Higher investment returns from Zimbabwe and South Africa bolstered Old Mutual plc’s Emerging Markets profit after tax, which grew 46 percent to R10.2 billion in 2017 from R7.0 billion the previous year.
Despite political headwinds that rocked the two countries last year, leading to the resignations of former Presidents Robert Mugabe and Jacob Zuma, Old Mutual has acknowledged the significant contributions to overall earnings from its units in the two neighbouring states.
The London-listed Old Mutual Holding Company last year pronounced a bold decision to unbundle its operations by creating four new separate commercial units – Old Mutual Emerging Markets (OMEM), Nedbank Group and Old Mutual Wealth (OMW) with Old Mutual Asset Management having already been separated from the group.
The process has started delivering value through cost and debt reduction, said the group and efforts are under way to finalise material completion of the managed separation within expected timelines.
Group chief executive, Bruce Hemphill, said the separation was a strategic decision “aimed at unlocking and creating significant long-term value for shareholders”, which was trapped within the group structure, as well as removing costs arising from it. He expressed concern over the challenging macroeconomic conditions that dominated South Africa, particularly in 2017 that saw weakening consumer and business confidence, which affected banking environment, long-term investment and savings.
These culminated in the downgrading of the South African government’s sovereign and local currency credit ratings in April and November. Old Mutual, however, noted that markets have rallied positively with the political changes that saw Cyril Ramaphosa ascend to power recently.
In a statement accompanying the group’s preliminary results for the year ended 31 December 2017, Hemphill paid tribute to Zimbabwe and South Africa operations under the OMEM arm.
“Profit after tax of R10.2 billion increased 46 percent from R7bn in the prior year. This was driven primarily by higher actual investment returns in South Africa and Zimbabwe,” he said.
“In the context of a tough economic and political landscape across several OMEM’s key markets for much of the year, including South Africa, Zimbabwe and Kenya, the business delivered resilient financial results with pre-tax AOP of R13.3 billion, up from 5 percent on the prior year.”
OMEM aims to become a premium African financial services group offering a broad spectrum of financial solutions to retail and corporate customers across key market segments in 17 countries.
According to Hemphill, OMEM primarily operates in seven segments and its lines of business include life and savings, property and casualty, asset management and banking and lending. The unit distributes products and services to customers through multi-channel distribution network spanning tied and independent advisors, branches, digital channels and worksites.
Old Mutual said it will forge ahead with its business review model with plans to list two separate entities, on both the London and Johannesburg Stock Exchanges.
“One will consist principally of the OMW operations and on listing will be called Quilter plc. The other will be a new South African holding company, Old Mutual Limited (OML), which will consist OMEM, the Old Mutual holding in Nedbank and the residual Old Mutual plc,” it said.
Steps towards finalisation include conclusion of the necessary regulatory and tax approvals, completion of administrative processes and addressing any remaining issues required to give effect to managed separation, publication of shareholder documentation, shareholder votes to approve finalisation of separation and court approvals, among others.
Once the separation process is complete, Hemphill said each business unit will have its local regulator as its lead regulator, will continue delivery of enhanced performance and allow the market to value it appropriately while being accountable to its shareholders.
Meanwhile, Nedbank Group, through its operations in the Southern African Development Community and the rest of Africa, and through its pan-African banking alliance with Ecobank, produced a solid performance in a macro and political environment that has proved volatile and challenging.
“Headline earnings, including losses in associate income from ETI of R744 million, increased by 2.8 percent to R11.8 billion,” said the group.
OMW, on the one hand, scooped a post-tax profit of £99 million for 2017, compared to a loss £4 million in 2016. OMW is a leader in the UK and in selected offshore markets in wealth management, providing advise-led investment solutions and investment platforms to nearly one million clients in the affluent market segment.