| Tue 10 Aug 2004, 9:29 | | Old Mutual Plc - Results For The Six Months Ended |
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Old Mutual Plc - Results For The Six Months Ended 30 June 2004
Release Date: 10/08/2004 08:00:01 Code(s): OML
Old Mutual plc - Results for the six months ended 30 June 2004
Old Mutual plc
ISIN CODE: GB0007389926
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2004
Building Momentum
HIGHLIGHTS
* Adjusted operating earnings per share*:
6.8p (2003: 5.6p), an increase of 21% in Sterling
82.7c (2003: 73.4c), an increase of 13% in Rand
* Basic loss per share:
1.8p (2003: Earnings of 5.6p**)
21.9c (2003: Earnings of 72.1c**)
* Life sales of GBP262m on an annual premium equivalent basis (2003: GBP261m)
* Return on equity 19% (2003: 16%***)
* Total assets under management GBP130bn at 30 June 2004 (GBP125bn at
31 December 2003)
* Adjusted embedded value:
114p per share (31 December 2003: 105p***)
R12.86 per share (31 December 2003: R12.49***)
* Interim dividend of 1.75p (2003: 1.7p), 19.8 cents in Rand**** (2003: 19.5
cents)
Jim Sutcliffe, Chief Executive, commented:
`Through our strategy of diversity we have built momentum in the first half,
taking advantage of improved conditions in some key markets. Our US asset
management and South African general insurance businesses had a particularly
good half-year, although there is still work to be done to improve life sales in
South Africa and to deliver recovery at Nedcor. We look forward to the rest of
2004 with confidence.`
Wherever the items asterisked in the Highlights are used, whether in the
Highlights or the Operating and Financial Review, the following apply:
* Adjusted operating profit represents the directors` view of the underlying
performance of the Group. For life assurance and general insurance businesses,
adjusted operating profit is based on a long-term investment return and includes
investment return on own shares held in policyholders` funds. For banking
business, adjusted operating profit excludes the loss on disposal/write-down of
investment in Dimension Data Holdings plc, restructuring and integration costs
and the transitional impact of the change in credit provisioning methodology.
For all businesses, adjusted operating profit excludes goodwill amortisation and
impairment and fines and penalties. Adjusted operating earnings per share is
similarly based, but is stated after tax and minority interests, with the
calculation of the weighted average number of shares including own shares held
in policyholders` funds.
The segmental adjusted operating profit for 2004 is shown before elimination of
inter-segment results.
** Comparative figures have been restated to reflect the adoption of Urgent
Issues Taskforce Abstract 37 `Purchases and Sales of Own Shares`. Details of the
changes are set out in notes 1, 3, 4 and 5(b)(iv) to the attached Financial
Statements.
*** Comparative figures have been restated to reflect the adoption of Urgent
Issues Taskforce Abstract 38 `Accounting for ESOP Trusts`.
Details of the changes are set out in note 1 to the attached Financial
Statements.
**** Indicative only, being the Rand equivalent of 1.75p converted at the
exchange rate prevailing on 30 June 2004. 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 7
October 2004, as determined by the Company, and will be announced on 8 October
2004.
Old Mutual plc
Results for the six months ended 30 June 2004 continued
ENQUIRIES:
Old Mutual plc Investors
Andrew Parkins Tel: +44 (0) 20 7002 7264
Tel: +44 (0) 7789 927 764
Old Mutual plc Media UK
Miranda Bellord Tel: +44 (0) 20 7002 7133
Tony Friend, College Hill Tel: +44 (0) 20 7457 2020
Old Mutual plc Media SA
Nad Pillay Tel: +27 (0) 82 553 7980
Notes to editors:
A webcast of the analysts presentation and Q&A will be broadcast live at 9.30
a.m. (UK time) today on our website at www.oldmutual.com.
High-resolution images are available for the media to view and download on
www.uppa.co.uk. To access these, please register, log in and then search on `Old
Mutual`. Alternatively, you can contact UPPA directly on +44 (0) 20 7421 6000 or
email contact@uppa.co.uk.
10 August 2004
Operating and Financial Review
Chief Executive`s Statement
Our adjusted operating earnings for the first half of 2004 improved to 6.8p /
82.7c per share (2003: 5.6p / 73.4c).
Return on average equity was a creditable 19%, helped by strong growth at our US
businesses, recovery at Nedcor, another solid profit contribution from our South
African life business and an excellent first half at Mutual & Federal. We have
shown our confidence in the strength of the Group`s business and our generally
positive results for the half-year by declaring an increased interim dividend of
1.75p (2003: 1.7p) per share, which will be paid on 30 November 2004.
These improved operating results have been accompanied by progress in our
journey to develop a powerful international financial services business from our
South African core. We have invested further in our US life business, and our UK
distribution and asset management businesses have built their teams and
capabilities. We have also been working hard at our Black Economic Empowerment
(BEE) plans in South Africa and remain committed to introducing BEE
shareholdings at the South African level to support our continuing efforts to
normalise our staff complement and procurement practices.
Adjusted embedded value grew over the period by 9% in Sterling terms and 3% in
Rand.
Basic earnings per share were negative, mainly as a result of short term market
fluctuations in the value of US life`s bond portfolio and the impact of the $90
million regulatory settlement at our US asset management affiliate Pilgrim
Baxter.
The Group`s net fund flow from customers was healthy around the world, with a
net positive total of GBP4.0 billion, including a record $5.3 billion from our
US asset management business. Investment performance continues to be the key for
our businesses to attract client assets. On a three-year basis, more than three-
quarters of our US funds under management and more than two-thirds of our South
African third party asset management clients have received returns above
benchmark and more than 70% of our UK unit trusts were in the top half of their
comparator groups.
Markets remained at higher levels than in the equivalent period in 2003.
Together with the strong net cash flow, this led to assets under management, the
driver for much of our revenues, being up 12% on 30 June 2003 levels.
Nedcor stabilised through the early stages of its recovery programme during the
first half. Our target for Nedcor remains to achieve a run-rate Return on Equity
of 20% by the end of 2006 for delivery in 2007. Adjusted operating profit (under
UK GAAP) of R712 million was below that for the equivalent period in 2003
(R1,308 million), but was a substantial improvement on the loss incurred in the
second half of 2003. Before restructuring costs, Nedcor covered its cost of
capital and we expect it to make steady progress to our goal over the next three
years.
Operating and Financial Review
Chief Executive`s Statement continued
Important steps were also taken by Nedcor during the period to fulfil the
strategic imperatives that we had agreed with management. These included: the
strengthening of capital through the completion of its R5.2 billion rights
issue; disposal of non-core operations outside South Africa; the installation of
a new executive team; the reduction of risk and volatility through the
repatriation of surplus capital and an interest rate hedging programme; and
tackling the expense base through retrenchments announced in the first quarter.
Life sales for the Group as a whole were flat overall. A 21% increase in sales
in US Dollar terms at our US life business offset disappointing sales at our
South African life business, so that 53% of our sales came from the US in this
period. Margins were well above our long-term expectations in the US life
business at 22%. In South Africa, margins were in line with our long-term
expectations at a product level, but our product mix produced a lower result
than last year. In the UK, Selestia continued to make strong progress by
building its sales (GBP197 million, as compared with GBP86 million in the
equivalent period in 2003).
We were very pleased with the results from our now 88%-owned South African
general insurance subsidiary, Mutual & Federal, as it achieved top-of-the-cycle
underwriting results and benefited from favourable claims conditions. These
excellent results have enabled Mutual & Federal to declare a special dividend,
of which some R753m will be for our benefit.
Our total gearing* was 17.5% at the end of June, compared to 21.7% at the end of
2003. In South Africa, we have 2.5 times the statutory requirements in our life
company, and Nedcor`s capital adequacy ratio was 12.3% at 30 June 2004. A M Best
have confirmed our US life business`s credit ratings.
Outlook
We expect the momentum built up in the period to June will continue and that our
results for the year will benefit from management action initiated in the first
half. We shall be making further investment in our strategic development,
including the launch of a new retail strategy at our US asset management
business. Volatility of currencies and markets will affect us, as usual, but the
benefits of our diversity will continue to mitigate this.
Jim Sutcliffe
Chief Executive
10 August 2004
* As defined in the footnote on page 12.
Operating and Financial Review
Group Finance Director`s Review
SEGMENTAL REVIEW - SOUTH AFRICA
LIFE ASSURANCE
Our South African life assurance business continued to deliver strong profit,
although sales were lower than planned. Adjusted operating profit, excluding
long term investment return (LTIR), of R1,825 million was up 15% on the R1,592
million recorded in the same period for 2003, driven by tighter expense control,
favourable experience variances and a 10% increase in average asset levels.
The LTIR of R1,023 million declined by 5% from R1,075 million for the
comparative period. This reduction reflects the impact that the investments in
Nedcor and Mutual & Federal, outlined under Capital below, had on the average
shareholder assets used in the calculation, as well as the reduction in the
effective LTIR rate arising from an increase in the cash component of the
portfolio.
Total life sales on an APE basis for the period were R1,356 million, 14% lower
than the corresponding period last year principally caused by significantly
lower Group Business sales. Individual Business and Group Business contributed
R1,158 million (2003: R1,196 million) and R198 million (2003: R380 million)
respectively to this result.
Individual Business single premiums were flat at R3,099 million when compared to
the equivalent period last year, with higher annuity sales being offset by lower
investment business. Individual Business recurring premiums of R848 million were
5% down on the R888 million in the same period last year, with significantly
higher Group Schemes sales offset by lower investment business in the middle
market. Individual Business sales were achieved despite the negative
productivity impact of completing accreditation for advisors and brokers in line
with the Financial Advisory and Intermediary Services Act. The successful launch
of Masthead for the broker market is designed to strengthen our position with
independent brokers, who remain a key channel.
While life Individual Business was disappointing, non-life sales in Unit Trusts
and Fairbairn Capital increased by 28% over the prior period.
Group Business single premiums fell 60% from the equivalent period last year
with no significant large flows in the period, while Group Business recurring
premiums of R93 million were 21% behind the R117 million in the same period last
year. Progress on the pipeline for Group Business has been disappointing,
although the pipeline remains significant and is subject to an unpredictable
sales pattern.
The after-tax value of new business at R264 million was 7% lower than the
comparative period in 2003, although total margins improved slightly from 18% in
2003 to 19% for the current period due to tight expense management in the
distribution business. The value of in-force business of R9,190 million at 30
June 2004 decreased from R9,832 million at 31 December 2003 due to the negative
effect of economic assumption changes and investment variances.
Operating and Financial Review
Group Finance Director`s Review continued
Life company net cash flow was a negative R2.8 billion in the six months,
including a negative R0.9 billion in respect of life wrapped asset management
flows. The remaining life result reflects a positive R0.3 billion in respect of
Individual Business (2003: negative R0.7 billion) and a negative R2.2 billion
for Group Business (2003: positive R0.2 billion) as a result of significantly
lower Group Business single premiums.
The life company`s capital on the relevant local basis increased by R1.9 billion
during the period to R31.0 billion at 30 June 2004, and the company remains well
capitalised with excess assets of 2.5 times the required statutory capital.
ASSET MANAGEMENT
Adjusted operating profit for the South African asset management businesses,
excluding Nedcor, decreased to R217 million in 2004, compared to R233 million in
the equivalent period in 2003. Higher asset levels and improved performance fees
were offset by lower trading fees in the unit trust company following changes to
industry guidelines regarding trading in units, charges relating to share
incentive arrangements and development of administration infrastructure.
Total net client inflows to the asset management businesses were R4.8 billion,
excluding the R0.9 billion of life wrapped assets noted under life above. This
included R2.6 billion of inflows following the successful transfer of mandates
from Quaystone clients.
BANKING - NEDCOR
The first six months of 2004 have seen Nedcor make good progress in restoring
the performance of the Group and laying a foundation for growth. As previously
noted, it is going to take time for the full benefits of the recovery programme
to emerge, although the progress and improvements made to date have been
encouraging.
Nedcor`s adjusted operating profit, which includes its asset management
operations, of R712 million was a decrease of 46% compared to the same period
last year, but an improvement on the second half of 2003.
Nedcor`s net interest income of R3,549 million reflects an increase of 2% over
the first half of 2003. Improved margins at 3.05% were the primary drivers as
expensive fixed rate funding started to unwind. Non-interest revenue at R3,156
million was a decrease of 5% over R3,332 million in the second half of 2003
(based on a reclassification of asset management result). This is primarily
attributable to a reduction in profits from exchange and securities trading.
Operating and Financial Review
Group Finance Director`s Review continued
Translation losses are substantially lower at R213 million (2003: R658 million).
Nedcor has repatriated, restructured and hedged offshore capital to reduce
foreign currency exposure from R7.1 billion to a net R3.1 billion during the
past six months. The capital volatility arising from foreign exchange movements
has now been substantially neutralised.
The cost-to-income ratio, on an SA GAAP basis and excluding the effect of
translation losses, at 77.6% reflects a deterioration from the 2003 ratio of
65.4% mainly due to lower revenue growth and re-engineering expenses.
This negative gearing effect of expense growth exceeding income growth has
accordingly impacted earnings.
The headcount reductions will only impact the cost base from the second half of
the year. Nedcor continues to focus on internal expense reduction as a key part
of its recovery programme.
In February, Nedcor launched a rights issue which raised R5.2 billion of
additional ordinary capital. Part of the net proceeds were used to repay the R2
billion advanced by Old Mutual in December and other short term financing of
R0.5 billion. This, together with the realisation of non-core investments, the
focus on managing advances growth and the reduction of foreign currency exposure
through the repatriation of offshore capital, have all contributed to increasing
the primary capital adequacy ratio from 10.1% at 31 December 2003
to 12.3% at 30 June 2004.
GENERAL INSURANCE - MUTUAL & FEDERAL
Mutual & Federal, the Group`s 88% owned South African general insurance
operation, has had an exceptional six months with an adjusted operating profit
of R569 million, including long term investment return, representing an increase
of 55% from R368 million last year.
The strong performance was principally attributable to an improvement in the
underwriting surplus to R266 million (2003: R93 million). This represented an
underwriting ratio of 8.5% to net earned premiums (10.7% on an SA GAAP basis),
which was a marked improvement over the 3.5% achieved in the equivalent period
in 2003. This has been aided by the strong underwriting cycle in the first half
of 2004, combined with an absence of severe weather-related claims and strong
claims control with a focus on quality and speed of claims settlement.
Gross premium income of R3,592 million was 19% higher than last year as a result
of new business acquired and rating adjustments in unprofitable segments of the
business.
Operating and Financial Review
Group Finance Director`s Review continued
SEGMENTAL REVIEW - UNITED STATES
US LIFE
Our US life business`s adjusted operating profit of $73 million was 18% up on
the $62 million achieved in 2003.
This increase was driven by the impact of the continued growth in scale of the
business, with funds under management increasing by 22% to $15.3 billion.
Over the past year the business has demonstrated its ability to exploit
opportunities in changing market conditions by adding pertinent new distribution
and through rapid product development. In distribution we added a corporate and
offshore channel. In products, the business has used its traditional equity
index competence to produce both profitable annuity and life products, which
respectively took second and fifth place market share nationally for the period.
Total APE for the first half of 2004, at $251 million, was 21% higher than
achieved in the first half of 2003. The average margin on new business after tax
increased from 11% to 22% of APE and the value of new business after tax at $54
million was $32 million higher than in 2003 driven mainly by movements in
interest rates, the change in product mix and a reduction in the costs of
gathering new business.
US life continue to manage the capital efficiently and $16 million was injected
to support new business volumes.
The business is now generating positive statutory profits, reducing the
business`s need for future capital support from the Group. The Risk Based
Capital (RBC) remains in excess of 200% of the statutory requirement.
US ASSET MANAGEMENT
The Group`s US asset management business delivered adjusted operating profit of
$87 million, an increase of 43% on the equivalent period in 2003. The stable
equity markets in the first half of 2004, in conjunction with strong transaction
and performance fees and positive net fund inflows, were the key factors driving
this positive result. Average asset levels for 2004 were $159 billion, compared
to $127 billion, adjusted for sold firms, for the comparative 2003 period.
Funds under management increased in the first half of 2004 by 6% from $154
billion to $163 billion following net client inflows of $5.3 billion and
positive market movements of $4.1 billion. These inflows were achieved in both
equity and fixed income portfolios and included $1.5 billion from the US life
business and $2.0 billion in cash collateral assets for eSecLending, our
securities lending business. Our strategy of maintaining a diversity of separate
specialist affiliates has ensured that the issues affecting Pilgrim Baxter &
Associates (PBA) had no material impact on other affiliates. At 30 June 2004,
the funds under management remain well diversified, comprising 45% US equities,
10% international equities, 34% fixed income and 11% alternative and other
assets.
Operating and Financial Review
Group Finance Director`s Review continued
Strong investment performance has been maintained at previously high levels.
81% and 93% of mandates outperformed their respective benchmarks on an asset
weighted basis over three and five years respectively.
Over 70% of these funds also achieved top quartile performance relative to their
peers over the same periods.
In June, PBA reached agreements with the US Securities and Exchange Commission
and the Office of the New York State Attorney General to settle the regulatory
actions against the firm. The agreements settled charges brought against PBA in
November 2003 in relation to past trading activity in the PBHG Funds permitted
by the former management of the firm. New leadership appointed at PBA in
November has instituted significant reforms at the firm and worked with the
authorities to settle the charges. Total fines and penalties agreed by PBA were
$90 million. PBA has also committed to future fee reductions of $10 million.
SEGMENTAL REVIEW - UK & REST OF WORLD
Adjusted operating profit from the Group`s UK and Rest of World asset management
and life assurance businesses, excluding Nedcor, was GBP4 million in the first
half of 2004, lower than the GBP9 million earned in the equivalent period in
2003. This result includes the adjusted operating profit from Bermuda (GBP5
million) and African countries other than South Africa (GBP4 million), offset by
an adjusted operating loss from the Group`s operations in the UK (GBP5 million).
Selestia`s business continues to grow, with funds under management increasing by
65% in 2004 to GBP477 million as a result of sales reaching GBP197m, 49% higher
than the second half of 2003.
OMAM(UK) has achieved adjusted operating profits of GBP3 million compared to a
loss of GBP1 million in the equivalent period in 2003, with average assets 7%
higher and a larger proportion of high margin hedge fund assets driving this
increase, despite net external client outflows of GBP54 million for the period.
Investment performance remains strong with 77% of unit trust assets above the
peer comparative median over three years.
GROUP RESULTS
Solid performances across each of our business units have contributed to Old
Mutual`s improved results during the first half of 2004, with adjusted operating
profits before tax of GBP422 million increasing by 7% from GBP395 million in the
equivalent period of 2003.
Net fund flows remain strong on a Group basis with increased sales in the US
market for both life and asset management more than offsetting the impact of
lower sales in South Africa. Following stable financial markets, total funds
under management for the Group increased steadily to GBP130 billion from GBP125
billion at the end of 2003.
Operating and Financial Review
Group Finance Director`s Review continued
Adjusted operating earnings per share improved to 6.8p per share (2003: 5.6p),
representing a 21% increase over the first half of 2003. The basic loss per
share was 1.8p compared to basic earnings of 5.6p in 2003. Basic earnings have
been impacted by the fines and penalties relating to PBA and negative short term
fluctuations arising predominantly from the impact on our US Life portfolio of
higher prevailing yields.
Operating profit on ordinary activities before tax, which includes goodwill
amortisation and impairment, restructuring and integration costs, fines and
penalties, short term fluctuations in investment return and adjustments for
investment return for own shares held in the policyholders` funds, similarly
declined to a loss of GBP10 million compared to a profit of GBP392 million in
2003.
ACHIEVED PROFITS
The Group`s adjusted operating profit on an achieved profits basis of GBP468
million increased by 9% from GBP429 million in 2003. Adjusted operating profit
for life assurance of GBP326 million was up by 14% from GBP287 million in the
first
half of 2003, driven by increased new business in the US and improved experience
variances in South Africa. Adjusted operating earnings per share on an achieved
profits basis rose from 6.0p to 7.4p. Achieved profits equity shareholders`
funds (adjusted for own shares held in policyholder funds and to bring listed
Group subsidiaries to market value) of GBP4,380 million at 30 June 2004
increased by 9% from GBP4,015 million at 31 December 2003, benefiting from an
improvement in the Rand exchange rate, an increase in the share price of Mutual
& Federal and the impact of the Nedcor rights issue. The resultant adjusted
embedded value per share increased to 114p from 105p.
CAPITAL
The Group`s gearing level remains favourable, with senior debt gearing* at 30
June 2004 of 11% (15% at 31 December 2003) and total gearing*, including hybrid
capital, of 17.5% (21.7% at 31 December 2003). Hybrid capital excludes hybrid
debt from banking activities and comprises the $750 million of Guaranteed
Cumulative Perpetual Preferred Securities issued during May 2003 that are
reported as part of non-equity minority interests in the financial statements.
The increased stake in Mutual & Federal and our participation in the Nedcor
rights issue were funded from the Group`s existing financial resources. We
continue to monitor the potential implications of all new regulations including
the Financial Groups Directive.
Strong support from Old Mutual ensured that Nedcor`s rights offer was a success,
raising R5.2 billion and restoring Nedcor`s capital base resulting in a capital
adequacy ratio of 12.3% (10.1% at 31 December 2003).
Operating and Financial Review
Group Finance Director`s Review continued
The Group`s investment in Mutual & Federal was increased to 88% as a result of
the offer to acquire the outstanding minority interests, which resulted in
acceptances representing 37% of Mutual & Federal`s issued share capital. Mutual
& Federal`s solvency margin, being the ratio of net assets to net premiums, is
anticipated to reduce to 43% following the payment of a special dividend in
November. This remains comfortably above the minimum required to support current
operations and facilitate the future growth of the business.
The solvency ratios of the Group`s major life businesses at 30 June 2004 remain
well above the minimum statutory requirements, with South Africa`s excess assets
(before regulatory asset limitations) equivalent to 2.5 times the statutory
minimum, and the US business in excess of 200% RBC requirement.
In May 2004, Old Mutual plc raised a new GBP1.1 billion five-year syndicated
revolving credit facility and at the same time retired a number of existing bank
credit facilities. The new facility was undrawn at 30 June 2004.
TAXATION
The Group`s effective tax rate (based on the tax charge as a proportion of
adjusted operating profit) of 25% represents a decrease from 33% in the first
half of 2003. The rate is primarily lower as a result of a lower effective tax
rate at Nedcor, which reflects the decision to report certain transactional
taxes as an expense in adjusted operating profit. The rate was also favourably
affected by a reduction in Secondary Tax on Companies (Nedcor paid a scrip
dividend this year) and by an increase in the proportion of low tax income
earned relative to income taxed at the standard South African tax rate.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
We are continuing to make good progress towards the transition to IFRS across
the Group by 1 January 2005.
Our IFRS project, established in 2002, has now started focusing on the systems,
process and reporting changes required for compliance with IFRS. The
International Financial Reporting Standards that will have the most impact on
the Group, in common with our peers, are those that deal with financial
instruments and insurance and investment contracts. We are concerned by the
uncertainty in accounting for financial instruments resulting from continued
changes by the International Accounting Standards Board to IAS 39 and the fact
that the European Commission is yet to endorse the standard. Until IAS 39 is
endorsed, there remains considerable uncertainty as to the impact and timing of
implementation.
Operating and Financial Review
Group Finance Director`s Review continued
DIVIDEND
The Board has declared an interim dividend of 1.75p per share (2003: 1.7p),
which will be paid on 30 November 2004 to shareholders on the register at the
close of business on 22 October 2004. The equivalent of this dividend in the
local currencies of South Africa, Malawi, Namibia and Zimbabwe will be
determined by the Company on 7 October 2004 and will be announced to the markets
on 8 October 2004. The Company`s shares will trade ex-dividend from the opening
of business on 18 October 2004 on the JSE Securities Exchange South Africa and
the Malawi, Namibian and Zimbabwe Stock Exchanges, and from the opening of
business on 20 October 2004 on the London Stock Exchange. The last dates to
trade cum-dividend will therefore be 15 October 2004 in South Africa, Malawi,
Namibia and Zimbabwe and 19 October 2004 in London.
No dematerialisation or rematerialisation of shares within the South African
STRATE system may take place between 18 October 2004 and 22 October 2004 (both
dates inclusive).
Julian V F Roberts
Group Finance Director
10 August 2004
* Senior debt gearing is defined as senior debt over senior debt plus adjusted
embedded value on an achieved profits basis. Senior debt excludes debt from
banking activities and is net of cash and short term investments which are
immediately available to repay debt. Total gearing is similarly based but
includes hybrid capital instruments within debt.
Independent Review Report by KPMG Audit Plc to Old Mutual plc
Introduction
We have been engaged by the Company to review the financial information set out
on pages 14 to 49 and the supplementary financial information set out on pages
50 to 64 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 2004.
KPMG Audit Plc
Chartered Accountants
London
10 August 2004
Consolidated Profit and Loss Account
for the six months ended 30 June 2004
GBPm
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
Notes (Restated)***
Operating income
Life assurance
- gross written
premiums 2,425 2,193 4,577
General
insurance -
gross written
premiums 296 233 526
Asset
management -
total revenue 308 291 684
Banking - total
operating
income 552 568 1,107
Profit and loss
account
South Africa
Technical result 148 123 253
Long term
investment
return 84 83 178
Life assurance 5(b)(iii) 232 206 431
Asset management 5(c) 14 18 53
Banking 5(d)(i) 33 74 (10)
General
insurance 5(e) 47 28 73
326 326 547
United States
Life assurance 5(b)(iii) 43 39 86
Asset management 5(c) 44 37 81
87 76 167
United Kingdom
& Rest of World
Life assurance 5(b)(iii) 5 8 24
Asset management 5(c) 10 1 (4)
Banking 5(d)(i) 22 27 4
37 36 24
450 438 738
Other
shareholders`
income /
(expenses) 5(f) (8) (13) (40)
Debt service
costs (20) (30) (48)
Adjusted
operating
profit * 5(a) 422 395 650
Goodwill
amortisation
and impairment 10 (66) (47) (206)
Loss on
disposal /
write-down of
investment in
Dimension
Data Holdings
plc - (11) (5)
Restructuring
and integration
costs 5(d)(ii) (8) (10) (32)
Change in
credit
provisioning
methodology 5(d)(iii) - (74) (87)
Fines and
penalties 7 (49) - -
Short term
fluctuations in
investment
return 6 (287) 125 143
Investment
return
adjustment for
own shares held
in
policyholders`
funds 5(b)(iv) (22) 14 12
Operating
(loss) / profit
on ordinary
activities
before
tax (10) 392 475
Non-operating
items 9(b) 12 (13) (32)
Profit on
ordinary
activities
before tax 2 379 443
Tax on profit
on ordinary
activities 8 (22) (191) (241)
(Loss) / profit
on ordinary
activities
after tax (20) 188 202
Minority
interests -
equity 11(a) (13) 15 117
Minority
interests -
non-equity (29) (14) (46)
(Loss) / profit
for the
financial
period (62) 189 273
Dividends paid
and proposed 4 (60) (60) (166)
Retained (loss) /
profit for the
financial period (122) 129 107
Rm
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
Notes (Restated)***
Operating income
Life assurance
- gross written
premiums 29,481 28,382 56,520
General
insurance -
gross written
premiums 3,592 3,010 6,486
Asset
management -
total revenue 3,743 3,768 8,448
Banking - total
operating
income 6,705 7,348 13,671
Profit and loss
account
South Africa
Technical result 1,801 1,592 3,124
Long term
investment
return 1,023 1,075 2,198
Life assurance 5(b)(iii) 2,824 2,667 5,322
Asset management 5(c) 156 233 656
Banking 5(d)(i) 401 959 (118)
General
insurance 5(e) 569 368 909
3,950 4,227 6,769
United States
Life assurance 5(b)(iii) 522 505 1,062
Asset management 5(c) 544 479 1,000
1,066 984 2,062
United Kingdom
& Rest of World
Life assurance 5(b)(iii) 62 104 297
Asset management 5(c) 121 14 (48)
Banking 5(d)(i) 263 349 48
446 467 297
5,462 5,678 9,128
Other
shareholders`
income /
(expenses) 5(f) (97) (168) (494)
Debt service
costs (243) (388) (593)
5(a) 5,122 5,122 8,041
Adjusted
operating
profit *
Goodwill
amortisation
and impairment 10 (802) (608) (2,544)
Loss on
disposal /
write-down of
investment in
Dimension
Data Holdings
plc - (136) (60)
Restructuring
and integration
costs 5(d)(ii) (94) (134) (394)
Change in
credit
provisioning
methodology 5(d)(iii) - (963) (1,074)
Fines and
penalties 7 (596) - -
Short term
fluctuations in
investment
return 6 (3,486) 1,618 1,767
Investment
return
adjustment for
own shares held
in
policyholders`
funds 5(b)(iv) (266) 181 148
Operating
(loss) / profit
on ordinary
activities
before
tax (122) 5,080 5,884
Non-operating
items 9(b) 149 (168) (404)
Profit on
ordinary
activities
before tax 27 4,912 5,480
Tax on profit
on ordinary
activities 8 (267) (2,472) (2,976)
(Loss) / profit
on ordinary
activities
after tax (240) 2,440 2,504
Minority
interests -
equity 11(a) (158) 194 1,445
Minority
interests -
non-equity (352) (181) (568)
(Loss) / profit
for the
financial
period (750) 2,453 3,381
Dividends paid
and proposed 4 (678) (741) (2,006)
Retained (loss) /
profit for the
financial period (1,428) 1,712 1,375
Consolidated Profit and Loss Account continued
for the six months ended 30 June 2004
GBPm
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
Notes (Restated)***
The adjusted
operating profit on
an after-tax and
minority
interest basis is
determined as
follows:
Adjusted operating
profit 422 395 650
Tax on adjusted
operating profit 8 (106) (129) (224)
316 266 426
Minority interests
- equity 11(a) (31) (42) (7)
- non-equity (29) (14) (46)
Adjusted operating profit after tax
and minority interests 256 210 373
Rm
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
Notes (Restated)***
The adjusted
operating profit on
an after-tax and
minority
interest basis is
determined as
follows:
Adjusted operating
profit 5,122 5,122 8,041
Tax on adjusted
operating profit 8 (1,290) (1,673) (2,763)
3,832 3,449 5,278
Minority interests
- equity 11(a) (379) (538) (96)
- non-equity (352) (181) (568)
Adjusted operating
profit after tax
and minority
interests 3,101 2,730 4,614
p
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
Notes (Restated)***
Earnings per share
Adjusted operating earnings per share* 3 6.8 5.6 10.0
Basic (loss) / earnings per share 3 (1.8) 5.6 8.0
Diluted (loss) / earnings per share 3 (1.8) 5.5
