Old Mutual Ltd - Voluntary Operating Update and Trading Statement
Incorporated in the
Registration number: 2017/235138/06
JSE Share Code: OMU
NSX Share Code: OMM
MSE Share Code: OMU
ZSE Share Code: OMU
OLD MUTUAL VOLUNTARY OPERATING UPDATE FOR THE THREE MONTHS ENDED
The rapid global spread of COVID-19 has had far reaching impacts on the global economy, with many countries around the world enforcing lockdowns in varying severity. The significant declines seen in global capital markets and commodity prices, the decrease in economic activity due to lockdown restrictions and low investor and consumer confidence have created a challenging operating environment for businesses and individuals. In
To manage the spread of COVID-19, governments in most countries where we operate have introduced full or partial lockdowns, restricting the movement of goods and people. Despite the start of gradual easing of lockdown restrictions, we expect a slow recovery due to the severity of global and local economic contraction suffered during the crisis. During this pandemic the safety and wellbeing of our employees, intermediaries and customers remains a top priority. The Group has experienced minimal disruption to our business operations, with the exception of our distribution processes where the disruption levels have been higher. We were able to successfully mobilise and enable the majority of our employees to work from home and this has allowed us to continue to serve our customers. Although lockdown restrictions are being eased we envisage that all those business functions able to operate effectively from home will continue to do so for the foreseeable future to minimise the number of employees physically onsite in our primary office locations of Pinelands and Sandton. The small group of employees who are working from our premises have been engaged and briefed on the strict protocols they need to follow to ensure their safety, and the safety of other employees and our customers remains a priority.
Many of our tied advisers have been unable to sell during the lockdown period due to the partial closure of the branch network and lack of access to customer's homes, worksites and branches. The majority of our branch consultants are unable to work from home and therefore the necessary closure of the majority of our branch network has slowed loan disbursements and negatively impacted funeral, savings and credit life sales. These factors have significantly impacted productivity and new business acquisition during April and May. We have implemented various intermediary initiatives during lockdown including the provision of airtime and network access to enable communication with customers, promotion of digital platforms for sales and the introduction of lower hurdles for academy advisors to earn base allowances for the duration of the lockdown. We are actively monitoring the lifting of restrictions to ensure we can return to full operating capacity as soon as restrictions are lifted.
We have continued to make progress against our strategic priorities during the first quarter, with focus on improving our customer enablement and servicing journey and digitally enabling our employees. We have implemented a number of enhancements and introduced new digital channels and functionality such as the use of USSD and WhatsApp platforms to service funeral claims and disinvestments. We added
Capital position and Liquidity
The Group's liquidity management remains robust and we have cash reserves more than sufficient to cover our business requirements. We have performed a series of stress tests to assess our liquidity position under various recovery scenarios and liquidity levels remain positive under all of these.
The solvency ratio for OMLACSA for the three months ended
Following the severe market downturn in
Financial performance for the three months ended
The table below sets out certain of our key performance indicators for the three months ended
Key Performance Indicators
(R millions unless otherwise indicated)
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Life APE Sales
Net Client Cash Flow (Rbn)
Funds Under Management1 (FUM) (Rbn)
Loans and Advances1
Gross Written Premiums
Results From Operations (RFO)
1Comparative amounts represent FY2019 balances.
Life APE sales have decreased largely due to lower recurring premiums flows experienced across the business partially offset by strong single premium sales. The decline in recurring premium life sales is driven by lower umbrella sales in Old Mutual Corporate and lower sales volumes in Mass and Foundation Cluster and Personal Finance, reflecting lower levels of customer disposable income.
Net Client Cash Flow remains positive due to strong single premium life sales and higher institutional and retail inflows in Wealth and Investments, despite increased outflows as customers seek liquidity and withdraw funds to supplement income. FUM levels have decreased largely due to a decrease in equity market levels as a result of the COVID-19 pandemic, partially offset by the positive impact of foreign denominated FUM due to the weakening rand.
We experienced stable growth in Loans and Advances compared to the prior year, with deliberate slowed disbursements to manage credit risk. Gross Written Premiums showed good growth driven by the ongoing benefits from strategic partnerships in
The decrease in RFO is due to lower asset based fees and negative fair value movements on unlisted equity and credit portfolios in Wealth and Investments. Lower life sales volumes not sufficient to cover fixed distribution related costs, deterioration in underwriting experience in Old Mutual Corporate and the impact of poor persistency and higher credit losses, specifically in Mass and Foundation Cluster have further contributed to the decline in profits. This was partially offset by improved underwriting experience in
Despite a gradual easing of lockdown restrictions in
Low levels of issued sales in April and May, whilst the distribution cost base remains largely fixed, will have a negative impact on our reported profits and Value of New Business (VNB) for H1 2020. Initiatives in the form of premium holidays, discounts and deferrals of rate increases will pose further downside pressure on revenue levels. In response, expenses are being tightly managed.
The risk of rising infection rates may adversely impact mortality experience, whilst other COVID-19 related claims such as business interruption claims could also negatively impact underwriting experience. We have seen an increase in business interruption incidents in April and May, however we expect to be able to rely on our existing reinsurance programme. The consumer will remain under significant pressure, with increased levels of unemployment expected. This is likely to reduce levels of disposable income resulting in lower sales volumes, worse persistency and higher credit losses on our loan book. Shareholder investment returns are expected to be below prior year due to year to date decline in the equity markets and negative fair value movements on certain classes of invested shareholder assets.
Taking into account these indicators of H1 2020 performance, In terms of paragraph 3.4(b) of the Listings Requirements of the JSE Limited, shareholders are advised that Headline Earnings per share (HEPS) and Earnings per share (EPS) for the six months ended
Our contribution to society
We have remained conscious of our commitment to support our customers and communities in this time of severe stress and continue to make positive contributions through various initiatives.
Key initiatives include the following:
· R4 billion worth of free life cover made available to approximately 430 000 registered healthcare workers across
· We pledged R50 million towards relief efforts that address immediate educational needs, hygiene awareness and nutritional support and R5 million towards national initiatives that provide access to personal protective equipment for essential service workers. As part of these efforts, we have refurbished a former training centre close to our office in Pinelands which will in part be used by
· Our business in
· We are providing ongoing customer relief such as premium payment holidays, premium discounts, delays in annual rate and fee reviews and grace periods for loan repayments.
· We included the
Over the past few weeks, we have performed a detailed scenario planning exercise which has focused on modelling the financial impact on key earnings, liquidity and capital measures under a range of possible economic scenarios. The outcome of these scenarios shows that, whilst we do expect to experience earnings pressure in the short term, our capital and liquidity remain at appropriate levels in all scenarios, with the Group solvency capital ratio falling marginally below our target range pre-management actions only in the most extreme scenario tested. In order to mitigate the expected pressure on earnings we have implemented a series of management actions focusing on reducing expenses in 2020. We are also working on a number of medium term initiatives to capitalise on the growth opportunities the pandemic presents, these will be communicated in due course. Whilst we expect market circumstances to place pressure on earnings in the short term we remain confident in the strength of our cash reserves and balance sheet to withstand this volatility, ensuring we will continue to be able to deliver on our promises to customers and providing a platform to accelerate growth as economic conditions improve.
The financial information in this operating update and trading statement is the responsibility of the Old Mutual Limited Board of Directors and has not been reviewed or reported on by the Group's external auditors.
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Head of Investor Relations
T: +27 (0)11 217 1163
Investor Relations Manager
T: +27 (0)11 217 1042
Head of Communications
T: +27 (11) 217 1953
M: +27 (0)60 547 4947
Notes to Editors
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