New strategy to separate underlying businesses and unlock value
Following the appointment of Bruce Hemphill as Group Chief Executive, we initiated a strategic review of the Group.The review has reached the following conclusions:
The Group has undergone substantial change in recent years, completing a successful programme of simplifying the business, focusing on customers and core competencies, operational improvement and reducing risk through lowering of debt, and investment in governance and controls. We set our capital management policy to support this agenda.
The four underlying businesses - Old Mutual Emerging Markets (OMEM), Nedbank, Old Mutual Wealth (OMW) and Old Mutual Asset Management (OMAM) - have benefited from significant investment and each has strong growth prospects in sizeable markets, with excellent competitive positions, strong balance sheets and rigorous governance. There are, however, limited tangible synergies between the businesses.
The evolving regulatory environment in Europe and South Africa is adding a degree of additional cost, complexity and constraints.
The current Group structure also inhibits the efficient funding of future growth plans for the individual businesses, restricting them from realising their full potential. These factors prevent shareholders from benefiting from the full value of the underlying businesses.
Decisions following the Strategic Review
As a result, we have decided that the long-term interests of the Group's shareholders and other stakeholders will be best served by Old Mutual separating the four businesses - OMEM, Nedbank, OMW and OMAM - from each other.
The managed separation of the Group will be effected in a manner that maximises value to shareholders over time. Nedbank and OMAM are already publicly traded and the managed separation may involve equity market activity for other subsidiaries as well.Going forward, Old Mutual plc's primary role will be to implement the separation of the businesses. This will include:
Working with the business units in delivering enhanced performance relative to their peer groups
Stewardship of the managed separation process, balancing value, cost, time and risk
Managing Group debt obligations, central cost reductions and distributions to shareholders
Fulfilling Old Mutual plc's ongoing regulatory obligations.
Following completion of the managed separation and at an appropriate point in the future, the Group, in its current structure, will no longer exist.
Our business model
Continuing relationship with Nedbank
Old Mutual and Nedbank recognise that their commercial relationship continues to be a source of value underpinning successful collaboration activities in both South Africa and the Rest of Africa. It is therefore intended that the strategic relationship between Nedbank and OMEM will continue following the managed separation. Old Mutual and Nedbank remain committed to achieving the previously announced 2017 pre-tax synergies target of R1 billion. However, it is agreed that a majority shareholding in Nedbank is not necessary to achieve either party's strategic objectives.
In time, Old Mutual envisages reducing its interest in Nedbank to an appropriate strategic minority position to underpin the future commercial relationship. The exact mechanism to achieve any reduction in Old Mutual's shareholding has yet to be finally determined. Old Mutual currently envisages reducing its shareholding in Nedbank primarily by way of a distribution of Nedbank shares to the shareholders of Old Mutual in an orderly manner and at an appropriate time in the context of the managed separation and does not intend to sell any part of its shareholding in Nedbank to a new strategic investor. It is currently intended that, apart from the strategic minority shareholding in Nedbank to be held by Old Mutual, the remainder of the Nedbank shareholder base will be widely held by the time the managed separation has been completed.
The boards of directors and management teams of Old Mutual and Nedbank are working closely together to determine the most effective method and appropriate timing to effect the managed separation, in a way that safeguards the stability and integrity of both Nedbank and the South African financial services sector, including determining the level of the strategic minority shareholding that Old Mutual will hold in Nedbank on an ongoing basis post the managed separation.
Capital management policy
In the recent past, the Board pursued a progressive dividend policy, consistent with our strategy, having regard to the overall capital requirements, liquidity and profitability and targeted a dividend cover in the range of 2.0 to 2.25 times AOP earnings. The policy set our interim dividend at 30% of the prior year total.
In light of the conclusions of the strategic review, we will be adopting a capital management policy which provides appropriate flexibility for the period of the managed separation, the costs of the process as well as providing for the significant investment required in each of the business units.
Accordingly, for the forthcoming period of managed separation, the Board intends to pursue a dividend policy reflecting the operational cash generation, investment and liquidity needs of the Group as well as the capital requirements of the underlying businesses. We will target a dividend cover equivalent to 2.5 to 3.5 times Group AOP earnings for each reporting period, with the first interim dividend based on a cover of 3 times Group AOP earnings for that interim period.
During the period of the managed separation, we also intend to reduce the Group holding company's current debt materially, mainly through asset disposals over time. Subsequently and to the extent that excess capital is generated, the Board will consider further returns of capital to shareholders.
Intended outcomes of new strategy
The Group's new strategy will seek to unlock and create significant long-term value for shareholders through:
The phased reduction of plc central costs. In 2015, these costs, gross of recharges, amounted to approximately £80m
Each business delivering enhanced performance relative to its peers and allowing the market to value it appropriately
Ensuring that each business accounts directly to its shareholders for its level of returns and cash generation from the capital employed
All of the businesses having capital structures and dividend policies appropriate for their own strategies. This will allow these businesses to access their natural shareholder base.
Implementation of the new strategy will remove the conglomerate discount. The enhancement of these businesses will have positive benefits for their staff, customers, and other stakeholders as well as for the economies and capital markets of the countries in which they operate. Following the managed separation, the lead regulator for each business unit will then be the same as the local regulator.
Your Old Mutual policy will not be affected. This separation is relevant to shareholders who directly own shares in the UK- and/or South African-listed businesses of Old Mutual plc and/or Nedbank Ltd and/or OM Asset Management in the US.Will this have any impact on me as a customer?
No, it will not. However, we do believe in time that this process will lead to each of our underlying businesses being more competitive and more relevant to our customers and so should be beneficial for customers.For any other queries please contact us.
Retail shareholder queries
If you hold a direct investment in Old Mutual plc or Nedbank Ltd on the UK or South African stock exchange, please visit the investor relations section of our website for more detailed information.
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