Edited Transcript of MMI.J earnings conference call or presentation 5-Mar-20 9:30am GMT

What pleases me especially is that in spite of the financial discipline, I don’t think we sacrificed really in terms of growth or innovation opportunities that present themselves. But what pleases me even more than that, I think is the sort of competitive spirit that’s back into the business, into the different business units. A bit of a desire, I think, to again, strive for excellence and perform. And I think it’s fantastic, I think also for our staff members when we do put some runs onto the scoreboard to see the reward for all the hard work. Because, again, this would not be possible without the commitment of all our staff. And again, in an occasion like this, it’s just a wonderful opportunity to thank all our staff for their commitment and dedication.

I think what’s also encouraging is as we get to grips with Reset and Grow, and as we almost likely start or as we’re completing the reset component, the different business units just naturally start focusing on the Grow components more and more. And we like to see a bit more of that going forward.

I think we also — in our announcement, we make the point that it is a tough environment, and this will be a difficult 6 months, let’s say, from an earnings perspective also to repeat. So that’s just a bit of prudence on our side. I mean we’re very happy with the results, but we — it is a very, very tough environment, and with coronavirus and so on, probably getting even tougher.

And as I mentioned earlier, Reset, the target was for ZAR 3.6 billion to ZAR 4 billion of earnings in 2021. Last year, we sort of delivered ZAR 3.1 billion. We’re on track to basically end up somewhere in the gray area by the end of the year, this financial year.

Just in general, a few sort of more general points. I think one of the things I’d like to make the point is that as far as products are concerned, I mean we’re very proud of our broad product range. But we’re getting a bit of our — almost mojo back in being — maybe leading from the front, to put it that way. We’re for example, busy with a countrywide — I almost said worldwide, countrywide product launch to independent financial advisers as we speak. The guys are launching, I think, in PE today. And it’s very well received, great attendance. And I think sort of right in the business. As we get more and more onto the front foot, the guys are with more confidence, I think, sort of paying attention to product innovations and product tweaks and so forth.

And that sort of leads straight into, what was for me, probably one of the most pleasing aspects of the past 6 months. Given the group or whatever, you’ve got to scratch quite deeply to find these numbers. But if we look at retail broker sales, in other words, where we basically try to convince independent financial advisers to give more of their business to us rather than competitors, then we’ve seen that, compared to a year ago, there’s a 13% increase on average in the business. It’s a little bit down, 13 or so percent down on annuities and structured products. That really is because our guaranteed endowment products are not as competitive as it used to be 18 — or 12 months or so ago. But when you look, and let’s start at the bottom, life protection. That’s essentially Myriad, that’s 17% up. And remember, that’s a market that’s not growing. So that’s a 17% increase from IFA support. If you look at the next line, which is savings products, 7% up. And then the most sort of positive number is investment savings, which is 29% up, the support from independent financial advisers.

And I think why this pleases me is a lot of the Reset part of our Reset and Grow strategy was things that we could do sort of with the inward focus. Those were internal targets, things that we just had to do better internally. But we always knew that the Grow targets, and this is one of them, will be more difficult because we first need to get our act together, and then we need to build confidence and convince independent people to support us more. And I think we’re sort of beginning to see that as I mentioned, yes.

And because — partly because of that, if we look at the total retail business, Momentum Metropolitan, all included, then a very solid new business result.

I mean if we just start at premiums, to start with the premiums, Momentum Investments is 22% up on a present value of premium basis.

Momentum Life is flat. Now you’ll remember, advisers, independent advisers give guidance a lot more. But I mean our own agency fulls that place in terms of the Rest business.

Metropolitan Retail is flat. But the weighted number of our Metropolitan agents in this period was 15% less than the comparative period because we’re still focusing on quality. And we’ve now turned the corner. I think we’re not going to reduce the number of agents from this level. But compared to the previous period, it’s still a lot less. So we’re quite happy with the flat number there. I mean, it is, in fact, almost like a 15% improvement per individual basis.

But the most pleasing is the retail value of new business, which increased across the business. Now it’s partly because of some of the volume increases, but also cost control.

Momentum Corporate had a challenging period. I think we need to remind ourselves that, a year or so ago, Corporate was actually the star performer, and to some extent, carried the struggling retail areas at the time. But what we see here, and I’ll go into the detail just now, is that what was probably an abnormally good 6-month period the prior year was now replaced with a somewhat below average 6 month this period.

And if we unpack that a little bit, I think, first of all, from an earnings point of view, the Momentum Corporate, that’s the employee benefits business, that normalized headline earnings is 2% down. That’s mainly as a result of ZAR 80 million less in profits from our Rest business. Now the — especially the group life business, profit was very good in the prior period. But if it wasn’t for that, all the other business actually showed very good sort of revenue growth and very good cost containment. Also from a return on embedded value, I think we — the numbers were good. But the elephant in the room is the value of new business. That dropped from ZAR 200 million to minus ZAR 10 million.

Now I’ll try quickly sort of explain that. And the fact that I can explain that doesn’t mean that I’m happy with it. We’ve got work to do.

The ZAR 200 million obviously included that ZAR 5 billion annuity that we did last year, which was the largest in, I think, the insurance industry in South Africa. Then if you take that out of the prior year, then the VNB for that period would have been ZAR 50 million, okay? So at that level, the VNB margin was 2%. If you take out that and reduce it to ZAR 50 million VNB, it would be 1%, which is, I think it’s normal for a corporate environment. So I would just say that I think we need to understand the difference between ZAR 50 million and the minus ZAR 10 million.

Now if we unpack that a bit, ZAR 40 million of that drop was our umbrella funds at work business, where the value of new business dropped by ZAR 40 million. The reason for that was, one of them was a cost reallocation in Corporate. We had allocated more cost to new business and away from recurring business. That added ZAR 20 million impact. And then the other ZAR 20 million impact was really — because this period, most of our funds at work sales were to larger corporate groups compared to quite a nice balance of large and small the previous period, and the margins are smaller there. And then also, the difference, the other ZAR 10-or-so million drop in embedded value of new business was on Rest business. We had more disability business where the margins are a bit lower than group life.

So that’s, by and large, the explanation. But I think we all realize that in there is a bit of, what we call internally, a truck and load issue. We’ve got a bigger truck than the load. If we’re going to write — if ZAR 5 billion per 6-month period is the sort of volumes that we can track, then maybe our infrastructure is just a little bit bigger than it should be or at least the fixed component of that.

Now again, I think we’ve identified the problem. I’d just like to say that this is the challenge that we have on the retail side. It took us 18 months, and we can show some, I think, quite impressive results. And I actually look forward to tackling this little hiccup as well.

I’m going to run through a little bit faster because the rest is more good news or whatever, and I didn’t want to rush over some of the bad news.

Service delivery, this is just one metric. But right through the business, we’re very happy with our service level. They improved significantly. I mean this slide doesn’t go back to 2018 when it was really bad in the retail side, but quite happy with the service.

This is another good slide, and I think this is a big part of the good results that we produced can be explained by this graph. If you again look at 6-months period, then our cost base at ZAR 4.5 billion — just to explain quickly the ZAR 4.9 billion in the second half of 2018. The gray portion was sort of ones-off cost that we just put through when we cleaned up the business a bit. So it was also about ZAR 4.5 billion would be a better indication of the cost base at that time. But it stayed flat, it’s still ZAR 4.5 billion. So expenses were flat over 4 consecutive 6-month periods. And that is a big part of, I think, what’s driving our results. And the graph on the top is just the normalized headline earnings per 6 months.

Now if you cut costs like that and you limit expense growth to 0, whatever, there is a bit of pain in the business. And we got wind from grassroots levels that, listen, there are a few good initiatives that we actually now missing out on and so forth. And when that news got to us, we said, “okay, let’s do something about it. We’ll have our own dragons den. We invited business units.” Those are our dragons. We’ve got our own dragons. Risto, that was a few years ago.

Anyway, what we did is we basically invited all the business. We said, “listen, we’re going to allocate. We’re making ZAR 30 million available. Pitch for it.” The best ideas will win. We had something like 15 or so little teams pitched. And it was, on average, ZAR 6 million or ZAR 7 million or ZAR 8 million per pitch. In the end, we selected 5 ideas, and we increased the ZAR 30 million to ZAR 40 million because there were some really, I think, worthwhile projects in there. And now we’re monitoring that. So in a way, we saved effectively ZAR 700 million. Of course, we gave, ZAR 30 million or ZAR 40 million of that back. I think it cultivates a bit of an entrepreneurial approach. And it also learns — teaches everybody the value of money. There are — some of those projects are now ZAR 6 million or ZAR 7 million. And the guys are excited that their project was approved. So yes, it’s a bit of a culture thing.

Okay. Now to what I’m beginning to experience as a little boring, but I want to be consistent in the report back. So I’m going to run through the 6 or 7 slides where every year I just give feedback on Reset and Grow.

And I’m going to start with Momentum Life and Investments. I’m not going to spend much time on the Reset because a lot of it’s done away. You can see our own writing, the donuts. If there’s still some white in there, then we still need to do a fair bit of work. But I think, by and large, those things are on track, and as I said, in our control.

As far as Momentum agents are concerned, last year, the red, we ended the year 2019 about 80 short of our target. That’s our footprint growth. We appointed a few, but I think we will probably remain around about — we’ll narrow the gap a little bit because the new target is for the end of the year, but we might end 30 or 40 agents short of our target for 2020. But I think we are doing some restructuring, and I think we are streamlining our agency force. So it doesn’t bother me too much that we probably lost 1 year of footprint growth in the process because I think we’re setting us up for a better end product in the years to come.

As far as Momentum Consult is concerned, that’s the independent brokerage under the Momentum brand. They ended with 5 more — it’s a small base here, 5 more advisers than they targeted the year before. And you can see they’ve almost appointed all — they’ve almost grown to the size that they want to be by 30 June. So I think here again, we’ll see some green come the end of the year.

As far as productive brokers are concerned, remember, these are brokers that give us a meaningful amount of business. And you can see it was sort of below 2,000. We were quite ambitious. It’s sort of creeping up. We’re getting close to the magic 2,000 number. I think it’s never been 2,000 for our group for Momentum. And then the real target remains the 2,500. But what we’ve seen, I mean, and you — we showed you earlier that the broker support increased a lot. The brokers that do support those, those 2,000 or 1,900 supporters, are giving us a lot more of their business. So I think sort of the next phase on where growth can come from is if we start to convince more and more brokers to entrust us with a meaningful portion of their business. So again, we’re not tracking where we want. But I mean if we achieve that, then it was really, really “shoot the lights out” stuff.

The other things in sort of Momentum Life and Investments, increased flow into our own funds, especially on the agency force, keeps increasing. So that’s very healthy. I discussed product innovation.

And then as far as Multiply is concerned, Multiply is still not growing to the extent that we want to. And we’re busy with a bit of a strategic review and just sort of, I think, sort of getting our plan together as to what exactly we need to do going forward. Hopefully, we’ll do it over the next 3 or so months. And then we’ll need the rest of the year to sort of maybe implement and finalize that.

Metropolitan Retail, again, I’m just going to focus on the growth components. One of our major issues was adviser productivity. You’ll see last year, we targeted 2.5 policies per agent per week. We only got to about 2.3, I remember, yes, last year. Now I’m happy with 2.3, and it’s now crept up to close to 2.4, which is quite below the 2.78 that we targeted for this year. I’m happy to accept lower productivity if it’s at — in return for the better quality, which we see on the right. On the right-hand graph, we see the persistency of — sort of a persistency indicator. And you’ll see there a significant increase. That’s also why our embedded value of new business is improving. Again, I mean, I think over the long term, we need to get to the 3 policies per agent. But for the time being, the focus is more on quality.

And you’ll also see in the next slide, in terms of efficiencies and so forth. This is the percentage for different tenure periods. So the 1 to 6 months agents that have only been with us for less than 6 months, more than 1/3 of their business is now payroll deduction business, stop order business. And that was a problem in the past. It was less than 1/4. But I think it’s indicative of the fact that we’re now vesting our agents better, we’re training them better. I think this is going to be a very long haul. But slowly, but surely, I’m happy that we are improving the quality of the Metropolitan agency force.

And in the meantime, I mean, as I said, we had about 3,200 agents now. I think it will stay there. We’re not going to grow at the cost of quality. But over the longer term, we’d like to get back to maybe 3,500 or so.

As far as Corporate, I spent quite a bit of time on Corporate. Obviously, I think in terms of diversification of distribution channels, there’s still a lot of work that needs to be done. Our new corporate CEO Dumo and the team are looking at the options there. And I think we will revisit maybe approach to some extent. Organized labor and public sector, yes, we still bought below our weight. We can do better.

And then as far as retailization is concerned, again, its progress, maybe not what we would like to see, but this is quite a challenging thing because it involves different business units and so forth. For the past year, their focus was essentially on funds at work, employer groups. We’ve got more than 200 staff members in a group and where the adviser, the broker actually supports the retailization initiative. And we also focused on Momentum consultants. They’re actually clients where they were the appointed broker, because we — you need to have the cooperation of the adviser in the retailization process.

Now where we get the traction and where we’re in a position to implement our plans, the results are really very, very positive in terms of business staying with us. But this will be a project that we will keep on working, I think, for years to come.

Momentum Health, again, a very tough environment. It’s not growing. The headwinds, this is the sort of as far as open schemes is the dark blue, that’s Momentum Health. You can see it sort of holds its own. It’s sort of flattish, maybe down a little bit. The low-cost offering is actually gaining ground, the gray bar. If we look at the corporate and public sector, the gray bar as gems, you can see numbers increasing. That’s because more and more of the public servants actually sign up for the health product. Obviously, this is now a bit of risk. I don’t know. With — if the Minister of Finance, implement these plans, then we’ll be happy to see that drop because there will be other benefits that will benefit everybody. Yes. And then corporate, also flattish at the P&E. But so, yes, I mean, I think we’re doing as well as possible in that market, but it is a very tough environment.

Africa had a good performance. Yes, it was sort of a ones-off in there some way in terms of the normalized headline earnings. But by and large, we’re sorting up a lot of stuff. There are sort — the project that we had through in-country governance and control, we’ve basically completed that. We’ve actually made some good progress with our operating model, where we’ve got clarity now and we’ve got what we call a hub-and-spoke model. So we’re very clear on what we centralize or what we do in country. Yes. So I think there’s a fair — there’s good direction, clarity in thinking of what we want to do in the countries where we remain.

And then in terms of exiting countries, over the last 6 months, we’ve now exited Nigeria where we sold the business that we had. And we’ve exited Swaziland. That’s on top of Mauritius that we exited earlier. There are 3 more countries that’s on the selling list. And one of them, basically, we’re just waiting for regulatory approval. And the other 2 are very close to signing sale and purchase agreements.

aYo rollout continuing. That’s the JV partnership with MTN. We launched in Zambia 2 weeks ago. So that’s the third country after Uganda and Ghana. And the growth is continuing on the revenue side and so forth.

Cost, more of a concern, but things are going broadly according to plan.

Guardrisk had another set of very, very good results. We’ve showed always now the sort of initiative to do more underwriting business in the promoter sale. In other words, writing more insurance risk for the were we at risk? Now the fact that it looks like as a percentage of revenue has gone down, it’s just that the other revenue actually increased more than this increase. In total, the underwriting profit did increase. But as a percentage of the total business, it came down a bit. Also, I mean, we’re now at the sort of 20% level. It will creep up. We don’t see it getting more than 30% of revenue, maybe 33%, 35%. So we’re approaching a level where we’re actually quite happy with the size of our insurance book in Guardrisk. And Risto has got some more slides on that.

Guardrisk, I mean the open architecture insurance platform, which is they’re doing partnership with a fintech company in (inaudible), that’s now a normal part of the business, actually quite a nice addition to our offering. One of our biggest clients have actually migrated onto that platform. First, as a pilot, and now, they’ve basically transferred all their business on this. So it’s working, and it’s now part of the business. So you can see — I can actually start taking out Guardrisk now. It’s covered all the donuts. Well done for the head boy, Herman Schoeman, who I saw in there somewhere.

Momentum, short-term, again, on the — growing the client base, you can see the blue graph there, making very good progress in line with our plans. The premium growth, that’s the thin line. The gross written premium growth is still pretty good. We’d like to write more new business, because a lot of the growth in written premium, part of it is just increases, rate increases and also a bit of the good new business in previous years. But new business sort of leveling off a little bit, we’d like to maybe get that back on track. But there are some important things now on the MSTI list now like the Alexander Forbes integration.

Claims ratio is fine, quite happy with that. Some improvements in the client value proposition over the last few months. And as I said, we’ve concluded the legal aspects of the Alexander Forbes transaction. The work starts now.

Finally, just group-wide. I think, yes, again, we’ve done really well. There’s a lot of stuff already been done and so forth. I think the one thing that will receive more and more attention going forward is to improve diversity, employment equity in the group, which, yes, we will do while we’re resetting and growing.

Thank you very much. Over to Risto.

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Risto S. Ketola, Momentum Metropolitan Holdings Limited – Group Finance Director & Executive Director [3]

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Thanks. Hillie, I didn’t get the joke about dragons den. It was like looking in the mirror. You can explain to me afterwards. Okay.

Yes. So it is indeed a pleasure to come present a set of results that I think are actually quite strong in the current environment. I think if you offered us the results 6 months ago, we would have bitten your hand off. So yes, proud is probably the right word then in terms of these results.

I’ll start with the slide I always use, which is really our 6 key financial performance measures.

You’ll see our headline earnings — normalized headline earnings up 10% to ZAR 1.8 billion. The share level, that goes up to 12%. There was still a small benefit from the buyback program we did in the previous financial year. So that’s the last little bit of difference you’ll see between the EPS and total numbers.

I’ll also share a little bit later that our dividend’s up 14%, so marginally above EPS growth. I think, 14% dividend increase in the current environment also compares favorably.

The 2 items in the middle: new business volumes and value of new business. Hillie already spoke quite a bit about those. Probably the 2 areas where we’re a little bit disappointed are these 2 numbers. Now it was largely the Corporate business, which obviously, we’re undertaking to sort out to a fair degree going forward. And the good performance of Retail business. Mustn’t overlook that. I mean retail was up 13% overall. And new business profits was up 24%. So again, I think I’m pretty certain we gained market share, both in terms of volumes and value of new business over the last 12 months.

And then at the bottom, we’ve got our 2 embedded value statistics. Embedded value — return on embedded value of 11%. That’s basically growth in EV before we pay the dividend out. 11% versus stock market at 0. Now obviously, those 2 are a little bit interlinked through fee income and return on our own assets. I think a strong performance.

What really helped is that we had ZAR 410 million positive operational variance in 6 months. So you analyze that, it’s only ZAR 1 billion of expenses below expectations. Mortality claims, lower than expected. Annuity spreads, better than expected. So things more under control. And that ZAR 400 million was more than the ZAR 300 million negative variance because of investment returns being below actuarial assumptions. So our sort of things under our own control more than offset the external negatives that we faced during the period. And the embedded value per share, ZAR 28.56, also very pleasing. I’ll talk a bit more about that later.

Now the booklets, we should have handed out. And I think most people have them, yes? They got quite a bit of detail on the different business units. So I think here, I’ll just mention 1 or 2 key items per business. Before I go there, I suppose it’s quite pleasing to note that every business unit grew earnings. Now yes, in some cases, it’s 3%, 5%. They’re not huge numbers. But I think in the current environment and stock market, to have shown growth in everything we do is quite a pleasing performance.

Now if you start from the left there, Momentum Life. 2 things that I really think drove the positive earnings growth. One was cost containment. You’ll see that — you’ll hear that a lot through the presentation. And in this business, also, we had very good alterations and continuations. So that is where our existing clients buy more benefits or they retain the investments with us when they get to the maturity date. And that might be a little bit linked to some of the improvements in service levels and so on, is that clients seem to stick around a little bit longer.

In our quarterly update for first quarter, we mentioned mortality claims were a lot higher than normal in the first quarter. I’m quite pleased in the report that it normalized in the second quarter. And actually, we’re right once again, that it was a statistical variance rather than anything structural on the mortality side. So mortality profits did normalize. I mean that earnings number would have been well over ZAR 500 million had the first quarter claims been a bit more normal.

Then we go to Momentum Investments. This actually improved mainly because of the annuity book. So annuities and structured products are included in the investment cluster, as is the wealth platform and asset management operations.

Now in the previous period, we had to impair bonds on 2 corporate issuers. These 6 months, we had no impairments or defaults. That alone is about a ZAR 30 million, ZAR 40 million improvement to the annuity book. That explains a big part of the improvement.

I don’t actually show it anywhere here, but I must mention the Momentum Wealth. Their earnings were pretty sort of flat, but the net inflows were significantly positive for the first time since I joined the group. So maybe in this business, you don’t really see it immediately in the numbers. When you’ve got a few hundred billion of assets, a couple of billion inflows only move the dial, but it’s definitely heartening to see that we’re getting a little bit of support rather than net outflows. In fact, quite substantial support in the IFA segment.

Then moving on to Metropolitan Retail. There, the earnings growth was driven by ongoing good mortality variance. So in the funeral market, we haven’t seen the same level of volatility as we have in affluent market and in the corporate market. So the funeral mortality profits tend to be quite steady period-on-period. And once again, cost containment. Despite the refurbishing branches, I think that’s what impressed me quite a bit, is that the guys are keeping costs under control.

Lapses, I already had an analyst e-mail me this morning. If you look at the detail, you see the lapse variance, it’s still negative and at similar level to last year. But I’m — I can say with some confidence that the lapse experience for the 6 months was a bit more technical in nature because structurally in the previous 6 months. So I think we are making progress there. And the good quality of new business Hillie showed earlier. It should start reflecting as improvement in the lapse experience in the coming periods. And the CFO of (inaudible) is nodding his head, so good.

Okay. Momentum Corporate, 2 very different businesses in here. We’ve got the Employee Benefits business and then we’ve got the Health Administration business. Hillie spoke about Corporate. Earnings down 2%. And as he alluded, it was actually the mortality side where we had a little bit weaker — it still made profits, but we made lower profits on mortality than in the previous 6 — 12 months ago.

Disability experience remains well below long-term assumptions, but it was sort of similar year-on-year. Now we continue to reprice our disability book almost continuously, but the claims environment remains quite difficult as well. So we haven’t seen the earnings recovery quite yet there.

On the Health Administration, the earnings growth was really operating margin improvement. So that business tends to get inflationary increase to these admin fees, and they managed to keep cost growth quite well below inflation.

Then looking at non-life insurance. So this includes for now Guardrisk and MSTI, Momentum Short-term Insurance. Alexander Forbes is in from 31 Jan, so we’ll have 5 months of Forbes in the second half. And then from next year, they’ll be fully in the numbers.

If you look at Guardrisk, 15% is what they showed. But again, in the period, we adopted a few conservative or prudent assumptions around certain receivables and sort of judgmental items. I think the real performance of this business is even stronger. And I’ll show you a little bit later that we expect ongoing good earnings and earnings growth from Guardrisk. I mean that business is really — I think it’s the one business we can say with 0 doubt that is the leader in its chosen field. So that continues to do well.

Momentum Short-term Insurance, the earnings declined a little bit. Now the previous year, claims environment was very favorable. I think the current 6 months, the claims environment was a lot more normal. We were unfortunate with 1 or 2 fire claims. And also, we had the flooding in Gauteng towards early December. If you’ve seen some of those famous Twitter clips of things floating around, a lot of those were assets insured by us, unfortunately. Although we did pay the guys very quickly. So…

Okay. And then looking at Africa, very strong growth. Hillie already mentioned one-offs, as I will expand a little bit. There’s a ZAR 70 million release of a tax liability in that ZAR 208 million. So one of the countries we operate in, they introduced new tax laws for insurance companies a few years ago. We wanted some clarity on those tax rules. But in the interim period, we’ve been accruing tax at the maximum possible rate. And we reached some convergence with the authorities in the last 6 months. And we have been accruing tax at more than what the effective tax rate in that being, so there’s a ZAR 70 million one-off. I think that matter is now fairly settled. So we’re pretty certain of what’s going on going forward.

Beyond that one-off, we did see good earnings growth in Lesotho and Botswana. Namibia continues to be quite problematic, partially probably of our own fault. But also the Namibian environment has been very difficult. The economic shrinkage there has been quite significant over the last few years.

Under new initiatives, the majority there is India, 2/3 about is India. And it has narrowed a little bit. And I think we are sort of getting through the bottom of the J-curve on the India business. So we might see that new initiatives number narrowing a bit going forward.

And the last item is shareholders, which is really investment returns on our own investment. So we got about ZAR 13 billion, ZAR 14 billion liquid portfolio mainly in variable rate instruments. That is sort of our regulatory risk capital. And then we deduct me and Hillie’s head office expenses from there. Now that decline is really — there’s a small part of that portfolio, ZAR 500 million, it’s not so small when I put it like that. ZAR 500 million is invested in venture capital funds, in 2 venture capital funds, 1 in U.K., 1 in South Africa. And in the previous year, we actually had one quite a good gain. One of the names raised new funding at substantial multiples, and this period was more normal. So that explains the small drop year-on-year.

Okay. So I took a bit of time on that. I will accelerate now. But similar to Hillie, we did make a number of financial promises. He made operational promises. I had to convert those into numbers.

So we made numbers promises for Reset and Grow. We said we’re going to save ZAR 700 million versus inflation on expenses, i.e., ZAR 500 million uplift to earnings after tax. We said we’re going to grow short-term insurance profits from what was about ZAR 100 million back then to ZAR 500 million by 2021. That was probably the one that got the most questions at the time. And then we said we’ll cut our new initiative spending by about ZAR 100 million over a 3-year cycle. And this donut show you that we pretty much feel that the ZAR 700 million is in the bag. We’re still very — well, not very, but we’re still quietly confident that we’re going to meet the ZAR 500 million from short-term insurance.

On the new initiatives, at this stage, it looks like a bit of a stretch to get to the ZAR 300 million losses required next year. Now a part of that is that we are increasing our investment in India a little bit more than we originally thought. And I’ve got 2 slides at the end showing why we’re actually quite comfortable to increase our investment in India a little bit. That business is showing real promise.

Okay. A simple slide but very powerful. I took those same expense numbers that Hillie showed earlier. I annualized them. I increased it by inflation. Had our expenses increased by inflation, our cost base will be ZAR 700 million annualized run rate higher than today. And the reality is that when you’re running nearly a ZAR 10 billion cost base, 5% saving is ZAR 0.5 billion. It’s a game of operating margins that converts into hundreds of millions.

Okay. And I don’t think we’ll definitely do another ZAR 700 million in the next 18 months, but we will definitely make sure that we don’t give any of that back. So I don’t see us migrating back even towards inflationary cost growth over the next 18 months.

On short-term insurance, there’s a new slide. I don’t think we’ve shown this before. Right at the bottom, you see where the ZAR 500 million Reset and Grow target was originally made up from. We thought that by 2021, MSTI will be at ZAR 100 million and Guardrisk will be at ZAR 400 million. Now if you annualize the current earnings, you see there’s about a — let’s say, ZAR 150 million gap on MSTI and maybe a ZAR 50 million gap or ZAR 60 million gap. My math is bad. ZAR 70 million exactly gap on Guardrisk. I think on Guardrisk, like I said, the underlying performance is actually better than what the numbers really reflect at the moment. So I think Guardrisk, we’re going to get — I think we’re going to get to the ZAR 400 million. MSTI, I think we’ll close up on ZAR 100 million. We’re not going to get there, I think, but we’ll close the gap sufficiently. And across the 2, we’re going to get very close to the ZAR 500 million. So that obviously also tells you that we’re expecting relevant earnings growth in the following periods to come from short-term insurance.

The one thing I also added here is maybe a bit of detail on the size of these businesses. So sometimes, people are like, “How do I even know you’re in short term?” People don’t really associate Momentum Metropolitan with short-term insurance. Now across Momentum and Guardrisk General Insurance, that’s the business where they take risk on their book, now annualized gross written premium’s already ZAR 3.5 billion. That’s not a tiny insurer. And you add in Forbes with annualized premiums of ZAR 1.8 billion, we get to ZAR 5.5 billion. We’re actually a midsized player in the short-term insurance industry. And we operate at quite good margins as well on a combined basis. Okay. So short-term insurance, on track, largely.

New initiatives, a bit of a boring graph. But just to complete the factors, that if you annualize the ZAR 240 million for the current period, you get to ZAR 480 million. And we promised you ZAR 300 million investment over the last — 2 years ago. It’s only a big stretch to get from ZAR 480 million run rate to ZAR 300 million. It will narrow in our projections. But I think we have ended up investing a little bit more and a little bit deeper in these new initiatives than we expected. But I’ll cover India later. Hopefully, that will give you some comfort.

A few regular slides that I’ll sort of fly through a bit. This one shows you new business volumes. We’ve already spoken quite a bit about this. In light blue, you’ve got the corporate business. You exclude that, and we’re actually showing a reasonable trend on the retail side. I mentioned the Investment Wealth platform, probably the star performer in my eyes, both from gross sales and net flows. Yes. In fact, I think the delta, the movement in flow was like, I don’t know, ZAR 5 billion. It’s like a massive change there.

And then largely, a product range, we don’t talk about much conventional annuities. We often been a market — for a long time, we’ve been a market leader in that. And the growth rate continues to be strong. I think we’re seeing a little switch back from living annuities to conventional annuities. So it might be in a bit of a healthier mix between living and guaranteed annuities. And as the flows move away from the more, let’s call it, actively managed living annuity side to the more balance sheet-driven guaranteed annuities, that’s helping our overall flow.

New business margins. It’s a pity that Corporate spoils a good story. But Dumo, next time, you will be the star.

So Momentum Life, we’ve actually seen good improvement in margins. And if you compare it to similar competitors, that margin is no longer really out of line.

Momentum Investments, again, 40 basis points. It is a wealth platform. It’s a less bit. It is difficult to make much more than that. I think that’s pretty, I would say, an acceptable margin for that type of business. It’s a volume business. You need to get tens of billions into move the [dial].

And mid retail margin improvement through the quality of business. And yes, I mean it’s still a little bit — well, quite a bit lower than what we want long term, but the trend is going in the right direction.

Hillie spoke a lot about Momentum Corporate. I mean the 2 was exceptional. Minus 0.2% was not really acceptable. So I think 1% is where you should probably see that longer term.

Also in Africa, it’s really Namibia. In Botswana and Lesotho, we actually saw improvement in new business profits and margins. But our business in Namibia is running at quite big new business losses at this stage. So we’re really looking at the remuneration of the adviser force, for example, and repricing a number of our products there.

Overall, the group margin at 0.6% is sort of well below what we would target longer term. I think this also illustrates that Corporate is a big business for us. I mean we are a little bit bigger in Corporate than in Retail. So the health of the Corporate business is critical for our success.

Embedded value. Another finance slide, very formal. I think the first thing to note here is that 80% of our embedded value is life insurance. So we obviously want to grow in lots of areas. But at our heart, we are still a life insurance and a retail investments business. And 80% of our value alludes to that. But 80% actually continues to generate very good returns on capital. Probably close to 20% of ROE. ROEV, sort of low to mid-teens. It is the new — it’s an uncovered operations that have for the last, let’s say, 6, 7 years, hurt our EV growth. Now for the current period, you’ll see there’s a small positive. They grew by ZAR 300 million, despite Guardrisk, for example, paying a very generous dividend during the period. So we’re getting to a position where at least the noncovered are starting to make a small positive contribution rather than a perennial negative contribution. And that is a major inflection point in terms of our overall group EV prospects.

Now there’s 3 items that explains that change in dynamic in noncovered. First one is a classic more conservative valuation adopted about 2 years ago to some of these unlisted investments. The other one is that we have exited a number of smaller African countries, some of our U.K. initiatives. Things that have been making perennial losses, we have exited over the last 2 years. And then lastly, Guardrisk now makes up nearly half of our noncovered operations. And that business, as I mentioned, is performing exceptionally well. So Guardrisk is sort of lifting up this whole basket of noncovered established businesses in there. So I think our ROEV will remain competitive.

Capital coverage. Another thing we spoke about a lot more when it wasn’t this healthy. And it’s quite ironic. We should — we don’t really abide to the laws of marketing. We tend to talk a lot more about things we need to address rather than what we should be bragging about. But anyway, capital ratios are not very healthy. In the last 3 years, they improved from, let’s say, towards the bottom end of the range to above our upper range. So we target a capital coverage ratio of 1.7x to 2.1x. We’re currently at 2.2x.

Now before you dream of a special dividend, I must mention that we did buy Alexander Forbes for ZAR 2 billion subsequent to this date. And we’re also planning on redeeming one of our Tier 2 bond issues during the current period. That number will drop to about 2x to 2.1x. So we’ll still be towards the upper end of our range, but we’ll be back into our own internal targets by end of the financial year. But a healthy position to be in.

In dividend, we increased dividends just slightly more than earnings. Our dividend cover is 2x to 3x, so a payout ratio of 33% to 50%. Now the 14% growth, I think, is very good on its own, but we do make the point that we’re sticking towards the upper end of our dividend cover range. And that is largely on the account of the current environment — uncertainties in the environment. I think the fact that we debated the dividend last week when the markets are in turmoil might have also hurt us on the side of safety. Yes.

Okay. And then I’ll just conclude on a couple of topical matters. It can’t be a financials presentation without IFRS 17. I can see the room is getting really excited. And then I’ll talk a bit about the resilience of our earnings. Because quite a bit, I get a question is like, markets are doing this and that, why is your earnings steadily increasing? So I just want to explain that our business is not as geared to the markets and the macro factors as people might think. And I’ll finish off with a couple of slides on India, explaining our over ZAR 1 billion investment and why we think we’re getting good value for money today.

So IFRS 17, I mean there’s no doubt it’s the biggest project that anybody in group finance will probably ever have to go through. Now we made a big decision a number of years ago where we decided we’re going to build a small team of internal experts, get them up to speed, get them to make the decisions. And we’ll get the consultants and the tech guys involved later on. And in retrospect, that’s been a very good decision. We have been able to keep costs a lot more manageable through that strategy. And also now that we are starting to bring consultancy and we have a lot more clarity on what we want them to help us with. We sort of have our own view on what we want and we’re using consultants more for implementation then to drive the whole project. Slowly but surely, this project is expanding. And because we’re doing it largely internally, more and more of the group finance people are getting sucked into this project. That’s maybe a bad word, but getting involved. Lucky enough to be involved in this project.

Now people often ask me, what is this going to cost? Now you’ll see some global insurers mention numbers of EUR 40 million — or actually, I’m lying, I mean there’s one that’s talking about EUR 400 million. And imagine spending ZAR 6 billion on the accounting standard. But our direct costs are actually going to be under ZAR 100 million, so the consultants and the specialists and so on. Now if I take into account all the people in group financial who are dedicated to this project, we think we’re going to come in under ZAR 200 million, which I think compares very favorably, probably half of what some of the other large insurers will end up spending. And I think a big part of that was really keeping on our own internal project until they show what we wanted rather than going big bang in day 1.

Okay. Then second point, this is for the connoisseurs. Some of the more topical items in the standard is we signed to get industry alignment, which means we can move forward. Clearly, we don’t want to invest too much effort and time if something, there’s a chance of a U-turn. And largely — lastly, some of you know, many of you know that we have new auditors in the room here as well, [Ella.] Having them in the building also helps with this project because we clearly don’t want to advance much further if there was a concern that our auditors would interpret some things differently. But anyway, this is a massive project. It’s a headache and an exciting thing at the same time, and we’re on track.

Okay. Slightly less exciting, our earnings. Now this is a new slide. You haven’t seen this before, but I’ve personally quite enjoyed this slide. Now it tells a few stories, and I’ll try to stick to the couple of good ones or more important ones.

On the top left is a group view. In dark blue, you have our recurring premium income. In red, you have our cost base. Now that cost base is about ZAR 1 billion higher than I showed you earlier. It’s because this is total cost, not just controllable costs. But even that top view shows that, that still works. Revenue environment is tough, 3% growth. But if you can keep cost growth below revenues, earnings are growing at a quite a decent clip as well. The other story tells you is that if you annualize that, we start every year with ZAR 40-odd billion of recurring premium commitments. Yes. That’s a benefit of being a well-established mature life insurance company that through all your retirement annuities, endowments, life policies. There’s a massive amount of money committed in start of the year.

Then if I look at the individual businesses. Momentum Life and Investments, expense and revenue growth quite similar at 5%. Metropolitan Retail, Hillie mentioned we cut back a number of agents a couple of years ago. New business dipped a bit. So you can see that their revenue growth has been a bit weaker at 2%, but they have actually managed to cut costs over that time period. So at this early stage, we will probably argue that we cut the army, but we sort of cut the cost of feeding the army at least the same amount. So it’s been good on the operating margin. And Momentum Corporate is also interesting at — you see a 9% increase. That’s the impact of repricing. The fact that we’re losing money on the disability and sort of permanent health insurance, so we’re continuously repricing that book. The other story tells you is that Corporate is bigger than Myriad or Metropolitan Funeral. It is really — we are a big player in the employee benefit space.

And maybe, again, for the connoisseur, just the cost base difference. You’ll notice that the Corporate businesses are cheaper to run than Retail because you don’t have the same distribution infrastructure, branch infrastructure, slightly lower marketing spending and so on.

Okay. Doing more with less. This graph you’ve seen before. I’ll just update it. Again, talking about the fact that we got the quite diversified source of earnings.

So starting in dark blue. About 1/5 of our earnings come from the investment income on our own ZAR 13 billion, ZAR 14 billion portfolio. Now that’s largely, like I mentioned, variable rate instruments. And then we decided to make it a bit more exciting and invest ZAR 0.5 billion in venture capital. But anyway, that’s quite a stable block of earnings, the blue — dark blue.

Then in black there, you got asset-based fees. This is asset management, the wealth platform and so on. That is where you start seeing the impact of the markets. When you have, I don’t know, ZAR 300 billion of assets or whatever it is, inflows of ZAR 1 billion or ZAR 2 billion either way, it’s really the markets that drive your revenues in the short term. Your net flows have a big impact longer term. But in the short term, when the market is not growing, this is a hard part of the business to grow much further. I think when the tide turns, we’re well positioned together because of the improved service levels and IFA support.

Then we start moving into things that are a little bit more in our own wheelhouse, sort of where we probably have less competitors, where we have a slightly more unique skill set.

In admin fees, that’s really the health administration and pension administration. Number of competitors have been shrinking in that industry. In South Africa, we’ve got quite a competitive admin space, which means it’s only really a space for a couple of big players in those fields, and we’re 1 of them. So that’s quite a defendable set of earnings.

And the last 2 blocks is almost like the heart of our insurance business. It’s the underwriting on life largely for us at the moment, increasing short term as well. But that is where we think we have a skill set that is as good as anybody, definitely in South Africa. And I would say it’s even by global standards, we’ve got an excellent skill set in terms of understanding life insurance and short-term insurance risk.

And also, the number of competitors, it’s not growing. It’s a hard industry to break in. The underwriting side is the one thing. The other thing is making all the workflows work between the brokers and ourselves and the claims. And I think it’s the area that will continue to grow our relative share of earnings. And the last bit is the annuity book, really the spreads, where we’re sort of using the knowledge of being able to predict the cash flows, and they need to book quite well. We can invest in quite illiquid instruments to some degree and extract illiquidity premium and so on. But you’ll see that the short version of my long story is that only 1/4 of our earnings are really linked to the equity market directly. The other ones are quite defensive versus the market. And secondly, quite a bit of it has a quite high competitive moats in that they are not easy spaces to make money unless you had the skill set we do.

Okay. And then India. We’ve been in India — the business has been running for a bit under 4 years. I’ve spoken it was years been in India for longer. It took quite a while to find the right partners and to get everything set up. But the India business has been running for, let’s say, just under 4 years. Now what is ZAR 1.2 billion? So with our partner, ZAR 2.5 billion, what does it buy you in India? It buys you a presence in 1,200 cities. It buys you a partnership network of 5,700 hospitals. 5 million customers. 22,000 agents. 2,000 was basically broker consultants, probably twice as many broker consultants out of South Africa. I mean India is a big place. We have to invest big to be a pan-Indian player. Now our partner, which is Aditya Birla, is of the largest companies in India. And from day 1, they stated their plan was to build the leading pan-Indian health insurance business. So we knew we were going in for quite an ambitious rollout. And to date, we have rolled out pretty much online. I think the only thing that’s changed a little bit since the original plan is those 10 banks and 10,000 bank branches. The regulation’s changed about 2 years ago, allowing banks to partner with more than one insurer. And because we have multiply and quite a few unique product features for the Indian market, a number of the banks, including HDFC and Axis, which are the biggest banks in India, have chosen us as one of the extra providers. So we have changed our focus a bit from the retail broker and agents to more bancassurance. But in general, you could say that we’re building a business of considerable scale, and we’re making good progress.

And then my last financial slide, this shows some of the financial results. As I mentioned, we got to be growing lives to over 5 million. Our premium volumes are growing at 100% per year. Now this will moderate just by laws of nature, but it will remain very high. This will remain 80%, 60%, 70%. This business has really found quite a good reception in the Indian health market. Something we track quite a bit is we look at how is this business faring in its first 3, 4 years compared to the other companies in their first 3, 4 years, and we are ahead of other players on almost every metric. So our product offering has been received better than almost anybody else in the Indian market. The expense growth of 60% might worry your FD, but I mean the point there is to keep it below the revenue growth. So if revenue is growing at 100%, I don’t mind growing expenses at 60%. Eventually, it will work in your favor. And the claims ratio also is trending in the right direction. Now we do need the claims ratio to come in a little bit below 60% to start becoming really profitable.

Now the other thing you often get asked is, at what stage will we break even? Now it’s a function of number of variables, obviously. I think the best guidance we can give you is that the gross written premium needs to get to about ZAR 6 billion. And then you have a business where your expense ratios are sort of market norms by India standards. So we probably think 3 more years to get there.

Okay. So India, tracking to plan, exciting business.

That ends the financial part of the presentation. Now Hillie asked me just to do the closing. Hopefully, I’ll say roughly what he would say.

So we’re halfway through Reset and Grow. We are extremely proud and excited of what we achieved to date. I must say that we were either smart or lucky, maybe both. But when we did the Reset and Grow plan, we decided that we’re going to assume that the environment will be tough. So when we did our planning, we limited our revenue assumptions quite a bit, which explains why we’re so focused on costs. Effectively, we didn’t exit any business plans that we will grow out of trouble. Okay. India is different. But overstaffing a business is they had to solve for their truck and load situation. Now that has made it a lot easier for us to navigate through the current environment because it’s largely what we expected, maybe a little — even a little bit worse than we expected.

Secondly, the reason why we’re still very much on track in that Reset and Grow trajectory is because the few hundred million we lost on revenue growth because of markets not performing, we have made up by being ahead of target on the expense side. Okay. So expenses ahead of expectations, and we’re on track.

At the same time, I concur with Hillie that we have probably accelerated delivery by holding back some resources. It’s like you force guys to focus on stuff that really matters and to make sure they deliver on the few projects that they get funding for. Yes. I’m yet to get a single convincing argument that lack of financial resources has been the reason for nondelivery. In fact, I can’t think of a single case.

Okay. And then fourth point is obvious but it needs repeating. I mean to do what we’ve done is only possible if staff is capable, committed and actually deliver on what they promised. Now I think, probably one of the smartest moves Hillie did when he became the CEO was we went in a nationwide road show to explain to people why we need to go down this route, why the Reset and Grow strategy, which is quite demanding on the cost side and focus side. There’s a lot of people who want to be best in the world and everything, and the reality is that coming out of Centurion, we have to choose where we want to be best in, in South Africa, at least in Centurion.

Yes. Yes. So a little bit of realism in the planning. And I think the buy-in from staff was good. Staff were able to understand, this is not head office giving you some arbitrary numbers. These are clearly articulated and thought out plans of where we need to exit, where we need to cut back, where we will invest. So basically bringing the whole staff into the fold I think was a critical first step.

Also, Hillie thinks I always have a strong imagination, but I can actually feel the noise levels and the energy in the building is improving. And in lots of ways, I think the additional excitement by the staff and the way the staff talk about our own business, that’s probably the greatest reward of the results we delivered in the last 18 months, 2 years. People actually come to work and they’re proud to be there and they’re optimistic about the future. So that’s been great.

Okay. And then the last point I’ll made here. I added the slide, not Hillie. He would never put this here. It’s quite a strong statement I’m making here. But I do think we’re going to continue to be a relative winner like we have been in the last 6 months. I mean the plan is obvious. But the momentum that we’ve seen in the last 6 months, I don’t think you’re going to have stopped it very quickly. The fact that you can’t win if you don’t believe you’re going to win. And now that we have 10,000 people there who think they’re top of their game, not quite dominating, but they’re actually making a comeback and they have strong belief in what they can achieve. I do think we’re going to continue making the progress in the right direction.

Okay. And then in absolute closing. Just last time, again, just thank our staff for the excellent delivery. Hillie keeps saying I’m just a messenger. At least he doesn’t call me a passenger, so thanks. But I want to thank our staff for their hard work. I want to thank our clients for sticking with us. And then to all our stakeholders, thank you for your support.

I will now hand over to Dan for Q&A.

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [4]

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Okay. Thank you very much. Thank you. And thank you to Hillie as well and Risto. I know you guys are thinking staff, which is important, but we also know — look, anywhere in the world, leadership is also important and vision is important. You can only have lead the right kind of leaders around the table and pointing what is the right direction, the vision, Hillie, and then they will know where to go. So well done to you as well as leaders. Let’s give them a round of applause for the good way they have been doing for the last 18 months.

It’s time now for questions if you have any. This is a moment for you to ask. I think we have a roving mic? 1 or 2, I think. Yes, we do at the back. If you have a question, you can just — the floor is open for that. But of course, you also have an opportunity to interact with the management team that’s here, the leadership, outside this room. There will be opportunities. Do we have questions from the web, webcam, web stream?

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Questions and Answers

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Cobus Rothman, Momentum Metropolitan Holdings Limited – IR Professional [1]

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Just from the web. The first one is from Musa Malwandla from Differential Capital. He’s asking, while we note the acceleration in the dividend, the payout ratio is still fairly low considering you’re currently above your target range for capital cover. Please just explain what informs a conservative strategy. And then the second question is around having a larger asset will improve your earnings in the short run. Perhaps help you achieve your ZAR 3.6 billion target for ’21. But how — with the expense of ROE and shareholder interest, to what extent would you allow for the heavier capital position as well as the earnings boost from the AFI acquisition in assessing your performance against your stated target?

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [2]

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Okay. Well, who’s going to take that? Risto? Okay.

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Hillie P. Meyer, Momentum Metropolitan Holdings Limited – Group CEO & Executive Director [3]

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Risto.

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Risto S. Ketola, Momentum Metropolitan Holdings Limited – Group Finance Director & Executive Director [4]

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I sit very well actually. Yes. Am I still not done?

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [5]

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Yes, you are.

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Risto S. Ketola, Momentum Metropolitan Holdings Limited – Group Finance Director & Executive Director [6]

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Yes. So Musa, thanks for the question. Yes. So AFI is actually not going to add massively to earnings, because, obviously, we lost ZAR 2 billion — interest income on ZAR 2 billion, which is a lot of money. It’s ZAR 150 million a year. So if anything, there’s a marginal gain maybe in the first year or 2. I mean it’s going to be less than ZAR 10 million up or down in the first 12 months. So we’re not really planning on adjusting for that.

The dividend, we’re laughing because we had a massive debate. We actually spent a week debating the dividend because we thought we could move a little bit lower in the cover. But then very quickly, the dividend growth starts becoming 20%, 25%, 30%, which I’m sure shareholders won’t mind. But we were also a little bit afraid of making expectations of a similar jump in the next 6 months. So you could say we erred in the side prudence. Musa, you’re right. I mean we thought the environment is volatile and we thought that the 14% growth is good enough for now. We’ll see what earnings do in the second half. And hopefully, we can surprise you on the upside.

And yes, we’re retaining a little bit more assets. But again, I mean each ZAR 0.01 is ZAR 15 million. So it’s not like we are going to earn hundreds of millions of extra assets we’re retaining. So again, there’s been no talk of adjusting our targets or anything else like that.

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [7]

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Okay. Thank you very much. I didn’t see — yes, there’s a question in front. Thank you, sir. Here is the microphone.

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Unidentified Analyst, [8]

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Ian from (inaudible) relations. There’s been a lot of reserve about the COVID-19 virus. And what seems to have done more than anything else is not the actual action. It’s reaction it’s had. That withdrawal of new plans for new business, do you see signs of this? How are you going to cope with it? Any comments on it?

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [9]

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Okay. Hillie, anybody else deal with it? COVID-19 is with us.

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Hillie P. Meyer, Momentum Metropolitan Holdings Limited – Group CEO & Executive Director [10]

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Yes. I might need to help on this one. Look, Ian, I think, first of all, I think what helps us a lot is our partnership with reinsurers who are all worldwide organizations, and they — I mean they’ve got actually some medical experts poring over the numbers. So we basically on a daily basis get information from them. And I think a lot of it is a sort of sound scientific information. And I think even from the latest information piece I read, for example, last night from one of the reinsurers. So see, that’s very, very early in the development to really, I think, jump to all sorts of, I think, conclusive decisions and so forth.

Yes. I think the impact’s going to be more severe. I mean we really see that. Suppliers from China but now travel. I mean I think Risto mentioned to me that one of the airlines have cut, I don’t know, a big part of a number of flights because people are just not flying. I mean as a company ourselves, we’re going to discourage — we’re only going to — we’re going to limit our staff to really essential flights rather than your normal regular flights and so forth. But we need to work through it. I think we need to still understand the impact. I don’t think — at this point, we don’t see — we might look at some exclusion clauses and some protection mechanisms in some of the products. But also, I mean we don’t necessarily want to jump at that because, I mean, let’s understand the dynamics of the epidemic first before we do that.

One of the things, for example, that our partners in India have informed us of, and Risto checked it, verified it with a few other sort of sources, is that, apparently, when it gets warmer to 6 degrees Celsius, then the virus actually starves to survive. So I mean our India partners told us that, listen, it’s not going to hit India to the extent — China is a lot colder. Now I mean I think we wouldn’t — I mean I think we’ll take it a lot more serious than that. But those are sort of interesting things the guys are saying. As summer creeps in to — as China gets warmer, maybe it will reduce infection rates a bit and so forth. So early days, I don’t know. I mean I know I haven’t directly answered your question, but it’s because we haven’t got an answer for your question yet.

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Unidentified Analyst, [11]

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May I ask the question in another way then?

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Hillie P. Meyer, Momentum Metropolitan Holdings Limited – Group CEO & Executive Director [12]

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Yes, please.

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Unidentified Analyst, [13]

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If you look at declared fatality so far from the virus, there’s 1 in South Africa. If we look at the fatalities from pneumonia in South Africa, it’s a couple of thousand every year. Would you say the risk is being overplayed?

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Hillie P. Meyer, Momentum Metropolitan Holdings Limited – Group CEO & Executive Director [14]

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I wouldn’t want to say that. I think we might find that it’s not as severe, but we need more time. So I think to some — half of me says that maybe the market is overreacting, especially some of the secondary reaction. Should the markets drop like this? But I mean if people are really starting to make decisions and say to close schools in Italy for 2 weeks, then to some extent, the market sentiment is, in a way, playing into making this — even if it wasn’t as serious from an infection point of view, the reaction and precautions and stuff now make it quite a serious — led a serious impact on the economy worldwide. So early days. But I mean I share maybe with social media or whatever, we’re going to make more of it than needs to be the case, I don’t know. I hope it’s the case. I know I’m ducking and diving.

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [15]

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Thank you. Thanks. Anybody else? Okay. Ladies and gentlemen — yes? Cobus, there’s 1 more there? Okay.

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Cobus Rothman, Momentum Metropolitan Holdings Limited – IR Professional [16]

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One more from the web. It’s from Zaeem Kumandan from Nedbank. He’s asking, what is the outlook for the public sector health business given the upcoming GEMS renewal? And secondly, should health, excluding the open scheme, still be a core part of your group strategy?

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [17]

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Okay. And that will be the last question we take. Who can answer that? Okay.

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Hillie P. Meyer, Momentum Metropolitan Holdings Limited – Group CEO & Executive Director [18]

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Sorry. I missed the second part of the question, Cobus. I was thinking of the answer for the first part.

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Risto S. Ketola, Momentum Metropolitan Holdings Limited – Group Finance Director & Executive Director [19]

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Is health still a core part of our business?

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Cobus Rothman, Momentum Metropolitan Holdings Limited – IR Professional [20]

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Yes.

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Hillie P. Meyer, Momentum Metropolitan Holdings Limited – Group CEO & Executive Director [21]

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Yes. Look, as far as GEMS is concerned, GEMS decided to — I mean they would have gone out to tender late last year. They decided to move that out by a year. Obviously, I mean — so that tender will come up by the end of this year. But we know that there are certain developments and GEMS are working on certain things. So there is a fair chance that it might move out another year. I mean we can’t say that, but chances are if we just look at where some of the thinking is and we’re very close to our client there. I would — I’m happy to actually say that over the last 3 or so years, our relationship with GEMS, and the GEMS trustees and the GEMS client and our delivery to GEMS have really improved significantly. I think, GEMS, they had concerns and they had issues with us 3 or 4 years ago. And I think they were basically — definitely, it was — a part of their plan was how are they going to reduce their dependency on us. But I think that’s changed and the relationship’s changed. So if there is a GEMS admin service to provide whatever, I’d say we’ve got a fighting chance to retain it. But it is ultimately a yes sort of no type of decision. They might go the route again of fragmenting the tender, but they’ve tried that to some respect, and it’s not sort of, I think, working as well as they thought. So we’ll have to wait and see on that.

As far as the open scheme is concerned, I think the reality is there are basically 3 companies that are really sizable in health insurance. And we’re one of them. And we want to stay 1 of the 3 companies in health insurance. We think we’ve got a — we think we offer a fantastic alternative to what is currently in the market. We’ve got a wide range of products. The return on capital is actually very, very good because there’s no capital requirements. Yes, it’s a volume game. But even there, with sort of our systems and stuff, I think we believe that we stand a fighting chance of defending our position. Obviously, we’d like to do more than that over the longer term.

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Dan Moyane, Momentum Metropolitan Holdings Limited – Head of Group Communications & CSI [22]

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Thank you very much. And this is where we wrap up the session. Thanks for your attention. Thanks for your attendance once again. I think you can continue to interact with some of the leadership of Momentum Metropolitan outside as you have more questions. The pun has been used by our — the group FD this morning, Risto Ketola. And may the momentum continue to be with you for the last 6 months of the year, especially the Corporate business. Dumo, good luck, all the best. Thank you very much. Let’s enjoy.