Old Mutual earnings profile ‘will change’

OLD Mutual’s UK and rest of Africa operations are expected to increase their portion of group earnings at a faster rate than the South African business, which remains the dominant source of profit.

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The UK and SA-listed group bought and sold a number of businesses last year, resulting in a substantially altered business that is expected to lead to a different earnings profile. SA still accounts for the majority of group profit, though the UK contribution is increasing. Last year, SA accounted for 64% of group adjusted operating profit of £868m — 1% lower than the year before. The UK’s contribution increased to 20% last year, from 19%.

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The rest of Africa operations contributed 5%.

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Last year Old Mutual acquired an East African insurance company UAP while its subsidiary Nedbank took a 20% stake in West African Ecobank.

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The group listed some of its US business and used the capital it raised to partly fund the acquisition of Quilter Cheviot, a UK discretionary investment manager. “We have reshaped the business and in time this should lead to a different earnings profile for the group,” said group CEO Julian Roberts on Friday.

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Old Mutual is targeting growth in pretax profit of £270m in the UK wealth business next year — up from £127m last year, Mr Roberts said.

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The rest of Africa business was expected to continue growing at a faster rate than the established South African businesses which would probably grow in high single digits or low double digits.

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A weaker rand last year battered Old Mutual’s profits as it reports in sterling. The rand declined by an average rate of 18% in the year. South African shareholders, however, will benefit from a currency boost to dividends earned.

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Based on Friday’s exchange rate, shareholders in SA could look forward to a 13% increase in the final dividend for last year from the previous year, Old Mutual group chief financial officer Ingrid Johnson said.

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The emerging markets business, including SA, the rest of Africa, Asia and Latin America, grew adjusted operating profit 23% to R11bn last year.

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Regulatory approvals for Old Mutual’s acquisition of a majority stake in insurer UAP in East Africa is expected to be completed by mid-year.

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The emerging markets business will then have a strong presence in Kenya, an analyst, who could not be named in line with his firm’s policy, said. “The UAP acquisition is going to give them scale in a fast-growing market.”