Interim Results 2003 - Part 2
Old Mutual PLC
7 August 2003
Notes to the Financial Statements
for the six months ended 30 June 2003
1 BASIS OF PREPARATION
The results for the six months to 30 June 2003 and the position at that date
have been prepared using accounting policies consistent with those used in the
Group 2002 Annual Report. These accounting policies are in accordance with the
Statement of Recommended Practice on 'Accounting for Insurance Business' issued
by the Association of British Insurers in December 1998 ('ABI SORP') and the
British Bankers' Association Statements of Recommended Practice on Advances
(1997), Securities (1990), Derivatives (2001), Contingent Liabilities and
Commitments (1996) and Segmental Reporting (1993).
For details of changes in credit provisioning methodologies during the period,
refer Note 5(d)(iii).
The results for the six months ended 30 June 2003 and 2002 are unaudited, but
have been reviewed by the auditors whose report is presented on page 15. The
auditors have reported on the statutory accounts for the year ended 31 December
2002 and the accounts have been delivered to the Registrar of Companies. The
auditors' report in respect of the year ended 31 December 2002 was unqualified
and did not contain a statement under section 237 (2) or (3) of the UK Companies
Act 1985.
These financial statements do not constitute statutory accounts as described in
section 240 of the UK Companies Act 1985.
2 FOREIGN CURRENCIES
The information contained in these financial statements is expressed in both
Sterling and South African Rand. This is in order to meet both the legal
requirements of the UK Companies Act 1985 and to provide the users of the
accounts in South Africa with illustrative information.
The principal exchange rates used to translate the operating results, assets and
liabilities of key foreign business segments to Sterling are:
Rand US$
_________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_________________________________________________________________________________________
Profit and loss account 12.9459 15.8800 15.7878 1.6110 1.4445 1.5030
(average rate)
Balance sheet (closing 12.3692 15.8451 13.8141 1.6528 1.5279 1.6105
rate)
Notes to the Financial Statements continued
for the six months ended 30 June 2003
3 EARNINGS AND EARNINGS PER SHARE
Basic earnings per share is calculated based upon the profit after tax
attributable to equity shareholders after goodwill amortisation, write-down of
investment in Dimension Data Holdings plc, Nedcor restructuring and integration
costs, change in credit provisioning methodology, short term fluctuations in
investment return and non-operating items.
The directors' view is that adjusted operating earnings per share derived from
adjusted operating profit or loss after tax and minority interests provides a
better indication of the underlying performance of the Group. A table
reconciling operating profit on ordinary activities after tax and minority
interests to adjusted operating profit after tax and minority interests is
included below.
Notes £m
Rm
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
Profit on ordinary 175 121 157 2,272 1,931 2,472
activities after tax
and minority
interests
Goodwill amortisation 40 51 104 518 810 1,646
net of minority
interests
Write-down of 6 22 29 78 350 467
investment in
Dimension Data
Holdings plc net of
tax and minority
interests
Nedcor restructuring 5(d)(ii) 5 - 7 69 - 104
and integration costs
net of tax and
minority interests
Change in credit 5(d)(iii) 24 - - 311 - -
provisioning
methodology net of tax
and minority
interests
Short term (55) 39 75 (712) 619 1,192
fluctuations in
investment return net
of tax and minority
interests
Non-operating items
net of tax 8 15 (20) 44 194 (317) 688
__________________________________________________________________________________
Adjusted operating
profit after tax and
minority interests 210 213 416 2,730 3,393 6,569
__________________________________________________________________________________
p c
__________________________________________________________________________________
Basic earnings per 4.7 3.3 4.3 61.1 52.9 67.4
share
Goodwill amortisation 1.1 1.3 2.8 13.9 22.2 44.9
net of minority
interests
Write-down of 0.2 0.6 0.8 2.1 9.6 12.7
investment in
Dimension Data
Holdings plc net of
tax and minority
interests
Nedcor restructuring 0.1 - 0.2 1.9 - 2.8
and integration costs
net of tax and
minority interests
Change in credit 0.6 - - 8.4 - -
provisioning
methodology net of tax
and minority
interests
Short term (1.5) 1.1 2.0 (19.2) 16.9 32.5
fluctuations in
investment return net
of tax and minority
interests
Non-operating items
net of tax 0.4 (0.5) 1.2 5.2 (8.7) 18.7
Adjusted operating
earnings per share
after tax and minority
interests 5.6 5.8 11.3 73.4 92.9 179.0
_________________________________________________________________________________
Basic earnings per share is calculated by reference to the profit on ordinary
activities after tax and minority interests of £175 million (R2,272 million) for
the six months ended 30 June 2003 (June 2002: £121 million (R1,931 million);
December 2002: £157 million (R2,472 million)) and a weighted average number of
shares in issue of 3,717 million (June 2002: 3,652 million; December 2002: 3,670
million). This is calculated after taking into account shares held by Employee
Share Ownership Plans (ESOPs) that have waived their rights to dividends.
The diluted earnings per share calculation reflects the impact of the shares in
ESOP Trusts, the US Dollar Guaranteed Convertible Bond, and potential issue of
shares to satisfy the purchase of the Pilgrim Baxter deferred consideration.
316 million (June 2002: 316 million; December 2002: 316 million) Old Mutual plc
shares held by policyholders' funds are included in the weighted average number
of shares used in the earnings per share calculations, reflecting the
policyholders' economic interest in these shares.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
4 DIVIDEND
£m Rm
_________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
____________________________________________________________________________________________________________________
2003 interim dividend 64 - - 792 - -
proposed: 1.7p (21.0c*)
2002 final dividend paid: - - 114 - - 1,577
3.1p (38.3c)
2002 interim dividend
paid: 1.7p (27.7c) - 63 62 - 998 979
________________________________________________________________________________________
64 63 176 792 998 2,556
________________________________________________________________________________________
Provision has been made for an interim dividend of 1.7p (21.0c*) per share
calculated using the number of shares in issue at 30 June 2003 of 3,832 million
less 97 million shares in Employee Share Ownership Plans that have waived their
rights to dividends. The dividend will be paid on 28 November 2003 to all
shareholders on the register at the close of business on 17 October 2003, being
the record date for the dividend.
As a consequence of the exchange control arrangements in place in South Africa
and other relevant African territories, dividends to shareholders on the branch
registers in those countries (or in the case of Namibia, the Namibian section of
the principal register) are settled through Dividend Access Trusts established
for that purpose.
* Indicative only - the actual amount of the dividend per share in Rand will be
determined by reference to the exchange rate prevailing at the close on 2
October 2003 and announced by the Company on 3 October 2003.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS
5(a) Summary of Notes £m Rm
operating profit on ______________________________________________________________________________________
ordinary activities South United UK & Rest South United UK & Rest
before tax Africa States of World Total Africa States of World Total
___________________________________________________________________________________________________________________
6 months to 30 June
2003
Life assurance 5(b)(iii) 206 39 8 253 2,667 505 104 3,276
Asset management 5(c) 18 37 1 56 233 479 14 726
Banking 5(d)(i) 74 - 27 101 959 - 349 1,308
General insurance 5(e) 28 - - 28 368 - - 368
business
Other shareholders' 5(f) 2 - (15) (13) 26 - (194) (168)
income / (expenses)
Debt service costs - - (30) (30) - - (388) (388)
_____________________________________________________________________________________
Adjusted operating 328 76 (9) 395 4,253 984 (115) 5,122
profit
Goodwill 9 (13) (29) (5) (47) (167) (376) (65) (608)
amortisation
Write-down of (11) - - (11) (136) - - (136)
investment in
Dimension Data
Holdings plc
Nedcor restructuring 5(d)(ii) (10) - - (10) (134) - - (134)
and integration
costs
Change in credit 5(d)(iii) (74) - - (74) (963) - - (963)
provisioning
methodology
Short term
fluctuations in
investment return 6 (168) 303 (10) 125 (2,175) 3,922 (129) 1,618
___________________________________________________________________________________
Operating profit on
ordinary activities
before tax 52 350 (24) 378 678 4,530 (309) 4,899
___________________________________________________________________________________
Analysed as:
Life assurance 58 340 8 406 751 4,401 104 5,256
Asset management 18 10 (4) 24 233 129 (51) 311
Banking (33) - 27 (6) (428) - 349 (79)
General insurance 7 - - 7 96 - - 96
business
Other shareholders' 2 - (25) (23) 26 - (323) (297)
income / (expenses)
Debt service costs - - (30) (30) - - (388) (388)
___________________________________________________________________________________
Operating profit on
ordinary activities
before tax 52 350 (24) 378 678 4,530 (309) 4,899
___________________________________________________________________________________
6 months to 30 June
2002
Life assurance 5(b)(iii) 160 33 (3) 190 2,541 524 (47) 3,018
Asset management 5(c) 13 60 5 78 207 951 80 1,238
Banking 5(d) 99 - 29 128 1,579 - 456 2,035
General insurance 5(e) 19 - - 19 308 - - 308
business
Other shareholders' 5(f) 1 - (10) (9) 16 - (159) (143)
income / (expenses)
Debt service costs - - (25) (25) - - (397) (397)
___________________________________________________________________________________
Adjusted operating 292 93 (4) 381 4,651 1,475 (67) 6,059
profit
Goodwill 9 (8) (40) (7) (55) (127) (635) (111) (873)
amortisation
Write-down of (52) - - (52) (830) - - (830)
investment in
Dimension Data
Holdings plc
Short term
fluctuations in
investment return 6 (86) 4 20 (62) (1,361) 64 317 (980)
___________________________________________________________________________________
Operating profit on
ordinary activities
before tax 146 57 9 212 2,333 904 139 3,376
___________________________________________________________________________________
Analysed as:
Life assurance 87 37 4 128 1,386 588 64 2,038
Asset management 13 20 (2) 31 207 316 (31) 492
Banking 40 - 29 69 638 - 456 1,094
General insurance 5 - - 5 86 - - 86
business
Other shareholders' 1 - 3 4 16 - 47 63
income / (expenses)
Debt service costs - - (25) (25) - - (397) (397)
___________________________________________________________________________________
Operating profit on
ordinary activities
before tax 146 57 9 212 2,333 904 139 3,376
___________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(a) Summary of Notes £m Rm
operating profit on __________________________________________________________________________________
ordinary activities
before tax South United UK & Rest South United UK & Rest
continued
Africa States of World Total Africa States of World Total
___________________________________________________________________________________
Year to 31 December
2002
Life assurance 5(b)(iii) 343 83 (3) 423 5,414 1,310 (47) 6,677
Asset management 5(c) 28 95 2 125 441 1,500 31 1,972
Banking 5(d)(i) 165 - 56 221 2,605 - 884 3,489
General insurance 5(e) 35 - - 35 556 - - 556
business
Other shareholders' 5(f) - - (22) (22) - - (347) (347)
income / (expenses)
Debt service costs - - (58) (58) - - (916) (916)
__________________________________________________________________________________
Adjusted operating 571 178 (25) 724 9,016 2,810 (395) 11,431
profit
Goodwill 9 (31) (70) (19) (120) (490) (1,105) (300) (1,895)
amortisation
Write-down of (68) - - (68) (1,080) - - (1,080)
investment in
Dimension Data
Holdings plc
Nedcor restructuring 5(d)(ii) (14) - - (14) (227) - - (227)
and integration
costs
Short term
fluctuations in
investment return 6 (292) 181 20 (91) (4,613) 2,858 316 (1,439)
__________________________________________________________________________________
Operating profit on
ordinary activities
before tax 166 289 (24) 431 2,606 4,563 (379) 6,790
__________________________________________________________________________________
Analysed as:
Life assurance 93 258 (17) 334 1,464 4,073 (268) 5,269
Asset management 28 31 (13) 46 441 490 (206) 725
Banking 53 - 52 105 824 - 821 1,645
General insurance (8) - - (8) (123) - - (123)
business
Other shareholders' - - 12 12 - - 190 190
income / (expenses)
Debt service costs - - (58) (58) - - (916) (916)
__________________________________________________________________________________
Operating profit on
ordinary activities
before tax 166 289 (24) 431 2,606 4,563 (379) 6,790
__________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(b) Life £m Rm
assurance _______________________________________________________________________________________________
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
_______________________________________________________________________________________________
(i) Gross premiums
written
6 months to 30 June
2003
Individual
business
Single 282 873 41 1,196 3,644 11,302 531 15,477
Recurring 391 91 26 508 5,062 1,178 337 6,577
_______________________________________________________________________________________________
673 964 67 1,704 8,706 12,480 868 22,054
_______________________________________________________________________________________________
Group business
Single 325 - 8 333 4,204 - 104 4,308
Recurring 147 4 5 156 1,903 52 65 2,020
_______________________________________________________________________________________________
472 4 13 489 6,107 52 169 6,328
_______________________________________________________________________________________________
1,145 968 80 2,193 14,813 12,532 1,037 28,382
_______________________________________________________________________________________________
6 months to 30
June 2002
Individual
business
Single 316 1,534 76 1,926 5,018 24,360 1,207 30,585
Recurring 301 74 23 398 4,780 1,175 365 6,320
_______________________________________________________________________________________________
617 1,608 99 2,324 9,798 25,535 1,572 36,905
_______________________________________________________________________________________________
Group
business
Single 232 - 6 238 3,684 - 95 3,779
Recurring 116 - 8 124 1,842 - 127 1,969
_______________________________________________________________________________________________
348 - 14 362 5,526 - 222 5,748
_______________________________________________________________________________________________
965 1,608 113 2,686 15,324 25,535 1,794 42,653
_______________________________________________________________________________________________
Year to 31
December
2002
Individual
business
Single 610 2,633 104 3,347 9,631 41,562 1,637 52,830
Recurring 612 146 49 807 9,662 2,312 779 12,753
_______________________________________________________________________________________________
1,222 2,779 153 4,154 19,293 43,874 2,416 65,583
_______________________________________________________________________________________________
Group
business
Single 647 - 9 656 10,215 - 142 10,357
Recurring 241 - 9 250 3,805 - 142 3,947
_______________________________________________________________________________________________
888 - 18 906 14,020 - 284 14,304
_______________________________________________________________________________________________
2,110 2,779 171 5,060 33,313 43,874 2,700 79,887
_______________________________________________________________________________________________
Business transacted with SA residents in terms of their personal offshore
allowances is conducted by the Group's offshore companies and is therefore
disclosed under the Rest of World segment.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(b) Life assurance £m Rm
continued ____________________________________________________________________________________________
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
____________________________________________________________________________________________
(ii) New business
premiums
6 months to 30 June
2003
New business premiums
on a statutory basis
Individual business
Single 282 873 41 1,196 3,644 11,302 531 15,477
Recurring 69 41 4 114 888 531 52 1,471
____________________________________________________________________________________________
351 914 45 1,310 4,532 11,833 583 16,948
____________________________________________________________________________________________
Group business
Single 325 - 8 333 4,204 - 104 4,308
Recurring 9 - 2 11 120 - 26 146
____________________________________________________________________________________________
334 - 10 344 4,324 - 130 4,454
____________________________________________________________________________________________
685 914 55 1,654 8,856 11,833 713 21,402
____________________________________________________________________________________________
Annual premium 139 128 11 278 1,793 1,661 142 3,596
equivalent
____________________________________________________________________________________________
6 months to 30 June
2002
New business premiums
on a statutory basis
Individual business
Single 316 1,534 76 1,926 5,018 24,360 1,207 30,585
Recurring 67 21 5 93 1,064 333 79 1,476
____________________________________________________________________________________________
383 1,555 81 2,019 6,082 24,693 1,286 32,061
____________________________________________________________________________________________
Group business
Single 232 - 6 238 3,684 - 95 3,779
Recurring 10 - 1 11 159 - 16 175
____________________________________________________________________________________________
242 - 7 249 3,843 - 111 3,954
____________________________________________________________________________________________
625 1,555 88 2,268 9,925 24,693 1,397 36,015
____________________________________________________________________________________________
Annual premium 132 174 14 320 2,093 2,769 225 5,087
equivalent
____________________________________________________________________________________________
Year to 31 December
2002
New business premiums
on a statutory basis
Individual business
Single 610 2,633 104 3,347 9,631 41,562 1,637 52,830
Recurring 115 73 11 199 1,808 1,154 175 3,137
____________________________________________________________________________________________
725 2,706 115 3,546 11,439 42,716 1,812 55,967
____________________________________________________________________________________________
Group business
Single 647 - 9 656 10,215 - 142 10,357
Recurring 19 - 1 20 296 - 11 307
____________________________________________________________________________________________
666 - 10 676 10,511 - 153 10,664
____________________________________________________________________________________________
1,391 2,706 125 4,222 21,950 42,716 1,965 66,631
____________________________________________________________________________________________
Annual premium 260 336 23 619 4,089 5,310 364 9,763
equivalent
____________________________________________________________________________________________
Annual premium equivalent is defined as one tenth of single premiums plus
recurring premiums.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(b) Life assurance £m Rm
continued ________________________________________________________________________________
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
________________________________________________________________________________
(iii) Life assurance
adjusted operating
profit
6 months to 30 June
2003
Individual business 89 39 6 134 1,152 505 78 1,735
Group business 34 - - 34 440 - - 440
________________________________________________________________________________
Technical result 123 39 6 168 1,592 505 78 2,175
Long term investment 83 - 2 85 1,075 - 26 1,101
return
________________________________________________________________________________
Adjusted operating 206 39 8 253 2,667 505 104 3,276
profit
________________________________________________________________________________
6 months to 30 June
2002
Individual business 69 33 (5) 97 1,096 524 (79) 1,541
Group business 28 - - 28 445 - - 445
________________________________________________________________________________
Technical result 97 33 (5) 125 1,541 524 (79) 1,986
Long term investment 63 - 2 65 1,000 - 32 1,032
return
________________________________________________________________________________
Adjusted operating 160 33 (3) 190 2,541 524 (47) 3,018
profit
________________________________________________________________________________
Year to 31 December
2002
Individual business 149 83 (8) 224 2,352 1,310 (126) 3,536
Group business 59 - 1 60 931 - 16 947
________________________________________________________________________________
Technical result 208 83 (7) 284 3,283 1,310 (110) 4,483
Long term investment 135 - 4 139 2,131 - 63 2,194
return
________________________________________________________________________________
Adjusted operating 343 83 (3) 423 5,414 1,310 (47) 6,677
profit
________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(c) Asset management £m Rm
____________________________________________________________________
Adjusted Adjusted
operating operating
Revenue Expenses profit Revenue Expenses profit
_______________________________________________________________________________________________
6 months to 30 June 2003
South Africa
Fund management
Old Mutual Asset Managers 14 (8) 6 181 (104) 77
Old Mutual Unit Trusts 9 (6) 3 117 (78) 39
Other 7 (6) 1 91 (78) 13
____________________________________________________________________
30 (20) 10 389 (260) 129
Other financial services 24 (16) 8 311 (207) 104
____________________________________________________________________
54 (36) 18 700 (467) 233
____________________________________________________________________
United States 159 (122) 37 2,058 (1,579) 479
UK & Rest of World
Fund management 20 (15) 5 259 (194) 65
Private client - Gerrard 51 (48) 3 660 (621) 39
Other financial services 7 (14) (7) 91 (181) (90)
____________________________________________________________________
78 (77) 1 1,010 (996) 14
____________________________________________________________________
291 (235) 56 3,768 (3,042) 726
____________________________________________________________________
6 months to 30 June 2002
South Africa
Fund management
Old Mutual Asset Managers 13 (6) 7 206 (95) 111
Old Mutual Unit Trusts 8 (8) - 127 (127) -
Other 6 (4) 2 96 (64) 32
____________________________________________________________________
27 (18) 9 429 (286) 143
Other financial services 10 (6) 4 159 (95) 64
____________________________________________________________________
37 (24) 13 588 (381) 207
____________________________________________________________________
United States 208 (148) 60 3,301 (2,350) 951
UK & Rest of World
Fund management 20 (17) 3 318 (270) 48
Private client - Gerrard 63 (60) 3 1,001 (953) 48
Other financial services 53 (54) (1) 842 (858) (16)
____________________________________________________________________
136 (131) 5 2,161 (2,081) 80
____________________________________________________________________
381 (303) 78 6,050 (4,812) 1,238
____________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
_______________________________________________________________________________________________
£m Rm
5(c) Asset management
continued
_______________________________________________________________________________________________
Adjusted Adjusted
operating operating
Revenue Expenses profit Revenue Expenses profit
________________________________________________________________________________________________
Year to 31 December 2002
South Africa
Fund management
Old Mutual Asset Managers 25 (12) 13 394 (189) 205
Old Mutual Unit Trusts 16 (13) 3 252 (205) 47
Other 14 (11) 3 221 (174) 47
__________________________________________________________________
55 (36) 19 867 (568) 299
Other financial services 25 (16) 9 395 (253) 142
____________________________________________________________________
80 (52) 28 1,262 (821) 441
____________________________________________________________________
United States 373 (278) 95 5,889 (4,389) 1,500
UK & Rest of World
Fund management 40 (42) (2) 631 (663) (32)
Private client - Gerrard 119 (115) 4 1,879 (1,816) 63
Other financial services 98 (98) - 1,547 (1,547) -
____________________________________________________________________
257 (255) 2 4,057 (4,026) 31
____________________________________________________________________
710 (585) 125 11,208 (9,236) 1,972
____________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
£m Rm
______________________________________________________________________________________
5(d) Banking South UK & Rest South UK & Rest
Africa of World Total Africa of World Total
_______________________________________________________________________________________
(i) Banking adjusted
operating profit
6 months to 30 June 2003
Interest receivable 1,062 71 1,133 13,750 919 14,669
Interest payable (818) (46) (864) (10,590) (596) (11,186)
____________________________________________________________
Net interest income 244 25 269 3,160 323 3,483
Dividend income 6 - 6 78 - 78
Fees and commissions 196 5 201 2,537 65 2,602
receivable
Fees and commissions (5) (1) (6) (65) (13) (78)
payable
Other operating income 88 10 98 1,139 124 1,263
____________________________________________________________
Total operating income 529 39 568 6,849 499 7,348
Specific and general (69) - (69) (893) - (893)
provisions charge
____________________________________________________________
Net income 460 39 499 5,956 499 6,455
Operating expenses (387) (16) (403) (5,010) (207) (5,217)
____________________________________________________________
73 23 96 946 292 1,238
Share of associated 1 4 5 13 57 70
undertakings' profit
____________________________________________________________
Adjusted operating 74 27 101 959 349 1,308
profit ____________________________________________________________
6 months to 30 June 2002
Interest receivable 532 65 597 8,441 1,045 9,486
Interest payable (368) (48) (416) (5,844) (762) (6,606)
____________________________________________________________
Net interest income 164 17 181 2,597 283 2,880
Dividend income 4 - 4 64 - 64
Fees and commissions 104 1 105 1,656 16 1,672
receivable
Fees and commissions (5) (2) (7) (79) (32) (111)
payable
Other operating income 12 27 39 192 427 619
____________________________________________________________
Total operating income 279 43 322 4,430 694 5,124
Specific and general (10) - (10) (160) (4) (164)
provisions charge
____________________________________________________________
Net income 269 43 312 4,270 690 4,960
Operating expenses (173) (17) (190) (2,741) (276) (3,017)
____________________________________________________________
96 26 122 1,529 414 1,943
Share of associated 3 3 6 50 42 92
undertakings' profit
____________________________________________________________
Adjusted operating 99 29 128 1,579 456 2,035
profit
____________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
£m Rm
_______________________________________________________________________________________
5(d) Banking continued South UK & Rest South UK & Rest
Africa of World Total Africa of World Total
_______________________________________________________________________________________
(i) Banking adjusted
operating profit
continued
Year to 31 December 2002
Interest receivable 1,372 142 1,514 21,661 2,242 23,903
Interest payable (1,003) (108) (1,111) (15,835) (1,705) (17,540)
____________________________________________________________
Net interest income 369 34 403 5,826 537 6,363
Dividend income 11 - 11 174 - 174
Fees and commissions 261 45 306 4,121 710 4,831
receivable
Fees and commissions (9) (2) (11) (142) (32) (174)
payable
Other operating income 112 21 133 1,768 332 2,100
____________________________________________________________
Total operating income 744 98 842 11,747 1,547 13,294
Specific and general (87) (1) (88) (1,374) (16) (1,390)
provisions charge
____________________________________________________________
Net income 657 97 754 10,373 1,531 11,904
Operating expenses (497) (46) (543) (7,847) (726) (8,573)
____________________________________________________________
160 51 211 2,526 805 3,331
Share of associated 5 5 10 79 79 158
undertakings' profit
____________________________________________________________
Adjusted operating 165 56 221 2,605 884 3,489
profit
____________________________________________________________
Operating expenses include translation losses of £51 million (R658 million)
(June 2002: £27 million (R436 million); December 2002: £64 million (R1,011
million)).
There are no banking operations in the United States.
£m Rm
________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_____________________________________________________________________________________________________________________
(ii) Nedcor restructuring
and integration costs
Costs before tax and 10 - 14 134 - 227
minority interests
Tax - - (1) - - (23)
_______________________________________________________________________________________
Costs after tax and before 10 - 13 134 - 204
minority interests
Minority interests (5) - (6) (65) - (100)
_______________________________________________________________________________________
Costs after tax and 5 - 7 69 - 104
minority interests
_______________________________________________________________________________________
For the six months to 30 June 2003, Nedcor incurred merger restructuring and
integration costs after tax of £10 million (R134 million) (December 2002: £5
million (R86 million)) following the acquisition of BoE during 2002. In the year
to 31 December 2002, costs after tax of £8 million (R118 million) were also
incurred for the closure and restructuring costs of Permanent Bank's
deposit-taking activities and infrastructure.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
______________________________________________________________________________________
£m Rm
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
5(d) Banking continued 2003 2002 2002 2003 2002 2002
__________________________________________________________________________________________________________________
(iii) Change in credit
provisioning methodology
Charge before tax and
minority interests 74 - - 963 - -
Tax (22) - - (289) - -
______________________________________________________________________________________
Charge after tax and 52 - - 674 - -
before minority
interests
Minority interests (27) - - (349) - -
______________________________________________________________________________________
Charge after tax and
minority interests 25 - - 325 - -
______________________________________________________________________________________
During the period, the Group's banking subsidiary, Nedcor Limited, implemented a
revised methodology for the calculation of credit provisions for loans and
advances in accordance with changes to local reporting requirements (AC133:
'Financial Instruments - Recognition and Measurement'). The revised methodology
requiring the discounting of expected losses is acceptable under UK GAAP
reporting and has therefore been adopted in preparation of the Group's financial
statements, resulting in a one-off increase in opening specific provisions due
to the discounting effect.
This adjustment has been taken to the profit and loss account in the Group's
financial statements but excluded from adjusted operating profit.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(e) General insurance £m Rm
business
______________________________________________________________________________________
Earned Claims Adjusted Earned Claims Adjusted
premiums net incurred net operating premiums net incurred net operating
of reinsurance of reinsurance profit of reinsurance of reinsurance profit
__________________________________________________________________________________________________________________
6 months to 30 June 2003
Commercial 85 58 5 1,101 750 63
Corporate 9 4 1 110 56 12
Personal lines 95 71 1 1,240 920 18
Risk financing 18 16 - 227 206 -
___________________________________________________________________________________
207 149 7 2,678 1,932 93
_________________________ _________________________
Long term investment
return 21 275
_________ _________
28 368
_________ _________
6 months to 30 June 2002
Commercial 60 40 1 957 634 23
Corporate 7 6 - 105 103 (1)
Personal lines 73 51 1 1,157 806 10
Risk financing 7 5 - 119 88 -
___________________________________________________________________________________
147 102 2 2,338 1,631 32
_________________________ _________________________
Long term investment
return 17 276
_________ _________
19 308
_________ _________
Year to 31 December
2002
Commercial 125 89 3 1,968 1,400 40
Corporate 15 11 (2) 234 180 (28)
Personal lines 145 111 (1) 2,284 1,747 (8)
Risk financing 20 18 - 320 280 2
___________________________________________________________________________________
305 229 - 4,806 3,607 2
Long term investment
return 35 554
_________ _________
35 556
_________ _________
£m Rm
______________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
5(f) Other 30 June 30 June 31 December 30 June 30 June 31 December
shareholders' income /
(expenses) 2003 2002 2002 2003 2002 2002
_______________________________________________________________________________________________________________
Long term investment - 1 - - 16 -
return credited to
operating result
Corporate expenses (15) (17) (35) (194) (270) (552)
Other income 2 7 13 26 111 205
______________________________________________________________________________________
Other shareholders' (13) (9) (22) (168) (143) (347)
income / (expenses)
______________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(g) Funds under £m Rm
management
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
______________________________________________________________________________________
At 30 June 2003
Investments 16,278 7,823 2,297 26,398 201,346 96,764 28,412 326,522
including assets
______________________________________________________________________________________
held to cover linked
liabilities
SA asset
management
Nedcor Unit Trusts 335 - 729 1,064 4,144 - 9,017 13,161
Unit trusts - 871 - 1,572 2,443 10,774 - 19,444 30,218
other
Third party 3,919 - - 3,919 48,475 - - 48,475
Nedcor portfolio 2,748 301 3,504 6,553 33,991 3,723 43,342 81,056
management
Other financial 318 - - 318 3,933 - - 3,933
services
_______________________________________________________________________________________
8,191 301 5,805 14,297 101,317 3,723 71,803 176,843
_______________________________________________________________________________________
US asset - 68,929 5,781 74,710 - 852,597 71,506 924,103
management
UK & Rest of World
asset management
Unit trusts - - 23 23 - - 284 284
Third party - - 294 294 - - 3,637 3,637
Other financial - - 287 287 - - 3,550 3,550
services
_______________________________________________________________________________________
- - 604 604 - - 7,471 7,471
_______________________________________________________________________________________
UK Private client - - - 11,992 11,992 - - 148,331 148,331
Gerrard
_______________________________________________________________________________________
Total funds under 24,469 77,053 26,479 128,001 302,663 953,084 327,523 1,583,270
management
_______________________________________________________________________________________
At 31 December
2002
Investments 13,968 6,793 3,058 23,819 192,955 93,839 42,243 329,037
including assets
held to cover linked
liabilities
_______________________________________________________________________________________
SA asset
management
Nedcor Unit Trusts 633 - 712 1,345 8,744 - 9,836 18,580
Unit trusts - 773 - 1,376 2,149 10,678 - 19,008 29,686
other
Third party 3,533 - - 3,533 48,805 - - 48,805
Nedcor portfolio 3,845 310 3,501 7,656 53,115 4,282 48,363 105,760
management
Other financial 18 - - 318 4,393 - - 4,393
services
_______________________________________________________________________________________
9,102 310 5,589 15,001 125,735 4,282 77,207 207,224
US asset - 66,445 5,875 72,320 - 917,878 81,158 999,036
management
UK & Rest of World
asset management
Unit trusts 11 11 - - 152 152
Third party - - 105 105 - - 1,450 1,450
Other financial 310 310 - - 4,282 4,282
services
_______________________________________________________________________________________
- - 426 426 - - 5,884 5,884
UK Private client - - - 12,030 12,030 - - 166,184 166,184
Gerrard
_______________________________________________________________________________________
Total funds under 23,070 73,548 26,978 123,596 318,690 1,015,999 372,676 1,707,365
management
_______________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
5 SEGMENTAL ANALYSIS continued
5(g) Funds under £m Rm
management ______________________________________________________________________________________
continued South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
_______________________________________________________________________________________
At 30 June 2002
Investments 12,483 6,058 3,525 22,066 197,794 95,990 55,854 349,638
including assets
_______________________________________________________________________________________
held to cover linked
liabilities
SA asset
management
Nedcor Unit Trusts 124 - 575 699 1,965 - 9,111 11,076
Unit trusts - 701 - 1,566 2,267 11,107 - 24,813 35,920
other
Third party 3,313 - - 3,313 52,495 - - 52,495
Nedcor portfolio 840 254 549 1,643 13,310 4,025 8,699 26,034
management
Other financial 309 - - 309 4,896 - - 4,896
services
_______________________________________________________________________________________
5,287 254 2,690 8,231 83,773 4,025 42,623 130,421
US asset - 80,411 7,073 87,484 - 1,274,121 112,072 1,386,193
management
UK & Rest of World
asset management
Unit trusts - - 172 172 - - 2,725 2,725
Third party - - 110 110 - - 1,743 1,743
Other financial - - 331 331 - - 5,245 5,245
services
_______________________________________________________________________________________
- - 613 613 - - 9,713 9,713
UK Private client - - - 14,583 14,583 - - 231,069 231,069
Gerrard
_______________________________________________________________________________________
Total funds under 17,770 86,723 28,484 132,977 281,567 1,374,136 451,331 2,107,034
management
_______________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
6 INSURANCE LONG TERM INVESTMENT RETURN
As permitted by the ABI SORP, balances on the long term business and general
business technical accounts are stated after allocating an investment return
earned by the insurance businesses, based on a long term investment return, to /
from the non-technical account.
For the South African and Namibian long term businesses, the return is applied
to an average value of investible shareholders' assets. For general insurance
business, the return is an average value of investible assets supporting
shareholders' funds and insurance liabilities. For the US long term business,
the return earned by assets, mainly bonds, has been smoothed with reference to
the actual yield earned by the portfolio. Short term fluctuations in investment
return represent the difference between actual return and long term investment
return.
The principal long term rates of investment return for equities and other
investible assets are as follows:
___________________________________________
6 months to 6 months to Year to
30 June 30 June 31 December
2003 2002 2002
___________________________________________
South Africa and Namibia - weighted 13.4% 14.0% 14.0%
average return
___________________________________________
Equities 14.0% 14.0% 14.0%
Cash and other investible assets 12.5% * *
Cash and other investible assets - 9.0% * *
foreign currencies
___________________________________________
United States 6.04% 6.79% 6.46%
___________________________________________
The long term rates of return are based on achieved real rates of return
adjusted for current inflation expectations and consensus economic investment
forecasts, and are reviewed annually for appropriateness. The directors are of
the opinion that these rates of return are appropriate and have been selected
with a view to ensuring that returns credited to operating earnings are not
inconsistent with the actual returns expected to be earned over the long term.
* Changes to the composition of investments have resulted in an increase in the
cash and other investible assets held as a proportion of total investible assets
in South Africa and Namibia resulting in a weighted average return being applied
for 2003.
Analysis of short term £m Rm
fluctuations in ________________________________________________________________________________________
investment return 6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
__________________________________________________________________________________________________________________
Life assurance
Actual investment return 240 3 56 3,107 52 883
attributable to
shareholders
Long term investment 85 65 139 1,101 1,032 2,194
return credited to
operating result
________________________________________________________________________________________
155 (62) (83) 2,006 (980) (1,311)
________________________________________________________________________________________
General insurance
Actual investment return 1 4 (7) 13 64 (111)
attributable to
shareholders
Long term investment 21 17 35 272 270 554
return credited to
operating result
_______________________________________________________________________________________
(20) (13) (42) (259) (206) (665)
_______________________________________________________________________________________
Other shareholders'
income / (expenses)
Actual investment return (10) 14 34 (129) 222 537
attributable to
shareholders
Long term investment - 1 - - 16 -
return credited to
operating result
_______________________________________________________________________________________
(10) 13 34 (129) 206 537
_______________________________________________________________________________________
Excess / (deficit) of 125 (62) (91) 1,618 (980) (1,439)
actual return over
longer term return
_______________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
7 TAX ON PROFIT ON ORDINARY ACTIVITIES
£m Rm
_______________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
__________________________________________________________________________________________________________________
United Kingdom tax
UK corporation tax 11 22 40 142 349 632
Double tax relief (5) (10) (20) (65) (159) (316)
_______________________________________________________________________________________
6 12 20 77 190 316
Overseas tax
South African tax 76 35 86 984 556 1,401
United States tax 11 38 11 142 603 126
Rest of World tax 2 (2) (1) 26 (32) (16)
Secondary taxation on 5 3 3 65 48 47
companies (STC)
_______________________________________________________________________________________
94 74 99 1,217 1,175 1,558
Adjustment in respect of 4 7 (1) 52 111 (16)
prior periods
_______________________________________________________________________________________
Current tax for period 104 93 118 1,346 1,476 1,858
Deferred tax 87 4 106 1,126 64 1,677
_______________________________________________________________________________________
Reported tax charge 191 97 224 2,472 1,540 3,535
_______________________________________________________________________________________
The tax charge is
analysed as follows:
Adjusted operating 129 106 195 1,673 1,683 3,082
profit
Write-down of investment - (9) (11) - (140) (171)
in Dimension Data
Holdings plc
Nedcor restructuring and - - (1) - - (23)
integration costs
Change in credit (22) - - (289) - -
provisioning
methodology
Short term fluctuations 82 (18) 3 1,062 (289) 47
Non-operating items 2 18 38 26 286 600
_______________________________________________________________________________________
Reported tax charge 191 97 224 2,472 1,540 3,535
_______________________________________________________________________________________
Reconciliation of tax £m Rm
charge ________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_______________________________________________________________________________________
Tax at UK rate of 30.0 110 75 128 1,419 1,191 2,011
per cent. (2001: 30.0
per cent.) on profit on
ordinary activities
before tax
Untaxed and low taxed (34) (57) (64) (440) (905) (1,010)
income (including tax
exempt investment
return)
Disallowable 86 69 128 1,113 1,096 2,021
expenditure
STC 5 3 3 65 48 47
Movement in deferred (87) (4) (106) (1,126) (64) (1,677)
tax
Other 24 7 29 315 110 466
_______________________________________________________________________________________
Current tax charge 104 93 118 1,346 1,476 1,858
_______________________________________________________________________________________
Notes to the Financial Statements continued
for the six months ended 30 June 2003
8 NON OPERATING ITEMS
The following gains and losses on the disposal of business operations have been
disclosed as non-operating:
£m Rm
_________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_______________________________________________________________________________________
United States - asset (13) 18 35 (168) 317 558
management affiliates
United Kingdom - asset - - (61) - - (963)
management subsidiaries
Rest of World - Old - 20 20 - 286 317
Mutual International
(Isle of Man) Limited
_______________________________________________________________________________________
(Loss) / profit on (13) 38 (6) (168) 603 (88)
disposal before tax
Tax - United States asset (2) (18) (38) (26) (286) (600)
management affiliates
_______________________________________________________________________________________
(Loss) / profit on (15) 20 (44) (194) 317 (688)
disposal after tax
_______________________________________________________________________________________
US affiliates
During the period the Group completed the sales of Rice Hall James & Associates,
Northern Capital Management and Tom Johnson Investment Management Inc.. The
total consideration received was £9 million (R117 million). The loss realised on
disposal was £13 million (R168 million) before tax chargeable of £2 million (R26
million) and after charging goodwill attributable to the business of £20 million
(R259 million).
9 Goodwill
Notes £m
Rm
6 months to Year to 6 months to 6 months to Year to 6 months to
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
_______________________________________________________________________________________
At beginning of period 1,598 1,580 1,580 22,075 27,537 27,537
Additions arising on - 245 2 - 3,872 32
acquisitions in period
Adjustment in respect of - 5 - - 79 -
prior year acquisitions
Disposals 8 (20) (125) (18) (259) (1,727) (286)
Pilgrim Baxter and - 101 101 - 1,604 1,604
Associates revenue share
adjustments
Amortisation for period (44) (107) (50) (570) (1,689) (794)
Foreign exchange and 18 (101) (54) (2,048) (7,601) (3,359)
other movements
_______________________________________________________________________________________
At end of period 1,552 1,598 1,561 19,198 22,075 24,734
_______________________________________________________________________________________
Amortisation for the period
The goodwill amortisation charge for the period of £47m (R608 million) (June
2002: £55 million (R873 million); December 2002: £120 million (R1,895 million))
comprises £44 million (R570 million) (June 2002: £50 million (R794 million);
December 2002: £107 million (R1,689 million)) disclosed in note 9 above, and £3
million (R38 million) (June 2002: £5 million (R79 million); December 2002: £13
million (R206 million)) disclosed under interests in associated undertakings.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
10 Minority Interests
10(a) Equity interests £m Rm
__________________________________________________________________________________________________________________
6 months to Year to 6 months to 6 months to Year to 6 months to
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
__________________________________________________________________________________________________________________
At beginning of period 783 565 565 10,816 9,847 9,847
Minority interests' (15) 44 32 (194) 695 508
share of (loss) /
profit
Minority interests' (36) (43) (25) (466) (679) (397)
share of dividends
paid
Net (disposal) / (5) 106 (39) (65) 1,674 (619)
acquisition of
interests
Foreign exchange and 68 111 84 (257) (721) 437
other movements
_______________________________________________________________________________________
At end of period 795 783 617 9,834 10,816 9,776
_______________________________________________________________________________________
Reconciliation of £m Rm
minority interests share _______________________________________________________________________________________
of (loss) / profit 6 months to Year to 6 months to 6 months to Year to 6 months to
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
_______________________________________________________________________________________
The minority interest
charge / (credit) is
analysed as follows:
Adjusted operating 42 113 62 538 1,784 983
profit
Amortisation of (7) (16) (4) (90) (249) (63)
goodwill
Write-down of investment (5) (28) (21) (58) (442) (340)
in Dimension Data
Holdings plc
Nedcor restructuring and (5) (6) - (65) (100) -
integration costs
Change in credit (28) - - (363) - -
provisioning
methodology
Short term (12) (19) (5) (156) (298) (72)
fluctuations
_______________________________________________________________________________________
Reported (credit) / (15) 44 32 (194) 695 508
charge
_______________________________________________________________________________________
10(b) Non-equity £m Rm
interests _______________________________________________________________________________________
6 months to Year to 6 months to 6 months to Year to 6 months to
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
_______________________________________________________________________________________
R2,000 million 162 145 - 2,000 2,000 -
non-cumulative
preference shares
US$750 million 454 - - 5,624 - -
cumulative preferred
securities
_______________________________________________________________________________________
616 145 - 7,624 2,000 -
Unamortised issue (14) (1) - (181) (8) -
costs
Undistributed profits 4 - - 49 - -
due to minority
interests
_______________________________________________________________________________________
At end of period 606 144 - 7,492 1,992 -
_______________________________________________________________________________________
During 2002, Nedbank Limited, a banking subsidiary of the Group, issued 200
million R10 preference shares. These shares are non-redeemable and
non-cumulative and pay a cash dividend equivalent to 75% of the prime overdraft
interest rate of Nedbank. Preference shareholders are only entitled to vote
during periods when a dividend or any part of it remains unpaid after the due
date for payment and when resolutions are proposed that directly affect any
rights attaching to the shares or the rights of the holders. Preference
shareholders will be entitled to receive their dividends in priority to any
payment of dividends made in respect of any other class of shares.
On 19 May 2003, Old Mutual Capital Funding L.P., a subsidiary of the Group,
issued US$750 million Guaranteed Cumulative Perpetual Preference Securities.
Subject to certain limitations, holders of these securities are entitled to
receive preferential cash distributions at a fixed rate of 8.0% per annum
payable in arrear on a quarterly basis. The Group may defer payment of
distributions in its sole discretion, but such an act may restrict Old Mutual
plc from paying dividends on its ordinary shares for a period of 12 months.
Arrears of distributions are payable cumulatively only on redemption of the
securities or at the Group's option. The securities are perpetual, but may be
redeemed at the discretion of the Group from 22 December 2008. The costs of
issue are being amortised over the period to 22 December 2008.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
11 AMOUNTS OWED TO CREDIT INSTITUTIONS
£m Rm
__________________________________________________________________________
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
__________________________________________________________________________
Bank overdrafts repayable - 2 - - 28 -
on demand
Bank and other loans
Repayable within one
year:
Syndicated revolving - - 164 - - 2,599
credit facility
Floating rate notes 33 45 62 408 622 982
Commercial paper 155 330 193 1,917 4,559 3,058
Term loan - 30 30 - 414 475
Other - - 3 - - 48
__________________________________________________________________________
188 405 452 2,325 5,595 7,162
__________________________________________________________________________
Repayable between one and
two years:
Floating rate notes 12 12 - 148 166 -
Repayable between two and
five years:
Syndicated revolving - 78 162 - 1,077 2,567
credit facility
Euro note 212 217 228 2,622 2,998 3,613
Floating rate notes 6 7 - 74 97 -
Term loan - - 6 - - 95
Other 46 41 9 569 566 143
__________________________________________________________________________
264 343 405 3,265 4,738 6,418
Repayable after five
years:
Term loan 27 - - 334 - -
Other 6 5 - 75 69 -
__________________________________________________________________________
33 5 - 409 69 -
__________________________________________________________________________
497 767 857 6,147 10,596 13,580
__________________________________________________________________________
The Floating Rate Notes consist of a £33 million note repayable on 31 December
2010 with the holders having the option to elect for early redemption every six
months, US$20 million note repayable by 17 September 2004 and a US$10.5 million
note repayable on 18 January 2005.
Commercial paper is issued under a £600 million Euro Commercial Paper ('ECP')
Programme for periods of up to 12 months. Commercial papers are issued in
various currencies, the proceeds of which are generally swapped into US dollars
at the date of issuance.
During 2002 the company entered into $600 million and $60 million multi-currency
Revolving Credit Facilities as back stop for the £600 million multi-currency ECP
Programme. Both facilities are 364 day facilities, although the company has term
out options of 18 and 12 months respectively. At 30 June 2003 neither facility
was drawn.
A term loan of £30 million, originally due for repayment on 30 April 2003, was
extended and redrawn as a $45 million term loan repayable on 30 June 2006.
Other amounts owed to credit institutions consist principally of preference
shares issued by a subsidiary of the Group.
Amounts owed to credit institutions bear interest at variable rates except for
the Euro note facility. Old Mutual plc €400 million Euro Notes due 2007 were
issued on 10 April 2002. The capital and interest on the notes were immediately
swapped into US dollars at a fixed rate of 6.6% per annum.
Notes to the Financial Statements continued
for the six months ended 30 June 2003
12 Convertible Loan Stock
12(a) Insurance and other
At 30 June 2003, the Group had in issue US$636 million 3.625 per cent.
Convertible Bonds repayable on 2 May 2005, which are guaranteed by and
convertible into the ordinary shares of Old Mutual plc at a conversion price of
190p per share and an exchange rate of one US dollar to 69.52p Sterling. On 2
May 2003, holders of $14 million of the bonds exercised their option to elect
for early redemption at par value.
12(b) Banking
The banking unsecured loan stock was acquired with BoE. It is denominated in
South African Rand, has an interest rate of 18.1% and is repayable at the
discretion of the borrower.
Achieved Profits Basis Supplementary Information
for the six months ended 30 June 2003
1Consolidated profit and loss account on an Achieved Profits basis for the six
months ended 30 june 2003
£m Rm
____________________________________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
____________________________________________________________________________________________________________________
South Africa
Life assurance 230 206 418 2,977 3,283 6,605
Asset management 18 13 28 233 207 441
Banking 74 99 165 959 1,579 2,605
General insurance 28 19 35 368 308 556
________________________________________________________________________________________
350 337 646 4,537 5,377 10,207
United States
Life assurance 57 77 138 742 1,243 2,182
Asset management 37 60 95 479 951 1,500
________________________________________________________________________________________
94 137 233 1,221 2,194 3,682
UK & Rest of World
Life assurance - 3 5 4 32 73
Asset management 1 5 2 14 80 31
Banking 27 29 56 349 456 884
________________________________________________________________________________________
28 37 63 367 568 988
________________________________________________________________________________________
472 511 942 6,125 8,139 14,877
Other shareholders' income (13) (9) (22) (168) (143) (347)
/ (expenses)
Debt service costs (30) (25) (58) (388) (397) (916)
________________________________________________________________________________________
Adjusted operating profit* 429 477 862 5,569 7,599 13,614
Goodwill amortisation (47) (55) (120) (608) (873) (1,895)
Write-down of investment (11) (52) (68) (136) (830) (1,080)
in Dimension Data Holdings
plc
Nedcor restructuring and (10) - (14) (134) - (227)
integration costs
Change in credit (74) - - (963) - -
provisioning methodology
Short term fluctuations in
investment return
(including economic
assumption changes)
Life assurance (104) (150) (338) (1,345) (2,379) (5,340)
Other (30) - (9) (388) - (128)
Effect of BoE Life 5 - - 59 - -
Effect of changes in and (44) - - (565) - -
cost of solvency capital
________________________________________________________________________________________
Operating profit on 114 220 313 1,489 3,517 4,944
ordinary activities before
tax
Non-operating items (13) 18 (26) (168) 286 (409)
________________________________________________________________________________________
Profit on ordinary 101 238 287 1,321 3,803 4,535
activities before tax
Tax on profit on ordinary (127) (114) (190) (1,650) (1,816) (2,998)
activities
________________________________________________________________________________________
(Loss) / profit on (26) 124 97 (329) 1,987 1,537
ordinary activities after
tax
Minority interests - 14 (32) (44) 183 (508) (695)
equity
Minority interests - (14) - - (181) - -
non-equity
________________________________________________________________________________________
(Loss) / profit for the (26) 92 53 (327) 1,479 842
financial period
Dividends paid and (64) (63) (176) (792) (998) (2,556)
proposed
________________________________________________________________________________________
Retained (loss) / profit (90) 29 (123) (1,119) 481 (1,714)
for the financial period
________________________________________________________________________________________
* Adjusted operating profit represents operating profit before tax and minority
interests based on a long term investment return before goodwill amortisation,
write-down of investment in Dimension Data Holdings plc, Nedcor restructuring
and integration costs, change in credit provisioning methodology, effect of BoE
Life and effect of changes in and cost of solvency capital. Adjusted operating
earnings per share are similarly based, but are stated after tax and minority
interests.
Achieved Profits Basis Supplementary Information
for the six months ended 30 June 2003
1Consolidated profit and loss account on an Achieved Profits basis for the six
months ended 30 june 2003 continued
Earnings per share - p c
achieved profits ____________________________________________________________________________________________
basis 6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_____________________________________________________________________________________________________________________
Adjusted operating earnings per 6.0 7.7 14.1 77.9 122.3 222.8
share*
Basic (loss) / earnings per (0.7) 2.5 1.4 (8.8) 40.5 22.9
share
___________________________________________________________________________________________
Weighted average number of shares 3,717 3,652 3,670 3,717 3,652 3,670
- millions
2Consolidated statement of total recognised gains and losses on an Achieved
Profits basis for the six months ended 30 June 2003
£m Rm
_________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_____________________________________________________________________________________________________________________
(Loss) / profit for the (26) 92 53 (327) 1,479 842
financial period
Foreign exchange 262 167 442 (1,717) (2,224) (5,034)
movements
_________________________________________________________________________________________
Total recognised gains and 236 259 495 (2,044) (745) (4,192)
losses relating for the
period
_________________________________________________________________________________________
3Reconciliation of movements in the Consolidated Achieved Profits Equity
shareholders' funds for the Six months ended 30 june 2003
£m Rm
_________________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_____________________________________________________________________________________________________________________
Total recognised gains / 236 259 495 (2,044) (745) (4,192)
(losses) relating to the
period
Dividends paid and (64) (63) (176) (792) (998) (2,556)
proposed
_________________________________________________________________________________________
172 196 319 (2,836) (1,743) (6,748)
Issue of new capital 37 39 39 479 619 619
Shares issued under option - - 1 - - 16
schemes
_________________________________________________________________________________________
Net increase / (decrease) 209 235 359 (2,357) (1,124) (6,113)
in achieved profits equity
shareholders' funds
Achieved profits equity 3,426 3,067 3,067 47,329 53,442 53,442
shareholders' funds at the
beginning of the period
_________________________________________________________________________________________
Achieved profits equity 3,635 3,302 3,426 44,972 52,318 47,329
shareholders' funds at the
end of the period
_________________________________________________________________________________________
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
4Consolidated balance sheet on an Achieved Profits basis as at 30 June 2003
£m Rm
_________________________________________________________________________
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
____________________________________________________________________________________________________
Assets:
Goodwill 1,552 1,598 1,561 19,198 22,075 24,734
Insurance and other 30,145 26,593 33,475 372,868 367,358 530,415
assets
Banking assets 22,298 21,377 12,625 275,808 295,291 200,045
Total long term in-force 528 640 618 6,539 8,843 9,790
business asset
________________________________________________________________________
Total assets 54,523 50,208 48,279 674,413 693,567 764,984
________________________________________________________________________
Liabilities:
Achieved profits equity 3,635 3,426 3,302 44,972 47,329 52,318
shareholders' funds
Minority interests 1,402 927 617 17,337 12,808 9,776
Subordinated 17 18 21 210 249 333
liabilities
Insurance and other 28,301 25,602 32,691 350,063 353,666 517,993
liabilities
Banking liabilities 21,168 20,235 11,648 261,831 279,515 184,564
________________________________________________________________________
Total liabilities 54,523 50,208 48,279 674,413 693,567 764,984
________________________________________________________________________
Reconciliation of total
long term in-force
business asset:
Value of in-force 1,234 1,089 920 15,270 15,045 14,564
business
Adjustment for (6) - 5 (77) (6) 87
discounting CGT
OMI life subsidiaries (19) (18) (18) (234) (242) (287)
statutory solvency
adjustment
US life statutory (681) (431) (289) (8,420) (5,954) (4,574)
solvency adjustment
________________________________________________________________________
Total long term in-force 528 640 618 6,539 8,843 9,790
business asset
________________________________________________________________________
5 Basis of Preparation
The results for the six months to 30 June 2003 and the position at that date
have been prepared on the same basis as that used in the Group 2002 Annual
Report. These supplementary financial statements have been prepared in
accordance with the methodology for supplementary reporting for long term
insurance business (the achieved profits method) issued in December 2001 by the
Association of British Insurers.
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
6Components of Achieved Profits Equity shareholders' funds
£m Rm
_______________________________________________________________________
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
_________________________________________________________________________________________________
Shareholders' adjusted 2,402 2,337 2,382 29,713 32,284 37,754
net worth
_______________________________________________________________________
Equity shareholders' 3,108 2,786 2,684 38,444 38,486 42,528
funds
Adjustment to include (19) (18) (18) (234) (242) (287)
OMI life subsidiaries on
a statutory solvency
basis
Adjustment to include US (681) (431) (289) (8,420) (5,954) (4,574)
on a statutory solvency
basis
Adjustment for (6) - 5 (77) (6) 87
discounting CGT
_______________________________________________________________________
Value of in-force 1,234 1,089 920 15,270 15,045 14,564
business
_______________________________________________________________________
Value of in-force 1,377 1,195 1,014 17,041 16,506 16,048
business before cost of
solvency capital
Cost of solvency (143) (106) (94) (1,771) (1,461) (1,484)
capital
_______________________________________________________________________
Minority interest in (1) - - (11) - -
value of in-force
_______________________________________________________________________
Achieved profits equity 3,635 3,426 3,302 44,972 47,329 52,318
shareholders' funds
_______________________________________________________________________
Pro-forma adjustment to
bring listed
subsidiaries to market
value
Achieved profits equity 3,635 3,426 3,302 44,972 47,329 52,318
shareholders' funds
Adjustment to bring 424 502 473 5,240 6,938 7,496
listed subsidiaries to
market value
_______________________________________________________________________
Adjusted embedded 4,059 3,928 3,775 50,212 54,267 59,814
value
_______________________________________________________________________
The shareholders' adjusted net worth includes goodwill relating to OMUSL of £70
million (R866 million) (December 2002: £74 million (R1,022 million); June 2003:
£61 million (R967 million)).
The table below sets out a geographical analysis of the value of in-force
business.
£m Rm
_______________________________________________________________________
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
_________________________________________________________________________________________________
South Africa 776 682 574 9,594 9,419 9,089
_______________________________________________________________________
Individual business 476 417 349 5,881 5,751 5,521
Group business 300 265 225 3,713 3,668 3,568
_______________________________________________________________________
United States 394 341 283 4,879 4,712 4,484
UK & Rest of World 64 66 63 797 914 991
_______________________________________________________________________
Value of in-force 1,234 1,089 920 15,270 15,045 14,564
business
_______________________________________________________________________
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
6Components of Achieved Profits Equity shareholders' funds continued
The encumbered and unencumbered capital for South Africa and United States is
shown in the table below.
£m Rm
_______________________________________________________________________
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2003 2002 2002 2003 2002 2002
_________________________________________________________________________________________________
South Africa 1,294 1,139 1,037 16,006 15,739 16,433
_______________________________________________________________________
Encumbered capital 1,077 1,008 831 13,325 13,925 13,170
Unencumbered capital 217 131 206 2,681 1,814 3,263
_______________________________________________________________________
United States 361 355 244 4,461 4,904 3,863
_______________________________________________________________________
Encumbered capital 163 155 123 2,021 2,144 1,949
Unencumbered capital 198 200 121 2,440 2,760 1,914
_______________________________________________________________________
For South Africa the average unencumbered capital applicable was £159 million
(R2,061 million) (December 2002: £160 million (R2,524 million); June 2002: £100
million (R1,589 million)). The average figures were used to determine the
expected return on unencumbered capital.
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
7Segmental analysis of results
£m Rm
_____________________________________________________________________________
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
________________________________________________________________________________________________
6 months to 30 June 2003
New business 35 28 1 64 459 357 16 832
contribution
Profits from
existing
business
Expected return on 86 19 3 108 1,115 246 40 1,401
in-force
business
Expected return on 70 5 2 77 909 70 26 1,005
encumbered
capital
Experience 35 (2) (3) 30 451 (21) (40) 390
variances
Operating (7) - (3) (10) (95) - (38) (133)
assumption
changes
Expected return on 11 7 - 18 138 90 - 228
unencumbered _____________________________________________________________________________
capital
Life assurance 230 57 - 287 2,977 742 4 3,723
adjusted operating
profit before
tax
Investment return
variances
On value of (18) (4) 2 (20) (232) (52) 31 (253)
in-force
On capital (147) (13) 1 (159) (1,902) (171) 16 (2,057)
Effect of economic 56 17 2 75 720 217 28 965
assumption
changes
Effect of BoE 5 - - 5 59 - - 59
Life
Effect of changes (44) - - (44) (565) - - (565)
in and cost of _____________________________________________________________________________
solvency capital
Life assurance 82 57 5 144 1,057 736 79 1,872
achieved profits
before tax
Attributed tax (67) (17) (3) (87) (867) (221) (39) (1,127)
_____________________________________________________________________________
Life assurance 15 40 2 57 190 515 40 745
achieved profits _____________________________________________________________________________
after tax
£m Rm
_____________________________________________________________________________
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
________________________________________________________________________________________________
6 months to 30 June 2002
New business 40 44 2 86 648 711 26 1,385
contribution
Profits from
existing
business
Expected return on 74 21 4 99 1,175 349 56 1,580
in-force
business
Expected return on 56 4 2 62 889 61 32 982
encumbered
capital
Experience 29 (3) (4) 22 460 (50) (63) 347
variances
Operating - 7 (1) 6 - 106 (19) 87
assumption
changes
Expected return on 7 4 - 11 111 66 - 177
unencumbered _____________________________________________________________________________
capital
Life assurance 206 77 3 286 3,283 1,243 32 4,558
adjusted operating
profit before
tax
Investment return
variances
On value of (39) (27) - (66) (601) (431) (6) (1,038)
in-force
On capital (73) (4) 7 (70) (1,159) (63) 111 (1,111)
Effect of economic (13) - (1) (14) (217) - (13) (230)
assumption _____________________________________________________________________________
changes
Life assurance 81 46 9 136 1,306 749 124 2,179
achieved profits
before tax
Attributed tax (43) (13) - (56) (679) (217) - (896)
_____________________________________________________________________________
Life assurance 38 33 9 80 627 532 124 1,283
achieved profits _____________________________________________________________________________
after tax
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
7 Segmental analysis of results continued
£m Rm
____________________________________________________________________________
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
________________________________________________________________________________________________
Year to 31 December 2002
New business 114 80 3 197 1,806 1,261 42 3,109
contribution
Profits from
existing
business
Expected return on 150 35 6 191 2,367 561 100 3,028
in-force
business
Expected return on 113 6 4 123 1,778 98 63 1,939
encumbered
capital
Experience 36 - (10) 26 569 (3) (160) 406
variances
Operating (17) (9) 2 (24) (268) (141) 28 (381)
assumption
changes
Risk margin - 18 - 18 - 284 - 284
changes
Expected return on 22 8 - 30 353 122 - 475
unencumbered _____________________________________________________________________________
capital
Life assurance 418 138 5 561 6,605 2,182 73 8,860
adjusted operating
profit before
tax
Investment return
variances
On value of (87) (25) (2) (114) (1,381) (396) (23) (1,800)
in-force
On capital (250) (4) (14) (268) (3,950) (60) (221) (4,231)
Effect of economic 24 19 1 44 371 303 17 691
assumption _____________________________________________________________________________
changes
Life assurance 105 128 (10) 223 1,645 2,029 (154) 3,520
achieved profits
before tax
Attributed tax (68) (32) - (100) (1,067) (508) - (1,575)
_____________________________________________________________________________
Life assurance 37 96 (10) 123 578 1,521 (154) 1,945
achieved profits _____________________________________________________________________________
after tax
Expected return on the unencumbered capital for South Africa and the United
States is 13.4% p.a. (2002: 14% p.a.) and 7% p.a. (2002: 7% p.a.) respectively
for 2003.
The BoE Life adjustment reflects the recognition of the initial value of
in-force business since its acquisition.
The effect of changes in and cost of solvency capital for South Africa reflects
changes in the amount of solvency capital required and in the mix of assets
backing the solvency capital.
The difference between the total tax charge shown in the above segmental
analysis, and the total tax charge shown in the profit and loss account in
section 1, represents the tax charge on the non-life assurance businesses.
£m Rm
______________________________________________________________________________________
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2003 2002 2002 2003 2002 2002
_________________________________________________________________________________________________________________
Tax on life assurance
achieved profit
South Africa - value of 56 35 80 723 583 1,264
in-force
- capital 11 8 (12) 144 96 (197)
United States 17 13 32 221 217 508
UK & Rest of World 3 - - 39 - -
______________________________________________________________________________________
87 56 100 1,127 896 1,575
Tax on other business 40 58 90 523 920 1,423
______________________________________________________________________________________
Tax on profit of ordinary 127 114 190 1,650 1,816 2,998
activities
______________________________________________________________________________________
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
8Value of new business
The tables below set out a geographical analysis of the value of new business
(VNB) for the six months to 30 June 2003, six months to 30 June 2002 and the
year to 31 December 2002. Annual Premium Equivalent (APE) is calculated as
recurring premiums plus 10% of single premiums. New business profitability, as
measured by the ratio of the VNB to the APE, is also shown under 'margin' below.
The value of new business is shown on both the grossed up to the pre-tax level
as well as the after tax level. The assumptions and tax rates used to calculate
the value of new business are set out in section 9.
Individual Group South United UK & Rest
business business Africa States of World Total
_______________________________________________________________________________________
6 months to 30 June 2003
£m
__________________________ __________________ _______
Recurring premiums 68 9 77 40 6 123
Single premiums 238 203 441 892 44 1,377
Annual Premium 92 29 121 129 11 261
Equivalent
_________________________ __________________ _______
_________________________ __________________ _______
Value of new business 22 13 35 20 1 56
before tax
Value of new business 14 8 22 14 1 37
after tax
_________________________ __________________ ______
_________________________ __________________ ______
Margin before tax 24% 46% 29% 15% 12% 22%
Margin after tax 15% 28% 18% 11% 12% 14%
_________________________ __________________ ______
Rm
_________________________ __________________ ______
Recurring premiums 888 117 1,005 513 81 1,599
Single premiums 3,084 2,626 5,710 11,547 569 17,826
Annual Premium 1,196 380 1,576 1,668 138 3,382
Equivalent
_________________________ __________________ ______
_________________________ __________________ ______
Value of new business 285 174 459 253 16 728
before tax
Value of new business 177 108 285 177 16 478
after tax
_________________________ __________________ ______
6 months to 30 June
2002
£m
_________________________ __________________ ______
Recurring premiums 52 10 62 21 5 88
Single premiums 285 119 404 1,535 60 1,999
Annual Premium 80 22 102 175 11 288
Equivalent
_________________________ __________________ ______
_________________________ __________________ ______
Value of new business 26 14 40 44 2 86
before tax
Value of new business 16 9 25 31 2 58
after tax
_________________________ __________________ ______
_________________________ __________________ ______
Margin before tax 33% 65% 40% 26% 14% 30%
Margin after tax 21% 40% 25% 18% 14% 20%
_________________________ __________________ ______
Rm
_________________________ __________________ ______
Recurring premiums 817 165 982 326 89 1,397
Single premiums 4,529 1,891 6,420 24,368 949 31,737
Annual Premium 1,270 354 1,624 2,763 184 4,571
Equivalent
_________________________ __________________ _____
_________________________ __________________ ______
Value of new business 419 229 648 711 26 1,385
before tax
Value of new business 261 142 403 498 26 927
after tax
_________________________ __________________ ______
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
8Value of new business continued
Individual Group South United UK & Rest
business business Africa States of World Total
__________________________________________________________________________________________
Year to 31 December 2002
£m
___________________________ ____________________ _________
Recurring premiums 115 19 134 37 12 183
Single premiums 546 468 1,014 2,629 104 3,747
Annual Premium 170 65 235 300 22 557
Equivalent
___________________________ ____________________ _________
___________________________ ____________________ _________
Value of new business 53 61 114 80 3 197
before tax
Value of new business 33 38 71 56 3 130
after tax
___________________________ ____________________ _________
___________________________ ____________________ _________
Margin before tax 31% 93% 49% 27% 12% 36%
Margin after tax 20% 58% 30% 19% 12% 23%
___________________________ ____________________ _________
Rm
___________________________ ____________________ _________
Recurring premiums 1,808 296 2,104 586 186 2,876
Single premiums 8,624 7,385 16,009 41,500 1,641 59,150
Annual Premium 2,670 1,035 3,705 4,736 350 8,791
Equivalent
___________________________ ____________________ _________
___________________________ ____________________ _________
Value of new business 841 965 1,806 1,261 42 3,109
before tax
Value of new business 524 600 1,124 883 42 2,049
after tax
___________________________ ____________________ _________
The new business shown above for 30 June 2003 for the United States excludes the
value of OMNIA Life (Bermuda) business that was acquired during 2003, and which
is included within the value of new business shown in section 7. If the value of
this business (£8 million; R104 million), together with the equivalent APE, had
been included above, the before and after tax margins for the United States
would have been 20% and 14% respectively.
The value of new individual unit trust and some group market-linked business
written by the life companies is excluded, as the profits on this business arise
in the asset management subsidiaries. It also excludes premium increases arising
from indexation arrangements in respect of existing business, as these are
already included in the value of in-force business. The premiums shown for the
United States excludes reinsurance ceded externally.
A reconciliation of the new business premiums shown in the notes to the
financial statements to those shown above, for the six months to 30 June 2003,
is set out below.
£m Rm
_________________________________________________________
Recurring Single Recurring Single
premiums premiums premiums premiums
______________________________________________________________________________
6 months to 30 June 2003
New business premiums in the 125 1,529 1,617 19,785
notes to the financial
statements
Less:
United States reinsurance ceded (2) - (18) -
externally
Group market-linked business not - (109) - (1,399)
valued
Unit trust business not valued - (43) - (560)
_________________________________________________________
New business premiums as per
achieved profits supplementary
statements 123 1,377 1,599 17,826
_________________________________________________________
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
9Assumptions
The principal assumptions used in the calculation of the value of in-force
business and the value of new business are set out below.
• The pre-tax investment and economic assumptions used for South African and
United States businesses were as follows:
30 June 31 December 30 June
2003 2002 2002
_______________________________________________________________________________
South Africa
Fixed interest return 9.4% 11.0% 12.5%
Equity return 11.4% 13.0% 14.5%
Property return 10.4% 12.0% 13.5%
Inflation 6.4% 7.0% 8.5%
Risk discount rate 11.9% 13.5% 15.0%
United States
Treasury yield 3.6% 4.0% 5.0%
Inflation 3.0% 3.0% 3.0%
New money yield assumed 5.8% 6.0% 6.7%
Net portfolio earned rate 6.6% 7.2% 7.1%
Risk discount rate 7.6% 8.0% 9.5%
• For the other operations, appropriate investment and economic assumptions
were chosen on bases consistent with those adopted in South Africa. Where
applicable, rates of future bonuses have been set at levels consistent with
the investment return assumptions. Projected company taxation is based on
the current tax basis that applies in each country.
• For the South African business full allowance has been made for STC that
may be payable in South Africa. Full account has been taken of the impact
of CGT in South Africa. It has been assumed that 10% of the equity
portfolio (excluding group subsidiaries) will be traded each year. For the
United States business full allowance has been made for existing tax
attributes of the companies, including the use of existing carry forwards
and preferred tax credit investments. Achieved profits results are
initially calculated on an after tax basis and are then grossed up to the
pre-tax level for presentation in the profit and loss account and the
segmental analysis of results. The tax rates used were the effective
corporation tax rates of 37.8% for South African business (December 2002
and June 2002: 37.8%), 30% for United States business (December 2002 and
June 2002: 30%) and 0% for United Kingdom and Rest of World (December 2002
and June 2002: 0%) except for the investment return on capital for which
the attributed tax was derived from the primary accounts.
• The assumed future mortality, morbidity and voluntary discontinuance rates
have been based as far as possible on analyses of recent operating
experience. Allowance has been made where appropriate for the effect of
expected AIDS-related claims.
• The management expenses attributable to life assurance business have been
analysed between expenses relating to the acquisition of new business and
the maintenance of business in-force. The future expenses attributable to
life insurance business do not include Group holding company expenses.
• No allowance has been made for future development costs.
• Future investment expenses were based on the current scales of fees payable
by the life insurance companies to the asset management subsidiaries. To
the extent that these fees include profit margins for the asset management
subsidiaries, these margins have not been included in the value of in-force
business or the value of new business.
• The effect of increases in premiums over the period for policies in-force
has been included in the value of in-force business only where such
increases are associated with indexation arrangements. Other increases in
premiums of existing policies are included in the value of new business.
• New schemes written on which recurring single premiums are expected to be
received on a regular basis are treated as new business. The annualised
premium is recognised as recurring premium new business at inception
of the scheme and is determined by annualising the actual premiums received
during the year in question. Subsequent recurring single premiums received
in future years are not treated as new business, as these have already been
provided for in calculating the value of in-force business.
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2003
9Assumptions continued
Conversions between Rand, US Dollar and Sterling were carried out at the
following exchange rates:
______________________________________________________________________________
Rand per US$ per Rand per US$
Sterling Sterling
At 30 June 2003 12.3692 1.6528 7.4838
At 31 December 2002 13.8141 1.6105 8.5775
At 30 June 2002 15.8451 1.5279 10.3702
6 months to 30 June 2003 (average) 12.9459 1.6110 8.0361
Year to 31 December 2002 (average) 15.7878 1.5030 10.5042
6 months to 30 June 2002 (average) 15.8800 1.4445 10.9926
10 Alternative Assumptions
The tables below for South Africa and the United States show the sensitivity of
the value of in-force at 30 June 2003 and the value of new business for the six
months to 30 June 2003 to changes in the central discount rate. In determining
the values at different central discount rates, all other assumptions have been
left unchanged. The value of new business is shown before tax.
The sensitivity of the adjustment for discounting CGT, which is included in the
shareholders' adjusted net worth, to changes in the central discount rate is not
material and is not included in the table below.
£m Rm
_____________________________ __________________________
Value of Value of Value of Value of
in-force new in-force new
business at business at business at business at
30 June 30 June 30 June 30 June
2003 2003 2003 2003
______________________________________________________________ __________________________
South Africa
Central assumptions 776 35 9,594 459
_____________________________ __________________________
Value before cost of solvency 891 40 11,022 517
capital
Cost of solvency capital (115) (5) (1,428) (58)
_____________________________ __________________________
Effect of:
Central discount rate +1% 679 30 8,404 386
_____________________________ __________________________
Value before cost of solvency 841 36 10,397 466
capital
Cost of solvency capital (162) (6) (1,993) (80)
_____________________________ __________________________
Central discount rate - 1% 886 42 10,963 545
_____________________________ __________________________
Value before cost of solvency 948 45 11,731 577
capital
Cost of solvency capital (62) (3) (768) (32)
_____________________________ __________________________
United States
Central assumptions 394 20 4,879 253
_____________________________ __________________________
Value before cost of solvency 421 23 5,208 295
capital
Cost of solvency capital (27) (3) (329) (42)
_____________________________ __________________________
Effect of:
Central discount rate +1% 367 18 4,537 228
_____________________________ __________________________
Value before cost of solvency 399 22 4,933 280
capital
Cost of solvency capital (32) (4) (396) (52)
_____________________________ __________________________
Central discount rate - 1% 422 22 5,221 285
_____________________________ __________________________
Value before cost of solvency 443 24 5,481 311
capital
Cost of solvency capital (21) (2) (260) (26)
_____________________________ __________________________
This information is provided by RNS
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