Five years ago, Old Mutual teetered on the brink. Big Green’s global expansion from its SA base looked like going terribly wrong as the Global Financial Crisis exposed those swimming without trunks – and Old Mutual’s US operations were very much among them. The very real prospect existed that the SA Government might have to step in to bail out Old Mutual – like its US and UK counterparts had done to stabilise their big institutions. But Old Mutual came through the white knuckle period intact; it passed the 2009 dividend, changed the CEO and negotiated additional credit lines. Today that’s all ancient history as its hundreds of thousands of shareholders celebrate a four-fold increase in the share price in the past five years. And a strong capital base has been re-established. CEO Julian Roberts, the safe pair of hands the group needed so badly back in 2009, is as excited about the next five years as he’s been justifiably cautious during the last five. We linked up with him in London to look ahead while discussing Old Mutual’s quarterly management update, released today. – AH
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ALEC HOGG: Old Mutual’s Chief Executive Julian Roberts joins us now from London. Let’s move on to the story that we’re focusing on in South Africa. Hundreds of thousands of shareholders in Old Mutual will be delighted to see the progress that you’re making internationally. The plan is coming together.
JULIAN ROBERTS: Yes, I’m very pleased with the performance that we’ve had, in all of our businesses – positive net client cash flow right across the board in South Africa, Africa, Asia, the UK, and in the US. The US particularly, has turned around this year and is growing quite strongly and so is that UK platform.
ALEC HOGG: This Quantitative Easing that continues in the United States: would that have played a part in the extraordinary growth that you are continuing to enjoy?
JULIAN ROBERTS: Yes, quite clearly, the fact that governments are stimulating the growth has had a positive impact on the business. However, I think the challenge is going to be – particularly in South Africa – when the tapering starts and QE stops. It will stop in the US and the UK because those economies are beginning to move forward, but clearly countries that have a sizeable current account deficit – there are challenges for them.
ALEC HOGG: Those are on top of the challenges for South Africa that you’ve already articulated in your management report today: strikes, weakened exchange rates – tough times.
JULIAN ROBERTS: Yes, I think our businesses are performing very well. You saw Nedbank’s results last week. You saw the upgrade today so the consumer is clearly under a bit more stress, but clearly our sales, our performance is still going well. You know what I say: what we try to do within our group is look to service – give good solutions to our customers and therefore they trust us with their funds.
ALEC HOGG: In South Africa in particular, in the retail-affluent market the single premium sales are very strong. What would you put that down to?
JULIAN ROBERTS: We’ve had a problem for the last couple of years where the market has been very competitive and therefore we have sold less of our single premium products. We brought out a new product in May – we call it Extra Max – which our customers like and we’re selling well, so in the third quarter our sales in that retail-affluent area are up 20 percent.
ALEC HOGG: Julian, take us through some of the Africa moves that you’ve been busy with in this past period: Ghana with Providential Life – that acquisition now settling down and the more recent acquisition in Nigeria.
JULIAN ROBERTS: Yes, it takes a long time. It probably appears to many of the people that watch you that it seems to take an awfully long time for us to close these transactions. In the quarter, our Ghana acquisition closed. We just announced that we have closed the short-term insurance business in Nigeria and so therefore, we can get momentum building in those particular businesses. We’ve had good growth coming through the life business that we closed the deal on a few months ago in Nigeria. We are waiting for the regulatory consents in Kenya, so the momentum is beginning to grow, and we should see good growth from the rest of Africa.
ALEC HOGG: Since we last spoke there’s been an election in Zimbabwe. Has that affected your business much?
JULIAN ROBERTS: Not hugely – we’re having a good dialogue with the government – as you know – on indigenisation. I know everybody is worried about that, but we’re having a good dialogue. The business continues to trade well.
ALEC HOGG: The Old Mutual story in many respects was in 2008…quite a lot of concern when the financial crisis hit, that you might not even pull out of it. Well, you’ve done better than that. But when one has a look at your results one of the first that analysts pay attention to is capital surpluses – I guess because of what you’ve been through. Where are you currently in that regard?
JULIAN ROBERTS: Well, you may have seen today that we announced we are going to repay more of our international debt – another £175 million. This will mean that our debt repayment program over the last three years has been £1.7 billion. One of the promises that we made to our shareholders – in this five-year recovery period – was that we would repay one and a half billion. We then increased that to £1.7 when we sold the Nordic business (of Skandia), so our cash generation and capital is strong, which has enabled us to make that extra promise to repay that debt. So we’re sitting on a surplus of £1.2 billion. Each of the businesses is well capitalised. Nedbank is already Basel 3 capital compliant, so we’re in a much stronger capital position than we’ve been for quite a few years.
ALEC HOGG: Very comfortable as well I guess from a shareholder’s perspective, to see that the share price in that five-year period has gone up fourfold. Julian, what about into the future: can your shareholders expect a similar type of return?
JULIAN ROBERTS: I am so optimistic about our businesses. If you look at the various buckets – the Mass Foundation cluster… I’m sure you studied the Goldman Sachs report – the biggest growing area is that low end in the middle market. We are so strongly in Mass Foundation: we believe that will continue to grow. We’re incredibly positive about Sub-Saharan Africa. We have good businesses already. We’re going to grow that franchise. In the UK our retail investment platform is as good as anybody else’s is and I would say it’s better. I believe more of consumers’ savings will go onto the retail platforms, and as you see from our net cash flow, the US is performing well. I think we have great opportunities and I believe we can grow strongly from the base that we’ve now developed.
