Old Mutual mulls changes to personal finance business after profit decline
Group misses operational targets first set of results as a standalone entity following the group’s split into four units in 2018
Old Mutual’s share price fell to its lowest level in six months as the group missed its full-year operational targets in its first set of results as a standalone entity following the group’s split into four units in 2018.
Old Mutual’s share price reached a low of R20.59 on Monday after the insurer posted adjusted profits of R11.5bn for the year to end December 2018, 4% lower than in 2017. The personal finance business, which offers insurance and savings products to individuals, was the biggest drag on the group, with operational profits plummeting 36% to R2bn.
After the split, Old Mutual set a number of goals to defend and regain market share in different segments, including the mass market, the corporate business and the personal finance business. But it has proven tough to achieve this in the personal finance business, which is the second-largest contributor to the group’s profits.
“There’s still a lot of work to do in the personal finance business. Competition remains intense. But I believe that the actions we are taking are the right management actions. I am confident they will turn the situation around,” said Old Mutual CEO Peter Moyo.
Moyo did not detail what these management actions entail but said it has become clear that it will take slightly longer than the group initially envisaged to turn the unit around. It grew life insurance sales by only 2% to R2.56bn, while net fund outflows widened 0.8% to R3.6bn, Old Mutual said.
Warwick Bam, head of research at Avior Capital Markets, said despite troubles in the personal finance business, Old Mutual delivered on everything under its control. Excluding the impact of foreign currency adjustments on its Zimbabwe business, for example, Old Mutual’s adjusted profits would have risen 1% year-on-year.
“It is remarkable what the Old Mutual team has executed on over the past two years. The R2bn share buy-back announced today is testament to a management team intent on delivering returns to shareholders,” Bam said.
Old Mutual reported marked progress on retaining its leading position in its business serving the mass market. The mass market business life insurance grew sales by 12% to R4.5bn, while and loans and advances grew by 37% to R16.5bn. At 31% the mass and foundation cluster contributes the biggest share to the group’s operating profits.
In comparison, the second-biggest insurer in this segment,MMI's Metropolitan Retail, recorded net insurance premiums of R3.6bn in the six months to December 2018, while Sanlam Sky recorded new business volumes of R2.5bn. Old Mutual attributed its success to an increased footprint and technology investments. The group opened 25 new branches in this market segment in 2018 and launched its first online funeral product.
The insurer is also increasing its transactional banking consumers in this segment. It now has 1-million money accounts opened, thanks to linking the banking facility to its insurance payouts. Moyo said the group has made payment of claims to money accounts much faster and in some instances was able to make payments in just four minutes.
The group said it plans to spend up to R2bn on buying back its own shares, which will bring the amount of capital returned to shareholders since the beginning of 2018 to R51.5bn.