Financial services company Old Mutual PLC (OML.LN) Wednesday posted a 38% drop in 2008 net profit, hurt by lower sales and big asset impairments, and said it will streamline its operations to help save on costs and maintain capital.

To this end, the company said it is going to sell its relatively small Australian business, close its office in Hong Kong and not pay dividends in 2009.

The London-based group, which has a focus on South Africa, said net profit in 2008 was GBP575 million on a market consistent embedded value, or MCEV, basis, down from a restated 2007 figure of GBP922 million.

Under the previously used International Financial Reporting Standards, 2008 net profit would have been GBP441 million, down 55%.

MCEV is a measure that is beginning to be used by some of Europe's biggest insurers. Under MCEV, insurers take investment risks into account and use a more "market consistent" and standard rate of return as opposed to other measures where insurers could have their own estimated rates of investment return.

Chief Executive Julian Roberts said that "the rapid deterioration combined with volatility in global financial markets, most notably in the fourth quarter, gave rise to an extremely difficult operating environment, while we faced a number of specific issues in our U.S. life business."

"Going forward, I am determined to rigorously drive performance improvement and strengthen governance, while at the same time reshaping the group," he said.

In a briefing, he said the company is "in too many geographies and too many lines of businesses."

Roberts said the company remains committed to running its business in China and India, although it will scale back its expansion plans in the Far East.

He said that, organizationally, a major change will be the creation of "a single long-term savings division which will include our Skandia businesses, the U.S. life businesses, the Far East operations and our South African life operations."

Roberts declined to give details on possible job cuts as a result of the shakeup.

On an IFRS basis, pretax operating profit was GBP999 million, down 38% from GBP1.62 billion and lower than the GBP1.24 billion average forecast from nine analysts.

At 1119 GMT, its shares were up 1.9% at 38 pence while the FTSE 100 index was up 1.6%.

Analysts from Keefe, Bruyette & Woods said the results were below expectations and that the lack of any major business disposal could disappoint investors. KBW kept its market-perform rating 72-pence price target.

Old Mutual said it remains well-capitalized, with a capital surplus of GBP700 million, down from GBP1.1 billion at end-September.

Finance Director Philip Broadley said an expected increase in profits would boost the company's capital surplus to a higher figure in end-March.

He said this would be sufficient to face the risk of corporate bond defaults in the U.S.

On an MCEV basis, total earnings from Old Mutual's life insurance businesses in Europe, South Africa and the U.S. fell 58% to 324 million, dragged by a GBP644 loss by the U.S. life business.

The U.S. life business had total impairments of $768 million for 2008, including losses from investments in Washington Mutual, Lehman Brothers Holdings, Freddie Mac and Fannie Mae.

It declared a dividend for 2008 of 2.45 pence a share, down from 6.85 pence in 2007.

Company Web site: www.oldmutual.com

-By Vladimir Guevarra, Dow Jones Newswires, +44 (0) 20 7842 9486, vladimir.guevarra@dowjones.com

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