- Life APE Sales: Increased by 17% to ZAR14.6 billion; up 25% excluding China.
- Gross Written Premium: Increased by 14% to ZAR25.5 billion.
- Value of New Business (VNB): Up 37% to ZAR1.9 billion.
- Return on Net Asset Value (RONAV): Increased by 170 basis points to 11.1%.
- Final Dividend: ZAR0.49 per share; total dividend for 2023 ZAR0.81, up 7%.
- Share Buyback: Concluded ZAR1.5 billion buyback in H2 2023.
- Mass and Foundation Cluster Lending Book: Grew 6% to ZAR16.3 billion.
- Credit Loss Ratio: 7.2% for the period.
- Personal Finance and Wealth Life APE Sales: Increased by 15%; guaranteed annuity sales up 57%.
- Gross Flows: Increased by 7% to ZAR82.8 billion.
- Old Mutual Investments Assets Under Management: Up 8% to ZAR839 billion.
- Gross Flows in Investments: Increased by 3% to ZAR32.8 billion.
- Old Mutual Corporate Life APE Sales: Up 68%; VNB up 85%.
- Old Mutual Insure Underwriting Margin: Decreased by 92% to ZAR46 million.
- Old Mutual Africa Regions Life APE Sales: Up 27%; VNB margin increased by 60 basis points to 2.8%.
- Results from Operations (RFO): Increased by 14% to ZAR8.3 billion.
- Adjusted Headline Earnings: Grew 21% to ZAR5.9 billion.
- Cash Generation: Remained strong at 82%.
- Contractual Service Margin (CSM): Grew 4%, translating to a return of 14.5% for 2023.
- Group Solvency Ratio: 178%, within target range.
- Discretionary Capital: ZAR1.1 billion earmarked for growth and innovation initiatives.
Release Date: March 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Old Mutual Ltd (NAM:OMM, Financial) reported its strongest set of results since listing in Johannesburg in 2018, demonstrating significant strategic progress and market share gains.
- Life APE sales grew by 17% to ZAR14.6 billion, with like-for-like sales up 25% excluding China, indicating strong momentum in key segments.
- Gross written premiums increased by 14% to ZAR25.5 billion, driven by new sales and good client retention, showcasing robust top-line growth.
- The Board approved a final dividend of ZAR0.49 per share, bringing the total dividend for 2023 to ZAR0.81, a 7% increase from 2022.
- Old Mutual Ltd (NAM:OMM) successfully concluded a ZAR1.5 billion share buyback during the second half of 2023, reflecting strong capital management and shareholder returns.
Negative Points
- Persistency remains a key concern, with higher borrowing costs and pressure on disposable income leading to a credit loss ratio of 7.2% and a decline in net lending margin by 220 basis points.
- Old Mutual Insure's RFO decreased by 23% to ZAR524 million, mainly due to a significant increase in reinsurance costs and higher weather-related claims.
- The operating environment in South Africa and other African regions remains challenging, with severe growth constraints, heightened market volatility, and tight financing conditions.
- The company experienced significant headwinds in China, including regulatory challenges and market volatility, impacting overall performance in the region.
- Operational efficiencies are still a work in progress, with ongoing efforts to decommission legacy platforms and integrate new systems to unlock further efficiencies.
Q & A Highlights
Q: Can you provide guidance on the organic growth potential for the Contractual Service Margin (CSM) in the medium term?
A: We see significant growth potential in the value of new business, which should help maintain growth rates. The actual allocation of the CSM depends on individual business units, with different accretion rates for each segment. We expect continued growth in the CSM, supported by new business growth and the current high-interest rate environment. (Casper Troskie, CFO)
Q: Can you elaborate on the persistency trends and provisions?
A: Persistency was poor in the first half of last year, leading us to strengthen our provisions. We saw improvements in the second half. We set up an economic recovery reserve for a two-year period, anticipating that persistency will normalize as the cost of living stabilizes and interest rates decrease. (Clarence Nethengwe, Managing Director - Mass & Foundation Cluster)
Q: Is the ZAR800 million spend for the bank incremental to previously announced expenditures?
A: The ZAR800 million is for the transition phase before the bank's launch, covering industry testing and integration into the National Payment System. This is incremental to the previously announced ZAR1.75 billion for building the bank's core capabilities. (Iain Williamson, CEO)
Q: Can you provide more details on the ZAR1.9 billion in negative other earnings in the adjusted headline earnings?
A: The costs include development expenses for Life Insurance and the bank, as well as NEXT176 costs. The development costs in the EV statement are capitalized and not reflected in the normal income statement analysis. (Casper Troskie, CFO)
Q: What are the key challenges in the short-term insurance business, and when do you expect a turnaround?
A: The main challenge is high cost ratios, particularly in personal lines. We are optimizing our cost base and implementing automation projects, which will take another year or two. Weather-related claims are also a challenge, and we are improving our climate risk modeling. We expect significant improvements by 2026. (Iain Williamson, CEO; Charles Pfute, Group Treasury Rest of Africa)
Q: What is the impact of the OMLACSA special dividend on the group's solvency ratio?
A: The special dividend has already been accounted for in the solvency ratio, which remains solid. The dividend will add ZAR2 billion to discretionary capital in 2024 without impacting the group's solvency. (Casper Troskie, CFO)
Q: Can you explain the strong growth in risk sales in the fourth quarter?
A: The growth in risk sales is a normal phenomenon due to a five-month lag between issuing business and the first premium flow. The Mass and Foundation Cluster saw a 20% growth in retail sales in Q4 compared to the previous year. (Clarence Nethengwe, Managing Director - Mass & Foundation Cluster; Prabashini Moodley, Managing Director - Old Mutual Corporate)
Q: What are the sustainable shareholder costs over the next three years?
A: Excluding NEXT176 and the bank, the sustainable base is between ZAR700 million and ZAR800 million. We expect to return to this base by 2026, considering inflation and other factors. (Casper Troskie, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
