REG - Old Mutual Ltd - Voluntary Operating Update

Old MutualAnnouncement

22/11/2022 07:01

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20221122:nRSV1840Ha&default-theme=true

RNS Number : 1840H  Old Mutual Limited  22 November 2022

Old Mutual Limited

Incorporated in the Republic of South Africa

Registration number: 2017/235138/06

ISIN: ZAE000255360

LEI: 213800MON84ZWWPQCN47

JSE Share Code: OMU

LSE Share Code: OMU

NSX Share Code: OMM

MSE Share Code: OMU

ZSE Share Code: OMU

("Old Mutual" or "Company" or "Group")

 

Ref 56/22

22 November 2022

 

OLD MUTUAL VOLUNTARY OPERATING UPDATE FOR THE PERIOD ENDED 30 SEPTEMBER 2022

 

OPERATIONAL UPDATE

Despite tough economic conditions, sales recovery has maintained momentum in
the third quarter of 2022 across our life businesses. The difficult global
macro-economic conditions have impacted the operating environment in South
Africa and the other countries in which we operate. South Africa has
experienced rising inflation, interest rate increases and ongoing
load-shedding. In the African markets where we operate, the economic climate
continues to be volatile due to escalating inflation rates and depreciating
currencies. These factors have resulted in increased financial pressure on
customers.

Financial performance for the period ended 30 September 2022

 

The table below sets out certain key performance indicators for the nine
months ended 30 September 2022 (the "current period").

 

 Key Performance Indicators                30 September 2022  30 September 2021  change

 (R millions unless otherwise indicated)
 Life APE sales                            9 498              8 136              17%
 Gross flows                               136 136            146 631            (7%)
 Net client cash flow                      (1 163)            (2 627)            56%
 Funds under management(1) (Rbn)           1 192.7            1 273.6            (6%)
 Loans and advances(1)                     18 931             18 907             0%
 Gross written premiums                    16 860             15 103             12%

( 1)Comparative amounts represent FY2021 balance sheet amounts

Life APE sales were up by 17% from the nine months ended 30 September 2021
(the "prior period"), which was impacted by lockdowns. Sales in the current
period benefitted from strong issued sales across all channels and improved
credit life sales in Mass and Foundation Cluster. Sales growth was also driven
by higher group risk and annuity sales in Old Mutual Corporate as well as
higher retail and corporate sales in Namibia. Our China business delivered
strong savings sales from the broker channels. Personal Finance and Wealth
Management delivered improved savings and funeral sales as well as higher
endowment sales and investment flows into fixed bond products for the year to
date, which were partially offset by lower guaranteed annuity and non-funeral
risk sales.

Gross flows declined by 7% as the prior period included new Liability Driven
Investment mandates together with flows into money market and corporate cash
products in Old Mutual Investments which did not repeat in the current period.
Strong flows from Old Mutual Africa Regions and China as well as significant
flows into new deals secured in Old Mutual Investments and Old Mutual
Corporate in the third quarter contributed positively to flows. This was
partially offset by lower flows in Personal Finance and Wealth Management due
to lower guaranteed annuity sales and reduced demand for offshore investments.

 

Despite the decrease in gross flows, net client cash flow recovered from the
prior period due to reduced mortality claims across the life businesses and
lower client disinvestments and terminations. Funds under management were
negatively impacted by market volatility due to weaker performance of local
and global equity markets.

 

There has been no significant movement in loans and advances compared to the
prior period. Mass and Foundation Cluster delivered steady sales and Old
Mutual Africa Regions remain under pressure with lower disbursements due to
tough economic conditions.

 

Strong growth in gross written premiums was supported by higher renewal rates
and new business sales in Old Mutual Africa Regions, particularly in Kenya's
medical business, coupled with good premium growth in the Specialty division
of Old Mutual Insure.

 

Results from operations were above the prior period, mainly driven by improved
profits in our life businesses resulting from lower COVID-19 excess deaths in
the current period. Despite market volatility, Old Mutual Investments
delivered higher asset-based fees due to higher average asset levels which
positively impacted profits. This was partially offset by deteriorating
persistency experience in Mass and Foundation Cluster and net catastrophe
losses related to the KwaZulu-Natal floods as well as an increase in
attritional claims in Old Mutual Insure for the year to date.

 

Our central costs were above the prior period due to new development costs and
license application costs related to transactional capabilities and Next176 as
part of our investment in growth and innovation initiatives.

 

Due to the ongoing impact of hyperinflation on the economy in Zimbabwe, we
continue to exclude the results of the Zimbabwe business from adjusted
headline earnings. The Group headline earnings for current period was lower
than the prior period due to the significant decline in Zimbabwe earnings.
This was largely driven by the deterioration of Zimbabwean dollar to the rand,
the currency depreciated from closing exchange rate of 1 ZWL$: 0.1369 ZAR at
30 September 2021 to closing exchange rate of 1 ZWL$: 0.0278 ZAR for the
period ended September 2022.

 

CAPITAL UPDATE

 

Capital position

The solvency ratio for Old Mutual Life Assurance Company (South Africa)
Limited for the current period remained at 212%, above our target range of
175% - 210%. The combined decrease in eligible own funds and solvency capital
requirement for the period ended 30 September 2022 resulted in no movement in
the ratio from June 2022. We continue to monitor the Group solvency ratio
which remains within our target range of 170% - 200%.

 

 

 

Discretionary Capital

The Group proactively manages its discretionary capital to maximise
shareholder value by optimising the Group's balance sheet and allocation of
capital within the Group. Discretionary capital represents the surplus assets
that are available for distribution, deployment or acquisitions. The Group's
discretionary capital for the current period was R3.5 billion. The
discretionary capital balance at 30 September 2022 includes amounts earmarked
for investments in growth and innovation initiatives including building our
transactional capabilities which will enable us to responsibly build the most
valuable business in our industry.

 

The Residual plc board has approved a dividend of GBP39 million, which is
expected to be paid to the Group before the end of 2022. The dividend will
increase the discretionary capital for the Group. Further detail on the
allocation of discretionary capital will be provided at the full year results
announcement.

 

STRATEGIC TRANSACTIONS

We have anchored our strategy in our victory condition of becoming our
customers' first choice to sustain, grow and protect their prosperity. We are
pleased to announce several developments which bring us closer to delivering
on this victory condition.

 

The Group has received Section 13 approval from the Prudential Authority to
proceed with the application for a banking license. The establishment of an
entity in the Group with a banking licence is a natural progression of our
core strategy, helping us to sustain our customers' prosperity through an
enhanced transactional banking capability. The Group has existing lending and
transactional solutions which, in South Africa, consist of our Money Account
and an unsecured lending product. These solutions are offered mainly to our
Mass and Foundation Cluster customer base and the unsecured lending solution
is already a strong contributor to Group profitability. The current
transactional solution is delivered through a commercial arrangement with a
third-party bank. While this commercial arrangement has allowed us to gain
experience in transactional banking services, a divergence of aspiration
requires us to reassess our future arrangement to deliver on our customer
needs. The establishment of a bank within the Group will allow us to hold the
primary relationship with our customers, driving greater regular interaction
with them and enhancing the cross-sell opportunity across the Group. It will
also enable the Group to accept retail deposits, thereby providing a cheaper
source of funding.

 

We are building this transactional capability using the latest technology that
will allow enhanced servicing and personalisation. This, together with a
cloud-based technology stack, will enable us to deliver cost effective,
flexible and scalable solutions to our customers.

 

The approved expenditure to complete the build of the transactional capability
is R1.75 billion. In line with the business case, we have incurred costs of
R830 million for the current period and approximately 10% of these costs were
capitalised. Once relevant Prudential Authority approvals are received, the
launch is targeted for the second half of 2024. The entity is expected to
break-even 3 years after the launch. As the capability matures post
break-even, the return is expected to be significantly above the target return
of 4% in excess of the cost of equity. We are currently working on our
application under Section 16 of the Banks Act for the registration of the
bank.

Old Mutual Insure has concluded a transaction to acquire a 51% shareholding in
Versma Administrators ("Versma") and Primak Brokerage ("Primak"), both are
financial service providers operating in the Western Cape in the non-life
insurance space. Versma and Primak are family-owned businesses that reached
maturity in their life cycle and welcomed a large industry player to take the
businesses to the next level. These transactions have already received
Prudential Authority approval and will have a minimal impact on the
discretionary capital balance.

 

OUTLOOK

 

Our balance sheet remains well capitalised with Group solvency ratio within
our target range. We are committed to deliver on our medium-term targets,
noting that the results from operations target will be difficult to achieve
given the current economic climate and market volatility. We remain on track
to achieve our cost savings target of R750 million, with savings of more than
R700 million achieved for the period ended 30 September 2022. The value of new
business margin remains within our medium-term target range of 2% to 3%.

We continue to be concerned about the impact that the current economic
environment is having on policyholders' ability to maintain their policies. At
year end we will reassess the remaining COVID-19 provisions, the long-term
impacts of COVID-19 and increased pressure on persistency in Mass and
Foundation Cluster.

We are making progress on the implementation of IFRS17 to produce an opening
balance sheet. We will provide an update next year at our 2022 results
announcement.

INVESTOR ENGAGEMENT

Investors are invited to participate in a conference call for a business
update on 22 November 2022 at 15:00, SAST. Investors and media may register on
the following link:

https://www.oldmutual.com/investor-relations/
(https://www.oldmutual.com/investor-relations/)

Please note that registered participants will receive their dial in number
upon registration. We advise callers to dial in at least five minutes before
the conference call starts.

 

A recorded playback will be available for three days after the conference
call.

Access numbers for recorded playback:

Access code for recorded playback: 43326

 South Africa   010 500 4108
 UK             0 203 608 8021
 Australia      073 911 1378
 USA            1 412 317 0088
 International  +27 10 500 4108

 

The financial information in this voluntary operating update is the
responsibility of the Old Mutual Board of Directors and has not been reviewed
or reported on by the Group's external auditors. The targets included in this
announcement do not constitute profit forecasts and have not been reviewed or
reported on by the Group's external auditors.

 

Sandton

Sponsors

 JSE       Merrill Lynch South Africa (Pty) Limited t/a BofA Securities
 Namibia   PSG Wealth Management (Namibia) (Proprietary) Limited
 Zimbabwe  Imara Capital Zimbabwe plc
 Malawi    Stockbrokers Malawi Limited

 

Enquiries

 Investor Relations
 Bonga Mriga                        M: +27 67 866 6348

 Interim Head: Investor Relations   E: bmriga@oldmutual.com

 Communications
 Vuyo Mtawa                         M: +27 68 422 8125

 Head: Group Communications         E: vmtawa@oldmutual.com

 

Notes to Editors

About Old Mutual Limited

Old Mutual is a premium African financial services group that offers a broad
spectrum of financial solutions to retail and corporate customers across key
market segments in 14 countries. Old Mutual's primary operations are in
Africa, and it has a niche business in Asia. With over 177 years of heritage
across sub-Saharan Africa, Old Mutual is a crucial part of the communities it
serves as well as broader society on the continent.

 

For further information on Old Mutual and its underlying businesses, please
visit the corporate website at www.oldmutual.com (http://www.oldmutual.com) .

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  UPDUUSSRUKUAURA