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Old Mutual Emerging Markets’ Peter Moyo draws battle lines

As the largely-South African unit prepares for independence.

Peter Moyo, the new chief executive of Old Mutual Emerging Markets’ (OMEM), delivered fighting talk as the largely-South African unit prepares to run as an independent business.

Old Mutual, currently undergoing a managed separation, plans to list two businesses Old Mutual Limited (OML) and Old Mutual Wealth (OMW) in Johannesburg and London in 2018. OML, which Moyo will lead, is to be made up of OMEM as well as an undetermined portion of Nedbank.  

Moyo, who took the helm in June, said OMEM would “play to its strengths and fight for every inch of ground in delivering value for shareholders”.

Presenting OMEM financial results for the six months to June 30, he outlined key focus areas, termed “battlegrounds”.

OMEM battlegrounds

  • Defend SA’s share in Mass & Corporate;
  • Defend and grow in the SA Personal Finance market;
  • Improve competitiveness of the Wealth & Investment Cluster;
  • Turnaround Old Mutual Insure;
  • Turnaround East Africa business and improve ROEs across the rest of Africa;
  • Win the war for talent;
  • Refresh technology offering;
  • Cost efficiency leadership.

OMEM is widely considered a leader in the domestic mass insurance market. Being mindful of the price sensitive nature of the market, Moyo stressed the importance of defending and growing its market share by adding real value to policyholders. He said it would use technology to enhance its premium collection and financial advisor networks, and would also look to boost its persistency at an individual advisor level. It also sees opportunities to grow its lending business, while aggressively managing risk, amid the trying consumer environment.

To gain ground in the competitive high-income market, it would integrate its approach toward its insurance and investment offerings, and look to drive better investment performance.

An improvement in Old Mutual Insure, the rebranded Mutual & Federal business, was evident in the interim period. The business is said to have displayed similar “false starts” in the past but Moyo said the latest improvement is sustainable. “It is sustainable because it is based on deliberate management actions taken. It is not based on luck [and] it is not an act of god.” Such actions include remediating the unit’s book, being stricter on the quality of the book as well as actively managing the underwriting and claims processes.   

OMEM is to focus on building a high-quality property and casualty book in Kenya. It will also look to drive cost-efficiencies by taking advantage of its scale across the markets in which it operates.

OMEM reported a 37% increase in its interim adjusted operating profit to £362 million. Parent company, Old Mutual’s pre-tax adjusted operating profit rose 34% to £989 million. Its performance was buoyed by a 25% decline in the average sterling/rand exchange rate and a reduction in debt as it prepares to breakup. It increased its dividend by 32% to 3.53 pence per share.

Each of the businesses to be spun out of the group, are expected to deliver higher returns to shareholders partly as the annual £95 million cost associated with running a central head office fall away.  

Adrian Cloete, a portfolio manager at PSG Wealth, said Old Mutual is currently trading at a discount of around 10% to its net asset value of 220.1 pence per share. Its South African competitors Sanlam and Discovery, whose businesses are also proving resilient amid challenging conditions, are currently at premiums of 27% and 75% to respective embedded values.

Unlike Old Mutual, both Sanlam and Discovery declare their embedded value, which is a measure of a life insurer’s present value of future profits and adjusted net asset value. “OMEM is a very good business with good exposure to the low-income market, it is also a highly cash generative business. OML [when listed], should trade at quite an attractive valuation, it should trade at above embedded value but not to the same extent as Sanlam initially,” he said.   

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Peter Moyo my friend, be very careful: When last did you study Old Mutual’s biggest blunders?

“Believe only half of you see and nothing that you hear’’ Anonymous

SA’s biggest blunders
(as reported in Fin 24 12/5/2011Bruce Whitfield)

Mistakes happen all the time: strategic miscalculations and errors of mistimed exuberance or conservatism can be equally damaging. Hindsight is the perfect science. However, we believe those in positions of authority are paid to know better and they – like the victims of their decisions – should live with the consequences of their actions.
Old Mutual

The Blunder

When Old Mutual [JSE:OML] listed on the JSE at the end of the Nineties it heralded a new era for a stuffy assurance firm that could use its newly won corporate status to expand its influence, first, into the tempting United States market via a London listing that conveniently gave its senior directors a bolthole and source of foreign income before taking on the world. History shows that through a process of shocking timing, overpaying and mismanagement the group ran up corporate costs of more than R100bn.

The result

Old Mutual’s foray sparked other misadventures, particularly to the US, where some of its smaller competitors figured they’d be more nimble. It cost Sage its corporate life and one of SA’s oldest and most respected brands was consigned to the dustbin of corporate failure due to its ill-conceived US adventure. Discovery had the good sense to pull the plug on its Destiny business after pouring more than R1bn into it and continues to chip away at offshore markets – particularly in Britain and more recently in Asia.

The solution

It’s taken a decade for the company under a new board and (mostly) new management team to acknowledge the folly of its earlier strategy. Under CEO Julian Roberts – a former financial director, later head of the group’s mid-noughties acquisition of Skandia of Sweden, to look to consolidate and simplify its massively complex and inefficient group structure. Old Mutual has finally offloaded its US Life operation, part of which once belonged to Sage, and is currently conducting a partial listing of asset manager OMIGSA, while trying to offload Nedbank as part of an ongoing debt-reduction strategy

the problem with CEO is they feel they need to do something where doing nothing is a wiser option. Every new one comes in with a grande plan. Simpler plans are much more effective. But then again if your monthly paycheck is a few million, there’s pressure to be seen to be doing something to justify your pay.

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