Old Mutual execs: quietly confident

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JOHANNESBURG - Old Mutual (JSE:OML) is coming out of a torrid period. In recognition of this, CEO Julian Roberts has recommitted the group to drive shareholder returns "otherwise the business would be better off in someone else's hands", What has been done so far to benefit shareholders?

The first action most will notice is the resumption of the dividend, although at 1.5p it is 29% lower than 2008's level.

Roberts believes the board is confident to declare a "conservative" dividend, despite the uncertainty still present in the markets. Roberts explains the board didn't want to declare a generous dividend, only to have the market turn and for management to "mess around" afterwards.

The confidence to declare a dividend is from a much better capital/liquidity position, explains Roberts. To demonstrate this he uses the group's FGD (financial groups directive) surplus capital.

The FGD surplus more than doubled to £1.5bn in 2009 (Figure 1).

Figure 1: Movement of FGD regulatory capital surplus (£bn).

Another example of a turnaround was in the US Life business, which increased its capital cover to 312% from 305% in 2008 without the need for injections from the head office. Roberts says the business will not need any injections in 2010 (read about the previous injections here).

The struggling Bermuda business has continued running down, and Financial Director Philip Broadley has produced some numbers showing the effect that business had on the financials. The exclusion of Bermuda gave a boost to all the numbers reported, except for the next outflow of clients funds (2009:£3.1bn) (Figure 2).

Figure 2: Financial overview of the group showing the effect of Bermuda's exclusion.

Excluding Bermuda boost adjusted operating profit by almost 14% and return on equity from 9% to over 11% in 2008. It is excluded as Broadley explains it is now "non core" as it is being closed.

The net outflow of funds is curious and explained away by Roberts who attributes it to South Africa's Public Investment Corporation (PIC) which reallocated funds away from Omigsa due to its new mandate. The US asset management business also saw outflows, which Roberts says was in-line with the overall industry.

Funds under management for the group still climbed almost 8% to £285bn, while the US saw a 49% jump to $261bn.

Broadley also speaks about how the group experienced a year of two halves, with a marked improvement in the second half of 2009. As an example he uses now wholly-owned subsidiary Mutual & Federal.

In the first half of 2009 Mutual & Federal posted an underwriting loss, promptly followed by a much improved surplus/profit after "management action". The full year result was a profit of R127m, 48% down on 2008 but a turnaround from the half-year loss.

All in all Roberts calls the new approach "disciplined and rock-solid". One may have left the presentation with the impression that Kuseni Dlamini is the new CEO of Old Mutual Group, as many of the group's functions and ideas are now being shifted to/sourced from South Africa.

Dlamini himself says South Africa is the group's new "global centre of excellence".

As to Roberts' plans, it will take time to see if it is working. One may notice that the consistently profitable SA operation is now taking more prominence in the group though.

Write to Chris Blaine: chris@moneyweb.co.za

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