Old Mutual plc, the London- and South African-listed financial services company that is South Africa’s largest life insurer, has reinforced its support for troubled banking subsidiary Nedcor, while maintaining a tough line on its future performance.
Nedcor, which is 52% owned by Old Mutual, produced very poor results in 2003, heavily impacted by the cost of holding excess United States dollars as the rand strengthened. Margins were affected by fixed-rate debt and deposits, which were expensive as interest rates declined.
Writing in the company’s 2003 annual report, released on Wednesday, Old Mutual CEO Jim Sutcliffe said: “Nedcor is an important part of Old Mutual: decisive action has been taken to address its problems and management will not ountenance any shortfall from the highest standards of integrity and transparency.
“New governance procedures have been introduced to ensure stronger oversight of the bank’s affairs and to ensure the coherence of Nedcor with Old Mutual standards and strategy.”
Sutcliffe added that Nedcor’s new management has “focused its energies on plans to ensure Nedcor returns to producing results commensurate with its status as a premier South African bank. These include achieving world-class service and expense benchmarks.”
To ensure the problems of 2003 were not repeated, plans were being put in place to address all areas of the business, he reassured investors.
Sutcliffe added that the group saw many opportunities for South Africa and for Old Mutual arising from the new South African Financial Sector Charter, which sets out targets for the involvement of previously disadvantaged individuals in the local financial services sector, and would continue to inform the markets on its progress in addressing the charter’s objectives during 2004.
Regarding the year ahead, Sutcliffe noted that Old Mutual’s capital position at December 31 2003 was strong, with its gearing of 19,4% at year-end well inside its limits. The company was also able to support the Nedcor’s R5-billion rights issue comfortably.
“We have much to do to recover from poor 2003 results, but we enter 2004 with renewed determination, and with equity markets around the world at higher levels than last year,” he wrote. “We have taken the necessary steps to put Nedcor on the path to recovery.
“We will continue to apply top-quality investment skills, be they in equity, lending, real estate or elsewhere, to help our clients build and protect their savings and investments. We expect our industry to grow as those savings and investments accumulate, and we intend to provide a correspondingly growing stream of earnings to our shareholders,” he concluded.
Old Mutual reported adjusted operating profit for the year to December 31 2003 of £650-million, equivalent to 10 pence per share (2002: £724-million and 11,3 pence respectively). Group adjusted operating profit in rand terms was R8,04-billion, equivalent to 123,8 cents per share (2002: R11,43-billion and 179 cents respectively).
Solid profits in its core South African life assurance business, good profit growth in its US and United Kingdom businesses, and excellent results from some of its smaller units were offset by a collapse in earnings at Nedcor. The strong rand further boosted the sterling results, but adversely affected the results when expressed in South African currency terms.
Return on equity was disappointing at 13,9%. Old Mutual’s adjusted embedded value increased by 5% to £4,1-billion at year-end, equivalent to 107,5 pence per share. — I-Net Bridge