Old Mutual Ltd. · JSE:OMU
Old Mutual — Investor Day (May 2001)
38 slides from Old Mutual's investor day presentation, May 16, 2001
Slide 1: Old Mutual Analysts Model Day
Old Mutual Analysts Model Day 16 16 May May 2001 2001
Slide 2: Outline of Today
Outline of Today D Presentation on changes to the Old Mutual plc business structure D Objective for Sell Side Analysts D Financial Modules D United Asset Management D Insurance Operations Long Term Investment Return D Group Debt D Fidelity and Guaranty Life (F+G)
Slide 3: United Asset Management (UAM)
United Asset Management (UAM)
Slide 4: UAM Acquisition
UAM Acquisition D Expand asset management capabilities D Substantial presence in world’s largest marketplace for savings, with substantial growth prospects D Increase share of international earnings D 22 Morningstar 4 or 5 star ratings
Slide 5: Acquisition
Acquisition • UAM acquisition announced in July 2000 and completed in September 2000 • Murray Johnstone sold • Pilgrim Baxter (PBA) re-equitisation announced November 2000 • OMAM(US) re-equitisation announced December 2000
Slide 6: Post Acquisition Actions
Post Acquisition Actions D Rapid restructuring post acquisition D Re-equitisation of Pilgrim Baxter and 7 OMAM(US) member firms D align interests directly with Old Mutual D Encourage and reward working together to build profit growth D Allow for future incentivisation D Corporate Governance standard
Slide 7: Old Mutual Asset Managers (US)
Old Mutual Asset Managers (US) D Acadian Asset Management D international equity, quantitative techniques D Analytic Investors D quantitative strategies for tactical asset allocation, equity selection, currency management and options markets D Barrow, Hanley, Mewhinney & Strauss D value orientated,
Slide 8: Old Mutual Asset Managers (US)
Old Mutual Asset Managers (US) D Dwight Asset Management D stable value, and fixed income D NWQ Investment Management D value oriented equity, balanced, and fixed income D Provident Investment Counsel D growth equity
Slide 9: Pilgrim Baxter Associates
Pilgrim Baxter Associates D Leading mutual funds manager D Significant retail and institutional distribution franchise D 6 Morningstar 4/5 star ratings D Growth and value oriented investment styles D Specialty products including technology and concentrated investing
Slide 10: Rest of UAM Affiliates
Rest of UAM Affiliates • 31 affiliates at 31 March excluding Pell Rudman • US and International equity, and fixed income investing • Real Estate, Timber • Hedge funds/currency overlay • Affiliates based in US, Canada, Europe, and Far East • eSecLending new business development
Slide 11: United Asset Management
United Asset Management D UAM is a significant acquisition for the Group D Acquisition was complex in nature D Model and explanations to assist understanding key drivers of profitability
Slide 12: Acquisition summary
Acquisition summary $m UAM PBA OMAM(US) Total Price Equity 1,620 1,620 Re-equitisation 827 129 956 Debt 761 761 Costs 36 36 Sub-Total 2,417 827 129 3,373 Tax Benefit (330) Total 2,417 827 129 3,043 Funding Cash/Debt* 2,417 2,417 Equity 236 236 Deferred 591 129 720 Tax Benefit (330) Total 3,043 * inc
Slide 13: Markets and Assets
Markets and Assets Sept Dec March 2000 2000 2001 NASDAQ 3,673 2,471 -33% 1,840 -26% S&P 500 1,437 1,320 -8% 1,160 -12% Assets Under Management $bn OMAM(US) 78 75 -4% 73 -3% PBA 26 17 -34% 12 -30% Rest of UAM 72 67 -6% 63 -7% Held for Resale* 26 19 10 Total 202 178 158 * Sold $6bn Oct-Dec 2000; $8bn
Slide 14: Assets Under Management
Assets Under Management 31 Dec Cash Market 31 Mar 2000 Disposed flows movement 2001 $bn $bn OMAM (US) 74.8 - 0.5 (2.7) 72.6 PBA 17.5 - (0.2) (5.2) 12.1 Rest of UAM 66.3 - (2.1) (1.2) 63.0 Held For Resale 19.3 (7.9) (0.4) (0.6) 10.4 Total UAM 177.9 (7.9) (2.2) (9.7) 158.1
Slide 15: Net Client Cashflow
Net Client Cashflow Pre Acquisition Post Acquisition Q1 Q2 Q3 Q4 Q1 $bn $bn 2000 2000 2000 2000 2001 Total UAM (7.0) (4.3) (1.0) (2.7) (2.2)
Slide 16: Model Overview
Model Overview D Revenue Drivers D Benchmark Exposures D Fee Rates D Billing Point D Revenue Sharing with PBA and Rest of UAM D LTIPS and Phantom Stock
Slide 17: Assets Under Management
Assets Under Management Benchmark Weighting Beta at 31/3/2001 OMAM(US) Russell 1000 Value 50% 1.0 Russell 1000 Growth 20% MSCI EAFE 10% Ryan 5 year fixed income 20% PBA NASDAQ 80% 1.0 S&P 500 20% Rest of UAM S&P 500 40% 1.0 S&P Barra Value 25% MSCI EAFE 10% Ryan 5 year fixed income 25%
Slide 18: Revenues
Revenues Average Billing fee rate point OMAM(US) 20 - 60 bpts 25% in advance 25% average 50% in arrears PBA 80 - 85 bpts * 100% average Rest of UAM 30 - 70 bpts 20% in advance 10% average 70% in arrears *net of third party commission payments
Slide 19: Revenue sharing
Revenue sharing D OMAM(US) D 100% owned by Old Mutual in 2001 D Rest of UAM D Approximate weighted average 40% economic interest owned by Old Mutual D Changes as affiliates sold/re-equitised D PBA D transitional arrangement for 2001 D 100% owned by Old Mutual from 2002 if option exercised in 2001
Slide 20: PBA Revenue Sharing
PBA Revenue Sharing Old Revenue 2001 2002 Share Onwards Total Revenue 100 100 100 PBA Share 65 31 0 OM Share 35 69 100 Total Exp./Bonuses 100 100 100 PBA Share 100 48 0 OM Share 0 52 100 Phantom Stock - Dividend Dividend
Slide 21: PBA Phantom Equity
PBA Phantom Equity D Max 17.5%, of which 11% has been allocated to date D Rest to be allocated from 2002 onwards D Dividend on allocated equity paid annually at 75% of operating profit D Put option on capital value from 2004 onwards for up to 7 years. Base value on profit levels set at acquisition a
Slide 22: OMAM (US) LTIPs
OMAM (US) LTIPs D Bespoke and based on growth in operating profit D Guaranteed minimum has already been provided for in purchase consideration D Individual rewards based on individual, member firm and group performance
Slide 23: Taxation
Taxation D US effective rate for operating profits and interest charges D Federal 35% D State 3% D Disallowables 3% D Overall 41% D Deferred tax asset unwind
Slide 24: Goodwill
Goodwill £m Fair Value of Net Assets Acquired * (40) Assets Held For Resale 244 Total Tangible Net Assets 204 Strip out debt and tax 63 Total Operating Assets 267 Consideration ($3,043m) 2,062 Goodwill 1,795 » Amortisation charge over 20 years £90m p.a. » * Excludes goodwill held in books of UAM
Slide 25: Assets Held For Resale
Assets Held For Resale D Balance sheet value at acquisition £244m D Not consolidated into Group Operating Profits D Sale of Pell Rudman largely completes disposal process of those affiliates considered to be held for resale
Slide 26: Currency
Currency • Business and operations are in US $ • Model is therefore presented in US $ with average exchange rate calculations into £ Sterling. Note in Old Mutual plc accounts we use a daily average for exchange rate conversion
Slide 27: Long Term Investment Return (LTIR)
Long Term Investment Return (LTIR)
Slide 28: Long Term Investment Return
Long Term Investment Return D Purpose is to present an operating result that reflects the underlying performance of the businesses D Avoids short term market fluctuations/distortions at the operating profit level D Based upon applying a long term rate of investment return to investible assets
Slide 29: LTIR - Old Mutual
LTIR - Old Mutual D Investible asset base D Life assurance D General insurance D Other Shareholders’ funds D Long term rate of return D calculated in Rand (currently 14% based on experience) and translated into £ sterling D Purchase of F+G - Use of appropriate separate rate to rate used for South Af
Slide 30: Group Debt
Group Debt OLD Sea MUTUAL
Slide 31: Debt (£m) - 31st December 2000
Debt (£m)- 31st December 2000 Overdrafts 22 Bank Loans Acquisition Finance 229 Revolving Credit 292 Other 38 Other Loans UAM 283 Gerrard Loan Note 92 Medium Term Note 268 Total 1,224 US$ 804 £ 420
Slide 32: Fidelity and Guaranty Life (F+G)
Fidelity and Guaranty Life (F+G)
Slide 33: Fidelity and Guaranty Life
Fidelity and Guaranty Life D Expands core asset accumulation business D Delivers further international earnings D Balances Old Mutual’s US profile D Strong management team already in place
Slide 34: F+G Life – Acquisition Highlights
F+G Life – Acquisition Highlights D Immediately enhances headline EPS D Beats stated hurdle rate of 12% D Attractive financial terms: D 1.0x US GAAP book value D 10.5x after-tax operating earnings D 1.1x embedded value (1) D Group earnings move from 22% to 27% ex-Africa D Increases annualised new bu
Slide 35: F+G Life – Key Facts
F+G Life – Key Facts Key Financials - 2000 Assets under management $5.0 bn Sales $1,123 m Operating profit $58.7 m US GAAP book value $571 m (1) Embedded value (2) $552.6 m Value of new business (2) $24.7 m 1 – Excludes $50m of surplus notes 2 – Discount Rate 10%. Cost of capital assumes risk base c
Slide 36: F+G Life - Attractive Financial Terms
F+G Life - Attractive Financial Terms • New business multiples well below precedent transactions As at 31 December 2000(1) (US$m) Discount Rate 8.5% 10% Net Asset Value 227.9 227.9 Value of In Force 366.5 324.7 Embedded Value 594.4 552.6 Value of One Year’s New Business (2000) (2) 32.9 24.7 Price /
Slide 37: F+G Life – Capital Requirements
F+G Life – Capital Requirements Capital Required Immediately $51.0 m Capital Required For Planned Growth By end of 2001 $25.0 m 2002 $25 m 2003 $20.0 m 2004 $(5.0) m
Slide 38: Model Demonstration
Model Demonstration