Old Mutual Seeks Value Boost From U.S. Assets
March 16, 2010 by Sheryl J. Moore
March 12, 2010 | AllAfrica.com
| Copyright: | Business Day. Distributed AllAfrica Global Media (allAfrica.com). |
| Source: | AllAfrica.com |
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Johannesburg, Mar 12, 2010 (Business Day/All Africa Global Media via COMTEX) — LONDON-based Old Mutual yesterday outlined a new strategy to extract more value from its ailing US businesses, with the potential sale of US Life and a possible listing of its asset management unit there.
The group also said it would resume paying a dividend, albeit a “conservative” one, of 1,5p (down from 2,45p in 2008).
The dividend was declared with a scrip alternative. CE Julian Roberts said the dividend was proposed after considering the better prospects, the stronger performance of the past year, capacity to pay a dividend and taking into account uncertainty in investment markets. “So we started with a relatively conservative dividend.”
The group, which has life and wealth management operations in SA, the US and Europe, has been criticised by some investors for failing to deliver enough growth from its strategy.
Its shares have been trading at about a 30% discount to the group’s own valuations.
Three insurance analysts polled by Business Day yesterday said Old Mutual had “had to do something”. The changes were “a step in the right direction”, but the devil would lie in the execution.
They said the sum of the proposed cost cuts did not seem aggressive enough.
Roberts admitted they had “allowed ourselves to be distracted by businesses that do not make a meaningful contribution”, and they would be “ruthless” about new strategic criteria that its businesses would have to comply with to be part of the group.
He said a partial listing of its US Asset Management business was possible in the next three years to create a more visible valuation for the business and a mechanism for growth. The US Asset Management operations are made up of 20 different investment boutiques.
He said the sale of the US Life business would be explored once its turnaround was complete.
Operating efficiencies would be improved, which was expected to take out about GBP100m of costs by 2012. Proceeds of the rationalisations and retained earnings would be used to pay down GBP1,5bn of GBP2,3bn of debt over three years and improve the balance sheet.
Roberts said while the streamlining process was continuing, he did not wish to comment further on speculation that other parts of the business may be up for sale.
The focus would be on building “a cohesive long-term savings, protection and investment group by leveraging the strength of its capabilities in SA and around the world”. Tough performance targets had been set for the group’s businesses. The low cost base and technology and the product design capabilities of its operations in SA – where it remains the biggest life assurer – would be leveraged, particularly for emerging markets.
“The group is already designing products for its underpenetrated markets in India, China and Mexico, as well as for its UK platform business.”
Retail Europe’s IT and back- office activities will be moved to Cape Town. “Africa has a population of 1-billion and it is starting to deliver as a consumer market,” he said.
The group’s surplus capital rose to GBP1,5bn from GBP0,7bn at the end of 2008. The unrealised loss position in its US Life business improved dramatically and, in spite of previous expectations, there was likely to be no need to inject further capital into US Life this year.
