| Fri 17 May 2002, 0:00 | | Old Mutual Plc - AGM Trading Statement for the fou |
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2002
Old Mutual Plc
ISIN CODE: GB0007389926
SHARE CODE: OML
ISSUER CODE: OLOML
AGM Trading Statement for the four months ended 30 April 2002
Old Mutual has made a solid start to 2002. Our embedded value has benefited
from the strengthening of the Rand since year end, whilst our operating
profits in Sterling have been held back as the average Rand:Sterling
exchange rate remains significantly below that for last year. Life new
business has been strong, particularly in the USA, but asset growth in the
USA and the UK has been flat as a result of weak equity markets.
South Africa
In the Group`s South African Life Assurance business, sales results for the
first four months of 2002 have improved significantly on the equivalent
period in 2001 when sales were slow, and are marginally up on the average
volumes for the whole of 2001. Rand profits have been a little dampened by
the impact of rising interest rates on bond values, project expenses and
flat assets under management.
The asset base of Nedcor, the Group`s 53%-owned banking subsidiary, has
grown at a satisfactory rate and its underlying profits also have remained
satisfactory. Nedcor has announced an offer for the sixth largest South
African banking group, BoE, which has been recommended by the Board of BoE.
If successful, this will considerably strengthen Nedcor`s position in the
market, and Nedcor hopes to complete the acquisition in the third quarter of
2002.
USA
In the USA, the Group`s Asset Management business has recorded positive net
fund flows - approximately $0.3 billion - and investment performance has
been good. The markets have not been positive, however, and income has been
curtailed as a result. The business is on track to reduce head office
expenditure by around $25 million for the full year. The restructuring of
Pilgrim Baxter has been completed, and although Pilgrim Baxter`s traditional
asset base has eroded, its funds sub-advised by other Old Mutual firms have
been very successful.
The value of the Group`s strategy of having both fixed interest and equity
offerings to US retail customers has been clearly shown this year, as the US
Life business has benefited from the continuing trend to fixed interest
based products, with sales of $1.2 billion for the first four months. The
fixed annuity market in the US is at an all time high, and the Group is
taking advantage of these favourable conditions while they last.
UK
Trading conditions in the UK have continued to be very difficult. The FTSE
100 Index has oscillated in a narrow range during 2002, and asset-based
revenues have been at similar levels to the second half of 2001. Gerrard -
the cornerstone of the Group`s UK business - produced a small profit during
the first four months of 2002, but revenues have historically been weighted
towards the first half of the year. OMAM(UK) has successfully launched new
funds during the first four months of 2002.
Eurobond issue and gearing
In March 2002, the Group successfully launched its debut bond in the
Eurobond market, raising _400 million. The Group`s funding requirement is
US$ denominated, and therefore the proceeds of the bond issue were swapped
into a $349 million debt liability at a fixed US$ interest rate of 6.59%
p.a. The Group`s gearing ratio has remained at a satisfactory 35%.
Outlook
The Group is well positioned in its chosen businesses within its three main
chosen geographies. It remains highly sensitive to equity market, interest
rate, and currency exchange rate levels, which, with some notable
exceptions, have generally continued to be unfavourable so far in 2002.
While these conditions persist, the Group`s operating environment will be
challenging, but the Group remains confident that its businesses are well
placed to take advantage of any improvements in markets.
Conference call:
There will be an analysts` telephone conference call with Julian Roberts,
Group Finance Director, at 10:00a.m. this morning, UK time (11:00a.m. South
African time). To participate, please dial the following toll free numbers:
UK & Europe: 00800 4444 4411
South Africa: 0800 991103
US: 1 800 482 5547
International participants from outside the above regions should dial the
following number (not toll free): +44 (0)20 8781 0577
Should you not be able to participate, a replay facility will be in place
until Friday, 24 May 2002. To activate the replay facility, dial the
following number, and quote the relevant access code:
UK, Europe & South +44 (0)20 8288 4459 Access code: 613612
Africa:
US: +1 303 804 1855 Access code: 1851456
17 May 2002
Enquiries
Old Mutual plc, London: Tel: +44 (0)20 7569 0100
Jim Sutcliffe, Group Chief Executive
Julian Roberts, Group Finance Director
James Poole, Director Investor Relations Tel: +44 (0)7768 991 096
or South Africa:
Michael Willis, Manager Investor Tel: +27 (0)21 509 5014
Relations
College Hill, London: Tel: +44 (0)20 7457 2020
Tony Friend
Nicholas Williams
or South Africa: Tel: +27 (0)11 447 3030
Robyn Hunt
Further details on operating businesses
South African Businesses
The first four months of 2002 were marked by a recovery in the Rand against
international currencies and an improving equity market in South Africa.
The Group reports its earnings by reference to the average exchange rates
prevailing during the period covered, so, despite this welcome recovery in
the Rand, there is still a material adverse variance, comparing the first
four months of 2001 and 2002. The average Rand:Sterling exchange rate for
the first four months of 2002 was R16.33: 1, compared to an average rate for
the first four months of 2001 of R11.46: 1 (a decline in the rate of 42%)
and a closing rate of R17.43: 1 at 31 December 2001. South African interest
rates have moved up 2% since the beginning of the year, and a further 1%
increase looks possible before mid-year. The benefits of tax cuts flowing
from the South African Budget will only be felt in the second half of the
year.
Life Assurance and Asset Management
The South African Life Assurance and Asset Management businesses have had a
satisfactory first four months of 2002, building on their growth in the
second half of 2001. Individual Business continued to perform well in both
single and recurring premium business, with new business APE (Annual Premium
Equivalent) of R824 million, an increase of 22% on the equivalent period in
2001, reflecting the benefits of increased salesforce productivity. Group
Business APE of R240 million is more than double the same period last year,
which Old Mutual considered a poor period. Results from bancassurance are
in line with expectations, and are ahead of the second half of 2001.
As a result of increased premiums, the value of new business of R236 million
for the first four months of 2002 is substantially better than the same
period last year. New business margins at a product level are in line with
the same period last year.
Total South African policyholder assets under management were R216 billion
at 30 April 2002, unchanged from 31 December 2001. Net client cashflow
continued to be negative for the first four months of 2002.
Operating profit, before long-term investment return, for the period was
slightly below expectations due, inter alia, to expenses associated with
implementing a new administration system in the Group Business area and
reductions in bond values following interest rate rises.
Banking
The banking market in South Africa remains highly competitive, with over-
capacity in the industry, smaller banks under increasing liquidity pressure,
the micro-lending and retailing (furniture) sectors suffering strain, and
the international banks taking market share in the corporate and investment
banking sectors.
Nedcor`s asset quality continues to show improvements, with advances growth
remaining robust. Nedcor is currently negotiating the detailed service
level agreement with Swisscard, under which Nedcor will assume
responsibility for Swisscard`s card processing operations, with completion
set for June 2002. Further European banks have expressed interest in having
discussions on processing arrangements with Nedcor. Nedcor`s joint
ventures, although at different stages of maturity, are gathering market
momentum.
Whilst Nedcor recorded Rand translation gains on its international assets in
2001, recent strong gains in the Rand have given rise to translation losses
so far in 2002.
Nedcor announced a recommended bid to acquire BoE on 22 April 2002. After
completing due diligence, Nedcor confirmed on 13 May 2002 that it would
proceed with this offer and that the consideration under the offer would be
increased to the maximum price referred to in the initial announcement. It
is anticipated that, subject to regulatory approval, the acquisition could
be completed by the end of July 2002. The potential synergies to be derived
from the proposed acquisition of BoE are exciting.
Competition Commission authority for the proposed merger of Permanent Bank
and Old Mutual Banking Services has been received. Approval from the
Minister of Finance is awaited. Implementation of this merger will add
further weight to the bancassurance initiatives between Old Mutual and
Nedcor.
General Insurance
The operating ratio of Mutual & Federal Insurance Company Limited, the
Group`s 51% owned general insurance subsidiary, remains below 100% due to
continued control of expenses. During the first four months of 2002, the
extent of the improvement in the underwriting cycle was not as pronounced as
had been expected, as surplus capacity in the market has produced
significant opposition to the rate increases required to combat higher
reinsurance costs and claims inflation due to the depreciation of the Rand
in 2001.
US Businesses
During the first four months of 2002, the S&P 500 Index decreased 6% and the
NASDAQ Composite Index declined 13%. Over this period investors have
indicated a general preference for value-styled investments, rather than
growth oriented products. The advantage of owning a spread of businesses in
the USA has again been shown by their resilience to difficult US equity
market conditions.
Asset Management
Assets managed by our US Asset Management business increased during the
first four months of 2002 from $144.6 billion, after adjusting for affiliate
divestitures, to $145.6 billion, with net fund inflows of $0.3 billion,
which include net fund inflows from Fidelity & Guaranty (F&G) of $0.7
billion.
During March 2002, Old Mutual announced that it had agreed to restructure
the residual 20% revenue-share interest of Pilgrim Baxter through the
payment of $175 million plus an earn-out over five years, if profit growth
exceeds 7.5% per annum. The restructuring consolidates Old Mutual`s
interest in the US retail asset management market.
Pilgrim Baxter recorded net fund outflows of $0.9 billion from its
traditional business, as growth managers suffered from the movement to less
volatile investment classes. Pilgrim Baxter continues to be the development
platform for the Group`s mutual fund business. During the first four months
of 2002, five new funds were taken on to this platform and sub-advised by
other firms within the Group, and these attracted assets of $0.8 billion for
these firms.
Investment performance remains strong. On the retail side, 56% of all of
the Group`s US mutual funds hold Morningstar 4 or 5 star ratings. Within
OMAM(US), where the main focus is on institutional and wrap channel assets,
performance figures over three years exceed benchmarks in 81% of cases.
Life Assurance
The fixed annuity market in the USA is significantly above its previous
peaks, benefiting from customers` current conservatism. This will vary with
economic conditions, but for now the Group has excellent opportunities in
this market. Old Mutual`s US Life businesses have performed impressively
for the first four months of 2002, with total sales of $1.2 billion
($148 million on an APE basis). This represents, on an APE basis, more than
double the sales achieved in the equivalent period in 2001, which was prior
to acquisition by Old Mutual.
The value of new business for the first four months of 2002 of $25 million,
at a margin of 17%, is a significant improvement on that of the prior year.
On a funds flow basis, the Group`s US Life businesses have attracted $1.1
billion in net policyholder cash inflow for the first four months of 2002.
Since acquisition, F&G has generated net policyholder cash inflows totalling
more than $2 billion. Total assets under management were $8.0 billion at 30
April 2002.
AM Best reaffirmed F&G`s `A` rating, and removed it from review status in
February 2002.
UK Businesses
The FTSE 100 Index at the end of April 2002 had declined 1% since 31
December 2001 and asset-based revenues have consequently been flat. Retail
market activity levels have also remained low during this period. Against
this background, Gerrard has seen some improvement in trading volumes, and
has produced a small profit in this period, which historically has produced
a disproportionate share of annual revenues. Headcount reduction
initiatives at Gerrard have continued during the first four months of 2002.
OMAM(UK) is now firmly focused on generating external UK retail funds. New
funds in excess of 100 million were attracted in the first four months,
with notable inflows into corporate bond and UK small cap funds. The
transfer of Gerrard`s unit trust business to OMAM(UK), and the associated
rationalisation of the unit trust administration function, are anticipated
to result in cost savings from 2003.
Trading at GNI has been satisfactory, with all business units contributing a
positive result.
Approval was obtained from the FSA in early May 2002 to allow life products
to be offered by Selestia. Onshore and offshore bond product launches will
expand the investment offering in line with the original business plan.
Discussions regarding the possible sale of Old Mutual Securities to Beeson
Gregory plc were terminated during April 2002. Old Mutual remains committed
to finding the appropriate means to secure Old Mutual Securities` continued
development, whether that is within Old Mutual or as part of another group.
Interim results
Old Mutual plc expects to announce its interim results for the six months
ending 30 June 2002 on 12 August 2002. It is expected that Nedcor Limited
will announce its interim results on 30 July 2002.
Forward looking statements
This announcement contains certain forward looking statements with respect
to the financial condition and results of operations of Old Mutual plc and
Group companies, which by their nature involve risk and uncertainty because
they relate to events and depend on circumstances that may occur in the
future. Factors that could cause actual results to differ materially from
those in the forward looking statements include, but are not limited to,
global, national and regional economic conditions, levels of securities
markets, interest rates, credit or other risks of lending and investment
activities, and competitive and regulatory factors.
Date: 17/05/2002 08:00:00 AM Produced by the SENS Department
