BECOMING AN EAST AFRICAN FINANCIAL SERVICES CHAMPION CONTENTS 1. - - PowerPoint PPT Presentation

‘BECOMING AN EAST AFRICAN FINANCIAL SERVICES CHAMPION’

CONTENTS

• 1. Strategic Overview
• 2. Macroeconomic Review
• 3. Capital Markets Performance
• 4. Key Financial Highlights
• 5. Overview of Financial Performance
• 6. 2017 Outlook
• 7. Q&A

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Peter Mwangi Group CEO

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• 1. STRATEGIC OVERVIEW – MANAGED SEPARATION

Material reduction in holding company debt and reshaping the balance sheet Phased reduction of OMAM 66% stake Material completion Target completion end-2018 Creation of two separate entities, both listed in both London and Johannesburg

• Old Mutual Wealth operations
• Creation of a new South African holding company to hold

remaining plc assets (principally OMEM & Nedbank)

EMERGING MARKETS

Distribution of significant proportion of current stake in Nedbank

• Appropriate strategic minority stake retained

plc

STRATEGIC PATH

TRANSACTIONS TO ACTUALISE MANAGED SEPARATION STRATEGY STRATEGIC RATIONALE: “Unlocking Value”

ACTIONS

• 1. Deliver enhanced business performance
• 2. Reduce cost of central activities
• 3. Manage down Group debt

OUTCOMES

• 4. Valuation re-rating of the businesses
• 5. Removal of conglomerate discount

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• 1. STRATEGIC OVERVIEW – INTEGRATED FINANCIAL SERVICES PLAY

In 2015, The Old Mutual Group acquired a 60.7% interest in UAP Holdings Limited (“UAPHL”) for a total consideration of KES 23.5bn.

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• 1. STRATEGIC OVERVIEW – INTEGRATED FINANCIAL SERVICES PLAY

The merger expanded Old Mutual’s geographic footprint further in Eastern Africa

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• 1. STRATEGIC OVERVIEW – INTEGRATED FINANCIAL SERVICES PLAY

The UAP OM Group offers customers a wide array of financial products and services

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• 1. STRATEGIC OVERVIEW – INTEGRATED FINANCIAL SERVICES PLAY

The combined Group at a glance

3.5% 3.6% 4.2% 4.7% 5.5% 5.6% 7.1% 7.7% 8.3% 10.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% First Assurance AAR GA Heritage ICEA Britam CIC APC UAP OM Jubilee 3.4% 4.8% 5.1% 5.7% 6.3% 6.5% 6.9% 13.7% 15.0% 23.2% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Madison Kenindia Pioneer Assurance CIC Liberty UAP OM Sanlam ICEA Jubilee Britam

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■ UAP OM has a top market position in Kenya, Uganda and South Sudan with a strong position in the other countries. ■ The integration process continues well and will be finalised in the second half of this year post regulatory approvals. This will result in us having scaled life and asset management businesses in our core Kenyan market.

• 1. STRATEGIC OVERVIEW – INTEGRATED FINANCIAL SERVICES PLAY

Kenya: 3Q 2016 General Insurance Market Share

Source: IRA for market share statistics.

Kenya: 3Q 2016 Life Assurance Market Share

Our General Business has the #2 position in Kenya while our Life Business is a leading contender for a top 3 position in the near future

■ UAP Old Mutual Brand Launch – thematic campaign dubbed “Keep Good Company”, well received by the market ■ UAP Old Mutual Tower completion – staff have moved as of December 2016 with final relocation of remaining staff by March 2017

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■ Good progress in the journey to build East Africa’s leading Integrated Financial Services provider ■ Sisi Centre launch and merger of countrywide branches, branding also complete ■ M-Tiba Launch – mass market health product launched in collaboration with Safaricom and Carepay. Good uptake with ramp up in 2017 ■ Faulu – expanded its product offering to include Visa branded debit cards and countrywide ATMs

• 1. STRATEGIC OVERVIEW – KEY WINS IN 2016

CONTENTS

• 1. Strategic Overview
• 2. Macroeconomic Review
• 3. Capital Markets Performance
• 4. Key Financial Highlights
• 5. Overview of Financial Performance
• 6. 2017 Outlook
• 7. Q&A

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• 2. MACROECONOMIC REVIEW

Generally stable Macros for the East African Region

3Q 2016 GDP Growth

6.2% 5.7% 5.2% 2.5% 1.8% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Tanzania Kenya Rwanda DRC Uganda 15.3% 11.0% 6.4% 5.7% 5.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% DRC Rwanda Kenya Uganda Tanzania

2016 December Inflation Rate 2016 Currency vs. USD

• 31.6%
• 8.6%
• 7.0%
• 3.0%
• 0.2%
• 35.0%
• 30.0%
• 25.0%
• 20.0%
• 15.0%
• 10.0%
• 5.0%

0.0%

DRC Rwanda Uganda Tanzania Kenya

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• 2. MACROECONOMIC REVIEW CONT’D

Macroeconomic highlights on Kenya, our largest market

■ Driven by stable food prices and low oil prices, annual Inflation trended downwards from 7.74% in January 2016 to 6.35% in December 2016. ■ General downward trend in yields supported by a stable inflation rate regime and forex. Impact of Banking Amendment Act 2016 realized towards the later part of the year with a substantial shift by banks into government paper. ■ KES strengthened in 1H 2106 due to low oil prices, diaspora remittances and inflows from the horticulture and tourism sectors. ■ In 2H 2016, Towards the end of the year, KES weakened due to the 0.25% rate hike in the Federal Funds Rate, markets' positive reaction to the conclusion of the US election and USD demand from local importers/corporates.

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 % 91-Day 182-Day 364-Day 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Inflation Y-o-Y Upper Limit Lower Limit

• 5.1%
• 1.2%
• 0.2%
• 4.8%
• 11.3%
• 0.2%
• 12.0%
• 10.0%
• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2011 2012 2013 2014 2015 2016

Inflation Rates T-Bill Yields KES vs. USD Performance

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• 2. MACROECONOMIC REVIEW CONT’D

South sudan is a key market accounting for 8.8% of group GWP

• Currency devaluation has increased the cost of living and

consequently the cost of doing business.

• Negative impact on businesses with some entities closing their
• perations.
• Food Inflation is at420%.
• The exchange rate in the black market at an all time high of97

SSP:1USD as the currency devaluation continues.

• Increase in the number of states to from 10 to 28. In January 2017 an

addition of 4 more states.

• The implication to our businesses is that the Central Equatoria State

Insurance Regulatory Authority has now been renamed as the Jubec State Authority.

• The insurance bill is yet to be signed into law and the supervisory arm of

the BoSS that regulates insurance is still not functional.

Economic Highlights Regulatory Highlights

CONTENTS

• 1. Strategic Overview
• 2. Macroeconomic Review
• 3. Capital Markets Performance
• 4. Key Financial Highlights
• 5. Overview of Financial Performance
• 6. 2017 Outlook
• 7. Q&A

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■ The NSE 20 and NASI indices shed 21.1% and 8.5% respectively in 2016 as the equity market was rattled by the introduction of the Interest Rate Cap legislation in the second half of the year and its impact on the future earnings growth of the listed bank stocks that comprise a significant weight of the equity market. ■ All major asset classes finished positive in

• 2016. In Q4, U.S. stocks rallied after the

presidential election while other asset classes declined. ■ The Fed hiked the FFR with expectations of more hikes in 2017. This contributed to a strengthened dollar which could have further adverse impacts on the NSE.

• 3. CAPITAL MARKETS PERFORMANCE

Kenya’s poor capital markets performance is in stark contrast to a robust global performance

• 21.1%
• 8.5%

8.6% 13.0%

• 25.0% -20.0% -15.0% -10.0% -5.0%

0.0% 5.0% 10.0% 15.0% NSE 20 NASI 91 Day T-Bill FTSE Bond Index

2016 Kenya Asset Class Returns

2.4% 4.9% 8.3% 8.6% 12.0% 18.6% 0.0% 5.0% 10.0% 15.0% 20.0% US Bonds Foreign Equities Gold Real Estate US Equities Commodities

2016 Global ETF Returns

Source: Bloomberg. Personal Capital: Capital Markets Reviews and Outlook 4Q 2016.

CONTENTS

• 1. Strategic Overview
• 2. Macroeconomic Review
• 3. Capital Markets Performance
• 4. Key Financial Highlights
• 5. Overview of Financial Performance
• 6. 2017 Outlook
• 7. Q&A

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24.7 33.1 42.1 48.7 57.0

• 10.0

20.0 30.0 40.0 50.0 60.0 2012 2013 2014 2015 2016 9.1 12.7 14.8 16.9 19.4

• 5.0

10.0 15.0 20.0 25.0 2012 2013 2014 2015 2016

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• 4. KEY FINANCIAL HIGHLIGHTS

Track record of consistent topline growth and returns to shareholders

GWP (KES Bn) Total Equity (KES Bn) Total Assets (KES Bn) PBT and Dividends (KES Bn)

11.6 14.8 17.2 17.8 17.7

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 2012 2013 2014 2015 2016 1.7 2.2 2.3 0.7 1.2 0.4 0.4 0.4

• 0.4
• 0.5

1.0 1.5 2.0 2.5 2012 2013 2014 2015 2016 PBT Dividends

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• 4. DIVIDEND

2016 DIVIDEND PROPOSAL OF KES 1.70 PER SHARE (KES 359M)

9.8 7.8 7.0 3.1 5.4 1.5 1.7 1.7 1.7 2012 2013 2014 2015 2016 EPS DPS 15% 22% 24% 0% 31% 2012 2013 2014 2015 2016

PAYOUT RATIO (DPS/EPS)

• Board recommendation to pay-out KES 1.70

per share in dividend for the financial year

• 2016. This is subject to shareholders’ approval

at the Annual General Meeting.

• Pay-out ratio is higher than previous years but

is appropriate given that no dividend was paid for the 2015 financial year.

• Dividend recommendation based on:
• Our goal to continue providing a cash

return to our shareholders

• The need to retain enough resources in

the business to fund expected growth in

• rder to maximize both present and

future returns to our shareholders.

CONTENTS

• 1. Strategic Overview
• 2. Macroeconomic Review
• 3. Capital Markets Performance
• 4. Key Financial Highlights
• 5. Overview of Financial Performance
• 6. 2017 Outlook
• 7. Q&A

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Joe Mutugu Group CFO

2.4 2.9 4.6 3.3 3.1

• 0.5

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 2012 2013 2014 2015 2016 3.9 5.8 8.1 8.0 9.8

• 2.0

4.0 6.0 8.0 10.0 12.0 2012 2013 2014 2015 2016 6.5 9.0 11.3 12.1 15.4

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 2012 2013 2014 2015 2016

• 5. OVERVIEW OF FINANCIAL PERFORMANCE

A uniform financial performance from underwriting and investment activities

NEP (KES Bn) Investment Income (KES Bn) Net Claims Payable (KES Bn)

■ A decent financial performance

underpinned by

̶

continued topline growth

̶

better claims management

̶

expense control and stable investment income

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■ A strong set of performance indicators marked by a 76% recovery of PBT from FY 2015. ■ For FY 2015, our PBT dipped due to:

̶

single digit topline growth;

̶

28.1% decline in investment income;

̶

full year impact of finance costs. ■ In 2016, the recovery in PBT largely driven by 15% topline growth and expense management which has only seen expenses increasing by an 8% inflationary rate. ■ General Business Claims Loss Ratio declined from 62% in 2015 to 59% in 2016.

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• 5. OVERVIEW OF FINANCIAL PERFORMANCE – PBT

We have experienced a steady growth in PBT albeit with the dip in 2015 reflective of business and investment conditions

2016 PBT (KES Bn)

1.7 2.2 2.3 0.7 1.2

• 0.5

1.0 1.5 2.0 2.5 2012 2013 2014 2015 2016

8.1 11.3 12.7 15.0 17.2

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 2012 2013 2014 2015 2016

■ The General Business grew 14.8% in FY2016 as a result of a sustained drive to grow the book and expand the product suite. ■ We review our General Business performance using a division between “P&C” which mainly covers Non-Health business and “Health” which focuses on medical business. ■ The Health Division recorded substantial growth contributing to our growth in market share for General Insurance in Kenya.

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• 5. OVERVIEW OF FINANCIAL PERFORMANCE – BUSINESS SEGMENT

The General Business accounts for 89% of our GWP

Total General Business GWP (KES Bn) Total General Business Split

39.3% 49.6% 60.7% 50.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 2015 2016 Health P&C

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• 5. OVERVIEW OF FINANCIAL PERFORMANCE – GENERAL BUSINESS PRODUCT LINES

Health 49.6% Motor 23.2% Fire 9.7% Theft 3.6% Others 3.1% Engineering 2.8% Personal Accident 2.6% Workmen's Compensation 2.2% Liability 1.6% Marine 1.5% Health 39.3% Motor 25.4% Fire 10.8% Engineering 9.0% Theft 4.2% Personal Accident 2.7% Others 2.4% Workmen's Compensatio… Liability 2.0% Marine 2.0%

2016 General Business GWP by Product Line 2015 General Business GWP by Product Line

We are diversifying the portfolio mix in the General Business to reduce reliance on the Motor Class ■ Reducing the contribution of the Motor business to GWP will enhance our underwriting profits. ■ We are also driving growth in other product lines including Marine:

̶

UAP OM has a very compelling Marine proposition for both retail and corporate customers importing goods into Kenya.

■ Individual Life contribution to total life gross written premium has increased from 38% to 45%. ■ Current focus is on maintaining proper business mix so as to increase group life premiums which contribute to short term profitability.

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• 5. OVERVIEW OF FINANCIAL PERFORMANCE – BUSINESS SEGMENT

The Life Business is growing its share of topline

0.4 0.7 1.2 0.7 1.0

• 0.2

0.4 0.6 0.8 1.0 1.2 1.4 2012 2013 2014 2015 2016

Total Life GWP (KES Bn)

0.5 0.7 0.9 1.2 1.2

• 0.2

0.4 0.6 0.8 1.0 1.2 1.4 2012 2013 2014 2015 2016 0.9 1.4 2.1 1.9 2.2

• 0.5

1.0 1.5 2.0 2.5 2012 2013 2014 2015 2016

Ordinary Life (KES Bn) Group Life (KES Bn)

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• 5. OVERVIEW OF FINANCIAL PERFORMANCE – INVESTMENT INCOME

Proactive investment management has produced good yields that supplement our underwriting

2016 Asset Allocation 2015 Asset Allocation

Investment Property 52.7% Government Bonds 20.1% Equity Investment 12.1% Deposits with Financial Institutions 10.2% Corporate Bonds 4.9% Investment Property 49.6% Government Bonds 27.1% Deposits with Financial 11.5% Equity Investment 7.6% Corporate Bonds 4.3%

■ Tactical asset allocation has enabled us to protect our investment returns, which in turn shores up our total returns. ■ Our investment portfolio also includes iconic properties such as the UAP Old Mutual Tower in Upper Hill, Nairobi, Kenya and UAP Equatoria Tower in Juba, South Sudan.

18.2 23.9 31.8 37.6 44.0

• 5.0

10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 2012 2013 2014 2015 2016

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• 5. OVERVIEW OF FINANCIAL PERFORMANCE – BALANCE SHEET

Our capital structure facilitates business growth and undergirds our returns

Total Investments (KES Bn)

24.7 33.1 42.1 48.7 57.0

• 10.0

20.0 30.0 40.0 50.0 60.0 2012 2013 2014 2015 2016

Total Equity (KES Bn) Total Assets (KES Bn)

11.6 14.8 17.2 17.8 17.7

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 2012 2013 2014 2015 2016

■ We are adequately capitalized and in compliance with regional regulatory requirements. ■ Our balance sheet provides sufficient funding that enables us to pursue profitable growth.

■ Strong topline growth for 2016 with a 27.8% improvement in Net Earned Premium for the core P&C and Health businesses. ■ Steady investment income combined with the above buoyed

• perating results .

■ Profit after tax has declined by 8% largely driven by significant tax credit in 2015 not enjoyed in 2016, 2015 tax credit was due to recognition of higher deferred tax assets and due to higher profit before tax contribution from South Sudan.

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• 5. OVERVIEW OF FINANCIAL PERFORMANCE – UAPHL OPERATING METRICS

A decent financial performance underpinned by continued topline growth, better claims management, expense control and stable investment income

(KES Bn) UAPHL Financial Metrics 2016 2015 % Change Gross written premium 19.39 16.87 15.0% Gross earned premium 18.74 15.33 22.2% Reinsurance ceded (3.31) (3.26) 1.4% Net earned premium 15.43 12.07 27.8% Investment income 3.11 3.31 (5.9%) Commissions earned 0.69 1.03 (32.6%) Other income 0.18 0.11 73.9% Total Income 19.42 16.51 17.6% Claims and policy owners' benefits payable (10.93) (9.20) 18.8% Less: Amount recoverable from reinsurers 1.10 1.21 (9.5%) Net claims payable (9.84) (7.99) 23.2% Operating and other expenses (5.61) (5.20) 8.0% Commissions payable (2.19) (2.05) 6.8% Total expenses & commissions (7.81) (7.25) 7.7% Finance costs (0.55) (0.58) (4.3%) Profit before tax 1.22 0.69 76.1% Income tax expense (0.39) 0.20 (294.1%) Profit for the year 0.83 0.90 (7.9%)

CONTENTS

• 1. Strategic Overview
• 2. Macroeconomic Review
• 3. Capital Markets Performance
• 4. Key Financial Highlights
• 5. Overview of Financial Performance
• 6. 2017 Outlook
• 7. Q&A

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• 7. 2017 OUTLOOK

MACRO-ECONOMIC ENVIRONMENT PRIORITY AREAS

• Regional growth strong (5 – 7%) compared to world GDP

growth expectations of ~2%.

• Headwinds expected due to upcoming Kenya elections

and the political situation in South Sudan.

• Insurance revenue growth will be boosted by enabling

legislation in respect of Marine Cover in our core Kenya market.

• Integrated Financial Services: Enrichment of our value

propositions and customer experience improvements as we execute on our one-stop shop strategy for financial services.

• Merger Completion: Finalisation of Mergers of our Life

and Asset Management businesses in Kenya.

• Efficiency: Technology investments and prudent cost

management to improve business cost-to-income ratios.

• People: Talent is a key enabler of our business strategy.

CONTENTS

• 1. Strategic Overview
• 2. Macroeconomic Review
• 3. Capital Markets Performance
• 4. Key Financial Highlights
• 5. Overview of Financial Performance
• 6. 2017 Outlook
• 7. Q&A

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Q & A

THANK YOU THANK YOU

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