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CLE
CLE
CLE- Clientele Life- Summarised Group Results: six months ended 31 December 2006
Clientele Life Assurance Company Limited
(Registration number 1973/016606/06)
Share code: CLE & ISIN: ZAE000013397
FSP number: 15268
Highlights
* New policies sold increased by 68%
* Embedded Value of new business up by 80% to R176 million
* Increase in total Embedded Value of 40% to R804 million
* Profit before taxation increased by 14%
* Headline earnings per share increased by 25%
* Annualised return on average shareholders` interests of 90%
SUMMARISED GROUP RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
Comments
Clientele Life`s new business growth and the resultant growth in Embedded Value
for the reporting period has been spectacular.
323 566 policies were sold compared to 192 932 policies for the same period last
year, an increase of 68%. This performance confirms its position as the market
leader in its chosen market in both direct marketing through television
advertising and direct selling through referral marketing. We are proud of the
growth Clientele Life consistently achieves, its growing share of the previously
disadvantaged sector of the recurring premium Insurance market and the positive
contribution that Clientele Life makes to the lives of that community through
the success of the IFA opportunity.
This extremely strong activity coupled with improved relative persistency
contributed to the material growth in the Embedded Value of new business for the
six months which at R176 million represents an increase of 80% over the same
period last year.
Ongoing improvements in the effectiveness of premium collections together with
the strong new business results and significant reduction of acquisition costs
per policy has translated into an increase in total Embedded Value, after
adjusting for the payment of dividends and STC, from R576 million at 30 June
2006 to R804 million at 31 December 2006, an increase of 40%. This performance
is in line with Clientele Life`s strategy of focusing on quality new business
growth and the creation of value over the long term. It is very pleasing to note
that despite the significant aggregate increase in acquisition costs of new
business, which in terms of Clientele Life`s accounting policy are expensed up
front, profit before taxation increased by 14% from R70,3 million to R80,3
million and headline earnings per share increased by 25% from 125,47 cents to
156,89 cents for the period under review.
Net recurring premium income for the period of R298,7 million (2005: R222,1
million) represents an increase of 35%. The group earned R38,5 million (2005:
R23,0 million) of other income which represents an increase of 67% and is
comprised mainly of recurring income, prior to the allocation of related
expenses, from its Independent Field Advertiser ("IFA") distribution channel.
Policyholders benefits, which include claims paid and encashment benefits of
R52,5 million (2005: R36,0 million), have increased by 46%.
Operating expenses continue to be well controlled and the average annual renewal
cost per policy remains among the lowest in the industry.
The above results have translated into an annualised after-tax return on average
shareholders interests of 90%.
The number of IFAs has continued to increase substantially adding to the
thousands of successful entrepreneurs and business owners from historically
disadvantaged backgrounds. Clientele Life made payments of close to R137 million
to previously disadvantaged individuals during the period, most of which was
paid to IFAs.
On 23 January 2007 the shareholders, in a General Meeting, approved the Share
Appreciation Rights ("SAR") Scheme in favour of participants comprising of
Employees and IFAs. The SAR Scheme allows participants to share in the success
of Clientele Life by benefiting from any increase in the share price from the
date of participation and is intended to be equity settled. The aggregate number
of shares that may be allotted and issued to participants under the SAR Scheme
may not exceed 10% of the issued share capital of the company from time to time.
The initial allocations comprised of approximately 2,1 million SARs which
represents 58,4% of available SARs, half of which were issued to employees and
half of which were issued to IFAs. Two thirds of Clientele Life`s staff are from
previously disadvantaged backgrounds and over 90% of IFAs are from previously
disadvantaged backgrounds.
On 31 December 2006, Dr David Molapo a Management Consultant, Educationalist and
renowned Motivational Speaker was appointed to the Board of Clientele Life. We
believe that Dr Molapo`s experience and insights will add great value to the
Board of Clientele Life.
The group will continue to build on its unique distribution strengths and
remains committed to servicing, empowering and educating previously
disadvantaged and under serviced segments of the market.
By order of the Board
GQ Routledge G J Soll Johannesburg
Chairman Managing Director 26 February 2007
Summarised group balance sheets
Year
Six months ended ended
31 December 30 June
(R`000`s) 2006 2005 2006
Assets
Equipment 14 981 10 988 12 651
Investment in associate 98 827 -
Amounts due by group companies - 3 671 -
Deferred taxation 4 980 - 5 150
Current taxation 2 064 - -
Inventories 1 604 2 701 1 355
Reinsurance assets 33 378 26 413 28 820
Financial assets held at fair
value through
profit or loss 992 527 862 851 930 307
Receivables including 15 272 13 666 10 410
insurance receivables
Cash and cash equivalents 39 810 9 091 52 544
Total assets 1 104 714 930 208 1 041 237
Equity
Share capital 4 853 4 853 4 853
Retained earnings 92 383 78 939 120 344
Treasury share reserve - (1 589) (1 589)
Total equity 97 236 82 203 123 608
Liabilities
Insurance contracts 446 648 331 365 379 996
Financial liabilities held at 471 594 469 890 458 245
fair value through profit or
loss
Provisions 25 760 - 17 760
Amounts due to reinsurers 1 215 490 430
Accruals and payables 59 808 43 528 58 781
including insurance payables
Deferred taxation 2 453 2 060 2 035
Current taxation - 672 382
Total liabilities 1 007 478 848 005 917 629
Total equity and liabilities 1 104 714 930 208 1 041 237
Summarised Group Income Statements
Year
Six months ended ended
31 December % increase 30 June
(R`000`s) 2006 2005 (decrease) 2006
Revenue
Insurance premium 298 746 222 062 35 475 125
revenue -
individual
recurring
Reinsurance (13 824) (10 032) 38 (21 712)
premiums
Net insurance 284 922 212 029 34 453 414
premiums
Other income 38 480 22 963 68 48 612
Fair value gains 80 229 84 726 (5) 121 309
on financial
assets at fair
value through
profit and loss
Total revenue 403 631 319 718 26 623 334
Net insurance (52 506) (35 952) 46 (76 002)
benefits and
claims
Claims and (61 846) (43 324) 43 (92 453)
policyholder
benefits under
insurance
contracts
Insurance claims 9 340 7 372 26 16 450
recovered from
reinsurers
Increase in (66 652) (65 313) 2 (113 945)
policyholder
liabilities under
insurance
contracts
- Increase for the (66 652) (65 313) 2 (86 191)
year
- Impact of - - (27 754)
Statement of
Intent
Increase in 4 558 2 808 62 5 217
reinsurance assets
Fair value (14 569) (25 299) (42) (18 951)
adjustment to
financial
liabilities at
fair value through
profit and loss
Expenses (194 269) (125 535) 55 (281 103)
Acquisition costs (172 881) (109 735) 58 (249 150)
associated with
insurance
contracts
Administration (21 388) (15 800) 35 (31 953)
expenses
Impairment of USA - - (4 000)
associate
Equity accounted 98 (79) 224 52
earnings from
associate
Profit before 80 291 70 348 14 134 602
taxation
Taxation* (29 565) (29 759) (1) (43 823)
Net profit 50 726 40 589 25 90 779
attributable to
ordinary
shareholders
Reconciliation Of net profit attributable to ordinary shareholders to headline
earnings
Year
Six months ended ended
31 December 30 June
(R`000`s) 2006 2005 2006
Net profit attributable to 50 726 40 589 90 779
ordinary shareholders
Impairment of investment in - - 958
associate
Add: Profit on disposal of 29 - 21
fixed assets
Headline earnings 50 755 40 589 91 758
Taxation
Current and deferred taxation (16 072) (19 643) (33 954)
Secondary tax on companies (10 228) (9 622) (9 730)
Capital gains tax (3 265) (494) (973)
Over provision for prior years - - 834
(29 565) (29 759) (43 823)
Statement of changes in equity
Treasury
Share Retained share
(R`000`s) capital earnings reserve Total
Restated balance 4 853 110 132 (1 589) 113 396
as at 1 July 2005
Net profit 90 779 90 779
attributable to
shareholders
Ordinary dividend (80 567) (80 567)
paid
Balance as at 30 4 853 120 344 (1 589) 123 608
June 2006
Balance as at 1 4 853 120 344 (1 589) 123 608
July 2006
Sale of treasury 5 423 1 589 7 012
shares
Net profit 50 726 50 726
attributable to
shareholders
Ordinary dividend (84 110) (84 110)
paid
Balance as at 31 4 853 92 383 - 97 236
December 2006
Summarised group cash flow statements
Year
Six months ended ended
31 December 30 June
(R`000`s) 2006 2005 2006
Cash generated by operations 91 227 97 795 239 057
Net acquisition of investments (39 404) (40 488) (118 869)
Investment returns 66 409 61 315 59 075
Dividend paid (84 088) (80 793) (80 489)
Taxation paid (41 110) (46 521) (60 902)
Cash flow from operating (6 966) (8 692) 37 872
activities
Cash flow from investing (5 594) (4 810) (9 226)
activities
(Decrease)/increase in cash on (12 560) (13 502) 28 646
hand
Fair value gains on financial assets at fair value through profit and loss are
treated as operating activities and are reversed from cash generated by
operations.
Reconciliation of net profit per share to headline earnings per share
Year
Six months ended ended
31 December 30 June
(cents) 2006 2005 2006
Net profit attributable to 156,80 125,47 281,69
ordinary shareholders
Add: Profit on disposal of 0,09 - 0,07
fixed assets
Add: Impairment of - - 2,97
investment in associate
Headline earnings 156,89 125,47 284,73
Weighted ordinary shares in 32 350 32 350 32 227
issue (`000)
Restated 32 350 32 350 32 350
Distributions paid to shareholders during the six months ended 31 december 2006
Six months Six months
ended ended
31 December 31 December
2006 2005
Ordinary dividend (R`000`s) 84 110 80 875
Ordinary shares in issue at 31 December 32 350 32 350
(`000`s)
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 periods under review are insignificant.
Year
Six months ended ended
31 December 30 June
2006 2005 2006
Segment assets & liabilities R`000 R`000 R`000
Insurance segment assets 635 898 463 375 586 256
Financial Instruments segment 468 816 466 833 454 981
assets
Total Group assets 1 104 714 930 208 1 041 237
Insurance segment liabilities 535 884 378 115 459 384
Financial Instruments segment 471 594 469 890 458 245
liabilities
Total Group Liabilities 1 007 478 848 005 917 629
Clientele Life operates in South Africa. Policies written are in respect of
individuals.
NOTES TO THE RESULTS:
The investment in the associate represents a 33.3% investment in Clientele USA
LLC.
The investment in the associate and the loan to the associate were fully
impaired at 30 June 2006.
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 R38 million.
The nature of the group`s business remains unchanged.
Accounting Policies
Statement of compliance
The accounting policies adopted for the purpose of the group financial
statements comply with International Financial Reporting Standards (IFRS), and
with the listing requirements of the JSE Limited and the Companies Act of South
Africa.
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 31 December 2006.
The embedded value calculations have been certified by the company`s independent
actuaries, QED Actuaries & Consultants (Pty) Limited.
Year
Six months ended ended
31 December 30 June
2006 2005 2006
R`000 R`000 R`000
Embedded value
Value of excess assets 97 236 81 217 123 608
attributable to shareholders
Cost of capital (9 451) (4 330) (6 651)
Value of in force business 715 764 515 580 553 492
Embedded value 803 549 592 467 670 449
Value of new business 176 263 98 058 181 136
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 31 December 2006.
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 31 December 2006 was 2,37 times (30 June 2006:
4,5 times).
Analysis of change in embedded value 31 December
2006
Embedded value at beginning of period 670 449
Dividend (84 110)
Secondary tax (10 228)
Unwinding of discount rate 43 194
Embedded value - Goodwill and medium term (12 822)
incentive bonus scheme
Sale of treasury shares 7 012
Total (56 954)
Value added by management 206 475
Value of new business 176 263
Profit from associate 67
Experience and sundry adjustments 30 145
Change in basis
Value of in-force and excess assets (13 621)
Cost of capital (2 800)
Embedded value at end of period 803 549
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 R630 million in the individual policyholder fund.
By order of the board
G Q Routledge G J Soll Johannesburg
Chairman Managing Director 26 February 2007
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, I B Hume CA(SA), ACMA*, B
Frodsham B Com*, Dr. S D Molapo
Company secretary: W Landman CA(SA).
*Executive director
Investment Bank and Sponsor
Nedbank Capital
Date: 26/02/2007 16:04:57 Produced by the JSE SENS Department.
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