Old Mutual Limited (OMU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Old Mutual's Investor Update this July of 2023. We are joined by investors from across the globe from the U.K., the U.S. and across the African continent. We're also joined by some of our investors here in person in our mutual park offices in Cape Town. Thank you for taking an interest in our business. Our executive management team is here in the room with me, together with select members of our Board. I am Celiwe Ross, I'm the Director for Group Strategy and Group Human Capital at Old Mutual Limited. In this role, I have a very unique vantage point of our organization. Firstly, I'm part of the team that helps to set our long-term strategy, but I also get to see us unleash the creative problem-solving ability of all our people in deploying that strategy. It really is a unique view. So we have a full program today and we'll be together for about 2.5 hours. At our 2022 annual results presentation, in March of that year, we shared the expected impact of IFRS 17 on our business and our responses. And then in November 2022, we invited you to our business update where we shared our capital management framework. With that as a base, we will take you through the more detailed impact of IFRS 17 as well as how we optimize capital. This now brings us back to the beginning, our ambitions and how our customers are at the center of them. Iain Williamson, our Chief Executive Officer, will recap on our victory condition and how we are building the integrated financial services company of the future including our new bank build. Zureida Ebrahim will join him. She's our Chief Operating Officer and she will cover how all of this comes to life through our core businesses and also what we have achieved today. A very exciting update is coming there. Ladies and gentlemen, I've now gone through the main items of our agenda for today and I hope you're excited to hear about what we've been up to as we are. You will get an opportunity to participate. We will have 2 Q&A sessions. The first one will be after the strategy session, which will be presented by Iain and Zureida. So you can queue up your questions on the webcast platform, whilst all of our speakers are going through their presentations. The second Q&A will be after the section on IFRS 17 and our capital optimization presentations. That section is going to be led by Casparus Troskie, our Chief Financial Officer; as well as Ranen Thakurdin, our General Manager for Group Reporting and Insights. He will be joined by Nico van der Colff, our group actuary. Dial-in details for the Q&A are on the screen, and they'll be shared again when we get to each Q&A section and I'll remind you of them. As I welcome now Iain and Zureida to join me on the stage, I'd like to remind you about what we do and who we do it for. [Presentation].

Good morning, everybody, and a warm welcome from me to those of you who joined us here this morning as well as everybody who's joined us virtually from around the globe. We're kicking off today's presentation to talk about how we are building the integrated financial services business of the future. This is key for me and for our business. It's a journey we started several years ago. And today, it's an opportunity to share the natural progression of our strategy with you. I should mention, I think explicitly that we're not changing our strategy. We have made no changes to our strategy at all, but we are seeking to share more detail of how we bring it to life and the progress we've made in executing against that. So I'm going to start this morning by a little bit of context, a snapshot of our environment and our customer base. I'll then go through a quick recap of our strategy, followed by a more clarity on our approach to integrated financial services and how we, as Old Mutual, view that. And then the radar will come up and will give us more detail around how we are progressing our financial services -- integrated financial services ambitions in the context of growing our core business, and then I'll come back at the end to talk about our new growth engines and in particular, about the build-out of our bank, which is a critical building block in our ambitions. But I want to start at the beginning with the part that's literally the most important to us, and that's our customers. I don't think anyone in the room needs reminding that we've been through one heck of a difficult recent few years, both for our customers and for our businesses across the continent. We've seen an economic downturn right across the regions that we operate in. Sub-Saharan Africa growth is expected to decline this year and that will be the second consecutive year of decline. And while inflation has started to trend lower in recent months, it's still at higher levels than it was in 2021. We've seen interest rate increases in South Africa of some 425 basis points since November 2021. And as we all know, sitting here, the energy crisis in South Africa has intensified with year-to-date load shedding in 2023 being more severe than the entire 2022 full year. All of these factors have a disproportionate impact on small businesses and on consumers. On top of that, I think COVID-19 has had an impact on consumer psyche. 1 in 3 South Africans are earning less today post COVID than they were before COVID. And I think consequently, we've seen a level of social unrest in the country impacting an already strained consumer base. The cumulative impact of all of this impacts those most susceptible to economic hardship disproportionately. The reason I paint that backdrop is not to paint a pessimistic picture of the environment. But as a reminder, in a sense that what we as Old Mutual do and how we do it matters most to those that rely on us to help them to navigate their financial lives. We differentiate ourselves by firmly putting all 12 million of our customers front and center of our business, allowing us to make a real impact at scale. Research shows that trust is the second most important driver of purchase consideration in a business and that comes after quality of service, but before even price. The customers associate the Old Mutual brand very strongly with trust. A recent brand finance survey shows that not only is Old Mutual the #1 ranked insurance brand in South Africa but it's also the most trusted financial services brand in South Africa across the broad category of financial service. Given the importance that consumers place on that trust that puts us in a strong position to continue to win hearts and minds as we move forward. Most of you will know that broad-based sustainability is absolutely central to Old Mutual's identity. We strive to create a positive and sustainable impact across our value chain into the environment and broader society and we continue to work towards positive economic, environmental and social outcomes, which ultimately make a contribution to making our markets more sustainable. We're recognized as a leader in the ESG space as seen by numerous accolades received including that of the best ESG responsible investor in Africa for the second consecutive year. With that as context, as I said earlier, our strategy remains unchanged, but I will cover a recap of it briefly to provide both a foundation for the rest of this morning's presentation as well as an introduction for those of you who may not be familiar with it. Our strategy remains anchored in our victory condition of seeking to become our customers' first choice to sustain, grow and protect their prosperity. We provide substance or sustain our customers through our banking and lending propositions. We help them to grow through our asset management savings, retirement and investment solutions and we provide protection to them through our life, annuity and property and casualty solutions. By offering holistic solutions and financial advice, we ensure relevance and resonance with our customer base. And this, I think, is at the core of what enables us to seek to become their first choice. By doing all of this well, the outcome is that we will responsibly and sustainably build the most valuable businesses in our industry. And we track this actively by reference to our value drivers. These are the levers that directly deliver shareholder value. We hold ourselves accountable by assessing all of the initiatives we pursue against the contribution that they make to these value drivers. And the rest of today, we will share details around how we seek to ensure that we get these value drivers to operate at maximum in pursuit of becoming our customers' first choice. So we seek to integrate the realization of our purpose with ensuring our sustainability and continued profitability. We introduced this value creation framework to you as part of our year-end results announcement at the end of 2022. And you see that we categorize our business into 2 broad themes, that are growing and protecting the core and unlocking new growth engines. We've taken a deliberate portfolio-based approach to growth. At the portfolio level, we seek to generate sustainable long-term value for all our stakeholders. Our core businesses form the vast bulk of our portfolio and they currently contribute to stable cash generation and to earnings. The new growth engines are a smaller part of our portfolio currently. They will deliver new revenue streams and future earnings for the group over the longer term and we will continue to make strategic investments in this regard in line with a disciplined capital allocation framework. And Casper and Ranen have a dedicated slot later on the agenda to unpack the framework that we use into quite a lot of detail. We also have a number of exciting developments to share around new partnerships that we've entered into recently. For the remainder of the presentation, I will give further detail on these strategic focus areas and in future at all of our results updates, we will update our strategic progress in line with this framework. Integrated Financial Services is a natural extrapolation of our victory condition. We view our customer base as one of our biggest assets and so seeking to serve that customer base more fully is at the heart of this. It's what we're building to make sure that we're strong, true and centered around the ever-evolving needs of our customers. Our integrated financial services ecosystem has a lot of components and some of them are currently being built. I want to lift out a few key points that I think make this distinctive and valuable. A truly integrated financial services business in our minds satisfies a number of stringent criteria. It's not just about a variety of products from a variety of different sectors or cross-selling in that language. It's really about creating engaging experiences for customers that serve to educate, empower and encourage them on their journey to financial wellness. We seek to connect with our customers in the way that they want, either digitally, in person, through an adviser or through our branches. And this increases our access to them and their access to us. We seek to have valuable conversations with our customers that can change their lives, armed with more data enabled by trust and powered by digital tools. Advisers can fundamentally impact customers' financial wellness journeys through truly connected conversations. And it's not just about providing better advice, but about ensuring that there's a consistent quality of that advice right across the system. So what are the hallmarks of this integrated financial services system that we're building. The first is that it is an advice-led system to help customers on their journey we believe that you need to know and understand them and advise them accordingly. So advise is right at the forefront seeking to provide the right solutions to customers at the right time. Unfortunately, for us, advice is a well-developed capability in the group given that our core solution set for many years has been anchored in our life and retirement savings business. We now support our advice capability with an industry-leading set of advice tools that help advisers to deliver a consistent quality service. And we deliver this through a vast network of continuously trained and highly skilled advisers. We have more than 14,000 tied advisers across all of our markets in addition to a large network of independent advisers. With data collected through our platforms, we seek to get to know our customers better and more intimately than others. In the belief that a deeper understanding of their needs allows us to form long-lasting and meaningful relationships with them. This is underpinned by deep expertise from a long history of training and working with such a large adviser network, which is bigger than almost any other on the continent. And this is core and has been core to who we are and how we serve our customers for many, many years. The second key feature of this ecosystem is that it is truly integrated or needs to be truly integrated. The solution set must be holistic and joined up so that the solutions complement each other and work with each other to strengthen the overall offer. We seek to provide a holistic set of financial services to meet customers' needs as they navigate the lifelong financial journeys. And customers can benefit tangibly through our rewards program from either essentially having multiple solutions with us or from making better financial decisions in support of their personal financial goals. And we seek to embed advice and guidance into every part of the value chain and into every interaction that we have with customers. This ecosystem is also what I've described to describe as tech forward. The heart of the always-on experience, data collection and the where you need it, when you need it, the delivery is enabled by modern technology. Customer expectations have risen. There's an always-on mentality demanding faster response times via the channel of their choice. We've put the building blocks in place to deliver an integrated customer experience. And we've made significant investments in technology to deliver a seamless experience for customers through the integrated financial services ecosystem. And Zureida will share quite a lot more detail on the building blocks where we are in the build-out and the next steps that we will take. We seek to allow customers to interact with us on their own terms. We use a variety of channels in a way that best suits them. And the focus on a tech forward approach gives us a better chance at retaining customer relationships for longer. And finally, one of the most important forms of currency in today's business landscape, which I've alluded to a number of times this morning already, is that is trust. Customers want to support brands that show accountability. This is a key driver of consideration and brand usage and therefore, a critical enabler of business performance. Customers associate our brand with trust. We've worked hard over a century and a half to earn that trust, and we'll continue to ensure that we win customers trust every day. So given this backdrop, I'd like to welcome Zureida to come and talk to you. She will guide you through how we're bringing this ecosystem that I've described to life across our core business, including the progress that we've made in building it out as well as sharing highlights of what's next in the journey. And then when she's done that, I'll return to conclude with a few remarks and an update on how we're progressing on the new growth engine side of our portfolio. Zureida, over to you.

Thanks, Iain. I was going to start with the joke about between Iain earlier and Casper later is Zureida. But I heard that you don't have to start an investor presentation with a joke. So what I am going to say is that between vision and results lies execution. And we recognize that in order for us to achieve the meaningful impact Iain just spoke about and our desired financial results, we must prioritize and excel that execution. We must be able to translate the strategic aspiration of becoming an integrated financial services business into tangible outcomes. What our 5 strategic focus areas that Iain just shared with you does is align our resources and our actions across the organization to help us meet these objectives. I'm going to talk a little bit more about what we mean by growing and protecting the core. 3 out of 5 of our focus areas is actually about maintaining and growing our core business. Our core business is the business in South Africa and our other Southern African operations. It's our established cash-generative businesses where we know and do well. Where we operate from a position of strength. We've got a sizable customer base here, 9 million of the 12 million customers that Iain referred to earlier, are in the core. The trust and loyalty that Iain referred to is critical in helping us grow and protect this core business. A growing and profitable core also means that we generate enough funds to invest in new opportunities and new business, which Iain will talk about later. So let's look at the 3 areas in growing and protecting the core. So the first one is holistic coverage of customer needs. Here, like Iain referred to, it's about the comprehensive set of financial solutions that allow us to take a more holistic approach to customers' financial wellness needs. It means that customers have the convenience of being able to access these multiple products and services from a single place. It also makes it easier for customers to manage their finances and it allows them to take a more holistic and integrated approach to financial planning and getting advice. From our perspective, it builds a greater and stronger relationship with Old Mutual and it allows us the opportunity to meet a bigger proportion of customer needs, increasing their lifetime value to us. The second focus area here is distribution and digital engagement, and this is really about us finding new ways to reach existing and new customer segments to increase our brand reach, but also to leverage new technologies to offer better advice solutions, better product solutions and greater experiences to both customers and advisers. The third focus area here is operational efficiencies and this is really about supporting our sustainable growth by optimizing costs but also leveraging our benefits of scope where we can deliver a broader set of solutions to customers, meet a greater proportion of customers' needs but also where we can leverage the same set of resources and skills internally in order to meet this more holistic value proposition. So let's take a look at what we've been doing in each one of these areas. So if we look at holistic coverage of customer needs, I'll reiterate some of the points that Iain made earlier. So for us, integrated financial services is about providing this wide range of financial services within the Old Mutual ecosystem, but it's also more than that. It's about the seamless and cohesive experience that is coupled with offering multiple solutions across multiple channels. With the addition of banking to our solution set, we are now able to get into the everyday lives of our customers and truly claim the title of holistic. Again, as Iain said, it goes beyond that. For us, it is about the advice and the trusted conversations that we add to our solutions and our services that we offer our customers. We see significant untapped value in our existing customer base and so we want to focus on cross-sell and upsell to this customer base, obviously, doing this at a lower acquisition cost and then leveraging this broad set of customer data that we get to provide deeper insight and opportunities to innovate even further. So as Iain said, this is not a new journey for us. So let's look at what we've delivered against this commitment already to date. The first one is the launch of Old Mutual Protect, which is our flagship risk proposition, which we took to market in 2021. Old Mutual Protect is unique in its construct. It is flexible and modular. It actually allows customers to tailor their cover in line with their changing needs. So customers can increase or decrease cover depending on their changing financial circumstances. What this means is that we don't see customers canceling their product as much due to affordability issues and this has a positive impact on persistency. And this is all as a result of the nature of the solution that we have put down. We see how this has impacted our Mass and Foundation Cluster business. So in the Mass and Foundation Cluster, we've moved from being able to go beyond providing just funeral cover to customers having access to simple and fully underwritten life cover and this has made a really significant difference. In fact, Old Mutual Protect has had a record sales year in the Mass and Foundation Cluster this year. From a financial wellness perspective, it helps us -- help our customers move beyond just providing for the funeral, but where customers are actually able to provide for their families post death in a better way. We've also enhanced our rewards program, our rewards membership is now in excess of 2 million members. On this rewards program, the customers who are actively engaged in it, have a 35% higher number of needs met with Old Mutual than customers who don't. We see this having grown from 30% in the last year. We also see, especially in the Mass and Foundation Cluster, a positive impact on persistency in that business. More recently, we've launched Old Mutual Health Solutions. This is in conjunction with Genric, which was acquired by Old Mutual Insure in 2022. This solution is about providing affordable cover to lower income earners. One of the capabilities that we've implemented this year, which is not yet at the stage of demonstrating the value we talk about there, but which is showing great results. Is our SMEgo capability. We have launched this platform for small businesses. We already have in excess of 4,500 small businesses accessing business finance and other business services on the platform. Again, this creates the opportunity for more employee benefits and business services that we get to offer to these businesses who are using our platform. Let's look at the next phase of delivery. So Iain is going to talk more about our bank later and that is obviously core to our core business. He will expand on that later but what you can expect to see within the core business is the launch of our savings and income proposition. The savings and income proposition like Old Mutual Protect will also be flexible and modular in nature and very importantly, on the same chassis as Old Mutual Protect. I'll talk more about what that means just now. We will further integrate Old Mutual Rewards across our solution set. Old Mutual Rewards will be integrated into the bank. It will also be integrated into our financial wellness platform where we get to reward more than just having products, where we get to reward customers for good financial behavior, for learning more about their finances, for keeping their products longer and so forth. And then finally, we are launching a home ecosystem where we offer customers home loans. But in addition to that, we will also be bringing other services like access to solar solutions and so forth to the market. This presents a great opportunity, for example, Old Mutual Insure who now has access to this set of customers to offer short-term benefits. The third area, distribution and digital engagement. For us, when we think about this, it's really about amplifying the success of our face-to-face channels that we've seen to date. We want to do this through new distribution partners as well as through new distribution channels. It enables us to scale the advice and the trusted conversations that we have very successfully been able to deliver through our advisers to date. We will leverage new technologies to enable advisers, but also to empower customers to connect with us through the channel of their choice. This means that we will make it easier for advisers to do business with us so that they can focus on doing what matters most, their customers. Equally for customers who want to engage with us digitally, we will continue to invest into the My Old Mutual ecosystem to drive rich, regular and personalized engagements directly with these customers. So let's take a look at what we've already done here. We've made selective acquisitions and entered into strategic partnerships to grow our face-to-face reach. Some of the notable ones are up there in front of you, including Genric Insurance, which I just mentioned, Old Mutual Insure also have a partnership with Latam Broker Services and Pineapple Insurance. The Mass and Foundation Cluster have a relationship with Bridge Taxi Finance and Two mountains more recently, which is still up for regulatory approval, I must mention but we're expanding our reach through partnerships quite significantly. We have very recently launched a FinTech solution in Zimbabwe called O'mari. O'mari is a mobile money, Insurtech and HealthTech service. It's available through an app but also through USSD. What's incredible is we have reached 50,000 customers in just 5 weeks. Of these 50,000 customers, 84% of these customers are new to Old Mutual. So we're looking for opportunities to scale this to the relevant markets. We've also made several enhancements to our service processes. We have created new service models for advisers. We have removed significant amounts of friction within our servicing channels and we've automated several servicing transactions both for customers and advisers. What this has resulted in is an improvement in our Net Promoter Score to 70%. That is a world-class number. And net effort score, which measures how easy it is for advisers to do business with us has improved to 75% this year. The next phase of delivery is about driving more frequent customer engagement through guided conversations on our My Old Mutual ecosystem. The heart of this will be delivered through a needs-based goals and financial wellness platform, which will be integrated with our rewards program. So the goals functionality offers support to both customers and advisers. So customers will be able to set their goals, they will be able to track their goals, and they will be empowered with information and guidance on improving the situation every step of the journey. For advisors, advice will be able to get a holistic picture of their customers' goals and have more meaningful engagements with customers based on this. We are taking an iterative view. We launched very soon in the next quarter. We will pilot it with 1 or 2 goals, but we intend to extend to the full suite of the 12 financial goals we have identified in line with the customer's lifetime financial needs. Another important delivery for us in this space is what we refer to as enabling digital advice. And this is really about improving the adviser experience by making it easier for them to do business with us. The less friction we have in our internal system, the easier it is to do business, but it's also the more likely that they do business with us. And this is a very key component of our digital transformation story. We're really excited to announce the partnership that we have with OneConnect Financial technology, part of the Ping An Group, where they bring together their leading insurance and technology expertise to build new digitized products one such being the omnichannel agent solution, which we believe will do really well in the South African environment. We've started the development of this new platform, and we're already in pilot with a select adviser group and we intend to commence scaling into the broader adviser community in this year still. So operating efficiencies, as I said earlier, enables us to not only extract the benefits of scale from lower unit costs, but the benefits of scope by applying our resources more broadly and also being able to offer customers a broader set of solutions. I'm going to show you a video that shows you what this looks like in practice. [Presentation]

So what you see there is, I'm sure many of you have heard us reference SA transformation before. We've been on a multiyear technology modernization strategy, which was really about modernizing our core retail life administration platform that services South Africa and Namibia. It's at the back of this new platform that we launched Old Mutual Protect and we've since enhanced it over time. So as you saw, what this new platform affords us is several new capabilities, which give us an edge in the market. So first, we get -- we have a full set of risk benefits, including funeral, simplified and underwritten life as well as disability and ill health benefits across all of our retail channels on one platform. What it means is that advisers only need to know one sales journey. For us, it means we only have to train advisers once. Advisers benefit from direct execution themselves onto the appropriate risk solution for a particular customer. Onboarding is 100% paperless. It's powered with an auto underwriting process, 97% of policies today are fulfilled automatically. Old Mutual Rewards has been embedded into the underwriting process, allowing advisers and customers to see immediate benefits accruing from the benefit choice they've just made. So whilst on the one hand, you saw how this integrated approach has allowed us to offer a wider solution set to customers what you now see is how the same approach has substantially improved our adviser productivity, our servicing cycle times but our operational efficiency across the entire business. This has been one of the key drivers of our market share recovery in the Mass and Foundation Cluster as well as the improvement in our value of new business. This competitive edge will be further enhanced when we integrate our savings and income solutions onto this very same chassis and reap the scale benefits of our entire South African and Namibian risk and saving solution on one administration platform. We've also, as part of this modernization journey, migrated 100% of our South African life estate onto the cloud. We already see the benefits of reliability and faster execution times. We have also streamlined our digital assets, consolidating 13 of our public websites into a single platform, improving both our sales and service experience across our different regions. What can you expect next? So we expect to migrate our old generation risk book very imminently. And then our savings book thereafter onto the same platform, the exact same chassis that we referred to and we will then proceed with decommissioning our old platform and all the peripheral systems associated with that. In addition to that, we're busy migrating Old Mutual Insure and our Africa Regions IT stake to the cloud as well, and Old Mutual Insure is also making good progress on the modernization of their IT estate at the moment. So as I've explained, our integrated approach is not just about expanding customer solutions or becoming more efficient, but it's the interaction of all of these strategic focus areas together, which accelerate our growth across our core businesses. The holistic coverage of customer needs make sure that we are delivering more value to customers and that we are also driving more value from customers, driving distribution and digital engagement, expands our reach but it also gives us the proportion, the opportunity to meet a greater proportion of customers' needs and driving operational efficiencies improve our margin. So bringing these 3 things together is really the key for us to unlocking growth in the core. We've shared with you today that we have a compelling vision. We have aligned leadership, and I'll talk to you a little bit about empowered employees and how bringing those 3 things together create our success. We have a unified vision and it's now really about driving unified action across our organization to make this happen. We have embarked in an agile transformation journey so that we create empowered cross-functional teams to work together to bring these customer-centric solutions to market faster and more efficiently. It's because we recognize that we're a large organization and that with 30,000 passionate employees who are not just aligned to our strategy, but who I empowered to act will turn this stream into a reality for us and our customers. I'll hand back to Iain on that.

Thanks so much Zureida. So I'm now going to shift gears a little bit to talk about our new growth engines. The core is what keeps us running profitably today. And this next section now talks to how we keep that sustainable over a longer-term future. And this encompasses the last 2 of our 5 focus areas, spanning both strategic growth businesses as well as strategic growth markets. Improvements to the core, which we've talked about in a lot of detail this morning, improved returns fairly quickly. Investing capital into new growth engines will help us yield sustainable growth over the long term. So for the rest of this presentation, I'm going to focus on our strategic growth businesses, including a deep dive into our bank build on what we are doing there. Our aim in this portfolio is to drive customer access, new offerings and new capabilities through digital-led solutions, including ecosystem-based ventures and strategic relationships. Our strategic growth businesses span what we call internally our NEXT176 portfolio and the new transactional banking capability. So just as a reminder, we established NEXT176 towards the end of 2021. So it's just over 18 months old with a mandate to accelerate the growth and innovation agenda at an enterprise level. Included in that portfolio is the pursuit of large-scale strategic relationships, supporting distribution channel expansion, product innovation opportunities and capitalizing on the growing trend of disaggregation of financial services, value chains through embedded finance. It's a different kind of integrated financial services, but it's integrated nonetheless. The bridges at NEXT176 is building for us into the likes of retailers, including online retailers and mobile service providers allows us to be more fully connected to our customers' world. By achieving that integration, we establish a presence and offer solutions to a broader set of customers in a different way. And that's what embedded finance is all about. We're excited to announce that Old Mutual through NEXT176 have entered into a strategic relationship with the Vodacom Group. We will leverage our respective customer bases and capabilities to distribute innovative solutions and services across the continent. The start of this has seen Old Mutual transferring its mobile estate to Vodacom, providing finance for backup power solutions supporting Vodacom's ESG efforts through tweak carbon, which is NEXT176 is carbon accounting software venture. And we're also exploring insurance solutions between ours and the Vodacom platform. So this then takes us to one of the more exciting and important parts of our future, which is the building out of our bank. So why a bank? This is a question that I've been asked a number of times since we first announced our intention to build the bank in November of 2022. Apart from meeting some specific customer needs and allowing us to complete the IFRS ecosystem, building the right kind of bank helps us with quite a few things. Firstly, it enhances our ability to have regular, natural business-driven interactions with customers. The nature of the long-term insurance business is that natural business interactions are less frequent. It gives us proximity to customer data directly into the national payment system and that increases our cross-sell opportunities. It allows us access to cheaper sources of funding for our loan book as we will be taking deposits on our own balance sheet. We are building the bank through a digital-led set of functionality that will target upper mass and lower affluent customers primarily. It's also worth noting that banking and lending is not new to the group. We're building on existing capabilities. In South Africa, Namibia and Kenya, we already offer lending, although we don't offer full transactional banking. And in Zimbabwe, we have CABS, which itself is a full-service bank. So the building out of a fully fledged transactional capability in South Africa builds on these existing strengths and capabilities. It also builds on the trust element that I referred to earlier that our customers have in us. This is really, really important. It builds on the existing relationships we have with our 9 million customers in our core business and it builds on profitable banking operations that already exist and existing infrastructure and network of branches and advisers. It provides us with a fast path to deposits as a source of funding for Old Mutual Finance and we are able to significantly leverage Old Mutual Rewards to provide tailored offerings to our existing group customers. But with all that said, it's going to cost us money and investment before we start to make a return. So we've been very deliberate in the initial scope of services we will offer and in building out our capabilities for sustainable competitive advantage. So let me just call out a few of the hallmarks of what we are building. We believe that the capabilities we've invested in to date will contribute to differentiation in the context of an admittedly crowded South African retail banking landscape. Firstly, the capability we're building is cloud native. And it sits on a software as a service model. This allows us to do a number of things. We can reinvent the customer experience paradigm. It allows us to react faster to changing customer needs and to changes in the competitive environment. And it allows us to quite significantly differentiate the offering by cost to serve. Real-time connectivity combined with major advances in data analytics and processing capability and software as a service, artificial intelligence and machine learning allow for abilities that legacy systems, processes and structures simply cannot cater for. In many ways, the existing operating models of incumbent banks are the opposite of what these new technologies enable. So building this up -- from the ground up on this type of set of new capabilities allows us to pursue different opportunities. And we're not the only ones that are excited by what we are doing. We've partnered with a company called 10x, which is a core banking system service provider founded by Antony Jenkins who used to be the Chairman of Barclays globally, and who is now both the founder and the CEO of 10x. 10x has played a key role in delivering transformative digital propositions globally including underpinning the launch of Chase Bank in the U.K. as well as the new Westpac banking platform in Australia. So I'm going to play you a short video where Anthony shares his thoughts on what we are doing with 10x. [Presentation]

Okay. So with that, let's get concrete and talk about where we are with the bank build. The Board approved expenditure I've shared with you before, to complete the build of the transactional capability is ZAR 1.75 billion. To date, we've spent ZAR 1.2 billion with ZAR 267 million of that being capitalized. We are still targeting to launch the bank in 2024 and we are targeting breakeven for the new capability in 2027. We received our Section 13 approval under the Banks Act from the Prudential Authority in September of last year. And we've subsequently submitted our Section 16 application, which is the next phase of the regulatory approval process to the Prudential Authority and we await their feedback. We continue to make good progress on the build-out of the platform. The next steps will be to complete the build for the launch value proposition and to garner the approval of the regulator for our Section 16 application. That approval is referred to as Section 17. What that will allow us to do is to then integrate what we have built into the national payment system in production and to do the necessary integration testing with the various payment clearing houses. That is then followed by a friends and family launch of the capability and then finally, by a full-scale market launch. We're confident that what we're building will be a valuable addition to our ability to attract and retain customers and to drive revenue growth for the group. So to wrap up this session, we are energized by the work that's been done to date across the portfolio in progressing our integrated financial services ambitions in pursuit of our victory condition of becoming our customers' first choice. We're confident that execution across our 5 focus areas will generate sustainable shareholder returns. And we will communicate new medium-term strategic targets across our focus areas as part of our interim results in September. I'm going to close there and ask Celiwe to take the floor and facilitate a Q&A session. Thanks.

So thank you very much, ladies and gentlemen. As Iain said, we are going to kick off our first Q&A session after the strategic update that you just heard about. Essentially, we were talking about our strategic ambition and the direction that we're taking the company in, but also giving you a state of updates around what we've achieved to date and what we still have to do. You will see on your screens that we're sharing details of the dial-in number for you to be able to dial into the line and ask questions. But I am going to start with the investors in the room who have questions and in order to make sure that we run this as efficiently as fairly as possible. I'm going to ask that everybody asked 2 questions, and then we'll go around the room and finish those, and I'll go into the webcast. There are roving mics available. And if you just raise your hand, a mic will be brought to you. Please can I request you to first start by introducing yourself and letting us know, which company you represent. And as I said, I'm going to limit each question or each person to 2 questions at a time. So that we can give everybody an opportunity to engage in this instance with Iain and Zureida and if the questions get really tough, I'll bring the MDs of the businesses in. So let's get going.

It's Warwick Bam from Morgan Stanley. I think one of the themes of your strategy is improving client engagement and that will naturally have sort of self-reinforcing impact on the business. But with 12 million customers and 14,000 advisers, it still looks like quite a challenging task to increase the frequency of engagement. Just give us a sense of you obviously measure it and you've got science in terms of how you apply customer engagement. Just give us a sense of where you're at now, how you think it could improve if I just think over the last 3 years, you've actually reduced certainly in the MFC business. I think you've reduced your adviser head count slightly yet. Sales volumes, as you rightly said are slightly above pre-pandemic and hitting new records. So give us a sense of whether some of the initiatives you've already mentioned are starting to have an impact? And then what you're looking for in terms of further improvement from a client engagement perspective.

I think if you look at it. So I think it's important to first say, a lot of our energies to date has been South Africa focused and to some extent, Namibia focus. That's obviously 6-something million customers out of the 12, if you like. There is an opportunity to think about how do we extrapolate some of that logic at a later stage into other markets. It's obviously more difficult at that point in terms of just the portability of some of the issues, the regulatory stuff or tax stuff, et cetera. But the more -- I think Zureida slightly imply things that are worth making more explicit. So by having done Old Mutual protect, we've essentially, I think we've built the answer largely for the risk business. We can still make further improvements to that. We, by no means, we had a blueprint, which we had set out initially and we, by no means, achieved all the aspects of that blueprint. So there's still some incremental benefit that could be had from further improvements within that vertical, if I can use that language. But the next big shift will be when we get the savings and income piece included. So if you put yourself in the shoes of an intermediary today, that services a customer across the breadth of life risk savings retirement. What we're essentially asking them to do right now is to use one set of tools, a nice modern set of tools, a really great advice support framework for the risk business. But then if I want to have a conversation with the customer about savings and retirement solutions business, they actually have to go out of there and use an entirely different set of tools, which frankly are old and archaic because it's our old stuff. So at the point where we make that shift, those advisers life become 100% easier. So that I expect that is a business core to further improve quite a lot when we get that right. And the quality of the conversation because we will provide similar tool support around the advice and solution recommendation process, the quality of the conversation around the taxable income business also to elevate. I guess in a way, that's the most immediate next step in the, quality intermediary customer experience, and then you can extrapolate from that the logic of how we then start incorporating other things. But that's kind of the next immediate frontier for me.

Yes. I think the only thing I would add to that conversation is expanding our rewards program across the different product needs. We'll also deepen the customer engagement. And so we integrate into retirement goals like in the next few months and we've got a plan around integrating into the various goals over the next period, and that also adds to the engagement.

Yes. Sorry, on that. I think there's one thing I would add to that and oviously triggered it as well. We were very cautious when we started Rewards in terms of how we rolled it out. We didn't put any marketing behind it. We didn't make it easy and integrated into, for example, Old Mutual Protect quotes package on day 1. And the reason for that was we wanted to prove our own hypothesis to ourselves that the customer behavior changes that we were seeing justify the cost of the Rewards program before it got to crazy scale. We only had the confidence to if I can use that language to open that up more fully in the last 6 months to 1 year. And so now we have, as Zureida said, we've now integrated it into the Old Mutual Protect Package. We've pushed our advisers to market it, and the membership numbers are starting to ramp. But the reason we were cautious initially is we wanted to make absolutely sure that the financial algorithm underneath it actually worked and made sense. And it does seem to work. And we continue to track it. If anything, it's got better, so we're comfortable and we really are now pushing that forward and I think it's paying quite good dividends.

Thanks, Iain and Zureida just going to look into the room if there are any more questions before I go to the webcast. I don't see any. So I'm just going to move to the webcast. Again, if I can ask for you to introduce yourself first and the company that you represent and then you can go ahead and ask your question. Webcast over to you.

We have a question from Andrew Sinclair of Bank of America.

Two questions from me, please. First one is on efficiency. Just really looking for some thoughts on cost-income ratios. You talked a lot about being more tech forward. You talked about efficiencies 97% straight-through processing, 100% of SA Life on cloud. But what's that really meant in terms of cost-income ratios. Where are you today? How much has that improved the cost income ratio so far? And where can that get us to over the next few years? I don't know if you're maybe giving a cost-income ratio target in September. So that's my first question. And second question, much shorter. And just on banking, I just really wondered if you can give us some color on customer numbers that you expect to move to your banking offering. And really, what's the catalyst that will make some move to your bank accounts.

Iain those sound like questions for you. The cost-to-income ratio one first.

I can't give you a concrete number, Casper may help. But the -- in principal, we've seen the unit efficiency at the level of the Old Mutual Protect sort of streamlining and some of the other streamlining we've done that Zureida talked to. However, we're currently at a point in a cycle where we have built the new but not always switched off the old. And part of that is because we can't switch off the old yet. So the background here is that within the personal finance business, the legacy risk and savings products are sitting on the same set of kit and the reason we actually started -- it's worth saying that I think unlike many other businesses, we were forced in a sense to start our modernization journey at the back and not at the front because of risk in the back-end systems, which is not the way I would necessarily have chosen to do it in a different world. But that said, we've made a lot of progress. We're on the cusp of being able to get the risk business moved. We should be able to get the savings business move in due course and then we can switch off a bunch of stuff. That will significantly help us from an efficiencies perspective across the piece. So while we see unit efficiency at the marginal servicing and new business transaction for a new policy, we still have an in-force book that is not giving us the benefits of scale. And that's sort of a forthcoming attraction, which we hope to be able to realize in the next period. Casper, do you want to add anything to that?

No, I don't want to talk about the cost-to-income ratio at this stage, we'll give more color when we come back in future. A lot of the cost targets that we communicated to the markets in the past and the delivery of those costs were in the call. We move into the cloud of our IT systems that allowed us to take quite a lot of costs out and we gave you detail on those deliveries in last year's set of results. I think just to reiterate Iain's point, that we add a cost peak because we're running most of our large systems simultaneously and we'll only be able to switch those off in the next few years. And we've seen significant pressure on revenues given the economic environment in the last few years. So we should -- so what I'm keen to focus on and talk about going forward, is how do we improve revenue versus cost? And how do we widen the jaws? And we'll be talking about how much faster we can widen revenues relative to cost as opposed to a specific cost-to-income ratio.

Was largely related to customer value proposition for our existing circa 500,000 customers and then what the additional value could be for new customers. That was essentially the question. For the bank.

So I think we've done a lot of work on, I guess, the niche group value proposition for the bank. And as I mentioned in the presentation, some of the key differentiators, but I want to say price but certainly value. And secondly, just customer experience and customer journey. The -- and you can think about it in a way from the perspective of we will seek to charge for value and not simply penalize customers for bad behavior, which I think is quite a pervasive incumbent behavior. And because of the cost-to-serve advantage that we think we can bring to bear, that's sharing that value to customers and the way that Antony Jenkins described is doable. So there should be a differentiation from that perspective. What we are still busy with right now is the existing group customer value proposition and what that might look like. We will seek to, in all likelihood, create a league of the Rewards program that helps us to deal with that issue. So or to pass in enhanced value to customers who are really loyal Old Mutual customers, you consume a lot of services from us. And just as a principle, generally in our system, we don't discount pricing at a per product level. We seek to provide any benefit to customers back through the Rewards program at the portfolio level of what it is that they do with us. We think that's a much cleaner and simpler system to look after over time.

I'm going to take another question on the line. Once again, if you could just introduce yourself and the company that you're from before you ask your 2 questions.

We do not have any questions at the moment.

I've got 2 questions that have come through in writing, Iain, both of them from Baron Nkomo from JPMorgan. The first one is, can you recap or elaborate further on the nature of the relationship with Vodacom and the second question is, you mentioned record sales this year in MFC. Is this for the 6 months to June? And to what would you attribute the strong performance?

Okay. So on Vodacom, essentially, we describe it as a strategic relationship. Essentially, the conversation has been what you could describe as a value exchange. We provided certain business to them, they provide a certain business to us, not all of which we are publicly talking about at this stage. But equally, it's a little bit like the way we used to -- I would describe it a little bit like the way we used to conduct our relationship with Nedbank, which is there's an open collaborative conversation with each other that is likely to mature over time, which is arm's length commercial but acknowledges that there is a relationship between the 2 that allows us to be aware of all of the opportunities on both sides of the things that emerge and each of us can choose to pursue those opportunities as we go forward. We're working quite closely with a number of different parts of the Vodacom stable to look at how we develop that but I do expect it to be a little bit organic in the way that it evolves over time, but the early signs are very encouraging.

Then the other question was on record sales and MFC. I did say the tough questions ago. They'll just bring a mic over to him. Iain, maybe you can open, and then we give Clarence an opportunity to...

I think the reference is really to the first part of this year but I think there are multiple factors underpinning it. One of the more important ones from my perspective has been the introduction of simplified underwritten life into the MFC base. That's a differentiator in the market in that particular part of the market and we've seen really good traction.

Yes. I was very tempted to say to Barron maybe we should wait until the 27th of September and then we can have a conversation because, first of all, my team is still busy putting the results together. I'm going to present those results to Iain and my colleagues on Monday. So I don't know yet in terms of records and everything around it, but what Zureida was referencing was OMP. In terms of OMP, was starting from a low base because we started OMP in 2021. So we're building momentum on that over the past to 2, 3 halves. So in the first quarter, we did mention that we saw the sales momentum and that includes OMP. But we will talk to you in September whether we have missed records or not but for doubt, that is just it.

I'm going to read 2 more questions before I check in the room. This question, I'll rephrase it. I think that's what it's trying to ask, but let me read it as it's written. Regarding digital distribution penetration, can you comment on the nature of channels you have and how these are contributing to pulling younger customers, particularly in personal finance. I think the question is asking about digital distribution and how that will contribute to pulling younger customers, if I've interpreted it correctly. I'll give that one to Kerrin. Let me read the second one. Can you give more color on the assumptions behind the bank's breakeven? What level of customer deposits and credit market are you expecting at that point? Casper, I'm going to give you a few minutes to think about that one, whilst Kerrin responds on the younger customer penetration.

We have a few of our sort of starting out products. So things that are relevant typically to people in the sort of early 20s available on our digital platform. You can buy those products both via apps, via our websites. And then in addition, we have sort of what people tend to think about digital as online or app, but we also see direct distribution happening via WhatsApp channels via TV sales and we have those available in those markets as well. And I think the take-up is good. We do see them growing strongly. We've had double-digit growth in digital for sort of the last probably 3, 4 years in a row, but off a very low base. It's one of those things that we kind of intellectually go, people should all do stuff online, but very few do in actuality.

Yes. Thanks, Kerrin. There was a question just around breakeven, Casper, and then I'll close for the bank?

Yes. For the bank, just a reminder of what we've told you before, because we're not telling you much more than that. We are following a gated approach. Our Board is approving the build and launch of the bank based on achieving key milestones. Iain has alerted you to the next milestone, which is getting Section 17 and then we will announce the bank to the public. I think at that point in time, we'll be able to give you more detail around the expected customer reach and the profitability and the profile of profitability that we expect to reach breakeven. I don't think we're comfortable doing that at this stage.

Thank you. Thank you, Casper. I would have loved to take more questions, but I do also have to observe time and time constraints. And we still have quite a lengthy and meaty discussion on IFRS 17 and capital optimization coming later. The idea now is to take a break. We are scheduled to take a 20-minute break between now and the next session. On my watch, it is almost 25 past 12. So 20 minutes on to that will take us to quarter 2. Quarter to 1, South Africa Time will be back. For those who are in the room here with us in Cape Town, there are snacks through those 2 doors at the back. You're welcome to get some refreshments and interact with the rest of our management team. And if you need any assistance, there's a number of our Investor Relations team in the room that can guide you. If you're dialing in from wherever you are, you'll have to get your snack at home and we're hoping to meet next at quarter to 1 South Africa time as we join the session on IFRS 17 and capital optimization. Thank you very much. [Break]

Ladies and gentlemen, welcome back to our Investor Updates. I hope you had a good break and a leg stretch as we get into the really meaty part of our day. We're under no illusion that this next part of the presentation is probably the one that's top of mind from an investor interest perspective. It has been a while since our sector has been impacted as much by an accounting standard as we have now and our finance teams across all our various businesses have really worked hard under tremendous pressure to be able to produce the pace basis that you're about to hear about today. And I dare say that they've done some excellent work. As I said earlier, I'm joined by 2 of my colleagues, our Group Chief Financial Officer, Casper Troskie; and Ranen Thakurdin, who is our General Manager for Group Reporting and Insights. I'm going to hand over straight to them. Thank you.

Thank you, Celiwe and good morning to everyone. The implementation of IFRS 17 has been one of the most complex accounting standard changes in the financial services industry. This implementation process has been long and arduous, and we have done our best to simplify the key impacts for you. Ranen Thakurdin, our Head of Group Reporting and insights will also be taking you through some of the final technical details. Those are the pieces I didn't understand. I'll start off with our provisional numbers and impacts on key metrics. IFRS 17 is an international accounting change introduced to provide consistent principles for all aspects of accounting for insurance contracts with the intention of enabling more meaningful comparisons across the industry. It is important at the outset to reiterate that IFRS 17 does not actually impact the underlying fundamentals of our business. It does not directly impact our cash generation or solvency position. It does not impact the value of our business nor our ability to pay dividends, noting that we will maintain our current dividend trajectory in relation to the free surplus generation of the business, and it does not impact our ability to invest in our new growth engines. What it does change is how we report on our life and savings and property and casualty businesses, and it changes the timing of profit recognition. And how does it do this? It does this by the contractual service margin or what we call the CSM, which is an unearned profit reserve on our in-force book. Under IFRS 17, certain items that we're taking to profit are now taken to the CSM. The CSM thus becomes a store of future value that releases into profit over time. So while complex IFRS 17 does not have a long-term economic impact. There are some transitional economic and accounting impacts that relate to the rebalancing of our hedging portfolios that Ranen will discuss in respect of 2022, and which we will highlight in our June results. We will be covering following today. Our recent performance under IFRS 4, as well as highlights for changes to equity and earnings, KPIs under IFRS 17, changes to the balance sheet and its impact on earnings and changes to embedded value in the value of new business. And lastly, we will conclude. We have set aside time for Q&A, so please keep note of your questions and we'll address them at the end of capital presentation later today. To kick things off, let's have a quick reminder of how our business performed under IFRS 4. Overall, the results were good despite a very tough environment. Results from operations improved by 99% post-COVID, with overall profit being weighed down by weak equity and bond market performance. We had strong cash generation and adjusting for the distribution of the stake in Nedbank, we were able to grow the dividend at 13%. We have seen good traction in regaining market share and improving the mix of business in our South Africa retail operations, which benefited profits as well as the value of new business, which grew by 16%. We did, however, note that the economic plant was placing heightened pressure on consumers and on persistency in the Mass and Foundation Cluster. We also flagged you some of the specific impacts included in these results. The most notable of which were the material net COVID-19 impact releases and further discretionary margin releases in the business. These were partially offset by mortality and persistency base is strengthening. Some of these items are treated differently under IFRS 17, which we will cover shortly. Before discussing the IFRS 17 2022 results, I would like to recap the transitional balance sheet impacts. As at 31 December 2021, there was a reduction to shareholders' equity on transition of ZAR 4.5 billion. This arises from the calculation of IFRS liabilities, which includes a contractual service margin of ZAR 61 billion and a risk adjustment of ZAR 6 billion. The CSM is set up at the start of the insurance policy and it represents a store of future profits held on the balance sheet, which together with the risk adjustment will be released into profit over the life of our insurance contracts. Moving on to 2022, I would like to take you through earnings on an IFRS 17 basis. As I mentioned, our underlying earnings ability remains unaffected, but IFRS 17 changes how that profit emerges over time. One of the key changes relate to the treatment of discretionary margins. Under IFRS 4 discretionary margins were set up for a specific risk and released to profit to offset experience variances and assumption changes associated with that particular risk or we're no longer required. However, under IFRS 17, there are no discretionary margins but the CSM does defer certain earnings impacts. Using an example, for 2022, one of the differences would be the release into IFRS profit of any excess COVID-19 provisions. Under IFRS 17, this would be partially accounted for in the CSM and released into profit over time. As you can see, our RFO and HE are materially similar when adjusting for these differences in the discretionary margins and the CSM mechanism. Turning now to the impact on our life segments. The biggest impact was in Mass and Foundation Cluster, reducing earnings by ZAR 925 million. Under IFRS 4, we saw the positive impact from the release of excess claims provision and various other discretionary reserves, which was partially offset by the strengthening of our persistency basis. Under IFRS 17, there are no discretionary margins to provide the positive impact, resulting in part of the basis strengthening and experience variances leading to a reduction in 2022 earnings. We see a similar but smaller impact from discretionary margins in Personal Finance and Wealth, Old Mutual Corporate and the Old Mutual Africa region results. We will be covering return on net asset value or RONAV, as we call it, in more detail in our capital presentation later today as well as our approach and actions to uplift it. For now, I want to highlight the impact of IFRS 17. The definition of RONAV remains unchanged as we move from IFRS 4 to IFRS 17. However, on an adjusted basis, the ratio is impacted as both our adjusted headline earnings or AHE, and our equity changed under IFRS 17, with the reduction in AHE being more than offset by the reduction in equity, resulting in an increase in RONAV. As we explained with our year-end results, the 2022 RONAV was weighed down by weak equity and bond markets, assuming similar returns to 2021, we would have seen a 100 basis point uplift to RONAV. Given that the fundamentals of our business have not changed, the KPIs we used to measure and steer our business are largely unaffected. Adjusting for the differences between the regimes, the most person at being the discretionary margins under IFRS 4 compared to the CSM under IFRS 17, our RFO, RONAV, AHE are at materially similar levels. As IFRS 17 is an accounting impact, only changing the timing of profit recognition, our solvency, value of new business and embedded value are not materially impacted. There are some nuances in the detail, and Ranen will take you through these.

Thanks, Casper. For those of you who don't know me, you can remember me as the guy that drew the short straw when Old Mutual was deciding who needs to explain IFRS 17 to the markets. Now that Casper's provided you with an overview of the key impacts of IFRS 17, I'm going to try and cover a more detailed explanation of the IFRS 17 mechanics to help you with interpreting our results going forward. So in order to do that, I'm going to start off by explaining the balance sheet. And in particular, I'm going to highlight the CSM. I'm then going to run through some theory on the CSM because that is now our biggest driver of profits. I will then cover the actual CSM buildup over 2022, and I'm going to focus on the CSM release into profits. And from there, I'm going to move from the CSM release to our 2022 results from operations. And then I'm finally going to tie the results from operations to our adjusted headline earnings and IFRS profits. Okay. So let's start with a more detailed explanation of the balance sheet. As Casper has mentioned, there's no material change to the size of our balance sheet. There is, however, a change to its composition. So the best estimate liabilities are calculated by discounting the expected cash flows from our policies. That's similar to what the IFRS 4 liabilities used to be, but without the margins. So it's also worth noting that we've had a reclassification of some of our liabilities from IFRS 9 to IFRS 17. The main change introduced by IFRS 17 is a contractual service margin or CSM. The CSM represents a store of value that held on balance sheet and that will emerge into profits over time. Finally, IFRS 17 introduced a risk adjustment, which reflects the compensation that's required for nonfinancial risk. The risk adjustment will be released over the life of the contract as risk expires. On the asset side, there was very little difference. We only had minor changes relating to deferred tax and the treatment of reinsurance contracts. So overall, what these changes did is they resulted in a small reduction on our shareholders' equity on transition. As the CSM represents a key driver of the profits, it's critical for us to now pause and understand how it works and how it evolves over time. I'm going to unpack some of the key guiding principles behind what flows through the CSM and what flows directly to profits. So there are 3 important factors here. Whether a contract is onerous or non-onerous the type of the product and then the nature of the assumption change we experience variance. So as I said, the first key factors whether a contract is onerous or not onerous, an insurance contract is deemed to be onerous. If at initial recognition, the discounted cash flows from that contract is a net outflow. For all our onerous contracts, the impact of basis changes and experience variances will reflect directly in profits. All other contracts are deemed to be non-onerous and just for ease of reference, I'm going to be referring to them as profitable contracts. So for these contracts, the treatment of the assumption changes and expense variances will depend on the product type and subsequently the valuation approach that we've used. IFRS 17 introduces 2 main valuation approaches being the general measurement model and the variable fee approach. Our risk and annuity products fall under the general measurement model approach and our smooth bonus and with profit products fall under the variable fee approach. Then finally, within those valuation approaches, the last factor is the type of experience change or assumption change and for each of those factors, the outcome is either going to reflect in profit or the CSM. Broadly speaking here, the principle that needs to be applied is that experience items, so any variances or assumption changes that relate to current periods service is going to reflect in profit and anything that relates to future period service is going to reflect in the CSM. So there's a lot more nuances in the final technical details. I'll highlight those where there's a material impact on our results as I go through the presentation. So let's now move on to the CSM buildup and what that looks like for the 2022 financial year. I'm going to start with a focus on the changes in the CSM over the period as this explains most of our profit outcome for 2022. Changes in our CSM can be broken up into predictable components and then those that are less predictable. So from our opening position of ZAR 61 billion at 1st January 2022, the main movements are the effect of writing new business for 2022. Annual interest, which is added to the CSM each year, for general measurement model products, the CSM has grown at the locked-in interest rates and then for variable fee approach the unwind at current interest rates is added to the CSM. Then the key item to note here is that the CSM is then released into profit based on an allocation rate. And that allocation rate or release of the CSM is driven by coverage units, what we call coverage units, which is a driver of that service delivery of each product. So that ZAR 6.8 billion that you can see is the biggest driver of our profits for the 2022 year. So importantly to note you, these items are predictable for our in-force book. So we know these drivers in advance and it results in a known profit profile for us. We then bring in the impact of experience variances and assumption changes that impact the CSM as well as any foreign exchange impacts on profitable contracts. Now that you understand the movement of the CSM for 2022, let's go to the 2022 RFO outcome, which I'm going to do in 2 pieces. I'm first going to talk about the expected profits in this slide. And then in the next slide, I'm going to cover the variances. Okay. So we can see the main driver of profitability is the CSM allocation of ZAR 6.8 billion. So that's the number I covered on the previous slide. We can then also see the impacts of profits that we expect to make from our other business that doesn't have a CSM. So those are things like our short-dated contracts and our IFRS 9 contracts. We then have the expected investment return, which includes the difference between our expected investment returns and the rate that was locked in at inception on the CSM. And then the next item is the risk adjustment, which is less material and we don't expect that number to be volatile over time. The last piece is our forecasted expenses that are not attributed directly to the policies. So that deals with the expected profits and then we have the other items that are more specific to the year-end question. So this is where the principles that I was covering about the CSM earlier are particularly important in terms of what goes directly to profit versus what unlocks the CSM. And so to get to the RFO for the period, we add new business strain, together with the assumption changes and experience variances that directly impact profit. And that gets us to our Life & Savings RFO and then we add the profits from our other operations to get to the total RFO for 2022. So now I let you understand how we get to RFO. I'm now going to turn to the reconciliation between RFO and adjusted headline earnings as well as IFRS profits. So AG includes our segment RFO as well as our shareholder investment return, finance costs and income from associates. Most of the difference between the IFRS 17 and IFRS 4 RFO is due to the difference in the way discretionary margins have been accounted for. So that's what Casper explained, with the discretionary margins contributing ZAR 2 billion to the 2022 earnings on the IFRS 4. Then the movement in the shareholder investment return of ZAR 500 million is mainly due to the allocation 2 segments of the return on the assets that are needed to back the increased transition liabilities. So that doesn't have an impact on our total AG. It's just a reallocation between the shareholder investment return line and segment RFO. Moving now to the reconciliation of adjusted headline earnings to IFRS profits. The main changes relate to the change in profits that I've just discussed for adjusted headline earnings and then the change in the treatment for accounting mismatches and there's 2 items I want to flag here, under IFRS 4, we used to eliminate treasury shares even where those treasury shares were in assets backing our policy holder liabilities. And what that did is it created an artificial mismatch on our balance sheet that we had to fix. IFRS 17 now allows us to adjust for that mismatch and so we don't need to make this adjustment anymore. The other difference that's sitting here is that for the 2022 year, our actual market hedges were based on our IFRS 4 liabilities. That hedging difference is not something that we expect to continue or to be material post 2024 because we're currently rebasing our hedges to match our IFRS 17 liabilities. The last section I'd like to cover is the fundamentals of value and how that was impacted by IFRS 17. It's important to highlight that embedded value is still a key measure of value for us. But under IFRS 17, we've constructed it slightly differently. And we did that because we wanted to link the embedded value calculation to the audited information that's already available under IFRS 17. And so with that change in methodology, the underlying value of our Life & Savings business didn't change. And what that means is embedded value serves as this anchor and a point of consistency amongst these IFRS changes and it's really a useful tool for us to understand the full performance of the business. So earlier, I was explaining the asymmetry in the treatment between profitable and onerous contracts with part of our experience items going directly to profit, but with others being smooth over time by the CSM and what that means is if you want to understand the full performance of the business, you need to understand the profit impacts together with the moves in the CSM. What embedded value earnings is doing is it's combining both of those impacts. And as I mentioned earlier, IFRS 17 provides us with an opportunity to derive our value of new business and embedded value metrics directly from our IFRS disclosures with some appropriate adjustments. So I trust that we've been able to paint a clearer picture of the impacts and the mechanics of IFRS 17 to help you understand our business and our performance going forward. And with that, I'll hand over to Casper to wrap up.

Ranen, thanks for the quick tour of some of the nuances. There is a lot more in the detail, but we trust that this covers salient matters and we will pick up on the final points in our future engagements. Before we look forward to our future reporting, I would first like to pause and publicly thank our broader team. IFRS 17 has not been easy for anyone and it is due to their resolve and resilience that we've been able to stand up here today. So to all my colleagues that have worked so tirelessly, thank you. We will be reporting externally under IFRS 17 for the first time on 27 September, when we will release our June 2023 results. This will include comparators of June 2022 as well as a bridging pack that will clearly walk through the changes from IFRS 4 to IFRS 17 and some additional guidelines to assist with interpreting our results. I would like to conclude by emphasizing that IFRS 17 does not impact the fundamental economics of our business. It simply changes the timing of profit recognition and does not impact our strategy, cash generation or the value of our business. We will continue to declare underlying dividends based on our cash generating ability and the capacity of our regulatory balance sheet, which is unchanged. We will still create value in the same way, still pay our dividends and still be able to invest in our growth ambitions and those of our customers. We look forward to updating you on this in September and I will now hand over to Celiwe.