Old Mutual Reverses Losses to Post Ksh 327M Profit in H1 2024

Old Mutual Holdings PLC, a prominent player in the financial services sector, has made a notable comeback to profitability, posting a net profit of Ksh 327 million for the first half of 2024. This turnaround marks a significant improvement from the Ksh 195 million loss recorded in the same period last year, reflecting the company’s strategic moves and operational resilience.

Key Drivers of Profitability

The remarkable swing from loss to profit can be largely attributed to a significant reduction in finance costs. According to Old Mutual Holdings Chief Executive Officer Arthur Oginga, the finance costs dropped from Ksh 1.8 billion to Ksh 529 million, a decrease of over 70 percent. This reduction was primarily driven by the conversion of shareholder borrowing into equity in 2023. The equity conversion, which is still pending final regulatory approvals, has substantially eased the financial burden on the company, enhancing its bottom line.

In addition to reduced finance costs, Old Mutual saw a notable improvement in its effective tax rate, which plummeted from an unsustainable 150 percent to a more manageable 70 percent. This improvement further bolstered the company’s financial position, aiding its return to profitability. The lower tax rate is a result of strategic tax planning and effective utilization of available tax reliefs, enabling the company to reinvest more of its earnings into operations and growth initiatives.

Challenges and Operational Performance

Despite the improved profitability, Old Mutual faced some operational challenges during the first half of the year. The company reported an increase in medical and flooding claims in Kenya, alongside higher reinsurance expenses in Uganda. These factors combined to reduce the company’s operating profit before financing costs by 27 percent, falling to Ksh 1.6 billion.

The rise in medical claims was largely driven by an upsurge in healthcare needs post-pandemic, coupled with the effects of climate-related disasters, such as flooding, which have increased insurance payouts. In Uganda, elevated reinsurance costs impacted the company’s expenses, highlighting the need for strategic management of risk and cost containment.

Arthur Oginga noted that while the rise in claims posed a challenge, Old Mutual remains committed to supporting its clients during difficult times. “Our role is to stand by our customers, especially when they need us the most. We have seen an increase in claims, but our focus remains on service delivery and meeting our obligations,” Oginga stated.

Strategic Initiatives and Outlook

Looking forward, Old Mutual plans to continue its focus on operational efficiency, cost reduction, and strategic investments. The company is also exploring opportunities for digital transformation to streamline processes and enhance customer experiences. The adoption of technology is expected to improve service delivery and drive further cost savings, helping to mitigate some of the challenges observed in the first half of the year.

Moreover, the successful conversion of shareholder borrowing into equity is anticipated to provide the company with a more robust capital base, positioning it for sustained growth and stability. The management expects that once the regulatory approvals are secured, the strengthened balance sheet will enable Old Mutual to pursue new business opportunities and expand its market share in East Africa.

The company’s leadership remains cautiously optimistic about the second half of the year. While challenges such as fluctuating reinsurance costs and rising claims remain, the steps taken to reduce financial costs and improve tax efficiency are seen as strong foundations for future performance.

Conclusion

Old Mutual’s return to profitability in the first half of 2024 is a testament to its strategic financial management and commitment to operational efficiency. With a clear focus on cost reduction, effective tax management, and support for its customers, the company is well-positioned to navigate the challenges ahead and continue delivering value to its shareholders. As the East African market evolves, Old Mutual’s adaptive strategies and robust financial discipline will be crucial in sustaining its positive trajectory.