Old Mutual takes £500m hit after acquisition spree

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Old Mutual, the South African life assurance group listed in London, yesterday disclosed a £500m write-off to reflect the falling value of acquisitions made two years ago, and warned of further job losses at its Gerrard private client stockbroking firm.

The group first warned in November of the goodwill impairment, which relates to the purchases in 2000 of Gerrard and United Asset Management of the US, and had previously suggested the hit could be between £400m and £650m.

Julian Roberts, its finance director, said Old Mutual had billed the charge in the light of the changed prospects for the businesses over the next five years. "We have taken a conservative estimate of future growth. But we are not unhappy with these businesses. They are making significant progress," he said.

The £500m hit – £165m for Gerrard and £335m for UAM – follows the decline in prospects for investment and broking businesses after the prolonged weakness in global equity markets after 11 September. Under UK accounting rules, companies are obliged to reassess the value of acquisitions one year after completion and annually thereafter.

Mr Roberts rejected suggestions the company overpaid for the acquisitions, but said further acquisitions were not on the agenda. "UAM might not have been around if we'd waited. We factored in that the markets would drop. We didn't think they would drop this much."

Gerrard may cut front-office staff in response to the continued weakness in the UK retail investment market. Its profits fell from £26m to just £2m last year, and 10 per cent of the workforce have already gone.

Old Mutual was also forced to write down the carrying value of its investment in the South African technology group Dimension Data, which it holds through its 53 per cent stake in the Nedcor bank.

The company warned its sterling profits would be hit by the continued weakness of the rand this year amid mounting concern over the long-term effects of South Africa's Aids epidemic and the impact of Zimbabwe on the country's economy.

Group operating profits for 2001 were up 11 per cent in rand terms, but fell by 6 per cent to £856m in sterling. The South African currency fell 35 per cent against the pound during the second half of last year.

The poor performance of Old Mutual's overseas operations contrasted with a better-than-expected showing from Nedcor, South Africa's number two bank, which lifted profits by 26 per cent to 3.8bn rand (£306m).

"Our business in South Africa has started the year well. We've seen in the second-half a 42 per cent increase in sales over the first half, and we've seen sales start the year much stronger than we did last year," said Jim Sutcliffe, the chief executive.

Old Mutual shares closed up 3p at 93p, valuing it at £3.48bn.