| Thu 7 Aug 2003, 8:36 | | Old Mutual Plc - Results For The Six Months Ended |
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Old Mutual Plc - Results For The Six Months Ended 30 June 2003
Release Date: 07/08/2003 08:00:01 Code(s): OML
Old Mutual plc - Results for the six months ended 30 June 2003
Old Mutual plc
ISIN:GB0007389926
JSE Share Code: OML
NSX Share Code: OLM
Issuer Code: OLOML
Results for the six months ended 30 June 2003
Continued solid earnings
Highlights
* Adjusted operating profit*: GBP395m (2002: GBP 381m), an increase of 4% in
Sterling R5,122m (2002: R6,059m), a decrease
of 15% in Rand
* Operating profit: GBP378m (2002: GBP 212m), an increase of 78% in
Sterling R4,899m (2002: R3,376m), an increase of 45%
in Rand
* Adjusted operating earnings per share*: 5.6p (2002: 5.8p), a decrease of
3% in Sterling 73.4c (2002:
92.9c), a decrease of 21% in Rand
* Basic earnings per share: 4.7p (2002: 3.3p), an increase of 42% in
Sterling 61.1c (2002: 52.9c), an increase of
16% in Rand
* Life sales of GBP261m annual premium equivalent (2002: GBP288m)
* Total banking assets GBP22.3bn, adjusted operating profit 101m
(2002: GBP128m)
* Total assets under management GBP128bn at 30 June 2003 (124bn at
31 December 2002)
* Adjusted embedded value: GBP4,059m (31 December 2002: GBP3,928m),
an increase of 3% in Sterling R50,212m
(31 December 2002: ,267m), a decrease of
7% in Rand
* Interim dividend of 1.7p (2002: 1.7p) maintained, 21.0 cents in Rand**
Jim Sutcliffe, Chief Executive, commented:
"We have produced solid earnings in the first half, although life assurance
sales and margins were lower against a background of volatile market
conditions. The impact of management action is coming through and the recent
recoveries of the US, UK and South African equity markets from their low
points earlier in the year hold out the prospect of better times ahead."
Wherever the items asterisked in the Highlights are used, whether in the
Highlights, the Chief Executive"s Statement or the Operating and Financial
Review, the following apply:
* Adjusted operating profit represents operating profit before tax and
minority interests based on a long term investment return before goodwill
amortisation, write-down of investment in Dimension Data Holdings plc,
Nedcor restructuring and integration costs and change in credit provisioning
methodology. Adjusted operating earnings per share are similarly based, but
are stated after tax and minority interests.
** Indicative only, being the Rand equivalent of 1.7p converted at the
exchange rate prevailing on 30 June 2003. 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
of business on 2 October 2003, as determined by the Company, and will be
announced on 3 October 2003.
ENQUIRIES:
Old Mutual plc
James Poole, Director, Corporate Affairs Tel: +44 20 7569 0100
Nad Pillay, Head of Group Communications (SA) Tel: +27 (0) 11 217 1605
Tel: +27 (0) 82 553 7980
College Hill
Tony Friend / Gareth David (UK) Tel: +44 (0) 20 7457 2020
Notes to editors:
A webcast of the analysts presentation and Q&A will be broadcast live at
09.30am (UK time) on our website at www.oldmutual.com.
High resolution images are available for the media to view and download free
of charge from www.vismedia.co.uk.
7 August 2003
Chef Executive"s Statement
Our adjusted operating earnings for the first half of 2003 were solid at 5.6p
per share (2002: 5.8p), with results in our life and general insurance
businesses ahead of the equivalent period in 2002. We have continued to develop
our businesses in line with our declared strategy, despite being buffeted by
difficult market conditions.
Our life assurance operations in South Africa benefited from fixed
interest-related gains and positive mortality and retention experience, whilst
in the USA our life assurance company continued to see the effects of the
growth in sales in 2002 come through. Mutual & Federal once again made good
progress.
Results at our asset management businesses were down somewhat because of lower
average equity market levels and as a result of disposals of businesses since
30 June 2002. Our banking result was negatively impacted by currency effects,
the higher costs of long term funding, the short term effects of the cash drain
arising from the purchase of BoE and a reduction in earnings from investment
banking. In the UK, Gerrard was again able to make a small profit despite the
low equity markets as a result of its cost cutting efforts.
Life sales reduced to 261 million on an annual premium equivalent basis (2002:
288m).
Poor equity markets and the absence of a sufficiently competitive range of
absolute return products had an adverse impact on our individual business sales
in South Africa. Group business premiums were also held back by market
conditions, which deterred our clients from purchasing with-profit annuities,
and by uncertainty in the pensions arena as a result of recent legislation.
Lower volumes also hurt our margins. Our group business sales were focused on
low capital, low margin multi-manager products resulting in further downward
pressure on average margins.
We had intended to rein in our US life sales, but in the event the very low
and declining interest rate environment rapidly curtailed the market for our
type of life assurance products. Both sales and margins at our US life business
were lower as a result.
To address these issues, we shall be launching a range of funds targeting
absolute returns in South Africa in the third quarter and in the USA we have
expanded our distribution channels and index tracking product range.
Total funds under management increased from 124 billion at 31 December 2002 to
128 billion at 30 June 2003. We continued to achieve positive net fund inflows
at our US asset management operations. Our teams of specialist fund managers
and distributors attracted net new funds of $1.9 billion, although with lower
average fee levels due to the increased proportion of fixed interest business.
The portfolio effect of our mix of different investment styles and investment
sectors continued to mute the impacts of volatile markets. Elsewhere around the
Group funds under management were broadly stable, but encouraging results were
achieved in the UK in our developing businesses, OMAM(UK) and Selestia. We
continue to focus heavily on building our distribution muscle in all three of
our main territories.
Investment performance has been good in all three regions, although absolute
levels of return remain a concern for many customers.
Whilst overall the results of our banking businesses were disappointing, the
integration of BoE with Nedcor is proceeding satisfactorily and we continue to
expect synergy benefits of R905 million per annum to be achieved by 2006. There
has been a significant turnaround in Old Mutual Bank"s results now that it is
part of Nedcor"s operations.
Our South African businesses have been heavily involved in developing
industry proposals to address Black Economic Empowerment (BEE) in the context
of the proposed Financial Services Charter. Major programmes have been
initiated in the areas of procurement, employment equity and investment, and
our businesses are committed to playing a full part in this important aspect of
the evolution of the new South Africa.
Cost control is a key focus at present in all of our businesses as we seek
to deliver increased value for our customers and shareholders.
Our capital position remains strong, bolstered by the issue of $750 million
of Guaranteed Cumulative Perpetual Preferred Securities during the first half
of the year.
Currency translation effects, particularly the comparative strength of the Rand
in the first half of 2003, affected the overall picture as shown in our two
reporting currencies. Whilst Rand strength boosted Sterling operating earnings
at our South African businesses, it had the reverse effect for those
shareholders who consider our results in Rand. It led to significant unrealised
translation losses at Nedcor"s overseas operations and also contributed to
volatility in South African equity market levels, with effects on our life
profit as indicated above. In the long run, a strong Rand helps the Group and
has a positive effect on our embedded value.
Adjusted embedded value at the end of the period rose in Sterling terms by
3% to 4,059 million or 106p per share, but declined in Rand by 7% to R50,212
million or R13.10 per share, again reflecting the impact of the Rand"s
strength.
The Board has declared an unchanged interim dividend of 1.7p per share.
OUTLOOK
We remain committed to the development of our three-region (USA/UK/South
Africa) business. Our first priority remains the continuing improvement of our
existing portfolio of businesses. Our management will continue to use the
Group"s strengths as an investment manager and product designer to respond to
the various challenges that we face and to extend our distribution capability.
The improved investment climate in our three key geographies since April, if
maintained, is expected to provide a better background for the Group"s
businesses in the second half of the year.
Jim Sutcliffe
Chief Executive
7 August 2003
Operating and Financial Review
BUSINESS REVIEW
SOUTH AFRICA
LIFE ASSURANCE
Financial performance
The South African life business operating profit, before long term investment
return, of R1,592 million, was 3% up on the R1,541 million recorded in the same
period last year, although it was adversely affected by lower levels of average
assets. However, this result was helped by favourable investment experience in
bond portfolios backing annuities and risk products, as well as favourable
mortality and retention experience variances.
The total annual premium equivalent (APE) of the Group"s South African life
sales for the period was R1,576 million, 3% lower than the corresponding period
last year, while the after tax value of new business at R285 million was 29%
lower. The average margin on new business after tax reduced from 25% to 18% of
APE.
This was due to both lower new business volumes affecting the funding of new
business expenses and lower sales of equity-based savings products as consumers
remained averse to risk.
Funds under management at the Group"s South African life business totalled
R221 billion at 30 June 2003, which represented a decrease of 3% over the
position at 31 December 2002. Lower equity markets and a stronger Rand
contributed to this decline.
The life company"s capital on the relevant local basis decreased by R2.7
billion to R29 billion at 30 June 2003, but the business remains well
capitalised at 2.2 times the required statutory capital.
Outlook
Client expectations are being actively managed through various marketing
campaigns on the merits of long term investment and absolute and relative
investment performance. Management is focused on customer segmentation, a broad
range of new generation products and a productive distribution force. Cost
containment, particularly extracting efficiencies through cross-business
synergies, remains a key focus for management.
Individual Business
Financial performance
Operating profit, before long term investment return, of R1,152 million was 5%
higher than the same period last year. The fall in interest rates resulted in
favourable investment experience in bond portfolios, which back certain annuity
and risk products. Favourable mortality and retention experience variances also
contributed to the improved result.
New business volumes were lower than in the previous year. New business APE of
R1,196 million was 6% lower than the R1,270 million reported in the first half
of 2002. Recurring premium business was up 9%, driven primarily by sales of the
market leading Greenlight risk product. However, single premium business was
down 32% due to customers purchasing less equity-based savings products at a
time of market volatility.
The value of new business after tax of R177 million, was 32% lower as a
consequence of reduced new business volumes, the movement out of equity-based
products into lower margin, interest-bearing products, and continued investment
in distribution.
Business development
In an industry first, an internal ombudsman was appointed to resolve
claims-related and service disputes in a fair, equitable and speedy manner.
The reorganisation of bancassurance arrangements with Nedcor has now been
completed. The rebranding of Permanent Bank branches as Old Mutual Bank was
successfully concluded with minimal attrition of customers.
In the first six months of 2003, deposits of R458 million were attracted by Old
Mutual Bank. Following the merger of Nedcor and BoE, an integrated full service
offering which includes wealth management advice, stockbroking and private
banking is now available to our high net worth customers.
The size of the distribution force remained stable, with further improvements
in its productivity, and the infrastructure in Gauteng was strengthened during
the first half.
Group Business
Financial performance
Operating profit, before long term investment return, of R440 million was 1%
lower than in the same period last year. Favourable investment experience in
the bond portfolio backing risk products was offset by the decrease in average
policyholder funds following poor equity performance.
New business APE of R380 million was up 7% from R354 million in the first half
of 2002. Group single premium sales were positively impacted as clients
switched multi-manager new business from Nedcor.
The value of new business after tax of R108 million was 24% lower than the
equivalent period last year due to the greater proportion of lower margin, less
capital intensive multi-manager business. The proportion of high margin
with-profit annuity business declined accordingly.
Business development
The Symmetry multi-manager offering was extended after the closure of NIB
Investments and Edge Investments. New structured and preferred risk products
were launched and investment in new administration systems continued in the
first half of 2003.
ASSET MANAGEMENT
Financial performance
The South African asset management adjusted operating profit was R233 million
compared to R207 million in the same period last year. Total funds managed in
South Africa were unchanged from 31 December 2002 at R215 billion, despite
market volatility.
Adjusted operating profit was negatively impacted by lower levels of funds
under management, offset by a movement to higher margin products, tight expense
control and one-off costs in Old Mutual Unit Trusts in the prior year.
Total net fund inflows into the asset management businesses (Old Mutual Asset
Managers (South Africa) (OMAM(SA)), Old Mutual Unit Trusts and Fairbairn
Capital) were R1.4 billion over the period.
OMAM(SA)"s performance continued to sustain the good relative investment
results apparent at the end of 2002. Specialist equity mandates continued to
perform well, with most being ahead of benchmarks for the twelve-month period
to the end of June 2003.
Old Mutual Unit Trusts" new 4 Plus range of products, targeting the
middle-income investor, was favourably received by the market.
BANKING
NEDCOR
The results of Nedcor Limited (Nedcor), the Group"s 53% owned banking
subsidiary, have been incorporated into the Group accounts in accordance with
UK GAAP. Nedcor has adopted a new accounting standard on the recognition and
measurement of financial instruments (AC133) for local reporting requirements.
Under UK GAAP, the AC133 adjustments have been excluded, with the exception
being in relation to changes in credit provisioning methodology. This has
resulted in a one-off increase of R963 million in opening specific provisions,
which has been taken to the profit and loss account, but excluded from adjusted
operating profit. The results of BoE are excluded from the 30 June 2002
comparatives, as it was acquired with effect from 2 July 2002.
Financial performance
Nedcor experienced a challenging first six months in 2003, with earnings for
the period lower than for the comparable period in 2002. Adjusted operating
profit of R1,308 million is stated before goodwill amortisation (R161 million),
write-down of investment in Dimension Data Holdings plc (R136 million),
restructuring and integration costs (R134 million) and change in credit
provisioning methodology (R963 million). This compares with R2,035 million for
the first half of 2002, a decrease of 36%. Adjusted operating profit includes
translation losses of R658 million (2002: R436 million).
A challenging operating climate, weaker financial markets and the stronger
Rand held back Nedcor"s earnings in the first half of 2003. Banking business
and advances growth benefited from the BoE acquisition. Interest margins were
under pressure, while investment banking and wealth management revenues were
below target.
In addition, the stronger average value of the Rand compared to the same period
last year diminished the Rand value of international earnings. However, there
was a significant turnaround in Old Mutual Bank"s results, which experienced a
successful half year largely as a result of corrective action taken by
management under the new ownership structure.
Excluding BoE, advances grew over the comparable period in 2002, with net
interest income growing at a lower rate reflecting the increased pressure on
margins. The interest margin declined due to changes in funding requirements,
but was flat when compared to the second half of 2002. The Group"s market share
increased marginally over the previous year with high client retention figures.
Credit quality, including unsecured micro-loans, was satisfactory despite the
high interest rate environment. The high level of non-performing loans, which
include the legacy of some acquired businesses, continues to receive management
attention.
Operating expenses of R5,217 million over the period, including translation
losses of R658 million, increased by 73% from R3,017 million in the equivalent
period in 2002.
As calculated locally, the cost to income ratio increased to 67.2% from 53.4%
in the equivalent period in 2002 as a result of lower revenue growth.
Management has put stringent cost control measures in place to reduce this
ratio to former levels, particularly focusing on cost containment and aligning
costs with relevant income streams.
Again as calculated locally, Nedcor"s capital adequacy at 30 June 2003 was
10.1%, which compares to 11.2% at 30 June 2002, and has been affected by the
BoE integration. This is being carefully monitored by management to ensure
compliance with the statutory requirement of 10%.
Business development and outlook
The merger and reorganisation activities undertaken during the reporting
period included the legal consolidation of banking licences on 1 January 2003,
the integration of the four treasuries of Nedbank, Cape of Good Hope Bank, NIB
and BoE and the establishment of a private client wealth management joint
venture with Old Mutual South Africa.
The integration of BoE into the Nedcor group is on track and on target to
achieve total merger benefits of R905 million by 2006, with 2003 being a year
of transition and real synergy benefits expected to come through in 2004 and
2005. Restructuring and integration costs of R134 million were incurred more
quickly than anticipated because the merger is being implemented ahead of plan.
Management is focused on fast tracking the integration for substantial
operational synergies, particularly client service and retention, cost
containment and addressing underperforming areas. Priorities are to realise
these synergies, bed down the merger, lower funding costs and continue to
deliver good service to clients.
Nedcor is working with the Banking Council and the rest of the industry to
develop an empowerment charter for the banking sector. Prior to this process,
Nedcor had undertaken a major transaction with the sale of an empowerment stake
in Peoples Bank and has subsequently undertaken a number of other initiatives.
GENERAL INSURANCE
MUTUAL & FEDERAL
Financial performance
Mutual & Federal Insurance Company Limited (Mutual & Federal), the Group"s
51% owned general insurance subsidiary, generated an adjusted operating profit
of R368 million in the first six months of 2003, 19% higher than the R308
million earned in the first half of 2002. The solvency margin, being the ratio
of net assets to net premiums, remained satisfactory and was in excess of 50%
at 30 June 2003.
Management"s increased emphasis on appropriate product pricing resulted in
a 14% growth in premiums, at R3.0 billion for the first six months of 2003,
compared to R2.6 billion in the first half of 2002. This was accompanied by
corrective action taken on risk selection, which resulted in a further
improvement in the underwriting result to R93 million for this reporting
period. Trading results during the period were favourable with claims activity
remaining stable, particularly an absence of severe weather-related losses. In
addition, improved levels of crime awareness and a number of motor claim
handling initiatives assisted in controlling claims costs.
Interest income grew strongly during the first six months of the year due
to increased levels of funds on deposit and continued high interest rates.
Dividend income declined as a result of lower levels of equity holdings. The
net asset value per share reduced following a fall in the value of listed
equities.
Business development and outlook
Mutual & Federal continued to develop business opportunities through strong
relationships with intermediaries, including the implementation of the "Vehicle
Accident Management Process", which provides a comprehensive roadside service
to clients involved in motor accidents.
Management"s focus remains on identifying and implementing additional cost
saving opportunities, with a view to improving the long term profitability of
the organisation. This includes striving to become the lowest cost service
provider with projects underway to automate routine processes and provide
quicker access to financial information.
US LIFE
Financial performance
Benefiting from the strong sales in 2002, our US life business"s adjusted
operating profit of $62 million was 29% up on the $48 million recorded in the
same period last year. Total APE for the period, at $207 million, was 18% lower
than the corresponding period last year, which was a record year in its
history.
Whilst the life assurance business continues to grow strongly, the
macro-economic environment is presenting a number of challenges to its annuity
business. Interest rates at their lowest level in forty years, combined with a
flattening yield curve, reduced the relative attractiveness of interest-related
products, which provided much of the premium growth in 2002 and have led to a
growing market in equity-indexed products. The market has favourably received a
range of new equity-indexed products that were launched by Fidelity & Guaranty
Life at the end of 2002. A number of new life assurance products were launched
that are attracting significant premiums. The average margin on new business
after tax reduced from 18% to 11% of APE, reflecting the interest rate squeeze.
The value of new business after tax at $22 million was 51% lower than in the
equivalent period last year.
The launch in 2003 of the OMNIA Life (Bermuda) operations allows US life to
offer US style products to an international customer base. This new channel
gives the business direct exposure to variable annuity products and an
important new conduit to large US banks.
The value of in-force life business of $652 million increased by 19% from
$549 million at the beginning of the year. Funds under management totalled
$12.5 billion at 30 June 2003, an increase of 19% over the year end.
$63 million of capital was injected into the company during the first six
months of 2003 to support new business written.
Business development and outlook
US life has enhanced retail sales volume through its multiple distribution
channel strategy, which now includes sales offshore and a competitive
multi-brand product range.
The continuing capital support from the Group enabled US life to take
advantage of profitable wholesale opportunities in the marketplace. Fidelity &
Guaranty Life also continued to strengthen its relationships with Managing
General Agencies.
As trading conditions are expected to remain challenging for the rest of
2003, US life will continue to adapt by designing and selling products, which
allow competitive positioning in the retail market. A lower level of overall
sales is anticipated in 2003, but nevertheless for Fidelity & Guaranty Life
considerably higher than in any year prior to its acquisition by Old Mutual.
US ASSET MANAGEMENT
Financial performance
Adjusted operating profit of $61 million for the Group"s US asset management
business increased 13% from $54 million in the second half of 2002. After
allowance for the impact of affiliates disposed of during the period, the
increase in adjusted operating profit was 22% above the results of the second
half of 2002. When compared to the equivalent period in 2002, adjusted
operating profit decreased by 31% from $88 million, or 21% after allowance for
sold firms, being adversely affected by lower average market levels.
The well-balanced composition of the business and positive equity markets
in the second quarter helped to mitigate the negative impact of the first
quarter"s decline. Operating costs were actively managed against this
background to ensure that operating margins were maintained.
Funds under management grew 7% to $136 billion, compared to $127 billion at
the beginning of the year. After allowing for year to date divestitures of $3.3
billion of funds, the increase was 11% from $123 billion. Net cash inflows of
$1.9 billion included $0.8 billion from US life. Market impact boosted assets
by an additional $10.5 billion.
While cash flows were biased towards fixed income products, the primary driver
for the increase in funds under management was the result of strong performance
within domestic equity portfolios. Major domestic equity indices recovered from
first quarter losses to double digit returns in the second quarter, resulting
in overall positive performance for the six months.
Superior long term fund performance was sustained throughout volatile market
conditions. On an asset- weighted basis, the four and five-star rated funds
managed by the Group"s US asset management firms represented 65% of total funds
rated by Morningstar.
Business development and outlook
The rationalisation of the group is largely complete following the divestiture
of a further three firms in 2003. The organisation now comprises a stable core
of twenty-one affiliates and is well positioned to lead the business forward
under an integrated "one firm" strategy.
Management strategy continues to focus on leveraging the diverse product and
distribution capabilities of the various firms, both externally and within the
wider Group.
The capability of the centralised marketing entity established in 2002
continues to evolve. Sales and services resources at an affiliate level were
also strengthened. The PBHG platform, which was expanded in 2002 to provide
access to other affiliates" products in the mutual fund marketplace, attracted
new funds of $460 million to these affiliates since the beginning of the year.
Two new funds are planned to join the platform later this year.
The synergistic relationship with US life is being further consolidated, with
Dwight and Analytic continuing to manage key components of its portfolio and
eSecLending managing its bond lending programme.
Management remains committed to driving organic growth from a core group of
entrepreneurial investment firms. The business will continue to exploit its
current strength in the institutional market, while investing in selected
managed account and retail growth opportunities. This includes the
strengthening of the suite of investment products, investment in the retail
distribution platform, affiliate and central sales forces, and continued focus
on client retention.
UK & REST OF WORLD
ASSET MANAGEMENT
Private Client (UK)
Financial performance
Despite the average level of the FTSE 100 Index falling by 25%, adjusted
operating profit of 3 million from Gerrard was unchanged from the equivalent
period in 2002. Profit levels were maintained through a combination of expense
reductions, operational efficiencies and revenue improvements.
Funds under management of 12 billion at 30 June 2003 were consistent with 31
December 2002 levels, and fund quality improved as pricing initiatives began to
take effect.
Fee income for the period declined by 19%, which compares favourably to the
reduction in average market levels. Trading activity remained relatively
robust in the face of market adversity, as fund managers pursued opportunities
to manage the effects of market conditions on client portfolios. Operating
costs of 48 million incurred in the period compared to 60 million in the first
half of 2002, a reduction of 20%.
Business development and outlook The business will continue to take advantage
of trading opportunities to build client value as markets cautiously recover,
and cost levels will be carefully managed. Revenue enhancing initiatives are
gaining momentum and wider service offerings such as financial planning are
progressing well.
Fund Management
Financial performance Adjusted operating profit from the Group"s UK & Rest of
World fund management businesses of 5 million compared to an adjusted
operating profit of 3 million in the equivalent period in 2002.
Included in these results are Old Mutual Asset Managers (UK) (OMAM(UK)), Old
Mutual Asset Managers (Bermuda) and Bright Capital. The improved operating
result in 2003 reflects the impact of successful hedge fund launches by
OMAM(UK) and a more streamlined cost base in the UK.
OMAM (UK) Strong investment performance and successful new product launches
were key highlights so far this year.
Overall, 63% of OMAM(UK)"s asset-weighted retail funds achieved top quartile
ranking over one year relative to peer group performance. Total net external
fund inflows into the business were 230 million in the first half of 2003.
Six new hedge funds were launched during the first half of 2003, attracting
173 million of new funds in the period.
Bright Capital GNI FM, the fund of hedge funds manager, was relaunched as
Bright Capital in May 2003. The Bright Capital proposition is "Controlling
Risk" and is consistent with a distinctive hedge fund investment process
designed to achieve transparency, liquidity and good corporate governance.
Significant investment has been made in the business"s risk platform, and an
innovative product range is being developed that will be marketed to
institutional and private clients.
Other Financial Services
Adjusted operating losses from the Group"s UK & Rest of World other financial
services businesses were 7 million compared to a 1 million loss recorded in
the same period last year. The increased loss was due to the reclassification
of Selestia from life assurance to other financial services reflecting the mix
of products sold.
The 2002 comparatives also included the results of GNI, Old Mutual Securities
and King & Shaxson Bond Brokers, which were sold in the fourth quarter of 2002.
Selestia
Selestia"s business continued to grow, with sales in the period increasing
from the prior year total sales figure.
Management focus since launch has been to develop strong working
relationships with quality IFAs dealing with the high net worth market. As a
result several large mandates have been won.
LIFE ASSURANCE
Adjusted operating profit from the Group"s UK & Rest of World life businesses
was 8 million in the first half of 2003 compared to a loss of 3 million for the
equivalent period in 2002. The increase was largely due to the sale of Old
Mutual International"s International Personal Portfolio Bond book, which
released 4 million to profit. Selestia"s adjusted operating losses of 6
million were included in the 2002 result.
GROUP FINANCIAL REVIEW
Financial performance
Operating profit on ordinary activities before tax of 378 million increased
from 212 million in the first half of 2002. Basic earnings per share were 4.7p
in 2003 compared with 3.3p in the equivalent period last year.
Adjusted operating profit grew 4% to 395 million from 381 million in the same
period last year. Adjusted operating earnings per share of 5.6p decreased 3%
compared with 5.8p in the first half of 2002; however, this represented a 2%
increase over the second half of 2002.
Achieved profits
The Group"s adjusted operating profit on an achieved profits basis of 429
million decreased by 10% from 477 million in 2002. Adjusted operating earnings
per share on an achieved profits basis of 6.0p declined from 7.7p. Embedded
value (adjusted for the market value uplift of listed subsidiaries) of 4,059
million at 30 June 2003 also increased by 3% from 3,928 million at 31 December
2002. Embedded value per share was 106p at 30 June 2003 compared to 104p at 31
December 2002.
Capital
Shareholders" capital benefited from a stronger Rand, as well as the raising
of 37 million through a placing of new shares issued in connection with the
second fixed instalment of payments due to Harold Baxter and Gary Pilgrim as
part of the restructuring of the Pilgrim Baxter revenue sharing agreement
announced in 2002.
The Group continued its strategy of diversifying its funding sources during
the first half of 2003, successfully issuing $750 million of Guaranteed
Cumulative Perpetual Preferred Securities. The Securities, which are redeemable
at the Group"s election from December 2008, provide core long term funding and
improve the Group"s gearing (core debt1 over core debt plus equity shareholders"
funds) to 21%, compared with 30% at 31 December 2002.
In addition, the Group"s Euro Commercial Paper programme has continued to be
well supported, while committed bank facilities have been maintained, ensuring
the Group retains a high degree of financial flexibility within an efficient
and balanced capital structure.
The solvency ratios of the Group"s key businesses at 30 June were as follows:
excess assets equivalent to 2.2 and 2.5 times statutory capital at the South
African and US life businesses respectively; a capital adequacy ratio of 10.1%
at Nedcor and a solvency margin in excess of 50% at Mutual & Federal. In all
cases, these are above the minimum statutory requirements.
Taxation
The Group"s effective rate (based on the tax charge as a proportion of
adjusted operating profit) of 32.7% represents an increase from 27.8% in the
first half of 2002. The higher rate reflects the impact of a reduction in
Nedcor" sproportion of low taxed income and additional South African Secondary
Tax on Companies.
Long term investment return
The long term investment return assumption used in calculating the adjusted
earnings of the Group"s South African life and general insurance businesses for
2003 is unchanged at 14% for equities. Changes in the composition of the South
African investment portfolios has resulted in the introduction of long term
investment returns for cash and other investible assets, resulting in a
weighted average long term investment return of 13.4%. The return earned by
assets, mainly bonds, backing the Group"s US life business"s liabilities has
been smoothed by reference to the actual yield earned by the portfolio,
resulting in a long term rate of return of 6.04%.
1 Core debt excludes debt from banking activities and is net of cash and short
term investments which are immediately available to repay debt.
Dividend
The Board has declared an interim dividend of 1.7p per share, which will be
paid on 28 November 2003 to shareholders recorded at the close of business on
17 October 2003. The equivalent of this dividend in the local currencies of
South Africa, Malawi, Namibia and Zimbabwe will be determined by the Company on
2 October 2003 and will be announced to the markets on 3 October 2003. The
Company"s shares will trade ex dividend from the opening of business on 13
October 2003 on the JSE Securities Exchange South Africa and the Malawi,
Namibian and Zimbabwean Stock Exchanges and from the opening of business on 15
October 2003 on the London Stock Exchange. The last dates to trade cum-dividend
will therefore be 10 October 2003 (in South Africa, Malawi, Namibia and
Zimbabwe) and 14 October 2003 (in London).
No dematerialisation or rematerialisation of shares within the South African
STRATE system may take place between 13 October 2003 and 17 October 2003 (both
dates inclusive).
Julian V F Roberts
Group Finance Director
7 August 2003
Independent Review Report by KPMG PLc to Old Mutual plc
Introduction
We have been engaged by the Company to review the financial information set
out on pages 16 to 42 and the supplementary financial information set out on
pages 43 to 53 prepared on an achieved profits basis, 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.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Company
for our review work, for this report, or for the conclusions we have reached.
Directors" responsibilities
The interim report, including the financial information 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 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 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 2003.
KPMG Audit Plc
Chartered Accountants
London
7 August 2003
Consolidated Profit and Loss Account
for the six months ended 30 June 2003
GBPm
6 months to 6 months to Year to
30 June 30 June 31 December
Notes 2003 2002 2002
South Africa
Technical result 123 97 208
Long term
investment return 83 63 135
Life assurance 5(b)(iii) 206 160 343
Asset management 5(c) 18 13 28
Banking 5(d) 74 99 165
General insurance 5(e) 28 19 35
326 291 571
United States
Life assurance 5(b)(iii) 39 33 83
Asset management 5(c) 37 60 95
76 93 178
UK & Rest of World
Life assurance 5(b)(iii) 8 (3) (3)
Asset management 5(c) 1 5 2
Banking 5(d) 27 29 56
36 31 55
438 415 804
Other
shareholders"
income /
(expenses) 5(f) (13) (9) (22)
Debt service costs (30) (25) (58)
Adjusted
operating profit * 5(a) 395 381 724
Goodwill
amortisation 9 (47) (55) (120)
Write-down of
investment in
Dimension Data
Holdings plc (11) (52) (68)
Nedcor
restructuring and
integration costs 5(d)(ii) (10) - (14)
Change in credit
provisioning
methodology 5(d)(iii) (74) - -
Short term
fluctuations in
investment return 6 125 (62) (91)
Operating profit
on ordinary
activities before
tax 378 212 431
Non-operating
items 8 (13) 38 (6)
Profit on
ordinary
activities before
tax 365 250 425
Tax on profit on
ordinary
activities 7 (191) (97) (224)
Profit on
ordinary
activities after
tax 174 153 201
Minority
interests - equity 10(a) 15 (32) (44)
Minority
interests - non-equity (14) - -
Profit for the
financial period 175 121 157
Dividends paid
and proposed 4 (64) (63) (176)
Retained profit /
(loss) for the
financial period 111 58 (19)
Earnings per share p
Adjusted
operating
earnings per
share * 3 5.6 5.8 11.3
Basic earnings
per share 3 4.7 3.3 4.3
Diluted earnings
per share 3 4.6 3.2 4.3
Dividend per share 4 1.7 1.7 4.8
Weighted average
number of shares - millions 3,717 3,652 3,670
Rm
6 months to 6 months to Year to
30 June 30 June 31 December
Notes 2003 2002 2002
South Africa
Technical result 1,592 1,541 3,283
Long term
investment return 1,075 1,000 2,131
Life assurance 5(b)(iii 2,667 2,541 5,414
Asset management 5(c) 233 207 441
Banking 5(d) 959 1,579 2,605
General insurance 5(e) 368 308 556
4,227 4,635 9,016
United States
Life assurance 5(b)(iii 505 524 1,310
Asset management 5(c) 479 951 1,500
984 1,475 2,810
UK & Rest of World
Life assurance 5(b)(iii 104 (47) (47)
Asset management 5(c) 14 80 31
Banking 5(d) 349 456 884
467 489 868
5,678 6,599 12,694
Other
shareholders"
income /
(expenses) 5(f) (168) (143) (347)
Debt service costs (388) (397) (916)
Adjusted operating
profit * 5(a) 5,122 6,059 11,431
Goodwill
amortisation 9 (608) (873) (1,895)
Write-down of
investment in
Dimension Data
Holdings plc (136) (830) (1,080)
Nedcor
restructuring and
integration costs 5(d)(ii) (134) - (227)
Change in credit
provisioning
methodology 5(d)(iii (963) - -
Short term
fluctuations in
investment return 6 1,618 (980) (1,439)
Operating profit
on ordinary
activities before
tax 4,899 3,376 6,790
Non-operating items 8 (168) 603 (88)
Profit on ordinary
activities before
tax 4,731 3,979 6,702
Tax on profit on
ordinary
activities 7 (2,472) (1,540) (3,535)
Profit on ordinary
activities after
tax 2,259 2,439 3,167
Minority interests
- equity 10(a) 194 (508) (695)
Minority interests
- non-equity (181) - -
Profit for the
financial period 2,272 1,931 2,472
Dividends paid and
proposed 4 (792) (998) (2,556)
Retained profit /
(loss) for the
financial period 1,480 933 (84)
Earnings per share c
Adjusted operating
earnings per share * 3 73.4 92.9 179.0
Basic earnings per
share 3 61.1 52.9 67.4
Diluted earnings
per share 3 60.0 51.0 67.4
Dividend per share 4 21.0** 27.3 69.6
Weighted average number
of shares - millions 3,717 3,652 3,670
* Adjusted operating profit represents operating profit before tax and minority
interests based on a long term investment return before goodwill amortisation,
write-down of in
