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.