Hitches in Old Mutual’s breakup

UK probe upsets timetable

OLD MUTUAL reported a 9 percent drop in first-half adjusted operating profit to £708 million (R12 billion) as the company reported that its plan to break up its businesses into four units could be delayed. The company said an investigation into its affairs by the Britain Financial Conduct Authority (FCA) could push the plans back by months.

It said although the company remained committed to completing the process by the end of 2018, the FCA investigation had opened a possibility that the unbundling could take much longer than anticipated.

In March, Old Mutual announced that it would break its businesses into Nedbank, Old Mutual Asset Management, emerging markets and Old Mutual Wealth.

The FCA placed Old Mutual Wealth and five other insurance firms under investigation earlier this year over the treatment of long-time insurance customers.

Chief executive Bruce Hemphill said the probe could affect the value of the wealth business if it required Old Mutual to compensate customers. “These things take time… it is theoretically possible that it could impact (the breakup timetable),” Hemphill said. Old Mutual Wealth is valued at about £3bn by analysts.

Important results

Nico Smuts, an analyst at 36ONE Asset Management, said the results were important as they were the first opportunity for Old Mutual to show the market the progress it had made on the managed separation process that was initiated earlier this year.

Smuts said the market expected the restructuring of the London head office headcount to be cut by half by the end of the year. He said the the process was likely to be completed by the end of 2018.

“From an operational perspective the results were disappointing across all key business units, except Nedbank, which reported earnings last week,” Smuts said.

“In Old Mutual Emerging Markets, poor claims were experienced and at Mutual & Federal exacerbated an already tough macro-environment. Old Mutual Wealth in the UK was hit by the triple headwinds of a Brexit-related slowdown in retail investment flows, a onceoff hit due to fee reductions and persistently high IT costs. Old Mutual Asset Management in the US suffered net outflows while margins contracted.”

The group said headline earnings per share (net of tax) decreased to 6.2 pence per share, down from 7.4p per share in 2015. It declared an interim dividend of 2.67p per share, which it said would be paid at the end of October.

Old Mutual’s emerging markets chief executive Ralph Mupita said the Brexit vote to leave the EU had a negative impact on the company’s British businesses.

The company also blamed higher-than-anticipated claims in death and disability claims and volatile bond markets for the slump in its operating profits.

Drop in the share price on the JSE yesterday

The results for the six months to end-June also saw total revenue declining to £7.6bn, down from £8bn reported in 2015. However, profit attributable to equity holders grew to £284m up from £260m.

“Our decline to profits was mainly due to increased claims in the South African corporate business and property and casualty, as well as the interest on the additional debt issued in the second half of 2015. These two particularly have taken the shine from our profits,” Mupita said.

Old Mutual shares fell by 5.66 percent in early trade on the JSE yesterday to R36.67 per share. The shares eventually closed 4.32 percent down at R37.19. Additional reporting by Reuters