Old Mutual 2005 operating profit climbs 30 percent

28 February 2006 | Die Mark
LONDON - South African insurer Old Mutual reported a 30 percent increase in 2005 operating profit on the back of strong investment sales in South Africa and an earnings recovery at its Nedbank banking unit.
The London-based group, which closed a hard-fought battle to buy Swedish savings group Skandia for $6.8 billion last month, said on Monday that adjusted operating profit rose to 1.24 billion pounds ($2.2 billion) from 954 million in 2004.
Adjusted operating earnings per share were up 22 percent at 18.2 pence, compared with 14.9p in 2004, higher than the 17.9p average forecast in a Reuters poll of nine analysts. Estimates ranged from 17.0p to 19.6p.
Old Mutual Chief Executive Jim Sutcliffe said the 2005 results were driven by strong organic growth in its South African, U.S. and UK businesses.
"The organic growth has much further to go," he told journalists in a conference call, pointing also to growth from the various Skandia businesses, which it has acquired in a $6.8 billion hostile takeover.
"These results are towards the top end of analysts' forecasts," said Youssef Ziai, an analyst with Williams de Broe. "They've benefited from strong performance on the investment side and the strength of the rand."
Old Mutual shares in London were up 0.3 percent at 196-1/2 pence, while the pan-European DJ Stoxx insurance index was up 0.7 percent.
A strong economy in South Africa created a buoyant equity market, which drove strong demand for investment products and helped to push unit trust sales there up 87 percent in 2005, Old Mutual said.
But stiff competition in the South African life market forced Old Mutual to cut prices, which had a knock-on effect on its profit margins, Sutcliffe said. Its unit there had a return on equity in 2005 of 16 percent, towards the bottom of its 15 to 20 percent target range.
Sutcliffe also said that prices in the South African non-life insurance market would fall this year as the pricing cycle had begun to turn downwards after reaching its peak in 2005.
The company is recommending a final dividend of 3.65p, bringing the total payout for the year to 5.5p, an increase of 5 percent. The average forecast in the Reuters poll was for 5.7p.
Old Mutual said its U.S. life operations registered strong sales in the first three quarters, particularly of equity index-linked annuities.
Reserve charges of $40 million pushed profits at this unit down from the level of 2004, but it said it was pursuing a number of strategic opportunities there and expected the company to be capital self-sufficient by the end of 2007.
Old Mutual's completion of its acquisition of Swedish insurer Skandia has significantly broadened its revenue base, Sutcliffe said.
Old Mutual said its embedded value per share -- a benchmark for the company's value based on the worth of its assets and the future profitability of its insurance policies -- would drop to 165 pence from 175.6 pence at the end of 2005, due to the impact of issuing stock to Skandia shareholders to acquire the company.
Nampa-REUTERS

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