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GT Ferreira (top) and Paul Harris (above)
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The three new apples of RMB's eyeIT TAKES some chutzpah to make a presentation to the Investment Analysts Society about a R9.4billion group and say nothing about the businesses which contribute more than 90% of its income. But RMB Holdings got away with it in Johannesburg this week with a marvellous pioneering presentation about paradigm shifts. A year ago, the theme of the presentation was the RMB forest, with big branches, saplings and seedlings in the nursery. This year, the trees are beginning to bear fruit and three new varieties were proffered for inspection - healthcare, private banking and administrative services. Chairman G T Ferreira explained the audience (the biggest ever drawn by the Investment Analysts Society) already knew plenty about the 90% (Rand Merchant Bank and Momentum), and anyway, they could read the substantial handout. "Five years from now the group will be completely different from what it is today, so we are going to tell you about some of the paradigm pioneers of tomorrow," we were told. He said the listed holding company's growth target had been revised to 15% real earnings growth a year from 20% earnings growth, and expected to be able to report 25%+ (including 10% for inflation) in the current financial year. Lest we had forgotten, it had achieved 30.5% annual growth in headline earnings a share since 1988 - 33c this year - while total assets climbed from R1.1-billion to R32.4-billion in 10 years. Rand Merchant Bank chief executive Paul Harris notes the similarity between the visions of all the players in the financial services arena: "They all want to be a lemon tree." Harris makes much of the merchant-banking roots that make RMB an apple tree. "Our culture thrives on change and complexity because it has never been a large group with lots of capital. We have 20 profit centres and encourage an entre-preneurial approach." RMB has recently scrapped hierarchical titles. Momentum falls under the RMB banner and Harris uses it as an example of a company that was involved in the old paradigm (bricks and mortar, product-centric, bundled products, black-box costing) and has shifted to the new. Half the 2 000 staff had to be retrenched, including the direct-sales force, and 30 offices were closed. A cost centre with 150 staff collecting premiums was turned into a separate company, MC², which employs 15 and collects money on behalf of four major competitors, too. The tree looks rosy, and three apples were polished for presentation. Adrian Gore presented Momentum Health, a company started five years ago ahead of legislated changes in medical insurance. It is a specialist health insurer and managed care administrator which pioneered the concept of medical savings accounts for individuals. Total premium revenue is expected to reach R1-billion in the current financial year and profit R25-million. Gore says: "It has moved from a cottage industry to the corporate environment." Gore and others formed the Concerned Medical Schemes Group to negotiate with the government on its new healthcare proposals; Gore reports positive progress on three major areas of concern - rating, risk selection and savings accounts. "We believe the situation is manageable." He says four skills are required to run a healthcare insurer properly: administrative, actuarial, clinical and medical, and analytical technology. "We handle 11 000 claims a day inside six hours each, handle 2 500 calls a day and deal with 16 331 clients." Llewellyn van Rensburg spoke on Momentum Administrative Services (MAS), which works on a "give us your money and we'll invest it" principle. He has served Momentum for 12 years, through three mergers, noting the past five years under RMB have been the best. "They asked us questions such as how would we start all over, and what would we like if we were clients? It made us think." Van Rensburg notes how good many insurance companies are at passing the buck when customers phone with queries. The staff and technology have been upgraded so 80% of all queries can be answered by the first person to pick up the phone and one transfer answers the rest. MAS guestimates it is the second largest in the sector with a 19% share of the R20-billion market, doing R2.5-billion of new business in the past year. Rudolf Pretorius says Origin, RMB's "merchant bank for individuals" will appeal to those who deserve the services of a merchant bank. "We don't believe the credit needs of customers are being looked after properly by commercial banks. Why should the same customer pay prime less 1.5% for a home loan, prime plus 1% for vehicle finance and prime plus 7% for credit card finance?" Origin consolidates all a customer's security and lends against that: "We only charge a customer a higher interest rate above the base rate when they expose us to credit risk." Pretorius says Origin will offer products only where it can add value. He expects it to be a significant profit contributor by 2000. A question about RMB's international aspirations solicited a comprehensive answer from Harris. RMB Trust Services operates out of Jersey, there is a London representative office and RMB Australia, which shed its broking and trading operations last year in favour of cross-border corporate finance, niche markets and asset management. On international securities dealing, Harris says only a few will survive, including the boutiques with skills, capital and technical ability. The RMB International dealing room is a "virtual dealing room", dealing with 30 carefully monitored exotic hedge funds. They are run by "high-quality traders, as only the best are able to break away from the big groups and go it alone. They take a 1% to 2% capital fee and a 20% profit share. We think this is preferable to starting our own overseas operation or buying a second-league player." Ferreira had the last word on whether the group could keep growing. Earnings, yes. The share price? "It is very demanding and we have no control over it." Ferreira quoted some wise words he heard as a young man: buy something not because it is cheap, as it might get cheaper. Buy something that is about to become expensive - or more expensive. Responding to the comment that the exceptional profit on the sale of 20% of NBS was four times the record profit made by the whole group: "If you divided that into the share price, then the price-earnings ratio is only 9!" Touché. It is inconceivable to leave RMB Holdings out of any portfolio even on 38 times historic earnings at the current R12.60.
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