| Thu 5 Nov 2009, 9:00 | | OML - Old Mutual Plc - Old Mutual plc Interim Management Statement |
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OML
OLOML
OML - Old Mutual Plc - Old Mutual plc Interim Management Statement
OLD MUTUAL PLC
ISIN CODE: GB0007389926
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
Old Mutual plc Interim Management Statement
Third quarter sales momentum in improved investment market
- Long-Term Savings (Q3 2009 against Q3 2008) life APE sales down 4% to
GBP326m and unit trust sales up 47% to GBP1.7bn
- UK life APE sales up 6% to GBP72m and unit trust sales up 53% to
GBP536m
- Europe life APE sales down 3% to GBP208m and unit trust sales up
63% to GBP945m
- Emerging Markets life APE sales up 6% to GBP104m and unit trust
sales up 30% to GBP754m
- US Asset Management funds under management at 30 September 2009 up 8% to
$260bn (31 December 2008: $240bn)
- Nedbank third quarter net interest income flat at R4.1bn and like-for-
like non-interest revenue up 38% to R3.0bn in tough market conditions,
with impairments tightly managed
- Group funds under management up 6% to GBP281bn (31 December 2008:
GBP265bn)
Further progress in delivering on strategic priorities
- FGD surplus increased to GBP1.4bn (30 June 2009: GBP1.0bn)
- GBP500m bond issued in October
- Improvement in US Life net unrealised investment loss position to $614m
(31 December 2008: $2.3bn)
- Sale of Skandia Chile and Bankhall, and acquisition of ACSIS completed
- Proposed acquisition of remaining minority shareholding in Mutual &
Federal
Julian Roberts, Group Chief Executive, commented:
"The Group has delivered a good sales performance during the third quarter, a
marked improvement on the first half of the year, as the pick-up in the
investment market has led to increased equity allocation by our clients. This
trend has continued into the fourth quarter, although consumers and asset
allocators remain cautious. We expect market conditions to remain volatile.
"We have made further strategic progress. We have resolved our capital and
liquidity issues, we are successfully managing the risks in US Life, and we
continue to simplify the portfolio. As recently announced, we have made an
offer to acquire the remaining ordinary shares in Mutual & Federal, which we
expect to complete before the end of the year.
"We remain focused on managing risk and capital tightly and on driving
further underlying operating efficiencies in order to capitalise on further
recovery in our markets."
GROUP RESULTS
Group Highlights for the 3 months to 30 Q3 2009 Q3 2008 % Change
September 2009 (GBPm)
Long-Term Savings life assurance sales 326 341 (4%)
(APE)
Emerging Markets1 104 98 6%
Europe2 208 214 (3%)
US 14 29 (52%)
Long-Term Savings unit trust / mutual fund 1,699 1,158 47%
sales
Emerging Markets1 754 580 30%
Europe2 945 578 63%
US Asset Management 308 216 43%
Group Highlights at 30 September 2009 Q3 2009 FY 2008 % Change
(GBPbn)
Funds under management 280.9 264.8 6%
Q3 2009 Q3 2008 Annualised
% of
opening
FUM
Net Client Cash Flow (NCCF) (0.5) (3.2) (1%)
1. Nedlife sales are excluded from current and prior year
totals. Including Nedlife sales, Emerging Market sales were
GBP104m in Q3 2008 and Long-Term Savings total sales were
GBP347m in Q3 2008.
2. The Europe total is an aggregation of Wealth Management,
European Retail and Nordic sales.
Group Highlights for the 9 months to 30 Q3 2009 Q3 2008 % Change
September 2009 (GBPm) YTD YTD
Long-Term Savings life assurance sales 960 1,083 (11%)
(APE)
Emerging Markets1 269 252 7%
Europe2 639 739 (14%)
US 52 92 (43%)
Long-Term Savings unit trust / mutual fund 4,449 3,981 12%
sales
Emerging Markets1 2,072 1,828 13%
Europe2 2,377 2,153 10%
US Asset Management 750 814 (8%)
Group Highlights at 30 September 2009 Q3 2009 Q3 2008 Annualised
(GBPbn) YTD YTD % of
opening
FUM
Net Client Cash Flow (NCCF) (0.3) 0.0 0%
1. Nedlife sales are excluded from current and prior year
totals. Including Nedlife sales, Emerging Market sales were
GBP271m for Q3 2008 YTD and Long-Term Savings total sales were
GBP1,102m for Q3 2008 YTD.
2. The Europe total is an aggregation of Wealth Management,
European Retail and Nordic sales.
Overview
The Long-Term Savings division delivered a good sales performance for the
third quarter. Life sales were down 4% to GBP326 million compared to Q3 2008.
Excluding the US business, where the sales decline was in line with our
strategic plan, sales were broadly flat. Emerging Markets life sales were
steady, with OMSA life sales flat for the quarter, an encouraging result
given South Africa`s later entry into recession. In the UK, life sales were
at their highest level since the second quarter of 2008. Unit trust sales
were very strong during the quarter, up 47% to GBP1.7bn. In Emerging Markets,
these were particularly buoyant, up 30% on the third quarter of 2008, and in
Europe overall up 63% to GBP945 million in the quarter. In Europe, the
recovery in equity markets generally helped drive renewed sales of equity-
based products and positive client cash flow, notably in Wealth Management.
Conditions for the Retail business in continental Europe remain tough.
Overall, LTS had a positive net client cash flow of GBP0.6 billion, compared
to an outflow of GBP1.2 billion in the same quarter last year.
The issues in US Life have largely been addressed, with operational and
product risks having been brought in line with the strategic plan for this
business. Continuing improvement in the credit markets has meant that the
unrealised loss position in aggregate at the end of the quarter was $664
million, being $614 million for US Life and $50 million for Bermuda. This is
a significant improvement on the aggregate unrealised loss position at the
end of December last year of $2.6 billion.
US Asset Management funds under management increased to over $260 billion as
at 30 September, up 5% during the quarter and up 8% from 31 December 2008 as
equity and fixed income markets improved. At Nedbank, net interest income
grew by 1.1% to R12,198 million for the nine months to 30 September 2009 and
remained flat at R4,063 million for the third quarter. Non-interest revenue
grew by 19.6% to R8,542 million year-to-date and by 45% to R3,168 million for
the quarter. The business and impairments are being tightly managed in
difficult market conditions. Net interest margins are stable. Interest rates
across all the regions in which we operate are at much lower levels than in
the comparative period last year.
Total funds under management at 30 September 2009 were GBP281 billion, an
increase of 6% since 31 December 2008, and of 10% compared to 30 September
2008. On a constant currency basis, funds under management have increased by
10% since 31 December 2008. Overall, average funds under management levels
for the 2009 year-to-date are still some 1% below average 2008 levels. In the
year-to-date, the economic realities faced by our corporate customers and
private individuals in a number of our markets resulted in an increase in
surrenders of policies to fund redundancies and their cash needs. We believe
that this increase in surrenders is temporary. In aggregate across all of our
businesses, the effect of this has been a small net client cash outflow of
GBP0.5 billion in the quarter, and GBP0.3 billion in the year-to-date.
We have continued to simplify the structure and portfolio of businesses in
the Group in line with our five strategic priorities. We sold Skandia`s
Chilean business, and, since the end of the quarter, have announced the
completion of the sale of Bankhall. On 14 October 2009, we announced our firm
intention to make an offer to acquire the balance of the ordinary shares in
Mutual & Federal. On 19 October 2009, the Board of Mutual & Federal confirmed
their intention to vote in favour of the offer in respect of directors` own
shareholdings in Mutual & Federal and their recommendation that Mutual &
Federal shareholders should do likewise. Subject to approval by Mutual &
Federal shareholders on 23 November 2009, we expect the transaction to
complete before the end of the year. Full ownership of Mutual & Federal will
allow us to leverage additional capabilities across the Group`s African
operations.
Capital and Liquidity
Our capital position has further improved, with a pro-forma Financial Groups
Directive ("FGD") surplus at 30 September 2009 of GBP1.4 billion, compared to
GBP1.0 billion at 30 June 2009. The increase is attributable to the
improvements of equity markets in the period, the strengthening of the rand
and the earnings achieved in the quarter. All our individual businesses
remain well capitalised.
We remain committed to supporting the US Life Risk Based Capital ("RBC")
ratio at around 300%. Although the unrealised loss position has improved
during the quarter, statutory capital is affected by impairments and credit
rating migration. To maintain the target RBC ratio, we expect to make a cash
injection into the business in early 2010, as we did at the beginning of this
year. The amount of the injection will depend on a wide range of factors,
including possible changes to NAIC accounting rules that are under
consideration. Our expectation currently is that this injection will be at
the lower end of the range of $200 million to $300 million previously
indicated.
Since the end of the quarter, we have successfully placed a GBP500 million
seven-year 7.125% fixed rate senior bond. This debt issue will provide
increased financial flexibility, meet the maturing Euro note facility of
Euro100 million due at the end of 2009, enable partial repayment of the
revolving credit facility and provide greater liquidity at the holding
company level. At the end of October, after the proceeds of the debt issue
were received, the Group had cash and access to committed facilities of
GBP1.3 billion.
LONG-TERM SAVINGS: Emerging Markets (South Africa, Rest of Africa, Asia,
Latin America)
Q3 sales maintained despite slowing economy
Sales
Emerging Markets life sales for the quarter increased by 6% relative to the
third quarter of 2008, to GBP104 million from GBP98 million. On a rand basis,
they showed a decline of 5% (excluding Nedlife from the 2008 balances),
principally made up of an increase in single premium sales of 1%, offset by a
decline in life recurring premiums of 9% for the third quarter 2009 compared
to the third quarter of 2008.
Recurring premium protection product sales increased by 15% in both the
Retail Mass and Corporate segments for the quarter. In Retail Mass this was
attributable to its enlarged sales force, and in Corporate this was driven by
improved Group Assurance product sales. In the savings market, sales of
recurring premium products in the quarter are 30% and 10% below the
comparable period in 2008 in OMSA`s Retail Affluent and Retail Mass segments
respectively. Clients are still reluctant to commit to long-term products in
the current economic environment, and intermediaries are still adjusting to
the new commission regulations introduced at the beginning of the year.
In the single premium market, there was an increase in Retail Affluent of 6%,
where sales have started to pick up in the second half of the year following
a price enhancement of certain products and the continued equity market
recovery. The effects of the Nedlife transactions completed in the first half
have been removed from the year-to-date and comparative data.
The excellent growth in Emerging Markets unit trust sales, up 30%, was driven
by strong money market inflows, as well as the inclusion of Futuregrowth unit
trusts in the OMIGSA range during the year. OMSA money market rates were also
very competitive for most of the period.
Our joint ventures in China (Skandia:BSAM) and India (Kotak Mahindra Old
Mutual Life Insurance) delivered strong performance in the quarter. Gross
written premiums in India of GBP75 million were 19% higher than the
comparative period, although year-to-date premiums of GBP193 million were 9%
lower than prior year. Gross written premiums in China of GBP23 million for
the quarter were also substantially higher than prior year and year-to-date
premiums of GBP46 million were twice the volume of the prior year. The
business in India is benefiting from its focus on enhancing efficiencies, and
changes in distribution channel management in China are starting to show
positive results.
Client cash flow
During the quarter there was a net outflow due to higher benefit payments in
the corporate segment despite the recovery in equity markets. OMIGSA net
flows were also lower than the prior year due to a net outflow from
Futuregrowth and higher benefit payments. We see this as an industry-wide
trend as corporates withdraw benefits as a result of job losses in the
corporate sector. There were higher net inflows in Latin America due to
strong unit trust sales, higher net flows in the Retail Affluent segment and
a greater focus on business retention and continuing growth in the Retail
Mass segment. Net client cash flow for the year-to-date in South Africa,
excluding the previously announced net outflow of R16.2 billion of funds
formerly managed for the Public Investment Corporation of South Africa, is
slightly below that of the same period in 2008.
Funds under Management and Investment Management
Funds under management in Emerging Markets were R462 billion, up R27 billion
in the quarter, the negative net client cash flow being offset by the
recovery in equity markets and the acquisition of ACSIS.
The OMIGSA boutique structure has been fully bedded down and the merger of
the OMIGSA Fixed Income and Futuregrowth teams has been completed. We have
set strong foundations in place over the past two years and are seeing
improving levels of acceptance and confidence in individual boutique
investment philosophies and processes. A number of the OMIGSA boutiques are
well positioned to benefit from the equity market recovery, which has been
driven primarily in the more cyclical, less defensive sectors. As a result,
investment performance over the last six months has improved.
Outlook
While there are signs of economic recovery, as evidenced by the slowdown in
the contraction of the economy, we expect restoration of consumer confidence
to lag behind technical economic recovery by a few months. Despite the
challenging trading environment, the South African business has continued to
invest in its distribution capability and is well positioned to benefit from
a recovery in consumer confidence. Economic conditions in Latin America
improved during the quarter and our priority is to enhance the efficiency of
our financial planner sales force while selectively exploring third party
channels, including cross-sale opportunities into the corporate base. During
the third quarter we sold Skandia Chile, but retained distribution agreements
for our investment products in the country.
LONG-TERM SAVINGS: Wealth Management (UK, Italy, France, Spain,
International)
Improving market conditions supporting sales
Sales
The continued recovery in the markets saw a movement back into equities,
which helped drive sales growth during the period, notably in the UK where
quarterly sales of covered and non-covered business were at their highest
level since the second quarter of 2008. Our businesses in the UK and Italy
achieved strong sales despite the traditional slowdown during the summer
holiday season. UK APE sales and mutual funds gross premiums for the quarter
were up 6% and 53% respectively on the third quarter of 2008 as a result of
strengthened distributor relationships. In the UK, platform sales increased
further on the back of improved equity markets and our enhanced promotional
activity in the quarter. We have announced a reorganisation of our UK sales
effort designed to further enhance the service we provide to IFAs, and
improve efficiency. Italian covered business APE sales were 116% higher than
Q3 last year. The International business continued to find the markets
challenging, particularly in single premiums. In France, sales were at a
similar level to the previous quarter.
Client cash flow
The increase in sales, a large proportion of them single premiums, coupled
with stabilising persistency, has supported net client cash flow growth in
the quarter, which was equivalent to 7% of opening funds under management on
an annualised basis. Net client cash flow has been particularly strong in
our UK and Continental European businesses.
Surrender activity was below the levels seen during the equivalent period in
2008. Surrender rates show a stabilising trend, reflecting the impact of our
persistency programmes, coupled with improving market sentiment.
Funds under management and Investment Management
Funds under management, 15% above December 2008 levels and 16% above the half-
year position, benefited from net client inflows as well as sustained growth
in equity markets. We have started to see a gradual return to equities from
cash and fixed interest funds as investors adjust their risk appetites. At
the quarter-end, 8% of Wealth Management`s total funds under management were
invested in Skandia Investment Group funds (Q3 2008: 9%).
Outlook
Our outlook is cautiously optimistic on the basis of improving sentiment and
continued equity market recoveries. If current trends continue, we expect to
see further improvements in sales and persistency. We believe that the work
we have done to provide innovative products to meet market needs has
positioned us well for a recovery in our markets. We also expect to benefit
from changing competitor landscapes in France and Italy, while there are a
number of business development activities underway aimed at further sales
growth.
Improved rebate negotiations, a shift away from cash towards other asset
classes and higher funds under management are expected to improve income in
due course. At the same time, we continue to focus on reducing expense levels
in all our businesses as we migrate our business model towards the less
capital-intensive platform business.
LONG-TERM SAVINGS: Nordic
Continued strong net client cash flow and strengthened relations with
distributors
Sales
During the third quarter, the positive trend in new sales continued, up 5%
compared to the same period last year, and for the year-to-date this was up
18%. The main driver was the successful Skandia Depa product sold through
SkandiaBanken direct sales, the internal advisory channel and brokers.
However, during the period there was a softening in growth in the Swedish
corporate sector, caused by redundancies as a consequence of the economic
downturn.
Client cash flow
Net client cash flow was strong during the first nine months of the year at
SEK8.3 billion, equivalent to 12% of opening funds under management on an
annualised basis. This was up 80% year-to-date and up 67% for the quarter
compared to the equivalent periods in 2008. The positive performance was
largely driven by a combination of strong Life sales, lower outflows related
to maturities and surrenders as well as positive flows in mutual funds.
Funds under management and Investment Management
Funds under management at 30 September 2009 were SEK116 billion (GBP10.4
billion), up 26% from the level at 31 December 2008, and up 9% from 30 June
2009. The increase was mainly due to strong net client cash flow and improved
equity markets.
SkandiaBanken
Lending growth in SkandiaBanken continued in the quarter, with generally
higher market activity in Sweden, although in Norway it declined as a result
of management applying more cautious liquidity limits. Deposits have
increased compared to the end of 2008 mainly due to new high interest
accounts and SkandiaBanken Norway enjoying higher guarantees as it is now
included in the Norwegian Bank Guarantee Fund. Reduced spreads continued to
affect the net interest margin.
Outlook
The focus over the balance of this year and into early 2010 will be to
address changes in commission structure, stopping the sale of unprofitable
products, improving underwriting conditions and pricing of our healthcare
products, and continued cost control. We expect all of these to have a
positive impact on margins for 2010.
LONG-TERM SAVINGS: European Retail (Poland, Germany, Austria and Switzerland)
Strong net client cash flow while sales conditions remain subdued
Sales
APE sales on covered business were Euro16 million for the quarter (Euro23
million for Q3 2008), while mutual fund sales reached Euro9 million for the
quarter (Euro13 million for Q3 2008). Consumer confidence in our European
retail markets continues to be impacted by the economic conditions of the
preceding quarters. Sales levels for the period continued to be well below
those of the comparable period in 2008, although Germany saw a small uplift,
most notably in regular premium products.
Client cash flow
Persistency remained strong, owing to proactive and reactive retention
programmes. The stability of our regular premium businesses resulted in good
net client cash flow of nearly Euro0.2 billion in Q3 despite market
conditions, the same as in Q3 2008, reaching over Euro0.4 billion for the
year-to-date. Annualised net client cash flow were above the 10% mark of
opening funds under management.
Funds under management and Investment Management
Funds under management nearly reached Euro4.5 billion, which represents an
increase of 21% compared to 31 December 2008 and growth of 8% compared to the
end of the third quarter last year, reflecting good investment performance of
our equity-weighted portfolios.
Outlook
We expect sales growth in our European Retail businesses in the fourth
quarter as business development measures take effect, although external
market conditions are still difficult to predict.
The European Retail business now operates under a new management structure,
and is working to achieve the planned benefits of the Long-Term Savings
model. We are aligning our products and structure in order to drive growth,
efficiencies and scale gains, and in addition improve capital management.
LONG-TERM SAVINGS: US Life
Continued progress in profitability and risk management
Management has made significant strides in addressing the three core risks in
this business - operational efficiency and cost control; product and
assumption risk; and the ongoing effort to de-risk the company`s fixed income
investment portfolio. Specifically, a near 50% operational efficiency gain
has been achieved, including a $5 million saving per annum from a new
outsourcing agreement. Unrealised losses in the US Life business were $0.6
billion at 30 September 2009, a $1.7 billion reduction in the portfolio`s
unrealised loss position from $2.3 billion at 31 December 2008.
Sales
Total gross sales for the third quarter were $203 million and $623 million
for the year-to-date. Fixed indexed annuity sales with attractive margins, a
key product line, were $146 million for the quarter and $421 million year-to-
date, contributing 52% of total APE for the first nine months of 2009. This
product line meets the needs of customers who seek fixed interest guarantees
during times of market volatility and economic instability. Immediate annuity
sales (which do not include any life-contingent products) remain an important
offering as they contribute to capital in the year of sale, and were $49
million for the quarter and $138 million for the first nine months of 2009.
Controlling sales volume and capital usage via our product offering, we have
maintained our core distribution relationships and the value of the reshaped
business.
Client cash flow
As expected, there was a small negative client cash flow in the quarter of
$0.4 billion. Together with the improving US economy, our conservation
initiatives have reduced policyholder termination activity. In the third
quarter, surrender experience was markedly down from average first-half
levels, and was in line with long-term assumptions. Index Annuity
policyholders are expected to benefit in the near term from participation in
recent equity market performance and this should assist in maintaining
persistency.
Funds under management and Investment Management
Funds under management ended the period at $16.9 billion, up 7% from the end
of H1 2009, primarily due to a $1.0 billion increase in the market value
(approximately 6%) of the investment portfolio in the third quarter.
Potential higher risk-based capital charges, from credit rating migration of
the portfolio due to investment downgrades, have been extensively modelled.
Migration risk is closely monitored and requires a case-by-case analysis
rather than a broad sector-based approach. As expected, credit rating
migration in the quarter mainly took place within the corporate bond and
structured security portfolio. Impairments for the third quarter were $41
million (Impairments for the four previous quarters were as follows: Q3 2008:
$367 million; Q4 2008: $209 million; Q1 2009: $12 million; Q2 2009: $187
million), included in this there was a default of $8 million, the first
default this year. Overall, net unrealised losses decreased by $1,031 million
for the quarter.
Assets and liabilities remain within our duration-matching tolerances and our
cash flow projections demonstrate our ability to meet future obligations
under expected scenarios without the need for early sales of assets. Given
the improvement in the bond market and our surrender experience, we have now
commenced selective and carefully monitored investment of our cash balances.
This is spread across highly liquid and highly rated credit classes. General
account cash and short term investments at the end of the third quarter were
$841 million.
Outlook
During 2009, we have tightly managed overall sales volumes on a capital
utilisation basis, with the full year expected to be in the region of $800
million. We expect 2010 sales levels to show an increase on 2009 levels, but
within the parameters we have set down for the business. We remain on target
to achieve our expense goals for 2009, which should also lower the expense
base for future years.
Nedbank Group (Nedbank)
Tightly managed in tough markets
The full text of Nedbank`s business update for the nine months ended 30
September 2009, released today, can be accessed on Nedbank`s website:
http://www.nedbankgroup.co.za
The South African domestic recovery is expected to lag international
economies and global markets, with consumer spending remaining slow and
confidence weak. Uncertainty about potential job losses and property prices,
as well as the effect of increases in domestic utility costs, continue to
restrict consumer spending. As local conditions stabilise and confidence
builds, the lower interest rate environment and improved consumer debt-
servicing ability should see a slow improvement in household credit demand.
Local banking institutions have also started to ease lending criteria where
appropriate.
Similarly, with businesses remaining cautious, corporate credit demand and
private sector capital investment have continued to contract, albeit at a
slower rate. The level of planned public sector infrastructure spending
remains encouraging and should provide support for modest GDP growth in 2010,
although the main impetus is likely to be from the recovery in the global
economic environment.
Net interest income grew by 1.1% to R12,198 million for the nine months ended
September 2009 (Q3 2008: R12,069 million), and remained flat at R4,063
million for Q3, compared to the third quarter of 2008. The net interest
margin reduced from 3.44% for the six months ended June 2009 to 3.40% for the
Q3 2009 period (Q3 2008: 3.75%). This reduction can be attributed mainly to
non-repricing current and savings accounts as average interest rates for the
period have been lower than the comparative period, as well as the effect of
lower endowment on capital. These were partially offset by ongoing advances
in pricing initiatives which will take some time to filter through to the net
interest margin.
Nedbank`s credit loss ratio improved from 1.57% for the six months to June
2009 to 1.48% for the Q3 2009 period (Q3 2008: 1.02%), driven largely by
improvements in the wholesale banking areas. Although no large corporate
defaults were experienced in the quarter, we remain vigilant to credit risk
in the wholesale banking businesses while recessionary operating conditions
persist. Caution remains appropriate given the propensity for further
insolvencies which may follow the recession. Trends in retail impairments
remain volatile.
Non-interest revenue (NIR) grew by 19.6% to R8,542 million for the year-to-
date (Q3 2008: R7,141 million), and by 45% to R3,168 million for Q3, compared
to the third quarter of 2008. This growth includes the consolidation of the
Bancassurance & Wealth joint ventures with Old Mutual with effect from June
2009. Like-for-like NIR growth for the nine months was 14.4%, and 38% for the
quarter, driven by trading income, private equity income, electronic banking
fees, cash handling volumes and increases in commission and fee income.
Expenses remain tightly controlled, despite Nedbank continuing to invest for
the future. Underlying inflation in the South African economy is currently at
6.4% and the Nedlife acquisition has brought in higher cost/income business.
Nedbank remains focused on the South African domestic market and 91% of its
assets are based there. Total assets at 30 September 2009 decreased by 0.4%
(annualised) from December 2008 to R565 billion. The 11.7% increase in
average interest-earning banking assets for the quarter (Q3 2008: 23.1%) was
offset by a decrease in trading assets. Advances in the quarter grew by 2.8%
(annualised) to R443 billion and growth is expected to remain modest across
most of the banking asset classes.
The bank`s funding and liquidity remain strong. During September 2009,
Nedbank successfully placed R5.4 billion of JSE-listed unsecured notes,
thereby further diversifying and lengthening its funding maturity profile.
The economic environment is likely to remain weak for the balance of the
year. In this tough climate consumers and corporates are likely to remain
under pressure, which is expected to impact on transaction volumes and asset
growth. The credit loss ratio is expected to continue to improve slowly, as
affordability improves and impairments slow.
Earnings forecasts remain within the ranges communicated at the interim
stage, but being closer to the financial year end Nedbank has narrowed these
ranges. Nedbank diluted headline earnings per share and diluted earnings per
share for 2009 are currently expected to be between 25% and 35% lower than
the 1,401 cents per share and 1,558 cents per share respectively reported for
the comparative period to December 2008.
Nedbank continues to be cautious about prospects and its forecasts for the
rest of the year.
Following the completion of the Nedlife, BoE and Fairbairn Private Bank
transactions the Group`s shareholding in Nedbank at 30 September 2009 was
55%.
Mutual & Federal
Difficult trading conditions
Mutual & Federal`s trading update for the nine months ended 30 September
2009, released today, can be accessed on Mutual & Federal`s website:
http://www.mf.co.za
Trading conditions in the third quarter of 2009 continued to reflect the
difficult economic conditions in South Africa, which have resulted in subdued
levels of consumer expenditure.
As a result of these pressures, there was a marginal 2% decline in premiums,
both for the third quarter 2009 compared to the third quarter 2008, and for
2009 year-to-date compared to 2008 year-to-date, in the corporate, commercial
and conventional personal portfolios. Premiums within the personal group
schemes portfolio declined by approximately 40% for the year-to-date due to
the cancellation of a number of unprofitable schemes during 2008.
Investment returns for the nine months have been most satisfactory following
the adverse experience of 2008. Although interest rates have fallen to low
levels, returns on equity shares have been highly positive in line with
improvements in international equity markets and this has positively impacted
both profitability and solvency.
US Asset Management
Recovery in funds under management
At 30 September 2009 funds under management were $260.3 billion, up 5% from
30 June 2009, and 8% from 31 December 2008, as equity and fixed income
markets continued to rally. Net client cash outflow for the quarter was $1.2
billion. Negative outflows at Acadian, Dwight and Rogge were offset by
positive flows generated by Barrow Hanley, Heitman and Campbell.
Despite the difficult economic environment of the last 12 months, long-term
investment performance of our member firms remains strong. At 30 September
2009, 58% of assets had outperformed their benchmarks over the trailing three-
year period and 53% of assets were ranked above the median of their peer
group over the trailing three-year period. Our bottom-up stock-picking member
firms, regardless of style, either quantitative or fundamental, have been
more challenged in this rally which has been particularly pronounced in
certain sectors and stocks.
Management fees for the quarter reflected lower average funds under
management for this period compared to the equivalent quarter in 2008.
Transaction and performance fees for the period were broadly in line with the
comparative period last year.
With capital markets having stabilised and investor confidence being
restored, improving investment performance and positioning the business to
capitalise on the market recovery continue to be key areas of focus for
management. Work continues on streamlining our retail operation, and we
remain on track to meet or exceed the annual run-rate costs savings targets
set out in the interims results announcement.
Bermuda
Run-off continues
The business is in run-off, and, as all written policies have passed their
first anniversary date, no policyholder is permitted to pay in additional
premiums. Hedge effectiveness (in respect of hedged components) stabilised at
95% as at 30 September 2009.
Management is focused on de-risking and simplifying the business, and has
already delivered significant planned reductions in the business expense
base. Overall, surrender activity remains in line with expectations.
Ultimately, surrender activity will determine the speed of run-off and the
extent and timing of any associated capital or cash release. Within the
Bermuda bond portfolio, the net unrealised loss position further improved to
$50 million as at 30 September 2009 ($118 million at 30 June 2009) as spreads
continued to narrow across key sectors. No impairments or defaults were
reported during the quarter. During the quarter the market value of the fixed
income portfolio increased by 5.5%.
Given the improvement in the capital position of the Group and the
stabilisation of the hedge effectiveness, combined with management`s improved
understanding and management systems for tracking the underlying risks, a
process of selective and progressive release of the hedge position has
commenced since the period end. This process is being conducted under strict
oversight and within risk parameters agreed with the Group Risk and Capital
Committee. The control systems in place mean that the reinstatement of
effective hedges could be made in very short order if required by the
Committee.
Material Events and Transactions
Other than as disclosed in this Interim Management Statement, there have been
no material events and transactions since 30 September 2009.
Enquiries
Investor Relations
Patrick Bowes UK +44 (0)20 7002 7440
Deward Serfontein SA +27 (0)82 810 5672
Media
Matthew Gregorowski UK / SA +44 (0)20 7002 7133
+44 (0)7748 183 834
Don Hunter (Finsbury) UK +44 (0)20 7251 3801
5 November 2009
Sponsor
Merrill Lynch South Africa (Pty) Limited
Notes to Editors:
A conference call for analysts and investors will take place at 09.30am (UK
time), 10.30am (Central European) and 11.30am (South African time) today.
Analysts and investors who wish to participate in the call should dial the
following toll-free numbers quoting conference ID 6042876:
UK (free call) 0800 028 1243
South Africa (free call) 0800 982 479
Sweden (free call) 020 795 893
US (free call) 1888 935 4575
International +44 (0)20 7806 1953
Playback (available until midnight on 18 November 2009), access code:
6042876#:
UK / Standard International +44 (0)20 7111 1244
US +1 347 366 9565
Copies of this update, together with high-resolution images and biographical
details of the Executive Directors of Old Mutual plc, are available in
electronic format to download from the Company`s website at
http://www.oldmutual.com.
This Interim Management Statement has been prepared in accordance with
section 4.3 of the Disclosure and Transparency Rules (DTR) and covers the
period 1 January to 4 November 2009. The business update is included in this
Interim Management Statement.
A Disclosure Supplement relating to the Company`s business update can be
found on our website. This contains key financial data for the first nine
months of 2009 and 2008.
Cautionary statement
This announcement has been prepared solely to provide additional information
to shareholders to assess the Group`s strategies and the potential for those
strategies to succeed. It should not be relied on by any other party or for
any other purpose.
This announcement contains forward-looking statements with respect to certain
of Old Mutual plc`s and its subsidiaries` plans and its current goals and
expectations relating to its future financial condition, performance and
results. By their nature, all forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances that are
beyond Old Mutual plc`s control, including, among other things, UK domestic
and global economic and business conditions, market-related risks such as
fluctuations in interest rates and exchange rates, policies and actions of
regulatory authorities, the impact of competition, inflation, deflation, the
timing and impact of other uncertainties or of future acquisitions or
combinations within relevant industries, as well as the impact of tax and
other legislation and other regulations in territories where Old Mutual plc
or its subsidiaries operate.
As a result, Old Mutual plc`s actual future financial condition, performance
and results may differ materially from the plans, goals and expectations set
forth in Old Mutual plc`s forward-looking statements. Old Mutual plc
undertakes no obligation to update any forward-looking statements contained
in this announcement or any other forward-looking statements that it may
make.
Date: 05/11/2009 09:00:06 Produced by the JSE SENS Department.
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