UPDATE: Old Mutual '08 Net Profit -38%; Will Streamline Operations
March 04 2009 - 7:06AM
Dow Jones News
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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