Old Mutual Ltd. · JSE:OMU
Old Mutual — FY2002 Earnings Presentation
49 slides from Old Mutual's earnings presentation, Feb 24, 2003
Slide 1: Analyst Presentation
Analyst Presentation Preliminary results for the year to 31 December 2002
Slide 2: Jim Sutcliffe - Introduction
Jim Sutcliffe Chief Executive Introduction
Slide 3: Diversity produces resilience
Diversity produces resilience • Record Life sales of £5.1bn gross • Asset management distribution initiatives produced positive cash flow • Cost controls applied • Group return on equity 16%
Slide 4: Management action in 2002
Management action in 2002 • Acquisitions bedded down • Disposals bring greater focus: de-risking • BoE acquired and integration underway • Capital management – Ratings re-affirmed – Solvency strong
Slide 5: Key financial highlights - Sterling
Key financial highlights - Sterling % 2002 2001 change Operating profit (smoothed) £724m £856m -15 Operating EPS 11.3p *12.1p -7 Dividend per share 4.8p 4.8p - Embedded value per share 103.8p 94.1p +10 * Restated from 13.2p on adoption of FRS 19
Slide 6: Key financial highlights - Rand
Key financial highlights - Rand % 2002 2001 change Operating profit (smoothed) R11,431m R10,601m +8 Operating EPS 179.0c *149.1c +20 Dividend per share **69.6c 72.3c -4 Embedded value per share R14.34 R16.39 -13 * Restated from 163.4c on adoption of FRS 19 ** Indicative only
Slide 7: Progress on internationalisation - 2002
Progress on internationalisation - 2002 Life new business (APE) Embedded value (pre-debt) 4% 8% 42% 35% 54% 57% Funds under management Operating profit 22% 19% 7% 22% 71% 59% USA UK & Rest South Africa
Slide 8: Julian Roberts - Finance and operating review
Julian Roberts Group Finance Director Finance and operating review
Slide 9: South Africa
South Africa OMSA – Strong Nedcor – BoE integration margins on track M&F – World class underwriting The number one financial services group in South Africa
Slide 10: Old Mutual South Africa
Old Mutual South Africa • Life – Strong new business performance – Profitability increased – Continued focus on distribution – Bancassurance up 14%* • Asset management – OMAM(SA) improved investment performance – OMUT underperformed * Annual premium equivalent
Slide 11: South Africa Life - Strong new business
South Africa Life – Strong new business % Rm 2002 2001 change Individual business* 2,670 2,467 +8 Group business* 1,035 675 +53 Total* 3,705 3,142 +18 New business margins** 49% 43% Value of new business** 1,806 1,350 +34 * Annual premium equivalent ** Gross of tax
Slide 12: OMSA
OMSA % Rm 2002 2001 change Life assurance profit 5,414 4,915 +10 Individual business 2,352 2,152 +9 Group business 931 933 0 LTIR 2,131 1,830 +16 Return on capital 22% 24% Asset management profit 441 458 -4 Funds under management (Rbn) 257 261 -2
Slide 13: Nedcor
Nedcor % Rm 2002 2001 change Operating profit* 3,489 4,572 -24 Total banking assets* 295,291 197,099 +50 Net translation (losses)/gains (611) 696 Cost/income ratio 55.4% 52.5% Capital adequacy ratio 11.0% 11.4% * As per Old Mutual plc banking disclosure
Slide 14: Nedcor - Strategic platform enhanced
Nedcor – Strategic platform enhanced • Major restructuring undertaken – Acquisition of BoE – Enhanced capital structures – New operating structures • BoE synergies after integration costs (pre-tax) – 2003 R110m – 2006 R905m • Strengthened bad debt provisions • Business going forward – Retain and gro
Slide 15: Mutual & Federal
Mutual & Federal Federal** % Rm 2002 2001 change Net premiums 4,886 4,306 +13 Operating profit 698 639 +9 Expense ratio 8.5% 9.0% Combined ratio 97.6% 98.0% Solvency ratio 60.1% 73.8% * As per Mutual & Federal’s accounts
Slide 16: USA - Strength of diversity, power of focus
USA Institutional Retail % of FUM Fixed 36% Value 34% 34% Growth 13% Specialty 17% 17% Strength of diversity, power of focus
Slide 17: US Asset Management - Superior investment performance
US Asset Management – Superior investment performance • FUM fell only 9% through market movements – S&P 500 down 22% – Closing funds under management of $127bn • 80% of institutional assets outperformed benchmark over 3 & 5 years • Net inflows on target at $5.1bn
Slide 18: US Asset Management - Performance with potential
US Asset Management – Performance with potential • Cost controls save $25m • Operating profit of $142m • Margins maintained • Focus on distribution – Leveraging brands in retail distribution – Old Mutual Investment Partners
Slide 19: US Life - Controlled new business growth
US Life – Controlled new business growth MGA Banks/institutions Immediate annuity brokers Direct writing agents 500 $451m* 450 400 350 300 $251m* $m 250 $200m* 200 150 $121m* 100 50 0 H2 2001 H1 2002 H2 2002 2002 Total Gr. Premium: $0.9bn $2.2bn $1.8bn $4.0bn * Annual premium equivalent
Slide 20: US Life - Strong gains
US Life - Strong gains 2002 *2001 New business margin*** 27% 22% Value of new business ($m)*** 120 27 Operating profit ($m) 124 19 Return on capital 10% 10% Embedded value ($m)** 1,255 788 Investment to date ($m) 1,078 765 * Consolidated from 1 July 2001 ** Includes new capital *** Gross of tax
Slide 21: US Life - Financial strength maintained
US Life - Financial strength maintained Dec Dec 2002 2001 A.M. Best rating (F&G) A A Portfolio average credit quality A2 A2 Investment portfolio ($bn) 10.5 6.5 Defaults/impairments ($m) 48 12 Realised gains ($m) 44 19
Slide 22: UK - Focus on wealth management
UK Gerrard – A leaner & Selestia – Innovative fitter business platform Gerrard Private Bank OMAM(UK) – Award – Performance winning performance and products Focus on wealth management
Slide 23: UK & rest of world - Progress in 2002
UK & rest of world– Progress in 2002 • Disposal of GNI, OMS and KSBB – Focussed on core competencies • Gerrard – Profitable despite markets – Cost savings achieved – Resilient client base • OMAM(UK) – Net inflows – Growth on track • Nedcor/Gerrard Private Bank
Slide 24: Gerrard - Cost control
Gerrard – Cost control % £m 2002 2001 change Revenues 113 137 -18 Fees 43 59 -27 Commissions 70 78 -10 Operating costs (110) (135) +19 Staff costs (68) (84) +19 Other operating costs (42) (51) +18 Profit before exceptionals 3 2 Integration costs (5) (12) Sale of LSE shares 6 – Profit before tax 4 (1
Slide 25: Overview of Group finances
Overview of Group finances
Slide 26: Group operating profit
Group operating profit % £m 2002 2001 change South Africa 571 770 -26 USA 178 129 +38 UK & Rest of World 55 74 -26 Shareholder income/(expense) Other 13 12 +8 Corporate expenses (35) (41) +15 Debt servicing costs (58) (67) +13 Write down of Strategic Inv. – (21) Operating profit before tax 724 856 -
Slide 27: Group operating profit (continued)
Group operating profit (continued) % £m 2002 2001 change Operating profit before tax 724 856 -15 Tax (195) (209) +7 FRS19 tax adjustment - (41) Minorities (113) (179) +37 Smoothed post tax 416 427 -3 operating profit EPS (p) 11.3 *12.1 -7 Basic EPS (p) 4.3 (7.4) * Restated from 13.2p on adoption of
Slide 28: Achieved profits
Achieved profits £m 2002 2001 Life new business 197 131 existing business 364 469 Non-life 301 448 Operating profit before tax 862 1,048 Short-term fluctuations in inv ret (347) 200 Other items before tax (228) (979) Tax & minorities (234) (397) Net profit 53 (128) EPS (p) 14.1 15.4
Slide 29: Achieved profits shareholders' funds
Achieved profits shareholders’ funds £m 2002 2001 Opening Balance 3,067 4,433 Profit for the year 53 (128) Foreign exchange gain 442 (1,277) Dividend paid and proposed (176) (172) Capital injection 40 211 Closing Balance 3,426 3,067 Nedcor and M&F to market value 502 455 Embedded value 3,928 3,522 E
Slide 30: Capital management
Capital management • Gearing (net) 30% • Interest cover of 13.5x – Interest cover excluding SA earnings 2.5x • Average cost of debt 4.3% • Group return on average equity 16%
Slide 31: Debt maturity profile
Debt maturity profile £m Committed facility maturities 1,000 900 800 700 600 500 400 300 200 100 0 <1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Total facilities £2,098m Total drawn £1,189m
Slide 32: Group solvency strong
Group solvency strong • Group Moody’s rating of A2 – 4 notches above SA foreign currency ceiling • OMLAC(SA) – Capitalised at 2.3x SCAR • F&G Life – A.M. Best rating A • Nedcor – Capital adequacy maintained at 11% • Mutual & Federal – Solvency 60%
Slide 33: Managing for profit in difficult markets
Managing for profit in difficult markets • Robust earnings – Operating EPS 11.3p (2001: 12.1p) – Basic EPS 4.3p (-7.4p) – Achieved profits basis operating EPS 14.1p (15.4p) • Effective cost controls • Dividend cover maintained at 2.4x • Managing capital – EV boosted – Gearing reduced – Maturity prof
Slide 34: Jim Sutcliffe
Jim Sutcliffe Chief Executive
Slide 35: Progress towards 2004 financial targets
Progress towards 2004 financial targets US AM - $5bn pa of net inflows 9 - 10% ROI Need market recovery US Life - $1bn pa of net inflows 9 - 12% ROI On target SA - Profits growth 2-3x real GDP Underlying results on track - 20%-25% ROE 9 UK - £1bn pa of net inflows Work to do - £40m of OPAT Equivalen
Slide 36: Delivery in 2002
Delivery in 2002 • Resilient results in tough markets through diversity • Focussed & de-risked after disposals • UK and US acquisitions performing • Costs controlled • Dividend maintained • Ratings re-affirmed and solvency strong
Slide 37: Internationalising Old Mutual
Internationalising Old Mutual • US / UK / South Africa • Asset gathering and asset management • Customer focussed, regional strategy • Build on synergies across the Group
Slide 38: The way ahead
The way ahead • Industry dynamics remain compelling • Further delivery from existing operations and synergies • Strengthen the UK leg of our business • Well positioned for the future
Slide 39: Strength of diversity, Power of focus
Strength of diversity, Power of focus
Slide 40: Analyst Presentation
Analyst Presentation Preliminary results for the year to 31 December 2002
Slide 41: Appendix
Appendix
Slide 42: OMLAC(SA) - Capital strength
OMLAC(SA) - Capital strength Dec *Dec Rbn 2002 2001 Assets (net of provisions and current liabilities) 228.2 250.3 Policy liabilities (196.7) (216.1) Excess assets 31.5 34.2 Statutory capital adequacy requirement 13.9 12.7 Multiple 2.3x 2.7x Allocated Capital 20.6 20.6 * Restated to exclude Guernsey
Slide 43: OMLAC(SA) net cash flow
OMLAC(SA)* net cash flow Individual Group Rm business business Total 2001 Single premiums 9,786 10,215 20,001 19,063 Recurring premiums 9,623 3,763 13,386 12,812 Total premiums 19,409 13,978 33,387 31,875 Maturities 8,769 483 9,252 9,666 Annuities 3,252 2,135 5,387 5,208 Death & disability 2,202 1,2
Slide 44: US funds under management
US funds under management 31 Dec Divested/ Net cash Market 31 Dec $bn 2001 transferred flows movement 2002 OMAM(US)* 76.7 -6.9 7.6 -6.6 70.8 PBA 12.6 - -1.9 -3.9 6.8 OMA 60.6 -7.5 -0.6 -3.1 49.4 Total 149.9 -14.4 5.1 -13.6 127.0 * Includes assets managed by Dwight on behalf of US Life
Slide 45: US Life - Bond portfolio
US Life - Bond portfolio BB & lower Treasuries ABS 8% 5% 5% BBB MBS 29% 18% AAA AA 3% A 9% 23%
Slide 46: US Life - Bond portfolio
US Life - Bond portfolio 19% 18% 11% 6% 5% 5% 5% 5% 5% 4% 4% 4% 4% 3% 3% 2% 2% r as nt l ce BS lit ie s he er ur y S m ce ce et ai ch ie s in g lth an M i Ot G u m s AB le c o a n m e p a R T e tr u r ea Fi n Ut l& ns ea Te ur in os us ct H Oi C o Tr In s rta er I nd u fa te A c an En asi M B
Slide 47: Achieved profits equity shareholders' funds
Achieved profits equity shareholders’ funds £m Dec 2002 Dec 2001 South Africa Nedcor (at market value) 1,146 902 M&F (at market value) 132 112 Portfolio investments - SA 633 548 Portfolio investments - international 93 126 Portfolio investments - dual listed 154 187 SA asset management 94 55 Cash an
Slide 48: Tax
Tax Dec 2002 Dec 2001 Op Effective Op Effective profit Tax rate profit Tax rate South Africa Life assurance & asset management 371 110 30% 434 137 32% Banking (100% Nedcor, incl. OM Bank) 221 32 14% 369 62 17% General insurance 35 8 23% 46 16 35% 627 150 24% 849 215 25% United States Asset managemen
Slide 49: Old Mutual 2003 diary
Old Mutual 2003 diary • Q1 Trading statement 16 May • Annual General Meeting 16 May • Investor day (London) 27/28 May • Interim results 7 August • Q3 Trading statement 18 November (TBC)