Momentum’s 2021 targets at risk as profits plummet
MOMENTUM Metropolitan’s turnaround strategy was dealt a vicious blow in the year to the end of June as its profits plummeted more than half, leaving the group with the possibility of missing its 2021 targets.
The country’s largest insurance-based financial services group yesterday said its normalised earnings tumbled 51 percent to R1.52 billion, hurt by a R251 million loss on additional provisions that were raised.
The group said it was also battling a net negative impact of R983m for potentially adverse claims and policyholder lapses and withdrawals related to the Covid-19 pandemic.
“Furthermore, the partial recovery of investment markets during the last quarter did not fully offset the impact of severe market related losses reported in the third quarter,” the group said. The net market losses included in normalised headline earnings for the year was R975m.
Momentum implemented a “reset and grow” strategy in 2018 for a target of between R3.6bn and R4bn in normalised headline earnings in the 2021 financial year.
Chief executive Hillie Meyer said the group remained optimistic about the future despite the severe impact the pandemic would continue to have on the economy.
“The turnaround strategy the group embarked on was the right strategy at the right time. There is not a single objective in our ‘reset and grow’ strategy that has lost its relevance. In fact, it has certainly placed us in a better position to manage the impact of the pandemic, now and going forward,” Meyer said.
The group’s new business volumes, as measured by the present value of new business premiums, declined 10 percent to R50.5bn, and the value of new business declined 48 percent to R280m.
Normalised headline earnings per share fell 50 percent to 101.5 cents a share. The group did not declare a final dividend.
Meyer said the group was working hard to minimise the impact of the pandemic.
“The pandemic will have a longterm negative impact on the economy. We expect to see weaker investment returns, lower new business, and weaker persistency levels in the medium term,” Meyer said.
Citadel’s trader Jordan Weir said that, as with most other financial services sector companies, the group took a hit mainly as a result of the Covid-19 pandemic.
Weir said the country’s weak economy and the aftermath of the pandemic could hurt the company’s profits further.
“Management seems optimistic about how the company has managed to navigate the pandemic environment while sticking closely to its underlying growth strategies,” he said. “However, Momentum Metropolitan has stated that, given the uncertainty of further potentially detrimental effects of the virus coupled with an extremely weak South African economy, future performance may be slow-going.”
Weir said that growth target timelines and trajectories, initially set a few years ago, needed to be pushed out further than expected, to beyond 2021, and revised strategies now included navigating the post-pandemic environment.
Momentum Metropolitan shares gained 4.15 percent to close at R15.81 on the JSE yesterday.