Old Mutual announces strong performance in challenging year

And provides updates on strategy aimed at long-term value creation

Old Mutual Plc today announced its 2009 full year results, delivering a strong performance, albeit in challenging market conditions. The Group’s adjusted operating profits before tax were up on 2008 and in its Long-Term Savings division (LTS), which makes up 59% of the Group’s operating profits, were up by 52% to £685m. Sales gained in momentum in the second half of the year as markets improved, with an especially strong performance in the fourth quarter in which life APE sales grew by 29%, with the strongest LTS quarterly sales performance for two years.

The Group’s Wealth Management business reported fourth quarter APE sales up 38% over the third quarter, driven by strong platform sales in Skandia UK. In South Africa, Old Mutual showed good resilience, reporting strong profitability and sales up on 2008. Life sales in the second half increased by 35%, driven by further penetration into the sizeable retail mass market on the back of an enlarged sales force. This market presents a significant opportunity for further sales growth given Old Mutual’s strong brand, powerful distribution platforms and range of financial products. Following the acquisition of minority shares in Mutual & Federal, the Group is also developing short-term insurance products for sale into the retail mass market.

During the year, the Group made substantial progress in delivering on the strategic priorities announced in March last year. This included a number of actions to streamline its portfolio of businesses and a considerable strengthening of its balance sheet. It increased its Financial Group’s Directive (FGD) surplus to £1.5 billion from £0.7bn at the end of 2008 and its liquidity to £1.2 billion. The unrealised loss position in its US Life business improved dramatically and, despite previous expectations, the Group did not need to inject any further capital into Us Life during 2010.

Old Mutual resumed dividend payments, with the board recommending a final dividend of 1.5p for 2009 with a scrip alternative.

Old Mutual today also announced an update on strategy, focused on building a cohesive long-term savings, protection and investment group by leveraging the strength of its capabilities in South Africa and around the world.

The strategy is designed to focus, drive and optimise its businesses to enhance value for its customers and shareholders. The Group anticipates a partial IPO of its US Asset Management business in the next three years to create a more visible valuation for the business and to provide a mechanism for growth. It has set challenging performance targets over the next three years and strict criteria for businesses to remain part of the Group. These will be under continual review, and the Group is already exploring the sale of its US Life business. The proceeds from disposals and from the Group’s retained earnings are expected to be used to pay down Group debt by at least £1.5 billion over the next three years.

Central to the strategy is leveraging the excellent technology and product design capabilities in South Africa, as well as its low cost base. The Group is already designing products for its under-penetrated markets in India, China and Mexico, as well as for its UK platform business. It is also moving the IT and back office activities for its Retail Europe business to Cape Town. This will result in increased jobs within Old Mutual South Africa. A number of new LTS appointments from within OMSA have also been made to help ensure delivery against its targets.

Commenting on the results, Group Chief Executive, Julian Roberts, said:

“Our operating results for 2009 are ahead of the previous year despite the highly volatile markets over the period. We benefited from improved market conditions in the second half, which resulted in greater demand for equity-based products from our clients, but the improvement also reflects our aggressive expense management as part of our drive to improve business performance. In the fourth quarter we saw especially good sales growth, with the strongest LTS quarterly sales performance for two years.”

Looking to the future, including commenting on the Group’s revised strategy, Mr Roberts said:

“During 2009 our priority was to stabilise the business by addressing the issues in US Life and Bermuda and restoring the Group’s capital and liquidity positions, while implementing more effective governance and controls. With substantial improvements in place, we started the process of simplifying our portfolio of businesses and improving our operational performance, while further examining the Group to determine its optimal future shape. We are today setting out a clear strategy to build a cohesive long-term savings, protection and investment group by leveraging the strength of our capabilities in South Africa and around the world.”

“We will rigorously drive performance improvement across all of our businesses and have introduced challenging three-year cost saving and return on equity targets. We have also identified specific synergy opportunities from our businesses working together. We anticipate further rationalisation of our activities and will exit markets where we do not have scale or our operations are not capable of achieving a return on equity of 15% over the next three years. We are exploring the disposal of US Life and anticipate a partial IPO of US Asset Management. However, we will only execute transactions when markets allow us to maximise value for shareholders.”

“We are determined that over the medium to long-term these measured and fully-funded actions will provide considerable value for shareholders. Together with further growth in assets under management as market conditions continue to improve, these actions are expected to have a significantly positive impact on underlying operating profitability and return on equity. Accordingly, the Board has every confidence in the Group’s prospects, as reflected by the resumption of a dividend.”