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Edited Transcript of MMI.J earnings conference call or presentation 4-Sep-19 11:00am GMT

Q4 2019 Momentum Metropolitan Holdings Ltd Earnings Presentation

Johannesburg Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Momentum Metropolitan Holdings Ltd earnings conference call or presentation Wednesday, September 4, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dan Moyane

Momentum Metropolitan Holdings Limited - Head of Group Communications & CSI

* Hillie P. Meyer

Momentum Metropolitan Holdings Limited - Group CEO & Executive Director

* Risto S. Ketola

Momentum Metropolitan Holdings Limited - Group Finance Director & Executive Director

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Presentation

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Dan Moyane, Momentum Metropolitan Holdings Limited - Head of Group Communications & CSI [1]

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Okay. Good afternoon, ladies and gentlemen. Thank you very much for the warm welcome. In case you're wondering why I'm wearing a black ribbon, you are, of course, aware, it's not related to the results, but it's something that one of our brands has really been highlighting. I don't know if many of you know that Momentum -- it's not me -- the brand Momentum, was women-tum during the women's month of August, as we're marking women's month in South Africa. So now we're having it back as Momentum. So the M is back to where it should be, as Momentum. But today, many women of our country are marking the mourning of the killing of women in our country. There's a march happening now on the fringes of the World Economic Forum on Africa. It's taking place in Cape Town. So the black ribbons are really symbolizing the continuation of the support by one of our brands for the causes that our women stand for. And sadly, this time around, it's about the ongoing femicide in our country.

But we welcome you to the annual results, the presentation of the annual results of Momentum Metropolitan Holdings to the year ending June 30, 2019.

At the start of this session, I would also like to extend a special welcome to the employees of the Momentum Metropolitan group, wherever they are able to watch and follow this afternoon's presentation. And of course, this presentation is live on channel -- DStv channel 412. It's also being webcast, live webcast on our website, that's www.momentummetropolitan.co.za.

Now our group CEO, Hillie Meyer, will kick off the presentation in a short while by focusing on how the company has delivered on its promises that he outlined about a year ago when he was presenting a similar set of results. At that time, he presented what he termed a 3-year Reset and Grow strategy. As we all know, the prevailing economic environment locally and globally is pretty tough. It's pretty challenging for a number of reasons. But as you'll hear this afternoon, the first year of the Reset and Grow strategy has progressed very well. Though, of course, there are still some areas that will need to be improved on in the upcoming year.

After Hillie has made his part of the presentation, the group FD, Risto Ketola will then build on this good story by delving a little bit deeper into the numbers -- in all the significant numbers that will showcase the excellent progress that's been made so far. As usual, after the presentation has been done, we'll provide you with an opportunity for questions and answers, and our executive members, who are here, including those who are heading up some of the divisions, will then handle those questions. And afterwards -- I know some of you already had very quick bite because it is lunch time, we're starting at 1:00. And like in the past, there'll be more opportunities afterwards to still network and engage with our executives who are here. And if you want, have a drink and grab a bite once more.

Can we please welcome Hillie to the stage with a round warm of applause.

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Hillie P. Meyer, Momentum Metropolitan Holdings Limited - Group CEO & Executive Director [2]

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Thank you. Thank you, Dan. Good morning, ladies and gentlemen, and thank you for your interest. If I was offered this set of results a year ago, I would have grabbed it with both hands. So we're happy. I think it's really pleasing to stand here and to basically say, or maybe I should use the word admit, that this is the first time in 5 years that we've, in fact, achieved our own financial objectives as a group. This is the first time in 5 years that we made our own budget and our own targets, which is, I think, a really welcome change also for the Board of Momentum Metropolitan. So we're very pleased with the results.

Now ours is a people business, and it would not have been possible without all our staff. So like Dan, I would also just like to use this opportunity to thank all our staff for their dedication, commitment and continued support. It really was a team effort. I know that some of the changes that we basically required from our people, wherever they are, were not always easy and sometimes pretty uncomfortable. But I think they were up to the task, and they responded in a very positive way. So really, this is also a tribute to all our staff. I can assure you that Momentum Metropolitan is in a very different place today than even what it was 15 to 18 months ago. I believe the competitive spirit is back and a desire to perform. Now how did that come about? About 18 months ago, we started sharing with our staff the reasons why Momentum Metropolitan, or MMI at the time, were regarded as an underperformer by shareholders and by clients, to be honest. And that sort of period of introspection was not always easy. The message was not always easy, but I think our staff members took it to heart and responded, as I said, sort of in a very positive way. And I think in that process, a pretty inclusive process that we followed culminated in what ended up as the Reset and Grow strategy, which is the journey that we've been on for the last year. And we really, I think, presented last year, the road map which we, I think, sort of put out there as, listen, we're happy to be measured against these goals.

So in my presentation, I've got a brief introduction. I'm just going to touch really sort of holistically on a few points, where, after, I will then, in fact, give feedback on the Reset and Grow targets like I did at the interim stage as well. I think as far as financial results are concerned, the earnings number, obviously, is very pleasing. But I think, like you all would have seen, normalized headline earnings, the base year is actually not really the right kind of a benchmark. There were lots of base changes and assumption changes and so forth. So we actually are also reporting on what we term operating earnings, and I think that 21% is more reflective of the sort of underlying performance. Now a big contribution to the improvement in the performance you will find in this slide, which basically show that as far as our management expenses are concerned, what we call our controllable expenses, excludes commission and so forth, our management expenses remained flat. So we basically -- we went down a little bit. We basically did more with a little bit less. And I think that just got a significant impact, obviously, on the bottom line. Also, as far as sales are concerned, that's one area where we can't claim victory yet, definitely not on the retail side. We've got the detailed numbers there. But if you -- in combination, Momentum in Metropolitan Retail basically had a flat year in terms of new business. As far as new business is concerned, obviously, corporate had a great year, and some of the other subsidiaries and business units did really well. But in the retail arena, the focus will now definitely have to shift to sales growth.

I'm not too concerned about the fact that we haven't seen the traction this year. I think before you can actually start expecting clients and advisers to vote with their feet, you've got to set your house in order, and there was a lot that we had to do this year. But I think this will be something we will definitely keep our eye on, and I believe our shareholders would be really interested in our progress on this score going forward.

So in these slides are sort of lost call rates, and I think it just shows improvement all round, especially again in the retail arena, where service was really not up to standard around a year ago. The detail is not important. The point I'd like to make here is that as far as the -- almost the more measurable things in service is concerned, we made excellent progress. That's the more difficult quality aspects that we will also have to increasingly focus on. So we're answering calls now, and we're dealing with it really quickly, but are we in fact answering the right question. That's a bit more difficult, more difficult to do and more difficult to measure. But on the service side, our focus will move to quality rather than quantity.

And then a final point. Also, Risto will delve into more detail in his presentation. But sort of the product side of our business, where we do underwriting and where we take sort of credit, risk spreads you have with underwriting, both short-term and long-term and so forth, really, it was a really good year for us all around, yes. In, for example, corporate, we're not entirely happy with, let's say, PHI and disability experience yet, there's still losses. But all in all, a very, very good year for us as far as the core aspects of an insurance group is concerned. That was another major contributor to the good results.

Moving now to the Reset and Grow strategy. Just for those of you that haven't seen these slides before, I will sort of give -- there's a donut with all -- each and every one of the objectives that we set. If that donut is filled completely, we basically -- that objective is done and dusted, but it's sort of an indication of how far we've progressed in terms of our sort of the 3-year strategy. So -- but just to refresh your memory, we basically have a target of ZAR 4 billion in earnings, ZAR 3.64 billion for 2021. I think the first point is that the ZAR 3.1 billion is basically on track to achieve that. I would like to just maybe make a point that we were relatively conservative in terms of what we expect from the environment. So we allowed for very, very low industry growth in our sort of earnings assumptions and so forth. But if, for example, as an industry, we contract or stay flat or whatever, then I think the ZAR 4 billion might be a bit more difficult, but we're quite confident we will then at least make the ZAR 3.6 billion. But I've got no reason not to believe. I mean, we've seen some good growth numbers the last quarter. That's sort of indicative of where the economy is going, then keep us to the ZAR 4 billion.

Okay, starting with Momentum Retail. I'm not going to talk about Reset. I think just generally, in all the slides, generally, as far as Reset, those are the internal things, the things that we've got more control over. That's [all] on track or it's basically complete. So I'd rather focus on the growth aspects, which is becoming more important and a bit more of a challenge, to be honest.

Starting with Momentum agents. There, the target was to increase our footprint. In 2019, the target was 930 agents. We ended 100 short of that. So we didn't achieve the Momentum agents. The main reason is that our new-to-industry advisers, there was higher turnover than we would have liked to see, and significantly higher. So we haven't tracked it yet. This is the Momentum agents. We had similar challenges on the Metropolitan side. But clearly, you know, we need to get -- act together here. But we still -- I think you can probably say we've lost a year, and we'll see to what extent we can make up for that going forward. As far as Momentum Consult is concerned, those are independent advisers that are looking for a home, and we provide that through this subsidiary. There, the target was to end with 250 advisers, and there we exceeded that target by about 10. So pleasing result there. As far as our IFA's, brokers are concerned, we have plans to increase our -- what we term as supporting brokers, and it's a measure by -- this is sort of the level of support that we get from brokers. There also, you'll see, in over last 3 years, it stayed flat at below 2,000 brokers. And we targeted 2,000 brokers, it was our objective by the end of this financial year. And there again, we are about 150 or so short of our target.

Again, as I said sort of right up front, I'm not overly concerned about that. I think there are some positive signs, and we probably need to do -- and I think we've done a lot. We've done the basics and the spadework up to now. I will, however, be disappointed if we don't see that change going forward. I haven't got the detail here, but increasing flows into our own products. That's increasing quite nicely. I think in terms of product innovation, as I said earlier, the desire to perform and the competitive spirit is back. So that's now more business as usual. I'm happy with what's happening there. As far as Multiply is concerned, we -- it seems as we sort of hit a bit of a brick wall in terms of Multiply client growth. It is, I think, for the Multiply client, it's a fantastic product. It is also very, very important for us in our overall offering, and we are looking at our strategic options because I think either we might change the repositioning, and then we would like to keep the offering, but then offer it maybe in a way that will cost us less, or we've got to find a way to -- so that Multiply could appeal to more of our clients. But there are some -- a bit of thinking, too early to share our plans with you. But clearly something that we need to address going forward.

Metropolitan Retail, just very briefly, we had quite a disappointing third quarter, and then an amazing recovery in the fourth quarter. First point in terms of adviser productivity, our target was 2.5. That's 2.5 policies per agent per week. We ended the year on 2.3, so it's a little bit below the target. But I'm happy to say that I think we've seen some significant improvements in quality. We still have our targets going forward, and we'd like to grow to -- increase it to 3 policies per agent per week in 2021. But if the price that we paid for better quality business, maybe marginal, sort of below our target in terms of productivity, then that's not too bad a result.

Also, just maybe to illustrate -- and this is just one slide that illustrates the improvement in quality or an important factor that determines quality. This is the percentage of business that's stop order business. Now also, just to -- for those who don't know, our stop order business is a lot more sticky. It's probably -- the lapse rate is probably half the lapse rate on debit order business. And yes, you will see the different graphs are for different tenure of advisers. The top one, we -- you can see stop order business increased from 49% to 56% of all the business. Those are our most experienced advisers. So I think most -- your most experienced advisers are probably better at writing stop order business, but I think they've also learned that, that is an important factor in quality. So they're probably looking for that business more. But I think you will see all -- no matter what tenure it is, significant improvements, even right at the bottom. Our first agents that have joined us are in their first 6 months with us. Already, that has improved to 32%, which is around about 1/3. And I think that's indicative of us now vesting those advisers better in workplaces and probably management improvements, which was a big part of what we had to do in Metropolitan.

So moving on to Momentum Corporate. I think one of our objectives is to diversify our distribution channels. Most of our business, we rely on intermediaries to provide that to us. A year ago, Momentum consultants and actuaries contributed only 5% of our business. And with Momentum consultants actually -- we actually formed 2 years ago. So in the first year, they contributed 5%. There was significant increases in the business. Recurring premium business increased by 62%, single premiums by just over 40%. But because corporate had such a bumpy year, recurring premium is still sitting at about 5% of the business and the singles at about 13%. But that's a journey we're on. We're quite happy with progress so far, but obviously it's still early days in terms of diversifying distribution channels. I think we're happy that we've -- in terms of underwriting margins that we've made the changes that we wanted to. It will always be a little bit of a moving target because the market is quite dynamic. And competitors sometimes change their pricing, and then you've got a [debt], and then sometimes, you're probably not willing to do that. But I would say underwriting -- the whole underwriting pricing is now also business as usual. That's not -- and we're happy that, especially as far as mortality business is concerned, that we're actually writing very, very, very good business. Disability business losses increased a bit, and PHI also not exactly where we would like it to be. We mentioned that we're underrepresented in organized labor and public sector. We can't claim that in the last year that we gained any business from the public sector or organized labor. Also very happy to say that the 25 clients that we do have there, we maintained all 25 of them. I mean, there's a lot more activity and focus, but nothing to show for it yet. This is a 5-day game, not a 1-day game.

Retailization is quite an initiative and quite a difficult thing, but it's an initiative where we actually would like to obviously retain some of our pension fund clients, more of their money when they withdraw or retire or whatever. So it's quite a complex exercise in a business, especially like ours, where we've got different business units, but it involves both the retail side, some of the clients we pass on to IFA's or sometimes our own advisers, depending on the circumstances. So it's quite a tricky thing to coordinate and manage. But at this point, we already deployed 28 employers at 81 work sites. So again, also early days, but some activity there. It's actually quite important, I think, for the group and probably for all the industry players going forward to get this right.

Health. Again, you can see, I'm not going to say much about Reset. As far as growth is concerned, I'm just showing you the numbers of the different sort of pockets and different products that Health offers the growth. In the public sector, that's mostly the GEMS contract that we're administering, a small increase in numbers, and that's really where we've signed up people that qualify for GEMS, but they were never members and it doesn't cost them any money, whatever, but there was quite a sort of a project to sign them up. Our low-income product is actually quite popular. Remember, those are previously uninsured health clients. So that's, in fact, quite sort of heartening. Restricted schemes, less members, we didn't lose any clients, but some of our employers actually lost staff or cut back on staff numbers and so forth. Thebemed is a partnership with the Thebe group. A lot of mining business in there, some really nice growth there. And then Momentum Health is flat. It is a stagnant market. In fact, I was thinking that -- I don't know, but most of the people in this audience -- Momentum Metropolitan employees, I suppose, excluded -- are probably on a health scheme. What you don't realize, it's not the best health scheme that you can't be on. So afterwards, we're not going to talk results. We'll talk your health, [better].

Africa. Again, Africa had a pretty concerning first 6 months, but it recovered very well in the second half of the year. Distribution, like in South Africa, is a challenge in basically all the African countries where we decided that we could commit ourselves to. There's been some improvement in Namibia, and we've seen some successes, especially on the corporate side. But generally speaking, especially on the retail side, also productivity issues that we need to pay attention to. But that's also sort of a work in progress.

As far as products and product mix and so on is concerned, we launched a number of new products. For example, in Ghana, we launched a funeral product. The new product was launched in Namibia. We've actually improved our pricing in a number of countries: Botswana, Lesotho and Namibia. But there's still too much of a tilt towards savings products on the retail side in basically all our African countries.

And I think until we actually shift to more risk products in Africa, our new business margins, for example, and margins generally will not be what it should be. aYo, that's our JV with MTN. A year ago, they had 1.2 million enrollments because at this point, they deployed in Uganda and Ghana. At the end of June, it was 4 million. Now sort of broadly speaking, to give you an indication, they need about 5 million enrollments per country to reach breakeven. So in these 2 countries, when they reach 10 million and -- in those countries, it should be breakeven, but they plan to -- there is a rollout plan to roll out in other countries, which obviously overall moves the breakeven point a bit up into the future.

Guardrisk, again, just focusing on the growth aspects. Guardrisk, it's a deliberate strategy in Guardrisk to increase the insurance at risk, mostly commercial business that they write on the promoter -- in a promoter cell. And at the moment, that represents -- it's increased to 22% of overall Guardrisk earnings. So that's part of the growth strategy in Guardrisk. And to give you an idea, the at-risk gross written premiums is now ZAR 2 billion in the promoter cell. ZAR 2 billion of the business is basically commercial, short-term insurance business that Guardrisk write at risk. So these are -- it is more of a composite insurer, short-term insurer in the making.

Bolt-on transactions, there weren't any this year. We're happy with the ones that we did the year before. It's well bedded down. Also, keep in mind that the bolt-on transactions are often also just to -- we need expertise, so often it sort of represents an entry into a new business line that Guardrisk would like to enter. Earlier this year, as planned, Guardrisk launched, through one of the clients, a linked investment product. And 6 months up to June, ZAR 1.2 billion of single premiums were basically written in Guardrisk Life.

The open architecture insurance platform, that's really sort of more planning for the future strategy, in partnership with a fintech company. I think the last time we were here, we were reporting on one big retail client that used the platform as a bit of a prototype to see whether -- as a proof-of-concept phase. Happy to say that they've now signed up and 2 products were launched on that platform. It's really a platform that allow Guardrisk clients -- streamline the administration. They don't have to create the infrastructure. This platform provides it and is fully integrated with the Guardrisk system. So it really is a quite slick and streamlined process. And I think it provides opportunities for Guardrisk where there weren't opportunities before.

Momentum Short-term Insurance. Again, part of the plan is -- was to grow the client base to reach, I think, 90,000 in 2021. We are on track. We're just below 70,000 in 2019. You can see the sort of the growth in premiums was maybe 1% lower than last year, but still a very pleasing 18%. So we're very happy with -- we -- MSTI. Also, if you look at the claims ratio, I think it's sort of -- we actually weeded out some of the less profitable business. And I think we've just upped our pricing game completely. So we're pleased with, and also things are going according to plan. And MSTI is basically on target in terms of reaching breakeven when -- which we planned for about 18 months from now.

Lots of activity in enhancing the client value proposition, and a lot of it has got to do with allowing clients to interact more online and more sleek. That's going according to plan. I'd just like to spend maybe 1 or 2 minutes on the AFI transaction, which we announced earlier. Keep in mind, it's still subject to regulatory approval. But just again, the strategic rationale, first of all, it improves our scale. Guardrisk got -- we have got 70,000 clients, they've got about 90,000 or 80,000 clients. Their premiums are almost double ours. They've got, on average, larger premiums. So it is more than a doubling of -- in terms of scale. One of the attractions is a specialized tied agency in Alexander Forbes that specialize basically just in selling AFI business. And in fact, a number of our competitors are basically developing those sort of tied agency forces. And that is quite an expensive exercise. So it's quite nice to basically get this as part of the deal. In fact, it's a big part of the deal. A big part of the price was for that. But they're basically around about 100 tied agents servicing AFI. I think one of the attractions is it will allow us to expand our client value proposition in sort of one big go, because as we will now sort of upgrade our systems and so on, and to also cater for all the Guardrisk product, I think it will enrich our own product offering. And I think all over being a bigger player now, I think it just puts us in a better position to compete more effectively. The end-state that we have in mind, this all happen under the Momentum brand. Obviously, it will be a fully integrated business. So all of this will be consolidated onto one system and one service team, et cetera, fully integrated, and there are some synergistic benefits that will flow from that. And ultimately, all of this will be on one insurance license.

I think finally, as far as group-wide activities, again the Reset stuff [in rewards] is done. There's a lot of stuff you'll see in our integrated report in terms of aligning rewards to performance. This year, we're going to prepare ourselves to make return on capital -- to make that a more important factor in incentivization and so forth. So hopefully, that will improve. I think as far as our BEE credentials are concerned, obviously you would have seen that we are a level 1 BEE company. And we embrace diversity and everything that goes with it and committed to improving the diversity in the group. And it's actually, I think -- that's actually one of the nice challenges, because we're building a better country in that way. Brand positioning, we've done a lot. I think there's a lot more exposure to our main consumer brands now. Just -- you can just see from the exposure here, because nobody knew what MMI stood for. Now it's Momentum Metropolitan, and I think that's just a plus. And I've already talked about staff. I think I would just say in conclusion that I know that this set of results where we can go back to staff and say, listen, we can pick 2019, the first year in our 3-year Reset and Grow strategy, staff will find it very much being 2020, which would not be easy. Thank you. Risto?

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Risto S. Ketola, Momentum Metropolitan Holdings Limited - Group Finance Director & Executive Director [3]

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Thanks, Hillie. Before I start on the financials, I would just point out, there's a lot more slides in that booklet than there's on the screen. We did a dry run yesterday, and consensus view that I might have overestimated the interest in the detailed financials. So there's a slightly more streamlined version in the live vision here. Now these are our 6 key financial measures that we always report on. This is the first time in my career here, that they're all pointing in the right direction. Also, they're all better than we expected starting the year. So that's also quite unusual.

Now I'll repeat what I said at the interims: It's amazing when you get 15,000 people, and they point roughly in the same direction, and they share some common goals of how quickly things can change. It is -- there's also some management theory and whatever, but the reality is you need to get the staff to buy in and to actually believe in the things we're doing, and then the outcome is what you see here.

Now headline earnings up 53%. That goes up to 61% if you allow for the buyback. So our shares in issue declined over the last year. I did tell guys, it would have been better if the earnings were 8, and then 16 with the buyback would have illustrated the benefits a bit more. But anyway, shares in issue are down. Sales volumes are up 12%. Momentum Corporate had a very strong year. I'll talk about that a bit later. And value of new business went up 57%. In other words, a lot more than the volume growth, reflecting margin expansion. A big part of the reset phase was looking at expenses and efficiency. And some of the savings and efficiency improvements were in the distribution channels. So you pick up an immediate ZAR 5 million here, ZAR 10 million there in terms of new business profits. Embedded value increased by 4% for the year in absolute terms. Again, the shares in issue declined. So it's 8% increase on per share basis. And when you add back the dividend, it's 9.4% return on EV for the year, about a 10% improvement. Also, the market only did 1% during the 12-month period. So I think the 9.4% is a very good achievement in light of the external factors.

The 53% is a nice headline, but it's a bit flatted by the very bad year we had last year. So we have constructed what we would consider more normalized or more like-for-like earnings. On that basis, group earnings are up 21%. The strongest performer in absolute terms was Momentum Life. This is a business where we do our affluent market protection business, so the Myriad product range, and also our recurring premium savings products, the Investo product range where RAs and endowments sit in this segment. That 29% profit growth was driven by very strong mortality profits. It's actually a theme across the group. Almost everywhere, we're seeing very good claims experience on death claims. Disability claims are another story, and I'll talk about it a bit later. The other thing here is there was quite a few product feature changes, particularly on the Myriad product range. And those were very well received in the market, and we were able to actually expand our margin a little bit through these new features. So the revenue growth was ahead of our sort of premium income growth.

And the last item that actually had quite a big impact is the amount of premium increased takeups by our clients. So we have a certain assumption of how many clients will buy up cover over time, and our experience was significantly higher. So it's quite pleasing to see continued buying up of our existing clients. Momentum Investments includes our asset management businesses, but it also includes our annuities, structured products and guaranteed products. The earnings growth was driven by the U.K. Asset Management business that is doing very well at the moment, and also good results in annuities and guaranteed endowments. Those 2 product sets, they share a common feature, that a lot of your profitability is the credit spread you can earn on the assets versus liabilities. And we had a very good year in terms of the spread we achieved on the assets, and also defaults were very limited compared to the general market experience. I should also point out that I was looking at the ASISA stats the other day. We do about 1/3 of all annuities in South Africa on the retail side. And in Momentum Corporate, we also have a very strong market share. So in general, I would consider annuities to be one of our strongest product areas alongside things liken umbrella funds. So quite often, if I think of the products where we do very well, they tend to be products that require balance sheet-driven solutions. That needs to be a lot more of a sweet spot for us than maybe your more discretionary savings policies.

I know Jeanette is working on our Investments brand, so hopefully we can dominate both voluntary and the balance sheet side going forward.

Metropolitan Retail, the 7% doesn't look great on its own, but it's better than we thought. When we started the year, we actually had a budget that was marginally down for the year. Metropolitan spent quite a bit of money and time in the first 6 months, refurbishing and relocating its branches to be closer to their consumers. A lot of the branches in the past were located at city centers, which aren't really that good locations anymore. So those having moved more into the suburbs and talent should be close to clients.

Once that was largely done in the second half, the business actually did rein in spending significantly, and the much improved collections in the last quarter. So Hillie mentioned, I was actually a bit surprised that our collections are not as good as they've ever been in the last quarter, talking about some of the enhancements we made. And also the sales people are starting to show better sales behavior. So the 7% ended up being a win in [Mars]. Momentum Corporate profits are up 2%. That's maybe a little bit misleading on the downside. We sold 49% of our public sector health administration business, the business that looks after GEMS, to be partners 15 months ago. So the minority interest is in for the full year for the first time. If you add that back, the growth rate would have been 7% to 8%, like 2 of the other divisions there. The Health business grew earnings before minority interest by 5%, and it was down 15% after that minority impact for the first time.

Your more traditional Momentum Corporate business, earnings were up 10% to 12%, largely driven by excellent mortality results again on the group life book.

Disability is a bit different. We've seen slightly weaker disability results in retail and in corporate, and that is despite us increasing our pricing quite a bit. So I think from a structural perspective, it is quite interesting industry-wide to see a very different performance in terms of death claims and disability claims. One is reducing significantly and disability claims are increasing, both in terms of frequency and duration that the claimants are in force.

Africa has a nice story, a 51% increase. Again, underwriting has a story there. So we have good mortality experience, for example, in Namibia. What is not so similar to other markets, our Health businesses here almost doubled profits. Our Health -- we're the #1 health administrator in Namibia and Lesotho. And overall, these health operations made Namibia ZAR 100 million from being a breakeven business 2 years ago. And the last point is that at -- in South Africa, last year, we incurred ZAR 160 million of cost to support Africa. This year, as part of the reset, we ran that down to ZAR 100 million, which we think is a sustainable level of local support we need to give these countries.

I'll talk about some of the smaller businesses in due course. Okay. Also, Hillie talked about the strategic side of Reset and Grow. Now when we announced this to the market, we did also make 3 explicit financial promises. Now the first one was, we acknowledged that our core businesses will grow revenues at inflation at best, which means that we had to keep our cost growth below inflation for the next 3 years to generate any real earnings growth. The second promise we made is we'll take our short-term insurance profits from ZAR 200 million a year to ZAR 500 million a year. That was quite a bold claim at the time. And then lastly, we promised that we will rationalize the amount of money we spend on new initiatives to be more right-sized, more proportionate to the underlying group earnings.

I'll just give you a bit of feedback on each of those 3 promises. On the efficiency side, targeting roughly a 4% increase in earnings per annum versus inflation of 6%, it's actually ZAR 700 million we committed to saving over 3 years. Our controllable cost base of ZAR 9.2 billion, which Hillie showed earlier -- I'm just showing the movements over the last year now. We started by focusing on the red bar, which is group-wide services. So that is group finance, group risk, facilities management, Hillie. We haven't cut there though, but -- yes. Now we have cut those costs in nominal terms, never mind real terms, in 1 year. And the real message here has been that as a functional head like myself, you always want to build the world's best type of group finance function and so on. But the message [isn't centrally] realistic when you're the 100th biggest life insurance company in the world. So there's been a big focus at rightsizing what we do and the level of activities we undertake to support our group. And I sometimes joke that we just want to be #1 in Centurion, which is not that easy if you consider who's there. But anyway, so I think there's been a good response in the central functions. We have become a lot more commercial at what we do. It's great to have the world's best payroll, for example. But if it works, let's stick to it.

The other area where we saw savings in real terms during the year was in distribution and sales. This actually wasn't that planned. This was a reality that Jeanette took over Investments, Johann Le Roux took over Life. I think the new CEOs have found a bit of fat in the channels they inherited. So there's been a bit of looking at some guaranteed pay, which is generally not very smart in a distribution channel. The management layers might have been a little bit rich. So there's been some savings that are better than we expected in the distribution and sales side.

And then the last block is the dark blue block, which is really the IT environment to some degree, so our line-of-business systems, call centers, service functionality sits in there. The savings, they are a little bit back-end loaded towards 2021. The big factor there is migrating Metropolitan off its existing legacy mainframe onto a more modern technology solution. So that is work in progress. We have achieved ZAR 500 million of the ZAR 700 million to date. I'll be very, very, very surprised if we don't meet the ZAR 700 million target by 2021.

The other progress we made was to grow short-term business from ZAR 200 million to ZAR 500 million. But going back about ZAR 40 million in the first year doesn't inspire confidence. But there are asterisks we need to put here. We raised an impairment of ZAR 96 million during the year in Guardrisk, so [down the line] earnings is closer to ZAR 250 million. I need to stop here just for a minute or 2 to explain what we did there. Herman still thinks I was crazily conservative, but anyway. I mean the fundamental premise of cell captives is that when there are losses in the cells, the cell owner is ultimately responsible. And the way we deal with it normally is we can ask the cell owner for capital, and they inject capital hopefully, or we can provide them solvency support. We can inject the capital and they pay us interest on that capital. And then we work with the cell owner in looking at premium rates, claims experience, to make sure we work out of that negative cell position. Now in light of the current economy and sort of thinking a little bit more theoretically about prospective view of the credit risk, we went through each of those cells and we looked at a number of factors, the current profitability, the length of time it's been in a deficit and also the credit quality of the ultimate shareholder. So nobody has defaulted. We have just attached probabilities to each of these negatives, which resulted in that ZAR 96 million impairment. Herman is still looking at the gross number, I can assure you, in terms of collecting on the monies. Guardrisk has never had a default. That's also quite important. They have always managed to work it out with the cell owners in the end. So this is really a more prudent accounting approach that we have adopted.

Okay. Coming back to the ZAR 500 million plan. At the time when we announced it, we had 2 horses in the race. We had Guardrisk, which we thought we could take from ZAR 200 million to about ZAR 400 million, and we had MSTI, which we thought we'll take from a small loss to nearly ZAR 100 million profit. Both of those are still on track. There's also a third horse now, which is AFI, the Alexander Forbes Insurance business. So similar to the expensed one, this ZAR 500 million promise actually looks quite deliverable right now.

Just a little bit of background on Guardrisk. So Hillie alluded to the fact that we're growing our underwriting activities. Those are in the red there. Last year, we made nearly ZAR 200 million underwriting profits. Two areas that are particularly noteworthy. One is the medical gap cover. So we own Admed, which is quite a well-known gap cover product. And then secondly, in the municipality space, we do a lot of the municipality insurance. One of our biggest competitors actually closed shop about a year ago, which has significantly improved the dynamics in that market space. So municipalities are profitable for the first time in a number of years. And Guardrisk is the clear #1 in this industry. I'm always impressed that rather than sort of resting on their laurels, they're always trying to widen the gap further and further [from] the #2 player. So it's the sort of a dominant player you want to see as a shareholder. Rather than leveraging off their existing position, they're using their dominance to build it stronger and stronger.

Short-term insurance -- Momentum Short-term Insurance. So we added about 10,000 policies for the year, in line with budget, maybe a few -- maybe 1,000 below budget. It's still converted to a 19% premium income growth year-on-year despite being a little bit short of budget. What is maybe not obvious here is that this business, not only is it tracking towards its profit promises, it's quite a modern business in terms of its new setup, new technology. It's been set up from scratch, so there's not that much legacy. It provides an excellent, probably the best client experience out of all our businesses. So it adds a lot of value in the way our customers also see Momentum. We don't get too many disappointed Momentum short-term clients who hold multiple products in the group. And then maybe Alexander Forbes, Hillie mentioned the strategic merits. I'll just give you a little bit of numbers of what we actually bought. So we bought a business with ZAR 2 billion of premiums. That's about double what we have. The number of clients is 84,000, not that much more than ours, but the average policies are literally double the size. So if you look into these 84,000 clients, the big proportion is slightly wealthier, slightly older and slightly more loyal. It's a perfect demographic for financial services. So we attach a lot of value to the quality of the book, not just the size of it. And the business is already profitable, 64% loss ratio, profits have been growing for the last few years. It's always nice to buy a profitable business because the impact on your earnings, despite the cash going up, is quite limited. So you don't have to sort of reset the earnings guidance we have given for this acquisition.

We also promised to bring new initiatives spending from ZAR 400 million to ZAR 300 million over 3 years. We did always say that it will first peak at about ZAR 0.5 billion until we get India, in particular, past the trough of the J-curve, and that trough will be taking place this year. India alone is ZAR 300 million of the ZAR 0.5 billion. We are very satisfied with the progress to date. In 2 years, we have built a 4-million-lives book. What is maybe more important is the claims ratio is tracking on expectation. The operational expenses are tracking expectations. The number of branches and service providers is tracking expectations. We provide 49% of the financial capital. We also, ongoing, provide intellectual property in forms of health risk management, disease management, wellness programs, loyalty programs. But I must compliment our partner, Aditya Birla Capital. They are the guys who opened a few hundred branches every day in 300-odd cities. And they're doing a fantastic job as an operator there. And I think the success of this JV is really at least as much a function of Aditya Birla as it probably is of us. So I must thank our partners. Also what we do quite often is we look at how this business is tracking quarter-to-quarter versus plans and other insurers. And this is comfortably the most successful health insurance startup in India over the last decade or so. So I'll be very excited about this business, which I suppose we need to be because it is our largest investment in terms of new initiatives.

I'll just briefly talk about 1 or 2 financial aspects that we haven't covered yet. So sales are up 12% year-on-year. I think that's a commendable performance. I think I mentioned Momentum Corporate. Everybody knows about the ZAR 5 billion annuity we won in the first quarter. So that was the biggest annuity contract ever in South African history, but corporate success is much wider than that. So in the last quarter, we signed up other 2 annuities that we will consider big in most years, ZAR 300 million, ZAR 500 million. We also signed up a big [smooth] bonus mandate for the first time in a long time. And we also kept on winning blue-chip clients on our group risk business almost every month of the year. So the success of corporate has been a lot broader than just that one big deal everybody talks about. I mean this business is really doing well and gaining ground on the one big player in this segment.

Momentum Life, I sort of highlighted RAs, the retirement annuities. We launched a new product, it sold well. The Myriad, which is the risk product, that was flat year-on-year. I believe that's roughly what the market did over the last year as well. It's a very critical product for longer-term profitability because of the margins in it. So we'll keep tracking that. But I think flat is an acceptable result for Myriad. And Africa recovered second half, more on the corporate side again. So there's a bit of a similar theme in South Africa and rest of Africa, that corporate business did better than retail business, which, again, talks about the need for us to really focus on retail distribution. Another slide I like because it's really rare that the margin improves in every division. Almost in every one of these, I'm just thinking in my head now, I think every one of them, a lot of the improvement in the margin comes from this efficiency that I spoke right in the beginning. When you talk about a good VNB, it's often ZAR 100 million for the year. So if you can cut out ZAR 8 million because of some distribution costs, it's immediately a massive impact on the VNB number. I would say that out of these margins, the one that has most ground to gain is both mid-retail and Africa. I think we satisfied with the Momentum Life margin. The Momentum Investments margin just reflects the very competitive nature of that market segment. Our wealth platform, which is really cutthroat, sits in that space. And corporate, I think it's an excellent margin for our corporate business. I think mid-retail should really double, if not more, over the next few years. And in Africa, our margin should really be closer to what we see in South Africa.

This is the only slide on Embedded Values in the presentation. I think [it goes] in cycles. The earnings is very much in vogue at the moment. But as I mentioned, EV is up 4%, per share that becomes 8%. It becomes 9.4% once you allow for the dividend. What is not so obvious is our life insurance business ROEV was again sort of 13%, 14%. Our life insurance business, every year like clockwork, has a return on capital in excess of cost of capital. It is our various new initiatives. Many of them are still loss-making. That is draining our group ROEV. As some of those businesses mature and hopefully start making decent profit contributions, like India, I think our ROEV will start improving quite rapidly towards the 13.5%, 14%, which tends to be the life insurance ROEV year-in, year-out.

Capital Management. We have a target range of 1.7 to 2.1x the statutory minimum capital. We are currently at 2.08x, so towards the upper end of the range. The acquisition of Alexander Forbes Insurance will bring that down to about 2.0. So the important message here is that Alexander Forbes doesn't have a big solvency impact on our business. But because we're paying it in cash, it does drain our short-term liquidity a little bit. So it is something that we're focusing on the next, let's say, 6 to 12 months is just to replenish the cash sitting on our balance sheet.

We have decided to declare a final dividend of ZAR 0.35 per share. That's equal to the dividend we declared at interim stage. When we reinstated dividends, we gave a new dividend policy targeting a range of 2 to 3x cover. That's more realistic for us as a group in light of, for example, the India investment, and also the more demanding capital requirements now under SAM. I acknowledge that, that dividend is a bit on the low side compared to the range, so the cover is 2.9x in the range of 2 to 3x. We believe that in the current economic environment and also the desire to replenish the balance sheet after Alexander Forbes acquisition means it was prudent to keep the dividend slightly on the lower end.

I'll finish off by talking about a few topical matters. This first one should be exciting, IFRS 17 project. A lot of our stakeholders ask about this. I acknowledge you cannot understate just how big a project this is for insurance companies. If I think of my own financial team, I would say, 1/4 to 1/3 of the guys are going to be working flat out on this for the next 2, 3 years. I just want to give a bit of reassurance that we are comfortable with where we are with the project at the moment. So we have had [GAAP] analysis and things like that by consultants, and we're in line with where the industry is in terms of the project. Also, what's quite nice to see is that when the standards first came out, different companies have quite different interpretations, but through industry bodies, there is a convergence of interpretation and views. So we feel a lot more secure that the work we're doing is not going to be wasted because of a U-turn later on. Also, we have had the first sight of numbers here. So at least I know we can produce the numbers. I don't know how good they are, but we have at the first run of the actual numbers under the new IFRS 17 standards. And it has highlighted that the profitability of the product is a bit different than under the old accounting standard. So we need to get our own mind around it. And quite importantly, the project costs remain very well controlled. We're doing this project largely on internal resources, which means we think we'll end up spending maybe ZAR 100 million, ZAR 200 million less than some of our competitors.

Not as exciting for me, but maybe the audience will find this more useful. One of the questions we had on Forbes was, why spend ZAR 2 billion in the current environment? Are you sure the economic growth is 0? But I just want to make a point that our cash conversion of earnings has improved quite a bit and continues to improve. So we're very comfortable that we will replenish that liquidity quickly from retained earnings. This just highlights that our 3 mature businesses have always been sort of cash cows on the top right corner there. But something like Guardrisk, which has always been a profitable business, it had to deal with the change to SAM, which means the dividends had to be kept quite modest. We now have high level of certainty and understanding of the SAM environment, so we would expect the dividend payouts in Guardrisk to be in a totally different level going forward. MSTI used to require ZAR 100 million, ZAR 200 million of support a year. It's now self-standing. We got the Africa business by exiting some of the frontier markets. We're going to be going from injecting capital to receiving dividends from Namibia, Lesotho and Botswana.

And then lastly, on Health, it's always remained profitable, but there was quite a difficult period when they lost Bankmed and Polmed. There was a lot of reorganization in that area. And I think the profitability is now a little bit better. It's also a lot more certain. So in general, our internal dividend generation and cash flows are improving and have improved. So we are very comfortable to be sort of writing out the ZAR 2 billion check.

Then on Africa, I thought I need to just give an update of where we are. I'll give the update in 2 ways. I'll start by talking about the planned exits. Now we can announce that we have sold Mauritius and the deal is done, the ownership is transferred. So we have exited Mauritius in the last few months. There was also [a recent] announcement by another listed company that they're looking to acquire our Swaziland business. So that's really far down the line. And then we have 2 other countries where we have a signed agreement that is now awaiting regulatory approval.

On top of that, 2 further countries, we have received quite a few expressions of interest. So in the last 3 to 6 months, we have made major strides towards the in-state portfolio in Africa. The second point, once we get to the in-state, you can see that countries are named there. Just starting with your select countries, that's 350 [we had] in Ghana, that's ZAR 400 million of profit, which is largely -- Ghana is still growing, but a lot of that can be paid out in dividends. Also, with the new center, the cost of the center is only ZAR 100 million -- only -- it's ZAR 100 million a year from ZAR 160 million a year. We have a good ZAR 300 million a year profit business in Africa.

The last 4 years, 5 years, you might have not seen it because you lose 100 here. But once we are out of the problematic frontier markets, we have a very stable cash-generative business, largely [incentive].

And my last financial slide. The other question we have received a bit lately is, you're exiting Africa, you're buying Forbes -- Alexander insurance -- Alexander Forbes Insurance, are you not becoming too focused just on South Africa Insurance? I put the slide here just to illustrate that our core business is already quite diversified. Now if you look in red there, 1/3 of our profits come from areas like unit trusts, RA, asset management fees, asset management. There's a market-linked type of profits that will go up and down with the markets like an asset manager would. Now that 34% is ZAR 1 billion. So it's not like we don't want it, but it's also a very competitive market segment with a number of entrants and quite low barriers to entry. It is the next 22% and 14% that really make us a little bit different to a lot of other companies. The underwriting profits and spreads, which is really annuities, I think we have a real competitive advantage there. Now again, coming from the outside a few years ago, I think it's reasonably easy to become good at one thing like pricing or underwriting risk to make sure you don't take bad risk, claims handling service. To put it all together and to have a system environment where it's painless of exchanging information between underwriters and brokers, it's not easy. I think that's why the number of new entrants coming from other industries, the dent is small. It is that 1/3 to 36% that we really want to grow, and the Forbes acquisition plays into that. Also, those profits have -- they're very defensive and they have 0 market correlation, basically. So if I was an investor, it's probably those earning streams that I would really be looking and paying for when buying into an insurance company. Then there's a 10% in admin. Now it tells an interesting story on its own. We're the second-biggest medical administrator, and we're one of the biggest pension fund administrators, and we are good at what we do there. The margins are just so thin in pure admin. With that 10%, even though we're happy with our market position, it's probably not going to grow much. The growth is really going to come from that 22% and 14%. And then lastly, 20% comes from investment income, where we have a portfolio of ZAR 12 billion of investments, of which nearly ZAR 11 billion is cash -- near cash. Variable rate instruments are very predictable. So I would actually argue that we have the sufficient diversity of existing revenue streams to withstand tough economic conditions. And I also believe that the Forbes acquisition will enable us to grow the underwriting part, which is the most attractive source of earnings.

Okay. I will close now. Hillie told me he doesn't want to come back out for 1 slide, so I'll do the closing.

So we're coming towards the end of the reset phase, and Hillie gave a tick for 2019. I'm a bit less binary than that. I would give us 8.6, 8.7 out of 10. I think it's been excellent in terms of the cost efficiencies we have achieved, and you see it immediately in VNB, earnings and all the other metrics. What is more impressive, that's not so obvious on the outside, we've done it without demoralizing the staff. So we have implemented significant simplification of the organization and cost cutting, while staff actually having more excitement about the future than feeling squeezed to the bone. So that's what really makes it pleasing.

We're now moving on to the growth phase. There, the impact on earnings might not be as immediate and obvious. I'll be a bit reluctant to give you a mark out of 10 by next year. We'll try in 2021. I think, there, what the investors should really look for is the progress on number of agents, number of supporting brokers, productivity per agent, all the stats that Hillie showed you earlier. In my own eyes, I think we could get to ZAR 3.6 billion with no success on growth, purely by continuing with efficiencies, but that will be quite a shallow victory, I think. I don't think we're really setting up the group for the future if we don't achieve market share gains while we're targeting the ZAR 3.6 billion to ZAR 4 billion of profit.

And then just closing, I just want to reiterate what Dan and Hillie said, is that we wouldn't have been able to achieve this without the staff actually believing that these actions are necessary and the right things to do. So I just want to thank our staff in South Africa and elsewhere for their extremely hard work and dedication over the last year. Thank you very much.

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Dan Moyane, Momentum Metropolitan Holdings Limited - Head of Group Communications & CSI [4]

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Thank you, thank you, thank you. Risto, you said you're giving it 8.6, the reset. Now that's cum laude, that's a distinction. Well done. I think while everybody is thanking staff, I just want to also acknowledge in any situation, any organization, leadership also counts. Hillie, to you and the group executive team, I think you have done excellent work in the past. I think you deserve a round of applause. Let's give them a round of applause, please. And of course, while acknowledging the staff. Okay, we have set aside a couple of minutes for question and answers. We've got roving mics. Two of my colleagues, [Yulisa] and Cobus, are there. If you raise your hand, say where you are from and you can ask any question you would like to ask. We are also being webcasting live. We might have some webcasting questions as we go along. We'll take those too, Cobus, if there are any. But can I have a show of hand and -- question? You have a question [Stephen]? Okay. Lovely pink jersey that you've got there, Stephen ? Beautiful, beautiful. It attracted my attention.

Thank you very much. Anybody has got a question? So it's all nice and clear. It's wonderful. Wow, gee, well done. Well done, Risto, and well done to Hillie for a wonderful presentation.

But there's an opportunity. If really there are no questions at this hour, there is an opportunity to engage further with Hillie and the rest of his executive team. Several of them are here today, outside as you continue to network. Once again, thank you very much for having taken the time. I know it's been a long day. There've been a couple of other results announced earlier in the day, but you took your time to be here. We really appreciate it. Enjoy the rest of your afternoon.