Old Mutual predicts a 20 percent drop in sales after outbreak of pandemic
OLD MUTUAL slid more than 5 percent on the JSE yesterday after the financial services group warned its half-year profits could decline by more than 20 percent as a result of the Covid-19 outbreak impacting on its sales.
Old Mutual said that it expected its headline earnings per share (Heps) and earnings per share (Eps) for the six months to end June to be more than 20 percent lower than the 128.1 cents a share and 127.3c reported respectively last year.
The group said it would publish a further guidance to shareholders once it was more certain of the range of the decreases.
“Low levels of issued sales in April and May will have a negative impact on our reported profits and value of new business (VNB) for the first half of 2020,” Old Mutual said.
“Initiatives in the form of premium holidays, discounts and deferrals of rate increases will pose further downside pressure on revenue levels.”
The group said the pandemic was likely to impact its performance in the 2020 financial year despite the gradual easing of lockdown restrictions in South Africa and other countries where it operated.
It said the risk of rising infection rates would adversely impact mortality experience while other Covid-19 related claims such as business interruption claims could impact underwriting experience negatively.
Old Mutual said issued sales in Mass and Foundation Cluster were down around 90 percent and declined by almost 50 percent in Personal Finance.
“We expect sales levels to recover subsequent to lockdown and specific management actions have been put in place to accelerate sales and greater access to customers,” the group said.
In the three months to end March, the group said results from operations (RFO) declined by 33 percent during the quarter and Life APE Sales tumbled 15 percent while funds under management (FUM) also declined 7 percent to R979.7 billion.
“The significant drop in issued sales will negatively impact reported Life APE sales in the first half of 2020, and therefore we expected this metric to be lower than the prior year as the impact of lower issued sales volumes comes through,” the group said.
Old Mutual said it expected market circumstances to place pressure on earnings in the short term.
“However, we remain confident in the strength of our cash reserves and balance sheet to withstand this volatility, ensuring we will continue to be able to deliver on our promises to customers and providing a platform to accelerate growth as economic conditions improve,” the group said.
The Old Mutual share price declined 5.15 percent on the JSE yesterday to close at R12.33.