24th May 2007 07:01
Old Mutual PLC24 May 2007 Old Mutual plc 24 May 2007 Results for the quarter ended 31 March 2007 Good operating performance and positioning for further sustainable growth • Excellent investment performance driving continued strong net inflows of £4.5 billion • Funds under management increased 5% to £249 billion and are on track to reach £300 billion by the end of 2008 • APE sales up 9% with contributions from investment in retail and offshore distribution channels in life businesses, strong bancassurance results, as well as the continued success of Skandia's open architecture platform • On a local currency basis, all geographic segments achieved increases in adjusted operating profits: Africa up 33%; US up 11%; Europe up 38% • Group adjusted operating profit increased 5% and adjusted earnings reached 4.2p per share Jim Sutcliffe, Chief Executive, commented: "The overall start to 2007 has been positive, with good increases in life salesin South Africa, continued growth in our US asset management business and strongperformance by Nedbank. The Skandia results continue to exceed our acquisitionplans and will be accretive this year as forecast. We are on track to achieveour target of £300 billion of funds under management by the end of 2008 with asatisfying 5% growth during the first quarter. While we still expect exchange rates and synergy and infrastructural costs tohold back earnings growth this year, the operating delivery from the Group isgood and we are well positioned to grow strongly in 2008." Financial highlights • Adjusted operating profit* (IFRS basis) up 5% to £398 million (Q12006: £380 million) • Profit for the quarter attributable to equity holders of the parent (IFRS basis) £248 million (Q1 2006: £170 million) • Adjusted operating earnings per share* (IFRS basis) unchanged at 4.2p (Q1 2006: 4.2p) • Basic earnings per share (IFRS basis) 4.9p (Q1 2006: 3.8p) • Net cash flow in relation to funds under management of £4.5 billion (Q1 2006: £4.2 billion) representing 1.9% of opening funds under management • Funds under management of £249 billion at 31 March 2007 (31 December 2006: £237** billion), an increase of 5.1% • Total life assurance sales, on an Annual Premium Equivalent (APE) basis, of £421 million, an increase of 8.8% (Q1 2006: £387 million) • PVNBP of £3,325 million, an increase of 9.3% (Q1 2006: £3,041 million) • Adjusted embedded value per share (EEV basis) 159.0p at 31 March 2007 (31 December 2006: 157.2p) Enquiries Investor RelationsMalcolm Bell UK +44 (0)20 7002 7166Deward Serfontein SA +27 (0)21 509 8709 MediaJames Crampton UK +44 (0)20 7002 7133Nad Pillay SA +27 (0)21 504 8026 College Hill (UK) +44 (0)20 7457 2020Tony Friend UK Gareth David UK Notes Wherever the terms asterisked in the Financial highlights are used, whether inthe Financial highlights, the Chief Executive's Statement, the Group FinanceDirector's Review or the Business Review, the following definitions apply: * For long-term and general insurance business, adjusted operating profit isbased on a long-term investment return, includes investment returns on lifefunds' investments in Group equity and debt instruments and is stated net ofincome tax attributable to policyholder returns. For all businesses, adjustedoperating profit excludes goodwill impairment, the impact of acquisitionaccounting, initial costs of Black Economic Empowerment schemes, the impact ofclosure of unclaimed shares trusts, profit / (loss) on disposal of subsidiaries,associated undertakings and strategic investments and dividends declared toholders of perpetual preferred callable securities. Adjusted operating earnings per ordinary share is calculated on the samebasis as adjusted operating profit. It is stated after tax attributable toadjusted operating profit and minority interests. It excludes incomeattributable to Black Economic Empowerment trusts of listed subsidiaries. Thecalculation of the adjusted weighted average number of shares includes ownshares held in policyholders' funds and Black Economic Empowerment trusts. ** 2006 restated due to sale of Spanish business Forward-looking statements This announcement contains forward-looking statements with respect to certain ofOld Mutual plc's plans and its current goals and expectations relating to itsfuture financial condition, performance and results. By their nature, allforward-looking statements involve risk and uncertainty because they relate tofuture events and circumstances that are beyond Old Mutual plc's control,including, among other things, UK domestic and global economic and businessconditions, market-related risks such as fluctuations in interest rates andexchange rates, policies and actions of regulatory authorities, the impact ofcompetition, inflation, deflation, the timing and impact of other uncertaintiesor of future acquisitions or combinations within relevant industries, as well asthe impact of tax and other legislation and other regulations in territorieswhere Old Mutual plc or its affiliates operate. As a result, Old Mutual plc's actual future financial condition, performance andresults may differ materially from the plans, goals and expectations set forthin Old Mutual plc's forward-looking statements. Old Mutual plc undertakes noobligation to update any forward-looking statements contained in thisannouncement or any other forward-looking statements that it may make. Notes to Editors: A conference call for analysts and investors will take place at 9.00 a.m. (UKtime) and 10.00 a.m. (Swedish and South African time) today. Analysts andinvestors who wish to participate in the call should dial the following tollfree numbers: UK 0800 953 1444 Sweden 0200 895 350 South Africa 0800 994 090 Copies of these results together with high-resolution images (at http://oldmutual.com/vpage.jsp?page_id=2220) and biographical details of the executivedirectors of Old Mutual plc, are available in electronic format to download fromthe Company's website. A Financial Disclosure Supplement relating to the Company's Q1 results can befound on the website. This contains a summary of key financial data for thefirst quarters of 2007 and 2006. For further information on Old Mutual plc, please visit our website atwww.oldmutual.com. Chief Executive's Statement A positive start to the year Old Mutual's open architecture model and good investment performance from ourinvestment managers have continued to win strong net inflows in the firstquarter, with net client cash flow of £4.5 billion. Overall funds undermanagement by the Group increased 5.1% to £249 billion from the 2006 year-endposition of £237 billion, benefiting from positive equity markets in the maincountries in which we operate. Earnings on an IFRS basis were flat in Sterlingterms, at 4.2p, but the strength of Sterling against the Rand and the US dollarfor the first quarter of 2007 compared to the first quarter of 2006 disguisessome underlying good performances by our businesses in local currency terms. Europe Skandia's open architecture offerings have continued to propel strong newbusiness growth in the UK and offshore UK, with total Europe net inflows of £1.5billion for the first quarter. Pension sales have continued to benefit frompost-A Day demand, increasing by 24% compared to the first quarter of 2006. Unittrust sales were down by 3%. Offshore sales have also recovered markedly fromthe weakness experienced at the beginning of 2006. IFRS profit for the UK &Offshore increased by 16% for the period. Profits at Skandia Nordic were unusually high, benefiting from higher levels offunds under management, which increased by SEK 4 billion and some exceptionalprofits in smaller lines of business. However, sales were depressed by theremoval of the tax privileges of a key product, Kapitalpension, and by our earlyadoption of a level commission structure. Margins on new business fell withlower volumes affecting experience ratios and the costs of the new Skandia Livarrangements which have now been put in place. Good progress is being made inputting this division on to a sounder footing for the future, and investing in asolid IT base. We are looking forward to welcoming our new CEO for the Nordicbusiness, Bertil Hult, who is expected to join us in September 2007. Within Skandia's European and Latin American businesses, Poland again performedwell but Italian sales disappointed. Funds under management grew by 20% and thevalue of new business grew by 15%. Margins remained above target at 19%. Our plans for significant spending on achieving the previously announcedsynergies at Skandia during 2007 remain in place, with the bulk of theexpenditure coming through during the rest of the year. We remain on track tomeet our stated targets. South Africa Our South African life business achieved good sales growth during the quarterbenefiting from the investment we have made in our distribution network over thepast few years. Retail life sales grew strongly up 27% partially offsettinglower Institutional sales. Bancassurance sales achieved through the Nedbankchannel have also continued to grow strongly. Lumpy Institutional life saleswere down for the quarter and funds under management were adversely affected bythe loss of two large investment mandates. Investment performance by our SouthAfrican asset management business, which went through an adverse patch in 2006,has recovered strongly. We have now completed the transformation of our assetmanagement business to a boutique model and we remain confident that it willbenefit our clients. Profits benefited from the strong JSE and some one-offitems, and are up 34% in Rand terms. Nedbank has continued its return to health, with a 24% increase in headlineearnings in Rand terms. Nedbank exceeded its 2007 target of 20% RoE for thefirst time in the first quarter. Its cost to income ratio for the quarter wasbelow its target of 55% for the year, although this will be affected during therest of 2007 by Nedbank's continuing high levels of investment in its retailprogramme. Nedbank's market share statistics improved during the quarter, butloan impairments deteriorated as a result of the tighter credit environment. The combined ratio at our general insurance business, Mutual & Federal, wasaffected by some adverse weather-related and motor claims that led to its resultbeing slightly higher in local currency terms for the period, even though thepremium cycle does now appear to have turned, with a recent hardening of rates.Contribution from its long-term investment return was lower than in theequivalent period of 2006 as a result of the significant amount of capitalreturned to its shareholders under the special dividend paid last year. USA Our asset management business attracted $6.2 billion of net cash inflow fromclients during the first quarter, which, together with powerful market andinvestment performance, raised its total funds under management by $16 billionto $290 billion. IFRS adjusted operating profit was up by 27% in local currencyterms for the period. Sales by Old Mutual Capital Partners rose by 17%, withmutual funds up by 40%, underlining the potential of our retail strategyinitiatives. We completed the acquisition of Ashfield, our new large capmanager, during February. Old Mutual Asset Managers (UK), which is now reportedas part of the US asset management division, had an excellent three months, withunit trust sales up by 50%. Sales at our US life business were strong, at $1.1 billion gross (Annual PremiumEquivalent of $132 million), an increase of 25% (APE basis) on the equivalentperiod in 2006 when there was a slow start to the year. Margins were a healthy18%, helped by strong sales by the Bermudan business and strong demand forequity indexed annuities. IFRS adjusted operating profit was lower than theequivalent period in 2006, but in line with the 2006 full year run rate, as aresult of some adverse annuitant mortality experience and increases in theprevailing interest rate environment. The business remains on track to returncash to the Group by the end of 2007. Our previously-announced review of the historic book of the US life businesscontinues and we aim to complete this by August 2007. Two of the key items underreview are hedging and longevity modelling; the latter produced an experienceloss of $9 million in the quarter, while the former broke even. Asia Pacific Our businesses in the Asia Pacific region have continued to make good progress,with strong growth in life sales in India and China. Outlook The overall start to 2007 has been positive, with good increases in life salesin South Africa, continued growth in our US asset management business and strongperformance by Nedbank. The Skandia results continue to exceed our acquisitionplans and will be accretive this year as forecast. We are on track to achieveour target of £300 billion of funds under management by the end of 2008 with asatisfying 5% growth during the first quarter. While we still expect exchangerates and synergy and infrastructural costs to have an effect this year, theoperating delivery from the Group is good and we are well positioned to growstrongly in 2008. Jim SutcliffeChief Executive Group Finance Director's Review GROUP RESULTS Group Highlights (£m) Q1 2007 Q1 2006 Change Adjusted operating profit (IFRS basis) (pre-tax) 398 380 5%Profit before tax (IFRS) 478 401 19%Adjusted operating earnings per share (IFRS 4.2p 4.2p -basis)Basic earnings per share (IFRS basis) 4.9p 3.8p 29%Value of new business 58 59* (2%)PVNBP 3,325 3,041* 9%Life assurance sales (APE) 421 387* 9%Unit trust / mutual funds sales 1,935 2,165* (11%)Net fund inflows (£bn) 4.5 4.2 7% Group Highlights Q1 2007 FY 2006 ChangeEmbedded Value (£bn) 8.7 8.6 1%Adjusted Embedded Value per share (EEV basis) 159.0p 157.2p 1%Funds under management (£bn) 249 237** 5%Return on equity (annualised basis) (%) *** 13.7% 12.0% *Pro forma three months** 2006 restated due to sale of Spanish business*** Return on equity is calculated using adjusted operating profit after tax andminority on an IFRS basis with allowance for accrued coupon payments on the Group'shybrid capital. The average shareholders' equity used in the calculation excludeshybrid capital Strong sales and net fund inflows continued in the first quarter of 2007 drivingfunds under management (FUM) to £249 billion, well on the way to our target of£300 billion by the end of 2008. Adjusted operating profit rose 5% in the periodwith higher FUM and operational leverage driving strong cash generation and acorresponding increase in return on shareholders equity. Skandia continues to exceed expectations delivering £1.5 billion net fundinflows and £66 million in adjusted operating profits during the quarter and ourUS business powered ahead to $291 billion FUM. Elsewhere Nedbank and OMSAdelivered very strong growth in profits offsetting the 31% decline in the Randcompared to the first quarter of 2006. The first quarter of 2007 although good for unit trust sales was not as strongas the equivalent period last year due to the market correction in February anda period of poor investment performance at OMSA in 2006. Adjusted Embedded Value per share up by 1.1% Adjusted Group Embedded Value (EV) increased to £8.7 billion at 31 March 2007(31 December 2006: £8.6 billion). The adjusted Group EV per share has increasedto 159.0p at 31 March 2007 from 155.9p (restated from 157.2p after a fair valueadjustment to the prior period balance sheet). This was driven by excellentinvestment performance, solid operating profits and the market value increase ofour subsidiaries offset by adverse movement in foreign exchange rates. Skandia synergies on track The Skandia acquisition provides significant opportunities for growth throughoutEurope. In addition the integration and synergy benefits of £70 million perannum (announced in June 2006) are on track to be delivered by the end of 2008.2007 is the key year for investment in synergy initiatives with £10 millionincurred in the first quarter and it is expected that £46 million will beincurred in 2007 as a whole. Value of new business flat The value of new business in the first quarter of 2007 was £58 million driven bygrowth in the US and Europe offset by lower value of institutional business inSouth Africa coupled with the impact of foreign exchange movements. Capital position The Group's gearing level remains comfortably within our target range, withsenior debt gearing at 31 March of 1.9% (6.0% at 31 December 2006) and totalgearing, including hybrid capital, of 21.5% (21.8% at 31 December 2006). In January 2007, the Group issued €750 million of Lower Tier 2 PreferredCallable Securities, the proceeds of which were used in part to finance thematurity of a €400 million senior Eurobond that matured in April 2007. Old Mutual discloses strong Economic Capital position Old Mutual plc today announces for the first time results from its EconomicCapital (EC) Programme. These results show that, as at 31 December 2006, theGroup had available financial resources (AFR) significantly in excess of theamount of economic capital the Group believes would be required to support itstarget rating. Old Mutual plc's Economic Capital requirement as at 31 December 2006 stood at£4.1 billion. The corresponding AFR of the Group was £7.1 billion, giving aneconomic surplus of 73%. A comfortable surplus also exists within each of ourSouth African, US and European regions, meaning that the Group is not reliantfor its economic solvency on the need to transfer capital between geographies. Jonathan NichollsGroup Finance Director 24 May 2007 COMPARATIVE INFORMATION Following the acquisition of Skandia by Old Mutual plc, and the resultantlisting of Old Mutual plc shares on the Stockholm Stock Exchange, Old Mutual plchas adopted quarterly reporting from the period ended 30 September 2006. Thereporting format for the first quarter 2007 reporting period is as follows: • All group comparative quarterly reporting information on earnings include Skandia from the date of acquisition of 1 February 2006. • Within the financial statements the Europe division comparative information is from the date of acquisition of 1 February 2006 • Where Europe information is shown within the business review this has been adjusted on a pro forma basis to reflect ownership from 1 January 2006. For the full first quarter announcement, please visit Old Mutual's websitewww.oldmutual.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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