MMI: Picking up momentum?
The returning CEO has big plans for the company — but three years is a short time for a turnaround
It isn’t often that a CEO comes back more than 12 years after stepping down — but that’s exactly what’s happened at MMI (formerly Momentum).
There’s no doubt many MMI executives were looking back nostalgically to the nine years from 1996 to 2005 that Momentum fell under Hillie Meyer. But he agreed to a contract as MMI CEO for just three years (he says he was not interested in committing himself for the rest of his career). And three years is a short time for a CEO turning a business around — it’s just enough time to identify a half-dozen key priorities and choose a successor.
Several of Meyer’s former dream team have returned to the company, including Jeanette Marais, the new deputy CEO. She was the leading architect of the linked investment platform, which is Momentum’s core offering. Johann le Roux, who developed the Myriad risk product range, has also rejoined.
The timing for Meyer’s return was good: he’d just completed folding his private equity business, Nodus Equity Partners, into the BEE-led New Seasons business.
His first big decision as CEO has been to cancel the move — involving 1,500 people — of the company’s head office from Centurion to Sandton.
"It was conceived when MMI had aspirations to become an international player and it was going to be the global head office," says Meyer. "But we have all the offices we need in Sandton, in the EY building. And the plan would have left Centurion as an admin hub with no decision makers there."
When Meyer left Momentum in 2005, it had an enviable reputation for providing the best service to brokers and offering the best linked investment platform. Since then, the rise of investment houses such as Investec and Allan Gray has led to an erosion of market share and a decline in profitability. Core earnings have fallen every year since 2015, along with the value of new business.
The situation would look even worse without the contribution from Metropolitan, with which Momentum merged in 2010. The company, which operates in the mass market, wrote business worth about 50% more than Momentum Retail in the six months to December 2017, though its earnings are about 30% lower.
Some of the issues Meyer’s successors — EB Nieuwoudt and Nicolaas Kruger — had to face were not their fault. The unbundling from FirstRand led to the loss of substantial bancassurance income. And regulatory changes also made business more difficult. Momentum rarely advertised before — it could rely on offering brokers lavish overseas holidays to ensure they sold its products. Now compliance law restricts such treats to an annual value no more than R1,000 per broker.
"But where I think we went wrong," says Meyer, "was to move from a structure in which people had end-to-end responsibility for their profit centres. We set up centres of excellence, which were product houses with no responsibility for their own sales."
Meyer says it is nice to talk about client centricity, but not at the expense of sales. "I joined to find that many costs were allocated notionally rather than in reality," he says.
There will now be at least 30 profit centres across the group, but Meyer is comfortable letting managers on the ground take direct responsibility for these.
He points out that, under the old system, Momentum Investments did not offer its outcome-based unit trusts to third-party platforms such as Investec or Absa. Now that it has full profit and loss responsibility, it does.
Meyer says the Momentum Investments funds, such as its high-equity Balanced Fund, had highly competitive returns against the peer group, and now need to be marketed more professionally.
As part of the less ambitious, more back-to-basics approach, MMI has exited the UK retail investment market. Its investment management office in London is now just an extension of the SA investment business.
MMI’s big international bet is its health insurance joint venture in India, into which it is injecting R275m this year.
Meyer says this should be the peak. It is a huge project, with 13,000 agents, and it contracts with 3,500 hospitals in 509 cities. It already covers 800,000 lives.
However, Meyer says MMI’s complexity can’t be removed altogether. Metropolitan still runs autonomously from Tygervalley in the Cape, with almost no overlap with the Momentum client base, so there’s no sense in running the two businesses off a single brand. Even a merger of systems is off the cards, as the product sets are so different.
Meyer says Metropolitan has not yet cracked the joint venture with African Bank, and some of the expectations for this were perhaps unrealistic.
But the venture can offer both a new outlet for insurance and the chance for MMI to offer lending products through its brands.
Meyer is less concerned about the corporate cluster, which includes employee benefits, Eris Property Group and cell-captive insurer Guardrisk.
The cluster’s earnings were up 42% in the six months to December to R455m, and its open health scheme and umbrella funds are growing steadily.
The FundsAtWork umbrella is a useful supplier of business to the rest of the group, as 80% of the assets are managed in-house and 79% of members source their group risk from MMI.
Richard Hasson, a portfolio manager at Electus Fund Managers, says MMI’s earnings look subdued, as several of its businesses are simultaneously going through a J curve — a period of loss before a business moves into profitability. He says Momentum short-term insurance, the Indian joint venture and African cellphone-based insurer aYo are all on the down-slope of the curve.
"If and when they turn profitable, we will start being able to compare the group with its arch-rival, Discovery," says Hasson.