Momentous earnings drop for Momentum


Momentum Metropolitan Holdings CEO Hillie Meyer tried his finest to place a optimistic spin on the group’s results for the yr to June 2020 when he addressed shareholders, analysts, workers and the media in a presentation broadcast on-line and on DStv on Wednesday morning.

It’s, in spite of everything, an insurance coverage firm’s calling to step up when issues go awry.

He referred to the extreme drop in SA’s GDP quantity, which was printed simply earlier than he began his presentation, saying that the financial system clearly has a extreme influence on an insurance coverage firm’s outcomes.

That is notably true within the case of the Momentum Metropolitan group whose pursuits span life insurance coverage, investments, short-term insurance coverage, medical schemes and banking.

The Covid-19 pandemic had impacted every of those companies, with Meyer saying that every part was going properly proper as much as the previous couple of months of the monetary yr.

Perspective

As such Momentum centered on wanting past the present disaster.

“We’re within the safety enterprise,” Meyer reminded his viewers. “We are able to play a optimistic position and clean out the impacts of the present disaster.”

He famous that the pandemic is a extreme take a look at that has had a significant influence on the financial system and has impacted equally severely on Momentum’s outcomes, however that the outcomes are “concrete proof that the group’s technique of ‘Reset and Develop’ is working”.

In essence, Meyer opted to sit up for the following monetary yr moderately than dwell on the second half of the previous yr that delivered an enormous loss.

Administration says the group was on monitor to realize its goal of normalised headline earnings of between R3.6 billion and R4 billion for the monetary yr to June 2021, till the Covid-19 pandemic began to influence SA.

Curiously, administration notes that the primary Covid-19 case in SA was reported on the precise day that Momentum launched a wonderful set of interim outcomes for the six months to December 2019.

Then issues modified rapidly.

Speedy shift

Folks weren’t solely impacted by way of well being, but in addition financially, by the extreme volatility in funding markets and of their every day actions attributable to authorities restrictions.

Meyer warned that the results are persevering with. He believes that the nation will take years to completely get better economically.

He’s the primary govt of a big listed group that mirrored – and offered detailed statistics – on the devastating loss of life toll of the pandemic.

Firstly, he referred to the large enhance within the extra weekly loss of life fee in SA, noting that Momentum’s personal life and medical health insurance statistics mirrored the overall development.

Secondly, he quoted statistics from Momentum’s consumer base close to a number of well being points, together with a rise in life insurance coverage. Nonetheless, quoting figures from Momentum Well being, he famous a pointy drop typically physician visits over the last three months of the monetary yr.

Claims towards medical health insurance and medical assist merchandise present that visits to common practitioners dropped to 40% of the traditional degree, whereas visits to dentists (who needed to shut throughout lockdown) dropped to 25% of regular ranges. “We’re neglecting different well being facets,” says Meyer.

That which might worsen, did

In the meantime, Momentum was impacted by the anticipated enhance in claims, decrease new enterprise volumes, greater coverage lapses and withdrawals, decrease funding returns and extra working prices. In brief, every part that might worsen, did worsen.

All this occurred inside the previous couple of months. Momentum posted a headline lack of R251 million within the second half of its monetary yr to tug down the great numbers from the primary half.

Headline earnings of R1.5 billion have been 51% decrease than the R3.07 billion of the earlier monetary yr, largely on account of further provisions of almost R1 billion for claims that might come up because of the ongoing Covid-19 pandemic and losses regarding coverage cancellations.

Administration additionally says that funding markets didn’t get better totally from the extreme losses of the final quarter of the monetary yr – totalling internet losses of R975 million for the yr as an entire.

Meyer says that excluding the influence of the extra provisions and the market losses, earnings from operational actions quantity to almost R3.5 billion, which “show a continuation of the group’s pre-Covid-19 momentum and robustness of the underlying outcomes”.

Sadly, there was much more unhealthy information in retailer for shareholders.

Huge knock on the property entrance

The monetary statements disclosed that Momentum took a giant knock for shifting into a brand new head workplace.

The brand new constructing in Sandton was revalued on completion on the premise of (all of the sudden decrease) rental charges in Sandton and put to e-book at this market-related worth moderately than the event prices.

The distinction was an enormous R550 million.

This revaluation, in addition to the write-down of intangible belongings and goodwill in some companies, led to a decline of 92% in earnings.

Some positives

Meyer listed a bunch of statistics to indicate that the group is performing properly, apart from the results of the pandemic. These included development in enterprise volumes, a rise in its footprint out there, development in market share and successful two giant contracts which have added 1000’s of shoppers to its books.

Nonetheless, he warned that the results of the pandemic and the weak financial system might be seen in 2021 and 2022, saying that it will be speculative at this level to attempt to predict monetary outcomes for the brand new monetary yr.

“Nonetheless, we might be disenchanted if the group doesn’t enhance materially on this yr’s outcomes,” says Meyer.

Shareholders might be much more disenchanted. Traders appear to count on a robust restoration in earnings – evident from the truth that the present share value of R15.82 represents a excessive price-to-earnings ratio of greater than 22 instances.