Old Mutual scraps dividend amid recovery uncertainty

Insurer Old Mutual said on Tuesday (1 September 2020), that it will scrap its interim dividend amid ongoing uncertainty created by the Covid-19 pandemic.

“There is still a considerable amount of uncertainty around what we can expect within the next 12 months,” said Iain Williamson, Old Mutual chief executive officer. “Due to the significant level of uncertainty in the current environment we have deferred our decision to declare an interim dividend.”

The group said that a difficult macro environment and significant market volatility as a result of the ongoing Covid-19 pandemic negatively impacted its results.

It said that the impact of directly attributable Covid-19 items on its results amounted to some R2.8 billion before tax. However, it noted that, excluding these Covid-19 impacts, its overall Normalised Results from Operations (RFO) were very similar to that of H1 2019, with most segments returning resilient performance despite the challenging operating conditions.

“While the Mass and Foundation Cluster has been most impacted by the pandemic, Personal Finance RFO has held up relatively well. The Wealth segment benefited from a strong performance by Old Mutual International. As far as Old Mutual Insure is concerned, a much better normalised underwriting profit was registered during the period,” Williamson said.

Adjusted headline earnings for the period were down 67% to R1.7 billion, compared to R5.2 billion for the same period last year, while adjusted headline earnings per share was down 66%.

“This was largely driven by much lower new business sales volumes as a result of the lockdown, lower average equity market levels across the board, as well as the raising of short-term provisions in anticipation of worsening mortality, morbidity and persistency expected in the second half of the year,” Williamson said.

The continued financial pressure on customers led to a decline in sales activity and poor persistency experience, which adversely affected distribution efficiencies. Customers also opted for lower margin risk and investment products, Old Mutual said.

The group said that it expects HEPS and EPS for the year ended December 2020 to be more than 20% lower than the reported HEPS and EPS for the comparable period, due to the significant impact of Covid-19 on its business.

The increased levels of forecast risk and observed variability in possible recovery scenarios has made it increasingly difficult to provide guidance around the achievement of previously disclosed medium term targets, the group said.

“In light of this, we are withdrawing our guidance in respect of these targets and replacing them with targets more appropriate for measuring our progress as we transition the business through the crisis,” it said.

During the second half of 2020, Old Mutual said it will focus on improving adviser productivity to normalised levels, improving customer access through increased digitalisation, and finding opportunities for further cost efficiencies.

“This is a business that continues to prove its resilience time and again, especially in the face of adversity. We have weathered many storms throughout our 175-year history and we remain optimistic that the business will rise above these challenges, coming out even stronger than before,” Williamson said.

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Old Mutual scraps dividend amid recovery uncertainty