Shareholders benefit from increased dividends and further share buyback

Momentum Metropolitan delivered a historic peak in normalised headline earnings (NHE) of R5.1 billion for the 12 months ended 30 June 2023, with operating profit increasing by 31% to R4.4 billion, from R3.4 billion in the prior year. These exceptional results were supported by improved mortality experience post-Covid and a positive investment variance of R1.1 billion, compared to R353 million in the previous financial year. 

Normalised headline earnings per share increased by 19% from 287.2 cents to 342.3 cents, headline earnings per share increased by 5% from 297.3 cents to 310.7 cents, and earnings per share improved by 20% from 260.6 cents to 313.3 cents. A total dividend of 120 cents per ordinary share was declared, an increase of 20% on the previous year.

“I am proud of the solid earnings we achieved,” said outgoing Group CEO, Hillie Meyer. “Our business model of empowered, accountable business units has demonstrated its resilience and agility, assisting the Group in coping with the multiple headwinds South Africa faced in the last year. Our dividend declaration reflects the continued resilience of the Group and the Board’s confidence in the underlying financial strength of the business.”

The tough operating environment dampened sales volumes, with Momentum Metropolitan’s new business volumes (present value of new business premiums, PVNBP) decreasing by 5% to R68.9 billion. Value of new business (VNB) declined by 4% to R600 million driven by lower new business volumes, higher distribution costs, a general change in new business mix toward lower margin products across many of the business units, and the negative impact of the yield curve-related economic assumption changes. The overall Group new business margin remained unchanged at 0.9%. 

The share buyback programme communicated to investors at the F2023 interim results announcement was completed on 31 May 2023. The Group bought back an initial 27.9 million shares for a total consideration of R500 million. At an average price of R17.87 per share, the shares were purchased at a 43% discount to the 31 December 2022 embedded value (EV) per share of R31.39. The Board approved a further R500 million for the buyback programme of the Group’s ordinary shares, which will take place now that the Group is no longer in a closed period. 

Risto Ketola, Group Finance Director, said: “In line with Momentum Metropolitan’s capital distribution philosophy, the share buyback programme will not be in lieu of a dividend. The Group’s dividend policy to declare dividends within a payout range of 33% to 50% of normalised headline earnings, remains unchanged. Our next set of results will be prepared according to the new accounting standard (IFRS 17), which will more closely align the economic and insurance outcomes with the accounting treatment”.

Momentum Metropolitan also communicated that their offer to purchase the shareholding of OUTsurance (previously Rand Merchant Investment Holdings) in RMI Investment Managers was accepted. The acquisition is a strategic move to complement the Group’s existing in-house businesses. It not only gives them a minority stake in multiple independent owner-managed boutiques but also supports transformation and new entrants in the market. The transaction is subject to regulatory approval. 

Future outlook

Incoming Group CEO, Jeanette Marais, thanked Meyer for setting the Group up for success: “I thank Hillie for effectively leading the business towards our Reinvent and Grow targets. Our strong results in the second year of the three-year strategy are encouraging and confirm our solid competitive position.” 

The Group highlighted that while their earnings have improved, recent pressure on sales volumes is a concern. Disposable income will remain under pressure due to rising interest rates and high inflation, as well as the lack of economic growth in South Africa. This is likely to put ongoing affordability pressure on new business volumes, particularly on long-term savings and protection business. Investment business is 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. New business volumes and profitability are receiving significant management attention.

Marais highlighted that in the next financial year, the release of Covid reserves and favourable investment experience variances will not support earnings to the extent they have this year.  “Our view is that the underlying run rate of earnings is approximately R4 billion per year. 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,” said Marais. “We remain focused on driving sales volumes and a profitable sales mix to improve market share growth. We will continue to strive towards NHE of between R4.6 billion and R5.0 billion in F2024 as per our original Reinvent and Grow objectives”. 

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