for the year ended 30 June 2011 except for the treatment of discontinued
operations. Where the Group has inter-company transactions and balances
between continued and discontinued operations, those transactions are
eliminated or disclosed as part of discontinued operations. 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 IFA
Nigeria - long-term brokerage (discontinued operation) segments. Policies
written are in respect of individuals.
Segment Statements of Comprehensive Income
(R`000`s) SA - Long- SA - SA - SA -
term Investmen Short- Loans
insurance t term
contracts insuranc
e
31 December 2011
Insurance 532 795 65 747
premium revenue
Reinsurance (33 253)
premiums
Net insurance 499 542 65 747
premiums
Other income 71 774 5 255 5 872
Interest income 4 180 241 22 116
Fair value 37 321 71 147 2 461
adjustment to
financial assets
at fair value
through profit
or loss
Segment revenue 612 817 76 402 68 449 27 988
Segment expenses (448 245) (74 204) (56 231) (28 710)
and claims
Net insurance (108 599) (5 914)
benefits and
claims
Increase in (19 882) (2 780)
policyholder
liabilities
under insurance
contracts
Decrease in (256)
reinsurance
assets
Fair value (69 096)
adjustment to
financial
liabilities at
fair value
through profit
or loss
Interest expense (2 051) (6 993)
Impairment of (9 234)
advances
Operating (319 508) (3 057) (47 537) (12 483)
expenses
Profit/(loss) 164 572 2 198 12 218 (722)
before tax
Tax (59 174) (616) (3 421) 202
Net operating 105 398 1 582 8 797 (520)
profit/(loss)
for the period
Loans waived - (20 110)
Discontinued
Operation*
Net 85 288 1 582 8 797 (520)
profit/(loss)
for the period
Attributable to:
Non-controlling (156)
interest
Equity holders 85 288 1 582 8 797 (364)
of the Group
31 December 2010
Insurance 491 849 51 560
premium revenue
Reinsurance (27 192)
premiums
Net insurance 464 657 51 560
premiums
Other income 66 589 3 759 4 2 789
Interest Income 8 173 5 297
Fair value 103 269 62 234 5 095
adjustment to
financial assets
at fair value
through profit
or loss
Segment revenue 642 688 65 993 56 659 8 086
Segment expenses (495 (66 061) (46 (11
and claims 514) 720) 602)
Net insurance (98 771) (5 267)
benefits and
claims
(Increase)/ (111 3 283
decrease in 497)
policyholder
liabilities
under insurance
contracts
Increase in 22 321
reinsurance
assets
Fair value (60 407)
adjustment to
financial
liabilities at
fair value
through profit
or loss
Interest expense (1 827) (3 969)
Impairment of (4 387)
advances
Operating (307 (3 827) (44 (3 246)
expenses 567) 736)
Results from 147 174 (68) 9 939 (3 516)
operating
activities
Equity accounted (15)
earnings
Profit/(loss) 147 159 (68) 9 939 (3 516)
before tax
Tax (55 161) 19 (2 783) 985
Net 91 998 (49) 7 156 (2 531)
profit/(loss)
for the period
Attributable to:
Non-controlling (760)
interest
Equity holders 91 998 (49) 7 156 (1 771)
of the Group
Segment Statements of Comprehensive Income continued
(R`000`s) SA - IFA Inter Group
Mobile Nigeria - segment
dis- (revenue
continued )/expens
operation e
*
31 December 2011
Insurance premium 598 542
revenue
Reinsurance (33 253)
premiums
Net insurance 565 289
premiums
Other income 2 057 301 (1 184) 84 075
Interest income 58 2 (2 558) 24 039
Fair value 110 929
adjustment to
financial assets
at fair value
through profit or
loss
Segment revenue 2 115 303 (3 742) 784 332
Segment expenses (1 665) (24 945) 3 742 (630
and claims 258)
Net insurance (114
benefits and 513)
claims
Increase in (22 662)
policyholder
liabilities under
insurance
contracts
Decrease in (256)
reinsurance assets
Fair value (69 096)
adjustment to
financial
liabilities at
fair value through
profit or loss
Interest expense (23) 2 558 (6 509)
Impairment of (9 234)
advances
Operating expenses (1 665) (24 922) 1 184 (407
988)
Profit/(loss) 450 (24 642) 154 074
before tax
Tax (126) (63 135)
Net operating 324 (24 642) 90 939
profit/(loss) for
the period
Loans waived - 34 815 14 705
Discontinued
Operation*
Net profit/(loss) 324 10 173 105 644
for the period
Attributable to:
Non-controlling 1 526 1 370
interest
Equity holders of 324 8 647 104 274
the Group
31 December 2010
Insurance premium 543 409
revenue
Reinsurance (27
premiums 192)
Net insurance 516 217
premiums
Other income 1 991 4 488 (977) 78 643
Interest Income 59 12 (3 701) 9 840
Fair value 170 598
adjustment to
financial assets
at fair value
through profit or
loss
Segment revenue 2 050 4 500 (4 678) 775 298
Segment expenses (1 (19 421) 4 678 (636
and claims 450) 090)
Net insurance (104
benefits and 038)
claims
(Increase)/decreas (108
e in policyholder 214)
liabilities under
insurance
contracts
Increase in 22 321
reinsurance assets
Fair value (60
adjustment to 407)
financial
liabilities at
fair value through
profit or loss
Interest expense (68) 3 701 (2 163)
Impairment of (4 387)
advances
Operating expenses (1 (19 353) 977 (379
450) 202)
Results from 600 (14 921) 139 208
operating
activities
Equity accounted (15)
earnings
Profit/(loss) 600 (14 921) 139 193
before tax
Tax (168) (57
108)
Net profit/(loss) 432 (14 921) 82 085
for the period
Attributable to:
Non-controlling (3 730) (4 490)
interest
Equity holders of 432 (11 191) 86 575
the Group
Condensed Group Statement of Changes in Equity
(R`000`s) Share Share Common Sub-
capita premium control total
l deficit
Balance as at 1 July 6 471 218 857 (220 273) 5 055
2010
Ordinary dividends
Total comprehensive
income
- Net profit/(loss)
for the period
- Other comprehensive
income
Transfer to
contingency reserve
SAR scheme allocated
Balance as at 6 471 218 857 (220 273) 5 055
31 December 2010
Balance as at 1 6 471 218 857 (220 273) 5 055
January 2011
Total comprehensive
income
- Net profit/(loss)
for the period
- Other comprehensive
income
Transfer to
contingency reserve
Shares issued 8 4 313 4 321
SAR scheme allocated
Transfer from shares
issued
Shares issued by
subsidiary
Balance as at 30 June 6 479 223 170 (220 273) 9 376
2011
Balance as at 1 July 6 479 223 170 (220 273) 9 376
2011
Ordinary dividends
Total comprehensive
income
- Net profit for the
period
- Other comprehensive
income
Transfer to
contingency reserve
Shares issued 11 5 528 5 539
SAR scheme allocated
Transfer from shares
issued
Balance as at 6 490 228 698 (220 273) 14 915
31 December 2011
Condensed Group Statement of Changes in Equity continued
(R`000`s) Retained SAR NDR: NDR:
earnings scheme Contin- Foreign
reserve gency currenc
Short- y
term trans-
insuranc lation
e reserve
Balance as at 1 July 218 030 14 796 7 610 (9 446)
2010
Ordinary dividends (152
071)
Total comprehensive 86 575 829
income
- Net profit/(loss) 86 575
for the period
- Other 829
comprehensive income
Transfer to (1 778) 1 778
contingency reserve
SAR scheme allocated 2 810
Balance as at 150 756 17 606 9 388 (8 617)
31 December 2010
Balance as at 150 756 17 606 9 388 (8 617)
1 January 2011
Total comprehensive 108 395 (713)
income
- Net profit/(loss) 108 395
for the period
- Other (713)
comprehensive income
Transfer to (1 623) 1 623
contingency reserve
Shares issued
SAR scheme allocated 2 371
Transfer from shares (4 321)
issued
Shares issued by
subsidiary
Balance as at 30 257 528 15 656 11 011 (9 330)
June 2011
Balance as at 1 July 257 528 15 656 11 011 (9 330)
2011
Ordinary dividends (173
329)
Total comprehensive 104 274 (633)
income
- Net profit for the 104 274
period
- Other (633)
comprehensive income
Transfer to (1 419) 1 419
contingency reserve
Shares issued
SAR scheme allocated 932
Transfer from shares (5 539)
issued
Balance as at 187 054 11 049 12 430 (9 963)
31 December 2011
(R`000`s) NDR: NDR: Sub- Non- Total
Change Re- total Con-
s valua- trollin
in tion g
owner- interes
ship t
Balance as at 45 326 26 827 308 198 (3 295) 304 903
1 July 2010
Ordinary (152 (152
dividends 071) 071)
Total 87 404 (4 214) 83 190
comprehensive
income
- Net 86 575 (4 490) 82 085
profit/(loss)
for the
period
- Other 829 276 1 105
comprehensive
expense
Transfer to
contingency
reserve
SAR scheme 2 810 2 810
allocated
Balance as at 45 326 26 827 246 341 (7 509) 238 832
31 December
2010
Balance as at 45 326 26 827 246 341 (7 509) 238 832
1 January
2011
Total 4 707 112 389 (372) 112 017
comprehensive
income
- Net 108 395 (241) 108 154
profit/(loss)
for the
period
- Other 4 707 3 994 (131) 3 863
comprehensive
income
Transfer to
contingency
reserve
Shares issued 4 321 4 321
SAR scheme 2 371 2 371
allocated
Transfer from (4 321) (4 321)
shares issued
Shares issued (1 (1 420) 1 420
by subsidiary 420)
Balance as at 43 906 31 534 359 681 (6 461) 353 220
30 June 2011
Balance as at 43 906 31 534 359 681 (6 461) 353 220
1 July 2011
Ordinary (173 (173
dividends 329) 329)
Total 103 641 1 259 104 900
comprehensive
income
- Net profit 104 274 1 370 105 644
for the
period
- Other (633) (111) (744)
comprehensive
income
Transfer to
contingency
reserve
Shares issued 5 539 5 539
SAR scheme 932 932
allocated
Transfer from (5 539) (5 539)
shares issued
Balance as at 43 906 31 534 290 925 (5 202) 285 723
31 December
2011
GROUP EMBEDDED VALUE RESULTS
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 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.
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:
Six months
ended
31 December
Year ended
30 June
(R`000`s) 2011 2010 2011
Free surplus 98 414 90 724 199 505
Required capital 148 334 133 730 139 565
Adjusted Net Worth (ANW) 246 748 224 454 339 070
of covered business
CoC (36 421) (39 705) (36 747)
PVIF 2 589 1 986 753 2 218 010
888
EV of covered business 2 800 2 171 502 2 520 332
215
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) 2011 2010 2011
Total equity and reserves 285 723 238 832 353 220
per the Statement of
Financial Position
Removal of Deferred 12 428 15 816 17 095
Profits and impact of
compulsory margins on
investment business (net
impact after tax)
Removing minority 5 201 7 526 6 462
interests
Adjusting subsidiaries to 905 (8 044) 2 422
Net Asset Value
SAR scheme adjustment (57 509) (29 677) (40 129)
ANW 246 748 224 454 339 070
The CoC is the opportunity cost of having to hold the Required Capital of
R148,3 million as at 31 December 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 31 December 2011 was 2.05 times
(30 June 2011: 2.94 times) on the statutory valuation basis.
Value of New Business
Six months
ended
31 December
Year
ended
30 June
(R`000`s) 2011 2010 2011
Total VNB 226 035 215 947 457 587
Present Value of New 961 457 906 849 1 859 123
Business premiums
New Business profit margin 23.5% 23.8% 24.6%
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 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 Economic Assumptions
Six months
ended
31 December
Year
ended
30 June
2011 2010 2011
Risk discount rate % 10.50 11.90 11.30
Overall investment return 7.00 7.40 7.80
%
Expense inflation % 5.00 5.40 5.80
Corporate tax % 28.00 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%. Three 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
was 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 0.52, in the calculation of the
RDR.
The resulting risk discount rate utilised for the South African business as at
31 December 2011 was 10.50%.
Prior period results include an allowance for STC on an assumed dividend
policy. However, with the change to dividend tax, the EV and VNB for the
current period are shown before any allowance for tax on dividend payments.
This increased the EV by R132,5 million and the VNB by R14,1 million.
Risk Discount Rate Sensitivities
(R`000`s) EV VNB
Risk discount rate 8.50% 3 139 489 272 607
Risk discount rate 9.50% 2 957 621 247 639
Risk discount rate 10.50% 2 800 215 226 035
Risk discount rate 11.30% 2 687 289 210 752
Risk discount rate 11.50% 2 660 401 207 373
Risk discount rate 12.50% 2 536 343 190 476
Risk discount rate 14.50% 2 325 636 162 555
EV per Share
Six months
ended
31 December
Year
ended
30 June
2011 2010 2011
EV per share (cents) 864.14 671.20 778.80
Diluted EV per share 854.67 667.62 773.82
(cents)
Segment Information
The EV can be split between segments as follows:
(R`000`s) ANW PVIF CoC EV
31 December
2011
SA - Long-term 212 789 2 326 662 (32 742) 2 506 709
insurance
SA - Short- 46 099 256 220 (3 679) 298 639
term insurance
SA - - 5 462 - 5 462
Investment
contracts
SA - Loans (12 164) 1 544 - (10 620)
Nigeria - Long- 25 - - 25
term brokerage
Total 246 748 2 589 888 (36 421) 2 800 215
31 December
2010
SA - Long-term 212 090 1 812 587 (35 685) 1 988 991
insurance
SA - Short- 32 350 171 499 (4 019) 199 830
term insurance
SA - 4 554 4 554
Investment
contracts
SA - Loans (9 295) (1 888) (11 183)
Nigeria - Long- (10 691) (10 691)
term brokerage
Total 224 454 1 986 753 (39 705) 2 171 502
30 June 2011
SA - Long-term 314 681 2 011 667 (32 582) 2 293 766
insurance
SA - Short- 44 252 200 875 (4 166) 240 962
term insurance
SA - 4 663 4 663
Investment
contracts
SA - Loans (11 809) 805 (11 004)
Nigeria - Long- (8 054) (8 054)
term brokerage
Total 339 070 2 218 010 (36 747) 2 520 332
The VNB can be split between segments as follows:
Six months Year
ended ended
31 December 30 June
(R`000`s) 2011 2010 2011
SA - Long-term insurance 194 492 207 923 433 203
SA - Short-term insurance 30 786 17 250 43 084
SA - Investment contracts 2 524 3 637 6 777
SA - Loans (1 766) (2 091) (3 293)
SA - New venture costs - (10 772) (22 185)
Total 226 035 215 947 457 587
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 the
Group.
(R`000`s)
Six months ended 31 December 2011
ANW PVIF CoC Total
A: EV at the end 246 748 2 589 (36 2 800 215
of the period 888 421)
EV at the 339 070 2 218 (36 2 520 332
beginning of the 010 747)
period
Dividends and STC (190 - - (190 015)
paid 015)
B: Adjusted EV at 149 055 2 218 (36 2 330 317
the beginning of 010 747)
the period
EV earnings (A - 97 693 371 878 326 469 898
B)
Impact of once-off (2 408) (223 133 (226 157)
economic 882)
assumption changes
Impact of other 16 555 - - 16 555
once-off items
Recurring EV 111 840 147 996 459 260 296
earnings (before
once-off items)
Recurring Return 22.3%
on EV (before once-
off items)
Return on EV 35.4%*
Components of EV
earnings (R`000`s)
Value of New (121 350 725 (2 971) 226 035
Business 718)
Expected return on - 126 097 (4 402) 121 695
covered business
(unwinding of risk
discount rate)
Expected profit 234 384 (234 - -
transfer 384)
Withdrawal 13 356 (90 211) 7 964 (68 891)
experience
variance
Claims and 1 335 - - 1 335
reinsurance
experience
variance
Sundry experience 6 121 9 013 - 15 134
variance
Operating 240 (14 660) (132) (14 552)
assumption and
model changes
Extraordinary non- - - - -
recurring
expenses/developme
nt costs
Expected return on 9 066 - - 9 066
ANW
SAR scheme (12 856) - - (12 856)
dilution
Goodwill and (17 459) 1 415 - (16 044)
Medium Term
incentive schemes
Reduction in Net - - - -
Asset Value on
Nigerian
operations
EV operating 112 469 147 995 459 260 923
return
Investment return (627) - - (627)
variances on ANW
Effect of economic 2 408 223 882 (133) 226 157
assumption changes
Impact of other (16 555) - - (16 555)
once-off items
Net impact of - - - -
writing off a loan
in respect of the
Nigerian
operations
EV earnings 97 693 371 878 326 469 897
* Calculated as the sum of the annualised EV earnings
excluding the impact of "other once-off items" and the
STC change; plus, the impact of the "other once off
items" and the STC change (which should not be
annualised), divided by the Adjusted EV at the beginning
of the period. In other words, ((469 898 - 132 500 + 16
555) x 2 + (132 500 - 16 555)) / 2 330 317 = 35.4%
(R`000`s) Six months Year
ended ended
31 30 June
December 2011
2010
A: EV at the end of the period 2 171 502 2 520 332
EV at the beginning of the period 2 026 760 2 026 760
Dividends and STC paid (167 609) (167 596)
B: Adjusted EV at the beginning of 1 859 150 1 859 164
the period
EV earnings (A - B) 312 352 661 168
Impact of once-off economic (67 857) (136 532)
assumption changes
Impact of other once-off items 28 277 28 277
Recurring EV earnings (before once- 272 772 552 912
off items)
Recurring Return on EV (before 29.3% 29.7%
once-off items)
Return on EV 33.6% 35.6%
Components of EV earnings
(R`000`s)
Value of New Business 215 947 457 587
Expected return on covered 103 667 211 957
business (unwinding of risk
discount rate)
Expected profit transfer - -
Withdrawal experience variance (17 584) (29 486)
Claims and reinsurance experience (6 122) 317
variance
Sundry experience variance 4 465 11 290
Operating assumption and model (1 906) (18 135)
changes
Extraordinary non-recurring - (4 790)
expenses/development costs
Expected return on ANW 7 541 19 865
SAR scheme dilution (8 624) (16 705)
Goodwill and Medium Term incentive (24 399) (39 313)
schemes
Reduction in Net Asset Value on (10 406) (22 659)
Nigerian operations
EV operating return 262 579 569 928
Investment return variances on ANW 21 295 18 540
Effect of economic assumption 56 755 103 642
changes
Impact of other once-off items (28 277) (28 277)
Net impact of writing off a loan - (2 665)
in respect of the Nigerian
operations
EV earnings 312 352 661 168
* Calculated as the sum of the annualised EV earnings
excluding the impact of "other once-off items" and the
STC change; plus, the impact of the "other once off
items" and the STC change (which should not be
annualised), divided by the Adjusted EV at the beginning
of the period. In other words, ((469 898 - 132 500 + 16
555) x 2 + (132 500 - 16 555)) / 2 330 317 = 35.4%
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 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
website: www.clientele.co.za
e-mail: services@clientele.co.za
Sponsor
Pwc
PricewaterhouseCoopersCorporate Finance Proprietary Limited
Clientele Life
Clientele General Insurance Limited
Clientele Loans
IFA
Clientele Mobile
Clientele Life Investments
Date: 20/02/2012 17:00:04 Produced by the JSE SENS Department.
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