More about managed separation

Current State

End State

* At 31 Decemeber 2017, the Group held approximately 53% of the issue shared capital of Nedbank, of which 1% is hold on behalf of policyholders, with the remaining 52% held in shareholder funds. These shares are held via Old Mutual Life Assurance Company (South Africa) Limited (a subsidiary of Old Mutual Emerging Markets Limited) and Old Mutual Portfolio Holdings (South Africa) Pty Limited (an indirect subsidiary of Old Mutual plc).

** Old Mutual plc completed the reduction of its stake in OMAM in November 2017.

OMAM has subsequently rebranded to BrightSphere Investment Group

When we unveiled the managed separation strategy in March 2016, we said that we aimed for it to be materially complete by the end of 2018. Subject to addressing the remaining issues, we are on track to deliver the managed separation as planned.

As part of the listing of Quilter, we intend to hold a secondary offering of up to 9.6% with the proceeds to be retained by Old Mutual plc and its subsidiaries.

Work to wind-down the plc head office and remove circa £95 million of central costs is on track and progressing well. We continue to expect managed separation one-off costs to remain in line with our previous guidance. The quality of NAV has been materially improved as we have converted uncertainties within the assets into certain cash and continue to manage contingent liabilities and unwind complex arrangements which existed within the Group structure. Subject to addressing the remaining issues we have estimated a cash cost of £130 million for this work.

The managed separation of the Group is complex. However, the process has gained momentum and we achieved significant further progress in the second half of 2017 through the conclusion of numerous transactions and other actions to reduce the Group's liabilities and exposures.

Since reporting our 2017 interim results, we have achieved a number of meaningful steps:
  • In October 2017, the sale of the Indian joint venture with Kotak Mahindra was completed for net proceeds of £138 million

  • In November 2017, we sold the second tranche of shares of OMAM to HNA Capital and the remaining 5.5% stake for combined proceeds of $345 million

  • In November 2017, we reduced holding company debt by a further £548 million

  • In October 2017, the sale of the Indian joint venture with Kotak Mahindra was completed for net proceeds of £138 million

  • In January 2018, we received approval from the Competition Tribunal for OML to acquire Old Mutual plc - one of the key regulatory approvals for the process to be successful

We have spent much of the past two years preparing the underlying businesses for independence and working with the management teams on improving the business performance. We have taken steps to build strong foundations for the future OML and Quilter entities and both of these businesses have good momentum, competitive strategies and excellent future growth prospects. New governance structures fit for listed companies have been established at both businesses.

Their standalone balance sheets have now been finalised so as to ensure both businesses are well capitalised to fund growth plans and sustainable future dividend policies.


OMEM / OML UPDATE

A) Strengthening board and leadership capability

A strong Board has been formed for OML, under the Chairmanship of Trevor Manuel.

Eight new appointments have been made to complement members of the OMEM and Old Mutual Group Holdings Board (the holding company for OMEM and Nedbank which will be replaced by OML) who will also serve on the OML Board. The OML Board will bring a range of operational skills and listed financial services company experience that will be invaluable once the business is listed.

We appointed a new Chief Executive, Peter Moyo, in June 2017 and the new Finance Director (and OML Finance Director designate), Casper Troskie, took up his role on 1 April 2018.

We have improved the governance structures of the business and worked with the business to ensure it has appropriate functions to operate as an independently listed entity.


B) Strategic review

OMEM conducted a review of its business strategy and geographical footprint. It now has a much more focused strategy. Going forward, OML has committed to improving the sustainable returns from its cash generative businesses in sub-Saharan Africa and creating value from its recently deployed capital in East and West Africa.


The new management team's initial focus will be on three areas:


  1. consolidating and growing its positions in the South African segments where it is already a leader;
  2. improving the underperforming businesses of Old Mutual Insure, East Africa and the Wealth and Investment cluster in South Africa; and
  3. building a long term competitive advantage through winning the war for talent, refreshing its technology offering and becoming a cost leader.

There has been good progress on these three areas already and OML is committing to deliver R1 billion of pre-tax run rate cost savings by the end of 2019, net of costs to achieve this.


QUILTER UPDATE

A) Strengthening board and leadership capability

In respect of Quilter, the executive management team and Board have been reshaped and strengthened in preparation for life as a listed standalone entity. Tim Tookey was appointed as Chief Financial Officer in May 2017, Mark Satchel was appointed as Corporate Finance Director in May 2017, and new appointments were made in 2016 and 2017 to the roles of Chief Operating Officer, Chief Risk Officer, Chief Information Officer and a new HR Director.

Glyn Jones was appointed Chairman of the Board in 2016 and a further six new non-executive directors have also been appointed during late 2016 and 2017.


B) Business model review

Quilter's business model is to be a modern, integrated wealth manager. In September 2017, operations were restructured to create a separate distinct multi-asset capability at the core of the offering.

In December 2017, agreement was reached to sell its Single Strategy asset management business to the Single Strategy management team and funds managed by TA Associates for approximately £600 million. This value is subject to a number of potential price adjustments depending on the net asset value of the business and a number of other factors at the disposal date. This transaction is expected to close in the second half of 2018. Following completion of the disposal of the Single Strategy business, Quilter will consider a distribution from the surplus proceeds to its shareholders.

The functions needed for the business to be operating as a standalone listed entity are now fully functional.

We are prepared for the final wind-down of the plc head office in London. As part of this process, we expect around half of the remaining c.130 head office staff to leave by the end of June, with a further 40 by September and a skeleton staff remaining into 2019.

We are on track to achieve the stated operational cost savings of c. £95 million per annum by the end of 2018. We have also reduced Group exposures by de-risking the group pension scheme, mitigating various contingent exposures and converting assets to cash.

Following the demerger, Old Mutual plc will become a subsidiary of Old Mutual Limited alongside other operating subsidiaries. Old Mutual plc will need to satisfy the UK Court that it will continue to hold sufficient liquid, high quality assets to meet its liabilities and deal with any contingencies, plus adequate headroom, taking into account relevant insurances.

After addressing the remaining issues, we expect that the legal process of separation will include, inter alia, the issuance of shareholder documentation in relation to managed separation a UK Court approved scheme of arrangement process - which will facilitate the demerger of Quilter, the creation of Old Mutual Limited as the holding company of Old Mutual plc, including its residual assets and liabilities, and a reduction in the capital of Old Mutual plc. Old Mutual plc will become a subsidiary of OML, alongside the operating businesses.

The final step of the managed separation will be the anticipated distribution of the majority of OML's holding in Nedbank Group to its shareholders. The timing of the distribution will be determined by the OML Board but it is expected to be within approximately six months of the listing of OML. OML will maintain a holding of 19.9% in Nedbank, forming part of Old Mutual Life Assurance Company of South Africa's capital base. The 19.9% shareholding was determined through negotiations with Nedbank and discussions with the South African Reserve Bank in order to provide stability to the broader financial system and the Nedbank and OML investor base during managed separation, whilst also supporting our ongoing commercial arrangements.

OML is committed to being a significant holder of Nedbank while retaining a right to review its precise holding as appropriate from time to time, in accordance with the terms outlined in a new Nedbank Relationship Agreement, which is expected to be finalised and executed in the coming weeks.

What will happen to my Old Mutual policies/investments?

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.

What will happen to my Old Mutual shares?

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.

Shareholder queries

United Kingdom: Equinti Limited
Tel 0333 207 5952 (if calling for the United Kingdom)
Tel +44 121 415 0805 (if calling from overseas)
Website www.shareview.co.uk
Lines are open 8.30am to 5.30pm Monday to Friday excluding UK public holidays.

 

South Africa: Link Market Services South Africa (Pty) Ltd
Tel +27 (0)86 140 0110 / +27 (0)86 154 6566 / +27 (0)11 029 0253
Email oldmutualenquiries@linkmarketservices.co.za
Website investorcentre.linkmarketservices.co.za
Malawi: National Bank of Malawi
Tel +265 (0)182 0622 / +265 (0)182 0054
Email legal@natbankmw.com
Namibia: Transfer Secretaries (Pty) Limited
Tel +264 (0)61 227647
Fax +264 (0)61 248531
Website ts@nsx.com.na
Sweden: Euroclear Sweden AB
Tel +46 8 402 9000
Zimbabwe: Corpserve Registrars (Pvt) Ltd
Tel +263 4 751 559/61
Fax +263 4 752 629
Email corpserve@escrowgroup.org