Results Announcement

Old Mutual PLC 14 September 2006 OLD MUTUAL PLC ISIN: GB0007389926 JSE Share code: OML NSX share code: OLM Issuer code: OLOML Results for the six months ended 30 June 2006 Results on track, with increasingly diversified earnings Highlights * Adjusted operating profit* up 36% to Â£771 million (30 (IFRS** basis): June 2005: Â£566 million****) and up 32% to R8,714 million (30 June 2005: R6,584 million) * Adjusted operating profit (European up 39% to Â£885 million embedded value (EEV) basis): (30 June 2005: Â£638 million) and up 35% to R10,001 million (30 June 2005: R7,420 million) * Profit for the period Â£380 million attributable to (30 June 2005: Â£387 million) equity holders: R4,295 million (30 June 2005: R4,509 million) * Adjusted operating earnings per down 2% to 8.5p (30 June 2005: 8.7p) and share* (IFRS basis): down 5% to 96.0c (30 June 2005: 100.7c) * Adjusted operating earnings per down 3% to 9.8p (30 June 2005: 10.1p) share (EEV basis): and down 5% to 111.4c (30 June 2005: 117.7c) * Basic earnings per share: 8.0p (30 June 2005: 11.2p), 90.2c (30 June 2005: 130.2c) * Total life assurance sales, on an Annual Premium Equivalent (APE) basis, of Â£732 million, an increase of 130% * Funds under management Â£218 billion (30 June 2005: Â£158 billion) an increase of 38%, R2,891 billion (30 June 2005: R1,896 billion) * Adjusted embedded value per share 143.2p, R18.95 at 30 June 2006 (30 June 2005:135.9p, R16.25) (EEV basis) * Return on equity 14.1% (30 June 2005: 19.0%) * Interim dividend increased by 13.5% to 2.1p (27.8 cents***) Commenting on the results, Jim Sutcliffe, Chief Executive, said: 'It has been a good first half with encouraging growth across our business and we've been able to declare a significant increase in the dividend. Skandia's results are ahead of our expectations and the integration is progressing well. Currency movements always affect our results, but Old Mutual is now a significantly bigger and more diverse organisation than in the past and we are well placed in some very attractive markets'. Wherever the items asterisked in the Highlights are used, whether in the Highlights, the Chief Executive's Statement or the Group Finance Director's Review, the definitions set out on page 2 apply. ENQUIRIES: Old Mutual plc UK Media: Miranda Bellord (UK) Tel: +44 (0) 20 7002 7133 Nad Pillay (SA) Tel: +27 (0) 21 504 8026 Investors: Malcolm Bell (UK) Tel: +44 (0) 20 7002 7166 Deward Serfontein (SA) Tel: +27 (0) 21 509 8709 College Hill (UK) Tony Friend Tel: +44 (0) 20 7457 2020 Gareth David Notes to Editors: A webcast of the analysts presentation and Q&A will be broadcast live at 9.30 a.m. (UK time), 10.30 a.m.(South African and Swedish time), today on our website, www.oldmutual.com. High-resolution images of Jim Sutcliffe are available at www.oldmutual.com/vpage.jsp?page_id=7004. Copies of these results and the associated analysts presentation, together with photographs and biographical details of the executive directors of Old Mutual plc, are available in electronic format to download from the Company's website. (An interview with Jim Sutcliffe, Chief Executive, Old Mutual in video/audio and text is now available on the Company's website and on http://www.cantos.com). The full 2006 interim results release, together with the Financial Disclosure Supplement, can be found on the website at www.oldmutual.com. This document contains a summary of key financial data for 2006 and 2005. Forward-looking statements This announcement contains certain forward-looking statements with respect to the financial condition and results of operations of Old Mutual plc and its group companies, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, global, national and regional economic conditions, levels of securities markets, interest rates, credit or other risks of lending and investment activities, and competitive and regulatory factors. 14 September 2006 * For long-term assurance and general insurance business, adjusted operating profit is based on a long-term investment return, includes investment returns on life funds' investments in Group equity and debt instruments and is stated net of income tax attributable to policyholder returns. For all businesses, adjusted operating profit excludes goodwill impairment, the impact of acquisition accounting, initial costs of Black Economic Empowerment schemes, profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments and dividends declared to holders of perpetual preferred callable securities. Adjusted operating earnings per ordinary share is calculated on the same basis as adjusted operating profit, but is stated after tax and minority interests and excludes income attributable to Black Economic Empowerment Trusts. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment Trusts. ** The financial information has been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards as set out in the basis of preparation note on page 39 of the document appearing on Old Mutual's website. *** Indicative only, being the Rand equivalent of 2.1p converted at the exchange rate prevailing on 30 June 2006. The actual amount to be paid by way of interim dividend to holders of shares on the South African branch register will be calculated by reference to the exchange rate prevailing at the close of business on 5 October 2006, as determined by the Company, and will be announced on 6 October 2006. **** The 2005 comparative financial information does not include Skandia, 2006 includes 5 months from 1 February 2006. Chief Executive's Statement The first half of 2006 has been a period of strong growth for the Old Mutual Group. Our clients around the world entrusted us with significantly more money to manage on their behalf, while underlying growth in both funds under management, up 19%, and adjusted operating profit, up 36%, was encouraging. We have increased the interim dividend by 13.5% to 2.1p, or an indicative 27.8c at the period-end exchange rate for Rand shareholders. We are pleased with the progress at Skandia under Julian Roberts' management since he became CEO in February. Skandia has exceeded our expectations and this important acquisition has transformed both the geographic and business profile of Old Mutual. We expect funds under management in this business to double within the next five years and Skandia, which is also generating sufficient cash to fund its own growth, is expected to provide a significant enhancement in EEV earnings from 2007 onwards. The synergies of Â£70 million, highlighted at the time of acquisition, have also been confirmed and are on track for full delivery from 2008. We believe there are significant opportunities to leverage Skandia's skill set to maximise growth. South Africa In South Africa, our businesses have continued to make good progress, with individual life sales well ahead at Old Mutual Life Assurance Company and a strong increase in profits at Nedbank. Unit trust sales have also continued to grow substantially. Healthcare sales disappointed and impacted an otherwise encouraging picture. A clear strategy to address this has been initiated by Paul Hanratty, who became Chief Executive of OMSA in July. We have also announced plans to build on the success of Old Mutual Asset Managers (South Africa) by establishing within it a number of investment boutiques that will be able to offer specialised investment management services. Return on Equity (RoE) of 23% and cash generation by this business were both excellent and Return on Embedded Value (RoEV) of 13% was in line with expectations. Bancassurance has continued to grow, with a 21% increase in sales at Nedbank over the equivalent period in 2005, and we are making progress with our plans to extract synergies through the life business working more closely with its sister businesses in South Africa. Our general insurer, Mutual & Federal, has maintained underwriting disciplines during a period of increased competition and reduced underwriting margins, and has again underlined its sound financial footing by announcing a significant return of excess capital to shareholders through a special dividend. Nedbank continues to deliver improved financial results, with performance for the period reflecting the benefits of an increasing focus on client service and organic growth, coupled with the operating efficiencies achieved over the last two years. Adjusted operating profit rose by 54% in the first half and the group remains on track to deliver 20% RoE in 2007. United States In the US, overall net client cash flow remained strongly positive at our asset management business. Underlying funds under management also grew despite a lacklustre market performance. Excluding the effects of the disposal of the low margin eSecLending business, underlying funds under management grew by 10%. Our retail sales initiative, OMCAP, continued to make progress, with an increase of 473% in sales compared to the equivalent period in 2005. US Life had a satisfactory half year. We are continuing to aim for total sales of around $4 billion for the year, with a view to managing the business's capital requirements and fulfilling our stated goal of US Life returning cash from 2007. Continued growth in variable annuity sales out of our operation in Bermuda were particularly strong, and are running at a rate of about $100 million per month ten times the rate of sale when we bought the business in 2003. Profit increased 11% as a result of underlying asset growth, although embedded value profit was affected by lower value of new business and operating assumption changes. During the half, we announced that Scott Powers, previously CEO of the US asset management business, would take charge of the whole of our US operations. We anticipate that benefits will emerge as our businesses there work more closely together in the future to address the changing demands of the baby- boomer generation. Europe In the UK, sales grew at Skandia by 16% against the favourable background of A-day and strong mutual fund inflows. Progress is being made to restructure the UK business to deliver improved efficiencies. This includes the integration of Selestia and Skandia MultiFUNDS, which is proceeding well. In Sweden, sales were flat, but our net cash flow was positive and we were pleased with the loyalty shown to Skandia by both customers and staff despite the distractions of the prolonged bid process.The adjusted operating profit result came through strongly, reaching SEK572 million before tax, and embedded value profit was SEK755 million before tax. In the European and Latin American (ELAM) business unit, strong growth in sales and market share was achieved in a number of countries, especially in unit trust lines. We continue to see plenty of opportunities for expansion in existing operations and new markets. It was also pleasing to see the business start to generate cash. Other Our other businesses also had a good half, with continued growth in sales, profit and funds under management. Old Mutual Asset Managers (UK) has maintained its profile as a very capable unit trust and hedge fund manager despite the less favourable conditions for hedge funds during the period. Our 26%-owned Indian life associate has achieved significant sales growth and now has over 4,000 sales agents. Our Chinese joint venture, which operates out of offices in Shanghai and Beijing, continued its rapid growth. Total sales in India and China now approach 8% of our total life sales and will soon rival some of our more established businesses. In Australia, we also produced continued growth in sales, profit and market share. Outlook We are developing our strategy to take the Group forward as the integration phase of Skandia moves onto business as usual. We have a powerful set of engines with plenty of opportunities to grow organically through our mature, cash-generative franchises in southern Africa and Sweden, our comprehensive suite of asset management and life product skills in the USA, and our strong and expanding presence in the UK and Europe, as well as the new businesses we have established in the Asia Pacific region. We see excellent opportunities to build further on our position as a leading international provider of innovative, client-focused, open architecture financial services products. Our businesses are in good shape and are well positioned to take on current and future challenges. We expect the progress seen in the first half to continue as our businesses mature and we remain on track for the full year. Jim Sutcliffe Chief Executive 14 September 2006 Group Finance Director's Review Business Review Old Mutual continued to grow strongly during the first half of 2006 with good net cash flow from clients in all our major businesses, including our newly acquired European business units. Despite the issuance of new shares as part of the acquisition of Skandia, the earnings per share dilution was small, and Return on Equity remained well above our cost of capital. Funds under management, the key driver of our revenue, have grown significantly since year end, with the positive impact of net client cash flow and generally higher market levels being offset by currency movements and the sale of eSecLending in May. New Business APE including Skandia on a pro forma basis was up 8% overall, reflecting good progress in all our markets in the first half, with strong growth in our Skandia businesses offsetting a managed rationalisation of sales at US Life and more modest growth at OMSA as the shift towards open architecture and unit trust sales continues. Nearly 60% of our life sales are now in Europe. Unit trust and mutual fund sales showed rapid growth of 70% including Skandia on a pro forma basis. Embedded value per share reduced primarily because of foreign exchange impacts, the use of higher discount rates to reflect increases in interest rates in many countries and the purchase of Skandia, where we were happy to accept some reduction in embedded value per share in exchange for the benefit of further diversifying the risk profile of the Group and the enhanced growth prospects. The return on embedded value was a creditable 13.8%. The value of new business at Â£111 million roughly doubled the figure delivered in the equivalent period last year despite the increase in discount rate. Strong profit results as Skandia exceeds expectations We have benefited significantly from the earnings arising from the acquisition of Skandia, steady progress in the USA and the continuing recovery at Nedbank, with adjusted operating profit before tax increasing by 36% from Â£566 million for the first six months of 2005 to Â£771 million for the first half of 2006, and adjusted operating earnings per share down 2% to 8.5p despite the issue of additional shares for the purchase of Skandia. The Group's adjusted operating profit on a European Embedded Value (EEV) basis was Â£885 million for the first six months of 2006, which is a 39% increase on 2005, primarily reflecting the significant contribution from Skandia as a result of strong new business growth and the increased profit from the non-covered business in Nedbank and the asset management businesses. The strong results meant that the adjusted embedded value operating profit per share was only slightly down from 10.1 to 9.8p. Group profit attributable to equity holders for the half year 2006 of Â£380 million leads to basic earnings per share of 8.0p. Basic earnings per share were affected by the dilutive impact of the requirement to amortise the intangible assets acquired, the additional shares now in issue as a result of the acquisition of Skandia and the lower overall short-term fluctuations in investment returns. Adjusted Group embedded value per share Adjusted embedded value (adjusted for own shares held in policyholders' funds and to bring listed Group subsidiaries to market value) was Â£7.9 billion, resulting in an adjusted embedded value per share of 143.2p at 30 June 2006. The significant underlying operating earnings have pushed the number upwards, and our experience and investment variances have in total been positive. Despite the strength of the South African stock market, foreign exchange impacts and the increase in interest rates and hence discount rates over the period have had a negative impact on the embedded value. Moreover the high growth nature of Skandia meant that the acquisition was completed at a price in excess of embedded value. Accordingly, the embedded value per share was diluted by approximately 19p at the time of acquisition. Strong net client cash flows and equity markets drive underlying funds growth Funds under management of Â£218 billion at 30 June 2006, up 19% from Â£183 billion (excluding Skandia) at 31 December 2005, includes favourable net cash inflows of Â£9 billion (excluding. eSecLending) for the six months to 30 June 2006. The impact of firm equity markets across all our geographies was partially muted by currency impacts, particularly in South Africa. Funds under management at our US businesses, while benefiting from strong net cash flows, positive equity markets and strong investment performance, are shown net of a reduction of $25.4 billion in client assets during the first half as a result of the sale of eSecLending by US Asset Management during the second quarter of 2006. Taxation The Group's effective tax rate* for the period ended 30 June 2006 of 29% increased from 24% for the corresponding period in 2005. The net effective rate in 2006 has increased because of a decrease in lower taxed investment income earned in South Africa as a proportion of profits. This is due to a decrease in OMSA's profits as a result of the increase in the investment return adjustment for Group equity and debt instruments held in life funds and an increase in Nedbank's profits, much of which is taxed at the South African statutory tax rate of 29%. These effects have been partly offset by untaxed profit on the disposal of subsidiaries. The 2005 effective tax rate also benefited from recognition of a previously unrecognised deferred tax asset, without which the 2005 effective tax rate would have been 27%. * Based on the tax charge excluding income tax attributable to policyholder returns as a proportion of profit before tax but after income tax attributable to policyholder returns. Capital Highlights H1 2006 FY 2005 Senior debt gearing** 8.8% 5.2% Total gearing 25.4% 14.7% The Group's gearing level remains comfortably within our target range, with senior debt gearing at 30 June 2006 of 8.8% (5.2% at 31 December 2005) and total gearing, including hybrid capital, of 25.4% (14.7% at 31 December 2005)*** reflecting the impact of funding the acquisition of Skandia. The Group's economic capital programme is now moving to its implementation stage, with internal models being used to measure risk-adjusted returns within our businesses. Our position on an economic basis continues to be very strong, with available financial resources significantly in excess of the economic capital the Group believes would be required to support its target credit rating. The Group remains in compliance with the Financial Groups Directive (FGD) capital requirements, which apply to all EU-based financial conglomerates, with a surplus of Â£1 billion at 30 June 2006. ** Senior debt gearing is defined as senior debt over senior debt plus adjusted embedded value. Senior debt excludes debt from banking activities and is net of cash and short-term investments that are immediately available to repay debt and derivative assets relating to swaps associated with senior debt, so as to reflect debt valued on effective currency and interest rate positions. Total gearing is similarly based, but includes hybrid capital instruments within debt. *** Hybrid capital excludes hybrid debt from banking activities and includes $750 million of Guaranteed Cumulative Perpetual Preferred Securities issued during 2003 that are reported as part of minority interests in the financial statements, Â£350 million of Perpetual Preferred Callable Securities issued in March 2005 and EUR500 million of Perpetual Preferred Callable Securities issued in November 2005 which are both reported as part of equity shareholders' funds, the Â£300 million of 10 Year Non-Call 5 Year Preferred Callable Securities issued in January 2006 and R3 billion unsecured substantial callable notes issued by OMSA. Dividend The Directors of Old Mutual plc have declared an interim dividend of 2.1p per share* for the six months ended 30 June 2006, to be paid on 30 November 2006, representing an increase in dividend per share of 13.5% over the 2005 interim dividend and 20% over the 2004 interim dividend, reflecting the Group's good IFRS earnings. Richard Hoskins Acting Group Finance Director 14 September 2006 * The record date for this dividend payment is the close of business on 20 October 2006 for all the Exchanges where the Company's shares are listed. The last day to trade cum-dividend on the JSE, and on the Namibian, Zimbabwe and Malawi Stock Exchanges will be 13 October 2006 and on the London and Stockholm Stock Exchanges 17 October 2006. The shares will trade ex-dividend from the opening of business on 16 October 2006 on the JSE, and on the Namibian, Zimbabwe and Malawi Stock Exchanges, and from the opening of business on 18 October 2006 on the London and Stockholm Stock Exchanges. Shareholders on the South African, Zimbabwe and Malawi branch registers and the Namibian section of the principal register will be paid the local currency equivalents of the dividend under the dividend access trust arrangements established in each country. Shareholders who hold their shares through VPC AB, the Swedish nominee, will be paid the equivalent of the dividend in Swedish Krona (SEK). Local currency equivalents of the dividend for all five territories will be determined by the Company using exchange rates prevailing at close of business on 5 October 2006 and will be announced by the Company on 6 October 2006. Share certificates may not be dematerialised or rematerialised on the South African branch register between 16 October 2006 and 20 October 2006, both dates inclusive, and transfers between the registers may not take place during that period. SOUTH AFRICA Operating profit up 25% Highlights (Â£m)* H1 2006 H1 2005 % change Adjusted operating profit 595 476 25% Embedded value adjusted operating profit 637 524 22% Life assurance sales (APE) 183 171 7% Unit trust sales 795 511 56% Funds under management (Â£bn) 39 36 8% Highlights (Rm)* H1 2006 H1 2005 % change Adjusted operating profit 6,724 5,532 22% Embedded value adjusted operating profit 7,199 6,090 18% Life assurance sales (APE) 2,062 1,991 4% Unit trust sales 8,985 5,948 51% Funds under management (Rbn) 514 431 19% * Includes results for Namibia and Old Mutual International. Performance Our businesses continue to benefit from an expanding South African economy with GDP growth at 4.1% over the first six months of 2006. We are well positioned across all product sectors to benefit from these positive economic conditions, as we progress further towards the objective of becoming the financial provider of choice to every economically active home and business in South Africa. Adjusted operating profit increased by 22% (25% in GBP) in the first half of 2006 to R6,724 million (30 June 2005: R5,532 million) principally driven by strengthening profit growth at Nedbank, as the business continues to recover. A buoyant banking market coupled with operating efficiencies achieved over the last two years has meant that Nedbank is well on track to deliver a 20% ROE in 2007, from the base of 18.3% delivered in the first half of the year. Whilst the impact of exchange rates on half-year earnings for the group was minimal, a more significant impact is expected on full year earnings. Unit trust sales for the half-year increased by 51% in South Africa as the business continues to benefit from a number of factors including more focused product level marketing initiatives and sales growth through open architecture solutions. Life sales, which on an Annual Premium Equivalent (APE) basis increased by 4% to R2,062 million, benefited from good growth in our core Retail and Group single premium business offset by a decline in the Healthcare and Group protection business. South African funds under management increased by 7% to R514 billion (31 December 2005: R480 billion), benefiting from growth in the South African equity market. On a Sterling basis funds under management of Â£39 billion have decreased by 11% (31 December 2005: Â£44 billion) reflecting the devaluation in the Rand over the six months. LIFE ASSURANCE & ASSET MANAGEMENT- OLD MUTUAL SOUTH AFRICA (OMSA) Highlights (Rm) H1 2006 H1 2005 % change Life assurance* 1,589 1,758 (10%) Long-term investment return (LTIR) 798 646 24% Asset management 459 361 27% Adjusted operating profit 2,846 2,765 3% Return on allocated capital 23% 24% Embedded value adjusted operating profit (covered business) 2,869 2,971 (3%) Adjusted return on embedded value 13% 16% Life assurance sales (APE) 1,847 1,833 1% Unit trust sales 8,506 5,614 52% Value of new business 252 267 (6%) Life new business margin 14% 15% SA client funds under management (Rbn) 391 316 24% * Includes income from associated undertakings. Strong asset management result offset by lower life assurance earnings Total earnings increased by 3% to R2,846 million for the first six months of 2006 from R2,765 million for the equivalent period last year, reflecting a strong increase in asset management profits and the LTIR, offset by a decrease of 10% in the life assurance result. Adjusted operating profit for the asset management businesses, which increased by 27% to R459 million for the half year 2006 (30 June 2005: R361 million), benefited from significant performance fees earned and a strong increase in funds under management since the start of the year. Active targeting of unit trust sales growth through specific product-level marketing also contributed to this result, with unit trust sales increasing by 52% in the first half compared with the first six months of 2005. The life assurance profit showed a decrease of 10% to R1,589 million from R1,758 million in 2005 as a result of the continued investment in distribution, an increased share-based incentive charge following the strong increase in the Old Mutual share price, a significant decline in investment variances off a high 2005 base due to interest rate movements and the consequences of assumption changes in 2005. The underlying strength of the South African equity market, resulting in higher investible assets as a result of significant investment gains on the shareholder portfolio, have contributed to the increase of 24% in the LTIR to R798 million for the half year (30 June 2005: R646 million). EEV earnings Embedded value adjusted operating profit before tax for covered business has decreased by 3% to R2,869 million, from R2,971 million at June 2005. An increase in the expected return, due to an increase in the opening embedded value has been offset by a reduction in experience variances, which are still positive due to some one-off items in 2005. The annualised return on embedded value has decreased to 13%, from 16% at June 2005. This reduction is due to lower favourable experience variances, a decrease in the expected opening rates of return and a decrease in relative value of new business. Positive net client cash flows of R6.4 billion Client funds under management increased by 8% to R391 billion from R362 billion at 31 December 2005, benefiting from the growth in the South African equity market. Net client cash flows were R6.4 billion for the half year, compared with R17 billion of negative cash flows in the first half of last year. The turnaround in cash flows relates mainly to third party asset management flows which have been positive this half year, but were significantly negative in the same period last year. These flows include R4.2 billion from Mutual & Federal. OMAM (SA) continued to deliver solid investment performance, ranking third out of the nine institutional asset managers in the Alexander Forbes South African Global Manager Watch (Large) Survey over the three years to the end of June 2006. Exceptional growth of 52% in unit trust sales OMSA unit trust sales increased by 52% to R8,506 million (30 June 2005: R5,614 million), driven by more focused product-level marketing, our ongoing investment in distribution, sales growth through open architecture platforms and the current positive investment environment in South Africa. Net cash flows also increased for the half year to R2.2 billion from R1.9 billion in 2005. Life sales continue to benefit from investment in distribution Our focus on improving customer value for money, strengthening our tied agent sales force and relationships with independent sales forces, and building links with our other South African businesses, have all positively impacted sales. Individual Life sales up 13% Individual APE (Rm) H1 2006 H1 2005 % change Savings 600 574 5% Protection 375 306 23% Immediate annuity 85 82 4% Group Schemes 375 310 21% Total 1,435 1,272 13% Single 393 334 18% Recurring 1,042 938 11% Individual business was up 13% to R1,435 million, reflecting the benefits of continuing investment in distribution. It was pleasing to see the ongoing focus on delivering cross business growth continuing to bear fruit, with single premiums positively impacted by a 91% increase in life APE sales through Nedbank for the first six months of 2006 compared with same period last year. Individual Life recurring premiums increased by 11% to R1,042 million for the first half from R938 million for the equivalent period last year, with our Group Schemes business continuing to expand on the back of good sales force growth. A significant increase in credit life sales through Nedgroup Life contributed to the 23% increase in Protection business. Growth in Group Business sales impacted by lower Healthcare Group APE (Rm) H1 2006 H1 2005 % change Savings 147 148 (1%) Protection 37 81 (54%) Annuity 96 54 78% Healthcare 132 278 (53%) Total 412 561 (27%) Single 227 182 25% Recurring 185 379 (51%) Group Business sales decreased by 27% to R412 million (30 June 2005: R561 million) as recurring premiums of R185 million suffered as a result of 53% lower Healthcare sales, decreasing to R132 million for the first half (30 June 2005: R278 million). Steps being taken to address the declining Healthcare sales include reviewing the structure of the business, improving distribution issues and reviewing benefit structures. Group protection sales were lower by 54%, as incumbents won most tenders and competition remained fierce. We have been successful in retaining more protection business than normal, helping to offset the impact of lower new business levels. The high growth of 25% in Group single premiums to R227 million (30 June 2005:R182 million) was underpinned by some significant annuity wins in the first half of 2006. Margin of 14% is in line with expectations Both Individual and Group Business new business margins have remained in line with the first half of last year, at 12% and 20% respectively, despite the increase in discount rates used to value the margins. The Individual Business margin reflects the impact of the investments in our distribution capability, the switch to lower charge products, an increase in embedded value economic assumptions and more competitive product pricing in some areas. Overall new business margins decreased slightly to 14% from 15% in the first half of 2005 due to the lower proportion of Group Business sales and the change in discount rates. The after-tax value of new business was R252 million, 6% lower than in the first half of 2005 in line with the reduction in overall margin. Strong capital position Our South African life company remains strongly capitalised, with 3.1 times coverage of its Statutory Capital Adequacy Requirement (SCAR) after allowing for statutory limitations on the value of certain assets. This compares favourably with the coverage of 3.0 times at 31 December 2005 and 2.4 times at 30 June 2005. BANKING - NEDBANK GROUP (NEDBANK) Highlights (Rm) H1 2006 H1 2005 % change Adjusted operating profit 3,247 2,114 54% Headline earnings* 2,104 1,398 51% Net interest income* 5,039 4,024 25% Non-interest revenue* 4,591 3,881 18% Net interest margin* 3.88% 3.45% Cost to income ratio* 57.3% 65.1% ROE* 18.3% 14.8% Total Assets (bn)* 385 336 15% ROA* 1.15% 0.85% * As reported by Nedbank. Strong results with adjusted operating profit up 54% Nedbank continues to deliver improved financial results, with adjusted operating profit of R3,247 million up by 54% on the 2005 equivalent of R2,114 million. This reflects the benefits of organic growth, coupled with the operating efficiencies achieved over the last two years. Continued growth in net interest income (NII) NII grew 25% to R5,039 million. Despite margin compression experienced by the industry, Nedbank's margin for the period improved to 3.9% from 3.5% in the first half of 2005, reflecting product mix changes from the growth in higher margin retail and business banking advances, including strong growth in personal loans at Nedbank Retail, the settlement of the expensive funding for the minority shareholders of Peoples Bank in April 2005, higher endowment levels and interest on the proceeds from the sales of the remaining holdings in Net1 UEPS Technologies Inc and State Bank of Mauritius. Nedbank anticipates some margin reduction for the remainder of the year as a result of asset growth within the banking sector in South Africa being funded largely by wholesale deposits. This is expected to be partially offset by the increased endowment effect from interest rate increases. Strong growth in Non-interest revenue (NIR) NIR increased by 18% from R3,881 million to R4,591 million for the period to 30 June 2006. This growth was driven largely by property private equity revaluations in Nedbank Corporate, buoyant and volatile market conditions contributing to a 38.7% increase in overall trading income at Nedbank Capital, increased volume growth resulting in commission and fees growing 18% over the comparative period, and growth in the group's bancassurance operations, with new business premiums increasing by 21% from R2,294 million to R2,767 million. In July 2006 Nedbank Retail reduced bank fees for individual current account clients by an average of 13%. Cost to Income Ratio reduced to 57% Expenses continued to be closely managed, as they increased by only 7% to R5,516 million, and revenue growth exceeded expense growth by 15% for the period, resulting in the efficiency ratio improving from 65% to 57%. Nedbank has recruited additional staff in client-facing divisions and has announced a major expansion program whereby it will invest R1 billion over the next three years in expanding its distribution footprint, including opening an additional 400 retail outlets and upgrading their ATM network. Return on Equity (ROE) on track at 18% Return on Equity improved significantly from 15% (at 30 June 2005) to 18% for the six month period to 30 June 2006 and the bank remains committed to meeting the 2007 targets of the 55% Cost to Income Ratio and 20% Return on Equity despite the challenge of continued investment in its retail footprint. Strong capital position maintained Nedbank remains well capitalised, with its Tier 1 group capital adequacy ratio increasing from 8.5% at 30 June 2005 to 9.1% at 30 June 2006. The total group capital adequacy ratio has increased from 12.2% at 30 June 2005 to 13.3% at 30 June 2006. Nedbank bought back 5.5 million shares in the first half of 2006. GENERAL INSURANCE MUTUAL & FEDERAL Highlights (Rm) H1 2006 H1 2005 % change Adjusted operating profit 475 573 (17%) Underwriting ratio* 3.9% 8.2% Gross premiums* 4,260 3,962 8% Earned premiums* 3,634 3,323 9% Solvency ratio* 75% 57% Return on capital* 20.4% 22.7% * As reported by Mutual & Federal. Underwriting surplus achieved in a competitive market The anticipated deterioration in trading conditions in the short-term insurance market resulted in a 17% decrease in Mutual & Federal's adjusted operating profit for the half year to R475 million (30 June 2005: R573 million). This result was impacted by an escalation in average claim costs as claim patterns returned to more normal levels following the benign claims environment during the comparable period in 2005, combined with moderate premium growth due to increasing pricing pressure in a softening insurance cycle. Mutual & Federal generated an underwriting surplus of R140 million at an underwriting ratio of 3.9%. Despite the aggressive cutting of premium rates to non-sustainable levels by certain competitors, Mutual & Federal remain committed to maintaining responsible underwriting standards. Conditions within the short-term insurance market and in the economy in general, continue to provide significant opportunities for business growth at Mutual & Federal while management expressed confidence that premium increases and corrective action planned for the second half of the year, particularly in relation to the motor business, will continue to support modest underwriting profits. Satisfactory premium growth at 8% Total gross premiums increased by a satisfactory 8% for the first half to R4,260 million (30 June 2005: R3,962 million) despite the continued softening of the short-term insurance market and the intense level of competition experienced throughout the sector with each division encountering difficulties in defending its client base. Claims increase in severity and frequency The general level of commercial and industrial fire claims increased in both severity and frequency in the first half, negatively impacting the results of the commercial portfolio. The personal division was also affected by severe adverse weather conditions in addition to increased theft losses. The motor account, in particular, reflected an underwriting deficit as it continued to be affected by an escalation in the incidence of motor vehicle accidents. This division has also been impacted by increased repair costs relating to imported cars following the recent decline in the Rand. Investment income increased due to positive operational cash flows Investment income in the first half remained at a high level following continued growth in the value of listed equities, while interest income benefited from higher levels of cash in hand. Capital management Mutual & Federal has announced the payment of a special dividend following a detailed review of its capital requirements. The capitalisation award, with a cash alternative of 800 cents per share, payable on 11 September 2006, representing R2.3 billion or 40% of the net asset value of the company. Following payment of the special dividend, the solvency ratio is expected to decrease from the current level of 75% to approximately 40%, a level which is considered sufficient to sustain the current operations, as well as supporting the future development of the business. UNITED STATES Strong growth in adjusted operating profit Highlights (Â£m) H1 2006 H1 2005 % change Adjusted operating profit 131 112 17% Embedded value adjusted operating profit 126 133 (5%) Life assurance sales (APE) 129 147 (12%) Mutual fund sales 384 64 500% Funds under management (Â£bn) 126 117 8% Highlights ($m) H1 2006 H1 2005 % change Adjusted operating profit 234 210 11% Embedded value adjusted operating profit 225 251 (10%) Life assurance sales (APE) 230 276 (17%) Mutual fund sales 687 120 473% Funds under management ($bn) 232 209 11% Performance Our US business is well placed to take advantage of local demographics as we further enhance our products and investment styles. We have introduced a common management structure and aim to implement a coordinated retail distribution strategy, while preserving the autonomy of the individual money management affiliates, and their ability to focus on producing excellent investment performance for clients. The US businesses delivered an 11% increase in adjusted operating profit to $234 million for the half year 2006 compared with $210 million for the first six months of 2005. Funds under management increased by 11% to $232 billion compared to 30 June 2005, even after the sale of eSecLending in May. Both the life business and the asset management businesses continues to grow through the combined effect of net cash flow from clients, positive equity markets, and good investment performance by our affiliates. We also had another good contribution from transaction and performance fees. Funds under management at the half year have been impacted by a decrease of $25.4 billion in client assets as a result of the sale of eSecLending. Funds under management at our US life business of $21 billion at 30 June 2006 are now firmly in the $20 to $25 billion range required to meet the target of releasing cash from 2007. US LIFE Strong growth in operating profit, up 11% Highlights ($m) H1 2006 H1 2005 % change Adjusted operating profit* 129 116 11% Return on equity 7.9% 8.4% Embedded value adjusted operating profit (covered business) 120 157 (24%) Return on embedded value 8.1% 12.8% Life assurance sales (APE) 230 276 (17%) Value of new business 40 55 (27%) New business margin 17% 20% Funds under management ($bn) 21 20 5% * Restated to exclude amortisation of the present value of acquired in-force business. Adjusted operating profit in the US life business increased by 11% to $129 million for the half year from $116 million achieved in the first six months of 2005. This result reflects the continued growth in assets and in-force business, combined with financial disciplines implemented to both progress the business and enable the targeted release of cash from 2007. Return on equity for the year of 7.9% benefited from the strong operating profit result but was negatively impacted by recent capital injections to fund growth and maintain the targeted risk-based capital ratio. On track for full year sales target Our goal for this business is to grow assets by achieving sales of $4 billion so as to release cash from 2007. We are well on track, with funds under management at 30 June 2006 of $21 billion, the business is on target to deliver full year sales at a similar level to 2005. In accordance with expectations, Life APE sales for the first half were 17% lower at $230 million (30 June 2005: $276 million), compared with record half-year 2005 sales. Second quarter sales were up 17% on the first quarter. We continue to focus on maintaining pricing disciplines and targeting growth in more profitable product areas rather than indiscriminately pursuing volume growth. Offshore annuity APE sales through Old Mutual Bermuda continued to show excellent growth of 54%, increasing to $54 million (30 June 2005: $35 million) and now represent almost a quarter of sales for the US Life business. This growth reflected a further strengthening of relationships in the existing bank distribution network and an overall expansion in the network during the first half of 2006. Our adjusted embedded value operating profits were affected by a lower value of new business due to the decline in new business sales and a change in operating assumption to reflect the higher than expected usage of a product feature which allows clients to withdraw 10% of their fund without any surrender charge. Pricing disciplines maintained Positive investment yields, combined with the focus on achieving profitability through the maintenance of strong pricing disciplines, resulted in a robust margin of 17% in the first half of 2006 despite the impact of a significant increase in the risk discount rate. The after-tax value of new business decreased by 27% to $40 million compared with $55 million for the half year 2005, reflecting the impact of the reduction in sales, in addition to the increase in the risk discount rate and the unusually high margin achieved in the first half of 2005. Continued strengthening of this business We are committed to ensuring that adequate infrastructure is in place to support this growing business, with the implementation of new actuarial and financial systems now substantially complete, providing significant enhancements to our internal processes. We will continue to maintain strong pricing disciplines to achieve sales growth in the higher margin, more profitable areas of the business. US ASSET MANAGEMENT Operating profit up 12% The Group's US asset management business delivered 12% growth in adjusted operating profit to $105 million for the six months to 30 June 2006, compared with $94 million for the equivalent period last year. Operating profit benefited from the continuation of strong net cash inflows, combined with strong transaction and performance fees sourced primarily from Heitman and Acadian. Highlights ($m) H1 2006 H1 2005 % change Adjusted operating profit 105 94 12% Funds under management ($bn) 231 209 11% Net fund flows ($bn) 9.7* 20.1 (52%) Operating margin 26% 25% * Excludes impact of eSecLending. Continued strong net inflows The combination of strong net cash flows, positive equity markets and the focus on delivering superior investment performance, contributed to a 11% increase in asset levels to $231 billion compared with the first half 2005, and an increase of 2% from $226 billion funds since the start of the year. Excluding the effect of the sale of eSecLending, funds under management increased by 10% from $211 billion at 31 December 2005. Funds under management benefited from net fund inflows of $20 billion for the first half of 2006, including $10.3 billion relating to eSecLending. International / emerging markets equity, core equity and global fixed income products attracted the largest inflows, with strong investment performance and net positive market movements contributing a further $9.4 billion towards the increase in funds under management for the half year. Strong investment performance Continued positive net fund inflows reflected the excellent investment performance achieved by our member firms. At 30 June 2006, 88% and 92% of assets had outperformed their benchmarks over three and five years respectively. Over the same periods 55% and 66% of assets respectively ranked in the first quartile of their peer group. Executing on growth Our retail initiative continued to gather momentum with year to date gross sales of $1.2 billion, of which $687 million related to open-end mutual fund sales. This sales momentum is a result of the wholesaling team effort in place for over a year now, as well as having over 400 National Account selling agreements in place. We have continued to expand our product line and in May 2006 launched the Old Mutual Analytic Global Defensive Equity Fund. In February 2006, the US asset management business exercised its option to purchase a majority interest in Copper Rock Capital Partners, a small-cap growth equity manager headquartered in Boston. The investment team brought with them a solid performance record, contributing to a doubling of funds under management since February, including healthy growth of assets in the Old Mutual Old Mutual Copper Rock Emerging Growth Fund. The US Asset Management business remains committed to its strategy of identifying product and sector gaps in its portfolio and selectively pursuing opportunities that will assist in development of those areas. Continuing strong net inflows and forthcoming product introductions place the business in a favourable position to increase total funds under management and earnings going forward. As always the business model is focused on enabling the member firms to deliver superior investment returns to clients. EUROPE Proforma % change Highlights (Â£m)* H1 2006 H1 2005 Adjusted IFRS operating profit 120 39 208% Embedded value adjusted operating profit (covered business) 183 137 34% Life assurance sales (APE) 420 359 17% Mutual fund sales 1,790 1,184 51% Return on invested capital 9% n/a Return on embedded value 13.3% n/a Funds under management (Â£bn) 47 36 31% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma, adjusted to Old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Strong operating results A strong operating result both on an IFRS and EEV basis was delivered, with the integration remaining on track both in terms of realisation of synergies and estimated synergy costs. Adjusted operating profit on an IFRS basis increased from Â£39 million to Â£120 million driven by higher funds under management, higher sales volumes and increased fee income achieved across most areas of the business. The embedded value adjusted operating profit before tax of Â£183 million increased from Â£137 million, benefiting from excellent new sales in many regions including UK post A-day sales, as well as significant growth in the Europe and Latin America division (ELAM) particularly in Italy, Poland and France and positive experience effects. In addition, experience variances improved reflecting a higher level of fee income and better persistency experience compared to that assumed in all three divisions. Particularly pleasing was the increase in UK mutual fund sales, with 75% sales growth in the UK from Skandia MultiFUNDS and Selestia combined, as the industry shift to open architecture platforms continued. Margins after tax on life business improved, after factoring in the Head office expenses allocation. Healthy net cash inflows of Â£3 billion, led to funds under management increasing by 7% since 31 December 2005, benefiting also from the strength of equity markets. This was also reflected in the increase in total fund based fees of 58%. The results from Skandia are above expectations with strong sales and we are pleased that the business has shown minimal disruption from the acquisition in February. Much, of course, remains to be done. We outlined our future strategy on 20 June 2006 and we are committed to all the goals laid out at that time. UNITED KINGDOM Proforma Highlights (Â£m)* H1 2006 H1 2005 % change Long-term business 63 16 297% Asset management 4 (7) 163% IFRS adjusted operating profit 67 9 644% Embedded value adjusted operating profit (covered business) 86 52 65% Life assurance sales (APE) 262 225 16% Mutual fund sales 1,170 667 75% Value of new business 26 17 53% Life new business margin 10% 8% Funds under management (bn) 31 23 35% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma adjusted onto old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Strong earnings The improvement in the adjusted operating result in the first half of 2005 of Â£9 million, to Â£67 million in the first half 2006 is primarily driven by higher fund base fees as asset appreciation and net fund inflows have increased funds under management. In addition the 2005 result was impacted by a number of one-off charges in 2005, as provisions were required to address changes in fee structure. Embedded value adjusted operating profit before tax increased from Â£52 million to Â£86 million, driven by growth in new business, operating leverage and improved experience variances from the positive impact of high fee income. Skandia UK also saw a rise in surrender rates associated with increased A-day related pension transfer activity and we believe this trend was experienced across the industry. We are currently undertaking measures to improve long-term persistency performance. Life sales up 16%, Mutual Fund sales up 75% Skandia UK continued to deliver strong new business growth, with life APE sales up 16% to Â£262 million (30 June 2005: Â£225 million). UK onshore unit-linked sales grew by 39% to Â£162 million, benefiting from increased transfer activity and higher regular premium investments following the implementation of Pensions 'A' Day regulations, with an 89% growth in pensions sales. Offshore sales declined by 5% to Â£100 million. Whilst strong growth was experienced by Royal Skandia in international markets, this was offset by lower UK sourced sales, where volumes were adversely impacted by uncertainty surrounding the tax treatment of trusts. Mutual fund sales increased by 75% to Â£1,170 million (30 June 2005: Â£667 million), benefiting from strong tax year end sales and the continuing industry shift to open architecture investment platforms. Profit margins Value of new business for life business after tax of Â£26 million resulted in a profit margin (after tax and after allocating Head Office expenses) of 10%. Skandia UK's margin has benefited from favourable operating leverage from strong new sales and an improvement in product mix, as Skandia sold proportionately less of some lower margin International products. The long-term goal, as communicated on 20 June 2006, is to achieve margins in the 11-12% range. Funds under management Funds under management have increased by 7% to Â£31 billion from 31 December 2005, benefiting from strong net inflows from unit-linked and mutual funds coupled with favourable market movements. The largest increase was experienced within mutual funds driven by strong performance in Skandia MultiFUNDS (SMFL), Selestia and Skandia Investment Management (SIML). SMFL/Selestia inflows are growing strongly as fund platforms become the industry standard for mutual funds investments. SIML has continued to broaden its fund range, with new funds such as Global Best Ideas Funds (GBI) launched in June 2006. SIML funds were added to the Selestia platform in June and the SMFL/Selestia integration plan continues to gain momentum in line with the plans announced by the Group on 20 June 2006. NORDIC Proforma Highlights (SEKm)* H1 2006 H1 2005 % change Long-term business 481 276 75% Asset management 12 10 18% Banking 79 58 36% Adjusted operating profit 572 344 66% Embedded value adjusted operating profit (covered business) 755 460 64% Life assurance sales (APE) 904 916 (1%) Mutual fund sales 793 820 (3%) Value of new business 260 261 - Life new business margin 29% 29% Funds under management (bn) 99 82 21% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma adjusted onto Old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Nordic division delivers good profits Adjusted operating profit increased from SEK344 million to SEK572 million benefiting from higher fund- based fees in the unit-linked business, improved risk result and higher rebates from fund managers. Within Nordic, a majority of fee income is fund based and it grew 38% with funds growing by 21%. Whilst Nordic's banking result has improved in 2006 due to lower head office expense allocation, underlying business performance was dampened by both lower net interest income due to a change in product mix and increased competition as well as higher transaction and project costs following the Basel II implementation. Embedded value adjusted operating profit increased from SEK460 million to SEK755 million driven by a higher return on in-force business and significant improvements in experience variances mainly related to higher fee income and surrenders in line with that assumed as part of the restatement. The value of new business was relatively stable. During the prior year there was increased transfer activity from other products as a result of the new Kapitalpension product. As expected during the first half of 2006, the levels of surrenders in unit-linked business have levelled off with the reduced impact of conversions to Kapitalpension. Sales Unit-linked APE sales in the Nordic region decreased by 1% to SEK904 million with 7% growth in recurring premiums offset by a 31% decrease in single premiums, reflecting a downturn in Kapitalpension product sales over the second quarter, as the rush to convert older contracts has tailed off. For the same reason, surrenders were also lower. The downturn in Kapitalpension is reflected in the declining market share for unit-linked business in Sweden, which was 17.9% on a moving twelve months basis compared to 18.7% a quarter earlier. New sales within the corporate segment in Sweden were stable and Skandia's market share in that segment grew slightly to 18.3%. The corporate segment accounts for more than two-thirds of new sales in Sweden. Profit margins maintained Strong profit margins for unit linked business were maintained in the first half of 2006, and the VNB after tax of SEK260 million resulted in a profit margin after tax of 29%. We expect that structural changes in the Swedish market will squeeze margins down to the 22-25% range as communicated on 20 June. Funds under management Despite the decrease in equity markets during the second quarter of 2006, total funds under management retained most of the increase seen in 2005. The increase was driven by higher net inflows from customers into unit-linked funds. Lending in the bank increased by 14% compared to 31 December 2005, resulting mainly from mortgages in Norway. EUROPE AND LATIN AMERICA (ELAM) Proforma Highlights (Euro m)* H1 2006 H1 2005 % change Long-term business 19 12 58% Asset management (3) (6) 42% Adjusted operating profit 16 6 167% Embedded value adjusted operating profit (covered business) 60 74 (19%) Life assurance sales (APE) 132 95 39% Mutual fund sales 816 665 23% Value of new business 25 17 47% Life new business margin 19% 18% Funds under management (bn) 13 10 30% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma adjusted onto Old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Positive growth in IFRS profit Adjusted operating profit increased to Euro 16 million compared to Euro 6 million in the prior year driven by increased fee income as funds under management have continued to grow, higher inflows together with maintained cost control. Total fund based fees increased 50% during the first six months as the total funds within Unit Linked and Mutual Funds grew by 30% from 30 June 2005. Within Mutual Funds, Colombia and Skandia Global Funds are the largest positive contributors to the IFRS result whereas the businesses in some other countries are still in a start up phase. Embedded value adjusted operating profit of Euro 60 million declined from Euro 74 million despite higher value of new business compared to last year due to strong growth in the value of new business in Italy, Poland and France. This was because there was some positive one-off effects in the value of new business and experience variance due to the German overhang in 2005 as well as changes in operating assumptions in 2005. Strong growth in sales Life APE sales growth has been particularly strong in Italy, Poland and France, with exceptionally strong single premium sales in Italy in the first quarter of 2006. The new business inflow in Germany continues to recover even though the market is still slower than in the first years before the pension reform. Germany, like Austria, has a steady book of regular premium contracts generating a good level of regular inflow. ELAM achieved growth of 23% in mutual fund sales to Euro 816 million (30 June 2005: Euro 665 million), primarily driven by excellent sales in Spain and Colombia in the first quarter. Margin of 19% achieved The overall new business margin of 19% was slightly higher than the expected long-term margin of 16-18% as communicated on 20 June due to a shift in the geographical new business mix. Funds under management Despite the decrease in equity markets during the second quarter of 2006, total funds under management remain stable at Euro 13 billion when compared to 31 December 2005. Net client cash flows were positively impacted by strong inflows within mutual funds offset by withdrawals in the short-term asset management business, primarily due to the downturn in equity markets during the second quarter of 2006. OTHER Highlights (Â£m) H1 2006 H1 2005* % change Adjusted operating profit 9 8 13% Funds under management (Â£bn) 7 6 17% Unit trust sales 779 450 73% * Includes results of Skandia Australia and Skandia-BSAM (China). A year of strong organic growth The success of our organic growth strategy continues with our other businesses (including Old Mutual Asset Managers (OMAM (UK)), Skandia Australia, Old Mutual Asset Managers Bermuda and our Asian operations) delivering adjusted operating profit of Â£9 million for the half year 2006. OMAM (UK) produced solid results, with adjusted operating profit of Â£6 million driven by strong hedge fund and retail unit trust performance. Unit trust sales increased by 73% to Â£779 million for the first half (30 June 2005: Â£450 million) driven by strong sales at OMAM (UK) as the business continued to benefit from the expansion of its product portfolio and the further strengthening of its distribution capabilities. Expansion into Asia Our life associate in India, Kotak Mahindra Old Mutual, continues to make strong progress. Total premium income on an APE basis reached Â£55 million for the first six months of the year, an increase of 92% over the first half of 2005. The business now has more than 2,000 employees and a tied-agency force of 14,000, and operates from 51 branches in 39 cities across India. Skandia-BSAM, our joint venture with the Beijing state-owned Asset Management Company, now in its second year of operation, has made a very good start to the year, achieving 87% of its annual sales target at the half-year. In addition to the current branches in Beijing and Shanghai, we will be opening a third branch in Nanjing before the end of the year. Australian Skandia Limited has been in operation for five years and provides investors with a choice of flexible, long-term savings solutions. Australia remains an attractive market, with the business showing strong fund inflows. Going forward we will continue to pursue organic growth, with new product launches and further development of our distribution team capabilities planned for OMAM (UK). The business is also focusing on diversifying its revenue streams, primarily through growth in the institutional business. We are also committed to expanding our operations in India and China through the development and offering of financial solutions to the emerging middle class in those countries. Summary Consolidated Income Statement for the six months ended 30 June 2006 The following table summarises the Group's results in the consolidated income statement on page 30. Adjusted operating profit represents the Directors' view of the underlying performance of the Group. This summary does not form part of the interim financial statements. Â£m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 South Africa Long-term business 224 214 475 Asset management 55 37 85 Banking 274 176 421 General insurance 42 49 102 595 476 1,083 United States Long-term business 72 62 106 Asset management 59 50 118 131 112 224 Europe Long-term business 111 - - Asset management 3 (2) (4) Banking 6 - - 120 (2) (4) Other Long-term business (1) - - Asset management 10 10 20 9 10 20 Finance costs (63) (19) (37) Other shareholders' income/(expense s) (21) (11) (25) Adjusted operating profit* 3(ii) 771 566 1,261 Adjusting items 4 (40) 87 218 Profit before tax (net of income tax attributable to policyholder returns) 731 653 1,479 Total income tax expense 5 (296) (181) (484) Less: income tax attributable to policyholder returns 84 21 127 Income tax attributable to shareholders (212) (160) (357) Profit for the financial period 519 493 1,122 Profit for the financial period attributable to: Equity holders of the parent 380 387 867 Minority interests Ordinary shares 113 78 203 Preferred securities 26 28 52 519 493 1,122 * For long-term and general insurance business, adjusted operating profit is based on a long-term investment return, includes investment returns on life funds' investments in Group equity and debt instruments and is stated net of income tax attributable to policyholder returns. For all businesses, adjusted operating profit excludes goodwill impairment, the impact of acquisition accounting, initial costs of Black Economic Empowerment schemes, profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments and dividends declared to holders of perpetual preferred callable securities. Adjusting items comprise: Â£m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Income / (expense) Goodwill impairment and impact of acquisition accounting 4(i) (135) (14) (22) Profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments 4(ii) 97 (4) 58 Short-term fluctuations in investment return 4(iii) 73 133 363 Investment return adjustment for Group equity and debt instruments held in life funds 4(iv) (97) (28) (109) Initial costs of Black Economic Empowerment schemes 4(v) - - (72) 4(vi) / Dividends declared to holders of perpetual preferred callable securities 8 22 - - Adjusting items (40) 87 218 Adjusted operating profit after tax attributable to ordinary equity holders is determined as follows: Â£m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Adjusted operating profit 771 566 1,261 Tax on adjusted operating profit 5 (196) (137) (314) 575 429 947 Minority interests ordinary shares (119) (76) (185) Minority interests preferred securities (26) (28) (52) Adjusted operating profit after tax attributable to ordinary equity holders 430 325 710 Pence 6 months ended 6 months ended Year ended 30 June 30 June 31 December Earnings per share attributable to ordinary equity holders Notes 2006 2005 2005 Adjusted operating earnings per ordinary share* 7(ii) 8.5 8.7 18.5 Basic earnings per ordinary share 7(i) 8.0 11.2 25.1 Diluted earnings per ordinary share 7(i) 7.5 11.2 24.3 Adjusted weighted average number of shares millions 7(ii) 5,063 3,753 3,840 Weighted average number of shares millions 7(i) 4,547 3,467 3,456 * Adjusted operating earnings per ordinary share is calculated on the same basis as adjusted operating profit. It is stated after tax attributable to adjusted operating profit and minority interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment trusts. Consolidated Income Statement for the six months ended 30 June 2006 Â£m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Revenue Gross earned premiums 3(iii) 2,411 2,148 4,473 Outward reinsurance (129) (80) (197) Net earned premiums 2,282 2,068 4,276 Investment income (net of investment losses) 3,661 2,501 6,569 Banking interest and similar income 1,304 944 2,018 Fee and commission income, and income from service activities 1,074 576 1,274 Other income 127 104 215 Share of associated undertakings' profit after tax 3 6 17 Total revenues 8,451 6,199 14,369 Expenses Claims and benefits (including change in insurance contract provisions) (3,759) (3,334) (7,795) Reinsurance recoveries 109 88 226 Net claims incurred (3,650) (3,246) (7,569) Change in provision for investment contract liabilities (including amortisation) (832) (448) (1,202) Losses on loans and advances (73) (53) (103) Finance costs (including interest and similar expenses) (42) (22) (40) Banking interest expense (712) (576) (1,254) Fees, commissions and other acquisition costs (381) (164) (389) Other operating and administrative expenses (1,414) (951) (2,155) Change in provision for third party interest in consolidated funds (453) (50) (80) Goodwill impairment 4(i) (2) (2) (5) Amortisation of PVIF and other acquired intangibles (174) (9) (24) Profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments 4(ii) 97 (4) 58 Total expenses (7,636) (5,525) (12,763) Profit before tax 674 815 1,606 Income tax expense 5 (296) (181) (484) Profit for the financial period 519 493 1,122 Profit for the financial period attributable to: Equity holders of the parent 380 387 867 Minority interests Ordinary shares 113 78 203 Preferred securities 26 28 52 Profit for the financial period 519 493 1,122 Pence 6 months ended 6 months ended Year ended 30 June 30 June 31 December Earnings and dividend per share 2006 2005 2005 Basic earnings per ordinary share 7(i) 8.0 11.2 25.1 Diluted earnings per ordinary share 7(i) 7.5 11.2 24.3 Dividend per ordinary share 8 3.65 3.5 5.35 Weighted average number of shares millions 4,547 3,467 3,456 Consolidated Balance Sheet at 30 June 2006 Â£m At At At 30 June 30 June 31 December Notes 2006 2005 2005 Assets Goodwill and other intangible assets 5,444 1,302 1,570 Investments in associated undertakings 56 132 93 Investment property 728 704 847 Property, plant and equipment 476 457 538 Deferred tax assets 536 505 458 Reinsurers' share of insurance contract provisions 819 362 455 Deferred acquisition costs 1,419 815 1,089 Current tax receivable 74 28 29 Loans, receivables and advances 20,530 15,600 18,456 Derivative financial instruments assets 1,280 1,971 1,604 Financial assets fair valued through income statement 66,739 28,470 35,378 Other financial assets 12,235 11,886 12,265 Short-term securities 911 1,293 1,764 Other assets 3,526 2,721 2,409 Assets held-for-sale 1,168 - - Cash and balances with the central banks 2,078 1,946 3,051 Placements with other banks 720 324 568 Total assets 118,739 68,516 80,574 Liabilities Insurance contract provisions 21,751 19,794 23,258 Financial liabilities fair valued through income statement 52,311 15,863 21,187 Third party interests in consolidation of funds 2,261 708 966 Borrowed funds 9 2,203 1,048 1,433 Provisions 371 237 285 Deferred revenue 207 123 138 Deferred tax liabilities 1,259 486 611 Current tax payable 229 154 178 Deposits from other banks 1,377 1,090 2,577 Amounts owed to other depositors 18,380 14,776 15,509 Other money market deposits 2,886 3,122 3,059 Derivative financial instruments liabilities 1,241 1,893 1,634 Liabilities held-for-sale 1,105 - - Other liabilities 4,680 4,016 3,320 Total liabilities 110,261 63,310 74,155 Net assets 8,478 5,206 6,419 Shareholders' equity Equity attributable to equity holders of the parent 6,932 3,816 4,751 Minority interests Ordinary shares 868 737 1,012 Preferred securities 678 653 656 Total minority interests 1,546 1,390 1,668 Total equity 8,478 5,206 6,419 Consolidated Cash Flow Statement for the six months ended 30 June 2006 Â£m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Cash flows from operating activities Profit before tax 815 674 1,606 Non-cash movements in profit before tax (1,454) (1,328) (4,046) Changes in working capital 7,309 597 3,482 Taxation paid (172) (199) (314) Net cash inflow / (outflow) from operating activities 6,498 (256) 728 Cash flows from investing activities (Acquisition) / disposal of financial investments (6,568) 1,057 644 (Acquisition) / disposal of investment properties (37) (11) 40 Net acquisition of other fixed assets (50) (28) (100) Acquisition of interests in subsidiaries (1,351) (106) (56) Disposal of interests in subsidiaries, associated undertakings and strategic investments 113 (16) 33 Net cash (outflow) / inflow from investing activities (7,893) 896 561 Cash flows from financing activities Dividends paid to: Equity holders of the parent 8 (174) (118) (184) Ordinary minority interests and preferred security interests (82) (47) (99) Interest payable (excluding banking interest payable) (43) - (40) Net proceeds from issue of ordinary shares (including by subsidiaries to minority interests) 17 3 2 Repayment of convertible debt - (341) (336) Issue of subordinated debt 264 - 259 Other debt issued / (repaid) 404 - (10) Issue of perpetual preferred callable securities - 347 688 Net cash inflow / (outflow) from financing activities 386 (156) 280 Net (decrease) / increase in cash and cash equivalents (1,009) 484 1,569 Effects of exchange rate changes on cash and cash equivalents (405) (120) 86 Cash and cash equivalents on acquisition of new subsidiaries 167 - - Cash and cash equivalents at beginning of the period 3,303 1,648 1,648 Cash and cash equivalents at end of the period 2,056 2,012 3,303 Consisting of: Cash and balances with the central banks 2,078 1,946 3,051 Placements with other banks 720 324 568 Other cash equivalents 346 226 381 3,144 2,496 4,000 Cash and cash equivalents subject to consolidation of funds (1,088) (484) (697) 2,056 2,012 3,303 Cash flows presented in this statement include all cash flows relating to policyholders' funds for the long-term business. Statement of Changes in Equity for the six months ended 30 June 2006 Millions Â£m Number of Attributable to shares issued equity holders of Total minority Total Six and fully paid the parent interest equity months ended 30 June 2006 Equity holders' funds at beginning of the period 4,090 4,751 1,668 6,419 Change in equity arising in the period Fair value gains / (losses): Property revaluation - 2 - 2 Available-for-sale investments - (422) - (422) Net investment hedge - (25) - (25) Shadow accounting - 209 - 209 Currency translation differences / exchange differences on translating foreign operations - (565) (181) (746) Other movements - 57 (61) (4) Aggregate tax effect of items taken directly to or transferred from equity - 62 - 62 Net expense recognised directly in equity - (682) (242) (924) Profit for the period - 380 139 519 Total recognised income and expense for the period - (302) (103) (405) Dividend for the period - (196) (60) (256) Net purchase of treasury shares - (13) - (13) Issue of ordinary share capital by the Company 1,389 2,670 - 2,670 Net acquisition of interests in subsidiaries - - 41 41 Exercise of share options 9 12 - 12 Fair value of equity settled share options - 10 - 10 Equity holders' funds at end of the period 5,488 6,932 1,546 8,478 Share Share Other Six months ended 30 June 2006 Notes capital premium reserves Attributable to equity holders of the parent at beginning of the period 410 730 374 Changes in equity arising in the period: Fair value gains / (losses): Property revaluation - - 2 Available-for-sale investments - - (422) Net investment hedge - - - Shadow accounting - - 209 Currency translation differences / exchange differences on translating foreign operations - - - Other movements - - (2) Aggregate tax effect of items taken directly to or transferred from equity - - 52 Net expense recognised directly in equity - - (161) Profit for the period - - - Total recognised income and expense for the period - - (161) Dividend for the period 8 - - - Net purchase of treasury shares - - - Issue of ordinary share capital by the Company 138 - 2,532 Exercise of share options 1 11 - Fair value of equity settled share options - - 10 Attributable to equity holders of the parent at end of the period 549 741 2,755 Â£m Perpetual preferred Translation Retained callable Six months ended 30 June 2006 reserve earnings securities Total Attributable to equity holders of the parent at beginning of the period 357 2,192 688 4,751 Changes in equity arising in the period: Fair value gains / (losses): Property revaluation - - - 2 Available-for-sale investments - - - (422) Net investment hedge (25) - - (25) Shadow accounting - - - 209 Currency translation differences / exchange differences on translating foreign operations (565) - - (565) Other movements - 59 - 57 Aggregate tax effect of items taken directly to or transferred from equity 5 5 - 62 Net expense recognised directly in equity (585) 64 - (682) Profit for the period - 380 - 380 Total recognised income and expense for the period (585) 444 - (302) Dividend for the period - (196) - (196) Net purchase of treasury shares - (13) - (13) Issue of ordinary share capital by the Company - - - 2,670 Exercise of share options - - - 12 Fair value of equity settled share options - - - 10 Attributable to equity holders of the parent at end of the period (228) 2,427 688 6,932 Â£m At 30 June Other reserves 2006 Merger reserve 2,716 Available-for-sale reserve (91) Investment property revaluation reserve 38 Share based payments reserve 92 Attributable to equity holders of the parent at end of the period 2,755 Retained earnings have been reduced by Â£724 million at 30 June 2006 in respect of own shares held in policyholders' funds, ESOP trusts, Black Economic Empowerment trusts and other related undertakings. Included in the dividend for the period is Â£22 million of dividends declared to holders of perpetual preferred callable securities (note 8). Millions Number of Attributable to shares issued equity holders of Six months ended Notes and fully paid the parent 30 June 2005 Equity holders' funds at beginning of the period 3,854 3,265 Changes in equity arising in the period Fair value gains / (losses): Net investment hedge - (50) Available-for-sale investments - 84 Shadow accounting - (11) Currency translation differences / exchange differences on translating foreign operations - (100) Cash flow hedge amortisation - 2 Redemption of convertible bonds - (18) Other movements - 44 Aggregate tax effect of items taken directly to or transferred from equity - (16) Net expense recognised directly in equity - (65) Profit for the period - 387 Total recognised income and expense for the period - 322 Dividend for the period 8 - (118) Net purchase of treasury shares - (7) Issue of perpetual preferred callable securities - 347 Net disposal of interests in subsidiaries - - Exercise of share options 3 3 Fair value of equity settled share options - 4 Equity holders' funds at end of the period 3,857 3,816 Â£m Total minority Total Six months ended 30 June 2005 interest equity Equity holders' funds at beginning of the period 1,431 4,696 Changes in equity arising in the period Fair value gains / (losses): Net investment hedge - (50) Available-for-sale investments - 84 Shadow accounting - (11) Currency translation differences / exchange differences on translating foreign operations (85) (185) Cash flow hedge amortisation - 2 Redemption of convertible bonds - (18) Other movements (39) 5 Aggregate tax effect of items taken directly to or transferred from equity - (16) Net expense recognised directly in equity (124) (189) Profit for the period 106 493 Total recognised income and expense for the period (18) 304 Dividend for the period (47) (165) Net purchase of treasury shares - (7) Issue of perpetual preferred callable securities - 347 Net disposal of interests in subsidiaries 24 24 Exercise of share options - 3 Fair value of equity settled share options - 4 Equity holders' funds at end of the period 1,390 5,206 Share Share Other Six months ended 30 June 2005 Notes capital premium reserves Attributable to equity holders of the parent at beginning of the period 386 600 445 Changes in equity arising in the period: Fair value gains / (losses): Net investment hedge - - (50) Available-for-sale investments - - 84 Shadow accounting - - (11) Currency translation differences / exchange differences on translating foreign operations - - - Cash flow hedge amortisation - - 2 Redemption of convertible bonds - - (18) Other movements - - - Aggregate tax effect of items taken directly to or transferred from equity - - (16) Net expense recognised directly in equity - - (9) Profit for the period - - - Total recognised income and expense for the period - - (9) Dividend for the period 8 - - - Net purchase of treasury shares - - - Issue of perpetual preferred callable securities - (3) - Exercise of share options - 3 - Fair value of equity settled share options - - - Attributable to equity holders of the parent at end of the period 386 600 436 Â£m Perpetual preferred Translation Retained callable Six months ended 30 June 2005 reserve earnings securities Total Attributable to equity holders of the parent at beginning of the period 122 1,712 - 3,265 Changes in equity arising in the period: Fair value gains / (losses): Net investment hedge - - - (50) Available-for-sale investments - - - 84 Shadow accounting - - - (11) Currency translation differences / exchange differences on translating foreign operations (100) - - (100) Cash flow hedge amortisation - - - 2 Redemption of convertible bonds - - - (18) Other movements 44 - 44 - Aggregate tax effect of items taken directly to or transferred from equity - - - (16) Net expense recognised directly in equity (100) 44 - (65) Profit for the period 387 - 387 - Total recognised income and expense for the period (100) 431 - 322 Dividend for the period - (118) - (118) Net purchase of treasury shares - (7) - (7) Issue of perpetual preferred callable securities - - 350 347 Exercise of share options - - - 3 Fair value of equity settled share options - 4 - 4 Attributable to equity holders of the parent at end of the period 22 2,022 350 3,816 Â£m At 30 June Other reserves 2005 Merger reserve 184 Available-for-sale reserve 207 Investment property revaluation reserve 28 Cash flow hedge reserve 11 Share based payments reserve 6 Attributable to equity holders of the parent at end of the period 436 Retained earnings were reduced by Â£533 million, at 30 June 2005 in respect of own shares held in policyholder funds, ESOP trusts and related undertakings. Millions Number of Attributable to shares issued equity holders of Year ended 31 December 2005 Notes and fully paid the parent Equity holders' funds at beginning of the year 3,854 3,265 Changes in equity arising in the year Fair value gains / (losses): Property revaluation - 27 Net investment hedge - (78) Available-for-sale investments - (249) Shadow accounting - 117 Currency translation differences / exchange differences on translating foreign operations - 263 Cash flow hedge amortisation - (12) Redemption of convertible bonds - (18) Other movements - (21) Aggregate tax effect of items taken directly to or transferred from equity - 34 Net income recognised directly in equity - 63 Profit for the year - 867 Total recognised income and expense for the year - 930 Dividend for the year 8 - (184) Net purchase of treasury shares - (182) Issue of perpetual preferred callable securities - 679 Issue of share capital by the Company 231 159 Net disposal of interests in subsidiaries - - Exercise of share options 5 4 Fair value of equity settled share options - 80 Equity holders' funds at end of the year 4,090 4,751 Â£m Total minority Total Year ended 31 December 2005 interest equity Equity holders' funds at beginning of the year 1,431 4,696 Changes in equity arising in the year Fair value gains / (losses): Property revaluation - 27 Net investment hedge - (78) Available-for-sale investments - (249) Shadow accounting - 117 Currency translation differences / exchange differences on translating foreign operations 12 275 Cash flow hedge amortisation - (12) Redemption of convertible bonds - (18) Other movements 23 2 Aggregate tax effect of items taken directly to or transferred from equity - 34 Net income recognised directly in equity 35 98 Profit for the year 255 1,122 Total recognised income and expense for the year 290 1,220 Dividend for the year (99) (283) Net purchase of treasury shares - (182) Issue of perpetual preferred callable securities - 679 Issue of share capital by the Company - 159 Net disposal of interests in subsidiaries 26 26 Exercise of share options - 4 Fair value of equity settled share options 20 100 Equity holders' funds at end of the year 1,668 6,419 Statement of Changes in Equity continued for the six months ended 30 June 2006 Share Share Other Year ended 31 December 2005 Notes capital premium reserves Attributable to equity holders of the parent at beginning of the year 386 600 445 Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - - 27 Net investment hedge - - (50) Available-for-sale investments - - (249) Shadow accounting - - 117 Currency translation differences / exchange differences on translating foreign operations - - - Cash flow hedge amortisation - - (12) Redemption of convertible bonds - - (18) Other movements - - - Aggregate tax effect of items taken directly to or transferred from equity - - 34 Net expense recognised directly in equity - - (151) Profit for the year - - - Total recognised income and expense for the year - (151) Dividend for the year - - - 8 Net purchase of treasury shares - - - Issue of perpetual preferred callable securities - (9) - Issue of share capital by the Company 23 136 - Exercise of share options 1 3 - Fair value of equity settled share options - - 80 Attributable to equity holders of the parent at end of the year 410 730 374 Â£m Perpetual preferred Translation Retained callable Year ended 31 December 2005 reserve earnings securities Total Attributable to equity holders of the parent at beginning of the year 122 1,712 - 3,265 Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - - - 27 Net investment hedge (28) - - (78) Available-for-sale investments - - - (249) Shadow accounting - - - 117 Currency translation differences / exchange differences on translating foreign operations 263 - - 263 Cash flow hedge amortisation - - - (12) Redemption of convertible bonds - - - (18) Other movements - (21) - (21) Aggregate tax effect of items taken directly to or transferred from equity - - - 34 Net expense recognised directly in equity 235 (21) - 63 Profit for the year - 867 - 867 Total recognised income and expense for the year 235 846 - 930 Dividend for the year - (184) - (184) Net purchase of treasury shares - (182) - (182) Issue of perpetual preferred callable securities - - 688 679 Issue of share capital by the Company - - - 159 Exercise of share options - - - 4 Fair value of equity settled share options - - - 80 Attributable to equity holders of the parent at end of the year 357 2,192 688 4,751 Â£m At 31 December Other reserves 2005 Merger reserve 184 Available-for-sale reserve 68 Investment property revaluation reserve 39 Cash flow hedge reserve (3) Share based payments reserve 86 Attributable to equity holders of the parent at end of the year 374 Retained earnings were reduced by Â£712 million at 31 December 2005 in respect of own shares held in policyholders funds, ESOP trusts, Black Economic Empowerment trusts and related undertakings. This information is provided by RNS The company news service from the London Stock Exchange

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