11th Mar 2016 09:42
LONDON (Alliance News) - Old Mutual PLC, the FTSE 100 Anglo-South African financial services company, on Friday said there is "limited rationale" for its four main divisions to be part of the same group, confirming that it intends to separate them by the end of 2018 in a move to cut debt, costs and complexity.
Bruce Hemphill, a former executive at African lender Standard Bank Group, said the review he began when he succeeded Julian Roberts as Old Mutual's chief executive in November 2015 showed that there is "very little commonality" between the businesses.
The group's four divisions include holdings in two publicly listed entities: a 66% stake in New York-listed OM Asset Management and a 54% stake in Johannesburg-listed lender Nedbank. The separation "may involve equity market activity" for Old Mutual's UK-focused wealth management arm and its emerging markets business based in South Africa.
Regulatory developments in Europe, namely the Solvency II insurance rules that came into force at the start of 2016 in the EU, and the depreciation of the rand amid an economic slowdown in South Africa have raised the stakes for Old Mutual, which will consider returning excess capital generated from asset sales and the separation.
"My job is to put myself out of a job and get this thing done in the right way," Hemphill said, telling journalists that the separation will be an "enormously complex" process.
The full details of the split are yet to emerge, though Old Mutual said it does not plan on selling any part of its stake in Nedbank to a new investor. Instead, shares held in Nedbank will be distributed to Old Mutual's shareholders until the group is left with a minority holding. The intention is to maintain the commercial relationship between Nedbank and Old Mutual's emerging markets arm.
Protecting the "stability and integrity" of both Nedbank and the broader financial services sector in South Africa is high on Old Mutual's agenda, Hemphill told reporters, and will help to determine exactly how much of the South African lender the group end up owning.
Old Mutual has to think about the needs of its stakeholders, ranging from governments and regulators, bond and equity investors, to employees as it breaks up the conglomerate. In South Africa, the plans were welcomed by the National Treasury, the central bank and the Financial Services Board, with "positive benefits" expected for the domestic economy and capital markets.
"OM Emerging Markets and Nedbank are each significant businesses in their own right with strong balance sheets. The enhanced ability of these businesses to access their natural shareholder base is welcomed; as is the increased alignment of the key governance structures and lead supervision with the location of the respective businesses," South Africa's National Treasury, central bank and FSB said in a joint statement.
In London, Old Mutual shares were down 1.0% at 183.50 pence on Friday morning, though still up 2% to date in 2016, as analysts digested Hemphill's plans.
Confirmation of the break-up came as Old Mutual reported higher annual earnings. Adjusted operating profit before tax rose to GBP1.66 billion in 2015, in line with company-supplied analyst consensus forecasts, up 11% at constant currency and 4.0% at actual currency. The company lifted its total dividend per share for 2015 to 8.9p from 8.7p in 2014.
Edward Houghton, an analyst at Sanford C Bernstein, said the dividend payment was in line with his expectations, though 3.0% behind consensus. A new dividend policy adopted by Old Mutual "may well" result in a cut next year, Houghton added.
"The strategic review, whilst positive, will take time to effect: capital won't be in investors' pockets for a while," the analyst said.
By Samuel Agini; [email protected]; @samuelagini
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