Momentum Group Limited (MTM) Earnings Call Transcript & Summary

Good afternoon. I'm Dan Moyane. Welcome to the presentation of the interim financial results of Momentum Metropolitan Holdings for the period ended 31st December 2020. We are coming to you live from the company's newest offices in Sandton here in Johannesburg on this beautiful March afternoon. And of course, all COVID-19 protocols are being strictly observed. We are in the MARC, M-A-R-C, a building that derives its name from Maude and Rivonia Corner, the 2 streets that intersect in this part of Sandton. It's a stunning building. Welcome to everyone as well, who's joining us this lunch time, the analysts, the investors, shareholders, journalists and employees of the company who can watch us live on Business Day Television, that's DStv channel 412, or also can follow us live on our webcast that's via corpcam.com/MM04032021. And course, the full results can also be downloaded on the group's website, that's www.momentummetropolitan.co.za. We wish to thank the Momentum Metropolitan Group's Investor Relations team for putting together this afternoon's presentation. And of course, the Momentum Metropolitan Group Marketing's PR and events team for a job well done. Now you may recall that Group Chief Executive Officer, that's the CEO, Hillie Meyer, and the executive team adopted the 3-year Reset and Grow strategy in 2018. And by all measures, it has worked very well and produced good results. However, the impact of COVID-19 has been felt, particularly during the second wave of the coronavirus infections that hit our country hard. Despite this, though, the underlying performance of the group is solid, as you will hear shortly from Hillie and the Group Finance Director, Risto Ketola. Most key performance indicators have done well. It has been a very difficult period. And while we are here this afternoon to get a low down on the numbers, the financials, it's really about the people, our advisers, the clients and, of course, employees. Momentum Metropolitan is a listed insurance and financial services group that's largely a life company. And that means it pays claims, and we should expect to see a lot of that during a deadly pandemic. The full story is in the numbers that you're about to see. The company has paid a lot of claims, meeting its promise to thousands and thousands of clients and hopefully bringing relief to many families during this difficult period. Before I ask Hillie to begin the interims presentation, I just wish to advise you at this stage that unlike in the past years, this afternoon, we will not take questions from the floor at the end due to considerations, of course, brought by COVID-19. Hillie and Risto will address questions directly with investors, analysts and the media in prearranged virtual sessions. I know that there's already been some media interaction this morning before this presentation, and they will carry on addressing any question directly virtually after they are done with the presentation. And then, of course, on Monday at 9:00 in the morning, they will further unpack these interim results and address questions from the employees of Momentum Metropolitan Holdings in a special webinar, whose details have been distributed to all staff. Let's welcome Hillie to the podium. Good afternoon, Hillie.

Thank you, Dan, and good afternoon, ladies and gentlemen. It's really my privilege to present the results or at least the overview. Risto will get into the real results shortly. I mean this is a difficult time, and we all know that the COVID-19 pandemic is testing all of us. It's testing us as individuals. It's testing us as a company. It's testing us as a country, and it is indeed a global test worldwide. I think as we unpack the results, you will hopefully see that I think as a company, we've passed the test so far at least. And I think it's a tribute to our staff and our business partners. It really is difficult, difficult circumstances. And I think I'd just like to stand still on that for a moment. Staff have all been impacted. I mean it's a disruptive working environment, working from home, load shedding in between all the other restrictions that we have to live with from time to time. And then also there's a -- all our staff members have, to a greater or a lesser extent, now experienced the loss of a loved one, a friend, a colleague, family members. So whereas the pandemic up to a point was maybe a graph and a stat and so forth, now it's got a face. And it's really touching everybody, and it psychologically, it is, I think, quite a challenge. It's a different set of demands to leaders in the business. And again, I think in that sense, we're really privileged that our staff have shown the commitment and the resolve that they have done. Momentum Metropolitan sadly lost 25 of our colleagues, and I would like to take this opportunity to convey my heartfelt condolences to the families and colleagues of those of our colleagues that are not with us anymore. I know it's not easy. Dan mentioned that it's our duty to pay claims. And in that sense, I think it is great that we can bring some financial relief where people experience a loss of a life and so on. But even our sort of dependents and family members and friends of clients that are not with us anymore, also we're thinking of all our clients that have lost loved ones. Before I move on to the results, I'll just quickly like to maybe just say a few things about the pandemic nationally and a few views on where we are, maybe as a country. We all know that we got out of the blocks a little slow in ordering of vaccines and so forth. But the first point I want to make is that I think a lot of business people and government are really putting in a lot of effort to try and make up some lost time. So I think we need to acknowledge that, and we need to, I think, also acknowledge and appreciate the close cooperation between business and government. I think that is very, very important and very good to see. But I would like to add that I think the current sort of thinking around the rollout plan which, to a large extent, is dictated by the sourcing of vaccines, I'm not -- I don't think it's good enough. As it currently stands, it's somewhere between 6 and 12 months, and I've even seen 18 months, this rollout plan. And then we're definitely going to see a third wave. There's no ways that we can even vaccinate all the people that to prevent the third wave. But I'm concerned that we're even going to see a fourth wave if we don't speed up the process. Now I honestly believe that the accessibility of vaccines, the sourcing of vaccines, I think that there will be solutions to that. There are currently 10 vaccines worldwide. There's another 10 vaccines in the final testing phases. Those things will come on stream. So I would really encourage whoever looking at this for us as a country, the government, health department and so forth, to look wider and I think to really, I think, be on top of our game when it comes to the sourcing of vaccines. And then just finally, I think I've seen some rollout plans, and I know the guys are putting in a lot of effort to streamline the company's logistics. But I honestly don't think a 6- to 12-month rollout plan is good enough. And I do think that we can probably inoculate 10 million people a month. I think if we really pull together, which we need to do, business and government, we should, I think, be more ambitious in our rollout plans going forward. So that is as far as COVID is concerned. Let's move on to the results and the overview of the results. You're all aware of the Reset and Grow strategy that we communicated about 2.5 years ago now. In my overview, I will refer to progress as far as Reset and Grow is concerned, but I'm not going to dedicate anything, specific slides, especially not to the reset component, which we -- I think we really ticked all those boxes even about a year or so ago. So sort of lately, we focused more on the grow component, and I will give feedback on that. I think just starting with highlights, a bit of good news. And again, I mean, COVID impacted our financial results, clearly. We all know that, and you would have seen the impact. But I think underlying, at operational level, there are some very good signs and positive signs. And here are the highlights. New business volume is up 14%. And keeping in mind that we're comparing a period which was impacted by COVID with the 6-month period before COVID hit us. And in that context, the 14% increase in new business volume, I think, is really a solid performance. Because of that, obviously, value of new business improved significantly. Risto will unpack it in more detail, but there's significant gearing if business volumes pick up, so we've doubled the value of new business. We continue to really be very disciplined around cost control. If we look at the comparative period, our cost base of controllable costs, 2% up, which is lower than inflation. And keep in mind, that's in top of basically keeping cost pretty much level for the last 2 or so years. And then finally, I think it's very important, but our balance sheet is strong. And in fact, it strengthened a little since 30 June 2020. If we look at new business, and I'll cover -- I'll go through some of the businesses lines now in next few slides. As far as Momentum Life business is concerned, that's the upper end of the market, the upper segment. I think we're holding our own. According to our information, it's a bit difficult in early days to really know how you're doing compared to competitors and so forth. But I think sort of we're defending our market share so the trend you see here is really the trend of the upper risk market. Quite impacted by COVID, as you can see there, towards the end of -- our 2020 year. So the first 6 months of 2020 and then it improved quite a bit the last 6 months. Momentum Investments is a very positive story. I think here, excellent growth. And you can see, it's a positive trend for many, many quarters in a row now with one blip there, quarter 4 of our financial 2020 year. So really, I think, a stellar performance, and you can see the positive impact it has on VNB as well. But really, I think as far as investment business is concerned, we're back. We're back in the business. Equally positive story, Metropolitan Life. Keep in mind that if you look at those graphs, the quarter 1 financial year 2019, we had 3,800 agents. We now have 3,500. So we're doing 10% more in new business with 10% less people. And also, just I think we've got another slide following later. But it's not one silver bullet here, but we're doing lots of small, little things better and better and better. So this is really, I think, one of the proudest achievements of Momentum Metropolitan over the last 2 years. Momentum Corporate. This is obviously more lumpy sector, and it's reflected here. Again, I think we're holding our own. And I mean the opening bar there was a very special quarter. We never -- we didn't have a quarter like that for a few years before quarter 1, 2019. And we're not -- we haven't had one since. But it was a ZAR 5 million big annuity in that quarter. So it's a bit of an exceptional quarter. But for the rest, I mean, as you can see, it's lumpy. I think the one encouraging point here is that our VNB recovered quite nicely compared to the previous quarter. Momentum Metropolitan Africa. Again, you can see it's trending in the right direction. We're really doing well in Namibia. I think the Namibia team is actually getting things together. Things have stabilized. We actually, I think, writing more new business again. Also, we're seeing more corporate business from Africa, which is encouraging. And also, there are a lot of things being done around business mix, pricing of products, cost control and so forth. And I think it's beginning to show in the numbers. Also, another positive aspect, obviously, is that we've exited a number of the countries where we were making losses or where they didn't really contribute positively. The Alexander Forbes acquisition, I think things are going according to plan. This slide just shows the gross -- or the net premium flows. And you can see the significance of the transaction from this. From a business point of view, I'd say, on the new business front, we're writing a little bit less than we would have liked and that we planned to do when we did the acquisition. But I think it's understandable in current circumstances. And that's compensated for by, I think, better cost control than we expected as well as, I think, good claims experience. So we're happy with the Alexander Forbes transaction and where it is at the moment. Momentum Health. Again, I think a satisfactory story, pretty flat in terms of membership over the last 12 months, but I think that this is just a stagnant market. We've seen a bit of growth in January, which will hopefully boost numbers a bit. But all in all, I think, quite happy with where we are in a quite tough market environment. This is really more related to some of the objectives that we set in the Reset and Grow strategy. On the left, there's the Metropolitan Life adviser productivity. And I mentioned that so many things are just moving in the right direction. And here, you can see that we -- the productivity jumped to 3.4 policies per adviser per week. And this 3.4, though, I mean, the target, the long-term target was 3.5. It felt like something we will never achieve. And that's all these small things. I mean just one interesting fact to mention maybe is about 2.5 years ago, what was the number? 50% of our agents had less than 1 year's service. That's reduced to just over 40% now. So there's improvement in stability. And also quite positive whereas only 1/4 of our people, 25% had more than 5 years' experience. Over the last 2.5 years, that's crept up to 30%. So again, that stability in the sales force, obviously, coming through in the numbers. Our IFA distribution on the Momentum side, I think another very, very, very positive story. That 2,000 supporting broker target was elusive and something that we targeted for a long time, and it was -- you can see it stayed flat for a long time, but it's -- I think it's trending in the right direction. It's to a large extent, I think, as a result of the very, very good growth in investment in new business. So we can now focus on the more longer-term target of 2,500 supporting IFAs. As far as our agent footprint is concerned, we've got a bit of catch-up to do if we want to get back to the Reset and Grow targets. It was a difficult period in which to recruit agents, plus we did a bit of restructuring and reorganization, but we need to get that back on track. On the right-hand side, Momentum Consult, I think, very steady and consistent progress and going very well there. As far as Guardrisk is concerned, also, just one of the Reset and Grow objectives was to do more short-term insurance business where we're at risk. You can see the graph on the left-hand side shows the net earned premium and how we sort of took more and more business that we underwrote ourselves. And then on the right-hand side, you can see the contribution that's making to our underwriting profit as a percentage of net revenue. And as you might remember, we're targeting over the long term something like 30% to 35%. So that's a steady increase. We're quite happy with where we are at the moment. Just sort of a few final comments on Reset and Grow. In the Reset and Grow targets was for the -- for this financial year, so it will come to an end 30 June 2021. And we had as a target normalized headline earnings of ZAR 3.6 billion to ZAR 4 billion for this financial year. Now clearly, with the hit that we took from COVID, that's not going to happen. But I would like to show you in the next few slides that what I think we have achieved over the last 2.5 years, we have created a franchise here, a business that can deliver a ZAR 3.6 billion to ZAR 4 billion per annum. I think barring any extraneous hits and factors like we've seen lately, I think we are in a position to deliver ZAR 1 billion normalized headline earnings per quarter. What I thought I'd do -- okay, this is just a slide to show where we are currently. I think 6 months ago, when we produced our annual results, we basically indicated that there's a bit of an uncertainty awaiting us, and I think we were right. If we double up the results for the first 6 months, then you will see that we're at the bottom end of where we indicated our results might be. We sincerely hope that the next 6 months will be a little bit better, but the uncertainty remains. What -- just to come back to what we can deliver as a franchise on a consistent basis, following, I think, some improvements in our distribution and some improvements, our cost base and so forth, the things that we basically set out to do in the Reset and Grow strategy. This is the operating profit. And you can see the 3 bad quarters, the first one, the quarter 3 financial year 2020. That was in March last year when markets just -- the bottom fell out of the markets, and it had a big, big, big impact before the COVID impact. But in anticipation of the COVID pandemic, the markets just really performed very badly. So that was sort of ZAR 1 billion hit that we took because of markets. The following 2 negative quarters were basically the first wave and then the second wave, the last quarter. If we take the operating profit, and we basically just adjust it for investment variances, which I think sort of adjust for the investment hit in the quarter 3 of 2020, and if we adjust it for the impact of COVID on those 2 quarters, then this is what you end up there. The sort of faded gray is -- what it was before the adjustment. So you can see the big adjustment in quarter 3, 2020. But if you adjust for it, then this is the operating profit, the underlying operating profit picture. And I think it sort of illustrates that we basically can deliver somewhere between ZAR 600 million and ZAR 800 million in a quarter. And if you add to that the investment income, which will contribute in a normal quarter, another ZAR 200 million to ZAR 300 million, then I think we are at the ZAR 800 million to ZAR 1 billion normalized headline earnings profit, which is ZAR 3.6 billion to ZAR 4 billion. So unfortunately, we're not going to deliver it this year, but I think we've done the things that put us in a position to deliver that to our shareholders. So with that, I'd like to hand over to Risto, who will unpack the results in more detail. Thank you very much.

Yes. Thank you, Hillie, and good afternoon to everyone. I'll start with our usual 6 key financial performance indicators. Now these look like a bit of a mixed bag, but I'm hoping that at the end of my 30 minutes, you'll sort of agree with our view that there's actually a lot of positive underlying trends here. Now I'll start with normalized headline earnings. Clearly, they fell from ZAR 1.8 billion to ZAR 1 billion. But again, if you just take simplistically, you add back the excess deaths from COVID, you add the COVID reserves, that already gets you back to ZAR 1.8 billion. Then you take a bit of yield curve movements, that's another ZAR 100 million you can add back. Then there's some accounting technicalities that I'll talk about later. That's another ZAR 100 million. I do think, like Hillie was saying, we're already running close to ZAR 1 billion a quarter in terms of true underlying profitability once things normalize a bit around us. Also new business, Hillie already spoke about the volumes that are quite impressive. I'll tell you more about the new business later, but as a starting point, it's operational gearing, as Hillie said, but there's also two additional words maybe to take away, one is commerciality and the other one is activity management. Now by commerciality, I'm talking about selling the right products, the ones with the margins, through the right channels, to the right clients at the right price. Okay. So the guys are focusing on actually trying to make commercial sense in a lot of the sales and distribution activity. And then in terms of activity management, a sales force requires a lot of management. It requires tender, loving care. And I think, particularly Metropolitan, a lot of the management actions taken are paying -- starting to pay lots of dividends. And I find it often fascinating, talking to the sales guys. Little things like in Metropolitan in the past, you'll find a lot of the salesmen don't sell anything in the first week or 2. And then they come alive in week 3 and 4 and make a bit of money. It's all about like, how do you get the guys to consistently go out there? And that is just requires us good management and good leadership in that channel, and that's starting to come through. So it's partially a volume story, but it's also very much a management story. The guys are just running the sales force better in all of our areas. Then the other one to highlight here is embedded value. So ZAR 27.39. Surprisingly far away from my share price, unfortunately, but the embedded value remains strong. The ROEV was 13.6% for the last 6 months, a very good number, I think, in the current circumstances. Something I will not talk about a lot today, but I think will be a big theme over the next 3 years, 5 years in our results, our non-covered operations are starting to actually come through. So if you look at the last 3 to 5 years, a very common view by investors or stakeholders in our business is you guys have a good steady life business. But all these non-covered operations, they're not quite paying off. The returns are back quite poor. Now we have weeded out a lot of the loss-making, weak businesses. Guardrisk is really growing nicely, becoming a big part of our non-life operations. And then things like India are very promising. So we're getting to a position now where I think non-covered operations will stop being the steady drag on our group ROEV and the true potential ROE of this group will come through. So I think it's going to be -- it will make my life a bit easier for the next few years. Okay. The detailed booklets, I actually told Dan, they look more like books and booklets nowadays, they're getting quite big. It's got a lot of detail on divisional performance and numbers. So I will not go through every division in a slide. We just -- we probably don't have enough time today to do so. But I'll stop on this slide for about 5 minutes and just give you some key highlights. The first thing is if you look at those dashed rectangular bars, that is the impact of COVID for the last 6 months. It includes the excess claims. In other words, claims above what we sort of allowed for in June and then additional COVID provisions we raised. And as you'll see there, they add up to about ZAR 750 million. The big story there is Momentum Corporate and Metropolitan Life were hard hit, whereas Momentum Life up to December wasn't that hard hit. There is a very clear distinction between socioeconomic groups here. And I think those of us who work in white collar jobs and we can stay at home and shelter, we've been very sheltered and protected. And you see the new Momentum numbers compared to our corporate business that includes a lot of frontline workers, retail workers, blue collar workers, having to travel to work, go to a workplace, then the mortality impact has been big. I mean I'll show you more details later, but there's been substantial loss of life in these, let's call it, lower income socioeconomic groups. Just coming and talking divisionally. If you look at Momentum Life, and fortunately, it's always first, and it's probably the weakest story in the current 6 months. So COVID didn't have such a big impact. But the bond yield curve movements did have quite a big impact. Now this is a business where a lot of our profit is driven from whole life contracts, 30-year, 40-year contracts. And the actuaries have the task of trying to fair value those contracts every quarter. And the shift down in the yield curve actually led to quite an increase in our liabilities. I just checked this morning, I spoke to the balance sheet management guys. If we did nothing and we just sat on our hands, we would have about ZAR 1 billion loss year because the yield curve is shifting down. But obviously, we take a lot of -- we use derivatives, investment structures. So that net loss ended up being, let's say, ZAR 300 million before tax, ZAR 200 million after tax. But it's impossible to fully hedge in such volatile markets. And unfortunately, these 6 months, it went against us. If I look beyond some of those volatile items, I would say some of the good stories here is persistency. Now when we looked in June, we thought half the clients who had asked us for premium relief will never actually come back and pay their premiums. In fact, nearly 90% of the clients did. The other thing that always surprises me is how many of our existing clients take up additional benefits on their contracts. So it does show that our clients -- we might not always have been so good at getting them, we're getting better as new business shows. But once they're with us, we actually have very good persistency and very good additional purchases from clients. Momentum Investments, much easier story for me, excellent 6 months. Now that increase in profitability is a function of current period but also very good sales in the previous year or so. So those people who have been following us for a while will know that Momentum has been probably the market leader in annuities for a few years now. Also, until about a year ago, we were selling a lot of guaranteed endowment business. And that guaranteed book, if you want to call it now, is earning very good spreads in the current environment. So we started the year, and we were able to get quite attractive credit spreads. And the defaults haven't come through yet. So it's been a bit of best of both worlds for us. We have earned very good yields on our bond portfolio backing these liabilities. And to date, we haven't had big defaults. Also, the wealth platform, we have been repricing that to be more competitive. So in our budgets, we have quite a muted view on the profits there, but wealth has come through better. So because of the strong net flows and some of those flows going to offshore products where the margins are good, the core platform profitability has also held up very well. Then Metropolitan Life, this business, again, quite impacted by COVID. If I add the COVID impact back, it would have had a bit of growth in profit. Again, persistence is quite a story here. In fact, if I think across all our divisions, and I think what did we get wrong in the beginning of the pandemic, one of them is we overestimated how quickly people will stop paying. But now afterwards, it maybe makes sense. In the middle of a global pandemic, maybe people will go their way to pay premiums, but the persistency remains very good here and cost control as well. I'll show you later, that growth in agency Hillie was talking about has come with actual 0 increase to the cost of running the distribution force. So expense control has also been good. Momentum Corporate, the most affected by COVID. I mean ZAR 212 million loss is not something that you -- as a FD, you ever take that well. But yesterday, I spoke to Dumo Mbethe who runs Corporate, and he did tell me to make the point again is that we did pay ZAR 0.5 billion of claims here, like we're doing what it says and we can. We're paying claims. So maybe look at that ZAR 212 million as us buying goodwill by doing what we promised to do from our clients. If we add back the COVID losses, that profits would have been up a little bit, and the key driver there is actually our disability insurance. Now it's funny how quickly world changes. But 2 years ago, we spent 10 minutes here talking about disability experience that was very negative. And in the last 2 years, we've done a lot of management actions again. We have been repricing that book, changing the way we manage the claims. So disability, actually a very good 6 months in terms of profitability. Yes, we are behind the COVID impact. Health, we're now showing us a separate segment here. Health is a very complex environment. Even Hillie's opening comments made it very clear that there's a lot of things happening in this sector. But from a pure economics perspective, it is quite a straightforward admin business. And I must, again, say that this team does an excellent job at growing earnings with a very limited revenue growth availability. I think year-on-year, the average membership is up 1%, and the fees are up by a little bit below inflation. I mean this is a business where you're always working with revenues that are growing at sort of mid-single digits, but through ongoing efficiency drive, they have managed to get 8% earnings growth. Non-Life Insurance. It's one of the positive stories in our group. That number includes 2 quite different business areas. So first of all, Guardrisk is in here. Now Guardrisk has been in the news with business interruption claims. Even with additional claims on BI and some other things like one of the premium collection agencies defaulting, they still managed to grow earnings. It's probably been 24 months of stuff happening there, in payments, clients defaulting, so on. I keep telling the CEO of Guardrisk, Herman Schoeman, that the market will be positively surprised when we have one 6 months with no one-offs because the underlying earnings ability of Guardrisk is actually -- it's grown nicely in the last couple of years. And then we have our retail operations, which is the combined old Alexander Forbes Insurance business and Momentum Short-Term Insurance. Now we look at it more as one, not as themselves. And the old MSTI to the degree we can still split the 2 did go from a loss to a profit. So it's sort of through the bottom -- well, it's sort of broken through to cash flow profitable on a monthly basis now. And then Alexander Forbes made a ZAR 80 million contribution in the 6 months. As Hillie said, the earnings we're getting out of Forbes is actually a bit better than we thought when we bought the business, and that's low claims, good expense management and so on. So we're very happy. And I think once environment normalizes, the sales activity will pick up, and it will tick the last box in terms of the rationale for that acquisition. Also, when we talk about Non-Life Insurance, this morning, I was thinking when we announced Reset and Grow almost 3 years ago, we made 3 financial promises. One of them was we will cut costs by ZAR 500 million after-tax compared to inflation. In fact, maybe like ZAR 1 billion, okay? So we have far exceeded our own expectations on efficiency gains. Other thing we said, we'll cut the new initiative losses, which we haven't done, okay? So that's one that we haven't delivered on. But we also said, and this one actually surprised people the most. We said we'll be earning ZAR 0.5 billion a year from short-term insurance. And back then, it was like basically 0. And again, if you just annualize that number, you're getting there. Okay. So I think also the short-term insurance part of our group is growing quite quickly there. We're becoming insurance group as much as a life insurance group. Then Africa, another positive story. In Africa, the depth of financial markets and the availability of things like derivatives is quite not the same as in South Africa. So we tend to run Africa a bit more like old school, where we just take the swings in the round of bonds in the markets. And a lot of that improvement in profitability is markets lifting up and things like the guarantee reserves and Smooth Bonus funds being reduced. But behind that volatility, the quality of earnings is also improving. There are places like Namibia who have really got on top of some system issues and so on. So besides earnings being higher, I think they are of better quality. And the Africa team really deserves a shout out for. It hasn't been easy in Africa in the last few years, even pre-COVID, and the guys have done a good job. New initiatives. Majority of that is India, which is going well. Now India is affected by COVID like everywhere else in the world. But I think that business has got through it as well as we have here in South Africa. We're often quite impressed by how quickly our partners think on their feet. And in the India business, the business case is still 100% on target despite there's quite a little bit of a COVID wobble. The increase there actually mainly relates to aYo, which is our partnership with MTN. So we have expanded there to places like Zambia. So there's been a bit of a rollout of additional markets. In the last item I'll talk about a little bit, and I have made -- well, I will make a promise now. We'll improve disclosure on this going forward. Hillie's laughing here because I still haven't been able to explain it to him after 3 weeks, but okay. So shareholders, it has a stable component, which is really the head office. And that's ZAR 50 million to ZAR 100 million every 6 months. And the 6 months, maybe it was closer to ZAR 100 million. We did some things like Dragons' Den then. I don't know if you remember last time we presented, we had a Dragons' Den picture here. So we ran a competition internally where you get ZAR 50 million for exciting projects if you could sort of justify it. So that ZAR 50 million is in the numbers this period. But beyond that head office cost, there are some very volatile items in here. One of them is our share scheme hedge. So we have a share scheme and we buy shares to hedge that scheme. Now IFRS doesn't recognize the full scheme. It sort of recognizes a time of portion over 3 years as those things vest. So we're effectively overhedged. We have too many of our own shares compared to the IFRS liability. And with our own share price falling, there was literally ZAR 100 million impact in the 6 months. But we still think we're doing the right thing economically. The other item is a technical thing. We changed auditors which went well. But the new auditors did have a different interpretation on like owner-occupied property versus investment property. And as an example, one of the buildings we reclassified from investment profit to unoccupied and the reward for that is we had to recognize 4 years of depreciation in one go, which is about ZAR 40 million. So that ZAR 267 million, I think normally, it should be like ZAR 50 million to ZAR 100 million. This period, a lot of the one-off and volatile items went against us. I think the topic we can talk more about on one-on-ones. Okay. COVID. So this is obviously the most topical of the items. You'll see that on the first line, just a pure mortality experience without any provision movements, we had a mortality loss of ZAR 0.5 billion in the last 6 months. I normally would expect this to be a bit of a positive. I mean, you could say roughly because of COVID, we paid ZAR 0.5 billion more claims than we expected. We did raise provisions start of the year, and we released some of them. But the release only offset ZAR 300 million roughly of the ZAR 500 million. So we ended up showing a net mortality loss of ZAR 145 million for the 6 months. On top of that, based on what we saw in December and January, we knew the reserves were not going to be enough at the end of -- once everything is paced through. So we increased the reserves by another ZAR 600 million. So the mortality variance, plus additional provisions, adds to ZAR 752 million. That is the accounting cost of COVID-19 for the 6 months. The other thing I need to make a point here is as we stand today, we've got ZAR 1.2 billion of mortality reserves available -- well, not today, but 31 December. January and February claims have been very large. I'll show you more detail on that now. We will probably utilize 2/3 of that reserve in the first quarter. It means that we can afford a third wave that is roughly the same as the first wave was, okay? And that's basically the position we are. And I think it's important investors realize this provision is not excessively prudent by any means. It's our best estimate view of the world. And as we get into the third wave, people must sort of keep our eye out. If it's as bad as the second wave, we could easily have to provide another few hundred million. And if it's less severe, then maybe we'll make us more profit. But COVID has a risk in terms of further losses to us at some stage. Okay. A little bit more detail on some of the financial items. So we have June year-end, which sometimes makes life a little difficult. But here, I use color coding, where the red is calendar 2019 and blue is calendar 2020. And I put it here to try and illustrate why we are so happy with the sales performance. If you look at the March quarters, so March '20 quarter was world before COVID, let's call it that, and sales were up about ZAR 0.5 billion on the previous same period. Then hard lockdown again. So you can see that June quarter, our sales were ZAR 11.8 billion versus ZAR 15.2 billion the previous year. The hard lockdown hit us by, let's say, ZAR 3 billion of sales roughly. However, as the lockdowns were eased, the September quarter, we were already ZAR 0.5 billion ahead of the previous September. In the December quarter, we were ZAR 3 billion ahead of the previous December. Okay. So the final quarter on final quarter, we probably had 30% growth despite some lockdown impact versus nothing, okay. I think that's an exceptional performance. The next graph shows a little bit more on it. And I added a bit more history here. At September '18 quarter was an exceptional quarter Hillie spoke about. We had single client with a ZAR 5 billion annuity. So the biggest annuity ever written in South Africa. And we got that back then. This December quarter, we got almost the same volume with no one-off big deals. Just the spread of our retail activities got us almost there. I can't prove it to you, but I'm pretty sure that if you look on a consistent basis, this is the best volume quarter we ever had as an organization. Similarly on VNB, our value of new business in the last quarter, ZAR 228 million, that was even better than the one exceptional quarter. There's no doubt there that this is the best quarter that we have had at least since the merger as an organization. Okay. New business margins. These are pointing very much in the right direction. So our group margins have improved from 0.6% to 1.1%. And a couple of highlights here. One is Metropolitan. I sort of used Metropolitan as an example earlier, where there's been a lot of different management initiatives to improve sales activity and products that we sell. And the net result is we're selling more funeral business of better quality and better productivity per salesperson. Now it's got a nice compound effect, and the margin has improved from 2.7% to 4.6%. Those margins are sort of close to all-time highs at the Metropolitan business. Another highlight here for me is Africa. So for a number of years, Africa has had a bit of a negative VNB. A lot of that was Namibia. I think last year for 6 months, Namibia had almost a ZAR 40 million VNB loss. That's a big number for operation of that size. This 6 months, it was close to breakeven in terms of VNB. So as Namibia is recovering, it's enabling countries like [ Usutu ] that have always been profitable, those numbers actually shine through and giving maybe a better picture of what our Africa business is about. Corporate also. We sold less this year, but we had full margins on the products that we sold. So that was a good outcome. Momentum Investments. Margins are improving partially because of volumes, partially because of we're selling a lot of annuities, which have good margins. And even Momentum Life, that margin is much better than we budgeted. We thought that because of the slightly down volumes, Momentum Life will be a little bit more affected and to have flat margins, a good outcome. Okay, ROEV. I only have 1 slide on EV here. I suppose I can start by just pointing out the COVID-19 impact, ZAR 631 million. That was offset by markets. So equity markets ran during the 6 months, which is quite a good impact, particularly on our future fees in this component of EV. So those two largely offset each other. What is maybe not clear, and I want to just make that point, is the operating profit number of ZAR 1.679 billion is a very good 6 months at any given time. In fact, our expense variances were positive in every division, and our persistence of variance is very strong across the group. We had a positive operational variance as a group despite the mortality losses. So all the other items actually offset financially on EV, the mortality losses, and that's a good outcome. And then lastly, you can see a profit from non-covered businesses. I think that's the beginning of a new trend for our group. Capital cover ratio, another pleasant slide. So in June, our capital cover ratio is 1.85x. Still very solid. We're happy if we're between 1.7 and 2.1, midpoint being 1.9. The capital ratio actually improved to 1.95, so it's slightly above our long-term target as we sit here. Now in turn, we had a few people saying, gee, we had quite a bad 6 months. How did the capital cover ratio improve? The reality is we still made ZAR 1 billion on profit. So we're all a little bit beat up by the fact we didn't make the 2 we wanted. But we made ZAR 1 billion profit and we didn't pay dividend. So our capital did increase. The other thing is we've done a lot of work internally, post the crisis, financial market volatility in March. And there was also an industry-wide stress test recently that many of you might know about. We've done a lot of modeling on capital. And the more work we do, the more, I think, we feel comfortable that our capital ratio is very resilient. We're very happy with our balance sheet. It will require a very, very innovative regulator actuary to think of a scenario where our capital ratio actually gets anywhere near 1x SCR. Our balance sheet is extremely strong. And that actually played a role in the next slide. We are happy to pay a cash dividend despite the inflated death claims at the moment and the uncertainty around the markets and economy because we think our capital ratio will hold up to almost anything we can picture going forward. So we felt that there was no need to withhold back any additional capital. So we paid a dividend according to our dividend policy of ZAR 0.25 per share. That's about a 40% payout ratio for the 6 months. Now the last somewhat technical slide. People will go through the results in detail. They'll notice our investment returns were significantly down year-on-year. Now if you look at our IFRS balance sheet, I think Dan might be looking at it right now. You will see that our IFRS NAV equity is probably ZAR 23 billion, something like that. Now that includes intangibles and a few other items. We actually hold an investment portfolio of about ZAR 13 billion. And that is invested for our capital. That is invested largely in money market and very short-dated instruments. We took a decision years ago that we don't want to expose our capital base to any additional volatility. So it's very stable from a capital value. The problem is that the prime rate fell by 1/3 and [ driveby ] rates halved. Effectively, yield on cash has decreased substantially. So within that decline of ZAR 350 million, about half of it is just the pure yield, the cash yield impact that we need to sort of just acknowledge as being the reality of today. The rest of it is some of the volatile items I mentioned earlier such as the share scheme hedge and so on. But I think it's important for investors to realize that we're in a new yield environment. And to the amount -- to the extent we want to continue investing mainly in cash, we are going to earn lower returns than in the past. Okay. Now I always try to think about a couple of topical matters. Unfortunately, the environment sort of forced my hand upon me this time. And I'll start by COVID-19. This is a very simple but I think extremely powerful graph. This shows the number of death claims we pay a month. You see in January 2020, as an organization, we paid about 6,000 death claims. In January 2021, we paid about 15,000 death claims. That's 2.5x more death claims than we normally pay. Okay. Now if you think that there's, let's say -- I'll use easy numbers. Let's say there's 10,000 more claims at the moment than a normal month, you times that by even a modest sum assured of ZAR 100,000, a lot of it is funeral business, ZAR 100,000, it's ZAR 1 billion. As we go in today in January and February, we paid about ZAR 1 billion more claims than we would have expected in a normal year. Now we got reinsurance and we've got balance sheet for it. But it just puts the extent of the impact on our business in hard numbers here. It's even got some operational impact. I mean, just the claims environment. We really had to make -- work hard to make sure that we keep up with everything. The other thing that I wanted to point out in this graph is if you look at September, October, November, we were all very relieved that wave 1 went away. And we were like, okay, thank goodness. It never really fully went away. If you look carefully, those bars are still about 1,000 deaths more than the normal year. So the peak of the thing declined, but mortality never got back to normal levels. And I think it's going to be the same between wave 2 and wave 3 this year. The wave will moderate, but there will be ongoing excess deaths, probably a few hundred a week for us coming through. Excess mortality will only go away totally once the vaccination program is rolled out in its end state. So it could be another year that we see inflated death claims. That is the reason I wanted to make the point earlier. We have good provisions, but the provisions can't stand up if the things get worse. We will need to actually pay -- put more aside. Maybe to put the ZAR 1 billion into context, we do have available capital of about [ ZAR 50 billion ]. I mean so there's no scenario where it's a solvency issue. It's more of a matter of just earnings being under pressure from the death claims. Other item that was topical, most of it, is business interruption. So we sort of are quite a material player in this market through Guardrisk. There has been a number of legal cases. I think Guardrisk, it's intermediaries, it's clients, I think everybody is fully aligned now in terms of what the process is and what the fair practice is. To date, we have paid ZAR 335 million in claims under business interruption. There's about 100 more claims that we're busy settling. Once we have settled those claims, maybe the ZAR 335 million becomes a bit over ZAR 400 million. However, we have reinsured the vast majority of this book. We have always been a little bit nervous about, let's call it, tail event type of risk. So in the end, we're estimating that the total cost to Guardrisk will be ZAR 64 million, out of that ZAR 400-odd million. So it's maybe about 80-20 risk share between reinsurers and ourselves. So Guardrisk conservative reinsurance practice actually worked in our favor here in the end. My last financial slide. I always try to think of one new thing to bring here with 6 months. It keeps me interested. So this time, I thought new business is an interesting topic because a lot of people might say, jeepers, it's a pandemic. It's a tough economy and you double volume -- value of new business. I think the story here is twofold. So first of all, there's massive operational gearing in running a distribution factory the way we have. The red bars is our fixed overheads of running our distribution. These are branch cost, distribution management costs. We might have some marketing people's cost here, new business capturing people. We start every 6 months with ZAR 700 million of bills to pay before we sold one policy. And it's particularly high in Momentum Life and Metropolitan Life because that's where the agency forces it. Those are the big overheads in our operation. Now it explains why, like in Momentum Life, during the lockdown, that Jan to June period, sales dropped 30%. All of a sudden, we go from showing a positive VNB to a negative VNB. It was that blue bar, which is the marginal sales profit hit by 30%. Now that bar has recovered back to the old levels and boom, all of a sudden, you go from ZAR 50 million loss to ZAR 50 million profit. Operational gearing is 5x in Momentum Life. So for every 10% increase in volumes, our VNB goes up by 50%. Okay. The other business with higher operational gearing is obviously Metropolitan Life. A bit less in Momentum investments because they use more into IFAs. They use more independent distribution. So it's a bit more of a variable cost model than a fixed cost model. The two remaining things I want to mention on this is, if you look at the red bars carefully and you take your ruler out, you'll see they are almost flat for the last 2 years. So we are growing our sales and market share without spending any more money in nominal terms in this -- the factory component or overhead component. So again, that's working a bit smarter with our money. And the last point is, if you look at those percentages, that is the marginal profitability as a percentage of premiums. So there's some obvious things here, like corporate is very competitive, 2% margin versus MetLife, which is fueling 18% margin. So margins on different products are just vastly different, and that's just market competition dynamics. The more important point is if you look at those blue bars, in every division, they're going up. Every division is actually earning a slightly better marginal -- margin on the sales activity. And that's a combination of cost containment, i.e., efficiency, and little tweaks in terms of business mix, distribution management and things like that. I think the main reason I wanted to put this graph here is the VNB recovery is like for real. It's like a number of items that management has worked on, pointing them all in the right direction to get this excellent result. Now I might as well be fair that I've been sort of warning everybody saying claims are high in January and February on death claims. I should probably also mention that sales activity has remained very good beyond December. So some of the trends are sort of ongoing. Okay. Let me just close now. I think the first statement is maybe a statement of the obvious, but we are very proud, maybe use word extremely, extremely proud of the results we have achieved here. I think most things that are under our control, volumes, margins, sales management, expenses, persistency, everything is pointing in the right direction. It's actually quite difficult to find operational metrics that don't point in the right direction. I'll talk about one a little bit later. The other thing that gives me pleasure is if you think of something like Metropolitan Life, 2 years ago, we used to get asked questions like, can it survive long term? Can it compete with the new entrants? I think that answer has been -- that question has been answered. I think both Metropolitan Life and Momentum Health have sort of firmly put their stake in the ground and shown that they're here, and they're going to be around for a long time. So that's a pleasing outcome. If I have to think of disappointments, wave 2, obvious disappointment. I mean I'm happy to admit that I totally -- personally, I totally underestimated the size of wave 2. I was hoping for half the wave 1 during Christmas. It was a rude awakening, I must say. And it's had a financial impact, but it's also had quite a big energy impact. I think it was quite hard work to get the whole team really gear up again. These results will help, thankfully, to get that energy level up and keep it up. The other one I'll add here is impact of remote work. So if I think of one operational measure that is maybe not pointing in the right direction, it's service. We know that for us to be successful, we need to have the best service out there. And we always aspire to that. And I think as we work remotely for longer and longer, and we're dealing with load shedding and difficulty in training new staff, I think our service levels can improve, and part of that will be to get some people back into the office to do that. The other thing is the impact of innovation and culture. I think our culture and our very friendly and sort of open environment is a big part of our organization's success. I think it's important for us to colocate and be together as soon as possible, safely, to really optimize outcomes in our business. Okay. And then the absolute last point. I know it's an investor presentation, but I must say that this point is only to staff, directly to staff. I want to finish off by saying a massive big thank you for another exceptional outcome in the last 6 months. I think the last 3 years have been extraordinary. We had significant leadership change 3 years ago. New leadership means some new operating model, reset of priorities, some shifts in the culture, things that are rewarded, things are not rewarded. And I think that was exceptionally well executed. That was the reset part of the Reset and Grow strategy. I think it's a good case study of excellent change management. And 2 years into that, as we were -- as we hear often in life, we took the champagne out then just before we said [ brodge ], COVID came. And we had to go through this pain again, massive change management, massive things to deal with. And if I look at our results, and I look at what we've actually been able to deliver operationally and product-wise and everything else, the guys have really, really risen to the challenge. And I just want to close off by saying, guys, we are winning. We are winning the relative game here, and it's all because you guys are doing such a fantastic job. And let's keep going. We are becoming a very relevant organization again, and it's because of all of you. See you on Monday.

Thank you. Thank you very much to Risto there. I think finishing off with those 3 points just reminds me of what our group CMO, Group Chief Marketing Officer, Nontokozo, tells about the power of 3. But I thought to help you Risto, I know you're a numbers guy. Next time, just use the Instagram language. Just use hashtags, just say #superproud instead of extremely proud because it's a beautiful one. And then #thankyoustaff. And I think, as you said, you and Hillie and some of the members of the executive team will have an opportunity to once again, on Monday during the staff webinar at 9:00 in the morning, to really express those feelings of gratitude to all of staff. And this is how we conclude the presentation of the interim results of Momentum Metropolitan Holdings to end December 2020 -- 31st December 2020. Indeed, we see the impact of COVID-19, but you need to be #superproud, as Risto Ketola was saying, of the performance so far.

They can follow me on Instagram.

Sorry?

They can follow me on Instagram.

They can follow you on Instagram for that. Thank you very much, everybody, for joining us this afternoon. Of course, as I said in the beginning of this session, we won't be taking any questions. Of course, Hillie and Risto will continue dealing directly with any questions that will arise from this presentation with the investors and analysts, and there's more media sessions that have been planned for the rest of the afternoon. And I understand Risto as well will take some media as well as the Deputy Chief Executive Officer of the group, Jeanette Marais, whom I guess will be smiling a lot as well this afternoon because she also heads up investments, and we saw the numbers of how well Momentum Investments has done. Thank you very much for your time. Thanks for joining us. Have a wonderful afternoon.