On many fronts 2016 was a challenging year – and even more so for companies in an industry where performance is closely linked to financial markets. The year was shaped by unpredictable big events like Brexit and the US election. On the home front, the potential downgrades by ratings agencies loomed like a sword over the economy. In addition, policy uncertainty worsened an already unstable situation, resulting in dismal economic growth of only 1%.
Against this backdrop, it was generally a difficult year for investment managers. The JSE/FTSE All Share Index returned a paltry 2.6% (with dividends reinvested). Investment returns were further impacted by the rand strengthening by 12.88% against the US dollar. Despite this, PPS delivered a pleasing performance and most of our business goals were achieved. PPS is satisfied with the returns delivered by all our fund managers. However, members should take cognisance of the fact that our fund managers expect returns to remain in single digits for a couple of years.
During the year, new enterprises were launched, notably PPS Short-Term Insurance, the Financial Planning division and PPS Mutual in Australia. The distribution model also saw a complete overhaul.
As these new businesses gain traction, new avenues for profit growth will contribute to members’ PPS Profit-Share Accounts.
The primary advantage for members of PPS remains the profits that accrue to members on retirement through the unique PPS Profit-Share Accounts. Apart from the investment returns, the operating profit is also shared with members. In the year under review, operating profit grew by 17%, driven mainly by three factors: Expenses were strictly managed, claims payments were within budget and the investments in new business were below budget.
PPS is pleased to be able to share over R2.7 billion with members through their PPS Profit-Share Accounts.
During 2016, 978 members retired with a total value in their PPS Profit-Share Accounts of R668.1 million. Individual amounts varied between R50 000 to R3 million, depending on the tenure with PPS and the amount of the premiums paid together with the number of products held.
Membership is still growing strongly. In the year under review, new membership grew by 9% with membership totalling 353 502. Despite the disruption on campuses due the fees must fall campaign, a pleasing number of newly qualified professionals joined the group. 61% of our new members in 2016 were younger than 30 years of age, which ensures a sustainable insurance business.
In the coming year, PPS will focus on introducing products that will add value and projects to enhance the sense of community amongst our members. The member workshops launched during the year have proven to be very popular amongst our members and we will continue to expand the offering.
The distribution model saw an overhaul in 2016. The implementation of a new, innovative distribution model is an exciting development at the group. Various distribution models were carefully evaluated and PPS decided on a model that is cost-effective, allows cross service between the various products and utilises technology.
This required an internal reorganisation, resulting in a leaner management structure and combining of support functions.
The new structure will assist PPS to better serve its members and to meet their high expectations in terms of products and service.
Inflows into the new enterprises were somewhat slow, but indications are that members can look forward to a healthy profit contribution from the new businesses in due course.
PPS Healthcare administers Profmed and Key Health. Key Health proved to be popular with 35 683 members at year-end.
Profmed is a restricted medical scheme for graduate professionals. At December 2016, Profmed provided cover to 31 787 members – an increase of 4.7% from 2015. Profmed and Key Health are well capitalised and claims are being well managed.
PPS Investments saw assets under management grow to R25 billion. Approaching its 10th anniversary in May 2017, quality investment services are provided to over 32 000 individual investors. Retail funds under management increased from R14.8 billion to R17.3 billion on the back of new client inflows of R3.5 billion, slightly ahead of the prior year.
PPS Short-Term Insurance was launched in March 2016 and the uptake has been slower than anticipated. Initially personal lines were introduced, but it was followed by a commercial insurance offering launched in December.
PPS Financial Planning is another division that we are very excited about. The new approach to financial planning is a move away from product sales to the development of financial plans, comprising retirement planning, risk planning, estate planning, budget planning and more. All advice will be product agnostic, financial planners are incentivised to provide financial plans and not to sell products. The fee model has been adjusted since the division was launched and the team of 270 advisers will be combined into one team to offer an integrated service to members.
We are also very excited about the digital channels that will be launched in 2017. This is aimed at the millennials that prefer digital channels to assist their intermediaries with rendering financial advice.
PPS Mutual was launched in Australia in February, after careful viability assessments and based on research that showed Australia to be the most desirable option. Since the launch, some progress has been made and at the end of December a total of 144 financial plans were in force.
The business is supported by the back-office administration based in Johannesburg, with a significant cost saving for the group.
South African members of PPS will benefit from the growth in the Australian business and the royalties paid to the South African business.
Once the Australian business is well established, PPS will carefully consider expansion into other geographies that meet the criteria. PPS will concentrate on countries with a large number of South African expatriots and where the number of qualifying graduate professionals will add critical mass.
The implementation of Solvency Assessment Management (SAM) has been postponed from 1 January to June 2017. At PPS, all the required milestones around the implementation were successfully achieved and the group is ready to comply with the new regulation.
PPS also fully supports the implementation of the Retail Distribution Review (RDR). RDR is being implemented in phases and the new distribution model introduced at PPS complies with the principles set out in the RDR.
Personally, it is a great honour to take over as CEO from Mike Jackson, who has served PPS in an exemplary way for 13 years. The organisation that was built over 75 years, benefited further from Mike’s dedicated and committed leadership. The business he left behind is well positioned for the future with a strong management team and the support of all its board members. As PPS enters a new chapter in its history, the Society will continue to serve its members and stay true to the purpose of being an exclusive organisation for graduate professionals, belonging to its members.
In all likelihood 2017 will be another tough year for the South African economy. Some of the headwinds facing our country have dissipated, but economic growth will remain low, with the IMF and World Bank predicting growth rates of respectively 0.8% and 1.1% for South Africa in 2017. Furthermore, the shadow of a possible credit downgrade is still lingering, undermining the confidence in our investment markets.
However, there are indications that the resources cycle has turned, which is positive for the South African economy.
All that remains for me, is to thank the dedicated board members, especially our chairman, Mr Ebi Moolla, and Mr Charles Erasmus, chairman of PPS Insurance. Their guidance and assistance in the transition period is greatly appreciated. PPS is blessed with a strong board to lead the company into the future.
My appreciation also goes to our staff members for their dedication and commitment that has positioned PPS as the preferred provider of financial services to graduate professionals.
|30 March 2017|