Wrap Text
Old Mutual plc preliminary results for the year ended 31 December 2012 - Part 2
Old Mutual
ISIN CODE: GB00B77J0862
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSURE CODE: OLOML
Statement of directors' responsibilities
in respect of the Annual Report and the financial statements
The directors confirm that to the best of their knowledge:
- The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
- The Annual Report includes a fair review of the development and performance of the business and the position of Old Mutual plc and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Julian Roberts Philip Broadley
Group Chief Executive Group Finance Director
1 March 2013
Consolidated income statement
For the year ended 31 December 2012
GBPm
Year ended Year ended
31 December 31 December
Notes 2012 2011
Revenue
Gross earned premiums B2 3,725 3,584
Outward reinsurance (322) (325)
Net earned premiums 3,403 3,259
Investment return (non-banking) 9,524 (567)
Banking interest and similar income 3,431 3,669
Banking trading, investment and similar income 214 217
Fee and commission income, and income from service activities 3,096 3,035
Other income 125 171
Total revenues 19,793 9,784
Expenses
Claims and benefits (including change in insurance contract provisions) (5,612) (3,331)
Reinsurance recoveries 221 123
Net claims and benefits incurred (5,391) (3,208)
Change in investment contract liabilities (5,361) 1,889
Losses on loans and advances (400) (458)
Finance costs (214) (58)
Banking interest payable and similar expenses (1,887) (2,095)
Fee and commission expenses, and other acquisition costs (1,031) (1,007)
Other operating and administrative expenses (3,754) (3,852)
Goodwill impairment C1(b) - (264)
Change in third party interest in consolidated funds (328) 2
Total expenses (18,366) (9,051)
Share of associated undertakings' and joint ventures' profit after tax 24 10
(Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic
investments C1(c) (56) 251
Profit before tax 1,395 994
Income tax expense D1 (472) (225)
Profit from continuing operations after tax 923 769
Discontinued operations
Profit from discontinued operations after tax H1 564 198
Profit after tax for the financial year 1,487 967
Attributable to
Equity holders of the parent 1,173 667
Non-controlling interests
Ordinary shares F2(a) 264 238
Preferred securities F2(a) 50 62
Profit after tax for the financial year 1,487 967
Earnings per share
Basic earnings per share based on profit from continuing operations (pence) 12.6 8.9
Basic earnings per share based on profit from discontinued operations (pence) 12.3 4.0
Basic earnings per ordinary share (pence) C2(a) 24.9 12.9
Diluted earnings per share based on profit from continuing operations (pence) 11.6 8.0
Diluted earnings per share based on profit from discontinued operations (pence) 11.5 3.7
Diluted earnings per ordinary share (pence) C2(a) 23.1 11.7
Weighted average number of ordinary shares - millions C2(a) 4,587 4,935
Consolidated statement of comprehensive income
For the year ended 31 December 2012
GBPm
Year ended Year ended
31 December 31 December
Notes 2012 2011
Profit after tax for the financial year 1,487 967
Other comprehensive income for the financial year
Fair value gains
Property revaluation 20 39
Net investment hedge 160 28
Available-for-sale investments
Fair value gains/(losses) 30 (1)
Recycled to the income statement (21) (6)
Shadow accounting 6 (22)
Currency translation differences/exchange differences on
translating foreign operations (641) (1,240)
Other movements (46) (49)
Income tax relating to components of other comprehensive income D1(c) 5 12
Total other comprehensive income for the financial year from continuing operations (487) (1,239)
Total other comprehensive income for the financial year from discontinued operations H1(b) (348) (161)
Total other comprehensive income for the financial year (835) (1,400)
Total comprehensive income for the financial year 652 (433)
Attributable to
Equity holders of the parent 476 (408)
Non-controlling interests
Ordinary shares 126 (87)
Preferred securities 50 62
Total comprehensive income for the financial year 652 (433)
Reconciliation of adjusted operating profit to profit after tax
For the year ended 31 December 2012
GBPm
Year ended Year ended
31 December 31 December
Notes 2012 2011
Core operations
Long-Term Savings B3 800 793
Nedbank B3 828 755
Mutual & Federal B3 43 89
USAM B3 91 67
1,762 1,704
Finance costs (130) (128)
Long term investment return on excess assets 54 37
Net interest payable to non-core operations (18) (23)
Corporate costs (54) (57)
Other net expenses - (18)
Adjusted operating profit before tax 1,614 1,515
Adjusting items C1(a) (459) (329)
Non-core operations B3 165 (183)
Profit before tax (net of policyholder tax) 1,320 1,003
Income tax attributable to policyholder returns B3 75 (9)
Profit before tax 1,395 994
Total tax expense D1(a) (472) (225)
Profit from continuing operations after tax 923 769
Profit from discontinued operations after tax H1(a) 564 198
Profit after tax for the financial year 1,487 967
Adjusted operating profit after tax attributable to ordinary equity holders of the parent
GBPm
Year ended Year ended
31 December 31 December
Notes 2012 2011(1)
Adjusted operating profit before tax 1,614 1,515
Tax on adjusted operating profit D1(d) (441) (341)
Adjusted operating profit after tax 1,173 1,174
Non-controlling interests ordinary shares F2(a) (281) (257)
Non-controlling preferred securities F2(a) (50) (62)
Adjusted operating profit after tax attributable to ordinary equity holders
of the parent 842 855
Adjusted weighted average number of shares (millions) C2(b) 4,818 4,756
Adjusted operating earnings per share (pence) C2(b) 17.5 18.0
(1) The results for the year ended 31 December 2011 have been restated to reflect the share consolidation which occurred on 23 April 2012 (see note A2).
Basis of preparation
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. This
reconciliation explains the differences between adjusted operating profit and profit after tax as reported under IFRS as adopted by the EU.
For core life assurance and general insurance businesses, adjusted operating profit is based on a long-term investment return, including investment
returns on life funds' investments in Group equity and debt instruments, and is stated net of income tax attributable to policyholder returns. For the
US Asset Management business it includes compensation costs in respect of certain long-term incentive schemes defined as non-controlling
interests in accordance with IFRS. For all core businesses, adjusted operating profit excludes goodwill impairment, the impact of acquisition
accounting, revaluations of put options related to long-term incentive schemes, profit/(loss) on acquisition/disposal of subsidiaries, associated
undertakings and strategic investments, and fair value profits/(losses) on certain Group debt movements but includes dividends declared to holders
of perpetual preferred callable securities. Bermuda is treated as a non-core operation in the AOP disclosure, and Nordic, which is disclosed as
discontinued operations for IFRS reporting, is also treated a non-core operation for AOP disclosure. Non-core operations are not included in AOP.
Adjusted operating earnings per share is calculated on the same basis as adjusted operating profit. It is stated after tax attributable to adjusted
operating profit and non-controlling interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The
calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic
Empowerment trusts.
Consolidated statement of financial position
At 31 December 2012
GBPm
At At
31 December 31 December
Notes 2012 2011
Assets
Goodwill and other intangible assets 3,056 3,358
Mandatory reserve deposits with central banks 921 951
Property, plant and equipment 848 925
Investment property 1,946 2,064
Deferred tax assets 340 339
Investments in associated undertakings and joint ventures 137 111
Deferred acquisition costs 1,288 1,351
Reinsurers' share of policyholder liabilities 1,406 989
Loans and advances 38,495 40,001
Investments and securities 86,381 81,253
Current tax receivable 103 138
Trade, other receivables and other assets 2,890 3,348
Derivative financial instruments assets 1,781 1,795
Cash and cash equivalents 3,863 3,624
Non-current assets held for sale H2 42 22,138
Total assets 143,497 162,385
Liabilities
Long-term business policyholder liabilities 80,188 76,350
General insurance liabilities 346 325
Third-party interests in consolidated funds 2,783 1,893
Borrowed funds E1 3,050 3,656
Provisions F1 263 269
Deferred revenue 689 701
Deferred tax liabilities 400 504
Current tax payable 287 199
Trade, other payables and other liabilities 4,789 4,243
Amounts owed to bank depositors 39,499 41,215
Derivative financial instruments liabilities 1,402 1,755
Non-current liabilities held for sale H2 3 20,417
Total liabilities 133,699 151,527
Net assets 9,798 10,858
Shareholders' equity
Equity attributable to equity holders of the parent 7,833 8,488
Non-controlling interests
Ordinary shares F2(b) 1,692 1,652
Preferred securities F2(b) 273 718
Total non-controlling interests 1,965 2,370
Total equity 9,798 10,858
Consolidated statement of cash flows
For the year ended 31 December 2012
GBPm
Year ended Year ended
31 December 31 December
2012 2011
Cash flows from operating activities - continuing operations
Profit before tax 1,395 994
Non-cash movements in profit before tax 249 1,372
Changes in working capital 1,041 (1,415)
Taxation paid (295) (402)
Net cash inflow from operating activities - continuing operations 2,390 549
Cash flows from investing activities
Net (acquisitions)/disposals of financial investments (1,531) 43
Acquisition of investment properties (55) (57)
Proceeds from disposal of investment properties 67 6
Acquisition of property, plant and equipment (120) (184)
Proceeds from disposal of property, plant and equipment 7 43
Acquisition of intangible assets (72) (91)
Acquisition of interests in subsidiaries, associated undertakings and strategic
investments (23) 103
Disposal of interests in subsidiaries, associated undertakings and strategic
investments 1,883 (329)
Net cash inflow/(outflow) from investing activities - continuing operations 156 (466)
Cash flows from financing activities
Dividends paid to
Ordinary equity holders of the Company (1,172) (97)
Non-controlling interests and preferred security interests (211) (206)
Interest paid (excluding banking interest paid) (85) (87)
Proceeds from issue of ordinary shares (including by subsidiaries to
non-controlling interests) 35 10
Net disposal/(acquisition) of treasury shares 19 (17)
Issue of subordinated and other debt 290 890
Subordinated and other debt repaid (1,293) (905)
Net cash outflow from financing activities - continuing operations (2,417) (412)
Net increase/(decrease) in cash and cash equivalents - continuing
operations 129 (329)
Net (decrease)/increase in cash and cash equivalents - discontinued operations (129) 346
Effects of exchange rate changes on cash and cash equivalents (271) (594)
Cash and cash equivalents at beginning of the year 5,055 5,632
Cash and cash equivalents at end of the year 4,784 5,055
Consisting of
Cash and cash equivalents in the statement of financial position 3,863 3,624
Mandatory reserve deposits with central banks 921 951
Cash and cash equivalents included in assets held for sale - 480
Total 4,784 5,055
Cash flows presented in this statement include all cash flows relating to policyholders' funds for life assurance.
Except for mandatory reserve deposits with central banks of GBP921 million (2011: GBP951 million) and cash and cash equivalents subject to
consolidation of funds of GBP679 million (2011: GBP756 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. Mandatory reserve deposits are, however, included in cash
and cash equivalents for the purposes of the cash flow statement in line with market practice in South Africa.
Included within the above is interest income received (including banking interest) of GBP4,490 million (2011: GBP4,936 million), dividend income
received of GBP508 million (2011: GBP371 million) and interest paid (including banking interest) of GBP2,047 million (2011: GBP2,143 million).
Consolidated statement of changes in equity
For the year ended 31 December 2012
Millions GBPm
Number of
shares
issued and Share Share Merger Available-for-
Year ended 31 December 2012 Notes fully paid capital premium reserve sale reserve
Shareholders' equity at beginning of the year 5,801 580 805 2,532 53
Profit after tax for the financial year - - - - -
Other comprehensive income
Property revaluation - - - - -
Net investment hedge(1) - - - - -
Fair value gains - - - - 33
Recycled to the income statement - - - - (21)
Exchange differences recycled to the income statement(1) - - - - -
Shadow accounting - - - - 6
Currency translation differences/exchange differences on
translating foreign operations - - - - -
Other movements - - - - -
comprehensive income D1(c) - - - - (6)
Total comprehensive income for the financial year - - - - 12
Dividends for the year C3 - - - - -
payment reserve 27 3 30 - -
Cancellation of treasury shares (239) (24) - - -
Share consolidation (697) - - - -
Preferred securities purchased - - - - -
Merger reserve realised in the period - - - (815) -
Change in participation in subsidiaries - - - - -
Transactions with shareholders (909) (21) 30 (815) -
(1) Following the sale of the Nordic business on 21 March 2012, foreign exchange translation gains of GBP350 million relating to the Nordic operations, and foreign exchange
hedge losses of GBP112 million relating to net investment hedges in respect of the Nordic investment were recognised in the income statement. These amounts are
included in the GBP564 million profit on sale.
GBPm
Perpetual Attributable Total
Property Share-based preferred to equity non-
revaluation payments Other Translation Retained callable holders of controlling Total
reserve reserve reserves reserve earnings securities the parent interests equity
124 230 5 301 3,170 688 8,488 2,370 10,858
- - - - 1,141 32 1,173 314 1,487
19 - - - - - 19 1 20
- - - 160 - - 160 - 160
- - - - - - 33 1 34
- - - - - - (21) - (21)
- - - (350) - - (350) - (350)
- - - - - - 6 - 6
- - - (489) - - (489) (150) (639)
1 (24) 4 - (40) - (59) 10 (49)
- - - - - 10 4 - 4
20 (24) 4 (679) 1,101 42 476 176 652
- - - - (1,172) (42) (1,214) (169) (1,383)
- 62 - - 7 - 102 13 115
- - 24 - - - - - -
- - - - - - - - -
- - - - (13) (6) (19) (445) (464)
- - - - 815 - - - -
- - - - - - - 20 20
- 62 24 - (363) (48) (1,131) (581) (1,712)
144 268 33 (378) 3,908 682 7,833 1,965 9,798
Retained earnings were reduced in respect of own shares held in policyholders' funds, ESOP trusts, Black Economic Empowerment trusts and other
undertakings at 31 December 2012 by GBP489 million (2011: GBP501 million).
Consolidated statement of changes in equity
For the year ended 31 December 2012
Millions GBPm
Number of
shares
issued and Share Share Merger Available-for-
Year ended 31 December 2011 Notes fully paid capital premium reserve sale reserve
Shareholders' equity at beginning of the year 5,695 570 795 2,845 225
Profit after tax for the financial year - - - - -
Other comprehensive income
Fair value gains/(losses)
Property revaluation - - - - -
Net investment hedge - - - - -
Available-for-sale investments
Fair value gains - - - - 51
Recycled to the income statement - - - - (10)
Realised on disposal - - - - (157)
Exchange differences realised on disposal - - - - -
Shadow accounting - - - - (58)
Currency translation differences/exchange differences on
translating foreign operations - - - - -
Other movements - - - - -
Income tax relating to components of other
comprehensive income D1(c) - - - - 2
Total comprehensive income for the financial year - - - - (172)
Dividends for the year C3 - - - - -
Other movements in share capital and share-based
payment reserve 7 - 10 - -
Merger reserve realised in the year - - - (313) -
Change in participation in subsidiaries - - - - -
Reclassification of translation differences on
non-controlling interests - - - - -
Shares issued in lieu of cash dividend 99 10 - - -
Transactions with shareholders 106 10 10 (313) -
Shareholders' equity at end of the year 5,801 580 805 2,532 53
GBPm
Perpetual Total
Property Share-based preferred Attributable to non-
revaluation payments Other Translation Retained callable equity holders controlling Total
reserve reserve reserves reserve earnings securities of the parent interests equity
101 215 5 1,176 2,331 688 8,951 2,523 11,474
- - - - 635 32 667 300 967
30 - - - - - 30 9 39
- - - 28 - - 28 - 28
- - - - - - 51 (1) 50
- (1) - - - - (11) - (11)
- - - - - - (157) - (157)
- - - 24 - - 24 - 24
(7) - - - - - (65) - (65)
- - - (970) - - (970) (313) (1,283)
- (34) - - 15 - (19) (20) (39)
- - - - - 12 14 - 14
23 (35) - (918) 650 44 (408) (25) (433)
- - - - (221) (44) (265) (162) (427)
- 50 - - (17) - 43 16 59
- - - - 313 - - - -
- - - - - - - 61 61
- - - 43 - - 43 (43) -
- - - - 114 - 124 - 124
- 50 - 43 189 (44) (55) (128) (183)
124 230 5 301 3,170 688 8,488 2,370 10,858
Notes to the consolidated financial statements
For the year ended 31 December 2012
A: Significant accounting policies
A1: Basis of preparation
The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards
as adopted by the EU. The accounting policies adopted by the Group, unless otherwise stated, have been applied consistent with those applied in
the preparation of the Group's 2011 Annual Report and Accounts.
The Group financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value:
derivative financial instruments, financial assets and liabilities designated as fair value through the income statement or as available-for-sale,
owner-occupied property and investment property. Non-current assets and disposal groups held for sale are stated at the lower of the previous
carrying amount and the fair value less costs to sell.
The Group financial statements have been prepared on the going concern basis which the directors believe to be appropriate.
The financial statements contained herein do not constitute the Company's statutory accounts for the financial years ended 31 December 2012 and
31 December 2011 within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the financial year ended 31 December
2011 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The statutory accounts for the financial year
ended 31 December 2012 will be delivered in due course. The report of the auditors for the financial year ended 31 December 2011 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 year 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. Cumulative translation gains and losses up to 1 January 2004 were reset to zero.
The principal exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to pounds sterling are:
Year ended 31 December 2012 Year ended 31 December 2011
Statement of Statement of
Income financial Income financial
Statement position Statement position
(average rate) (closing rate) (average rate) (closing rate)
Rand 13.0123 13.7696 11.6445 12.5643
US dollars 1.5850 1.6242 1.6037 1.5553
Swedish kronor 10.7363 10.5638 10.4144 10.6801
Euro 1.2326 1.2307 1.1519 1.1970
A2: Significant corporate activity and business changes
Disposal of Nordic
As previously reported the Group had agreed at 31 December 2011 to the disposal of its life assurance operations, asset management and banking
operations in Sweden, Denmark and Norway to Skandia Liv. Following final regulatory approval on 8 March 2012 and subsequent shareholder
approval, the sale was completed on 21 March 2012. The sale represented the Group's exit from the life assurance market in the Nordic region and
therefore met the criteria of a discontinued operation. The assets and liabilities of Nordic were classified as non-current assets and liabilities held for
sale at 31 December 2011. At 31 December 2012, following the completion of the disposal, there are no assets and liabilities of Nordic remaining in
the Statement of Financial Position. For the purposes of adjusted operating profit, Nordic is classified as a non-core operation. Further details of the
impact of discontinued operations are provided in note H1.
Special dividend and share consolidation
On 9 March 2012 the Group declared a special dividend of 18p per 10p ordinary share to all holders of those shares on the register at 20 April 2012
and the dividend was subsequently paid on 7 June 2012. A seven-for-eight share consolidation was effected on 23 April 2012 and from that date
only new ordinary shares of 113/7 pence have been in issue. For basic and diluted earnings per share, the weighted average number of shares is
adjusted with effect from 23 April 2012. For adjusted operating earnings per share the adjustment of the weighted average number of shares has
been made effective 1 January 2012. Consequently the comparative information in the adjusted operating earnings per share note C2(b) has been
restated accordingly.
Disposal of Finnish branch in Old Mutual Wealth
On 21 December 2011 the Group announced that it had agreed terms to sell the Finnish branch of Old Mutual Wealth to OP-Pohjola osk. The
assets and liabilities of the Finnish branch were classified as non-current assets and liabilities held for sale in the Statement of Financial Position at
31 December 2011. As at 31 December 2012, following the completion of the sale of the business on 31 August 2012, there were no assets and
liabilities of the Finland branch remaining in the Statement of Financial Position.
Consolidation of other African businesses
As reported in the Group's 2011 Annual Report and Accounts the Group's operations in Zimbabwe, Kenya, Malawi, Swaziland and Nigeria (the
other African businesses), were consolidated effective from 1 January 2011. The net asset value of the underlying businesses on 1 January 2011
was deemed to be the fair value of these operations on that date. As a result of the consolidation of these businesses, the Group recognised a gain
on 1 January 2011, which was disclosed as a profit on acquisition of subsidiaries. The results of the other African businesses were included in the
comparatives for the year ended 31 December 2011.
In anticipation of the indigenisation of the Zimbabwe business a non-controlling interest adjustment has been included for this operation in respect
of adjusted operating profit to reflect the agreed indigenous shareholding to be provided. At 31 December 2012 the Group had completed the
transfer of the agreed indigenous shareholding to approved indigenisation and economic empowerment trusts, the majority of which remains fully
consolidated for the purposes of IFRS reporting.
Reporting of Retail Europe within Old Mutual Wealth
On 24 January 2012 the Group announced that that it would combine its Old Mutual Wealth Continental Europe business (France and Italy) with the
Skandia Retail Europe business unit (Germany, Austria, Poland and Switzerland). As a result of these operational changes, the businesses
previously reported as the Retail Europe segment are now reported within the Old Mutual Wealth segment for the year ended 31 December 2012.
The comparative information for the year ended 31 December 2011 has been reclassified where applicable.
Integration of OMAM UK with Skandia Investment Group
On 26 April 2012 the Group announced the integration of Old Mutual Asset Management UK (OMAM UK) with Skandia Investment Group. OMAM
UK was previously reported within the US Asset Management segment and Skandia Investment Group is reported within the Old Mutual Wealth
segment. Consequently OMAM UK is included within the Old Mutual Wealth segment for the year ended 31 December 2012.
In September 2012 the Group announced the merger of the Skandia businesses (Skandia UK, Skandia International, Old Mutual Global Investors
and the Skandia European businesses outside of the Nordic region) into a single business called Old Mutual Wealth. The operational changes are
designed to combine asset management capability with UK platform strength and international expertise to grow into a leading provider of wealth
management solutions in selected markets. As a result the businesses previously reported as the Retail Europe segment are now reported within
the Old Mutual Wealth segment for the year ended 31 December 2012. The comparative information for the year ended 31 December 2011 has
been reclassified where applicable.
Cancellation of treasury shares
On 13 January 2012 the Group announced that it had cancelled 239,434,888 Ordinary Shares of 10p each previously held in treasury.
Repayment of debt
On 18 January 2012, the remaining EUR200 million of the EUR750 million subordinated bond was repaid on the first call date.
Following an open market tender offer on 19 July 2012, the Group announced it repurchased GBP388 million of the GBP500 million senior bond
with a repayment date of 1 August 2012.
On 23 August 2012, the Group announced it had applied to repay the US$750 million Subordinated Cumulative Perpetual Notes at their nominal
value. The transaction was completed on 24 September 2012.
On 4 December 2012, EUR5 million of the EUR500 million perpetual preferred callable securities and on 5 December 2012, GBP2 million of the GBP350
million preferred callable securities were acquired, both via open market repurchase.
A3: Critical accounting estimates and judgements
In the preparation of these financial statements, the Group is required to make estimates and judgements that affect items reported in the
consolidated income statement, statement of financial position, 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. There has been no significant change
to the critical accounting estimates and judgements that the Group applied at 31 December 2011. The significant accounting policies are described
in the Annual Report
Specific areas that have required closer attention in respect of the estimates and judgements applied during the year ended 31 December 2012 are
explained in more detail below.
(a) Loans and advances
Provisions for impairment of loans and advances
The majority of loans and advances are in respect of Nedbank, which assesses its loan portfolios for impairment at each financial reporting date.
Nedbank actively manages their exposure to loans and advances through robust credit approval processes which contributed to the improved credit
loss ratio at 31 December 2012 of 1.05% (2011: 1.13%).
The impairment for performing loans is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry specific
economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio.
These include early arrears and other indicators of potential default, such as changes in macroeconomic conditions and legislation affecting credit
recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period.
For portfolios which comprise large numbers of small homogenous assets with similar risk characteristics where credit scoring techniques are
generally used, statistical techniques are used to calculate impairment allowances on the portfolio, based on historical recovery rates and assumed
emergence periods. There are many models in use, each tailored to a product, line of business or client category. Judgement and knowledge is
needed in selecting the statistical methods to use when the models are developed or revised.
For larger exposures impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing on the
expected future cash flows are taken into account. The level of impairment allowance is the difference between the value of the discounted
expected future cash flows and its carrying amount. Subjective judgements are made in the calculations of future cash flows and change with time
as new information becomes available or as strategies evolve, resulting in frequent revisions to the impairment provision as individual decisions are
taken.
Further detail is provided in the Annual Report.
(b) Policyholder liabilities
Emerging Markets Financial Soundness Valuation discount rate
The calculation of the Group's South African Life assurance contract provisions is sensitive to the discount rate applied to future liabilities. The
methodology applied by the Group requires discount rates to be set according to the Financial Soundness Valuation (FSV) principles as prescribed
by the Actuarial Society of South Africa. These In line with these principles the reference rate is selected as the Bond Exchange of South Africa
(BESA) par bond 10-year yield.
During 2012 the reference discount rate applied to its South African business reduced from 8.2% to 6.9% in line with observable market
data. During H1 2012, the discount rate reduced from 8.2% to 7.6%, which resulted in an increase in FSV provisions of GBP20m. During H2 2012,
the discount rate reduced further from 7.6% to 6.9%, resulting in a further increase to FSV provisions of GBP15m.
During the fourth quarter of 2012 a broad duration based hedge was implemented which partially mitigated the negative impact of the decline in the
FSV rate over H2. This hedge remains in place and is expected to reduce the South African business's sensitivity to interest rate movements in
future. The Group estimates that a 1% reduction in the discount rate will result in an increase in policyholder liabilities of GBP39 million (2011:
GBP42 million), allowing for the impact of the duration based hedge. The growth in the book over 2012 and the fact that a 1% fall now represents a
larger proportionate fall in interest rates mean that the sensitivity at the end of 2012 is higher than the actual impact observed over 2012.
Further disclosure of the Policyholder sensitivity to interest rates is provided in the Annual Report.
Emerging Markets discretionary reserves
Management has discretion in managing exposure to financial options and guarantees, particularly within participating business. As required by
applicable Actuarial Society of South Africa guidance, the time value of the financial options and guarantees included in the statutory reserves in the
Emerging Markets businesses at 31 December 2012 have been valued using a risk-neutral market consistent asset model and is referred to as the
Investment Guarantee Reserve (IGR). This reserve includes a discretionary margin as defined by local guidelines to allow for the sensitivity of the
reserve to future interest rate and equity market movements. Further detail is provided in the Old Mutual audited market consistent Embedded
Value supplementary basis information section of the Annual Report.
Bermuda guarantees
Old Mutual Bermuda was closed to new business on 18 March 2009. Management's key priority since the closure to new business has been to de-
risk the business. The main risks associated with this business relate to guarantees in the products previously sold by the business. At 31
December 2012 a total of 21,975 (2011: 34,828) contracts remain active, comprising of 20,910 variable annuity products (2011: 33,373) and 1,065
deferred and fixed index annuity investments (2011:1,455). The variable annuity products provided both a guaranteed minimum accumulation
benefit (GMAB) and guaranteed minimum death benefit (GMDB).
During 2012 the business experienced significantly higher rates of surrender than assumed with 12,380 variable annuity contracts surrendering in
total (2011:5,657). The increase in surrender activity was attributable to variable annuity UGO policyholders passing through a top-up process on
the fifth anniversary following product inception. At 31 December 2012 approximately 70% of variable annuity UGO policyholders had reached their
5-year top-up. At 31 December 2012, 77% of non-Hong Kong policies and 57% of Hong Kong policies had been surrendered on or after their 5-year
anniversary date. The significantly reduced size of the book has meant that associated GMAB reserves have reduced from $1,056 million at 31
December 2011 to $229 million at 31 December 2012 while the associated GMDB reserves reduced from $5 million to $155,677.
The favourable lapse experience has been reflected in surrender assumptions for the remaining policies that are yet to go through their 5-year
policy anniversary. These revised assumptions have resulted in further releases of reserves, contributing positively to IFRS and MCEV operating
profits for 2012. Policies still in force after the 5-year anniversary are no longer subject to surrender penalties.
The Group continues to operate strong oversight over the business. The key remaining risk relates to the 10-year GMAB top-up process which will
commence in 2017.
(c) Tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items recognised directly in other comprehensive income, in which case it is correspondingly recognised in other
comprehensive income.
The Group is regularly in discussion with the respective tax authorities in each of the jurisdictions where the Group is active. In certain
circumstances the Group applies its judgement to determine if a provision for future tax should be raised. The Group reviews any potential exposure
to tax authorities under the requirements of IAS 37 to determine if a provision should be recognised. The measurement of any provisions for future
taxes is based on the Group's assessment of the specific circumstances and it applies judgement to determine the most likely outcome of its
discussions with the relevant tax authorities. 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.
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 assesses
performance and allocates resources. Information is presented to the Board on a consolidated basis in pounds sterling (the presentational currency) and
in functional currency of each business.
Adjusted operating profit is one of the key measures reported to the Group's management and Board of directors for their consideration in the
allocation of resources to and the review of performance of the segments. The Group utilises additional measures to assess the performance of
each of the segments, in particular the level of net client cash flows and funds under management. Additional performance measures considered by
management and the Board of directors in assessing the performance of the segments can be found in the Market Consistent Embedded Value
supplementary information.
A reconciliation between the segment revenues and expenses and the Group's revenues and expenses is shown in note B3. In line with internal
reporting, assets, liabilities, revenues or 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 customers within any of 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, 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 principal business activities from which the Group generates revenues. These are life assurance (premium income), asset
management business (fee and commission income), banking (banking interest receivable) and general insurance (premium income). The lines of
business in each operating segment derive its revenues are as follows:
Core operations
Long-Term Savings
Emerging Markets life assurance and asset management
Old Mutual Wealth life assurance and asset management
Other core operations
Nedbank banking and asset management
Mutual & Federal general insurance
US Asset Management asset management
Discontinued and non-core operations
Bermuda life assurance (non-core)
Nordic life assurance, asset management and banking (discontinued and non-core)
Income statement segmentation
For both reported periods:
- Nordic has been classified as a discontinued operation in the IFRS income statement and its results as non-core in determining the Group's
adjusted operating profits; and
- Bermuda has been classified as a continuing operation in the IFRS income statement, but as non-core in determining the Group's adjusted
operating profit.
US Life is classified as a discontinued operation in the comparative period.
All other businesses have been classified as continuing operations for both reported periods.
The results of OMAM UK (previously included within US Asset Management) and Retail Europe are included within the Old Mutual Wealth segment
for the year ended 31 December 2012. Except for OMAM UK, the income statement segmental presentation for the year ended 31 December 2011
is consistent with the above.
Statement of financial position segmentation
At 31 December 2011, the assets and liabilities of Nordic were classified as non-current assets and liabilities held for sale. Following disposal of the
business during 2012, no assets and liabilities remain at 31 December 2012.
The segmental analysis of the statement of financial position at 31 December 2012 and 31 December 2011 discloses Bermuda as non-core.
At 31 December 2011, the assets and liabilities of the Finnish branch were classified as non-current assets and liabilities held for sale. Following
disposal of the business during 2012, no assets and liabilities remain at 31 December 2012.
B2: Gross earned premiums and deposits to investment contracts
GBPm
Emerging Old Mutual Long-Term
Year ended 31 December 2012 Markets Wealth Savings M&F Bermuda Total
Life assurance insurance contracts 1,673 362 2,035 - - 2,035
with discretionary participation features 970 - 970 - - 970
General insurance - - - 720 - 720
Gross earned premiums 2,643 362 3,005 720 - 3,725
Life assurance other investment contracts
recognised as deposits 2,022 5,699 7,721 - - 7,721
GBPm
Emerging Old Mutual Long-Term
Year ended 31 December 2011 Markets Wealth Savings M&F Bermuda Total
Life assurance insurance contracts 1,567 304 1,871 - 2 1,873
Life assurance investment contracts
with discretionary participation features 975 - 975 - - 975
General insurance - - - 736 - 736
Gross earned premiums 2,542 304 2,846 736 2 3,584
Life assurance other investment contracts
recognised as deposits 2,088 6,406 8,494 - - 8,494
B: Segment information continued
B3: Adjusted operating profit statement - segment information year ended 31 December 2012
Long-Term Savings
Total
Emerging Old Mutual Long-Term
Notes Markets Wealth Savings
Revenue
Gross earned premiums B2 2,643 362 3,005
Outward reinsurance (82) (87) (169)
Net earned premiums 2,561 275 2,836
Investment return (non-banking) 5,288 3,806 9,094
Banking interest and similar income - - -
Banking trading, investment and similar income - - -
Fee and commission income, and income from service activities 440 1,199 1,639
Other income 61 26 87
Inter-segment revenues 83 3 86
Total revenues 8,433 5,309 13,742
Expenses
Claims and benefits (including change in insurance contract provisions) (4,813) (387) (5,200)
Reinsurance recoveries 89 59 148
Net claims and benefits incurred (4,724) (328) (5,052)
Change in investment contract liabilities (1,756) (3,605) (5,361)
Losses on loans and advances - - -
Finance costs (including interest and similar expenses) - - -
Banking interest payable and similar expenses - - -
Fee and commission expenses, and other acquisition costs (233) (677) (910)
Other expenses (1,066) (446) (1,512)
Goodwill impairment C1(b) - - -
Change in third-party interest in consolidated funds - - -
Income tax attributable to policyholder returns (49) (26) (75)
Inter-segment expenses (20) (32) (52)
Total expenses (7,848) (5,114) (12,962)
Share of associated undertakings' and joint ventures' profit after tax 20 - 20
strategic investments C1(c) - - -
Adjusted operating profit/(loss) before tax and non-controlling interests 605 195 800
Income tax expense D1 (164) (43) (207)
Non-controlling interests F2(a) (9) - (9)
Adjusted operating profit/(loss) after tax and non-controlling interests 432 152 584
Adjusting items net of tax and non-controlling interests C1(a) (153) (134) (287)
Profit/(loss) after tax from continuing operations 279 18 297
Profit from discontinued operations after tax H1 - - -
Profit/(loss) after tax attributable to equity holders of the parent 279 18 297
Of the total revenues, excluding intercompany revenues, GBP4,190 million was generated in the UK (2011: (GBP1,492)), GBP1,191 million in the rest of Europe (2011:
(GBP81) million), GBP13,739 million in southern Africa (2011: GBP11,007 million), GBP590 million in United States (2011: GBP201 million) and GBP83 million relates to
other operating segments (2011: GBP80 million).
(1) Non-core operations relates to Bermuda with the exception of GBP4 million of inter-segment revenue and the profit from discontinued operations after tax, with these
reflecting the results of Nordic which has been classified as discontinued operations as detailed in notes A2 and B1. Bermuda profit after tax for the year ended
31 December 2012 was GBP161 million. Further details on the results of discontinued operations is provided in note H1.
GBPm
Adjusted Adjusting Discontinued IFRS
Consolidation operating items and non-core Income
Nedbank M&F USAM Other adjustments profit (note C1) operations(1) statement
- 720 - - - 3,725 - - 3,725
- (153) - - - (322) - - (322)
- 567 - - - 3,403 - - 3,403
- 44 1 75 366 9,580 (191) 135 9,524
3,431 - - - - 3,431 - - 3,431
214 - - - - 214 - - 214
1,084 26 421 - 2 3,172 (76) - 3,096
23 1 1 - (1) 111 - 14 125
21 18 - 7 (156) (24) - 24 -
4,773 656 423 82 211 19,887 (267) 173 19,793
- (485) - - - (5,685) - 73 (5,612)
- 73 - - - 221 - - 221
- (412) - - - (5,464) - 73 (5,391)
- - - - - (5,361) - - (5,361)
(400) - - - - (400) - - (400)
- - - (130) - (130) (84) - (214)
(1,886) - - - - (1,886) (1) - (1,887)
- (107) (5) - (34) (1,056) 88 (63) (1,031)
(1,601) (82) (329) (68) (5) (3,597) (139) (18) (3,754)
- - - - - - - - -
- - - - (328) (328) - - (328)
- - - - - (75) 75 - -
(58) (14) - (32) 156 - - - -
(3,945) (615) (334) (230) (211) (18,297) (61) (8) (18,366)
- 2 2 - - 24 - - 24
- - - - - - (56) - (56)
828 43 91 (148) - 1,614 (384) 165 1,395
(222) (9) (15) 12 - (441) (31) - (472)
(287) (8) - (27) - (331) 17 - (314)
319 26 76 (163) - 842 (398) 165 609
16 (15) (10) (102) - (398) 398 - -
335 11 66 (265) - 444 - 165 609
- - - - - - - 564 564
335 11 66 (265) - 444 - 729 1,173
B: Segment information continued
B3: Adjusted operating profit statement segment information year ended 31 December 2011
Long-Term Savings
Total
Emerging Old Mutual Long-Term
Notes Markets Wealth Savings
Revenue
Gross earned premiums B2 2,542 304 2,846
Outward reinsurance (88) (88) (176)
Net earned premiums 2,454 216 2,670
Investment return (non-banking) 2,626 (2,878) (252)
Banking interest and similar income - - -
Banking trading, investment and similar income - - -
Fee and commission income, and income from service activities 411 1,183 1,594
Other income 68 23 91
Inter-segment revenues 66 11 77
Total revenues 5,625 (1,445) 4,180
Expenses
Claims and benefits (including change in insurance contract provisions) (2,854) (102) (2,956)
Reinsurance recoveries 73 9 82
Net claims and benefits incurred (2,781) (93) (2,874)
Change in investment contract liabilities (925) 2,814 1,889
Losses on loans and advances - (1) (1)
Finance costs (including interest and similar expenses) - - -
Banking interest payable and similar expenses - - -
Fee and commission expenses, and other acquisition costs (223) (664) (887)
Other operating and administrative expenses (1,076) (404) (1,480)
Goodwill impairment C1(b) - - -
Change in third-party interest in consolidated funds - - -
Income tax attributable to policyholder returns (53) 62 9
Inter-segment expenses (7) (46) (53)
Total expenses (5,065) 1,668 (3,397)
Share of associated undertakings' and joint ventures' profit after tax 10 - 10
Profit on disposal of subsidiaries, associated undertakings and strategic
investments C1(c) - - -
Adjusted operating profit/(loss) before tax and non-controlling interests 570 223 793
Income tax expense D1 (120) (26) (146)
Non-controlling interests F2(a) (3) - (3)
Adjusted operating profit/(loss) after tax and non-controlling interests 447 197 644
Adjusting items net of tax and non-controlling interests C1(a) 126 (87) 39
Profit/(loss) after tax from continuing operations 573 110 683
Profit from discontinued operations after tax H1 - - -
Profit/(loss) after tax attributable to equity holders of the parent 573 110 683
(1) Non-core operations relates to Bermuda with the exception of GBP22 million and GBP5 million of inter-segment revenue and expenses and the profit from discontinued
operations after tax, with these reflecting the results of Nordic and US Life both of which have been classified as discontinued operations. More detail is provided in notes A2 and B1.
Bermuda loss after tax for the year ended 31 December 2011 was GBP201 million. Further detail on the results of discontinued operations are provided in note H1.
GBPm
Adjusted Adjusting Discontinued IFRS
Consolidation operating items and non-core Income
Nedbank M&F USAM Other adjustments profit (note C1) operations(1) statement
- 736 - - - 3,582 - 2 3,584
- (149) - - - (325) - - (325)
- 587 - - - 3,257 - 2 3,259
- 54 - 52 30 (116) (241) (210) (567)
3,669 - - - - 3,669 - - 3,669
217 - - - - 217 - - 217
1,051 34 447 - - 3,126 (91) - 3,035
50 - 10 - - 151 - 20 171
27 18 1 16 (185) (46) - 46 -
5,014 693 458 68 (155) 10,258 (332) (142) 9,784
- (422) - - - (3,378) - 47 (3,331)
- 41 - - - 123 - - 123
- (381) - - - (3,255) - 47 (3,208)
- - - - - 1,889 - - 1,889
(457) - - - - (458) - - (458)
- - - (128) - (128) 70 - (58)
(2,091) - - - - (2,091) (4) - (2,095)
(9) (109) (12) - (24) (1,041) 104 (70) (1,007)
(1,641) (95) (379) (81) (8) (3,684) (154) (14) (3,852)
- - - - - - (264) - (264)
- - - - 2 2 - - 2
- - - - - 9 (9) - -
(61) (19) - (48) 185 4 - (4) -
(4,259) (604) (391) (257) 155 (8,753) (257) (41) (9,051)
- - - - - 10 - - 10
- - - - - - 251 - 251
755 89 67 (189) - 1,515 (338) (183) 994
(188) (22) (8) 23 - (341) 117 (1) (225)
(269) (8) - (39) - (319) 19 - (300)
298 59 59 (205) - 855 (202) (184) 469
16 (24) (260) 27 - (202) 202 - -
314 35 (201) (178) - 653 - (184) 469
- - - - - - - 198 198
314 35 (201) (178) - 653 - 14 667
B: Segment information continued
B4: Statement of financial position segment information at 31 December 2012
GBPm
Total
Emerging Old Mutual Long-Term
Notes Markets Wealth Savings
Assets
Goodwill and other intangible assets 98 1,594 1,692
Mandatory reserve deposits with central banks - - -
Property, plant and equipment 336 13 349
Investment property 1,588 - 1,588
Deferred tax assets 82 44 126
Investments in associated undertakings and joint ventures 57 - 57
Deferred acquisition costs 103 1,159 1,262
Reinsurers' share of policyholder liabilities 55 1,236 1,291
Loans and advances 142 180 322
Investments and securities 31,157 45,402 76,559
Current tax receivable 16 64 80
Trade, other receivables and other assets 697 333 1,030
Derivative financial instruments assets 612 - 612
Cash and cash equivalents 816 576 1,392
Non-current assets held for sale H2 - 5 5
Inter-segment assets 562 101 663
Total assets 36,321 50,707 87,028
Liabilities
Life assurance policyholder liabilities 31,124 46,455 77,579
General insurance liabilities - - -
Third-party interests in consolidated funds - - -
Borrowed funds E1 218 - 218
Provisions F1 148 54 202
Deferred revenue 11 667 678
Deferred tax liabilities 122 189 311
Current tax payable 198 39 237
Trade, other payables and other liabilities 2,221 669 2,890
Amounts owed to bank depositors 86 - 86
Derivative financial instruments liabilities 377 - 377
Non-current liabilities held for sale H2 - - -
Inter-segment liabilities 216 587 803
Total liabilities 34,721 48,660 83,381
Net assets 1,600 2,047 3,647
Equity
Equity attributable to equity holders of the parent 1,586 2,047 3,633
Non-controlling interests 14 - 14
Ordinary shares F2(b) 14 - 14
Preferred securities F2(b) - - -
Total equity 1,600 2,047 3,647
The net assets of Emerging Markets are stated after eliminating investments in Group equity and debt instruments of GBP364 million (2011: GBP368 million) held in
policyholder funds. These include investments in the Company's ordinary shares and subordinated liabilities and preferred securities issued by the Group's banking subsidiary
Nedbank Limited. All Emerging Markets debt relates to life assurance. All other debt relates to other shareholders' net assets.
GBPm
Non-core
Consolidation operations
Nedbank M&F USAM Other adjustments Bermuda Total
534 14 816 - - - 3,056
921 - - - - - 921
465 20 13 1 - - 848
15 - - - 343 - 1,946
29 20 162 2 - 1 340
49 2 3 26 - - 137
- 18 8 - - - 1,288
15 100 - - - - 1,406
38,173 - - - - - 38,495
6,303 397 37 368 1,765 952 86,381
18 5 - - - - 103
674 92 121 62 316 595 2,890
1,003 - - 97 51 18 1,781
1,049 109 131 379 678 125 3,863
37 - - - - - 42
111 43 21 1,366 (2,877) 673 -
49,396 820 1,312 2,301 276 2,364 143,497
907 - - - - 1,702 80,188
- 346 - - - - 346
- - - - 2,783 - 2,783
2,163 - 10 659 - - 3,050
1 30 1 29 - - 263
1 10 - - - - 689
44 21 - 24 - - 400
9 - 6 34 - 1 287
1,076 127 203 70 331 92 4,789
39,413 - - - - - 39,499
977 - - 8 39 1 1,402
3 - - - - - 3
596 2 554 922 (2,877) - -
45,190 536 774 1,746 276 1,796 133,699
4,206 284 538 555 - 568 9,798
2,309 261 507 555 - 568 7,833
1,897 23 31 - - - 1,965
1,624 23 31 - - - 1,692
273 - - - - - 273
4,206 284 538 555 - 568 9,798
B: Segment information continued
B4: Statement of financial position segment information at 31 December 2011
GBPm
Total
Emerging Old Mutual Long-Term
Notes Markets Wealth Savings
Assets
Goodwill and other intangible assets 104 1,756 1,860
Mandatory reserve deposits with central banks - - -
Property, plant and equipment 374 16 390
Investment property 1,666 - 1,666
Deferred tax assets 81 65 146
Investments in associated undertakings and joint ventures 32 - 32
Deferred acquisition costs 113 1,164 1,277
Reinsurers' share of policyholder liabilities 31 844 875
Loans and advances 299 190 489
Investments and securities 30,064 41,508 71,572
Current tax receivable 10 70 80
Trade, other receivables and other assets 711 310 1,021
Derivative financial instruments assets 298 - 298
Cash and cash equivalents 339 516 855
Non-current assets held for sale H2 - 1,161 1,161
Inter-segment assets 1,025 138 1,163
Total assets 35,147 47,738 82,885
Liabilities
Life assurance policyholder liabilities 30,270 42,159 72,429
General insurance liabilities - - -
Third-party interests in consolidated funds - - -
Borrowed funds E1 239 - 239
Provisions F1 137 64 201
Deferred revenue 17 673 690
Deferred tax liabilities 185 189 374
Current tax payable 120 39 159
Trade, other payables and other liabilities 1,667 673 2,340
Amounts owed to bank depositors - - -
Derivative financial instruments liabilities 230 - 230
Non-current liabilities held for sale H2 - 1,120 1,120
Inter-segment liabilities 141 462 603
Total liabilities 33,006 45,379 78,385
Net assets 2,141 2,359 4,500
Equity
Equity attributable to equity holders of the parent 2,144 2,359 4,503
Non-controlling interests (3) - (3)
Ordinary shares F2(b) (3) - (3)
Preferred securities F2(b) -
Total equity 2,141 2,359 4,500
GBPm
Non-core
Consolidation operations Discontinued
Nedbank M&F USAM Other adjustments Bermuda operations(1) Total
557 23 904 13 - 1 - 3,358
951 - - - - - - 951
502 21 11 1 - - - 925
49 - - - 349 - - 2,064
21 14 165 (8) - 1 - 339
49 1 2 27 - - - 111
- 16 9 - - 49 - 1,351
16 98 - - - - - 989
39,511 1 - - - - - 40,001
6,403 416 41 216 874 1,731 - 81,253
56 2 - - - - - 138
943 75 126 54 293 836 - 3,348
1,022 - - 86 388 1 - 1,795
1,071 113 197 467 756 165 - 3,624
1 - 16 - - - 20,960 22,138
206 23 21 1,136 (3,155) 566 40 -
51,358 803 1,492 1,992 (495) 3,350 21,000 162,385
815 - - - - 3,106 - 76,350
- 325 - - - - - 325
- - - - 1,893 - - 1,893
2,273 - 11 1,133 - - - 3,656
- 32 3 33 - - - 269
1 10 - - - - - 701
93 13 - 24 - - - 504
10 - (3) 32 - 1 - 199
1,123 108 219 96 348 9 - 4,243
41,215 - - - - - - 41,215
1,103 - - 3 419 - - 1,755
- - 8 - - - 19,289 20,417
501 2 598 1,451 (3,155) - - -
47,134 490 836 2,772 (495) 3,116 19,289 151,527
4,224 313 656 (780) - 234 1,711 10,858
2,347 294 625 (1,226) - 234 1,711 8,488
1,877 19 31 446 - - - 2,370
1,605 19 31 - - - - 1,652
272 - - 446 - - - 718
4,224 313 656 (780) - 234 1,711 10,858
C: Other key performance information
C1: Operating profit adjusting items
(a) Summary of adjusting items
In determining the adjusted operating profit 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 adjusted operating
profit to profit before and after tax.
GBPm
Year ended Year ended
31 December 31 December
Notes 2012 2011
Income/(expense)
Goodwill impairment and impact of acquisition accounting C1(b) (123) (401)
(Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic
investments C1(c) (56) 251
Short-term fluctuations in investment return C1(d) (78) (171)
Investment return adjustment for Group equity and debt instruments held in life funds C1(e) (113) (71)
Dividends declared to holders of perpetual preferred callable securities C1(f) 42 44
US Asset Management equity plans and non-controlling interests C1(g) (5) (4)
Credit-related fair value losses on Group debt instruments C1(h) (126) 23
Total adjusting items (459) (329)
Tax on adjusting items 44 108
Non-controlling interest in adjusting items 17 19
Total adjusting items after tax and non-controlling interests (398) (202)
(b) Goodwill impairment and impact of acquisition accounting
Acquisition date deferred acquisition costs and deferred revenues are not recognised. These are reversed in the acquisition statement of financial
position and replaced by goodwill, other intangible assets and the value of the acquired present value of in-force business (acquired PVIF). In
determining its adjusted operating profit the Group recognises deferred revenue and acquisition costs in relation to policies sold by acquired
businesses pre-acquisition, and excludes the impairment of goodwill and the amortisation of acquired other intangibles and acquired PVIF and the
movements in certain acquisition date provisions. Goodwill impairment and acquisition accounting adjustments to adjusted operating profit are
summarised below:
GBPm
Emerging Old Mutual
Year ended 31 December 2012 Markets Wealth USAM Total
Amortisation of acquired PVIF - (84) - (84)
Amortisation of acquired deferred costs and revenue - 12 - 12
Amortisation of other acquired intangible assets (2) (48) (1) (51)
Goodwill impairment - - - -
(2) (120) (1) (123)
GBPm
Emerging Old Mutual
Year ended 31 December 2011 Markets Wealth USAM Total
Amortisation of acquired PVIF - (90) - (90)
Amortisation of acquired deferred costs and revenue - 13 - 13
Amortisation of other acquired intangible assets (2) (50) (8) (60)
Goodwill impairment - - (264) (264)
(2) (127) (272) (401)
(c) (Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic investments
(Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic investments is analysed below:
GBPm
Year ended Year ended
31 December 31 December
2012 2011
Emerging Markets (15) 249
Old Mutual Wealth (25) -
Long-Term Savings (40) 249
USAM (16) 2
(Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic
investments (56) 251
On 20 November 2012, the Emerging Markets segment recognised a profit of GBP3 million on the acquisition of a strategic investment Curo Fund
Services (Pty) Ltd.
During the year ended 31 December 2012 the Group incurred expenses of GBP18 million as initial costs regarding Zimbabwean Indiginisation and
Economic Empowerment Schemes. These costs are directly related to the acquisition of the Zimbabwean business. Further detail has been
provided in note A2.
On 31 August 2012, Old Mutual Wealth completed the sale of its Finnish branch at a loss of GBP27 million. A profit of GBP2 million was recognised
on the sale of Skandia Services AG (Switzerland) on 30 June 2012.
On 13 April 2012 USAM disposed of Old Mutual Capital, Inc, a subsidiary, at a profit of GBP12 million. On 15 May 2012 USAM disposed of Dwight
Asset Management Company LLC, a fixed income affiliate, at a profit of GBP7 million. On 11 October 2012 the Group announced that it has
finalised agreements to sell 5 USAM affiliates at a loss of GBP32 million. A GBP3 million loss has been recognised during the year ended 31
December 2012 in relation to disposals of subsidiaries by USAM in previous periods. On 30 December 2011, USAM disposed of Lincluden
Management Ltd, a subsidiary, at a profit of GBP2 million.
In preparing the consolidated financial statements for the year ended 31 December 2011 the Emerging Markets segment included the South African
and Namibian businesses but excluded all other African businesses. This was consistent with prior periods. Following a period of greater political
and currency stability in Zimbabwe and an expectation that the Group would be able to extract benefits from its Zimbabwean business it was
consolidated for the first time for the year ended 31 December 2011 together with operations in Kenya, Malawi, Swaziland and Nigeria. The Group
recognised a gain of GBP249 million on acquisition of these businesses for the year ended 31 December 2011.
(d) Short-term fluctuations in investment return
Profit before tax, as disclosed in the IFRS income statement, includes actual investment returns earned on the shareholder assets of the Group's
life assurance and general insurance businesses. Adjusted operating profit is stated after recalculating shareholder asset investment returns based
on a long-term investment return rate. The difference between the actual and the long-term investment returns is referred to 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 weighting of investments in underlying cash, money market and equity assets. The 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 adjusted operating profit are consistent with the actual returns expected to be earned over the long-term.
For Emerging Markets, the return is applied to an average value of investible shareholders' assets, adjusted for net fund flows. For Old Mutual
Wealth, the return is applied to average investible assets. For M&F general insurance business, the return is an average value of investible assets
supporting shareholders' funds and insurance liabilities, adjusted for net fund flows.
%
Year ended Year ended
31 December 31 December
Long-term investment rates 2012 2011
Emerging Markets 9.0 9.0
Old Mutual Wealth 1.5-2.0 2.0-2.1
M&F 8.6 9.0
Analysis of short-term fluctuations in investment return
GBPm
Emerging Old Mutual Long-Term
Year ended 31 December 2012 Markets Wealth(1) Savings M&F Other Total
Actual shareholder investment return 81 65 146 34 34 214
Less: Long-term investment return 124 67 191 47 54 292
Short-term fluctuations in investment return (43) (2) (45) (13) (20) (78)
GBPm
Emerging Old Mutual Long-Term
Year ended 31 December 2011 Markets Wealth¹ Savings M&F Other Total
Actual shareholder investment return 14 66 80 26 6 112
Less: Long-term investment return 112 80 192 54 37 283
Short-term fluctuations in investment return (98) (14) (112) (28) (31) (171)
(1) Old Mutual Wealth long-term investment return includes GBP59 million (2011: GBP65 million) in respect of income tax attributable to policyholder returns.
(e) Investment return adjustment for Group equity and debt instruments held in policyholder funds
Adjusted operating profit includes investment returns on policyholder investments in Group equity and debt instruments held by the Group's life
funds. These include investments in the Company's ordinary shares, and the subordinated liabilities and ordinary securities of Nedbank. These
investment returns are eliminated within the consolidated income statement in arriving at profit before tax in the IFRS income statement, but are
included in adjusted operating profit. During the year ended 31 December 2012 the investment return adjustment increased adjusted operating
profit by GBP113 million (2011: increase GBP71 million).
(f) Dividends declared to holders of perpetual preferred callable securities
Dividends declared to the holders of the Group's perpetual preferred callable securities were GBP42 million for the year ended 31 December 2012
(2011: GBP44 million). These are recognised in finance costs on an accruals basis for the purpose of determining adjusted operating profit. In the
IFRS financial statements this cost is recognised in equity.
(g) US Asset Management equity plans and non-controlling interests
US Asset Management has a number of long-term incentive arrangements with senior employees in its asset management affiliates.
In accordance with IFRS requirements the cost of these schemes is disclosed as being attributable to non-controlling interests. However, this is
treated as a compensation expense in determining adjusted operating profit. The loss recognised in the year ended 31 December 2012 was GBP8
million (2011: loss GBP6 million).
The Group has issued put options in equities in the affiliates to senior employees as part of its US affiliate incentive schemes. The impact of
revaluing these instruments is recognised in accordance with IFRS, but excluded from adjusted operating profit. At 31 December 2012 these instruments
were revalued, the impact of which was a profit of GBP13 million (2011: profit GBP10 million).
(h) Credit-related fair value gains and losses on Group debt instruments
The narrowing of credit spread of the Group's debt instruments in the market price has resulted in losses in the year ended 31 December 2012 of
GBP54 million in Other operating segments and GBP1 million in Nedbank (2011: gains of GBP27 million and losses of GBP4 million respectively)
being recorded in the Group's income statement for those instruments that are recorded at fair value.
In the directors' view, such movements are not reflective of the underlying performance of the Group and will reverse over time. They have
therefore been excluded from adjusted operating profit.
On 1 August 2012 the Group redeemed GBP388 million of the GBP500 million senior bond due in 2016 at a cash consideration of GBP459 million.
The GBP71 million excess over the nominal value reflects the price of the respective debt instrument prior to expiration.
(a) Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the profit for the financial period attributable to ordinary equity shareholders by the weighted
average number of ordinary shares in issue during the year excluding own shares held in policyholder funds, ESOP trusts, Black Economic Empowerment
trusts and other related undertakings.
GBPm
Year ended Year ended
31 December 31 December
2012 2011
Profit for the financial period attributable to equity holders of the parent from continuing operations 609 469
Profit for the financial period attributable to equity holders of the parent from discontinued operations 564 198
Profit for the financial period attributable to equity holders of the parent 1,173 667
Dividends declared to holders of perpetual preferred callable securities (32) (32)
Profit attributable to ordinary equity holders 1,141 635
Total dividends declared to holders of perpetual preferred callable securities of GBP32 million in 2012 (2011: GBP32 million) are stated net of tax
credits of GBP10 million (2011: GBP12 million).
Millions
Year ended Year ended
31 December 31 December
2012 2011
Weighted average number of ordinary shares in issue 5,096 5,502
Shares held in charitable foundations (6) (6)
Shares held in ESOP trusts (61) (61)
Adjusted weighted average number of ordinary shares 5,029 5,435
Shares held in life funds (181) (201)
Shares held in Black Economic Empowerment trusts (261) (299)
Weighted average number of ordinary shares 4,587 4,935
Basic earnings per ordinary share (pence) 24.9 12.9
Diluted earnings per share recognises the dilutive impact of share options held in ESOP trusts and Black Economic Empowerment trusts which are
currently in the money in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full period.
Year ended Year ended
31 December 31 December
2012 2011
Profit attributable to ordinary equity holders (GBPm) 1,141 635
Dilution effect on profit relating to share options issued by subsidiaries (GBPm) (10) (8)
Diluted profit attributable to ordinary equity holders (GBPm) 1,131 627
Weighted average number of ordinary shares (millions) 4,587 4,935
Adjustments for share options held by ESOP trusts (millions) 53 133
Adjustments for shares held in Black Economic Empowerment trusts (millions) 261 299
4,901 5,367
Diluted earnings per ordinary share (pence) 23.1 11.7
(b) Adjusted operating earnings per ordinary share
The reconciliation of profit/(loss) for the financial period to adjusted operating profit after tax attributable to ordinary equity holders is as follows:
GBPm
Year ended Year ended
31 December 31 December
2012 2011 (restated)
Profit for the financial period attributable to equity holders of the parent 1,173 667
Adjusting items 459 329
Tax on adjusting items (44) (108)
Non-core operations (165) 184
Profit from discontinued operations (564) (198)
Non-controlling interest on adjusting items (17) (19)
Adjusted operating profit after tax attributable to ordinary equity holders 842 855
Adjusted weighted average number of ordinary shares (millions) 4,818 4,756
Adjusted operating earnings per ordinary share (pence) 17.5 18.0
(c) Headline earnings per share
In accordance with the JSE Limited (JSE) listing requirements, the Group is required to calculate a 'headline earnings per share' (HEPS),
determined by reference to the South African Institute of Chartered Accountants' circular 3/2009 'Headline Earnings'. The table below sets out a
reconciliation of basic earnings per ordinary share and HEPS in accordance with that circular. Disclosure of HEPS is not a requirement of IFRS, but
it is a commonly used measure of earnings in South Africa.
GBPm
Year ended Year ended
31 December 2012 31 December 2011
Gross Net Gross Net
Profit for the financial period attributable to
equity holders of the parent 1,173 1,173 667 667
Dividends declared to holders of perpetual preferred
callable securities (32) (32) (32) (32)
Profit attributable to ordinary equity holders 1,141 1,141 635 635
Adjustments:
Impairments of goodwill and intangible assets - - 264 264
(Profit)/loss on acquisition/disposal of subsidiaries,
associated undertakings and strategic investments (183) (173) (222) (228)
Realised gains (including impairments) on available-for-
sale financial assets (21) (21) (144) (144)
Exchange differences realised on disposal (350) (350) - -
Headline earnings 587 597 533 527
Weighted average number of ordinary shares 4,587 4,587 4,935 4,935
Diluted weighted average number of ordinary
shares 4,901 4,901 5,367 5,367
Headline earnings per share (pence) 12.8 13.0 10.8 10.7
Diluted headline earnings per share (pence) 11.8 12.0 9.8 9.7
C3: Dividends
GBPm
Year ended Year ended
31 December 31 December
2012 2011
2010 Final dividend paid 2.9p per 10p share - 145
2011 Interim dividend paid 1.5p per 10p share - 76
2011 Final dividend paid - 3.5p per 10p share 178 -
Special dividend - 18.0p per 10p share 915 -
2012 Interim dividend paid 1.75p per 11 3/7p share 79 -
Dividends to ordinary equity holders 1,172 221
Dividends declared to holders of perpetual preferred callable securities 42 44
Dividend payments for the period 1,214 265
Final and interim dividends paid to ordinary equity holders, as above, are calculated using the number of shares in issue at the record date, less
treasury shares held in ESOP trusts, life funds of Group companies, Black Economic Empowerment trusts and related undertakings.
As a consequence of the exchange control arrangements in place in certain African territories, dividends to ordinary equity holders on the branch
registers of those countries (or, in the case of Namibia, the Namibian section of the principal register) are settled through Dividend Access Trusts
established for that purpose.
Following the disposal of Nordic a special dividend of 18.0 pence per 10p share was recommended by the directors and a seven for eight share
consolidation proposed, with the consolidation approved at the Company's general meeting on 14 March 2012. The special dividend was paid on 7
June 2012. Further details of the disposal of the Nordic business unit have been provided in notes A2 and H1.
A final dividend of 5.25 pence (or its equivalent in other applicable currencies) per ordinary share in the Company has been recommended by the
directors. The dividend will be paid on 31 May 2013 to shareholders on the register at the close of business on 26 April 2013. The dividend will
absorb an estimated GBP233 million of shareholders' funds. The Company is not planning to offer a scrip dividend alternative.
In March and November 2012, GBP22 million and GBP20 million respectively were declared and paid to holders of perpetual preferred callable
securities (March 2011: GBP22 million; November 2011: GBP22 million).
D: Other income statement notes
D1: Income tax expense
(a) Analysis of total income tax expense
GBPm
Year ended Year ended
31 December 31 December
2012 2011
Current tax
United Kingdom 18 22
Africa 513 390
United States 4 (2)
Europe 30 20
Secondary Tax on Companies (STC) 23 14
Prior year adjustments 5 (7)
Total current tax 593 437
Deferred tax
Origination and reversal of temporary differences (121) (204)
Changes in tax rates/bases 2 (8)
Recognition of deferred tax assets (2) -
Total deferred tax (121) (212)
Total income tax expense 472 225
(b) Reconciliation of total income tax expense
GBPm
Year ended Year ended
31 December 31 December
2012 2011
Profit before tax 1,395 994
Tax at standard rate of 24.5% (2011: 26.5%) 342 263
Different tax rate or basis on overseas operations 19 57
Untaxed and low taxed income (58) (166)
Disallowable expenses 48 93
Net movement on deferred tax assets not recognised 48 5
Effect on deferred tax of changes in tax rates 2 (8)
STC 20 19
Income tax attributable to policyholder returns 59 (28)
Other (8) (10)
Total income tax expense 472 225
(c) Income tax relating to components of other comprehensive income
GBPm
Year ended Year ended
31 December 31 December
2012 2011
Preferred perpetual callable securities (10) (12)
Other 5 -
Income tax credit continuing operations (5) (12)
Fair value gains 1 2
Shadow accounting - (4)
Income tax expense/(credit) discontinued operations 1 (2)
Income tax credit relating to components of other comprehensive
income (4) (14)
(d) Reconciliation of income tax expense in the IFRS income statement to income tax on adjusted operating profit
GBPm
Year ended Year ended
31 December 31 December
2012 2011
Income tax expense 472 225
Goodwill impairment and impact of acquisition accounting 51 35
Profit on disposal of subsidiaries, associates and strategic investments (10) 6
Short-term fluctuations in investment return 7 75
Income tax attributable to policyholders returns (75) 9
Tax on dividends declared to holders of perpetual preferred callable securities recognised in equity (10) (12)
Fair value gains and losses on Group debt instruments - 2
US Asset Management equity plans 6 2
Tax on non-core operations - (1)
Income tax on adjusted operating profit 441 341
E: Financial assets and liabilities
E1: Borrowed funds
GBPm
At At
31 31
Group December Group December
excluding 2012 excluding 2011
Notes Nedbank Nedbank Group Nedbank Nedbank Group
Senior debt securities and term
loans 122 1,363 1,485 507 1,355 1,862
Floating Rate Notes E1(a) - 849 849 - 844 844
Fixed Rate Notes E1(b) 122 514 636 507 511 1,018
Mortgage Backed Securities E1(d) - 131 131 - 77 77
Subordinated debt securities (net of
Group holdings) E1(e) 765 669 1,434 876 841 1,717
Borrowed funds 887 2,163 3,050 1,383 2,273 3,656
Other issues treated as equity for
accounting purposes
US$750 million cumulative
preference securities(1) F2(b)(ii) - 458
EUR495 million perpetual preferred
callable securities(2) 334 338
GBP348 million perpetual preferred
callable securities(2) 348 350
Total: Book value 1,569 2,529
Nominal value of the above 1,590 2,666
(1) On 24 September 2012, the Group repaid the US$750 million cumulative preference securities at their nominal value.
(2) On 4 December 2012, EUR5 million of the EUR500 million perpetual preferred callable securities were acquired and on 5 December 2012, GBP2 million of the GBP350 million
preferred callable securities were acquired, both via open market repurchase.
The table below is a maturity analysis of the liability cash flows based on contractual maturity dates for borrowed funds. Maturity analysis is
undiscounted and based on year end exchange rates.
GBPm
At At
Group 31 December Group 31 December
excluding 2012 excluding 2011
Nedbank Nedbank Group Nedbank Nedbank Group
Less than 1 year - 522 522 272 512 784
Greater than 1 year and less than 5
years 340 1,820 2,160 898 1,936 2,834
Greater than 5 years 500 314 814 998 556 1,554
Total 840 2,656 3,496 2,168 3,004 5,172
Senior notes
(a) Floating Rate Notes
GBPm
At At
31 December 31 December
Maturity date 2012 2011
Nedbank
R1,690 million unsecured senior debt at JIBAR + 1.50% Repaid - 119
R1,044 million unsecured senior debt at JIBAR + 2.20% September 2015 76 84
R1,750 million unsecured senior debt at inflation linked (3.90% real yield) March 2013 151 158
R98 million unsecured senior debt at inflation linked (3.80% real yield) March 2013 8 9
R1,552 million unsecured senior debt at JIBAR + 1.48% April 2013 114 125
R1,027 million unsecured senior debt at JIBAR + 1.75% April 2015 76 83
R80 million unsecured senior debt at JIBAR + 2.15% April 2020 6 6
R988 million unsecured senior debt at JIBAR + 1.05% March 2014 71 79
R677 million unsecured senior debt at JIBAR + 1.25% March 2016 49 54
R500 million unsecured senior debt at JIBAR + 1.00% April 2014 33 40
R1,075 million unsecured senior debt at JIBAR + 0.94% October 2014 79 87
R1,297 million unsecured senior debt at JIBAR + 1.00% February 2015 95 -
R405 million unsecured senior debt at JIBAR + 1.30% February 2017 30 -
R250 million unsecured senior debt at JIBAR + 1.00% August 2015 18 -
R786 million unsecured senior debt at JIBAR + 1.31% August 2017 43 -
Total floating rate notes 849 844
All floating rate notes are non-qualifying for the purposes of regulatory tiers of capital.
(b) Fixed Rate Notes
GBPm
At At
31 December 31 December
Maturity date 2012 2011
Nedbank
R450 million unsecured senior debt at 8.39% March 2014 33 37
R478 million unsecured senior debt at 9.68% April 2015 35 39
R3,244 million unsecured senior debt at 10.55% September 2015 242 265
R1,137 million unsecured senior debt at 9.36% March 2016 85 93
R1,273 million unsecured senior debt at 11.39% September 2019 102 63
R660 million unsecured senior debt at zero coupon October 2024 17 14
514 511
Group excluding Nedbank
GBP112 million eurobond at 7.125%(1) October 2016 112 496
US$16 million secured senior debt at 5.23%(2) August 2014 10 11
122 507
Total fixed rate notes 636 1,018
(1) On 1 August 2012 GBP388m of the GBP500m senior bond was redeemed via open market tender.
(2) On 1 December 2012 $0.5m of the $16.5m senior bond was repaid.
All fixed rate notes are non-qualifying for the purposes of regulatory tiers of capital.
(c) Revolving credit facilities and irrevocable letters of credit
The Group has access to a GBP1,200 million five-year multi-currency revolving credit facility (agreed in April 2011). At 31 December 2012, none of
this facility was drawn down and there were no irrevocable letters of credit in issue against this facility. At 31 December 2011 the facility was
undrawn but letters of credit were held against the facility in relation to the sale of US Life.
(d) Mortgage backed securities - Nedbank
GBPm
At At
31 December 31 December
Tier Maturity date 2012 2011
Nedbank
R1.4 billion (class A2A) at 11.817% Tier 2 Repaid - 67
R98 million (class B note) at 12.067% Tier 2 Repaid - 6
R76 million (class C note) at 13.317% Tier 2 Repaid - 4
R480 (class A1) million at JIBAR + 1.10% Tier 2 25 October 2039 32 -
R336 million (class A2) at JIBAR + 1.25% Tier 2 25 October 2039 25 -
R900 million (class A3) at JIBAR + 1.54% Tier 2 25 October 2039 66 -
R110 (class B) million at JIBAR + 1.90% Tier 2 25 October 2039 8 -
Total mortgage backed securities 131 77
(e) Subordinated debt securities (net of Group holdings)
GBPm
At At
31 December 31 December
Tier First call date Maturity date 2012 2011
Nedbank
R300 million (3 month JIBAR + 2.50%) Non-core Tier 1 December 2013 December 2013 11 12
R1,265 million (JIBAR plus 4.75%) Non-core Tier 1 November 2018 November 2018 93 102
R650 million (9.03%) Tier 2 Repaid Repaid - 54
R500 million (3 month JIBAR plus 0.45%) Tier 2 Repaid Repaid - 40
R500 million (3 month JIBAR plus 0.70%) Tier 2 Repaid Repaid - 40
R120 million (10.38%) Tier 2 Repaid Repaid - 10
R1.8 billion (9.84%) Tier 2 September 2013 September 2018 137 153
R1.7 billion (8.90%) Tier 2 February 2014 February 2019 132 144
R1.0 billion (10.54%) Tier 2 September 2015 September 2020 81 87
R2.0 billion (JIBAR plus 0.47%) Tier 2 July 2017 July 2022 146 161
R487 million (15.05%) Tier 2 November 2018 November 2018 43 42
US$100 million (3 month USD LIBOR) Tier 2 Secondary March 2017 March 2022 62 65
705 910
Less: banking subordinated debt securities
held by other Group companies (36) (69)
Banking subordinated securities (net of
Group holdings) 669 841
Group excluding Nedbank
EUR200 million (4.50% to January 2012 and 6 month
EURIBOR plus 0.96 thereafter)(1) Lower Tier 2 Repaid Repaid - 166
R3.0 billion (8.92% to October 2015, 3 month
JIBAR plus 1.59% thereafter) Lower Tier 2 October 2015 October 2020 218 239
GBP500 million (8.00%)(2) Lower Tier 2 - June 2021 547 471
765 876
Total subordinated debt securities 1,434 1,717
(1) The principal and coupon on the bond were swapped at issue equally into sterling and US$ with coupons of 6 month GBP LIBOR plus 0.34% and 6 month USD LIBOR
plus 0.31% respectively. During 2011 a EUR550 million partial repayment, together with settlements of associated currency swaps, was made. On 18 January 2012 the
remaining EUR200 million was repaid on the first call date.
(2) The principal and coupon on the bond were initially swapped into floating rate Swedish kroner, at 3 month STIBOR plus 5.46%. Following the Nordic sale, GBP375
million of the coupon is now swapped into floating rate sterling at 6 month GBP LIBOR plus 4.15% and GBP125 million of principal and coupon is swapped into US dollars at
6 month USD LIBOR plus 5.49%.
F: Other statement of financial position notes
F1: Provisions
GBPm
Liability for
Client long service Provision for
Year ended 31 December 2012 compensation leave Restructuring donations Other Total
Balance at beginning of the year 43 47 37 78 62 267
Unused amounts reversed - - (1) - (4) (5)
Charge to income statement 7 30 7 - 15 59
Utilised during the year (22) (26) (14) 7 (9) (64)
Foreign exchange and other movements (6) (2) 8 (7) 15 8
Transfer to non-current assets held for
sale - - - - - -
22 49 37 78 79 265
Post employment benefits (2) (2)
Balance at end of the year 22 49 37 78 77 263
GBPm
Liability for
Client long service Provision for
Year ended 31 December 2011 compensation leave Restructuring donations Other Total
Balance at beginning of the year 39 57 34 89 92 311
Unused amounts reversed - (1) - - (14) (15)
Charge to income statement - 33 11 - 14 58
Utilised during the year (3) (30) (7) - (3) (43)
Foreign exchange and other movements 7 (8) (1) (11) (18) (31)
Transfer to non-current assets held for
sale - (4) - - (9) (13)
43 47 37 78 62 267
Post employment benefits 2 2
Balance at end of the year 43 47 37 78 64 269
Provisions in relation to client compensation were GBP22 million (2011: GBP43 million), primarily relating to ongoing resolution of claims related to
mis-selling of guarantee contracts in Old Mutual Wealth. GBPNil million (2011: GBP1 million) is estimated to be payable after more than one year.
The liability for long service leave of GBP49 million (2011: GBP47 million) relates to provision for staff payments for long serving employees, all of
which is estimated to be payable in less than one year.
Provisions in relation to restructuring were GBP37 million (2011: GBP37 million), primarily in respect of ongoing restructuring of the Old Mutual
Wealth Management business.
The provision for donations is held by Long-Term Savings in respect of commitments made by the South African business to the future funding of
charitable donations. The funds were made available on the closure of the Group's unclaimed shares trusts which were set up as part of
the demutualisation in 1999 and closed in 2006. GBP78 million (2011: GBP78 million) estimated to be payable after more than one year.
Other provisions include provisions for long-term staff benefits and legal fees.
Where material, provisions are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments in
respect of some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could
result in adjustments to the amounts recorded. Of the total provisions recorded above, GBP127 million (2011: GBP129 million) is estimated to be
payable after more than one year.
F2: Non-controlling interests
(a) Income statement
(i) Ordinary shares
The non-controlling interests share of profit for the financial year has been calculated on the basis of the Group's effective ownership of the
subsidiaries in which it does not own 100% of the ordinary equity. The principal subsidiaries where a non-controlling interest exists is the Group's
banking business in South Africa, Nedbank. For the year ended 31 December 2012 the non-controlling interests attributable to ordinary shares was
GBP264 million (2011: GBP238 million).
(ii) Preferred securities
GBPm
At At
31 December 31 December
2012 2011
R2,000 million non-cumulative preference shares 12 14
R773 million non-cumulative preference shares 5 5
R355 million non-cumulative preference shares 2 2
US$750 million cumulative preferred securities 27 37
R363 million non-cumulative preference shares 3 3
R92 million non-cumulative preference shares 1 1
Non-controlling interests preferred securities 50 62
(iii) Non-controlling interests - adjusted operating profit
The following table reconciles non-controlling interests' share of profit for the financial year to non-controlling interests' share of adjusted
operating profit:
GBPm
Year ended Year ended
31 December 31 December
Reconciliation of non-controlling interests' share of profit for the financial year 2012 2011
The non-controlling interests share is analysed as follows:
Non-controlling interests ordinary shares 264 238
Short-term fluctuations in investment return - 1
Income attributable to Black Economic Empowerment trusts of listed subsidiaries 25 22
Fair value gains on Group debt instruments - 1
Income attributable to US Asset Management non-controlling interests (8) (5)
Non-controlling interests share of adjusted operating profit 281 257
The Group uses revised weighted average effective ownership interests when calculating the non-controllable interest applicable to the adjusted
operating profit of its South Africa banking business. This reflects the legal ownership of this business following the implementation for Black Economic
Empowerment (BEE) schemes in 2005. In accordance with IFRS accounting rules the shares issued for BEE purposes are deemed to be, in
substance, options. Therefore the effective ownership interest of the minorities reflected in arriving at profit after tax in the consolidated income
statement is lower than that applied in arriving at adjusted operating profit after tax. In 2012 the increase in adjusted operating profit attributable to non-
controlling interests as a result of this was GBP25 million (2011: GBP22 million).
(b) Statement of financial position
(i) Ordinary shares
GBPm
At At
31 December 31 December
Reconciliation of movements in non-controlling interests 2012 2011
Balance at beginning of the year 1,652 1,763
Non-controlling interests' share of profit 264 238
Non-controlling interests' share of dividends paid (119) (100)
Net disposal of interests 20 61
Foreign exchange and other movements (125) (310)
Balance at end of the year 1,692 1,652
(ii) Preferred securities
GBPm
At At
31 December 31 December
2012 2011
Nedbank
R2,000 million non-cumulative preference shares(1) 140 140
R773 million non-cumulative preference shares(2) 71 71
R355 million non-cumulative preference shares(3) 25 25
R363 million non-cumulative preference shares(4) 29 29
R92 million non-cumulative preference shares(5) 8 8
273 273
Group excluding Nedbank
US$750 million cumulative preferred securities(6) - 458
Unamortised issue costs - (13)
Total in issue at 31 December 273 718
Preferred securities are held at historic value of consideration received less unamortised issue costs.
(1) 200 million R10 preference shares issued by Nedbank Limited (Nedbank), the Group's banking subsidiary. These shares are non-redeemable and non-
cumulative and pay a cash dividend equivalent to 75% of the prime overdraft interest rate of Nedbank. Preference shareholders are only entitled to vote
during periods when a dividend or any part of it remains unpaid after the due date for payment or when resolutions are proposed that directly affect any
rights attaching to the shares or the rights of the holders. Preference shareholders will be entitled to receive their dividends in priority to any payment of
dividends made in respect of any other class of Nedbank's shares.
(2) 77.3 million R10 preference shares issued at R10.68 per share by Nedbank on the same terms as the securities described in (1) above.
(3) 35 million R10 preference shares issued in 16 April 2007 at R10.27 per share by Nedbank on the same terms as the securities described in (1) above.
(4) 36.3 million R10 preference shares issued by Nedbank in seven instalments between September 2009 and December 2009 on the same terms as the
securities described in (1) above.
(5) 9.2 million R10 preference shares issued by Nedbank on 11 March 2010 on the same terms as the securities described in (1) above.
(6) US$750 million guaranteed cumulative perpetual preference securities issued on 19 May 2003 by Old Mutual Capital Funding L.P., a subsidiary of the
Group. The securities are perpetual, but may be redeemed at the discretion of the Group from 22 December 2008. On 24 September 2012, the Group
repaid the US$750 million cumulative preference securities at their nominal value.
G: Other notes
G1: Contingent liabilities
GBPm
At At
31 December 31 December
2012 2011
Guarantees and assets pledged as collateral security 2,521 2,251
Irrevocable letters of credit 177 193
Secured lending 492 515
Other contingent liabilities 57 72
The Group, through its South African banking business, has pledged debt securities amounting to GBP1,203 million (2011: GBP1,196 million) as
collateral for deposits received under re-purchase agreements. These amounts represent assets that have been transferred but do not qualify for
derecognition under IAS 39. These transactions are entered into under terms and conditions that are standard industry practice to securities
borrowing and lending activities.
Contingent liabilities tax
The Revenue authorities in the principal jurisdictions in which the Group operates (South Africa and the United Kingdom) routinely review historic
transactions undertaken and tax law interpretations made by the Group. The financial statements accordingly include provisions that reflect the
Group's assessment of liabilities which might reasonably be expected to materialise.
Nedbank structured financing
Historically the Group's South African banking business entered into structured-finance transactions with third parties using their tax bases. In the
majority of these transactions, the underlying third party has contractually agreed to accept the risk of any tax being imposed by the South African
Revenue Service (SARS), although the obligation to pay rested in the first instance with the Group It would only be in limited cases, for example,
where the credit quality of a client became doubtful, or where the client specifically contracted out of the repricing of additional taxes, that the
recovery from a client could be less than the liability arising on assessment, in which case provisions would be raised.
Nedbank litigation
There are a number of legal or potential claims against Nedbank and its subsidiary companies, the outcome of which cannot at present be
foreseen. The largest of these potential actions is a claim in the High Court for R1.3 billion against Nedbank by certain shareholders in Pinnacle
Point Group Limited, alleging that Nedbank had a legal duty of care to them arising from a share swap transaction. During 2011 further actions were
instituted against Nedbank by other stakeholders relating to this same issue. In early 2013 one of the claims by one of the shareholders, Property
Promotions and Management (Pty) Ltd, for an amount of R147 million was dismissed by the North Gauteng High Court in Pretoria. Nedbank and its
legal advisers remain of the opinion that the remaining claims are ambitious, and that the remaining claimants will have great difficulty succeeding.
Nedbank Securitisations
The Group through Nedbank uses securitisation primarily as a funding diversification tool and to add flexibility in mitigating structural liquidity risk.
Nedbank currently has two active traditional securitisation transactions:
- Synthesis Funding Limited (Synthesis), an asset- backed commercial paper (ABCP) programme launched in 2004; and
- GreenHouse Funding (Pty) Limited, Series 1 (GreenHouse), a residential mortgage-backed securitisation programme launched in December
2007 restructured in November 2012.
Synthesis primarily invests in long-term rated bonds and offers capital market funding to South African corporates. These assets are funded through
the issuance of short-dated investment-grade commercial paper to institutional investors. All the commercial paper issued by Synthesis is assigned
the highest short-term RSA local-currency credit rating by Fitch, and is listed on JSE Limited.
Within GreenHouse Series 1, R2.0 billion of home loans originated by Nedbank, was securitised in 2007. The notes issued to finance the purchase
of the home loan portfolio were assigned credit ratings by both Fitch and Moody's and listed on JSE Limited. During 2010 Fitch placed the
GreenHouse notes on rating watch negative as a result of changes in its rating criteria for SA RMBS transactions. On 22 May 2012 Fitch affirmed
the rating of the notes, with a stable outlook, and withdrew the rating of the subordinated loan.
GreenHouse was restructured and refinanced on 19 November 2012 as a static amortising structure. The proceeds from the refinance of this
transaction, through the issuance of new notes and subordinated loans, was utilised to repay the R1.3 billion existing notes and subordinated loans
upon their scheduled maturity, and to acquire additional home loans of approximately R795 million. The newly issued senior notes, which have
been rated by Fitch and listed on the JSE Limited, were placed with third party investors and the junior notes and subordinated loans retained by
the Group. The home loans transferred to GreenHouse have continued to be recognised as financial assets. GreenHouse will direct all capital
repayments received on the home loan portfolio to the noteholders.
The following table shows the carrying amount of securitised assets, stated at the amount of the Group's continuing involvement where
appropriate, together with the associated liabilities, for each category of asset in the statement of financial position:*
Carrying amount of assets Associated liabilities
At 31 December 2012 2011 2012 2011
Loans and advances to customers
Residential mortgage loans** 96 116 161 132
Other financial assets
Corporate and bank paper 155 116 - -
Other securities 189 199 - -
Commercial paper - - 345 320
Total 440 431 506 452
This table presents the gross balances within the securitisation schemes and does not reflect any eliminations of intercompany and cash
balances held by the various securitisation vehicles.
* The value of any derivative instruments taken out to hedge any financial asset or liability is adjusted against such instrument in this disclosure.
** The balance at 31 December 2012 represents residential mortgages ceded to GreenHouse at 31 December 2012. It excludes funds of approximately
GBP58 million held in a warehouse facility available for transfer once the remaining acquired residential mortgages have been ceded.
G2: Events after the reporting date
In January 2013, the Group completed the acquisition of a majority stake ownership in AIVA Business Platforms (AIVA), a Uruguay-based strategic
distribution business. The Group will consolidate the financial results of AIVA in its 2013 consolidated financial statements.
H: Discontinued operations and disposal groups held for sale
H1: Discontinued operations
The results of the Group's Swedish, Danish and Norwegian life businesses, collectively Nordic, and United States life business, US Life, are shown
as discontinued operations in these financial statements. The disposal of Nordic was completed on 21 March 2012 following shareholder and
regulatory approval, and has been reported up until that date. The disposal of US Life was completed on 7 April 2011 following regulatory approval,
and has been reported up until that date. Further detail is provided in note A2.
(a) Income statement from discontinued operations
GBPm
Year ended 31 December 2012 Year ended 31 December 2011
Nordic US Life Total Nordic US Life Total
Revenue 842 - 842 (421) 342 (79)
Expenses (866) - (866) 541 (330) 211
Profit before tax from discontinued operations (24) - (24) 120 12 132
Profit/(loss) on disposal 239 - 239 - (29) (29)
Realised available-for-sale investment gains and
exchange differences on disposal 350 - 350 - 133 133
Profit before tax 565 - 565 120 116 236
Income tax (charge)/credit (1) - (1) (52) 14 (38)
Profit from discontinued operations after tax 564 - 564 68 130 198
(b) Statement of comprehensive income from discontinued operations
GBPm
Year ended 31 December 2012 Year ended 31 December 2011
Nordic US Life Total Nordic US Life Total
Profit from discontinued operations after tax 564 - 564 68 130 198
Other comprehensive income for the
financial period
Fair value gains/(losses)
Available-for-sale investments
Fair value gains 4 - 4 3 48 51
Recycled to the income statement - - - - (5) (5)
Realised on disposal - - - - (157) (157)
Exchange differences realised on disposal (350) - (350) - 24 24
Shadow accounting - - - - (43) (43)
Currency translation differences/exchange
differences on translating foreign operations 2 - 2 (43) - (43)
Other movements (3) - (3) 10 - 10
Aggregate tax on transfers from equity (1) - (1) (1) 3 2
Total other comprehensive (loss)/income
from discontinued operations (348) - (348) (31) (130) (161)
Total comprehensive income for the financial
period from discontinued operations 216 - 216 37 - 37
Attributable to
Equity holders of the parent 216 - 216 37 - 37
Profit before tax from the Nordic discontinued operation includes trading revenues and expenses up to the completion date, 21 March 2012. Also
included in the expenses is an impairment of brand assets of GBP35 million.
Profit on disposal of the Nordic business is calculated after taking into account the net sales proceeds of GBP2,095 million, net assets of the
business of GBP1,744 million and net investment currency hedge losses of GBP112 million, previously included in equity translation reserves.
Cumulative foreign exchange translation gains of GBP350 million, previously included in equity translation reserves, are realised on the disposal of
the Nordic business.
(c) Net cash flows from discontinued operations
GBPm
Year ended 31 December 2012 Year ended 31 December 2011
Nordic US Life Total Nordic US Life Total
Operating activities (8) - (8) 1,609 2 1,611
Investing activities (121) - (121) (1,411) 146 (1,265)
Net cash flows from discontinuing
operations (129) - (129) 198 148 346
H2: Disposal groups held for sale
At 31 December 2011 the assets and liabilities of the Group's Nordic business were shown as held for sale in the financial statements, being
GBP20,960 million and GBP19,289 million respectively. At 31 December 2011 the assets and liabilities of the Group's Finnish branch were also
shown as held for sale in the financial statements, being GBP1,156 million and GBP1,119 million respectively. The disposals of both of these
businesses were completed during the year and therefore no assets or liabilities are shown as held for sale at 31 December 2012.
In addition to the disposal groups held for sale, the Group also had additional non-current assets for sale of GBP42 million (2011: GBP22 million)
and non-current liabilities of GBP3 million (2011: GBP9 million).
Sponsor:
Merrill Lynch South Africa (Pty) Ltd
Date: 01/03/2013 09:01:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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