Old Mutual slumps 6pc as it warns of client pressure

Old Mutual has painted a mixed picture of its upcoming interim results, in part thanks to a change in accounting methods, but while it has benefitted from a rise in interest rates, it is seeing pressure on its client base.

The Cape Town-headquartered insurance and investment group said in a voluntary trading statement on Wednesday that its results from operations will range from a fall of 7 percent to a rise of 13 percent in the six months to end-June compared to R4.25 billion previously. Adjusted headline earnings could rise by about a third.

A good operational performance was dampened by continued adverse persistency, the group said, referring to client retention. There was also an increase in shareholder investment return as a result of increased interest rates and a recovery in equity markets.

Adjusted headline earnings exclude “accounting mismatches” and the results from its Zimbabwe operations, with the group saying headline earnings could fall as much as 18 percent.

The group is switching to International Financial Reporting Standards (IFRS) 17 from 4. These standards, billed as the first truly global standards for insurers, among other things look to ensure comparability by ensuring that companies cannot present deposits from customers as revenue, which has been the practice for some.

Old Mutual said on Wednesday the switch to IFRS 17 put pressure on earnings as a result of how it now needs to account for its hedging, though this impact is expected to significantly reduce in future reporting periods.

Shares in the group, which is due to release results on 27 September, were down just over 6 percent in morning trade on Wednesday but are still up almost 13 percent on a one-year basis.-ebusinessweekly