| Tue 18 Nov 2003, 10:20 | | OLD MUTUAL PLC - Trading update |
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OLD MUTUAL PLC - Trading update
OLD MUTUAL PLC
ISIN CODE: GB0007389926
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
Trading update
This announcement contains a report from the Board of Old Mutual plc (the
Company) on trading during the ten months ended 31 October 2003 and the outlook
anticipated for the year ending 31 December 2003. Nedcor Limited, the Company"s
separately JSE-listed banking subsidiary, gave a detailed update on its own
trading on 17 November 2003. The full text of Nedcor"s statement is available
on the Company"s website, www.oldmutual.com.
Old Mutual"s earnings in Sterling since the half year have been at a similar
level overall to the first half of the year, with disappointing developments at
Nedcor being offset by solid performance elsewhere. Trading has benefited from
the improvement in stock markets around the world, and early signs of a return
to stable economic conditions. The South African economy has made steady
progress and the Rand has been strong. Our embedded value per share reduced
marginally from 106p at 30 June 2003 to 105p at 31 October 2003.
Life assurance margins have started to recover after a difficult first half,
particularly in our US life business, where sales volumes were boosted by
expansion of its distribution capability and product range.
Total life sales on an Annual Premium Equivalent (APE) basis for the ten months
to 31 October 2003 were GBP410 million, compared to GBP507 million for the
equivalent period in 2002. Our US new business APE of $315 million was lower
than in the equivalent period last year ($417 million), although sales during
2003 are still expected to be the second highest annual total in the history of
Fidelity & Guaranty Life (F&G Life). In South Africa, including Old Mutual
International (OMI), new business APE at R2,700 million compared to R3,040
million in the same period last year, reflecting reduced single premium sales,
which were affected by the local stock market. This was offset by increased
market share in recurring premium sales.
Against a background of industry-wide lower volumes and margins, our life
businesses in both the USA and South Africa have launched new products to take
advantage of their local market conditions and consumer preferences. In South
Africa, retail absolute return products have been launched for risk-averse
customers. In the USA, sales of equity indexed annuity and life products have
grown strongly, as consumer confidence has returned with the recovery of equity
markets.
Overall, cash flows in our asset management businesses have been good,
stimulated by improved investment performance. In the USA, funds under
management at our US asset management business of $142.7 billion at the end of
the third quarter have benefited from rising markets and improving new business
volumes. We were successful in securing positive net fund inflows of $3.1
billion during the third quarter, reflecting our firms" diverse product
offerings, the strengthened sales force and client retention initiatives.
Margins improved gradually. South African client retention initiatives and
third party fund inflows have returned net customer cash flows into positive
territory.
Investment performance has remained good in our US institutional businesses and
has improved steadily in our US retail businesses. As announced on 13 November
2003, we have changed the management of our Pilgrim Baxter subsidiary (PBA)
after governance failures there.
In October we announced that we had reached agreement for the sale of our UK
private client stockbroking business, Gerrard, for a consideration of GBP210
million payable in cash at completion. Funds under management at this business
were GBP12.2 billion at 31 October 2003. Completion of the sale remains subject
to receipt of regulatory consents, which we expect before the end of the year.
The operating result for the period of Nedcor, our 53% owned banking subsidiary,
was adversely affected by losses on the translation of offshore assets
(reflecting Rand strength in the period), margin decline as a result of holding
long assets as interest rates declined, and a poor market for investment banking
business. Consequently its headline earnings per share for the year are now
expected to be substantially (more than 30%) lower than last year"s.
We welcome the appointment of Tom Boardman as the new Chief Executive of Nedcor
and consequently to the Old Mutual management team. We also welcome the five
point plan which Nedcor has announced to remedy its poor performance. The plan
calls for a profit recovery plan to be presented to the Nedcor board in January
(and will be presented to investors with final 2003 results in February), for a
commitment to publicly stated synergy targets for the BoE acquisition, for focus
on open and transparent culture and for improvements in customer service levels.
Early steps in this plan have been completed, including the announcement of a
new senior management structure for Nedcor.
As indicated in its trading statement yesterday, Nedcor expects to reduce its
dividend as part of its positioning for recovery and Old Mutual has agreed that
it will accept its final dividend in 2004 in scrip if Nedcor makes that offer.
We welcome the recent publication of the Financial Sector Charter in respect of
Black Economic Empowerment (BEE) in South Africa. Our South African businesses
were actively involved in the establishment of the Charter, which sets out
targets for black involvement in financial services companies, and they have
developed a balanced scorecard approach to monitor their achievement against BEE
targets.
Outlook
While there are challenges in bringing Nedcor back to target profitability, we
have confidence in the new team and the underlying strength of the Nedcor
business. Around the world, our businesses have produced good investment
performance for their customers and we have made significant investment in our
distribution capability. As a result, in an environment of improving equity
markets, we expect to be able to make progress in each of our businesses in the
coming months, and to take strategic opportunities as they become available
