| Fri 6 Aug 2010, 7:58 | | OML - Old Mutual plc interim results for the six months ended 30 June 2010 |
|
OML
OLOML
OML - Old Mutual plc interim results for the six months ended 30 June 2010
OLD MUTUAL plc
Issuer code: OLOML
JSE Share code: OML
NSX share code: OLM
ISIN: GB0007389926
Old Mutual plc Interim Results for the six months ended 30 June 2010
Excellent overall performance
Financial Summary H1 2010 H1 2009
Adjusted operating profit before tax (IFRS
basis)* GBP735m GBP513m
Adjusted operating earnings per share (IFRS
basis)** 8.3p 4.9p
Group ROE 11.6% 7.6%
Adjusted MCEV per share 166.6p 171.0p
IFRS book value per share 154p 147p
Net client cash flows (GBP1.6bn) GBP0.2bn
Funds under management GBP292.3bn GBP285.0bn
Interim dividend 1.1p -
FY 2009
Continued strong performance in the first half of 2010
Adjusted operating profit before tax (IFRS basis) up 43%, improved product
mix and tight focus on cost management
- Profits up in all businesses, particularly strong in Wealth Management
- Strong profit improvement in Mutual & Federal and US Asset Management
APE sales up 28% to GBP814 million, momentum from Q4`09 continued in H1`10
for the Long-Term Savings (LTS) division
- Rapid rise in sales on the UK platform, APE sales up 145%
- UK pension sales up 66%, mutual funds doubled and ISA`s up 116%
- South African APE sales up 17%, savings products up 18% with strong single
premiums growth in Retail Affluent
Unit trust sales up 43% to GBP4.6 billion
Net client cash flows negative overall
- Inflows of GBP2.8 billion in LTS, Wealth Management contributed GBP2.3 billion
- Outflows of GBP5.2 billion in US Asset Management
Funds under management up 3% from 31 December 2009
Resilient performance in Nedbank but markets remain tough
Robust financial position
FGD surplus increase to GBP1.7 billion at 30 June 2010 (GBP1.5 billion at 31
December 2009)
Increase in IFRS book value to 154p per share; MCEV 166.6p per share at 30
June 2010
Board declaring 1.1p interim dividend for 2010 with scrip alternative
Good progress on financial targets
Run-rate cost savings of GBP42 million delivered to date against target of
GBP100 million by 2012
On track for 2012 return on equity target of 16% - 18% for LTS business
(excluding US Life)
Sale of US Life operations (see separate announcement)
Sale to Harbinger Capital Partners for $350 million
Transaction lowers Group risk profile
Julian Roberts, Group Chief Executive, commented:
"We are very pleased with our performance in the first half of 2010. Our
operating results were substantially ahead of the comparative period, with
strong sales performance particularly in the South African retail markets and
in Wealth Management.
We are driving change throughout the Group and are making good progress on our
strategy to simplify the Group and improve financial performance. We are today
announcing the sale of US Life to Harbinger and we are also on track to deliver
on our cost reduction and return on equity targets.
We are confident about the outlook for the full year although market
uncertainties remain."
Group Chief Executive`s Review
Old Mutual plc
Interim Results for the six months ended 30 June 2010
Enquiries
External Communications
Patrick Bowes UK +44 (0)20 7002 7440
Investor Relations
Deward Serfontein SA +27 (0)82 810 5672
Aleida White UK +44 (0)20 7002 7287
Media
Don Hunter (Finsbury) UK +44 (0)20 7251 3801
6 August 2010
Sponsor:
Merrill Lynch (South Africa (Pty) Limited
Notes
Unless otherwise stated, wherever the terms asterisked in the Financial
Highlights are used, whether in the Financial Highlights, the Group Chief
Executive`s Statement, the Group Finance Director`s Review or the Business
Review, the following definitions apply:
* For long-term business and general insurance businesses, 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 the US Asset
Management business, it includes compensation costs in respect of certain
long-term incentive schemes defined as non-controlling interests in accordance
with IFRS. For all businesses, adjusted operating profit excludes goodwill
impairment, the impact of acquisition accounting, put revaluations related to
long-term incentive schemes, profit/(loss) on disposal of subsidiaries,
associated undertakings and strategic investments, dividends declared to
holders of perpetual preferred callable securities, and fair value
(profits)/losses on certain Group debt movements.
** 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 non-controlling 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.
Cautionary statement
This announcement has been prepared solely to provide additional information to
shareholders to assess the Group`s strategies and the potential for those
strategies to succeed. It should not be relied on by any other party or for any
other purpose.
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 presentation and Q&A will be broadcast live at 9:00am (BST),
10:00am (CET 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 numbers:
UK 0844 493 3800
US +1 866 966 9439
Sweden 0850 336 434
South Africa (toll-free) 0800 980 759
International +44 1452 555 566
Playback (available for 14 days from 6 August), using pass-code 89787073#:
UK 0845 245 5205
US +1 866 247 4222
International +44 1452 550 000
Copies of these Interim Results, together with high-resolution images and
biographical details of the Executive Directors of Old Mutual plc, are
available in electronic format to download from the Company`s website at
www.oldmutual.com.
A Financial Disclosure Supplement relating to the Company`s Interim Results can
be found on the website. This contains key financial data for 2010 and 2009
Review of Operations
Introduction
Our operating results for the first half of 2010 were substantially ahead of
the comparative period. In both constant currency and sterling terms, profits
were up in each of our core businesses. We generated significantly higher sales
for our capital light equity-based products and we benefited from the
aggressive expense management activity we have been undertaking as part of our
drive to improve business performance. Funds under management grew by 3% during
the period. South African rand, US dollar and Swedish krona exchange rate
movements were also favourable to profit.
The sales momentum seen in the latter part of 2009 continued throughout the
first half of 2010 despite the backdrop of declining markets in the second
quarter. We were particularly encouraged by sales performance in the Retail
markets of South Africa and in Wealth Management where sales on the UK platform
were very strong, demonstrating our market-leading position. We have delivered
higher sales volumes within our strictly controlled capital and risk appetite.
We are managing the business for return on equity and are on track to achieve
both the cost reduction and ROE targets that we set in March 2010.
The Group is in a sound financial shape. At 30 June 2010 our FGD surplus was
GBP1.7 billion and we had total liquidity of GBP1.0 billion.
Long-Term Savings (LTS)
Our LTS division delivered strong results for the period with operating profits
up 50% from H1 2009, largely driven by a profit uplift in Wealth Management and
currency benefits in Emerging Markets and Nordic. Life sales were up 28% over
the comparative period, with sales in the second quarter of 2010 continuing at
the levels of the previous two quarters.
The APE margin remained at 11% and net client cash flows and funds under
management grew considerably during the half-year.
LTS: Emerging Markets
In South Africa our business produced a resilient performance with strong
profitability and a continued high return on equity in very difficult trading
conditions. Sales on an APE basis were up 17% over the comparative period. We
continued to enhance our product offering with very successful product
innovation in the South African single-premium market. As sentiment improved,
we saw the early development of a shift away from risk products in our Retail
Affluent business.
During the period we continued to invest in our distribution capability and as
a result, we grew market share in our core product ranges. We are well
positioned to benefit from the recovery in consumer confidence as economic
growth picks up.
On 2 May we launched iWyze, a new short-term insurance product through a
collaborative effort via a joint venture between OMSA and Mutual & Federal. We
are encouraged by early indications of its success.
In Latin America sales were up 40%, driven largely by enhancements to the
savings product in Mexico. In India sales were up by 11% and in China sales
were up by 13% in local currencies.
Our relationship with our new joint venture partner Guodian has had an
encouraging start. We are developing additional product lines, using new forms
of distribution and accessing new target population bases to take advantage of
the wider Chinese market which continues to grow very rapidly.
LTS: Nordic
The value of new business was up 13% over the comparative period although life
APE sales were down 29% following the effects of increased competition and the
removal of our Link regular product. The corporate market was still subdued.
The APE margin improved to 25%, demonstrating the impact that our strategy of
focusing on pricing products for ROE is having on improving the returns of our
businesses. Total adjusted operating profits were up 142%, also boosted by
private equity gains and improved underwriting profit from our Healthcare
business following the repricing carried out at the end of 2009.
Although economic growth is returning to the region, unemployment is still
relatively high. Sweden`s corporate sector sales continue to be adversely
impacted although there are some indications that this is improving. Mutual
fund sales were strong, up 130% on H1 2009 in part through good product
development but also in line with wider market trends.
We are focused on sustaining our improving margins through continued expense
management, further growth in sales and new product development, including
products designed for direct distribution.
LTS: Retail Europe
There was a strongly positive performance across all measures in Retail Europe
for the period compared to the first half of 2009. Life APE sales were up 9%
with good contributions from Germany and Poland and adjusted operating profit
was up 190%. Unit trust sales were up 17% despite unit-linked markets remaining
soft in Germany and Austria as demand for guarantee products increased.
Overall net client cash flows represented 9% of opening funds under management
on an annualised basis. Funds under management were up 11% from 31 December
2009, supported by our asset mix and improved client investment appetite.
Our drive for cost reduction through eliminating duplication across the LTS
division continues. Work to transfer Retail Europe IT and client administration
functions to South Africa continued throughout the period and is expected to
begin taking effect in the second half of the year. In line with growing
consumer demand, we introduced new single-premium products and we have further
products in development using expertise from South Africa.
LTS: Wealth Management
Investor sentiment was positive in the first half of the year and the falls in
equity markets in the second quarter did not have a noticeable effect on
customer behaviour. Sales, net client cash flows and funds under management all
had positive momentum in the period. Total Wealth Management APE sales
increased 54% over the comparative period with sales in each of the quarters of
the period comfortably exceeding each of the comparative quarters in 2009. Net
client cash inflows for the half-year of GBP2.3 billion were more than three
times H1 2009 and funds under management were up 4% from the start of the year
despite the FTSE 100 being down 9% over the same period.
In the UK, the transition to our platform model continues with transfers from
our own legacy book as well as the transfer by IFAs of client monies from
other in-force books. Clients` investment preferences shifted from more
traditional life products into mutual funds as evidenced by our achievement of
GBP2.2 billion sales in the period, up 71% on H1 2009. We continue to be a
leading UK platform provider with a market share of 7.2% of total sales as at
31 March 2010, based on ABI/Lipper statistics. We are well positioned to
capture the strong anticipated inflows resulting from increased customer demand
for low cost and transparent products and as they look to exit maturing
traditional products such as with-profits bonds and endowments, including our
own.
Owing to our strong distributor relationships, APE sales in Italy increased
significantly as we grew our share of the unit-linked market, while in France
sales remained steady with good growth in the second quarter.
We have launched a significant operational efficiency drive in this business
and will execute the bulk of this during the remainder of the year.
LTS: US Life
H1 2010 was a stable period for US Life. As planned, life APE sales were up 19%
and we maintained strong relationships with the top-tier producing agents
through whom we are now selling more profitable, capital light products. The
APE margin for the period was down at 9% due to the extended low-yield
environment and a lower assumed liquidity premium. The business is now self-
sustaining and delivered stable profits during the first half of 2010 on higher
sales levels and a lower cost base.
No additional capital from the Group was required to support US Life during the
period.
Nedbank
The South African banking industry continued to experience a challenging
operating period in the first half of 2010. Demand for credit grew at
historically low rates and improvements in retail defaulted advances occurred
only slowly as consumers remained under credit-related pressure.
Nedbank`s adjusted operating profit improved by 6% and non-interest revenue
including the consolidation of the Bancassurance and Wealth joint ventures grew
by 15% to R6.2 billion. Net interest income declined 1% to R8.1 billion.
Nedbank`s credit loss ratio improved to 1.46% for the first half of 2010, its
liquidity position remains sound and its capital ratios remain above target
levels. The Tier 1 capital adequacy ratio remained steady from that at
31 December 2009 at 11.5%, and the total capital adequacy ratio ended the period
at 14.8%.
M&F
Mutual & Federal`s underwriting result improved significantly during the period
due to our success in implementing pricing increases and an overall improvement
in the underlying quality of the insurance business following the cancellation
of certain unprofitable portfolios.
We have completed our strategic review of the business and are now beginning to
implement measures to improve efficiency, reduce expenses and improve business
returns. We are preparing the business for the next stage of development
including developing innovative products in the face of high levels of
competition in the industry, continuing to build niche specialities for the
broker model and increasing the use of technology to react to regulatory
changes in distribution models and improve returns.
US Asset Management
Although market conditions in 2010 were volatile, our drive for more profitable
growth in our US Asset Management business is producing good results. Our
diversified asset mix between equities, fixed income and alternatives helped us
withstand the market volatility. While we incurred net client cash outflows,
impacting funds under management for the period, this was partly due to large
Real Estate Investment Trust outflows as investors realised assets after
significant investment returns.
On 13 July OMAM announced that it agreed to acquire an international equity
portfolio management team from Invesco to form a new OMAM affiliate, Echo Point
Investment Management, in Pennsylvania, US. This will extend our capabilities
in international equities and further diversify our boutiques. Another of
OMAM`s boutiques, Thomson Horstmann & Bryant is in the process of transferring
ownership through a management buy-out.
Non-US clients represented 26% of total funds under management at 30 June 2010
and a key objective is to grow and diversify this client base by expanding our
international distribution capability and ability to capture new assets.
We continue to prepare the business for a partial IPO by the end of 2012.
Management changes
On 27 July 2010 Mutual & Federal announced the retirement of Keith Kennedy as
CEO of the company to be effective after a transition period.
Today we announce that Bertil Hult, CEO of Skandia Nordic, has advised that he
wishes to step down from his role within the next 12 months.
During the period, Diane Radley, Finance Director of our OMSA business, was
appointed as Chief Executive of Old Mutual Investment Group South Africa. The
appointment will be effective from 1 January 2011.
Recruitment processes are in place in order to find suitable successors for
these roles.
Dividend
The Board has considered carefully the position in respect of an interim
dividend for the six months ended 30 June 2010, and has declared a dividend of
1.1p per share (or its equivalent in other currencies). As for the 2009 final
dividend, a scrip alternative will be offered to eligible shareholders.
Outlook
We are confident about the outlook for the full year although market
uncertainties remain.
Julian Roberts
Group Chief Executive
6 August 2010
Group Finance Director`s Review
GROUP RESULTS
Overview of H1 2010 results
Group Highlights (GBPm) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis,
pre-tax)* 735 513 43%
Adjusted operating earnings per share
(IFRS basis)* 8.3p 4.9p 69%
Life assurance sales - APE basis* 814 634 28%
Unit trust/mutual fund sales 4 553 3 192 43%
Return on equity (annualised)* 11.6% 7.6%
Net client cash flows (GBPbn) (1.6) 0.2 n/a
Funds under management (GBPbn) 292.3 285.0** 3%
Interim dividend 1.1p -
* In line with our AOP policy, Bermuda is treated as a non-core business, and
so is excluded from AOP.
** FY 2009
ROE is calculated as IFRS AOP (post-tax) divided by average shareholders`
equity of core businesses (excluding the perpetual preferred callable
securities)
During the six months ended 30 June 2010 ("H1 2010" or "the period") Old Mutual
delivered an improved performance on the six months ended 30 June 2009 ("H1
2009" or "the comparative period") and on the second half of 2009 ("H2 2009") .
Adjusted operating profit ("AOP") earnings per share were 8.3p for H1 2010
compared to 4.9p for H1 2009 and 7.2p for H2 2009. Positive funds under
management growth was experienced compared to the first half of 2009, and
marginally up on the full year 2009 balance largely due to improved market
conditions. Return on equity (on an annualised basis) grew to 11.6%.
IFRS AOP on a pre-tax basis for H1 2010 of GBP735 million was GBP222 million
higher than H1 2009. This was due to strong growth in new business sales,
favourable exchange rate movements in South African rand and Swedish krona,
lower credit losses in South African banking, a continued focus on overall cost
control, improved persistency and higher asset management profits in South
Africa and the US. Lower earnings on Group capital, and increased financing
costs were also experienced. Of the 43% increase in AOP, 61% was generated from
improved trading, and 39% was the benefit of currency movements. Sales for the
second quarter of 2010 were ahead of the first quarter for Emerging Markets,
mainly due to seasonal factors, but were slightly lower than the first quarter
of 2010 for the UK, Italy and France in Wealth Management, and in Retail
Europe.
Net client cash flows ("NCCF") were positive across the Long-Term Savings
("LTS") business as a whole, and in all our European businesses and in our
Retail South African businesses, but were off-set by outflows in Emerging
Markets, notably OMIGSA and in the institutional business, and in certain
affiliates of USAM.
In the first half of 2010 the volatility of the markets in which the Group
operates was shown by equity market performance in each of the two quarters.
The JSE All Share index rose by 4% in the first quarter and then fell by 9% in
the second quarter. The FTSE-100 rose by 5% in the first quarter, but fell by
13% in the second quarter. The S&P-500 index was up by 5% in the first quarter
but suffered a 12% fall in the second quarter. In terms of currency movements,
the rand started the year at 11.92 against sterling, strengthened to 11.04 at
31 March 2010 and weakened again to 11.45 at 30 June 2010. In contrast, the US
dollar strengthened against sterling by 6% in the first quarter and continued
to rise, by a further 2% to the end of the first half. The combination of these
currency movements had the effect of improving rand and US dollar denominated
earnings, and increasing the sterling value of US dollar denominated debt. The
average exchange rates to sterling over the six-month period were 11.49 and
1.53 for the rand and US dollar respectively.
Management Discussion and Analysis of Results for H1 2010
The principal businesses of the Group are the LTS division, Nedbank, Mutual &
Federal and US Asset Management. During the period, Old Mutual owned on average
54% of Nedbank, and at 30 June 2010 the market capitalisation of Nedbank was
GBP5.1 billion. The results for each of the LTS businesses, Nedbank, Mutual &
Federal and US Asset Management are discussed separately in the Business Review
which follows this Report.
Summary adjusted operating profit statement
6 months 6 months
ended ended
30 June 30 June %
2010 2009 change
GBPm
Revenue
Net earned premiums 2 002 1 630 23%
Investment return (non-banking) 1 667 1 704 (2%)
Banking interest and similar income 2 005 2 112 (5%)
Fee and commissions 1 471 1 175 25%
Other revenue 161 102 58%
Total revenues 7 306 6 723 9%
Expenses
Net claims and benefits incurred (1 789) (1 070) (67%)
Change in investment contract liabilities (876) (1 140) 23%
Bank interest (1 243) (1 443) 14%
Other expenses (2 665) (2 557) (4%)
Total expenses (6 573) (6 210) (6%)
Share of associated undertakings
profit/(loss) after tax 2 -
Adjusted operating profit/(loss) before tax
and non-controlling interests 735 513 43%
The 23% increase in net earned premiums reflects the growth in new business
sales between the periods and fee and commission income growth benefits from
the increase in FUM over the period. The movement in investment returns across
the life businesses are broadly off-set by corresponding movements in the
insurance and investment contract liabilities. The reduction in banking
interest reflects the lower interest rate environment. Other expenses grew by
4% over the period, reflecting increased levels of new business written and FX
movements (primarily the strengthening of the rand).
Group net margin (on an assets x margin basis) increased by seven basis points
over the period from 35bps to 42bps. Of this, three basis points came from the
European LTS businesses, whose uplift in profits exceeded the increase in asset
growth, and one basis point came from Emerging Markets where the decline in
LTIR rate was more than off-set by underlying profit growth in excess of growth
in assets. The increase in profit from the non-LTS businesses resulted in a
further one basis point increase in the Group net margin, and the reduced Plc
net debt charge since the first half of 2009, combined with a higher asset
base, resulted in an increase of two basis points.
Operating profit analysis
H1 2009 Constant
GBPm H1 2010 as reported currency change
Long-Term Savings 477 317 32%
Nedbank 266 211 6%
33 20 32%
Mutual & Federal
US Asset Management 40 30 33%
Finance costs (68) (47) (45%)
LTIR on excess assets 16 46 (65%)
Interest payable to non-core
operations (18) (21) 14%
Other expenses (11) (43) 74%
Adjusted operating profit 735 513 22%
The GBP222 million increase in AOP relative to the comparative period was made
up of GBP134 million (61%) due to improvement in trading results, and GBP88
million (39%) from the positive benefit of currency movements. On a constant
currency basis, the AOP for the first half of 2009 was GBP601 million.
Finance costs increased mainly as a result of interest paid on the GBP500
million seven-year 7.125% fixed rate senior bond placed in October 2009. The
decline in other expenses is mainly attributable to a change in the allocation
of project costs across the Group, and to a stamp duty reserve tax refund
received in the first half of the year.
Long-term investment return
The LTIR on the excess assets decreased from GBP46 million to GBP16 million.
This was a result of the reduction in the rate applied to OMLAC(SA) assets
within Emerging Markets and M&F to 9.4% reflecting the expected asset mix of
25% equities and 75% cash, and the reduction in the underlying shareholder
asset base.
Reconciliation of Group AOP and IFRS profits
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009* 2009
Adjusted operating profit 735 513 1 170
Adjusting items (238) (354) (1 137)
Non-core operations -
Bermuda (54) (24) 22
Profit before tax (net of
policyholder tax) 443 135 55
Income tax attributable to
policyholder returns - 25 192
Profit before tax 443 160 247
Total income tax
Profit/(loss) after tax for (63) (133) (365)
the financial period 380 27 (118)
Other comprehensive income 430 161 1 228
for the financial period
Total comprehensive income
for the financial period 810 188 1 110
Attributable to
Equity holders of the parent 640 1 709
Non-controlling interests
Ordinary shares 139 151 334
Preferred securities 31 36 67
Total comprehensive income
for the financial period 810 188 1 110
* Interim 2009 results have been restated to show Bermuda as a non-core
operation.
The key adjusting items between our AOP and IFRS profits for the first six
months of 2010 are deductions of GBP102 million in respect of acquisition
accounting, GBP66 million for short-term fluctuations in investment return, and
GBP90 million reversing previous mark-to-market gains on issued Group debt, as
the improvement in the external position of Group debt in the period is
deducted from IFRS profits. Other adjustments net to GBP20 million.
On an IFRS basis, the Group produced profit after tax of GBP380 million. In
addition to this the Group generated further value for shareholders of GBP430
million, resulting in an increase in net assets in the period of GBP810
million. The GBP430 million of other comprehensive income came from the
recovery in the value of the US Life and Bermuda bond portfolios and from
favourable currency movements.
Long-Term Savings
Key performance statistics for the LTS division are as follows:
Emerging
H1 2010 Markets Nordic Retail Europe
Life assurance sales (APE) 223 102 32
PVNBP 1 561 553 243
Value of new business 38 25 2
Unit trust/mutual fund sales 1 417 324 12
NCCF (GBPbn) (0.2) 0.4 0.2
FUM (GBPbn) 46.2 11.4 4.3
Adjusted operating profit (IFRS
basis) (pre-tax) 269 58 25
Operating MCEV earnings (covered
business) (post-tax) 144 63 24
Wealth GBPm
H1 2010 Management US Life Total
Life assurance sales (APE) 412 45 814
PVNBP 3 611 432 6 400
Value of new business 31 (4) 92
Unit trust/mutual fund sales 2 207 - 3 960
NCCF (GBPbn) 2.3 0.1 2.8
FUM (GBPbn) 48.8 7.0 117.7
Adjusted operating profit (IFRS
basis) (pre-tax) 95 30 477
Operating MCEV earnings (covered
business) (post-tax) 64 127 422
Emerging
H1 2009 Markets Nordic Retail Europe
Life assurance sales (APE) 165 134 30
PVNBP 1 231 634 228
Value of new business 23 21 (3)
Unit trust/mutual fund sales 1 318 130 11
NCCF (GBPbn) (1.3) 0.5 0.2
FUM (GBPbn) 37.1 8.4 3.4
Adjusted operating profit (IFRS
basis) (pre-tax) 215 22 8
Operating MCEV earnings (covered
business) (post-tax) 110 42 (15)
Wealth GBPm
H1 2009 Management US Life Total
Life assurance sales (APE) 267 38 634
PVNBP 2 231 348 4 672
Value of new business 22 7 70
Unit trust/mutual fund sales 1 291 - 2 750
NCCF (GBPbn) 0.7 (0.1) -
FUM (GBPbn) 38.7 0.3 87.9
Adjusted operating profit (IFRS
basis) (pre-tax) 43 29 317
Operating MCEV earnings (covered
business) (post-tax) 13 259 409
Sales increased across the LTS division, largely as a result of growth in
Wealth Management single-premium pension sales, notably in the UK and Italy,
and continued single-premium sales growth in Emerging Markets, notably in
Retail Affluent. A managed shift in business mix in Nordic was executed with
sales focused on generating better margins. There was modest growth in both
single and recurring premiums in Retail Europe, and US Life sales tracked in
line with management plans for modest growth.
Across LTS as a whole, new business margins have remained stable, with APE
margin of 11% for H1 2010 (H1 2009: 11%), and the PVNBP margin of 1.4% (H1
2009: 1.5%). This reflects the focus on selling more profitable products with
better margins, notably in Nordic, and increased sales of a higher margin
product in Emerging Markets. In Nordic, the APE margin has increased from 16%
to 25%, benefiting from the shift away from low margin product sales such as
Link regular. We expect some reduction in the Nordic margin during the second
half of 2010. Across Wealth Management, the APE margin has remained at 8%, with
the UK seeing a decline from 4% to 2%, and International a decline from 17% to
14%. APE margin in respect of the continental European markets covering Italy
and France is 9%. In Retail Europe, the APE margin has improved considerably to
6% from a negative position in the comparative period.
The market-consistent value of new business (VNB) improved for all of our LTS
businesses, with the exception of US Life where the VNB fell as a result of the
reduction in swap yields and liquidity premium used in the calculation.
Funds under management for LTS at 30 June 2010 were GBP117.7 billion (31
December 2009: GBP112.2 billion; 30 June 2009: GBP87.9 billion) with periods of
substantial market movements during the half year. The UK and US equity
portfolios experienced the greatest volatility with the FTSE-100 down 9.2% and
the S&P-500 down 7.6% from 31 December 2009. These movements impact both
management fees and performance fees. LTS earnings benefited from positive net
client cash flows in H1 2010 with particularly strong inflows in Wealth
Management.
The Emerging Markets business within LTS accounts for 37% of the total IFRS AOP
earnings, 16% of FUM, and 27% of APE sales. This compares to 42% of AOP, 15% of
FUM, and 26% of APE sales in the first half of 2009.
Further discussion on the drivers for the movements within the individual LTS
business units is given in the Business Review.
Group cost savings and ROE and margin targets
At the 2009 Preliminary Results and Strategy Update, the Group introduced
three-year cost saving and return on equity targets. We set out below
performance against those targets and some commentary on progress. The
improvement in ROE has been driven by the achieved cost savings, improved
persistency and the level of FUM during the period being above planned FUM.
External
H1 2010 FY 2009 target
ROE and margin targets
Long-Term Savings1
- Emerging Markets 27%2 24%2 20% - 25%
- Nordic 12% 12% 12% - 15%
- Retail Europe 20% 9% 15% - 18%
- Wealth Management 15% 8% 12% - 15%
LTS3 Total 19.3% 14.9% 16% - 18%
USAM Operating Margin 17% 18% 25% - 30%
1 For Nordic, Retail Europe and Wealth Management, ROE is calculated as IFRS
AOP (post-tax) divided by average shareholders` equity, excluding goodwill,
PVIF and other acquired intangibles.
2 OMSA only, calculated as return on allocated capital where full year 2009 has
been adjusted to the 2010 LTIR rate
3 Long-Term Savings excluding US Life.
We are delivering the reduction in the cost base of our businesses as announced
in March. Wealth Management have made good progress with GBP17 million of
run-rate savings achieved to date against the 2012 target of GBP45 million.
Retail Europe has achieved GBP6 million of run-rate savings as a result of
reduced staff costs and centralisation of functions in Berlin. US Asset
Management delivered around GBP10 million of actual savings in the first half
as a result of restructuring in 2009, and therefore on a run-rate basis, the
business is already exceeding its target. As we continue to grow the business,
we will focus on maintaining the reductions we have achieved to date. An update
on progress will be provided with the 2010 Preliminary Results.
Summary MCEV results
p
Adjusted Group MCEV per share at 31 December 2009 171.0
Adjusted operating Group MCEV earnings per share 10.6
Covered business 8.5
Non-life contribution 2.1
Below-the-line effects (15.0)
Economic variances and other (4.9)
Foreign exchange movements 2.7
Dividends to shareholders (1.9)
Nedbank market value adjustment (2.4)
M&F dilution (7.1)
Marking debt to market and fair value gains/losses on Group debt
instruments (1.4)
Adjusted Group MCEV per share at 30 June 2010 166.6
Adjusted Group MCEV per share for H1 2010 decreased to 166.6p from 171.0p at 31
December 2009. The decrease in the MCEV per share over the 2009 year-end was
primarily as a result of the impact of economic variances (e.g. the decrease in
certain equity markets and increased volatility in the period), and the
dilution as a result of the inclusion of Mutual & Federal in the adjusted Group
MCEV at the IFRS net asset value rather than at market value, and the
associated issue of equity as consideration. This was partly off-set by the
expected existing business contribution from covered business.
Adjusted operating Group MCEV earnings per share for the period of 10.6p were
1.7p (19%) higher than H1 2009, as a result of the increase in the non-covered
business operating earnings of 2.5p, generated from higher profits in the asset
management businesses, due to higher funds under management and fee income,
higher profits in the banking business caused largely by favourable exchange
rate movements and increased fee income, and lower other shareholders` expenses
than incurred in the first six months of 2009. This increase in the non-covered
business was off-set by the 0.8p reduction in covered business operating MCEV
earnings. Significantly higher operating earnings in Emerging Markets, Nordic,
Retail Europe and Wealth Management were off-set by normalising of operating
earnings for US Life and Bermuda. There was a positive contribution from
experience variances, largely attributable to improved persistency experience
relative to the assumption changes that were made at December 2009. This
improvement was assisted by active lapse and surrender management programmes.
In comparison to the first half of 2009, there was a much lower contribution
from methodology changes and error corrections reflected in other operating
variances and a lower expected existing business contribution in US Life and
Bermuda. As a consequence, ROEV of 14.7% has decreased from 14.8% in the
comparative period.
The Group generated GBP246 million of free surplus in the period (FY 2009:
GBP434 million; H1 2009: (GBP158) million), of which GBP276 million (FY 2009:
GBP551 million; H1 2009: GBP137 million) was generated by the LTS division,
and GBP204 million (FY 2009: GBP249 million; H1 2009: (GBP158) million) was
generated from covered business (which includes Bermuda).
Key actuarial and MCEV developments in H1 2010
Total MCEV earnings were adversely impacted by economic variances, compared to
a large positive contribution in 2009. This was mostly attributable to US Life
and Bermuda, and resulted from an increase in interest rate volatility, lower
swap rates, a lower liquidity premium, higher corporate spreads and declining
equity markets. As in the prior year, an adjusted risk free reference rate has
been used in the determination of MCEV for the US Life and Old Mutual Life
Assurance Company (South Africa)`s Immediate Annuities. The adjustment in
respect of liquidity in the period for US Life was 75 basis points (FY 2009:
100 basis points) and for OMLAC(SA) was 50 basis points (FY 2009: 50 basis
points).
The Mutual & Federal minority interests were acquired on 8 February 2010, in
consideration for 147 million Old Mutual plc shares. This transaction diluted
the adjusted Group MCEV per share by 7.1p as a result of a change of the basis
of valuation of Mutual & Federal as an unlisted entity (2.5p), and the
additional shares issued (4.6p). Mutual & Federal is now incorporated in the
adjusted Group MCEV at the IFRS net asset value (30 June 2010: GBP321 million).
Previously it was included at the Group`s share of the market value (31
December 2009: GBP448 million), which was higher than IFRS net asset value (31
December 2009; GBP265 million).
The MCEV methodology does not capitalise returns on assets in excess of the
adjusted risk free reference rates. We have estimated that the present value of
corporate bond spreads not allowed for in the MCEV of US Life amounts to GBP735
million as at H1 2010 (FY 2009: GBP556 million).
Capital, liquidity and leverage
Capital
The Group`s regulatory capital surplus, calculated under the EU Financial
Groups Directive, at 30 June 2010 was GBP1.7 billion. The Group has followed
the FSA`s requirements, and has given it six months advance notice of its right
to call a GBP300 million Lower Tier 2 instrument at the first call date of 21
January 2011. As a result of that notice, the Lower Tier 2 instrument has been
excluded from the regulatory capital surplus calculations as at 30 June 2010.
Notwithstanding such notice, the Board at this time has not made any decision
and is not making any representation to Bondholders as to whether it will call
the bond at the first call date. On a like-for-like basis, the regulatory
capital surplus at 30 June 2010 was GBP2.0 billion (31 December 2009: GBP1.5
billion; 30 June 2009 GBP1.0 billion). This represents a coverage ratio of
147%, compared to 135% at 31 December 2009 and 128% at 30 June 2009. The
increase in the coverage ratio since 31 December 2009 comprises statutory
profits in LTS (Emerging Markets, Nordic and UK) and Nedbank, reduced
resilience risk capital requirement in Bermuda due to the increased hedging of
the equity portfolio and a reduction in Nedbank`s capital requirement
reflecting a change to the "capital floor" regime operated by the South African
Reserve Bank. These positive changes have been partially off-set by increased
capital requirements in Emerging Markets and Namibia and by the payment of
ordinary and preferred dividends.
Our Group regulatory capital, calculated in line with the FSA`s prudential
guidelines, is structured in the following way:
H1 2010 % H1 2009 %
Ordinary equity 4 228 69 3 082 66
Other Tier 1 equity 623 10 592 13
Tier 1 capital 4 851 79 3 674 79
Tier 2 2 584 42 2 537 55
Deductions from total capital (1 351) (21) (1 565) (34)
Total capital 6 084 100 4 646 100
FY GBPm
2009* %
Ordinary equity 4 171 71
Other Tier 1 equity 611 10
Tier 1 capital 4 782 81
Tier 2 2 562 44
Deductions from total capital (1 497) (25)
Total capital 5 848 100
* FY 2009 restated to reflect actual FSA submission
Tier 1 capital includes GBP183 million of hybrid debt capital reported for
accounting purposes as minority interests and Tier 2 includes GBP338 million of
capital hybrid debt, which is reported as Group preference shares, as well as
the GBP300m Lower Tier 2 instrument.
Our subsidiary businesses continue to have strong local statutory capital
cover.
H1 2010 At 31 December 2009 H1 2009
Business unit Ratio Ratio Ratio
OMLAC(SA) 3.9x 4.1x 3.9x
Mutual & Federal 184% 172% 141%
US Life 347% 312% 281%
Nordic 11.0x 10.8x 10.8x
UK 3.6x 2.9x 3.0x
Nedbank* Core Tier 1: 9.9% Core Tier 1: 9.9% Core Tier 1: 8.6%
Tier 1: 11.5% Tier 1: 11.5% Tier 1: 10.0%
Total: 14.8% Total: 14.9% Total: 13.2%
* This includes unappropriated profits.
As announced in our 2009 Preliminary Results, we remain committed to reducing
our debt by at least GBP1.5 billion by the end of 2012, and believe that this
improvement in the quality of our balance sheet will position us well for the
implementation of Solvency II, although the final requirements have not been
confirmed.
Liquidity
As a Group we continue to maintain effective dialogue and strong commercial
relationships with our banks. As of 30 June, the plc has available cash and
commitments to facilities of GBP1.0 billion (31 December 2009: GBP1.2 billion;
30 June 2009: GBP0.8 billion).
In addition to the cash and available resources referred to above at the
holding company level, each of the individual businesses also maintains
liquidity to support their normal trading operations.
Holding company leverage
GBPm
H1 2010 H1 2009
Opening net debt (2 273) (2 263)
Inflows from businesses 184 350
Outflows to businesses and expenses (220) (449)
Debt and equity movements:
Ordinary dividends paid (net of scrip dividend
elections) (37) -
Equity issuance 2 -
Debt repayments (44) 200
Other movements (105) (213)
Closing net debt (2 493) (2 375)
Net decrease/(increase) in debt (220) (112)
The outflows to businesses decreased compared to 2009 reflecting much lower
capital investment needed to support US Life`s capital ratio. We made ordinary
dividend payments in the period of GBP37 million and offered a scrip dividend
election. During the period, 13.7 million new shares were issued which amounted
to an increase in shareholders` funds of GBP16 million. The Group repaid GBP44
million of external debt in the period. Of the total other movements of GBP105
million, GBP87 million is in respect of the revaluation of underlying swap
contracts and the balance is foreign exchange movements and other net flows. In
the second half of the year we anticipate higher operational cash inflows to
the Group holding company, reflecting typical funding patterns.
We remain committed to supporting the US Life capital ratio at around 300%. At
30 June, the RBC capital ratio was 347%. This capital strength together with
the implementation of possible changes by the end of 2010 to both US GAAP and
NAIC accounting rules, which are currently under consideration, particularly in
respect of CMBS investments, make further injections of capital into US Life
this year unlikely.
Dividend
Dividend policy
The Board intends to pursue a dividend policy consistent with our strategy, and
having regard to overall capital requirements, liquidity and profitability, and
targeting dividend cover of at least 2.5 times IFRS AOP earnings over time. As
previously announced, over the longer term, the Board will thus look to pay a
dividend based on the Group`s capital, cash flow and earnings, with a view to
maintaining a payout ratio of 40%. The speed with which this develops will also
reflect the impact of further rationalising of the portfolio and progress in
achieving our debt reduction target.
Interim dividend for 2010
The Directors of Old Mutual plc have declared an interim dividend for the six
months ended 30 June 2010 of 1.1p per share (or its equivalent in other
applicable currencies). The Company is planning to offer, as with the final
dividend for 2009, a scrip dividend alternative for eligible shareholders and
intends to continue to offer such an alternative for all future dividends until
further notice.
Dividend timetable
The timetable for the interim dividend for the six months ended 30 June 2010 is
set out below:
Declaration date 6 August 2010
Scrip calculation price determined Last five dealing days on each
exchange ending on 30 September
2010
Currency conversion date 30 September 2010
Exchange rates, scrip calculation
price and ratio announced 1 October 2010
Last day to trade cum div for
shareholders on the branch registers
in Malawi, South Africa and Zimbabwe
and on the Namibian section of the
principal register 8 October 2010
Ex-dividend date for shareholders on the
registers in Malawi, South Africa and
Zimbabwe and on the Namibian section of
the principal register 11 October 2010
Last day to trade cum div for
shareholders on the UK register 12 October 2010
Ex-dividend date for shareholders on the
UK register 13 October 2010
Scrip dividend alternative offer closes
for shareholders on the branch registers
in Malawi, South Africa and Zimbabwe and
on the Namibian section of the principal
register 12 noon on 15 October 2010
Record date for the dividend 15 October 2010 (close of business)
Scrip dividend alternative offer closes
for shareholders on the UK principal
register 12 noon on 2 November 2010
Payment date and first day of dealings
in new Ordinary Shares issued under the
scrip dividend alternative 30 November 2010
The entitlement to receive the scrip dividend alternative is personal and
non-transferable. Shareholders should note that they will not be able to trade
their entitlement to new ordinary shares to be issued pursuant to elections
under the scrip dividend alternative between 11 October and 29 November 2010
inclusive. A booklet setting out the full terms of the scrip dividend
alternative will be sent to eligible shareholders during September 2010.
Share certificates for shareholders on the South African register may not be
dematerialised or rematerialised between 11 October 2010 and 15 October 2010,
both days inclusive, and transfers between the registers may not take place
during that period.
US Life and US bond portfolio performance
Impairments in the US Life bond portfolio were $23 million in the first half of
2010, compared to $199 million in H1 2009 and $389 million in 2009 as a whole.
Impairments for the period are within our long-term assumptions for the
portfolio. As at 30 June 2010, there was a net unrealised gain of $138 million
on the $16.5 billion fixed income bond portfolio ($497 million and $1.6 billion
net unrealised loss at 31 December 2009 and 30 June 2009). Realised gains on
previously impaired securities were $39 million in the first half of 2010.
There have been no defaults in the portfolio in the period. The portfolio is
well matched with assets (including cash and short-term holdings) of 5.9 years
of average duration compared to 5.5 years of liabilities.
Bermuda
As disclosed in our Preliminary Announcement in March 2010, Bermuda is in
run-off and consequently is treated as a non-core entity. The results for the
first half of 2010 were primarily impacted by the equity market performance and
the decrease in interest rates in the second quarter of the year. The IFRS
pre-tax loss was $83 million (H1 2009: $36 million loss) for the period. The
increase in the loss compared to the prior year was principally made up of the
movement in the guarantee reserve position net of the change in hedge assets
arising from the movements in the Asian markets in the period. Lower US
interest rates and lower global equity markets during the second quarter
resulted in increased guarantee reserves compared to the 2009 year-end levels.
As a direct result, additional hedges were reinstated over the period to
improve market downside protection across all key exposures, and this selective
hedging off-set much of the increase in the reserves arising from lower actual
account values. A return to less volatile market conditions, were it to occur,
would improve profitability, although the business still expects some
volatility in earnings in the medium-term. Post the removal of the hedges in
September 2009, the aggregate economic result to the end of July was a loss of
around $54 million.
Operating MCEV post-tax earnings for the first half of the year were $45
million (H1 2009: $116 million). The difference between 2009 and 2010 operating
earnings is mostly due to several 2009 items that are not repeated in 2010. The
closing MCEV position was affected by negative economic variances of $114
million, mainly driven by lower than expected equity market returns, lower
interest rates, and higher interest rate volatility.
Of total insurance liabilities of $6,319 million (30 June 2009: $6 796
million), $4 165 million (30 June 2009: $4 249 million) is held in the separate
account relating to variable annuity investments, where risk is borne by
policyholders. The remaining reserves amount to $2 154 million (30 June 2009:
$2 547 million). Of this, $1 029 million (30 June 2009: $1 076 million; 31
December 2009: $763 million) is in respect of guarantee liabilities on the
variable annuity business, and $1 125 million (30 June 2009: $1 471 million; 31
December 2009: $1 290 million) for policyholder liabilities supported by the
fixed income portfolio.
Non-separate account reserves represent the discounted future expected amounts
required to meet policy obligations. OMB reserves are calculated on a
policy-by-policy basis and verified independently through both internal and
external actuarial review.
Minimum required capital was $510 million as at 30 June 2010 (30 June 2009:
$476 million; 31 December 2009: $586 million). No capital injection is
anticipated this year.
Over the rest of the year, OMB will continue to aggressively execute against
its run-off strategy, whilst maintaining high levels of customer service
through continued operational and service improvements. Priorities for the
second half are to deliver a low cost operating environment and complete the
separation from US Life (back office and administration functions), to
effectively manage capital and liquidity, to continue to derisk the variable
annuity book, and to deliver on the conservation/outreach programme to better
retain profitable non-guaranteed contracts.
iCRaFT project update
In 2008 Old Mutual put in place a group-wide programme called the integrated
Capital, Risk and Finance Transformation ("iCRaFT") project, to align capital
and risk management and to ensure the Group meets the new Solvency II
regulations. A further benefit of iCRaFT will be to improve risk management
across the Group, while linking risk to economic returns. This will ensure the
creation of long-term value by making better risk-adjusted decisions with a
better understanding of the long-term repercussions. While one of the drivers
for the project is the regulatory requirement, the programme is also designed
to capture the benefits gained from improving models, systems and processes.
Costs are closely monitored and the Group has benefited from early execution in
the project over the past year.
The Group has entered the FSAs` internal model approval process, and is on
track to deliver all requirements for Solvency II compliance. The Group is
participating in the QIS5, an important step in understanding the Group`s
position under Solvency II. The Group is well placed in South Africa in meeting
the Solvency Assessment and Management ("SAM") regulations, which are
comparable to Solvency II and come into effect in 2014.
Corporate disposals and acquisitions and related party transactions as set out
in the Strategy Update in March 2010, the Group continues to simplify its
structure and reduce its spread of businesses to focus on areas of key
competence and competitive strength, and drive operational improvements.
During the period, Nedbank completed the purchase of the remaining 49.9%
shareholding in the Imperial Bank joint venture, from Imperial Holdings
Limited. Integration of the business is proceeding well.
In February 2010, the Group successfully completed the buy-out of the
minorities in Mutual & Federal, and the business is now treated as a wholly-
owned subsidiary of the Old Mutual Group.
Tax and non-controlling interests
The effective tax rate on adjusted operating profits was 22%, compared to 29%
in the comparative period and 25% for full-year 2009. Factors decreasing the
June 2010 AOP tax rate compared to June 2009 and December 2009 include an
increased proportion of profits being earned on low-taxed dividends and capital
profits, coupled with decreased levels of disallowable expenditure and lower
secondary tax on companies (STC) costs on reduced dividends.
Non-controlling interests were GBP20 million higher than the comparative period
reflecting higher Nedbank earnings and the stronger rand.
Risks and uncertainties
There are a number of potential risks and uncertainties that could have a
material impact on the Group`s performance and that could cause actual results
to differ materially from expected and historical results.
Continued uncertainty in world economic conditions creates volatility in equity
markets, currencies, interest rates and volatilities, credit spreads, corporate
bond defaults and rating and regulatory agency actions both on investments
owned by the Group and the Group`s underlying entities. Unemployment levels
remain high in a number of countries in which we operate and could adversely
affect termination experience in respect of the life insurance businesses which
could result in realising losses on the sale of assets, particularly in the case
of US Life and Bermuda.
Economic uncertainty has contributed to lower consumer confidence, and may
influence product preferences to lower risk investment products and affect
termination experience in respect of existing and new business. Movements in
asset prices also lead to changes in funds under management and the fees that
the Group earns from those funds. These may have an impact on earnings and
present both risks and opportunities for the Group.
The Group monitors these uncertainties, takes appropriate actions wherever
feasible, and continues to meet Group and individual entity capital requirements
and day to day liquidity needs.
The implementation of the new operating model continues, and there are risks
arising from the implementation of cost reduction and other strategic
initiatives. The Group continues to strengthen and embed its risk management
framework, with increasing importance being placed upon ensuring business
decisions are within its risk appetite, for example, in the business planning
process. The Board of Directors has the expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
interim financial statements contained in this announcement.
Philip Broadley
Group Finance Director
6 August 2010
Summarised financial information
GBPm GBPm
H1 2010 H1 2009 % Change
IFRS results
Adjusted operating profit (IFRS
basis)(pre-tax)* 735 513 43%
Adjusted operating earnings per share
(IFRS basis)* 8.3p 4.9p 69%
Basic earnings per share 5.1p (1.8p) 383%
IFRS profit/(loss) after tax 265 (70) 479%
Sales statistics
Life assurance sales - APE basis* 814 634 28%
Life assurance sales - PVNBP basis* 6 400 4 672 37%
Value of new business* 92 70 31%
Unit trust/mutual fund sales 4 553 3 192 43%
MCEV results
Adjusted Group MCEV (GBPbn) 9.1 7.6 20%
Adjusted Group MCEV per share 166.6 171.0* (3%)
Adjusted operating profit Group MCEV
earnings (post-tax) 567 468 21%
Adjusted operating Group MCEV earnings per
share 10.6 8.9 19%
Financial metrics
Return on equity* 11.6% 7.6%
Return on Group MCEV 14.7% 14.8%
Net client cash flows (GBPbn) (1.6) 0.2 n/m
Funds under management 292.3 285.0* 3%
Dividend 1.1p -
FGD (GBPbn) 1.7 1.5* 13%
* FY 2009
Foreign exchange rates
H1 H1
GBP/ZAR exchange rates 2010 2009 FY 2009
Average exchange rate (YTD) 11.49 13.74 13.17
Closing exchange rate 11.45 12.74 11.92
H1 H1
GBP/SEK exchange rates 2010 2009 FY 2009
Average exchange rate (YTD) 11.27 12.18 11.97
Closing exchange rate 11.63 12.70 11.56
H1 H1
GBP/EUR exchange rates 2010 2009 FY 2009
Average exchange rate (YTD) 1.15 1.12 1.12
Closing exchange rate 1.22 1.17 1.13
H1 H1
GBP/USD exchange rates 2010 2009 FY 2009
Average exchange rate (YTD) 1.53 1.49 1.57
Closing exchange rate 1.50 1.65 1.61
Business Review
Long-Term Savings: Emerging Markets
Continuing strong single-premium growth
H1 2010 H1 2009 % change
Highlights (Rm)
Long-term business adjusted operating
profit 1 708 1 800 (5%)
Asset management adjusted operating profit 789 319 147%
Long-term investment return (LTIR) 602 833 (28%)
Adjusted operating profit (IFRS basis)
(pre-tax) 3 099 2 952 5%
Return on allocated capital (OMSA only) 27% 26%
Operating MCEV earnings (covered business)
(post-tax) 1 650 1 511 9%
Return on embedded value (covered
business) (post-tax) 11.9% 9.7%
Life assurance sales (APE) 2 560 2 232 15%
Unit trust/mutual fund sales 16 273 17 416 (7%)
PVNBP 17 931 16 805 7%
Value of new business 441 316 40%
APE margin 17% 14%
PVNBP margin 2.5% 1.9%
Net client cash flows (NCCF) (Rbn) (2.4) (17.6) 86%
%
H1 2010 FY 2009 change
Highlights (Rbn)
Total funds under management 529 518 2%
Of which, SA client funds under management 446 449 (1%)
H1 H1
GBP/ZAR exchange rates 2009 FY 2009
2010
Average exchange rate (YTD) 11.49 13.74 13.17
Closing exchange rate 11.45 12.74 11.92
Overview
The South African economy grew by 4.6% in the first quarter of 2010 and we
expect the growth momentum to be maintained for the rest of the year.
Our good sales performance continued in the second quarter, resulting in a 15%
rise in APE sales compared to the first half of 2009. However, the trading
environment remains tough due to the continued high and rising South African
unemployment. In the rest of Emerging Markets, economies achieved positive
year-on-year GDP growth, with Chinese GDP growing by 11.1% compared to 30 June
2009, and Mexico and Columbia growing by 4.3% and 4.4% respectively between 31
March 2009 and 31 March 2010.
We continue to make good strides towards our goal of becoming our customers`
most trusted partner. In South Africa, we received the Employee Benefit
Administrator of the Year at the Annual Imbasa Yegolide Awards (which are
designed to recognise and reward those service providers who render excellent
service to funds), and we were ranked first in both Group Business Investments
and Group Business Risk categories in the 2010 PricewaterhouseCoopers survey.
During the first half of the year, OMIGSA extended its range of investment
offerings to the market, with Futuregrowth launching a South African
Agricultural Fund in March, and our long-term equity boutique launching two
African-listed equity funds in May 2010. We expect funds under management and
NCCF to benefit from these initiatives in the second half of the year.
IFRS AOP results
The IFRS AOP (pre-tax) increased by 5% relative to the comparative period, with
strong asset management profits (up 147% to R789 million) partially off-set by
lower long-term investment return (R602 million compared to R833 million in
2009) and lower life profits (R1,708 million compared to R1,800 million in
2009). Whilst our life profits were down 5% from 2009, the 2009 results had
benefited from a number of large non-recurring items, namely the value of
reductions in benefit assumptions and profits from the Nedbank joint ventures
in the first five months of 2009. Excluding the impact of these items in 2009,
underlying life profits increased by 50% over the comparative period. This
growth is mainly due to the positive impact of higher equity markets on
asset-based fees, a significant improvement in Retail persistency and expense
experience variances, and a successful turnaround in the adverse experience
seen in 2009 in the Group Assurance suite of products.
Asset management operating profit grew significantly by 147% relative to the
comparative period, as a result of higher average asset values in both South
Africa and Colombia, stronger performance fees in OMIGSA, a first contribution
from ACSIS (which was acquired in the second half of 2009), a higher
contribution from Old Mutual Finance as the business grows, and mark-to-market
profits in the Old Mutual Specialised Finance (OMSFIN) business. The factors
above were partially off-set by lower transactional revenue and lower revenue on
the term portfolio of OMSFIN.
The LTIR declined by 28% from R833 million to R602 million, after a 390bps
reduction in the LTIR rate from 13.3% in 2009 to 9.4% in 2010, reflecting our
strategic move to a lower proportion of shareholder assets invested in
equities, and lower expected return in the current year.
Life sales summary
By cluster: Gross single premiums
New business (Rm) H1 2010 H1 2009 +/-%
OMSA
Retail Mass 6 8 (25%)
Retail Affluent 5 448 3 674 48%
Institutional* 3 403 3 676 (7%)
Total OMSA 8 857 7 358 20%
Rest of Africa** 265 303 (13 %)
Total New Markets*** 102 151 (32%)
Total Emerging Markets 9 224 7 812 18%
By Product:
OMSA
Savings 7 100 5 760 23%
Protection 4 1 300%
Annuity 1 753 1 597 10%
Total OMSA 8 857 7 358 20%
Rest of Africa** 265 303 (13%)
Total New Markets** 102 151 (32%)
Total Emerging Markets 9 224 7 812 18%
By cluster: Gross regular premiums
New business (Rm) H1 2010 H1 2009 +/-%
OMSA
Retail Mass 640 622 3%
Retail Affluent 645 556 16%
Institutional* 226 140 61%
Total OMSA 1 511 1 318 15%
Rest of Africa** 88 107 (18%)
Total New Markets*** 38 26 46%
Total Emerging Markets 1 637 1 451 13%
By Product:
OMSA
Savings 692 610 13%
Protection 819 708 16%
Annuity
Total OMSA 1 511 1 318 15%
Rest of Africa** 88 107 (18%)
Total New Markets** 38 26 46%
Total Emerging Markets 1 637 1 451 13%
By Cluster: Total APE
New business (Rm) H1 2010 H1 2009 +/-%
OMSA
Retail Mass 641 623 3%
Retail Affluent 1 189 923 29%
Institutional* 566 508 11%
Total OMSA 2 396 2 054 17%
Rest of Africa** 115 137 (16%)
Total New Markets*** 49 41 20%
Total Emerging Markets 2 560 2 232 15%
By Product:
OMSA
Savings 1 402 1 185 18%
Protection 819 709 16%
Annuity 175 160 9%
Total OMSA 2 396 2 054 17%
Rest of Africa** 115 137 (16%)
Total New Markets** 49 41 20%
Total Emerging Markets 2 560 2 232 15%
By cluster: Total PVNBP
New business (Rm) H1 2010 H1 2009 +/-%
OMSA
Retail Mass 3 079 3 523 (13%)
Retail Affluent 8 639 7 024 23%
Institutional* 5 249 5 000 5%
Total OMSA 16 967 15 547 9%
Rest of Africa** 729 1 113 (35%)
Total New Markets*** 235 145 62%
Total Emerging Markets 17 931 16 805 7%
By Product:
OMSA
Savings 10 726 9 476 13%
Protection 4 488 4 474 -
Annuity 1 753 1 597 10%
Total OMSA 16 967 15 547 9%
Rest of Africa** 729 1 113 (35%)
Total New Markets** 235 145 62%
Total Emerging Markets 17 931 16 805 7%
* Institutional sales are Corporate and OMIGSA life sales
** Rest of Africa is Namibia only
*** New Markets is Latin America only
We achieved excellent growth in APE sales of 15% compared to the first half of
2009, driven by continued single-premium sales growth of 18%, strong Greenlight
and Max sales in Retail Affluent, and outstanding protection sales in
Corporate. Retail Mass recovered in the second quarter after a weak first
quarter.
OMSA
Recurring premium sales
Protection
Recurring premium protection sales are 16% above the comparative period. In
Retail Affluent, protection sales increased by 16% relative to the comparative
period, as a result of higher Greenlight sales, reflecting the improved economic
environment. Corporate achieved excellent growthin protection sales of 80%
relative to the comparative period as a result of some large schemes coming
on the books during the second quarter. In the Retail Mass segment, protection
sales were marginally down by 3% relative to the comparative period due to a
lower number of advisers in the period.
Savings
Recurring premium savings sales are 13% above the comparative period with
improvements across all segments. In Retail Affluent and Retail Mass, sales are
13% and 10% above prior year respectively with sales boosted by recovery in the
economy. This was supported by the success of specific initiatives to drive
sales in the first half, as well as bedding down of the new commission
structure introduced at the start of 2009.
Single-premium sales
Single-premium sales exceeded the comparative period by 20%. This was driven by
the Retail Affluent segment which benefited from the Investment Frontiers Fixed
Bond product being competitively priced in the first half of the year, and
improved retail annuity rates. Institutional single-premium sales, which tend
to be lumpy, were 7% lower than the first half of 2009.
Rest of Emerging Markets
In Namibia, life sales were down 16% from the comparative period, due to a
decline in both recurring and single-premium sales in Corporate. In Latin
America, life sales increased by 40% in local currency, mainly as a result of
enhancements to the savings product in Mexico.
Both India and China achieved double-digit APE sales growth in local currency
terms. Old Mutual Kotak Mahindra`s APE sales grew by 11% to INR6.6 billion
(R1.08 billion) relative to the comparative period and China APE sales
increased by 13% to CNY48.7 million (R53.7 million) in the first half of 2010.
The increase is mainly due to strong growth in single-premium sales, up 72% to
CNY41.3 million on an APE basis. The newly launched telemarketing channel is
gaining traction with year to date sales of CNY3.4 million (R3.8 million) from
its launch at the start of the year. We are in the process of developing a
Group Protection product range for our new Joint Venture partner, Goudian, and
we expect to receive about CNY300 million sales from this source before the end
of the year.
A more detailed review by segment is included in the Financial Disclosure
Supplement which is available at www.oldmutual.com.
Unit Trust Sales
Unit Trust sales decreased by 7% relative to the comparative period. In South
Africa unit trust sales decreased 26% mainly as a result of lower flows into
money market and lower reinvestments. The 2009 results included a significant
inflow from the Remgro distribution to shareholders which was not repeated.
Investment performance is improving for the 12-month period but three-year
underperformance continues to affect unit trust sales.
In the rest of Emerging Markets unit trust sales performed well, with sales in
Namibia up 64% mainly due to the continued strong inflows into the money market
funds from corporate clients on the back of competitive returns offered. In
Mexico unit trust sales are up 25% in local currency mainly as a result of a
large pension scheme secured in the period. In Colombia unit trust sales were
up 16% in local currency as a result of strong money market sales.
Value of new business and margins
The value of new business margin increased from 14% in the first half of 2009
to 17% on an APE basis mainly due to the favourable impact of the higher margin
investment products in Retail Affluent and higher recurring protection premium
sales in Corporate. However, this was partially off-set by lower margins in
the Retail Affluent protection product, Greenlight, as well as in Namibia, due
to changes in persistency assumptions at the end of 2009.
MCEV Results
Operating MCEV earnings after tax increased by 9% from the 2009 level. There
was favourable persistency experience in Retail Affluent and Retail Mass, and
higher new business contribution due to improved sales volumes was off-set by
lower mortality experience in Retail Affluent and lower expected existing
business contributions due to the fall in the swap yields at the end of
December 2009.
Net client cash flow
NCCF (excluding the PIC flows) was 7% or R0.1 billion better than the
comparative period, but was still negative (outflow of R1.4 billion) for the
period. NCCF in the Retail segments remained positive, with an improvement in
NCCF in the Retail Mass segment.
In the Corporate segment, NCCF, while still negative as a result of benefit
flows being inflated by market levels, showed a 25% improvement over the
comparative period, and the pipeline for this segment is strong. OMIGSA flows
were similarly negative, but improved relative to the comparative period, with
terminations in Symmetry partly off-set by inflows from ACSIS.
Persistency has improved across all of OMSA`s Retail segments. Persistency over
three months in Retail Affluent has significantly improved from last year and
premium collections have improved in Retail Mass. Persistency experience
variances were positive for the first half of 2010.
Funds under management
Funds under management are up 2% from year-end levels to R529 billion, despite
the negative NCCF, as a result of positive market return. Of the total FUM,
R472 billion is in South Africa.
Long-Term Savings: Nordic
Margins improve significantly following management actions
Highlights (SEKm) H1 2010 H1 2009 % change
Long-term business adjusted operating
profit 554 162 242%
Banking business adjusted operating profit 88 96 (8%)
Asset management adjusted operating profit 13 13 0%
Adjusted operating profit (IFRS basis)
(pre-tax) 655 271 142%
Return on equity* 11.7% 8.9%
Operating MCEV earnings (covered business)
(post-tax) 712 510 40%
Return on embedded value (covered
business) (post-tax) 9.5% 9.4%
Life assurance sales (APE) 1 154 1 635 (29%)
Unit trust/mutual fund sales 3 647 1 584 130%
PVNBP 6 235 7 716 (19%)
Value of new business 284 251 13%
APE margin 25% 16%
PVNBP margin 4.6% 3.3%
Net client cash flows (SEKbn) 4.6 5.8 (21%)
H1 2010 FY 2009
Highlights (SEKbn)
Funds under management 132.3 127.2 4%
* Return on equity is IFRS AOP (post-tax) divided by average shareholders`
equity, excluding goodwill, PVIF and other acquired intangibles
H1 H1
GBP/SEK exchange rates 2010 2009 FY 2009
Average exchange rate (YTD) 11.27 12.18 11.97
Closing exchange rate 11.63 12.70 11.56
Overview
Macroeconomic trends in the Nordic region continued to be favourable with
economic growth returning (Swedish GDP was 3% higher in Q1 2010 compared to Q1
2009), and a 4.5% increase in the Swedish stock market in the six months to 30
June 2010. However, unemployment continues to remain relatively high. The
customer behaviour trends seen in the first quarter of 2010 continued, with
clients positively allocating towards global equity and invest ment products
and decreasing their exposure to Swedish Fixed Income products.
The operating performance of the business improved strongly in the period
driven by management actions taken at the end of 2009 to reprice the
healthcare business in Sweden, tighten underwriting terms and close an
unprofitable and significant regular premium pension product.
IFRS AOP results
The IFRS AOP (pre-tax) increased by 142% relative to the comparative period to
SEK655 million. The key driver of the AOP improvement is a higher FUM which
reflects the market recovery and strong net client cash flows in 2009 due to
successful product launches such as Skandia Investment portfolio in that
period. All product lines, with the exception of Skandiabanken which remained
under continued pressure from the low interest rate environment, contributed to
this strong improvement. In particular, Risk and Lifeline healthcare products
have delivered an improvement driven by price increases and tight underwriting.
Additionally, a non-recurring divestment of a private equity holding during the
first quarter resulted in a profit of SEK126 million.
Life sales summary
Gross single premiums
H1 H1
New business (SEKm) 2010 2009 +/-%
Sweden
Corporate 897 829 8%
Private 1 865 2 250 (17%)
Total Sweden 2 762 3 079 (10%)
Total Denmark 442 277 60%
TOTAL NORDIC 3 204 3 356 (5%)
Gross regular premiums
H1 H1
New business (SEKm) 2010 2009 +/-%
Sweden
Corporate 542 726 (25%)
Private 117 347 (66%)
Total Sweden 659 1 073 (39%)
Total Denmark 175 226 (23%)
TOTAL NORDIC 834 1 299 (36%)
Total APE
H1 H1
New business (SEKm) 2010 2009 +/-%
Sweden
Corporate 631 809 (22%)
Private 304 572 (47%)
Total Sweden 935 1 381 (32%)
Total Denmark 219 254 (14%)
TOTAL NORDIC 1,154 1 635 (29%)
Total PVNBP
H1 H1
New business (SEKm) 2010 2009 +/-%
Sweden
Corporate
Private
Total Sweden 4 885 6 234 (22%)
Total Denmark 1 350 1 482 (9%)
TOTAL NORDIC 6 235 7 716 (19%)
APE decreased by 29% relative to the comparative period to SEK1,154 million.
The primary driver for this was the closure of the unprofitable regular premium
Private product Link regular in the second half of 2009. Occupational pension
sales in the Swedish corporate sector continued to be suppressed, reflecting
lower salary increases and less labour mobility, and our investment portfolio
product, Skandia Depa, lost market share as a result of fierce competitor
activity on that type of product. Total market share decreased primarily as a
result of our competitors` sales of low margin "tick the box" pensions products
that Skandia does not wish to offer. The APE decline in Denmark is due to slow
recovery from the recession. Our expectation for the full year is that sales
will be down 10% - 30% compared to 2009 but that we will deliver stronger
margins.
By contrast, Nordic had excellent growth in mutual fund sales increasing 130%
relative to the comparative period. The drivers behind this success are product
innovation, an improved customer offering through the Skandia Global Hedge fund
and the launch of the new set of Skala funds. Sales were further boosted by the
relatively strong performance in the Swedish stock market.
Value of new business and margins
The value of new business and APE margin have increased substantially relative
to the comparative period, with an APE margin for the half-year of 25%. The
increase in margin is mainly due to a more profitable business mix. This was
positively affected by a higher share of occupational pension sales and
top-ups, and a more profitable, lower commission pension product which replaced
the withdrawn Link regular product.
Price pressure continues, especially in the Swedish corporate market, and there
is uncertainty on the future taxation of Swedish insurance companies. In the
medium term, the margin is expected to be in the high teens rather than at the
current elevated levels.
MCEV Results
Operating MCEV earnings after tax increased by 40% relative to the comparative
period to SEK712 million. This was mainly due to a more profitable business mix
and changed assumptions for the cost of non-hedgeable risks. These were
partially off-set by a reduction in risk premiums for the waiver of premium
business.
Net client cash flow
NCCF for the first half of the year was SEK4.6 billion, down 21% relative to
the comparative period in large part due to the sales action taken in the
period, and reflecting higher outflows from single-premium products as clients
crystallise their investment returns. For mutual fund business, NCCF is higher
than prior year through strong inflows as a result of the success of new
product launches.
Funds under management
FUM at 30 June 2010 were SEK132 billion, up 4% from 2009 year-end levels. The
increase is mainly due to equity market growth and positive net client cash
flows. FUM has been relatively stable during the first half, moving in line
with stock market which increased in the first quarter but fell back in the
second quarter.
Long-Term Savings: Retail Europe
Key foundations laid for the future development of the business
Highlights (m) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax) 29 10 190%
Return on equity 20% 10%
Operating MCEV earnings (covered business)
(post-tax) 27 (16) 269%
Return on embedded value (covered
business) (post-tax) 5.1% (3.6%)
Life assurance sales (APE) 37 34 9%
Unit trust/mutual fund sales 14 12 17%
PVNBP 279 255 9%
Value of new business 2 (4) 150%
APE margin 6% (11%) -
PVNBP margin 0.7% (1.5%) -
Net client cash flows (bn) 0.2 0.2 -
H1 2010 FY 2009 % change
Highlights (bn)
Funds under management 5.2 4.7 11%
GBP/EUR exchange rates
H1 2010 H1 2009 FY 2009
Average exchange rate (YTD) 1.15 1.12 1.12
Closing exchange rate 1.22 1.17 1.13
Overview
Retail Europe`s markets remain challenging, and the stock markets closed flat
compared to the end of 2009 (the DAX index increased by less than 1%) though
GDP growth improved following government stimulus packages.
Overall sales performance improved in the half-year, relative to the first half
of 2009, with the second quarter performance in line with first quarter trends.
Funds under management rose strongly and retention was good.
Work to transfer Retail Europe IT and client administration functions to South
Africa continues. This will begin to take effect in the second half of the
year, and will lay the foundations for leaner and more efficient customer
service. It will also potentially benefit other business units in the Group.
We continue to balance this operational change with pursuing growth
opportunities in the markets in which we operate.
IFRS AOP results
The IFRS AOP increased significantly over the comparative period to Euro29
million. The main driver of this was lower administration expenses, and non-
recurrence of costs incurred in 2009.
Life sales summary
Gross single premiums
New business (m) H1 2010 H1 2009 +/-%
Austria 4 3 33%
Germany 16 13 23%
Poland 10 5 100%
Switzerland 6 7 (14%)
TOTAL RETAIL EUROPE 36 28 29%
Gross regular premiums
New business (m) H1 2010 H1 2009 +/-%
Austria 9 10 (10%)
Germany 13 11 18%
Poland 7 4 75%
Switzerland 4 6 (33%)
TOTAL RETAIL EUROPE 33 31 6%
Total APE
New business (m) H1 2010 H1 2009 +/-%
Austria 9 10 (10%)
Germany 15 13 15%
Poland 9 5 80%
Switzerland 4 6 (33%)
TOTAL RETAIL EUROPE 37 34 9%
Total PVNBP
New business (m) H1 2010 H1 2009 +/-%
Austria 61 63 (3%)
Germany 123 110 12%
Poland 51 32 59%
Switzerland 44 50 (12%)
TOTAL RETAIL EUROPE 279 255 9%
APE sales in the first half of 2010 grew by 9% to Euro37 million, and mutual
fund sales grew by 17% to Euro14 million. Single-premium sales improved in all
our markets, with the exception of Switzerland, while recurring premiums saw
only modest growth. Overall, APE sales in the first half of 2010 increased by
80% in our Polish business and by 15% in Germany.
Underlying sales productivity in terms of new applications for the first six
months of the year increased by 30% compared to 2009. However, in all our
markets, there has been a reduction in the average policy size due to changing
product mix.
We have carried out intense marketing activity in the period. These have
included product events and road shows, further development of co-operation with
banking partners, and the launch of new products. We expect these activities to
have a positive impact on sales in the second half.
Value of new business and margins
VNB for the period was Euro2 million, a significant improvement on the
comparative period. This was driven by lower acquisition expense overruns and
improved profitability from product mix compared to the prior year. These
factors also drove the increased APE margin to 6% from (11%) for the same period
last year.
MCEV Results
Operating MCEV earnings (post-tax) improved by Euro43 million relative to the
comparative period, driven by a better new business contribution, modelling
changes to fully recognise the value of the disability insurance business in
Switzerland and less negative experience variances than in the comparative
period.
Net client cash flow
NCCF was Euro226 million for the first six months of 2010, consistent with the
comparative period. This was driven by an increase in premiums off-set by higher
surrender values, given market movements. Across the Retail Europe markets,
maturities formed a larger portion of the total outflows during the first half
compared to that of the prior year.
Funds under management
FUM of Euro5.2 billion at 30 June 2010 reflects the positive NCCF in the period,
and continued recovery in the equity markets. In terms of client asset
allocation, we continued to see clients defensively positioned in guaranteed and
balanced/fixed income funds.
Long-Term Savings: Wealth Management
Strong half-year results, driven by UK platform and Italian markets
Highlights (GBPm) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax) 95 43 121%
Return on equity* 15% 7%
Operating MCEV earnings (covered business)
(post-tax) 64 13 392%
Return on embedded value (covered
business) (post-tax) 6.7% 1.7%
Life assurance sales (APE) 412 267 54%
Unit trust/mutual fund sales 2 207 1 291 71%
PVNBP 3 611 2 231 62%
Value of new business (post-tax) 31 22 41%
APE margin 8% 8%
PVNBP margin 0.9% 1.0%
Net client cash flows (GBPbn) 2.3 0.7 229%
Highlights (GBPbn) H1 2010 FY 2009 % hange
Funds under management 48.8 46.9 4%
* Return on equity is IFRS AOP (post-tax) divided by average shareholders`
equity, excluding goodwill, PVIF and other acquired intangibles
Overview
The UK economy grew by 1.4% in the first half of the year, although the
FTSE-100 fell 9% in the same period, with particular volatility in the second
quarter when it declined by 13%.
Improving investor sentiment during the first half led to strong trading
performance and significant year-on-year growth in sales across our markets.
Increased volatility of equity markets in the second quarter did not noticeably
impact new sales, although a prolonged continuation is likely to dampen
customer confidence in equity investments and may lead to reduced sales in
later periods.
The APE in the second quarter returned to the levels seen at the end of 2009
following higher than usual volumes on the UK platform and in Italy during the
first quarter. Surrender experience has improved and NCCF in the second quarter
remains broadly in line with the first quarter at GBP1.2 billion.
Although we do not target growth in market share as a KPI, Skandia UK`s market
share increased significantly in Q1 2010, to 7.2% across all industry channels
compared to 6.4% in the fourth quarter of 2009. This is a record for Skandia in
the UK and compares to a range of 3.5% to 5.5% over 2001-07. Given the scale
and investment in our UK platform, we are ideally positioned to lead and
benefit from this industry shift and are actively looking at how we will
further enhance our platform offering and rationalise our suite of life
products over the second half of the year.
IFRS AOP results
IFRS AOP (pre-tax) increased by 121% to GBP95.1 million. IFRS AOP continues to
perform strongly relative to 2009, due to higher FUM and favourable expense
levels, and this resulted in a strong boost to return on equity given the
operating leverage in the business, even at this stage of the restructuring
process. FUM remains strongly positive driven by NCCF and market growth. The
main drivers of the increased funds under management are market-related and due
to higher sales volumes. In addition, one-off costs in 2009 amounting to GBP19
million did not reoccur. Profitability for the second half of the year is
expected to reduce as spend on the transformation programme and the platform
development increases.
Life sales summary
Gross single premiums
H1 H1
New business (GBPm) 2010 2009 +/-%
UK
Pensions 1 136 589 93%
Bonds 296 188 57%
Protection
Savings
Total UK 1 432 777 84%
International
Unit-linked 174 68 156%
Bonds 633 507 25%
Total International 807 575 40%
Europe
Unit-linked 936 366 156%
TOTAL WEALTH MANAGEMENT 3 175 1 718 85%
Gross regular premiums
H1 H1
New business (GBPm) 2010 2009 +/-%
UK
Pensions 40 33 21%
Bonds
Protection 5 4 25%
Savings 5 2 150%
Total UK 50 39 28%
International
Unit-linked 28 32 (13%)
Bonds 12 22 (45%)
Total International 40 54 (26%)
Europe
Unit-linked 3 4 (25%)
TOTAL WEALTH MANAGEMENT 93 97 (4%)
Total APE
H1 H1
New business (GBPm) 2010 2009 +/-%
UK
Pensions 153 92 66%
Bonds 30 19 58%
Protection 5 4 25%
Savings 5 2 150%
Total UK 193 117 65%
International
Unit-linked 45 40 13%
Bonds 76 71 7%
Total International 121 111 9%
Europe
Unit-linked 98 39 151%
TOTAL WEALTH MANAGEMENT 412 267 54%
Total PVNBP
H1 H1
New business (GBPm) 2010 2009 +/-%
UK
Pensions 1,300 n/a n/a
Bonds 298 n/a n/a
Protection 26 n/a n/a
Savings 30 n/a n/a
Total UK 1 654 1 090 52%
International
Unit-linked 230 n/a n/a
Bonds 767 n/a n/a
Total International 997 758 32%
Europe
Unit-linked 960 383 151%
TOTAL WEALTH MANAGEMENT 3 611 2 231 62%
Total APE improved by 54% to GBP412 million. This is mainly attributable to
sales on the UK platform, and in Continental Europe which improved by 145%
(increase of GBP74 million) and 151% (increase of GBP59 million) respectively
compared to the prior period.
UK platform sales volumes continue to grow at rates much higher than prior
year, primarily driven by single-premium pensions. There were spikes in March
and April driven by tax year-end activity and an increase in the new tax year
ISA limits. Our charging structure has remained consistent during the period.
First half sales also include switches from UK Legacy (which are currently
reported gross as inflows and outflows) as well as transfers of in-force books
of business as IFAs register onto the platform. While migration from our Legacy
products to the platform is likely to continue going forward, we anticipate a
reduction in absolute volume terms over the remainder of the year. Switches
on to the platform accounted for 12% of total UK APE sales during the first six
months of the year.
UK Legacy sales volume is continuing at reasonable levels, despite strong
growth in the platform space. We have been evaluating our Legacy product set in
light of changing customer requirements and new regulation being driven by the
Retail Distribution Review. The combination of these two factors is increasing
demand for platform services that are customer-focused and transparent, whilst
at the same time reducing demand for older style life products which are
complex and rely on high adviser commission to drive sales.
Sales volume across International is 9% up on the prior year. We continue to
sell in Finland to maintain a foothold in the market with a tactical product
offering, although volumes are relatively modest. Sales in the Middle and Far
East strengthened in the first half following the launch of a qualifying
recognised overseas pension scheme (QROPS). We also have worked on improving
the efficiency of our sales coordination with other parts of the Old Mutual
Group, and with South Africa in particular.
The 2010 Italian fiscal window has now expired, but we continue to sell large
volumes due to the strong relationship with one of our distributors, Fideuram.
These volumes are expected to return to normal rates in the second half of this
year. French volumes remain ahead of prior year but overall, the unit-linked
market is proving slower to recover than initially expected.
Value of new business and margins
The value of new business increased by GBP9 million relative to the comparative
period, with an APE margin for the half year of 8%. There was a slight decrease
in margin, mainly due to changes in persistency assumptions for the Finnish
business and the shift from UK Legacy business to the platform model. This was
partially off-set by strong higher margin sales in Italy and the tax legislation
change in International.
MCEV Results
The operating MCEV profit after tax increased by GBP51 million relative to the
comparative period. This was mainly due to much better persistency and paid-up
premiums experience on International and UK Legacy business, with higher VNB
off-set by lower one-year discount rates on in-force book.
Net client cash flow
NCCF is more than triple prior year driven by strong contributions from Italy
and the UK platform business. This more than compensated for run-off of the UK
Legacy book that did not get recaptured onto the platform.
Funds under management
Funds under management have grown 4% during the first half of 2010 driven by
rising bond values and continuing NCCF.
Long-Term Savings: US Life
Steady business performance, improved persistency and credit outlook
Highlights ($m) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax) 45 44 2%
Return on equity 4.6% 27.4%
Operating MCEV earnings (covered
business) (post-tax) 194 388 (50%)
Return on embedded value (covered
business) (post-tax)* 79.7% 34.9%
Life assurance sales (APE) 68 57 19%
PVNBP 659 521 26%
Value of new business (6) 11 (155%)
APE margin (9%) 19%
PVNBP margin (0.9%) 2.1%
Net client cash flows ($bn)** (0.4) (0.9) 56%
H1 2010 FY 2009
Highlights ($bn)
Funds under management** 17.0 16.7 2%
* Calculated as the operating MCEV earnings (post-tax) divided by the absolute
value of the opening MCEV
** Stated on a start manager basis as USAM manages $6bn of the funds on behalf
of US Life
H1 H1
GBP/USD exchange rates 2010 2009 FY 2009
Average exchange rate (YTD) 1.53 1.49 1.57
Closing exchange rate 1.50 1.65 1.61
Overview
The US economy continued to show signs of recovery in the period, although this
has not been even across all sectors. Capital markets continued to be adversely
affected by Europe`s sovereign debt crisis and fiscal challenges, with the
ratings downgrades of peripheral countries weighing on investors` confidence in
risk assets. As a result, investors sought safe-haven assets such as Gilts and
US Treasuries, and in June, the ten-year US Treasury yield dipped below 3% for
the first time since April 2009 as a result of demand from increasingly
risk-averse investors.
US Life sales results are in line with target levels and reflect the reduction
in the product set that was undertaken in 2009 as part of the focus on more
profitable products with lower new business capital strain. During the first
half of 2010, there was an improvement in net client cash flows due to higher
sales and lower surrenders; growth in funds under management due to net
unrealised gains; impairment reversals exceeded impairments for the period; and
expenses continued to trend lower.
IFRS AOP results
Pre-tax adjusted operating profit (IFRS basis) was $45 million compared to $44
million for the comparative period. While gross margins (prior to DAC
amortisation) were $218 million, compared to $261 million for the same period
in 2009 (higher net investment spread in 2010 was more than off-set by an
increase in the LTIR default rate adjustment, an increase in hedge losses and
negative mortality experience in 2010), there was a reduction in
surrender-related adverse DAC unlocking and other movements which depressed
profits in 2009. This meant that the AOP has remained broadly level. The ROE
has declined as a result of the recovery in the IFRS equity position through
the significant reduction in unrealised loss position between 30 June 2009 and
30 June 2010.
Life sales summary
APE sales for the first half of 2010 increased by 19% to $68 million relative
to the comparative period. This is within the budget set for the business and
reflects our approach to capital within the business. APE for annuity products
increased by 50% over the comparative period, and within this, FIA sales
increased by 29% on an APE basis relative to the comparative period driven by
revisions launched in March 2010 to the fixed indexed annuity (FIA) OM Index -
Accelerator 10 product, and competitive multi-year guarantee annuity rates in
March and April 2010. The Medicaid single premium immediate annuity (SPIA)
sales had a good performance in the first half of the year. In July 2010, the
Chairman of the SEC confirmed that the SEC will not be seeking to regulate the
distribution of FIA products.
Value of new business and margins
The value of new business decreased by $17 million relative to the comparative
period, with an APE margin for the half year of (9%). The decrease in margin
was mainly due to extended low yield environment and a lower assumed liquidity
premium. Management actions taken during the period included lowering
commission rates on certain products in June aiming to achieve the targeted
profitability over the balance of the year.
MCEV Results
The operating MCEV earnings after tax decreased by $194 million relative to the
comparative period. Despite a much higher opening MCEV position, significantly
lower initial credit spreads in 2010 compared to 2009 caused a much lower
expected return in 2010. This was partially off-set by the improvement in the
operating experience variance which was $107 million higher than in the first
half of 2009, primarily due to higher than anticipated persistency on
profitable Traditional Life contracts and lower than expected persistency in
respect of FIA contracts that are unprofitable on an MCEV basis.
Net client cash flow
As expected, net client cash flows for the first half of 2010 reflected the
expected evolution of the general account given the active management of sales
levels in the last two years. They improved compared to the first half of 2009,
primarily due to lower surrender activity and higher sales in the current
period. The pace of surrender activity continued to trend favourably in the
first half of 2010, as in the second half of 2009. Index credits on the fixed
indexed annuity product, which are credited (if earned) on the policy
anniversary date, have been strong in the first half of 2010 and should
facilitate management of persistency. We continued to see benefits from a
conservation programme initiated in the second quarter of 2009 which focuses on
the reduction of full surrender activity.
Funds under management
Funds under management ended the period at $17.0 billion, up $0.3 billion from
the opening position, primarily due to a $0.6 billion increase in the market
value of the investment portfolio and investment income for the period. This
was partially off-set by $0.4 billion of negative net client cash flows.
Investment portfolio
The net unrealised position on the fixed income security portfolio improved to
a net gain of $138 million at 30 June 2010 ($497 million and $1.6 billion net
unrealised loss at 31 December 2009 and 30 June 2009), reflecting lower yields
across the credit spectrum, most significantly in corporate bonds, and
selective derisking. Net cash holdings at 30 June 2010 were $268 million.
Prices throughout the portfolio continued to improve through the first half of
2010, such that as of 30 June 2010, 85% of the total portfolio had a market to
book value ratio greater than 90%. The market to book value ratio of the fixed
income portfolio improved from 97% at the beginning of the year to 101% at 30
June. We continue to manage the portfolio closely. Encouragingly, US regional
banks have seen increased access to capital and declines in problem loans. The
portfolio`s commercial mortgage backed securities are of generally high quality
and earlier vintage.
There were no defaults in the first half of 2010. Realised gains include $39
million of gains on previously impaired securities that had recovered in fair
value and $10 million of trading gains primarily through the sale of corporate
bonds and structured securities. Expected cash flows on certain previously
impaired structured securities improved significantly in the first half of
2010, resulting in $54 million of revaluation gains. These revaluation gains
were partially off-set by impairments for the first half of 2010 of $23 million,
in line with our long-term assumption of $24 million per annum in the AOP, and
compared to $199 million of impairments for the same period in 2009. The 2010
impairments on 21 securities related to corporate bonds as well as structured
securities, with the losses on the latter due to adverse changes in expected
cash flows, or the likelihood of diminished loss coverage from distressed
monoline insurers that guaranteed the performance of the security. The
impairment losses were primarily in RMBS ($16 million) and corporate holdings
($6 million).
Capital
OM Financial Life Insurance Company`s risk based capital ratio increased from
312% as at 31 December 2009 to 347% as at 30 June 2010. Regulatory capital grew
$85 million during the first half of 2010 driven by strong statutory operating
earnings as well as net positive investment results. OM Financial Life`s
required capital decreased (at the targeted 300% level) primarily due to a lower
risk investment portfolio off-set by capital required for new business growth.
There were no capital transactions between Group and OM Financial Life in the
period.
Nedbank Group (Nedbank)
Headline earnings improve; outlook remains cautious
Highlights (Rm) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax)* 3 052 2 890 6%
Headline earnings** 2 153 1 988 8%
Net interest income** 8 082 8 185 (1%)
Non-interest revenue** 6 158 5 377 15%
Net interest margin** 3.34% 3.44%
Credit loss ratio** 1.46% 1.60%
Cost to income ratio** 55.3% 52.5%
ROE** 10.7% 11.6%
ROE (excluding goodwill)** 12.2% 13.1%
Core Tier 1 ratio 9.9% 9.9%*
Highlights (GBPm) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax) 266 211 26%
* FY 2009
** As reported by Nedbank in their report to shareholders as at 30 June 2010
The full text of Nedbank`s results for the six months ended 30 June 2010,
released on 2 August 2010, can be accessed on Nedbank`s website
http://www.nedbankgroup.co.za. The following is an extract from it.
Banking environment
"The economy continued to recover in the first half of 2010. However, the
upswing comes off a low base and remains fragile. Household spending has been
slow to recover, with high personal debt levels, tight credit conditions and
further employment losses hampering consumption. High wage settlements and
lower interest service costs have led to an improvement in disposable income,
but the benefits of these have been thinly spread with many households still
under credit-related pressure. Capital formation benefited from the strong
effort to complete infrastructural projects ahead of the 2010 FIFA World Cup,
but the underlying trend in the private sector demand for credit remains weak
given low capacity utilisation levels and continuing uncertainty over future
prospects.
Review of results
Headline earnings increased by 8.3% from R1 988 million for the period to June
2009 to R2 153 million for the six months to June 2010. Diluted headline
earnings per share increased by 0.2% from 474 cents to 475 cents, which is
lower than the increase in headline earnings as a result of the added dilution
from the issue of shares for the Nedbank Wealth joint ventures acquired from
Old Mutual in June 2009 and a higher than usual acceptance level of the scrip
dividend alternative. Diluted earnings per share decreased by 22.4% from 611
cents in June 2009 to 474 cents. As previously reported, 2009 diluted earnings
per share were boosted by a once-off IFRS revaluation gain of R547 million
(after taxation) from the consolidation of the Nedbank Wealth joint ventures
acquired.
These results reflect an improving operating environment. They also highlight
the continued endowment related pressure on margins following an unexpected 50
basis points decrease in the prime lending rate in March 2010 and slower than
forecast wholesale credit growth. These factors were partially off-set by asset
repricing over the past 18 months and continued low impairments in Nedbank
Corporate and Nedbank Business Banking.
Given Nedbank`s strategy to grow non-interest revenue (NIR), it is pleasing to
report core commission and fee income growth on a comparable basis of 15.7%.
Total comparable NIR grew by 7.8%, with NIR being negatively impacted by a R195
million change in the credit-related fair-value adjustments of the bank`s own
subordinated debt as Nedbank`s credit spreads improved.
Nedbank Retail celebrated a milestone with the total retail client base
exceeding five million customers.
Lower interest rates have benefited impairments and the downward trend in early
arrears remained intact. However, improvements in retail defaulted advances
have taken longer to come through, compared to past cycles, as a result of the
comparatively higher levels of debt to disposable income. This delay has been
increased by challenges experienced in the debt counselling process. Recent
discussions between the South African Reserve Bank, commercial banks and the
National Credit Regulator on improving the debt counselling process are
expected to have a positive impact with new debt counselling inflows slowing
and overall levels of advances in the debt counselling process stabilising. The
level of defaulted advances in Nedbank Retail has improved to 11.9% from 12.2%
in December 2009.
Nedbank achieved a return on average ordinary shareholders` equity (ROE),
excluding goodwill, of 12.2% and an ROE of 10.7% (restated), resulting in an
overall economic loss (earnings after deducting the cost of capital employed)
of R352 million for the period (June 2009: loss of R24 million).
Nedbank`s net asset value per share continued to increase, growing by 6.6%
(annualised) from 9,100 cents in December 2009 to 9,397 cents in June 2010.
Financial performance
Net interest income (NII) NII decreased by 1.3% to R8 082 million (June 2009:
R8 185 million), largely as a result of endowment related margin compression.
The net interest margin for the period was 3.34%, down from 3.44% for the
period to June 2009 and 3.39% for the year ended December 2009. Average
interest-earning banking assets increased by 2.8% (annualised) (June 2009
growth: 17.4%).
Changes in margin were mainly caused by reduced endowment income on capital and
current and savings accounts, from the 294 basis point reduction in average
interest rates; liability margin compression reflecting a higher cost of
funding, including the cost of increased duration; the cost of holding
additional liquidity buffers; a relative benefit in interest-earning assets
repricing more quickly than interest-bearing liabilities as rates did not fall
as aggressively nor as quickly as last year; and, the benefit on improved asset
pricing on new business.
Impairments charge on loans and advances
Improving conditions have resulted in the credit loss ratio on the banking book
decreasing to 1.46% for June 2010, compared with 1.60% (restated) for the same
period in 2009. Given the uncertain global economic conditions, we remain
cautious on the wholesale sector as this sector tends to lag retail. Wholesale
credit loss ratios, with the exception of Nedbank Capital and Commercial
Property Finance within Nedbank Corporate, improved. Nedbank Corporate`s credit
loss ratios remain below expectations for this stage of the cycle.
In the retail sector impairments for unsecured lending reduced as a result of
improving arrears, the better quality of advances and recoveries. Stabilising
defaulted advances and higher levels of restructured loans of R2.4 billion
(December 2009: R1.2 billion) in the secured lending categories have started to
reduce impairments in these categories.
During the period, Nedbank aligned impairment methodologies for common clients
of Imperial Bank and Nedbank. Nedbank raised an additional R42 million in
impairments through this process.
Non-interest revenue (NIR)
NIR increased 14.5% to R6 158 million (June 2009: R5 377 million). On a
comparable basis, adjusting for the acquisition in 2009 of the Nedbank Wealth
joint ventures, NIR growth was 7.8%. The ratio of NIR to expenses was 78.2%
(June 2009: 75.5%).
Commission and fee income grew strongly by 21.9% (on a comparable basis by
15.7%) from growth in transactional volumes and annual inflation-linked fee
increases. This strong growth is pleasing to see in the light of Nedbank`s
strategy to grow NIR. In Nedbank Retail the 8.2% year-on-year increase in
primary clients as well as an improved mix contributed to NIR growth. This was
further supported by strong growth in electronic banking, cash handling and
cash management volumes in Nedbank Business Banking and Nedbank Corporate.
Trading income decreased by 3.9% from R928 million in 2009 to R892 million. The
high base was due to outperformance in the Treasury and Global Markets
businesses that benefited from trading conditions in the cycle of decreasing
interest rates in the first half of 2009. Difficult conditions were experienced
in the same period this year, although this was partially off-set by equity
trading that performed reasonably well.
Expenses
Nedbank maintained a strong cost discipline ensuring that increases in expenses
were in line with management`s expectations. Expenses grew by 10.5% to R7 872
million (June 2009: R7 121 million), largely as a result of the acquisition of
the Nedbank Wealth joint ventures and consolidation of Merchant Bank of Central
Africa, and on a comparable basis, expenses increased by 7.5%.
Taxation
The taxation charge (excluding taxation on non-trading and capital items)
decreased by 10.1% from R642 million in June 2009 to R577 million with a
decrease in the effective tax rate from 22.2% to 19.9%.
Non-trading income
Income after taxation from non-trading and capital items decreased from a R576
million profit to a R3 million loss at June 2010 following the one-off R547
million revaluation of BoE (Pty) Limited and Nedgroup life in the first six
months of 2009 on the acquisition of the remaining shares in the joint
ventures.
Capital
Ongoing strong balance sheet management has maintained Nedbank`s capital ratios
well above Nedbank`s internal targets and at levels similar to those of
December 2009. As reported at the end of the first quarter, the acquisition of
the minority shareholding in Imperial Bank was settled in cash, resulting in an
approximate 0.5% decrease in Nedbank`s capital adequacy ratios. This was partly
off-set by a 0.28% increase in capital from higher levels of take up under the
scrip dividend alternative in the second quarter.
Capital adequacy H1 2010 ratio FY 2009 ratio
Core Tier 1 ratio 9.9% 9.9%
Tier 1 ratio 11.5% 11.5%
Total capital ratio 14.8% 14.9%
Regulatory
Capital adequacy Target range minimum
Core Tier 1 ratio 7.5% to 9.0% 5.25%
Tier 1 ratio 8.5% to 10.0% 7.00%
11.5% to
Total capital ratio 13.0% 9.75%
* Capital adequacy ratios include unappropriated profit.
Liquidity
Nedbank`s liquidity position remains sound. Nedbank remains focused on
diversifying its funding base, lengthening the funding profile and maintaining
appropriate liquidity buffers. Nedbank successfully increased its long-term
funding ratio from 18.1% in December 2009 to 23.9% in June 2010, mainly from
increased capital market issuances under the domestic medium-term note
programme (R6.23 billion) and increased duration in the money market book.
Nedbank`s liquidity position is further supported by a strong loan-to-deposit
ratio of 96.0% and a low reliance on inter-bank funding and foreign markets.
Nedbank is able to leverage off its favourable retail, commercial and wholesale
deposit mix which compares well with domestic industry averages.
Advances and deposits
Advances grew by 4.9% (annualised) to R461 billion at June 2010 (December 2009:
R450 billion). Deposits increased by 4.8% (annualised) from R469 billion at
December 2009 to R480 billion at June 2010 remaining in line with advances
growth.
Nedbank continued to focus on improving its funding mix and building on its
strong retail and business banking deposit franchise. However, retail deposit
growth remains challenging given the low interest rates and a highly
competitive market, while in the professional fund management market the cost
of funding has increased as a result of the increased demand for higher
yielding negotiable certificates of deposit (NCDs).
Outlook
Conditions during the remainder of the year will be heavily influenced by
developments in the global economy. South Africa has benefited from rising
commodity prices and improved capital inflows, but international prospects
remain uncertain. Domestic spending is expected to rise although some loss of
momentum is probable after the initial boost provided as companies restocked in
early 2010 and as 2010 FIFA World Cup-related spend fades. Interest rates are
forecast to remain low well into 2011 given low inflation and below-trend
economic growth.
Retail banking should fare better as household credit demand improves, house
prices edge higher and impairments moderate. Wholesale banking areas are
expected to remain under pressure with slow credit growth as fixed investment
activity remains subdued, but transactional volumes are expected to gradually
improve.
The negative endowment effect on capital and margin compression on current and
savings accounts is anticipated to reduce during the second half if rates
remain at current levels. At the same time asset quality improvement and
impairment reductions are expected to continue, albeit at a gradual pace given
the high levels of consumer indebtedness.
Nedbank remains cautious in its outlook for the remainder of 2010 and
performance is now expected to reflect:
Advances growth in the mid-single digits.
Margin compression, on the 2009 margin, of around 15 to 20 basis points.
Ongoing, gradual improvement of the credit loss ratio.
NIR growth for the year in early to mid-double digits, subject to unforeseen
moves in fair value adjustments.
Expense growth for the year in early double digits.
Maintaining strong capital ratios and funding structure.
Given this outlook for the second half we currently anticipate that it will be
challenging to meet Nedbank`s medium-term growth target for diluted headline
earning per share of the average consumer price index plus gross domestic
product (GDP) growth plus 5%. As a result improvements in ROE for the balance
of the year are expected to be muted.
Given the strength of Nedbank`s balance sheet, the development of the strategy
to grow NIR and the benefits of the acquisitions made in 2009, Nedbank is well
positioned to take advantage of the economic upswing when it emerges more
fully."
Business Review
Mutual & Federal (M&F)
Improved underwriting result drives profitability
Highlights (Rm) H1 2010 H1 2009 % change
Underwriting result 88 (96) 192%
Long-term investment return (LTIR) 310 388 (20%)
Change programme review expense (14) -
Adjusted operating profit (IFRS basis)
(pre-tax) 384 292 32%
Gross premiums 4 205 4 358 (4%)
Earned premiums 3 396 3 550 (4%)
Claims ratio 68.5% 73.1%
Combined ratio 97.4% 102.7%
Solvency ratio 62% 46%
Return on equity* (one-year average) 14.5% 15.5%
Highlights (GBPm) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax) 33 20 65%
* The ROE is now shown over a one-year average equity base (previously
three-year average) to achieve consistency with the rest of the Group.
Overview
During the first half of 2010, growth has proved difficult due to continued
high levels of competition within the industry. The overall results for the
period were satisfactory and reflect a significant improvement on the
comparative period, with a positive net underwriting surplus of 2.6%. This is
despite the difficult trading conditions during the first three months, which
saw adverse weather conditions and a number of large industrial claims.
Underwriting and IFRS AOP results
We have been successful in implementing pricing increases where necessary and
this, together with the underlying quality of the insurance business, has
resulted in a general improvement in underwriting results during the period.
The level of overall premium decline has been driven by the cancellation of
certain unprofitable portfolios.
Claim levels during the first quarter were exceptionally high following record
rainfall levels in much of South Africa and a higher-than-expected number of
commercial fires. Results improved significantly in the second quarter
following a return to more normal claims patterns and reflected the
implementation of a number of remedial measures.
Over the course of the first half of 2010, the commercial business benefited
from a significant turnaround in our retail industry credit insurance book
(CGIC) which reported profits ahead of expectations. However, the personal
portfolio remains challenging in terms of both growth and profitability but a
number of initiatives have been implemented to reduce cost structures, promote
growth and develop premium flows through alternative channels. One example of
this is the iWyze initiative, which is a joint venture operation with the
Retail Mass segment of Old Mutual Emerging Markets.
The long-term investment return for the period was significantly lower due to a
reduction in the rate applied, from 13.3% to 9.4%.
We have completed a comprehensive business review, and are now beginning to
prioritise and implement measures which will improve efficiencies, reduce
expenses and promote profitability. While this will be a three- to five-year
programme, we expect the first tangible impacts of this exercise to be apparent
in 2011.
Solvency margin
There has been a significant improvement in the solvency margin (being the
ratio of net assets to net premiums) and this reflects the overall improvement
in the investment environment during 2009 and positive underwriting returns in
2010.
US Asset Management
Management actions drive improved margins and AOP
Highlights ($m) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax) 61 46 33%
Operating margin 17% 15%
Net client cash flows ($bn) (8.0) 0.6
H1 2010 FY 2009
Highlights ($bn)
Funds under management 243 261 (7%)
Highlights (GBPm) H1 2010 H1 2009 % change
Adjusted operating profit (IFRS basis)
(pre-tax) 40 30 33%
Overview
Our continuing strategic focus areas for 2010 are delivering strong investment
performance, enhancing our client service and distribution capabilities to
capture assets, and improving operating margins. Investment performance in many
long-term institutional asset classes is improving, particularly for some of
the quantitative strategies which were affected by the market more severely
than the traditional equity strategies in the past few years. Institutional
investment consultants continue to allocate towards investment strategies for
the long term rather than be heavily influenced by near-term performance. We
continue to look at various opportunities to expand the product offerings of
our global business, and in July announced the formation of a new international
equity portfolio management team, Echo Point Investment Management. Our
diversified investment capabilities will provide the foundation needed for
significant long-term growth.
We expect that equity markets will continue to be very volatile in the second
half of 2010. While we have a number of accounts at risk at certain affiliates,
we are focussed on building our pipeline for the remainder of 2010 to deliver
an improvement in net client cash flow. We believe the trends for customers
migrating asset allocation decisions toward international, global and
alternative strategies will continue for the rest of 2010. We have demonstrated
our ability to reduce our expense base, and this is a competitive advantage as
market volatility continues. We are on track to achieve our goal of 25% to 30%
margin by 2012. Our track record of investment performance and global business
focus has historically positioned us well relative to our competitors, and our
diversified asset/client mix has helped us weather market volatility.
Investment performance
Long-term investment performance of our affiliates remains competitive and our
managers` diversification and bias to style purity continues to protect the
business from experiencing more dramatic performance swings across the business
in volatile markets. Market conditions remained difficult during the first half
of 2010 for active equity strategies that focus on security selection,
particularly domestic equity strategies. However, relative performance has
improved over the shorter term in key strategies at certain of our affiliates,
including Acadian Asset Management and Analytic Investors. The majority of
assets under management by our affiliates continue to outperform benchmarks over
the long term, though we now trail our peers due to slight underperformance in a
few strategies. Improving investment performance throughout our business remains
a key area of focus.
IFRS AOP results
IFRS adjusted operating profit of $61 million increased 33% ($15 million) over
the same period last year. Management fees were 16% higher than the first half
of 2009 due to strong year-over-year asset growth. Performance and transaction
fees remained at cyclical lows. Additionally our performance fees typically are
more heavily weighted to the second half of the year. Operating expenses
increased slightly relative to the comparative period, mainly driven by higher
average AUM.
Operating margin and cost management
The 200 basis points improvement in our operating margin demonstrates the
success of the expense management actions taken over the past year.
Restructuring in 2009, primarily in our retail business, has delivered
approximately $15 million of expense savings in the first half of 2010.
However, these savings were largely off-set by $12 million non-recurring
expenses related to equity plan implementations.
Net client cash flows
Net client cash flows in the period were negative $8.0 billion, or (3%) of
opening funds under management. The net outflows included large Real Estate
Investment Trust (REIT) outflows at Heitman, solely driven by short-term profit
taking after our REIT product provided significant investment gains to
investors over the past six to nine months. Of the outflows from Heitman, a
significant amount had been invested for less than one year, and despite the
outflow, the total funds under management at Heitman are in excess of the
amount at 30 June 2009. Dwight`s stable value product, which like other
short-term investments generally produces modest returns in low interest rate
environments, is experiencing outflows as investor appetite towards higher risk
investments has returned. Despite the challenging environment in the second
quarter, net client cash flows for the business were positive excluding Heitman
and Dwight. Global and domestic fixed income products continued to attract new
assets, and we are seeing the outflows in global and international equities
begin to stabilise as performance improves.
Funds under management
Funds under management decreased by 7% from the year-end position. This was a
result of the net outflows in the period and negative markets in the second
quarter.
Growth and diversification through international distribution remains a key
element of our strategy, with non-US clients comprising 26% of total funds
under management at the end of the period. Last year we took steps to establish
an effective centralised distribution coverage model and asset-gathering sales
mechanism by creating a UK-registered entity for global distribution. FSA
registration was granted with effect from 30 April 2010 and OMAM International
is now operational. OMAM International is already enjoying some early success
in raising assets, and we are hopeful that it will be an important contributor
of our long-term asset growth.
Affiliate developments
We are transferring ownership of Thomson Horstmann & Bryant (THB), a $1.7
billion institutional equity manager, to the firm`s management team through a
management buy-out. The transaction is expected to close on or about 27 August
2010 and represents the culmination of discussions which began in early 2009.
Both organisations are committed to ensuring a seamless transition for the
clients. Equity plans were implemented at two of our major affiliates during
2010, and we will complete the rollout to the one remaining smaller firm during
2010. Alignment of the interests of affiliate management was a key factor in
the success of our cost management initiatives during 2009 and remains a vital
component of our long-term strategy, critical to talent retention and
positioning the business for sustainable long-term growth.
We recently announced the acquisition of an international equity portfolio
management team, led by Hans van den Berg, from Invesco. The team will form a
new OMAM affiliate, Echo Point Investment Management, based in Pennsylvania.
Hans van den Berg and his investment colleagues have delivered strong long-term
results and have worked together for many years. The senior portfolio
management team has an average of 20 years of international investment
experience and is expected to remain intact during the transition. The addition
of this experienced and respected international team will expand OMAM`s
capabilities in the actively-managed international equity area.
Retail developments
The restructuring of our US retail platform in 2009 has improved overall
efficiency in our business during the first half of 2010. We streamlined our
product offerings and are now focused on distributing to Registered Investment
Advisors (RIAs), Family Offices, and Bank Trust channels which are among the
fastest growing segments of the financial services industry. A successful
retail platform is a key component of our growth, and will also be an important
driver of margin improvement. We remain committed to developing this part of
the business.
Index to the financial information
For the six months ended 30 June 2010
Statement of directors` responsibilities in respect of the half-yearly
financial statements 34
Independent review report by KPMG Audit Plc to Old Mutual plc 35
Consolidated income statement 36
Consolidated statement of comprehensive income 37
Reconciliation of adjusted operating profit to profit after tax 38
Consolidated statement of financial position 39
Consolidated statement of changes in equity 40
Condensed consolidated statement of cash flows 46
Notes to the consolidated financial statements
A: Accounting policies 47
B: Segment information 47
C: Other key performance information 64
D: Other income statement notes 74
E: Financial assets and liabilities 76
F: Other notes 80
Group Market Consistent Embedded Value statement of earnings 81
Adjusted operating Group MCEV earnings per share 82
Components of Group MCEV and adjusted Group MCEV information 83
Notes to the Old Mutual Market Consistent Embedded Value basis
supplementary information
A: MCEV policies 85
B: Segment information 92
C: Other key performance information 112
D: Other income statement notes 119
E: Sensitivity tests 121
Shareholder information 123
Statement of directors` responsibilities in respect of the half-yearly
financial statements
For the six months ended 30 June 2010
We confirm that to the best of our knowledge:
- the consolidated financial information has been prepared in accordance with
the recognition and measurement principles of International Financial Reporting
Standards adopted by the EU and in accordance with the requirements of IAS 34
"Interim Financial Reporting" the interim management report includes a fair
review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
Julian Roberts Philip Broadley
Group Chief Executive Group Finance Director
6 August 2010 6 August 2010
Combined IFRS and MCEV report
Independent review report by KPMG Audit Plc to Old Mutual plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2010 which comprises the Consolidated income statement, the Consolidated
statement of comprehensive income, the Consolidated statement of financial
position, the Consolidated statement of changes in equity, Condensed
consolidated statement of cash flows and the related explanatory notes. We have
also reviewed the reconciliation of adjusted operating profit to profit after
tax which has been prepared on the basis as set out on page 38.
We have also been engaged by the company to review the Market Consistent
Embedded Value (MCEV) basis supplementary information ("the supplementary
information") for the six months ended 30 June 2010 as set out on pages 81 to
122.
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of financial
statements 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 Disclosure
and Transparency Rules ("the DTR") of the UK`s Financial Services Authority
("the UK FSA") and also to provide a review conclusion to the company on the
supplementary information. Our review of the condensed set of financial
statements has 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.
Our review of the supplementary information has been undertaken so that we
might state to the company those matters we have been engaged to state 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 half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half- yearly financial report in accordance with the DTR of the UK FSA. The
directors have accepted responsibility for preparing the supplementary
information contained in the half-yearly financial report on an MCEV basis in
accordance with the CFO Forum MCEV Principles as issued in June 2008 and
updated in October 2009 (`the MCEV Principles`).
As disclosed in note A, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the EU. The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by
the EU.
The supplementary information has been prepared in accordance with the MCEV
principles, using the methodology and assumptions as detailed in the basis of
preparation of the supplementary information on page 85. The supplementary
information should be read in conjunction with the group`s condensed set of
financial statements.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements and the supplementary information in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
and supplementary information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in scope
than an audit conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2010 is not prepared, in all
material respects, in accordance with IAS 34 as adopted by the EU and the DTR
of the UK FSA.
Based on our review, nothing has come to our attention that causes us to
believe that the supplementary information for the six months ended 30 June
2010 is not prepared, in all material respects, in accordance with the MCEV
principles, using the methodology and assumptions as detailed in the basis of
preparation of the supplementary information on page 85.
Alastair W S Barbour
for and on behalf of KPMG Audit Plc
Chartered Accountants, 8 Salisbury Square, London EC4Y 8BB, 6 August 2010
Consolidated income statement
For the six months ended 30 June 2010
6 months
ended 30 June
2010
Notes
Revenue
Gross earned premiums B3 2 201
Outward reinsurance (199)
Net earned premiums 2 002
Investment return (non-banking) 1 582
Banking interest and similar income 2 005
Banking trading, investment and similar income 82
Fee and commission income, and income from service
activities 1 420
Other income 108
Total revenues 7 199
Expenses
Claims and benefits (including change in insurance
contract provisions) (1 983)
Reinsurance recoveries 173
Net claims and benefits incurred (1 810)
Change in investment contract liabilities (876)
Losses on loans and advances (285)
Finance costs (127)
Banking interest payable and similar expenses (1 252)
Fee and commission expenses, and other acquisition
costs (504)
Other operating and administrative expenses (1 764)
Goodwill impairment C1(b) -
Change in third party interest in consolidated funds 28
Amortisation of PVIF and other acquired intangibles C1(b) (146)
Total expenses (6 736)
Share of associated undertakings` profit/(loss)
after tax 2
Loss on disposal of subsidiaries, associated
undertakings and strategic
investments C1(c) (22)
Profit before tax 443
Income tax expense D1(a) (63)
Profit/(loss) after tax for the financial period 380
Attributable to
Equity holders of the parent 265
Non-controlling interests
Ordinary shares 84
Preferred securities 31
Profit/(loss) after tax for the financial period 380
Earnings per share
Basic earnings per ordinary share (pence) C3(a) 5.1
Diluted earnings per ordinary share (pence) C3(a) 4.7
Weighted average number of shares - millions 4 849
GBPm
6 months Year ended
ended 30 June 31 December
2009 2009
Revenue
Gross earned premiums 1 817 3 820
Outward reinsurance (180) (369)
Net earned premiums 1 637 3 451
Investment return (non-banking) 1 553 11 616
Banking interest and similar income 2 112 3 989
Banking trading, investment and similar income 73 168
Fee and commission income, and income from
service activities 1 119 2 422
Other income 61 202
Total revenues 6 555 21 848
Expenses
Claims and benefits (including change in
insurance contract provisions) (1 377) (5 069)
Reinsurance recoveries 176 328
Net claims and benefits incurred (1 201) (4 741)
Change in investment contract liabilities (1 142) (8 345)
Losses on loans and advances (253) (511)
Finance costs (19) (322)
Banking interest payable and similar expenses (1 437) (2 627)
Fee and commission expenses, and other
acquisition costs (406) (806)
Other operating and administrative expenses (1 446) (3 139)
Goodwill impairment - (266)
Change in third party interest in
consolidated funds (282) (470)
Amortisation of PVIF and other acquired
intangibles (164) (326)
Total expenses (6 350) (21 553)
Share of associated undertakings`
profit/(loss) after tax - 2
Loss on disposal of subsidiaries, associated
undertakings and strategic
investments (45) (50)
Profit before tax 160 247
Income tax expense (133) (365)
Profit/(loss) after tax for the financial
period 27 (118)
Attributable to
Equity holders of the parent (70) (340)
Non-controlling interests
Ordinary shares 63 158
Preferred securities 34 64
Profit/(loss) after tax for the financial
period 27 (118)
Earnings per share
Basic earnings per ordinary share (pence) (1.8) (7.8)
Diluted earnings per ordinary share (pence) (1.8) (7.8)
Weighted average number of shares - millions 4 757 4 758
Consolidated statement of comprehensive income
For the six months ended 30 June 2010
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Profit/(loss) after tax for
the financial period 380 27 (118)
Other comprehensive income
for the financial period
Fair value gains/(losses)
Property revaluation 5 2 (10)
Net investment hedge (34) 2 (41)
Available-for-sale investments
Fair value gains 472 453 1 087
Recycled to the income statement (43) 117 239
Shadow accounting (246) (63) 27
Currency translation
differences/exchange
differences on translating
foreign operations 318 (248) 302
Other movements 11 47 21
Income tax relating to
components of other
comprehensive income (53) (149) (397)
Total other comprehensive
income for the financial period 430 161 1 228
Total comprehensive income
for the financial period 810 188 1 110
Attributable to
Equity holders of the parent 640 1 709
Non-controlling interests
Ordinary shares 139 151 334
Preferred securities 31 36 67
Total comprehensive income
for the financial period 810 188 1 110
Reconciliation of adjusted operating profit to profit after tax
For the six months ended 30 June 2010
6 months
ended 30 June
2010
Notes
Core operations
Long-Term Savings B2 477
Nedbank B2 266
M&F B2 33
USAM B2 40
816
Finance costs (68)
Long-term investment return on excess assets 16
Interest payable to non-core operations
Bermuda (18)
Other shareholders` expenses (11)
Adjusted operating profit 735
Adjusting items C1(a) (238)
Non-core operations Bermuda (54)
Profit before tax (net of policyholder tax) 443
Income tax attributable to policyholder
returns B2 -
Profit before tax 443
Total income tax expense D1(a) (63)
Profit/(loss) after tax for the financial
period 380
GBPm
6 months Year ended
ended 30 June 31 December
2009* 2009
Core operations
Long-Term Savings 317 685
Nedbank 211 470
M&F 20 70
USAM 30 83
578 1 308
Finance costs (47) (104)
Long-term investment return on excess assets 46 91
Interest payable to non-core operations
Bermuda (21) (40)
Other shareholders` expenses (43) (85)
Adjusted operating profit 513 1 170
Adjusting items (354) (1 137)
Non-core operations Bermuda (24) 22
Profit before tax (net of policyholder tax) 135 55
Income tax attributable to policyholder
returns 25 192
Profit before tax 160 247
Total income tax expense (133) (365)
Profit/(loss) after tax for the financial
period 27 (118)
Adjusted operating profit after tax attributable to ordinary equity holders
6 months
ended 30 June
2010
Notes
Adjusted operating profit before tax 735
Tax on adjusted operating profit D1(c) (165)
Adjusted operating profit after tax 570
Non-controlling interest ordinary shares (95)
Non-controlling interest preferred
securities (31)
Adjusted operating profit after tax
attributable to ordinary equity holders 444
Adjusted weighted average number of shares
(millions) C3(b) 5 342
Adjusted operating earnings per share (pence) C3(b) 8.3
GBPm
6 months Year ended
ended 30 June 31 December
2009* 2009
Adjusted operating profit before tax 513 1 170
Tax on adjusted operating profit (149) (292)
Adjusted operating profit after tax 364 878
Non-controlling interest ordinary shares (72) (181)
Non-controlling interest preferred
securities (34) (64)
Adjusted operating profit after tax
attributable to ordinary equity holders 258 633
Adjusted weighted average number of shares
(millions) 5 232 5 229
Adjusted operating earnings per share (pence) 4.9 12.1
* Interim 2009 results have been restated to include Bermuda as a non-core
operation.
Basis of preparation
The reconciliation of adjusted operating profit has been prepared so as to
reflect the Directors` view of the underlying long-term performance of the
Group. The statement reconciles adjusted operating profit to profit after tax
as reported under IFRS as adopted by the EU.
For core life assurance and general insurance businesses, adjusted operating
profit is based on a long-term investment return, including investment returns
on life funds` investments in Group equity and debt instruments, and is stated
net of income tax attributable to policyholder returns. For the US Asset
Management business it includes compensation costs in respect of certain
long-term incentive schemes defined as non-controlling interests in accordance
with IFRS. For all core businesses, adjusted operating profit excludes goodwill
impairment, the impact of acquisition accounting, revaluations of put options
related to long-term incentive schemes, the impact of closure of unclaimed
shares trusts, profit/(loss) on disposal of subsidiaries, associated
undertakings and strategic investments, dividends declared to holders of
perpetual preferred callable securities, and fair value profits/(losses) on
certain Group debt movements. Bermuda, which is non-core, is not included in
adjusted operating profit.
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 non-controlling 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 statement of financial position
At 30 June 2010
GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
Notes
Assets
Goodwill and other intangible assets 5 003 5 397 5 159
Mandatory reserve deposits
with central banks 985 856 882
Property, plant and equipment 871 763 828
Investment property 2 026 1 578 1 759
Deferred tax assets 668 1 434 570
Investments in associated
undertakings and joint ventures 145 115 135
Deferred acquisition costs 3 096 2 933 3 138
Reinsurers` share of life
assurance policyholder liabilities 1 325 1 162 1 296
Reinsurers` share of general
insurance liabilities 125 130 120
Deposits held with reinsurers 41 137 146
Loans and advances 45 071 37 835 42 393
Investments and securities 102 270 84 493 98 461
Current tax receivable 166 149 169
Client indebtedness for acceptances 159 146 170
Trade, other receivables and
other assets 3 739 3 229 3 051
Derivative financial
instruments assets 1 933 2 486 2 546
Cash and cash equivalents 3 267 2 672 2 982
Non-current assets
held-for-sale 18 - 1
Total assets 170 908 145 515 163 806
Liabilities
Life assurance policyholder
liabilities 96 826 80 801 93 876
General insurance liabilities 389 403 372
Third party interests in
consolidated funds 2 860 2 610 2 906
Borrowed funds E1 3 928 2 515 3 309
Provisions 226 409 263
Deferred revenue 661 604 654
Deferred tax liabilities 930 1 466 905
Current tax payable 198 195 210
Trade, other payables and
other liabilities 4 899 3 947 4 305
Liabilities under acceptances 159 146 170
Amounts owed to bank depositors 47 116 40 590 44 135
Derivative financial
instruments liabilities 1 460 2 109 1 990
Total liabilities 159 652 135 795 153 095
Net assets 11 256 9 720 10 711
Shareholders` equity
Equity attributable to equity
holders of the parent 9 047 7 731 8 464
Non-controlling interests
Ordinary shares 1 492 1 293 1 537
Preferred securities 717 696 710
Total non-controlling interests 2 209 1 989 2 247
Total equity 11 256 9 720 10 711
Consolidated statement of changes in equity
For the six months ended 30 June 2010
Millions
Number of Attributable to
shares issued equity holders
and fully paid of the parent
Six months ended 30 June 2010
Notes
Shareholders` equity at
beginning of the period 5 518 8 464
Profit after tax for the
financial period - 265
Other comprehensive income
Fair value gains/(losses)
Property revaluation - 5
Net investment hedge - (34)
Available-for-sale investments
Fair value gains - 473
Recycled to the income statement - (43)
Shadow accounting - (246)
Currency translation
differences/exchange
differences on translating
foreign operations - 259
Other movements - 14
Income tax relating to
components of other
comprehensive income - (53)
Total comprehensive income for
the financial period - 640
Dividends for the period C4 - (99)
Net acquisition of treasury shares - (29)
Acquisition of non-controlling
interest in Mutual & Federal F2 147 51
Change in participation in
other subsidiaries F2 - -
Shares issued in lieu of cash
dividend 14 15
Exercise of share options 2 3
Other issues of ordinary share
capital by the Company 1 1
Change in share-based payments reserve - 1
Transactions with shareholders 164 (57)
Shareholders` equity at end of the period 5 682 9 047
GBPm
Total
non-controlling Total
interests equity
Six months ended 30 June 2010
Shareholders` equity at beginning of the period 2 247 10 711
Profit after tax for the financial period 115 380
Other comprehensive income
Fair value gains/(losses)
Property revaluation - 5
Net investment hedge - (34)
Available-for-sale investments
Fair value gains (1) 472
Recycled to the income statement - (43)
Shadow accounting - (246)
Currency translation differences/exchange
differences on translating foreign operations 59 318
Other movements (3) 11
Income tax relating to components of other
comprehensive income - (53)
Total comprehensive income for the financial period 170 810
Dividends for the period (77) (176)
Net acquisition of treasury shares - (29)
Acquisition of non-controlling interest in
Mutual & Federal (51) -
Change in participation in other subsidiaries (81) (81)
Shares issued in lieu of cash dividend - 15
Exercise of share options - 3
Other issues of ordinary share capital by the Company - 1
Change in share-based payments reserve 1 2
Transactions with shareholders (208) (265)
Shareholders` equity at end of the period 2 209 11 256
Share Share Other
Six months ended 30 June 2010 capital premium reserves
Notes
Attributable to equity holders
of the parent at
beginning of the period 552 771 3 087
Profit for the financial year
attributable to equity
holders of the parent - - -
Other comprehensive income
Fair value gains/(losses)
Property revaluation - - 5
Net investment hedge - - -
Available-for-sale investments
Fair value gains - - 473
Recycled to income statement - - (43)
Shadow accounting - - (246)
Currency translation
differences/exchange
differences on translating
foreign operations - - -
Other movements - - 7
Income tax relating to
components of other
comprehensive income - - (59)
Total comprehensive income for
the financial period - - 137
Dividends for the period - - -
Net acquisition of treasury shares - - -
Acquisition of non-controlling
interest in Mutual & Federal F2 15 -
Shares issued in lieu of cash dividends 1 3 -
Exercise of share options - 3 -
Other issues of ordinary share
capital by the Company - 1 -
Change in share-based payments reserve - - 1
Transactions with shareholders 16 7 130
Attributable to equity holders
of the parent at end of the period 568 778 3 354
GBPm
Perpetual
preferred
Translation Retained callable
Six months ended 30 June
2010 reserve earnings securities Total
Attributable to equity
holders of the parent at
beginning of the period 469 2 897 688 8 464
Profit for the financial
year attributable to equity
holders of the parent - 249 16 265
Other comprehensive income
Fair value gains/(losses)
Property revaluation - - - 5
Net investment hedge (34) - - (34)
Available-for-sale investments
Fair value gains - - - 473
Recycled to income statement - - - (43)
Shadow accounting - - - (246)
Currency translation
differences/exchange
differences on
translating foreign operations 259 - - 259
Other movements - 7 - 14
Income tax relating to
components of other
comprehensive income - - 6 (53)
Total comprehensive
income for the financial period 225 256 22 640
Dividends for the period - (77) (22) (99)
Net acquisition of treasury shares - (29) - (29)
Acquisition of non-controlling
interest in Mutual & Federal - (93) - 51
Shares issued in lieu of
cash dividends - 11 - 15
Exercise of share options - - - 3
Other issues of ordinary
share capital by the Company - - - 1
Change in share-based
payments reserve - - - 1
Transactions with shareholders - (188) (22) (57)
Attributable to equity
holders of the parent at end of
the period 694 2 965 688 9 047
Available- Property
Merger for-sale revaluation
Other reserves attributable to
equity holders of the parent reserve reserve reserve
At beginning of the period 2 716 82 87
Fair value gains/(losses)
Property revaluation - - 5
Available-for-sale investments
Fair value gains - 473 -
Recycled to income statement - (43) -
Shadow accounting - (241) (5)
Other movements - - (1)
Income tax relating to components of other
comprehensive income - (59) -
Acquisition of non-controlling
interest in M&F 129 - -
Change in share-based payments reserve - - -
At end of the period 2 845 212 86
Share-
based
payments Other GBPm
Other reserves attributable to
equity holders of the parent reserve reserves Total
At beginning of the period 191 11 3 087
Fair value gains/(losses)
Property revaluation - - 5
Available-for-sale investments
Fair value gains - - 473
Recycled to income statement - - (43)
Shadow accounting - - (246)
Other movements 8 - 7
Income tax relating to components of other
comprehensive income - - (59)
Acquisition of non-controlling
interest in M&F - - 129
Change in share-based payments reserve 1 - 1
At end of the period 200 11 3 354
Retained earnings were reduced by GBP381 million at 30 June 2010 in respect of
own shares held in policyholders` funds, ESOP trusts, Black Economic
Empowerment trusts and other related undertakings.
Millions
Number of Attributable to
shares issued equity holders
Six months ended 30 June 2009 and fully paid of the parent
Notes
Shareholders` equity at
beginning of the period 5 516 7 737
(Loss)/profit after tax for
the financial period - (70)
Other comprehensive income
Fair value gains:
Property revaluation - 2
Net investment hedge - 2
Available-for-sale investments
Fair value gains - 453
Recycled to the income statement - 117
Shadow accounting - (63)
Currency translation
differences/exchange
differences on translating
foreign operations - (327)
Other movements - 36
Income tax relating to
components of other
comprehensive income - (149)
Total comprehensive income - 1
Dividends for the period C4 - (22)
Net sale of treasury shares - 5
Change in participation in
subsidiaries - (4)
Change in share-based payments reserve - 14
Transactions with shareholders - (7)
Shareholders` equity at end of
the period 5 516 7 731
GBPm
Total non-
controlling Total
Six months ended 30 June 2009 interest equity
Shareholders` equity at beginning of the period 1 840 9 577
(Loss)/profit after tax for the financial period 97 27
Other comprehensive income
Fair value gains:
Property revaluation - 2
Net investment hedge - 2
Available-for-sale investments
Fair value gains - 453
Recycled to the income statement - 117
Shadow accounting - (63)
Currency translation differences/exchange
differences on translating
foreign operations 79 (248)
Other movements 11 47
Income tax relating to components of other
comprehensive income - (149)
Total comprehensive income 187 188
Dividends for the period (81) (103)
Net sale of treasury shares (1) 4
Change in participation in subsidiaries 42 38
Change in share-based payments reserve 2 16
Transactions with shareholders (38) (45)
Shareholders` equity at end of the period 1 989 9 720
Share Share Other
Six months ended 30 June 2009 Notes capital premium reserves
Attributable to equity holders
of the parent at beginning of
the period 552 766 2 130
(Loss)/profit for the financial
period attributable to equity
holders of the parent - - -
Other comprehensive income
Fair value gains
Property revaluation - - 2
Net investment hedge - - -
Available-for-sale investments
Fair value gains - - 453
Recycled to income statement - - 117
Shadow accounting - - (63)
Currency translation
differences/exchange differences on
translating foreign operations - - -
Other movements - 3 (6)
Income tax relating to
components of other
comprehensive income - - (150)
Total comprehensive income - 3 353
Dividends for the period C4 - - -
Net sale of treasury shares - - -
Change in participation in subsidiaries - - (4)
Change in share-based payments reserve - - 14
Transactions with shareholders - - 10
Attributable to equity holders
of the parent at end of the period 552 769 2 493
GBPm
Perpetual
preferred
Translation Retained callable
Six months ended
30 June 2009 reserve earnings securities Total
Attributable to equity
holders of the parent at
beginning of the period 386 3 215 688 7 737
(Loss)/profit for the
financial period
attributable to equity
holders of the parent - (86) 16 (70)
Other comprehensive income
Fair value gains
Property revaluation - - - 2
Net investment hedge 2 - - 2
Available-for-sale investments
Fair value gains - - - 453
Recycled to income statement - - - 117
Shadow accounting - - - (63)
Currency translation
differences/exchange
differences on
translating foreign
operations (327) - - (327)
Other movements 2 37 - 36
Income tax relating to
components of other
comprehensive income - (5) 6 (149)
Total comprehensive income (323) (54) 22 1
Dividends for the period - - (22) (22)
Net sale of treasury shares - 5 - 5
Change in participation
in subsidiaries - - - (4)
Change in share-based
payments reserve - - - 14
Transactions with
shareholders - 5 (22) (7)
Attributable to equity
holders of the parent at
end of the period 63 3 166 688 7 731
Available- Property
Merger for-sale revaluation
Other reserves attributable to
equity holders of the parent reserve reserve reserve
At beginning of the period 2 716 (844) 85
Fair value gains
Property revaluation - - 2
Available-for-sale investments
Fair value gains - 453 -
Recycled to income statement - 117 -
Shadow accounting - (61) (2)
Other movements - 3 (2)
Income tax relating to components of other
comprehensive income - (150) -
Change in participation in subsidiaries - - -
Change in share-based payments reserve - - -
At end of the period 2 716 (482) 83
Share-
based
payments Other GBPm
Other reserves attributable to equity
holders of the parent reserve reserves Total
At beginning of the period 171 2 2 130
Fair value gains
Property revaluation - - 2
Available-for-sale investments
Fair value gains - - 453
Recycled to income statement - - 117
Shadow accounting - - (63)
Other movements (6) (1) (6)
Income tax relating to components of other
comprehensive income - - (150)
Change in participation in subsidiaries - (4) (4)
Change in share-based payments reserve 14 - 14
At end of the period 179 (3) 2 493
Retained earnings were reduced by GBP342 million at 30 June 2009 in respect of
own shares held in policyholders` funds, ESOP trusts, Black Economic
Empowerment trusts and other related undertakings.
Millions
Number of Attributable to
shares issued equity holders
Year ended 31 December 2009 and fully paid of the parent
Notes
Shareholders` equity at
beginning of the year 5 516 7 737
(Loss)/profit after tax for
the financial year - (340)
Other comprehensive income
Fair value gains/(losses)
Property revaluation - (12)
Net investment hedge - (41)
Available-for-sale investments
Fair value gains - 1 087
Recycled to the income statement - 239
Shadow accounting - 27
Currency translation
differences/exchange
differences on translating
foreign operations - 124
Other movements - 22
Income tax relating to
components of other
comprehensive income - (397)
Total comprehensive income for
the financial year - 709
Dividends for the year - (45)
Net sale of treasury shares - 39
Issue of ordinary share
capital by the Company - 2
Change in participation in subsidiaries - -
Exercise of share options 2 3
Change in share-based payments reserve - 19
Transactions with shareholders 2 18
Shareholders` equity at end of the year 5 518 8 464
GBPm
Total
non-controlling Total
Year ended 31 December 2009 interests equity
Shareholders` equity at beginning of the year 1 840 9 577
(Loss)/profit after tax for the financial year 222 (118)
Other comprehensive income
Fair value gains/(losses)
Property revaluation 2 (10)
Net investment hedge - (41)
Available-for-sale investments
Fair value gains - 1 087
Recycled to the income statement - 239
Shadow accounting - 27
Currency translation differences/exchange
differences on translating
foreign operations 178 302
Other movements (1) 21
Income tax relating to components of other
comprehensive income - (397)
Total comprehensive income for the financial year 401 1 110
Dividends for the year (145) (190)
Net sale of treasury shares - 39
Issue of ordinary share capital by the Company - 2
Change in participation in subsidiaries 150 150
Exercise of share options - 3
Change in share-based payments reserve 1 20
Transactions with shareholders 6 24
Shareholders` equity at end of the year 2 247 10 711
Share Share Other
Year ended 31 December 2009 capital premium reserves
Notes
Attributable to equity holders
of the parent at
beginning of the year 552 766 2 130
(Loss)/profit for the financial
year attributable to
equity holders of the parent - - -
Other comprehensive income
Fair value gains/(losses)
Property revaluation - - (12)
Net investment hedge - - -
Available-for-sale investments
Fair value gains - - 1 087
Recycled to income statement - - 239
Shadow accounting - - 27
Currency translation
differences/exchange
differences on translating
foreign operations - - -
Other movements - - 7
Income tax relating to
components of other
comprehensive income - - (410)
Total comprehensive income for
the financial year - - 938
Dividends for the year C4 - - -
Net sale of treasury shares - - -
Issue of ordinary share capital
by the Company - 2 -
Exercise of share options - 3 -
Change in share-based payments reserve - - 19
Transactions with shareholders - 5 19
Attributable to equity holders
of the parent at end
of the year 552 771 3 087
GBPm
Perpetual
preferred
Translation Retained callable
Year ended 31 December
2009 reserve earnings securities Total
Attributable to equity
holders of the parent at
beginning of the year 386 3 215 688 7 737
(Loss)/profit for the
financial year
attributable to
equity holders of the parent - (372) 32 (340)
Other comprehensive income
Fair value gains/(losses)
Property revaluation - - - (12)
Net investment hedge (41) - - (41)
Available-for-sale investments
Fair value gains - - - 1 087
Recycled to income statement - - - 239
Shadow accounting - - - 27
Currency translation
differences/exchange
differences on
translating foreign
operations 124 - - 124
Other movements - 15 - 22
Income tax relating to
components of other
comprehensive income - - 13 (397)
Total comprehensive
income for the financial year 83 (357) 45 709
Dividends for the year - - (45) (45)
Net sale of treasury shares - 39 - 39
Issue of ordinary share
capital by the Company - - - 2
Exercise of share options - - - 3
Change in share-based
payments reserve - - - 19
Transactions with
shareholders - 39 (45) 18
Attributable to equity
holders of the parent at end
of the year 469 2 897 688 8 464
Available- Property
Other reserves attributable to
equity holders of the Merger for-sale revaluation
parent reserve reserve reserve
At the beginning of the year 2 716 (844) 85
Fair value gains/(losses)
Property revaluation - - (12)
Available-for-sale investments
Fair value gains - 1 087 -
Recycled to income statement - 239 -
Shadow accounting - 9 18
Other movements - 1 (4)
Income tax relating to components of other
comprehensive income - (410) -
Change in share-based payments
reserve - - -
At end of the year 2 716 82 87
GBPm
Share-
based
Other reserves attributable to
equity holders of the payments Other
parent reserve reserves Total
At the beginning of the year 171 2 2 130
Fair value gains/(losses)
Property revaluation - - (12)
Available-for-sale investments
Fair value gains - - 1 087
Recycled to income statement - - 239
Shadow accounting - - 27
Other movements 1 9 7
Income tax relating to components of other
comprehensive income - - (410)
Change in share-based payments
reserve 19 - 19
At end of the year 191 11 3 087
Retained earnings were reduced by GBP379 million at 31 December 2009 in respect
of own shares held in policyholders` funds, ESOP trusts, Black Economic
Empowerment trusts and other related undertakings.
Condensed consolidated statement of cash flows
For the six months ended 30 June 2010
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Cash flows from operating activities
Profit before tax 443 160 247
Non-cash movements in
profit before tax 1 124 1 851 (8 653)
Changes in working capital 1 204 (2 616) 9 997
Taxation paid (187) (160) (373)
Net cash (outflow)/inflow
from operating activities 2 584 (765) 1 218
Cash flows from investing activities
Net disposal/(acquisitions)
of financial investments (2 864) 477 (2 674)
Acquisition of investment
properties (224) (72) (82)
Proceeds from disposal of
investment properties 19 50 57
Acquisition of property,
plant and equipment (69) (124) (138)
Proceeds from disposal of
property, plant and equipment 10 26 29
Acquisition of intangible assets (30) (12) (43)
Acquisition of interests in
subsidiaries (124) (2) (5)
Disposal of interests in
subsidiaries, associated
undertakings and
strategic investments 2 16 40
Net cash inflow/(outflow)
from investing activities (3 280) 359 (2 816)
Cash flows from financing activities
Dividends paid to
Ordinary equity holders of
the Company (62) - -
Non-controlling interests
and preferred security interests (99) (103) (190)
Interest paid (excluding
banking interest paid) (38) (120) (57)
Proceeds from issue of
ordinary shares (including
by subsidiaries to non-
controlling interests) 4 46 100
Net (purchase)/sale of
treasury shares (29) 4 38
Issue of subordinated and
other debt 584 290 1 049
Subordinated and other debt repaid (41) (33) (441)
Net cash inflow from
financing activities 319 84 499
Net decrease in cash and
cash equivalents (377) (322) (1 099)
Effects of exchange rate
changes on cash and cash
equivalents 128 (175) 160
Cash and cash equivalents
at beginning of the period 4 044 4 983 4 983
Cash and cash equivalents
at end of the period 3 795 4 486 4 044
Consisting of Cash and cash
equivalents in the statement of
financial position 3 267 2 672 2 982
Mandatory reserve deposits
with central banks 984 856 882
Short term cash balances
held in policyholder funds 441 1 743 897
Cash and cash equivalents
subject to consolidation of funds (897) (785) (717)
Total 3 795 4 486 4 044
Cash flows presented in this statement include all cash flows relating to
policyholders` funds for life assurance.
Except for mandatory reserve deposits with central banks and cash and cash
equivalents subject to consolidation of funds, management do not consider that
there are any material amounts of cash and cash equivalents which are not
available for use in the Group`s day to day operations.
Mandatory reserve deposits are, however, included in cash and cash equivalents
for the purposes of the cash flow statement in line with market practice in
South Africa.
Notes to the consolidated financial statements
For the six months ended 30 June 2010
A Accounting policies
A1 Basis of preparation
The Group financial information contained herein has been prepared in
accordance with the recognition and measurement principles of International
Financial Reporting Standards adopted by the EU and in accordance with the
requirements of IAS 34 "Interim Financial Reporting". The Group`s results for
the six months ended 30 June 2010 and the position at that date have been
prepared using accounting policies consistent with those applied in the
preparation of the Group`s 2009 Annual Report and Accounts.
The Group financial information has been prepared on the going concern basis
which the directors believe appropriate having taken into consideration the
matters discussed in the Group Finance Director`s Review in the section headed
Risk and Uncertainties.
The comparative figures for the financial year ended 31 December 2009 are not
the company`s statutory accounts for that financial year. Those accounts have
been reported on by the company`s auditors and delivered to the registrar of
companies. The report of the auditors was (i) unqualified, (ii) did not include
a reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.
B Segment information
B1 Basis of segmentation
The Group`s core operations are Emerging Markets, Nordic, Retail Europe, Wealth
Management and US Life (collectively Long-Term Savings), Nedbank, Mutual &
Federal, US Asset Management and Other operating segments (comprising the Group
head office functions). The Bermuda operating segment is regarded as non-core.
This is consistent with the way that management and the Board of Directors
considers information when making operating decisions and is the basis on which
resources are allocated and performance assessed by management and the Board of
Directors, being in line with that reported in the previous financial year. The
Group generates revenue from four principal business activities: life
assurance, asset management, banking and general insurance. The types of
products and services from which each operating segment derives its revenues
are as follows:
Core operations
Emerging Markets - life assurance and asset management
Nordic - life assurance, asset management and banking
Retail Europe - life assurance and asset management
Wealth Management - life assurance and asset management
US Life - life assurance
Nedbank - banking and asset management
Mutual & Federal - general insurance
US Asset Management - asset management
Other operating segments
Non-core operations
Bermuda - life assurance
Adjusted operating profit is one of the key measures reported to the Group`s
management and Board of Directors for their consideration in the allocation of
resources to and the review of performance of the segments. The Group utilises
additional measures to assess the performance of each of the segments, in
particular the level of funds under management. Additional performance measures
considered by management and the Board of Directors in assessing the
performance of the segments can be found in the Old Mutual Market Consistent
Embedded Value information.
In the analysis that follows, consolidation adjustments include the elimination
of inter segment revenues, expenses, assets and liabilities together with the
impacts of the consolidation of the Group`s interest in unit trusts, mutual
funds and similar entities. The 30 June 2009 comparative has been restated to
reflect the revised reporting structure introduced in the second half of 2009.
Notes to the consolidated financial statements
For the six months ended 30 June 2010
B2 Adjusted operating profit statement segment information six months ended
30 June 2010
Long-Term Savings
Emerging Retail
Markets Nordic Europe
Revenue
Gross earned premiums 1 111 61 13
Outward reinsurance (35) (3) (4)
Net earned premiums 1 076 58 9
Investment return (non-banking) 541 190 238
Banking interest and similar income - 79 (1)
Banking trading, investment and similar income - - -
Fee and commission income, and income from
service activities 180 114 99
Other income 20 9 -
Inter-segment revenues 32 9 2
Total revenues 1 849 459 347
Expenses
Claims and benefits (including change in
insurance contract provisions) (891) (41) (14)
Reinsurance recoveries 44 - 2
Net claims and benefits incurred (847) (41) (12)
Change in investment contract liabilities (201) (141) (231)
Losses on loans and advances - (2) (1)
Finance costs (including interest and
similar expenses) - - -
Banking interest payable and similar expenses - (36) -
Fee and commission expenses, and other
acquisition costs (99) (29) (37)
Other operating and administrative expenses (436) (128) (40)
Goodwill impairment - - -
Change in third party interest in
consolidated funds - - -
Amortisation of PVIF and other acquired
intangibles - - -
Income tax attributable to policyholder returns 8 (24) -
Inter-segment expenses (5) (1) (1)
Total expenses (1 580) (402) (322)
Share of associated undertakings`
profit/(loss) after tax - 1 -
Loss on disposal of subsidiaries, associated
undertakings and strategic investments - - -
Adjusted operating profit/(loss) before tax
and non-controlling interests 269 58 25
Income tax (expense)/credit (61) (13) (7)
Non-controlling interests - - -
Adjusted operating profit/(loss) after tax
and non-controlling interests 208 45 18
Adjusting items net of tax and
non-controlling interests (19) (39) (15)
Profit/(loss) after tax attributable to
equity holders of the parent 189 6 3
Wealth
Management US Life
Revenue
Gross earned premiums 163 501
Outward reinsurance (38) (52)
Net earned premiums 125 449
Investment return (non-banking) 358 284
Banking interest and similar income - -
Banking trading, investment and similar income - -
Fee and commission income, and income from service
activities 433 -
Other income 6 1
Inter-segment revenues 3 -
Total revenues 925 734
Expenses
Claims and benefits (including change in insurance
contract provisions) (151) (632)
Reinsurance recoveries 38 55
Net claims and benefits incurred (113) (577)
Change in investment contract liabilities (303) -
Losses on loans and advances - -
Finance costs (including interest and similar expenses) - -
Banking interest payable and similar expenses - -
Fee and commission expenses, and other acquisition costs (223) (95)
Other operating and administrative expenses (186) (28)
Goodwill impairment - -
Change in third party interest in consolidated funds - -
Amortisation of PVIF and other acquired intangibles - -
Income tax attributable to policyholder returns 16 -
Inter-segment expenses (21) (4)
Total expenses (830) (704)
Share of associated undertakings` profit/(loss)
after tax - -
Loss on disposal of subsidiaries, associated
undertakings and strategic investments - -
Adjusted operating profit/(loss) before tax and
non-controlling interests 95 30
Income tax (expense)/credit (11) (10)
Non-controlling interests - -
Adjusted operating profit/(loss) after tax and
non-controlling interests 84 20
Adjusting items net of tax and non-controlling interests (45) 98
Profit/(loss) after tax attributable to equity
holders of the parent 39 118
Other
Total Long- operating
Term Savings Nedbank M&F USAM segments
1 849 - 352 - -
(132) - (67) - -
1 717 - 285 - -
1 611 - 25 (2) 35
78 1 927 - - -
- 82 - - -
826 408 11 231 -
36 50 1 6 -
46 10 12 2 7
4 314 2 477 334 237 42
(1 729) - (233) - -
139 - 34 - -
(1 590) - (199) - -
(876) - - - -
(3) (282) - - -
- - - - (68)
(36) (1 207) - - -
(483) (2) (53) (9) -
(818) (688) (42) (188) (33)
- - - - -
- - - - -
- - - - -
- - - - -
(32) (32) (8) - (22)
(3 838) (2 211) (302) (197) (123)
1 - 1 - -
- - - - -
477 266 33 40 (81)
(102) (53) (8) (4) 2
- (106) (1) - (19)
375 107 24 36 (98)
(20) 6 (19) (17) (75)
355 113 5 19 (173)
GBPm
Adjusting Non-core
Consolidation Adjusted items operations IFRS Income
adjustments operating profit (Note C1) Bermuda statement
- 2 201 - - 2 201
- (199) - - (199)
- 2 002 - - 2 002
(2) 1 667 (47) (38) 1 582
- 2 005 - - 2 005
- 82 - - 82
(5) 1 471 (51) - 1 420
4 97 - 11 108
(95) (18) - 18 -
(98) 7 306 (98) (9) 7 199
- (1 962) - (21) (1 983)
- 173 - - 173
- (1 789) - (21) (1 810)
- (876) - - (876)
- (285) - - (285)
- (68) (59) - (127)
- (1 243) (9) - (1 252)
(19) (566) 74 (12) (504)
(6) (1 775) 22 (11) (1 764)
- - - - -
28 28 - - 28
- - (146) - (146)
- - - - -
95 1 - (1) -
98 (6 573) (118) (45) (6 736)
- 2 - - 2
- - (22) - (22)
- 735 (238) (54) 443
- (165) 102 - (63)
- (126) 11 - (115)
- 444 (125) (54) 265
- (125) 125 - -
- 319 - (54) 265
B2 Adjusted operating profit statement segment information six months ended
30 June 2009
Long-Term Savings
Emerging Retail
Markets Nordic Europe
Revenue
Gross earned premiums 884 51 14
Outward reinsurance (28) (3) (4)
Net earned premiums 856 48 10
Investment return (non-banking) (90) 867 186
Banking interest and similar income - 96 -
Banking trading, investment and similar income - - -
Fee and commission income, and income from
service activities 126 86 92
Other income 12 2 1
Inter-segment revenues 32 2 9
Total revenues 936 1 101 298
Expenses
Claims and benefits (including change in
insurance contract provisions) (231) (38) (18)
Reinsurance recoveries 28 1 2
Net claims and benefits incurred (203) (37) (16)
Change in investment contract liabilities (114) (841) (179)
Losses on loans and advances - (3) -
Finance costs (including interest and
similar expenses) - - -
Banking interest payable and similar expenses - (51) -
Fee and commission expenses, and other
acquisition costs (82) (24) (40)
Other operating and administrative expenses (316) (101) (50)
Goodwill impairment - - -
Change in third party interest in
consolidated funds - - -
Amortisation of PVIF and other acquired
intangibles - - -
Income tax attributable to policyholder returns (2) (19) -
Inter-segment expenses (6) (3) (5)
Total expenses (723) (1 079) (290)
Share of associated undertakings`
profit/(loss) after tax 2 - -
Loss on disposal of subsidiaries,
associated undertakings and strategic investments - - -
Adjusted operating profit/(loss) before tax
and non-controlling interests 215 22 8
Income tax (expense)/credit (66) 1 (3)
Non-controlling interests (2) - -
Adjusted operating profit/(loss) after tax
and non-controlling interests 147 23 5
Adjusting items net of tax and
non-controlling interests (109) (32) (21)
Profit/(loss) after tax attributable to
equity holders of the parent 38 (9) (16)
Wealth
Management US Life
Revenue
Gross earned premiums 143 421
Outward reinsurance (40) (51)
Net earned premiums 103 370
Investment return (non-banking) 59 303
Banking interest and similar income - -
Banking trading, investment and similar income - -
Fee and commission income, and income from service
activities 363 -
Other income 8 1
Inter-segment revenues 9 -
Total revenues 542 674
Expenses
Claims and benefits (including change in insurance
contract provisions) (150) (589)
Reinsurance recoveries 52 54
Net claims and benefits incurred (98) (535)
Change in investment contract liabilities (6) -
Losses on loans and advances - -
Finance costs (including interest and similar expenses) - -
Banking interest payable and similar expenses - -
Fee and commission expenses, and other acquisition costs (188) (71)
Other operating and administrative expenses (186) (32)
Goodwill impairment - -
Change in third party interest in consolidated funds - -
Amortisation of PVIF and other acquired intangibles - -
Income tax attributable to policyholder returns (4) -
Inter-segment expenses (17) (7)
Total expenses (499) (645)
Share of associated undertakings` profit/(loss) after tax - -
Loss on disposal of subsidiaries, associated
undertakings and strategic investments - -
Adjusted operating profit/(loss) before tax and
non-controlling interests 43 29
Income tax (expense)/credit (2) (8)
Non-controlling interests - -
Adjusted operating profit/(loss) after tax and
non-controlling interests 41 21
Adjusting items net of tax and non-controlling interests (61) (98)
Profit/(loss) after tax attributable to equity
holders of the parent (20) (77)
Other
Total Long- operating
Term Savings Nedbank M&F USAM segments
1 513 - 297 - -
(126) - (54) - -
1 387 - 243 - -
1 325 - 26 - 43
96 2 016 - - -
- 73 - - -
667 293 9 206 -
24 24 - 2 -
52 14 18 5 7
3 551 2 420 296 213 50
(1 026) - (221) - -
137 - 40 - -
(889) - (181) - -
(1 140) - - - -
(3) (250) - - -
- - - - (47)
(51) (1 392) - - -
(405) - (53) (8) -
(685) (529) (30) (175) (38)
- - - - -
- - - - -
- - - - -
(25) - - - -
(38) (40) (12) - (26)
(3 236) (2 211) (276) (183) (111)
2 2 - - (4)
- - - - -
317 211 20 30 (65)
(78) (48) (4) (9) (10)
(2) (84) (4) - (16)
237 79 12 21 (91)
(321) 10 (5) 11 1
(84) 89 7 32 (90)
GBPm
Adjusting Non-core
Consolidation Adjusted items operations IFRS Income
adjustments operating profit (Note C1) Bermuda statement
- 1 810 - 7 1 817
- (180) - - (180)
- 1 630 - 7 1 637
310 1 704 (226) 75 1 553
- 2 112 - - 2 112
- 73 - - 73
- 1 175 (56) - 1 119
- 50 - 11 61
(117) (21) - 21 -
193 6 723 (282) 114 6 555
- (1 247) - (130) (1 377)
- 177 - (1) 176
- (1 070) - (131) (1 201)
- (1 140) - (2) (1 142)
- (253) - - (253)
- (47) 28 - (19)
- (1 443) 6 - (1 437)
(25) (491) 81 4 (406)
(3) (1 460) 22 (8) (1 446)
- - - - -
(282) (282) - - (282)
- - (164) - (164)
- (25) 25 - -
117 1 - (1) -
(193) (6 210) (2) (138) (6 350)
- - - - -
- - (45) - (45)
- 513 (329) (24) 160
- (149) 16 - (133)
- (106) 9 - (97)
- 258 (304) (24) (70)
- (304) 304 - -
- (46) - (24) (70)
Long-Term Savings
Emerging Retail
Markets Nordic Europe
Revenue
Gross earned premiums 1 946 109 31
Outward reinsurance (56) (5) (8)
Net earned premiums 1 890 104 23
Investment return (non-banking) 2 636 2 035 564
Banking interest and similar income - 157 -
Banking trading, investment and similar
income - - -
Fee and commission income, and income from
service activities 305 190 189
Other income 65 6 -
Inter-segment revenues 55 32 10
Total revenues 4 951 2 524 786
Expenses
Claims and benefits (including change in
insurance contract provisions) (2 551) (72) (37)
Reinsurance recoveries 76 2 5
Net claims and benefits incurred (2 475) (70) (32)
Change in investment contract liabilities (1 040) (1 972) (554)
Losses on loans and advances - (5) (1)
Finance costs (including interest and
similar expenses) - - -
Banking interest payable and similar expenses - (70) -
Fee and commission expenses, and other
acquisition costs (184) (53) (79)
Other operating and administrative expenses (768) (215) (96)
Goodwill impairment - - -
Change in third party interest in
consolidated funds - - -
Amortisation of PVIF and other acquired
intangibles - - -
Income tax attributable to policyholder returns (37) (39) -
Inter-segment expenses (5) (38) (2)
Total expenses (4 509) (2 462) (764)
Share of associated undertakings`
profit/(loss) after tax 4 - -
Loss on disposal of subsidiaries,
associated undertakings and strategic investments - - -
Adjusted operating profit/(loss) before tax
and non-controlling interests 446 62 22
Income tax (expense)/credit (130) 9 (8)
Non-controlling interests (2) - -
Adjusted operating profit/(loss) after tax
and non-controlling interests 314 71 14
Adjusting items net of tax and
non-controlling interests (200) (4) (228)
Profit/(loss) after tax attributable to
equity holders of the parent 114 67 (214)
Wealth
Management US Life
Revenue
Gross earned premiums 315 800
Outward reinsurance (81) (102)
Net earned premiums 234 698
Investment return (non-banking) 4 997 654
Banking interest and similar income - -
Banking trading, investment and similar income - -
Fee and commission income, and income from service
activities 746 -
Other income 24 6
Inter-segment revenues 27 -
Total revenues 6 028 1 358
Expenses
Claims and benefits (including change in insurance
contract provisions) (255) (1 283)
Reinsurance recoveries 46 128
Net claims and benefits incurred (209) (1 155)
Change in investment contract liabilities (4 775) -
Losses on loans and advances - -
Finance costs (including interest and similar expenses) - -
Banking interest payable and similar expenses - -
Fee and commission expenses, and other acquisition costs (394) (78)
Other operating and administrative expenses (380) (67)
Goodwill impairment - -
Change in third party interest in consolidated funds - -
Amortisation of PVIF and other acquired intangibles - -
Income tax attributable to policyholder returns (116) -
Inter-segment expenses (48) (9)
Total expenses (5 922) (1 309)
Share of associated undertakings` profit/(loss) after tax - -
Loss on disposal of subsidiaries, associated
undertakings and strategic investments - -
Adjusted operating profit/(loss) before tax and
non-controlling interests 106 49
Income tax (expense)/credit (20) (9)
Non-controlling interests - -
Adjusted operating profit/(loss) after tax and
non-controlling interests 86 40
Adjusting items net of tax and non-controlling
interests (225) (120)
Profit/(loss) after tax attributable to equity
holders of the parent (139) (80)
Other
Total Long- operating
Term Savings Nedbank M&F USAM segments
3 201 - 612 - -
(252) - (117) - -
2 949 - 495 - -
10 886 - 58 13 91
157 3 832 - - -
- 168 - - -
1 430 663 22 429 -
101 70 1 7 -
124 31 29 6 21
15 647 4 764 605 455 112
(4 198) - (412) - -
257 - 72 - -
(3 941) - (340) - -
(8 341) - - - -
(6) (505) - - -
- - - - (104)
(70) (2 557) - - -
(788) (2) (106) (18) -
(1 526) (1 167) (64) (354) (84)
- - - - -
- - - - -
- - - - -
(192) - - - -
(102) (65) (25) - (58)
(14 966) (4 296) (535) (372) (246)
4 2 - - (4)
- - - - -
685 470 70 83 (138)
(158) (96) (15) (19) (4)
(2) (193) (16) - (34)
525 181 39 64 (176)
(777) 15 - (3) (241)
(252) 196 39 61 (417)
GBPm
Adjusting Non-core
Consolidation Adjusted items operations IFRS Income
adjustments operating profit (Note C1) Bermuda statement
- 3 813 - 7 3 820
- (369) - - (369)
- 3 444 - 7 3 451
509 11 557 (425) 484 11 616
- 3 989 - - 3 989
- 168 - - 168
(6) 2 538 (116) - 2 422
1 180 - 22 202
(251) (40) - 40 -
253 21 836 (541) 553 21 848
- (4 610) - (459) (5 069)
- 329 - (1) 328
- (4 281) - (460) (4 741)
- (8 341) - (4) (8 345)
- (511) - - (511)
- (104) (218) - (322)
- (2 627) - - (2 627)
(12) (926) 167 (47) (806)
(22) (3 217) 97 (19) (3 139)
- - (266) - (266)
(470) (470) - - (470)
- - (326) - (326)
- (192) 192 - -
251 1 - (1) -
(253) (20 668) (354) (531) (21 553)
- 2 - - 2
- - (50) - (50)
- 1 170 (945) 22 247
- (292) (84) 11 (365)
- (245) 23 - (222)
- 633 (1 006) 33 (340)
- (1 006) 1 006 - -
- (373) - 33 (340)
Notes to the consolidated financial statements
For the six months ended 30 June 2010
B3 Gross earned premiums
Long-Term Savings
Emerging Retail
Six months ended 30 June 2010 Markets Nordic Europe
Life assurance insurance contracts 726 61 13
Life assurance investment contracts with
discretionary participation features 385 - -
General insurance - - -
Gross earned premiums 1 111 61 13
Life assurance other investment contracts
recognised as deposits 983 561 365
Wealth
Six months ended 30 June 2010 Management US Life
Life assurance insurance contracts 163 501
Life assurance investment contracts with
discretionary participation features - -
General insurance - -
Gross earned premiums 163 501
Life assurance other investment contracts
recognised as deposits 3 489 124
Long-Term Savings
Emerging Retail
Markets Nordic Europe
Six months ended 30 June 2009
Life assurance insurance contracts 589 51 14
Life assurance investment contracts with
discretionary participation features 295 - -
General insurance - - -
Gross earned premiums 884 51 14
Life assurance other investment contracts
recognised as deposits 1 223 611 315
Wealth
Management US Life
Six months ended 30 June 2009
Life assurance insurance contracts 143 421
Life assurance investment contracts with
discretionary participation features - -
General insurance - -
Gross earned premiums 143 421
Life assurance other investment contracts
recognised as deposits 2 128 82
Long-Term Savings
Emerging Retail
Year ended 31 December 2009 Markets Nordic Europe
Life assurance insurance contracts 1 287 109 31
Life assurance investment contracts with
discretionary participation features 659 - -
General insurance - - -
Gross earned premiums 1 946 109 31
Life assurance other investment contracts
recognised as deposits 2 726 1 199 733
Wealth
Year ended 31 December 2009 Management US Life
Life assurance insurance contracts 315 800
Life assurance investment contracts with
discretionary participation features - -
General insurance - -
Gross earned premiums 315 800
Life assurance other investment contracts
recognised as deposits 4 906 171
B4 Impairments of financial assets
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Nordic 3 3 5
US Life (20) 133 248
Total Long-Term Savings (17) 136 253
282 250 504
Nedbank
Bermuda - 14 13
Total 265 400 770
Non-core GBPm
Total Long-Term Total core operations
Savings Nedbank M&F USAM operations Bermuda Total
1 464 - - - 1 464 - 1 464
385 - - - 385 - 385
- - 352 - 352 - 352
1 849 - 352 - 2 201 - 2 201
5 522 - - - 5 522 - 5 522
Non-core GBPm
Total Long-Term Total core operations
Savings Nedbank M&F USAM operations Bermuda Total
1 218 - - - 1 218 7 1 225
295 - - - 295 - 295
- - 297 - 297 297
1 513 - 297 - 1 810 7 1 817
4 359 - - - 4 359 8 4 367
Non-core GBPm
operations
Total Long-Term Total core Bermuda Total
Savings Nedbank M&F USAM operations
2 542 - - - 2 542 7 2 549
659 - - - 659 - 659
- - 612 - 612 - 612
3 201 - 612 - 3 813 7 3 820
9 735 - - - 9 735 8 9 743
Notes to the consolidated financial statements
For the six months ended 30 June 2010
B5 Funds under management
Long-Term Savings
Emerging Retail
As at 30 June 2010 Markets Nordic Europe
Life assurance policyholder funds 25 636 9 509 3 731
Unit trusts and mutual funds 8 677 1 465 370
Third party client funds 9 469 - -
Total client funds under management 43 782 10 974 4 101
Shareholder funds 2 370 408 199
Total funds under management 46 152 11 382 4 300
Wealth
As at 30 June 2010 Management US Life
Life assurance policyholder funds 35 636 7 058
Unit trusts and mutual funds 12 239 -
Third party client funds - -
Total client funds under management 47 875 7 058
Shareholder funds 899 -
Total funds under management 48 774 7 058
Long-Term Savings
Emerging Retail
As at 30 June 2009 Markets Nordic Europe
Life assurance policyholder funds 21 743 7 108 2 871
Unit trusts and mutual funds 6 451 1 026 361
Third party client funds 6 988 - -
Total client funds under management 35 182 8 134 3 232
Shareholder funds 1 819 237 167
Total funds under management 37 001 8 371 3 399
Wealth
As at 30 June 2009 Management US Life
Life assurance policyholder funds 29 017 347
Unit trusts and mutual funds 8 874 -
Third party client funds - -
Total client funds under management 37 891 347
Shareholder funds 842 -
Total funds under management 38 733 347
Long-Term Savings
Emerging Retail
As at 31 December 2009 Markets Nordic Europe
Life assurance policyholder funds 25 454 9 221 3 569
Unit trusts and mutual funds 7 686 1 428 391
Third party client funds 8 229 - -
Total client funds under management 41 369 10 649 3 960
Shareholder funds 2 130 360 210
Total funds under management 43 499 11 009 4 170
Wealth
As at 31 December 2009 Management US Life
Life assurance policyholder funds 34 721 6 689
Unit trusts and mutual funds 11 308 -
Third party client funds - -
Total client funds under management 46 029 6 689
Shareholder funds 830 -
Total funds under management 46 859 6 689
Non-core
Total Long-Term Total core operations GBPm
Savings Nedbank M&F USAM operations Bermuda Total
81 570 711 - 7 667 89 948 2 877 92 825
22 751 4 341 - 3 992 31 084 - 31 084
9 469 3 973 - 150 706 164 148 - 164 148
113 790 9 025 - 162 365 285 180 2 877 288 057
3 876 - 171 192 4 239 - 4 239
117 666 9 025 171 162 557 289 419 2 877 292 296
Non-core GBPm
Total Long-Term Total core operations
Savings Nedbank M&F USAM operations Bermuda Total
61 086 549 - 12 359 73 994 2 327 76 321
16 712 2 863 - 3 132 22 707 - 22 707
6 988 3 361 - 134 529 144 878 - 144 878
84 786 6 773 - 150 020 241 579 2 327 243 906
3 065 - 139 163 3 367 - 3 367
87 851 6 773 139 150 183 244 946 2 327 247 273
Non-core GBPm
Total Long-Term Total core operations
Savings Nedbank M&F USAM operations Bermuda Total
79 654 658 - 6 789 87 101 2 913 90 014
20 813 3 775 - 4 095 28 683 - 28 683
8 229 3 800 - 150 423 162 452 - 162 452
108 696 8 233 - 161 307 278 236 2 913 281 149
3 530 - 162 169 3 861 - 3 861
112 226 8 233 162 161 476 282 097 2 913 285 010
Notes to the consolidated financial statements
For the six months ended 30 June 2010
B6 Statement of financial position segment information at 30 June 2010
Long-Term Savings
Emerging Retail
At 30 June 2010 Markets Nordic Europe
Assets
Goodwill and other intangible assets 109 960 510
Mandatory reserve deposits with central banks - - -
Property, plant and equipment 345 11 3
Investment property 1 648 - -
Deferred tax assets 66 94 70
Investments in associated undertakings and
joint ventures 28 1 -
Deferred acquisition costs 126 56 261
Reinsurers` share of long-term business
policyholder liabilities 19 8 7
Reinsurers` share of general insurance
liabilities - - -
Deposits held with reinsurers - - -
Loans and advances 285 4 444 1
Investments and securities 28 185 11 145 3 854
Current tax receivable 6 4 18
Client indebtedness for acceptances - - -
Trade, other receivables and other assets 727 164 55
Derivative financial instruments assets 322 6 -
Cash and cash equivalents 384 374 73
Non-current assets held-for-sale - - -
Inter-segment assets 1 078 44 31
Total assets 33 328 17 311 4 883
Liabilities
Long-term business policyholder liabilities 29 364 9 704 3 852
General insurance liabilities - - -
Third party interests in consolidated funds - - -
Borrowed funds 283 2 -
Provisions 143 (14) 4
Deferred revenue 22 1 148
Deferred tax liabilities 203 109 172
Current tax payable 64 25 2
Trade, other payables and other liabilities 1 456 260 76
Liabilities under acceptances - - -
Amounts owed to bank depositors - 5 666 -
Derivative financial instruments
liabilities 109 14 4
Inter-segment liabilities 87 4 1
Total liabilities 31 731 15 771 4 259
Net assets 1 597 1 540 624
Equity attributable to equity holders of the
parent 1 593 1 540 624
Non-controlling interests 4 - -
Non-controlling interests ordinary shares 4 - -
Non-controlling interests preference shares - - -
Total equity 1 597 1 540 624
Wealth
At 30 June 2010 Management US Life
Assets
Goodwill and other intangible assets 1 536 42
Mandatory reserve deposits with central banks - -
Property, plant and equipment 14 -
Investment property - -
Deferred tax assets 24 197
Investments in associated undertakings and joint
ventures - -
Deferred acquisition costs 828 1 589
Reinsurers` share of long-term business policyholder
liabilities 744 520
Reinsurers` share of general insurance liabilities - -
Deposits held with reinsurers - 40
Loans and advances 165 57
Investments and securities 36 151 11 264
Current tax receivable 106 -
Client indebtedness for acceptances - -
Trade, other receivables and other assets 243 236
Derivative financial instruments assets - 57
Cash and cash equivalents 223 8
Non-current assets held-for-sale 7 -
Inter-segment assets 250 62
Total assets 40 291 14 072
Liabilities
Long-term business policyholder liabilities 36 531 12 439
General insurance liabilities - -
Third party interests in consolidated funds - -
Borrowed funds - -
Provisions 33 -
Deferred revenue 481 -
Deferred tax liabilities 138 126
Current tax payable 38 2
Trade, other payables and other liabilities 515 261
Liabilities under acceptances - -
Amounts owed to bank depositors - -
Derivative financial instruments liabilities - 9
Inter-segment liabilities 169 172
Total liabilities 37 905 13 009
Net assets 2 386 1 063
Equity attributable to equity holders of the parent 2 386 1 063
Non-controlling interests - -
Non-controlling interests ordinary shares - -
Non-controlling interests preference shares - -
Total equity 2 386 1 063
Total Other
Long-Term operating Consolidation GBPm
Savings Nedbank M&F USAM Bermuda segments adjustments Total
3 157 568 31 1 233 1 13 - 5 003
- 985 - - - - - 985
373 454 23 18 - 3 - 871
1 648 18 - - - - 360 2 026
451 36 10 162 - 9 - 668
29 83 1 8 - 24 - 145
2 860 2 16 26 192 - - 3 096
1 298 27 - - - - - 1 325
- - 125 - - - - 125
40 - 1 - - - - 41
4 952 40 117 2 - - - - 45 071
90 599 6 341 464 184 2 870 39 1 773 102 270
134 32 - - - - - 166
- 159 - - - - - 159
1 425 541 92 128 919 58 576 3 739
385 1 115 - - 6 89 338 1 933
1 062 704 90 160 55 299 897 3 267
7 - - 11 - - - 18
1 465 161 29 - 614 1 467 (3 736) -
109 885 51 343 884 1 930 4 657 2 001 208 170 908
91 890 712 - - 4 224 - - 96 826
- - 389 - - - - 389
- - - - - - 2 860 2 860
285 2 237 - - - 1 406 - 3 928
166 (4) 25 3 - 36 - 226
652 1 8 - - - - 661
748 153 7 - - 22 - 930
131 13 1 8 6 39 - 198
2 568 1 164 120 171 8 106 762 4 899
- 159 - - - - - 159
5 666 41 450 - - - - - 47 116
136 952 - - - 50 322 1 460
433 496 - 1 324 - 1 483 (3 736) -
102 675 47 333 550 1 506 4 238 3,142 208 159 652
7 210 4 010 334 424 419 (1 141) - 11 256
7 206 2 296 321 392 419 (1 587) - 9 047
4 1 714 13 32 - 446 - 2 209
4 1 443 13 32 - - - 1 492
- 271 - - - 446 - 717
7 210 4 010 334 424 419 (1 141) - 11 256
Notes to the consolidated financial statements
For the six months ended 30 June 2010
B6 Statement of financial position segment information at 30 June 2009
Long-Term Savings
Emerging Retail
Markets Nordic Europe
At 30 June 2009
Assets
Goodwill and other intangible assets 95 1 005 744
Mandatory reserve deposits with
central banks - - -
Property, plant and equipment 336 3 5
Investment property 1 406 - -
Deferred tax assets 58 73 42
Investments in associated undertakings
and joint ventures 5 1 -
Deferred acquisition costs 115 40 237
Reinsurers` share of long-term
business policyholder liabilities 11 11 6
Reinsurers` share of general insurance
liabilities - - -
Deposits held with reinsurers - 99 -
Loans and advances 151 3 598 2
Investments and securities 23 581 8 429 2 962
Current tax receivable 6 2 11
Client indebtedness for acceptances - - -
Trade, other receivables and other
assets 573 158 60
Derivative financial instruments
assets 99 6 -
Cash and cash equivalents 92 618 76
Inter-segment assets 1 210 275 43
Total assets 27 738 14 318 4 188
Liabilities
Long-term business policyholder
liabilities 24 493 7 388 2 969
General insurance liabilities - - -
Third party interests in consolidated
funds - - -
Borrowed funds 255 24 -
Provisions 136 138 7
Deferred revenue 23 4 133
Deferred tax liabilities 169 85 150
Current tax payable 64 30 2
Trade, other payables and other
liabilities 946 147 80
Liabilities under acceptances - - -
Amounts owed to bank depositors 1 4,906 -
Derivative financial instruments
liabilities 6 22 -
Inter-segment liabilities 57 261 38
Total liabilities 26 150 13 005 3 379
Net assets 1 588 1 313 809
Equity
Equity attributable to equity holders
of the parent 1 589 1 313 809
Non-controlling interests (1)
Non-controlling interests ordinary
shares (1) - -
Non-controlling interests preference
shares - - -
Total equity 1 588 1 313 809
Wealth
Management US Life
At 30 June 2009
Assets
Goodwill and other intangible assets 1 734 101
Mandatory reserve deposits with central banks - -
Property, plant and equipment 21 1
Investment property 2 -
Deferred tax assets 168 918
Investments in associated undertakings and joint
ventures - -
Deferred acquisition costs 719 1 554
Reinsurers` share of long-term business policyholder
liabilities 665 450
Reinsurers` share of general insurance liabilities - -
Deposits held with reinsurers - 35
Loans and advances 139 56
Investments and securities 29 483 9 376
Current tax receivable 85 -
Client indebtedness for acceptances - -
Trade, other receivables and other assets 237 288
Derivative financial instruments assets - 68
Cash and cash equivalents 220 (17)
Inter-segment assets 229 57
Total assets 33 702 12 887
Liabilities
Long-term business policyholder liabilities 29 797 11 475
General insurance liabilities - -
Third party interests in consolidated funds - -
Borrowed funds 1 -
Provisions 32 -
Deferred revenue 436 -
Deferred tax liabilities 235 647
Current tax payable 20 (9)
Trade, other payables and other liabilities 435 331
Liabilities under acceptances - -
Amounts owed to bank depositors - -
Derivative financial instruments liabilities 1 16
Inter-segment liabilities 242 142
Total liabilities 31 199 12 602
Net assets 2 503 285
Equity
Equity attributable to equity holders of the parent 2 503 285
Non-controlling interests
Non-controlling interests ordinary shares - -
Non-controlling interests preference shares - -
Total equity 2 503 285
Total Long Other Consolid- GBPm
-Term operating -ation
Savings Nedbank M&F USAM Bermuda segments adjustments Total
3 679 508 31 1 163 3 13 - 5 397
- 856 - - - - - 856
366 351 22 21 - 3 - 763
1 408 18 - - - - 152 1 578
1 259 17 8 141 - 9 - 1 434
6 76 - 7 - 26 - 115
2 665 2 17 34 215 - - 2 933
1 143 18 - - 1 - - 1 162
- - 130 - - - - 130
134 - 3 - - - - 137
3 946 33 886 3 - - - - 37 835
73 831 5 194 370 156 2 915 76 1 951 84 493
104 44 1 - - - - 149
- 146 - - - - - 146
1 316 376 84 124 831 45 453 3 229
173 1 401 - - (35) 163 784 2 486
989 632 80 125 38 23 785 2 672
1 814 33 45 2 508 691 (3 093) -
92 833 43 558 794 1 773 4 476 1 049 1 032 145 515
76 122 548 - - 4 131 - - 80 801
- - 403 - - - - 403
- - - - - - 2 610 2 610
280 1 064 - - - 1 171 - 2 515
313 - 18 2 - 76 - 409
596 - 8 - - - - 604
1 286 158 1 - - 21 - 1 466
107 18 - 7 16 47 - 195
1 939 877 97 180 20 99 735 3 947
- 146 - - - - - 146
4 907 35 683 - - - - - 40 590
45 1 244 - - - 40 780 2 109
740 412 803 3 1 135 (3 093) -
86 335 40 150 527 992 4,170 2 589 1 032 135 795
6 498 3 408 267 781 306 (1 540) - 9 720
6 499 1 941 217 754 306 (1 986) - 7 731
(1) 1 467 50 27 - 446 - 1 989
(1) 1 217 50 27 - - - 1 293
- 250 - - - 446 - 696
6 498 3 408 267 781 306 (1 540) - 9 720
For the six months ended 30 June 2010
B6 Statement of financial position segment information at 31 December 2009
Long-Term Savings
Emerging Retail
At 31 December 2009 Markets Nordic Europe
Assets
Goodwill and other intangible assets 106 1 035 563
Mandatory reserve deposits with central banks - - -
Property, plant and equipment 336 7 4
Investment property 1 518 - -
Deferred tax assets 54 108 17
Investments in associated undertakings and
joint ventures 20 2 -
Deferred acquisition costs 123 49 275
Reinsurers` share of long-term business
policyholder liabilities 11 10 6
Reinsurers` share of general insurance
liabilities - - -
Deposits held with reinsurers - 108 -
Loans and advances 340 4 209 2
Investments and securities 27 603 10 836 3 693
Current tax receivable 4 4 16
Client indebtedness for acceptances - - -
Trade, other receivables and other assets 630 155 58
Derivative financial instruments assets 327 9 -
Cash and cash equivalents 189 344 81
Non-current assets held-for-sale - - -
Inter-segment assets 1 352 59 23
Total assets 32 613 16 935 4 738
Liabilities
Long-term business policyholder liabilities 28 655 9 514 3 689
General insurance liabilities - - -
Third party interests in consolidated funds - - -
Borrowed funds 272 26 -
Provisions 147 11 8
Deferred revenue 23 5 160
Deferred tax liabilities 200 113 124
Current tax payable 70 20 2
Trade, other payables and other liabilities 1 512 203 79
Liabilities under acceptances - - -
Amounts owed to bank depositors - 5 448 -
Derivative financial instruments
liabilities 141 22 -
Inter-segment liabilities 51 37 -
Total liabilities 31 071 15 399 4 062
Net assets 1 542 1 536 676
Equity
Equity attributable to equity holders of the
parent 1 540 1 536 676
Non-controlling interests 2 - -
Non-controlling interests ordinary shares 2 - -
Non-controlling interests preference shares - - -
Total equity 1 542 1 536 676
Wealth
At 31 December 2009 Management US Life
Assets
Goodwill and other intangible assets 1 602 94
Mandatory reserve deposits with central banks - -
Property, plant and equipment 19 1
Investment property 2 -
Deferred tax assets 23 183
Investments in associated undertakings and joint
ventures - -
Deferred acquisition costs 778 1 671
Reinsurers` share of long-term business policyholder
liabilities 772 475
Reinsurers` share of general insurance liabilities - -
Deposits held with reinsurers - 35
Loans and advances 148 54
Investments and securities 35 120 10 045
Current tax receivable 86 -
Client indebtedness for acceptances - -
Trade, other receivables and other assets 232 213
Derivative financial instruments assets - 187
Cash and cash equivalents 278 4
Non-current assets held-for-sale - -
Inter-segment assets 277 74
Total assets 39 337 13 036
Liabilities
Long-term business policyholder liabilities 35 554 11 625
General insurance liabilities - -
Third party interests in consolidated funds - -
Borrowed funds - -
Provisions 33 -
Deferred revenue 456 -
Deferred tax liabilities 167 126
Current tax payable 37 -
Trade, other payables and other liabilities 550 359
Liabilities under acceptances - -
Amounts owed to bank depositors - -
Derivative financial instruments liabilities - 9
Inter-segment liabilities 181 170
Total liabilities 36 978 12 289
Net assets 2 359 747
Equity
Equity attributable to equity holders of the parent 2 359 747
Non-controlling interests - -
Non-controlling interests ordinary shares - -
Non-controlling interests preference shares - -
Total equity 2 359 747
Total Other
Long- Term operating Consolidation GBPm
Savings Nedbank M&F USAM Bermuda segments adjustments Total
3 400 543 30 1 171 2 13 - 5 159
- 882 - - - - - 882
367 417 23 19 - 2 - 828
1 520 18 - - - - 221 1 759
385 24 6 147 - 8 - 570
22 82 - 7 - 24 - 135
2 896 2 17 29 194 - - 3 138
1 274 22 - - - - - 1,296
- - 120 - - - - 120
143 - 3 - - - - 146
4 753 37 638 2 - - - - 42 393
87 297 5 501 425 162 2 942 43 2 091 98 461
110 51 - - - 8 - 169
- 170 - - - - - 170
1 288 432 96 126 878 111 120 3 051
523 1 067 - - - 154 802 2 546
896 660 79 173 32 425 717 2 982
- 1 - - - - - 1
1 785 148 48 1 564 1 363 (3 909) -
106 659 47 658 849 1 835 4 612 2 151 42 163 806
89 037 661 - - 4 178 - - 93 876
- - 372 - - - - 372
- - - - - - 2 906 2 906
298 1 614 - - - 1 397 - 3 309
199 1 21 2 - 40 - 263
644 1 9 - - - - 654
730 148 2 - - 25 - 905
129 21 - 10 5 45 - 210
2 703 897 118 221 (9) 120 255 4 305
- 170 - - - - - 170
5 448 38 687 - - - - - 44 135
172 969 - - - 59 790 1 990
439 697 - 1 202 - 1 571 (3 909) -
99 799 43 866 522 1 435 4 174 3,257 42 153 095
6 860 3 792 327 400 438 (1 106) - 10 711
6 858 2 084 265 371 438 (1 552) - 8 464
2 1 708 62 29 446 - 2 247
2 1 444 62 29 - - - 1 537
- 264 - - - 446 - 710
6 860 3 792 327 400 438 (1 106) - 10 711
Notes to the consolidated financial statements
For the six months ended 30 June 2010
C Other key performance information
C1 Operating profit adjusting items
(a) Summary of adjusting items
In determining the adjusted operating profit of the Group certain adjustments
are made to profit before tax to reflect the directors` view of the underlying
long-term performance of the Group. The following table shows an analysis of
those adjustments from adjusted operating profit to profit before and after
tax.
Long-Term Savings
Emerging Retail
Six months ended 30 June 2010 Notes Markets Nordic Europe
Income/(expense)
Goodwill impairment and impact of (1) (40) (21)
acquisition accounting C1(b)
(Loss)/profit on disposal of
subsidiaries, associated
undertakings
and strategic investments C1(c) - - -
Short-term fluctuations in
investment return C1(d) (39) - -
Investment return adjustment for
Group equity and debt
instruments held in life funds C1(e) 19 - -
Dividends declared to holders of
perpetual preferred callable
securities C1(f) - - -
US Asset Management equity plans
and non-controlling interests C1(g) - - -
Credit-related fair value losses
on Group debt instruments C1(h) - - -
Total adjusting items (21) (40) (21)
Tax on adjusting items 2 1 6
Non-controlling interest in
adjusting items - - -
Total adjusting items after tax
and non-controlling interests (19) (39) (15)
Wealth
Six months ended 30 June 2010 Management US Life
Income/(expense)
(38) (1)
Goodwill impairment and impact of acquisition accounting
(Loss)/profit on disposal of subsidiaries,
associated undertakings
and strategic investments - -
Short-term fluctuations in investment return (19) 23
Investment return adjustment for Group equity and debt
instruments held in life funds - -
Dividends declared to holders of perpetual preferred
callable securities - -
US Asset Management equity plans and non-controlling
interests C1(g) - -
Credit-related fair value losses on Group debt instruments - -
Total adjusting items (57) 22
Tax on adjusting items 12 76
Non-controlling interest in adjusting items - -
Total adjusting items after tax and non-controlling
interests (45) 98
Long-Term Savings
Emerging Retail
Six months ended 30 June 2009 Notes Markets Nordic Europe
Income/(expense)
Goodwill impairment and impact of
acquisition accounting C1(b) (1) (35) (27)
(Loss)/profit on disposal of
subsidiaries, associated
undertakings
and strategic investments C1(c) (46) - -
Short-term fluctuations in
investment return C1(d) (32) (1) -
Investment return adjustment for
Group equity and debt
instruments held in life funds C1(e) (40) - -
Dividends declared to holders of
perpetual preferred callable
securities C1(f) - - -
US Asset Management equity plans
and non-controlling interests C1(g) - - -
Credit-related fair value losses
on Group debt instruments C1(h) - - -
Total adjusting items (119) (36) (27)
Tax on adjusting items 10 4 6
Non-controlling interest in
adjusting items - - -
Total adjusting items after tax
and non-controlling interests (109) (32) (21)
Wealth
Six months ended 30 June 2009 Management US Life
Income/(expense)
Goodwill impairment and impact of acquisition accounting (46) (9)
(Loss)/profit on disposal of subsidiaries,
associated undertakings
and strategic investments - -
Short-term fluctuations in investment return (26) (93)
Investment return adjustment for Group equity and debt
instruments held in life funds - -
Dividends declared to holders of perpetual preferred
callable securities - -
US Asset Management equity plans and non-controlling
interests C1(g) - -
Credit-related fair value losses on Group debt instruments - -
Total adjusting items (72) (102)
Tax on adjusting items 11 4
Non-controlling interest in adjusting items - -
Total adjusting items after tax and non-controlling
interests (61) (98)
C1 Operating profit adjusting items
(a) Summary of adjusting items
GBPm
Total Long-Term Savings Nedbank M&F USAM Other Total
(101) - - (1) - (102)
- (2) - (20) - (22)
(35) - (19) - (12) (66)
19 - - - - 19
- - - - 22 22
- - - 1 - 1
- (9) - - (81) (90)
(117) (11) (19) (20) (71) (238)
97 3 - 6 (4) 102
- 14 - (3) - 11
(20) 6 (19) (17) (75) (125)
GBPm
Total Long-Term Savings Nedbank M&F USAM Other Total
(118) - - - - (118)
(46) - - 1 - (45)
(152) - (11) - (23) (186)
(40) - - - - (40)
- - - - 22 22
- - - 1 - 1
- 6 - - 6 12
(356) 6 (11) 2 5 (354)
35 (2) 3 9 (4) 41
- 6 3 - - 9
(321) 10 (5) 11 1 (304)
Long-Term Savings
Emerging
Year ended 31 December 2009 Notes Markets Nordic
Income/(expense)
Goodwill impairment and impact of
acquisition accounting C1(b) (1) (12)
(Loss)/profit on disposal of
subsidiaries, associated undertakings
and strategic investments C1(c) (51) -
Short-term fluctuations in investment
return C1(d) (38) (1)
Investment return adjustment for
Group equity and debt
instruments held in life funds C1(e) (109) -
Dividends declared to holders of
perpetual preferred callable
securities C1(f) - -
US Asset Management equity plans and
non-controlling interests C1(g) - -
Credit-related fair value losses on
Group debt instruments C1(h) - -
Total adjusting items (199) (13)
Tax on adjusting items (1) 9
Non-controlling interest in adjusting
items - -
Total adjusting items after tax and
non-controlling interests (200) (4)
Retail Wealth GBPm
Year ended 31 December 2009 Europe Management US Life
Income/(expense)
Goodwill impairment and impact of
acquisition accounting (243) (167) (14)
(Loss)/profit on disposal of
subsidiaries, associated undertakings
and strategic investments - (7) -
Short-term fluctuations in investment
return 1 (88) (150)
Investment return adjustment for
Group equity and debt
instruments held in life funds - - -
Dividends declared to holders of
perpetual preferred callable
securities - - -
US Asset Management equity plans and
non-controlling interests - - -
Credit-related fair value losses on
Group debt instruments - - -
Total adjusting items (242) (262) (164)
Tax on adjusting items 14 37 44
Non-controlling interest in adjusting
items - - -
Total adjusting items after tax and
non-controlling interests (228) (225) (120)
GBPm
Total Long-Term Savings Nedbank M&F USAM Other Total
(437) (4) - (2) - (443)
(58) - - 1 7 (50)
(276) - (10) - (30) (316)
(109) - - - - (109)
- - - - 45 45
- - - (1) - (1)
- - - - (263) (263)
(880) (4) (10) (2) (241) (1 137)
103 - 3 2 - 108
- 19 7 (3) - 23
(777) 15 - (3) (241) (1 006)
(b) Goodwill impairment and impact of acquisition accounting
In applying acquisition accounting in accordance with IFRS deferred acquisition
costs and deferred revenue are not recognised. These are reversed in the
acquisition statement of financial position and replaced by goodwill, other
intangible assets and the value of the acquired present value of in- force
business (`acquired PVIF`). In determining its adjusted operating profit the
Group recognises deferred revenue and acquisition costs in relation to policies
sold by acquired businesses pre-acquisition, and excludes the impairment of
goodwill and the amortisation of acquired other intangibles and acquired PVIF.
Goodwill impairment and acquisition accounting adjustments to adjusted
operating profit are summarised below:
Emerging Retail Wealth
Six months ended 30 June 2010 Markets Nordic Europe Management
Amortisation of acquired PVIF - (57) (10) (38)
Amortisation of acquired
deferred costs and revenue - 13 (4) 14
Amortisation of other
acquired intangible assets (1) (13) (7) (18)
Change in acquisition date
provisions - 17 - 4
(1) (40) (21) (38)
GBPm
US
Six months ended 30 June 2010 Life Nedbank USAM Total
Amortisation of acquired PVIF (1) - - (106)
Amortisation of acquired deferred costs
and revenue - - - 23
Amortisation of other acquired
intangible assets - - (1) (40)
Change in acquisition date provisions - - - 21
(1) - (1) (102)
Emerging Retail Wealth
Six months ended 30 June 2009 Markets Nordic Europe Management
Amortisation of acquired PVIF - (55) (19) (43)
Amortisation of acquired
deferred costs and revenue - 9 (1) 15
Amortisation of other
acquired intangible assets (1) (12) (7) (18)
Change in acquisition date
provisions - 23 - -
(1) (35) (27) (46)
GBPm
US
Six months ended 30 June 2009 Life Nedbank USAM Total
Amortisation of acquired PVIF (9) - - (126)
Amortisation of acquired
deferred costs and revenue - - - 23
Amortisation of other
acquired intangible assets - - - (38)
Change in acquisition date
provisions - - - 23
(9) - - (118)
Emerging Retail Wealth
Year ended 31 December 2009 Markets Nordic Europe Management
Amortisation of acquired PVIF - (106) (37) (86)
Amortisation of acquired
deferred costs and revenue 1 21 (5) 34
Amortisation of other
acquired intangible assets (2) (25) (14) (36)
Change in acquisition date
provisions - 98 - -
Goodwill impairment - - (187) (79)
(1) (12) (243) (167)
GBPm
US
Year ended 31 December 2009 Life Nedbank USAM Total
Amortisation of acquired PVIF (14) - - (243)
Amortisation of acquired
deferred costs and revenue - - - 51
Amortisation of other
acquired intangible assets - (4) (2) (83)
Change in acquisition date
provisions - - - 98
Goodwill impairment - - - (266)
(14) (4) (2) (443)
(c) (Loss)/profit on disposal of subsidiaries, associated undertakings and
strategic investments
At 30 June 2010 a subsidiary of USAM was classified as held-for-sale in
anticipation of its pending disposal. On reclassification the disposal group
was impaired to reflect expected net consideration with the resulting loss
reported in the period as a loss on disposal.
In August 2008, an agreement with ABN AMRO Asset Management Asia and their
parent company, Fortis Bank had been entered into to acquire the 49% stake that
Fortis holds in AATEDA, a major Chinese asset management joint venture for 165
million. On 27 May 2009 termination of AATEDA transaction with ABN AMRO Asset
Management Asia and Fortis Bank was announced, with an exit fee of GBP41
million which has been accounted for as a loss on disposal.
(Loss)/profits on the disposal of subsidiaries, associated undertakings and
strategic investments are analysed below:
GBPm
6 months 6 months Year ended
ended 30 ended 30 31 December
June 2010 June 2009 2009
Emerging Markets - (46) (51)
Wealth Management - - (7)
Total Long-Term Savings - (46) (58)
Nedbank (2) - -
USAM (20) 1 1
Other - - 7
Loss on disposal of subsidiaries,
associated
undertakings and strategic
investments (22) (45) (50)
(d) Long-term investment return
Profit before tax includes actual investment returns earned on the shareholder
assets of the Group`s life assurance and general insurance businesses. Adjusted
operating profit is stated after recalculating shareholder asset investment
returns based on a long-term investment return rate.
The difference between the actual and the long-term investment returns are
short-term fluctuations in investment return.
Long-term rates of return are based on achieved real rates of return
appropriate to the underlying asset base, adjusted for current inflation
expectations, default assumptions, costs of investment management and consensus
economic investment forecasts, and are reviewed frequently, usually annually,
for appropriateness. These rates of return have been selected with a view to
ensuring that returns credited to adjusted operating profit are consistent with
the actual returns expected to be earned over the long-term.
For Emerging Markets, the return is applied to an average value of investible
shareholders` assets, adjusted for net fund flows. For Nordic, Retail Europe,
Wealth Management and US Life, the return is applied to average investible
assets. For M&F general insurance business, the return is an average value of
investible assets supporting shareholders` funds and insurance liabilities,
adjusted for net fund flows.
(d) Long-term investment return continued
%
6 months 6 months ear ended
ended 30 ended 30 31 December
Long-term investment rates June 2010 June 2009 2009
Emerging Markets 9.4% 13.3% 13.3%
Nordic 1.8% 1.8% 1.8%
Retail Europe 2.5% 2.8% 2.8%
Wealth Management 2.0% 5.0% 5.0%
US Life 5.9% 5.6% 5.9%
M&F 9.4% 13.3% 13.3%
Analysis of short-term fluctuations in investment return
Emerging Retail Wealth
Six months ended 30 June 2010 Markets Nordic Europe Management
Long-term investment return 52 - 1 61
Less: Actual shareholder
investment
return 13 - 1 42
Short-term fluctuations in
investment return 39 - - 19
GBPm
Total Long-
Six months ended 30
June 2010 US Life Term Savings M&F Other Total
Long-term investment
return 283 397 27 16 440
Less: Actual
shareholder investment
return 306 362 8 4 374
Short-term
fluctuations in investment
return (23) 35 19 12 66
Emerging Retail Wealth
Six months ended 30 June 2009 Markets Nordic Europe Management
61 - 1 52
Long-term investment return
Less: Actual shareholder
investment return 29 (1) 1 26
Short-term fluctuations in
investment return 32 1 - 26
GBPm
Total Long-
Six months ended 30
June 2009 US Life Term Savings M&F Other Total
Long-term 303 417 28 46 491
investment return
Less: Actual
shareholder
investment return 210 265 17 23 305
Short-term
fluctuations in
investment return 93 152 11 23 186
Emerging Retail Wealth
Year ended 31 December 2009 Markets Nordic Europe Management
Long-term investment return 126 1 1 109
Less: Actual shareholder
investment return 88 - 2 21
Short-term fluctuations in
investment return 38 1 (1) 88
GBPm
Total Long-Term
Year ended 31 December 2009 US Life Savings M&F Other Total
Long-term investment return 539 776 60 91 927
Less: Actual shareholder
investment return 389 500 50 61 611
Short-term fluctuations in
investment return 150 276 10 30 316
The actual investment return attributable to shareholders for the US long-term
business reflects total investment income, as a distinction is not drawn
between shareholder and policyholder funds.
C1 Operating profit adjusting items continued
(e) Investment return adjustment for Group equity and debt instruments held in
life funds
Adjusted operating profit includes investment returns on policyholder
investments in Group equity and debt instruments held by the Group`s life
funds. These include investments in the Company`s ordinary shares, and the
subordinated liabilities and ordinary securities of Nedbank. These investment
returns are eliminated within the consolidated income statement in arriving at
profit before tax, but are included in adjusted operating profit. In the six
months ended 30 June 2010 the investment return adjustment decreased adjusted
operating profit by GBP19 million (six months ended 30 June 2009: increase of
GBP40 million, year ended 31 December 2009: increase of GBP109 million).
(f) Dividends declared to holders of perpetual preferred callable securities
Dividends declared to the holders of the Group`s perpetual preferred callable
securities were GBP22 million for the six months ended 30 June 2010 (six months
ended 30 June 2009: GBP22 million, year ended 31 December 2009: GBP45 million).
These are recognised in finance costs on an accruals basis for the purpose of
determining adjusted operating profit. In the IFRS financial statements this
cost is recognised in equity.
(g) US Asset Management equity plans and non-controlling interests
US Asset Management has entered into a number of long-term incentive
arrangements with its asset management affiliates.
In accordance with IFRS requirements the cost of these schemes is disclosed as
being attributable to non-controlling interests. However, this is treated as a
compensation expense in determining adjusted operating profit. The gain
recognised in the six months ended 30 June 2010 was GBP1 million (six months
ended 30 June 2009: less than GBP1 million, year ended 31 December 2009: GBP1
million).
The Group has issued put options to employees as part of some of its US
affiliate incentive schemes. The impact of revaluing these instruments is
recognised in accordance with IFRS, but excluded from adjusted operating
profit. As at 30 June 2010 these instruments were revalued, the impact of which
was GBPnil million (six months ended 30 June 2009: GBP1 million, year ended 31
December 2009: GBPnil).
(h) Credit-related fair value gains on Group debt instruments
The narrowing of credit spread of the Group`s debt instruments in the market
price has resulted in a reversal of previous gains in the six months ended 30
June 2010 of GBP81 million (six months ended 30 June 2009: gains of GBP6
million, year ended 31 December 2009: losses of GBP263 million) on Other
operating segments and a reversal of previous gains in the six months ended 30
June 2010 of GBP9 million (six months ended 30 June 2009: gains of GBP6
million, year ended 31 December 2009: GBPnil) in Nedbank being recorded in the
Group`s income statement for those instruments that are recorded at fair value.
In the directors` view, such movements are not reflective of the underlying
performance of the Group and will reverse over time. They have therefore been
excluded from adjusted operating profit.
C2 Foreign currencies
The principal exchange rates used to translate the operating results, assets
and liabilities of foreign operations to Sterling are:
Income
statement Statement of financial position
(average rate) (closing rate)
30 June 2010
Rand 11.4878 11.4531
US Dollars 1.5265 1.4963
Swedish Kronor 11.2744 11.6254
Euro 1.1487 1.2208
30 June 2009
Rand 13.7363 12.7351
US Dollars 1.4947 1.6453
Swedish Kronor 12.1787 12.6989
Euro 1.1193 1.1725
31 December 2009
Rand 13.1746 11.9172
US Dollars 1.5655 1.6148
Swedish Kronor 11.9743 11.5562
Euro 1.1227 1.1268
Notes to the consolidated financial statements
For the six months ended 30 June 2010
C3 Earnings and earnings per share
(a) Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the profit for the financial
period attributable to ordinary equity shareholders by the weighted average
number of ordinary shares in issue during the period excluding own shares held
in policyholder funds, ESOP trusts, Black Economic Empowerment trusts and other
related undertakings.
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Profit/(loss) for the
financial period
attributable to equity
holders of the parent 265 (70) (340)
Dividends declared to
holders of perpetual
preferred callable
securities (16) (16) (32)
Profit/(loss) attributable
to ordinary equity holders 249 (86) (372)
Total dividends declared to holders of perpetual preferred callable securities
of GBP22 million for the six months ended 30 June 2010 (six months ended 30
June 2009: GBP22 million, year ended 31 December 2009: GBP45 million) are
stated net of tax credits of GBP6 million (six months ended 30 June 2009: GBP6
million, year ended 31 December 2009: GBP13 million).
Millions
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Weighted average number of
ordinary shares in issue 5 397 5 277 5 277
Shares held in charitable
foundations (7) (7) (7)
Shares held in ESOP trusts (48) (38) (41)
Adjusted weighted average
number of ordinary shares 5 342 5 232 5 229
Shares held in life funds (206) (239) (236)
Shares held in Black
Economic Empowerment trusts (287) (236) (235)
Weighted average number of
ordinary shares 4 849 4 757 4 758
Basic earnings/(loss) per
ordinary share (pence) 5.1 (1.8) (7.8)
Diluted earnings per share recognises the dilutive impact of share options held
in ESOP trusts and Black Economic Empowerment trusts which are currently in the
money in the calculation of the weighted average number of shares, as if the
relevant shares were in issue for the full period.
Millions
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Weighted average number of
ordinary shares 4 849 4 757 4 758
Adjustments for share
options held by ESOP trusts 173 - -
Adjustments for shares held
in Black Economic
Empowerment trusts 287 - -
Diluted earnings/(loss) per 5 309 4 757 4 758
ordinary share (pence) 4.7 (1.8) (7.8)
No adjustments to the weighted average number of ordinary shares have been
effected for 2009 in order to calculate the diluted earnings per ordinary share
as any adjustments would be antidilutive.
C3 Earnings and earnings per share continued
(b) Adjusted operating earnings per ordinary share
Adjusted operating earnings per ordinary share is determined based on adjusted
operating profit. Adjusted operating profit represents the directors` view of
the underlying performance of the Group. 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 the US Asset Management business it includes compensation costs in
respect of certain long-term incentive schemes defined as non-controlling
interests in accordance with IFRS. For all businesses, adjusted operating
profit excludes goodwill impairment, the impact of acquisition accounting,
revaluations of put options related to long-term incentive schemes, the impact
of closure of unclaimed shares trusts, profit/(loss) on disposal of
subsidiaries, associated undertakings and strategic investments, dividends
declared to holders of perpetual preferred callable securities,
income/(expense) from closure of unclaimed shares trusts and fair value
gains/(losses) on Group debt instruments.
The reconciliation of profit/(loss) for the financial period to adjusted
operating profit after tax attributable to ordinary equity holders is as
follows:
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Profit/(loss) for the
financial period
attributable to equity
holders of the parent 265 (70) (340)
Adjusting items 238 354 1 137
Non-core operations - Bermuda 54 24 (33)
Tax on adjusting items (102) (41) (108)
Non-controlling interest on
adjusting items (11) (9) (23)
Adjusted operating profit
after tax attributable to
ordinary equity holders 444 258 633
Adjusted weighted average
number of ordinary shares
(millions) 5 342 5 232 5 229
Adjusted operating earnings
per ordinary share (pence) 8.3 4.9 12.1
(c) Headline earnings per share
In accordance with the JSE Limited (JSE) listing requirements, the Group is
required to calculate a `headline earnings per share` (HEPS), determined by
reference to the South African Institute of Chartered Accountants` circular
8/2007 `Headline Earnings`. The table below sets out a reconciliation of basic
earnings per ordinary share and HEPS in accordance with that circular.
Disclosure of HEPS is not a requirement of International Financial Reporting
Standards.
6 months
ended 30 June
2010
Gross Net
Profit/(loss) for the financial period attributable to
equity holders of the parent 265 265
Dividends declared to holders of perpetual preferred
callable securities (16) (16)
Profit/(loss) attributable to ordinary equity holders 249 249
Adjustments:
Impairments of goodwill and intangible assets - -
Loss on disposal of subsidiaries, associated undertakings
and strategic
investments 22 16
Realised gains/(losses) (including impairments) on
available-for-sale financial
assets (43) (43)
Headline earnings 228 222
Weighted average number of ordinary shares 4 849 4 849
Diluted weighted average number of ordinary shares 5 309 5 309
Headline earnings per share (pence) 4.7 4.6
Diluted headline earnings per share (pence) 4.3 4.2
6 months
ended 30 June
2009
Gross Net
Profit/(loss) for the financial period attributable to
equity holders of the parent (70) (70)
Dividends declared to holders of perpetual preferred
callable securities (16) (16)
Profit/(loss) attributable to ordinary equity holders (86) (86)
Adjustments:
Impairments of goodwill and intangible assets - -
Loss on disposal of subsidiaries, associated undertakings
and strategic
investments 45 45
Realised gains/(losses) (including impairments) on
available-for-sale financial
assets 117 111
Headline earnings 76 70
Weighted average number of ordinary shares 4 757 4 757
Diluted weighted average number of ordinary shares 5 102 5 102
Headline earnings per share (pence) 1.6 1.5
Diluted headline earnings per share (pence) 1.5 1.4
GBPm
Year ended
31 December
2009
Gross Net
Profit/(loss) for the financial period attributable to
equity holders of the parent (340) (340)
Dividends declared to holders of perpetual preferred
callable securities (32) (32)
Profit/(loss) attributable to ordinary equity holders (372) (372)
Adjustments:
Impairments of goodwill and intangible assets 266 266
Loss on disposal of subsidiaries, associated undertakings
and strategic
investments 50 53
Realised gains/(losses) (including impairments) on
available-for-sale financial
assets 239 239
Headline earnings 183 186
Weighted average number of ordinary shares 4 758 4 758
Diluted weighted average number of ordinary shares 5 109 5 109
Headline earnings per share (pence) 3.8 3.9
Diluted headline earnings per share (pence) 3.6 3.6
Notes to the consolidated financial statements
For the year ended 30 June 2010
C4 Dividends
Dividends paid were as follows:
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009
Note 2009
77 - -
2009 Final
dividend paid
1.5p per 10p share
Dividends to
ordinary equity
holders 77 - -
Dividends declared
to holders of
perpetual
preferred callable
securities 22 22 45
Dividend payments
for the period 99 22 45
Dividends paid to ordinary equity holders, as above, are calculated using the
number of shares in issue at the record date, less treasury shares held in ESOP
trusts, life funds of Group companies, Black Economic Empowerment trusts and
related undertakings.
As a consequence of the exchange control arrangements in place in certain
African territories, dividends to ordinary equity holders on the branch
registers of those countries (or, in the case of Namibia, the Namibian section
of the principal register) are settled through Dividend Access Trusts
established for that purpose.
In March 2010 GBP22 million was declared and paid to holders of perpetual
preferred callable securities (March 2009: GBP22 million and November 2009:
GBP23 million).
An interim dividend of 1.1 pence per 10p share has been declared by the
directors. The dividend will be paid on 30 November 2010 to shareholders on the
register at the close of business on 15 October 2010. The dividend will absorb
an estimated GBP60 million of shareholders` funds. The Company is planning to
offer, as with the final dividend for 2009, a scrip dividend alternative for
eligible shareholders.
D Other income statement notes
D1 Income tax expense
(a) Analysis of total income tax expense/(credit)
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Current tax
United Kingdom tax
Corporation tax 16 65 46
Double tax relief - (44) -
Overseas tax
South Africa 128 107 257
United States 2 2 -
Europe 25 22 49
Secondary Tax on Companies
(STC) (2) 5 13
Prior year adjustments - 6 14
Total current tax 169 163 379
Deferred tax
Origination and reversal of
temporary differences (41) (73) 45
Changes in tax rates/bases - - -
Write down/recognition of
deferred tax assets (65) 43 (59)
Total deferred tax (106) (30) (14)
Total income tax expense 63 133 365
(b) Reconciliation of total income tax expense/(credit)
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Profit before tax 443 160 247
Tax at standard rate of 28%
(2009: 28%) 124 44 69
Different tax rate or basis
on overseas operations (2) 9 (9)
Untaxed and low taxed income (66) (49) (86)
Disallowable expenses 22 66 180
Net movement on deferred
tax assets not recognised (5) 49 83
Effect on deferred tax of
changes in tax rates - (2) (2)
STC (1) 6 19
Income tax attributable to
policyholder returns 2 20 142
Other (11) (10) (31)
Total income tax expense 63 133 365
(c) Income tax on adjusted operating profit
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Income tax expense 63 133 365
Tax on adjusting items
Impact of acquisition
accounting 14 19 40
Loss/profit on disposal of
subsidiaries, associated
undertakings and strategic
investments 5 - (2)
Short-term fluctuations in
investment return 86 23 83
Income tax attributable to
policyholders returns - (25) (192)
Tax on dividends declared
to holders of perpetual
preferred callable
securities
recognised in equity (6) (6) (13)
Fair value gains and losses
on group debt instruments 3 (3) -
IAS 34 effective tax rate
adjustment - 8 -
Tax on non-core operations - - 11
Income tax on adjusted
operating profit 165 149 292
Notes to the consolidated financial statements
For the year ended 30 June 2010
E Financial assets and liabilities
E1 Borrowed funds
Group At
excluding 30 June
Nedbank Nedbank 2010
Senior debt securities and term loans 622 1 061 1 683
Mortgage backed securities - 114 114
Subordinated debt securities (net of
Group holdings) 1 069 1 062 2 131
Borrowed funds 1 691 2 237 3 928
Other issues treated as equity for IFRS
accounting purposes
US$750 million cumulative preference
securities 458
Euro500 million perpetual preferred callable
securities 338
GBP350 million perpetual preferred
callable securities 350
1 146
Total: Book value 2 837
Nominal value of the above 3 085
Group At
excluding 30 June
Nedbank Nedbank 2009
732 - 732
Senior debt securities and term loans
Mortgage backed securities - 111 111
Subordinated debt securities (net of
Group holdings) 720 952 1 672
Borrowed funds 1 452 1 063 2 515
Other issues treated as equity for IFRS
accounting purposes
US$750 million cumulative preference
securities 458
Euro500 million perpetual preferred callable
securities 338
GBP350 million perpetual preferred
callable securities 350
1 146
Total: Book value 2 598
Nominal value of the above 3 154
At
Group
excluding 31 December
Nedbank Nedbank 2009
Senior debt securities and term loans 662 484 1 146
Mortgage backed securities - 119 119
Subordinated debt securities (net of
Group holdings) 1 034 1 010 2 044
Borrowed funds 1 696 1 613 3 309
Other issues treated as equity for
IFRS accounting purposes
US$750 million cumulative preference
securities 458
Euro500 million perpetual preferred
callable securities 338
GBP350 million perpetual preferred
callable securities 350
1 146
Total: Book value 2 842
Nominal value of the above 3 162
(a) Senior debt securities and term loans
GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
Floating rate notes1 737 67 379
Fixed rate notes2 946 137 767
Revolving credit facility3 - 528 -
Total senior debt securities and term
loan 1 683 732 1 146
Senior debt securities and term loan comprise:
1 Floating rate notes
GBP3 million note repayable in December 2010, with holders having the option
to elect for early redemption every six months with coupon referenced against
six month LIBOR less 0.50%.
US$50 million repayable September 2011 at 3 month LIBOR plus 0.50%.
R550 million repayable August 2010 at 3 month ZAR JIBAR-SAFEX + 4.5%.
R100 million repayable February 2011 at 3 month ZAR JIBAR-SAFEX + 4.5%.
Euro22 million repayable January 2010 at 3 month EURIBOR plus 0.35% - repaid.
SEK50 million repayable March 2010 at 3 month STIBOR plus 0.38% - repaid.
R1 690 million unsecured senior debt repayable September 2012 at 3 month
JIBAR + 1.5%.
R1 044 million unsecured senior debt repayable September 2015 at JIBAR +
2.20%.
R1 750 million unsecured senior debt repayable March 2013 inflation linked
(3.9% real yield).
R98 million unsecured senior debt repayable March 2013 inflation linked (3.8%
real yield).
R1 552 million unsecured senior debt repayable April 2013 JIBAR +1.48%.
R1 027 million unsecured senior debt repayable April 2015 JIBAR +1.75%.
R80 million unsecured senior debt repayable April 2020 JIBAR +2.15%.
2 Fixed rate notes
30 million Euro bond repayable July 2010, capital and interest swapped into
fixed rate US dollars at 5.28%.
10 million Euro bond repayable December 2010, capital and interest swapped
into floating rate US dollars at 3 month LIBOR + 0.95%.
20 million Euro bond repayable August 2013, capital and interest swapped into
floating rate US dollars at 3 month LIBOR + 1.30%. Repaid 15 April 2010
GBP500 million Euro bond repayable October 2016 at 7.125%.
R130 million unsecured senior debt repayable October 2024 at zero coupon.
R3 244 million unsecured senior debt repayable September 2015 at 10.55%.
R762 million unsecured senior debt repayable September 2019 at 11.39%.
R478 million unsecured senior debt repayable April 2013 JIBAR +1.48%.
The total fair value of the swap derivatives associated with the Senior notes
is GBP5 million (June 2009: GBP11 million). These are recognised as assets.
3 Revolving credit facilities and irrevocable letters of credit
The Group has a GBP1 250 million five-year multi-currency revolving credit
facility, which had an original maturity date of September 2010. On 18 August
2007 syndicate banks agreed to extend the maturity date of GBP1 232 million of
the facility until September 2012. At 30 June 2010 GBP517 million (June 2009:
GBP999 million, December 2009 GBP480 million) of this facility was utilised,
GBPnil (June 2009: GBP528 million, December 2009: GBPnil) in the form of drawn
debt and GBP517 million (June 2009: GBP471 million, December 2009: GBP480
million) in the form of irrevocable letters of credit.
The Group has a SEK1 000 million revolving credit facility, which had a
maturity date of 2 July 2010 which has subsequently been extended to 1 July
2011. At 30 June 2010 this facility was undrawn (June 2009 and December 2009:
undrawn)
(b) Mortgage backed securities - Nedbank GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
R291 million notes (class A1) repayable
18 November 2039 (11.467%)1 17 23 25
R1.4 billion notes (class A2A)
repayable 18 November 2039 (11.817%)1 87 78 84
R98 million notes (class B note)
repayable 18 November 2039 (12.067%)1 6 6 6
R76 million notes (class C note)
repayable 18 November 2039 (13.317%) 1 4 4 4
114 111 119
1 Issued on 10 December 2007 by the Group`s South African banking business and
are callable on 18 November 2012.
(c) Subordinated debt securities
GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
Nedbank
US$18 million repayable 31 August 2009
(6 month LIBOR less 1.5%) repaid 1 - 10 -
R1.5 billion repayable 24 April 2016
(7.85%) 2 132 116 126
R1.8 billion repayable 20 September
2018 (9.84%)3 160 139 149
R500 million repayable on 30 December
2010 (8.38%)4 44 38 41
R650 million repayable 8 February 2017
(9.03%)5 58 51 55
R1.7 billion repayable 8 February 2019
(8.9%)6 147 125 138
R2.0 billion repayable 6 July 2022 (3
month JIBAR plus 0.47%)7 178 160 171
R500 million repayable 15 August 2017
(3 month JIBAR plus 0.45%)8 44 40 42
R1.0 billion repayable 17 September
2015 (10.54%)9 92 78 84
R500 million repayable 14 December 2017
(3 month JIBAR plus 0.70%)10 44 40 42
R120 million repayable 14 December 2017
(10.38%)11 11 9 10
R487 million repayable 20 November 2018
(15.05%)12 45 38 41
R1 265 million repayable 20 November
2018 (JIBAR plus 4.75%)13 112 101 108
R300 million repayable on 4 December
2013 (JIBAR + 2.5%)14 13 12 13
US$100 million repayable on 3 March
2022 (3 month USD LIBOR)15 67 61 62
1 147 1 018 1 082
Less: banking subordinated debt
securities held by other Group
companies (85) (66) (72)
Banking subordinated debt securities
(net of Group holdings) 1 062 952 1 010
Group excluding Nedbank
R3.0 billion repayable 27 October 2020
(8.9%)16 262 235 252
GBP300 million repayable 21 January
2016 (5.0%)17 273 147 252
R250 million preference shares
repayable 9 June 201118 22 20 21
Euro750 million repayable 18 January 2017
(4.5%)19 512 318 509
1 069 720 1 034
Total subordinated liabilities 2 131 1 672 2 044
(c) Subordinated debt securities
The subordinated notes rank behind the claims against the Group depositors and
other unsecured, unsubordinated creditors. None of the Group`s subordinated
notes are secured.
1. This instrument is matched either by advances to clients or covered against
exchange rate fluctuations repaid.
2. Unsecured secondary callable note was issued 24 April 2005 with a call date
of 24 April 2011.
3. Unsecured secondary callable note was issued 20 September 2006 at R1.5
billion with a call date of 20 September 2013. On 18 May 2007 an additional
R0.3 billion was issued.
4. Unsecured callable Bonds issued 30 March 2006.
5. Unsecured secondary callable note was issued 8 February 2007 with a call
date of 8 February 2012.
6. Unsecured secondary callable note was issued 8 February 2007 at R1.0
billion. On 19 March 2007 an additional R0.7 billion was issued.
7. Unsecured secondary capital callable note issued 6 July 2007 and has a call
date of 6 July 2017.
8. This bond issued on 15 August 2007 is an unsecured secondary capital
callable floating rate note with a call date 15 August 2012.
9. This bond issued on 17 September 2007 is an unsecured fixed rate note with a
term of 13 years (non-call 8 year).
10. This bond issued on 14 December 2007 is a 10 year (non-call 5 year)
floating rate note. After its call date on 14 December 2012 its terms become
JIBAR plus 1.70% until maturity.
11. This bond issued on 14 December 2007 is a 10 year (non-call 5 year) fixed
rate note. After its call date its terms become floating 3 month JIBAR plus
initial margin over mid swaps plus 1.0% until maturity.
12. This bond issued on 20 May 2008 is a perpetual (non-call 10 year) fixed
rate note with a call date on 20 November 2018.
13. This bond issued on 20 May 2008 is a perpetual (non-call 10 year) floating
rate note with a call date of 20 November 2018.
14. This bond issued on 4 December 2008 is a floating rate note with a call
date of 4 December 2013.
15. Dated Tier 2 notes issued 3 March 2009 with call date 2 March 2017.
16. These bonds have a maturity date of 27 October 2020 and pay a coupon of
8.92% to 27 October 2015 and 3 month JIBAR plus 1.59% thereafter. The Group has
the option to repay the bonds at par on 27 October 2015 and at 3 monthly
intervals thereafter.
17. These bonds, issued on 20 January 2006, have a maturity date of 21 January
2016 and pay a coupon of 5.0% to 21 January 2011 and 6 month LIBOR plus 1.13%
thereafter. The coupon on the bonds was swapped into floating rate of 6 month
STIBOR plus 0.50%. The Group has the option to repay the bonds at par on 21
January 2011 and at 6 monthly intervals thereafter.
18. These preference shares are redeemable on 9 June 2011 and pay a variable
cumulative coupon of 61.0% of the Prime Rate as quoted by Nedbank Limited.
The Group has the option to redeem the shares at par at any time before the
final redemption date but after giving an agreed period of notice.
19. This bond, issued on 16 January 2007, has a maturity date of 18 January
2017 and pays a coupon of 4.5% to 17 January 2012 and 6 month EURIBOR plus
0.96% thereafter. The principal and coupon on the bond were swapped equally
into Sterling and US Dollars with coupons of 6 month LIBOR plus 0.34% and 6
month US LIBOR plus 0.31% respectively. The Group has the option to repay the
bonds at par on 17 January 2012 and at 6 monthly intervals thereafter.
F Other notes
F1 Contingent liabilities
GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
Guarantees and assets pledged as
collateral security 2 484 2 038 2 375
Irrevocable letters of credit 130 110 125
Secured lending 697 412 555
Other contingent liabilities 36 36 49
The Group has pledged debt securities as collateral for deposits received under
re-purchase agreements. These amounts represent assets that have been
transferred but do not qualify for derecognition under IAS 39.These
transactions are entered into under terms and conditions that are standard
industry practice to securities borrowing and lending activities.
Nedbank structured financing
Historically a number of the Group`s South African banking businesses entered
into structured finance transactions with third parties using the tax base of
these companies. Pursuant to the terms of the majority of these transactions,
the underlying third party has contractually agreed to accept the risk of any
tax being imposed by the South African Revenue Service (SARS), although the
obligation to pay in the first instance rests with the Group`s companies. It is
only in limited cases where, for example, the credit quality of a client
becomes doubtful, or where the client has specifically contracted out of the
repricing of additional taxes, that the recovery from a client could be less
than the liability that could arise on assessment, in which case provisions are
made. SARS has examined the tax aspects of some of these types of structures
and SARS could assess these structures in a manner different to that initially
envisaged by the contracting parties. As a result Group companies could be
obliged to pay additional amounts to SARS and recover these from clients under
the applicable contractual arrangements.
Nedbank litigation
There are a number of legal or potential claims against Nedbank and its
subsidiary companies, the outcome of which cannot at present be foreseen.
The largest of these potential actions is a claim in the South African High
Court for R1.3 billion against Nedbank by certain shareholders in Pinnacle
Point Group Limited, alleging that Nedbank had a legal duty of care to them
arising from a share swap transaction. Nedbank and its legal advisers are of
the opinion that the claim is without merit and it will be defended vigorously.
F2 Acquisition of non-controlling interests
Acquisition of non-controlling interest in Mutual & Federal
On 5 February 2010, the Group completed the acquisition of the remaining
non-controlling shareholdings in Mutual & Federal Insurance Company Limited,
following the fulfilment of all outstanding conditions precedent. On 8 February
2010, 147 313 449 new Old Mutual plc ordinary shares were issued in exchange
for Mutual & Federal shares and listed on the London Stock Exchange, of which
68 378 851 were issued to Black Economic Empowerment trusts and 78 934 598 to
other previous holders.
Other acquisitions
On 8 February 2010 Nedbank announced that it had obtained regulatory approval
for the acquisition of the remaining 49.9% indirect interest in Imperial Bank
Limited thereby satisfying all conditions precedent for the acquisition.
The purchase consideration was approximately GBP162 million (GBP155 million
plus a Johannesburg Interbank Agreed Rate (JIBAR) factor applied up to 5
February 2010) which is being settled in four instalments out of existing cash
resources of Nedbank Limited. The total amount, which will include interest at
the three-month JIBAR, amounts to GBP165 million with only the final instalment
of GBP42 million (including interest) outstanding which will be settled on 13
August 2010.
F3 Sale of US Life
The Group announced today that it has agreed terms to sell 100% of its interest
in US Life to Harbinger Capital Partners for a consideration of $350 million
(GBP220 million at a $1.59:GBP exchange rate). Completion is expected before 31
December 2010 and is subject to inter alia regulatory approvals. This has
resulted in a write-off of GBP689 million in the Group`s net assets on an IFRS
basis at 30 June 2010 or -12.7p per share. The Market Consistent Embedded Value
("MCEV") as at 30 June 2010 increases by GBP718 million or a Group MCEV value
per share of 13.2p. Old Mutual Reassurance (Ireland) Limited which has
previously reported within US Life remain part of the Group and its net assets
have been excluded from the above. As a result of this sale agreement the US
Life business will be treated as non-core and as a discontinued operation in the
2010 Annual Report.
Group Market Consistent Embedded Value statement of earnings
For the 6 months ended 30 June 2010
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Notes
Long Term Savings
Covered business 498 488 554
Asset management 64 (7) 26
Banking 8 8 16
Nedbank 570 489 596
Banking 266 211 470
Mutual and Federal
General insurance 33 20 70
US Asset Management
Asset management 40 30 83
Other operating
segments
Finance costs* (86) (68) (144)
Other shareholders` expenses (5) (33) (69)
Adjusted operating
Group MCEV earnings
before tax from
core operations 818 649 1 006
Bermuda non-core operations
Long-term business 30 106 8
Adjusted operating
Group MCEV earnings
before tax** 848 755 1 014
Adjusting items C1 (391) 509 913
Total Group MCEV
earnings before tax
for the financial period 457 1 264 1 927
Income tax attributable to
shareholders (39) (143) (145)
Total Group MCEV
earnings after tax
for the financial period 418 1 121 1 782
Total Group MCEV earnings
for the financial period
attributable to:
Equity holders of the parent 302 1 026 1 562
Non-controlling interests
Ordinary shares 85 61 156
Preferred securities 31 34 64
Total Group MCEV
earnings after tax
for the financial period 418 1 121 1 782
Basic total Group
MCEV earnings per
ordinary share (pence) 6.0 20.5 31.3
Weighted average
number of shares millions 5 057 4 996 4 994
* This includes interest payable from Old Mutual plc to non-core operations of
GBP18 million for the six months ended 30 June 2010 (six months ended 30 June
2009: GBP21million; year ended 31 December 2010: GBP40 million). Part of the
interest earned by Bermuda from the loan note with Old Mutual plc has been
reclassified for the 6 months ended 30 June 2009 from non-operating to
operating earnings to be consistent with the treatment applied for the year
ended 31 December 2009 and the 6 months ended 30 June 2010.
** For long-term business and general insurance businesses, adjusted operating
Group MCEV earnings are based on short-term and long-term investment returns
respectively, include investment returns on life fund investments in Group
equity and debt instruments, and are stated net of income tax attributable to
policyholder returns. For the US Asset Management business it includes
compensation costs in respect of certain long-term incentive schemes defined as
non-controlling interests in accordance with IFRS. For all businesses, adjusted
operating MCEV earnings exclude goodwill impairment, the impact of acquisition
accounting, put revaluations related to long-term incentive schemes, the impact
of closure of unclaimed shares trusts, profit/(loss) on disposal of
subsidiaries, associated undertakings and strategic investments, dividends
declared to holders of perpetual preferred callable securities, and fair value
(profits)/losses on certain Group debt movements.
Adjusted operating Group MCEV earnings per share
For the 6 months ended 30 June 2010 GBPm
6 months ended
30 June 2010
Notes
Adjusted operating Group MCEV earnings
before tax 848
Tax on adjusted operating Group MCEV earnings B2 (155)
Adjusted operating Group MCEV earnings after tax 693
Non-controlling interests
Ordinary shares (95)
Preferred securities (31)
Adjusted operating Group MCEV earnings
after tax attributable to ordinary equity holders 567
Adjusted operating Group MCEV earnings
from core operations 537
Adjusted operating Group MCEV earnings
from non-core operations 30
Adjusted operating Group MCEV earnings per
share from core operations 10.0
Adjusted operating Group MCEV earnings per
share from non-core operations 0.6
Adjusted operating Group MCEV earnings per share* (pence) 10.6
Adjusted weighted average number of shares millions 5 343
6 months Year ended
ended 30 June 31 December
2009 2009
Adjusted operating Group MCEV earnings before tax 755 1,014
Tax on adjusted operating Group MCEV earnings (183) (209)
Adjusted operating Group MCEV earnings after tax 572 805
Non-controlling interests
Ordinary shares (70) (179)
Preferred securities (34) (64)
Adjusted operating Group MCEV earnings
after tax attributable to ordinary equity holders 468 562
Adjusted operating Group MCEV earnings
from core operations 390 581
Adjusted operating Group MCEV earnings
from non-core operations 78 (19)
Adjusted operating Group MCEV earnings per
share from core operations 7.5 11.1
Adjusted operating Group MCEV earnings per
share from non-core operations 1.4 (0.4)
Adjusted operating Group MCEV earnings per
share* (pence) 8.9 10.7
Adjusted weighted average number of shares
millions 5 232 5 229
* Adjusted operating Group MCEV earnings per share is calculated on the same
basis as adjusted operating Group MCEV earnings and is stated after tax and
non-controlling 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.
Components of Group MCEV and adjusted Group MCEV
For the 6 months ended 30 June 2010 GBPm
Components of Group MCEV
At
30 June
2010
Notes
Adjusted net worth attributable to ordinary equity
holders of the parent 4 845
Equity 9 047
Adjustment to include long-term business on a
statutory solvency basis:
Long Term Savings C3 (2 766)
Bermuda C3 (13)
Adjustment for market value of life funds`
investments in Group equity and debt instruments
held in life funds 244
Adjustment to remove perpetual preferred callable
securities and accrued dividends (688)
Adjustment to exclude acquisition goodwill from the
covered business:
Long Term Savings C3 (979)
Value of in-force business 3 208
Present value of future profits 4 269
Additional time value of financial options and
guarantees (456)
Frictional costs (235)
Cost of residual non-hedgeable risks (370)
Group MCEV 8 053
Group MCEV value per share (pence) 148.0
Return on Group MCEV (RoEV) per annum from core
operations 14.2%
Return on Group MCEV (RoEV) per annum from non-core
operations 0.5%
Return on Group MCEV (RoEV) per annum 14.7%
Number of shares in issue at the end of the
financial period less treasury shares millions 5 442
Components of Group MCEV
At At
30 June 31 December
2009 2009
Adjusted net worth attributable to ordinary equity
holders of the parent 3 860 4 417
Equity 7 731 8 464
Adjustment to include long-term business on a
statutory solvency basis:
Long Term Savings (2 167) (2 626)
Bermuda (27) (6)
Adjustment for market value of life funds`
investments in Group equity and debt instruments
held in life funds 235 268
Adjustment to remove perpetual preferred callable
securities and accrued dividends (688) (688)
Adjustment to exclude acquisition goodwill from the
covered business:
Long Term Savings (1 224) (995)
Value of in-force business 2 741 3 212
Present value of future profits 3 481 4 255
Additional time value of financial options and
guarantees (127) (416)
Frictional costs (199) (221)
Cost of residual non-hedgeable risks (414) (406)
Group MCEV 6 601 7 629
Group MCEV value per share (pence) 125.1 144.5
Return on Group MCEV (RoEV) per annum from core
operations 13.1% 11.1%
Return on Group MCEV (RoEV) per annum from non-core
operations 1.7% (0.4)%
Return on Group MCEV (RoEV) per annum 14.8% 10.7%
Number of shares in issue at the end of the
financial period less treasury shares millions 5 277 5 279
The adjustments to include long-term business on a statutory solvency basis
reflect the difference between the net worth of each business on the statutory
basis (as required by the local regulator) and their portion of the Group`s
consolidated equity shareholder funds. In South Africa, these values exclude
items that are eliminated or shown separately on consolidation (such as Nedbank
and inter-company loans). For some European countries the value reflected in
the adjustment to include long-term business on a statutory solvency basis
includes the value of the deferred acquisition cost asset, which is part of the
equity.
The RoEV is calculated as the adjusted operating Group MCEV earnings after tax
and non-controlling interests of GBP567 million (6 months ended 30 June 2009:
GBP468 million; year ended 31 December 2009: GBP562 million) divided by the
opening Group MCEV. The operating assumption changes of GBP0 million (6 months
ended 30 June 2009: GBP26 million) and other operating variances of GBP12
million (6 months ended 30 June 2009: GBP128 million) are not annualised.
Components of Group MCEV and adjusted Group MCEV
For the 6 months ended 30 June 2010
GBPm
Components of adjusted Group MCEV
At
30June
2010
Notes
Group MCEV 8 053
Pro forma adjustments to bring Group investments to
market value
Adjustment to bring listed subsidiaries to market
value 495
Nedbank 495
Mutual & Federal -
Adjustment for value of own shares in ESOP schemes* 73
Adjustment for present value of Black Economic
Empowerment scheme deferred consideration 241
Adjustment to bring external debt to market value 206
Adjusted Group MCEV B1 9 068
Adjusted Group MCEV per share (pence) 166.6
Number of shares in issue at the end of the
financial period less treasury shares millions 5 442
At At
30 June 31 December
2009 2009
Group MCEV 6 601 7 629
Pro forma adjustments to bring Group investments to
market value
Adjustment to bring listed subsidiaries to market
value 133 805
Nedbank 78 623
Mutual & Federal 55 182
Adjustment for value of own shares in ESOP schemes* 57 71
Adjustment for present value of Black Economic
Empowerment scheme deferred consideration 194 221
Adjustment to bring external debt to market value 604 302
Adjusted Group MCEV 7 589 9 028
Adjusted Group MCEV per share (pence) 143.8 171.0
Number of shares in issue at the end of the
financial period less treasury shares millions 5 277 5 279
* Includes adjustment for value of excess own shares in employee share scheme
trusts. The movement in value between 31 December 2009 and 30 June 2010 is the
net effect of the decrease in the Old Mutual plc share price, the reduction in
excess own shares following employee share grants in March 2010 and the
reduction in overall shares held due to exercises of rights to take delivery
of, or net settle, share grants during the financial period.
Reconciliation of movements in Group MCEV (after tax)
6 months ended 30 June 2010 GBPm
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Notes
6 027 1 602 7 629
Opening Group MCEV
Adjusted operating MCEV earnings 452 115 567
Non-operating MCEV earnings (164) (101) (265)
Total Group MCEV earnings 288 14 302
Other movements in IFRS
net equity C2 (141) 263 122
Closing Group MCEV 6 174 1 879 8 053
6 months ended 30 June 2009
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
4 183 1 079 5 262
Opening Group MCEV
Adjusted operating MCEV earnings 487 (19) 468
Non-operating MCEV earnings 569 (11) 558
Total Group MCEV earnings 1 056 (30) 1 026
Other movements in IFRS net equity 117 196 313
Closing Group MCEV 5 356 1 245 6 601
Year ended 31 December 2009 GBPm
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Notes
4 183 1 079 5 262
Opening Group MCEV
Adjusted operating MCEV earnings 492 70 562
Non-operating MCEV earnings 1 191 (191) 1 000
Total Group MCEV earnings 1 683 (121) 1 562
Other movements in IFRS
net equity C2 161 644 805
Closing Group MCEV 6 027 1 602 7 629
Notes to the MCEV basis supplementary information
For the 6 months ended 30 June 2010
A MCEV policies
A1 Basis of preparation
The Market Consistent Embedded Value methodology (referred to herein and in the
supplementary statements on pages 81 to 122 as `MCEV`) adopts the Market
Consistent Embedded Value Principles (Copyright Copyright Stichting CFO Forum
Foundation 2008) issued in June 2008 and updated in October 2009 by the CFO
Forum (`the Principles`) as the basis for the methodology used in preparing the
supplementary information.
The CFO Forum announced changes to the MCEV Principles in October 2009 to
reflect inter alia the inclusion of a liquidity premium. These changes affirm
that the risk free reference rate to be applied under MCEV should include both
the swap yield curve appropriate to the currency of the cash flows and a
liquidity premium where appropriate. The CFO Forum is undertaking further work
to develop more detailed application guidance.
The Principles have been fully complied with for all businesses as at 30 June
2010. Any changes in the methodology and assumptions made in presenting this
supplementary information compared to those disclosed in the annual report and
accounts 2009 are set out in notes A2 and A3.
Throughout the supplementary information the following terminology is used to
distinguish
between the terms `MCEV`, `Group MCEV` and `adjusted Group MCEV`:
MCEV is a measure of the consolidated value of shareholders` interests in the
covered business and consists of the sum of the shareholders` adjusted net
worth in respect of the covered business and the value of the in-force covered
business.
Group MCEV is a measure of the consolidated value of shareholders` interests
in covered and non-covered business. Non-covered business is valued at the IFRS
net asset value detailed in the primary financial statements adjusted to
eliminate inter-company loans.
The adjusted Group MCEV, a measure used by management to assess the
shareholders` interest in the value of the Group, includes the impact of
marking all debt to market value, the market value of the Group`s listed
banking subsidiary, marking the value of deferred consideration due in respect
of Black Economic Empowerment arrangements in South Africa (`the BEE schemes`)
to market, as well as including the market value of excess own shares held in
ESOP schemes.
A2 Methodology
Required capital
Required capital is the market value of assets that is attributed to support
the covered business, over and above that required to back statutory
liabilities for covered business, whose distribution to shareholders is
restricted. The following capital measures are considered in determining the
required capital held for covered business so that it reflects the level of
capital considered by the directors to be appropriate to manage the business:
Economic capital;
Regulatory capital (ie the level of solvency capital which the local
regulators require);
Capital required by rating agencies in respect of the North American business
in order to maintain the desired credit rating; and
Any other required capital definition to meet internal management objectives.
Economic capital for the covered business is based upon Old Mutual`s own
internal assessment of risks inherent in the underlying business. It measures
capital requirements on an economic statement of financial position, with MCEV
as the available capital, consistent with a 99.93% confidence level over a
one-year time horizon.
The table below shows the level of required capital expressed as a percentage
of the minimum local regulatory capital requirements.
At 30 June 2010
Required Regulatory Ratio
capital (a) capital (b) (a/b)
Emerging Markets 1 318 1 011 1.3
Nordic 109 95 1.1
Retail Europe* 38 52 0.7
Wealth Management** 215 142 1.5
US Life 491 204 2.4
Bermuda*** 341 - n/a
Total 2 512 1 504 1.7
At 30 June 2009
Required Regulatory Ratio
capital (a) capital (b) (a/b)
Emerging Markets 1 110 852 1.3
Nordic 120 71 1.7
Retail Europe* 57 43 1.3
Wealth Management** 213 131 1.6
US Life 523 210 2.5
Bermuda*** 279 - n/a
Total 2 302 1 307 1.8
GBPm
At 31 December 2009
Required Regulatory Ratio
capital (a) capital (b) (a/b)
Emerging Markets 1 225 930 1.3
Nordic 104 92 1.1
Retail Europe* 32 52 0.6
Wealth Management** 213 143 1.5
US Life 462 193 2.4
Bermuda*** 363 - n/a
Total 2 399 1 410 1.7
* Local regulators within many of the Retail Europe countries allow intangible
assets to be included as admissible regulatory capital. In such cases the
required capital reported for MCEV is net of these items, although each of the
countries continues to be sufficiently capitalised on the local solvency basis.
Skandia Leben in Germany is permitted under local regulations to include the
unallocated policyholder profit sharing liability as admissible capital.
** The regulatory capital requirement for Wealth Management has been restated
at 30 June 2009 and 31 December 2009 to exclude the impact of a policyholder
tax credit in Italy, which may be used to offset the capital requirement.
*** The Bermudan regulator allows intangible assets to be included as
admissible regulatory capital.
Notes to the MCEV basis supplementary information
For the 6 months ended 30 June 2010 continued
Cost of residual non-hedgeable risks
The cost of residual non-hedgeable risks (`CNHR`) is calculated using a cost of
capital approach, ie it is determined as the present value of capital charges
for all future non-hedgeable risk capital requirements until the liabilities
have run off. The capital charge in each year is the product of the projected
expected non-hedgeable risk capital held after allowance for some
diversification benefits and the cost of capital charge.
The table below shows the amounts of diversified economic capital held in
respect of residual non-hedgeable risks.
GBPm
Capital held in respect of non-hedgeable risks
At At At
30 June 30 June 31 December
2010 2009 2009
Emerging Markets 643 503 606
Nordic 315 295 333
Retail Europe 128 150 143
Wealth Management* 553 562 563
US Life 703 549 661
Bermuda** 285 510 619
Total 2 627 2 569 2 925
* The capital held in respect of non-hedgeable risks for Weath Management at 31
December 2009 has been restated from GBP640 million to GBP563 million due to
calculation refinements.
** The capital held in respect of non-hedgeable risks for Bermuda has reduced
from 31 December 2009 to 30 June 2010 as a result of the change in the
allowance for hedging basis risk, that is now made in the determination of
reserves for guaranteed benefits, as well as other calculation refinements.
A weighted average cost of capital charge of 2.0% has been applied to residual
non-hedgeable capital at a business unit level over the life of the contracts.
This translates into an equivalent cost of capital charge of approximately 2.7%
being applied to the Group diversified capital required in respect of such
non-hedgeable risks.
Taxation
There is currently uncertainty around both the basis and effective date for
possible taxation of fee income earned from fund managers by Swedish insurance
companies and the expenses that can be relieved against such income. At present
we continue to treat fee income from our Swedish unit-linked business as being
exempt from corporation tax within our MCEV.
The Emergency Budget of 22 June 2010 announced a reduction in the UK
corporation tax rate by 1% per year for four years from April 2011, ultimately
bringing the corporation tax rate down to 24%. The MCEV results at 30 June 2010
have been calculated using an ongoing UK corporation tax rate of 28% and each
reduction in the tax rate will be included in future results as and when they
are enacted. The estimated positive impact on the value of in-force business
(`VIF`) in respect of Wealth Management at 30 June 2010, assuming that all the
annual reductions in the tax rate will be enacted, is GBP17 million.
Notes to the MCEV basis supplementary information
For the 6 months ended 30 June 2010
A3 Assumptions
Non-economic assumptions
The management expenses attributable to life assurance business have been
allocated to expenses relating to the acquisition of new business, maintenance
of in-force business (including investment management expenses) and development
projects.
Unallocated Group holding Company expenses have been included to the extent
that they relate to the covered business. The table below shows the future
expenses attributable to long-term business. The allocation of these expenses
aligns to the proportion that the management expenses incurred by the business
bears to the total management expenses incurred in the Group.
Group holding Company expenses attributable to long-term business
At At At
30 June 30 June 31 December
2010 2009 2009
Emerging Markets 16 14 16
Nordic 4 4 4
Retail Europe 2 3 3
Wealth Management 8 8 8
US Life - 4 2
Bermuda - - -
Total 30 33 33
Economic assumptions
Risk free reference rates and inflation
A wide range of liquidity market data and literature was reviewed at 30 June
2010, such as the Barrie+Hibbert calibration of US corporate bond spreads using
a structural Merton-style model applied to actual corporate bonds held in the
portfolio and a comparison of the yields of similar durations on South African
government bonds and bonds issued by state-owned enterprises. It is the
directors` view that a significant proportion of corporate bond spreads at 30
June 2010 is attributable to liquidity premium allowances rather than credit
and default allowances and that returns in excess of swap rates can be
achieved, rather than entire corporate bond spreads being lost to worsening
default experience. For the US Life business and OMLAC(SA)`s Retail Affluent
Immediate Annuity business the currency, credit quality and duration of the
actual corporate bond portfolios were considered and adjusted risk free
reference rates were derived at 30 June 2010 by adding 75bps of liquidity
premium for the US Life business (30 June 2009: 175bps; 31 December 2009:
100bps) and adding 50bps of liquidity premium for OMLAC(SA)`s Retail Affluent
Immediate Annuity business (30 June 2009: 50bps; 31 December 2009: 50bps) to
the swap rates used for setting investment return and discounting assumptions.
These adjustments reflect the liquidity premium component in corporate bond
spreads over swap rates that is expected to be earned on the portfolios. Old
Mutual believes that the differences between market yields on US Life`s and
OMLAC(SA)`s Retail Affluent bond portfolios and the adjusted risk free
reference rates still provide substantial implied margins for default.
The risk free reference spot yields (excluding any applicable liquidity
adjustments) and expense inflation rates at various terms for each of the
significant regions are provided in the table below. The risk free reference
spot yield curve has been derived from mid swap rates at the reporting date.
Risk free reference spot yields (excluding any applicable liquidity
adjustments)
%
GBP EUR USD ZAR SEK
At 30 June 2010
1 year 0.9 1.2 0.7 6.7 1.3
5 years 3.8 2.1 2.1 8.0 2.3
10 years 4.4 2.9 3.0 8.6 3.1
20 years 3.9 3.4 3.6 8.2 3.6
At 30 June 2009
1 year 2.0 1.4 0.9 7.7 1.0
5 years 3.7 2.9 2.9 9.0 2.9
10 years 4.0 3.7 3.7 9.2 3.9
20 years 2.9 4.3 4.1 7.9 4.2
At 31 December 2009
1 year 0.9 1.3 0.7 7.3 0.8
5 years 4.7 2.8 3.0 8.9 2.9
10 years 4.8 3.6 3.5 9.2 3.7
20 years 4.0 4.1 4.0 8.2 4.1
Expense inflation %
GBP EUR USD ZAR SEK
At 30 June 2010
1 year 3.3 1.0-3.3 3.0 6.2 1.5
5 years 3.5 1.0-3.3 3.0 6.3 2.3
10 years 4.0 1.0-3.3 3.0 6.7 2.6
20 years 4.5 1.0-3.3 3.0 6.4 2.9
At 30 June 2009
1 year 0.1 2.3-3.0 3.0 5.9 1.3
5 years 1.9 2.3-3.0 3.0 7.2 2.5
10 years 2.9 2.3-3.0 3.0 7.4 3.0
20 years 4.2 2.3-3.0 3.0 6.2 2.7
At 31 December 2009
1 year 3.3 2.5-3.0 3.0 6.4 1.1
5 years 3.8 2.5-3.0 3.0 7.5 2.6
10 years 4.4 2.5-3.0 3.0 7.7 2.8
20 years 4.8 2.5-3.0 3.0 6.7 3.0
Volatilities
The at-the-money annualised asset volatility assumptions of the asset classes
incorporated in the stochastic models are detailed below.
ZAR volatilities*
Option term 1 year swap 5 year swap 10 year swap
At 30 June 2010
1 year 15.6 13.9 12.9
5 years 14.5 13.7 13.2
10 years 13.6 13.2 12.8
20 years 12.8 12.2 11.7
At 30 June 2009
1 year 18.6 17.3 16.6
5 years 18.5 17.6 17.3
10 years 18.0 17.3 16.7
20 years 16.4 15.7 15.1
At 31 December 2009
1 year 18.3 16.2 15.1
5 years 16.9 15.8 15.3
10 years 15.7 15.2 14.7
20 years 14.5 13.8 13.1
Equity %
(total Property
return (total return
Option term 20 year swap index) index)
At 30 June 2010
1 year 12.4 28.4 16.9
5 years 12.8 26.3 14.8
10 years 12.3 26.6 14.3
20 years 10.9 26.9 14.2
At 30 June 2009
1 year 16.8 27.4 17.3
5 years 17.3 26.3 15.7
10 years 16.1 26.5 14.1
20 years 14.0 27.4 14.5
At 31 December 2009
1 year 14.8 27.4 17.1
5 years 15.1 25.5 14.8
10 years 14.1 26.2 14.1
20 years 12.0 27.0 14.2
* Due to limited liquidity in the ZAR swaption and equity option market, the
market consistent asset model has been calibrated by extrapolating swaption and
equity option implied volatility data beyond terms of 2 years and 3 years
respectively.
USD %
volatilities
Option term 1 year swap 5 year swap 10 year swap 20 year swap
At 30 June
2010
1 year 71.0 39.6 32.3 27.2
5 years 29.1 26.5 24.1 22.0
10 years 23.3 21.4 20.5 18.7
20 years 19.4 17.9 17.2 16.0
At 30 June
2009
1 year 61.3 41.9 37.8 33.0
5 years 27.8 26.5 25.0 22.4
10 years 20.8 19.6 19.3 16.9
20 years 16.1 15.6 15.0 13.7
At 31
December 2009
1 year 62.3 36.8 30.1 25.9
5 years 26.9 24.7 22.6 20.6
10 years 18.6 18.3 17.9 16.3
20 years 15.6 14.6 14.3 12.8
International equity volatilities (applicable to Old Mutual Bermuda)*
Option term SPX RTY TPX HSCEI
At 30 June 2010
1 year 29.0 37.2 29.1 31.0
5 years 28.0 39.0 29.3 31.8
10 years 28.0 39.0 29.3 31.8
At 30 June 2009
1 year 25.9 33.0 29.4 39.3
5 years 26.5 36.1 27.5 36.4
10 years 23.1 30.6 25.8 35.2
At 31 December 2009
1 year 22.1 28.6 28.3 33.5
5 years 24.4 32.9 29.4 34.2
10 years 25.0 32.6 29.0 37.4
Option term TWY KOSP12 NIFTY
At 30 June 2010
1 year 24.3 23.1 21.9
5 years 27.3 23.7 23.5
10 years 27.3 23.7 23.5
At 30 June 2009
1 year 30.6 27.0 31.6
5 years 30.0 26.8 29.0
10 years 29.3 27.9 29.4
At 31 December 2009
1 year 22.9 23.3 26.5
5 years 26.4 24.2 26.4
10 years 27.5 30.0 31.2
%
Option term SX5E UKX
At 30 June 2010
1 year 29.7 27.3
5 years 27.9 26.9
10 years 27.9 26.9
At 30 June 2009
1 year 29.5 27.0
5 years 27.7 26.5
10 years 26.8 25.6
At 31 December 2009
1 year 24.7 23.1
5 years 25.4 24.1
10 years 27.4 25.9
International equity volatilities (applicable to Old Mutual Bermuda)*
%
Option term EEM USAgg EUAgg APAgg
At 30 June 2010
1 year 35.2 5.5 13.0 12.6
5 years 32.4 5.5 13.0 12.6
10 years 32.4 5.5 13.0 12.6
At 30 June 2009
1 year 35.5 4.5 11.5 10.8
5 years 32.8 4.5 11.5 10.8
10 years 35.9 4.5 11.5 10.8
At 31 December 2009
1 year 31.6 4.5 12.0 11.6
5 years 30.8 4.5 12.0 11.6
10 years 36.7 4.5 12.0 11.6
* In prior reporting periods, the volatilities disclosed for Bermuda were on a
1-year forward basis for most indices. The assumptions at 30 June 2010, as well
as the comparatives for prior reporting periods, are now shown as the
annualised volatilities applicable over the entire option term specified,
consistent with the disclosure of volatilities for other regions. These
volatilities, as represented by their Bloomberg codes, refer to price indices.
Due to ongoing enhancements in the fund mapping process, the indices referenced
may vary from period to period.
Tax
The weighted average effective tax rates that apply to the cash flow
projections at 30 June 2010 are set out below:
OMLAC(SA) 34% (30 June 2009: 31%; 31 December 2009: 33%)
Namibia 0% (30 June 2009: 0%; 31 December 2009: 0%)
Nordic 0% (30 June 2009: 0%; 31 December 2009: 4%)
Retail Europe 27% (30 June 2009: 29%; 31 December 2009: 28%)
Wealth Management 13% (30 June 2009: 18%; 31 December 2009: 13%)
US Life* 0% (30 June 2009: 0%; 31 December 2009: 0%)*
Bermuda* 0% (30 June 2009: 0%; 31 December 2009: 0%)*
* The weighted average effective tax rates for US Life and Bermuda at 31
December 2009 have been restated to 0% from 5% and 10% respectively due to a
calculation correction.
Notes to the MCEV basis supplementary information
For the 6 months ended 30 June 2010 continued
B Segment information
B1 Adjusted Group MCEV presented per business line
GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
MCEV of the covered business 6 174 5 356 6 027
Adjusted net worth* 2 966 2 615 2 815
Value of in-force business 3 208 2 741 3 212
Adjusted net worth of the asset
management businesses 1 968 1 712 1 716
Emerging Markets 250 290 216
Nordic** 32 (130) (75)
Retail Europe 13 11 12
Wealth Management 157 226 152
US Asset Management 1 516 1 315 1 411
Value of the banking business 2 998 2 208 2 948
Nordic (adjusted net worth) 292 259 314
Nedbank (market value) 2 706 1 949 2 634
Value of the general insurance business
Mutual & Federal*** 321 272 448
Net other business (88) (235) 123
Adjustment for present value of Black
Economic Empowerment scheme deferred
consideration 241 194 221
Adjustment for value of own shares in
ESOP schemes**** 73 57 71
Perpetual preferred securities (US$
denominated) (435) (292) (385)
Perpetual preferred callable securities (487) (273) (477)
GBP denominated (236) (125) (224)
Euro denominated (251) (148) (253)
Debt (1 697) (1 410) (1 664)
Rand denominated (309) (213) (290)
USD denominated (323) (248) (338)
GBP denominated (790) (653) (759)
SEK denominated (273) (190) (256)
Euro denominated (2) (106) (21)
Adjusted Group MCEV 9 068 7 589 9 028
* Adjusted net worth is after the elimination of inter-company loans.
** Includes the adjusted net worth of Nordic holding companies that are
classified as non-covered business, net of the holding companies investment in
Group subsidiaries.
*** Reflected at IFRS net asset value at 30 June 2010 and at market value for
30 June 2009 and 30 December 2009 as a result of the acquisition of the
remaining non-controlling interest in Mutual & Federal.
**** Includes adjustment for value of excess own shares in employee share
scheme trusts. The movement in value between 31 December 2009 and 30 June 2010
is the net effect of the decrease in the Old Mutual plc share price, the
reduction in excess own shares following employee share grants in March 2010
and the reduction in overall shares held due to exercises of rights to take
delivery of, or net settle, share grants during the financial period.
B2 Adjusted operating MCEV earnings for the covered business
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2010 2009 2009
Adjusted operating MCEV
earnings before tax for the
covered business 528 594 562
Long Term Savings 498 488 554
Emerging Markets 182 151 272
Nordic 79 42 78
Retail Europe 31 (17) (58)
Wealth Management 77 15 (40)
US Life 129 297 302
Bermuda 30 106 8
Tax on adjusted operating
MCEV earnings for the
covered business (76) (107) (70)
Long Term Savings (76) (79) (43)
Emerging Markets (38) (41) (60)
Nordic (16) - 3
Retail Europe (7) 2 14
Wealth Management (13) (2) 36
US Life (2) (38) (36)
Bermuda - (28) (27)
Adjusted operating MCEV
earnings after tax for the
covered business 452 487 492
Long Term Savings 422 409 511
Emerging Markets 144 110 212
Nordic 63 42 81
Retail Europe 24 (15) (44)
Wealth Management 64 13 (4)
US Life 127 259 266
Bermuda 30 78 (19)
Tax on adjusted operating
MCEV earnings comprises
Tax on adjusted operating
MCEV earnings for the
covered business (76) (107) (70)
Tax on adjusted operating
MCEV earnings for other
business (79) (76) (139)
Tax on adjusted operating
MCEV earnings (155) (183) (209)
B3 Components of MCEV of the covered business
GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
MCEV of the covered business 6 174 5 356 6 027
Adjusted net worth 2 966 2 615 2 815
Value of in-force business 3 208 2 741 3 212
Long Term Savings
Adjusted net worth 2 625 2 336 2 452
Free surplus 454 313 416
Required capital 2 171 2 023 2 036
Value of in-force business 3 381 2 924 3 377
Present value of future profits 4 192 3 573 4 156
Additional time value of financial
options and guarantees (239) (112) (220)
Frictional costs (232) (194) (217)
Cost of residual non-hedgeable risks (340) (343) (342)
Emerging Markets
Adjusted net worth 1 415 1 170 1 305
Free surplus 97 60 80
Required capital 1 318 1 110 1 225
Value of in-force business 1 231 1 054 1 158
Present value of future profits 1 525 1 302 1 424
Additional time value of financial
options and guarantees - - -
Frictional costs (204) (156) (181)
Cost of residual non-hedgeable risks (90) (92) (85)
Nordic
Adjusted net worth 143 180 195
Free surplus 34 60 91
Required capital 109 120 104
Value of in-force business 1 154 917 1 114
Present value of future profits 1 210 992 1 196
Additional time value of financial
options and guarantees - - -
Frictional costs (5) (9) (11)
Cost of residual non-hedgeable risks (51) (66) (71)
Retail Europe
Adjusted net worth 84 95 78
Free surplus 46 38 46
Required capital 38 57 32
Value of in-force business 451 441 453
Present value of future profits 504 505 507
Additional time value of financial
options and guarantees (10) (5) (6)
Frictional costs (6) (12) (7)
Cost of residual non-hedgeable risks (37) (47) (41)
GBPm
At At At
30 June 30 June 31 December
2010 2009 2009
Wealth management
Adjusted net worth 389 341 376
Free surplus 174 128 163
Required capital 215 213 213
Value of in-force business 1 526 1 358 1 468
Present value of future profits 1 601 1 438 1 540
Additional time value of financial
options and guarantees (1) (1) (1)
Frictional costs (8) (14) (12)
Cost of residual non-hedgeable risks (66) (65) (59)
US Life
Adjusted net worth 594 550 498
Free surplus 103 27 36
Required capital 491 523 462
Value of in-force business (981) (846) (816)
Present value of future profits (648) (664) (511)
Additional time value of financial
options and guarantees (228) (106) (213)
Frictional costs (9) (3) (6)
Cost of residual non-hedgeable risks (96) (73) (86)
Bermuda
Adjusted net worth 341 279 363
Free surplus - - -
Required capital 341 279 363
Value of in-force business (173) (183) (165)
Present value of future profits 77 (92) 99
Additional time value of financial
options and guarantees (217) (15) (196)
Frictional costs (3) (5) (4)
Cost of residual non-hedgeable risks (30) (71) (64)
Notes to the MCEV basis supplementary information
For the 6 months ended 30 June 2010 continued
B4 Analysis of covered business MCEV earnings (after tax)
Total covered business
GBPm 6 months ended 30 June 2010
Free Required Adjusted
surplus capital net worth
Opening MCEV 416 2 399 2 815
New business value (263) 124 (139)
Expected existing business contribution
(reference rate) 8 43 51
Expected existing business contribution
(in excess of reference rate) - 14 14
Transfers from VIF and required capital
to free surplus 482 (151) 331
Experience variances 54 7 61
Assumption changes 2 2 4
Other operating variance 27 (39) (12)
Operating MCEV earnings 310 - 310
Economic variances (105) 8 (97)
Other non-operating variance (1) - (1)
Total MCEV earnings 204 8 212
Closing adjustments (166) 105 (61)
Capital and dividend flows (165) (6) (171)
Foreign exchange variance (1) 111 110
MCEV of acquired/sold business - - -
Closing MCEV 454 2 512 2 966
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of
in-force MCEV
Opening MCEV 3 212 6 027
New business value 231 92
Expected existing business contribution (reference rate) 94 145
Expected existing business contribution (in excess of
reference rate) 81 95
Transfers from VIF and required capital to free surplus (331) -
Experience variances 47 108
Assumption changes (4) -
Other operating variance 24 12
Operating MCEV earnings 142 452
Economic variances (67) (164)
Other non-operating variance 1 -
Total MCEV earnings 76 288
Closing adjustments (80) (141)
Capital and dividend flows (1) (172)
Foreign exchange variance (79) 31
MCEV of acquired/sold business - -
Closing MCEV 3 208 6 174
Return on MCEV (RoEV) % per annum 14.8%
Return on MCEV for total covered business is calculated as the operating MCEV
earnings after tax divided by opening MCEV in sterling. The operating
assumption changes and other operating variances are not annualised.
GBPm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
358 2 025 2 383 1 800 4 183
(254) 80 (174) 244 70
6 55 61 58 119
25 2 27 199 226
379 (90) 289 (289) -
(11) 5 (6) (76) (82)
2 - 2 24 26
(217) 240 23 105 128
(70) 292 222 265 487
(112) 32 (80) 632 552
24 (6) 18 (1) 17
(158) 318 160 896 1 056
113 (41) 72 45 117
110 - 110 - 110
(21) (36) (57) 70 13
24 (5) 19 (25) (6)
313 2 302 2 615 2 741 5 356
19.6%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
358 2,025 2 383 1 800 4 183
(473) 170 (303) 470 167
7 114 121 142 263
32 6 38 355 393
813 (244) 569 (569) -
54 (111) (57) (120) (177)
(3) (22) (25) (258) (283)
(191) 301 110 19 129
239 214 453 39 492
(29) 93 64 940 1,004
39 (20) 19 168 187
249 287 536 1 147 1 683
(191) 87 (104) 265 161
(189) (1) (190) - (190)
(15) 85 70 289 359
13 3 16 (24) (8)
416 2 399 2 815 3 212 6 027
11.8%
GBPm 6 months ended 30 June 2010
Long Term Savings (LTS)
Required Adjusted
Free surplus capital net worth
Opening MCEV 416 2 036 2 452
New business value (263) 124 (139)
Expected existing business
contribution (reference rate) 8 42 50
Expected existing business
contribution (in excess of
reference rate) - (2) (2)
Transfers from VIF and required
capital to free surplus 476 (129) 347
Experience variances 62 7 69
Assumption changes - 2 2
Other operating variance (43) 5 (38)
Operating MCEV earnings 240 49 289
Economic variances (35) 8 (27)
Other non-operating variance (1) - (1)
Total MCEV earnings 204 57 261
Closing adjustments (166) 78 (88)
Capital and dividend flows (165) (6) (171)
Foreign exchange variance (1) 84 83
MCEV of acquired/sold business - - -
Closing MCEV 454 2 171 2 625
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of GBPm
in-force MCEV
Opening MCEV 3 377 5 829
New business value 231 92
Expected existing business contribution (reference rate) 89 139
Expected existing business contribution (in excess of
reference rate) 65 63
Transfers from VIF and required capital to free surplus (347) -
Experience variances 66 135
Assumption changes (4) (2)
Other operating variance 33 (5)
Operating MCEV earnings 133 422
Economic variances (62) (89)
Other non-operating variance 1 -
Total MCEV earnings 72 333
Closing adjustments (68) (156)
Capital and dividend flows (1) (172)
Foreign exchange variance (67) 16
MCEV of acquired/sold business - -
Closing MCEV 3 381 6 006
Return on MCEV (RoEV) % per annum 14.6%
Return on MCEV is calculated as the operating MCEV earnings after tax divided
by opening MCEV in sterling. The operating assumption changes and other
operating variances are not annualised.
GBPm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
16 1 991 2 007 2 225 4 232
(254) 80 (174) 244 70
3 55 58 61 119
4 2 6 178 184
385 (88) 297 (297) -
14 5 19 (68) (49)
2 - 2 24 26
58 (35) 23 36 59
212 19 231 178 409
(61) 32 (29) 505 476
24 (6) 18 (1) 17
175 45 220 682 902
122 (13) 109 17 126
110 - 110 - 110
(12) (8) (20) 42 22
24 (5) 19 (25) (6)
313 2 023 2 336 2 924 5 260
17.3%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
16 1 991 2 007 2 225 4 232
(473) 170 (303) 470 167
2 113 115 146 261
(1) 6 5 316 321
818 (240) 578 (578) -
126 (111) 15 (99) (84)
33 (22) 11 (212) (201)
154 (44) 110 (63) 47
659 (128) 531 (20) 511
(131) 93 (38) 773 735
39 (20) 19 168 187
567 (55) 512 921 1,433
(167) 100 (67) 231 164
(189) (1) (190) - (190)
9 98 107 255 362
13 3 16 (24) (8)
416 2 036 2 452 3 377 5 829
12.1%
GBPm 6 months ended 30 June 2010
Emerging Markets*
Free Required Adjusted
surplus capital net worth
Opening MCEV 80 1 225 1 305
New business value (74) 59 (15)
Expected existing business contribution
(reference rate) 4 35 39
Expected existing business contribution
(in excess of reference rate) - (2) (2)
Transfers from VIF and required capital
to free surplus 183 (83) 100
Experience variances 4 13 17
Assumption changes - - -
Other operating variance 1 - 1
Operating MCEV earnings 118 22 140
Economic variances (45) 22 (23)
Other non-operating variance - - -
Total MCEV earnings 73 44 117
Closing adjustments (56) 49 (7)
Capital and dividend flows (61) - (61)
Foreign exchange variance 5 49 54
MCEV of acquired/sold business - - -
Closing MCEV Closing MCEV 97 1 318 1 415
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of
in-force MCEV
Opening MCEV 1 158 2 463
New business value 53 38
Expected existing business contribution (reference rate) 59 98
Expected existing business contribution (in excess of
reference rate) 8 6
Transfers from VIF and required capital to free surplus (100) -
Experience variances 2 19
Assumption changes - -
Other operating variance (18) (17)
Operating MCEV earnings 4 144
Economic variances 22 (1)
Other non-operating variance - -
Total MCEV earnings 26 143
Closing adjustments 47 40
Capital and dividend flows - (61)
Foreign exchange variance 47 101
MCEV of acquired/sold business - -
Closing MCEV Closing MCEV 1 231 2 646
Return on MCEV (RoEV) % per annum 11.9%
* The MCEV for Emerging Markets is presented after the adjustment for market
value of life fund investments in Group equity and debt instruments.
The positive experience variances are mainly attributable to favourable
persistency experience, as well as smaller positive contributions from expense
and mortality experience.
The negative other operating variance was caused by various methodology changes
and error corrections.
The small impact from economic variances was a combination of large negative
investment variances, mainly caused by a decline in equity markets over the
first half of 2010, and a positive effect from economic assumptions changes,
mainly caused by the change in the shape of the swap yield curve.
The capital and dividend flows mainly consist of the purchase of additional
Nedbank shares.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in rand (including conversion of results for Mexico to rand).
The operating assumption changes and other operating variances are not
annualised.
GBPm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
(92) 1 075 983 1 090 2 073
(52) 40 (12) 35 23
(3) 39 36 61 97
- 2 2 7 9
151 (70) 81 (81) -
(1) (15) (16) (22) (38)
2 - 2 (1) 1
57 (35) 22 (4) 18
154 (39) 115 (5) 110
14 1 15 (81) (66)
(1) - (1) - (1)
167 (38) 129 (86) 43
(15) 73 58 50 108
(44) - (44) - (44)
5 78 83 75 158
24 (5) 19 (25) (6)
60 1 110 1 170 1 054 2 224
9.7%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
(92) 1 075 983 1 090 2 073
(136) 110 (26) 91 65
(7) 85 78 129 207
- 5 5 16 21
314 (146) 168 (168) -
(9) (9) (18) (35) (53)
40 (29) 11 (90) (79)
46 (27) 19 32 51
248 (11) 237 (25) 212
54 1 55 (39) 16
- - - - -
302 (10) 292 (64) 228
(130) 160 30 132 162
(146) (3) (149) - (149)
3 160 163 156 319
13 3 16 (24) (8)
80 1 225 1 305 1 158 2 463
9.8%
GBPm 6 months ended 30 June 2010
Nordic
Free Required Adjusted
surplus capital net worth
Opening MCEV 91 104 195
New business value (24) 3 (21)
Expected existing business contribution
(reference rate) 1 - 1
Expected existing business contribution
(in excess of reference rate) - - -
Transfers from VIF and required capital
to free surplus 55 (4) 51
Experience variances 10 6 16
Assumption changes - - -
Other operating variance (39) - (39)
Operating MCEV earnings 3 5 8
Economic variances 5 - 5
Other non-operating variance - - -
Total MCEV earnings 8 5 13
Closing adjustments (65) - (65)
Capital and dividend flows (59) - (59)
Foreign exchange variance (6) - (6)
Closing MCEV 34 109 143
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of
in-force MCEV
Opening MCEV 1,114 1,309
New business value 46 25
Expected existing business contribution (reference rate) 8 9
Expected existing business contribution (in excess of
reference rate) 13 13
Transfers from VIF and required capital to free surplus (51) -
Experience variances 1 17
Assumption changes (4) (4)
Other operating variance 42 3
Operating MCEV earnings 55 63
Economic variances (2) 3
Other non-operating variance - -
Total MCEV earnings 53 66
Closing adjustments (13) (78)
Capital and dividend flows - (59)
Foreign exchange variance (13) (19)
Closing MCEV 1 154 1 297
Return on MCEV (RoEV) % per annum 9.5%
The positive experience variances were largely caused by profit made on the
sale of a private equity investment and higher than expected fee income. There
were no one-off expense variances.
Operating assumption changes were made to recognise adjustments to pricing on
the Waiver of Premium business.
The other operating variance was mainly due to modelling corrections related to
the cost of non-hedgeable risk and modelling refinements to deferred tax
assets.
The economic variances were mainly due to the positive effect of market
movements on funds under management.
The capital and dividend flows mainly represent dividends, repayment of loans,
internal re-classification and capital injections.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in Swedish krona. The operating assumption changes and other operating
variances are not annualised.
GBPm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
58 105 163 882 1,045
(28) 3 (25) 46 21
1 - 1 9 10
- - - 7 7
14 17 31 (31) -
13 (2) 11 2 13
- - - 1 1
- - - (10) (10)
- 18 18 24 42
(7) 8 1 102 103
21 - 21 1 22
14 26 40 127 167
(12) (11) (23) (92) (115)
(6) - (6) - (6)
(6) (11) (17) (92) (109)
60 120 180 917 1 097
9.4%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
58 105 163 882 1 045
(57) 6 (51) 95 44
4 - 4 18 22
- - - 14 14
81 (17) 64 (64) -
28 (7) 21 10 31
3 - 3 (30) (27)
- - - (3) (3)
59 (18) 41 40 81
(5) 17 12 192 204
18 - 18 1 19
72 (1) 71 233 304
(39) - (39) (1) (40)
(37) - (37) - (37)
(2) - (2) (1) (3)
91 104 195 1 114 1 309
8.1%
GBPm 6 months ended 30 June 2010
Retail Europe
Free Required Adjusted
surplus capital net worth
Opening MCEV 46 32 78
New business value (33) - (33)
Expected existing business contribution
(reference rate) - - -
Expected existing business contribution
(in excess of reference rate) - - -
Transfers from VIF and required capital
to free surplus 51 1 52
Experience variances (6) 1 (5)
Assumption changes 2 - 2
Other operating variance (5) 5 -
Operating MCEV earnings 9 7 16
Economic variances 1 1 2
Other non-operating variance (1) - (1)
Total MCEV earnings 9 8 17
Closing adjustments (9) (2) (11)
Capital and dividend flows (7) - (7)
Foreign exchange variance (2) (2) (4)
Closing MCEV 46 38 84
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of
in-force MCEV
Opening MCEV 453 531
New business value 35 2
Expected existing business contribution (reference rate) 5 5
Expected existing business contribution (in excess of
reference rate) 2 2
Transfers from VIF and required capital to free surplus (52) -
Experience variances - (5)
Assumption changes (2) -
Other operating variance 20 20
Operating MCEV earnings 8 24
Economic variances 11 13
Other non-operating variance 1 -
Total MCEV earnings 20 37
Closing adjustments (22) (33)
Capital and dividend flows - (7)
Foreign exchange variance (22) (26)
Closing MCEV 451 535
Return on MCEV (RoEV) % per annum 5.1%
The `expected existing business contribution (in excess of reference rate)` is
not significant. This is reasonable for business comprised mostly of
unit-linked products where most of the profits emanate from premium charges,
acquisition charges and fund based fees. Such fees and charges are largely
captured in the `expected existing business contribution (reference rate)`.
Experience variances were mainly due to higher than anticipated profit sharing
on participating contracts in Germany, partly offset by positive mortality and
morbidity experience and higher than expected fee income across all Retail
Europe countries. There were no one-off expense variances.
There were no material operating assumption changes.
The other operating variance was mainly due to enhanced modelling of the Waiver
of Premium business in Switzerland.
The economic variances were mainly due to the positive effect of market
movements on funds under management as well as the beneficial impact of lower
swap rates across the region.
There were no material other non-operating variances.
The capital and dividend flows mainly represent dividends, repayment of loans
and capital injections.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in euro. The operating assumption changes and other operating variances are not
annualised.
GBPm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
15 64 79 517 596
(37) 1 (36) 33 (3)
1 - 1 5 6
- - - 1 1
53 - 53 (53) 0
(8) 1 (7) (2) (9)
- - - 0 -
- - - (10) (10)
9 2 11 (26) (15)
1 1 2 11 13
1 (3) (2) - (2)
11 - 11 (15) (4)
12 (7) 5 (61) (56)
17 - 17 - 17
(5) (7) (12) (61) (73)
38 57 95 441 536
(3.6)%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
15 64 79 517 596
(74) 1 (73) 68 (5)
1 - 1 10 11
- - - 3 3
97 7 104 (104) -
(20) 1 (19) (4) (23)
- - - (26) (26)
18 (19) (1) (3) (4)
22 (10) 12 (56) (44)
(1) 4 3 26 29
20 (20) - 3 3
41 (26) 15 (27) (12)
(10) (6) (16) (37) (53)
(10) (3) (13) - (13)
- (3) (3) (37) (40)
46 32 78 453 531
(7.9)%
GBPm 6 months ended 30 June 2010
Wealth Management
Free Required Adjusted
surplus capital net worth
Opening MCEV 163 213 376
New business value (96) 14 (82)
Expected existing business contribution
(reference rate) 3 3 6
Expected existing business contribution
(in excess of reference rate) - - -
Transfers from VIF and required capital
to free surplus 146 (20) 126
Experience variances (26) 11 (15)
Assumption changes (2) 2 -
Other operating variance - - -
Operating MCEV earnings 25 10 35
Economic variances 19 (3) 16
Other non-operating variance - - -
Total MCEV earnings 44 7 51
Closing adjustments (33) (5) (38)
Capital and dividend flows (30) (6) (36)
Foreign exchange variance (3) 1 (2)
Closing MCEV 174 215 389
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of
in-force MCEV
Opening MCEV 1 468 1 844
New business value 113 31
Expected existing business contribution (reference rate) 11 17
Expected existing business contribution (in excess of
reference rate) 6 6
Transfers from VIF and required capital to free surplus (126) -
Experience variances 20 5
Assumption changes - -
Other operating variance 5 5
Operating MCEV earnings 29 64
Economic variances 42 58
Other non-operating variance - -
Total MCEV earnings 71 122
Closing adjustments (13) (51)
Capital and dividend flows (1) (37)
Foreign exchange variance (12) (14)
Closing MCEV 1 526 1 915
Return on MCEV (RoEV) % per annum 6.7%
The `expected existing business contribution (in excess of reference rate)` is
not significant. This is reasonable for business comprised mostly of
unit-linked products where most of the profits emanate from premium charges,
acquisition charges and fund based fees. Such fees and charges are largely
captured in the `expected existing business contribution (reference rate)`.
Experience variances were caused by positive persistency experience and higher
than expected fee income across all divisions, partly offset by adverse expense
experience.
There were no material operating assumption changes.
The other operating variance was mainly due to the impact of modelling and
methodology changes.
The economic variances were caused by lower swap yields and favourable exchange
rate movements.
The capital and dividend flows mainly represent dividends, repayments of loans
and capital injections.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in sterling. The operating assumption changes and other operating variances are
not annualised.
GBPm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
120 197 317 1 461 1 778
(103) 3 (100) 22 22
5 5 10 17 27
- - - 13 13
142 (6) 136 (136) -
2 (4) (2) (43) (45)
- - - 11 11
1 - 1 (16) (15)
47 (2) 45 (32) 13
(28) 22 (6) (61) (67)
3 (3) - (2) (2)
22 17 39 (95) (56)
(14) (1) (15) (8) (23)
(9) - (9) - (9)
(5) (1) (6) (8) (14)
128 213 341 1 358 1 699
1.7%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
120 197 317 1 461 1778
(171) 12 (159) 208 49
7 7 14 34 48
(1) - (1) 26 25
274 (30) 244 (244) -
(10) 7 (3) (35) (38)
(10) 7 (3) (96) (99)
90 2 92 (81) 11
179 5 184 (188) (4)
2 12 14 38 52
1 - 1 164 165
182 17 199 14 213
(139) (1) (140) (7) (147)
(142) 5 (137) - (137)
3 (6) (3) (7) (10)
163 213 376 1 468 1 844
(0.3)%
GBPm 6 months ended 30 June 2010
US Life
Free Required Adjusted
surplus capital net worth
Opening MCEV 36 462 498
New business value (36) 48 12
Expected existing business contribution
(reference rate) - 4 4
Expected existing business contribution
(in excess of reference rate) - - -
Transfers from VIF and required capital
to free surplus 41 (23) 18
Experience variances 80 (24) 56
Assumption changes - - -
Other operating variance - - -
Operating MCEV earnings 85 5 90
Economic variances (15) (12) (27)
Other non-operating variance - - -
Total MCEV earnings 70 (7) 63
Closing adjustments (3) 36 33
Capital and dividend flows (8) - (8)
Foreign exchange variance 5 36 41
Closing MCEV 103 491 594
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of
in-force MCEV
Opening MCEV (816) (318)
New business value (16) (4)
Expected existing business contribution (reference rate) 6 10
Expected existing business contribution (in excess of
reference rate) 36 36
Transfers from VIF and required capital to free surplus (18) -
Experience variances 43 99
Assumption changes 2 2
Other operating variance (16) (16)
Operating MCEV earnings 37 127
Economic variances (135) (162)
Other non-operating variance - -
Total MCEV earnings (98) (35)
Closing adjustments (67) (34)
Capital and dividend flows - (8)
Foreign exchange variance (67) (26)
Closing MCEV (981) (387)
Return on MCEV (RoEV) % per annum 79.7%
The results for US Life include allowance for Old Mutual Reassurance (Ireland)
Limited (OMRe), which provides reinsurance to the United States Life Companies.
The `expected existing business contribution (in excess of reference rate)` is
calculated using the corporate bond spread that is expected to be earned over
and above the adjusted risk free reference rate (inclusive of the liquidity
premium adjustment). The expected existing business contribution for US Life is
weighted towards the latter half of each reporting period because product
crediting rates are set in advance of the reporting period and therefore there
is less flexibility to improve earnings by varying crediting rates in the first
half of the reporting period than in the second half.
The experience variances were largely caused by positive persistency
experience. There were no material experience variance items that were one-off
in nature.
There were no material operating assumption changes.
The other operating variance was mainly due to modelling changes and error
corrections.
The economic variances were mainly due to the reduction in the assumed
liquidity premium from 100bps to 75bps and an increase in interest rate
volatilities, partially offset by gains in the underlying investment portfolio.
The capital and dividend flows reflect interest payments on the capital
injection made in 2009.
Return on MCEV was calculated as the operating MCEV earnings after tax divided
by the absolute value of the opening MCEV in US dollars. The operating
assumption changes and other operating variances are not annualised.
GPBm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
(85) 550 465 (1,725) (1,260)
(34) 33 (1) 8 7
(1) 11 10 (31) (21)
4 - 4 150 154
25 (29) (4) 4 -
8 25 33 (3) 30
- - - 13 13
- - - 76 76
2 40 42 217 259
(41) - (41) 534 493
- - - - -
(39) 40 1 751 752
151 (67) 84 128 212
152 - 152 - 152
(1) (67) (68) 128 60
27 523 550 (846) (296)
34.9%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
(85) 550 465 (1,725) (1,260)
(35) 41 6 8 14
(3) 21 18 (45) (27)
- 1 1 257 258
52 (54) (2) 2 -
137 (103) 34 (35) (1)
- - - 30 30
- - - (8) (8)
151 (94) 57 209 266
(181) 59 (122) 556 434
- - - - -
(30) (35) (65) 765 700
151 (53) 98 144 242
146 - 146 - 146
5 (53) (48) 144 96
36 462 498 (816) (318)
22.7%
GBPm 6 months ended 30 June 2010
Bermuda
Free Required Adjusted
surplus capital net worth
Opening MCEV - 363 363
New business value - - -
Expected existing business contribution
(reference rate) - 1 1
Expected existing business contribution
(in excess of reference rate) - 16 16
Transfers from VIF and required capital
to free surplus 6 (22) (16)
Experience variances (8) - (8)
Assumption changes 2 - 2
Other operating variance 70 (44) 26
Operating MCEV earnings 70 (49) 21
Economic variances (70) - (70)
Other non-operating variance - - -
Total MCEV earnings - (49) (49)
Closing adjustments - 27 27
Capital and dividend flows - - -
Foreign exchange variance - 27 27
Closing MCEV - 341 341
Return on MCEV (RoEV) % per annum
6 months ended 30 June 2010
Value of
in-force MCEV
Opening MCEV (165) 198
New business value - -
Expected existing business contribution (reference rate) 5 6
Expected existing business contribution (in excess of
reference rate) 16 32
Transfers from VIF and required capital to free surplus 16 -
Experience variances (19) (27)
Assumption changes - 2
Other operating variance (9) 17
Operating MCEV earnings 9 30
Economic variances (5) (75)
Other non-operating variance - -
Total MCEV earnings 4 (45)
Closing adjustments (12) 15
Capital and dividend flows - -
Foreign exchange variance (12) 15
Closing MCEV (173) 168
Return on MCEV (RoEV) % per annum 19.5%
The experience variances include adverse persistency experience, with less
surrenders than expected on Variable Annuity contracts with heavily in-
the-money guarantees. There were no material experience variance items that
were one-off in nature.
There were no material operating assumption changes.
The other operating variance was mainly due to modelling changes and error
corrections.
The economic variances were largely due to the adverse equity market
performances during the reporting period and the decrease in the US swap yield
curve.
Return on MCEV was calculated as the operating MCEV earnings after tax divided
by the absolute value of the opening MCEV in US dollars. The operating
assumption changes and other operating variances are not annualised.
GBPm 6 months ended 30 June 2009
Required Adjusted Value of
Free surplus Capital net worth in-force MCEV
342 34 376 (425) (49)
- - - - -
3 - 3 (3) -
21 - 21 21 42
(6) (2) (8) 8 -
(25) - (25) (8) (33)
- - - - -
(275) 275 - 69 69
(282) 273 (9) 87 78
(51) - (51) 127 76
- - - - -
(333) 273 (60) 214 154
(9) (28) (37) 28 (9)
- - - - -
(9) (28) (37) 28 (9)
- 279 279 (183) 96
182.1%
Year ended 31 December 2009
Required Adjusted Value of
Free surplus capital net worth in-force MCEV
342 34 376 (425) (49)
- - - - -
5 1 6 (4) 2
33 - 33 39 72
(5) (4) (9) 9 -
(72) - (72) (21) (93)
(36) - (36) (46) (82)
(345) 345 - 82 82
(420) 342 (78) 59 (19)
102 - 102 167 269
- - - - -
(318) 342 24 226 250
(24) (13) (37) 34 (3)
- - - - -
(24) (13) (37) 34 (3)
- 363 363 (165) 198
(41.0)%
Notes to the MCEV basis supplementary information
For the 6 months ended 30 June 2010 continued
C Other key performance information
C1 Adjustments applied in determining total Group MCEV earnings before tax
GBPm 6 months ended 30 June 2010
Covered Non-covered
business business Total Group
Analysis of adjusting items MCEV IFRS MCEV
Income/(expense)
Goodwill impairment and
amortisation of non-
covered business acquired
intangible assets
and impact of acquisition
accounting - (7) (7)
Economic variances (277) (20) (297)
Other non-operating variances 2 - 2
Acquired/divested business - (22) (22)
Closure of unclaimed share trust - - -
Dividends declared to holders of
perpetual
preferred callable securities - 21 21
Adjusting items relating to US
Asset
Management equity plans and
non-controlling
interests - 2 2
Fair value gains on Group debt
instruments - (90) (90)
Adjusting items (275) (116) (391)
6 months ended 30 June 2009
Covered Non-covered
business business Total Group
Analysis of adjusting items MCEV IFRS MCEV
Income/(expense)
Goodwill impairment and
amortisation of non-
covered business acquired
intangible assets
and impact of acquisition
accounting - (6) (6)
Economic variances 517 (12) 505
Other non-operating variances 16 - 16
Acquired/divested business - (41) (41)
Closure of unclaimed share trust - - -
Dividends declared to holders of
perpetual
preferred callable securities - 22 22
Adjusting items relating to US
Asset
Management equity plans and
non-controlling
interests - 1 1
Fair value gains on Group debt
instruments - 12 12
Adjusting items 533 (24) 509
GBPm Year ended 31 December 2009
Covered Non-covered
business business Total Group
Analysis of adjusting items MCEV IFRS MCEV
Income/(expense)
Goodwill impairment and
amortisation of non-covered
business acquired intangible assets
and impact of acquisition accounting - 65 65
Economic variances 1 108 (10) 1 098
Other non-operating variances 18 - 18
Acquired/divested business - (48) (48)
Closure of unclaimed share trust - - -
Dividends declared to holders of
perpetual
preferred callable securities - 45 45
Adjusting items relating to US
Asset
Management equity plans and
non-controlling interests - (1) (1)
Fair value gains on Group debt
instruments - (264) (264)
Adjusting items 1 126 (213) 913
C2 Other movements in IFRS net equity impacting Group MCEV
GBPm 6 months ended 30 June 2010
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Fair value gains/(losses) - (5) (5)
Net investment hedge - (34) (34)
Currency translation
differences/exchange
differences on translating foreign
operations 31 200 231
Aggregate tax effects of items
taken directly to
or transferred from equity - 6 6
Correction to transfers* - - -
Other movements - (28) (28)
Net income recognised directly
into equity 31 139 170
Capital and dividend flows for the
year (172) 73 (99)
Net sale of treasury shares - (20) (20)
Net issues of ordinary share
capital by the
Company - 160 160
Acquisition of non-controlling
interest in Mutual
& Federal - (93) (93)
Exercise of share options - 3 3
Change in share based payment
reserve - 1 1
Other movements in net equity (141) 263 122
GBPm
6 months ended 30 June 2009
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Fair value gains/(losses) - (2) (2)
Net investment hedge - 2 2
Currency translation
differences/exchange
differences on translating foreign
operations 13 22 35
Aggregate tax effects of items
taken directly to
or transferred from equity - 1 1
Correction to transfers* - 316 316
Other movements - (26) (26)
Net income recognised directly
into equity 13 313 326
Capital and dividend flows for the
year 104 (126) (22)
Net sale of treasury shares - - -
Net issues of ordinary share
capital by the
Company - - -
Acquisition of non-controlling
interest in Mutual
& Federal - - -
Exercise of share options - - -
Change in share based payment
reserve - 9 9
Other movements in net equity 117 196 313
Year ended 31 December 2009 GBPm
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Fair value gains/(losses) - 2 2
Net investment hedge - (41) (41)
Currency translation
differences/exchange
differences on translating
foreign operations 359 197 556
Aggregate tax effects of
items taken directly to
or transferred from equity - 13 13
Correction to transfers* - 316 316
Other movements (8) (7) (15)
Net income recognised
directly into equity 351 480 831
Capital and dividend flows
for the year (190) 145 (45)
Net sales of treasury shares - - -
Net issues of ordinary
share capital by the
Company - 2 2
Acquisition of
non-controlling interest in
Mutual & Federal - - -
Exercise of share options - 3 3
Change in share based
payment reserve - 14 14
Other movements in net equity 161 644 805
* Refinement arising from allocation of assets between covered and non-covered
business at December 2008.
Notes to the MCEV basis supplementary information
For the 6 months ended 30 June 2010 continued
C3 Reconciliation of MCEV adjusted net worth to IFRS net asset value for the
covered business
The table below provides a reconciliation of the MCEV adjusted net worth
(`ANW`) to the IFRS net asset value (`NAV`) for the covered business.
Long Term Emerging GBPm
At 30 June 2010 Total Savings Markets Nordic
IFRS net asset value* 6 394 6 040 932 1 147
Adjustment to include
long-term
business on a statutory
solvency
basis (2 779) (2 766) 161 (818)
Inclusion of Group equity
and debt
instruments held in life
funds 330 330 330 -
Goodwill (979) (979) (8) (186)
Adjusted net worth
attributable to
ordinary equity holders of the
parent 2 966 2 625 1 415 143
GBPm
Retail Wealth
At 30 June 2010 Europe Management US Life Bermuda
IFRS net asset value* 586 2 162 1 213 354
Adjustment to include
long-term
business on a statutory
solvency
basis (314) (1 176) (619) (13)
Inclusion of Group equity
and debt
instruments held in life
funds - - - -
Goodwill (188) (597) - -
Adjusted net worth
attributable to
ordinary equity holders of the
parent 84 389 594 341
Long Term Emerging
At 30 June 2009 Total Savings Markets Nordic
IFRS net asset value* 5 728 5 422 721 1 166
Adjustment to include
long-term
business on a statutory
solvency
basis (2 194) (2 167) 152 (817)
Inclusion of Group equity
and debt
instruments held in life
funds 305 305 305 -
Goodwill (1 224) (1 224) (8) (169)
Adjusted net worth
attributable to
ordinary equity holders of the
parent 2 615 2 336 1 170 180
GBPm
Retail Wealth
At 30 June 2009 Europe Management US Life Bermuda
IFRS net asset value* 818 2 295 422 306
Adjustment to include
long-term
business on a statutory
solvency
basis (349) (1 281) 128 (27)
Inclusion of Group equity
and debt
instruments held in life
funds - - - -
Goodwill (374) (673) - -
Adjusted net worth
attributable to
ordinary equity holders of the
parent 95 341 550 279
Long Term Emerging
At 31 December 2009 Total Savings Markets Nordic
IFRS net asset value* 6 103 5 734 821 1 222
Adjustment to include
long-term
business on a statutory
solvency
basis (2 632) (2 626) 153 (841)
Inclusion of Group equity
and debt
instruments held in life
funds 339 339 339 -
Goodwill (995) (995) (8) (186)
Adjusted net worth
attributable to
ordinary equity holders of the
parent 2 815 2 452 1 305 195
GBPm
Retail Wealth
At 31 December 2009 Europe Management US Life Bermuda
IFRS net asset value* 664 2 141 886 369
Adjustment to include
long-term
business on a statutory
solvency
basis (382) (1 168) (388) (6)
Inclusion of Group equity
and debt
instruments held in life
funds - - - -
Goodwill (204) (597) - -
Adjusted net worth
attributable to
ordinary equity holders of the
parent 78 376 498 363
* IFRS net asset value is after elimination of inter-company loans.
The adjustment to include long-term business on a statutory solvency basis
includes the following:
The excess of the IFRS amount of the deferred acquisition cost (`DAC`) and
value of business acquired (`VOBA`) assets over the statutory levels included
in the VIF.
When projecting future profits on a statutory basis, the VIF includes the
shareholders` value of unrealised capital gains. To the extent that assets in
IFRS are valued at market and the market value is higher than the statutory
book value, these profits have already been taken into account in the IFRS
equity.
C4 Value of new business (after tax)
The tables below set out the regional analysis of the value of new business
(`VNB`) after tax. New business profitability is measured by both the ratio of
the VNB to the present value of new business premiums (`PVNBP`) as well as to
the annual premium equivalent (`APE`), and shown under PVNBP margin and APE
margin below. APE is calculated as recurring premiums plus 10% of single
premiums.
GBPm
Year ended
6 months ended 6 months ended 31 December
30 June 2010 30 June 2009 2009
Annualised recurring
premiums
Long Term Savings (LTS) 344 346 699
Emerging Markets 143 104 249
Nordic 74 108 183
Retail Europe 29 28 62
Wealth Management 93 97 191
US Life 5 9 14
Bermuda - - -
Single premiums 344 346 699
Long Term Savings (LTS) 4 696 2 875 6 806
Emerging Markets 803 569 1 437
Nordic 284 276 527
Retail Europe 34 25 53
Wealth Management 3 175 1 718 4 240
US Life 400 287 549
Bermuda - 15 15
PVNBP 4 696 2 890 6 821
Long Term Savings (LTS) 6 400 4 672 10 202
Emerging Markets 1 561 1 231 2 834
Nordic 553 634 1 150
Retail Europe 243 228 537
Wealth Management 3 611 2 231 5 042
US Life 432 348 639
Bermuda - 15 15
6 400 4 687 10 217
PVNBP capitalisation factors*
Long Term Savings (LTS) 5.0 5.2 4.9
Emerging Markets 5.3 6.4 5.6
Nordic 3.6 3.4 3.4
Retail Europe 7.2 7.3 7.8
Wealth Management 4.6 5.3 4.2
US Life 6.6 6.5 6.6
Bermuda n/a n/a n/a
GBPm
Year ended
6 months ended 6 months ended 31 December
30 June 2010 30 June 2009 2009
APE
Long Term Savings (LTS) 814 634 1 380
Emerging Markets 223 165 393
Nordic 102 134 235
Retail Europe 32 30 67
Wealth Management 412 267 617
US Life 45 38 68
Bermuda - 2 1
VNB 814 636 1 381
Long Term Savings (LTS) 92 70 167
Emerging Markets 38 23 65
Nordic 25 21 44
Retail Europe 2 (3) (5)
Wealth Management 31 22 49
US Life (4) 7 14
Bermuda - - -
PVNBP margin 92 70 167
Long Term Savings (LTS) 1.4% 1.5% 1.6%
Emerging Markets 2.5% 1.9% 2.3%
Nordic 4.6% 3.3% 3.8%
Retail Europe 0.7% (1.5)% (1.0)%
Wealth Management 0.9% 1.0% 1.0%
US Life (0.9)% 2.1% 2.2%
APE margin 1.4% 1.5% 1.6%
Long Term Savings (LTS) 11% 11% 12%
Emerging Markets 17% 14% 16%
Nordic 25% 16% 19%
Retail Europe 6% (11)% (8)%
Wealth Management 8% 8% 8%
US Life (9)% 19% 20%
11% 11% 12%
* The PVNBP capitalisation factors are calculated as follows: (PVNBP single
premiums)/annualised recurring premiums
The value of new individual unit trust linked retirement annuities and pension
fund asset management business written by the Emerging Markets long-term
business is excluded as the profits on this business arise in the asset
management business. The value of new business also excludes premium increases
arising from indexation arrangements in respect of existing business, as these
are already included in the value of inforce business.
The value of new institutional investment platform pensions business written in
Wealth Management is excluded as this is more appropriately classified as unit
trust business.
GBPm
Year ended
6 months ended 6 months ended 31 December
Gross premium excluded
from value of new
business 30 June 2010 30 June 2009 2009
Emerging Markets 386 172 1 625
Wealth Management 75 83 153
C5 Product analysis of new covered business premiums
GBPm
6 months ended 30 June 2010
Emerging Markets Recurring Single
Total business 143 803
Individual business 120 486
Savings 29 387
Protection 31 -
Annuity - 98
Retail mass market 60 1
Group business 23 317
Savings 9 257
Protection 14 -
Annuity - 60
GBPm
6 months ended 30 June 2009
Emerging Markets Recurring Single
Total business 104 569
Individual business 92 289
Savings 22 215
Protection 23 -
Annuity - 73
Retail mass market 47 1
Group business 12 280
Savings 5 236
Protection 7 -
Annuity - 44
Year ended 31 December 2009 GBPm
Emerging Markets Recurring Single
Total business 249 1,437
Individual business 220 716
Savings 50 560
Protection 56 -
Annuity - 155
Retail mass market 114 1
Group business 29 721
Savings 13 564
Protection 16 -
Annuity - 157
6 months ended 30 June 2010
Nordic Recurring Single
Unit-linked and life
assurance 74 284
6 months ended 30 June 2009
Nordic Recurring Single
Unit-linked and life
assurance 108 276
GBPm
Year ended 31 December 2009
Nordic Recurring Single
Unit-linked and life
assurance 183 527
6 months ended 30 June 2010
Retail Europe Recurring Single
Unit-linked and life
assurance 29 34
6 months ended 30 June 2009
Retail Europe Recurring Single
Unit-linked and life
assurance 28 25
GBPm
Year ended 31 December 2009
Retail Europe Recurring Single
Unit-linked and life
assurance 62 53
6 months ended 30 June 2010
Wealth Management Recurring Single
Unit-linked and life
assurance 93 3 175
6 months ended 30 June 2009
Wealth Management Recurring Single
Unit-linked and life
assurance 97 1 718
GBPm
Year ended 31 December 2009
Wealth Management Recurring Single
Unit-linked and life
assurance 191 4 240
GBPm
6 months ended 30 June 2010
US Life Recurring Single
Total business 5 400
Fixed deferred annuity - 79
Fixed indexed annuity - 234
Variable annuity - -
Life 5 1
Immediate annuity - 86
6 months ended 30 June 2009
US Life Recurring Single
Total business 9 287
Fixed deferred annuity - 27
Fixed indexed annuity - 184
Variable annuity - 1
Life 9 16
Immediate annuity - 59
GBPm
Year ended 31 December 2009
US Life Recurring Single
Total business 14 549
Fixed deferred annuity - 30
Fixed indexed annuity - 383
Variable annuity - -
Life 14 13
Immediate annuity - 123
D Other income statement notes
D1 Drivers of new business value for covered business
PVNBP Margin %
6 months ended Year ended
30 June 31 December
Total covered business 2010 2009
Margin at the end of comparative period 1.5 0.8
Change in volume (0.2) 0.8
Change in product mix 0.5 -
Change in country mix - -
Change in operating assumptions (0.1) 0.1
Change in economic assumptions (0.3) -
Change in tax/regulation - 0.1
Exchange rate movements - (0.2)
Margin at the end of the period 1.4 1.6
Long Term Savings
Margin at the end of comparative period 1.5 1.5
Change in volume (0.2) (0.1)
Change in product mix 0.5 -
Change in country mix - -
Change in operating assumptions (0.1) 0.1
Change in economic assumptions (0.3) -
Change in tax/regulation - 0.1
Exchange rate movements - -
Margin at the end of the period 1.4 1.6
Emerging Markets
Margin at the end of comparative period 1.9 2.2
Change in volume 0.2 (0.1)
Change in product mix 0.4 (0.2)
Change in country mix - -
Change in operating assumptions 0.1 0.4
Change in economic assumptions (0.1) -
Margin at the end of the period 2.5 2.3
Nordic
Margin at the end of comparative period 3.3 3.3
Change in volume (0.1) (0.1)
Change in product mix 1.4 -
Change in country mix - -
Change in operating assumptions 0.1 0.4
Change in economic assumptions (0.1) 0.2
Margin at the end of the period 4.6 3.8
%
6 months ended Year ended
30 June 31 December
Total covered business 2010 2009
Retail Europe
Margin at the end of comparative period (1.5) 1.8
Change in volume 1.7 (2.1)
Change in product mix 0.1 (0.8)
Change in country mix - (0.1)
Change in operating assumptions 0.3 0.5
Change in economic assumptions 0.1 (0.3)
Margin at the end of the period 0.7 (1.0)
Wealth Management
Margin at the end of comparative period 1.0 1.2
Change in volume - (0.2)
Change in product mix - -
Change in country mix - -
Change in operating assumptions (0.2) (0.2)
Change in economic assumptions - -
Change in tax/regulation 0.1 0.2
Margin at the end of the period 0.9 1.0
US Life
Margin at the end of comparative period 2.1 (0.9)
Change in volume (0.3) -
Change in product mix 1.1 1.5
Change in country mix - -
Change in operating assumptions (0.2) -
Change in economic assumptions (3.6) 1.6
Margin at the end of the period (0.9) 2.2
E1 Sensitivity tests
The tables below show the sensitivity of the MCEV and value of in-force
business at 30 June 2010 and the value of new business for the 6 months ended
30 June 2010 to changes in key assumptions.
For each sensitivity illustrated all other assumptions have been left unchanged
except where they are directly affected by the revised conditions.
Sensitivity scenarios therefore include consistent changes in cash flows
directly affected by the changed assumption(s), for example future bonus
participation in changed economic scenarios.
At 30 June 2010 GBPm
Value of in- Value of new
Total covered business MCEV force business business
Central assumptions 6 174 3 208 92
Effect of:
Increasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 5 898 2 858 94
Decreasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 6 447 3 553 81
Recognising the present value of
an additional 10bps of liquidity
spreads assumed on
corporate bonds over the
lifetime of the liabilities,
with credited rates and discount
rates changing commensurately 6 215 3 249 94
At 30 June 2010 GBPm
Value of in- Value of new
Emerging Markets MCEV force business business
Central assumptions 2 646 1 231 38
Effect of:
Increasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 2 593 1 176 35
Decreasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 2 693 1 279 41
Recognising the present value of
an additional 10bps of liquidity
spreads assumed on
corporate bonds over the
lifetime of the liabilities,
with credited rates and discount rates
changing commensurately 2 654 1 239 39
At 30 June 2010 GBPm
Value of in- Value of new
Nordic MCEV force business business
Central assumptions 1 297 1 154 25
Effect of:
Increasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 1 273 1 131 24
Decreasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 1 324 1 181 26
At 30 June 2010 GBPm
Value of in- Value of new
Retail Europe MCEV force business business
Central assumptions 535 451 2
Effect of:
Increasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 520 436 1
Decreasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 550 466 3
At 30 June 2010 GBPm
Value of in- Value of new
Wealth management MCEV force business business
Central assumptions 1 915 1 526 31
Effect of:
Increasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 1 892 1 519 30
Decreasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 1 938 1 530 32
At 30 June 2010 GBPm
Value of in- Value of new
US Life MCEV force business business
Central assumptions (387) (981) (4)
Effect of:
Increasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately (626) (1 220) 4
Decreasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately (149) (743) (21)
Recognising the present value of
an additional 10bps of liquidity
spreads assumed on
corporate bonds over the
lifetime of the liabilities,
with credited rates and discount
rates changing commensurately (354) (948) (3)
Recognising the present value of
an additional 50% of liquidity
spreads assumed on
corporate bonds over the
lifetime of the liabilities,
with credited rates and discount
rates changing commensurately (236) (830) 2
At 30 June 2010 GBPm
Value of in-force Value of new
Bermuda MCEV business business
Central assumptions 168 (173) -
Effect of:
Increasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 246 (184) -
Decreasing all pre-tax
investment and economic
assumptions by 1%, with credited
rates and discount rates
changing commensurately 91 (160) -
Shareholder information
Listings and shares in issue
The Company`s shares are listed on the London, Malawi, Namibian and Zimbabwe
Stock Exchanges and on the JSE Limited (JSE). The primary listing is on the
London Stock Exchange and the other listings are all secondary listings. The
Company`s secondary listing on the Stockholm Stock Exchange ended on 7
September 2007, but the Company`s shares may still be traded on the Xternal
list of the Nordic Exchange in Stockholm. The ISIN number of the Company`s
shares is GB0007389926.
Websites
Further information on the Company can be found on the following websites:
www.oldmutual.com
www.oldmutual.co.za
06 August 2010
Sponsor: Merrill Lynch South Africa (Pty) Limited
Date: 06/08/2010 07:58:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
