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Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
Old Mutual Zimbabwe Limited HY 2014 financial results
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Old Mutual Zimbabwe Limited HY 2014 financial results

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Old Mutual Zimbabwe Limited listed on the Zimbabwe Stock Exchange has released its half year results. Check out insights into this company in their presentation which appears below. …

Old Mutual Zimbabwe Limited listed on the Zimbabwe Stock Exchange has released its half year results. Check out insights into this company in their presentation which appears below.
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  • 1. INVESTMENT | SAVINGS | INSURANCE | BANKING NEWS RELEASE Thursday, 07 August, 2014 Old Mutual plc interim results for the half year ended 30 June 2014 Good underlying financial performance*  Adjusted operating profit of £761 million up 17% in constant currency, 5% lower in reported currency  Net client cash flow of £1.6 billion, with improved flows in Q2 over Q1  Funds under management of £300.5 billion up 5% in constant currency, 2% in reported currency (vs FY 2013)  £391 million of free surplus generated (H1 2013: £460 million)  Group RoE** of 13.2%, within target range of 12-15%  Adjusted earnings per share of 8.8p up 16% in constant currency, down 5% in reported currency  Interim dividend of 2.45p, up 17% Further strategic and operational progress Emerging Markets  Strong South African performance with profit and gross sales up in all businesses  New and innovative product roll-out in South Africa; strong H2 product pipeline for East and West Africa  Agreed terms to acquire a further 25% of Old Mutual Finance for R1.1 billion Old Mutual Wealth  Excellent growth in gross sales; strong profit performance from OMGI  Good progress in building vertically integrated wealth management business: integration of Intrinsic proceeding well Nedbank  Strong profit growth in all clusters with low defaults due to selective origination and risk management  Capital position remains strong and well positioned for Basel III Institutional Asset Management  Business improvement for US-Based Affiliates continue: margins up and strong growth in management fees  NCCF from US Affiliates of $2.6 billion Group-wide  Progress in identifying additional synergies of a pre-tax value of R1 billion between South African businesses Julian Roberts, Group Chief Executive, commented: “Against a difficult economic backdrop, our strong performance in the first half of the year, with constant currency profits up 17%, demonstrates the strength of our Group and the ongoing execution of our strategy. “While consumers in South Africa face a squeeze on disposable incomes, the good performance across the Group’s businesses shows that customers continue to trust us to guide them through the critical stages of their lives and financial choices. In all our African markets, we are rolling out new product propositions to consumers across a range of income groups. “In the UK, Old Mutual Wealth had a profitable half year and is making excellent progress in building a modern wealth management business that will meet customer demand for innovative and flexible investment products. Recent regulatory changes in the UK are profoundly altering industry dynamics and we believe these will benefit our business. “While we expect the external conditions for our emerging markets businesses to continue to be challenging in the next six months, particularly given the lower GDP growth expectation in South Africa, we will focus on what we do best: meeting the needs of our customers through innovative, attractively priced and transparent investment, savings, insurance and banking products as well as continually improving the operating efficiencies of our business. In common with groups that earn a significant proportion of their profits from outside the UK, we expect the strength of Sterling to have an impact on our reported results.” * IFRS results are included on page 13 ** Annualised based on H1 2014 core business IFRS AOP (post-tax) profits and average ordinary shareholders’ equity
  • 2. OLD MUTUAL plc INTERIM RESULTS 2014 2 Old Mutual plc results for the half year ended 30 June 2014 Enquiries External Communications Patrick Bowes UK +44 20 7002 7440 Investor Relations Dominic Lagan UK +44 20 7002 7190 Media William Baldwin-Charles +44 20 7002 7133 +44 7834 524 833 Notes to the financial summary on the front page of this announcement  All figures refer to core continuing operations. Core continuing operations exclude the results of the Bermuda business, which is classified as non-core  Constant currency figures are calculated by translating local currency prior period figures at the prevailing exchange rates for the period under review  All tables illustrate absolute value movements irrespective of the signage. Cautionary statement This announcement contains forward-looking statements relating to certain of Old Mutual plc’s plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond Old Mutual plc’s control, including, among other things, global, UK and South African domestic, economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties, future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and regulations in territories where Old Mutual plc or its affiliates operate. As a result, Old Mutual plc’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out in its forward-looking statements. Old Mutual plc undertakes no obligation to update any forward-looking statements contained in this announcement or any other forward-looking statements that it may make. Nothing in this news release shall constitute an offer to sell or the solicitation of an offer to buy securities. Notes to editors A webcast of the presentation on the interim results and Q&A will be broadcast live at 12:00 pm UK time (1:00 pm South African time) today on the Company's website www.oldmutual.com. Analysts and investors who wish to participate in the call should dial the following numbers and quote the pass-code 32332170#: UK/International +44 20 3139 4830 US +1 718 873 9077 South Africa +27 21 672 4008 Playback (available for 30 days from Thursday, 7 August 2014), using pass-code 649682#: UK/International +44 20 3426 2807 Copies of these results, together with high-resolution images and biographical details of the executive directors of Old Mutual plc, are available in electronic format to download from the Company’s website at www.oldmutual.com. A Financial Disclosure Supplement relating to the Company’s interim results can be found on our website. This contains financial data for 2014 and 2013. Sterling exchange rates H1 2014 H1 2013 Appreciation / (depreciation) of local currency South African Rand Average Rate 17.85 14.23 (25)% Closing Rate 18.18 15.08 (21)% US Dollar Average Rate 1.67 1.54 (8)% Closing Rate 1.71 1.52 (13)%
  • 3. Part 1- Interim Review 3 OLD MUTUAL plc INTERIM RESULTS 2014 Part 1 – 2014 Interim Review Contents News Release 1 Part 1 – 2014 Interim Review 3 Group Review 4 Overview 4 Business review 4 Board changes 6 Outlook 6 Part 2 – Financial Performance 7 Part 3 – Detailed Business Review 15 Part 4 – Financial Information 39
  • 4. Part 1 – Interim Review OLD MUTUAL plc INTERIM RESULTS 2014 4 Group Review £m H1 2014 H1 2013 (constant currency) change H1 2013 (as reported) changeGroup highlights ¹ Adjusted operating profit (IFRS basis, pre-tax) 761 652 17% 801 (5)% Adjusted operating earnings per share (IFRS basis) 8.8p 7.6p 16% 9.3p (5)% Group net margin ² 45bps 44bps 1bp 49bps (4)bps Return on equity ³ 13.2% 13.7% (50)bps Net asset value per share ⁴ ⁵ 133.3p 134.2p (1)% 137.7p (3)% Net client cash flow (£bn) 1.6 8.3 9.1 Funds under management (£bn) ⁴ 300.5 286.5 5% 293.8 2% Interim dividend for the year 2.45p 2.10p 17% ¹ The figures in the table are in respect of core continuing businesses only ² Ratio of AOP before tax on an annualised basis to average funds under management in the period ³ RoE is calculated as core business IFRS AOP (post-tax) on an annualised basis divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities) ⁴ Comparative information for NAV per share and FUM is presented as at 31 December 2013 ⁵ Net asset value per share is calculated as ordinary shareholders’ equity (i.e. excluding the perpetual preferred callable securities) divided by the actual shares in issue at the end of the period Overview Mixed external macro-economic conditions In our main market of South Africa, the economy remained fragile in the first half of the year with GDP contracting in the first quarter by 0.6% on a seasonally adjusted basis, having risen 3.8% in Q4 2013. The five month mining strike was resolved in late June, only to be followed days later by strikes in the metal working sector, although this was resolved in July. Rising inflationary pressure and a 50 bps interest rate rise in January 2014 have led to increasing strain on consumers. In July, the South African Reserve Bank raised rates further by 25 bps and downgraded GDP growth estimates for 2014 to 1.7%. While growth has been subdued, the JSE has performed strongly. The Rand weakened by 4% from the start of the year, with the average rate against Sterling at R17.85 which is 25% weaker than in H1 2013, impacting on our reported results. In the UK, the economy continues to improve with GDP growth for the year estimated at 3.2%, with the economy now larger than it was at pre-financial crisis levels in 2008. With the number of people in employment rising to record levels, year-on-year inflation of 1.9% in June and a buoyant housing market, expectations of a rate rise later in the year, or early next year, are growing. In the US, growth continues, although the IMF has reduced its forecast GDP to 1.7% for the year, equity markets are rising and unemployment is at its lowest level since September 2008. Against Sterling, the average Dollar exchange rate declined 8% in the half. During the period, the FTSE 100 Index was broadly flat, but there was growth in the US and South African equity markets, with the S&P 500 and the JSE All-Share index rising by 6% and 10% respectively. Group performance remains strong Despite the complex external environment, Old Mutual performed well in the first half of the year, with growth in adjusted operating profit (AOP) on an IFRS basis of 17%, in constant currency, to £761 million. The Group’s free surplus generation was £391 million, against £460 million in the comparative period. Across the Group, we recorded net client cash flows (NCCF) of £1.6 billion, which although down on the strong comparative period showed a marked improvement in the second quarter. Funds under management (FUM) stood at £300.5 billion, up 5% since 31 December 2013 on a constant currency basis, and up 2% in reported currency. Adverse currency movements to FUM in the period were almost £8 billion and the gain from the rise in equity markets was around £14 billion. Group net margin decreased by 4 basis points from 49 points to 45 points mainly due to the impact of exchange rates. Core Group RoE was 13.2%, against 13.7% in H1 2013, with lower reported AOP and reduced average equity. The interim dividend of 2.45p, or its equivalent in local currency for shareholders on the company’s overseas registers, represents an increase of 17% from the prior year. Business review A strong performance in Emerging Markets, despite challenging conditions in South Africa Emerging Markets had an excellent half with profits up 22% on H1 2013, mainly due to higher asset-based fees. Gross sales grew 13% to R85.8 billion, driven by a strong performance in South Africa. NCCF at R9.2 billion was down compared to R11.1 billion in H1 2013,
  • 5. Part 1 – Interim Review 5 OLD MUTUAL plc INTERIM RESULTS 2014 mainly due to lower asset management net inflows in South Africa, Colombia and Namibia. FUM increased to R876.5 billion due to the positive client flows and the continued strong equity market performance. In South Africa, Retail Affluent’s profits increased by 24% and its gross sales grew by 21%, due to the continued popularity of XtraMAX which was introduced in May 2013, and the positive reception to the launch of our Wealth offering which has seen R3.1 billion of net flows in the first half of the year. Corporate recorded covered APE sales 35% higher than 2013, with regular premium sales up 225% with excellent group assurance and Evergreen sales. We launched the new Corporate Superfund umbrella on 1 June which should greatly enhance the customer experience and further extend our market lead. In Mass Foundation, gross sales were up 13%, despite the implementation of stricter acceptance processes. Life APE sales for the first half were flat against a very strong comparator in 2013, although Q2 saw a 15% increase against Q1. We have implemented new technology for the sales force, and increased adviser numbers, but productivity is not yet at the levels we expect. We are implementing measures to address this. We are launching a new savings product in Mass Foundation in Q3, called 2-in-ONE. This innovative new product will allow customers to access a portion of their savings in a way that will not attract surrender charges. Old Mutual Investment Group (OMIG) had a good six months with non-covered sales at R14.6 billion up 6%, with large mandates secured in the Liability Driven Investments boutique although the substantial inflows in Futuregrowth, a fixed income boutique, in the prior year not being repeated. In the Rest of Africa, APE sales increased by 13% on a like-for-like basis. Progress in East Africa is promising: we have expanded our retail mass distribution network, providing traction in this market. Faulu has been granted a licence by the local regulator to sell life products and we will look to sell our suite of Retail Mass products into the existing Faulu customers. In West Africa, we signed a bancassurance deal with Ecobank in Ghana and we will be rolling out a full retail mass proposition in Nigeria in Q3 2014. We have identified 20 Ecobank branches in Nigeria for the pilot phase of retail bancassurance distribution. In Nigeria, we have underwritten a Group Life scheme for 300,000 members of the Nigerian Armed Forces. In Asia and Latin America, profits were up 24% supported by organic growth, exchange rate movements and good performance from AIVA. A good performance in the Mexican affluent market and the inclusion of the India corporate business for the first time drove an increase in life sales of 21%. The operational improvement in Property & Casualty (P&C) which we first noted in Q1 has continued, although a substantial amount of work remains to be done. Despite pricing and selective underwriting, P&C saw strong premium growth of 12%, and the net underwriting margin of (1.0)% comparing favourably to that of the first half of 2013 at (2.7)%. The loss this half was primarily due to an increase in losses experienced in our Credit Guarantee business. We have seen positive results from our claims cost management and changing our pricing strategy in Personal Lines and the effective management of capital. The management team remains focused on delivering a sustainable turnaround and are making good progress in execution. The integration of the P&C operation into the wider Emerging Markets business continues and operations in the rest of Africa will be trading under the Old Mutual brand by the end of August 2014. Nedbank maintains its momentum with profit growth in all clusters Nedbank had a strong six months with headline earnings up 18% to R4.6 billion. This performance was underpinned by net interest income growth of 9.3% to R11,263 million and our focus on selective asset origination and excellent risk management enabled the credit loss ratio to improve to 83 basis points. Non-interest revenue (NIR) decreased to R9,480 million (June 2013: R9,535 million) as a result of fair-value movements together with the outcomes of our strategic choices, the base effect of specific one-off items in the 2013 comparative period and a general slowdown in client transactional activity in the challenging consumer environment. Excluding movements in fair value, NIR increased 0.8%. During the period, Nedbank completed the acquisition of a 36.4% stake in Banco Unico of Mozambique, with the conditions of purchase setting out an agreed pathway to control. Nedbank has until 25 November 2014 to make a decision on whether to exercise its right to acquire up to 20% in Ecobank Transnational Incorporated. Strong profit growth at Old Mutual Wealth; now well positioned for the new UK retail financial services market Old Mutual Wealth had a robust first half of the year, with profits up 11% to £120 million, notwithstanding the £7 million impact of the strengthening of Sterling against the US Dollar and Euro. Gross sales for the half were up 15% on the comparative period at £7.7 billion, with very strong performances by Old Mutual Global Investors, up 29% to £4.5 billion, and the UK Platform with sales of £2.5 billion. International sales were 4% lower at £892 million, with improved performance in the UK, Latin America and South Africa but lower sales in the Far East. In July we launched Silk Life Plan, an industry-leading investment product in Asia targeted at private banking customers and distributed by Jardine Lloyd Thompson (JLT). NCCF for the half was £1.2 billion, up 50%, with UK Platform sales from both new business and internal transfers into OMGI of £775 million, accounting for 31% of all Platform sales. OMGI saw institutional outflows via UK third party channels in Q2, including a loss of a £248 million segregated mandate and a further £153 million outflow from the divested Nordic business. Platform and other UK outflows increased with a heightened level of re-registrations. FUM was up 2% to £80.3 billion, due to a combination of client flows and market appreciation, although offset by currency movements on non-Sterling assets. The UK Platform now has £28.8 billion of FUM, up 5% from 31 December 2013, and recorded a profit of £10 million for the half due to economies of scale and a continued focus on expense management. OMGI delivered strong profits of £16 million, 100% higher than prior period (H1 2013: £8 million) with an improvement in operating margin to 28%. We have seen strong net inflows to our higher margin Alternatives and Equities desks with some sector rotation out of lower margin sub-advised funds. OMGI was named as “Global Group of the Year” in the 2014 Investment Week Fund Manager of the Year awards. OMGI is now on all major distribution platforms and we continue to review the funds available to enhance the proposition and offer financial advisers and customers access to the best fund managers at a highly competitive price.
  • 6. Part 1 – Interim Review OLD MUTUAL plc INTERIM RESULTS 2014 6 We have made significant progress in creating a vertically integrated wealth management business. We are progressing well with the integration of Intrinsic into Old Mutual Wealth following completion of the acquisition on 1 July 2014. Integration costs are expected to be incurred in the second half of the year. Additionally, we have announced that we intend to acquire the remaining 50% stake of Cirilium, the core investment proposition for Intrinsic’s restricted financial advisers. Progress continues with the implementation of the IFDS contract, due to be rolled out in 2016. We will be rebranding the Skandia UK business as Old Mutual Wealth in the second half of 2014. We launched WealthSelect in the UK in February 2014 and it now has over £1.0 billion FUM with net inflows of £160 million in the first half of the year and a further £65 million of net inflows in July, with the majority of customers choosing the Managed Portfolio Service (MPS). The UK Government announced significant changes to the UK pension system in March. We believe these changes will benefit our business model. Demand for flexible drawdown products has risen considerably although we expect customers and advisers to wait for regulatory certainty before reacting to the new pension regime. During the period we completed the sale of Skandia Poland to Vienna Insurance Group and agreed the sale of Skandia Germany and Skandia Austria to Heidelberger Leben Group, with completion expected in the second half of 2014. The aggregate consideration for Skandia Germany and Austria is €220 million with a prospective reduction in 2015 of AOP from the disposed businesses of £35 million, the remaining businesses are consequently now targeting profits of £270 million by 2015. Institutional Asset Management improves profits due to increased management fees Institutional Asset Management grew profits by 8% to $91 million in the first half of the year as higher market levels meant our US-based affiliates earned increased management fees. NCCF for Institutional Asset Management for the first half was negative, primarily due to outflows in global fixed income strategies, although the second quarter saw positive NCCF. The US-Based Affiliates captured $2.6 billion of NCCF in the half. Total outflows of $1.3 billion included $0.9 billion related to investment driven hard asset disposals by Heitman, a real estate manager. Despite the outflows, we expect overall flows to result in an $8.5 million positive impact to annualised revenues with the concentration of inflows into higher fee products. Our US based affiliates’ aggregate investment performance is reported as weighted by the revenue generated by its products. As of 30 June 2014, assets representing 70%, 73%, and 75% of revenue outperformed benchmarks over the one-, three- and five-year periods (31 March 2014: 77%, 93%, and 68%). On 30 June 2014, we announced that we had formed a new holding company for our US-based institutional asset management business, OM Asset Management Limited (OMAM). Rogge Global Partners, a global fixed income manager based in London, will not form part of OMAM and will report into Old Mutual plc. Rogge’s 2014 AOP result is expected to be approximately break-even. And at all times, we strive to be a responsible business In our strategy that was articulated in March 2014, we stated that we wanted to become the recognised financial services leader in responsible business in each of the markets where we operate. We will focus on five pillars of responsibility: customers; investment; employees; communities; and environmental management. We have appointed Gail Klintworth, formerly Chief Sustainability Officer of Unilever, as Group Customer Director and Gail will have specific responsibility to ensure we deliver on this strategic objective. We expect the pace of movement in this area to increase. Our strong cash generation and capital position supports a 17% increase in the interim dividend In line with our dividend policy, the Board is declaring an interim ordinary dividend per share of 2.45 pence, this being 30% of the prior year’s total dividend and a 17% increase on the 2013 interim dividend payment. Our capital position remains strong, with a Financial Groups Directive (FGD) surplus of £2.0 billion representing a coverage ratio of 164%. Our net debt increased to £0.9 billion compared to £0.7 billion at the end of 2013 due to a small decrease in liquid assets following payment of the 2013 final dividend and fair value movements in debt. Looking ahead, our continued strong cash generation and the successful execution of our corporate finance transactions will give us significant financial flexibility. It will provide a suitable buffer against the core capital requirement, investing for growth as well as acquisition opportunities in line with our strategy. Taking into account these requirements and opportunities, we continually review the potential uses of our capital for optimal balance sheet efficiency and RoE. Board changes As previously announced, Ingrid Johnson has joined as Group Finance Director and Paul Hanratty has been appointed Chief Operating Officer. Outlook While we expect the external conditions for our emerging markets businesses to continue to be challenging in the next six months, particularly given the lower GDP growth expectation in South Africa, we will focus on what we do best: meeting the needs of our customers through innovative, attractively priced and transparent investment, savings, insurance and banking products as well as continually improving the operating efficiencies of our business. In common with many businesses that earn a significant proportion of their profits from outside the UK, we expect the strength of Sterling to have an impact on our reported results. We continue to explore opportunities to expand our business in Africa through investing for growth both organically and inorganically. The continuing changes in the UK savings market following RDR and the Government’s announcement on pension reforms in March increase the attractiveness of the UK as a place to invest. We shall evaluate whether we can achieve faster growth through acquisitions to complement our existing vertically integrated wealth management business.
  • 7. Part 2 – Financial Performance 7 OLD MUTUAL plc INTERIM RESULTS 2014 Part 2 - Financial Performance Contents News Release 1 Part 1 – 2014 Interim Review 3 Part 2 – Financial Performance 7 Financial Review 8 AOP analysis 8 Tax 8 Total tax expense 8 Income tax attributable to policyholder returns 8 Tax uncertainties 9 Reconciliation of IFRS profit after tax to Adjusted Operating profit after tax 9 Group and subsidiary RoE 9 Free surplus generation 9 Cash and liquidity 9 Liquidity 9 Net capital flows 10 Receipts from subsidiary operations to holding company 10 Payments by holding company 10 Capital and leverage 10 Debt strategy, profile and maturities 10 Financial strength rating 10 Financial Groups Directive solvency results 11 Business local statutory capital cover 11 Interim dividend 11 Other economic impacts 11 Adjusted Group MCEV 11 Risk management 12 Risks and uncertainties 12 Financial Appendix 13 Supplementary financial information (data tables) 13 Summarised financial information 13 Group return on equity 13 Group debt summary 13 Financial Groups Directive 13 Regulatory capital 13 Financial strength rating 14 Part 3 – Detailed Business Review 15 Part 4 – Financial Information 39
  • 8. Part 2 – Financial Performance OLD MUTUAL plc INTERIM RESULTS 2014 8 Financial Review AOP analysis £m H1 2014 H1 2013 (reported) % change (reported) % change (constant currency) Core operations Emerging Markets ¹ 291 300 (3)% 22% Nedbank 361 387 (7)% 17% Old Mutual Wealth 120 108 11% 11% Institutional Asset Management 54 54 - 8% 826 849 (3)% 17% Finance costs (41) (46) (11)% (8)% Long-term investment return on excess assets 13 25 (48)% (35)% Net interest payable to non-core operations (2) (6) (67)% (67)% Corporate costs (25) (21) 19% 19% Other net expenses (10) - - - Adjusted operating profit before tax 761 801 (5)% 17% Tax on adjusted operating profit (202) (207) (2)% 19% Adjusted operating profit after tax 559 594 (6)% 16% Non-controlling interests – ordinary shares (126) (137) (8)% 15% Non-controlling interests – preferred securities (9) (9) - 25% Adjusted operating profit after tax attributable to ordinary equity holders of the parent 424 448 (5)% 16% Adjusted weighted average number of shares (millions) 4,840 4,835 - - Adjusted operating earnings per share (pence) 8.8 9.3 (5)% 16% ¹ Comparative has been restated to include Property & Casualty AOP of £10 million Reported Emerging Markets and Nedbank AOP reduced, reflecting exchange rate movements despite local currency growth. Old Mutual Wealth profits rose on higher fee income and lower expenses. Institutional Asset Management profits were flat largely due to exchange rate movements, but also lower profit from our non-US based affiliate. Finance costs were down by 11%, given the lower level of international debt in the period. LTIR earnings were lower given exchange rate movements and reduced levels of excess assets in Emerging Markets given acquisitions since H1 2013. Net interest payable to non-core operations reduced, given the redemption of the Bermudan inter-company loan notes. Other net expenses reflected higher IFRS 2 share incentive charges and rebranding costs without the offsetting gains experienced in the prior year. Further information on the Group’s non-core business (Bermuda) is included in Part 3 – Detailed Business Review. IFRS adjusted operating profit after tax attributable to ordinary equity holders of the parent decreased by 5% on a reported basis. Adjusted operating earnings per share also reduced by 5% on a reported basis. Tax Total tax expense The AOP effective tax rate (ETR) for the Group has increased slightly to 27% (H1 2013: 26%). As over 85% of the H1 2014 AOP tax charge relates to Emerging Markets and Nedbank, movements in these business units have a correspondingly large impact on the Group’s ETR. The increase in the ETR was mostly incurred at OMEM which saw an increase in the tax rate on its long-term investment returns and a lower level of untaxed income. This was partly offset by a reduction in ETR at Nedbank. Looking forward, and depending on market conditions and profit mix, we expect the ETR on AOP in future periods to range between 25% and 28%. Income tax attributable to policyholder returns In accordance with accounting guidance, tax on policyholder investment returns is included in the Group’s IFRS tax charge rather than being offset against the related income. The impact is to increase Group IFRS profit before tax by £44 million in H1 2014 (H1 2013: £71 million), with a corresponding increase to the tax charge. Of this £44 million, £6 million was attributable to Old Mutual Wealth (H1 2013: £49 million), with the remaining £38 million relating to South Africa and Rest of Africa (H1 2013: £22 million). Income tax attributable to policyholder returns is excluded from the AOP calculation.
  • 9. Part 2 – Financial Performance 9 OLD MUTUAL plc INTERIM RESULTS 2014 Tax uncertainties The Group is regularly in discussion with the respective tax authorities in each of the jurisdictions where the Group is active. The Group applies its judgement to determine if a provision for future tax uncertainties should be recognised based on detailed reviews of any potential exposure to tax authorities and the assessment of the most probable outcome of the tax uncertainty. As these provisions are based on estimates and rely on judgements made by the Group, the actual amount of future taxes paid by the Group could be different to the amounts provided. Reconciliation of IFRS profit after tax to Adjusted Operating profit after tax IFRS profit after tax was £336 million (H1 2013: £547 million), with £215 million of adjusting items post-tax and non-controlling interests. Adjustments include £125 million relating to the write down of goodwill and intangibles as a result of the prospective sales of Skandia Austria and Germany, £39 million of credit spread movements, tax and net other movements of £51 million. Adjusting operating profit after tax was £559 million (H1 2013: £594 million). Group and subsidiary return on equity Core Group RoE was 13.2% (H1 2013: 13.7%) with lower Sterling reported earnings partially offset by lower equity given the impact of foreign exchange translation on the Group balance sheet and the Group dividends paid. The Group continues to target RoE in the range of 12-15%. Group RoE (annualised basis) H1 2014 H1 2013 Emerging Markets ¹ ² ³ 23.6% 21.4% Nedbank ⁴ 16.5% 16.1% Old Mutual Wealth ⁵ 16.9% 15.3% Institutional Asset Management ³ 17.3% 15.1% Group RoE ⁶ 13.2% 13.7% ¹ Within Emerging Markets, OMSA, Rest of Africa and Asia are calculated as return on allocated capital and Latin America is calculated as return on average equity ² Emerging Markets now includes Property & Casualty. Comparatives have been restated ³ RoE for Property & Casualty and Institutional Asset Management calculated as IFRS AOP (post tax and NCI) divided by average shareholders’ equity ⁴ Headline earnings divided by daily average equity, excluding goodwill ⁵ IFRS AOP (post tax) divided by average shareholders’ equity, excluding goodwill, PVIF and other acquired intangibles ⁶ Group RoE is calculated as IFRS AOP (post-tax) divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities). It excludes non-core operations At a local business unit level, RoE increased in Emerging Markets, Nedbank and Old Mutual Wealth with higher profits offsetting higher equity bases. The RoE for Institutional Asset Management increased due to higher profits and a reduction in the capital base following a reallocation of seed capital. Free surplus generation Our businesses have continued to be efficient at converting profit into free surplus, with a 81% conversion rate (H1 2013: 93%) and a total free surplus of £391 million generated in the period (H1 2013: £460 million) by the business units after tax and non-controlling interests. The reduction from H1 2013 was largely at Old Mutual Wealth as a result of costs associated with the IFDS outsourcing project, Nordic legacy costs, the non-recurrence of a reinsurance receipt in the prior year and lower cash from investment returns. From the free surplus generated, £241 million of cash was remitted by the operating units to the Group holding company during H1 2014. Cash and liquidity Liquidity At 30 June 2014, the Group had available liquid assets and undrawn committed facilities of £1.3 billion (31 Dec 2013: £1.3 billion). In addition to cash and available resources held at the holding company level, each individual business also maintains liquidity sufficient to support their normal trading operations.
  • 10. Part 2 – Financial Performance OLD MUTUAL plc INTERIM RESULTS 2014 10 The cash flows of the Group holding company are shown below. £m Opening cash and liquid assets at 1 January 2014 545 Net capital flows 16 Receipts from subsidiary operations Operational receipts from northern hemisphere businesses 61 Operational receipts from emerging markets businesses 180 Total receipts 241 Payments Interest paid (33) Group Head Office costs (25) Other operational flows 7 Ordinary cash dividends (2013 final dividend) (285) Total payments (336) Closing cash and liquid assets at 30 June 2014 466 Net capital flows The holding company received capital flows from the sale of the business in Poland, recycling of seed capital investments and additional deferred proceeds in relation to the transfer of the Chinese joint venture to Emerging Markets. Funding was provided by the holding company to Old Mutual Wealth for the acquisition of Intrinsic and to Old Mutual Bermuda, to support the expected run-off of the book. Receipts from subsidiary operations to holding company The remittances to the holding company on a cash-paid basis were £241 million in H1 2014. The holding company has received £180 million of operational flows from the emerging markets businesses, £60 million from Institutional Asset Management and £1 million from Old Mutual Wealth. Payments by holding company Interest paid represents the cash cost of servicing the holding company’s debt instruments and was £33 million for H1 2014 (H1 2013: £38 million). Dividend payments to shareholders of £285 million were made, of which £152 million was paid to shareholders in Southern Africa. Capital and leverage The Group’s balance sheet remains strong. The Group excluding Nedbank had gross debt of £1,379 million at 30 June 2014 (31 Dec 2013: £1,342 million). Looking ahead, our continued strong cash generation and the successful execution of our corporate finance transactions will give us significant financial flexibility. It will provide a suitable buffer against the core capital requirement, investing for growth as well as acquisition opportunities in line with our strategy. Taking into account these requirements and opportunities, we continually review the potential uses of our capital for optimal balance sheet efficiency and RoE. Debt strategy, profile and maturities The Group has first calls on debt instruments amounting to R3,000 million (£165 million) in October 2015, €374 million (£299 million) in November 2015 and £273 million in March 2020. In addition, the Group has £112 million of senior debt maturing in October 2016 and £500 million of Tier 2 debt maturing in June 2021. The Group continues to explore capital market opportunities in the South African debt markets. Financial strength rating In June 2014, S&P and Fitch both announced rating actions on SA Sovereign debt as a result of recent deterioration in GDP growth from 3.8% (Q4 2013) to (0.6)% (Q1 2014). S&P lowered the long-term foreign currency rating to BBB- with a stable outlook; and Fitch affirmed its long-term foreign currency rating as BBB but revised the outlook to negative from stable. Fitch also announced the result of its review of Old Mutual plc and subsidiaries, triggered by its rating action on SA Sovereign debt. Fitch affirmed the ratings of Old Mutual plc, OMLAC(SA) and Skandia Life Assurance Company and left all the ratings on stable outlook.
  • 11. Part 2 – Financial Performance 11 OLD MUTUAL plc INTERIM RESULTS 2014 In July 2014, Fitch published a rating of Mutual & Federal, assigning a National Insurer Financial Strength rating of AAA(zaf) with stable outlook. This rating reflected Fitch’s view that Mutual & Federal is a core part of the Group and therefore benefits from the financial strength of OMLAC(SA). Financial Groups Directive solvency result The Group’s regulatory capital surplus, calculated under the EU Financial Groups Directive, was £2.0 billion at 30 June 2014 (31 December 2013: £2.1 billion) and this represents a statutory cover of 164%. The reduction in surplus and coverage ratio follows the payment of the 2013 final dividend and a decrease in Nedbank’s contribution to FGD as a result of an increase in its capital requirement. Nedbank is moving towards Basel III compliance and there will be an annual reduction in qualifying capital resources as a result. Capital requirements were approximately £50 million higher due to increased charges on risk-weighted assets for H1 2014. Further increases in the capital requirement will be a function of growth in risk weighted assets. The FGD surplus is a level with which we are comfortable given our earnings, our cash flow profile, the natural currency hedges of our capital resources and requirements and risk assessment. A 1% fall in the ZAR/GBP exchange rate would result in a £12 million reduction in the surplus (2013: £13 million reduction in the surplus). Given that the capital resources and the capital requirement both fluctuate with changes in exchange rates, the cover ratio remains broadly unaffected by such a change in currency rates. We are well positioned for the implementation of Solvency II and Solvency Assessment and Management (SAM), in South Africa. We recognise however, that the regulations are still evolving and therefore, in common with the rest of the market, we continue to experience a degree of uncertainty. Business local statutory solvency measures The Group’s subsidiary businesses continue to have strong local statutory capital cover. 30-Jun-14 31-Dec-13 Old Mutual Life Assurance Company SA (OMLAC(SA)) ¹ 3.2x 3.2x Mutual & Federal ¹ 1.5x 1.9x UK ¹ 3.1x 2.6x Nedbank ² Common equity Tier 1: 12.1% 12.5% Tier 1: 13.1% 13.6% Total : 15.0% 15.7% Bermuda ³ 1.5x 1.4x ¹ The published result at 31 December 2013 was based on an estimate ² This includes unappropriated profits and is calculated on a Basel III basis ³ Based on Bermuda’s insurance (Prudential Standards) Class E Capital Rules Interim dividend The interim dividend of 2.45 pence, or its equivalent in local currency for those shareholders on overseas registers, represents an increase of 17% on the prior year. The interim dividend will be paid on 31 October 2014. A separate announcement of the key dividend dates is made with these interim results. Other economic impacts South African long-term interest rates moved significantly during the course of H1 2014, with the 10-year government bond yield used as the Financial Soundness Valuation (FSV) rate rising with global macro condition changes to close at 8.4%, up on the 2013 year end level of 8.1%. In order to manage the risk of a volatile FSV interest rate and its consequent impact on IFRS profits, Emerging Markets has a hedging programme in place. The hedge programme has been continued into H1 2014, but will be reviewed during the year given developments in economic conditions and the prevailing interest rate environment. Adjusted Group MCEV As we announced previously, given the change in strategic direction of Old Mutual Wealth’s business towards asset management, we will no longer be reporting MCEV information for this business. For the 2014 interim results, we have provided supplementary information which includes a closing MCEV position for Old Mutual Wealth. This information at a Group level is reported in the ‘MCEV information’ schedule shown on pages 92-94. Based on this analysis, the Adjusted Group MCEV per share as at 30 June 2014 was 205.4p (30 June 2013: 209.7p; 31 December 2013: 207.5p).
  • 12. Part 2 – Financial Performance OLD MUTUAL plc INTERIM RESULTS 2014 12 We will continue to provide full MCEV disclosure for the covered business in Emerging Markets in Rand and this can be found in the supplementary information on the Investor Relations section of the Group website. Risk Management Risks and uncertainties A number of potential risks and uncertainties could have a material impact on the Group’s performance and cause actual results to differ materially from expected and historical results. The Group’s overall risk profile and capital position remains stable. The Group’s principal risks were largely unchanged during 2014. Consequently, the most significant external risk to earnings relates to the concentration of businesses in South Africa and the exposure to South African economic conditions and the impact thereof on our South African customer base, as well as the value of the Group’s earnings and assets when translated from Rand to Sterling. Further discussion of these risks and the process by which the Group routinely assesses and responds to the changing risk environment was provided in the 2013 Annual Report and Accounts. This is also available on the Investor Relations section of the Group website. The Board believes that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Board continues to adopt the going concern basis for preparing accounts.
  • 13. Part 2 – Financial Performance 13 OLD MUTUAL plc INTERIM RESULTS 2014 FINANCIAL APPENDIX Supplementary financial information (data tables) Summarised financial information H1 2014 H1 2013 % change IFRS results Basic earnings per share 4.5p 8.9p (49)% IFRS profit after tax attributable to equity holders of the parent (£m) 213 414 (49)% Net asset value (£m) ¹ 8,871 9,037 (2)% Net asset value per share ¹ ² 133.3p 137.7p (3)% ¹ Comparative information for NAV and NAV per share is presented as at 31 December 2013 ² Net asset value per share is calculated as ordinary shareholders’ equity (i.e. excluding the perpetual preferred callable securities) divided by the actual shares in issue at the end of the period Group return on equity ¹ £m H1 2014 H1 2013 AOP excluding accrued hybrid dividends – core operations 424 448 Opening shareholders’ equity excluding hybrid capital – core operations 6,529 6,566 Half-year shareholders’ equity excluding hybrid capital – core operations 6,315 6,480 Average shareholders’ equity – core operations 6,422 6,523 Return on average equity 13.2% 13.7% ¹ Group RoE is calculated as IFRS AOP (post-tax) divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities). It excludes non-core operations Group debt summary H1 2014 FY 2013 Senior gearing (net of holding company cash) – IFRS basis (3.6%) (4.4%) Total gearing (net of holding company cash) – IFRS basis 8.8% 7.6% Book value of debt - MCEV basis (£m) 1,464 1,420 Book value of debt - IFRS basis (£m) 1,379 1,342 Total interest cover ¹ 15.3 times 14.4 times Hard interest cover ¹ 4.6 times 4.2 times ¹ Total interest cover and hard interest cover ratios exclude non-core operations Financial Groups Directive Regulatory capital 30-Jun-2014 ¹ 31-Dec-2013 ² £bn % £bn % Ordinary Equity 4.7 92% 4.8 92% Other Tier 1 Equity 0.4 8% 0.4 8% Tier 1 Capital 5.1 100% 5.2 100% Tier 2 Capital 1.1 22% 1.2 23% Deductions from total capital (1.1) (22)% (1.2) (23)% Total capital resources 5.1 100% 5.2 100% Total capital requirements 3.1 3.1 Group FGD surplus 2.0 2.1 Coverage ratio 164% 168% ¹ Based on the preliminary estimates. Formal filing due to the PRA by 30 September 2014 ² As submitted to the Prudential Regulatory Authority (PRA) on 30 April 2014
  • 14. Part 2 – Financial Performance OLD MUTUAL plc INTERIM RESULTS 2014 14 The Group’s FGD surplus is calculated using the ‘deduction and aggregation’ method, which determines the Group’s capital resources less the Group’s capital resources requirement. Group capital resources is the sum of all the business units’ net capital resources, calculated as each business unit’s stand-alone capital resources less the book value of the Group’s investment; the Group capital resources requirement is the sum of all the business units’ capital requirements. Both the capital resources and the capital requirements fluctuate with changes in exchange rates. The Group’s FGD regulatory capital is calculated in line with the PRA’s prudential guidelines. Financial strength rating Moody’s Fitch Republic of South Africa Sovereign rating Baa1 (neg) BBB (neg) Old Mutual plc Senior debt rating Baa2 (neg) BBB- LT2 debt rating Baa3 (neg) BB UT2 debt rating Baa3 (neg) BB T1 debt rating Ba1 (neg) BB Short-term debt rating P2 F3 OMLACSA National insurance financial strength AAA National long-term rating AAA National long-term subordinated debt rating AA Global insurance financial strength A3 (neg) Skandia Life Assurance Company Insurance financial strength A2 A- Nedbank Limited Foreign long-term rating Baa1 (neg) BBB (neg) Mutual & Federal Insurance Company Limited National insurance financial strength (July 2014) AAA Ratings outlook are stable unless stated otherwise; neg = negative outlook
  • 15. Part 3 – Detailed Business Review 15 OLD MUTUAL plc INTERIM RESULTS 2014 Contents News Release 1 Part 1 – 2014 Interim Review 3 Part 2 – Financial Performance 7 Part 3 – Detailed Business Review 15 Emerging Markets 16 Emerging Markets data tables (Rand) 19 Nedbank 23 Nedbank data tables (Rand) 27 Old Mutual Wealth 29 Old Mutual Wealth data tables (Sterling) 32 Institutional Asset Management 34 Non-core business – Bermuda 36 Part 4 – Financial Information 39
  • 16. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 16 EMERGING MARKETS Highlights H1 2014 H1 2013 % change AOP (IFRS basis, pre-tax) (Rm) ¹ 5,198 4,250 22% NCCF (Rbn) 9.2 11.1 (17)% FUM (Rbn) ² 876.5 840.8 4% Pre-tax FUM operating margin ³ 121bps 114bps 6% ¹ From 1 January 2014, all Property & Casualty business has been reported as part of Emerging Markets. Comparatives have been restated ² Comparative information for FUM is presented as at 31 December 2013 and has been restated to include Property & Casualty FUM of R2.9 billion ³ Pre-tax FUM operating margin is calculated as pre-tax AOP on an annualised basis divided by average FUM and has been restated to include Property & Casualty Operating environment The Emerging Markets business performed well despite the continued economic slowdown across some of our primary markets. Consumers in South Africa remain under financial strain, particularly in the lower and middle-income markets resulting in lower affordability of Mass Foundation products and regular premium Affluent risk products. Persistency in Mass Foundation is being proactively managed through various management actions. These actions are expected to improve the ongoing persistency levels of the new business written, but have also resulted in a slowdown in regular premium sales over H1 2014. Property & Casualty market conditions continue to be tough, particularly in personal lines and specialist agriculture vehicles, and there have been higher losses in the credit guarantee business. Commercial lines have enjoyed better conditions since the latter half of 2013. West and East African economic growth continues to be strong, however financial conditions in Zimbabwe have deteriorated. Business developments In South Africa, we continue to invest in enhancing our product offering.  We continue to expand the Wealth offering with the launch of an integrated private client stock broking and fiduciary capability  A new savings product (2-in-ONE) aimed at our Retail Mass customers has been piloted and the full launch will be in Q3 2014  Within our Corporate business, we have made significant progress to convert stand-alone schemes to umbrella, therefore improving efficiencies. A new Superfund umbrella has been launched. Corporate is making excellent progress in preparing for Retirement Fund Reform  We have agreed terms to increase our share of Old Mutual Finance (OMF), a consumer credit business, from 50% to 75%. The consideration is R1.1 billion and the transaction is expected to be completed in Q4 2014. A clear controlling shareholding will further enhance our ability to leverage from the OMF branch network to provide an efficient distribution channel and customer service platform for Mass Foundation. In Rest of Africa, we are looking at various opportunities to expand our footprint, particularly in East and West Africa, through acquisitions, organic growth and the launch of innovative products:  Significantly increased the number of advisers in Ghana from 115 at the start of the year to 254 by June 2014. Bancassurance agreements were signed with Ecobank in Ghana and all regulatory approvals have been obtained. We also launched an enhanced funeral product in June  In Kenya, the Regulator has granted Faulu a life product licence. We have expanded our retail mass distribution network, which is starting to gain traction  We are awaiting approval from the local Regulator in Nigeria for our retail savings products and intend to build an agency channel in Nigeria to distribute these products. We are also expanding our relationship with Ecobank in Nigeria including the distribution of Property & Casualty products through the bank’s branches and have underwritten a Group Life scheme for 300,000 members of the Nigerian Armed Forces  The contribution of gross sales from East and West Africa as a percentage of total Rest of Africa gross sales has increased to 19% in H1 2014 (H1 2013: 13%)  Old Mutual and MTN Swaziland launched a pilot of a mobile insurance offering called Likhandlela  A multi-media Old Mutual brand-building campaign commenced in Nigeria and in Kenya  Old Mutual Namibia has launched a debit shopping card (OMCARD), which includes a cashback rewards programme.
  • 17. Part 3 – Detailed Business Review 17 OLD MUTUAL plc INTERIM RESULTS 2014 In Latin America, we are leveraging our AIVA relationship and their significant distribution network to accelerate the sales of life products in Mexico. The integration of the SA Property & Casualty operations into the Emerging Markets business has started and we expect increased synergies and collaboration to follow. Efficiency in capital management at Property & Casualty has helped boost RoE. We continue to support economic transformation in South Africa and the communities in which we operate and have invested R670 million in 2014 through our social responsible funds (Housing Fund, Schools Fund, IDEAS Renewables Energy Fund and the Agri Fund). These investments made through our Smooth Bonus funds improve social infrastructure in South Africa, whilst delivering excellent returns for the policyholder. IFRS AOP results Pre-tax AOP increased by 22% to R5,198 million, with strong growth in profits for South Africa Retail Affluent (up 24% to R1,901 million) and Corporate (up 42% to R800 million) businesses. Mass Foundation profits grew 10% to R863 million. In South Africa, profits increased by 26% benefiting from strong equity market performance and continued good mortality, as well as improved disability experience. Movements in the South African FSV interest rate now have a negligible impact on South African profits given the continued hedging programme. OMIG profits were boosted by the continued growth in equity market levels and one-off gains in the Alternatives boutique. Underlying operating profits in Rest of Africa (excluding LTIR and central expenses) decreased by 3%. This was mainly due to lower banking profit, as risk management actions related to the delayed disbursement of loans adversely affected Central Africa Building Society (CABS) interest income, and increased new business costs. LTIR in Rest of Africa increased by 25%, largely in Zimbabwe, due to strong stock market performance in H2 2013 and favourable exchange rate movements. In Asia & Latin America, profits grew by 24% due to good organic growth, higher profits from AIVA and as a result of the depreciation of the Rand. Underwriting losses in South Africa Property & Casualty narrowed significantly as premium rate rises began to take effect, claims management improved and weather related losses reduced. Total central expenses decreased by 7% mainly due to the non-recurrence of costs incurred in H1 2013, despite increased governance infrastructure costs to support the expansion in Africa. Net client cash flow NCCF declined from R11.1 billion to R9.2 billion, mainly due to lower asset management net inflows in South Africa, Colombia and Namibia. NCCF in South Africa increased from R4.7 billion to R4.8 billion with Retail Affluent benefiting from the launch of XtraMAX in May 2013. The strong asset management inflows in 2013 at Futuregrowth were not repeated. The new Wealth proposition in South Africa attracted NCCF of R3.1 billion in the first six months of 2014. Funds under management FUM increased by 4% to R876.5 billion as a result of the positive NCCF and continued strong performance in the equity markets. At 30 June 2014, 22% of total start manager FUM originated from our emerging markets businesses outside of South Africa. Gross sales Gross sales increased by 13% to R85.8 billion. Strong growth in South Africa was achieved in the Retail Affluent business which grew by 21%, largely due to single premium sales boosted by the Wealth offering and the launch of XtraMAX in May 2013. Mass Foundation recorded growth of 13%, despite stricter acceptance processes as our 5.0 million in-force policies continue to generate strong premium inflows. There were higher unit trust sales in Zimbabwe, Kenya and Malawi. In Asia we included sales from the Indian corporate business for the first time. Non-covered sales Non-covered sales increased by 13% to R58.3 billion, with growth of 12% in unit trusts and 15% in other non-covered sales. A strong single premium performance was delivered by Retail Affluent. Large mandates were secured in the OMIG Liability Driven Investments (LDI) boutique. Strong asset management flows in Kenya and improved unit trust sales in Zimbabwe and Malawi contributed to a 25% growth in sales in Rest of Africa. A significant corporate deal was secured in Colombia. Covered sales Life APE sales increased by 11% to R4.5 billion. In South Africa single premium sales increased by 9% with strong growth of 38% in Retail Affluent mainly due to XtraMAX and higher living annuity sales, but single premium Corporate sales decreased due to large annuity deals secured in the comparative period that were not repeated. Regular premiums in Corporate increased significantly due to higher group assurance and Evergreen sales. Retail Affluent regular premium sales were weaker where customer affordability and strong competition has adversely affected Greenlight sales. Mass Foundation sales were flat compared to a very strong comparative period, although Q2 2014 did show a strong growth of 15% on Q1 2014. Increased adviser numbers, fewer working days than the prior year and a deliberate decision to transition advisers to use a new electronic business submission process reduced productivity in the period. We will continue to roll out the new electronic
  • 18. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 18 submission process to the broader adviser force in H2 2014 as we believe it will provide process efficiencies, increase productivity and improve persistency once fully operational. On a like-for-like basis, sales in Rest of Africa increased by 13%. Sales in East Africa have been progressing well with higher adviser numbers in Retail Mass providing traction in this market. In West Africa, sales have been recorded for the first time in Ghana with strong credit life sales via Ecobank and a full six months of trading in Nigeria. The reported sales for Rest of Africa saw a 6% decline in APE sales, mainly due to the inclusion of minority interests in the comparative period and a particularly strong H1 2013 in Namibia. Life APE sales in Asia & Latin America showed strong growth momentum, particularly in the Mexican affluent market with sales increasing by 25%. Sales in India have benefited from the inclusion of corporate life business and a 9% improvement in sales manager productivity. Asia & Latin America contribute 12% to total OMEM life APE sales. Old Mutual Finance Solid growth in the OMF business was achieved whilst maintaining strict acceptance criteria. The credit loss ratio continues to improve as the book matures. OMF branches continue to provide an efficient distribution and customer service platform for Mass Foundation. Value of new business and margins VNB declined by 17% to R818 million with the PVNBP margin at 3.0%. Retail Affluent VNB was lower due to a changing mix towards more savings and single premium products. Corporate VNB was boosted by strong sales growth and favourable product mix. Mass Foundation VNB decreased mainly due to a change in product mix and higher new business strain. In Rest of Africa, there was a less profitable product mix, particularly in Namibia as a large one-off Corporate sale (Absolute Secure Growth portfolio) in 2013 was not repeated. VNB in Latin America was negative (compared to positive VNB in the comparative period) following a change in expense allocation methodology which resulted in a larger allocation to acquisition rather than maintenance expenses. Embedded value Total MCEV earnings (post-tax) increased by 16% on prior year to R3,601 million benefiting from continued good investment returns in addition to higher operating earnings. Operating earnings of R2,471 million were 23% higher driven by significantly better experience variances and higher expected returns, partly offset by lower VNB and higher negative other operating variances. Persistency experience has improved significantly due to the one-off persistency losses in Corporate in 2013 not recurring in 2014 and less negative persistency variance in Mass Foundation following the assumption changes made in December 2013. Return on Embedded Value (RoEV) improved from 9.1% to 10.2% mainly due to positive operating experience variances, partly offset by lower VNB. Outlook Given the financial pressures on consumers in the low to middle income market and ongoing labour disputes in South Africa, we continue to see slowing Mass Foundation APE sales growth. If economic activity slows further, sales trends in Retail Affluent may be adversely affected. Nevertheless Corporate and Retail Affluent continue to perform well. Following the agreement with our joint venture partners, we will consolidate OMF once the acquisition is completed. Zimbabwean prospects are subdued, but elsewhere in Africa we see attractive opportunities to grow our business through both organic and also inorganic activity. We are following the latest developments around foreign direct investment in India and are in close discussions with our joint venture partner around potential investment opportunities. The Group continues to explore capital market opportunities in the South African debt markets. We remain focused on delivering against initiatives that address remediation in the core Property & Casualty business. Our current pricing remediation initiatives have delivered positive results to date with attrition lower than expected. Good progress has been made in laying the foundation for further collaboration across the Group. We continue to look for appropriate investment opportunities in the rest of Africa in line with our African expansion strategy.
  • 19. Part 3 – Detailed Business Review 19 OLD MUTUAL plc INTERIM RESULTS 2014 Emerging Markets data tables (Rand) Adjusted operating profit (pre-tax) By cluster: Rm H1 2014 H1 2013 % change Retail Affluent 1,901 1,528 24% Mass Foundation 863 783 10% Corporate 800 563 42% OMIG 541 477 13% Property & Casualty ¹ (75) (140) (46)% South Africa LTIR ¹ 837 824 2% Total South Africa 4,867 4,035 21% Rest of Africa ¹ 357 367 (3)% Rest of Africa LTIR ¹ 246 197 25% Rest of Africa 603 564 7% Asia & Latin America 210 170 24% Central expenses ² (482) (519) (7)% Total Emerging Markets ³ 5,198 4,250 22% By line of business: Rm H1 2014 H1 2013 % change Life and Savings 3,694 3,028 22% Asset Management 1,218 989 23% Banking and Lending ⁴ 100 98 2% Property & Casualty ¹ 186 135 38% Total Emerging Markets ³ 5,198 4,250 22% ¹ Property & Casualty AOP including LTIR of R238 million, has been allocated according to geographic location. Comparatives have been restated ² Includes central and administration expenses incurred in South Africa of R346 million and Rest of Africa of R136 million ³ Comparatives have been restated to include Property & Casualty AOP ⁴ Comprises of Faulu Kenya and Central Africa Building Society in Zimbabwe Gross sales and funds under management ¹ Rbn FUM 1-Jan-14 Gross sales ² Redemptions Net flows Market and other movements ³ FUM 30-Jun-14 Retail Affluent ⁴ 99.8 29.5 (26.5) 3.0 11.4 114.2 Mass Foundation ⁵ - 4.2 (1.9) 2.3 (2.3) - Corporate ⁴ 51.9 12.2 (12.9) (0.7) 7.0 58.2 OMIG ⁵ 506.9 14.6 (14.4) 0.2 2.4 509.5 Property & Casualty 2.9 - - - (0.7) 2.2 Total South Africa 661.5 60.5 (55.7) 4.8 17.8 684.1 Rest of Africa ⁷ 53.9 6.5 (5.6) 0.9 2.8 57.6 Asia & Latin America 125.4 18.7 (15.2) 3.5 5.9 134.8 Total Emerging Markets 840.8 85.8 (76.5) 9.2 26.5 876.5
  • 20. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 20 Rbn FUM 1-Jan-13 Gross sales ² Redemptions Net flows Market and other movements ³ FUM 30-Jun-13 Retail Affluent ⁴ 76.6 24.4 (22.6) 1.8 9.1 87.5 Mass Foundation ⁵ - 3.7 (1.7) 2.0 (2.0) - Corporate ⁴ 45.9 12.2 (12.8) (0.6) 0.8 46.1 OMIG ⁵ 463.3 13.8 (12.3) 1.5 4.2 469.0 Property & Casualty ⁶ 2.8 - - - - 2.8 Total South Africa 588.6 54.1 (49.4) 4.7 12.1 605.4 Rest of Africa 38.4 5.5 (4.1) 1.4 7.4 47.2 Asia & Latin America 100.4 16.6 (11.6) 5.0 9.6 115.0 Total Emerging Markets 727.4 76.2 65.1 11.1 29.1 767.6 ¹ FUM shown on an end manager basis ² Gross sales are cash inflows for the period and therefore include prior period regular premium flows ³ Includes the foreign exchange impact of translating FUM managed outside of South Africa ⁴ From 1 January 2014, Acsis and Symmetry institutional businesses are reported within Corporate, whereas previously these had been reported in the Retail Affluent cluster. Comparatives have been restated (H1 2013: R2.2 billion Gross sales, R(0.4) billion NCCF and R44.8 billion FUM) ⁵ Mass Foundation gross sales are recorded by segment but all FUM is managed by OMIG ⁶ Opening FUM at 1 January 2014 restated to include Property & Casualty FUM of R2.9 billion (1 January 2013: R2.8 billion) ⁷ From 1 January 2014 Property & Casualty FUM has been allocated by geographic location (R0.7 billion reclassification of P&C Africa FUM included in ‘Market and other movements’). Comparatives have not been restated Covered sales (APE) Rm Single premium APE Regular premium APE Total APE By cluster: H1 2014 H1 2013 % change H1 2014 H1 2013 % change H1 2014 H1 2013 % change Retail Affluent ¹ 605 437 38% 662 722 (8)% 1,267 1,159 9% Mass Foundation ² 1 1 - 1,363 1,358 - 1,364 1,359 - Corporate ¹ 539 610 (12)% 487 150 225% 1,026 760 35% Total South Africa 1,145 1,048 9% 2,512 2,230 13% 3,657 3,278 12% Rest of Africa ³ 62 90 (31)% 284 278 2% 346 368 (6)% Asia & Latin America ⁴ 194 213 (9)% 347 234 48% 541 447 21% Total Emerging Markets 1,401 1,351 4% 3,143 2,742 15% 4,544 4,093 11% Rm Single premium APE Regular premium APE Total APE By product: H1 2014 H1 2013 % change H1 2014 H1 2013 % change H1 2014 H1 2013 % change Savings 1,166 848 38% 1,626 1,397 16% 2,792 2,245 24% Protection ² - - - 1,517 1,345 13% 1,517 1,345 13% Annuity 235 503 (53)% - - - 235 503 (53)% Total Emerging Markets 1,401 1,351 4% 3,143 2,742 15% 4,544 4,093 11% ¹ From H1 2014, Symmetry institutional business is reported within Corporate, whereas previously this had been reported in the Retail Affluent cluster. Comparatives have been restated (H1 2013: R83 million single premium APE) ² OMF credit life sales are included within Mass Foundation protection sales (R105 million in H1 2014 and R102 million in H1 2013) ³ For FY 2013, Rest of Africa life APE sales are reported net of minority interest whereas previously these were reported gross of minority interest with the full impact for FY 2013 being booked in Q4 2013. From 1 January 2014 Rest of Africa also excludes renewal sales (FY 2013: R55 million). Comparatives have not been restated. Rest of Africa life APE sales (net of minority interest and excluding renewals) would have been R305 million in H1 2013 ⁴ Asia & Latin America represents Mexico and a proportional share of India and China. India corporate business sales are only reported from 1 January 2014 (H1 2014: R87 million). Comparatives have not been restated
  • 21. Part 3 – Detailed Business Review 21 OLD MUTUAL plc INTERIM RESULTS 2014 Non-covered sales Rm Unit trust / mutual fund sales Other non-covered sales Total non-covered sales H1 2014 H1 2013 % change H1 2014 H1 2013 % change H1 2014 H1 2013 % change South Africa ¹ ² 15,737 14,709 7% 22,505 19,958 13% 38,242 34,667 10% Rest of Africa 2,732 2,438 12% 1,405 875 61% 4,137 3,313 25% Asia & Latin America ³ ⁴ 15,908 13,653 17% - - - 15,908 13,653 17% Total Emerging Markets 34,377 30,800 12% 23,910 20,833 15% 58,287 51,633 13% ¹ Within South African Retail Affluent, Old Mutual Investment Services recognises Linked Investment Service Provider (LISP) sales on which it earns fees irrespective of where the underlying funds are managed. Where these funds are managed by Old Mutual Unit Trusts (OMUT), OMUT also recognises a sale. These intra-segment sales for H1 2014 amount to R4.6 billion (H1 2013: R5.1 billion) ² Old Mutual International life sales amounting to R2.5 billion are 44% above prior year and are not included in the OMEM non-life sales as these sales are reported in Old Mutual Wealth (UK) ³ AIVA sales amounting to R1.3 billion are 43% above prior year and are not included in the OMEM non-life sales as these sales are reported in Old Mutual Wealth (UK) ⁴ Represents Colombia and Mexico Value of new business Rm H1 2014 H1 2013 Retail Affluent ¹ 163 193 Mass Foundation 422 568 Corporate ¹ 161 55 Total South Africa 746 816 Rest of Africa ² 86 129 Asia & Latin America ³ ⁴ (14) 37 Total Emerging Markets 818 982 ¹ From 1 January 2014, Symmetry institutional business is recorded within Corporate, previously this was recorded within Retail Affluent. Comparatives have been restated (HY 2013: R5 million) ² For FY 2013, VNB is recorded for all countries in Rest of Africa. Comparatives have not been restated and only reflect Namibia ³ No VNB is calculated in respect of Life APE sales in India and China ⁴ Latin America is Mexico only Old Mutual customer numbers: (millions) H1 2014 FY 2013 % change Retail Affluent 2.04 2.05 (0)% Mass Foundation 2.70 2.58 5% Corporate 1.57 1.54 2% Total South Africa ¹ 5.72 5.60 2% Rest of Africa 2.76 1.91 45% Asia & Latin America ² 0.51 0.48 6% Total Emerging Markets 8.99 7.98 13% ¹ The sum of the segment volumes will not equal total volumes due to customer overlap across South Africa ² This does not include the number of customers in India
  • 22. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 22 Old Mutual Finance Rm H1 2014 H1 2013 % change Lending book (gross) 8,939 7,340 22% Provisions for impairments 19.8% 17.8% 200bps Sales: loans advanced 3,085 3,056 1% Covered sales (APE) of insurance sold in branches (excluding credit life) 228 209 9% Credit life sales 105 102 3% NPAT/average lending book ¹ 3.9% 2.6% 130bps IFRS AOP (pre-tax) 343 219 57% Loan approval rate 34.0% 33.6% 40bps Credit losses: average lending book 14.0% 15.2% (120)bps Return on equity 32.2% 25.8% 640bps Branches 239 213 12% Staff 2,206 1,948 13% 1 Net profit after tax (NPAT)/average lending book is stated after capital charges Property & Casualty Rm H1 2014 H1 2013 % change Gross written premiums 6,112 5,442 12% South Africa 5,401 5,076 6% Rest of Africa ¹ 711 366 94% Net earned premiums 4,781 4,359 10% Underwriting result (47) (118) 60% South Africa (75) (140) 46% Rest of Africa ¹ 28 22 27% Underwriting margin (1.0)% (2.7)% South Africa (1.7)% (3.4)% Rest of Africa ¹ 6.7% 9.3% Claims ratio ² 72.0% 73.9% Combined ratio 101.0% 102.7% International solvency ratio 49.0% 56.3% Return on equity 8.7% 4.1% 1 The results of Nigeria and Zimbabwe are included for the first time in H1 2014. Comparatives have not been restated 2 Includes claims administration costs transferred from management expenses
  • 23. Part 3 – Detailed Business Review 23 OLD MUTUAL plc INTERIM RESULTS 2014 NEDBANK Rm Highlights H1 2014 H1 2013 % change AOP (IFRS basis, pre-tax) 6,438 5,489 17% Headline earnings 4,599 3,914 18% Net interest income 11,263 10,309 9% Non-interest revenue 9,480 9,535 (1)% Net interest margin 3.55% 3.58% Credit loss ratio 0.83% 1.31% Efficiency ratio 56.5% 54.2% Return on Equity 15.1% 14.6% Return on Equity (excluding goodwill) 16.5% 16.1% Basel III common equity tier 1 ratio 12.1% 11.8% The full text of Nedbank’s results for the six months ended 30 June 2014, released on 5 August 2014, can be accessed on our website http://www.oldmutual.com/ir/news/viewNews.jsp?newsId=24525. The following is an edited extract: Operating environment Globally economic conditions in many developed countries improved in the second quarter of the year, with monetary policy remaining generally accommodative. In contrast, conditions in most emerging markets deteriorated as concerns about fiscal and current account deficits increased. Local economic conditions worsened as the strike in the platinum mining industry, the longest in SA history, impacted confidence and undermined production and spending. As a result, in the first quarter GDP contracted 0.6%, contributing to Standard & Poor’s downgrade of the country’s investment grade sovereign risk rating by one-notch to ‘BBB-’ and Fitch Ratings revising the outlook from stable to negative. The slowdown in household credit demand continued in the first half of 2014, with industry levels of growth in personal loans, motor finance and transactional banking activity all declining, although the demand for residential mortgage finance continued to recover slowly. In the wholesale sector the level of growth in loans to companies strengthened as export opportunities started to improve, merger activity increased and the rollout of renewable-energy infrastructure continued. The increase could be adversely impacted in the second half of the year by the new wave of strikes that have spread to other sectors. Business developments During the period Nedbank concluded the transaction to acquire an initial 36.4% shareholding (with a pathway to control) of Banco Unico in Mozambique. This has strengthened Nedbank’s franchise and client proposition in the Southern African Development Community (SADC) and East Africa. In West and Central Africa our alliance with Ecobank continues to deliver value for Nedbank. We have until 25 November to make a decision on our subscription rights to take up a 20% shareholding in ETI. In addition, our alliance with Bank of China has progressed and since June 2013 we have jointly concluded a number of deals together in the rest of Africa. Review of results Headline earnings grew 17.5% to R4,599 million (H1 2013: R3,914 million) for the six months ended 30 June 2014, driven by good net interest income (NII) growth and a substantial improvement in impairments. Diluted headline earnings per share (HEPS) increased 16.1% to 965 cents (H1 2013: 831 cents) and diluted earnings per share increased 16.3% to 965 cents (H1 2013: 830 cents). Nedbank generated economic profit (EP) of R833 million, up 11.2% (H1 2013: R749 million), notwithstanding an increased cost of equity of 13.5% (H1 2013: 13.0%). The return on average ordinary shareholders' equity (RoE), excluding goodwill, increased to 16.5% (H1 2013: 16.1%) and the RoE to 15.1% (H1 2013: 14.6%), driven by higher return on assets (RoA) to 1.22% (H1 2013: 1.15%). Nedbank remains well capitalised, with the Basel III common-equity tier 1 (CET1) ratio at 12.1% (December 2013: 12.5%). Funding and liquidity levels remained sound, with statutory liquid assets and cash reserves, including the surplus liquid-asset buffer of R26.4 billion (December 2013: R28.0 billion), increasing to R70.1 billion in June 2014 (December 2013: R69.7 billion) in preparation for the Basel III liquidity coverage ratio (LCR) transition period, which will come into effect on 1 January 2015. The net asset value per share continued to increase, growing 7.0% (annualised) to 13,596 cents from 13,143 cents in December 2013.
  • 24. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 24 Cluster performance Our competitive client-facing franchises provide a well-diversified earnings base and delivered an increased RoE of 19.6% (H1 2013: 17.6%) and headline earnings growth of 22.0%. Nedbank Capital’s growth in earnings and RoE was driven by strong NII growth and improvements in impairments mainly through recoveries on accounts that have been fully provided for. Pre-provisioning operating profit growth was 6.6%. The solid earnings growth in Nedbank Corporate was underpinned by continued growth in commercial mortgage and corporate advances, and in core transactional income. Impairments improved further as a result of good risk management across the portfolio while expenses continue to be well managed. Fair-value adjustments had a negative impact as, excluding fair-value adjustments, headline earnings grew 25.2% to R1,173 million (H1 2013: R937 million). Nedbank Business Banking reported a strong increase in headline earnings and RoE following the normalisation of impairments from a large single-client default in the comparative period. Pre-provisioning operating profit was up 6.5%. Sustained momentum in new-client acquisition and retention, aided by keeping transactional fees at 2013 levels and frontline effectiveness, contributed to quality-advances payouts and good growth in liabilities and current account creditors. This is notwithstanding the protracted challenges facing the small- and medium-enterprise sector in SA. Headline earnings in Nedbank Retail reflect the benefits of charting a new strategic growth path in 2010 to reposition the franchise sustainably while ensuring excellent risk management. Selective advances origination strategies at higher margins, particularly in home loans and personal loans, together with proactive risk mitigation in prior periods, led to the credit loss ratio (CLR) improving to the lower end of the cluster’s target range but also muted NIR growth. The strengthening of our transactional banking franchise continues as we consistently invest in our ‘branch of the future’ concept, maintaining our transactional banking fees at 2013 levels, bringing to market a lower-priced credit life product with improved benefits, and increasing our levels of marketing spend. Operating income has grown by 12% with pre-provisioning operating profit decreasing by 6.6%. Growth in Nedbank Wealth's headline earnings was driven by strong earnings growth in Wealth Management and Asset Management, offset by a slowdown in retail volumes, lower credit life pricing and higher weather-related short-term insurance claims. Headline earnings at the Centre include, among others, fair-value movements in the hedged portfolios that were negative and portfolio impairment provisions for ongoing uncertainty of R225 million (H1 2013: R140 million). The prior period included R88 million of reversals in insurance provisions that were not repeated. Detailed segmental information is available in the results booklet and on the Nedbank website at www.nedbankgroup.co.za under the 'Financial information' section. Financial performance Net interest income (NII) NII grew 9.3% to R11,263 million (H1 2013: R10,309 million), supported by growth in average interest-earning banking assets of 10.2%. The net interest margin (NIM) narrowed to 3.55% (H1 2013: 3.58%) as the benefit of increased endowment income from the interest rate increase in January was offset by asset and liability margin compression. The asset margin compression was due to advances mix changes mainly relating to lower-margin wholesale assets growing faster than retail assets, in particular higher-margin personal loans, and pricing pressure experienced in the motor finance and corporate property finance businesses. Liability margin compression arose from higher levels of competition for Basel III-friendly deposits. Impairments Impairments decreased 29.8% to R2,333 million (H1 2013: R3,325 million) and the CLR improved to 0.83% (H1 2013: 1.31%), comprising a specific charge of 0.78% and a portfolio charge of 0.05% (H1 2013: specific: 1.24% and portfolio: 0.07%). CLRs across all the clusters were either close to, or better than, the lower end of their respective through-the-cycle target ranges. A strong risk management and collections focus resulted in improved impairments across Nedbank. Our collections processes generated post write-off recoveries of R422 million (H1 2013: R412 million), including personal-loan recoveries of R153 million (H1 2013: R130 million). The CLR also benefited from the mix change in assets, as personal loans, which attract a higher level of impairments, now account for a smaller proportion of the overall advances categories. This was further supported by the lower CLR in Nedbank Capital, Corporate, Business Banking and Wealth. Total Nedbank defaulted advances decreased by 13.7% to R17,409 million (H1 2013: R20,176 million), with ongoing improvements in the residential mortgage and personal-loans books, partly offset by an increase in MFC (vehicle finance). The coverage ratio for total and specific impairments increased to 65.9% (H1 2013: 58.8%) and 42.7% (H1 2013: 40.9%) respectively. Portfolio coverage on the performing book was maintained at 0.7% (H1 2013: 0.7%). Non-interest revenue (NIR) Non-interest revenue (NIR) decreased to R9,480 million (H1 2013: R9,535 million) as a result of fair-value movements together with the outcomes of our strategic choices, the base effect of specific once-off items in the 2013 comparative period and a general slowdown in client transactional activity in the challenging consumer environment. Excluding movements in fair value, NIR increased 0.8%. In line with our commitment to sustainable banking practices, our strategic decision to slow down personal-loan growth, reduce the pricing of our credit life product with improved benefits, and maintain transactional fees at 2013 levels was the main driver of lower growth in commission and fee income of 2.9% to R6,970 million (H1 2013: R6,771 million) and insurance income decreasing 3.5% to
  • 25. Part 3 – Detailed Business Review 25 OLD MUTUAL plc INTERIM RESULTS 2014 R917 million (H1 2013: R950 million). Insurance income was further impacted by the increase in weather-related short-term insurance claims and a slowdown in insurance sales in line with low growth in the retail advances environment. Growth in trading income was 1.3% to R1,293 million (H1 2013: R1,276 million) off the high 2013 base. Private-equity income increased to R145 million (H1 2013: R59 million), following strong performance in Nedbank Capital private equity and mark-to-market revaluations of unlisted investments. Sundry income was 52.6% lower at R173 million (H1 2013: R365 million) as the comparative period included the central insurance provision releases referred to above. Expenses Expenses grew 8.9% to R11,712 million (H1 2013: R10,750 million), reflecting consistent investment in the bank’s franchise, including the reformatting of the retail branches, innovation to deliver efficiencies and optimise systems, and increased marketing spend. The underlying drivers include:  Staff-related costs increasing 9.6%, consisting of: o 7.1% growth in remuneration and other staff costs; o the short-term incentive increasing 24.5%, mostly due to timing and a lower level of accrual in the first half of 2013, and o the long-term incentive increasing 13.7%;  Computer processing and marketing costs up 17.0% and 14.5% respectively. Taxation Nedbank’s effective tax rate was maintained at 25.4% (H1 2013: 25.9%). Statement of financial position Capital Nedbank remains well capitalised, with all capital adequacy ratios well above the Basel III minimum regulatory capital requirements and within Nedbank’s Basel III internal target ranges. The CET1 ratio of 12.1% increased from 11.8% at June 2013, but decreased from 12.5% at December 2013 despite strong organic earnings growth due to relatively higher risk-weighted assets. The increase was mostly due to an updated personal-loan loss-given-default model, higher market risk arising from market volatility over the half-year-end and other assets, mainly sundry debtors, which will revert to normalised levels. Our tier 1 and total capital ratios decreased slightly relative to our ratios at December 2013 due to the grandfathering of old-style Basel II additional tier 1 and tier 2 instruments increasing from 10% to 20% in line with Basel III transitional requirements and the redemption of R1.7 billion of old-style Basel II tier 2 instruments in February 2014. To align with Nedbank’s capital plan and Basel III transitional requirements, we issued R2.2 billion of Basel III-compliant tier 2 debt instruments in April 2014. Further detail on risk and capital management will be available in the 'Risk and Balance Sheet Management review' section of Nedbank's analyst booklet and the Pillar 3 Report to be published on the website at nedbankgroup.co.za in September 2014. Funding and liquidity Our balance sheet remains well funded with a sound profile. In line with industry trends and market expectations of higher interest rates, the average long-term funding ratio for the second quarter moderated to 24.9% (average fourth quarter 2013: 26.2%). Nedbank successfully issued R4.3 billion in senior unsecured debt in the period, with tenors ranging between 3 and 10 years, and grew Nedbank Retail Savings Bonds by R1.1 billion, with the issued amount now totalling R10.7 billion. Nedbank maintained a strong liquidity position supported by a large portfolio of sources of quick liquidity and low interbank and foreign currency funding reliance. Statutory liquid assets and cash reserves, including the surplus liquid-asset portfolio of R26.4 billion (December 2013: R28.0 billion), increased to R70.1 billion in June 2014 (December 2013: R69.7 billion). Further increases in high-quality liquid assets are planned for the second half of 2014 ahead of the Basel III liquidity coverage ratio (LCR) transition period, which will see the minimum LCR requirement increase from a starting point of 60% in January 2015 to 100% by January 2019. Overall Nedbank is well positioned to exceed the minimum LCR requirements within the transition period. Loans and advances Loans and advances grew 10.0% (annualised) to R608.2 billion (December 2013: R579.3 billion), underpinned by gross new payouts in banking advances of R86.1 billion (June 2013: R83.0 billion). Nedbank Capital’s banking advances, although up 17.4% on June 2013 due to the successful conversion of assets in the second half of 2013, decreased in the six months to June 2014 as a result of some large repayments in early 2014. Growth in trading advances, the more volatile component of the advances book, was driven by foreign-currency placements and deposits placed under reverse repurchase agreements. Advances growth in Nedbank Corporate was primarily driven by commercial mortgages increasing 20.5% (annualised) from drawdowns in deals concluded in prior periods, and term loans in Corporate Banking growing 12.3% (annualised). Nedbank Business Banking’s advances growth was supported by sustained levels of asset payouts and good client acquisitions, offset by slower drawdowns and early settlements.
  • 26. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 26 Retail banking advances growth was led by the portfolio tilt strategy of selective origination resulting in personal loans and home loans decreasing 17.8% and 0.9% respectively, and an increase in Card and MFC of 17.1% and 8.2% respectively. Advances movements at the Centre primarily reflect increased business activity in the Rest of Africa Division. Deposits Deposits grew 9.6% (annualised) to R631.7 billion (December 2013: R603.0 billion) and the loan-to-deposit ratio was maintained at 96.3% (June 2013: 96.3%). Call and term deposits and fixed deposits grew strongly at 15.7% and 15.0% respectively, with excellent contributions from Nedbank Capital, Corporate and Business Banking. Current accounts increased 7.8%, with steady growth from across all the clusters, and savings accounts grew 14.4%, driven by strong growth in Nedbank Wealth. Overall the underlying momentum was favourable, with good growth in term funding categories and a significant decrease of higher-cost funding categories such as negotiable certificates of deposit that decreased 36.3%. Economic outlook In contrast to the improving global economic environment, SA’s economy is expected to remain under pressure, although the strengthening international environment and weak rand should support moderate recovery off a low base in the second half of the year. Nedbank has revised its 2014 growth forecast for GDP downwards to 1.8% from 2.6% at the beginning of the year. Downside risk remains high as economic recovery will be affected by the extent of continued industrial action. The operating environment for the banking industry is expected to remain difficult, characterised by low levels of retail credit demand, relatively subdued transactional activity and increased risk of bad debts. In addition, interest rates are currently expected to increase by a further 25 bps this year, resulting in a cumulative increase of 100 bps by the end of 2014. Further sovereign rating downgrades would lead to additional tightening of the monetary policy. This is likely to place further pressure on consumers and overall growth rates. Prospects Our updated guidance on financial performance for the full year is as follows:  Advances to grow at mid-to-upper single digits  NIM to be slightly below the 2013 level of 3.57%  CLR to improve from the 2013 level, to below the mid-point of the through-the-cycle target range of 80 to 120 bps  NIR (excluding fair-value adjustments) to grow at low-to-mid single digits  Expenses to increase by mid-to-upper single digits Our financial guidance for organic growth in diluted HEPS in 2014 to be greater than nominal GDP growth remains unchanged as communicated at the 2013 annual results presentation.
  • 27. Part 3 – Detailed Business Review 27 OLD MUTUAL plc INTERIM RESULTS 2014 Nedbank data tables (Rand) Cluster performance Headline earnings (Rm) RoE (%) H1 2014 H1 2013 % change H1 2014 H1 2013 Nedbank Capital 1,053 801 31% 31.6% 28.4% Nedbank Corporate 1,159 1,069 8% 22.8% 25.9% Nedbank Business Banking 512 349 47% 19.5% 15.2% Nedbank Retail 1,319 1,054 25% 12.5% 10.0% Nedbank Wealth 464 421 10% 33.9% 35.9% Operating units 4,507 3,694 22% 19.6% 17.6% Centre 92 220 (58)% Total 4,599 3,914 18% 15.1% 14.6% Credit loss ratio analysis (%) H1 2014 H1 2013 FY 2013 Specific impairments 0.78 1.24 0.97 Portfolio impairments 0.05 0.07 0.09 Total credit loss ratio 0.83 1.31 1.06 Credit loss ratio (%) H1 2014 H1 2013 FY 2013 Through-the- cycle target ranges % banking advances Nedbank Capital 12.6 (0.04) 0.77 0.51 0.10 – 0.55 Nedbank Corporate 32.9 0.22 0.30 0.23 0.20 – 0.35 Nedbank Business Banking 11.5 0.44 1.02 0.65 0.55 – 0.75 Nedbank Retail 36.3 1.90 2.56 2.16 1.90 – 2.60 Nedbank Wealth 4.1 0.21 0.24 0.28 0.20 – 0.40 Total 0.83 1.31 1.06 0.80 – 1.20 Capital (%) 30-Jun-14 ratio (Basel III) 30-Jun-13 ratio (Basel III) Internal target range (Basel III) Regulatory minimum ¹ Common equity Tier 1 ratio 12.1 11.8 10.5-12.5 5.5 Tier 1 ratio 13.1 13.0 11.5-13.0 7.0 Total capital ratio 15.0 14.8 14.0-15.0 10.0 Ratios calculated include unappropriated profits ¹ The Basel III regulatory requirements are being phased in between 2013 and 2019, and exclude the Pillar 2b add-on
  • 28. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 28 Loans and advances by cluster Rm 30-Jun-14 31-Dec-13 % change (annualised) Banking activity 70,304 72,066 (4.9)% Trading activity 44,728 37,483 39.0% Nedbank Capital 115,032 109,549 10.1% Nedbank Corporate 192,234 175,274 19.5% Nedbank Business Banking 63,732 62,785 3.0% Nedbank Retail 196,830 195,435 1.4% Nedbank Wealth 24,597 22,082 23.0% Other 15,785 14,247 21.8% Total 608,210 579,372 10.0%
  • 29. Part 3 – Detailed Business Review 29 OLD MUTUAL plc INTERIM RESULTS 2014 OLD MUTUAL WEALTH Highlights H1 2014 H1 2013 % change AOP (IFRS basis, pre-tax) (£m) 120 108 11% NCCF (£bn) 1.2 0.8 50% FUM (£bn) ¹ 80.3 78.5 2% Pre-tax revenue operating margin ² 40% 36% 400bps ¹ Comparative information for FUM is presented as at 31 December 2013 ² Pre-tax revenue operating margin is calculated as pre-tax AOP divided by net revenue Operating environment UK retail investment markets were generally strong in the period. The European markets were strong in the period but confidence has not improved, with considerable concern over continued low economic growth. Despite UK equity markets being relatively flat, we have experienced strong flows this year. Equity asset classes remain more attractive than bond markets in an ongoing low interest rate environment. Within the equity market, we are seeing some sector rotation out of the UK and into the Far East and emerging markets. The regulatory environment continued to favour our business model with further liberalisation of UK pensions. The increased flexibility and changes in the charging basis of the UK platform market have resulted in higher levels of registration and re-registration of non- insurance wrapped business. Sterling continued to strengthen against the US Dollar and Euro, reducing fund values and revenues in Sterling terms for funds denominated in those currencies. This is most relevant for our International business and European operations in the first half of 2014. Business developments We have made significant progress in our strategy of developing into a vertically-integrated wealth and asset management business over the first half of the year. During the period, we completed the sale of Skandia Poland to Vienna Insurance Group. We also announced the sale of the German and Austrian businesses to Heidelberger Leben Group, which we expect to complete in the second half of 2014, for an aggregated consideration of €220 million with an associated write down in intangible assets and goodwill of £125 million. We announced that we would acquire Intrinsic, a large UK distribution business with 3,000 advisers. This transaction completed in July 2014. Our UK Platform and protection products and some of the OMGI fund range have been added to Intrinsic’s product panels for its 840 restricted advisers. We also announced our intention to acquire the remaining 50% stake in the Intrinsic Cirilium Investment Company Limited (ICICL) from Henderson Global Investors, which we expect to complete in Q4 2014. Both of these acquisitions further enhance our integrated customer proposition that encompasses advice, asset management, platform and products. OMGI is now available on all major distribution platforms in the UK and its success over the past year was recognised at the 2014 Investment Week Fund Manager of the Year Awards, where it was awarded Global Group of the Year. We launched WealthSelect in the UK and this is performing as expected. The majority of customers are investing in our Managed Portfolio Service (MPS) offering and 83% are choosing an active investment portfolio. We continue to review the funds available to enhance the proposition and offer financial advisers and customers access to the very best fund managers at a highly competitive price. In our International business, we launched our new high net-worth product, Silk Life Plan, in Hong Kong and Singapore at the start of July, which will be distributed via an important new partnership with Jardine Lloyd Thompson (JLT), one of the largest brokers in Asia. The partnership is a significant milestone in our Asian strategy allowing us to offer our award-winning product and expertise to a broader set of customers. With the additional capability that Wealth Interactive will provide once implemented within our International businesses, we intend to increase our penetration in the markets we operate, delivering flexible and user friendly products on an efficient platform. We are continuing to progress with our outsourcing contract with IFDS which will boost product capability and lower our cost base from 2016. The Old Mutual Wealth brand will appear on UK television for the first time in partnership with Sky Sports golf as well as on outdoor advertising and a wide range of consumer and trade media as part of the renaming of the business. This will generate public awareness of our new brand following the disposal of the Group’s Nordic businesses. IFRS AOP results Old Mutual Wealth AOP increased by 11% to £120 million (H1 2013: £108 million) through strong growth in our asset management and UK Platform businesses and a reducing expense base. Adverse foreign exchange movements against the US Dollar and Euro reduced earnings by approximately £7 million compared with H1 2013.
  • 30. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 30 OMGI delivered strong profits of £16 million, 100% higher than prior period (H1 2013: £8 million) with the operating margin improving to 28% as funds under management rise. We have seen strong net inflows to our higher margin Alternatives and Equities desks with some outflows from lower margin sub-advised funds. UK Platform had significant growth with profits up to £10 million from £2 million at H1 2013 reflecting higher FUM and increased gross inflows over 2014. We continue to seek operational efficiencies to manage the cost base and ensure our platform remains highly competitive. Profits from our International business reduced by 26% to £23 million (H1 2013: £31 million), with exchange movements reducing fund values and fee income by £5 million, whilst the cost base is largely in Sterling. Europe Open book increased profits to £14 million, 27% higher than prior period (H1 2013: £11 million) on the back of higher average FUM and increased efficiencies in Italy. Our Heritage business maintained its profitability in line with prior year (H1 2013: £53 million) despite the reduction in FUM as the book runs off. Expenses have reduced as we focus resources on our core growth markets. Net client cash flow (NCCF) NCCF of £1.2 billion was 50% higher than prior period (H1 2013: £0.8 billion) with strong sales in OMGI and UK Platform. OMGI NCCF of £1.1 billion was significantly higher than prior year (H1 2013: £0.2 billion) driven by strong performance via UK third party sales. Outflows via UK third party institutional channels occurred in the second quarter, including the loss of a £248 million segregated mandate and a further £153 million outflow from our divested Nordic business (H1 2013: £782 million). These were largely low margin mandates. UK Platform delivered NCCF of £0.9 billion, 31% lower than prior year (H1 2013: £1.3 billion). Outflows have been higher in 2014 for ISAs and collective investment accounts. We saw outflows of £89 million from a single broker due to a change in their proposition to a more discretionary approach and their preference for an extended range of investment vehicles. International NCCF of £80 million was 68% lower than prior year (H1 2013: £254 million). Outflows were 20% higher, in part due to a single large policy which surrendered in the second quarter of the year. Within our Europe Open business, NCCF of £207 million was 43% below prior year (H1 2013: £364 million). Sales were 12% lower than prior year primarily due to strong sales in Italy in the first half of 2013 and management actions. Surrenders were 14% higher due to two large policies in the first quarter of the year. NCCF in our Heritage businesses had a net outflow of £513 million, which was 14% better than the prior year reflecting the continued success of the retention strategies in place throughout the business. Surrender rates reduced to 9.1% from 11.2% for the same period last year. Funds under management Funds under management rose to £80.3 billion, due to market gains and positive NCCF. Exchange rate movements reduced the growth to 2%. UK Platform assets were £28.8 billion, up 5% since the start of the year (December 2013: £27.3 billion). OMGI FUM was £17.0 billion, up 6% on the start of the year (December 2013: £16.0 billion). Investment performance was good, with 47% of OMGI core funds in the first quartile over a three year period and a total of 64% of funds above the median. Global strategic bond and small/mid cap fund performance was weaker given active conviction on future interest rate movements and stock picking respectively. Gross sales Gross sales increased by 15% compared to the prior period to £7.7 billion (H1 2013: £6.7 billion) driven by strong performance in OMGI and the UK Platform. OMGI gross sales of £4.5 billion were 29% higher than prior year (H1 2013: £3.5 billion) driven by strong sales performance through UK third parties and improving sales penetration from UK Platform. We saw strong flows into our Alternative investment desk with sales four times higher than last year. Our Global Equity Absolute Return fund performed particularly well and has generated sales of £608 million. Sales in the UK equity asset classes were 90% higher than prior year driven by strong flows into UK Alpha. Our multi-asset Spectrum fund range delivered £348 million of sales in the year and WealthSelect has net new sales of £160 million at H1 2014, with a further £65 million in July 2014. UK Platform sales of £2.5 billion were 11% above prior year (H1 2013: £2.3 billion) with all products delivering higher sales. ISA sales were particularly impressive and were 16% up on prior year. Our personal pension sales were 7% higher than prior year. Platform flows into OMGI from both new business and internal transfers were £775 million over H1 2014, representing 31% of total platform sales (H1 2013: 15%, FY 2013: 16%). The increase over prior periods is in part due to existing Platform funds transferring into our WealthSelect proposition. International cross-border sales of £892 million were 4% lower than prior year (H1 2013: £931 million). Sales in the UK, Latin America and South Africa were all higher than the same period last year. The Far East has seen lower sales so far this year, but has improved over the second quarter as sales in Hong Kong recovered.
  • 31. Part 3 – Detailed Business Review 31 OLD MUTUAL plc INTERIM RESULTS 2014 Within our Europe Open business, sales in Italy of £521 million were 17% below the prior year largely as a result of specific management actions to manage new business strain and exceptional sales in 2013 (H1 2013: £625 million). In France, we started the year strongly and despite a challenging second quarter, year to date sales of £150 million were 6% above prior year (H1 2013: £142 million). Heritage top-ups on existing business were down 10% from prior year to £351 million, as the closed books of business run off and new flows move to more recent product types. Outlook Our penetration of sales through UK Platform into OMGI is expected to continue the trend seen in the first half of the year. In H2 2014 we expect OMGI third party sales in the UK to continue to perform well, building on the strong start to the year, supported by growing sales of WealthSelect. We expect to see the sector rotation out of UK small/mid cap into Global, Asian and Global Emerging Market asset classes continue throughout H2, supporting our strategy to grow our breadth of asset capabilities. We expect continued development of our asset management capabilities, in particular through our offshore distribution strategy and the inclusion of Cirilium. We are progressing well with the integration of Intrinsic into Old Mutual Wealth following completion of the acquisition on 1 July 2014. Integration costs are expected to be incurred in the second half of the year. The addition of our UK Platform and protect products to the Intrinsic restricted advice panel is expected to support NCCF from the third quarter. Nevertheless, we have a cautious outlook for the second half of the year as we anticipate continued re-registrations within our UK Platform business and further losses of low margin administrative mandates in our UK Other business. We expect modest growth of sales in our International business notwithstanding the launch of our Silk Life Plan. The first half-results include the profits arising from our businesses in Poland, which has been sold, Germany and Austria, the sales of which we expect to complete in the second half of 2014. The profit target for Old Mutual Wealth of £300m by 2015 included a contribution from these businesses. As they have now been sold, the target for Old Mutual Wealth has been adjusted and is now £270 million.
  • 32. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 32 Old Mutual Wealth data tables (Sterling) Adjusted operating profit £m H1 2014 H1 2013 % change Invest & Grow markets UK Platform 10 2 400% UK Other ¹ 4 3 33% International 23 31 (26)% Old Mutual Global Investors 16 8 100% Total Invest & Grow 53 44 20% Manage for Value markets Europe - Open book ² 14 11 27% Heritage business ³ 53 53 - Total Manage for Value 67 64 5% Total Old Mutual Wealth 120 108 11% ¹ Includes Protection, Series 6 pensions and UK Institutional business ² Includes business written in France, Italy and Poland ³ Includes UK Heritage and Europe Heritage (Germany, Austria, Switzerland and Liechtenstein) Gross sales and funds under management £bn FUM 1-Jan-14 Gross sales Redemptions Net flows Market and other movements FUM 30-Jun-14 Invest & Grow markets UK Platform ¹ 27.3 2.5 (1.6) 0.9 0.6 28.8 UK Other ² 5.6 0.3 (0.3) - - 5.6 International 15.0 0.9 (0.8) 0.1 - 15.1 Old Mutual Global Investors ³ ⁴ ⁵ 16.0 4.5 (3.4) 1.1 (0.1) 17.0 Total Invest & Grow 63.9 8.2 (6.1) 2.1 0.5 66.5 Manage for Value markets Europe - Open book ⁶ 6.6 0.7 (0.5) 0.2 (0.4) 6.4 Heritage business ⁷ 15.4 0.4 (1.0) (0.6) 0.4 15.2 Total Manage for Value 22.0 1.1 (1.5) (0.4) - 21.6 Elimination of intra-Group assets ⁴ ⁸ (7.4) (1.6) 1.1 (0.5) 0.1 (7.8) Total Old Mutual Wealth 78.5 7.7 (6.5) 1.2 0.6 80.3
  • 33. Part 3 – Detailed Business Review 33 OLD MUTUAL plc INTERIM RESULTS 2014 £bn FUM 1-Jan-13 Gross sales Redemptions Net flows Market and other movements FUM 30-Jun-13 Invest & Grow markets UK Platform ¹ 22.6 2.3 (1.0) 1.3 1.1 25.0 UK Other ² 4.7 0.4 (0.4) - 0.5 5.2 International 13.9 0.9 (0.6) 0.3 0.5 14.7 Old Mutual Global Investors ³ ⁴ ⁵ 13.8 3.5 (3.3) 0.2 0.8 14.8 Total Invest & Grow 55.0 7.1 (5.3) 1.8 2.9 59.7 Manage for Value markets Europe - Open book ⁶ 5.9 0.8 (0.4) 0.4 0.1 6.4 Heritage business ⁷ 14.3 0.4 (1.1) (0.7) 2.0 15.6 Total Manage for Value 20.2 1.2 (1.5) (0.3) 2.1 22.0 Elimination of intra-Group assets ⁴ ⁸ (6.0) (1.6) 0.9 (0.7) 0.2 (6.5) Total Old Mutual Wealth 69.2 6.7 (5.9) 0.8 5.2 75.2 ¹ UK Platform FUM excludes intra-Group assets from our International business of £1.5 billion at 30 June 2014 (30 June 2013: £1.5 billion) ² Includes Protection, Series 6 pensions and UK Institutional business ³ OMGI redemptions include Nordic sale-related net outflow of £153 million in H1 2014 (H1 2013: £782 million) ⁴ OMGI and intra-Group eliminations include gross inflows from the Heritage business of £0.3 billion (H1 2013: £1.0 billion) ⁵ OMGI FUM includes £0.1 billion of shareholder assets (H1 2013: £0.1 billion) ⁶ Includes business written in France, Italy and Poland ⁷ Includes UK Heritage and Europe Heritage (Germany, Austria, Switzerland and Liechtenstein) ⁸ Assets and flows managed by OMGI on behalf of other Old Mutual Wealth businesses
  • 34. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 34 INSTITUTIONAL ASSET MANAGEMENT Consisting of US Based Affiliates and Other Institutional. Further information is included in the Financial Disclosure Supplement. Highlights H1 2014 H1 2013 Reported % change AOP (IFRS basis, pre-tax) ($m) 91 84 8% Operating margin, before non-controlling interests 33% 33% Operating margin, after non-controlling interests 28% 29% Net client cash flow ($bn) (1.3) 10.6 (112)% Funds under management ($bn) ¹ 273.0 257.4 6% ¹ Comparative information for FUM is presented as at 31 December 2013 Overview Institutional Asset Management experienced growth in both AOP and FUM during the period, benefiting from positive markets and continued strong long-term investment performance. Net client cash flows were volatile but improved during the second half of the period. IFRS AOP of $91 million was up 8% on the H1 2013 reported result, while FUM grew 6% from 31 December 2013. Business developments In June 2014, the line management of Rogge Global Partners, the segment’s UK-based global fixed income manager, changed to report directly to Old Mutual plc; however the transition has no impact on Rogge’s investment process, client service, or day to day management of the firm. Also in June 2014, the Group announced the filing of a registration statement for its proposed minority IPO of Old Mutual Asset Management (OMAM), a newly formed holding company for the Group’s US based institutional asset management business. IFRS AOP results and operating margin1 Revenues of $329 million for the period were 12% higher than H1 2013 ($294 million), driven by higher average FUM. IFRS AOP of $91 million increased by 8% (H1 2013: $84 million). AOP margin remained the same as the comparative period at 33% before non-controlling interests, but was down marginally to 28% after non-controlling interests due to the changes in the mix of profits between affiliates. Investment performance2 US Based Affiliates’ aggregate investment performance is reported as weighted by the revenue generated by its products. As of 30 June 2014, assets representing 70%, 73%, and 75% of revenue outperformed benchmarks over the one-, three- and five-year periods (31 March 2014: 77%, 93%, and 68%). On an asset weighted basis, over the one-, three- and five-year periods ended 30 June 2014, 57%, 62% and 61% of assets outperformed benchmarks, compared to 84%, 94% and 55% at 31 March 2014. The decline in one- and three-year performance from 31 March 2014 was primarily driven by one strategy underperforming its respective benchmark. Continued strong long-term investment performance and improved distribution capabilities remain key to generating future positive cash flows. We consistently monitor capacity in our investment strategies and products with the aim of generating alpha for our clients. Rogge’s investment performance has improved during the course of the half year. 1 H1 2013 reported results include Echo Point which was discontinued in Q4 2013 2 Investment performance results exclude Rogge which was transferred to Old Mutual plc in Q2 2014
  • 35. Part 3 – Detailed Business Review 35 OLD MUTUAL plc INTERIM RESULTS 2014 Funds under management and net client cash flows $bn H1 2014 H1 2013 ¹ Opening FUM 257.4 208.6 Gross inflows 16.5 22.5 Gross outflows (16.9) (11.3) Total client driven net flows (0.4) 11.2 Hard asset disposals (0.9) (0.6) Net client cash flow (1.3) 10.6 Disposals (0.4) - Market and other 17.3 10.6 Closing FUM 273.0 229.8 ¹ H1 2013 reported results include Echo Point which was discontinued in Q4 2013 FUM increased by $15.6 billion or 6% to $273.0 billion (31 December 2013: $257.4 billion) driven by $17.3 billion of market appreciation, partially offset by $1.3 billion of net client cash outflows. FUM consists primarily of long-term investment products diversified across equities (61.8%), fixed income (25.3%) and alternative investments (12.9%). Net client cash outflows were largely concentrated in global fixed income strategies, as investors generally favoured equity products during the period. Despite the NCCF outcome for the half year, net client cash flows during the period are expected to result in a $8.5 million positive impact to annualised revenue due to the concentration of our inflows in higher fee products relative to our outflows. Gross inflows totalled $16.5 billion (H1 2013: $22.5 billion), with flows driven by US mid cap value equities, global low/managed volatility equities, international equities, global value equities and emerging markets equities. These inflows included $6.0 billion from new client accounts. Gross outflows including hard asset disposals totalled $17.8 billion (H1 2013: $11.9 billion), concentrated in US large cap value and international equities and global fixed income. The $0.9 billion of investment-driven hard asset disposals relate to Heitman, Institutional Asset Management’s real estate manager. Non-US clients currently account for 35% of FUM (31 December 2013: 36%). International equity, emerging markets, global equity, global fixed income and currency products account for 52% of year-end FUM (31 December 2013: 52%). Institutional Asset Management’s Global Distribution initiative raised $3.5 billion in total assets which were funded in H1 2014. Outlook The industry is experiencing a period of heightened volatility in NCCF. Recent strong equity market performance, as well as the impact on bond markets of continued low interest rates, is resulting in asset reallocation decisions by trustees and changes in recommendations by their investment consultants. Likewise, as is normal in a period of management transition such as the one currently occurring at Rogge, there is a higher probability of volatility in inflows and outflows. Rogge’s 2014 AOP result is expected to be approximately break-even. The business remains focused on developing capabilities in international equities and further penetration of non-US markets, including through its Global Distribution initiative. It continues to pursue other growth initiatives, including collaborative investments in affiliate growth, as well as strategic partnerships with high-quality boutique asset management firms with complementary investment products.
  • 36. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 36 NON-CORE BUSINESS – BERMUDA Old Mutual Bermuda is in run-off and closed to new business, consequently it is treated as non-core business; its results are excluded from the Group’s IFRS AOP, although the interest on inter-company loan notes from Bermuda to Group Head Office is charged against the AOP of the core business of the Group. Overview and operating environment Bermuda has continued to implement its run-off strategy of risk reduction while managing for value. In July 2014, the Bermuda Monetary Authority (BMA) agreed to the release of $160 million of capital through the cancellation of inter-company loan notes, reflecting the reduction in size of the remaining liabilities, risk management strategies and de-risking actions taken. Surrender development The development of the Bermuda policyholder account values is shown below: $m 30-Jun-14 31-Dec-13 % change Account Value: GMAB 930 1,031 (10)% Account Value: Non-GMAB 356 407 (13)% Total Account Value 1,286 1,438 (11)% The value of surrenders in H1 2014 was $181 million (H1 2013: $895 million), which represented approximately 13% of opening assets under management (H1 2013: 33%). The decrease in surrender experience for H1 2014 is as expected, and primarily attributable to the higher surrender rates experienced during the fifth year anniversary top-up period for the Universal Guarantee Option (UGO) Guaranteed Minimum Accumulation Benefit (GMAB) policies. This top-up period ended in H1 2013. Policy count in 2014 is considerably below that of 2013. Business developments Due to the significantly reduced book size and the resultant reduction in market risk exposure, a dynamic tail hedging strategy was implemented in May 2014, hedging the GMAB liability against adverse equity and forex markets and replacing the existing 50% dynamic hedging strategy. The objective of the dynamic tail hedging strategy is to protect the company from catastrophic market losses amounting to more than 40% of the 120% guarantee value. The main benefit of the change will be to reduce initial and variation margin costs of the hedge and conserve short-term liquidity. Although some increased volatility of earnings is expected, the required capital is comparable with the 50% dynamic hedging strategy. IFRS results The IFRS post-tax profit for the period was $23 million (H1 2013: $3 million profit) mainly due to the $22 million favourable guarantee performance net of hedging. GMAB reserves have reduced by $28 million over the period. Total insurance liabilities Insurance liabilities at 30 June 2014 were $1,342 million (H1 2013: $1,809 million); these included:  $1,128 million (H1 2013: $1,379 million) was held in separate accounts relating to variable annuity investments, of which $930 million was related to GMAB policies (H1 2013: $1,164 million)  $56 million (H1 2013: $138 million) related to the variable annuity guarantee reserve on the GMAB policies  $158 million (H1 2013: $292 million) related to other policyholder liabilities. These included deferred and fixed indexed annuity businesses as well as variable annuity fixed credited interest investments.
  • 37. Part 3 – Detailed Business Review 37 OLD MUTUAL plc INTERIM RESULTS 2014 Reserve development The movement in guarantee reserves over the last year is shown below. All fifth anniversary top-up payments were completed by the end of August 2013: $m 30-Jun-14 31-Dec-13 30-Jun-13 Guarantee reserves: UGO GMAB ¹ 53 79 128 Guarantee reserves: CGO GMAB ² 3 5 10 Total 56 84 138 ¹ Universal Guaranteed Option (UGO) Guaranteed Minimum Accumulation Benefit (GMAB) ² Capital Guarantee Option (CGO) Guaranteed Minimum Accumulation Benefit (GMAB) The majority of the variable annuity guarantee reserve relates to contracts with UGO GMABs. The UGO GMAB reserve was $53 million, a decrease of $26 million year to date, mainly due to improved overall equity market levels and higher levels of UGO GMAB surrenders at 30 June 2014, than those assumed for reserving purposes. The UGO GMAB reserve relates to the full remaining period of the relevant policies, including the 10-year 120% top-up of total premiums and any contracts with a Highest Anniversary Value (HAV) feature. At 30 June 2014, circa 86% of the UGO GMAB book on a guarantee amount basis had a HAV feature, which gives customers a 10-year guarantee value based on the highest policy value at any anniversary date. As at 30 June 2014, circa 13% (account value $98 million) of the total UGO GMAB book had a 10-year guarantee above 120%. At 30 June 2014, the Hong Kong policies constituted 84% of the remaining UGO GMAB reserve on a HAV spread liability basis. A 5- year hedge was purchased in Q2 2013 for the 10-year risk associated with the HAV feature of the Hong Kong policies which could potentially arise in 2017-18. This hedge (HAV Options) provides protection against markets rising above the 120% guarantee and subsequently falling, and is expected to reduce future volatility of earnings and capital requirements emanating from the HAV. The CGO GMAB reserve relates to the remaining period of the 7-year (107%) and the 10-year (110%) respective top-ups and does not include a HAV feature. Treasury management of Bermuda assets The Bermuda business assets backing the liabilities include: $m 30-Jun-14 31-Dec-13 % change Cash and other liquid assets 50 71 (30)% Treasury Portfolio 61 62 (2)% Fixed Income general account portfolio 4 5 (20)% Collateral for hedge assets & FV of equity options 19 32 (41)% Inter-company loan notes 454 466 (3)% Investment in affiliated subsidiary (Group seed investments) 260 260 0% Separate Account assets 1,128 1,234 (9)% Other assets 18 27 (33)% Total Assets 1,994 2,157 (8)% The inter-company loan notes are structured in tranches allowing capital and treasury management flexibility, when cash is required from this source. Additional cash funding may also be required to provide for increases in fixed surrenders, margin collateral due to the dynamic tail hedging activity depending on market movements, changes in hedging strategy and implementation of strategic initiatives to allow Old Mutual to exit Bermuda upon completion of the top-ups in 2018.
  • 38. Part 3 – Detailed Business Review OLD MUTUAL plc INTERIM RESULTS 2014 38 Capital and surplus Statutory capital increased to $627 million at 30 June 2014 (31 December 2013: $604 million), reflecting the $23 million profit earned in the first half of the year. Capital allocated to the business on a local level takes into account the inter-company loan notes from the business to the Group. In July 2014, the BMA approved a $160 million capital release in the form of a cancellation of inter-company loan notes from the business to the Group. The capital and liquidity needs of the business will be kept under review as the run-off continues. Strategy and outlook Old Mutual Bermuda will continue to implement its run-off strategy of minimising risk while managing for value.
  • 39. Part 4 – Financial information 39 OLD MUTUAL plc INTERIM RESULTS 2014 Index to the financial information For the six months ended 30 June 2014 Statement of directors’ responsibilities in respect of the interim financial statements for the six months ended 30 June 2014 40 Independent review report to the members of Old Mutual plc for the six months ended 30 June 2014 41 Consolidated income statement 42 Consolidated statement of comprehensive income 43 Reconciliation of adjusted operating profit to profit after tax 44 Consolidated statement of financial position 46 Consolidated statement of cash flows 47 Consolidated statement of changes in equity 48 Notes to the consolidated financial statements A: Significant accounting policies 54 B: Segment information 56 C: Other key performance information 70 D: Other income statement notes 76 E: Financial assets and liabilities 78 F: Other notes 90 G: Discontinued operations and disposal groups held for sale 91 MCEV information 92
  • 40. OLD MUTUAL plc INTERIM RESULTS 2014 40 Statement of directors’ responsibilities in respect of the interim financial statements For the six months ended 30 June 2014 We confirm that to the best of our knowledge:  The Group interim financial statements contained herein are presented in accordance with the requirements of IAS 34 'Interim Financial Reporting' as adopted by the EU.  The interim management statement includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. Julian Roberts Ingrid Johnson Group Chief Executive Group Finance Director 7 August 2014 7 August 2014
  • 41. 41 OLD MUTUAL plc INTERIM RESULTS 2014 Independent review report to the members of Old Mutual plc For the six months ended 30 June 2014 Introduction We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 June 2014 which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows and the related explanatory notes, which include the reconciliation of adjusted operating profit to profit after tax. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules (“the DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”). 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 financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the DTR of the UK FCA. The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this interim financial report has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the EU. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. Philip Smart (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 7 August 2014
  • 42. OLD MUTUAL plc INTERIM RESULTS 2014 42 Consolidated income statement For the six months ended 30 June 2014 £m Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Revenue Gross earned premiums B2 1,618 1,995 3,701 Outward reinsurance (154) (162) (317) Net earned premiums 1,464 1,833 3,384 Investment return (non-banking) 3,529 4,489 9,986 Banking interest and similar income 1,415 1,573 3,050 Banking trading, investment and similar income 83 110 195 Fee and commission income, and income from service activities 1,413 1,576 3,095 Other income 54 60 100 Total revenue 7,958 9,641 19,810 Expenses Claims and benefits (including change in insurance contract provisions) (2,260) (2,295) (5,410) Reinsurance recoveries 66 118 246 Net claims and benefits incurred (2,194) (2,177) (5,164) Change in investment contract liabilities (1,845) (3,000) (5,873) Losses on loans and advances (130) (234) (368) Finance costs (64) (23) (81) Banking interest payable and similar expenses (770) (832) (1,616) Fee and commission expenses, and other acquisition costs (437) (538) (976) Change in third-party interest in consolidated funds (194) (271) (564) Other operating and administrative expenses (1,760) (1,770) (3,653) Total expenses (7,394) (8,845) (18,295) Share of associated undertakings' and joint ventures' profit after tax 10 10 21 Loss on disposal of subsidiaries, associated undertakings and strategic investments C1(c) (10) (1) (4) Profit before tax 564 805 1,532 Income tax expense D1 (218) (250) (552) Profit from continuing operations after tax 346 555 980 Discontinued operations (Loss)/profit from discontinued operations after tax G1 (10) (8) 3 Profit after tax for the financial period 336 547 983 Attributable to Equity holders of the parent 213 414 705 Non-controlling interests Ordinary shares 114 124 259 Preferred securities 9 9 19 Profit after tax for the financial period 336 547 983 Earnings per share Basic earnings per share based on profit from continuing operations (pence) 4.7 9.1 14.9 Basic earnings per share based on profit from discontinued operations (pence) (0.2) (0.2) 0.1 Basic earnings per ordinary share (pence) C2(a) 4.5 8.9 15.0 Diluted basic earnings per share based on profit from continuing operations (pence) 4.3 8.5 13.8 Diluted basic earnings per share based on profit from discontinued operations (pence) (0.2) (0.2) 0.1 Diluted basic earnings per ordinary share (pence) C2(b) 4.1 8.3 13.9 Weighted average number of ordinary shares (millions) C2(a) 4,462 4,436 4,442
  • 43. 43 OLD MUTUAL plc INTERIM RESULTS 2014 Consolidated statement of comprehensive income For the six months ended 30 June 2014 £m Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Profit after tax for the financial period 336 547 983 Other comprehensive income for the financial period Items that will not be reclassified subsequently to profit or loss Fair value gains/(losses) Property revaluation 6 (3) 23 Measurement gains on defined benefit plans 1 2 70 Income tax on items that will not be reclassified subsequently to profit or loss D1(c) 3 4 (12) 10 3 81 Items that may be reclassified subsequently to profit or loss Fair value gains/(losses) Net investment hedge 14 9 43 Available-for-sale investments Fair value gains/(losses) 15 (7) (5) Recycled to profit or loss - (8) (9) Exchange difference recycled to profit or loss on disposal of business (1) - - Currency translation differences on translating foreign operations (269) (346) (1,257) Other movements 2 4 9 Income tax on items that may be reclassified subsequently to profit or loss D1(c) (3) 1 2 (242) (347) (1,217) Total other comprehensive income for the financial period from continuing operations (232) (344) (1,136) Total other comprehensive income for the financial period (232) (344) (1,136) Total comprehensive income for the financial period 104 203 (153) Attributable to Equity holders of the parent 39 202 (96) Non-controlling interests Ordinary shares 56 (8) (76) Preferred securities 9 9 19 Total comprehensive income for the financial period 104 203 (153)
  • 44. OLD MUTUAL plc INTERIM RESULTS 2014 44 Reconciliation of adjusted operating profit to profit after tax For the six months ended 30 June 2014 £m Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Core operations Emerging Markets B3 291 300 594 Nedbank B3 361 387 797 Old Mutual Wealth B3 120 108 217 Institutional Asset Management B3 54 54 111 826 849 1,719 Finance costs B3 (41) (46) (92) Long-term investment return on excess assets 13 25 43 Net interest payable to non-core operations (2) (6) (11) Corporate costs (25) (21) (54) Other net (costs)/income (10) - 7 Adjusted operating profit before tax B3 761 801 1,612 Adjusting items C1(a) (255) (69) (286) Non-core operations B3 14 2 32 Profit before tax (net of policyholder tax) 520 734 1,358 Income tax attributable to policyholder returns D1(d) 44 71 174 Profit before tax 564 805 1,532 Total tax expense D1(a) (218) (250) (552) Profit from continuing operations after tax 346 555 980 (Loss)/profit from discontinued operations after tax G1 (10) (8) 3 Profit after tax for the financial period 336 547 983 Adjusted operating profit after tax attributable to ordinary equity holders of the parent £m Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Adjusted operating profit before tax B3 761 801 1,612 Tax on adjusted operating profit D1(d) (202) (207) (424) Adjusted operating profit after tax 559 594 1,188 Non-controlling interests – ordinary shares B3 (126) (137) (279) Non-controlling interests – preferred securities B3 (9) (9) (19) Adjusted operating profit after tax attributable to ordinary equity holders of the parent B3 424 448 890 Adjusted weighted average number of shares (millions) C2(c) 4,840 4,835 4,836 Adjusted operating earnings per share (pence) C2(c) 8.8 9.3 18.4
  • 45. 45 OLD MUTUAL plc INTERIM RESULTS 2014 Basis of preparation of adjusted operating profit Adjusted operating profit (AOP) reflects the directors’ view of the underlying long-term performance of the Group. AOP is a measure of profitability which adjusts the standard IFRS profit measures for the specific items detailed in note C1 and, as such, it is a non-GAAP measure. The reconciliation set out above explains the differences between AOP and profit after tax as reported under IFRS. For core life assurance and property and casualty businesses, AOP is based on a long-term investment return, including returns on investments held by life funds in Group equity and debt instruments, and is stated net of income tax attributable to policyholder returns. For all core businesses, AOP excludes goodwill impairment, the impact of accounting for intangibles acquired in a business combination and costs related to successful acquisitions, revaluations of put options related to long-term incentive schemes, profit/(loss) on acquisition/disposal of subsidiaries, associated undertakings and strategic investments, fair value profits/(losses) on certain Group debt instruments and costs related to the fundamental restructuring of continuing businesses. AOP includes dividends declared to holders of perpetual preferred callable securities. Old Mutual Bermuda and Nordic are treated as non-core and discontinued operations respectively in the AOP disclosure. As such they are not included in AOP. Refer to note B1 for further information on the basis of segmentation. Adjusted operating earnings per share is calculated on the same basis as AOP. It is stated after tax attributable to AOP and non-controlling interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders’ funds and Black Economic Empowerment trusts.
  • 46. OLD MUTUAL plc INTERIM RESULTS 2014 46 Consolidated statement of financial position At 30 June 2014 £m Notes 30 June 2014 30 June 2013 31 December 2013 Assets Goodwill and other intangible assets 2,500 3,056 2,835 Mandatory reserve deposits with central banks 767 760 759 Property, plant and equipment 730 794 722 Investment property 1,778 1,911 1,811 Deferred tax assets 247 334 303 Investments in associated undertakings and joint ventures 201 130 168 Deferred acquisition costs 909 1,264 1,211 Reinsurers’ share of policyholder liabilities 1,987 1,629 1,875 Loans and advances 33,727 37,418 33,583 Investments and securities 86,198 88,915 88,220 Current tax receivable 101 109 128 Trade, other receivables and other assets 2,780 2,955 2,583 Derivative financial instruments 1,104 1,417 1,259 Cash and cash equivalents 4,289 5,035 4,869 Non-current assets held for sale G2 4,473 5 5 Total assets 141,791 145,732 140,331 Liabilities Long-term business policyholder liabilities 78,092 81,443 81,141 General insurance liabilities 319 350 332 Third-party interests in consolidated funds 6,456 5,479 5,478 Borrowed funds E2 2,752 2,563 2,629 Provisions 198 207 195 Deferred revenue 367 664 628 Deferred tax liabilities 424 435 491 Current tax payable 205 250 237 Trade, other payables and other liabilities 4,099 5,076 4,315 Amounts owed to bank depositors 34,540 38,009 34,370 Derivative financial instruments 1,174 1,623 1,478 Non-current liabilities held for sale G2 4,294 - - Total liabilities 132,920 136,099 131,294 Net assets 8,871 9,633 9,037 Shareholders’ equity Equity attributable to equity holders of the parent 7,062 7,729 7,270 Non-controlling interests Ordinary shares 1,536 1,632 1,502 Preferred securities 273 272 265 Total non-controlling interests 1,809 1,904 1,767 Total equity 8,871 9,633 9,037
  • 47. 47 OLD MUTUAL plc INTERIM RESULTS 2014 Consolidated statement of cash flows For the six months ended 30 June 2014 £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Cash flows from operating activities Profit before tax 564 805 1,532 Non-cash movements in profit before tax 806 620 1,423 Net changes in working capital (370) 228 447 Taxation paid (175) (225) (458) Net cash inflow from operating activities 825 1,428 2,944 Cash flows from investing activities Net acquisitions of financial investments (824) (590) (1,658) Acquisition of investment properties (31) (7) (47) Proceeds from disposal of investment properties 39 9 22 Acquisition of property, plant and equipment (65) (50) (113) Proceeds from disposal of property, plant and equipment 5 6 6 Acquisition of intangible assets (29) (31) (86) Acquisition of interests in subsidiaries, associated undertakings joint ventures and strategic investments (58) (31) (119) Disposal of interests in subsidiaries, associated undertakings joint ventures and strategic investments 48 12 8 Net cash outflow from investing activities (915) (682) (1,987) Cash flows from financing activities Dividends paid to Ordinary equity holders of the Company (279) (238) (336) Non-controlling interests and preferred security interests (90) (95) (183) Dividends received from associated undertakings 4 12 13 Interest paid (excluding banking interest paid) (24) (26) (51) Proceeds from issue of ordinary shares (including by subsidiaries to non-controlling interests) 9 9 11 Net disposal/(acquisition) of treasury shares 38 (29) 55 Issue of subordinated and other debt 357 - 586 Subordinated and other debt repaid (196) (262) (578) Net cash outflow from financing activities (181) (629) (483) Net (decrease)/increase in cash and cash equivalents (271) 117 474 Effects of exchange rate changes on cash and cash equivalents (234) (304) (828) Cash and cash equivalents at beginning of the year 5,628 5,982 5,982 Cash and cash equivalents at end of the period 5,123 5,795 5,628 Consisting of Cash and cash equivalents 4,289 5,035 4,869 Mandatory reserve deposits with central banks 767 760 759 Cash and cash equivalents included in assets held for sale 67 - - Total 5,123 5,795 5,628 Cash and cash equivalents in the cash flow statement above include Mandatory reserve deposits, in line with market practice in South Africa. Except for mandatory reserve deposits with central banks of £767 million (30 June 2013: £760 million; 31 December 2013: £759 million) and cash and cash equivalents subject to consolidation of funds of £1,733 million (30 June 2013: £1,757 million; 31 December 2013: £1,667 million), management do not consider that there are any material amounts of cash and cash equivalents which are not available for use in the Group’s day- to-day operations.
  • 48. OLD MUTUAL plc INTERIM RESULTS 2014 48 Consolidated statement of changes in equity For the six months ended 30 June 2014 Millions Six months ended 30 June 2014 Notes Number of shares issued and fully paid Share capital Share premium Merger reserve Available- for-sale reserve Shareholders’ equity at beginning of the period 4,897 560 845 1,717 52 Profit after tax for the financial period - - - - - Other comprehensive income Items that will not be reclassified subsequently to profit or loss Fair value gains Property revaluation - - - - - Measurement gains on defined benefit plans - - - - - Income tax on items that will not be reclassified subsequently to profit or loss D1(c) - - - - - - - - - - Items that may be reclassified subsequently to profit or loss Fair value gains/(losses) Net investment hedge - - - - - Available-for-sale investments Fair value gains - - - - 14 Exchange differences recycled to profit or loss on disposal of business - - - - - Currency translation differences on translating foreign operations - - - - - Other movements - - - - - Income tax on items that may be reclassified subsequently to profit or loss D1(c) - - - - (3) Total comprehensive income for the financial period - - - - 11 Dividends for the period C3 - - - - - Equity share-based payment transactions - - - - - Other movements in share capital 8 1 8 - - Expiry of Skandia AB shareholder claims - - - - - Merger reserve released - - - (116) - Change in participation in subsidiaries - - - - - Transactions with shareholders 8 1 8 (116) - Shareholders’ equity at end of the period 4,905 561 853 1,601 63
  • 49. 49 OLD MUTUAL plc INTERIM RESULTS 2014 £m Property revaluation reserve Share-based payments reserve Other reserves Foreign currency translation reserve Retained earnings Perpetual preferred callable securities Attributable to equity holders of the parent Total non- controlling interests Total equity 161 316 37 (1,234) 4,290 526 7,270 1,767 9,037 - - - - 199 14 213 123 336 6 - - - - - 6 - 6 - - - - 1 - 1 - 1 - - - - - 3 3 - 3 6 - - - 1 3 10 - 10 - - - 14 - - 14 - 14 - - - - - - 14 1 15 - - - (1) - - (1) - (1) - - - (211) - - (211) (58) (269) - - 3 - - - 3 (1) 2 - - - - - - (3) - (3) 6 - 3 (198) 200 17 39 65 104 - - - - (279) (17) (296) (73) (369) - 5 - - 1 - 6 (3) 3 - - - - 38 - 47 (1) 46 - - - - 12 - 12 - 12 - - - - 116 - - - - - - - - (16) - (16) 54 38 - 5 - - (128) (17) (247) (23) (270) 167 321 40 (1,432) 4,362 526 7,062 1,809 8,871
  • 50. OLD MUTUAL plc INTERIM RESULTS 2014 50 Consolidated statement of changes in equity For the six months ended 30 June 2014 Millions Six months ended 30 June 2013 Notes Number of shares issued and fully paid Share capital Share premium Merger reserve Available-for- sale reserve Shareholders’ equity at beginning of the period 4,892 559 835 1,717 65 Profit after tax for the financial period - - - - - Other comprehensive income Items that will not be reclassified subsequently to profit or loss Fair value gains Property revaluation - - - - - Measurement gains on defined benefit plans - - - - - Income tax on items that will not be reclassified subsequently to profit or loss D1(c) - - - - - - - - - - Items that may be reclassified subsequently to profit or loss Fair value gains/(losses) Net investment hedge - - - - - Available-for-sale investments Fair value losses - - - - (7) Recycled to profit or loss - - - - (8) Currency translation differences on translating foreign operations - - - - - Other movements - - - - - Income tax on items that may be reclassified subsequently to profit or loss D1(c) - - - - 1 Total comprehensive income for the financial period - - - - (14) Dividends for the period C3 - - - - - Equity share-based payment transactions - - - - - Other movements in share capital 4 - 8 - - Change in participation in subsidiaries - - - - - Transactions with shareholders 4 - 8 - - Shareholders’ equity at end of the period 4,896 559 843 1,717 51
  • 51. 51 OLD MUTUAL plc INTERIM RESULTS 2014 £m Property revaluation reserve Share-based payments reserve Other reserves Foreign currency translation reserve Retained earnings Perpetual preferred callable securities Attributable to equity holders of the parent Total non- controlling interests Total equity 144 268 33 (378) 3,891 682 7,816 1,957 9,773 - - - - 397 17 414 133 547 (3) - - - - - (3) - (3) - - - - 2 - 2 - 2 - - - - (1) 5 4 - 4 (3) - - - 1 5 3 - 3 - - - 9 - - 9 - 9 - - - - - - (7) - (7) - - - - - - (8) - (8) - - - (221) - - (221) (125) (346) - - 1 - 10 - 11 (7) 4 - - - - - - 1 - 1 (3) - 1 (212) 408 22 202 1 203 - - - - (238) (22) (260) (73) (333) - (8) - - - - (8) (2) (10) - - - - (29) - (21) (3) (24) - - - - - - - 24 24 - (8) - - (267) (22) (289) (54) (343) 141 260 34 (590) 4,032 682 7,729 1,904 9,633
  • 52. OLD MUTUAL plc INTERIM RESULTS 2014 52 Consolidated statement of changes in equity For the six months ended 30 June 2014 Millions Year ended 31 December 2013 Notes Number of shares issued and fully paid Share capital Share premium Merger reserve Available-for- sale reserve Shareholders’ equity at beginning of the year 4,892 559 835 1,717 65 Profit after tax for the financial year - - - - - Other comprehensive income Items that will not be reclassified subsequently to profit or loss Fair value gains Property revaluation - - - - - Measurement gain on defined benefit plans - - - - - Income tax on items that will not be reclassified subsequently to profit or loss D1(c) - - - - - - - - - - Items that may be reclassified subsequently to profit or loss Fair value gains/(losses) Net investment hedge - - - - - Available-for-sale investments Fair value gains - - - - (6) Recycled to profit or loss - - - - (9) Currency translation differences on translating foreign operations - - - - - Other movements - - - - - Income tax on items that may be reclassified subsequently to profit or loss D1(c) - - - - 2 Total comprehensive income for the financial year - - - - (13) Dividends for the year C3 - - - - - Equity share-based payment transactions - - - - - Other movements in share capital 5 1 10 - - Preferred securities purchased - - - - - Change in participation in subsidiaries - - - - - Transactions with shareholders 5 1 10 - - Shareholders’ equity at end of the year 4,897 560 845 1,717 52
  • 53. 53 OLD MUTUAL plc INTERIM RESULTS 2014 £m Property revaluation reserve Share-based payments reserve Other reserves Foreign currency translation reserve Retained earnings Perpetual preferred callable securities Attributable to equity holders of the parent Total non- controlling interests Total equity 144 268 33 (378) 3,891 682 7,816 1,957 9,773 - - - - 668 37 705 278 983 17 - - - - - 17 6 23 - - - - 52 - 52 18 70 - - - - (14) 10 (4) (8) (12) 17 - - - 38 10 65 16 81 - - - 43 - - 43 - 43 - - - - - - (6) 1 (5) - - - - - - (9) - (9) - - - (899) - - (899) (358) (1,257) - - 4 - (1) - 3 6 9 - - - - - - 2 - 2 17 - 4 (856) 705 47 (96) (57) (153) - - - - (336) (47) (383) (136) (519) - 48 - - 13 - 61 (17) 44 - - - - 55 - 66 3 69 - - - - (21) (156) (177) - (177) - - - - (17) - (17) 17 - - 48 - - (306) (203) (450) (133) (583) 161 316 37 (1,234) 4,290 526 7,270 1,767 9,037
  • 54. OLD MUTUAL plc INTERIM RESULTS 2014 54 Notes to the consolidated financial statements For the six months ended 30 June 2014 A: Significant accounting policies A1: Basis of preparation The Group interim financial statements contained herein are presented in accordance with the requirements of IAS 34 'Interim Financial Reporting' and are in compliance with International Financial Reporting Standards (IFRS) adopted by the EU. The Group’s results for the six months ended 30 June 2014 and the financial position at that date have been prepared using accounting policies consistent with those applied in the preparation of the Group’s 2013 Annual Report and Accounts. The Group interim financial statements have been prepared on the going concern basis, which the directors believe is appropriate. Part 2 of the Interim Management Statement provides further details on the performance of the Group and the principal risks and uncertainties. The comparative figures for the financial year ended 31 December 2013 represent the consolidated performance of the Group. They are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. Translation of foreign operations The assets and liabilities of foreign operations are translated from their respective functional currencies into the Group’s presentation currency using the period end exchange rates, and their income and expenses using the average exchange rates. Other than in respect of cumulative translation gains and losses up to 1 January 2004, cumulative unrealised gains or losses resulting from translation of functional currencies to the presentation currency are included as a separate component of shareholders’ equity. To the extent that these gains and losses are effectively hedged, the cumulative effect of such gains and losses arising on the hedging instruments are also included in that component of shareholders’ equity. Upon the disposal of subsidiaries the cumulative amount of exchange differences deferred in shareholders’ equity, net of attributable amounts in relation to net investments, is recognised in the income statement. The exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to pounds sterling are: Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Income statement (average rate) Statement of financial position (closing rate) Income Statement (average rate) Statement of financial position (closing rate) Income statement (average rate) Statement of financial position (closing rate) Rand 17.8499 18.1755 14.2269 15.0827 15.0959 17.4284 US dollars 1.6690 1.7102 1.5448 1.5185 1.5650 1.6566 Euro 1.2174 1.2492 1.1763 1.1676 1.1782 1.2014 New standards, interpretations and amendments adopted by the Group affecting the financial statements for the six months ended 30 June 2014 The new standards that were adopted in the current period were the amendments to IAS 32 ‘Financial Instruments: Presentation (Offsetting)’ and IFRIC 21 ‘Levies’. Neither standard had a material effect on the financial statements of the Group.
  • 55. 55 OLD MUTUAL plc INTERIM RESULTS 2014 A2: Significant corporate activity and business changes during the period Transactions completed during the interim reporting period Acquisition of Faulu Kenya DTM LTD On 1 April 2014, the Group completed the acquisition of a controlling stake in the micro-lender Faulu Kenya DTM LTD for £17 million, with goodwill of £3 million being recognised. Disposal of Skandia Poland On 30 May 2014, the Group completed the disposal of Skandia Poland, part of Old Mutual Wealth. A loss on disposal of £15 million has been recognised in profit of loss. Acquisition of a significant interest in Banco Unico On 12 June 2014, the Group announced that it had completed the acquisition of a 36.4% stake in Bank Unico for US$24 million. Bank Unico is equity accounted as a joint venture in these financial statements. Transactions agreed but not yet completed Disposal of Skandia Austria and Skandia Germany On 27 March 2014, the Group announced that terms had been agreed to sell two of its Old Mutual Wealth businesses, Skandia Austria and Skandia Germany. This transaction is subject to regulatory approvals and consequently the assets and liabilities of these businesses have been classified as held for sale in the statement of financial position. Refer to note G2 for further information. Terms have been agreed to sell Skandia Liechtenstein, also part of Old Mutual Wealth. The transaction is subject to regulatory approval and the fulfilment of certain closing conditions. The net asset value of goodwill and intangible assets of these businesses has been written down to the net realisable value given expected losses on disposal. As a result, an impairment loss of £125 million has been recognised in profit or loss. The disposal of these businesses is expected to be completed during the second half of the year. Acquisition of Intrinsic Financial Services Limited On 1 July 2014, the Group announced the completion of the acquisition of Intrinsic Financial Services, one of the largest networks of financial advisers in the UK. Additionally, the Group announced that it intends to acquire the remaining 50% stake of Cirilium, the core investment proposition for Intrinsic’s restricted financial advisers. Acquisition of Old Mutual Finance (Pty) Ltd Subject to regulatory approval, the Group is expected to complete the acquisition of a further stake in Old Mutual Finance (Pty) Ltd from Business Doctors in the second half of the year. Old Mutual Finance (Pty) Ltd is currently accounted for as joint venture and will be consolidated when the additional stake is acquired. Financing activities On 10 July 2014, Nedbank Group Limited announced its intention to issue new preference shares which will be utilised to raise funding for Nedbank’s business activities in general. A3: Critical accounting estimates and judgements In the preparation of these interim financial statements, the Group is required to make estimates and judgements that affect items reported in the consolidated income statement, statement of financial position, and other primary statements and related supporting notes. Critical accounting estimates and judgements are those which involve the most complex or subjective judgements or assessments. Where applicable, the Group applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting guidance based on knowledge of the current situation and require assumptions and predictions of future events and actions. The principal areas where estimates and judgement is typically required were set out in the Annual Report and Accounts on page 144 and were described in further detail in the Report of the Chairman of the Group Audit Committee on page 97. During the period, there have been no significant changes to the areas of critical accounting estimates and judgements that the Group applied at 31 December 2013. The Annual Report and Accounts is available in the Investor Relations section of the Group’s website at www.oldmutual.com.
  • 56. OLD MUTUAL plc INTERIM RESULTS 2014 56 Notes to the consolidated financial statements For the six months ended 30 June 2014 B: Segment information B1: Basis of segmentation The Group’s segmental results are analysed and reported on a basis consistent with the way that management and the Board of directors of Old Mutual plc assesses performance of the underlying businesses and allocates resources. Information is presented to the Board on a consolidated basis in pounds sterling (the presentation currency) and in the functional currency of each business. Adjusted operating profit (AOP) is one of the key measures reported to the Group’s management and Board of directors for their consideration in the allocation of resources to and the review of performance of the segments. As appropriate to the business line, the Board reviews additional measures to assess the performance of each of the segments. These typically include net client cash flows, funds under management, gross earned premiums, underwriting results, net interest income and non-interest revenue and credit losses. A reconciliation between segment revenues and expenses and the Group’s revenues and expenses is shown in note B3. Consistent with internal reporting, assets, liabilities, revenues and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate and where there is a reasonable basis for doing so. The Group accounts for inter-segment revenues and transfers as if the transactions were with third parties at current market prices. Given the nature of the operations, there are no major trading activities between the segments. The revenues generated in each reported segment can be seen in the analysis of profits and losses in note B3. The segmental information in notes B3 and B4, reflects the adjusted and IFRS measures of profit and loss and the assets and liabilities for each operating segment as provided to management and the Board of directors. There are no differences between the measurement of the assets and liabilities reflected in the primary statements and that reported for the segments. There are four primary business activities from which the Group generates revenue. These are life assurance (premium income), asset management business (fee and commission income), banking (banking interest receivable) and property and casualty (premium income). The principal lines of business from which each operating segment derives its revenues are as follows: Core operations Emerging Markets – life assurance, property and casualty, asset management and banking Nedbank – banking and asset management Old Mutual Wealth – life assurance and asset management Institutional Asset Management – asset management Non-core operations Old Mutual Bermuda – life assurance Segment presentation The results of the property and casualty business were previously disclosed separately. However, following changes in management oversight, these have been included in the Emerging Markets segment with effect from 1 January 2014. This change has been applied to all periods presented and comparative information has been re-presented accordingly. The USAM segment has been renamed to Institutional Asset Management. There have been no other changes to the presentation of segment information. The Group’s reported segments are now Emerging Markets, Nedbank, Old Mutual Wealth and Institutional Asset Management. The Other segment includes Group Head Office. For all reporting periods, Old Mutual Bermuda is classified as a continuing operation in the IFRS income statement, but as non-core in determining the Group’s adjusted operating profit. As set out in the 2013 Annual Report and Accounts, the Group continues to incur costs related to the sale of its Nordic business in 2012. These costs largely relate to the transition of IT information and support services that were previously provided by the Nordic business to the wider Group back to the Group. These costs are included in the expenses related to the discontinued operations in the IFRS consolidated income statement for the six months ended 30 June 2014 and as non-core for determining the Group’s AOP for the six months ended 30 June 2014. Further information on the results of discontinued operations is provided in note G1. All other businesses have been classified as continuing operations for all reporting periods.
  • 57. 57 OLD MUTUAL plc INTERIM RESULTS 2014 B2: Gross earned premiums and deposits to investment contracts £m Six months ended 30 June 2014 Emerging Markets Old Mutual Wealth Total Life assurance – insurance contracts 678 155 833 Life assurance – investment contracts with discretionary participation features 454 - 454 General insurance 331 - 331 Gross earned premiums 1,463 155 1,618 £m Six months ended 30 June 2013 Emerging Markets Old Mutual Wealth Total Life assurance – insurance contracts 967 175 1,142 Life assurance – investment contracts with discretionary participation features 476 - 476 General insurance 377 - 377 Gross earned premiums 1,820 175 1,995 £m Year ended 31 December 2013 Emerging Markets Old Mutual Wealth Total Life assurance – insurance contracts 1,616 336 1,952 Life assurance – investment contracts with discretionary participation features 1,025 - 1,025 General insurance 724 - 724 Gross earned premiums 3,365 336 3,701
  • 58. OLD MUTUAL plc INTERIM RESULTS 2014 58 Notes to the consolidated financial statements For the six months ended 30 June 2014 B: Segment information continued B3: Adjusted operating profit statement - segment information for the six months ended 30 June 2014 Notes Emerging Markets Nedbank Revenue Gross earned premiums B2 1,463 - Outward reinsurance (111) - Net earned premiums 1,352 - Investment return (non-banking) 2,101 - Banking interest and similar income - 1,415 Banking trading, investment and similar income - 83 Fee and commission income, and income from service activities 243 438 Other income 41 6 Inter-segment revenues 41 5 Total revenue 3,778 1,947 Expenses Claims and benefits (including change in insurance contract provisions) (2,056) - Reinsurance recoveries 21 - Net claims and benefits incurred (2,035) - Change in investment contract liabilities (766) - Losses on loans and advances - (130) Finance costs (including interest and similar expenses) - - Banking interest payable and similar expenses - (770) Fee and commission expenses, and other acquisition costs (150) (4) Change in third-party interest in consolidated funds - - Other operating and administrative expenses (501) (660) Income tax attributable to policyholder returns (38) - Inter-segment expenses (4) (23) Total expenses (3,494) (1,587) Share of associated undertakings' and joint ventures' profit after tax 7 1 Loss on disposal of subsidiaries, associated undertakings and strategic investments C1(c) - - Adjusted operating profit/(loss) before tax and non-controlling interests 291 361 Income tax expense D1 (83) (92) Non-controlling interests (6) (129) Adjusted operating profit/(loss) after tax and non-controlling interests 202 140 Adjusting items net of tax and non-controlling interests C1(a) 2 8 Profit/(loss) after tax from continuing operations 204 148 Loss from discontinued operations after tax G1 - - Profit/(loss) after tax attributable to equity holders of the parent 204 148 1 Non-core operations relate to Old Mutual Bermuda. Old Mutual Bermuda profit after tax for the six months ended 30 June 2014 was £14 million. Non-core operations also include £10 million divestment costs incurred relation to the Nordic business sold in 2012. Further information on discontinued operations is provided in note G1.
  • 59. 59 OLD MUTUAL plc INTERIM RESULTS 2014 £m Old Mutual Wealth Institutional Asset Management Other Consolidation adjustments Adjusted operating profit Adjusting items (note C1) Discontinued and non-core operations¹ IFRS Income statement 155 - - - 1,618 - - 1,618 (43) - - - (154) - - (154) 112 - - - 1,464 - - 1,464 1,160 - 17 240 3,518 (13) 24 3,529 - - - - 1,415 - - 1,415 - - - - 83 - - 83 563 193 - 4 1,441 (28) - 1,413 4 1 - 1 53 - 1 54 1 - - (49) (2) - 2 - 1,840 194 17 196 7,972 (41) 27 7,958 (198) - - - (2,254) - (6) (2,260) 45 - - - 66 - - 66 (153) - - - (2,188) - (6) (2,194) (1,079) - - - (1,845) - - (1,845) - - - - (130) - - (130) - - (41) - (41) (23) - (64) - - - - (770) - - (770) (270) (2) - (42) (468) 33 (2) (437) - - - (194) (194) - - (194) (192) (140) (39) (9) (1,541) (214) (5) (1,760) (6) - - - (44) 44 - - (20) - (2) 49 - - - - (1,720) (142) (82) (196) (7,221) (160) (13) (7,394) - 2 - - 10 - - 10 - - - - - (10) - (10) 120 54 (65) - 761 (211) 14 564 (19) (12) 4 - (202) (16) - (218) - - - - (135) 12 - (123) 101 42 (61) - 424 (215) 14 223 (182) (7) (36) - (215) 215 - - (81) 35 (97) - 209 - 14 223 - - - - - - (10) (10) (81) 35 (97) - 209 - 4 213
  • 60. OLD MUTUAL plc INTERIM RESULTS 2014 60 Notes to the consolidated financial statements For the six months ended 30 June 2014 B: Segment information continued B3: Adjusted operating profit statement - segment information for the six months ended 30 June 2013 Notes Emerging Markets Nedbank Revenue Gross earned premiums B2 1,820 - Outward reinsurance (119) - Net earned premiums 1,701 - Investment return (non-banking) 1,991 - Banking interest and similar income - 1,573 Banking trading, investment and similar income - 110 Fee and commission income, and income from service activities 276 537 Other income 23 18 Inter-segment revenues 38 7 Total revenue 4,029 2,245 Expenses Claims and benefits (including change in insurance contract provisions) (2,168) - Reinsurance recoveries 93 - Net claims and benefits incurred (2,075) - Change in investment contract liabilities (888) - Losses on loans and advances - (234) Finance costs (including interest and similar expenses) - - Banking interest payable and similar expenses - (832) Fee and commission expenses, and other acquisition costs (176) (25) Change in third-party interest in consolidated funds - - Other operating and administrative expenses (563) (740) Income tax attributable to policyholder returns (22) - Inter-segment expenses (12) (27) Total expenses (3,736) (1,858) Share of associated undertakings' and joint ventures' profit after tax 7 - Loss on disposal of subsidiaries, associated undertakings and strategic investments C1(c) - - Adjusted operating profit/(loss) before tax and non-controlling interests 300 387 Income tax expense D1 (78) (100) Non-controlling interests (12) (134) Adjusted operating profit/(loss) after tax and non-controlling interests 210 153 Adjusting items net of tax and non-controlling interests C1(a) (4) 4 Profit/(loss) after tax from continuing operations 206 157 Loss from discontinued operations after tax G1 - - Profit/(loss) after tax attributable to equity holders of the parent 206 157 1 Non-core operations relate to Old Mutual Bermuda. Old Mutual Bermuda profit after tax for the six months ended 30 June 2013 was £2 million. Non-core operations also include £8 million divestment costs incurred relation to the Nordic business sold in 2012. Further information on discontinued operations is provided in note G1.
  • 61. 61 OLD MUTUAL plc INTERIM RESULTS 2014 £m Old Mutual Wealth Institutional Asset Management Other Consolidation adjustments Adjusted operating profit Adjusting items (note C1) Discontinued and non-core operations¹ IFRS Income statement 175 - - - 1,995 - - 1,995 (43) - - - (162) - - (162) 132 - - - 1,833 - - 1,833 2,195 - 34 304 4,524 (17) (18) 4,489 - - - - 1,573 - - 1,573 - - - - 110 - - 110 608 185 - 4 1,610 (34) - 1,576 13 2 - - 56 - 4 60 - - 5 (56) (6) - 6 - 2,948 187 39 252 9,700 (51) (8) 9,641 (148) - - - (2,316) - 21 (2,295) 25 - - - 118 - - 118 (123) - - - (2,198) - 21 (2,177) (2,112) - - - (3,000) - - (3,000) - - - - (234) - - (234) - - (46) - (46) 23 - (23) - - - - (832) - - (832) (340) (2) - (32) (575) 40 (3) (538) - - - (271) (271) - - (271) (205) (134) (35) (5) (1,682) (80) (8) (1,770) (49) - - - (71) 71 - - (11) - (6) 56 - - - - (2,840) (136) (87) (252) (8,909) 54 10 (8,845) - 3 - - 10 - - 10 - - - - - (1) - (1) 108 54 (48) - 801 2 2 805 (20) (13) 4 - (207) (43) - (250) - - - - (146) 13 - (133) 88 41 (44) - 448 (28) 2 422 (54) (9) 35 - (28) 28 - - 34 32 (9) - 420 - 2 422 - - - - - - (8) (8) 34 32 (9) - 420 - (6) 414
  • 62. OLD MUTUAL plc INTERIM RESULTS 2014 62 Notes to the consolidated financial statements For the six months ended 30 June 2014 B: Segment information continued B3: Adjusted operating profit statement - segment information for the year ended 31 December 2013 Notes Emerging Markets Nedbank Revenue Gross earned premiums B2 3,365 - Outward reinsurance (230) - Net earned premiums 3,135 - Investment return (non-banking) 5,184 - Banking interest and similar income - 3,050 Banking trading, investment and similar income - 195 Fee and commission income, and income from service activities 552 1,048 Other income 39 31 Inter-segment revenues 61 11 Total revenue 8,971 4,335 Expenses Claims and benefits (including change in insurance contract provisions) (5,061) - Reinsurance recoveries 201 - Net claims and benefits incurred (4,860) - Change in investment contract liabilities (1,952) - Losses on loans and advances - (368) Finance costs (including interest and similar expenses) - - Banking interest payable and similar expenses - (1,616) Fee and commission expenses, and other acquisition costs (341) (12) Change in third-party interest in consolidated funds - - Other operating and administrative expenses (1,165) (1,495) Income tax attributable to policyholder returns (62) - Inter-segment expenses (11) (49) Total expenses (8,391) (3,540) Share of associated undertakings' and joint ventures' profit after tax 14 2 Loss on disposal of subsidiaries, associated undertakings and strategic investments C1(c) - - Adjusted operating profit/(loss) before tax and non-controlling interests 594 797 Income tax expense D1 (155) (200) Non-controlling interests (16) (282) Adjusted operating profit/(loss) after tax and non-controlling interests 423 315 Adjusting items net of tax and non-controlling interests C1(a) (84) 12 Profit/(loss) after tax from continuing operations 339 327 Profit from discontinued operations after tax G1 - - Profit/(loss) after tax attributable to equity holders of the parent 339 327 1 Non-core operations relate to Old Mutual Bermuda. Old Mutual Bermuda profit after tax for the year ended 31 December 2013 was £32 million. Non-core operations also include a net gain of £3 million divestment cost and additional proceeds received in relation to the Nordic business sold in 2012. Further information on discontinued operations is provided in note G1.
  • 63. 63 OLD MUTUAL plc INTERIM RESULTS 2014 £m Old Mutual Wealth Institutional Asset Management Other Consolidation adjustments Adjusted operating profit Adjusting items (note C1) Discontinued and non-core operations¹ IFRS Income statement 336 - - - 3,701 - - 3,701 (87) - - - (317) - - (317) 249 - - - 3,384 - - 3,384 4,159 - 68 634 10,045 (94) 35 9,986 - - - - 3,050 - - 3,050 - - - - 195 - - 195 1,173 381 - 8 3,162 (67) - 3,095 21 3 (2) 2 94 - 6 100 1 - 8 (92) (11) - 11 - 5,603 384 74 552 19,919 (161) 52 19,810 (347) - - - (5,408) - (2) (5,410) 45 - - - 246 - - 246 (302) - - - (5,162) - (2) (5,164) (3,921) - - - (5,873) - - (5,873) - - - - (368) - - (368) - - (92) - (92) 11 - (81) - - - - (1,616) - - (1,616) (622) (4) - (70) (1,049) 78 (5) (976) - - - (564) (564) - - (564) (408) (274) (78) (10) (3,430) (210) (13) (3,653) (112) - - - (174) 174 - - (21) - (11) 92 - - - - (5,386) (278) (181) (552) (18,328) 53 (20) (18,295) - 5 - - 21 - - 21 - - - - - (4) - (4) 217 111 (107) - 1,612 (112) 32 1,532 (40) (27) (2) - (424) (128) - (552) - - - - (298) 20 - (278) 177 84 (109) - 890 (220) 32 702 (139) (30) 21 - (220) 220 - - 38 54 (88) - 670 - 32 702 - - - - - - 3 3 38 54 (88) - 670 - 35 705
  • 64. OLD MUTUAL plc INTERIM RESULTS 2014 64 Notes to the consolidated financial statements For the six months ended 30 June 2014 B: Segment information continued B4: Statement of financial position – segment information at 30 June 2014 Notes Emerging Markets Nedbank Assets Goodwill and other intangible assets 134 434 Mandatory reserve deposits with central banks - 767 Property, plant and equipment 313 388 Investment property 1,409 7 Deferred tax assets 73 12 Investments in associated undertakings and joint ventures 92 79 Deferred acquisition costs 107 - Reinsurers’ share of policyholder liabilities 128 11 Loans and advances 339 33,212 Investments and securities 28,856 5,588 Current tax receivable 17 13 Trade, other receivables and other assets 729 709 Derivative financial instruments 266 719 Cash and cash equivalents 928 753 Non-current assets held for sale G2 - 1 Inter-segment assets 628 269 Total assets 34,019 42,962 Liabilities Life assurance policyholder liabilities 28,438 889 General insurance liabilities 319 - Third-party interests in consolidated funds - - Borrowed funds E2 165 1,899 Provisions 145 1 Deferred revenue 15 - Deferred tax liabilities 184 35 Current tax payable 125 6 Trade, other payables and other liabilities 1,834 798 Amounts owed to bank depositors 310 34,230 Derivative financial instruments 338 798 Non-current liabilities held for sale G2 - - Inter-segment liabilities 347 613 Total liabilities 32,220 39,269 Net assets 1,799 3,693 Equity Equity attributable to equity holders of the parent 1,747 1,934 Non-controlling interests 52 1,759 Ordinary shares 52 1,486 Preferred securities - 273 Total equity 1,799 3,693
  • 65. 65 OLD MUTUAL plc INTERIM RESULTS 2014 £m Old Mutual Wealth Institutional Asset Management Other Consolidation adjustments Non-core operations Total 1,168 764 - - - 2,500 - - - - - 767 15 14 - - - 730 - - - 362 - 1,778 4 157 - - 1 247 - 20 10 - - 201 791 11 - - - 909 1,848 - - - - 1,987 176 - - - - 33,727 46,367 37 554 4,399 397 86,198 71 - - - - 101 503 114 24 387 314 2,780 - - 72 40 7 1,104 621 79 146 1,733 29 4,289 4,472 - - - - 4,473 129 19 901 (2,212) 266 - 56,165 1,215 1,707 4,709 1,014 141,791 47,981 - - - 784 78,092 - - - - - 319 - - - 6,456 - 6,456 - 1 687 - - 2,752 24 2 26 - - 198 352 - - - - 367 184 - 21 - - 424 23 3 48 - - 205 774 212 46 427 8 4,099 - - - - - 34,540 - - - 38 - 1,174 4,294 - - - - 4,294 314 581 357 (2,212) - - 53,946 799 1,185 4,709 792 132,920 2,219 416 522 - 222 8,871 2,219 418 522 - 222 7,062 - (2) - - - 1,809 - (2) - - - 1,536 - - - - - 273 2,219 416 522 - 222 8,871
  • 66. OLD MUTUAL plc INTERIM RESULTS 2014 66 Notes to the consolidated financial statements For the six months ended 30 June 2014 B: Segment information continued B4: Statement of financial position – segment information at 30 June 2013 Notes Emerging Markets Nedbank Assets Goodwill and other intangible assets 134 494 Mandatory reserve deposits with central banks - 760 Property, plant and equipment 344 424 Investment property 1,555 14 Deferred tax assets 96 21 Investments in associated undertakings and joint ventures 65 35 Deferred acquisition costs 110 - Reinsurers’ share of policyholder liabilities 158 12 Loans and advances 418 36,812 Investments and securities 30,412 5,839 Current tax receivable 15 30 Trade, other receivables and other assets 794 623 Derivative financial instruments 358 862 Cash and cash equivalents 1,038 1,113 Non-current assets held for sale - 1 Inter-segment assets 466 142 Total assets 35,963 47,182 Liabilities Life assurance policyholder liabilities 29,826 906 General insurance liabilities 350 - Third-party interests in consolidated funds - - Borrowed funds E2 199 1,726 Provisions 125 (6) Deferred revenue 17 1 Deferred tax liabilities 157 28 Current tax payable 161 8 Trade, other payables and other liabilities 2,469 1,061 Amounts owed to bank depositors 83 37,926 Derivative financial instruments 401 1,112 Non-current liabilities held for sale - - Inter-segment liabilities 231 451 Total liabilities 34,019 43,213 Net assets 1,944 3,969 Equity Equity attributable to equity holders of the parent 1,892 2,140 Non-controlling interests 52 1,829 Ordinary shares 52 1,557 Preferred securities - 272 Total equity 1,944 3,969
  • 67. 67 OLD MUTUAL plc INTERIM RESULTS 2014 £m Old Mutual Wealth Institutional Asset Management Other Consolidation adjustments Non-core operations Total 1,556 872 - - - 3,056 - - - - - 760 13 12 1 - - 794 - - - 342 - 1,911 32 181 2 - 2 334 - 13 17 - - 130 1,145 9 - - - 1,264 1,459 - - - - 1,629 188 - - - - 37,418 48,306 36 426 3,323 573 88,915 64 - - - - 109 480 103 37 501 417 2,955 - - 56 133 8 1,417 633 104 259 1,757 131 5,035 4 - - - - 5 75 22 1,390 (2,759) 664 - 53,955 1,352 2,188 3,297 1,795 145,732 49,520 - - - 1,191 81,443 - - - - - 350 - - - 5,479 - 5,479 - 11 627 - - 2,563 51 3 34 - - 207 646 - - - - 664 234 - 16 - - 435 40 2 39 - - 250 764 203 71 472 36 5,076 - - - - - 38,009 - - 4 105 1 1,623 - - - - - - 631 548 898 (2,759) - - 51,886 767 1,689 3,297 1,228 136,099 2,069 585 499 - 567 9,633 2,069 562 499 - 567 7,729 - 23 - - - 1,904 - 23 - - - 1,632 - - - - - 272 2,069 585 499 - 567 9,633
  • 68. OLD MUTUAL plc INTERIM RESULTS 2014 68 Notes to the consolidated financial statements For the six months ended 30 June 2014 B: Segment information continued B4: Statement of financial position – segment information at 31 December 2013 Notes Emerging Markets Nedbank Assets Goodwill and other intangible assets 134 446 Mandatory reserve deposits with central banks - 759 Property, plant and equipment 303 391 Investment property 1,443 11 Deferred tax assets 104 11 Investments in associated undertakings and joint ventures 76 63 Deferred acquisition costs 107 - Reinsurers’ share of policyholder liabilities 174 11 Loans and advances 255 33,145 Investments and securities 28,592 5,387 Current tax receivable 12 32 Trade, other receivables and other assets 713 585 Derivative financial instruments 349 791 Cash and cash equivalents 702 1,196 Non-current assets held for sale - - Inter-segment assets 635 77 Total assets 33,599 42,905 Liabilities Life assurance policyholder liabilities 28,043 852 General insurance liabilities 332 - Third-party interests in consolidated funds - - Borrowed funds E2 172 1,813 Provisions 133 (1) Deferred revenue 18 - Deferred tax liabilities 182 34 Current tax payable 125 17 Trade, other payables and other liabilities 1,947 873 Amounts owed to bank depositors 280 34,083 Derivative financial instruments 466 974 Non-current liabilities held for sale - - Inter-segment liabilities 197 567 Total liabilities 31,895 39,212 Net assets 1,704 3,693 Equity Equity attributable to equity holders of the parent 1,654 1,976 Non-controlling interests 50 1,717 Ordinary shares 50 1,452 Preferred securities - 265 Total equity 1,704 3,693
  • 69. 69 OLD MUTUAL plc INTERIM RESULTS 2014 £m Old Mutual Wealth Institutional Asset Management Other Consolidation adjustments Non-core operations Total 1,461 794 - - - 2,835 - - - - - 759 12 15 1 - - 722 - - - 357 - 1,811 20 167 - - 1 303 - 19 10 - - 168 1,094 10 - - - 1,211 1,690 - - - - 1,875 183 - - - - 33,583 49,868 33 378 3,502 460 88,220 84 - - - - 128 426 113 43 351 352 2,583 - - 62 49 8 1,259 687 117 457 1,667 43 4,869 5 - - - - 5 93 21 976 (2,083) 281 - 55,623 1,289 1,927 3,843 1,145 140,331 51,327 - - - 919 81,141 - - - - - 332 - - - 5,478 - 5,478 - 2 642 - - 2,629 32 2 29 - - 195 610 - - - - 628 254 - 21 - - 491 52 3 40 - - 237 786 248 40 412 9 4,315 7 - - - - 34,370 - - - 36 2 1,478 - - - - - - 312 487 520 (2,083) - - 53,380 742 1,292 3,843 930 131,294 2,243 547 635 - 215 9,037 2,243 547 635 - 215 7,270 - - - - - 1,767 - - - - - 1,502 - - - - - 265 2,243 547 635 - 215 9,037
  • 70. OLD MUTUAL plc INTERIM RESULTS 2014 70 Notes to the consolidated financial statements For the six months ended 30 June 2014 C: Other key performance information C1: Operating profit adjusting items (a) Summary of adjusting items for determination of adjusted operating profit (AOP) In determining the AOP of the Group for core operations, certain adjustments are made to profit before tax to reflect the directors’ view of the underlying long-term performance of the Group. The following table shows an analysis of those adjustments from AOP to profit before and after tax. £m Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 (Expense)/income Goodwill impairment and impact of acquisition accounting C1(b) (181) (57) (141) Loss on disposal of subsidiaries, associated undertakings and strategic investments C1(c) (10) (1) (4) Short-term fluctuations in investment return C1(d) (15) 16 6 Investment return adjustment for Group equity and debt instruments held in life funds C1(e) 2 (33) (100) Dividends declared to holders of perpetual preferred callable securities C1(f) 16 22 42 Institutional Asset Management equity plans C1(g) (9) (17) (38) Credit-related fair value (losses)/gains on Group debt instruments C1(h) (39) 1 (31) Restructuring costs C1(i) (19) - (20) Total adjusting items (255) (69) (286) Tax on adjusting items D1(d) 28 28 46 Non-controlling interest in adjusting items 12 13 20 Total adjusting items after tax and non-controlling interests (215) (28) (220) (b) Goodwill impairment and impact of acquisition accounting When applying acquisition accounting, deferred acquisition costs and deferred revenues existing at the point of acquisition are not recognised under IFRS. These are reversed on acquisition in the statement of financial position and replaced by goodwill, other intangible assets and the value of the acquired present value of in-force business (acquired PVIF). In determining AOP, the Group recognises deferred revenue and acquisition costs and deferred revenue in relation to policies sold by acquired businesses pre-acquisition. The Group excludes the impairment of goodwill and the amortisation and impairment of acquired other intangibles and acquired PVIF and the movements in certain acquisition date provisions. Costs incurred on successful acquisitions are also excluded from AOP. If the intangible assets recognised as a result of a business combination are subsequently impaired, this is excluded from AOP. The effect of these adjustments to determine AOP are summarised below: £m Six months ended 30 June 2014 Emerging Markets Old Mutual Wealth Total Amortisation of acquired PVIF - (37) (37) Amortisation of acquired deferred costs and revenue - 5 5 Amortisation of other acquired intangible assets (1) (22) (23) Change in acquisition date provisions - (1) (1) Impairment of goodwill and other intangible assets - (125) (125) (1) (180) (181) Impairment of goodwill and other intangible assets of £125 million relates to the write down of goodwill and intangible assets as a result of the prospective sales of Skandia Germany, Skandia Austria and Skandia Liechtenstein. £m Six months ended 30 June 2013 Emerging Markets Old Mutual Wealth Total Amortisation of acquired PVIF - (38) (38) Amortisation of acquired deferred costs and revenue - 6 6 Amortisation of other acquired intangible assets (1) (23) (24) Impairment of goodwill and other intangible assets (1) - (1) (2) (55) (57)
  • 71. 71 OLD MUTUAL plc INTERIM RESULTS 2014 £m Year ended 31 December 2013 Emerging Markets Old Mutual Wealth Total Amortisation of acquired PVIF - (76) (76) Amortisation of acquired deferred costs and revenue - 11 11 Amortisation of other acquired intangible assets (2) (46) (48) Impairment of goodwill and other intangible assets (8) (20) (28) (10) (131) (141) (c) Loss on disposal of subsidiaries, associated undertakings and strategic investments Loss on disposal of subsidiaries, associated undertakings and strategic investments is analysed below: £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Emerging Markets 4 - - Old Mutual Wealth (15) - - Institutional Asset Management 1 (1) (4) Loss on disposal of subsidiaries, associated undertakings and strategic investments (10) (1) (4) Emerging Markets On 30 April 2014, following the termination of the management agreement with SA Corporate Real Estate Fund, a JSE listed real estate trust, the Group agreed to sell and transfer the business to the new manager once the transaction becomes unconditional. A profit of £4 million has been recognised on this transaction. Old Mutual Wealth On 30 May 2014, the Group completed the disposal of Skandia Poland, part of Old Mutual Wealth. A loss on disposal of £15 million has been recognised in the income statement. Institutional Asset Management The Group released a £1 million accrual relating to the disposal of Echo Point which was effective during the year ended 31 December 2013. The Group had previously recognised a loss on disposal of £3 million. On 2 January 2013, the Group completed the sale of five of its affiliates and recognised a loss of £1 million. (d) Short-term fluctuations in investment return Profit before tax, as disclosed in the consolidated IFRS income statement, includes actual investment returns earned on the shareholder assets of the Group’s life assurance and general insurance businesses. AOP is stated after recalculating shareholder asset investment returns based on a long-term investment return rate. The difference between the actual and the long-term investment returns is referred to as the short-term fluctuation in investment return. Long-term rates of return are based on achieved rates of return appropriate to the underlying asset base, adjusted for current inflation expectations, default assumptions, costs of investment management and consensus economic investment forecasts. The underlying rates are principally derived with reference to 10-year government bond rates, cash and money market rates and an explicit equity risk premium for South African businesses. The rates set out below reflect the apportionment of underlying investments in cash deposits, money market instruments and equity assets. Long- term rates of return are reviewed frequently by the Board, usually annually, for appropriateness. The review of the long-term rates of return seeks to ensure that the returns credited to AOP are consistent with the actual returns expected to be earned over the long-term. For Emerging Markets, the return is applied to an average value of investible shareholders’ assets, adjusted for net fund flows. For Old Mutual Wealth, the return is applied to average investible assets. % Long-term investment rates Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Emerging Markets 7.4 - 8.0 7.4 - 8.0 7.4 - 8.0 Old Mutual Wealth 1.0 1.0 1.0
  • 72. OLD MUTUAL plc INTERIM RESULTS 2014 72 Notes to the consolidated financial statements For the six months ended 30 June 2014 C: Other key performance information continued C1: Operating profit adjusting items continued (d) Short-term fluctuations in investment return continued Analysis of short-term fluctuations in investment return £m Six months ended 30 June 2014 Emerging Markets Old Mutual Wealth Other Total Actual shareholder investment return 44 8 10 62 Less: Long-term investment return 61 3 13 77 Short-term fluctuations in investment return (17) 5 (3) (15) £m Six months ended 30 June 2013 Emerging Markets Old Mutual Wealth Other Total Actual shareholder investment return 100 24 18 142 Less: Long-term investment return 72 29 25 126 Short-term fluctuations in investment return 28 (5) (7) 16 £m Year ended 31 December 2013 Emerging Markets Old Mutual Wealth Other Total Actual shareholder investment return 160 22 34 216 Less: Long-term investment return 137 30 43 210 Short-term fluctuations in investment return 23 (8) (9) 6 (e) Investment return adjustment for Group equity and debt instruments held in policyholder funds AOP includes investment returns on policyholder investments in Group equity and debt instruments held by the Group’s life funds. These include investments in the Company’s ordinary shares and the subordinated liabilities and ordinary shares issued by Nedbank. These investment returns are eliminated within the consolidated income statement in arriving at profit before tax in the IFRS income statement, but are included in AOP. This ensures consistency of treatment with the measures in the related policyholder liability. During the six months ended 30 June 2014, the investment return adjustment decreased AOP by £2 million (six months ended 30 June 2013: increase of £33 million; year ended 31 December 2013: increase of £100 million). (f) Dividends declared to holders of perpetual preferred callable securities Dividends declared to the holders of the Group’s perpetual preferred callable securities on an AOP basis were £16 million for the six months ended 30 June 2014 (six months ended 30 June 2013: £22 million; year ended 31 December 2013: £42 million). For the purpose of determining AOP, these are recognised in finance costs on an accruals basis. In accordance with IFRS, the total cash distribution is recognised directly in equity. (g) Institutional Asset Management equity plans Institutional Asset Management has a number of long-term incentive arrangements with senior employees in its asset management affiliates. The Group has issued put options over the equity of certain affiliates to senior affiliate employees as part of its US affiliate incentive schemes. The impact of revaluing these instruments is recognised in accordance with IFRS, but excluded from AOP. At 30 June 2014, these instruments were revalued, the impact of which was a loss of £9 million (six months ended 30 June 2013: loss of £17 million; year ended 31 December 2013: loss of £38 million). (h) Credit-related fair value (losses)/gains on Group debt instruments The widening of the credit spread on the Group’s debt instruments causes the market value of these instruments to decrease, resulting in gains being recognised in the consolidated income statement. Conversely, if the credit spread narrows the market value of debt instruments increases causing losses to be recognised in the consolidated income statement. In the directors’ view, such movements are not reflective of the underlying performance of the Group and will reverse over time. Therefore they have been excluded from AOP. For the six months ended 30 June 2014, due to narrowing of credit spreads, a net loss of £39 million was recognised (six months ended 30 June 2013: net gain of £1 million; year ended 31 December 2013: net loss of £31 million). (i) Old Mutual Wealth restructuring expenditure The Old Mutual Wealth business embarked on a significant programme of operational change in 2013. This will fundamentally restructure the way in which its UK platform business operates. Over the next two years, it will migrate certain elements of service provision to International Financial Data Services (IFDS). Costs related to decommissioning of existing technology and service provision and the migration of service to IFDS are excluded from AOP. These costs comprise payments to IFDS and directly attributable internal project costs and totalled £19 million for the six months ended 30 June 2014 (six months ended 30 June 2013: £nil; year ended 31 December 2013: £20 million).
  • 73. 73 OLD MUTUAL plc INTERIM RESULTS 2014 C2: Earnings and earnings per share The Group calculates earnings per share (EPS) on a number of different bases as appropriate to prevailing international, UK and South African practices and guidance. IFRS requires the calculation of basic and diluted EPS. Adjusted operating EPS reflects earnings per share that is consistent with the Group’s alternative profit measure. JSE Limited (JSE) listing requirements also require the Group to calculate headline EPS. The Group’s EPS on these different bases are summarised below: Pence Source of guidance Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Basic earnings per share IFRS C2(a) 4.5 8.9 15.0 Diluted basic earnings per share IFRS C2(b) 4.1 8.3 13.9 Adjusted operating earnings per share Group policy C2(c) 8.8 9.3 18.4 Headline earnings per share (Gross of tax) JSE Listing Requirements C2(d) 7.5 8.8 15.6 Headline earnings per share (Net of tax) JSE Listing Requirements C2(d) 7.6 8.5 15.2 Diluted headline earnings per share (Gross of tax) JSE Listing Requirements C2(d) 6.9 8.2 14.4 Diluted headline earnings per share (Net of tax) JSE Listing Requirements C2(d) 7.0 7.9 14.1 (a) Basic earnings per share Basic earnings per share is calculated by dividing the profit for the financial period attributable to ordinary equity shareholders by the weighted average number of ordinary shares in issue during the year excluding own shares held in policyholder funds, Employee Share Ownership Plan Trusts (ESOP), Black Economic Empowerment trusts and other related undertakings. The table below reconciles the profit attributable to equity holders of the parent to profit attributable to ordinary equity holders: £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Profit for the financial period attributable to equity holders of the parent from continuing operations 223 422 702 (Loss)/profit for the financial period attributable to equity holders of the parent from discontinued operations (10) (8) 3 Profit for the financial period attributable to equity holders of the parent 213 414 705 Dividends paid to holders of perpetual preferred callable securities, net of tax credits (14) (17) (37) Profit attributable to ordinary equity holders 199 397 668 Total dividends paid to holders of perpetual preferred callable securities of £14 million for the six months ended 30 June 2014 (six months ended 30 June 2013: £17 million; year ended 31 December 2013: £37 million) are stated net of tax credits of £3 million (six months ended 30 June 2013: £5 million; year ended 31 December 2013: £10 million). The table below summarises the calculation of the weighted average number of ordinary shares for the purposes of calculating basic earnings per share: Millions Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Weighted average number of ordinary shares in issue 4,897 4,894 4,897 Shares held in charitable foundations (6) (6) (6) Shares held in ESOP trusts (51) (53) (55) Adjusted weighted average number of ordinary shares C2(c) 4,840 4,835 4,836 Shares held in life funds (141) (160) (155) Shares held in Black Economic Empowerment trusts (237) (239) (239) Weighted average number of ordinary shares used to calculate basic earnings per share 4,462 4,436 4,442 Basic earnings per ordinary share (pence) 4.5 8.9 15.0
  • 74. OLD MUTUAL plc INTERIM RESULTS 2014 74 Notes to the consolidated financial statements For the six months ended 30 June 2014 C: Other key performance information continued C2: Earnings per share continued (b) Diluted basic earnings per share Diluted basic EPS recognises the dilutive impact of share options held in ESOP trusts and Black Economic Empowerment trusts, to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full period. The tables below reconcile the profit attributable to ordinary equity holders to diluted profit attributable to ordinary equity holders and summarises the calculation of weighted average number of shares for the purpose of calculating diluted basic earnings per share: Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Profit attributable to ordinary equity holders (£m) 199 397 668 Dilution effect on profit relating to share options issued by subsidiaries (£m) (4) (4) (10) Diluted profit attributable to ordinary equity holders (£m) 195 393 658 Weighted average number of ordinary shares (millions) C2(a) 4,462 4,436 4,442 Adjustments for share options held by ESOP trusts (millions) 59 46 45 Adjustments for shares held in Black Economic Empowerment trusts (millions) 237 239 239 Weighted average number of ordinary shares used to calculate diluted basic earnings per share (millions) 4,758 4,721 4,726 Diluted basic earnings per ordinary share (pence) 4.1 8.3 13.9 (c) Adjusted operating earnings per share The following table presents a reconciliation of profit for the financial year to adjusted operating profit after tax attributable to ordinary equity holders and summarises the calculation of adjusted operating earnings per share: Notes Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Profit for the financial period attributable to equity holders of the parent 213 414 705 Adjusting items 255 69 286 Tax on adjusting items (28) (28) (46) Non-core operations (14) (2) (32) Profit from discontinued operations 10 8 (3) Non-controlling interest on adjusting items (12) (13) (20) Adjusted operating profit after tax attributable to ordinary equity holders (£m) 424 448 890 Adjusted weighted average number of ordinary shares used to calculate adjusted operating earnings per share (millions) C2(a) 4,840 4,835 4,836 Adjusted operating earnings per share (pence) 8.8 9.3 18.4
  • 75. 75 OLD MUTUAL plc INTERIM RESULTS 2014 (d) Headline earnings per share The Group is required to calculate headline earnings per share (HEPS) in accordance with the JSE Limited (JSE) Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 02/2013 (Revised) 'Headline Earnings'. The table below sets out a reconciliation of basic EPS and HEPS in accordance with that circular. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa. The table below reconciles the profit for the financial year attributable to equity holders of the parent to headline earnings and summarises the calculation of basic HEPS: £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Notes Gross Net Gross Net Gross Net Profit for the financial period attributable to equity holders of the parent 213 213 414 414 705 705 Dividends paid to holders of perpetual preferred callable securities (14) (14) (17) (17) (37) (37) Profit attributable to ordinary equity holders 199 199 397 397 668 668 Adjustments: Impairments of goodwill and intangible assets 125 125 1 1 28 28 Loss/(profit) on disposal of subsidiaries, associated undertakings and strategic investments 10 15 1 (14) 4 (12) Realised gains (net of impairments) on available-for-sale financial assets - - (8) (8) (8) (8) Headline earnings 334 339 391 376 692 676 Dilution effect on earnings relating to share options issued by subsidiaries (£m) (4) (4) (4) (4) (10) (10) Diluted headline earnings 330 335 387 372 682 666 Weighted average number of ordinary shares (millions) C2(a) 4,462 4,462 4,436 4,436 4,442 4,442 Diluted weighted average number of ordinary shares (millions) C2(b) 4,758 4,758 4,721 4,721 4,726 4,726 Headline earnings per share (pence) 7.5 7.6 8.8 8.5 15.6 15.2 Diluted headline earnings per share (pence) 6.9 7.0 8.2 7.9 14.4 14.1 C3: Dividends £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 2012 Final dividend paid – 5.25p per 11 3/7p share - 238 238 2013 Interim dividend paid – 2.10p per 11 3/7p share - - 98 2013 Final dividend paid – 6.00p per 11 3/7p share 279 - - Dividends to ordinary equity holders 279 238 336 Dividends paid to holders of perpetual preferred callable securities 17 22 47 Dividend payments for the period 296 260 383 Final and interim dividends paid to ordinary equity holders are calculated using the number of shares in issue at the record date less own shares held in ESOP trusts, life funds of Group entities, Black Economic Empowerment trusts and related undertakings. As a consequence of the exchange control arrangements in place in certain African territories, dividends to ordinary equity holders on the branch registers of those countries (or, in the case of Namibia, the Namibian section of the principal register) are settled through Dividend Access Trusts established for that purpose. An interim dividend of 2.45 pence (or its equivalent in other applicable currencies) per ordinary share in the Company has been recommended by the directors in relation to the year ending 31 December 2014. The interim dividend will be paid on 31 October 2014 to shareholders on the register at the close of business on 17 September 2014 for the Malawi register, 18 September 2014 for the South African register, 19 September for the Zimbabwe and Namibian registers and 23 September 2014 for the UK register. The Company is not offering a scrip dividend alternative. In March 2014, £17 million was declared and paid to holders of perpetual preferred callable securities (March 2013: £22 million, November 2013: £25 million).
  • 76. OLD MUTUAL plc INTERIM RESULTS 2014 76 Notes to the consolidated financial statements For the six months ended 30 June 2014 D: Other income statement notes D1: Income tax expense (a) Analysis of total income tax expense £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Current tax United Kingdom 7 9 (3) Overseas tax - Africa 180 198 407 - Europe 4 10 19 - Rest of the world - - 7 Withholding taxes 4 - 16 Adjustments to current tax in respect of prior years 4 (19) (25) Total current tax 199 198 421 Deferred tax Origination and reversal of temporary differences 17 40 142 Effect on deferred tax of changes in tax rates - - (15) Recognition of deferred tax assets - - 1 Adjustments to deferred tax in respect of prior years 2 12 3 Total deferred tax 19 52 131 Total income tax expense 218 250 552 (b) Reconciliation of total income tax expense £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Profit before tax 564 805 1,532 Tax at UK standard rate of 21.5% (2013: 23.25%) 121 187 356 Different tax rate or basis on overseas operations 41 33 57 Untaxed and low taxed income (29) (31) (76) Disallowable expenses 38 (4) 35 Net movement on deferred tax assets not recognised 13 13 31 Effect on deferred tax of changes in tax rates - - (15) Withholding taxes 2 - 10 Income tax attributable to policyholder returns 35 49 133 Tax on Group equity held in life funds - - 21 Other (3) 3 - Total income tax expense 218 250 552
  • 77. 77 OLD MUTUAL plc INTERIM RESULTS 2014 (c) Income tax relating to components of other comprehensive income £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Preferred perpetual callable securities (3) (5) (10) Measurement gains on defined benefit plans - 1 22 Income tax on items that will not be reclassified subsequently to profit or loss (3) (4) 12 Income tax on items that may be reclassified subsequently to profit or loss 3 (1) (2) Income tax (credit)/expense – continuing operations - (5) 10 Income tax (credit)/expense relating to components of other comprehensive income - (5) 10 (d) Reconciliation of income tax expense in the IFRS income statement to income tax on adjusted operating profit £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Income tax expense 218 250 552 Tax on adjusting items Goodwill impairment and impact of acquisition accounting 26 6 26 (Loss)/profit on disposal of subsidiaries, associates and strategic investments (5) 15 16 Short-term fluctuations in investment return 2 3 (2) Tax on dividends declared to holders of perpetual preferred callable securities recognised in equity (3) (5) (10) Institutional Asset Management equity plans 3 9 11 Restructuring costs 5 - 5 Total tax on adjusting items 28 28 46 Income tax attributable to policyholders returns (44) (71) (174) Income tax on adjusted operating profit 202 207 424
  • 78. OLD MUTUAL plc INTERIM RESULTS 2014 78 Notes to the consolidated financial statements For the six months ended 30 June 2014 E: Financial assets and liabilities E1: Group statement of financial position The Group is exposed to financial risk through its financial assets (investments and loans), financial liabilities (investment contracts, customer deposits and borrowings), reinsurance assets and insurance liabilities. The key focus of financial risk management for the Group is ensuring that the proceeds from its financial assets are sufficient to fund the obligations arising from its insurance and banking operations. The most important components of financial risk are credit risk, market risk (arising from changes in equity, and bond prices, interest and foreign exchange rates), and liquidity risk. (a) Categories of financial instruments The analysis of assets and liabilities into their categories as defined in IAS 39 ‘Financial Instruments: Recognition and Measurement’ is set out in the following table. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IAS 39, are reflected in the non-financial assets and liabilities category. 30 June 2014 £m Measurement basis Fair value Amortised cost Total Held-for- trading Designated Available- for-sale financial assets Held-to- maturity investments Loans and receivables Financial liabilities amortised cost Non- financial assets and liabilities Assets Mandatory reserve deposits with central banks 767 - - - - 767 - - Reinsurers’ share of policyholder liabilities 1,987 - 1,765 - - 17 - 205 Loans and advances 33,727 2,476 3,377 3 - 27,871 - - Investments and securities 86,198 996 83,318 678 1,116 90 - - Trade, other receivables and other assets 2,780 129 325 - - 1,753 - 573 Derivative financial instruments 1,104 1,104 - - - - - - Cash and cash equivalents 4,289 - - - - 4,289 - - Total assets that include financial instruments 130,852 4,705 88,785 681 1,116 34,787 - 778 Total non-financial assets 10,939 - - - - - - 10,939 Total assets 141,791 4,705 88,785 681 1,116 34,787 - 11,717 Liabilities Life assurance policyholder liabilities 78,092 - 60,412 - - - - 17,680 Third-party interest in consolidation of funds 6,456 - 6,456 - - - - - Borrowed funds 2,752 - 686 - - - 2,066 - Trade, other payables and other liabilities 4,099 199 272 - - - 2,566 1,062 Amounts owed to bank depositors 34,540 3,724 3,463 - - - 27,353 - Derivative financial instruments 1,174 1,174 - - - - - - Total liabilities that include financial instruments 127,113 5,097 71,289 - - - 31,985 18,742 Total non-financial liabilities 5,807 - - - - - - 5,807 Total liabilities 132,920 5,097 71,289 - - - 31,985 24,549
  • 79. 79 OLD MUTUAL plc INTERIM RESULTS 2014 30 June 2013 £m Measurement basis Fair value Amortised cost Total Held-for- trading Designated Available- for-sale financial assets Held-to- maturity investments Loans and receivables Financial liabilities amortised cost Non- financial assets and liabilities Assets Mandatory reserve deposits with central banks 760 - - - - 760 - - Reinsurers’ share of policyholder liabilities 1,629 - 1,386 - - 19 - 224 Loans and advances 37,418 2,467 3,778 2 - 31,171 - - Investments and securities 88,915 1,237 84,937 811 1,550 380 - - Trade, other receivables and other assets 2,955 176 393 - - 1,882 - 504 Derivative financial instruments 1,417 1,417 - - - - - - Cash and cash equivalents 5,035 - - - - 5,035 - - Total assets that include financial instruments 138,129 5,297 90,494 813 1,550 39,247 - 728 Total non-financial assets 7,603 - - - - - - 7,603 Total assets 145,732 5,297 90,494 813 1,550 39,247 - 8,331 Liabilities Life assurance policyholder liabilities 81,443 - 61,876 - - 209 - 19,358 Third-party interest in consolidation of funds 5,479 - 5,479 - - - - - Borrowed funds 2,563 - 880 - - - 1,683 - Trade, other payables and other liabilities 5,076 416 472 - - 211 2,778 1,199 Amounts owed to bank depositors 38,009 3,661 5,032 - - - 29,316 - Derivative financial instruments 1,623 1,623 - - - - - - Total liabilities that include financial instruments 134,193 5,700 73,739 - - 420 33,777 20,557 Total non-financial liabilities 1,906 - - - - - - 1,906 Total liabilities 136,099 5,700 73,739 - - 420 33,777 22,463
  • 80. OLD MUTUAL plc INTERIM RESULTS 2014 80 Notes to the consolidated financial statements For the six months ended 30 June 2014 E: Financial assets and liabilities continued E1: Group statement of financial position continued (a) Categories of financial instruments continued 31 December 2013 £m Measurement basis Fair value Amortised cost Total Held-for- trading Designated Available- for-sale financial assets Held-to- maturity investments Loans and receivables Financial liabilities amortised cost Non- financial assets and liabilities Assets Mandatory reserve deposits with central banks 759 - - - - 759 - - Reinsurers’ share of policyholder liabilities 1,875 - 1,624 - - 16 - 235 Loans and advances 33,583 2,147 3,668 4 - 27,764 - - Investments and securities 88,220 971 84,873 807 1,461 108 - - Trade, other receivables and other assets 2,583 193 347 - - 1,447 - 596 Derivative financial instruments 1,259 1,259 - - - - - - Cash and cash equivalents 4,869 - - - - 4,869 - - Total assets that include financial instruments 133,148 4,570 90,512 811 1,461 34,963 - 831 Total non-financial assets 7,183 - - - - - - 7,183 Total assets 140,331 4,570 90,512 811 1,461 34,963 - 8,014 Liabilities Life assurance policyholder liabilities 81,141 - 63,187 - - - - 17,954 Third-party interest in consolidation of funds 5,478 - 5,478 - - - - - Borrowed funds 2,629 - 747 - - - 1,882 - Trade, other payables and other liabilities 4,315 263 294 - - - 2,413 1,345 Amounts owed to bank depositors 34,370 3,303 5,179 - - - 25,888 - Derivative financial instruments 1,478 1,478 - - - - - - Total liabilities that include financial instruments 129,411 5,044 74,885 - - - 30,183 19,299 Total non-financial liabilities 1,883 - - - - - - 1,883 Total liabilities 131,294 5,044 74,885 - - - 30,183 21,182
  • 81. 81 OLD MUTUAL plc INTERIM RESULTS 2014 (b) Fair value hierarchy The table below presents the Group’s financial assets and liabilities that are measured at fair value in the consolidated statement of financial position according to their IAS 39 classification, as set out in note E1(a), and in terms of the fair value hierarchy as required by IFRS 7 ‘Financial Instruments: Disclosures’. The table below analyses the financial assets and liabilities according to fair value hierarchy: £m 30 June 2014 Total Level 1 Level 2 Level 3 Financial assets measured at fair value Held-for-trading (fair value through profit or loss) 4,705 329 4,368 8 Loans and advances 2,476 - 2,476 - Investments and securities 996 196 799 1 Other financial assets 129 129 - - Derivative financial instruments – assets 1,104 4 1,093 7 Designated (fair value through profit or loss) 88,785 74,992 12,174 1,619 Reinsurers’ share of policyholder liabilities 1,765 1,765 - - Loans and advances 3,377 1 3,374 2 Investments and securities 83,318 72,901 8,800 1,617 Other financial assets 325 325 - - Available-for-sale financial assets (fair value through equity) 681 195 485 1 Loans and advances 3 3 - - Investments and securities 678 192 485 1 Total assets measured at fair value 94,171 75,516 17,027 1,628 Financial liabilities measured at fair value Held-for-trading (fair value through profit or loss) 5,097 196 4,901 - Other liabilities 199 190 9 - Amounts owed to bank depositors 3,724 - 3,724 - Derivative financial instruments – liabilities 1,174 6 1,168 - Designated (fair value through profit or loss) 71,289 46,733 23,752 804 Life assurance policyholder liabilities 60,412 46,079 13,529 804 Third-party interests in consolidated funds 6,456 - 6,456 - Borrowed funds 686 606 80 - Other liabilities 272 48 224 - Amounts owed to bank depositors 3,463 - 3,463 - Total liabilities measured at fair value 76,386 46,929 28,653 804
  • 82. OLD MUTUAL plc INTERIM RESULTS 2014 82 Notes to the consolidated financial statements For the six months ended 30 June 2014 E: Financial assets and liabilities continued E1: Group statement of financial position continued (b) Fair value hierarchy continued £m 30 June 2013 Total Level 1 Level 2 Level 3 Financial assets measured at fair value Held-for-trading (fair value through profit or loss) 5,297 474 4,811 12 Loans and advances 2,467 - 2,467 - Investments and securities 1,237 294 936 7 Other financial assets 176 176 - - Derivative financial instruments – assets 1,417 4 1,408 5 Designated (fair value through profit or loss) 90,494 72,482 16,788 1,224 Reinsurers’ share of policyholder liabilities 1,386 1,386 - - Loans and advances 3,778 2 3,772 4 Investments and securities 84,937 70,703 13,014 1,220 Other financial assets 393 391 2 - Available-for-sale financial assets (fair value through equity) 813 371 439 3 Loans and advances 2 2 - - Investments and securities 811 369 439 3 Total assets measured at fair value 96,604 73,327 22,038 1,239 Financial liabilities measured at fair value Held-for-trading (fair value through profit or loss) 5,700 412 5,288 - Other liabilities 416 408 8 - Amounts owed to bank depositors 3,661 - 3,661 - Derivative financial instruments – liabilities 1,623 4 1,619 - Designated (fair value through profit or loss) 73,739 44,675 28,529 535 Life assurance policyholder liabilities 61,876 43,806 17,535 535 Third-party interests in consolidated funds 5,479 - 5,479 - Borrowed funds 880 865 15 - Other liabilities 472 4 468 - Amounts owed to bank depositors 5,032 - 5,032 - Total liabilities measured at fair value 79,439 45,087 33,817 535
  • 83. 83 OLD MUTUAL plc INTERIM RESULTS 2014 £m 31 December 2013 Total Level 1 Level 2 Level 3 Financial assets measured at fair value Held-for-trading (fair value through profit or loss) 4,570 493 4,066 11 Loans and advances 2,147 - 2,147 - Investments and securities 971 295 673 3 Other financial assets 193 193 - - Derivative financial instruments – assets 1,259 5 1,246 8 Designated (fair value through profit or loss) 90,512 76,822 11,980 1,710 Reinsurers’ share of policyholder liabilities 1,624 1,624 - - Loans and advances 3,668 1 3,665 2 Investments and securities 84,873 74,850 8,315 1,708 Other financial assets 347 347 - - Available-for-sale financial assets (fair value through equity) 811 348 461 2 Loans and advances 4 4 - - Investments and securities 807 344 461 2 Total assets measured at fair value 95,893 77,663 16,507 1,723 Financial liabilities measured at fair value Held-for-trading (fair value through profit or loss) 5,044 265 4,779 - Other liabilities 263 256 7 - Amounts owed to bank depositors 3,303 - 3,303 - Derivative financial instruments – liabilities 1,478 9 1,469 - Designated (fair value through profit or loss) 74,885 48,237 25,716 932 Life assurance policyholder liabilities 63,187 47,538 14,717 932 Third-party interests in consolidated funds 5,478 - 5,478 - Borrowed funds 747 663 84 - Other liabilities 294 36 258 - Amounts owed to bank depositors 5,179 - 5,179 - Total liabilities measured at fair value 79,929 48,502 30,495 932 (c) Determination of fair value The best evidence of fair value is a quoted price in an active market. In the event that the market for a financial asset or liability is not active, or quoted prices cannot be obtained without undue effort, another valuation technique is used. The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process. The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. However, certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or liability’s carrying amount is driven by unobservable inputs. In this context, ‘unobservable’ means that there is little or no current market data available for which to determine the price at which an arm’s length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about the overall fair value of the asset or liability being measured. Details of the Group’s valuation techniques can be found in note E1(q) (iii) of the 2013 Annual Report. There have been no significant changes to the valuation techniques applied.
  • 84. OLD MUTUAL plc INTERIM RESULTS 2014 84 Notes to the consolidated financial statements For the six months ended 30 June 2014 E: Financial assets and liabilities continued E1: Group statement of financial position continued (d) Movements in financial instruments measured at Level 3 in terms of the hierarchy The fair values of Level 3 financial instruments are based on valuation techniques that rely largely on unobservable market inputs and require a significant level of judgement. As such, the fair values of Level 3 financial instruments are often less reliable than Level 1 and Level 2 financial instruments. Movements in the fair values of Level 3 instruments are generally due to movements in key assumptions and macroeconomic factors. The tables below reconcile the opening balances of financial assets and liabilities measured in terms of Level 3 fair value to closing balances at the end of the period: £m Six months ended 30 June 2014 Held-for- trading - Investments and securities Held- for-trading - Derivatives Designated fair value through profit or loss - Loans and advances Designated fair value through profit or loss - Investments and securities Available-for- sale - Investments and securities Total Level 3 financial assets At beginning of the year 3 8 2 1,708 2 1,723 Total net (losses)/gains recognised in the profit or loss for the period (1) (1) - 20 - 18 Purchases and issues - - - 73 - 73 Sales and settlements - - - (188) (1) (189) Transfers in - - - 57 - 57 Transfers out - - - (16) - (16) Foreign exchange and other (1) - - (37) - (38) Total level 3 financial assets 1 7 2 1,617 1 1,628 Gains relating to assets held at 30 June 2014 recognised in: - profit or loss - - - 9 - 9 £m Six months ended 30 June 2014 Designated fair value through profit or loss - Life assurance policyholder liabilities (investment contracts) Total Level 3 financial liabilities At beginning of the year 932 932 Total net gains recognised in profit or loss for the period (49) (49) Purchases and issues 1 1 Sales and settlements (126) (126) Transfers in 50 50 Transfers out - - Foreign exchange and other (4) (4) Total level 3 financial liabilities 804 804 Gains relating to liabilities held at 30 June 2014 recognised in: - profit or loss (49) (49)
  • 85. 85 OLD MUTUAL plc INTERIM RESULTS 2014 £m Six months ended 30 June 2013 Held-for-trading - Investments and securities Held- for-trading - Derivatives Designated fair value through profit or loss - Loans and advances Designated fair value through profit or loss - Investments and securities Available-for- sale - Investments and securities Total Level 3 financial assets At beginning of the year 4 - 9 1,051 2 1,066 Total net gains/(losses) recognised in the profit or loss for the period 4 - (5) 54 - 53 Total gains recognised in other comprehensive income - - - 1 - 1 Purchases and issues - 5 - 24 - 29 Sales and settlements (1) - - (21) - (22) Transfers in - - - 151 1 152 Transfers out - - - - - - Foreign exchange and other - - - (40) - (40) Total level 3 financial assets 7 5 4 1,220 3 1,239 Gains relating to assets held at 30 June 2013 recognised in: - profit or loss - - - 52 - 52 £m Six months ended 30 June 2013 Designated fair value through profit or loss - Life assurance policyholder liabilities (investment contracts) Total Level 3 financial liabilities At beginning of the year 480 480 Total net losses recognised in profit or loss for the period 72 72 Purchases and issues 1 1 Sales and settlements (104) (104) Transfers in 77 77 Foreign exchange and other 9 9 Total level 3 financial liabilities 535 535 Losses relating to liabilities held at 30 June 2013 recognised in: - profit or loss 74 74
  • 86. OLD MUTUAL plc INTERIM RESULTS 2014 86 Notes to the consolidated financial statements For the six months ended 30 June 2014 E: Financial assets and liabilities continued E1: Group statement of financial position continued (d) Movements in financial instruments measured at Level 3 in terms of the hierarchy continued £m Year ended 31 December 2013 Held-for-trading - Investments and securities Held- for-trading - Derivatives Designated fair value through profit or loss - Loans and advances Designated fair value through profit or loss - Investments and securities Available-for- sale - Investments and securities Total Level 3 financial assets At beginning of the year 4 - 9 1,122 2 1,137 Total net gains/(losses) recognised in the profit or loss for the period 1 - - 65 - 66 Purchases and issues - 9 - 290 - 299 Sales and settlements (1) - (6) (77) - (84) Transfers in - - - 464 - 464 Transfers out - - - (21) - (21) Foreign exchange and other (1) (1) (1) (135) - (138) Total level 3 financial assets 3 8 2 1,708 2 1,723 Gains relating to assets held at 31 December 2013 recognised in: - profit or loss - - - 55 - 55 £m Year ended 31 December 2013 Designated fair value through profit or loss - Life assurance policyholder liabilities (investment contracts) Total Level 3 financial liabilities At beginning of the year 480 480 Total net gains recognised in profit or loss for the period (8) (8) Purchases and issues 106 106 Sales and settlements (114) (114) Transfers in 464 464 Transfers out - - Foreign exchange and other 4 4 Total level 3 financial liabilities 932 932 Losses relating to liabilities held at 30 June 2013 recognised in: - profit or loss (12) (12)
  • 87. 87 OLD MUTUAL plc INTERIM RESULTS 2014 (e) Effect of changes in significant unobservable assumptions to reasonable possible alternatives Favourable and unfavourable changes are determined on the basis of changes in the value of the financial asset or liability as a result of varying the levels of the unobservable parameter using statistical techniques. When parameters are not amenable to statistical analysis, quantification of uncertainty is judgemental. When the fair value of a financial asset or liability is affected by more than one unobservable assumption, the figures shown reflect the most favourable or most unfavourable change from varying the assumptions individually. In respect of private equity investments which are included as investment securities, the valuations are assessed on an asset-by-asset basis using a valuation methodology appropriate to the specific investment, in line with industry guidelines. In many of the methodologies, the principal assumption is the valuation multiple to be applied to the main financial indicators including, for example, multiples for comparable listed companies and discounts for marketability. For asset-backed securities whose prices are unobservable, models are used to generate the expected value of the asset, incorporating benchmark information on factors such as prepayment patterns, default rates, loss severities and the historical performance of the underlying assets. The models used are calibrated by using securities for which external market information is available. For structured notes and other derivatives, principal assumptions concern the future volatility of asset values and the future correlation between asset values. These principle assumptions include credit volatilities and correlations used in the valuation of the structured credit derivatives. For such unobservable assumptions, estimates are based on available market data, which may include the use of a proxy method to derive a volatility or correlation from comparable assets for which market data is more readily available, and examination of historical levels. (f) Alternative assumptions Accounting standards require consideration of the effect of reasonable possible alternative assumptions on the fair value of Level 3 financial assets and liabilities. Alternative assumptions are assessed in terms of possible favourable and unfavourable changes in the key market inputs for the major types of Level 3 financial assets and liabilities, ranging from, for example, a 10% change in the price earnings multiple for equity securities, to a 25% change in the discount rates applied to debt securities and volatility assumptions in derivative contracts. Changes in business risk inputs such as lapses and non-performance risk were also considered. The table below shows the income statement effect of reasonable possible alternative assumptions on the fair value of Level 3 financial assets and liabilities: £m 30 June 2014 30 June 2013 31 December 2013 Reflected in profit or loss Favourable changes Unfavourable changes Favourable changes Unfavourable changes Favourable changes Unfavourable changes Level 3 financial assets Designated (fair value through profit or loss) 210 199 123 120 218 198 Loans and advances - - 1 1 - - Investments and securities 203 199 122 119 212 198 Derivative financial instruments 7 - - - 6 - Total Level 3 financial assets 210 199 123 120 218 198 Level 3 financial liabilities Designated (fair value through profit or loss) 70 84 20 48 85 74 Life assurance policyholder liabilities (investment contracts) 70 84 20 48 85 74 Total Level 3 financial liabilities 70 84 20 48 85 74 The impact of reasonable possible alternative assumptions on other comprehensive income was £nil in all periods.
  • 88. OLD MUTUAL plc INTERIM RESULTS 2014 88 Notes to the consolidated financial statements For the six months ended 30 June 2014 E: Financial assets and liabilities continued E2: Borrowed funds £m Notes Group excluding Nedbank Nedbank 30 June 2014 Group Group excluding Nedbank Nedbank 30 June 2013 Group Senior debt securities and term loans 113 1,240 1,353 123 994 1,117 Floating rate notes E2(a) - 708 708 - 525 525 Fixed rate notes E2(b) 113 532 645 123 469 592 Mortgage-backed securities E2(d) - 57 57 - 114 114 Subordinated debt securities E2(e) 740 602 1,342 714 618 1,332 Borrowed funds 853 1,899 2,752 837 1,726 2,563 Other instruments treated as equity for accounting purposes €374 million perpetual preferred callable securities at 5.00% 253 334 £273 million perpetual preferred callable securities as 6.40% 273 348 Total: Book value 1,379 1,519 Nominal value of the above 1,350 1,594 £m Group excluding Nedbank Nedbank 31 December 2013 Group Senior debt securities and term loans 113 1,151 1,264 Floating rate notes E2(a) - 673 673 Fixed rate notes E2(b) 113 478 591 Mortgage-backed securities E2(d) - 65 65 Subordinated debt securities E2(e) 703 597 1,300 Borrowed funds 816 1,813 2,629 Other Group instruments treated as equity for accounting purposes €374 million perpetual preferred callable securities at 5.00% 253 £273 million perpetual preferred callable securities as 6.40% 273 Total: Book value 1,342 Nominal value of the above 1,370
  • 89. 89 OLD MUTUAL plc INTERIM RESULTS 2014 Senior debt securities and term loans (a) Floating rate notes £m Maturity date 30 June 2014 30 June 2013 31 December 2013 Nedbank - Floating rate unsecured senior debt R988 million at JIBAR + 1.05% Repaid - 64 50 R500 million at JIBAR + 1.00% Repaid - 30 26 R1,075 million at JIBAR + 0.94% October 2014 60 72 62 R1,297 million at JIBAR + 1.00% February 2015 73 87 75 R1,027 million at JIBAR + 1.75% April 2015 57 69 60 R250 million at JIBAR + 1.00% August 2015 14 17 14 R1,044 million at JIBAR + 2.20% September 2015 58 70 61 R677 million at JIBAR + 1.25% March 2016 37 45 39 R3,056 million at JIBAR + 0.8% July 2016 170 - 176 R694 million at JIBAR + 0.75% November 2016 38 - 40 R405 million at JIBAR + 1.30% February 2017 22 27 23 R1,035 million at JIBAR + 0.85% March 2017 57 - - R786 million at JIBAR + 1.30% August 2017 38 39 42 R806 million at JIBAR + 0.9% June 2017 44 - - R80 million at JIBAR + 2.15% April 2020 4 5 5 R650 million at JIBAR + 1.3% June 2021 36 - - Total floating rate notes 708 525 673 All floating rate notes are non-qualifying for the purposes of regulatory tiers of capital. (b) Fixed rate notes (net of Group holdings) £m Maturity date 30 June 2014 30 June 2013 31 December 2013 Nedbank - Fixed rate unsecured senior debt R450 million at 8.39% Repaid - 30 26 R478 million at 9.68% April 2015 27 32 28 R3,244 million at 10.55% September 2015 184 222 192 R1,137 million at 9.36% March 2016 64 77 67 R151 million at 6.91% July 2016 9 - 9 R1,273 million at 11.39% September 2019 77 93 80 R1,888 million at 8.92% November 2020 105 - 109 R855 million at 9.38% March 2021 48 - - R500 million at 9.29% June 2021 28 - - R391 million at 9.73% March 2024 22 - - R660 million at zero coupon October 2024 13 15 14 577 469 525 Less: Fixed rate notes held by other Group companies (45) - (47) Banking fixed rate unsecured senior debt (net of Group holdings) 532 469 478 Group excluding Nedbank $2 million secured senior debt at 5.23% July 2014 1 11 1 £112 million eurobond at 7.125% October 2016 112 112 112 113 123 113 Total fixed rate notes 645 592 591 All fixed rate notes are non-qualifying for the purpose of regulatory tiers of capital. (c) Revolving credit facilities and irrevocable letters of credit The Group has access to a £800 million (June 2013: £1,200 million, December 2013: £800 million) five-year multi-currency revolving credit facility which matures in April 2016. At 30 June 2014, 31 December 2013 and 30 June 2013, none of this facility was drawn and there were no irrevocable letters of credit in issue against this facility.
  • 90. OLD MUTUAL plc INTERIM RESULTS 2014 90 Notes to the consolidated financial statements For the six months ended 30 June 2014 E: Financial assets and liabilities continued E2: Borrowed funds continued (d) Mortgage-backed securities (net of Group holdings) £m Tier Maturity date 30 June 2014 30 June 2013 31 December 2013 Nedbank R480 million (class A1) at JIBAR + 1.10% Tier 2 25 October 2039 7 24 13 R336 million (class A2) at JIBAR + 1.25% Tier 2 25 October 2039 19 23 20 R900 million (class A3) at JIBAR + 1.54% Tier 2 25 October 2039 50 60 52 R110 million (class B) at JIBAR + 1.90% Tier 2 25 October 2039 6 7 6 82 114 91 Less: Mortgage backed securities held by other Group companies (25) - (26) Total mortgage-backed securities 57 114 65 (e) Subordinated debt securities (net of Group holdings) £m Tier First call date Maturity date 30 June 2014 30 June 2013 31 December 2013 Nedbank R300 million at JIBAR + 2.50% Tier 2 Repaid Repaid - 10 - R1,800 million at 9.84% Tier 2 Repaid Repaid - 124 - R1,700 million at 8.90% Tier 2 Repaid Repaid - 118 101 R1,265 million at JIBAR + 4.75% Non-core Tier 1 November 2018 November 2018 70 85 74 R487 million at 15.05% Non-core Tier 1 November 2018 November 2018 32 37 32 R1,000 million at 10.54% Tier 2 September 2015 September 2020 58 72 62 $100 million at 3 month USD LIBOR Tier 2 Secondary March 2017 March 2022 59 66 60 R2,000 million at JIBAR + 0.47% Tier 2 July 2017 July 2022 112 134 116 R1,800 million at JIBAR + 2.75% Tier 2 July 2018 July 2023 101 - 105 R1,200 million at JIBAR + 2.55% Tier 2 November 2018 November 2023 67 - 69 R450 million at 10.49% Tier 2 April 2019 April 2024 25 - - R1,737 million at 3 month JIBAR + 2.55% Tier 2 April 2019 April 2024 97 - - 621 646 619 Less: Banking subordinated debt securities held by other Group companies (19) (28) (22) Banking subordinated securities (net of Group holdings) 602 618 597 Group excluding Nedbank R3,000 million at 8.92% until October 2015 and 3 month JIBAR + 1.59% thereafter Lower Tier 2 October 2015 October 2020 165 199 172 £500 million at 8.00% Lower Tier 2 - June 2021 575 515 531 740 714 703 Total subordinated debt securities 1,342 1,332 1,300 F: Other notes F1: Related parties The nature of the related party transactions of the Group has not changed from those referred to in the 2013 Annual Report and Accounts. There were no transactions with related parties during the six months ended 30 June 2014, that had a material effect on the results or the financial position of the Group.
  • 91. 91 OLD MUTUAL plc INTERIM RESULTS 2014 F2: Events after the reporting date On 1 July 2014, the Group announced the completion of the acquisition of Intrinsic Financial Services, one of the largest networks of financial advisers in the UK. The acquisition was announced on 28 February 2014 and is part of Old Mutual Wealth's strategy of building an integrated customer proposition comprising financial advice, asset management and tax efficient products. Additionally, the Group announced that it intends to acquire the remaining 50% stake of Cirilium, the core investment proposition for Intrinsic’s restricted financial advisers. On 4 July 2014, Old Mutual Bermuda received formal written approval from the Bermuda Monitory Authority (BMA) to repatriate $160 million via cancellation of OM Group (UK) Limited loan notes. On 10 July 2014, Nedbank Group Limited announced its intention to issue new preference shares. These preference shares will be utilised to raise funding for Nedbank’s’ business activities in general. Terms have been agreed to sell Skandia Liechtenstein, part of Old Mutual Wealth. The transaction is subject to regulatory approval and the fulfilment of certain closing conditions and is expected to complete during the second half of the year. F3: Contingent liabilities Contingent liabilities - tax The Group is regularly in discussion with the respective tax authorities in each of the jurisdictions where the Group is active. The Group applies its judgement to determine if a provision for future tax uncertainties should be recognised based on detailed reviews of any potential exposure to tax authorities and the assessment of the most probable outcome of the tax uncertainty. As these provisions are based on estimates and rely on judgements made by the Group, the actual amount of future taxes paid by the Group could be different to the amounts provided. G: Discontinued operations and disposal groups held for sale G1: Discontinued operations Amounts disclosed in relation to discontinued operations relate to the sale, in 2012, of the Group’s Swedish, Danish and Norwegian life businesses, collectively Nordic. The disposal of Nordic was completed on 21 March 2012 following shareholder and regulatory approval, and the Nordic business was consolidated and reported up until that date. The Group continues to incur costs that are directly related to the sale of Nordic. These costs relate to the transition of IT and other services, previously provided by Nordic to the wider Group, back to the Group. Income statement from discontinued operations (Nordic) £m Six months ended 30 June 2014 Six months ended 30 June 2013 Year ended 31 December 2013 Revenue - - - Expenses (11) (9) (26) Loss before tax from discontinued operations - trading activities (11) (9) (26) Profit on disposal - - 27 (Loss)/profit before tax from discontinued operations (11) (9) 1 Income tax credit 1 1 2 (Loss)/profit after tax from discontinued operations (10) (8) 3 G2: Disposal groups held for sale On 27 March 2014, the Group announced that terms had been agreed to sell two of its Old Mutual Wealth businesses, Skandia Austria and Skandia Germany. This transaction is subject to regulatory approvals and consequently the assets and liabilities of these businesses have been classified as held for sale in the statement of financial position. At 30 June 2014, the total value of the assets and liabilities reclassified as held for sale in the statement of financial position were £4,468 million and £4,294 million respectively. The disposal of these businesses is expected to be completed during the second half of the year. The Group had additional non-current assets held for sale of £5 million (30 June 2013: £5 million; 31 December 2013: £5 million). G3: Contingent liabilities in respect of the disposal of US Life Following its disposal in April 2011 of US Life to the Harbinger Group (Harbinger), the Group has retained certain residual commitments and contingent liabilities relating to that business. These arise from sale warranties and indemnities that are typical in transactions of this nature, including in respect of certain litigation (including class actions) and regulatory enforcement actions arising from events that occurred before completion of the sale. The residual commitments are in effect for varying periods of time. The sale agreement contemplated that Harbinger would establish certain internal reinsurance arrangements after completion, which were subject to regulatory approval. If such regulatory approval was not forthcoming, there was potential for a reduction in the purchase price of US Life of up to a maximum of $50 million. In July 2012, Harbinger filed a lawsuit against the Group, claiming payment of a purchase price adjustment of $50 million. The Group has filed its defence and is vigorously defending this claim. In view of the ongoing uncertainty and the Group’s current assessment of this claim, the Group has not raised a provision against this exposure.
  • 92. 92 OLD MUTUAL plc INTERIM RESULTS 2014 MCEV Information At 30 June 2014 MCEV reporting At the February 2014 preliminary results announcement, we indicated that the Group will not be publishing detailed MCEV information in future, The decision reflects the G p’ p y that have reduced the prevalence of life insurance business in the Group. These include the sale of the US Life and Nordic operations and the significant run-off of business in Old Mutual Bermuda. In addition, the change in strategic direction of the Old Mutual Wealth business has led to a shift in business activity towards asset management. The change in mix of business will be more pronounced in 2014 following the completed and proposed sales of life insurance businesses in Europe. This means that MCEV information is less relevant to our Group. Valuation of Old Mutual Wealth at IFRS net asset value The information that follows restates the adjusted Group MCEV by including Old Mutual Wealth at IFRS net asset value. This results in an adjusted Group value of £9.7 billion or 198.1 pence per share, compared with £10.1 billion or 205.4 pence per share as it would previously have been stated on an adjusted Group MCEV basis, a difference of 7.3 pence per share or 3.6%. Using this approach, Emerging Markets life insurance business is valued on an MCEV basis. The other components of the business are included as follows:  Emerging Markets asset management, property & casualty and banking business valued at IFRS net asset value;  Old Mutual Wealth valued at IFRS net asset value;  Old Mutual Bermuda valued using IFRS net asset value with guarantee liabilities restated to a reflect an MCEV approach;  Institutional asset management valued at IFRS net asset value;  Group listed subsidiaries (currently only Nedbank) valued at the market value of shares held;  Black Economic Empowerment (BEE) arrangements in South Africa valued on a discounted cash flow basis;  Employee Share Ownership Plan (ESOP) schemes valued at the market value of excess own shares; and  Subordinated debt and perpetual preferred callable securities valued at market value. The majority of the Group is not valued on an MCEV basis. We believe that it is more appropriate to value the Old Mutual Group ‘ p ’ , l ion models relevant to each line of business and have provided supplementary information to assist with such an approach.
  • 93. OLD MUTUAL plc INTERIM RESULTS 2014 93 MCEV Information At 30 June 2014 The table below indicates the value attributable to each line of business and provides the adjusted Group MCEV, where Old Mutual Wealth is restated to an MCEV basis. £m At At At Notes 30 June 2014 30 June 2013 31 December 2013 Emerging Markets 3,562 3,967 3,559 Life insurance business 2,894 3,245 2,953 Asset management and other business 419 456 364 Property & Casualty 162 209 183 Banking business 87 57 59 Old Mutual Wealth A1 2,219 2,069 2,243 Old Mutual Bermuda 376 713 365 Nedbank 3,257 2,997 3,113 Institutional asset management 895 1,153 1,058 Net other business1 573 381 610 Adjustment for present value of BEE scheme deferred consideration 183 219 201 Adjustment for value of own shares in ESOP schemes 116 120 123 Perpetual preferred callable securities (596) (708) (582) Subordinated debt (868) (861) (838) Adjusted Group value 9,717 10,050 9,852 Old Mutual Wealth MCEV basis adjustments A2 356 215 310 Adjusted Group MCEV 10,073 10,265 10,162 Adjusted Group value per share (pence) 198.1 205.3 201.2 Adjusted Group MCEV per share (pence) 205.4 209.7 207.5 Number of shares in issue at the end of the financial period less treasury shares – millions 4,905 4,896 4,897 1 Net other business is the aggregate of other Group assets and liabilities not included elsewhere, including net inter-segment funding adjustments (except for Old Mutual Wealth) and holding company cash. Old Mutual Wealth inter-segment funding was £192 million (June 2013: £533 million; December 2013: £244 million).
  • 94. 94 OLD MUTUAL plc INTERIM RESULTS 2014 MCEV Information At 30 June 2014 A1: Analysis of Old Mutual Wealth IFRS net asset value between covered and non-covered The table below provides an analysis of IFRS net asset value between covered and non-covered business for Old Mutual Wealth. £m Old Mutual Wealth At 30 June 2014 At 30 June 2013 At 31 December 2013 IFRS net asset value of covered business 2,066 1,979 2,129 IFRS net asset value of non-covered business 153 90 114 IFRS net asset value 2,219 2,069 2,243 A2: Old Mutual Wealth MCEV information The IFRS net asset value for Old Mutual Wealth covered business is £2,066 million at 30 June 2014. Including the MCEV basis adjustments of £356 million gives an MCEV value for Old Mutual Wealth covered business of £2,422 million. The differences between IFRS net asset value and MCEV for Old Mutual Wealth are summarised below. £m Old Mutual Wealth At 30 June 2014 At 30 June 2013 At 31 December 2013 Adjustments to adjusted net worth (1,463) (1,765) (1,664) Adjustment to include long-term business on a statutory solvency basis (797) (1,006) (917) Goodwill (674) (767) (761) Inclusion of Group equity and debt instruments held in life funds 8 8 14 Value of in-force business 1,819 1,980 1,974 Total adjustments 356 215 310 A3: Emerging Markets MCEV information Embedded value information continues to be relevant for Emerging Markets and we would expect it to be a central part of appraising the valuation and performance of this business. As such we have prepared MCEV disclosures for the covered business in Emerging Markets for the six months ended 30 June 2014 on a consistent basis to those historically presented. These can be found on the Old Mutual website (http://www.oldmutual.com/media/reporting-centre.jsp). We continue to assess the basis of preparation of embedded value information for Emerging Markets in view of changes in the composition of that business and information reported by our South African peer group. We anticipate that South African peer group reporting practices are likely to change following the introduction of the Solvency Assessment and Management (SAM) regime. In view of changes in the mix of business, including the growth of lending, wealth management and property & casualty businesses, we may provide additional information to assist with developing mo pp p l ‘ p ’ approach. Analysis of Emerging Markets IFRS net asset value between covered and non-covered The table below provides an analysis of IFRS net asset value between covered and non-covered business for Emerging Markets. £m At At At Emerging Markets 30 June 2014 30 June 2013 31 December 2013 IFRS net asset value of covered business 1,237 1,353 1,212 IFRS net asset value of non-covered business 668 722 606 Adjustments to include debt (165) (199) (172) Adjustments for inter-segment capital funding and minority interests1 7 16 8 IFRS net asset value 1,747 1,892 1,654 1 The minority interest adjustment relates to the Zimbabwe non-covered business in December 2013 and June 2014.

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