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London - Anglo-South African financial group Old Mutual [JSE:OML] said the economic fallout from mining strikes across South Africa would weigh on full-year sales, sending shares in the 165-year-old company down as much as 4% on Thursday morning.
The FTSE 100 insurer's chief executive said a pickup in inflation coupled with two sets of mining strikes had affected economic growth and in turn, consumer sentiment.
"The consumer is under pressure and that will feed through into lower sales (than expected)," CEO Julian Roberts told Reuters, adding annual premium equivalent (APE) growth would be at the lower end of the cycle forecast of 10-15%.
APE, a sales measure used by British insurers and asset managers, estimates the sales of an asset by taking the value of regular premiums and adding 10% of any new single premiums written for the fiscal year.
Old Mutual, which provides life insurance, banking and wealth management services in Africa, Britain and the United States, reported a 17% increase in first-half adjusted operating profit to £761m on a constant currency basis.
Signs of potential
Profit was 5% lower in reported currency in the six months ended June compared with the year before, while funds under management were £300.5bn, up 5% in constant currency, and up 2% in reported currency, compared with the figure at the end of 2013.
While the underlying result serves as further indication of the potential within Old Mutual, the stock continues to be suppressed by concerns over economic growth in South Africa, performance of the rand and a weak dollar, Bernstein Research analyst Edward Houghton wrote in a note.
Old Mutual's London-listed shares were down 1.3% at 191.3 pence by 0845 GMT, the third-biggest percentage decline on the FTSE 100 on Thursday morning.
Roberts said that against a difficult economic backdrop, “our strong performance in the first half of the year, with constant currency profits up 17%, demonstrates the strength of our Group and the ongoing execution of our strategy”.
“While consumers in South Africa face a squeeze on disposable incomes, the good performance across the group’s businesses shows that customers continue to trust us to guide them through the critical stages of their lives and financial choices,” said Roberts. “In all our African markets, we are rolling out new product propositions to consumers across a range of income groups.”
Old Mutual pointed to these highlights:
- Adjusted operating profit of £761m up 17% in constant currency, 5% lower in reported currency
- Net client cash flow of £1.6 billion, with improved flows in Q2 over Q1
- Funds under management of £300.5bn up 5% in constant currency, 2% in reported currency (vs FY 2013)
- £391m of free surplus generated (H1 2013: £460m)
- Group RoE of 13.2%, within target range of 12-15%
- Adjusted earnings per share of 8.8p up 16% in constant currency, down 5% in reported currency
- Interim dividend of 2.45p, up 17%
“In the UK, Old Mutual Wealth had a profitable half year and is making excellent progress in building a modern wealth management business that will meet customer demand for innovative and flexible investment products,” said Roberts. “Recent regulatory changes in the UK are profoundly altering industry dynamics and we believe these will benefit our business.”
“While we expect the external conditions for our emerging markets businesses to continue to be challenging in the next six months, particularly given the lower GDP growth expectation in South Africa, we will focus on what we do best: meeting the needs of our customers through innovative, attractively priced and transparent investment, savings, insurance and banking products as well as continually improving the operating efficiencies of our business. In common with groups that earn a significant proportion of their profits from outside the UK, we expect the strength of Sterling to have an impact on our reported results.”
