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Focus pays off for Momentum Metropolitan - Group posts double-digit earnings growth

Published: Mar 5, 2020 7:05:00 AM South Africa Standard Time

Eighteen months into its three-year Reset and Grow turnaround strategy, Momentum Metropolitan Holdings (JSE: MTM) again reported good operational results – amidst a challenging economic environment. At its interim results announcement today, the Group reported that it had increased diluted normalised headline earnings to R1.8 billion – signifying double-digit growth of 10% year-on-year. On a per share basis, diluted normalised headline earnings increased by 12% to 118 cents. Momentum Metropolitan also declared an ordinary dividend of 40 cents per ordinary share, an increase of 14% on the prior year.

“The results show that the decisions we made 18 months ago, to focus on our core businesses and to restructure the business in a way that empowered our people, were appropriate,” said Hillie Meyer, Group CEO. “It is particularly pleasing that earnings grew across all business units. The financial discipline we introduced has kept our cost increases below inflation which contributed to this satisfying outcome.”

Risto Ketola, Momentum Metropolitan Finance Director added, “The highlight of the results, to me, has been our ability to deliver ongoing improvements in client service, product quality and intermediary experience, while keeping costs effectively flat, year-on-year. From a delivery perspective the Group is in better shape than it has been for years, particularly in various retail operations.”

New business volumes grew 13% across the South African retail operations. The star performer was Momentum Investments that showed 22% growth year-on-year. This strong growth was evident in both the Momentum Wealth LISP (linked investment service provider) platform and life annuity products. The value of new business (VNB) for the South African retail operations increased by 24% year-on-year. VNB grew faster than volumes largely due to second order benefits from the Group-wide focus on expense efficiencies.

Momentum Life’s earnings improved by 5% to R483 million. Besides good expense management, client support through persistency, alterations and continuations aided earnings. Smaller losses in Momentum Multiply also positively impacted earnings in this business. Momentum Investments grew its earnings by 3% year-on-year to R270 million due to improved profits from the annuity book. Earnings from the UK operations also increased. Growth in Guardrisk was another highlight, with half-year earnings up by 15% to R165 million. The strategy to grow Guardrisk’s underwriting activities is progressing well. Metropolitan Retail’s normalised headline earnings improved to R349 million, up 5% on the prior period. This is due to a sustained operational focus on improving the quality of business and containing expenses – which the business reduced by 4% year-on-year.

The Group’s core life operation strengthened its solvency capital to 2.2 times the minimum statutory level. The strong balance sheet is a competitive advantage for the Group. As an example, it enabled the acquisition of Alexander Forbes Insurance (AFI), which significantly improves economies of scale for Momentum Short-term Insurance. It has also enabled the Group to declare an attractive dividend for the six months.

Having been the first large insurer to obtain B-BBEE Level 1 status in 2019, the Group retained Level 1 B-BBEE status for a second year in a row.

“Looking ahead at the next 18 months, we will continue to focus on the Reset and Grow strategy, a roadmap that has served us very well up to now,” said Meyer. “We have already successfully executed on most of our plans for the “Reset” phase and will increasingly shift our energy onto the “Growth” objectives. We will invest carefully in new revenue generating opportunities and in improved ways of work, while maintaining a clear focus on running the core South African life insurance operations optimally.”

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