LONDON, May 17, 2002 (PRIMEZONE) -- Old Mutual (LSE:OML) has made a solid start to 2002. Our embedded value has benefited from the strengthening of the Rand since year end, whilst our operating profits in Sterling have been held back as the average Rand: Sterling exchange rate remains significantly below that for last year. Life new business has been strong, particularly in the U.S.A, but asset growth in the U.S.A and the U.K. has been flat as a result of weak equity markets.
South Africa
In the Group's South African Life Assurance business, sales results for the first four months of 2002 have improved significantly on the equivalent period in 2001 when sales were slow, and are marginally up on the average volumes for the whole of 2001. Rand profits have been a little dampened by the impact of rising interest rates on bond values, project expenses and flat assets under management.
The asset base of Nedcor, the Group's 53%-owned banking subsidiary, has grown at a satisfactory rate and its underlying profits also have remained satisfactory. Nedcor has announced an offer for the sixth largest South African banking group, BoE, which has been recommended by the Board of BoE. If successful, this will considerably strengthen Nedcor's position in the market, and Nedcor hopes to complete the acquisition in the third quarter of 2002.
U.S.A
In the U.S.A, the Group's Asset Management business has recorded positive net fund flows - approximately $0.3 billion - and investment performance has been good. The markets have not been positive, however, and income has been curtailed as a result. The business is on track to reduce head office expenditure by around $25 million for the full year. The restructuring of Pilgrim Baxter has been completed, and although Pilgrim Baxter's traditional asset base has eroded, its funds sub-advised by other Old Mutual firms have been very successful.
The value of the Group's strategy of having both fixed interest and equity offerings to U.S. retail customers has been clearly shown this year, as the U.S. Life business has benefited from the continuing trend to fixed interest based products, with sales of $1.2 billion for the first four months. The fixed annuity market in the U.S. is at an all time high, and the Group is taking advantage of these favourable conditions while they last.
U.K.
Trading conditions in the U.K. have continued to be very difficult. The FTSE 100 Index has oscillated in a narrow range during 2002, and asset-based revenues have been at similar levels to the second half of 2001. Gerrard - the cornerstone of the Group's U.K. business - produced a small profit during the first four months of 2002, but revenues have historically been weighted towards the first half of the year. OMAM (U.K.) has successfully launched new funds during the first four months of 2002.
Eurobond Issue and Gearing
In March 2002, the Group successfully launched its debut bond in the Eurobond market, raising Euro400 million. The Group's funding requirement is U.S.$ denominated, and therefore the proceeds of the bond issue were swapped into a $349 million debt liability at a fixed U.S.$ interest rate of 6.59% p.a. The Group's gearing ratio has remained at a satisfactory 35%.
Outlook
The Group is well positioned in its chosen businesses within its three main chosen geographies. It remains highly sensitive to equity market, interest rate, and currency exchange rate levels, which, with some notable exceptions, have generally continued to be unfavourable so far in 2002. While these conditions persist, the Group's operating environment will be challenging, but the Group remains confident that its businesses are well placed to take advantage of any improvements in markets.
Conference call:
There will be an analysts' telephone conference call with Julian Roberts, Group Finance Director, at 10:00a.m. this morning, U.K. time (11:00a.m. South African time). To participate, please dial the following toll free numbers:
U.K. & Europe: 00800 4444 4411 South Africa: 0800 991103 U.S.: 1 800 482 5547
International participants from outside the above regions should dial the following number (not toll free): +44 (0)20 8781 0577
Should you not be able to participate, a replay facility will be in place until Friday, 24 May 2002. To activate the replay facility, dial the following number, and quote the relevant access code:
U.K., Europe & South Africa: +44 (0)20 8288 4459
Access code: 613612
U.S.: +1 303 804 1855
Access code: 1851456
Further details on operating businesses
South African Businesses
The first four months of 2002 were marked by a recovery in the Rand against international currencies and an improving equity market in South Africa. The Group reports its earnings by reference to the average exchange rates prevailing during the period covered, so, despite this welcome recovery in the Rand, there is still a material adverse variance, comparing the first four months of 2001 and 2002. The average Rand: Sterling exchange rate for the first four months of 2002 was R16.33:1 pound, compared to an average rate for the first four months of 2001 of R11.46:1 pound (a decline in the rate of 42%) and a closing rate of R17.43:1 pound at 31 December 2001. South African interest rates have moved up 2% since the beginning of the year, and a further 1% increase looks possible before mid-year. The benefits of tax cuts flowing from the South African Budget will only be felt in the second half of the year.
Life Assurance and Asset Management
The South African Life Assurance and Asset Management businesses have had a satisfactory first four months of 2002, building on their growth in the second half of 2001. Individual Business continued to perform well in both single and recurring premium business, with new business APE (Annual Premium Equivalent) of R824 million, an increase of 22% on the equivalent period in 2001, reflecting the benefits of increased salesforce productivity. Group Business APE of R240 million is more than double the same period last year, which Old Mutual considered a poor period. Results from bancassurance are in line with expectations, and are ahead of the second half of 2001.
As a result of increased premiums, the value of new business of R236 million for the first four months of 2002 is substantially better than the same period last year. New business margins at a product level are in line with the same period last year.
Total South African policyholder assets under management were R216 billion at April 30, 2002, unchanged from December 31, 2001. Net client cashflow continued to be negative for the first four months of 2002.
Operating profit, before long-term investment return, for the period was slightly below expectations due, inter alia, to expenses associated with implementing a new administration system in the Group Business area and reductions in bond values following interest rate rises.
Banking
The banking market in South Africa remains highly competitive, with over-capacity in the industry, smaller banks under increasing liquidity pressure, the micro-lending and retailing (furniture) sectors suffering strain, and the international banks taking market share in the corporate and investment banking sectors.
Nedcor's asset quality continues to show improvements, with advances growth remaining robust. Nedcor is currently negotiating the detailed service level agreement with Swisscard, under which Nedcor will assume responsibility for Swisscard's card processing operations, with completion set for June 2002. Further European banks have expressed interest in having discussions on processing arrangements with Nedcor. Nedcor's joint ventures, although at different stages of maturity, are gathering market momentum.
Whilst Nedcor recorded Rand translation gains on its international assets in 2001, recent strong gains in the Rand have given rise to translation losses so far in 2002.
Nedcor announced a recommended bid to acquire BoE on April 22, 2002. After completing due diligence, Nedcor confirmed on May 13, 2002 that it would proceed with this offer and that the consideration under the offer would be increased to the maximum price referred to in the initial announcement. It is anticipated that, subject to regulatory approval, the acquisition could be completed by the end of July 2002. The potential synergies to be derived from the proposed acquisition of BoE are exciting.
Competition Commission authority for the proposed merger of Permanent Bank and Old Mutual Banking Services has been received. Approval from the Minister of Finance is awaited. Implementation of this merger will add further weight to the bancassurance initiatives between Old Mutual and Nedcor.
General Insurance
The operating ratio of Mutual & Federal Insurance Company Limited, the Group's 51% owned general insurance subsidiary, remains below 100% due to continued control of expenses. During the first four months of 2002, the extent of the improvement in the underwriting cycle was not as pronounced as had been expected, as surplus capacity in the market has produced significant opposition to the rate increases required to combat higher reinsurance costs and claims inflation due to the depreciation of the Rand in 2001.
U.S. Businesses
During the first four months of 2002, the S&P 500 Index decreased 6% and the NASDAQ Composite Index declined 13%. Over this period investors have indicated a general preference for value-styled investments, rather than growth oriented products. The advantage of owning a spread of businesses in the U.S.A has again been shown by their resilience to difficult U.S. equity market conditions.
Asset Management
Assets managed by our U.S. Asset Management business increased during the first four months of 2002 from $144.6 billion, after adjusting for affiliate divestitures, to $145.6 billion, with net fund inflows of $0.3 billion, which include net fund inflows from Fidelity & Guaranty (F&G) of $0.7 billion.
During March 2002, Old Mutual announced that it had agreed to restructure the residual 20% revenue-share interest of Pilgrim Baxter through the payment of $175 million plus an earn-out over five years, if profit growth exceeds 7.5% per annum. The restructuring consolidates Old Mutual's interest in the U.S. retail asset management market.
Pilgrim Baxter recorded net fund outflows of $0.9 billion from its traditional business, as growth managers suffered from the movement to less volatile investment classes. Pilgrim Baxter continues to be the development platform for the Group's mutual fund business. During the first four months of 2002, five new funds were taken on to this platform and sub-advised by other firms within the Group, and these attracted assets of $0.8 billion for these firms.
Investment performance remains strong. On the retail side, 56% of all of the Group's U.S. mutual funds hold Morningstar 4 or 5 star ratings. Within OMAM (U.S.), where the main focus is on institutional and wrap channel assets, performance figures over three years exceed benchmarks in 81% of cases.
Life Assurance
The fixed annuity market in the U.S.A is significantly above its previous peaks, benefiting from customers' current conservatism. This will vary with economic conditions, but for now the Group has excellent opportunities in this market. Old Mutual's U.S. Life businesses have performed impressively for the first four months of 2002, with total sales of $1.2 billion ($148 million on an APE basis). This represents, on an APE basis, more than double the sales achieved in the equivalent period in 2001, which was prior to acquisition by Old Mutual.
The value of new business for the first four months of 2002 of $25 million, at a margin of 17%, is a significant improvement on that of the prior year.
On a funds flow basis, the Group's U.S. Life businesses have attracted $1.1 billion in net policyholder cash inflow for the first four months of 2002. Since acquisition, F&G has generated net policyholder cash inflows totalling more than $2 billion. Total assets under management were $8.0 billion at 30 April 2002.
AM Best reaffirmed F&G's 'A' rating, and removed it from review status in February 2002.
U.K. Businesses
The FTSE 100 Index at the end of April 2002 had declined 1% since 31 December 2001 and asset-based revenues have consequently been flat. Retail market activity levels have also remained low during this period. Against this background, Gerrard has seen some improvement in trading volumes, and has produced a small profit in this period, which historically has produced a disproportionate share of annual revenues. Headcount reduction initiatives at Gerrard have continued during the first four months of 2002.
OMAM (U.K.) is now firmly focused on generating external U.K. retail funds. New funds in excess of 100 million pounds were attracted in the first four months, with notable inflows into corporate bond and U.K. small cap funds. The transfer of Gerrard's unit trust business to OMAM (U.K.), and the associated rationalisation of the unit trust administration function, are anticipated to result in cost savings from 2003.
Trading at GNI has been satisfactory, with all business units contributing a positive result.
Approval was obtained from the FSA in early May 2002 to allow life products to be offered by Selestia. Onshore and offshore bond product launches will expand the investment offering in line with the original business plan.
Discussions regarding the possible sale of Old Mutual Securities to Beeson Gregory plc were terminated during April 2002. Old Mutual remains committed to finding the appropriate means to secure Old Mutual Securities' continued development, whether that is within Old Mutual or as part of another group.
Interim results
Old Mutual plc expects to announce its interim results for the six months ending June 30, 2002 on August 12, 2002. It is expected that Nedcor Limited will announce its interim results on July 30, 2002.
Forward looking statements
This announcement contains certain forward looking statements with respect to the financial condition and results of operations of Old Mutual plc and Group companies, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward looking statements include, but are not limited to, global, national and regional economic conditions, levels of securities markets, interest rates, credit or other risks of lending and investment activities, and competitive and regulatory factors.