Momentum Metropolitan’s normalised headline earnings (NHE) reached R5.1 billion for the year to June 30, up 16%, supported by improved mortality experience and positive investment variances and the strong showing was likely to continue into the new financial year.
Recent pressure on sales volumes were a concern. New business volumes and profitability were receiving significant management attention, incoming CEO Jeanette Marais said in an online interview.
She said in an online interview that in the next financial year, the release of Covid reserves and favourable investment experience variances would not support earnings to the extent they had this year.
However, the underlying run rate of earnings was about R4bn per year. “The normalisation of mortality experience, with the execution of strategy and focus on efficiency, means we expect our earnings to remain robust in the 2024 financial year,” she said.
She said factors and measures were in place for better performances at Momentum Insure and Metropolitan, and an improvement in the two businesses that had, on a relative basis, underperformed, should help to bring the group close to reaching earnings targets.
Marais said the past year’s results had occurred in the second year of their Reinvent and Grow three-year strategy, and this “confirms our solid competitive position”. All targets of this strategy had so far been met, including a R500m cost saving goal.
Group operating profit increased 31% to R4.4bn. The positive investment variance came to R1.1bn, well up from R353 million in the previous financial year.
Normalised headline earnings per share rose 19% to 342.3 cents from 287.2 cents and headline earnings a share were up 5% to 310.7 cents from 297.3 cents. A total dividend of 120 cents a share was declared, an increase of 20% on the previous year.
Outgoing CEO Hillie Meyer said the business model of empowered, accountable business units had assisted the group in coping with the multiple headwinds faced in South Africa over the past year.
“Our dividend declaration reflects the resilience of the group and the board’s confidence in the underlying financial strength of the business,” he said.
The tough operating environment dampened sales volumes, and Momentum’s new business volumes (present value of new business premiums, PVNBP) fell by 5% to R68.9bn.
Value of new business (VNB) fell 4% to R600m due to the lower new business volumes, higher distribution costs, a change in new business mix toward lower margin products across many business units, and the negative impact of the yield curve-related economic assumption changes.
A share buyback was completed on May 31. An initial 27.9 million shares were bought back for R500m. At an average price of R17.87 per share, the shares were purchased at a 43% discount to the December 31, 2022 embedded value per share of R31.39. A further R500m of buybacks would take place.
The next set of results would be prepared according to the new accounting standard IFRS 17, which would more closely align the economic and insurance outcomes with the accounting treatment.
Momentum also this week purchased the shareholding of OUTsurance (previously Rand Merchant Investment Holdings) in RMI Investment Managers, a move to complement the group’s existing in-house businesses. Marais said she could not disclose the acquisition price, but it was well within Momentum’s funding capacity and came at a “good price.”
The transaction gave the group a minority stake in multiple independent owner-managed boutiques and also supported transformation and new entrants in the market.
She said consumer disposable income was expected to remain under pressure due to rising interest rates and high inflation, as well as the lack of economic growth in South Africa.
“This is likely to put ongoing affordability pressure on new business volumes, particularly on long-term savings and protection business. Investment business was negatively affected by other factors such as low confidence in SA asset classes and by consumer preference to maintain their assets in liquid low-risk investments.”
She said they would remain focused on driving sales volumes and a profitable sales mix to improve market share growth.
“We will continue to strive towards NHE of between R4.6bn and R5bn in 2024 as per our original Reinvent and Grow objectives,” she said.