Momentum Metropolitan reports historic peak in earnings

It has been a great financial year for Momentum Metropolitan. The JSE-listed company announced great returns for shareholders.

Momentum Metropolitan recently made public insights into its performance over the last financial period, reporting a “historic peak” in normalised headline earnings (NHE) of R5.1 billion for the year ended 30 June.

The Group also announced that operating profit had increased 31% to R4.4 billion up from R3.4 billion the year prior, which it attributed to two factors – improved mortality experience post-Covid and a positive investment variance of R1.1 billion, compared to R353 million in the previous financial year.

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Group CEO, Hillie Meyer said he was proud of the achieved solid earnings.

“Our business model of empowered, accountable business units has demonstrated its reliance and agility, assisting the Group in coping with the multiple headwinds South Africa faced in the last year,” he said.

“Our dividend declaration reflects the continued resilience of the Group and the Board’s confidence in the underlying financial strength of the business,” he added.

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Dampened sales

Despite impressive numbers, Momentum Metropolitan said it had faced some economic hurdles which dampened sales volumes, specifically new business decreasing 5% to R69.9 billion.

Meanwhile, the company also reported a 4% decline in value of new business (VBN) which made R600 million. The group said this was due to lower new business volumes and higher distribution costs.

Momentum Metropolitan also attributed the VBN decline to a general change in new business mix towards lower margin products across many of the business units, as well as the negative impact of the yield curve-related economic assumption changes.

However, the Group’s overall new business margin remained unchanged at 0.9%.

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Shares and dividends

Momentum Metropolitan bought back an initial 27.9 million shares for a total consideration of R500 million.

The shares were purchased at an average price of R17.87 per share – a 43% discount to the R31.39 embedded value (EV) per share at 31 December 2022.

Furthermore, the Board approved a subsequent R500 million to buy back the Group’s ordinary shares, which was yet to take place.

The Group’s Finance Director, Risto Ketola said the share buyback programme would not be in liue of a dividend, to stay in line with the company’s capital distribution philosophy.

“The Group’s dividend policy to declare dividends within a payout range of 33% to 50% of normalised headline earnings, remains unchanged,” said Ketola.

“Our next set of results will be prepared according to the new accounting standard, IFRS17, which will more closely align the economic and insurance with the accounting treatment,” he added.

According to the Group, the share buyback programme communicated to investors at the F2023 interim results announcement was completed on 31 May.

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OUTsurance acquisition

Topping off a successful financial year, Momentum Metropolitan also announced that their offer to purchase shareholding of OUTsurance (previously Rand Merchant Investment Holdings) in RMI Investment Managers, was accepted.

The Group said the acquisition was a strategic move to complement its existing in-house businesses, adding the move would not only give them a minority stake in multiple independent owner-managed boutiques, but supported transformation and new entrants into the market.

Momentum Metropolitan further indicated the transaction was subject to regulatory approval.

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Future outlook

The Group said while earnings had improved, recent pressure on sales was a concern, adding disposable income would remain under pressure due to rising interest rates, high inflation and low economic growth in SA.

Such factors would likely put ongoing affordability pressure on new business volumes, particularly on long-term savings and protection business, said Momentum Metropolitan.

Meanwhile, the Group also reported investment business was negatively affected by other factors such as low confidence in SA asset classes and by consumer preference to maintain their assets in liquid-low risk investments. However, new business volumes and profitability were receiving significant management attention.

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F2024

Incoming CEO Jeanette Marais said, in the next financial year, the release of Covid-19 reserves and favourable investment experience variances would not support earnings as they had done this year.

“Our view is that the underlying run rate of earnings is approximately R4 billion per year,” she said.

“The normalisation of mortality experience, combined with the disciplined execution of our strategy and ongoing focus on efficiency, means that we expect our earnings to remain robust in F2024,” she added.

Marais also said Momentum Metropolitan remained set on driving sales volumes and a profit sales mix to improve market share growth. The Group would continue to strive towards normalised headline earnings of between R4.6 billion and R5 billion in the 2024 financial year – as per the its Reinvent and Grow objectives.

“As Momentum Metropolitan, we will continue to make every effort to deliver on the expectations of our clients and financial advisors, and to generate value to shareholders,” Marais said.

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