JSE Sens
OLD MUTUAL LIMITED - Voluntary Operating Update - three months ended 31 March 2020 and Trading Statement - Six Months ended 30 June 2020
2020/05/28 08:01:39Download PDF Stock report
Voluntary Operating Update - three months ended 31 March 2020 and Trading Statement - Six Months ended 30 June 2020:
Voluntary Operating Update - three months ended 31 March 2020 and Trading Statement - Six Months ended 30 June 2020
Old Mutual Limited
Incorporated in the Republic of South Africa
Registration number: 2017/235138/06
ISIN: ZAE000255360
LEI: 213800MON84ZWWPQCN47
JSE Share Code: OMU
NSX Share Code: OMM
MSE Share Code: OMU
ZSE Share Code: OMU
('Old Mutual' or “Company” or “Group”)
Ref 20/20
28 May 2020
OLD MUTUAL VOLUNTARY OPERATING UPDATE FOR THE THREE MONTHS ENDED 31 MARCH 2020
AND TRADING STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2020.
The rapid global spread of COVID-19 has had far reaching impacts on the global
economy, with many countries around the world enforcing lockdowns in varying
severity. The significant declines seen in global capital markets and commodity
prices, the decrease in economic activity due to lockdown restrictions and low
investor and consumer confidence have created a challenging operating
environment for businesses and individuals. In South Africa, the pandemic has
resulted in the rand weakening against major currencies and substantial
outflows from the local bond and equity markets following a further credit
rating downgrade.
To manage the spread of COVID-19, governments in most countries where we operate
have introduced full or partial lockdowns, restricting the movement of goods and
people. Despite the start of gradual easing of lockdown restrictions, we expect
a slow recovery due to the severity of global and local economic contraction
suffered during the crisis. During this pandemic the safety and wellbeing of our
employees, intermediaries and customers remains a top priority. The Group has
experienced minimal disruption to our business operations, with the exception of
our distribution processes where the disruption levels have been higher. We were
able to successfully mobilise and enable the majority of our employees to work
from home and this has allowed us to continue to serve our customers. Although
lockdown restrictions are being eased we envisage that all those business
functions able to operate effectively from home will continue to do so for the
foreseeable future to minimise the number of employees physically onsite in our
primary office locations of Pinelands and Sandton. The small group of employees
who are working from our premises have been engaged and briefed on the strict
protocols they need to follow to ensure their safety, and the safety of other
employees and our customers remains a priority.
Many of our tied advisers have been unable to sell during the lockdown period
due to the partial closure of the branch network and lack of access to customer’s
homes, worksites and branches. The majority of our branch consultants are unable
to work from home and therefore the necessary closure of the majority of our
branch network has slowed loan disbursements and negatively impacted funeral,
savings and credit life sales. These factors have significantly impacted
productivity and new business acquisition during April and May. We have
implemented various intermediary initiatives during lockdown including the
provision of airtime and network access to enable communication with customers,
promotion of digital platforms for sales and the introduction of lower hurdles
for academy advisors to earn base allowances for the duration of the lockdown.
We are actively monitoring the lifting of restrictions to ensure we can return
to full operating capacity as soon as restrictions are lifted.
We have continued to make progress against our strategic priorities during the
first quarter, with focus on improving our customer enablement and servicing
journey and digitally enabling our employees. We have implemented a number of
enhancements and introduced new digital channels and functionality such as the
use of USSD and WhatsApp platforms to service funeral claims and
disinvestments. We added Old Mutual Insure to our Rewards programme, and new
rewards partners such as Uber and Checkers are expected to assist our rewards
members during this difficult period. We have been able to continue with the
roll out of Old Mutual Protect to customers and onboarding of advisers, with
over 1,000 advisers now using the product.
Capital position and Liquidity
The Group’s liquidity management remains robust and we have cash reserves more
than sufficient to cover our business requirements. We have performed a series
of stress tests to assess our liquidity position under various recovery scenarios
and liquidity levels remain positive under all of these.
The solvency ratio for OMLACSA for the three months ended 31 March 2020 was 211%,
at the top end of our target range of 175%-210%. The decrease in our solvency
ratio from the reported 216% in our FY2019 results, was largely due to a reduction
in own funds driven by the significant decrease in Nedbank’s share price year to
date and a decrease in the related solvency capital requirement. The impact on
our capital ratio of market driven decreases on the rest of the portfolio was
largely mitigated by our hedging programme, which proved effective during this
period of volatility. We also continue to monitor our Group solvency ratio and
we remain well within our target range of 155%-175%.
Following the severe market downturn in March 2020, the monthly investment
returns earned on our Absolute Growth Portfolios, our flagship smoothed bonus
portfolios, fell to negative levels in excess of -15%. We exercised our right
of discretion to declare a less severe negative bonus of -5% to protect benefit
payments to customers. This is the first time in the history of this product
that a negative bonus has been declared and we remain confident that the Bonus
Smoothing Reserve will be restored over the medium term. Investment risk for our
customers is being managed through the diversification of underlying portfolios
within mandate, the smoothing of investment returns and the offering of explicit
capital guarantees. The guarantee risk for shareholders is managed on an ongoing
basis through various management actions including applying Market Value
Adjustments to voluntary withdrawals, reducing bonuses, declaring negative
bonuses or removing non-guaranteed account values. In addition, the Group holds
an explicit Investment Guarantee Reserve and employs a hedging strategy on the
assets supporting this reserve. Our smoothed bonus funds have been managed well
during this period of volatility.
Financial performance for the three months ended 31 March 2020
The table below sets out certain of our key performance indicators for the
three months ended 31 March 2020.
Key Performance Indicators 31 March 2020 31 March 2019 % change
(R millions unless otherwise
indicated)
Life APE Sales 2,461 2,893 (15%)
Net Client Cash Flow (Rbn) 0.8 (0.8) greater than 100%
Funds Under Management1 (FUM) 979.7 1,048.5 (7%)
(Rbn)
Loans and Advances1 23,039 22,684 2%
Gross Written Premiums 4,971 4,628 7%
Results From Operations 1,227 1,835 (33%)
(RFO)
1Comparative amounts represent FY2019 balances.
Life APE sales have decreased largely due to lower recurring premiums flows
experienced across the business partially offset by strong single premium sales.
The decline in recurring premium life sales is driven by lower umbrella sales in
Old Mutual Corporate and lower sales volumes in Mass and Foundation Cluster and
Personal Finance, reflecting lower levels of customer disposable income.
Net Client Cash Flow remains positive due to strong single premium life sales
and higher institutional and retail inflows in Wealth and Investments, despite
increased outflows as customers seek liquidity and withdraw funds to supplement
income. FUM levels have decreased largely due to a decrease in equity market
levels as a result of the COVID-19 pandemic, partially offset by the positive
impact of foreign denominated FUM due to the weakening rand.
We experienced stable growth in Loans and Advances compared to the prior year,
with deliberate slowed disbursements to manage credit risk. Gross Written
Premiums showed good growth driven by the ongoing benefits from strategic
partnerships in Old Mutual Insure and strong renewal rates and new business
acquisition in East Africa.
The decrease in RFO is due to lower asset based fees and negative fair value
movements on unlisted equity and credit portfolios in Wealth and Investments.
Lower life sales volumes not sufficient to cover fixed distribution related
costs, deterioration in underwriting experience in Old Mutual Corporate and the
impact of poor persistency and higher credit losses, specifically in Mass and
Foundation Cluster have further contributed to the decline in profits. This was
partially offset by improved underwriting experience in Old Mutual Insure
compared to significant catastrophe losses in the prior year.
Trading update
Despite a gradual easing of lockdown restrictions in South Africa and in many
countries where we operate, we expect the pandemic to impact our performance for
the remainder of the 2020 financial year as levels of uncertainty continue to
impact economic conditions and consumer confidence. The value of issued life
sales in the month of April was significantly lower than in the prior year,
reflecting the impact on our sales force. Issued sales in Mass and Foundation
Cluster were down around 90% and almost 50% in Personal Finance, respectively.
We expect sales levels to recover subsequent to lockdown and specific management
actions have been put in place to accelerate sales and greater access to
customers. The significant drop in issued sales will negatively impact reported
Life APE sales in H1 2020, and therefore we expected this metric to be lower
than prior year as the impact of lower issued sales volumes comes through.
Low levels of issued sales in April and May, whilst the distribution cost base
remains largely fixed, will have a negative impact on our reported profits and
Value of New Business (VNB) for H1 2020. Initiatives in the form of premium
holidays, discounts and deferrals of rate increases will pose further downside
pressure on revenue levels. In response, expenses are being tightly managed.
The risk of rising infection rates may adversely impact mortality experience,
whilst other COVID-19 related claims such as business interruption claims could
also negatively impact underwriting experience. We have seen an increase in
business interruption incidents in April and May, however we expect to be able
to rely on our existing reinsurance programme. The consumer will remain under
significant pressure, with increased levels of unemployment expected. This is
likely to reduce levels of disposable income resulting in lower sales volumes,
worse persistency and higher credit losses on our loan book. Shareholder
investment returns are expected to be below prior year due to year to date
decline in the equity markets and negative fair value movements on certain
classes of invested shareholder assets.
Taking into account these indicators of H1 2020 performance, In terms of paragraph
3.4(b) of the Listings Requirements of the JSE Limited, shareholders are advised
that Headline Earnings per share (HEPS) and Earnings per share (EPS) for the six
months ended 30 June 2020 are expected to be more than 20% lower than the reported
HEPS and EPS for the comparable period (H1 2019 HEPS: 128.1 cents, H1 2019 EPS:
127.3 cents). We will publish a further update once there is more certainty on
the probable ranges of the decrease in HEPS and EPS.
Our contribution to society
We have remained conscious of our commitment to support our customers and
communities in this time of severe stress and continue to make positive
contributions through various initiatives.
Key initiatives include the following:
? R4 billion worth of free life cover made available to approximately 430 000
registered healthcare workers across South Africa.
? We pledged R50 million towards relief efforts that address immediate
educational needs, hygiene awareness and nutritional support and R5 million
towards national initiatives that provide access to personal protective
equipment for essential service workers. As part of these efforts, we have
refurbished a former training centre close to our office in Pinelands which
will in part be used by Lancet Laboratories for COVID-19 testing. The remainder
of the facility was refurbished as an isolation and quarantine facility and
handed over to the Western Cape government on 27 May 2020.
? Our business in Namibia committed N$5 million towards the provision of food
supplies, the expansion of testing capacity, and the National Disaster Fund.
In Kenya, we contributed KES6 million in support of government initiatives to
contain the virus. In Zimbabwe, we offered ZWL$2 billion life insurance cover
to health professionals on the frontline of the fight against COVID-19.
? We are providing ongoing customer relief such as premium payment holidays,
premium discounts, delays in annual rate and fee reviews and grace periods
for loan repayments.
? We included the Solidarity Fund as a beneficiary on our staff Payroll Giving
Programme in which employees are encouraged to give generously. Our Executive
Committee members agreed to forego salary increases and the company is
directing these funds to the Solidarity Fund.
? Old Mutual Insure pledged R50 million in total to support SME customers and
partners during this period.
Outlook
Over the past few weeks, we have performed a detailed scenario planning exercise
which has focused on modelling the financial impact on key earnings, liquidity
and capital measures under a range of possible economic scenarios. The outcome
of these scenarios shows that, whilst we do expect to experience earnings pressure
in the short term, our capital and liquidity remain at appropriate levels in
all scenarios, with the Group solvency capital ratio falling marginally below
our target range pre-management actions only in the most extreme scenario tested.
In order to mitigate the expected pressure on earnings we have implemented a
series of management actions focusing on reducing expenses in 2020. We are also
working on a number of medium term initiatives to capitalise on the growth
opportunities the pandemic presents, these will be communicated in due course.
Whilst we expect market circumstances to place pressure on earnings in the short
term we remain confident in the strength of our cash reserves and balance sheet
to withstand this volatility, ensuring we will continue to be able to deliver on
our promises to customers and providing a platform to accelerate growth as
economic conditions improve.
The financial information in this operating update and trading statement is the
responsibility of the Old Mutual Limited Board of Directors and has not been
reviewed or reported on by the Group’s external auditors.
Sandton
Sponsors
JSE Merrill Lynch South Africa (Pty) Limited
Namibia PSG Wealth Management (Namibia) (Proprietary)
Limited
Zimbabwe Imara Capital Zimbabwe plc
Malawi Stockbrokers Malawi Limited
Enquiries
Investor Relations
Sizwe Ndlovu T: +27 (0)11 217 1163
Head of Investor Relations E: tndlovu6@oldmutual.com
Tokelo Mulaudzi T: +27 (0)11 217 1042
Investor Relations Manager tmulaudzi3@oldmutual.com
Communications
Tabby Tsengiwe T: +27 (11) 217 1953
Head of Communications M: +27 (0)60 547 4947
E: ttsengiwe@oldmutual.com
Notes to Editors
About Old Mutual Limited
Old Mutual is a premium African financial services group that offers a broad
spectrum of financial solutions to retail and corporate customers across key
markets segments in 14 countries. Old Mutual's primary operations are in South
Africa and the rest of Africa, and it has a niche business in Asia. With over
175 years of heritage across sub-Saharan Africa, we are a crucial part of the
communities we serve and broader society on the continent.
For further information on Old Mutual, and its underlying businesses, please
visit the corporate website at www.oldmutual.com.
Date: 28-05-2020 08:00:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.