10th May 2006 07:01
Old Mutual PLC10 May 2006 Old Mutual plc Trading update for the three months to 31 March 2006 Strong start to the year The Group continues to deliver strong growth across a substantially expandedinternational footprint following the acquisition of Skandia, with particularlystrong sales of unit trust/ mutual fund and asset management products, and goodnet cash inflows from clients. Positive equity markets across all of our geographies and the increase in saleshave both contributed to the 8% growth in funds under management in the quarterto £248 billion. • Sales • Skandia: Continuing strong growth, with total mutual fund sales up 77% to SEK 13.3 billion and unit-linked sales on an Annual Premium Equivalent (APE) basis up 22% to SEK3.3 billion. • South Africa: Life sales up 5% to R940 million on an APE basis, with most segments showing good growth, offset by disappointing Healthcare sales. Exceptional growth in unit trust sales of 66% to R2.8 billion (31 March 2005: R1.7 billion). • USA: Life sales were $106 million on an APE basis, a decrease of 16%, reflecting the impact of the initiative to rationalise distribution and maintain sales at around the planned $4 billion level. Mutual fund sales through our retail initiative increased to $339 million from $48 million for the first quarter of 2005. • Total sales: Life sales for the combined Group on an APE basis increased by 11% to £395 million. Unit trust/ mutual fund sales increased by 99% to £1.9 billion. • Funds Under Management • Skandia: 8% increase in funds under management since 31 December to SEK691 billion. • South Africa: up 4% to R501 billion as our businesses continue to benefit from the powerful growth in the South African economy. • USA: funds under management up 9% to $248 billion, driven by excellent net fund inflows of $11.2 billion (31 March 2005: $9.4 billion). This includes $22 billion of funds and $7 billion of net cash flows for eSecLending, the sale of which has been announced. • UK & ROW: up 14% to £8 billion, as organic growth continues, with retail fund inflows and favourable market movements driving an increase of 9% in funds at OMAM (UK). Selestia sales were very strong, increasing by 84% to £254 million. • Nedbank: Strong trading results driven by revenue growth, with net interest income increasing by 29% to R2.4 billion (31 March 2005: R1.9 billion) and non-interest revenue increasing by 16% to R2.3 billion (31 March 2005: R2 billion). • Mutual & Federal: total gross premiums for the first quarter increased by 4% to R2.2 billion (31 March 2005: R2.1 billion) despite the ongoing softening of the insurance market. • Embedded value per share, excluding the impact of the Skandia acquisition was up 13% to 197.8p (2,117c) at 31 March 2006, (31 December 2005: 175.6p (1,912c)). Jim Sutcliffe, Chief Executive, commented: "We have achieved a strong start tothe year with powerful growth in both sales and funds under management. Ourambition remains to be an international financial services group of world-classstature, delivering our shareholders more growth with less risk. The acquisitionof Skandia was an important step in fulfilling that ambition. 10 May 2006 Enquiries: Old Mutual plc Media: Miranda Bellord (UK) Tel: +44 (0) 20 7002 7133Nad Pillay (SA) Tel: +27 (0) 82 553 7980 Investors: Malcolm Bell (UK) Tel: +44 (0) 20 7002 7166Deward Serfontein (SA) Tel: +27 (0) 21 509 8709 College Hill (UK) Tel: +44 (0) 20 7457 2020Tony FriendGareth David Jim Sutcliffe, Chief Executive, will host a conference call for analysts andinvestors at 08.30 UK time and 09.30 CET/ South African time this morning. Thecall will include a brief overview of the trading update and an opportunity forquestions. Analysts and investors who wish to participate in the conference callshould dial the following toll-free numbers: UK participants: 0800 953 1444SA participants: 0800 994 090Swedish participants: 0200 895 350Std International dial-in (not toll-free): + 44 (0) 1452 542 300 The First Quarter 2006 Trading Statement Financial Disclosure Supplement, can befound on our website at www.oldmutual.com. Our acquisition of Skandia is now complete, with an effective date of 1 February2006. All references, however, to Skandia are to trading results for thethree-month period to 31 March 2006, with comparatives also quoted for theequivalent three months to 31 March 2005. To ensure transparency of data, theSkandia business has been shown both in this document and the first quarter 2006Financial Disclosure Supplement, as a single geographical segment. Forward-looking statements This announcement contains certain forward-looking statements with respect tothe financial condition and results of operations of Old Mutual plc and itsgroup companies, which by their nature involve risk and uncertainty because theyrelate to events and depend on circumstances that may occur in the future.Factors that could cause actual results to differ materially from those in theforward-looking statements include, but are not limited to, global, national andregional economic conditions, levels of securities markets, interest rates,credit or other risks of lending and investment activities, and competitive andregulatory factors. SKANDIA The full text of Skandia's trading update for the first quarter of 2006,released today, can be accessed on Skandia's website, www.skandia.com. A strong combination The combined Group is now well positioned to become a leading force in theEuropean savings market through the establishment of efficient distributionnetworks, leading products and optimal service and systems. Skandia's strongposition in Europe adds to Old Mutual's existing strengths in the United Statesand Africa, giving the enlarged Group a more diversified and sustainableearnings pattern. We are currently working towards finalising our vision for each of the Skandiabusinesses with a view to securing future growth and delivering on the targetedsynergies, with an Old Mutual- Skandia market update to be provided on 20 June2006. Continued strong growth in sales, up 22% Skandia delivered continued growth in sales during the first quarter of 2006,with total mutual fund deposits increasing by 77% to SEK 13.3 billion, driven bygood performance across the UK and Europe & Latin America markets. Strong growthwas also experienced in total unit-linked sales on an Annual Premium Equivalentbasis, increasing by 22% to SEK3.3 billion compared with SEK2.7 billion for theequivalent period last year. Increased sales, coupled with buoyant equity markets contributed to the 8%increase in funds under management to SEK 691 billion at the end of March 2006,compared with SEK 640 billion at the end of December 2005. UK & Offshore - unit-linked sales up 31% Excellent growth was experienced across unit-linked UK based products during thequarter, driven by the momentum created by the tax year-end and the strongequity markets. Unit-linked sales increased by 31% to £152 million for the threemonths to 31 March 2006, compared with the same period in 2005. Sales of Skandia UK's pension products contributed £59 million to totalunit-linked sales, an increase of 99% on the equivalent period last year, asadvisers continue to consolidate their clients' pension portfolios in responseto the release of the Pensions 'A' Day regulations. Unit-linked bond sales in the first quarter were stable following pricerefinements made during 2005 in order to secure margin improvements and increasecapital efficiency. The sales growth of 13% to £52 million in Skandia UK'soffshore arm, Royal Skandia, was largely driven by solid growth in the UK andMiddle East. The market uncertainty surrounding the tax treatment of trustsfollowing the release of the UK Budget in March 2006 may, however, result in adecrease in new business volumes in the second quarter of 2006. Mutual fund deposits of £286 million also showed growth of 59%, benefiting fromthe continued industry shift towards fund platforms and the significant increasein sales towards the end of the tax year. The strong growth in the UK segment in the first quarter benefited from new fundlaunches, continued service innovation and Skandia's well recognised reputationin the IFA channel, further supported by the naming of the business as 'Companyof the Year' at the recent Money Marketing awards. Europe & Latin America -underlying unit linked sales growth of 50% 2005 first quarter life sales were affected by the EUR 29 million overhang oftax-driven sales in Germany, and sales were 8% lower in the equivalent periodthis year as a result. However, the underlying trends are very strong withunderlying unit-linked sales increasing by 50% for the first quarter, dueprimarily to growth in Italy, France and Poland. These countries benefited fromstrong momentum in their local unit-linked markets. Mutual fund deposits experienced excellent growth, increasing to EUR 690million, compared with EUR 276 million for the equivalent period last year,driven by the success in delivering high sales volumes in Spain and Columbia. Nordic - sales up 15% Unit-linked sales during the first quarter increased by 15% to SEK559 millioncompared with the first quarter of 2005, with sales in Sweden contributing 10%towards this increase. In the key corporate client segment, sales increased by5%, whilst sales in the private client segment increased by 30%, mainly drivenby the success of the "Kapital-pension" products introduced in the first quarterof 2005 in response to changes in local tax regulations. SOUTH AFRICA Our South African businesses continued to benefit from the powerful growth inthe South African economy, marked by Rand stability and a low inflationary andinterest rate environment. These conditions contributed to a 4% increase infunds under management to R501 billion at 31 March 2006 compared with R480billion at 31 December 2005. Life Assurance & Asset Management - Old Mutual South Africa (OMSA) First quarter powerful growth OMSA continues to focus on improving customer value for money, strengthening itsindependent broker and tied agent sales forces and building links with Nedbank.This has produced solid life sales of R945 million (including South Africansales into Old Mutual International) (OMI) on an APE basis for the three monthsto 31 March 2006, an increase of 6% compared to the equivalent period last year.Unit trust sales benefited significantly from the switch in customer preferencetowards unit trust savings products, increasing by 66% to R2.8 billion. Individual life sales up 17% Individual Business life sales of R702 million for the first quarter to 31 March2006 (including South African sales into OMI) were 17% higher than the R601million achieved in the equivalent period last year. Within this, recurring premiums for the first quarter increased by 13% to R475million from R420 million in the prior period, with strong growth in protectionsales of 31% to R180 million and Group Schemes sales of 33% to R155 million. Individual Life single premiums on an APE basis, increased by 26% to R227million, reflecting annuity and OMI sales growth. Sales through our banking channel continue to benefit from the ongoing focus ondelivering cross-sales growth, with the gains in the second half of 2005continuing into 2006. Group Business sales impacted by poor Healthcare performance Group Business life sales decreased by 17% to R243 million compared with R294million for the first quarter in 2005. Strong single premium growth of 68% toR149 million (31 March 2005: R89 million), primarily in annuities, was more thanoffset by significantly lower Healthcare sales of R72 million compared with R180million for the equivalent period last year. A range of initiatives has beenimplemented to generate sales growth, including increased marketing promotion ofthe Oxygen brand and a detailed membership retention strategy. Margin of 16% in line with expectations The new business margin of 16% reflects the impact of more competitive productpricing, improved customer value for money and action taken to accelerate newbusiness growth. The Individual Business margin of 10% is in line withmanagement expectations for the quarter and reflects the impact of theseinitiatives. The Group Business margin was 31%, reflecting sales growth inhigher margin products. Positive net client cashflows Net client cashflows for the first quarter were a pleasing R2.4 billion comparedwith negative cash flows of R12.5 billion for the equivalent period last year,benefiting from significant management effort undertaken in the last yearthrough specific distribution initiatives. Excellent investment performance Old Mutual Asset Managers (South Africa) (OMAM (SA)) continued to deliverexcellent investment performance, ranked second out of the nine institutionalasset managers in the Alexander Forbes South African Global Manager Watch(Large), Survey over the three years to 31 March 2006. 74% of funds managed byOMAM (SA) weighted by value over three years to 31 March 2006, outperformedtheir benchmarks. Unit trust investment performance also remained strong, with 63% of fundspositioned in the top quartile of their respective peer groups over thethree-year period to 31 March 2006. Business developments Following the Pension Fund Adjudicator's rulings in 2005, the five major SouthAfrican life assurers, including Old Mutual, signed a Statement of Intent withthe National Treasury in late 2005 committing them to the improvement of earlytermination values for retirement annuities and endowments. The NationalTreasury recently issued a discussion paper on 'Contractual Savings in the LifeInsurance Industry', dealing with the specific issues arising from the Statementof Intent in addition to including more far-reaching comments andrecommendations. OMSA expects to be actively involved in the related industrydiscussions. Competition Commission approval has now been received for the acquisition ofMarriott Properties and Marriott Asset Management announced in October 2005,with the results of these businesses expected to be included in OMSA's resultsfrom the second half of 2006. Banking - Nedbank Group (Nedbank) The full text of Nedbank's trading update for the first quarter of 2006,released on 4 May 2006, can be accessed on Nedbank's website, http://www.nedbankgroup.co.za. Strong trading results as positive momentum continues Nedbank continued to deliver with strong trading results for the first quarterof 2006 driven by revenue growth, including favourable listed property privateequity revaluations, strong deal flow, robust equity-trading revenue and ongoingtight expense control. All three key operating divisions were successful indriving revenue growth, with headline earnings increasing by 83% to R1 billioncompared with R561 million for the first quarter of 2005. Around R150 million ofpre-taxation revenue for the quarter could be considered to be of anon-recurring nature and therefore not expected to repeat over the full year.The underlying trends, however are positive. On track to deliver 2007 targets The return on equity (ROE) and efficiency ratios benefited from the firstquarter revenue growth, improving to 18% and 57% respectively. The business isplanning expenditure increases over the remainder of the year to enhance NedbankRetail's distribution network and marketing efforts. Nedbank remains committedto achieving the 2007 20% ROE and 55% cost-to-income targets despite the impactof this planned expenditure and potential non-sustainability of the firstquarter revenue growth. Growth of 29.1% in net interest income (NII) NII grew strongly to R2.4 billion (31 March 2005: R1.9 billion), with advancesincreasing by 19.6% (annualised from December 2005) and the net interest marginshowing good growth for the first quarter to 3.82% from 3.24% for thecomparative period in 2005. The margin benefited from the uplift from settlementof the expensive empowerment funding for Peoples Bank in April 2005, growth inhigher margin retail and business banking advances and higher endowment levelsduring the first quarter. Whilst the business has succeeded in significantlygrowing the margin over the first quarter, some reduction is anticipated overthe remainder of the year as a result of continued strong retail, and businessbanking asset growth being funded largely by wholesale deposits. Non-interest revenue (NIR) shows solid growth NIR increased by 15.8% to R2.3 billion reflecting the continued positive dealflow and equity-trading revenue at Nedbank Capital and favourable listedproperty private equity revaluations at Nedbank Corporate. Bancassurance salesalso contributed to this growth, with new business premiums increasing by 40%over the first quarter compared with the equivalent period last year. Assets up 10.6% (annualised) Total assets at 31 March 2006 increased by 10.6% (annualised) to R361 billionfrom R352 billion at 31 December 2005, driven by the 19.6% (annualised) growthin advances. Average interest-earning banking assets also increased by R16.5billion. General Insurance - Mutual & Federal The full text of Mutual & Federal's trading update for the first quarter of2006, released today, can be accessed on Mutual & Federal's website,www.mf.co.za. Premiums maintained in a softening cycle Mutual & Federal succeeded in maintaining premium levels in the first quarterdespite the ongoing softening of the short-term insurance market. Total grosspremiums for the first quarter increased by 4% to R2.2 billion compared withR2.1 billion for the comparative period in 2005. Underwriting ratio impacted by increasing claims The underwriting ratio of 3.7%, whilst benefiting from the increase in premiumlevels, has been impacted by increased weather-related claims in the firstquarter of 2006. It should be noted that short-term insurance results andinvestment levels fluctuate and those for the first three months of the year arenot necessarily indicative of the outturn for the remainder of the half-year. UNITED STATES Funds under management up 9% reflect strong organic growth Funds under management for the combined US businesses increased by 9% to $248billion from $226 billion at 31 December 2005 driven by strong investmentperformance and excellent net fund inflows in our asset management business. US Asset Management Excellent net fund flows Funds under management at our US asset management business increased by 9% to$247.6 billion at 31 March 2006 from $226.3 billion at 31 December 2005, drivenby excellent net fund inflows of $11.2 billion (31 March 2005: $9.4 billion),achieved in international and core equity and global fixed income. Net fundinflows for the quarter include $7 billion relating to eSecLending, arisingprimarily in cash collateral assets. Strong investment performance and netpositive market movements contributed $9.7 billion or 4% towards the totalincrease in funds under management. The business experienced continued positive momentum from the retail initiativeinvestment, with gross sales of $0.6 billion for the first quarter, representinga solid start to the year. Managing our portfolio The US asset management business acquired a majority interest in Copper RockCapital Partners in February 2006, a small-cap growth equity managerheadquartered in Boston, with funds under management of $0.4 billion. This marksthe completion of an option purchased in February 2005. The business of Pacific Financial Research (PFR) has now been successfullymigrated to Barrow Hanley Mewhinney & Strauss, another affiliate in the US AssetManagement business, with the closure of PFR substantially complete. An announcement was made in late March regarding the planned sale of thesecurities lending manager, eSecLending, to TA Associates, a leading privateequity and buyout firm based in Boston. Whilst eSecLending had grownsubstantially under our ownership, as a securities lender, there were fewremaining synergies to be realised within the Group, thus prompting the decisionto divest of this non-core operation. Funds under management for eSecLending of$22 billion have been included in US Asset Management's first quarter results,with the sale expected to close by the end of the second quarter. US Life On track for full year sales target Our goal for this business is to maintain sales around the $4 billion range andin doing so, develop the operation towards maturity and capital self-sufficiencyfrom 2007. In line with this objective, the business took steps to rationalisedistribution and products towards the end of last year following a period ofrecord sales, resulting in a decrease in sales for the first quarter of 2006 asplanned. The business is on track to achieve the full year sales target of $4billion. Offshore annuity sales (on an APE basis) through Old Mutual Bermuda showedparticularly high growth, increasing by 65% to $23 million (31 March 2005: $14million), reflecting a further strengthening of relationships in the existingbank distribution network and an overall expansion in the network during thefirst quarter. Pricing disciplines maintained The 18% margin for the first quarter is at the upper end of our long-termexpectations under EEV methodology and reflects our focus on achievingprofitability through the maintenance of pricing disciplines, whilst alsobenefiting from positive investment yields in the first quarter. On track to release cash The business remains on track to release cash from 2007, with funds undermanagement of $21 billion at 31 March 2006 now firmly in the $20 to $25 billiondollar range required to achieve capital self-sufficiency. UK & Rest of World Organic growth continues The success of the UK organic growth strategy continues, with funds undermanagement increasing for the UK and ROW segment by 14% to £8 billion at 31March from £6.9 billion at 31 December 2005. OMAM (UK) funds under management at £5.1 billion increased by 9% compared with£4.7 billion at 31 December 2005, driven by strong retail fund inflows andfavourable market movements. The business continues to benefit from the ongoingexpansion of its product portfolio, with the launch of the Spectrum Plus productin early April and the strengthening of its distribution capability. Selestia continues to build critical mass with sales of £254 million, anincrease of 84% over sales of £138 million for the equivalent period last year,taking funds under management to £1.9 billion. Going forward, Selestia willbecome part of our Skandia UK business. Our joint venture in India, Kotak Mahindra Old Mutual, continues to growexponentially. Total premium income on an APE basis was £42 million for thefirst quarter of 2006, up from £22 million for the equivalent period last year.The business is now well established in the Indian market, with 46 branches in34 cities and an agency force of nearly 12,000. INTERIM RESULTS The Group will announce the 2006 interim results for the combined Old Mutual andSkandia Group on 14 September 2006. The Interim announcement has been postponedfrom the usual August reporting date to accommodate the first time consolidationof Skandia. Going forward, the Group anticipates that the interim and year endreporting dates will occur in August and February respectively. NAMIBIA BLACK ECONOMIC EMPOWERMENT (BEE) TRANSACTION The Group's businesses in Namibia are planning a BEE transaction to enhancetheir competitive position in that country, involving staff, Black BusinessPartners and trusts. If implemented, the transaction is likely to include anissue of shares by Old Mutual plc to the proposed Black Business Partners andtrusts in Namibia on a basis similar to the Group's BEE transactions in SouthAfrica in 2005, and to employees in Namibia under the Group's existing BEEemployee share schemes. We anticipate the cost of the transaction would besimilar to the 2005 South African transactions on a pro-rata basis. Any OldMutual plc shares to be issued as part of the transaction would be issued underthe existing share authorities, which we are asking shareholders to renew attoday's Annual General Meeting, and the Company does not therefore intend toseek specific approval from its shareholders for the transaction. Thetransaction may also involve an issue of shares by the Company's South Africansubsidiaries. The number of shares to be issued by Old Mutual plc in respect of thetransaction is approximately 0.2% of the total number of Old Mutual plc sharescurrently in issue. Should all the elements of the transaction proceed, theresulting effective economic dilution of the existing issued share capital ofthe Company, by reference to its current market capitalisation, is anticipatedto be less than 0.1%. The Board believes that the commercial benefits of thetransaction are likely to exceed the related initial and ongoing costs. Afurther announcement will be made should the contemplated transaction proceed. Jim SutcliffeChief Executive 10 May 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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