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FOCUS: Old Mutual builds strategy to boost savings
Johannesburg, March 11 (I-Net Bridge) - International long-term wealth savings management group Old Mutual plc (OML) says it now has 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.
During 2009 the group says its priority was to stabilise the business by addressing the issues in US Life and Bermuda and restoring the capital and liquidity positions of the group, while at the same time implementing more effective governance and controls.
“With substantial improvements in place, we also 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,” says Old Mutual group CEO Julian Roberts.
“We now have 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,” he adds.
The strategy, he says, is designed to focus, drive and optimise the group’s businesses to enhance value for both its customers and shareholders.
“It will increase our international cash earnings and overall return on equity. It will result in a rationalisation of our activities over time, reducing substantially the complexity of the group, and optimise our structure as we manage our businesses with a disciplined approach to risk management, governance and allocation of capital,” Roberts adds.
“We will reduce our exposure to the US by exploring the disposal of US Life,” he says. “We anticipate the listing of a minority shareholding in US Asset Management. We will continue to sell or exit markets where we do not have scale, have no prospect of achieving satisfactory returns or where the operations are outside of our risk tolerance. We expect the proceeds from
this rationalisation and from retained earnings will be used to reduce debt by at least £1.5 billion and improve the quality of the Group’s balance sheet.
“We will retain businesses which meet our capital and risk requirements, can achieve a 15% return on equity, add value to other parts of the Group, have scope for sustainable future growth and are capable of creating future shareholder value. We will be ruthless in our application of these criteria and our businesses will be subject to continual review. By
leveraging our core capabilities and maximising available synergies, we will deliver a good blend of profit growth, improved cash returns and generation of long-term embedded value. We will transfer technology and intellectual capital through shared skills and infrastructure, based on utilising our strong capabilities in South Africa and around the world to drive revenue
and cost improvements.
“We will focus on developing our customer proposition which is relevant to their needs, backed up by good distribution, support and service. We aim to deliver high performance in each of our businesses by driving profitable growth and operational efficiency, optimising risk and return and aligning reward schemes to activities that deliver value, with
strengthened governance and control from the centre.
“We have set specific targets of reducing costs by sterling 100 million by the end of 2012, including sterling 15 million of Group-wide corporate cost savings as the Group structure evolves. We have also set specific performance targets for our individual LTS businesses and for LTS as a whole,” Roberts points out.
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.
Apropos the long-term savings (LTS) businesses, Old Mutual has set targets to deliver cost savings of sterling 75 million per annum and to improve overall return on equity from 14.9% (excluding US Life and reflecting the LTIR rate for Emerging Markets for 2010) as at 31 December 2009 to between 16%-18%, both by the end of 2012.
“To achieve this, we have set specific return on equity and cost savings targets for each of our LTS businesses.
“Over and above this, we have identified opportunities for further cost and revenue synergies in three principal areas: in IT, by extending outsourcing to a global level, rationalising technology platforms and sharing applications; in administration by taking advantage of the efficient cost base in South Africa; and in product development, through sharing
products and investment funds across our businesses,” Roberts says.
In Emerging Markets, the group is already distributing products designed in South Africa into India and expect to do the same into the other large and under-penetrated markets such as China and Mexico.
“South Africa has a well regulated long-term savings industry and a growing middle income and affluent market, which we are penetrating through our strong brand and powerful distribution platforms. We are therefore coordinating our Emerging Markets business, which includes our Africa operations, from OMSA. Having acquired the minorities in Mutual & Federal,
we are also developing Old Mutual branded short-term insurance products for the South African middle income market. We have set a cost reduction target for Emerging Markets of stlg 5 million per annum and a return on equity target of between 20%-25% by the end of 2012.
“In Sweden, we already have a strong market share and are now broadening our product and service offering to the direct market through Skandiabanken, the region’s most successful internet bank. For example, through Skandia Investment Group (SIG) we have exported the highly successful Spectrum concept of risk-targeted funds from the UK to Sweden, and Skandia Nordic has developed its own supporting web-based advisory tools for its direct customers. For the Nordic business we have set a cost reduction target of £10 million per annum and a return on equity target of between 12%-15% by the end of 2012.
“In Retail Europe, we are already making good progress in transferring IT and back office functions to South Africa, which will significantly improve margins. We will also broaden its product set, including introducing protection products. We have set a cost reduction target for Retail Europe of stlg 15 million per annum and return on equity target of 15%-18% by the
end of 2012,” Roberts states.
On the group’s outlook, Roberts says: “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 will 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.”
By Ray Faure
I-Net Bridge.
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