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Old Mutual Wealth delivers exceptional 2015 results

11/03/2016
  • Old Mutual Wealth beats ambitious targets set in 2012 delivering exceptional results in 2015
  • Profit increased by 35% to £307 million
  • Net client cash flow increased by 86% to £6.9 billion

 

Old Mutual Wealth delivered a strong performance in 2015 outperforming the targets set in 2012 for profit, return on equity and operating margin.  At that time the targets set were £300 million profit, subsequently reduced to £270 million following the sales of the European businesses and excluding Quilter Cheviot, a 12-15% return on equity and an operating margin of 40%.  

Significant transformation activity over the past three years, including the adoption of a vertically integrated business model, has resulted in better than market net new flows, improved operating margins and increased operating profit across all key strategic business areas. 

Old Mutual Wealth’s strategy is to offer trusted financial advice, flexible products, discretionary investment management and high performing asset management, all underpinned by first class support for advisers and our clients.  All components are managed to be market leading in their own right and financial advisers can choose how much of the integrated service they want to use.

The focus over 2016 is to further embed the strategy, driving collaboration between the individual businesses whilst delivering customer value.

 

Key financial performance: 

  • Net client cash flow (‘NCCF’) increased by 86% to £6.9 billion (2014: £3.7 billion)
  • Gross sales increased by 30% to £20.8 billion (2014: £16.0 billion)
  • Funds under management (‘FUM’) increased by 27% to £104.4 billion (2014: £82.5 billion)
  • Adjusted operating profit (‘AOP’) (pre-tax) increased by 35% to £307 million (2014: £227 million)
  • AOP (excluding Quilter Cheviot) increased by 20% to £273 million (2014: £227 million)*
  • Pre-tax operating margin increased to 40% (2014: 36%)
  • Return on equity (‘ROE’) increased to 16.7% (2014: 16.5%).

*Profit on a like-for-like basis with 2014 (i.e. excluding QC and divested business) is 43% ahead of 2014.

Old Mutual plc has today announced that, following a strategic review of its business, it has 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 – Old Mutual Emerging Markets, Nedbank, Old Mutual Wealth and OM Asset Management (US) – from each other.    These four businesses have benefitted from significant investment and each now has strong growth prospects in sizeable markets, with excellent competitive positions, strong balance sheets and rigorous governance.

The managed separation of the Group will be effected in a manner that maximises value to shareholders over time, Nedbank and OM Asset Management (US) are already publicly traded and the managed separation may involve equity market activity for Old Mutual Wealth and Old Mutual Emerging Markets as well.

Paul Feeney, chief executive of Old Mutual Wealth, comments:

“Old Mutual plc’s announcement today is a great endorsement of our successful business strategy.   We have a very exciting future ahead of us.

“By putting client needs at the heart of our business strategy, Old Mutual Wealth has transformed from a standalone platform into an award-winning, next generation wealth management business.  Beating the objectives we set three years ago, our company has delivered outstanding results for 2015 despite being faced with some of the most difficult global stock markets I have ever seen.  By outperforming many of our peers in the industry in 2015, we have kept the promises we made in 2012 to create a new force in wealth management.   

“We have solid foundations in place to support the next stage of our journey.  Our aim is to be a changemaker, creating prosperity for today’s generation and those of tomorrow.  We will continue to grow by being close to our clients, true to our values and supportive of our communities.  Our vertically integrated business strategy is now delivering results for our customers and shareholders.  It is this strategy which truly differentiates us from our industry peers.”

 

Business developments:

During 2015 Old Mutual Wealth continued to focus on core markets. This strategic realignment further positions Old Mutual Wealth as a leading retail investment management company for the UK and selected international markets:

  • 2 February 2015 - the sale of businesses in France and Luxembourg to APICIL completed
  • 25 February 2015 - the acquisition of Quilter Cheviot completed
  • 30 September 2015 - the sale of the Switzerland business to Life Invest Holding completed
  • 2 February 2016 - Old Mutual Wealth announced an agreement to acquire the leading expatriate adviser business in Singapore, AAM Advisory.

Old Mutual Wealth is committed to providing exceptional service, as demonstrated by the Gold rating from Defaqto for platform service.   Investment in leading edge IT capabilities continued over 2015, as evidenced by the continued enhancements of Wealth Interactive, our new modern cross-border wealth management platform. At the same time Old Mutual Wealth has continued to make a long-term investment in the UK Platform market seeking to enhance both customer service and efficiency. The programme is a fundamental business transformation and outsourcing project, bringing significant propositional and business retention benefits.

Old Mutual Wealth is investing in building a leading market profile.  To support this focus, the company announced a four-year title sponsorship of the RFU Autumn Rugby International series in December 2015, becoming a Principal Partner of England Rugby, encompassing both the men’s and women’s senior teams. January 2016 saw the launch of the Old Mutual Wealth Kids First Rugby, a new approach to deliver tailored rugby training to children across England. With this sponsorship agreement, Old Mutual Wealth will significantly enhance its brand in the core UK retail market.    In addition, Old Mutual Wealth sponsored the ‘Cricket for Heroes’ event which was held at the Kia Oval, London in September 2015.  This event raised over £320,000 for Help for Heroes.

Old Mutual Wealth has grown strongly in its key markets and the top quality performance across the company has been recognised with numerous prestigious awards. In 2015, Old Mutual Global Investors won ‘Best Investment Fund Provider’ at the MoneyFacts Investment, Life & Pension Awards; the International business won six awards at the International Adviser Life Awards; the UK platform won ‘Best Platform for Restricted Advisers’ at the Professional Adviser Awards; Intrinsic won ‘Best Large Network’ at the Mortgage Strategy Awards; Quilter Cheviot won ‘Best Boutique Wealth Manager’ at the Wealth Adviser Awards; and both the UK Platform and Quilter Cheviot won five star service awards at the FTAdviser.com Online Service Awards.

 

BUSINESS UPDATES

Investment Division:

The Investment Division was formed in Q3 2015 comprising Old Mutual Global Investors and Quilter Cheviot, two superb investment businesses managing clients’ money. In September 2015, the company combined the multi-asset capabilities from Quilter Cheviot and Old Mutual Global Investors to form one dedicated unit focused on investment solutions for customers.  The brand names and market facing activities of both businesses continue as normal.  The combined FUM of Quilter Cheviot (£17.8 billion) and Old Mutual Global Investors (£24.7 billion) resulted in 41% of Old Mutual Wealth’s total FUM being managed by the asset and investment management businesses.  

Discretionary investment management - Quilter Cheviot:

Quilter Cheviot contributed NCCF of £1.0 billion since its acquisition in February 2015. NCCF for the full year to 31 December 2015 was £1.1 billion, representing 6.5% of opening FUM. Business performance remains robust since the acquisition by Old Mutual Wealth, as evidenced by the continued excellent service driving net new flows from both new and existing clients. Post-acquisition profit from Quilter Cheviot is £34 million for the 10 months of 2015 for which it was part of Old Mutual Wealth, in line with expectations, reflecting the integration costs in the period and lower market levels seen during 2015.

Quilter Cheviot added some of the high-performing Old Mutual Global Investors’ funds to its buy-list, including the Old Mutual Global Equity Absolute Return, Old Mutual North American Equity and Old Mutual Absolute Return Government Bond Funds.  Quilter Cheviot has also been added to Intrinsic’s discretionary fund manager panel. Most recently a new international bond, the European Wealth Bond, was launched in the UK targeting high net worth investors.  The Bond is distributed through Old Mutual International and offers discretionary fund management through Quilter Cheviot.

Asset Management - Old Mutual Global Investors:

Old Mutual Global Investors delivered strong operating results. NCCF increased by 40% to £3.5 billion (2014: £2.5 billion).  Strong flows were delivered through the UK Platform, from Intrinsic advisers through the Old Mutual Cirilium portfolios range, and into popular funds such as the Old Mutual Global Equity Absolute Return Fund and the Old Mutual UK Alpha Fund. WealthSelect continued to attract good levels of net new investments over 2015, taking overall FUM to £1.7 billion.  The Rates and Liability Driven Investment team joined Old Mutual Global Investors in early 2015.  In October 2015, this team launched the Old Mutual Absolute Return Government Bond and the Old Mutual Liquid Macro Funds, which attracted net flows ahead of expectations in the first two months.   

As a result, Old Mutual Global Investors’ profit more than doubled to £71 million (2014: £33 million) and FUM increased by 18% to £24.7 billion (2014: £21.0 billion).

Old Mutual Global Investors now manages 14% of UK Platform assets (2014: 12%) and continues to be well balanced between third party and Old Mutual Wealth customers with an asset mix of approximately 65% third party / 35% Old Mutual Wealth customers. 

Old Mutual Global Investors continued to deliver strong investment performance: 55% of core funds in the first quartile and a total of 64% of funds above the median over a three-year period (by weight of assets). 

Distribution Division:

The Distribution Division, formed in Q4 2015, leads Old Mutual Wealth’s multi-channel advice strategy, encompassing the UK and International Platforms and Intrinsic. This division is focused on providing advice-driven wealth solutions for customers to deliver great customer outcomes and enhance profitability. Old Mutual Wealth’s customers are at the heart of everything that the company undertakes, including the design of advice processes, its products and systems, the quality of advice and the service provided.

Distribution - UK Platform:

Benefiting from strong NCCF, which increased by 35% to £2.7 billion (2014: £2.0 billion), as well as FUM outperforming the UK stock market to increase by 12% to £34.5 billion (2014: £30.8 billion), the UK Platform showed good growth with profit increasing by 74% to £33 million (2014: £19 million). This is primarily driven by strong net pension sales as Old Mutual Wealth continues to benefit from the changes in pensions freedom legislation. The UK Platform observed a slowdown in pension withdrawals over the second half of 2015 and continued sales growth.  Sales of the UK Platform products through the Intrinsic restricted advice panel have grown consistently and now account for 25% of all UK Platform NCCF over the full year. Total UK Platform NCCF into Old Mutual Global Investors increased to £1.1 billion (2014: £0.9 billion).

Following the introduction of new pension reforms in April 2015, Old Mutual Wealth introduced the full range of flexible withdrawal options and removed its drawdown charge leading to a 52% increase in pension net sales compared to 2014 (industry net sales were reporting 41% higher at Q3 2015). A new retirement proposition, IncomeSelect, brings together a Retirement Income Explorer tool, a market-leading platform pension and the revamped Old Mutual Generation portfolio range, to enable advisers to create bespoke investment strategies for customers before and during retirement. 

In the run-up to 2016 tax year end, Old Mutual Wealth is well-positioned to benefit from the changes in pension legislation due to the strength of its advice and investment management solutions, together with its pension decumulation expertise. Online functionality for its protection offering will be launched during H1 2016, with the enhanced capability and flexibility expected to have a positive impact on sales once implemented.  

Distribution - Old Mutual International:

Old Mutual International’s full year NCCF of £0.7 billion was more than double prior year (2014: £0.3 billion). NCCF in all regions, excluding Europe, is ahead of prior year with South Africa and Latin America performing particularly well.  In Old Mutual International, the new Wealth Interactive platform has been successfully implemented and strong sales and profit growth have been generated in this business, whilst its wealth solutions have been recognised by the adviser community through multiple industry awards. 

As a result of strong NCCF and reduced Wealth Interactive implementation costs, profit for the International business was up 35% from 2014 to £50 million (2014: £37 million).

Distribution – Old Mutual Wealth Italy:

Old Mutual Wealth Italy continues to see the benefit of the expanded distribution agreement with a key distributor, with NCCF of £0.6 billion matching 2014’s performance. Market volatility over H2 2015 limited the net flows in the year as investors remained cautious and industry flows shifted more towards with-profits products. Old Mutual Wealth Italy has seen a marginal reduction in profit in Sterling terms, due to weakening in the Euro exchange rate over 2015 when compared to 2014. The underlying business performance remains strong with local currency results marginally higher than 2014 with 3% profit growth. Old Mutual Wealth Italy offers customers a “stop-loss” option on Italian investment products, where assets are transferred to cash following a drop in markets, which has helped limit the market impact on their investment.

Financial Advice - Intrinsic:

Intrinsic continues to deliver strong net flows into the Old Mutual Cirilum portfolios range (‘Cirilium’), which now has £3.0 billion in AUM.  Managed by Old Mutual Global Investors, Cirilium is a key contributor to revenue growth, delivering £950 million NCCF in 2015, including £550 million through the UK Platform. Intrinsic’s advice profit was affected in 2015 by increased industry-wide FSCS regulatory fees. 

Old Mutual Wealth acquired Sesame Bankhall’s Financial Adviser School in January 2016.  This demonstrates a commitment to improving the strength and sustainability of the industry and helping to close the advice gap by improving customer access to advice.   At least 75 student financial advisers are expected to be trained through the Financial Adviser School in the first year.

Over 200 advisers from Sesame Bankhall Group were successfully transitioned onto the restricted financial planning network within Intrinsic. Production volumes from the new advisers have been higher than expected. Together with other recruitment initiatives, including the on-going Practice Buy-Out initiative, the number of restricted financial planners is now 1,230, compared to 930 at the end of 2014.  Including independent and mortgage & protection advisers, the network stands at 3,380 advisers, up from 3,050 at the start of the year.  This increase will drive growth in Intrinsic and across Old Mutual Wealth.

Heritage: 

The UK Heritage business delivered profits in 2015 in line with those of 2014, while maintaining a focus on providing excellent customer service levels.  Old Mutual Wealth adapted products to the pension freedom changes, addressed the customer demand to take their pensions as allowed by the pensions freedom legislation and improved its service to customers.  Old Mutual Wealth’s overall persistency experience across the business was maintained at similar levels to those experienced in 2014.

As expected, profit from the European Heritage businesses are reduced from prior year due to the divestment of these businesses in 2014 and 2015. Switzerland was sold on 30 September 2015 and Austria, Germany and Liechtenstein were sold in the fourth quarter of 2014.

Vee Montebello                       0207 778 9550

Tim Skelton-Smith                     02380 916998

Notes to editors:

Quilter is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

On a ‘go forward basis’, Quilter oversees £ 111.6 billion in customer investments (as at 31 March 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset and single strategy investment solutions; and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Old Mutual Wealth’s multi-asset investment solutions business.

The Quilter businesses will be re-branded to Quilter over a period of approximately two years following separation from Old Mutual:

  • Intrinsic to Quilter Financial Planning
  • Private Client Advisers to Quilter Private Client Advisers
  • The Multi-Asset business to Quilter Investors
  • The UK Platform to Quilter Wealth Solutions
  • The International business to become Quilter International
  • The Heritage life assurance business to Quilter Life Assurance
  • Quilter Cheviot will retain its name.

On 19 December 2017, Old Mutual Wealth announced that it has agreed to sell its Single Strategy asset management business to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals. 

Quilter is part of Old Mutual plc, a FTSE 100 group that provides investment, savings, insurance and banking. For the year ended 31 December 2017, Old Mutual reported an adjusted operating profit before tax of £2.0 billion. For further information on Old Mutual plc and the underlying businesses, please visit the corporate website at www.oldmutualplc.com.

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