Old Mutual plc on Friday announced that – following the strategic review conducted by new group chief executive, Bruce Hemphill in November 2015 – the group will separate its four principal businesses, namely, Old Mutual Emerging Markets (OMEM), Nedbank, Old Mutual Wealth and Old Mutual Asset Management. OMEM and Nedbank’s relationship will continue following the separation, with a minority shareholding in Nedbank distributed to Old Mutual shareholders over time.
“Following completion of the managed separation and at an appropriate point in the future, the Group, in its current structure will no longer exist,” Old Mutual said in a stock exchange filing.
Hemphill’s strategic review found that this would best serve the long-term interests of the group’s shareholders and other stakeholders, Old Mutual said.
Hemphill said the strategy announcement would “unlock value currently trapped within the Group structure”. “We have four strong businesses that can reach their full potential by freeing them from the costs and constraints of the Group,” Hemphill said.
Old Mutual said that, while the four businesses had “strong growth prospects in sizeable markets”, there were limited tangible synergies between them.
“The evolving regulatory environment in Europe and South Africa is adding a degree of additional cost, complexity and constraints. The current Group structure also inhibits the efficient funding of future growth plans for the individual businesses, restricting them from realising their full potential,” Old Mutual said.
The preferred route for the separation has yet to be determined and will involve “significant ongoing regulatory and stakeholder engagement”, Old Mutual said. “We expect that the managed separation will be materially completed by the end of 2018.”
Going forward, Old Mutual plc’s primary role will be to implement the separation of the businesses. Chief operating officer, Paul Hanratty, who joined the group in 1984, will focus his attentions on this process until he steps down on March 12 2016. Meanwhile, former deputy CEO of Liberty Holdings, Rex Tomlinson, will join the group executive committee as group chief of staff, working with the business units to operationalise strategy. Tomlinson was deputy CEO at Liberty over the same time that Hemphill was CEO of the rival insurance group.
What about Nedbank?
Old Mutual announced that the strategic relationship between Nedbank and Old Mutual Emerging Markets (OMEM) would continue following the managed separation, but that it was not necessary for Old Mutual to retain its majority stake to achieve collaboration.
Old Mutual plans to reduce its 54.1% interest in Nedbank to a minority stake. “Old Mutual currently envisages reducing its shareholding in Nedbank primarily by way of a distribution of Nedbank shares to the shareholders of Old Mutual in an orderly manner and at an appropriate time in the context of the managed separation and does not intend to sell any part of its shareholding in Nedbank to a new strategic investor,” Old Mutual explained.
The remainder of the Nedbank shareholder base will be “widely held” at the time the managed separation has been completed, Old Mutual said, noting that the two groups remain committed to achieving the previously announced 2017 pre-tax synergies target of R1 billion.
Treasury, Sarb welcome enhanced access to capital
In a joint statement issued on Friday, the National Treasury, South African Reserve Bank (Sarb) and the Financial Services Board (FSB) said that Old Mutual had consulted the bodies over the course of the strategic review and had committed to execute the managed separation so as to safeguard the stability of the South African businesses and South African financial services sector more broadly.
“OMEM and Nedbank are each significant businesses in their own right with strong balance sheets. The enhanced ability of these businesses to access their natural shareholder base is welcomed; as is the increased alignment of the key governance structures and lead supervision with the location of the respective businesses. This will have positive benefits for the South African economy and capital markets,” the regulators said.
2015 profits climb 11%
The financial services group said on Friday that for the 12 months to December, pre-tax adjusted operating profit (AOP) climbed 11% in constant currency to £1.7 billion. In reported currency, profits climbed 4% reflecting the weakening of the rand against the pound, as Old Mutual’s South African operations account for the bulk of group profits.
Old Mutual said that the four businesses it plans to separate earned combined pre-tax profits for the year of £1.8 billion.
OMEM grew AOP 9% to R12 billion, with the South African retail business accounting for more than 50% of this. OMEM delivered a return on equity of 23%, growing to 10.7 million customers in 2015, up from 9.4 million in 2014.
Old Mutual plc delivered ROE of 14.2%, within its 12-15% target range.
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