As I reported in the previous period, 2021 was a very strong year in the investment markets and our funds performed exceptionally well. It is these years that assist longer term average returns to beat targets, and we do not want to miss out on these years. But, like a good personal financial adviser, I had to caution last year against exuberant future expectations. I noted that financial reporting cut-offs are somewhat artificial snapshots in a continuous cycle. From an investment return perspective, we could not have asked for a better cut-off in terms of reporting, than end-2021 for that period. I wrote that we expected returns to be much lower and perhaps even negative over the next year or two. Unfortunately, these comments proved somewhat prophetic! As most of our members will know, investment markets were under significant pressure in 2022. Especially overseas equities and bonds had a torrid time in many months. For good diversification and growth reasons, we hold significant portions of the assets we invest for our members in such overseas assets. As a result, our core balanced portfolio, in which most of our members’ Profit-Share assets are invested, ended the year slightly negative. July, October and November were good investment return months, resulting in a more-orless flat performance for 2022. Our investment managers did well to navigate the challenges presented in 2022 due to their diversification strategy, designed to mitigate risk. But they maintained a bias to growth assets, which generate maximum benefit for our members in the long term. This bias is due to the nature of our members’ policies, many of which stay on our books for a generation or more. This enables us to take a long-term approach to investing and gives us a unique competitive advantage, helping us to ride out short-term market volatility and corrections. It is no exaggeration to say that 2022 was as challenging as the two preceding periods, with our channels having had to work exceptionally hard to recruit new members and provide cross-solutioning to our existing members. Operational staff also continued to be stretched, with claim volumes still far exceeding average pre-COVID-19 volumes. Our IT and operational staff had to deal with ever-greater information security risks. This is not unique to PPS; all organisations face these risks. It is part of doing business in these times where our lives have become ever-more digitally connected. Yet, it is in our DNA at PPS to come through for our members when times are challenging. New business flows are a barometer of the health of a financial services business. These flows will be weak if your value proposition does not stack up, your service is poor or there is no trust in the organisation to deliver. And this is especially true if most new business is from independent intermediaries, as is the case at PPS. Hence, we took immense pleasure from the 2022 market statistics, which showed exceptional new business growth for PPS in a basically flat market. In fact, new business growth at many other organisations was negative. Across our businesses, we had another record year for new business inflows. The independent adviser channel for life new business grew by 10.8% from 2021 to 2022. Gross flows to PPS Investments grew by 9%. In terms of new life members, the membership in South Africa and Namibia grew from around 128 600 at the start of the year to over 131 000 at the end of 2022. The Group is indeed thriving despite the negativity around us. Strategy and opportunities The end of 2022 brought us to the close of a fiveyear strategic period and the start of a new five-year plan towards 2027. As we look towards the future, the strength of our balance sheet enables us to identify and take advantage of many opportunities. And it is usually in challenging times that there are many opportunities! Our strategic agenda continues to be framed around seven pillars that are the foundation of our strategy: • Our exclusive member value proposition that we continue to develop and expand. • Increasing awareness and cross-solutioning of this member value proposition across different business areas. • New and diversified revenue streams supporting profit generation for our members and diversifying it away from an over-dependence on life underwriting profits. • The value proposition to advisers, as the face-to-face channel is so important in our market segment. • The digitalisation journey. • Our brand leadership position. • Our unique culture that supports innovation and the other pillars. 23 Leadership commentary
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