Wrap Text
Interim Results for the six months ended 30 June 2017
OLD MUTUAL PLC
ISIN CODE: GB00B77J0862
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
Old Mutual
NEWS RELEASE
Ref: 159/17
11 August 2017
Old Mutual plc interim results for the six months ended 30 June 2017
Old Mutual plc, whose managed separation strategy aims to result in four strong independent businesses, today publishes its interim
results for the six months ended 30 June 2017.
Bruce Hemphill, Group Chief Executive, said:
"Pre-tax adjusted operating profits were up 37% benefiting from sterling weakness in the half. Old Mutual Wealth had a strong six
months and Old Mutual Emerging Markets and Nedbank are trading resiliently given the continuing difficult macroeconomic conditions in
South Africa.
"We are making excellent progress in delivering the managed separation of Old Mutual having materially reduced debt and largely
disposed of our stake in OM Asset Management. Our focus for the next phase of managed separation is first to finalise the appropriate
standalone balance sheets for our two unlisted businesses and second, subject to the necessary approvals, deliver them to our
shareholders at the earliest opportunity in 2018 after our 2017 full year results."
Summary financial results
Reported results
- Pre-tax adjusted operating profit (AOP) of GBP969 million (H1 2016: GBP708 million), up 37%(1)
- IFRS pre-tax profit of GBP940 million (H1 2016: GBP534 million); including profit on disposal of OMAM of GBP108 million and goodwill
impairment of GBP71 million in respect of UAP-Old Mutual in East Africa
- AOP earnings per share (EPS) of 10.6p (H1 2016: 8.0p) up 33%, basic EPS of 11.0p (H1 2016: 5.7p)
- Adjusted Net Asset Value (NAV) at 220.1p per share (FY 2016: 228.6p per share)
- 2017 first interim dividend of 3.53p up 32% and in line with our capital management policy
Constant currency business results (pre-tax and NCI)
- Old Mutual Wealth (OMW) AOP GBP134 million up 29%. Strong Net Client Cash Flow (NCCF) growth, up 53%
- Nedbank AOP of R7.9 billion up 3%, managed operations (ex-ETI) up 10%. Outlook for ETI is improving, strong performance
in South Africa in the circumstances
- Old Mutual Emerging Markets (OMEM) AOP R6.0 billion up 1%. Turnaround in P&C, re-priced Corporate book and improving
East Africa, overall a resilient performance
- OM Asset Management (OMAM) reported its pre-tax economic net income (ENI) at $115 million, up 27%. Now an
independent business, demonstrating margin progression
Delivering the managed separation:
Managed separation aims to preserve and release the value currently trapped within the Group structure, as well as creating additional
value by driving enhanced performance by the underlying businesses. We remain on track to deliver the managed separation within
stated timing and costs.
Removal of plc central operational and debt costs
- Delivered annualised cost savings of GBP31 million
Unlocking the conglomerate discount
- Conducting ongoing regulatory and stakeholder engagement to secure required approvals for managed separation
- Asset realisations significantly progressed
- OMAM is now independent from Old Mutual plc. During H1 2017 we have sold and contracted to sell approximately
45% of the business for net proceeds of $785 million, which would reduce Old Mutual plc's stake to 5.5%
(1) A reconciliation of AOP to IFRS profit is provided on page 13 of the Group Finance Director's Review
- Sale of 26% stake in Kotak Mahindra Old Mutual Life Insurance for net proceeds of GBP138 million, due to complete in
H2 2017
- Completion of sale of Old Mutual Wealth Italy for GBP210 million
- Materially reduced plc holding company debt following a GBP273 million repurchase and redemption in February 2017
- We expect the listing of OMW and Old Mutual Limited (OML), the South African holding company, to take place in 2018 at the
earliest opportunity after Old Mutual's 2017 full year results
Preparing businesses for independence by enhancing business performance with appropriate standalone balance sheets:
- OMEM - appointed new CEO with a focus on cost efficiency leadership; defending and growing market position in South
Africa; turnaround of Old Mutual Insure and East Africa on track and improving the RoE across Rest of Africa; appointed Mike
Ilsley as Chief Financial Officer
- OMW - appointed new CFO and continued reshaping and strengthening of the Board and executive; completed successful
acquisitions of distribution; Platform transformation programme transitioned to FNZ
- OMEM and OMW implementing new standalone operating models
- GBP200 million of capital injected into OMW as an initial step in preparing capital structures and transition of centrally held
liquidity buffers
- Both OML and OMW will host capital market days in Q4 2017
Old Mutual plc interim results for the six months ended 30 June 2017
Enquiries
Investor Relations
Patrick Bowes UK +44 20 7002 7440
Dominic Lagan UK +44 20 7002 7190
Deward Serfontein SA +27 82 810 5672
Media
William Baldwin-Charles +44 20 7002 7133
+44 7834 524 833
Notes to the financial summary on the front two pages of this announcement
- All figures refer to core continuing operations. Core continuing operations exclude the results of the Bermuda business, which is
classified as non-core.
Constant currency figures are calculated by translating local currency prior-period figures at the prevailing exchange rates for the
period under review.
- AOP is an Alternative Profit Measure (APM) 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 the Basis of preparation of AOP and note C1 in the
financial statements. AOP excludes the results of non-core operations, Old Mutual Bermuda but includes the results of the
discontinued operation, Institutional Asset Management.
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.
For the six months ended 30 June 2017, managed separation and business standalone costs recognised in the IFRS income
statement have been excluded from the calculation of AOP on the basis that these items are one-off in nature and are not reflective
of the underlying operating activity of the Group. Comparative information has not been restated.
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, and where possible the Group seeks to minimise such changes in order to maintain consistency over time.
In addition to IFRS profit, the Group uses a number of APMs to assess the results of the business. Some measures are applicable
to the Group as a whole, such as AOP, Free Surplus Generation, and Adjusted Return on Equity. Others are more specific to the
business lines within the component businesses of the Group, for example NCCF and Covered Sales. Definitions of the principal
APMs adopted by the Group and its businesses, explanations of why they are relevant, and details of where to find the basis for
calculating each measure are included in pages 28 to 29.
- MCEV information is subject to departures from MCEV Principles (Copyright© Stichting CFO Forum Foundation 2008) due to the
use of the government bond yield curve in the majority of the covered business of Emerging Markets.
- 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.
- The Group's reported segments are Old Mutual 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).
Cautionary statement
This announcement may contain certain forward-looking statements with respect to certain of Old Mutual plc's plans and its current
goals and expectations relating to its future financial condition, performance and results and in particular estimates of future cash flows
and costs. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and
circumstances which are beyond Old Mutual plc's control including amongst other things, UK and South Africa domestic and global
economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and
actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties and of future
acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the
jurisdictions in which Old Mutual plc and its affiliates operate. As a result, Old Mutual plc's actual future financial condition, performance
and results may differ materially from the plans, goals and expectations set forth in Old Mutual plc's forward looking statements.
Old Mutual plc undertakes no obligation to update the forward-looking statements contained in this presentation or any other forward-
looking statements it may make.
Notes to editors
A webcast of the presentation on the interim results and Q&A will be broadcast live at 9:00 am UK time (10.00 am South African time)
today on the Company's website www.oldmutualplc.com. Analysts and investors who wish to participate in the call should dial the
following numbers and quote the pass-code 52994110#:
UK/International +44 20 3139 4830
US +1 718 873 9077
South Africa +27 21 672 4008
Playback (available for 30 days from 11 August 2017), using pass-code 689493#:
UK/International +44 20 3426 2807
Copies of these results, together with high-resolution images and biographical details of the directors of Old Mutual plc, are available in
electronic format to download from the Company's website at www.oldmutualplc.com.
The following documents, containing financial data for 2017 and 2016, are also available from the Company's website.
- Presentation slides
- Appendix slides
- Financial Disclosure Supplement
- OMEM MCEV Supplementary information
Sterling exchange rates
Appreciation / (depreciation) of
H1 2017 H1 2016 local currency against sterling
Average Rate 16.64 22.10 25%
South African Rand
Closing Rate 16.98 19.49 13%
Average Rate 1.26 1.43 12%
US Dollar
Closing Rate 1.30 1.33 2%
Overview
Challenging conditions remain
The first six months of the year have seen a continuation of the tough macroeconomic conditions in our largest market of South
Africa, with the South African government's sovereign credit rating downgraded in April, as well as continued volatility in the
main currencies in which we conduct our business. In this context, our businesses have delivered resilient operational
performances demonstrating the underlying strength of their franchises.
During the six months, the average rand rate was 25% stronger versus sterling compared to the first half of 2016, while the
average USD rate versus sterling was stronger by 12%. The average of the FTSE 100 over the first half of the year was 20%
higher; in the US, the average of the Russell 1000 Value was 18% higher; and in contrast the average of the JSE All Share was
3% higher against its comparator in the first half of 2016.
Given the impact of these external factors, Old Mutual's performance was in line with our expectations. Adjusted Operating
Profit (AOP) in reported currency was up 37% at GBP969 million, up 6% in constant currency, reflecting the weakness of sterling
against the rand. The IFRS pre-tax profit was up 76% at GBP940 million, benefiting from a profit of GBP108 million from the sale of
OM Asset Management (OMAM) partially offset by a goodwill impairment of GBP71 million in respect of UAP-Old Mutual in East
Africa.
Managed Separation
We are confident that the managed separation strategy, announced in March 2016, will unlock and create significant long-term
value for our shareholders which is currently trapped within the Group structure as well as removing the significant costs arising
from that structure. In addition, the Group structure inhibits efficient funding of future growth plans for the individual businesses,
restricting them from reaching their full potential. We intend to unlock value through the separation of the four underlying
businesses from each other. Once this is completed, the local regulator for each business will be its lead regulator.
The managed separation is complex to execute and we are actively engaged with the relevant stakeholders to secure the
required approvals.
Our timeline for this process remains unchanged. We intend for it to be materially complete by the end of 2018 and we are
firmly on track. We are pleased with the progress and following two further transactions with regard to OMAM, namely a public
offering and a sale to HNA Capital US, OMAM is now independent of Old Mutual.
Preparing OMEM and OMW for separation
As we highlighted in our full year results on 9 March 2017, the key focus of this year is preparing our two unlisted businesses,
OMEM and OMW, for independence. In both cases, we have made substantial progress.
We have made several significant appointments at OMEM: Trevor Manuel as Chairman; Peter Moyo as Chief Executive; and
Mike Ilsley as Chief Financial Officer. Each of these individuals are also designated for the same roles in Old Mutual Limited,
the new South African holding company (comprising OMEM, the Group's stake in Nedbank and Old Mutual plc) that will be
listed next year. Iain Williamson, the current Chief Financial Officer, will become Chief Operating Officer.
We believe that the strong operational experience and extensive knowledge of Old Mutual that Peter brings, allied to Mike's
extensive experience as a listed financial services finance director and Iain's broad operational skills, will complement Trevor's
strategic and governance expertise.
OMEM has made good progress on the evolution of its operating model and has also commenced executing transactions
following the review of the portfolio perimeter. Peter Moyo has committed to reviewing OMEM's overall cost base and improving
operational efficiencies as well as to structure the businesses to focus on delivery and execution.
OMEM previously communicated that it would prioritise high-return and cash-generative businesses in sub-Saharan Africa and
seek to improve returns from our recent investments in East and West Africa. In April 2017 we announced the agreed sale of
the 26% share in our joint venture in India, Kotak Mahindra Old Mutual Life Insurance, for net proceeds of GBP138 million. The
sale is due to complete in H2 2017. In March 2017, we announced the transfer to OMEM of the South African branch of OMW
allowing OMEM to provide offshore solutions to South African clients.
A number of structural and reporting changes have been made, including the creation of a new Wealth & Investment Cluster,
comprising Old Mutual Investment Group (OMIG) and Old Mutual Wealth (SA), which previously formed part of the Retail
Affluent segment. The remaining South African businesses will report directly to Peter Moyo, including the rebranded Old
Mutual Insure (previously Mutual & Federal). OMEM has also simplified the operational structure of the Rest of Africa business,
which will allow for more opportunities for growth, remove unnecessary costs and eliminate duplication.
OMW is also progressing well with its programme of activity as it works toward independence.
To ensure the organisation is fit for purpose as a listed standalone entity, OMW has continued to reshape and strengthen its
executive management team and Board. Tim Tookey has been appointed as Chief Financial Officer and Mark Satchel has
assumed the role of Corporate Finance Director. Rosie Harris and Jon Little joined the Board as Independent Non-Executive
Directors during Q2 2017. Rosie has been appointed Chair of the OMW Board Risk Committee. We have also established a
new IT Committee of the OMW Board, chaired by Moira Kilcoyne as Independent Non-Executive Director, to provide additional
oversight of IT strategy, risk profile, resilience and strategic change programmes. A number of central operational functions
have delivered the changes necessary for OMW to be a standalone listed entity with the remaining functions expected to
complete preparations by the end of 2017.
Executing transactions to effect the managed separation
When we announced the managed separation, we stated that our intention for OMAM was to continue with the phased
reduction of our stake. We have made further progress in the first half of 2017 and following a series of transactions OMAM is
now independent, with Old Mutual's stake currently at 20.1%. On 25 March 2017, we announced that we had agreed to sell a
24.95% shareholding in OMAM to HNA Capital US in a two-step transaction for a gross cash consideration of approximately
$446 million. The first tranche of this sale consisting of 9.95% of OMAM shares to HNA Capital US has completed and the
second tranche, subject to receipt of certain additional regulatory approvals, is contracted to take place in the second half of
2017.
On 16 May 2017, we announced that we had conducted a secondary offering of 17.3 million shares in OMAM at a price to the
public of $14.55 per share and entered into a repurchase agreement with OMAM for a further 5 million shares also at $14.55
per share. The underwriter exercised its over-allotment option and purchased a further 2.595 million shares at the same price.
Old Mutual realised proceeds less the underwriting discount from the offering and repurchase transactions of $359 million.
Since starting the sell down process of OMAM in October 2014, and taking into account contracted sales, we have raised GBP1.2
billion. On completion of the sale of the second tranche of OMAM shares to HNA Capital US, Old Mutual will hold 5.5% in
OMAM, worth GBP69 million as at 30 June 2017.
We have previously stated that the managed separation would be materially complete by the end of 2018. To that end, we
intend to pursue one or more transactions which will ultimately deliver two separate entities, listed on both the London and
Johannesburg stock exchanges, into the hands of Old Mutual plc's then shareholders. One will consist principally of the OMW
operations and the primary means of achieving this outcome is likely to be through a demerger, with the possibility of an Initial
Public Offering. The other will be the new South African holding company, OML.
The timing for the next stage of managed separation will in part be dependent on receipt of the required regulatory approvals
but we currently anticipate the listing of OMW and OML to take place at the earliest opportunity in 2018 after Old Mutual plc's
2017 full year results.
Following the listing of OML, we intend to distribute, in an orderly manner, a significant proportion of our shareholding in
Nedbank to the shareholders on the register of OML. OML will retain an appropriate strategic minority stake in Nedbank to
underpin the ongoing commercial relationship, with the exact level still to be determined with Nedbank.
We have materially reduced holding company debt through a repurchase and redemption of an instrument with a nominal value
of GBP273 million in February 2017. As a result of the reduction in holding company debt during the managed separation, we have
saved an additional GBP21 million per annum in interest costs.
Old Mutual plc is considering all its options with regard to its cash, debt and contingent liabilities, taking into account the cash
proceeds from disposals and requirements of the standalone balance sheets of the unlisted subsidiaries. These options include
retaining debt in Old Mutual plc after the point of separation.
Wind down of the plc Head Office
A key part of the managed separation is the eventual closure of the plc head office in London, which we expect to be completed
in the course of 2018. We have already reduced the London head office headcount by circa 50%, with cost savings of over GBP10
million per annum already achieved. We are implementing our plan for the wind down of the remainder of the plc Head Office
activities and resolving legacy issues from the plc structure. We have made progress in converting uncertain plc Head Office
NAV into cash with these actions taken to ensure we are able to meet the cash demands of executing our strategy, while
continuing to meet existing plc obligations.
Business review
Old Mutual Emerging Markets
OMEM delivered a credible set of results despite the continuing backdrop of tough macroeconomic conditions which has
increased financial pressure on its customers.
AOP of R6.0 billion was 1% higher than the previous period reflecting a significant improvement at Old Mutual Insure (the
Property & Casualty business in South Africa), strong recovery of risk underwriting results in South Africa's Corporate segment
and improved results in East Africa. The South African retail segments generated lower profits in relatively flat and volatile
equity markets and worsening consumer conditions. OMEM continues its tight management of expenses, resulting in
administration expenses increasing by 1% against the prior year, well below current inflation levels. IFRS pre-tax profit of R5.8
billion was up 4% on H1 2016, due to higher investment returns, partly offset by a further impairment in Rest of Africa goodwill
of R1.2 billion. As a result ROE reduced to 19.2% from 20.0%. Gross sales of R103.6 billion were broadly in line with 2016 with
covered APE sales of R6.1 billion, 10% lower, while non-covered sales of R72.4 billion increased by 1%. The tough
macroeconomic environment has constrained top line growth in South Africa.
Positive NCCF of R7.3 billion was supported by strong flows in OMIG, Latin America and Asia. FUM increased by 12% from the
2016 year end to R1.1 trillion.
The South African Property & Casualty business was rebranded to Old Mutual Insure (from Mutual & Federal) in June. The
direct link to the Old Mutual brand will enable the group to leverage the brand equity across customer segments, enhance
collaboration and further cross-selling opportunities. Old Mutual Insure's underwriting margin improved significantly from (1.0)%
in the prior year to 2.3% despite catastrophe losses in the period. This improvement reflects a turnaround in the prior year
underwriting loss of R44 million to an underwriting profit of R96 million in H1 2017.
While we remain confident that enhanced performance of UAP-Old Mutual Group will be achieved in the medium term the
integration progress has been slower than anticipated. Although operational performance has improved strongly since H1 2016,
the results remain behind our initial expectations. Our focus remains on driving operational efficiency throughout the East
African business. An operational restructuring of the combined entity was completed during H1 2017 resulting in significant
changes in the management structure to unlock performance improvement opportunities.
OMEM continues to focus on customer-centric product innovations, expanding its reach with new distribution channels and
enhancing the overall customer experience. OMEM has 11.6 million customers, up from 10.9 million at the end of 2016, with
6.0 million customers in South Africa (FY 2016: 5.9 million) and 4.9 million customers in the Rest of Africa (FY 2016: 4.4
million).
Free surplus generated by operations rose by 21% to R3.6 billion, representing 86% of post-tax AOP, of which R1.0 billion (H1
2016: R2.7 billion) was remitted to plc.
Nedbank
Nedbank produced a resilient performance in a macro environment that has proven to be more challenging than expected. Its
managed operations produced a solid result with AOP of R9.0 billion up 10%. IFRS profit before tax as reported by Nedbank
was up 2% at R7.8 billion (H1 2016: R7.6 billion). Nedbank reported headline earnings growth of 6.7% to R6.4 billion in its
managed operations and an improved ROE (excluding goodwill) of 18.9% (H1 2016: 18.4%), as moderate revenue growth was
offset by reduced impairments and disciplined cost management. This performance was impacted by Nedbank's share of the
loss from Ecobank Transnational Incorporated (ETI) which led to an overall 2.9% reduction in headline earnings versus the
prior year and an ROE (excluding goodwill) of 15.1%.
While risks remain, we believe that ETI is now on an improving trend and remains an important strategic investment for
Nedbank. In addition and subject to regulatory approval, Nedbank has a second representative nominated to sit on ETI's
Board, with its current representative nominated as chair of the risk committee, and Nedbank remains supportive of ETI's
ambition of delivering an ROE in excess of its cost of equity.
Net interest income increased by 4.0% to R13.5 billion with the net interest margin expanding by 6 bps to 3.58%. Non-interest
revenue grew by 3.3% to R11.7 billion. Expense growth of 5.0% to R14.4 billion was below inflation, demonstrating careful
management of discretionary expenses. Cost discipline in a slower revenue environment remains an imperative and good
progress has been made on the target operating model initiatives, which aim to generate R1 billion of pre-tax benefits by 2019.
Impairments decreased by 27.9% to R1.6 billion, underpinned by a quality portfolio across all clusters. The improvement in the
credit loss ratio to 0.47% (June 2016: 0.67%) largely relates to the improvement in the Corporate and Investment Banking
cluster.
The Common Equity Tier 1 capital ratio of 12.3% (June 2016: 11.6%), average Liquidity Coverage Ratio (LCR) for the second
quarter of 104.6% (June 2016: 93.1%) and a Net Stable Funding Ratio (NSFR) of above 100% on a pro-forma basis, are all
Basel III compliant and are a reflection of a strong balance sheet.
On an IFRS basis, Old Mutual plc, via OMEM, received R1.7 billion of dividends (H1 2016: R1.5 billion) in respect of its 55%
ownership of Nedbank. For AOP purposes, Old Mutual plc has a holding of 54% in Nedbank.
Old Mutual Wealth
This has been a strong six months for OMW, with further progress made towards its ambition to become a leading, integrated,
advice-led wealth management business.
AOP of GBP134 million was up 29% (H1 2016: GBP104 million) driven by strong revenue growth and performance fees of GBP17 million
following strong investment performance. OMW IFRS post-tax profit was GBP42 million for the first half of 2017, compared to a
loss of GBP23 million in H1 2016.
NCCF performance was strong at GBP4.9 billion, up 53% on prior year (H1 2016: GBP3.2 billion) with both inflows and outflows being
higher than in the prior year. Net inflows were 11% of opening funds under management, excluding the Heritage and
Institutional books, demonstrating robust growth in a difficult environment, and well ahead of OMW's 5% annualised target. Net
inflows into OMGI as a whole were GBP3.3 billion, 106% ahead of prior year (H1 2016: GBP1.6 billion). Our multi-asset solutions
business, which is the core of our proposition and wealth management strategy, contributed GBP1.6 billion (H1 2016: GBP0.3 billion)
of net flows in H1 2017, of which GBP1.5 billion is invested in OMGI multi-managed funds, largely driven by strong sales into
Cirilium and WealthSelect.
Intrinsic continues to secure increasing flows in OMW, supported by the expanding capabilities of Old Mutual Wealth Private
Client Advisers (OMWPCA). The restricted channel accounted for GBP0.6 billion (29%) of UK Platform net inflows in H1 2017 (H1
2016: GBP0.4 billion, 29%) and GBP1.1 billion of net flows into OMGI's multi-asset solutions business in H1 2017 through the Cirilium
and Generation fund ranges. Integrated net inflows from Intrinsic into Quilter Cheviot amounted to GBP0.1 billion, over half of
which was through OMWPCA. In total, integrated flows across the business rose from GBP0.7 billion to GBP2.2 billion.
FUM was GBP127.3 billion, up 10% from the end of 2016 (31 December 2016: GBP115.3 billion excluding our divested Italian
business (GBP6.2 billion) and South African branches (GBP2.0 billion) which are being transferred to OMEM). The increase is driven
primarily by positive NCCF of GBP4.9 billion in the period and positive market performance resulting in an increase of GBP5.6 billion.
The contracts related to the UK Platform Transformation with IFDS and DST have come to an end by mutual agreement
effective as of 2 May 2017. At the same time, OMW announced that we had contracted with FNZ to deliver our UK Platform
Transformation Programme. Following these changes, the initiation phase of our work with FNZ is now underway, and detailed
requirements workshops have started and will continue over a three to five month period. To date, nothing has arisen to alter
the time and cost estimates announced in May 2017. We anticipate increasing levels of confidence in the estimates as
progress is made through the requirements and planning stages.
OM Asset Management
This has been a good six months for OMAM with pre-tax ENI up 27% to $115 million largely due to the Landmark acquisition
and higher AUM. Old Mutual's share of pre-tax AOP was broadly flat reflecting its reduced stake in the business. IFRS profit
before tax was down 62% at $37 million primarily due to the revaluation in equity plans held by Affiliate key employees, and
Landmark acquisition related expenses. While NCCF was negative at $(2.8) billion, AUM at 30 June 2017 was $258.8 billion,
up 8% since the year end. On 29 June 2017, OMAM announced that Peter Bain was stepping down as CEO of the company
having delivered on his mandates in reshaping the business, developing the leadership team and achieving OMAM's listing on
the NYSE. OMAM has launched a process to identify the next CEO.
Capital management during the managed separation
We have today announced the first interim dividend for the first half of 2017 of 3.53p and the rand equivalent is 65 cents, in
accordance with our stated capital management policy. This will be paid on 31 October 2017.
We have previously indicated that given the need to balance complex considerations associated with the managed separation
and further increasing the capital strength of our businesses as independent entities, we will be taking a conservative approach
in setting the dividend. We therefore expect the full year dividend to be towards the upper end of the range of 2.5 to 3.5 times
cover.
The full effects of the capital management policy on the dividend will take effect for the dividends paid in respect of the
remainder of this financial year. This could have the effect that any second interim dividend for 2017 may be below the amount
of the second interim dividend for 2016 and the first interim dividend of 2017.
For 2018, we continue to review our rolling hedging of non-sterling remittances from the underlying businesses as we proceed
with managed separation.
Adjusted Net Asset Value per ordinary share
Adjusted NAV per ordinary share was 220.1p compared to 228.6p at 31 December 2016. The reduction is largely due to a net
loss of 8.7p due to movements in the market value of Nedbank and OMAM. Other net underlying movements contributed 4.7p,
being partially offset by 3.4p due to dividend payments and 1.1p of rand and US currency translation losses.
Board changes
On 29 June 2017, we announced that Dr Nkosana Moyo had stepped down from the Board of Old Mutual plc in order to pursue
his political interests. As a result, Dr Alan Gillespie, the Senior Independent Director, joined the Group Audit Committee with
effect from 1 August 2017.
Outlook
The businesses continue to perform in line with the outlook we provided at our 2017 Annual General Meeting. We expect to
make further significant progress in the managed separation process in the second half of the year.
Our main markets remain subject to significant political and economic uncertainties but our businesses are well managed and
resilient. Our management teams are preparing the businesses for independence including the standalone balance sheets of
the currently unlisted businesses, and we anticipate preparation to be concluded so that, subject to regulatory and other
approvals, the listing of OMW and OML will take place at the earliest opportunity in 2018 after our 2017 full year results.
REVIEW OF FINANCIAL PERFORMANCE
Analysis of performance for the period ended 30 June 2017
In addition to IFRS profit, the Group uses a number of Alternative Performance Measures (APMs) to assess the performance of the
business. Some measures are applicable to the Group as a whole, such as Adjusted Operating Profit (AOP), Free Surplus Generation,
and Adjusted Return on Equity. Others are more specific to the business lines within the component businesses, for example Net Client
Cash Flows (NCCF) and Covered APE Sales. Definitions of the principal APMs, explanations of why they are relevant, and details of the
basis for calculating each measure are included in pages 28 to 29.
The Group Finance Director (GFD) review includes a reconciliation between Adjusted Operating Profit and IFRS profit in order that the
performance of the businesses that are subsequently described in terms of AOP can be understood in the context of the IFRS result.
Changes to presentation of AOP
For H1 2017, managed separation and business standalone costs of GBP28 million, recognised in the IFRS income statement, have been
excluded from the calculation of AOP on the basis that these items are one-off in nature and are not reflective of the underlying
operating activity of the Group. These costs include the cost of winding down the plc Head Office, preparing the businesses for being
standalone entities and transaction advice. Comparatives have not been restated (H1 2016: GBP5 million).
The following changes have been made to the presentation within AOP:
- H1 2017 OMEM AOP now includes the long-term investment return (LTIR) on excess assets previously shown as a separate
item within plc Head Office AOP. Prior year comparatives have been re-presented to be consistent with this treatment. The
LTIR on excess assets was GBP9 million in H1 2017 (H1 2016: GBP10 million).
- Corporate costs are now shown before recharges to the businesses, with the recharges included within other net
shareholders income/expenses (OSIE). Prior year comparatives have been re-presented to be consistent with this treatment.
The recharge in H1 2017 was GBP4 million (H1 2016: GBP12 million).
H1 2017 Results
H1 2017 pre-tax AOP for the period of GBP969 million is 37% above the prior period (H1 2016: GBP708 million). This largely reflects the
impact of weaker sterling on reported earnings. The average rand rate reduced in the period to R16.64 (H1 2016: R22.10) and average
US dollar rate to $1.26 (H1 2016: $1.43). On a constant currency basis, pre-tax AOP is up 6% on H1 2016.
The tables below summarise the AOP and IFRS results of the Group in H1 2017 and H1 2016:
AOP analysis (GBPm) H1 2017 H1 2016 % change
Re-presented
Old Mutual Emerging Markets 362 270 34%
Nedbank 472 345 37%
Old Mutual Wealth 134 104 29%
968 719 35%
Institutional Asset Management (OMAM and Rogge) 64 58 10%
plc Head Office(1):
Old Mutual plc finance costs (35) (45) 22%
Corporate costs (before recharges) (30) (42) 29%
Other net shareholder income/(expenses) (OSIE) 2 18 (89%)
Adjusted operating profit before tax 969 708 37%
Tax on adjusted operating profit (266) (181) (47%)
Adjusted operating profit after tax 703 527 33%
Non-controlling interests - ordinary shares (179) (137) (31%)
Non-controlling interests - preferred securities (18) (8) (125%)
Adjusted operating profit after tax attributable to ordinary equity holders of the
506 382 32%
parent
Adjusted weighted average number of shares (millions) 4,771 4,773 -
Adjusted operating earnings per share (pence) 10.6 8.0 33%
(1) Plc Head Office includes the Old Mutual plc parent company and other centre companies
H1 2017 H1 2016 % change
IFRS profit analysis (GBPm) Restated
Old Mutual Emerging Markets 344 251 37%
Nedbank 469 345 36%
Old Mutual Wealth 73 (17) 529%
886 579 53%
plc Head Office 23 (36) 164%
Non-core operations (Old Mutual Bermuda) 31 (9) 444%
IFRS profit before tax 940 534 76%
Income tax expense (284) (163) (74%)
IFRS profit from continuing operations after tax 656 371 77%
IFRS profit from discontinued operations after tax (Institutional Asset Management) 23 54 (57%)
IFRS profit after tax 679 425 60%
Non-controlling interests (148) (141) (5%)
IFRS profit attributable to equity holders of the parent after tax 531 284 87%
Dividends paid to holders of perpetual preferred callable securities, net of tax credits (15) (16) 6%
IFRS profit attributable to ordinary equity holders 516 268 93%
Weighted average number of shares (millions) 4,687 4,686 -
Basic earnings per share (pence) 11.0 5.7 93%
IFRS profit attributable to ordinary equity holders was GBP516 million in H1 2017 compared to GBP268 million in H1 2016. This largely reflects
the benefits of weaker sterling compared to the rand on reported earnings together with a GBP108 million accounting profit as a result of
the sell down of our shareholding in OM Asset Management to 20.1%.
Reconciliation of AOP to IFRS profit attributable to equity holders of the parent
Six months ended June 2017 (GBPm) plc Head Discon-
OMEM Nedbank OMW IAM Office Non-core tinued Non-core Total
Adjusted operating profit before tax 362 472 134 64 (63) - - 969
Goodwill, intangible and associate charges (84) (1) (43) (2) - - - (130)
Profit on business disposals - - 24 - 105 - - 129
Short-term fluctuations in investment return 37 - - - - - - 37
Returns on own debt and equity 5 - - - - - - 5
Institutional Asset Management equity plans - - - (33) - - - (33)
Dividends on preferred securities - - - - 2 - - 2
Credit-related fair value losses on Group debt - - - - (17) - - (17)
Managed separation and business standalone costs (5) (2) (12) - (9) - - (28)
Resolution of plc pre-existing items - - - - 5 - - 5
OMW UK Platform transformation costs - - (59) - - - - (59)
Total adjusting items (47) (3) (90) (35) 86 - - (89)
Non-core operations - - - - - 31 - 31
Income tax attributable to policyholder returns 29 - 29 - - - - 58
Discontinued operations included in AOP(1) - - - - - - (29) (29)
IFRS profit before tax 344 469 73 29 23 31 (29) 940
Tax on adjusted operating profit (103) (131) (22) (18) 8 - - (266)
Tax on adjusting items 2 - 20 12 - - - 34
Income tax attributable to policyholder returns (29) - (29) - - - - (58)
Tax on discontinued operations(1) - - - - - - 6 6
IFRS profit from continuing operations after tax 214 338 42 23 31 31 (23) 656
NCI in adjusted operating profit (11) (166) - (20) - - - (197)
NCI in adjusting items 27 4 - 9 9 - - 49
Discontinued operations(1) - - - - - - 23 23
IFRS profit attributable to equity holders after tax 230 176 42 12 40 31 - 531
Six months ended June 2016 (GBPm) plc Head Discon-
OMEM Nedbank OMW IAM Office Non-core tinued Total
Adjusted operating profit before tax 270 345 104 58 (69) - - 708
Goodwill, intangible and associate charges (3) - (87) - - - - (90)
Profit on business disposals - - - 14 10 - - 24
Short-term fluctuations in investment return (30) - 7 - - - - (23)
Returns on own debt and equity (5) - - - - - - (5)
Institutional Asset Management equity plans - - - 2 - - - 2
Dividends on preferred securities - - - - 9 - - 9
Credit-related fair value losses on Group debt - - - - 14 - - 14
OMW UK Platform transformation costs - - (48) - - - - (48)
Total adjusting items (38) - (128) 16 33 - - (117)
Non-core operations - - - - - (9) - (9)
Income tax attributable to policyholder returns 19 - 7 - - - - 26
Discontinued operations included in AOP(1) - - - - - - (74) (74)
IFRS profit before tax 251 345 (17) 74 (36) (9) (74) 534
Tax on adjusted operating profit (75) (88) (16) (17) 15 - - (181)
Tax on adjusting items 11 - 17 (2) (2) - - 24
Income tax attributable to policyholder returns (19) - (7) - - - - (26)
Tax on discontinued operations(1) - - - - - - 20 20
IFRS profit from continuing operations after tax 168 257 (23) 55 (23) (9) (54) 371
NCI in adjusted operating profit (6) (123) - (16) - - - (145)
NCI in adjusting items 2 2 - - - - - 4
Discontinued operations(1) - - - - - - 54 54
IFRS profit attributable to equity holders after tax 164 136 (23) 39 (23) (9) - 284
(1) Discontinued operations relates to the Institutional Asset Management earnings included within AOP; but reported as a discontinued operation
within IFRS.
Adjusting items
In determining the AOP of the Group for core operations, certain adjustments are made to IFRS profit before tax to reflect the Director's
view of the long-term performance of the Group. Details of these adjustments are provided in note C1 of the Notes to the Consolidated
Financial Statements, and in respect of tax in note D1. A summary of significant adjustments are provided below.
Goodwill, intangible and associate charges in H1 2017 include an impairment of goodwill in OMEM of GBP71 million. The impairment
follows the simplification of the operating structure of the Rest of Africa portfolio and the consequential alignment of the routine goodwill
valuation review in accordance with accounting requirements, which is now applied at the UAP-Old Mutual Group entity level in East
Africa. The review was previously performed at the Old Mutual Southern and East Africa level, which also included the more mature
businesses in Namibia and Zimbabwe. The performance of the East Africa businesses, which was weaker than anticipated at the time
of the previous impairment review, also had a minor impact. The continued focus on identified strategic priorities in the East African
business is resulting in an improvement in the performance, albeit over a longer timeframe than anticipated at acquisition. Further
information is available in note G1 of the Notes to the Consolidated Financial Statements.
In OMW, amortisation of acquired present value of in-force business (PVIF) and intangible assets was GBP43 million (H1 2016: GBP43
million). H1 2016 also included an additional GBP44 million impairment of goodwill and intangibles as a result of the anticipated sale of
OMW Italy, which was completed in January 2017.
Profit on business disposals includes a GBP108 million accounting profit on disposal from the sell-down of our holding in OM Asset
Management to 20.1% and a GBP24 million profit on disposal of OMW Italy.
Within AOP the investment return on shareholder funds is calculated using a LTIR rate. Any short-term fluctuations between long-term
returns in AOP and actual returns are included in adjusting items. In H1 2017, the actual investment return was higher than the LTIR
assumed in AOP by GBP37 million (H1 2016: GBP23 million lower).
Adjusting items include a GBP33 million expense (H1 2016: GBP2 million income) due to the revaluation of Institutional Asset Management
equity plans held by Affiliate key employees, and Landmark acquisition related expenses.
One-off managed separation and business standalone costs were GBP28 million in H1 2017. These costs were included within AOP in
2016 (H1 2016: GBP5 million).
In H1 2017, OMW UK Platform transformation costs were GBP59 million (H1 2016: GBP48 million), relating to both the closure of the previous
programme and initiation phase of the new proposition supplied by FNZ.
Discontinued and non-core operations
For IFRS reporting the results of Institutional Asset Management up to the point of the sell down in May 2017 are recognised in
discontinued operations. After the sell down Institutional Asset Management is equity accounted and recognised as our share of profits
after tax. Both components of Institutional Asset Management earnings are included within AOP in H1 2017. This reflects the continuing
contribution of the business to the Group result, albeit at a lower level as the Group sells down its interest in the business. The Group
continues to have a 20.1% shareholding and representation on the OM Asset Management Board until further reductions in our
ownership are completed. Non-core operations relate to the Bermuda business operating profit of GBP31 million (H1 2016: GBP9 million loss).
AOP, tax and non-controlling interests
An overview of the financial performance of Old Mutual Emerging Markets (OMEM), Nedbank and Old Mutual Wealth are set out in the
Chief Executive Review. Detailed financial reviews of these businesses are set out later in this document. An overview of plc Head
Office, taxation and non-controlling interests is included below.
Old Mutual plc finance costs
Finance costs decreased by GBP10 million in H1 2017 to GBP35 million. This follows the repayment of GBP112 million of senior debt in October
2016 and the repurchase and redemption of GBP273 million of perpetual preferred callable securities in February 2017. As communicated
at our 2016 Preliminary Results, finance costs are expected to reduce by GBP21 million in FY 2017 as a result of these debt repayments.
Corporate costs before recharges
Corporate costs before recharges in H1 2017 of GBP30 million are GBP12 million below the prior period (H1 2016: GBP42 million). GBP8 million of
the reduction are costs previously incurred by the plc Head Office but now borne directly by OMEM and OMW. The further GBP4 million
reduction follows from the repurposing of the plc Head Office to support the execution of the managed separation, including the circa
50% reduction in headcount compared with January 2016.
At the 2016 Preliminary Results announcement, we estimated savings in corporate costs before recharges in excess of GBP10 million per
annum, compared to 2016. We now expect FY 2017 plc Head Office corporate costs before recharges to be in the region of GBP20 million
lower than FY 2016. We expect the businesses to incur an additional GBP10 million of these corporate costs in FY 2017.
Other net shareholder income / (expenses) (OSIE)
The table below sets out other net shareholder income of GBP2 million in H1 2017 (H1 2016: GBP18 million):
Other net shareholder income / (expenses) (GBPm) H1 2017 H1 2016
Share based payment charges (5) (4)
South Africa governance - (4)
One-off managed separation costs - (3)
Recharge of plc Head Office costs 4 12
Other net expenses (1) (1)
Other net shareholder expenses, excluding fx and seed capital (2) -
FX gains - 16
Seed capital gains 4 2
Total other net shareholder income / (expenses) (OSIE) 2 18
In H1 2017 OSIE includes expenses related to share based payment charges of GBP5 million (H1 2016: GBP4 million); partially offset by
income from recharging a proportion of plc Head Office costs to the businesses. The recharge of plc Head Office costs has reduced
significantly to GBP4 million (H1 2016: GBP12 million) as costs previously incurred by the plc and recharged to OMEM and OMW are now
incurred directly by these businesses. Seed capital gains were GBP4 million (H1 2016: GBP2 million), largely on funds managed by OMAM.
The plc Head Office continues to wind down its seed portfolio, with the majority of investments redeemed by the end of July 2017 and
the gains on these investments now realised.
H1 2016 also included costs in respect of the preparation for the implementation of Twin Peaks legislation in South Africa of GBP4 million,
unrealised foreign exchange gains on US dollar denominated seed investments of GBP16 million and one-off costs of managed separation
of GBP3 million.
Tax
The AOP effective tax rate (ETR) for the Group is 27% (H1 2016: 26%). The IFRS ETR is more volatile than the AOP ETR due to the
inclusion of policyholder tax, and one-off items which are typically not taxed at the statutory rate. Analysis of the ETR in relation to AOP
therefore gives a more consistent means of understanding the Group tax charge over the longer term.
As the majority of the Group's profits arise in OMEM and Nedbank, the tax borne by these businesses has a significant impact on the
ETR. The OMEM AOP ETR has remained the same as H1 2016 at 28%. Nedbank's AOP ETR has increased to 28% (H1 2016: 26%),
largely due to the impact of higher non-deductible amounts in H1 2017 compared to H1 2016.
The ETR for the Old Mutual Wealth business is generally lower than in the African businesses given lower headline corporate tax rates
in the UK and other markets, in which its business operates. Interest payments and corporate costs incurred by plc Head Office in the
UK are currently available to be offset against profits in the Old Mutual Wealth business. Under proposed legislation by the UK
Government, the plc Head Office may lose the ability to offset interest deductions.
Non-controlling interests
AOP attributable to non-controlling interests increased from GBP145 million to GBP197 million with the proportion of Group profit attributable to
non-controlling interests increasing from 27.5% in H1 2016 to 28.0% in H1 2017. The increase reflects the sell-down of OMAM in both
December 2016 and May 2017 reducing the plc's holding from 65.8% on 30 June 2016 to 20.1% on 30 June 2017.
Managed separation and business standalone one-off and incremental recurring costs
The section below summarises the one-off and recurring costs associated with managed separation and includes forward looking
estimates of these costs. These estimates are based on assumptions regarding the precise steps employed for and timing of the
managed separation strategy which may change in the future. By their nature, forward-looking estimates involve risk and uncertainty
because they relate to future events and circumstances which may be beyond Old Mutual plc's control.
Removing and transitioning plc operational costs
The managed separation will lead to the eventual closure of the plc Head Office and elimination of its operational costs, which totalled
GBP123 million before recharges in 2015. The table below shows the evolution of these plc Head Office operating costs since 2015:
Plc Head Office operational costs before recharges(1)(GBPm) Estimated
FY 2015 FY 2016 H1 2017 after MS
Corporate costs before plc recharge 80 79 30 -
OSIE before plc recharge 43 24(2) (2) -
123 103 28 -
(1) Plc Head Office operational costs are stated before recharges of GBP23 million in FY 2015; GBP19 million in FY 2016 and GBP4 million in H1 2017.
(2) One-off plc wind down costs of GBP8 million and transaction advisory costs of GBP14 million, included in AOP in FY 2016 and excluded from AOP in H1 2017
An estimated GBP29 million per annum of plc Head Office operational costs previously incurred by the plc Head Office will be borne directly
by OMEM and OMW. Given the 2015 base of GBP123 million set out above, this will result in an estimated net saving of GBP94 million per
annum. The table below shows the development in the costs of OMW and OMEM as they begin to incur directly the plc Head Office
operational costs:
Estimated
Plc Head Office operational costs absorbed by OMW and OMEM (GBPm) after MS
FY 2016 H1 2017 (annualised)
Costs previously recharged and listing related costs now incurred directly by OMEM - 4 7
Costs previously recharged now incurred directly by OMW - 4 7
Listing related costs not recharged now incurred directly by OMW - 1 7
Brand costs not recharged now incurred directly by OMW - 3 8
- 12 29
Incremental recurring business standalone costs
In addition to the GBP29 million above, we estimate OMW and OMEM will incur a combined incremental cost of GBP20 million per annum as a
result of being standalone businesses. The table below illustrates the costs incurred to date.
Estimated
Recurring business standalone costs (GBPm) after MS
FY 2016 H1 2017 (annualised)
Old Mutual Emerging Markets - - 8
Old Mutual Wealth - 2 12
- 2 20
One-off plc wind down and business standalone costs
As communicated at the 2016 Preliminary Results announcement, we estimate the one-off costs to unlock the GBP94 million of plc Head
Office run-rate savings to be in the region of GBP130 million. This includes costs at the plc Head Office, which we expect to be at the upper
end of our GBP50 million to GBP65 million range, with the balance to be incurred by OMEM and OMW. The table below sets out the one-off
costs that have been incurred to date:
Total
One-off plc wind down and business standalone costs(1)(GBPm) Total estimated
FY 2016 H1 2017 to date over MS
Plc Head Office 8 5 13
Old Mutual Emerging Markets 1 5 6
Old Mutual Wealth 4 9 13
13 19 32 130
(1) One-off plc wind down and business standalone costs are included in AOP in FY 2016. From 2017 these costs have been excluded from AOP. Comparatives have not been
restated.
One-off transaction related costs
We estimate one-off transaction advisory costs of at least GBP100 million during the period of implementing the managed separation. This
estimate is sensitive to how we execute the managed separation and subject to stakeholder and market dependencies. These costs will
facilitate unlocking the current conglomerate discount to the Group's value.
Transaction specific costs relating to capital items will be incurred and deducted from proceeds in line with our accounting policies.
The table below sets out the one-off transaction advisory costs that have been incurred to date:
Total
One-off Transaction advisory costs(1)(GBPm) Total estimated
FY 2016 H1 2017 to date over MS
Plc Head Office(2) 14 4 18
Old Mutual Emerging Markets 1 - 1
Old Mutual Wealth 3 3 6
Nedbank - 2 2
18 9 27 more than 100
(1) One-off transaction advisory costs were included in AOP in FY 2016. From 2017 these costs have been excluded from AOP. Comparatives have not been
restated.
(2) Includes costs related to Old Mutual Limited
Changes to adjusted operating profit during the period of the managed separation
The analysis below adjusts the H1 2016 and H1 2017 pre-tax AOP of the businesses and plc Head Office for corporate activity and one-
off managed separation costs reflected in AOP in H1 2016. This provides additional information for assessing the development of pre-
tax AOP of the businesses. Further analysis of the performance of the businesses is shown in the respective Business Review
Documents:
Old Mutual Old Institutional
H1 2017 AOP (GBPm) Emerging Mutual Asset plc Head
Markets Nedbank Wealth Management Office Total
AOP pre-tax (reported) 362 472 134 64 (63) 969
Pending sale of Kotak (7) - - - - (7)
AOP pre-tax after corporate activity 355 472 134 64 (63) 962
Including:
Plc Head Office costs recharged to businesses (2) - (2) - 4 -
Plc Head Office costs previously recharged now
incurred directly by OMEM and OMW (4) - (4) - -
Listing related costs not recharged now incurred
directly - - (1) - -
Brand costs not recharged now incurred directly - - (3) - -
Incremental recurring business standalone costs - - (2) - -
Old Mutual Old Institutional
H1 2016 AOP (GBPm) Emerging Mutual Asset plc Head
Markets Nedbank Wealth Management Office Total
AOP pre-tax (as reported in H1 2016) 260 345 104 58 (59) 708
Reallocation of LTIR on excess assets 10 - - - (10) -
AOP pre-tax (after re-presentation) 270 345 104 58 (69) 708
Pending sale of Kotak and sale of OMW Italy (4) - (11) - - (15)
SA branches transferred from OMW to OMEM(1) 5 - (5) - - -
One-off managed separation and business standalone
- - 2 - 3 5
costs included in AOP
AOP pre-tax after corporate activity and one-off
managed separation costs 271 345 90 58 (66) 698
Including:
Plc Head Office costs recharged to businesses (4) (1) (6) (1) 12 -
(1) During 2017 OMW's International South African branches will transfer to OMEM. AOP from these branches is reported by OMEM in 2017 and was
reported by OMW in 2016.
Adjusted Return on Equity (ROE)
Average Return on Average Return on
Adjusted ROE (annualised basis) H1 2017 (GBPm) shareholder shareholder shareholder shareholder
AOP (post- equity excl. equity excl. equity incl. equity incl.
tax & NCI) Intangibles(1) intangibles Intangibles Intangibles
Old Mutual Emerging Markets 248 2,199 22.6% 2,545 19.5%
Nedbank 175 2,173 16.1% 2,498 14.0%
Old Mutual Wealth 112 985 22.7% 2,459 9.1%
535 5,357 20.0% 7,502 14.3%
Institutional Asset Management(2) 26 70 74.3% 385 13.5%
Plc Head Office(2) (55) 2,392(1,3) n/a (68) n/a
Adjusted ROE 506 7,819 12.9%(3) 7,819 12.9%(3)
Average Return on Average Return on
Adjusted ROE (annualised basis) H1 2016 (GBPm) shareholder shareholder shareholder shareholder
AOP (post- equity excl. equity excl. equity incl. equity incl.
tax & NCI) Intangibles(1) intangibles Intangibles Intangibles
Old Mutual Emerging Markets(4) 189 1,632 23.2% 1,962 19.3%
Nedbank 134 1,671 16.0% 1,903 14.1%
Old Mutual Wealth 88 982 17.9% 2,517 7.0%
411 4,285 19.2% 6,382 12.9%
Institutional Asset Management 25 31 more than 100% 638 7.8%
Plc Head Office(4) (54) 2,308(1,3) n/a (396) n/a
Adjusted ROE 382 6,624 11.5%(3) 6,624 11.5%(3)
(1) The businesses figures exclude the Plc share of 'Goodwill and other intangible assets' as reported in the segmental balance sheet; however these assets
are included in the adjusted Return on Equity
(2) Assets held for sale of GBP242 million have been included in Institutional Asset Management for the purposes of the Adjusted Return on Equity calculation
(3) Includes plc portion of 'Goodwill and other intangible assets' and excludes the perpetual preferred callable securities (30 June 2017: nil; 31 December
2016: GBP273 million) that were repurchased and redeemed in February 2017 and non-core operations (30 June 2017: GBP109 million; 31 December 2016: GBP68
million)
(4) H1 2016 OMEM AOP (profit-tax and NCI) now includes the LTIR on excess assets previously reported within the plc Head Office
Adjusted ROE by business has been calculated in sterling in order to give a shareholder view of returns in the reported currency.
Old Mutual plc adjusted ROE increased from 11.5% in H1 2016 to 12.9% in H1 2017. This reflects a higher ROE in OMW, largely as a
result of their increase in AOP post-tax, and the impact of weaker sterling against the rand, which increases the weighting of the higher
ROE of the OMEM and Nedbank businesses within the calculation.
Average equity increased largely due to the impact of weakening of sterling against the rand on OMEM and Nedbank equity.
Plc cash flows and liquidity
Free Surplus Generation
The analysis below sets out free surplus generation between hard currency and emerging market businesses given the remittances and
dividend arrangements set out in the Group's demutualisation agreement (as amended over time).
H1 2017 H1 2016(1)
Source of free surplus (GBPm) % of AOP % of AOP
Free surplus converted to Free surplus converted to
generated free surplus generated free surplus
Old Mutual Wealth 86 77% 82 93%
Institutional Asset Management 26 100% 25 100%
Total northern hemisphere 112 81% 107 95%
Old Mutual Emerging Markets 213 86% 134 72%
Nedbank 175 100% 134 100%
Total southern hemisphere 388 92% 268 83%
Total before interest and plc costs 500 89% 375 86%
(1) H1 2016 OMEM AOP (post-tax and NCI) now includes the LTIR on excess assets previously reported within the plc Head Office.
The free surplus generation analysis considers the efficiency of the businesses in converting profits into operational cash flows. In H1
2017, the businesses generated free surplus of GBP500 million (H1 2016: GBP375 million), representing a conversion rate of 89% of AOP
post-tax and NCI (H1 2016: 86%). Southern hemisphere free surplus generation increased by GBP120 million, of which GBP88 million was
due to movements in exchange rates.
For OMEM, 86% (H1 2016: 72%) of the AOP (post-tax and NCI) in H1 2017 was converted to free surplus. The increase in free surplus
generated was largely attributable to significant increases in investment returns in the Rest of Africa following high unrealised returns
from Zimbabwe's equity market. Free surplus generation for OMEM is calculated in respect of covered business using the free surplus
component of MCEV earnings and for non-covered business as AOP post-tax and NCI adjusted for short-term fluctuations in investment
return and movements in required capital for OMEM's Property and Casualty business.
The OMW conversion rate was 77% in H1 2017 (H1 2016: 93%). The lower conversion rate reflects increased capital requirements on
the life business. OMW free surplus is calculated on a local statutory basis which for the businesses in the EU is consistent with
Solvency II principles.
Nedbank and Institutional Asset Management free surplus is calculated as their AOP post-tax and NCI and therefore the conversion rate
is 100% for both businesses.
Plc Head Office company cash position and cash flows
The plc Head Office cash position increased from GBP743 million as at 1 January 2017 to GBP860 million as at 30 June 2017. This is invested
in cash and near cash instruments, including money market funds. The plc Head Office also has access to an undrawn committed
facility of GBP800 million (as at 31 December 2016: GBP800 million).
The table below summarises plc Head Office cash flows in H1 2017, H1 2016 and FY 2016:
Plc cash flows (GBPm) H1 2017 H1 2016 FY 2016
Opening cash and liquid assets at holding company at 1 January 743 750 750
Operational flows
Hard currency free surplus generated 112 107 248
Old Mutual Wealth UK Platform transformation costs (after tax) (48) (39) (82)
Other free surplus retained or deployed in the businesses (8) (16) (82)
Operational receipts from hard currency businesses 56 52 84
Impact of foreign currency hedging (1) - (6)
Operational receipts from hard currency businesses after hedging 55 52 78
OMEM and Nedbank free surplus generated 388 268 630
Free surplus retained or deployed in the businesses (225) (64) (220)
Operational receipts from OMEM and Nedbank 163 204 410
Impact of foreign currency hedging (13) - (37)
Operational receipts from OMEM and Nedbank after hedging 150 204 373
Corporate costs before recharges (30) (42) (79)
Other operational flows 10 (47) (27)
Total operational flows 185 167 345
Capital servicing
Interest paid (31) (36) (72)
Preference dividends (15) (17) (17)
Ordinary cash dividends (166) (315) (451)
Paid to northern hemisphere shareholders (62) (113) (160)
Paid to southern hemisphere shareholders (104) (202) (291)
Total servicing of capital (212) (368) (540)
Capital movements
Net debt repaid in the period (288) - (112)
Net business related funding (176) (1) 68
Total capital movements (464) (1) (44)
Other Plc cash movements
Proceeds from sell-down of OMAM (net of costs and foreign currency hedging) 417 - 230
Proceeds from sale of OMW Italy (net of costs and foreign currency hedging) 210 - -
Resolution of plc Head Office pre-existing items (27) - -
Other cash movements 8 27 2
Total other plc cash movements 608 27 232
Closing cash and liquid assets at holding company at end of period
860 575 743
Operational cash flows
OMW and OMAM provide operational remittances to the plc Head Office. For OMW, this continues to be constrained by the required
investment in the UK Platform Transformation Project. In OMAM's case remittances of GBP5 million are in line with its publicly stated
dividend policy, and payments of GBP35 million are pursuant to the Deferred Tax Asset Agreement.
OMEM and Nedbank dividend receipts are available to meet the plc dividend, consistent with the original terms of demutualisation and
in line with the plc's capital management policy. Our conservative capital management policy, which provides appropriate flexibility in
the short term, enables the unlisted OMEM and OMW businesses to continue to conserve free surplus as we move closer towards
separation. This supports the businesses in investing for growth, preparing for independence and further increasing their capital strength
in the context of new regulatory regimes.
Free surplus retained in OMEM and Nedbank was GBP225 million (H1 2016: GBP64 million), which includes free surplus retained within
OMEM of GBP153 million (H1 2016: nil)
H1 2017 other operational flows include the GBP28 million impact of collateral movements in respect of the foreign currency hedging of
both operational and capital inflows. In H1 2016 other operational flows included GBP26 million of payments to the plc employment benefit
trust relating to the funding of share incentive awards.
Servicing of capital
Dividend payments to shareholders of GBP166 million (H1 2016: GBP315 million) have been made in the year in relation to the second interim
dividend for 2016 of 3.39 pence per share (second interim dividend for 2015: 6.25 pence per share). Of this, GBP104 million was paid to
shareholders on the South African and other African registers (H1 2016: GBP202 million).
Preference dividend payments in H1 2017 reflect interest on the GBP273 million of perpetual preferred callable securities, which were fully
redeemed on 3 February 2017. The payment represents eleven months of the interest accrued up to the point the security was
redeemed.
Interest paid in H1 2017 was GBP5 million lower than H1 2016 due to the repayment of GBP112 million of senior debt in October 2016.
Capital movements
On 3 February 2017, we repurchased and fully redeemed the GBP273 million of perpetual preferred callable securities that remained
outstanding for GBP288 million.
Net business unit funding during H1 2017 was GBP(176) million (H1 2016: GBP(1) million) largely reflecting the contribution of GBP200 million of
capital into OMW offset by GBP24 million of seed capital returned to the plc, primarily from Rogge.
Corporate activity
Cash flows from corporate activity in H1 2017 include proceeds of GBP417 million (net of costs and foreign currency hedging) from the sell-
down of OMAM during the period and GBP210 million from the sale of Old Mutual Wealth Italy. Plc wind-down and transaction advisory
costs of GBP9 million were incurred in H1 2017.
In H1 2016, net corporate activity reflected proceeds from the sale of Rogge and other corporate inflows and outflows.
Costs to resolve plc Head Office pre-existing items reflect GBP27 million paid into two legacy defined benefit pension schemes to effect the
buy-in of the benefits of the two schemes. See page 24 for further details.
REVIEW OF FINANCIAL POSITION
IFRS balance sheet review
The analysis below summarises how equity attributable to ordinary shareholders of the parent is invested in the net assets of the
component businesses including the plc Head Office. It also sets out the composition of plc Head Office net assets. The information is
sourced from segmental analysis of the Group's IFRS Balance Sheet in note B4 of the financial statements. The narrative which follows
the table includes forward looking estimates of the unwind of the net assets of the Group and the plc Head Office. These estimates are
based on assumptions regarding the steps employed for and timing of the managed separation strategy which may change in the future.
By their nature, forward-looking estimates involve risk and uncertainty because they relate to future events and circumstances which
may be beyond Old Mutual plc's control.
(GBPm) H1 2017 FY 2016
Equity attributable to shareholders of the parent 8,033 8,054
Plc perpetual preferred callable securities - (273)
Equity attributable to ordinary shareholders of the parent 8,033 7,781
OMEM 2,635 2,455
Nedbank 2,519 2,476
OMW 1,888 1,897
Total operating businesses 7,042 6,828
Residual plc NAV:
OMAM 242 527
OM Bermuda 109 68
plc Head Office 640 358
Total Residual plc NAV 991 953
Equity attributable to ordinary shareholders of the parent 8,033 7,781
At 30 June 2017 equity attributable to ordinary shareholders of the parent was GBP8,033 million (FY 2016: GBP7,781 million). The majority of
this equity value was represented by the operating businesses and of this total only GBP640 million, or 8%, related to the equity of plc Head
Office (FY 2016: GBP358 million, 5%).
The GBP252 million increase in equity attributable to ordinary shareholders of the parent is principally due to GBP516 million of IFRS profit
after tax attributable to ordinary equity holders, offset by dividends paid of GBP161 million and net foreign currency differences of GBP96
million.
Equity invested in OMEM, Nedbank and OMW
Over 80% of the Group's equity is invested in OMEM, Nedbank and OMW. Under managed separation these businesses are expected
to be delivered to shareholders. This equity is shown after deduction of an intercompany payable of GBP788 million from OMW to the plc
Head Office.
Residual plc NAV
Residual plc NAV consists of OMAM, OM Bermuda and the plc Head Office, including the GBP788 million intercompany receivable from
OMW to the plc Head Office referred to above.
The residual plc NAV has increased to GBP991 million (FY 2016: GBP953 million). Over the first six months of the year we have converted
assets into cash, reduced foreign exchange and market risks, addressed certain contingent liabilities and repaid debt.
OMAM
On 25 March 2017, we announced that we had agreed to sell a 24.95% shareholding in OMAM to HNA Capital US in a two-step
transaction for gross cash consideration of approximately $446 million. The first tranche of the two-step sale of OMAM shares to HNA
Capital US has completed. This consisted of 9.95% of OMAM for a price of $15.30 per share resulting in gross proceeds of
approximately $175 million.
On 16 May 2017 we conducted a secondary offering of 17.3 million shares in OMAM at a price to the public of $14.55 per share and
entered into a repurchase agreement with OMAM for a further 5 million shares also at $14.55 per share. The underwriter exercised its
over-allotment option and purchased a further 2.595 million shares at the same price. Old Mutual realised proceeds less the
underwriting discount from the offering and repurchase transactions of $359 million.
As a result of these sell-downs Old Mutual plc's shareholding in OMAM has reduced from 51.1% at 31 December 2016 to 20.1% at 30
June 2017, and is the primary reason for the reduction in OMAM IFRS NAV to GBP242 million (FY 2016: GBP527 million).
OM Bermuda
OM Bermuda continues to execute its run-off strategy with circa 50% of its Guaranteed Minimum Accumulation Benefit (GMAB)
reinsurance obligations maturing during the current year and the bulk of remaining maturities taking place during H1 2018. These
obligations correspond to the 10 year anniversaries of the underlying variable annuity policies written in 2007 and 2008. Downside risk
associated with guarantee top-up payments is managed using a put option programme, although residual basis risk and a small portion
of market and currency risk remain unhedged. The business remains well capitalised, with a statutory capital coverage ratio of 2.1 times
(31 December 2016: 1.8 times).
IFRS NAV increased to GBP109 million ($142 million) at 30 June 2017 (31 December 2016: GBP68 million), benefiting from the GBP51 million
($61 million) reduction in GMAB reserves largely as a result of favourable global equity market and currency movements over the
period.
Within the OM Bermuda IFRS NAV are GBP21 million ($27 million) of loan notes outstanding from the plc Head Office to OM Bermuda.
These may be called by OM Bermuda during 2017 and 2018 to the extent that obligations in relation to its GMAB guarantees cannot be
met from OM Bermuda's own resources when the relevant OM Bermuda reinsurance obligations fall due. Our stress testing has
indicated that outstanding loan notes would not need to be redeemed following a 50% fall in equity markets given the hedging
programme currently in place.
OM plc Head Office
We continue to make progress with the financial wind down and de-risking of the plc Head Office. The crystallisation of plc Head Office
NAV into cash allows us to maintain appropriate buffers to manage risks and obligations during the period as a result of the execution of
managed separation and the wind down of the plc Head Office. However, there are significant actual and potential demands on our
cash and liquidity during this period. Cash utilisation will continue not only as a result of the current plc structure, but also to manage the
resolution of and meet managed separation and business standalone costs across the plc Head Office and the underlying businesses.
Furthermore work continues in developing the appropriate capital and liquidity position commensurate with OMW and OMEM being
independently listed groups, fully separated from the current group construct.
The table below shows the composition of the plc Head Office NAV:
plc Head Office NAV (GBPm) H1 2017 FY 2016
Cash 860 743
Seed investments 79 148
Net intercompany debtors 767 816
Plc Head Office Assets 1,706 1,707
Third party debt (including plc perpetual preferred callable securities) (1,027) (1,290)
Net sundry third party creditors (39) (59)
plc Head Office Liabilities (1,066) (1,349)
plc Head Office NAV 640 358
Cash
The plc Head Office had cash balances of GBP860 million at 30 June 2017 (31 December 2016: GBP743 million).
At our preliminary results in March 2017, we highlighted that we hold cash and liquidity buffers centrally to support the plc under both
normal and stressed conditions. These liquidity buffers and cash will transition from plc Head Office where appropriate as part of the
preparations for the independence of the relevant subsidiaries as part of managed separation. In an initial step in preparing OMW's
capital structure and in light of regulatory changes, we have contributed GBP200 million of capital into OMW with a consequential reduction
in plc's liquidity support and centrally held liquidity buffers for OMW of GBP130 million.
The plc early warning liquidity threshold ("EWT") is set dynamically, in line with our underlying obligations to ensure adequate liquidity
resources are maintained. At 30 June 2017 this stood at circa GBP400 million, including GBP70 million of undrawn support for OMW (31
December 2016: circa GBP520 million, including GBP200 million of undrawn support for OMW).
Seed investments
The plc Head Office is in the process of winding down its seed portfolio as part of the managed separation. At 30 June 2017 the plc
Head Office held seed investments of GBP79 million. During H1 2017, the level of seed capital reduced by GBP69 million, reflecting the
redemption of GBP78 million of seed funding, mainly from funds in OMAM and Rogge, offset in part by GBP9 million of fair value gains.
Net intercompany debtors
Other non-cash plc Head office assets include net intercompany debtors of GBP767 million (FY 2016: GBP816 million). Intercompany debtors
reflects funding to OMW of GBP788 million, most of which was provided to support the acquisitions of Quilter Cheviot and Intrinsic.
Intragroup payables represent the GBP21 million of loan notes outstanding from Old Mutual plc to OM Bermuda.
Plc debt
The total IFRS book value of debt (excluding banking related debt) of GBP1,438 million comprises of plc holding company debt of GBP1,027
million and emerging markets non-banking debt of GBP411 million.
Plc debt summary(1) H1 2017 FY 2016
Total gearing (gross of holding company cash) - IFRS basis 11.6% 15.9%
plc holding company book value of debt - IFRS basis (GBPm) 1,027 1,290
Subsidiary book value of debt (non-banking)(2) - IFRS basis (GBPm) 411 801
Total book value of debt - IFRS basis (GBPm) 1,438 2,091
Total interest cover(3) 13.1 times 11.1 times
Hard interest cover(3) 3.0 times 3.4 times
(1) Excludes banking-related debt of GBP3,234 million at Nedbank and GBP199 million at OMEM, of which GBP153 million is held at Old Mutual Finance (OMF), GBP16
million is held at CABS and GBP30 million is held at Faulu. GBP24 million of the OMEM debt is owned by policyholders and is eliminated in the consolidated
Financial Statements.
(2) For the purposes of calculating gearing, subsidiary debt includes OMAM debt classified as non-current liabilities held for sale (30 June 2017: nil; 31
December 2016: GBP319 million) and non-banking inter-company borrowings (30 June 2017: GBP24 million; 31 December 2016: GBP25 million).
(3) Interest cover is calculated based on the number of times AOP before finance costs and tax covers finance costs
As at 30 June 2017, Old Mutual plc debt comprised of GBP500 million of Tier 2 debt maturing in June 2021 and GBP450 million of Tier 2 debt
maturing in November 2025. The IFRS book value of the Tier 2 instruments was GBP580 million and GBP447 million respectively leading to
an aggregate IFRS value of Old Mutual plc debt of GBP1,027 million. This excludes a derivative asset of GBP32 million, related to the GBP500
million Tier 2 debt taken out in June 2012.
The aggregate IFRS value of Old Mutual plc debt at 30 June 2017 is GBP263 million lower than at 31 December 2016 due to the
repurchase and redemption of the GBP273 million Preferred Callable Securities on 3 February 2017 and fair value movements on the GBP500
million Tier 2 debt maturing in 2021.
Gearing as at 30 June 2017
Gross gearing is based on non-banking debt of GBP1,406 million (2016: GBP2,060 million), which is the IFRS book value of non-banking debt
net of the derivative asset of GBP32 million (2016: GBP31 million) referred to above. Gross gearing of 11.6% is calculated as the percentage of
non-banking debt (GBP1,406 million) over total Group equity plus non-banking debt (GBP12,098 million). This has reduced since 31 December
2016, largely due to a decrease in total debt which principally arises from the sell down of OMAM to 20.1% and subsequent de-
consolidation of their debt and the repurchase and redemption of the plc GBP273 million Preferred Perpetual Callable Securities. Net
gearing reduces to 4.5% when taking into account cash at the holding company.
Net sundry third party creditors
Included in plc net sundry third party creditors are amounts expected to be received under the OMAM Deferred Tax Asset Deed
between OM Group (UK) Limited (OMGUK) and OMAM. This was previously disclosed as an intercompany balance before the sell-
down of OMAM to below 50%. The Deferred Tax Asset deed is further explained in note A2 of the H1 2017 financial statements.
Cash to resolve plc Head Office pre-existing items
We estimated GBP130 million of cash outflow to accelerate the resolution of pre-existing Head Office items over the duration of the
managed separation. The value outcomes of meeting these obligations are dependent on the trade-off of value, cost, time and risk
when balancing against diverse stakeholder considerations.
In H1 2017, bulk annuity arrangements for two legacy defined benefit schemes, the Old Mutual Staff Pension Fund and the G&N
Retirement Benefits Scheme, were agreed with Legal & General Assurance Society Limited on 13 June 2017. The agreements have
resulted in the buy-in of the benefits of the two schemes, with the intention of moving to a full buy-out and wind-up of the schemes by
Q4 2017.
In order to effect the transaction, Old Mutual has made a contribution of GBP27 million into the two schemes, which together with the
writing off of the majority of the combined existing IAS 19 surplus for the schemes, resulted in a GBP51 million reduction in IFRS NAV.
Once the buy-out and winding up processes have been completed, Old Mutual will no longer be responsible for the administration or
funding of these two schemes. Old Mutual had previously been contributing annually GBP7 million of cash to the two schemes.
Future proceeds
In April 2017, we announced that we had agreed to sell our 26% stake in Kotak Mahindra Old Mutual Life Insurance Limited to our joint
venture partner, Kotak Mahindra Bank Limited. The gross consideration for the transaction was INR12,927 million (GBP156 million
equivalent based on the spot exchange rate on the day of announcement) and is in line with OMEM's revised strategic focus on sub-
Saharan Africa. We expect the sale to complete in H2 2017 and to receive cash proceeds, net of costs and foreign currency hedging, of
GBP138 million.
The second tranche of the two-step sale of OMAM shares to HNA Capital US, will take place in the second half of 2017, subject to
receipt of certain additional regulatory approvals. The contracted proceeds for this tranche are expected to be $251 million, which is $14
million above the market price as at 30 June 2017 of the shares sold under this tranche.
In July 2017, the plc Head Office redeemed a further GBP73 million of seed funding. The plc Head Office now has GBP5 million of seed
funding outstanding as at the end of July.
Adjusted Net Asset Value (ANAV)
ANAV provides an alternative measure to indicate the value of Old Mutual plc. The ANAV of Old Mutual plc was GBP10,857 million at 30
June 2017 (31 December 2016: GBP11,271 million), equivalent to 220.1 pence per share (31 December 2016: 228.6 pence per share).
The ANAV of GBP10,857 million is GBP2,824 million higher than the IFRS NAV of Old Mutual plc. This largely reflects the uplift from reporting
OMEM covered business and the OMW Heritage business at its MCEV value (GBP1,986 million) and the OMAM and Nedbank businesses
and plc holding company debt at market value (GBP579 million).
The Residual plc NAV reduces from GBP991 million on an IFRS basis to GBP406 million on an ANAV basis. OMW ANAV includes GBP566
million of capital funding from the plc Head Office which was used by OMW to fund the acquisition of Quilter Cheviot. The Residual plc
NAV is reduced accordingly.
Capital management policy
We have today announced the first interim dividend for the first half of 2017 of 3.53p and the rand equivalent is 65 cents, in accordance
with our stated capital management policy. This will be paid on 31 October 2017.
We have previously indicated that given the need to balance complex considerations associated with the managed separation and
further increasing the capital strength of our businesses as independent entities, we will be taking a conservative approach in setting the
dividend. We therefore expect the full year dividend to be towards the upper end of the range of 2.5 to 3.5 times cover.
The full effects of the capital management policy on the dividend will take effect for the dividends paid in respect of the remainder of this
financial year. This could have the effect that any second interim dividend for 2017 may be below the amount of the second interim
dividend for 2016 and the first interim dividend of 2017.
For 2018, we continue to review our rolling hedging of non-sterling remittances from the underlying businesses as we proceed with
managed separation.
Capital
Regulatory capital in accordance with Solvency II rules
The Group Solvency II surplus is GBP1.7 billion at 30 June 2017 (31 December 2016: GBP1.2 billion as reported to the Prudential Regulation
Authority (PRA)), representing a Solvency II ratio of 130% (31 December 2016: 122%) calculated under the standard formula. The
Group Solvency II ratio continues to be resilient as the Group surplus excludes GBP2.0 billion of surplus, mainly from the South African
businesses (that remains available for local loss absorption). The Solvency II information in this results disclosure has not been audited.
Solvency II
Group regulatory capital (GBPbn) 31 December
30 June 2017(1) 2016(2)
Own funds 7.3 6.8
Solvency capital requirements (SCR) 5.6 5.6
Solvency II surplus 1.7 1.2
Coverage 130% 122%
(1) Based on preliminary estimates. Formal filing due to the PRA by 29 September 2017
(2) As reported to the PRA as part of the Annual 2016 Solvency II submission
The main contributors to the 8% increase in the Group Solvency II ratio are the impacts of corporate activity during the period, in
particular the sale of OM Wealth Italy in January 2017 (2%) and the proceeds received in respect of the reduction in Group ownership of
OMAM (9%) which exceeded the corresponding value included in the Solvency II balance sheet under the relevant sectoral rules (which
exclude intangible assets). The Group Solvency II ratio reduced due to the payment of the second interim dividend payment to UK
shareholders, and changes in the businesses' capital requirements. Other impacts were largely offsetting, and include the receipt of
South African remittances in lieu of the aforementioned dividend payment.
There was no offset coming from own funds held in rand as any increase in OMEM and Nedbank own funds are restricted to the
increase in their capital requirements as a result of applying fungibility restrictions.
We will continue to manage the Group regulatory capital position in line with our solvency risk appetite, recognising that there is a trade-
off to be considered where we could accept the possibility of going below our early warning threshold of 120% as a result of cash and
capital demands arising from the plc wind down.
Composition of qualifying Solvency II capital
The Group own funds for Solvency II purposes reflect the resources of the underlying businesses after excluding the restricted surplus
(mainly relating to the South African businesses). The Group own funds include the Old Mutual plc issued subordinated debt
instruments which qualify as capital under Solvency II. The composition of own funds by tier is presented in the table below.
Old Mutual Group Solvency II own funds (GBPbn) 30 June 31 December
2017 2016(1)
Tier 1(2) 6.2 5.7
Tier 2(3) 1.1 1.1
Total Group Solvency II own funds 7.3 6.8
(1) As reported to the PRA as part of the Annual 2016 Solvency II submission
(2) All Tier 1 capital is unrestricted for tiering purposes
(3) Comprises GBP0.5 billion of Solvency II compliant subordinated debt and GBP0.6 billion subordinated debt grandfathered under Solvency II
The Group SCR is covered by Tier 1 capital, which represents 112% of the Group SCR of GBP5.6 billion. Tier 1 capital represents 86% of
Group Solvency II own funds. Tier 2 capital, comprising plc holding company debt, represents 14% of Group Solvency II own funds and
61% of Group surplus.
Solvency II sensitivities
Sensitivities of the Group Solvency II ratio under certain standard financial and non-financial stresses were provided at the 2016
Preliminary Results. The results showed the ratio was relatively stable, in part due to the restricted surpluses in the South African
businesses being available for local loss absorption. There is no significant change to these sensitivities at 30 June 2017. The ratio is
most sensitive to changes in ZAR:GBP exchange rate. At 30 June 2017 a 30% increase in the ZAR:GBP exchange rate to R22.1: GBP1
would increase the Group's coverage ratio from 130% to 138%. A 10% decrease in the exchange rate to R15.3: GBP1 would reduce the
Solvency II ratio to 128%.
The Group Solvency II position at 30 June 2017 has been determined using an investment grade rating for local currency South African
bond holdings within the OMEM insurance SCR calculation, consistent with the majority of ratings published by the major credit rating
agencies. Our stress and scenario testing programme includes the impact of South African government bond rating downgrades on the
Group Solvency II ratio.
Selected regulated entity solvency statistics
Our individual businesses retain strong and resilient local statutory cover and have sufficient capital to support normal trading operations
and withstand regulatory and internal stress scenarios. In line with our capital management philosophy, throughout the managed
separation, we will continue to hold capital where the risk lies. A key objective of the managed separation is to deliver strong businesses
which are well capitalised, but not excessively so. As businesses prepare to standalone, due consideration will be given to the
regulatory supervision that will ultimately apply to that business and the appropriate development of risk limits, liquidity buffers, capital
structure and overall solvency levels for the businesses to meet our and the businesses stated objectives.
The Group continues to maintain strong local regulatory capital as shown in the table below:
Capital Capital 30 June 31 December
Regulatory capital in local currency Resources Requirements Surplus 2017 2016
OMLAC(SA)(1) (Rbn) 45.6 14.8 30.8 3.1x 3.2x
Old Mutual Insure(2) (Rbn) 3.1 2.0 1.1 1.6x 1.5x
Nedbank(3) (Rbn) 74.0 55.5 18.5 1.3x 1.4x
OMW(4) (GBPbn) 1.6 0.9 0.7 1.8x 1.9x
OMBRE(5) ($bn) 0.2 0.1 0.1 2.1x 1.8x
(1) South Africa Statutory Valuation Methods (SVM) in accordance with the FSB requirements
(2) Capital Adequacy Requirement (CAR) in accordance with the FSB requirements
(3) In accordance with Basel III and excluding unappropriated profits (the cover ratio including unappropriated profits is 1.5x (31 December 2016: 1.5x))
(4) Solvency II basis. The Capital Resources figure presented includes intra-group capital funding of the loan provided to fund the acquisition of Quilter
Cheviot
(5) 110% of Internal Economic Capital requirement as set by the Bermuda Monetary Authority
OMEM has a strong, well-diversified and resilient balance sheet which will be able to withstand a number of shocks. We disclose
solvency capital under the current regulatory capital rules (South Africa Statutory Valuation Method), but have adopted the provisional
Solvency Assessment and Management (SAM) basis in South Africa in the way we manage capital. Although aspects of the regulatory
prudential standards still need to finalised, we expect the OMLAC(SA) and OMEM Group balance sheets to demonstrate strong
resilience on the SAM basis.
Further information on Nedbank's capital position under its local banking regulation is available on Nedbank's website.
Old Mutual Wealth's strong and resilient regulatory capital position reflects technical provisions being lower than the face value of
policyholder funds for its unit linked liabilities in its insurance entities, the intra-group capital funding of the loan provided to fund the
acquisition of Quilter Cheviot, and the GBP200 million of capital contributed into OMW.
Old Mutual plc continues to consider all its options with regard to its cash, debt and contingent liabilities, taking into account the cash
proceeds from disposals and requirements of the standalone balance sheets of the subsidiaries. These options include retaining debt in
Old Mutual plc after the point of separation.
Performance measures
In line with statutory reporting requirements we report profits assessed on an International Financial Reporting Standards (IFRS) basis.
Consistent with last year, we complement IFRS reporting with additional disclosure on various alternative performance measures
(APMs).
APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater
insight to the financial performance, financial positions and cash flows of the Group and the way it is managed. Summary information
about the key APMs used in our financial review is provided in the following table.
APM Definition Why is the measure used?
Group
Adjusted AOP is a normalised profit measure to reflect the Due to the nature of the Groups' businesses, AOP is
Operating Profit underlying operating profit of the Group. It an appropriate alternative basis by which to assess the
(AOP) therefore adjusts IFRS profit for the impact of underlying operating results. It enhances the
acquisitions and disposals; short-term fluctuations comparability and understanding of the financial
and IFRS accounting treatments that do not fairly performance of the Group.
reflect the economics of our operations. In
addition, AOP excludes the results of non-core
operations.
The calculation of AOP adjusts the basic IFRS
profit for a number of items as detailed in note C1
in the financial statements.
Adjusted Return ROE is calculated as AOP (post-tax and NCI) over It is measure of the return generated for shareholders
on Equity (ROE) average ordinary shareholders' equity. For the over the reporting period.
purpose of this calculation, the perpetual preferred
callable securities are deducted from equity to be
consistent with the related finance costs which are
included in AOP.
Adjusted Plc ANAV uses a MCEV valuation basis for Emerging ANAV represents a better indication of the value of our
NAV per Markets covered business and the UK Heritage covered and listed businesses than the disclosure in
ordinary share business in OMW as well as the market value of the IFRS balance sheet would provide.
(ANAV) listed subsidiaries. Other businesses and other
assets are included at IFRS net asset value.
Free Surplus Free surplus generation measures the efficiency of Free surplus provides users of the Financial results of
generation the businesses in converting AOP profits into plc with additional information on the cash generation
operational cash flows that support the plc capital of the businesses that is not directly observed in the
management policy. IFRS results.
Gross sales Gross sales are the gross cash flows received This measure is a lead indicator of reported and future
from customers during the period. revenue.
Net Client Cash NCCF is the difference between money received This measure is a lead indicator of reported net
Flows (NCCF) from customers and money returned to customers revenue.
during the period.
Emerging Markets
Present Value of PVNBP uses the EEV methodology of determining This measure is a lead indicator of reported and
New Business the present value of new business premiums expected revenues in our covered business.
Premiums written during the reporting period. It is calculated
(PVNBP) as 100% of new single premiums plus the
discounted present value of new regular
premiums.
Market MCEV is a reporting standard for life insurance It is designed to provide an accurate reflection of the
Consistent companies that provide a common set of principles valuation and performance of the long-term savings
Embedded and guidelines for use in calculating embedded business and a method of comparing companies on a
Value (MCEV) value. MCEV measures the value of business in- consistent basis.
force based on a set of best estimate assumptions,
allowing for the impact of uncertainty in future
investment returns.
Return on The annualised post-tax adjusted operating profit It is a measure of the return generated for
Embedded calculated on an MCEV basis expressed as a shareholders over the reporting period on an
Value percentage of the opening embedded value. embedded value basis.
Nedbank
Headline Headline Earnings is calculated with reference to Headline Earnings is an earnings measure that is
Earnings per Circular 2/2015 issued by the South African required by the South African listing authorities. It
Share (HEPS) Institute of Chartered Accountants. Headline provides a basis to compare South African listed
earnings is a way of dividing the IFRS reported peers.
profit between re-measurements that are more
closely aligned to the operating/trading activities of
the entity, and the platform used to create those
results.
Efficiency Ratio The Efficiency Ratio is total expenses divided by It measures the expense efficiency of the business.
the sum of net interest income and non-interest
revenue.
Liquidity The Liquidity Coverage Ratio (LCR) aims to It provides a view of the short-term resilience of the
Coverage Ratio ensure that a bank holds adequate unencumbered liquidity risk profile of banks.
High Quality Liquid Assets to cover total net cash
outflows over a 30-day period under a prescribed
stress scenario.
Economic Profit Calculated as headline earnings less the cost of It is a measure of the entity's ability to generate
equity. The cost of equity is calculated as the earnings in excess of the economic cost of the capital
average ordinary shareholders equity (excluding contributed.
goodwill) multiplied by the cost of equity.
OM Wealth
Underlying AOP, Pre-tax AOP, adjusted for the timing impact of The measure is used to provide users of the financial
before one-off acquisitions and disposals during 2016 and 2017. statements greater insight into the long-term earning
adjustments ability of the OMW current business on a comparable
basis.
Integrated net This reflects the total NCCF that has flowed It is a lead indicator of revenue generation driven by
inflows through two or more segments within OMW. an integrated business model
Operating This is calculated as AOP over net revenue, where An efficiency measure that allows users of our
margin net revenue includes gross performance fees. financial statements to assess what percentage of net
revenues that become operating profit.
OM Asset Management
Economic Net ENI is economic net income, the alternative This measure is used by OM Asset Management to
Income (ENI) management metric for OM Asset Management evaluate the financial performance of, and to make
profit. Similar metrics are used by US industry operational decisions for, the business.
peers.
ENI operating The ENI operating margin is a non-GAAP An efficiency measure that allows users of our
margin efficiency measure, calculated based on ENI financial statements to assess what percentage of net
operating earnings divided by ENI revenue. revenues that become operating profit.
Principal risks
The principal risks reported within the 2016 year-end report and accounts remain key to the achievement of the business plans and the
successful implementation of the managed separation. The table below provides an update on these key risks:
Current impact and risk outlook Risk mitigation and management actions
Global macroeconomic conditions and political risk
Uncertain global economic conditions and political risk increased in the We have incorporated the updated economic forecasts into our
external risk landscape during the first half of 2017. group-wide stress and scenario testing.
The South African economy is now in recession for the first time since We are closely monitoring the possible impacts of the South
2009 due to lower growth prospects reflecting policy uncertainty, slower African sovereign downgrade and recession on earnings,
progress with structural reforms and the weakening of the institutional particularly, within our credit lending businesses.
framework. In March 2017 the long anticipated sovereign debt
downgrade occurred after the government cabinet reshuffle. OMW are incorporating the implications of a 'hard Brexit'
scenario within their stress and scenario testing for capital and
A weakening economy could increase financial pressure on consumers liquidity to understand the possible longer term implications.
as disposable income levels reduce. Basic commodity price increases
could be amplified by a weakening currency. This could affect our SA OMEM and Nedbank continue to engage in the South African
earnings, due to reduced demand for financial products and services "CEO's initiative" that remains committed to continuing to work
and increases on lapses and credit default rates. with government and labour to jointly and cohesively stimulate
economic growth, instil investor confidence and address
socioeconomic development in South Africa (see OMEM and
There will remain a high level of political risk in South Africa over the Nedbank's business Review sections)
next couple of years, with the 2017 African National Congress (ANC)
conference and 2019 national elections. Asset-based fee risk within OMEM and OMW is managed by
offering customers a comprehensive range of internally
FTSE 100 equity levels remain high with a weaker pound boosting managed investment solutions and by diversifying our product
sterling profitability for a high number of multinational firms within the offering.
FTSE 100. In the UK uncertainty over Brexit implementation remains,
Brexit following the recent general election and have been further
heightened given that the Conservative government failed to secure an
outright majority. This could cause volatile and uncertain market
conditions over the next few years and could impact asset based fee
levels within OMW.
Financial Services in South Africa, amongst other sectors, is potentially
subject to further developments of Broad Based Black Economic
Empowerment (BBBEE). Details are not yet clarified.
MS execution risk
The key execution risks to the managed separation are ensuring: Both the financial and non-financial risks to the managed
separation are constantly monitored, ensuring that we remain
- That key transactions are executed in a manner that balances within the financial risk appetite metrics (central liquidity
value, time, cost and risks. resources, capital and earnings volatility) throughout the
- That plc contingent liabilities and pre-existing plc risks are managed separation period. We also continue to monitor risk
appropriately wound down or closed out. culture across the Group.
- The Plc Head Office is wound down in an orderly manner.
- The currently unlisted operating businesses are sufficiently well- The managed separation governance framework has been
capacitated to operate as independently listed entities. refreshed to ensure greater focus on implementation.
Progress has been made over the past six months to manage
As the manage separation moves into execution mode risks remain over down and de-risk plc's residual NAV and pre-existing items,
complexity, stakeholder management and people risk. via the:
- Execution of key transactions, such as reducing the
OMAM stake from 51.1% to 20.1%, the completion of the
Italian business sale, the repayment of the Group tier 1
debt, the Kotak sale and conversion of the proceeds of
these sales into plc's reporting currency. Sterling is also
the currency of the bulk of its outstanding financial
liabilities
- De-risking the plc contingent liabilities, pre-existing and
plc wind down, for example the close out of OMAM seed
capital and the buy-in of the benefits of the two legacy
pension schemes (see pre-existing items section).
- Monitoring progress of the currently unlisted businesses
towards operating as independently listed entities and the
orderly wind down of plc Head Office
These factors help to reduce the level of uncertainty within the
managed separation base case, however, until transactions
are finalised, a degree of risk remains. Dedicated resource
continues to be allocated to the remaining plc pre-existing
items to ensure they are effectively closed-out.
Business strategic execution risk
Execution risk across the Group remains high, In particular within Each of the four businesses has its own managed separation
OMEM and OMW, with the implementation of the managed separation, projects and governance structures in place, with specialist
high levels of regulatory change and the continuation of our major IT and project management resource.
business change programs.
The IT programmes have a strong governance framework in
During 2017, both IT programmes have partially been de-risked. In place with regular review from the businesses' boards.
OMEM their IT transformation project has been restructured and re-
planned and OMW has contracted with a new supplier for its UK The plc and the businesses continue to prepare for
platform transformation programme. forthcoming regulatory changes cognisant of the implications of
the managed separation and evolving governance
requirements.
Regulatory change across the Group remains high and affects the entire
industry. Lessons learnt from OMW UK platform transformation
programme are being formalised and will be shared across the
Cyber risk across all businesses remains a key focus area. Group and Progress is being made working with the new UK
Platform Transformation supplier (see OMW Business review
The cumulative impact of the above could result in margin compressions section).
and resource strain.
Credit risk
Stress testing is carried out at Nedbank and OMEM (and by
One of the largest risks to Group earnings is the exposure to banking extension, Group) to understand the exposure to credit events.
credit risk from lending and other financing activities through the
ownership of Nedbank, and to a lesser but growing extent within Nedbank has defined risk limits and early-warning thresholds
Emerging Markets. for credit loss ratios. These are continuously monitored and
remain within their limits (see Nedbank's Business review
As outlined above the high levels of personal indebtedness and section).
pressure on consumers in South Africa remain a challenge, the
businesses continue to monitor this risk closely against their credit risk OMEM continues to build a credit risk management capability.
appetite limits. Credit risk is within risk appetite limits and during 2017 it has
tightened its lending restrictions.
The rest of the group have immaterial credit risk compared to the above
two businesses OMW is creating a framework that will allow it to have an
enhanced credit risk oversight across the whole of OMW.
Currency translation risk, location of capital and sources of remittances
As previously stated Group earnings, dividend and surplus capital are Capital requirements will be met by retaining capital resources
reported in Sterling, however, most of the operational earnings and in matched currencies.
substantial parts of its surplus capital are denominated in South African
Rand. We hedge the currency risk associated with reasonably certain
cash flows arising from operational activities and managed
During the first half of 2017 the Rand remained volatile, it weakened in separation transactions.
March due to the SA government cabinet reshuffle, since then there has
been some recovery, however volatility is likely to remain for the
foreseeable future. Stress and scenario testing considers currency ranges for both
currency appreciation and depreciation, and these are regularly
reviewed. The testing contributes to enhancing our
Currency risk also exists within the residual value of disposals and understanding and monitoring of the resilience of our capital
managed separation transactions not yet completed, for example Kotak and liquidity over the business plan horizon.
and further OMAM sell down.
Old Mutual Emerging Markets
Credible performance in a challenging macro environment
"It is great to be back at Old Mutual and to be leading the business into this new phase. I have spent the past couple of months
engaging with the business as well as some of our stakeholders. What is clear is that we have a great brand and the necessary building
blocks that position us for growth opportunities.
I am pleased with our delivery as we continue the good momentum across our business in the context of a challenging macro
environment and the transition of OMEM to its future as the principal operation of the new primary listed entity on the JSE.
For the six months ended 30 June 2017 we delivered pre-tax adjusted operating profit (AOP) of R6.0 billion, 1% higher than the prior
year, and pre-tax IFRS profit of R5.8 billion, 4% higher than the prior year. This was driven mainly by the meaningful turnaround in the
underwriting experience in our Corporate segment in South Africa and Old Mutual Insure as well as improved results in East Africa.
Gross sales of R103.6 billion were broadly in line with 2016 and include a 10% decline in the covered APE sales totalling R6.1 billion
and non-covered sales of R72.4 billion, which increased by 1%. NCCF of R7.3 billion was positive. However, it was lower than H1 2016
at R8.0 billion due to pressure on the top line as well as higher outflows across the business. Funds under management increased by
12% to R1,127.9 billion since the 2016 year-end.
In these uncertain times, it is important that we continue to drive a customer centric culture as we build deeper relationships with our
customers by improving our value offering. This will help us to defend whilst also growing our market positions in the mass, retail
affluent and corporate markets.
We will continue to deliver on the turnaround strategy at Old Mutual Insure which has made significant progress. Particularly pleasing, is
the iWYZE turnaround and growth trajectory, achieving a positive result of R24 million (H1 2016: R70 million loss). The business is
better positioned to collaborate with the rest of the group given its new direct link to the Old Mutual brand.
Outside of South Africa, the market opportunity on the continent is a long-term journey which we believe in and remain committed to.
Given our most recent acquisition in East Africa, we will continue to focus on driving enhanced performance and optimising our
relationships to deliver commercial opportunities.
The technology refresh, which is part of our IT investment programme, is a key enabler to our strategic delivery and improving our value
offering. The programme's estimates remain in line with previous communications. On cost efficiency leadership, we remain committed
to reviewing the overall cost base and improving expense efficiencies.
We are structuring ourselves around delivery and execution and we need to focus on the attraction and retention of the best talent to
enable this.
The credible results delivered today reflect the quality of our people and the resilience of our business.
I look forward to updating you on the progress we make as we exploit the opportunities that lie ahead for us."
Peter Moyo, CEO
August 2017
Key Financials (Rm)
H1 2017 H1 2016 % change
IFRS profit (pre-tax)(1) - restated 5,759 5,531 4%
AOP (pre-tax)(1) - restated 6,025 5,952 1%
Gross sales (Rbn)(2) 103.6 103.7 -
Covered sales (APE) 6,126 6,841 (10%)
Value of new business (VNB) 998 1,162 (14%)
Gross written premium (P&C) 8,017 8,218 (2%)
Underwriting margin (P&C) 0.7% (1.0%) 170 bps
NCCF (Rbn)(3) 7.3 8.0 (9%)
FUM (Rbn)(4) 1,127.9 1,008.7 12%
(1) IFRS profit and AOP for H1 2016 has been restated to include the actual and long-term investment return (LTIR) on shareholder assets above
the capital requirement. The impacts on AOP and IFRS profit of R217 million and R102 million respectively were previously reflected in the
Old Mutual plc result. The consolidated Old Mutual result remains unchanged.
(2) Total OMEM gross sales include intra-Group eliminations of R4,438 million (H1 2016: R4,946 million).
(3) Total OMEM NCCF include intra-Group eliminations of R2.5 billion (H1 2016: R2.2 billion).
(4) FUM is shown on an end manager basis and the prior year comparative represents the balance as at 31 December 2016.
Operating environment
The macroeconomic environment in South Africa remained challenging over the first half of 2017. Economic growth in the first quarter
contracted by 0.7% and South Africa entered a technical recession. Socio-political uncertainty following the cabinet reshuffle is
continuing to place strain on economic growth. Although the rand remains volatile, it is on average stronger than a year ago and this,
together with stable oil prices and sharply lower maize and wheat prices, has seen inflation declining over recent months. As a result,
the Monetary Policy Committee cut the repo rate by 25 basis points to 6.75% in July. Over the medium and long term, the sovereign
credit rating downgrades and related lower economic growth, as well as expected higher inflation and unemployment rates, will increase
financial pressure on our customer base. Affordability constraints, lower disposable income and lower business and consumer
confidence, are already contributing to lower top line growth. We have also seen an increasing trend towards offshore and guaranteed
return products.
The Zimbabwean economy continues to face cash shortages. However equity markets improved by 36% since the start of the year as
investors moved capital to investments perceived as protecting against currency weakness. The Namibian economy contracted by 2.7%
in the first quarter of 2017 mainly driven by a significant decline in industrial and tourism sectors, and further impacted by lower
consumer spending. East Africa's economic growth, which expanded 4.7% in the first quarter, has been negatively impacted by the
drought across the region with pressure on food prices leading to higher inflation. In Kenya, the introduction of the interest rate caps in
September 2016 has resulted in a deceleration of credit growth and thus contributing further to slowed GDP growth. In West Africa, the
improvement in the oil prices has led to a recovery in economic activity and financial conditions.
The Latin American economies have also experienced relatively slow growth. Reduced concerns about the renegotiation of the North
American Free Trade Agreement and a recovery of oil prices have strengthened both the Colombian and Mexican pesos, with the latter
one of the best performing currencies year-to-date.
Update on the strategic review of our portfolio perimeter and target operating model
Our strategy remains rooted in our vision and brand promise of Enabling Positive Futures for our customers, who span all income
segments and include both retail and corporate relationships. Our business model uniquely positions us to deliver on this vision. By
being focused on our customers' needs, in our asset gathering, asset management and protection activities, we remain relevant in the
face of social, environmental and technological changes.
In order to give focus to the priorities set by Peter Moyo, our newly appointed CEO, a number of structural and reporting changes have
been made. A new Wealth & Investment Cluster has been created to be led by Dave Macready, comprising of the Old Mutual
Investment Group and Old Mutual Wealth (South Africa) which previously formed part of the Retail Affluent segment. The remaining
South African businesses now report directly to Peter Moyo, including the South African Property & Casualty business rebranded as Old
Mutual Insure (previously Mutual & Federal). In addition to this, changes were made in the Rest of Africa portfolio to simplify the
structure, which will allow for more opportunities for growth, remove unnecessary costs and eliminate duplication.
We previously communicated that we would prioritise our high-return and cash generative businesses in sub-Saharan Africa and seek
to improve returns from our recent investments in East and West Africa. As such, the first of the portfolio changes is the agreed sale of
the 26% share in our joint venture in India, Kotak Mahindra Old Mutual Life Insurance, for net proceeds to Old Mutual plc of
c.R2.4 billion (GBP138 million). The transaction is expected to conclude in H2 2017.
We also announced that we had agreed with Old Mutual Wealth in the UK that we will acquire certain of its international operations that
provide offshore solutions to South African clients. This transaction is expected to complete in Q3 2017. We have commenced the
transition for reporting these operations and accordingly OMEM's pre-tax AOP includes the international operations profits of R38 million
for the first time. Prior year comparatives have not been restated.
Any further changes to our current portfolio will likely be effected through various corporate actions which will balance time, value and
risk in delivering enhanced value. We will provide further updates as to the timing and nature of any possible consequential transactions
in due course.
OMEM financial results review
Against the landscape of macroeconomic uncertainty and volatility, OMEM reported a credible result with pre-tax AOP of R6,025 million,
which was 1% higher than the prior year. This reflects a significant turnaround in the Old Mutual Insure underwriting result, strong
recovery of risk underwriting results in South Africa's Corporate segment and improved results in East Africa. The South African retail
segments generated lower profits in relatively flat and volatile equity markets and worsening consumer conditions. OMEM continues its
tight management of expenses, resulting in administration expenses in the first half of 2017 increasing by only 1% against the prior year,
well below current inflation levels. Debt costs of R286 million were higher than the prior year of R259 million.
OMEM's IFRS profit (pre-tax and NCI) of R5,759 million was 4% higher than the prior year. The IFRS profit result is lower than pre-tax
AOP due to adjusting items of R749 million (H1 2016: R833 million) partly offset by the inclusion of income tax attributable to
policyholder returns of R483 million (H1 2016: R412 million) in pre-tax AOP. Adjusting items include positive short-term fluctuations of
R629 million (H1 2016: negative R656 million) as the actual shareholder investment returns were higher than the LTIR assumed in
AOP, driven by stronger equity markets in Zimbabwe. This was partly offset by one-off managed separation and standalone costs as
well as costs relating to the strategic review totalling R81 million; and a further goodwill impairment of R1.2 billion related to the Rest of
Africa.
The impairment follows the simplification of the operating structure of the Rest of Africa portfolio and the consequential alignment of the
routine goodwill valuation review in accordance with accounting requirements, which is now applied at the UAP-Old Mutual Group entity
level in East Africa. The review was previously performed at the Old Mutual Southern and East Africa (OMSEA) level, which also
included more mature businesses in Namibia and Zimbabwe. The performance of the East Africa businesses, which was weaker than
anticipated at the time of the previous impairment review, also had a minor impact. The continued focus on identified strategic priorities
in the East African business is resulting in an improvement in the performance, albeit over a longer timeframe than anticipated at
acquisition.
Gross sales of R103.6 billion were broadly in line with H1 2016. Covered APE sales of R6,126 million were 10% below the prior year,
whilst non-covered sales of R72.4 billion increased by 1%. In the South African businesses top line growth was constrained against a
particularly tough macroeconomic environment. Gross written premiums for the Property & Casualty businesses of R8,017 million
declined by 2% from H1 2016 mainly due to remedial action taken on the loss making books in both South Africa and East Africa.
Despite this, the Property & Casualty underwriting margin improved to 0.7% (H1 2016: -1.0%) following the material improvement in
underwriting results.
OMEM maintained a strong PVNBP margin of 3.2% in H1 2017 (H1 2016: 3.3%), despite a decline in covered business APE growth in
South Africa. The PVNBP margin in South Africa remained strong at 3.3% (H1 2016: 3.5%). VNB reduced by 14% to R998 million as a
result of the lower sales as well as operating assumption and methodology changes made at the end of 2016. This was partly offset by
pricing reviews on the Retail Affluent and MFC protection books and higher Absolute Growth Portfolio sales in Namibia.
Positive NCCF of R7.3 billion was supported by strong flows in Latin America and Asia. Old Mutual International flows for the period are
now included in OMEM following the transfer of the international operations from Old Mutual Wealth in the UK, however prior year
comparatives have not been restated. The South African operations in aggregate reported net outflows of R0.2 billion including the loss
of a small number of large institutional, low margin, asset management mandates totalling more than R6.0 billion, as well as a single
R1.0 billion outflow from the Namibian government pension fund. Funds under management increased by 12% to R1,127.9 billion from
the 2016 year-end, largely due to the inclusion of offshore funds previously reported by Old Mutual plc in Old Mutual Asset Management
in the United States as well as the Old Mutual International flows.
The Return on Equity, calculated as AOP (post-tax and NCI) as a % of average IFRS equity attributable to shareholders of the parent,
reduced from 20.0% at H1 2016 to 19.2% at H1 2017 due to the higher IFRS equity attributable to shareholders of the parent of
R44.8 billion (H1 2016: R41.3 billion). The increase in equity attributable to shareholders is principally due to growth in IFRS profits.
The Return on Embedded Value remained strong at 12.8% in H1 2017, however is lower than the 14.8% at H1 2016. Operating MCEV
earnings (post-tax) declined by 10% on the prior year to R3,769 million, which included South African operating MCEV earnings of
R3,388 million which were 14% down on the prior year. This was mainly due to a lower new business contribution and reduced
experience variances. Experience variances remained positive overall, with strong mortality, disability and expense profits. The disability
experience improved materially from the large losses reported in H1 2016. This was partly offset by adverse persistency experience in
South Africa, which is indicative of the continued financial strain caused by the economic environment.
Segmental operating review
South Africa
In South Africa, AOP of R5,217 million was 2% behind the prior year due to lower asset based fee income in Retail Affluent and lower
profits in the unsecured lending business reported in MFC. This was partly offset by a strong recovery in the underwriting results of Old
Mutual Insure and Corporate as well as tight management of administration expenses.
In Retail Affluent, profits of R1,765 million were 7% down on the prior year driven by lower asset based fee income and lower annuity
investment earnings. This was partially offset by a R90 million net positive impact of reserving changes, as well as the first time
inclusion of the Old Mutual International operations transferring from Old Mutual Wealth in the UK. Covered APE sales of R1,771 million
were down 5% with sales of both protection products and tax free savings plans lower than the prior year. Non-covered sales reduced
by 6% to R27,796 million driven by lower direct unit trust and Old Mutual Wealth (South Africa) platform flows. The combination of lower
sales and higher outflows resulted in a negative NCCF result of R0.4 billion illustrating the effect of customers being under significant
financial strain.
MFC profits declined by 7% to R1,376 million, mainly as a result of a 34% reduction in OMF profits to R364 million. Excluding OMF,
MFC profits were 10% above the prior period due to better mortality experience as well as good expense management. Covered APE
sales of R1,766 million were 3% below the prior year as the lower disposable income, as a result of the tougher economic environment,
continues to impact our MFC customers. NCCF of R2.9 billion increased by R0.3 billion from the prior period.
Lower OMF profits were mainly due to lower average loan yields following the implementation by the Department of Trade and Industry
(DTI) of interest rate caps in May 2016. The prior year benefited from a one-off positive impact (lower provision charge) due to a
reduction in the loss recovery discount rate associated with the implementation of the DTI interest rate caps.
In preparation for IFRS 9 - Financial Instruments, which comes into effect in 2018, management reviewed the credit quality assessment
used for calculating provisions within OMF which now takes into account recent payment behaviour. This resulted in a lower provision
(and an associated positive profit impact) as the payment behaviour on long overdue loans was better than anticipated. This was partly
offset by writing off R4.3 billion of long outstanding loans (and releasing the corresponding impairment provision), which were deemed
to have low recoverability.
The remaining R1.1 billion of long outstanding loans have now been categorised as defaulted loans. R0.7 billion of restructured loans
where payment behaviour has improved have been reclassified as performing loans in line with the principles of the SARB directive
7/2015. In both cases the original provision coverage was maintained, resulting in an increase in the provision coverage of these
categories. The net impact was a 22% decline in the loans and advances to R11.2 billion since H1 2016, and a one-off positive AOP
impact of R78 million in H1 2017.
Excluding the one-off impacts in H1 2016 and H1 2017, OMF's normalised profits reduced from R392 million in H1 2016 to R286 million
in H1 2017. This was driven by lower net interest income and non-interest revenue, which were 15% and 6% down on the prior year
respectively, whilst credit losses of R350 million were 15% lower than the prior year. This resulted in a reported credit loss ratio in the
first half of 2017 of 6.3%. The prior year credit loss ratio of 5.7% benefited from the one-off impairment methodology change.
Corporate profits of R799 million increased by 20% benefiting from significantly improved group risk underwriting experience and higher
investment earnings, which was supported by pricing remediation and process improvements. Covered APE sales of R1,159 million
were 24% behind the prior year mainly due to lower group assurance risk sales as well as lower Absolute Growth Portfolio smoothed
bonus sales to retail customers. H1 2016 included large single premium deals that were not repeated in the current period. Non-covered
sales of R1.9 billion were R1.4 billion lower, mainly due to a R1.8 billion single flow included in the prior period. The decline in gross
sales together with higher benefit payments resulted in a negative NCCF of R0.3 billion, which was R3.1 billion below the prior year.
OMIG profits of R402 million were 10% lower than the prior year, driven by lower transactional fee income and index hedging results at
OMSFIN. This was partly offset by higher base asset management fees from the listed asset management boutiques. Positive NCCF of
R0.4 billion was achieved on the back of strong inflows into the Liability Driven Investment boutique. This was largely offset by the loss
of a small number of large mandates totalling more than R6.0 billion from Futuregrowth and Customised Solutions. Non-covered sales
of R19.4 billion were 13% lower than the prior year reflecting weaker retail investment conditions. OMIG retail funds have performed
well over the past year with multi-asset funds notable in delivering top quartile performance.
Mutual & Federal, our South African Property & Casualty business, was rebranded to Old Mutual Insure in June 2017, creating a direct
link to the Old Mutual brand, which will enable the group to leverage brand equity across customer segments, enhance collaboration
and provide further cross-sell opportunities. Old Mutual Insure's underwriting margin improved significantly from (1.0)% in H1 2016 to
2.3% in H1 2017, reflecting the turnaround in the prior year underwriting loss of R44 million to an underwriting profit of R96 million in H1
2017. The positive result was driven by improved claims experience across most lines as a result of the lower frequency motor claims
and the positive impact of the remedial action taken by the business to improve the quality of the commercial and corporate portfolio.
Catastrophe events, including a firestorm in the Western and Eastern Cape in early June, caused substantial losses to property owned
by our customers resulting in an increase in the catastrophe losses reported in the period. Our reinsurance structures put in place in the
second half of 2016 have helped to limit our net underwriting losses to within our risk appetite, however we have prudently reserved for
catastrophe losses in the period. Gross written premiums of R6.1 billion were 2% higher than the prior period mainly as a result of
stricter underwriting criteria. iWYZE continued its turnaround and growth trajectory, achieving a positive underwriting result of R24
million (H1 2016: loss of R70 million) in the first half of 2017 and strong premium growth of 13% compared to the prior year. During the
period, Old Mutual Insure completed the sale of a 25% equity interest in CGIC, the specialist corporate credit insurer, for R494 million to
Atradius. As a strategic partner for CGIC, Atradius is expected to provide access to a range of benefits that include reinsurance, brand
positioning, technology and risk underwriting. A gain on the transfer to minority shareholders of R280 million was recognised directly in
equity.
Reported LTIR in South Africa of R967 million (H1 2016: R1,105 million) includes net income on assets in excess of regulatory required
capital, which was previously reported in the Old Mutual plc head office result. Prior year comparatives have been restated. Central
costs of R188 million were 14% lower than the prior year through expense reduction initiatives as well as timing differences.
Rest of Africa
Profits of R773 million were 31% higher than the prior year in reported currency (38% higher in constant currency), mainly due to
improved underwriting results in Property & Casualty and lower Life & Savings new business strain in East Africa, as well as favourable
currency movements in West Africa. The prior year included higher finance costs in MPICO, the property management business in
Malawi. Administration expenses were 12% lower than the prior year driven by management cost initiatives, including a restructuring of
the UAP-Old Mutual Group in East Africa. In the Property & Casualty businesses, gross written premiums of R1,919 million, were 13%
lower than prior year following remediation actions on loss making books of business in East Africa. Covered APE sales of R542 million
were in line with prior year, whilst non-covered sales of R6.8 billion were 1% higher. Higher outflows, including a R1.0 billion
disinvestment in Namibia, resulted in NCCF of R1.6 billion which was 27% lower than the comparable period.
In Zimbabwe, profits of R487 million (including LTIR) declined by 5% on H1 2016 as a result of the strengthening of the rand on average
against the US dollar, the local currency in Zimbabwe. Profits increased by 11% in constant currency supported by higher asset based
fee income from the strong equity market. This reflects great resilience of the business in a challenging operating environment.
However, consumers remain under pressure and the ongoing liquidity constraints contributed to a 15% decline in gross sales, which
resulted in a R0.1 billion decline in NCCF at R0.4 billion compared to the prior year. CABS, which provides banking services in
Zimbabwe, had loans and advances of R8.3 billion as at June 2017 which were 2% up on H1 2016, but 11% up in constant currency.
Growth was largely generated by an increase in business lending. Deposits decreased by 1% in reported currency, but were 11% up in
constant currency due to higher transactional deposits. The higher deposits and the introduction of interest rate caps in Zimbabwe has
resulted in net interest income being down 20% (7% in constant currency) on the prior year. However, non-interest revenue increased
by 9% in reported currency (20% in constant currency) mainly driven by higher transactional income following the continued roll-out of
electronic payment devices. The credit loss ratio normalised to 0.6% compared to (1.1)% at H1 2016 which included one-off recoveries
of previously impaired loans.
Namibia profits of R300 million (including LTIR) were 2% higher than the prior year, with covered APE sales of R267 million 15% higher
and non-covered sales of R2,529 million were 11% higher. NCCF of R18 million was significantly down on the prior year (H1 2016:
R0.8 billion), mainly reflecting a R1.0 billion withdrawal of a low margin investment by the government pension fund. During 2016, OMF
South Africa sold its stake in OMF Namibia to Old Mutual Namibia. Consequently, the results for OMF Namibia have been consolidated
for the first time within Old Mutual Namibia (previously equity accounted proportionately in South Africa and Namibia). Prior year
comparatives have not been restated. As at 30 June 2017, the business reported loans and advances of R509 million and a credit loss
ratio of 7.7%.
East Africa profits of R69 million (including LTIR) were significantly better than the prior year loss of R44 million reflecting improved
claims experience in the Property & Casualty business and lower new business strain in the Life & Savings result in Kenya. In the prior
year, property rental income was adversely affected by construction delays which completed by the year-end. The buildings have
started to generate income, and most of our Kenyan operations have now relocated into the UAP-Old Mutual Tower in Nairobi. Gross
written premiums of R1,132 million were 14% lower as a result of remediation of unprofitable books of business. Covered APE sales of
R45 million were 32% lower, mainly due to lower corporate renewals, while non-covered sales of R1,895 million were 18% higher
following a large single premium investment from the University of Nairobi's pension fund. As a result, NCCF improved to R0.8 billion
compared to the prior period (H1 2016: R0.6 billion). Faulu, which provides banking services in Kenya, reported an 19% decline in the
loan book to R2.2 billion (6% down in constant currency) mainly driven by stricter lending criteria following the introduction of interest
rate caps. Deposits were 18% down (6% decline in constant currency) due to a more competitive environment for bank deposits. As a
result, net interest income was 30% down (17% in constant currency) on the prior year. Non-interest revenue was down 4% in reported
currency, but increased 16% in constant currency mainly due to higher transactional revenue. The credit loss ratio improved to 0.6%
(H1 2016: 0.8%) as a result of improved collection experience.
Progress with the integration of the UAP-Old Mutual Group has been slower than anticipated. Although operational performance has
improved strongly since H1 2016, the results remain behind our initial expectations. We continue to be confident that enhanced
performance will be achieved in the medium term as we remain focussed on driving operational efficiencies throughout the East African
business. During H1 2017, UAP delivered AOP post-tax and NCI of R21 million on invested capital of R2,899 million, yielding an
annualised return on investment of 1.4% (H1 2016: 0%). An operational restructuring of the combined entity was completed during H1
2017 resulting in significant changes in the management structures to unlock performance improvement opportunities. Initiatives to
improve the underwriting and claims processes are ongoing, leveraging expertise from Old Mutual Insure. Following a strategic review,
it was agreed to dispose of the non-core operations in the Democratic Republic of the Congo to AIBA, a leading Angola-based
insurance broker. The transaction was approved by the regulator and by shareholders at the UAP Holdings Annual General Meeting in
June, and is expected to complete by the end of 2017. Further progress has been made on the optimisation of the combined entity's
balance sheet with the consolidation and reduction of debt, and identifying properties earmarked for sale, subject to acceptable
valuations.
Latin America and Asia
Latin America profits of R218 million were 6% higher in reported currency (up 14% in constant currency) as a result of higher investment
returns in Colombia and lower losses in Mexico as this business continues to gain scale. Covered APE sales of R271 million were down
2% in reported currency, but 20% above in constant currency driven by higher retail sales in both Colombia and Mexico. Non-covered
sales of R21.9 billion were 38% above the prior year due to corporate savings flows in Mexico and the inclusion of Old Mutual Global
Investors flows through AIVA, which were not included in the prior year. As a result, NCCF of R7.3 billion was R4.4 billion higher than
the comparative period.
In Asia, profits of R105 million were 28% higher than the prior year (45% increase in constant currency) mainly due to higher investment
income in India. OMEM AOP includes R118 million of profits from Kotak Mahindra Old Mutual Life Insurance Limited (H1 2016: R98
million). NCCF of R1.1 billion was R1.3 billion above the prior year due to lower surrenders from universal life products in China.
Cash flows and liquidity
Free surplus generation
In the first half of 2017, OMEM generated free surplus of R3,563 million (H1 2016: R2,956 million). The R607 million increase in free
surplus generated was largely attributable to significant positive investment variances in the Rest of Africa following high returns from
Zimbabwe's volatile equity market. This resulted in an increase in the conversion rate to 86% (H1 2016: 72%) of AOP post-tax and NCI
of R4,144 million, which was flat against the prior year.
Covered business free surplus generated in OMEM is calculated using the free surplus component of MCEV earnings. Non-covered
business free surplus generated is calculated as AOP post-tax and NCI adjusted for short-term fluctuations in investment return and
movements in required capital for OMEM's Property & Casualty business.
During H1 2017, OMEM remitted R1.0 billion of the free surplus generated (H1 2016: R2.7 billion) to shareholders. The lower dividend
relative to the prior year is in line with Old Mutual plc's conservative approach in setting the group dividend. This will allow the business
to further strengthen its liquidity and solvency needs in preparation for SAM and standalone balance sheet requirements.
OMEM debt and credit rating
The book value of non-banking debt was R5,945 million as at 30 June 2017 (H1 2016: R5,897 million). OMLAC(SA) has R3,475 million
in fixed rate Tier 2 bonds and R2,525 million in floating rate Tier 2 bonds. The fixed rate bonds have first calls in 2019, 2020, 2022 and
2025, while the floating rate bonds have first calls in 2019 and 2020. As at 30 June 2017, OMEM subsidiaries had drawn R260 million of
a total R5,250 million revolving credit facility. UAP has a KES 2,098 million fixed rate corporate bond maturing in 2019 and debt of
USD 57 million (includes USD 31 million from Nedbank and USD 10 million from Old Mutual Africa Holdings) maturing in 2019, 2020
and 2023.
On 7 August 2017, S&P noted that it had reviewed its National Scale Ratings on South Africa's insurers that were previously labelled as
"under criteria observation" (UCO), after recalibrating its national scale mapping table for South Africa. As a result of this review,
OMLAC(SA)'s national scale rating was revised to zaAAA/--/zaA-1+ from zaAA-/--/zaA-1. Furthermore, the rating on the subordinated
deferrable notes was revised to zaAA from zaA. At the same time, the UCO identifier on these ratings was removed. The rating actions
do not reflect a change in S&P's view of the fundamental credit quality of OMLACSA or OMLACSA issued debt.
Solvency position and regulatory developments
OMEM has a strong, well-diversified and resilient balance sheet which will be able to withstand a number of shocks. We disclose
solvency capital under the current regulatory capital rules (South Africa statutory valuation method), but have adopted the provisional
Solvency Assessment and Management (SAM) basis for our South African businesses, in the way we manage capital. Although
aspects of the regulatory prudential standards still need to finalised, we expect the OMLAC(SA) and OMEM Group balance sheets to
demonstrate strong resilience on the SAM basis.
As at 30 June 2017, OMLAC(SA)'s capital coverage was 3.1x (H1 2016: 3.1x) using the current regulatory capital rules. Old Mutual
Insure's capital coverage was 1.6x (H1 2016: 1.5x).
Customer and product experience developments in the year
In line with our vision of becoming our customers' most trusted partner and to help them reach their financial goals, OMEM continues to
focus on customer centric product innovations, expanding our reach with new distribution channels and enhancing the customer
experience. OMEM has 11.6 million customers, strongly up from 10.9 million at the end of 2016, with 6.0 million customers in South
Africa (FY 2016: 5.9 million) and 4.9 million customers in the Rest of Africa (FY 2016: 4.4 million). The strong year-to-date growth in
Rest of Africa was driven by new group life members in Kenya as well as excellent traction through our partnerships with mobile network
operators in both Kenya (healthcare) and Swaziland (funeral cover).
We continue to invest in IT to enable growth and manage risk through a refresh of our IT landscape, including improving our direct and
digital offerings, replacing legacy systems from time to time and IT enablement of our East African business.
In South Africa the key driver of our investment into IT is to replace IT platforms that will reach end-of-life by 2020. We have taken the
opportunity to also enhance our South African retail propositions. We are implementing the changes in a staged and carefully managed
manner covering both the enhancing of retail propositions and migrations from the end-of-life platforms. This programme remains on
track to deliver in stages until 2020 and within the cost parameters communicated at the preliminary results in March. We have reduced
the risk of overruns by negotiating fixed price contracts for a material part of the programme.
We have built a proven track record in delivering shareholder value through partnerships, with both public and private sector enterprises
and within and across geographical borders. We believe that such mutually beneficial partnerships are a strategic differentiator,
unlocking value-added services for customers and growth potential for all partners involved.
In South Africa, our direct online offering for savings products, including the Tax Free Savings Plan and Flexible Plan, was strengthened
by the addition of two products providing life cover. The launch of iWYZE Life in March 2017 was followed with a funeral cover plan in
May 2017. Take up of our new fixed bond offering (in partnership with Clientele) exceeded expectations and added R170 million of
inflows in just 5 weeks. We also launched the 100% Peace of Mind campaign in May which offers enhanced definitions for Greenlight
Severe Illness as well as a campaign focusing on single premium savings for retail customers.
Our branch network is key to our Integrated Financial Services strategy which is delivering customer value by providing a seamless
experience. In-branch staff are able to assist customers meet multiple financial sales and service needs while capitalising on cross-sell
opportunities. During the first half of 2017 we opened 15 new branches (307 in total). This branch network contributes 30% to total MFC
covered APE sales (up from 28% at the end of 2016), with better persistency experience and higher productivity than other channels.
We have also rolled out free WI-FI to all branches allowing our visiting customers access to data connectivity.
In partnership with Telkom, we continue to offer both funeral cover and handset insurance to the Telkom Mobile customer base. We
cover 13,000 customers at no extra cost when they top-up their Telkom airtime by R100, while Telkom Handset Insurance, which is
underwritten by Old Mutual Insure, has over 19,000 customers.
In the first half of 2017, Old Mutual Investment Group launched a new active fundamental Global Equity boutique, Old Mutual Titan. The
boutique will initially manage a global equity UCITS fund, which is an all-country equity fund with both developed and emerging market
exposure, and will be available to domestic and international retail and institutional investors.
In the Rest of Africa, Old Mutual Botswana Life Insurance was officially launched in March, while the Property & Casualty operation
received regulatory approval for a travel insurance product. In Malawi, new funeral and savings products were launched to the retail
mass market in June. In Zimbabwe, the reach into the informal market was expanded through the launch of Old Mutual Finance in May,
a micro-lending business, as well as the construction of an SME Centre in Harare to provide affordable office space for small and
medium sized enterprises. In Nigeria, a new term plan with a cash-back option was launched and we have partnered with Ecobank to
deliver both Life and Property & Casualty bancassurance products, subject to regulatory approval. In Ghana, the bancassurance model
has been fully implemented and this channel now accounts for approximately half of Ghana's retail sales.
In Latin America, the Vision Flex savings product in Mexico was enhanced with the addition of a short-term savings pocket to make the
product simpler and more affordable for customers.
Group collaboration and managed separation process
Nedbank and OMEM (including Old Mutual Insure) continue to work towards committed synergies of R1.0 billion by end 2017 through
deeper collaboration. We remain well on track and expect to exceed our target of R1.0 billion by the end of the year.
We continue to work with our Old Mutual plc head office and our fellow subsidiaries in executing the managed separation. In our
managed separation readiness processes we are building capabilities and developing our target operating model. OMEM is expected to
form the principal operating subsidiary of Old Mutual Limited, post the unbundling of Nedbank.
Our estimates relating to costs in preparation of becoming standalone are unchanged. We expect to spend up to R100 million per
annum as recurring listing costs and between R100 million and R180 million per annum on other incremental recurring costs related to
being a standalone company. As we implement business improvements and establish local capabilities we also expect to incur one-off
costs of between R250 million and R300 million over 2017 and 2018, although less is expected to occur in 2017 than previously
indicated. In the first half of 2017, we only incurred R81 million. The one-off managed separation and business standalone costs are
reported in IFRS profits only.
Supporting economic transformation
Given the dynamic nature of the South African political and economic environment we are focused on engagements with key
stakeholders, including the National Treasury, regulators and leading labour federations and we remain involved in various thought
leadership initiatives supporting the National Development Plan. We are also engaging with regulators elsewhere, including in
Zimbabwe, Botswana, Kenya, Tanzania and Nigeria.
OMEM continues to be committed to the CEO Initiative in South Africa. The Initiative's mandate is unchanged and the CEOs remain
committed to continuing to work with government and labour to jointly and cohesively stimulate economic growth, instil investor
confidence and address socioeconomic development in South Africa in order to achieve a more inclusive and faster-growing economy.
Key aspirations include preventing further sovereign credit rating downgrades and restoring our investment grade credit ratings over
time. A Chief Executive has been appointed to head up the CEO Initiative's R1.5 billion SME Fund, which will start deploying funds to
small and medium enterprises within South Africa in the second half of 2017.
We recognise the challenging nature of the social, political and environmental operating context in Africa and understand the long-term
consequences of this for our business, our customers and broader stakeholders. We see great opportunity in responding to these
challenges through a shared value approach to driving inclusive socioeconomic transformation. Our group-wide Responsible Business
Programme is focused on unlocking shared value opportunities in the areas of financial wellbeing and responsible investment, both of
which are central to our core business model. We know that addressing these issues will be good for our business and the societies in
which we operate. We execute on this through various initiatives.
OMEM remains committed to the promotion of entrepreneurship and the development of the small, medium and micro-sized enterprise
(SMME) ecosystem as a key catalyst for job creation. To date we have committed c.R150 million through various initiatives including
the Masisizane Fund, the Old Mutual Foundation and supporting supplier development. Together with Nedbank, we remain committed
to our BEE partners, WIPHOLD, Brimstone and Izingwe, through various initiatives. The Masisizane Fund is celebrating its 10th
anniversary in 2017. This fund was established from the unclaimed shares 10 years after our demutualisation as a vehicle to support
the development of SMMEs through loan financing, training and mentorship. Since inception, this fund has approved loans of c.R500
million of which c.R400 million has already been disbursed. Through this investment, the fund has supported over 200 enterprises and
facilitated the creation of more than 6,700 jobs.
The Education Flagship programme which supports development of teachers and school leadership teams with coaching and mentoring
to contribute towards building effective schools remains a priority for OMEM. This programme is currently active in 4 provinces. In
addition, we have committed further investments with initiatives such as the Partners for Possibility (PFP) and Ikusasa Student Financial
Aid, which is backed by government and the private sector to provide an alternative financing and operating model for higher education
to address the funding crisis affecting working class students.
We continue to make good progress on our Responsible Investment commitment to systematically integrate the consideration of
Environmental, Social and Governance issues into our investment processes. Additionally we are working to drive our contribution to the
development of a socially inclusive, resource efficient and low carbon economy, referred to as a "green economy". We developed a
Green Economy Taxonomy that allows us to classify our unlisted securities regarding their green economy attributes. Based on the full
year 2016 assets under management, c.R112 billion of our clients' capital, including debt and equity, is at work in the green economy.
Key risks
The key risks to delivering our strategic ambitions remain broadly in line with those described in the OMEM section of the 2016 Old
Mutual plc Annual Report. During the first half of the year, the tough economic and uncertain socio-political environments created
investor uncertainty in the major regions where we operate, in particular South Africa, Zimbabwe and Namibia. Although sales have
been negatively affected, the business remains resilient.
We are currently exposed to higher levels of strategic change risk, including the managed separation process, technology investment
and regulatory developments that could adversely impact our distribution models. Considerable management focus is being directed to
these areas. We are investing in new technology and redesigned business processes, along with other initiatives to combat cybercrime
risk, which remains high against the landscape of multiple major global incidents since the start of the year.
We continually evaluate our risk exposures for the key risk metrics (Regulatory Solvency, Economic Capital at Risk, Earnings at Risk
and Liquidity), which includes regular stress testing, to ensure that we pro-actively manage risks to enhance returns while ensuring that
risk exposures remain within risk appetite. In this regard, stress and scenario testing has been undertaken to understand the impact of
potential further sovereign credit rating downgrades to the South African businesses, which helped in formulating management plans to
ensure that particularly our credit risk exposures in particular remain within our risk appetites.
Business prospects and outlook
Economic conditions across the emerging markets where we operate are expected to remain challenging, with continued currency and
equity market volatility placing pressure on fee based income across the business. In sub-Saharan Africa, 2017 GDP growth is forecast
at 2.6%, whilst South Africa's economy is forecast to grow at 0.8%. Following the recent 25 bps rate cut, we expect interest rates to
remain stable for the remainder of the year and inflation to remain within the target range. However, as the full impact of the sovereign
credit rating downgrades filters into the economy, we anticipate that our customers will remain under financial pressure as
unemployment rates increase and consumer spending declines, which may continue to impact our top-line growth, retail persistency
and credit losses over the cycle.
Despite these conditions, we believe that consistent with the outlook provided at the Old Mutual plc AGM statement, OMEM's
businesses remain resilient and are well positioned to face the headwinds. Specifically:
- We continue to have expectations for moderate full year earnings (pre-tax) growth.
- We anticipate that the actions that have been put in place at Old Mutual Insure will deliver an underwriting margin within our target
range of 4% - 6% through the cycle.
- In East Africa, we will continue with the integration of our local businesses to drive performance, with particular focus on the
underwriting profitability of the Property & Casualty businesses.
We remain focused on customer retention efforts, through product design and management actions during this time of softening retail
confidence and income growth; improving our cost to income ratio through cost efficiency leadership such that our cost base is expected
to grow at less than inflation (inclusive of the incremental recurring costs as a result of managed separation); and optimising our
standalone balance sheet whilst maintaining a sustainable dividend cover.
Emerging Markets data tables (Rand)
Adjusted operating profit by cluster (pre-tax, Rm) H1 2016
H1 2017 Restated % change
Retail Affluent(1) 1,765 1,892 (7%)
Mass Foundation 1,376 1,477 (7%)
Corporate 799 666 20%
OMIG 402 448 (10%)
Property & Casualty 96 (44) 318%
LTIR(2) 967 1,105 (12%)
Central expenses and administration(1) (188) (218) 14%
South Africa 5,217 5,326 (2%)
Rest of Africa 456 282 62%
LTIR 404 405 -
Central expenses and administration (87) (99) 12%
Rest of Africa 773 588 31%
Asia & Latin America(3) 323 287 13%
Central expenses and administration (2) 10 (120%)
Asia & Latin America 321 297 8%
Debt costs (286) (259) (10%)
Total Emerging Markets 6,025 5,952 1%
(1) From 2017 onwards, Retail Affluent AOP includes Old Mutual International as this is reported in OMEM's results, previously OM Wealth (H1 2017:
R38 million). Comparatives have not been restated.
(2) From 2017 LTIR on assets in excess of regulatory required capital is now reported within OMEM, previously reported within Old Mutual plc.
Comparatives have been restated (H1 2016: R217 million).
(3) Asia AOP includes India profit of R118 million in H1 2017 (H1 2016: R98 million).
Embedded Value (Rm)
H1 2017 H1 2016 % change
PVNBP sales(1) 31,049 35,679 (13%)
PVNBP margin (%)(1) 3.2% 3.3% (10 bps)
Return on MCEV (RoEV) (%) 12.8% 14.8% (200 bps)
VNB 998 1 162 (14%)
MCEV operating earnings (post-tax and NCI) 3,769 4,182 (10%)
(1) With effect from H1 2016, PVNBP includes covered APE sales in Colombia. No PVNBP or VNB is calculated in respect of covered APE sales in India
and China.
Nedbank
Highlights (Rm) H1 2017 H1 2016 % change
IFRS profit after tax attributable to equity holders of the parent(1) 2,909 3,005 (3%)
IFRS profit before tax(2) 7,757 7,595 2%
AOP (pre-tax) 7,852 7,628 3%
Headline earnings 5,271 5,427 (3%)
Net interest income 13,548 13,028 4%
Non-interest revenue 11,730 11,357 3%
Net interest margin(3) 3.58% 3.52%
Credit loss ratio 0.47% 0.67%
Efficiency ratio 59.3% 57.1%
Return on Equity 14.0% 14.6%
Return on Equity (excluding goodwill) 15.1% 15.7%
Common equity Tier 1 ratio 12.3% 11.6%
(1) IFRS profit after-tax attributable to equity holders of Old Mutual plc
(2) As reported by Nedbank
(3) Comparative rebased
The full text of Nedbank's results for the six months ended 30 June 2017, released on 2 August 2017, can be accessed on our website
http://www.oldmutualplc.com/media/news/view-news.jsp?news-id=31883. The following is an edited extract:
Banking and economic environment
Despite ongoing geopolitical tensions, economic growth in developed markets improved, supported by accommodative monetary
policies as well as manufacturing and trade activity gaining momentum. Emerging and developing economies also improved as a
consequence of growth in China, a recovery in global commodity prices and increased capital inflows as global investors search for
higher yields.
Against previous expectations of an improved economic environment in 2017, SA entered a technical economic recession, with GDP
contracting by 0.3% in the fourth quarter of 2016 and by 0.7% in the first quarter of 2017. The weakness in the economy was
widespread, with the manufacturing, utilities and domestic trade sectors all declining sharply. Consumers were placed under increased
financial pressure as unemployment rates rose to a historic high of 27.7%. This, combined with the contraction in real disposable
income and household consumption expenditure, led to a slowdown in household credit demand as households reduced debt levels,
reflected in the debt-to-disposable income shrinking to 73.2%. In addition, credit demand was impacted as government fiscal policy
focused on stabilising the budget deficit.
Confidence levels declined to new lows following President Zuma's cabinet reshuffle on 31 March 2017, which triggered a sovereign-
ratings downgrade by three international rating agencies. Standard & Poor's Global Ratings downgraded SA's foreign currency debt to
sub-investment grade, but retained the local currency rating at investment grade. Fitch downgraded the country's foreign and local
currency rating to sub-investment grade. Moody's also downgraded SA's sovereign risk ratings to one notch above sub-investment
grade. Both Standard & Poor's and Moody's placed the country on a negative ratings outlook.
While the current levels of political and economic uncertainty persist, there is heightened risk of further sovereign downgrades of the
local currency debt to below investment grade and the resultant exclusion from the Citibank World Government Bond Index would have
negative consequences for the SA economy.
Review of results
Nedbank produced a resilient performance in a macro environment that has proved to be more challenging than expected. Our
managed operations produced headline earnings growth of 6.7% to R6,433 million (June 2016: R6,030 million), driven by slower
revenue growth, reduced impairments and good cost management.
Headline earnings, including our share of the loss from ETI of R1,162 million (June 2016: R603 million loss), decreased by 2.9% to
R5,271 million (June 2016: R5,427 million).
This translated into a decrease in diluted headline earnings per share (DHEPS) of 3.7% to 1,078 cents (June 2016: 1,119 cents) and a
decrease in headline earnings per share (HEPS) of 3.3% to 1,098 cents (June 2016: 1,135 cents). Excluding ETI, DHEPS increased by
5.9% to 1,316 cents (June 2016: 1,243 cents).
ROE (excluding goodwill) and ROE decreased to 15.1% (June 2016: 15.7%) and 14.0% (June 2016: 14.6%) respectively. ROE
(excluding goodwill and ETI) improved from 18.4% to 18.9%. The ROA decreased to 1.10% (June 2016: 1.19%). Excluding ETI, ROA
improved from 1.32% to 1.35%.
Our common equity tier 1 (CET1) capital ratio of 12.3% (June 2016: 11.6%), average LCR for the second quarter of 104.6% (June 2016:
93.1%) and an net stable funding ratio (NSFR) of above 100% on a pro forma basis, are all Basel III-compliant and are a reflection of a
strong balance sheet.
Cluster financial performance
Nedbank's managed operations generated headline earnings growth of 6.7% to R6,433 million (June 2016: R6,030 million) and
delivered an ROE of 17.6% with good earnings contributions from CIB and RBB.
CIB maintained an attractive ROE of above 20% and produced solid results, underpinned by improved credit losses. Although both
revenue lines were affected by slowing economic activity, NIR growth was also impacted by a high base. Early repayments, coupled
with slower drawdowns, resulted in weaker advances growth although the pipeline remained stable.
RBB delivered an improved ROE and good headline earnings growth, underpinned by solid NIR growth and lower impairments and
expense growth. As a result pre-provisioning operating profit (PPOP) was up 3.1%, which is indicative of a growing franchise. NII
benefited from improved volumes and mix changes in both advances and deposits, offset by margin compression largely due to the
impact of the prime - JIBAR squeeze. NIR growth was supported by quality transactional income and card revenue.
Nedbank Wealth's decrease in headline earnings reflects a difficult first half, with good performances in Wealth Management and Asset
Management, which were offset by a weaker performance in Insurance due to the impact of higher weather-related claims, an increase
in lapses, as well as lower volumes. Nedbank Wealth's offshore businesses were also impacted by the strengthening of the rand.
RoA's earnings were negatively impacted by the loss from our associate ETI as a result of its fourth-quarter 2016 loss (previously
announced on 18 April 2017, negative R1,2013 million impact on Nedbank associate income) and its first-quarter 2017 profit (previously
announced on 27 April 2017, positive R142 million impact on Nedbank associate income), in line with our policy of accounting for ETI
earnings a quarter in arrear. The RoA subsidiaries grew headline earnings off a low base, benefiting from the first-time consolidation of
Banco Único, while continued investment in the franchise and technology systems has led to strong client gains.
The increase in the Centre was largely due to fair-value gains on the underlying hedging portfolios.
Financial performance
Net interest income
NII increased by 4.0% to R13,548 million (June 2016: R13,028 million), ahead of average interest-earning banking asset growth of 2.4%.
NIM expansion of 6 bps to 3.58% (June 2016: 3.52% rebased) was largely driven by an endowment benefit of 9 bps and improved asset
mix change of 6 bps, offset by asset pricing pressure of 5 bps and the narrowing of the prime-JIBAR spread costing 4 bps.
Impairments charge on loans and advances
Impairments decreased by 27.9% to R1,594 million (June 2016: R2,211 million), underpinned by a quality portfolio across all clusters.
The lower CLR of 0.47% (June 2016: 0.67%) largely relates to the improvement in CIB's CLR.
In CIB impairments are individually determined and 86% of impairments are concentrated in approximately 10 counters. During the
period the positive resolution and rerating of some counters led to the release of specific and portfolio impairments. Overall the
improvement in CIB's CLR was driven by recoveries from Commercial Property Finance and improved commodity prices. RBB's lower
CLR represents the underlying mix effect of personal loans and home loans continuing to improve, and MFC and Card increasing in line
with expectations. Furthermore, in RBB some of the additional overlays that were previously raised for event risks, such as drought in
certain geographies and a possible deterioration in secured lending to higher-risk clients who also have a personal loan, were released
as these risks have not materialised and the related portfolio provisions can no longer be justified. Continued prudence in provisioning
and a proactive collections strategy contributed to higher levels of post write-off recoveries at R578 million (June 2016: R564 million).
Total defaulted advances increased by 9.5% to R20,190 million (June 2015: R18,437 million), mostly driven by MFC and Card in RBB,
partly offset by the improvement in CIB as well as the effect of SARB directive 7 and new curing definition, reported at 31 December
2016, resulting in loans previously shown as performing being reclassified as defaulted. Defaulted advances, excluding these
'performing defaulted advances' increased by 0.3% to R16,608 million (June 2016: R16,556 million).
The specific coverage ratio of 37.2% (June 2016: 36.2%) reflects the changing mix across all our portfolios and includes the increase in
CIB's specific coverage to 24.6% (June 2016: 14.8%) along with RBB's lower specific coverage of 41.1% (June 2016: 44.6%). RBB's
coverage ratio is in line with the 41.1% level reported at December 2016 and, excluding performing defaulted advances, RBB's specific
coverage was maintained at 49.6% (June 2016: 49.7%).
The reduction in the portfolio coverage ratio to 0.65% (June 2016: 0.71%) mostly relates to RBB's additional overlays decreasing to
R409 million (June 2016: R701 million). The central portfolio provision decreased from R500 million at 31 December 2016 to R350
million (June 2016: R350 million). This provision is being maintained for, inter alia, the effect of the potential ratings downgrade of the
local currency and stressed sectors such as resources, cement, construction and retailers remaining under pressure. We continue to
monitor asset quality closely for any material evidence of the effect of the sovereign downgrades and the recession.
Non-interest revenue
NIR growth of 3.3% to R11,730 million (June 2016: R11,357 million) reflects a resilient performance. The underlying movements relate
to:
- Commission and fee income growth of 3.1% to R8,436 million (June 2016: R8,185 million), as weak business and consumer
confidence levels negatively affected transactional activity in CIB and led to lower volumes in RBB where an increasing
number of clients also transacted within fixed-rate bundles.
- Insurance income decreasing 15.7% to R776 million (June 2016: R921 million) as a result of significant weather-related
claims, lower homeowner's cover and credit life volumes, and an increase in lapses.
- Trading income increasing 13.3% to R2,006 million (June 2016: R1,771 million) from good performance in the markets
business as volatility levels remain elevated.
- Private-equity income reducing to R203 million (June 2016: R432 million) relative to the high base in the comparative period,
which included positive realisations in the Commercial Property Finance portfolio.
Expenses
Expense growth of 5.0% to R14,369 million (June 2016: R13,686 million) was below inflation and below the guidance we provided for
the full 2017 year (being growth of mid-to-upper single digits), demonstrating disciplined and careful management of discretionary
expenses in an environment of slowing revenue growth. Overall, growth was largely driven by our investments for transactional banking
strategies of R265 million and the consolidation of Banco Único of R147 million, partly offset by efficiencies of R342 million. The
underlying movements included:
- Staff-related costs increasing at a slower rate of 3.6%, following-
- 8.4% growth in remuneration and other staff costs, including an average annual salary increase of 6.5% and a
reduction in staff numbers since December 2016; and
- a 7.6% decrease in short- and long-term incentives.
- Computer-processing costs increasing 6.9% to R2,121 million off a higher base in the prior year.
- Fees and insurance costs being 12.7% higher at R1,557 million, due mostly to additional regulatory-related costs.
Nedbank's growth in expenses exceeded total revenue growth of 3.7%, resulting in a negative jaws ratio of 1.7% (June 2016: 1.7%
positive) and an efficiency ratio of 56.5% (June 2016: 55.6%) for managed operations. Expense growth, excluding the RoA, was 3.4%.
Earnings from associates
The loss of R1,053 million (June 2016: R431 million loss) in earnings from associates was attributed largely to ETI's loss of R1,203
million in the fourth quarter of 2016 (announced on 18 April 2017), partly offset by the profit of R142 million reported by ETI for the first
quarter of 2017 (announced on 27 April 2017), in line with our policy of accounting for ETI earnings a quarter in arrear. The effect of
ETI's loss on Nedbank's headline earnings was R1,162 million, including the R101 million impact of funding costs.
Accounting for this associate loss, together with Nedbank's share of ETI's other comprehensive income and Nedbank's foreign currency
translation reserve, reduced the carrying value of the strategic investment in ETI from R4.0 billion on 31 December 2016 to R3.1 billion
at 30 June 2017. Since the introduction of the new foreign exchange regime by the Central Bank of Nigeria on 21 April 2017, confidence
has improved and the Nigerian equity market has increased by 31%. In line with this the market value of Nedbank's investment in ETI,
based on its quoted share price - albeit in illiquid markets, increased to R3.0 billion on 30 June 2017 and R3.7 billion on 28 July 2017.
While risks remain, we believe the outlook for ETI is improving.
As required by IFRS, the R1 billion impairment provision recognised at 31 December 2016 was reviewed at 30 June 2017 and it was
determined that no change to the provision is required. A similar review will be performed at our 2017 financial year-end.
ETI remains a strategic investment for Nedbank, providing our clients with a pan-African transactional banking network across
39 countries and access to dealflow in Central and West Africa. We have made good progress in working with ETI's board and other
institutional shareholders to strengthen their board and management. Institutional shareholder representation on ETI's board has
increased and Nedbank has two appointees. Subject to regulatory approval, Brian Kennedy will join Mfundo Nkuhlu on ETI's board.
Mfundo has recently been nominated to become Chair of the ETI Risk Committee. We remain supportive of ETI's endeavours of
delivering an ROE in excess of its cost of equity (COE) in due course.
Statement of financial position
Capital
Nedbank continued to strengthen its capital position, with our CET1 ratio at 12.3% (June 2016: 11.6%) now close to the top end of our
internal target range, following organic capital generation through earnings.
In the current environment of slower advances growth, capital generation has been stronger following low credit RWA growth, a
decrease in trading market RWA due to foreign exchange movements and the decline in the threshold deduction given the decrease in
the carrying value of ETI.
In addition to lower RWA growth, we continue to identify RWA optimisation initiatives that will support the industry implementation of the
new Standardised Approach for counterparty credit risk that becomes effective later this year.
Nedbank's tier 1 ratio improved to 13.2% (June 2016: 12.5%) and includes the issuance of R1.1 billion of new-style additional tier 1
capital instruments during the last 12 months, offsetting the progressive grandfathering of perpetual preference shares as we transition
towards end-state Basel III requirements. Nedbank's total capital ratio improved to 15.7% (June 2016: 14.5%) and includes the issuance
of R4.5 billion of new-style tier 2 capital instruments that more than offsets the redemption of US$100 million in old-style tier 2 capital
instruments during the last 12 months.
Funding and liquidity
Optimising our funding profile and maintaining a strong liquidity position remain priorities for Nedbank in the current environment.
Nedbank's three-month average long-term funding ratio improved to 33.1% for the second quarter of 2017 (June 2016: 30.9%),
supported by growth in Nedbank Retail Savings Bonds of R3.1 billion to R22.3 billion and the successful capital markets issuance of
R3.5 billion of senior unsecured debt, R2.5 billion of tier 2 debt and R1.0 billion of securitisation. Our funding profile benefited from our
above-average market share in the medium-to-longer-term wholesale funding buckets, which reduced our LCR HQLA requirements,
positively impacting the all-in cost of wholesale funding.
Nedbank's quarterly average LCR of 104.6% (June 2016: 93.1%) exceeded the minimum regulatory requirement of 80% in 2017 and
90% from 1 January 2018. To absorb the seasonal and cyclical volatility in the LCR Nedbank maintains appropriate operational buffers.
Liquidity Coverage Ratio
H1 2017 FY 2016 H1 2016
High quality liquid assets (Rm) 144,568 137,350 127,114
Net cash outflows (Rm) 138,260 125,692 136,469
Liquidity Coverage ratio (%)(1) 104.6 109.3 93.1
Regulatory Minimum (%) 80.0 70.0 70.0
(1) Average for the quarter
Further details on the LCR are available in the table section of the Securities Exchange News Service (SENS) announcement.
Nedbank's portfolio of LCR-compliant HQLA increased to a quarterly average of R144.6 billion (June 2016: R127.1 billion). Together
with our portfolio of other quick-liquidity sources, the total available sources of quick liquidity amounted to R190.0 billion (June 2016:
R167.7 billion), representing 19.7% of total assets.
Nedbank has maintained the NSFR at above 100% on a pro forma basis and is already compliant with the minimum regulatory
requirements that will be effective on 1 January 2018. The remaining key focus areas relating to the NSFR are finalising a number of
minor interpretational matters and ensuring that compliance is achieved in the context of balance sheet optimisation.
Loans and advances
Loans and advances increased 2.4% to R709.9 billion (June 2016: R693.3 billion), driven by improved growth across the retail banking
portfolios.
Advances growth in CIB was flat, with commercial-mortgage advances increasing 8.3%. Our leading market share in commercial
mortgages continued to be underpinned by a strong client base and a large, secure asset pool. In contrast, term loans decreased 5.8%
due to weak business confidence levels resulting in drawdowns being delayed, as well as early repayments of loans. Excluding the
impact of the stronger USD/ZAR exchange rate on the foreign lending book, total CIB advances growth was 2.6%.
RBB grew advances across all key categories with MFC and Card increasing 6.6% and 6.7%, respectively, while Home Loans and
Personal Loans grew at below-inflation levels. Business Banking advances growth remained flat, owing to slower drawdowns as many
clients continue to manage their cashflows more carefully and delay investment decisions.
Growth in advances in the RoA Cluster was largely due to the inclusion of Banco Único, which contributed R2.5 billion to the advances
portfolio. On a like-for-like basis advances growth was flat due to muted economic growth in the rest of the SADC countries.
Deposits
Deposits grew 2.8% to R762.7 billion (June 2016: R741.7 billion), with total liabilities increasing 2.1% to R881.2 billion (June 2016:
R863.3 billion). The loan-to-deposit ratio improved to 93.1% (June 2016: 93.5%).
Active management of our deposit and transactional banking franchise resulted in RBB deposits growing strongly by 8.8% to R279.3
billion (June 2016: R256.7 billion), contributing to market share gains in household deposits to 19.1% (June 2016: 18.6%) and current
accounts to 19.4% (June 2016: 19.1%). Growth in current accounts of 8.3% and fixed deposits of 9.2% was driven by the success of
investment products such as our Tax-free Savings Account, Green Savings Bond and 12-month Fixed Deposits, as part of our strategy
to grow Basel III-friendly deposits.
Good growth was recorded in other key deposit categories, including call accounts and term deposits of 6.3% and cash management of
5.4%, while foreign currency liabilities decreased by 17.9%. This was predominantly driven by a reduction in expensive foreign currency
funding used in the general rand funding pool. The balance of foreign funding is closely matched to foreign currency assets and the
mismatch is negligible.
Strategic focus
Nedbank continued to focus on delivering on our five strategic focus areas designed to make us a more agile, competitive and digital bank.
Delivering innovative market-leading client experiences
Our personal loans digital sales application was rolled out during the period and we plan to launch our refreshed retail and wealth
banking apps, and new Travel Card and Investments Online products, among others, in the second half of 2017. Digitally enabled and
active retail clients grew strongly, driving up the value of Nedbank App Suite™ transactions 68% to R18.6 billion. To date 48% of our
outlets have been converted to new-image branches and our investment in distribution channels over the next four years (2017 to 2020)
will result in 82% of our retail clients being exposed to the new-image branch format and self-service offerings. Nedbank's retail
integrated channels won the Best Smart Branch Project in Africa award at The Asian Banker Technology Innovation Awards ceremony.
Nedbank Private Wealth's mobile app has been rated Gold Standard in a McKinsey review that compared the client experience of SA
bank's mobile applications for both visual presentation and functionality.
Growing our transactional banking franchise faster than the market
Nedbank's RBB franchise maintained a total client base of 7.5 million, with 2.7 million main-banked clients translating into retail
transactional NIR growth of 5.2%. Our main-banked clients decreased by 0.3%, with the youth client segment declining by 6.4% as
slower transactional activity caused existing clients to fall out of our main-banked definition, while the middle-market and Retail
Relationship Banking client segments increased by 0.5% and 5.1%, respectively. Transactional banking progress was also reflected in
market share gains in household and current-account deposit market share gains to 19.1% and 19.4% respectively. The CIB integrated
model enabled deeper client penetration and increased cross-sell, generating 12 primary-bank client wins year to date and increased
dealflow into the markets business, supporting 13.3% growth in trading income.
Being operationally excellent in all we do
Cost discipline in an environment of slower revenue growth remains an imperative, with ongoing initiatives such as reducing our core
systems by 113 to 138 from 251 since inception and we are well on our way to reaching 60; and the reduction of floor space in RBB by
30,000 m² by 2020, of which 24,819 m² has been achieved since 2014. We continued to remain on track for the delivery of Old Mutual
Group's target of R1.0 billion pre-tax run rate synergies, of which approximately 30% should accrue to Nedbank by the end of 2017.
Good progress was also made with our target operating model initiatives, which aims to generate R1.0 billion pre-tax benefits for
Nedbank by 2019. The majority of the cost initiatives have been identified in RBB, which will contribute approximately 40% of the
benefits. RBB has established a transformation office to track and monitor the delivery of 221 initiatives across the five broad areas of
credit, distribution, operational excellence, simplification and procurement. Approximately 30% of the synergies will be from cost
optimisation in Shared Services through the removal of duplicative service functions, cost-efficiencies from marketing and improving the
RoA operating model. The remaining 30% will be achieved through revenue opportunities from data-driven intelligence, new digital
technologies and innovation integration that is being accelerated through our Digital Fast Lane initiative.
Managing scarce resources to optimise economic outcomes
We maintained our focus on growing activities that generate higher levels of economic profit (EP), such as growing transactional
deposits, with current accounts up 8.3%; increasing transactional banking activity, with commission and fees in RBB up 5.2%; and
achieving earnings growth of 7.3% in RBB and 6.9% in CIB. Our selective origination of personal loans, home loans and commercial-
property finance has proactively limited downside risk in this challenging operating climate, enabling a CLR of 47 bps, below the bottom
end of our through-the-cycle (TTC) target range. At the same time our balance sheet metrics remain strong and we continue to deliver
dividend growth above the rate of HEPS growth.
Providing our clients with access to the best financial services network in Africa
In Central and West Africa, ETI remains a strategic investment. Working together, Nedbank and ETI assisted a number of SA-based
corporates with currency solutions in a challenging Nigerian market. We have strengthened our board representation and have
increased our involvement in the group. In April 2017 ETI proposed a convertible-bond issue of up to US$400 million at a conversion
price of US$ 0.06, with an interest rate of 6.46% above LIBOR. US$200 million of this issue was used to establish a resolution vehicle
for the more effective management of capital and ring-fencing of its legacy loans in Nigeria to improve transparency of the NPLs and
turnaround the Nigerian business. The remaining US$200 million was for the debt restructure of the maturity profile of the ETI holding
company balance sheet. Nedbank did not participate in the issue as it did not meet our internal hurdle rates. However, the convertible
bond is anticipated to be fully subscribed and underwritten. We are pleased that ETI reported a profit for the first quarter of 2017 and
that the market value of Nedbank's investment in ETI at 30 June 2017, based on its quoted share price - albeit in illiquid markets, had
increased by 24.9% since 31 December 2016 to R3.0 billion, in line with our carrying value of R3.1 billion. While risk remains, economic
conditions in Nigeria and the outlook for ETI are improving.
In SADC and East Africa we are building scale and optimising costs. Our core banking system, Flexcube, has now been successfully
rolled out in four countries, we launched a number of new digital products and we continue to grow our distribution footprint.
Old Mutual plc managed separation
OM plc announced on 25 May 2017 that it intends to list a new SA holding company on the JSE with a secondary listing on the LSE,
which will be named Old Mutual Limited and will initially comprise Old Mutual Emerging Markets, the group's Nedbank shareholding, as
well as OM plc, which will become a subsidiary of Old Mutual Limited. The managed separation is expected to be materially complete by
the end of 2018 and the listing of Old Mutual Limited is anticipated to take place at the earliest opportunity in 2018, following OM plc's
2017 full-year results announcement.
The subsequent distribution of a significant proportion of the shareholding in Nedbank from Old Mutual Limited will follow in due course
at an appropriate time, and in an orderly manner, as previously announced. Old Mutual Limited will retain an appropriate strategic
minority shareholding in Nedbank to underpin the ongoing commercial relationship.
For Nedbank it is business as usual and OM plc's decision will have no impact on the strategy, the day-to-day management or
operations, nor our staff and clients. Our engagements have been at arm's length, overseen by independent board structures. OM plc
operates predominantly in the investment, savings and insurance industry, which has little overlap with banking, however we compete in
the areas of wealth and asset management and personal loans. Our technology systems, brands and businesses have not been
integrated.
Our collaboration with OM plc to unlock R1.0 billion of synergies by the end of 2017 from the OM plc businesses in SA, remains on track
and will continue to be underpinned by Old Mutual Limited's strategic shareholding of Nedbank Group. We are fully committed to
working with Old Mutual Limited to deliver ongoing synergistic benefits on an arm's length basis.
Economic outlook
The International Monetary Fund currently expects global economic growth to improve to 3.5% in 2017, with advanced countries
growing at 2.0% and emerging and developing economies by 4.5%. Growth in sub-Saharan Africa is expected to accelerate to 2.1% in
2017 from 1.4% in 2016.
Given SA's weaker-than-expected growth in the first half, Nedbank Group's current forecast for growth in 2017 is 0.6%, with risk to
growth on the downside. Inflation is expected to be contained within SARB's inflation target range and, as a result, interest rates could
decline by a further 25 bps in September, following the 25 bps rate cut in July 2017.
Much depends on how the political and policy landscapes unfold in the period to December 2017, and the implications thereof for the
country's sovereign risk ratings. With sovereign risk ratings remaining unchanged, the end of the drought, a stronger world economy and
marginally firmer commodity prices should support cyclical recoveries in export-orientated industries, particularly agriculture, mining and
manufacturing. Corporate credit demand should benefit from recoveries in these sectors, but the risk remains that long-term
investments could be delayed by continued political and policy uncertainty, low confidence and challenging operating conditions.
Households will remain vulnerable, with job losses more prevalent and lower prospects of wage growth. Household credit demand is
anticipated to remain subdued as consumers postpone buying new homes and vehicles, and instead save and/or reduce debt levels.
Government spending should be kept in check by the need to reduce the budget deficit and contain the rise in government debt to avoid
a further sovereign-ratings downgrade. In this regard improved management of state-owned enterprises is necessary.
Despite the many challenges faced by the SA economy, the SA banking system remains sound, liquid and well capitalised. This
strength was once again acknowledged by the World Economic Forum, which ranked SA banks at second highest for soundness of
banks, and by Standard & Poor's, which stated in its report published on 19 July 2017 that there are good governance and transparency
across the SA financial system, that regulation is in line with international best practices, and that SA banks have top-tier banking
stability and risk management. This creates low credit losses and strong profitability with low levels of external banking sector debt. The
risk of short-term concentrated funding is mitigated by the closed SA rand system.
Prospects
In light of the weak economic outlook in SA we have revised our guidance on financial performance for the full year 2017 as follows:
- Average interest-earning banking assets to grow below nominal GDP growth.
- NIM to be slightly above the 2016 rebased level of 3.54%.
- CLR to increase from the level of 47 bps in the first half of 2017 towards the bottom end of our target range of 60 to 100 bps.
- NIR, excluding fair-value adjustments, to grow at mid-single digits.
- Associate loss to be lower than the loss reported in the first half of 2017 (ETI associate income reported quarterly in arrear).
- Expenses to increase by mid-single digit levels.
Our financial guidance is for growth in DHEPS for the full 2017 year to be positive, but less than or equal to growth in nominal GDP
(consumer price index plus GDP growth). This has been revised from the guidance we provided at 28 February 2017 of growth in
DHEPS for the full 2017 year to be greater than growth in nominal GDP.
Nedbank data tables (Rand)
RoE excl. goodwill
Headline earnings (Rm) (%)
Cluster performance H1 2017 H1 2016 % change H1 2017 H1 2016
Nedbank Corporate & Investment Banking 3,211 3,004 7% 20.8% 21.3%
Nedbank Retail & Business Banking 2,544 2,371 7% 18.7% 18.3%
Nedbank Wealth 519 614 (15%) 27.8% 35.9%
Rest of Africa subsidiaries 70 53 32% 3.0% 2.7%
Centre 89 (12) more than 100%
Nedbank managed operations 6,433 6,030 7% 18.9% 18.4%
ETI (1,162) (603) (93%)
Total 5,271 5,427 (3%) 15.1% 15.7%
Average Allocated Capital Economic Profit
Cluster performance (Rm) H1 2017 H1 2016 % change H1 2017 H1 2016 % change
Nedbank Corporate & Investment Banking 31,071 28,329 10% 1,065 959 11%
Nedbank Retail & Business Banking 27,415 26,040 5% 650 491 32%
Nedbank Wealth 3,764 3,445 9% 259 366 (29%)
Rest of Africa 6,788 7,287 (7%) (1,561) (1,077) (45%)
Business clusters 69,038 65,101 6% 413 739 (44%)
Centre 7,185 10,249 (30%) (20) (331) 94%
Total 76,223 75,350 1% 393 408 (4%)
Cost of equity(1) 13.9% 14.4%
(1) The cost of equity (COE) is forecast at 13.8% for 2017
% banking Through-the-cycle
Credit loss ratio by cluster (%) advances H1 2017 H1 2016 target ranges
Nedbank Corporate & Investment Bank 48.7% (0.03%) 0.31% 0.15% - 0.45%
Nedbank Retail & Business Banking 44.2% 1.14% 1.23% 1.30% - 1.80%
Nedbank Wealth 4.3% 0.09% 0.16% 0.20% - 0.40%
Rest of Africa 3.0% 0.80% 0.76% 0.65% - 1.00%
Total 0.47% 0.67% 0.60% - 1.00%
Net Interest Margin (%) Loans and advances (Rm)
Cluster performance H1 2017 H1 2016 H1 2017 H1 2016 % change
Nedbank Corporate & Investment Bank 2.13% 1.97% 363,873 359,041 1%
Banking activity 325,266 325,258 -
Trading activity 38,607 33,783 14%
Nedbank Retail & Business Banking 5.93% 6.12% 296,945 284,617 4%
Nedbank Wealth 2.15% 2.07% 29,464 29,677 (1%)
Rest of Africa 4.93% 3.65% 20,382 18,199 12%
Centre (800) 1,798 less than (100%)
Total(1) 3.58% 3.37% 709,864 693,332 2%
(1) Inter-company eliminations
Credit loss ratio analysis (%) H1 2017 FY 2016 H1 2016
Specific impairments 0.56% 0.69% 0.64%
Portfolio impairments (0.09%) (0.01%) 0.03%
Total credit loss ratio 0.47% 0.68% 0.67%
Internal target Regulatory
Capital (Basel III) H1 2017 FY 2016 H1 2016 range minimum(1)
Common equity tier 1 ratio 12.3% 12.1% 11.6% 10.5% - 12.5% 7.25%
Tier 1 ratio 13.2% 13.0% 12.5% more than 12.0% 8.75%
Total capital ratio 15.7% 15.3% 14.5% more than 14.0% 10.75%
(Ratios calculated include unappropriated profits)
(1) The Basel III regulatory requirements are being phased in between 2013 and 2019, and exclude any idiosyncratic or systematically
important bank minimum requirements
Full-Year 2017
Metric H1 2017 performance outlook Medium-to-long-term targets
RoE (excluding goodwill) 15.1% Below target 5% above cost of ordinary shareholders'
equity(1)
Growth in diluted headline earnings per (3.7%) Below target more than or equal to consumer price index
share + GDP growth + 5%
Credit loss ratio 0.47% Increases towards Between 0.6% and 1.0% of average banking
the bottom end of advances
target range
NIR-to-expense ratio 81.6% Below target more than 85%
Efficiency ratio (including associate 59.3% Above target 50.0% to 53.0%
income)(1)
Tier 1 capital adequacy ratio (Basel III) 12.3% Within target 10.5% - 12.5%
Economic capital Internal Capital Adequacy Assessment Process (ICAAP): A debt rating (including 10% capital
buffer)
Dividend cover 1.80 times Within target range 1.75 to 2.25 times
(1) The COE is forecasted at 13.8% in 2017
Shareholders are advised that these forecasts are based on organic earnings and our latest macroeconomic outlook, and have not been
reviewed or reported on by the Nedbank Group auditors.
Old Mutual Wealth
Old Mutual Wealth interim results for the six months ending 30 June 2017
Strong trading and profits in year of transition
"I am delighted to report continued excellent progress on Old Mutual Wealth's strategic ambition to become a leading, integrated,
advice-led wealth management business. Net inflows were 11% of opening funds under management (H1 2016: 8%), excluding our
Heritage closed book, demonstrating robust growth in a difficult environment, and well ahead of our 5% annualised target.
"The period has seen strong performance across each of our Invest and Grow business areas. Despite continued questions over the
strength and resilience of the UK economy, including rising inflationary pressures, we saw continued growth in net client cash flows
which were up 53% to GBP4.9 billion (H1 2016: GBP3.2 billion) with a particularly noteworthy performance in the UK Platform and by both the
multi-asset and single-strategy businesses in Old Mutual Global Investors.
"For the six months ended 30 June 2017 we reported an adjusted operating profit ('AOP') of GBP134 million, up 29% (H1 2016: GBP104
million) and an IFRS post-tax profit of GBP42 million (H1 2016: loss of GBP23 million). Strong investment performance led to performance fees
in the period of GBP17 million, compared to GBPnil million in the comparative period of 2016.
"Pleasingly, we have seen continued recognition of the strength and, we believe, the value of our integrated business model. Integrated
flows rose substantially from GBP0.7 billion to GBP2.2 billion for the six months to 30 June 2017. One of our strongest performance areas was
our multi-asset solutions business, which is part of OMGI, which saw impressive growth in net flows to GBP1.6 billion.
"Recognising the importance of sound financial advice in securing good customer outcomes, we have continued to invest in distribution
with the completion of our acquisition of Caerus and a number of small acquisitions into our Old Mutual Wealth Private Client Adviser
business.
"I am especially pleased with the performance of our UK Platform business which achieved NCCF of GBP2.1 billion, up 50%. Pension
related flows were particularly strong in the period. Following our announcement on 2 May 2017, we have successfully transitioned to
FNZ as our UK platform implementation partner.
"2017 continues to be a year of transition for Old Mutual Wealth as we move towards our separation from Old Mutual plc, and we are
excited about the opportunities ahead."
Paul Feeney
CEO, Old Mutual Wealth
August 2017
Highlights H1 2017 H1 2016 % change
IFRS profit/(loss) after tax attributable to equity holders of the parent (GBPm) 42 (23)
AOP (pre-tax, GBPm) 134 104 29%
Invest & Grow AOP (pre-tax, GBPm)(1) 124 92 35%
Manage for Value AOP (pre-tax, GBPm)(2) 22 14 57%
Other shareholder income and expenses (OSIE) (pre-tax, GBPm)(3) (12) (2) (500%)
Pre-tax operating margin(4) 30% 28%
Revenue margin (bps) 59 64
Gross sales (GBPbn) 14.1 10.5 34%
NCCF (GBPbn) 4.9 3.2 53%
NCCF/Opening FUM(5) 11% 8%
FUM (GBPbn)(6) 127.3 115.3 10%
(1) Invest & Grow includes Old Mutual Global Investors, Quilter Cheviot, UK Platform, Old Mutual International and UK Other (which consists of Intrinsic,
series 6 pensions, institutional platform assets, protection products and service companies).
(2) Manage for Value includes Heritage and Old Mutual Wealth Italy, the sale of which completed in January 2017 (H1 2016: GBP11 million).
(3) For the six months to 30 June 2017, one-off managed separation and standalone costs are excluded from AOP. Recurring managed separation and
standalone and Old Mutual Wealth head office function costs are included in OSIE. OSIE for H1 2017 includes the costs incurred to prepare the business for
separation from Old Mutual plc (GBP3 million) and Head Office function costs, which were previously allocated to the businesses. H1 2016 only included costs
incurred to prepare the business for separation from Old Mutual plc (GBP2 million).
(4) Operating margin is calculated using reported AOP pre-tax divided by net revenue, where net revenue includes gross performance fees.
(5) Annualised NCCF is used in the calculation of NCCF as a % of opening FUM, excluding Italy, South African branches and Heritage.
(6) FUM as at 31 December 2016, excludes Old Mutual Wealth Italy (GBP6.2 billion), divested in January 2017 and South African branches (GBP2.0 billion) which
are being transferred to Old Mutual Emerging Markets.
Financial results
Gross sales
Old Mutual Wealth gross sales of GBP14.1 billion were up 34% from H1 2016 (GBP10.5 billion). Gross sales in Old Mutual Global Investors
(OMGI) were 31% higher than H1 2016 with good sales into the Global Equity Absolute Return fund of GBP2.9 billion, the Cirilium fund
range of GBP1.4 billion and North American Equity fund of GBP0.9 billion. UK Platform gross sales, of which 16% were generated via Intrinsic
advisers, rose 38%. Pension sales in the UK Platform have performed well and were 48% higher than prior year as our flexible
drawdown pension continues to meet investors' needs following the 2015 pension reforms. Following a poor ISA season for the industry
in H1 2016, sales rose 29% as clients increasingly saw ISAs as a tax efficient and accessible complement to their existing savings
plans.
Net client cash flow (NCCF)
In a buoyant but uncertain market during much of the period, NCCF performance was strong at GBP4.9 billion, up 53% on prior year (H1
2016: GBP3.2 billion) with both inflows and outflows being higher than in the prior year. Net inflows were 11% of opening funds under
management, excluding our Heritage closed and Institutional books, demonstrating robust growth in a difficult environment, and well
ahead of our 5% annualised target. Integrated flows rose substantially from GBP0.7 billion to GBP2.2 billion for the six months to 30 June
2017.
Net inflows into OMGI as a whole were GBP3.3 billion, 106% ahead of prior year (H1 2016: GBP1.6 billion), exceeding those of the 2016 full
year of GBP2.4 billion. Our multi-asset solutions business, which is at the core of our proposition and wealth management strategy,
contributed GBP1.6 billion (H1 2016: GBP0.3 billion) of net flows in H1 2017, of which GBP1.5 billion is invested in OMGI multi-managed funds,
driven by strong sales into Cirilium and WealthSelect. Single strategy funds added GBP2.2 billion (of which GBP0.4 billion was generated by
our multi-asset solutions business) with strong net flows into the Global Equity Absolute Return fund, North American Equity fund and
UK Mid Cap fund ranges. The Style Premia Absolute Return fund and Systematic Positive Skew fund were launched during H1 2017
and the team expect to achieve increased momentum in flows over H2 2017.
Quilter Cheviot net inflows of GBP0.6 billion were 50% above prior year (H1 2016: GBP0.4 billion) with a strong second quarter of 2017. The
comparative six month period was impacted by low investor confidence prior to the June 2016 Brexit referendum.
UK Platform net inflows were GBP2.1 billion, up 50% from H1 2016 (GBP1.4 billion) primarily due to strong flows into our pension proposition,
which accounted for 86% of total net flows.
International net inflows of GBP0.4 billion were double those of the prior year (H1 2016: GBP0.2 billion). There was strong growth in the Middle
East with net inflows up 111% from H1 2016 and the UK continued the strong momentum experienced through the whole of 2016. Net
flows grew 36% in H1 2017 as the sales integration with the UK domestic business gained traction.
We highlighted in our 2016 Preliminary Results in March 2017 that we expected outflows of cGBP0.5 billion across 2017 from a large
institutional scheme reported within UK Other following GBP0.2 billion which had transferred out in 2016. In July GBP0.4 billion transferred out
and we expect the remaining balance of remaining members' assets to transfer out by the end of the year.
Intrinsic continues to secure increasing flows for our business, supported by the expanding capabilities of Old Mutual Wealth Private
Client Advisers (OMWPCA). The restricted channel accounted for GBP0.6 billion (29%) of UK Platform net inflows in H1 2017 (H1 2016:
GBP0.4 billion, 29%) and GBP1.1 billion of net flows into OMGI's multi-asset solutions business in H1 2017 through the Cirilium and
Generation fund ranges. Integrated net inflows from Intrinsic into Quilter Cheviot amounted to GBP0.1 billion, over half of which was
through OMWPCA.
UK Heritage net outflows of GBP0.5 billion were in line with prior year (H1 2016: GBP0.5 billion of net outflows).
Funds under management (FUM)
FUM were GBP127.3 billion, up 10% from the end of 2016 (31 December 2016: GBP115.3 billion excluding our divested Italian business (GBP6.2
billion) and South African branches (GBP2.0 billion) which are being transferred to Old Mutual Emerging Markets). The increase is driven
by positive NCCF of GBP4.9 billion in the period, positive market performance of GBP5.6 billion, and GBP1.5 billion of assets via the purchase of
Caerus (GBP1.2 billion) and Attivo (GBP0.3 billion).
Intra-Old Mutual Wealth FUM were GBP16.5 billion, the majority of which is managed within the multi-asset solutions teams in OMGI, up
from GBP13.8 billion as at 31 December 2016. Funds managed by OMGI and Quilter Cheviot represent 46% of the total Old Mutual Wealth
FUM. OMGI manages 18% of UK Platform assets, increasing from 14% at H1 2016, of which the multi-asset solutions manage 80%.
OMGI FUM were GBP36.6 billion, up 17% from the end of 2016 (31 December 2016: GBP31.4 billion). In the multi-asset ranges, Cirilium has
nearly GBP6 billion assets under management and the WealthSelect fund range has above GBP3 billion of assets. In our single-strategy
ranges, GEAR exceeds GBP7 billion and each of the UK Mid Cap and UK Alpha funds is above GBP2 billion of FUM. Quilter Cheviot FUM
were up 9% from the start of the year to GBP22.5 billion (31 December 2016: GBP20.7 billion), benefiting from GBP0.3 billion added through the
acquisition of Attivo.
UK Platform assets were GBP45.9 billion, up 11% from the end of 2016 (31 December 2016: GBP41.4 billion) and International FUM of GBP17.8
billion were up 5% over the same period (31 December 2016: GBP16.9 billion on a like-for-like basis after removing GBP2.0 billion FUM in the
South African branches).
IFRS post-tax profit/loss
Old Mutual Wealth IFRS post-tax profit was GBP42 million for the first half of 2017, compared to a loss of GBP23 million in H1 2016.
Reconciling items between adjusted operating profit and IFRS profit include UK Platform transformation costs of GBP59 million pre-tax (H1
2016: GBP48 million), the effects of goodwill amortisation and the impact of acquisition accounting totalling GBP43 million (H1 2016: GBP87
million). Managed separation and standalone one-off costs have been reclassified as adjusting items with effect from 2017 and are no
longer reported in AOP (H1 2017: GBP12 million, H1 2016: GBP2 million in AOP). In addition, there was a GBP24 million profit on disposal of our
Italian business included in IFRS in H1 2017.
Adjusted operating profit (AOP)
GBPm H1 2017 H1 2016 % change
Invest & Grow(1) 124 92 35%
Manage for Value(2) 22 14 57%
Other shareholder income and expense(3) (12) (2) (500%)
Reported AOP pre-tax 134 104 29%
Corporate activity(4) - (16) -
Heritage fee restructure - 21 -
Managed separation and standalone costs (one-off) - 2 -
Changes to executive management team - 5 -
Underlying AOP pre-tax 134 116 16%
Of which:
Managed separation and standalone costs (recurring)(5) (6) - -
Net performance fees 17 - -
(1) Invest & Grow includes Old Mutual Global Investors, Quilter Cheviot, UK Platform, Old Mutual International and UK Other (which consists of Intrinsic,
series 6 pensions, institutional platform assets, protection products and service companies). H1 2016 includes the GBP5 million profits of the South African
branches which are now reported within Old Mutual Emerging Markets.
(2) Manage for Value includes Heritage and the results of Old Mutual Wealth Italy, the sale of which completed in January 2017 (H1 2016: GBP11 million).
(3) OSIE for H1 2017 includes the costs incurred to prepare the business for separation from Old Mutual plc (GBP3 million) and Head Office function costs, which
were previously allocated to the businesses. H1 2016 only included costs incurred to prepare the business for separation from Old Mutual plc (GBP2 million).
(4) Corporate activity includes the sale of Old Mutual Wealth Italy which completed in January 2017 and the South African branches are transferring to Old
Mutual Emerging Markets and are excluded from the 2017 result.
(5) Managed separation and standalone costs (recurring) includes the costs incurred to prepare the business for separation from Old Mutual plc of GBP3 million
and branding costs of GBP3 million borne by Old Mutual plc in previous periods.
Old Mutual Wealth pre-tax adjusted operating profit ("AOP") of GBP134 million for H1 2017 was 29% higher than prior year (H1 2016: GBP104
million) and includes net performance fees of GBP17 million (H1 2016: GBPnil).
Invest & Grow business
Invest & Grow pre-tax AOP of GBP124 million has increased by 35% from prior year driven by strong revenue growth and performance
fees following strong investment performance.
The performance from the UK Platform and OMGI was particularly strong. UK Platform profit of GBP20 million was up 43%, driven by
increased FUM. The profit for Old Mutual Global Investors more than doubled to GBP59 million. Excluding performance fees, OMGI profit
increased 68% from H1 2016 following revenue growth of GBP30 million. Above benchmark performance in several funds resulted in the
GBP17 million net performance fees in H1 2017 (H1 2016: GBPnil). Profit for International remained broadly flat, on a reported basis, though
on a like-for-like basis, i.e. excluding the South African branches in H1 2016, profit was up 14%. Quilter Cheviot profit remained
consistent with prior year, with lower commission income limiting the revenue growth.
We continue to invest in distribution through Intrinsic as we grow the number of Restricted Financial Planners ('RFPs') supporting the
increase in integrated flows. Intrinsic is currently loss-making with its loss increasing from GBP9 million for H1 2016 to GBP13 million for H1
2017. Half of this increase in the loss is due to increased contributions to the Financial Services Compensation Scheme and half is due
to costs associated with the growth of the business. Intrinsic is currently reported within UK Other along with the small, but profitable,
Protection and Institutional business lines. Net flows from Intrinsic's advisers generate substantial business for Old Mutual Wealth and
thereby contribute to our overall profitability.
Manage for Value business
Manage for Value profit for H1 2017 was GBP22 million, a 57% increase from H1 2016 as reported. The previously announced
restructuring of our Heritage fees reduced profit by GBP21 million in H1 2016, all of which was accounted for as an offset to revenues. In
H1 2016 we benefited from GBP11 million reported profit in Old Mutual Wealth Italy, which was sold in January 2017.
Other shareholder income and expenses
Other shareholder income and expenses reflects the incremental recurring costs associated with managed separation and other head
office costs. This has increased in line with the guidance provided in the 2016 Preliminary Results in March 2017 and we expect to incur
additional costs over H2 2017 and into 2018 as our business evolves to operate on a fully standalone basis.
Underlying AOP pre-tax
AOP has increased by 16% to GBP134 million on an underlying basis (H1 2016: GBP116 million). This excludes the results of Old Mutual
Wealth Italy, the sale of which completed in January 2017, the results of the South African branches which are now reported within Old
Mutual Emerging Markets, the impact of the changes to Heritage fees announced in H1 2016, and the H1 2016 costs associated with
both the executive management changes and one-off managed separation costs.
Revenue
On a like-for-like basis, average assets during H1 2017 were 22% higher than during H1 2016, contributing to increased fund-based
revenue of GBP351 million in H1 2017 (H1 2016: GBP307 million), an increase of 14%.
Above benchmark investment performance in OMGI funds (primarily the Global Equity Absolute Return, UK Specialist Equity and UK
Dynamic Equity funds) generated additional net performance-related fees of GBP17 million. In H1 2016, there were no performance fees.
As expected, the underlying revenue margins in some of our individual businesses have reduced due to a combination of a changing
fee structure mix, changes in business mix and competitive pressures. However, our integrated business model has allowed us to
mitigate some of this impact by providing services and solutions across the value chain. As a result, the overall Old Mutual Wealth
revenue margin of 59bps was 5bps lower than in H1 2016 (excluding performance fees).
OMGI revenue margin improved by 1bp from 66bps to 67bps as a result of favourable mix changes in the asset base.
Our UK Platform business has experienced a 3bps revenue margin reduction to 33bps compared with H1 2016 due to competitive
industry margin pressures and customers benefiting from our lower costs and therefore lower margin charging structures. The resulting
reduction in revenue was cGBP5 million compared to H1 2016, although this has been offset in absolute terms by fees being earned off a
growing asset base. Quilter Cheviot margin has decreased by 6bps to 74bps compared with prior year due to a reduction in commission
levels (5bps) and further falls in cash yields to negligible levels (1bp), reducing revenue by cGBP6 million when compared to H1 2016.
The largest contributor to the reduction in the margins in the International business is adverse currency movements (11bps). In addition,
as previously disclosed, we have also experienced reduced margins (reduction of 7bps) in our International business to 59bps as we
replace older-style, higher margins products with new, simpler charging structures which provide better outcomes for our customers.
Expenses
Overall costs rose 17% (GBP44 million) compared to the prior year (H1 2016: GBP265 million). This cost increase is analysed into its main
components below:
GBPm H1 2017 H1 2016 Variance
Underlying administration expenses 228 203 25
Italy and SA branches' expenses - 9 (9)
Variable incentives 65 49 16
Investment in business initiatives 10 4 6
Managed separation and standalone costs (recurring) 6 - 6
Reported administration expenses 309 265 44
The increase in underlying administration expenses of GBP25 million reflects costs incurred in three specific areas, on top of costs relating
to organic growth and inflation. The first area relates to a focussed increase in technology spend (GBP7 million) principally in respect of
improving the resilience of our IT infrastructure. Secondly, changes in regulation, including compliance with MIFID II requirements, and
increased FSCS costs have together increased regulatory costs by GBP4 million. Lastly, expenses include adverse year-on-year
movements in provisions totalling GBP8 million, comprising provisions of GBP5 million in relation to policy rectifications in our Heritage book
and a non-recurring release of a GBP3 million unoccupied property provision in H1 2016. The residual GBP6 million increase in underlying
administration expenses relates to other organic and inflationary costs.
Variable incentives are GBP65 million, an increase of GBP16 million on H1 2016. Elements of incentives vary in relation to funds under
management, revenue and profit. The principal driver of the increase on H1 2016 reflects the higher level of funds under management in
OMGI and Quilter Cheviot. The balance of the increase reflects the phasing of bonus accruals and higher senior headcount due to
strengthening of executive and senior management in readiness for listing.
Investment in business initiatives of GBP10 million reflects additional spend within Old Mutual Wealth Private Client Advisers and the costs
of incorporating Caerus since its acquisition completed on 1 June 2017.
The incremental managed separation and standalone costs of GBP6 million include GBP3 million of branding costs which were previously
incurred by Old Mutual plc, as highlighted in our 2016 Preliminary Results in March 2017, and an increase of GBP3 million to reflect the
strengthened Board and other recurring standalone costs. 2017 is a transitional year for the business and incremental recurring costs of
GBP6 million for H1 2017 do not yet reflect a full-year run-rate. In our 2016 Preliminary Results, we estimated that separation would
increase our cost base by GBP25-30 million per annum, and we therefore expect to incur additional costs, beyond the GBP6 million incurred in
H1 2017, in H2 2017 and into 2018 as our business evolves to operate on a fully standalone basis. As previously highlighted, given the
dynamic nature of the process, these cost estimates will be refined further as we get closer to separation. There may be additional costs
that we incur in the future as a standalone business, such as debt financing costs.
Operating margin
Operating margin, including the benefit of performance fees, was 30% in H1 2017 (H1 2016: 28%, with GBPnil performance fees).
Excluding performance fees, the operating margin is unchanged at 28%. We continue to expect the operating margin to be constrained
in the short-term by the incremental expenses associated with operating as a separate standalone business. We expect an improving
operating margin in the medium term as we transition and grow our business while absorbing these additional costs.
IFRS NAV
Net assets of GBP1,168 million at 30 June 2017, which excludes the remaining goodwill and other unamortised intangible assets
associated with the original acquisition of the remaining Skandia business, are broadly in line with the closing 2016 position (31
December 2016: GBP1,087 million).
Goodwill and other intangible assets value has reduced by GBP70 million through the normal course of amortisation of the intangible assets
and as a result of the sale of Old Mutual Wealth Italy, proceeds of which were remitted to Old Mutual plc in January 2017.
Investments and securities have increased by GBP4 billion over the half year due to positive net flows and market performance. The long-
term business policyholder liabilities have increased correspondingly, as expected for unit-linked business. Cash and balances with
central banks have increased by GBP320 million, which includes a GBP200 million capital injection received from Old Mutual plc in May 2017.
Cash and capital
At our 2016 Preliminary Results in March 2017, Old Mutual plc highlighted that its cash and liquidity buffers were inclusive of GBP200
million of undrawn support for Old Mutual Wealth. Where appropriate, and as part of the preparations for managed separation, certain
liquidity buffers and cash may transition from Old Mutual plc to Old Mutual Wealth. As an initial step in this process, Old Mutual Wealth
received GBP200 million of capital in May 2017 from Old Mutual plc with a consequential reduction in Old Mutual plc's liquidity support and
centrally held liquidity buffers for Old Mutual Wealth of GBP130 million to GBP70 million. Work continues developing the appropriate capital
and liquidity position commensurate with Old Mutual Wealth being ready for managed separation and listing. We expect to provide an
update shortly ahead of separation.
Free surplus generation
Free surplus generation analysis considers the efficiency of the businesses in converting profits into operational cash flows. Our free
surplus is calculated on a local statutory basis which for the businesses in the EU is consistent with Solvency II principles. In H1 2017,
the businesses generated free surplus of GBP86 million (H1 2016: GBP82 million), representing a conversion rate of 77% of AOP post-tax (H1
2016: 93%). The lower conversion rate reflects increased capital requirements on the life business.
GBPm H1 2017 H1 2016
Free surplus generated 86 82
% of post-tax AOP converted to free surplus 77% 93%
Return on equity (ROE) (annualised)
Strong operating performance across our business in H1 2017 has increased ROE to 14% (31 December 2016: 13%).
H1 2017
Average H1 2017 H1 2017 FY 2016
shareholder AOP (post- adjusted adjusted
ROE(1) of business components equity tax) ROE ROE
Invest & Grow markets
UK 1,069 79 15% 13%
of which: Quilter Cheviot 695 20 6% 6%
International 296 25 17% 18%
Manage for Value markets
UK Heritage 287 18 13% 11%
Europe - Open Book - - - 13%
Head office n/a (10) n/a n/a
Total Old Mutual Wealth 1,644 112 14% 13%
(1) ROE is calculated as annualised post-tax AOP over average IFRS NAV plus the capital funding originally provided by Old Mutual plc to fund the
2015 acquisition of Quilter Cheviot.
Return on invested capital
Capital deployed and productivity of corporate activity at cost - H1 2017
Significant acquisitions (more than GBP50m) H1 2017 H1 2017 Annualised FY 2016
invested AOP return on return on
capital (post-tax) invested invested
(GBPm) capital(1) capital
Quilter Cheviot (acquired in February 2015) (100%) 585 20 6.8% 6.5%
Intrinsic (acquired in July 2014) 98 (1) 4.0%(2) 1.0%
Total 683 19 6.4%(2) 5.7%
(1) Return on invested capital is annualised post-tax AOP over invested capital.
(2) Intrinsic's return on invested capital and the total do not annualise regulatory costs (FSCS levies) incurred in H1 2017.
As Old Mutual Wealth has developed as a business, two substantial investments have been made in recent years: Intrinsic in 2014 and
Quilter Cheviot in 2015. In making these acquisitions, we recognise that shareholder returns take some time to materialise, especially in
an uncertain macroeconomic environment.
Quilter Cheviot's annualised return on capital improved slightly to 6.8% over H1 2017 (FY 2016: 6.5%) reflecting higher post-tax profits.
At the time of the acquisition of Quilter Cheviot, certain targets to be measured at the end of 2017 were to set. An update on
achievement of these targets will be provided with our 2017 Preliminary Results.
Intrinsic's return on capital invested, including profit generated by Cirilium is 4.0%, up from 1.0% at 31 December 2016. Intrinsic also
secures flows for other parts of our business; for example, the Intrinsic restricted channel accounted for 29% of UK Platform net flows in
H1 2017 (H1 2016: 29%). The contribution to profit from these flows is not recognised in the post-tax AOP result stated above. If all
integration benefits were included, return on invested capital would increase by c.3%. The acquisition continues to perform ahead of
original expectations.
Business developments
Our strategy of recognising the importance of sound financial advice in securing good customer outcomes is unchanged, and
accordingly, we have continued to invest in advised distribution. The acquisition of Caerus, which we announced in March, completed
on 1 June 2017. Caerus is one of the UK's leading financial planning firms with 289 advisers, including 130 restricted financial planners
and more than GBP4 billion of assets under advice.
We remain committed to improving the strength and sustainability of the financial advice industry and improving customer access to
advice. The number of Intrinsic restricted financial planners rose 11% to 1,582 as at 30 June 2017 (31 December 2016: 1,423),
including the benefits of the Caerus acquisition. OMWPCA's advisory capabilities and coverage were enhanced during H1 2017 through
a number of small-scale acquisitions made in the year, with several acquisitions combining to form a new Birmingham hub. OMWPCA
now has GBP1.7 billion of assets under advice and delivered over GBP100 million of assets under management to Quilter Cheviot, making it
one of Quilter Cheviot's largest suppliers of new business.
Delivering good customer outcomes
We believe a broad range of structured multi-asset propositions is right at the heart of delivering modern wealth management solutions
for customers. We have therefore expanded our Cirilium fund range by launching the Old Mutual Cirilium Adventurous Portfolio and the
Old Mutual Cirilium Adventurous Passive Portfolio. In addition, we restructured our Spectrum fund range in July 2017 as the Old Mutual
Creation Portfolios, as part of a wider review of our multi-asset capabilities. On 1 June 2017, we introduced a fixed ongoing charge
pricing structure to eight risk-profiled Cirilium active and passive multi-asset portfolios to improve transparency and clarity around fund
charges for our customers.
We have achieved strong investment performance in OMGI, with 79% of all funds above target over three years on an FUM-weighted
basis at 30 June 2017, compared to 74% at December 2016. 71% of our multi-asset fund ranges were above their target over three
years, 72% of single manager funds were ahead of their target over three years, and 100% of Absolute Return funds were above target
over three years driven by very strong performance from GEAR. The improvement in multi-asset performance from 60% at December
2016 was driven largely by the increased proportion of Cirilium within multi-asset FUM and the Foundation fund range being included in
the measure for the first time as it now has a three year track record. The Generation fund range is performing well and passed through
the GBP250 million FUM mark during the first half of the year.
Regulatory developments
There are a number of studies and thematic reviews currently being initiated or undertaken by the UK regulators. These include the
FCA's Asset Management Review, the findings of which were published on 28 June 2017, and the Investment Platforms Market Study,
the terms of reference for which were announced on 17 July 2017. We fully support these studies which we believe will increase the
confidence and credibility of the wealth management industry in this country and ensure that it provides fair outcomes for customers.
Managed separation and governance
We are progressing well with our programme of activity as we work towards independence as part of the managed separation from Old
Mutual plc. A number of functions have delivered the changes necessary to be standalone with the remaining functions expected to
complete preparations by the end of 2017.
To ensure our organisation is fit for purpose as a listed standalone entity, we have continued to reshape and strengthen our executive
management team and our Board. Tim Tookey has been appointed as Chief Financial Officer and Mark Satchel has assumed the role
of Corporate Finance Director. Tim joined the Old Mutual Wealth Board of Directors in February as Chair of the Board's Audit
Committee. George Reid, Independent Non-Executive Director, has become interim Chair of the Audit Committee. Rosie Harris and Jon
Little have joined the Board as Independent Non-Executive directors during Q2 2017. Rosie has been appointed Chair of the Board Risk
Committee and Jon has additionally joined the Board of Old Mutual Global Investors as a Non-Executive Director. We have also
established a new IT Committee of the Board, chaired by Moira Kilcoyne, an Independent Non-Executive Director, to provide oversight
of IT strategy, risk profile, resilience and strategic change programmes.
Managing conflicts of interests
In the Old Mutual Wealth model, we combine our knowledge and capabilities across the businesses to gain a deep understanding of our
clients and their needs. Our business model allows us to interact directly with advisers to deliver new products and solutions that are
suitable for clients. Suitable investment solutions are central to ensuring good customer outcomes. We aim to blend peer-leading
capabilities across our business, but the decision about which investment solutions are right for each individual client remains with the
financial adviser, where client suitability decisions will always remain sacrosanct.
To ensure we manage potential conflicts of interest, each part of the business has strong governance in place, with each business being
a separate regulated entity that seeks to deliver fair outcomes and good value for its customers.
UK Platform Transformation
The contracts related to the UK Platform Transformation with IFDS and DST have come to an end by mutual agreement effective as of
2 May 2017. At the same time, we announced that we had contracted with FNZ to deliver our UK Platform Transformation Programme.
Following these changes, the initiation phase of our work with FNZ is now underway, and we have started detailed requirements
workshops which will continue over a three to five month period. To date, nothing has arisen to alter the time and cost estimates
announced in May. We anticipate increasing levels of confidence in our estimates as we progress through the requirements and
planning stages.
We continue to plan for an enhanced customer and adviser proposition supplied by FNZ to be operational for new business by late
2018/early 2019, with migration to follow swiftly thereafter.
All aspects of the previous programme, including the financial and operational aspects of ending of the contracts with IFDS and DST,
have now been concluded. As a result, final costs associated with this phase of the project amounted to GBP332 million, marginally ahead
of actual costs to 30 April 2017 of GBP330 million.
Key risks
The Old Mutual plc 2016 Annual Report and Accounts contained a detailed analysis of the principal risks faced by our business, which
arise as a result of both the market environment and our business model. These risks include those associated with operating in a
highly regulated industry, including the provision of financial advice, the relationship between income and both investment performance
and investor confidence, key person risk, other operational risks and macro-economic risks. There have been no material changes in
the principal risks faced by the business over the past six months. As noted in our 2016 Preliminary Results, increased exposure to
regulatory risk is expected as a consequence of our preparation for separation from Old Mutual plc and from the FCA investigation and
thematic review into our Heritage business, and we continue to be transparent, proactive and responsive with the regulators to help
manage and build our relationships.
We continue to manage the above risks by establishing a risk appetite and managing risks within that appetite, which is integrally linked
to our business strategy. Risk appetite is used to provide boundaries for business decisions, to guide our monitoring of risks and
business performance, determine levels of capital and liquidity and to trigger actions to manage risks. In addition, we regularly perform
stress and scenario testing in order to test the resilience of our business and validate our management action plans.
Outlook
We anticipate continued equity and bond market and currency uncertainties in the medium term, with the geo-political landscape
increasing in complexity following June's General Election and as the potential impacts of the UK's exit from the EU evolve over the next
two years. The end of quantitative easing in the USA and Europe, along with rising interest rates, could have a significant impact on
financial markets.
Retail investor sentiment in H1 2017 has been remarkably strong despite commentators being concerned about the future performance
of the UK economy and broader markets. Notwithstanding the confidence to date, retail investor sentiment is influenced by general
market conditions through the cycle, and therefore we remain cautious on the ability of the business to sustain our current strong flows
over the medium term. There have been certain legislative and regulatory events in the run up to and during H1 2017, which created
high levels of demand for financial services advice and tax-efficient client solutions. These may not repeat in coming periods and there
is increasing uncertainty over of future flows. Our flows into single strategy parts of our asset management are inherently subject to
greater volatility than our long-term investment, pension related and multi-asset flows.
2017 is a transitional year for Old Mutual Wealth in light of the managed separation from Old Mutual plc. As disclosed in the Old Mutual
plc 2016 Preliminary Results in March 2017, we currently expect separation will increase our cost base. We expect to incur additional
costs over H2 2017 and into 2018 as our business evolves to operate on a fully standalone basis. We also anticipate additional costs as
we comply with regulatory changes, such as MIFID II, and absorb higher operating costs associated with Caerus and additional
OMWPCA acquisitions. OMGI and QC are facing a combination of regulatory-driven changes which means that their operating costs will
continue to rise above the level of inflation in the medium term. Our investment in distribution will continue. This investment will be
primarily organic although minor "in-fill" acquisitions may also be considered if these fit into the core business, can be readily integrated
and enable good customer outcomes. The new acquisitions are expected to provide revenue uplift in the future and are a key part of
delivering our strategic ambitions in the future.
Our long-term strategy is to build an advice-led wealth management business. We are focussed on generating appropriate long-term
economic returns from our business. We continue to operate in an evolving regulatory environment and need to ensure that our
business model adapts to remain customer-focussed whilst delivering long-term returns to shareholders above our cost of capital and
within our risk appetite. Our diversified business model is expected to provide some mitigation to the impacts of market volatility and we
therefore remain confident in the ability of our business to deliver for all stakeholders.
Old Mutual Wealth data tables
Adjusted operating profit pre-tax (GBPm) H1 2017 H1 2016 % change
Invest & Grow markets
UK Platform 20 14 43%
UK Other(1) (4) 2 -
International 25 27 (7%)
Old Mutual Global Investors 59 25 136%
Quilter Cheviot 24 24 -
Total Invest & Grow 124 92 35%
Manage for Value markets
UK Heritage 22 3 633%
Europe - Open book(2) - 11 -
Total Manage for Value 22 14 57%
Other shareholder income and expenses (OSIE)(3) (12) (2) (500%)
Total Old Mutual Wealth 134 104 29%
(1) Includes profit from Intrinsic, series 6 pensions, institutional platform assets, protection products and service companies.
(2) Includes Italy (sold 9 January 2017).
(3) OSIE for H1 2017 includes the costs incurred to prepare the business for separation from Old Mutual plc (GBP3 million) and Head Office function
costs, which were previously allocated to the businesses. H1 2016 only included costs incurred to prepare the business for separation from
Old Mutual plc (GBP2 million).
Statement of directors' responsibilities in respect of the interim financial statements
For the six months ended 30 June 2017
We confirm that to the best of our knowledge:
- The Group interim financial statements contained herein are presented in accordance with the requirements of IAS 34 'Interim Financial
Reporting' as adopted by the EU.
- The interim management statement includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of
the financial year and that have materially affected the financial position or performance of the entity during that period; and any
changes in the related party transactions described in the last annual report that could do so.
Bruce Hemphill Ingrid Johnson
Group Chief Executive Group Finance Director
10 August 2017 10 August 2017
Independent review report to Old Mutual plc
For the six months ended 30 June 2017
Conclusion
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months
ended 30 June 2017 which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and
the related explanatory notes, which includes the Statement of adjusted operating profit.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim
financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and
other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-
yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU.
The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with
IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based
on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of
the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company for our review work, for this report, or for the conclusions we have reached.
Jonathan Holt (Senior Statutory Auditor)
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
10 August 2017
Consolidated income statement
For the six months ended 30 June 2017
GBPm
Six months
Six months ended Year
ended 30 June ended
30 June 2016 31 December
Notes 2017 (Restated)(1) 2016
Revenue
Gross earned premiums B2 2,188 1,703 3,868
Outward reinsurance (240) (178) (398)
Net earned premiums 1,948 1,525 3,470
Investment return (non-banking) 4,843 3,001 8,325
Banking interest and similar income 2,363 1,609 3,906
Banking trading, investment and similar income 144 100 255
Fee and commission income, and income from service activities 1,462 1,173 2,636
Other income 62 72 104
Total revenue 10,822 7,480 18,696
Expenses
Claims and benefits (including change in insurance contract provisions) (2,317) (1,960) (3,682)
Reinsurance recoveries 217 209 391
Net claims and benefits incurred (2,100) (1,751) (3,291)
Change in investment contract liabilities (2,937) (1,837) (6,216)
Credit impairment charges (120) (116) (272)
Finance costs (71) (37) (128)
Banking interest payable and similar expenses (1,438) (924) (2,401)
Fee and commission expenses, and other acquisition costs (371) (326) (745)
Change in third-party interest in consolidated funds (731) (294) (691)
Other operating and administrative expenses (2,166) (1,655) (3,741)
Total expenses (9,934) (6,940) (17,485)
Share of associated undertakings' and joint ventures' (loss)/profit after tax (77) (16) 4
Profit on disposal of subsidiaries, associated undertakings and
strategic investments C1(c) 129 10 1
Profit before tax 940 534 1,216
Income tax expense D1 (284) (163) (475)
Profit from continuing operations after tax 656 371 741
Discontinued operations
Profit from discontinued operations after tax I1 23 54 104
Profit after tax for the financial period 679 425 845
Attributable to
Equity holders of the parent 531 284 570
Non-controlling interests
Ordinary shares 130 133 253
Preferred securities 18 8 22
Profit after tax for the financial period 679 425 845
Earnings per ordinary share
Basic earnings per share - continuing operations (pence) 10.7 4.9 10.4
Basic earnings per share - discontinued operations (pence) 0.3 0.8 1.5
Basic earnings per ordinary share (pence) C2(a) 11.0 5.7 11.9
Diluted basic earnings per share - continuing operations (pence) 10.5 4.8 10.1
Diluted basic earnings per share - discontinued operations (pence) 0.3 0.8 1.5
Diluted basic earnings per ordinary share (pence) C2(b) 10.8 5.6 11.6
Weighted average number of ordinary shares (millions) C2(a) 4,687 4,686 4,686
(1) The six months ended 30 June 2016 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 I1 for more information.
Consolidated statement of comprehensive income
For the six months ended 30 June 2017
GBPm
Six months
Six months ended Year
ended 30 June ended
30 June 2016 31 December
Notes 2017 (Restated)(1) 2016
Profit after tax for the financial period 679 425 845
Other comprehensive income for the financial period
Items that will not be reclassified subsequently to profit or loss
Fair value movements
Property revaluation 1 (1) 7
Measurement (losses)/gains on defined benefit plans (42) 7 (27)
Shadow accounting (2) - (7)
Income tax on items that will not be reclassified subsequently to profit or loss D1(c) (3) 6 8
(46) 12 (19)
Items that may be reclassified subsequently to profit or loss
Fair value movements
Net investment hedge 188 (42) (104)
Available-for-sale investments
Fair value gains/(losses) 7 7 (5)
Currency translation differences on translating foreign operations (152) 963 1,904
Exchange differences and other reserves recycled
to profit or loss on disposal of businesses (149) - -
Other movements (5) (42) (23)
Share of other comprehensive income of investments 17 - (1)
Income tax on items that may be reclassified subsequently to profit or loss D1(c) - - 8
(94) 886 1,779
Total other comprehensive income for the financial period from
continuing operations (140) 898 1,760
Total other comprehensive income for the financial period from discontinued
operations 1 13 (3)
Total other comprehensive income for the financial period (139) 911 1,757
Total comprehensive income for the financial period 540 1,336 2,602
Attributable to
Equity holders of the parent 421 933 1,802
Non-controlling interests
Ordinary shares 101 395 778
Preferred securities 18 8 22
Total comprehensive income for the financial period 540 1,336 2,602
(1) The six months ended 30 June 2016 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note I1 for more information.
Statement of adjusted operating profit
For the six months ended 30 June 2017
GBPm
Six months Year
Six months ended ended
ended 30 June 31 December
Adjusted operating profit (AOP) after tax attributable to 30 June 2016 2016
ordinary equity holders of the parent Notes 2017 (Re-presented)(1) (Re-presented)(1)
Core operations
Emerging Markets B3 362 270 639
Nedbank B3 472 345 799
Old Mutual Wealth B3 134 104 260
968 719 1,698
Institutional Asset Management B3 64 58 141
plc Head Office
Old Mutual plc finance costs (35) (45) (88)
Corporate costs (before recharges) (30) (42) (79)
Other net shareholder income/(expenses) 2 18 (5)
Adjusted operating profit before tax B3 969 708 1,667
Tax on adjusted operating profit D1(d) (266) (181) (398)
Adjusted operating profit after tax 703 527 1,269
Non-controlling interests - ordinary shares (179) (137) (319)
Non-controlling interests - preferred securities (18) (8) (22)
Adjusted operating profit after tax attributable to ordinary equity holders
of the parent 506 382 928
Adjusted weighted average number of shares (millions) C2(a) 4,771 4,773 4,773
Adjusted operating earnings per share (pence) C2(c) 10.6 8.0 19.4
GBPm
Six months Year
Six months ended ended
ended 30 June 31 December
Reconciliation of adjusted operating profit to profit after tax attributable 30 June 2016 2016
to the equity holders of the parent Notes 2017 (Re-presented)(1) (Re-presented)(1)
Adjusted operating profit after tax attributable to ordinary equity holders
of the parent 506 382 928
Adjusting items net of tax and non-controlling interest C1(a) (6) (89) (353)
Non-core operations B3 31 (9) (5)
Profit after tax attributable to the equity holders of the parent 531 284 570
(1) Re-presentation of adjusted operating profit in the prior periods: The statement of adjusted operating profit for the six months ended 30 June 2016 and the year
ended 31 December 2016 has been re-presented to be on a consistent basis with the six months ended 30 June 2017. During the current period, the results of
Institutional Asset Management have been disclosed separately from core operations. The long-term investment return on excess assets (June 2017: GBP9 million;
June 2016: GBP10 million; December 2016: GBP20 million), previously shown as a separate item within the AOP of plc Head Office is now included in AOP of Emerging
Markets for all periods. Corporate costs are now presented before recharges to the businesses (June 2017: GBP4 million; June 2016: GBP12 million; December 2016: GBP19
million), the related recharge income for the plc Head Office is now included within Other net shareholder income/(expenses). These changes did not affect the total
AOP of the Group as previously reported. All of these changes are intended to improve the transparency of the impact of managed separation on the operating
result. Further explanation of these presentational changes can be found on page 65.
Basis of preparation of adjusted operating profit (AOP)
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 the basic IFRS profit for a number of items as detailed in note C1.
AOP is one of the key performance indicators by which operational performance is monitored and managed, and it is one of a range of measures by
which management performance and remuneration is assessed. Further detail of the performance measures applied in determining management
remuneration is available in the remuneration report in pages 104 to 139 of the 2016 Annual Report and Accounts.
The adjusting items applied in calculating AOP seek to remove the impact of strategic activity, short-term valuation movements, IFRS accounting
treatments, one-off managed separation costs, and costs related to the resolution of pre-existing plc Head Office 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, and 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. At the current time the only such operations are those of Old Mutual Bermuda. Old Mutual
Bermuda is closed to new business and in run off and as such its activity is not envisaged to form part of the of the underlying long-term operating
performance of the Group. Refer to note B1 for further information on the basis of segmentation.
The results of the Institutional Asset Management (IAM) business segment that are currently classified as held for sale and discontinued operations
for IFRS reporting have been included in the determination of AOP. This reflects the continuing contribution of the business to the Group result,
albeit at a lower level as the Group sells down its interest in the business. It also reflects the Group's continuing 20.1% interest in the business and
its representation on the OM Asset Management plc Board. This differs from the AOP policy applied in respect of previously disposed operating
segments, such as US Life during 2010 and Nordic during 2011. However, these previous disposals were all outright sales of the relevant business,
whereas the Group continues to retain its interest in the IAM business. In the context of the current strategy for the business, the Directors believe
the continued inclusion of the Institutional Asset Management results will assist with the comparability of year-on-year performance as the Group
implements its managed separation strategy.
AOP presentation
AOP is presented on a consistent basis with the previous reporting, except for the following:
- For the six months ended 30 June 2017, the results of Institutional Asset Management will be disclosed separately from core businesses in the
statement of adjusted operating profit (AOP statement). This provides improved transparency of the results of the continuing businesses that
will be listed in the execution of the managed separation strategy.
- The long-term investment return on excess assets, previously shown as a separate item within the AOP of plc Head Office is now included in
AOP of Emerging Markets for all periods. This is consistent with where the excess assets are managed and where returns will be recognised
following managed separation.
- Corporate costs are now presented before recharges to the businesses. The related recharge income received by the Old Mutual plc Head
Office is now included within other net shareholder income/(expenses).
Comparative information has been re-presented to be consistent with the treatment of the items described above. These re-presentations of AOP
do not alter the AOP result as previously reported.
Adjustments IFRS to profit
For all core businesses, AOP reflects a number of adjustments to IFRS profit 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, impairments of investments in associated undertakings and the profit or loss on disposal of subsidiaries (note C1(b) and
C1(c)).
AOP is based on a long-term shareholder investment return 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 certain IFRS accounting treatments that are not deemed to be reflective of the underlying operating performance of the business are
excluded from the determination of AOP. These include the inclusion of dividends declared to holders of perpetual preferred callable securities
(note C1(f)), short-term fluctuations in investment return on shareholder assets (note C1(d)) and the inclusion of returns on investments held by life
funds in Group equity and debt instruments (note C1(e)).
For the six months ended 30 June 2017, managed separation and business standalone costs recognised in the IFRS income statement have been
excluded from the calculation of AOP on the basis that these items are one-off in nature and are not reflective of the underlying operating activity of
the Group. These costs include the cost of winding down the plc Head Office, preparing the businesses for being standalone businesses and
transaction advice. Comparative information has not been restated (June 2016: GBP5 million; December 2016: GBP31 million). Further disclosure on
managed separation costs is included in note C1(i) of these financial statements.
For the six months ended 30 June 2017, income/(expenses) from resolution of pre-existing plc Head Office items recognised in the IFRS income
statement have been excluded from the calculation of AOP on the basis that these items are one-off in nature and are not reflective of the
underlying operating activity of the Group. Comparative information has not been restated (June 2016: GBPnil million; December 2016: GBPnil million).
Further disclosure on the income/(expenses) from resolution of pre-existing plc Head Office items is included in note C1(j) of these financial
statements.
Old Mutual Wealth business transformation costs related to the development of Old Mutual Wealth platform capability and outsourcing of UK
business administration and continue to be excluded from AOP. These costs are excluded from AOP because management is of the view that this
near term investment in operational capability is not reflective of the long-term cost. (note C1(k)).
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 is adjusted 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 30 June 2017
GBPm
At
At 30 June At
30 June 2016 31 December
Notes 2017 (Restated)(1) 2016
Assets
Goodwill and other intangible assets G1 2,430 3,342 2,471
Mandatory reserve deposits with central banks 1,159 866 1,111
Property, plant and equipment 860 794 892
Investment property 1,722 1,508 1,697
Deferred tax assets 70 311 96
Investments in associated undertakings and joint ventures 440 527 542
Deferred acquisition costs 749 729 756
Reinsurers' share of policyholder liabilities F2 3,376 3,058 3,115
Loans and advances F1 43,153 36,801 43,108
Investments and securities 107,960 89,572 100,533
Current tax receivable 56 136 74
Trade, other receivables and other assets 3,050 3,378 2,416
Derivative financial instruments 1,447 1,541 1,340
Cash and cash equivalents 5,175 4,002 4,847
Assets held for sale I2 440 6,098 8,570
Total assets 172,087 152,663 171,568
Liabilities
Long-term business insurance policyholder liabilities F2 9,794 9,183 9,982
Investment contract liabilities F2 82,605 69,040 77,599
Property & casualty liabilities F2 532 425 482
Third-party interests in consolidated funds 10,787 7,178 7,981
Borrowed funds F3 4,847 4,231 4,694
Provisions and accruals 157 158 160
Deferred revenue 291 254 290
Deferred tax liabilities 470 408 440
Current tax payable 160 207 144
Trade, other payables and other liabilities 5,013 5,648 5,112
Amounts owed to bank depositors 45,250 38,607 45,309
Derivative financial instruments 1,489 1,584 1,161
Liabilities held for sale I2 - 5,853 7,046
Total liabilities 161,395 142,776 160,400
Net assets 10,692 9,887 11,168
Shareholders' equity
Equity attributable to equity holders of the parent 8,033 7,258 8,054
Non-controlling interests
Ordinary shares 2,282 2,316 2,773
Preferred securities 377 313 341
Total non-controlling interests 2,659 2,629 3,114
Total equity 10,692 9,887 11,168
(1) The comparative information for June 2016 has been restated to reflect the adjustment for the consolidation of investment funds. Refer to note A2 for more
information.
The Group interim financial statements on pages 62 to 130 were approved by the Board of Directors on 10 August 2017.
Bruce Hemphill Ingrid Johnson
Group Chief Executive Group Finance Director
Consolidated statement of cash flows
For the six months ended 30 June 2017
GBPm
Six months
Six months ended Year
ended 30 June ended
30 June 2016 31 December
Notes 2017 (Restated)(1) 2016
Cash flows from operating activities
Profit before tax 940 534 1,216
Non-cash movements in profit before tax 2,781 2,280 3,620
Net changes in working capital (859) (167) 416
Taxation paid (211) (226) (468)
Net cash inflow from operating activities - continuing operations 2,651 2,421 4,784
Cash flows from investing activities
Net acquisitions of financial investments (2,330) (2,861) (4,374)
Acquisition of investment properties (34) (40) (83)
Proceeds from disposal of investment properties - 5 8
Dividends received from associated undertakings 3 8 9
Acquisition of property, plant and equipment (57) (48) (119)
Proceeds from disposal of property, plant and equipment 3 1 6
Acquisition of intangible assets (71) (47) (141)
Acquisition of interests in subsidiaries, associated undertakings, joint
ventures and strategic investments(2) (65) (23) (121)
Proceeds from the disposal of interests in subsidiaries, associated
undertakings joint ventures and strategic investments(3) 525 10 194
Net cash outflow from investing activities - continuing operations (2,026) (2,995) (4,621)
Cash flows from financing activities
Dividends paid to:
Ordinary equity holders of the Company (161) (299) (426)
Non-controlling interests and preferred security interests (129) (90) (178)
Interest paid (excluding banking interest paid) (31) (35) (69)
Proceeds from issue of ordinary shares (including by subsidiaries to
non-controlling interests) 3 1 2
Net sale/(acquisition) of treasury shares - ordinary shares 24 (37) (33)
Redemption of perpetual preferred callable securities (287) - -
Proceeds from issue of preferred equity 36 - 95
Acquisition of treasury shares - preferred equity - - (26)
Proceeds from issue of subordinated and other debt 450 415 809
Subordinated and other debt repaid (282) (27) (492)
Net cash outflow from financing activities - continuing operations (377) (72) (318)
Net cash inflow/(outflow) - continuing operations 248 (646) (155)
Net cash inflow/(outflow) - discontinued operations I1(c) 48 (55) 45
Effects of exchange rate changes on cash and cash equivalents (17) 439 1,018
Cash and cash equivalents at beginning of the year 6,055 5,147 5,147
Cash and cash equivalents at end of the period 6,334 4,885 6,055
Consisting of:
Cash and cash equivalents 5,175 4,002 4,847
Mandatory reserve deposits with central banks 1,159 866 1,111
Cash and cash equivalents included in assets held for sale - 17 97
Total 6,334 4,885 6,055
(1) The six months ended 30 June 2016 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 I1 for more information.
(2) The acquisition of interests in subsidiaries, associated undertakings, joint ventures and strategic investments, is stated net of cash acquired on acquisition of the
undertakings.
(3) The proceeds from disposal of interests in associated undertakings, joint ventures and strategic investments is stated net of any cash held by undertakings at the
date of sale.
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 GBP1,159 million (June 2016: GBP866 million; December 2016: GBP1,111 million) and cash and
cash equivalents subject to consolidation of funds of GBP1,311 million (June 2016: GBP1,168 million; December 2016: GBP976 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 six months ended 30 June 2017
Millions
Number of
shares Available-
issued and Share Share Merger for-sale
Six months ended 30 June 2017 Notes fully paid capital premium reserve reserve
Shareholders' equity at beginning of the period 4,930 563 1,042 1,252 38
Total comprehensive income for the financial period
Profit after tax for the financial period - - - - -
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 - - - - -
Shadow accounting - - - - -
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(1) - - - - -
Recycled to profit or loss - - - - -
Currency translation differences on translating foreign
operations1 - - - - -
Exchange differences and other reserves recycled to profit or
loss on disposal of business(2) - - - - -
Other movements - - - - -
Share of other comprehensive income of investments - - - - -
Income tax on items that may be reclassified
subsequently to profit or loss D1(c) - - - - -
Total comprehensive income for the financial period - - - - -
Transactions with the owners of the Company
Contributions and distributions
Dividends for the period C3 - - - - -
Tax relief on dividends paid - - - - -
Equity share-based payment transactions - - - - -
Transfer between reserves(3) - - - - -
Proceeds from BEE transactions - - 13 - -
Merger reserve released - - - (104) -
Additional Tier 1 capital instruments issued(4) - - - - -
Preferred securities repurchased - - - - -
Other movements in share capital 2 - 3 - -
Total contributions and distributions 2 - 16 (104) -
Changes in ownership
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 2 - 16 (104) -
Shareholders' equity at end of the period 4,932 563 1,058 1,148 38
(1) Included in other reserves is a gain of GBP7 million relating to Ecobank Transnational Inc. (ETI) available-for-sale reserve. Currency translation differences on
translating foreign operations include GBP14 million relating to foreign exchange losses on translation of ETI.
(2) A net gain of GBP130 million was realised and recycled to profit and loss on the disposal of OM Asset Management plc (OMAM) consisting of GBP(21)million other
reserves and GBP151 million foreign currency translation. A gain of GBP19 million was realised from the recycling of foreign currency reserves relating to disposal of Old
Mutual Wealth Italy.
(3) Transfers between reserves comprise a transfer from the share-based payment reserve to retained earnings as a result of the disposal of OMAM (GBP61 million) and a
transfer for fully vested share based-payments within plc Head Office (GBP47 million).
(4) On 30 June 2017, Nedbank Limited issued R600 million additional Tier 1 capital instruments under its R10 billion Domestic Medium Term Note Programme which
has been classified as equity. Interest is payable quarterly in arrears at a floating rate of 3-month JIBAR + 5.65%. Refer to note A2 for more information.
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(1) reserve earnings securities of the parent interests equity
182 409 17 (1,008) 5,286 273 8,054 3,114 11,168
- - - - 516 15 531 148 679
1 - - - - - 1 - 1
- - - - (47) - (47) 5 (42)
(2) - - - - - (2) - (2)
- - - - (2) - (2) (1) (3)
(1) - - - (49) - (50) 4 (46)
- - - 188 - - 188 - 188
- - 7 - (2) - 5 2 7
- - - - - - - - -
- - - (96) - - (96) (56) (152)
- - 21 (170) (9) - (158) 9 (149)
- - (1) - (7) - (8) 4 (4)
- - 17 - (8) - 9 8 17
- - - - - - - - -
(1) - 44 (78) 441 15 421 119 540
- - - - (161) (15) (176) (114) (290)
- - - - - - - - -
- (39) - - 4 - (35) (9) (44)
- (108) - - 108 - - - -
- - - - - - 13 - 13
- - - - 104 - - - -
- - - - - - - 36 36
- - - - (14) (273) (287) - (287)
16 - - - (5) - 14 - 14
16 (147) - - 36 (288) (471) (87) (558)
- - - - - - - (550) (550)
- - - - 29 - 29 63 92
- - - - 29 - 29 (487) (458)
16 (147) - - 65 (288) (442) (574) (1,016)
197 262 61 (1,086) 5,792 - 8,033 2,659 10,692
Consolidated statement of changes in equity
For the six months ended 30 June 2016
Millions
Number of
shares Available-
issued and Share Share Merger for-sale
Notes fully paid capital premium reserve reserve
Shareholders' equity at beginning of the period 4,929 563 1,040 1,252 40
Total comprehensive income for the financial period
Profit after tax for the financial period - - - - -
Other comprehensive income
Items that will not be reclassified subsequently to
profit or loss
Fair value gains
Property revaluation - - - - -
Measurement gains on defined benefit plans - - - - -
Income tax on items that will not be reclassified
subsequently to profit or loss D1(c) - - - - -
- - - - -
Items that may be reclassified subsequently to profit
or loss
Fair value gains/(losses)
Net investment hedge - - - - -
Available-for-sale investments
Fair value gains - - - - (2)
Currency translation differences on translating foreign
operations - - - - -
Other movements - - - - -
Total comprehensive income for the financial period - - - - (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 - - - - -
Old Mutual Asset Management plc share buyback - - - - -
Tier 1 instruments issued - - - - -
Preferred securities repurchased - - - - -
Other movements in share capital 1 - 1 - -
Total contributions and distributions 1 - 1 - -
Changes in ownership
Change in participation in subsidiaries - - - - -
Total changes in ownership - - - - -
Total transactions with owners of the Company 1 - 1 - -
Shareholders' equity at end of the period 4,930 563 1,041 1,252 38
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
184 367 30 (2,243) 5,174 273 6,680 2,254 8,934
- - - - 268 16 284 141 425
(1) - - - - - (1) - (1)
- - - - 6 - 6 1 7
- 4 - - - - 4 2 6
(1) 4 - - 6 - 9 3 12
- - - (42) - - (42) - (42)
- - 10 - (4) - 4 3 7
- - - 694 - - 694 268 962
(3) - (5) - (8) - (16) (12) (28)
(4) 4 5 652 262 16 933 403 1,336
- - - - (299) (17) (316) (78) (394)
- - - - - 1 1 - 1
- (6) - - 7 - 1 (5) (4)
- - - - (8) - (8) (3) (11)
- - - - - - - 67 67
- - - - - - - (26) (26)
- - - - (37) - (36) - (36)
- (6) - - (337) (16) (358) (45) (403)
- - - - 3 - 3 17 20
- - - - 3 - 3 17 20
- (6) - - (334) (16) (355) (28) (383)
180 365 35 (1,591) 5,102 273 7,258 2,629 9,887
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
Notes 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
Property revaluation - - - - -
Measurement gains on defined benefit plans - - - - -
Shadow accounting - - - - -
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 - - - - (5)
Recycled to profit or loss - - - - -
Exchange differences recycled to profit or loss
on disposal of business - - - - -
Currency translation differences on translating foreign
operations - - - - -
Other movements - - - - 1
Share of other comprehensive income of investments - - - - -
Income tax on items that may be reclassified
subsequently to profit or loss D1(c) - - - - 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 - - - - -
Preferred securities repurchased - - - - -
Other movements in share capital 1 - 2 - -
Total contributions and distributions 1 - 2 - -
Changes in ownership
Acquisition of shareholding in Banco Unico - - - - -
Disposal of a non-controlling interest in
OM Asset Management plc - - - - -
Change in participation in subsidiaries - - - - -
Total changes in ownership - - - - -
Total transactions with owners of the Company 1 - 2 - -
Shareholders' equity at end of the year 4,930 563 1,042 1,252 38
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
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)
(7) - - - - - (7) - (7)
- - - - 5 - 5 3 8
- - - - (14) - (14) (5) (19)
- - - (104) - - (104) - (104)
- - - - 2 - (3) (2) (5)
- - - - - - - - -
- - - - - - - - -
- - - 1,365 - - 1,365 536 1,901
(2) - (12) - (4) - (17) (6) (23)
- - (1) - - - (1) - (1)
- 4 - - - - 6 2 8
(2) 4 (13) 1,261 540 14 1,802 800 2,602
- - - - (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) (6) - (7) 7 -
- - - (25) 38 - 13 153 166
- - - - 13 - 13 - 13
- - - (26) 45 - 19 160 179
- 38 - (26) (428) (14) (428) 60 (368)
182 409 17 (1,008) 5,286 273 8,054 3,114 11,168
Notes to the consolidated financial statements
For the six months ended 30 June 2017
A: Significant accounting policies
A1: Basis of preparation
The Group interim financial statements contained herein are presented in accordance with the requirements of IAS 34 'Interim Financial Reporting'
and are in compliance with IAS 34 as adopted by the EU. The Group's results for the six months ended 30 June 2017 and the financial position at
that date have been prepared using accounting policies consistent with those applied in the preparation of the Group's 2016 Annual Report and
Accounts. The results for the six months ended 30 June 2017 and the six months ended 30 June 2016, and the financial positions at these dates
are unaudited. The results for the year ended 31 December 2016 and the financial position at this date are audited.
The Group interim financial statements have been prepared on the going concern basis, which the directors believe is appropriate. Part 2 - Detailed
Business Review provides further details on the performance of the Group and the principal risks and uncertainties.
The comparative figures for the financial year ended 31 December 2016 represent the consolidated performance of the Group. They are not the
Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the
Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
Translation of foreign operations
The assets and liabilities of foreign operations are translated from their respective functional currencies into pound sterling, the Group's
presentation currency using the period end exchange rates, and their income and expenses using the average exchange rates. Other than in
respect of cumulative translation gains and losses up to 1 January 2004, cumulative unrealised gains or losses resulting from translation of
functional currencies to the presentation currency are included as a separate component of shareholders' equity. To the extent that these gains and
losses are effectively hedged, the cumulative effect of such gains and losses arising on the hedging instruments are also included in that
component of shareholders' equity. Upon the disposal of subsidiaries the cumulative amount of exchange differences deferred in shareholders'
equity, net of attributable amounts in relation to net investments, is recognised in the income statement.
The exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to pounds sterling are:
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
Statement of Statement of Statement of
Income financial Income financial Income financial
statement position Statement position statement position
(average rate) (closing rate) (average rate) (closing rate) (average rate) (closing rate)
Rand 16.6431 16.9831 22.0983 19.4900 19.9305 16.9551
US dollars 1.2591 1.3008 1.4339 1.3268 1.3558 1.2345
Euro 1.1627 1.1398 1.2845 1.1982 1.2251 1.1705
New standards, interpretations and amendments adopted by the Group affecting the financial statements for the six months ended 30 June 2017
During the period, there were no new standards implemented that had a material effect on the financial statements of the Group.
A2: Significant corporate activity and business changes during the period
Acquisitions completed during the period
Caerus Capital Group Limited (Caerus)
On 1 June 2017, Old Mutual Wealth, completed the acquisition of 100% of the share capital of Caerus, a UK based adviser network that operates in
a similar manner to Intrinsic and which has approximately GBP4 billion of funds under advice and 300 advisers.
The total consideration includes up to GBP3 million that has been deferred for two years and GBP6 million that has been deferred for three years. The
deferred consideration has been included as part of the cost of the acquisition as there is no continuing employment condition applying to the
sellers of the business. The deferred consideration payable is dependent on turnover targets post acquisition and is potentially reduced by the
amount of any relevant claims arising from in-force business existing prior to the payment dates.
Goodwill of GBP11 million and other intangible assets of GBP10 million were recognised as a result of the acquisition.
Old Mutual Private Client Advisers (PCA)
During the six months ended 30 June 2017, Old Mutual Wealth completed the acquisition of five adviser businesses as part of the expansion of the
PCA business that was launched in October 2015. Potential total consideration payable is GBP11 million, including up to GBP6 million which is deferred,
dependent upon performance targets, generally relating to funds under management. The deferred consideration has been included as part of the
cost of the acquisition. Total goodwill of GBP3 million and total other intangible assets of GBP8 million have been recognised as a result of these
acquisitions.
Attivo Investment Management Limited (AIM)
On 29 March 2017, Old Mutual Wealth completed the acquisition of 100% of the share capital of AIM, a UK based investment management
business offering a comprehensive investment management service. Other intangible assets of GBP9 million, relating to customer relationships, were
recognised as a result of the acquisition. No goodwill was recognised on this transaction.
More information regarding these acquisitions can be found in note H2.
Disposals completed during the period
OM Asset Management plc (OMAM) share sales and share buyback
During the period, the following transactions involving the Group's ownership in OMAM shares were completed:
- on 12 May 2017, OM Group (UK) Limited (OMGUK), a wholly owned subsidiary of Old Mutual plc, sold 11.4 million OMAM shares to HNA
Capital US at a price of $15.30 per share;
- on 19 May 2017, following the closing of a public offering, OMGUK sold 17.3 million OMAM shares at a price of $14.55 per share. Pursuant to
this, on 14 June 2017, the underwriters of the public offer exercised their right to purchase 2.6 million shares at the same price less an
underwriting discount;
- on 19 May 2017, OMAM repurchased 5.0 million ordinary shares directly from OMGUK at a price of $14.55 per share.
As a consequence of the transactions described above, the Group's stake in OMAM's equity decreased from 51.7% to 20.1% and, in accordance
with the criteria set out in IFRS 3 'Business Combinations', the Group no longer considered that it exercised control over the business form 19 May
2017. This resulted in OMAM being deconsolidated from the Group financial statements and instead being equity accounted for as an associated
undertaking and classified as held for sale. At the point of deconsolidation, the residual holding in OMAM was revalued based on the market value
prevailing at that time.
The total cash proceeds from these transactions, after underwriting and other transaction costs, were $531 million (GBP412 million). A profit on
disposal of GBP108 million was realised as a result of the transactions in OMAM shares, comprising:
- a loss of GBP134 million related to:
- net proceeds of GBP412 million received less 51.7% of OMAM net asset value (GBP512 million);
- foreign currency translation reserve gains of GBP151 million; and
- net investment hedge and other reserve losses of GBP185 million.
- a profit of GBP242 million was recognised on the fair value of the remaining 20.1% stake that is now equity accounted as an associated
undertaking.
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 cash consideration of
GBP210 million, net of costs. The profit on disposal was GBP24 million, comprising a gain of GBP5 million relating to the unwind of a forward currency
contract used to hedge the value of the proceeds to be received and a gain of GBP19 million from the recycling of foreign currency reserves. Merger
reserves of GBP104 million created on the original acquisition of Old Mutual Wealth Italy were transferred to retained earnings and became
distributable. During 2016, an impairment of GBP46 million was incurred against the carrying value of Old Mutual Wealth Italy's goodwill to reflect the
expected realisable value.
Sale of a minority stake in Credit Guarantee Insurance Company (CGIC)
On 1 April 2017, Emerging Markets completed the sale of 25% of CGIC to Atradius N.V. for R494 million (GBP29 million). A gain on disposal of R280
million (GBP17 million) was recognised directly in equity on completion of the sale.
Disposals announced during the period, but not yet completed
Sale of OM Asset Management plc (OMAM) shares to HNA Capital US
On 25 March 2017, the Group announced that, in addition to the 11.4 million shares sold on 12 May 2017, OMGUK had contracted to sell additional
OMAM shares to HNA Capital US representing approximately 14.5% of OMAM's ordinary share capital. This transaction is subject to regulatory
approval and is contracted to complete in the second half of 2017. After the sale, the Group's holding in OMAM's share capital is expected to be
approximately 5.5% and accounted for as an investment at fair value through profit or loss.
Sale of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak)
On 27 April 2017, the Group announced that it has agreed to sell its 26% stake in Kotak to its joint venture partner Kotak Mahindra Bank Limited.
The net consideration is expected to be approximately INR 11,700 million (GBP138 million). The conclusion of the transaction will also terminate the
joint venture arrangement, extinguishing the respective put and call option arrangements between the parties relating to a 23% stake in the joint
venture. This transaction is subject to regulatory approval, which is expected to be received in the second half of 2017.
Financing activities completed during the period
Nedbank
On 30 June 2017, Nedbank Limited issued R600 million additional Tier 1 capital instruments under its R10 billion Domestic Medium Term Note
Programme. Interest is payable quarterly in arrears at a floating rate of 3-month JIBAR + 5.65%. The first interest payment date is 1 October 2017
and the first call date in 1 July 2022.
Nedbank issued and redeemed further debt instruments in the normal course of its funding programme. Refer to note F3 for more information.
Old Mutual plc
On 3 February 2017, the Group repurchased all of the GBP273 million Tier 1 preferred perpetual callable securities using cash from the Group's
existing resources. In addition to repaying the nominal value of the securities, GBP29 million was paid to holders of the securities for accrued interest
and a premium in excess of nominal value. The premium was recognised directly in equity.
Other activities during the period
Old Mutual plc Legacy Pension Schemes
On 13 June 2017, bulk annuity arrangements for two legacy defined benefit schemes, the Old Mutual Staff Pension Fund and the G&N Retirement
Benefits Scheme, were agreed with Legal & General Assurance Society Limited. The agreements have resulted in the buy-in of the benefits of the
two schemes, with the intention of moving to a full buy-out and wind-up of the schemes by Q4 2017.
In order to effect the transaction, Old Mutual plc has made a one off contribution of GBP27 million into the two schemes, which together with the writing
off the majority of the combined existing IAS 19 surplus for the schemes, resulted in a GBP51 million reduction in IFRS NAV recognised in
measurement (losses)/gains on defined benefit plans in the consolidated statement of comprehensive income. Once the buy-out and winding up
processes have been completed, Old Mutual plc will no longer be responsible for the administration or funding of these two schemes. Old Mutual
plc had previously been contributing annually GBP7 million of cash to the two schemes.
Amendment of the OMAM Deferred Tax Asset Deed (DTA)
During 2014, OMAM entered into a Deferred Tax Asset Deed with Old Mutual plc, which was amended in June 2016. Under the terms of the
Deferred Tax Asset Deed, as amended, the OMAM agreed to make a payment equal to the net present value of the future payments due to Old
Mutual plc valued as of December 31, 2016. This payment of $143 million (GBP115 million) is being made over three instalments, the first of which
amounted to $46 million (GBP59 million) and was paid on June 30, 2017, with the remaining two instalments to be paid on December 31, 2017 and
June 30, 2018. The continuation of certain protections provided by Old Mutual plc related to the realised tax benefit resulting from OMAM's use of
deferred tax assets remains unaffected.
Restatement of IFRS financial statement prior year comparative amounts
Overview
In preparing the Group financial statements for the six months ended 30 June 2017, the IFRS financial statements for the six months ended 30
June 2016 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.
The comparative information for the year ended 31 December 2016 is unchanged from that previously disclosed.
IAM classified as a discontinued operation in 2016 (IAM - Discontinued operations)
The six months ended 30 June 2016 has been restated to reflect IAM as a discontinued operation. This is consistent with the disclosure adopted for
the year ended 31 December 2016. During the six months ended 30 June 2017, IAM continued to be classified as a discontinued operation in the
IFRS consolidated income statement and consolidated statement of cash flows for the period from 1 January 2017 to 19 May 2017, at which date
the Group ceased to consolidate the business following the sale of its controlling interest.
Consolidation of additional Emerging Markets investment funds (Consolidation of investment funds)
During 2016, the Group 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 resulted in the identification of additional investment funds that are
required to be included in the consolidated financial statements. As a result, comparative information in respect of the full year 2016 financial
statements required restatement and similarly in the six months ended 30 June 2016 the prior year comparative information have been restated
accordingly. These restatements had no impact on the net assets of the Group, the equity attributable to ordinary equity holders of the parent, profit
after tax or any key performance indicators reported by the Group.
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 - Consolidation
June 2016 Discontinued of investment June 2016
As Reported operations funds As Restated
Statement of financial position
Assets
Investments and securities 88,996 - 576 89,572
Trade, other receivables and other assets 3,368 - 10 3,378
Cash and cash equivalents 3,978 - 24 4,002
Total assets 152,053 - 610 152,663
Liabilities
Third-party interests in consolidated funds 6,585 - 593 7,178
Trade, other payables and other liabilities 5,631 - 17 5,648
Total liabilities 142,166 - 610 142,776
Income statement
Revenue
Investment Return (non-banking) 2,947 - 54 3,001
Fee and commission income, and income from service activities 1,395 (222) - 1,173
Total revenue 7,648 (222) 54 7,480
Expenses
Finance costs (38) 1 - (37)
Fee and commission expenses, and other acquisition costs (330) 4 - (326)
Change in third-party interest in consolidated funds (244) - (50) (294)
Other operating and administrative expenses (1,813) 162 (4) (1,655)
Total expenses (7,053) 167 (54) (6,940)
Share of associated undertakings' and joint ventures' losses after tax (11) (5) - (16)
Profit on disposal of subsidiaries, associated undertakings and strategic
investments 24 (14) - 10
Profit before tax 608 (74) - 534
Income tax expense (183) 20 - (163)
Profit from continuing operations after tax 425 (54) - 371
Profit from discontinued operations after tax - 54 - 54
Statement of cash flows
Net cash inflow from operating activities - continuing operations 2,315 49 57 2,421
Net cash outflow from investing activities - continuing operations (3,072) 1 76 (2,995)
Net cash outflow from financing activities - continuing operations (77) 5 - (72)
Net cash (outflow)/inflow - continuing operations (834) 55 133 (646)
Net cash outflow - discontinued operations - (55) - (55)
A3: Critical accounting estimates and judgements
In the preparation of these condensed financial statements, the Group is required to make estimates and judgements that affect items reported in
the consolidated income statement, statement of financial position, and other primary statements and related supporting notes.
Critical accounting estimates and judgements are those which involve the most complex or subjective judgements or assessments. Where
applicable, the Group applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting guidance based
on knowledge of the current situation and require assumptions and predictions of future events and actions. During the period, there have been no
other significant changes to the areas of critical accounting estimates and judgements that the Group applied at 31 December 2016.
The key areas of the Group's business that typically require such estimates and the relevant accounting policies and notes are set out in the
following notes of the 2016 Annual Report and Accounts:
Area Policy note More detail
Loans and advances G1 G1
Insurance and investment contracts G6 G6
Goodwill and other intangible assets H1 H1
Consolidation I1 I3
Tax D1 D1/H7
B: Segment information
B1: Basis of segmentation
Segment presentation
The Group's reported segments are Emerging Markets, Nedbank, Old Mutual Wealth, Institutional Asset Management (IAM) 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 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.
During the period, the Group further sold down its stake in OM Asset Management plc (OMAM) from 51.7% to 20.1%. As a consequence, the
Group no longer considered that it exercised control over the business. From 19 May 2017, OMAM was deconsolidated from the Group financial
statements. Refer to note A2 for more information.
The IAM operating segment for the six months ended 30 June 2017 therefore includes the consolidated operating results of OMAM for the period
from 1 January 2017 to 19 May 2017. During this period, IAM has been classified as a discontinued operation in the IFRS consolidated income
statement. This is consistent with the classification at 31 December 2016 and with the requirements of IFRS, given the Group's stated strategic
intentions to sell down IAM. Comparative profit and loss segment information for the six months ended 30 June 2016 has been similarly restated.
The Group's remaining investment in OMAM has been equity accounted as an associated undertaking from 19 May 2017 and the equity accounted
earnings for the period from 19 May 2017 to 30 June 2017 are included in the IAM operating segment in the share of associated undertakings' and
joint ventures' (losses)/profits after tax line. From 19 May 2017, IAM is no longer classified as a discontinued operation. At 30 June 2017, the equity
accounted investment in OMAM has been classified as assets held for sale in the consolidated statement of financial position and is included within
the plc Head Office operating segment in the statement of financial position - segment information.
The operating result of IAM for the six months ended 30 June 2016 and the year ended 31 December 2016 also includes Rogge Global Partners
Limited up to the date of disposal on 31 May 2016.
Consistent with the Group's AOP policy as described in the basis of preparation of adjusted operating profit on pages 64 and 65, we will continue 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. The long-term investment return on excess assets, previously shown within plc Head
Office segment is now included in AOP of the Emerging Markets segment for all periods. This is consistent with where the excess assets are
managed and will be managed in the future.
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 six months ended 30 June 2017, 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.
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, continuing businesses:
- 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
Core operations, discontinued businesses:
- Institutional Asset Management - asset management
Non-core operations, continuing businesses:
- Old Mutual Bermuda - life assurance
B2: Gross earned premiums and deposits to investment contracts
GBPm
Emerging Old Mutual
Six months ended 30 June 2017 Markets Wealth Total
Life assurance - insurance contracts 792 74 866
Life assurance - investment contracts with discretionary participation features 842 - 842
Property & casualty 480 - 480
Gross earned premiums 2,114 74 2,188
GBPm
Emerging Old Mutual
Six months ended 30 June 2016 Markets Wealth Total
Life assurance - insurance contracts 595 70 665
Life assurance - investment contracts with discretionary participation features 672 - 672
Property & casualty 366 - 366
Gross earned premiums 1,633 70 1,703
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
B3: Adjusted operating profit statement - segment information for the six months ended 30 June 2017
Emerging
Notes Markets Nedbank
Revenue
Gross earned premiums B2 2,114 -
Outward reinsurance (196) -
Net earned premiums 1,918 -
Investment return (non-banking) 1,698 -
Banking interest and similar income 123 2,240
Banking trading, investment and similar income 7 137
Fee and commission income, and income from service activities 356 552
Other income 51 19
Total revenue(3) 4,153 2,948
Expenses
Claims and benefits (including change in insurance contract provisions) (2,308) -
Reinsurance recoveries 165 -
Net claims and benefits incurred (2,143) -
Change in investment contract liabilities (630) -
Credit impairment charges (24) (96)
Finance costs (21) -
Banking interest payable and similar expenses (41) (1,397)
Fee and commission expenses, and other acquisition costs (202) (8)
Change in third-party interest in consolidated funds - -
Other operating and administrative expenses (687) (912)
Income tax attributable to policyholder returns (29) -
Total expenses (3,777) (2,413)
Share of associated undertakings' and joint ventures' (losses)/profits after tax (14) (63)
Profit on disposal of subsidiaries, associated undertakings and strategic
investments C1(c) - -
Adjusted operating profit before tax and non-controlling interests 362 472
Income tax expense D1 (103) (131)
Non-controlling interests (11) (166)
Adjusted operating profit after tax and non-controlling interests 248 175
Adjusting items after tax and non-controlling interests C1(a) (18) 1
Profit/(loss) after tax from continuing operations 230 176
Profit from discontinued operations after tax I1 - -
Profit after tax attributable to equity holders of the parent 230 176
(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 inter-segment trading: Emerging Markets: GBP47 million (June
2016: GBP30 million; December 2016: GBP75 million); Nedbank: GBP7 million (June 2016: GBP4 million; December 2016: GBP9 million); Old Mutual Wealth: GBP1 million (June 2016:
GBP1 million; December 2016: GBP2 million); Institutional Asset Management: GBP2 million (June 2016: GBP6 million; December 2016: GBP6 million); and non-core operations: GBPnil
million (June 2016: GBP1 million; December 2016: GBPnil million).
(4) Non-core operations for the six months ended 30 June 2017 comprises Old Mutual Bermuda.
(5) Discontinued operations relate to the Institutional Asset Management (IAM) segment.
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) operations(5) statement
74 - - - 2,188 - - - 2,188
(44) - - - (240) - - - (240)
30 - - - 1,948 - - - 1,948
2,354 6 6 766 4,830 42 (23) (6) 4,843
- - - - 2,363 - - - 2,363
- - - - 144 - - - 144
567 207 - (7) 1,675 (6) - (207) 1,462
5 - - (13) 62 - - - 62
2,956 213 6 746 11,022 36 (23) (213) 10,822
(60) - - - (2,368) - 51 - (2,317)
52 - - - 217 - - - 217
(8) - - - (2,151) - 51 - (2,100)
(2,307) - - - (2,937) - - - (2,937)
- - - - (120) - - - (120)
- (6) (35) - (62) (15) - 6 (71)
- - - - (1,438) - - - (1,438)
(141) (5) - (30) (386) 10 - 5 (371)
- - - (731) (731) - - - (731)
(337) (147) (34) 15 (2,102) (243) 3 176 (2,166)
(29) - - - (58) 58 - - -
(2,822) (158) (69) (746) (9,985) (190) 54 187 (9,934)
- 9 - - (68) (6) - (3) (77)
- - - - - 129 - - 129
134 64 (63) - 969 (31) 31 (29) 940
(22) (18) 8 - (266) (24) - 6 (284)
- (20) - - (197) 49 - - (148)
112 26 (55) - 506 (6) 31 (23) 508
(70) (14) 95 - (6) 6 - - -
42 12 40 - 500 - 31 (23) 508
- - - - - - - 23 23
42 12 40 - 500 - 31 - 531
B3: Adjusted operating profit statement - segment information for the six months ended 30 June 2016 (Restated)(1)
Emerging
Notes Markets Nedbank
Revenue
Gross earned premiums B2 1,633 -
Outward reinsurance (136) -
Net earned premiums 1,497 -
Investment return (non-banking) 1,203 -
Banking interest and similar income 108 1,501
Banking trading, investment and similar income 4 96
Fee and commission income, and income from service activities 261 410
Other income 52 12
Total revenue 3,125 2,019
Expenses
Claims and benefits (including change in insurance contract provisions) (1,819) -
Reinsurance recoveries 95 -
Net claims and benefits incurred (1,724) -
Change in investment contract liabilities (386) -
Credit impairment charges (16) (100)
Finance costs (16) -
Banking interest payable and similar expenses (29) (895)
Fee and commission expenses, and other acquisition costs (136) (4)
Change in third-party interest in consolidated funds - -
Other operating and administrative expenses (533) (655)
Income tax attributable to policyholder returns (19) -
Total expenses (2,859) (1,654)
Share of associated undertakings' and joint ventures' profits/(losses) after tax 4 (20)
Profit on disposal of subsidiaries, associated undertakings and strategic investments C1(c) - -
Adjusted operating profit/(loss) before tax and non-controlling interests 270 345
Income tax expense D1 (75) (88)
Non-controlling interests (6) (123)
Adjusted operating profit/(loss) after tax and non-controlling interests 189 134
Adjusting items after tax and non-controlling interests C1(a) (25) 2
Profit/(loss) after tax from continuing operations 164 136
Loss from discontinued operations after tax I1 - -
Profit/(loss) after tax attributable to equity holders of the parent 164 136
(1) The six months ended 30 June 2016 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 I1 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 for the six months ended 30 June 2016 relate to Old Mutual Bermuda.
(5) Discontinued operations primarily relate to the Institutional Asset Management (IAM) segment.
GBPm
Institutional plc Adjusted Adjusting IFRS
Old Mutual Asset Head Consolidation operating items Non-core Discontinued Income
Wealth Management Office(2) adjustments(3) profit (note C1) operations(4) operations(5) statement
70 - - - 1,703 - - - 1,703
(42) - - - (178) - - - (178)
28 - - - 1,525 - - - 1,525
1,499 - 23 309 3,034 (28) (5) - 3,001
- - - - 1,609 - - - 1,609
- - - - 100 - - - 100
526 222 - (15) 1,404 (9) - (222) 1,173
7 1 - (1) 71 - 1 - 72
2,060 223 23 293 7,743 (37) (4) (222) 7,480
(141) - - - (1,960) - - - (1,960)
112 - - 2 209 - - - 209
(29) - - 2 (1,751) - - - (1,751)
(1,451) - - - (1,837) - - - (1,837)
- - - - (116) - - - (116)
- (1) (44) - (61) 23 - 1 (37)
- - - - (924) - - - (924)
(185) (4) - (13) (342) 12 - 4 (326)
- - - (294) (294) - - - (294)
(284) (165) (48) 12 (1,673) (139) (5) 162 (1,655)
(7) - - - (26) 26 - - -
(1,956) (170) (92) (293) (7,024) (78) (5) 167 (6,940)
- 5 - - (11) - - (5) (16)
- - - - - 24 - (14) 10
104 58 (69) - 708 (91) (9) (74) 534
(16) (17) 15 - (181) (2) - 20 (163)
- (16) - - (145) 4 - - (141)
88 25 (54) - 382 (89) (9) (54) 230
(111) 14 31 - (89) 89 - - -
(23) 39 (23) - 293 - (9) (54) 230
- - - - - - - 54 54
(23) 39 (23) - 293 - (9) - 284
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) 1,834 -
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 6,141 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)
Loss on disposal of subsidiaries, associated undertakings and strategic investments C1(c) - -
Adjusted operating profit/(loss) before tax and non-controlling interests 639 799
Income tax expense D1 (170) (199)
Non-controlling interests (17) (288)
Adjusted operating profit/(loss) after tax and non-controlling interests 452 312
Adjusting items after tax and non-controlling interests C1(a) (93) (30)
Profit/(loss) after tax from continuing operations 359 282
Profit from discontinued operations after tax I1 - -
Profit/(loss) after tax attributable to equity holders of the parent 359 282
(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) Non-core operations for the year ended 31 December 2016 relate to Old Mutual Bermuda.
(4) Discontinued operations primarily relate to the Institutional Asset Management (IAM) segment.
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(3) operations(4) statement
142 - - - 3,868 - - - 3,868
(84) - - - (398) - - - (398)
58 - - - 3,470 - - - 3,470
5,827 - 34 712 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 34 691 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 (172) - 1,667 (313) (5) (133) 1,216
(47) (36) 54 - (398) (106) - 29 (475)
- (36) - - (341) 66 - - (275)
213 69 (118) - 928 (353) (5) (104) 466
(217) 3 (16) - (353) 353 - - -
(4) 72 (134) - 575 - (5) (104) 466
- - - - - - - 104 104
(4) 72 (134) - 575 - (5) - 570
B4: Statement of financial position - segment information at 30 June 2017
Emerging
Notes Markets(1) Nedbank
Assets
Goodwill and other intangible assets G1 386 605
Mandatory reserve deposits with central banks 7 1,152
Property, plant and equipment 330 509
Investment property 1,721 1
Deferred tax assets 49 9
Investments in associated undertakings and joint ventures 86 351
Deferred acquisition costs 167 -
Reinsurers' share of policyholder liabilities F2 286 5
Loans and advances F1 1,179 41,798
Investments and securities 34,331 9,187
Current tax receivable 22 9
Trade, other receivables and other assets 1,066 783
Derivative financial instruments 239 1,103
Cash and cash equivalents 1,514 1,137
Assets held for sale(4) I2 160 35
Inter-segment funding - assets - -
Total assets 41,543 56,684
Liabilities
Long-term business insurance policyholder liabilities F2 9,175 150
Investment contract liabilities F2 24,324 1,025
Property & casualty liabilities F2 532 -
Third-party interests in consolidated funds - -
Borrowed funds F3 611 3,293
Provisions and accruals 118 -
Deferred revenue 70 -
Deferred tax liabilities 214 57
Current tax payable 108 10
Trade, other payables and other liabilities 2,638 1,497
Amounts owed to bank depositors 605 44,910
Derivative financial instruments 311 766
Inter-segment funding - liabilities - -
Total liabilities 38,706 51,708
Net assets(1) 2,837 4,976
Equity
Equity attributable to equity holders of the parent 2,635 2,519
Non-controlling interests 202 2,457
Ordinary shares 202 2,080
Preferred securities - 377
Total equity 2,837 4,976
(1) The net assets of Emerging Markets exclude GBP218 million (June 2016: GBP199 million; December 2016: GBP258 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.
(4) Assets held for sale at 30 June 2017 include the equity accounted investment in OM Asset Management plc. Refer to notes B1 and I2 for more information.
GBPm
Old Mutual plc Non-core Consolidation
Wealth Head Office(2) operation adjustments(3) Total
1,439 - - - 2,430
- - - - 1,159
21 - - - 860
- - - - 1,722
11 - 1 - 70
3 - - - 440
582 - - - 749
3,085 - - - 3,376
200 - - (24) 43,153
54,718 85 89 9,550 107,960
24 - 1 - 56
740 147 3 311 3,050
2 43 3 57 1,447
1,089 876 29 530 5,175
3 242 - - 440
- 788 21 (809) -
61,917 2,181 147 9,615 172,087
436 - 33 - 9,794
57,256 - - - 82,605
- - - - 532
- - - 10,787 10,787
1 1,027 - (85) 4,847
35 4 - - 157
221 - - - 291
190 9 - - 470
36 6 - - 160
1,066 219 5 (412) 5,013
- - - (265) 45,250
- 13 - 399 1,489
788 21 - (809) -
60,029 1,299 38 9,615 161,395
1,888 882 109 - 10,692
1,888 882 109 - 8,033
- - - - 2,659
- - - - 2,282
- - - - 377
1,888 882 109 - 10,692
B4: Statement of financial position - segment information at 30 June 2016 (Restated)(1)
Emerging
Notes Markets Nedbank
Assets
Goodwill and other intangible assets 468 466
Mandatory reserve deposits with central banks 6 860
Property, plant and equipment 292 457
Investment property 1,506 2
Deferred tax assets 38 17
Investments in associated undertakings and joint ventures 77 409
Deferred acquisition costs 101 -
Reinsurers' share of policyholder liabilities F2 189 6
Loans and advances F1 1,029 35,574
Investments and securities 29,870 7,557
Current tax receivable 34 64
Trade, other receivables and other assets 873 717
Derivative financial instruments 211 1,017
Cash and cash equivalents 1,275 1,141
Assets held for sale 17 -
Inter-segment funding - assets - -
Total assets 35,986 48,287
Liabilities
Long-term business insurance policyholder liabilities F2 8,610 182
Investment contract liabilities F2 20,397 679
Property & casualty liabilities F2 425 -
Third-party interests in consolidated funds - -
Borrowed funds F3 505 2,658
Provisions and accruals 112 -
Deferred revenue 22 -
Deferred tax liabilities 174 77
Current tax payable 88 19
Trade, other payables and other liabilities 2,505 1,471
Amounts owed to bank depositors 550 38,057
Derivative financial instruments 263 1,005
Liabilities held for sale I2 - -
Inter-segment funding - liabilities - -
Total liabilities 33,651 44,148
Net assets 2,335 4,139
Equity
Equity attributable to equity holders of the parent 2,119 2,095
Non-controlling interests 216 2,044
Ordinary shares 216 1,731
Preferred securities - 313
Total equity 2,335 4,139
(1) The comparative information for June 2016 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.
(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
1,450 958 - - - 3,342
- - - - - 866
21 24 - - - 794
- - - - - 1,508
10 245 - 1 - 311
1 30 10 - - 527
599 29 - - - 729
2,863 - - - - 3,058
198 - - - - 36,801
45,286 95 454 - 6,310 89,572
38 - - - - 136
1,382 124 116 8 158 3,378
- - 55 19 239 1,541
761 49 351 80 345 4,002
6,081 - - - - 6,098
- - 903 90 (993) -
58,690 1,554 1,889 198 6,059 152,663
391 - - - - 9,183
47,867 - - 97 - 69,040
- - - - - 425
- - - - 7,178 7,178
- 38 1,103 - (73) 4,231
36 3 7 - - 158
232 - - - - 254
139 1 17 - - 408
- 80 20 - - 207
1,431 277 271 4 (311) 5,648
- - - - - 38,607
- 25 31 2 258 1,584
5,853 - - - - 5,853
790 97 106 - (993) -
56,739 521 1,555 103 6,059 142,776
1,951 1,033 334 95 - 9,887
1,951 664 334 95 - 7,258
- 369 - - - 2,629
- 369 - - - 2,316
- - - - - 313
1,951 1,033 334 95 - 9,887
B4: Statement of financial position - segment information at 31 December 2016
Emerging
Notes Markets Nedbank
Assets
Goodwill and other intangible assets G1 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 F2 246 6
Loans and advances F1 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 116 17
Inter-segment funding - assets - -
Total assets 41,058 56,791
Liabilities
Long-term business insurance policyholder liabilities F2 9,310 172
Investment contract liabilities F2 23,614 905
Property & casualty liabilities F2 482 -
Third-party interests in consolidated funds - -
Borrowed funds F3 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 I2 1 -
Inter-segment funding - liabilities - -
Total liabilities 38,388 51,982
Net assets 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 215 1,992
Preferred securities - 341
Total equity 2,670 4,809
(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 balances.
GBPm
Institutional
Old Mutual Asset plc Non-core Consolidation
Wealth Management Head Office(1) operations adjustments(2) 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
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 IFRS 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
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2017 2016 2016
(Expense)/income
Goodwill impairment and impact of acquisition accounting C1(b) (130) (90) (278)
Net profit on disposal of subsidiaries, associated undertakings
and strategic investments C1(c) 129 24 19
Short-term fluctuations in investment return C1(d) 37 (23) (26)
Investment return adjustment for Group equity and
debt instruments held in life funds C1(e) 5 (5) (43)
Dividends declared to holders of perpetual preferred callable securities C1(f) 2 9 17
Institutional Asset Management equity plans C1(g) (33) 2 (20)
Credit-related fair value (losses)/gains on Group debt instruments C1(h) (17) 14 (24)
Managed separation and business standalone costs C1(i) (28) - -
Income/(expenses) from resolution of plc Head Office pre-existing items C1(j) 5 - -
Old Mutual Wealth business transformation costs C1(k) (59) (48) (102)
Total adjusting items (89) (117) (457)
Tax on adjusting items D1(d) 34 24 38
Non-controlling interest on adjusting items 49 4 66
Total adjusting items after tax and non-controlling interests (6) (89) (353)
(b) Goodwill impairment and impact of acquisition accounting
The application of acquisition accounting results in deferred acquisition costs and deferred revenue existing in the acquired entity at the point of
acquisition that are not recognised under IFRS. These are reversed on acquisition in the consolidated statement of financial position and are
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 businesses 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 plc
Emerging Old Mutual Asset Head
Six months ended 30 June 2017 Markets Wealth Nedbank Management Office Total
Impairment of goodwill and other intangible assets (71) - - - - (71)
Amortisation of acquired PVIF (2) (18) - - - (20)
Amortisation of acquired deferred costs and revenue - 4 - - - 4
Amortisation of other acquired intangible assets (11) (19) (1) (2) - (33)
Acquisition costs - (10) - - - (10)
(84) (43) (1) (2) - (130)
GBPm
Institutional plc
Emerging Old Mutual Asset Head
Six months ended 30 June 2016 Markets Wealth Nedbank Management Office Total
Impairment of goodwill and other intangible assets - (44) - - - (44)
Amortisation of acquired PVIF (2) (19) - - - (21)
Amortisation of acquired deferred costs and revenue - 3 - - - 3
Amortisation of other acquired intangible assets (3) (20) - - - (23)
Acquisition costs - (7) - - - (7)
Deferred consideration and other acquisition date
provisions 2 - - - - 2
(3) (87) - - - (90)
GBPm
Institutional
Emerging Old Mutual Asset plc Head
Year 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)
The impairment of goodwill and other intangible assets and impairment of investment in associated undertakings relate to:
Emerging Markets
The goodwill impairment of GBP71 million recognised in the period (June 2016: GBPnil million; December 2016: GBP64 million) relates to the Old Mutual East
Africa cash generating unit (previously the Old Mutual Southern and East Africa (OMSEA)) cash generating unit. Refer to note G1 for more
information.
Old Mutual Wealth
On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy. During the year ended 31 December 2016, a goodwill impairment
of GBP46 million (six months ended 30 June 2016: GBP44 million) was recognised being the excess of the net asset value of the business compared with
the expected net proceeds. Refer to note A2 for further information.
Nedbank
For the year ended 31 December 2016 an impairment loss of GBP50 million was recognised in relation to Nedbank's investment in Ecobank
Transnational Incorporated (ETI), an associated undertaking. No further impairment was recognised during the six months ended 30 June 2017.
(c) Net profit on disposal of subsidiaries, associated undertakings and strategic investments
The net profit on disposal of subsidiaries, associated undertakings and strategic investments is analysed below:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2017 2016 2016
Emerging Markets - - 3
Nedbank - - (12)
Old Mutual Wealth 24 - -
plc Head Office 105 10 10
Net profit on disposal of subsidiaries, associated undertakings
and strategic investments - continuing operations 129 10 1
Net profit on disposal of subsidiaries, associated undertakings
and strategic investments - discontinued operations I1 - 14 18
Net profit on disposal of subsidiaries, associated undertakings
and strategic investments 129 24 19
Old Mutual Wealth
Current period transactions
On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy, part of the Old Mutual Wealth business for cash consideration of
GBP210 million, net of costs. The profit on disposal was GBP24 million, comprising a gain of GBP5 million relating to the unwind of a forward currency
contract used to hedge the value of the proceeds to be received and a gain GBP19 million from the recycling of foreign currency reserves. During 2016,
an impairment of GBP46 million was recognised in relation to the carrying value of the Old Mutual Wealth Italy business in anticipation of the
subsequent sale.
Plc Head Office
Current period transactions
During May and June 2017, the Group sold 36.3 million ordinary shares in Old Mutual Asset Management plc (OMAM) through a number of
separate transactions. As a consequence, the Group's effective interest in OMAM's equity decreased from 51.7% to 20.1%.
The total cash proceeds from these transactions, after underwriting and other transaction costs, were $531 million (GBP412 million). A profit on
disposal of GBP108 million was realised as a result of the transactions in OMAM shares, comprising:
- a loss of GBP134 million related to:
- net proceeds of GBP412 million received less 51.7% of OMAM net asset value (GBP512 million);
- foreign currency translation reserve gains of GBP151 million; and
- net investment hedge and other reserve losses of GBP185 million.
- a profit of GBP242 million was recognised on the fair value of the remaining 20.1% stake that is now equity accounted as an associated
undertaking.
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. As highlighted below, the sale of Rogge was previously recognised in the Institutional Asset
Management (IAM) segment. However, following the sell down of the Group's interest in OMAM, adjustments to profit on Rogge as a result of
various claw back arrangements will be recognised in the plc Head Office segment.
Prior year transaction
During the year ended 31 December 2016, plc Head Office 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.
Institutional Asset Management
Prior period transactions
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. For the year ended 31 December 2016, profit on disposal of GBP10 million (six months ended 30 June
2016: GBP12 million) was recognised reflecting the directors' assessment of the likely final amount recoverable.
During the year ended 31 December 2016, Institutional Asset Management received additional income of GBP8 million (six months ended 30 June
2016: GBP2 million) from earn-outs on affiliates disposed in prior periods.
Emerging Markets
Prior year transactions
During the year ended 31 December 2016, Emerging Markets reduced or disposed of its holdings in a number of associated undertakings resulting
in a net profit on disposal of GBP3 million.
Nedbank
Prior year transaction
On 3 October 2016, Nedbank acquired an additional 10.9% stake in Banco Unico. 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.
(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.
%
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Long-term investment rates 2017 2016 2016
Emerging Markets
Old Mutual Insure(1) (June 2017: Cash: 90%; Equities: 10%)
(June 2016: Cash: 90%; Equities: 10%; December 2016: Cash: 90%; Equities: 10%) 7.4 7.4 7.4
Old Mutual South Africa - (June 2017: Cash: 75%; Equities: 25%)
(June 2016: Cash: 75%; Equities: 25%; December 2016: Cash: 75%; Equities: 25%) 8.0 8.0 8.0
Rest of Africa - (June 2017: Cash: 57%; Equities: 43%)
(June 2016: Cash: 57%; Equities: 43%; December 2016: Cash: 57%; Equities: 43%) 8.5 8.5 8.5
Old Mutual Wealth - (June 2017: Cash: 94%; Equities: 6%)
(June 2016: Cash: 80%; Equities: 20%; December 2016: Cash: 80%; Equities: 20%) 1.0 1.0 1.0
(1) The long-term investment rate for Old Mutual Insure relates solely to its South African property & casualty businesses.
Analysis of short-term fluctuations in investment return
GBPm
Emerging Old Mutual
Six months ended 30 June 2017 Markets Wealth Total
Actual shareholder investment return 119 3 122
Less: Long-term investment return 82 3 85
Short-term fluctuations in investment return 37 - 37
GBPm
Emerging
Markets Old Mutual
Six months ended 30 June 2016 (Restated)(1) Wealth Total
Actual shareholder investment return 39 10 49
Less: Long-term investment return 69 3 72
Short-term fluctuations in investment return (30) 7 (23)
GBPm
Emerging
Year ended 31 December 2016 Markets Old Mutual
(Restated)(1) Wealth Total
Actual shareholder investment return 120 7 127
Less: Long-term investment return 147 6 153
Short-term fluctuations in investment return (27) 1 (26)
(1) Long-term investment return on excess assets (June 2016: GBP10 million; December 2016: GBP20 million), previously shown within the AOP of plc Head Office is now
included in AOP of Emerging Markets for all periods. As a result the related actual shareholder investment return (June 2016: GBP5 million; December 2016: GBP9 million)
and short-term fluctuations in investment return (June 2016: GBP(5) million; December 2016: GBP(11) million) on these excess assets, previously show within the AOP
adjusting items of plc Head Office, are now included in the AOP adjusting items of Emerging Markets for all reporting periods.
(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 of the related policyholder liability. During the six months ended 30 June 2017, the investment return adjustment
decreased AOP by GBP5 million (six months ended 30 June 2016: GBP5 million increase; year ended 31 December 2016: GBP43 million increase).
(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 GBP2 million for the six months ended
30 June 2017 (six months ended 30 June 2016: GBP9 million; year ended 31 December 2016: GBP17 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. This adjustment also
includes the service component of the contingent consideration and employee equity related to the Landmark acquisition.
At 30 June 2017, the impact of these adjustments was a loss of GBP33 million (six months ended 30 June 2016: gain of GBP2 million; year ended 31
December 2016: loss of GBP20 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. Therefore they have been excluded from AOP. For the six months ended 30 June 2017, due to narrowing of
credit spreads, a net loss of GBP17 million was recognised (six months ended 30 June 2016: net gain of GBP14 million; year ended 31 December 2016:
net loss of GBP24 million).
(i) Managed separation and business standalone costs
For the six months ended 30 June 2017, one-off costs related to the implementation of managed separation recognised in the IFRS income
statement have been excluded from AOP on the basis that they are not representative of the operating activity of the Group. These costs relate to
the wind-down of the Old Mutual plc Head Office, capacitation of the businesses in readiness to operate as standalone businesses and the
execution of various transactions required to implement the managed separation strategy. They are not expected to persist in the long term as they
relate to a fundamental restructuring of the Group, which is not operational in nature, rather than more routine restructuring activity which would be
seen as part of the usual course of business. The treatment and the disclosure of these costs as an adjusting item are also intended to make these
costs more visible to the readers of the financial statements in the context of publicly disclosed estimates previously given in relation to these items.
The table below summarises the managed separation and business standalone costs incurred for the six months ended 30 June 2017:
GBPm
Six months
ended
30 June
2017
Plc wind-down costs (5)
Business standalone costs (14)
Transaction advisory costs (9)
Total managed separation and business standalone costs (28)
AOP in the prior periods has not been restated for managed separation and business standalone costs. The table below summarises the costs
incurred in the comparative periods which were included in AOP:
GBPm
Six months Year
ended ended
30 June 31 December
2016 2016
Plc wind-down costs (1) (8)
Business standalone costs (2) (5)
Transaction advisory costs (2) (18)
Total managed separation and business standalone costs (5) (31)
(j) Income/(expense) from resolution of plc Head Office pre-existing items
For the six months ended 30 June 2017, income/(expense) from resolution of plc Head Office pre-existing items recognised in the IFRS income
statement have been excluded from the calculation of AOP. These items relate to the crystallisation of plc Head Office pre-existing matters and the
related income and costs are deemed not to be reflective of the underlying operating activity of the Group.
The table below summarises the income/(expense) from resolution of plc Head Office pre-existing items for the six months ended 30 June 2017:
GBPm
Six months
ended
30 June
2017
Pension fund 5
Income/(expense) from resolution of plc Head Office pre-existing items 5
No amounts related to income/(expense) from resolution of plc Head Office pre-existing items were recorded in the comparative periods.
Income/(expense) from resolution of plc Head Office pre-existing items for the six months ended 30 June 2017 include a gain of GBP6 million on
actions taken to prepare the legacy Old Mutual plc pension schemes for the bulk purchase transaction that took place on 13 June 2017. Costs of GBP1
million related to preparing the legacy Old Mutual plc pension schemes for buy-in has also been recognised in profit or loss. Buy in costs of GBP27
million and pension fund surplus write off of GBP20 million were recognised directly in equity. Refer to note A2 for more information.
(k) Old Mutual Wealth restructuring expenditure
In 2013, Old Mutual Wealth UK business embarked on a significant programme to develop new platform capabilities and to outsource UK business
administration. This involved replacing many aspects of the existing UK platform, and on completion the outsourcing of associated business
processing under a long-term outsourcing agreement. Contracts related to the UK Platform Transformation with IFDS and DST were ended by
mutual agreement effective as of 2 May 2017. At the same time, Old Mutual Wealth announced a contract with FNZ to complete the delivery the UK
Platform Transformation Programme.
Under IFRS rules, these costs and the costs of decommissioning existing technology and migrating of services to FNZ are included in IFRS profit.
However, long-term costs that are directly attributable to the programme are excluded from AOP on the basis that this significant near term
investment relates to a fundamental reorganisation of the business and is not reflective of the underlying costs of the business.
For the six months ended 30 June 2017, platform transformation costs totalled GBP59 million (six months ended 30 June 2016: GBP48 million; year ended
31 December 2016: GBP102 million).
C2: Earnings and earnings per share
Pence
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Source of guidance Notes 2017 2016 2016
Basic earnings per share IFRS C2(a) 11.0 5.7 11.9
Diluted basic earnings per share IFRS C2(b) 10.8 5.6 11.6
Adjusted operating earnings per share Group policy C2(c) 10.6 8.0 19.4
Headline earnings per share JSE Listing Requirements C2(d) 9.0 6.2 14.0
Diluted headline earnings per share JSE Listing Requirements C2(d) 8.8 6.0 13.6
(a) Basic earnings per share
Basic earnings per share is calculated by dividing the profit for the financial period 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 consolidated related undertakings.
The table below reconciles the profit attributable to equity holders of the parent to profit attributable to ordinary equity holders:
GBPm
Six months
Six months ended Year
ended 30 June ended
30 June 2016 31 December
Notes 2017 (Restated)(1) 2016
Profit for the financial period attributable to equity holders of the parent from
continuing operations 519 246 498
Profit for the financial period attributable to equity holders of the parent from
discontinued operations I1 12 38 72
Profit for the financial period attributable to equity holders of the parent 531 284 570
Dividends paid to holders of perpetual preferred callable securities,
net of tax credits (15) (16) (14)
Profit attributable to ordinary equity holders 516 268 556
(1) The six months ended 30 June 2016 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note I1 for more information.
Total dividends paid to holders of perpetual preferred callable securities of GBP15 million for the six months ended 30 June 2017 (six months ended 30
June 2016: GBP16 million; year ended 31 December 2016: GBP14 million) are stated net of tax credits of GBPnil million (six months ended 30 June 2016: GBP1
million; year ended 31 December 2016: GBP3 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
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Weighted average number of ordinary shares in issue 4,930 4,929 4,929
Shares held in charitable foundations and trusts (21) (21) (21)
Shares held in ESOP and similar trusts (138) (135) (135)
Adjusted weighted average number of ordinary shares 4,771 4,773 4,773
Shares held in life funds (80) (80) (80)
Shares held in Black Economic Empowerment trusts (4) (7) (7)
Weighted average number of ordinary shares used to calculate
basic earnings per share 4,687 4,686 4,686
Basic earnings per ordinary share (pence) 11.0 5.7 11.9
(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 period.
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:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2017 2016 2016
Profit attributable to ordinary equity holders (GBPm) 516 268 556
Dilution effect on profit relating to share options issued by subsidiaries (GBPm) (3) (2) (7)
Diluted profit attributable to ordinary equity holders of the parent (GBPm) 513 266 549
Weighted average number of ordinary shares (millions) C2(a) 4,687 4,686 4,686
Adjustments for share options held by ESOP and similar trusts (millions) 78 68 59
Adjustments for shares held in Black Economic Empowerment trusts (millions) 3 7 7
Weighted average number of ordinary shares used to calculate
diluted basic earnings per share (millions) 4,768 4,761 4,752
Diluted basic earnings per ordinary share (pence) 10.8 5.6 11.6
(c) Adjusted operating earnings per share
The following table presents a reconciliation of profit for the financial period to adjusted operating profit after tax attributable to ordinary equity
holders and summarises the calculation of adjusted operating earnings per share:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2017 2016 2016
Profit for the financial period attributable to equity holders of the parent 531 284 570
Adjusting items C1(a) 89 117 457
Tax on adjusting items (34) (24) (38)
Non-core operations B3 (31) 9 5
Non-controlling interest on adjusting items (49) (4) (66)
Adjusted operating profit after tax attributable to ordinary equity
holders (GBPm) 506 382 928
Adjusted weighted average number of ordinary shares used to
calculate adjusted operating earnings per share (millions) C2(a) 4,771 4,773 4,773
Adjusted operating earnings per share (pence) 10.6 8.0 19.4
(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:
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
Net of tax Net of tax Net of tax
and non- and non- and non-
controlling controlling controlling
Notes Gross interests Gross interests Gross interests
Profit for the financial period attributable to equity
holders of the parent 531 284 570
Dividends paid to holders of perpetual preferred
callable securities (15) (16) (14)
Profit attributable to ordinary equity holders 516 268 556
Adjustments:
Impairments of goodwill and other intangible assets (IAS36) 71 43 44 44 113 89
Impairment of investment in associated undertakings (IAS28) - - - - 50 28
Loss on disposal of property and equipment (IAS16) 1 1 - - 2 1
Profit on disposal of subsidiaries, associated undertakings and
strategic investments (including amounts recycled from the
foreign currency translation reserve) (IFRS3) (129) (139) (24) (23) (19) (20)
Other adjustments 1 1 - - 1 1
Headline earnings (56) 422 20 289 147 655
Dilution effect on earnings relating to share options
issued by subsidiaries (3) (2) (7)
Diluted headline earnings (GBPm) 419 287 648
Weighted average number of ordinary shares
(millions) C2(a) 4,687 4,686 4,686
Diluted weighted average number of ordinary
shares (millions) C2(b) 4,768 4,761 4,752
Headline earnings per share (pence) 9.0 6.2 14.0
Diluted headline earnings per share (pence) 8.8 6.0 13.6
(1) The six months ended 30 June 2016 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note I1 for more information.
C3: Dividends
GBPm
Six months Six months Year
Ordinary ended ended ended
dividend 30 June 30 June 31 December
payment date 2017 2016 2016
2015 Second interim dividend paid - 6.25p per 11 3/7p ordinary share 26 April 2016 - 299 299
2016 Interim dividend paid - 2.67p per 11 3/7p ordinary share 28 October 2016 - - 127
2016 Second interim dividend paid - 3.39p per 11 3/7p ordinary share 28 April 2017 161 - -
Dividends to ordinary equity holders 161 299 426
Dividends paid to holders of perpetual preferred callable securities 15 17 17
Dividend payments for the period 176 316 443
Final and interim dividends paid to ordinary equity holders are calculated using the number of shares in issue at the record date less own shares
held in ESOP and similar 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 paid to ordinary equity holders on the
branch registers of those countries (or, in the case of Namibia, the Namibian section of the principal register) are settled through Dividend Access
Trusts established for that purpose.
An interim dividend of 3.53 pence (or its equivalent in other applicable currencies) per ordinary share in the Company has been recommended by
the directors in relation to the six months ended 30 June 2017. The interim dividend will be paid on 31 October 2017 to shareholders on the
registers at the close of business on 22 September 2017. The Company is not offering a scrip dividend alternative.
On 3 February 2017, all of the Group's outstanding perpetual preferred callable securities were redeemed. At this date a final dividend payment of
GBP15 million was made to the holders of the securities.
D: Other income statement notes
D1: Income tax expense
(a) Analysis of total income tax expense
The total income tax expense for the year comprises:
GBPm
Six months
Six months ended Year
ended 30 June ended
30 June 2016 31 December
2017 (Restated)(1) 2016
Current tax
United Kingdom 28 11 56
Overseas tax
- South Africa 173 182 401
- Rest of Africa 17 4 28
- Europe 2 5 15
- Rest of the world - 4 10
Withholding taxes 4 4 9
Adjustments to current tax in respect of prior years 4 1 (20)
Total current tax 228 211 499
Deferred tax
Origination and reversal of temporary differences 58 (48) (43)
Effect on deferred tax of changes in tax rates (2) (1) 21
Adjustments to deferred tax in respect of prior years - 1 (2)
Total deferred tax 56 (48) (24)
Total income tax expense 284 163 475
(1) The six months ended 30 June 2016 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note I1 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
Six months
Six months ended Year
ended 30 June ended
30 June 2016 31 December
2017 (Restated)(1) 2016
Profit before tax 940 534 1,216
Tax at UK standard rate of 19.25% (2016: 20.00%) 181 107 243
Different tax rate or basis on overseas operations 47 43 105
Untaxed and low taxed income (50) (48) (121)
Disallowable expenses 50 32 103
Adjustments to current tax in respect of prior years 5 1 (20)
Net movement on deferred tax assets not recognised 1 7 30
Effect on deferred tax of changes in tax rates (1) (1) 21
Adjustments to deferred tax in respect of prior years - 1 (2)
Withholding taxes 4 - 2
Income tax attributable to policyholder returns 47 21 115
Total income tax expense 284 163 475
(1) The six months ended 30 June 2016 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note I1 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
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Measurement gains on defined benefit plans 3 - (8)
Income tax on items that will not be reclassified subsequently to profit or loss 3 - (8)
Available-for-sale reserves - - (2)
Share-based payments - (6) (6)
Income tax on items that may be reclassified subsequently to profit or loss - (6) (8)
Income tax expense relating to components of other comprehensive income 3 (6) (16)
(d) Reconciliation of income tax expense in the IFRS income statement to income tax on adjusted operating profit
GBPm
Six months
Six months ended Year
ended 30 June ended
30 June 2016 31 December
2017 (Restated)(1) 2016
Income tax expense - continuing operation 284 163 475
Income tax expense - discontinued operation 6 20 29
Tax on adjusting items
Goodwill impairment and impact of acquisition accounting 10 7 19
Net profit on disposal of subsidiaries, associates and strategic investments - (1) (3)
Short-term fluctuations in investment return (1) 11 -
Tax on dividends declared to holders of perpetual preferred callable securities
recognised in equity - (1) (3)
Institutional Asset Management equity plans 12 (1) 6
Managed separations and business standalone costs 2 - -
Old Mutual Wealth business transformation costs 11 9 19
Total tax on adjusting items 34 24 38
Income tax attributable to policyholders returns (58) (26) (144)
Income tax on adjusted operating profit 266 181 398
(1) The six months ended 30 June 2016 has been restated to reflect Institutional Asset Management as a discontinued operation. Refer to note I1 for more information.
E: Financial assets and liabilities
E1: Categories of financial instruments
The analysis of assets and liabilities into their categories as defined in IAS 39 'Financial Instruments: Recognition and Measurement' is set out in
the following table. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of
IAS 39, are reflected in the non-financial assets and liabilities category.
All gains and losses on measuring the financial assets and liabilities at each reporting date are included in the determination of profit or loss, with
the exception of unrealised gains or losses on financial assets classified as available-for-sale, which are recognised in other comprehensive income.
At 30 June 2017 GBPm
Measurement basis Fair value (note E3) Amortised cost
Non-
Available- Financial financial
for-sale Held-to- liabilities assets
Held-for- financial maturity Loans and amortised and
Total trading Designated assets investments receivables cost liabilities
Assets
Mandatory reserve deposits with
central banks 1,159 - - - - 1,159 - -
Investments in associated
undertakings and joint ventures(1) 440 - 158 - - - - 282
Reinsurers' share of policyholder
liabilities(2) 3,376 - 2,759 - - 6 - 611
Loans and advances 43,153 1,203 3,897 - - 38,040 - 13
Investments and securities 107,960 3,278 100,223 1,111 3,348 - - -
Trade, other receivables and
other assets 3,050 224 - - - 1,944 - 882
Derivative financial instruments 1,447 1,447 - - - - - -
Cash and cash equivalents 5,175 - - - - 5,175 - -
Total assets that include financial
instruments 165,760 6,152 107,037 1,111 3,348 46,324 - 1,788
Total other non-financial assets 6,327 - - - - - - 6,327
Total assets 172,087 6,152 107,037 1,111 3,348 46,324 - 8,115
Liabilities
Long-term business insurance
policyholder liabilities 9,794 - - - - - - 9,794
Investment contract liabilities(2) 82,605 - 72,068 - - - - 10,537
Third-party interest in
consolidation of funds 10,787 - 10,787 - - - - -
Borrowed funds 4,847 - 947 - - - 3,900 -
Trade, other payables and
other liabilities 5,013 686 601 - - - 2,271 1,455
Amounts owed to bank depositors 45,250 417 3,635 - - - 41,198 -
Derivative financial instruments 1,489 1,489 - - - - - -
Total liabilities that include
financial instruments 159,785 2,592 88,038 - - - 47,369 21,786
Total other non-financial liabilities 1,610 - - - - - - 1,610
Total liabilities 161,395 2,592 88,038 - - - 47,369 23,396
(1) Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
(2) Reinsurers' share of policyholder liabilities categorised as Designated at Fair value through Profit or Loss of GBP2,759 million (June 2016: GBP2,596 million; December
2016: GBP2,560 million) relate to investment contracts of Old Mutual Wealth where management of assets are ceded to third parties through a reinsurance
arrangements. Due to the nature of these arrangements, there is no transfer of insurance risk.
At 30 June 2016 (Restated)(1) GBPm
Measurement basis Fair value (note E3) Amortised cost
Available- Financial Non-
for-sale Held-to- liabilities financial
Held-for- financial maturity Loans and amortised assets and
Total trading Designated assets investments receivables cost liabilities
Assets
Mandatory reserve deposits with
central banks 866 - - - - 866 - -
Investments in associated
undertakings and joint ventures(2) 527 - 74 - - - - 453
Reinsurers' share of policyholder
liabilities 3,058 - 2,596 - - 6 - 456
Loans and advances 36,801 1,300 3,242 2 - 32,257 - -
Investments and securities 89,572 1,241 84,661 791 2,879 - - -
Trade, other receivables and
other assets 3,378 282 - - - 1,701 - 1,395
Derivative financial instruments 1,541 1,541 - - - - - -
Cash and cash equivalents 4,002 - - - - 4,002 - -
Total assets that include financial
instruments 139,745 4,364 90,573 793 2,879 38,832 - 2,304
Total other non-financial assets 12,918 - - - - - - 12,918
Total assets 152,663 4,364 90,573 793 2,879 38,832 - 15,222
Liabilities
Long-term business insurance
policyholder liabilities 9,183 - - - - - - 9,183
Investment contract liabilities 69,040 - 60,364 - - - - 8,676
Third-party interest in
consolidation of funds 7,178 - 7,178 - - - - -
Borrowed funds 4,231 - 868 - - - 3,363 -
Trade, other payables and
other liabilities 5,648 823 667 - - - 2,237 1,921
Amounts owed to bank depositors 38,607 5,385 2,796 - - - 30,426 -
Derivative financial instruments 1,584 1,584 - - - - - -
Total liabilities that include
financial instruments 135,471 7,792 71,873 - - - 36,026 19,780
Total other non-financial liabilities 7,305 - - - - - - 7,305
Total liabilities 142,776 7,792 71,873 - - - 36,026 27,085
(1) Comparative information for June 2016 has been restated to reflect the adjustment for the consolidation of investment funds (refer to note A2 for more information).
In addition, loans and advances of GBP484 million and GBP240 million previously shown as held-for-trading and designated at fair value through profit or loss respectively
have been reclassified as loans and receivables. Amounts owed to bank depositors of GBP504 million, previously shown as designated at fair value through profit or
loss have been reclassified as financial liabilities at amortised cost.
(2) Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
At 31 December 2016 (Restated)(1) GBPm
Measurement basis Fair value (note E3) Amortised cost
Available- Financial Non-
for-sale Held-to- liabilities financial
Held-for- financial maturity Loans and amortised assets and
Total trading Designated assets investments receivables cost liabilities
Assets
Mandatory reserve deposits with
central banks 1,111 - - - - 1,111 - -
Investments in associated
undertakings and joint ventures(2) 542 - 139 - - - - 403
Reinsurers' share of policyholder
liabilities 3,115 - 2,560 - - 7 - 548
Loans and advances 43,108 1,264 3,606 2 - 38,225 - 11
Investments and securities 100,533 3,229 93,069 957 3,278 - - -
Trade, other receivables and
other assets 2,416 268 - - - 1,429 - 719
Derivative financial instruments 1,340 1,340 - - - - - -
Cash and cash equivalents 4,847 - - - - 4,847 - -
Total assets that include financial
instruments 157,012 6,101 99,374 959 3,278 45,619 - 1,681
Total other non-financial assets 14,556 - - - - - - 14,556
Total assets 171,568 6,101 99,374 959 3,278 45,619 - 16,237
Liabilities
Long-term business policyholder
liabilities 9,982 - - - - - - 9,982
Investment contract liabilities 77,599 - 67,515 - - - - 10,084
Third-party interest in
consolidation of funds 7,981 - 7,981 - - - - -
Borrowed funds 4,694 - 935 - - - 3,759 -
Trade, other payables and
other liabilities 5,112 1,293 620 - - - 2,049 1,150
Amounts owed to bank depositors 45,309 446 3,240 - - - 41,623 -
Derivative financial instruments 1,161 1,161 - - - - - -
Total liabilities that include
financial
instruments 151,838 2,900 80,291 - - - 47,431 21,216
Total other non-financial liabilities 8,562 - - - - - - 8,562
Total liabilities 160,400 2,900 80,291 - - - 47,431 29,778
(1) Loans and advances of GBP801 million and GBP183 million previously shown as held-for-trading and designated at fair value through profit or loss respectively have
been reclassified as loans and receivables. In addition, amounts owed to depositors of GBP550 million previously shown as designated at fair value through profit or
loss have been reclassified as financial liabilities at amortised cost.
(2) Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
E2: Fair values of financial assets and liabilities
(a) Determination of fair value
The best evidence of fair value is a quoted price in an active market. In the event that the market for a financial asset or liability is not active, or
quoted prices cannot be obtained without undue effort, another valuation technique is used.
In general, the following inputs are taken into account when evaluating the fair value of financial instruments:
- Assessing whether instruments are trading with sufficient frequency and volume, that they can be considered liquid
- The inclusion of a measure of the counterparties' non-performance risk in the fair-value measurement of loans and advances, which involves
the modelling of dynamic credit spreads
- The inclusion of credit valuation adjustment (CVA) and debit valuation adjustment (DVA) in the fair-value measurement of derivative
instruments, and
- The inclusion of own credit risk in the calculation of the fair value of financial liabilities.
There have been no significant changes in the valuation techniques applied when valuing financial instruments. The general principles applied to
those instruments measured at fair value are outlined below:
Reinsurers' share of policyholder liabilities
Reinsurers' share of policyholder liabilities are measured on a basis that is consistent with the measurement of the provisions held in respect of the
related insurance contracts. Reinsurance contracts which cover financial risk are measured at the fair value of the underlying assets contained in
the related policy.
Loans and advances
Loans and advances include mortgage loans, other asset-based loans, including collateralised debt obligations, and other secured and unsecured loans.
In the absence of an observable market for these instruments, the fair value is determined by using internally developed models that are specific to
the instrument and that incorporate all available observable inputs. These models involve discounting the contractual cash flows by using a credit-
adjusted zero-coupon rate.
Investments and securities
Investments and securities include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and
debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as
investments and certain other securities.
Pooled investments relate to the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar
investment vehicles and are recognised at fair value. The fair value of pooled investments is based on published prices that are regularly updated or
models based on the market prices of investments held in the underlying pooled investment funds.
Other investment and securities that are measured at fair value are measured at observable market prices where available. In the absence of
observable market prices, these investments and securities are fair valued utilising one or more of the following techniques: discounted cash flows,
the application of an EBITDA multiple or any other relevant modelling technique.
Investments in associated undertakings and joint ventures
Investments in associated undertakings and joint ventures are valued using appropriate valuation techniques. These techniques may include price
earnings multiples, discounted cash flows or the adjusted value of similar completed transactions.
Derivatives
The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. In situations where the
derivatives are traded over the counter the fair value of the instruments is determined by the utilisation of option pricing models.
Investment contract liabilities
The fair value of the investment contract liabilities is determined with reference to the fair value of the underlying funds that are held by the Group.
Third-party interest in consolidation of funds
Third-party interests in consolidation of funds are measured at the proportionate share of the fair value of the net assets of each fund.
Amounts owed to bank depositors
The fair values of amounts owed to bank depositors correspond with the carrying amount shown in the statement of financial position, which
generally reflects the amount payable on demand.
Borrowed funds
The fair values of amounts included in borrowed funds are based on quoted market prices at the reporting date where applicable, or by reference to
quoted prices of similar instruments.
Other financial assets and liabilities
The fair values of other financial assets and liabilities (comprising cash and cash equivalents; cash with central banks; trade, other receivables and
other assets; and trade, other payables and other liabilities) reasonably approximate their carrying amounts as included in the statement of financial
position as they are short-term in nature or re-price to current market rates frequently.
(b) Fair value hierarchy
Fair values are determined according to the following hierarchy.
Description of hierarchy Types of instruments classified in the respective levels
Level 1 - quoted market prices: financial assets and liabilities with Listed equity securities, government securities and other listed debt
quoted prices for identical instruments in active markets. securities and similar instruments, actively traded pooled investments,
certain quoted derivative assets and liabilities, listed borrowed funds,
reinsurance share of policyholder liabilities and investment contract
liabilities directly linked to other Level 1 financial assets.
Level 2 - valuation techniques using observable inputs: financial Unlisted equity and debt securities where the valuation is based on
assets and liabilities with quoted prices for similar instruments in active models involving no significant unobservable data, with a majority
markets or quoted prices for identical or similar instruments in inactive determined with reference to observable prices.
markets and financial assets and liabilities valued using models where
all significant inputs are observable. Certain loans and advances, certain privately placed debt instruments,
third-party interests in consolidated funds and amounts owed to bank
depositors.
Level 3 - valuation techniques using significant unobservable inputs: Unlisted equity and securities with significant unobservable inputs,
financial assets and liabilities valued using valuation techniques where securities where the market is not considered sufficiently active,
one or more significant inputs are unobservable. including certain inactive pooled investments, and derivatives
embedded in certain portfolios of insurance contracts where the
derivative is not closely related to the host contract and the valuation
contains significant unobservable inputs.
The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading
activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides
evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability
requires additional work during the valuation process. All businesses have significant processes in place to perform reviews of the appropriateness
of the valuation of Level 3 instruments.
The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. However, certain
financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and,
for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant
unobservable inputs if a significant proportion of that asset or liability's carrying amount is driven by unobservable inputs.
In this context, 'unobservable' means that there is little or no current market data available for which to determine the price at which an arm's length
transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of
fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be
attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to
uncertainty about the overall fair value of the asset or liability being measured.
The determination of the fair value on an instrument does not necessarily represent the price that the Group accept for the sale of the instrument or
the price the Group would pay to exit the liability.
(c) Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and Level 2 when an active, traded primary market ceases to exist for that financial
instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine fair value of the instrument
become unobservable.
E3: Disclosure of financial assets and liabilities measured at fair value
(a) Financial assets and liabilities measured at fair value, classified according to fair value hierarchy
The tables below presents a summary of the Group's financial assets and liabilities that are measured at fair value in the consolidated statement of
financial position according to their IAS 39 classification, as set out in the accounting policies note L1 of the 2016 Annual Report and Accounts and
in terms of the fair value hierarchy described in note E2. The majority of the Group's financial assets are measured utilising market observable
inputs (Level 1) and there has been no significant change compared to the prior year.
Summary
At 30 June 2017 At 30 June 2016(Restated)(1) At 31 December 2016
GBPm % GBPm % GBPm %
Financial assets measured at fair value
Level 1 78,817 68.9% 65,632 68.5% 73,738 69.3%
Level 2 33,789 29.6% 28,692 30.0% 31,075 29.2%
Level 3 1,694 1.5% 1,406 1.5% 1,621 1.5%
Total 114,300 100.0% 95,730 100.0% 106,434 100.0%
Financial liabilities measured at fair
Level 57,702 63.6% 48,096 60.4% 54,235 65.2%
Level 2 32,248 35.6% 31,008 38.9% 28,340 34.1%
Level 3 680 0.8% 561 0.7% 616 0.7%
Total 90,630 100.0% 79,665 100.0% 83,191 100.0%
(1) The comparative information for June 2016 has been restated for the impact of consolidation of investment funds. Refer to note A2 for more information.
Detailed analysis
GBPm
At 30 June 2017 Total Level 1 Level 2 Level 3
Financial assets measured at fair value
Held-for-trading (fair value through profit or loss) 6,152 874 5,273 5
Loans and advances 1,203 149 1,054 -
Investments and securities 3,278 493 2,785 -
Other financial assets 224 224 - -
Derivative financial instruments - assets 1,447 8 1,434 5
Designated (fair value through profit or loss) 107,037 77,853 27,521 1,663
Investments in associated undertakings and joint ventures 158 - - 158
Reinsurers' share of policyholder liabilities 2,759 2,759 - -
Loans and advances 3,897 186 3,704 7
Investments and securities 100,223 74,908 23,817 1,498
Available-for-sale financial assets (fair value through equity) 1,111 90 995 26
Investments and securities 1,111 90 995 26
Total assets measured at fair value 114,300 78,817 33,789 1,694
Financial liabilities measured at fair value
Held-for-trading (fair value through profit or loss) 2,592 666 1,896 30
Other liabilities 686 663 - 23
Amounts owed to bank depositors 417 - 417 -
Derivative financial instruments - liabilities 1,489 3 1,479 7
Designated (fair value through profit or loss) 88,038 57,036 30,352 650
Investment contract liabilities(1) 72,068 56,052 15,366 650
Third-party interests in consolidated funds 10,787 - 10,787 -
Borrowed funds 947 930 17 -
Other liabilities 601 54 547 -
Amounts owed to bank depositors 3,635 - 3,635 -
Total liabilities measured at fair value 90,630 57,702 32,248 680
(1) Investment contract liabilities amount excludes GBP10,537 million discretionary participating investment contracts. These contracts are classified as non-financial
liabilities and are not analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'.
GBPm
At 30 June 2016 (Restated)(1) Total Level 1 Level 2 Level 3
Financial assets measured at fair value
Held-for-trading (fair value through profit or loss) 4,364 843 3,501 20
Loans and advances 1,300 - 1,300 -
Investments and securities 1,241 561 680 -
Other financial assets 282 282 - -
Derivative financial instruments - assets 1,541 - 1,521 20
Designated (fair value through profit or loss) 90,573 64,786 24,401 1,386
Investments in associated undertakings and joint ventures 74 - - 74
Reinsurers' share of policyholder liabilities 2,596 2,596 - -
Loans and advances 3,242 189 3,051 2
Investments and securities 84,661 62,001 21,350 1,310
Available-for-sale financial assets (fair value through equity) 793 3 790 -
Loans and advances 2 2 - -
Investments and securities 791 1 790 -
Total assets measured at fair value 95,730 65,632 28,692 1,406
Financial liabilities measured at fair value
Held-for-trading (fair value through profit or loss) 7,792 824 6,961 7
Other liabilities 823 812 11 -
Amounts owed to bank depositors 5,385 - 5,385 -
Derivative financial instruments - liabilities 1,584 12 1,565 7
Designated (fair value through profit or loss) 71,873 47,272 24,047 554
Investment contract liabilities(2) 60,364 46,277 13,533 554
Third-party interests in consolidated funds 7,178 - 7,178 -
Borrowed funds 868 854 14 -
Other liabilities 667 141 526 -
Amounts owed to bank depositors 2,796 - 2,796 -
Total liabilities measured at fair value 79,665 48,096 31,008 561
(1) Comparative information for June 2016 have been restated for the impact of consolidation of investment funds (refer to note A2 for more information). In addition,
loans and advances (held-for-trading), loans and advances (designated at fair value through profit or loss) and amounts owed to bank depositors (designated at fair
value through profit or loss) have been restated to reflect the reclassification of certain amounts to amortised cost categories. More information can be found in
footnote 1 to the 30 June 2016 categories of financial instruments table in note E1.
(2) Investment contract liabilities amount excludes GBP8,676 million discretionary participating investment contracts. These contracts are classified as non-financial
liabilities and are not analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'.
GBPm
At 31 December 2016 (Restated)(1) Total Level 1 Level 2 Level 3
Financial assets measured at fair value
Held-for-trading (fair value through profit or loss) 6,101 1,523 4,549 29
Loans and advances 1,264 346 918 -
Investments and securities 3,229 906 2,323 -
Other financial assets 268 268 - -
Derivative financial instruments - assets 1,340 3 1,308 29
Designated (fair value through profit or loss) 99,374 72,160 25,646 1,568
Investments in associated undertakings and joint ventures 139 - - 139
Reinsurers' share of policyholder liabilities 2,560 2,560 - -
Loans and advances 3,606 206 3,395 5
Investments and securities 93,069 69,394 22,251 1,424
Available-for-sale financial assets (fair value through equity) 959 55 880 24
Loans and advances 2 2 - -
Investments and securities 957 53 880 24
Total assets measured at fair value 106,434 73,738 31,075 1,621
Financial liabilities measured at fair value
Held-for-trading (fair value through profit or loss) 2,900 1,256 1,618 26
Other liabilities 1,293 1,250 24 19
Amounts owed to bank depositors 446 - 446 -
Derivative financial instruments - liabilities 1,161 6 1,148 7
Designated (fair value through profit or loss) 80,291 52,979 26,722 590
Investment contract liabilities(2) 67,515 52,011 14,914 590
Third-party interests in consolidated funds 7,981 - 7,981 -
Borrowed funds 935 918 17 -
Other liabilities 620 50 570 -
Amounts owed to bank depositors 3,240 - 3,240 -
Total liabilities measured at fair value 83,191 54,235 28,340 616
(1) The fair value hierarchy for loans and advances (held-for-trading), loans and advances (designated at fair value through profit or loss) and amounts owed to bank
depositors (designated at fair value through profit or loss) have been restated to reflect the reclassification of certain amounts to amortised cost categories. More
information on this can be found in footnote 1 to the 31 December 2016 categories of financial instruments table in note E1.
(2) Investment contract liabilities amount excludes GBP10,084 million discretionary participating investment contracts. These contracts are classified as non-financial
liabilities and are not analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'.
(b) Level 3 fair value hierarchy disclosure
The tables below reconcile the opening balances of Level 3 financial assets and liabilities to closing balances at the end of the period:
GBPm
Held-for- Available-
trading Designated fair value through profit or loss for-sale Total
Investments
in associated
undertakings
and joint Loans and Investments Investments
Six months ended 30 June 2017 Derivatives ventures advances and securities and securities
Level 3 financial assets
At beginning of the period 29 139 5 1,424 24 1,621
Total net fair value (losses)/gains
recognised in profit or loss (21) (3) 3 14 - (7)
Purchases and issues - 28 - 43 1 72
Sales and settlements (2) (7) - (21) - (30)
Transfers in - - - 188 1 189
Transfers out - - - (201) - (201)
Foreign exchange and other (1) 1 (1) 51 - 50
Total Level 3 financial assets 5 158 7 1,498 26 1,694
Unrealised fair value (losses)/gains
relating to assets held at 30 June 2017
recognised in profit or loss (21) (3) 3 1 - (20)
The carrying amount of Level 3 assets at the reporting date principally comprises:
Investments in associated undertakings and joint ventures - designated at fair value through the income statement:
- GBP156 million (December 2016: GBP139 million) of investments in associated undertakings held by Nedbank.
Investments and securities - designated a fair value through the income statement:
- GBP10 million (December 2016: GBP22 million) of suspended funds; GBP384 million (December 2016: GBP370 million) of private company shares and
unlisted pooled investments and equities, GBP244 million (December 2016: GBP189 million) of funds and other assets not being actively priced
and GBP11 million (December 2016: GBP9 million) of structured and other notes held by Old Mutual Wealth. These assets are held by linked
funds, with policyholders bearing all of the investment risk, and are matched exactly by Level 3 investment contract liabilities.
- GBP806 million (December 2016: GBP794 million) of private company shares and unlisted pooled investments held by Emerging Markets. Most of
these assets are held by policyholder funds for which the bulk of the investment risk is borne by policyholders
- GBP43 million (December 2016: GBP40 million) of unlisted equities held by Nedbank
Investments and securities - available for sale
- GBP26 million (December 2016: GBP24 million) of investments held by Nedbank.
Amounts shown as purchases and issues arise principally from the purchase of private company shares and unlisted pooled investments by Old
Mutual Wealth and Emerging Markets and from investments in associated undertakings by Nedbank.
Amounts shown as sales and settlements arise principally from the sale of private company shares and unlisted pooled investments by Old Mutual
Wealth and Emerging Markets and from distributions received in respect of Old Mutual Wealth's holdings in property funds.
Transfers into Level 3 assets principally relates to investments held by Old Mutual Wealth that were previously shown within Level 2 and for which
are no longer being actively priced. Transfers out of Level 3 assets principally comprise investments held by Old Mutual Wealth that were not being
repriced and that have been transferred into Level 2 as they are now actively priced.
GBPm
Designated fair
value through
Held-for-trading profit or loss Total
Investment
Other contract
Six months ended 30 June 2017 liabilities Derivatives liabilities
Level 3 financial liabilities
At beginning of the period 19 7 590 616
Total net fair value losses recognised in profit or loss for the period 4 - - 4
Sales and settlements - - (3) (3)
Transfers in - - 187 187
Transfers out - - (125) (125)
Foreign exchange and other - - 1 1
Total level 3 financial liabilities 23 7 650 680
Unrealised fair value losses relating to liabilities held at 30 June 2017
recognised profit or loss 4 - - 4
The carrying amount of Level 3 liabilities at 30 June 2017 comprises:
- GBP650 million (December 2016: GBP590 million) of investment contract liabilities in Old Mutual Wealth related to linked funds and which exactly
match against Level 3 assets disclosed above within Investments and securities - designated fair value through profit or loss; and
- GBP30 million (December 2016: GBP26 million) of held for trading liabilities which relate to the potential acquisitions of further stakes in
businesses
GBPm
Held-
for-trading Designated at fair value through profit or loss Total
Investments in
associated
undertakings
and joint Loans and Investments
Six months ended 30 June 2016 (Restated)(1) Derivatives ventures advances and securities
Level 3 financial assets
At beginning of the period 18 51 1 1,280 1,350
Total net fair value gains recognised in:
- profit or loss for the period - 8 - 48 56
- comprehensive income - 7 - 1 8
Purchases and issues - - - 73 73
Sales and settlements - (2) - (122) (124)
Transfers in - - - 62 62
Transfers out - - - (46) (46)
Foreign exchange and other 2 10 1 14 27
Total level 3 financial assets 20 74 2 1,310 1,406
Unrealised fair value gains/(losses) relating to assets
held at 30 June 2016 recognised in:
- profit or loss - 8 - 41 49
- other comprehensive income - 7 - 1 8
(1) The comparative information for June 2016 has been restated for the impact of consolidation of investment funds. Refer to note A2 for more information.
GBPm
Designated fair
value through
profit or loss -
Investment
Held-for-trading contract
Six months ended 30 June 2016 - Derivatives liabilities Total
Level 3 financial liabilities
At beginning of the period 4 594 598
Total net fair value losses recognised in profit or loss 2 10 12
Purchases and issues - 13 13
Sales and settlements - (101) (101)
Transfers in - 62 62
Transfers out - (36) (36)
Foreign exchange and other 1 12 13
Total level 3 financial liabilities 7 554 561
Unrealised fair value gains relating to assets held at 30 June 2016 recognised in
profit or loss 2 10 12
GBPm
Held-for- Available-
trading Designated at fair value through profit or loss for-sale Total
Investments in
associated
undertakings
and joint Loans and Investments Investments
Year ended 31 December 2016 Derivatives ventures advances and securities and securities
Level 3 financial assets
At beginning of the period 18 51 1 1,280 - 1,350
Total net fair value (losses)/gains
recognised in the profit or loss (4) 14 - 64 - 74
Purchases and issues 25 57 - 134 - 216
Sales and settlements (15) (10) - (234) 21 (238)
Transfers in - - 2 246 - 248
Transfers out - - - (59) - (59)
Transferred to held-for-sale - - - (67) - (67)
Foreign exchange and other 5 27 2 60 3 97
Total Level 3 financial assets 29 139 5 1,424 24 1,621
Unrealised fair value (losses)/gains
relating to assets held at
31 December 2016 recognised in
profit or loss (4) 14 - 63 - 73
GBPm
Designated fair
value through
profit or loss -
Investment
Other Held-for-trading contract
Year ended 31 December 2016 liabilities - Derivatives liabilities Total
Level 3 financial liabilities
At beginning of the period - 4 594 598
Total net fair value losses recognised in profit or loss 2 7 13 22
Purchases and issues 15 - 21 36
Sales and settlements - (4) (115) (119)
Transfers in - - 188 188
Transfers out - - (31) (31)
Foreign exchange and other 2 - (80) (78)
Total Level 3 financial liabilities 19 7 590 616
Unrealised fair value gains relating to liabilities held at
31 December 2016 recognised in profit or loss 2 7 13 22
(c) Effect of changes in significant unobservable assumptions to reasonable possible alternatives
Favourable and unfavourable changes are determined on the basis of changes in the value of the financial asset or liability as a result of varying the
levels of the unobservable parameters using statistical techniques. When parameters are not amenable to statistical analysis, quantification of
uncertainty is judgemental.
When the fair value of a financial asset or liability is affected by more than one unobservable assumption, the figures shown reflect the most
favourable or most unfavourable change from varying the assumptions individually.
The valuations of the private equity investments are performed on an asset-by-asset basis using a valuation methodology appropriate to the specific
investment and in line with industry guidelines. In determining the valuation of the investment the principal assumption used is the valuation multiple
applied to the main financial indicators (such as adjusted earnings). The source of this multiple may include multiples for comparable listed
companies which have been adjusted for discounts for non-tradability and valuation multiples earned on transactions in comparable sectors.
The valuations of asset-backed securities are determined by discounted cash flow models that generate the expected value of the asset,
incorporating benchmark information on factors such as prepayment patterns, default rates, loss severities and the historical performance of the
underlying assets. The outputs from the models used are calibrated with reference to similar securities for which external market information is
available.
Structured notes and other derivatives are generally valued using option pricing models. For structured notes and other derivatives, principal
assumptions concern the future volatility of asset values and the future correlation between asset values. These principal assumptions used in the
valuation of structured credit notes include credit volatilities and correlations. For such unobservable assumptions, estimates are based on available
market data, which may include the use of a proxy method to derive a volatility or correlation from comparable assets for which market data is more
readily available, and examination of historical levels.
The table below summarises the significant inputs to value instruments categorised as Level 3 hierarchy and their sensitivity to changes in the
inputs used.
Types of financial Significant unobservable Fair value measurement sensitivity to
instruments Fair values input unobservable inputs
At At At At
30 June 31 December 30 June 31 December
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Assets
Investments in associated 158 139 Valuation multiples Favourable: 14 Favourable: 13
undertakings and joint Unfavourable: 18 Unfavourable: 16
ventures
Investments and 1,524 1,448 Valuation multiples Favourable: 186 Favourable: 213
securities Correlations Unfavourable: 176 Unfavourable: 223
Volatilities
Credit spreads
Dividend growth rates
Internal rates of return
Cost of capital
Inflation rates
Market adjusted price
Exchange price of
infrequently traded shares
Loans and 7 5 Correlations Favourable: 1 Favourable: GBPnil
advances Volatilities Unfavourable: 1 Unfavourable: 1
Credit spreads
Derivatives 5 29 Interest rates Favourable: 5 Favourable: 10
Volatilities Unfavourable: 3 Unfavourable: 9
Liabilities
Investment contract liabilities 650 590 Interest rates Favourable: 65 Favourable: 59
Volatilities Unfavourable: 65 Unfavourable: 59
Other liabilities 23 19 Valuation multiples Favourable: 2 Favourable: 1
Unfavourable: 2 Unfavourable: 1
Derivatives 7 7 Volatilities Favourable: 7 Favourable: 7
Unfavourable: 16 Unfavourable: 16
F: Analysis of financial assets and liabilities
F1: Loans and advances
(a) Categories of loans and advances
The following table provides an analysis of the categories of loans and advances that are provided by the Group. The amounts presented in this
table are the carrying value of the underlying assets before provisions for impairment losses.
GBPm
At At At
30 June 30 June 31 December
2017 2016 2016
Home loans 8,895 7,555 8,772
Commercial mortgages 9,226 7,411 9,085
Unsecured retail lending 1,980 1,845 2,215
Other term loans 6,943 5,276 6,068
Other loans to clients 5,831 6,022 7,099
Net finance leases and instalment debtors 6,311 5,185 6,221
Deposits placed under reverse purchase agreements 952 1,018 923
Overdrafts 1,220 968 1,182
Preference shares and debentures 1,174 1,082 1,184
Credit cards 923 753 877
Factoring accounts 290 262 296
Policyholder loans 254 256 278
Properties in possession 14 17 15
Remittances in transit 34 72 22
Gross loans and advances 44,047 37,722 44,237
Provisions for impairment (894) (921) (1,129)
Specific provisions F1(b) (605) (642) (820)
Portfolio provisions F1(b) (289) (279) (309)
Total net loans and advances 43,153 36,801 43,108
The majority of gross loans and advances are in respect of Nedbank GBP42,484 million (June 2016: GBP36,166 million; December 2016: GBP42,394 million)
and Emerging Markets GBP1,363 million (June 2016: GBP1,358 million; December 2016: GBP1,622 million).
(b) Provision for impairments
This section analyses the provisions raised against loans and advances and the movements during the year.
Specific impairments have been raised against those loans identified as impaired. Portfolio impairments are recognised against loans and advances
classified as neither past due nor impaired or past due but not impaired.
GBPm
Nedbank Emerging Markets Group
Specific Portfolio Total Specific Portfolio Total Total
Six months ended 30 June 2017 impairment impairment impairment impairment impairment impairment impairment
Balance at beginning of the period 432 285 717 388 24 412 1,129
Impairment charge 149 (19) 130 27 (2) 25 155
Credit impairment charges(2) 114 (19) 95 27 (2) 25 120
Recoveries of amounts previously written off 35 - 35 - - - 35
Amounts written off against the provision(1) (138) - (138) (263) - (263) (401)
Foreign exchange and other movements - 1 1 10 - 10 11
Balance at end of the period 443 267 710 162 22 184 894
GBPm
Nedbank Emerging Markets Group
Specific Portfolio Total Specific Portfolio Total Total
Six months ended 30 June 2016 impairment impairment impairment impairment impairment impairment impairment
Balance at beginning of the period 292 208 500 237 22 259 759
Impairment charge 120 5 125 3 13 16 141
Credit impairment charges(2) 95 5 100 3 13 16 116
Recoveries of amounts previously written off 25 - 25 - - - 25
Amounts written off against the provision (115) (3) (118) (1) (4) (5) (123)
Foreign exchange and other movements 46 39 85 60 (1) 59 144
Balance at end of the year 343 249 592 299 30 329 921
GBPm
Nedbank Emerging Markets Group
Specific Portfolio Total Specific Portfolio Total Total
Year ended 31 December 2016 impairment impairment impairment impairment impairment impairment impairment
Balance at beginning of the year 292 208 500 237 22 259 759
Acquisitions through business combinations 1 4 5 - - - 5
Impairment charge 287 - 287 51 (5) 46 333
Credit impairment charges(2) 229 - 229 48 (5) 43 272
Recoveries of amounts previously written off 58 - 58 3 - 3 61
Amounts written off against the provision (249) (3) (252) - - - (252)
Foreign exchange and other movements 101 76 177 100 7 107 284
Balance at end of the year 432 285 717 388 24 412 1,129
(1) The GBP263 million shown as amounts written off against the provision in Emerging Markets relates to long outstanding loans that were written off as they were
deemed to be irrecoverable.
(2) Included in the credit impairment charge are the transfers between specific and portfolio impairment provisions.
F2: Insurance and investment contracts
The tables below provide a summary of the Group's long-term business insurance policyholder liabilities and investment contract liabilities. Details
of insurance contract accounting for the Group can be found in note G6 of the 2016 Annual Report and Accounts.
GBPm
At 30 June 2017 At 30 June 2016
Gross Reinsurance Net Gross Reinsurance Net
Life assurance policyholder liabilities
Long-term business insurance policyholder
liabilities 9,794 (383) 9,411 9,183 (312) 8,871
Life assurance policyholder liabilities 9,644 (373) 9,271 9,061 (302) 8,759
Outstanding claims 150 (10) 140 122 (10) 112
Investment contract liabilities 82,605 (2,759) 79,846 69,040 (2,597) 66,443
Unit-linked investment contracts and similar contracts 70,975 (2,759) 68,216 59,537 (2,597) 56,940
Other investment contracts 1,093 - 1,093 827 - 827
Discretionary participating investment contracts 10,537 - 10,537 8,676 - 8,676
Total life assurance policyholder liabilities 92,399 (3,142) 89,257 78,223 (2,909) 75,314
Property & casualty liabilities
Claims incurred but not reported 79 (18) 61 59 (8) 51
Unearned premiums 160 (72) 88 142 (61) 81
Outstanding claims 293 (144) 149 224 (80) 144
Total property & casualty liabilities 532 (234) 298 425 (149) 276
Total policyholder liabilities 92,931 (3,376) 89,555 78,648 (3,058) 75,590
GBPm
At 31 December 2016
Gross Reinsurance Net
Life assurance policyholder liabilities
Long-term business insurance policyholder
liabilities 9,982 (358) 9,624
Life assurance policyholder liabilities 9,844 (345) 9,499
Outstanding claims 138 (13) 125
Investment contract liabilities 77,599 (2,560) 75,039
Unit-linked investment contracts and similar contracts 66,543 (2,560) 63,983
Other investment contracts 972 - 972
Discretionary participating investment contracts 10,084 - 10,084
Total life assurance policyholder liabilities 87,581 (2,918) 84,663
Property & casualty liabilities
Claims incurred but not reported 73 (14) 59
Unearned premiums 163 (76) 87
Outstanding claims 246 (107) 139
Total property & casualty liabilities 482 (197) 285
Total policyholder liabilities 88,063 (3,115) 84,948
The reinsurers' share of policyholder liabilities relating to investment contracts is where the direct management of assets are ceded to a third party
through a reinsurance arrangement. Due to the nature of the arrangement, there is no transfer of insurance risk.
F3: Borrowed funds
Summary of Borrowed Funds GBPm
plc Institutional
Head Emerging Asset
Type of securities - At 30 June 2017 Notes Office Markets Nedbank Management(1) Total
Senior debt securities and term loans - 215 2,152 - 2,367
Floating rate notes F3(a)(i) - - 1,056 - 1,056
Fixed rate notes F3(a(ii) - - 1,096 - 1,096
Term and other loan F3(a)(iii) - 215 - - 215
Revolving credit facilities F3(b) - 21 - - 21
Mortgage-backed securities F3(c) - - 236 - 236
Subordinated debt securities F3(d) 1,027 350 846 - 2,223
Total Borrowed funds 1,027 586 3,234 - 4,847
(1) No borrowed funds are reflected for Institutional Asset Management (IAM) at 30 June 2017 as it has been equity accounted for as an associated undertaking. At 31
December 2016 no borrowed funds were reflected in IAM as it has been classified as held for sale. Refer to note A2 for more information.
GBPm
plc Institutional
Head Emerging Asset
Type of securities - At 30 June 2016 Notes Office Markets Nedbank Management Total
Senior debt securities and term loans 112 203 1,941 - 2,256
Floating rate notes F3(a)(i) - - 1,053 - 1,053
Fixed rate notes F3(a(ii) 112 - 888 - 1,000
Term loans F3(a)(iii) - 203 - - 203
Revolving credit facilities F3(b) - - - 38 38
Mortgage-backed securities F3(c) - - 104 - 104
Subordinated debt securities F3(d) 991 302 540 - 1,833
Total Borrowed funds 1,103 505 2,585 38 4,231
Instruments classified as equity
for accounting purposes
GBP273 million perpetual preferred callable
securities at 6.38%(1) 273 - - - 273
Total book value of Group debt 1,376 505 2,585 38 4,504
(1) On 3 February 2017, the Group repurchased all of the GBP273 million Tier 1 preferred perpetual callable securities using cash from the Group's existing resources.
Refer to note A2 for more information.
GBPm
Institutional
Old Mutual Emerging Asset
Type of securities - At 31 December 2016 Notes plc Markets Nedbank Management Total
Senior debt securities and term loans - 287 2,088 - 2,375
Floating rate notes F3(a)(i) - - 1,046 - 1,046
Fixed rate notes F3(a(ii) - - 1,042 - 1,042
Term loans F3(a)(iii) - 287 - - 287
Revolving credit facilities F3(b) - 34 - - 34
Mortgage-backed securities F3(c) - - 153 - 153
Subordinated debt securities F3(d) 1,017 348 767 - 2,132
Total Borrowed funds 1,017 669 3,008 - 4,694
Instruments classified as equity
for accounting purposes
GBP273 million perpetual preferred callable
securities at 6.38%(1) 273 - - - 273
Total book value of Group debt 1,290 669 3,008 - 4,967
(1) On 3 February 2017, the Group repurchased all of the GBP273 million Tier 1 preferred perpetual callable securities using cash from the Group's existing resources.
Refer to note A2 for more information.
Total borrowed funds can be further analysed between non-banking and banking as follows:
GBPm
At 30 June 2017 At 30 June 2016
Non- Non-
Type of security banking Banking(1) Total banking Banking(1) Total
Senior debt securities and term loans 28 2,339 2,367 147 2,109 2,256
Revolving credit facilities 9 12 21 38 - 38
Mortgage-backed securities - 236 236 - 104 104
Subordinated debt securities 1,377 846 2,223 1,293 540 1,833
Total Borrowed funds 1,414 3,433 4,847 1,478 2,753 4,231
GBPm
At 31 December 2016
Non-
Type of security banking Banking(1) Total
Senior debt securities and term loans 96 2,279 2,375
Revolving credit facilities 16 18 34
Mortgage-backed securities - 153 153
Subordinated debt securities 1,365 767 2,132
Total Borrowed funds 1,477 3,217 4,694
(1) Borrowed funds relating to banking businesses are those which are directly related to the lending and banking businesses of Nedbank and Emerging Markets.
Interest rate profile
The interest rate profiles of the Group's borrowed funds are analysed as follows:
GBPm
Institutional
Old Mutual Emerging Asset
At 30 June 2017 plc(1) Markets Nedbank Management Total
Fixed rate 1,027 262 1,096 - 2,385
Floating rate - 324 2,138 - 2,462
Total 1,027 586 3,234 - 4,847
GBPm
Institutional
Old Mutual Emerging Asset
At 30 June 2016 plc(1) Markets Nedbank Management Total
Fixed rate 1,103 251 888 - 2,242
Floating rate - 254 1,697 38 1,989
Total 1,103 505 2,585 38 4,231
GBPm
Institutional
Old Mutual Emerging Asset
At 31 December 2016 plc(1) Markets Nedbank Management Total
Fixed rate 1,017 278 1,042 - 2,337
Floating rate - 391 1,966 - 2,357
Total 1,017 669 3,008 - 4,694
(1) Old Mutual plc has cross currency and interest rate swaps related to GBP500 million Tier 2 debt. Old Mutual plc receives fixed interest and pays floating rate interest.
These instruments are designated as fair value through profit and loss. At 30 June 2017 the debt derivatives asset value was GBP32 million (June 2016: GBP55 million;
December 2016: GBP31 million).
Analysis of security types
(a) Senior debt securities and term loans
(i) Floating rate notes (net of Group holdings)
GBPm
At At At
30 June 30 June 31 December
Maturity date 2017 2016 2016
Banking - Nedbank Floating rate unsecured senior debt
R3,056 million at JIBAR + 0.80% Repaid - 158 -
R694 million at JIBAR + 0.75% Repaid - 36 -
R405 million at JIBAR + 1.30% Repaid - 21 22
R1,035 million at JIBAR + 0.85% Repaid - 53 61
R806 million at JIBAR + 0.90% Repaid - 41 48
R786 million at JIBAR + 1.30% August 2017 27 37 27
R241 million at JIBAR + 1.12% November 2017 14 13 14
R472 million at JIBAR + 1.25% February 2018 28 24 28
R1,427 million at JIBAR + 1.30% June 2018 85 74 85
R1,427 million at JIBAR + 1.45% February 2019 85 74 85
R1,472 million at JIBAR + 1.45% May 2019 146 129 149
R612 million at JIBAR + 1.40% August 2019 37 - 37
R90 million at JIBAR + 1.45% February 2020 5 5 5
R814 million at JIBAR + 1.29% February 2020 48 - -
R80 million at JIBAR + 2.15% April 2020 5 4 5
R476 million at JIBAR + 1.55% November 2020 27 25 28
R830 million at JIBAR + 1.80% February 2021 47 43 49
R1,054 million at JIBAR + 1.80% May 2021 88 76 88
R650 million at JIBAR + 1.30% June 2021 38 33 38
R287 million at JIBAR +1.75% August 2021 17 - 17
R12 million at JIBAR + 1.55% February 2022 1 1 1
R568 million at JIBAR + 1.80% February 2022 34 - -
R270 million at JIBAR + 2.00% February 2023 16 14 16
R528 million at JIBAR + 2.00% May 2023 32 27 32
R1,500 million at JIBAR + 1.55% February 2024 89 - -
R1,980 million at JIBAR + 2.00% February 2025 118 103 118
R500 million at JIBAR + 2.10% April 2026 30 26 30
R750 million at JIBAR + 2.25% May 2026 45 39 45
R302 million at JIBAR + 2.20% July 2026 18 - 18
1,080 1,056 1,046
Less: floating rate notes held by other Group companies (24) (3) -
Total net floating rate notes 1,056 1,053 1,046
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 At
30 June 30 June 31 December
Maturity date 2017 2016 2016
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
R151 million at 6.91% Repaid - 8 -
R1,273 million at 11.39% September 2019 80 70 80
R380 million at 9.26% June 2020 23 20 23
R1,888 million at 8.92% November 2020 112 98 112
R855 million at 9.38% March 2021 52 45 52
R417 million at 10.68% May 2021 25 22 25
R500 million at 9.29% June 2021 29 26 30
R215 million at 8.79% February 2022 13 11 13
R280 million at 9.64% June 2022 17 14 17
R250 million at 10.66% February 2023 15 13 15
R334 million at 10.01% August 2023 20 - 21
R952 million at 10.07% November 2023 57 49 57
R618 million at 9.60% February 2024 19 - -
R391 million at 9.73% March 2024 24 21 24
R660 million at zero coupon October 2024 38 14 18
R2,607 million at 9.44% February 2025 159 138 159
R884 million at 10.69% November 2025 53 46 53
R800 million at 9.95% April 2026 48 42 48
R360 million at 11.15% May 2026 22 19 22
R1,739 million at 10.36% June 2026 103 90 103
R423 million at 10.50% July 2026 26 - 26
R2,000 million at 10.63% July 2027 123 107 124
R666 million at 10.94% November 2027 40 35 40
1,098 888 1,062
Less: Fixed rate notes held by other Group companies (2) - (20)
Total banking fixed rate unsecured senior debt (net of Group
holdings) 1,096 888 1,042
Total net fixed rate notes 1,096 1,000 1,042
All fixed rate notes are non-qualifying for the purpose of regulatory tiers of capital.
(iii) Term and other loans
GBPm
At At At
30 June 30 June 31 December
Maturity date 2017 2016 2016
Emerging Markets Floating rate loans
KES451 million at KBRR(3) + 3.87%(1) Repaid - 1 -
KES450 million at GOK(4) 182 days TB + 2.50%(1) Repaid - - 3
$65 million at 3 month JIBAR + 2.80%(2) Reclassification(5) - - 55
R1,500 million at JIBAR + 2.95%(1) August 2017 92 82 94
R800 million at JIBAR + 2.75%(1) July 2018 47 41 47
KES450 million at GOK(4) + 2.00%(1) November 2019 3 - 1
KES450 million at GOK(4) + 2.00%(1) March 2020 3 - -
NAD30 million at prime rate less 1% and compounded monthly(1) May 2020 2 - -
KES950 million rate at KBRR(1,3) August 2021 6 - 7
$31 million at 3 month LIBOR plus 3.50%(2) September 2021 24 - 25
Emerging Markets Fixed rate loans
KES150 million at 5.00%(1) Repaid - 1 -
$3 million at 5.00%(1) Repaid - - 2
KES2,000m at 13.00%(2) July 2017 16 16 17
$2 million at 8.24%(1) August 2017 1 2 2
$3 million at 8.72%(1) September 2017 2 7 5
KES101 million at 13.00%(1) June 2018 1 1 1
KES102 million at 13.50%(1) June 2018 1 1 1
KES607 million at 12.50%(1) December 2018 5 5 5
KES411 million at 11.50%(1) April 2020 3 3 3
$3 million at 8.31%(1) May 2020 3 5 5
KES474 million at 9.20%(1) August 2020 6 7 4
KES200 million at 5.00%(1) July 2022 2 1 2
$3 million at 8.75%(2) August 2022 3 12 12
$3 million at 12.00%(1) September 2022 2 3 3
$4 million at 6.50%(2) June 2023 3 3 3
$4 million at 6.50%(2) June 2023 3 - 3
$4 million at 6.50%(2) June 2023 3 4 5
$7 million at 10.00%(1) December 2023 6 7 7
$3 million at 5.00%(1) December 2023 2 1 -
Total term and other loans 239 203 312
Less: Term loans held by other Group companies (24) - (25)
Total net term and other loans 215 203 287
Total term and other loans are further analysed as:
Banking(1) 187 168 192
Non-banking(2) 52 35 120
Total term and other loans 239 203 312
(1) Banking term and other loans
(2) Non-Banking and other loans
(3) Kenya Bank's Reference Rate
(4) Government of Kenya
(5) During the period this loan has been evaluated and classified as other liabilities as it does not relate to corporate borrowing.
Comparative information has not been restated as it is not deemed material to the consolidated statement of financial position.
(b) Revolving credit facilities
GBPm
At At At
30 June 30 June 31 December
Maturity date 2017 2016 2016
Non-banking
Institutional Asset Management - $50 million drawn of a $350
million facility at USD LIBOR + 1.25%(1) - 38 -
Emerging Markets - R3,125 million facility at 3 month JIBAR + 1.60% January 2019 9 - 16
Banking
Emerging Markets - R1,200 million facility at 3 month JIBAR + 2.95% July 2018 12 - 18
Total revolving credit facilities 21 38 34
(1) No borrowed funds are reflected in Institutional Asset Management (IAM) at 30 June 2017 as it was equity accounted as an associated undertaking. At 31
December 2016 no borrowed funds were reflected in IAM as it was classified as held for sale. Refer to note A2 for more information.
The Group has access to an external GBP764 million (2016: GBP764 million) multi-currency revolving credit facility available to the Company. GBP73 million
of the facility expires in August 2019, a further GBP73 million of the facility expires in August 2020 and the remaining GBP618 million of the facility expires
in August 2021. At 30 June 2017 this facility was undrawn.
In July 2015, Emerging Markets obtained access to a R1,200 million revolving credit facility which expires in July 2018. At 30 June 2017, R200
million (GBP12 million) of this facility was drawn (June 2016: Undrawn; December 2016: R300 million (GBP18 million)).
In December 2015, Emerging Markets obtained access to an external R3,125 million revolving credit facility which expires in January 2019 with an
option to renew for a further year. At 30 June 2017, R157 million (GBP9 million) of this facility was drawn (June 2016: Fully undrawn; December 2016:
R260 million (GBP16 million)).
Certain revolving credit facility arrangements may include guarantees by other subsidiary companies which, in the case of non-performance by the
borrower, may limit the amount of distribution the guarantor declares to its parent.
(c) Mortgage-backed securities (net of Group holdings)
GBPm
At At At
30 June 30 June 31 December
Tier Maturity date 2017 2016 2016
Banking - Nedbank
R161 million at JIBAR + 1.25% Tier 2 Repaid - 3 -
R210 million at 3 month JIBAR + 1.05% Tier 2 February 2022 13 - -
R195 million at 3 month JIBAR + 1.45% Tier 2 February 2022 12 - -
R525 million at 3 month JIBAR + 1.80% Tier 2 February 2022 13 - -
R70 million at 3 month JIBAR + 2.50% Tier 2 February 2022 4 - -
R50 million at 3 month JIBAR + 2.60% Tier 2 February 2022 3 - -
R30 million at 3 month JIBAR + 2.70% Tier 2 February 2022 2 - -
R600 million JIBAR + 1.34% Tier 2 January 2028 24 - 30
R300 million JIBAR + 1.54% Tier 2 January 2028 13 - 16
R550 million JIBAR + 1.25% Tier 2 January 2028 46 - -
R900 million (class A3) at JIBAR + 1.54% Tier 2 October 2039 44 47 50
R110 million (class B) at JIBAR + 1.90% Tier 2 October 2039 7 6 7
R558 million at JIBAR + 1.20% Tier 2 February 2042 13 23 19
R100 million at JIBAR + 1.45% Tier 2 February 2042 24 5 6
R680 million at JIBAR + 1.55% Tier 2 February 2042 40 35 40
R80 million at JIBAR + 2.20% Tier 2 February 2042 5 4 5
R65 million at JIBAR + 3.00% Tier 2 February 2042 4 3 4
267 126 177
Less: Mortgage-backed securities held by other Group companies (31) (22) (24)
Total net mortgage-backed securities 236 104 153
(d) Subordinated debt securities (net of Group holdings)
GBPm
At At At
Maturity 30 June 30 June 31 December
Tier date 2017 2016 2016
Banking - Nedbank
$100 million at 3 month USD LIBOR Tier 2 (secondary) Repaid - 75 81
R2,000 million at JIBAR + 0.47% Tier 2 July 2022 120 104 120
R1,800 million at JIBAR + 2.75% Tier 2 July 2023 108 94 108
R1,200 million at JIBAR + 2.55% Tier 2 November 2023 71 62 71
R450 million at JIBAR + 10.49% Tier 2 April 2024 27 24 27
R1,737 million at 3 month JIBAR + 2.55% Tier 2 April 2024 105 91 105
R300 million at JIBAR + 2.75% Tier 2 October 2024 18 16 18
R225 million at JIBAR +2.75% Tier 2 January 2025 14 12 14
R1,624 million at JIBAR + 3.5% Tier 2 July 2025 96 86 98
R407 million at 11.29% Tier 2 July 2025 27 22 25
R2,000 million at JIBAR + 4.00% Tier 2 September 2026 116 - 118
R2,000 million at JIBAR + 3.80% Tier 2 March 2027 118 - -
R500 million at JIBAR + 3.75% Tier 2 March 2027 30 - -
850 586 785
Less: Banking subordinated debt securities
held by other Group companies (4) (46) (18)
Net banking subordinated securities 846 540 767
Non-banking - Old Mutual plc
GBP500 million at 8.00% Tier 2 June 2021 580 543 569
GBP450 million at 7.88% Tier 2 November 2025 447 448 448
1,027 991 1,017
Non-banking - Emerging Markets(1)
R300 million at 9.26% Tier 2 November 2024 17 15 17
R700 million at 3 month JIBAR + 2.20% Tier 2 November 2024 41 36 41
R537 million at 3 month JIBAR + 2.30% Tier 2 March 2025 32 28 32
R425 million at 9.76% Tier 2 March 2025 25 21 25
R1,288 million at 3 month JIBAR + 2.25% Tier 2 September 2025 76 66 76
R409 million at 10.32% Tier 2 March 2027 24 20 23
R568 million at 10.90% Tier 2 September 2027 34 29 33
R1,150 million at 10.96% Tier 2 March 2030 65 56 65
R623 million at 11.35% Tier 2 September 2030 36 31 36
350 302 348
Total subordinated debt securities 2,223 1,833 2,132
(1) All callable subordinated debt securities have a first call date five years before the maturity date.
G: Non-financial assets and liabilities
G1: 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 six months ended 30 June
2017 and year ended 31 December 2016.
GBPm
Present value of
acquired in-force
business Software Other
development development intangible
Goodwill costs costs assets Total
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Cost
Balance at beginning of the period 2,089 3,129 914 982 913 598 772 710 4,688 5,419
Acquisitions through business
combinations(1,2) 14 124 - - - 1 27 76 41 201
Purchase price adjustments (12) - - - - 17 - 5
Additions - - - - 70 132 1 9 71 141
Disposals or retirements - - - - - (12) - - - (12)
Transfer to assets held for sale - (1,561) - (80) - - - (72) - (1,713)
Foreign exchange and other movements (12) 409 - 12 9 194 (1) 32 (4) 647
Cost at end of the period / year 2,091 2,089 914 914 992 913 799 772 4,796 4,688
Amortisation and impairment losses
Balance at beginning of the period (471) (617) (732) (751) (568) (403) (446) (372) (2,217) (2,143)
Amortisation charge for the period - - (20) (49) (29) (51) (31) (55) (80) (155)
Impairment losses(3) (71) (110) - - - (3) - - (71) (113)
Disposals or retirements - - - - - 10 - - - 10
Transfer to assets held for sale - 337 - 77 - - - 3 - 417
Foreign exchange and other movements 7 (81) - (9) (12) (121) 7 (22) 2 (233)
Accumulated amortisation and
impairment losses at end of
the period / year (535) (471) (752) (732) (609) (568) (470) (446) (2,366) (2,217)
Carrying amount
Balance at beginning of the period 1,618 2,512 182 231 345 195 326 338 2,471 3,276
Balance at end of the period 1,556 1,618 162 182 383 345 329 326 2,430 2,471
(1) Goodwill acquired through business combinations for the six months ended 30 June 2017 of GBP14 million relates to the acquisition of Caerus Capital Group Limited
(GBP11 million) and five acquisitions by the Old Mutual Wealth Private Client Advisors business (GBP3 million). Refer to note A2 and H2 for more information.
(2) Other intangible assets acquired through business combinations for the six months ended 30 June 2017 of GBP27 million relates to the acquisitions of Caerus Capital
Group Limited (GBP10 million), Attivo Investment Management Limited (GBP9 million) and five acquisitions by the Old Mutual Wealth Private Client Advisors business (GBP8
million). Refer to note A2 and H2 for more information.
(3) The Impairment loss of GBP71 million for the six months ended 30 June 2017 relates to the East Africa cash generating unit within Emerging Markets and is described
in the Goodwill impairment testing - Emerging Markets section below.
The net carrying amount of present value of acquired in-force business at 30 June 2017 principally comprises GBP161 million (31 December 2016:
GBP179 million) relating to the Skandia business acquired during 2006, which is due to be amortised over a further five to ten years.
The net carrying amount of other intangible assets at 30 June 2017 of GBP329 million (December 2016: GBP331 million) principally comprises:
Old Mutual Wealth:
- GBP209 million (December 2016: GBP223 million) relating to distribution channels that will be amortised over a further eight years;
- GBP64 million (December 2016: GBP30 million) relating to mutual fund and asset management relationship assets that will be amortised over a
further six to eight years; and
- GBP8 million (December 2016: GBP10 million) relating to brands that will be amortised over a further three years.
Emerging Markets:
- GBP19 million (December 2016: GBP21 million) relating to the UAP brand, which is not being amortised; and
- GBP4 million (December 2016: GBP4 million) relating to the African Infrastructure Investments Managers brand, which is not being amortised.
- GBP5 million (December 2016: GBP2 million) held by Old Mutual Finance, which is being amortised over a further 3 years.
Goodwill impairment testing - Emerging Markets
During the six months ended 30 June 2017 an impairment charge of GBP71 million was recognised in relation to the Emerging Markets segment. This
followed an impairment charge of GBP64 million during the year ended 31 December 2016.
The impairment of goodwill was principally the result of changes in the Cash Generating Unit (CGU) definition following the simplification of the Rest
of Africa businesses' operating structure. Weaker performance in the East Africa businesses than was anticipated at the time of the previous
impairment review also had a minor impact. The continued focus on identified strategic priorities in the East African business is already resulting in
an improvement in the performance, albeit over a longer timeframe than anticipated at acquisition.
The change in the operating structure prompted the separation of the previously reported single Old Mutual Southern and East Africa (OMSEA)
CGU into two CGUs for Southern Africa and East Africa. Businesses in Namibia, Zimbabwe, Botswana, Swaziland and Malawi are included in the
Southern Africa CGU. The remaining entities of the former OMSEA CGU are included in the East Africa CGU. These include the former Old Mutual
Kenya and the recently acquired business interests in UAP and Faulu. The goodwill balance of GBP114 million of the OMSEA CGU at 31 December
2016 has been allocated in its entirety to the East African CGU on the basis that it related to the acquisitions of UAP and Faulu within that region.
The impairment review of the East Africa CGU performed at 30 June 2017, included the following key assumptions in respect of the East African
business performance:
- Cash flows - Initial cash flows were determined in accordance with the three-year business plan, these were adjusted downwards for
economic uncertainties at 30 June 2017 by 30% (31 December 2016: No downward adjustment to business plan). Subsequent cash flows
assumed growth rates of 13.0% (December 2016: 18.0%) for years four and five respectively and 8.5% (December 2016: 4.5%) after year five
(terminal growth rates).
- Discount rate - The rate applied to the CGU was determined with reference to the relevant 10-year government bond rate adjusted for an
equity market risk premium and other risk adjustments, determined using market valuation models and other observable references. This
resulted in a current year discount rate for the East Africa CGU of 17.0% (December 2016: 22.3%).
The assumptions previously quoted for prior year goodwill impairment testing that related to the OMSEA CGU as a whole and are not directly
comparable to the assumptions used in the 2017 impairment testing for the East Africa CGU.
The result of using the above assumptions is that the Group has recognised an impairment of GBP71 million in profit and loss relating to the East
African CGU. The impairment of goodwill has been allocated to equity holders of the parent (GBP43 million) and non-controlling interests (GBP28 million).
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:
Goodwill and
intangible assets
(carrying amount) Amortisation Impairment
Six months Year Six months Year
At At 31 ended ended ended ended
30 June December 30 June December 30 June December
2017 2016 2017 2016 2017 2016
Emerging Markets 386 461 17 25 71 67
Old Mutual Wealth 1,439 1,434 39 87 - 46
Nedbank 605 576 24 41 - -
Institutional Asset Management(1) - - - 2 - -
2,430 2,471 80 155 71 113
(1) Goodwill for the Institutional Asset Management segment was transferred to assets held for sale in the Consolidated Statement of Financial Position during 2016.
Refer to note H2 for more information.
H: Other Notes
H1: Contingent liabilities and commitments
The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks. Provisions are made for
known liabilities that are expected to materialise. Possible obligations and known liabilities where no reliable estimate can be made or it is
considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37: 'Provisions, Contingent
Liabilities and Contingent Assets'.
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.
Litigation
There are a number of legal or potential claims against the Group, the outcome of which cannot at present be foreseen.
Consumer protection
The Group 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 six months ended 30 June 2017.
Implications of the managed separation strategy
The Group routinely monitors and reassesses contingent liabilities arising from such as litigation, warranties and indemnities relating to past
acquisitions and disposals. The announcement 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.
H2: Businesses acquired during the year
Old Mutual Wealth continued to expand its operations in the United Kingdom through the following completed acquisitions:
Private Client Adviser Businesses
(i) Caerus Capital Group Limited (Caerus)
On 1 June 2017, Old Mutual Wealth, completed the acquisition of 100% of the share capital of Caerus, a UK based adviser network that operates in
a similar manner to Intrinsic and which has approximately GBP4 billion of funds under advice and over 300 advisers.
The total consideration includes up to GBP3 million that has been deferred for two years and GBP6 million that has been deferred for three years. The
deferred consideration has been included as part of the cost of the acquisition as there is no continuing employment condition applying to the
sellers of the business. The deferred consideration payable is dependent on turnover targets post acquisition and is potentially reduced by the
amount of any relevant claims arising from in-force business existing prior to the payment dates.
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 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 Caerus's consolidated statement of financial position on acquisition date approximates the fair value of
these items determined by the Group. In addition, the Group recognised identified intangible assets of GBP10 million and additional provisions of GBP2
million. The intangible assets recognised relate to customer distribution channels. The value of the intangible assets was determined by applying
cash flows to standard industry valuations models. Goodwill of GBP11 million was recognised on the acquisition and is attributable to the delivery of
significant cost and revenue synergies that cannot be linked to identifiable intangible assets.
Transaction costs incurred of GBP1 million relating to the acquisition have been recognised within other operating expenses in the consolidated income
statement, but not included within adjusted operating profit.
Old Mutual Wealth Private Client Advisers (OMWPCA)
During the first half of 2017, Old Mutual Wealth completed the acquisition of five adviser businesses as part of the expansion of its OMWPCA
business that was launched in October 2015. The aim is to develop an Old Mutual Wealth branded, employed adviser business focused upon
servicing upper affluent and high net worth clients, offering a restricted advice proposition focused upon Old Mutual Wealth's investment solutions
and platform.
The total potential consideration payable is GBP11 million, including up to GBP6 million that has been deferred. The amount of deferred consideration is
dependent upon the meeting certain performance targets, generally relating to the value of funds under management. The deferred consideration
has been included as part of the cost of the acquisition as there are no continuing employment conditions applying to the sellers of the business.
Goodwill of GBP3 million and total other intangible assets of GBP8 million were recognised as a result of the acquisitions.
Transaction costs incurred of GBP1 million relating to the acquisitions have been recognised within other operating expenses in the consolidated
income statement, but not included within adjusted operating profit.
Attivo Investment Management Limited (AIM)
On 29 March 2017, Old Mutual Wealth, completed the acquisition of 100% of the share capital of AIM, a UK based investment management
business offering a comprehensive investment management service.
The value of total assets and total net assets of the acquired business were both less than GBP1m.
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 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 AIM's statement of financial position on acquisition date approximates the fair value of these items
determined by the Group. Other intangible assets of GBP9 million, relating to customer relationships, were recognised as a result of the acquisition. No
goodwill was recognised.
Transaction costs incurred of GBP0.5 million relating to the acquisition have been recognised within other operating expenses in the consolidated
income statement, but not included within adjusted operating profit.
H3: Events after the reporting date
Purchase of seed capital investments from Old Mutual plc
In July 2017, OM Asset Management plc (OMAM) purchased all of the remaining seed investments from Old Mutual plc for $63 million (GBP48 million),
under the terms of the Seed Capital Management Agreement, as amended.
H4: Related party transactions
There were no transactions with related parties during the six months ended 30 June 2017 which had a material effect on the results or financial
position of the Group. The nature of the related party transactions of the Group has not changed from those described in the 2016 Annual Report
and Accounts.
I: Discontinued operations and disposal groups held for sale
I1: Discontinued operations
The phased reduction of the Group's majority stake in OM Asset Management plc (OMAM) began in 2016. 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, Institutional
Asset Management (IAM). As a consequence of the plans to dispose of these businesses, for the six months ended 30 June 2017, the six months
ended 30 June 2016 and the year ended 31 December 2016, IAM was classified as a discontinued operation, as required by IFRS.
As explained in note A2, during the current reporting period, reductions in the Group's investment in OMAM from 51.7% to 20.1%, meant loss of
control over the business on 19 May 2017 (as defined under IFRS 3 - 'Business Combinations'). From the date that control was lost, OMAM has
been equity accounted as an associated undertaking. At 30 June 2017 the investment in OMAM as an associated undertaking has been classified
as assets held for sale. At 31 December 2016, the total assets and total liabilities of OMAM were classified as assets held for sale and liabilities
held for sale respectively.
The tables below show the summarised profit or loss, comprehensive income and cash flows of the discontinued business.
(a) Income statement from discontinued operations
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Revenue 213 222 503
Expenses (187) (167) (399)
Share of associated undertakings' and joint ventures' profit after tax 3 5 11
Profit on disposal of subsidiaries, associated undertakings and strategic investments - 14 18
Profit before tax from discontinued operations 29 74 133
Income tax expense (6) (20) (29)
Profit after tax from discontinued operations 23 54 104
Attributable to:
Equity holders of the parent 12 38 72
Non-controlling interests - ordinary shares 11 16 32
23 54 104
(b) Statement of comprehensive income from discontinued operations
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Profit after tax from discontinued operations 23 54 104
Items that may be reclassified subsequently to profit or loss
Currency translation differences/exchange differences on translating foreign operations 1 (1) (3)
Other movements - 14 -
Total comprehensive income for the financial period from discontinued operations 24 67 101
Attributable to:
Equity holders of the parent 12 47 69
Non-controlling interests - ordinary shares 12 20 32
24 67 101
(c) Net cash flows from discontinued operations
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Operating activities 12 (49) 14
Investing activities 40 (2) (172)
Financing activities(1) (4) (4) 203
Net cash inflow/(outflow) from discontinued operations 48 (55) 45
(1) Excludes dividend and financing payments made to Old Mutual plc
I2: Assets and liabilities held for sale
The table below summarises the assets held for sale in the consolidated statement of financial position, in addition to the IAM segment which are
classified as a discontinued operation for all periods until 19 May 2017. The Group's remaining investment in OM Asset Management plc (OMAM)
has been equity accounted as an associated undertaking from 19 May 2017 and has been classified as an asset held for sale in the consolidated
statement of financial position at six months ended 30 June 2017. Refer to notes A2, B1 and I1 for more information. There are a number of other
assets and businesses within other segments classified as held for sale.
Emerging Old Mutual plc Head
At 30 June 2017 Markets Nedbank Wealth Office Total
Assets
Property, plant and equipment 95 35 3 - 133
Investments in associated undertakings and
joint ventures 65 - - 242 307
Total assets 160 35 3 242 440
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 undertakings 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
Emerging Markets
Current and prior period
At 30 June 2017, Emerging Markets classified GBP95 million (December 2016: GBP116 million) of investment properties as held for sale as it is expected
that they will be sold within 12 months of the reporting date. These investment properties form part of the policyholder assets and the sale will have
no impact on profit or loss of the Group.
On 27 April 2017, the Group announced that it has agreed to sell its 26% stake in Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) to its
joint venture partner Kotak Mahindra Bank Limited. The transaction is subject to Indian regulatory approvals and is expected to complete in the
second half of 2017. At 30 June 2017, the carrying value of Kotak included within assets held for sale was GBP65 million.
Nedbank
Current and prior period
Following an internal review of its own office space requirements, at 30 June 2017, Nedbank has classified as held for sale buildings with a carrying
value of GBP34 million (December 2016: GBP17 million) that are no longer required and which are being marketed for sale.
Old Mutual Wealth
Current and prior period
Old Mutual Wealth has identified property, plant and equipment of GBP3 million (December 2016: GBP4 million) as held for sale.
Prior 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. The sale completed
on 9 January 2017. At 31 December 2016, total assets of GBP6,474 million and total liabilities of GBP6,264 million were included as held for sale.
plc Head Office
Current period
At 30 June 2017, Old Mutual plc classified its equity accounted investment in OM Asset Management plc (OMAM) as held for sale as the
anticipated sell down of 17.2 million OMAM shares to HNA Capital US is expected to complete in the second half of 2017. After the sale, the
Group's holding in OMAM's share capital is expected to be approximately 5.5% and it will accounted for as an investment at fair value through profit
or loss. Refer to note A2 for more information.
At 30 June 2017, the market value of the Group's investment in OMAM, based on its quoted share price was GBP251 million compared to the carrying
value of GBP242 million. The Group has therefore concluded that the investment in OMAM is not impaired.
Institutional Asset Management
Prior period
On 9 March 2016, the Group announced its managed separation strategy, which included the phased reduction of its majority stake in OM Asset
Management plc (OMAM), part of the Institutional Asset Management segment. At 31 December 2016, total OMAM assets of GBP1,959 million and
total liabilities of GBP781 million were included as held for sale. During the six months ended 30 June 2017, the Group's interest in OMAM decreased
from 51.7% to 20.1%. The residual equity accounted investment in OMAM was classified as assets held for sale, and is now disclosed within the
Old Mutual plc segment.
Sponsor
Merrill Lynch South Africa (Pty) Ltd
Joint Sponsor:
Nedbank Corporate and Investment Banking
Date: 11/08/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
