Old Mutual plc 2016 Interim Results - Part 1

RNS Number : 8719G

Old Mutual PLC

11 August 2016

NEWS RELEASE

Ref 477/16

11 August 2016

Old Mutual plc Interim results for the half year ended 30 June 2016

Old Mutual plc, currently separating itself into four standalone businesses, known as the managed separation, today publishes its results for the six months to 30 June 2016.

Bruce Hemphill, Group Chief Executive, said:

"The first six months of the year were characterised by volatile currencies and lower average equity markets but our underlying performance demonstrated the strength of our franchises and the positive momentum within each of our businesses.

"We are making good progress with our managed separation strategy we announced in March 2016 and which we expect to be materially complete by the end of 2018. At this stage, we are doing a lot of preparation work that will lay the foundations for the future and is critical for success. We are clear about the task at hand and we are absolutely confident that this is the right strategy to unlock value."

Summary

· The macro-environment has been challenging with a weaker rand against the first half of 2015 and lower average market levels. Pre-tax adjusted operating profit (AOP) of £708 million down 9% in constant currencies, down 22% in reported currency;

· IFRS pre-tax profit of £608 million (H1 2015: £683 million);

· AOP earnings per share 8.0p down 11% in constant currencies, 22% in reported currency;

· First interim dividend of 2.67p; second interim dividend expected to be in the mid to upper end of the cover range of 2.5 to 3.5 times AOP;

· Adjusted NAV at 193.3p per share (FY 2015: 178.9p per share) boosted primarily by a strengthened rand and US dollar from year-end levels;

· NCCF of £3.5 billion (excluding Rogge), down 13% in constant currencies; FUM (excluding Rogge) at £342.7 billion up 4% in constant currencies and up 13% in reported.

Business performance

Business performance shown below is in the functional currency of each business. During the six months, each of our businesses experienced challenging conditions in their main markets.

· OMEM: solid operational performance, with a strong contribution from the South African life business:

o APE sales up 25%; VNB up 28%; ROEV up to 14.8% from 12.3%;

o AOP down 5% to R5.7 billion due to underwriting losses during a period of weak economic growth;

o IFRS pre-tax profit of R5.5 billion (H1 2015: R5.4 billion).

· Nedbank: very strong performance from its South African operations:

o Credit loss ratio reduced to 0.67% (H1 2015: 0.77%) whilst strengthening portfolio coverage ratios;

o Headline earnings growth of 2% to R5.4 billion including Ecobank Transnational Inc. (ETI), earnings up 20% excluding ETI;

o IFRS post-tax profit attributable to Old Mutual equity holders of R3.0 billion (H1 2015: R3.0 billion).

· OMW: good underlying momentum, although lower profits due to Heritage charges, operational challenges and tough markets:

o NCCF up 39% to £3.2 billion; benefits of vertical integration - Intrinsic provided 33% of Platform NCCF and 26% of OMGI NCCF;

o AOP down 31%, including a £21 million charge from changes to customer fees in Heritage book and lower operating margins;

o IFRS pre-tax loss of £(17) million (H1 2015: £(27) million), following disposal write-offs and IT expenditure.

· OMAM: Lower profits with negative net flows following hard asset disposals:

o Strategic delivery: acquisition of Landmark Partners (estimated to complete in August 2016); $400 million debt raising in July 2016;

o FUM of $218.8 billion up 3% (FY 2015: $212.4 billion); NCCF of $(0.5) billion providing positive $3.9 million of annualised revenue impact;

o AOP down 29% to $91 million, excluding exceptional performance fee earned in H1 2015 AOP down 17%;

o IFRS pre-tax profit of $97 million (H1 2015: $116 million).

Managed separation

The managed separation process, announced on 11 March 2016, is progressing well. As previously stated, implementation will require a balance to be struck between value, cost, time and risk and using the full flexibility of the capital management policy:

· Significant work is being undertaken to prepare the businesses for independence, which is critical for success of managed separation. Business readiness, particularly for OMEM and OMW, is the main determinant for the timing of the process;

· Redesign of the head office with new purpose of supporting managed separation: around 50% headcount reduction by year-end, leading to a £10 million run rate saving from 2017;

· Agreed to sell Old Mutual Wealth Italy to ERGO Italia (owned by Cinven) for a consideration of €278 million, completing OMW's withdrawal from Continental Europe, expected to complete 2017;

· Accelerated monetisation from OMAM to plc of Deferred Tax Asset (DTA) and seed capital arrangements estimated at between $270-280 million on a fair value best estimate actuarial basis, between 2016-2018;

· Capital markets event to be held on 11^th October 2016 in London, including presentations from each business.

Current trading and outlook

The second half of the financial year has started in line with management's expectations. An uncertain environment continues in our three largest markets of South Africa, UK and US which may lead to further challenges, although:

· In the UK, OMW is in a strong position given its model of providing advice-driven investment solutions to financial advisers and customers via a vertically integrated, multi-channel business. Despite uncertainty over investor sentiment we have seen positive inflows of money since the EU referendum result, although we do not expect the first half's strong NCCF to repeat in H2;

· OMEM expects economic conditions in South Africa to remain tough with consumers under pressure. However, the business is in good shape and we continue to focus on our customers by offering a broad and innovative product suite that meets their needs through all stages of the economic cycle.

· Nedbank expects growth in Diluted Headline Earnings Per Share (DHEPS) in 2016 to be positive but lower than the growth achieved in 2015 and the target;

· OMAM should benefit from its soon to be completed acquisition of Landmark, which has been successfully financed in the US bond market;

We announced a new capital management policy in March, the aim of which is to provide flexibility, recognising the need to balance complex considerations, including the background of volatile markets, costs associated with the managed separation and continued investment in the businesses while increasing their capital strength.

We are still at an early stage in the managed separation with significant variables ahead of us and therefore any dividend under consideration for the year ending 31 December 2016 is likely to be at the mid to upper end of the cover range of 2.5 to 3.5 times adjusted operating profit. The full effects of the capital management policy on the dividend will be felt in the second half.

Old Mutual plc interim results for the half year ended 30 June 2016

Enquiries

Investor Relations
Patrick Bowes	UK	+44 20 7002 7440
Dominic Lagan	UK	+44 20 7002 7190
Sizwe Ndlovu	SA	+27 11 217 1163
Media
William Baldwin-Charles		+44 20 7002 7133
		+44 7834 524 833

Notes to the financial summary on the front page 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.

· Adjusted Operating Profit (AOP) reflects the Board's view of the underlying long-term performance of the Group. AOP is a measure of profitability which adjusts the IFRS profit measures for the specific items detailed in the notes in Part 3 of these Interim results and, as such, it is a non-GAAP measure. A reconciliation between IFRS and AOP is shown on pages 15 to 16 of the finance director's report.

For core life assurance and property and casualty businesses, AOP is based on a long-term investment return, including returns on investments held by life funds in Group equity and debt instruments, and is stated net of income tax attributable to policyholder returns. For all core businesses, AOP excludes goodwill impairment, the impact of accounting for intangibles acquired in a business combination and costs related to completed acquisitions, revaluations of put options related to long-term incentive schemes, profit/(loss) on acquisition/disposal of subsidiaries, associated undertakings and strategic investments, fair value profits/(losses) on certain Group debt instruments and costs related to the fundamental restructuring of continuing businesses. AOP includes dividends declared to holders of perpetual preferred callable securities. Old Mutual Bermuda is treated as a non-core and discontinued operation in the AOP disclosure. As such it is not included in AOP. Refer to note B1 of these Interim results for further information on the basis of segmentation.

Adjusted operating earnings per share is calculated on the same basis as AOP. It is stated after tax attributable to AOP and non-controlling interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment trusts.

· Term "plc" reflects the way in which the Board and Executive management view Old Mutual plc and its operating businesses in the period of managed separation.

Cautionary statement

This announcement contains forward-looking statements relating to certain of Old Mutual plc's plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond Old Mutual plc's control, including, among other things, global, and UK and South African domestic, economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties, future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and regulations in territories where Old Mutual plc or 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 out in its forward-looking statements. Old Mutual plc undertakes no obligation to update any forward-looking statements contained in this announcement or any other forward-looking statements that it may make.

Notes to editors

A webcast of the presentation on the interim results and Q&A will be broadcast live at 09:00 am UK time (10:00 am South African time) today on the Company's website www.oldmutual.com. Analysts and investors who wish to participate in the call should dial the following numbers and quote the pass-code 53567006#:

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 2016), using pass-code 675078#:

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.oldmutual.com.

The following documents, containing financial data for 2016 and 2015, are also available from the Company's website.

· Presentation slides

· Appendix slides

· Financial Disclosure Supplement

· OMEM MCEV Supplementary information

· First interim dividend announcement

Sterling exchange rates

		H1 2016	H1 2015	Appreciation / (depreciation) of local currency against sterling
South African Rand	Average Rate	22.10	18.16	(22%)
South African Rand	Closing Rate	19.49	19.11	(2%)
US Dollar	Average Rate	1.43	1.52	6%
US Dollar	Closing Rate	1.33	1.57	15%

Contents
News Release	1
Part 1 - 2016 Interim Review	5
Plc Executive Review	6
Overview	6
Managed Separation	6
Business review	7
Capital management	10
Adjusted plc NAV	10
Board changes	10
Outlook	10
Part 2 - Detailed Business Review	11
Part 3 - Financial Information	63

Plc Review

Plc highlights ¹	H1 2016	H1 2015 (constant currency)	change	H1 2015 (as reported)	change
Plc highlights ¹	H1 2016	H1 2015 (constant currency)	change	H1 2015 (as reported)	change
IFRS profit pre-tax (£m) ²	608	560	9%	683	(11%)
IFRS profit post-tax attributable to equity holders of the parent (£m) ²	284	222	28%	281	1%
Adjusted operating profit (pre-tax, £m)	708	776	(9%)	904	(22%)
Adjusted operating earnings per share (pence)	8.0p	9.0p	(11%)	10.3p	(22%)
Return on equity ³	11.5%			15.0%	(350bps)
Adjusted net asset value per share (pence) ^{4, 5}	193.3p	200.2p	(3%)	178.9p	8%
Net client cash flow (£bn)	2.0	1.2	67%	1.4	43%
Net client cash flow (excluding Rogge) (£bn)	3.5	4.0	(13%)	4.2	(17%)
Gross sales (£bn)	16.0	14.5	10%	15.6	3%
Total customer numbers (millions)	19.4			17.7	10%
Funds under management (£bn) ⁶	342.7	353.3	(3%)	327.9	5%
Interim dividend for the year (pence)	2.67p			2.65p	1%
¹ The figures in the table are in respect of core continuing operations only, unless otherwise stated
² A full reconciliation of IFRS profit to AOP is shown later in Part 2 of this announcement
³ ROE is calculated as AOP (post-tax and NCI) divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities). It excludes non-core operations
⁴ The adjusted Plc NAV per ordinary share uses an MCEV valuation basis for Emerging Markets covered business and the UK Heritage business in Old Mutual Wealth as well as the market value of listed subsidiaries. Other businesses and other assets are included at IFRS NAV
⁵Comparative is at 31 December 2015

⁶ On 31 May 2016, plc completed the sale of its interest in Rogge Global Partners Limited to Allianz Global Investors GmBH

Overview

A challenging macro in our key markets

This has been a challenging six months for Old Mutual plc. In our preliminary results announcement on 11 March 2016 we noted that an extended period of rand weakness would have an impact on our reported sterling results and lower equity market levels would put pressure on revenues. During the six months, the average value of the rand versus sterling was 22% lower compared to the first half of 2015 while the average value of USD was 6% stronger. The average of the FTSE-100 over the first half of the year was 11% lower against the first half of 2015; the average of the JSE All Share was 2% lower against the comparator and in the US, the average of the Russell 1000 Value was 7% lower.

Given the impact of these external factors, Old Mutual's performance was in line with our expectations. Net client cash flow (NCCF), excluding Rogge, was £3.5 billion, down 13% against H1 2015 in constant currencies, largely due to outflows in OM Asset Management (OMAM) from hard asset disposals, although Old Mutual Wealth (OMW) had NCCF up 39% to £3.2 billion. Gross sales grew by 10% in constant currency, 3% in reported, to £16.0 billion, with funds under management at £342.7 billion, up 5% from the year-end in reported currency, and 3% lower in constant currency. AOP was £708 million, down 9% in constant currencies, against a very strong comparator, and down 22% in reported currency. The IFRS pre-tax profit was £608 million for the six months ended 30 June 2016 (H1 2015: £683 million).

Managed Separation

Strategy: maximising value for shareholders

At Old Mutual's preliminary results for the year ended 2015, the company announced that the long-term interests of its shareholders and other stakeholders would be best served by a managed separation of the Group into its four constituent businesses: Old Mutual Emerging Markets (OMEM), Nedbank, OMW and OMAM. The managed separation will be effected in a manner that maximises value to shareholders over time and we expect it to be materially complete by the end of 2018. Implementing the managed separation will require a balance to be struck between the key criteria of value, cost, time and risk. It will be conducted within our risk appetite and using the full flexibility of our capital management policy.

The managed separation strategy remains the optimal route to create long-term value for our shareholder and other stakeholders, and has limited dependency on market conditions.

We have made it clear that there are a number of different means by which to achieve the managed separation. We have set out below our current plans which have been formulated following extensive engagement with our key stakeholders and technical advisors. These discussions are continuing. It should be noted that the managed separation of a diverse multi-national group is a highly complex matter. Thus, the initial plans outlined below remain subject to change as a result of factors such as stakeholder consent and/or the readiness of the underlying businesses. Equally, we may receive approaches for some or all of our businesses. We will evaluate these carefully and rigorously, balancing the criteria of value, cost, time and risk relative to our broad stakeholder interests.

We indicated at our 2016 AGM on 28 June that our current plan for managed separation envisages 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's shareholders. One will consist principally of the Old Mutual Wealth operations, with the primary means of achieving this being through a demerger, and the other will consist principally of the Emerging Markets operations through the creation of a new South African holding company.

We intend to continue with the phased reduction of our 66% holding in OMAM in an orderly manner while supporting the development of its strategy. Through Old Mutual plc's asset disposals and use of its surplus cash, we intend to materially reduce Old Mutual's holding company debt.

Following the creation of the new South African holding company, we intend to distribute, in an orderly manner, a significant proportion of the Group's shareholding in Nedbank to the shareholders on the register of the new South African holding company at that time, leaving OMEM as the principal business within that group. Through its ownership of Old Mutual Life Assurance Company (South Africa), the new South African group will retain an appropriate strategic minority stake in Nedbank, with the exact level still to be determined together with Nedbank, based on OMEM's commercial relationship with Nedbank and influenced by the implications of the incoming Twin Peaks regulations. The boards of directors and management teams of Old Mutual and Nedbank continue to work closely together on these matters.

Strategy execution: preparing the businesses for independence

We are making good progress on delivering our strategy. The underlying businesses are fundamentally strong, with good franchises and competitive market positions.

We are now in the process of preparing the businesses for complete independence. This is a critical stage for the successful delivery of the managed separation and business readiness will be the main determinant for the timing of the separation. The process of preparation, which will be more significant for the unlisted businesses than for the two already listed, will be done at an appropriate pace to ensure continued focus on driving enhanced performance to secure long-term sustainable competitive advantage.

For those businesses not yet listed in particular, it means having the right strategy; delivering operationally; having appropriate operating models and cost bases; having capital strength and a strong and sustainable dividend paying capacity; as well as having the right structures, governance, boards and management. We will continue to work with and invest in the businesses to ensure they have these capabilities. For OMW and OMEM, it will also mean that each business has an infrastructure that is appropriate for a listed-company and will allow them to discharge the obligations that come with being a listed company. There will be costs associated with this work and our flexible capital management policy will allow for this as well as for the businesses to continue to invest and retain capital if appropriate.

We are taking a number of steps to accelerate the realisation of cash as part of the managed separation and to address any residual risks. We have negotiated an acceleration of the seed capital investment facility and DTA receipts from OMAM, the value of which are estimated at $270 to $280 million on a fair value best estimate actuarial basis, between 2016-2018. We have agreed to sell Old Mutual Wealth Italy to ERGO Italia, owned by Cinven, for a consideration of €278 million. We expect completion in 2017.

Additionally, we are in the final stages of a fundamental restructuring of the plc head office in London. Previously, the head office was structured to provide functional support for an integrated financial services company, whereas now it is being reconfigured to support a holding company. Plc head office now has two functions. The first function is to continue to work with the businesses in delivering enhanced performance; managing Group debt obligations, central cost reductions and distributions to shareholders; and also to fulfil its on-going regulatory obligations. The second function will be to support and deliver the managed separation. Where appropriate, we will devolve functions from the head office to the businesses according to their post-separation requirements.

As part of the restructure, we have identified a further reduction of headcount by up to 60 from head office by the end of the year. Following that, we will have reduced headcount by around 50% from the plc head office, leading to run rate savings of £10 million, and will have broadly the right complement of staff although we would anticipate further headcount attrition influenced by how the managed separation progresses.

Business review

Old Mutual Emerging Markets

OMEM delivered a solid operational performance in a tough economic environment, which has put pressure on the South African consumer, with strong growth in covered sales, increased gross written premiums and stable margins.

AOP of R5.7 billion was down 5% against the comparative period mainly due to increased claims in the South African Corporate business and Property & Casualty, as well as the interest on the additional debt issued in H2 2015. IFRS pre-tax profit was R5.5 billion (H1 2015: R5.4 billion). Gross sales declined 2% from H1 2015, with a 25% increase in covered sales offset by a 13% reduction in non-covered sales, due primarily to two large single premium sales totalling R13 billion in the comparative period not repeated and a trend of lower savings in South Africa in response to the economic environment. NCCF declined 46% from a very strong comparative period, as the tougher economic conditions in South Africa saw an increasing number of our customer's access savings and investments through divestments and partial surrenders. FUM was up 4% from the year-end at R1.0 trillion.

Investment performance within OMIG continues to be strong with domestic SA equity returns in the upper quartile relative to peers and our emerging suite of global product being led by our Global Emerging Markets strategy also top quartile amongst its global peers over the last three years. Whilst our multi asset portfolios suffered a short term setback around the prior year-end, they have now recovered well into the second quarter. 2016 also sees OMIG building on its successful year in 2015, with continued strong NCCF performance across the business.

OMEM continues to build its client base through focusing on client centric products and via expanding its distribution channels. Client numbers totalled 11.0 million at the half year, up from 10.7 million at the end of 2015, with 4.4 million in sub-Saharan Africa (ex-South Africa). Our phased IT transformation programme, which will enhance our customer experience, remains a key focus.

In East Africa, management continue to focus on strengthening the UAP businesses, management and efficiencies. Good progress has been made on integrating the businesses and our current focus is on completing the remaining merger-related transactions to fully leverage the integrated UAP and Old Mutual businesses. We will shortly commence with the roll out of a dual brand across the region and ultimately intend to list a combined entity on the Nairobi Stock Exchange.

Free surplus generated by operations rose 14% to R3.0 billion, representing 74% of post-tax AOP, of which R2.7 billion (H1 2015: R2.2 billion), was remitted to plc.

Nedbank

Nedbank Group reported headline earnings of R5.4 billion, an increase of 2% for the six months. This translates to IFRS post-tax profit attributable to Old Mutual equity holders of R3.0 billion (H1 2015: R3.0 billion). This earnings growth was underpinned by strong net interest income (NII) and non-interest revenue (NIR) growth. The credit loss ratio fell to 0.67% (H1 2015: 0.77%) with impairments remaining below the mid-point of our through-the-cycle target range. This was achieved while strengthening portfolio coverage ratios.

Headline earnings includes a loss in associate income of R446 million (H1 2015: R426 million profit) relating to our 21.8% share of ETI fourth-quarter 2015 loss of $199 million and first-quarter 2016 profit of $71 million. Associate income from ETI is equity-accounted one quarter in arrears using ETI's publicly disclosed results. Excluding both the loss in associate income of R446 million and funding costs of R157 million relating to ETI, headline earnings grew strongly by 20.1% to R6.0 billion.

Diluted headline earnings per share (DHEPS) increased 1.6% to 1,119 cents (H1 2015: 1,101 cents) and HEPS grew by 0.6% to 1,135 cents (H1 2015: 1,128 cents). Return on average ordinary shareholders' equity (ROE), excluding goodwill, of 15.7% (H1 2015: 17.3%) and ROE of 14.6% (H1 2015: 16.0%), are reflective of the lower return on assets (ROA) of 1.19% (H1 2015: 1.28%) resulting from the above-mentioned loss in equity accounted earnings from ETI. Excluding the loss in ETI, ROA was 1.32%. Our economic profit (EP) decreased to R408 million (H1 2015: R1,328 million) largely as a function of Nedbank Group's cost of equity (COE) increasing to 14.4% (monthly average for the period) from 13.0%. This follows the increase in the SA long-bond yield earlier in the year. In more recent months SA long-bond rates and our COE has reduced from the peak in December 2015.

Our Basel III common-equity tier 1 (CET1) ratio is 11.6% (December 2015: 11.3%) and remains within our Basel III 2019 internal target range, reflecting a well-capitalised balance sheet. Our liquidity coverage ratio (LCR) of 93.1% for the second quarter of 2016 (December 2015: 88.5%) is above the regulatory requirements of 70% for 2016 and incorporates an appropriately sized buffer for volatility in this ratio. Nedbank Group's portfolio of high-quality liquid assets (HQLA) and other sources of quick liquidity amounted to R167.7 billion (December 2015: R160.7 billion).

Old Mutual plc received R1.5 billion (H1 2015: R1.5 billion) of dividends, in respect of its 54% ownership of Nedbank.

Old Mutual Wealth

Old Mutual Wealth's AOP of £104 million for the first half of 2016 was 31% lower than the prior year (H1 2015: £151 million). IFRS pre-tax loss was £(17) million (H1 2015: £(27) million). Good underlying momentum has been achieved although lower profits were generated due to operational challenges and tough markets. Underlying performance in "Invest and Grow" business has been satisfactory, with AOP of £90 million, down 11% on the comparative period. In the "Manage for Value" business AOP was 72% lower at £14 million. We have incurred one-off charges of £21 million to ensure better outcomes for our customers in our Heritage book of business, through capping exit fees at 1% on pension products for the over 55s and changing some fee structures ahead of the expected regulatory deadline of March 2017. H1 2015 also included £7 million of profits from our Swiss business which was sold in H2 2015. Additionally, reshaping and strengthening the executive committee incurred £5 million of restructuring charges, and £2 million of costs were incurred associated with the managed separation. We continued to invest in governance and controls.

Despite the headwinds from the pre-referendum uncertainty which impacted on markets resulting in the worst first quarter for net retail flows for the industry in 20 years, OMW had a very strong NCCF of £3.2 billion, up 39% on the prior year. Flows into Old Mutual Global Investors (OMGI) were particularly good. FUM was £111.2 billion at the end of the half, up 7% from the year-end. We continue to see the benefits of our vertically integrated model. Intrinsic continues to drive increasing flows across our business and in the half accounted for 16% of Platform sales and 33% of Platform NCCF as well as 26% of OMGI's NCCF. OMGI now manages 14% of Platform assets.

At H1 2016, investment performance at OMGI showed 67% of single strategy funds above target over 3 years, compared to 67% at December 2015. Our largest absolute return fund, Global Equity Absolute Return fund has delivered 4.5% per annum over three years and continues to outperform competitors, despite slightly below target performance in Q2 2016. The fund continues to experience strong inflows indicating that client sentiment remains positive, as investors continue to look for alternative investment options delivering positive returns in the low interest rate environment.

On 3 March 2016 the Financial Conduct Authority (FCA) published a report setting out its findings from its thematic review of the fair treatment of long-standing customers in life insurance. At the same time, the FCA announced that it had commenced investigations into the behaviour of 6 of the 11 firms included in the thematic review, including Old Mutual Wealth. We continue to cooperate fully with the FCA's investigation.

We are building the core back-end UK Platform administration system which covers workflow, client administration, product rules engine, regulatory requirements and links into the 25 external systems which, amongst other things, are required to verify banking and fund valuations. Since March, we have been focused on increasing risk mitigation and this is being worked through with our suppliers and project advisers. We are planning the testing processes in advance of the shift in focus and, in due course, towards development of the UK Platform front end system. So far the programme has cost £225 million which reflects the benefit of a £27 million receivable from our suppliers as they share some of the development expenses.

As announced in March, we brought in KPMG to do a full independent review and they will continue to provide assurance through the Programme. Our suppliers, IFDS and DST are now going through a similar third party assurance process. Since March, Accenture has been appointed as our programme delivery partner across the entirety of the programme. We have enhanced risk management, oversight and reporting across the entire programme. We are in advanced and constructive negotiations regarding the commercial contracts, so that our partners bear a greater proportion of both the delivery risk and the financial risk.

Our new Chief Operating Officer, Steve Braudo, who joined us on 1 June 2016, has taken accountability for the programme and is overseeing the further assurance process and leading discussions with our suppliers. We will give a fuller update at the plc Capital Markets day in October.

On 9 August 2016, we announced that we agreed to sell Old Mutual Wealth Italy to ERGO Italia, owned by Cinven, for a consideration of €278 million in cash, plus interest to completion. The sale is the final part of the divestment of Old Mutual Wealth's continental European businesses allowing us to focus on our core UK and cross-border markets. A goodwill impairment loss of £44 million has been recognised in profit or loss as the net asset value of the business disposed of exceeds the expected net proceeds. The related assets and liabilities have been classified as held for sale.

Free surplus generated from operations was £82 million, down 29%, of which £30 million (H1 2015: £57 million) was paid to Old Mutual plc, with £39 million (H1 2015: £32 million) used for funding of our IT transformation programme, on a post-tax basis.

OM Asset Management

OMAM generated solid results in a challenging environment. While investment performance and net client cash flows were impacted by continued volatility in the markets, FUM grew 3% from 31 December 2015. AOP of $91 million was down 29% in H1 2016, with a significant portion of the difference due to an extraordinary performance fee in H1 2015 and the impact of lower average FUM in H1 2016. IFRS pre-tax profit was $97 million (H1 2015: $116 million).

Excluding the pre-tax AOP impact of exceptional performance fees earned in an alternative strategy of $19 million in H1 2015, AOP decreased 17% (H1 2015: $109 million) primarily due to declines in revenues from US and global/non-U.S. equity products.

OMAM's FUM grew 3% to $218.8 billion (31 December 2015: $212.4 billion) primarily due to $6.8 billion of market appreciation (contributing 3% growth) and $(0.5) billion of negative net client cash flows. Net client cash flows during the period are expected to result in a $3.9 million positive impact to annualised revenue, representing 0.5% of beginning of period run rate management fee revenue with inflows in higher fee non-U.S. and alternative products.

OMAM's aggregate investment performance is reported as weighted by the revenue generated by its products. As of 30 June 2016, assets representing 36%, 63%, and 72% of revenue outperformed benchmarks over the one-, three- and five-year periods (30 June 2015: 70%, 74%, and 89%). On an asset-weighted basis, over the one-, three- and five-year periods ended 30 June 2016, 33%, 51% and 60% of assets outperformed benchmarks, compared to 61%, 61% and 80% at 30 June 2015. The decline in investment performance is primarily related to under-performance in large cap U.S. value and non-U.S. equity products in the volatile markets of the second quarter of 2016.

As equity markets stabilise, OMAM remains focused on improving performance and rebuilding its flow pipeline. Following the announcement in July 2016, the acquisition of its investment in Landmark Partners and the successful public offering of $400 million of senior notes, OMAM has further diversified its business and positioned its balance sheet to support value-enhancing initiatives and appropriate capital management, including future investments in additional new Affiliates specialising in selected diversifying areas of the asset management industry. The acquisition of Landmark is in line with OMAM's clear and focused strategy of acquiring value enhancing asset management capability in key growth classes and also improves the portfolio diversification.

Old Mutual plc received $12.7 million (H1 2015: $15.1 million) of dividends in respect of its 66% ownership of OMAM, and an additional payment of $17.5 million per the original DTA agreement.

Capital management during the managed separation

As announced at 11 March 2016, Old Mutual plc will apply a capital management policy in respect of returns to shareholders for the period of the managed separation. We announced a new capital management policy in March, the aim of which is to provide flexibility, recognising the need to balance complex considerations, including costs associated with the managed separation, continuing to invest in the businesses to drive enhanced performance and increasing the capital strength of the businesses. Given this, we anticipate taking a conservative approach to the full year dividend. Whereas in 2015 and the first half of 2016, plc cash contributed to paying dividends to shareholders, dividends going forward will reflect the capacity for distributions from the underlying businesses.During the period of the managed separation, we also intend to reduce the Group holding company's current debt materially, mainly through asset disposals over time. Subsequently and to the extent that excess capital is generated, the Board will consider further returns of capital to shareholders.

The proceeds from the sale of Old Mutual Wealth Italy, which are expected to be received in 2017, will be used for general corporate purposes, including providing plc with the flexibility in how businesses fund their investment programmes.

We have today announced the first interim dividend under the new policy which is 2.67p. This will be paid on 28 October 2016.

Adjusted plc NAV per ordinary share

Adjusted plc NAV per ordinary share was 193.3p compared to 178.9p at 31 December 2015. The increase is largely due to rand and US dollar currency translation gains of 21.3p, and general business growth of 2.5p, partially offset by a decrease of 6.4p due to dividend payments, and a net loss of 3.0p due to adverse movements in the market value of Nedbank and OMAM.

Board changes

Further to the announcement we made on 15 September 2015, Paul Hanratty stepped down from the Board of Old Mutual plc on 12 March 2016. On 1 January 2016. Trevor Manuel joined the Board of Old Mutual plc and became a member of the Board Risk Committee.

Outlook

The second half of the financial year has started in-line with management's expectations. An uncertain environment continues in our three largest markets of South Africa, UK and US which may lead to further challenges, although:

· Nedbank expects growth in diluted Headline Earnings Per Share (HEPS) in 2016 to be positive but lower than the growth achieved in 2015 and below the medium-to-long-term target of consumer price index plus GDP growth plus 5%;

· OMAM should benefit from its soon to be completed acquisition of Landmark, the cost of which has been successfully financed in the US bond markets;

Contents

News Release 1

Part 1 - 2016 Interim Review 5

Part 2 - Detailed Business Review 11

Plc Financial Summary 12

Review of Financial Performance (Sterling) 12

Review of Financial Position 23

Emerging Markets 27

Emerging Markets data tables (Rand) 33

Nedbank 39

Nedbank data tables (Rand) 44

Old Mutual Wealth 46

Old Mutual Wealth data tables (Sterling) 50

Institutional Asset Management 53

Non-core - Bermuda 56

Supplementary financial information 59

Part 3 - Financial Information 63

REVIEW OF FINANCIAL PERFORMANCE
IFRS and AOP results for the period
H1 2016 IFRS pre-tax profit was £608 million; £75 million lower than reported in H1 2015 of £683 million. Basic earnings per share was 5.7p for the period ended 30 June 2016, compared with 5.4p in in H1 2015. The plc analyses performance using an alternative profit measure, Adjusted Operating Profit (AOP), which management believes better reflects the sustainable underlying profit generation of the business. AOP performance is described in further detail below. Further explanation of the adjustments between the IFRS to AOP results is included after the analysis of AOP performance.
Analysis of performance for the period ended 30 June 2016
Financial results in this part are on a reported basis unless otherwise stated.
AOP analysis by business unit (£m)	H1 2016	H1 2015	% change

Old Mutual Emerging Markets	260	333	(22%)
Nedbank	345	404	(15%)
Old Mutual Wealth	104	151	(31%)
Institutional Asset Management	58	83	(30%)
Adjusted operating profit before tax	767	971	(21%)
Finance costs	(45)	(42)	(7%)
Long-term investment return on excess assets	10	11	(9%)
Corporate costs	(30)	(24)	(25%)
Other net shareholder income/(expenses)	6	(12)	150%
Adjusted operating profit before tax	708	904	(22%)
Tax on adjusted operating profit	(181)	(235)	23%
Adjusted operating profit after tax	527	669	(21%)
Non-controlling interests - ordinary shares	(137)	(157)	13%
Non-controlling interests - preferred securities	(8)	(10)	20%
Adjusted operating profit after tax attributable to ordinary equity holders of the parent ¹	382	502	(24%)
Adjusted weighted average number of shares (millions)	4,773	4,855	(2%)
Adjusted operating earnings per share (pence)	8.0	10.3	(22%)
¹ IFRS profit after-tax attributable to equity holders of the parent was £284 million for the six months ended 30 June 2016 (30 June 2015: £260 million). A full reconciliation of IFRS profit to AOP is presented on page 15

Adjusted operating profit before tax

Reported pre-tax AOP for the period of £708 million was 22% lower than in the comparative period (£904 million), of which 13% was due to foreign exchange movements. The average rand rate against sterling was 22% weaker and although rand weakness was slightly offset by stronger average US dollar rates (US dollar up 8% against sterling). Financial markets also created headwinds for investment returns and asset based fees. On average the major market indices in the UK, SA and US were down 11%, 2% and 7% respectively.

Detailed financial reviews of each of the plc's businesses are set out later in this document, the highlights are summarised below.

OMEM delivered a solid operational performance, although reported pre-tax AOP of £260 million for the period was 22% lower than in H1 2015 of £333 million. The weaker rand had a significant impact on the sterling result. H1 2016 rand reported pre-tax AOP of R5,735 million for the period, was 5% lower than in the comparative period of R6,044 million. The South African businesses contributed 89% of the total OMEM result. H1 2016 South Africa profit was 3% lower than in H1 2015, largely due to poor underwriting performance in the Property & Casualty and Corporate businesses. Within South Africa, the OMIG and Retail Affluent businesses were 3% and 1% lower respectively. Mass Foundation pre-tax AOP was 7% higher, driven by expense savings and lower credit losses. Outside of SA, strong results in Latin America (31% higher) were offset by lower profitability in the rest of Africa (4% down) and Asia (down 32%), where strong performance in India was more than offset by the one-off realised gains for China in H1 2015.

Nedbank's sterling reported earnings of £345 million, were 15% lower than in the 2015 comparative period (£404 million). As with OMEM, the weaker average rand rate was a significant driver of this. H1 2016 rand reported pre-tax AOP was 4% higher at R7,628 million (H1 2015; R7,339 million). The Nedbank result was adversely affected by associate losses and funding costs relating to its 21.8% investment in ETI. Excluding these losses, Nedbank's H1 2016 headline earnings were 20% higher than in H1 2015. NIR improved by 9% benefitting from retail price increases and improved cross selling. NII improved by 12% due to growth in average interest-earning banking assets and a slight improvement in net interest margin. Credit loss ratio of 0.67% showed continued improvement compared with 0.77% reported in H1 2015, whilst continuing to strengthen balance sheet impairment ratios.

The H1 2016 Old Mutual Wealth pre-tax AOP outcome of £104 million was 31% lower than in H1 2015 (£151 million), £21 million (45%) of the £47 million decline is attributable to the one off effect of revised charging structures applied in the legacy business to ensure better customer outcomes by capping exit fees at 1% and restructuring of other fees. There were also one off employment related costs totalling £10 million, comprising an LTIP of £5 million in Intrinsic, in line with the original acquisition terms and costs of £5 million related to reshaping the executive committee and governance. Underlying performance of the 'Invest and Grow' business was satisfactory. It reported profit of £90 million down 11% compared to H1 2015, overall margins held up well to market pressure due to increased vertical integration and improved margins in OMGI. However, the FTSE 100 was down 11% on average in H1 2016, compared with H1 2015 and lower average market levels created pressure on fund based fees.

Institutional Asset Management reported a 30% reduction in H1 2016 pre-tax AOP, down from £83 million in H1 2015 to £58 million mainly due to exceptional performance fees in the comparative period of $19 million that did not recur. Normal course of business performance fees were also reduced given challenging investment markets, and asset based fees reduced in light of lower average funds under management, following market declines and outflows during the second half of 2015.

Finance costs

Finance costs increased due to the re-financing activity in November 2015, with the interest costs of a new £450 million Tier 2 instrument paying a coupon of 7.875% greater than the saving of interest costs from the redemption of the €374 million bond which paid a coupon of 5%.

Long-Term Investment Return on excess assets

Long Term Investment Returns of £10 million in H1 2016 relate to assumed levels of returns on shareholder funds managed by OMEM in excess of statutory capital requirements. The decrease of £1 million compared with £11 million in H1 2015 was due to the weaker rand. Long Term Investment Return rates were unchanged and levels of excess assets were at comparable levels with the prior period.

Corporate costs

Corporate costs of £30 million in H1 2016 are stated net of recharges to businesses of £12 million. These recharges are currently recognised as operating costs by the underlying businesses. The recharges applicable to each business are set to reduce in light of the plc head office restructuring work, and from 2017 we intend to state the plc corporate costs gross, and remove the recharges from the businesses to facilitate clearer understanding of the standalone cost base of each business. This will help to reflect clearly the progress being made in the phased reduction of the plc Head Office.

The table below shows costs recharged to the business units for HY 2016 and FY 2015.

Corporate cost recharges H1 2016 (£m)	Old Mutual Emerging Markets	Nedbank	Old Mutual Wealth	Institutional Asset Management	Plc	Total
Gross corporate costs	-	-	-	-	42	42
Recharges	4	1	6	1	(12)	-
Reported plc corporate costs	4	1	6	1	30	42

Corporate cost recharges FY 2015 (£m)	Old Mutual Emerging Markets	Nedbank	Old Mutual Wealth	Institutional Asset Management	Plc	Total
Gross corporate costs	-	-	-	-	80	80
Recharges	9	2	11	1	(23)	-
Reported plc corporate costs	9	2	11	1	57	80

Corporate costs after recharges of £30 million in H1 2016 were £6 million higher than in H1 2015 (£24 million), £2 million of this increase was due to increased staff costs following new appointments at the plc head office to support the delivery of the managed separation strategy. These new appointments were made before the reshaping of other areas of plc head office activity came into effect late in H1. The remaining £4 million increase in costs was due to the timing of payment of Group corporate insurance payments which were paid during H2 in 2015, and simultaneously, largely, recharged to the businesses.

The restructuring of the Head Office will continue in H2 2016, and is expected to result in a net reduction in head count of 50% over the full year, and to deliver an annual run rate saving of £10 million from 2017 onwards. This equates to 15% to 20% of annual corporate costs. Staff related costs are typically over 50% of corporate costs. However a reduction in corporate costs for 2017 and onwards is likely to depend on the pace and sequencing of the managed separation execution process. Remaining staff will tend to be of a higher cost given the specialist nature of the skills required. Where obligations are still required to be fulfilled and outsourced, the outsourcing will not necessarily deliver cost savings in the near term but allow for future cost flexibility.

Beyond the current round of restructuring we will continue to look for further opportunities to optimise head office activity. However, the ability to do so will be limited by the need to maintain adequate governance, control and Board and management oversight of performance in the near term. There are also significant elements of the non-staff cost base, such as premises that are fixed in the short term, and other costs such as insurance, audit, and share register costs that will remain as long as Old Mutual plc retains its London and Johannesburg listing.

The table below summarises the composition of plc corporate costs in H1 2016:

plc cost summary (£m)	Gross plc corporate costs	Recharges	Reported plc corporate costs
UK employment costs	23	(2)	21
SA employment costs	1	-	1
Group corporate insurance	6	(5)	1
Rent	5	(3)	2
External audit and share register fees	2	-	2
IT and office costs	5	(2)	3
Total	42	(12)	30

Other net shareholder income/(expenses)

Other shareholder's net income of £6 million in H1 2016 represented an improvement of £18 million on net expenses of £12 million in H1 2015. This was largely attributable to unrealised foreign exchange gains on US dollar denominated seed investments of £16 million during H1 2016, and due to the weakening of sterling versus the US dollar immediately after the EU referendum outcome. There was also a £1 million cost related to the implementation of Solvency II in H1 2016, which did not occur in H1 2015. The H1 2016 costs of managed separation of £3 million were comprised of head office restructuring costs of £1 million, and transaction advisory costs of £2 million. Old Mutual plc also incurred costs on behalf of Old Mutual Group Holding (OMGH), largely in relation to the advisory services, which will be required in South Africa following the implementation of Twin Peaks legislation that is expected to be effective in 2017.

Historically a number of costs have been incurred by the head office in relation to the subsidiaries, and included in other shareholder expenses. In order to show more clearly the underlying costs of the businesses, we intend to allocate notionally such costs to the businesses in future, until such time as these costs are directly incurred by the business. The analysis below summarizes such costs in prior periods, with fuller details of the nature of these items for H1 2016:

Shareholder view - Indicative allocation of income/(expenses) to underlying businesses
H1 2016 (£m)	Old Mutual Emerging Markets	Nedbank	Old Mutual Wealth	Institutional Asset Management	Plc	Total
Managed Separation costs	-	-	-	-	(3)	(3)
Brand North costs	-	-	(1)	-	-	(1)
Seed capital gains/(losses)	-	-	-	2	-	2
Solvency II costs	-	-	-	-	(1)	(1)
Share based payment charges	-	-	-	-	(4)	(4)
FX gains/(losses)	-	-	-	12	4	16
SA governance	(4)	-	-	-	-	(4)
Other	-	-	-	-	1	1
Total	(4)	-	(1)	14	(3)	6

H1 2015 (£m)	-	-	(4)	2	(10)	(12)
FY 2015 (£m)	(6)	-	(11)	-	(26)	(43)

Returns on seed investments and related foreign exchange gains and losses can be a significant element of other shareholders net income/expense relating to the underlying businesses. The plc had seed investment valued at £233 million at 30 June 2016, compared with £223 million at 30 December 2015. Any gains and losses on these investments relating to currency translation or underlying investment performance are recorded as other shareholder income or expenses.

The seed portfolio is allocated over a wide range of assets and at 30 June was invested 32% in fixed income, 27% in Hedge Funds, 21% in equities and 19% in alternatives. Based on a 1 in 200 downside scenario, the total value of these investments is estimated to reduce to £196 million.

The table below summarises the seed investments by entity:

Summary of plc Seed investments by entity
Seed investments market value (£m)	H1 2016	1 in 200 event H1 2016	FY 2015
OM Bermuda
Millpencil Limited	67	59	74
Millpencil US	42	23	51
OM Seed Investment (UK) Limited (OMSI (UK) Ltd)	92	84	77
OM plc	8	7	-
Old Mutual Group (UK) Limited (OMGUK)	25	23	21
Total	233	196	223

Tax

The AOP effective tax rate (ETR) for the Group remains at 26%, which is within our expected range. The IFRS ETR is more volatile 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.

Depending on market conditions and profit mix, we expect the Group's effective tax rate (ETR) on AOP to range between 25% and 28%, as previously indicated. As the majority of the Group's profits arise in Emerging Markets and Nedbank, the tax borne by these businesses has a large impact on the group ETR. Both businesses continue to pay tax on AOP close to the South African corporate tax rate of 28%.

The ETR for the Old Mutual Wealth business is generally lower than in the Africa businesses given the lower corporate tax rate in the UK of 20% and in the markets in which the International businesses operate. Interest payments and corporate costs incurred in the UK can be offset against profits in the Old Mutual Wealth business.

Non-controlling interests

Profit attributable to non-controlling interests decreased from £157 million to £137 million, reflecting the lower pre-tax AOP result. The effective non-controlling interests increased from 23% to 26%, reflecting the increased proportion of Group earnings, attributable to Nedbank, which has a significant minority interest and the decrease in the Group's effective interest in OMAM, its US institutional Asset Management business following the further sell-down from 78.8% to 66% in June 2015.

Reconciliation of IFRS to AOP results

The analysis below summarises the reconciling items between the AOP and the IFRS result for the six months to 30 June 2016 and the six months to 30 June 2015:

IFRS to AOP reconciliation	HY 2016		HY 2015
IFRS to AOP reconciliation	Profit	EPS	Profit	EPS
	£m	Pence	£m	Pence
IFRS profit attributable to ordinary equity holders	268	5.7	246	5.4
Dividend on perpetual callable securities (net of tax)	16	0.4	14	0.2
Loss from discontinued operations	-	-	21	0.5
IFRS profit attributable to equity holders of the parent	284	6.1	281	6.1
AOP weighted average number of shares	-	(0.2)	-	(0.6)
Non-core operations - Bermuda	9	0.2	(4)	(0.1)
IFRS profit excluding non-core operations	293	6.1	277	5.7
Adjustments to IFRS to determine AOP	117	2.5	260	5.4
Goodwill and intangible charges	90	1.9	171	3.6
Business disposals	(24)	(0.5)	(2)	-
Long Term Investment Returns	23	0.5	15	0.3
Returns on own debt and equity	5	0.1	26	0.5
Dividends on preferred securities	(9)	(0.2)	(15)	(0.3)
OMAM equity plans	(2)	-	6	0.1
FV (losses) / gains on plc debt	(14)	(0.3)	19	0.4
OMW business transformation costs	48	1	40	0.8
Tax on adjusting items	(24)	(0.5)	(27)	(0.6)
Non-controlling interests on adjusting items	(4)	(0.1)	(8)	(0.2)
Reported AOP after tax and NCI	382	8.0	502	10.3
IFRS weighted average number of shares (m)	4,686	-	4,598	-
AOP weighted average number of shares (m)	4,773	-	4,855	-

H1 2016 IFRS profit attributable to equity holders of the parent of £284 million was similar to that of H1 2015 (£281 million), the AOP outcome after tax and non-controlling interests in both periods was significantly higher, being £382 million and £502 million, respectively. The difference between IFRS profit after-tax and AOP profit after-tax in H1 2016 was less than that in H1 2015 due to the decreased goodwill impairments that are excluded from AOP and increased gains on disposal of businesses and the valuation of group debt that are not recognised in AOP. These items had the effect of reducing the quantum of adjusting items making up the difference from £260 million in H1 2015 to £117 million in H1 2016.

During H1 2016 there were charges of £90 million in respect of goodwill and intangible items excluded from AOP. These include normal amortisation of these assets as well as additional charges of £44 million relating to the treatment of the Old Mutual Wealth Italy business as held for sale. There was also business transformation costs of £48m incurred by Old Mutual Wealth related to the delivery of its UK platform. Another significant item was the adjustment to realise LTIR of £23 million given the adverse impact of market fluctuations in the period. Further detail of the main items split by each business is set out below:

Reconciliation of IFRS to AOP

IFRS to AOP Reconciliation six months ended June 2016	Old Mutual Emerging Markets	Nedbank	Old Mutual Wealth	Institutional Asset Management	Other ²	Discontinued and non-core operations	Total
Profit before tax	246	345	(17)	74	(31)	(9)	608
Income tax expense	(83)	(88)	(6)	(19)	13	-	(183)
Profit from continuing operations after tax	163	257	(23)	55	(18)	(9)	425
Discontinued operations	-	-	-	-	-	-	-
Profit after tax for the financial period	163	257	(23)	55	(18)	(9)	425
Non-controlling interests - ordinary shares	(4)	(113)	-	(16)	-	-	(133)
Non-controlling interests - preferred securities	-	(8)	-	-	-	-	(8)
Profit/(loss) after tax attributable to equity holders of the parent	159	136	(23)	39	(18)	(9)	284
Total adjusting items ¹	33	-	128	(16)	(28)	-	117
Tax on adjusting items	(9)	-	(17)	2	-	-	(24)
Non-controlling interest in adjusting items	(2)	(2)	-	-	-	-	(4)
Discontinued and non-core operations	-	-	-	-	-	9	9
AOP after tax attributable to equity holders of the parent	181	134	88	25	(46)	-	382

IFRS to AOP Reconciliation six months ended June 2015	Old Mutual Emerging Markets	Nedbank	Old Mutual Wealth	Institutional Asset Management	Other ²	Discontinued and non-core operations	Total
Profit before tax	301	407	(30)	78	(77)	4	683
Income tax expense	(116)	(101)	(12)	(18)	4	-	(243)
Profit from continuing operations after tax	185	306	(42)	60	(73)	4	440
Discontinued operations	-	-	-	-	-	(21)	(21)
Profit after tax for the financial period	185	306	(42)	60	(73)	(17)	419
Non-controlling interests - ordinary shares	(8)	(129)	-	(12)	-	-	(149)
Non-controlling interests - preferred securities		(10)	-	-	-	-	(10)
Profit/(loss) after tax attributable to equity holders of the parent	177	167	(42)	48	(73)	(17)	260
Total adjusting items ¹	48	(3)	200	5	10	-	260
Tax on adjusting items	5	1	(26)	(7)	-	-	(27)
Non-controlling interest in adjusting items	(4)	(4)	-		-	-	(8)
Discontinued and non-core operations	-	-	-	-	-	17	17
AOP after tax attributable to equity holders of the parent	226	161	132	46	(63)	-	502
¹Full details of the adjustment applied in determining AOP, are set out in note C1 to the Interim Financial Statements, which can be found in Part 3 of this announcement; explanations follow below
² Principally relates to post-tax central and finance costs

Adjusting items

Old Mutual Emerging Markets

OMEM adjusting items decreased from £48 million to £33 million. These were mainly attributable to a lower amortisation of acquired intangibles and Present Value In Force (PVIF) of £5 million (H1 2015: £12 million), reflecting primarily the acquisition of UAP made in the prior period and short-term foreign exchange fluctuations of £25 million up £18 million on the prior year.

Old Mutual Wealth

Old Mutual Wealth adjusting items have decreased from £200 million to £128 million. Adjusting items in H1 2016 included IT transformation costs of £48 million (H1 2015: £40 million) and amortisation of acquired intangibles and acquired PVIF of £36 million (H1 2015: £46 million). Adjusting items in H1 2015 also included the impairment of goodwill and other intangibles in Skandia Switzerland, prior to its disposal in the second half of 2015 of £94 million. H1 2016 includes the impairment of goodwill and other intangibles of £44 million from the anticipated sale of the Italian business.

Institutional Asset Management

On 31 May 2016, the Group completed the sale of its interest in Rogge Global Partners Limited, a fixed income asset manager, to Allianz Global Investors GmbH. Plc has recognised a profit of £12 million on the disposal of the business.

OMAM received additional income of £2 million (six months ended 30 June 2015: £1 million and year ended 31 December 2015: £1 million) from earn-outs on Institutional Asset Management affiliates disposed of in prior years.

Other and Discontinued and non-core operations

During the period Old Mutual plc received £10 million from Skandia Liv in respect of various matters relating to the completion of the separation of the Skandia Nordic business from the Group. The OM Bermuda operating loss of £9 million included interest payable in respect of Old Mutual Bermuda loan notes issued to Old Mutual plc.

Total Equity and Returns on Equity (ROE)

During the six months ended 30 June 2016 IFRS net assets (and total equity) increased by £953 million from £8,934 million to £9,887 million, at the balance sheet date equity attributable to the shareholders of the parent increased over the period from £6,680 million to £7,258 million.

The table below shows average equity at £6,624 million was lower (average equity at H1 2015: £6,680 million). During the period, equity growth from IFRS profit of £268 million (excluding profit attributable to perpetual preferred callable securities) was more than offset by £299 million of ordinary dividends. Equity at the end of the period has benefitted from the positive foreign currency translation effects of the strengthening rand and dollar rate following the outcome of the UK Referendum on the EU in late June.

The decrease in average equity attributable to shareholders was more than offset by the impact of reduced AOP profits on ROE. Hence ROE measures across the businesses were reduced, as illustrated in the table below:

Return on Equity and Capital Allocation
ROE (annualised basis) H1 2016 (£m)	AOP (post-tax & NCI)	Average shareholder equity excl. Intangibles¹	Return on shareholder equity excl. intangibles²	Average shareholder equity incl. Intangibles	Return on shareholder equity incl. Intangibles
Old Mutual Emerging Markets	181	1,632	22.2%	1,962	18.5%
Nedbank	134	1,671	16.0%	1,903	14.1%
Old Mutual Wealth	88	982	17.9%	2,517	7.0%
Institutional Asset Management	25	31	>100%	638	7.8%
Plc Holding Company	(46)	2,308 ^1,3	n/a	(396)	n/a
	382	6,624	11.5%	6,624	11.5% ⁴
H1 2015	502	6,680	15.0%	6,680	15.0% ⁴
FY 2015	931	6,572	14.2%	6,572	14.2% ⁴
¹ Average shareholders' equity is at 30 June 2016. Business unit 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 ROE
² Calculated as AOP post-tax and NCI divided by average shareholders' equity excluding 'goodwill and other intangible assets'
³ Includes 'goodwill and other intangible assets' and excludes the perpetual preferred callable securities (£273 million) and non-core operations (£95 million)
⁴ ROE is calculated using average ordinary shareholders' equity (i.e. excluding perpetual preferred callable securities) and excludes non-core operations

Old Mutual plc ROE decreased by 3.5% to 11.5%, largely due to a decrease in AOP after tax and non-controlling interest of 24%.

Items such as plc corporate recharges, business costs recognised by Group as other shareholder expenses, excess LTIR returns and plc's investments in seed capital mean that the ROE's as currently stated do not necessarily reflect the standalone ROE's that will arise as a result of executing the managed separation strategy.

The table below breaks down the shareholder equity by business between geographies.

Shareholder equity including intangibles (£m)	H1 2016 Average shareholder equity	H1 2016 AOP post-tax	H1 2016 Annualised ROE	FY 2015 Annualised ROE
Old Mutual Emerging Markets
South Africa	1,285	152	23.7%	27.5%
Rest of Africa	503	20	8.0%	11.3%
Asia & Latin America	174	9	10.3%	12.0%
Total Old Mutual Emerging Markets	1,962	181	18.5%	22.4%
Nedbank	1,903	134	14.1%	15.8%
Old Mutual Wealth
Invest & Grow
UK	1,620	49	6.0%	9.5%
International	354	28	15.8%	13.6%
Manage for Value markets
Italy	125	8	12.8%	14.0%
Heritage	418	3	1.4%	13.1%
Total Old Mutual Wealth	2,517	88	7.0%	11.1%
Institutional Asset Management	638	25	7.8%	14.0%
plc holding company	(396)	(46)	N/A	N/A
Total	6,624	382	11.5%	14.2%

Variations in ROE across the various businesses reflect the differing maturity of the businesses and the impact of recent acquisitions on performance and cash generation. The OMEM and Nedbank South Africa businesses have more mature franchises, which translate into higher returns and remittances. The operations in Rest of Africa, Asia and Latin America are still building distribution and operational capacity often in challenging macro-economic environments, these negatively impact returns, both in profits and cash. In OMW capital is being deployed to support the execution of the vertical integration model. Since 2014, £1.2 billion of capital was deployed on key acquisitions in structurally attractive markets in the UK and sub-Saharan Africa, partly funded by asset disposals in the US and continental Europe. Despite the short term drag on Group ROE that recent investments create, the current return on capital deployed remains well below our expected target range. Each business is focused on ensuring that appropriate returns earnings, and cash are delivered within the desired time frames. Returns on investments can appear lower in isolation as benefits are derived elsewhere in the business. Intrinsic for example continues to drive increasing flows through Cirilium and accounted for 16% of Platform sales, 33% of Platform NCCF and 26% of OMGI NCCF. The significant acquisitions and current return profiles are summarised in the table below:
plc capital deployed and productivity of recent corporate activity at cost (£m) (>£100m)	H1 2016 Invested capital	H1 2016 AOP post-tax	H1 2016 Annualised return on invested capital	FY 2015 Annualised return on invested capital
Significant acquisitions
Quilter Cheviot (acquired in February 2015) (100%)	585	20	6.8%	5.9%
Intrinsic/Cirilium (acquired in December 2014) (100%)	98	(1)	(2.0%)	9.2%
Ecobank Transnational Incorporated (ETI) (stake acquired in October 2014) (21.8%)	305	(27)	(17.7%)	8.5%
UAP Holdings (UAP) (acquired in June 2015) (60.7%)	162	-	-	2.5%
Total	1,150	(8)	(1.4%)	6.4%

Whilst we recognise that returns from acquisitions take some time to come through, the current return on capital deployed remains well below our expected target range. Each business is focused on ensuring that appropriate returns are delivered within the desired time frames set out in the original acquisition plans.

Management performed an impairment test on the £169 million goodwill recognised as a result of the acquisition of UAP in 2015. The goodwill was allocated to the Old Mutual Southern and East Africa (OMSEA) cash generating units. The impairment test indicated that the goodwill balance was not impaired at 30 June 2016. The Group will continue to monitor developments and their possible impact on the value in use of OMSEA and any possible impairment to the carrying value in the second half of 2016.

Subsequent to the reporting date, 30 June 2016, the Nigerian naira continued to depreciate against the dollar and the market value of the Group's investment in ETI, based on its quoted share price in a thinly traded market, has decreased further. The Group will continue to monitor developments and their possible impact on the value in use of the investment in ETI and any possible impairment to the carrying value in the second half of 2016.

Plc cash flows and liquidity

Free Surplus Generation

Free surplus generation analysis considers the efficiency of the businesses in converting profits into operational cash flows which can ultimately support the plc capital management policy.

The businesses generated free surplus of £375 million in H1 2016 (H1 2015: £508 million), which represents a conversion rate of 88% of AOP post-tax and NCI (H1 2015: 90%). The £133 million decline in free surplus generation in H1 2016 was largely attributable to the decline in AOP compared with H1 2015. The main reason for the 2% decline in the conversion of profits is attributable to OMEM. For OMEM's 74% (H1 2015: 82%) of the AOP post-tax and NCI converted to free surplus reflecting a higher capital requirement in Property & Casualty due to growth in the business.

The OMW conversion rate was 93% (H1 2015: 87%). The 2016 free surplus is calculated on a local statutory basis which for our businesses in the EU is now calculated consistent with Solvency II principles.

Nedbank and Institutional Asset Management free surplus is calculated as the dividend payable to Old Mutual plc and therefore the conversion rate is 100% for both businesses. 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 demutualization agreement (as amended over time).

	H1 2016		H1 2015		FY 2015
Source of free surplus (£m)	Free surplus generated	% of AOP converted to free surplus	Free surplus generated	% of AOP converted to free surplus	Free surplus generated	% of AOP converted to free surplus
Old Mutual Wealth	82	93%	115	87%	268	102%
Institutional Asset Management	25	100%	46	100%	86	100%
Total northern hemisphere	107	95%	161	90%	354	101%

Old Mutual Emerging Markets	134	74%	186	82%	289	69%
Nedbank	134	100%	161	100%	302	100%
Total southern hemisphere	268	85%	347	90%	591	82%

Total before interest and plc costs	375	88%	508	90%	945	88%

Plc cash flows and liquidity

The holding company cash position has decreased from £750 million at 1 January 2016 to £575 million at 30 June 2016. This is invested in cash and near cash instruments, including: money market funds, UK government securities and a liquid corporate bond portfolio. The Group holding company also has access to an undrawn committed facility of £800 million (30 June 2015: £800 million; 31 December 2015: £800 million).

In addition to cash and available resources held at the plc holding company level, which are considered adequate to support the plc under both normal and stressed conditions, each individual business also maintains liquidity and credit facilities sufficient to support its normal trading operations and to withstand stress events.

Plc cash flows (£m)	H1 2016	H1 2015	FY 2015
Opening cash and liquid assets at holding company at 1 January	750	1,003	1,003
Operational flows
Hard currency free surplus generated	107	161	354
Old Mutual Wealth business transformation costs	(39)	(40)	(97)
Other cash retained or deployed in the businesses	(16)	(36)	(94)
Operational receipts from hard currency businesses	52	85	163

Emerging market free surplus generated	268	347	591
Free surplus used for acquisitions	-	(160)	(191)
Other cash retained or deployed in the businesses	(64)	16	(70)
Operational receipts from emerging market businesses	204	203	330

Corporate costs	(30)	(24)	(57)
Other operational flows	(59)	(62)	(40)
Total operational flows	167	202	396

Capital servicing
Preference dividends	(17)	(17)	(30)
Ordinary cash dividends	(315)	(297)	(426)
Paid to northern hemisphere shareholders	(113)	(122)	(172)
Paid to southern hemisphere shareholders	(202)	(175)	(254)
Interest paid	(36)	(16)	(32)
Total servicing of capital	(368)	(330)	(488)
Capital movements
Net debt issue in the period	-	-	187
Net business unit funding	(1)	(38)	(118)
Total capital movements	(1)	(38)	69
Other Plc cash movements
Net corporate activity received/(funded) by plc directly	27	(287)	(230)
Total plc cash movements	27	(287)	(230)

Closing cash and liquid assets at holding company at end of period	575	550	750

Operational cash flows

Hard currency free surplus reduced to £107 million (H1 2015: £161 million). This reflects the reduction in OMW free surplus to £82 million (H1 2015: £115 million) as a result of AOP being 31% lower than the prior year. £30 million of the OMW free surplus generated was remitted to the plc (H1 2015: £57 million). H1 2015 included a remittance of £27 million, related to a pre-sale dividend prior to the disposal of Skandia Switzerland. OMAM remitted £22 million (H1 2015: £28 million), reflecting its dividend policy of paying 25% of Economic Net Income (ENI) and payments in-line with the DTA.

Emerging markets free surplus reduced to £268 million (H1 2015: £347 million) largely due to a weaker average rand during the period. £204 million (H1 2015: £203 million) of the free surplus was remitted to the plc. OMEM generated free surplus and remitted to the plc £134 million, Nedbank remitted £70 million, retaining £64 million, reflecting its publicly stated dividend policy.

Other operational flows include payments to an employment trust related to the funding of share plans. During H1 2016, the trust used £26 million to purchase 14 million shares at an average share price of 179 pence.

Servicing of capital

Dividend payments to shareholders of £315 million (H1 2015: £297 million) have been made in the year to date in relation to the second interim dividend for 2015. Of this £202 million was paid to shareholders on the SA register (H1 2015: £175 million). Plc contributed £111 million of central cash to the payment of plc dividends in respect of the second interim dividend for 2015 paid to shareholders.

Capital movements

Capital movements reflect co-investment return from OMAM of £2 million (H1 2015: £3 million) and the return of pre-disposal funding of £4 million from Bermuda (H1 2015: £25 million funding to Bermuda); offset by £7 million of seed investment (H1 2015: £16 million).

Corporate activity

Cash flows from corporate activity include receipts from the sale of Rogge and other corporate inflows and outflows. In H1 2015 the plc provided funding to OMW for its purchase of Quilter Cheviot and received the proceeds from the sale of OMAM shares in a secondary offering.

OM Asset Management commitments to Old Mutual plc

As part of the managed separation strategy, steps have been taken during H1 to clarify and accelerate seed capital and DTA relationships between OMAM and Old Mutual plc, with the effect that Old Mutual plc has greater certainty about future cash payments from OMAM. Normal course payments in respect of seed redemption and DTA are expected to continue.

As of 30 June 2016, OMAM managed approximately $116 million of seed capital provided by Old Mutual plc under a seed capital arrangement (the "Seed Capital Agreement") dated 8 October 2014. On 13 June 2016 OMAM and Old Mutual plc entered into a Heads of Agreement amending certain terms of the Seed Capital Agreement, resulting in OMAM purchasing approximately $35 million of seed investments in the third quarter of 2016, and the purchase of all remaining seed capital investments covered by the Seed Capital Agreement, up to an incremental $100 million, on or around 30 June 2017. All seed capital was originally expected to be transferred to the balance sheet of OMAM on or around 15 January 2018.

In connection with OMAM's initial public offering, OMAM entered into a Deferred Tax Asset Deed (DTA) with OM Group (UK) Limited (OMGUK), a subsidiary of Old Mutual plc, that provides for the payment by OMAM to OMGUK of amounts equal to certain deferred tax assets ($181.1 million as of 30 June 2016) existing as of the date of the closing of the initial public offering. On 13 June 2016, OMAM and OMGUK entered into a Heads of Agreement amending the DTA to provide that the obligations of the Company to make future payments to OMGUK under the DTA, which were originally scheduled to continue to 31 January 2020, would be settled as of 31 December 2016 in exchange for a payment of the net present value of the future payments due to OMGUK valued as of 31 December 2016. The valuation will be calculated using a discount rate of 8.5% and be paid by OMAM to OMGUK in three instalments on each of 30 June 2017, 31 December 2017 and 30 June 2018, such payments forward valued at a discount rate of 8.5%. OMAM's current estimate of total payments to be made during this period ranges from $135 million to $145 million. Payments under the DTA will continue as scheduled for the remainder of 2016.

REVIEW OF FINANCIAL POSITION

Capital

Regulatory capital in accordance with Solvency II rules

The Group Solvency II surplus is £1.5 billion at 30 June 2016 (1 January 2016: £1.7 billion as reported to the PRA), representing a Solvency II ratio of 129% (1 January 2016: 138%) calculated under the standard formula. As highlighted previously, the Solvency II ratio is resilient as the Group surplus excludes £1.1 billion of surplus from the South African businesses that remains available for local loss absorption.

	Solvency II
Group regulatory capital (£bn)	H1 2016	1 January 2016¹
Capital resources	6.6	6.1
Capital requirements	5.1	4.4
Surplus	1.5	1.7
Coverage	129%	138%
¹ As reported to the PRA as part of the Solvency II day one submission

The 3% increase in the cover ratio between our early publication of Solvency II figures and our day one submission to the PRA resulted from the clarification of the inclusion of certain share based payment reserves, the inclusion of profits earned by asset management entities post audit verification and the refinement of asset look-through applied in the capital requirement calculation. Subsequent to this, we have received clarification from the PRA that the additional capital requirement in respect of the equity risk component for Nedbank which arises from the portion of Nedbank shares held directly by OMLAC(SA) could be removed from our capital requirements (reduction of £0.2 billion). We have also made an adjustment to reflect an increase in the capital requirements of £0.1 billion in respect of OMLAC(SA) and other entities within OMEM. Furthermore, the capital requirements for Old Mutual Bermuda now reflect the agreed basis of determining capital with the Bermuda Monetary Authority of 110% of our Economic Capital Requirement (resulting in a small impact on the Solvency II ratio).

The Solvency II ratio reduced over the period due to payment of the UK element of the plc second interim dividend to ordinary shareholders, payments to the holders of perpetual preferred callable securities and an increase in the businesses capital requirements. The weakening of the sterling to the rand effectively reduced the ratio by 4%, with a further 1% due to increased capital requirements from OMEM and Nedbank. Any increase in OMEM and Nedbank own funds is restricted by the increase in their capital requirements as a result of applying fungibility restrictions. We expect the acquisitions by OMAM of Landmark to result in an initial 3% and a further 3% reduction in the Solvency II ratio on completion on the first and second tranches respectively. We expect the sale of Old Mutual Wealth Italy to increase the Solvency II ratio by 2%.

Solvency II sensitivities

The table below presents the estimated sensitivity of the Solvency II ratio under certain standard financial stresses, which are defined by reasonably possible individual movements in key market parameters while keeping all other parameters constant with the effects impacting both the capital resources and capital requirements and consequently the Solvency II ratio. In addition, we have included a non-financial stress assuming 10% of our insurance business in Old Mutual Wealth and Old Mutual Emerging Markets lapses immediately.

Solvency II and capital ratio at 30 June 2016 (£bn)	Capital Requirements	Surplus	Group ratio	Restricted surplus

Base Solvency II surplus	5.1	1.5	129%	1.1
Equity markets fall by 25%	4.8	1.4	130%	0.9
Impact of 10% of business lapsing immediately ¹	4.9	1.5	130%	1.0
Interest rates rise by 100 basis points	5.1	1.5	129%	1.1
Credit spreads increase by 100 basis points ²	5.1	1.5	129%	1.1
ZAR:GBP exchange rate depreciates by 30% (R25:£1) ³	4.2	1.5	136%	0.9
ZAR:GBP exchange rate appreciates by 10% (R18:£1) ³	5.5	1.5	127%	1.2
¹ Business lapse sensitivity for Old Mutual Wealth and Old Mutual Emerging Markets only
² A 100bps increase in credit spreads is generally assumed to be a one notch downgrade on BBB to BB- rating and two notches downgrade on lower graded investments

³ Coverage ratio increases when ZAR depreciates due to a reduced weighting towards OMEM and Nedbank included at 100%. The reverse applies when ZAR appreciates

Selected regulated entity solvency statistics
The Group continues to maintain strong local regulatory capital as shown in the table below.
Local currency	Capital Resources	Capital Requirements	Surplus	H1 2016	1 January 2016
OMLAC(SA) ¹ (Rbn)	42.7	13.6	29.1	3.1x	3.2x
Mutual & Federal ² (Rbn)	3.4	2.1	1.3	1.6x	1.4x
Nedbank ³ (Rbn)	67.4	52.7	14.7	1.3x	1.3x
OM Wealth ⁴ (£bn)	1.7	0.9	0.8	1.9x	1.9x
OMBRE ⁵ ($bn)	0.3	0.2	0.1	1.5x	1.1x
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 1.4x (31 December 2015: 1.4x))
⁴ Solvency II basis (1 January 2016 comparative restated to reflect Solvency II basis). We are not required to report the OMW position to the PRA separately
⁵ 110% of Internal Economic Capital requirement as set by the Bermuda Monetary Authority. (Enhanced Capital Requirement as set by the Bermuda Monetary Authority for 31 December 2015)

Plc debt

Plc debt summary ¹	H1 2016	H1 2015
Senior gearing (gross of holding company cash) - IFRS basis ²	1.6%	1.9%
Total gearing (gross of holding company cash) - IFRS basis ²	15.0%	14.7%
Total book value of debt - IFRS basis (£m)	1,751	1,613
plc head office value of debt - IFRS (£m)	1,321	1,146
Total interest cover	9.9 times	15.5 times
Hard interest cover	3.1 times	5.5 times
¹ Excludes banking-related debt of £2,585 million at Nedbank and £168 million at Old Mutual Emerging Markets, of which £123 million is held at OMF, £25 million is held at CABS and £20 million is held at Faulu
² H1 2015 has been restated to adjust for equity debt in the capital base

Activity and profile of debt outstanding at 30 June 2016 and debt activity

Total debt (excluding Nedbank) of £1,751 million consists of:

· Old Mutual plc debt book value of £1,376 million, consisting of £112 million of senior debt maturing in October 2016, £273 million of Tier 1 debt callable in March 2020, £500 million of Tier 2 debt maturing in June 2021 and a £450 million Tier 2 Solvency II compliant instrument maturing in November 2025. At 30 June 2016, the book value of the Tier 2 instruments was £543 million and £448 million respectively. The plc value of debt is £1,321 million, which includes the book value of Old Mutual plc debt, net of a derivative asset of £55 million, related to the £500 million Tier 2 debt.

· OMLAC(SA) has R3,475 million (£172 million) in fixed rate Tier 2 bonds and R2,525 million (£130 million) in floating rate Tier 2 bonds. The fixed instruments have first calls in 2019, 2020, 2022 and 2025, while the floating bonds have first calls in 2019 and 2020. UAP has debt of KES 2,000 million (£16 million) maturing in 2017, along with $25 million (£19 million) maturing in 2022 and 2023.

· OM Asset Management has drawn $50 million (£38 million) on a $350 million Revolving Credit Facility which matures in 2019. On 27 July 2016, OM Asset Management issued $400 million senior notes, consisting of $275 million due in 2026 and $125 million due in 2031.

Gearing as at 30 June 2016

Gross gearing is based on non-banking debt of £1,751 million net of a derivative asset of £55 million related to the £500 million Tier 2 debt. Gross gearing of 15% is calculated as the percentage of non-banking debt (£1,696 million) over total Group equity plus non-banking debt (£11,309 million). Gearing reduces to 9.9% when net of cash at the holding company.

Gross gearing has increased since 30 June 2015 with a net increase in non-banking debt. Since June 2015 Old Mutual plc has issued a new £450 million Tier 2 instrument and redeemed a €374 million Tier 2 bond.

Capital management policy

Plc announced its new Capital Management Policy in support of executing the new managed separation strategy at the 2015 preliminary results announcement on 11 March 2016.

For the period of managed separation, the Board intends to pursue a dividend policy reflecting the operational cash generation, investment and liquidity needs of the plc as well as the capital requirements of the underlying businesses. We will target a dividend cover equivalent to 2.5 to 3.5 times plc AOP earnings for each reporting period, with the first interim dividend based on a cover of 3.0 times plc AOP earnings for that interim period.

The aim of the capital management policy is to provide flexibility, recognising the need to balance complex considerations, including costs associated with the managed separation, continuing to invest in the businesses to drive enhanced performance and increasing the capital strength of the businesses. Given this, we anticipate taking a conservative approach to the full year dividend. Whereas in 2015 and the first half of 2016, plc cash contributed to paying dividends to shareholders, dividends going forward will reflect the capacity for distributions from the underlying businesses. During the period of managed separation, we also intend to reduce the Group holding company's current debt materially, mainly through asset disposals over time. Subsequently and to the extent that the excess capital is generated, the Board will consider further returns of capital to shareholders.

We have today announced the first interim dividend under the new policy which is 2.67p. This will be paid on 28 October 2016.

Principal risks

The principal risks facing the Group reflect the underlying markets and business models of each of the four businesses as well as those at the plc head office centre. Whilst these vary in terms of detail, there are common themes and the principal Group-wide risks are:

· Uncertain global economic conditions, impacting asset based fees and business flows as well as adding to the complexity of the managed separation process

· Political risk, particularly in South Africa, the UK, the US and Zimbabwe

· Strategic execution risk and breadth of regulatory change across the Group

· Currency translation risk, location of capital and sources of remittances

· Credit risk and location of credit risk within South Africa and emerging markets

Overall governance structures are performing in line with the decision making framework, which has been adapted in light of the managed separation strategy. Strong reliance is placed on the structures and processes in place by the businesses' management and Boards. There is senior plc management representation on each of the subsidiary Boards and the plc Board has joint meetings with the subsidiary Boards. In addition, strategic, systemic and execution risks are considered by plc management and overseen by the plc Board. These structures and processes, together with businesses that are appropriately, though not excessively, capitalised, provide a solid base to support our business as we pursue our managed separation strategy over the next few years.

How our principal risks have changed over the year to date

Our principal risks under the new strategy remain broadly similar to those listed in the 2015 Annual Report. During the first half of 2016, uncertain global economic conditions and political risk have dominated the external risk landscape. This has manifested in volatile global equity markets and record low bond yields being observed. The EU referendum outcome in the UK added further uncertainty globally. The South African sovereign downgrade was averted for the June rating cycle, however it is still anticipated to occur in December. From an operational perspective, there is extensive risk from the major IT and change programmes underway in OMW and OMEM, and heightened regulatory risk particularly in the context of regulatory reforms in the UK and South Africa. Looking ahead to the remainder of 2016 and into the medium term, global growth and returns are expected to be muted. Central banks in developed economies are expected to strike a dovish tone while conditions stabilise. Political risk will continue to be high given the economic situation in Zimbabwe, potential for a South African sovereign downgrade, post the EU referendum vote uncertainty and the upcoming November US elections.

The managed separation involves significant corporate change both at operating units and plc head office as well as in executing the structural transactions to give effect to the actual separation. The plc has a number of residual risks relating to past merger, acquisition and disposal activity. These are not sufficiently material to class as a principal risk at a plc level, but in the context of managed separation, these legacy risks may crystallise over the next few years. People risk will be heightened as part of strategic execution risk, particularly at plc head office, due to significant structural changes and change in focus. The managed separation is planned to be executed within approved risk appetite, which will require optimising cash management and generation at both business and plc levels, ensuring all regulatory capital requirements continue to be met and ongoing monitoring of risk culture.

Regulatory and governance

The plc operating model has evolved from that of a "strategic controller", to an "active portfolio manager" during the implementation phase of the managed separation. This means that there will be increased reliance and accountability upon business boards. Independent chairs will be appointed to business boards at the appropriate time, to the extent they are not already in place, in readiness for separation. Business committee chairs will be invited to present key issues directly to the plc Board. There will be more formal interaction with the businesses and with the plc Board, based on shareholder rights and regulatory responsibilities. The plc and the businesses will continue to prepare for forthcoming regulatory changes, cognisant of the implications of the managed separation and evolving governance requirements. In particular, the incoming Twin Peaks regulation in South Africa will influence the level of the appropriate strategic minority stake in Nedbank held by the new SA group, through its ownership of OMLAC(SA).

Old Mutual Emerging Markets

Highlights (Rm)	H1 2016	H1 2015	% change
IFRS profit pre-tax	5,458	5,429	1%
AOP (pre-tax)	5,735	6,044	(5%)
Gross Sales (Rbn)	103.7	105.7	(2%)
Covered sales (APE)	6,841	5,474	25%
Value of new business (VNB)	1,162	907	28%
Gross written premium	8,218	6,308	30%
Underwriting margin (P&C)	(1.0%)	3.5%	(450 bps)
NCCF (Rbn)	8.0	14.8	(46%)
FUM (Rbn) ¹	1,025.1	989.9	4%
¹ FUM is shown on an end manager basis and prior year comparative represents the balance at 31 December 2015

Operating environment

OMEM delivered a solid operational performance despite global economic headwinds, including volatile equity markets across all markets in which we operate, and the continued risk of a South African sovereign credit rating downgrade. In addition, South African consumers are under financial strain and there are heightened socio-political and economic tensions in Zimbabwe and South Sudan. Our heritage is firmly rooted in Africa and we believe we have the skill set to operate within, and navigate through, these tough times.

Economic environment

In South Africa, the economy contracted in the first quarter of 2016 by 1.2% year-on-year, however early data for the second quarter indicates a rebound, both offsetting the previous quarter's decline, as well as avoiding a technical recession. Although drought conditions have eased in most of the country, the negative impact on the economic growth persisted into the second quarter of 2016.

The rand recovered notably after hitting an all-time low of just below R17/US Dollar in mid-January 2016 and was trading below R14.50/US Dollar by mid-July 2016. This was driven by a rebound in commodity prices, the maintenance of SA's investment grade credit ratings and improved investment markets across emerging markets, following the UK's decision to leave the EU. However, it remains vulnerable to the possibility of a South African sovereign credit rating downgrade in December, when the agencies will again review the country's ratings.

In the Rest of Africa, growth across the region was mixed. Zimbabwe's economy remains under pressure, following recent peaceful protest actions due to cash shortages and an under-performing economy. The weak currencies from South Africa and Zambia (the main international trade partners) will place further pressure on the Zimbabwean economy.

The Kenyan economy remains stable with the exception of the banking sector following the collapse of three of the country's banks in the past nine months. The banking sector is recovering following the immediate interventions by the Kenyan Central Bank, including placing more scrutiny on the country's banks.

Lower oil prices continue to negatively impact Nigeria's economy. In May, the Central Bank of Nigeria imposed a flexible exchange rate regime and officially depreciated the Naira by 40% in June (from 200 to 280/US Dollar).

Latin American economies are showing signs of recovery from the declining trends seen in 2015, with the Colombian and Mexican stock exchanges up 14.4% and 7.2% respectively and signs of improving employment and rising real wages in Mexico. In Asia, the growth momentum in China moderated in the second quarter to 6.5%. India's growth remains strong and it is the fastest growing economy globally with GDP growth of 7.5%.

Business developments

Managed Separation and Group Collaboration

The first half of 2016 saw a notable strategic change following the announcement on 11 March 2016 to separate the Old Mutual Group into four businesses.

Work has commenced to assess OMEM's preparedness for the managed separation and capacity to continue executing on the strategy. The main activities envisaged under the Managed Separation programme involve:

(i) ensuring the business is ready to act as a stand-alone entity,

(ii) managing the separation from the plc construct, and

(iii) executing on the separation of the business.

However, OMEM (including Mutual & Federal) and Nedbank continue to work towards pre-tax run rate synergies of R1 billion by the end of 2017 through deeper collaboration. We remain on track to meet this target.

Expansion across emerging markets

The integration of the combined UAP-Old Mutual Kenya and Faulu is progressing and we plan to complete the merger transactions by the end of Q3 2016. We are rationalising the portfolio and optimising the balance sheet, ultimately to enable us to accelerate growth through cross-selling, leveraging capability across the group, deliver cost savings and building an Integrated Financial Services company over the next five to seven years.

In West Africa, an enhanced bancassurance deal was concluded between OMEM and ETI at the end of May, which is expected to contribute meaningfully to the respective revenues for both OMEM and ETI over the next five years, as well as facilitating customer growth, improved retention, capital efficiency and cost synergies. Implementation plans have been initiated to further leverage this bancassurance relationship.

The buyout of our joint venture shareholder in African Infrastructure Investment Managers (AIIM), completed in December 2015, has led to the integration of the investment teams from AIIM and Old Mutual Investment Group's (OMIG) IDEAS Fund. This provides OMEM with a larger unified infrastructure investment team, which continues to create value for investors while making a tangible contribution towards growing African economies and communities through infrastructure development.

Enhancements to the customer experience

OMEM continues to build its customer base and grow its offering through client centric product innovations and expanding distribution channels. As at 30 June 2016 OMEM had 11.0 million customers, up from 10.7 million at the end of 2015, with 4.4 million of these customers in sub-Saharan Africa, outside South Africa.

In South Africa, the Greenlight range of protection solutions within Retail Affluent launched 'As-and-When' commission options in April 2016 as a transition step towards assisting financial advisers to adjust their business models for the post-Retail Distribution Review (RDR) environment.

The digital channel continues to gain traction. For the first half of 2016, 1 in every 4 Old Mutual Invest Tax Free Plans was sold through this channel, including sales through our mobile app since the second quarter.

The Integrated Financial Services strategy in the Mass Foundation Cluster (MFC) continues to deliver customer value through providing a seamless experience, particularly in the retail branches. The Old Mutual integrated branch footprint of 274 has grown by 14 additional branches during the first six months of 2016. Sales made through branches account for 27% of total MFC covered APE sales. The innovative transactional Money Account, launched in the second half of 2015, which is a product offering primarily for the lower to middle income market customers, now has approximately 132,000 accounts.

Old Mutual Corporate recorded exceptionally strong sales of smoothed bonus funds over the last six months, both from institutional clients and retail platforms, mainly due to customers wanting stable returns amidst the continued volatile markets.

In support of initiatives to encourage responsible investment, OMIG launched the Old Mutual Responsible Investment Equity Index Fund, which applies the MSCI Environmental, Social and Corporate Governance (ESG) research methodology to the Fund's index construction and invests in the FTSE/JSE Shareholder Weighted All Share Index universe, with a tilt towards companies with strong sustainability profiles.

At Mutual & Federal, our South African-based Property and Casualty business, the improved performance of the Direct Distribution business (which includes iWYZE) followed the onboarding of a management team of experienced industry professionals and delivered strong premium growth of 18% against prior year. The iWYZE product range was complemented with value added products during 2016. The Personal Lines business delivered higher sales following product improvements as well as new products launched in the second half of 2015. Mutual & Federal increased its stake in Credit Guarantee Insurance Corporation (CGIC) from 86% to 100% (in addition to the 33.6% of CGIC's shares acquired during the second half of 2015).

In the Rest of Africa, a LISP platform targeted at high net worth customers was launched during March 2016 in Namibia and new umbrella funds (pension and provident funds) were launched in Swaziland in May 2016. In Nigeria, supplementary benefits were added to group life products. In Ghana, a retirement product was launched that will be distributed via Ecobank. Bancassurance sales now account for 27% of total Rest of Africa covered APE sales, up from 18% at the end of 2015.

In Latin America, we successfully launched "Crea Patrimonio" in Colombia, a regular premium retirement savings and protection solution targeted at the affluent segment. This product was adapted for the local environment from the Old Mutual Crea product, sold by AIVA in Mexico, which was launched in 2015 and is delivering strong sales.

Supporting economic transformation in South Africa

The OMEM and Nedbank executives are playing a leading role in the engagement between senior business leaders from various industries in South Africa, with the National Treasury to ensure better inclusive economic growth outcomes, and to seek to avoid a sovereign credit rating downgrade.

OMEM continues with activities to promote and support Broad Based Black Economic Empowerment.

The Masisizane Fund has committed R100 million over the next three years to the Alfred Nzo and Harry Gwala District Municipalities KZN Flagship initiative, a collaboration with Omnia Holdings Ltd, and the South African national Department of Rural Development and Land Reform, Eastern Cape and KZN provincial governments, focussing on rural agriculture value chain development. The KZN Flagship, located in the border of the Eastern Cape and KZN Provinces seeks to make a positive impact to the lives of 10,000 people over the next 5 years.

OMEM is leading several financial education programmes as part of our commitment to successful economic transformation in South Africa. We have recently commenced with the rolling out of our successful 'On The Money' financial education programme to various Union shop stewards across the South African provinces, raising awareness about the importance of responsible financial behaviour and to empower this influential leadership group with personal money management skills. The 'On The Money' programme has also extended its presence to social media and is promoting weekly money management tips through various platforms to help South Africans navigate through tough economic conditions.

OMLAC(SA) credit rating

Standard & Poor's has assigned OMLAC(SA) a 'AAA' long-term South African national scale counterparty credit rating and a 'AA+' South African national scale issue rating to the 10 subordinated note issuances under the R10 billion medium-term note programme, of which R6 billion has been issued since December 2014.

Financial highlights

OMEM delivered strong growth in covered APE sales at good margins and increased gross written premiums, however profits and NCCF came under pressure, mainly due to a tougher economic environment across emerging markets, leading to increased claims in both Life and Property & Casualty lines of business as well as the acceleration in disinvestments by retail customers and lower investment flows.

Pre-tax AOP by line of business

Against this constrained economic backdrop as well as a strong H1 2015 performance that delivered 16% growth, OMEM pre-tax profit declined by 5% on the prior year. Excluding debt costs profits declined by 2%.

Life & Savings profits were down 5% mainly as a result of underwriting losses in the group risk business in South Africa, lower profits from East Africa due to higher new business strain, partly offset by reduced central expenses.

Asset Management profits were down 1% driven by the reclassification of life-wrapped unit trust margins into Life & Savings, higher finance costs in the property management business in Malawi and higher reallocation of central expenses from Life & Savings to Asset Management. This was offset by strong growth in profits in OMIG and Colombia due to higher asset-based fee income.

Banking & Lending profits were up by 33% due to higher profits in OMF as a result of lower credit losses, as well as an increased contribution from CABS, driven by portfolio growth and favourable impact of foreign exchange movements. Property & Casualty profits were down by 32% amidst a more challenging claims environment, mainly due to catastrophe events in H1 2016 as well as large claims significantly above the long-term experience in South Africa and East Africa.

Debt costs of R259 million in H1 2016 are higher than the prior year, following the additional R3.1 billion of OMLAC(SA) debt issued in the second half of 2015.

Pre-tax AOP by geography

In South Africa, profits were 3% lower than the prior year due to negative underwriting results in the Property & Casualty and Corporate businesses and higher new business strain on new risk business in retail segments, partly offset by higher asset-based fee income and lower central expenses.

Retail Affluent profits were 1% lower than the prior year reflecting worse underwriting experience in risk products and higher new business strain as a result of the loss of tax relief on new risk business, partly offset by higher asset-based fee income off the higher market levels.

MFC profits were up 7% on the prior year largely due to higher OMF profits as a result of a reduction in the credit loss ratio and expense savings. This was partly offset by higher new business strain due to the loss of tax relief on new risk business and persistency experience being under pressure.

Corporate profits were down 24% as a result of negative underwriting results (disability and mortality losses) on group risk products driven by higher claims experience, partly offset by lower expenses and higher asset-based fee income.

OMIG profits were 3% lower than the prior year mainly as a result of mark-to-market revaluations of unlisted structured assets, partly offset by higher asset-based fee income and the inclusion of 100% of AIIM results (following the buy-out from a 50% stake in December 2015).

The Property & Casualty underwriting loss in South Africa of R44 million is significantly down from a profit of R147 million in the prior period. Against the backdrop of a tougher economic environment and subdued growth in client revenue, this result was driven by a more challenging claims environment, leading to higher claims ratios in Commercial, Corporate & Niche and CGIC business lines. This included the impact of a number of large claims that were more severe than our long-term historical average, estimated to be approximately R50 million in the Commercial and Corporate & Niche lines in respect of property risk and an additional R140 million in CGIC in respect of export trade losses. The quota share reinsurance arrangement was not renewed, following the buy-out of minority shareholders in CGIC, as a result R35 million additional losses were incurred due to the full actuarial liability now being held by CGIC. Excluding these items, the normalised underwriting margin would improve to 3.1% (compared to -1.0% reported).

Central costs in South Africa were significantly lower than the prior year due to expense reduction initiatives, partly offset by a delay in project spend. The South Africa Transformation project, R2.6 billion investment in an IT-enabled improved customer experience, is in progress.

In the Rest of Africa profits were 4% lower mainly due to lower Property & Casualty underwriting results in East Africa driven by higher claims experience in Kenya, higher finance costs in the property management business in Malawi and higher claims in the corporate business in Nigeria. Despite the deteriorating economic and uncertain political environment in Zimbabwe, the business delivered positive growth, which benefitted from the depreciation of the rand against the US Dollar during H1 2016.

Operating profits in Latin America were up 31% on the prior year mainly due to higher investment returns in Colombia, higher fee-based income across the region, expense savings in AIVA and foreign exchange movements.

In Asia, profits are significantly lower than the prior year due to lower investment variances and a one-off realised gain included in the prior year in China, partly offset by a strong performance in India.

IFRS profit pre-tax of R5.5 billion

IFRS profit of R5,458 million, was up 1% from R5,429 million in the prior year.

Adjusting items from IFRS profit to AOP include the amortisation of acquired intangible assets and PVIF which relate mainly to the consolidation of OMF from 1 September 2014, and a deferred consideration relating to AIVA. The prior year included acquisition costs which related to the UAP acquisition. Negative short-term fluctuations in investment return was R552 million (H1 2015: R154 million) as a result of shareholder asset investment returns based on a long-term investment return rate being higher than the actual investment returns. This was driven by lower average market levels compared to the prior year.

NCCF: Net client cash flows of R8.0 billion

NCCF declined by 46% on the prior year. This was due to slowing economic activity across our major markets. An increasing number of customers in South Africa are accessing savings and investments through disinvestments and partial surrenders, while disability claims, in particular, increased in line with our experience for similar economic cycles. OMEM reported strong flows in H1 2015, which were not repeated in the current period.

Notable decreases in NCCF were seen in South Africa in Retail Affluent, mainly due to a combination of lower non-covered sales and higher disinvestments from savings products, as well as in Latin America driven by lower inflows into Colombia Corporate and Collective Investments and lower sales in AIVA. Asset management operations in OMIG South Africa and Namibia contributed strong net inflows. The Rest of Africa NCCF growth was further boosted by the inclusion of UAP from H2 2015, although this was partly offset by higher outflows in Zimbabwe by foreign customers concerned about political risk.

Gross sales: Strong covered sales growth offset by declining non-covered sales

Gross sales are 2% lower than the prior year, reflecting a 25% increase in covered APE sales, but largely offset by a 13% reduction in non-covered sales.

The decline in non-covered sales was due to lower single premium sales in Retail Affluent in South Africa. In H1 2015, there were two large single premium flows totaling R13 billion in H1 2015 in Corporate which were not repeated. OMIG delivered strong asset management flows (up 20%) and the Rest of Africa covered-life sales increased 27% mainly driven by higher flows in Namibia.

Covered APE sales: Excellent sales growth across OMEM whilst maintaining good margin

Covered APE sales were 25% above the prior year underpinned by a 20% growth in sales in South Africa mainly due to strong single and recurring premium sales in Corporate and good recurring premiums sales in MFC.

Retail Affluent delivered 3% growth in sales mainly due to higher Greenlight sales as well as strong living annuity sales across all customer segments. Investment product sales were under strain due to the tougher economic environment.

MFC sales increased by 9% due to higher sales from both savings and risk products, supported by improved adviser productivity and increased average risk product premiums. OMF credit life sales were slightly above the prior year due to a marginal increase in new loan sales.

Corporate sales were up 116% on strong single premium savings sales driven by excellent retail platform Absolute Growth Portfolio smoothed bonus sales, good recurring premium risk business and good recurring premium sales in the Superfund (umbrella retirement fund).

Covered APE sales from the Rest of Africa were 9% above prior year following the inclusion of UAP life sales, excellent corporate sales growth in Ghana as well as strong retail savings sales in Namibia. Sales were partly offset by lower sales in Zimbabwe as a result of the tougher economic environment.

Latin America sales were 69% above the prior year due to higher Old Mutual Crea sales and the inclusion of Colombia life sales (previously included under non-covered sales). Asia covered APE sales increased by 52% due to improved adviser productivity in India, supported by the full contribution from the ING Vysya merger, and an effective marketing campaign during the first quarter in China.

Property & Casualty: Gross written premiums

Growth of 30% on the prior year was primarily as a result of the inclusion of UAP results.

In South Africa, 9% growth in gross premiums was due to improved sales in the Direct Distribution business as well as Personal and Risk Finance lines, partly offset by reduced activity in the Corporate & Niche and CGIC lines (which were negatively impacted by lower client revenues and lower renewals).

In Southern and East Africa, significant growth (above 200%) mainly reflects the inclusion of UAP results. Excluding UAP, gross written premiums grew 13%, driven by good growth in Zimbabwe and Botswana. In West Africa, gross written premiums were13% up on the prior year, driven mainly by foreign exchange movements.

Banking and lending

The OMEM banking and lending cluster comprises of OMF in South Africa, CABS in Zimbabwe and Faulu in Kenya. OMF primarily offers loans and debt consolidation solutions to retail customers, while CABS and Faulu provide more comprehensive banking services, including transactional and savings accounts as well as secured and unsecured loans, serving both retail and business customers.

OMF's loan book increased 7% to R14.3 billion from June 2015 due to an increase in the personal loan portfolio to government employees, whilst maintaining the strict lending criteria. The credit loss ratio improved to 5.7% due to impact of lower interest rates on discounting of loss recovery following the implementation of interest rate caps and the impact of strong collection experience. The impairment coverage ratio increased to 41.9% due to higher impairments following an increase in non-performing loans given the tough economic conditions. Net interest income was marginally down on the prior year due to lower sales and smaller loan sizes, while non-interest revenue was 6% down as lower fees were generated off a lower loan book.

The CABS loan book decreased 10% to R8.1 billion from 31 December 2015 in constant currency (but has grown by 10% vs 30 June 2015) mainly driven by business and personal loans implementing a more cautious lending strategy given the Zimbabwean economic outlook with a contraction in deposits by 14% (annualised) against 31 December 2015 (up 9% vs 30 June 2015). The CABS impairment provisions coverage remained constant and higher recoveries resulted in the credit loss ratio improving to -1.1% (30 June 2015: 4.1%).

Faulu increased the gross loan book by 20% to R2.7billion from 31 December 2015 in constant currency (up 18% vs 30 June 2015) mainly driven by secured Small and Medium sized Enterprise lending. Following marketing campaigns, deposits increased by 10% (annualised) from 31 December 2015 (up 8% vs 30 June 2015). A more cautious impairment approach resulted in a 14% increase in the impairment provision coverage and an increase in credit loss ratio to 0.8% (30 June 2015: 0.3%).

Value of new business (VNB) and margins

VNB increased by 28% to R1,162 million, with the PVNBP margin up by 0.1% to 3.3% compared to June 2015 mainly due to higher covered sales volumes in Corporate and MFC risk and savings products, as well as a positive impact from operating assumption changes made last year. This was partly offset by a less profitable sales mix in South Africa and higher new business strain from a new low margin product launched in Kenya during the second half of 2015.

Embedded value

Operating MCEV earnings (post-tax) increased strongly by 21% on the prior year to R4,182 million. Higher operating MCEV earnings were as a result of the higher new business contribution (mainly due to strong smoothed bonus sales in South Africa), improved expected rate of return, lower development costs and positive experience variances. This was partly offset by adverse risk experience as a result of mortality and disability experience variances in Corporate and Retail Affluent. Persistency experience variance deteriorated, particularly in MFC and Retail Affluent, reflecting the impact of the tough economic environment on customers.

The Return on Embedded Value increased from 12.3% to 14.8% primarily due to an increase in the expected rate of return resulting from the higher one-year forward risk free reference rate and a 28% increase in new business contribution.

Solvency position

The OMLAC(SA) solvency position will remain strong under the South African Solvency Assessment and Management (SAM) regime. However, this new framework will significantly change the way in which the OMLAC(SA) solvency position will be reported from 2017. The SAM requirements will also include new requirements for financial groups, which will include OMEM entities and its stake in Nedbank. It is expected that OMLAC(SA)'s solvency position would at least be in line with that of its South African peers, if not better, based on SAM Comprehensive Parallel Run industry feedback provided by the Financial Services Board. We are well placed to meet the requirements of the SAM legislation when it becomes effective in 2017.

Economic Outlook

The World Bank lowered its outlook for Sub-Saharan Africa economic growth in 2016 due to sluggish growth in more advanced economies, low commodity prices, weak global trade, and diminishing capital flows.

South Africa

The local economy is expected to face continued weak economic growth of below 0.5% in 2016 (the South African Reserve Bank ("SARB") updated its forecast to zero growth over 2016), together with higher interest rates and inflation, resulting in sustained financial pressures on consumers, which may affect persistency and credit losses over the next two years. Inflation is expected to peak late in 2016 at around 7% (currently at 6.1%) and only ease in 2017. The SARB is unlikely to lower rates before inflation is sustainably back within the 3% - 6% inflation target range, therefore no interest rate relief is expected before late next year.

The risk of a sovereign credit rating downgrade towards the end of 2016 remains high as weak economic growth, a lack of policy reforms and political uncertainty remain.

Economic conditions in South Africa will continue to be tough with consumers under pressure. However, our businesses are in good shape and we continue to focus on our customers by offering a broad and innovative product suite that meets their needs through all stages of the economic cycle.

Rest of Africa

The economies of Nigeria and Ghana are expected to remain under pressure with the lowest forecast growth rates in over a decade and higher inflation as a result of the depreciation of their currencies following the significant fall in oil prices.

In Kenya, the economy is expected to accelerate slightly in 2016, sustained by an accommodating fiscal policy, infrastructure projects and robust private consumption despite the continuing devaluation of the local currency.

In Zimbabwe, the economic outlook is negative with hindrances to growth such as ongoing drought conditions, low commodity prices and the appreciation of the US dollar. The tough trading environment has stifled growth, compounded by the cash shortage and there have been delays in the payment of salaries for civil servants, which has led to threats of strikes and also protests against the economic situation.

The outlook for the South Sudanese economy has worsened following recent violence in the capital city, Juba. High levels of unemployment and low consumer spending are expected to continue depressing economic growth prospects.

Latin America and Asia

Colombia's economy slowed in the first quarter of the year, however recent increases in the oil price, higher exports and improvements in industrial production bodes well for economic recovery. Moderate economic growth is expected for the full year in Mexico. Inflation is currently at record low levels (2.6%), however the volatile exchange rate remains a challenge for the Central Bank, which has increased rates by 100 bps since the start of the year.

India is set to have another year of strong growth after it reached 7.5% GDP in 2015 propelled by healthy domestic dynamics. We see continued strong growth opportunities for our Indian business. China remains vulnerable to further equity market volatility and weak global demand with the economy expected to slow down to 6.0% growth per annum over the medium term.

Emerging Markets data tables (Rand)

Adjusted operating profit by cluster (pre-tax, Rm)	H1 2016	H1 2015	% change
Retail Affluent	1,892	1,920	(1%)
Mass Foundation	1,477	1,377	7%
Corporate	666	873	(24%)
OMIG	448	463	(3%)
Property & Casualty	(44)	147	(130%)
LTIR	888	879	1%
Central expenses and administration ¹	(218)	(377)	42%
South Africa	5,109	5,282	(3%)
Rest of Africa	282	421	(33%)
LTIR	405	284	43%
Central expenses and administration	(99)	(91)	(9%)
Rest of Africa	588	614	(4%)
Asia & Latin America	287	278	3%
Central expenses and administration^{1, 2}	10	(29)	134%
Asia & Latin America	297	249	19%
Debt costs	(259)	(101)	(156%)
Total Emerging Markets	5,735	6,044	(5%)
¹ With effect from H1 2016, Asia & Latin America central expenses have been reallocated from South Africa central expenses. Comparatives have been restated
²The central expenses for Asia & Latin America include a write back of foreign exchange loss accounted for in 2015 following the appreciation of the South African rand against the US dollar

Adjusted operating profit by product (pre-tax, Rm)	H1 2016	H1 2015	% change
Life & Savings ^{1, 2}	4,240	4,458	(5%)
Asset Management ^{1, 2}	615	621	(1%)
Banking & Lending ³	852	642	33%
Property & Casualty	287	424	(32%)
Debt costs	(259)	(101)	(156%)
Total Emerging Markets	5,735	6,044	(5%)
¹ With effect from FY 2015 central expenses have been re-allocated from Life & Savings to Asset Management. Comparatives have been restated
² Old Mutual Unit Trusts has profit of R73 million relating to life-wrapped business which is included in Life & Savings (H1 2015 not restated). These profits have been accounted for as covered business in MCEV reporting
³Comprises Faulu in Kenya, CABS in Zimbabwe, OMSFIN and OMF in South Africa

Embedded Value (Rm)	H1 2016	H1 2015	% change
PVNBP sales ¹	35,679	28,785	24%
PVNBP margin (%) ¹	3.3%	3.2%	10 bps
Return on MCEV (RoEV) % ¹	14.8%	12.3%	250 bps
VNB	1,162	907	28%
MCEV operating earnings (post-tax and NCI)	4,182	3,455	21%
¹ From H1 2016, PVNBP includes life APE sales in Colombia. No PVNBP is calculated in respect of life APE sales in India and China

Gross sales and funds under management (Rbn) ¹
	FUM 1-Jan-16	Gross sales ²	Gross outflows	Net flows	Market and other movements ³	FUM 30-Jun-16	Net flows as % of opening FUM (annualised)
	FUM 1-Jan-16	Gross sales ²	Gross outflows	Net flows	Market and other movements ³	FUM 30-Jun-16	Net flows as % of opening FUM (annualised)
Total South Africa	773.7	77.2	(71.9)	5.3	25.0	804.0	1%
Retail Affluent	142.7	36.2	(35.5)	0.7	7.3	150.7	1%
Mass Foundation ⁴	-	5.2	(2.6)	2.6	(2.6)	-	-
Corporate ⁵	68.2	19.4	(16.6)	2.8	13.6	84.6	8%
OMIG ^{4, 5}	560.2	22.3	(18.6)	3.7	2.4	566.3	1%
Property & Casualty	2.6	-	-	-	(0.2)	2.4	-
Intra-group eliminations ⁶	-	(5.9)	1.4	(4.5)	4.5	-	-
Rest of Africa	72.1	10.2	(8.0)	2.2	(2.0)	72.3	6%
Asia & Latin America	144.1	21.2	(18.5)	2.7	2.0	148.8	4%
Inter-group eliminations ⁷	-	(4.9)	2.7	(2.2)	2.2	-	-
Total Emerging Markets	989.9	103.7	(95.7)	8.0	27.2	1,025.1	2%

	FUM 1-Jan-15	Gross sales ²	Gross outflows	Net flows	Market and other movements ³	FUM 30-Jun-15	Net flows as % of opening FUM (annualised)
	FUM 1-Jan-15	Gross sales ²	Gross outflows	Net flows	Market and other movements ³	FUM 30-Jun-15	Net flows as % of opening FUM (annualised)
Total South Africa	715.9	83.5	(72.0)	11.5	24.4	751.8	3%
Retail Affluent	123.8	36.0	(30.6)	5.4	9.1	136.3	9%
Mass Foundation ⁴	-	4.7	(2.2)	2.5	(2.5)	-	-
Corporate	71.0	25.3	(22.7)	2.6	(2.2)	71.4	7%
OMIG ⁴	518.6	18.5	(16.5)	2.0	21.2	541.8	1%
Property & Casualty	2.5	-	-	-	(0.2)	2.3	-
Intra-group eliminations ⁶	-	(1.0)	-	(1.0)	1.0	-	-
Rest of Africa	62.2	7.8	(5.9)	1.9	1.3	65.4	6%
Asia & Latin America	126.8	19.4	(14.5)	4.9	0.4	131.3	8%
Inter-group eliminations ⁷	-	(5.0)	1.5	(3.5)	3.5	-	-
Total Emerging Markets	904.9	105.7	(90.9)	14.8	28.8	948.5	3%
¹ FUM shown on an end manager basis
² Gross sales are cash inflows for the period and thus include current period recurring premium flows on policies sold in prior periods
³ Includes the foreign exchange impact of translating FUM managed outside of South Africa
⁴ Mass Foundation gross sales are recorded by segment but all FUM is managed by OMIG
⁵ With effect of 30 June 2016 the FUM for Old Mutual Properties, totalling R20.9 billion, has been internalised into OMLACSA, leading to an increase in the FUM for Retail Affluent of R6.9 billion, an increase to the Corporate FUM of R14.0 billion and a decrease of R20.9 billion to the OMIG FUM. These movements are included in 'Market and other movements'
⁶The South African intra-group flows eliminations are made up of AGP and Coregrowth sales of R5,371 million (HY 2015: R975 million) reported in Retail Affluent and Corporate, Marriott living annuity cell sales of R415 million (HY 2015: Rnil) reported in Corporate and OMIG; Institutional unit trust sales of R44 million (HY 2015: R1 million) reported in OMIG and Retail Affluent, and Superfund sales of R48 million (HY 2015: R48 million) reported in Corporate and OMIG.
⁷The elimination of inter-group flows is made up Old Mutual International sales R2,406 million (HY 2015: R1,825 million) and AIVA sales of R2,540 million (HY 2015: R3,171 million) reported in Old Mutual Wealth in the UK

Covered sales - APE (Rm)
	Single premium APE			Regular premium APE			Total APE
By cluster:	H1 2016	H1 2015	% change	H1 2016	H1 2015	% change	H1 2016	H1 2015	% change
Total South Africa	1,685	1,330	27%	3,250	2,768	17%	4,935	4,098	20%
Retail Affluent	1,022	941	9%	850	869	(2%)	1,872	1,810	3%
Mass Foundation ¹	2	2	-	1,826	1,677	9%	1,828	1,679	9%
Corporate	953	485	96%	574	222	159%	1,527	707	116%
Intra-group eliminations	(292)	(98)	(198%)	-	-	-	(292)	(98)	(198%)
Rest of Africa	98	88	11%	444	411	8%	542	499	9%
Asia & Latin America ²	346	115	201%	1,018	762	34%	1,364	877	56%
Total Emerging Markets	2,129	1,533	39%	4,712	3,941	20%	6,841	5,474	25%

	Single premium APE			Regular premium APE			Total APE
By product:	H1 2016	H1 2015	% change	H1 2016	H1 2015	% change	H1 2016	H1 2015	% change
Savings	1,966	1,418	39%	2,554	2,199	16%	4,520	3,617	25%
Retail Affluent	894	846	6%	478	520	(8%)	1,372	1,366	0%
Mass Foundation	2	2	-	856	781	10%	858	783	10%
Corporate	913	461	98%	219	106	107%	1,132	567	100%
Intra-group eliminations	(282)	(91)	210%	-	-	-	(282)	(91)	210%
Rest of Africa	94	85	11%	224	247	(9%)	318	332	(4%)
Asia and Latin America	345	115	200%	778	545	43%	1,123	660	70%
Protection	-	-	-	2,158	1,742	24%	2,158	1,742	24%
Retail Affluent	-	-	-	372	349	7%	372	349	7%
Mass Foundation	-	-	-	970	897	8%	970	896	8%
Corporate	-	-	-	355	115	209%	355	116	206%
Rest of Africa	-	-	-	220	164	34%	220	164	34%
Asia and Latin America	-	-	-	240	217	11%	240	217	11%
Annuity	163	115	42%	-	-	-	163	115	42%
Retail Affluent	128	95	35%	-	-	-	128	95	35%
Mass Foundation	-	-	-	-	-	-	-	-	-
Corporate	40	24	67%	-	-	-	40	24	67%
Intra-group eliminations	(11)	(7)	57%	-	-	-	(11)	(7)	57%
Rest of Africa	4	3	33%	-	-	-	4	3	33%
Asia and Latin America	2	-	-	-	-	-	2	-	-
Total Emerging Markets	2,129	1,533	39%	4,712	3,941	20%	6,841	5,474	25%
¹ OMF credit life sales included within Mass Foundation protection sales increased 1% to R139 million (H1 2015: R137 million)
² Latin America includes Colombia life APE sales of R53 million. Comparatives have not been restated


Non-covered sales
	Unit trust sales			Other non-covered sales			Total non-covered sales
	H1 2016	H1 2015	% change	H1 2016	H1 2015	% change	H1 2016	H1 2015	% change
South Africa ^{1, 2}	21,102	21,822	(3%)	32,843	43,022	(24%)	53,945	64,844	(17%)
Rest of Africa	3,306	3,275	1%	3,383	1,979	71%	6,689	5,254	27%
Asia & Latin America	15,868	16,930	(6%)	-	-	-	15,868	16,930	(6%)
Inter-group eliminations ³	(2,540)	(3,171)	(20%)	(2,406)	(1,825)	(32%)	(4,946)	(4,996)	1%
Total Emerging Markets	37,736	38,856	(3%)	33,820	43,176	(22%)	71,556	82,032	(13%)
¹ Within South Africa Retail Affluent, Old Mutual Investment Services recognises Linked Investment Service Provider (LISP) sales on which it earns fees irrespective of where the underlying funds are managed. Where these funds are managed by Old Mutual Unit Trusts (OMUT), OMUT also recognises a sale. These intra-segment sales for H1 2016 amount to R10,182 million (H1 2015: R11,224 million)
² Within South Africa intra-group eliminations are made up of Institutional unit trust sales of R44 million (HY 2015: R1 million) reported in OMIG and Retail Affluent, and Superfund sales of R48 million (HY 2015: R48 million) reported in Corporate and OMIG
³ The elimination of inter-Group flows are made up Old Mutual International unit trust sales of R2,406 million (HY 2015: R1,825 million) and AIVA sales of R2,540 million (HY 2015: R3,171 million) reported in Old Mutual Wealth in the UK

Value of new business	H1 2016	H1 2015	% change
Retail Affluent	203	201	1%
Mass Foundation	602	505	19%
Corporate	289	91	218%
Total South Africa	1,094	797	37%
Rest of Africa	92	133	(31%)
Asia & Latin America ¹	(24)	(23)	4%
Total Emerging Markets	1,162	907	28%
¹No VNB is calculated in respect of Life APE sales in India, China and Colombia.

Old Mutual Emerging Markets banking and lending disclosures

The information presented below is the manner in which the Group currently manages the underlying businesses.

Old Mutual Finance (Rm)	H1 2016	H1 2015	% change
Loans and advances	14,295	13,315	7%
Performing	6,965	7,269	(4%)
Defaulted	2,991	2,962	1%
Long outstanding	4,339	3,084	41%
Balance sheet impairment provision	5,986	4,970	20%
Performing	363	409	(11%)
Defaults	1,762	1,798	(2%)
Long outstanding	3,861	2,762	40%
Impairment coverage ratio¹	41.9%	37.3%	460 bps
Performing	5.2%	5.6%	(40 bps)
Defaulted	58.9%	60.7%	(180 bps)
Long outstanding	89.0%	89.5%	(50 bps)
Income statement impairments	410	571	(28%)
Performing	(29)	(3)	867%
Defaulted	(30)	225	(113%)
Long outstanding	470	349	35%
Credit loss ratio²	5.7%	8.6%	(290 bps)
Value of loan pay-outs	3,071	2,995	3%
Loan disbursal rate (average)²	37.2%	30.5%	670 bps
Net Interest Income (NII)	937	958	(2%)
Non-Interest Revenue (NIR)	428	454	(6%)
Equity	1,870	1,540	21%
Return on equity³	46.5%	45.5%	100 bps
Branches	272	260	5%
Staff	2,810	2,540	11%
¹ Impairment coverage ratio is calculated as balance sheet impairment provision (for a specific category) over the gross loans and advances balance for that same category. The impairment coverage ratio differs from the coverage ratio disclosed by other financial institutions
² Calculated as a percentage of the loans and advances closing balances (on an average balance basis H1 2016 would be 5.9% and H1 2015 would be 8.9%)
³ Calculated as net profit after tax before capital charges divided by average equity (excluding preference share capital)

CABS (Rm)	H1 2016	H1 2015	% change
Loans and advances	8,148	6,270	30%
Balance sheet impairment provision	320	249	29%
Income statement impairments	(47)	118	(140%)
Credit loss ratio¹	(1.1%)	4.1%	(520 bps)
Net Interest Income (NII)	423	340	24%
Non-Interest Revenue (NIR)	333	246	36%
Equity²	2,287	1,683	36%
Branches	58	57	2%
Staff	682	650	5%
¹ Credit loss ratios for CABS have been calculated on a local currency basis and divides the income statement impairments by loans and advances
² Reflects closing equity balance, including preference share capital

Faulu (Rm)	H1 2016	H1 2015	% change
Loans and advances	2,702	1,877	44%
Balance sheet impairment provision	46	21	119%
Income statement impairments	11	3	278%
Credit loss ratio¹	0.8%	0.3%	50 bps
Net Interest Income (NII)	165	131	26%
Non-Interest Revenue (NIR)	24	11	118%
Equity²	635	528	20%
Branches	43	43	-
Staff	789	854	(8%)
¹ Credit loss ratios for Faulu have been calculated on a local currency basis and divides the income statement impairments by loans and advances
² Reflects closing equity balance, including preference share capital
Property & Casualty (Rm)	H1 2016	H1 2015	% change
Gross written premiums	8,218	6,308	30%
South Africa	6,000	5,509	9%
Rest of Africa	2,218	799	178%
Net earned premiums	5,866	5,013	17%
South Africa	4,335	4,541	(5%)
Rest of Africa	1,531	472	224%
Underwriting result	(57)	175	(133%)
South Africa	(44)	147	(130%)
Rest of Africa	(13)	28	(146%)
Underwriting margin (%)	(1.0%)	3.5%	(450 bps)
South Africa	(1.0%)	3.2%	(420 bps)
Rest of Africa	(0.9%)	5.9%	(680 bps)
Claims ratio¹	63.5%	58.3%	(520 bps)
South Africa	65.6%	59.1%	(650 bps)
Rest of Africa	57.9%	50.6%	(720 bps)
Combined ratio	101.0%	96.5%	450 bps
South Africa	101.0%	96.8%	420 bps
Rest of Africa	100.9%	94.1%	680 bps
¹ Includes claims administration costs transferred from management expenses
Nedbank

Nedbank is listed on the Johannesburg stock exchange (market capitalisation R92.4 billion as at 30 June 2016). Further information is included Old Mutual plc's Financial Disclosure Supplement and at Nedbank's website

https://www.nedbank.co.za/content/nedbank/desktop/gt/en/aboutus/information-hub/financial-results.html


Highlights (Rm)	H1 2016	H1 2015	% change
IFRS profit pre-tax	7,628	7,385	3%
AOP (pre-tax)	7,628	7,339	4%
IFRS profit post-tax attributable to equity holders of the parent ¹	3,005	3,013	-
Headline earnings ¹	5,427	5,323	2%
Net interest income	13,028	11,675	12%
Non-interest revenue	11,357	10,450	9%
Net interest margin	3.37%	3.36%
Credit loss ratio	0.67%	0.77%
Efficiency ratio (including Associate income)	57.1%	55.8%
Return on Equity	14.6%	16.0%
Return on Equity (excluding goodwill)	15.7%	17.3%
Common-equity tier 1 ratio	11.6%	11.4%

¹ Both metrics reflect profits after-tax and minority interests however headline earnings is profit attributable to Nedbank equity holders, not Old Mutual plc equity holders. The difference between the metrics mainly reflects minority interest created on consolidation of Nedbank into the Old Mutual Group

² CET 1 ratio at 31 December 2015 was 11.3%

The full text of Nedbank's results for the six months ended 30 June 2016, released on 1 August 2016, can be accessed on our website http://www.oldmutual.com/media/news/view-news.jsp?news-id=29283. The following is an edited extract:

Banking and economic environment

The global economic environment remains under pressure. Expectations earlier in the year of an economic recovery and interest rate normalisation in the US have softened. The UK's vote to leave the European Union (EU) has triggered increased volatility across markets and added further uncertainty to a fragile economic environment in the UK and Eurozone. These factors have led to the International Monetary Fund (IMF) downgrading its 2016 global real gross domestic product (GDP) growth forecast to 3.1% from 3.8% a year ago. Given continued economic pressures in developed economies and low economic growth in China, there remains downside risk for commodity-driven economies, although prices have stabilised since the beginning of the year. The IMF has also downgraded the GDP growth forecast for the sub-Saharan Africa region to 1.6%, from 5.1% in July 2015.

The South African economy deteriorated in 2016 off an already low 2015 base. The GDP contraction of 1.2% in the first quarter of 2016 was largely driven by the sharp declines in mining and agriculture output, as well as lower export levels despite the weak rand. Lower levels of consumer spending and private sector fixed investment in addition to rising inflation further contributed to the economic slowdown.

The reaffirmation of SA's sovereign risk ratings at an investment grade of Baa2 by Moody's Investor Service and BBB- by Standard and Poor's was a positive outcome of the work done by government, business and labour in the first six months of the year. Both rating agencies maintained a negative outlook, reflecting the potential adverse consequences of low GDP growth and signalling that SA ratings could be lowered if policy measures are not instituted to be more supportive of inclusive growth. Fitch's rating, although revised down to BBB- from BBB with a stable outlook, also remained above investment grade. These ratings acknowledge the fiscal consolidation achieved; the 2016/17 budget and medium-term plan to reduce government debt; the underlying strength of SA's institutions; as well as the structural and legislative reforms that the SA government, businesses and labour have been working on together to restore confidence in the country to encourage private sector investment and higher levels of inclusive growth in the economy. Evidence of delivery on these plans will be needed before December 2016 to prevent any downgrade at the next round of ratings reviews.

Review of results

Nedbank Group produced headline earnings of R5,427 million, an increase of 2.0% for the six months ended 30 June 2016 ('the period'). This earnings growth was underpinned by strong net interest income (NII) and non-interest revenue (NIR) growth, as well as impairments remaining below the midpoint of our through-the-cycle target range.

Headline earnings includes a loss in associate income of R446 million (June 2015: R426 million profit) relating to our 21.8% share of the Q4 2015 loss of $199 million and Q1 2016 profit of $71 million in ETI. Associate income from ETI is equity-accounted one quarter in arrear using ETI's publicly disclosed results. Excluding both the loss in associate income of R446 million and funding costs of R157 million relating to ETI, headline earnings from Nedbank Group's managed operations for the period grew strongly by 20.1% to R6,030 million.

Diluted headline earnings per share (DHEPS) increased 1.6% to 1,119 cents (June 2015: 1,101 cents) and headline earnings per share (HEPS) grew by 0.6% to 1,135 cents (June 2015: 1,128 cents). Excluding ETI, DHEPS was up 19.7% and HEPS was up 18.7%.

Return on average ordinary shareholders' equity (ROE), excluding goodwill, of 15.7% (June 2015: 17.3%) and ROE of 14.6% (June 2015: 16.0%), reflect a lower return on assets (ROA) of 1.19% (June 2015: 1.28%) resulting from the above loss in equity-accounted earnings from ETI. Excluding ETI, the ROA was 1.32%. Our economic profit decreased to R408 million (June 2015: R1,328 million), largely as a function of the impact of ETI and Nedbank's cost of equity (COE) increasing to 14.4% (monthly average for the period) from 13.0%. This follows the increase in the SA long-bond yield earlier in the year. In more recent months the SA long-bond rate and our COE have decreased from their peak in December 2015.

Our Basel III common-equity tier 1 (CET1) ratio improved to 11.6% (December 2015: 11.3%) and remained within our Basel III 2019 internal target range, reflecting a well-capitalised balance sheet. Our liquidity coverage ratio (LCR) of 93.1% for the second quarter of 2016 (December 2015: 88.5%) is above the regulatory requirement of 70% for 2016 and incorporates an appropriately-sized buffer for volatility in this ratio. Nedbank's portfolio of high-quality liquid assets (HQLA) and other sources of quick liquidity amounted to R167.7 billion (December 2015: R160.7 billion).

Cluster financial performance

Our Corporate Investment Banking (CIB), Retail and Business Banking (RBB) and Wealth Clusters generated headline earnings growth of 16.6% to R5,989 million (June 2015: R5,136 million) and delivered an ROE of 20.8%. Rest of Africa's headline earnings were impacted by our 21.8% share of the Q4 2015 losses in ETI.

Nedbank CIB's integrated franchise achieved excellent headline earnings growth of 20.9%, driven by good cross-sell and client flows, particularly in the global markets business. This was reflected in robust revenue growth as well as in an improvement in impairments.

Nedbank RBB generated strong earnings growth and an ongoing ROE improvement to 18.3%, now well in excess of Nedbank's COE of 14.4%. This was underpinned by strong NII and NIR growth and a strong performance in credit risk management and collections while increasing portfolio provisions.

Nedbank Wealth produced good earnings growth at an attractive ROE. These results were underpinned by strong balance sheet growth and continued low levels of impairments in Wealth Management. Despite market volatility, assets under management increased 9.8%. Higher sales of single-premium investment products supported Insurance earnings growth.

Rest of Africa's earnings were largely impacted by our 21.8% share of the Q4 2015 losses in ETI that amounted to R676 million, reflected as a loss in associate income. Our subsidiaries in the Southern African Development Community (SADC) grew headline earnings by 32.5% to R53 million (June 2015: R40 million) off a low base, mostly from lower head office costs and improved impairments, offset by lower transactional volumes and continued investment in staff, systems, distribution channels and regulatory compliance.

The decrease in losses in the Centre was largely due to a portfolio impairment reversal of R150 million and changes in internal capital allocation.

Financial performance

Net interest income

Strong NII growth of 11.6% to R13,028 million (June 2015: R11,675 million) was underpinned by growth in average interest-earning banking assets of 10.9% and slight net interest margin (NIM) expansion to 3.37% (June 2015: 3.36%). In December the NIM was 3.30%.

The NIM improved 21 basis points (bps) from the combined benefit of endowment income of 15 bps, as average interest rates increased by 107 bps during the period, and improved asset pricing of 6 bps. This was partially offset by margin compression of 21 bps, comprised of an advances mix change of 13 bps as lower-margin wholesale advances continued to grow faster than higher-margin retail advances; and a further compression of 8 bps due to Basel III compliance costs related to higher funding costs for transitioning to net stable funding ratio (NSFR) requirements and holding higher levels of low-yielding HQLA for increasing LCR requirements.

Impairments charge on loans and advances

Impairments declined 4.2% to R2,211 million (June 2015: R2,307 million) and the credit loss ratio (CLR) improved to 0.67% (June 2015: 0.77%) due to a lower specific impairments charge of 0.64% (June 2015: 0.73%) while the portfolio impairments charge for the period remained similar at 0.03% (June 2015: 0.04%).

The CLR includes the release of R150 million from central provisions raised in the second half of 2015. Excluding this release, the CLR was 0.72%. The improvement in CIB's impairments was driven by a combination of oil and commodity prices stabilising at higher levels, as well as the successful settlement or restructuring of certain counters during the period. RBB's CLR remained below the lower end of its target range due to reduced impairments in Personal Loans and in Business Banking. Post write-off recoveries increased to R564 million (June 2015: R520 million), of which R196 million (June 2015: R196 million) was attributable to Personal Loans.

Total defaulted advances increased to R18,437 million (June 2015: R16,695 million), representing 2.6% of advances (June 2015: 2.5%). The increase was largely as a result of certain wholesale counters within the stressed sectors of the economy and the seasonal effects in Home Loans, MFC and Card. South African Reserve Bank (SARB) directive 7/2015, which was implemented in the second half of 2015 and requires that distressed restructures be classified as defaulted advances for a minimum period of six months after being restructured, contributed to the increase in defaulted advances. Excluding the effect of directive 7/2015, defaulted advances were R15,397 million.

The total coverage ratio decreased to 62.6% (June 2015: 65.9%), driven by a lower specific coverage of 36.2% (June 2015: 39.6%) largely as a result of the impact of directive 7/2015 and partial write-offs in CIB as well as the abovementioned improvement in impairments. CIB-specific coverage is determined on a deal-by-deal basis. Wholesale advances are generally secured with collateral and we hold deep security pools against our commercial property finance portfolio, resulting in relatively lower-loss expectations in the event of default and, accordingly, lower specific impairments and coverage levels.

The portfolio coverage ratio increased to 0.71% (June 2015: 0.68%). Additional overlays in Retail increased to R701 million (June 2015: R441 million) and central portfolio provisions were R350 million (June 2015: R350 million) to take account of risks, including in commodities and in the rest of Africa, that have been incurred but have not yet emerged. In December 2015 our overlays were at R699 million in RBB and the central portfolio provisions were R500 million.

Non-interest revenue

NIR grew 8.7% to R11,357 million (June 2015: R10,450 million), primarily driven by:

· Commission and fee income growth of 9.1% to R8,185 million (June 2015: R7,499 million), supported by quality-client gains, an increased focus on cross-sell leading to good main-banked client conversion, together with below-inflation annual fee increases in RBB in January 2016.

· Insurance income increasing 12.9% to R921 million (June 2015: R816 million), led by good growth in single-premium income, partly offset by higher weather-related claims.

· Trading income growth of 5.0% to R1,771 million (June 2015: R1,686 million) off a high 2015 base, following increased market volatility and improved cross-sell in CIB.

· Private-equity income increasing to R432 million (June 2015: R250 million), largely from property private equity gains, the majority of which were realised.

Expenses

Expenses continue to be managed within expectations and increased 8.8% to R13,686 million (June 2015: R12,578 million), mainly as a result of:-

· Staff-related costs increasing 7.5%, consisting of -

§ 8.8% growth in remuneration and other staff costs, driven by a 6.3% average annual salary increase and additional staff hires, mainly for regulatory change programmes; and

§ a 1.7% combined increase in short-term and long-term incentives, aligned with the Nedbank's performance.

· Computer processing costs up 18.8% to R1,985 million, including amortisation costs increasing 11.1% to R400 million following the capitalisation of equipment for distribution and reformatting of branches and an increase in IT project costs.

· Fees and insurance costs being 11.2% higher at R1,381 million following increased volumes of revenue-generating activities such as cash handling and card issuing and acquiring.

· Occupation and accommodation costs growing 8.1% to R1,098 million relating to regional consolidation and ongoing investment in distribution.

Nedbank's growth in operating income of 11.9% exceeded growth in expenses. However, including the loss from ETI in associate income, the jaws ratio was -2.6% (June 2015: 1.3%). Excluding ETI, the jaws ratio was 1.6%. The efficiency ratio increased to 57.1% (June 2015: 55.8%) and, excluding ETI, this metric improved to 55.6% (June 2015: 56.4%).

Associate income

Associate income declined to a negative R431 million (June 2015: R436 million profit). This mainly comprised the equity accounting of our 21.8% share of ETI's Q4 2015 loss of R676 million and Q1 2016 profit of R230 million, in line with our policy of accounting for ETI earnings a quarter in arrear. The total headline earnings impact of ETI in the period was a negative R603 million, including the R157 million impact of funding costs, offset by endowment on allocated capital.

Statement of financial position

Capital

Nedbank Group remains strongly capitalised and operates well within our Basel III 2019 capital adequacy targets. The CET1 ratio improved to 11.6% from the 11.3% reported at the 2015 year-end, largely due to lower credit risk-weighted assets (RWA). This resulted from improved credit parameters across certain wholesale portfolios and RWA optimisation initiatives within certain retail portfolios.

Our tier 1 and total capital ratios further reflect the effects of the issuance of a new-style (Basel III-compliant) additional tier 1 capital instrument of R1.5 billion in May 2016, in line with Nedbank's capital plan.

Funding and liquidity

Nedbank Group maintained a strong funding profile and liquidity position, underpinned by a significant quantum of long-term funding, a large surplus liquid-asset buffer, a strong loan-to-deposit ratio that was consistently below 100% and a low reliance on interbank and foreign-currency funding.

At June 2016 Nedbank's quarterly average LCR of 93.1% (December 2015: 88.5%) exceeded the minimum regulatory requirement of 70%, as a buffer of a minimum of 10.0% is maintained to ensure daily compliance given the volatility of flows. Nedbank will continue to position proactively for the phase-in period as the LCR requirement increases by 10% per annum to 100% by 1 January 2019.

Nedbank's portfolio of LCR‑compliant HQLA increased to R127.1 billion (December 2015: quarterly average R118.0 billion). Together with our portfolio of quick-liquidity sources, the total available quick liquidity amounted to R167.7 billion (December 2015: R160.7 billion), representing 17.8% of total assets.

We also maintained a strong, well-diversified funding profile. Our three-month average long-term funding ratio of 30.9% for the second quarter of 2016 (December 2015: quarterly average of 28.7%) represents a slightly more conservative funding profile than the last reported industry average. The strong funding profile was supported by growth in Nedbank Retail Savings Bonds of R2.0 billion to R16.4 billion and Nedbank having successfully issued R8.8 billion in senior unsecured debt in the first half of 2016.

Following the finalisation of the NSFR calibration in October 2014, the SARB released a directive on 18 November 2015 increasing the available stable funding factor applicable to wholesale deposits in the 0-to-6-month bucket from 0% to 35% to better reflect the stability of these deposits in the SA context. This directive positions all SA banks favourably to achieve NSFR compliance from the effective date of 1 January 2018.

Liquidity Coverage Ratio	H1 2016	FY 2015	% change
High quality liquid assets (Rm)	127,114	117,997	8%
Net cash outflows (Rm)	136,469	133,272	2%
Liquidity Coverage ratio (%) ¹	93.1	88.5
Regulatory Minimum (%)	70.0	60.0

¹ Average for the quarter

Loans and advances

Loans and advances increased by 6.9% to R693.3 billion (June 2015: R648.8 billion), largely underpinned by growth in banking advances of 8.6%.

Advances growth in CIB was mostly from term loans increasing 12.5% and commercial-mortgage advances growing 9.7%. This was led by the drawdown on existing deals in investment banking and commercial property finance. The decline in trading advances relates to a decrease in USD-denominated loans during the period.

Growth in RBB's advances was led by the increase of 7.2% in MFC and of 3.8% in Personal Loans, while Card grew 2.8%. Home Loans increased by 2.1%, with growth in new-asset payouts partially offset by the roll off of the back book. Since December 2015 total loans and advances have grown by an annualised 3.5%.

Deposits

Deposits grew 7.4% to R741.7 billion (June 2015: R690.5 billion), underpinned by deposit growth in RBB of 12.2% to R256.7 billion. The loan-to-deposit ratio improved to 93.5% (December 2015: 93.9%).

Increasing household and commercial liabilities remains a priority for Nedbank. Our strategy of growing our transactional banking franchise continued to gain traction, as reflected in our household deposit market share increasing to 18.7% in May 2016, from 18.4% in December 2015, supported by market share gains in current accounts to 19.0% in May 2016 (June 2015: 18.0%). Our current accounts increased 8.4% and savings accounts by 19.4%, and cash management deposits grew 6.2%. Since December 2015 total deposits grew by an annualised 4.4%.

Old Mutual plc managed separation

A further update on the managed separation was provided on 28 June 2016, with Old Mutual plc stating that, following the creation of a new SA holding company, it intends to distribute, in an orderly manner, a significant proportion of the group's shareholding in Nedbank to the shareholders on the register of the new SA holding company at that time, leaving Old Mutual Emerging Markets (OMEM) as the principal business in the group. Through its ownership of Old Mutual Life Assurance Company South Africa the new SA group will retain an appropriate strategic minority stake in Nedbank, with the exact level still to be determined together with Nedbank based on OMEM's commercial relationship with Nedbank and influenced by the implications of the incoming Twin Peaks regulation. The boards of directors and management teams of OM and Nedbank continue to work closely together on the managed separation.

Economic outlook

The local economy is expected to remain under pressure for the remainder of 2016. Rising domestic inflation and the increase in interest rates earlier this year are expected to contain consumer spending. The global economy is also likely to remain generally unsupportive of growth, complicated further by the UK's vote to leave the EU and growing tensions in some key emerging economies. Given the sharper-than-expected decline in SA's GDP in the first quarter, stronger and more consistent growth is needed over the next three quarters to produce a favourable outcome for 2016. The SA economy is currently expected to contract by 0.1% in 2016 with risk remaining to the downside.

Interest rates are currently anticipated to increase by a further 25 bps, compared with earlier projections of a further 50 bps increase, resulting in a cumulative 100 bps increase for 2016. This is largely due to expectations that global uncertainties following the EU referendum vote will lead to a delay in the normalisation of US monetary policy, that core inflation in SA will breach 6% only in the fourth quarter of 2016, that SA's investment grade ratings in the June reviews will be maintained, and that the rand will be steadier, boosted by the global search for yield.

Corporate credit demand will continue to be affected by softer global demand, weak commodity prices, rising domestic production costs and limited infrastructure, offsetting the competitive benefit of a weaker rand. Restructuring is anticipated to continue as a result, with lower capital expenditure and retrenchments taking place in the private sector.

Consequently, household credit demand will remain weak, impacted by the weak job market, softer income growth and increasing levels of consumer indebtedness due to rising cost pressures from food inflation and higher fuel prices contributing to rising debt service costs.

Consumption expenditure by general government will be boosted by election‐related spending in the short term and public sector investment in infrastructure and development projects in the medium term.

Prospects

Our guidance on financial performance for the full year is now as follows:

§ Average advances to grow at mid-to-upper single digits.

§ NIM to be slightly above the 2015 level of 3.30%.

§ CLR to be below the midpoint of our target range of 60 bps to 100 bps.

§ NIR (excluding fair-value adjustments) to grow above mid-single digits.

§ Expenses to increase by mid-to-upper single digits.

Our financial guidance for organic growth in diluted HEPS in 2016 and our medium-to-long-term targets remain unchanged. We expect growth in diluted HEPS in 2016 to be positive, but lower than the growth achieved in 2015 and below our medium-to-long-term target of consumer price index plus GDP growth plus 5%.

Nedbank data tables (Rand)

Cluster performance	Headline earnings (Rm)			RoE (%)
Cluster performance	H1 2016	H1 2015	% change	H1 2016	H1 2015
Nedbank Corporate & Investment Banking	3,004	2,485	21%	21.3%	22.9%
Nedbank Retail & Business Banking	2,371	2,132	11%	18.3%	15.9%
Nedbank Wealth	614	519	18%	35.9%	38.9%
Rest of Africa	(550)	344	(260%)	(15.2%)	15.3%
Business clusters	5,439	5,480	(1%)	16.8%	19.7%
Centre	(12)	(157)	92%
Total	5,427	5,323	2%	14.6%	16.0%

Cluster performance		Average Allocated Capital (Rm)					Economic Profit (Rm)
		H1 2016		H1 2015	% change		H1 2016		H1 2015		% change
Nedbank Corporate & Investment Banking		28,329		21,848	30%		959		1,076		(11%)
Nedbank Retail & Business Banking		26,040		27,043	(4%)		491		389		26%
Nedbank Wealth		3,445		2,691	28%		366		346		6%
Rest of Africa		7,287		4,528	61%		(1,077)		52		(2,171%)
Business clusters		65,101		56,110	16%		739		1,863		(60%)
Centre		10,249		11,011	(7%)		(331)		(535)		38%
Total		75,350		67,121	12%		408		1,328		(69%)
Cost of equity¹							14.4%		13.0%
¹ The cost of equity (COE) metric was historically set annually in advance and was estimated for 2016 at 15%. Given the significant subsequent strengthened in in long-bond rates, despite increased global volatility, Nedbank has raised its COE to 14.4% for June 2016, better reflecting the actual long-bond rates during the period. In future COE will be calculated monthly


Credit loss ratio by cluster (%)	% banking advances		H1 2016			H1 2015				Through-the-cycle target ranges
								FY 2015
Nedbank Corporate & Investment Banking	49.0%		0.31%			0.38%		0.40%		0.15% - 0.45%
Nedbank Retail & Business Banking	43.8%		1.23%			1.22%		1.14%		1.30% - 1.80%
Nedbank Wealth	4.5%		0.16%			0.18%		0.15%		0.20% - 0.40%
Rest of Africa	2.5%		0.76%			0.86%		1.25%		0.75% - 1.00%
Total credit loss ratio			0.67%			0.77%		0.77%		0.60% - 1.00%

	Net Interest Margin			Loans and Advances (Rm)
Loans and advances by cluster (Rm)	H1 2016	H1 2015	H1 2016	H1 2015	% change
Nedbank Corporate & Investment Banking	1.97%	1.99%	359,041	331,069	8%
Banking activity			325,258	292,457	11%
Trading activity			33,783	38,612	(13%)
Nedbank Retail & Business Banking	6.12%	5.78%	284,617	275,079	3%
Nedbank Wealth	2.07%	2.01%	29,677	26,652	11%
Rest of Africa	3.65%	3.11%	18,199	15,849	15%
Centre			1,798	195	822%
Total	3.37%	3.36%	693,332	648,844	7%


Credit loss ratio analysis (%)	H1 2016	H1 2015
Specific impairments	0.64%	0.73%
Portfolio impairments	0.03%	0.04%
Total credit loss ratio	0.67%	0.77%

Capital (Basel III)	H1 2016	H1 2015	FY 2015	Internal target range	Regulatory minimum¹
Common-equity tier 1 ratio	11.6%	11.4%	11.3%	10.5% - 12.5%	6,875
Tier 1 ratio	12.5%	12.1%	12.0%	11.5% - 13.0%	8,375
Total capital ratio	14.5%	14.5%	14.1%	14.0% - 15.0%	10,375
(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

Metric	H1 2016 performance	Medium-to-long-term targets		2016 outlook
RoE (excluding goodwill)	15.7%	5% above cost of ordinary shareholders' equity¹		Below target
Growth in diluted headline earnings per share	1.6%	≥ consumer price index + GDP growth + 5%		Positive but below 2015 growth and target
Credit loss ratio	0.67%	Between 0.6% and 1.0% of average banking advances		Below mid-point of target range
NIR-to-expense ratio	83.0%	> 85%		Below target
Efficiency ratio (including associate income) ¹	57.1%	50.0% to 53.0%		Above target
Common-equity tier 1 capital adequacy ratio (Basel III)	11.6%	10.5% to 12.5%		Within target range
Economic capital	Internal Capital Adequacy Assessment Process (ICAAP): A debt rating (including 10% capital buffer)
Dividend cover	1.99 times	1.75 to 2.25 times		Within target range
¹ The COE is 14.4%, calculation on a monthly average for the period
These forecasts are based on organic earnings and Nedbank's latest macro-economic outlook and have not been reviewed or reported on by Nedbank's independent auditors.
Old Mutual Wealth

Highlights			H1 2016	H1 2015	% change
IFRS loss pre-tax (£m)			(17)	(27)	37%
AOP (pre-tax, £m)			104	151	(31%)
Invest & Grow AOP (pre-tax, £m)			90	101	(11%)
Manage for Value AOP (pre-tax, £m)			14	50	(72%)
Gross sales (£bn)			11.3	9.8	16%
NCCF (£bn)			3.2	2.3	39%
FUM (£bn) ¹			111.2	104.4	7%
Pre-tax operating margin ²			28%	42%
Revenue margin (bps)			64	66
¹ Comparative as at December 2015
² Pre-tax revenue operating margin is calculated as pre-tax AOP divided by net revenue

Operating environment

Investment markets in the UK and Europe were volatile over the first half of 2016 due to uncertainty in the lead up to, and the outcome of, the UK's EU Referendum. By 30 June, markets had recovered from the lows following the referendum vote. The average FTSE 100 during H1 2016 was 11% lower than prior year (6,098 over H1 2016 compared to 6,853 over H1 2015).

Macro-economic headwinds have materially impacted market volumes and the Investment Association reported net outflows in Q1 2016 across the UK retail industry, the worst first quarter in 20 years. Risk-adjusted absolute return asset classes remained popular as investors continued to look for alternative investment options to seek positive returns in the low interest rate environment.

Sterling has weakened against the Euro and the US dollar this year. On average, Sterling was 6% weaker against the Euro and US Dollar over H1 compared with the prior period. This has the effect of increasing fund values and revenues in Sterling terms for funds denominated in these currencies in our International offshore business and Italian operations.

Business developments

Our advice-led, vertically integrated strategy continues to perform well with strong flows on to our Platform and into Old Mutual Global Investors (OMGI) fund solutions via Intrinsic advisers. Despite weaker markets for most of the period, funds under management grew 7% to £111.2 billion due to £3.2 billion of net inflows over the period and market gains that took place in late June 2016 following the UK's EU referendum result.

As we announced on 9 August, we have agreed the sale of Old Mutual Wealth Italy to ERGO Italia, owned by Cinven for a consideration of €278 million in cash plus interest to completion. The sale is the final part of the divestment of Old Mutual Wealth's continental European businesses allowing us to focus on our core UK and cross-border markets.

We seek to deliver good customer outcomes, and we communicated to customers and advisers during H1 2016 the implementation of a 1% cap on Heritage pensions exit charges for customers aged over 55 years and the restructuring of our Heritage pension product fees ahead of the expected regulatory deadline of March 2017. This will improve access to pension investments for customers, following the UK Government pension reforms introduced in 2015.

Investment performance is a key part of delivering good customer outcomes. Good progress continues to be made on the evolution of the multi-asset fund range following changes to the management team to address investment performance. We have made two new hires on our Fixed Income desk and more recently we changed the Absolute Return Government Bond team due to differences in opinion on future strategy. There have been minimal outflows from the fund subsequently and performance has continued to improve. Additionally, OMGI have launched the Old Mutual UK Specialist Equity Fund and the Old Mutual Gold & Silver fund, which has returned over 54% since launch.

Performance of the UK Alpha fund has been below median for a while. The fund is designed as a long-term holding and does experience periods of short-term underperformance. It continues to be recognised by investors as a vehicle to achieve capital growth from UK equities and has delivered an annualised return of 9.4% since inception, compared to an average annual return of 2.5% from the FTSE All-Share.

UK Platform Transformation

We are building the core back-end UK Platform administration system which covers workflow, client administration, product rules engine, regulatory requirements and links into the 25 external systems which, amongst other things, are required to verify banking and fund valuations. Since March, we have been focused on increasing risk mitigation and this is being worked through with our suppliers and project advisers. We are planning the testing processes in advance of the shift in focus, in due course, towards development of the UK Platform front-end system. So far the programme has cost £225 million which reflects the benefit of a £27 million receivable from our suppliers.

Expanding our distribution capability

We are committed to improving the strength and sustainability of the financial advice industry and improving customer access to advice. Restricted financial planners have grown to 1,318 in Intrinsic (H1 2015: 988, FY 2015: 1,230). 22 advisers have been added to Old Mutual Wealth Private Client Advisers with the remaining increase achieved through existing "independent" advisers within Intrinsic converting to a "restricted" business model. We plan to build out Old Mutual Wealth Private Client Advisers through small acquisitions such as our agreements to acquire DQS Financial Management and Beaumont Robinson.

Our Financial Adviser School has 26 existing students and we anticipate reaching 75-100 students before the year end. The School is currently recruiting additional resources to expand that capacity next year. The school is open to Old Mutual Wealth and other advisers.

In March we completed the acquisition of AAM Advisory, a leading expatriate adviser business in Singapore, adding 31 advisers. Our International offshore business is transforming the way we do business by supporting advisers and helping them understand how the combination of regulatory convergence and shifting client expectations are creating new opportunities. Our product and offering design is increasingly focusing on an integrated business model utilising our own asset management capabilities.

Quilter Cheviot has expanded its geographic footprint by opening an office in Dubai. In collaboration with our International offshore business, we now offer discretionary fund management services to our International client base.

Our multi-asset team has launched a new range of managed solutions, the Compass portfolios, specifically designed to cater for international investors. The funds support the investment proposition of AAM Advisory and will replace the Voyager International fund range.

Awards

Our business continues to be recognised for performance and service and we have received a number of awards in H1 2016. We achieved a Defaqto Gold rating for platform service and were awarded a platinum platform rating by Adviser Asset. OMGI and Quilter Cheviot were recognised at the City of London Wealth Management awards and Intrinsic won 'Best Large Network' award for the third year running at the Mortgage Strategy Awards. OMGI also won two awards at the Investment Week Fund Manager of the Year awards.

Adjusted operating profit

Old Mutual Wealth adjusted operating profit ("AOP") of £104 million for the first half of 2016 was 31% lower than prior year (H1 2015: £151 million).

Underlying performance in our "Invest & Grow" business has been satisfactory, delivering underlying organic growth in volatile market conditions. Adjusted operating profit from this segment of the business is £90 million, down 11% on the prior year. Within OMGI we have seen lower performance fees during H1 2016. We benefitted in the half year from having Quilter Cheviot for the full six months, and as planned, we incurred an LTIP charge of £5 million in Intrinsic during the period in respect of successful business delivery, in accordance with the acquisition agreement.

The "Manage for Value" adjusted operating profit of £14 million is 72% below prior year. We have incurred one-off charges of £21 million to ensure better customer outcomes on our Heritage book of business, including capping exit fees to 1% and changing some of our fee structures. Adjusted operating profit in H1 2015 included £7 million from Switzerland which was sold at the end of Q3 last year.

Underlying revenue growth has been predominantly driven by higher funds under management in our core businesses, despite lower average markets, and the inclusion of Quilter Cheviot for an additional two months in 2016.

The overall Wealth revenue margin of 64bps is slightly lower than for the same period of the prior year (66bps). Modest margin pressure has been partially offset by increasing levels of vertical integration and improved OMGI margins. In our Platform business we have seen a 3bps margin reduction year-on-year due to the removal of our minimum investor charge and drawdown charge, the FCA sunset clause and general industry margin pressures, the combination of which has adversely impacted revenue by £5 million. Quilter Cheviot margin has decreased by 3bps compared with prior year due to a reduction in commission levels and cash yields which have been experienced industry wide, reducing revenue by £3 million. We have also experienced reduced margins in International offshore due to regulatory and competitive pressures. Italian revenue margin declined due to the mix of products sold.

Whilst reshaping and strengthening our executive committee we incurred £5 million of restructuring costs in H1 2016. Additionally, we have incurred £2 million of costs associated with the managed separation activity and continued to invest in governance and controls.

IFRS profit pre-tax

IFRS pre-tax loss is £17 million for H1 2016, compared to a loss of £27 million in H1 2015.

Adjusting items between AOP and IFRS profit include IT transformation costs of £48 million (H1 2015: £40 million) and amortisation of acquired intangibles and acquired PVIF of £36 million (H1 2015: £46 million). H1 2016 also includes a £44 million loss in relation to the impairment of goodwill and other intangibles from the anticipated sale of our Italian business. H1 2015 included a £94 million loss in relation to the impairment of goodwill and intangibles from the anticipated sale of Skandia Switzerland.

IFRS NAV

Net assets of £1,951 million at 30 June 2016 are consistent with the closing 2015 position (December 2015: £1,950 million).

Goodwill and other intangible assets carrying value has reduced by £170 million as a result of the anticipated sale of Old Mutual Wealth Italy, standard amortisation of other intangibles and an increase in relation to the acquisition of AAM Advisory.

Investments and securities have decreased by £3 billion over the half year due to £6 billion of investments and securities related to Italy which have been moved to held for sale at half year 2016. This is offset by net flows, market performance and foreign exchange gain movements in other businesses. The long-term business policyholder liabilities have decreased correspondingly, as expected for unit-linked business.

Cash and capital

We have converted 93% of our post-tax AOP to free surplus compared to 87% in the previous year. Of this £39 million was used to fund our IT transformation programme and £30 million was paid to the plc holding company. The capital strength of the underlying businesses remains robust with a Solvency II standalone ratio of 187%. We continue to benefit from Group seed capital investment of £63 million with no mark-to-market or capital charges, and Group has contributed to brand costs of £1 million incurred by the business.

Gross sales

Gross sales of £11.3 billion are up 16% from H1 2015 (£9.8 billion). Gross sales in OMGI are 38% higher than prior year with strong sales into the Global Equity Absolute Return fund and the Cirilium fund range. Gross sales in the UK Platform are 5% higher than prior year, with 16% of sales being generated via Intrinsic advisers. Pension sales in the UK Platform are 33% higher than prior year as our flexible drawdown pension continues to meet investors' needs following last year's pension reforms. Consistent with wider industry trends, ISA sales were 17% below prior year as the opportunity for large pension contributions made ISAs less attractive.

Net client cash flow (NCCF)

Net client cash flow performance for Old Mutual Wealth is robust at £3.2 billion, up 39% on prior year (2015: £2.3 billion). NCCF in the first quarter was £1.8 billion and £1.4 billion in the second quarter. Net flows into our "Invest & Grow" business are 7% of opening funds under management (annualised). Vertically integrated flows are £0.7 billion, an increase of 17% from H1 2015 (£0.6 billion).

OMGI net flows are £1.6 billion, 60% ahead of prior year (H1 2015: £1.0 billion). We have seen continued strong net flows into the Global Equity Absolute Return fund, North American Equity fund and the Cirilium range. Vertically integrated net flows into OMGI are £0.3 billion at H1 2016, slightly below prior year (H1 2015: £0.4 billion) primarily due to outflows from the Spectrum fund range.

Quilter Cheviot NCCF at H1 2016 was £0.4 billion, in line with those of the whole of H1 2015, including the pre-acquisition flows.

Intrinsic continues to secure increasing fund flows for our business. The restricted channel accounts for 33% of Platform NCCF in H1 2016. Intrinsic also contributes 26% of OMGI's NCCF in H1 2016 through the Cirilium and Generation fund ranges.

Platform net flows were £1.4 billion, up 17% from H1 2015 (£1.2 billion). This was driven by strong pension growth, with net flows 50% up on H1 2015.

International offshore net flows of £0.2 billion are 33% down on prior year (H1 2015: £0.3 billion) as economic conditions deteriorated in some regions and sales of QROPs (an offshore pension popular with expatriates) were lower following last year's pension reforms which removed some of the benefits of transferring to a QROPs for certain customers.

In Italy net flows were £0.1 billion (H1 2015: £0.4 billion) with market uncertainty in the local market resulting in a shift towards traditional life and guaranteed products, which we choose not to offer.

Improved institutional flows (H1 2016: £0.3 billion, H1 2015: £0.1 billion) have increased UK Other net flows. Improved surrender rates on our closed books have reduced overall Heritage net outflows to £0.5 billion (H1 2015: £0.6 billion of net outflows).

Funds under management (FUM)

Funds under management are £111.2 billion, up 7% from the end of 2015 driven by positive NCCF in the period.

OMGI FUM are £27.0 billion, up 9% on the start of the year (31 December 2015: £24.7 billion). Quilter Cheviot funds under management are up 7% from the start of the year to £19.0 billion (31 December 2015: £17.8 billion). Funds managed by OMGI and Quilter Cheviot represent over 40% of the total Old Mutual Wealth FUM. OMGI manages 14% of Platform assets, increasing from 13% at H1 2015.

UK Platform assets are £36.5 billion, up 6% since the start of the year (31 December 2015: £34.5 billion) and International offshore FUM of £16.9 billion is up 6% over the same period (31 December 2015: £16.0 billion).

Vertically integrated funds under management are £11.5 billion, most of which is through OMGI, up from £10.9 billion at 2015 year end.

Outlook

As we prepare for managed separation from Old Mutual plc we remain focused on executing our strategy and operational delivery whilst retaining our commitment to exceptional service for our customers and delivering good customer outcomes.

We continue to cooperate fully with the FCA's investigation following their published report setting out its findings from its thematic review of the fair treatment of long-standing customers in life insurance and their announcement that it had commenced investigations into the behaviour of six of the 11 firms included in the thematic review, including Old Mutual Wealth.

We expect continued sales growth of our Platform products and the Cirilium fund range from our own advisers over 2016, as the number of restricted financial planners increases through key partnerships within the Intrinsic network. The growth in Old Mutual Wealth Private Client Advisers will complement this, further increasing levels of vertical integration through our Platform, discretionary investment management and asset management capabilities. Despite uncertainty over investor sentiment we have seen positive inflows of money since the EU referendum result, although we do not expect the first half's strong NCCF to repeat in H2 2016.

Following the recent announcement to acquire Beaumont Robinson, Old Mutual Wealth Private Client Advisers now has four regional offices and expects to acquire further scalable adviser businesses later this year in order grow its nationwide presence.

We expect to incur a further £5 million LTIP charge in Intrinsic during H2 2016 related to successful business delivery.

Within OMGI, we will continue to develop our multi-asset offering and appraise opportunities to broaden our asset management capabilities as they arise. As we continue to invest in the business and grow our capabilities, we anticipate that costs in H2 2016 within OMGI will remain broadly consistent with levels seen in H1 2016.

Subject to the usual regulatory approvals, we expect the sale of Old Mutual Wealth Italy to ERGO Italia, owned by Cinven, to complete in 2017. As at 31 December 2015, Old Mutual Wealth Italy had €7 billion of funds under management and its contribution to Old Mutual Wealth's AOP was €33 million pre-tax.

We anticipate continued equity market and currency uncertainty as the impact of the UK's exit from the EU is worked through, and in the run up to the US presidential elections later in the year. Much of our fee income is derived from charges on funds under management and a fall in markets in 2016 would constrain projected earnings.

Old Mutual Wealth data tables

Adjusted operating profit pre-tax (£m)	H1 2016	H1 2015	% change
Invest & Grow markets
UK Platform	14	13	8%
UK Other ¹	-	15	(100%)
International	27	26	4%
Old Mutual Global Investors	25	30	(17%)
Quilter Cheviot	24	17	41%
Total Invest & Grow	90	101	(11%)
Manage for Value markets
Europe - open book ²	11	11	-
Heritage business ³	3	39	(92%)
Total Manage for Value	14	50	(72%)
Total Old Mutual Wealth	104	151	(31%)
¹ Includes Protection, Series 6 pensions, UK Institutional business and Intrinsic results
² Includes business written in Italy and divested businesses in France and Luxembourg (sold in February 2015, profit was zero in H1 2015)
³ Includes UK Heritage and Switzerland (sold 30 September 2015, profit in H1 2015 was £7 million)

Gross sales and funds under management (£bn)
	FUM 1-Jan-16	Gross inflows	Gross outflows	Net flows	Market and other movements	FUM 30-Jun-16	Net flows as % of opening FUM (annualised)
	FUM 1-Jan-16	Gross inflows	Gross outflows	Net flows	Market and other movements	FUM 30-Jun-16	Net flows as % of opening FUM (annualised)
Invest & Grow markets	99.2	12.9	(9.2)	3.7	3.4	106.3	7%
UK Platform ¹	34.5	3.2	(1.8)	1.4	0.6	36.5	8%
UK Other ²	6.2	0.5	(0.4)	0.1	0.6	6.9	3%
International	16.0	1.0	(0.8)	0.2	0.7	16.9	3%
Old Mutual Global Investors ³	24.7	7.0	(5.4)	1.6	0.7	27.0	13%
Quilter Cheviot	17.8	1.2	(0.8)	0.4	0.8	19.0	4%
Manage for Value markets	13.9	0.5	(0.9)	(0.4)	0.5	14.0	(6%)
Europe - open book ⁵	5.2	0.4	(0.3)	0.1	0.5	5.8	4%
Heritage business ⁶	8.7	0.1	(0.6)	(0.5)	-	8.2	(11%)
Elimination of intra-Group assets ⁷	(8.7)	(2.1)	2.0	(0.1)	(0.3)	(9.1)	2%
Total Old Mutual Wealth	104.4	11.3	(8.1)	3.2	3.6	111.2	6%

	FUM 1-Jan-15	Gross inflows	Gross outflows	Net flows	Market and other movements	FUM 30-Jun-15	Net flows as % of opening FUM (annualised)
	FUM 1-Jan-15	Gross inflows	Gross outflows	Net flows	Market and other movements	FUM 30-Jun-15	Net flows as % of opening FUM (annualised)
Invest & Grow markets	73.4	10.4	(7.7)	2.7	18.4	94.5	7%
UK Platform ¹	30.8	3.0	(1.8)	1.2	0.9	32.9	8%
UK Other ²	6.0	0.4	(0.5)	(0.1)	0.1	6.0	(3%)
International	15.6	1.1	(0.8)	0.3	-	15.9	4%
Old Mutual Global Investors ³	21.0	5.1	(4.1)	1.0	0.4	22.4	10%
Quilter Cheviot ⁴	-	0.8	(0.5)	0.3	17.0	17.3	-
Manage for Value markets	17.1	0.9	(1.1)	(0.2)	(2.1)	14.8	(2%)
Europe - open book ⁵	6.7	0.7	(0.3)	0.4	(2.2)	4.9	12%
Heritage business ⁶	10.4	0.2	(0.8)	(0.6)	0.1	9.9	(12%)
Elimination of intra-Group assets ⁷	(8.0)	(1.5)	1.3	(0.2)	(0.1)	(8.3)	5%
Total Old Mutual Wealth	82.5	9.8	(7.5)	2.3	16.2	101.0	6%
¹ UK Platform FUM excludes intra-Group assets from our International business of £1.2 billion at 30 June 2016 (30 June 2015: £1.3 billion)
² Includes Protection, Series 6 pensions and UK Institutional business
³ OMGI FUM includes £0.1 billion of shareholder assets at 30 June 2016 (30 June 2015: £0.2 billion)
⁴ The acquisition of Quilter Cheviot completed on 25 February 2015, Market and other movements include £17.5 billion of acquired FUM
⁵ Includes business written in Italy and divested businesses in France and Luxembourg (sold in February 2015)
⁶ Includes UK Heritage and Switzerland (sold in September 2015)
⁷ The elimination represents the removal of double-counting of assets and flows managed by OMGI on behalf of other Old Mutual Wealth businesses

Fund-based revenue margin (bps)		H1 2016	H1 2015
Invest & Grow markets
UK Platform ¹		36	39
UK Other		23	29
International ²		79	82
Old Mutual Global Investors		66	63
Quilter Cheviot ³		80	83
Total Invest & Grow		63	65
Manage for Value markets
Europe - open book ⁴		98	106
Heritage business ⁵		58	62
Total Manage for Value		74	78
Total Old Mutual Wealth		64	66
¹ Includes fixed fees, as they convert to fund-based fees over the period as policies migrate to our unbundled charging structure. This will be consistent with 2016, as all policies are now migrated to the new charging structure following the FCA sunset clause
² Includes fixed fees, as International charging structures can be chosen by the customer and each policy can contain a differing proportion of each fee type
³Prior year comparative includes revenue earned pre-acquisition
⁴ Italy business only - excludes divested business to provide a consistent comparison
⁵ Represents our closed UK Heritage book - excludes the impact of the Heritage fee restructure and divested business to provide a consistent comparison
Institutional Asset Management

Institutional Asset Management consists of OM Asset Management plc (OMAM), listed on the New York Stock Exchange (market capitalisation $1.6 billion as at 30 June 2016), and Rogge. Further information is included in Old Mutual plc's Financial Disclosure Supplement and at OMAM's corporate website -http://ir.omam.com/investor-relations/news/

Highlights: OM Asset Management	H1 2016	H1 2015	% change
IFRS profit post-tax (£m) ¹	55	60	(8%)
IFRS profit pre-tax (£m) ¹	74	78	(5%)
AOP (pre-tax, $m)	91	128	(29%)
Operating margin, before affiliate key employee distributions	35%	39%
Operating margin, after affiliate key employee distributions	29%	34%
ENI (post-tax, $m) ³	68	75	(9%)
Net client cash flows ($bn)	(0.5)	0.6
Funds under management ($bn) ²	218.8	212.4	3%
¹Institutional Asset Management, including Rogge
²Comparative information for FUM is presented as at 31 December 2015
³ ENI is economic net income, the alternative management metric for profit used by OM Asset Management in external reporting. This excludes the exceptional performance fee from H1 2015

Overview

OMAM generated solid results in a challenging environment. While investment performance and net client cash flows were impacted by continued volatility in the markets, FUM grew 3% from 31 December 2015. AOP of $91 million was down 29% in H1 2016, with a significant portion of the difference due to an exceptional performance fee in H1 2015 and the impact of lower average AUM in H1 2016.

The full text of OMAM's Financial and Operating Results for the Second Quarter Ended 30 June 2016 announcement, released at 8.00 EDT on 4 August 2016, can be accessed via the OMAM corporate website - http://ir.omam.com/investor-relations/news/

Business developments

On 14 June 2016, OMAM announced its agreement to acquire a 60% equity interest in Landmark Partners, a leading global secondary private equity firm. Founded in 1989, Landmark has one of the longest track records in the industry and is a recognised source of liquidity to owners of interests in real estate, real asset, venture, mezzanine and buyout limited partnerships. Landmark has completed over 500 transactions in more than 25 years and acquired interests in over 1,900 partnerships, managed by over 700 general partners. The transaction is expected to close in August 2016, and is expected to be up to 12% accretive to OMAM's 2017 ENI per share. OMAM expects the integration of Landmark to improve the ratio of operating expenses to management fees, decrease variable compensation as a percentage of pre-bonus profit, and increase its operating margin.

In July 2016, OMAM raised $400 million in aggregate principal amount of senior notes, including $275 million of 4.8% Notes due 2026 and $125 million of 5.125% Notes due 2031 (callable after the 3^rd anniversary). OMAM intends to use the net proceeds to finance the investment in Landmark, as well as other general corporate purposes.

On 30 June 2016, OMAM paid a quarterly interim dividend of $0.08 per share. During the period, it repurchased 0.6 million shares at an average price of $13.52 per share.

AOP results and operating margin

AOP of $91 million was down 29% on H1 2015. Excluding the pre-tax AOP impact of exceptional performance fees earned in an alternative strategy of $19 million in H1 2015, AOP decreased 17% (H1 2015: $109 million) primarily due to declines in revenues from US and global/non-U.S. equity products.

Revenues of $313 million for the period were 17% lower than H1 2015 ($379 million), resulting primarily from a decrease in average FUM and lower performance fees than the comparative period. Performance fees in the period were $(0.8) million (H1 2015: $52 million, including those attributable to the exceptional performance fee earned in an alternative strategy).

AOP margin before affiliate key employee distributions decreased to 35% due to both revenue decline from lower performance fees and management fees, but also expense growth. On a post affiliate key employee distributions basis, the reported operating margin decreased by 5% to 29%.

Investment performance

OMAM's aggregate investment performance is reported as weighted by the revenue generated by its products. As of 30 June 2016, assets representing 36%, 63%, and 72% of revenue outperformed benchmarks over the one-, three- and five-year periods (30 June 2015: 70%, 74%, and 89%, 31 March 2016: 46%, 68%, and 77%). On an asset-weighted basis, over the one-, three- and five-year periods ended 30 June 2016, 33%, 51% and 60% of assets outperformed benchmarks, compared to 61%, 61% and 80% at 30 June 2015 and 53%, 66%, and 65% at 31 March 2016.

The decline in investment performance is primarily related to under-performance in large cap U.S. value and non-U.S. equity products in the volatile markets of the second quarter of 2016.

Funds under management and net client cash flows

Funds under management and net client cash flows ($bn)	H1 2016	H1 2015
Opening FUM	212.4	220.8
Gross inflows	13.5	14.5
Gross outflows	(11.7)	(13.4)
Total client-driven net flows	1.8	1.1
Hard asset disposals	(2.3)	(0.5)
Net client cash flows	(0.5)	0.6
Other	0.1	0.7
Market	6.8	4.5
Closing FUM	218.8	226.6
Annualised revenue impact of net flows ($m) ¹	3.9	24.8
Derived average weighted net client cash flows ²	1.1	7.2
¹ Annualised revenue impact of net flows represents the difference between annualised management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualised management fees lost on terminated accounts or net assets withdrawn from existing accounts, including equity-accounted affiliates. Annualised revenue is calculated by multiplying the annual gross fee rate for the relevant account by the net assets gained in the account in the event of a positive flow or the net assets lost in the account in the event of an outflow
² Derived average weighted net client cash flows ("NCCF") reflects the implied NCCF if annualised revenue represents asset flows at the weighted fee rate for OMAM overall (i.e. 34.9 bps in H1 2016)

Fund Mix ($bn)	H1 2016	H1 2015
US Equity	78.6	85.4
Global/non-US Equity	89.0	90.7
US Fixed income	14.3	14.8
Alternative, real estate & timber	36.9	35.7
Total OM Asset Management FUM	218.8	226.6

Gross inflows totalled $13.5 billion (H1 2015: $14.5 billion), with sales in large cap value equities, managed volatility equities, international equities, and real estate assets. Gross inflows of $4.1 billion were from new client accounts during the period.

Gross outflows totalled $14.0 billion (H1 2015: $13.9 billion) constituted mainly of U.S. value equity and some global/non-US equity products. Gross outflows of $2.3 billion relate to investment-driven hard asset disposals by Heitman, OMAM's real estate manager, and Campbell Global, OMAM's timber manager.

The OMAM Global Distribution team continues to work with OMAM's Affiliates to expand their non-U.S. client base in key markets and jurisdictions around the world. Non-U.S. clients currently account for approximately 20% of FUM (31 December 2015: 19%).

Outlook

As equity markets stabilise, OMAM remains focused on improving performance and rebuilding its flow pipeline. In addition, with the expected completion of its investment in Landmark Partners and the successful offering of $400 million of senior notes, OMAM has further diversified its business and positioned its balance sheet to support value-enhancing initiatives and appropriate capital management, including future investments in additional new Affiliates specialising in selected diversifying areas of the asset management industry. OMAM is also pursuing organic growth initiatives, including developing capabilities in multi-asset class, LDI and global/non-U.S. equities and further penetration of specialised and non-U.S. markets through its Global Distribution initiative.

In addition, in order to advance the ongoing managed separation of OMAM and Old Mutual plc, OMAM has negotiated an accelerated and subsequent termination of the Deferred Tax Asset Deed and Seed Capital Management Agreement with Old Mutual, the result of which is that OMAM's ongoing liabilities to Old Mutual under both agreements shall be satisfied earlier than initially anticipated. The Deferred Tax Asset Agreement will be terminated as of 31 December 2016, with payments by OMAM to Old Mutual in three instalments (30 June 2017, 31 December 2017 and 30 June 2018) at a forward valued discount rate of 8.5%. OMAM's current estimate of total DTA related payments to be made during this period ranges from $135 million to $145 million. Payments under the DTA will continue as scheduled for the remainder of 2016. With respect to the Seed Capital Management Agreement, the companies have agreed to: 1) accelerate the transfer of approximately $35 million of seed investments to OMAM's balance sheet on or around 31 August 2016; 2) reduce the seed capital investments managed by OMAM but owned by Old Mutual to $100 million; and 3) accelerate the transfer of all remaining seed capital investments covered by the Seed Capital Management Agreement to OMAM's balance sheet on or around 30 June 2017.

Non-core business - Bermuda

Business risks and strategy

Old Mutual Bermuda (OM Bermuda) was closed to new business in March 2009 and the business has subsequently pursued a risk reduction strategy. The main business risks arose from guarantees, largely written in 2007 and 2008, in respect of policies with guaranteed minimum accumulation benefits (GMABs). The risk principally relates to Universal Guarantee Option (UGOs) GMABs, and to a lesser extent, Capital Guarantee Option (CGO) GMABs, the predecessor product to the UGO, with less onerous guarantees.

The UGO GMAB provides for a Capital Return Guarantee of 120% of the original investment value at the 10 year anniversary date. On an account value basis, at 30 June 2016, 72% of the OMB policies with UGOs had a value below the 120% Capital Return Guarantee (31 December 2015: 72%).

In addition, there is a Highest Anniversary Value (HAV) feature whereby, if elected, certain OMB policyholders are guaranteed the highest policy value at any preceding anniversary date.

The UGO features, including the HAV features, mature on the 10 year anniversaries of the OMB policies which run between January 2017 and August 2018, with the majority falling between June 2017 and May 2018.

The 10 year anniversaries of the GMAB products will have the effect of crystallising these remaining guarantees, and are expected to trigger increased liquidity requirements.

Significant progress has been made in restructuring the business since it closed to new business. In a significant further step, Old Mutual (Bermuda) Ltd. (OMB) was sold to Beechwood Bermuda Ltd. (Beechwood) on 31 December 2015. Old Mutual (Bermuda) Holdings Limited (OMBHL) retains the liability in respect of the OMB GMABs through Old Mutual (Bermuda) Re Ltd. (OMBRE), a Bermuda licensed insurer and subsidiary of OMBHL. OMBRE commenced (re)insurance of the GMAB risks on 1 July 2015. This (re)insurance will extend through to the final GMAB maturity in August 2018. OMBHL also provides Beechwood with policyholder administration services of the OMB book through to Q4 2018. All other guarantees and responsibilities for policyholder administration past the OMBHL tenure have been transferred to Beechwood.

Risk management

In order to manage these risks, OM Bermuda has implemented various hedging strategies. Three hedging strategies are currently in place:

· Dynamic tail hedging protects against significant equity and foreign currency exchange market declines. Hedge coverage is systematically adjusted in response to market movements by progressively increasing (or decreasing) hedge coverage as markets fall (or rise).

· Structured 'lookback' options protect against the risk of markets rising to set HAV guarantees above 120% of investment premiums and then subsequently falling; and,

· Forward Start Options (FSOs), purchased in 2015 to take advantage of historically low volatilities across global equity markets, effectively locking in the cost of purchasing one year put options to hedge the downside risks in advance of the 10 year anniversaries. The FSOs convert to equity-only put options in January 2017, at which time dynamic tail hedging is expected to be terminated. Under current market levels, the FSOs cover circa 70% of liability notional equity exposure.

H1 2016 business developments

OM Bermuda has further de-risked its balance sheet during Q2 2016 by repatriating certain capital intensive Group Seed investments to Old Mutual plc following approval from the Bermuda Monetary Authority (BMA). Seed investments with a fair value of $38 million were repatriated to Old Mutual plc in H1 2016. An additional $20 million of seed investments are expected to be repatriated in Q3 2016.

There were no changes to OM Bermuda's hedging strategies during H1 2016 and the (re)insured policyholder surrender experience has remained at low levels in advance of the commencement of 10 year anniversaries in January 2017.

The GMAB policy count reduced by 129 to 8,090 at 30 June 2016 (31 December 2015: 8,219), the account value of these surrenders was $16 million, reducing the overall account value covered, along with the overall decline in market levels, to $555 million (31 December 2015: $583 million). Analysis of (re)insured GMAB policies and related account values are provided in the table below:

Product	H1 2016		FY 2015
	Policies	Account Values ($m)	Policies	Account Values ($m)
Universal Guarantee Option (UGO) GMAB	7,868	512	7,938	530
Capital Guarantee Option (CGO) GMAB	222	43	281	53
Total GMAB	8,090	555	8,219	583

IFRS results of OM Bermuda

Bermuda has been treated as a non-core business since its closure to new business and as such its result is excluded from AOP.

IFRS post-tax profit for the period was $16 million (H1 2015: $6 million profit), due to fair value gains of $27 million arising on seed capital investments, offset by losses from the movement in value of the guarantees.

Abridged statement of IFRS financial position

The statement of financial position illustrates the excess assets backing the liabilities of the Bermuda business.

$m	30-Jun-16	31-Dec-15	% change
Assets
Cash	106	39	172%
Derivatives	29	32	(9%)
Group Seed investments	185	260	(29%)
Inter-company loan notes	119	118	1%
Other assets	6	18	(67%)
Total Assets	445	467	(5%)
Liabilities
GMAB reserves	129	125	3%
Other liabilities	5	10	(50%)
Total Liabilities	134	135	(1%)
Total Equity	311	332	(6%)

Current management estimates indicate that OM Bermuda's operating costs, hedging and top-up liquidity requirements can be met by utilising existing cash and by liquidating its Group Seed investments, without drawing on intercompany notes.

Capital position

The table illustrates the reduced capital and capital requirements of the business:

OMBRE Bermuda statutory capital surplus ($m)	30-Jun-16	31-Dec-15 ¹
Capital	285	293
Capital requirement	195	219
Surplus	90	74
Cover (times requirements)	1.5	1.3
¹ Capital requirement has been restated to the new calculation basis of 110% of the economic capital requirement

OMBRE statutory capital is now calculated on an active basis as 110% of reporting date economic capital requirements following approval from the BMA. This replaces the previous lagged basis for determining capital requirements based on previous year's statutory return submissions.

OMBRE statutory capital of $285 million (31 December 2015: $293 million) differs to total Bermuda IFRS equity of $311 million, due to the inadmissibility of certain Group Seed investments for statutory purposes ($5 million) and capital held at the Bermuda holding/service companies. OMBRE Statutory capital decreased due to a $30 million capital repatriation of cash to Group less profits after tax in the period.

Outlook

Although OM Bermuda's hedging strategies and removal of certain Group Seed investments significantly de-risks the business, several unhedged and unhedgable risks remain.

The main unhedgable non-market risks include movements in underlying exposures not being matched by hedging indices (basis risk), use of portfolio based hedges that do not perfectly match (re)insured policyholder asset allocations, changes in fund investment strategies, and policyholder behaviour not being as anticipated.

The consequence of these unhedged or unhedgable items is that the liquidity requirement of the business through the 10 year anniversaries is uncertain. The business is nevertheless well capitalised and current analysis suggests that it has sufficient readily available resources to be self-sustainable throughout the period.

In order to further reduce the range of outcomes as the 10 year anniversaries approach, management will utilise its experience of hedging the 5 year anniversaries and may adapt its current hedging strategies or implement new strategies where opportunities can be identified.

Supplementary financial information (data tables)
Group gross flows and funds under management (FUM) (£bn)
	FUM 1-Jan-16	Gross sales	Gross outflows	Net flows	Market and other movements	FUM 30-Jun-16	Net flows as % of opening FUM (annualised)
Old Mutual Emerging Markets	43.4	4.7	(4.3)	0.4	8.8	52.6	2%
Retail Affluent	6.3	1.6	(1.5)	0.1	1.4	7.8	3%
Mass Foundation	-	0.2	(0.1)	0.1	(0.1)	-	-
Corporate	3.0	0.9	(0.8)	0.1	1.2	4.3	7%
OMIG	24.5	1.0	(0.8)	0.2	4.4	29.1	2%
Property & Casualty	0.1	-	-	-	-	0.1	-
Elimination of intra-South Africa flows	-	(0.3)	0.1	(0.2)	0.2	-	-
Rest of Africa	3.2	0.5	(0.4)	0.1	0.4	3.7	6%
Asia & Latin America	6.3	1.0	(0.9)	0.1	1.2	7.6	3%
Elimination of intra-Group flows	-	(0.2)	0.1	(0.1)	0.1	-	-
Nedbank	11.9	6.9	(6.7)	0.2	1.9	14.0	3%
Old Mutual Wealth	104.4	11.3	(8.1)	3.2	3.6	111.2	6%
Invest and Grow markets	99.2	12.9	(9.2)	3.7	3.4	106.3	7%
Manage for Value markets	13.9	0.5	(0.9)	(0.4)	0.5	14.0	(6%)
Eliminations	(8.7)	(2.1)	2.0	(0.1)	(0.3)	(9.1)	2%
Institutional Asset Management	168.2	10.6	(12.4)	(1.8)	(1.5)	164.9	(2%)
OM Asset Management	144.1	9.4	(9.7)	(0.3)	21.1	164.9	-
Rogge²	24.1	1.2	(2.7)	(1.5)	(22.6)	-	(12%)
Total FUM	327.9	33.5	(31.5)	2.0	12.8	342.7	1%
	FUM 1-Jan-15	Gross sales	Gross outflows	Net flows	Market and other movements	FUM 30-Jun-15	Net flows as % of opening FUM (annualised)
	FUM 1-Jan-15	Gross sales	Gross outflows	Net flows	Market and other movements	FUM 30-Jun-15	Net flows as % of opening FUM (annualised)
Old Mutual Emerging Markets	50.3	5.8	(5.0)	0.8	(1.5)	49.6	3%
Retail Affluent	6.9	2.0	(1.7)	0.3	(0.1)	7.1	9%
Mass Foundation	-	0.3	(0.2)	0.1	(0.1)	-	-
Corporate	3.9	1.4	(1.2)	0.2	(0.4)	3.7	10%
OMIG	28.8	1.0	(0.9)	0.1	(0.5)	28.4	1%
Property & Casualty	0.2	-	-	-	(0.1)	0.1	-
Elimination of intra-South Africa flows	-	(0.1)	(0.0)	(0.1)	0.1	-	-
Rest of Africa	3.5	0.4	(0.3)	0.1	(0.2)	3.4	6%
Asia & Latin America	7.0	1.1	(0.8)	0.3	(0.4)	6.9	9%
Elimination of intra-Group flows	-	(0.3)	0.1	(0.2)	0.2	-	-
Nedbank	12.6	6.6	(5.9)	0.7	(0.3)	13.0	11%
Old Mutual Wealth	82.5	9.8	(7.5)	2.3	16.2	101.0	6%
Invest and Grow markets ¹	73.4	10.4	(7.7)	2.7	18.4	94.5	7%
Manage for Value markets	17.1	0.9	(1.1)	(0.2)	(2.1)	14.8	(2%)
Eliminations	(8.0)	(1.5)	1.3	(0.2)	(0.1)	(8.3)	5%
Institutional Asset Management	174.0	10.3	(12.7)	(2.4)	0.5	172.1	(3%)
OM Asset Management	141.7	9.5	(9.1)	0.4	2.0	144.1	1%
Rogge	32.3	0.8	(3.6)	(2.8)	(1.5)	28.0	(17%)
Total FUM	319.4	32.5	(31.1)	1.4	14.9	335.7	1%
¹ The acquisition of Quilter Cheviot in February 2015 is included in Market and other movements of £17.5 billion
² On 31 May 2016, plc completed the sale of its interest in Rogge Global Partners Limited to Allianz Global Investors GmBH. Awaiting completion accounts

Investment Performance
			H1 2016							FY 2015
			1 Year		3 Year		5 Year			1 Year			3 Year			5 Year
Old Mutual Emerging Markets - OMIG ¹
Proportion of funds outperforming:
Market index benchmarks			58%		68%		72%			77%			81%			83%
CPI benchmarks			73%		100%		100%			100%			100%			100%
Peer median			50%		56%		57%			59%			66%			56%

Nedbank
South African unitised funds percentage of FUM ahead of:
Peer median			84%		83%		76%			71%			78%			78%

Old Mutual Wealth ² - OMGI
Total funds percentage of FUM ahead of:
Market index benchmarks			72%		84%		86%			67%			78%			78%
Peer median			30%		39%		52%			39%			52%			74%
Target			-		1%		100%			2%			100%			100%

OM Asset Management
Revenue-weighted performance			36%		63%		72%			60%			83%			92%
Asset-weighted performance			33%		51%		60%			72%			73%			91%
¹ This table represents OMIG managed assets on an end manager basis
² All funds previously related to all funds for which a formal peer group exists. From 2016, investment performance is now applied to all funds, either by assessing performance relative to the median fund in each peer group or, in the case of those funds without a peer group, the performance above the published target (on a 3 year funds under management weighted basis)
Fund Profile by Investment Type (£bn)
	H1 2016								FY 2015
	Total FUM (excl. SF)	FUM %		Share-holder funds		Share-holder %			Total FUM (excl. SF)		FUM %			Share-holder funds			Share-holder %
Old Mutual Emerging Markets
Fixed interest	10.5	21%		0.2		8%			9.4		23%			0.2			9%
Equities	19.6	39%		0.7		27%			15.6		38%			0.6			24%
Cash	9.5	19%		1.2		48%			7.0		17%			1.2			52%
Property and Alternatives	10.5	21%		0.4		17%			9.0		22%			0.4			15%
Total	50.1	100%		2.5		100%			41.0		100%			2.4			100%

Retail	24.5	49%		-		-			20.1		49%			-			-
Institutional	25.6	51%		-		-			20.9		51%			-			-
Total	50.1	100%		-		-			41.0		100%			-			-

Nedbank
Fixed interest	0.1	1%		-		-			0.1		1%			-			-
Equities	5.1	36%		-		-			3.7		31%			-			-
Multi-asset	3.7	26%		-		-			3.3		28%			-			-
Interest bearing	2.2	16%		-		-			1.8		15%			-			-
Money market	1.4	10%		-		-			1.3		11%			-			-
Other	1.5	11%		-		-			1.7		14%			-			-
Total	14.0	100%		-		-			11.9		100%			-			-

Old Mutual Wealth
Fixed interest	25.3	23%		0.2		15%			23.7		23%			0.2			18%
Equities	63.7	58%		-		-			63.0		61%			-			-
Cash	9.9	9%		1.1		85%			7.2		7%			1.0			81%
Property and Alternatives	11.0	10%		-		-			9.3		9%			-			1%
	109.9	100%		1.3		100%			103.2		100%			1.2			100%

Retail	87.9	80%		-		-			83.6		81%			-			-
Institutional	22.0	20%		-		-			19.6		19%			-			-
Total	109.9	100%		-		-			103.2		100%			-			-

IAM
Fixed interest	9.9	6%		-		7%			33.6		20%			-			5%
Equities	126.9	77%		-		34%			109.2		65%			0.1			38%
Cash	-	-		-		11%			-		-			-			9%
Property and Alternatives	28.0	17%		0.1		48%			25.2		15%			0.1			48%
Total	164.8	100%		0.1		100%			168.0		100%			0.2			100%

Retail	6.6	4%		-		-			6.7		4%			-			-
Institutional	158.2	96%		-		-			161.3		96%			-			-
Total	164.8	100%		-		-			168.0		100%			-			-
AOP analysis by line of business by geography (£m)								H1 2016				H1 2015			% change
Life & Savings
South Africa								188				232			(19%)
Rest of Africa								8				20			(60%)
Asia & Latin America								4				6			(33%)
United Kingdom & Rest of World								55				103			(47%)
Total Life & Savings								255				361			(29%)
Asset Management ¹
South Africa								28				37			(24%)
Rest of Africa								-				2			(100%)
Asia & Latin America								9				8			13%
United States								63				84			(25%)
United Kingdom & Rest of World								45				46			(2%)
Total Asset Management								145				177			(18%)
Banking & Lending ²
South Africa								356				375			(5%)
Rest of Africa								(13)				26			(150%)
United Kingdom & Rest of World								6				(1)			(700%)
Total Banking & Lending								349				400			(13%)
Property & Casualty
South Africa								13				29			(55%)
Rest of Africa								5				4			25%
Total Property & Casualty								18				33			(45%)
Central Activities								(59)				(67)			12%
Total AOP pre-tax								708				904			(22%)

AOP analysis by line of business (£m)	H1 2016	H1 2015 (Constant Currency)	H1 2015	% change
Line of business
Life & Savings	255	315	361	(29%)
Asset Management¹	145	175	177	(18%)
Banking & Lending²	349	328	400	(13%)
Property & Casualty	18	27	33	(45%)
	767	845	971	(21%)
Central activities	(59)	(69)	(67)	12%
Adjusted operating profit before tax	708	776	904	(22%)
¹ Includes Institutional Asset Management, OMGI, Quilter Cheviot, OMEM's and Nedbank's asset management businesses
² Includes Nedbank, OMSFIN, Faulu in Kenya, Central African Building Society (CABS) in Zimbabwe and Old Mutual Finance

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR GGUWPRUPQGBU

Companies

Old Mutual Limited NPV (DI) (OMU)

Monday, 20th May 2024

COMPANIES COVERED:

KWS BLND KNOS

Keywords Studios surges as another London-listed tech firm looks set to be bought out by private equity, Kainos posts 14th consecutive year of growth and British Land sells down its remaining stake in Sheffield’s Meadowhall mall.

Full Archive

UK 100

Latest directors dealings

20 minutes ago Aquila Energy Efficiency Trust (EUR)
34 minutes ago Boohoo Group
44 minutes ago Tritax Big Box Reit
1 hour ago Standard Chartered
1 hour ago Coca-Cola HBC AG (CDI)

All directors dealings today

Old Mutual plc 2016 Interim Results - Part 1

Old Mutual plc interim results for the half year ended 30 June 2016

Enquiries

Investor Relations

Media

Notes to the financial summary on the front page of this announcement

Cautionary statement

Notes to editors

Sterling exchange rates

Companies

UK 100

Latest directors dealings