Old Mutual uncertain of future earnings in current economic climate

Old Mutual on Monday (16 March) reported ‘resilient’ results for the year ended December 2019, with adjusted headline earnings up 5% despite significant headwinds, particularly in South Africa.

“Our financial results were resilient after taking into account the impact of external factors in our operating environment,” said interim chief executive officer, Iain Williamson.

The group’s adjusted headline earnings for the period climbed 5% to R9.86 billion on the back of higher investment returns in South Africa. Adjusted Headline Earnings per share were also up 7%, it said.

“We delivered a Return on Net Asset Value of 15.2% which exceeds our Cost of Equity,” said Williamson.

“Our group capital position remains very strong, with a solvency ratio of 161%, which is well within our target range. Results from Operations (RFO) unfortunately decreased by 2% from 2018, driven by lower inflows in most of our segments and heightened catastrophe losses in Old Mutual Insure.

“Over the medium term, we expect that meeting several of our most important targets will be challenging. We will remain very closely focused on our operational results, digital enablement and exploiting opportunities for growth.

“The investments we have made in enhancing our customer and intermediary experience will no doubt be essential to remaining competitive and winning in our markets,” the interim boss said.

Old Mutual announced a final ordinary dividend of 75 cents per share, bringing its total capital returned to 220 cents per share, including share buybacks executed during 2019.

The Group emphasised a range of initiatives implemented during 2019 to boost operational efficiencies and ultimately enhance the customer experience, including:

  • Achieving R1.2 billion in cost savings, exceeding its target of R1 billion;
  • The deployment of 151 robots in various processes to assist with automation, saving 5.2 million minutes in processing time;
  • The continued roll out of digital tools to enhance the customer experience; and
  • A deliberate focus on making essential culture shifts to attract and retain the right talent that enables the business to champion positive futures for its customers every day.

“Whilst we continue to see challenges in the external environment in the short term, including those presented by the Covid-19 pandemic as well as the economic downturn, we are confident in the group’s ability to remain resilient and deliver on our mandate.

“All the necessary steps are being taken and plans being actioned to address these developments. To this end, we remain well capitalised, with tightly managed costs, and a talented workforce dedicated and ready to ensure that Old Mutual remains a certain friend in uncertain times,” Williamson said.

However, he said that the achievement of its RFO target of nominal GDP+2% CAGR is dependent on an improvement in the macroeconomic environment in South Africa.

“Given the anticipated disruption in global equity markets and significant downward pressure on GDP growth rates we do not anticipate being able to achieve this target for the 2020 financial year.”

The group took the decision to dismiss former chief executive, Peter Moyo, having initially suspending him in May last year, citing a breakdown in trust.

“We remained focused on reassuring our customers, investors and employees during the heightened media attention and scrutiny that followed, through transparent and regular communication.

“The board remains confident that the decision made was in the best interests of our stakeholders and that their duties were discharged in line with the high standard of governance and ethics expected of an established and respected organisation like ours,” Williamson said.

As a result of the current trading environment, and Moyo’s dismissal, shares in Old Mutual have declined substantially over the past year.

Read: Old Mutual says it is still looking for a permanent replacement for Peter Moyo

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Old Mutual uncertain of future earnings in current economic climate