Q&A: calm after the storm

You’re updating analysts and investors today about Skandia. Nearly
100 days on from the completion of the deal, are you still as confident about
the growth opportunities it brings to the group?

Yes, every bit as confident. I think probably the biggest outcome of the
first 100 days is that we’ve seen not only the first quarter’s results ­ we’ve
seen delivered growth ­ but also our confidence in the growth potential in the
future has really gone up.

And have there been any nasty surprises?

There were no surprises of any sort in the balance sheet. What we’ve seen is
that its accounting is very similar to Old Mutual’s. There’s very little change
in either the embedded value numbers or the IFRS numbers.

You say that Skandia also decreases the group’s risk profile. Why do
you say that?

Because there isn’t the same percentage of the business exposed to any one
risk. We’ve got our eggs in more baskets.

Growing assets alone doesn’t necessarily create shareholder value.
What targets are you putting in place?

The earnings will grow faster than the assets so there will be even quicker
growth. We’ve said that the IFRS earnings, in fact, will triple over the next
three years. So that’s a huge rate of growth as the company comes through its
‘J’ and delivers earnings for the bottom line which can then be used for
dividends. Both EV and IFRS earnings will grow faster than assets.

How can you reassure investors that, in all this talk of Skandia,
you’re not taking your eye off the ball for the rest of the business,
particularly in South Africa?

We have a management team that is now divided up into four regional units
that report to me. So Julian Roberts (Old Mutual’s former finance director) is
responsible for Europe and we now have three European business units: one in the
UK, one in Sweden and one for the rest of Europe and Latin America. They operate
on the same basis as the other ones.

So in South Africa, we have the life insurance company, the bank and Mutual
& Federal, the property and casualty business. In the United States, Scott
Powers is now responsible for both the asset management and the life insurance
business. So the management teams are in decentralised and focused units,
focusing on what their customers and what their businesses need.

In February, you outlined five crucial work-streams for Skandia:
governance standards, reviewing knowledge, planning, synergies and how to
achieve them, and communications. Where are you with each of those?

The governance standards have been rolled out so risk approach has been put
into place. In fact, it was already in place in the UK, so that was quite easy.
The internal audit system is not quite complete, but the principles are all
rolled out, the boards are all in place and the association between the boards
and the audit committees from the Old Mutual plc, so that’s all done.

From the reviewing, that’s complete. We’re ready today and, indeed, that
leads on to the third one, the planning, so we’re able to talk to the kind of
plan numbers, which is all part of the presentation today, so that’s all done.

The synergies, we are confirming exactly the same number that we originally
put out, so £70m per annum. We have said it will be about six months later
because the deal took longer to close than we’d originally envisaged, but in
overall terms it’s exactly the same.

Indeed, because we’re now more confident than we were about the rates of
growth, those rates of growth themselves will produce improvements in expense
ratios over and above the synergies.
And the communicating, of course, that’s what we’re doing today as well. Julian
has talked to a lot of people in Skandia. I’ve talked to the Swedish and the UK
staff. We’ve had the Skandia management in South Africa talking to the South
African staff, so it’s a two way street. We’ve had the whole management team
together for three days in Portugal. So there’s been a great deal of
communication on which directions we are going in and to get everybody’s input.

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