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CLE
CLE
Clientele Life - Summarised group results for the year ended 30 June 2006
Clientele Life Assurance Company Limited
(Registration number 1973/016606/06)
Share code: CLE
ISIN: ZAE000013397
FSP number: 15268
Summarised Group Results for the Year ended 30 June 2006
Highlights
New business up by 43% to 446 000 policies
Net premium income up by 29%
Adjusted earnings per share increased by 45%
Return on average shareholders" interests of 75%
Embedded value of new business before SOI up by 31% to R206 million
90% of new policies written, issued to previously disenfranchised
individuals Payments made to previously disenfranchised individuals close
to R200 million
Audited summarised group balance sheets
Restated
As at As at
30 June 30 June
(R"000"s) 2006 2005
Assets
Equipment 12 651 9 194
Investment in associate - 907
Amounts due by group companies - 3 671
Deferred taxation 5 150 3 300
Inventories 1 355 1 916
Reinsurance assets 28 820 23 603
Financial assets held at fair
value through profit or loss 930 307 811 438
Receivables including insurance receivables 10 410 11 613
Cash and cash equivalents 52 544 23 898
Total assets 1 041 237 889 540
Equity
Share capital 4 853 4 853
Retained earnings 120 344 110 132
Treasury share reserve (1 589) (1 589)
Total equity 123 608 113 396
Liabilities
Insurance contracts 379 996 266 051
Financial liabilities held at fair
value through profit or loss 458 245 439 735
Provisions 17 760 11 380
Amounts due to reinsurers 430 2 374
Accruals and payables including
insurance payables 58 781 37 109
Deferred taxation 2 035 1 757
Current taxation 382 17 738
Total liabilities 917 629 776 144
Total equity and liabilities 1 041 237 889 540
Audited summarised group Income Statements
(R"000"s) Year ended 30 June %
Increase/
(decrease)
Restated
2006 2005
Net premium income from
insurance contracts 453 413 352 519 28,6
Other income 48 612 32 482 49,7
Net investment returns 121 309 127 147 (4,6)
Net policyholder benefits paid (76 002) (58 502) 29,9
Increase in policyholder
liabilities under insurance
contracts (108 728) (74 023) 46,9
Fair value adjustment to
financial liabilities (18 951) (41 696) (54,5)
Expenses (281 103) (216 692) 29,7
- Operating expenses (24 382) (20 042) 21,7
- New business acquisition
expenses (256 721) (196 650) 30,5
Impairment of USA associate (4 000) -
Profit from USA associate 52 179
PROFIT before taxation 134 602 121 414 10,9
Taxation** (43 823) (44 745) (2,1)
Net PROFIT attributable
TO ORDINARY
SHAREHOLDERS 90 779 76 669 18,4
Taxation**
Current and deferred taxation (33 954) (34 720)
Secondary tax on companies (9 730) (7 618)
Capital gains tax (973) -
Over/(under) provision for prior
years taxation 834 (4 347)
Taxation effects of IAS19 - 1 940
(43 823) (44 745)
Reconciliation of net profit
attributable to ordinary
shareholders to adjusted earnings
Year ended 30 June %
Increase/
(R"000"s) 2006 2005 (decrease)
Net profit attributable to
ordinary shareholders 90 779 76 669 18,4
Clientele Life
shares in policyholders
portfolio 3 321 1 691
Statement of intent 19 705 -
Adjusted earnings 113 805 78 360 45,2
Notes to reconciliation of adjusted earnings
In determining the Clientele Life group results, Clientele Life shares held
in the policyholders portfolio now have to be treated as treasury shares
and may no longer be accounted for at fair value. Comparative figures have
been restated accordingly.
The implementation of the SOI has resulted in a provision of R27,8 million
(R19,7 million after tax) which has reduced the current year"s net profit
accordingly.
Reconciliation of net profit attributable to ordinary shareholders to
headline earnings
Year ended 30 June
%
2006 2005 Increase
Net profit attributable to
ordinary shareholders 90 779 76 669 18,4
Add: Impairment of investment
in associate 958 -
Profit on disposal of fixed assets 21 45
Headline earnings 91 758 76 714 19,6
Audited statement of changes in equity
Treasury
Share Retained shares
(R"000"s) capital earnings reserve Total
Restated balance as
at 1 July 2004 4 853 97 917 (1 589) 101 181
Long term employee
benefits (IAS 19) (4 750) (4 750)
Treasury share adjustment (1 691) (1 691)
Net profit attributable 83 110 83 110
to shareholders
Ordinary dividend paid (64 454) (64 454)
Restated balance as
at 30 June 2005 4 853 110 132 (1 589) 113 396
Restated balance as
at 1 July 2005 4 853 110 132 (1 589) 113 396
Net profit attributable 90 779 90 779
to shareholders
Ordinary dividend paid (80 567) (80 567)
Balance as
at 30 June 2006 4 853 120 344 (1 589) 123 608
Audited summarised group cash flow statements
Year ended 30 June %
Restated Increase/
(R"000"s) 2006 2005 (decrease)
Cash generated by operations 200 835 444 483 (54,8)
Net acquisition of investments (118 869) (405 881) 70,7
Investment returns 97 297 73 411 32,5
Dividend paid (80 489) (64 688) 24,4
Taxation paid (60 902) (50 595) 20,4
Cash flow from operating 37 892 (3 270)
activities
Cash flow from investing (9 226) (5 741) (60,7)
activities
(Increase)/decrease in cash on 28 646 (9 011)
hand
Reconciliation of net profit per share attributable to ordinary
shareholders to adjusted earnings per share
Year ended 30 June
(cents) 2006 2005 % Increase
Net profit attributable to
ordinary shareholders 281,69 237,90 18,4
- Write down of Clientele Life
shares in policyholders
portfolios 10,31 5,25
- Statement of intent 61,14 -
Adjusted earnings 353,14 243,15 45,2
Reconciliation of net profit per share to headline earnings per share
Year ended 30 June
(cents) 2006 2005 % Increase
Net profit attributable to 281,69 237,90 18,4
ordinary shareholders
Add: Impairment of investment in 2,97 -
associate
Profit on disposal of fixed assets 0,07 0,14
Headline earnings 284,73 238,04 19,6
Weighted ordinary shares in issue
("000)
32 227 32 227
The weighted ordinary shares in issue are adjusted for 123 000 Clientele
Life shares in the policyholders portfolio (Treasury shares).
Segment information
Clientele Life"s main business segments include insurance and Financial
Instruments segments.
The financial effects of the Financial Instrument segment on revenue and
profit for the year are insignificant.
2006 2005
Segment assets & liabilities R"000 R"000
Insurance segment assets 586 256 452 587
Financial Instruments segment assets 454 981 436 953
Total Group assets 1 041 237 889 540
Insurance segment liabilities 459 384 336 409
Financial Instruments segment liabilities 458 245 439 735
Total Group Liabilities 917 629 776 144
Clientele Life operates in South Africa. Policies written are in respect of
individuals.
Dividend to shareholders after the Year ended 30 June 2006
Restated
After year After year
ended ended
30 June 30 June
2006 2005
Ordinary dividend (R"000"s) 83 790 80 567
Ordinary shares in issue at 30 June 32 227 32 227
("000"s)
The ordinary dividend and ordinary shares in issue have been adjusted for
the 123 000 Treasury shares held in policyholders funds.
Notes to the results:
The investment in the associate represents a 33.3% investment in Clientele
USA LLC.
This investment of R0,9 million and the loan to the associate of R3,1
million have been fully impaired at year end.
The increase in policyholder liabilities has been based on best estimates
after providing for compulsory and discretionary margins and has been
actuarially certified by QED Actuaries & Consultants (Pty) Limited.
The group has entered into an agreement to purchase two contiguous office
buildings for approximately R36 million.
The nature of the group"s business remains unchanged.
Accounting Policies
Statement of compliance
Statements comply with International Financial Reporting Standards
(IFRS), and with the listing requirements of the JSE Limited and the
Companies Act of South Africa.
Adoption of IFRS
Being a first-time adopter of IFRS for the 2006 financial year, the Group"s
date of transition to IFRS is 1 July 2004. The Group"s opening balance
sheet on 1 July 2004 and comparative information for 2005 have been
restated to comply with all IFRS requirements effective as at 30 June 2006.
The results for the year ended 30 June 2006 have been prepared in
accordance with IFRS 1 - first time adoption of IFRS.
The results have been prepared in accordance with current interpretations
of IFRS.
The implementation of IFRS concurrently with the withdrawal of the specific
South African accounting standards applicable to long term insurers (AC121)
and the application of IAS 19 Employee benefits required some changes to
the Group"s basis of presentation and accounting policies.
Accounting treatment of treasury shares
In determining the Clientele Life group results, Clientele Life shares held
in the policyholder portfolio now have to be treated as treasury shares and
may no longer be accounted for as investments at fair value.
Application of IAS 19 - Employee benefits
The application of IAS 19 in respect of long term employee benefits
resulted in a restatement of the 2005 comparatives by R4,8 million after
tax and prior years retained earnings by R3,3 million after tax.
Reconciliation of net profit attributable to shareholders
June
R"000 2005
Reported under previous SA GAAP 83 110
Treasury shares adjustment (1 691)
Long term employee benefits (IAS 19) (4 750)
Restated net profit attributable to shareholders 76 669
Reconciliation of shareholders" interests
30 June 1 July
R"000 2005 2004
Reported under SA GAAP 125 166 106 510
Treasury shares adjustment (3 690) (1 999)
Long term employee benefits (IAS 19) (8 080) (3 330)
Restated shareholders interests 113 396 101 181
These results have been audited by PricewaterhouseCoopers Inc. and their
unqualified audit opinion is available for inspection at the Company"s
registered office.
Group Embedded Value
The embedded value represents an estimate of the value of the group
exclusive of goodwill attributable to future new business. The embedded
value comprises:
- the value of excess assets attributable to shareholders plus
- the value of in force business less
- the cost of capital.
The value of in force business is the present value of future after tax
profits arising from business in force at 30 June 2006.
The embedded value calculations have been certified by the company"s
independent actuaries, QED Actuaries & Consultants (Pty) Limited
Restated
Year
ended
30 June
(R"000s) 2006 2005
Embedded value
Value of excess assets attributable
to shareholders 123 608 125 191
Cost of capital (6 651) (4 113)
Value of in force business 553 492 453 741
Embedded value - after SOI 670 449 574 819
Value of new business - after SOI 181 136 157 643
Value of new business - before SOI 205 889 157 643
(R"000)
Value of new business written during the period 205 889
Statement of intent (soi) adjustments (24 753)
Value of new business after allowing the SOI 181 136
The value of new business represents the present value of projected after
tax profits at the point of sale on new policies sold and annuity fee
income during the period ended 30 June 2006.
The amount of R24,8 million in respect of the implementation of minimum
values for savings products reflects the impact of allowing for the mimimum
surrender values required for savings products on the value of new business
as per the Statement of Intent signed between the Life Offices Association
and the National Treasury in December 2005.
The cost of capital is the opportunity cost of having to hold assets to
cover the capital adequacy requirement (CAR).
Clientele"s CAR cover ratio at year end was 4,5 times (2005: 8,3 times).
Analysis of change in embedded value 30 June 2006
Embedded value at beginning of year 574 819
Adjustments in respect of prior years (11 770)
Dividend (80 875)
Secondary tax (9 730)
Unwinding of discount rate 72 446
Embedded value - Goodwill bonus scheme (4 486)
Embedded value - Incentive bonus scheme (10 887)
Overprovision for prior year taxation 834
Total (44 468)
Value added by management 172 420
Value of new business - prior to SOI 205 889
SOI adjustments (24 753)
Loss from associate (2 776)
Experience and sundry adjustments (5 940)
Change in basis
Value of in-force and excess assets (29 784)
Cost of capital (2 538)
Embedded value at end of period 670 449
Main assumptions: % p.a. % p.a.
Long-term economic assumptions 2006 2005
Risk discount rate 14 14
Overall investment return 8,5 8,5
Expense inflation 6 6
Other assumptions
The assumptions for future mortality, persistency and premium escalations
were based on recent experience adjusted for anticipated future trends.
Allowance has been made for future taxation and STC in the embedded value
calculations.
No future benefit has been anticipated in the embedded value calculation
for the estimated tax loss of R644 million in the individual policyholder
fund.
Dividend declaration
Notice is hereby given that the board has declared the following dividend
per ordinary share:
Ordinary dividend (cents per share) 260
Ordinary shares in issue at record date (000"s) 32 227
The dividend will be paid on Monday, 18 September 2006.
To comply with the procedures of STRATE the last day to trade in the shares
for purposes of entitlement to the dividend is Friday, 8 September 2006.
The shares will commence trading ex dividend on Monday, 11 September 2006
and the record date will be Friday, 15 September 2006.
Share certificates may not be dematerialised or rematerialised between
Monday, 11 September 2006 and Friday, 15 September 2006 both days
inclusive.
By order of the board
G Q Routledge G J Soll Johannesburg
Chairman Managing Director 23 August 2006
Comments
Clientele Life"s distribution strengths and operational and administrative
efficiencies have ensured that it has continued to achieve growth and
returns which remain amongst the highest in the life industry.
This has also been achieved through the delivery of appropriate and
affordably priced life insurance, protection and savings products to meet
the needs of the under-served and growing lower to middle income markets.
Clientele Life"s market share continued to increase with 446 000 new
policies being sold in this financial year to mostly first time buyers of
insurance products.
The past year has been a significant year for the South African life
insurance industry and included a number of unfavourable rulings against
various life insurance companies by the Pension Fund Adjudicator (PFA).
These rulings, together with considerable negative publicity and sentiment
from the media and consumers, culminated in discussions between the Life
Offices Association (LOA), the National Treasury and the Financial Services
Board (FSB) concerning the reformation of savings products within the
industry.
Discussions led to the signing of a Statement of Intent (SOI) in December
2005 by the five largest life office members of the LOA and the Minister of
Finance, resulting in a combined cost to the industry of close to R3
billion.
Clientele Life has made full provision at 30 June 2006 for the minimum
surrender values of savings products as contemplated in the Statement of
Intent. This includes a provision of R19,7 million after-tax against
profits in respect of 222 453 policyholder contracts.
Net recurring premium income for the period of R453,4 million (2005: R352,5
million) represents an increase of 29%. The group earned R48,6 million
(2005: R32,5 million) of other income which represents an increase of 50%
and is comprised mainly of recurring income from its Independent Field
Advertiser (IFA) distribution channel.
Policyholder"s benefits, which include claims paid and encashment benefits
of R76 million (2005: R58,5 million), have increased by 30%.
Operating expenses continue to be well controlled and the average annual
renewal cost per policy remains among the lowest in the industry.
The investment and loan to Clientele USA, which totalled R4,0 million, have
been impaired down to nil at year end. The associate is still generating an
income flow but is not expected to make any meaningful contribution to
profits.
Total earnings for the year have been impacted by the once-off adjustment
in respect of the Statement of Intent of R19,7 million and the adjustment
in respect of treasury shares amounting to R3,3 million. Earnings for the
year, had it not been for the above factors would have amounted to R113,8
million, which represents a 45% increase on adjusted earnings for 2005 of
R78,4 million.
Headline earnings per share rose by 19,6% from 238,0 cents to 284,7 cents.
Adjusted earnings per share rose by 45,2% from 243,2 cents to 353,1 cents.
The above results have translated into an after-tax return on average
shareholder"s interests of 75%.
The embedded value of new business increased from R158 million to R206
million for the period (R181 million after adjusting for the Statement of
Intent of R24,8 million) and continues to underline the growth and
profitability inherent in the business.
The ongoing success of the IFA distribution channel has enabled Clientele
Life to make a significant and tangible contribution to Broad Based Black
Economic Empowerment in South Africa. IFA has empowered thousands of
successful entrepreneurs amongst historically disadvantaged communities and
the resultant benefits to this sector have been considerable. Clientele
Life made payments of close to R200 million to previously disenfranchised
individuals during the financial year, most of which was paid to IFA"s. In
addition to providing assistance to start their own businesses, the IFA"s
are given product and life skills training. IFA professional presenters are
subject to stringent accreditation processes and are thus equipped to add
significant value within the communities they serve.
The cumulative effect of the SOI, IAS 19 and the adjustment in respect of
treasury shares has impacted shareholders funds by R39,3 million which has
moderated the Board"s decision in relation to the dividend declared this
year of 260 cents per share. Strong dividend growth is anticipated to
resume next year.
Prospects
The group will continue to build on its unique distribution strengths and
remains committed to servicing, empowering and educating previously
disenfranchised and underserviced segments of the market.
By order of the Board
G Q Routledge G J Soll Johannesburg
Chairman Managing Director 17 August 2006
Investment Bank and sponsor
Nedbank Capital
Registered office:
Clientele House, Morning View Office Park,
Cnr Rivonia and Alon Roads, Morningside,
PO Box 1316, Rivonia 2128
Transfer secretaries:
Computershare Investor Services 2004 (Pty) 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)*, P
J?A?Cunningham CA(SA), CA(Z), P?R Enthoven BA, P?W?Felton B.Sc.Hdip.Tax
(Law), I B Hume CA(SA), ACMA*
Company secretary:
W Landman CA(SA).
*Executive director
Date: 23/08/2006 05:00:20 PM Produced by the JSE SENS Department
