Old Mutual Limited ($OMU)

Good afternoon, ladies and gentlemen, and welcome to the Old Mutual Q1 voluntary updates. [Operator Instructions] Please note that this event is being recorded. I will now hand the conference over to Langa Manqele. Please go ahead, sir.

Thank you, [ Tanner ], and welcome, and good afternoon to everyone. Thank you for joining us for the Q1 voluntary updates as introduced. Effectively, this also sets as our pre-close call as we'll be moving to our close period at the beginning of July. On call today is our group CEO, Jurie Strydom, who will lead the discussion on the call with you today. He is joined by Casparus Troskie, the Group CFO; as well as Ranen Thakurdin who is the Group Chief Risk Officer. With that, I now hand over to you, Jurie. Thank you.

Okay, everybody. Yes, pleasure to with with you. Langa, I guess, we'll point to the operating update that we put on [indiscernible] business. And so everyone I'll do an overview of key issues and then I'll hand back to you Langa. [indiscernible] pointed out the broadcaster [indiscernible] with as well. So I think from my perspective, as I kind of Q1 check-in, very comfortable with the progress. I think solid progress in the business on things we've undertaken to do, which is to create structures where we can retract and drive execution. I think Q1 was operationally a very active quarter for us to kind of embed those disciplines in terms of granular targets and all the [indiscernible] accountable for those targets in the key areas, and doing that embedding into the -- across the 5 clusters and the [indiscernible] to the business units [indiscernible]. And so I think significant made and [indiscernible] work done. I think on the capital side and so very clear capital discipline and now the completion of the share buyback, which we're obviously pleased with. But more than that, I think the internal capital discipline as we do on [indiscernible] our brand [indiscernible] capital approach. I mean it doesn't always come down on a good point. So we try to [indiscernible] key proof points, any operating updates, and those are things which we've been flagging as key indicators of success. I think on the sales side, fees for Q1 flagging whilst the [indiscernible] being up 28% flagging on a normalized basis when it takes up a big quarter this deal, it was 13% up, which we still [indiscernible] -- that's strong growth. Also comfortable with the other growth metrics across the business. And that breakout indicates a building momentum across the group. I think if you look at expenses. We haven't slowed -- there's numbers to say this, but we are indicating that we think that the discipline of the management actions are on track for us in the document that we gave to you for 2026 and for 2027. I think on persistency, whilst the management actions are on track, just flagging that we changed our assessments last year. We think our assumptions to [indiscernible] -- but we are working towards ultimately improving and creating a positive variance on our assumptions. And I think there are -- we are already seeing that coming through and we do see pressure in the market. So that remains the area clearly of management focus. And then we've -- on the bank, we continue again as to the progress we reported [indiscernible] at the last year continue to show progress, satisfactory products on plans, plan take-up and deposits. And it was the focus there on -- this is a very important year for us in terms of execution in the bank, in terms of rolling out the value of the Transactional Banking value proposition and Australia Transactional Activity. We are on track with the integration of [indiscernible] into OM Bank branches, the lending operations. So very comfortable with where we're tracking with that. And we think that that's going to put us in a very strong -- it's a very important part of [indiscernible] as a strategy. So I think as far as the key group points [indiscernible] was there a clarify a point on the dis-solvency and group solvency. At the end of Q1 compared to last year, and a lot of that got to do with market conditions, [indiscernible] Langa.

Thanks, Jurie with a brief overview. [ Tanner ], if you may just remind the participants on the procedure to put through the questions. And I would just flag that we will take two questions per person. If you may just briefly introduce yourself and move straight to the two questions. With the preference of putting their questions through on the live call, is this more efficient for us to attend the question that way. Tanner, just a reminder.

[Operator Instructions] The first question we have comes from Michael Christelis of UBS.

My first two then, I guess, if I'm only allowed two. Firstly, can you talk a little bit about the bank traction since you started marketing? I think you told us you were going to start sort of [ up the life ] in advertising, et cetera, towards the end of March. I'm just trying to get a sense of what is that run rate of customer traction than essentially since that period. Has it stepped up materially? And then I guess the second on is around your excess capital position of ZAR 4.2 billion. Can you just remind me whether that pre or post the investments into the bank for this year. I think you did make a capital investment into the bank, if I'm not mistaken earlier this year. So I just want to understand how much of that ZAR 4.2 billion is kind of real excess or above what's marked for the bank?

Mike, just from my side on the bank question. We actually, the above the line is actually only really [indiscernible] as far in Q2. And in fact, actually, as sort of 2, 3 weeks, there's been a [indiscernible] but it's a bit early to tell what the customer traction is, but I think working on the sort of growth in the book as you're seeing from December the Q1 as a business unit, as I think is a sensible trajectory to work on.

Michael, on the discretion capital of that remarks sort of the ZAR 4.2 billion that you -- ZAR 2 billion of that will go into the bank or we normally capitalize portion at the end of the year. So ZAR 2 billion of that is for -- middle of the year, we'll be capitalizing both at the end of the year. We'll capitalize the mix for 2026. So those are the -- so you need to take that off the ZAR 4.2 billion which would give you then a more accurate solution.

Michael, so quick point. We also -- ZAR 900 million of the share buyback occurred after the 31st March. And so as part of that ZAR 4.2 billion balance. So you need to adjust for the completion of the share buyback as well.

The next question we have comes from Warwick Baum of RMB Morgan Stanley.

Good afternoon, Jurie, Casparus, Ranen. Thanks for the time. When you carried your commentary around persistency with a natural caution around fuel inflation and the cost of living. But your base is very low, given the provisions in the prior period. I mean, how are you feeling about the trends? You spoke about improvement to date and being on track. I mean, how do you feel that it progresses for the rest of the year? And then just in terms of the VNB, obviously, quite strong mix impacts, but you've managed to lift it to 1.6%. How should we think about mix impacts for the rest of the year could continue to rise from here? Or there's something for us to think about from the first quarter?

I'll start with the VNB. I can also give some calls on persistency. But on VNB, if you normalize for that corporate deal, we didn't give you an indication in the SENS announcement. But if you normalize to that, we would have been doing slightly better than last year. And that was because we had better in the -- in the [indiscernible] say a big contribution from Wealth which helps, and that was offset by [ PS ] it was done a little bit, but better than -- slightly better than what you saw at the year-end for the quarter. And then obviously, as as the weight of the corporate deal reduces, relative to the other business units, that will pull us back to more normalized over the course of the year unless you do another corporate deal the rest of the year. But roughly, that helps with VNB. On persistency, as Jurie said, we -- we are -- still win on the management actions, and that's going as planned, but we are still seeing persistency be worse than what we had hoped for. So more work to be done in that space. And the there is an element of affordability that as you see across the industry, if you look at a lot of the lenders that they're pulling back on lending. So we are seeing pressure on consumers -- that's the quote on the persistency.

The next question we have comes from [indiscernible] of SBG Securities.

I just have the on question. Obviously, you would have seen the ZAR 3 billion share buyback being completed with the regulatory solvency ratio now comes to be at 186%. How is the Board prioritizing that excess capital allocation for the remainder of 2026?

So I think -- we remain committed to the strategy that we -- the board-approved strategy that we took the market last year, where -- and where we discussed how we think about capital allocation [indiscernible] framework. So whilst [indiscernible] below our target level, and we're trading at a big discount to what we believe the intrinsic value of the share is, we will prioritize capital returns to shareholders as part of what we consider. I mean, that remains that remains what we are looking to do. We have seen extraordinary volatility in the capital ratios in the last 6 months, and you've seen that across Mass and Insurers where we saw capital ratios declined towards the end of last year, we've seen a strong recovery based on interest rate movements, so we just -- we're doing a little bit more work internally on making sure we're comfortable with the volatility we're seeing. But that doesn't detract from what we've communicated to the market. We remain committed, as I said, to preferring returns to shareholders. While the conditions are recent -- really prevail and we're also working on optimizing our balance sheet, the commitments we made previously in those from me.

The next question we have comes from Jarred Houston of All Weather.

Perfect. Just two questions from my side. The guidance and the commentary alludes to you've been on track in terms of the cost saving initiatives. But just remind us how we will see that come through the income statement in terms of the timing of when we will see these expense savings realized and will kind of the expense savings to be largely kind of backdated into this year and 2027? And then just my second question. We are a long way past the March end period now. If you can give us kind of any guidance on April and May in terms of broad trends either kind of RFO or investment returns. Just to give us a steer into the pre-close as just we kind of head towards June here.

Thanks. I'll go on the expenses. So we told at the end-year that -- we will give you a proper reconciliation of what we call net expenses at each of the reporting period. So we showed you a number of roughly ZAR 450 million last year as we've been saving. Our [indiscernible] year is for ZAR 1 billion of expenses. You're going to see that mostly in the businesses excluding Personal Finance and Life & Savings. We have some some expense pressures in those -- in the Life & Savings business, which you'll see the savings and the uplift in VNB mainly coming through in 2027. [indiscernible]. But you will see quite visible traction on OMART and the central functions and the rest of our businesses where we took quite a lot of actual reading in 2025, and you'll start seeing that [indiscernible] come through in 2026. We will have an improved savings number of what we showed last year -- by the time we interim. So we obviously, we got a bit of time to to get those numbers in place, but we'll be able to give you an update at the end. We saw, as you said, we are confident that we'll meet the savings goal for 2026. On the guidance, firstly, there is a difficult thing for us to give more information that we have given you in the face. So we have to stick with what's in the sales or give you more guidance than what we really provide.

The next question we have comes from Francois Du Toit of Anchor Stockbrokers.

First one on the [ 10x ] transaction, I think it concluded in January. Can you confirm that the flows you've spoken about gross and net includes the 10x flows as well? Can maybe just give a little color around that and the transaction is panning out for you? And then second question, maybe a bit of color also around the large risk deal. Was it a single premium bulk annuity? And also what the margin impact of the deal itself was?

So Francois, the recurring risk deal that we did. And we can't give you the margins. [indiscernible] comes perspective. So it's -- but it was the recurrent for that -- large recurring [indiscernible].

On 10x deal -- the deal went through. I'm just trying to check now exact days to confirm, its better there. But certainly in Q1, and very comfortable with the progress on that business. So yes, it's continued momentum. And now the work has begun and it is for that [indiscernible] extracting synergies.

And then the flows you've disclosed, does that include the 10x flows as well?

The deal was done at the end of the first quarter, the -- so we finalized the deals when we went to market, which should have been mid-March. So there won't be much in the first...

Yes, I would expect [indiscernible] of it was in March, I think, approximately.

The next question we have comes from [ Sasan Lakme ] of HSBC.

[ Saisan ] on the claim of HSBC. Two questions from me. The first, you provided a run rate of the RFO about ZAR 2.5 billion in Q1. Is there any sort of seasonality to think about in terms of how that should play out for the rest of the year if we were to annualize it? And the second question, going back to persistency. I'm just a little confused. On one hand, it seems like the management actions are working. The other had you're talking about deterioration persistency. So I guess, all in all, do you make an allowance for any sort of worsening of consumer experience within your persistency assumption? And if where we are to date, this continue, should we expect operative experience variance?

Do you want to comment on the business variance question.

So in our persistency assumptions, we we took the business changes through at the end of last year, as you're aware. In that we set specific management actions. Those management actions are largely related to operational delivery within the business. And it does take a bit of time before one sees the impact of that coming through the operations. So we are monitoring that closely to see whether those deliveries result in an improved system outcome and with an intent that we can in time, get to positive variances. However, we are experiencing some cases with customers -- with customer disposable income. So at this stage, we are seeing that there are some slight negative variances on our persistency, but we do expect to see it improve over time.

Just on the RFO, I mean, we gave you a rough indication of what's happened in the first quarter. We've seen quite a lot of volatility in markets and our business sensitive to that. So I would want to sort of give you a full year forecast. But it is the first quarter, there was a quite a lot of downward pressure on indices. So it would depend what happens to the rest of the year. If markets recover I'll feel more confidence that we see obviously better earnings, but it's a bit complicated to try and give you the full year.

The next question we have comes from Asanda Notshe of Mazi Asset Management.

Two questions. Firstly, what was the sort of associated or the PVNBP over the period. If you can share that, please? And then secondly, just on a more general note, in terms of your sales mix, how much of your sales mix generally is from your tied agency force versus third parties or like IFAs and sort of non-tied?

I think [indiscernible] at the numbers, if it's okay -- We'll circulate that detail to you -- to everyone on the call post the meeting, just to give you that split.

I think this is [indiscernible]. I think in the Mass markets, it's as entirely a retired models versus in the [indiscernible] segment, it's much more advanced in times and at the market.

Thank you. Next questoin we have is a follow-up from Mike Christelis of UBS.

Sorry to harp on [indiscernible] question. But if I look at last year, and you say Q1 this year, 2.5% is very similar to last year. That means Q2 last year was also about 2.5%, but you made massive assumption changes in Q that affected your onerous contracts. So I'm just trying to understand what the -- what was like the reason for the very strong Q2 earnings last year excluding those assumption changes, I don't know if I'm making any sense, but I think I am. And then secondly, just on the large flooding in the Western Cape that we saw in May. Just trying to get an understanding, are you expecting a material sort of hit their on claims? Is there anything we should be factoring into our numbers in terms of a material deterioration in underwriting because of those two events that happened? I think there were two storms a weak apart.

Okay. Micheal I'll actually go back to you from the second quarter earnings. So we obviously whilst we didn't disclose what our earnings were last year, obviously what it was. So it's in line with the prior year first quarter earnings. And we'll come back to you on what drove the second quarter, , just need to go look at that the detail. And then we're not -- I'm just looking at my colleagues to that -- but we are expecting a large, large knock from [indiscernible] and Jurie, do you...

I think everyone models [indiscernible] in the working cap. It's too early to signal anything definitive, Michael.

The next question we have comes from [ Thapelo Macana ] of Investec.

Thapelo from Investec. Just two questions as well. Part of the price question has been answered, but I just want to get a bit of sense. I mean, have you seen that persistency worsen towards the latter part of the quarter? Has there been like consistent sort of trends it throughout the quarter, a bit of color with regards to that? And then the second question is on the switch from guarantee to to market-linked annuities. Do you have a view of how that trend sort of goes from year given where interest rate levels are -- and in this quarter, I appreciate the fact that you said it continues to exert pressure on margins. But is it the same level of switching that we've seen in previous periods? Or have you seen a bit of an improvement.

So maybe just a comment on the -- I think we've seen an intra-quarter trends. I think it's more just an observation. I may go back to the earlier question and to be clear, and do you think we -- we have in our game and said, well, if you took the assumption changes last year, we were looking to get the impact of management actions into a positive variance. And I think that's what we really signaled that the [indiscernible] to that. But I think that's not -- I don't think we're seeing an intra-quarter new trend on it. I think on the annuity question, I don't -- I'm not sure that it's trending anyway now. I think there is now where it is in terms of the balance between the guarantee and [indiscernible] business marketplace. And I think the view is across the market is already early reversed -- when [indiscernible] reverse -- it's very in line with that change has taken place over the last 18 months to 2 years.

The final question we have comes from Brad Markoff of Peregrine Capital. Unfortunately, we have no response from Brad's line. At this stage, there are no further questions on the conference call, sir.

Thank you, [ Tanner ]. I'll hand back over to you Jurie, to ramp up.

Okay. Thanks, everybody. Yes, I think to start, I think we are comfortable with the progress we're making across the business and look forward to engaging with you at interims, I think that's probably our next stop, Langa.

Yes, Jurie, Thanks. Thanks, everyone, for joining the call.

Thank you. Ladies and gentlemen, that then concludes today's conference. Thanks for joining us. You may now disconnect your lines.