Good morning everyone and a warm welcome to Old Mutual 2025 Capital Markets Day. To those joining us here in Cape Town, a warm welcome once more. Thank you for coming through. I see Marius, you made it. You made it all the way. We appreciate you for being here. There are many of you who are joining us today, coming from afar. To those of you joining us online, I do know, I checked the RSVP, Yuri, some people are dialing in as far as Brazil on the call. We appreciate all the investors for taking time to join us. I am Langa Manqele, as you know, the Head of Investor Relations, and it is my privilege to be your host today. We will begin just shortly.
Just to frame, Jurie will kick us off with a theme, a very simple one where we are saying we are unlocking value and growth potential. As for myself, my role today is a simple one: to keep us on track, keep us on time, and not to get in the way of a good conversation. Make sure that you're on track and you are efficient in the process. Please note that today's presentation is already uploaded and available on our website. Kindly download it. I know some of you like to scribble and take notes. Pardon us for not printing out the copies, but we've made sure that you have the materials available for you to follow the proceeding today. Let me quickly just run through the full order of the day.
I've asked the team to just sprinkle some agenda items, detailed itinerary to help you track and follow the day. Just to catch you up on an overview, first off, we have structured today's agenda around four informative sessions. Each is exploring how Old Mutual will execute on its strategy and deliver sustainable value. As I've said, Jurie will kick us off with a value creation path. He will be joined by our CEO and COO, Zureida. Zureida will briefly just touch on the Old Mutual Rewards as well as talk about data and AI capabilities that we have in the group. We thought that it is important for us that we showcase how the execution enablers are supporting our strategy. Zureida, you will be joining Jurie on stage for that piece. After that, Clarence will come on stage.
As you know very well, Clarence from the Mass and Foundation Cluster, he's now the Executive CEO for the bank but also with an executive oversight of the banking cluster of the group. Clarence will come in to deliver our first deep dive on the bank. We will then take a short break, 15 minutes, check your emails, refresh on the core features outside, leg stretch, and come back on the second session. I will then call upon Prabashini. Prabashini is our CEO for the Life and Savings cluster, which as you know now comprises the four underlying business units. I'll not steal the thunder from you, Prabashini. You will come through and deal with that. We will then break for lunch. That will be about, if we stay on track, I'm sure we will do five to one. That's one hour lunch.
After, when we come back running, we switch to the financials to you and Casper. We thought that we will do a very brief teach-in on GEV. We receive a lot of difficult questions from you on this topic on GEV. After that, Ranen will hand over to our CFO, Casper Troskie, and to land just three important messages for today. One, cash generation for the group. Two, our dividend policy, and three, our approach to capital allocation. In each of these sessions, the first one, there will be sufficient time for Q and A. Jurie, Clarence, and Prabashini will join me here on stage. We'll open the floor right to you, and I will remind you that time on the Q and A process, also on the second Q and A process, will follow a similar fashion.
Jurie, I will ask you to come back on stage, joined by Ranen and Casper, as well as Martin and Nico are in the room. They will not be on the stage, but they will be able to take questions at that stage when we are there. Welcome, Michael, thank you for making it through. With that, we are happy to get started. Just a reminder, you may just keep your phones on silent. We know that you're busy, you need to be checking your phones now and then. Kindly please do keep it on silent for us. Let me quickly talk about the Q and A process. It's slightly different from the result so that we are not thrown off of the process by that. For those participating online, the webcast is available. There is a tab for Q and A. Kindly submit your questions there.
We will take your questions, read them out loud in the room, and make sure that your question is addressed. For all of you who are here in the room, there are roaming mics. My colleagues will come to you. Please raise your hand, and we will limit just to two questions per person. It's much easier for us to have control because I see all of you here, two questions, and just for the etiquette, please do introduce yourself, the organizations, and get away with that. We will do our best to make sure that we strike a balance between those who are here in the room as well as those who are online, so that everyone's voice is heard. To set the scene for the day, we begin with strategy and value creation, as I've said. With that, Jurie, please come on stage.
Good morning, everybody. Thank you for being here. Welcome to Mutual Park. I presume this is not the first time that you're at Mutual Park. Maybe it is. New visitors to Mutual Park, thank you. Thank you. Good. You were signed in adequately, I'm sure, by security. Welcome to you. Thank you for being with us. Thank you for those of us that are online. I know, I think I know who's in Brazil and it's really early in Brazil, so thank you for that. I think it's six hours longer, so that's dedication. Guys, great to have you with us this morning. I think the purpose of the Capital Markets Day really is to just go deeper on some of the really key issues coming in as new Group CEO. It's been five months.
I was looking back at the slide that we presented at interims and I think that was like six weeks ago. In normal time, that probably doesn't feel like a long time. You probably feel like maybe not much has happened in six weeks. I think for us as a team, it feels like an enormous amount has happened in six weeks. What I wanted to do, and let me just first say, I think the purpose today is we believe and we've got conviction that we've got high degree of clarity on what we want to achieve with our business. This is an exercise in communication. We want to try and find a way of really relaying that to you as best we can. I look forward to the questions, look forward to the interactions.
We've got a whole team here, we've got the excerpt team, as well as many others who are experts on specialist topics. I look forward to the engagement. Given the fact that I'm five months in, I just thought important to just recap from interims what I said to you six weeks ago. Does anyone remember the slide from six weeks ago? Okay, you can all just nod. We'll feel better. Thank you, Sally, for saying you remember our slide. I wanted to just talk about this slide because we presented it then as a kind of a first cut of where we were. By that stage, I think I was about three months in. We just felt we wanted to give an update and clarity on some of the key issues. I think we spoke about clarity and alignment with the transition.
Our group strategic priorities we highlighted to you. You would have seen that. We talked about these value led priority KPIs. I think that piece really I can say to you, I feel like as a team, and not just this team, but also deeper on in the business. We've had our conferences, we've had our engagements. I think there's a high degree of clarity and alignment on these issues, and we think that's kind of largely done. I think there were two other pieces that I signaled to you as really key pegs in the ground. The one was around creating shareholder value, I think, and we'll talk later about the sort of size and scale of our group and what the opportunity is. A real recognition that we have to focus on shareholder value creation to track the scale and the opportunity in our business.
That piece we talked about demonstrating resolve on cost. I'm going to give you more detail on our commitments on that. We talked about earning the right to deploy capital. We will go into capital a bit later, but I will also talk to you about some of the opportunities there. Remember we spoke to you about a R3 billion share buyback that we announced. We've got an exciting transaction opportunity that we'll talk about this morning, which is an investment in our business and then the pivot to ROGEV, even cash generation. We are kind of making good on just going deeper on those really key value creation KPIs. You'll see that there's on the agenda. There's, of course, those very specific segments with Ranen and Casper as far as sharpening execution is concerned.
This was a topic actually which in our individual conversations after interims, we got into a lot of conversations with investors around this. Just to reiterate, we've redesigned our operating model to be a much more devolved structure with greater end-to-end accountability in the clusters. We were previously a much more centralized business and are really trying to create much more clarity around what sits in the businesses where we want to drive competition for customers and value creation versus what sits at the group. What sits at the group, we've defined in this what we call the outright versus loose decision framework. I have a pretty good idea of what it takes to execute, and in my experience, the thing that holds back execution is decision making in businesses like this, right?
When there's confused decision making, when there's structures, when there's a lack of accountability, when there's committees that are checking on one another and people hand holding and managing each other, that's where things get slowed down. We're putting a lot of work in and are very far advanced in prep for the 2026 financial year. To be super clear on what the group considers to be tight, which I won't go into detail, is broadly capital allocation. I say, guys, capital allocation from Rand one, I'm very happy to consume capital. Allocation from Rand one is kind of what we think about at the group. Think about those mandates, risk management, governance, brand, I mean some of those obvious things. Of course, some of the really key things that you have to do at the group to enable the success of your businesses.
You'll see there later on, Zureida will come up briefly to talk about some of those enablers. Really, our ambition is to do as little as possible at the group, to only do those things that are going to really add value to our clusters and help us run this group as a shareholder. We've created these two new segments, Life and Savings and the Banking cluster, which again we're going to deep dive in. The two CEOs have been running these new clusters now for I think two and a half months. Prabashini, how's it three months? Okay, so she's well into it, she's got all the answers, we're done. It's good. It's been an intense process I think for us to kind of form these clusters. Excited to talk to you about it today.
You can see there in the executive team, this is kind of the framework very clearly. You've got the customer facing segments where we push as much activity in those clusters as possible, give as much end to end accountability and then a leaner group, as lean a group as possible. Some are more lean than others but we've cut down on catering. We haven't cut down on catering, guys, anyway. We really are looking to be as focused as we can. Actually, this is really the key thing and it's a belief that comes through the operating model: focus creates execution, it creates good decision making and ultimately creates success. I just wanted to give you that kind of segue. This is the next step in the communication process and the kind of driving of execution in our business.
Yes, it's five months in and it's early days but I think we've got enough clarity to give you some real markers. We will come back to you at results in March and then we'll come back to you at interims and we will do a CMD roughly the same time next year. Langa, if you didn't know that, that's what we're doing here. Bad news. Yeah. What we want to try and do is just give you these markers around what you expect from us, what we're chasing, and what you can measure us on. Just giving you some reflections from my heart of the last five months, I was saying to the guys, some of the investors earlier, that I spent six board rounds on the Old Mutual board as an eyelid.
When you do that sort of six times, reading sort of 2,000 pages, the one advantage is it does give you an opportunity to get to understand the scope and the scaling opportunity in this group. This is a group with an iconic African business, African brand. It's got quality businesses at scale, it's got deep roots across the continent. I'm sometimes stunned by how long we've been in some of these markets. It's got 180-year heritage now. 180 years. A lot changes in 180 years. We're not claiming that as a unique differentiator competitively going forward, but it does provide a platform for us that if we can execute and we can use that platform, it gives us something that is very hard to replicate. That's a reflection. When I speak to people, I have had the opportunity now of talking to people across the group externally, internally.
I really am amazed at the depth and the breadth of the brand. I talk to people who are like the foundation markets, people who are just on the economic ladder, and they have an affinity with Old Mutual that goes back to their parents and their grandparents. Then you talk to somebody who runs a family office for high net worth individuals and they say, actually we also want to be associated with Old Mutual. There's an opportunity here to unlock value, but we have to recognize there is value that has to be unlocked in this group. The shareholder value has not tracked the scale and the kind of opportunity that we've got. There's a recognition. Restoring margins and returns is the key focus and execution and disciplined capital allocation. That's how we're going to achieve it.
I also want to cast the eye a little bit further and say that I do have conviction that beyond the value unlock phase there is an opportunity to take advantage of our scale and our customer reach to generate growth. We have a lot of quality businesses in this group and I'll show you some of those. What sets us apart is I think we have an unrivaled, in our sector, reach into the mass markets, customer reach, and intermediary reach. There is an opportunity for us to contest a new banking profit pool to create growth as well as to supplement some of the other growth opportunities that exist in the rest of our business. Those are kind of the three really key things that we're focused on. There is a plan for us that we have in our heads, which I'll take you through.
I wanted to set the scene as to what's in my mind, and my convictions on this thing are, I would say, if anything, stronger than when I came in five months ago. I want to spend just some time this morning just talking about, first of all, this kind of iconic business. I want to take you back to our value creation phases that we spoke about, our capital allocation horizons, and then our strategic priorities. What I'm going to try and do is, I'm not going to go into the clusters that are going to be deep diving. I just want to highlight later on in the strategic priorities just some of the businesses that actually we are not going to get a deep dive today but that we think are worth mentioning.
Just in terms of this brand and what it means, I mean we've got these accolades that sometimes go unnoticed: long term insurer of the year in 2024 and 2025, top 10 strongest brands in South Africa. If you look at where we are across the continent, we actually are in many of these markets in top three positions by line of business. Yes, there are gaps and there are opportunities that I'll talk about later. Again, this kind of deep heritage: 13.7 million customers across the continent and a really deep history. If I look at our business assets, R86 billion GEV just in this life and savings business, this mass market distribution that I've spoken about. We also have the largest umbrella fund in the market with R195 billion in the Old Mutual Super Fund. Our wealth business is a R440 billion assets under management administration.
It's an underappreciated asset and actually something of a powerhouse in the industry that we think is not fully appreciated. On the P&C side, we have had a business in Old Mutual Insure that has underperformed over a number of years. It kind of lost market share. It moved backwards. It's got an 8.7% market share at this point. I've been on that board also, actually for about 18 months. No, but longer now, two years. Just witnessing the turnaround in the performance of that business. Yes, the market turned around, that's absolutely true. Seeing the quality of what has happened in that business and I used to run a motor for my sons, a motor insurance business. I know what it takes to, like, what are the signs of a motor insurance business that is turning around or personalized business.
Just seeing that, I think that there's an opportunity for us to kind of double down on the better base that we've got and grow that business, grow its market share back to our natural market share. This is not our natural market share, by the way. The turnaround didn't come when I joined. It wasn't as a result of joining the board. It's purely coincidental. The management team are quick to remind me it was. I went in there to try and fix the business and then I saw it was actually just doing this on the asset manager side, I think, just highlighting again a couple of key assets. Our alts business is a leader in the market. We pioneered this.
We pioneered it because we've got, I think, one of the biggest sources of permanent capital in the market, particularly with our smooth bonus funds where we can invest for the long term. Then we've got assets like Futuregrowth, which is a, you know, a leading credit manager, just over R200 billion. Of course, our banking and lending assets, which we'll talk about a bit later, that lending book of R15.5 billion through just under 350 branches. We've said we're talking about value creation this morning. I know that that's what you're interested in. You're interested in this recognition that there's value to unlock and how do we unlock that value and move forward. I think the first is just to pause for a second on the cash generation of the group. One of the things a group like us has got to do, it's mature.
It's a group with mature businesses. We generate a large amount of cash and paying attention, paying careful attention to how we reinvest that cash. What we do with it is a vital lever in shareholder value. You see that R27 billion generated since financial year 2022. Significant chunk of it gone back in dividends and share buybacks. There's also been investment in OM Bank and other growth investments. You'll see some of that. You'll see a new opportunity that we're going to talk about this morning that we're delighted with. I think the key thing here is to say to you that when we get to the capital horizons, you'll see it. We are really conscious about the quality of this decision making as a group at my level and Casper, myself, and the others at the group.
We are much more interested in this than in trying to run any of our individual businesses. We leave that to the businesses and we are focused on Rand one of how to optimize this. If you look at, across the, you look at the framework of unlocking value and generating growth. I'll talk a little bit more in detail about this later, but I showed you this at interims. What we're going to be showing you now is kind of our focus value creation KPIs to what we think, what are the targets that we're chasing and what are the, you know, what our focus areas. You'll see there we've put out this morning our new targets for these metrics. I spoke to you at half year about our ROGEV and generating ROGEV above cost of equity. Our target in the medium term is 14% - 16%.
We talked about moving to cash generation. That's our dividend growth target of 6% - 9% on a rolling three-year basis. Then our own F targets 15% -1 7%, VNB margin, and the net underwriting margin. I think on underwriting margin, let me start there. We've lifted our own insurer underwriting target range from 4% - 6% to 5% - 8%. We think that's a recognition of where the business is now. We want to sustain our performance. Of course, for half year it was above that, but we think that there's probably a little cyclicality in that. There's been a good underwriting cycle for the market, but we think that that's sustainable and we need to demonstrate that that's our target. VNB margin, you would have heard that you saw at half year that we took our persistency variances into our EV, and so the VNB margin is down.
Big task for us, and Prabashini is going to spend a lot of time later talking about how to get ourselves back into range in the 2% - 3%, and that's also a big lever of getting a ROGEV into the 14% - 16% range. I think to say to you that we are in a two-phase process here to a degree. We're in a value unlock phase. In the value unlock phase, my goal is to get us consistently into range on these metrics. Right. If we can do that, then I think that we would have hit a number of really important, really important targets, and we would have demonstrated an ability to unlock some of the value in our business.
Of course, beyond that, we will move, and the work is in parallel for generating growth, and I think that that generating growth phase will ultimately give us an opportunity to revise some of these targets upwards over time. We will take you with us on that journey. As I said, we will be talking to you regularly as we progress. I want to just, on cost, one of the really key levers in unlocking value is cost efficiency. We are targeting R2.5 billion in cost savings by the end of 2027, with at least R1 billion by the end of 2026. This is basically called a 10% reduction on our 2024 base. Work is well underway on this. You would have seen that we put through a restructuring provision at our half year based on some of this initial work.
What I want to say to you really here, and this is about this, this has got to be demonstrated. We want to give you clarity around what we're targeting and thinking. Ultimately, we recognize it's about delivery, but we're going to be cascading this into the businesses. The reason why we've moved so fast on some of these organizational changes is to catch our management cycle. The management cycle is setting targets, giving accountability, and setting incentives. That's the process we're in. We've caught this for next year, and I was determined to do that, that we can catch it for 2026. For 2026, we're going to be able to set the targets. We're defining what cost efficiency means for every area of the business.
You can see there it differs by business: VNB margin, there's expense ratio for Old Mutual Insure, the cost to income in Old Mutual Investments, and so on. There's a process that we're going through of just benchmarking where we want each of our areas and businesses to be in 2026, 2027, 2028, and targeting that. We are going to be also cascading all of the targets. It's not just the expense targets, it's actually ROGEV, it's cash generation, it's all of those metrics, taking them through into the underlying businesses. Of course, with a leaner group managing those shareholder operating costs, we'll be pushing it through and pushing it into management incentives. A lot of businesses work like this. We have not worked like this. This is not how incentive structure has been to date.
This is a very significant shift for us and a change in how we approach giving line of sight targets and incentives to our management. I think one of the other big levers in kind of value unlock and ultimately in generating growth is OM Bank. We're going to give you a serious deep dive later. What I'll say to you, and I've said in the private meetings, is that contesting this banking pool is a natural thing for Old Mutual to do. If you look at our lending book, if you look at our branches, we've been doing this since 2007. I think if you look at the convergence of banking and insurance in South Africa, it shouldn't be a surprise strategically that this is something that we want to pursue. Of course, it is ultimately in the execution. It's about getting this right.
It's about the value proposition that we offer customers, both from a value but also a customer reach and distribution point of view, and with the technology that we've invested in. I'm not going to steal Clarence Nethengwe's stand on talking about some of that, but I do want to say to you, one of the really early things that we did was moving the branches and the Old Mutual Finance distribution into the banking cluster. Even prior to this kind of full public launch, we've opened up those channels. We have already signed up 140,000 customers onto our banking platform. We are signing up at this stage 5,000 customers a day through those channels. We have a big, we said we have a big potential. Some of those are new to Old Mutual, but some of them are existing Old Mutual customers.
We really are super encouraged in the early stages of this. The focus for us is yes, there's been a significant investment in the bank and that will continue for the next couple of years. We're encouraged by the scale of the take up. Getting across to capital allocation, of course, as I mentioned, is really vital to the success of the group and ultimately to unlocking shareholder value. You would have seen this will be familiar to you as well. This is our sort of three horizon capital allocation, and really just saying, recognizing that we are currently still, even though our RONA has been at 15.5% for the half, if you look at the market impact of returns, actually it's been still below the range.
We consider ourselves in Horizon 1, and in Horizon 1 we will prioritize shareholder distributions and hence the announcement of the R3 billion share buyback. We did say to you this business is not just about value unlock, it is also ultimately about generating growth. We have to consider and be on the lookout for really strategic acquisitions that we can do to deploy capital. I'm pleased to announce that we've this morning announced the acquisition of 10X Investments. 10X Investments is a player. It is a retail direct-to-consumer, D2C, player in the investment space. It is one of the leading independent providers of passive investments. Passive investments, as many of you know very well, is growing extremely fast and projected to grow very significantly still over the course of the next 10 years in South Africa.
This is a great business. It has a 97% direct retail retention rate, significant retirement business, and sticky recurring revenue. Importantly, it has captured 35% of the passive net inflows since financial year 2022 in South Africa. What we're doing is pairing Old Mutual's asset gathering capabilities and our full value chain with what is really a kind of best-of-breed retail player in the space. We're super excited about it. I don't think we could have found, we don't take the decision lightly, we could not, I think, have found an acquisition that is more tightly coupled to our strategic focus areas and our strategy. It strengthens our direct and digital propositions, which is an area that we've needed to, we're under-indexed in.
It gives us growth in passives and ETFs, and it gives us a scalable technology platform that over time will enable us to actually grow that base without growing the cost base at the same rate. I think it's a huge opportunity for us. We're delighted to welcome Toby Van Hieden and his team into Old Mutual. I spoke to him this morning. It's a big day for them as well, announcing this. We're delighted they will be keeping the team, will be keeping a shareholding in the business, the enterprise value of R2.2 billion, and of course subject to the necessary conditions and regulatory approvals.
What I really wanted to say to you this morning was we are, as we look to the future, looking at value unlock and generating growth really carefully and looking at how we can match up our capital to drive success ultimately not just in the value unlock phase, but also in the growth phase. Getting to our strategic priorities then, I'm not going to go into Life and Savings and OM Bank, but I do want to spend a little bit of time on a couple of the other areas. This is just on Old Mutual Insure. Just to give you a sense of where that business is at, I said to you it's at 8.7% market share. We think there's an opportunity to kind of refill our shoes there in the industry.
This business has demonstrated an ability to do programmatic M&A, scaling up and acquiring businesses in niches. One Financial Services is one of those examples, which is a leader in the heavy commercial vehicle space. We've made significant progress in our data and analytics, which is one of the key things that's underpinned the turnaround in loss ratios, particularly in that retail business. There's an opportunity for us to grow in the group. Within the group there's still a big untapped distribution opportunity. That's part of it, but there's also a number of others. We think that there's opportunity in specialist insurance lines where we're under-indexed. There's also in direct and digital. iWYZE is our direct digital brand. It's under-indexed compared to some of the big direct and digital brands out there, and that's a focus area for us. We do think that we can get cost efficiencies out.
They are certainly not immune to that push across the group, and many of the same levers there that we'll push in the other clusters and other optimization opportunities as well. That team is a good example also of where within a cluster you don't just have to look to the group to innovate when it comes to using gen AI analytics and the like. Actually, people close to the business can also do that in partnership with the group. I wanted to talk about our investment business briefly. Our investment business, we've got to understand, actually spans our investment capabilities, actually span across the—I refer to it as kind of the asset gathering and the asset management value chain.
You've got asset gathering, which is the full activity of what Old Mutual brings scale at, which is right through from advice, administration, the structuring of solutions, and there's a huge, you know, there's obviously significant change in the industry around what those solutions look like. The growth of passives, the growth of quantitative strategies, ETFs. You can see there, just if you look at our, if each of these pillars in terms of capabilities, indexation and quants, you know, if you just look at it as a kind of asset class, we add the R68 billion to Old Mutual and stable there and already have to add to our really significant institutional base in that R192 billion in index in Symmetry. We've got a strong multi-manager that is growing and is gathering assets in the solution space.
Multi-manager DFM best of breed solutions in our fundamental equity and asset and multi-asset. You can see there's different propositions there. You can see the Old Mutual Private Clients proposition, actually an underappreciated asset in the group as well, that really competes very favorably with its peers in the market. Futuregrowth we've spoken about, and just showing you there the capability we have in liability-driven investments, again R67 billion. A serious play in that niche and an underappreciated capability. Then our alts business, of course, leader in the markets and super excited about what that business is up to going forward. Just turning briefly to our OMAR regions in Southern Africa, you can see there that actually the rankings of where we sit per segment, we actually are in the top three in a number of, in most business lines in these markets.
These are markets where we've been in for, in some cases, 180 years. The opportunity, we've come under pressure here recently on margins. You can see there on the life side and the P&C side, and those have been for different reasons. The first order of business is to fix that. We're looking at cost efficiencies, looking at reinsurance, get that back to where it needs to be within margins and returns. We do also have ambition here to fill in. When you go to these markets, you need to play across the value chain at different segments. You need to actually have capability that you can leverage your skills and your brand across the market. We will be looking at those opportunities carefully over time. This is the thing that this is a business that we think we can deepen our leadership and deepen our scale.
I think in East and West Africa, recognition that it's harder in these growth markets, not been there as long in many cases. We've got work to do here to really earn the right to deploy capital. This is an important line in the sand. We really are thinking that we need to be. We need to complete the restructuring of our balance sheet and the disposal of certain assets. We need to generate cash out of these balance sheets. We need to improve margins, particularly on the PNC side. Improve margins and returns. That's the kind of mandate that we've given the teams there. Once that's been done, we can look at when we've earned the right to deploy further capital in these markets. I think there's already a lot of restructuring that has taken place. Just to remind you, South Sudan, Nigeria, Tanzania.
I think we've demonstrated a resolve on making sure we reshape this portfolio where appropriate. Those are the kind of just going through the different pieces of value creation capital and our strategic priorities. What I just want to do is for a few minutes, just hand over to Zureida. Zureida is our Group Chief Operating Officer to complete the picture on this integrated execution model and to show what it is that we're focused on as a group. We've got considerable resources and expertise, but it's going to be really focused on some of these key areas and particularly I think Zureida this morning is going to talk about rewards and AI. Let's welcome Zureida.
Good morning. Thank you, Jurie. As Jurie said, we'll just take a couple of minutes to move from strategy to execution. As the Group Chief Operating Officer, my focus is on the strategic enablers that unlock value across the business. I'm not going to talk about all of the integration enablers, but a specific focus on rewards. Very importantly, with the bank now part of our proposition, but also AI. I know there are lots of questions on how organizations like ours are playing in the space of AI today. Taking a look at how we think about AI, as most of us know, new technologies on their own are not going to drive transformation.
For us, it's about combining this new technology stack, everything from using our data and creating intelligence and insights on that with new automation tools, but not only AI, everything from machine learning to more intelligent AI tools and then the right conversational interfaces with our very rigorous, robust execution platform. Jurie spoke a lot about our new operating model that's leaner. We've implemented agile practices across most of the delivery teams in the business, and very importantly, we have a global capability hub where we are sourcing the right skills for us to be able to give effect to this. We really believe that bringing technology together with the execution platform that we have built is an important enabler of our success. This is not a completely new journey for us. We have existing, already established, already used capabilities.
We have a gen AI platform in place, many machine learning tools in place already. This, together with several customer data products that we have built and are already in use and our enterprise knowledge repository, creates the existing foundations for us to use these new technologies on. Most importantly, we're not deploying AI just generally across the business. We're taking a very specific, very focused, intentional approach to it. In the tech space, it's about improving the software development life cycle and employing AI in our infrastructure layers. In the customer space, it's about personalization, next best action, and next best offer tools. Our core focus here for the planning period is AI for automation with a very, very specific focus on cost reduction in our operations. We're looking at our sales and our servicing processes all the way from pricing, underwriting, to the way we serve our customers.
We're very focused on employing automation in our claims process, being our most important moment of truth, and then protecting our business by employing AI and automation models in the fraud detection and prevention space. I think importantly for us, in the way that we're thinking about AI for our business, is we're trying to avoid, from all the lessons learned from pilots that we've run to date and from others who have progressed quite well down this road, moving from pilot to pilot and being able to figure out how we scale what we do across the business to unlock real value. The next thing I'll quickly talk about is our rewards program.
This is much more topical now with the bank being launched, and we really see Old Mutual Rewards as a strategic flywheel for integration that has the ability to drive both bank growth and at the same time create stickiness for our insurance customers. Our rewards program is not new, so we're again building on a successful base. We have 3 million members already. We have almost 50 partners, quite prominent partners. You'll see them later in the banking and the insurance presentations from Clarence and Prabashini. We already have this program that's in place, being used by customers quite a lot, and we see it as being very well positioned to drive growth. Three key dimensions for us: we've integrated the bank into the rewards program already, so if you open up the bank app today, you'll be able to see your rewards and use it.
Rewards are easily cashable, so it gives customers more options. Being able to use your rewards in a more seamless, frictionless way helps us attract new customers. Secondly, we reward customers who transact in the bank, and then customers who hold other Old Mutual products receive compelling rewards. We reward customers for multiple products. Thirdly, we reward customers for engagement. We've created an engagement ecosystem, and this is the space that we really look to do more in. Those are the three elements that we already have in place and are resulting in the growth that we see today. As I said, it's not new. There are some credible results that we intend to build on. Today, we already see persistency improvements. Customers with rewards already show 7% - 10% improvements in persistency. Customers who have rewards compared to non-rewards already hold two products.
That's 37% more than non rewards customers. We can already see the behavior that we're looking for. A lot of 40% of rewards today are already redeemed in cash. We can already see that we have a good foundation on which to build this proposition going forward. Importantly, this is a space that we want to focus on as a strategic flywheel of integration for the group. Thanks, Jurie.
Thanks. Just to sum up, I hope what we've tried to do in this opening session is just to provide you clarity on the big picture around where we're going. I think in particular a reflection on our scale and the opportunity that I think exists to unlock value. I think we're clear on the value creation phases around what it's going to take to unlock that value and ultimately to generate growth. We've talked about the expense piece in that, we've talked about OM Bank that we're going to get into. The R2.5 billion commitment on expenses until 2027 on the bank, just the early progress that we've had on customer traction. 5,000 customers a month, 140,000 and counting. Ray, how many have you got now? 150,000 probably. It changes every day. We're seeing progress in that.
I think discipline on capital allocation, the R3 billion buyback, but then also matched with the R2.2 billion investment now in a platform in a business that we think couldn't be more tightly coupled to our strategy and ultimately a set of strategic priorities that we think are clear for our clusters to be able to execute on. We know where we want to push, what the levers are we want to pull. Ultimately it's around delivering on that value unlocked to put us in a position to be able to firstly put ourselves into the range of those targets that we've given you and ultimately down the line, give us the opportunity to revise some of those targets upwards. Thank you for this morning and Langa, I'm going to add back to you.
Thank you, Jurie, and thanks, Zureida, for that very clear presentation this morning and getting us off to a good start. Jurie, I think the highlight really of the acquisition of 10X, I remember you said to me, you don't like the idea that we are good at gathering assets, but we don't know what to do with them. That, I think, puts just a concrete expression of the journey that we are traveling as a group. I realized that I omitted an important thing. I didn't mention the Wi-Fi.
So the Wi-Fi access, look for Old Mutual presentation with capital letter OMP. It will appear on your device, and the password is changinglanes one word. Changinglanes, capital letter C, capital letter L. Clarence, speaking of changing lanes, let's switch to the bank. That's the next presentation for the day, and without further ado, over to you, Clarence.
Good morning. Does it work? Yes, it works. Thank you very much. Earlier on when Langa was introducing, you know, opening, he said, we also have Clarence Nethengwe from MFC and now he's with the bank. I said to myself, gee, this MFC label will go with me for the rest of my life. I need to do something about it. It did happen before, by the way. Langa, when I joined MFC, after some time everyone kept on saying, oh, Clarence the lawyer, Clarence the lawyer. I said, maybe the best thing for me is to get into the sales side and start selling funeral policies. Maybe this lawyer thing will just simply disappear. I tried my hand at selling funeral policies and the rest is history. Everybody has forgotten that actually I'm a lawyer by training, but others it may be.
Today I'm joined by two of my bank colleagues from OM Bank Exco, Lushendren Pather , who is our Chief Risk Officer. He's a very experienced man. He has been with multiple banks. He was also a CFO of one of the banks in South Africa. He was also Head of Group Planning for Standard Bank at a point in time. He also happened to have been with the Prudential Authority where he was Head of Bank Supervision. During our application for a banking license, he also presided over the application of OM Bank. He didn't approve it because he wanted to come over. He was just part and parcel of that panel that approved our banking application. We also have Ray, Ray Deftereos, who is our Chief Information Officer. I said to him, he needs to come and join me. There was only one problem. He doesn't have a suit.
He's a techie. I said, there's no way you're going to come to that presentation without wearing a suit. He went and bought himself a Nedbank green suit. He's also joining us for this. Over 80% of the OM Bank, by the way, executive team is made up of people with deep banking experience, totaling over 100 years of experience between them. Over the past few months I've been teaching them quite a lot about what retail is all about because they are just bankers. They teach me about liquidity, funding, capital, this and that. I said, at the end of the day, what is going to win this game is retail and retail is detail. I'm going to show you how it works. They've been seeing that happen over the past three months and now they truly believe that banking is about understanding the retail side of it.
I'm going to start the presentation by quoting from Warren Buffett. He said, banking is very good business if you don't do anything dumb. I can promise you Old Mutual has not done anything dumb by getting into banking. We will definitely not do anything dumb over the next few years as we entrench ourselves and embed ourselves in banking. One of the things that I said to the team, I said, please, I'm not going to drive the slides because I get so much passionate and excited about this bank that I will even forget moving the slides. I said, please, can you help me with moving the slides so they are the ones that are driving the slides. I'm just going to have a conversation with you. Why banking and why now? There are three to four things that I think are very much important.
The first one was about capabilities that we have built over the years as well as the experience that we have gained through the business Old Mutual Finance where we're involved in unsecured lending and we have been doing that since 2007. We have paid school fees in terms of lending and we've learned a lot in our partnership with Bidvest in terms of the Money Account. Secondly, there's an opportunity here to increase customer lifetime value and understand our customers better because there's one business that generates so much data for you to have a better understanding of your customer and that is banking. Thirdly, we believe that there's this convergence between banking, insurance as well as the telco sector and these are blurring everything. If you are not part and parcel of that, chances are you will be left behind. For us that is very much important.
We saw that we needed to defend ourselves and also get into this world where things are just converging between them. There's also one additional point which is very much important as to why we went into banking. You have to look at the customer demographics of Old Mutual. We will talk about the 7 million customers that we have but the interesting thing out of that 7 million customers is the number of customers that are younger than the age of 25 is very few of them. When I was in MFC we struggled to just get 10% of our base to be under the age of 25. I'm going to show you that by going into banking we are going to change the demographics of the Old Mutual group in terms of customer profile. Let's move to the next slide please.
Now I want to introduce you to OM Bank. You know, and I know many of you are waiting for this big reveal on the 1st of November. Unfortunately for you, we have gone live and we are not going to have a big bang, you know, invite the whole world to see and, you know, confetti all over the place saying we are launching the bank. We will do that in Q1. For now we are just going on our business without any fanfare and boy, oh boy, we're signing them up and I'll tell you a little bit about that. OM Bank is a digital-first full banking offering which is built on a modern technology stack and focusing on the needs of, you know, the mass market as well as the middle income market.
That is the business that, you know, the customers that serves current very well in that Personal Finance business. We've built an unfair advantage in that part of the world that is the mass market as well as the middle income business because we know these customers very well. The platform that underpins OM Bank is built on a cloud-native architecture. Ray always tells me that it is designed to be highly scalable, always available, and it's absolutely secure. We have been tried so many times in the three months people have been trying us from Nice and Races somewhere in France or near Paris, they've been trying to crack the code, trying to penetrate us and at all times they are failing because it has been built on a strong foundation which is absolutely secure, like I said.
Jurie also mentioned that we are live and I know for a fact that in the next few minutes we will definitely hit 150,000 active customers because we track these customers real time each and every hour. I'm a retail guy, I always look how many customers have I signed up, big tick, and in the morning I wake up, how much money have I made out of them? That's the most important thing for me because it's acquiring them, generating revenue out of it. I will talk to you at a later stage when I'm closing about a model which I called Lend and Expand. That means you lend the customer and you expand out of them. That is the thing that is underpinning this bank and that's the thing that is going to make us win over time.
I know that, you know, we currently at 150, we're signing and you reset 5,000 clients or customers per day. These numbers will ultimately settle down. I'm a retail guy, I understand how it works. There are ups and downs in retail and there will come a point in time when we will, you know, hit sort of a sweet spot in terms of growing those customers. You will have fluctuations during seasons and, you know, during December it will come down and over time it will grow up. The most important thing is that there's something that resonates with them and they are coming to us almost on a daily basis. Let's move to the next slide. By the way, we have got a plan to accelerate that growth that you see. That plan combines a number of things.
Number one, we want to migrate our money account customers and I will tell you a little bit in terms of how many we have migrated. We need to also mine that 7 million Old Mutual customer base that is in South Africa. Thirdly, we're also going to acquire new customers that are new to group through our multi-channel distribution capabilities that are across our ecosystem. Out of the 150,000 customers that I've spoken about, we have migrated about 52,000 money account customers. So it tells you a story. 52,000 money account. What about the other 100,000? It's very interesting. They have never banked with us. They have never banked with us, only 52,000. It means that this proposition is resonating with customers and I'll tell you why it is like that. I spoke that we are going to mine the 7 million customer base. We are not naive.
We know that these 7 million customers that are, you know, within our South Africa base are already banked by somebody. However, the most interesting thing is that South Africans are multi-banked and this provides us as Old Mutual with an opportunity to bank those who already trust us. They have placed their trust with us from an insurance perspective and we are seeing that when we engage with them they're saying they sign up because they trust us, they signed up because we are a trusted brand to them. That was quite an eye opener. Since our soft launch, about 60% of customers signed up to date are new to banking with us. These are the customers saying they're doing that just because they trust us. Here's an interesting fact. 30% of these 150,000 customers are under the age of 25.
Remember at MFC I was struggling to crack the code to get 10% of them but within the bank they've already shown that they're attracted to Old Mutual. There was a time somebody said to me, and even my son, he once said this thing to me and it still so, he said maybe dad, you need to take the name Old and just leave Mutual. Maybe we will come. Now it is proven I don't need to take the name Old because it's an amazing brand and an amazing name and young people are voting with their wallets and they're coming over to us. For me it's very interesting because it sort of confirmed one of the strategic imperatives that we have, which was to attract young adults to Old Mutual, and it's working and it's very much important for us to take note of it.
I'm quite convinced that we are going to sustain that into the future and it will be of massive benefit not to the bank only but to the greater group over time because any business that does not attract young customers is doomed to fail along the way. You need to think long term, 50 years down the road, because that 25-year-old, 30 years down the road, is the one that has got money and he's the one that is going to sustain your business. If you are not attracting them today, they won't have any affinity whatsoever with your brand. By the way, just to make sure that you say Clarence, are you still committed to the targets that you communicated to us? Yes, we are not changing those. We are still committed to the R 1.1 billion -R1 .3 billion target.
I mean loss that we, you know, communicated to you until monthly break even in 2028. As much as what I've said to you is very exciting, we are not new to this game of banking. I spoke about Old Mutual Finance. We built a profitable lending book of about R 15.5 billion. By the way, it is one of the largest built by a non-banking financial institution in South Africa. I know of no other business which is not a bank that has built such a big lending book which is profitable. We have got a branch footprint of about 346, covering all key economic areas in South Africa. Be it taxi ranks, be it in malls, you find Old Mutual Finance. We are strategically located in the right places to support the mass market as well as our middle income.
In fact, if you look at us versus the traditional banks versus the insurers, we are probably the one insurance business that has got more branches than our traditional competitors in the insurance space. We have an exciting customer base within Old Mutual Finance of Money Account, which you know, about 400,000 to 500,000 of them are active. As I said, we are going to migrate them thoughtfully, so it's not going to be something that we do rashly and destroy value in the process. We are doing that very thoughtfully, and Lucian is keeping me straight in terms of that, saying, "Clarence, we can't just rush in terms of migrating these customers.
We need to make sure that we don't destroy value in the process of migrating them to the bank." The Money Account, which is the product I'm talking about, has also proven that rewards can bring together banking and insurance products because we have got customers who have both the banking product, Money Account, as well as insurance products across the group. Our mobile virtual network operator, OM Connect, also allows us to differentiate ourselves from a pricing and rewards perspective with our always-on banking in that space. How will we win? Probably that's the question that you have in your mind for many years from now. You will hear me say the following words, you will hear my team say the following stuff. We are acquiring customers at scale because it is very much important.
Customers are at the heart of our business case, and we are increasing engagement with these customers through transactional activities and convenience that we provide to them, thereby generating revenue growth out of them. We will increasingly monetize these customer cohorts as they mature, such as the young ones that are joining us. As they mature, we will continue to monetize them and thereby exponentially grow our revenue over time. Customer retention through superior customer experience is absolutely key to our success in the future. As a leadership team within the bank, we have come together and we said there are five imperatives that we need to adhere to, and these are the things that will drive our thinking, that will drive our behavior, and how we manage the business. We will be, and we are, a low-cost operation.
Cost management is absolutely critical in terms of how we do things. Our mix of fixed and variable costs changes substantially as we scale our customer acquisition. It starts year one, which is next year in effect for us. It moves from 38% variable in the first year to about 58% by break-even point, which is 2028. The bank, by the way, ladies and gentlemen, is designed not to have more than 550 employees. Employees, and I will repeat that again because some people also do that, right. We are designed not to have more than 550 employees. Why?
Because it is anchored on technology and data, that is very much important, and we are going to be excellent in execution. We are customer obsessed. I wake up at 2:00 A.M., I track what is going on in the bank. I convinced my, you know, almost everybody in the bank have got new sleeping habits now. The sleeping habits are those sleeping habits of Clarence Nethengwe because they wake up at 2:30 A.M. Before, they used to wake up at 8:00, some of them, but now we have changed.
Why? It is important. I'm a retailer, by the way, and in my system it's about detail and being absolutely, completely obsessed with the customer and everything that goes in your space. That ethos has to be embedded in each and every person who works in that bank for us to win. You can't win against the big boys if you are not obsessed. You have to be absolutely obsessed in terms of that. We're also going to leverage all the available distribution channels within the Old Mutual ecosystem. We are not a digital bank. We have got digital capabilities. We are digital first, meaning if you want to engage, you have to engage digitally. The distribution capabilities of this great business have made it what it is, and we're going to leverage that and we're going to win as a result of that.
Above all, we know the customer base that we are playing in. This is traditionally our stomping ground, and we are going to make sure that we play and we play to win in that space. We are also very aware that we have got a share, a good share of affluent customers, the mass affluent in Kerrin and Farad's business. We're also going to go in there and offer what is relevant. There are other businesses, other banks that are similar to us who are also talking about having a bigger share in that space. We have got the advantage of having a business or businesses in our stable that plays in there. Therefore, we will make sure that our value proposition also resonates in that particular part of the market.
Initially, priority would be migrating the Old Mutual customers that I have mentioned before, and then we accelerate our growth in terms of the 7 million customer base that we have. By the way, to be honest with you, we don't need new customers in order for us to really win. We just need to tap that base. We are not naive, like I said to you, and we need to make sure that that base of 7 million, because we know them very well, they want things that are simple, that are fair, that are fast, and everything must always be on. Above all, our trusted brand, existing branch footprint, and the network of financial advisors that I've come to know, and I still learn from the likes of Prabashini, Kerrin, and everybody else.
I'm quite excited because I'm told that they are looking forward also to helping us win in this space. We are going to use all the learnings, we are going to use all the support that will be provided to us by our different colleagues in order for us to win in that space. What is it which is attracting customers to us? Simply, it's our holistic insurance and banking offering. You know, sometimes people have got this tendency of just, you know, underplaying it, say, insurance, banking, it's a very, very powerful combination. It's not about a funeral product only. It's about the full ecosystem and the full value chain as well as the product solutions that are there that resonates with customers. If you think it's about a bank account and a funeral policy only, you are mistaken. It's bigger than that.
Above all, there's something that the customers are watching and they are seeing. They look at what we're offering and how much we're offering it and what sits inside of it and they are saying to us, you are about 20% - 30% in terms of value offering to us, better than the market average. In other words, we are 20% - 30% value providers to these customers compared to the market average. You can also go and do the math yourself. Go into our website, you will see what we are offering for how much we are offering it and do a comparison with what is in the market. You will see that from a market average we are 20% - 30% better. Branches are key to our formula for success. More than 60% of Old Mutual customers want both digital and branch access.
We did a survey a few years ago and that's the answer that we got. What are we seeing now in terms of the 150,000 customers that we have acquired? We are seeing proof of that because about 63% of the customers that we have signed up to date, 63% of them have done so digitally and the other 37% were assisted in the branches. There is power in the combination of both branch and digital. It can happen outside and it also can happen inside the branch. We have placed these branches, like I said, in the right places and they are definitely helping us through the arm of sales consultants that we have in that space as well as providing other insurance services. What is encouraging is that these branches, they received something like 3.4 million visits annually.
This is a massive opportunity for us to continue to win in that space. Let me talk a little bit about rewards and Zureida touched, you know, on the rewards that it's a flywheel that is going to give us a mighty push in terms of, you know, growing our business. So rewards is a link between our two execution engines, the one that is being run by Prabashini and OM Bank for bank customers. They will be able to earn rewards points through their daily transactional activities. As they swipe, as they engage in their daily financial activities, they will be earning rewards points. They will get cash back through discounts at retailers such as Shoprite, Makro, Checkers, and others that are listed on that slide. They can redeem the points into their own bank account. This is something which is very popular.
Interestingly, it's very popular with the young ones. I was saying to my team, maybe they are university students because in my days if there's a human being who's broke, it's a university student. Probably they are utilizing that as a form of, you know, upkeep. What is also important is that the insurance customers, particularly in Prabashini and mass market space, can use the cashbacks, you know, the redeemed points to pay for their premiums if they are under temporary financial stress. It's a way for them to, from time to time, if they are under stress and they don't have enough, to quickly, quickly redeem the points and be able to pay for their funeral policies.
This vicious cycle has seen insurance customers migrating to the bank in order to redeem the points and also get cash backs as a result of this thing being available in our space. Customers will unfortunately have to have a bank account in order to join the rewards program at Old Mutual. Before, you could join the rewards program without taking a policy or anything, but it's going to be compulsory in the next few weeks for you. If you want to get into our rewards program, you have to have a bank account with us and that bank account must be active, it must not just be a bank account without being active. The OM Rewards, like I said, has gained a lot of traction and I think Zureida mentioned the number 3 million members and it's continuing to grow.
Those who are going to join it in the future will also happen to be bank customers. By the way, 95% of the 150,000 customers that we have also have got the rewards program. We are well on our way. Since launch, we started building this business in 2022. We have gone through the infrastructure, built the regulatory as well as the testing phases, and we are doing, and we have done this within our planned budget to build this bank and to start scaling it. All indications are very positive for us. We are fast ramping up the signing up of customers. If you can't recall anything that I've said to you today, I want you to remember the following things because these are the most important things.
I want you to remember the words lend and expand model because for the next how many years before I retire, I don't know that period, if I'm still around, you will hear me continuously talk about lend and expand, which means we're going to acquire customers at scale, we'll increase engagement with them, we will monetize the cohort as they mature, and we will retain these customers. Above all, because we are not dumb, we will focus on quality credit growth that is guided by our moderate risk appetite. If we do that, I can safely go to Mr. Buffett and say, yes, banking is a good business because we have not been dumb in doing it. Thank you very much.
very much, Clarence, for giving that very passionate delivery of the presentation. I think for also reminding us that the combative spirit of the group is alive and well. At this point, I would like us to just take a leg stretch, get a comfort break, take 15 minutes and we will be quickly back here promptly. When we come back, I will ask Prabashini to come and give us the presentation on the Life and Savings cluster. Please do enjoy the drinks, the coffees outside the bathrooms. Just when you come out on your left, just the far end of this block, you will see them there. Please do not go through all the way out the door, just still inside within the perimeter. Thank you very much. See you shortly.
Deeper I keep it in, the more it grows inside. Chasing your love again, searching for the high. I'm falling deeper, deeper, deeper, deeper to your love. I'm falling harder, harder, harder, hotter than before. I'm falling deeper, deeper, deeper, deeper to your love. I'm falling harder, harder, harder, harder than before. Sam sa. Cause. You want my mind. I'm feeling really weak. Would you hold me now? I'm falling deeper, deeper, deeper, deeper to your love. I'm falling harder, harder, harder, harder than before. I'm falling deeper, deeper, deeper, deeper to your love. I'm falling harder, harder, harder, harder than before. Give me your love. SA, I think it's time to let you know before the feeling show. I think it's time to let you know before the show. Give me your love. Give me.
Give m e your love Sam I hear a lot about Santas. Don't think that I'll be a saint, but I might go down to the river, cause the way that the sky opens up when we touch, it's making me say that the way you hold me, hold me, hold me, me oh me, oh me, feel so holy. Holy, holy, holy, holy, oh God, run into the altar like a track star, can we end on the second, there's the way you hold me, oh me, hold me, hold me, hold me, feel so holy. I don't do well with the drama and no, I can't stand it, being fake, no, no, no, no, no, no, no, no.
I don't believe in ne, but the way that we love in the night gave me life, baby, I can't explain the way you hold me, hold me, hold me, hold me, hold me, feel so holy. Holy, holy, holy, holy, oh God, run into the altar like a track star, can wait another second. There's a way you hold me, hold me, hold me, hold me, hold me, feel so holy. They say we're too young and the pimps and the players say don't go crushing. Wise men say fools rushing, but I don't know. They said we're too young and the pimps and the players say don't go crushing. Wise men say fools are rushing, but I don't.
The first step. Please, the father might be the hardest to take when you come out of the water. I'm a believer, my heart is fleshy. Life is short with a temper like Joe Pesci, they always come. I sing your praises, your name is catchy, but they don't see you how I see you. Par and desi cross tween, tween hessy. If the jets be when they get messy, go lefty like Lionel Messi. Let's take a trip and get the Vespas or rent a jet ski. I know the spots that got the best weed. We going next week. Want to honor you.
Rise, groom. I'm my father's child. I know when the son takes the first step, the father's proud. If you make it to the water, he apart the clouds. I know he made you a snack like Oscar Proud. Suffer it to be so now, gotta clean it up, formalize the union and communion he could trust. I know I ain't leaving you like I know he ain't leaving us. I know we believe in God, and I know God believe in us, you.
Hold me, hold me, hold me, hold me, hold me, feel so holy, holy, holy, holy, holy, oh God, run into the altar like a track star, can't wait another second, oh God, run into the altar like a track star, can't wait another second. What do you mean? Oh, when you nod your head yes but you want to say no, what do you mean? Hey, when you don't want me to move but you tell me to go, what do you mean? Since you're running out of time, what do you mean? Oh, oh, what do you mean? Gotta make up your mind, what do you mean? You're so indecisive of what I'm saying, trying to catch the beat, make up your heart. Don't know if you're happy or you're complaining, don't want for us to win, where do I start?
First you want to go to the left and you want to turn right, want to argue all day, make love all night, push you up, then you're down and in between. Oh, I really want to know, what do you mean? Your head, yes, but you want to say no, what do you mean? Yeah, when you don't want me to move, tell me to go, what do you mean? Oh, what do you mean? Since you're running out of time, what do you mean? Oh, oh, oh, what do you mean? Better make up your mind, what do you mean? Y'all so protective when I'm leaving, trying to compromise but I can't win, you want to make a point but you keep preaching, you had me from the start, won't let this end. First I want to go to the left and you want to turn right.
Do you mean you don't want me to move, don't you tell me to go, what do you mean? I want to know, oh, what do you mean? Since you're running out of time, what do you mean? Oh, baby, oh, oh, what do you mean? Better make up your mind, what do you mean? Running out of time, what do you mean? What do you mean? Better make up your mind, what do you mean? Tell me what you really like, baby, I could take my time, we don't ever have to fight, just take it step by step. I can see it in your eyes, 'cause they never tell me lies. I can feel that body shake and the heat between your legs. You've been scared of love and what it did to you, you don't have to worry, I know what you can do.
Just a simple touch and it can set you free, we don't have to rush. When you're alone with me, so baby, this the perfect time, I'm just trying to get you, don't need a lonely night, baby, I can make it right, you just got to let me try, try to give you what you want. You've been scared of love and what it did to you, you don't have to run, I know what you can do. Just a simple touch and it can set you free, we don't have to rush. When you're alone with me, I'm coming. I feel it coming. I feel it coming. I feel it coming. I feel it coming. I feel it coming. I feel it coming. I feel it coming.
I feel it coming. I feel it coming. You don't have to run. I know what you've been through. Just the same, a simple touch and it can set you free. We don't have to rush when you're alone with me. I feel it coming, baby.
Thank you very much. Let's get settled. Welcome back everyone, and thank you for staying with us. For those who are still online, we appreciate it. Please do keep the presence there. We are now just shifting to the last part of our first session. I've already been getting a lot of questions about when is the Q and A. The Q and A will come shortly after Prabashini. We've provided sufficient time. With that, please help me welcome Prabashini on stage. Over to you, Prabashini.
Thanks very much, Langa, and good day everyone. I'm Prabashini Moodley and I have the privilege of taking you on a dive into our newly formed Life and Savings Cluster. Just three months into the role, but I have 23 years of experience at Old Mutual together with a leadership team of the cluster with even more deep and broad experience than I have. We're in good hands to move at pace. I will give you an overview of the four businesses that make up the cluster, our opportunities we have to unlock value and generate further growth, and conclude with our strategic priorities which are well aligned to the group's medium-term targets.
The Life and Savings Cluster brings together four strong, large businesses in the South African business of Old Mutual: the Mass and Foundation Cluster, Personal Finance, Wealth Management, and Old Mutual Corporate, collectively servicing a book of more than 5 million customers with mainly life and savings solutions. That book of customers and assets is in itself for leverage by the group and in particular OM Bank. The majority of those customers are from our Mass business, the undisputed leader in insurance amongst listed life insurance peers, with a 53% new business market share amongst those peers for funeral insurance in the middle market. Our Personal Finance business invests in multiple intermediary channels, including having the largest network of restricted financial advisors. These are models where intermediaries can select varying levels of support and autonomy with different commercial structures.
Leveraging those channels as well as its private Wealth Management and private client securities channel is our Wealth business, and it has been able to grow its high net worth client assets with a CAGR of 25% over the last decade, doubling the number of clients every four years. With our acquisition announced this morning of 10X Investments, we are adding the fastest growing passives business to our solution set. Rounding out the cluster is Old Mutual Corporate, our employee benefits business with its leading positions in both commercial umbrella and the group assurance space for large schemes. We're also the leading provider of smooth bonus investment strategy solutions in the country.
Across t his portfolio, we've created significant value to date. Post the shift in the accounting standards introducing IFRS 17, a large portion of our covered insurance book, due to the methodologies chosen, have a sizable store of future profits locked in on the balance sheet. Our CSM, or contractual service margin, sits at R57 billion, the highest among South African insurers. That's R57 billion of profits available for future allocation into earnings. Our allocation rate is between 8% -1 2% annually. Added to this are the profits on business that is not covered by the CSM under IFRS 17, as well as non-covered business and new business. Together, this enabled the cluster to deliver R6.4 billion in profit in 2024, well balanced across the four business units. New business has been strong in a market that's been quite constrained from an economic activity and customer affordability perspective.
In particular, I'd like to call out the growth in our mass market risk sales. This was driven by our exceptional, tight distribution force, both on the headcount side as well as their excellent productivity. We rolled out fully underwritten risk cover to our Mass and Foundation Cluster via the distribution channels that service that part of the business, and I believe we are now the largest provider of fully underwritten risk cover to the mass market. That's enabling us to grow sales significantly above the rate of growth in the market. On the employee benefits side, which you can see in the bottom left corner of the graph, sales are typically quite lumpy. I wouldn't be overly concerned by a half year performance.
We've all heard of the drop in guaranteed annuity business across the industry off the back of the lower bond yields, and that has hurt our margins in our Personal Finance business particularly hard. Where are the opportunities for value unlock? Firstly, in the Mass and Foundation Cluster, we took a hit at interims by making a basis change around our persistency experience, taking into account the recent experience into our long-term basis, something we don't typically do, but we felt it important to recognize the systemic shift in the funeral insurance business. This had a negative impact on VNB and the VNB margin, and we have opportunity to recover in this space. Personal Finance is in a highly competitive middle and upper middle income market where our recurring premium savings and risk market share are below where it should be for a player of our stature.
Taking action here will lead to improvements in both the VNB margin and overall VNB delivery. On the Wealth and Corporate business units, we have really strong platforms and opportunities for further growth. Wealth is focused on having the right solution set and enabling the ease of doing business for intermediaries, whether they're tied or independent. We've made it incredibly easy for those intermediaries to do business with us, and that's come through in the pace of growth in our Wealth platforms, both local and international. With the 10X Investments acquisition, we now are supercharging our direct to customer play in the savings and investment space. We're providing a very strong complement to our intermediated channel offerings, and we will be able to capture additional growth in that savings market.
Corporate's strong competitive proposition sets continue to serve us very, very well, but we do have an opportunity to improve the ease of doing business for individual intermediaries. In particular, post the change in regulatory reform introducing the two pot changes, I'll go into a little bit more detail unpacking that in a couple of slides. It's easy to identify what we need to do to recover margins and unlock value. How exactly are we going to do this? Firstly, we have reorganized our value chains, as Jurie Strydom mentioned, for better execution and delivery, for focus and clear accountability. Secondly, we're sharpening the competitiveness of our propositions that we take to market. Third, recovering margins through mix, volume, and cost efficiencies. Fourth, scaling our strong Old Mutual Wealth platform, and finally, reimagining the Corporate business in a very low growth employee benefits environment.
Unpacking the formation of the cluster a little bit and this operating model change that we talk about, the setup of the cluster is largely about federating delivery with end-to-end value chains with very clear accountability and decision making to improve focus and drive efficient delivery at pace. This is quite different from our recent setup where we had quite a few capabilities centralized from products, technology enablement, and customer servicing. The centralized setup served us incredibly well. It enabled us to replatform our retail businesses. It enabled us to shift a large portion of our technology estate into the cloud. However, over time when the pendulum swings too far, inefficiencies can creep into a model and make it increasingly tricky to get alignment across the value chain.
In our new setup with the cluster, the very light cluster overlay will ensure that our customer experience is coherent and we extract synergies both on the revenue and expense side where they exist, without heavy layers of overheads and inefficient structures, and of course prevent the pendulum from now swinging too far in the other direction. The big focus will be to drive culture and ways of work that empower, hold clear accountability, and drive commercial outcomes with a customer focus. Moving on to our prize Mass and Foundation market position. Unlocking value here requires more than just an operating model change to respond to the systemic shifts in the funeral industry.
While our persistency challenges have been partly from affordability challenges in the customer environment and the overall impacts of the economy, it's also as a result of significant activity from non-traditional players like banks with different business models and cost structures. Earlier I mentioned a 53% market share of new business amongst listed insurance peers. While still leading, when taking into account all players in the funeral market, our share drops to around 19%. We have several ways that we can address the challenges and the shifts in this environment, from leveraging an excellent distribution capability to enhancing our proposition, both through the solutions coming on stream with OM Bank and an acquisition we made a couple of years ago and entering the funeral services space. I'll talk about that a little more shortly. We're also continuously looking to improve the quality of business that comes into our environment.
We will keep investing in our strong tied distribution model, but take strategic actions on the propositions which I just mentioned, and also improve the quality of new business with integrated affordability controls in the sales process. We're upping our game in terms of premium collections, and when I mentioned this the previous day, someone responded, but aren't you doing this anyway? There has been a change in the debit order collection environment a few years ago with the introduction of DebiCheck, which is a new way of authenticating debit order collections. We have yet to perfect our processes post this change. There is definitely room for improvement. We're also adding additional channels for customers to pay missed premiums, including PayApps and the use of Pay Shop in distributing claims. We've seen good early outcomes. Two Mountains, which is a funeral services business that also has a micro insurance license.
You know how people say there are two certainties in life, death and taxes? The reality is about half of the consumers who purchase funeral insurance are actually involved in the arrangement of a funeral service. Providers of integrated offerings appeal to this part of the market. The largest such provider in our market, an unlisted insurer, mutual insurer called AVBOB, and there are others like Doves, Icebolethu, and others. Businesses with integrated funeral services exhibit higher persistency, higher average margins, and higher average case sizes. We acquired Two Mountains, a funeral services company with an insurance license, a few years ago. We're in the process of corporatizing it and rolling out a national footprint, and we've started integrating it into the Old Mutual funeral offering.
So far we've done the integration at claim stage and are seeing good take up from Old Mutual customers, but the real big benefit lies in integrating the funeral services offering at sales stage, and this is the work that we're busy with now. Sales under the Two Mountains brand of funeral products has been growing exceptionally well. At interims we reported 176% year-on-year growth, albeit off a low base. Moving on to the Middle Markets, our middle markets business requires a slightly different set of actions for margin recovery. From a risk market share high of over 13%, we hit a low of 9.1% in 2021. This was for a variety of reasons and mainly as a result of loss of support in the independent intermediary financial advice space. We're slowly clawing back support here, and the actions that we are taking are starting to bear fruit.
You can see in H1 2025 we already increased our risk market share up by 1%, hitting 10.1%. The strengths that we have to leverage in the middle market are a modular retail price product platform, large tied distribution, high value rewards program, and a truly modernized digital advisor platform. Our immediate focus to recovering margins will be to continue to simplify the value chain and drive sales effectiveness. Our retail product platform is close to completion, our new savings and investments range is busy being rolled out, and the initial features feedback from both tied advisors and independent advisors has been excellent. We continue to enhance Integrate, which is a digital platform for advisors that seamlessly brings together rich customer data with financial needs analysis and planning tools for a truly efficient advisor experience.
After rolling this out in the Personal Finance business, we're now starting to pilot it in our Mass business as well, evidencing the synergies across the various businesses in the cluster. We're driving cost efficiencies hard across the value chain, and I was glad to hear Zureida that we are focusing on unlocking value and efficiencies through automation, ongoing optimization, and modernization of our technology stack. At the same time, we continue to scale our advisor force, growing a restricted financial advisor network to a headcount of 500. As OM Bank matures, Clarence, we look forward to the additional banking solutions that will complement our customer value proposition in the middle market. This slide, literally stolen from Clarence's pack, is just to remind you that OM Bank and the Life and Savings Cluster already have a seamlessly integrated experience for customers through the rewards program.
This gives the benefit of increased customer engagement, richer insights into customer behavior, and the opportunity, mainly in the mass market, for improved premium collections and retention. VNB is a key metric for the Life and Savings Cluster, and it is key for our competitiveness and overall commercial sustainability. The recovery back into the group range will be driven largely by Mass and Foundation and Personal Finance. Mathematically, if every business unit hits the middle of their range, we get back into the group range. As we deliver better than average performance in each range, we will move closer into the middle of the group range. The key levers to drive our improved VNB are persistency, improvement in Mass, strengthened propositions across retail, and cost optimization.
I'm confident that with the actions that we're putting in place to drive these levers in the right direction, we will get into the VNB range for the group.
Net client cash flow and assets under administration advice rather than VNB are the more relevant metrics for our wealth business. The team has focused over the last decade and even longer in putting in place a growing range of in-demand capabilities, the most recent being, of course, the 10X passive and ETF capabilities. Ease of doing business, as I mentioned earlier, for intermediaries has been a really critical factor. We've had excellent growth to date driven largely by the face-to-face distribution channels managed out of the Personal Finance business as well as a Private Wealth Planner business and Private Client Securities. This is now bolstered in the direct-to-customer base by our 10X acquisition, giving a strong direct-to-customer offering. Clarence, we also attract some of the younger, more digitally savvy customers and don't become old Life and Savings.
Rounding out our business units in the Life and Savings cluster, Old Mutual Corporate business units, I have a bias towards having led the business for just under six years. It has a leading franchise in the employee benefits space, from being the number one commercial umbrella fund provider to almost 28% market share in the group assurance space for large schemes. Large schemes, by the way, tend to be stickier and tend to be easier to price for good overall margins. These are strong foundations for growth and leverage across the cluster. In a market with little to no organic growth, a more strategic response is required to grow in the corporate space. Over the last few years, the team has been putting in place building blocks to become an ecosystem player in employee benefits to drive both growth and retention.
If we pick out just two of the blocks that we've put in place, REM Channel is a specialist remuneration survey and advisory business acquired in 2021. Integrating REM Channel's offering into the employee benefits advisory space has resulted in greater stickiness of large clients and the ability to attract new business opportunities. A more recent partial acquisition, Fairheads Beneficiary Administration, is the leading administrator of beneficiary benefits in South Africa, and this gives us reach broader than the pre-retirement product sets. Overall, there's been faster convergence between retail and institutional retirement solutions, aided in no small part by the recent two-part regulatory changes. Individuals can now interact with the employer-sponsored retirement funds without going through their Human Resources or Human Capital departments and without any knowledge of their employees. This was not possible in the past.
We are ready for this accelerated convergence by the investments that we've made into member engagements. Our Gen AI chatbot Tuso is available via WhatsApp to all of the members in our Superfund customer base. Tuso is available 24/7. She's infinitely patient and highly scalable. We are ready for the accelerated convergence at scale. Currently, we retain 35% of pre- and post-retirement outflows from our umbrella fund into the overall Old Mutual ecosystem. Through the cluster setup and the digitized member engagement, we have the opportunity to increase the retention of those flows even further. The Life and Savings cluster is a combination of four really great significant businesses. We have opportunities to unlock value from a large in-force book and the recovery of our new business margins. We know what we need to do, from fixing the basics to proposition enhancements and extracting cost efficiencies.
We have set ourselves up to act decisively and drive execution with accountability and commercial focus. I look forward to reporting back to you on the progress as we deliver. Thank you.
Thank you very much Prabashini for that very comprehensive coverage of the nuts and bolts on execution, linking very well and tying up to the presentation from Clarence. At this point we have given you, I think, a very good view of how the management team, particularly Jurie as presented earlier, thinks about the strategy. You have a good sense of the key nuts and bolts in terms of execution. You have seen the targets that we've put up. You've also heard about the fact that the unlocking value and generating growth, while they may appear sequential, that we are already executing and working on some of those with some proof points already presented on that. I would like then to start shifting directly to the Q and A. As a reminder for those who are joining us online, the platform is Eclipse.
You go to the Q and A tab there and click post your question. The team will direct the questions to me and for us in the room there are roaming mics and just please raise your hand and ask the question. I will just switch things up and start in the room whilst I get the team ready online. I see your hand is up. I'll take you, Warwick, I'll take you next there. There are three questions. Is there a fourth hand? Okay, I'll take the two on this table one. And we get to that. Whilst they are getting the mics to the team, I'll kindly ask Clarence, Prabashini and Jurie to please come and join on stage. Thank you very much. I will start with table one. Gentlemen, morning.
Thanks for the presentation, Warwick Bam from R M B, Morgan Stanley. Our first question is just on tracking the cost savings. You used VNB margin for the Life and Savings business as the key metric. Obviously, VNB margin has always been a target for that business and it includes a ssumptions about mortality, persistency mix, product design, etc. Do you think it's the best measure? Why did you get it? Maybe you can just give us a s ense of why you got to BNB margin as the best way to measure expense efficiencies in the business. That's question one.
My second question, Clarence, just if we h one in on the lend and extend strategy, specifically the lending book. It hasn't grown for several years now. I mean, how do you think the new bank changes your lending appetite for one and your underwriting process? What will improve? What sort of appetite do you have t o lend, and will it be across the income brackets? Thanks.
Thank you, Warwick, for that question. Let me just take at least three, then we come back. I'll try and cluster them.
Okay. It's Marius Strydom from Austin Lawrence Gidon. My question is about corporate. You have increased your target underwriting range for P&C. Have you similarly increased your target underwriting r ange for group risk and group disability? Because it's, you know, excellent times at. he moment in this industry, as most will know.
Thank you. Marius, let's take over those two questions. I think, Jurie, if you may just maybe start with the targets one.
Thanks. Thanks, Warwick. I mean, I think just to go. The setting of the target obviously set. The setting of the R2.5 billion was sort of set at a high level to say where do we. Which was kind of early on. We know we need to take costs out of this business. Where do we need to pitch it to get ourselves into where we think we need to be from a VNB margin range. Right. It was high level. When we show VNB margin, I say high level. A lot of work went into it. I mean, that is kind of where it was pegged. When you go per cluster, it's not that we're only going to be measuring VNB margin within Life and Savings. I mean, experience variances and, you know, maintenance unit cost or all those things are further KPIs.
We don't cut to the slide with it. We're just trying to give clarity. Obviously, it's a much more detailed exercise actually tracking the expenses.
Thank you, Clarence.
My mic. Luckily I've got the CRO in the room and is going to take that question around our risk appetite. While they are giving him the mic, I mentioned that we've got moderate risk appetite tied for lending in the bank, and we are very clear that we are not going to open ourselves to the high risk category of customers. Here, speaking specifically in terms of income segment, we are not going to play in the sort of R1,000 to R8,000 type customer, and we are also not open to certain risk grades that are quite high risk versus what Old Mutual Finance was providing. Let me give it to the technical guy who will talk more about those things.
Yes, thanks, Clarence. To add on that is that w e will be using a lot more d ata and client insights in order to understand the client better, and as a result be able to offer clients that ordinarily would not qualify. If we understand their patterns better using our data, we'd be able to o ffer credit to those clients, again also using client data that is for the lower client range and the unbanked, where we are using data including t heir shopping habits, including their profiles and how t hey behave. By using the data that sits in the bank account, w e're able to profile their credit profile a lot better and extend credit to those clients. That is how we see our book growing. However, we will be doing that again within a very conservative risk appetite.
Still being able to grow the book in that line.
Maybe just to add, Lushen, maybe you can talk to how we see as we gather deposits and how we see that changing over time in terms of utilizing the deposits for lending purposes. I think there's an assumption that immediately, open your doors as we gather these deposits, we might be able to utilize them immediately.
Yeah. As you may know, as we start as a bank, our deposit profile will be call and overnight deposits that we'd start with, but over time we'd build more into fixed and term deposits. Our call deposits that we raised from d ay one aren't able to be used t o deploy into lending, because we haven't established initially a behavioral profile behind those d eposits to determine how we match our l iquidity over this period. What we would be doing is w e will be building our deposit base and over this time trying to get a behavioral profile behind that to u nderstand the stickiness of the deposits and w hat portion of those deposits we can use to lend.
Initially, we will be looking to w holesale funding to support our lending ambitions while we build up our deposit profile and our deposit tenor. It is very important to get a t ermed out deposit book as we build out over time. That's a key focus on our side is that while we are focusing on our lending business, we are closely focusing on how we build our deposit book.
Thank you.
Just to add them, I think that's one important point, that the point around leveraging the group's assets is not just actually on the distribution. There is a massive advantage in not starting from zero on the lending side because you're working off an existing book. We have a book that's funded by long-term funding actually through the group, and you've also got, through our liability-generating machine, the opportunity to leverage the group assets on data. That's like the next step, which I think that Lushen just alluded to, is the use of our rewards data and our persistency data to ultimately, what you want to build ultimately is a competitive advantage in lending. As ambitious as that sounds, I think you want to use your data to be able to do that.
Yeah. Thank you very much.
Thank you very much. We have changed the range. Our range just over a year ago was sitting at 0.7% to 1% for overall VNB margin. We've increased it to 0.8% to 1 point. Trying to remember if it's 1.3% or 1.2%, might be 1.2%, 1.2%, Humphrey is confirming, and then it just depends on the mix of business. It just so happens in H1 of this year we've written a high volume or high mix of group assurance business, which has actually pushed our margin above that range for H1. Humphrey just needs to land a massive, a massive additional employer into the super fund, and that's going to swamp the size of the group assurance and then bring the average margin down again. Group assurance, as you know, is cyclical. We're still coming off the top of a wave. How quickly it goes down, we'll see.
Thanks Prabashini. I'll move over to Mike on table two, please. Could we please get the mic on? Thank you.
Thanks, Mike Christelis, UBS. Two questions if I can. Firstly, congrats on your targets. I like the transparency that they bring. Just your ROGEV in particular. Right. You've never historically generated a double digit ROGEV since listing separately, and even if I exclude kind of COVID 2020, 2021, I mean you've struggled to do much better than mid single digit on a ROGEV basis. What gives you the confidence that you c an get to 14% quite reasonably easily o ver the next three years, and I think possibly tied to that, maybe this will answer some of the question. The R2.5 billion cost savings target, to what extent does that deliver positive e xpense variances versus VNB on the new business side?
Thank you, Mike. I'll come back straight to them.
I think Michael used to. I'm going to ask Ranen to comment in a second. Where's Ranen? It is an ambitious target related to where we've been historically. I think we've been through a process of kind of resetting GEV, and you will have noticed some of the things like the persistency variance that we took in the middle of the year, the cost of non-ageable risk she also took in the middle of the year. I think what we're also doing is gearing our GEV to be a GEV that you can get, that you can earn a return on. Getting into VNB range is a key lever of it. At the margin it's a big difference to kind of getting into that range.
I think that it is an ambitious target, but I think that when you move into ROGEV you have to achieve a ROGEV that's above your cost of equity, and the cost savings you rightly point out is a significant piece of that.
Yeah, thanks. In terms of building up to the 14% ROGEV, that is a critical piece of work that we're trying to uncover through our business plan, and we are breaking down the unwind of that ROGEV into its components: the risk-free rate unwind, our variances, and our expected returns. We're driving that through the business plan to get each of those categories into the right space. As Jurie mentioned, one part of that was getting the base right, so getting the bases right so that we can generate zero or positive variances, not sitting with negative variances. We also need to do some work on our expected returns, which is what we're dealing with in the business planning process. Expenses are the biggest lever, so that is going to be the most critical thing for us to get right.
In our planning process, as we're working through the next three years, when do those expenses get delivered? How do they drop into covered and uncovered, so that we can get to that delivery? That's still very much a piece of work that's in progress, but that's the goal. If we get that right, we'll get the VNB into range and the ROGEV to the 14% -1 6%. Thanks.
Thank you very much. I think the table over there. Thanks, Wendy. Hi there.
I'm Brad Moorcroft from Peregrine Capital. Clarence, just a question on the bank. You spoke about multi-banked feature in SA. The new client numbers look really impressive. What proportion of those clients have you seen actually deposit funds into their account? How's that tracking relative to expectations in terms of inflows, deposits, and then Jurie, Clarence, you spoke about cascading targets down t o the business units, in terms of the bank. What are the key metrics that the bank exec team is being incentivized to hit over the next few years?
What we have seen, particularly in the month of October, is that's when we had this massive surge in terms of customers. More than 60% of the customers are funding their accounts, and they are doing that within a one to three day period. We have another 10%, 15% that do that over time. We've also seen a phenomenon where a lot of these customers, when they sign up, redeem the Old Mutual Rewards points and put it into their account to fund their accounts. The third thing that we, as a result of just watching these things, is we have also decided that we're implementing it very soon: minimum balance, like a R 30 per account, just to make sure that those accounts don't go into dormancy very quickly. If you have that R 30, you are able to prolong the life of that customer.
You start engaging with them, and out of that engagement, they will start transacting, and you monetize them over time.
Yeah, so I think just on the target, I mean I think we are now very much transitioned from build to run. Right. We've gone from milestone-based incentives around being able to go live to, in fact, there's been quite a significant shift within the organization in terms of how we run things. The targets are going to be, we're working towards break even obviously from a top-down perspective. That's the key thing we want to get towards. There's a cost management piece, making sure that you're actually a low-cost provider in the mass market. Then there's the revenue piece. The revenue piece is anchored around the model, which is the customer model, number of active customers, more active and less active. There are revenue metrics associated with that in the model. We are in the process of finalizing those scorecards for the next year. It'll encompass those components.
Thanks, Jurie. I would like to just switch back to the questions from online. I'll come back shortly into the room. Staying with the bank, we've got a couple of questions. Clarence, Yash from Allan Gray would like to know, may you please give us some clarity around the tech stack of OM Bank and why the cost structure is so scalable. What proportion of the cost base is fixed versus variable?
Yeah, so I've got the turkey here with me. Ray, who's our CIO, he will be able to take that question. Like I said in my presentation, at year one, 38% of our costs will be variable, and by breakeven, which is year three, the pendulum will have sunk completely to 58% variable and 42% being fixed, and it's fixed by customer.
Over to you.
If I could just add to that. I think you know one of the privileges of building this bank was the ability to build a modern tech stack. It's completely cloud based. We were quite relentless in the process of building to make sure that we pushed really hard on the unit cost and the variable costs around that, and that puts us in a position where as we go f orward, you know we can scale and w e see incremental cost growth as we're bringing on more customers there instead of having a linear correlation between number of customers and the g rowth that we have.
It's important to be, you know s ecure and stable as a bank. I think that we also have really lived up to the design principles of having something that is v ery quick to change and looking to the future there.
Thank you for that answer there. Just moving on quickly. Still staying with a bank. Thapelo from Investec would like to know on the bank, please talk to the monetization differences between young customers relative to the old customers and how does that look for your break even target numbers for customers?
I'll just talk to the monetization of, you know, young people and older people. Young people, they want to watch YouTube, Netflix, Amazon, Apple, whatever. Those are the type of things that we will be engaging them on and making that available from a value added services perspective. Their parents look at different things and we will focus on the things that are relevant for that particular cohort of customers. We haven't broken down our revenue in terms of saying this is how much we'll get from monetization, this is how much we'll get from engaging with the customers. What we have taken is just a basket of transactions that are typically conducted by a mass market or a middle income customer and said that times the fees that we have should give us a net transactional revenue of X.
On the basis of that plus the net interest income that we will generate through our lending activities minus the cost should give us a break even point. That's how we're looking at it without breaking into monetization. It's X, engagement is X, whatever. We just take a basket of the whole thing and then multiply it by the fees that we generate out of that and the commission that we will add from providing those value added services.
Yes. Staying on with the bank, also, Harry would like to know how much are we expecting to spend on the physical distribution, that is, the branches and also on the ATMs. He also asked what service can customers expect out of the branch infrastructure?
Yeah, so from an ATM perspective we're still investigating the model that we need to pursue in terms of. Definitely we'll get into that because the market has demonstrated to us that they are interested in withdrawing cash and we have seen through the activities that they've conducted that they want to withdraw cash. We have also received a lot of feedback which says without an ATM people really don't believe that we are a bank in the mass market space. We will invest in an ATM. As to how much it will cost and everything, we're not yet clear. We need to get the costing around that.
Having an understanding based on the model that we are going to pursue in terms of what happens inside the branch, a branch is a marketplace for everything Old Mutual that is provided to a customer who prefers a face-to-face or to be digitally assisted inside the branch. That includes insurers, it includes even two mountains is going there. Based on what I've had, the banking piece of it is also the lending piece, Old Mutual Connect, which is the mobile virtual network operator. There's a whole host of things that are happening within the branch. What we have been very clear is that a branch needs to become a true marketplace, and true marketplace means there must be more sales inside the branch than service.
Anything that is not value-adding, we are trying to put it on the digital apps and all those things so that customers can engage with it. As to how much it costs to acquire a banking customer via a branch, I need to come back to you in terms of that.
Okay, maybe just like the branch costs obviously already baked into the Old Mutual Finance costs and P& L, so that branch, the full branch costs are sitting within Old Mutual Finance already and it's already part of the banking cluster.
Thank you. Just to wrap up with one question from Baron JP Morgan that is for the bank and the Life and Savings cluster. Baron would like to know a few things. One, how will the bank help us accelerate the insurance products, the growth of that insurance products to the customers that's a part of in Mass and Foundation Cluster and Personal Finance. How will the success of this integrated execution be measured? I think Jurie, you may also weigh in on that.
We were discussing during the break the commercials for the insurance products that will be available via the bank. The branches are currently run by Old Mutual Finance and we have advisors who sit in the branch, full service advisors both for the mass market and the middle market, and those will continue. We also have on the Money Account app available simple funeral insurance cover. We are working with our banking colleagues to provide relevant insurance products on the banking app. The banking app will be a place where customers can have relevant solutions as they navigate their financials. We will be Clarence's insurance provider of choice from how the benefits of that emerge. On the Life and Savings side, customers who acquire their insurance solutions from their active banking partner have better persistency and better overall stickiness. We expect that to come through.
The cost structure associated with solutions obtained via the banking app and other bank channels will be different to the Tied Advisor model. We will be sharing the economics.
Yeah, so yesterday I had a nice long debate and we came to an understanding with a good friend of mine who is the CFO of MFC, John Lutz. I also had a similar conversation with Matthew, who is the incoming CFO of the LNS at a point in time. We have been given a gift here through the leadership of Jurie, that we need to run these businesses as businesses and we need to negotiate at arm's length. Here's the thing. The customer that you know who is the bank customer, they experience the bank as giving them 20% - 30% better value versus market average. When they engage with the bank and they see that the bank provides insurance solutions, what is their expectation? They're expecting that it will be a similar value that is given back to them, 20% - 30%.
We cannot have a situation where we are nice to each other at the expense of the customer. I need to make sure that the customer that belongs to the bank gets what they are expecting when they engage with the bank. Therefore, we need to really negotiate very hard in terms of this. There was an understanding between myself and Johan, by the way, that there's zero cost of distribution. Therefore, we will be in a position to give that value back. We needed to have that conversation because if you don't have that conversation, you end up running businesses as if they are sweetheart shops and you end up losing value in the, or destroying value in that process.
Maybe we'll say that. I mean, your arms length commercials give me a warm fuzzy, warm fuzzy feeling. Robust commercials. I think ultimately what I will say is that building a functioning integrated branch network is not easy to do. Right?
It actually, because you can't build it off the back of simply servicing, the economics doesn't stack up. You want to actually build it off the back of a bank model, and in particular with lending. The fact that we already have that integrated model means that flywheel is already actually moving, which I think is hugely encouraging. I think we will, we're going to use these, we're going to use the model to be able to really deliver, which was what Clarence is saying, really deliver competitive propositions to customers. When you walk in as a customer, what's important is not our internal arm wrestling. It's actually, are we, what are we delivering to customers in terms of value? I think they do look. We've seen with banks moving into insurance, they look across the value chain, and I think we will do that.
Yeah. Thank you. Let me come back to the room. I know there's a question coming up here. There's a question over here. You have the mic already. Please do. There will be a second one. Is there another hand still in the room? Okay, there's a dead hand here and a fourth one. There's another one. Okay, we'll come back last. Please, over to you.
Morning. Kubers from Valley Capital Partners. Just want to come back to the tech stack quickly. It's actually a question for Clarence and for Prabashini. Obviously, the banking system, new off t he shelf, everything's working fantastic. I just want to understand exactly how the i ntegration with the legacy systems is currently, because obviously that's there. There's been a massive upgrade that you guys have gone through with the, the g reen light system and everything in there. How are those systems talking to one another? Is there any specific work still o ngoing on that front?
I can ask Kerrin. I think Kerrin.
She was here, back there. She said at back. Yeah.
Hi. Kerrin's very, very close to the Life and Savings retail. Is that the.
Just to be clear.
Yeah, yeah.
There's 10X Investments, which is the platform that is an underlying platform provider within the bank. There's 10X Investments, which is the international business. There's 10X Investments, which is the local business we've acquired, which is an ETF and passive provider.
I thought you also mentioned green lights, which is why I. Hold on, Kerrin.
Yeah.
Yes, I think it's a bank question, actually. Is that right? Yeah, bank question.
No legacy from my side. I don't want to touch what she has.
He just wants our customers' profit.
I don't. He left legacy behind and I'm serious about it. Maybe Ray can just take the question.
Yeah, I think importantly, our stack in the bank has been built from scratch. That doesn't, that doesn't t ake away from the fact that we integrate within the group, that's from rewards to where we have the ability to use customer data r esponsibly in terms of what we allow to do. Those rails have already been built and have been integrated. If you were on the banking app today and you wanted to close your money account as an example, that's a journey that's facilitated inside t he banking app touches a number of l egacy systems inside of the group f rom a customer point of view, that will operate seamlessly.
Thank you Ray.
Sena mile from SBG Securities, on the VNB margins, are you able just to provide some color on how you expect the product mix to shift in order to achieve the targets? Secondly, I know we haven't touched on rest of Africa, but how do you expect rest of Africa to contribute to the growth targets?
Okay, since Kerrin has a mic, I think. Oh, you don't have a mic anymore? Oh, it's right next to you. Kerrin can talk to product makers in the middle market space, which is where mix will drive some of our margin recovery, and then Jurie will do Africa regions.
What we saw and what we are trying to change is during the COVID period in particular, our mix swung a lot more in the middle market towards products which didn't require underwriting. Advisors were looking for the easy sale where people didn't have to go for blood tests, they didn't have to go visit a doctor or a hospital. Everyone was kind of steering clear of that. What we've been working on is swinging the mix back more to our margin-rich products because funeral for us i s quite low margin.
It's different in the mass space where the sales process is much quicker. Our advisors spend quite significant chunks of time with customers. We've actually got to have a richer product margin to accommodate that advice process. We are looking, we have been gradually swinging back more towards fully underwritten as well as things like critical illness, sickness. The living benefit products in that space, they're less commoditized. You're able to differentiate on your condition that you cover, et cetera. Definitely pushing more back towards that. In our saving space, very much making sure there the mix is more a bout the level of value chain integration.
How much internal sort of fund margin can one put into your mix? Making sure we've got appropriate solutions that are across the spectrum, from our multi-managed space to private client solutions through to single manager solutions, and actually now with 10X Investments, the passive space. Lastly, the last area is really our mix i n terms of guaranteed annuities versus living annuities. The guaranteed annuity space is richer margin. There is an industry pattern there where o bviously, interest rates play a big role. We increasingly sell blended products to our customer set so that we get a little bit of both kinds of margin.
Thank you, Kerrin. I think we stay on the table there.
There's an OMAR question.
Okay. I'll come back to you, Asanda, just now. Please hold.
The answer is OMAR is going to make substantial contribution to VND.
Yes. Do I need to? Oh. The contribution to Africa, from Africa to that target of 2% - 3% is, we are also going to get into the 2% - 3%. You'd have seen that in half year, our VNB margin was low at about 0.2%. We are going to bring it back up. A lot of that reduction came through. n Namibia, and there's some work that you're going to do in there, including cost savings to deliver that, you know.
Thank you, Clement.
Hi. Morning or afternoon whenever. Asanda Notshe from Mazi Asset Management. Yuri, you're allowed not to answer this one. In fact, don't answer it. Over the last 10 years, Integrated Financial Services, rewards program, all of this stuff was there. I'm not trying to be like t hat whole, like a party pooper. What did not allow for execution over t he last 10 years, to kind o f where we are now given that the plans were, let's say, 70%, 80% there and perhaps what's changed? Thanks.
I'm not allowed to answer that question.
Okay, thank you.
That's a great question for people to answer. In fact, we can open it up to the excerpt team.
Yes.
Yeah.
Yes.
I think I hinted at it a little bit for Life and Savings. Certainly, we had increasingly centralized a large portion of the capabilities in the value chain, which brought us huge advantages. We made some investments that we were unlikely to have made if we were highly federated as businesses in silos. We launched the Old Mutual Rewards program, we took our tech stack into the cloud, and we did lots of things. I mentioned that as the business grows, as it evolves, aligning multiple parties starts becoming increasingly difficult and actually slows you down in making trade-offs in parts of the value chain versus making the trade-offs across the entire value chain. That's my hypothesis, partly or maybe.
Just by the way, he asked me this question during the break. He said, Clarence, I've heard you speak about these things 10 years ago and you are repeating it. I think the big difference is we used to have ownership without authority. Now you have got ownership with authority. When you have authority, then you need to exercise that authority in terms of, you know, getting things done and then being held accountable. You can't blame it on Prabashini. You have got ownership of the entire thing and you have been given the authority to orchestrate everything to deliver. There's no hiding behind, you know, it's Prabashini who was supposed to make that decision. It's Clement who are supposed. You have got that full authority. That's how I summed it up.
Yeah.
Thank you. Celiwe.
Hi, good afternoon. I just thought I'd give a different response. My name is Celiwe Ross and I l ook after Human Capital and Corporate Affairs f or Old Mutual, operating models are not the silver bullet. I think it's important that w e don't pin everything just in terms of change of structure and strategy. All these things are related and the reality of large and complex I hate to say it, Clarence, old organizations is by their very nature, t hey are made up of people. People with habits and ways of doing things. Fundamentally, I think clarity matters. In the absence of certainty, clarity certainly i s important, but it's also accountability about w hat gets done where. When Jurie opened in his slides at some point he talked about the fact that we've never run this business this way before.
So it's both operating model, i t's clarity and incentivization, being very clear a bout what the cost of winning is, but also not, and then lining up the org t he forces to be able to get to that prize as quickly as possible.
Thank you. I am going to switch back. I'm sure I'm not missing any question. Wendy, okay. There were two more. Yeah, thank you. It's Marias.
Matthew Pouncet from Laurium Capital. Jurie, you can answer this question. You've given in your targets a dividend per share growth as opposed to an earnings growth number. What's the thinking behind that? Does it imply better cash conversion of earnings? Maybe just a sense of why that was given as opposed to earnings.
Actually, Cas, do you want to? We're on it.
That's.
Hi. We have given a 6 to 9% dividend target because we're trying to give more clarity on the eventual distributions to shareholders. When we give an earnings target, it's a little bit more difficult because we can do that on our operating earnings, but we have a sizable shareholder portfolio that creates volatility. What we're trying to communicate to you is we have a strong balance sheet. We can manage through the cycle and give you more confidence on the cash distributions that we can deliver to the shareholders. It's to enable shareholders to better value the business. That's the point of giving the target on dividends. Thanks.
Thank you, Ranen. Marius, over to you.
Oh, thank you, Clarence. My question is for you, but I guess also for the wider team. Now that we've got more strategy about the bank going forward, we're moving towards a break-even. The R5 billion odd that was spent t o date, can you give us some k ind of breakdown on what that was spent on?
The last part?
What was the startup c osts of R5 billion odd for the bank roughly spent on?
Let me give it to Ranen because I think he does a good job of breaking it down in terms of R1.7 billion worse for the tech stack and everything, because we have disclosed that part and there's also part which is regulatory capital. So. Maybe I can just hand it over to him. Yeah.
Repeat the question.
Oh, you were not. He's saying we have spent R5 billion on building the bank. What was, what did we spend it on specifically?
Yeah, yeah. I think that is a mix of the salaries to do the build work and the underlying tech stack, Marius. I mean, that is what the build is. We actually have very little that's built up as an intangible on the balance sheet. That has been to get us to where we stand today. Some of that has gone into the capital to support the business, but that expense base is starting to transition now to a BAU running cost. That's where Clarence has given the guidance that it's the R1.1 billion- R1.3 billion that will then run down to the break even. It has been the investment into the tech and the salaries that went along with it.
The observation I'll make, Marius, is that when you're building a bank, it's a hard thing to do. It takes time. You've got to get through the milestones, you've got to get to the Reserve Bank milestones. You've got to have the capability to demonstrate that you can get through those milestones with the Reserve Banks. It actually adds up pretty quickly when you start to have a run rate of people and technology that can get you through the milestones of your licensing, that you can actually go live. I think we would have, I mean, I came in a little bit halfway or maybe towards the end of the journey. I think we would all have said we would have liked to.
You always want to try and do it quicker and cheaper, but I think we are where we are and I think the complexity of getting there is not to be underestimated. You know, that's why this is a business that's kind of hard to get into. Once you've built what you've built, you've got to leverage it.
Yeah, I think I will switch back online and switch just the theme. We're going back to Targets. The first question comes from Jared, All Weather. He would like to know, is it fair to expect results from operations growth in the medium term to grow at a similar rate to the newly announced 6% - 9%? I think similar question that just came up. Dividend per share. That's the first question, I think. Let me hold it then and delete that and I'll move to the next one. I'm looking at running and. Casper, you have it here. Casper, please.
All right.
Yeah.
To the point that Ranen made earlier, just adding a few points. Under IFRS 17, our profit emergence has changed quite significantly from what we would have seen in the past. It's dependent on what you've done over a very long period of time and how that then gets released from your CSM, which is then impacted by the rate of growth of your new business and how much you've spent on that.
So Ranen's point around the volatility of markets in terms of the fees that we generate becomes important. Remember, not all our business is IFRS 17 business. For us to give you a forecast on earnings, which is what you're asking for, is a lot more difficult. If we felt comfortable to give you a forecast on earnings, given the volatility of markets, we would have done so. I think it's important that we look at all those factors. We think the 6% - 9% dividend per share growth, where we can actually see the cash earnings, we can adapt with the volatility that we get in our earnings profile. There's a lot. It's a much better signal for what you can look at as the underlying growth in the business. Thanks.
Yeah, thank you, Casper. I'm staying on the theme of targets. Gershwyn from the Eskom Pension Fund would like to know. Prabashini, I think also at the group level, you can please do come in on the answers. He'd like to know on the segmental and group VNB margin targets. His question is the Mass and Foundation Cluster's new VNB margin target of 5% - 7% used to be 6% - 9%. Given that the overall group target has not changed on VNB, which segment's target may have changed, or will the outcome on the target be just a combination of some of the segments' targets?
Yes, the MFC target range has changed, recognizing a couple of things: increased competition over time, and credit life, which is currently recognized in MFC when Old Mutual Finance was part of the cluster, will start to emerge in the bank. We're recognizing that, and the competitive change in the market. We need to recover our margins in Personal Finance. We are sitting at, I think, a low point now, and many of the actions we've listed, including Kerrin's comments on mix and where we have to take out cost and where we have to drive volumes. The overall delivery of the cluster depends on all of the business units. Recovery in the Mass and Foundation Cluster business and recovery in Personal Finance are the most critical, simply given their size relative to the new business volumes from other businesses.
Thank you, Jared from All Weather. I think I'll hand it over, this one to you. It's about just the clarity on the previous cost guidance versus the one we've just announced today. Jared asked, does the cost savings target include the removal of duplicate system cost, and what other central cost will be removed?
Yeah, so I think what we're trying to do is just simplify the cost guidance. There were a couple of cost guidances before. I think it was central costs in line with inflation, and there was also the piece around double run costs. I think this is an all-in number for the group, and the reason it's got to be all-in is because we're not just talking about the central segment now. We've actually pushed a whole lot of cost that was sitting at the center into the clusters. What we're trying to show you is the number which, at a group level, I mean, cost targets happen because you push them, right, and you make a decision, you drive them through the business. They don't necessarily bubble up organically from the bottom. You've got to push them into the business.
You start with what do we need to achieve as a group, and then you push it into the clusters and the central segment. What we are doing is, I mean, this is through the business planning process. We are benchmarking each area according to where they need to be in 2026, 2027. It's different per business, and then we've got to see the actions that deliver that. There has already been some progress this year at the central segment.
Yeah. Thanks, Jurie. I will take two more questions online and I'll come back to the room. James from RMB Morgan Stanley is asking, Prabashini, specifically for you. You said you've mentioned the debit check and its impact on collections. One, could you expand on the nature of the challenge that a debit check is causing? Is it authentication, cost of the debit check collection? That's the first part of the question. Two, please can you give us some color on what to expect from the bank strategy? Okay. The second one is yours, Clarence, from the bank strategy that can be leveraged to improve collections. I think it's about how the two business units, you can comment on it, Prabash. We will leverage that.
I'm going to invite Matthew Brinckmann , our incoming Chief Financial Officer for Life and Savings, who is also Head of Operations for Mass and Foundation Cluster right now. A versatile individual, to comment on the DebiCheck point.
Thanks. Yeah, so I think the DebiCheck is. Looking at it now, Debi Check is actually the opportunity for us to improve collection success rates. What happened with the change is u nder the old system, NATO, we automatically o btained mandates to collect premiums in an early collection window. When DebiCheck came in, we needed to g o and obtain those mandates from our customers at the point of sale. In the earlier years of that change, you know, we weren't obtaining a high enough proportion of debit check mandates a t the point of sale. Now we are. If we obtain a debit check mandate, we can collect in the early collection window, which means the collection success rate is higher. That's really been our big drive.
I think the challenge of the p ast was, you know, we didn't have t he level of mandates we were looking for as we switched from the old s ystem to the new system. That applied across the industry. We've had a huge push to make sure at point of sale we obtain a debit check mandate from our customer. As I said, that means we. collect in the early collection window, greater collection success rates.
Maybe before you sit down, could you just add some color for the room on the breakdown, high level, top of your head, stop order, debit order, shape of the book.
Yeah, sure. I mean, we've obviously got a very, the MEC b usiness, you know, has been a successful business for a long time. We have a large proportion of stock o rder business in the book. In the in force book, it's about 50/50 stock order, debit order. Obviously, as patterns have changed, customer p references, pay office behavior, etc. That has shifted. It is actually a much greater proportion of debit order for new business, and then on that debit order business, obviously our aim is to make sure we get a higher proportion of DebiCheck mandates as is possible.
Thank you. There's a question from Anonymous. Last one from online.
Clarence, finish the second part.
Yes. What I wanted to say in terms of, we need to comply with the rules in terms of payment. Payment rails, right. We can't give preference to Omlaxa or any other sister company in terms of making them priority in terms of collections and the like. There are rules that need to be followed in terms of that. We'll stick to those. Some of the things that we can help in terms of managing persistency and the like is, for example, in the Mass and Foundation Cluster business, each and every week after they have issued or before they issue a policy, they will ask the banks as to whether this is a valid account or not. That's the only thing that they're doing.
What we can help them with is whether it is a valid account and there's money inside that account and there's movement of money and how is the customer behaving with that money. I think that will be very useful because it will help in terms of reducing the number of not taken up policies. A lot of people give you a bank account, you verify it, it gets a tick, but there's no money inside it and you don't know about it. We will have that advantage of informing them to say, guys, we don't think this account you will be successful in terms of collecting. The third one is just to give them insights in terms of customer behavior, how they are behaving with their money, to warn them if there's a likelihood of, you know, persistency challenge.
We'll be able to inform them in terms of that. Y eah.
Thank you very much, Clarence. The question one from Anonymous here, participation referencing back to your slide about corporate and the fact that corporate is a leader in a smooth bonus. The question is do you see that concentration as a further growth opportunity? Do you have some runway there or is it a threat, the fact that we have that concentration.
Thanks. I'm going to invite Humphrey Mkwebu, who is the Managing Director of Old Mutual Corporate. He's thinking intently to take that question.
Thank you. Thank you. I think scale in our space is always an advantage. We can price better. We can. It's an institutional business, it's institutionally priced. Concentration and consolidation are always a positive to us. The regulator is pushing for that and we are riding that wave. To us it's not a negative. It is a positive. We need to manage it very pragmatically, though, to ensure that scale c oncentration is also still inclusive in terms of other players in this space, intermediaries, t he smaller asset managers and the other operators.
Yeah.
We've seen some of our larger peers enter the smooth bonus space in recent years, peers who were vehemently opposed to the strategy in the past. I think that puts us in a good position.
Yeah. Thanks, Prabashini. Thank you very much, Humphrey, for that. I'll come back to the room. Yes, this table will be the first. Second, make it a third hand. Okay, we'll take those two. Thanks.
Thanks for having us today. My name is Jan Meintjes from Denker Capital. Clarence, maybe you can start off, you know, as one of the reasons for the bank. You spoke about the experience of managing credit and running a loan book in Old Mutual. You haven't really talked about a lending strategy within the bank. Maybe you can just elaborate on you've got an existing large business with a large book. Do these two businesses sort of coexist side by side? Does the one facilitate payments for the other? Do you plan on building a separate credit book within the bank? Maybe you can talk around some products that you think is important in that environment. Yeah.
I'll invite Lushen also to comment on this. Ultimately, we are going, subject to regulatory approval, to integrate the businesses. That is the end state of where we're going. The modalities of how we're going to do that is something that we are still working on, but it is subject to regulatory approval.
Yeah. If I can add on to that, to say that after we do get regulatory approval and we do amalgamate the businesses, we are looking to use the expertise that has been built up in OMF and to grow the book within t he bank, using, as I mentioned earlier, the benefits of data. Because now clients will be banking with us. In the past, when Old Mutual Finance was just lending to clients, we didn't have the benefit of seeing what the clients were doing in their daily transactional lives. Now we have those benefits to see what they're doing in their transactional lives, to see what they're doing in their rewards lives, and to see how they behave.
Using these additional data points that we will build up over the client's journey, we hope to enhance the offering to clients and be able to offer to a wider selection of clients. I think we're going to actually piggyback off the skills that have been b uilt up and how much we've learned over these last many years in building up a book of R15.5 billion. The collections capability, the image impairments capability, the understanding of the book and understanding of the behavior, and then complementing that with the enhancements that we're getting from our tech stack and our data stacks that we are going to build up in the bank. Hope that helps. Thank you.
Thanks. Lushendren.
Hi, [Sian Bata] from [Omeg] . Since listing, the business has gone through v arious cost optimization initiatives or programs. I wanted more clarity. I appreciate, thank you for providing clarity on some of the central costs moving into the various divisions. If we could maybe talk about shareholder c osts that sit at the center. What are the targets for the shoulder costs, and how do we ensure that these don't bubble up again as they have historically, and who is accountable for this?
Thanks. I think the first piece, Jurie, if you may just come back.
I think we're not giving specific guidance right now on the pieces. What we're saying is there's overall guidance on how we're going to take out cost, and we will benchmark each of those pieces. The shareholder cost piece of what you'll appreciate, we've moved a whole lot of central cost actually out into the clusters. Some of the work is being done as we plan for next year to make sure we understand where the gaps remain relative to benchmarks and those costs. That's work in progress. The issue of why do costs, why do costs bubble up, right?
I do think that it happens in organizations that big cost targets get set and then there's a big program, and the CEO comes back in a year and he says, look, we've rung the bell, we've achieved it, and then when you look again, the costs have popped up again. I think it comes back to accountability benchmarking actually in the businesses and being really clear what the right level of cost is for the different pieces of the business. What we've not done is gotten a management consultant to devise a program for us to show us what our organigrams need to be and gone through this like one-off transformation. This is a process where we're actually pushing accountability for these targets into the businesses. We're incentivizing people and holding them accountable. The proof of it will be for investors. The proof will be in the delivery.
That's absolutely right. I do think we're going about it differently to how we've done it before.
Looks like you have a follow-up.
Sorry, sorry. My second question on that was who i s accountable for the central costs, the shareholder costs?
I'm accountable. No, I mean, look, central costs sit in the center, obviously the central team, which is myself and Casper Troskie and Richard and Zureida Ebrahim. I mean, those are, those are, and Celiwe, you know, we look at a granular level at what's left in the center and we're accountable there. We also will go. It's more than just actually cost numbers. For example, when it comes to benchmarking, what sits in the center in Zureida's operations is actually on KPIs around, like what is the right benchmark for how you manage data, for technology, for rewards, and these different pieces. If you're running a digital channel, for example, what are the number of transactions that run on the digital channel? How do you actually then benchmark what your cost is per transaction? It's going to go down to that kind of granular level.
That is definitely not how we've done it before. There will be a discipline around that, and yeah.
Okay. Are there further hands in the room? Okay, we have. No, no hands in the room. I don't have any questions at the moment from the webcast either. We are five minutes ahead of time. I think I'd like to just take this moment to thank Jurie, Clarence, and Prabashini and the team that joined in answering the questions. Thanks, Casper. Let's break for lunch at this point in time and we will see you back here, let's say, five to two. Thank you.
Thank you very much.
Tell me what you really like. Baby I could take my time. We don't never have to fight. Just take it step by step. I can see it in your eyes because they never tell me lies. I can feel that body shake and the heat between your legs. You've been scared of love than what it did to you. You don't have to run, I know what you do. Just a simple wish and I can't sweep you off of your feet. Will your mouth still remember the taste of my love? Will your eyes still smile from your cheeks? Darling I will be loving you till it's 70. And baby my heart could still fall as hard at 23. I'm thinking about how people fall in love in mysterious ways. Maybe just the touch of a hand. Me, I fall in love with you every single day.
I just want to tell you I am so honey now take me into your loving arms. Kiss me under the light of a thousand stars. Place your head on my beating heart thinking out loud. Maybe we found love right where we are. When my hair's all gone and my memory fades and the crowds don't remember my name. When my hands don't play the strings the same way I know you will still love me the same. Cause honey you're someone who could never grow old, it's evergreen. Baby your smile's forever in my mind and memory. I'm thinking about how people fall in love in mysterious ways. Maybe it's al
Kill me when it's over. I don't want to think about it. I want you to love me now. I don't know who is going to kiss you when I'm gone, so I'm going to love you now like it's all I have. I know it'll kill me when it's over. I don't want to think about.
I want you to love. Love me now, oh, love me now, oh, I want you to love me now. Something inside us knows there's nothing guaranteed, yeah, and girl, I don't need you to tell me that you never leave. Lord, when we've done all that we could to turn darkness into light, turn evil to good, even when we try so hard, all that perfect kind of love, it could all fall apart. Who's going to kiss you when I'm gone? Oh, I'm going to love you now like it's all I have, and I know it'll kill me when it's over. I don't want to think about it. I want you to love me now. Love me now, love me now, oh, love me now, oh, love me now. Love me now, oh, I don't know how the years will go down.
It's all right, let's make the most of every moment tonight. I don't know who's going to kiss you when I'm gone, so I'm going to love you now like it's all I have. I know it'll kill me when it's over. I don't want to think about it. I want you to love me now. I don't know who's going to kiss you when I'm gone. I'm going to love you now like it's all I have. I know it'll kill me when it's over. I don't want to think about it. I just want to love you now.
Love you now, oh, love you, love you now, love you now. I wake up and I wish myself you're with me, not someone else. I'm scared. Yeah, I'm still scared. That is the dream. Cuz you still look perfect. As days go by, even the worst ones, you make me smile. I'd stop the world if it gave us time. Cause when you love someone, you open up your heart. When you love someone, you make room. If you love someone and you're not afraid to lose them, you probably never love someone like I do. You probably never love someone like I do. When you say you love the way I make you feel, everything becomes so real. Don't be scared, no, don't be scared. Cause you're all I need and you still look perfect as days go by. Even the worst ones, you made me smile.
I'd stop the world if it gave us time. Cuz when you love someone, you open up your heart and you love someone, you make room. If you love someone and you're not afraid to lose them, you probably never love someone like I do. You probably never love someone like I do. All my life I thought it'd be hard to find the one till I found you. I find. It's bittersweet cause you gave me something to lose. When you love someone, you open up your heart. When you love someone, you make room. If you love someone and you're not afraid to lose, you probably never love someone like I do. You probably never love someone like I do. You probably never love someone like I do. I might get a little drunk.
Is s ay what's on my mind. I might d o a little time, cause all of my kindness is taken for weakness. Now I'm four, five seconds from wilding, and we got three more days till Friday. I'm just trying to make it back home by Monday morning. I swear I wish somebody would tell me, oh, that's all I want. Woke up an optimist, sun was shining, I'm positive. Then I h eard you was talking trash talk about a mystery me back. I'm about to. Yeah, about four, five seconds from W, and we got three more days to Friday. I'm trying to make it back home by Monday morning. I swear I wish somebody would drive. Oh, that's all I want, and I know that y'all tonight thinking how could I be so selfish.
You caught o ut a thousand times wondering where I been. Now I know the job tonight, thinking how could I be so reckless? I just can't apologize. I hope you can understand. If I go to j ail tonight, promise you'll pay my bill. See, they want them by my pride, but that just ain't up for sale. See all of my kindness. Now I'm forty-five seconds from wilding and we got three more days till Friday. I'm trying to make it back home by Monday morning, I swear, and somebody would tell it, oh, that's all I want. Seconds from wilding and we got three more days till Friday, just trying to make it back home by Monday morning, that's all I want. Sa Sam I Sam Sa Sam Sa J so far Sa Sa. Walking home and talking lows.
Seeing s hows in evening clothes with you from nervous times and getting drunk, staying up and we can hurt with you. Now we're sleeping at the edge, holding something we don't need. All this delusion in our heads is going to bring us to our knees. Come on, let it go, just let it be. Why don't you, ooh, you now me, everything that's broke, leave it to the breeze. Why don't you be you and I mean and I'll be me. I'm throwing clothes across the floor to teeth and clothes and slamming doors at you. If this is all we're living for, why are we doing it, doing it, doing it anymore? I used to recognize myself, it's funny our affections change and we becoming something else. I think it's time to walk away. Come on, let it go, just let it be.
Why don't you be you and I need everything is wrong, leave it to the breeze. Why don't you be you and I'll be need and I'll be me. Trying to push this problem up the hill, think now's the time to let it slide. Come on, let it go, just like me. Why don't you be you and I'll be me. Everything means W. Leave it to the, let the ashes fall, forget about me. Come on, let it fall, just let it be. Why don't you be you and I'm in me. Took you so long where. All that fool's gone. I shook the angel and you, now I'm rising from the ground, rising up to you.
Fill w ith all the strength I find, there's nothing I can't do. I need to know now, can you love me again? I need to know now, no now, can you love me again? I need to know now, can you love me again? I need to know. It's unforgivable. Storm burnt your soul. Is that what demons do? They rule the world too. Destroy everything they bring down. Angels like you know, do this again, do this again, need to know. Yeah, I am going to take my horse to the old town road, I am going to ride till I can't no more, to take my horse to the hotel room, I am going to ride till I can't. No more, I got the horses in.
The bag horse stock is attached. Head is madded black, got the boost is black to match. Riding on a horse, you can whip your Porsche. I've been i n the valley you ain't been up. Off that porch now. Can nobody tell me nothing? Riding on a tractor, lean all in my blood. Cheated on my baby. You can't go in. My life is a movie. Bull riding and boots. Cowboy hat from Gucci. Wrangler on my booty. Can't nobody tell me nothing. You can't tell me nothing. Can nobody tell me nothing? Can tell me nothing.
Think about it. There must be a higher love down in the heart or hidden in the stars above. Without it, life is a wasted time. Look inside your heart and I look inside mine. Things look so bad everywhere in this whole world, what is fair? We walk the line and try to see, falling behind what could be. Bring me a higher love. Bring me a higher love. Bring me a higher love. Where's that higher love? I keep thinking down. World are turning and we're just hanging on, facing our fear and standing out there alone. I earn a yeah and it's real to me. There must be someone who's feeling for me create. Things look so bad everywhere in this whole world, what is fair? We walk the line and try to s ee,
falling behind and what could be. Bring me a higher love. Bring me higher, my love. Bring me higher love. Sam
Let's get ourselves settled in the morning, leading up to midday. I heard that the room was a bit cold, so we've asked to adjust a little bit. We're going to try and strike a balance between that and the fact that it's the afternoon session so that we stay on track. Welcome back. As mentioned this morning, this is our final session that will just start up with a short teaching on group equity value that will be provided by our Chief Accountant, Ranen Thakurdin. Ranen will be followed by Casper, our CFO. Casper will cover, as mentioned earlier, cash generation. He'll talk about the dividend policy as well as cover the approach to capital allocation. Please do help me welcome Ranen on stage. Over to you, Ranen.
Good afternoon everyone. Casper and I are going to be taking you through the financial metrics and how that links to unlocking shareholder value. Let's briefly revisit the medium term targets that Jurie took you through earlier. Before Casper covers dividends and RONAV, I want to take a few minutes to shift gears and do a teach-in on ROGEV and GEV. In particular, I want to explain what GEV means and why it has become a critical measure for us. At Old Mutual we have three distinct frameworks that we use for reporting performance, each with a very specific objective. We've always had a strong focus on our IFRS reporting metrics. Those include our results from operations, our adjusted headline earnings, and our return on net asset value. IFRS remains a critical measure for us because it's externally assured, it's globally comparable, but it does have some limitations.
In particular, for life insurance businesses, IFRS profits is not a great measure of management performance because the profits are largely driven by the unwind and the movement in the CSM. For our other businesses, IFRS has a short-term focus. We have a very robust regulatory reporting framework that protects our customers by requiring us to hold capital and liquidity. This framework is the framework that underpins the ability of our segments to pay dividends to the group and subsequently for us to be able to pay dividends to shareholders. Lastly, we've got our value reporting framework. We are increasing our focus on the value reporting framework largely because it provides us with a consistent and holistic valuation across all our lines of business and it allows us to take in both short-term and long-term value creation. GEV really underpins our value framework.
I do want to explain a very core principle of what GEV is. GEV for us is equal to the present value of the free cash flows that our segments can pay up as dividends to the group. That is quite a traditional corporate finance principle, but it has quite important implications for how we recognize value for our segments. Firstly, it means that segments are strongly incentivized to pay dividends to the group. If a segment retains unutilized capital, they will destroy value because the returns that they're going to earn are less than the cost of capital. The second thing that it does is from a group perspective, we only recognize value in a business where we expect to receive future dividends.
Why that's quite important is as an example, for Zimbabwe business, there's fungibility constraints in the country, so we don't recognize a value for Zimbabwe in our ROGEV. Lastly, what this methodology means is that our businesses that are more capital intensive have to generate additional returns in order for us to recognize value. Okay, now that I've explained that ROGEV is equal to the discount of our free cash flows, I do want to cover what we mean by the concept of covered business and non-covered business. Covered business for us means our life operations that makes up about 65% of our group equity value. Non-covered is our other lines of business which makes up the residual 35%. The reason we create the distinction is because the mechanism to establish our free cash flows are slightly different for our covered and our non-covered business.
I'm going to explain the non-covered business first because it's a little bit simpler. The way we do our non-covered business or the way we evaluate is using a dividend discount model. In our non-covered business we have some of our less material entities that we recognize at net asset value. With some adjustments we refer to that as adjusted net worth. In our valuations, when we're doing our dividend discount model, we value the projected dividends that come out of our most recent forecasting cycle and we do that for a minimum of three years. There are two very critical assumptions that underpin our dividend discount models for non-covered. These are quite important. We have an assumption of our discount rates and we have an assumption for the terminal growth rates and those two items really feed the valuation.
For discount rates we use industry comparable benchmarks together with risk assessments or internal risk assessments. For the terminal growth rate we set that to be equal to CPI plus GDP. Now that's a bit technical, but it's an important point to understand because what it means is that when we value our non-covered business, we assume that those businesses will retain their existing market share. One of the key levers to generate ROGEV is for these segments to increase their market share. Earlier there was a question about how are we getting to the 14% - 16%. I forgot to mention this element of non-covered and on our non-covered gaining market share like what we've been doing in our Wealth Management business and our Old Mutual Insure business is one of the ways that we are able to generate high returns on group equity value.
Okay, going back to our give model, I will now go to the other component which is our covered business. For us, we refer to the valuation of our covered business as embedded value. Valuing the free cash flows out of the life business is a little bit more complex. What has happened globally is that the industry uses IFRS NAV plus the CSM less tax as a proxy for the value of the business. That's actually quite a good proxy for value. When we build our embedded value, we add in four other items. The first thing we add in is that there are portions of our business under IFRS 17 that have short contract boundaries, and we attach a value to that short contract boundary business. These are products like our group risk business.
The second thing we do is we attach value to the businesses that are not valued under IFRS 17 and then we make two other adjustments. We make an adjustment for non-attributable expenses and we make an adjustment for frictional costs and that's what gets us to the embedded value. On this slide, we're showing a very similar buildup from our IFRS NAV to the embedded value but in a waterfall. We are starting off with IFRS NAV, we remove intangibles and goodwill to get to what we refer to as adjusted net worth or the ANW. We add the CSM net of tax and that's the IFRS proxy of value. Then we add in the four items that I mentioned earlier being our short boundary IFRS 17 business, business that's not recognized on the IFRS 17, and non-attributable expenses and frictional costs.
The important point from this slide that I really want everyone to take away is that our EV disclosures and our EV calculations are built directly from our IFRS calculations and reporting. Okay, when we calculate ROGEV, ROGEV is our adjusted give earnings as a percentage of our opening group equity value where our adjusted give earnings reflects the change in the valuation of our segments. We add back whatever capital we've returned to shareholders and then we make an adjustment for economic variances over the period. In essence, then, return on group equity value (ROGEV) serves as that primary measure of value creation for us, which we will assess against the 14% - 16% hurdle that Jurie discussed earlier. What we've got up on this slide is the way we've disclosed group equity value (GEV) historically. We have historically reported GEV by line of business.
We will change this going forward. We are going to report GEV by our segments, so we're going to break it down by segment going forward also. We spoke a little bit about this in the Q and A at the half year. For our valuation, we took into account two material adjustments, being our persistency assumption set and Mass and Foundation Cluster, and we did a change to our cost of capital or cost of non-hedgeable risk. As part of our annual process, we review our bases, and we're currently in a process of reviewing the bases underpinning our GEV. We're also completing our business plan. We will, as we normally do, take you through the outcomes of those investigations as part of our year-end results. On this slide, I did want to guide you on where we're heading from a future reporting perspective.
What we will start doing during the course of next year is we will report GEV by segment. We will also do a breakdown by covered and uncovered, and then we are going to do a reconciliation to IFRS NAV. Very soon, similar to that explanation I did of the buildup from IFRS NAV to Embedded Value, we will start providing that breakdown. The other element that we're going to do is we're going to enhance our disclosures on the analysis of group equity value so that we can provide more clarity on the movements over the reporting period. Thanks. With that, I'll hand over to Casper.
Thank you Ranen and good afternoon everyone. Ranen is called a Chief Accountant but he isn't actually by training. For those of you who didn't pick that up, you know the secret's out. Our systematic approach to capital management has not changed and remains the foundation of our approach to value creation. While maintaining a resilient balance sheet and strong solvency levels underpinned by disciplined capital management, we see that our OM solvency ratio has remained healthy and within our target range over the last few years. At half 2025 our Old Mutual Limited solvency ratio remained above the midpoint with the reduction in solvency from the full year 2024 impacted by the recognition of the R3 billion share buyback as a foreseeable dividend.
OMLAXIS ratio was stable at 187% as we continue optimizations to free up excess solvency and liquidity, creating flexibility to release capital to the group for strategic use or surplus distribution. We have a well-managed balance sheet with low gearing supported by diverse sources of liquidity and Old Mutual Limited has remained within the lower end of its optimal bearings range of 15% - 20%. OMLACSA has issued a further R840 million in quarter three and has redeemed R623 million in September with a further redemption of R2 billion expected in November, resulting in an R8.1 billion total issued debts by December 2025. On a forward-looking basis, OMLACSA also plans to issue R2 billion each year and should have a smooth maturity profile post 2025. We will continue to optimize our capital stack and gearing ratio to ensure the efficiency of our balance sheets.
Now turning to historical cash generation and allocation, overall we have seen strong cash generation from our core operations with ongoing capital optimizations continuing to support medium-term capital generation and flexibility. From 2022 to half year 2025 we generated R27.6 billion in cash after reinvestment into our core business and central working capital. Cash flows were driven by strong earnings across operating segments with consistent remittance to the group via dividends. We are also starting to see the impact of Old Mutual Insure turnaround reflected in cash submitted to the group. Cash generated was used for dividends, with the balance contributing to our discretionary capital balance. If you include the allocations earmarked in our current discretionary capital balance, we have since 2022 allocated 49% to ordinary dividends, 20% to share buybacks, 22% to the bank, and 5% to other capital deployments, which included acquisitions.
As Jurie mentioned earlier, we are targeting a rolling 3-year dividend per share growth rate of 6% - 9%. From 2022 to 2024, we delivered a 6.4% compound growth rate in ordinary dividends per share. This per share growth rate exceeded the growth in our cash dividend, supported by the R2.5 billion share buybacks in 2023 and 2024. Our RONAV or ROE has been on an upward trajectory since 2022, with a half-year 2025 RONAV at 15.5%. Although this is within our target range, excluding higher than expected market returns during the half, RONAV would have been 170 basis points below the target and a reminder that the three levers for optimizing RONAV are increasing revenue, reducing costs, and equity optimization. Jurie spoke to how we are addressing revenue and costs, and I will cover our capital allocation framework and equity optimizations.
As highlighted earlier, our capital allocation framework hasn't changed, but it is now guided and supported by our horizon-based approach. Our horizon-based approach guides decision-making as we seek to optimize RONAV in the shorter term and generate growth and value in the longer term. Capital allocation decisions are based on our RONAV delivery aligned to the two value creation phases. The philosophy is underpinned by the extent to which we have obtained our right to invest by achieving acceptable RONAV outcomes. This approach guides decisions on whether excess capital should be either returned to shareholders through dividends or buybacks, or reinvested into opportunities aligned with our strategic priorities. Looking at each horizon in more detail, in Horizon 1 and our value unlock phase, where RONAV is below the group's medium target, we will prioritize capital returns with the highest strategic hurdle for making additional investments.
Capital returns will take the form of share buybacks while our shares are trading at a material discount to group equity value. Whilst we prioritize efficiency and margin recovery in Horizon 1, we will retain strategic optionality, and we will consider growth investments that are strongly aligned to our strategic priorities. As RONAV improves across Horizon 1 and 2, capital is progressively directed towards near-term business priorities and operational requirements with more appetite to grow investments to growth investments. As we move towards our growth generation phase and in Horizon 3 we have transitioned to our growth generation phase where RONAV performance is stronger and we have earned our right to invest in Horizon 3 we are well positioned to allocate capital towards longer-term strategic J curve type investments that deliver meaningful returns over time.
We are already actively managing our capital allocation decisions on this horizon-based approach as evidenced by our recent capital allocation decisions. The R3 billion share buyback that we announced in September was specifically aimed at unlocking value and improving our own have with the Old Mutual Limited share price trading at a significant discount to group equity value. As Jurie and Prabashini highlighted earlier, our acquisition of 10X Investments is a key strategic investment for the Group and is our continued as is our continued investment in Old Mutual Bank which Clarence took you through earlier. On 10X Investments we expect the return on investment including synergies to be above our hurdle rates and the impacts on RONAV to be slightly positive.
This also highlights the point that even though we are in Horizon 1 and in our value unlock phase, we will still consider investments that are strongly aligned to our strategic priorities. With our focus in Horizon 1 on unlocking value, we will also identify capital and liquidity optimizations and trap capital that can be distributed to the Group. This includes further optimizations within OMLACSA as we have previously communicated and in Old Mutual Africa Regions or OMAR where there are opportunities to unlock capital with practical challenges in some jurisdictions like Zimbabwe. To sum up, our solvency remains strong with a well-managed debt profile supported by healthy leverage ratios and diverse liquidity pools.
We have been disciplined in our capital allocation with nearly half of cash generated returned to shareholders via ordinary dividends and our strategic investments into Old Mutual Bank and our discretionary capital supporting our long-term growth ambitions. Going forward, we expect to see continued strong contributions from our established Old Mutual Life and Savings, Old Mutual Investments, and Old Mutual Insure businesses, and we also expect to see positive future cash generation in Old Mutual Africa Regions, subject to the in-country constraints that I mentioned. This will be bolstered by ongoing optimization initiatives, which will enable further releases of capital to the group. That then takes us to our new progressive dividend policy as we transition from an earnings-based dividend framework, which was based on adjusted headline earnings, to a cash generation approach. The previous HE-linked model was subject to market volatility.
The new policy is guided by actual cash generation from subsidiaries, improved stability, and transparency. The new policy also aligns to our value framework, which Ranen took you through earlier, where we value our businesses based on future cash flows which will be available to be paid as dividends. Dividend decisions will continue to consider liquidity, solvency, available cash, strategic capital needs, and market conditions. We remain confident in our ability to meet our long-term dividend growth target rates with a policy that is flexible and resilient, enabling us to manage through the cycle while supporting long-term value creation and ROGEV targets. This brings us to the end of this session. I hope we have provided you with a clear view of our strategic intent and how we plan on tracking progress and delivering on our medium-term targets.
We have clarity on our priorities, clear accountability, and a focus on execution and delivery. This is underpinned by a disciplined capital allocation framework and our horizon-based approach, which aligns capital deployment strategy and performance over the short to long term. With that, over to you, Langa.
Thank you, Casper. Running for that presentation, we are nearly landing this plane. May I kindly ask that Jurie, Casper, running, please join me on the stage for the Q&A. I'm sure at this stage we are all familiar now with the guidance of questions. I will start in the room whilst the questions are being queued up. For those who may have joined midway after lunch, the session is nearly concluding. We are in our last part of the day, the Q&A session. Could we please just get the roaming mic? I've seen Nico is already in the room for this particular session. Michael, your hand is up, so let's jump right straight into it. Just a reminder for us to please stand up. Thank you, Michael. Just stand up, introduce yourself, and go straight to your question. Thank you. Sorry, just a few questions. Volume, please, for mic.
Can you hear me now?
That's much better, thanks.
Maybe just three questions if I can. Just maybe a little bit technical. Firstly, for your ROGEV, what bond yield assumptions are you looking at? Is that based on where we were at June? Is it based on where we were at December? Clearly the 10 years come down quite considerably. Just trying to get a sense of where you see risk free in that 14% -1 6% range. The second question is around the bank and the bank valuation. Can you talk about what you plan to do with GEV for the bank in the next couple of years? I think it's valued at about R3 b illion, if I'm not mistaken, at the m oment as it June, I might be wrong.
The last question was I note you specifically pointed out your undergoing b asis assumption methodology changes or you're looking at experience at the moment as you do at the end of every year. Is there any area you're particularly worried about that you think may require further basis changes at year end that are material over and above the persistency and corner changes you made earlier this year? Thanks.
Thank you. I think I'll start on my far right and run to Casper.
I think, Michael, we take the targets, we should see those as forward-looking targets with effect from next year, from the 1st of January on a forward-looking basis, given that we are currently operating still on the old RONAV targets and VNB margins for the current year. Those ROGEV targets will kick in as part of the management center's target-setting process, which we're going through right now with our board and which will be part of the sign-off of the business plan that takes place over the next two to three months. On the bases, we are looking at refining some of our bases by the year end. The work on that is ongoing. I can't give you a clear answer on exactly where, and there will be positives and negatives to the base.
I can't give you a clear answer on where that's going to end up on an overall basis. We don't expect a material impact on the overall group, but yes, it could be either up or down.
Yeah.
Sorry, your third question.
The bank.
Oh yeah.
Okay. Michael, at the half year the bank was valued at R1.3 billion and what we've got is the future free cash flows underpinning the bank's discount model. Those cash flows, as you can imagine, we're still in a loss making situation before we become profitable. Those cash flows are slightly out into the future, and we've put in quite a high risk discount rate into that valuation. We're going to unwind that risk discount rate as Clarence hits critical targets like customer count, break even, et cetera. That will drive the movement in that bank valuation from the R1.3 billion as we move into the future. It's dependent on critical milestones. Nico, I think our risk free rates on one is about 8-9% with illiquidity. I don't know, I'm not sure offhand. You were asking what the actual risk free rate is, Michael. Okay, Nico, maybe you should just.
We use the curve as at the valuation date for the give at that point in time. Clear you start the year w ith a curve at, let's say, 1 Jan, and then you add June, would. eport the give with a curve as a June with a delta between those coming through as one of those adjustments between total GEV growth and the ROGEV that go into incentives.
Thank you. I'll look around for my hands in the room. There's one hand there. David, over to you.
It's David Talpert here from Visio. Just want to get like your t houghts on buybacks beyond this R3 billion, especially I guess in light of your, I guess, progressive dividend policy. If cash generation is stronger, could we think of the excess going to buyback or just your thinking around that? Thanks.
I didn't hear that.
Prospects for further share buyback.
I think we will follow our capital allocation framework as we've always explained. We will consider share buybacks and special dividends. The share buyback or special dividend is dependent on where we are in terms of our share price relative to group equity value. We would make that decision at that point in time and we would also assess acquisitions according to our horizon framework. In general, depending on how much capital we've deployed to the bank, we have generated excess capital over and above our ordinary dividend generation. With that progressive dividend policy, we would still have surplus, but it depends on what we put into the bank or into other acquisitions. By all means, we will then consider share buyback and special dividends based on where the share price is trading.
Maybe just to add, I mean, I think that the diplomatic capital into strategic acquisitions has got to be if there's a high strategic bar we set to that. I mean, 10X Investments was an absolutely obvious, really tightly coupled to our strategy in multiple ways. You know, I think that whilst we're in this sort of what we would consider horizon one, we would really look very carefully at those kind of strategic issues and make sure that it's, it's strategically very tightly coupled.
Thank you. Any further hands in the room, Leonard then.
Hi, afternoon. It's Leonard Krüger from MNG Investments. One of the building blocks that you spoke about is the further optimization of t he capital base in the group. It's been a journey for a number of years that the group's been undertaking. Can you maybe talk to some of the specific wins that you think are still possible, the hindrances to achieve same, and the size of the potential prize on that component in the Three building blocks specifically. Thanks.
Yes, we have identified a number of opportunities within the Old Mutual stack where we can optimize that stack better. We are expecting to be able to extract some additional capital there. I'd be loath to give you exact answers because, you know, whilst we've identified, we still need to firm up on the work. A lot of these things take a lot of work to get delivered in Africa. We obviously still have some illiquid buildings sitting in our capital stack. If you look at our interim presentations, we've given you quite a lot of detail on the makeup of those shareholder investment portfolios, but obviously we'd want to move on those.
We are also working hard to see how we can extract capital from countries where we currently have restrictions, like Malawi and Zimbabwe, and then there are one or two structuring items that we are working on in the wider Africa group which will help with optimization. We'll give the details of those as we are able to extract them rather than promise them beforehand.
Thank you Casper.
Sena mile from SBG Securities, are you able just to provide a bit more color in terms of your capital allocation framework, in particular how you allocate between or how you prioritize capital allocation between reinvestment into businesses, buybacks, dividends? I know there's been a theme throughout the presentation about earning the right to deploy capital, but what does that mean practically?
Okay, so earning the right to deploy capital means that if you're a mature business it means that you are generating returns in that business that meet our hurdle rates. If you are generating return at higher than the return that we require, it's quite an easy decision to allocate more capital. If you are in a business where you're earning a return that's lower, we see this in some of our Africa businesses. We are saying to the team you need to get your returns up before we would consider further investment into that business. We have a slightly higher hurdle rate for all of our businesses. The 15% - 17% is our group hurdle rate on RONAV. We have a high return which then deals with any frictional costs we have and capital that we have in the center.
There's a clear target that we require our businesses to deliver before we would give them that additional capital. As you said, we count capital from Rand 1. It's not automatic that you get reinvestment into your business if you're not generating the right returns. I hope that answers the question.
Yeah, I'm going to. Okay, let me take your hand. Now switch over to the webcast.
Thank you very much. I'm sitting in front, so I'm not going to stand up. Ranen, the IFRS NAV to GEV waterfall, the PAA, and the IFRS 9 investment c ontracts, is that to scale? Because that. Can I read it off the chart? Because those valuations are particularly useful. In fact, the PAA, in essence, the corporate risk business and the investment contracts, the IFRS 9. If you could further clarify, hat exactly are those frictional costs that you take into account?
Okay, the graph is illustrative. It's not to scale. Please don't use a ruler and measure it. The. That is the critical enablers for us to show you what that looks like on the IFRS balance sheet and then the build up to give. That's where we're heading to and we fully appreciate that you need that to value the business. We will get there on the disclosures. The frictional costs are largely related to we've got assets on our balance sheet, those will incur some elements of tax. We capture that in the frictional cost element. We also have some trading costs, those are captured in the frictional cost element. It's to enable us to reflect the full net of profit outcome of the free cash flow. That's what we capture in the frictional costs.
Thank you. Just a follow up on David's question of earlier in the normal c ourse of events, Casper, how much discretionary capital are you likely to g enerate in a particular year?
Yes. If we use our old guidance, which we're moving away from, but let's use that as an illustration. We were targeting 70% - 80% of adjusted headline earnings, and that incorporates reinvestment of capital into our core businesses. That's the free surplus generation. Our dividend policy pays between 50% and 67%. On an all year, there will be some additional capital that's generated, and if we are able to optimize that, that then adds. Last year our cash generation was R115 million. Because we were able to improve either the efficiency of our capital base so that you didn't have that reinvestment into the core business, or we actually were able to extract additional capital. Does that help?
Maybe just to comment on this thing around capital deployment. I do think that the guidance we've given now and the framework we've created has actually created a lot more focus in our kind of M&A conversations. I think it's fair to say that we used to have a lot of bottom-up flow of deal activity, people looking at things, and we've really narrowed it down very significantly. Everyone's pretty clear. You know, we said like East and West Africa, we want to see those returns and margins before we consider significant expansion. Southern Africa, we will consider in markets where, you know, smaller transactions that kind of just extend us or maybe just deepen our market share. The economics have got to be very clear. I think in Old Mutual Insure there's some opportunities.
They've got a good track record. Old Mutual Insure has a good track record now of having brought in some books of business that have turned, and the cash turn in those businesses can be attractive. There might be opportunities in Life and Savings. There can be distribution opportunities where you acquire distribution and then, again, quite a quick cash turn. I think that there's an intuition that has developed now around what are the sort of things we want to look at. We, of course, will say we will be deploying capital as we go, but it will be on a really measured basis.
I think we're not, and I think Casper and Ranen can jump in, we're not seeing a deal flow of, "This is a deal for sale here, a business for sale, let's look at it." It goes through the strategic filter first before it actually even comes into our process, and it's actually saving us quite a lot of working time as well.
Thank you. Thank you very much. Switching to the webcast, there is first about seven to eight questions. First one is from Tapele Investec. I think you read this one, I'll ask you to take it, please. It's, how should we think about timelines of the value unlock and the generating growth phase, and what would be the great outcome in terms of timing of those? I think, how do you think about it?
It's very hard. I mean, it's a hard question to answer. I've had a couple of those sort of on the sidelines. I think we're in for a couple of years of really heavy lifting from an execution point of view. I think that there's a whole range of things that we need to do, which hopefully we've been reasonably clear on. I think that the sort of earliest payoff, you know, there are expense payoffs, payoff from expenses that one can see to come through. I do think that, for example, improvements in persistency and so on take a little bit longer to come through, but those would probably be next in line, and then ultimately some growth in market share from just better competitiveness, better execution, will come further down the line.
I think it's hard to call when we kind of go to that first phase where I said job one is get us into range consistently on those five metrics. We're going to work as fast as we can and get ourselves into position to be able to come back and, once you've done that, be able to revise those targets. The bank is, of course, a big piece of this. The bank is implementation now into 2026, 2027, and we've said now with these projections of customer numbers that that kind of gets us to cluster profitability in 2028. That's a very big lever for us because it's obviously a cost drag on the group. Michael, to your point around the GEV of the bank, of course that's also a key point. It's currently sitting at R1.3 billion in the GEV.
Building the bank and actually getting those customer numbers, getting that traction, is also really important. Important ultimately from a GEV perspective.
Yeah.
We are acutely focused on, from an implementation point of view, the next couple of years.
Yeah. There's a question from Faizan, HSBC. I think I'm sticking with a cafe theme. It says, if I understood correctly, some of the CAV bases are being currently reviewed. Is it early days, but are you happy with the assumption in the, in the main covered business?
That was the point that I discussed earlier. When we are reviewing the give, we are reviewing the assumption set, the underlying assumption set, and making sure that we're comfortable. There are quite a few moving, you know, as you've heard, there are quite a few moving parts. We've moved circa 3,000 to 4,000 people from our OMICS business into Life and Savings. We've amalgamated those four businesses. Prabashini needs a bit of time to make sure she's comfortable with the assumption set in her new business. That's what we're referring to when we say we're looking, so it's actually looking at those underlying assumptions and making sure it all stacks up and we're comfortable. As I said, we'll come back to you with proper answers on that as part of the process.
Thanks, Casper. I'll shift to OMAR. There's a question. It's emergence. Please, may you share how will you tap into the capital locked in geographies such as Zimbabwe, that's one, and two, and some property portfolios you mentioned in the rest of Africa. What could that capital be used for once repatriated to the group?
I'll quickly do it. You want to talk about some and then I'll, as Ranen explained, the value. The value of business in our group GEV.
Based on the fee stream of dividend, if we are able to obtain a future dividend stream out of the Zimbabwe business, for example, we'd be able to value those dividends in our gift. It provides enough, and it then provides additional capital to the group that will immediately go into our framework, which is either value unlock, you pay back to shareholders, or to support strategic acquisitions. The aim is to maximize the dividends that we can get back in East Africa. Therefore, if we are able to liquidate some of the buildings that we're holding in that business, that will free up capital, it will improve ROW navs, it will improve ROGEV, but also then provide additional dividends to the group, which can be used in the same way.
There's no incentive for anyone to sort of lazy capital at this point. Right. There's a real push to get lazy capital out. When lazy capital comes out or any capital comes out, capital is a tight principle. We sit at the center and we look from Rand 1 as to where the optimal place is to deploy it, whether depending on where we are in the horizon, whether it's a share buyback or further shareholder distributions or some acquisitions.
Yeah.
If I can just add, I think some of those are management actions that we can drive. Zimbabwe and Malawi are economy-driven challenges rather than actions that we can take as management, and we are obviously doing what we can to extract dividends. Whilst those economies remain under pressure, it is an issue of managing to pull the Forex out of country. That remains a challenge, and we have to wait for those economies to recover.
It is a little bit wrong. I mean I was in Zim last week for a couple of days, so I speak with a unique recurrent perspective on it. I do think it's also part of the management discipline of operating in those countries to find ways of getting your dividends out over time depending on forex availability. That's part of the challenge of operating in those environments. You're quite right.
Yeah. Two more questions. One, Jared, All Weather says given the R2.5 billion cost savings and the bank turning towards the break-even point of R1.1 billion- R1.3 billion, is it fair to expect an initial period of growth in earnings of FY 2024 base to well exceed the 6.9% dividend growth target? I think we've kind of covered it earlier. Maybe some color.
Yeah, maybe the one point to just add though is whilst we're talking about the cost savings, we will incur costs to deliver the cost savings. I don't think that one must necessarily bake in that. In the short term, our intention is obviously to get to the R2.5 billion savings sustainably into the long term. In the short term, we shouldn't be banking that R2.5 billion as an uplift to earnings straight away.
Yeah. The last question is on a 10X Investments acquisition. For you to take this one, it says could you unpack the hurdles used for the 10X Investments acquisition and the rationale for choosing such a high price to AUM multiple. It seems a lot higher than the R91 million paid by Sanlam of R300 billion AUM.
Yes. I think you understand with 10X Investments what you're requiring. You're acquiring a D2C business with a tech stack, by the way. A tech stack that would probably have cost you that to build. Frankly, that's what our numbers indicated to us. You're buying a tech stack that we are, I think of all players with our asset gathering capability, almost in a unique position to be able to scale, and a brand that is getting massive traction in the market. As I said earlier, picked up 35% of the net inflows into passives. Those are the sort of strategic factors that make us excited about the business and pretty confident this is the right, very confident this is the right move f or us.
Yep. Thank you. That's just a wrap on the online questions. I'll give an opportunity maybe for one pressing question in the room, if there is any. It looks like we are good. Okay. From my side, you've been a wonderful and pleasant crowd. Thank you for staying with us and for the pool online who have stayed with us. Thank you very much for joining us. Thanks to you, Casper, Jurie, as well as Ranen for covering this session. Thank you, Nico, for joining in. I'd just like to thank the members of Exco who came in through, who've been helping the MDs in the business units and their teams who are all here, and definitely to thank you, all our investors who've come through, as well as the analysts who cover and follow us. That's all.
From my side, I would like to hand over at this point to Jurie to provide us with the closing remarks. Thank you very much. Thank you.
No clicker, guys. Don't worry, I don't need a clicker. Okay. Just to say from my side, thank you for sticking with us. After lunch, first of all, hope you enjoyed lunch, but I can see the graveyard shift. Everybody was actually pretty active with questions, so thank you for that. I think just to kind of remind you where we are, we wanted to do the CMD. It's kind of, it's five months in to the new CEO. As a team, we really committed to doing this because we wanted to provide clarity as soon as possible on some kind of really key issues. It is the first of the engagements or the second, I suppose, after interims. We will be giving you progress at our results in March and then at halfway next year and then again a CMD next year. Someone asked me the question around timing.
We have a very ambitious execution plan over the next two years. What I hope to give you today was a sense of what we consider to be important, how we are going to go about doing it, and what are going to be the milestones for you as investors to see. Actually, are we hitting our numbers and are we achieving what we're setting out to achieve? Talking about going back to the scale of our business, the opportunity we see there for value creation, both value unlock phase and then the generating growth phase. Hopefully now you can see the application of our capital horizons and how we go about thinking about that. Finally, four strategic priorities and how that's cascading into the businesses and getting action. Thank you for being with us. We look forward to, I think we've got some more food and drinks.
This is early dinner. It's extremely early dinner, I think. Please, please stick around with us. Love to chat to you. Love to take more questions. Thank you for being with us. We will see you, I'm sure, soon enough. Thank you.