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Cautious optimism at Old Mutual Emerging Markets

May 14 2015 16:13
Carin Smith

Cape Town - Key issues for Old Mutual's Emerging Markets division to watch in South Africa are economic growth as well as inflation and employment trends, particularly in the public sector, Ralph Mupita, CEO of Old Mutual Emerging Markets, told Fin24 on Thursday.

The division will also note if commodity prices at least hold firm from where they are currently, given SA's and Africa's large dependence on commodities.

"We are cautiously optimistic," Mupita summed up his outlook.

On Thursday Old Mutual [JSE:OML] released a trading update for the three months ended March 2015.

READ: Good start to the year for Old Mutual

The company said Old Mutual Emerging Markets has delivered a strong performance in the quarter.

Funds under management (FUM) of the emerging markets division was up 5% to R951.9bn, which the company said is due to positive market movements and good net client cash flow (NCCF).

Following a large corporate deal of R3.9bn and increased asset management flows into Old Mutual Investment Group (OMIG), NCCF was up 197% on the prior period to R11.3bn.

OMIG itself had a good quarter, with gross sales of R9.2bn, up 15%, and NCCF of R3.1bn, against R1.3bn in the comparative period.

Gross sales of R49.3bn of the emerging market division were up 19% on the comparative quarter. In South Africa, gross sales grew strongly by 27%.

Old Mutual launched its Tax-Free Savings Account in South Africa on March 1 and initial customer reaction has been positive, according to the company.

READ: Old Mutual unlocks value for BEE shareholders

Rest of Africa and beyond

Gross sales in the rest of Africa were up 34%, primarily due to higher asset management flows in Namibia, Zimbabwe and Kenya. Annual Premium Equivalent (APE) sales were up 36%, benefiting from strong single premium sales in Malawi and Swaziland, increased credit life and retail mass sales in Zimbabwe, as well as increased corporate sales in West Africa.

Asia and Latin America experienced a decrease in gross sales of 14%, mainly due to the devaluation of the Colombian peso. Asia and Latin America APE sales were up 41%, due to improved productivity and strong multi-trust sales in Mexico and good bancassurance sales in India.

Wealth perspective

Mupita told Fin24 the Retail Affluent section showed strong momentum with its new wealth proposition.

"From a wealth perspective, we designed the new proposition to focus on advice and moved away from the approach of a large part of the market proposition, which is more about product and product features," explained Mupita.

"We put advice at the centre of our proposition to meet clients' expectant for own personal goals."

Old Mutual said in its trade statement for the first quarter that the Emerging Market division's Retail Affluent grew gross sales by 15%, with strong performance in single premium sales, reflecting the continued popularity of XtraMax and the Wealth offering. Non-covered sales were up 31%, largely through good flows into Private Client Securities and good unit trust sales.

In the Mass Foundation section, gross sales were up 10%, reflecting the continued growth of 2-in-ONE savings, the new funeral products and the increased ownership stake in Old Mutual Finance (OMF).

"In mass business we had a softer quarter, but we were doing a lot of recruitment and training, which put a drag on sales. We are, however, confident that our core mass business will grow. The big thing to watch in our mass business is food and transport inflation and the energy constraints, which have the potential to reduce economic activity in winter, as risks to navigate during the balance of the year ahead," said Mupita.

"In the rest of Africa we are very focused in bedding down the acquisitions we made over the past 24 months. For instance, we are now going through the regulatory processes in Kenya and our Indian joint venture is also good."
 
He said in the rest of Africa the Emerging Markets division is not particularly concerned about socio-political developments.

"We have to navigate what happens in Nigeria and Kenya, for instance, but we are in these markets for the long term. We are certainly building our markets in the rest of Africa and making sure our people and customers are not impacted," explained Mupita.

ALSO READ: Old Mutual profit drops on currency fluctuations


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