| Fri 10 Aug 2007, 8:00 | | OML - Old Mutual Plc - Results for the six months |
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OML
OLOML
OML - Old Mutual Plc - Results for the six months ended 30 June 2007
OLD MUTUAL PLC
ISIN: GB0007389926
JSE share code: OML
NSX share code: OLM
Issuer code: OLOML
10 August 2007
Results for the six months ended 30 June 2007
Steady profits - underlying growth strong
Net client cash flows (NCCF) GBP11.8 billion, 10% of opening funds under
management(FUM) on an annualised basis
Life APE up 10% to GBP859 million (up 17% at constant exchange rates)
o SA retail up 21% as sales force productivity and bancassurance grows,
corporate flat
o US up 34%: Bermuda variable annuities strong
o UK up 23%: Open architecture continues to thrive
o Nordic slower following tax changes and price pressure
o ELAM: matches last year`s highs
Investment performance strong in US and Europe, recovering in SA
Funds under management up 11% to GBP263 billion
Skandia continuing to exceed acquisition assumptions in total and on track to
deliver promised synergies
US Life actuarial review complete and provisions made; business now well
positioned for the future
Adjusted earnings per share steady at 8.2p on an IFRS basis (30 June 2006:
8.5p*)
Adjusted embedded value per share (EEV basis) 161.6p at 30 June 2007
(31 December 2006: 161.1p***)
Interim dividend increased by 10% to 2.3p (32.59 cents**) per share, in line
with underlying growth rates
Jim Sutcliffe, Chief Executive, commented:
"Underlying business performance during the first half, driven by high-quality
investment management, resulted in strong net client cash flows and growth in
funds under management - the key driver of profitability. The Skandia synergy
and development targets are on track. Group earnings, however have been muted by
the strengthening of the Sterling against the Rand and the US Dollar, and the
provisions following the completion of the actuarial review in the USA. Our
strong capital position and powerful set of international businesses will allow
us to grow even if economic conditions continue to be turbulent."
Enquiries
Investor Relations
Malcolm Bell UK +44 (0)20 7002 7166
Deward Serfontein SA +27 (0)21 509 8709
Media
James Crampton UK +44 (0)20 7002 7133
Nad Pillay SA +27 (0)21 504 8026
College Hill (UK)
Tony Friend UK +44 (0)20 7457 2020
Gareth David UK
Notes
Wherever the terms asterisked in the Financial Highlights are used, whether in
the Financial Highlights, the Chief Executive`s Statement, the Group Finance
Director`s Review or the Business Review, the following definitions apply:
* For long-term and general insurance business, adjusted operating profit is
based on a long-term investment return, includes investment returns on life
funds` investments in Group equity and debt instruments, and is stated net of
income tax attributable to policyholder returns. For all businesses, adjusted
operating profit excludes goodwill impairment, the impact of acquisition
accounting, the impact of closure of unclaimed shares trusts, profit/(loss) on
disposal of subsidiaries, associated undertakings and strategic investments and
dividends declared to holders of perpetual preferred callable securities.
Adjusted operating earnings per ordinary share is calculated on the same basis
as adjusted operating profit. It is stated after tax attributable to adjusted
operating profit and minority interests. It excludes income attributable to
Black Economic Empowerment (BEE) trusts of listed subsidiaries. The calculation
of the adjusted weighted average number of shares includes own shares held in
policyholders` funds and BEE trusts.
** Indicative only, being the Rand equivalent of 2.3p converted at the exchange
rate prevailing on 30 June 2007. The actual amount to be paid by way of interim
dividend to holders of shares on the South African branch register will be
calculated by reference to the exchange rate prevailing at the close of business
on 18 October 2007, as determined by the Company, and will be announced on 19
October 2007.
*** Restated due to addition of own shares in Employee Share Ownership Plans
(ESOP).
Forward-looking statements
This announcement contains forward-looking statements with respect to certain of
Old Mutual plc`s plans and its current goals and expectations relating to its
future financial condition, performance and results. By their nature, all
forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances that are beyond Old Mutual plc`s control,
including, among other things, UK domestic and global economic and business
conditions, market-related risks such as fluctuations in interest rates and
exchange rates, policies and actions of regulatory authorities, the impact of
competition, inflation, deflation, the timing and impact of other uncertainties
or of future acquisitions or combinations within relevant industries, as well as
the impact of tax and other legislation and other regulations in territories
where Old Mutual plc or its affiliates operate.
As a result, Old Mutual plc`s actual future financial condition, performance and
results may differ materially from the plans, goals and expectations set forth
in Old Mutual plc`s forward-looking statements. Old Mutual plc undertakes no
obligation to update any forward-looking statements contained in this
announcement or any other forward-looking statements that it may make.
Notes to Editors:
A webcast of the analyst presentation and Q&A will be broadcast live at 9:30
a.m. (UK time) and 10:30 a.m. (Swedish and South African time) today on the
Company`s website, www.oldmutual.com. Analysts and investors who wish to
participate in the call should dial the following toll-free numbers:
UK 0500 101 630
Sweden 0200 887 651
South Africa 0800 991 468
North America +1 877 491 0064
Playback (available until midnight on 24 August 2007):
UK 0207 031 4064
UK toll-free 0800 358 1860
Sweden +46 (0) 850 520 333
North America toll-free +1 888 365 0240
North America toll +1 954 334 0342
Access code: 761356
A full copy of these results together with high-resolution images (at
http://oldmutual.com) and biographical details of the Executive Directors of Old
Mutual plc, are available in electronic format to download from the
Company`s website.
A Financial Disclosure Supplement relating to the Company`s Interim results can
be found on the website. This contains a summary of key financial data for 2007
and 2006.
An interview with Jim Sutcliffe, Chief Executive, in video, audio and text is
available on the Company`s website, www.oldmutual.com, and on www.cantos.com.
Chief Executive`s Statement
Steady profits - underlying growth strong
Old Mutual`s international savings and wealth management business has grown
profitably during the first half of 2007. The Group`s open architecture model
and good investment performance have continued to attract strong inflows during
the period, with net client cash flow of GBP11.8 billion, representing 10% of
opening funds under management on an annualised basis. These inflows, together
with positive equity markets in the main countries in which we operate,
delivered an increase in overall funds under management, one of our key measures
of performance, of 11% to GBP263 billion from the 2006 year-end position of
GBP237 billion.
IFRS earnings were down slightly in Sterling terms, at 8.2p, compared to the
equivalent period last year (8.5p), largely due to the strength of Sterling
against the Rand and the US Dollar during the first half of 2007.
Assuming constant exchange rates, H1 2006 adjusted operating EPS would have
been 7.0p, with the currency impact being 1.0p and the impact of the increase in
issued shares being 0.5p.
As a result of the underlying growth profile of the business, the Board is
pleased to declare an increase in the interim dividend of 10% to 2.3p a share.
Europe
In the UK, our industry leading open architecture platform, which enables a
wide range of investment choices for IFAs and clients continued to boost sales
and net client cash flows. Post "A-Day" demand continues to benefit the business
with pension sales up by 32% to GBP249 million. Adjusted operating profit for
the UK increased to GBP80 million from GBP73 million and new business margins
increased to 11% as a result of the operating leverage delivered by a 23%
increase in life sales and a 13% increase in funds under management to GBP41
billion. During the period we announced the launch of Selestia Investment
Solutions, the combination of Old Mutual`s Selestia platform and Skandia
MultiFUNDs, giving financial advisers a single, easy-to-understand market
proposition. This is well positioned to harness the market`s demand for
simplicity, flexibility and choice. The integration of the two platforms will
deliver further revenue synergies above those originally announced and goes live
on 15 August 2007.
Adjusted operating profit at Nordic benefited from higher levels of
funds under management (up SEK 7 billion) and some exceptional profits in
smaller lines of business. However, sales were depressed by the Swedish
government`s removal of the tax privileges of a key product, Kapitalpension in
the first quarter, and by our early adoption of a level commission structure.
EEV earnings were further depressed by the need to make provisions for pricing
adjustments introduced in response to lowered charges from our competitors, and
new business margins were depressed by the negative gearing of the lower sales
levels. The Swedish market, in particular, remains very competitive. Good
progress is being made in putting this division on to a sounder footing for the
future with Skandia and Skandia Liv, the wholly-owned mutual life business,
signing agreements to resolve a number of operating legacy issues and investment
in the IT platform which will provide benefits by allowing speedier product
development. This will cost some SEK 100 million in the second half.
We have welcomed Bertil Hult this week, as our Nordic CEO.
In ELAM, strong performance in Central European (especially Poland)
markets, particularly in relation to regular premium sales, was offset by lower
sales in southern Europe, most notably in Spain and Italy. Profit for the ELAM
division grew by 67%, reflecting the scale benefits of organic growth, though
against a soft comparative period in 2006.
Overall, we remain ahead of our acquisition assumptions and we remain on track
to meet our stated synergy targets for the middle of next year.
South Africa
OMSA`s overall profit was up 28% benefiting from the JSE`s strong performance
and some one-off items. The focus given to growing the sales force and fostering
better broker relations has had a positive impact on retail life sales and
margins. The Retail Mass division, aimed at capturing new business from lower
income customers, achieved a R120 million (up 32%) increase in sales, while the
Retail Affluent division, concentrating on middle income and higher net worth
individuals, grew total life sales by R174 million (up 16%). Bancassurance
sales achieved through the Nedbank channel also continued to grow strongly, up
33% on the corresponding period in 2006. Concerns over historic short-term
investment performance resulted in unit trust sales that did not reach last
year`s historic highs and negative net client cash flow in the corporate
segment. Performance at OMIGSA is improving as the business is bedded down and
the results of a common risk management support function come into effect.
Nedbank momentum continues, with a 32% increase in headline earnings on a local
currency basis. Nedbank exceeded its 2007 target of 20% RoE for the first time
in the first quarter, ending the six months at a solid 21.2%. Its cost to income
ratio for the half year fell to its target of 55% for the year, although this
will be affected for the rest of 2007 by continuing high levels of investment in
its retail programme. Net interest income grew 30% to R6 568 million, mainly as
a result of the 30.9% growth in average interest- earning banking assets. Non-
interest revenue increased by 5% to R4 742 million for the period. Expenses
increased by 14.9% to R6 238 million, reflecting the group`s continued expense
management, balanced by the need to invest for growth.
Profits at our general insurance business, Mutual & Federal, were affected by
some adverse weather-related and motor claims. However the premium cycle does
appear to have turned, evidenced by a recent hardening of rates. Our
long-standing CEO, Bruce Campbell, has decided to pursue different challenges
and leaves the Company, after 34 years on 15 August 2007. He is succeeded by
Keith Kennedy, who moves up from Executive General Manager: Claims and Business
Services.
Our ongoing and widely-recognised commitment to the social and economic
transformation of South Africa was boosted even further by the establishment of
the Masisizane Fund, with proceeds set aside for it from the closure of the
Unclaimed Shares Trust. The aim of the Fund is to support a number of economic
transformation initiatives including women entrepreneurs, financial education,
and capacity building in local and provincial government.
USA
Continuing good investment performance at our US asset management affiliates
once again delivered excellent net client cash flows, attracting $17 billion.
This performance, together with the acquisition of Ashfield, has raised total
funds under management from $274 billion to $315 billion and increased IFRS-
adjusted operating profit by 28%. Mutual fund sales at Old Mutual Capital
Partners rose by 29%, underlining the potential of our strategic retail
initiatives. Award-winning investment performances at Old Mutual Asset Managers
(UK), which is now reported as part of the US asset management division, helped
deliver an outstanding second quarter, with unit trust sales up by 56%.
Excellent sales through Old Mutual Bermuda, our offshore variable annuity
business unit now representing 44% of APE sales in the US Life business, and
strong demand for fixed indexed annuities, helped the Group produce a 41%
increase in total life sales to $2.5 billion.
We completed our investigation into the actuarial models used in the US Life
business. As a result, we decided to strengthen our annuitant mortality
assumptions in particular and, amongst other things, adopted a more conservative
approach to future assumed spreads. This led to a $185 million adjustment to
post-tax embedded value and a $60 million adjustment to pre-tax IFRS-adjusted
operating profits. Underlying profits were in line with the first quarter at an
annual rate of about 1% of assets. We believe this business is now on a sound
footing for the future, and we will not constrain sales in the second half as we
have in past years.
The business remains on track to return cash to the Group by the end of 2007.
Asia Pacific
Our joint venture partnerships in China and India continue to make steady
progress. Kotak Mahindra Old Mutual (KMOM), in which we have a 26% stake, has
expanded its distribution footprint to include representation in 51 cities
throughout India, and gross premiums for the six months were INR6.9 billion
(GBP82 million).
In China, buoyant equity markets have helped drive sales of unit-linked
products, placing the joint venture in seventh position on a gross premium
basis out of the 25 foreign-affiliated insurance companies, with premiums in the
six months of RMB807 million (GBP53 million).
Summary and outlook
Underlying business performance during the first half, driven principally by
high-quality investment management, resulted in strong net client cash flows
and growth in funds under management - the key driver of profitability. The
Skandia synergy and development targets are on track. Group earnings, however,
have been muted by the strengthening of the Sterling against the Rand and US
Dollar, and the provisions following the completion of the actuarial review in
the USA. Our strong capital position and powerful set of international
businesses will allow us to grow even if economic conditions continue to be
turbulent.
Jim Sutcliffe
Chief Executive
10 August 2007
Group Finance Director`s Review
GROUP RESULTS
Group Highlights (GBPm) H1 2007 H1 2006 % Change
Adjusted operating profit (IFRS basis)
(pre-tax) 757 771 (2%)
Adjusted operating profit (EEV basis)
(pre-tax) 782 885 (12%)
Profit before tax (IFRS) 898 815 10%
Adjusted operating earnings per share
(IFRS basis) 8.2p 8.5p (4%)
Adjusted operating earnings per share (EEV
basis) 8.7p 9.8p (11%)
Basic earnings per share (IFRS basis) 9.6p 8.0p 20%
Value of new business 124 121* 2%
PVNBP 6,843 5,963*# 15%
Life assurance sales (APE) 859 779* 10%
Unit trust/mutual funds sales 4,171 4,252* (2%)
Net client cash flows (GBPbn) 11.8 9.7 22%
Interim dividend 2.30p 2.10p 10%
Group Highlights H1 2007 FY 2006 % Change
Embedded value (GBPbn) 8.9 8.9** -
Adjusted embedded value per share (EEV
basis) 161.6p 161.1p** -
Funds under management (GBPbn) 263 237 11%
Return on equity (annualised basis)
(%) *** 13.4% 12.0%
Return on embedded value (annualised
basis) (%) 14.5% 13.8%
* Pro forma six months
# Restated due to change in the calculation of US Life APE to align with the
value of new business calculation
** Restated due to addition of own shares in ESOP
*** Return on equity is calculated using adjusted operating profit after tax and
minority interests on an IFRS basis with allowance for accrued coupon payments
on the Group`s hybrid capital. The average shareholders` equity used in the
calculation excludes hybrid capital
During the first half of 2007, Old Mutual has experienced strong sales and
positive net client cash flows in most businesses.
In Europe we have continued to benefit from being the open architecture leader
in the UK and growth continued in ELAM. In Nordic, year-to-date APE sales
declined compared to the same period last year due to a drop in Sweden. South
African life sales were 17% higher in Rand terms although 7% lower in Sterling.
In the US, APE was up by 34% in US Dollar terms driven by the exceptional growth
in Bermuda.
IFRS-adjusted operating earnings per share 8.2p
Earnings per share were held back by Rand and US Dollar currency depreciation
together with the full impact of additional shares issued in relation to the
acquisition of Skandia.
H1 2006
Group Highlights (GBPm) restated at
H1 2007 H1 2006 2007 rates
Adjusted operating profit
Africa 608 591 474
United States 106 137 124
Europe 129 126 121
Other 2 1 2
845 855 721
Other shareholders expenses (19) (20) (20)
Finance costs (69) (64) (64)
Adjusted operating profit before tax and
MI 757 771 637
Tax (177) (196) (147)
Minority Interest (138) (145) (112)
Adjusted operating profit after tax and MI 442 430 378
Adjusted operating EPS (pence) 8.2 8.5 7.0
Assuming constant exchange rates, H1 2006 adjusted operating EPS would have
been 7.0p with the currency impact being 1.0p and the impact of the increase in
issued shares being 0.5p.
Net client cash flows
Overall Old Mutual`s NCCF`s were a very healthy GBP11.8 billion representing 10%
of opening FUM on an annualised basis. Our USAM business delivered excellent net
inflows of GBP8.7 billion representing 12% of opening FUM on an annualized
basis, while the Skandia businesses achieved GBP3 billion of NCCF`s,
representing 12% of FUM. Within this figure Skandia UK achieved an outstanding
GBP2.4 billion representing 13% of opening FUM on an annualised basis. Within
OMSA, net client cash flow remained a challenge, primarily due to net outflows
from our third party asset management businesses as a result of concerns over
last year`s investment performance.
Adjusted embedded value per share 161.6p
Adjusted group embedded value (EV) was unchanged at GBP8.9 billion at 30 June
2007 (31 December 2006: GBP8.9 billion, restated from GBP8.6 billion##). The
adjusted Group EV per share is 161.6p as at 30 June 2007. This represents a
slight increase from 160p(restated from 157.2p) as at 1 January 2007. The
movement in EV per share has largely been driven by the net impact of adjusted
operating profit and other profit flows including investment variances but, has
been negatively impacted by currency movements and the lower organic earnings
in South African and US covered businesses.
## Please note that after allowing for the opening adjustment calculated now as
part of the fair value balance sheet exercise and including the adjustment for
the value of ESOP shares, the adjusted Group EV is at 1 January 2007 is
GBP8.8billion and the EEV per share at 31 December 2006 is 160p
Skandia synergies on track
The Skandia integration and synergy benefits of GBP70 million per annum
(announced in June 2006) are on track to be delivered by the end of 2008, and an
additional GBP10 million per annum of revenue synergies were announced in June
2007. However, 2007 is the key year for investment in synergy initiatives with
GBP17 million incurred in the first half. It is expected that GBP46 million
will be incurred this year as communicated in June 2006.
Value of new business growing
The value of new business grew strongly to GBP124 million driven by very strong
sales at Skandia UK and Bermuda. In the UK, strong growth in new business sales
over the first half of 2007, coupled with lower acquisition expenses has led to
an increase in APE profit margin and value of new business. In Nordic, the APE
profit margin declined due to lower sales and higher marketing expenses. In
ELAM, the VNB was maintained although there was a shift towards high margin
Polish business. In South Africa, the value of new business increased due to an
overall increase in margins, particularly on individual business, which
increased from 12% to 16% due to operating leverage from the higher new business
sales, improvement in distribution expenses and higher margin risk business
sold. In the US, margins and VNB were higher due to the Bermudan business which
contributed 65% of the new business value.
Return on equity up
Return on equity for the Group improved to 13.4% on an annualised basis from
12.0% reflecting the improvement in the earnings run rate compared to 2006.
Robust capital position
The Group`s gearing level remains comfortably within our target range, with
senior debt gearing at 30 June of 4.4% (5.9% at 31 December 2006) and total
gearing, including hybrid capital, of 23.1% (21.4% at 31 December 2006). The
overall increase in gearing was primarily as a result of a payment to Skandia
Liv in connection with the finalisation of the Liv-Link agreement.
In January 2007, the Group issued Euro750 million of Lower Tier 2 Preferred
Callable Securities, the proceeds of which were used, in part, to finance the
repayment of a Euro400 million senior Eurobond that matured in April 2007.
The Group has continued to develop its Economic Capital programme. At
31 December 2006 our Economic Capital Requirement was GBP4.1 billion and the
corresponding Available Financial Resources (AFR) was GBP7.1 billion. A
comfortable surplus exists within each of our South African, US and European
regions, meaning that the Group is not reliant for its economic solvency on the
need to transfer capital between geographies.
The Group is in compliance with the Financial Groups Directive capital
requirements, which apply to all EU-based financial conglomerates. Our FGD
surplus was GBP1.6 billion at 30 June 2007 and we seek to maintain an FGD
surplus buffer of around GBP750 million to GBP1 billion.
Capital requirements are set by the Board whilst recognising the
need to maintain appropriate credit ratings and meet regulatory requirements.
Taxation
The Group`s effective tax rate### for the period ended 30 June 2007 of 23%
decreased from 29% for the corresponding period in 2006. The net effective rate
in 2006 was high due to the level of the investment return adjustment for Group
equity and debt instruments held in life funds, much of which is taxed at the
South African statutory tax rate of 29%. In 2007 this adjustment is minimal. In
addition, the 2007 effective tax rate has benefited from the recognition of
certain previously unrecognised deferred tax assets and the reduction in
deferred tax liability arising from the reduction in UK tax rates effective 1
April 2008.
### Based on the tax excluding income tax attributable to policyholder returns
as a proportion before tax but after income tax attributable to policyholder
returns
Dividend
The directors of Old Mutual plc have declared an interim dividend of 2.30p per
share**** for the six months ended 30 June 2007, to be paid on 30 November
2007. This represents an increase in dividend per share of 10% over the 2006
interim dividend. The indicative Rand equivalent of this interim dividend= is
32.59c, an increase of 17%. The Board`s policy on dividends is to seek to
achieve steadily increasing returns to shareholders over time, reflecting the
underlying rate of progress and cash flow requirements of Old Mutual`s
businesses.
**** The record date for this dividend payment is the close of business on
Friday, 9 November 2007 for all the Exchanges where the Company`s shares are
listed. The last day to trade cum-dividend on the JSE and on the Namibian,
Zimbabwe and Malawi Stock Exchanges will be Friday, 2 November 2007 and on the
London Stock Exchange on Wednesday, 7 November 2007. The shares will trade ex-
dividend from the opening of business on Monday, 5 November 2007 on the JSE and
the Namibian, Zimbabwe and Malawi Stock Exchanges, and from the opening of
business on Wednesday, 7 November 2007 on the London Stock Exchange.
Shareholders on the South African, Zimbabwe and Malawi branch registers and the
Namibian section of the principal register will be paid the local currency
equivalents of the dividend under the dividend access trust arrangements
established in each country. Shareholders who hold their shares through VPC AB,
the Swedish nominee, will be paid the equivalent of the dividend in Swedish
Kronor (SEK). Local currency equivalents of the dividend for all five
territories will be determined by the Company using exchange rates prevailing at
close of business on Thursday, 18 October 2007 and will be announced by the
Company on Friday, 19 October 2007.
Share certificates may not be dematerialised or rematerialised on the South
African branch register between Monday, 5 November and Friday, 9 November 2007,
both dates inclusive, and transfers between the registers may not take place
during that period
= Based on rates at 30 June 2007 (R14.16772 = GBP1)
Holding company cash flow
The table below shows the cash flows of the Old Mutual plc holding company and
its satellite holding companies. We believe this provides a clearer picture of
the receipts and payments of available cash within the Old Mutual Group than the
IFRS holding company cash flow statement.
GBPm GBPm
Total gross debt 31 December 2006 2,483
Opening liquid assets held centrally 76
Operational receipts 229
Capital receipts 69
Net debt raised 232
New equity issuance 3
Operational expenses (87)
Other expenses (83)
Acquisitions (21)
FX adjustments and other items 20
Cash available 438
Old Mutual plc dividend paid (218)
Organic investment (160)
Closing liquid assets held centrally 60
Net debt raised 232
Adjustments 13
Total gross debt 30 June 2007 2,728
Liquid assets held centrally (60)
Total net debt 30 June 2007 2,668
Total available cash within the holding company at the end of 2006 was
GBP76 million. During the first half of 2007, the holding company received a
total of GBP298 million of operational and capital receipts from business units,
plus net debt and equity proceeds of GBP235 million.
After operational expenses, other expenses, acquisition payments and adjusting
items, there was GBP438 million in available cash, of which GBP218 million was
used to pay the Old Mutual plc 2006 final dividend and GBP160 million invested
in the businesses.
The balance of remaining cash at the end of June 2007 was GBP60 million.
Long-
Group Highlights H1 2007 (GBPm) term Asset General
business Management Banking Insurance Other
Adjusted operating profit
(IFRS basis) (pre-tax) 369 144 296 36 (88)
Adjusted operating profit
(EEV basis) (pre-tax) 389 144 296 36 (83)
Profit before tax (IFRS) 485 148 296 47 (78)
Value of new business 124 - - - -
Life assurance sales (APE) 859 - - - -
Unit trust/mutual funds sales - 4,171 - - -
Net client cash flows (GBPbn) 9.6 2.2 - - -
Funds under management (GBPbn) 77 182 - - 4
Long-
Group Highlights H1 2006 (GBPm) term Asset General
business Management Banking Insurance Other
Adjusted operating profit
(IFRS basis) (pre-tax) 408 125 280 42 (84)
Adjusted operating profit
(EEV basis) (pre-tax) 516 125 280 42 (78)
Profit before tax (IFRS) 314 196 303 64 (62)
Value of new business 111 - - - -
Life assurance sales (APE) 723 - - - -
Unit trust/mutual funds sales - 4,252 - - -
Net client cash flows (GBPbn) 7.6 2.1 - - -
Funds under management (GBPbn) 65 149 - - 4
Jonathan Nicholls
Group Finance Director
10 August 2007
COMPARATIVE INFORMATION
The reporting format for Old Mutual plc for the first half 2007 reporting
period is as follows:
All Group comparative interim reporting information on earnings include
Skandia from the date of acquisition of 1 February 2006 (unless indicated
otherwise).
Within the financial statements the Europe division comparative information is
from the date of acquisition of 1 February 2006.
Where Europe information is shown within the business review, this has been
adjusted on a pro forma basis to reflect ownership from 1 January 2006.
Business Review
EUROPE
Net client cash flows continue at a high level
Pro forma*
Highlights (GBPm) H1 2007 H1 2006 % change
IFRS-adjusted operating profit 129 129 -
EV-adjusted operating profit (covered
business) 176 211 (17%)
Life assurance sales (APE) 554 488 14%
Mutual fund sales 2 232 2 296 (3%)
Value of new business 69 74 (7%)
PVNBP 4 453 3 767 18%
Net client cash flows (GBPbn) 3.0 3.3 (9%)
Return on invested capital 9.0% 7.7%
Return on EV (covered business) 12.3% 13.3%
* The 2006 numbers are a pro forma result assuming ownership for 12 months
rather than 11 months
Highlights (GBPbn) H1 2007 FY 2006 % change
Funds under management 57 51 13%
Strong sales driving solid funds under management
Our European business continues to achieve strong life assurance sales,
particularly in the UK.
Life sales on an APE basis for the covered business reached GBP554 million for
the first half of 2007, 14% higher than the same period last year, with UK
single premium pension sales particularly strong. Mutual fund sales, although
marginally down in 2007, were boosted in 2006 by UK institutional business,
where funds flow can be irregular.
Net client cash flows at 12% of opening FUM on an annualised basis were strong
and totalled GBP3.0 billion for the period.
Funds under management increased by 13% over the past six months to GBP57
billion. A significant portion of that growth comes from the UK division, where
net inflows and advantageous market movements have contributed to the positive
outcome.
Skandia is well on track to deliver on the 2008 growth and synergy targets as
reiterated at the capital markets day on 21 June 2007. IFRS-adjusted operating
profit remains stable, even with the impact from the less profitable, but
necessary, new Liv-Link agreement, with particularly impressive returns from
ELAM from scale benefits and solid growth in the UK division.
UNITED KINGDOM AND OFFSHORE
Highlights (GBPm) Pro forma*
H1 2007 H1 2006 % Change
IFRS-adjusted operating profit** 80 73 10%
EV-adjusted operating profit (covered
business) 120 100 20%
Life assurance sales (APE) 389 316 23%
UK life assurance sales (APE) 249 189 32%
Unit trust sales 1 291 1 363 (5%)
Value of new business 42 33 27%
New business margin 11% 10%
PVNBP 3 377 2 597 30%
Net client cash flows (GBPbn) 2.4 2.3 4%
* The 2006 numbers are a pro forma result assuming ownership for 12 months
rather than 11 months and have been restated to include the results of Old
Mutual International. No restatement has been made in respect of Selestia Life
and Pension, which is now reported under long-term business rather than asset
management
** From 2007 the treatment of Selestia deferred fee income has been harmonized
with Skandia MultiFUNDS reducing the 2007 result. The impact of policy holder
tax has been smoothed from 2007
Highlights (GBPbn) H1 2007 FY 2006 % Change
Funds under management 41 36 13%
Growing IFRS-adjusted operating profits
Adjusted operating profit for the UK increased to GBP80 million, driven by
significantly higher level of funds under management and continued growth from
investment contracts.
As expected, we incurred GBP12 million of synergy costs in the first half
related to the integration of our UK businesses to deliver the planned synergy
benefits by 2008. The integration is on target to deliver the planned savings as
well as significant revenue potential. The outsourcing of IT operations to HCL
(Hindustan Computers Limited), was completed in February 2007 and the off-
shoring of key activities is in progress. Meanwhile the business process re-
engineering programme continues to drive out further efficiencies, in line with
synergy plans.
The mutual fund business continues to perform well. Integration of the Skandia
MultiFUNDS and Selestia fund supermarkets is on track to deliver the committed
run rate savings by the middle of 2008. The integration of back office
operations and sales teams has been successful and efforts are now focused on
the launch of the new combined platform, which brings together the best aspects
of each proposition. Selestia Investment Solutions will go live on 15 August
2007.
Higher EV-adjusted operating profits (covered business)
EV-adjusted operating profit for the UK increased to GBP120 million, with higher
sales volumes driving an increased contribution from new business. Results
benefit from the continued growth of the in-force books of business.
Experience (as measured against the operating assumptions) has led to a
favourable contribution despite a write-back in respect of Selestia Life and
Pension to reflect a reduction in charges. In the critical area of business
retention, overall persistency has been in line with expectations.
Strong new business growth in UK life and mutual fund sales
Skandia`s leading open architecture model continues to deliver strong new
business growth. The first half of 2007 was characterised by improving sales,
buoyant net client cash flows and ongoing recognition from our distributors for
our award winning platform. Both life assurance sales (APE) and unit trust
sales, (excluding the institutional investment business with Mercer) were up
in the half year to 30 June 2007 compared to the first half of 2006, due to
growth in single premium business, the continued impact of the "A-Day" pension
changes and strong ISA sales. Mercer`s business was significantly down in the
period, and this is reflected in the fall in unit trust sales in aggregate.
Pension sales substantially higher
The increase in life assurance new business levels for the first half of 2007
is largely due to higher single premium pension sales in the UK. These have
flowed from the continued impact of the "A-Day" changes. UK pensions business
grew in the half year by 26%, building on the increase in volumes already
experienced during 2006.
International business increased in the half-year, benefiting from strong
portfolio bond sales in the UK and single premium business in Latin America and
the Far East. There has been some tailing off in institutional portfolio bond
business in the latter part of the period following a tax change in the UK
budget.
Strong underlying unit trust sales
Skandia has brought together Skandia MultiFUNDS and Selestia, under the banner
"Selestia Investment Solutions" giving financial advisers a single,
easy-to-understand market proposition backed by a comprehensive range of
products and a single sales team with which to interact. Sales for Selestia
Life and Pension of GBP128 million in the first half of 2007 (H1 2006: GBP114
million) are now reported under the long-term business rather than under asset
management. Excluding this and the Mercer business described above, the
underlying growth was 10%.
The Selestia and Skandia MultiFUNDS businesses continue to benefit from UK
advisers` shift to open architecture investment platforms in line with their
preferred strategy for the management of their clients` assets. The Global
Property Securities Fund has remained Skandia`s best selling fund throughout
2007, and together with the launch of the "Best Ideas" funds, this has driven
improved sales across the Group, generating gross direct subscriptions
exceeding GBP152 million for the half-year.
Margins improved with new business growing
Life new business APE margins post-tax improved from 10% to 11% for the half-
year. The improvement in margin is due to a combination of increased scale
benefits and a shift towards single premium retail pension business.
The value of new business improved by 27% to GBP42 million due to strong sales
growth and mix of business across our core products. The 23% increase in life
assurance sales and the increase in profit margin gives rise to the increase in
the value of new business.
Strong growth in funds under management and net client cash flows
Net client cash flows were GBP2.4 billion for the half-year representing 13% of
opening funds under management on an annualised basis. Strong inflows combined
with favourable market movements during the first half drove a significant
increase in funds under management versus 2006 year-end of 13% to GBP41 billion.
NORDIC
Pro forma*
Highlights (SEKm) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 486 652 (25%)
EV-adjusted operating profit (covered
business) 207 897 (77%)
Life assurance sales (APE) 959 1,076 (11%)
Mutual funds sales 821 1,586 (48%)
Value of new business 143 310 (54%)
New business margin 15% 29%
PVNBP 4,450 5,389 (17%)
Net client cash flows (SEKbn) 0.8 2.3 (65%)
* The 2006 numbers are a pro forma result assuming ownership for 12 months
rather than 11 months
Highlights (SEKbn) H1 2007 FY 2006 % Change
Funds under management 114 107 6%
IFRS profits lower due to new corporate business agreement with Skandia Liv
IFRS-adjusted operating profit decreased by 25% in the first half year to
SEK486 million due to the negative impact of the joint corporate pension
agreement with Skandia Liv, but also due to higher marketing expenses and the
lower risk business result.
Life assurance sales still below expectations after change in law
Life sales APE declined 11% mostly due to a weaker performance in Sweden. From
1 February 2007 the tax advantages of the Swedish Kapitalpension product were
removed following a change in regulations. This negatively impacted sales as
Kapitalpension products accounted for 10% of sales in 2006. Sales were also
affected by a reduction in volumes from smaller brokers due to the adoption by
Skandia of a new commission model in Sweden and the response from some
competitors who enhanced up-front commission with small brokers. As part of our
investment programme, new product launches and some adjustments to pricing are
being introduced to combat the lower sales in Sweden. New sales growth in
Denmark continued strongly, up 26% compared to last year.
Liv-Link legacy issues largely resolved though negatively impacting margins in
the short-term
Life new business margin was 15% compared to 29% for the first
half of 2006. The decline can be attributed to a change in arrangements between
Skandia and Skandia Liv and negative operating leverage from lower sales. These
expenses will be reduced and, in combination with the benefit of the
introduction of new products, we expect margins to rise in the second half of
2007. The positive impact of cost synergies in 2008 will further strengthen the
margin. However in order to reach the 2008 targeted range of 23 to 27% pre-tax,
our Swedish sales, in particular, will need to improve in what is a very
competitive market.
Funds under management passed another record milestone
Funds under management increased in the first half of 2007 to SEK 114 billion
due to continued positive net client cash flows and good fund performance.
Continued growth in banking business
Both deposit and loan books at SkandiaBanken continued to increase in the first
half of 2007 reaching new highs. The growth in loans has been at a slower pace
than last year, preserving the net interest margin in the face of stiff
competition. Lending increased to SEK53.5 billion, up 16% on the first half of
2006, mainly due to strong mortgage lending in Norway and Sweden. The number of
customers has increased 4% over the past 12 months. Operating profit for the
first half of 2007 was 26% higher than the first half of 2006. This reflects
higher earnings from increased volume which was partly offset by increased
costs associated with Basel II and additional employees in Norway to support
the business growth. Our Danish banking operations will be divested in the
second half to strengthen profitability and to bring focus to the remaining
successful businesses. Banking profit before tax for the half year was SEK111
million (H1 2006: SEK88 million).
Putting the business on a sound footing for the future
As previously reported, Skandia and Skandia Liv renegotiated their arrangements
for jointly offered corporate business with effect from 1 January 2007. In
addition, Skandia and Skandia Liv have settled other operational legacy issues.
The focus in the half-year has been on improving operational efficiency and
aggressive marketing activities. The integration programme has reduced
IFRS-adjusted operating profits in the half and will continue throughout the
year in line with previous market guidance. Our unit-linked product offering
improvement is under way and will reach the market towards the end of 2007.
Furthermore SkandiaBanken`s savings offering has been strengthened by widening
the fund range and introducing discounted share trading.
Head of Nordic
Bertil Hult has commenced as the new head for Skandia`s Nordic division on
6 August 2007, further boosting the quality of the management team in Sweden.
Bertil is well known and respected in Sweden with a strong knowledge of
financial services.
Business Review
EUROPE AND LATIN AMERICA (ELAM)
Pro forma*
Highlights (Euro m) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 20 12 67%
EV-adjusted operating profit (covered
business) 60 65 (8%)
Life assurance sales (APE) 140 135 4%
Mutual fund sales 1 306 1 183 10%
Value of new business 25 26 (4%)
New business margin 18% 20%
PVNBP 1 112 1 119 (1%)
Net client cash flows (Euro bn) 0.8 1.1 (27%)
* The 2006 numbers are a pro forma result assuming ownership for 12 months
rather than 11 months and excludes businesses subsequently divested
Highlights (Euro bn) H1 2007 FY 2006 % Change
Funds under management (Euro bn) 13 11 19%
Strong adjusted operating profit result
IFRS-adjusted operating profit is up 67% on the equivalent prior year period,
reflecting the scale benefit of organic growth in both covered and non-covered
business. This growth is driven by the larger in-force book of business which
has been buoyed by good stock market performance with both fund-based and
premium-based fees up on the prior year equivalent period. However, the IFRS
result was partially constrained by accelerated deferred acquisition cost
recognition arising from higher surrender activity in Italy.
Continuing growth in life new business sales (APE)
Life sales on an APE basis rose 4%, with strong growth in regular premium sales
across Central Europe partially offset by lower single premium sales in
Southern Europe. Sales in Southern Europe decreased year-on-year reflecting the
strong and exceptional growth experienced in the first half of 2006. Sales in
Central Europe, have increased 31% compared to the same period in 2006 buoyed
by stronger economies.
Mutual fund sales up and margins improved
Mutual fund sales are up 10% over the first half of 2006, with strong
contributions from both of the division`s asset managers, Palladyne and Skandia
Global Funds. Sales in the first half of 2006 predominantly arose from low
margin institutional asset management business in Spain, while sales this half-
year have significantly higher margins, leading to an increased adjusted
operating profit contribution from mutual fund business for the half year.
Funds under management Euro 13 billion after Euro 0.8 billion net client cash
flows and reclassifications
Net client cash inflows in the half-year were 15% of opening funds under
management, on an annualised basis. Market movements were positive for the
half-year, growing funds under management by a further 5%.
Net client cash flows, and the comparison to prior year, have been negatively
impacted by the previously high volume low margin institutional business from
Spain. This business generated strong inflows in H1 2006 from a small group of
institutions. Some of these funds have been withdrawn resulting in high
surrender levels.
Value of new business down 4%, with profit margin at the upper-end of the
target range at 18%
VNB for the first half of 2007 was slightly behind the first half of 2006. An
increase arising from the higher contribution from the less developed markets,
which have a higher profit margin, was offset by a reduction in VNB arising
from the increased investment in sales resource in Europe, which has not yet
generated increased sales volumes.
The post-tax profit margin of 18% achieved for the half year is at the upper
end of our medium-term target range of 16-18%. We continue to anticipate that
margin pressure will increase in these markets and have lowered our margin on
certain products for the remainder of the year in order to competitively
reposition our offerings in these markets.
Well positioned
ELAM is well placed to achieve further growth, as evidenced by rising market
shares in most of the countries in which we operate, and the growing importance
of the unit linked segment within ELAM`s markets. Product development and
innovation remain at the heart of our offering with 13 new products launched in
the half-year and further offerings in the pipeline for the next half-year.
These products are aimed at the long-term retail savings market, with a mix of
new unit-linked and mutual funds offerings bolstering our existing product
range.
At the same time we are seeking operational efficiencies across the business
unit to ensure we have a scalable model to support both our current, and
future, business needs.
Poland continues to grow strongly and is now a significant contributor to both
new sales and the division`s overall result. This reflects the efforts put into
this business over recent years, with particular emphasis on growing
distribution. We are seeing encouraging growth from Germany, with new sales on
an APE basis up 22% over the same period in 2006. Expansion of the sales team
and segmentation of the IFA channel in France have put us on a good footing in
this market, although year-on-year growth is suppressed due to the strong
tax-driven market of H1 2006. We have made a significant investment in
distribution in our Latin American and European markets during the first half
of 2007, and this investment sees us well placed to capture the growth in those
markets.
Sale of business
As disclosed previously, a strategic decision was taken to divest the
traditional life business in Spain. This transaction was concluded on
5 April 2007.
AFRICA
The three African businesses, Old Mutual South Africa (OMSA), Nedbank and
Mutual & Federal (M&F) continue to benefit from the expanding South African
economy where GDP is forecast to grow 4.4% during 2007 and stock markets have
performed strongly in the first half of the year, with the JSE recording a 14%
rise. We are well positioned across all key product and market sectors to
benefit from these positive economic conditions and are well on the way to our
target of R1 trillion assets under management (OMSA and Nedbank).
Our businesses enjoy a high market share overall and the lack of commonality
between these bases is the potential for our bancassurance model. OMSA serves
3.2 million retail customers, Nedbank 3.9 million retail customers and M&F
another 1.1 million retail customers. However Nedbank and OMSA share less than
1 million customers in common and between the three companies altogether, the
sharing of common customers is circa 0.3 million. In the corporate market both
OMSA and Nedbank have large corporate customer bases and, again, a relatively
limited overlap providing good opportunities to cross-sell.
Measured by assets under management, OMSA is number one in the life industry
and aims to be number one across the entire savings and wealth management
business. Working with Nedbank and M&F, OMSA aims to build the number one
financial services franchise in South Africa.
Highlights (GBPm) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 608 591 3%
Life assurance sales (APE) 159 171 (7%)
Unit trust sales 495 794 (38%)
Highlights (Rm) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 8 584 6 686 28%
Life assurance sales (APE) 2 250 1 929 17%
Unit trust sales 6 987 8 970 (22%)
Highlights H1 2007 FY 2006 % Change
Funds under management (GBPbn) 41 40 3%
Funds under management (Rbn) 576 549 5%
LONG-TERM BUSINESS AND ASSET MANAGEMENT - OLD MUTUAL SOUTH AFRICA (OMSA)
Strong retail sales performance
Highlights (Rm) H1 2007 H1 2006 % Change
Long-term business adjusted operating
profit 1 714 1 589 8%
Asset management adjusted operating profit 510 459 11%
Long-term investment return (LTIR) 1 413 798 77%
IFRS-adjusted operating profit 3 637 2 846 28%
EV-adjusted operating profit (covered
business) 3 638 2 869 27%
Return on EV (covered business) 14.9% 12.9%
Life assurance sales (APE) 2 148 1 847 16%
Unit trust sales 6 688 8 574 (22%)
Value of new business 324 252 29%
APE margin (post-tax) 15% 14%
PVNBP 14 007 12 115 16%
Net client cash flows (Rbn) (9.0) 6.4 (241%)
Highlights (Rm) H1 2007 FY 2006 % Change
SA client funds under management (Rbn) 440 424 4%
Return on Allocated Capital 31% 23%
During the first half of 2007 the business continued to transition as planned
towards a modern and premier savings and wealth management business. Our retail
distribution continued to grow and perform well, while our asset management
business settled down well into the new boutique structure. We continued to
move our product offering from the "Traditional" high capital requirement/high
margin product to the "New Era" product suite which is more competitive
and associated with lower capital requirements and lower margins.
Our focus on back office administration costs resulted in unit cost targets
being achieved and our retail distribution channels continued to adapt in
preparation for a world of lower upfront commissions.
Adjusted operating profit at R3 637 million was 28% higher than in 2006. Within
this result, long-term business operating profit increased by 8% to
R1 714 million and the LTIR increased 77% to R1 413 million. The Life profit
benefited from an increase in the average level of policyholder funds under
management, driven by stronger equity markets, and significantly lower IFRS 2
share-based payments charge. The latter was significantly lower in the first
half of this year compared to the same period last year as a result of the
relative performance of the Old Mutual plc share price. The Investment
Guarantee Reserve was increased by R270 million in the period, in anticipation
of the requirement to move to a market consistent basis at the end of the year.
This, together with some other assumption changes, resulted in a net negative
impact of R161 million on adjusted operating profit.
Asset management adjusted operating profit was up 11% to R510 million, held
back by less attractive investment conditions for our structured finance
business, the costs associated with the investment in the new boutique
structure in OMIGSA and loss of fee income as a result of the withdrawal of
client funds, offset by higher fees in our property business.
Net client cash flow remained a challenge for us, primarily due to net
outflows from our third party asset management businesses. Last year`s
investment performance was disappointing and this continues to impact current
flows as does uncertainty around the restructuring into boutiques. Investment
performance has now improved significantly. Good performance in the fourth
quarter of 2006 and in the first quarter of 2007 saw investment performance
figures for the year to June 2007 improve to 84% of funds outperforming
benchmarks achievement of the number two position in the Alexander Forbes
Large Manager Watch over one and three years.
Overall, life sales (APE) were 16% higher than the first half of 2006, with
Retail life sales 21% higher and Corporate life sales marginally higher. Unit
trust sales were 22% lower than in 2006 although still at high levels.
Across OMSA, the after-tax value of new life business was R324 million, 29%
higher than in 2006, reflecting primarily a higher margin in Retail Affluent.
The Corporate margin was lower because of a lower proportion of with-profits
annuity business this year compared to last year.
Our ongoing and widely-recognised commitment to the social and economic
transformation of South Africa was boosted even further by the establishment of
the Masisizane Fund with proceeds (R400 million) set aside for it from the
closure of the Unclaimed Shares Trust. The aim of the Fund is to support a
number of economic transformation initiatives including women entrepreneurs,
financial education, and capacity building in local and provincial government.
Retail Mass
Rm H1 2007 H1 2006 % Change
Life sales (APE)
Savings 289 199 45%
Risk 206 176 17%
Total 495 375 32%
Life VNB 113 96 18%
Life APE margin (post-tax) 23% 26%
Net client cash flow 905 788 15%
Retail Mass sales were up 32% on the equivalent period in 2006, continuing the
strong rate of growth seen in 2006. The result reflects the continued focus on
growing the sales force, which at 30 June 2007 was 10% higher than at the
beginning of the year. Sales force productivity improved, notwithstanding the
effects of the protracted public servants strike, which impacted a key customer
base. Good growth was also achieved in sales through the broker channel. In the
six months, there was a swing to lower margin savings business.
VNB was 18% higher than in 2006, with the new business APE margin lower at 23%
as compared with 26% in 2006, reflecting the higher proportion of lower margin
savings business. We have responded by implementing changes to adviser
remuneration and increasing minimum premiums for savings business, with effect
from August 2007.
We have designed new savings products to be launched in April 2008 (to coincide
with the new commission regime), with a focus on giving better value to clients
and acceptable profits to shareholders.
Retail Affluent
Rm H1 2007 H1 2006 % Change
Life sales (APE)
Savings 628 600 5%
Protection 506 375 35%
Annuity 100 85 18%
Total 1 234 1 060 16%
Single 400 392 2%
Recurring 834 668 25%
Non-life sales* 981 1 168 (16%)
Life VNB 170 74 130%
Life APE margin (post-tax) 14% 7%
Net client cash flow (1 120) 923 -
* Includes non-life flows in respect of OMUT, Galaxy and LISP sales on an APE
basis
Total Retail Affluent life sales were 16% higher, but non-life sales 16% lower,
primarily as a result of lower unit trust flows. The latter were affected by
disappointing performance in 2006 in some of our funds and concerns over
several investment staff losses.
Life recurring premium sales were 25% higher, driven by good risk business,
aided by enhancements to our Greenlight risk product and good credit life
sales, reflecting the extension of personal credit through Nedbank. Recurring
premium Max Investment savings business (both life and non-life wrappers)
performed well, with significant growth of the non-life recurring option but
off a relatively low base. Single premium investment sales were relatively flat
as a result of concerns over investment performance and less attractive
returns offered on lower margin structured products. Single premium sales
of the offshore investment product through Old Mutual International were 30% up
on 2006.
Life VNB at R170 million was 130% higher than in 2006, with new business APE
margin improving from 7% in the first half of 2006 to 14% in 2007, as a result
of an increased proportion of higher margin risk business being sold, as well
as good expense management and the improvement brought about by distribution
expenses being spread over higher recurring premium volumes.
Unit trust sales declined by 22% compared to the strong first half of 2006,
primarily as a result of concerns over short-term investment performance in our
core funds (principally our Dynamic Floor and Enhanced Income funds) and
uncertainty over the restructuring of the asset management business. Improved
investment performance rankings as at 30 June 2007 relative to 31 December
2006, and the launch of the new Stable Growth Fund in July 2007 should benefit
sales going forward.
Net client cash flow was a negative R1.1 billion (2006: R0.9 billion positive),
driven primarily by net outflows from several of the unit trust funds as
described above. The outflows were driven primarily by multi-managers who
switched their assets from our unit trust funds.
Bancassurance sales through Nedbank continued to grow strongly and were up 33%
on the corresponding period last year. Credit life sales reflected the
continued buoyancy of personal credit extension and OMSA still continues to
secure a high proportion of Nedbank broker risk and single premium investment
sales. Overall, bancassurance life sales through Nedbank accounted for 15% of
OMSA`s total Retail life sales on an APE basis.
Corporate
Rm H1 2007 H1 2006 % Change
Life sales (APE)
Savings 185 147 26%
Protection 68 37 84%
Annuity 56 96 (42%)
Healthcare 110 132 (17%)
Total 419 412 2%
Single 229 227 1%
Recurring 190 185 3%
Non-life sales* 1 458 1 970 (26%)
Life VNB 40 81 (51%)
Life APE margin (post-tax) 10% 20%
Net client cash flow (8 780) 4 642 -
* Includes non-life flows in respect of OMIGSA, Symmetry and Old Mutual
Properties on an APE basis
Total Corporate sales (APE) of R1.9 billion were 21% lower than in 2006
primarily reflecting the uncertainty amongst clients and asset consultants over
the restructuring of our asset management business as well as a shorter
pipeline of opportunities.
Corporate Life sales (APE) of R419 million were marginally higher than 2006.
Symmetry sales were significantly up, reflecting its good investment track
record, and Group assurance sales were higher, despite a tough group risk
market. Single premium with-profit annuity sales were lower in comparison to
last year primarily as a result of an unusually large transaction in 2006. The
Life new business APE margin fell from 20% in the first half of 2006 to 10% in
2007 reflecting primarily the mix of lower margin products, and in particular
the absence of significant high margin with-profit annuity business and
increased volumes of lower margin Symmetry business.
We continued to drive the change to new era products with the launch of our
Absolute Growth Portfolios as an attractive alternative to our older-generation
Guaranteed Fund. The recent launch of the new funds has been well received by
consultants and clients alike.
Net client cash flow for the Corporate segment was a negative R8.8 billion
(2006: R4.6 billion positive), driven primarily by net outflows from our asset
management boutiques as a result of concerns over investment performance and
uncertainty around the effects of the restructuring of the asset management
business. Whilst investment performance has improved significantly over the
last six months there is a risk that we could lose further funds in the short
term during the transition to the multi-boutique model.
In our Healthcare administration business, a new 75 000 member scheme was added
in the second quarter (which has not been accounted for as new business in
2007). We installed a new healthcare administration platform and have focused
on improving our service to clients, although membership growth has been weak.
We are continuing to review our options for the best long-term solution for our
healthcare administration business.
Old Mutual Investment Group South Africa (OMIGSA)
Sources of FUM (Rbn) H1 2007 FY 2006 % Change
Life 293 283 4%
Unit trusts 43 40 8%
Third party 95 95 -
Total OMIGSA managed assets 431 418 3%
Managed by external fund managers 34 30 13%
Total OMSA FUM 465 448 4%
In January 2007 we announced the restructuring of our asset management business
into twelve autonomous boutique investment houses under the umbrella of
Old Mutual Investment Group South Africa (OMIGSA). Given the global trends in
asset management and the ongoing swing to non-life business, the strategy is to
replicate the success of our US asset management model in South Africa. This
will enable us to deliver more focused investment performance and raise the
marketing profile of the investment skills and expertise, in order to win a
growing flow of asset management mandates.
Performance across the directly managed OMIGSA funds showed a strongly
improving trend for Q4 of 2006 and Q1 of 2007, although Q2 performance was
disappointing. For the twelve months ended 30 June 2007, 84% of directly
managed assets outperformed their benchmarks (an improvement from 69% as at
31 December 2006). This takes performance over the three years to 30 June 2007
to 79% of funds outperforming their benchmarks, from 81% at 31 December 2006.
The Macro Strategy Investments Boutique Global Balanced offering ranked second
over both twelve months and three years, and third over the five years to June
2007, in the Alexander Forbes Large Manager Watch.
On the multi-managed front, the Symmetry institutional funds performed well.
Against multi-manager peers, as at 30 June 2007, the Aggressive Fund is rated
the top performing fund for three-month, three-year and five-year time periods,
while the Conservative Fund is the leading performer over the three-year period
(Fifth Quadrant Manager Meter). The Balanced Fund fares well against single
managers for the quarter, being ranked fifth out of 14 Funds. The Balanced Fund
is the top performing fund for one-year and three-year time periods according
to the Alexander Forbes Multi-Manager Survey.
The restructuring has resulted in some changes for staff and asset consultants
and clients have adopted a cautious approach to the new structure as expected.
During H1 2007, the operating models of the boutiques have been finalised and
the boutique managers have met with clients to address any specific concerns.
A branding campaign positioning the investment skills of OMIGSA has also been
launched. The process of change is being managed tightly to ensure a focus on
client retention and delivering excellent performance.
BANKING - NEDBANK GROUP (NEDBANK)
Delivering 2007 targets - focusing on closing the gap on competitors
Nedbank remains on track to meet its 2007 performance targets. Adjusted
operating profits rose 32% to R4 277 million and Nedbank`s annualised return on
average ordinary shareholders` equity (ROE) rose to 21.2%, up from 18.6% for
the year to 31 December 2006 (H1 2006: 18.3%).
Highlights (Rm) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 4 277 3 247 32%
Headline earnings* 2 775 2 104 32%
Net interest income* 6 568 5 039 30%
Non-interest revenue* 4 742 4 502 5%
Net interest margin* 3.90% 3.91%
Cost to income ratio* 55.2% 56.9%
ROE* 21.2% 18.3%
ROE* (excluding goodwill) 24.7% 21.8%
* As reported by Nedbank
Net interest income (NII)
NII grew 30% to R6 568 million (H1 2006: R5,039 million), mainly as a result of
the 30.9% growth in average interest-earning banking assets (H1 2007 compared
with H1 2006). The margin for the six-month period was 3.90% down from 3.91%
reported for the half-year to June 2006. This reflects strong competition for
assets and pressure on deposit pricing as the sector has had to source a higher
proportion of funding from the wholesale deposit market, offset by the
endowment benefits from interest rate increases.
Impairments charge on loans and advances
The impairments charge rose by 26.1% to R1 016 million (H1 2006: R806 million).
The credit loss ratio (impairments charge as a percentage of average advances)
increased from 0.61% in H1 2006 to 0.63% for the period. Impairments continued
to benefit from recoveries in both Nedbank Corporate and Nedbank Capital. As
anticipated, impairments in the retail portfolios of Nedbank Retail and
Imperial Bank deteriorated as a result of rising interest rates and increased
levels of consumer indebtedness.
Non-interest revenue (NIR)
NIR increased 5% to R4 742 million for the period (H1 2006: R4 502 million).
Commission and fee income grew by 12.9% supported by good transactional banking
and bancassurance volumes. NIR growth has been adversely affected by
disappointing trading income in Nedbank Capital and within the Macquarie
business alliance, in particular. Nedbank Corporate recorded higher than
anticipated property private equity gains and, together with Nedbank Capital,
showed a strong increase in private equity revenues.
Expenses
Expenses increased by 14.9% to R6 238 million (H1 2006: R5 427 million),
reflecting the Group`s continued expense management balanced by the need to
invest for growth. Staff expenses grew by 19.0%, as a result of the planned
increase in client-facing staff and an increase in performance-related
remuneration. Marketing costs increased by 23.8% as Nedbank invested to
reposition and increase awareness of the Nedbank brand. Nedbank`s brand equity
continues to increase, with good gains in awareness and loyalty levels.
The `jaws` ratio remained positive, with total revenue growth of 18.5% being
3.6% above expense growth of 14.9%, resulting in an improvement in the
efficiency ratio from 56.9% for the first half of 2006 to 55.2%.
Advances
Average interest-earning banking assets grew by 30.9%, largely driven by the
strong growth in advances of 22.7% (compared to H1 2006) with good growth in
most core banking advances categories.
Deposits
Deposits increased by 27.1% from R281 billion at 30 June 2006 to R357 billion
at 30 June 2007, with the Group maintaining a strong liquidity position
throughout the period.
Capital management
During 2007, Nedbank:
concluded Tier 2 subordinated debt issues (NED 7 and NED 8) of R2.65 billion;
completed a 10-year Tier 2 subordinated debt issue (NED 9) of R2 billion,
which was fully subscribed for by the International Finance Corporation and
African Development Bank in equal amounts. This transaction diversifies the
bank`s bondholder profile to include international investors and was
competitively priced on a floating basis;
completed a R2 billion Imperial Bank asset securitisation;
issued Tier 1 perpetual preference shares of R364 million; and
redeemed the expensive NED2 R4 billion bond on its call date in July 2007.
Nedbank continues to be well capitalised with a Tier 1 capital adequacy ratio
of 8.3% (31 December 2006: 8.3%) and a total capital adequacy ratio of 12.4%
(31 December 2006: 11.8%).
GENERAL INSURANCE - MUTUAL & FEDERAL
Highlights (Rm) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 509 475 7%
Gross premiums* 4 594 4 260 8%
Earned premiums* 3 813 3 634 5%
Claims ratio* 68.8% 63.6%
Combined ratio* 97.1% 96.1%
Solvency ratio* 49% 75%
Return on capital* (3-year average) 31.7% 20.4%
* As reported by Mutual & Federal
Solid performance
Mutual & Federal has maintained positive results despite a softer insurance
market compared to twelve months ago. However, premiums have now begun to be
increased in response to declining profitability. The underwriting results were
significantly influenced by a sharp increase in the frequency and severity of
industrial and commercial fire claims, while the motor account continues to
underperform.
Gross Premiums
Gross premiums grew by 8% during the first half and follow rate increases,
underwriting interventions and the cancellation of unprofitable blocks of
business.
Combined ratio deteriorated, though underlying result benefiting from a change
in LTIR
Mutual & Federal generated an underwriting surplus of R109 million, down 22%
from the surplus of R140 million in the first half of 2006. The combined ratio
(the ratio of claims, commissions and expenses to net earned premiums)
increased to 97.1% (H1 2006: 96.1%), mainly as a result of the increase in the
claims ratio from 63.6% to 68.8%. This was a result of large fire claims, the
ongoing increase in the frequency and severity of motor claims and high levels
of weather-related claims. The 2007 underwriting results have been favourably
impacted by a release of R48 million (2006: R36 million) from a reduction in
technical reserves following further refinements of estimation methods for
technical reserves. Whilst trading conditions in the commercial environment
remain favourable, rates in the personal market remain soft.
Solvency ratio
The solvency ratio has reduced to 49% following the payment of a special
dividend of R2.1 billion in September 2006.
Adjusted operating profit and return on capital
The adjusted operating profit includes R121 million arising from a change in
the long-term investment return rate from 11.1% to 15.6%. This, together with
the special dividend paid in 2006 has contributed to the increase in the return
on capital from 20.4% in 2006 to 31.7% in 2007.
UNITED STATES
Strong asset growth and excellent investment performance continues
Life sales and new business margins on target
Highlights (GBPm) H1 2007 H1 2006* % Change
IFRS-adjusted operating profit 106 137 (23%)
EV-adjusted operating profit (covered
business) (53) 67 (179%)
Life assurance sales (APE) 146 120 22%
Mutual fund/Unit Trust sales 1 126 862 31%
Net client cash flows (GBPbn) 9.2 5.7* 61%
Highlights ($m) H1 2007 H1 2006* % Change
IFRS-adjusted operating profit 209 245 (15%)
EV-adjusted operating profit (covered
business) (105) 120 (188%)
Life assurance sales (APE) 288 215** 34%
Mutual fund/unit trust sales 2 219 1 543 44%
Net client cash flows ($bn) 18.2 10.2* 78%
Highlights H1 2007 FY 2006 % Change
Funds under management (GBPbn) 158 140 13%
Funds under management ($bn) 318 274 16%
* 2006 comparative information restated to include OMAM (UK), and excludes fund
flows related to eSecLending, sold in 2006
** Restated due to change in US Life APE methodology
Our US business achieved excellent net client cash flows and sales growth
during the first half of 2007, driving funds under management to $318 billion,
16% higher than at 31 December 2006. The business continues to benefit from
good investment performance, wider style capabilities and enhanced
distribution. Our coordinated retail distribution strategy has made good
progress.
IFRS-adjusted operating profit in local currency declined 15% due to the impact
of modelling changes made as part of our previously announced, and now
completed, actuarial review process. Full details of the IFRS and EEV effects
are detailed on page 33 of the full results announcement. Excluding these
items, as well as an $18 million one-off benefit in the life business in the
first half of 2006, adjusted operating profit increased 19%. This was due
largely to strong growth in the asset management business driven by positive
markets and continued strength in net cash flows. Exchange rate depreciation
of 9%,since 30 June 2006, has had a negative impact on the Sterling
equivalent results.
US ASSET MANAGEMENT
Strong net client cash flows and improved profitability
Highlights ($m) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 149 116 28%
Mutual fund / unit trust sales 2 219 1 543 44%
Net client cash flows ($bn) 17.2 9.9* 74%
Operating margin 28% 25%
Highlights ($bn) H1 2007 FY 2006 % Change
Funds under management 315 274 15%
* 2006 comparative information has been restated to include OMAM (UK), and
excludes fund flows related to eSecLending, which was sold in 2006
$17.2 billion in net client cash flows and 15% growth in funds under management
for the half-year.
Net fund inflows of $17.2 billion have been achieved year to date, driven by
sustained momentum at Acadian and Rogge in particular. Strong investment
performance, net fund inflows and the acquisition of Ashfield resulted in an
overall increase in funds under management of $41 billion during the first half
of 2007.
Expanding the business
We continue to be pleased by progress made on our retail initiative, with
Old Mutual Capital mutual fund sales increasing 29% to $887 million versus the
corresponding period last year. OMAM (UK) unit trust sales increased 56% to
$1 332 million for the half (H1 2006: $855 million), benefiting from
investment made during 2006 to enhance the product offering and distribution
capabilities of the business.
IFRS-adjusted operating profit up 28%
Adjusted operating profit for the first half increased $33 million compared to
the corresponding period in 2006, driven by higher average asset values as a
result of strong net fund inflows and positive markets. The operating margin
has also improved in line with our expectations, benefiting from the increased
asset base and the resulting economies of scale.
Investment performance continues to show strength versus our peers
Our member firms continue to deliver excellent investment performance. At
30 June 2007, 93% and 95% of assets outperformed their benchmarks over three
and five years respectively. 82% and 83% of assets ranked in the first quartile
of their peer group over the same period.
US LIFE
Continuation of strong sales and margins on target
Highlights ($m) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 60 129 (53%)
Return on equity 3.4% 7.9%
EV-adjusted operating profit (105) 120 (188%)
Return on EV 0.9% 9.2%
Life assurance sales (APE) 288 215* 34%
Value of new business 55 40 38%
New business margin 19% 19%*
PVNBP 2 661 1 932 38%
Highlights ($bn) H1 2007 FY 2006 % Change
Funds under management 23 22 5%
* Restated due to change in US Life APE methodology
One-offs impair an otherwise positive result
IFRS- and EV-adjusted operating profit and return on equity have decreased
compared to the first half of 2006, due to the provisions described on page 33
of the full results announcement and the non-recurring income in the first half
of 2006 of $18 million. Excluding these impacts, adjusted operating profit was
up 8%, driven by higher average asset levels.
Total life sales were $2.5 billion on a gross basis and $288 million on an APE
basis, a 34% increase over the same period last year. Sales by Old Mutual
Bermuda were the largest contributors to the increase over prior year.
Offshore sales through Old Mutual Bermuda increased by 133% to $126 million
(APE) compared to the same period last year and represented 44% of APE sales in
our US life business. Attractive product offering and successful expansion of
distribution relationships are the major factors creating the growth
opportunity.
Funds under management at the end of the half were up 5% with strong sales
offsetting surrenders of a large block of Multi-Year Guaranteed Annuities
reaching the end of their guarantee period.
The business remains on track to return cash in 2007.
Margin on target
The new business margin of 19% is healthy and in line with the target. This
reflects strong investment performance, a higher volume of profitable
Old Mutual Bermuda business, and improvements in life insurance pricing over
the prior year.
Effective financial management and risk control - update on progress and
assumption changes
As previously announced, in the first half we continued to undertake an
actuarial review to deal with the specific issues which we disclosed last year.
As committed, we have made allowance for and disclosure of these and other
items covered by the review.
Firstly, in our first quarter results announcement, we highlighted continued
negative mortality (annuitant longevity) experience as the primary source of
losses in our Single Premium Immediate Annuity (SPIA) block of business. Based
on the actuarial review findings and continued negative mortality experience,
the decision has been taken to revise assumptions on the SPIA line. As a result
of this assumption change, European Embedded Value Adjusted operating profit
for the covered business for the first half was negatively impacted by
$131 million post-tax. Sufficient margins in other lines of business in US Life
preclude taking a charge for IFRS because margins are aggregated at the
consolidated US Life level under IFRS.
Secondly, through the actuarial work, we have revised the modelling of spreads
under Fixed Indexed Annuity contracts and are now assuming fixed spreads,
instead of a variable spreads, in line with normal actuarial practice in the
US. As a consequence, the IFRS loss is $40 million pre-tax and the EV loss is
$34 million post-tax.
Finally, there are other modelling changes. The IFRS loss for these changes is
$20 million pre-tax and the EV loss is $20 million post-tax. The number of
changes is large, both positive and negative, and our belief is that we have
used suitable best estimates to account for the effects of these model changes.
We have now made the changes we intend to make arising from this project.
OTHER
Pro forma*
Highlights (GBPm) H1 2007 H1 2006 % Change
IFRS-adjusted operating profit 2 1 100%
Australia unit trust/mutual funds sales 318 300 6%
Australia institutional sales 82 - n/a
Skandia:BSAM (China) Gross Premiums ** 53 18 194%
KMOM (India) Gross Premiums ** 82 64 28%
* The 2006 numbers are a pro forma result assuming ownership for 12 months
rather than 11 months
** This represents 100% of the businesses; OM owns 50% of Skandia:BSAM and 26%
of KMOM
Highlights (GBPbn) H1 2007 FY 2006 % Change
Funds under management*** 7 6 14%
*** Excludes KMOM
GBP exchange rates AUD RMB INR
Closing 2.36 15.28 81.63
YTD Average 2.44 15.23 84.15
Australia
Skandia Group Australia consists of retail mutual funds (ASL) and institutional
investment funds (Intech). After breaking even for the first time in 2006, the
business posted a profit of GBP1.2 million (AUD2.9 million) for the first half
of
2007 and is on course to achieve improved profits in 2007. In June, funds under
management closed at AUD15.4 billion (FY 2006: AUD14.2 billion), consisting of
retail AUD5.8 billion and institutional AUD9.6 billion. Integration of the
Intech business, acquired late 2006, is now substantially complete.
China
Skandia:BSAM, our 50:50 joint venture with the Beijing State-owned Asset
Management Company (BSAM) in China, is now in its third full year of operation
and continues to show strong sales growth. The business sells unit-linked
products and has licences to operate in Beijing, Shanghai and Jiangsu Province.
Plans are under way to apply for a provincial licence and to open another two
city sub branches in Jiangsu Province before the end of the year. For the six
months ended 30 June 2007 Skandia:BSAM reported a loss of RMB27.7 million.
Despite its recent entry into the market, of the 25 foreign owned joint venture
insurance companies in China, Skandia:BSAM had the seventh largest gross
premium flows (up two places from the previous quarter) including second place
in Beijing.
India
Kotak Mahindra Old Mutual Life Insurance Ltd (KMOM), our joint venture with the
Kotak Mahindra Group, continues to show steady progress. Old Mutual has the
option to increase its share in this business to 49% if and when the Indian law
allows the cap of 26% to be lifted. The business now has 79 branches in 51
cities across India, with more than 3 300 employees. In line with the Kotak
Mahindra Group, KMOM has a 31 March year-end. The business recorded a deficit
for the three months ended 30 June 2007 of INR246.6 million.
Independent Review Report by KPMG Audit Plc to Old Mutual plc
Introduction
We have been instructed by Old Mutual plc (`the Company`) to review the
financial information for the six months ended 30 June 2007 which comprises the
Consolidated income statement, Consolidated balance sheet, Consolidated cash
flow statement, Statement of changes in equity and the related notes (the
`Financial Information`) as set out on pages 36 to 73 of the full results
announcement and to review the European Embedded Value basis supplementary
information for the six months ended 30 June 2007 as set out on pages 74 to 99
of the full results announcement (the `Supplementary Information`).
The Supplementary Information has been prepared in accordance with the European
Embedded Value Principles issued in May 2004 by the European CFO Forum and
supplemented by the Additional Guidance on European Embedded Value Disclosures
issued in October 2005 (together the `EEV Principles`) and using the
methodology and assumptions set out on page 82 and pages 94 to 98 of the full
results announcement.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with either the Financial Information or the Supplementary
Information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Financial Services Authority and also to provide a review
conclusion to the Company on the Supplementary Information. Our reviews have
been undertaken so that we might state to the Company those matters we are
required to state to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company for our review work, for this report, or for the
conclusions we have reached.
Directors` responsibilities
The interim report, including the Financial Information and the Supplementary
Information contained therein, is the responsibility of, and has been approved
by, the directors. The Directors are responsible for preparing the Financial
Information in accordance with the Listing Rules of the Financial Services
Authority which require that the accounting policies and presentation applied
to the interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed. The Directors have accepted responsibility for
preparing the Supplementary Information in accordance with the EEV Principles
and for determining the assumptions used in the application of those
principles.
Review work performed
We conducted our review of the Financial Information in accordance with
guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board
for use in the United Kingdom. We conducted our review of the Supplementary
Information having regard to that Bulletin. A review consists principally of
making enquiries of Group management and applying analytical procedures to the
Financial Information, the Supplementary Information and underlying financial
data and based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the Financial Information or
the Supplementary Information.
Review conclusion
On the basis of our reviews we are not aware of any material modifications that
should be made either to the Financial Information or to the EEV basis
Supplementary Information as presented for the six months ended 30 June 2007.
KPMG Audit Plc
Chartered Accountants, 8 Salisbury Square, London, EC4Y 8BB
10 August 2007
Consolidated Income Statement
for the six months ended 30 June 2007
GBPm
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2007 2006 2006
Revenue
Gross earned premiums 3(iii) 2,504 2 411 4 713
Outward reinsurance (153) (129) (267)
Net earned premiums 2 351 2 282 4 446
Investment income (net of
investment losses) 5 427 3 775 10 439
Banking interest and
similar income 1 450 1 190 2 441
Fee and commission
income, and income from
service activities 1 148 1 030 2 171
Other income 124 127 324
Share of associated
undertakings` profit
after tax 2 3 6
Total revenues 10 502 8 407 19 827
Expenses
Claims and benefits
(including change in
insurance contract
provisions) (3 681) (3 782) (7 958)
Reinsurance recoveries 120 109 245
Net claims and benefits
incurred (3 561) (3 673) (7 713)
Change in provision for
investment contract
liabilities (2 877) (832) (4 655)
Losses on loans and
advances (74) (73) (123)
Finance costs (including
interest and similar
expenses) (47) (42) (91)
Banking interest expense (928) (712) (1 461)
Fees and commission
expense, and other
acquisition costs (407) (358) (717)
Other operating and
administrative expenses (1 313) (1 370) (2 773)
Change in third party
interest in consolidation
of funds (220) (453) (278)
Goodwill impairment 4(ii) (1) (2) (8)
Amortisation of PVIF and
other acquired
intangibles (183) (174) (379)
Profit on disposal of
subsidiaries, associated
undertakings and
strategic investments 4(iii) 7 97 85
Total expenses (9 604) (7 592) (18 113)
Profit before tax 898 815 1,714
Income tax expense 5(i) (287) (296) (621)
Profit for the financial
period 611 519 1 093
Profit for the financial
period attributable to:
Equity holders of the
parent 483 380 836
Minority interests
Ordinary shares 104 113 207
Preferred securities 24 26 50
Profit for the financial
period 611 519 1 093
Pence
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Earnings per share 2007 2006 2006
Basic earnings
per ordinary share 6(i) 9.6 8.0 17.0
Diluted earnings
per ordinary share 6(i) 9.0 7.5 16.1
Dividend per
ordinary share 4.15 3.65 5.75
Weighted average
number of shares
- millions 6(i) 4 880 4 547 4 705
Adjusted Operating Profit
for the six months ended 30 June 2007
Reconciliation of adjusted operating profit to profit after tax
GBPm
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2007 2006 2006
South Africa 3(ii) 608 591 1 118
United States 3(ii) 106 137 264
Europe 3(ii) 129 126 239
Other 3(ii) 2 1 1
845 855 1 622
Finance costs (69) (64) (130)
Other shareholders`
expenses (19) (20) (33)
Adjusted operating
profit* 757 771 1 459
Adjusting items 4(i) 35 (40) 16
Profit for the
financial
period before tax 792 731 1 475
Total income
tax expense 5(i) (287) (296) (621)
Income tax
attributable to
policyholder returns 106 84 239
Profit for the financial
period after tax 611 519 1 093
Adjusted operating profit after tax attributable to ordinary equity holders
GBPm
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2007 2006 2006
Adjusted
operating profit* 757 771 1 459
Tax on adjusted
operating
profit 5(iii) (177) (196) (395)
580 575 1 064
Minority interest -
ordinary shares (114) (119) (224)
Minority
interest - preferred
securities (24) (26) (50)
442 430 790
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2007 2006 2006
Adjusted weighted
average number
of shares -
millions 6(ii) 5 407 5 063 5 222
Adjusted
operating
earnings per
share** - pence 6(ii) 8.2 8.5 15.1
* For long-term and general insurance business, adjusted operating profit is
based on a long-term investment return, includes investment returns on life
funds` investments in Group equity and debt instruments and is stated net of
income tax attributable to policyholder returns. For all businesses, adjusted
operating profit excludes goodwill impairment, the impact of acquisition
accounting, the impact of closure of unclaimed share trusts, profit/(loss) on
disposal of subsidiaries, associated undertakings and strategic investments and
dividends declared to holders of perpetual preferred callable securities
** Adjusted operating earnings per ordinary share is calculated on the same
basis as adjusted operating profit. It is stated after tax attributable to
adjusted operating profit and minority interests. It excludes income
attributable to Black Economic Empowerment trusts of listed subsidiaries. The
calculation of the adjusted weighted average number of shares includes own
shares held in policyholders` funds and Black Economic Empowerment trusts
Consolidated Balance Sheet
at 30 June 2007
GBPm
At At At
30 June 30 June 31 December
Notes 2007 2006 2006
Assets
Goodwill and other intangible assets 5 340 5 444 5 367
Investments in associated undertakings 100 56 83
Investment property 946 728 804
Property, plant and equipment 493 476 499
Deferred tax assets 574 536 511
Reinsurers` share of insurance contract
provisions 792 819 763
Deferred acquisition costs 1 908 1 419 1 578
Current tax receivable 103 74 60
Loans, receivables and advances 24 373 20 530 22 804
Derivative financial instruments -
assets 734 1 280 1 238
Financial assets fair valued through
income statement 78 192 66 432 73 065
Other financial assets 12 422 12 235 11 568
Short-term securities 1 347 911 1 819
Other assets 3 595 3 526 3 635
Assets held-for-sale 8 573 1 168 1 165
Cash and balances with the Central Banks 3 114 2 078 2 951
Placements with other banks 870 720 665
Total assets 135 476 118 432 128 575
Liabilities
Insurance contract provisions 22 846 21 751 22 495
Financial liabilities fair valued
through income statement 62 680 52 004 57 586
Third party interests in consolidation
of funds 3 589 2 261 3 041
Borrowed funds 9 1 833 2 203 1 676
Provisions 519 371 542
Deferred revenue 406 207 311
Deferred tax liabilities 1 443 1 259 1 393
Current tax payable 220 229 283
Amounts owed to other depositors 25 547 22 643 25 052
Derivative financial instruments -
liabilities 971 1 241 1 060
Liabilities held-for-sale 8 553 1 105 1 107
Other liabilities 5 928 4 680 5 266
Total liabilities 126 535 109 954 119 812
Net assets 8 941 8 478 8 763
Shareholders` equity
Equity attributable to equity holders
of the parent 7 359 6 932 7 237
Minority interests
Ordinary shares 879 868 848
Preferred securities 703 678 678
Total minority interests 1 582 1 546 1 526
Total equity 8 941 8 478 8 763
Consolidated Cash Flow Statement
for the six months ended 30 June 2007
GBPm
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2007 2006 2006
Cash flows from operating
activities
Profit before tax 898 815 1 714
Non-cash movements in
profit before tax (1 404) (1 454) (3 421)
Changes in working capital 2,646 6,895 8 326
Taxation paid (303) (172) (317)
Net cash inflow from
operating activities 1 837 6 084 6 302
Cash flows from investing
activities
Acquisitions of financial
investments (1 786) (6 568) (4 294)
Disposal/(acquisition)
of investment properties 15 (37) (4)
Net acquisition of
tangible fixed assets (50) (33) (120)
Net acquisition of
intangible fixed assets (34) (17) (39)
Acquisition of interests
in subsidiaries,
associated undertakings
and Strategic investments (175) (1 351) (1 318)
Disposal of interests in
subsidiaries, associated
undertakings and
strategic investments 1 113 78
Net cash outflow from
investing activities (2 029) (7 893) (5 697)
Cash flows from financing
activities
Dividends paid to:
Equity holders of the
Company 7 (218) (174) (282)
Equity minority interests
and preferred security
interests (88) (82) (199)
Interest payable
(excluding banking
interest payable) (25) (43) (52)
Net proceeds from issue
of ordinary shares
(including by
subsidiaries
to minority interests) 199 17 52
Receipts from unclaimed
shares trust 90 - -
Issue of subordinated debt 430 264 297
Other debt (repaid)/ issued (277) 404 (96)
Net cash inflow /
(outflow) from financing
activities 111 386 (280)
Net (decrease)/increase
in cash and cash
equivalents (81) (1 423) 325
Effects of exchange rate
changes on cash and cash
equivalents (45) (405) (575)
Cash and cash equivalents
on acquisition of new
subsidiaries - 581 581
Cash and cash equivalents
at beginning of the period 3 634 3 303 3 303
Cash and cash equivalents
at end of the period 3 508 2 056 3 634
Consisting of:
Cash and balances with
the Central Banks 3 114 2 078 2 951
Placements with other
banks 870 720 665
Other cash equivalents 671 346 1 101
Cash and cash equivalents
subject to consolidation
of funds (1 147) (1 088) (1 083)
Total 3 508 2 056 3 634
Cash flows presented in this statement include all cash flows relating to
policyholders` funds for the long-term business. Cash and cash equivalents
subject to consolidation of funds are not included in the cash flow as they
relate to the minority holding in the funds.
Statement of Changes in Equity
for the six months ended 30 June 2007
Millions
Number of Attributable to
shares issued equity holders of
Six months ended 30 June 2007 Note and fully paid the parent
Equity holders` funds at
beginning of the period 5 501 7 237
Change in equity arising in
the period
Fair value gains/(losses):
Property revaluation - 5
Net investment hedge - 31
Available-for-sale investments - (177)
Shadow accounting - 93
Currency translation
differences/exchange differences on
translating foreign operations - (162)
Other movements - (16)
Aggregate tax effect of items
Taken directly to or transferred
from equity - 29
Net expense recognised
directly in equity - (197)
Profit for the period - 483
Total recognised income and
expense for the period - 286
Dividend for the period 7 - (240)
Net sale of treasury shares - 55
Issue of ordinary share
capital by the Company - -
Net acquisition of interests
in subsidiaries - -
Exercise of share options 4 3
Fair value of equity-settled
share options - 18
Equity holders` funds at end
of the period 5 505 7 359
GBPm
Total minority Total
Six months ended 30 June 2007 interest equity
Equity holders` funds at beginning of the period 1 526 8 763
Change in equity arising in the period
Fair value gains/(losses):
Property revaluation - 5
Net investment hedge - 31
Available-for-sale investments - (177)
Shadow accounting - 93
Currency translation differences/
exchange differences on
translating foreign operations (33) (195)
Other movements (4) (20)
Aggregate tax effect of items taken
directly to or transferred from equity - 29
Net expense recognised directly in equity (37) (234)
Profit for the period 128 611
Total recognised income and expense for the period 91 377
Dividend for the period (70) (310)
Net sale of treasury shares - 55
Issue of ordinary share capital by the Company - -
Net acquisition of interests in subsidiaries 35 35
Exercise of share options - 3
Fair value of equity-settled share options - 18
Equity holders` funds at end of the period 1 582 8 941
GBPm
Share Share Other
Six months ended 30 June 2007 Note capital premium reserves
Attributable to equity holders of
the parent at beginning of the period 550 746 2 901
Changes in equity arising in the
period:
Fair value gains/(losses):
Property revaluation - - 5
Net investment hedge - - -
Available-for-sale investments - - (177)
Shadow accounting - - 93
Currency translation differences/exchange
differences on translating
foreign operations - - -
Other movements - - (12)
Aggregate tax effect of items
taken directly to
or transferred from equity - - 27
Net expense recognised directly
in equity - - (64)
Profit for the period - - -
Total recognised income and
expense for the period - - (64)
Dividend for the period 7 - - -
Net sale of treasury shares - - -
Issue of ordinary share capital
by the Company - - -
Net acquisition of interests in
subsidiaries - - -
Exercise of share options - 3 -
Fair-value of equity settled
share options - - 18
Attributable to equity holders of
the parent at end of the period 550 749 2,855
Perpetual
preferred
Translation Retained callable GBPm
Six months ended 30 June reserve earnings securities Total
2007
Attributable to equity
holders of the parent
at beginning of the period (421) 2,773 688 7,237
Changes in equity arising
in the period:
Fair-value gains/(losses):
Property revaluation - - - 5
Net investment hedge 31 - - 31
Available-for-sale
investments - - - (177)
Shadow accounting - - - 93
Currency translation
differences/exchange
differences on
translating foreign
operations (162) - - (162)
Other movements - (4) - (16)
Aggregate tax effect of
items taken directly to
or transferred from equity (5) 7 - 29
Net expense recognised
directly in equity (136) 3 - (197)
Profit for the period - 483 - 483
Total recognised income
and expense for
the period (136) 486 - 286
Dividend for the period - (240) - (240)
Net sale of treasury
shares - 55 - 55
Issue of ordinary share
capital by the Company - - - -
Net acquisition of
interests in subsidiaries - - - -
Exercise of share options - - - 3
Fairvalue of equity-
settled share options - - - 18
Attributable to equity
holders of the parent
at end of the period (557) 3 074 688 7 359
GBPm
At
30 June
Other reserves 2007
Merger reserve 2 716
Available-for-sale reserve (33)
Investment property revaluation reserve 48
Share-based payments reserve 124
Attributable to equity holders of the
parent at end of the period 2 855
Retained earnings have been reduced by GBP649 million at 30 June 2007 in respect
of own shares held in policyholders` funds, ESOP trusts, Black Economic
Empowerment trusts and other related undertakings.
Included in the dividend for the period is GBP22 million of dividends declared
to
holders of perpetual preferred callable securities.
Millions GBPm
Number of Attributable to
shares issued equity holders of
Six months ended 30 June 2006 Note and fully paid the parent
Equity holders` funds at
beginning of the period 4 090 4 751
Change in equity arising in
the period
Fair value gains/(losses):
Property revaluation - 2
Net investment hedge - (25)
Available-for-sale investments - (422)
Shadow accounting - 209
Currency translation
differences/exchange
differences on
translating foreign operations - (565)
Other movements - 57
Aggregate tax effect of items
taken directly to or
transferred from equity - 62
Net expense recognised
directly in equity - (682)
Profit for the period - 380
Total recognised income and
expense for the period - (302)
Dividend for the period 7 - (196)
Net purchase of treasury
shares - (13)
Issue of ordinary share
capital by the Company 1 389 2 670
Net acquisition of interests
in subsidiaries - -
Exercise of share options 9 12
Fair value of equity-settled
share options - 10
Equity holders` funds at end
of the period 5 488 6 932
GBPm
Total minority Total
Six months ended 30 June 2006 interest equity
Equity holders` funds at beginning of the period 1,668 6,419
Change in equity arising in the period
Fair value gains/(losses):
Property revaluation - 2
Net investment hedge - (25)
Available-for-sale investments - (422)
Shadow accounting - 209
Currency translation differences/exchange
differences on translating foreign operations (181) (746)
Other movements (61) (4)
Aggregate tax effect of items taken directly to
or transferred from equity - 62
Net expense recognised directly in equity (242) (924)
Profit for the period 139 519
Total recognised income and expense for the period (103) (405)
Dividend for the period (60) (256)
Net purchase of treasury shares - (13)
Issue of ordinary share capital by the Company - 2 670
Net acquisition of interests in subsidiaries 41 41
Exercise of share options - 12
Fair value of equity settled share options - 10
Equity holders` funds at end of the period 1 546 8 478
GBPm
Share Share Other Translation
Six months ended 30 June 2006 Note capital premium reserves reserve
Attributable to equity holders of the
Parent at beginning of the period 410 730 374 357
Changes in equity arising in the
period:
Fair value gains/(losses):
Property revaluation - - 2 -
Net investment hedge - - - (25)
Available-for-sale investments - - (422) -
Shadow accounting - - 209 -
Currency translation differences/
exchange differences on translating
foreign operations - - - (565)
Other movements - - (2) -
Aggregate tax effect of items taken
directly to or transferred from equity - - 52 5
Net expense recognised directly in
equity - - (161) (585)
Profit for the period - - - -
Total recognised income and expense
For the period - - (161) (585)
Dividend for the period 7 - - - -
Net purchase of treasury shares - - - -
Issue of ordinary share capital by
the Company 138 - 2 532 -
Exercise of share options 1 11 - -
Fair value of equity-settled share
options - - 10 -
Attributable to equity holders of the
parent at end of the period 549 741 2 755 (228)
Perpetual
preferred
Retained callable GBPm
Six months ended 30 June 2006 earnings securities Total
Attributable to equity holders of the
parent
at beginning of the period 2,192 688 4,751
Changes in equity arising in the period:
Fair value gains/(losses):
Property revaluation - - 2
Net investment hedge - - (25)
Available for sale investments - - (422)
Shadow accounting - - 209
Currency translation differences/
exchange differences on translating foreign
operations - - (565)
Other movements 59 - 57
Aggregate tax effect of items taken
directly to or transferred from equity 5 - 62
Net expense recognised directly in equity 64 - (682)
Profit for the period 380 - 380
Total recognised income and expense for
the period 444 - (302)
Dividend for the period (196) - (196)
Net purchase of treasury shares (13) - (13)
Issue of ordinary share capital by the
Company - - 2,670
Exercise of share options - - 12
Fair value of equity-settled share options - - 10
Attributable to equity holders of the
Parent at end of the period 2 427 688 6 932
GBPm
At
30 June
Other reserves 2006
Merger reserve 2 716
Available-for-sale reserve (91)
Investment property revaluation reserve 38
Share-based payments reserve 92
Attributable to equity holders of the
parent at end of the period 2 755
Retained earnings have been reduced by GBP724 million at 30 June 2006 in respect
of own shares held in policyholders` funds, ESOP trusts, Black Economic
Empowerment trusts and other related undertakings.
Included in the dividend for the period is GBP22 million of dividends declared
to
holders of perpetual preferred callable securities.
Millions GBPm
Number of Attributable to
shares issued equity holders of
Year ended 31 December 2006 Note and fully paid the parent
Equity holders` funds at
beginning of the year 4 090 4 751
Change in equity arising in
the year
Fair value gains/(losses):
Property revaluation - 28
Net investment hedge - 75
Available for sale investments - (94)
Shadow accounting - 28
Currency translation
differences/exchange
differences on
translating foreign operations - (852)
Other movements - 38
Aggregate tax effect of items
taken directly to or
transferred from equity - 14
Net expense recognised
directly in equity - (763)
Profit for the year - 836
Total recognised income and
expense for the year - 73
Dividend for the year 7 - (321)
Net sale of treasury shares - 18
Issue of ordinary share
capital by the Company 1 400 2 674
Net acquisition of interests
in subsidiaries - -
Exercise of share options 11 14
Fair value of equity settled
share options - 28
Equity holders` funds at end
of the year 5 501 7 237
GBPm
Total minority Total
Year ended 31 December 2006 interest equity
Equity holders` funds at beginning of the year 1 668 6 419
Change in equity arising in the year
Fair value gains/(losses):
Property revaluation - 28
Net investment hedge - 75
Available-for-sale investments - (94)
Shadow accounting - 28
Currency translation differences/exchange
differences on translating foreign operations (208) (1 060)
Other movements (42) (4)
Aggregate tax effect of items taken directly to
or transferred from equity - 14
Net expense recognised directly in equity (250) (1 013)
Profit for the year 257 1 093
Total recognised income and expense for the year 7 80
Dividend for the year (160) (481)
Net sale of treasury shares - 18
Issue of ordinary share capital by the Company - 2 674
Net acquisition of interests in subsidiaries 11 11
Exercise of share options - 14
Fair value of equity-settled share options - 28
Equity holders` funds at end of the year 1 526 8 763
GBPm
Share Share Other
Year ended 31 December 2006 Note capital premium reserves
Attributable to equity holders of
the parent at beginning of the year 410 730 374
Changes in equity arising in the
year:
Fair value gains/(losses):
Property revaluation - - 28
Net investment hedge - - -
Available-for-sale investments - - (94)
Shadow accounting - - 28
Currency translation differences/exchange
differences on translating
foreign operations - - -
Other movements - - (6)
Aggregate tax effect of items
taken directly to or
transferred from equity - - 11
Net expense recognised directly
in equity - - (33)
Profit for the year - - -
Total recognised income and
expense for the year - - (33)
Dividend for the year 7 - - -
Net sale of treasury shares - - -
Issue of ordinary share capital
by the Company 139 3 2 532
Exercise of share options 1 13 -
Fair value of equity-settled
share options - - 28
Attributable to equity holders of
the parent at end of the year 550 746 2 901
Perpetual
preferred
Translation Retained callable GBPm
Year ended 31 December 2006 reserve earnings securities Total
Attributable to equity
holders of the parent at
beginning of the year 357 2 192 688 4 751
Changes in equity arising
in the year:
Fair value gains/(losses):
Property revaluation - - - 28
Net investment hedge 75 - - 75
Available-for-sale
investments - - - (94)
Shadow accounting - - - 28
Currency translation
differences/exchange
differences on
translating foreign
operations (852) - - (852)
Other movements - 44 - 38
Aggregate tax effect of
items taken directly to
or transferred from equity (1) 4 - 14
Net expense recognised
directly in equity (778) 48 - (763)
Profit for the year - 836 - 836
Total recognised income
and expense for the year (778) 884 - 73
Dividend for the year - (321) - (321)
Net sale of treasury
shares - 18 - 18
Issue of ordinary share
capital by the Company - - - 2 674
Exercise of share options - - - 14
Fair value of equity-
settled share options - - - 28
Attributable to equity
holders of the parent at
end of the year (421) 2 773 688 7 237
GBPm
At
31 December
Other reserves 2006
Merger reserve 2 716
Available-for-sale reserve 28
Investment property revaluation reserve 48
Cash flow hedge reserve (1)
Share-based payments reserve 110
Attributable to equity holders of the parent at
end of the year 2 901
Retained earnings have been reduced by GBP704 million at 31 December 2006 in
respect of own shares held in policyholders` funds, ESOP trusts, Black Economic
Empowerment trusts and other related undertakings.
Included in the dividend for the year is GBP39 million of dividends declared to
holders of perpetual preferred callable securities.
Date: 10/08/2007 08:00:41 Produced by the JSE SENS Department.
