| Mon 25 Feb 2002, 0:00 | | Old Mutual Plc - Results For The Year Ended 31 Dec |
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Chief Executive's Statement
As Chief Executive since November 2001, I am pleased to present our results for the
year ended 31 December 2001. Group smoothed operating profit1 increased 11% from
R9,585 million in 2000 to R10,601 million in 2001, but declined in Sterling by 6% from
£911 million to £856 million.
We saw positive results in 2001 from our most recent acquisition, Fidelity & Guaranty
Life, and from the re-engineering of our US asset management businesses. Our South
African businesses had a particularly good second half, and we consolidated our
dominant position in financial services there.
Despite this, we have seen a reduction in operating earnings per share1 (at 13.2p)
compared with 2000 (17.0p). Lower levels of markets in the UK and the USA, higher
taxes and the dramatic depreciation in the Rand all proved heavy burdens.
The Board has shown its confidence in the future by recommending an unchanged
final dividend of 3.1p, which will represent a substantial increase for more than half
of our shareholders when converted into Rand and other currencies of payment.
Management
In September, we re-organised the focus of our business into three principal
geographical regions, South Africa, the USA and the UK, to allow for much clearer
management responsibilities, and to recognise the differing requirements of
customers in each area. We introduced a powerful new management team focused
on these lines. We now have a team the equal of any in the world.
South Africa
The South African life business, led by Roddy Sparks, had a very successful year,
delivering operating profit of R3,085 million, representing growth in smoothed
earnings of 17%. The value of new business grew by 19% in Rand, with margins
increasing significantly to 27% as we introduced more modern products. The
Employee Benefits division had a very successful run in the second half, acquiring
some large with-profit annuity premiums. As shown at the interim results, long term
investment return reduced sharply, following the reallocation of surplus capital to
the asset management business for the purchase of United Asset Management
Corporation late in 2000.
Our 53% owned banking subsidiary, Nedcor, led by Richard Laubscher, had
another outstanding year, producing a 26% increase in headline earnings at
R3,794 million. Its underlying earnings rose 18%, with impressive levels of growth
being achieved in both its South African and international operations. Importantly,
it announced the completion of an arrangement with Swisscard to undertake
card-processing in South Africa - turning the weak Rand to advantage.
Our 51% owned general insurance business, Mutual & Federal, returned an
underwriting profit of R62 million and its operating ratio improved to 97.9%, an
enviable level compared to its peer group. During the year, it paid a further special
dividend to its shareholders, reflecting the surplus capital in the group, and it also
successfully integrated the CGU business, acquired late in 2000.
Nedcor and Old Mutual have also co-operated to develop their burgeoning
bancassurance relationship during 2001, as illustrated by the growing sales of
Old Mutual life products through Nedcor’s branches, the launch of offshore
banking through the Gerrard Private Bank joint venture, and the proposed merger
of Old Mutual Banking Services with Nedcor’s Permanent Bank.
USA
In the USA, Guy Barker and his team continued to develop our life assurance
presence by the launch of Americom Life in May 2001 and the acquisition of
Fidelity & Guaranty Life (“F&G”) with effect from 1 July 2001. We welcome them
to the Old Mutual family. They made a promising start, with F&G delivering
operating profit of $45 million (before $13 million of restructuring and acquisition
costs and $13 million of operating loss at Americom) for the part of 2001 for which
their results were consolidated. $121 million of annual premium equivalent new
business was achieved by these businesses for the second six months of 2001
(value of new business: $18m). This was ahead of expectations, as F&G benefited
from a swing towards its annuity products after September 11. Net cash inflow at
F&G reached nearly twice the level of the previous year.
In our US asset management operations, led by Scott Powers, we have finalised
our operating structure. We will operate four sets of businesses – Pilgrim Baxter,
our thriving mutual fund business, OMAM(US), our seven specialist institutional
asset managers with common marketing programmes and incentives, Old Mutual
Strategic Affiliates, a group of eleven alternative asset managers, which broaden
and deepen our style and distribution reach, and the fourth group – Old Mutual
Financial Affiliates – a small group of affiliates which will be held as financial
investments with operational autonomy. Since acquisition, we have sold fourteen
affiliates for prices in excess of our expectations at the time of acquisition,
despite the difficult market conditions.
Reported operating profit for the US asset management businesses, of $167 million
, before goodwill amortisation and tax, were creditable in the context of the difficult
market conditions which prevailed during the year. Assets under management for
businesses owned throughout the year held up very well in poor markets, and fell
just $5 billion to $150 billion, reflecting the “value” bias in the firms. Importantly,
we were able to report a net cash inflow of $4.4 billion across all our US asset
management businesses, including the F&G funds now managed by Dwight
Asset Management – a remarkable turnaround compared to prior years.
UK and rest of world
In the UK we appointed Edmond Warner to lead all of our UK businesses.
Business volumes in the private client stockbroking operations of Gerrard were
severely depressed in line with the reduced level of retail share trading across
the whole UK market, with the decline in the UK equity markets over the year
providing an inauspicious backdrop to its activities. It nevertheless achieved
a major success in integrating the overlapping regional offices of Greig Middleton
and Capel Cure Sharp and their back office functions, which are now combined in Glasgow.
Gerrard’s profit of £2 million, before integration costs of £12 million, was
disappointing, and a key challenge for the new senior management team under
Stephen Clark, announced in January 2002, will be to ensure that it delivers
in the future the greater success of which we know it to be capable.
Elsewhere, our 26% owned life assurance joint venture in India, OM Kotak
Mahindra, developed successfully during the year and now has offices in nine
locations around India.
Overall, our UK and rest of world businesses, which include the results of
Nedcor’s operations outside South Africa, our other asset management
operations around the world, our businesses in the rest of Africa and our
other businesses in the UK, produced an operating profit in 2001 of £74 million,
compared to £105 million in 2000.
Financial matters
As foreshadowed in our trading statement issued in November, we have carried
out a review of the carrying value of the goodwill acquired as part of
Gerrard Group plc and UAM, and there has been a resultant write-off of a total of
£500 million. This puts us on a firmer footing to move forward in the future.
Outlook
As an organisation that is internationalising, we shall always be affected by changing
exchange rates and, indeed, we began 2002 with the Rand at historic lows. As an
asset management and asset gathering organisation, we will likewise always be
affected by fluctuations in financial markets, but we remain confident that our
core businesses have excellent growth prospects.
The Group’s operations are well positioned for the future. We have much to do to
continue our growth in South Africa, to deliver the value potential of our US
businesses and to rebuild our profits in the UK. We are totally focused on these goals.
JIM SUTCLIFFE
Chief Executive
25 February 2002
