Our economic impact

Investing in infrastructure

Strong infrastructure is fundamental to the continued growth of the South African economy. In turn, a strong South African economy is key to the objective of an “African Renaissance”, which the current government has made central to its foreign policies. Old Mutual (SA), as a major investor in and manager of infrastructural assets, plays a major role in enhancing the country’s infrastructure.

At the end of 2005, Old Mutual (SA) managed R5.03 billion worth of infrastructure assets at market value (2004: R4.4 billion). As at the same date, commitments and direct investments into infrastructure made by OMLACSA amounted to R2.2 billion (2004: R2 billion) at market value.

Infrastructure investments have been particularly rewarding for investors. The Infrastructure, Development and Environmental Assets (IDEAS) Fund, managed by Old Mutual (SA), for instance, beat its inflation plus 7% target since inception (16.6% versus target of 11.7%) as well as over three years (22.1% versus target of 9.5%).

The investment profile of the IDEAS Fund (market value R1.22 billion) is shown in the graph below.

Old Mutual Asset Managers, together with Macquarie (Africa), manages the R1.2 billion South African Infrastructure Fund (SAIF), and the R1.4 billion African Infrastructure Investment Fund (AIIF).

IDEAS Fund

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Tom Plaistowe (right) oversees Old Mutual’s investments in Southern African infrastructure, such as the N3 toll road.

Creating empowering partnerships and supporting black SMEs

Old Mutual (SA)’s procurement team has facilitated several partnerships between large and small companies, particularly in the area of auditing.

Larger audit firms were encouraged to identify and partner with smaller black audit firms to create relationships that made skills transfer possible, and exposed smaller firms to the broader market.

One such partnership was facilitated in the award of the audit of the Old Mutual Orion Fund, a contract worth just under R1 million in audit fees. The audit complied with new legislation requiring all underwritten funds to be scrutinised.

In this instance, KPMG won the contract and elected to work with SAB&T.

The procurement team has also been instrumental in creating opportunities for other small- and medium-sized enterprises (SMEs). An example is AV Alliance which was awarded a R350 000 contract to renovate the Old Mutual auditorium and cooperated well with Old Mutual (SA) teams to complete the work within budget and timelines. Another example was the granting of a licence to operate a coffee shop in the main foyer of Mutualpark, Old Mutual (SA)’s headquarters, to a black-owned small business. In turn, Indibano Coffee Shop hires and trains previously unemployed staff from local townships.

Procurement and suppliers

Old Mutual (SA)'s procurement team set out to consolidate the upsurge in preferential procurement spend of the last three years. A summary (using Financial Sector Charter weightings) of Old Mutual (SA)’s affirmative procurement performance follows.

During the year 23 000 invoices, amounting to more than R140 million, were paid to black SMEs. To assist these suppliers with their cash-flow requirements, Old Mutual (SA) endeavoured to pay them within 14 days. During the year this was achieved for 78% of payments made: (47% were paid immediately, 17% were paid within seven days, and a further 12% were paid within the 14-day timeframe).

Moreover, in keeping with the company’s commitment to assisting mostly black SMEs, 178 new black vendors were loaded onto the Old Mutual (SA) supplier database, representing an aggregate spend of R15 million.

Empowerment transactions

Old Mutual (SA) has continued to play a leading role in facilitating empowerment transactions. During 2005, Old Mutual (SA) facilitated R2.2 billion worth of transactions (R1.9 billion for companies more than 50% black owned, and R308 million for companies more than 25% black owned).

Affirmative procurement

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Consumer education

Old Mutual (SA) has sponsored the multimedia lifestyle communication initiative, Soul City, and its associated franchises, including Soul Buddyz, for a number of years. The initiative has various themes, including consumer and financial education. These sponsorships are however being reassessed in the light of other potential consumer-awareness initiatives, and the success of the Old Mutual (SA) Big Five Secrets of Financial Management television series that ran on Saturday mornings on SABC2 during 2005. In 2005, the value of the sponsorship of Soul City was R3.1 million. An investment of R2.2 million was made into the TV programme and other financial education initiatives that were directed through the Sponsorship division, including printing of workbooks, hosting workshops and educational internships linked to the Old Mutual Budget Speech Competition.

Building sustainable business performance

Old Mutual (SA) recorded a positive operating performance during 2005:

• Life Assurance profits showed only modest growth of 2% to R3 819 million from R3 754 million in 2004. This was largely as a result of the cost of initiatives undertaken to improve value-for-money of our products for customers, including a charge of R716 million in respect of the industry-wide agreement with National Treasury to address early termination values for retirement annuities and endowment policies. The figure also reflects benefit improvements for Group Schemes’ customers. Other significant items impacting on operating profit included an increase of R115 million in the share-based payments charge to R270 million, driven by the increase in the Old Mutual plc share price and the impact of our continuing investment in distribution. Excluding these factors, the SA Life business showed an underlying profit growth of 13%.
   
• The adjusted operating profit for the Asset Management businesses increased by 48% to R801 million from R542 million in 2004.
   
• Overall earnings showed a small increase to R6 073 million from R5 964 million in 2004, with a significant increase in Asset Management profits and modest growth in Life Assurance profits being offset by a 13% reduction in the Long-Term Investment Return (LTIR). The LTIR of R1 453 million was R215 million lower than 2004, reflecting the lower interest rates applied across all asset classes, combined with an increase in the cash component of the portfolio since June 2004, and lower investible assets following the increased investment in Nedbank Group.
   
• The increased number of members of the combined sales force helped lift both Individual and Group Business life sales. Leading product development (Max Investments and Max Income) also contributed to good Individual Life sales in the Old Mutual (SA) core life market, with the Annualised Premium Equivalent (APE) up 10%. Group Business Life sales were up 16%.
   
• Unit trust sales for the year increased by 87% to a record R9.3 billion, while investment performance remained strong, with 53% of funds positioned in the top quartile of their respective peer groups over the three-year period to 31 December 2005, and 35% placed in the top quartile over the 12-month period.
   
• Bancassurance delivered sales growth on an APE basis of 92% during 2005.
   
• Capital coverage improved to three times the Statutory Capital Adequacy Requirement (SCAR), compared with coverage of 2.6 times as at end-2004.

Other achievements included:

• Growing the Old Mutual (SA) overall sales force by 10%.
   
• The launch of the Simple Solutions for Success business philosophy.
   
• The launch of new products, particularly Max Income, after the successful launch in 2004 of Max Investments.
   
• The acquisition of Marriott Properties and Marriott Asset Management, announced in October 2005, which added R20 billion of funds under management to Old Mutual Properties.
   
• Old Mutual Asset Managers’ ranking has improved from third to second out of the nine institutional asset managers in the Alexander Forbes South African Global Large Manager Watch Survey over the three years to the end of December 2005.

There are areas for improvement during 2006. Net client cash flows of negative R18 billion are largely a result of a R10 billion withdrawal of funds by the Public Investment Corporation (PIC). Management intends to achieve positive cash flows in 2006.

A major key to building sustainable business performance is the Personal Financial Advice (PFA) division. The division needs to be positioned to continue to interact with the markets it understands and to which it can relate. It is critical therefore that the sales force is representative of those markets. In this respect PFA has made great strides to complement the work of the Academy of Financial Planners and the Black Brokers’ Trust which aim to champion financial planning as a career to black professionals. At the end of December 2005, the PFA division employed:

• 53% black advisers;
   
• 38% black sales managers; and
   
• 20.4% black area managers.

The backbone of any sustainable business performance is world-class technology. During 2005, a synergy initiative was started, aimed at creating cost savings and efficiencies by creating a single, multi-service information technology (IT) network to be shared by the Old Mutual (SA) and Nedbank businesses. A milestone was the signing of a master services agreement with Computer Services Corporation (CSC) and Telkom. The initiative is expected to lead to direct savings of a total of R250 million for Nedbank and Old Mutual over the next five years.

Two immediate spin-offs of the initiative will be increased IT functionality in the branches and a further contribution to black economic empowerment through a contract awarded to Lechabile Information Technology Service, which will manage the provision of Information Quality Management (IQM) services.

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