MONEYWEB, Erika van der Merwe|, 14 September 2006

Tito Mboweni’s comments, the rand’s decline, the current account deficit and import quotas.

MONEYWEB: The rand shed about 10c against the US dollar today. I think it was R7.41. Arthur?

ARTHUR BUCHNER: R7.41 – I think just over R14 to the pound. It broke over R14 to the pound, I think it got to R14.04, then broke back. Everyone thought, oh, it’s a false break, and then it closed above R14. So quite weak.

MONEYWEB: Well, the timing of that rand decline happened to coincide with a speech by Reserve Bank governor Tito Mboweni that warned of the risks to interest rates of the swelling current account deficit. Dennis Dykes is chief economist at Nedbank. Dennis, the speech certainly indicated the governor’s view that rand weakness is simply a process of market adjustment. It’s a mechanism to adjust for that trade shortfall. Is this what economic theory tells us will happen? Will markets sort out trade deficits?

DENNIS DYKES: That certainly is what economic theory suggests. Obviously, we have a very large current account deficit – about 6% of GDP, and the latest trade statistics don’t really suggest that it’s starting to narrow very much. And I think what the governor set out – I wasn’t at the actual speech, but what I’ve gathered is that he actually set out the theoretical case which is absolutely right, but I think the market took it as being a prediction that the currency would come under further pressure, and then of course that the implication would be that it would work its way through inflation and into interest rates.

MONEYWEB: Now Dennis, unlike Arthur, you don’t take short-term trading views. Longer term, what does this mean for the rand?

DENNIS DYKES: Well, certainly while this adjustment takes place and if it’s correct that it’s going to take a while for the current account to actually work down, and the market actually buys that and the focus remains on the current account, one would expect that the rand would remain under a bit of pressure. What’s interesting, though, is that the currency adjustment has been very, very strong this year. We’ve really seen quite a dramatic depreciation, and we’re probably getting into kind of like – and this might be a bit controversial – into slightly undervalued territory on a purchasing power parity basis. But you know, that obviously is the subject of some debate. But we’re certainly not in overvalued territory, where the argument might have been made a few months ago that we were slightly overvalued. We certainly have adjusted very, very rapidly and the question is how much further does it have to adjust. And these things tend to overshoot, of course.

MONEYWEB: Now what is causing this trade shortfall in South Africa? We’ve had the governor warning that rand declines would have inflationary consequences, which in turn would compel the policy maker to raise interest rates. But could one argue that monetary policy had in fact been too lax for too long, thereby allowing domestic demand and therefore imports to take off?

DENNIS DYKES: I think yes. I mean the last two cuts in interest rates were somewhat controversial, because we already had credit move higher, we already started to see the consumer spending – instead of the usual sort of 3.5% extra each year it had leapt up to around about 6%. So the second last was relatively controversial and then the last I think was very controversial, given the circumstances. But the Reserve Bank I think was encouraged by the fact that inflation was very low, as were a lot of other central banks at the time. So they were happy to actually cut interest rates because their inflation forecasts suggested that there wouldn’t be any problems on the inflation front, which is their primary mandate. The danger now is though that, having done that, and with consumer spending having been very, very strong, imports over the last two, three years have exploded. And that I think has taken people somewhat by surprise. And at the same time we’ve had exports not really actually reacting to a very, very strong global economy. And I think there are few stories within that, but one of the ones that’s becoming fairly apparent is that, as domestic demand has exploded, as domestic spending has picked up so rapidly, exporters have actually diverted their attention to the domestic market. So it’s been a case of satisfying local demand and not having excess to actually put out into the export market. So in a strange way not only have imports gone up, but the domestic demand has affected our export potential as well. And there are other factors as well. In the mining sector, for example, the switchover from old-order to new-order rights has held back new exploration and in particular new developments. And then infrastructure itself has also been a problem – ports and rail.

MONEYWEB: So there are structural aspects. We can’t just expect the currency to sort out our problems for us. We do need some structural intervention.

DENNIS DYKES: That’s right. Of course, the currency via higher prices and via higher interest rates could actually help sort out the demand side. But that is not really the adjustment that you’d like to see – you know, where one would actually like to see exports actually adjusting and consequently the current account deficit narrowing or even going positive, at the same time having very strong domestic demand. But given those constraints that I actually outlined, it looks more like what would happen if the markets actually forced the issue, because it really is a question of perceptions of risks if the issue was forced that all the adjustment would take place on domestic demand.

MONEYWEB: Now talking of issues being forced and adjustments, we’ve had the DTI taking the side of trade unions in the textile and clothing sector, saying one way to stop imports is to simply impose quotas. Is this accepted global practice?

DENNIS DYKES: No, it’s certainly not accepted global practice. You know, we’ve had the whole world going towards more levels of free trade. And of course the benefit there is quite obvious. If the consumer actually has much, much lower price to pay for certain goods, then they’ve got more cash to actually spend elsewhere in restaurants, etc, and that boosts employment in other industries. So it is an unfortunate way of actually going about it. And I think even DTI would suggest that it’s a temporary sort of thing. It’s trying to get the industry over a very rough patch, but it can’t be seen as a permanent sort of solution, because clothing and textiles already are a fairly protected sort of area of the economy. They already have had a number of years to adjust to the lower tariffs that were conceded under GATT, for example – the Uruguay round of GATT. So it would be an industry that, unless it adjusts, unless it actually finds its niches very, very quickly, it would be an industry on the decline. And the cost of that adjustment is borne by the consumer. And, as I say, that impacts unfortunately on other industries and on other employment levels in other industries. So it’s not a final solution at all.

MONEYWEB: And it is thanks to Dennis Dykes, chief economist at Nedbank.

MONEYWEB, Erika van der Merwe, 14 September 2006

The rand and the current account deficit, and Moneyweb Business.

MONEYWEB: Arthur Buchner from Nedbank Securities – today’s market? Not a bad day, considering what the rand did.

ARTHUR BUCHNER: Well, you know, the rand hedges now make up about 55% of the all-share index so, with the rand weakening, that actually supported the market quite a bit. We did see a sell-off late in the afternoon where the rand actually came back. And sometimes these comments are not necessarily bearish on the rand. You know, they shake out all the weak hands – the guys that were long of the rand, expecting it to strengthen because it had been over sold, and they suddenly decide oh, hold on a second, we’re wrong, the fundamentals are wrong. They go and cut, the exporters go and do all the hedging and the next thing you know it’s actually good for the rand. And I wouldn’t be surprised to see the rand actually have a nice 1% or 2% pull-back in the next two or three days, because it’s a comment. It’s not a fundamental shift that’s happened. You know, when we saw the current account deficit it had already weakened the rand, so we already had it in the market. And now suddenly someone comments on that. Well, we already knew what was happening two, three days ago. Don’t be surprised to see a 1% or 2% pull-back in the rand in the next two days.

MONEYWEB: Talking of rand-hedge stocks, Richemont moved up nicely today with its rand-hedge qualities and also an upbeat trading statement.

ARTHUR BUCHNER: Correct, and at the end of the day if you want to get exposure to a rand-hedge stock and you are a rand bear, then you want to first of all get a stock which is listed in a foreign country because, if that stock stays the same price in that country yet the rand weakens, it goes up. So that’s your number one benefit. The second benefit is if they are selling their product in different currencies, hard currencies, when they expatriate that money back to South Africa it gives you an added win. So don’t only got for a rand-hedge counter that necessarily sells overseas but is only listed in South Africa. You must go for the dual. You must go for the one that’s listed overseas and the one that is selling in hard currencies, and that’s what happened with Richemont today. You’ll see that Richemont’s outperformed a couple of the other rand-hedge stocks precisely because of that.

MONEYWEB: Arthur, give us some other examples or rand hedges according to your criteria.

ARTHUR BUCHNER: Well, SAB, for example. It sells a lot in South Africa, but its majority now is selling to the international market so that is one that is dual-listed and it’s selling offshore. If I have to think off the cuff, Old Mutual is not a classic example. Old Mutual, even though it’s listed overseas, makes a helluva lot of its money out of South Africa. Now with the Skandia acquisition it will make a lot more money overseas, but it’s making a lot of money here – and hence it underperformed all the other rand hedges. And that’s a classic example of three that I would look at.

MONEYWEB: The market punished Illovo for its trading statement, which to my mind seemed quite positive, although it did warn that the high base of last year’s second half could undermine this year’s full-year performance.

ARTHUR BUCHNER: You know, sugar’s come off a hell of a lot and Illovo’s really been underpinned by the fact that someone’s picked up 20 or 51% of it at R21. Now what happens is, if you’ve sold your stock at R21 and it comes back down to the level R17.50, I think you’re going to buy in at least a fair portion if you believe it offers value. But with the sugar price having fallen as dramatically as it has, and I think it’s about 30% off its highs, that impacts. And once those bottom pickers, the guys who sold off at R21, start to buy in a little bit of their holdings you will see a sell-off. I think Illovo’s share price has actually outperformed the sugar market, and I wouldn’t be surprised to see some more profit-taking.

MONEYWEB: Banks gave up some ground today. Was that rand-related?

ARTHUR BUCHNER: Typically rand-related. In fact, as a trader the first thing you see is when the rand starts to go weaker you start to sell the financials. It doesn’t mean that because the rand is weakening that it’s actually bad for financials. I have the opposite view. But traders and asset managers out there – the rand’s going weaker, let’s sell out of that and let’s buy into the resources. And that was a classic example. I don’t think there was one of the banks that actually withstood any of the selling today.

MONEYWEB: And resources, looking more specifically at the details?

ARTHUR BUCHNER: Resources – because of the gold there were a couple of bottom-pickers in there. Anglo American actually held up quite well until the late afternoon sell-off, and very aggressive buyer out of London this morning, because what happens is we also get arbitrage trade in the market, and it traded at a higher price in London that what it traded in our market, so we actually found South Africans selling Anglo American and foreign guys buying it. But the resources held up very, very well. Billiton are announcing their buy-backs every single day. Looks like those are the place to be at the moment – so long as the rand remains weaker.

MONEYWEB: Well, just a wrap up using the Satrix numbers. Satrix 40 up 0.7% to R19.67 today. The Resi up 1.48% to R40.43, so illustrating what Arthur said how resources stocks gain on a weaker rand. The Fini up 0.13%. Interesting there that although the financial index was weaker, the Satrix Fini was up slightly.

ARTHUR BUCHNER: Well it was up, but you must look at it in relation to what the rest of the market did. So the resources were up, what, 1.5%, so the Fini underperformed. So there was good demand. We had a strong Dow overnight; we had the market which was up about 3% in the early morning supporting it. The Fini – I’m surprised that it was actually up. I would have thought it would have been down slightly. The Findi, which is a combination financial and industrial index, was actually up quite a bit as a result of SAB and Richemont making up a fair portion of that index. But you can see that that financials definitely underperformed the market today.

MONEYWEB: Well, Arthur, with us in the studio Hilton Tarrant, who’s in charge of putting together Moneyweb Business. What do you have for us tomorrow, Hilton?

HILTON TARRANT: In tomorrow’s Moneyweb Business in The Citizen an exclusive story on Dave King. The fraud accused tells us his side of the story. Old Mutual looks for growth in the US, India and China. Read two pages of insight from the world’s leading business publication The Wall Street Journal, and Barry Sergeant takes an in depth look at how Brett Kebble managed to add R5bn to the value of Western Areas. That’s Moneyweb Business in The Citizen tomorrow.

MONEYWEB, Erika van der Merwe, 14 September 2006

Why the launch of cellphone number portability has been delayed.

MONEYWEB: Well, Icasa today announced a second delay of the launch of cellphone number portability. Instead of 18 September, implementation is now set for 10^th of November. Mike Falconer is carrier relations manager at Cell C. Mike, the cellphone operators had made recommendations to Icasa about ideal dates for implementation, and your proposal was the earlier of the three cellphone operators. Would it be correct to say that Cell C has the most to gain from number portability?

MIKE FALCONER: I think so. From our research it has shown that we will be a net gainer once portability is actually implemented, but really it allows us access to customers who perhaps haven’t switched before, because of the value of their numbers to them. So we do see having access to sort of early-uptake customers of cellular as well, who are potentially higher spenders as well.

MONEYWEB: Mike, why the delay?

MIKE FALCONER: The most recent delay was really just completely unforeseen. It was to do with testing. We bought a centralised solution which allows us to port numbers, and we had to test our connectivity to that system, and we had unforeseen problems, really, just with connecting to the database and sending messages to and from the database. The database works a little bit like a bank clearing house with clearing cheques, and we’ve really just had problems that were completely unforeseen by ourselves and the vendor, actually.

MONEYWEB: So is this a difficult process, technically, to ensure number portability?

MIKE FALCONER: I think so, because of the way Icasa required it to be done. So it’s a fairly quick process, which means that everything is basically machine to machine, so the processes we’ve implemented and the systems we’ve implemented are fairly complex. It has been done elsewhere around the world, but in this country we have a service provider and mobile operator model, so there are more parties connecting to this, more parties doing their own development to ensure they can interface with the solution. So it does create far more complexity – so, yes, it is fairly complex.

MONEYWEB: It’s a complex process. Who will manage it?

MIKE FALCONER: We’ve created a company called The Number Portability Company and each of the operators has an equal shareholding in that – so MTN, Vodacom and ourselves. And that will be run by a general manager who has been appointed, who will actually oversee the day-to-day management of the solution itself.

MONEYWEB: Now do you expect an impact on service offering by the cellphone operators, or even on pricing once we see number portability?

MIKE FALCONER: I think the most immediate effect will be on retention strategies of retaining customers, improving service, so you don’t sort of lose your customers initially. Perhaps over time we’ll see pricing competition, but I think initially it will really be around service, perhaps better bundling of products – you know, the traditional sort of competitive areas in the market.

MONEYWEB: How far out of line are we globally in terms of number portability?

MIKE FALCONER: When you say “out of line” do you mean the number of years or …?

MONEYWEB: Yes, that, and how many other countries are there around who have it?

MIKE FALCONER: Well, numerous. Fixed-line started way back in 1997 in Singapore, and then in 1999 there was the UK and Hong Kong, and in the sort of early 90s the EU mandated that that EU member countries actually implement number portability. So it’s been phased over the last sort of five years, with those joing the EU latest doing it now – sort of Czech Republic, Slovakia, those sorts of countries implementing in the last few years. So we’re a couple of years behind, but in Africa we’re the first. And also South America hasn’t implemented. Australia’s got it, but not New Zealand. So it just depends on the regulators in the different areas.

MONEYWEB: Mike, we heard from Arthur Goldstuck last week. His research shows that there could be limited impact in terms of switching once we see portability. Do you agree with that in terms of your own research?

MIKE FALCONER: Our research was a large sample – about 7 000. It actually showed between 3% and 5% of the total market would perhaps take up number portability, which is a fairly big number, depending on how big you see the market. So it is quite a large number. We did see the post-paid potentially more uptake than in prepaid. There’s more affinity for the number in post-paid. But yes, it is a fairly big number in actual numbers. But as a percentage it’s fairly small.

MONEYWEB: Well, thank you, Mike Falconer. Mike is carrier relations manager at Cell C. Arthur, I think perhaps you’ve tackled this issue, but just coming back to cellphone number portability – a company like MTN, this is a minor detail in their lives.

ARTHUR BUCHNER: Well, you know, I would never move from my cellphone company to another if I had to change my number. However, now it does give me the opportunity to consider what the other company has to offer. I personally think they’re much of a muchness, and the fact that I change will be as a result of how they advertise and how they brand themselves. Do they do something for society or do they not, or do they appeal to me? Is it a young cellphone company or does it appeal to the older set, rather than actual price. But it does give me the opportunity to decide that. And I think it’s going to have a major impact. I don’t think you can see 10% or 15% at least of people moving around and changing from one to the other.

MONEYWEB: Arthur, thanks for spending this hour with us in the studio.

ARTHUR BUCHNER: An absolute pleasure.

MONEYWEB: Arthur Buchner is from Nedbank Securities.

MONEYWEB, Erika van der Merwe, 14 September 2006

For the year to June restaurant turnover up nearly 18%.

MONEYWEB: We welcome on the line Pierre van Tonder, group managing director of Spur Corporation. Pierre, after Old Mutual the details of your results are somewhat less overwhelming, but nevertheless interesting.

PIERRE VAN TONDER: Yes, somewhat, I think – to put it into perspective. Yes, to make sure we’re all normal.

MONEYWEB: Pierre, for the year to June restaurant turnover was up nearly 18%, and we must ask the perennial question about the state of the South African consumer. We know Arthur and his family love going to the Spur. He’s got a young family. So we know you cater for people like that. But then also there’s the role of a structural shift in spending patterns.

PIERRE VAN TONDER: Yes, I think we’ve all been pretty fortunate in the South African economy to benefit in terms of the buoyancy of the market over the last two years or so. Even with the interest rates maybe climbing, we see it as a definite opportunity for us to further push our envelope with regard to our value proposition. When I say value proposition, I think people will obviously tighten their belts ever so slightly in terms of the interest rates and where they go to. But they will still go out to eat, and it’s definitely an opportunity as we see it from a management perspective to further kind of put the Spur proposition forward with regard to the value proposition.

MONEYWEB: How defensive is this eating-out industry in South Africa? I’m thinking of recently Bidvest with their food services division in Europe that’s doing very well. It argues to be a defensive industry. Can one say the same in South Africa?

PIERRE VAN TONDER: I’m trying to really understand your question.

MONEYWEB: Tying in with what you said about belt-tightening, if interest-rates do go up how big will the impact be on you?

PIERRE VAN TONDER: I think we’ve been there kind of before when the interest rates have gone a little bit out of kilter in terms of the man in the street. And we’ve taken that as an opportunity to really kind of push the brand envelope in terms of getting people into our restaurants. And again, we would see that as an opportunity if it does get a little bit out of kilter. I don’t think it’s going to go 1.5% or 2%. But if it does go there, it’s a case of how you kind of sharpen the tools in your shed to compete.

MONEYWEB: Now, another key theme for you over the last year or so has been your store and franchise expansion. This is now across Spur, Panarottis and John Dory brands. You’ve opened 34 new restaurants, so you’re now at 321 restaurants, of which 90% is in South Africa. Sounds like a fairly aggressive expansion.

PIERRE VAN TONDER: Yes, it has been a very good time for us in terms of expansion. You know, new stores always put the icing on top of the cake, so to speak. But we always judge ourselves by what our existing business grows, and on a like-for-like we’re about 10.7% on year-on-year growth. And that’s kind of always our measurement tool to see in terms of increase of market share – and actually is your business growing organically? So whilst the new business is great and exciting, we always benchmark ourselves as management on existing business.

MONEYWEB: In other words, are you saying to make sure you’re not expanding too rapidly?

PIERRE VAN TONDER: Correct. Yes.

MONEYWEB: Now how established do you see the Panarottis and the John Dory brands? We know Spur is pretty established.

PIERRE VAN TONDER: Panarottis has been around now for nine years. We’re up to 65 stores. This year we introduced a whole new décor theme to it as well. And we’re very excited about the turnovers that we are achieving in Panarottis, especially in the big what I would call entertainment shopping centres in South Africa. We’re also encouraged to see how Panarottis is performing with us in Australia as well. So from the brand perspective we really see that Panarottis is a good feature within our stable. John Dorys – we’ve been in John Dory now for just over a year, because we purchased it from our partner in Durban. We’re up to 17 stores. We’ve already opened three in this new financial year and it’s showing very, very good signs as another one of our brands within our stable that we can grow well.

MONEYWEB: Our thanks to Pierre van Tonder, group managing director of Spur Corporation. Arthur, do you agree with Nazeem’s comment a little earlier that Spur’s a great company, great operation, but perhaps on the expensive side?

ARTHUR BUCHNER: The stock might be a little bit on the expensive side, but what you have to understand is that when you get belt-tightening, their product is fantastic, their product is value for money. So you can go out to the larney restaurants and pay R80 for a steak, or you can go and get a steak for R50. So when the belt-tightening happens it happens at the top end of the market. People start to go to the family-orientated restaurants, and I think that they can withstand quite an increase in interest rates. Maybe 2% or 3%, and it wouldn’t affect them too much. I’ve been to a couple of the John Dorys, and if you compare them to the other fish restaurants around they’re also better value for money. You don’t feel like you’ve had your eyes ripped out when you walk out at the end of the day and have to sign your chit. And I like the concept of the two stores next to each other, sharing similar kitchens, where you can actually go there and decide – today I’m feeling like fish, tomorrow I’m feeling like chicken wings. I really like the store. I like the brand. I think they’ve got, long term, good holding-on and growth prospects. Little bit overvalued in relation to where they have been. They have had quite a nice move. But I wouldn’t be a seller of the stock.

MONEYWEB, Erika van der Merwe, 14 September 2006

Interim results. ‘Old Mutual has actually been the best–performing stock in the insurance sector.’

MONEYWEB: Well, Old Mutual plc delivered its interim results today. Adjusted embedded value per share lifted by 17% to R18.95, and an interim dividend of 2.1p was declared – that’s about 28c. Arthur, this is now a business with R2.9 trillion of asset under management.

ARTHUR BUCHNER: Yes, it’s not a small-cap, is it?

MONEYWEB: Bigger than most economies.

ARTHUR BUCHNER: You know, sometimes these businesses get so big that they actually become uncontrollable. And if you think 1998, 1999 when Old Mutual went out on a huge American acquisition drive, they burnt their fingers because they didn’t control what they’d actually gone and purchased, or they didn’t really understand what they’d gone and purchased. The American markets are completely different to the European markets, and they were a South African/European based operation. They then sold off all the American losses and now they’ve gone back into Europe. Hopefully they’ve learnt from the lessons of the previous acquisitions – you know, size is not everything. If you work for General Electric, they say size is everything. But there’s been a huge shift now in the States, where they don’t believe you have to be the biggest in everything. You just have to be the clever – not cleverest, but you have to be more clever than your competitors. So they’re breaking up a lot of their big multinationals into much smaller units, and attacking the smaller guys, [rather] than having this mass market. Now Old Mutual have gone the other way. They believe that size is what it’s about. If you look at any asset-management companies, they want critical mass. They want to be managing R10bn, R20bn, R30bn. If you give an asset manager R1bn to manage, he can’t make enough money or employ enough good guys to keep that asset manager going out of the 1% that they make out of that R1bn. And maybe Old Mutual have taken the same view on it.

MONEYWEB: Well we have Old Mutual’s CEO on the line. Welcome to Jim Sutcliffe. Now, Jim, Arthur suggested you are big. But are you clever?

JIM SUTCLIFFE: Well that’s for other people to judge. But actually, I agree with what he said. I think size is the result of being successful, not the way to be successful. So I think you do have to be clever. I agree with him.

MONEYWEB: But Jim, this is certainly a theme that struck me in your results from today – that you are now a global machine, not only in terms of operations but also in terms of share ownership.

JIM SUTCLIFFE: Yes, I think that’s right. I mean, the share register of Old Mutual has now splitted out – 35% in South Africa, about 35% in the UK, 15%-odd in the US and the rest around Europe. So it’s widely spread now.

MONEYWEB: And if you look at the detail of that share register, interesting that locally the PIC’s the only institution that features – if you look at the top 10 or so – with 6% ownership. But if you look at the big global players, Barclays, Legal & General and Franklin Templeton, for instance, are amongst the top shareholders. Did this coincide with your listing about seven years or so ago, or has this been a more recent development – that you’ve seen foreign investors buying?

JIM SUTCLIFFE: No, it’s been more recent. Of course, with the purchase of Skandia that was done for shares. So there’s a number of investors who received a lot of shares simply as part of the Skandia deal. But, you know, what often isn’t realised in South Africa is that Old Mutual is actually the best-performing stock in the insurance sector of the FTSE over the last five years. So, you know, there are people out there who said, well, maybe this is worth doing.

MONEYWEB: So certainly a feather in your cap. But my impression is that operationally your growth focus is now outside South Africa. Is that correct?

JIM SUTCLIFFE: No, it’s not correct. I think we’re trying to grow as hard as we can in South Africa as well, and indeed if you look at the funds under management in our South African life company, it went up by R75bn over this half year, from R316bn to R391bn. And I think you spoke about what we’ve done at Nedbank as well. So we’re pushing all of our businesses as hard as we can, and South Africa remains the heart of Old Mutual.

MONEYWEB: What are your plans for South Africa – specifically in terms of unit trust sales? Those were up 31% in this period. Just picking up on that, that 51% gain in unit trust sales – was that a gain in market share or simply just growth in the market?

JIM SUTCLIFFE: I haven’t got the market statistics absolutely in front of me, but I’m pretty sure, looking at the other companies’ results, that overall that would be an increase in market share. There’s no doubt a shift away from the life insurance industry into the unit trust industry. And from our point of view, we don’t mind which product people buy as long as you know they save their money. So we will push that, and we’re still building out our sales force as hard as we can.

MONEYWEB: But just looking at your unit trust performances on a one-year view, if you take the general equity funds, you’ve not performed particularly impressively – this is now the South African funds within OMAM.

JIM SUTCLIFFE: Yes, I think there are always ups and downs in investment performance, and we’ve had a hiccup here and there. But if you look over the longer time frame, I think Old Mutual Asset Managers in South Africa has performed pretty well.

MONEYWEB: You talk about “open architecture” in almost the same breath as you talk about expanding your unit trust presence. What is that?

JIM SUTCLIFFE: What that means is you’re giving the customer the choice of asset managers. So there’s two things you do when you’re selling a savings product. You kind of collecting it up into a vehicle that’s got tax privileges and provides a report to the customer, so that he knows where it’s going. And what we’ve started to specialise in is the ability to then say, OK, within that one vehicle you can invest in an Old Mutual Asset Manager or an Allan Gray or, if it’s international, Threadneedle or New Star, or whoever it happens to be. Because, you know, when a customer thinks at age 40 I’m going to put some money aside for my retirement, it’s hard enough to decide who you think the best asset manager is today. But I challenge you to say who the best asset manager is in 25 years’ time. So that kind of open architecture approach gives you the flexibility of changing managers going forward, without going through the costs and the aggravation of changing the whole product.

MONEYWEB: Now Jim, what is your degree of focus – just talking about the South African portion of the business – on the developing market? We recently spoke to Sanlam. There is quite a strong focus there on emerging-market customers. Is your focus different?

JIM SUTCLIFFE: No, it’s much the same. I mean, I think if you look at the direct sales force just by numbers of sales people, we’ve got about 1 800 out of our 4 500 sales people in what we call our Group Schemes Business, the emerging market business. And that’s expanded out of its traditional funeral insurance base to having a much greater savings element to it as well. And over my six years at Old Mutual that’s grown from 900 to 1800. So it’s just about doubled in size.

MONEYWEB: Looking globally, you now have a presence, albeit still quite small, in India and China, and we’ve seen some good growth there in new business over this reporting period. What are your expectations from India and China?

JIM SUTCLIFFE: Yes, I mean that’s really rocketed. It doesn’t make money yet, and that’s the object of the game, but it now adds about 10% to our sales – and that’s from a standing start just a couple of years ago. And that’s 10% including the doubling of sales that happened in buying Skandia. So it’s a huge rate of growth. And, you know, I believe there’s 250m people in India with an income of over $350 000 a year, so it’s just enormous. We have 12 000 agents in India, and that compares to the 4 500 in South Africa, so it’s going to get big very, very quickly.

MONEYWEB: Jim, thanks very much for chatting to us. Jim Sutcliffe is CEO of Old Mutual plc.