OML results from operations increase to R8.7bn on the back of strong sales
Johannesburg – At its presentation of its annual results for the year ended 31 December 2022, Old Mutual Limited today reported a 10% jump in its profits after tax attributable to ordinary equity holders of the parent company from R6.662bn in 2021 to R7.325bn.
The Group said it delivered a solid set of financial results in 2022 despite the difficult macro-economic environment and market volatility, also adding that pressure on its operating earnings caused by the COVID-19 pandemic has lifted as the ongoing impact of the pandemic becomes muted.
It said its good sales performance was achieved on the back of its successful execution of its strategy as it continued to enhance its customer and adviser experience, explaining that it is also building its transactional capabilities in South Africa as a key component of becoming its customers’ first choice to sustain, grow and protect their prosperity.
Its Life APE sales increased by 10% mainly due to strong risk and credit life sales in Mass and Foundation Cluster coupled with higher corporate and retail sales in Namibia, it said, adding that its China business also delivered strong savings sales from the broker channels, partially offset by lower pre-retirement and annuity sales in Old Mutual Corporate.
The value of new business grew by 16% due to strong sales growth in Mass and Foundation Cluster as well as a change in mix towards higher margin business in Mass and Foundation Cluster and Old Mutual Corporate, it said. This was partially offset by the reduction in Personal Finance value of new business arising from challenges faced with sales volumes and business mix. The Group said it has, however, seen an improvement in the second half of the year due to management actions implemented to improve the business mix to higher margin risk business. The value of new business margin of 2.2% remains within its medium-term target range of 2% to 3%.
Old Mutual Limited said gross flows declined by 9% due to the prior year including large transactions in Old Mutual Investments and Old Mutual Corporate which did not repeat in the current year. Lower annuity sales and a decrease in demand for offshore investments in Personal Finance and Wealth Management also contributed to the decline in gross flows, and this was partially offset by strong flows in Old Mutual Africa Regions and growth in the sales of savings products in China.
The Group reported negative net client cash flow for the year. This was primarily due to the decline in gross flows combined with large disinvestments and terminations in Wealth Management and Old Mutual Investments respectively.
We are confident that the overall health of our pipeline will support improvements in net client cash flow. Our funds under management of R1.2 trillion declined by 4% due to weaker market performance in South Africa and globally.
Results from operations increased to R8.7bn, primarily driven by improved profits on the back of strong sales and core operational performance across the Group. Our life profits benefited from a refinement in hedging methodology, enabling a material release of excess discretionary margins as well as lower mortality in the current year as the effects of COVID-19 eased. All remaining COVID-19 provisions were released but the impact was mostly offset by the strengthening of our mortality basis to allow for endemic COVID-19 claims, and worsened persistency as the challenging economic conditions continue to impact our retail customers.
The Group return on net asset value improved to 11.1% due to strong growth in earnings and a lower average adjusted IFRS equity base, resulting from the unbundling of 12.2% of the Group’s stake in Nedbank in 2021, thus delivering on our promise to simplify the Group’s capital structure and provide a substantial return of capital to our shareholders.
Iain Williamson, Chief Executive Officer of Old Mutual Limited said: “We remain committed to returning capital to our shareholders, with R59.3bn returned through special distributions since 2018. The Group solvency ratio remains robust at 190%, within our target range of 170% – 200%. Old Mutual Life Assurance Company (South Africa) Limited (OMLACSA) solvency ratio was at 214%, above the target range of 175% to 210%.
“Our dividend policy targets an ordinary dividend cover range of 1.5x to 2x adjusted headline earnings. The Old Mutual Limited Board declared a final dividend of 51 cents per share, taking the full dividend for the year to 76 cents. Adjusting for the impact of Nedbank in 2021, dividend growth was up 13% from the prior year. We have further earmarked between R1bn and R1.5bn for return to shareholders as a share buyback and we have initiated approval processes with the Board and Prudential Authority.
“We have largely delivered on our medium-term targets which were set for 2023. Our results from operations target for 2023 was to deliver the 2019 results plus 5% to 10%. We have met this target on a comparable basis to 2019, excluding the cost of our transactional capability and NEXT176. This was achieved on the back of decisive and focused management actions through this recovery phase resulting in our sales and gross flows recovering to pre COVID-19 levels. We have also exceeded our cost efficiencies target and remain within the ranges set for value of new business margin and Group solvency. Return on net asset value continues to recover and is approaching our cost of equity. Old Mutual Insure’s net underwriting margin is below our target range owing to the severe catastrophe events experienced during 2022.”
Old Mutual Limited Group Outlook
Iain Williamson, Chief Executive Officer of Old Mutual Limited said that economic activity continues to be hampered by significant interest rate increases as central banks attempt to combat rising inflation caused by Russia’s war in Ukraine, adding that Severe COVID-19 lockdowns in China dampened growth in 2022, with the recent reopening paving the way for a faster than expected recovery. The International Monetary Fund World Economic Outlook for January 2023 forecasts global economic growth of 2.9% for 2023.
“Load shedding in South Africa continues to affect economic activity. Failure to address load shedding will have an impact on crop failure, higher food prices and shortages of certain food products, which will further dampen economic growth. In January 2023, the South Africa Reserve Bank increased the repo rate by 25 basis points to control inflation levels, while the International Monetary Fund’s World Economic Outlook for January 2023 has forecast growth in Sub-Saharan Africa at 3.8% for 2023.
“The macro-economic environment in our markets is expected to remain challenging, which will continue to exacerbate financial pressure on our customers. We remain focused on driving sales volumes and profitable sales mix to improve market share growth in our segments. Despite the challenging headwinds, we are through our recovery phase and have largely delivered on our medium- term targets one year ahead of schedule. Our next set of results will be prepared on an IFRS 17 basis and we will communicate the revised medium-term targets in due course,” concluded Williamson.