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Financial results

Financial results. Focused business = delivery of results. Share price vs Sector & ALSH. Open day. Profit warning. Interim results. KTI transaction announced. Capital reduction. Achievements rands. % +99 +42 +38 +20 +18. Embedded value of new business Core headline earnings

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Financial results

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  1. Financial results Focused business = delivery of results

  2. Share price vs Sector & ALSH Open day Profit warning Interim results KTI transaction announced Capital reduction

  3. Achievements rands % +99 +42 +38 +20 +18 Embedded value of new business Core headline earnings New business premiums (APE) Diluted embedded value Total assets under management R205m R554m R1.6bn R9.0bn R54bn Changing market perceptions …

  4. Achievements % vs Dec 2003 % +99 +38 +85 +27 +130 +44 +15 +21 Embedded value of life new business New business premiums (APE) NB margin for retail Retail operating profit after tax Health operating profit after tax Diluted core headline EPS Diluted embedded value per share * Ordinary dividend per share * After capital reduction of R1.00 per share

  5. Growth in core headline earnings +42%toR554m +49% to 89cps * Figures not comparable because retail 2003 still includes Lesotho business

  6. Value of new business & margins 99% growth from R103m to R205m Total NB margin increased from 9.1% to 13.1% Successful delivery…

  7. Value of new business by source

  8. Strong growth in embedded value 29% return on EV

  9. Major drivers of excellent results • Improved volume & quality of retail new business • Volume & revenue grew - costs declined • Operational benefits of CU integration • Health profits driven by membership growth & Qualsa • Focused effort on international’s profitability • Good investment returns • Product management

  10. Net funds received from customers

  11. Group cost management

  12. Profitable growth = being sustained …

  13. Growth in life expensesexcluding commissions

  14. Headcountchanging trend continues 4000 3500 3000 2500 Indoor 2000 Field 1500 1000 500 0 2001 2002 2003 2004

  15. Cost managementwhere to from here? • 1% increase in budget for “business as usual” life administration in FY05 • Additional R54m in FY05 to facilitate • business growth across group • re-engineering of business processes (REI) • international expansion • Resulting in overall increase of 7% in FY05 • Continued emphasis on reducing unit costs • Tight control over discretionary costs

  16. Shareholder value Asset management Businesses Group Customer management Investment management Capital management “Risk & return” “Profitable cash-flow” “Return on capital” Creating shareholder value

  17. Investment management

  18. Investment management • Excellent investment returns in 2004 • All on-balance funds exceeded benchmarks • Third party funds underperformed surveys • Investment return on shareholder funds of 25% Actions to date • Improved investment performance a strategic focus • New CIO for MetAM appointed • Ongoing review of processes and mandates

  19. Retail business

  20. Retail businesscontribution • Continued improvement in new business margin • Continued growth in new business APE • Continued growth of clients on the books • Continued improvement in lapses • Continued reduction in unit costs Core headline earnings +27% to R263m Value of new business +133%to R135m R85 average maintenance cost per policy pa

  21. 15.2 Target12.5% 8.2 Retail margin continues to improve 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% 2002 2003 2004

  22. Target 15% Continued improvement in retention 2003 2004

  23. In-force growth continues - group

  24. Retail businessbusiness environment& position • More people & disposable income in target markets • Increased NB volumes in contrast to the industry confirms dominance in target market • Multi distribution channels provide wide access • New training reduced staff turnover from 55% to 12% • Metropolitan brand remains strong competitive edge • Competitors more active in selected segments • Good progress made in upselling to existing clients Emphasis now on increasing productivity …

  25. Retail businessprospects for 2005 • First phase of the “REI” project to reduce costs and improve productivity of the new business process • Launch new generation risk and endowment products • Growth expected to continue but at a lower rate • Continue to explore distribution alliances • Extract benefits from strategic partnership with KTI and solid relationships with key clients

  26. Corporate business

  27. Corporate businesscontribution • Largest share of NB written in 2004 • Continued to generate net inflows • Operating expense ratio declined from 8.4% to 7.6% • Acquired the largest risk scheme in SA (NUM) Core headline earnings (4%) to R107m Value of new business +59% to R54m

  28. 60 TargetR45m 54 34 Corporate businessEB value of new business grows Rm 100 90 80 70 60 50 40 30 20 10 0 2002 2003 2004

  29. Corporate businessEB prospects • Strong broker relationships maintained, evidenced by NB growth • Launched innovative multi-manager smoothed bonus and linked absolute return products • Continue to leverage unmatched empowerment credentials • Business opportunities through KTI partnership • Consolidation creates business opportunities

  30. Health business

  31. Health businesscontribution Core headline earnings +130% to R46m Value of new business R36m to R173m • Administration revenue increased by 20% • Qualsa (managed care) revenue increased by 52% • Number of principal members exceeds 400 000 • Average admin costs of 7% of contributions (industry average of about 10%) • 48% schemes’ solvency levels (industry average 30%)

  32. Health businessprospects • POLMED contract from 1/1/05 • Qualsa managed care products launched • Well positioned to benefit from single medical aid scheme for civil servants (expected 2006) • MHG supports government’s objectives of improved healthcare accessibility and affordability for all • Business opportunities through KTI partnership and new BEE transaction • MHG the largest administrator of closed medical schemes in SA

  33. International business

  34. Core headline earnings *R3m to R52m Value of new business +45% to R16m * Impacted by Lesotho transfer International businesscontribution • Profitability on track • Risk profits in Botswana and Namibia increasing • Lesotho policies transferred from Metropolitan Life • New business flows remain under pressure

  35. International businessprospects • Combined Metropolitan and Channel Life expected to be biggest writer of NB in Namibia • Metropolitan dominant in Lesotho • Metropolitan 2nd biggest in Botswana • Markets in East Africa being explored

  36. Capital management

  37. Corporate action • Strategic partnership with KTI successfully established • Capital reduction of R780m (R1 per share) • Re-engineering of CU Life completed • Buy-back of 44m shares • Lesotho business transferred • Channel Life Namibia acquired Enhancing shareholder value …

  38. Looking forward...

  39. Strategic issues • Industry consolidation “… the road less travelled.” Robert Frost • Market growth “The fortune at the bottom of the pyramid …” C Prahalad

  40. Then 2003 results turnaround Further improvements in FY04 Further cost reductions in FY04 Under-valued - poor timing “Low-hanging fruit” for our shareholders Merger risks underestimated Better positioned to sustain medium-term profitable growth than competitors ...        Our view on “industry consolidation” Now Delivered Delivered Delivered Re-rating Delivering Remain Ongoing Consolidation only makes sense if done for right reasons and at right price …

  41. Market growth • Lack of life insurance growth in developed markets is seen worldwide (driving consolidation) • The only companies showing growth are those: • focused on emerging markets or • pioneering new business concepts Metropolitan pioneers new concepts in emerging markets

  42. Metropolitan is a pioneer • 1970sdeveloped smoothed bonus concept • 1970sfocus on the “black” market • 1980sdeveloped group schemes concept • 1990pioneering HIV/AIDS research • 1993first BEE transaction with listed company • 1995entered health market as competitors left • 1995entered “saturated” EB market • 1998 started building African businesses • 2000 developed new direct marketing concepts • 2003 1st in financial services sector – empowerment ranking

  43. Strategic outlook for Metropolitan • Retail’s target market showing good growth, dominant in lower income segments with optimal and diverse distribution options • MHG very well positioned in the health market • EB able to attract significant-sized schemes • International profitable, but expansion is slow • Further benefits from strategic partnership with KTI expected

  44. Shareholder focus

  45. Performance objectives2004 scorecard Performance targets aligned to shareholders’ interest

  46. Performance objectives2005 threshold targets

  47. FY04 results confirm that … • Strong market focus plus diversification of income stream delivers benefits • Metropolitan is sustaining increase in volumes and quality of NB at reduced cost • Empowerment credentials boost ability to secure NB • Capital management initiatives paying off

  48. Successfulimplementationofstrategiesinchosen growth marketscontinues to delivergood results,adding value forall stakeholders

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