Momentum Group Limited (MTM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Now welcome to the Momentum Metropolitan first quarter update. All participants are currently in listen-only mode. If you would like to, there will be an opportunity to ask questions related during the conference.[Operator Instructions] Please note that the call is being recorded. I would now like to turn the conference over to Hillie Meyer. Please go ahead, sir.

Good afternoon, everybody. Thank you for joining us and for your interest in our trading update. We have given big introduction as we normally do. And then rest will highlight a few more things before we open the opportunity for questions. We also have in the room today sitting with me in [ Risto Berger ], who is beginning after Investor Relations going forward. And so you'll probably see that going forward. Okay. So I'll kick off. I think we're pleased with the earnings number. I think it's pretty obvious that the insurance businesses have largely recovered from the impact private earnings. It's not in the latest period. I mean, it's not back to mortality, the mortality used to be. But also, I mean, if we look, for example, into October and so forth, and this will go a little bit further. So yes, I think we're sort of slowly but surely going to a point where COVID is pandemic. And we will have to get to grips to maybe the longer-term impact, which we'll need a bit more time. I think all the businesses performed incredibly the exception of [Herman Schoeman]. Obviously, a difficult period in terms of underwriting results and also I think just the pace at which we are putting increases to compensate for inflationary impacts and so forth. We're getting a bit of catch-up there. So we were up by that. I think that we should hopefully improve, although we know we're entering the range season. So we're not going to get too optimistic over the short term. But I think in summary, the ZAR 1.2 billion earnings is a solid performance and certainly in line with what we have consolidated a very good quarterly results. And also there not be too many any significant one-offs in there. I think it's probably worth just briefly referring to value of new business, which remains disappointing. I think I would like to believe that we've probably passed or very close to the bottom in terms of VNB there are a number of initiatives on the go that will improve VNB going forward, both in Myriad and Metropolitan, I think VNB numbers are most disappointing. We're happy with momentum investments, as you would see from the detail that we made available. But I think I will just also make the point that we will be and monitoring VNB and monitoring all our plans is actually under a spotlight right now. So it's receiving a fair bit of management retention. I'm not going to say much about the strategic initiatives, but we mentioned that I'm not very sure fairly recently when we discussed our earnings results and at the road show Myriad launching a new sort of version of the product and have streamlined really digital unbuilding doses. That leaves [indiscernible] in very well. The adoption is fine. I think you'll see the real impact in the future, there's been a pleasant uptick in the business. But I hope that's not a function of the launch. We still need, I think, more time to see the impact of the launch the multiple changes that we implemented over the last year as we announced, I think we are able to see advisers and clients so far. So that is really, really pleasing. And then there are a whole number of other projects that I'm not going to go into details, IT projects and so forth. But things are very important to plan. There's nothing -- but I think they need to update you on because it's -- they're fully in or maybe not in line with what we communicated in the last time. So I think that's all for me, Risto?

Yes. Thanks, Hillie. So I find not to repeat too many things. So just a couple of comments from me. I mean there was very few one-offs in these earnings of ZAR 1.2 billion. So it does seem the underlying earnings have been picking up a little bit in between the volatility and the range we've been doing, you probably need to move towards the upper end of that marking. I think earnings are sort of run way to ZAR 4 billion is not a bad guidance now versus maybe ZAR 2.6 billion a while ago. I think what you're seeing in the earnings is the benefit of significant cost discipline over the last 5 years, coming through. Now a lot of that cost savings was from, you could say, almost the more obvious areas like Group-wide services, Now those costs are manual against renewal expenses and shareholders and noncovered operations. So it comes through in earnings here not so much in VNB. But these various IP projects and sort of new business projects they are capable to start coming through in a year or 2. So we should see VNB recovery as well, but with a bit of a delay compared to the earnings. So our [indiscernible] mention that there seems to be the disconnect between stronger earnings and the VNB not, not gold picking up yet. It's just that the cost cutting has been in different places at different times. And the second point is what lead alluded to mortality is normalizing quite quickly. So during the first quarter itself, mortality came are still probably 105% to 110% of pre-Covid. But in October, we had our first sort of like 100% normal month that we had since the start of the pandemic. So it's going to be quite interesting discussion with an internally to now have this view is mortality can ever fully back to normal as we're going to remain a little bit above normal. And I think our view has been that it would be a little bit above normal but I will obviously got further numbers more because some interesting discussion. Otherwise, it's good news, obviously, a lot of mortality for our business. The other thing to mention is that we do think for a while that we expect annuity sales, you'll sort of mention and maybe sales to drop off. We haven't seen that those have actually increased quite a bit. So we're seeing ongoing very strong demand for these sort of guaranteed monthly income products. And we have a strong market share and that grows in our favor. But I also want to mention that we're pricing these products quite conservatively at the moment because there's very little good quality credit assets out there. So we're making very conservative views on the reinvestment assumptions. So with VNB we're publishing in a new piece, there's probably more upside than downside if we can reinvest in due course at better credit spreads. So very pleased with the NVP sales and the VNB based on conservative assumptions. Also on Non-life, I merely mentioned the strong results [guardrisk], weaker in [momentum in sure ]. I agree with Hillie, we're entering the west weather period now. Combine that with the fact that we prefer to make increases on policy and adversaries rather than during the year. We've made a little bit of a delay with some of the premium increases coming through on gross open premium. So I think second quarter at will be quite tough and then things should improve beyond that. In the trading update, we're sort of going to love that it was a more normal quarter for the venture capital funds. I think I can probably make it a bit narrow the rent relative as close to a 0 result, I think, in terms of VC fund contribution for the quarter. We had one large gain on a particular investment, but then we also implemented a portfolio level adjustment to allow for the fact that the fintech market conditions seem to be a bit under pressure. So we have one big gain and then a portfolio level adjustment roughly offset that. And so VC didn't play a big role in the quarterly results. In buyback, we mentioned there that we completed the buyback. We have subsequently applied to the Prudential Authority to expand the program, we're up beyond the 750 million that we announced at the insurance and we will give you more details in terms of what hopefully, we get that approval by then, I'm pretty sure we will. So by the interim results, we will be in a position to give you an update in terms of the size and the of the plan for the second level of the buyback. So that is still on the cards. Also, I'm noticing the new business, we talk a lot about life business. We did not talk about our deal to give you an idea in the 3-month period, we measure in the gross written premium growth in Alexandria was approximately 50% year-on-year in Indian rupee. So in that, maybe marginally lower, but still very strong growth. I thought I'll mention that because part of the capital raise, we are the [interim] shareholder was to accelerate growth, and [CapEx] accelerated. So we're seeing an improved level of top line growth in India. And then just last comment, our embedded value to [ Manolo ] for the first time ever, it's about ZAR 51 per share. The share price has been above 50 but on a slightly different rating to the current one but that EV itself very solid. In the current quarter, a lot of the EV growth was driven by a buyback would have helped, but there was also quite good life variances coming through. And the one negative maybe just a reminder is, obviously, the long bond deals went up, which is good for the Life profits that is reach the evaluation of the noncovered businesses. So that's a done EV growth a little bit. But overall, also because of the buyback, I think it's important to mention that we think [indiscernible] EV is a very solid EV number. And we feel comfortable using that as a yardstick consumption to make decisions around buybacks. Okay. I'll leave it at that. And I think we can open for questions.

[Operator Instructions] The first question now, Michael Christelis from UBS.

Can you hear me?

Yes.

Can you hear me?

Yes, we hear you, Michael.

Sorry, it's just very, very faint. I'll try and make it a bit louder in case you can't hear any. 2 questions on earnings, please and then 2 others. So firstly, can you give me an indication on how big the investment variances were particularly and if you can give that by business unit, or sort of big life businesses, that would be quite useful just to get a sense of what the size of that one-off is. And then similarly, on corporate, I mean, you mentioned very strong underwriting and mortality variances that presumably that's a double positive idea some mortality. Can you give us a sense of how big those variances were? I'm just trying to get a more normalized number normalizing maybe one-offs. And 2 other questions then, if you can. What's driving the Metropolitan Life margin so low? I mean it's back down to 2%, it really looked like you had kind of turned the corner here a little over a year or 2 ago that we were back to the mid-single digits, and then it's on that competitively. And is there sort of -- is there any visibility of sort of getting back to those mid-single-digit levels. And then lastly, any comment or update you can give us on the asset management deal that was proposed between yourselves and RMI. If you could just comment on that.

Maybe I'll take the first 2 questions on [indiscernible] and then I really can take the net life margin on the RMI one. Okay or RMI one? Okay. Investment variances, they were just over 100 million for the quarter. So they're not massive, maybe that takes you back to 1.1% that last year was negative. That means year-on-year it was big, probably double that on the return on just deal in the delta. Majority of that would have been on Non-life because that's where the long duration Myriad looks at. And then a smaller component would be both MetLife and Africa. Okay. So on investment variances. Happy with that, Mike? And like you said, your line is not great, but you asked about the corporate underwriting results. They were strong, and it was not only mortality. We also saw good visibility results in Momentum Corporate. I think you can probably assume 50 million to 100 million positive variance on each.

That's correct. Thanks you.

Was there anything further to your question.

No, that's all on those 2.

Okay. Michael, as far as the asset management deal is concerned, I think good progress has been made. In fact, we basically I'd say 99% complete. Everything is basically been agreed. There is only a few I would say, detailed commercial matters of our receiving attention. So I think it's imminent.

Yes. Metlife margin. I mean, Mike, that's a good question because that's probably one of the items that buttering the results as well is now there's a number of factors. I'll give you some of them. And hopefully, it will explain. I don't know if it's tough to but it explained. So first of all, we reduced our fees in our savings products about a year or so ago. At the time, we said that will have a negative impact on the margin of savings products, but obviously better customer value for money. And subsequently, I think the business mix has gone more towards savings than we will profit sell more [indiscernible] and then we do at the moment. So there's a mix effect. And within a mix effect, there's some pricing on the savings product itself. The other one is that we had quite high into [ use ], not taken a during the quarter. Now obviously, as you know, those are the policies we incur most of the initial cost, but we don't get a premium. So those are the biggest losses in terms of VNB. So that's a factor. Yes, and I suppose, general economy as well is that and it is the [ MCU ], the quality business is not at the level we want it to be. The last thing I would mention also is in our risk side, we sold a bit more of underwritten product, partially underwritten product and the funeral plan and that also has a bit of a mix effect. So that will give you some of the items that explains that margin. I would agree that 2% for this business is not. Yes. I mean in this business segment, it should be very different.

Yes. And maybe just touching on the [ NPU ] comment. Do you think this is affordability macro driven? Or do you think it's possibly more around issues in the sales channel itself that needs to be addressed from an M&A perspective?

Yes, I think it's both. So I think we -- I think we see most people in the segment struggle a bit because of the economy. and even asked about the [ lapses ] is, but we're also seeing work less on all the policies on [indiscernible] that's normally very economic. At the same time, every time you dig in this, you do pick up if there's some things in the channel, you could do better. So there are some things we can improve ourselves. That will probably slip the blend between internal and external factors.

Okay. So is there a specific channel that flowing at call center, is it agency will not trouble on?

On obviously, the call center and the face-to-face is very different. The call center hasn't -- most of the change has been in the agent rather than the call center.

[Operator Instructions] The next question we have from [ Lars Sam ] from Avior Capital Markets.

Thanks for the time. Three short questions from my side. Just how do you think about the margins in corporate, given that you doubled your business volumes, but the margin is still just marginally positive? And then how does the load shedding effect your advisers, especially the ability to use Check and sign people up, does that not have an impact on your net rates comment on that? And then just come back to the cyclicality of your venues on a quarterly basis, and you mentioned the fact that you're earn probably more of the ZAR 4 billion run rate for the full year, just to explain I guess if we this quarter by 4, why can't we do that? What are some of the [indiscernible] items and how confident are you in that 4 billion number?

Maybe I'll take the last one. I mean. Yes, maybe I'll address them in the numbers. I think the point I'm just saying is that I think the underlying earnings loss is picking up because of the efficiency gains how confident on the ZAR 4 billion, I suppose that the markets don't fall reasonably confident. But I mean, it's quite a volatile business. If yields move significant, your market moves significantly. So it's a good question. I think the point is that ZAR 4 billion is a normalized number. If I have to put a multiple on something, I'll put good on that. I mean our common are better than that.

I wonder -- it was a little fainter line, but I seem to pick up that you leave the fact that we don't do as much analysis of or mandate results and the variances or whatever, I mean that wouldn't have any bearing on the earnings number. I mean that number we're very, very confident about the calculation. But I'm not sure whether that was your question.

No, that's very helpful. Apologies about the same line. Yes, I guess my point was just really around what is the significant driver of the volatility. And I think you pointed to it in terms of yields. So that's quite helpful.

I think as far as better margins on corporate business and uptick in volumes. I don't think that margins played a role there. There is a level -- there is some pressure on life color specifically less so at this stage on [ PHI ]. [ PHI ] and will be some impact, but there's a bit of pressure on life cover. But I don't think that there's any link between our margins and the new business volumes. I mean, I think we're acing volumes at a lower were very comfortable with.

Yes. There's also a couple of large deals in here where obviously the margins can be quite tight. And it's also based on the VNB assumptions you make. I think we also try to be careful not to be overly optimistic on some of these corporate deals in terms of degradation and the long-term margin. That margin is -- I mean, we for right, again, it's a bit below what we would like to be the long-term margin at the same time, if you guys with very low margin business in huge size based on conservative assumptions, we'll take it, I mean, because the portability is in your favor. Now I like [indiscernible] question. I never had one before. But in generally, it is quite important. So you also mentioned DebiCheck, so we actually launched the DebiCheck, particularly in Metropolitan. One of the reasons why it's also disappointing that the lapses are not so good. So without the load shedding, I would say that on DebiCheck, we made quite good progress. Now how do you deal with the luxury now? Obviously, our branches, particularly where we own the physical property reinstall backup generator solutions. So we try to give the agents at least the offers to work where they have connectivity and they can charge the equipment and things like that. Problem is in [indiscernible], but we don't own the properties. They are more over [indiscernible] going to spend money on backing and so on. And they need a little bit stuck. Also, our main offices now, if you want to think about like a total disaster is long-term sort of electricity supply problem, we have upgraded all our main building, which is Centurion, Cape Town and the market center where we can run the buildings for up to 2 weeks without too much problem. Yes, the [biogas] in the field, like I said, we give them branches that they can operate from when they have no other option.

The next question is from [ Jerick Hetero ] from [indiscernible].

can you hear me?

Yes. Thank you.

Perfect. Well done on what looks like another good quarter results. A couple of questions from me. Just reading the outlook statement, you read particularly there particularly in terms of the macro pressure and then persistency challenges. Am I right into reading into that, that it's getting tougher period-on-period yes.

Yes, I think it is. I think to some extent, I mean, it's difficult to gauge exactly but during to immediate aftermath, there was so many almost programs that assistance. And I mean we know lots of billions of claims were paid out. These things should flow back into the economy. So I think those things somehow mitigated, I think for the economic impact to some extent. And I think those things are now being less and less. And I think the real economy is in seating now the lack of growth on employment, too stuff.

Now I want to [deliver] I remember the 2018 strategy, the research and growth strategy. We assumed like GDP growth like I think 1% above inflation and we totally smart being conservative and not being public, even tougher. Same with this strategy, we assume part of it as well. To be honest, I think a lot of our business plan is going to be from a complete expression in our short time planning. So we. Yes, generally, we are sort of getting ready for a very impact environment, and that will also affect monitor priorities.

And then maybe just a second one. Sorry, just a second question. Is it been any update with regards to the ComCom investigation or any communication that have been had between the parties.

Nothing [ whatsoever ]. In fact, I -- look, the first thing that we -- the first time that we expect to hear from the ComCom would be when they tell us that they really have to open all the boxes and documents and stuff that they've actually taken from our offices which we will have to do with our legal teams President, and that hasn't taken place yet.

[Operator Instructions] Gentlemen, at this stage, there is no further questions. Do you have any closing remarks?

No, I think the trading update is not really -- I think it's everything in the results, and we thank you for your interest. Good afternoon.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.