Wrap Text
Old Mutual plc preliminary results for the year ended 31 December 2016 - Part II
OLD MUTUAL PLC
ISIN CODE: GB00B77J0862
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
Part 3 - Financial Information
Statement of Directors' responsibilities
in respect of the preliminary announcement of the Annual Report and the financial statements
The Directors confirm that to the best of their knowledge:
- The results in this preliminary announcement have been taken from the Group's 2016 Annual Report and Accounts, which will be available on
the Company's website on 11 April 2017
- 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 Group 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.
Bruce Hemphill Ingrid Johnson
Group Chief Executive Group Finance Director
8 March 2017
Consolidated income statement
For the year ended 31 December 2016
GBPm
Year ended Year ended
31 December 31 December
2016 2015
Notes (Restated)(1)
Revenue
Gross earned premiums B2 3,868 3,589
Outward reinsurance (398) (335)
Net earned premiums 3,470 3,254
Investment return (non-banking) 8,325 3,805
Banking interest and similar income 3,906 3,320
Banking trading, investment and similar income 255 213
Fee and commission income, and income from service activities 2,636 2,536
Other income 104 79
Total revenue 18,696 13,207
Expenses
Claims and benefits (including change in insurance contract provisions) (3,682) (3,450)
Reinsurance recoveries 391 279
Net claims and benefits incurred (3,291) (3,171)
Change in investment contract liabilities (6,216) (2,203)
Credit impairment charges (272) (307)
Finance costs (128) (47)
Banking interest payable and similar expenses (2,401) (1,924)
Fee and commission expenses, and other acquisition costs (745) (765)
Change in third-party interest in consolidated funds (691) (226)
Other operating and administrative expenses (3,741) (3,385)
Total expenses (17,485) (12,028)
Share of associated undertakings' and joint ventures' profit after tax 4 59
Profit/(loss) on disposal of subsidiaries, associated undertakings and strategic investments C1(c) 1 (37)
Profit before tax 1,216 1,201
Income tax expense D1 (475) (347)
Profit from continuing operations after tax 741 854
Discontinued operations
Profit from discontinued operations after tax H1(a) 104 70
Profit after tax for the financial year 845 924
Attributable to
Equity holders of the parent 570 614
Non-controlling interests
Ordinary shares F2(a)(i) 253 291
Preferred securities F2(a)(ii) 22 19
Profit after tax for the financial year 845 924
Earnings per ordinary share
Basic earnings per share based on profit from continuing operations (pence) 10.4 11.7
Basic earnings per share based on profit from discontinued operations (pence) 1.5 1.0
Basic earnings per ordinary share (pence) C2(a) 11.9 12.7
Diluted basic earnings per share based on profit from continuing operations (pence) 10.1 11.2
Diluted basic earnings per share based on profit from discontinued operations (pence) 1.5 1.0
Diluted basic earnings per ordinary share (pence) C2(b) 11.6 12.2
Weighted average number of ordinary shares (millions) C2(a) 4,686 4,641
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation and the adjustment for the
consolidation of investment funds. Refer to notes A2 and H1 for more information.
Consolidated statement of comprehensive income
For the year ended 31 December 2016
GBPm
Year ended
Year ended 31 December
31 December 2015
Notes 2016 (Restated)(1)
Profit after tax for the financial year 845 924
Other comprehensive income for the financial year
Items that will not be reclassified subsequently to profit or loss
Fair value movements
Property revaluation 7 18
Measurement (losses)/gains on defined benefit plans (27) 20
Income tax on items that will not be reclassified subsequently to profit or loss D1(c) 8 (4)
(12) 34
Items that may be reclassified subsequently to profit or loss
Fair value movements
Net investment hedge (104) 13
Available-for-sale investments
Fair value losses (5) (7)
Recycled to profit or loss - (5)
Exchange difference recycled to profit or loss on disposal of foreign operations - (71)
Shadow accounting (7) (10)
Currency translation differences on translating foreign operations 1,904 (1,107)
Other movements (23) (28)
Income tax on items that may be reclassified subsequently to profit or loss D1(c) 8 -
1,773 (1,215)
Total other comprehensive income for the financial year from continuing operations 1,761 (1,181)
Total other comprehensive income for the financial year from discontinued operations H1(b) (3) 5
Total other comprehensive income for the financial year 1,758 (1,176)
Total comprehensive income for the financial year 2,603 (252)
Attributable to
Equity holders of the parent 1,803 (232)
Non-controlling interests
Ordinary shares 778 (39)
Preferred securities 22 19
Total comprehensive income for the financial year 2,603 (252)
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note H1 for more information.
Reconciliation of adjusted operating profit to profit after tax
For the year ended 31 December 2016
GBPm
Year ended Year ended
31 December 31 December
Notes 2016 2015
Core operations
Emerging Markets B3 619 615
Nedbank B3 799 754
Old Mutual Wealth B3 260 307
Institutional Asset Management B3 141 149
1,819 1,825
Old Mutual plc finance costs (88) (83)
Long-term investment return on excess assets 20 21
Corporate costs (60) (57)
Other net shareholder income/(expenses) (24) (43)
Adjusted operating profit before tax B3 1,667 1,663
Adjusting items C1(a) (457) (344)
Non-core operations B3 (5) (31)
Profit before tax (net of policyholder tax) 1,205 1,288
Income tax attributable to policyholder returns 144 31
Profit before tax 1,349 1,319
Total tax expense D1(a) (504) (374)
Profit from continuing operations and Institutional Asset Management after tax 845 945
Loss from discontinued operations after tax - (21)
Profit after tax for the financial year 845 924
Adjusted operating profit after tax attributable to ordinary equity holders of the parent
GBPm
Year ended Year ended
31 December 31 December
Notes 2016 2015
Adjusted operating profit before tax B3 1,667 1,663
Tax on adjusted operating profit D1(d) (398) (403)
Adjusted operating profit after tax 1,269 1,260
Non-controlling interests - ordinary shares F2(a)(iii) (319) (310)
Non-controlling interests - preferred securities F2(a)(ii) (22) (19)
Adjusted operating profit after tax attributable to ordinary equity holders of the parent B3 928 931
Adjusted weighted average number of shares (millions) C2(a) 4,773 4,813
Adjusted operating earnings per share (pence) C2(c) 19.4 19.3
Reconciliation of profit from continuing operations after tax and profit from discontinued operations after tax
GBPm
Year ended Year ended
31 December 31 December
Notes 2016 2015
Profit before tax as presented in the reconciliation of adjusted operating profit
to profit after tax 1,349 1,319
Profit before tax from discontinued operations (included in adjusted operating profit) H1(a) (133) (118)
Profit before tax in the consolidated income statement 1,216 1,201
Total tax expense as presented in the reconciliation of
adjusted operating profit to profit after tax (504) (374)
Less income tax expense from discontinued operations (included in adjusted operating profit) H1(a) 29 27
Income tax expense D1(a) (475) (347)
Profit from continuing operations after tax 741 854
Loss from discontinued operations after tax as presented in the reconciliation of adjusted
operating profit to profit after tax - (21)
Profit from discontinued operations after tax included in reconciliation of adjusted
operating profit to profit after tax H1(a) 104 91
Profit from discontinued operations after tax 104 70
Basis of preparation of adjusted operating profit
Purpose of AOP
Adjusted operating profit (AOP) is an Alternative Profit Measure used alongside basic IFRS profit to assess underlying business performance. It is a
non-IFRS measure of profitability that reflects the Directors' view of the underlying long-term performance of the Group. The calculation of AOP
adjusts basic IFRS profit for a number of items as detailed in note C1.
AOP is one of the bases by which operational performance is monitored and managed, similarly it is one of a range of measures by which
management performance is assessed. Further detail of the performance measures applied in determining management remuneration is available
in the remuneration report of the 2016 Annual Report and Accounts.
The adjusting items applied in calculating AOP seek to remove the impact of strategic activities; short term valuation movements; IFRS accounting
treatments that are not reflective of the operating activity; and non-operating items. Due to the long-term nature of the majority of the Group's
business, management believes that AOP is an appropriate alternative basis by which to assess the underlying operating results of these
businesses and the Group as a whole and that it enhances the comparability and understanding of the financial performance of the Group.
The Group Audit Committee regularly reviews the use of determining AOP to confirm that it remains an appropriate basis on which to analyse the
operating performance of the businesses. The Committee assesses refinements to the policy on a case by case basis, however where possible the
Group seeks to minimise such changes in order to maintain consistency over time.
Scope of businesses included in AOP
AOP excludes the results of non-core operations, Old Mutual Bermuda, as these are not reflective of the underlying long-term operating
performance of the Group. Refer to note B1 for further information on the basis of segmentation.
For the year ended 31 December 2016, the results of operating segments that were classified as held for sale and discontinued operations for IFRS
reporting have been included in the determination of AOP. This is a change in the AOP policy compared to policy applied in respect of previously
disposed operating segments, such as US Life during 2010 and Nordic during 2011. As a result, the results of OMAM have been included in AOP.
In the context of the current strategy, the Directors believe the inclusion of these results will assist with the comparability of year on year
performance of the core operations as the Group implements its Managed Separation strategy.
Adjustments to profit
For all core businesses AOP includes a number of adjustments intended to remove the impact of strategic activities. These include the exclusion of
the impairment of goodwill, the impact of accounting for intangible assets acquired in a business combination, costs related to completed
acquisitions, and the profit or loss on disposal of subsidiaries (note C1(b) and C1(c)). The definition of adjusting items was refined during 2016 to
exclude the impairment of investments in associated undertakings (note C1(b)). Management is of the opinion that these impairments of strategic
investments are not reflective of the long-term underlying operating performance of the Group.
AOP is based on a long-term shareholder investment return core for the life assurance and property & casualty businesses, which eliminates the
short- term volatility movements in the value of shareholder assets (note C1(d)). Other short-term valuation movements excluded from AOP include
fair value profits or losses on Group debt instruments (note C1(h)) and the revaluations of put options related to long-term incentive schemes (note C1(g)).
The impacts of accounting treatments that are not reflective of the underlying operating performance of the business are excluded from the
determination of AOP. These adjustments relate to the inclusion of dividends declared to holders of perpetual preferred callable securities (note
C1(f)); and the inclusion of returns on investments held by life funds in Group equity and debt instruments (note C1(e)).
Costs related to the development of the new Old Mutual Wealth platform capability and outsourcing of UK business administration are excluded
from AOP as management is of the view that this long-term investment in operational capability is a non-operating item (note C1(i)).
Adjusted Operating Profit per share
Adjusted operating earnings applied in the calculation of adjusted operating earnings per share is calculated based on AOP after tax and non-
controlling interests. It adjusts to exclude 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 2016
GBPm
At
At 31 December
31 December 2015
Notes 2016 (Restated)(1)
Assets
Goodwill and other intangible assets F1 2,471 3,276
Mandatory reserve deposits with central banks 1,111 716
Property, plant and equipment 892 700
Investment property 1,697 1,233
Deferred tax assets 96 284
Investments in associated undertakings and joint ventures 542 514
Deferred acquisition costs 756 784
Reinsurers' share of policyholder liabilities 3,115 2,661
Loans and advances E1 43,108 30,965
Investments and securities 100,533 84,019
Current tax receivable 74 88
Trade, other receivables and other assets 2,416 1,947
Derivative financial instruments 1,340 3,076
Cash and cash equivalents 4,847 4,411
Assets held for sale H2 8,570 123
Total assets 171,568 134,797
Liabilities
Long-term business insurance policyholder liabilities 9,982 7,714
Investment contract liabilities 77,599 67,854
Property & casualty liabilities 482 341
Third-party interests in consolidated funds 7,981 5,948
Borrowed funds E2 4,694 3,524
Provisions and accruals 160 199
Deferred revenue 290 274
Deferred tax liabilities 440 417
Current tax payable 144 186
Trade, other payables and other liabilities 5,112 3,749
Amounts owed to bank depositors 45,309 32,328
Derivative financial instruments 1,161 3,317
Liabilities held for sale H2 7,046 12
Total liabilities 160,400 125,863
Net assets 11,168 8,934
Shareholders' equity
Equity attributable to equity holders of the parent 8,054 6,680
Non-controlling interests
Ordinary shares F2(b)(i) 2,773 1,982
Preferred securities F2(b)(ii) 341 272
Total non-controlling interests 3,114 2,254
Total equity 11,168 8,934
Consolidated statement of cash flows
For the year ended 31 December 2016
GBPm
Year ended
Year ended 31 December
31 December 2015
Note 2016 (Restated)(1)
Cash flows from operating activities
Profit before tax 1,216 1,201
Non-cash movements in profit before tax 3,620 4,157
Net changes in working capital 416 695
Taxation paid (468) (389)
Net cash inflow from operating activities - continuing operations 4,784 5,664
Cash flows from investing activities
Net acquisitions of financial investments (4,374) (5,006)
Acquisition of investment properties (83) (146)
Proceeds from disposal of investment properties 8 41
Dividends received from associated undertakings 9 2
Acquisition of property, plant and equipment (119) (142)
Proceeds from disposal of property, plant and equipment 6 7
Acquisition of intangible assets (141) (102)
Acquisition of interests in subsidiaries, associated undertakings
joint ventures and strategic investments(2) (121) (796)
Disposal of a non-controlling interest in OM Asset Management plc 165 163
Proceeds from the disposal of interests in subsidiaries, associated
undertakings joint ventures and strategic investments 29 88
Net cash outflow from investing activities - continuing operations (4,621) (5,891)
Cash flows from financing activities
Dividends paid to
Ordinary equity holders of the Company (426) (422)
Non-controlling interests and preferred security interests (178) (183)
Interest paid (excluding banking interest paid) (69) (51)
Proceeds from issue of ordinary shares (including by subsidiaries to non-controlling interests) 2 2
Net acquisition of treasury shares - ordinary shares (33) (19)
Sale of shares held by BEE trusts - 175
Proceeds from issue of preferred equity 95 -
Acquisition of treasury shares - preferred equity (26) -
Proceeds from issue of subordinated and other debt 809 1,595
Subordinated and other debt repaid (492) (750)
Net cash (outflow)/inflow from financing activities - continuing operations (318) 347
Net (decrease)/increase in cash and cash equivalents - continuing operations (155) 120
Net increase/(decrease) in cash and cash equivalents - discontinued operations H1(c) 45 (13)
Effects of exchange rate changes on cash and cash equivalents 1,018 (746)
Cash and cash equivalents at beginning of the year 5,147 5,786
Cash and cash equivalents at end of the year 6,055 5,147
Consisting of
Cash and cash equivalents 4,847 4,411
Mandatory reserve deposits with central banks 1,111 716
Cash and cash equivalents included in assets held for sale 97 20
Total 6,055 5,147
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation and the adjustment for the
consolidation of investment funds. Refer to notes A2 and H1 for more information.
(2) Of the Acquisition of interests in subsidiaries, associated undertakings, joint ventures and strategic investments, GBP9 million relates to the acquisition of subsidiaries
as described in note H2 except for the acquisition of Landmark Partners, GBP167m, which is included within Net increase in cash and cash equivalents - discontinued
operations. The GBP9 million is calculated net of cash acquired. The remainder, GBP112 million, relates to the acquisition of associated undertakings, joint ventures and
strategic investments.
Cash and cash equivalents in the cash flow statement above include mandatory reserve deposits, in line with market practice in South Africa.
Except for mandatory reserve deposits with central banks of GBP1,111 million (December 2015: GBP716 million) and cash and cash equivalents subject
to consolidation of funds of GBP976 million (December 2015: GBP1,534 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.
Consolidated statement of changes in equity
For the year ended 31 December 2016
Millions
Number of
shares Available-
issued and Share Share Merger for-sale
Year months ended 31 December 2016 Note fully paid capital premium reserve reserve
Shareholders' equity at beginning of the year 4,929 563 1,040 1,252 40
Total comprehensive income for the financial year
Profit after tax for the financial year - - - - -
Other comprehensive income
Items that will not be reclassified subsequently to
profit or loss
Fair value gains/(losses)
Property revaluation - - - - -
Measurement loss on defined benefit plans - - - - -
Income tax on items that will not be reclassified
subsequently to profit or loss - - - - -
- - - - -
Items that may be reclassified subsequently to profit
or loss
Fair value gains/(losses)
Net investment hedge - - - - -
Available-for-sale investments
Fair value (losses)/gains(1) - - - - (5)
Recycled to profit or loss - - - - -
Shadow accounting - - - - -
Currency translation differences on translating foreign
operations(1) - - - - -
Other movements - - - - 1
Income tax on items that may be reclassified
subsequently to profit or loss - - - - 2
Total comprehensive income for the financial year - - - - (2)
Transactions with the owners of the Company
Contributions and distributions
Dividends for the year C3 - - - - -
Tax relief on dividends paid - - - - -
Equity share-based payment transactions - - - - -
OM Asset Management plc shares buyback - - - - -
Additional tier 1 capital instruments issued(3) - - - - -
Preferred securities repurchased(4) - - - - -
Other movements in share capital 1 - 2 - -
Total contributions and distributions 1 - 2 - -
Changes in ownership
Share of movement in associate reserves - - - - -
Acquisition of shareholding in Banco Unico, SA - - - - -
Disposal of a non-controlling interest in
OM Asset Management plc - - - - -
Change in participation in subsidiaries - - - - -
Total changes in ownership - - - - -
Total transactions with the owners of the Company 1 - 2 - -
Shareholders' equity at end of the year 4,930 563 1,042 1,252 38
(1) Included in other reserves is a gain of GBP1 million relating to Economic Transactional Bank (ETI) available-for-sale reserve.
(2) Retained earnings were reduced in respect of own shares held in policyholder's funds, ESOP trusts, Black Economic Empowerment trusts and other undertakings at
31 December 2016 by GBP305 million. (2015: GBP243 million).
(3) On 20 May 2016, Nedbank issued a R1,500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month JIBAR + 7.0% with a call date of
21 May 2021. On 25 November 2016, Nedbank issued a R500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month JIBAR + 6.3%
with a call date of 26 November 2021. In line with regulations and subject to regulatory approval, these instruments are callable only at the option of the issuer on
21 May 2021 and any interest payment date thereafter.
(4) During the year, preference shares with a carrying value of GBP26 million were purchased by a subsidiary of Nedbank and were classified as treasury shares.
Foreign Perpetual Total
Property Share-based currency preferred Attributable to non-
revaluation payments Other translation Retained callable equity holders controlling Total
reserve reserve reserves(1) reserve earnings(2) securities of the parent interests equity
184 367 30 (2,243) 5,174 273 6,680 2,254 8,934
- - - - 556 14 570 275 845
7 - - - (1) - 6 1 7
- - - - (18) - (18) (9) (27)
- - - - 5 - 5 3 8
7 - - - (14) - (7) (5) (12)
- - - (104) - - (104) - (104)
- - - - 2 - (3) (2) (5)
- - - - - - - - -
(7) - - - - - (7) - (7)
- - - 1,365 - - 1,365 536 1,901
(2) - (12) - (4) - (17) (6) (23)
- 4 - - - - 6 2 8
(2) 4 (12) 1,261 540 14 1,803 800 2,603
- - - - (426) (17) (443) (171) (614)
- - - - - 3 3 - 3
- 38 - - (4) - 34 5 39
- - - - (8) - (8) (3) (11)
- - - - - - - 95 95
- - - - - - - (26) (26)
- - - - (35) - (33) - (33)
- 38 - - (473) (14) (447) (100) (547)
- - (1) - - - (1) - (1)
- - - (1) (6) - (7) 7 -
- - - (25) 38 - 13 153 166
- - - - 13 - 13 - 13
- - (1) (26) 45 - 18 160 178
- 38 (1) (26) (428) (14) (429) 60 (369)
182 409 17 (1,008) 5,286 273 8,054 3,114 11,168
Consolidated statement of changes in equity
For the year ended 31 December 2016
Millions
Number of
shares Available-
issued and Share Share Merger for-sale
Year ended 31 December 2015 Notes fully paid capital premium reserve reserve
Shareholders' equity at beginning of the year 4,907 561 856 1,342 48
Total comprehensive income for the financial year
Profit after tax for the financial year - - - - -
Other comprehensive income
Items that will not be reclassified subsequently to
profit or loss
Fair value gains
Property revaluation - - - - -
Measurement gains on defined benefit plans - - - - -
Income tax on items that will not be reclassified
subsequently to profit or loss D1(c) - - - - -
- - - - -
Items that may be reclassified subsequently to profit
or loss
Fair value gains/(losses)
Net investment hedge - - - - -
Available-for-sale investments
Fair value gains - - - - -
Recycled to profit or loss - - - - (5)
Exchange differences recycled to profit or loss
on disposal of business - - - - -
Shadow accounting - - - - -
Currency translation differences on translating foreign
operations - - - - -
Other movements - - - - (3)
Total comprehensive income for the financial year - - - - (8)
Transactions with the owners of the Company
Contributions and distributions
Dividends for the year C3 - - - - -
Tax relief on dividends paid - - - - -
Equity share-based payment transactions - - - - -
Proceeds from BEE transactions - - 141 - -
Merger reserve released - - - (90) -
Preferred securities repurchased - - - - -
Other movements in share capital 3 - 3 - -
Total contributions and distributions 3 - 144 (90) -
Changes in ownership
Shares issued for the acquisition of Quilter Cheviott 19 2 40 - -
Share in movement in associate reserve - - - - -
Disposal of a non-controlling interest in
OM Asset Management plc - - - - -
Non-controlling interests in subsidiaries acquired - - - - -
Change in participation in subsidiaries - - - - -
Total changes in ownership 19 2 40 - -
Total transactions with owners of the Company 22 2 184 (90) -
Shareholders' equity at end of the year 4,929 563 1,040 1,252 40
GBPm
Foreign Perpetual Total
Property Share-based currency 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
178 337 37 (1,370) 4,891 526 7,406 2,139 9,545
- - - - 590 24 614 310 924
18 - - - (5) - 13 5 18
- - - - 13 - 13 7 20
(3) - - - (1) - (4) - (4)
15 - - - 7 - 22 12 34
- - - 13 - - 13 - 13
- - (7) - 3 - (4) (3) (7)
- - - - - - (5) - (5)
- - - (71) - - (71) - (71)
(10) - - - - - (10) - (10)
- - - (780) - - (780) (326) (1,106)
1 - (3) - (6) - (11) (13) (24)
6 - (10) (838) 594 24 (232) (20) (252)
- - - - (422) (30) (452) (160) (612)
- - - - - 6 6 - 6
- 30 - - 5 - 35 4 39
- - - - 34 - 175 - 175
- - - - 90 - - - -
- - - - (11) (253) (264) - (264)
- - - - (19) - (16) - (16)
- 30 - - (323) (277) (516) (156) (672)
- - - - (42) - - - -
- - 3 - - - 3 - 3
- - - (35) 84 - 49 114 163
- - - - - - - 105 105
- - - - (30) - (30) 72 42
- - 3 (35) 12 - 22 291 313
- 30 3 (35) (311) (277) (494) 135 (359)
184 367 30 (2,243) 5,174 273 6,680 2,254 8,934
Notes to the consolidated financial statements
For the year ended 31 December 2016
A: Significant accounting policies
A1: Basis of preparation
Old Mutual plc ('the Company' or 'plc') is a company incorporated in England and Wales and is the ultimate Parent Company of the Group
companies. Plc Head Office collectively refers to the plc Parent Company and the other centre companies of the Group, which typically own and
manage the Group's interests across the Group.
The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU), and those parts of the
Companies Act 2006 applicable to those reporting under IFRS. The accounting policies adopted by the Group, unless otherwise stated, have been
applied consistently with those applied in the preparation of the Group's 2015 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 profit or loss, 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 carrying amount
prior to disposal 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 2016 and
31 December 2015 within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the financial year ended 31 December
2015 have been reported on by the Company's auditor and delivered to the Registrar of Companies. The statutory accounts for the financial year
ended 31 December 2016 will be delivered in due course. The report of the auditor for the financial year ended 31 December 2015 was (i)
unqualified, (ii) did not include a reference to any matters to which the auditor 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 profit or loss. Cumulative translation gains and losses up to 1 January 2004 were reset to zero.
The exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to pounds sterling are:
Year ended Year ended
31 December 2016 31 December 2015
Statement of Statement of
Income financial Income financial
statement position statement position
(average rate) (closing rate) (average rate) (closing rate)
Rand 19.9305 16.9551 19.5223 22.8183
US dollars 1.3558 1.2345 1.5285 1.4734
Euro 1.2251 1.1705 1.3765 1.3560
A2: Significant corporate activity and business changes during the year
Acquisitions completed during the year
The Group completed the following significant acquisitions during the year:
Acquisition of a further stake in Banco Unico, SA
On 3 October 2016 the Group acquired a 10.9% share in Banco Unico, SA to reach a controlling 50% plus one share (2015: 38.3% share). The
acquiree is a banking entity in Mozambique and the acquisition, in line with the Group's strategy of expanding into the rest of Africa, was made by
purchasing Banco Unico, SA shares from a third party.
The accounting related to the step up in ownership from 38.3% to 50% plus one share is such that it effectively requires a simultaneous sale of
38.3% followed by an acquisition of the fair value of 50% plus one share of the business. Consequently a loss of GBP11 million, comprising a loss on
step up acquisition and a release of foreign currency translation reserves, was realised on the transaction. Consistent with usual practice, this loss
was recognised in the IFRS income statement but excluded from the determination of AOP. The financial results and position of Banco Unico, SA
have been consolidated with effect from 3 October 2016.
The purchase price allocation has been completed and goodwill of GBP1 million and other intangible assets of GBP8 million have been recognised on this transaction.
Acquisition of Landmark Partners (Landmark)
On 18 August 2016, OM Asset Management plc (OMAM) completed the acquisition of a 60% equity interest in Landmark, a leading global
secondary private equity, real estate and real asset investment firm for $242 million (GBP185 million) in cash with the potential for an additional
payment of up to $225 million (GBP182 million) on or around 31 December 2018. As the potential additional payment is dependent on future service
and other conditions, no amounts have been attributed to the consideration of the business. Certain key members of the management team of
Landmark have retained the remaining 40% interest in the business as ownership units. Both the potential additional payment and the 40%
ownership units held by management are recognised as share-based payment transactions due to service conditions and settlement features.
These arrangements vest over varying increments from 31 December 2018 through 31 December 2024.
Goodwill of GBP111 million and other intangible assets of GBP63 million were recognised as a result of the transaction. Refer to note H2 for more
information.
Acquisition of AAM Advisory (AAM)
On 16 March 2016, Old Mutual Wealth completed the acquisition of 100% of AAM, a Singapore based wealth advice company. The consideration
payable was an initial SGD 14 million (GBP7 million) with additional potential deferred consideration of SGD 26 million (GBP13 million), which is subject to
AAM meeting certain performance targets for the period from 2016 to 2018.
Goodwill of GBP4 million and other intangible assets of GBP3 million were recognised as a result of the transaction.
Old Mutual Private Client Advisors (PCA)
During the second half of 2016, Old Mutual Wealth (OMW) completed the acquisition of a number of PCA businesses. The total consideration
payable was an initial GBP8 million with additional potential deferred consideration of GBP8 million, dependent upon meeting certain performance targets,
generally relating to funds under management. Goodwill of GBP8 million and other intangible assets of GBP7 million were recognised as a result of the transactions.
Purchase of remaining stake in Credit Guarantee Insurance Company (CGIC)
On 1 March 2016, Emerging Markets acquired the remaining 13.9% of the shares in CGIC for R190 million (GBP10 million) resulting in CGIC becoming
a wholly owned subsidiary. This transaction has resulted in a debit being directly recognised in reserves of R78 million (GBP4 million), which is the
excess of the consideration paid and the proportionate share of the net assets of CGIC acquired.
During the third quarter of 2016, Emerging Markets accepted an offer from Atradius N.V. to dispose of 25% of CGIC for R494 million (GBP28 million).
The transaction is subject to due diligence and regulatory approval and is expected to be finalised during 2017. The Group expects to recognise a
gain on disposal of approximately R289 million (GBP15 million) directly in equity on completion of the sale of this minority stake.
Other activities during the year
The following two transactions are between Group entities and therefore it has no net impact on the Group financial statements:
Purchase of seed capital investments from Old Mutual plc
On 15 September 2016, OM Asset Management plc (OMAM) purchased approximately $40 million (GBP32 million) of seed investments from Old
Mutual plc under the terms of the Seed Capital Management Agreement, as amended. OMAM intends to purchase all remaining seed capital
investments covered by the Seed Capital Management Agreement around 30 June 2017
Amendment of the OMAM Deferred Tax Asset Deed (DTA)
On 13 June 2016, OMAM and OM Group (UK) Limited (OMGUK) entered into a Heads of Agreement amending the DTA to provide that the
obligations of OMAM to make future payments to OMGUK under the DTA, which were originally scheduled to continue until 31 January 2020, would
be amended as of 31 December 2016 resulting in a payment of the net present value of the future payments due to OMGUK valued as of 31
December 2016. This payment equals approximately $143 million (GBP115 million) and will be made over three instalments on each of 30 June 2017,
31 December 2017 and 30 June 2018. The agreement contains certain provisions allowing OMAM to claw back amounts paid in the event that
deferred tax assets recognised by OMAM are not recovered by the OMAM business. These claw back arrangements create a potential commitment
from OMGUK to OMAM which extends beyond the period of managed separation.
Disposals completed during the year
OM Asset Management plc share buyback and secondary public offering
On 19 December 2016, the Group announced the closing of the secondary public offering of 14.95 million of OM Asset Management plc (OMAM) at
a price to the public of $14.25 per share.
Additionally, on 19 December 2016, OMAM repurchased 6 million ordinary shares directly from OM Group (UK) Limited (a wholly owned subsidiary
of Old Mutual plc), at a price of $14.25 per share.
The Group realised $291 million (GBP235 million) gross proceeds, less the underwriting discount from these transactions. A profit of GBP13 million was
recognised directly in equity, reflecting the excess of the consideration over the share of net assets disposed. Foreign currency translation reserves
of GBP25 million were recognised directly in equity and additional non-controlling interest of GBP153 million was recognised in the statement of financial position.
Following the sale, the Group now owns 51.7% of OMAM. OMAM did not sell any shares in the offering and did not receive any proceeds from the offering.
Disposal of Rogge Global Partners Limited
On 31 May 2016, the Group completed the sale of its interest in Rogge Global Partners Limited (Rogge), a fixed income asset manager, to Allianz
Global Investors GmbH. The sales proceeds received are subject to adjustment as amounts could either be clawed back or future amounts become
payable based on Rogge's future performance. Final adjustments to the sales proceeds are expected to be resolved during Q4 2017. A profit on
disposal of GBP10 million has been recognised, which reflects the Directors' current assessment of the likely final amount recoverable.
Disposals announced but not completed during the year
Disposal of Old Mutual Wealth Italy
On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy, part of the Old Mutual Wealth business for a cash consideration
of EUR278 million (GBP210 million net of costs) plus interest to completion.
For the year ended 31 December 2016, a goodwill impairment loss of GBP46 million has been recognised in profit or loss as the net asset value of the
business disposed of exceeds the expected net proceeds. The related assets and liabilities were classified as held for sale at 31 December 2016.
Refer to note H1 for further information.
Financing activities completed during the year
Nedbank
On 20 May 2016, Nedbank Limited issued a R1,500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3 month JIBAR +
7.0% with a call date of 21 May 2021.
On 25 November 2016, Nedbank Limited issued a R500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3 month JIBAR
+ 6.3% with a call date of 26 November 2021.
These additional Tier 1 capital instruments represent perpetual, subordinated instruments, with no redemption date. The instruments are
redeemable subject to regulatory approval at the sole discretion of the issuer, Nedbank Limited from the applicable call date and following a
regulatory event or following a tax event. The payment of interest is at the discretion of the issuer and interest payments are non-cumulative. In
addition, if certain conditions are reached the regulator may prohibit Nedbank from making interest payments. Accordingly the instruments are
classified as equity instruments and disclosed as non-controlling interest.
Nedbank further issued and redeemed debt instruments in the normal course of its funding program. Refer to note E2 for further information.
Financing activities announced but not yet completed
Old Mutual plc
On 3 February 2017, the Group repurchased all of the GBP273 million Tier 1 preferred perpetual callable securities and paid cash from the Groups'
existing resources. A GBP29 million loss, including accrued interest and the costs of acquiring the instruments, will be recognised directly in equity in
the 2017 financial statements.
Restatement of prior year comparative amounts
Overview
In preparing the Group financial statements for the year ended 31 December 2016, the 2015 financial statements have required adjustments for:
- The classification of the Institutional Asset Management (IAM) operating segment as a discontinued operation, and
- The identification of additional investment funds managed by Emerging Markets as being controlled by the Group.
These adjustments, in aggregate and individually, result in presentational changes to the financial statements, and neither of these adjustments
affects the reported IFRS or AOP results or equity attributable to equity holders of the parent.
IAM classified as a discontinued operation in 2016 (IAM - discontinued operation)
For the year ended 31 December 2016, IAM has been classified as discontinued operation in the IFRS consolidated income statement and
consolidated statement of cash flows, with comparative figures being restated. The assets and liabilities of IAM are classified as held for sale in the
consolidated statement of financial position in the current year. This treatment is consistent with the requirements of IFRS, given the Group's stated
strategic intentions and has been presented in accordance with the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued
Operations'. Refer to note H1 for further information.
Consolidation of additional OMEM investment funds (Consol - Investment Funds)
During 2016, the Group has re-evaluated the criteria applied in determining whether investment funds should be consolidated under IFRS 10
'Consolidated Financial Statements' in the Group financial statements. This has resulted in the identification of additional investments funds that are
required to be included in the consolidated financial statements. As a result, comparative information has been restated accordingly. The Group has
not been able to determine the impact on the consolidated statement of financial position as at 1 January 2015 because the business has
subsequently implemented an Investment Repository which has enabled the Group as at 31 December 2015 to identify more widely the investment
funds that IFRS 10 regards as controlled. The prior year adjustment did not impact the net assets of the Group, the equity attributable to ordinary
equity holders of the parent or any key performance indicators reported by the Group. If the Group were able to determine the impact on the
consolidated statement of financial position at 1 January 2015, the material line items that would have been impacted are investments and
securities, cash and cash equivalents and third party interest in consolidated funds. The impact on the income statement for 2015 has been
obtained from the financial information available for the investment funds consolidated as at 31 December 2015. The income statement effect of
any additional investment funds that have not been identified as at 1 January 2015 is likely to be immaterial.
Summary impact
The following table summarises the restatement impact, for both the classification of IAM as a discontinued operation and the identification of
additional entities to be consolidated on the Group's financial statements:
GBPm
Restatement
IAM - Consol -
2015 Discontinued Investment 2015
As Reported Operations Funds As Restated
Statement of financial position
Assets
Investments and securities 82,601 - 1,418 84,019
Trade, other receivables and other assets 2,007 - (60) 1,947
Cash and cash equivalents 4,520 - (109) 4,411
Total assets 133,548 - 1,249 134,797
Liabilities
Third-party interests in consolidated funds 4,661 - 1,287 5,948
Trade, other payables and other liabilities 3,787 - (38) 3,749
Total liabilities 124,614 - 1,249 125,863
Income statement
Revenue
Investment Return (non-banking) 3,795 2 8 3,805
Fee and commission income, and income from service activities 3,027 (491) - 2,536
Other income 86 (8) 1 79
Total revenue 13,695 (497) 9 13,207
Expenses
Fee and commission expenses, and other acquisition costs (786) 6 15 (765)
Change in third-party interest in consolidated funds (208) - (18) (226)
Finance cost (49) 2 - (47)
Other operating and administrative expenses (3,759) 380 (6) (3,385)
Total expenses (12,407) 388 (9) (12,028)
Share of associated undertakings profit after tax 67 (8) - 59
Profit on disposal of subs, associates and strategic investments (36) (1) - (37)
Profit before tax 1,319 (118) - 1,201
Income tax expense (374) 27 - (347)
Profit from continuing operations after tax 945 (91) - 854
(Loss)/profit from discontinued operations after tax (21) 91 - 70
Statement of cash flows
Net cash inflow from operating activities - continuing operations 5,690 (48) 22 5,664
Net cash outflow from investing activities - continuing operations (5,757) (3) (131) (5,891)
Net cash inflow from financing activities - continuing operations 283 64 - 347
Net increase in cash and cash equivalents - discontinued operations - (13) - (13)
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. This requires assumptions and predictions of future events and actions. There have been no significant
methodology changes to the critical accounting estimates and judgements that the Group applied at 31 December 2015.
B: Segment information
B1: Basis of segmentation
Segment presentation
The Group's reported segments are Emerging Markets, Nedbank Old Mutual Wealth, Institutional Asset Management and plc Head Office, (which
includes the plc Parent Company and the other centre companies of the Group, which typically own and manage the Group's interests). All these
businesses, except Institutional Asset Management (IAM), have been classified as continuing operations in the IFRS income statement for all
reporting periods. In determining the Group's adjusted operating profit (AOP), all these businesses have been classified as core operations for all
reporting periods.
For the year ended 31 December 2016, Institutional Asset Management has been classified as discontinued operation in the IFRS consolidated
income statement. Comparative profit and loss segment information has been restated accordingly. This treatment is consistent with the
requirements of IFRS, given the Group's stated strategic intentions. The operating result of IAM includes Rogge Global Partners Limited up to the
date of disposal on 31 May 2016 and the full year result of OM Asset Management plc (OMAM). Consistent with the Group's AOP policy as
described in the Basis of preparation of adjusted operating profit on page 71, we will continued to recognise OMAM's operating result within the
Group's AOP despite it being classified as a discontinued operation in the IFRS income statement and as held for sale in the statement of financial position.
For all reporting periods, Old Mutual Bermuda is classified as a continuing operation in the IFRS income statement, but as non-core in determining
the Group's AOP. For the year ended 31 December 2016, following the repayment of the majority of outstanding notes, interest payable in respect
of Bermuda loan notes issued to Old Mutual plc are also included within non-core operations and excluded from AOP as it is no longer considered
material.
For the year ended 31 December 2015, other items disclosed as discontinued operations relate to payments in respect of the disposal of US Life in
2011. Further detail is included in note H1.
The Group's segmental results are analysed and reported on a basis consistent with the way that management and the Board of Directors of Old Mutual
plc assesses performance of the underlying businesses and allocates resources. Information is presented to the Board on a consolidated basis in pounds
sterling (the presentation currency) and in the functional currency of each business.
Adjusted operating profit 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 the performance of the segments. As appropriate to the business line, the Board reviews additional
measures to assess the performance of each of the segments. These typically include sales, net client cash flows, funds under management, gross
earned premiums, underwriting results, net interest income, non-interest revenue and credit losses.
Consistent with internal reporting, assets, liabilities, revenues and expenses that are not directly attributable to a particular segment are allocated
between segments where appropriate and where there is a reasonable basis for doing so. The Group accounts for inter-segment revenues and
transfers as if the transactions were with third parties at current market prices.
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 or loss and the assets and liabilities for each operating segment as provided to management
and the Board of Directors. There are no differences between the measurement of the assets and liabilities reflected in the primary statements and that
reported for the segments.
The Group is primarily engaged in the following business activities from which it generates revenue: life assurance (premium income), asset
management business (fee and commission income), banking (banking interest receivable and investment banking income) and property &
casualty (premium income). Other revenue includes gains and losses on investment securities. An analysis of segment revenues and expenses and
the Group's revenues and expenses is shown in note B3.
The principal lines of business from which each operating segment derives its revenues are as follows:
Core operations
Emerging Markets - life assurance, property & casualty, asset management and banking
Nedbank - banking, asset management and life assurance
Old Mutual Wealth - life assurance and asset management
Institutional Asset Management - asset management
Non-core operation
Old Mutual Bermuda - life assurance
B2: Gross earned premiums and deposits to investment contracts
GBPm
Emerging Old Mutual
Year ended 31 December 2016 Markets Wealth Total
Life assurance - insurance contracts 1,393 142 1,535
Life assurance - investment contracts with discretionary
participation features 1,525 - 1,525
Property & casualty 808 - 808
Gross earned premiums 3,726 142 3,868
Life assurance - unit-linked and similar contracts and other investment
contracts recognised as deposits 1,656 7,952 9,608
GBPm
Emerging Old Mutual
Year ended 31 December 2015 Markets Wealth Total
Life assurance - insurance contracts 1,469 154 1,623
Life assurance - investment contracts with discretionary
participation features 1,221 - 1,221
Property & casualty 745 - 745
Gross earned premiums 3,435 154 3,589
Life assurance - unit-linked and similar contracts and other investment
contracts recognised as deposits 2,020 7,988 10,008
B3: Adjusted operating profit statement - segment information for the year ended 31 December 2016
Emerging
Notes Markets Nedbank
Revenue
Gross earned premiums B2 3,726 -
Outward reinsurance (314) -
Net earned premiums 3,412 -
Investment return (non-banking) 1,814 -
Banking interest and similar income 229 3,677
Banking trading, investment and similar income 14 241
Fee and commission income, and income from service activities 588 922
Other income 64 24
Total revenue(3) 6,121 4,864
Expenses
Claims and benefits (including change in insurance contract provisions) (3,507) -
Reinsurance recoveries 222 -
Net claims and benefits incurred (3,285) -
Change in investment contract liabilities (545) -
Credit impairment charges (44) (228)
Finance costs (33) -
Banking interest payable and similar expenses (90) (2,311)
Fee and commission expenses, and other acquisition costs (350) (8)
Change in third-party interest in consolidated funds - -
Other operating and administrative expenses (1,115) (1,512)
Income tax attributable to policyholder returns (50) -
Total expenses (5,512) (4,059)
Share of associated undertakings' and joint ventures' profits/(losses) after tax 10 (6)
Profit on disposal of subsidiaries, associated undertakings and strategic
investments C1(c) - -
Adjusted operating profit/(loss) before tax and non-controlling interests 619 799
Income tax expense D1 (165) (199)
Non-controlling interests (17) (288)
Adjusted operating profit/(loss) after tax and non-controlling interests 437 312
Adjusting items after tax and non-controlling interests C1(a) (93) (30)
Profit/(loss) after tax from continuing operations 344 282
Profit from discontinued operations after tax H1 - -
Profit/(loss) after tax attributable to equity holders of the parent 344 282
(1) The plc Head Office segment includes the Old Mutual plc holding company and other centre companies.
(2) Consolidation adjustments comprise the consolidation of investment funds and eliminations of inter-segment transactions.
(3) Included within total revenue prior to consolidation adjustments are the following amounts derived from trading with other segments: Emerging Markets: GBP75 million
(December 2015: GBP80 million); Nedbank: GBP9 million (December 2015: GBP3 million); Old Mutual Wealth: GBP2 million (December 2015: GBP3 million); Institutional Asset
Management: GBP6 million (December 2015: GBP6 million); and non-core operations: GBP2 million (December 2015: GBP4 million).
(4) Non-core operations for the year ended 31 December 2016 comprises Old Mutual Bermuda. Old Mutual Bermuda's loss for the year ended 31 December 2016 was
GBP5 million.
(5) Discontinued operations comprise the operating result of Institutional Asset Management (IAM) of GBP104 million that has been included in the determination of AOP.
In the IFRS consolidated income statement, IAM has been classified as a discontinued operation. The discontinued operations column reflects the individual line
items in the IFRS consolidated income statement that have been reclassified to discontinued operations. Refer to note B1 and H1 for further information.
GBPm
Institutional plc Adjusted Adjusting IFRS
Old Mutual Asset Head Consolidation operating items Non-core Discontinued Income
Wealth Management Office(1) adjustments(2) profit (note C1) operations(4) perations(5) statement
142 - - - 3,868 - - - 3,868
(84) - - - (398) - - - (398)
58 - - - 3,470 - - - 3,470
5,827 - 54 712 8,407 (69) (13) - 8,325
- - - - 3,906 - - - 3,906
- - - - 255 - - - 255
1,168 500 - (25) 3,153 (17) - (500) 2,636
11 1 - 4 104 - - - 104
7,064 501 54 691 19,295 (86) (13) (500) 18,696
(199) - - - (3,706) - 24 - (3,682)
169 - - - 391 - - - 391
(30) - - - (3,315) - 24 - (3,291)
(5,671) - - - (6,216) - - - (6,216)
- - - - (272) - - - (272)
- (6) (88) - (127) (7) - 6 (128)
- - - - (2,401) - - - (2,401)
(392) (9) - (19) (778) 24 - 9 (745)
- - - (691) (691) - - - (691)
(617) (356) (118) 19 (3,699) (407) (16) 381 (3,741)
(94) - - - (144) 144 - - -
(6,804) (371) (206) (691) (17,643) (246) 8 396 (17,485)
- 11 - - 15 - - (11) 4
- - - - - 19 - (18) 1
260 141 (152) - 1,667 (313) (5) (133) 1,216
(47) (36) 49 - (398) (106) - 29 (475)
- (36) - - (341) 66 - - (275)
213 69 (103) - 928 (353) (5) (104) 466
(217) 3 (16) - (353) 353 - - -
(4) 72 (119) - 575 - (5) (104) 466
- - - - - - - 104 104
(4) 72 (119) - 575 - (5) - 570
B3: Adjusted operating profit statement - segment information for the year ended 31 December 2015 (Restated)(1)
Emerging
Notes Markets Nedbank
Revenue
Gross earned premiums B2 3,435 -
Outward reinsurance (253) -
Net earned premiums 3,182 -
Investment return (non-banking) 2,445 -
Banking interest and similar income 235 3,085
Banking trading, investment and similar income 5 208
Fee and commission income, and income from service activities 560 894
Other income 70 12
Total revenue 6,497 4,199
Expenses
Claims and benefits (including change in insurance contract provisions) (3,294) -
Reinsurance recoveries 184 -
Net claims and benefits incurred (3,110) -
Change in investment contract liabilities (1,142) -
Credit impairment charges (62) (245)
Finance costs (15) -
Banking interest payable and similar expenses (93) (1,833)
Fee and commission expenses, and other acquisition costs (323) (9)
Change in third-party interest in consolidated funds - -
Other operating and administrative expenses (1,121) (1,403)
Income tax attributable to policyholder returns (30) -
Total expenses (5,896) (3,490)
Share of associated undertakings' and joint ventures' profits/(losses) after tax #N/A 14 45
Loss on disposal of subsidiaries, associated undertakings and strategic
investments C1(c) - -
Adjusted operating profit/(loss) before tax and non-controlling interests 615 754
Income tax expense D1 (173) (180)
Non-controlling interests (24) (272)
Adjusted operating profit/(loss) after tax and non-controlling interests 418 302
Adjusting items after tax and non-controlling interests C1(a) (56) 7
Profit/(loss) after tax from continuing operations 362 309
Profit from discontinued operations after tax H1 - -
Profit/(loss) after tax attributable to equity holders of the parent 362 309
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation and the adjustment for the
consolidation of investment funds. Refer to notes A2 and H1 for more information.
(2) The plc Head Office segment includes the Old Mutual plc holding company and other centre companies.
(3) Consolidation adjustments comprise the consolidation of investment funds and eliminations of inter-segment transactions.
(4) Non-core operations relate to Old Mutual Bermuda. Old Mutual Bermuda's loss after tax for the year ended 31 December 2015 was GBP5 million.
(5) Discontinued operations include the operating result of Institutional Asset Management of GBP91 million that has been classified as discontinued in the IFRS income
statement as well as GBP21 million relating to the disposal of US Life in 2011. Refer to note H1 for further information.
GBPm
Institutional Adjusted Adjusting IFRS
Old Mutual Asset plc Consolidation operating items Non-core Discontinued Income
Wealth Management Head Office(2) adjustments(3) profit (note C1) operations(4) operations(5) statement
154 - - - 3,589 - - - 3,589
(82) - - - (335) - - - (335)
72 - - - 3,254 - - - 3,254
1,158 - 17 291 3,911 (73) (35) 2 3,805
- - - - 3,320 - - - 3,320
- - - - 213 - - - 213
1,140 491 - (39) 3,046 (19) - (491) 2,536
13 5 - (20) 80 - 7 (8) 79
2,383 496 17 232 13,824 (92) (28) (497) 13,207
(169) - - - (3,463) - 13 - (3,450)
95 - - - 279 - - - 279
(74) - - - (3,184) - 13 - (3,171)
(1,061) - - - (2,203) - - - (2,203)
- - - - (307) - - - (307)
- (2) (83) - (100) 51 - 2 (47)
- - - - (1,926) 2 - - (1,924)
(416) (6) (4) (42) (800) 32 (3) 6 (765)
- - - (226) (226) - - - (226)
(524) (347) (92) 36 (3,451) (301) (13) 380 (3,385)
(1) - - - (31) 31 - - -
(2,076) (355) (179) (232) (12,228) (185) (3) 388 (12,028)
- 8 - - 67 - - (8) 59
- - - - - (36) - (1) (37)
307 149 (162) - 1,663 (313) (31) (118) 1,201
(43) (30) 23 - (403) 29 - 27 (347)
- (33) - - (329) 19 - - (310)
264 86 (139) - 931 (265) (31) (91) 544
(222) (20) 26 - (265) 265 - - -
42 66 (113) - 666 - (31) (91) 544
- - - - - - - 70 70
42 66 (113) - 666 - (31) (21) 614
B4: Statement of financial position - segment information at 31 December 2016
Emerging
Notes Markets(1) Nedbank
Assets
Goodwill and other intangible assets F1 461 576
Mandatory reserve deposits with central banks 8 1,103
Property, plant and equipment 345 529
Investment property 1,696 1
Deferred tax assets 57 29
Investments in associated undertakings and joint ventures 143 388
Deferred acquisition costs 166 -
Reinsurers' share of policyholder liabilities 246 6
Loans and advances E1 1,210 41,703
Investments and securities 33,699 8,844
Current tax receivable 20 33
Trade, other receivables and other assets 843 966
Derivative financial instruments 228 1,040
Cash and cash equivalents 1,820 1,556
Assets held for sale H2 116 17
Inter-segment funding - assets - -
Total assets 41,058 56,791
Liabilities
Long-term business insurance policyholder liabilities 9,310 172
Investment contract liabilities 23,614 905
Property & casualty liabilities 482 -
Third-party interests in consolidated funds - -
Borrowed funds E2 694 3,072
Provisions and accruals 118 -
Deferred revenue 68 1
Deferred tax liabilities 203 39
Current tax payable 100 13
Trade, other payables and other liabilities 2,860 2,081
Amounts owed to bank depositors 643 44,915
Derivative financial instruments 295 784
Liabilities held for sale H2 1 -
Inter-segment funding - liabilities - -
Total liabilities 38,388 51,982
Net assets(1) 2,670 4,809
Equity
Equity attributable to equity holders of the parent 2,455 2,476
Non-controlling interests 215 2,333
Ordinary shares F2(b)(i) 215 1,992
Preferred securities F2(b)(ii) - 341
Total equity 2,670 4,809
(1) The net assets of Emerging Markets exclude GBP235 million (December 2015: GBP167 million) of investments held by policyholder funds in Group equity and debt
instruments. These investments are in the Company's ordinary shares and in the subordinated liabilities and preferred securities issued by Nedbank.
(2) The plc Head Office segment includes the Old Mutual plc holding company and other centre companies.
(3) Consolidation adjustments comprise the consolidation of investment funds and eliminations of inter-segment balances.
GBPm
Institutional
Old Mutual Asset plc Non-core Consolidation
Wealth Management Head Office(2) operation adjustments(3) Total
1,434 - - - - 2,471
- - - - - 1,111
18 - - - - 892
- - - - - 1,697
8 - - 2 - 96
1 - 10 - - 542
590 - - - - 756
2,863 - - - - 3,115
220 - - - (25) 43,108
50,784 - 309 53 6,844 100,533
21 - - - - 74
590 - 157 3 (143) 2,416
- - 31 27 14 1,340
769 - 611 22 69 4,847
6,478 1,959 - - - 8,570
- - 874 58 (932) -
63,776 1,959 1,992 165 5,827 171,568
416 - - 84 - 9,982
53,080 - - - - 77,599
- - - - - 482
- - - - 7,981 7,981
- - 1,017 - (89) 4,694
29 - 6 7 - 160
221 - - - - 290
193 - 5 - - 440
21 - 10 - - 144
865 - 226 6 (926) 5,112
- - - - (249) 45,309
1 - 39 - 42 1,161
6,264 781 - - - 7,046
789 85 58 - (932) -
61,879 866 1,361 97 5,827 160,400
1,897 1,093 631 68 - 11,168
1,897 527 631 68 - 8,054
- 566 - - - 3,114
- 566 - - - 2,773
- - - - - 341
1,897 1,093 631 68 - 11,168
B4: Statement of financial position - segment information at 31 December 2015 (Restated)(1)
Emerging
Notes Markets Nedbank
Assets
Goodwill and other intangible assets F1 415 378
Mandatory reserve deposits with central banks 5 711
Property, plant and equipment 275 385
Investment property 1,232 1
Deferred tax assets 47 10
Investments in associated undertakings and joint ventures 60 420
Deferred acquisition costs 87 -
Reinsurers' share of policyholder liabilities 150 4
Loans and advances E1 912 29,873
Investments and securities 24,983 5,777
Current tax receivable 14 46
Trade, other receivables and other assets 759 495
Derivative financial instruments 386 1,335
Cash and cash equivalents 1,088 1,001
Assets held for sale H2 84 -
Inter-segment funding - assets - -
Total assets 30,497 40,436
Liabilities
Long-term business insurance policyholder liabilities 7,262 159
Investment contract liabilities 16,943 482
Property & casualty liabilities 341 -
Third-party interests in consolidated funds - -
Borrowed funds E2 449 1,971
Provisions and accruals 143 -
Deferred revenue 20 -
Deferred tax liabilities 183 45
Current tax payable 73 18
Trade, other payables and other liabilities 2,006 1,036
Amounts owed to bank depositors 518 31,810
Derivative financial instruments 558 1,474
Liabilities held for sale H2 - -
Inter-segment funding - liabilities - -
Total liabilities 28,496 36,995
Net assets 2,001 3,441
Equity
Equity attributable to equity holders of the parent 1,805 1,710
Non-controlling interests 196 1,731
Ordinary shares F2(b)(i) 196 1,459
Preferred securities F2(b)(ii) - 272
Total equity 2,001 3,441
(1) The comparative information for 2015 has been restated to reflect the adjustment for the consolidation of investment funds. Refer to note A2 for more information.
(2) The plc Head Office segment includes the Old Mutual plc holding company and other centre companies.
GBPm
Institutional
Old Mutual Asset plc Non-core Consolidation
Wealth Management Head Office(2) operations adjustments Total
1,620 863 - - - 3,276
- - - - - 716
19 21 - - - 700
- - - - - 1,233
8 218 - 1 - 284
1 23 10 - - 514
673 24 - - - 784
2,507 - - - - 2,661
180 - - - - 30,965
48,157 80 467 - 4,555 84,019
28 - - - - 88
618 119 102 16 (162) 1,947
- - 55 17 1,283 3,076
792 92 527 26 885 4,411
4 35 - - - 123
- - 860 80 (940) -
54,607 1,475 2,021 140 5,621 134,797
293 - - - - 7,714
50,344 - - 85 - 67,854
- - - - - 341
- - - - 5,948 5,948
- 61 1,098 - (55) 3,524
34 3 19 - - 199
254 - - - - 274
172 - 17 - - 417
13 59 23 - - 186
799 297 212 6 (607) 3,749
- - - - - 32,328
- 6 4 - 1,275 3,317
- 12 - - - 12
748 99 93 - (940) -
52,657 537 1,466 91 5,621 125,863
1,950 938 555 49 - 8,934
1,950 611 555 49 - 6,680
- 327 - - - 2,254
- 327 - - - 1,982
- - - - - 272
1,950 938 555 49 - 8,934
C: Other key performance information
C1: Operating profit adjusting items
(a) Summary of adjusting items for determination of adjusted operating profit (AOP)
In determining the AOP of the Group for core operations, certain adjustments are made to profit before tax to reflect the Directors' view of the
underlying long-term performance of the Group. The following table shows an analysis of those adjustments from AOP to profit before and after tax.
GBPm
Year ended Year ended
31 December 31 December
Notes 2016 2015
(Expense)/income
Goodwill impairment and impact of acquisition accounting C1(b) (278) (167)
Net profit/(loss) on disposal of subsidiaries, associated undertakings and
strategic investments C1(c) 19 (36)
Short-term fluctuations in investment return C1(d) (26) (42)
Investment return adjustment for Group equity and debt instruments held in
life funds C1(e) (43) (31)
Dividends declared to holders of perpetual preferred callable securities C1(f) 17 31
Institutional Asset Management equity plans C1(g) (20) (9)
Credit-related fair value (losses)/gains on Group debt instruments C1(h) (24) 7
Old Mutual Wealth business transformation costs C1(i) (102) (97)
Total adjusting items (457) (344)
Tax on adjusting items D1(d) 38 60
Non-controlling interest on adjusting items 66 19
Total adjusting items after tax and non-controlling interests (353) (265)
(b) Goodwill impairment and impact of acquisition accounting
The application of acquisition accounting results in, deferred acquisition costs and deferred revenue existing at the point of acquisition that are not
recognised under IFRS. These are reversed on acquisition in the statement of financial position and replaced by goodwill and other intangible
assets, including the value of the acquired present value of in-force business (acquired PVIF). In determining AOP, the Group recognises deferred
revenue, acquisition costs and deferred revenue in relation to policies sold by acquired businesses prior to the acquisition date. The Group excludes
the impairment of goodwill, the impairment of investments in associated undertakings, the amortisation and impairment of acquired other intangible
assets, acquired PVIF and the movements in certain acquisition date provisions from the determination of AOP. Costs incurred on completed
acquisitions are also excluded from AOP.
Certain deferred consideration recognised as compensation expenses under accounting rules is excluded from the determination of AOP where
these payments meet the criteria that suggest they are capital in nature.
The net effect of these adjustments to determine AOP are summarised below:
GBPm
Institutional
Emerging Old Mutual Asset plc Head
Year months ended 31 December 2016 Markets Wealth Nedbank Management Office Total
Impairment of goodwill and other intangible assets (64) (46) - - - (110)
Impairment of investment in associated undertakings - - (50) - - (50)
Amortisation of acquired PVIF (4) (45) - - - (49)
Amortisation of acquired deferred costs and revenue - 8 - - - 8
Amortisation of other acquired intangible assets (14) (38) - (2) - (54)
Acquisition costs - (17) - (5) - (22)
Deferred consideration and other acquisition date
provisions 6 - - - (7) (1)
(76) (138) (50) (7) (7) (278)
GBPm
Institutional
Emerging Old Mutual Asset plc Head
Year ended 31 December 2015 Markets Wealth Nedbank Management Office Total
Impairment of goodwill and other intangible assets - - - (23) - (23)
Amortisation of acquired PVIF (7) (51) - - - (58)
Amortisation of acquired deferred costs and revenue - 13 - - - 13
Amortisation of other acquired intangible assets (13) (56) - - - (69)
Acquisition costs (4) (10) - - - (14)
Deferred consideration and other acquisition date
provisions - (16) - - - (16)
(24) (120) - (23) - (167)
The impairment of goodwill and other intangible assets and impairment of investment in associated undertakings relate to:
Emerging Markets
The goodwill impairment loss of GBP64 million relates to the Old Mutual Southern and East Africa (OMSEA) cash generating unit. Refer to note H1 in
the 2016 Annual Report and Accounts for further information.
Old Mutual Wealth
On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy. A goodwill impairment loss of GBP46 million has been recognised in
profit or loss as the net asset value of the business disposed of exceeds the expected net proceeds. Refer to note A2 for further information.
Nedbank
A GBP50 million impairment loss has been recognised in relation to Nedbank's investment in Ecobank Transinternational Incorporated, an associated
undertaking. Refer to note I2(b) in the 2016 Annual Report and Accounts for further information.
(c) Net profit/(loss) on disposal of subsidiaries, associated undertakings and strategic investments
The net profit/(loss) on disposal of subsidiaries, associated undertakings and strategic investments is analysed below:
GBPm
Year ended Year ended
31 December 31 December
Notes 2016 2015
Emerging Markets 3 15
Nedbank (12) -
Old Mutual Wealth - (52)
Old Mutual plc 10 -
Net profit/(loss) on disposal of subsidiaries, associated undertakings
and strategic investments - continuing operations 1 (37)
Net profit on disposal of subsidiaries, associated undertakings
and strategic investments - discontinued operations H1 18 1
Net profit/(loss) on disposal of subsidiaries, associated undertakings
and strategic investments 19 (36)
Emerging Markets
Current period transaction
During the year, OMEM reduced or disposed of its holdings in a number of associated undertakings resulting in a net profit on disposal of GBP3 million.
Prior period transaction
On 10 December 2015, Old Mutual Investment Group, a subsidiary of the Group, acquired an additional 50% stake in African Infrastructure
Investment Managers (Pty) Limited (AIIM). The accounting related to the step up in ownership from 50% to 100% effectively involved a
simultaneous sale of 50% of the business, followed by an acquisition of the fair value of 100% of the business. The profit of GBP15 million realised in
the financial year ended 31 December 2015 represents the difference between the fair value of the initial 50% and the carrying amount of the
investment in AIIM at 10 December 2015.
Nedbank
Current period transaction
On 3 October 2016, Nedbank acquired an additional 10.9% stake in Banco Unico, SA. The accounting related to the step up in ownership from
38.3% to 50% plus one share is such that it effectively requires a simultaneous sale of 38.3% followed by an acquisition of the fair value of 50%
plus one share of the business. Consequently a loss of GBP11 million, comprising of a loss on step up acquisition of the associate and a release of
foreign currency translation reserves, was realised on the transaction. In addition, a loss of GBP1 million was recognised on conversion of preference
shares to ordinary shares by ETI. Consistent with usual Group practice, these losses were recognised in profit or loss but excluded from the
determination of AOP.
Old Mutual Wealth
Prior period transactions
On 2 February 2015, the Group completed the sale of Skandia Luxembourg and Skandia France. For the year ended 31 December 2015, the
Group recognised a loss on disposal of GBP1 million, which comprised a loss on disposing the net assets of the sold business of GBP31 million and a gain
of GBP30 million relating to amounts recycled from foreign currency translation reserve.
On 30 September 2015, the Group completed the sale of its Switzerland business, Skandia Leben AG. For the year ended 31 December 2015, the
Group recognised a loss on disposal of GBP51 million which comprised a loss on disposing the net assets of the sold business of GBP91 million and a
gain of GBP40 million relating to amounts recycled from foreign currency translation reserve
Institutional Asset Management
Current period transaction
On 31 May 2016, the Group completed the sale of its interest in Rogge Global Partners Limited (Rogge), a fixed income asset manager, to Allianz
Global Investors GmbH. The sales proceeds received are subject to adjustment as amounts could either be clawed back or future amounts become
payable based on Rogge's future performance. A profit on disposal of GBP10 million has been recognised in the current period reflecting the director's
current assessment of the likely final amount recoverable.
Current and prior period transactions
During the year ended 31 December 2016, the Group received additional income of GBP8 million (year ended 31 December 2015: GBP1 million) from
earn-outs on affiliates disposed in prior periods.
Old Mutual plc
Current period transactions
During the period, Old Mutual plc received GBP10 million from Skandia Liv in respect of various matters relating to the completion of the separation of
the Skandia Nordic business from the Group.
(d) Short-term fluctuations in investment return
Profit before tax, as disclosed in the consolidated IFRS income statement, includes actual investment returns earned on the shareholder assets of
the Group's life assurance and property & casualty businesses. AOP is stated after recalculating shareholder asset investment returns based on a
long-term investment return rate. The difference between the actual and the long-term investment returns is referred to as the short-term fluctuation
in investment return.
Long-term rates of investment return are based on achieved rates of return appropriate to the underlying asset base, adjusted for current inflation
expectations, default assumptions, costs of investment management and consensus economic investment forecasts. The underlying rates are
principally derived with reference to 10-year government bond rates, cash and money market rates and an explicit equity risk premium for South
African businesses. The rates set out below reflect the apportionment of underlying investments in cash deposits, money market instruments and
equity assets. Long-term rates of return are reviewed annually by the Board. The Board's review of the long-term rates of return seeks to ensure
that the returns credited to AOP are consistent with the actual returns expected to be earned over the long-term.
For Emerging Markets, the return is applied to an average value of investible shareholders' assets, adjusted for net fund flows. For Old Mutual
Wealth, the return is applied to average investible assets.
%
Year ended Year ended
31 December 31 December
Long-term investment rates 2016 2015
Emerging Markets
Mutual & Federal(1) - (Cash: 90%; Equities: 10%) (2015: Cash: 90%; Equities: 10%) 7.4 7.4
Old Mutual South Africa - (Cash: 75%; Equities: 25%) (2015: Cash: 75%; Equities: 25%) 8.0 8.0
Rest of Africa - (Cash: 57%; Equities: 43%) (2015: Cash: 57%; Equities: 43%) 8.5 8.5
Old Mutual Wealth - (Cash: 80%; Equities: 20%) (2015: Cash: 75%; Equities: 25%) 1.0 1.0
(1) The long-term investment rate for Mutual & Federal relates solely to its South African business.
Analysis of short-term fluctuations in investment return
GBPm
Emerging Old Mutual plc
Year ended 31 December 2016 Markets Wealth Head Office Total
Actual shareholder investment return 111 7 9 127
Less: Long-term investment return 127 6 20 153
Short-term fluctuations in investment return (16) 1 (11) (26)
GBPm
Emerging Old Mutual plc
Year months ended 31 December 2015 Markets Wealth Head Office Total
Actual shareholder investment return 88 8 12 108
Less: Long-term investment return 124 5 21 150
Short-term fluctuations in investment return (36) 3 (9) (42)
(e) Investment return adjustment for Group equity and debt instruments held in policyholder funds
AOP includes investment returns on policyholder investments in Group equity and debt instruments held by the Group's life funds. These include
investments in the Company's ordinary shares and the subordinated liabilities and ordinary shares issued by the Group. These investment returns
are eliminated within the consolidated income statement in arriving at profit before tax, but are included in AOP. This ensures consistency of
treatment with the measures in the related policyholder liability. During the year ended 31 December 2016, the investment return adjustment
increased AOP by GBP43 million (year ended 31 December 2015: GBP31 million).
(f) Dividends declared to holders of perpetual preferred callable securities
Dividends declared to the holders of the Group's perpetual preferred callable securities on an AOP basis were GBP17 million for the year ended 31
December 2016 (year ended 31 December 2015: GBP31 million). For the purpose of determining AOP, these are recognised in finance costs on an
accrual basis. In accordance with IFRS, the total cash distribution is recognised directly in equity.
(g) Institutional Asset Management equity plans
Institutional Asset Management has a number of long-term incentive arrangements with senior employees in its asset management affiliates.
As part of the incentive schemes in the Institutional Asset Management business, the Group has granted put options over the equity of certain
affiliates to senior affiliate employees. The impact of revaluing these instruments in accordance with IFRS, is excluded from AOP. At 31 December
2016, the impact of revaluing these instruments and the exclusion of acquisition related compensation expense with Landmark employees was a
loss of GBP20 million (year ended 31 December 2015: loss of GBP9 million).
(h) Credit-related fair value losses on Group debt instruments
The widening of the credit spread on the Group's debt instruments can cause the market value of these instruments to decrease, resulting in gains
being recognised in profit or loss. Conversely, if the credit spread narrows the market value of debt instruments will increase causing losses to be
recognised in the consolidated income statement. In the Directors' view, such movements are not reflective of the underlying performance of the
Group and will reverse over time until the date of maturity. Therefore they have been excluded from AOP. For the year ended 31 December 2016,
due to the narrowing of credit spreads, a net loss of GBP24 million was recognised (year ended 31 December 2015: net gain of GBP7 million).
(i) Old Mutual Wealth business transformation costs
In 2013, Old Mutual Wealth UK business embarked on a significant programme to develop new platform capabilities and to outsource UK business
administration. This will involve replacing many aspects of the existing UK platform, and on completion certain elements of service provision will be
migrated to International Financial Data Services (IFDS) under a long-term outsourcing agreement. Management has determined that the cost of
developing the new technology cannot be capitalised, hence these costs and the costs of decommissioning existing technology and migrating of
services to IFDS are excluded from AOP. Only costs that are directly attributable to the programme are excluded from AOP as management is of
the view that this long-term investment in operational capability is a non-operating item. For the year ended 31 December 2016, these costs totalled
GBP102 million (year ended 31 December 2015: GBP97 million).
C2: Earnings and earnings per share
Pence
Year ended
Year ended 31 December
31 December 2015
Source of guidance Notes 2016 (Restated)(1)
Basic earnings per share IFRS C2(a) 11.9 12.7
Diluted basic earnings per share IFRS C2(b) 11.6 12.2
Adjusted operating earnings per share Group policy C2(c) 19.4 19.3
Headline earnings per share (Gross of tax) JSE Listing Requirements C2(d) 14.8 13.9
Headline earnings per share (Net of tax) JSE Listing Requirements C2(d) 14.9 13.9
Diluted headline earnings per share (Gross of tax) JSE Listing Requirements C2(d) 14.5 13.3
Diluted headline earnings per share (Net of tax) JSE Listing Requirements C2(d) 14.5 13.3
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note H1 for more information.
(a) Basic earnings per share
Basic earnings per share is calculated by dividing the profit for the financial year attributable to ordinary equity shareholders of the parent by the
weighted average number of ordinary shares in issue during the year excluding own shares held in policyholder funds, Employee Share Ownership Plan
Trusts (ESOP), Black Economic Empowerment trusts and other related undertakings.
The table below reconciles the profit attributable to equity holders of the parent to profit attributable to ordinary equity holders:
GBPm
Year ended
Year ended 31 December
31 December 2015
Note 2016 (Restated)(1)
Profit for the financial year attributable to equity holders of the parent from
continuing operations 498 569
Profit for the financial year attributable to equity holders of the parent from
discontinued operations H1 72 45
Profit for the financial year attributable to equity holders of the parent 570 614
Dividends paid to holders of perpetual preferred callable securities,
net of tax credits (14) (24)
Profit attributable to ordinary equity holders 556 590
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note H1 for more information.
Total dividends paid to holders of perpetual preferred callable securities of GBP14 million for the year ended 31 December 2016 (year ended
31 December 2015: GBP24 million) are stated net of tax credits of GBP3 million (year ended 31 December 2015: GBP6 million).
The table below summarises the calculation of the weighted average number of ordinary shares for the purposes of calculating basic earnings per share:
Millions
Year ended
Year ended 31 December
31 December 2015
2016 (Restated)(1)
Weighted average number of ordinary shares in issue 4,929 4,924
Shares held in charitable foundations and trusts (21) (13)
Shares held in ESOP and similar trusts (135) (98)
Adjusted weighted average number of ordinary shares 4,773 4,813
Shares held in life funds (80) (81)
Shares held in Black Economic Empowerment trusts (7) (91)
Weighted average number of ordinary shares used to calculate
basic earnings per share 4,686 4,641
Basic earnings per ordinary share (pence) 11.9 12.7
(1) Basic earnings per ordinary share (pence) for the year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued
operation. Refer to note H1 for more information.
(b) Diluted basic earnings per share
Diluted basic EPS recognises the dilutive impact of shares and options held in ESOP and similar trusts and Black Economic Empowerment trusts,
to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full year.
The table below reconciles the profit attributable to ordinary equity holders to diluted profit attributable to ordinary equity holders and summarises
the calculation of weighted average number of shares for the purpose of calculating diluted basic earnings per share:
Year ended Year ended
31 December 31 December
Note 2016 2015
Profit attributable to ordinary equity holders (GBPm) 556 590
Dilution effect on profit relating to share options issued by subsidiaries (GBPm) (7) (7)
Diluted profit attributable to ordinary equity holders (GBPm) 549 583
Weighted average number of ordinary shares (millions) C2(a) 4,686 4,641
Adjustments for share options held by ESOP and similar trusts (millions) 59 47
Adjustments for shares held in Black Economic Empowerment trusts (millions) 7 91
Weighted average number of ordinary shares used to calculate
diluted basic earnings per share (millions) 4,752 4,779
Diluted basic earnings per ordinary share (pence) 11.6 12.2
(c) Adjusted operating earnings per share
The following table presents a reconciliation of profit for the financial year to adjusted operating profit after tax attributable to ordinary equity holders
and summarises the calculation of adjusted operating earnings per share:
Year
Year ended ended
31 December 31 December
Notes 2016 2015
Profit for the financial year attributable to equity holders of the parent 570 614
Adjusting items C1(a) 457 344
Tax on adjusting items C1(a) (38) (60)
Non-core operations B3 5 31
Loss from discontinued operations H1(a) - 21
Non-controlling interest on adjusting items (66) (19)
Adjusted operating profit after tax attributable to ordinary equity
holders (GBPm) 928 931
Adjusted weighted average number of ordinary shares used to
calculate adjusted operating earnings per share (millions) C2(a) 4,773 4,813
Adjusted operating earnings per share (pence) 19.4 19.3
(d) Headline earnings per share
The Group is required to calculate headline earnings per share (HEPS) in accordance with the JSE Limited (JSE) Listing Requirements, determined
by reference to the South African Institute of Chartered Accountants' circular 02/2015 'Headline Earnings'. The table below sets out a reconciliation
of basic EPS and HEPS in accordance with that circular. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of
earnings in South Africa. The table below reconciles the profit for the financial year attributable to equity holders of the parent to headline
earnings and summarises the calculation of basic HEPS:
Year ended
Year ended 31 December 2015
31 December 2016 (Restated)(1)
Notes Gross Net Gross Net
Profit for the financial year attributable to equity holders of the parent 570 570 614 614
Dividends paid to holders of perpetual preferred callable securities (14) (14) (24) (24)
Profit attributable to ordinary equity holders 556 556 590 590
Adjustments:
Impairments of goodwill and other intangible assets 113 113 23 23
Impairment of investment in associated undertakings 50 50 - -
(Profit)/loss on disposal of subsidiaries, associated undertakings and strategic
investments (19) (16) 36 35
Realised gains (net of impairments) on available-for-sale financial assets (5) (5) (5) (5)
Headline earnings 695 698 644 643
Dilution effect on earnings relating to share options issued by subsidiaries (7) (7) (7) (7)
Diluted headline earnings (GBPm) 688 691 637 636
Weighted average number of ordinary shares (millions) C2(a) 4,686 4,686 4,641 4,641
Diluted weighted average number of ordinary shares (millions) C2(b) 4,752 4,752 4,779 4,779
Headline earnings per share (pence) 14.8 14.9 13.9 13.9
Diluted headline earnings per share (pence) 14.5 14.5 13.3 13.3
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note H1 for more information.
C3: Dividends
GBPm
Ordinary Year ended Year ended
dividend 31 December 31 December
payment date 2016 2015
2014 Final dividend paid - 6.25p per 11 3/7p ordinary share 29 May 2015 - 296
2015 Interim dividend paid - 2.65p per 11 3/7p ordinary share 30 October 2015 - 126
2015 Second interim dividend paid - 6.25p per 11 3/7p ordinary share 26 April 2016 299 -
2016 Interim dividend paid - 2.67p per 11 3/7p ordinary share 28 October 2016 127 -
Dividends to ordinary equity holders 426 422
Dividends paid to holders of perpetual preferred callable securities 17 30
Dividend payments for the year 443 452
The total dividend paid to ordinary equity holders is calculated using the number of shares in issue at the record date less own shares held in ESOP
trusts, life funds of Group entities, Black Economic Empowerment trusts and related undertakings.
As a consequence of the exchange control arrangements in place in certain African territories, dividends to ordinary equity holders on the branch
registers of those countries (or, in the case of Namibia, the Namibian section of the principal register) are settled through Dividend Access Trusts
established for that purpose.
A second interim dividend of 3.39 pence (or its equivalent in other applicable currencies) per ordinary share in the Company has been declared by
the Directors. The second interim dividend will be paid on 28 April 2017 to shareholders on the register at the close of business on 31 March 2017.
The dividend will absorb an estimated GBP162 million of shareholders' funds.
In March 2016, GBP17 million was declared and paid to holders of perpetual preferred callable securities (March 2015: GBP17 million and November
2015: GBP13 million).
D: Other income statement notes
D1: Income tax expense
This note analyses the income tax expense recognised in profit or loss for the year and the various factors that have contributed to the composition
of the charge.
Current tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to income tax payable in respect of previous years.
Deferred tax
Deferred taxation is provided using the temporary difference method. Temporary differences are differences between the carrying amounts of
assets and liabilities for financial reporting purposes and their tax base. The amount of deferred taxation provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the reporting date in
the specific jurisdiction. Deferred taxation is charged to profit and loss except to the extent that it relates to a transaction that is recognised directly
in other comprehensive income, or a business combination that is an acquisition. The effect on deferred taxation of any changes in tax rates is
recognised in profit and loss, except to the extent that it relates to items previously charged or credited directly to other comprehensive income. A
deferred tax asset is recognised only to the extent that it is probable that future taxable income will be available, against which the unutilised tax
losses and deductible temporary differences can be used. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefits will be realised.
In certain circumstances, as permitted by accounting guidance, deferred tax balances are not recognised. In particular where the liability relates to
the initial recognition of goodwill, or transactions that are not a business combination and at the time of their occurrence affect neither accounting
nor taxable profit.
Critical accounting estimates and judgements - Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that
it relates to items recognised directly in other comprehensive income or equity, in which case it is recognised in other comprehensive income and
the statement of changes in equity respectively.
The Group is subject to income taxes in numerous jurisdictions and the calculation of the Group's tax charge and worldwide provisions for income
tax necessarily involves a degree of estimation and judgement. At any given time the Group typically has a number of open tax returns with
various tax authorities and engages in active dialogue to resolve this. Taxation provisions relating to these open items are recognised based on
the Group's estimate of the most likely outcome, after taking into account external advice where appropriate. Where the final tax outcome of these
matters is different from the amounts that were initially recorded such differences will impact profit or loss, current and deferred income tax assets
and liabilities in the period such determination is made.
(a) Analysis of total income tax expense
The total income tax expense for the year comprises:
GBPm
Year ended
Year ended 31 December
31 December 2015
2016 (Restated)(1)
Current tax
United Kingdom 56 31
Overseas tax
- South Africa 401 272
- Rest of Africa 28 19
- Europe 15 17
- Rest of the world 10 9
Withholding taxes 9 11
Adjustments to current tax in respect of prior years (20) (1)
Total current tax 499 358
Deferred tax
Origination and reversal of temporary differences (43) -
Effect on deferred tax of changes in tax rates 21 (8)
Adjustments to deferred tax in respect of prior years (2) (3)
Total deferred tax (24) (11)
Total income tax expense 475 347
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note H1 for more information.
(b) Reconciliation of total income tax expense
The income tax expense charged to profit or loss differs from the income tax expense that would apply if all of the Group's profits from the different
tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate is explained below:
GBPm
Year ended Year ended
31 December 31 December
2016 2015
(Restated)(1)
Profit before tax 1,216 1,201
Tax at UK standard rate of 20% (2015: 20.25%) 243 243
Different tax rate or basis on overseas operations 105 107
Untaxed and low taxed income (121) (76)
Disallowable expenses 103 42
Adjustments to current tax in respect of prior years (20) (1)
Net movement on deferred tax assets not recognised 30 8
Effect on deferred tax of changes in tax rates 21 (8)
Adjustments to deferred tax in respect of prior years (2) (3)
Withholding taxes 2 5
Income tax attributable to policyholder returns 115 25
Other (1) 5
Total income tax expense 475 347
(1) The year ended 31 December 2015 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note H1 for more information.
(c) Income tax relating to components of other comprehensive income
The total income tax expense relating to items recognised in other comprehensive income for the year comprises of the following:
GBPm
Year ended Year ended
31 December 31 December
2016 2015
Measurement gains on defined benefit plans (8) 1
Property revaluation - 3
Income tax on items that will not be reclassified subsequently to profit or loss (8) 4
Available-for-sale reserves (2) -
Share-based payments (6) -
Income tax on items that may be reclassified subsequently to profit or loss (8) -
Income tax expense relating to components of other comprehensive income (16) 4
(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
2016 2015
Income tax expense - excluding discontinued operation 475 347
Income tax expense - discontinued operation 29 27
Tax on adjusting items
Goodwill impairment and impact of acquisition accounting 19 20
Profit on disposal of subsidiaries, associates and strategic investments (3) 1
Short-term fluctuations in investment return - 22
Tax on dividends declared to holders of perpetual preferred callable securities
recognised in equity (3) (6)
Institutional Asset Management equity plans 6 5
Old Mutual Wealth business transformation costs 19 18
Total tax on adjusting items 38 60
Income tax attributable to policyholders returns (144) (31)
Income tax on adjusted operating profit 398 403
E: Analysis of financial assets and liabilities
E1: Loans and advances
The Group extends advances to individuals and to the corporate, commercial and public sectors. The majority of loans and advances are in respect
of Nedbank which represents 97% (GBP 41,703 million); (2015: 96% (GBP 29,873 million)) of the carrying value of the Group's loans and advances.
Nedbank assesses its loan portfolios for impairment at each financial reporting date and manages its exposure to loans and advances through a
documented credit approval processes.
Emerging Markets has lending exposure, net of credit impairment provisions, of GBP1,210 million (2015: (GBP912 million) through its non-wholly owned
subsidiaries in South Africa, Namibia, Kenya and Zimbabwe. Credit loss ratios are monitored at each individual business unit level.
GBPm
At At
31 December 31 December
2016 2015
Home loans 8,772 6,409
Commercial mortgages 9,085 6,098
Unsecured retail lending 2,215 1,558
Other term loans 6,068 3,961
Other loans to clients 7,099 5,663
Net finance leases and instalment debtors 6,221 4,377
Deposits placed under reverse purchase agreements 923 884
Overdrafts 1,182 751
Preference shares and debentures 1,184 907
Credit cards 877 616
Factoring accounts 296 234
Policyholder loans 278 241
Properties in possession 15 16
Remittances in transit 22 9
Gross loans and advances 44,237 31,724
Provisions for impairment (1,129) (759)
Specific provisions (820) (529)
Portfolio provisions (309) (230)
Total net loans and advances 43,108 30,965
E2: Borrowed funds
The Group raises funding in the normal course of business. The borrowed funds raised for the banking business support the lending and banking
operations of the Group. Other borrowed funds raised support the general funding needs of the Group and the expense has been recognised as
finance costs.
The table below presents an analysis of the Group's borrowed funds net of any holdings that are principally held by the policyholder funds.
Summary of Borrowed Funds GBPm
Institutional At
Old Mutual Emerging Asset 31 December
Type of securities Notes plc Markets Nedbank Management(3) 2016
Senior debt securities and term loans - 287 2,088 - 2,375
Floating rate notes E2(a)(i) - - 1,046 - 1,046
Fixed rate notes E2(a)(ii) - - 1,042 - 1,042
Term loans E2(a)(iii) - 287 - - 287
Revolving credit facilities E2(b) - 34 - - 34
Mortgage-backed securities E2(c) - - 153 - 153
Subordinated debt securities E2(d) 1,017 348 767 - 2,132
Total Borrowed funds 1,017 669 3,008 - 4,694
Other instruments treated as equity
for accounting purposes
GBP273 million perpetual preferred callable
securities at 6.38%(1) 273 - - - 273
Total book value of Group debt(2) 1,290 669 3,008 - 4,967
(1) Perpetual preferred callable securities of GBP273 million; (December 2015: GBP273 million) are classified as non-banking.
(2) The nominal value of non-banking related "Group debt" is GBP1,685 million (December 2015: GBP1,710 million).
(3) No borrowed funds are reflected in Institutional Asset Management at 31 December 2016 as it has been classified as held for sale. Refer to note H2 for more
information.
GBPm
Institutional At
Old Mutual Emerging Asset 31 December
Type of securities Notes plc Markets Nedbank Management 2015
Senior debt securities and term loans 112 198 1,331 - 1,641
Floating rate notes E2(a)(i) - - 571 - 571
Fixed rate notes E2(a)(ii) 112 - 760 - 872
Term loans E2(a)(iii) - 198 - - 198
Revolving credit facilities E2(b) - - - 61 61
Mortgage-backed securities E2(c) - - 97 - 97
Subordinated debt securities E2(d) 986 251 488 - 1,725
Total Borrowed funds 1,098 449 1,916 61 3,524
Other instruments treated as equity
for accounting purposes
GBP273 million perpetual preferred callable
securities at 6.38% 273 - - - 273
Total book value of Group debt 1,371 449 1,916 61 3,797
Total borrowed funds can be further analysed between non-banking and banking as follows:
GBPm
At 31 December 2016 At 31 December 2015
Non- Non-
Type of security banking Banking(1) Total banking Banking(1) Total
Senior debt securities and term loans 96 2,279 2,375 160 1,481 1,641
Revolving credit facilities 16 18 34 61 - 61
Mortgage-backed securities - 153 153 - 97 97
Subordinated debt securities 1,365 767 2,132 1,237 488 1,725
Total Borrowed funds 1,477 3,217 4,694 1,458 2,066 3,524
(1) Borrowed funds identified as Banking are those which are directly related to the lending and banking businesses in Nedbank and Emerging Markets.
Maturity analysis
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
Institutional At
Old Mutual Emerging Asset 31 December
plc Markets Nedbank Management 2016
Less than 1 year 75 59 - - 134
Greater than 1 year and less than 5 years 782 235 - - 1,017
Greater than 5 years 592 614 - - 1,206
Total non-banking 1,449 908 - - 2,357
Less than 1 year - 115 370 - 485
Greater than 1 year and less than 5 years - 118 1,587 - 1,705
Greater than 5 years - 5 1,115 - 1,120
Total banking - 238 3,072 - 3,310
Total 1,449 1,146 3,072 - 5,667
GBPm
Institutional At 31
Old Mutual Emerging Asset December
plc Markets Nedbank Management 2015
Less than 1 year 196 50 - 2 248
Greater than 1 year and less than 5 years 302 135 - 66 503
Greater than 5 years 1,147 493 - - 1,640
Total non-banking 1,645 678 - 68 2,391
Less than 1 year - 15 614 - 629
Greater than 1 year and less than 5 years - 166 1,236 - 1,402
Greater than 5 years - 17 973 - 990
Total banking - 198 2,823 - 3,021
Total 1,645 876 2,823 68 5,412
Interest rate profile
The interest rate profiles of the Group's borrowed funds are analysed as follows:
GBPm
Institutional At
Old Mutual Emerging Asset 31 December
plc1 Markets Nedbank Management 2016
Fixed rate 1,017 278 1,042 - 2,337
Floating rate - 391 1,966 - 2,357
Total 1,017 669 3,008 - 4,694
GBPm
Institutional At
Old Mutual Emerging Asset 31 December
plc(1) Markets Nedbank Management 2015
Fixed rate 1,098 218 760 - 2,076
Floating rate - 231 1,156 61 1,448
Total 1,098 449 1,916 61 3,524
(1) Old Mutual plc has cross currency interest rate swaps related to GBP500 million Tier 2 debt. Old Mutual plc receives fixed interest and pays floating interest.
Currency exposure
The currency exposures of the Groups borrowed funds are analysed as follows:
GBPm
Institutional At
Old Mutual Emerging Asset 31 December
plc Markets Nedbank Management 2016
ZAR - 524 3,008 - 3,532
GBP 1,017 - - - 1,017
USD - 101 - - 101
Other - 44 - - 44
Total 1,017 669 3,008 - 4,694
GBPm
Institutional At
Emerging Asset 31 December
Old Mutual plc Markets Nedbank Management 2015
ZAR - 356 1,847 - 2,203
GBP 1,098 - - - 1,098
USD - 55 69 61 185
Other - 38 - - 38
Total 1,098 449 1,916 61 3,524
Analysis of security types
(a) Senior debt securities and term loans
(i) Floating rate notes (net of Group holdings)
GBPm
At At
31 December 31 December
Maturity date 2016 2015
Banking - Nedbank Floating rate unsecured senior debt
R677 million at JIBAR + 1.25% Repaid - 30
R3,056 million at JIBAR + 0.80% Repaid - 135
R694 million at JIBAR + 0.75% Repaid - 31
R405 million at JIBAR + 1.30% February 2017 22 18
R1,035 million at JIBAR + 0.85% March 2017 61 45
R806 million at JIBAR + 0.90% June 2017 48 35
R786 million at JIBAR + 1.30% August 2017 27 31
R241 million at JIBAR + 1.12% November 2017 14 11
R472 million at JIBAR + 1.25% February 2018 28 21
R1,427 million at JIBAR + 1.30% June 2018 85 63
R1,427 million at JIBAR + 1.45% February 2019 85 -
R1,472 million at JIBAR + 1.45% May 2019 149 -
R612 million at JIBAR + 1.40% August 2019 37 -
R90 million at JIBAR + 1.45% February 2020 5 4
R80 million at JIBAR + 2.15% April 2020 5 4
R476 million at JIBAR + 1.55% November 2020 28 21
R830 million at JIBAR + 1.80% February 2021 49 -
R1,054 million at JIBAR + 1.80% May 2021 88 -
R650 million at JIBAR + 1.30% June 2021 38 29
R287 million at JIBAR +1.75% August 2021 17 -
R12 million at JIBAR + 1.55% February 2022 1 1
R270 million at JIBAR + 2.00% February 2023 16 -
R528 million at JIBAR + 2.00% May 2023 32 -
R1,980 million at JIBAR + 2.00% February 2025 118 88
R500 million at JIBAR + 2.10% April 2026 30 22
R750 million at JIBAR + 2.25% May 2026 45 -
R302 million at JIBAR + 2.20% July 2026 18 -
1,046 589
Less: floating rate notes held by other Group companies - (18)
Total floating rate notes 1,046 571
All floating rate unsecured senior debt are non-qualifying for the purposes of regulatory tiers of capital.
(ii) Fixed rate notes (net of Group holdings)
GBPm
At At
31 December 31 December
Maturity date 2016 2015
Non-banking - Old Mutual plc
GBP112 million at 7.13% Repaid - 112
Total non-banking fixed rate unsecured senior debt - 112
Banking - Nedbank Fixed rate unsecured senior debt
R1,137 million at 9.36% Repaid - 51
R151 million at 6.91% Repaid - 7
R1,273 million at 11.39% September 2019 80 60
R380 million at 9.26% June 2020 23 17
R1,888 million at 8.92% November 2020 112 83
R855 million at 9.38% March 2021 52 38
R417 million at 10.68% May 2021 25 -
R500 million at 9.29% June 2021 30 22
R215 million at 8.79% February 2022 13 10
R280 million at 9.64% June 2022 17 12
R250 million at 10.66% February 2023 15 -
R334 million at 10.01% August 2023 21 -
R952 million at 10.07% November 2023 57 42
R391 million at 9.73% March 2024 24 18
R660 million at zero coupon October 2024 18 11
R2,607 million at 9.44% February 2025 159 118
R884 million at 10.69% November 2025 53 39
R800 million at 9.95% April 2026 48 36
R360 million at 11.15% May 2026 22 -
R1,739 million at 10.36% June 2026 103 77
R423 million at 10.50% July 2026 26 -
R2,000 million at 10.63% July 2027 124 92
R666 million at 10.94% November 2027 40 30
1,062 763
Less: Fixed rate notes held by other Group companies (20) (3)
Total banking fixed rate unsecured senior debt (net of
Group holdings) 1,042 760
Total fixed rate notes 1,042 872
All fixed rate notes are non-qualifying for the purpose of regulatory tiers of capital.
(iii) Term loans
GBPm
At At
31 December 31 December
Maturity date 2016 2015
Emerging Markets Floating rate loans
$7 million at 3 month LIBOR + 7.50%(2) Repaid - 5
$5 million at 3 month LIBOR + 7.50%(2) Repaid - 3
$5 million at 3 month LIBOR + 7.50%(2) Repaid - 3
KES451 million at KBRR + 3.87%(1) Repaid - 3
KES450 million rate at GOK 182 days TB + 2.50%(1) May 2017 3 -
R1,500 million at JIBAR + 2.95%(1) June 2017 94 70
R800 million at JIBAR + 2.75%(1) July 2018 47 35
KES75 million rate at KBRR + 3.78%(1) November 2019 1 -
$65 million at 3 month JIBAR + 2.80%(2) December 2020 55 -
KES954 million rate at KBRR + 3.78%(1) August 2021 7 -
$31 million at 3 month LIBOR plus 3.50%(2) September 2021 25 -
Emerging Markets Fixed rate loans
KES1,000 million at 12.50%(2) Repaid - 7
KES225 million at 11.70%(1) Repaid - 1
KES150 million at 5.00%(1) Repaid - 1
KES2,000m at 13.00%(2) July 2017 17 13
$2 million at 8.24%(1) August 2017 2 3
$6 million at 8.72%(1) September 2017 5 9
$3 million at 5.00%(1) December 2017 2 -
KES101 million at 13.00%(1) June 2018 1 -
KES102 million at 13.50%(1) June 2018 1 -
KES607 million at 12.50%(1) December 2018 5 -
KES411 million at 11.50%(1) April 2020 3 3
KES474 million at 9.20%(1) August 2020 4 8
$6 million at 8.31%(1) May 2020 5 5
KES200 million at 5.00%(1) July 2022 2 2
$15million at 8.75%(2) August 2022 12 11
$3 million at 12.00%(1) September 2022 3 3
$4 million at 6.50%(2) June 2023 3 3
$4 million at 6.50%(2) June 2023 3 3
$6 million at 6.50%(2) June 2023 5 -
$8 million at 10.00%(1) December 2023 7 7
312 198
Less: Term loans held by other Group companies(2) (25) -
Total term loans and other loans 287 198
Analysed as:
(1) Banking 192 150
(2) Non-banking 120 48
Total term loans and other loans 312 198
(b) Revolving credit facilities
GBPm
At At
31 December 31 December
Maturity date 2016 2015
Non-banking
Institutional Asset Management
Fully undrawn $350 million facility at USD LIBOR + 1.25%
(31 December 2015: $90 million) Oct 2019 - 61
Emerging Markets
R3,125 million facility at 3 month JIBAR + 1.60% Jan 2019 16 -
Banking - Emerging Markets
R1,200 million facility at 3 month JIBAR + 2.95% July 2018 18 -
Total revolving credit facilities 34 61
The Group has access to a GBP800 million (2015: GBP800 million) multi-currency revolving credit facility available to the Holding Company. GBP73 million
facility matures in August 2019, a further GBP73 million of facility matures in August 2020 and the remaining GBP654 million of the facility matures in
August 2021. At 31 December 2016 none of this facility was drawn.
In July 2015, Emerging Markets obtained access to a R1,200 million revolving credit facility which matures in July 2018. At 31 December 2016
R300 million (GBP18 million) of this facility was drawn (2015: Fully undrawn)
In December 2015, Emerging Markets obtained access to a R3,125 million revolving credit facility which matures in January 2019 with an option to
renew for a further year. At 31 December 2016 R260 million (GBP16 million) of this facility was drawn (2015: Fully undrawn).
(c) Mortgage-backed securities (net of Group holdings)
GBPm
At At
31 December 31 December
Tier Maturity date 2016 2015
Banking - Nedbank
R161 million (class A2) at JIBAR + 1.25% Tier 2 Repaid - 7
R900 million (class A3) at JIBAR + 1.54% Tier 2 October 2039 50 40
R110 million (class B) at JIBAR + 1.90% Tier 2 October 2039 7 5
R600 million JIBAR + 1.34% Tier 2 January 2028 30 -
R300 million JIBAR + 1.54% Tier 2 January 2028 16 -
R558 million at JIBAR + 1.20% Tier 2 February 2042 19 24
R100 million at JIBAR + 1.45% Tier 2 February 2042 6 4
R680 million at JIBAR + 1.55% Tier 2 February 2042 40 30
R80 million at JIBAR + 2.20% Tier 2 February 2042 5 4
R65 million at JIBAR + 3.00% Tier 2 February 2042 4 3
177 117
Less: Mortgage backed securities held by other Group companies (24) (20)
Total mortgage-backed securities 153 97
(d) Subordinated debt securities (net of Group holdings)
GBPm
At At
Maturity 31 December 31 December
Tier date 2016 2015
Banking - Nedbank
$100 million at 3 month USD LIBOR Tier 2 (secondary) March 2022 81 69
R2,000 million at JIBAR + 0.47% Tier 2 July 2022 120 89
R1,800 million at JIBAR + 2.75% Tier 2 July 2023 108 80
R1,200 million at JIBAR + 2.55% Tier 2 November 2023 71 53
R450 million at JIBAR + 10.49% Tier 2 April 2024 27 20
R1,737 million at 3 month JIBAR + 2.55% Tier 2 April 2024 105 78
R300 million at JIBAR + 2.75% Tier 2 October 2024 18 13
R225 million at JIBAR +2.75% Tier 2 January 2025 14 10
R1,624 million at JIBAR + 3.5% Tier 2 July 2025 98 73
R407 million at 11.29% Tier 2 July 2025 25 19
R2,000 million at JIBAR + 4.00% Tier 2 September 2026 118 -
785 504
Less: Banking subordinated debt securities held by other Group companies (18) (16)
Banking subordinated securities 767 488
Non-banking - Old Mutual plc
GBP500 million at 8.00% Tier 2 June 2021 569 536
GBP450 million at 7.88% Tier 2 November 2025 448 450
1,017 986
Non-banking - Emerging Markets(1)
R300 million at 9.26% Tier 2 November 2024 17 12
R700 million at 3 month JIBAR + 2.20% Tier 2 November 2024 41 31
R537 million at 3 month JIBAR + 2.30% Tier 2 March 2025 32 24
R425 million at 9.76% Tier 2 March 2025 25 17
R1,288 million at 3 month JIBAR + 2.25% Tier 2 September 2025 76 57
R409 million at 10.32% Tier 2 March 2027 23 16
R568 million at 10.90% Tier 2 September 2027 33 23
R1,150 million at 10.96% Tier 2 March 2030 65 46
R623 million at 11.35% Tier 2 September 2030 36 25
348 251
Total subordinated debt securities 2,132 1,725
(1) All callable subordinated debt securities have a first call date five years before the maturity date.
F: Non-financial assets and liabilities
F1: Goodwill and other intangible assets
Analysis of goodwill and other intangible assets
This note shows the movements in cost, amortisation and impairment of goodwill and other intangible assets for the year ended 31 December 2016
and year ended 31 December 2015.
GBPm
Present value of
acquired in-force
business Software Other
development development intangible
Goodwill costs costs assets Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Cost
Balance at beginning of the year 3,129 2,756 982 1,107 598 669 710 402 5,419 4,934
Acquisitions through business
combinations(1) 124 467 - - 1 - 76 308 201 775
Purchase price adjustments(2) (12) 22 - - - - 17 - 5 22
Additions - - - - 132 72 9 9 141 81
Disposal of interests in subsidiaries - (41) - (125) - (1) - (4) - (171)
Disposals or retirements - - - - (12) (8) - (1) (12) (9)
Transfer to assets held for sale(3) (1,561) (29) (80) - - - (72) - (1,713) (29)
Foreign exchange and other movements 409 (46) 12 - 194 (134) 32 (4) 647 (184)
Cost at end of the year 2,089 3,129 914 982 913 598 772 710 4,688 5,419
Amortisation and impairment losses
Balance at beginning of the year (617) (624) (751) (792) (403) (449) (372) (306) (2,143) (2,171)
Amortisation charge for the year - - (49) (58) (51) (49) (55) (70) (155) (177)
Impairment losses(4) (110) (23) - - (3) - - - (113) (23)
Disposal of interests in subsidiaries - - - 102 - 1 - - - 103
Disposals or retirements - - - - 10 7 - 1 10 8
Transfer to assets held for sale(3) 337 29 77 - - - 3 - 417 29
Foreign exchange and other movements (81) 1 (9) (3) (121) 87 (22) 3 (233) 88
Accumulated amortisation and
impairment losses at end of
the year (471) (617) (732) (751) (568) (403) (446) (372) (2,217) (2,143)
Carrying amount
Balance at beginning of the year 2,512 2,132 231 315 195 220 338 96 3,276 2,763
Balance at end of the year 1,618 2,512 182 231 345 195 326 338 2,471 3,276
(1) Goodwill acquired through business combinations for the year ended 31 December 2016 of GBP124 million relates to the acquisition of Landmark Partners (GBP111
million), AAM Advisory (GBP4 million), various acquisitions by the Old Mutual Private Client Advisors business (GBP8 million) and the acquisition of Banco Unico, SA (GBP1 million).
Refer to note A2 for further information.
(2) The purchase price adjustment for the year ended 31 December 2016 of GBP12 million relates to adjustments in connection with the acquisition of African Infrastructure
Investment Managers (Pty) Limited that were identified by the Group in the 12 month period after acquisition and which comprises GBP17 million of other intangible
assets identified subsequent to the initial calculation of goodwill less GBP5 million relating to an increase in the value of liabilities identified.
(3) Amounts transferred to assets held for sale principally relate to the Institutional Asset Management (IAM) segment. Refer to note H2 for more details.
(4) Of the impairment losses for the year ended 31 December 2016, GBP46 million relates to the disposal of Old Mutual Italy (note A2)), which completed on 9 January
2017, and GBP64 million relates to the Old Mutual Southern and Eastern Africa (OMSEA) Cash Generating Unit within Emerging Markets.
Segmental analysis of goodwill and other intangibles
The following table shows a segmental analysis of the carrying amounts of goodwill and other intangible assets, together with amortisation and
impairment charges, by operating segment at 30 June 2016 and 31 December 2015:
GBPm
Goodwill and
intangible assets
(carrying amount) Amortisation Impairment
2016 2015 2016 2015 2016 2015
Emerging Markets 461 415 25 28 67 -
Old Mutual Wealth 1,434 1,620 87 112 46 -
Nedbank 576 378 41 37 - -
Institutional Asset Management(1) - 863 2 - - 23
2,471 3,276 155 177 113 23
(1) Goodwill for the Institutional Asset Management segment was transferred to assets held for sale in the Consolidated Statement of Financial Position. Refer to note
H2 for further details.
F2: Non-controlling interests
(a) Profit or loss
(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 Nedbank, the
Group's South African banking business and OM Asset Management plc, the Group's US asset management business. For the year ended 31
December 2016 the non-controlling interests attributable to ordinary shares was GBP253 million (2015: GBP291 million).
(ii) Preferred securities
GBPm
At At
31 December 31 December
2016 2015
Nedbank
R3,222 million (2015: 3,560 million) non-cumulative preference shares 18 19
R2,000 million (2015: nil) subordinated callable notes 4 -
22 19
(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 2016 2015
The non-controlling interests share is analysed as follows:
Non-controlling interests - ordinary shares 253 291
Impact of acquisition accounting 53 -
Income attributable to Black Economic Empowerment trusts of listed subsidiaries 10 15
Attributable to Institutional Asset Management equity plans 3 4
Non-controlling interests share of adjusted operating profit 319 310
The Group uses an adjusted weighted average effective ownership interests when calculating the non-controllable interest applicable to the
adjusted operating profit of its Southern African banking businesses. These reflect 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 2016 the increase in adjusted operating profit attributable to
non-controlling interests as a result of this was GBP10 million (2015: GBP15 million).
(b) Statement of financial position
(i) Ordinary shares
GBPm
At At
31 December 31 December
Reconciliation of movements in non-controlling interests 2016 2015
Balance at beginning of the year 1,982 1,867
Non-controlling interests' share of profit 253 291
Non-controlling interests' share of dividends paid (149) (141)
Disposal of interest in OM Asset Management plc 153 114
Acquisition of businesses - 105
Net disposal of interests - 72
Foreign exchange and other movements 534 (326)
Balance at end of the year 2,773 1,982
(ii) Preferred securities
GBPm
At At
31 December 31 December
2016 2015
Nedbank
358.3 million (2015: 358.3 million) non-cumulative preference shares 272 272
Repurchased by Nedbank subsidiaries (26) -
246 272
R2,000 million Tier 1 perpetual subordinated instruments 95 -
Total 341 272
Preferred securities are held at the value of consideration received less unamortised issue costs and are stated net of securities held by Group companies.
Non-cumulative preference shares
These preference shares were issued by Nedbank Limited (Nedbank), the Group's banking subsidiary.
Each preference share confers on the holder the right to capital of the company in the form of a cash dividend prior to payment of dividends to any
other class of shareholder. The rate is limited to 83,33% of the prevailing prime rate on a deemed value of R10 and is never compounded.
If a preference dividend is not declared, the dividend will not accumulate and will never become payable by the company, whether in preference to
payments to any other class of share or otherwise.
Each preference share confers on the holder the right to a return of capital on the winding-up of the company prior to any payment to any other
class of share, but holders are not entitled to any further participation in the profits, assets or any surplus assets of the company in
such circumstances.
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.
During the year, preference shares with a carrying value of GBP26 million were purchased by a subsidiary of Nedbank and were classified as treasury shares.
Tier 1 perpetual subordinated instruments
On 20 May 2016, Nedbank Limited issued a R1,500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month JIBAR +
7.0% with a call date of 21 May 2021.
On 25 November 2016, Nedbank Limited issued a R500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month JIBAR
+ 6.3% with a call date of 26 November 2021.
These additional Tier 1 capital instruments represent perpetual, subordinated instruments, with no redemption date. The instruments are
redeemable subject to regulatory approval at the sole discretion of the issuer, Nedbank Limited from the applicable call date and following a
regulatory event or following a tax event. The payment of interest is at the discretion of the issuer and interest payments are non-cumulative. In
addition, if certain conditions are reached the regulator may prohibit Nedbank from making interest payments. Accordingly the instruments are
classified as equity instruments and disclosed as non-controlling interest.
G: Other notes
G1: Contingent liabilities
GBPm
At At
31 December 31 December
2016 2015
Guarantees and assets pledged as collateral security 965 1,198
Secured lending 806 401
Irrevocable letters of credit 210 196
Other contingent liabilities 10 4
The Group has provided certain guarantees for specific client obligations, in return for which the Group has received a fee. The Group has
evaluated the extent of the possibility of the guarantees being called on and has provided appropriately.
The Group, through its South African banking business, has pledged debt securities and negotiable certificates of deposit amounting to GBP1,128
million (2015: GBP681 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, the United Kingdom and the United States)
routinely review historic transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax
affairs in accordance with the tax legislation of the jurisdictions in which they operate. All interpretations made by management are made with
reference to the specific facts and circumstances of the transaction and the relevant legislation.
There are occasions where the Group's interpretation of tax law may be challenged by the Revenue authorities. The financial statements include
provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is
satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such
potential settlements are sufficient.
Due to the level of estimation required in determining tax provisions amounts eventually payable may differ from the provision recognised.
Nedbank litigation
There are a number of legal or potential claims against Nedbank Group Ltd and its subsidiary companies, the outcome of which cannot at present
be foreseen.
The largest potential claim relates to Pinnacle Point Group Limited, where ABSA Bank Limited (ABSA) has initiated an action in the High Court
against Nedbank Limited (Nedbank) for the sum of R773 million, where ABSA alleges that Nedbank had a legal duty of care to it in relation to
certain single stock futures transactions.
In a matter relating to the same events, New Port Finance Company (Pty) Ltd and Winifred Trust have sued ABSA for R405 million and R65 million
respectively, alleging that ABSA had a duty of care towards them. During November 2016 ABSA joined Nedbank as a third party to that action
claiming that, should ABSA be held liable, then ABSA would be entitled to claim a contribution from Nedbank.
Nedbank's counsel is of the view that Nedbank has a strong case to successfully resist both matters.
Consumer protection
Old Mutual is committed to treating customers fairly and supporting its customers in meeting their lifetime goals and treating customers fairly is
central to how our businesses operate. We routinely engage with customers and regulators to ensure that we meet this commitment, but there is
the risk of regulatory intervention across various jurisdictions, giving rise to the potential for customer redress which can result in retrospective
changes to policyholder benefits, penalties or fines. The Group monitors the exposure to these actions and makes provision for the related costs as
appropriate.
On 3 March 2016, the UK Financial Conduct Authority (FCA) issued a report detailing its findings of their industry-wide thematic review on the fair
treatment of long-standing customers invested in closed-book products sold by the life insurance sector (Thematic Review) and announced that it
was initiating an investigation into a number of firms, including Old Mutual Wealth Life Assurance Limited (OMWLA), a subsidiary of Old Mutual
Wealth, in relation to potential breaches of the FCA's standards relevant to the matters covered by the Thematic Review. OWMLA is working with
the FCA and is cooperating with its investigation, but as with any regulatory investigation of this nature it is difficult to predict when the investigation
will be completed or its outcome and therefore no provision has been recognised in the financial statements for the year ended 31 December 2016.
Implications of the Managed Separation strategy
The Group routinely monitors and reassesses contingent liabilities arising from matters such as litigation, and warranties and indemnities relating to
past acquisitions and disposals. The adoption of the Managed Separation strategy on 11 March 2016 does not affect the nature of such items,
however it is possible that the Group may seek to resolve certain matters as part of the implementation of the Managed Separation strategy.
G2: Businesses acquired during the year
The Group continued to expand operations in Africa and the United Kingdom through the following completed acquisitions:
(a) Acquisition of Banco Unico, SA
On 3 October 2016 the Group acquired a 10.9% share in Banco Unico, SA to reach a controlling 50% plus one share (2015: 38.3% share). The
acquiree is a banking entity in Mozambique and the acquisition, in line with the Group's strategy of expanding into the rest of Africa, was made by
purchasing Banco Unico, SA shares from a third party.
The accounting related to the step up in ownership from 38.3% to 50% plus one share is such that it effectively requires a simultaneous sale of
38.3% followed by an acquisition of the fair value of 50% plus one share of the business. Consequently a loss of GBP11 million was realised on the
transaction. Consistent with usual Group practice, this loss was recognised in profit or loss but excluded from the determination of AOP. As the
Group now has a controlling interest of 50% plus one share, the financial results and position of Banco Unico, SA have been consolidated with
effect from 3 October 2016.
The assets and liabilities acquired have been recorded at their fair values for purposes of the opening balance sheet and included in the
consolidated accounts of the Group using the Group's accounting policies in accordance with IFRS.
The table below sets out the consolidated assets and liabilities acquired as a result of the acquisition of Banco Unico, SA:
GBPm
Acquiree's
carrying
amount Fair value
Assets
Goodwill and other intangible assets - 8
Property, plant and equipment 6 6
Deferred tax assets 3 3
Loans and advances 188 188
Investments and securities 8 8
Cash and cash equivalents 30 30
Total assets 235 243
Liabilities
Borrowed funds (1) (1)
Deferred tax liabilities - (2)
Amounts owed to bank depositors (206) (206)
Trade, other payables and other liabilities (6) (6)
Total liabilities (213) (215)
Total net assets acquired 22 28
Acquisition-date fair value of consideration transferred 29
Acquisition-date fair value of consideration held(1) 12
Cash 5
Share of non-controlling interests(2) 14
Capitalised derivative financial instrument (2)
Goodwill recognised 1
(1) before the business combination. In addition, a GBP10 million foreign currency translation reserve loss was recognised in profit or loss on completion of the step-up
acquisition. Refer to note A2 for further information.
(2) The Group elected to measure non-controlling interests at the proportionate share of the fair value of net assets.
The goodwill recognised at acquisition is attributable to the delivery of cost and revenue synergies that could not be linked to identifiable intangible assets.
There were no contingent consideration arrangements and indemnification assets recognised on the acquisition.
GBP2 million profit from operations and GBP2 million profit for the year have been included in the consolidated income statement since the acquisition date.
(b) Other acquisitions
AAM Advisory (AAM)
On 16 March 2016, Old Mutual Wealth completed the acquisition of 100% of AAM, a Singapore based wealth advice company. The consideration
payable was an initial SGD 14 million (GBP7 million) with additional potential deferred consideration of SGD 26 million (GBP13 million), which is subject to
AAM meeting certain performance targets for the period from 2016 to 2018. Goodwill of GBP4 million and other intangible assets of GBP3 million were
recognised as a result of the transaction.
Old Mutual Private Client Advisors (PCA)
During the second half of 2016, Old Mutual Wealth (OMW) completed the acquisition of a number of advisor businesses as part of the expansion of
its PCA business that was launched in October 2015. The aim is to develop an OMW branded, employed adviser business focused upon servicing
upper affluent and high-net worth clients, offering a restricted advice proposition focused upon OMW's investment solutions and platform. The total
consideration payable was an initial GBP8 million with additional potential deferred consideration of GBP8 million, dependent upon meeting certain
performance targets, generally relating to funds under management. Goodwill of GBP8 million and other intangible assets of GBP7 million were recognised
as a result of the transaction. The deferred consideration was included in the calculation of goodwill recognised.
Purchase of remaining stake in Credit Guarantee Insurance Company (CGIC)
On 1 March 2016 Emerging Markets acquired the remaining 13.9% of the shares in CGIC for R190 million (GBP10 million) taking its share to 100%.
This transaction has resulted in a debit being directly recognised in reserves of R78 million (GBP4 million), which is the excess of the consideration
paid and the proportionate share of the net assets of CGIC acquired.
(c) Acquisitions through businesses classified as held for sale
Acquisitions through businesses classified as held for sale are disclosed in note H2.
G3: Events after the reporting date
Old Mutual Wealth acquisition of Caerus Capital Group
On 28 February 2017, Old Mutual Wealth announced that it had reached a conditional agreement to acquire the financial adviser network, Caerus
Capital Group (Caerus). The proposed acquisition is subject to a number of conditions, including shareholder agreement and regulatory approval.
The transaction is expected to complete in Q2 2017.
The acquisition will complement Old Mutual Wealth's existing controlled distribution footprint in the UK, which includes Intrinsic, and Old Mutual
Wealth Private Client Advisers, the branded national adviser firm established in 2015. Caerus has more than 300 advisers that are authorised and
are responsible for more than GBP4 billion of assets under advice.
Old Mutual Wealth acquisition of Attivo Investment Management Limited
During 2016, the Group entered into a purchase agreement to acquire Attivo Investment Management Limited ("AIM") from Attivo Group Limited.
The purchase has received regulatory approval, and is expected to be completed in the first quarter of 2017.
Repurchase of the outstanding Old Mutual plc perpetual preferred callable securities
On 3 February 2017 the Group repurchased all of the GBP273 million Tier 1 preferred perpetual callable securities and paid cash from the Groups'
existing resources. A GBP29 million loss, including accrued interest and the costs of acquiring the instruments, will be recognised directly in equity in
the 2017 financial statements.
Disposal of Old Mutual Wealth Italy
On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy, part of the Old Mutual Wealth business for a cash consideration
of EUR278 million (GBP210 million net of costs) plus interest to completion.
A goodwill impairment loss of GBP46 million has been recognised in profit or loss as the net asset value of the business disposed of exceeds the
expected net proceeds. The related assets and liabilities were classified as held for sale at 31 December 2016. Refer to note H1 for further information.
H: Discontinued operations and disposal groups held for sale
H1: Discontinued operations
On 9 March 2016, the Group announced its managed separation strategy, which included the phased reduction of the majority stake in OM Asset
Management plc (OMAM) and in addition, on 31 May 2016, the Group sold its interest in Rogge Global Partners Limited (Rogge). These two
businesses comprised one of the Group's reported segments, International Asset Management (IAM). For the year ended 31 December 2016, IAM
has been classified as a discontinued operation. Comparative profit and loss information has been restated accordingly. This treatment is consistent
with the requirements of IFRS, given the Group's stated strategic intentions. In addition, as it is probable that the reduction of the holding in OMAM,
such that the Group loses control, will occur within twelve months of the reporting date, the assets and liabilities of this business have been
disclosed as held for sale. Details relating to the financial position of IAM is included in held for sale assets and liabilities and are disclosed in note H2.
During the year ended 31 December 2015, a loss on disposal of GBP21 million was incurred as a result of the settlement of litigation arising on the
disposal of the US Life in 2011 following a court order in favour of the plaintiff.
(a) Income statement from discontinued operations
GBPm
Year ended 31 December 2016 Year ended 31 December 2015
Institutional Institutional
Asset Asset
Management US Life Total Management US Life Total
Revenue 503 - 503 497 - 497
Expenses (399) - (399) (388) - (388)
Share of associated undertakings' and joint
ventures' profit after tax 11 - 11 8 - 8
Profit/(loss) on disposal of subsidiaries, associated
undertakings and strategic investments 18 - 18 1 (21) (20)
Profit/(loss) before tax from
discontinued operations 133 - 133 118 (21) 97
Income tax expense (29) - (29) (27) - (27)
Profit/(loss) after tax from discontinued
operations 104 - 104 91 (21) 70
Attributable to:
Equity holders of the parent 72 - 72 66 (21) 45
Non-controlling interests - ordinary shares 32 - 32 25 - 25
104 - 104 91 (21) 70
(b) Statement of comprehensive income from discontinued operations
GBPm
Year ended 31 December 2016 Year ended 31 December 2015
Institutional Institutional
Asset Asset
Management US Life Total Management US Life Total
Profit/(loss) after tax from discontinued
operations 104 - 104 91 (21) 70
Items that may be reclassified subsequently
to profit or loss
Currency translation differences/exchange
differences on translating foreign operations (3) - (3) 1 - 1
Other movements - - - 4 - 4
Total comprehensive income for the financial
year from discontinued operations 101 - 101 96 (21) 75
(c) Net cash flows from discontinued operations
GBPm
Year ended 31 December 2016 Year ended 31 December 2015
Institutional Institutional
Asset Asset
Management US Life Total Management US Life Total
Operating activities 14 - 14 69 (21) 48
Investing activities (172) - (172) 3 - 3
Financing activities(1) 203 - 203 (64) - (64)
Net cash flows from discontinued operations 45 - 45 8 (21) (13)
(1) Excludes dividend and financing payments made to Old Mutual plc
H2: Assets and liabilities held for sale
GBPm
Institutional
Emerging Old Mutual Asset
At 31 December 2016 Markets Nedbank Wealth Management Total
Assets
Goodwill and other intangible assets - - 78 1,216 1,294
Investment properties 116 - - - 116
Property, plant and equipment - 17 4 32 53
Deferred tax assets - - 3 247 250
Investments in associated undertaking and joint
ventures - - - 29 29
Deferred acquisition costs - - 63 32 95
Investments and securities - - 6,189 165 6,354
Other assets - - 127 155 282
Cash and balances with central banks - - 14 83 97
Total assets 116 17 6,478 1,959 8,570
Liabilities
Long-term business policyholder liabilities - - 6,164 - 6,164
Borrowed funds - - - 319 319
Provisions - - 3 3 6
Deferred revenue - - 5 - 5
Deferred tax liabilities - - 21 4 25
Current tax payable - - - 67 67
Other liabilities 1 - 71 388 460
Total liabilities 1 - 6,264 781 7,046
GBPm
Institutional
Emerging Old Mutual Asset
At 31 December 2015 Markets Nedbank Wealth Management Total
Assets
Goodwill and other intangible assets - - - 1 1
Investment properties 84 - - - 84
Property, plant and equipment - - 4 1 5
Deferred acquisition costs - - - 2 2
Other assets - - - 11 11
Cash and balances with central banks - - - 20 20
Total assets 84 - 4 35 123
Liabilities
Other liabilities - - - 12 12
Total liabilities - - - 12 12
Institutional Asset Management
Current period transactions
On 9 March 2016, the Group announced its managed separation strategy, which included the phased reduction of the majority stake in OM Asset
Management plc (OMAM). As such, the assets and liabilities of OMAM, part of the Institutional Asset Management segment, are classified as held
for sale at 31 December 2016.
Further analysis of significant balances included in OMAM assets and liabilities held for sale are as follows:
(a) Goodwill and other intangible assets
As at 31 December 2016, the market value of the Group's investment in OMAM, based on its quoted share price, was GBP863 million, compared to a
carrying value of GBP602 million. The Group has therefore concluded that the goodwill related to OMAM is not impaired.
(b) Deferred tax assets
In evaluating OMAM's ability to recover its deferred tax assets, management considers all available positive and negative evidence including the
existence of cumulative income in the most recent financial years, changes in the business in which the OMAM operates, and the ability to forecast
future taxable income. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative
evidence that exists, the more positive evidence that is necessary and the more difficult it is to support a conclusion that a valuation allowance is not
needed. OMAM has three years of cumulative earnings as of December 31, 2016, 2015, and 2014. As of December 31, 2016, management
believes it is more likely than not that the balance of the deferred tax asset will be realised based on forecasted taxable income.
(c) Investments and securities
Investments and securities of GBP165 million comprise listed pooled investments of GBP64 million and unlisted pooled investments of GBP101 million.
The classification of investments and securities, in terms of the fair value hierarchy described in note E2 of the 2016 Annual Report and Accounts is follows:
GBPm
At 31 December 2016 Total Level 1 Level 2 Level 3
Designated (fair value through profit or loss)
Investments and securities 165 70 28 67
Investments and securities classified as Level 3 relate to timber and real estate assets held by funds of OMAM. Accounting standards require
consideration of the effect of reasonable possible alternative assumptions on the fair value of Level 3 financial assets and liabilities. A 10% change
to the significant unobservable inputs of the Level 3 investments and securities above is in the range of GBP6 million favourable and GBP6 million
unfavourable.
There have been no transfers between Level 1 and Level 2 or between Level 2 and Level 3 during the year.
Of the GBP67 million Level 3 investments and securities, OMAM disposed of a GBP41 million timber investment in January 2017.
(d) Borrowed funds
In July, 2016 OMAM announced underwritten public offerings of $400 million aggregate principal amount of senior notes, consisting of $275 million
of senior notes due 2026 (the Institutional Notes), and $125 million of senior notes due 2031 (the Retail Notes). The Institutional Notes will bear
interest at a fixed rate of 4.8% per year, payable on a semi-annual basis.
The Retail Notes will bear interest at a fixed rate of 5.1% per year, payable on a quarterly basis. The Retail Notes are callable at par as of 1 August 2019.
(e) Acquisition of Landmark Partners LLC (Landmark)
On 18 August 2016, the Group's US listed subsidiary, OM Asset Management plc (OMAM), acquired a 60% stake in the equity share capital of
Landmark in exchange for cash consideration of $242 million (GBP185 million) in cash with the potential for an additional payment of up to $225 million
(GBP182 million) on or around 31 December 2018. As this potential additional payment is dependent on future service and other conditions, no
amounts have been attributed to the consideration of the business. Certain key members of the management team of Landmark have retained the
remaining 40% interest in the business as ownership units. Both the potential additional payment and the 40% ownership units held by
management are recognised as share-based payment transactions due to service conditions and settlement features. These arrangements vest
over varying increments from 31 December 2018 through 31 December 2024. At the date of acquisition, the Group's stake in OMAM's equity was 66%.
Landmark is based in the United States of America and is a leading global secondary private equity and property investment firm. OMAM financed
the acquisition through the proceeds of various note offerings, in particular $275 million of 4.8% senior notes due 27 July 2026 and $125 million of
5.1% senior notes due 1 August 2031.
Subsequent to the acquisition, the Group decided to dispose of its holding in OMAM and consequently the goodwill recognised on this acquisition
was transferred from goodwill and other intangible assets to assets held for sale in the Consolidated Statement of Financial Position.
The results from the business have been consolidated since the date of the acquisition and the table below sets out the consolidated assets and
liabilities acquired:
GBPm
Acquiree's
carrying
amount Fair value
Assets
Intangible assets - 65
Property, plant and equipment 4 4
Cash and cash equivalents 18 18
Trade, other receivables and other assets 7 7
Total assets 29 94
Liabilities
Deferred revenue (7) (7)
Trade, other payables and other liabilities (19) (13)
Total liabilities (26) (20)
Total net assets acquired 3 74
Total cash consideration paid 185
Goodwill recognised 111
The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed at the date of
acquisition determined in accordance to IFRS 3 'Business Combinations'. The provisional allocation required significant assumptions and the use of
external expertise and it is possible that the preliminary estimates may change materially as the purchase price allocations are finalised. The
accounting must be finalised within 12 months of the acquisition date.
The carrying value of assets and liabilities in Landmark's consolidated statement of financial position at acquisition date approximated the fair value
of these items determined by the Group, with the exception of identified intangible assets of GBP65 million and a reduction in other liabilities of GBP6
million. Of the GBP65 million identified intangibles assets, GBP64 million relates to the value attributable to contractual relationships existing at the
acquisition date to provide asset management advisory services and the remaining GBP1m relates to the Landmark trade name. The value of the asset
management contracts was determined using the excess earnings method in which the value is equal to the present value of the after-tax cash
flows attributable to the intangible asset. The preliminary useful life for the asset management contacts has initially been estimated to be 13.4 years.
Goodwill is calculated as the difference between the fair value of the consideration paid and the net value assigned to the identified assets and
liabilities acquired and are attributable to the delivery of cost and revenue synergies that cannot be linked to identifiable intangible assets. Under US
tax law, the goodwill and other intangibles recognised as a result of this acquisition is expected to be deductible for tax purposes over a period of 15 years.
Transaction costs incurred of GBP5 million relating to the acquisition have been recognised within other operating expenses in the consolidated income
statement, but excluded from the determination of adjusted operating profit. From the date of acquisition to 31 December 2016, Landmark
contributed a loss of GBP16 million to the profit after tax attributable to equity holders of OMAM, which includes amortisation of intangible assets
recorded in purchase accounting and compensation expense for the arrangements with employees of Landmark noted above.
Prior period transactions
At 31 December 2015, the Group classified total assets of GBP35 million (comprising GBP20 million cash and cash equivalents and GBP10 million other
assets) and total liabilities of GBP12 million as held for sale in relation to the disposal of Rogge Global Partners plc. This transaction completed on 31 May 2016.
Emerging Markets
Current and prior period transactions
Emerging Markets has classified GBP116 million (2015: GBP84 million) of investment properties as held for sale. These transactions are expected to
complete in the next 12 months. The investment properties form part of the policyholder assets and therefore have no impact on profit or loss of the Group.
Nedbank
Current period
Following an internal review of its own office space requirements, Nedbank has identified buildings with a carrying value of GBP17 million (2015: GBPnil)
that are no longer required and which are currently being marketed for sale.
Old Mutual Wealth
Current period
On 9 August 2016, the Group announced that it had agreed to sell Old Mutual Wealth Italy, part of the Old Mutual Wealth business, to ERGO Italia
(now renamed Phlavia Investimenti), subject to regulatory approval. From this date the business was disclosed as held for sale.
A goodwill impairment loss of GBP46 million has been recognised in profit or loss for the year ended 31 December 2016 as the net asset value of the
business exceeded the net proceeds.
At 31 December 2016, the principal financial assets and liabilities included as held for sale were investments and securities of GBP6,189 million and
investment contract liabilities of GBP6,164 million, all of which were classified as Level 1 in terms of the fair value hierarchy.
The sale completed on 9 January 2017.
Current and prior period
Old Mutual Wealth has also identified property, plant and equipment of GBP4 million (December 2016: GBP4 million) as held for sale.
Sponsor:
Merrill Lynch South Africa (Pty) Ltd
Joint Sponsor:
Nedbank Corporate and Investment Banking
Date: 09/03/2017 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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