Preliminary Results - Part 1

RNS Number : 9689Y

Old Mutual PLC

01 March 2013

NEWS RELEASE

1 March 2013

Old Mutual plc preliminary results for the year ended 31 December 2012

Financial Summary¹		2012	2011	Movement
Operating metrics - constant currency basis
Adjusted operating profit before tax (IFRS basis)²		£1,614m	£1,363m	18%
Adjusted operating earnings per share (IFRS basis)²		17.5p	16.1p	9%
Net client cash flow (NCCF)		£5.0bn	£(11.7bn)	£16.7bn
Funds under management (FUM)		£262.2bn	£255.6bn	3%
Financial metrics - as reported
Group return on equity		13.0%	14.6%	(160bps)
Dividend	- Total	7.00p	5.00p	2.00p
	- Final	5.25p	3.50p	1.75p
	- Interim	1.75p	1.50p	0.25p
Total profit after tax attributable to equity holders of the parent		£1,173m	£667m	76%
Adjusted Group MCEV per share		220.3p	194.1p	26.2p
Surplus generated³		£814m	£803m	+£11m
Notes to the Financial Summary are presented on page 2 of this announcement.

Strong financial performance

· IFRS AOP up 18% to £1,614 million, driven by strong performance in Emerging Markets and Nedbank

· Positive Group NCCF at £5.0 billion, FUM at £262.2 billion

· Proposed final dividend of 5.25p; total dividend of 7.00p; up 2.00p or 23% in cash terms

· Targeting dividend cover of 2.25x IFRS AOP earnings in future

A reshaped business

· 2010 targets achieved: £1.52 billion of debt repaid; £133 million of cost reductions; LTS ROE of 20%

· Strong capital position; a significantly de-risked business

Focused on growth

· Broad exposure to fast growing South African emerging middle-class

· Good progress on growing our African footprint; R5 billion set aside to support this growth

· Targeting £300 million AOP from Old Mutual Wealth by 2015 (2012 AOP: £195 million)

Julian Roberts, Group Chief Executive, commented:

"This has been a very good year for Old Mutual. We have produced strong results, with our Emerging Markets business and Nedbank performing particularly well.

"Over the past three years, we have significantly de-risked the business, more than met our operational targets and made substantial returns of capital to both equity and debt holders. We can now move forward from a position of strength.

"Old Mutual has four strategic priorities: expanding in Africa; developing our business in the fast growing South African markets; building our Wealth business; and growing US Asset Management. We will achieve these priorities while maintaining a strong balance sheet; putting customers at the centre of everything we do; and promoting a responsible corporate culture.

"While the economic environment remains uncertain, we are focused on the markets which fit our criteria and where we see long-term, structural growth. We are clear on our priorities and confident that we will continue to deliver sustainable value to our shareholders and customers."

Old Mutual plc results for the year ended 31 December 2012

Enquiries

External Communications
Patrick Bowes	UK	+44 (0)20 7002 7440
Kelly de Kock	SA	+27 (0)21 509 8709
Media
William Baldwin-Charles		+44 (0)20 7002 7133
		+44 (0)7834 524 833

Notes to the Financial Summary on the front page of this announcement

1. Except for total profit after tax and adjusted Group MCEV per share, all figures in the table are in respect of core continuing businesses only and the 2011 comparatives have been restated accordingly. The sale of Nordic was the most material disposal in the period. Figures have also been adjusted for the impact of the share consolidation where applicable.

2. Adjusted operating profit before tax and adjusted operating earnings per share are defined in the basis of preparation for the reconciliation of adjusted operating profit to profit after tax in Part 4 - Financial Information.

3. Surplus generated is the adjusted net worth of the operating business units not required to support capital requirements. The total surplus generated is presented for core continuing businesses only, with Nedbank's contribution equal to Old Mutual's share of its dividend. The comparative has been restated accordingly.

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, UK and South African domestic and global 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 or of future acquisitions or combinations within relevant industries, and the impact of tax and other legislation and other 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 preliminary results and Q&A will be broadcast live at 9:00 am GMT (10:00 am CET/11:00 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 30558280#:

UK/international	+44 (0)20 3139 4830
US	+1 718 873 9077
South Africa	+27 (0)21 672 4008

Playback (available for 14 days from 1 March 2013), using pass-code 636425#:

UK/International

+44 (0)20 3426 2807

Copies of these results, together with high-resolution images and biographical details of the executive directors of Old Mutual plc, are available in electronic format to download from the Company's website at www.oldmutual.com.

A Financial Disclosure Supplement relating to the Company's preliminary results can be found on the website. This contains financial data for 2012 and 2011.

Sterling exchange rates

		2012	2011	Appreciation / (depreciation) of local currency
South African rand	Average rate	13.01	11.64	(12)%
South African rand	Closing rate	13.77	12.56	(10)%
US dollar	Average rate	1.58	1.60	1%
US dollar	Closing rate	1.62	1.56	(4)%

Part 1 - 2012 Annual Review

Group Review

Overview

Profits up 18%...

Old Mutual delivered a strong performance in 2012, driven primarily by excellent performance from its businesses in the emerging markets. Despite challenging macro-economic conditions throughout most of the year we saw excellent operational performance across most businesses within the Group and good profit growth on a constant currency basis. The Group remains in a strong financial position, with reduced debt levels and a Financial Groups Directive (FGD) surplus of £2.0 billion. We made substantial returns of capital to both equity and debt holders during the year, and paid a Special Dividend of around £1 billion in June 2012. The Board is recommending a final dividend of 5.25p (or its equivalent in other applicable currencies), up 31% in cash terms. The reported results of the Group's businesses were affected by a significant depreciation of the rand against sterling, with the average rand rate declining during the period by 12%.

...against a challenging backdrop...

In South Africa, the economy grew by 2.5%, Government debt to gross domestic product (GDP) is around 40%, and the JSE grew by 23%. The impact was strong credit growth (which is now weakening), strong asset growth but a softening of rates in the general insurance industry. The ratings agencies became concerned about the South African economy, citing the unrest in the mining sector and the drop in commodity prices that fed through into a depreciation of the rand. This year has started with continued asset growth and a strengthening of the rand.

In Europe, sentiment to the euro seemed to improve, but growth remained low, with Germany moving into recession and youth unemployment in parts of Southern Europe growing to over 50%. Conditions in the UK were also challenging, with the economy remaining flat although the FTSE 100 rose by 6%. Unemployment remained lower than expected and consumers continued to save but cut back on spending. In the US, the markets remained flat until Q4 when there was a marked improvement in sentiment.

...following the transformation of Old Mutual…

In March 2010, Old Mutual set its strategic objectives to be achieved by the end of 2012 which would fundamentally change our Group and the way we conduct our business. These objectives were to create a simplified and streamlined Group; to apply rigorous criteria for keeping businesses within the Group; to strengthen our balance sheet; to improve our returns and implement a strict approach to capital allocation; to focus at all times on our customers; and to deploy our human capital, expertise and technology seamlessly across geographies and business units. At that time, we also set financial targets for cost reduction, debt reduction and return on equity (ROE) commensurate with meeting our strategic objectives.

Over the past three years, we have regularly reported our progress against these strategic and financial objectives. We have met or exceeded the financial targets and made substantial strides towards achieving our strategic objectives: we will continue to run our business with them in mind.

We invested in enhancing our governance and control systems and these are working well, and we have implemented numerous initiatives to improve our service to customers. We have transferred technology and intellectual capital across the Group: for example, we rolled out the South African retail mass model in Mexico in 2012, and we will be introducing the same model to our newly acquired Nigerian business in 2013.

Old Mutual is a significantly different business from that of three years ago. It is much simpler, more streamlined and significantly de-risked: we have sold or closed a number of businesses, including selling the Nordic operations for £2.1 billion and US Life for $350 million. The criteria for keeping businesses within the Group are strict: able to meet our capital and risk targets; be capable of achieving a long-term 15% ROE; add value to, or receive value from, other parts of the Group; have scope to create future sustainable growth; and create future value for shareholders. These criteria will remain. We will continue to evaluate the optimal structure for the Group and we will consider all options in creating value for our shareholders and our customers.

In the period since the implementation of the three year strategy on 1 January 2010 through to its completion on 31 December 2012, the London line of Old Mutual shares delivered a Total Shareholder Return (TSR) of 77.31%, versus a 21.16% TSR from the FTSE-100. For the Johannesburg line, Old Mutual delivered a TSR of 102.10% over the three years versus a 54.60% return from the JSE-All Share.

…leading to a financially strong and cash generative Group...

We have a strongbalance sheet, with our indebtedness much reduced. Our track record of delivering strong and consistent underlying cash returns - in the last three years we have generated £2.25 billion in free surplus from core continuing operations - which gives us the ability both to invest for growth and to maintain a secure dividend. Our gearing ratio has decreased from 20.1% in 2009 to 8.5% at the end of 2012.

...which is resilient and focused on growth...

Our focus is now on the markets where we see sustained growth underpinned by structural factors. These are markets where our experience, expertise and offering give us competitive advantage, ensuring that we can provide our customers with the products they want and that will fulfil their financial needs.

...with a broad offering in the fastest growing South African demographic...

Through our Old Mutual, Nedbank and Mutual & Federal brands, we have a strong presence across the South African retail financial services sector. These businesses are working ever more closely together. For example, they have cut costs by aligning some of their key procurement activities, and they are working together on a number of customer-facing activities. We continue to seek opportunities for further collaboration.

While parts of the South African financial services sector are undoubtedly heavily penetrated, there is a significant section of the population that is currently demonstrating strong growth - the emerging black middle class. We expect this trend to continue. This section of the population, served by our Mass Foundation Cluster (MFC), represents a spectrum of South African workers, ranging from those coming into the formal economy for the first time, to public sector workers such as teachers and nurses.

We believe we have a significant competitive advantage in this section of the market through our footprint of more than 3,700 tied advisers, our network of more than 200 Old Mutual Finance branches and our holistic product offering. We offer traditional life and savings products through Old Mutual, general insurance through iWyze, banking through Nedbank Retail and loan and debt consolidation through Old Mutual Finance. This approach ensures that we are well placed to capture the best clients and advise and help the more distressed clients to manage their finances.

Old Mutual now has nearly two million MFC customers, having added a further 200,000 in 2012. In addition, our iWyze direct general insurance offering has achieved good growth since launch, selling more than 50,000 policies. Nedbank Retail has over the last few years extended its focus on entry level and youth markets in its drive to be a bank for all and together with the middle-market this has resulted in Nedbank gaining 818,000 entry level banking customers (those earning less than R100,000 per year) in the past three years.

We continue to see growth in our Retail Affluent business, which remains the Group's largest profit generator and has recently launched a substantially enhanced wealth offering and reorganised its distribution. Over time, we expect some of our MFC customers to migrate to Retail Affluent. Our Corporate business is focusing on improving its efficiency and client offering.

...and expansion plan for sub-Saharan Africa...

Old Mutual has a substantial presence in the southern area of sub-Saharan Africa with more than 1.3 million customers outside South Africa. Rest of Africa customer numbers were up 13% on 2011 with most of the growth in Zimbabwe and Kenya. Profits rose 39% to £43 million in 2012 and funds under management (FUM) grew 19% to £2.9 billion. Our target of achieving profits in Africa equivalent to 10% of OMSA profits by 2012 has been achieved and we are on track to meet 15% by 2015.

We are now looking to build our business across countries in East and West Africa that demonstrate the right levels of growth and have the right demographics. We have set aside around R5 billion of capital to fund this expansion. This is split between a strategic investment fund of R2 billion, and further capital of R3 billion, intended to be deployed over three to five years. The strategic investment fund will be used to acquire minority stakes in businesses in African markets. We will target minority stakes for a number of reasons: where a majority stake is not immediately available; where we do not have the capacity to take a majority stake; or, for strategic reasons such as securing a distribution deal. The further R3 billion will fund growth through buying majority stakes in businesses.

We will deploy this capital in line with our strict capital allocation criteria. We believe that the prospects for growth in Africa are underpinned by sustainable, structural factors: a growing population, with more workers entering the formal economy for the first time and who are keen to protect their wealth and assets; strong domestic GDP growth in a number of countries; growing political stability; and an underpenetrated financial sector for the majority of the population.

In 2000, Africa's GDP was $587 billion, in 2012 it is expected to be just under $2 trillion, and it is forecast to exceed $2.5 trillion in 2016. Fuelling this GDP growth is a growing youthful population which is becoming increasingly urbanised, has more discretionary income and is under-serviced by the insurance industry - both life insurance and general insurance. While the interest shown in Africa has grown exponentially, over the past few years as companies seek investment opportunities that demonstrate real growth, we have the very real advantage of having operated in Africa for 168 years. We understand the climate for business and investment, as well as the specific needs and expectations of consumers.

As in South Africa, as we expand in the rest of Africa we increasingly see opportunities for Old Mutual, Nedbank and Mutual & Federal to work together. For example, OMSA and M&F will collaborate in each country under one head who will be responsible for driving growth across both business lines. Additionally, we have established the Group African Co-operation Forum which will identify and facilitate opportunities for increased co-operation and incremental synergy in South Africa and collaboration on the African expansion strategy.

We recently acquired the life assurance business of Oceanic Bank in Nigeria, following the acquisition of Oceanic by Ecobank. This can be seen as the template for how we expect to roll-out our business model in new markets in Africa. While initially it will focus on selling credit life and group life assurance schemes, this will be supplemented by the roll-out of the full retail mass market product suite in 2013, using the expertise, knowledge, product and back office systems from our South African MFC business. We are currently building an asset management business in Nigeria to complement this business. We are in the process of acquiring Oceanic's Nigerian general insurance business from Ecobank which will, once completed, operate under the Old Mutual brand.

In East Africa, the Old Mutual Kenya life assurance business is growing and our asset manager is the market leader. Our life business recently signed a deal with the National Jua Kali, the co-operative for informal workers in Kenya, to provide insurance services for workers who previously had no access to insurance products. It is estimated that the informal sector currently accounts for around 75% of the working population and around 34% of the country's GDP. We will initially sell burial products, but will look to expand this product range in time, with consumers able to pay for their insurance via mobile phones. We want to build scale in the Kenyan life business and are looking at options in other East African countries.

We are also exploring the possibility of entering the markets in the South Africa Development Community where we are not currently present but which meet the criteria we apply to new markets.

Nedbank currently has a banking presence in five southern African countries where it offers retail and wholesale banking, and deposit-taking. The focus is on economically profitable markets where the Nedbank rest of Africa division has a competitive advantage. Nedbank has a deep strategic alliance with Ecobank providing clients of both institutions access to the largest banking network in Africa with more than 2,000 staffed outlets in 36 countries. Nedbank has subscription rights arising from the three year term facility made to Ecobank Transnational Incorporated (ETI), Ecobank's holding company, which together with a top-up investment by way of the anti-dilutionary provisions of the agreement may result in Nedbank holding a 20% equity stake in ETI, sometime between November 2013 and November 2014.

We believe that as we grow in South Africa and wider Africa, we have an obligation to help the communities where we operate. A significant part of this will be through raising funds to create the infrastructure that Africa and its people need. We are already active in this field. Through our Infrastructure, Development and Environmental Assets fund we have partnered with the South African government in a number of infrastructure projects, including: renewable energy projects using wind, solar and hydroelectric technology; toll roads; and the Department of Trade and Industry and Department of Education buildings. Following an approach by the Public Investment Corporation in South Africa we established the Schools and Education Investment Impact Fund and have so far allocated more than £35 million to educational projects. Our Housing Impact Fund raised more than £650 million to build up to 120,000 low cost houses in South Africa, for South Africans earning less than R1,500 a month. These projects will make a real, visible difference to the lives of the communities where we operate.

...combined with a modern, low-risk developed markets offering...

We announced our three-year plan for Old Mutual Wealth in November 2012. The combination of our UK, International and European businesses into one business, supported by the asset management capability of the newly merged Old Mutual Global Investors (OMGI), will allow us to develop further our own investment products which in turn should enable us to capture a greater share of the value chain.

We believe we can unlock value by focusing on our core growth markets, namely the UK and the International cross-border markets, while managing the Old Mutual Wealth Europe business and UK Heritage book for value. The manage for value strategy involves operating a closed book model for our retail portfolios in Switzerland, Austria and Germany, and the pre-Retail Distribution Review (RDR) pension products in the UK with an emphasis on persistency, cost efficiency and capital management to maximise cash generation. In Italy, France and Poland we will focus on developing profitability in our operations. We will also seek to grow our cross-border sales internationally through our International business based in the Isle of Man. We will continue to explore ways to reduce our cost base.

We are targeting IFRS AOP pre-tax profits of more than £300 million by 2015 from the Old Mutual Wealth business. We will do this while meeting the ROE criterion of between 12% and 15%, by growing our asset management and other product revenues, developing our distribution reach and capability, and achieving operational efficiencies.

While we already operate one of the UK's leading platforms, with £22 billion of FUM, we believe that in the post-RDR world more and more retail financial services business will be conducted via platforms. It is forecast that the amount of assets held on UK platforms will grow substantially from the current level of £250 billion and Independent Financial Advisers (IFAs) will continue to write most of their business via platforms. The UK population is growing, most rapidly in the upper age groups who are looking to maximise income to support their retirement; and those approaching retirement looking for products that will maximise their capital position at retirement. Our growth focus will be on innovation and distribution. We will develop investment management and risk solutions tailored to our customers' needs. We will also look to secure and grow distribution in our international cross-border markets. IFAs will remain our core route to market and we will continue to provide them with tools and investment solutions that will allow them to serve their clients.

...and the improvement in US Asset Management continues…

We continue to focus on driving growth, increasing margins and improving investment performance in our US Asset Management business and we are beginning to see real progress. During the period, we completed our programme of focusing on long-term, institutionally-driven, active asset management by disposing of seven out of 17 affiliates. We saw a significant improvement in net client cash flow (NCCF) for 2012, with net flows from continuing operations of £0.9 billion compared with an outflow of £3.0 billion in 2011. This was the first positive annual NCCF recorded by US Asset Management since 2007.

We continue to explore a partial IPO of the US Asset Management business, and, as we have previously stated, the timing of this will be determined by our progress against our goals of growth, improved margins and investment performance, as well as by the conditions of the equity markets.

…all driven by our customers

We understand that our success is governed ultimately by our ability to give our customers the products, outcomes and service levels that they expect from us. We have spent the past three years ensuring that the Group's primary focus is on our customers and ensuring that this ethos is embedded in our culture. We have introduced new customer service metrics and added cultural parameters as part of our management's remuneration targets. While the progress against these metrics has been encouraging, we are clear that we must continue to innovate, in both product offering and customer servicing.

Dividend

The Board has considered the position in respect of the final dividend for 2012 and is recommending the payment of a final dividend for 2012 of 5.25p per Ordinary Share (or its equivalent in other applicable currencies). Based on this recommendation, the full-year Ordinary dividend would be 7.00p, up 23% in cash terms. No scrip dividend alternative is available in relation to this dividend.

Special Dividend

A Special Dividend of 18p per share, amounting to approximately £1 billion in aggregate, was paid to shareholders on 7 June 2012. The Special Dividend was paid by reference to the Company's shares in issue before the 7-for-8 share consolidation that took effect on 23 April 2012.

Dividend policy

From 2013 onwards, the Board intends to pursue a progressive dividend policy consistent with our strategy, having regard to overall capital requirements, liquidity and profitability, and targeting a dividend cover of at least 2.25 times IFRS AOP earnings in future. Interim dividends will continue to be set at about 30% of the prior year's full ordinary dividend.

Board changes

We are pleased to welcome Danuta Gray to the Board as an independent non-executive director. She will also become a member of the Group Audit, Remuneration and Nomination Committees. Ms Gray was Chairman of Telefónica O2 in Ireland until December 2012, having previously been its Chief Executive from 2001 to 2010. She has over 20 years of experience in the telecommunications and mobile phone sector. We were disappointed that Eva Castillo decided to resign from the Board at the end of February 2013 because of the pressure of her other commitments. We greatly valued her contributions for the period she was a director.

At the Annual General meeting on 9 May 2013, Russell Edey and Lars Otterbeck will be retiring from the Board. Both Russell and Lars have played important roles in guiding the Group's executive management in the successful restructuring process during their tenure as directors.

South African empowerment

In South Africa we have continued to transform our businesses, with OMSA and Nedbank achieving Level 2 Broad Based Black Economic Empowerment (BBBEE) status for the third consecutive year. Mutual & Federal has also reached Level 2 BBBEE.

Old Mutual in the community

At Old Mutual, we believe that as well as serving our customers and shareholders, we have a wider responsibility to help the communities where we operate. The support we provide is tailored to local needs and is focused on education. We use our financial skills and resources to support the financial education projects in communities to help people plan their financial futures. Alongside this we also support community business programmes and through this support have created around 8,500 jobs in the past three years. In addition to the practical work we do in our communities, Old Mutual donated £13.4 million in 2012, which is equivalent to just over 0.8% of IFRS AOP profits, to the communities where we operate, including giving through our five Old Mutual Foundations and the Nedbank Foundation.

Outlook

Our businesses have performed very well in 2012. While the economic environment remains uncertain, we have a significantly restructured and de-risked business which is focused on the markets where we want to be and where we see long-term, structural growth. We are clear on our priorities and are confident that we will continue to deliver sustainable value for our customers and shareholders.

Group Financial Highlights

£m
	2012	2011 (constant currency)	Change	2011 (as reported)	Change
Group highlights¹	2012	2011 (constant currency)	Change	2011 (as reported)	Change
Adjusted operating profit (IFRS basis, pre-tax)	1,614	1,363	18%	1,515	7%
Adjusted operating earnings per share (IFRS basis)	17.5p	16.1p	9%	18.0p²	(3)%
Group net margin³	50bps	43bps	7bps	46bps	4bps
Return on equity⁴	13.0%			14.6%	(160)bps
Net asset value per share	146.2p	132.4p	10%	140.2p	4%
LTS gross sales (£bn)	23.3	20.4	14%	21.5	8%
Life assurance sales - APE basis	1,133	1,152	(2)%	1,207	(6)%
Non-covered business sales⁵	14,893	13,007	14%	13,786	8%
Net client cash flow (£bn)	5.0	(11.7)		(11.4)
- LTS net client cash flow (£bn)	3.2	3.2		3.2
- USAM net client cash flow (£bn)	(0.2)	(15.6)		(15.3)
Funds under management (£bn)	262.2	255.6	3%	267.2	(2)%
Total dividend for the year	7.0p			5.0p	2.0p
Total profit after tax attributable to equity holders of the parent	1,173			667
¹The figures in the table are in respect of core continuing businesses only. The comparatives have been restated accordingly.
²2011 adjusted operating earnings per share has been restated to take account of the 7-for-8 share consolidation that took effect on 23 April 2012.
³Ratio of AOP before tax to average assets under management in the period.
⁴ROE is calculated as core business IFRS AOP (post-tax) divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities).
⁵Includes unit trust, mutual fund and other non-covered sales.

Adjusted operating profit (AOP)

During the year to 31 December 2012 ('2012' or 'the period') Old Mutual showed strong growth in profits compared to the year to 31 December 2011 ('2011') on a constant currency basis. Pre-tax AOP was £1,614 million, an increase of £251 million on a constant currency basis, driven by increased profitability in our long-term savings and banking businesses in the emerging markets. AOP earnings per share were up 9% to 17.5p on a constant currency basis. The weakening in the rand to sterling average exchange rate reduced sterling earnings; the profit increase on a reported basis was £99 million.

47% of AOP generated by the business units after tax and non-controlling interests was paid to the holding company in cash.

Group net margin

Group net margin (measured as profit before tax on average FUM and average banking assets at Nedbank) increased by 7 basis points from 43 to 50 basis points on a constant currency basis. The increase was driven by strong profit growth in Nedbank, Emerging Markets and USAM. Average FUM was marginally up. In Emerging Markets, net margin increased by 9 basis points due largely to a 19% growth in profits. In Old Mutual Wealth the net margin, excluding the gain from the previously reported smoothing for policyholder tax in 2011, decreased marginally from 31 basis points to 30 basis points, with a shift towards lower margin platform business, offset by operational scale in our expense base.

Return on equity

Core Group ROE was 13.0%, against a 2011 ROE of 12.5% with Nordic included. The 2012 equity base was reduced as a result of the Special Dividend in June 2012, more than offsetting the profit on disposal of Nordic. The 2011 reported Core Group ROE was 14.6%, with Nordic net average equity of £1.8 billion excluded from the equity base, as a result of its classification as a discontinued operation.

Long Term Savings gross sales

Gross sales for Emerging Markets grew 25% to £11.7 billion, with the sales mix in South Africa continuing to shift from traditional life products to modern investment products including unit trusts and mutual funds. Gross sales in Old Mutual Wealth were £11.6 billion, led by UK Platform and OMGI inflows. Non-covered business sales in LTS, including unit trust and mutual fund sales, were up 27%. Non-covered sales in H2 2012 were strong at £8.3 billion, up 33% on H1 2012. Life assurance annual premium equivalent (APE) sales were down 2% to £1.1 billion.

Net client cash flow

The Group had strong positive NCCF of £5.0 billion (2011: £11.7 billion outflow). Excluding the outflows at the divested affiliate firms at USAM, NCCF was £6.1 billion (2011: £0.9 billion). Old Mutual Wealth NCCF was £2.0 billion; the positive inflows reflecting the momentum in our proposition as we attract new customers and further enhance features and functionality. This is particularly encouraging as it comes despite a backdrop of challenging markets, where advisers have remained focused on ensuring readiness for the RDR. Emerging Markets NCCF improved from £0.4 billion to £1.2 billion, despite the Public Investment Corporation outflow of £1.0 billion (R12.6 billion) from Old Mutual Investment Group South Africa's (OMIGSA) Electus boutique in July 2012. USAM saw net client cash inflows in its continuing business, reflecting continued strong investment performance in a number of key strategies and positive market trends.

Funds under management

Reported FUM increased by 3% on a constant currency basis, with NCCF of £5.0 billion and positive market movements of £26.9 billion offset by a £27.0 billion reduction in FUM from the divestment of affiliates at USAM and the disposal of Old Mutual Wealth's Finnish business. Excluding the impact of these divestments, FUM increased by 15%.

FUM rose 17% in LTS, with Emerging Markets up 16% and Old Mutual Wealth up 18%: £4.0 billion of this increase was due to the inclusion of Old Mutual Asset Managers (UK) (OMAM(UK)) for the first time in 2012. USAM FUM rose 14% in its continuing businesses.

Equity markets finished strongly in 2012, with the FTSE 100, S&P 500, MSCI World and the JSE All Share indices up by 6%, 13%, 13% and 23% respectively over the year.

Impact of foreign exchange

The rand to sterling average exchange rate weakened by 12% during 2012, reducing sterling earnings from our South African businesses. The US dollar to sterling average rate strengthened by 1%, increasing sterling earnings from USAM. The year-end rand closing rate was 10% lower than in 2011. The US dollar closing rate was also lower, down 4% against 2011. Both foreign exchange closing rate movements reduced sterling FUM.

Other economic impacts

South African long-term interest rates reduced significantly in 2012, with the 10-year government bond yield used as the Financial Soundness Valuation (FSV) rate decreasing from 8.2% at end-2011 to 6.9% at end-2012. This economic change had an unfavourable impact on IFRS AOP for Emerging Markets and in particular for the Retail businesses.

In order to manage the downside risk of a volatile FSV interest rate and its consequent impact on IFRS profits, Emerging Markets put a hedge programme in place in H2 2012. This partially hedged the risk and helped to reduce the negative impact from a further decline in the FSV rate in the latter part of the year. The hedge programme has been rolled forward into 2013.

Review of Operations

Long-Term Savings
	2012	2011 (constant currency)	Change
AOP (£m)	800	733	9%
NCCF (£bn)	3.2	3.2	-
FUM (£bn)	121.8	104.1	17%
Emerging Markets
AOP (£m)	605	510	19%
NCCF (£bn)	1.2	0.4	0.8
FUM (£bn)	52.6	45.5	16%
Old Mutual Wealth
AOP (£m)	195	223	(13)%
NCCF (£bn)	2.0	2.8	(0.8)
FUM (£bn)	69.2	58.6	18%

Emerging Markets

· AOP increased by 19% to £605 million, benefiting from strong growth in profits in Corporate, OMIGSA and Rest of Africa

· NCCF at £1.2 billion was up from £0.4 billion in the prior year, due to strong flows into Retail Affluent, OMIGSA, Rest of Africa and Latin America

· FUM was up 16% to £52.6 billion, due to a combination of strong NCCF and higher equity markets

· APE Sales were up 12% to £523 million; non-covered sales were up 32% to £8.9 billion

· Total gross inflows were £11.7 billion, up 25%.

In South Africa, MFC continued to grow its sales, helped by the increase in our adviser force, which grew by 12% in 2012. Productivity was impacted by our focus on advisers writing their FAIS regulatory exams. We will continue to seek growth in this business and cement our position as the sector leader. MFC now serves just under two million customers, with an additional 200,000 signed up in 2012 and we placed an MFC agent in each of the Old Mutual Finance branches. We will continue to work with Mutual & Federal to develop iWyze into the leading short-term insurance brand in the mass market.

Retail Affluent saw total gross inflows up by 18% due to strong non-covered sales but partially offset by a reduction in sales of fixed bond, living annuity and guaranteed annuities. Corporate sales were up 22% on the prior year, with gross inflows up 20%.

Continual improvement of our customer service remains an absolute focus for us and we are making significant progress toward the implementation of Treating Customers Fairly in South Africa in 2014. The customer service metric we have introduced for our South African operation demonstrates a marked improvement, but we are continuing to strive to improve our service. We have invested heavily in a Customer Relationship Management capability to drive a deeper understanding of our customers. New products launches in 2012 included an enhanced Greenlight disability product suite and the SmartMax education savings product.

We completed the reorganisation of OMIGSA and all the boutiques involved are fully operational in the new structure. We saw a withdrawal of £1 billion of low margin equity assets by the South African Public Investment Corporation. OMIGSA would have achieved positive NCCF of £0.3 billion in 2012 without this outflow. During the year, OMIGSA's boutiques won a number of awards including the Raging Bull award and certificate for the Old Mutual Real Income fund, the Raging Bull certificate for the Moderate Managed Fund of Funds, the Morningstar Award for the Old Mutual Global Equity Fund and the Imbasa Yegolide award for the Socially Responsible Investor of the Year.

Profits from our business in Rest of Africa reached the targeted 10% of South African profits in 2012 and are on track to rise to 15% by 2015. We saw good inflows in our African business, up by 21% mainly due to higher sales in Zimbabwe following a marketing initiative, higher sales in Namibia and a large deal in Kenya from the Government's pension fund. Following the acquisition of Oceanic Life in Nigeria, we will be looking to roll out our Retail Mass offering in Nigeria this year and build an asset management capability.

The Latin American and Asian businesses saw good inflows, up 61%, although our Asian joint ventures faced tough conditions throughout 2012. We invested in rolling out the Retail Mass product range in Mexico, which contributed to the rise in sales in Latin America of 16%. We acquired a majority stake in Aiva Business Platforms, a Uruguayan-based platform and distribution business operating across South America. The acquisition will allow us to access these fast-developing investment markets in an efficient and capital-light manner. In China, our joint venture has improved its distribution capability via an agreement with MinSheng Bank.

Old Mutual Wealth

· AOP in Old Mutual Wealth fell to £195 million (2011: £223 million). The prior year benefited from a £32 million policyholder tax-smoothing gain. Excluding this, AOP increased 1% despite net restructuring charges of £15 million in 2012

· Gross inflows into Old Mutual Wealth were £11.6 billion, led by flows onto the UK Platform and to OMGI; NCCF was £2 billion

· FUM was up 18% to £69.2 billion due to the inclusion of £4.0 billion of FUM in respect of OMAM(UK), higher equity markets in the later part of 2012, and good NCCF. The sale of the Finnish business reduced FUM by £1.1 billion.

Operating conditions were challenging in 2012 as equity markets remained volatile and the eurozone remained beset by uncertainty. These macro-conditions reduced investors' appetite for risk-based investments, and we saw a continued preference for more defensive allocations, although the rally in late 2012 saw some investors return to equities.

In the UK, despite the focus of advisers on preparing for RDR, our platform attracted NCCF of £2.2 billion leading to FUM on the platform of £22.6 billion at the end of 2012. Across the Wealth business, NCCF was at £2.0 billion for the year. FUM for the Wealth business grew on the prior year due to higher markets and net inflows. Average FUM in 2012 increased from £62.0 billion in 2011 to £65.9 billion. We have seen some redemptions from OMGI following the sale of the Group's Nordic business and we expect these to continue in 2013.

APE sales of covered business, predominantly life-wrapped unit linked and pension products, decreased by 11% to £610 million in 2012, despite a strong final quarter. Our UK Heritage book saw sales down £19 million to £50 million as part of the managed reduction of the older generation products offered ahead of RDR. In the International cross-border business, market conditions were difficult in the first half and the regulatory impact was pronounced, leading to sales decreasing by 13% to £181 million overall for the year. International cross-border business improved considerably in the second half of the year through a combination of new product launches and a refreshed product offering. Q4 2012 saw sales up 24% on the comparative period in the prior year.

Including sales from OMAM(UK), non-covered (mutual funds) sales increased 2% to £5.9 billion from 2011. OMGI increased its non-covered sales by 37% to £3.0 billion as a result of continued flows into a number of funds, most notably the Spectrum fund range. OMGI sales in Europe and Asia were strong at £0.6 billion and £0.4 billion respectively.

OMGI delivered very good investment performance in 2012. Eighty per cent of OMGI funds have outperformed the median over three years, with 33% in the top decile.

In 2012, we reorganised the business further by bringing OMAM(UK) into Old Mutual Wealth and continuing to merge the remaining Skandia operations into one, particularly those that were previously part of Retail Europe. As part of the reorganisation, we have closed our Austrian and German books to new business. The changes are designed to combine asset management capability with our UK Platform's strength and cross-border expertise to build a leading wealth management provider, as well as allow us to achieve further cost and operational efficiencies. As part of this we have combined Skandia Investment Group (SIG) with OMAM(UK) to form OMGI - this new asset management entity will support the growth and transformation of Old Mutual Wealth. The unification of SIG and OMAM(UK) has given us improved operational scale and renewed commercial focus. At the year-end the combined business reported an operating margin of 14% excluding transition costs (or 5% including these costs). The post-merger operating margin on a run-rate basis was 18%, excluding transition costs.

The regulatory requirements arising from the RDR came into effect on 1 January 2013, and for much of 2012 we focused on ensuring we would be compliant by this deadline. We now have flexible adviser charging in place to facilitate advice fees for financial advisers and their clients. We also took this opportunity to launch a new unbundled charging structure on our UK platform where the charge is applied dependent on how much is invested and not by asset class as well as the ability to pass rebates on to our customers in the form of additional units of their investment. This conforms to the FSA's current proposals for the platform market and we believe we are the only platform in the market that is both RDR ready and prepared for the new platform rules that are likely to come into effect later this year.

We believe RDR will create new opportunities for us as the UK market continues to change. In the short term, UK conditions will inevitably be challenging as advisers and customers adapt to the post-RDR world notwithstanding that the UK equity market conditions have been positive for the first two months of the year. Eventually we expect that the market will be characterised by a combination of whole-of-market (independent) advice and more parameterised (restricted) advice. We see opportunities to serve both these models.

We introduced a number of new products during the year, including the Generation fund range. Generation is an innovative product for retirement in the UK which has targets around both the returns as well as income levels the product aims to generate. We have also launched a revitalised, gender-neutral protection offering in the UK. In our cross-border International markets we launched new products, including a new portfolio bond and a structured product in South Africa and a universal life, high death-benefit product for other markets.

Nedbank
£m
	2012	2011 (constant currency)	% change
AOP	828	676	23%
Net interest income	1,513	1,386	9%
Non-interest revenue	1,332	1,185	12%

· Headline earnings grew 21% to £577 million, driven by good revenue growth, an improving credit loss ratio (CLR) and responsible expense management while investing for growth. AOP was up 23% to £828 million.

Nedbank made excellent progress in delivering on its strategic focus areas, producing a strong set of results for the year. The results reflect an improvement in all key performance indicators and headline earnings growth in all business clusters.

The return on average ordinary shareholders' equity (ROE) excluding goodwill, increased to 16.4% (2011: 15.3%) and ROE including goodwill increased to 14.8% (2011: 13.6%), with the return on assets (ROA) increasing to 1.13% (2011: 0.99%).

Nedbank is well capitalised, with a Basel II.5 common equity Tier 1 ratio of 11.4% (2011: pro forma Basel II.5 ratio 10.5%). With the introduction of Basel III on 1 January 2013, the pro forma Basel III common equity Tier 1 ratio at 31 December 2012 is a robust 11.6%.

Funding and liquidity levels remained sound. We maintained surplus liquidity buffers at a level of around £1.7 billion and the average long-term funding ratio increased to 26.0% (2011: 25.0%) in Q4 2012.

Mutual & Federal
			£m
	2012	2011 (constant currency)	% change
AOP	43	80	(46)%
Underwriting Result	(10)	27	(137)%
Gross written premiums	746	681	9%

· The underwriting result declined to a £10 million loss due to an increased number of severe weather losses, continued start up losses at iWyze and an increased number of large commercial fire claims

· Good growth in personal lines and iWyze policy numbers.

Mutual and Federal improved its service levels and grew the number of policies written in 2012. Its direct joint venture with OMSA's Mass Foundation business, iWyze, had strong premium growth, with the policy count growing by 33%. Losses at iWyze had a significant impact on Mutual & Federal's overall underwriting result.

Our businesses in Botswana and Namibia continue to perform well. We are in the process of acquiring Oceanic's Nigerian general insurance business from Ecobank and continue to work with Old Mutual Emerging Markets to identify opportunities in other African markets.

The management successfully contained operating costs, with an absolute fall of £5 million, and implemented selective pricing action on poorly performing lines of business. This will continue in the renewal season for 2013.

US Asset Management (continuing operations)¹
	2012	2011 (constant currency)	Change
AOP (£m)	95	86	10%
NCCF (£bn)	0.9	(3.0)	3.9
FUM (£bn)	128.4	112.9	14%
¹Continuing operations excluded the results of 2100 Xenon, Larch Lane, 300 North, Analytic, Ashfield, Dwight, and Old Mutual Capital, which were disposed during 2012, and Lincluden, which was disposed during 2011. Continuing operations also excluded OMAM(UK), which was transferred to the Old Mutual Wealth operation of LTS in 2012.

· USAM's AOP from continuing operations was up 10% to £95 million

· NCCF from continuing operations was £0.9 billion, up from £(3.0) billion in 2011

· FUM up 14% to £128.4 billion.

AOP on a continuing basis was up 10%, driven by positive NCCF and rising markets. Continued strong investment performance, combined with a strong market environment led to NCCF of £0.9 billion, the first positive flows in the business since 2007. AOP operating margin was at 29% before non-controlling interests, up 2% on the prior year. This business is being run with a margin target of 25-30%, or greater, before non-controlling interests.

USAM has now completed the repositioning of its affiliate portfolio, via the disposals of 2100 Xenon Group, 300 North Capital, Analytic Investors, Ashfield Capital Partners, Larch Lane Advisors, Old Mutual Capital (OMCAP) and Dwight Asset Management. The business is now focused on long-term, institutionally-driven, active asset management. During the year we also built our international distribution capabilities through filling key roles and identifying key market priorities.

Part 2 – Financial Performance

Contents
News Release	1
Part 1 - 2012 Annual Review	3
Group Review	3
Overview	3
Dividend	6
Board changes	6
South African empowerment	6
Old Mutual in the community	6
Outlook	6
Group Financial Highlights	7
Review of Operations	9
Part 2 - Financial Performance	13
AOP analysis	13
Summary MCEV results	14
Adjusted Group MCEV per share	14
Free surplus generation	15
Cash and liquidity	15
Operational cash inflows to holding company	15
Operational cash outflows and distributions by holding company	15
Net capital flows	15
Liquidity	16
Capital and leverage	16
Debt strategy, profile and maturities	16
Financial Groups Directive results	16
Economic capital	17
Group ROE and margin and cost savings targets	17
ROE and margin targets	17
Cost reduction targets	18
Statutory results	18
Reconciliation of Group AOP and IFRS profits	18
Adjusting items	18
Non-core business unit - Bermuda	19
Income tax attributable to policyholder returns	19
Total tax expense	19
Discontinued operations - Nordic	19
Other comprehensive income	19
Non-controlling interests	19
Risk management	19
Risk allocation and Solvency II	19
Risks and uncertainties	20
Exposure to sovereign debt in Portugal, Italy, Ireland, Greece, Spain and France	20
Supplementary financial information (data tables)	21
Summarised financial information (as reported)	21
Group return on equity (as reported)	21
Group debt summary	21
Part 3 - Detailed Business Review	23
Part 4 - Financial Information	47

AOP analysis

					£m
	2012	2011 (constant currency)¹	% change	2011 (as reported)¹	% change
Revenue
Fees	2,086	2,036	2%	2,075	1%
Underwriting²	1,425	1,322	8%	1,471	(3)%
Nedbank net interest income³	1,145	1,002	14%	1,120	2%
Nedbank non-interest revenue	1,298	1,135	14%	1,268	2%
Net other revenue	404	365	11%	402	-
Total revenues	6,358	5,860	8%	6,336	-
Expenses
Finance costs	(130)	(128)	(2)%	(128)	(2)%
Administration expenses & other expenses	(3,592)	(3,388)	(6)%	(3,676)	2%
Acquisition expenses	(1,022)	(981)	(4)%	(1,017)	-
Total expenses	(4,744)	(4,497)	(5)%	(4,821)	2%
AOP before tax and non-controlling interests	1,614	1,363	18%	1,515	7%
¹The comparative period has been restated to reflect Nordic as discontinued.
²Underwriting includes net income from writing insurance products (protection, annuity and general insurance).
³Presented net of impairments.

Sources of earnings are analysed on a constant currency basis below.

Fees increased by 2% to £2,086 million. The increase was driven by Emerging Markets and Old Mutual Wealth, reflecting higher average FUM. This was partly offset by a decrease in USAM due to the disposals of affiliates. Fees include asset-based fees, transactional fees, performance fees and premium-based fees, earned on unit-linked investment contracts and asset management revenues.

Underwriting increased 8% to £1,425 million. The increase was mainly driven by higher mortality profits in Emerging Markets and lower claims costs within Old Mutual Wealth. Mutual & Federal's underwriting results were impacted by higher claims experience during the period.

Nedbank net interest income (NII) was up 14% to £1,145 million, net of impairments, due to an increase in the net interest margin, an increase in interest earning assets and a reduction in impairment provisions.

Nedbank non-interest revenue (NIR) was up 14% to £1,298 million. NIR includes service charges, trading income, commission and transactional fees. The increase was due to higher trading income, higher commission and fees, higher transactional volumes and increased insurance revenues.

Net other revenue was up 11% to £404 million, driven by an increase in long term investment return (LTIR) in Emerging Markets and on excess assets. LTIR on excess assets increased by 64% to £54 million (2011: £33 million), primarily due to an increase in average excess assets held in South Africa pending payment of the Special Dividend to South African shareholders.

The LTIR rates are reviewed annually and reflect the returns expected on the chosen asset classes. The 2012 long-term rates for Emerging Markets, Mutual & Federal and Old Mutual Wealth were 9.0% (2011: 9.0%), 8.6% (2011: 9.0%) and 1.5% (2011: 2.0%) respectively. The 2013 long-term rates for Emerging Markets, Mutual & Federal and Old Mutual Wealth are 8.0%, 7.4% and 1.0% respectively. The asset allocation in South Africa will continue to be split 75% cash and bonds and 25% equity.

In 2012 the Group's AOP finance costs increased marginally as a result of the higher coupon on the £500 million Tier 2 bond issued in June 2011, compared to the Group's other debt instruments, and the timing of the debt repayment during the year. In September 2012 the Group redeemed the $750 million cumulative preference securities. The costs associated with this instrument are accounted for as non-controlling interests. Total finance costs, including the cost of this instrument, reduced by approximately £8 million. These finance costs are expected to reduce by over 35% in 2013 as a result of the full year effects of the debt reduction undertaken in 2012.

Administration expenses increased by 6% to £3,592 million, with increased costs in Nedbank, primarily due to higher staffing to service increased volumes, and Emerging Markets, driven by project costs and inflationary increases. Old Mutual Wealth costs increased, with expense savings offset by transformation and development spend, and the inclusion of OMAM(UK) for the first time in 2012.

The following Group central costs were included in administration expenses:

· Corporate costs were down 5% to £54 million (2011: £57 million), due to our ongoing efforts to reduce corporate costs in line with the Group's previously announced targets. Around 12% of these costs were incurred in South Africa in respect of activities which support the corporate centre. A further 8% were unavoidable listed holding company costs including, corporate insurances, audit fees and other recurring professional fees. We consider them to be low compared to peers.

· Net interest payable to non-core operations reduced by 22% to £18 million (2011: £23 million), due to lower prevailing rates on the loan notes to our Bermuda business.

· The other net expenses reduced to nil (2011: £18 million), primarily due to higher Group seed investment gains generated at USAM's affiliates, offsetting expenses.

Acquisition expenses increased by 4% to £1,022 million, primarily due to increased new business volumes in Emerging Markets and increased trail commission in Old Mutual Wealth, resulting from improved market performance in the year, which more than offset the impact of lower new business volumes.

Summary MCEV results

Adjusted Group MCEV per share

The adjusted Group MCEV per share increased by 13% to 220.3p, with 4,893 million shares in issue (2011: 5,562 million). Adjusted operating earnings contributed 15.7p per share and non-operating earnings and other movements contributed 10.5p per share.

The positive contribution from non-operating earnings and other movements was primarily due to the increase in the uplift for the Nedbank market value of 11.9p per share and the sale of Nordic resulting in an increase of 12.4p per share. This comprised the Nordic sale proceeds of 3.6p, share consolidation impact of 26.8p, offset by the Special Dividend paid on 7 June 2012, which reduced MCEV per share by 18.0p. Foreign exchange movements from rand depreciation had a negative impact of 13.4p per share.

		p
Adjusted Group MCEV per share at 31 December 2011¹		194.1
Covered business	9.0
Non-covered business	6.7
Adjusted operating Group MCEV earnings per share¹		15.7
Economic variances and other earnings	7.2
Foreign exchange and other movements	(13.4)
Dividends paid to ordinary and preferred shareholders	(6.1)
Nedbank market value adjustment	11.9
BEE and ESOP adjustments	(0.3)
Mark to market of debt	(1.2)
Impact of share consolidation	26.8
Net proceeds from Nordic sale	3.6
Special dividend	(18.0)
Non-operating MCEV earnings and other movements		10.5
Adjusted Group MCEV per share at 31 December 2012¹		220.3
¹The weighted average number of shares used to calculate adjusted Group MCEV per share and adjusted operating Group MCEV earnings per share does not include preference shares.

The adjusted operating Group MCEV earnings per share decreased by 3.7p to 15.7p, including Nordic, and by 1.6p to 15.2p excluding Nordic. Non-covered business operating earnings increased by 0.7p and now represents 43% of total operating earnings (2011: 31%).

Covered business operating MCEV earnings per share decreased by 4.4p to 9.0p, including Nordic, and by 2.4p to 8.6p excluding Nordic. Excluding Nordic, the movements include:

· Emerging Markets earnings in sterling decreased 0.7p due to the weakening of the rand exchange rate. In rand terms, earnings increased due to a higher new business contribution, expected return and positive experience and assumption changes in respect of mortality and disability. This was partially offset by experience losses, including one-off development expenses in 2012 and significantly lower persistency profits, following the release of short-term termination provisions and alignment of persistency experience to assumptions at the end of 2011.

· Lower earnings from Old Mutual Wealth reflected restructuring initiatives of 1.8p, largely as a result of the change of strategy, including the future operation of the selected European businesses on a manage for value basis and lower positive rebate variances compared to 2011.

· Higher earnings from Old Mutual Bermuda as a result of positive persistency experience on variable annuity products, and the lightening of persistency and expense assumptions.

Non-covered business operating earnings per share increased by 0.7p to 6.7p, including Nordic and increased 0.8p to 6.6p excluding Nordic. The increase excluding the contribution from Nordic was a result of higher earnings from the banking businesses, with Nedbank's earnings a result of higher net interest income and non-interest revenue. This was partially offset by lower earnings from Mutual & Federal.

At end-2012, 63% of the adjusted Group MCEV, pre-debt and net other business, was in emerging market countries (including Nedbank and Mutual & Federalbusinesses) (2011: 55%), with 22% in European businesses (2011: 35%) and 15% in the US (2011: 10%).

The ROEV is calculated as the adjusted operating Group MCEV earnings after tax and non-controlling interests of £789 million (2011: £1,055 million) divided by the opening Group MCEV.

During the period Old Mutual owned on average 54.6% of Nedbank. At end-2012, the market capitalisation of Nedbank was R90.5 billion, equivalent to £6.6 billion (2011: R69.6 billion; £5.5 billion). On a constant currency basis, Nedbank's market capitalisation increased by £1.5 billion from £5.1 billion at end-2011, due to a 30% increase in its share price over the period.

Free surplus generation

Core continuing operations generated £814 million of free surplus (2011: £803 million), of which £593 million (2011: £552 million) was generated by the LTS division. Covered business generated £493 million (2011: £431 million) with the increase attributable to lower new business investment and higher economic variances resulting from strong equity market performance partly offset by lower transfers from value of in-force business and adverse experience variances mainly arising from one-off development and restructuring costs. We expect the value of our remaining in-force business to generate a surplus of about £1.5 billion over the next three years. Over 50% of this surplus is expected to come from Old Mutual Wealth.

Non-covered business generated £321 million (2011: £372 million), with the decline mainly attributable to the lower underwriting result in M&F.

Cash and liquidity
	£m
Opening cash and liquid assets at Plc at 1 January 2012	441

Operational inflows
Operational receipts	212
Distributions from South African operations	258
Total operational inflows	470
Operational outflows
Interest paid	(142)
GHO costs	(54)
Inter-company interest and other operational outflows	(9)
Ordinary cash dividends	(268)
Total operational outflows	(473)

Net capital flows	34

Closing cash and liquid assets at Plc at 31 December 2012	472

Operational cash inflows to holding company

Inflows to holding company included hard currency operational inflows of £212 million, consisting of £145 million from Old Mutual Wealth and £67 million from US Asset Management. Distributions of £258 million were made by the South African businesses, with £108 million from Emerging Markets, £138 million from Nedbank and £12 million from Mutual & Federal.

Operational cash outflows and distributions by holding company

Operational outflows included finance costs of £142 million and head office costs of £54 million.

Ordinary cash dividends totalled £268 million. Dividends of £147 million were paid to shareholders on the South African register, funded directly by the South African businesses.

Net capital flows

Capital inflows included proceeds from the sale of the Nordic business, Dwight and Old Mutual Capital in H1 2012 and the sale of Old Mutual Wealth's Finnish business in H2 2012. The Group also sold 75% of its Zimbabwean operation to an OMSA subsidiary for an initial consideration of R1.1 billion, with deferred consideration of R0.5 billion potentially payable in 2015, subject to valuation.

We have agreed terms for the transfer of the Colombian and Mexican businesses to OMSA, subject to regulatory approval, and continue arranging the transfer of certain other emerging market subsidiaries to align their legal structures with their operational management.

Capital outflows included:

· Payment of a Special Dividend of £1.0 billion

· A cash transfer of £38 million ($61 million) into Old Mutual Bermuda in July 2012 in response to the expected new Bermudan solvency requirements. This formed part of the total additional capital of $571 million transferred to Bermuda, the balance was comprised of $250 million of new inter-company loan notes and $260 million of Group seed investments

· Cash of £1,073 million used to repay debt during the period

· The settling of an intercompany loan with Nedbank.

Liquidity

At 31 December 2012, the Group had available liquid assets and undrawn committed facilities of £1.7 billion (2011: £1.5 billion). Of this, available liquid assets at the holding company were £0.5 billion (2011: £0.4 billion).

In addition to the cash and available resources referred to above at the holding company, each of the individual businesses also maintains liquidity to support its normal trading operations.

Capital and leverage

Debt strategy, profile and maturities

At 31 December 2012 the Group had applied £1.52 billion of cash to the repayment of debt since 1 January 2010, successfully completing its £1.5 billion initial debt reduction target set in March 2010. The £1.52 billion debt repaid included:

· £110 million (net of debt raised) repaid in 2010

· £339 million (net of debt raised) repaid in 2011

· £1,073 million repaid in 2012.

The debt repaid in 2012 included:

· £144 million to repay €200 million of a €750 million Tier 2 bond in January 2012

· £459 million to repay £388 million notional of the £500 million senior debt (maturing in 2016) in August 2012

· £464 million to repay the $750 million cumulative preference securities in September 2012

· £6 million to repay subordinated debt in December 2012.

A further £180 million of debt will be repaid in due course, in accordance with the plans set out in the shareholder circular on the Nordic sale. Any decisions regarding the repayment of further debt will take account of capital treatment and the economic impact of the repayment and, where appropriate, will be subject to regulatory approval.

In the medium-to-long term the Group has further first calls on debt instruments amounting to £620 million in 2015 and £348 million in 2020. In addition the Group has £112 million of senior debt maturing in 2016, representing the amount outstanding following the tender in 2012. The £500 million Tier 2 bond issued in June 2011 matures in 2021.

Financial Groups Directive results

The Group's regulatory capital surplus, calculated under the EU Financial Groups Directive (FGD), at 31 December 2012 was £2.0 billion (2011: £2.0 billion). The £2.0 billion FGD surplus represented a coverage ratio of 158%, compared to 154% at end-2011. When stressed against a 1 in 10 shock event the Group's FGD surplus would fall to £1.6 billion.

The FGD surplus was increased by statutory profits but this was offset by the increase in the local regulatory capital requirement in Bermuda and the repayment of the Tier 2 subordinated debt. The sale of Nordic increased the FGD surplus by £1.6 billion. This was largely offset by the payment of £1.2 billion in special and ordinary dividends during 2012.

The future level of capital required in Old Mutual Bermuda, on both an economic and a regulatory basis, will be influenced by the extent and nature of the run-off of its book and the amount of the investment hedge in place. Taking account of the higher than anticipated surrender experience, we expect to review the regulatory capital requirement with the Bermuda Monetary Authority during 2013.

The Group's subsidiary businesses continue to have strong local statutory capital cover.

Business local statutory capital cover	31-Dec-12	31-Dec-11
Old Mutual Life Assurance Company (South Africa)	4.0x	4.0x
Mutual & Federal	1.8x¹	1.5x
UK	2.3x	2.0x
Nedbank^2,3	Common equity Tier 1: 11.4%	Common equity Tier 1: 10.5%
	Tier 1: 12.9%	Tier 1: 12.0%
	Total: 14.9%	Total: 14.6%
Bermuda	1.6x⁴	2.3x
¹2012 local statutory cover was based on interim SAM framework for non-life insurers, implemented on 1 January 2012.
²This includes unappropriated profits.
³2012 and 2011 Nedbank capital ratios are calculated on a Basel II.5 basis.
⁴Based on Bermuda's expected new regulatory regime.

The Group's FGD surplus is calculated using the 'deduction and aggregation' method, which determines the Group's capital resources less the Group's capital resources requirement. Group capital resources is the sum of all the business units' net capital resources, calculated as each business unit's stand-alone capital resources less the book value of the Group's investment; the Group capital resources requirement is the sum of all the business units' capital requirements. The contribution made by each business unit to the Group's regulatory surplus is different from the locally reported surplus as the latter is determined without the deduction for the book value of the Group's investment. Thus, although all the Group's major business units have robust local solvency surpluses, not all make a positive contribution to the Group's FGD position. The Group regulatory capital was calculated in line with the FSA's prudential guidelines.

	2012		2011¹
Regulatory capital	£m	%	£m	%
Ordinary Equity	4,948	89%	4,565	80%
Other Tier 1 Equity	572	10%	593	10%
Tier 1 Capital	5,520	99%	5,158	90%
Tier 2	1,343	24%	1,903	33%
Deductions from total capital	(1,289)	(23)%	(1,360)	(23)%
Total capital resources	5,574	100%	5,701	100%
¹Capital as reported to FSA. Numbers may differ slightly from those reported in Annual Report and Accounts 2011.

Economic capital

We continue to manage our business and monitor solvency internally on an economic capital at risk basis, which expresses solvency at a 99.93% confidence level. We are comfortably solvent on this basis with a current solvency ratio of over 160% (estimated, unaudited figure), and are therefore well-positioned for the transition to Solvency II in the UK and its South African equivalent, Solvency Assessment and Management. Economic capital represents our internal view of our business and is more representative of the underlying risks. It allows for diversification both between different risks within entities and across sectors and territories.

Group ROE and margin and cost savings targets

At the 2009 Preliminary Results and Strategy Update, the Group introduced three-year ROE and cost-saving targets. Progress against these targets is set out below.

ROE and margin targets	2012	2011	Target
Long-Term Savings
Emerging Markets ¹	24%	24%	20%-25%
Old Mutual Wealth²	13%	16%	12%-15%
LTS Total	20%	20%	16%-18%
USAM operating margin³	21%	15%	25%-30%
¹Within Emerging Markets, African and Asian ROE are calculated as return on allocated capital.
²Old Mutual Wealth ROE is calculated as IFRS AOP (post tax) divided by average shareholders' equity, excluding goodwill, PVIF and other acquired intangibles.
³USAM operating margin measures AOP as a percentage of revenue and is stated after non-controlling interests and excluding gains/losses on seed capital but makes no adjustment for affiliates held for sale or disposed in the period. The results for the comparative period have been restated to exclude gains/losses on seed capital.

Emerging Markets ROE remained high at 24%, with increased post-tax profits offset by an increased allocated capital base, supporting growth and expansion plans in Africa. Old Mutual Wealth ROE reduced to 13%, with lower operating profits partially offset by a more efficient capital base, following capital flows to the Group in 2012.

USAM's operating margin improved from 15% to 21% on a reported basis. USAM's operating margin from continuing business, which excluded divested affiliates, was 24% (2011: 24%) after non-controlling interests and 29% (2011: 27%) before non-controlling interests.

Nedbank ROE (excluding goodwill) was 16.4%, an improvement of 1.1% on 2011, but was 1.7% below Nedbank's medium-to-long term target of 5% above the cost of ordinary shareholders' equity.

			£m
Cost reduction targets	Cumulative run-rate savings	Cumulative cost incurred to date	2012 run-rate target
Long-Term Savings
Emerging Markets	21	-	5
Old Mutual Wealth	80	56	60
LTS Total	101	56	65
USAM	15	20	10
Group-wide corporate costs	17	1	15
Total	133	77	90

We have delivered £133 million of cumulative run-rate savings, more than the £90 million run-target announced in March 2010, with all business units meeting or exceeding targets. The original £100 million target was re-stated to exclude Nordic following its sale. The cost incurred to deliver run-rate savings in 2012 totalled £1 million.

Group corporate cost run-rate savings of £17 million were delivered through ongoing restructuring at the Group's Head Office.

Statutory results
Reconciliation of Group AOP and IFRS profits
				£m
		2012		2011¹
Adjusted operating profit		1,614		1,515
Adjusting items		(459)		(329)
Non-core operations (including Bermuda)²		165		(183)
Profit before tax (net of policyholder tax)		1,320		1,003
Income tax attributable to policyholder returns		75		(9)
Profit before tax		1,395		994
Total tax expense		(472)		(225)
Profit from continuing operations after tax		923		769
Profit from discontinued operations after tax		564		198
Profit after tax for the financial year		1,487		967
Other comprehensive income		(835)		(1,400)
Total comprehensive income		652		(433)
Attributable to
Equity holders of the parent		476		(408)
Non-controlling interests
Ordinary shares	126		(87)
Preferred securities	50		62
Total non-controlling interests		176		(25)
Total comprehensive income		652		(433)
¹The comparative period has been restated to reflect Nordic as discontinued.
²Non-core operations include £161 million of profit after tax from Bermuda and £4 million of inter-segment revenue and profit from discontinued operations after tax, reflecting the results of Nordic.

Adjusting items

Key adjusting items made to IFRS profits to determine AOP:

· A £126 million loss on Group debt instruments held at fair value, resulting from a tightening in credit spreads, was excluded from AOP

· A £123 million amortisation charge in respect of other acquisition accounting adjustments primarily relating to the remaining Skandia business (i.e. excluding Nordic), was excluded from AOP

· £113 million of investment returns on policyholder investments in Group equity and debt instruments were included in AOP

· A £78 million charge for short-term fluctuations in investment return, largely as a result of lower returns on cash and bonds in South Africa compared to our LTIR assumption and expected asset allocation.

Non-core business units - Bermuda

The IFRS post-tax profit for the period was £161 million (2011: £178 million loss), driven primarily by the reduction in Universal Guaranteed Minimum Accumulation Benefits (GMAB) reserves and a realised gain on the fixed income portfolio, partially offset by a full write-off of all remaining deferred acquisition costs.

At 31 December 2012, 67% of the Universal Guarantee Option (UGO) GMAB contracts by guarantee amount had passed their five-year top-up mark. The cash cost of fifth anniversary top-ups paid was £268 million, further reduced by positive equity market movements. The estimated outstanding cash cost of fifth anniversary top-ups was £66 million at end-2012.

We experienced significantly higher than expected surrender rates for 2012. The UGO GMAB guarantee reserve at 31 December 2012 was £135 million (2011: £665 million). At 31 December 2012, around 80% of non-Hong Kong UGO policies and around 60% of Hong Kong policies had been surrendered on or after the fifth anniversary date.

Further information on Bermuda is included in Part 3 - Detailed Business Review.

Income tax attributable to policyholder returns

Under IFRS, tax on policyholder investment returns is included in the Group's tax charge rather than being offset against the related income. The impact is to increase profit before tax, with a corresponding increase to the tax charge. In 2012, tax on policyholder investment returns was £75 million (2011: £9 million credit), of which £27 million was attributable to Old Mutual Wealth and £48 million to Emerging Markets. In 2011, a smoothing adjustment in respect of Old Mutual Wealth's previous years' deferred tax assets gave rise to an AOP gain of £32 million; there was no such gain in 2012.

Total tax expense

The effective tax rate (ETR) on AOP increased from 23% in 2011 to 27% in 2012. Over 88% of the 2012 AOP tax charge relates to Emerging Markets and Nedbank. Movements in these business units have a correspondingly large impact on the Group's ETR. The increase in ETR was largely a result of:

· A 2% increase in Nedbank's ETR to 27%, due mainly to a lower proportion of untaxed dividend income

· A return to a more normal ETR of 27% (2011: 21%) in Emerging Markets, which also saw a reduction in the proportion of low taxed income in 2012

· An increase in AOP tax rate in Old Mutual Wealth from 12% to 22%. This was principally driven by market fluctuations resulting in significantly less exempt dividend income being allocated to the shareholder.

During the period we paid corporation tax of approximately £300 million. Around 90% was paid in South Africa, where a large proportion of the Group's profits were generated. Total taxes paid and collected in the year were around £1 billion.

Looking forward, and depending on market conditions and profit mix, we expect the ETR on AOP in future periods to range between 25% and 28%. We are reviewing the proposed changes to South African life business taxes announced in the South African budget on 27 February 2013, which may impact this range if enacted.

Discontinued operations - Nordic

Profit from discontinued operations included a £564 million profit on the disposal of Nordic. A brand impairment of £35 million attributable to the sale was recognised in H2 2012. We anticipate further IT and rebranding costs of around £60 million, directly related to the transaction in 2013.

Other comprehensive income

Other comprehensive income for the period showed a loss of £835 million (2011: £1,400 million loss), driven by the recycling of the foreign exchange reserves associated with Nordic from other comprehensive income through the income statement and unrealised foreign exchange losses, largely on the net asset value of the South African businesses.

Non-controlling interests

Non-controlling interests' share of total comprehensive income was £176 million (2011: £25 million loss), mainly reflecting non-controlling interests' share of Nedbank's profit, partially offset by their share of unrealised losses generated on the translation of Nedbank.

Risk management

Risk allocation and Solvency II

The Group's internal capital model supports the setting of our integrated risk and business strategy and forms the basis of our risk appetite and limit-setting framework. It is a useful tool, allowing us to understand better the potential impact of strategic decisions and possible future developments (both internally and externally) on our economic capital position.

Given the delay to the Solvency II go-live date, we plan to focus on further embedding our model and Own Risk and Solvency Assessment (ORSA) within the business and enhancing our stress and scenario testing framework. In South Africa, our insurance businesses are well positioned for the new SAM regulations, which will be effective January 2015 with dual reporting during 2014.

Risks and uncertainties

A number of potential risks and uncertainties could have a material impact on Group performance and cause actual results to differ materially from expected and historical results.

Although we continue to operate in difficult economic conditions, the Group's overall profile is stable despite the weakened global recovery. Important questions remain about how the global economy will operate in a world of high government debt and whether emerging market economies can maintain their strong expansion while shifting further from external to domestic sources of growth. Nonetheless, the Group continues to show that it is resilient and well capitalised.

The most significant external risks to earnings relate to the concentration of businesses in South Africa and the translation of earnings from rand to sterling. The rand is susceptible to changes in the level of foreign investment in South African government debt. This remains high as the prolonged period of low growth in the US and Europe drives foreign investors to seek yield elsewhere. Any reversal of these flows could potentially trigger a decline in the rand, reducing our sterling earnings. Having modelled scenarios involving a severe fall in the rand, we are comfortable that the Group has sufficient capital and liquidity headroom to withstand such events.

The strategic changes to our Old Mutual Wealth business are a top priority. As we position our businesses for growth over the next few years, we recognise that this could increase short-term operational risk - particularly in Old Mutual Wealth, where the pace and level of change are greatest.

Exposure to credit risk has increased slightly, reflecting controlled growth in Nedbank and Old Mutual Finance, but remains within appetite limits. In the current environment, our South African life business remains exposed, from an IFRS earnings perspective, to further reductions in long-term interest rates resulting in an increase in the value of certain life insurance liabilities. This was partially hedged in 2012 and the hedge programme has been rolled forward into 2013.

Old Mutual Bermuda has significantly reduced its market risk exposures - including volatility risk associated with the five-year top-up anniversaries - through the hedging programme introduced in March 2012 and favourable surrender experience in 2012. This has greatly benefited the overall Group capital position.

The current regulatory environment is changing and we expect to see a growing intensity of regulation over time, specifically with the move to the FSA twin peaks regulatory model in the UK. A similar move is imminent in South Africa, with regulators aiming to have the legislative framework in place by the end of 2013, with the split to be made by April 2014. Our strategic emphasis on customer focus and our continuing senior-level engagement with regulatory policymakers positions us well to address the move to this new regulatory model in the UK and South Africa, as well as the recently implemented UK RDR. Nedbank has successfully implemented Basel II.5 and is well positioned for Basel III. This is effective from January 2013, but the new requirements will be phased-in over several years.

The Board believes that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis for preparing accounts.

Exposure to sovereign debt in Portugal, Italy, Ireland, Greece, Spain and France

At 31 December 2012 the Group had no direct exposure to the sovereign debt of Portugal, Italy, Ireland, Greece and Spain. The exposure to French sovereign debt at 31 December 2012 was less than £3 million.

Supplementary financial information (data tables)
			£m
Summarised financial information (as reported)	2012	2011	% change
IFRS results¹
Basic earnings per share	24.9p	12.9p	93%
IFRS profit after tax attributable to equity holders of the parent	1,173	667	76%
MCEV results²
Adjusted Group MCEV (£bn)	10.8	10.8	-
Adjusted Group MCEV per share	220.3p	194.1p	13%
AOP Group MCEV earnings (post-tax and non-controlling interests)	789	1,055	(25)%
Adjusted operating Group MCEV earnings per share	15.7p	19.4p	(19)%
Return on Group MCEV	8.1%	10.7%
¹The comparative period has been restated to reflect Nordic as discontinued.
²Includes Nordic and US Life.

£m
Group return on equity (as reported)¹	2012	2011
AOP including accrued hybrid dividends - core operations	842	855
Opening shareholders' equity excluding hybrid capital - core operations	5,857	5,788
Half-year shareholders' equity excluding hybrid capital - core operations	6,996	5,987
Closing shareholders' equity excluding hybrid capital - core operations	6,583	5,857
Average shareholders' equity - core operations	6,479	5,877
Return on average equity	13.0%	14.6%
¹ROE is calculated as core business IFRS AOP (post-tax) divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities)

		£m
Group debt summary	2012	2011
Senior gearing (net of holding company cash)	(3.0)%	0.5%
Total gearing (net of holding company cash)	8.5%	15.6%
Book value of debt - MCEV basis	1,607	2,515
Book value of debt - IFRS basis	1,569	2,529
Total interest cover¹	8.8 times	7.7 times
Hard interest cover¹	1.9 times	1.7 times
¹Total interest cover and hard interest cover ratios exclude Nordic profits in current and prior periods.

Part 3 - Detailed Business Review

Contents
News Release	1
Part 1 - 2012 Annual Review	3
Part 2 - Financial Performance	13
Part 3 - Detailed Business Review	23
Long-Term Savings	23
Emerging Markets data tables (South African rand)	29
Old Mutual Wealth data tables (sterling)	31
Nedbank	33
Mutual & Federal	40
US Asset Management	42
Non-core business - Bermuda (additional disclosures)	45
Part 4 - Financial Information	47

Long-Term Savings

					£m
	2012	2011		2011
Long-Term Savings¹	Reported	Constant currency	% change	Reported	% change
AOP (IFRS basis, pre-tax)	800	733	9%	793	1%
NCCF (£bn)	3.2	3.2	-	3.2	-
FUM (£bn)	121.8	104.1	17%	108.5	12%
Life assurance sales (APE)	1,133	1,152	(2)%	1,207	(6)%
PVNBP	8,665	8,767	(1)%	9,113	(5)%
Non-covered sales^2,3	14,549	11,450	27%	12,248	19%
Value of new business	197	167	18%	177	11%
APE margin	18%			15%
PVNBP margin	2.3%			1.9%
Operating MCEV earnings (covered business, post-tax)	336			552	(39)%
Adjusted MCEV (covered business)	5,740			5,713	-
Return on embedded value⁴	5.9%			9.3%
(VNB + experience variance)/MCEV (covered business)⁴	2.6%			5.1%




					£m
	2012	2011		2011
Emerging Markets	Reported	Constant currency	% change	Reported	% change
AOP (IFRS basis, pre-tax)	605	510	19%	570	6%
NCCF (£bn)	1.2	0.4	200%	0.4	200%
FUM (£bn)	52.6	45.5	16%	49.9	5%
Life assurance sales (APE)⁵	523	469	12%	524	-
PVNBP^5,6	3,331	2,949	13%	3,295	1%
Non-covered sales²	8,937	6,761	32%	7,559	18%
Value of new business^5,6	135	89	52%	99	36%
APE margin⁶	27%			20%
PVNBP margin⁶	4.1%			3.0%
Operating MCEV earnings (covered business, post-tax)	328			349	(6)%
Adjusted MCEV (covered business)⁶	3,296			3,167	4%
Return on embedded value^4,6,7	10.7%			11.9%
(VNB + experience variance)/MCEV (covered business)^4,6,7	3.5%			6.8%

					£m
	2012	2011		2011
Old Mutual Wealth	Reported	Constant currency	% change	Reported	% change
AOP (IFRS basis, pre-tax)	195	223	(13)%	223	(13)%
NCCF (£bn)	2.0	2.8	(29)%	2.8	(29)%
FUM (£bn)	69.2	58.6	18%	58.6	18%
Life assurance sales (APE)	610	683	(11)%	683	(11)%
PVNBP	5,334	5,818	(8)%	5,818	(8)%
Non-covered sales^2,3	5,612	4,689	20%	4,689	20%
Value of new business	62	78	(21)%	78	(21)%
APE margin	10%			11%
PVNBP margin	1.2%			1.3%
Operating MCEV earnings (covered business, post-tax)	8			203	(96)%
Adjusted MCEV (covered business)	2,444			2,546	-
Return on embedded value⁴	0.3%			7.8%
(VNB + experience variance)/MCEV (covered business)⁴	1.7%			4.0%
¹The comparative period has been restated to reflect Nordic as discontinued.
²Includes unit trust, mutual fund and other sales.
³OMAM(UK) was transferred to Old Mutual Wealth from USAM at the beginning of Q2 2012. £270 million of OMAM(UK) non-covered sales from Q1 2012 and £1,096 million from 2011 are therefore excluded from non-covered sales.
⁴ROEV and (VNB + experience variance)/MCEV (covered business) were calculated in local currency, except for LTS where they were calculated on a reporting currency basis.
⁵Premiums in respect of MFC Credit Life sales have been included in APE sales, PVNBP and VNB for the first time in 2012.
⁶PVNBP, value of new business APE margin and PVNBP margin for Emerging Markets represent South Africa and Namibia only, they exclude Zimbabwe, Kenya, Malawi and Swaziland.
⁷The return on embedded value and (VNB + experience variance)/MCEV metrics for the comparative period have not been restated to include Zimbabwe, Kenya, Malawi and Swaziland in the opening MCEV.

On a reported basis the Emerging Markets business accounts for 76% of LTS IFRS AOP earnings, 43% of LTS FUM and 46% of LTS APE sales.

The following analysis is presented on a constant currency basis.

IFRS AOP results

Overall LTS AOP increased 9% to £800 million.

Emerging Markets AOP (pre-tax) increased by 19% to £605 million, with strong growth in profits in South Africa and Rest of Africa.

· Strong profits in the South African retail businesses were due to good investment returns on policyholder funds and positive mortality and disability experience. Successful maintenance expense management has resulted in positive assumption changes. There was reduced new business strain, given improved product mix and pricing and a release of some contingency reserves in respect of a legacy structured product. The 130 bps reduction in the benchmark 10 year government bond yield increased the value placed on certain policyholder liabilities. The impact in H2 2012 was less than the impact in H1 2012 as a result of management actions, including the implementation of some partial hedging. The pre-tax net effect for 2012 was a charge of R374 million. Persistency for 2012 was in line with the revised assumptions set in December 2011

· Corporate business profits in South Africa returned to normalised levels after the strengthening of the Investment Guarantee Reserve in 2011

· Rest of Africa profits improved mainly within Namibia and Zimbabwe due to favourable experience variances, assumption changes and foreign exchange gains

· OMIGSA profits increased, with improved management and performance fees, notwithstanding the exceptional private equity gain in 2011

· This was partly offset by increased central and administration expenses, due to higher share-based payment and incentive provisions, increased investment in technology and new business development.

Old Mutual Wealth AOP was £195 million after a net £15 million restructuring charge during the year. The prior year's AOP of £223 million included £32 million of policyholder tax smoothing. OMAM(UK) AOP was £2 million in 2011 meaning that the pro-forma comparable total Old Mutual Wealth AOP was £225 million, including policyholder tax smoothing. The UK Platform generated a profit in 2012. In Q3 2012 we completed the sale of the Finnish business, which generated £12 million of post-tax profits in 2012 and £12 million for the whole of 2011.

Operating conditions have been difficult: world equity markets have remained volatile and economic conditions in Europe have continued to be challenging, with much uncertainty over the euro during the year. This uncertainty continues to play a role in investor decisions, dampening demand for risk-based investments and driving a continued preference for more defensive asset allocations. Sales margins improved in H2 2012 as clients started to return to equities.

Net client cash flow and gross inflows

Overall LTS NCCF was flat at £3.2 billion, with increased NCCF in Emerging Markets offset by reduced net inflows to Old Mutual Wealth.

Gross inflows for Emerging Markets grew 25% to £11.7 billion, with our sales mix continuing to highlight the growing shift in South Africa from traditional life products to modern investment products including unit trusts and mutual funds.

Emerging Markets NCCF improved by £0.8 billion to £1.2 billion, driven mainly by large deals secured by the OMIGSA boutiques and the Latin American businesses, strong sales in Old Mutual Unit Trusts (OMUT) and Rest of Africa, and improved single premium sales in Corporate. An expected outflow of £1.0 billion low-margin equity assets from the South African Public Investment Corporation (PIC) took place in July 2012 (2011: £0.2 billion outflow from PIC). Only a small amount of assets managed for the PIC in traditional asset classes remain. Excluding the PIC outflows, NCCF improved by £1.6 billion versus 2011 and OMIGSA would have reflected positive NCCF of £0.3 billion in 2012.

Gross inflows in Old Mutual Wealth were £11.6 billion (2011: £11.0 billion), led by UK Platform and OMGI inflows. OMAM(UK) was transferred to Old Mutual Wealth at the beginning of Q2 2012. Including the gross sales of OMAM(UK) for the whole of 2012 and 2011, gross sales were down 2% to £11.9 billion (2011: £12.1 billion).

Old Mutual Wealth NCCF decreased to £2.0 billion from £2.8 billion in 2011, given lower sales volumes, the closure of the Austrian, German and Swiss books to new business and modest change in redemptions and transfers from the Platform in the run-up to RDR. We continued to see strong inflows reflecting the momentum in our proposition as we attract new customers and further enhance features and functionality. This is particularly encouraging as it comes despite a backdrop of challenging markets, where advisers have remained focused on ensuring readiness for the RDR. UK Platform NCCF was £2.2 billion (2011: £3.3 billion). Net outflows from the UK Heritage business reduced by 23%.

Funds under management

Overall LTS FUM rose 17% to £121.8 billion, due to higher equity markets and strong net client cash inflows. Emerging Markets FUM increased by 16% to £52.6 billion. Old Mutual Wealth FUM increased by 18% to £69.2 billion. The sale of the Finnish business reduced FUM by £1.1 billion.

UK Platform FUM increased to £22.6 billion (2011 £18.8 billion), further cementing Old Mutual Wealth's position as one of the largest participants in this retail market.

OMGI delivered solid investment performance, with 80% of OMGI funds above median over three years (AUM weighted) and 33% of funds in the top decile. Six of its 40 investment professionals were named in the CityWire Global Top 1000 Fund Managers for 2012.

Life sales summary

Overall LTS APE sales decreased by 2% to £1,133 million.

In Emerging Markets, life APE sales increased by 12% to £523 million, with continued momentum in MFC and a good performance in Corporate.

South African regular premium sales increased by 15%, with MFC sales up by 21% as a result of a larger sales force and the inclusion of Old Mutual Finance Credit Life sales of £14 million for the first time boosting risk sales. South African single premium sales increased by 3%: Corporate sales growth of 30%, due mainly to large annuity deals, was partially offset by lower Retail Affluent revenue due to reduced fixed bond, living annuity and guaranteed annuity sales. Had we converted Retail Affluent non-life sales to an APE basis, total Retail Affluent sales would have increased by 11%.

In the Rest of Africa, total APE sales increased by 15% - due mainly to strong underlying growth in Zimbabwe and Malawi, with the latter benefitting from the introduction of mandatory occupational pension schemes.

Old Mutual Wealth single premium sales on the UK Platform were down 4%, although inflows improved in Q4. Platform sales accounted for £229 million of the total £279 million total UK life sales on an APE basis.

APE sales on the UK Heritage book reduced by £19 million to £50 million, reflecting the managed reduction in product range in the lead-up to RDR.

In the cross-border International market, APE sales decreased by 13% to £181 million, impacted by difficult market conditions in H1 as well as regulatory changes. Sales picked up in H2 as markets improved, with Q4 seeing the year's strongest quarterly sales and an improvement of 24% on the same period in 2011.

Covered APE sales in Old Mutual Wealth Europe increased by 12% to £124 million in the open book. Sales in Italy were up 32% as a result of new distribution arrangements and ongoing improvements in sales volumes from key strategic partners. Modest sales levels in France and Poland reflected the still challenging sales environment across Europe.

In Old Mutual Wealth's European heritage markets, reduced APE sales followed the closure of the German, Austrian and Swiss books, as we reposition our business in these markets to manage them for value.

Non-covered sales including unit trust, mutual fund and other non-covered sales

Overall LTS non-covered sales were up 27% to £14,549 million.

In Emerging Markets, non-covered sales increased by 32% to £8,937 million. Unit trust and mutual fund sales increased by 42% with higher OMUT, acsis and Galaxy sales on the back of high equity market growth in South Africa. The Colombian Unit Trust business achieved strong sales in money market and cross-border products. Other non-life sales grew by 22% - boosted by significant, albeit lower-margin, inflows into OMIGSA's Dibanisa and Liability-Driven Investment boutiques.

Sales in Asia improved by 24% leading to market share gains, following increased single premium sales through the bank channel in our Chinese joint venture, Old Mutual-Guodian, and strong support from the Kotak Bank channel in India. Sales in Asia will be reclassified as life sales from Q1 2013.

Old Mutual Wealth non-covered sales increased by 20% to £5,612 million, primarily due to the inclusion of the non-covered sales from OMAM(UK) for the first time in 2012. Including OMAM(UK) sales in both 2011 and 2012, non-covered sales increased by 2% to £5,882 million. OMGI sales increased by 37% to £3,040 million as a number of funds attracted increased inflows - notably the Spectrum fund range. Spectrum now has £1.6 billion of FUM. OMGI European retail sales were also strong, with gross inflows of around £670 million. UK Heritage sales into Institutional products increased during the year, benefiting from new partnerships established in 2012. On the UK Platform, non-covered sales fell 26% to £2,067 million as investor confidence was weakened by volatile markets and IFAs focused on preparation for RDR.

Margins and value of new business

Across LTS as a whole, new business APE margin increased to 18% from 15% and present value of new business premiums (PVNBP) margin improved to 2.3% (2011: 1.9%).

In Emerging Markets, VNB improved strongly by 52% to £135 million, with a significant increase in the APE margin from 20% to 27%. VNB was boosted by improved product mix in Corporate, due to a greater proportion of higher-margin with-profit annuity sales, improved risk product sales including the recording of Old Mutual Finance Credit Life sales in MFC for the first time, improved mix of business in Retail Affluent and a favourable change in economic assumptions.

The value of new business in Old Mutual Wealth reduced by £16 million to £62 million. H1 2012 was challenging, with reduced sales volumes; but VNB strengthened in H2, boosted by improved sales performance and a more profitable product mix, particularly in the International business, coupled with lower acquisition expenses.

In Old Mutual Wealth, lower sales and a less profitable business mix in H1 reduced the APE margin to 10% (2011: 11%) and PVNBP margin to 1.2%. (2011: 1.3%).

Operating MCEV earnings

Overall LTS operating MCEV earnings decreased by 39% to £336 million, with Old Mutual Wealth impacted by restructuring costs following strategic changes announced in November 2012.

In Emerging Markets, operating MCEV earnings (post-tax) increased by 5% to £328 million, but was down 6% on a reported basis. The main contributors to this were the improved VNB and positive operating assumption changes and positive experience for mortality and disability. This was partially offset by lower persistency experience variances, following the final releases of short-term termination provisions and closer alignment of persistency experience to assumptions at the end of 2011, increased development costs and tax experience losses. Total MCEV earnings (post-tax) increased by 38% to £583 million - benefiting from positive investment variances in 2012's strong equity and bond markets, and economic assumption changes resulting from lower swap yields. There were some offsetting negative impacts from changes to capital gains tax and the introduction of dividend withholding tax.

Old Mutual Wealth reported an operating MCEV earnings (post-tax) of £8 million (2011: £203 million), reflecting £89 million of restructuring costs following strategic changes in the UK business and the implementation of the 'manage for value' strategy in the European businesses. Future cost saving benefits expected to emerge from restructuring initiatives are not yet reflected in MCEV, consistent with the Finance Forum principles that govern MCEV methodology. Negative experience variances relating to development cost overruns and lower rebate profits, following positive assumption changes in the UK and International businesses at the end of 2011, reduced MCEV operating profit further. Total MCEV earnings were £127 million (2011: £160 million), mainly due to positive investment returns driven by growth in the UK equity market.

Value creation

One of our key performance metrics for LTS covered business is Group Value Creation. This measures the contribution to return on embedded value from management actions of writing profitable new business and managing expenses, persistency, risk and other experience compared to what had been assumed. Excluding the impact of our managing for value strategy, this metric reduced to 3.0% from 5.6% in LTS. Value creation on a reported basis was 2.6% (2011: 5.1%).

One-off restructuring costs and project spend in Old Mutual Wealth and Emerging Markets reduced the Group Value Creation by 1.4%, these initiatives will improve Group Value Creation going forward. The VNB contribution has remained strong, despite lower sales volumes in Old Mutual Wealth in H1 2012. The Old Mutual Wealth International business saw strong VNB in Q4 2012 and we expect to improve the contribution from cross-border product sales in the future.

Management actions

Emerging Markets

When we completed our acquisition of Oceanic Life in Nigeria in February 2013, our experienced integration team had already been in place for some time. Old Mutual Nigeria will be the hub for our expansion in West Africa and we are looking at further options both in Nigeria and Ghana to gain scale in the region. In East Africa, we are making progress with our plans to expand further in Kenya and other selected markets.

In November 2012, we officially launched the Retail Mass business in Mexico under the Old Mutual brand. In the same month we announced the acquisition of a majority stake in Aiva Business Platforms, a Uruguay-based strategic distribution business with over $800 million of assets under management, further increasing our distribution reach in other emerging markets. The acquisition was completed in January 2013. In China, Old Mutual-Guodian strengthened its distribution capabilities through an agreement with MinSheng Bank.

The Group's Zimbabwean business was transferred to Old Mutual South Africa (OMSA) on 1 July 2012 for an initial consideration of R1.1 billion and a deferred consideration of R0.5 billion potentially available in 2015, subject to valuation. We have also agreed the terms of the transfer of the Colombian and Mexican businesses to OMSA, subject to regulatory approval. The new organisational structure will reflect the operational management of the businesses, and we are in the process of transferring several other emerging market subsidiaries to align their legal structure with their operational management.

Following the restructure of the OMIGSA boutiques in 2012, all impacted boutiques are fully operational in the new structure.

In South Africa the majority of our advisers required to sit the FAIS regulatory exams have now passed, significantly mitigating the risk to our sales and retention. We will continue to support our advisers to pass the exams as part of business as usual going forward, which will put us in a strong position to capture the growing opportunity we see in the mass market.

Old Mutual Wealth

In Q3 2012 we announced the combination of the Skandia businesses (Skandia UK, Skandia International, OMGI and the Skandia European businesses outside the Nordic region) into a single business called Old Mutual Wealth. The operational changes are designed to combine asset management capability with UK platform strength and cross-border expertise to grow a leading provider of wealth management solutions in the UK and internationally. The combination has resulted in significant cost efficiencies, predominantly from central functions as we reduce duplication across the business.

As part of the reorganisation we combined SIG, our multi-manager, with OMAM(UK) to create OMGI, a profitable asset management capability that can support the growth and transformation of Old Mutual Wealth. The newly combined asset manager has achieved run-rate expense savings and improved operating margins.

We also decided to move to a 'managing for value' strategy in Europe, which will focus management attention on maintaining the existing books and managing them for profitability and cash generation, rather than pursuing pan-European growth. As part of this strategy we closed the Austrian and German books to new business. The Swiss book was closed to new business in 2011. We also initiated a cost reduction programme in France to bring the business to profitability in the near term. For growth in Europe we will focus on expanding our cross-border (International) sales, and improving the profitability of the Italian, French and Polish domestic businesses.

The RDR came into effect on 1 January 2013. Our focus in 2012 was to ensure that we were compliant and 'open for business' on schedule. In Q4 2012 we launched our new flexible adviser charging structure and introduced a new unbundled charging structure for clients on both our onshore and International platforms. We also implemented the full set of RDR regulations on our systems. While the implementation of RDR has resulted in significant development costs, we believe the post-RDR landscape will create new opportunities for us.

New UK products launched during the year included the Generation fund range, an innovative retirement solution, and a revitalised, gender-neutral protection offering. Launches in our cross-border International markets included a new portfolio bond and a structured product in South Africa and a universal life, high death-benefit product for selected other markets. These products successfully boosted sales performance through H2 2012. We also began the roll-out of Wealth Interactive, our new-generation, e-enabled international investment platform.

Outlook

Emerging Markets

Our focus in 2013 will be on strong, profitable sales growth and new growth opportunities that use the strength and core competencies of the wider Group. In particular, we see good prospects to grow our businesses in sub-Saharan Africa - where we believe the recent economic growth is a sustainable, long-term trend. We will explore means for organic and inorganic growth in this region - leveraging our established business bases in South Africa, Namibia, Kenya and Zimbabwe, whose expertise will enable us to design and export relevant products and low-cost IT infrastructure into new markets.

Economic growth for the whole of sub-Saharan Africa is expected to average around 5% in real terms. This growth in consumer and urban wealth is supported by substantial long-term demographic trends and provides good prospects for our business. Despite a moderately improved global outlook, real GDP growth in South Africa is expected to be below 3%. The ANC Conference in December 2012 accepted a number of pragmatic policy decisions and the National Development Plan as the backbone of future government economic policy, paving the way for growth-enhancing policy reforms.

Despite Moody's downgrade of South Africa's sovereign rating and the resulting downgrade of Old Mutual Life Assurance Company South Africa's (OMLAC(SA)) Global Insurance Financial Strength rating from A1 (negative) to A3 (negative), OMLAC(SA) remains one of South Africa's highest-rated institutions. We continue to explore ways of managing our balance sheet structure to provide long-term capital flexibility.

The Group's general insurance businesses in the Rest of Africa will be managed as part of the operations of Old Mutual Emerging Markets in the countries in which they are situated. We will continue to reflect both Long-Term Savings and the general insurance businesses in our Rest of Africa KPIs and targets going forward.

Old Mutual Wealth

Our priority in 2013 is to embed the strategic decisions taken in 2012 and continue the implementation of all aspects of our Simplify, Unify and Grow plan.

We believe the UK market for retail financial services will continue to develop as advisers fully implement new business models. In the short term, UK conditions will inevitably be challenging as advisors and customers adapt to the post-RDR world notwithstanding that the UK equity market conditions have been positive for the first two months of the year. We expect it to be characterised by a combination of whole-of-market (independent) advice and more parameterised (restricted) advice. We see opportunities to service both these models and will support both. Our new focused fund range, due for launch later in the year, will be a key solution for advisers in the post-RDR world. We have reorganised our UK sales force to match the market's future shape and needs.

Changing regulation is also a strong theme in International markets, with Singapore's Financial Advisory Industry Review and similar initiatives emerging in other markets. We launched new products and new distribution relationships with a number of major banks and stockbrokers in South Africa, UK, Hong Kong and the Middle East in 2012. We have a strong pipeline of similar deals we are pursuing, all of which will strengthen our distribution footprint and improve access to mass affluent and high net worth customers in local markets. We believe this will support positive sales momentum in 2013. We also look forward to further strengthening our long-standing relationship with Aiva, the Latin American distribution business recently acquired by Old Mutual Emerging Markets.

We expect to incur further non-recurring restructuring costs in 2013 to execute the strategy. Several programmes to improve efficiency are already underway: for example, we are assessing ways to cut the cost of technology and administration on our heritage books to reflect the reducing policy count inherent in a closed-book model.

We are confident that OMGI is well placed to meet investors' needs in 2013, following our work to strengthen its marketing, product and sales functions, as well as its excellent investment performance in 2012. We have seen some redemptions from OMGI following the sale of the Group's Nordic business and we expect these to continue in 2013.

Following the change of strategy for our European business, we expect to see a continued slowdown in sales across Germany, Austria and Switzerland. Poland and France both had reduced sales, in challenging market conditions. Italy continued to perform well finishing 2012 strongly, with early indications suggesting this will continue into 2013.

Emerging Markets data tables (South African rand)

Adjusted operating profit
			Rm
	2012	2011	% change
Retail Affluent	2,725	2,377	15%
Mass Foundation Cluster	1,621	1,529	6%
Corporate	1,127	693	63%
Rest of Africa	561	404	39%
Latin America & Asia	218	225	(3)%
LTIR	1,613	1,308	23%
Life and Savings	7,865	6,536	20%
OMIGSA¹	933	723	29%
Central expenses and administration	(924)	(618)	(50)%
Total Emerging Markets	7,874	6,641	19%
¹From 2012, Old Mutual Unit Trusts is reported as part of Retail Affluent only and no longer also as part of OMIGSA together with a subsequent elimination within central expenses. Prior year comparatives have been restated accordingly.

Gross sales
			Rm
	2012	2011	% change
	2012	2011	% change
Retail Affluent	49,677	42,139	18%
Mass Foundation Cluster	6,796	5,889	15%
Corporate	15,152	12,619	20%
OMIGSA	34,820	30,729	13%
Total South Africa	106,445	91,376	16%
Rest of Africa	10,804	8,952	21%
Latin America & Asia	34,792	21,550	61%
Total Emerging Markets	152,041	121,878	25%

APE sales
							Rm
	Single premium APE			Gross regular premiums			Total APE
By cluster:	2012	2011	% change	2012	2011	% change	2012	2011	% change
South Africa
Mass Foundation Cluster	2	3	(33)%	2,441	2,017	21%	2,443	2,020	21%
Retail Affluent	956	1,064	(10)%	1,529	1,442	6%	2,485	2,506	(1)%
Corporate	652	503	30%	486	427	14%	1,138	930	22%
Total South Africa	1,610	1,570	3%	4,456	3,886	15%	6,066	5,456	11%
Rest of Africa	133	123	8%	480	408	18%	613	531	15%
Latin America & Asia¹	24	22	9%	105	89	18%	129	111	16%
Total Emerging Markets	1,767	1,715	3%	5,041	4,383	15%	6,808	6,098	12%
¹Latin America & Asia represents Mexico only.

							Rm
	Single premium APE			Gross regular premiums			Total APE
By product:	2012	2011	% change	2012	2011	% change	2012	2011	% change
Emerging Markets
Savings	1,234	1,388	(11)%	2,525	2,196	15%	3,759	3,584	5%
Protection	-	-	-	2,516	2,187	15%	2,516	2,187	15%
Annuity	533	327	63%	-	-	-	533	327	63%
Total Emerging Markets	1,767	1,715	3%	5,041	4,383	15%	6,808	6,098	12%

Non-covered sales
							Rm
	Unit trust / mutual fund sales			Other non-covered sales			Total non-covered sales
	2012	2011	% change	2012	2011	% change	2012	2011	% change
South Africa	26,422	20,934	26%	46,851	39,709	18%	73,273	60,643	21%
Rest of Africa	5,457	4,778	14%	3,286	1,464	124%	8,743	6,242	40%
Latin America & Asia	32,161	19,401	66%	2,098	1,691	24%	34,259	21,092	62%
Total Emerging Markets	64,040	45,113	42%	52,235	42,864	22%	116,275	87,977	32%

Old Mutual Finance
			Rm
	2012	2011	% change
	2012	2011	% change
Lending book (gross)	6,431	5,699	13%
Sales	5,482	5,261	4%
NPAT/average lending book¹	3.8%	3.4%
Loan approval rate	34.2%	33.6%
Impairments: average lending book	13.3%	12.9%
Branches	201	172	17%
Staff	1,821	1,421	28%
¹Net profit after tax (NPAT)/average lending book is stated after capital charges.

2012 sales reflected our conservative approach to lending, following evidence of increased client debt levels. Impairment provisions rose 0.4%, following a change in the maturity profile of the loan book.

Old Mutual Wealth data tables (sterling)

Adjusted operating profit
			£m
	2012	2011	% change
Core markets
UK Platform	2	(4)	n/m
International	68	79	(14%)
OM Global Investors¹	3	9	(67%)
Total core markets	73	84	(13%)
Manage for Value markets
UK Heritage	92	100	(8%)
Old Mutual Wealth Europe - open book²	(4)	3	n/m
Old Mutual Wealth Europe - closed book³	34	38	(11%)
Total Manage for Value	122	141	(13%)
Total Old Mutual Wealth	195	225	(13%)
¹OMGI includes OMAM(UK) AOP of £2 million in 2011.
²Includes business written in France, Italy and Poland
³Includes business written in Germany, Austria and Switzerland.

Gross sales and funds under management
						£bn
	1-Jan-12	Gross sales	Redemptions	Net flows	Market and other movements	31-Dec-12
Core markets
UK Platform	18.8	4.1	(1.9)	2.2	1.6	22.6
International¹	14.3	1.7	(1.5)	0.2	(0.4)	14.1
OMGI	12.1	4.8	(4.5)	0.3	1.4	13.8
Total core	45.2	10.6	(7.9)	2.7	2.6	50.5
Manage for Value markets
UK Heritage	14.3	1.3	(2.5)	(1.2)	1.0	14.1
Old Mutual Wealth Europe - open book	5.2	1.2	(0.8)	0.4	0.5	6.1
Old Mutual Wealth Europe- closed book	4.3	0.6	(0.4)	0.2	-	4.5
Total Manage for Value	23.8	3.1	(3.7)	(0.6)	1.5	24.7
Elimination of intra-Group assets	(6.4)	(1.8)	1.7	(0.1)	0.5	(6.0)
Total Old Mutual Wealth	62.6³	11.9 ²	(9.9)	2.0	4.6	69.2
¹International FUM 'market and other movements' includes an outflow of £1.1 billion of assets following the sale of Finland.
²Gross sales included £0.3 billion of Q1 2012 sales in respect of OMAM(UK).
³Opening FUM includes OMAM(UK) FUM of £4.0 billion.

APE sales
							£m
	Gross single premiums			Gross regular premiums			Total APE
	2012	2011	% change	2012	2011	% change	2012	2011	% change
Core markets
UK market
Pensions	1,610	1,649	(2)%	32	38	(16)%	193	203	(5)%
Bonds	363	407	(11)%	-	-	-	36	40	(10)%
Total UK Platform	1,973	2,056	(4)%	32	38	(16)%	229	243	(6)%
International
Unit-linked	168	209	(20)%	13	26	(50)%	30	47	(36)%
Bonds	1,245	1,350	(8)%	27	26	4%	151	161	(6)%
Total International	1,413	1,559	(9)%	40	52	(23)%	181	208	(13)%
Total core	3,386	3,615	(6)%	72	90	(20)%	410	451	(9)%
Manage for Value markets
UK Heritage	166	255	(35)%	33	43	(23)%	50	69	(27)%
Old Mutual Wealth Europe - open book	1,053	863	22%	19	25	(24)%	124	111	12%
Old Mutual Wealth Europe - closed book	27	42	(36)%	23	48	(52)%	26	52	(50)%
Total Manage for Value	1,246	1,160	7%	75	116	(35)%	200	232	(14)%

Total Old Mutual Wealth	4,632	4,766	(3)%	147	207	(29)%	610	683	(11)%
Non-covered sales¹
						£m
				2012	2011	% change
Core markets
UK market
Mutual Funds				1,144	1,652	(31)%
ISA				923	1,159	(20)%
Total UK Platform				2,067	2,811	(26)%
Old Mutual Global Investors²				3,040	2,221	37%
Total core				5,107	5,032	1%
Manage for Value markets
UK Heritage				736	704	5%
Old Mutual Wealth Europe - open book				30	29	3%
Old Mutual Wealth Europe - closed book				9	20	(55)%
Total Manage for Value				775	753	3%

Total Old Mutual Wealth				5,882	5,785	2%
¹Non-covered sales included unit trust, mutual fund and other non-covered sales.
²To allow comparison on a like for like basis, OMGI's non-covered sales includes sales of £1,403 million from OMAM(UK) in 2012, including £270 million of sales in Q1 2012, and £1,096 million in 2011.

Nedbank
Nedbank's strong franchise and growth focus delivered a strong performance in a challenging economic environment
			Rm
Highlights	2012	2011	% change
AOP (IFRS basis, pre-tax)	10,773	8,791	23%
AOP (IFRS basis, pre-tax) (£m)	828	755	10%
Headline earnings¹	7,510	6,184	21%
Net interest income¹	19,680	18,034	9%
Non-interest revenue¹	17,324	15,412	12%
Net interest margin¹	3.53%	3.48%²
Credit loss ratio¹	1.05%	1.13%
Cost to income ratio¹	55.5%	56.6%
Return on Equity¹	14.8%	13.6%
Return on Equity (excluding goodwill)¹	16.4%	15.3%
Basel II.5 common equity Tier 1 ratio^1,3	11.4%	10.5%
¹As reported by Nedbank in its report to shareholders for year ended 31 December 2012.
²Restated from 3.46% to exclude clients' indebtedness for acceptances from interest-earning banking assets to align with the rest of the industry.
³2011 is presented on pro-forma Basel II.5 basis.

The full text of Nedbank's results for the year ended 31 December 2012, released on 25 February 2013, can be accessed on our website http://www.oldmutual.com/mediacentre/pressReleases/viewPressRelease.jsp?pressItem_id=19630. The following is an edited extract:

Banking and economic environment

South Africa's GDP is expected to have grown at around 2.5% in 2012 after expanding 3.1% in 2011. Concerns around the operating environment and infrastructure constraints, the widening current account deficit, rising national debt, higher inflation, high levels of unemployment and declining trends in competitiveness with wage settlements outpacing productivity were included in the rationale by international rating agencies, Moody's, Standard & Poor's and Fitch Ratings for the downgrade of South Africa's sovereign-debt rating, which in turn placed pressure on the rand. Domestic bond yields have, however, remained stable.

Households remained the primary driver of private sector credit demand, with the unexpected 50 basis points (bps) reduction in interest rates in July 2012 providing some relief for highly indebted consumers against rising electricity, food and fuel costs. Growth rates in unsecured lending are slowing as expected.

Corporate credit demand improved towards the end of the year as the recovery in public sector infrastructure spending supported industries producing capital goods and other inputs for local projects, although corporates on the whole remained cautious, constrained by a weak eurozone and a relatively sluggish domestic economic environment.

Review of results

Nedbank made excellent progress in delivering on its strategic focus areas, producing a strong set of results for the year ended 31 December 2012. The results reflect an improvement in all key performance indicators and headline earnings growth in all business clusters.

Headline earnings grew 21.4% to R7,510 million (2011: R6,184 million), driven by good revenue growth, an improving credit loss ratio (CLR) and responsible expense management while investing for growth.

Diluted headline earnings per share increased 19.0% to 1,595 cents (2011: 1,340 cents) and diluted earnings per share increased 18.4% to 1,588 cents (2011: 1,341 cents). In line with the earnings guidance range provided in Nedbank's trading statement released on 20 February 2013, Nedbank recorded headline earnings per share and basic earnings per share of 1,646 and 1,638 cents per share respectively.

Nedbank generated economic profit (EP) of R1,511 million, up 63.5% (2011: R924 million). The ROE excluding goodwill, increased to 16.4% (2011: 15.3%) and ROE increased to 14.8% (2011: 13.6%), with the return on assets (ROA) increasing to 1.13% (2011: 0.99%).

Nedbank is well capitalised, with its Basel II.5 common equity Tier 1 ratio at 11.4% (2011: pro forma Basel II.5 ratio 10.5%). With the introduction of Basel III on 1 January 2013, the pro forma Basel III common equity Tier 1 ratio at 31 December 2012 is a robust 11.6%. Funding and liquidity levels remained sound. Surplus liquidity buffers were maintained at a level of around R24 billion and the average long-term funding ratio increased to 26.0% (2011: 25.0%) in Q4 2012.

The net asset value per share continued to increase, growing 9.7% to 11,798 cents at 31 December 2012 (2011: 10,753 cents).

Delivering sustainability to all our stakeholders

Nedbank has developed a strategic framework that will enable delivery of its vision of building Africa's most admired bank by all its stakeholders and assist in creating a vibrant and flourishing South Africa through appropriate alignment of its activities with the National Development Plan (NDP). This is underpinned by a firm belief that its long-term success is inextricably linked to its ability to fulfil its social purpose.

Nedbank is committed to delivering sustainable value to all its stakeholders as demonstrated by the following highlights for 2012:

· For staff - creating over 450 new permanent jobs in South Africa, investing R352 million in the development of staff and supporting more than 1,300 managers through its personal mastery and team effectiveness programme known as 'Leading for Deep Green' and 8,500 staff through its Batho Pele diversity programme. This focus on values-based behaviour has led to higher levels of staff morale and an ongoing positive shift in corporate culture, now measuring at world-class levels.

· For clients - paying out R144 billion in new loans, up 24.1% on 2011; launching various market-leading innovations such as the Nedbank App SuiteTM, MyFinancialLifeTM, Small Business FridayTM in association with the National Small Business Chamber, cash management solutions and longer-term deposit products; providing great-value banking and saving clients R163 million through the use of bundled products; increasing its footprint by 80 net new staffed outlets and 476 net new ATMs; and achieving multi-year highs in client satisfaction as measured by Net Promoter Scores across Nedbank. As a result, more clients chose to bank with Nedbank, resulting in a net gain of 655,000 new retail clients in the year, including 377,000 entry-level banking clients, 165,000 middle-market clients, 1,113 high-net-worth clients, 775 and 27 new business banking and corporate primary-banked clients, respectively. Nedbank was recognised by Euromoney as the best bank in South Africa in 2012.

· For shareholders - delivering R1,511 million EP, generating a 34.3% total shareholder return and a total dividend increase of 24.3%, as well as maintaining excellence in transparency and reporting as acknowledged by numerous reporting awards. We have created an opportunity for shareholders to participate in the Africa growth story through its rights to acquire 20% in Ecobank Transnational Incorporated (ETI).

· For regulators - increasing capital levels further and being well positioned for the implementation of Basel III on 1 January 2013 and the Solvency Assessment and Management regime on 1 January 2015, making cash taxation contributions of R6.2 billion relating to direct, indirect and other taxation and supporting the National Treasury in our actions and commitments to responsible banking practices. Nedbank's credit rating was upgraded by Fitch in July 2012, while the five largest South African banks were downgraded in January 2013 following the downgrade of the South African sovereign-risk rating.

· For communities - making banking more accessible and affordable for the entry-level market and rural communities; identifying numerous non-urban areas for footprint expansion; increasing staffed outlets and ATMs by over 48% and 74% respectively since the beginning of 2009. To date Nedbank has donated more than R200 million to charities through its innovative card affinity programmes, and in 2012 we contributed R116 million to socioeconomic development. Nedbank achieved Department of Trade and Industry (dti) code level 2 for the fourth consecutive year and was ranked first overall among the top 50 JSE-listed companies in the Financial Mail/Empowerdex Top Empowered Companies survey. Furthermore 75.5% of its procurement was sourced locally. Nedbank's leadership role in environmental sustainability was demonstrated by initiatives such as funding a large percentage of South Africa's renewable-energy programme and the introduction of Nedbank's Green Savings Bond, the value of which has increased to R866 million since its launch. Nedbank maintained its carbon-neutral status and received the Financial Times 2012 Sustainable Bank of the Year for Africa and the Middle East award as well as African Business Environmental Sustainability in Africa 2012 award.

Cluster performance

Nedbank's business clusters generated an increased ROE of 17.9% (2011: 17.1%) and headline earnings growth of 16.3%, with all line clusters delivering good performances.

	Headline earnings (Rm)			ROE (%)
	2012	2011¹	% change	2012	2011¹
Nedbank Capital	1,428	1,228	16.3%	25.4%	22.6%
Nedbank Corporate²	1,817	1,571	15.7%	22.5%	24.5%
Nedbank Business Banking	944	866	9.0%	21.5%	21.3%
Nedbank Retail	2,552	2,091	22.0%	12.1%	10.8%
Nedbank Wealth	716	654	9.5%	29.6%	27.7%
Operating units	7,457	6,410	16.3%	17.9%	17.1%
Centre²	53	(226)
Total	7,510	6,184	21.4%	14.8%	13.6%
¹Restated for enhancements to capital allocation methodologies implemented in 2012.
²2011 restated for transfer of the Rest of Africa Division from Nedbank Corporate to the centre.

Strong earnings growth of 16.3% and the 25.4% ROE in Nedbank Capital were driven by good asset growth and pipeline conversion in investment banking, together with strong performance from global markets that resulted in materially increased structuring and trading income. The cluster's CLR improved, although remaining above its through-the-cycle range.

Nedbank Corporate performed well, producing good earnings growth of 15.7% and an ROE of 22.5%, underpinned by increased cash and electronic banking volumes, a strong delivery from the listed-property investment portfolio and favourable deposit growth. This performance was achieved within a well-managed impairment and expense environment across the businesses.

Nedbank Business Banking achieved headline earnings growth of 9.0% to R944 million through maintaining quality client relationships and outstanding risk management practices, as reflected in the CLR of 0.34% (2011: 0.53%). Good underlying momentum was noted in asset payouts, deposits and new client gains, notwithstanding the protracted challenges facing thesmall- and medium-enterprise (SME) sector in South Africa, which resulted in EP for the year of R368 million and a sustained high ROE of 21.5%.

Nedbank Retail's momentum is reflected in the 22.0% headline earnings growth and ROE improvement to 12.1%, narrowing the gap in relation to the cost of equity. This is testimony to the excellent progress strategically and financially in repositioning the cluster. The embedding of sound risk practices is reflected in the CLR of 2.01% (2011: 1.98%) remaining within the through-the-cycle range, while continuing to reduce defaulted loans and strengthen balance sheet impairments. Investment in distribution and distinctive client value propositions is yielding strong client gains and related transactional, deposit and lending volumes.

Nedbank Wealth continued to record sound earnings growth of 9.5% and an excellent ROE of 29.6%, supported by solid performance in the asset management and insurance businesses. These results were achieved despite pressure on impairments, a considerable deterioration in the short-term insurance claims environment in H2 2012 and the R31.5 million, post-tax, rebranding costs relating to the launch of its new single high-net-worth offering, Nedbank Private Wealth.

The centre produced a small profit in 2012 from a loss of R226 million in 2011, largely as a result of the R200 million portfolio impairment provision recognised at Nedbank Group level in the prior year. The Rest of Africa division, now included in the centre, delivered a strong increase in headline earnings of 35.2%.

Financial performance

Net interest income

Net interest income increased 9.1% to R19,680 million (2011: R18,034 million) and average interest-earning banking assets grew 7.5% (2011 growth: 5.1%).

The net interest margin (NIM) increased to 3.53% from the restated 3.48% level achieved in 2011. The margin expansion reflects the ongoing benefits of risk-adjusted pricing of new advances and portfolio-tilt-driven changes in the asset and deposit mix, partially offset by:

· the negative endowment effect of lower average interest rates in 2012

· the cost of lengthening Nedbank's funding profile

· the cost of carrying higher levels of lower-yielding liquid assets as Nedbank prepared for the implementation of Basel III liquidity coverage ratios.

Impairments

Lower levels of impairments at R5,199 million (2011: R5,331 million) were reported. The CLR improved to 1.05% for the year (2011: 1.13%), remaining above Nedbank's through-the-cycle range of 60 to 100 basis points.

				(%)
Credit loss ratio analysis	2012	H2 2012	H1 2012	2011
Specific impairments	0.91%	0.84%	1.00%	1.01%
Portfolio impairments	0.14%	0.16%	0.11%	0.12%
Total credit loss ratio	1.05%	1.00%	1.11%	1.13%

Given the levels of overall consumer indebtedness, credit risk management remained a strong area of focus. The reduction in specific impairments to 0.91% (2011: 1.01%) was driven by a 17.0% decrease in defaulted advances to R19,273 million (2011: R23,210 million), while further strengthening the portfolio impairments charge to 0.14% (2011: 0.12%) mainly on the performing personal loans, Motor Finance Corporation and home loans books.

The increased level of portfolio impairments was mainly as a result of further model conservatism and book growth in personal loans as well as the lengthening of the emergence period in the Motor Finance Corporation book. Nedbank retained the R200 million central portfolio provision set aside last year for unknown events that may have already occurred but which will only be evident in the future. The total impairment coverage ratio increased to 56.4% (2011: 49.5%), largely due to asset mix changes in Nedbank's banking book.

Nedbank's collections processes, enhanced by additional collections staff and more effective collections processes, generated a 35.1% increase in bad-debt recoveries amounting to R866 million (2011: R641 million).

					(%)
	2012	H2 2012	H1 2012	2011	Through-the-cycle target ranges
Credit loss ratio	2012	H2 2012	H1 2012	2011	Through-the-cycle target ranges
Nedbank Capital	1.06%	0.72%	1.41%	1.23%	0.10 - 0.55
Nedbank Corporate	0.24%	0.18%	0.30%	0.29%	0.20 - 0.35
Nedbank Business Banking	0.34%	0.28%	0.41%	0.53%	0.55 - 0.75
Nedbank Retail	2.01%	2.02%	2.00%	1.98%	1.50 - 2.20
Nedbank Wealth	0.61%	0.76%	0.46%	0.25%	0.20 - 0.40
Total	1.05%	1.00%	1.11%	1.13%	0.60 - 1.00

CLRs in the wholesale clusters improved in H2 2012. Nedbank Retail's CLR was maintained within its through-the-cycle range and at levels similar to those in H1 2012, reflecting the effect of asset mix changes as unsecured lending attracts higher levels of impairments than secured lending. Nedbank Wealth's CLR deteriorated mainly due to the impact of asubdued property market.

Non-interest revenue

The continued investment in the Nedbank franchise contributed to strong NIR growth of 12.4% to R17,324 million (2011: R15,412 million), lifting the ratio of NIR to expenses to 84.4% (2011: 81.5%), close to Nedbank's medium-to-long-term target of > 85.0%. Nedbank has delivered compound growth in NIR, excluding fair-value adjustments, of 11.0% over a four-year period.

Commission and fee income increased by R1.5 billion, rising by 13.7% to R12,538 million (2011: R11,031 million) on the back of increased activity in the transactional banking, card, personal loans, investment banking and advisory activities of Nedbank.

Insurance income grew strongly, increasing 24.9% to R1,695 million (2011: R1,357 million) from good insurance sales and underwriting performance, notwithstanding the poor weather conditions and fire-related claims in H2 2012.

Favourable market conditions and good performance in the trading business, notably in fixed-income, delivered excellent trading income growth of 22.0% to R2,644 million (2011: R2,168 million). Realisations and dividends received in Nedbank Corporate property and Nedbank Capital investment portfolios generated R211 million (2011: R323 million) in private equity income.

Negative fair-value adjustments of R265 million (2011: R60 million loss) were recognised mainly as a result of basis risk on centrally hedged positions, accounting mismatches in hedged portfolios, including fixed-rate retail deposits and personal loans, and credit spread unwind on certain of Nedbank's Tier 2 debt.

Following the scheduled termination of the contract with Swisscard that previously housed the Tando card processing operations, NIR was negatively impacted as no further revenue was generated in 2012 (2011: R214 million).

Expenses

Nedbank's strong cost management culture remains a key differentiator and contributed to a lower level of expense growth for 2012 in line with guidance.

Expenses increased 8.5% to R20,528 million (2011: R18,919 million), consisting of 4.1% for business-as-usual activities, 2.1% for investing in growth initiatives and 2.3% for variable compensation.

Growth in expenses was primarily from:

· Staff-related expenses increasing 11.2% and comprising:

· remuneration and other staff cost growth of 8.5%, following inflation-related annual increases averaging 6.5% and 0.9% headcount growth

· short-term incentive costs increasing 18.7% driven by 21.4% headline earnings and 63.5% EP growth

· long-term incentive costs increasing by 71.4% as 2011 contained a higher reversal of costs when corporate performance targets were not met and related incentive awards lapsed

· Volume-driven costs, such as fees and computer processing costs, continuing to grow in support of revenue-generating business activities

· Investing for growth initiatives, including footprint rollout, headcount growth in frontline and collections staff, new innovative offerings and enhancements in product and system functionality.

The efficiency ratio improved to 55.5% (2011: 56.6%), absorbing the negative impact of the interest rate cut in July on endowment and consequently NII growth.

Since 2007 Nedbank's five-year compound NIR growth of 10.6% exceeded the related compound expense growth of 8.8%.

Taxation

The tax charge increased 30.9% to R2,871 million (2011: R2,194 million), with the effective tax rate increasing to 26.8% (2011: 25.2%). The increase resulted mainly from lower levels of dividend income received and an increase in capital gains tax (CGT) rate from 14.0% to 18.65%.

Statement of financial position

Capital

Nedbank's capital ratios strengthened during the year, positioning the organisation favourably for the adoption of Basel III, which was successfully implemented on 1 January 2013. All capital adequacy ratios remained well above the Basel II.5 minimum regulatory capital requirements and Nedbank's new Basel III internal target ranges. Nedbank's strong capital position enabled the redemption of a further R1.8 billion Tier 2 subordinated debt during 2012 in line with our capital management planning and positioning for Basel III.

In August 2012 Nedbank obtained approval from the South African Reserve Bank (SARB) to manage the Motor Finance Corporation book on its Advanced Internal Ratings-based Credit Approach. The resultant reduction in risk-weighted assets, along with good earnings growth, contributed to further strengthening of the Basel II.5 common equity Tier 1 ratio to 11.4%.

Nedbank reset its internal targets in line with the new South African Basel III regulations based on the increased minimum regulatory requirements for common equity Tier 1 in 2019, and Tier 1 and total ratios in 2015.

The new internal targets include a conservative management buffer and allowance for potential Pillar 2B bank-specific add-ons while taking cognisance of anticipated Basel III capital levels in other jurisdictions, the view of rating agencies and Nedbank's Internal Capital Adequacy Assessment Process. The Basel III regulatory minimums include minimum regulatory requirements for common equity Tier 1 in 2019, Tier 1 and total ratios in 2015 as well as a conservative Pillar 2B add-on, but exclude any countercyclical capital buffer requirements.

					(%)
	2012 ratio (Pro-forma Basel III)	2012 ratio (Basel II.5)	2011 ratio (Basel II.5)	Internal target range (Basel III)	Regulatory minimum (Basel III)
Common equity Tier 1 ratio	11.6%	11.4%	10.5%	10.5%-12.5%	9.00%
Tier 1 ratio	13.1%	12.9%	12.0%	11.5%-13.0%	11.25%
Total capital ratio	15.1%	14.9%	14.6%	14.0%-15.0%	13.50%
(Ratios calculated include unappropriated profits.)

Nedbank's ratios are anticipated to continue improving in 2013, driven by projected earnings growth and the portfolio tilt strategy.

Capital allocation to businesses

As reported during Nedbank's 2012 interim results, economic capital allocated to the business clusters was revised from 10.0% to 11.0% to align the businesses with the higher operating capital levels held by Nedbank under Basel III and the allocation of capital impaired against certain intangible assets, previously held at the centre. The upward revision of capital allocated to the clusters resulted in a dilution of the clusters' ROE performance, given higher capital levels. Headline earnings and ROE numbers for the business clusters for 2011 were restated on a like-for-like basis. These enhancements had no impact on Nedbank's overall headline earnings, capital levels and ROE.

Funding and liquidity

Nedbank remains well funded with a strong liquidity position and a lengthened funding profile, with the fourth-quarter average long-term funding ratio increasing further to 26.0% (2011: 25.0%).

In addition to launching a number of competitive and innovative savings and investment products for the retail market, the following funding strategies were implemented during the year:

· Issuing of R3.2 billion of senior unsecured debt with a tenure ranging from three to seven years

· Issuing of R1.8 billion through the Greenhouse securitisation programme with tenure of up to five years

· Maintaining a significant surplus liquidity buffer in excess of R24.0 billion

· Improving Nedbank's sources of quick liquidity to R107.5 billion (2011: R103.6 billion).

In May the SARB announced that banks would be able to include cash reserves in the calculation of the liquidity coverage ratio (LCR), and the SARB would make available a committed liquidity facility (CLF) of up to 40% of the LCR requirements. Taking into account Nedbank's cash reserves, the liquid assets held for regulatory purposes, the surplus liquidity buffer and the notional ability to access the CLF, Nedbank would be compliant with the Basel III LCR on a pro forma basis at 31 December 2012.

This was further supported by amendments to the LCR by the Basel Committee on Banking Supervision (BCBS) on 6 January 2013, which are likely to be adopted by the South African regulator. These amendments are positive in that they:

· Allow for a longer lead time to implement the LCR, starting from 60% (previously 100%) in January 2015 and increasing to 100% in January 2019

· Result in a broader definition of qualifying high-quality liquid assets (HQLA)

· Reduce HQLA requirements given refinements to various cash outflow assumptions in the LCR formula.

The revisions to the LCR will be beneficial for banks, with associated cost savings and more time to implement the LCR.

Having finalised the LCR, the BCBS is now expected to focus on the net stable funding ratio (NSFR). The impact of NSFR compliance by South Africa and most banking industries worldwide would be punitive if implemented as currently set out in the draft requirements, significantly impacting both global and domestic economic growth and job creation. Structural constraints within South African financial markets will add further challenges to domestic compliance with the NSFR. The SARB and National Treasury, in conjunction with the financial services industry, are engaging proactively during the observation period prior to implementation in order to address any unintended consequences for South Africa. It is anticipated, based on extensive global discussion and the experiences gained from the LCR implementation process, that a fundamental revision and a pragmatic approach will be applied to the NSFR well in advance of its proposed implementation in 2018.

Loans and advances

Loans and advances grew 5.6% to R527 billion (2011: R499 billion), with strong growth in trading advances of 49.2%. Excluding trading advances, banking advances growth of 3.8% was largely underpinned by advances growth in Nedbank Capital and Nedbank Retail.

Loans and advances by cluster at year-end are as follows:

			Rm
	2012	2011	% change (annualised)
Banking activity	52,732	48,558	8.6%
Trading activity	29,762	19,952	49.2%
Nedbank Capital	82,494	68,510	20.4%
Nedbank Corporate	162,730	157,271	3.5%
Nedbank Business Banking	60,115	58,856	2.1%
Nedbank Retail	190,647	183,748	3.7%
Nedbank Wealth	19,864	19,624	1.2%
Other	11,316	11,014	2.7%
Total	527,166	499,023	5.6%

Nedbank Capital's banking advances growth was driven by the successful conversion of its robust investment banking pipeline and increased trading advances as the interbank funding desk experienced significantly better market conditions than in the year before. Nedbank Corporate recorded favourable growth in term loans and commercial mortgages of 8.4% and 5.3% respectively, while reducing the levels of lower-yielding overnight loans. Continuing pressure in the SME environment saw Nedbank Business Banking's clients defer expansion plans, deleverage further and transact less, which - together with judicious risk management - kept advances growth to 2.1%. Retail's advances growth came from strong gains in cards of 16.1% (2011: 9.2%) and in the Motor Finance Corporation book of 10.3% (2011: 9.7%), while tightening criteria resulted in personal loans growing at a reduced rate of 28.7% (2011: 36.5%). Low consumer demand for home loans in conjunction with selective advances growth and the roll-off of the back-book led to a 5.5% reduction in the retail home loans book, with origination through its own client relationships and channels being emphasised.

Deposits

Deposits grew by a healthy 5.1% to R551 billion (2011: R524 billion), maintaining a strong loan-to-deposit ratio of 95.7% (2011: 95.2%).

The lengthening of the funding profile was primarily due to ongoing growth in call and term deposits of 9.9% and fixed deposits of 8.2% as a result of a strong uptake in the Retail Savings Bond of R3.3 billion and wholesale deposit offerings such as Corporate Saver. Cash management deposits grew 7.5%, boosted by net primary banking client gains, whereas the more volatile negotiable certificate of deposit (NCD) category decreased 21.4%.

Current and savings accounts grew well, increasing 7.9% and 9.3% respectively, underpinned by Nedbank's strong franchise. Altogether, these improvements in the funding profile ensured that Nedbank continued to hold a higher proportion of household deposits relative to the size of our retail bank.

However, strong competition for deposits in 2012 resulted in some loss of overall market share in household deposits. The launch of innovative new deposit products such as Nedbank Money Trader, increasing functionality on our world-class internet and mobile banking applications, and various other initiatives will contribute to growing the transactional client base and positioning Nedbank strongly for sustainable growth in savings and investment deposits.

Strategic focus

Nedbank's strategy is outward-looking, with a focus on growing the franchise and delivering on its key strategic initiatives of repositioning Nedbank Retail, growing NIR, implementing the portfolio tilt strategy and expanding into the rest of Africa.

· Nedbank Retail is allocated 39.1% of Nedbank's capital and its strategic repositioning will contribute significantly to ongoing improvements in Nedbank's performance. While endeavouring to leverage early turnaround gains to achieve an ROE at or above the cost of equity (COE) of 13% by the end of 2013, a year ahead of the original 2014 target, the deteriorating credit health of consumers noted in the last quarter of 2012 could make this challenging to deliver. Continued excellent progress was made in positioning Nedbank Retail as a more client-centred and integrated business while maintaining growth momentum in the underlying businesses, growing the number and quality of clients, embedding effective risk management practices and strengthening balance sheet impairments.

· Nedbank's NIR-to-expenses ratio target of > 85% is a key focus area as we continue to deliver good-quality annuity income through commission and fee growth from primary-client gains, volume growth, new innovative products and cross-sell. In our technology division we enabled greater efficiencies, including the rationalisation of 20 banking systems and the reduction of our servers from 3,500 to 1,139 since 2009.

· The portfolio tilt strategy continued to gain traction, supporting EP growth from R57 million in 2009 to R1,511 million in 2012. Excellent growth in 2012 in commission and fee income of 13.7%, insurance income of 24.9%, assets under management of 34.1% and deposits of 5.1%, while emphasising profitable secured lending, demonstrates the benefit of focusing on these strategically important EP-rich, lower-capital and liquidity-consuming activities.

· In the short to medium term Nedbank's primary focus on South Africa and the Southern African Development Community (SADC) area continues to benefit Nedbank as this region has the largest EP pool for financial services in sub-Saharan Africa. The rights to acquire a shareholding of up to 20% in ETI in less than two years creates a path to provide a significant benefit to Nedbank's clients in the rest of Africa and the opportunity for shareholders to gain access to the higher economic growth in the rest of Africa in a prudent yet substantive manner.

Economic outlook

Despite a more promising start to many financial markets in 2013 there appears to be downside risk in most developed and many emerging market economies and forward visibility is limited.

South Africa's GDP is forecast to grow by 2.6% in 2013. Interest rates are likely to remain lower for longer and are expected to be unchanged through most of 2013.

Consumer indebtedness is anticipated to ease gradually, but remains high compared with historical levels, particularly with 39-year-low interest rates. This, combined with the lack of job security, is expected to limit the growth in demand for housing and other secured loans. Growth rates in unsecured lending are expected to continue to moderate.

Uncertainty is likely to continue to affect the level of business confidence and contain capital expenditure and growth in wholesale assets in the private sector. Government and public corporations are forecast to escalate their infrastructure spending, which should contribute to improved wholesale advances growth.

Prospects

In the context of the anticipated economic environment and continued low interest rates in South Africa, Nedbank's guidance for 2013 is as follows:

· Advances to grow at mid to upper single digits

· NIM to remain at levels similar to those in 2012

· The CLR to continue improving into the upper end of Nedbank's through-the-cycle target range

· NIR (excluding fair-value adjustments) to grow at low double digits, and allow Nedbank to meet the medium-to-long-term NIR-to-expenses target of > 85%

· Expenses to increase by mid to upper single digits.

Nedbank's medium-to-long-term targets remain unchanged, with the exception of revised targets relating to capital adequacy and dividend cover following finalisation of the SARB's revised guidelines on Basel III capital levels and the new dividend tax regime in South Africa announced during the year.

Metric	2012 performance	Medium-to-long-term targets	2013 outlook
ROE (excluding goodwill)	16.4%	5% above cost of ordinary shareholders' equity	Improving, remaining below target
Growth in diluted headline earnings per share	19.0%	≥ consumer price index + GDP growth + 5%	Meet target
Credit loss ratio	1.05%	Between 0.6% and 1.0% of average banking advances	Improving into upper end of target
NIR-to-expenses ratio	84.4%	> 85%	Improving to meet the target
Efficiency ratio	55.5%	< 50.0%	Improving, remaining above target
Common equity Tier 1 capital adequacy ratio (Basel III)	11.6%	10.5% to 12.5%	Strengthening, remaining around mid-point of new target
Economic capital	Internal Capital Adequacy Assessment Process (ICAAP): A debt rating (including 10% capital buffer)
Dividend cover	2.19 times	1.75 to 2.25 times	1.75 to 2.25 times

Mutual & Federal
Growth continued with exceptional claims and start-up losses in iWyze impacting the underwriting result
			Rm
Highlights	2012	2011	% change
Underwriting margin	(1.7)%	5.0%
Underwriting result	(132)	354	(137)%
Long-term investment return (LTIR)	608	625	(3)%
AOP (IFRS basis, pre-tax)¹	555	1,039	(47)%
Gross written premiums	9,706	8,865	9%
Net earned premiums	7,573	7,039	8%
Claims ratio	72.4%	65.2%
Combined ratio	101.7%	95.0%
International Solvency ratio	64.0%	66.4%
Return on equity	7.1%	14.9%
¹2012 and 2011 included 50% of the losses incurred by iWyze, M&F's direct insurance joint venture with Emerging Markets. The remaining 50% was recognised in Emerging Markets.

Overview

Despite strong growth in the number of policies written, particularly in new direct markets and niche business, AOP was down 47%. This decrease was due primarily to a lower underwriting result, following severe weather losses and a marked deterioration in commercial fire claims. LTIR decreased by 3% due to the lower LTIR rate applied in 2012.

iWyze, our direct insurance joint venture with the Mass Foundation distribution team, continued to grow premiums, with policy count growth of 33% during the period. While still in a start-up phase, we are on track to deliver underwriting profitability.

The company remains well capitalised, with a 64% international solvency ratio (the ratio of net assets to net premiums) at 31 December 2012. M&F is at an advanced stage in its preparation for Solvency II and its South African equivalent, Solvency Assessment and Management (SAM), and continues to explore mechanisms to structure its balance sheet efficiently.

Underwriting and IFRS AOP results

The underwriting margin of (1.7)% (2011: 5.0%) was impacted by a significant market-wide increase in claims, investment in new business and lower premium rates, but benefited from well-contained claims servicing costs. Credit Guarantee performed well and the businesses in Namibia and Botswana continued to deliver satisfactory contributions. Start-up losses in iWyze increased to R161 million (2011: R119 million) and continued to have a significant impact on the overall underwriting result.

Gross written premiums increased by 9%, supported by good unit growth partially offset by softening rates. We increased our focus on achieving premium growth through alternative distribution channels, including direct through iWyze, underwriting management agencies and niche business.

The claims ratio increased from 65.2% in 2011 to 72.4%. We experienced a significant increase in large claims in our Commercial lines business and a higher number of claims in our Personal lines business, due primarily to adverse weather conditions. Some R204 million of hailstorm and flood claims from storms in Q4 2012 accounted for 2.7% of the claims ratio in 2012.

Process efficiencies identified in our change programme enabled us to reduce expenses by 5.5%. The expense ratio improved from 15.7% to 13.8% as we continued to grow the business without increasing the cost base. But the reduced underwriting result decreased the ROE from 14.9% to 7.1%.

Management actions during the year

We are in the process of acquiring Oceanic's Nigerian general insurance business from Ecobank, subject to regulatory approval, for around R170 million (US$20 million). The transaction is expected to be completed in Q2 2013.

We successfully contained operating costs and implemented selective pricing action on poorly performing lines of business. This will continue in the 2013 renewal season and beyond.

We continued to partner Old Mutual Emerging Markets in the rest of Africa to identify opportunities and exploit synergies.

Outlook for 2013

The significant number of catastrophe claims in late 2012 - and the continued high incidence of large claims in early 2013 - supports a likely hardening of rates in 2013. In addition, improved management information will allow us to implement selective price strengthening. We will continue to focus on disciplined, profitable premium growth, particularly through increased contributions from alternative channels. And we will improve underwriting performance through continued cost containment and a more efficient supply chain management strategy to reduce average claims costs.

Our operational activities and targets include:

· Keeping the expense ratio below 14% and increasing operational efficiency

· Implementing selective rate increases

· Increasing innovation, particularly in the area of digital connectivity

· Further developing pricing differentiation between iWyze customers

· Helping the broker community to manage the impact of tightened regulation on the remuneration for their services to customers

· Improving service levels to support further growth in policy count.

Going forward we will report all of the Group's Property and Casualty activities as a single segment, including 100% of the iWyze result.

US Asset Management
AOP up 35% through strategic repositioning of affiliate portfolio, strong market returns, and a return to positive NCCF in our continuing operations
			$m
Highlights	2012	2011	% change
Reported results¹
AOP (IFRS basis, pre-tax)	144	107	35%
Operating margin, before non-controlling interests	26%	18%
Operating margin, after non-controlling interests	21%	15%
Net client cash flow ($bn)	(0.4)	(24.6)	98%

	31-Dec-12	31-Dec-11	% change
Funds under management ($bn)	208.6	231.5	(10)%

			$m
	2012	2011	% change
Results from continuing operations¹
AOP (IFRS basis, pre-tax)	151	137	10%
Operating margin, before non-controlling interests	29%	27%
Operating margin, after non-controlling interests	24%	24%
Net client cash flow ($bn)	1.4	(4.7)	130%

	31-Dec-12	31-Dec-11	% change
Funds under management ($bn)	208.6	183.3	14%
¹Continuing operations excluded the results of 2100 Xenon, Larch Lane, 300 North, Analytic, Ashfield, Dwight, and Old Mutual Capital, which were disposed during 2012, and Lincluden, which was disposed during 2011. Continuing operations also excluded OMAM(UK), which was transferred to the Old Mutual Wealth operation of LTS in 2012. Reported results include OMAM(UK) in 2011 and Q1 2012.

Review of 2012 progress (2012 results from continuing operations compared to 2011 reported results)

IFRS AOP from continuing operations of $151 million was up 41% on the 2011 reported result, supported by positive markets. AOP operating margin on continuing operations (before non-controlling interests) increased 1,100 basis points to 29% from a reported margin of 18% in 2011.

Benefiting from positive market conditions, continued strong investment performance and affiliate divestitures, net client cash inflows from continuing operations improved to $1.4 billion (2011: $24.6 billion outflow on a reported basis), turning positive for the first time since the reported flows of 2007.

IFRS AOP results and operating margin

Reported results

IFRS AOP was up 35% to $144 million (2011: $107 million), driven largely by savings realised through the sale of seven affiliates and the transfer of OMAM(UK) to Old Mutual Wealth, in addition to strong market performance.

AOP operating margin before non-controlling interests improved 800 basis points to 26% (2011: 18%) as a result of the improvement in IFRS AOP, despite the fall in FUM over the period.

Results from continuing operations

IFRS AOP from continuing operations was up 10% to $151 million (2011: $137 million), due to increases in management and performance fees and lower deferred acquisition cost amortisation than the comparative period, partly offset by additional investment in global distribution.

Management fees increased $15 million or 3% over the comparative period due to higher average FUM, while performance and transaction fees were up $24 million or 126%.

AOP operating margin before non-controlling interests was up 200 basis points at 29%. We maintain a margin target of 25% to 30% or more, before non-controlling interests.

Investment performance for continuing operations

For the one-year period ended 31 December 2012, 62% of assets outperformed benchmarks (2011: 65%). Over the three- and five- year periods to 31 December 2012, 66% and 76% of assets outperformed benchmarks (2011: 73% and 69%); the fall in three-year performance resulted primarily from one product's below-benchmark performance.

						$bn
	Continuing operations		Disposed of or transferred affiliates		Total
	2012	2011	2012	2011	2012	2011
Opening FUM	183.3	188.4	48.2	69.9	231.5	258.3
Gross inflows	28.7	20.9	3.4	8.5	32.1	29.4
Gross outflows	(25.3)	(24.6)	(5.2)	(28.4)	(30.5)	(53.0)
Total client driven net flows	3.4	(3.7)	(1.8)	(19.9)	1.6	(23.6)
Hard asset disposals¹	(2.0)	(1.0)	-	-	(2.0)	(1.0)
Net client cash flow	1.4	(4.7)	(1.8)	(19.9)	(0.4)	(24.6)
Disposals	-	-	(42.0)	(2.7)	(42.0)	(2.7)
Transferred to Old Mutual Wealth	-	-	(6.6)	-	(6.6)	-
Market and other	23.9	(0.4)	2.2	0.9	26.1	0.5
Closing FUM	208.6	183.3	-	48.2	208.6	231.5
¹Hard asset disposals constitute forestry, property and similar assets, which were sold and proceeds passed to client beneficiaries.

Reported results

FUM ended the period at $208.6 billion (31 December 2011: $231.5 billion).

The management buy-outs of 2100 Xenon Group, 300 North Capital, Analytic Investors, Ashfield Capital Partners and Larch Lane Advisors during Q4 2012 reduced FUM by $11.2 billion, while the disposals of Dwight Asset Management Company LLC and OMCAP in Q2 2012 reduced FUM by $30.8 billion. Positive market movements added $26.1 billion, or 11% of opening FUM.

Net client cash outflows for the period totalled $0.4 billion (2011: $24.6 billion outflow). Positive cash flows in continuing firms concentrated in global fixed income and emerging markets were offset by outflows in US equities. 2011 saw substantial stable value outflows at Dwight.

Results from continuing operations

Year-end FUM increased 14% to $208.6 billion (2011: $183.3 billion) due to market appreciation and improved NCCF.

FUM consisted primarily of long-term investment products diversified across equities ($118 billion, 57%), fixed income ($63 billion, 30%) and alternative investments ($28 billion, 13%).

Net client cash inflows of $1.4 billion (2011: $4.7 billion outflow) reflected continued strong affiliate investment performance and positive market trends for the year in aggregate. Total client driven net client cash inflows were $3.4 billion before investment driven hard asset disposals of $2.0 billion in USAM's real estate and timber managers.

The combination of improved NCCF and an increase in average basis points on cash flows yielded annualised revenue of $12.4 million (or an average of 88 basis points) from NCCF in 2012.

Gross inflows totalled $28.7 billion (2011: $20.9 billion), with $11.8 billion of gross inflows relating to new client accounts. Inflows were led by US and global fixed income products, in addition to emerging markets, international and global equities. Gross outflows totalled $27.3 billion (2011: $25.6 billion), led by US and international equities, and global fixed income products.

During 2012, Barrow, Hanley, Mewhinney & Strauss won a $1.4 billion mandate to sub-advise the Transamerica Dividend Focused Fund. $871 million of this funded in January 2013; the remainder is expected to fund later this year. In the fourth quarter our timber manager, Campbell Group, won a $0.7 billion acquisition of forestry assets in South Australia - a key step in its global expansion.

Non-US clients currently account for 35% of FUM (2011: 33%). International equity, emerging markets, global equity and global fixed income products accounted for 52% of year-end FUM (2011: 50%).

Management actions and decisions taken during the year

We completed the repositioning of our existing affiliate portfolio in Q4 2012, divesting five affiliates through management buy-outs: 2100 Xenon Group, 300 North Capital, Analytic Investors, Ashfield Capital Partners and Larch Lane Advisors. These transactions completed at the end of Q4, followed the Q2 sales of OMCAP and Dwight Asset Management Company - allowing us to refocus on investment and distribution efforts for the nine continuing affiliates. OMAM(UK) was transferred to Old Mutual Wealth at the start of Q2 2012. We are exploring opportunities to reallocate the capital returned as a result of these transactions.

In 2012 we announced organisational changes to further align USAM's executive structure with its strategic objectives. Key among these was the appointment of Linda Gibson as Head of Global Distribution. She will advance our strategy of building core institutional distribution capabilities in global markets and channels to support the expansion of our nine continuing affiliates, including leveraging existing Group capabilities and relationships. We continued to progress this strategy in 2012, completing the process of filling key roles and identifying primary focus areas.

Outlook for 2013

In 2013, we expect to maintain our operating margin within the target range of 25% to 30% or more, before non-controlling interests. We expect aggregate NCCF to remain positive, assuming continued strong markets and affiliate investment performance, and we aim to increase our penetration of markets outside the US in 2013 and beyond. We continue actively seeking and evaluating opportunities to add to the existing investment capabilities in our portfolio of affiliates, both organically and through fold-in acquisitions.

Non-core business - Bermuda (additional disclosures)

Old Mutual Bermuda is a non-core business; its results are excluded from the Group's IFRS AOP, although the interest on intercompany loans from Bermuda to Group Head Office is charged to AOP.

Management actions

Old Mutual Bermuda continued to implement its run-off strategy of risk reduction while managing for value. An option-based hedging strategy implemented in March 2012 has significantly improved its risk profile by hedging the impact of any subsequent adverse equity market movements on the cash top-up payments to policyholders reaching the fifth anniversary of their Universal Guarantee Option (UGO) Guaranteed Minimum Accumulation Benefits (GMAB) contracts.

In addition to the option hedge in place for fifth anniversary cash top-up payments, we have dynamically hedged foreign currency exchange exposures and the residual equity market risk for the risk extending beyond the five-year top-ups at a level of 50%.

In July 2012, in consultation with the Bermuda Monetary Authority, the Group recapitalised Old Mutual Bermuda in anticipation of the expected new Bermudan solvency requirements.

Key Metrics and Outcomes

IFRS results

The IFRS post-tax profit for the period was $254 million (2011: $286 million loss), driven primarily by the reduction in GMAB reserves and a realised gain on the fixed income portfolio, partially offset by a full write-off of all remaining deferred acquisition costs.

MCEV results

The 2012 operating MCEV earnings resulted in an after-tax gain of $157 million (2011: $76 million). The improvement was due mainly to a combination of positive operating experience and favourable changes in the surrender and future operating expense assumptions as a result of higher-than-expected lapses on the UGO GMAB business.

MCEV earnings including economic variances and other non-operating variances totalled $342 million (2011: $343 million loss), primarily due to an improvement in capital markets and realised fixed income portfolio gains.

Total insurance liabilities

Of year-end insurance liabilities totaling $2,764 million (2011: $4,831 million):

· $2,119 million (2011: $3,130 million) was held in a separate account relating to variable annuity investments, of which $1,856 million related to GMAB policies (2011: $2,858 million)

· $229 million (2011: $1,061 million) related to the variable annuity guarantee reserve on the GMAB policies

· $416 million (2011: $640 million) related to other policyholder liabilities. These included deferred and fixed indexed annuity business as well as variable annuity fixed credited interest investments

The vast majority of the variable annuity guarantee reserve relates to contracts with UGO GMABs. The 2012 year-end UGO GMAB reserve was $219 million - a decrease of $816 million over the year, due mainly to improved overall equity market performance and a high level of UGO GMAB surrenders during the year.

UGO GMAB reserves and top-up payments

The UGO GMAB reserve relates to the full remaining period of the relevant policies, including the five-year anniversary value of 105% of total premiums on contracts yet to reach that anniversary; the 10-year 120% top-up of total premiums; and any contracts with a Highest Anniversary Value (HAV) feature.

Fifth anniversary payments began on 5 January 2012 and will continue until 29 August 2013. At the end of 2012, 67% of the UGO GMAB contracts by guarantee amount had passed their five-year top-up date.

The total estimated cash cost of meeting these fifth-anniversary payments to policyholders decreased from $689 million to $530 million as a result of favourable equity market movements. Hedge gains and losses have not been taken into account in the cash cost calculations.

The table below shows the level of guarantee reserves and, in respect of the UGO GMAB fifth-anniversary guarantees, the cumulative top-ups paid and the estimated top-up payments remaining based on equity market levels on the calculation date:

				$m
Calculation Date	Guarantee reserves for UGO GMAB	Actual cumulative top-up paid^1,2	Estimated remaining top-up payment^1,2	Total estimated top-up payment^1,2
31-Dec-10	660	-	334	334
31-Dec-11	1,035	-	689	689
31-Dec-12	219	425	105	530
31-Jan-13	164	443	67	510
¹To meet UGO GMAB fifth anniversary payments
²Cash cost before gains on hedge options.

Highest Anniversary Value

On an account value basis, at 31 December 2012, 80% of the UGO GMAB book had a HAV feature, giving them a 10-year guarantee value based on the highest policy value at any anniversary date. As at 31 December 2012, 5% of the total UGO GMAB book had a 10-year guarantee above 120%.

Surrender development

Across the whole Bermuda book there were $1,929 million of surrenders in 2012 (2011: $1,182 million). At 31 December 2012 around 80% of non-Hong Kong UGO policies and around 60% of Hong Kong policies had been surrendered on or after their anniversary date.

Of the 16,842 UGO GMAB contracts that reached their fifth anniversary during 2012, 10,343 were surrendered. There were 10,765 UGO GMAB contracts that had not reached their fifth anniversary at 1 January 2013, of these 10,472 will reach their fifth anniversary in H1 2013, with the remainder reaching this milestone by the end of August 2013.

2,840 non-GMAB policies remained at 31 December 2012, 13% of the total book. Total non-GMAB liabilities decreased by 26% to $679 million, of which non-GMAB separate account liabilities relating to variable annuity investments were $263 million.

Investment portfolio and treasury management

The Bermuda business assets backing the liabilities include:

			$m
	31-Dec-12	31-Dec-11	% change
Cash and other liquid assets	330	443	(26)%
Fixed income general account portfolio	195	543	(64)%
Collateral for hedge assets & FV of equity options	52	91	(43)%
Intercompany loan notes	1,032	830	24%
Investment in affiliated subsidiary (Group seed investments)	260	-
Separate account assets	2,119	3,130	(32)%
Other assets	58	122	(52)%
Total Assets	4,046	5,159	(22)%

The realised gain on the fixed income portfolio was $31 million (2011: $1 million) and the net unrealised position was a gain of $14 million (2011: $29 million). There were no investment losses and no impairment or credit defaults in the period.

The portfolio has a current average Moody's rating of Aa3, with investment-grade holdings continuing to represent more than 90% of the portfolio.

Old Mutual Bermuda will continue to sell assets from the fixed income portfolio and use other liquid assets of the business to meet its liabilities, which will include the cash requirements of the remaining top-ups as they fall due.

Collateral posted for the hedge assets will adjust as the liabilities develop and could be released as the business evolves. The inter-company loan notes are structured in tranches allowing capital and treasury management flexibility, if cash is required from this source.

Capital and surplus

Local entity statutory capital and surplus increased to $1,105 million at 31 December 2012 (2011: $291 million), reflecting the July recapitalisation and the improved profitability for the year. The July recapitalisation related to the transfer of $571 million of capital to Bermuda from Group. The capital comprised $250 million of new inter-company loan notes, $260 million of Group seed investments and cash of $61 million.

The future level of capital required on both an economic and a regulatory basis will be influenced by the nature and extent of the run-off of the Bermuda business book and the amount of the investment hedge in place. We would expect to review the regulatory capital requirement with the Bermuda Monetary Authority in 2013.

Strategy and outlook

Old Mutual Bermuda will continue to implement its run-off strategy of reducing risk while managing for value, with liability management and de-risking initiatives designed to accelerate the run-off in 2013. Consideration is also being given to the future management of the remaining book of 10-year 120% top-up, HAV policies and non-GMAB policies.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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