| Mon 12 Aug 2002, 0:00 | | Old Mutual Plc - Results For The Six Months Ended |
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Old Mutual plc - Results for the six months ended 30 June
Old Mutual plc
ISIN CODE: GB0007389926
SHARE CODE: OML
ISSUER CODE: OLOML
Results for the six months ended 30 June 2002
Solid performance in challenging conditions
Highlights
* Operating profit*: "GBP"381m (2001: "GBP"455m), a decrease of 16% in
Sterling
R6,059m (2001: R5,195m), an increase of 17% in Rand
* Operating earnings per share*: 5.8p (2001: 7.2p**), a decrease of 19% in
Sterling
92.9c (2001: 82.4c**), an increase of 13%
in Rand
* Record life premiums of "GBP"2.7bn (2001: "GBP"1.4bn) and record life sales of
"GBP"288m annual premium equivalent (2001: "GBP"132m)
* Net fund inflows of $1.5bn for our US asset management business
* Value of new life business: "GBP"58m (2001: "GBP"28m**), an increase of
107% in Sterling
R927m (2001: R319m**), an increase of 191%
in Rand
* Acquisition of BoE Limited by Nedcor Limited successfully completed in
July and integration now underway
* Group return on equity of 17%
* Embedded value: "GBP"3,775m (31 December 2001: "GBP"3,522m), an increase
of 7% in Sterling
R59,814m (31 December 2001: R61,364m), a decrease of 3%
in Rand
* Interim dividend of 1.7p (2001: 1.7p) maintained, representing an
increase of 21% in Rand***
Jim Sutcliffe, Chief Executive, commented:
"These are solid results, given the depressed state of world stock markets. We
are making good progress in our strategy to internationalise the Group. In
particular, our US life operations grew quickly and there were overall positive
cash flows at our US asset management business.
Our South African life businesses showed good new business growth and, at
Nedcor, the acquisition of BoE is expected to bring substantial benefits to
shareholders.
We do not expect market conditions to improve in the second half of 2002, but
the diversity of our operations provides both a defence against difficult
markets and the opportunity to take advantage of growth areas."
12 August 2002
Wherever the items asterisked in the Highlights are used, whether in the
Highlights, the Chief Executive`s statement or the Business review, the
following apply:
* Operating profit is based on a long term investment return before goodwill
amortisation, write-down of investment in Dimension Data Holdings plc and short
term fluctuations in investment return. Operating profit for the six month
period ended 30 June 2002 includes the release of a "GBP"25m (R400m) exceptional
general risk provision at Nedcor. Operating earnings per share are similarly
based, but are also after tax and minority interests.
** Operating earnings per share for the first half of 2001 have been restated
(from 7.8p and 89.3c respectively) to incorporate a revised policy for the
recognition of deferred tax in accordance with Financial Reporting Standard
(FRS) 19. The value of new life business in the first half of 2001 has been
restated (from "GBP"27m and R310m respectively) in respect of transfers from the
Guaranteed Capital Fund that were not previously categorised as new business
premiums.
*** Indicative only, based on 26.9c, being the Rand equivalent of 1.7p
converted at the exchange rate prevailing on 30 June 2002. The actual amount to
be paid by way of interim dividend to holders of shares on the South African
branch register will be by reference to the exchange rate prevailing at the
close on 3 October 2002, as determined by the Company, and will be announced on
4 October 2002.
Media enquiries:
Old Mutual plc
Julian Roberts, Group Finance Director Tel: +44 20 7569 0100
James Poole, Director, Investor Relations
Nad Pillay, Investor Relations (SA) Tel: +27 82 553 7980
College Hill
Tony Friend/Gareth David (UK) Tel: +44 20 7457 2020
Nicholas Williams/Robyn Hunt (SA) Tel: +27 11 447 3030
Old Mutual delivered solid results in the first half of 2002, despite the
impact of volatile equity markets. Our increased internationalisation is proving
its worth, as our US businesses in particular performed well, with our US life
business expanding rapidly and our US asset management earnings being maintained
despite the difficult market.
Operating earnings per share were down 19% at 5.8p (2001: 7.2p) compared to
the same period last year, after a 28% decline in the average R/"GBP" exchange
rate when reported in Sterling. In Rand, they were up 13% to 92.9c (2001:
82.4c). Assets under management fell only 7% from 31 December 2001 to "GBP"133bn
- a satisfactory result in difficult markets, particularly in the USA, where 65%
of our managed assets are located. Operating return on shareholders` equity was
a very creditable 17% during the period.
Our embedded value improved to 100p per share at 30 June 2002. Value of new
business reached "GBP"58m (R927m), an increase of over 100% compared to the
equivalent period in 2001. 60% of gross life premiums written came from our US
life business, which delivered an excellent result as the market turned in its
favour. Before debt, our embedded value was divided 53% South Africa, 35% USA
and 12% UK and Rest of World.
Our 53% owned banking subsidiary, Nedcor, successfully completed the
acquisition of BoE Limited in South Africa in July - part of our strategy of
participation in consolidation of the South African financial services sector.
We sold NWQ in the USA, the sale being completed on 1 August 2002, as well as
two other US asset management affiliates, as we continued to tidy up our US
asset management holdings.
South Africa
Sales at Old Mutual South Africa were up 21% over the equivalent period in
2001, and were in line with the level seen in the second half of last year. In
particular, we had much improved regular premium Employee Benefit sales, as more
rational pricing returned to the market. The productivity of Personal Financial
Advisers (our agency force) improved sharply, although the number of our agents
grew more slowly than we had hoped. Bancassurance annual premium equivalent
sales increased 35%, and we continue to expect more growth from this source.
Value of new business was R403m, a gain of 36% on the first half of last year.
New business margins increased to 25%, but were down 2% from the year ended 31
December 2001. We continue to offer our customers very competitive returns on
the back of consistent performance from our South African asset management
subsidiary.
Operating profit was in line with that for the equivalent period last year in
Rand terms. Investment losses, particularly those caused by higher interest
rates, together with higher costs for US$-based computer software both reduced
profits. The underlying return on equity was within our target range, at 21%.
Nedcor produced good underlying growth in its asset base and profit. Its
operating profit was impacted by translation losses on its integrated assets
outside South Africa caused by the strengthening of the Rand during the six
months, but these were partially offset by the release of a R400m exceptional
general risk provision established by Nedcor at 31 December 2001 in anticipation
of currency exchange-related bad debts which did not materialise. Nedcor`s
return on equity met our target at 21%. We have written down Nedcor`s holding in
Dimension Data Holdings plc further to reflect its market value at 30 June 2002.
Nedcor signed its contract with Swisscard for the provision of credit card
servicing, and this is expected to begin to generate income in the second half.
Our 51% owned general insurance subsidiary, Mutual & Federal Insurance Company
Limited, produced another good set of results with an underwriting profit of
R32m, despite higher reinsurance costs and claims inflation.
USA
Our US asset management results demonstrated the value of our diversified
portfolio of fund managers and our orientation towards value-style investment
management. Assets under management at our retained operations declined by only
3.2%, despite the S&P 500 Index falling by 14% and the Nasdaq Composite Index by
25%. Net client inflows were $1.5bn. Investment performance exceeded the
benchmark for 85% of our clients over 3 years. Particularly good results were
achieved at Dwight, our fixed income manager, Barrow, Hanley, Mewhinney &
Strauss, our Dallas based firm which sub-advises a key Vanguard fund, and
Pacific Financial Research, our Los Angeles based deep value manager. Pilgrim
Baxter`s growth-oriented funds struggled, but its marketing efforts for funds
sub-advised by some of our other firms were successful, adding $1.3bn to funds
under management at 30 June 2002. Return on investment remains at about 7%.
Our US life insurance business had a highly successful first half. Single
premium sales for the period topped $2.2bn and annual premium equivalent sales
were $251m, more than triple the volumes at time of purchase and accounting for
60% of the Group`s worldwide life sales. Customer conservatism favoured our bond
based product range over equity mutual funds, and low short term interest rates
favoured our 5-10 year bond based products over bank CDs. Margins expanded a
little, as the growth in volumes spread the fixed expenses of the business over
a bigger base. Further margin improvement through expense cutting measures was
delayed to cope with the high volume of business. Default experience in the
business`s bond portfolio remained within the parameters built in at the time of
purchase, and was offset in part by trading gains. Smoothed operating profit
jumped from $19m in the second half of last year (after meeting $13m of
transition costs) to $48m, with the underlying increase being 50%. Most of the
assets of Fidelity & Guaranty Life are now managed by Dwight, and improved
yields were achieved on the portfolio, while maintaining an "A" average credit
quality. Return on equity was 9%.
UK and rest of world
Trading conditions in the UK have been difficult, with the FTSE 100 Index
falling by 11% over the period. Nevertheless, Gerrard made a small profit and
started to implement a profit improvement plan under its new management team.
There was a small outflow of client funds at Gerrard, with expenses running at
an annual rate some "GBP"10m less than last year. Old Mutual Asset Managers (UK)
was one of the few firms in the market to attract net new funds, and we continue
to invest in its development. Volumes of business at GNI benefited from
volatility in the market in the second quarter.
FINANCE
Our gearing ratio, at 33%, improved from the 2001 year end level of 35%. We
successfully issued a _400m bond in April, and renewed an enlarged $600m
revolving credit facility in July. As a result our cash position remains strong.
At the end of May we successfully placed the shares in Old Mutual held by the St
Paul group as part of the purchase of Fidelity & Guaranty Life, and raised a
small amount of capital at the same time. This removed a potential overhang from
the market.
The solvency ratios of our key businesses are robust, with excess assets
equivalent to 2.6 times statutory capital at our South African life business, a
capital adequacy ratio of 11.2% at Nedcor, and a solvency ratio in excess of 70%
at Mutual & Federal.
We have also been able to provide the capital required to support the
exceptional growth of our US life business from the proceeds of the share issue
mentioned above and from the sale of NWQ.
dividend
We have shown our confidence in the Group`s prospects by maintaining the
interim dividend at 1.7p per share. The indicative Rand equivalent is 26.9c,
based on the exchange rate at 30 June 2002, but the actual Rand and other
overseas currency equivalents will be determined by the Company by reference to
the exchange rates prevailing on 3 October 2002 and announced to the markets on
4 October 2002. The dividend will be paid on 29 November 2002 to shareholders on
the register at the close of business on 18 October 2002. Further details of the
interim dividend are contained in the Business review attached.
Outlook
Having endured negative equity markets and adverse currency movements in the
last twelve months, the solid results produced so far in 2002 show the inherent
strength of the Group and the benefit of its international strategy as it faces
the future. The bedding down of recent acquisitions is well under way. We do not
expect any significant improvement in conditions in the second half of 2002, but
the diversity of our operations makes us well placed for difficult markets, and
allows us to take advantage of growth opportunities where they occur. We
continue to reduce expenses to help offset the effects of declining markets, and
our South African businesses remain a powerful base for our strategy of
internationalisation.
Jim Sutcliffe
Chief Executive
12 August 2002
Group summary financial performance
The Group`s results in Sterling have been impacted by the weakening of the
average Rand:Sterling exchange rate from R11.42 in the first half of last year
to R15.88 in the current reporting period. This has had the effect of reducing
operating profit (after tax and minority interests) for the period ended 30 June
2002 by "GBP"71 million. Operating earnings per share of 5.8p decreased by 19%
from 7.2p in 2001.
Group value of new business of "GBP"58 million increased from "GBP"28 million
in the equivalent period in 2001, primarily due to a contribution of "GBP"31
million from our US life business in the first six months of 2002.
The Group`s embedded value in Sterling has, however, benefited from a
strengthening in the Rand:Sterling exchange rate from R17.43:"GBP"1 at 31
December 2001 to R15.85:"GBP"1 at 30 June 2002. As a result, embedded value
increased from "GBP"3,522 million at the beginning of the year to "GBP"3,775
million (or 100p per share) at 30 June 2002.
Equity markets throughout the world declined significantly in July 2002,
particularly the FTSE / JSE AFRICA ALSI, which decreased 13% during the month.
This has not affected Group capital, but has decreased our embedded value by 5%
to approximately "GBP"3.6 billion, or 95p per share.
Taxation
The Group`s effective tax rate (based on the tax charge as a proportion of
smoothed operating profit) reduced marginally to 27.8% from 28.1%, restated to
incorporate revised deferred tax provisions in accordance with FRS 19. The rate
benefited from a reduction in Secondary Tax on Companies in South Africa, offset
in part by the greater profit contribution from our US businesses.
Dividend
The Board has declared an interim dividend of 1.7p per share, which will be
paid on 29 November 2002 to shareholders on the register at the close of
business on 18 October 2002. The equivalent of this dividend in the local
currencies of South Africa, Malawi, Namibia and Zimbabwe will be determined by
the Company on 3 October 2002 and will be announced to the markets on 4 October
2002. Our shares will trade ex dividend from the opening of business on 14
October 2002 on the JSE Securities Exchange South Africa and the Malawi,
Namibian and Zimbabwe Stock Exchanges and from the opening of business on 16
October 2002 on the London Stock Exchange. No dematerialisation or
rematerialisation of shares within the South African STRATE system may take
place between 14 October 2002 and 18 October 2002 (both dates inclusive).
Interim review report by KPMG Audit Plc
The original version of the review report on the interim results signed by our
auditors, KPMG Audit Plc, is available for inspection at our registered office
at 3rd Floor, Lansdowne House, 57 Berkeley Square, London W1J 6ER.
South Africa
Life Assurance
Summary financial performance
The total annual premium equivalent (APE) for the period was R1,624 million, 21%
ahead of the corresponding period last year, while the value of new business at
R403 million was 36% higher. The average margin on new business increased from
22% to 25% of APE although it has reduced 2% from 31 December 2001.
Our South African life business operating profit, before long term investment
return, of R1,541 million, was 2% down on the R1,565 million recorded in the
same period last year.
The value of in-force life business of R9.2 billion has reduced by 3% from
R9.5 billion at the beginning of the year. This is primarily attributable to
negative net cash flows of R2.3 billion during the period.
The life company`s capital has decreased marginally to R34 billion at 30 June
2002, mainly due to small negative returns earned on shareholders` funds. This
capital is sufficient to provide cover of 2.6 times the statutory capital
adequacy requirement of R13.2 billion.
Individual Business
Financial performance
New business volumes for Individual Business have been strong in the first
half of 2002, consistent with those in the second half of 2001. The new business
APE of R1,270 million was 11% above the R1,140 million reported in the first
half of 2001. Recurring premium business was up a pleasing 23%, driven primarily
by the sale of Investment Horizons and Greenlight products, launched in November
2000 and May 2001 respectively, and the re-pricing of the Group Schemes business
funeral product range in the second half of 2001. Single premium business was
down 5% (but including South African investment into the Old Mutual
International offshore product range using the R750,000 individual offshore
investment allowance, it was down only 2%). The volatility of the Rand and
uncertainty in global investment markets adversely impacted the growth in single
premiums.
The value of new business was up 19% from R219 million to R261 million as a
result of higher new business volumes.
Operating profit, before long term investment return, of R1,096 million was 1%
up on the same period last year. Operating profit for the period was adversely
affected by less favourable investment performance than in the first half of the
prior year.
Business development
The customer segmentation strategy launched in 2001 has brought increased
focus and improved customer service. Significant progress has been made in the
product offerings to the mass affluent market during the first half of the year,
with the reorganisation of the Private Wealth management business and the launch
of Fairbairn Capital in July 2002. Dollar and Sterling denominated life,
endowment and investment contracts were launched to satisfy the demand from
Private Wealth clients using their R750,000 offshore investment allowance,
through our Guernsey operation.
Distribution capability has continued to grow across all income segments, with
the total sales force up by 10% from the first half of 2001. Productivity has
also improved in the first half of the year, which has resulted in increased
distribution efficiency and has positioned the business favourably to move
forward.
Further progress has been made in bancassurance initiatives with Nedcor. A
Nedbank branded life-wrapped savings product was successfully developed and
launched, and sales in bank branches by bank staff are progressing well, as are
the advisor sales in Nedbank and Peoples Bank. Total bancassurance APE was up
35% on the same period last year.
Outlook
Individual Business is leading the way in product development, and additional
product launches are expected to take place during the second half of the year.
Broker sales relationships are expected to continue to develop and the agency
sales force to increase, with a strong focus on productivity and growing the
business in South Africa.
Group Business
Financial performance
The new business APE of R354 million for Group Business was up 77% from R200
million in the first half of 2001, driven by substantially higher recurring
premiums, and with single premiums up 19%. The value of new business at R142
million was 84% up on the R77 million reported in the same period last year. The
average margin of 40% is slightly above the 39% for the equivalent period last
year.
Operating profit, before long term investment return, at R445 million was 7%
down on the first half of 2001, mainly due to the additional costs of
implementing a new administration platform and due to lower investment returns
on the portfolio backing the risk business.
Business development
During the first half of the year good progress has been made towards securing
a number of significant pensioner liability outsourcing arrangements. Investment
in new information technology systems has continued during 2002 and, with the
implementation of the new administration system, Group Business is in an
excellent position to capture new business and retain existing business.
Development work to date has created the opportunity to move several significant
existing clients on to new platforms offering additional functionality and
product features, and two major full-service clients are currently being
migrated.
Outlook
The systems and product development of the last two years have created an
environment where unit cost reduction can be delivered together with increased
product functionality and revenue opportunities. These, together with the strong
capital position of the life company, should enable Group Business to continue
to target new clients, as well as leveraging its existing client base.
Asset Management
Fund management
Fund management operations in South Africa include Old Mutual Asset Managers
(South Africa) (OMAM(SA)), Old Mutual Unit Trusts (OMUT), Old Mutual Properties,
Galaxy Portfolio Services and Old Mutual Specialised Finance.
Summary financial performance
Our South African asset management operating profit was R207 million, compared
to R206 million in the same period last year. The negative impact of changes to
industry guidelines and practice in relation to trading activities in the unit
trust industry has been offset by higher asset levels.
Total funds managed in South Africa grew by 2% from R261 billion to R266
billion over the six months.
Business volumes through our web-based unit trust dealing system, Fundsnet,
were disappointing, and the decision to close this operation took effect in the
first half of this year.
Investment performance
OMAM(SA)`s investment performance relative to its peers and to index-related
benchmarks showed considerable improvement during the first half. OMAM(SA) was
placed second out of the ten major asset management firms in the Alexander
Forbes Large Managers` Watch survey for its returns on third party discretionary
balanced-fund clients. Performance for the general life funds for the year to
date remains above benchmark and ahead of peers.
Outlook
Recent weakness in the global and South African equity markets has directly
affected absolute return levels. The institutional asset management industry
remains competitive, but despite this OMAM(SA) has seen increased activity in
new business.
Banking
Financial performance
Operating profit from our banking operations of R2,035 million increased by 6%
from R1,918 million in the first half of 2001. Nedcor`s contribution to these
results was R2,080 million (2001: R1,970 million), offset by a R45 million
(2001: R52 million) loss from Old Mutual Banking Services.
Following a turbulent and unsettled period in the earlier part of 2002, the
South African banking industry has recently shown a return to stability. Nedcor
made a significant contribution towards this by successfully concluding a merger
with BoE Limited with effect from 2 July 2002. In these difficult market
circumstances Nedcor performed well at core level, while the development of key
alliances continued. Core earnings, excluding all translation gains and losses
and exceptional general risk provision movements, grew by 18% to R1,560 million
(2001: R1,317 million), comprising a solid 21% growth in South African
operations and 8% growth in international operations.
Nedcor`s headline earnings were again significantly influenced by the
volatility in the Rand exchange rate, with the large translation gains of last
year becoming translation losses this year. Notwithstanding this, headline
earnings grew by 3% to R1,524 million (2001: R1,485 million), including
translation losses of R436 million (2001: translation profits of R168 million),
but offset by the release of the R400 million exceptional general risk provision
prudently raised at 31 December 2001.
Total advances grew by 14%, despite a reduction of R7 billion in Rand-
translated offshore advances. Net interest income grew by a more muted 10%. Non-
interest revenue, excluding translation gains and exceptional items, grew
strongly by 26% to R2,690 million (2001: R2,141 million). The foundation for
this increase was pleasing volume-driven growth of 16% in commission and fees,
which rose to R1,761 million (2001: R1,520 million).
The credit climate held steady during 2002, despite increased interest rates,
and the arrears trend has again shown an improvement. At 31 December 2001, as a
consequence of the substantial depreciation in the value of the Rand and the
then prevailing uncertain business environment, the general risk provision was
prudently supplemented by R400 million to cover unidentified but inherent risks
that may have resulted from these exceptional events. This provision has been
reversed in full at 30 June 2002, given that the Rand has strengthened and
economic conditions have stablilised.
The market value of Nedcor`s investment in 103 million shares in Dimension
Data Holdings plc, listed on the London Stock Exchange, has declined further and
has been marked to market at its 30 June 2002 price of R6.45 per share, down
from R14.50 at 31 December 2001. The net write-down of R690 million after
taxation includes related translation losses and the release of a deferred tax
credit of R140 million provided last year against corresponding translation
gains.
Business development
In addition to the merger with BoE, Nedcor continues to develop and invest in
its key growth strategies. Good progress continues to be made with the
integration of its banking alliances. These include the partnerships with
Capital One, Imperial Bank, JD Group, Old Mutual, Pick `n Pay and the
empowerment groupings in Peoples Bank. Over the past five years its strategy has
enabled it to increase its domestic market share in total banking assets from
15.7% to 18.3% prior to the merger with BoE, and to 23.3% including BoE.
Another strategic objective is to leverage Nedcor`s core processing competence
in the international arena and so create a recurring low-risk external income
stream. Good progress has been made and the Swisscard outsourcing contract is
expected to begin generating income in the second half.
BoE
The merger with BoE has been the most significant recent event at Nedcor. All
requirements and conditions precedent relating to the merger were successfully
met, and BoE Limited became a wholly owned subsidiary of Nedcor with effect from
2 July 2002. This followed unanimous BoE management and board support, and 98%
shareholder support, for Nedcor`s R7.5 billion offer, which was partly funded
from the raising in July of South Africa`s largest private sector bond issue of
R4 billion. The merger with BoE fits ideally into Nedcor`s growth strategy and
most of BoE`s business units align well with those of Nedcor. In addition,
Nedcor`s scalable technology platforms will benefit from the volume increases
introduced by BoE, and there is potential for significant cost synergies from
the merging of duplicated services.
The merger with BoE is also the catalyst for achieving a Nedcor groupwide
restructuring and realignment. Management is highly cognisant of the integration
risks flowing from the merger and has reorganised responsibilities and resources
to ensure that some are dedicated solely to the merger process, while most
continue to devote their full attention to ongoing operations. Integration
milestones are being set and will be announced to the market in the near future.
Outlook
The solid performance of Nedcor`s core business positions it well for the
future, given an improving South African environment and the long awaited arrest
in the decline in interest margins of the last few years. The BoE merger is
being structured to enhance these prospects. Following many years of significant
technology investment, the merger with BoE provides the enlarged Nedcor Group
with even better opportunities for leveraging advantages of scale to increase
efficiencies and reduce costs. Furthermore, offshore processing is poised to
build its contribution of recurring income to meaningful levels over the medium
to long term. Nedcor`s strategy and alliances have assisted it in gaining market
share in recent years. This will now be augmented by the addition of BoE
products. Given continued growth in its core business and alliances, stable
credit and interest rate conditions and a successful integration with BoE,
Nedcor anticipates positive results for the remainder of 2002 and beyond.
General Insurance
Mutual & Federal
Financial performance
Operating profit, including long term investment return, from our 51% owned
South African general insurance operation, Mutual & Federal Insurance Company
Limited (Mutual & Federal), of R308 million, represented an increase of 12% from
R274 million in the first half of 2001.
Mutual & Federal returned an underwriting result of R32 million under UK GAAP
for the period, compared to R11 million for the equivalent prior year period.
This was an excellent result in a difficult trading environment, and reflects
the improvement in the operating ratio from 98.7% to 97.7%. Gross premium income
of R2.6 billion was 11% higher than in the first half of last year, while net
premiums earned increased 9% from the equivalent period in 2001, reflecting
higher levels of reinsurance and increased reinsurance costs.
Underwriting profitability was improved through stringent risk selection and
withdrawal from unprofitable business. As a result premium growth has been
modest, although positively affected by the consolidation of the premium book
following the CGU acquisition in 2000. Management focus on control over claims
and expenditure has also contributed to the improved result. The solvency
margin, being the ratio of net assets to net premiums, remained high and was in
excess of 70% in Rand terms at 30 June 2002.
Business development
The full integration of the CGU business with that of Mutual & Federal was
completed successfully by December 2001, and the synergy benefits and savings
from increased staff productivity are currently being realised. Integration and
conversion work in respect of the acquired Sentrasure and FGI Namibia operations
are progressing positively and these businesses are expected to be substantially
integrated by the end of the year.
Outlook
Looking ahead Mutual & Federal is cautiously optimistic about the prospects
for the balance of the year. Although certain portfolios remain underrated
further corrective action is planned and, together with other improved
underwriting measures, are expected to yield a profitable result. Effective
control of expenses and improved productivity following the integration of CGU
continued to benefit the organisation and will be a positive factor in the
period ahead.
United States
Asset Management
Financial performance
Operating profit of $88 million from our US asset management business
decreased by 5% from $92 million for the equivalent period in 2001. A strong
focus on head office costs, overall robust fund performance and positive net
fund flows were offset by negative market performance in the period under
review. The securities markets remained challenging, with a 14% decline in the
S&P 500 Index and a 25% decrease in the Nasdaq Composite Index during the first
six months of 2002.
Funds under management, including funds managed for Old Mutual`s US life
business, were $141 billion at the end of the period, compared to $150 billion
at the beginning of the year. During the six months, although net fund inflows
of $1.5 billion were received, this was offset by the divestiture and transfer
of funds of $5.4 billion and market-related declines of $4.8 billion. The
resilience to difficult equity market conditions reflected in these results
underline the benefits to the Group of the diversity of its US asset management
operations, as well as the contribution of value-oriented funds and fixed-income
products.
Superior relative fund performance continued to be a hallmark of our US
investment management business, with a majority of products outperforming their
benchmarks over one- and three-year periods. At 30 June 2002, eighteen of the
group`s forty-four mutual fund portfolios rated by Morningstar carried four- and
five-star ratings. On an asset-weighted basis, the four- and five-star funds
managed by our US firms represented more than 65% of their total mutual fund
assets rated by Morningstar at the close of the period.
Business development
The senior management team was significantly strengthened in April with the
addition of a Chief Operating Officer and a Head of Sales, Marketing and Product
Development. Both are experienced and well-respected industry professionals who
aim to build on the Group`s broad investment capabilities to increase market
share. Branding initiatives involving website improvements and mutual fund
administration were also successfully completed in the first half of the year.
Outlook
The US asset management firms offer an exceptional breadth of high quality
investment products to a diverse client base. Their strategy for the remainder
of the year is to continue to reduce overhead expenses and reallocate resources
to support planned marketing and distribution synergies. These include sub-
advisory relationships using the Pilgrim Baxter retail platform, the new
centralised wrap entity and managing assets for our life assurance business.
Financial results in the second half of the year will continue to be affected by
trends in the equity and fixed income markets.
Old Mutual Asset Managers (US) (OMAM(US))
Financial and fund performance
Operating profit from the seven affiliates within OMAM(US) of $31 million
compared to $32 million for the equivalent period in 2001. Overall, these firms
benefited from a market preference for fixed income products and value-style
equity investments, offset by adverse market movements.
Funds under management of $78.1 billion at the end of the period have
increased by 2% from $76.7 billion at the beginning of the year. These funds
include those managed by Dwight Asset Management on behalf of the Group`s US
life business. Fund performance during the period was impacted by negative
market movements of $1.7 billion, or 2% of opening funds under management.
OMAM(US) recorded net fund inflows of $3.1 billion.
Outlook
As part of its strategy to expand distribution capabilities, on 1 August 2002
OMAM(US) transferred ownership of NWQ, a value-oriented equity fund manager with
$7.4 billion of funds under management, to The John Nuveen Company (Nuveen) for
$120 million and entered into a strategic alliance to sub-advise future
investment products sponsored and distributed by Nuveen. NWQ contributed $6.5
million to operating profit and $1.1 billion in net fund inflows during the six
months ended 30 June 2002.
OMAM(US)`s multi-style, multi-product offerings have potential attractions for
other financial services organisations that have broad distribution but need to
supplement their existing product lines. To leverage its asset management
capabilities, OMAM(US) has established a centralised marketing and service
entity focused on "wrap accounts" for external financial services firms. Led by
the Head of Sales, Marketing and Product Development, the team is working
closely with the OMAM(US) firms to generate new business.
Pilgrim Baxter & Associates
Financial and fund performance
Operating profit from Pilgrim Baxter of $16 million decreased by 45% from $29
million in the equivalent period in 2001, primarily due to market-driven
declines in growth-oriented investment products.
Funds under management of $8.9 billion at the end of the period decreased 29%
from $12.6 billion at the beginning of the year. The firm recorded net fund
outflows of $1.2 billion, or 10% of opening funds under management during the
period, and market declines further reduced funds under management by $2.5
billion.
Business development
Pilgrim Baxter is the primary distribution platform for the Group`s mutual
fund business in the USA, including recently established funds sub-advised by
other firms within the asset management group. Pilgrim Baxter attracted assets
of $1.3 billion for these portfolios during the first six months of 2002.
In March 2002, we negotiated terms to acquire the residual 20% revenue-share
interest of Pilgrim Baxter through the payment of $175 million plus an earn-out
over five years if profit growth exceeds 7.5% per annum. The restructuring
strengthens our position in the sizeable US retail asset management market and
further aligns our interests with Pilgrim Baxter`s principals in maximising
future growth and profits.
Old Mutual Strategic Affiliates
Financial and fund performance
Operating profit from the eleven firms that comprise Old Mutual Strategic
Affiliates amounted to $25 million for the first half of 2002, compared to $14
million in the same period last year. Transaction fees on property-related deals
boosted revenues by $7 million during the period. Highly rated funds managed by
Pacific Financial Research (PFR), a well-regarded value manager, contributed
significantly to these positive results recording positive net fund inflows of
more than $2.5 billion for the period. Funds under management for this group as
a whole of $36.6 billion at the end of the period decreased by 2%, compared to
$37.5 billion at the beginning of the year.
Business development
The Old Mutual Strategic Affiliates firms provide high quality breadth and
depth to product offerings, and economic agreements with many of the affiliates
are being restructured in order better to align mutual interests. For these
firms, the advantages of working with Pilgrim Baxter and OMAM(US) are
significant.
Old Mutual Financial Affiliates
Financial and fund performance
Operating profit of $17 million in the first half of 2002 compared to $18
million in the equivalent period in 2001.
Funds under management of $17.6 billion at the end of the period declined 24%
from $23.1 billion at the beginning of the year. The opening balance included
$5.3 billion of funds managed by Suffolk Capital Management and CS McKee &
Company, both of which were divested at the beginning of the year. Market
performance during the period reduced funds by $0.7 billion, which was offset by
net fund inflows of $0.5 billion.
Business development
The firms in Old Mutual Financial Affiliates are held as financial investments
with operational and investment autonomy. These affiliates have a range of
options, including remaining indefinitely within the group or aligning with an
external organisation. The process of working with the affiliates is
collaborative, keeping in mind the needs and interests of each firm`s clients,
principals and employees.
Life Assurance
Financial performance
Our US life group`s new business APE of $251 million was up by 107% from $121
million in the second half of 2001, driven by significantly higher fixed annuity
sales. On a gross basis, sales increased to $2.2 billion in the period from $871
million in the previous six months.
Operating profit at $48 million was 50% up on the second half of 2001 ($32
million before transition items related to the purchase of Fidelity & Guaranty
Life (F&G)). The business written was profitable, with the value of new business
at $45 million compared to $19 million in the second half of 2001. US life has
contributed 53% to the Group`s total value of new business in the first half of
2002. New business margins increased from 15% in the second half of 2001 to 18%
in this period. The value of in-force life business of $432 million increased by
10% from $394 million at the beginning of the year.
On a funds flow basis, our US life business attracted $1.9 billion in net
policyholder cash inflows in the first half of 2002, up 166% from the preceding
six months. Total invested assets increased from $6.4 billion at 31 December
2001 to $8.3 billion at 30 June 2002.
The US life investment portfolio has suffered, along with other bond
investors, due to write-offs and impairments. Write-offs totalled $29.2 million
in the period. US life is working closely with our OMAM(US) asset manager,
Dwight Asset Management Company, to manage these risks. Our US life business
makes allowance for anticipated bond defaults in pricing its products.
The US life group has benefited from our ownership, which is perceived in the
market as giving it a secure future. The key insurance rating agency, AM Best,
has this year reaffirmed F&G`s `A` credit rating, and removed it from review
status.
Business development
First half sales reached record levels. A portion of the increase reflects a
general market shift in consumer preference to fixed annuity products and an
increase in life assurance sales. Additional success can be attributed to
confidence in F&G`s competitive positioning and secure future, leading to an
increase in market share. F&G has deepened its relationships with many agencies
and recruited a record number of new agents during the period.
Sales volume was also enhanced through multiple distribution channels. The
relatively new channel of bank-distributed products sold $675 million, while
F&G`s core brokerage channel sold $1.3 billion in the period. Our Americom Life
brand continues to progress and recruit new agents.
The first half of the year saw our US life business` operations and servicing
teams expand to include new partners to assist our agents. This included the
creation of an additional sales support centre located in Lincoln, Nebraska.
Underwriting capacity was also enhanced through a new underwriting facility to
support increased life volumes. In June 2002, F&G saw the successful launch of
its first product under Old Mutual`s new outsourced administration environment.
Outlook
Our US life business aims to continue to capitalise on current economic
conditions and consumer attitudes toward conservative investing that lean
towards fixed interest products and life assurance. As stock market volatility
continues, fixed interest products will remain a strong component in the US life
product portfolio. US life will continue to design and sell products that allow
competitive positioning as the US economy changes. To that end, the Group has
committed additional capital for US life to take advantage of current favourable
conditions. In the first six months of the year, it injected $65 million to
support increased sales.
The latter part of the year will see all distribution channels able to offer the
products of both F&G and Americom Life. This will allow agents to select from
the full range of US life`s product portfolio.
United Kingdom and Rest of World
Asset Management
Private Client UK
Financial and fund performance
The integration benefit of operating from a single operating platform from
January 2002, together with renewed management focus on expense savings, has
reversed the losses incurred by our UK private client business, Gerrard, in the
second half of 2001. Gerrard`s operating profit of "GBP"3 million represents a
solid performance against a background of lower commission levels and lower fee-
based revenues.
The average number of daily bargains was 6% lower in the first half of 2002
than in the same period of 2001. This, coupled with a slight decrease in the
average commission per bargain, has resulted in a 9% decrease in commission
revenues compared to the first half of 2001.
During the period, the management of the "GBP"1.1 billion Gerrard Investment
Funds portfolio was transferred to Old Mutual Asset Managers (UK) Limited
(OMAM(UK)). Total funds under management reduced to "GBP"14.6 billion, after
reflecting this transfer of funds and also market-related movements.
Fee-based revenues, which are primarily driven by the value of funds under
management, have decreased by 11% when compared to the equivalent period of
2001, after adjusting 2001 revenues for fees earned on the funds now transferred
to OMAM(UK). This compares favourably to the decline of 17% in the average FTSE
100 Index between the first half of 2001 and the first half of 2002.
Business development
Following the successful integration of the UK private client business in the
latter half of 2001 and the appointment of a new executive team, Gerrard is
focused on positioning the business as the leading UK wealth manager,
particularly in the affluent and high net worth segments.
Fund management
Financial and fund performance
Operating profit from our UK and Rest of World fund management businesses was
"GBP"3 million, compared to "GBP"1 million in the same period last year.
OMAM(UK) has benefited from managing the additional Gerrard Investment Funds
since the beginning of 2002, but the decline in equity markets has also affected
financial performance.
Business development
Following the successful launch of the UK Select Smaller Companies Fund in
2001, OMAM(UK) launched the UK Select Mid Cap Fund and UK Select Large Cap Fund
in the first half of this year. Both launches were successful in achieving
significant fund inflows despite difficult market conditions, and have
contributed a total of "GBP"35 million of net new funds in the period.
OMAM(UK)`s main area of focus for the remainder of the year is on the retail
market, predominantly through the UK intermediary channel, and the hedge fund
arena through increased products and capabilities, while maintaining its
superior performance philosophy.
Management is also carrying out integration programmes to consolidate both the
funds range and funds administration following the transfer of Gerrard
Investment Funds. The fund administration programme is expected to be completed
by the end of 2002 and fund rationalisation by mid 2003.
Other financial services
Financial performance
The Group`s UK and Rest of World specialist financial services businesses
incurred an operating loss of "GBP"1 million, compared to a "GBP"3 million
operating profit in the first half of 2001. Included in these results are GNI,
GNI Fund Management, Old Mutual Securities and the central management and
service costs associated with the UK businesses.
GNI has benefited from a strong performance in its contracts for differences
(CfDs) and structured equities, which has been partly offset by lack of
volatility in the mature foreign exchange and financial futures markets. Its
operating profit of "GBP"5 million was in line with the equivalent period in
2001.
Business development
At GNI, good progress was made in developing growth opportunities in margined
equities businesses with the introduction of European CfD market products during
the period. Overall there has been an increase in the size and profitability of
its CfD business. Management is focused on developing GNI`s structured equity
product range, while also implementing a number of cost saving measures and
process efficiencies.
Discussions regarding the possible sale of Old Mutual Securities to Beeson
Gregory plc were terminated during April 2002, following the latter`s receipt of
a takeover approach. We remain committed to finding the appropriate means to
secure Old Mutual Securities` continued development, whether that is within Old
Mutual or as part of another group.
Life Assurance
Financial performance
Operating losses, before long term investment, return from our UK and Rest of
World life businesses were "GBP"5 million compared to a loss of "GBP"1 million
in the first half of 2001. Excluding start-up costs of "GBP"6 million associated
with the new life business, Selestia, the operating profit from these businesses
was "GBP"1 million.
Business development
Selestia offers multi-manager retail investment solutions to the UK market
using sophisticated investment tools based on a client`s individual attitude to
risk. Selestia`s fully online business operation represents a prime example of a
straight through processing operation, benefiting from the IT skills and
resources originally developed in our South African life company.
The business development of Selestia continues, following the successful
launch of ISA, PEP and unit trust products in November 2001. While market
conditions are difficult for the launch of a new business and the sales
environment remains challenging, the Selestia proposition has been well received
within the market. In the period, Selestia received FSA approval for its life
assurance subsidiary, launched a UK life bond and commenced the distribution of
an offshore life bond underwritten by Old Mutual International (Guernsey).
Independent review report by KPMG Audit Plc to Old Mutual plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 24 to 53 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors` responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where they
are to be changed in the next annual accounts in which case any changes, and the
reasons for them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit opinion
on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2002.
KPMG Audit Plc
Chartered Accountants
London
12 August 2002
"GBP"m Rm
Year 6 months Year
6 months 6 months to 6 months to to
to to 31 Dec to 30 June 31 Dec
30 June 30 June 2001 30 June 2001 2001
Notes 2002 2001(restated) 2002(restated)(restated)
South Africa
The following items make up the `Net cash inflow/(outflow) from operating
activities
Interest paid on subordinated liabilities
Interest paid on loans from credit institutions
Other interest paid
Dividends paid to group companies
Dividends paid to minority interests
Finance costs of debt and non-equity share capital
Interest elements of finance lease rental payments
Other (please specify) [as defined for S3000110C]
Total
Technical result 97 137 249 1,541 1,565 3,085
Technical result 97 137 249 1,541 1,565 3,085
The following items make up the `Total taxation paid` figure
Corporate tax (paid) / received (including advance corporation tax)
Overseas tax
Total
Long term
investment return 63 78 148 1,000 891 1,830
The following items make up the `Net cash outflow from capital expenditure and
financial investment` item
Sales of banking investment securities
Purchases of banking investment securities
Sales of tangible fixed assets
Purchases of tangible fixed assets
Other (please specify) [as defined for S3000190C]
Total
Life assurance 5(b)(iii) 160 215 397 2,541 2,456 4,915
Asset management 5(c) 13 18 37 207 206 458
Banking 5(d) 99 135 290 1,579 1,525 3,593
General insurance 5(e) 19 24 46 308 274 570
291 392 770 4,635 4,461 9,536
United States
Life assurance 5(b)(iii) 33 - 13 524 - 161
Asset management 5(c) 60 64 116 951 730 1,437
93 64 129 1,475 730 1,598
United Kingdom
and Rest of World
Life assurance 5(b)(iii) (3) 3 (2) (47) 34 (25)
Asset management 5(c) 5 8 (3) 80 91 (38)
Banking 5(d) 29 33 79 456 393 979
31 44 74 489 518 916
415 500 973 6,599 5,709 12,050
Other shareholders`
income/(expenses) 5(f) (9) (10) (29) (143) (114) (359)
Debt service costs (25) (35) (67) (397) (400) (830)
Write-down of
strategic
investments 5(f) - - (21) - - (260)
Operating profit
based on a long
term investment
return before
goodwill
amortisation
and impairment,
write-down of
investment in
Dimension Data
Holdings plc and
short term
fluctuations
in investment
return 5(a) 381 455 856 6,059 5,195 10,601
Goodwill
amortisation 10 (55) (69) (132) (873) (788) (1,636)
Goodwill
impairment 10 - - (500) - - (6,196)
Write-down of
investment in
Dimension Data
Holdings plc 7 (52) (304) (269) (830) (3,467) (3,334)
Short term
fluctuations in
investment return 6 (62) 94 126 (980) 1,073 1,561
Operating profit
on ordinary
activities
before tax 212 176 81 3,376 2,013 996
Non-operating items 9 38 - - 603 - -
Profit on ordinary
Activities
before tax 250 176 81 3,979 2,013 996
Tax on profit
on ordinary
activities 8 (97) (128) (319) (1,540) (1,462) (3,948)
Profit/(loss)
on ordinary
activities
after tax 153 48 (238) 2,439 551 (2,952)
Minority interests (32) 68 (26) (508) 777 (322)
Profit/(loss) for
the financial period 121 116 (264) 1,931 1,328 (3,274)
Dividends paid
and proposed 4 (63) (59) (172) (998) (674) (2,606)
Retained profit/
(loss) for the
financial period 58 57 (436) 933 654 (5,880)
Earnings per share p c
Operating earnings
per share after
tax and minority
interests based
on a long term
investment return
before goodwill
amortisation and
impairment,
write-down of
investment in
Dimension Data
Holdings plc and
short term
fluctuations in
investment return 3 5.8 7.2 12.1 92.9 82.4 149.1
Basic earnings
per share 3 3.3 3.4 (7.4) 52.9 38.4 (92.2)
Diluted earnings
per share 3 3.2 3.3 (7.4) 51.0 37.6 (92.2)
Dividend per share 4 1.7 1.7 4.8 26.9* 22.2 72.3
Weighted average
number of shares
- millions 3,652 3,457 3,550 3,652 3,457 3,550
* Indicative only - the actual amount of the dividend per share in Rand will be
determined by reference to the exchange rate prevailing on
3 October 2002 and announced by the Company on 4 October 2002.
"GBP"m Rm
Year 6 months Year
6 months 6 months to 6 months to to
to to 31 Dec to 30 June 31 Dec
30 June 30 June 2001 30 June 2001 2001
2002 2001(restated) 2002(restated)(restated)
Profit/
(loss)
for
the
financial
period 121 116 (264) 1,931 1,328 (3,274)
The following
items make up
the `Net
cash inflow/
(outflow)
from operating
activities
Interest paid
on subordinated
liabilities
Interest paid
on loans
from credit
institutions
Other
interest
paid
Dividends
paid to group companies
Dividends paid to minority interests
Finance costs of debt and non-equity share capital
Interest elements of finance lease rental payments
Other (please specify) [as defined for S3000110C]
Total
The following items make up the `Net cash outflow from capital
expenditure and financial investment` item
Sales of banking investment securities
Purchases of banking investment securities
Sales of tangible fixed assets
Purchases of tangible fixed assets
Other (please specify) [as defined for S3000190C]
Total
Foreign
exchange
movements 117 (5) (964) (2,069) 77 4,697
Total recognised
gains/(losses)
relating to
the period 238 111 (1,228) (138) 1,405 1,423
Reconciliation
of movements
in consolidated
equity
shareholders`
funds
for the six months ending 30 June 2002
"GBP"m Rm
Year 6 months Year
6 months 6 months to 6 months to to
to to 31 Dec to 30 June 31 Dec
30 June 30 June 2001 30 June 2001 2001
Notes 2002 2001(restated) 2002(restated)(restated)
Total recognised
gains and losses
for the
period 238 111 (1,228) (138) 1,405 1,423
Dividends paid
and
proposed 4 (63) (59) (172) (998) (674) (2,606)
175 52 (1,400) (1,136) 731 (1,183)
Issue of
new
capital 39 - - 619 - -
Issue of new capital
in connection with
the acquisition of
Fidelity & Guaranty
Life - - 203 - - 2,690
Shares issued under
option
schemes - - 5 - - 61
Proceeds from
sale of shares
previously held
to satisfy claims
and errors on
demutualisation
and issue of
new shares - 4 3 - 46 37
Net addition to/
(reduction in)
equity
shareholders`
funds 214 56 (1,189) (517) 777 1,605
Equity
shareholders`
funds at the
beginning of
the period 2,470 3,659 3,659 43,045 41,440 41,440
Equity
shareholders`
funds at the
end of the
period 2,684 3,715 2,470 42,528 42,217 43,045
"GBP"m Rm
At At
At At 30 June At At 30 June
30 June 31 Dec 2001 30 June 31 Dec 2001
Notes 2002 2001(restated) 2002 2001 (restated)
Intangible
assets
Goodwill 10 1,561 1,580 2,379 24,734 27,537 27,034
Insurance and
other assets
Investments 17,729 17,300 17,265 280,918 301,514 196,189
Assets held to
cover linked
liabilities 4,337 4,415 5,727 68,720 76,947 65,078
Reinsurers`
share of
technical
provisions 351 463 148 5,562 8,069 1,682
Debtors 9,186 8,177 9,552 145,553 142,514 108,543
Other assets 1,011 820 761 16,019 14,291 8,649
Cash at bank
and in hand 635 475 573 10,062 8,279 6,511
Prepayments and
accrued
income 226 265 184 3,581 4,618 2,091
Total insurance
and other
assets 33,475 31,915 34,210 530,415 556,232 388,743
Banking assets
Cash and balances
at central
banks 961 630 1,294 15,227 10,980 14,704
Treasury bills and
other
eligible
bills 581 653 619 9,210 11,372 7,034
Loans and advances
to banks 468 649 468 7,416 11,313 5,318
Loans and
advances
to
customers 8,920 7,797 10,956 141,338 135,884 124,497
Debt
securities 724 725 620 11,472 12,648 7,045
Equity
securities 209 225 317 3,312 3,921 3,602
Interest in
associated
undertakings 122 118 217 1,933 2,057 2,466
Other assets 299 253 398 4,734 4,407 4,523
Prepayments and
accrued
income 341 259 417 5,403 4,517 4,739
Total
banking
assets 12,625 11,309 15,306 200,045 197,099 173,928
Total assets 47,661 44,804 51,895 755,194 780,868 589,705
"GBP"m Rm
At At
At At 30 June At At 30 June
30 June 31 Dec 2001 30 June 31 Dec 2001
Notes 2002 2001(restated) 2002 2001 (restated)
Capital
and reserves
Called up
share capital 378 374 355 5,989 6,517 4,034
Share premium
account 551 516 512 8,731 8,993 5,818
Merger reserve 184 184 - 2,915 3,205 -
Profit and
loss account 1,571 1,396 2,848 24,893 24,330 32,365
Equity
shareholders`
funds 2,684 2,470 3,715 42,528 43,045 42,217
Minority
interests 617 565 904 9,776 9,847 10,273
Subordinated
Liabilities 21 22 26 333 383 295
Insurance and
other liabilities
Technical provisions 16,023 14,480 14,101 253,886 252,366 160,235
Technical provisions
for linked
liabilities 4,337 4,415 5,727 68,720 76,947 65,078
Provisions
for other
risks and charges 428 341 268 6,782 5,944 3,045
Creditors 10,456 10,486 11,703 165,676 182,757 132,986
Amounts owed
to credit
institutions 11 857 897 741 13,580 15,633 8,421
Convertible
loan stock 11(a) 420 439 448 6,655 7,651 5,091
Accruals and
deferred income 170 234 212 2,694 4,079 2,409
Total insurance
and other
liabilities 32,691 31,292 33,200 517,993 545,377 377,265
Banking
liabilities
Deposits by banks 1,144 1,862 1,708 18,133 32,454 19,409
Customer accounts 8,668 6,802 10,110 137,345 118,550 114,884
Debt securities
in issue 1,060 986 1,338 16,790 17,183 15,204
Other liabilities 476 501 637 7,548 8,729 7,238
Provision for
Liabilities
and charges 104 84 122 1,648 1,471 1,386
Subordinated
liabilities 196 220 135 3,100 3,829 1,534
Total banking
liabilities 11,648 10,455 14,050 184,564 182,216 159,655
Total liabilities 47,661 44,804 51,895 755,194 780,868 589,705
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
Net cash inflow from
operating activities 608 759 864 9,664 8,669 10,708
Net cash outflow from
returns on investments
and servicing of finance
(including dividends
paid to minority
interests) (41) (61) (183) (651) (697) (2,268)
Total tax paid (129) (232) (269) (2,049) (2,650) (3,334)
Net cash outflow from
capital expenditure
and financial investment (39) (57) (152) (619) (651) (1,884)
Net cash inflow/(outflow)
from acquisitions
and disposals 80 (124) (316) 1,270 (1,417) (3,916)
Equity dividend paid (110) (108) (167) (1,747) (1,233) (2,070)
Net cash inflow from
financing activities 5 42 676 79 480 8,377
Net cash inflow of
the Group excluding
long term business 374 219 453 5,947 2,501 5,613
Cash flows relating to
insurance activities
were invested as follows:
Increase in cash holdings 106 38 63 1,677 434 781
Increase in net
portfolio investments 1 21 543 23 240 6,729
107 59 606 1,700 674 7,510
Cash flows relating to
banking activities were
invested as follows:
Increase/(decrease)
in cash and balances
at central banks 267 160 (153) 4,247 1,827 (1,897)
Net cash inflow of
the Group excluding
long term business 374 219 453 5,947 2,501 5,613
Reconciliation of
operating profit
to operating cash flow
Profit from insurance
and other activities 181 14 7 2,879 163 80
Profit from
banking activities 69 162 74 1,100 1,850 916
Profit on ordinary
activities before tax 250 176 81 3,979 2,013 996
Write-down of investment
in Dimension Data
Holdings plc 52 304 269 830 3,467 3,334
Unrealised investment
losses/(gains) 35 129 (103) 552 1,473 (1,276)
Insurance and other
activities non-cash
flow items 82 44 947 1,302 503 11,741
Banking non-cash
flow items 189 106 (330) 3,001 1,213 (4,087)
Net cash inflow
from operating
activities 608 759 864 9,664 8,669 10,708
The cash flows presented in this statement exclude all cash flows relating to
policyholder funds for the long term business.
1 BASIS OF PREPARATION AND EFFECT OF RESTATEMENT
The results for the six months to 30 June 2002 and the position at that date
have been prepared using accounting policies consistent with those used in the
Group 2001 Annual Report, except for the adoption of Financial Reporting
Standard 19 "Deferred Tax", the effects of which are described below. These
accounting policies are in accordance with the Statement of Recommended Practice
on "Accounting for Insurance Business" issued by the Association of British
Insurers in December 1998 ("ABI SORP").
Comparative figures have been restated to reflect the adoption of Financial
Reporting Standard 19 "Deferred Tax". This requires full provision to be made
for deferred tax assets and liabilities arising from timing differences between
the recognition of gains and losses in the financial statements and their
recognition for tax. Previously deferred tax was recognised on a partial
provision approach. In addition to restating the comparative figures, the
cumulative cost of the deferred tax relating to previous years has been
recognised as a prior year adjustment.
The change in accounting policy has had no effect on the operating profit
after tax or shareholders` funds for the current period. The effect for the year
ended 31 December 2001 is an increase in the tax charge of "GBP"41 million (R503
million) and no change in shareholders` funds. The effect for the six months
ended 30 June 2001 is an increase in the tax charge of "GBP"21 million (R240
million) and increase in shareholders` funds of "GBP"23 million (R263 million).
The results for the six months ended 30 June 2002 and 2001 are unaudited, but
have been reviewed by the auditors whose report is presented on page 22. The
auditors have reported on the statutory accounts for the year ended 31 December
2001 and the accounts have been delivered to the Registrar of Companies. The
auditors` report in respect of the year ended 31 December 2001 was unqualified
and did not contain a statement under section 237 (2) or (3) of the UK Companies
Act 1985.
These financial statements do not constitute statutory accounts as described
in section 240 of the UK Companies Act 1985.
2 foreign currencies
The information contained in these financial statements is expressed in both
Sterling and South African Rand. This is in order both to meet the legal
requirements of Schedule 9A of the UK Companies Act 1985 and to provide the
users of the accounts in South Africa with illustrative information.
The principal exchange rates used to translate the operating results, assets
and liabilities of key foreign business segments to sterling are presented
below.
Rand US$
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
Profit and loss account
(average rate) 15.8800 11.4211 12.3923 1.4445 1.4405 1.4405
The following items make up the `Net cash inflow/(outflow) from operating
activities
Interest paid on subordinated liabilities
Interest paid on loans from credit institutions
Other interest paid
Dividends paid to group companies
Dividends paid to minority interests
Finance costs of debt and non-equity share capital
Interest elements of finance lease rental payments
Other (please specify) [as defined for S3000110C]
Total
The following items make up the `Net cash outflow from capital expenditure and
financial investment` item
Sales of banking investment securities
Purchases of banking investment securities
Sales of tangible fixed assets
Purchases of tangible fixed assets
Other (please specify) [as defined for S3000190C]
Total
Balance sheet
(closing rate) 15.8451 11.3634 17.4286 1.5279 1.4116 1.4542
3 EARNINGS AND EARNINGS PER SHARE
Basic earnings per share is calculated based upon the profit or loss
attributable to equity shareholders after the amortisation and impairment of
goodwill arising on acquisitions, write-down of investment in Dimension Data
Holdings plc and short term fluctuations in investment return.
The directors` view is that operating earnings per share derived from
operating profit or loss based on a long term investment return and before the
amortisation and impairment of goodwill, the write-down of investment in
Dimension Data Holdings plc and short term fluctuations in investment return
provides a better indication of the underlying performance of the Group. A table
reconciling operating profit on ordinary activities after tax and minority
interests to this underlying measure of earnings is included below.
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
(restated)(restated) (restated)(restated)
Profit/(loss) on
ordinary activities
after tax and
minority interests 121 116 (264) 1,931 1,328 (3,274)
Goodwill amortisation
net of minority
interests 51 65 120 810 746 1,487
Goodwill impairment - - 500 - - 6,196
Short term fluctuations
in investment
return net of
tax and minority
interests 39 (87) (73) 619 (997) (905)
Non-operating
items net of tax (20) - - (318) - -
Write-down of investment
in Dimension Data
Holdings plc net
of tax and minority
interests 22 155 144 350 1,765 1,788
Operating earnings after
tax and minority
interests based
on a long term
investment return
before goodwill
amortisation and
impairment, write-down
of investment in
Dimension Data Holdings
plc and short term
fluctuations in
investment return 213 249 427 3,392 2,842 5,292
p c
Basic earnings
per share 3.3 3.4 (7.4) 52.9 38.4 (92.2)
Goodwill amortisation
net of minority
interests 1.3 1.9 3.4 22.2 21.6 41.9
Goodwill impairment - - 14.1 - - 174.5
Short term fluctuations
in investment return
net of tax and
minority interests 1.1 (2.5) (2.1) 16.9 (28.8) (25.4)
Non-operating
items net of tax (0.5) - - (8.7) - -
Write down of investment
in Dimension Data
Holdings plc net
of tax and
minority interests 0.6 4.4 4.1 9.6 51.2 50.3
Operating earnings per
share after tax and
minority interests
based on a long term
investment return
before goodwill
amortisation and
impairment, write-down
of investment in
Dimension Data
Holdings plc and
short term
fluctuations in
investment return 5.8 7.2 12.1 92.9 82.4 149.1
3 EARNINGS AND EARNINGS PER SHARE CONTINUED
Basic earnings per share is calculated by reference to the profit on
ordinary activities after tax and minorities of "GBP"121 million (R1,931
million) for the six months ended 30 June 2002 (June 2001: "GBP"116 million
(R1,328 million); December 2001: loss "GBP"264 million (R3,274 million)) and a
weighted average number of shares in issue of 3,652 million (June 2001: 3,457
million; December 2001: 3,550 million). This is calculated after taking into
account shares held by Employee Share Ownership Plans (ESOPs), which have waived
their rights to dividends.
The diluted earnings per share calculation reflects the impact of the shares
in the ESOP Trusts, the US Dollar Guaranteed Convertible Bond, and potential
issue of shares to satisfy the purchase of the Pilgrim Baxter revenue share.
4 dividend
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
2002 interim dividend
proposed: 1.7p (26.9c*) 63 - - 998 - -
The following items make up the `Net cash inflow/(outflow) from operating
activities
Interest paid on subordinated liabilities
Interest paid on loans from credit institutions
Other interest paid
Dividends paid to group companies
Dividends paid to minority interests
Finance costs of debt and non-equity share capital
Interest elements of finance lease rental payments
Other (please specify) [as defined for S3000110C]
Total
The following items make up the `Net cash outflow from capital expenditure and
financial investment` item
Sales of banking investment securities
Purchases of banking investment securities
Sales of tangible fixed assets
Purchases of tangible fixed assets
Other (please specify) [as defined for S3000190C]
Total
2001 final dividend
paid: 3.1p (50.1c) - - 113 - - 1,839
2001 interim dividend
paid: 1.7p (22.2c) - 59 59 - 674 767
63 59 172 998 674 2,606
Provision has been made in the Group financial statements for an interim
dividend of 1.7p (26.9c*) per share calculated using the number shares in issue
at 30 June 2002 of 3,782 million less 96 million shares in Employee Share
Ownership Plans, which have waived their rights to dividends. The dividend will
be paid on 29 November 2002 to all shareholders on the register at the close of
business on 18 October 2002, being the record date for the dividend.
As a consequence of the exchange control arrangements in place in South Africa
and other relevant African territories, dividends to shareholders on the branch
registers in 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.
* Indicative only - the actual amount of the dividend per share in Rand will be
determined by reference to the exchange rate prevailing on 3 October 2002 and
announced by the Company on 4 October 2002.
5 segmental analysis
"GBP"m
5(a) Summary of South United UK & Rest
operating profit Notes Africa States of World Total
6 months to 30 June 2002
Life assurance 5(b)(iii) 160 33 (3) 190
Asset management 5(c)(i) 13 60 5 78
Banking 5(d) 99 - 29 128
General insurance business 5(e) 19 - - 19
Other shareholders`
income/(expenses) 5(f) 1 - (10) (9)
Debt service costs - - (25) (25)
Smoothed operating profit
based on a long term
investment return 292 93 (4) 381
Goodwill amortisation (55)
Write-down of investment
in Dimension Data Holdings plc (52)
Short term fluctuations
in investment return (62)
Operating profit on
ordinary activities before tax 212
6 months to 30 June 2001
(restated)
Life assurance 5(b)(iii) 215 - 3 218
Asset management 5(c)(i) 18 64 8 90
Banking 5(d) 135 - 33 168
General insurance business 5(e) 24 - - 24
Other shareholders`
income/(expenses) 5(f) 9 - (19) (10)
Debt service costs - - (35) (35)
Smoothed operating profit
based on a long term
investment return 401 64 (10) 455
Goodwill amortisation (69)
Write-down of investment
in Dimension Data Holdings plc (304)
Short term fluctuations
in investment return 94
Operating profit on ordinary
activities before tax 176
Year to 31 December 2001
Life assurance 5(b)(iii) 397 13 (2) 408
Asset management 5(c)(i) 37 116 (3) 150
Banking 5(d) 290 - 79 369
General insurance business 5(e) 46 - - 46
Other shareholders`
income/(expenses) 5(f) 12 - (41) (29)
Debt service costs - (3) (64) (67)
Write-down of
strategic investments 5(f) - - (21) (21)
Smoothed operating profit
based on a long term
investment return 782 126 (52) 856
Goodwill amortisation (132)
Goodwill impairment (500)
Write-down of investment
in Dimension Data Holdings plc (269)
Short term fluctuations
in investment return 126
Operating profit on ordinary
activities before tax 81
Rm
5(a) Summary of South United UK & Rest
operating profit Notes Africa States of World Total
6 months to 30 June 2002
Life assurance 5(b)(iii) 2,541 524 (47) 3,018
Asset management 5(c)(i) 207 951 80 1,238
Banking 5(d) 1,579 - 456 2,035
General insurance business 5(e) 308 - - 308
Other shareholders`
income/(expenses) 5(f) 16 - (159) (143)
Debt service costs - - (397) (397)
Smoothed operating profit
based on a long term
investment return 4,651 1,475 (67) 6,059
Goodwill amortisation (873)
Write-down of investment
in Dimension Data Holdings plc (830)
Short term fluctuations
in investment return (980)
Operating profit on
ordinary activities before tax 3,376
6 months to 30 June 2001
(restated)
Life assurance 5(b)(iii) 2,456 - 34 2,490
Asset management 5(c)(i) 206 730 91 1,027
Banking 5(d) 1,525 - 393 1,918
General insurance business 5(e) 274 - - 274
Other shareholders`
income/(expenses) 5(f) 103 - (217) (114)
Debt service costs - - (400) (400)
Smoothed operating profit
based on a long term
investment return 4,564 730 (99) 5,195
Goodwill amortisation (788)
Write-down of investment
in Dimension Data Holdings plc (3,467)
Short term fluctuations
in investment return 1,073
Operating profit on ordinary
activities before tax 2,013
Year to 31 December 2001
Life assurance 5(b)(iii) 4,915 161 (25) 5,051
Asset management 5(c)(i) 458 1,437 (38) 1,857
Banking 5(d) 3,593 - 979 4,572
General insurance business 5(e) 570 - - 570
Other shareholders`
income/(expenses) 5(f) 149 - (508) (359)
Debt service costs - (37) (793) (830)
Write-down of
strategic investments 5(f) - - (260) (260)
Smoothed operating profit
based on a long term
investment return 9,685 1,561 (645) 10,601
Goodwill amortisation (1,636)
Goodwill impairment (6,196)
Write-down of investment
in Dimension Data Holdings plc (3,334)
Short term fluctuations
in investment return 1,561
Operating profit on ordinary
activities before tax 996
United States life assurance activities were acquired with effect from 1 July
2001.
5 segmental analysis CONTINUED
"GBP"m
5(b) Life South United UK & Rest
assurance Africa States of World Total
(i) Gross premiums written
6 months to 30 June 2002
Individual business
Single 316 1,534 76 1,926
Recurring 301 74 23 398
617 1,608 99 2,324
Group business
Single 232 - 6 238
Recurring 116 - 8 124
348 - 14 362
965 1,608 113 2,686
6 months to 30 June 2001
Individual business
Single (restated) 451 - 58 509
Recurring 409 - 47 456
860 - 105 965
Group business
Single 300 - 8 308
Recurring 141 - 19 160
441 - 27 468
1,301 - 132 1,433
Year to 31 December 2001
Individual business
Single 854 578 97 1,529
Recurring 757 78 87 922
1,611 656 184 2,451
Group business
Single 598 - 13 611
Recurring 280 - 29 309
878 - 42 920
2,489 656 226 3,371
Rm
5(b) Life South United UK & Rest
assurance Africa States of World Total
(i) Gross premiums written
6 months to 30 June 2002
Individual business
Single 5,018 24,360 1,207 30,585
Recurring 4,780 1,175 365 6,320
9,798 25,535 1,572 36,905
Group business
Single 3,684 - 95 3,779
Recurring 1,842 - 127 1,969
5,526 - 222 5,748
15,324 25,535 1,794 42,653
6 months to 30 June 2001
Individual business
Single (restated) 5,150 - 663 5,813
Recurring 4,672 - 537 5,209
9,822 - 1,200 11,022
Group business
Single 3,426 - 91 3,517
Recurring 1,610 - 217 1,827
5,036 - 308 5,344
14,858 - 1,508 16,366
Year to 31 December 2001
Individual business
Single 10,583 7,163 1,202 18,948
Recurring 9,381 967 1,078 11,426
19,964 8,130 2,280 30,374
Group business
Single 7,411 - 161 7,572
Recurring 3,470 - 359 3,829
10,881 - 520 11,401
30,845 8,130 2,800 41,775
South African individual gross single premiums include flexi and conventional
maturity transfers of "GBP"52 million (R827 million) (June 2001: "GBP"55 million
(R628 million); December 2001: "GBP"155 million (R1,923 million)) and guaranteed
capital fund transfers of "GBP"23 million (R361 million) (June 2001: "GBP"35
million (R399 million); December 2001: "GBP"61 million (R761 million) to
Investment Frontiers not previously reported in gross premiums written in June
2001.
Business transacted with SA residents in terms of their personal offshore
allowances is conducted by the Group`s offshore companies and is therefore
disclosed under the Rest of World segment.
segmental analysis CONTINUED
5 segmental analysis CONTINUED
"GBP"m
5(b) Life South United UK & Rest
assurance continued Africa States of World Total
(ii) New business premiums
6 months to 30 June 2002
Individual business
Single 316 1,534 76 1,926
Recurring 67 21 5 93
383 1,555 81 2,019
Group business
Single 232 - 6 238
Recurring 10 - 1 11
242 - 7 249
625 1,555 88 2,268
Annual premium equivalent 132 174 14 320
6 months to 30 June 2001
New business premiums on a statutory basis
Individual business
Single (restated) 451 - 58 509
Recurring 78 - 8 86
529 - 66 595
Group business
Single 300 - 8 308
Recurring 4 - - 4
304 - 8 312
833 - 74 907
Annual premium equivalent 157 - 15 172
Rm
5(b) Life South United UK & Rest
assurance continued Africa States of World Total
(ii) New business premiums
6 months to 30 June 2002
Individual business
Single 5,018 24,360 1,207 30,585
Recurring 1,064 333 79 1,476
6,082 24,693 1,286 32,061
Group business
Single 3,684 - 95 3,779
Recurring 159 - 16 175
3,843 - 111 3,954
9,925 24,693 1,397 36,015
Annual premium equivalent 2,093 2,769 225 5,087
6 months to 30 June 2001
New business premiums on a statutory basis
Individual business
Single (restated) 5,150 - 663 5,813
Recurring 891 - 91 982
6,041 - 754 6,795
Group business
Single 3,426 - 91 3,517
Recurring 46 - - 46
3,472 - 91 3,563
9,513 - 845 10,358
Annual premium equivalent 1,795 - 166 1,961
5 segmental analysis CONTINUED
"GBP"m
5(b) Life South United UK & Rest
assurance continued Africa States of World Total
(ii) New business premiums continued
Year to 31 December 2001
New business premiums
on a statutory basis
Individual business
Single 854 578 97 1,529
Recurring 159 26 11 196
1,013 604 108 1,725
Group business
Single 598 - 13 611
Recurring 20 - 1 21
618 - 14 632
1,631 604 122 2,357
Annual premium equivalent 324 84 23 431
Rm
5(b) Life South United UK & Rest
assurance continued Africa States of World Total
(ii) New business premiums continued
Year to 31 December 2001
New business premiums
on a statutory basis
Individual business
Single 10,583 7,163 1,202 18,948
Recurring 1,970 322 136 2,428
12,553 7,485 1,338 21,376
Group business
Single 7,411 - 161 7,572
Recurring 248 - 12 260
7,659 - 173 7,832
20,212 7,485 1,511 29,208
Annual premium equivalent 4,017 1,038 284 5,339
Annual premium equivalent is defined as one tenth of single premiums plus
recurring premiums.
South African individual new business premiums include flexi and conventional
maturity transfers of "GBP"52 million (R827 million) (June 2001: "GBP"55 million
(R628 million); December 2001: "GBP"155 million (R1,923 million)) and guaranteed
capital fund transfers of "GBP"23 million (R361 million) (June 2001: "GBP"35
million (R399 million); December 2001: "GBP"61 million (R761 million)) to
Investment Frontiers not previously reported in new business premiums in June
2001.
5 segmental analysis CONTINUED
"GBP"m
5(b) Life South United UK & Rest
assurance continued Africa States of World Total
(iii) Life assurance operating profit
6 months to 30 June 2002
Individual business 69 33 (5) 97
Group business 28 - - 28
Life assurance technical result 97 33 (5) 125
Long term investment return 63 - 2 65
Life assurance operating profit
before short term fluctuations
in investment return 160 33 (3) 190
6 months to 30 June 2001
Individual business 95 - (2) 93
Group business 42 - 1 43
Life assurance technical result 137 - (1) 136
Long term investment return 78 - 4 82
Life assurance operating profit
before short term fluctuations
in investment return 215 - 3 218
Year to 31 December 2001
Individual business 174 13 (8) 179
Group business 75 - 1 76
Life assurance technical result 249 13 (7) 255
Long term investment return 148 - 5 153
Life assurance operating profit
before short term fluctuations
in investment return 397 13 (2) 408
Rm
5(b) Life South United UK & Rest
assurance continued Africa States of World Total
(iii) Life assurance operating profit
6 months to 30 June 2002
Individual business 1,096 524 (79) 1,541
Group business 445 - - 445
Life assurance technical result 1,541 524 (79) 1,986
Long term investment return 1,000 - 32 1,032
Life assurance operating profit
before short term fluctuations
in investment return 2,541 524 (47) 3,018
6 months to 30 June 2001
Individual business 1,085 - (23) 1,062
Group business 480 - 11 491
Life assurance technical result 1,565 - (12) 1,553
Long term investment return 891 - 46 937
Life assurance operating profit
before short term fluctuations
in investment return 2,456 - 34 2,490
Year to 31 December 2001
Individual business 2,152 161 (99) 2,214
Group business 933 - 12 945
Life assurance technical result 3,085 161 (87) 3,159
Long term investment return 1,830 - 62 1,892
Life assurance operating profit
before short term fluctuations
in investment return 4,915 161 (25) 5,051
The United States operations, Fidelity & Guaranty Life and Americom, were both
acquired during 2001. The results of Fidelity & Guaranty Life are included in
the profit and loss account from 1 July 2001, and are disclosed net of
restructuring costs of "GBP"9 million (R113 million) incurred in 2001. The
operating profit of the US life business includes the investment return earned
by the whole of the portfolio on a smoothed basis.
Start-up costs of "GBP"6 million (R95 million) (June 2001: "GBP"9 million
(R103 million); December 2001: "GBP"19 million (R231 million)) associated with
the Group`s new UK life assurance business, Selestia, were included in the life
assurance technical result. Excluding these costs, the UK and Rest of World life
assurance operating profit would have been positive "GBP"1 million (R16 million)
(June 2001: "GBP"12 million (R137 million); December 2001: "GBP"17 million (R206
million)).
5 segmental analysis CONTINUED
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
5(c) Asset 30 June 30 June 31 Dec 30 June 30 June 31 Dec
management 2002 2001 2001 2002 2001 2001
(i) Analysis of
operating profit
Fund management worldwide
South Africa
The following items make up the `Net cash inflow/(outflow) from operating
activities
Interest paid on subordinated liabilities
Interest paid on loans from credit institutions
Other interest paid
Dividends paid to group companies
Dividends paid to minority interests
Finance costs of debt and non-equity share capital
Interest elements of finance lease rental payments
Other (please specify) [as defined for S3000110C]
Total
Old Mutual Asset Managers 7 11 16 111 126 198
The following items make up the `Total taxation paid` figure
Corporate tax (paid) / received (including advance corporation tax)
Overseas tax
Total
Old Mutual Unit Trusts - 3 11 - 34 136
The following items make up the `Net cash outflow from capital expenditure and
financial investment` item
Sales of banking investment securities
Purchases of banking investment securities
Sales of tangible fixed assets
Purchases of tangible fixed assets
Other (please specify) [as defined for S3000190C]
Total
Other 2 (1) 1 32 (11) 12
9 13 28 143 149 346
United States
Old Mutual Asset Managers 21 22 38 333 251 471
Pilgrim Baxter 11 20 29 174 228 359
Old Mutual
Strategic Affiliates 17 10 22 269 114 272
Old Mutual
Financial Affiliates 11 12 27 175 137 335
Corporate tax (paid) / received (including advance
corporation tax) 60 64 116 951 730 1,437
UK & Rest of World 3 1 6 48 12 74
72 78 150 1,142 891 1,857
Private client UK -
Gerrard Gross profit 3 10 2 48 114 25
Integration costs - (6) (12) - (69) (149)
3 4 (10) 48 45 (124)
Other financial services
South Africa 4 5 9 64 57 112
UK & Rest of World (1) 3 1 (16) 34 12
3 8 10 48 91 124
Asset management
operating profit
before goodwill
amortisation
and impairment 78 90 150 1,238 1,027 1,857
Analysed as
South Africa 13 18 37 207 206 458
United States 60 64 116 951 730 1,437
UK & Rest of World 5 8 (3) 80 91 (38)
Asset management
operating profit
before goodwill
amortisation
and impairment 78 90 150 1,238 1,027 1,857
5 segmental analysis CONTINUED
"GBP"m
Other
Old Mutual
OMAM Pilgrim (US)
5(c) Asset management (US) Baxter Affiliates Total
(ii) Old Mutual (US) Holdings
6 months to 30 June 2002
Revenue 72 30 106 208
Expenses (51) (19) (78) (148)
Operating profit before
goodwill amortisation 21 11 28 60
6 months to 30 June 2001
Revenue 76 48 114 238
Expenses (54) (28) (92) (174)
Operating profit before
goodwill amortisation 22 20 22 64
Year to December 2001
Revenue 147 85 219 451
Expenses (109) (56) (170) (335)
Operating profit before
goodwill amortisation and impairment 38 29 49 116
Rm
Other
Old Mutual
OMAM Pilgrim (US)
5(c) Asset management (US) Baxter Affiliates Total
(ii) Old Mutual (US) Holdings
6 months to 30 June 2002
Revenue 1,143 476 1,683 3,302
Expenses (810) (302) (1,239) (2,351)
Operating profit before
goodwill amortisation 333 174 444 951
6 months to 30 June 2001
Revenue 868 548 1,302 2,718
Expenses (617) (320) (1,051) (1,988)
Operating profit before
goodwill amortisation 251 228 251 730
Year to December 2001
Revenue 1,822 1,053 2,713 5,588
Expenses (1,351) (694) (2,106) (4,151)
Operating profit before
goodwill amortisation and impairment 471 359 607 1,437
5 segmental analysis CONTINUED
"GBP"m Rm
5(d) Banking South UK & Rest South UK & Rest
operating profit Africa of World Total Africa of World Total
6 months to 30 June 2002
Net interest income 164 17 181 2,597 283 2,880
Non-interest revenue 115 26 141 1,833 411 2,244
Total operating income 279 43 322 4,430 694 5,124
Specific and general
provisions charge
(including release
of exceptional
provision of
"GBP"25 million
(R400 million)) (10) - (10) (160) (4) (164)
Net income 269 43 312 4,270 690 4,960
Operating expenses (173) (17) (190) (2,741) (276)(3,017)
Banking operating
profit before
goodwill amortisation,
share of associated
undertakings` profit
and write-down
of investment in
Dimension Data
Holdings plc 96 26 122 1,529 414 1,943
Share of associated
undertakings` profit 3 3 6 50 42 92
Banking operating profit
before goodwill
amortisation and
write-down of
investment in
Dimension Data
Holdings plc 99 29 128 1,579 456 2,035
6 months to 30 June 2001
(restated)
Net interest income 212 18 230 2,417 210 2,627
Non-interest revenue 161 22 183 1,827 263 2,090
Total operating income 373 40 413 4,244 473 4,717
Specific and
general provisions (43) - (43) (491) - (491)
Net income 330 40 370 3,753 473 4,226
Operating expenses (200) (11) (211) (2,285) (126)(2,411)
Banking operating
profit before
goodwill amortisation,
share of associated
undertakings` profit
and write-down of
investment in
Dimension Data
Holdings plc 130 29 159 1,468 347 1,815
Share of associated
undertakings` profit 5 4 9 57 46 103
Banking operating profit
before goodwill
amortisation and
write-down of
investment in
Dimension Data
Holdings plc 135 33 168 1,525 393 1,918
Year to December 2001
Net interest income 386 43 429 4,783 533 5,316
Non-interest revenue
(including exceptional
revenue of
"GBP"36 million
(R441 million)) 413 55 468 5,118 681 5,799
Total operating income 799 98 897 9,901 1,214 11,115
Specific and general
provisions charge
(including exceptional
provision of
"GBP"32 million
(R400 million)) (118) - (118) (1,462) - (1,462)
Net income 681 98 779 8,439 1,214 9,653
Operating expenses (399) (26) (425) (4,945) (322)(5,267)
Banking operating
profit before
goodwill amortisation,
share of associated
undertakings` profit
and write-down of
investment in
Dimension Data
Holdings plc 282 72 354 3,494 892 4,386
Share of associated
undertakings` profit 8 7 15 99 87 186
Banking operating
profit before goodwill
amortisation and
write-down of
investment in
Dimension Data
Holdings plc 290 79 369 3,593 979 4,572
Following the refocus of the Group`s performance onto a geographic rather than
line of business basis with effect from the 2001 year end, the June 2001
segmentation of Nedcor has been restated on a consistent basis. There are no
banking operations in the United States.
5 segmental analysis CONTINUED
"GBP"m Rm
Smoothed Smoothed
operating operating
5(e)Analysis of result result
general based on based on
insurance Premiums Claims a long Premiums Claims a long
result by written incurred term written incurred term
class of net of re net of re investment net of re net of re investment
business insurance insurance return insurance insurance return
6 months to
30 June 2002
Motor 68 51 - 1,079 813 7
Fire 27 15 1 436 246 9
Accident 50 34 1 796 538 23
Other 2 2 - 27 34 (7)
147 102 2 2,338 1,631 32
Long term
investment return 17 276
19 308
6 months to
30 June 2001
Motor 86 73 (4) 986 834 (46)
Fire 32 18 2 365 206 23
Accident 66 46 2 754 525 23
Other 4 3 1 46 34 11
188 140 1 2,151 1,599 11
Long term
investment return 23 263
24 274
Year to December 2001
Motor 164 131 - 2,032 1,623 2
Fire 56 36 - 694 446 1
Accident 126 88 2 1,561 1,091 24
Other 5 2 3 62 25 35
351 257 5 4,349 3,185 62
Long term
investment return 41 508
46 570
5 Other "GBP"m Rm
(f)shareholders` 6 months 6 months Year 6 months 6 months Year
income/(expenses) to to to to to to
and write-down of 30 June 30 June 31 Dec 30 June 30 June 31 Dec
strategic investments 2002 2001 2001 2002 2001 2001
Long term investment
return credited
to operating result 1 9 12 16 103 149
Net corporate expenses (10) (19) (41) (159) (217) (508)
Other shareholders`
income/(expenses) (9) (10) (29) (143) (114) (359)
Write-down of
strategic investments - - (21) - - (260)
The write-down of "GBP"21 million (R260 million) shown above was made
following a review of the Group`s portfolio of strategic investments in 2001.
Included within net corporate expenses for the current year are exchange gains
realised on Rand deposits that were held at the start of the year.
5 segmental analysis CONTINUED
"GBP"m
5(g) Funds South United UK & Rest
under management Africa States of World Total
At 30 June 2002
Investments including assets
held to cover linked liabilities 12,483 6,058 3,525 22,066
Unit trusts
Old Mutual Asset Managers 701 - 1,566 2,267
Nedcor Unit Trusts 124 - 575 699
Other financial services - - 172 172
825 - 2,313 3,138
Third party
Old Mutual Asset Managers 3,608 - 110 3,718
Old Mutual Asset Managers (US) - 46,169 - 46,169
Pilgrim Baxter - 5,826 - 5,826
Old Mutual Strategic Affiliates - 19,118 4,860 23,978
3,608 71,113 4,970 79,691
Private client UK - - 14,583 14,583
Nedcor portfolio management 840 254 549 1,643
Other financial services 14 - 331 345
4,462 71,367 20,433 96,262
Fund management worldwide
Old Mutual Financial Affiliates - 9,298 2,213 11,511
4,462 80,665 22,646 107,773
Total funds under management 17,770 86,723 28,484 132,977
Rm
5(g) Funds South United UK & Rest
under management Africa States of World Total
At 30 June 2002
Investments including assets
held to cover linked liabilities 197,794 95,990 55,854 349,638
Unit trusts
Old Mutual Asset Managers 11,107 - 24,813 35,920
Nedcor Unit Trusts 1,965 - 9,111 11,076
Other financial services - - 2,725 2,725
13,072 - 36,649 49,721
Third party
Old Mutual Asset Managers 57,169 - 1,743 58,912
Old Mutual Asset Managers (US) - 731,552 - 731,552
Pilgrim Baxter - 92,314 - 92,314
Old Mutual Strategic Affiliates - 302,927 77,007 379,934
57,169 1,126,793 78,750 1,262,712
Private client UK - - 231,069 231,069
Nedcor portfolio management 13,310 4,025 8,699 26,034
Other financial services 222 - 5,245 5,467
70,701 1,130,818 323,763 1,525,282
Fund management worldwide
Old Mutual Financial Affiliates - 147,328 35,065 182,393
70,701 1,278,146 358,828 1,707,675
Total funds under management 281,567 1,374,136 451,331 2,107,034
Nedcor managed funds have now been included as a result of recent growth in
this business.
Unit trust private client UK business was transferred to Old Mutual Asset
Managers in January 2001.
5 segmental analysis CONTINUED
"GBP"m
5(g) Funds South United UK & Rest
under management continued Africa States of World Total
At 31 December 2001
Investments including assets
held to cover linked liabilities 11,519 4,497 5,699 21,715
Unit trusts
Old Mutual Asset Managers 670 - 360 1,030
Private client UK - - 1,051 1,051
Other financial services - - 159 159
670 - 1,570 2,240
Third party
Old Mutual Asset Managers 2,783 - 401 3,184
Old Mutual Asset Managers (US) - 48,884 - 48,884
Pilgrim Baxter - 8,675 - 8,675
Old Mutual Strategic Affiliates - 20,110 5,336 25,446
2,783 77,669 5,737 86,189
Private client UK - - 16,347 16,347
Other financial services 12 - 363 375
2,795 77,669 22,447 102,911
Fund management worldwide
Old Mutual Financial Affiliates - 13,485 2,745 16,230
2,795 91,154 25,192 119,141
Total funds under management 14,984 95,651 32,461 143,096
Rm
5(g) Funds South United UK & Rest
under management continued Africa States of World Total
At 31 December 2001
Investments including assets
held to cover linked liabilities 200,760 78,376 99,325 378,461
Unit trusts
Old Mutual Asset Managers 11,677 - 6,274 17,951
Private client UK - - 18,317 18,317
Other financial services - - 2,771 2,771
11,677 - 27,362 39,039
Third party
Old Mutual Asset Managers 48,504 - 6,989 55,493
Old Mutual Asset Managers (US) - 851,979 - 851,979
Pilgrim Baxter - 151,193 - 151,193
Old Mutual Strategic Affiliates - 350,489 92,999 443,488
48,504 1,353,661 99,988 1,502,153
Private client UK - - 284,905 284,905
Other financial services 209 - 6,327 6,536
48,713 1,353,661 391,220 1,793,594
Fund management worldwide
Old Mutual Financial Affiliates - 235,025 47,841 282,866
48,713 1,588,686 39,061 2,076,460
Total funds under management 261,150 1,667,062 565,748 2,493,960
5 segmental analysis CONTINUED
"GBP"m
5(g) Funds South United UK & Rest
under management continued Africa States of World Total
At 30 June 2001
Investments including assets
held to cover linked liabilities 15,763 - 7,229 22,992
Unit trusts
Old Mutual Asset Managers 1,237 - 646 1,883
Private client UK - - 1,174 1,174
Other financial services - - 182 182
1,237 - 2,002 3,239
Third party
Old Mutual Asset Managers 4,470 - 469 4,939
Old Mutual Asset Managers (US) - 53,091 - 53,091
Pilgrim Baxter - 10,684 - 10,684
Old Mutual Strategic Affiliates - 19,766 6,481 26,247
4,470 83,541 6,950 94,961
Private client UK - - 18,104 18,104
Other financial services 10 - 401 411
4,480 83,541 25,455 113,476
Fund management worldwide
Old Mutual Financial Affiliates - 23,072 2,817 25,889
4,480 106,613 28,272 139,365
Total funds under management 21,480 106,613 37,503 165,596
Rm
5(g) Funds South United UK & Rest
under management continued Africa States of World Total
At 30 June 2001
Investments including assets
held to cover linked liabilities 179,121 - 82,146 261,267
Unit trusts
Old Mutual Asset Managers 14,057 - 7,341 21,398
Private client UK - - 13,341 13,341
Other financial services - - 2,068 2,068
14,057 - 22,750 36,807
Third party
Old Mutual Asset Managers 50,794 - 5,329 56,123
Old Mutual Asset Managers (US) - 603,294 - 603,294
Pilgrim Baxter - 121,407 - 121,407
Old Mutual Strategic Affiliates - 224,609 73,646 298,255
50,794 949,310 78,975 1,079,079
Private client UK - - 205,723 205,723
Other financial services 114 - 4,557 4,671
50,908 949,310 289,255 1,289,473
Fund management worldwide
Old Mutual Financial Affiliates - 262,177 32,010 294,187
50,908 1,211,487 321,265 1,583,660
Total funds under management 244,086 1,211,487 426,161 1,881,734
6 INSURANCE LONG TERM INVESTMENT RETURN
As permitted by the ABI SORP, balances on the long term business and general
business technical accounts are stated after allocating an investment return
earned by the insurance businesses, based on a long term investment return, to /
from the non-technical account.
For the South African and Namibian life assurance businesses, the return is
applied to an average value of investible shareholders` assets, adjusted for net
fund flows. For general insurance liabilities, the return is an average value of
investible assets supporting shareholders` funds and insurance liabilities,
adjusted for net fund flows. Short term fluctuations in investment return
represent the difference between actual return and long term investment return.
For the US long term business, the return earned by assets, mainly bonds, has
been smoothed with reference to the actual yield earned by the portfolio.
The long term rates of investment return for equities and other investible
assets are as follows:
6 months to 6 months to Year to
30 June 30 June 31 Dec
2002 2001 2001
South Africa and Namibia 14.0% 14.0% 14.0%
United States 6.79% N/a 7.04%
The long term rates of return are based on achieved real rates of return
adjusted for current inflation expectations and consensus economic investment
forecasts, and are reviewed annually for appropriateness. The directors are of
the opinion that these rates of return are appropriate and have been selected
with a view to ensuring that returns credited to operating earnings are not
inconsistent with the actual returns expected to be earned over the long term.
6 insurance long term investment return CONTINUED
Analysis of "GBP"m Rm
short term 6 months 6 months Year 6 months 6 months Year
fluctuations to to to to to to
in investment 30 June 30 June 31 Dec 30 June 30 June 31 Dec
return 2002 2001 2001 2002 2001 2001
Life assurance
Actual investment
return attributable
to shareholders 3 114 257 52 1,302 3,181
Long term investment
return credited to
operating result 65 82 153 1,032 937 1,892
(62) 32 104 (980) 365 1,289
General insurance
Actual investment
return attributable
to shareholders 4 49 85 64 560 1,053
Long term investment
return credited to
operating result 17 23 41 270 263 508
(13) 26 44 (206) 297 545
Other shareholders`
income/(expenses)
Actual investment
return attributable
to shareholders 14 45 (10) 222 514 (124)
Long term investment
return credited to
operating result 1 9 12 16 103 149
13 36 (22) 206 411 (273)
Short term fluctuations
in investment return (62) 94 126 (980) 1,073 1,561
7 INVESTMENT IN DIMENSION DATA HOLDINGS PLC
Profit attributable to shareholders is stated after charging the following:
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
Loss on holding in
Dimension Data
Holdings plc
before tax and
minority interests (52) (304) (269) (830) (3,467) (3,334)
Tax 9 - (14) 140 - (171)
Loss on holding in
Dimension Data
Holdings plc before
minority interests (43) (304) (283) (690) (3,467) (3,505)
Minority interests 21 149 139 340 1,702 1,717
Loss on holding in
Dimension Data
Holdings plc
after tax and
minority interests (22) (155) (144) (350) (1,765) (1,788)
In light of market movements during 2001, an impairment in the carrying value
of the Group`s investment in Dimension Data Holdings plc was recognised,
reflecting a market value of R14.50 per share at 31 December 2001. A further
impairment has been recognised for the six months to 30 June 2002, reflecting a
market value of R6.45 per share at 30 June 2002. Although this event is
exceptional in the context of its significance to the Group, this loss will form
part of banking operating profit in the statutory financial statements for the
year ending 31 December 2002 in accordance with Financial Reporting Standard 3.
8 TAX ON PROFIT ON ORDINARY ACTIVITIES
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
(restated)(restated) (restated)(restated)
United Kingdom tax
UK corporation tax 22 3 64 349 34 793
Double tax relief (10) - (49) (159) - (607)
12 3 15 190 34 186
Overseas tax
South African tax 35 43 124 556 491 1,536
United States tax 38 - 31 603 - 384
Rest of World tax (2) 12 4 (32) 137 50
Secondary taxation
on companies (STC) 3 18 23 48 206 285
74 73 182 1,175 834 2,255
Deferred tax 4 31 88 64 354 1,091
Adjustment for
adoption of FRS19 - 21 41 - 240 503
Prior period adjustment 7 - (7) 111 - (87)
Reported tax charge 97 128 319 1,540 1,462 3,948
The tax charge is
analysed as follows:
Operating profit 106 128 250 1,683 1,462 3,094
Short term fluctuations (18) - 55 (289) - 683
Investment in Dimension
Data Holdings plc (9) - 14 (140) - 171
Non-operating items 18 - - 286 - -
Reported tax charge 97 128 319 1,540 1,462 3,948
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
(restated)(restated) (restated)(restated)
Tax at UK rate of
30.0 per cent.
(2001: 30.0 per cent.)
on profit on ordinary
activities before tax 75 53 24 1,194 604 299
Untaxed and low taxed
income (including tax
exempt investment return) (9) (65) (118) (143) (742) (1,462)
Disallowable expenditure 33 136 418 524 1,553 5,175
STC 3 18 23 48 206 285
Other (5) (14) (28) (83) (159) (349)
Reported tax charge 97 128 319 1,540 1,462 3,948
9 DISPOSALS
In accordance with the requirements of Financial Reporting Standard 3, these
gains have been disclosed as non-operating.
Old Mutual International (Isle of Man) Limited
On 14 January 2002, Old Mutual International (Isle of Man) Limited, an offshore
life assurance business and a 100% subsidiary of the Group, was sold for a cash
consideration of "GBP"36 million (R574 million). The profit realised on disposal
was "GBP"20 million (R317 million) and no tax was payable.
US affiliates
During the period the Group completed the sales of C.S. McKee & Company Inc
and Suffolk Capital Management for consideration of "GBP"6 million (R95 million)
and "GBP"46 million (R730 million) respectively. The total profit before tax on
disposal was "GBP"18 million (R286 million) and the associated tax charge was
"GBP"18 million (R286 million).
10 GOODWILL
"GBP"m Rm
At At At At At At
30 June 30 Dec 31 June 30 June 30 Dec 31 June
2002 2001 2001 2002 2001 2001
At beginning of period 1,580 2,279 2,279 27,537 25,786 25,786
Additions arising on
acquisitions in period 2 174 50 32 2,122 571
Adjustment in respect of
prior year acquisitions - 2 12 - 25 137
Disposals (18) (10) (4) (286) (174) (46)
Impairment loss - (500) - - (6,196) -
Pilgrim Baxter and
Associates revenue
share adjustment 101 (241) - 1,604 (4,200) -
Amortisation for period (50) (113) (63) (794) (1,400) (720)
Foreign exchange and
other movements (54) (11) 105 (3,359) 11,574 1,306
At end of period 1,561 1,580 2,379 24,734 27,537 27,034
Adjustments in respect of prior year acquisitions reflect the latest estimates
of the consideration paid for the purchase of revenue shares of certain
affiliates combined with the effect of disposing of affiliates held for resale
at values in excess of the original estimated carrying amount. The ultimate
costs of purchasing these revenue shares will remain uncertain as they are
dependent upon future events and hence are subject to adjustment in future
years.
The impairment loss arose from a review, in accordance with Financial
Reporting Standard 11, of the carrying value of the Group`s recently acquired UK
private client and US asset management businesses. As a result of this exercise,
the carrying value of unamortised goodwill as at 31 December 2001 was reduced by
"GBP"500 million (R6,196 million).
During 2001, a reduction to goodwill of "GBP"241 million (R4,200 million), net
of tax, reflected the expiry on 31 December 2001 of the Group`s option to
purchase the remaining revenue share from Pilgrim Baxter. On 14 March 2002, the
Group renegotiated terms for the purchase of the remaining revenue share which
comprised a combination of fixed instalments and a variable earn-out depending
upon profit growth. In accordance with Financial Reporting Standard 7,
adjustments have been made to goodwill of "GBP"101 million (R1,604) million,
which represents the best estimate of the total obligation.
The goodwill amortisation charge for the period of "GBP"55m (R873 million)
(June 2001: "GBP"69 million (R788 million); December 2001: "GBP"132 million
(R1,636 million)) comprises "GBP"50 million (R794 million) (June 2001: "GBP"63
million (R720 million); December 2001: "GBP"113 million (R1,400 million))
disclosed in note 10 above, and "GBP"5 million (R79 million) (June 2001: "GBP"6
million (R68 million); December 2001: "GBP"19 million (R236 million)) disclosed
under interests in associated undertakings.
AMOUNTS OWED TO CREDIT INSTITUTIONS
"GBP"m Rm
At At At At At At
30 June 30 Dec 31 June 30 June 30 Dec 31 June
2002 2001 2001 2002 2001 2001
Bank overdrafts
repayable on demand - 1 3 - 17 34
Bank and other loans
Repayable within
one year
Syndicated revolving
credit facility 164 294 268 2,599 5,124 3,045
Floating rate notes 62 74 79 982 1,289 899
Commercial paper 193 112 - 3,058 1,952 -
Term loans 30 - - 475 - -
Other 3 4 1 48 70 11
452 484 348 7,162 8,435 3,955
Repayable between
one and two years
Term loans - 30 30 - 523 341
Repayable between
two and five years
Syndicated revolving
credit facility 162 376 354 2,567 6,553 4,023
Euro note 228 - - 3,613 - -
Term loans 6 6 6 95 105 68
Other 9 - - 143 - -
405 382 360 6,418 6,658 4,091
857 897 741 13,580 15,633 8,421
All amounts owed to credit institutions bear interest at variable rates
determined in accordance with prevailing market rates at the time of drawing or
rollover, except for a _400 million note, which is described below.
The Revolving Credit Facility of "GBP"300 million (amount drawn down at 30
June 2002: "GBP"164 million) was repaid on 15 July 2002. The Revolving Credit
Facility of "GBP"900 million (amount drawn down at 30 June 2002: "GBP"162
million) is repayable on 13 July 2006.
The floating rate notes consist of a $20 million note repayable on 18
September 2002, and a "GBP"49 million note repayable on 31 December 2010 with
the holders having the option to elect for early redemption every six months.
The term loans of "GBP"30 million and "GBP"6 million are repayable on 30 April
2003 and 30 May 2005 respectively.
Commercial paper is issued under a "GBP"300 million commercial paper programme
for periods of up to 12 months.
11 AMOUNTS OWED TO CREDIT INSTITUTIONS CONTINUED
Old Mutual plc _400 million 6% Notes due 2007 were issued on 10 April 2002.
The interest payable on these bonds is fixed at 6% per annum.
11(a) Convertible loan stock
On 2 May 2001 Old Mutual Finance (Cayman Islands) Limited, a 100% owned
subsidiary of the Group, issued US$650 million 3.625 per cent. Convertible
Bonds, which are guaranteed by and convertible into the ordinary shares of Old
Mutual plc at a conversion price of 190p per share at an exchange rate of one US
dollar to 69.52p sterling. The bonds are repayable on 2 May 2005 with the bond
holders having the option to elect for redemption on 2 May 2003. The amount
payable includes "GBP"5 million (R79 million) (December 2001: "GBP"8 million
(R139 million); June 2001 "GBP"12 million (R136 million)) of unamortised issue
costs.
12 POST BALANCE SHEET EVENTS
Acquisition of BoE Limited
On 2 July 2002, Nedcor Limited, the Group`s 53% owned banking subsidiary,
received approval for the acquisition of the entire issued share capital of BoE
Limited, a South African bank. The estimated total consideration was "GBP"472
million (R7,500 million), consisting of cash of "GBP"390 million (R6,186
million) and 10 million Nedcor shares.
Sale of NWQ Investment Management Company, Inc.
The sale of NWQ Investment Management Company Inc., a US asset management
affiliate, was completed on 1 August 2002 for an estimated consideration of $120
million.
1 Embedded value
The embedded value of Old Mutual plc at 30 June 2002 is set out below,
together with the corresponding positions at 31 December 2001 and 30 June 2001.
"GBP"m Rm
30 June 30 Dec 31 June 30 June 30 Dec 31 June
2002 2001 2001 2002 2001 2001
(restated) (restated)
Adjusted net worth 2,850 2,624 4,838 45,163 45,716 54,986
Equity
shareholders` funds 2,684 2,470 3,715 42,528 43,045 42,217
Excess of market
value of listed
subsidiaries over
their net asset value 473 455 1,143 7,496 7,922 12,994
Adjustment to include
OMI life subsidiaries
on a statutory
solvency basis (18) (17) (20) (287) (303) (225)
Adjustment to include
OMUSL on a statutory
solvency basis (289) (284) - (4,574) (4,948) -
Value of
in-force business 925 898 866 14,651 15,648 9, 837
Value of in-force
business before
cost of solvency
capital 1,019 981 954 16,135 17,101 10,836
Cost of
solvency capital (94) (83) (88) (1,484) (1,453) (999)
Embedded value 3,775 3,522 5,704 59,814 61,364 64,823
An embedded value is an actuarially determined estimate of the economic value
of a life assurance company, excluding any value that may be attributed to
future new business. Old Mutual plc`s embedded value is the sum of its adjusted
net worth and the present value of the projected stream of future after-tax
profits from its life assurance business in force at the valuation date,
adjusted for the cost of holding solvency capital equal to the local statutory
capital requirement in each country (or equivalent where there is no local
requirement).
The adjusted net worth is equal to the consolidated equity shareholders` funds
adjusted to reflect the Group`s listed subsidiaries at market value, plus Old
Mutual International (OMI) and Old Mutual US life assurance (OMUSL) subsidiaries
on a statutory solvency basis. The adjusted net worth also includes goodwill
relating to OMUSL of "GBP"61 million (R967 million) as at 30 June 2002 and
"GBP"65 million (R1,133 million) as at 31 December 2001.
The embedded value does not include a market valuation of the Group`s asset
management subsidiaries (including asset management business written through the
life assurance companies), nor of any other in-force non-life business of the
Group, except to the extent of any goodwill included in the consolidated equity
shareholders` funds. The assumptions used to calculate the embedded value are
set out in section 4.
Where indicated, comparative figures have been restated to reflect the
adoption of Financial Reporting Standard 19 "Deferred Tax". Refer to the notes
to the financial statements for further details. The change in accounting policy
has had no impact on the current period`s results. The adjusted net worth has
been increased by "GBP"44 million (R503 million) as at 31 December 2000 and by
"GBP"23 million (R263 million) as at 30 June 2001. The value of in-force
business had originally placed some value on this tax asset, and this value has
consequently now been removed. The value of in-force business has been reduced
by "GBP"29 million (R327 million) as at 31 December 2000 and by "GBP"14 million
(R162 million) as at 30 June 2001. These changes have increased embedded value
by "GBP"15 million (R176 million) as at 31 December 2000 and by "GBP"9 million
(R101 million) as at 30 June 2001.
The table below sets out a geographical analysis of the value of in-force
business.
"GBP"m Rm
30 June 30 Dec 31 June 30 June 30 Dec 31 June
2002 2001 2001 2002 2001 2001
(restated) (restated)
South Africa 579 544 755 9,176 9,474 8,573
Individual business 354 342 502 5,608 5,951 5,698
Group business 225 202 253 3,568 3,523 2,875
United States 283 271 - 4,484 4,722 -
Rest of the World 63 83 111 991 1,452 1,264
Value of
in-force business 925 898 866 14,651 15,648 9,837
2 Embedded value profits
Embedded value profits represent the change in embedded value over the period,
adjusted for any capital raised and dividends proposed. The after-tax embedded
value profits for the six months to 30 June 2002 are set out below, together
with the corresponding figures for the six months to 30 June 2001 and the twelve
months to 31 December 2001.
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
Embedded value
at end of period 3,775 5,704 3,522 59,814 64,823 61,364
Embedded value
at beginning of period 3,522 5,568 5,568 61,364 63,007 63,007
Increase in
embedded value 253 136 (2,046) (1,550) 1,816 (1,643)
Less capital raised (39) (4) (211) (619) (46) (2,788)
New capital raised (39) - (208) (619) - (2,751)
Proceeds from sale of
shares previously held
to satisfy claims and
errors on demutualisation - (4) (3) - (46) (37)
Plus dividends proposed 63 59 172 998 674 2,606
Embedded value profits 277 191 (2,085) (1,171) 2,444 (1,825)
The components of the embedded value profits are set out below:
"GBP"m Rm
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2002 2001 2001 2002 2001 2001
Profits from
new business 58 28 84 927 319 1,053
Point of sale 56 27 79 899 309 990
Expected return
to end of period 2 1 5 28 10 63
Expected return 65 69 144 1,031 791 1,809
Experience variances 16 16 5 254 189 54
Experience
assumption changes 4 - (7) 55 - (86)
Profits before investment
and exceptional items 143 113 226 2,267 1,299 2,830
Investment variances (43) 13 33 (682) 146 420
Investment and economic
assumption changes (9) 109 101 (148) 1,244 1,265
Impact of capital
gains tax - (52) (49) - (592) (603)
Development costs (6) (9) (28) (95) (103) (344)
Goodwill impairment - - (500) - - (6,196)
Return on adjusted
net worth (20) 51 (294) (289) 585 (3,693)
Exchange rate movements 212 (28) (1,560) (2,224) (60) 4,672
Restatement for adoption
of FRS19 Deferred Tax - (6) (14) - (75) (176)
Embedded value profits 277 191 (2,085) (1,171) 2,444 (1,825)
The profits from new life assurance business comprise the value of new
business written during the period, determined initially at the point of sale
and then accumulated to the end of the period by applying the discount rate to
the value of new business at the point of sale and adding back the expected cost
of solvency capital between the point of sale and the end of the period. The new
business profits for the six months to 30 June 2002 are based on the revised
investment and economic assumptions.
The profits from existing life assurance business consist of the expected
return on the in-force business, experience variances and changes in experience
assumptions. The expected return is determined by applying the discount rate to
the value of in-force business at the beginning of the period and adding back
the expected cost of solvency capital over the period. The experience variances
are caused by differences between the actual experience in the period and the
assumptions used to calculate the value at the start of the period. The amount
under assumption changes reflects revised expectations of future experience.
The investment variances represent the differences between the actual returns
in the period and the assumptions used to calculate the value at the start of
the period. The investment assumptions are shown in section 4.
The impact of capital gains tax relates to capital gains tax introduced in
South Africa in October 2001.
Return on adjusted net worth represents the actual investment return earned on
the shareholder portfolio investments (which includes the return on the market
value of the shareholders` investments in Nedcor, Mutual & Federal and Nedcor
Investment Bank), as well as the profits arising from other non-life businesses
within the Group.
Development costs for the six months to 30 June 2002 consist of "GBP"6 million
(R95 million) start-up costs for Selestia.
Comparative figures have been restated to reflect the adoption of FRS 19
"Deferred Tax". Refer to section 1. The June 2001 figures have also been
restated to allow for Guaranteed Capital Fund transfers in respect of South
African Individual business. Refer to section 3.
The table below sets out a segmental analysis of embedded value profits for
the six months to 30 June 2002.
"GBP"m Adjusted Value of in-force business Total
net Rest embedded
6 months to 30 June 2002 worth SA US of World value
Value at end of period 2,850 579 283 63 3,775
Value at beginning of period 2,624 544 271 83 3,522
Increase in value 226 35 12 (20) 253
Less capital raised (39) - - - (39)
Plus dividends proposed 63 - - - 63
Effect of the sale of
Old Mutual International
(Isle of Man) Limited (20) - - 20 -
Life assurance operating
profit after tax on
statutory solvency basis (58) 60 4 (6) -
Embedded value profits 172 95 16 (6) 277
Profits from new business - 25 31 2 58
Expected return - 46 15 4 65
Experience variances - 16 (2) 2 16
Experience assumption changes - - 5 (1) 4
Profits before investment
and exceptional items - 87 49 7 143
Investment variances - (24) (19) - (43)
Investment and economic
assumption changes - (8) - (1) (9)
Developments costs - - - (6) (6)
Return on adjusted net worth (5) (15)* - - (20)
Exchange rate movements 177 55 (14) (6) 212
Embedded value profits 172 95 16 (6) 277
* Change in the difference between face value and discounted value of accrued
Capital Gains Tax on South African shareholders` funds.
Rm Adjusted Value of in-force business Total
net Rest embedded
6 months to 30 June 2002 worth SA US of World value
Value at end of period 45,163 9,176 4,484 991 59,814
Value at beginning
of period 45,716 9,474 4,722 1,452 61,364
Increase in value (553) (298) (238) (461) (1,550)
Less capital raised (619) - - - (619)
Plus dividends proposed 998 - - - 998
Effect of the sale of
Old Mutual International
(Isle of Man) Limited (317) - - 317 -
Life assurance operating
profit after tax on
statutory solvency basis (916) 946 65 (95) -
Embedded value profits (1,407) 648 (173) (239) (1,171)
Profits from new business - 403 498 26 927
Expected return - 731 244 56 1,031
Experience variances - 257 (35) 32 254
Experience assumption changes - - 74 (19) 55
Profits before investment
and exceptional items - 1,391 781 95 2,267
Investment variances - (374) (302) (6) (682)
Investment and economic
assumption changes - (135) - (13) (148)
Developments costs - - - (95) (95)
Return on adjusted net worth (55) (234)* - - (289)
Exchange rate movements (1,352) - (652) (220) (2,224)
Embedded value profits (1,407) 648 (173) (239) (1,171)
* Change in the difference between face value and discounted value of accrued
Capital Gains Tax on South African shareholders` funds.
3 Value of new business
The value of new business (VNB) written in the period is the present value of
the projected stream of after-tax profits from that business, adjusted for the
cost of holding solvency capital. The value is determined initially at the point
of sale and then accumulated to the end of the period as described in section 2
above.
The tables below set out a geographical analysis of the value of new business
for the six months to 30 June 2002, six months to 30 June 2001, and the twelve
months to 31 December 2001. United States new business numbers for 2001 are in
respect of second six months only. New business profitability (as measured by
the ratio of the value of new business to the Annual Premium Equivalent) is also
shown. Annual Premium Equivalent (APE) is calculated as recurring premiums (RP)
plus 10% of single premiums (SP).
6 months to 30 June 2002 6 months to 30 June 2002
RP SP APE VNB RP SP APE VNB
"GBP"m "GBP"m "GBP"m "GBP"m Margin "GBP"m "GBP"m "GBP"m "GBP"m
South Africa 62 404 102 25 25% 982 6,420 1,624 403
Individual
business 52 285 80 16 21% 817 4,529 1,270 261
Group business 10 119 22 9 40% 165 1,891 354 142
United States 21 1,535 175 31 18% 326 24,368 2,763 498
Rest of
the World 5 60 11 2 14% 89 949 184 26
Total 88 1,999 288 58* 20% 1,397 31,737 4,571 927*
* Value of new business net of cost of solvency capital of "GBP"12 million (R190
million).
6 months to 30 June 2001 6 months to 30 June 2001
RP SP APE VNB RP SP APE VNB
"GBP"m "GBP"m "GBP"m "GBP"m Margin Rm Rm Rm Rm
South Africa 62 556 118 26 22% 704 6,353 1,340 296
Individual
business 58 417 100 19 19% 663 4,766 1,140 219
Group business 4 139 18 7 39% 41 1,587 200 77
United States - - - - - - - - -
Rest of
the World 8 62 14 2 14% 87 712 158 23
Total 70 618 132 28* 21% 791 7,065 1,498 319*
* Value of new business net of cost of solvency capital of "GBP"2 million (R24
million).
South African Individual business single premiums include "GBP"35 million
(R399 million) in respect of transfers from the Guaranteed Capital Fund (a
vehicle for extending policies at maturity) to purchase new products, that were
not previously categorised as new business premiums. The embedded value of the
new business associated with this was "GBP"0.8 million (R9 million). The above
figures for the six months ended 30 June 2001 have been restated to reflect the
transfers from the Guaranteed Capital Fund.
12 months to 30 Dec 2001 12 months to 30 Dec 2001
RP SP APE VNB RP SP APE VNB
"GBP"m "GBP"m "GBP"m "GBP"m Margin Rm Rm Rm Rm
South Africa 140 1,142 254 68 27% 1,728 14,143 3,142 840
Individual
business 120 792 199 41 21% 1,486 9,812 2,467 506
Group business 20 350 55 27 49% 242 4,331 675 334
United States** 26 578 84 13 15% 349 7,719 1,121 171
Rest of
the World 12 106 23 3 15% 151 1,323 283 42
Total 178 1,826 361 84* 23% 2,228 23,185 4,546 1,053*
* Value of new business net of cost of solvency capital of "GBP"9million (R114
million).
** United States new business for 6 months only.
South African Individual business single premiums include "GBP"61 million
(R761 million) in respect of transfers from the Guaranteed Capital Fund (a
vehicle for extending policies at maturity) to purchase new products, that were
not previously categorised as new business premiums. The embedded value of the
new business associated with this was "GBP"1 million (R15 million). The above
figures for the twelve months ended 31 December 2001 are as reported.
The value of new business excludes the value of new individual unit trust and
some group market-linked business written by the life companies, as the profits
on this business arise in the asset management subsidiaries. It also excludes
premium increases arising from indexation arrangements in respect of existing
business, as these are already included in the value of in-force business.
A reconciliation of the new business premiums shown in the notes to the
financial statements to those shown above, for the six months ended 30 June
2002, is set out below.
"GBP"m Rm
6 months to June 2002 Recurring Single Recurring Single
premiums premiums premiums premiums
New business premiums
in the notes to the
financial statements 104 2,164 1,651 34,364
Less:
Group market-linked
business not valued - (91) - (1,460)
Group business premiums
held temporarily on deposit - (21) - (331)
Unit trust business not valued - (31) - (487)
New business premiums
arising from indexation (16) - (254) -
Selestia business not valued - (22) - (349)
New business premiums as
per embedded value report 88 1,999 1,397 31,737
The assumptions used to calculate the value of new business are set out in
section 4.
4 Assumptions
The principal assumptions used in the calculation of the value of in-force
business and the value of new business are set out below.
* The pre-tax investment and economic assumptions used for South African and
United States businesses were as follows:
South Africa 30 June 31 Dec 30 June
2002 2001 2001
Fixed interest return 12.5% 12.0% 11.0%
Equity return 14.5% 14.0% 13.0%
Property return 13.5% 13.0% 12.0%
Inflation 8.5% 8.0% 7.0%
Risk discount rate 15.0% 14.5% 13.5%
United States 30 June 31 Dec 30 June
2002 2001 2001
Treasury yield 5.0% 5.0% 5.5%
Inflation 3.0% 3.0% 3.0%
New money yield assumed 6.7% 6.6% 6.8%
Net portfolio earned rate 7.1% 7.3% 7.4%
Risk discount rate 9.5% 9.5% 10.0%
For the other operations, appropriate investment and economic assumptions were
chosen on bases consistent with those adopted in South Africa.
* Where applicable, rates of future bonuses have been set at levels consistent
with the investment return assumptions.
* Projected company taxation is based on the current tax basis that applies in
each country.
For the South African business full allowance has been made for secondary tax
on companies that may be payable in South Africa. Full account has been taken of
the impact of capital gains tax introduced in South Africa with effect from 1
October 2001. It has been assumed that 10% of the equity portfolio (excluding
group subsidiaries) will be traded each year. No allowance has been made for
capital gains tax on the shareholder investments in Nedcor and Mutual & Federal.
For the US business full allowance has been made for existing tax attributes
of the companies, including the use of existing carry forwards and preferred tax
credit investments.
* The assumed future mortality, morbidity and voluntary discontinuance rates
have been based as far as possible on analyses of recent operating experience.
Allowance has been made where appropriate for the effect of expected AIDS-
related claims.
* The management expenses attributable to life assurance business have been
analysed between expenses relating to the acquisition of new business and the
maintenance of business in force. Assumed future expenses were based on levels
experienced up to 31 December 2001 and increased with inflation up to 30 June
2002. The future expenses attributable to life insurance business do not include
Group holding company expenses.
* Future investment expenses were based on the current scales of fees payable by
the life insurance companies to the asset management subsidiaries. To the extent
that these fees include profit margins for the asset management subsidiaries,
these margins have not been included in the value of in-force business or the
value of new business.
* The effect of increases in premiums over the period for policies in-force as
at 30 June 2002, 31 December 2001 and 30 June 2001 has been included in the
value of in-force business only where such increases are associated with
indexation arrangements. Other increases in premiums of existing policies are
included in the value of new business.
* Conversions between Rand, US Dollar and Sterling were carried out at the
following exchange rates:
Rand per Sterling US$ per Sterling Rand per US$
At 30 June 2002 15.8451 1.5279 10.3702
At 31 December 2001 17.4286 1.4542 11.9850
At 30 June 2001 11.3634 1.4116 8.0500
6 months to 30 June 2002
(average) 15.8800 1.4445 10.9926
6 months to 31 December 2001
(average) 13.3482 1.4404 9.2670
12 months to 31 December 2001
(average) 12.3923
6 months to 30 June 2001
(average) 11.4211
5 Alternative Assumptions
The discount rate appropriate to an investor will depend on the investor`s own
requirements, tax position and perception of the risks associated with the
realisation of the future profits. To illustrate the effect of using different
discount rates, the table below shows the embedded value of Old Mutual plc at 30
June 2002 at alternative discount rates. In determining the values at different
discount rates, all other assumptions have been left unchanged.
"GBP"m Rm
Value Value Value Value Value Value
at at at at at at
central central central central central central
discount discount discount discount discount discount
rate rate rate rate rate rate
- 1% +1% - 1% +1%
Adjusted net worth 2,850 2,850 2,850 45,163 45,163 45,163
Value of
in-force business 1,030 925 823 16,324 14,651 13,033
Value before
cost of capital 1,070 1,019 965 16,949 16,135 15,288
Cost of solvency capital (40) (94) (142) (625) (1,484) (2,255)
Embedded value 3,880 3,775 3,673 61,487 59,814 58,196
The table below sets out the value of the new life assurance business (VNB)
for the 6 months to 30 June 2002 at alternative discount rates.
"GBP"m Rm
Value Value Value Value Value Value
at at at at at at
central central central central central central
discount discount discount discount discount discount
rate rate rate rate rate rate
- 1% +1% - 1% +1%
VNB before
cost of capital 74 70 66 1,172 1,117 1,054
Cost of solvency capital (9) (12) (14) (145) (190) (232)
Value of new business 65 58 52 1,027 927 822
6 External Review
These results have been reviewed by Tillinghast-Towers Perrin who have
confirmed to the Directors that the methodology and assumptions used to
determine the embedded value are reasonable and that the embedded value profits
are reasonable in the context of the operating performance and experience of the
life assurance business during the six months to 30 June 2002.
Date: 12/08/2002 08:02:50 AM Produced by the JSE SENS Department
