Spiralling platform upgrade costs have put paid to Old Mutual Wealth’s global expansion ambitions, an analyst note suggests.
The firm’s latest results, published on Friday, revealed UK platform adjusted operating profits rose 74 per cent year-on-year, from £19m in 2014 to £33m in 2015.
However, this figure does not include the costs associated with updating the technology powering the platform, which amounted to £48m in 2015 and are expected to hit £450m by completion in 2019.
In a note published on the back of Old Mutual’s results, Investec criticises the spiralling bill for the platform and the performance of Quilter Cheviot, the discretionary manager purchased by the firm last year.
It says: “Although we do not spend too much time on the UK wealth business, we are disappointed with two main aspects of its performance in FY2015.
“The additional IT costs are the main area of concern and we cannot help but feel that the rapid deterioration in respect of this project was the last straw in the board finally calling time on Old Mutual’ s global ambitions.
“Quilter Cheviot also disappointed with annualised earnings 10 per cent below the expected EBITDA for FY2014 at the time of the acquisition – so maybe there were two straws.”
An Old Mutual spokesman says: “Following the appointment of Bruce Hemphill as chief executive in November 2015, we carried out a thorough and rigorous strategic review of the group and its underlying businesses. The strategic review concluded that the long-term interests of the group’s shareholders and other stakeholders would be best served by Old Mutual separating its four businesses from each other.
“This will unlock the value that is currently trapped in the group structure.
“The new strategy will create this value through: the passed reduction of Plc central costs; each business delivering enhanced performance relative to its peers; ensuring each business accounts directly to shareholders for its level of returns and cash generation; and all of the businesses having capital structures and dividend policies appropriate for their own strategies.
“In addition, the replatforming programme is funded by Old Mutual Wealth out of existing profit and capital resources over a number of years.”