London-based Old Mutual Plc has written down the value of its local insurance subsidiaries by Sh9.7 billion in the wake of challenges facing its acquisition of insurer UAP Holdings.
The multinational says in regulatory filings that it impaired goodwill of £71 million (Sh9.7 billion) after integrating UAP with its other local financial services firms to create UAP-Old Mutual.
Old Mutual paid Sh20.8 billion to acquire a 60.7 per cent stake in UAP, buying out businessman Chris Kirubi and institutional investors like Africinvest.
The multinational’s 60.7 per cent interest had a book value of Sh8.9 billion at the time.
UAP’s financial performance has been weaker than expected.
Integrating it with the Old Mutual’s local subsidiaries has been slow, causing the downward revaluation that was also accelerated by adoption of new accounting requirements.
“While we remain confident that enhanced performance of UAP-Old Mutual Group will be achieved in the medium term, the integration progress has been slower than anticipated,” the multinational says in the statement.
“Although operational performance has improved strongly since the first half of 2016, the results remain behind our initial expectations.”
Old Mutual says UAP reported adjusted operating profit of R21 million (Sh160 million) in the half-year ended June, representing an annualised return on investment of 1.4 per cent in the review period and zero per cent the year before.
The multinational says it is working to improve the performance of the merged entity, focusing on cutting costs, selling non-core assets and reducing loss-making insurance policies.
“An operational restructuring of the combined entity was completed during the first half of the year resulting in significant changes in the management structure to unlock performance improvement opportunities,” Old Mutual says.
“Further progress has been made on the optimisation of the combined entity’s balance sheet with the consolidation and reduction of debt, and identifying properties earmarked for sale…”
UAP’s insurance brokerage business in the Democratic Republic of the Congo is expected to be sold to Angola’s Allied Insurance Brokers (AIBA) by December.
The multinational said most of its local subsidiaries have relocated to UAP-Old Mutual Tower in Nairobi, adding that its properties have started generating rental income.