Preliminary Results - Part 2
Old Mutual PLC
27 February 2005
PART 2
Notes to the Financial Statements
for the year ended 31 December 2004
1 FOREIGN CURRENCIES
The information contained in these financial statements is expressed in both
Sterling and South African Rand. This is in order both to meet the legal
requirements of the UK Companies Act 1985 and to provide the users of the
accounts in South Africa with illustrative information.
The principal exchange rates used to translate the operating results, assets
and liabilities of key foreign business segments to Sterling are:
Rand US$
2004 2003 2004 2003
Profit and loss account (average
rate) 11.7986 12.3487 1.8327 1.6354
Balance sheet (closing rate) 10.8482 11.9367 1.9158 1.7833
Foreign currency revenue transactions are translated at average exchange rates
for the year. Foreign currency assets and liabilities are translated at year
end exchange rates. Exchange differences arising from the translation of net
investments in foreign subsidiary undertakings are taken to the consolidated
statement of total recognised gains and losses. Exchange differences arising on
the translation of foreign integrated operations are taken through the
non-technical account. Exchange differences on trading activities are included
in the profit and loss account.
Notes to the Financial Statements continued
for the year ended 31 December 2004
2 EARNINGS AND EARNINGS PER SHARE
Basic earnings per share is calculated based upon the profit after tax
attributable to equity shareholders. The directors' view is that adjusted
operating earnings per share derived from adjusted operating profit or loss
after tax and minority interests provides a better indication of the underlying
performance of the Group. For life assurance and general insurance businesses,
adjusted operating profit is based on a long term investment return and
includes investment return on own shares held in policyholders' funds. For
banking business, adjusted operating profit excludes the loss on disposal of
investment in Dimension Data Holdings plc, restructuring and integration costs
and the transitional impact of the change in credit provisioning methodology.
For all businesses, adjusted operating profit excludes goodwill amortisation
and impairment and fines and penalties. Adjusted operating earnings per share
is similarly based, but is stated after tax and minority interests, with the
calculation of the weighted average number of shares including own shares held
in policyholders' funds. A table reconciling operating profit on ordinary
activities after tax and minority interests to adjusted operating profit after
tax and minority interests is set out below.
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
Notes 2004 2003 2004 2003
Profit on ordinary
activities after
tax and minority interests 484 273 5,704 3,381
Goodwill amortisation and
impairment net of minority
interests 83 128 971 1,581
Loss on disposal
of investment in
Dimension Data
Holdings plc net of
tax and
minority interests - 3 - 30
Restructuring and
integration costs
net of tax and
minority interests 3(d)(ii) 8 13 92 160
Change in
credit provisioning
methodology net of
tax and minority
interests 3(d)(iii) - 31 - 376
Fines and penalties
net of tax 41 - 499 -
Short term fluctuations in
investment returns
net of tax and
minority interests (162) (95) (1,907) (1,170)
Investment return
adjustment for
own shares held
in policyholders'
funds 3(b)(iv) 94 (12) 1,115 (148)
Non-operating items
net of tax and
minority interests 26 32 312 404
Adjusted operating
profit after tax
and minority interests 574 373 6,786 4,614
p c
Basic earnings per share after tax
and minority interests 14.1 8.0 166.2 99.1
Impact of exclusion of own shares
held in policyholders' funds on
weighted
average number of shares (1.2) (0.7) (14.0) (8.4)
12.9 7.3 152.2 90.7
Goodwill amortisation and
impairment net of minority
interests 2.2 3.4 26.0 42.4
Loss on disposal of investment in
Dimension Data Holdings plc net of
tax and
minority interests - 0.1 - 0.8
Restructuring and integration costs
net of tax and minority interests 0.2 0.3 2.5 4.3
Change in credit provisioning
methodology net of tax and minority
interests - 0.8 - 10.1
Fees and penalties net of tax 1.1 - 13.3 -
Short term fluctuations in
investment returns net of tax and
minority interests (4.3) (2.5) (50.9) (31.3)
Investment return adjustment for
own shares held in policyholders'
funds 2.5 (0.3) 29.7 (4.0)
Non-operating items net of tax 0.7 0.9 8.3 10.8
Adjusted operating earnings per
share after tax and minority
interests 15.3 10.0 181.1 123.8
Notes to the Financial Statements continued
for the year ended 31 December 2004
2 EARNINGS AND EARNINGS PER SHARE CONTINUED
Basic earnings per share is calculated by reference to the profit on ordinary
activities after tax and minority interests of GBP484 million (R5,704 million)
for the year ended 31 December 2004 (2003: GBP273 million (R3,381 million)) and
a weighted average number of shares in issue of 3,432 million (2003: 3,411
million). The weighted average number of shares is calculated as follows:
millions
At At
31 Dec 31 Dec
2004 2003
Total weighted average number of shares in issue 3,844 3,824
Shares held in ESOP Trusts (96) (97)
Adjusted weighted average number of shares 3,748 3,727
Shares held in policyholders' funds (316) (316)
Weighted average number of shares 3,432 3,411
In accordance with UITF Abstract 37 'Purchases and Sales of Own Shares', shares
in the Company held in policyholders' funds are not included in the weighted
average number of shares used in basic earnings per share calculations. No
adjustment is required in respect of UITF Abstract 38 'Accounting for ESOP
Trusts' as the shares in the Company held in ESOP Trusts have already been
excluded from the calculation as, in the majority of cases, the ESOP Trusts
have waived their rights to dividends on these shares.
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS
3(a) Summary of operating profit on ordinary activities before tax
GBPm
UK &
South United Rest of
Notes Africa States World Total
Year to 31 December 2004
Life assurance 3(b)(iii)
Adjusted operating profit 480 96 18 594
Inter-segment (revenue)
/ expenses (3) 12 2 11
Adjusted operating profit
net of inter-
segment transaction 477 108 20 605
Asset management 3(c)(i)
Adjusted operating profit 53 89 10 152
Inter-segment (revenue)
/ expenses (10) (11) 4 (17)
Adjusted operating profit
net of inter-
segment transaction 43 78 14 135
Banking 3(d)(i)
Adjusted operating profit 177 - 14 191
Inter-segment (revenue)
/ expenses 6 - - 6
Adjusted operating profit
net of inter-
segmental transaction 183 - 14 197
General insurance business 3(e) 89 - - 89
Other shareholders'
income / (expenses) 3(f) - - (33) (33)
Debt service costs (3) - (34) (37)
Adjusted operating profit
/ (loss), net of
inter-segment transactions 789 186 (19) 956
Goodwill amortisation
and impairment 6 (57) (50) (3) (110)
Restructuring and
integration costs 3(d)(ii) (21) - - (21)
Fines and penalties - (49) - (49)
Short term fluctuations
in investment
return 134 85 7 226
Investment return
adjustment for own
shares held in
policyholders' funds 3(b)(i v) (94) - - (94)
Operating profit /
(loss) on ordinary
activities before tax 751 172 (15) 908
Analysed as:
Life assurance 479 189 27 695
Asset management 43 (17) 11 37
Banking 107 - 14 121
General insurance business 125 - - 125
Other shareholders'
income / (expenses) - - (33) (33)
Debt service costs (3) - (34) (37)
Operating profit /
(loss) on ordinary
activities before tax 751 172 (15) 908
Rm
UK &
South United Rest of
Notes Africa States World Total
Year to 31 December 2004
Life assurance 3(b)(iii)
Adjusted operating profit 5,671 1,126 206 7,003
Inter-segment (revenue)
/ expenses (32) 137 25 130
Adjusted operating
profit net of
inter-
segment transaction 5,639 1,263 231 7,133
Asset management 3(c)(i)
Adjusted operating profit 639 1,050 117 1,806
Inter-segment (revenue)
/ expenses (120) (130) 47 (203)
Adjusted operating
profit net of
inter-
segment transaction 519 920 164 1,603
Banking 3(d)(i)
Adjusted operating profit 2,099 - 158 2,257
Inter-segment (revenue)
/ expenses 73 - - 73
Adjusted operating
profit net of
inter-
segmental transaction 2,172 - 158 2,330
General insurance business 3(e) 1,057 - - 1,057
Other shareholders'
income / (expenses) 3(f) - - (390) (390)
Debt service costs (35) - (402) (437)
Adjusted operating
profit / (loss),
net of
inter-segment transactions 9,352 2,183 (239) 11,296
Goodwill amortisation and
impairment 6 (672) (583) (35) (1,290)
Restructuring and
integration costs 3(d)(ii) (246) - - (246)
Fines and penalties - (596) - (596)
Short term fluctuations in
investment
return 1,582 1,003 77 2,662
Investment return
adjustment for own
shares held in
policyholders' funds 3(b)(i v) (1,115) - - (1,115)
Operating profit / (loss) on
ordinary
activities before tax 8,901 2,007 (197) 10,711
Analysed as:
Life assurance 5,657 2,219 308 8,184
Asset management 519 (212) 129 436
Banking 1,278 - 158 1,436
General insurance business 1,482 - - 1,482
Other shareholders' income /
(expenses) - - (390) (390)
Debt service costs (35) - (402) (437)
Operating profit / (loss) on
ordinary
activities before tax 8,901 2,007 (197) 10,711
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
3(a) Summary of operating profit on ordinary activities before tax continued
GBPm
UK &
South United Rest of
Notes Africa States World Total
Year to 31 December 2003
(Restated)
Life assurance 3(b)(iii)
Adjusted operating profit 438 85 20 543
Inter-segment (revenue)
/ expenses (7) 11 4 8
Adjusted operating profit
net of inter-
segment transactions 431 96 24 551
Asset management 3(c)(i)
Adjusted operating profit 55 81 (8) 128
Inter-segment (revenue)
/ expenses (2) (10) 4 (8)
Adjusted operating profit
net of inter-
segment transactions 53 71 (4) 120
Banking 3(d)(i)
Adjusted operating profit (10) - 4 (6)
Inter-segment (revenue)
/ expenses - - - -
Adjusted operating profit
net of inter-
segment transactions (10) - 4 (6)
General insurance business 3(e) 73 - - 73
Other shareholders' income
/ (expenses) 3(f) - - (40) (40)
Debt service costs (4) - (44) (48)
Adjusted operating
profit, net of
inter-segment transactions 543 167 (60) 650
Goodwill amortisation 6 (140) (57) (9) (206)
Loss on disposal of investment in
Dimension Data Holdings plc (5) - - (5)
Restructuring and
integration costs 3(d)(ii) (32) - - (32)
Change in credit provisioning
methodology 3(d)(iii) (87) - - (87)
Short term fluctuations
in investment
return (37) 196 (16) 143
Investment return
adjustment for own
shares held in
policyholders' funds 3(b)(iv) 12 - - 12
Operating profit /
(loss) on ordinary
activities before tax 254 306 (85) 475
Analysed as:
Life assurance 402 288 12 702
Asset management 53 18 (13) 58
Banking (272) - 4 (268)
General insurance business 75 - - 75
Other shareholders'
income / (expenses) - - (44) (44)
Debt service costs (4) - (44) (48)
Operating profit / (loss)
on ordinary
activities before tax 254 306 (85) 475
Rm
UK &
South United Rest of
Notes Africa States World Total
Year to 31 December 2003
(Restated)
Life assurance (b)(iii)
Adjusted operating profit 5,408 1,050 248 6,706
Inter-segment (revenue)
/ expenses (86) 135 49 98
Adjusted operating
profit net of
inter-
segment transactions 5,322 1,185 297 6,804
Asset management 3(c)(i)
Adjusted operating profit 678 1,000 (95) 1,583
Inter-segment (revenue)
/ expenses (22) (123) 47 (98)
Adjusted operating
profit net of
inter-
segment transactions 656 877 (48) 1,485
Banking 3(d)(i)
Adjusted operating profit (118) - 48 (70)
Inter-segment (revenue)
/ expenses - - - -
Adjusted operating
profit net of
inter-
segment transactions (118) - 48 (70)
General insurance business 3(e) 909 - - 909
Other shareholders'
income /
(expenses) 3(f) - - (494) (494)
Debt service costs (49) - (544) (593)
Adjusted operating
profit, net of
inter-segment transactions 6,720 2,062 (741) 8,041
Goodwill amortisation 6 (1,730) (703) (111) (2,544)
Loss on disposal of
investment in
Dimension Data Holdings plc (60) - - (60)
Restructuring
and integration costs 3(d)(ii) (394) - - (394)
Change in credit
provisioning
methodology 3(d)(iii) (1,074) - - (1,074)
Short term
fluctuations in
investment return (456) 2,420 (197) 1,767
Investment return
adjustment for
own shares held in
policyholders' funds 3(b)(iv) 148 - - 148
Operating profit /
(loss) on
ordinary activities
before tax 3,154 3,779 (1,049) 5,884
Analysed as:
Life assurance 4,964 3,556 149 8,669
Asset management 656 223 (159) 720
Banking (3,350) - 48 (3,302)
General insurance business 933 - - 933
Other shareholders' income /
(expenses) - - (543) (543)
Debt service costs (49) - (544) (593)
Operating profit / (loss) on
ordinary
activities before tax 3,154 3,779 (1,049) 5,884
The segmental analysis has been prepared on a gross of inter-segment
transactions basis. 2003 comparatives have been restated to be consistent with
the current year segmental presentation.
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
GBPm
South United UK & Rest
3(b) Life assurance Africa States of World Total
(i) Gross premiums written
Year to 31 December 2004
Individual business
Single 633 2,169 135 2,937
Recurring 940 205 46 1,191
1,573 2,374 181 4,128
Group business
Single 434 - 18 452
Recurring 299 - 22 321
733 - 40 773
Total gross premiums 2,306 2,374 221 4,901
Year to 31 December 2003
Individual business
Single 563 1,815 87 2,465
Recurring 833 186 51 1,070
1,396 2,001 138 3,535
Group business
Single 715 - 20 735
Recurring 294 - 13 307
1,009 - 33 1,042
Total gross premiums 2,405 2,001 171 4,577
Rm
South United UK & Rest
3(b) Life assurance Africa States of World Total
(i) Gross premiums written
Year to 31 December 2004
Individual business
Single 7,467 25,594 1,597 34,658
Recurring 11,088 2,415 544 14,047
18,555 28,009 2,141 48,705
Group business
Single 5,116 - 213 5,329
Recurring 3,532 - 252 3,784
8,648 - 465 9,113
Total gross premiums 27,203 28,009 2,606 57,818
Year to 31 December 2003
Individual business
Single 6,952 22,413 1,074 30,439
Recurring 10,286 2,297 630 13,213
17,238 24,710 1,704 43,652
Group business
Single 8,829 - 247 9,076
Recurring 3,631 - 161 3,792
12,460 - 408 12,868
Total gross premiums 29,698 24,710 2,112 56,520
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
GBPm
South United UK & Rest
3(b) Life assurance Africa States of World Total
(ii) Gross new business premiums
written
Year to 31 December 2004
Individual business
Single 633 2,169 135 2,937
Recurring 157 58 8 223
790 2,227 143 3,160
Group business
Single 434 - 18 452
Recurring 15 - 2 17
449 - 20 469
Total gross new business premiums
written 1,239 2,227 163 3,629
Annual premium equivalent 279 275 25 579
Year to 31 December 2003
Individual business
Single 563 1,815 87 2,465
Recurring 158 76 7 241
721 1,891 94 2,706
Group business
Single 715 - 20 735
Recurring 18 - 3 21
733 - 23 756
Total gross new business premiums
written 1,454 1,891 117 3,462
Annual premium equivalent 304 258 21 583
Rm
South United UK & Rest
3(b) Life assurance Africa States of World Total
(ii) Gross new business premiums
written
Year to 31 December 2004
Individual business
Single 7,467 25,594 1,597 34,658
Recurring 1,858 679 97 2,634
9,325 26,273 1,694 37,292
Group business
Single 5,116 - 213 5,329
Recurring 182 - 21 203
5,298 - 234 5,532
Total gross new business premiums
written 14,623 26,273 1,928 42,824
Annual premium equivalent 3,298 3,238 299 6,835
Year to 31 December 2003
Individual business
Single 6,952 22,413 1,074 30,439
Recurring 1,951 939 86 2,976
8,903 23,352 1,160 33,415
Group business
Single 8,829 - 247 9,076
Recurring 222 - 37 259
9,051 - 284 9,335
Total gross new business premiums
written 17,954 23,352 1,444 42,750
Annual premium equivalent 3,751 3,180 255 7,186
Annual premium equivalent is defined as one tenth of single premiums
plus recurring premiums.
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
3(b) Life assurance continued
GBPm
South United UK & Rest of
Africa States World Total
(iii) Life assurance
adjusted operating
profit
Year to 31 December
2004
Individual business 224 96 11 331
Group business 89 - 2 91
Life assurance
technical result 313 96 13 422
Long term investment
return 167 - 5 172
Total segmental result 480 96 18 594
Inter-segment
(revenue) / expenses (3) 12 2 11
Adjusted operating
profit, net of
inter-segment
transactions 477 108 20 605
Year to 31 December
2003
Individual business 190 85 13 288
Group business 70 - 2 72
Life assurance
technical result 260 85 15 360
Long term investment
return 178 - 5 183
Adjusted operating
profit 438 85 20 543
Inter-segment
(revenue) / expenses (7) 11 4 8
Adjusted operating
profit, net of
inter-segment
transactions 431 96 24 551
South United UK & Rest of
Africa States World Total
(iii) Life assurance
adjusted operating
profit
Year to 31 December
2004
Individual business 2,643 1,126 123 3,892
Group business 1,054 - 32 1,086
Life assurance
technical result 3,697 1,126 155 4,978
Long term investment
return 1,974 - 51 2,025
Total segmental result 5,671 1,126 206 7,003
Inter-segment
(revenue) / expenses (32) 137 25 130
Adjusted operating
profit, net of
inter-segment
transactions 5,639 1,263 231 7,133
Year to 31 December
2003
Individual business 2,346 1,050 161 3,557
Group business 864 - 25 889
Life assurance
technical result 3,210 1,050 186 4,446
Long term investment
return 2,198 - 62 2,260
Adjusted operating
profit 5,408 1,050 248 6,706
Inter-segment
(revenue) / expenses (86) 135 49 98
Adjusted operating
profit, net of
inter-segment
transactions 5,322 1,185 297 6,804
Inter-segment revenue / expenses represents investment management fees paid to
the Group's asset management companies and administration fees paid to /
received from Group life assurance companies.
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(iv) Investment return
adjustment for own shares held
in policyholders'
funds
Dividend income 16 14 190 173
Realised gains on investment in
own shares 2 - 28 -
Unrealised gains / (losses) on
investment in own shares 76 (26) 897 (321)
Net investment gain / (loss) on
own shares 94 (12) 1,115 (148)
(v) Other technical income
Other technical income of GBP84 million (R991 million) (2003: GBP94 million
(R1,161 million)) principally consists of fees earned in respect of South
African policyholders' funds and fees earned for healthcare administration.
31 Notes to the Financial Statements
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
3(c)(i) Asset management
GBPm
Adjusted
operating
Notes Revenue Expenses profit
Year to 31 December 2004
South Africa
Fund management
Old Mutual Asset Managers 42 (24) 18
Old Mutual Unit Trusts 23 (19) 4
Other 52 (42) 10
117 (85) 32
Other financial services 16 (3) 13
Nedcor Unit Trusts and
Portfolio Management 32 (24) 8
165 (112) 53
US asset management 3(c)(ii) 367 (278) 89
UK and Rest of World
Fund management 48 (31) 17
Selestia investment platform 7 (12) (5)
Other financial services 18 (26) (8)
Nedcor Unit Trusts and
Portfolio Management 34 (28) 6
107 (97) 10
Adjusted operating profit 639 (487) 152
Inter-segment (revenue) /
expenses
South Africa (19) 9 (10)
US asset management (11) - (11)
United Kingdom and Rest of
World 2 2 4
(28) 11 (17)
Adjusted operating profit,
net of inter segment
transactions
South Africa 146 (103) 43
US asset management 356 (278) 78
United Kingdom and Rest of
World 109 (95) 14
611 (476) 135
Rm
Adjusted
operating
Notes Revenue Expenses profit
Year to 31 December 2004
South Africa
Fund management
Old Mutual Asset Managers 497 (282) 215
Old Mutual Unit Trusts 273 (220) 53
Other 619 (495) 124
1,389 (997) 392
Other financial services 192 (40) 152
Nedcor Unit Trusts and
Portfolio Management 378 (283) 95
1,959 (1,320) 639
US asset management 3(c)(ii) 4,330 (3,280) 1,050
UK and Rest of World
Fund management 566 (366) 200
Selestia investment platform 83 (142) (59)
Other financial services 212 (307) (95)
Nedcor Unit Trusts and
Portfolio Management 401 (330) 71
1,262 (1,145) 117
Adjusted operating profit 7,551 (5,745) 1,806
Inter-segment (revenue) /
expenses
South Africa (224) 104 (120)
US asset management (130) - (130)
United Kingdom and Rest of
World 20 27 47
(334) 131 (203)
Adjusted operating profit,
net of inter segment
transactions
South Africa 1,735 (1,216) 519
US asset management 4,200 (3,280) 920
United Kingdom and Rest of
World 1,282 (1,118) 164
7,217 (5,614) 1,603
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
3(c)(i) Asset management
GBPm
Adjusted
operating
Notes Revenue Expenses profit
Year to 31 December 2003
South Africa
Old Mutual Asset Managers 37 (20) 17
Old Mutual Unit Trusts 21 (15) 6
Other 16 (12) 4
74 (47) 27
Other financial services 42 (24) 18
Nedcor Unit Trusts and
Portfolio Management 36 (26) 10
152 (97) 55
US asset management 3(c)(ii) 347 (266) 81
UK and Rest of World
Fund management 43 (37) 6
Private client Gerrard 91 (83) 8
Selestia investment platform 3 (12) (9)
Other financial services 10 (24) (14)
Nedcor Unit Trusts and
Portfolio Management 42 (41) 1
189 (197) (8)
688 (560) 128
Inter-segment (revenue) /
expenses
South Africa (4) 2 (2)
US asset management (10) - (10)
UK & Rest of World - 4 4
(14) 6 (8)
Adjusted operating profit,
net of inter-segment
transactions
South Africa 148 (95) 53
US asset management 337 (266) 71
UK & Rest of World 189 (193) (4)
674 (554) 120
Rm
Adjusted
operating
Notes Revenue Expenses profit
Year to 31 December 2003
South Africa
Old Mutual Asset Managers 458 (247) 211
Old Mutual Unit Trusts 259 (185) 74
Other 200 (148) 52
917 (580) 337
Other financial services 519 (302) 217
Nedcor Unit Trusts and
Portfolio Management 445 (321) 124
1,881 (1,203) 678
US asset management 3(c)(ii) 4,285 (3,285) 1,000
UK and Rest of World
Fund management 531 (454) 77
Private client Gerrard 1,124 (1,025) 99
Selestia investment platform 37 (148) (111)
Other financial services 123 (296) (173)
Nedcor Unit Trusts and
Portfolio Management 519 (506) 13
2,334 (2,429) (95)
8,500 (6,917) 1,583
Inter-segment (revenue) /
expenses
South Africa (52) 30 (22)
US asset management (123) - (123)
UK & Rest of World - 47 47
(175) 77 (98)
Adjusted operating profit,
net of inter-segment
transactions
South Africa 1,829 (1,173) 656
US asset management 4,162 (3,285) 877
UK & Rest of World 2,334 (2,382) (48)
8,325 (6,840) 1,485
Adjusted operating profit includes GBP6 million (R73 million) in relation to
interest received on short-term funding provided to the Group's banking
subsidiary. The remainder of the inter-segment revenue / expenses elimination
represent investment management fees paid to / received from the Group's life
assurance companies and other asset management companies.
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
3(c)(ii) US asset management 2004 2003 2004 2003
Revenue
Investment management fees 311 304 3,669 3,754
Transaction, performance and
other fees 56 43 661 531
367 347 4,330 4,285
Expenses
Remuneration expenses 121 117 1,428 1,445
Other expenses 157 149 1,852 1,840
278 266 3,280 3,285
Adjusted operating profit 89 81 1,050 1,000
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
South UK & Rest GBPm
3(d) Banking Notes Africa of World Total
(i) Banking adjusted operating
profit
Year to 31 December 2004
Interest receivable 1,917 112 2,029
Interest payable (1,320) (71) (1,391)
Net interest income 597 41 638
Dividend income 12 - 12
Fees and commissions receivable 504 (48) 456
Fees and commissions payable (59) (2) (61)
Net other operating income 176 59 235
Total operating income 1,230 50 1,280
Specific and general provisions
charge (116) (4) (120)
Net income 1,114 46 1,160
Operating expenses (942) (38) (980)
172 8 180
Share of associated
undertakings' profit 5 6 11
Adjusted operating profit 177 14 191
Inter-segment (revenue) /
expenses 6 - 6
Adjusted operating profit, net
of inter-
segment transactions 183 14 197
Operating expenses include translation losses of GBP32 million (R372 million)
(2003: GBP110 million (R1,356 million)). Adjusted operating profit includes
GBP6 million (R73 million) in relation to inter-company interest payable for
short term funding now repaid.
Year to 31 December 2003
Interest receivable 2,156 114 2,270
Interest payable (1,643) (80) (1,723)
Net interest income 513 34 547
Dividend income 12 - 12
Fees and commissions receivable 396 19 415
Fees and commissions payable (36) (2) (38)
Net other operating income 157 14 171
Total operating income 1,042 65 1,107
Specific and general provisions
charge (232) (2) (234)
Net income 810 63 873
Operating expenses (824) (65) (889)
(14) (2) (16)
Share of associated
undertakings' profit 4 6 10
Adjusted operating (loss) /
profit (10) 4 (6)
South UK & Rest Rm
3(d) Banking Africa of World Total
(i) Banking adjusted operating profit
Year to 31 December 2004
Interest receivable 22,619 1,325 23,944
Interest payable (15,576) (839) (16,415)
Net interest income 7,043 486 7,529
Dividend income 143 - 143
Fees and commissions receivable 5,940 (561) 5,379
Fees and commissions payable (694) (21) (715)
Net other operating income 2,082 691 2,773
Total operating income 14,514 595 15,109
Specific and general provisions charge (1,370) (45) (1,415)
Net income 13,144 550 13,694
Operating expenses (11,108) (454) (11,562)
2,036 96 2,132
Share of associated undertakings' profit 63 62 125
Adjusted operating profit 2,099 158 2,257
Inter-segment (revenue) / expenses 73 - 73
Adjusted operating profit, net of inter-
segment transactions 2,172 158 2,330
Operating expenses include translation losses of GBP32 million (R372 million)
(2003: GBP110 million (R1,356 million)). Adjusted operating profit includes
GBP6 million (R73 million) in relation to inter-company interest payable for
short term funding now repaid.
Year to 31 December 2003
Interest receivable 26,619 1,411 28,030
Interest payable (20,295) (981) (21,276)
Net interest income 6,324 430 6,754
Dividend income 150 2 152
Fees and commissions receivable 4,891 229 5,120
Fees and commissions payable (445) (28) (473)
Net other operating income 1,946 172 2,118
Total operating income 12,866 805 13,671
Specific and general provisions charge (2,868) (18) (2,886)
Net income 9,998 787 10,785
Operating expenses (10,169) (807) (10,976)
(171) (20) (191)
Share of associated undertakings' profit 53 68 121
Adjusted operating (loss) / profit (118) 48 (70)
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
GBPm Rm
Year to Year to Year to
Year to
31 Dec 31 Dec 31 Dec 31 Dec
3(d) Banking continued 2004 2003 2004 2003
(ii) Restructuring and
integration costs
Costs before tax and minority
interests 21 32 246 394
Tax (6) (6) (71) (74)
Costs after tax and before
minority interests 15 26 175 320
Minority interests (7) (13) (83) (160)
Costs after tax and minority
interests 8 13 92 160
Restructuring and integration costs incurred in connection with the acquisition
of BoE by Nedcor Limited have been excluded from adjusted operating profit.
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(iii) Change in credit
provisioning methodology
Charge before tax and minority
interests - 87 - 1,074
Tax - (26) - (322)
Charge after tax and before
minority interests - 61 - 752
Minority interests - (30) - (376)
Charge after tax and minority
interests - 31 - 376
During 2003, the Group's banking subsidiary, Nedcor Limited, implemented a
revised methodology for the calculation of credit provisions for loans and
advances in accordance with changes to local reporting requirements (AC133:
'Financial Instruments Recognition and Measurement'). The revised methodology
requiring the discounting of future cash flows on advances is acceptable under
UK GAAP reporting and was therefore adopted in preparation of the Group's
financial statements, resulting in a one-off increase in opening specific
provisions due to the discounting effect.
This adjustment has been taken to the profit and loss account in the Group's
financial statements, but excluded from adjusted operating profit.
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
Earned Claims GBPm
Gross premiums incurred Adjusted
premium net of net of operating
3(e) General written reinsurance reinsurance profit
insurance result
Year to 31 December
2004
Commercial 235 219 (133) 29
Corporate 45 19 (10) 4
Personal lines 249 244 (173) 8
Risk financing 95 89 (53) 3
624 571 (369) 44
Long term investment
return 45
89
Year to 31 December
2003
Commercial 201 185 (123) 17
Corporate 54 17 (13) (1)
Personal lines 212 206 (150) 6
Risk financing 59 52 (36) 4
526 460 (322) 26
Long term investment
return 47
73
Earned Claims Rm
Gross premiums incurred Adjusted
premium net of net of operating
3(e) General written reinsurance reinsurance profit
insurance result
Year to 31 December
2004
Commercial 2,777 2,583 (1,579) 329
Corporate 528 225 (118) 49
Personal lines 2,938 2,878 (2,039) 100
Risk financing 1,117 1,050 (607) 49
7,360 6,736 (4,343) 527
Long term investment
return 530
1,057
Year to 31 December
2003
Commercial 2,482 2,284 (1,516) 216
Corporate 667 210 (156) (15)
Personal lines 2,618 2,543 (1,853) 75
Risk financing 719 637 (442) 53
6,486 5,674 (3,967) 329
Long term investment
return 580
909
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
3(f) Other shareholders'
income/ (expenses) 2004 2003 2004 2003
Distribution from unclaimed
share trust 16 - 190 -
Provision for contributions to
public benefit and charitable
organisations (16) - (190) -
Interest receivable 8 6 94 74
Net corporate expenses (41) (41) (484) (506)
Net other income / (expenses) - (5) - (62)
Other shareholders' income /
(expenses) (33) (40) (390) (494)
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
GBPm
South United UK & Rest
3(g) Funds under management Africa States of World Total
At 31 December 2004
Investments including assets
held to
cover linked liabilities 21,938 9,857 2,795 34,590
SA asset mangement
Fund management
Old Mutual Asset Managers 8,011 - - 8,011
Old Mutual Unit Trusts 288 - - 288
8,299 - - 8,299
Other financial services 1,016 - - 1,016
Nedcor Unit Trusts 1,428 - - 1,428
Nedcor Portfolio Management 3,113 - - 3,113
13,856 - - 13,856
US asset management - 80,289 6,561 86,850
UK and Rest of World asset
management
Fund management - - 2,210 2,210
Selestia investment platform - - 531 531
Other financial services - - 270 270
Nedcor Unit Trusts - - 565 565
Nedcor portfolio management - - 1,252 1,252
- - 4,828 4,828
Total funds under management 35,794 90,146 14,184 140,124
South United UK & Rest Rm
3(g) Funds under management Africa States of World Total
At 31 December 2004
Investments including
assets held to
cover linked liabilities 237,987 106,931 30,321 375,239
SA asset mangement
Fund management
Old Mutual Asset Managers 86,905 - - 86,905
Old Mutual Unit Trusts 3,124 - - 3,124
90,029 - - 90,029
Other financial services 11,022 - - 11,022
Nedcor Unit Trusts 15,491 - - 15,491
Nedcor Portfolio Management 33,770 - - 33,770
150,312 - - 150,312
US asset management - 870,991 71,175 942,166
UK and Rest of World asset
management
Fund management - - 23,975 23,975
Selestia investment platform - - 5,760 5,760
Other financial services - - 2,929 2,929
Nedcor Unit Trusts - - 6,129 6,129
Nedcor portfolio management - - 13,582 13,582
- - 52,375 52,375
Total funds under
management 388,299 977,922 153,871 1,520,092
Notes to the Financial Statements continued
for the year ended 31 December 2004
3 SEGMENTAL ANALYSIS CONTINUED
3(g) Funds under management
South United UK & Rest GBPm
continued Africa States of World Total
At 31 December 2003
Investments including assets
held to
cover linked liabilities 19,437 8,317 1,539 29,293
SA asset mangement
Fund management
Old Mutual Asset Managers 5,378 - - 5,378
Old Mutual Unit Trusts 293 - - 293
5,671 - - 5,671
Other financial services 697 - - 697
Nedcor Unit Trusts 865 - - 865
Nedcor Portfolio Management 2,771 - - 2,771
10,004 - - 10,004
US asset management - 72,532 5,895 78,427
UK and Rest of World asset
management
Fund management - - 2,027 2,027
Selestia investment platform - - 213 213
Other financial services - - 345 345
Nedcor Unit Trusts - - 707 707
Nedcor portfolio management - - 4,210 4,210
- - 7,502 7,502
Total funds under management 29,441 80,849 14,936 125,226
3(g) Funds under management
South United UK & Rest Rm
continued Africa States of World Total
At 31 December 2003
Investments including
assets held to
cover linked liabilities 232,012 99,278 18,371 349,661
SA asset mangement
Fund management
Old Mutual Asset Managers 64,196 - - 64,196
Old Mutual Unit Trusts 3,497 - - 3,497
67,693 - - 67,693
Other financial services 8,320 - - 8,320
Nedcor Unit Trusts 10,325 - - 10,325
Nedcor Portfolio Management 33,077 - - 33,077
119,415 - - 119,415
US asset management - 865,793 70,367 936,160
UK and Rest of World asset
management
Fund management - - 24,196 24,196
Selestia investment platform - - 2,543 2,543
Other financial services - - 4,118 4,118
Nedcor Unit Trusts - - 8,439 8,439
Nedcor portfolio management - - 50,254 50,254
- - 89,550 89,550
Total funds under
management 351,427 965,071 178,288 1,494,786
Notes to the Financial Statements continued
for the year ended 31 December 2004
4 TAX ON PROFIT ON ORDINARY ACTIVITIES
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
4(a) Analysis of tax charge 2004 2003 2004 2003
United Kingdom tax
UK corporation tax 51 34 602 420
Double tax relief (47) (24) (555) (296)
4 10 47 124
Overseas tax
South Africa 72 33 849 408
United States - 11 - 136
Rest of World 5 4 59 49
Secondary tax on companies (STC) 10 14 118 173
87 62 1,026 766
Adjustment in respect of prior
periods 1 (8) 12 (99)
Current tax for the year 92 64 1,085 791
Current tax attributable to
shareholders' profits on long
term business 162 127 1,911 1,568
Total current tax on ordinary
activities 254 191 2,996 2,359
Deferred tax non-technical
account (8) (8) (94) (99)
Deferred tax attributable to
shareholders' profits on long
term business 40 58 472 716
Reported tax charge 286 241 3,374 2,976
The reported tax charge is
analysed as follows:
Adjusted operating profit 240 224 2,834 2,763
Restructuring and integration
costs (6) (6) (71) (74)
Change in credit provisioning
methodology - (26) - (322)
Short term fluctuations in
investment return 60 49 708 609
Fines and penalties (8) - (97) -
286 241 3,374 2,976
4(b) Reconciliation of tax
charge
Tax at UK rate of 30.0% (2003:
30.0%) on profit on ordinary
activities
before tax 262 133 3,088 1,644
Untaxed and low taxed income
(including tax exempt
investment return) (83) (113) (979) (1,395)
Disallowable expenditure 97 179 1,144 2,210
STC 10 14 118 173
Movement in deferred tax (32) (50) (378) (617)
Other - 28 3 344
Current tax charge 254 191 2,996 2,359
Notes to the Financial Statements continued
for the year ended 31 December 2004
5 ACQUISITIONS AND DISPOSALS
5(a) Acquisitions
Mutual & Federal Insurance Company Limited
During the period the Group acquired an additional 37.0% of the equity share
capital of its general insurance subsidiary, Mutual & Federal Insurance Company
Limited, bringing its total holding to 87.6%. Cash consideration of GBP102
million (R1,343 million) was paid.
The table below shows the fair value of the assets and liabilities acquired.
GBPm Rm
Book value on Fair value Provisional fair Provisional fair
acquisition adjustments value to Group value to Group
Goodwill 10 (10) - -
Investments 304 - 304 4,214
Technical
assets 73 - 73 1,006
Insurance
debtors 28 - 28 394
All other
assets 115 - 115 1,589
Minority
interests (3) - (3) (38)
Technical
provisions (266) - (266) (3,692)
Insurance
creditors (12) - (12) (173)
Provisions (11) - (11) (155)
All other
liabilities (25) - (25) (363)
Total net
assets of
Mutual &
Federal
Insurance
Company Limited 213 (10) 203 2,782
Additional
share acquired
by the Group 75 1,029
Cash consideration paid 102 1,343
Goodwill arising on acquisition 27 314
The Group's banking business also made a number of smaller acquisitions giving
rise to an additional goodwill amount of GBP17 million (R205 million).
Fair Value Adjustments
In accordance with Financial Reporting Standard 7 'Fair Values in Acquisition
Accounting', the book value of goodwill has been deducted in determining the
fair value of the net assets acquired as it not a separately identifiable
asset. There were no other fair value adjustments.
Notes to the Financial Statements continued
for the year ended 31 December 2004
5 ACQUISITIONS AND DISPOSALS CONTINUED
5(b) Disposals (non-operating items)
The following gains and losses on the disposal of business operations have been
disclosed as non-operating.
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
United States asset
management affiliates (5) (15) (59) (194)
South Africa banking
subsidiaries (5) - (64) -
South Africa banking
associates (13) - (153) -
United Kingdom asset
management subsidiaries (12) (17) (142) (210)
Loss on disposal before tax (35) (32) (418) (404)
Tax on non-operating items - - - -
Loss on disposal after tax (35) (32) (418) (404)
Minority interests South
Africa banking subsidiaries and
associates 9 - 106 -
Loss on disposal after tax and
minority interests (26) (32) (312) (404)
United States asset management affiliates
During December, the Group discontinued the operations of Sirach Capital
Management Inc. incurring loss of GBP8 million (R94 million) including goodwill
disposed of GBP6 million (R71 million). In addition, credits totalling GBP3
million (R35 million) were booked in respect of provisions for contingent
payments on prior year disposals no longer required.
South Africa banking subsidiaries
During the period the Group disposed of various non-core subsidiaries for cash
consideration of GBP29 million (R343 million). The profit on disposal was GBP5
million (R59 million) after charging goodwill of GBP14 million (R164 million).
No tax was payable and the minority interest attributable was GBP2 million (R31
million).
South Africa banking associates
The non-operating charge for the period includes GBP13 million (R153 million)
in respect of Group adjustments associated with our banking associates. The
minority interest attributable was GBP7 million (R75 million).
United Kingdom asset management subsidiaries
During 2004 additional costs relating to onerous lease provisions were incurred
in connection with the sale of Gerrard Management Services Ltd and other
disposals made in prior years.
Notes to the Financial Statements continued
for the year ended 31 December 2004
6 GOODWILL
GBPm Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
At beginning of year 1,264 1,598 15,088 22,075
Additions arising on acquisitions
in the period 44 - 519 -
Adjustments in respect of prior
year acquisitions (1) 81 (12) 1,000
Disposals (20) (159) (206) (1,898)
Amortisation and impairment for
the year (105) (194) (1,238) (2,396)
Foreign exchange and other
movements (30) (62) (1,654) (3,693)
At end of year 1,152 1,264 12,497 15,088
Represented by:
Cost less impairments 1,432 1,508 15,534 18,001
Accumulated amortisation (280) (244) (3,037) (2,913)
1,152 1,264 12,497 15,088
Analysed between:
Life assurance 60 75 651 895
Asset management 745 863 8,082 10,301
General insurance 41 12 445 143
Banking 306 314 3,319 3,749
1,152 1,264 12,497 15,088
Adjustments in respect of prior year acquisitions reflect the latest estimate
of the deferred consideration payable for the purchase of certain US affiliates
under various agreements which expire in 2007. As such the ultimate cost of
purchase will remain uncertain, dependent on future events, and hence subject
to adjustment until this date.
Amortisation and impairment for the year
The total goodwill amortisation and impairment charge for the year of GBP110
million (R1,290 million) (2003: GBP206 million (R2,544 million)) comprises
GBP55 million (R648 million) (2003: GBP146 million (R1,803 million))
attributable to banking businesses and GBP55 million (R642 million) (2003:
GBP60 million (R741 million)) attributable to insurance and other businesses.
Of this total charge, GBP105 million (R1,238 million) (2003: GBP194 million
(R2,396 million)) is disclosed above and GBP5 million (R52 million) (2003:
GBP12 million (R148 million)) is disclosed within investments in associated
undertakings. The charge for the period includes an impairment charge of GBP27
million (R319 million) in respect of Group adjustments associated with our
banking subsidiaries.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
1 CONSOLIDATED PROFIT AND LOSS ACCOUNT ON AN ACHIEVED PROFITS BASIS
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(Restated)*** (Restated)***
South Africa
Life assurance 623 475 7,350 5,872
Asset management 53 55 639 678
Banking 177 (10) 2,099 (118)
General insurance 89 73 1,057 909
942 593 11,145 7,341
United States
Life assurance 104 127 1,227 1,569
Asset management 89 81 1,050 1,000
193 208 2,277 2,569
United Kingdom and
Rest of World
Life assurance 22 (2) 259 (24)
Asset management 10 (8) 117 (95)
Banking 14 4 158 48
46 (6) 534 (71)
1,181 795 13,956 9,839
Other shareholders'
income / (expenses) (33) (40) (390) (494)
Debt service costs (37) (48) (437) (593)
Adjusted operating
profit* 1,111 707 13,129 8,752
Goodwill
amortisation and
impairment (110) (206) (1,290) (2,544)
Loss on disposal of
investment in
Dimension Data
Holdings plc - (5) - (60)
Restructuring and
integration costs (21) (32) (248) (394)
Change in credit
provisioning
methodology - (87) - (1,074)
Fines and penalties (49) - (596) -
Short term
fluctuations in
investment return
(including economic
assumption
changes)
Life assurance 256 71 3,020 872
Other 38 - 449 -
Investment return
adjustment for own
shares held in
policyholders'
funds (94) 12 (1,115) 148
Other life
assurance changes** (119) (86) (1,404) (1,065)
Operating profit on
ordinary activities
before tax 1,012 374 11,945 4,635
Non-operating items (35) (32) (418) (404)
Profit on ordinary
activities before
tax 977 342 11,527 4,231
Tax on profit on
ordinary activities (327) (211) (3,859) (2,605)
Profit on ordinary
activities after
tax 650 131 7,668 1,626
Minority interests
equity (44) 115 (518) 1,420
non-equity (59) (46) (696) (568)
Profit for the
financial year 547 200 6,454 2,478
Dividends paid and
proposed (182) (166) (2,001) (2,006)
Retained profit for
the financial year 365 34 4,453 472
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
1 CONSOLIDATED PROFIT AND LOSS ACCOUNT ON AN ACHIEVED PROFITS BASIS CONTINUED
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(Restated)*** (Restated)***
The adjusted
operating profit on
an after-tax and
minority interests
basis is
determined as
follows:
Adjusted operating
profit* 1,111 707 13,129 8,752
Tax on adjusted
operating profit (254) (250) (2,999) (3,087)
857 457 10,130 5,665
Minority interests
equity (83) (9) (979) (111)
non-equity (59) (46) (696) (568)
Adjusted operating
profit after tax
and minority
interests 715 402 8,455 4,986
Earnings per share achieved profits
basis p c
Adjusted operating earnings per share* 19.1 10.8 225.6 133.8
Basic earnings per share 15.9 5.9 188.1 72.6
Adjusted weighted average number of
shares millions 3,748 3,727 3,748 3,727
Weighted average number of shares
millions 3,432 3,411 3,432 3,411
* For life assurance and general insurance businesses, the adjusted operating
profit is based on a long term investment return and includes investment
returns on own shares held within the policyholders' funds. For banking
business, adjusted operating profit excludes the loss on disposal of investment
in Dimension Data Holdings plc, restructuring and integration costs and the
transitional impact of the change of credit provisioning methodology. For all
businesses, adjusted operating profit excludes goodwill amortisation and
impairment and fines and penalties.
Adjusted operating earnings per share are similarly based, but are stated
after tax and minority interests, with the calculation of the weighted average
number of shares including own shares held in policyholders' funds. The
segmental analysis within the achieved profits consolidated profit and loss
account has been prepared on a gross of inter-segment transactions basis.
** Refer to segmental analysis of results in section 7.
*** 2003 comparatives have been restated to be consistent with the current year
segmental presentation.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
2 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES ON AN
ACHIEVED PROFITS BASIS
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(Restated)* (Restated)*
Profit for the
financial year 547 200 6,454 2,478
Foreign exchange
movements 250 307 (1,583) (2,186)
Total recognised gains
for the year 797 507 4,871 292
3 RECONCILIATION OF MOVEMENTS IN CONSOLIDATED ACHIEVED PROFITS EQUITY
SHAREHOLDERS' FUNDS
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(Restated)* (Restated)*
Total recognised gains
for the year 797 507 4,871 292
Dividends paid and
proposed (182) (166) (2,001) (2,006)
615 341 2,870 (1,714)
Issue of new capital - 37 - 457
Shares issued under
share incentive schemes 15 4 177 49
Net sale of shares held
in ESOP Trusts and
Policyholders' funds 33 6 389 76
Net increase /
(decrease) in achieved
profits equity
shareholders' funds 663 388 3,436 (1,132)
Achieved profits equity
shareholders' funds at
the beginning of the
year 3,452 3,064 41,202 42,334
Achieved profits equity
shareholders' funds at
the end of the year 4,115 3,452 44,638 41,202
*Comparative figures have been restated to reflect the adoption of Urgent
Issues Taskforce Abstract 38 'Accounting for ESOP Trusts' (UITF38). The effect
of this restatement is that consolidated achieved profits equity shareholders'
funds of GBP3,561 million (R42,503 million) before prior year adjustments have
been decreased by GBP109 million (R1,301 million).
Achieved Profits Basis Supplementary Information continued
for the year ended 31 December 2004
4 CONSOLIDATED BALANCE SHEET ON AN ACHIEVED PROFITS BASIS
GBPm Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(Restated) (Restated)
Assets
Goodwill 1,152 1,264 12,497 15,088
Insurance and other assets 37,608 32,409 407,979 386,855
Banking assets 27,500 24,042 298,345 286,985
Total long term in-force
business asset 872 700 9,460 8,353
Total assets 67,132 58,415 728,281 697,281
Liabilities
Achieved profits equity
shareholders' funds 4,115 3,452 44,638 41,202
Minority interests 1,529 1,312 16,589 15,662
Subordinated liabilities - 15 - 179
Insurance and other
liabilities 35,589 30,724 386,078 366,735
Banking liabilities 25,899 22,912 280,976 273,503
Total liabilities 67,132 58,415 728,281 697,281
Reconciliation of total
long term in-force
business asset
Value of in-force business 1,592 1,276 17,271 15,227
OMUSL statutory solvency
adjustment (716) (566) (7,767) (6,756)
OMI life subsidiaries
statutory solvency
adjustment (19) (17) (206) (203)
Adjustment for discounting
CGT 15 7 162 85
Total long term in-force
business asset 872 700 9,460 8,353
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
5 BASIS OF PREPARATION
These supplementary statements have been prepared in accordance with the
methodology for supplementary reporting for long term insurance business (the
Achieved Profits Method) issued in December 2001 by the Association of British
Insurers.
The objective of the Achieved Profits Method is to recognise profit as it is
earned arising from contracts of long term assurance business. The methodology
is based on an attribution of the assets of a life assurance company between
those backing long term assurance contracts (backing assets) and the residual
assets representing unencumbered capital.
The backing assets cover:
(i) the long term liabilities calculated in accordance with local supervisory
requirements; and
(ii) the solvency capital requirements in each country (or equivalent where
there is no local requirement).
Under the Achieved Profits Method the profits of the long term assurance
business comprise:
(i) the cash transfers to the residual assets from the backing assets as
determined following the statutory valuation;
(ii) the movement over the accounting period in the present value of the
expected future cash flows to the residual assets from contracts in-force at
the balance sheet date and their backing assets; and
(iii) the return on the residual assets.
Shareholder profit arises fundamentally from:
(i) the difference between (a) the amounts charged to policyholders for
guarantees, expenses and insurance and
(b) the actual experience of these items; and
(ii) the investment return earned on capital.
In addition for the United States business, the guarantees for interest
credited to policyholders' funds are reset periodically. The assumed future
credited interest rates are consistent with investment earnings made and in
line with recent Company policy.
The treatment within these supplementary financial statements of all business
other than life assurance business is unchanged from the primary financial
statements.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
6 COMPONENTS OF ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS
GBPm Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
(Restated) (Restated)
Shareholders' adjusted net
worth 2,525 2,178 27,391 26,000
Equity shareholders' funds 3,245 2,754 35,202 32,874
Adjustment to include
OMUSL on a statutory
solvency basis (716) (566) (7,767) (6,756)
Adjustment to include OMI
life subsidiaries on a
statutory solvency basis (19) (17) (206) (203)
Adjustment for discounting
CGT 15 7 162 85
Value of in-force business 1,592 1,276 17,271 15,227
Value of in-force business
before cost of solvency
capital 1,871 1,450 20,297 17,304
Cost of solvency capital (279) (174) (3,026) (2,077)
Minority interest in value
of in-force (2) (2) (24) (25)
Achieved profits equity
shareholders' funds 4,115 3,452 44,638 41,202
Pro-forma adjustment to
bring Group investments to
market value
Achieved profits equity
shareholders' funds 4,115 3,452 44,638 41,202
Adjustment to bring listed
subsidiaries to market
value 876 288 9,502 3,444
Adjustment for market
value of own shares held
in policyholders' funds 368 275 3,994 3,283
Adjusted embedded value 5,359 4,015 58,134 47,929
p c
Adjusted embedded value per share 139.1 104.6 1,508 1,249
Number of shares in issue at the end of
the period including own shares
held in policyholders' funds millions 3,854 3,837 3,854 3,837
The shareholders' adjusted net worth includes goodwill relating to OMUSL of
GBP56 million (R608 million) (December 2003: GBP63 million (R752 million)).
The table below sets out a geographical analysis of the value of in-force
business.
GBPm Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
South Africa 1,005 824 10,903 9,832
Individual business 698 507 7,577 6,053
Group business 307 317 3,326 3,779
United States 512 393 5,554 4,691
United Kingdom and Rest of World 75 59 814 704
Value of in-force business 1,592 1,276 17,271 15,227
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
6 COMPONENTS OF ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS CONTINUED
The encumbered and unencumbered capital for South Africa and United States is
shown in the table below.
GBPm Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
South Africa 1,692 1,551 18,350 18,513
Encumbered capital 1,016 1,021 11,020 12,186
Unencumbered capital 676 530 7,330 6,327
United States 456 391 4,948 4,666
Encumbered capital 160 153 1,736 1,822
Unencumbered capital 296 238 3,212 2,844
For South Africa the average unencumbered capital applicable was GBP306 million
(R3,606 million) (December 2003: GBP196 million (R2,419 million)). These
average figures were used to determine the expected return on unencumbered
capital.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
7 SEGMENTAL ANALYSIS OF RESULTS
UK &
South United Rest GBPm
Africa States of World Total
Year to 31 December 2004
New business contribution 98 88 4 190
Profits from existing business
Expected return on in-force
business 193 45 6 244
Expected return on encumbered
capital 114 9 5 128
Experience variances 74 (24) (2) 48
Operating assumption changes 106 (28) 9 87
Expected return on unencumbered
capital 38 14 - 52
Life assurance adjusted operating
profit
before tax 623 104 22 749
Investment return variances
On value of in-force 43 26 4 73
On capital 111 (9) 7 109
Effect of economic assumption
changes 71 - 3 74
Effect of changes in and cost of
solvency capital (117) - (2) (119)
Life assurance achieved profits
before tax 731 121 34 886
Attributed tax (206) (36) - (242)
Life assurance achieved profits
after tax 525 85 34 644
Year to 31 December 2003 (Restated)
New business contribution 108 57 2 167
Profits from existing business
Expected return on in-force
business 188 39 6 233
Expected return on encumbered
capital 147 11 5 163
Experience variances 29 (9) (9) 11
Operating assumption changes (23) 15 (6) (14)
Expected return on unencumbered
capital 26 14 - 40
Life assurance adjusted operating
profit before tax 475 127 (2) 600
Investment return variances
On value of in-force 27 20 3 50
On capital (36) (1) (12) (49)
Effect of economic assumption
changes 79 (11) 2 70
Effect of changes in and cost of
solvency capital (59) - - (59)
Effect of FSV economic assumption
changes (32) - - (32)
Effect of BoE Life 5 - - 5
Life assurance achieved profits
before tax 459 135 (9) 585
Attributed tax (127) (34) - (161)
Life assurance achieved profits
after tax 332 101 (9) 424
UK &
South United Rest Rm
Africa States of World Total
Year to 31 December 2004
New business contribution 1,156 1,038 47 2,241
Profits from existing business
Expected return on in-force
business 2,277 531 71 2,879
Expected return on encumbered
capital 1,345 106 59 1,510
Experience variances 873 (283) (24) 566
Operating assumption changes 1,251 (330) 106 1,027
Expected return on unencumbered
capital 448 165 - 613
Life assurance adjusted
operating profit
before tax 7,350 1,227 259 8,836
Investment return variances
On value of in-force 507 307 47 861
On capital 1,310 (106) 82 1,286
Effect of economic assumption
changes 838 - 35 873
Effect of changes in and cost
of solvency
capital (1,380) - (24) (1,404)
Life assurance achieved profits
before tax 8,625 1,428 399 10,452
Attributed tax (2,431) (425) - (2,856)
Life assurance achieved profits
after tax 6,194 1,003 399 7,596
Year to 31 December 2003
(Restated)
New business contribution 1,334 704 25 2,063
Profits from existing business
Expected return on in-force
business 2,322 482 74 2,878
Expected return on encumbered
capital 1,818 136 62 2,016
Experience variances 358 (111) (111) 136
Operating assumption changes (284) 185 (74) (173)
Expected return on unencumbered
capital 324 173 - 497
Life assurance adjusted
operating profit
before tax 5,872 1,569 (24) 7,417
Investment return variances
On value of in-force 333 247 37 617
On capital (450) (12) (148) (610)
Effect of economic assumption
changes 976 (136) 25 865
Effect of changes in and cost
of solvency
capital (729) - - (729)
Effect of FSV economic
assumption changes (395) - - (395)
Effect of BoE Life 59 - - 59
Life assurance achieved profits
before tax 5,666 1,668 (110) 7,224
Attributed tax (1,568) (420) - (1,988)
Life assurance achieved profits
after tax 4,098 1,248 (110) 5,236
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
7 SEGMENTAL ANALYSIS OF RESULTS CONTINUED
Expected return on the unencumbered capital for South Africa and the United
States is 12.5% p.a. (December 2003: 13.4%) and 6.0% p.a. (December 2003: 7.0%)
respectively. For South Africa the expected return is applied to the average
unencumbered capital given in section 6.
The South African operating assumption changes of GBP106 million (R1,251
million) for 2004 include: (a) GBP60 million (R708 million) before tax increase
in the value of in-force business in respect of an increase in discretionary
mortality margins in the Financial Soundness Valuation (FSV), which arose as a
result of a reduction in Individual Business mortality assumptions, reflecting
positive experience variances, (b) GBP62 million (R732 million) before tax
increase in the value of in-force business in respect of sources of profit that
have not previously been valued, and (c) other changes to valuation methodology
and assumptions.
The segmental results of the United States include the operating profit
generated by Old Mutual Reinsurance (OMRe) in Ireland, which provides
reinsurance to the United States life companies, and OMNIA Life (Bermuda) Ltd.
During 2004, all the deferred annuity business reassured with OMRe was
recaptured by the United States life companies. The effect of this recapture
was to reduce the life assurance achieved profit for 2004 by GBP31 million
(R366 million) before tax which is included within experience variances.
The effect of changes in and cost of solvency capital for South Africa reflects
changes in the amount of solvency capital required and in the mix of assets
backing the solvency capital.
The effect of FSV economic assumption changes in 2003 reflects the impact of
reducing the economic assumptions for the South African actuarial liability
valuation by 3% p.a.
The effect of BoE Life in 2003 reflects the recognition of the initial value of
the in-force business on acquisition.
The difference between the total tax charge shown in the above segmental
analysis and the total tax charge shown in the profit and loss account in
section 1, represents the tax charge on the non-life businesses.
GBPm Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
Tax on life assurance achieved
profits
South Africa value of in-force 163 119 1,923 1,469
capital 43 8 508 99
United States 36 34 425 420
United Kingdom & Rest of World - - - -
242 161 2,856 1,988
Tax on other businesses 85 50 1,003 617
Tax on profit of ordinary
activities 327 211 3,859 2,605
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
8 VALUE OF NEW BUSINESS
The tables below set out a geographical analysis of the value of new business
(VNB) for the year to 31 December 2004 and the year to 31 December 2003. Annual
Premium Equivalent (APE) is calculated as recurring premiums plus 10% of single
premiums. New business profitability, as measured by the ratio of the VNB to
the APE, is also shown under 'Margin' below.
The value of new business is disclosed both on a gross and after tax basis. The
assumptions and tax rates used to calculate the value of new business are set
out in section 9.
Individual business Group business South Africa
Year to 31 December
2004
GBPm
Recurring premiums 157 15 172
Single premiums 546 203 749
Annual Premium
Equivalent 212 35 247
Value of new
business before tax 84 14 98
Value of new
business after tax 52 9 61
Margin before tax 39% 41% 40%
Margin after tax 24% 25% 25%
Rm
Recurring premiums 1,858 182 2,040
Single premiums 6,442 2,399 8,841
Annual Premium
Equivalent 2,502 422 2,924
Value of new
business before tax 983 173 1,156
Value of new
business after tax 612 107 719
United States UK & Rest of World Total
Year to 31 December 2004
GBPm
Recurring premiums 58 10 240
Single premiums 2,157 146 3,052
Annual Premium Equivalent 274 25 546
Value of new business
before tax 88 4 190
Value of new business after
tax 62 4 127
Margin before tax 32% 16% 35%
Margin after tax 23% 16% 23%
Rm
Recurring premiums 679 118 2,837
Single premiums 25,455 1,728 36,024
Annual Premium Equivalent 3,225 291 6,440
Value of new business
before tax 1,038 47 2,241
Value of new business after
tax 732 47 1,498
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
8 VALUE OF NEW BUSINESS CONTINUED
Individual business Group business South Africa
Year to 31 December 2003
GBPm
Recurring premiums 157 18 175
Single premiums 475 472 947
Annual Premium
Equivalent 205 65 270
Value of new
business before tax 68 40 108
Value of new
business after tax 42 25 67
Margin before tax 33% 61% 40%
Margin after tax 21% 38% 25%
Rm
Recurring premiums 1,933 227 2,160
Single premiums 5,867 5,823 11,690
Annual Premium
Equivalent 2,520 809 3,329
Value of new
business before tax 840 494 1,334
Value of new
business after tax 519 309 828
United States UK & Rest of World Total
Year to 31 December 2003
GBPm
Recurring premiums 67 11 253
Single premiums 1,715 100 2,762
Annual Premium Equivalent 238 21 529
Value of new business
before tax 49 2 159
Value of new business after
tax 36 2 105
Margin before tax 21% 10% 30%
Margin after tax 15% 10% 20%
Rm
Recurring premiums 827 134 3,121
Single premiums 21,178 1,242 34,110
Annual Premium Equivalent 2,945 258 6,532
Value of new business
before tax 605 25 1,964
Value of new business after
tax 445 25 1,298
The new business shown above for 31 December 2004 for South African Group
recurring premium business includes bulk new business into existing schemes,
with value of new business of GBP1 million (R10 million) after tax and APE of
GBP3 million (R33 million).
The new business shown above for the United States for 31 December 2003
excludes the value of OMNIA Life (Bermuda) business that was acquired during
2003, and which is included within the value of new business shown in
section 7.
The value of new individual unit trust and some group market-linked business
written by the life companies is excluded, as the profits on this business
arise in the asset management subsidiaries. The value of new business also
excludes premium increases arising from indexation arrangements in respect of
existing business, as these are already included in the value of in-force
business. The premiums shown for the United States exclude reinsurance ceded
externally.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
8 VALUE OF NEW BUSINESS CONTINUED
A reconciliation of the new business premiums shown in the notes to the
financial statements to those shown above, for the year to 31 December 2004, is
set out below.
GBPm Rm
Recurring Single Recurring Single
premiums premiums premiums premiums
Year to 31 December 2004
New business premiums in
the notes to the
financial statements 240 3,389 2,837 39,987
Less:
United States reinsurance
ceded externally - (12) - (139)
Group market-linked
business not valued - (238) - (2,799)
Unit trust business not
valued - (87) - (1,025)
New business premiums as
per achieved profits
supplementary statements 240 3,052 2,837 36,024
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
9 ASSUMPTIONS
The principal assumptions used in the calculation of the value of in-force
business and the value of new business are set out below.
The pre-tax investment and economic assumptions used for South African and
United States businesses were as follows:
At At
31 Dec 31 Dec
South Africa 2004 2003
Fixed interest return 8.3% 9.4%
Cash return 7.0% -
Equity return 10.3% 11.4%
Property return 9.3% 10.4%
Inflation 5.3% 6.4%
Risk discount rate 10.8% 11.9%
At At
31 Dec 31 Dec
United States 2004 2003
Treasury yield 4.3% 4.3%
Inflation 3.0% 3.0%
New money yield assumed 5.1% 6.0%
Net portfolio earned rate 5.9% 6.4%
Risk discount rate 8.3% 8.3%
* For the other operations, appropriate investment and economic assumptions
were chosen on bases consistent with those adopted in South Africa. Where
applicable, rates of future bonuses have been set at levels consistent with the
investment return assumptions. Projected company taxation is based on the
current tax basis that applies in each country.
* For the South African business, full allowance has been made for STC that may
be payable in South Africa.
Account has been taken of the impact of CGT in South Africa. It has been
assumed that 10% of the equity portfolio (excluding group subsidiaries) will be
traded each year. For the United States business full allowance has been made
for existing tax attributes of the companies, including the use of existing
carry forwards and preferred tax credit investments. Achieved profits results
are initially calculated on an after tax basis and are then grossed up to the
pre-tax level for presentation in the profit and loss account and the segmental
analysis of results. The tax rates used were the effective corporation tax
rates of 37.8% for South African business (December 2003: 37.8%), 30% for
United States business (December 2003: 25%) and 0% for United Kingdom and Rest
of World business (December 2003: 0%) except for the investment return on South
African capital, for which the attributed tax was derived from the primary
accounts.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
9 ASSUMPTIONS
* The assumed future mortality, morbidity and voluntary discontinuance rates
have been based as far as possible on analyses of recent operating experience.
Allowance has been made where appropriate for the effect of expected
AIDS-related claims.
* The management expenses attributable to life assurance business have been
analysed between expenses relating to the acquisition of new business and
the maintenance of business in-force. The future expenses attributable to
life assurance business do not include Group holding company expenses.
* No material allowance has been made for future development costs.
* Future investment expenses are based on the current scales of fees payable
by the life assurance companies to the asset management subsidiaries. To
the extent that these fees include profit margins for the asset management
subsidiaries, these margins have not been included in the value of in-force
business or the value of new business.
* The effect of increases in premiums over the period for policies in-force
has been included in the value of in- force business only where such
increases are associated with indexation arrangements. Other increases in
premiums of existing policies are included in the value of new business.
* New schemes written on which recurring single premiums are expected to be
received on a regular basis are treated as new business. The annualised
premium is recognised as recurring premium new business at inception of the
scheme and is determined by annualising the actual premiums received during
the year in question. Subsequent recurring single premiums received in
future years are not treated as new business, as these have already been
provided for in calculating the value of in-force business.
* The sensitivity of the value of in-force and value of new business to changes
in key assumptions are set out in section 10.
The principal exchange rates used to translate the operating results of key
foreign business segments to Sterling are:
Rand US$
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2004 2003
Profit and loss account
(average rate) 11.7986 12.3487 1.8327 1.6354
Balance sheet (closing rate) 10.8482 11.9367 1.9158 1.7833
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
10 ALTERNATIVE ASSUMPTIONS
The tables below for South Africa and the United States show the sensitivity of
the value of in-force at 31 December 2004 and the value of new business for the
year to 31 December 2004 to changes in key assumptions.
For each sensitivity illustrated, all other assumptions have been left
unchanged. The value of new business is shown before tax.
The sensitivity of the adjustment for discounting CGT, which is included in the
shareholders' adjusted net worth, to changes in the central discount rate is
not material and is not included in the table below.
GBPm Rm
Value of Value of Value of Value of
in-force new life in-force new life
business at business at business at business at
31 Dec 31 Dec 31 Dec 31 Dec
South Africa 2004 2004 2004 2004
Central
assumptions 1,005 98 10,903 1,156
Value before
cost of solvency
capital 1,248 111 13,543 1,310
Cost of solvency
capital (243) (13) (2,640) (154)
Effect of:
Central
discount rate +1% 878 87 9,525 1,025
Value before
cost of solvency
capital 1,178 102 12,777 1,203
Cost of solvency
capital (300) (15) (3,252) (178)
Central
discount rate 1% 1,149 111 12,462 1,310
Value before
cost of solvency
capital 1,327 120 14,393 1,415
Cost of solvency
capital (178) (9) (1,931) (105)
Decreasing the
pre-tax
investment
return
assumptions by
1% with bonus
rates changing
commensurately 919 92 9,969 1,086
Value before
cost of solvency
capital 1,210 106 13,126 1,251
Cost of solvency
capital (291) (14) (3,157) (165)
Voluntary
discontinuance
rates increasing
by 10% 984 90 10,675 1,062
Maintenance
expense levels
increasing by
10% with no
corresponding
increase in
policy charges 944 92 10,241 1,085
Increasing the
inflation
assumption by
1% with no
corresponding
increase
in policy
charges 970 93 10,523 1,097
Mortality and
morbidity
assumptions for
assurances
increasing by
10%, and
mortality
assumptions for
annuities
decreasing by
10% with no
corresponding
increase in
policy charges 906 82 9,828 967
For value of
new business,
acquisition
expenses other
than commission
and
commission-related
expenses,
increasing by
10% with no
corresponding
increase in
policy charges - 92 - 1,085
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2004
10 ALTERNATIVE ASSUMPTIONS CONTINUED
GBPm Rm
Value of Value of Value of Value of
in-force new life in-force new life
business at business at business at business at
31 Dec 31 Dec 31 Dec 31 Dec
United States 2004 2004 2004 2004
Central
assumptions 512 88 5,554 1,038
Value before
cost of solvency
capital 543 102 5,891 1,203
Cost of solvency
capital (31) (14) (337) (165)
Effect of:
Central
discount rate +1% 489 83 5,305 979
Value before
cost of solvency
capital 525 98 5,695 1,156
Cost of solvency
capital (36) (15) (390) (177)
Central
discount rate 1% 537 94 5,825 1,109
Value before
cost of solvency
capital 562 105 6,097 1,239
Cost of solvency
capital (25) (11) (272) (130)
Decreasing the
pre-tax
investment
return assumptions by
1% with credited
rates changing
commensurately 481 81 5,222 956
Value before
cost of solvency
capital 515 96 5,586 1,133
Cost of solvency
capital (34) (15) (364) (177)
Voluntary
discontinuance
rates increasing
by 10% 479 82 5,194 967
Maintenance
expense levels
increasing
by 10% with no
corresponding
increase in
policy charges 491 85 5,321 1,003
Increasing the
inflation
assumption by
1% with no
corresponding
increase in
policy charges 510 86 5,531 1,015
Mortality and
morbidity
assumptions for
assurances
increasing by
10%, and
mortality
assumptions for
annuities
decreasing by
10% with no
corresponding
increase in
policy charges 508 88 5,509 1,038
Increasing Risk
Based Capital
to 200%, with
1% reduction
in central
discount rate 512 83 5,553 979
Value before
cost of solvency
capital 562 105 6,097 1,239
Cost of solvency
capital (50) (22) (544) (260)
For value of
new business,
acquisition
expenses
other than
commission
and
commission-related
expenses, increasing
by 10% with no
corresponding
increase in
policy charges - 85 - 1,003
END
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