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.
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.
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