Momentum Group Limited (MTM) Earnings Call Transcript & Summary

Good morning, everyone. Good morning, everyone. I'm judging by the energy in this room, I thought I was going to receive a big warm welcome. Thank you so much. My name is Dan Moyane, just in case some of you have forgotten, thank you very much. It's my pleasure and privilege to welcome you to the presentation of the annual financial results of the Momentum Group for the period ending 30 June 2026. Jeanette, the energy in this room. Guys give yourselves a round of applause. It's just a beautiful moment. I was telling [ Anneca ] now. I was telling [ Anneca ], I don't know what to do with all this energy, it's so palpable. It's beautiful to see. So we are coming to you live from the company's head office here in Centurion in Svane. We welcome everyone who's joining us today, the analysts, the investors, the shareholders, the journalists and employees, of course, of the company who are watching us live either on the mPulse platform, which is the Intranet of the group or on BDTV, that's business day television, which is on DSTV that's channel 412 on our live webcast, which is copcam.com/mg and today's date, 17/09/2026. It just feels like a special day the 17th of September. Now the full results, of course, are available for you as well. You want to check them out on the group's website that's momentumgroupltd.co.za. Thanks to the Momentum Group Investor Relations team, who are putting together the presentation that you are about to see shortly and the group marketing PR and events team for their execution of today. Now as you all hear shortly, this is a very strong set of results, which we can all be proud of. It is, in fact, always good when a company that's called Momentum shows that it has plenty plenty of it, and these results certainly suggests that it does. The Group CEO, Jeanette Marais; and the Group Finance Director, Risto Ketola, will present this set of results covering how the focused implementation of the group strategy has achieved earnings target a year in advance of the completion of the Impact Strategy in 2027. So as in the past, there will, of course, be time after the presentation to get to questions from analysts to get them responded to, Jeanette and Risto will do that. Now let's put around a warm welcome. Really warm welcome to Jeanette to begin the presentation. Now before you start, Jeanette, before you start, I don't know if you remember this, during COVID-19 countries were battling what to do. But there were 3 countries that did the right things. One of them is New Zealand. And in my book, the reason why they did so well is because they were led by women.

We'll make sure your bonus reflect that comment. Good morning, everyone, especially to our colleague, where are you, Brand? Brand Pretorius, who is, again, I think, the same happened last year, celebrating his birthday today. So congratulations Brand. It's wonderful that you're spending your birthday with us today, but I'm sure you're going to make it worth your while. And then also from me and my team, it's wonderful to have my whole executive team here with me today to welcome you to the live results broadcast of our annual financial results for 2026 and I really am excited to present record results to you today. So I'll start by summarizing the key financial results, after which I will put a further spotlight on some of the individual business units and their contribution to our excellent set of results. Now when we communicated in 2024, that we had set an earnings target of ZAR 7 billion by F 2027, many of our stakeholders, some of you in this room today though that it would be impossible to deliver those targets. And at that point, market consensus and business unit projections forecasted earnings of ZAR 6.3 billion by F 2027. So as an executive team, we decided to really challenge ourselves by setting what was then called an unreasonable target of ZAR 7 billion. And then we sat down, and we made sure that we had the plans in place to deliver. So I am very proud to stand here today and to announce that we have closed to F 2026 with record normalized headline earnings of more than ZAR 7 billion. up 13% from last year. And as Dan said a whole year earlier than planned. And this is also more than double the earnings we achieved in F 2023. We've seen stronger operational performance across most of our business units and the quality of our earnings also improved year-on-year with much fewer positive market impacts that helped us with our profitability. Now there are 2 extra facts that I want to share with you. It is the first time, Risto says in his 10 years, I would say probably ever, that every single 1 of our business units is profitable. And not just that, 5 of our individual businesses contributed more than ZAR 1 billion each in earnings this year. We've seen a 5% improvement in our VNB from ZAR 469 million last year to ZAR 491 million this year, and we've seen an improvement in every single 1 of our business units, except one. Momentum Investments had improved margins and higher volumes on the wealth platforms, but this unfortunately was again moderated by lower demand for guaranteed annuities and the market shift towards higher volume, lower-margin living annuities. The focus on the quality and the profitability of our new business remains an important focus area for us as a business. It's the 1 that we know that we can still improve quite a lot. But we have a clear action plan for each 1 of our businesses. And that is really to improve product commerciality, pricing discipline, adviser productivity and make sure that we generate profitable growth. Our sales numbers -- sales growth has really exceeded all of our expectations with an 18% increase in our sales numbers to ZAR 94 billion of sales this year. We've done really well across all of our businesses. Africa delivered the strongest increase at 45%. Momentum Corporate 38% was mainly due to new business and funds at work, living annuity and single premium structured investments. Momentum Investments increased their sales by 16% overall, and our wealth platform new business is up by 24%. Momentum Retail's 8% growth was driven by Investo, our recurring premium savings product. And in Metropolitan is the only business where we saw a decrease in sales, which decreased by 14%. But this was a very deliberate focus we had on reducing our footprint by 33% over the last year. But what we have seen, this difference is such that we've seen a significant improvement in our agent productivity and in the quality of new business in Metropolitan. I'm very pleased to declare a final dividend of ZAR 1.20, which brings our full year dividend to ZAR 2.30 per ordinary share. And this is excellent year-on-year growth of 31% on the final dividend we declared of ZAR 1.75 last year. Now this growth is definitely underpinned by our very strong capital position and this dividend payment even at this level remains at the lower end of the target range that we set for ourselves in our dividend policy. So there's lots of room to do better. Return on equity remains 1 of our best-performing measurements. And as you can see, ROE increased further to 21.7%, and this again driven by our strong earnings. Our ROE is already ahead of our target of 20% for F 2027, and it remains of the highest in the industry, if not the highest. Now this concludes what I wanted to say about the financial results. As you know, Risto will share a lot more about that. But this time, I'm not going to focus on the delivery on specific impact strategy objectives like I always do. I'm going to focus on how we delivered these excellent earnings. And as I mentioned earlier, every single business unit is profitable, 5 businesses are now in the ZAR 1 billion earnings table realizing the dream Investo had of having 4 unicorns when we launch the Impact Strategy. And in these tough economic conditions, we have also managed to double our earnings in 3 years and we managed to more than double our share price and our market cap in less than 3 years. But it wasn't only market sentiment that shifted. There was a fundamental shift in the business itself. 3 years ago, -- we started by defining our purpose. We developed our impact strategy. And then we articulated the culture behaviors that we thought will help our people live our purpose and deliver on our strategy. Now I believe that we are a very different organization today because purpose, strategy, culture, which was a massive systemic integrated systemic change. has really all focused on people, our employees, our stakeholders and our clients. And I believe that when these overlap results improve exponentially. The increase in our earnings is not the purpose. It was the outcome of the integration of purpose, strategy and culture. And I just believe that when an organization start to inherently change, that is when the magic happens because that takes you away from just as thinking that you exist to chase targets. We've seen a very positive shift in our earnings and growth across the group. But today, I do want to use the 3 businesses that have just entered the Unicorn stable as an example of the change that we've seen across our business. Now when we started with the impact strategy, we penciled in ZAR 750 million of earnings in F 2027 for Metropolitan. And yet, here they are. We also predicted that Momentum Investments and Guardrisk will reach ZAR 1 billion of earnings, but only in F 2027. So let me share with you how we did this because it wasn't just luck. Let's start with Metropolitan. [indiscernible]. At the start of the Impact strategy, we needed a fundamental shift in Metropolitan. And the first thing the business did was that they defined the 5-point turnaround plan to unlock their full potential, which is 1 of our strategic objectives and to help them reach their evenly what they needed to do. they were completely aligned on their execution and it helped them to visibly track their progress. And you will remember that I repeatedly gave you feedback about how the business was doing against the 5-point plan. Product commerciality was 1 of the most important levers in the 5-point plan and really this focused on improved product design, new business quality. But on top of this, Metropolitan also looked at the cost of the distribution, and this has helped them to improve the VNB from a negative ZAR 41 million by ZAR 100 million to ZAR 60 million now at the end of 2026. They also embarked on a multiyear digital transformation plan, which was a massive migration from their legacy systems on to modern platforms. They expanded the automation and the digital self-service. It's important to remember that, that -- that legacy migration from the legacy system was one of the biggest of its kind ever done in South Africa. It required a lot of collaboration from across the group and at the same time, they had to execute it without any client disruption. Now this helped them to deliver efficiencies that structurally reduce their cost base on top of everything else and help them change the way in which they service their clients. Digital self-service has now increased to 32%, manual work reduced by 50% and which means that our good people have time to focus more on client needs rather than to doing administration and through the very disciplined cost savings program metropolitan managed to save costs of almost ZAR 160 million over the last 2 years. Focus on advice very important, not only 1 of the levers of the 5-point plan, but at the same time, also 1 of our group's strategic objectives. And this for me is 1 of the most beautiful examples of where strategy and culture behaviors actually start to overlap because it took a lot of courage for Peter and his team to rationalize and optimize their client agency. It was not an easy process. And by doing that, it created a leaner and a much more productive sales force. The agency force, and this is over the 2 years of the Impact strategy reduced by 42%, but net sales only reduced by 19%. And this adviser productivity also increased from 2.8 to 3.7 policies per week. So not only do we have much higher adviser productivity but also much better quality of new business, which is, again, good for our clients. And then Metropolitan remains an example to the rest of the group of what a group look like when you really, really are obsessed about how you make your clients feel and what always embraced me is that they always challenge themselves to find more ways to do better for their clients. What they've also done is that they've simplified product design by launching the no lapse funeral growth plan. This is a product that actually bring together fully digital product with pricing discipline and much improved longer-term client outcomes, which is exactly what our strategy and our culture behavior is all about. And the numbers speak for itself. Client satisfaction increased to 94%. And Metropolitan, again, was a winner of the Ask Africa Orange Index Award for the 11th consecutive year in a time in 11 years. So Peter, you and the team, well done. But it's important to note that none of this happened on its own. Metropolitan's people made it happen. They took the courageous decisions. They built the digital capability, and they own every outcome along the way. The next business I'd like to use an example is Momentum Investments. Again, at the start of the Impact strategy, Momentum Investments had a broad but quite fragmented portfolio of capabilities. And what they have done is they made the fundamental shift to align all of these capabilities with a very focused strategy and create it a much more aligned and a much more connected business. And that had a profound income. You can see the total assets under management and administration increased to more than ZAR 1.2 trillion. I was told yesterday that when I say trillion and billion, I have to make sure people know it's not millions. And the total net flows increased to ZAR 20 billion. Collaboration and vertical integration is really starting to unlock a lot of value across the group but specifically for Momentum Investments, their stronger collaboration, whether channels, MFP and MDS specifically have really improved their cells and specifically on the wealth platform, which is the first entry point for clients into our investment suite. You can see wealth assets and administration increased to more than ZAR 360 billion and wealth net flows to over ZAR 16 billion for the year, which is no mean feat. Vertical integration, one of my favorite topics is also now starting to unlock a lot of value across the value chain. And if you think of the value chain, it connects your channels, with your platform, with your in-house propositions and, of course, to asset management capabilities. And again, you can see here that now in spite of the fact that our wealth platform is still mainly supported by IFAs, 23% of our wealth assets are now managed in in-house solutions. This business has also invested a lot in new revenue streams and capabilities to help them with their growth. Momentum Securities delivered earnings of ZAR 51 million for the last year and curate our new baby asset manager had strong net inflows and now standard assets under management of ZAR 52 billion. They also invested in technology to improve their processes and the operations, and this really has helped them with greater efficiency and with great client outcomes. And that really is, for me, 1 of the most positive measurements because our client Net Promoter Score has improved from 55 to 63 points, which really is a world-class number. So [indiscernible] and the team, well done on that as well. And then they had to make some courageous decisions themselves. Momentum Investments closed the Momentum Money product. We restructured its U.K. business completely. And then after a few years and being very committed to the project, they had the courage to change the wealth re-platform project from the single provider, we were looking at, at that stage to a far more agile, modular technology while retaining the foundational improvements that they've made. And these milestones demonstrate what can be achieved through strategic clarity, collaboration and the courage to change course and an outcome of earnings more than doubling in 2 years, as you can see on the earnings number at the bottom of the slide. And then Guardrisk and another sip of water. I'm talking very fast because I want to give a lot of time to Risto. So Guardrisk is an acquisition that we made 12 years ago. And Guardrisk remains a strong entrepreneurial business, but supported by the financial strength and the capital backing of the Momentum Group. And this has really enabled them to take some selected underwriting risk and to pursue some bolt-on acquisitions and help them invest in the capabilities that they need for growth. The underwriting profit, specifically through the underwriting choice they made have increased from ZAR 605 million in F '24 to more than ZAR 1 billion now, which remains the largest driver of the earnings growth in Guardrisk. Guardrisk is also a strategic partner for businesses seeking to participate in the insurance space. And you might be surprised by the breadth of industry's products and partnerships, which Guardrisk plays a role in and now often Guardrisk sits behind some very innovative insurance solutions across industries and markets. And you can clearly see again investing in technology, data specialist capabilities that has helped them to strengthen the underwriting to create efficiencies and to support their growth. And Guardrisk has really demonstrate that the scale is really demonstrated by the market share. and Guardrisk remains the leading South African cell captive insurer. And they are a top 5 non-life insurer by gross written premium and insurance income. Guardrisk also decided to deliberately diversify the earnings across revenue sources, clients, industries, channels and geographies. Its capability spans cell captives, specialized underwriting, risk sharing, reinsurance, embedded insurance and alternative capital solutions. And bolt-on acquisitions or specifically acquisitions has made a significant contribution, not to discard this growth, but also to help them broaden the capabilities and the earnings that they have for that business. Now Guardrisk is often in the advantageous position of acquiring businesses that it really knows quite well because they're already a client. And they support them with more investment -- informed investment decisions and a much smoother transfer of the business. Zestlife was probably its boldest move at the time. It came when there was a lot of uncertainty in the market about health care reform, which raised a lot of questions about the future of medical gap cover. But yet, they had the courage to make the acquisition and Zestlife and Admed generated more than ZAR 300 million of net revenue in F '26, which is up 54% year-on-year. And in the bolt-on transactions that they have done across the portfolio delivered a combined IRR of 31.4%. The integration of the Namibia short-term insurance business in F '25, expanded their geographic reach and earnings in that business, I don't know what it is by 54% and increased by another 54% year-on-year to ZAR 74 million. So together, these choices enabled Guardrisk to deliver earnings of over ZAR 1 billion, achieving its Impact strategy milestone 1 year ahead of target. But there is another reflection on the growth in this business. And you can see it reflected in how the valuation of the Guardrisk business has increased over the last 12 years from ZAR 1.6 billion in 2014 at the time of the acquisition to now a ZAR 9.2 billion valuation. They've also repaid the purchase price through dividends in 10 years and Guardrisk journey demonstrates what is possible when a strong and supportive group provides the foundation, the capital for entrepreneurial leadership disciplined risk-taking and deliberate diversification. Now if you look across the entire group, we are where we are because there were different journeys for different businesses. Some had to focus on turnaround plans at the beginning of this period. There were others that were already successful and they only needed to take it to the next level. And then there were areas that we identified where we needed exponential growth. The point is many different journeys but always exactly the same outcome. The first one is that we have a clear strategic focus that help us to make deliberate choices about where to compete, how we can create value and what needs to change. Secondly, collaboration and our connected capabilities are really starting to pay off across the group. The strength of our Federation is showing. So already, we -- although we are bound together by the same strategy, the same culture behaviors and the same purpose. We are allowed to execute differently, but this connection is really starting to unlock a lot of value for us. And now I've just lost my slide. It's back. Then thirdly, although we are bound together as a group, our business units retain their autonomy. They get a lot of support from the group. And it is showing that our federated model is far more than the sum of its parts. Our earnings base is a lot broader. It's a lot more resilient across the group. And this is supported by diversified businesses and by diversified income streams. Our capital allocation, we provide that to all businesses in the group, and it's helped all of them to create growth and to enable progress. We will not do an acquisition if it doesn't meet our hurdle rates. And I can assure you that for every transaction you see we do, there's at least 5 or 6 that we didn't do if they don't meet the sural rates. And I'm very happy with the excellent internal rates of return that was generated by all the acquisitions across the group. We have also demonstrated that we have the courage as executive to make the right decisions. And that as executives, we keep each either accountable to make these decisions when they need to be made. And to end off I want to talk about the return on investment of doing human. We see every time that it's the human aspect of the business that creates the exponential return. Our focus on people, including our clients, our advisers and our employees has resulted in the best return on investment for this group. Business do not create value. People do and when people thrive businesses thrive too. So to end off, 2 years ago, our target of ZAR 7 billion for F 2027 seemed impossible. I'm incredibly proud that we managed to reach this impossible earnings target for which I was labeled unreasonable at the time, a full year ahead of schedule but I'm even more proud of the driving force behind the success. It has nothing to do with luck. This is the result of delivery choices sustained effort and a business that is increasingly operating at its full potential. These results also demonstrate what becomes possible when an organization starts changing itself rather than simply chasing targets. And this is what you see, the magic when purpose, strategy and culture start to come together. Our focus on our clients, our client obsession, as we call it inside this building is really starting to bear fruit. And I'm seeing that the metrics are all moving in the right direction but we can never deny that there's always a lot more that we need to do in this space. But our willingness to focus on it and the energy that, that has created inside our building gives me great hope that it's only going to get better and better from here. So in closing, thank you to our employees for living our purpose to build and protect our clients' financial dreams and for shaping a culture that we can be proud of. Also thanks to my executive team. We accepted unreasonable targets and are delivering on it every single day. To our Board, thank you for all your support. Thank you for all your wisdom and to our financial advisers and clients, thank you for trusting us with your financial dreams. That was a drum roll, I think. And with 2 minutes to spare Risto. You've got extra time. I'm handing over to Risto to take us through the financials. Thank you very much

Thanks, Jeanette. [indiscernible] was 1 without the lipstick. Now it is a pleasure to come and talk to you about the business. People who know me well know it's one of my favorite things is to talk about Momentum Group. Okay. So earnings, ZAR 7.1 billion. Jeanette covered that a little bit earlier. I'll obviously give details just now. To preempt a question that will come up is what do I think is like the normalized earnings if you take out a lot of the volatility in here. I would say it's about ZAR 6.6 billion. There's about ZAR 400 million of positive investment variances in the current year result, a lot lower than last year. So when we talk about the improvement in quality, a lot of that comment comes from lower positive investment variances this year. Assumption changes were a little bit positive for the year, maybe ZAR 100 million. Remember, a lot of that goes into CSM nowadays rather than coming through earnings. Also in my calculation, we adjusted the underwriting results to be a little bit closer to normal rather than very favorable the last year. But on the negative side, we did have VC fund losses again, most investors. We keep -- we don't talk about it too much, but investors might know that over the last 4 years, we've taken ZAR 1 billion of fair value losses on the VC investments through the P&L. So the strong results have been despite that sort of a headwind. We also had a couple of operational events, for events and things like that, that you can add back as one-offs during the year. And we also had some experience variances like unexpected reinsurance expenses during the year. So net-net, maybe ZAR 500 million adjustment to get to ZAR 6.6 billion. It's always nice when things add up, so ZAR 6.6 billion [indiscernible] ZAR 66 billion, that's our EV. So the normalized earnings number is pretty consistent with the EV number that we sort of showed the investors, okay, also ZAR 6.6 billion x 10 is ZAR 66 billion. It's a lot more than our market cap. But that's a topic for another day. Okay. Earnings per share up 18%, but extra 5% reflects the buyback that we completed during the year. Dividend up 31%, the 13% above the earnings growth comes from the new dividend policy. So our payout ratio did increase quite a bit over the year. ROE remains high, above our 20% target, close to 22% at the moment. Embedded value per share, 1 of the more pleasing aspects of the results, up 19% for the year. If you add back the dividend, the return on embed value was 24% for there. And I think that's an exceptional result. I'll actually expand on that just now. But maybe the short story there is that the return on embedded value on the core life business remains as good as it's always been. It's a very well-managed part of the business. And now our noncovered businesses, Guardrisk, Health, those things are starting to come through strongly, which is lifting the overall group embedded value growth. Business volumes up 18%. Jeanette spoke about 1 or 2 areas there. The value of new business, VNB, up 5%. To be honest, it's a little bit better than I thought coming into the last quarter of the year. I'll show you later that annuity VNB dropped by ZAR 200 million literally. It does mean that there's been a significant improvement in VNB in the other areas. I would say that 90% of our VNB story is actually positive. But obviously, annuity is attractive product for us and a very sticky product. I would love annuity volumes to recover, but that has not been the market experience likely. New business margin is 0.5%, and I'll talk more about that later again. Okay. So instead of jumping into the divisional like I usually do, I'll just stop on the EV briefly here. So over the last 5 years, our embedded value, return on embedded value is 16% per year, comfortably above our cost of equity, cost of capital. So I think we can tick a box on that. Also, I don't remember if Jeanette said in her speech, but I know at 1 stage was thinking about it saying that our market cap has doubled. But the reality is that more of it's been EV growth embedded value growth than rerating in the market. Sort of -- I think the market perception has improved, but majority of the return has actually been physical delivery in terms of return on capital, dividends, everything else. And if you split that ROE into 2 components, the large block, which is the life insurance business, it sort of does steady 16% per year. People often say your VNB is modest, it could definitely be better. I mean we're trying. My favorite question is what are we doing to improve VNB. And I feel like answering what aren't we doing okay? Okay? So people have a look at the VNB is quite low-ish may be true, but the experience variance in the in-force book is very good. I think there's no doubt, you can argue that we do a good job at getting optimal value out of the existing clients we have. I think we are well managed, a mature life insurance company. When you look at the blue block, where when I joined 10 years ago, everybody -- even back then people say it's good life business, but beyond that, what's happening. There's nothing happening there. I think in the last couple of years, you're really starting to get through this inflection point where something like Guardrisk is 15% of our total EV, it's growing rapidly. And if you go look at the details, we use a discount rate of, I think, 15% for that business. if they can just deliver on budget, that sort of 15% return on embedded value in there and they generally tend to beat budget. Lawrence, thank you. People often ask me say, what do I think is that -- long term return on embedded value. And I think [indiscernible] you can probably now say [indiscernible] EV has improved Guardrisk. So Guardrisk good growth. Over that 5 years, the discount rates probably averaged 16%. So delivery to budget and then a little bit more. Insure obviously it's a bit of a cyclical recovery in the insurance market, but the business is in a much better state now. Health -- big year for health. I'll talk about it later. They signed on Bonitas. They extended GEMS contract. Health4Me is doing well. I think health operates in a very difficult segment, but they're doing -- they're relative winner for sure, in that space. And then our investments business. Obviously, rising market helps there. But I do think as well while that some of the recent acquisitions have been good for us so far, and some of this [indiscernible]. The other one that is worth highlighting upfront is the improvement in the solvency metrics since nobody expected. Nobody I want to find it personally expect that the 3% decline in bond yields in a very brief period of time. And the decline in bond deals did cause some -- well, quite a rapid decline in our solvency cover ratio going into the interims. So we spent a lot of time and effort in the second half of the year to address those factors. And it's pleasing that we are back in a situation where I think our solvency metrics are at the level where we have the optionality and to deploy our capital in the most optimal way. Okay. Coming back to the more standard programming. So core life operations. I'll briefly speak through each of these in a separate slide, but good to see all 4 South African life business doing over ZAR 1 billion. I haven't done the math, but I think our -- just the asset life business must be making close to ZAR 5 billion a year. Okay. I'll start with Momentum Retail, down 26% for the year. If you look at the 2 likely shaded bars, you'll see there's a ZAR 400 million swing in the investment variances. I think a more generic term would be sort of asset liability matching outcome. The reality is that a big part of this business is our affluent market whole of life protection product, where you have -- I don't know if Stephen's here, but I don't know quarter to 1/3 of our cash flows are beyond like 30 years where they are on no bonds. We can't hedge those cash flows. And with the new inflation targets, we decided at interims to discount those cash flows at a lower rate, effectively rising our liabilities. It is a reality that not all the cash flows can be matched and lower yields do increase the PV of those outflows. Beyond that, unhedgeable market variance, results were flat year-on-year. So that's a ZAR 1.3 billion roughly. Within that, lots of interesting mill themes. It's a big business. I'll spend a bit of time there. Firstly, mortality was exceptionally strong. It's probably the best mortality result we ever had. I can confirm that mortality now is better than pre-COVID-19. Whether it stays, that's where the experts are debating. But as we speak for the current year, I don't think mortality in the insurance population has been better in history in South Africa. We also continue to see positive alterations and persistency variance. So maybe linked to my earlier point about us being quite good at managing the in-force book. We actually get clients buying up on average rather than buying down on average. So we make additional alteration profits most years, including this year. Now -- those are all positives. So was the result flat? I mean there were also some negatives. The 1 that we did not budget for is we did have increases in our reinsurance rates during the year. They are temporary. I would argue that -- the very strong mortality results means that we would be expecting those increases to be temporary and to see a lower reinsurance expense next year. Okay. Stephen asked me to come to the negotiations with you. Okay. I'll talk about VNB a little bit later on, but because of the lower yields the way our capital modeling works, we also allocated a lot more risk capital to this particular segment. On the earnings side, it's positive because you've got more interest income on the additional capital. But VMBs negative because now you've got a higher cost of capital charge. Despite that, the VNB grew quite strongly. I don't think Tenet mentioned it, but a lot of the growth was from investor, our savings business, where there's been significant redesign of that business over the last few years. and running a savings book at positive VNBs is no mean feat. I think the guys have done exceptionally well. Momentum Investments, up 24%. There's 3 quite distinct businesses here. We got the Wealth platform. We've got asset management, and then we've got the annuities. I suppose the 1 common denominator there all asset-based businesses. So rising equity markets did well. Bond markets did well. So all 3 of those areas would have been aided by the rising average asset values. Beyond that, we continue to see good experience on the annuity book. I I just went on about how good mortality is in the insured population in the younger ages. When it comes to annuities, we do allow for continuous mortality improvements. And those improvements have not been as big in the advanced age as we expected. So we're in quite unusual in a good position where we're making mortality profits in the younger ranges because there's less debt. And then we're making mortality profits in the annuity population because mortality is not improving as quickly we expected. So it's almost like the best of both possible actual outcomes. Also, the annuity portfolio is very actively managed by [indiscernible] his team in BSM, very good credit results for the year. I mean credit spreads are difficult in South Africa. There's not much good quality assets around but it's pleasing that our origination activities were reasonably successful, and I think we had 0 defaults for the year on the book and also the active management, the trading activities also contributed positively to the result. The net mention Momentum Money, that closure is almost complete. So the impact on earnings is not negligible. Metropolitan Life, up 32%. You'll notice here, this business actually had a positive market variance year-on-year. I'm digressing from the script a little bit because it illustrates the very different nature of the book in Metropolitan and non-life. Metropolitan is mainly funeral where the book runs off a lot quicker. So you have very little of those cash flows 30, 40 years whether it's unhedgeable, like in the affluent book. So even though they both sell life insurance, the sort of interest rate risk is very different because of the client behavior being so different. Okay. Coming back to the script new business. Besides -- people often associate better quality of sales with VNB and it's true but it also has immediate earnings impact in some scenarios like here. A good example is when we had 3,000 agents 3 years ago, we had 300 branch managers, 30 regional managers; 6 provincial managers. Now that we have shrunk the sales force to more like 2,000, there's also been quite a big reduction in the management layer, and those savings are tens of millions that drops straight to bottom line. Also, because of the more focused sales force, we're also incurring less commission losses. These are where we pay a commission to an agent who then resigns and we can't recover the commissions if the book goes bad. With the lower turnover, and a higher proportion of experienced agents, those losses have come down. So the activities on the channel not only helped VNB, they also had an immediate positive impact on earnings. Persistency remains favorable and mortality remains favorable. So similar to what we saw in the more affluent part of the book. Jeanette mentioned performance optimization has been big here. proportionately, I think they've done the most savings out of any business unit, probably like a 10% reduction in their cost base out of automization, self-servicing, the sales force optimization. The last item, it's a bit cryptic, but I thought I'd mention it because it's over ZAR 100 million positive to earnings. So it's 1 of those positive one-offs. We migrated the savings business from the old mainframe system onto a more modern platform in the last 18 months. while we were preparing for that, you always pick up issues where are these policy value is 100% right? Is the reserve correct? Typical lateral fashion when you pick up a problem, you reserve -- you put a big reserve, what we call work in process or data reserves. As we've been working through those legacy matters, generally, we find that the reserves are prudent. So there was 2 quite big projects they ran during the year. And on completion, the reserves held were probably -- I knew that they were more than ZAR 100 million higher than we actually needed to address the issue. I mean there's still a couple of legacy things across the group we're looking at. I'm comfortable that the provisions we're holding are prudent. But I think ZAR 100 million release in 1 business unit is a bit outside the usual expectation. Momentum Corporate. It is down year-on-year. but ZAR 1.4 billion is a very strong result for this business. You could say results went from exceptional to just good [indiscernible]. Okay. Very good. I'm exceptional, they're very good. Now a lot of the profit here, majority of profit comes from underwriting. Death cover disability cover temporary disability for your employees. The cash profits, it is a bit like short-term insurance, premiums and claims out. And that sort of cash flow level, we actually had a better year this year than last year. So you could say that we're still running quite a good cycle in corporate. However, last year, we had more reserve-related releases. So as an example, we hold an IBNR reserve sort of incurred but not yet reported claims. Last year, there was a significant release compared to this year. So the noncash items explain quite a bit of this year-on-year decline. I mentioned our balance sheet investment solutions here. We offer a variety of products where we utilize our balance sheet. A good example is our guaranteed index solutions where we guarantee clients the index return exactly. We obviously -- we hold hedging assets and any surplus or deficit to matching the index, that is our source of profit. It's a nice concept for a client. We guarantee you 100% tracking at no cost. But we do then to make a margin on the hedging assets and that book has grown quite nicely over the last few years. The 1 negative, again, big enough worth mentioning. It's over ZAR 100 million negative. It wasn't all positive. A very popular choice for our employers is a continuation option. So they will pay us a small -- too small, I don't know. If it has a small monthly fee to allow the retirement fund members when they leave the scheme to convert the group life cover in the individual cover with no underwriting. Now obviously, when you offer an option like that, you think to yourself, there might be a little bit of selection against you here that people who are very healthy when they leave their employer, they might be able to get cheaper gather somewhere else. But the guys who are less healthy, that's probably the only option they can get for a reasonable premium rate. I'm not going to go into details, but historically, we assume mortality in this book would be like 4x higher than normal. It's worse than that. So now we're going to 5x normal mortality. So that's a big hit to P&L for the current year. So obviously a very valuable option. That's why I was joking with Dumo. You must take [indiscernible] to your meetings as well. Somebody has to be looking at for the shareholder, Yes. Okay. Momentum Africa, definitely trending in the right direction. I think the 1 problem in Africa, is it is 3 quite distinct businesses. So often tell the story, it's a bit different in different countries. But the 2 positives for the year was Botswana and Lesotho. Botswana, obviously, a very tough economy at the moment. But we have a strong market presence in annuities, also corporate business. So I think we've done well in the context of what's happening there. Lesotho, we are the dominant insurer. And we signed up some very profitable and large corporate schemes in the last year or two. Namibia on the other hand, I think operationally, the business is doing quite well, but the global minimum tax came into effect this year. And most of you will know that OECD now has a 15% global minimum tax. [ Humana ] is nodding her head because, obviously, it's an issue in Guernsey as well. But Namibia actually taxes life insurance profit very favorably. So now having to tax them at 15% was almost ZAR 60 million hit to the Namibia earnings year-on-year. Obviously, it sets a new base, but it does mean that Namibia earnings for the year were down largely because of that. Onerous contracts. I'm not sure how many more times we will show this, but it's been an area of significant focus for us. So Momentum Investments, we redesigned the back-to-back product to make sure that both the whole life and annuity components fund themselves. Metropolitan Life, the focus on quality has reduced onerous contract percentage. I think it's really a momentum Africa that remains on further potential area of improvement. So I think that might add another ZAR 100 million to earnings once we get to address that. New business volumes. I always like showing this to scale because People mustn't forget that 2/3 of our business comes from the Wealth segment Momentum Investments. By its nature, it's quite a low-margin area. It's a very intermediate market, very knowledgeable policyholders, very knowledgeable intermediaries A lot of it is investment business where the fees are clear and obvious. Yes. So by nature, I personally think our margin there is actually quite good. I think it's more the mix of business than anything else. Also in Metropolitan, for a 33% reduction in average sales force to have a 14% reduction in sales. That's a good outcome. I know Peter always feels terrible about sales going backwards. But I think from a value creation perspective, it's been a very clear positive outcome. I'm now also starting to Russia but -- it's like when you're having fun. I'm just fly. Yes. Okay. Value of new business, I sort of mentioned in the beginning that I actually think the ZAR 30 million increase is a good outcome. If you look at the Momentum investments, that's down ZAR 150 million. Wealth platform profit VNB is actually up. The decline in annuities is nearly ZAR 200 million. So despite the new to VNB declining by ZAR 200 million, we're up for the year. So we had ZAR 200 million -- ZAR 250 million additional VNB for everywhere else. Retail did ZAR 50 million extra. Wealth platform did extra. MetLife up 80%, Mom corporate up some very good funds at workflows towards the end of the year. So I think we're trending in the right direction. I mean we always knew annuities. We were very exposed to because of our market share in annuities, we're the leader in the market. And ZAR 491 million is not where we want to stop. All I'm just trying to make the point is that there are some green shoots behind this very negative picture created by the annuity trends. On Life operations. I feel like I won't be able to do justice to this in my remaining 10 minutes. But like Jeanette said, nobody made a loss, which is a first time in 10 years I've been here. Guardrisk, it's become such a big business. I'd like to stop here a little bit. Underwriting results are a big part of the growth in the last, let's say, 6 years or so. Jeanette sort of mentioned having a supportive parent with risk appetite and capital. I think that's where there's been alignment between Momentum Group and Guardrisk in terms of deployment of capital and sources of growth. And whenever you're doing underwriting, it can go against you. I think the underwriting margin here remains 10% plus. So the guys have been very good at selecting business lines that they're active in. In this year, there's a good example where -- there's 1 particular asset book that has been very profitable the last few years. So I've been quite nervous that eventually, that's gone on like -- that's not going to last forever. And it did not last forever this year, that profit halved. Same time, we had good results coming from corporate motor insurance, GapCover life underwriting. So I think like a good diversified specialist insurer, sort of always like 1 book having an issue and then 2 books actually do very well. So diversification has come through strongly. Fee income is up 11% despite that 1 bank that got its own license. The fees were still in last year. So we had good fee income growth beyond that client. And also the early signs of moving Namibia to Guardrisk is very encouraging. Momentum Insure. The claims ratio of 47%. It's obviously excellent. But we must also not forget that we did have some weather events during the year. I don't know, ZAR 60 million maybe for the year. So I don't think the claims ratio gets much better than this Brand. It is exceptionally strong. The only negative is Brand's birthday. So I feel bad. But the only negative I can think about is the top line growth has not been there the last year or two. The business actually kept their own expenses flat year-on-year, 0 growth. Despite that the expense ratio went up a little bit because of shrinkage in the in-force book. Majority -- I mean, it's a complex business, but a big part of the focus is now on getting more quotes out there, getting more leads. Our conversion rate is actually quite good. when clients see what we have to offer, we actually convert them quite well. It's more about just getting more people to see that. Health, this business had a lot going on, Bonita has got all the focus, very proud of getting that contract. But for the year, it actually creates a loss for us in the accounts. So we incurred heavy take-on costs. We hired more than 500 people, had to buy 500 laptops. We had to furnish offices in Sandton. Yes. So we incurred substantial take on cost against 1 month of revenue. So there is quite a big negative from Bonitas in that ZAR 367 million. Obviously, next year, we expect the scheme to make some profits. So I think there'll be quite a big delta in the health earnings coming from Bonitas. But beyond Bonitas is also a good news in that the GEMS contract has now been renewed that it's in good shape. Health4Me, which is our low-income product was growing still rapidly at decent underwriting margins. And even Momentum Health, it's grown a little bit. And a little bit of a win in the current environment in the open scheme market. India looks small here, but psychologically very important that we now have profits in India for the first time. And this is net of about ZAR 40 million of overhead costs being incurred in South Africa to support this initiative. I want [indiscernible] if I would joke about this, but like I keep telling you, Han, thanks for the business class for us to Mumbai because I said on the board there, but okay., I'm a tiny bit of the 40 million. Trust me. Yes. Okay. But these are under IFRS 17 as well, quite important. So these numbers are comparable to the way we look at the business. Maybe again, being quite brief for such an important business, top line growth continues to be fantastic. In local currency, nearly 40% last year. I think our budget for this year is a similar growth rate, and I think it's very doable. Combined ratio is coming down nicely because of the scale benefits. So our expense ratio is coming down fast because of the top line growth. Nice problem to have Brand here, okay. But on the claims -- on the loss ratio side, claims ratio side, there has been some pressure. And it's a bit of a global thing with medical inflation, utilization rates and India is facing similar problems. So the long-term success of this business. Well, I think it's almost guaranteed to be successful, but the degree of success, a lot of it is going to be the claims ratio management. I think the top line growth and expense management, I'm almost taking as a given. Also for the technical guys, we wonder while we make a profit with 103% combined ratio, it's because it's annually written premiums. So we get the money upfront. So it's actually a very big float. It's quite different to South Africa where premiums are paid monthly. Shareholders, 2 items worth noting here for the improvement. One thing is that our shareholder fees were down significantly, about ZAR 100 million reduction in consulting fees. So we use consultants extensively in the early part of performance optimization project. And then secondly, the VC funds, we had a loss this year but substantially lower than last year. And those 2 items expand about ZAR 250 million of the ZAR 274 million. Capital management, as I said, very happy with the improvement, was caused by the yield curve declining substantially. One thing I'm not so nervous about another decline. I was telling young, but I don't see 1 deal going below Japan. So I think we are okay for now. But this is an important slide to stop on. Had we not done anything the required minimum capital would have increased by ZAR 4 billion, mainly because of the low yields. Now you can't run the business on 1x minimum. You take 2x minimum that's ZAR 8 billion. For a company with a ZAR 50 billion market cap to tie up extra ZAR 8 billion in risk capital, that's a big, big event, okay? So clearly, we had to take some action here. And through our capital optimization project, we have increased the available capital through Tier 2 issuance and lower dividends from the Lifeco, but we also redid the calculations of the required capital, which then resulted in only ZAR 1 billion increase to the required capital. Things we did. We remodeled our reinsurance reinsurance. We apply various reinsurance structures, for example, mass lapse reinsurance. We looked at the way we model those. We looked at the tax implication of that. We also introduced deferred tax assets under certain stress scenarios where we remain a going concern from an accounting basis. We also looked at modeling of the way our subsidiaries are dealt with. Do we treat them as private equity or do we actually look at the underlying nature of the business. So a lot of work was done to minimize the impact of the lower yields. Because of that, our internal assessment of high-quality liquid assets we want to hold, I always joke this is the money I can bring here tomorrow, but tells me that it's not quite. It might be difficult to liquidate some of those corporate bonds for tomorrow. But anyway, so the high-quality liquid assets, we would have increased it to ZAR 18.6 billion, ZAR 7 billion increase, but now the increase to ZAR 16 billion under the new capital modeling. Obviously, when you change the modeling, you also look at the ratio sometimes. So that's why it's not exactly one for one. But the pleasing outcome there is that that's the difference between having ZAR 2.5 billion of surplus capital, which creates the flexibility versus not having it. So I think the project was definitely worthwhile. Cash flow slide. This is a very popular one always. You can see that the dividend flow -- inflows into group ZAR 4 billion, about ZAR 1 billion lower than last year. The main difference is the Life business. So to strengthen the capital ratio, we did pay quite a small dividend from the Lifeco. That should go back next year. So I think that ZAR 4 billion normal scenario, about ZAR 5 billion. Where did we spend the money? India, we're supporting the capital -- well, they need growth capital. So some money went there. Consult is important. One of our stated strategic objectives is to invest aggressively in advice and distribution. So we have provided capital to Momentum Consult to increase their footprint. The other interesting item and worth for the -- maybe good for the staff to hear is that ZAR 204 million positive on the preference shares. When we did our staff scheme, Isabella a few years ago, we had to sort of provide the financing for the scheme to buy the shares. Now the shares have done well enough that they deepen the money, so they were able to get third-party bank funding and pay the group back. So we had a nice couple of hundred million debt repayment from the staff scheme. And after the dividend, we still at ZAR 700 million surplus -- well, cash flows to the group. So combining the surplus capital, the ZAR 725 million, I'm trying to just explain that things are looking quite comfortable right now. Shareholder value, Jeanette already spoke about this. The payout ratio in the second half was 48%. So that was a bit higher, a bit closer to the midpoint of our 40% to 60%. But for the year, it is still 43% I see some analysts wrote about the low payout ratio, but anyway, second half was a bit better. ROEs, this chart is more meaningful if you have the history. I think we showed this first time 6 years ago at the Capital Markets Day. One thing that's remained constant is our mature life businesses, corporate, MetLife, retail, they always have high ROEs. Running a mature, well-run life company is a high return on capital business. There's a few reasons for it. One of them is we paid the commissions 15, 20 years ago, and now you're sort of harvesting the profits from the in-force book. So we have maintained good returns on those. The difference here is Guardrisk used to be close to 20%, now it's 30%. Insure us to be close to 10%, now it's 20% India used to be negative 20%. Now it's positive a couple of percent. So we're sort of maintaining high ROEs on mature businesses, but all the smaller businesses have seen steady improvement over that period, which explains the group ROE improvement. The only other topical matter, I knew I'm going to run out of time. So there's only one this time. Yes, I'll try to think of something new for interims. But the performance optimization is going well. Now when we started, we had a target of ZAR 1 billion, and we said that we had tangible plans for ZAR 883 million. And we said, we'll figure it out. We'll find it. And every 6 months, people come with new ideas, we update numbers, we sort of get some plans together. We're now for the first time in a situation that just by delivering on existing projects, we'll get to the ZAR 1 billion. there is a good chance we'll get to the ZAR 1 billion by interims. We're not going to stop. We'll try find another ZAR 500 million in the 6 months beyond that, okay? But things are going well. Some of the stuff we're actively working on, we're moving more sort of infrastructure from on-prem to cloud. There are some small corporate health schemes that we need to deal with. We're also moving from using PCs to tablets in the metropolitan sales force. I was saying it's because I go make so many means. We can't afford GPUs and CPUs anymore, okay? Then on conclusion, firstly, for me, maybe my view of the highlights a little bit different to Jeanette, they're both positive luckily. But the excellent EV growth says something to me. It does show that we have been able to continue strong returns in the core businesses and seeing sort of breakthrough of the smaller operations and the solvency metrics improving, basically giving us the flexibility to do it as we please. Earnings are ahead of targets. Right in the beginning, I said I think normalized earnings are ZAR 6.6 billion. When we started this project 2 years ago, the 3-year strategy, I actually thought we could get to ZAR 5.8 billion this year. Last year, similarly, we keep being about 10% ahead of our own internal plans. So let's hope we can keep that momentum going. Also, in my opinion, maybe there should be a there, in my honest opinion, our liquidity and market risk management remains world-class. It's been pretty volatile out there. We had some geopolitical events. We had some bond yield movements. I mean, the level of activity in our sort of derivatives area, risk management is significant, and it's very sophisticated, thank goodness. Yes, profitable growth. This is VNB and non-covered. It's probably come through in lots of the conversations today. I think we're doing exceptionally well running our business as it is. We need to find those incremental growth areas. We need to find some profitable growth. And then lastly, like to, I have to say congratulations and thank you to all the employees. There's more than 10,000 people here. I can say that vast majority are pointing in the right direction here. And you know what, it's not always easy to grow the business while you're having a big optimization project at the same time. It requires resilience and real commitment. So thank you to all of you guys. And then obviously, our clients and advisers won't be able to do it without you either. Thank you, and I'll hand over to Dan.

Thank you. Thank you very much, Risto as well as to Jeanette -- let's give them another round of applause for their presentation today. We have a couple of questions from our analysts. I'm sure some more might come. We've got a bit of time while we're still on air on business day television just to address a few questions. So if you want to send some more, you can. But first up, I'm going to start with a question for Jeanette, which is from a staff member, one of those 10,000 people you've mentioned now, Risto. Jeanette, how do we see all the work going into building our culture coming through in the financial results? How is it actually coming through building the culture?

I spoke about that for 20 minutes that I know. I mean for me, it's literally just -- I think what you see is when you give people a reason to get out of bed in the morning, when you, like we did define a purpose in our case, how we exist to build and protect our clients' financial dreams. People are motivated by a lot more than just money, motivated by a lot more than just chasing an unreasonable target of ZAR 7 billion. And I think it's playing through really because people really do care about our clients and what we do for our clients and being part of that journey to making that come through.

They wanted to hear from the leader again. Thank you very much. Jeanette..

Nothing off of me.

Thank you. That's it. Risto from Michael Christelis at UBS. Can you give more color on why you have declared a dividend at the low end of your payout range and no additional buybacks? Are you worried about solvency? Or do you have other use for the excess capital?

Yes. thanks for that. it's an easy question, it's a hard question. So I think, first of all, there's a bit of a practical issue in that as a regulated insurer, we just can't wake up in the morning and say, let's go for a buyback. I mean there's a process. As an example, some of the modeling changes we made to the SCR. They were only discussed at actuarial committee for finality a couple of weeks ago. So I think there's a bit of a timing issue there. But on the other hand, you're also right that success does bring success in a way. So we're currently in a very privileged position that we have a number of opportunities that we want to explore. Like Jeanette said, it's not like we're going to do a deal just because we've got money. But we want to actually explore those opportunities first before we decide on what to do with the surplus capital. So we took the view that we'll deal with the normal dividend as ordinary course of business. But with the surplus capital, we'll probably take another 3 to 6 months to decide exactly what's the best course of action. Right now, at the current discount to EV buybacks make sense, but we also want to explore the other opportunities.

Okay. Hang on, I've got 2 more questions from Francois Du Toy from Anchor Stockbrokers. The first one is, does part of the ZAR 764 million increase in cost of capital, that the EV impact relate to increasing cost of reinsurance and hedging associated with actions taken to reduce SCR following the yield curve movement. Should we model lower investment returns on capital in the future as a result of actions to reduce risk?