Annual Financial Report and AGM
Old Mutual plc
Ref 34/13
4 April 2013
OLD MUTUAL PLC - ANNUAL FINANCIAL REPORT 2012 AND ANNUAL GENERAL MEETING 2013
Old Mutual plc ("Old Mutual" or the "Company") has today published its Annual Financial Report for 2012. A copy of the Annual Financial Report, the Annual Review and Summary Financial Statements for 2012, the Notice of the 2013 Annual General Meeting ("AGM") and the Form of Proxy have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do
Copies of the Annual Financial Report may also be obtained from Investor Relations, Old Mutual plc, 5th Floor, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG or Old Mutual Square, Isibaya Building, 2nd Floor, 93 Grayston Drive, Sandton 2196, South Africa.
The 2013 AGM will be held in the Presentation Suite, 2nd Floor, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG on 9 May 2013 at 11.00 a.m.
The AGM will, as usual, be webcast so that shareholders who cannot readily attend the meeting in London can, if they have access to a computer, observe the proceedings. A link to the webcast will be available on the Company's website at www.oldmutual.com on Thursday, 9 May 2013 from 10.45 a.m. (UK time).
In compliance with the Company's obligations under DTR 6.3.5, additional information is set out below which has been extracted in full unedited text from the Annual Financial Report. Accordingly, page references and section numbers in the text below refer to page numbers and section numbers in the Annual Financial Report. This information consists of a description of the risk factors and uncertainties affecting the Company and details of related party transactions and should be read in conjunction with the Company's preliminary results announcement, which was released on 1 March 2013. The Annual Financial Report and the preliminary results announcement are available on Old Mutual's website at www.oldmutual.com
The Group's current topical risks
The table below summarises the Group's top five topical risks, which are currently at the top of our agenda. These risks are closely monitored and overseen by Group, which gives regular updates to the Board and Executive Risk Committees. Our business is also impacted by a number of inherent risks, such as the exposure to market levels (which drives a significant proportion of our capital requirement). Although market risk (policyholder) is material, a large portion is from the inherent risk within our product offering, as we are exposed to the impact of market movements on asset-based fees generated from client-selected investments. For further information on our inherent and significant risks, please refer to our website www.oldmutual.com/reports2012.
|
Risk description |
2012 and beyond |
Risk mitigation and management action |
|
1. Currency translation risk and SA market risk The bulk of the Group's capital is held in South Africa to match the risks faced by the business there. In addition, a significant portion of our earnings comes from our South African businesses. Earnings and surplus capital are directly impacted by a depreciation in the rand. In addition to this, earnings from our South African business are exposed to market movements in the South African market. |
During 2012, South African Government debt was downgraded and the rand depreciated significantly and is expected to remain volatile. Bond yields reduced during the year, increasing the value of certain liabilities in the South African business. In addition, Old Mutual Emerging Markets' IFRS earnings are sensitive to further falls in bond yields. Despite this, a positive climate for doing business remains in South Africa. The economic and demographic trends provide a strong case for investment and the country has a high level of fiscal discipline, with a strong banking sector which is well capitalised. |
While future dividend flow from subsidiaries is still heavily impacted by rand risk, this is partly mitigated by the proposed policy of linking dividends to earnings. In addition, the Group uses currency hedging to partially mitigate the risk of a depreciation in the value of rand receipts from the South African business. Partial hedging was implemented during 2012 to protect against further interest rate reductions. |
|
2. Credit risk across the Group One of our largest single quantifiable risks to the Group is our exposure to banking credit risk through our exposure to Nedbank. Despite tight controls and processes, profits remain sensitive to relatively small movements in the credit loss ratios. Our exposure to Nedbank is primarily contagion risk to earnings, as Nedbank's capital and liquidity requirements are both met from its own resources. There is also credit risk within the South African Life business through: · Our unsecured lending joint venture, called Old Mutual Finance (OMF) · Old Mutual Specialised Finance (OMSFIN) · The South African Life business, predominantly through the management of assets backing annuity products · A building society in Zimbabwe, although the exposure is very small. |
Our credit risk remains stable. However, there has been an increase in our unsecured loan books in both Nedbank and OMF in a market with weakened credit characteristics amongst consumers. If low economic growth persists in South Africa, this may have an impact on impairment levels. However this risk would be mitigated to some extent if lower interest rates persist. |
We are currently enhancing the credit risk limit framework to enable greater granularity and consistency of limits across the Group. We are closely managing credit loss ratios, though these are broadly within target range and have improved in the retail area. Nedbank and OMF apply cautious underwriting criteria compared to some of their competitors, to the extent of constraining growth vis-à-vis peers. |
|
3. Old Mutual Wealth execution risk The key risk here is one of execution due to the volume and complexity of change rather than funding or capital constraints. |
The level of operational risk within Old Mutual Wealth is increasing in the short term, reflecting significant changes to the operating model and staffing changes resulting in reduced continuity. We are increasing our focus on the control environment and prompt escalation during this period in order to mitigate the risk. While this is contrary to the Group's stated strategy of reducing overall operational risk, we have made an explicit exception as the operational risk increase is temporary and is necessary to address a larger strategic risk to the sustainability of the Old Mutual Wealth business model. |
The business plan seeks to transform Old Mutual Wealth into a simpler, unified business with updated IT systems. The strategy, focusing mainly on the UK and International markets, is to take on more fund management and product risk to increase margins. There has been significant investment in IT and change governance over the past year. More recently we have changed the operating model to place more execution responsibility at the Old Mutual Wealth business level, with ongoing oversight at Group level. |
|
4. Expansion in Africa We are looking to expand our business further into the African continent. This could potentially increase execution, reputational, legal and people risk. |
The level of investment in new territories is still relatively small; while nominally more capital has been allocated to these territories, from an economic capital perspective they are not yet material to Emerging Markets. The approach has been cautious, and volumes of business are low. |
We perform due diligence and careful groundwork before entering new territories to ensure we fully understand the risk that we are taking on. Where possible we consider partnering with local businesses rather than going in on our own. Where we have existing operations, we monitor new business levels and required capital for these businesses in order to identify higher than expected growth. |
|
5. Old Mutual Bermuda The residual risk relating to the Bermuda business remains. However, we have reduced the exposure through reducing the equity volatility in the business. |
At the start of 2012, the exposures in relation to Bermuda were our largest single risk to capital and the only material area which was outside risk appetite. In March 2012 we put in place an option-based hedging programme to mitigate the market risk for the five-year top-ups. In addition, significantly more policies than expected have been surrendered at or shortly after the five-year point. |
The exposure to Old Mutual Bermuda has substantially reduced and the residual exposure is now within risk appetite. Although this is no longer the largest single risk to the Group, we continue to monitor the market exposure in the business. |
Related parties
The Group provides certain pension fund, insurance, banking and financial services to related parties. These are conducted on an arm's length basis and are not material to the Group's results.
(a) Transactions with key management personnel, remuneration and other compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Details of the compensation paid to the Board of directors as well as their shareholdings in the Company are disclosed in the Remuneration Report on page 99 to 116.
(b) Key management personnel remuneration and other compensation
|
|
Year ended 31 December 2012 |
Year ended 31 December 2011 |
||
|
|
Number of personnel |
Value £000s |
Number of personnel |
Value £000s |
|
Directors' fees |
10 |
1,418 |
12 |
1,638 |
|
Remuneration |
|
24,140 |
|
25,176 |
|
Cash remuneration |
18 |
5,837 |
17 |
5,969 |
|
Short-term employee benefits |
18 |
6,779 |
17 |
8,751 |
|
Long-term employee benefits |
18 |
781 |
16 |
1,308 |
|
Share-based payments |
13 |
10,743 |
13 |
9,148 |
|
|
|
|
|
|
|
|
|
25,558 |
|
26,814 |
|
|
Year ended 31 December 2012 |
Year ended 31 December 2011 |
||
|
Share options |
Number of personnel |
Number of options / shares '000s |
Number of personnel |
Number of options / shares '000s |
|
Outstanding at beginning of the year |
11 |
11,482 |
13 |
14,499 |
|
New appointments |
1 |
697 |
1 |
274 |
|
Granted during the year |
|
- |
|
193 |
|
Exercised during the year |
|
(8,340) |
|
(2,079) |
|
Lapsed during the year |
|
(2,095) |
|
(1,405) |
|
Outstanding at end of the year |
4 |
1,744 |
11 |
11,482 |
|
|
Year ended 31 December 2012 |
Year ended 31 December 2011 |
||
|
Restricted shares |
Number of personnel |
Number of options / shares '000s |
Number of personnel |
Number of options / shares '000s |
|
Outstanding at beginning of the year |
14 |
21,652 |
14 |
19,142 |
|
New appointments |
4 |
2,041 |
2 |
1,580 |
|
Granted during the year |
|
5,898 |
|
7,111 |
|
Exercised during the year |
|
(1,398) |
|
(2,911) |
|
Vested during the year |
|
(4,617) |
|
(3,270) |
|
Effect of share consolidation |
|
(1,248) |
|
- |
|
Outstanding at end of the year |
14 |
22,328 |
14 |
21,652 |
(c) Key management personnel transactions
Key management personnel and members of their close family have undertaken transactions with Old Mutual plc and its subsidiaries, jointly controlled entities and associated undertakings in the normal course of business, details of which are given below. For current accounts positive values indicate assets of the individual whilst for credit cards and mortgages positive values indicate liabilities of the individual.
|
|
Year ended 31 December 2012 |
Year ended 31 December 2011 |
||
|
|
Number of personnel |
Value £000s |
Number of personnel |
Value £000s |
|
Current accounts |
|
|
|
|
|
Balance at beginning of the year |
5 |
324 |
8 |
672 |
|
Net movement during the year |
|
880 |
|
(348) |
|
Balance at end of the year |
4 |
1,204 |
5 |
324 |
|
Credit cards |
|
|
|
|
|
Balance at beginning of the year |
5 |
26 |
5 |
29 |
|
Net movement during the year |
|
(8) |
|
(3) |
|
Balance at end of the year |
4 |
18 |
5 |
26 |
|
Mortgages |
|
|
|
|
|
Balance at beginning of the year |
4 |
621 |
5 |
1,791 |
|
Net movement during the year |
|
44 |
|
(627) |
|
Interest charged |
|
31 |
|
49 |
|
Less repayments |
|
(522) |
|
(778) |
|
Foreign exchange movements |
|
45 |
|
186 |
|
Balance at end of the year |
2 |
219 |
4 |
621 |
|
General insurance contracts |
|
|
|
|
|
Total premium paid during the year |
3 |
13 |
3 |
15 |
|
Claims paid during the year |
1 |
3 |
1 |
1 |
|
Life insurance products |
|
|
|
|
|
Total sum assured/value of investment at end of the year |
12 |
18,524 |
10 |
16,029 |
|
Pensions, termination benefits paid |
|
|
|
|
|
Termination benefits paid |
4 |
2,736 |
3 |
1,625 |
|
Value of pension plans as at end of the year |
10 |
4,379 |
10 |
5,700 |
Various members of key management personnel hold, and/or have at various times during the year held, investments managed by asset management businesses of the Group. These include unit trusts, mutual funds and hedge funds. None of the amounts concerned are material in the context of the funds managed by the Group business concerned, and all of the investments have been made by the individuals concerned either on terms which are the same as those available to external clients generally or, where that is not the case, on the same preferential terms as were available to employees of the business generally.
Enquiries
External communications
Patrick Bowes UK +44 (0)20 7002 7440
Investor relations
Dominic Lagan UK +44 (0)20 7002 7190
Kelly de Kock SA +27 (0)21 509 8709
Media
William Baldwin-Charles +44 (0)20 7002 7133
+44 (0)7834 524 833
Notes to Editors
Old Mutual provides life assurance, asset management, banking and general insurance to more than 14 million customers in Africa, the Americas, Asia and Europe. Originating in South Africa in 1845, Old Mutual has been listed on the London and Johannesburg Stock Exchanges, among others, since 1999.
In the year ended 31 December 2012, the Group reported adjusted operating profit before tax of £1.6 billion (on an IFRS basis) and had £262 billion of funds under management from core operations.
For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com
This information is provided by RNS
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