Wrap Text
Annual Financial Report 2013 and Annual General Meeting 2014
OLD MUTUAL PLC
ISIN CODE: GB00B77J0862
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSURE CODE: OLOML
Old Mutual plc
Ref 28/14
1 April 2014
ANNUAL FINANCIAL REPORT 2013 AND ANNUAL GENERAL MEETING 2014
Old Mutual plc (“Company”) has today published its Annual Financial Report for 2013. Copies of the
Annual Financial Report, the Annual Review for 2013, the shareholder circular containing Notice of
the 2014 Annual General Meeting (“AGM”) and the Form of Proxy for the AGM have been submitted
to the National Storage Mechanism and will shortly be available for inspection at
www.hemscott.com/nsm.do. The documents (including an HTML version of the Annual Review) will
also be available later today on the Company’s own website at www.oldmutual.com. Copies of the
Annual Financial Report may also be obtained from Investor Relations, Old Mutual plc, 5th Floor,
Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG or Old Mutual Square, Isibaya Building,
2nd Floor, 93 Grayston Drive, Sandton 2196, South Africa.
The AGM will be held in the Presentation Suite, 2nd Floor, Millennium Bridge House, 2 Lambeth Hill,
London EC4V 4GG on 15 May 2014 at 11.00 a.m. As usual, the meeting will be webcast so that
shareholders who cannot readily attend it in London can, if they have access to a computer, observe
the proceedings. A link to the webcast will be available on our website on Thursday, 15 May 2014
from 10.45 a.m. (UK time).
As part of the Chief Executive’s review in the Annual Financial Report, Julian Roberts commented as
follows;
“As we build across Africa and as we cement our position in South Africa we will continue to seek
ways in which Old Mutual, Nedbank and Mutual & Federal can work more closely together and
leverage off their individual strengths and capabilities. This initiative is already resulting in significant
cross-selling opportunities. For example: Nedbank Financial Planners delivered gross flows of R4.3
billion to the South African Retail Affluent division and Retail Affluent sold R600 million of Mutual &
Federal products. Collaboration is key to our future growth and we intend to implement incentive
plans for the executive management of Old Mutual Emerging Markets (OMEM), Nedbank and Mutual
& Federal which will reward them for driving revenue, cost and capital synergies between the three
businesses. In addition, reflecting the importance of the insurance and banking businesses to South
Africa, at the request of the Regulator, in 2014 we will be activating a new top Board in the country to
oversee risks, capital and strategy for the South African part of the Group.”
In compliance with the Company's obligations under Disclosure and Transparency Rule 6.3.5,
additional information is set out below which has been extracted in full unedited text from the Annual
Financial Report. Accordingly, page references and section numbers in the text below refer to page
numbers and section numbers in the Annual Financial Report. This extracted information should be
read in conjunction with the Company’s preliminary results announcement, which was released on 28
February 2014 and is available on our website.
Group Financial Statements – Independent Auditor’s report to the Members of Old Mutual plc
only
For year ended 31 December 2013
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Old Mutual plc for the year ended 31 December 2013,
which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive
Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated
and Parent Company Cash Flow Statements, the Consolidated and Parent Company Statements of
Changes in Equity and the related notes which include the reconciliation of adjusted operating profit to
profit after tax.
In our opinion:
- The financial statements give a true and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2013 and of the Group’s profit for the year then ended
- The Group financial statements have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the
EU)
- The Parent Company financial statements have been properly prepared in accordance with
IFRSs as adopted by the EU and as applied in accordance with the provisions of the
Companies Act 2006, and
- The financial statements have been prepared in accordance with the requirements of the
Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS
Regulation.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement
that had the greatest effect on our audit were as follows:
Loans and advances (£33,386 million)
Refer to page 97 (Audit Committee Report), pages 144 and 176 (accounting policy) and the
disclosures in notes A3, E1, E2 and E3 to the financial statements
The risk:
The Group’s loans and advances impairment assessment requires the exercise of judgement and the
use of subjective assumptions. Due to the significance of loans and advances and the related
estimation uncertainty, this is considered to be a key audit risk, both in respect of the mature,
established clusters and the unsecured lending books within Nedbank, as well as the Emerging
Markets exposure through a joint venture, Old Mutual Finance.
Our response:
For all banking clusters, our procedures included, among others, testing the design, implementation
and operating effectiveness of key controls in operation over the loan approval, administration and
monitoring processes. We involved our own internal valuation specialists to assess each of the
portfolio loan loss provisioning models employed by the Group and to compare the Group’s
assumptions to externally available data in relation to key inputs such as historical default rates,
recovery rates, collateral valuation, and economic growth rates. Specific focus was given to the
Business banking, Corporate banking and Retail books, in response to increasing credit loss ratios
during 2013. We also performed detailed testing over the specific provisions held against loans and
advances, by reviewing latest correspondence and Credit Committee minutes, assessing collateral
values and re-performing key calculations.
Policyholder liabilities (£81,141 million)
Refer to page 97 (Audit Committee Report), pages 144 and 196 (accounting policy) and the
disclosures in notes A3, E1, E2 and E8 to the financial statements
The risk:
The main risk associated with policyholder liabilities is in respect of the insurance contracts within the
life businesses; Emerging Markets and Old Mutual Wealth. Judgement is required over the variety of
uncertain future outcomes, including the policy for creating and releasing discretionary reserves.
Economic assumptions, such as investment return and associated discount rates, and operating
assumptions, such as mortality and persistency, are the key inputs used to estimate the valuation of
these long-term liabilities and the wide variety of uncertain future outcomes results in this being one of
the key judgemental areas that our audit focused on.
Our response:
Our procedures in this area included testing the design, implementation and operating effectiveness
of key controls over the identification, measurement and management of the Group’s calculation of
insurance liabilities and evaluation of the consistency of methodologies and the appropriateness of
the assumptions used by the Group. We involved our own internal actuarial specialists to assist us in
our challenge of the assumptions used and the process followed for setting and updating these
assumptions, particularly around expense and mortality/morbidity assumptions. Our challenge was
provided in the context of our own industry knowledge, external data and our views of experience to
date, an understanding of which was enhanced through our attendance at the Group’s own Independent
Review Committee meetings. In respect of the discretionary reserves held within the South African business
we reviewed and challenged the Group’s use and application of the established policy, with reference to
industry-wide practice and applicable accounting standards.
- Goodwill and intangibles (£2,835 million)
Refer to page 97 (Audit Committee Report), page 207 (accounting policy) and the disclosures in note
F1 to the financial statements
The risk:
The determination of the recoverable amount of intangible assets (both acquired and internally
generated) and goodwill is complex and typically requires a high level of judgement, taking into
account the different economic environments in which the Group operates. We consider the greatest
risk to be within Old Mutual Wealth.
Our response:
The most significant judgements arise over the forecast cash flows and the discount rate applied in
the value-in-use valuation models. Our procedures included, among others, challenging the cash flow
forecasts and the corresponding assumptions applied by the Group in the consideration of potential
impairment of intangible assets, based on our understanding of the relevant business and the industry
and economic environment in which it operates. We compared forecasts to business plans and also
previous forecasts to actual results to assess the performance of the business and the accuracy of
forecasting and considered the appropriateness of the scenarios used, in the context of our wider
business understanding. We involved our own valuation specialists to assist us in evaluating the
assumptions and methodologies used by the Group, in particular those relating to the discount rates
and in evaluating these assumptions with reference to independently derived inputs.
- Taxation (£171 million – tax risk provision)
Refer to page 97 (Audit Committee Report), page 145 (accounting policy) and the disclosures in notes
D1 and F7 to the financial statements
The risk:
Accruals for uncertain tax positions require the Group to make judgements and estimates in relation
to tax exposures and in response to enquiries raised by the tax authorities. This is one of the key
judgemental areas that our audit is concentrated on due to the Group operating in a number of
different tax jurisdictions and the complexities of and developments in international tax legislation,
particularly in relation to South Africa given the proportion of the Group’s income earned there.
Our response:
In understanding the accruals held, we inspected the correspondence with the relevant tax authorities
and associated advice and held discussions with relevant members of management. We involved our
own local and international tax specialists to assist us in analysing the Group’s tax positions and
challenged assumptions used to determine tax provisions based on our knowledge and experiences
of the application of the international and local legislation by relevant authorities and courts.
For all of the risk areas set out above, we have assessed whether the Group’s disclosures about the
sensitivity of the relevant financial statement items to changes in the respective key assumptions
appropriately reflect the associated risks and comply with the requirements of relevant accounting
standards.
3. Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £80 million. This has been
determined with reference to a benchmark of Group profit before taxation, which we consider to be
one of the principal considerations for members of the Company in assessing the financial
performance of the Group. Materiality represents 5.2% of Group profit before tax and 5.0% of Group
Adjusted Operating Profit, the definition of which is set out within the primary statements and notes to
the financial statements.
We agreed with the Group Audit Committee to report to it all corrected and uncorrected
misstatements we identified through our audit with an individual value in excess of £4 million in
addition to other audit misstatements below that threshold which we believe warranted reporting on
qualitative grounds.
Audits for Group reporting purposes were performed at the key components, being Emerging
Markets, Old Mutual Wealth, Nedbank, US Asset Management and Bermuda businesses, by separate
component teams. These audits covered 94% of total revenues, 99% of profit before tax, and 95% of
total Group assets.
The audits undertaken for Group reporting purposes at the significant reporting components of the
Group were all performed to materiality levels set by the Group audit team, ranging from £32 million to
£65 million. To support the audit instructions sent to our component teams, the Group audit team
visited the teams in South Africa, the US, Bermuda and elsewhere in the UK for planning and risk
assessment meetings and maintained regular communication with the auditors at these locations
throughout the audit cycle to discuss work progress and identify matters of relevance to our audit of
the Group financial statements. The Senior Statutory Auditor, in conjunction with other senior staff in
the Group audit team, also regularly attends Audit Committee meetings held at the significant
components to understand key risks and audit issues at a component level which may affect the
Group financial statements.
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
- The elements of the Directors’ Remuneration Report subject to audit have been properly
prepared in accordance with the Companies Act 2006, and
- The information given in the Strategic Report and the Directors’ Report for the financial year for
which the financial statements are prepared is consistent with the financial statements.
5. We have nothing to report in respect of the matters on which we are required to report by
exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired
during our audit, we have identified other information in the annual report that contains a material
inconsistency with either that knowledge or the financial statements, a material misstatement of fact,
or that is otherwise misleading.
In particular, we are required to report to you if:
- We have identified material inconsistencies between the knowledge we acquired during our
audit and the directors’ statement that they consider that the annual report and financial
statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s performance, business model
and strategy or
- The Audit Committee Report does not appropriately address matters communicated by us to
the Audit Committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
- Adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us or
- The Parent Company financial statements and the part of the Directors’ Remuneration Report
to be audited are not in agreement with the accounting records and returns or
- Certain disclosures of directors’ remuneration specified by law are not made or
- We have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
- The directors’ statement, set out on page 105, in relation to going concern and
- The part of the Corporate Governance Statement relating to the Parent Company’s
compliance with the nine provisions of the 2010 UK Corporate Governance Code specified for
our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Statement of directors’ responsibilities set out on page 128, the
directors are responsible for the preparation of the financial statements and for being satisfied that
they give a true and fair view. A description of the scope of an audit of financial statements is provided
on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is
made solely to the Company’s members as a body and is subject to important explanations and
disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full
and should be read to provide an understanding of the purpose of this report, the work we have
undertaken and the basis of our opinions.
Philip Smart (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
28 February 2014
Report from the Group Audit Committee
Roger Marshall has submitted the following report on behalf of the Group Audit Committee:
The committee met six times during 2013. In this report I comment on the key issues we considered
over the last 12 months.
The committee considers that the most significant areas of judgement in preparing the 2013 accounts
were:
The level of explicit discretionary reserves in Old Mutual South Africa’s financial statements. In
accordance with South African actuarial practice, insurance liabilities continue to be calculated on a
prudent basis, including discretionary reserves. At 31 December 2013, the Group recognised explicit
discretionary margins of £489 million or 1.9% of technical liabilities (2012: £556 million; 1.9%). The
committee approved a revised policy for creating and releasing these reserves as well as reviewing
and agreeing the composition of and rationale for these explicit discretionary reserves. A significant
portion of the Group’s explicit discretionary margins relates to uncertainty around mortality
assumptions for HIV in South Africa
The appropriate level of tax provisions, particularly in South Africa. The nature of the South African
assessment process and complexity of our businesses there means that specific areas of tax
computation can remain open for a number of years after filing. While progress was made during
2013 in closing outstanding computations, a number of issues remain under discussion with the tax
authorities. The committee discussed the individual matters and the corresponding provisions with
both subsidiary management and the external auditors. We are satisfied with the amounts carried in
the accounts
Loan loss provisions at Nedbank and Old Mutual Finance, particularly in relation to unsecured loans.
At 31 December 2013, the Group’s unsecured advances totalled £1,664 million, with related
provisions of £232 million (2012: £2,080 million and £238 million). During the year the committee
reviewed the provisioning methodologies in use at both companies and was satisfied that they were
appropriate
Impairment of the carrying value of goodwill (see Note F1 to the Accounts). The committee reviewed
the assumptions used to justify no material impairment to goodwill this year and was comfortable with
them. In particular, we reviewed the carrying value of goodwill and other intangibles relating to the Old
Mutual Wealth business of £1,461 million at 31 December 2013 (2012: £1,594 million), taking into
account that certain countries are operating a closed book model, and the announcement of the
disposal of the business in Poland. The committee agreed that the projected future cash flows from
the businesses supported the current carrying value of these intangibles.
The Company makes a number of adjustments to IFRS income to arrive at an Adjusted Operating
Profit. Some reflect IFRS requirements not valued by users, such as recognising gains or losses on
own debt. Others seek to arrive at more normalised profit by for example substituting a long-term
investment return for actual investment returns for the year. The committee reviews and agrees the
long-term investment return annually. This year we discussed in particular the proposal to exclude the
significant Old Mutual Wealth restructuring costs related to the proposed outsourcing of certain
administrative activities to International Financial Data Services from Adjusted Operating Profit and
reviewed how peers dealt with similar items. Whilst the committee accepts the proposed Adjusted
Operating Profit treatment, it has made recommendations to the Remuneration Committee about how
the expected restructuring benefits should be monitored for remuneration purposes.
I mentioned in my 2012 report that the committee had discussed the results of an external
effectiveness review of Internal Audit and agreed an action plan. The review had concluded that
Internal Audit was effective, but that change was needed for it to operate at best practice levels in all
areas. During 2013 a committee, which I chaired, sponsored by the Institute of Internal Auditors made
recommendations for improving internal audit of financial services companies. The Group Audit
Committee reviewed a gap analysis comparing the Company’s internal audit arrangements with the
recommendations in that report and agreed appropriate changes to our arrangements. Key changes
were:
A change in the Internal Audit Director’s executive reporting line from the Group Finance Director to
the Group Chief Executive
Whilst Internal Audit’s scope was not previously limited, it was agreed that the team should spend
more time in areas where they had not previously been involved. As an early example of this, I asked
Internal Audit to examine management’s risk mitigation plans in relation to Old Mutual Wealth’s
outsourcing project before this project was finally agreed. We have also asked Internal Audit to report
to us on management’s attitude to controls as well as the controls themselves.
We agreed a revised Group Internal Audit Charter reflecting the changes, which is available on the
Company’s website.
During 2013, we discussed the recommendations of the Financial Reporting Council (of which I am a
director) for the external audit to be tendered. We also took into account UK Competition Commission
regulation and pending European legislation, and increased market comment on the subject.
Following these discussions, we have determined that it will be appropriate to conduct a tender of the
Group’s audit engagement during 2014. The tender will be in respect of appointment to the role of
Group auditor for the year ending 31 December 2016.
Initial analysis suggests that independence considerations and potential conflicts of interests will limit
the number of firms which will be involved in the tender. The Group’s audit has not previously been
tendered since the Company became a listed entity in 1999.
We are yet to finalise the criteria against which we will assess potential candidates, but these are
likely to include:
• Financial services experience and extent of in-house actuarial resource
• Experience of listed and multiple-listed entity audits
• Presence in the significant markets in which we operate
• Proposed approach to the audit and expertise of the proposed team
• Proposed fees.
We would welcome shareholder input on this matter, in particular on the proposed criteria, and this
can be provided by contacting the Secretary to the committee, martin.murray@omg.co.uk.
In the meantime, we reviewed the effectiveness of our current auditors, KPMG, during the year and
continued to be satisfied with the quality of the audit. We routinely review the performance of the
external auditors annually. The review in 2013 was conducted in advance of that year’s AGM and
informed our recommendation to reappoint the incumbent. This review analysed critical competencies
expected of our external auditors and was performed by the Internal Audit function. Interviews with,
and the responses to questionnaires by, key finance personnel from Group and subsidiary entities
and committee members are central to the assessment process. We have strict controls over the
scope and amount of non-audit services provided by the audit firm (see “Who are the Group Auditors
and how much are they paid?” below) and are satisfied that they remain independent.
I would be happy to discuss the contents of this report, and the activities of the committee, with
individual shareholders.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group’s overall risk profile and capital position remains stable despite difficult economic conditions
and weakened global recovery.
Our risk profile is considered through different lenses, reflecting the possible effect of risk on earnings,
capital and the future sustainability of our business. The table below summarises the Group’s top five
topical risks, taking into account the likelihood and severity of risks, where the severity assessment
considers the financial, reputational, regulatory, people and legal impact of a risk. These risks are largely
strategic in nature and are closely monitored and overseen by Group management, which gives regular
updates to the Board and Executive Risk Committees.
Our business is also affected by a number of inherent risks, such as the exposure to market levels and
insurance risk, which drives a significant proportion of our capital requirement and earnings at risk.
Although market risk is material, a large portion is inherent within the nature of our product offering, as we
are exposed to the impact of market movements on asset-based fees generated from client-selected
investment. Our risk exposure to earnings and capital is measured and monitored half-yearly, with more
frequent monitoring of key risk indicators to identify and track developing trends.
More information on our risk and capital management and risk profile is contained in the Risk and Capital
Management section in this Annual Report. Additional risk information is disclosed in the consolidated
financial statements, note E, in this Annual Report.
Risk description 2013 and beyond Risk mitigation and
management action
1. Potential slowing of the South Customers’ propensity to save and Understanding customers’
African economy to purchase and maintain insurance financial position at an individual
policies is a function of, among other level at the point of sale.
factors, their disposable income and
A significant portion of our earnings their confidence in their future Managing premium collections
comes from our South African prospects. Disposable income will and monitoring for early
businesses. In our insurance and be affected by the rate of increase of indicators of financial distress.
investment businesses, our earnings customers’ real incomes, the
are at risk if our customers are unemployment rate in the economy Monitoring multiple external
not able to keep up premiums on and levels of consumer confidence. economic factors and
existing business, or if they cancel incorporating these into stress
existing policies or withdraw their Each of these factors is in turn and scenario testing to
savings earlier than anticipated. affected by macro-economic factors, understand our earnings and
Additionally our future profits will be such as inflation and interest rates, capital resilience to severe
at risk if customers do not buy which is outside of our control and macro-economic events.
insurance policies from us or invest difficult to predict.
their savings with us at the levels we Whilst our business plans assume Management actions have been
anticipate. nominal GDP growth in South Africa identified to mitigate the impact
in the next 2 to 3 years that is lower on earnings of a pessimistic low
This may also impact credit risk, as than its long-term trend rate, other growth scenario.
discussed overleaf. scenarios have also
been considered.
Risk description 2013 and beyond Risk mitigation and
management action
2. Credit risk across the Group Our credit risk remains within We monitor credit loss ratios on
One of our largest single quantifiable appetite. However, the high level of an ongoing basis and these are
risks to the Group is our exposure to personal indebtedness and pressure broadly within target range. In
banking credit risk from lending and on consumers in South Africa addition, we review the quality
other financing activities through our remain a challenge. As highlighted of credit portfolios to ensure
exposure to Nedbank. in the first risk above, this levels of credit impairment
Despite tight controls and is dependent on macro-economic provisions are adequate.
processes, profits remain sensitive factors that are outside our control. For unsecured lending,
to relatively small movements in the Our credit exposure is concentrated Nedbank and OMF continue to
credit loss ratios. in secured lending through apply strict affordability criteria
Our exposure to Nedbank is Nedbank. to ensure loans are granted
primarily risk to earnings, as Unsecured lending exposure is within appropriate risk
Nedbank’s capital and liquidity small in comparison to the total thresholds. Credit scoring,
requirements are both met from its lending book. Within Nedbank, the including elements of
own available resources. unsecured lending book reduced behavioural scoring and overall
There is also credit risk within the over 2013. Within Old Mutual financial fitness, continue
Emerging Markets business which is Finance we experienced controlled to evolve.
expected to increase due to planned growth off a low base, applying Stress testing is carried out at
growth: stringent affordability requirements both Nedbank and Emerging
• Our unsecured lending joint and strict credit criteria. Markets to understand
venture, Old Mutual Finance During 2014 we will have rights exposure to credit events.
(OMF) through Nedbank to acquire up to a Large concentrations are
• Credit spread risk through Old 20% stake in Ecobank Transnational monitored at Group level,
Mutual Specialised Finance Incorporated (ETI). In 2014 we will although there is little
(OMSFIN) also have the opportunity for concentration or aggregation of
• The South African life business, Emerging Markets to increase its individual credits outside of
predominantly through the stake in OMF. This would further Nedbank and Emerging
management of assets backing increase the overall Group exposure Markets.
annuity products to credit lending risk.
• Within Mutual & Federal there
is credit risk exposure through
holdings in the credit guarantee
insurer, CGIC
• A building society in Zimbabwe,
although the exposures are
currently small in the
Group context.
Credit risk outside Nedbank and
Emerging Markets is relatively
limited.
Risk description 2013 and beyond Risk mitigation and
management action
3. Currency translation risk In 2013, the rand depreciated from Holding capital resources
R13.77 to R17.43 against the (including the Group’s issued
At a Group level our earnings, pound, following a period of some debt) to meet our capital
dividend and regulatory surplus years during which the rand requirements in matched
capital are expressed in pounds exchange rate was in a range of currencies and servicing interest
R10 to R15 to the pound. Future on debt with matching earnings.
but the majority of the Group’s
exchange rates are difficult to predict
earnings and its surplus capital are The balance of cash flows
but there are some macro-economic
denominated in rand. The earned in rand and other
factors that point to possible further
translation of our rand earnings currencies is closely monitored
rand weakness in the medium-term.
and capital are therefore affected and the dividend policy, through
These include the current account
by movements in exchange rates. its link to earnings, in part
deficit, 6.5% of GDP in Q4 2013,
addresses this risk.
and the possibility of capital outflows
from South Africa as some external In addition, the Group’s plans to
investors may sell their holdings of grow the proportion of earnings
South African government bonds in currencies other than the
should global interest rates rise. rand in the medium-term is
expected to reduce the
proportion of the Group’s
dividend that is met by
remittances in rand from group-
owned businesses.
Forward currency contracts are
used to hedge expected rand
cash flows used to make
dividend payments in pounds.
Understanding of the resilience
of the Group’s capital and
capacity to pay dividends in the
event of significant appreciation
and depreciation of the
currencies to which the Group is
exposed is improved through
stress and scenario testing.
Risk description 2013 and beyond Risk mitigation and
management action
4. Strategic execution risk and The Old Mutual Wealth business During the past year new
pace of change across the Old plan seeks to transform the business governance structures have
into a simpler, unified business with been put in place in both
Mutual Group updated IT systems. This strategy Old Mutual Wealth and
focuses mainly on the UK and Emerging Markets to streamline
There is currently, and for the international markets. The level of their boards, aiming to leverage
foreseeable future, a high degree operational risk within Old Mutual experienced local non-executive
of execution risk associated with Wealth is increasing in the short- director skills and experience to
the scale and pace of change term, reflecting the significant more effectively challenge key
across the Group. Most notably: changes to the operating model and strategic initiatives.
staffing changes resulting in less
• Implementation of the In addition, executive and risk
continuity. In addition, a key focus
outsourcing arrangement with functions have been enhanced
over the next few years will be on
IFDS within Old Mutual Wealth in many areas to provide clearer
the execution of the outsourcing
• The build out of the asset line of oversight.
arrangement with IFDS and of the
management capability within
Intrinsic Financial Services For key projects across the
Old Mutual Wealth
acquisition. Group, there is centralised
• Emerging Markets is facing oversight at Group Head Office
significant transformation in the During 2013, Emerging Markets
over and above the business
South African life and property acquired stakes in a number of
unit oversight.
and casualty businesses, and businesses across Africa. During
simultaneous expansion into 2014, work will continue on Within Old Mutual Wealth, there
East and West Africa. integrating these businesses and is executive oversight of the
pursuing further acquisitions. IFDS outsourcing project,
together with a dynamic
programme governance
approach that takes into
account lessons learnt from
previous major projects (eg.
Retail Distribution Review
implementation) and activity
prioritisation.
We will continue to focus on the
control environment and prompt
escalation in order to mitigate
the increased operational risk.
Risk description 2013 and beyond Risk mitigation and
management action
5. Changing shape of the Our customers’ needs are evolving. The strategic initiatives across
industry due to changing Consumers want to be more in the Group are focused on
control of their finances. With the streamlining our business
customer needs and growing digital era and technological to allow us to adapt more easily
regulations, particularly advances, consumers increasingly to the changing customer needs
consumer-focused regulations rely on and prefer technological tools and regulations. This includes
for a number of tasks. Despite this, implementation of IT solutions
Attracting new and retaining existing a need for individual attention that allow us to implement new
customers is key to delivering our remains. Consumers seek quality as products and system changes
strategy. New and evolving well as original offerings that meet more quickly.
consumer-focused regulation, non- their personal needs, and it is
In addition, our brand promise
traditional distribution methods, new important that service remains
and commitment to operating
technologies and changing convenient both in terms of time and
responsibly, with a strong
customers’ needs and preferences effort.
customer focus and culture,
are altering the distribution and From a regulatory perspective, positions us well to respond to
competitive landscape across the regulators across the globe continue consumer-focused regulation.
Group’s geographies. This may to focus on the fair treatment of
place business plans and our growth Our KPIs include a customer
customers and both principles and
strategy at risk if our business model advocacy measure in the form
appropriate regulation in this area
is not flexible to allow us to adapt of the Net Promoter Score
are evolving. In particular, there is
quickly and effectively to the (NPS). The NPS is a customer
increased focus on product design,
changing landscape. loyalty metric that looks at how
advice and the product life cycle
likely our customers are to
after the sales process.
recommend Old Mutual to their
family and friends.
In addition, our ACT NOW!
Leadership Behaviours, which
are formally measured as part
of our performance
management system, includes
a behaviour around putting the
customer first, and we measure
our customer culture annually
through our group-wide culture
survey.
From a regulatory perspective,
where there are similar
regulatory themes developing,
we leverage knowledge from
different geographies across the
Group to anticipate and
implement the regulations as
they arise.
Related parties transactions
H3: Related parties
The Group provides certain pension fund, insurance, banking and financial services to related parties.
These are conducted on an arm’s length basis and are not material to the Group’s results.
(a) Transactions with key management personnel, remuneration and other compensation
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Group, directly or indirectly, including any director
(whether executive or otherwise) of the Group. Details of the compensation paid to the Board of
directors as well as their shareholdings in the Company are disclosed in the Remuneration Report on
pages 106 to 125.
(b) Key management personnel remuneration and other compensation
Year ended 31 Year ended 31
December 2013 December 2012
Number of Value Number of Value
personnel £000s personnel £000s
Directors’ fees 12 1,313 10 1,418
Remuneration 25,301 24,140
Cash remuneration 13 4,944 18 5,837
Short-term employee benefits 13 9,700 18 6,779
Long-term employee benefits 13 373 18 781
Share-based payments 11 10,284 13 10,743
26,614 25,558
Year ended 31 Year ended 31
December 2013 December 20121
Number of Number of
options/ options/
Number of shares Number of shares
Share options personnel ’000s personnel ‘000s
Outstanding at beginning of the year 6 1,770 11 11,482
Leavers 2 (178) – –
New appointments 1 9 1 697
Granted during the year – 26
Exercised during the year (498) (8,340)
Lapsed during the year – (2,095)
Outstanding at end of the year 5 1,103 6 1,770
Year ended 31 Year ended 31
December 2013 December 2012(1)
Number of Number of
options/ options/
Number of shares Number of shares
Restricted shares personnel ‘000s personnel ‘000s
Outstanding at beginning of the year 14 22,557 14 21,644
Leavers 5 (2,121) – –
New appointments 1 576 4 2,041
Granted during the year 5,439 5,896
Exercised during the year (1,505) (1,398)
Vested during the year (4,451) (4,617)
Effect of share consolidation – (1,009)
Outstanding at end of the year 10 20,495 14 22,557
• (1)Certain share scheme information has been restated based on additional information
received from key management personnel.
(c) Key management personnel transactions
Key management personnel and members of their close family have undertaken transactions with Old
Mutual plc and its subsidiaries, joint ventures and associated undertakings in the normal course of
business, details of which are given below. For current accounts, positive values indicate assets of the
individual, whilst, for credit cards and mortgages positive values indicate liabilities of the individual.
Year ended 31 Year ended 31
December 2013 December 2012
Number of Value Number of Value
personnel £000s personnel £000s
Current accounts
Balance at beginning of the year 4 1,204 5 324
Net movement during the year 1,331 880
Balance at end of the year 4 2,535 4 1,204
Credit cards
Balance at beginning of the year 4 18 5 26
Net movement during the year 6 (8)
Balance at end of the year 2 24 4 18
Mortgages
Balance at beginning of the year 2 219 4 621
Net movement during the year (76) (402)
Balance at end of the year 1 143 2 219
General insurance contracts
Total premium paid during the year 3 13 3 13
Claims paid during the year – – 1 3
Life insurance products
Total sum assured/value of investment at end of the year 11 24,498 12 18,524
Pensions, termination benefits paid
Termination benefits paid 1 608 4 2,736
Value of pension plans as at end of the year 10 4,838 10 4,379
Various members of key management personnel hold, and have at various times during the year held,
investments managed by asset management businesses of the Group. These include unit trusts,
mutual funds and hedge funds. None of the amounts concerned are material in the context of the
funds managed by the Group business concerned, and all of the investments have been made by the
individuals concerned either on terms which are the same as those available to external clients
generally or, where that is not the case, on the same preferential terms as were available to
employees of the business generally.
Directors’ Responsibility statement
In connection with the Annual Financial Report for 2013, the directors of the Company 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 Financial 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.
Enquiries
External communications
Patrick Bowes UK +44 20 7002 7440
Investor relations
Dominic Lagan UK +44 20 7002 7190
Kelly de Kock SA +27 21 509 8709
Media
William Baldwin-Charles +44 20 7002 7133
+44 7834 524833
Lead Sponsor:
Merrill Lynch South Africa (Pty) Limited
Joint Sponsor:
Nedbank Capital
Notes to Editors
Old Mutual provides life assurance, asset management, banking and general insurance to more than
16 million customers in Africa, the Americas, Asia and Europe. Originating in South Africa in 1845,
Old Mutual has been listed on the London and Johannesburg Stock Exchanges, among others, since
1999.
In the year ended 31 December 2013, the Group reported adjusted operating profit before tax of £1.6
billion (on an IFRS basis) and had £294 billion of funds under management from core operations.
For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com
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