Old Mutual reports huge outflows as retrenched miners access benefits

Old Mutual says mass jobs cuts in SA’s mining industry have contributed to the financial services group reporting billions of rand in retrenchment benefit outflows in the six months ended June.

SA’s mining industry has retrenched about 10,000 miners this year, mostly in the platinum sector. There have also been retrenchments in the coal and gold industries as those companies close unprofitable shafts.

“Gross flows decreased 2% to R14.7bn due to the decline in pre-retirement single premium flows. Negative net client cash flow of R7.9bn was largely driven by higher retrenchment benefit outflows, particularly in the mining industry,” Old Mutual said in a statement accompanying its interims financial statements on Thursday, referring to the performance of Old Mutual Corporate.

Earlier this month the World Platinum Investment Council said SA’s platinum supply had slipped to pre-Covid levels after the industry slashed about 10,000 jobs and recalibrated operations in response to a plunge in prices. The organisation also warned that job cuts place long-term production at risk.

Old Mutual said its employee benefits business remained focused on generating flows from continued employee benefits deals and it would continue to build a strong pipeline into the new year.

“The business is soundly positioned to manage the impact of short-term, “two-pot” withdrawals, which will have a further negative impact on net client cash flow at year end,” the group said, referring to the change in retirement funding legislation that enables workers early access to a portion of their retirement savings.

“Over the medium to long term the initial outflows will be offset by higher assets under management retained as a result of the compulsory preservation of the accumulated contributions in the non-accessible retirement savings pot.” 

The group, lead by Iain Williamson, reported a solid performance at the halfway stage of its financial year, increasing life sales by 6% and gross written premiums by 9%.

Adjusted headline earnings for the six months to end-June, an important metric for distributable earnings, rose 3% to R3.27bn, supported by a 14% increase in shareholder investment returns due to an improved performance by SA equities.

Adjusted headline earnings per share increased by 7% to 73.5c, bolstered by the R1.5bn share buyback executed in 2023, the group said in a statement on Thursday. A further R1bn share buyback is proposed for 2024, subject to regulatory approval.

Headline earnings, which include the results of Zimbabwe, were up 34% at R5.825bn. An interim dividend of 34c per share was declared.

The group said the resilience and scale of the various business segments underscored the importance of a diversified earnings base.

The group said Old Mutual Insure had delivered an “exceptional turnaround” through better risk selection and “disciplined expense management”. Premiums were up 10%, driven by “solid channel productivity”, while net underwriting results increased by more than 100%.

Group return on net asset value increased by 70 basis points to 12.6%, driven by the growth in earnings and capital optimisations.

Despite a demanding base, the mass and foundation cluster reported strong sales growth of 14%, with the group’s multichannel strategy continuing to bolster market share and support sustainable margins.

Personal finance and wealth management reported sales growth of 8%, driven by higher guaranteed annuities and recurring premium savings sales. Assets under management in the investments business demonstrated resilience, growing 3% after benefiting from market performance in SA.

Old Mutual Africa regions delivered sustained profit growth, shrugging off currency movements, as gross written premiums increased by 17% and life sales by 5%.

During the period the group focused on accelerating its digital modernisation and the Old Mutual Africa regions review. As a result, the group exited its life and general insurance businesses in Nigeria and Tanzania, enabling it to focus on the markets where it believes it can achieve strong growth and achieve its ambition to be among the top three competitors.

Williamson said positive investor sentiment in SA after the general election, along with last week rate cut and further possible further cuts later in the year, had reset the base case for growth.

Progress on strategic delivery provided an edge, with moves to launch the new bank “progressing very well and set to shake up the status quo”, he said.

“We have completed industry testing and integration into the National Payments System. Our bank build in SA represents a critical component of delivering on our integrated financial services business of the future.”

Technical and operational progress on the bank was ahead of schedule, and the remainder of the year would focus on refining the bank systems and capabilities before a public launch, which was expected in the first quarter of 2025, he said.

Old Mutual recently announced the appointment of Clarence Nethengwe as CEO-designate of OM Bank, effective November 1, subject to regulatory approval.

mackenziej@arena.africa

Update: September 27 2024
This article has been updated throughout with additional information and has been corrected to say about 10,000 jobs have been lost across the mining industry.