Is Old Mutual out of the woods yet?

ALEC HOGG: Joining us now from London is the chief executive of Old Mutual plc, Julian Roberts. Julian, you might remember when you were last with us in the studio, we spoke after the discussion. It was a tough time for Old Mutual and you said, no, you enjoyed it, because when you were at a younger age and the sport you enjoyed was rugby, and you used to play full-back, you liked it because when the ball came on to you and the pressure was around you, you seemed to perform better. Well, you seem to have got the listing ship back on track.

JULIAN ROBERTS: Well, we are making good progress.

ALEC HOGG: This update today, the interim management statement - it was somewhat disappointing to the market in London at least, your share coming back a little.

JULIAN ROBERTS: Yes. It's quite odd. This market is a very odd market. The view of the analysts and the commentators we've spoken to - really very upbeat about the results. And then I look at my Bloomberg screen and I see our price is down. You'll probably find it goes rocketing up again tomorrow. But generally the results have been very well received.

ALEC HOGG: The problem always was - to the sceptics, anyway - that your corporate bond portfolio that you had in the US was a danger to you, that that might have got into trouble. I see that the unrealised loss there has reduced substantially.

JULIAN ROBERTS: Yes. The US business is performing - well, I don't get as many sleepless nights as I used to, should I say. The bond portfolio has improved dramatically. We have reshaped the business, the business that we are writing is being written at a proper return, and we are managing that bond portfolio pretty actively to get it in the positive territory.

ALEC HOGG: Are you out of the woods yet?

JULIAN ROBERTS: Look, I think overall, when we would have spoken, our capital position was under threat, our liquidity was under threat. We announced today that the surplus capital - that's the capital over the regulatory requirement - is at £1.4bn. Our target used to be £750m, so pretty well double that; and we've got surplus liquidity now of £1.3bn. So we are in much better shape. And I think what is pleasing as well is it isn't just about capital and liquidity. Our trading, particularly in the UK, has outperformed the competition here. I've said a lot in the past that our platform business is the right business in the market for the future. OK, it's only one quarter, but it's pleasing when it's showing the right signs.

ALEC HOGG: You are doing well on the unit trust side, selling a lot of new unit trusts. Globally, though, there seems to be a trend away from unit trusts to exchange-traded funds. They outperform unit trusts generally and they are also cheaper. What is it that is giving you an edge?

JULIAN ROBERTS: Well, I think overall - it's interesting that you pick that difference. The main difference that a company like ours has is that people now are not always going into a life-wrapper - they are quite happy, because of the gradual erosion of investments in pensions, to go into unit trusts. I think as well as that people are quite happy with an element of ETFs, but still prefer to be in the more solid unit trusts.

ALEC HOGG: So more actively managed, even though they do underperform? I suppose that message hasn't got through to anyone yet as strongly as it should have.

JULIAN ROBERTS: Well, again Alec, I would turn around - if you look at the model that we've got in Europe, it's very much an open-architecture model. So therefore we can either guide people into what we think are the best performing, or if they believe they understand the market they can choose themselves. But we give them access into many different funds they wouldn't be able to normally get.

ALEC HOGG: What about here in South Africa? You do say you are investing in your distribution. Does that mean you are employing more sales people?

JULIAN ROBERTS: Yes, it does. We made the decision that we would carry on increasing our sales force, even during this downturn. You can say it's a gamble. We'll wait to see whether it's right or wrong, but it was based on the management's view that the recession would be relatively shallow and therefore we would boost our sales force, bring in good talented people being let go by the other institutions, so when the market does turn that would boost our sales. And part of our sales growth, I am sure, in South Africa has come from the additional people that we've added.

ALEC HOGG: Julian, on the surrenders - in other words, people who have stopped paying their monthly premiums, you do make a mention in this trading update today or management statement that there was £500m worth of net outflows on surrenders - and for the year as a whole £300m. It does seem to be accelerating. Is this a worry for you going ahead?

JULIAN ROBERTS: I have to say it is no real surprise, and I think that's what we've got to turn round and look at. You know, when you are in a recession clearly people are losing their jobs, people need to get cash, and so you would expect the level of surrenders and lapses to increase. It's very much within the estimate of what we would expect. So it is not troubling us too much.

ALEC HOGG: But is it accelerating - that's really the question? Is at accelerating or is it just a technical issue?

JULIAN ROBERTS: Actually in the first half of the year it was at a higher level than the previous year, but in fact it has slowed down somewhat in the third quarter. So it was showing a better trend in the third quarter than it had previously. And that you'd expect as South Africa gets closer to coming out of the recession.

ALEC HOGG: Julian Roberts is the chief executive of Old Mutual plc. David, you thought it was quite a good statement.

DAVID SHAPIRO: Ja, and we've seen the share price improve over the last few weeks. You can hear from Julian - he's a lot more confident, a lot more satisfied with where things are, and it's in the price.

ALEC HOGG: Well, the markets have lifted.

DAVID SHAPIRO: They have. And also, if you watch their debt, the debt improved as well. In other words, you could have bought debt at a significantly higher yield, so that's come down.

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