DAVE MACREADY ON OLD MU­TUAL’S GROWTH PLANS

Dave Macready, chief ex­ec­u­tive of Old Mu­tual South Africa, dis­cusses the group’s out­look in a tough eco­nomic cli­mate and how the gov­ern­ment-busi­ness con­ver­sa­tion about steer­ing SA in the right di­rec­tion is shap­ing up.

Finweek English Edition - - FRONT PAGE - By Buhle Nd­weni ed­i­to­rial@fin­week.co.za

ayear into his new job as chief ex­ec­u­tive of Old Mu­tual South Africa (OMSA), Dave Macready be­lieves the group’s lo­cal busi­ness is in the “best shape it’s been for a long time”.

Fi­nan­cial ser­vices group Old Mu­tual moved its pri­mary listing to Lon­don in 1999, a de­ci­sion that has been the source of much crit­i­cism over the years as the group con­tin­ued to earn the bulk of its prof­its in South Africa, while its debt and ex­pen­sive group head of­fice costs were in Lon­don. In ad­di­tion, Old Mu­tual re­ports its re­sults in pounds, while earn­ing the bulk of its prof­its in rand. The con­sis­tently weak­en­ing cur­rency is cur­rently 102% lower against the pound than five years ago.

An­other fac­tor that weighed on in­vestor sen­ti­ment in re­cent years was Old Mu­tual’s seem­ingly scat­tered fo­cus on emerg­ing and de­vel­oped mar­kets, with a num­ber of ac­qui­si­tions that failed to bear fruit. Ri­val San­lam, by com­par­i­son, largely re­mained fo­cused on emerg­ing mar­kets, re­sult­ing in a for­mi­da­ble busi­ness foot­print on the con­ti­nent.

New group CEO Bruce Hem­phill’s plan is to split the group into four sep­a­rate busi­nesses: Old Mu­tual Emerg­ing Mar­kets, which fo­cuses on sav­ings, in­vest­ments and in­sur­ance; Old Mu­tual Wealth, a wealth man­ager based in the UK; Old Mu­tual As­set Man­age­ment (OMAM), based in the US; and Ned­bank, in which it owns the ma­jor­ity stake. In the 2015 fi­nan­cial year, the Ned­bank stake was the ma­jor con­trib­u­tor to group op­er­at­ing prof­its. (Old Mu­tual plc has re­port­edly been ap­proached by pos­si­ble buy­ers for its stake in OMAM, in which it holds more than 60%. The group said they are look­ing at all avail­able op­tions.)

The pro­posed split aims to give the sep­a­rate busi­nesses eas­ier ac­cess to cap­i­tal mar­kets for their fund­ing needs, sim­plify their reg­u­la­tory obli­ga­tions, make it eas­ier for the mar­ket to value the sep­a­rate op­er­a­tions ap­pro­pri­ately and save costs.

Strat­egy

En­sur­ing that the South African buis­ness stays strong and keeps grow­ing as a mar­ket leader drives Macready’s strat­egy. His fo­cus is on en­hanc­ing cus­tomer ser­vice through an omni-channel ap­proach (in­clud­ing dig­i­tal, face-to-face and tele­phonic ser­vices), while con­sol­i­dat­ing the group’s ex­ten­sive branch foot­print. And like its peers in the in­dus­try, Old Mu­tual recog­nises the un­tapped potential that lies in the middle-in­come mar­ket, es­pe­cially the black middle class.

“One of the rea­sons we have fo­cused on the black mid­dlein­come mar­ket is that our brand and our propo­si­tion res­onate with the as­pi­ra­tions of this seg­ment, par­tic­u­larly black pro­fes­sion­als and the youth,” Macready says.

The group also hopes to ben­e­fit from the up­ward mo­bil­ity of lower-in­come earn­ers, where it en­joys sub­stan­tial mar­ket share. “We are a big player cur­rently in the mass mar­ket, which is grow­ing quickly, and we need to fol­low our cus­tomers and re­main rel­e­vant to them as they mi­grate through mass into the

New group CEO Bruce Hem­phill’s plan is to split the group into four sep­a­rate busi­nesses.

middle-in­come mar­ket. We be­lieve we re­ally have an ad­van­tage here which will en­able us to com­pete suc­cess­fully in the middle-in­come mar­ket,” he ex­plains.

Uli­mately, a win­ning strat­egy boils down to hav­ing great peo­ple on board, Macready says. “Be­ing the mar­ket leader in the fu­ture will de­pend on win­ning the war for tal­ent by be­ing a great place to work.”

Out­look for SA

De­spite solid 2015 re­sults, eco­nomic uncer­tainty and in­creas­ing po­lit­i­cal risk in SA may dent the out­look for the group. Eco­nomic growth is fore­cast to to­tal only 0.6% this year, ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund (IMF), and in­ter­est rates are ex­pected to rise by at least an­other 50 ba­sis points by year-end. This will put fur­ther pres­sure on house­holds al­ready bat­tling higher food and fuel prices, driven in part by a volatile and weak rand. In ad­di­tion, it remains likely that the coun­try’s sov­er­eign credit rat­ing will be down­graded to junk be­fore the end of the year, which will also im­pact on the credit rat­ings of fi­nan­cial ser­vices in­sti­tu­tions, no­tably banks, which can­not have a higher rat­ing than the sov­er­eign.

These is­sues do not only af­fect busi­ness, but also or­di­nary South Africans. “We talk about it as if it’s a busi­ness thing or a gov­ern­ment thing, but the real im­pact is in­evitably felt by all South Africans. Poor ed­u­ca­tion, steep in­come in­equal­ity, in­fla­tion of ba­sic food items, trans­port and util­ity costs, and low op­por­tu­ni­ties for em­ploy­ment are the real is­sues that af­fect all of us,” he says.

Macready be­lieves all fi­nan­cial ser­vices com­pa­nies need to pre­pare for the in­evitable strain on clients’ fi­nan­cial health. “Be­cause of fi­nan­cial pres­sures, we can ex­pect more peo­ple to find it dif­fi­cult to keep up to date with poli­cies, pay off their ex­ist­ing debts or con­tinue their sav­ings, and as a re­sult maybe take on new loans that they can­not nec­es­sar­ily af­ford. We try to ad­dress some of these is­sues with our fi­nan­cial ed­u­ca­tion pro­grammes and we em­pha­sise the value of ex­pert ad­vice and proper money man­age­ment. Lack of sav­ing in SA is a big con­cern for ev­ery­one and we re­ally need to do what we can to im­prove our na­tional sav­ings cul­ture as a key pri­or­ity.”

But these chal­lenges can­not be tack­led alone, says Macready. It is es­sen­tial that both the pri­vate and pub­lic sec­tors as well as labour and civil so­ci­ety as a whole, ac­tively en­gage and col­lab­o­rate with each other to find so­lu­tions to help de­velop a sus­tain­able, in­clu­sive and grow­ing econ­omy.

“There are con­struc­tive con­ver­sa­tions hap­pen­ing at the mo­ment. And there’s a real de­sire – and it’s not just talk – to work to­gether with a common frame­work to make SA stronger and more com­pet­i­tive,” he says. “I think the lead­er­ship shown by fi­nance min­is­ter Pravin Gord­han and the Re­serve Bank gover­nor Le­setja Kganyago at the mo­ment is in­cred­i­ble in terms of how they are steer­ing the ship and mould­ing some of the im­por­tant con­ver­sa­tions.”

Dave Macready Chief ex­ec­u­tive of Old Mu­tual South Africa

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