End of an era: Old Mutual set for split
• Group posts 22% increase in adjusted operating profit • Self-standing companies to list soon
It was the end of an era as London-listed Old Mutual reported annual results that are to be its last as Old Mutual plc before the group splits into two self-standing companies, which will be listed within the next few months.
The group, which posted a better-than-expected 22% increase in adjusted operating profit to £2bn for the year to end-December, gave no timetable for the listings of its Johannesburg-based South African and emerging markets business, Old Mutual Ltd, and its Londonbased UK wealth business, Quilter. But Old Mutual confirmed that the businesses were ready for listing and that it was on track to deliver on its promise to materially complete its managed separation process by the end of 2018.
It also disclosed that the Quilter listing would include a secondary offering of up to 9.6% of the UK group’s shares, which Old Mutual CEO Bruce Hemphill said would establish proper price discovery and expand the company’s share register.
It said the unbundling of the group’s Nedbank shares to Old Mutual Ltd shareholders would take place within six months of the listing of Old Mutual Ltd, with the group cutting its 54% of Nedbank to a “strategic” stake of 19.9%.
The increase in the group’s earnings was helped by a stronger rand — in constant currency terms, adjusted operating earnings were up 10%. Hemphill said the results demonstrated that the group had focused on improving the underlying quality of its businesses while also making progress on the managed separation. “We have three very good businesses that are in great shape and have produced fantastic results and we hope they will soon be in the hands of shareholders,” he said.
The group has sold more than £1bn of assets and repaid
about £1bn of debt at head office level over the past year, taking more than 300 steps to unwind complex intercompany arrangements in the UK.
Old Mutual finance director Ingrid Johnson said the two businesses were financially ready for independence, with high-quality capital bases.
Old Mutual Ltd CEO designate Peter Moyo said that the emerging markets business had performed well in a tough economic and competitive environment. Moyo is targeting R1bn of cost savings in the SA and emerging markets business and has defined eight “battlegrounds”, which include turning around underperforming businesses, particularly short-term insurer Old Mutual Insure.
SA’s competition authorities in 2018 approved the restructuring to create Old Mutual Ltd with a series of public interest conditions — agreed on with Economic Development Minister Ebrahim Patel — that include setting up a R500m development fund for enterprise and supplier development, as well as employment and BEE ownership commitments by the SA and emerging markets company, which will have its primary listing on the JSE.
The group’s net asset value at end-December was 242.3p per share, of which the largest portion, 100.2p, is in the emerging markets business.
However, analysts put the sum of the parts value of Old Mutual’s businesses at anything from 240p up to 316p, assuming the new listings go ahead as planned in 2018. The group’s share price, which gained 1.5% to 255p shortly after the results were announced, is still seen as being at a discount to the total sum of the parts value of the group — especially since the recent gains in Old Mutual’s share price have mainly been because of the better story in SA and resulting gains in the Nedbank share price and the rand.
“People are interested in investing in SA and can see that the perceived risk of doing business in SA is down,” Hemphill said.
Bernstein analysts described the results as “decent”, reiterating their outperform rating.