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Old Mutual plc interim results for the half year ended 30 June 2014 - Part III
Old Mutual
ISIN CODE: GB00B77J0862
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSURE CODE: OLOML
MCEV Information
At 30 June 2014
MCEV reporting
At the February 2014 preliminary results announcement, we indicated that the Group will not be publishing detailed MCEV information in
future, other than for the Emerging Markets covered business.
The decision reflects the changes in the Group’s activities over the past three years that have reduced the prevalence of life insurance
business in the Group. These include the sale of the US Life and Nordic operations and the significant run-off of business in Old Mutual
Bermuda. In addition, the change in strategic direction of the Old Mutual Wealth business has led to a shift in business activity towards
asset management. The change in mix of business will be more pronounced in 2014 following the completed and proposed sales of life
insurance businesses in Europe. This means that MCEV information is less relevant to our Group.
Valuation of Old Mutual Wealth at IFRS net asset value
The information that follows restates the adjusted Group MCEV by including Old Mutual Wealth at IFRS net asset value. This results in an
adjusted Group value of GBP9.7 billion or 198.1 pence per share, compared with GBP10.1 billion or 205.4 pence per share as it would previously
have been stated on an adjusted Group MCEV basis, a difference of 7.3 pence per share or 3.6%.
Using this approach, Emerging Markets life insurance business is valued on an MCEV basis. The other components of the business are
included as follows:
- Emerging Markets asset management, property & casualty and banking business valued at IFRS net asset value;
- Old Mutual Wealth valued at IFRS net asset value;
- Old Mutual Bermuda valued using IFRS net asset value with guarantee liabilities restated to a reflect an MCEV approach;
- Institutional asset management valued at IFRS net asset value;
- Group listed subsidiaries (currently only Nedbank) valued at the market value of shares held;
- Black Economic Empowerment (BEE) arrangements in South Africa valued on a discounted cash flow basis;
- Employee Share Ownership Plan (ESOP) schemes valued at the market value of excess own shares; and
- Subordinated debt and perpetual preferred callable securities valued at market value.
The majority of the Group is not valued on an MCEV basis. We believe that it is more appropriate to value the Old Mutual Group
businesses on a ‘sum of the parts’ basis, using valuation models relevant to each line of business and have provided supplementary
information to assist with such an approach.
MCEV Information
At 30 June 2014
The table below indicates the value attributable to each line of business and provides the adjusted Group MCEV, where Old Mutual Wealth
is restated to an MCEV basis.
GBPm
At At At
Notes 30 June 2014 30 June 2013 31 December 2013
Emerging Markets 3,562 3,967 3,559
Life insurance business 2,894 3,245 2,953
Asset management and other business 419 456 364
Property & Casualty 162 209 183
Banking business 87 57 59
Old Mutual Wealth A1 2,219 2,069 2,243
Old Mutual Bermuda 376 713 365
Nedbank 3,257 2,997 3,113
Institutional asset management 895 1,153 1,058
Net other business(1) 573 381 610
Adjustment for present value of BEE scheme deferred consideration 183 219 201
Adjustment for value of own shares in ESOP schemes 116 120 123
Perpetual preferred callable securities (596) (708) (582)
Subordinated debt (868) (861) (838)
Adjusted Group value 9,717 10,050 9,852
Old Mutual Wealth MCEV basis adjustments A2 356 215 310
Adjusted Group MCEV 10,073 10,265 10,162
Adjusted Group value per share (pence) 198.1 205.3 201.2
Adjusted Group MCEV per share (pence) 205.4 209.7 207.5
Number of shares in issue at the end of the financial period less treasury
shares – millions 4,905 4,896 4,897
(1)Net other business is the aggregate of other Group assets and liabilities not included elsewhere, including net inter-segment funding adjustments (except for Old Mutual
Wealth) and holding company cash. Old Mutual Wealth inter-segment funding was GBP192 million (June 2013: GBP533 million; December 2013: GBP244 million).
MCEV Information
At 30 June 2014
A1: Analysis of Old Mutual Wealth IFRS net asset value between covered and non-covered
The table below provides an analysis of IFRS net asset value between covered and non-covered business for Old Mutual Wealth.
GBPm
At At At
Old Mutual Wealth 30 June 2014 30 June 2013 31 December 2013
IFRS net asset value of covered business 2,066 1,979 2,129
IFRS net asset value of non-covered business 153 90 114
IFRS net asset value 2,219 2,069 2,243
A2: Old Mutual Wealth MCEV information
The IFRS net asset value for Old Mutual Wealth covered business is GBP2,066 million at 30 June 2014. Including the MCEV basis
adjustments of GBP356 million gives an MCEV value for Old Mutual Wealth covered business of GBP2,422 million. The differences between IFRS
net asset value and MCEV for Old Mutual Wealth are summarised below.
GBPm
At At At
Old Mutual Wealth 30 June 2014 30 June 2013 31 December 2013
Adjustments to adjusted net worth (1,463) (1,765) (1,664)
Adjustment to include long-term business on a statutory solvency basis (797) (1,006) (917)
Goodwill (674) (767) (761)
Inclusion of Group equity and debt instruments held in life funds 8 8 14
Value of in-force business 1,819 1,980 1,974
Total adjustments 356 215 310
A3: Emerging Markets MCEV information
Embedded value information continues to be relevant for Emerging Markets and we would expect it to be a central part of appraising the
valuation and performance of this business. As such we have prepared MCEV disclosures for the covered business in Emerging Markets
for the six months ended 30 June 2014 on a consistent basis to those historically presented. These can be found on the Old Mutual
website (http://www.oldmutual.com/media/reporting-centre.jsp).
We continue to assess the basis of preparation of embedded value information for Emerging Markets in view of changes in the
composition of that business and information reported by our South African peer group. We anticipate that South African peer group
reporting practices are likely to change following the introduction of the Solvency Assessment and Management (SAM) regime.
In view of changes in the mix of business, including the growth of lending, wealth management and property & casualty businesses, we
may provide additional information to assist with developing more appropriate valuations in future according to the ‘sum of the parts’
approach.
Analysis of Emerging Markets IFRS net asset value between covered and non-covered
The table below provides an analysis of IFRS net asset value between covered and non-covered business for Emerging Markets.
GBPm
At At At
Emerging Markets 30 June 2014 30 June 2013 31 December 2013
IFRS net asset value of covered business 1,237 1,353 1,212
IFRS net asset value of non-covered business 668 722 606
Adjustments to include debt (165) (199) (172)
1
Adjustments for inter-segment capital funding and minority interests 7 16 8
IFRS net asset value 1,747 1,892 1,654
(1) The minority interest adjustment relates to the Zimbabwe non-covered business in December 2013 and June 2014.
Sponsor
Merrill Lynch South Africa (Pty) Ltd
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