Old Mutual declared a final dividend in its 2022 financial results that will take its shareholder distributions for the year to R3.7bn, which will be further augmented in time with a planned share buyback.
The insurance and investment group declared a final dividend of 51c per share, taking the full dividend for the year to 76c, which once adjusting for the effect of the Nedbank unbundling, is 13% up from the previous year. Old Mutual also earmarked R1bn- R1.5bn for a share buyback plan that remains subject to board and Prudential Authority approval.
“We had very strong cash generation — our cash generation last year was about 115% of earnings,” Old Mutual CEO Iain Williamson said in an interview after the group published its results for the year to end-December on Tuesday.
“Our capital ratios in the group are the highest they’ve been since we listed in 2018 in Joburg so our balance sheet is very strong,” Williamson added. “We have earmarked some capital for other growth opportunities ... but it’s really just a balance between returning some to shareholders that we don’t have any immediate use for because sitting on the cash creates a drag on returns as well.”
Old Mutual, which has returned R59.3bn to shareholders through special distributions since 2018, reported a moderate rise in 2022 earnings despite a challenging macroeconomic backdrop characterised by slow growth, load-shedding, financial market volatility and devastating floods.
Improved sales
On the positive side, mortality claims fell as the impact of the Covid-19 pandemic continued to ease, benefiting its life insurance business, though that was counterbalanced by lower customer persistency due to the adverse economic backdrop.
Old Mutual’s results from operations almost doubled to R8.743bn in the year while the value of new business grew 16% to R1.465bn after an improved sales performance in its Mass and Foundation Cluster as well as increased higher-margin business. After-tax profit attributable to ordinary shareholders rose 10% to R7.325bn in the year while adjusted headline earnings climbed 18% to R6.371bn.
The waning impact of the pandemic allowed Old Mutual to fully release the R2.864bn in short-term Covid-19 provisions that had been set aside to deal with the impact of the disease. The group still opted to strengthen its mortality base assumptions to account for Covid-19 becoming an endemic disease.
“Those [Covid-19 provisions] are no longer necessary but we’ve repurposed a good chunk of them to what I would call an endemic reserve,” said Williamson. “We expect that going forward claims will still be somewhat elevated particularly in the higher age groups because of the lingering effects of Covid-19. It’s not huge ... on a general mortality table you’re looking at somewhere between a 1% and a 5% loading on the base for what we’re still seeing come through.”
Old Mutual also announced in its results that it will be acquiring a strategic equity stake in Midrand-based Two Mountains Group, a licensed micro-insurer that distributes and underwrites funeral policies and provides burial services. The deal remains subject to regulatory approval but should augment its existing funeral business, which settled 88% of claims within four hours in 2022.
Difficult environment
Life annual premium equivalent (APE) sales rose almost 10% in the year to R12.501bn thanks to strong risk and credit life sales in the Mass and Foundation Cluster coupled with higher corporate and retail sales in Namibia. However, overall the Mass and Foundation Cluster suffered an 11% drop in results from operations to R2.442bn for the year.
Old Mutual Corporate — which is engaged in traditional employee benefits such as group assurance, investments and advisory solutions for SMEs — had a good year with results from operations rising more than 100% to R1.978bn. The segment did experience lower preretirement and annuity sales, reflecting the difficult operating environment.
The results from operations of the group’s insurance unit fell 9% to R495m due to the impact of crime and the catastrophic flooding in KwaZulu-Natal that damaged infrastructure and manufacturing facilities.
The operations results of the business’s investment side increased 12% to R1.24bn. Yet, funds under management declined 4% to R1.2-trillion due to weaker financial markets in SA and the rest of the world while the weak economic environment affected the ability of clients to maintain or increase savings.
Old Mutual also made solid progress in turning around its business in the rest of Africa as a strategic pivot towards more corporate business began to pay off. More than 80% of businesses within the Old Mutual Africa Regions are now profitable, up from 56% the previous year, with this segment delivering results from operations of R842m in 2022, compared with a R391m loss the prior year.
The group also implemented its broad-based BEE (BBBEE) deal, Bula Tsela, in November that put 205.3-million new Old Mutual shares in the hands of previously disadvantaged individuals.
The transaction aims to increase Old Mutual’s BBBEE ownership to 30% by June. More than 38,000 black SA individuals, small businesses and groups such as trusts and stokvels qualified to participate in the retail portion of the scheme.
“We remain focused on driving sales volumes and [a] profitable sales mix to improve market share growth in our segments,” said Williamson.
“Despite the challenging headwinds, we are through our recovery phase and have largely delivered on our medium-term targets one year ahead of schedule,” he said.
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