Old Mutual Limited Interim Results 2018 - Part 2
Old Mutual Limited
Unaudited condensed consolidated interim financial statements
For the six months ended 30 June 2018
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Contents |
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Consolidated income statement |
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Consolidated statement of comprehensive income |
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Supplementary income statement |
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Consolidated statement of financial position |
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Consolidated statement of cash flows |
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Consolidated statement of changes in equity |
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Notes to the unaudited condensed consolidated interim financial statements |
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Background information
In March 2016, Old Mutual plc announced that its board believed that the long term interests of Old Mutual plc shareholders and other stakeholders would be best served by separating the four businesses then owned by the Old Mutual plc Group from each other so that they could operate as fully independent businesses. These four businesses were Old Mutual Emerging Markets, OM Asset Management plc (OMAM, now Brightsphere Investment Group), Nedbank and Old Mutual Wealth (now Quilter plc). As at 31 December 2017, OMAM had already been separated from the Old Mutual plc Group following a phased sell-down.
To effect the above strategy, referred to as Managed Separation, the following steps were executed during the six months ended 30 June 2018:
- The listing of Quilter plc on the London Stock Exchange (LSE) and the Johannesburg Stock Exchange (JSE), the distribution of 86.6% of its total share capital to Old Mutual plc shareholders and the sale of up to 9.6% by way of a cash placing to institutional investors.
- The formation and listing on the JSE (primary), LSE and the stock exchanges of Malawi, Namibia and Zimbabwe, of a new entity, being Old Mutual Limited. Immediately prior to the listing, Old Mutual Limited became the new holding company of Old Mutual plc and its subsidiaries, which mainly comprised the remaining operating businesses namely Old Mutual Emerging Markets and Nedbank. The results and position of this new Group have been presented within this set of unaudited condensed consolidated interim financial statements (interim financial statements). More details on the basis of preparation and the comparative information presented in these interim financial statements have been presented in note A1.
The final step of Managed Separation will be achieved through the unbundling (in terms of South African law) of up to 32% of the issued share capital of Nedbank to shareholders of Old Mutual Limited, whilst retaining a minority interest of 19.9% in the shareholder funds. Further details on Managed Separation and the transactions that have occurred during the period are set out in note A2. More information on the businesses classified as held for sale and distribution and as discontinued operations is set out in note G1.
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Consolidated income statement For the six months ended 30 June 2018
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Rm |
Notes |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 (Re-presented)¹ |
Year ended 31 December 2017 (Re-presented)¹ |
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Continuing operations |
|
|
|
|
|
Revenue |
|
|
|
|
|
Gross insurance premium revenue |
|
39,739 |
35,184 |
72,323 |
|
Outward reinsurance |
|
(3,333) |
(3,260) |
(6,693) |
|
Net earned premiums |
|
36,406 |
31,924 |
65,630 |
|
Investment return (non-banking) |
|
22,735 |
35,723 |
93,921 |
|
Banking interest and similar income |
|
2,105 |
2,050 |
4,705 |
|
Banking trading, investment and similar income |
|
60 |
117 |
97 |
|
Fee and commission income, and income from service activities |
|
5,521 |
5,049 |
9,990 |
|
Other income |
|
1,040 |
745 |
1,860 |
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Total revenue |
|
67,867 |
75,608 |
176,203 |
|
Expenses |
|
|
|
|
|
Claims and benefits (including change in insurance contract provisions) |
|
(37,354) |
(38,570) |
(92,787) |
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Reinsurance recoveries |
|
2,998 |
2,752 |
5,404 |
|
Net claims and benefits incurred |
|
(34,356) |
(35,818) |
(87,383) |
|
Change in investment contract liabilities |
|
(2,897) |
(10,487) |
(30,358) |
|
Credit impairment charges |
|
(480) |
(403) |
(715) |
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Finance costs |
|
(538) |
(1,171) |
(4,024) |
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Banking interest payable and similar expenses |
|
(252) |
(679) |
(1,278) |
|
Fee and commission expenses, and other acquisition costs |
|
(4,606) |
(3,757) |
(8,359) |
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Change in third-party interest in consolidated funds |
|
(7,503) |
(6,977) |
(11,405) |
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Other operating and administrative expenses |
|
(12,157) |
(12,427) |
(25,566) |
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Total expenses |
|
(62,789) |
(71,719) |
(169,088) |
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Share of associated undertakings' and joint ventures' profit after tax |
|
(53) |
(354) |
(23) |
|
Profit on disposal of subsidiaries, associated undertakings and strategic investments |
|
2,855 |
657 |
1,988 |
|
Profit before tax |
|
7,880 |
4,192 |
9,080 |
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Income tax expense |
|
(1,865) |
(1,834) |
(3,978) |
|
Profit from continuing operations after tax |
|
6,015 |
2,358 |
5,102 |
|
Discontinued operations |
|
|
|
|
|
Profit from discontinued operations after tax |
G1.1(a) |
8,108 |
7,599 |
15,262 |
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Profit after tax for the financial period |
|
14,123 |
9,957 |
20,364 |
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Attributable to |
|
|
|
|
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Equity holders of the parent |
|
10,648 |
7,503 |
14,372 |
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Non-controlling interests |
|
|
|
|
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Ordinary shares |
|
3,190 |
2,156 |
5,402 |
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Preferred securities |
|
285 |
298 |
590 |
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Profit after tax for the financial period |
|
14,123 |
9,957 |
20,364 |
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Earnings per ordinary share |
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|
|
|
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Basic earnings per share - continuing operations (cents) |
|
127.2 |
54.3 |
107.6 |
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Basic earnings per share - discontinued operations (cents) |
|
102.2 |
100.4 |
197.1 |
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Basic earnings per ordinary share (cents) |
C1(a) |
229.4 |
154.7 |
304.7 |
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Diluted earnings per share - continuing operations (cents) |
|
125.9 |
53.4 |
106.0 |
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Diluted earnings per share - discontinued operations (cents) |
|
99.6 |
98.0 |
191.5 |
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Diluted basic earnings per ordinary share (cents) |
C1(b) |
225.5 |
151.4 |
297.5 |
1 The six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) and Old Mutual Bermuda as discontinued operations. In addition, the six months ended 30 June 2017 has been re-presented to reflect Nedbank and Quilter plc (Quilter) as discontinued operations, consistent with the year ended 31 December 2017. Refer to notes A2 and G1 for more information.
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Consolidated statement of comprehensive income For the six months ended 30 June 2018
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Rm |
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Six months ended 30 June 2018 |
Six months ended 30 June 2017 (Re-presented)¹ |
Year ended 31 December 2017 (Re-presented)¹ |
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Profit after tax for the financial period |
|
14,123 |
9,957 |
20,364 |
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Other comprehensive income for the financial period |
|
|
|
|
|
Items that will not be reclassified to profit or loss |
|
|
|
|
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Fair value movements |
|
|
|
|
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Property revaluations |
|
(17) |
15 |
109 |
|
Measurement gains/(losses) on defined benefit plans |
|
28 |
(886) |
(966) |
|
Shadow accounting2 |
|
23 |
(30) |
(154) |
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Income tax on items that will not be reclassified to profit or loss |
|
1 |
(33) |
(95) |
|
|
|
35 |
(934) |
(1,106) |
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Items that may be reclassified to profit or loss |
|
|
|
|
|
Fair value movements |
|
|
|
|
|
Net investment hedge |
|
33 |
3,121 |
446 |
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Investments at fair value through other comprehensive income |
|
(98) |
115 |
46 |
|
Currency translation differences on translating foreign operations |
|
5,366 |
(2,029) |
(3,200) |
|
Exchange differences recycled to profit or loss on disposal of business |
|
394 |
(826) |
(1,343) |
|
Realisation of net investment hedge on sale of a subsidiary |
|
- |
- |
2,680 |
|
Fair value movement related to credit risk on borrowed funds |
|
320 |
- |
- |
|
Other movements |
|
101 |
(207) |
(321) |
|
Income tax on items that may be reclassified to profit or loss |
|
- |
- |
43 |
|
|
|
6,116 |
174 |
(1,649) |
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Total other comprehensive income for the financial period from continuing operations |
|
6,151 |
(760) |
(2,755) |
|
Discontinued operations |
|
|
|
|
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Total other comprehensive income for the financial period from discontinued operations after tax |
G1.1(b) |
(147) |
- |
149 |
|
Total other comprehensive income for the financial period |
|
6,004 |
(760) |
(2,606) |
|
|
|
|
|
|
|
Total comprehensive income for the financial period |
|
20,127 |
9,197 |
17,758 |
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Attributable to |
|
|
|
|
|
Equity holders of the parent |
|
16,362 |
6,997 |
12,036 |
|
Non-controlling interests |
|
|
|
|
|
Ordinary shares |
|
3,480 |
1,902 |
5,132 |
|
Preferred securities |
|
285 |
298 |
590 |
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Total comprehensive income for the financial period |
|
20,127 |
9,197 |
17,758 |
1 The six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. In addition, the six months ended 30 June 2017 has been re-presented to reflect Nedbank and Quilter as discontinued operations, consistent with the year ended 31 December 2017. Refer to notes A2 and G1 for more information.
2 Shadow accounting is an adjustment, permitted by IFRS 4 'Insurance contracts', to allow for the impact of recognising unrealised gains or losses on insurance assets and liabilities in a consistent manner to the recognition of the unrealised gain or loss on financial assets that have a direct effect on the measurement of the related insurance assets and liabilities.
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Supplementary income statement For the six months ended 30 June 2018
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Supplementary income statement
Rm |
Notes |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
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Mass and Foundation Cluster |
|
1,534 |
1,306 |
3,052 |
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Personal Finance |
|
918 |
1,394 |
3,150 |
|
Wealth and Investments |
|
783 |
638 |
1,490 |
|
Old Mutual Corporate |
|
854 |
800 |
1,576 |
|
Old Mutual Insure |
|
370 |
200 |
524 |
|
Rest of Africa |
|
478 |
368 |
1,081 |
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Central expenses |
|
(89) |
(176) |
(506) |
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Results from Operations |
|
4,848 |
4,530 |
10,367 |
|
Shareholder investment return |
|
1,177 |
1,869 |
4,920 |
|
Finance costs |
|
(337) |
(286) |
(622) |
|
Income from associated undertakings |
|
1,379 |
1,036 |
2,305 |
|
Adjusted Headline Earnings before tax and non-controlling interests |
|
7,067 |
7,149 |
16,970 |
|
Shareholder tax |
|
(1,566) |
(1,600) |
(3,535) |
|
Non-controlling interests |
|
(108) |
(190) |
(488) |
|
Adjusted Headline Earnings |
|
5,393 |
5,359 |
12,947 |
|
Adjusted weighted average number of ordinary shares (millions) |
C1(a) |
4,801 |
4,771 |
4,776 |
|
Earnings per share (cents) |
|
112.3 |
112.3 |
271.1 |
|
|
|
|
|
|
|
|
|
|
|
Rm |
|
Reconciliation of Adjusted Headline Earnings to IFRS profit after tax |
Notes |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
|
Adjusted Headline Earnings |
|
5,393 |
5,359 |
12,947 |
|
Investment return on group equity and debt instruments held in policyholder funds |
B3(a) |
620 |
106 |
(1,355) |
|
Impact of restructuring |
B3(b) |
(450) |
(81) |
(54) |
|
Discontinued operations |
B3(c) |
4,536 |
4,198 |
8,870 |
|
Income from associated undertakings |
B3(d) |
(1,398) |
(1,049) |
(2,346) |
|
Residual plc |
B3(e) |
(901) |
(1,507) |
(4,918) |
|
Headline earnings |
|
7,800 |
7,026 |
13,144 |
|
Impairment of goodwill and other intangible assets |
|
(21) |
(720) |
(1,080) |
|
Profit/(loss) on disposal of fixed assets |
|
14 |
(12) |
(26) |
|
Profit on disposal of subsidiaries, associated undertakings and strategic investments |
|
2,855 |
956 |
2,081 |
|
Profit after tax for the period attributable to ordinary equity holders of the parent |
|
10,648 |
7,250 |
14,119 |
|
Dividends on preferred securities |
|
- |
253 |
253 |
|
Profit after tax for the financial period attributable to equity holders of the parent |
|
10,648 |
7,503 |
14,372 |
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Consolidated statement of financial position At 30 June 2018 |
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Rm |
Notes |
At 30 June 2018 |
At 31 December 2017 |
|
Assets |
|
|
|
|
Goodwill and other intangible assets |
|
6,154 |
6,653 |
|
Mandatory reserve deposits with central banks |
|
98 |
94 |
|
Investment property |
|
36,878 |
31,903 |
|
Property, plant and equipment |
|
8,496 |
8,081 |
|
Investments in associated undertakings and joint ventures |
|
2,265 |
1,789 |
|
Deferred tax assets |
|
800 |
1,084 |
|
Deferred acquisition costs |
|
1,908 |
3,086 |
|
Reinsurers' share of policyholder liabilities |
F1 |
7,898 |
4,220 |
|
Loans and advances |
|
24,618 |
21,483 |
|
Investments and securities |
|
750,370 |
722,249 |
|
Current tax receivable |
|
312 |
1,064 |
|
Trade, other receivables and other assets |
|
21,119 |
21,875 |
|
Derivative financial instruments |
|
3,347 |
4,101 |
|
Cash and cash equivalents |
|
27,542 |
30,761 |
|
Assets held for sale and distribution |
G1.2 |
1,020,757 |
2,188,443 |
|
Total assets |
|
1,912,562 |
3,046,886 |
|
Liabilities |
|
|
|
|
Life insurance contract liabilities |
F1 |
152,108 |
159,514 |
|
Investment contract liabilities with discretionary participating features |
F1 |
201,691 |
193,425 |
|
Investment contract liabilities |
F1 |
296,547 |
288,164 |
|
Property & casualty liabilities |
F1 |
8,890 |
8,285 |
|
Borrowed funds |
F2 |
21,132 |
18,866 |
|
Deferred tax liabilities |
|
5,069 |
5,088 |
|
Deferred revenue |
|
625 |
1,378 |
|
Provisions and accruals |
|
2,206 |
2,385 |
|
Third-party interests in consolidated funds |
|
86,665 |
81,573 |
|
Current tax payable |
|
1,398 |
1,711 |
|
Trade, other payables and other liabilities |
|
45,415 |
42,355 |
|
Amounts owed to bank depositors |
|
16,254 |
12,440 |
|
Derivative financial instruments |
|
4,892 |
4,498 |
|
Liabilities held for sale and distribution |
G1.2 |
917,713 |
2,043,759 |
|
Total liabilities |
|
1,760,605 |
2,863,441 |
|
Net assets |
|
151,957 |
183,445 |
|
Shareholders' equity |
|
|
|
|
Equity attributable to equity holders of the parent |
|
104,604 |
136,678 |
|
Non-controlling interests |
|
|
|
|
Ordinary shares |
|
41,497 |
40,910 |
|
Preferred securities |
|
5,856 |
5,857 |
|
Total non-controlling interests |
|
47,353 |
46,767 |
|
Total equity |
|
151,957 |
183,445 |
|
Consolidated statement of cash flows For the six months ended 30 June 2018
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|
|
|
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|
|
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Rm |
Notes |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 (Re-presented)¹ |
Year ended 31 December 2017 (Re-presented)¹ |
|
Cash flows from operating activities |
|
|
|
|
|
Profit before tax |
|
7,880 |
4,192 |
9,080 |
|
Non-cash movements in profit before tax |
|
4,730 |
1,600 |
16,091 |
|
Net changes in working capital |
|
4,572 |
(7,529) |
(8,646) |
|
Taxation paid |
|
(1,762) |
(1,972) |
(3,869) |
|
Net cash inflow/(outflow) from operating activities - continuing operations |
|
15,420 |
(3,709) |
12,656 |
|
Cash flows from investing activities |
|
|
|
|
|
Net (acquisition)/disposal of financial investments |
|
(25,551) |
5,643 |
(3,929) |
|
Acquisition of investment properties |
|
(915) |
(566) |
(6,139) |
|
Proceeds from disposal of investment properties |
|
115 |
- |
69 |
|
Dividends received from associated undertakings |
|
5 |
50 |
67 |
|
Acquisition of property, plant and equipment |
|
(635) |
(255) |
(653) |
|
Proceeds from disposal of property, plant and equipment |
|
158 |
16 |
240 |
|
Acquisition of intangible assets |
|
(461) |
(287) |
(728) |
|
Acquisition of interests in subsidiaries, associated undertakings, joint ventures and strategic investments |
|
(1,195) |
(40) |
(1,520) |
|
Proceeds from the disposal of interests in subsidiaries, associated undertakings joint ventures and strategic investments |
|
4,206 |
8,052 |
12,622 |
|
Cash and cash equivalents divested on disposal of subsidiaries |
|
(54,042) |
(2,350) |
(2,350) |
|
Net cash (outflow)/inflow from investing activities - continuing operations |
|
(78,315) |
10,263 |
(2,321) |
|
Cash flows from financing activities |
|
|
|
|
|
Dividends paid to |
|
|
|
|
|
Ordinary equity holders of the Company |
|
(3,113) |
(2,549) |
(5,667) |
|
Non-controlling interests and preferred security interests |
|
(203) |
(415) |
(394) |
|
Interest paid (excluding banking interest paid) |
|
(205) |
(516) |
(1,029) |
|
Proceeds from issue of ordinary shares |
|
251 |
50 |
294 |
|
Net disposal of treasury shares - ordinary shares |
|
524 |
399 |
223 |
|
Redemption of perpetual preferred callable securities |
|
- |
(4,923) |
(4,923) |
|
Proceeds from issue of subordinated and other debt |
|
1,741 |
36 |
1,715 |
|
Subordinated and other debt repaid |
|
(130) |
(1,171) |
(11,164) |
|
Net cash outflow from financing activities - continuing operations |
|
(1,135) |
(9,089) |
(20,945) |
|
Net cash outflow - continuing operations |
|
(64,030) |
(2,535) |
(10,610) |
|
Net cash inflow - discontinued operations |
G1.1(c) |
18,103 |
6,874 |
9,594 |
|
Effects of exchange rate changes on cash and cash equivalents |
|
4,379 |
583 |
(1,290) |
|
Cash and cash equivalents at beginning of the year |
|
100,334 |
102,640 |
102,640 |
|
Cash and cash equivalents at end of the year |
|
58,786 |
107,562 |
100,334 |
|
Comprising |
|
|
|
|
|
Mandatory reserve deposits with central banks |
|
98 |
19,677 |
94 |
|
Cash and cash equivalents |
|
27,542 |
87,885 |
30,761 |
|
Included in assets held for sale and distribution |
|
|
|
|
|
Mandatory reserve deposits with central banks |
G1.2 |
21,596 |
- |
19,222 |
|
Cash and cash equivalents |
G1.2 |
9,550 |
- |
50,257 |
|
Total |
|
58,786 |
107,562 |
100,334 |
1 The six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. In addition, the six months ended 30 June 2017 has been re-presented to reflect Nedbank and Quilter as discontinued operations, consistent with the year ended 31 December 2017. Refer to notes A2 and G1 for more information.
In line with market practice in South Africa, cash and cash equivalents in the cash flow statement above include mandatory reserve deposits with central banks.
Except for mandatory reserve deposits with central banks of R21,694 million (June 2017: R19,677 million; December 2017: R19,316 million) and cash and cash equivalents consolidated as part of the consolidation of funds of R7,029 million (June 2017: R22,269 million; December 2017: R21,872 million), management do not consider that there are any material amounts of cash and cash equivalents which are not available for use in the Group's day to day operations.
|
Consolidated statement of changes in equity For the six months ended 30 June 2018
|
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|
|
|
Millions |
|
|
|||
|
Rm |
Notes |
Number of shares issued and fully paid |
|
Share capital1 |
Share premium1 |
Merger reserve |
Fair-value reserve2 |
|
Shareholders' equity at beginning of the period |
|
4,933 |
|
10,150 |
19,324 |
20,639 |
190 |
|
Impact of adopting IFRS 9 and IFRS 15, net of taxation |
G5 |
- |
|
- |
- |
- |
620 |
|
Restated opening balance |
|
4,933 |
|
10,150 |
19,324 |
20,639 |
810 |
|
Total comprehensive income for the financial period |
|
|
|
|
|
|
|
|
Profit after tax for the financial period |
|
- |
|
- |
- |
- |
- |
|
Other comprehensive income |
|
- |
|
- |
- |
- |
(450) |
|
Total comprehensive income for the financial period |
|
- |
|
- |
- |
- |
(450) |
|
Transactions with the owners of the Company |
|
|
|
|
|
|
|
|
Contributions and distributions |
|
|
|
|
|
|
|
|
Dividends for the period |
C3 |
- |
|
- |
- |
- |
- |
|
Equity share-based payment transactions |
|
- |
|
- |
- |
- |
- |
|
Transfer between reserves4 |
|
- |
|
- |
- |
- |
297 |
|
Demerger of Quilter from Old Mutual plc |
|
- |
|
- |
- |
- |
- |
|
Merger reserve released from demerger of Quilter5 |
|
- |
|
- |
- |
(19,506) |
- |
|
Other movements in share capital6 |
|
9 |
|
18 |
233 |
- |
- |
|
Total contributions and distributions |
|
9 |
|
18 |
233 |
(19,506) |
297 |
|
Changes in ownership and capital structure |
|
|
|
|
|
|
|
|
Capital reduction of Old Mutual plc 1 |
|
- |
|
(10,079) |
(19,557) |
- |
- |
|
Change in participation in subsidiaries |
|
- |
|
- |
- |
- |
- |
|
Total changes in ownership and capital structure |
|
- |
|
(10,079) |
(19,557) |
- |
- |
|
Total transactions with the owners of the Company |
|
9 |
|
(10,061) |
(19,324) |
(19,506) |
297 |
|
Shareholders' equity at end of the period |
|
4,942 |
|
89 |
- |
1,133 |
657 |
1 On 22 June 2018, Old Mutual plc reduced the nominal value of its ordinary share capital and cancelled its share premium accounts through the creation of distributable reserves. As a result, R10,079 million and R19,557 million respectively were transferred to retained earnings. Refer to note A2 for more information.
2 The available-for-sale reserve is no longer applicable from 1 January 2018 due to the implementation of IFRS 9. Refer to note G5 for more information.
3 Included in the closing balance for other reserves is R394 million liability credit reserve on borrowed funds. The Group recognises fair value gains and losses on the borrowed funds designated at fair value through profit or loss. The cumulative fair value gains and losses as a result of changes in the credit risk of the issued bonds are recognised in other comprehensive income and not in profit or loss. The balance of the total fair value gains and losses on these instruments is recognised in profit or loss.
4 Transfers between reserves include R1,660 million transferred from the share-based payment reserve to retained earnings relating to Quilter (R1,136 million) and Old Mutual plc (R524 million) as a result of the accelerated vesting of employee share schemes.
5 As a result of the distribution and initial public offering of Old Mutual plc's entire shareholding in Quilter, merger reserves of R19,506 million were transferred to retained earnings.
6 Other movements in share capital and share premium are the issue of shares in Old Mutual plc to satisfy the exercise of share options (pre-exchange). Other movements in retained earnings represent movement in treasury shares.
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
Property revaluation reserve |
Share-based payments reserve |
Other reserves3 |
Foreign currency translation reserve |
Retained earnings |
Attributable to equity holders of the parent |
Total non-controlling interests |
Total equity |
|
|
|
|
|
|
|
|
|
|
2,744 |
3,813 |
969 |
(3,932) |
82,781 |
136,678 |
46,767 |
183,445 |
|
- |
- |
(914) |
- |
(2,398) |
(2,692) |
(1,628) |
(4,320) |
|
2,744 |
3,813 |
55 |
(3,932) |
80,383 |
133,986 |
45,139 |
179,125 |
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
10,648 |
10,648 |
3,475 |
14,123 |
|
4 |
- |
320 |
5,993 |
(153) |
5,714 |
290 |
6,004 |
|
4 |
- |
320 |
5,993 |
10,495 |
16,362 |
3,765 |
20,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
(3,113) |
(3,113) |
(1,931) |
(5,044) |
|
- |
(6) |
- |
- |
107 |
101 |
(107) |
(6) |
|
(108) |
(1,901) |
(597) |
216 |
2,093 |
- |
- |
- |
|
- |
- |
- |
- |
(42,935) |
(42,935) |
- |
(42,935) |
|
- |
- |
- |
- |
19,506 |
- |
- |
- |
|
- |
- |
(348) |
- |
1,834 |
1,737 |
- |
1,737 |
|
(108) |
(1,907) |
(945) |
216 |
(22,508) |
(44,210) |
(2,038) |
(46,248) |
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
29,636 |
- |
- |
- |
|
- |
- |
- |
- |
(1,534) |
(1,534) |
487 |
(1,047) |
|
- |
- |
- |
- |
28,102 |
(1,534) |
487 |
(1,047) |
|
(108) |
(1,907) |
(945) |
216 |
5,594 |
(45,744) |
(1,551) |
(47,295) |
|
2,640 |
1,906 |
(570) |
2,277 |
96,472 |
104,604 |
47,353 |
151,957 |
|
Consolidated statement of changes in equity For the six months ended 30 June 2017
|
||||||
|
|
|
Millions |
|
|||
|
Rm |
Notes |
Number of shares issued and fully paid |
Share capital |
Share premium |
Merger reserve |
Available-for-sale reserve |
|
Shareholders' equity at beginning of the period |
|
4,930 |
10,145 |
19,036 |
22,422 |
163 |
|
Total comprehensive income for the financial period |
|
|
|
|
|
|
|
Profit after tax for the financial period |
|
- |
- |
- |
- |
- |
|
Other comprehensive income |
|
- |
- |
- |
- |
- |
|
Total comprehensive income for the financial period |
|
- |
- |
- |
- |
- |
|
Transactions with the owners of the Company |
|
|
|
|
|
|
|
Contributions and distributions |
|
|
|
|
|
|
|
Dividends for the year |
C3 |
- |
- |
- |
- |
- |
|
Tax relief on dividends paid |
|
- |
- |
- |
- |
- |
|
Equity share-based payment transactions |
|
- |
- |
- |
- |
- |
|
Transfer between reserves |
|
- |
- |
- |
- |
- |
|
Proceeds from BEE transactions |
|
- |
- |
211 |
- |
- |
|
Merger reserve released |
|
- |
- |
- |
(1,783) |
- |
|
Additional tier 1 capital instruments issued |
|
- |
- |
- |
- |
- |
|
Preferred securities repurchased |
|
- |
- |
- |
- |
- |
|
Other movements in share capital |
|
2 |
- |
52 |
- |
- |
|
Total contributions and distributions |
|
2 |
- |
263 |
(1,783) |
- |
|
Changes in ownership and capital structure |
|
|
|
|
|
|
|
Disposal of a non-controlling interest in OM Asset Management plc |
|
- |
- |
- |
- |
- |
|
Change in participation in subsidiaries |
|
- |
- |
- |
- |
- |
|
Total changes in ownership and capital structure |
|
- |
- |
- |
- |
- |
|
Total transactions with the owners of the Company |
|
2 |
- |
263 |
(1,783) |
- |
|
Shareholders' equity at end of the period |
|
4,932 |
10,145 |
19,299 |
20,639 |
163 |
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Property revaluation reserve |
Share-based payments reserve |
Other reserves |
Foreign currency translation reserve |
Retained earnings |
Perpetual preferred callable securities |
Attributable to equity holders of the parent |
Total non-controlling interests |
Total equity |
|
|
2,624 |
6,492 |
266 |
(2,043) |
71,041 |
4,532 |
134,678 |
52,234 |
186,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
7,250 |
253 |
7,503 |
2,454 |
9,957 |
|
|
(12) |
- |
759 |
154 |
(1,407) |
- |
(506) |
(254) |
(760) |
|
|
(12) |
- |
759 |
154 |
5,843 |
253 |
6,997 |
2,200 |
9,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
(2,549) |
(259) |
(2,808) |
(1,893) |
(4,701) |
|
|
- |
- |
- |
- |
- |
6 |
6 |
- |
6 |
|
|
- |
(649) |
- |
- |
148 |
- |
(501) |
(148) |
(649) |
|
|
- |
(1,797) |
- |
- |
1,797 |
- |
- |
- |
- |
|
|
- |
- |
- |
- |
- |
- |
211 |
- |
211 |
|
|
- |
- |
- |
- |
1,783 |
- |
- |
- |
- |
|
|
- |
- |
- |
- |
- |
- |
- |
600 |
600 |
|
|
- |
- |
- |
- |
(240) |
(4,532) |
(4,772) |
- |
(4,772) |
|
|
268 |
- |
- |
- |
415 |
- |
735 |
- |
735 |
|
|
268 |
(2,446) |
- |
- |
1,354 |
(4,785) |
(7,129) |
(1,441) |
(8,570) |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
- |
- |
- |
(9,432) |
(9,432) |
|
|
- |
- |
- |
- |
483 |
- |
483 |
1,048 |
1,531 |
|
|
- |
- |
- |
- |
483 |
- |
483 |
(8,384) |
(7,901) |
|
|
268 |
(2,446) |
- |
- |
1,837 |
(4,785) |
(6,646) |
(9,825) |
(16,471) |
|
|
2,880 |
4,046 |
1,025 |
(1,889) |
78,721 |
- |
135,029 |
44,609 |
179,638 |
|
|
Consolidated statement of changes in equity For the year ended 31 December 2017
|
||||||
|
|
|
Millions |
|
|||
|
Rm |
Notes |
Number of shares issued and fully paid |
Share capital |
Share premium |
Merger reserve |
Available-for-sale reserve |
|
Shareholders' equity at beginning of the year |
|
4,930 |
10,145 |
19,036 |
22,422 |
163 |
|
Total comprehensive income for the financial year |
|
|
|
|
|
|
|
Profit after tax for the financial year |
|
- |
- |
- |
- |
- |
|
Other comprehensive income |
|
- |
- |
- |
- |
27 |
|
Total comprehensive income for the financial year |
|
- |
- |
- |
- |
27 |
|
Transactions with the owners of the Company |
|
|
|
|
|
|
|
Contributions and distributions |
|
|
|
|
|
|
|
Dividends for the year |
C3 |
- |
- |
- |
- |
- |
|
Tax relief on dividends paid |
|
- |
- |
- |
- |
- |
|
Equity share-based payment transactions |
|
- |
- |
- |
- |
- |
|
Transfer between reserves |
|
- |
- |
- |
- |
- |
|
Proceeds from BEE transactions |
|
- |
- |
218 |
- |
- |
|
Merger reserve released |
|
- |
- |
- |
(1,783) |
- |
|
Additional tier 1 capital instruments issued |
|
- |
- |
- |
- |
- |
|
Preferred securities repurchased |
|
- |
- |
- |
- |
- |
|
Other movements in share capital |
|
3 |
5 |
70 |
- |
- |
|
Total contributions and distributions |
|
3 |
5 |
288 |
(1,783) |
- |
|
Changes in ownership and capital structure |
|
|
|
|
|
|
|
Disposal of a non-controlling interest in OM Asset Management plc |
|
- |
- |
- |
- |
- |
|
Change in participation in subsidiaries |
|
- |
- |
- |
- |
- |
|
Total changes in ownership and capital structure |
|
- |
- |
- |
- |
- |
|
Total transactions with owners of the Company |
|
3 |
5 |
288 |
(1,783) |
- |
|
Shareholders' equity at end of the year |
|
4,933 |
10,150 |
19,324 |
20,639 |
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property revaluation reserve |
Share-based payments reserve |
Other reserves |
Foreign currency translation reserve |
Retained earnings1 |
Perpetual preferred callable securities |
Attributable to equity holders of the parent |
Total non-controlling interests |
Total equity |
|
2,624 |
6,492 |
266 |
(2,043) |
71,041 |
4,532 |
134,678 |
52,234 |
186,912 |
|
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- |
- |
- |
- |
14,119 |
253 |
14,372 |
5,992 |
20,364 |
|
54 |
- |
1,088 |
(1,889) |
(1,616) |
- |
(2,336) |
(270) |
(2,606) |
|
54 |
- |
1,088 |
(1,889) |
12,503 |
253 |
12,036 |
5,722 |
17,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
(5,667) |
(259) |
(5,926) |
(3,617) |
(9,543) |
|
- |
- |
- |
- |
- |
6 |
6 |
- |
6 |
|
- |
(639) |
- |
- |
532 |
- |
(107) |
- |
(107) |
|
- |
(2,040) |
- |
- |
2,040 |
- |
- |
- |
- |
|
- |
- |
- |
- |
- |
- |
218 |
- |
218 |
|
- |
- |
- |
- |
1,783 |
- |
- |
- |
- |
|
- |
- |
- |
- |
- |
- |
- |
600 |
600 |
|
- |
- |
- |
- |
(240) |
(4,532) |
(4,772) |
- |
(4,772) |
|
66 |
- |
(385) |
- |
86 |
- |
(158) |
- |
(158) |
|
66 |
(2,679) |
(385) |
- |
(1,466) |
(4,785) |
(10,739) |
(3,017) |
(13,756) |
|
|
|
|
|
|
|
|
|
|
|
- |
- |
- |
- |
- |
- |
- |
(9,432) |
(9,432) |
|
- |
- |
- |
- |
703 |
- |
703 |
1,260 |
1,963 |
|
- |
- |
- |
- |
703 |
- |
703 |
(8,172) |
(7,469) |
|
66 |
(2,679) |
(385) |
- |
(763) |
(4,785) |
(10,036) |
(11,189) |
(21,225) |
|
2,744 |
3,813 |
969 |
(3,932) |
82,781 |
- |
136,678 |
46,767 |
183,445 |
A: Significant accounting policies
A1: Basis of preparation
Statement of compliance
Old Mutual Limited (the Company) is a company incorporated in South Africa. On 25 June 2018, the Company became the parent of Old Mutual plc through a share for share exchange, with the Company receiving the entire net asset value of Old Mutual plc, the original parent company of Old Mutual Limited and its subsidiaries, in exchange for the issue of ordinary shares of the Company to the original shareholders of Old Mutual plc. This was a reorganisation of the existing Group and, although there was a change in legal ownership, there was no change in the economic substance of the reporting entity. Therefore the transaction was not a business combination as defined by IFRS 3 'Business Combinations' and the unaudited condensed consolidated interim financial statements (interim financial statements) have consequently been prepared on a predecessor basis as a continuation of the existing Group.
The interim financial statements for the six months ended 30 June 2018 consolidate the results of the Company and its subsidiaries (together the Group) and equity account the Group's interest in associates and joint ventures (other than those held by investment-linked insurance funds which are accounted for as investments at fair value through profit or loss).
The interim financial statements comprise the consolidated statement of financial position at 30 June 2018, consolidated income statement, consolidated statement of comprehensive income, supplementary income statement, consolidated statement of changes in equity and consolidated statement of cash flows for the six months ended 30 June 2018 and selected explanatory notes. The interim financial statements have been prepared under the supervision of C.G. Troskie CA(SA) (Chief Financial Officer) on the going concern basis, which the Directors believe is appropriate. The Directors of the Group take full responsibility for the preparation of interim financial statements.
The interim financial statements are prepared in accordance with IAS 34 'Interim Financial Reporting', as issued by the International Accounting Standards Board (IASB), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the Companies Act (Act No 71 of 2008) of South Africa. The accounting policies applied in the preparation of these interim financial statements are in terms of International Financial Reporting Standards (IFRS) as issued by the IASB and are consistent with those applied in the preparation of the Group's 2017 consolidated financial statements, except for changes arising from the adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers', as set out in note G5 to the interim financial statements.
These interim financial statements do not include all the notes typically included in the annual financial statements and should therefore be read in conjunction with the Group's audited consolidated financial statements at and for the year ended 31 December 2017. The interim financial statements are presented in South African rand, which is the Group's presentation currency.
Details for businesses classified as held for sale and distribution and as discontinued operations are set out in note G1.
Comparative information
Comparative information presented at and for the year ended 31 December 2017 within these interim financial statements, has been correctly extracted from the Group's audited consolidated financial statements for the year ended 31 December 2017 (financial statements), re-presented for businesses classified as discontinued operations during the six months ended 30 June 2018, if appropriate, as described in note G1. Comparative information presented for the six months ended 30 June 2017 within these interim financial statements is that of Old Mutual plc converted to South African rand and re-presented for businesses classified as discontinued operations during the six months ended 30 June 2018. Comparative information for the six months ended 30 June 2017 is unaudited.
The financial statements for the year ended 31 December 2017, were prepared for the purposes of Group reporting in accordance with IFRS and consolidate the financial information of Old Mutual plc and its subsidiaries and equity accounts the interest in associated undertakings and joint ventures (other than those held by investment-linked insurance funds and venture capital divisions which are accounted for as investments at fair value through profit or loss), after converting it to rand. This is consistent with the preparation of the Historical Financial Information of Old Mutual plc (HFI) as at and for the three years ended 31 December 2017 that was prepared solely for the inclusion in the Old Mutual Limited Prospectus and Pre Listing Statement published on 20 April 2018.
The accounting policies adopted in the preparation of both the financial statements and the HFI, have been applied consistently to all periods presented.
The information presented in the financial statements is equivalent to that presented in the HFI with the exception of the consolidated statement of changes in equity. In preparation of the Old Mutual Limited financial statements, in accordance with IFRS, certain components of equity have been re-presented as at 1 January 2015. The Group believes that it is more appropriate to reflect rand only components of equity at the historical rand rate as opposed to the exchange rate used at 1 January 2015, when converting Old Mutual plc balances from sterling to rand for the purposes of the HFI. The reserves and related amounts impacted are reductions to the available for sale reserve (R503 million), property revaluation reserve (R660 million) and share-based payment reserve (R1,001 million), with a corresponding increase of R2,164 million to retained earnings. Overall, this re-presentation is a transfer between reserves and has no impact on the shareholders equity or non-controlling interests of the Group.
Translation of foreign operations
The assets and liabilities of foreign operations are translated from their respective functional currencies into the Group's presentation currency, using the exchange rates at 30 June 2018, and their income and expenses using the average exchange rates for the period. Cumulative translation gains and losses up to 1 January 2015, being the effective date of the Group's conversion to IFRS, were reset to zero. Other than in respect of cumulative translation gains and losses up to 1 January 2015, cumulative unrealised gains or losses resulting from translation of functional currencies to the presentation currency are included as a separate component of shareholders' equity. To the extent that these gains and losses are effectively hedged, the cumulative effect of such gains and losses arising on the hedging instruments are also included in that component of shareholders' equity. Upon the disposal of subsidiaries the cumulative amount of exchange differences post 1 January 2015, deferred in shareholders' equity, net of attributable amounts in relation to hedged net investments, is recognised in profit or loss.
The exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to rand are:
|
|
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
|||
|
|
Income statement (average rate) |
Statement of financial position (closing rate) |
Income statement (average rate) |
Statement of financial position (closing rate) |
Income statement (average rate) |
Statement of financial position (closing rate) |
|
Sterling |
16.9266 |
18.1266 |
16.6431 |
16.9831 |
17.1493 |
16.7565 |
|
US dollar |
12.3056 |
13.7250 |
13.2183 |
13.0559 |
13.3107 |
12.3902 |
|
Kenyan shilling |
0.1214 |
0.1361 |
0.1279 |
0.1258 |
0.1287 |
0.1201 |
Basis of preparation of Adjusted Headline Earnings
Purpose of Adjusted Headline Earnings
Adjusted Headline Earnings (AHE) is an alternative non IFRS profit measure used alongside IFRS profit to assess performance of the Group. It is calculated as headline earnings (note C1(c)) adjusted for items not reflective of the long term economic performance of the Group (note B3).
AHE is one of the key performance indicators by which operational performance is monitored and managed, and it is one of a range of measures by which management performance and remuneration is assessed. In addition it is used in setting the dividend to be paid to shareholders.
Due to the complexity introduced into IFRS profit by the transactions required to execute Managed Separation and the long term nature of the Group's operating businesses, management believes that AHE is an appropriate alternative basis by which to assess the operating results of the Group and that it enhances the comparability and understanding of the financial performance of the Group. AHE utilises headline earnings as defined by SAICA Circular 4/2018 as its base. Adjustments applied to headline earnings in order to calculate AHE remove the impact of certain IFRS accounting treatments where the asset treatment under IFRS is inconsistent with the measurement of the related policyholder liability, significant non-recurring expenses or income specifically related to material acquisitions, disposals or fundamental restructuring (such as Managed Separation), the results of businesses classified as discontinued operations and the results of residual plc, which is winding down and therefore its results will not form part of the long term performance of the Group.
The Group Audit Committee regularly reviews the determination of AHE and the use of adjusting items to confirm that it remains an appropriate basis on which to analyse the operating performance of the Group. The Committee assesses refinements to the policy on a case by case basis, and seeks to minimise such changes in order to maintain consistency over time.
Scope of businesses included in AHE
AHE includes the operating results of the Mass and Foundation Cluster, Personal Finance, Wealth and Investments, Old Mutual Corporate, Old Mutual Insure, Rest of Africa and Other Group Activities segments. These are considered to be the core continuing operations of the Group. Residual plc is considered to be non core as it is not part of the Group's principal operations due to the fact that it is in the process of winding down. Consequently it is removed from AHE Refer to note B1 for more information.
The results of Nedbank, Quilter, the Latin American businesses, Old Mutual Bermuda and Kotak Mahindra Old Mutual Life Insurance Limited, are currently classified as discontinued operations in the IFRS consolidated income statement, and have therefore been excluded in the determination of AHE to aid comparability between financial years. Refer to note B1 and note G1 for more information.
AHE per share
Adjusted Headline Earnings per share (EPS) is calculated as AHE divided by adjusted weighted average number of shares (AHE WANS) (note C1(c)). The calculation of AHE WANS includes own shares held in policyholder and consolidated investment funds, and BEE trusts. The IFRS weighted average numbers of ordinary shares used to calculate basic earnings per share (WANS) is lower than the AHE WANS applied in the calculating AHE earnings per share (AHE WANS). This is because the AHE WANS is diluted to reflect the Group's BEE and policyholder fund shares as being in the hands of third parties, and is consistent with the treatment of the related revenue in AHE. Refer to note C1(a) for more information.
A: Significant accounting policies
A2: Significant corporate activity and business changes during the year
Transactions during the period required to implement the managed separation strategy
Reorganisation of the group structure
The following transactions were effected during the period as part of the execution of Managed Separation:
─ On 6 March 2018, Old Mutual Limited was converted to a public company.
─ On 22 June 2018, Old Mutual plc reduced the nominal value of its ordinary share capital and cancelled its share premium account through the creation of distributable reserves in terms of a UK court sanctioned scheme. As a result, R10,079 million and R19,557 million respectively were transferred to retained earnings. On 25 June 2018, Old Mutual plc reclassified certain of its existing ordinary shares into 'A-ordinary shares'. These A-ordinary shares were then cancelled and an equivalent number of new ordinary shares were issued to Old Mutual Limited, the new parent company of Old Mutual plc. On 25 June 2018, the ordinary shares that were not classified as A-ordinary shares were transferred to Old Mutual Limited. Following these transactions, Old Mutual plc became a wholly owned subsidiary of Old Mutual Limited. Consequently, Old Mutual plc is no longer listed on the London Stock Exchange (LSE), Johannesburg Stock Exchange (JSE), Zimbabwe Stock Exchange (ZSE), Namibian Stock Exchange (NSX) or Malawi Stock Exchange (MSE).
─ On 25 June 2018, Old Mutual plc announced the closing of the initial public offering of 182.5 million shares, representing 9.6% of the total issued share capital of Quilter at a price of 2,588 cents (145 pence) per share by way of primary listing of Quilter shares on the LSE and secondary listing on the JSE. Total net proceeds arising from this transaction, after underwriting and other transaction costs, were R4,206 million. Further, on 25 June 2018, Old Mutual plc distributed R42,935 million, representing 86.6% of the total issued share capital of Quilter to the Old Mutual plc shareholders. The remaining 3.8% of the total issued share capital of Quilter is held by the Joint Share Ownership Plan (JSOP) Trustee on behalf of certain management and staff of Quilter.
A profit on the demerger of Quilter of R2,852 million has been recognised in profit or loss. This includes foreign currency translation losses recycled to profit or loss of R394 million. In addition, merger reserves of R19,506 million have been transferred to retained earnings.
Included in the initial public offering of 182.5 million shares, were 16.5 million shares that were subject to an over-allotment option. At 30 June 2018, the market value of these shares was R435 million (£24 million). On 26 July 2018, 2.7 million of these shares were partially exercised by underwriters, raising cash proceeds of R66 million (£3.8 million). On 21 August 2018, the remaining 13.8 million shares were sold, raising cash proceeds of R379 million (£20.5 million).
─ On 26 June 2018, Old Mutual Limited listed on the Main Board of the JSE with a standard listing on the LSE and secondary listings on the stock exchanges of Malawi, Namibia and Zimbabwe.
Following the Group reorganisation, Old Mutual Limited consists of the Group's operating segments (Mass and Foundation Cluster, Personal Finance, Old Mutual Corporate, Wealth and Investments, Old Mutual Insure, Rest of Africa and Other Group Activities) , the Group's holding in Nedbank and Residual plc.
Existing share based payment arrangements
Following Managed Separation and the respective listings of Quilter and Old Mutual Limited, the ordinary shares held by various employee share schemes of the Old Mutual plc Group have been replaced by the ordinary shares of Quilter and Old Mutual Limited. The end result of the execution of the schemes was that for every three Old Mutual plc shares held, employee shareholders received one ordinary share in Quilter and three ordinary shares in Old Mutual Limited. This resulted in a modification of the underlying share award as Quilter shares became unrestricted in the hands of employees, subject to existing share-based payment arrangements of the Old Mutual plc Group.
The distribution of Quilter shares to employee shareholders was a return of capital to shareholders and therefore employees were no longer subject to any vesting conditions of the existing share-based payment arrangements. As such it is viewed to be a partial settlement of the award which leads to an accelerated vesting of the IFRS 2 charge as it relates to the Quilter portion of the original award.
The share for share exchange and the distribution of Quilter shares has led to an accelerated vesting charge of R282 million recognised in the IFRS consolidated income statement. This charge has been removed in the determination of AHE.
Disposals announced during the period but not yet completed
Disposal of the Latin American businesses
On 16 March 2018, the Group announced its agreement to sell the Latin American businesses, comprising OM Latin America Holdco UK Limited and AIVA Holding Group S.A, to Lilly Bermuda Capital Limited (SPV domiciled in Bermuda), owned by CMIG International Holding Private Limited. The transaction is currently subject to usual regulatory approvals and customary closing conditions. As at 30 June 2018, the sale of the Latin American businesses remains on track to be completed in the first half of 2019. The use of proceeds from the sale, expected to be R4,220 million ($307.5 million), will be assessed as part of the Group's Capital framework and in accordance with the dividend policy.
As a consequence of the agreed sale, the Latin American businesses have been classified as held for sale and consequently as discontinued operations at 30 June 2018. Refer to note G1 for more information.
Other activities during the year
Lions Head Investments
On 23 May 2018, Old Mutual Properties Investment Company (Pty) Ltd (OMP Investco), a subsidiary of Old Mutual Real Estate Holding Company (Pty) Ltd (OMREHC) purchased a controlling 60.81% stake in Lions Head Investments (LHI), a property management company based in Bulgaria. The transaction has been accounted for as a business combination in accordance with IFRS 3 'Business Combinations'. The purchase price paid for LHI amounted to R226 million (€15.5 million). The net asset value for the stake purchased was R229 million (€15.7 million). Consequently a gain on bargain purchase of R3 million (€0.2 million) has been recognised.
On 14 June 2018, OMP Investco, through LHI, also purchased 100% of the equity of Portland Trust Developments s.r.l (Portland A&B / Oregon). The transaction has been accounted for as a business combination in accordance with IFRS 3 'Business Combinations'. The purchase price paid was R430 million (€27.6 million). The net asset value at the date of purchase was R422 million (€27.1 million), resulting in goodwill of R8 million (€0.5 million) being recognised.
A3: Critical accounting estimates and judgements
In the preparation of these interim financial statements, the Group is required to make estimates and judgements that affect items reported in the consolidated income statement, consolidated statement of financial position, other primary statements and related supporting notes.
The critical accounting estimates and judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements of Old Mutual Limited for the year ended 31 December 2017, with the exception of new critical accounting estimates detailed in note G5 arising from the changes in accounting policies.
In the current and prior periods, the Group applied significant judgement in the classification of Nedbank, Quilter, the Latin American business and Old Mutual Bermuda as discontinued operations and Nedbank, Quilter and the Latin American businesses as assets and liabilities held for sale and distribution. These classifications did not have any valuation impact on the underlying assets and liabilities. Refer to note G1 for more information.
B: Segment information
B1: Basis of segmentation
The execution of the Managed Separation strategy, as described in note A1 and note A2, constituted a reorganisation of the previous Old Mutual plc Group resulting in the formation of two new groups Old Mutual Limited and Quilter. The executive management team of Old Mutual Limited with the support of the Board, was responsible for assessment of performance and the allocation of resources of the continuing business operations during period under review. The reorganisation resulted in a change in the composition of the Group's operating segments that is reported to the Chief Operating Decision Maker (CODM), viewed to be the executive management team of Old Mutual Limited. As such the new segment structure has been reflected in the required disclosures in both the current year and comparative information.
The Group manages its business through the following operational segments, which are supported by central shareholder activities and enabling functions.
- Mass and Foundation Cluster: A retail segment that operates in Life and Savings, Banking and Lending. It provides simple financial services products to customers in the low income and lower middle income markets. These products are divided into four categories being (i) risk, including funeral cover, (ii) savings, (iii) lending and (iv) transactional products.
- Personal Finance: A retail segment that operates primarily in Life and Savings. It provides holistic financial advice and long-term savings, investment, income and risk products and targets the middle income market.
- Wealth and Investments: Operates across Life and Savings and Asset Management through 4 distinct businesses: (i) Wealth, a retail segment targeting high income and high net worth individuals, that provides vertically integrated advice, investment solutions and funds, and other financial solutions, (ii) Asset Management comprising 8 investment boutiques that provide asset management services to retirement and benefit funds and to the retail market in partnership with Wealth (iii) Alternatives, an unlisted alternatives investment business, and (iv) Specialised Finance, a proprietary risk and investment capability which manages and supports the origination of assets.
- Old Mutual Corporate: Operates in Life and Savings and primarily provides group risk, investments, annuities and consulting services to employee-sponsored retirement and benefit funds.
- Old Mutual Insure: Provides Property & casualty insurance products through three operational businesses: (i) personal, (ii) commercial, and (iii) corporate.
- Rest of Africa: Operates in Life and Savings, Property & casualty (including health insurance), Banking and Lending (including micro-lending) and Asset Management. The segment operates in twelve countries across three regions: SADC, East Africa and West Africa.
- Other Group Activities: Comprises the activities related to the management of the Group's capital structure. This includes the management of shareholder investment assets including the associated shareholder investment return and third-party borrowings including the associated finance costs. Also included are net assets and operations of Residual plc and investments in associated undertakings. Subsequent to the Nedbank unbundling, the Group intends to retain a minority shareholding of 19.9%, and this will be managed as part of Other Group Activities.
Presentation and Disclosure
Results from Operations measures the operational performance of the Group and together with items such as investment return, finance costs and income from associated undertakings, the Group's profit measure, AHE is derived. AHE by definition excludes discontinued operations and Residual plc, which do not form part of core continuing businesses of Group, and certain of the discontinued operations are a function of the reorganisation and the application of predecessor accounting.
Nedbank, Quilter, the Latin American businesses, Kotak and Old Mutual Bermuda have been classified as discontinued operations. In line with IFRS 8 par 28 (b), discontinued operations have been disclosed as a reconciling item between the segment profit measure and total IFRS profit after tax of the Group.
Balance sheet measures provided to the CODM on a regular basis comprise of Return on Net Asset Value and Invested Shareholder Assets at a Group and regional level. Balance sheet measures at a segment level have not been provided to the CODM in the period under review. The Group is in the process of a fundamental multi-year transformation of its finance function, transitioning from a legal entity view to a segment approach to better reflect the balance sheet economics and levers to drive value.
B: Segment information continued
B2: Reconciliation of Results from operations to Profit after tax for the six months ended 30 June 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rm |
Notes |
Mass and Foundation Cluster |
Personal Finance |
Wealth and Investments |
Old Mutual Corporate |
Old Mutual Insure |
Rest of Africa |
Other Group Activities |
Elimination of intra-segment transactions |
Total continuing operations |
Discontinued operations (note G1) |
Total |
|
Results from Operations |
|
1,534 |
918 |
783 |
854 |
370 |
478 |
(89) |
- |
4,848 |
- |
4,848 |
|
Shareholder investment return |
|
- |
- |
- |
- |
55 |
609 |
513 |
- |
1,177 |
- |
1,177 |
|
Finance costs |
|
- |
- |
- |
- |
(22) |
- |
(315) |
- |
(337) |
- |
(337) |
|
Income from associated undertakings |
|
- |
- |
- |
- |
- |
- |
1,379 |
- |
1,379 |
- |
1,379 |
|
Adjusted Headline Earnings before tax and non-controlling interests |
|
1,534 |
918 |
783 |
854 |
403 |
1,087 |
1,488 |
- |
7,067 |
- |
7,067 |
|
Shareholder tax |
|
(463) |
(270) |
(182) |
(238) |
(115) |
(251) |
(47) |
- |
(1,566) |
- |
(1,566) |
|
Non-controlling interests |
|
(63) |
1 |
(1) |
- |
(4) |
(30) |
(11) |
- |
(108) |
- |
(108) |
|
Adjusted Headline Earnings |
|
1,008 |
649 |
600 |
616 |
284 |
806 |
1,430 |
- |
5,393 |
- |
5,393 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment return adjustment for Group equity and debt instruments held in policy holder funds |
|
- |
- |
- |
- |
- |
- |
620 |
- |
620 |
- |
620 |
|
Impact of restructuring |
|
(20) |
(30) |
(38) |
(13) |
(68) |
(47) |
(234) |
- |
(450) |
- |
(450) |
|
Profit from discontinued operations after tax |
|
- |
- |
- |
- |
- |
- |
|
(226) |
(226) |
4,762 |
4,536 |
|
Income from associated undertakings - 19.9% of Nedbank |
|
- |
- |
- |
- |
- |
- |
(1,398) |
- |
(1,398) |
- |
(1,398) |
|
Residual plc |
|
- |
- |
- |
- |
- |
- |
(901) |
- |
(901) |
- |
(901) |
|
Headline earnings |
|
988 |
619 |
562 |
603 |
216 |
759 |
(483) |
(226) |
3,038 |
4,762 |
7,800 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Headline earnings adjustments |
C1(c) |
- |
- |
- |
- |
(1) |
1 |
2,869 |
- |
2,869 |
(21) |
2,848 |
|
Profit for the financial period attributable to equity holders of the parent |
|
988 |
619 |
562 |
603 |
215 |
760 |
2,386 |
(226) |
5,907 |
4,741 |
10,648 |
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
63 |
(1) |
1 |
- |
4 |
30 |
11 |
- |
108 |
3,082 |
3,190 |
|
Preferred securities |
|
- |
- |
- |
- |
- |
- |
- |
- |
- |
285 |
285 |
|
Profit after tax for the financial period |
|
1,051 |
618 |
563 |
603 |
219 |
790 |
2,397 |
(226) |
6,015 |
8,108 |
14,123 |
B: Segment information continued
B2: Reconciliation of Results from operations to Profit after tax for the six months ended 30 June 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rm |
Notes |
Mass and Foundation Cluster |
Personal Finance |
Wealth and Investments |
Old Mutual Corporate |
Old Mutual Insure |
Rest of Africa |
Other Group Activities |
Elimination of intra-segment transactions |
Total continuing operations |
Discontinued operations (note G1) |
Total |
|
Results from Oerations |
|
1,306 |
1,394 |
638 |
800 |
200 |
368 |
(176) |
- |
4,530 |
- |
4,530 |
|
Shareholder investment return |
|
- |
- |
- |
- |
38 |
1,259 |
572 |
- |
1,869 |
- |
1,869 |
|
Finance costs |
|
- |
- |
- |
- |
- |
- |
(286) |
- |
(286) |
- |
(286) |
|
Income from associated undertakings |
|
- |
- |
- |
- |
- |
- |
1,036 |
- |
1,036 |
- |
1,036 |
|
Adjusted Headline Earnings before tax and non-controlling interests |
|
1,306 |
1,394 |
638 |
800 |
238 |
1,627 |
1,146 |
- |
7,149 |
- |
7,149 |
|
Shareholder tax |
|
(413) |
(362) |
(166) |
(226) |
(67) |
(235) |
(131) |
- |
(1,600) |
- |
(1,600) |
|
Non-controlling interests |
|
(64) |
1 |
(1) |
- |
(1) |
(125) |
- |
- |
(190) |
- |
(190) |
|
Adjusted Headline Earnings |
|
829 |
1,033 |
471 |
574 |
170 |
1,267 |
1,015 |
- |
5,359 |
- |
5,359 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment return adjustment for Group equity and debt instruments held in policy holder funds |
|
- |
- |
- |
- |
- |
- |
106 |
- |
106 |
- |
106 |
|
Impact of restructuring |
|
- |
- |
- |
- |
- |
- |
(81) |
- |
(81) |
- |
(81) |
|
Profit from discontinued operations after tax |
|
- |
- |
- |
- |
- |
- |
- |
(378) |
(378) |
4,576 |
4,198 |
|
Income from associated undertakings - 19.9% of Nedbank |
|
- |
- |
- |
- |
- |
- |
(1,049) |
- |
(1,049) |
- |
(1,049) |
|
Residual plc |
|
- |
- |
- |
- |
- |
- |
(1,507) |
- |
(1,507) |
- |
(1,507) |
|
Headline earnings |
|
829 |
1,033 |
471 |
574 |
170 |
1,267 |
(1,516) |
(378) |
2,450 |
4,576 |
7,026 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Headline earnings adjustments |
C1(c) |
- |
- |
- |
- |
- |
(720) |
813 |
- |
93 |
131 |
224 |
|
Dividends on preferred securities |
|
- |
- |
- |
- |
- |
- |
253 |
- |
253 |
- |
253 |
|
Profit for the financial period attributable to equity holders of the parent |
|
829 |
1,033 |
471 |
574 |
170 |
547 |
(450) |
(378) |
2,796 |
4,707 |
7,503 |
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
64 |
(1) |
1 |
- |
1 |
(339) |
(164) |
- |
(438) |
2,594 |
2,156 |
|
Preferred securities |
|
- |
- |
- |
- |
- |
- |
- |
- |
- |
298 |
298 |
|
Profit after tax for the financial period |
|
893 |
1,032 |
472 |
574 |
171 |
208 |
(614) |
(378) |
2,358 |
7,599 |
9,957 |
B: Segment information continued
B2: Reconciliation of Results from operations to Profit after tax for the year ended 31 December 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rm |
Notes |
Mass and Foundation Cluster |
Personal Finance |
Wealth and Investments |
Old Mutual Corporate |
Old Mutual Insure |
Rest of Africa |
Other Group Activities |
Elimination of intra-segment transactions |
Total continuing operations |
Discontinued operations (note G1) |
Total |
|
Results from Operations |
|
3,052 |
3,150 |
1,490 |
1,576 |
524 |
1,081 |
(506) |
- |
10,367 |
- |
10,367 |
|
Shareholder investment return |
|
- |
- |
- |
- |
436 |
3,071 |
1,413 |
- |
4,920 |
- |
4,920 |
|
Finance costs |
|
- |
- |
- |
- |
- |
- |
(622) |
- |
(622) |
- |
(622) |
|
Income from associated undertakings |
|
- |
- |
- |
- |
- |
- |
2,305 |
- |
2,305 |
- |
2,305 |
|
Adjusted Headline Earnings before tax and non-controlling interests |
|
3,052 |
3,150 |
1,490 |
1,576 |
960 |
4,152 |
2,590 |
- |
16,970 |
- |
16,970 |
|
Shareholder tax |
|
(948) |
(880) |
(304) |
(442) |
(213) |
(453) |
(295) |
- |
(3,535) |
- |
(3,535) |
|
Non-controlling interests |
|
(135) |
2 |
(2) |
- |
(17) |
(344) |
8 |
- |
(488) |
- |
(488) |
|
Adjusted Headline Earnings |
|
1,969 |
2,272 |
1,184 |
1,134 |
730 |
3,355 |
2,303 |
- |
12,947 |
- |
12,947 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment return adjustment for Group equity and debt instruments held in policy holder funds |
|
- |
- |
- |
- |
- |
- |
(1,355) |
- |
(1,355) |
- |
(1,355) |
|
Impact of restructuring |
|
- |
- |
213 |
- |
- |
|
(267) |
- |
(54) |
- |
(54) |
|
Profit from discontinued operations after tax |
|
- |
- |
- |
- |
- |
- |
- |
(465) |
(465) |
9,335 |
8,870 |
|
Income from associated undertakings - 19.9% of Nedbank |
|
- |
- |
- |
- |
- |
- |
(2,346) |
- |
(2,346) |
- |
(2,346) |
|
Residual plc |
|
- |
- |
- |
- |
- |
- |
(4,918) |
- |
(4,918) |
- |
(4,918) |
|
Headline earnings |
|
1,969 |
2,272 |
1,397 |
1,134 |
730 |
3,355 |
(6,583) |
(465) |
3,809 |
9,335 |
13,144 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Headline earnings adjustments |
C1(c) |
- |
- |
- |
- |
(11) |
(728) |
1,918 |
- |
1,179 |
(204) |
975 |
|
Dividends from preferred securities |
|
- |
- |
- |
- |
- |
- |
253 |
- |
253 |
- |
253 |
|
Profit for the financial period attributable to equity holders of the parent |
|
1,969 |
2,272 |
1,397 |
1,134 |
719 |
2,627 |
(4,412) |
(465) |
5,241 |
9,131 |
14,372 |
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
135 |
(2) |
2 |
- |
17 |
(122) |
(169) |
- |
(139) |
5,541 |
5,402 |
|
Preferred securities |
|
- |
- |
- |
- |
- |
- |
- |
- |
- |
590 |
590 |
|
Profit after tax for the financial period |
|
2,104 |
2,270 |
1,399 |
1,134 |
736 |
2,505 |
(4,581) |
(465) |
5,102 |
15,262 |
20,364 |
B: Segment information continued
B3: Headline earnings adjusting items
Adjusted Headline Earnings (AHE) is the Group's alternative profit measure used by management to assess the performance of the Group. It is calculated as headline earnings in accordance with JSE listing requirements adjusted for items not reflective of the long term economic performance of the Group. The adjustments from headline earnings to AHE are explained below.
(a) Investment return adjustment for Group equity and debt instruments held in policyholder funds
Represents the investment returns on policyholder investments in Group equity and debt instruments held by the Group's policyholder funds. This include investments in the Company's ordinary shares and the subordinated debt and ordinary shares issued by subsidiaries of the Group. These investment returns are eliminated within the consolidated income statement in arriving at profit before tax, but are added back in the calculation of AHE. This ensures consistency with the measurement of the related policyholder liability. During the six months ended 30 June 2018, the investment return adjustment decreased AHE by R620 million (six months ended 30 June 2017: R106 million decrease; year ended 31 December 2017: R1,355 million increase).
(b) Impact of restructuring
Represents the elimination of non-recurring expenses or income related to material acquisitions, disposals or a fundamental restructuring of the Group (such as Managed Separation). This adjustment would therefore include items such as the costs or income associated with completed acquisitions or disposals and the release of any acquisition date provisions. These items are removed from AHE as they are not representative of the operating activity of the Group and by their nature they are not expected to persist in the long term.
(c) Discontinued operations
Represents the removal of the net profit associated with discontinued operations. These business are not considered part of the Group's principal operations due to the fact they have been or are in the process of being sold or distributed and therefore will not form part of the Group going forward. The profit attributable to these business is therefore removed from AHE. For the six months ended 30 June 2018 this adjustment includes the profit attributable to Quilter, Nedbank, the Latin American businesses and Old Mutual Bermuda. For the six months ended 30 June 2017 and the year ended 31 December 2017, discontinued operations also includes the profit related to Kotak.
(d) Income from associated undertakings
Represents the reversal of the associate income in respect of the 19.9% shareholding in Nedbank, which is reported as part of AHE. In accordance with IFRS, the Nedbank shareholding of approximately 54% is classified as held for distribution and presented as part of the discontinued operations in the consolidated income statement and is therefore included in the adjustment labelled as discontinued operations. This adjustment ensures that these earnings are not double counted in the reconciliation.
(e) Residual plc
Represents the elimination of the net losses associated with the operations of the Residual plc. Residual plc is not considered part of the Group's principal operations due to the fact that it is in the process of winding down and therefore the associated costs are removed from AHE. During the six months ended 30 June 2018, the loss attributable to the Residual plc of R901 million (June 2017: R1,507 million) mainly related to transaction costs associated with the finalisation of Managed Separation and costs incurred in winding down the former Old Mutual plc head office operations.
C: Key performance information
C1: Earnings and earnings per share
|
|
|
|
|
|
|
|
Cents |
Source of guidance |
Notes |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
|
Basic earnings per share |
IFRS |
C1(a) |
229.4 |
154.7 |
304.7 |
|
Diluted earnings per share |
IFRS |
C1(b) |
225.5 |
151.4 |
297.5 |
|
Headline earnings per share |
JSE Listing Requirements |
C1(c) |
168.1 |
149.9 |
283.7 |
|
Diluted headline earnings per share |
JSE Listing Requirements |
C1(c) |
164.8 |
146.7 |
276.8 |
(a) Basic earnings per share
Basic earnings per share is calculated by dividing the profit for the financial period attributable to ordinary equity shareholders of the parent by the weighted average number of ordinary shares in issue during the year excluding own shares held in policyholder and consolidated investment funds, Employee Share Ownership Plan Trusts (ESOP), Black Economic Empowerment trusts and other related undertakings. These shares are regarded as treasury shares.
The table below reconciles the profit attributable to equity holders of the parent to profit attributable to ordinary equity holders:
|
|
|
|
|
Rm |
|
Rm |
Notes |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 (Re-presented)¹ |
Year ended 31 December 2017 (Re-presented)¹ |
|
Profit for the financial period attributable to equity holders of the parent from continuing operations |
|
5,907 |
2,796 |
5,241 |
|
Profit for the financial period attributable to equity holders of the parent from discontinued operations |
G1.1(a) |
4,741 |
4,707 |
9,131 |
|
Profit for the financial period attributable to equity holders of the parent |
|
10,648 |
7,503 |
14,372 |
|
Dividends paid to holders of perpetual preferred callable securities, net of tax credits |
|
- |
(253) |
(253) |
|
Profit attributable to ordinary equity holders |
|
10,648 |
7,250 |
14,119 |
1 The six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. In addition, the six months ended 30 June 2017 has been re-presented to reflect Nedbank and Quilter as discontinued operations, consistent with the year ended 31 December 2017. Refer to notes A2 and G1 for more information.
Dividends paid to holders of perpetual preferred callable securities of R253 million for the six months ended 30 June 2017 and year ended 31 December 2017 are stated net of tax credits of R6 million. All of the outstanding perpetual preferred callable securities were redeemed on 3 February 2017.
The table below summarises the calculation of the weighted average number of ordinary shares for the purposes of calculating basic earnings per share:
|
|
|
|
|
|
|
Millions |
|
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
|
Weighted average number of ordinary shares in issue |
|
4,934 |
4,930 |
4,931 |
|
Shares held in charitable foundations and trusts |
|
(19) |
(21) |
(21) |
|
Shares held in ESOP and similar trusts |
|
(114) |
(138) |
(134) |
|
Adjusted weighted average number of ordinary shares used to calculate Adjusted Headline Earnings per share |
|
4,801 |
4,771 |
4,776 |
|
Shares held in policyholder and consolidated investment funds |
|
(159) |
(80) |
(141) |
|
Shares held in Black Economic Empowerment trusts |
|
(1) |
(4) |
(2) |
|
Weighted average number of ordinary shares used to calculate basic earnings per share |
|
4,641 |
4,687 |
4,633 |
|
|
|
|
|
|
|
Basic earnings per ordinary share (cents) |
|
229.4 |
154.7 |
304.7 |
C: Key performance information continued
C1: Earnings and earnings per share continued
(b) Diluted earnings per share
Diluted earnings per share recognises the dilutive impact of shares and options held in ESOP and similar trusts and Black Economic Empowerment trusts, to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full period.
The table below reconciles the profit attributable to ordinary equity holders to diluted profit attributable to ordinary equity holders and summarises the calculation of weighted average number of shares for the purpose of calculating diluted basic earnings per share:
|
|
Note |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
|
Profit attributable to ordinary equity holders (Rm) |
|
10,648 |
7,250 |
14,119 |
|
Dilution effect on profit relating to share options issued by subsidiaries (Rm) |
|
(68) |
(33) |
(120) |
|
Diluted profit attributable to ordinary equity holders (Rm) |
|
10,580 |
7,217 |
13,999 |
|
Weighted average number of ordinary shares (millions) |
C1(a) |
4,641 |
4,687 |
4,633 |
|
Adjustments for share options held by ESOP and similar trusts (millions) |
|
49 |
78 |
70 |
|
Adjustments for shares held in Black Economic Empowerment trusts (millions) |
|
1 |
3 |
2 |
|
Weighted average number of ordinary shares used to calculate diluted earnings per share (millions) |
|
4,691 |
4,768 |
4,705 |
|
|
|
|
|
|
|
Diluted earnings per ordinary share (cents) |
|
225.5 |
151.4 |
297.5 |
(c) Headline earnings per share
The Group is required to calculate headline earnings per share (HEPS) in accordance with the Johannesburg Stock Exchange (JSE) Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 04/2018 'Headline Earnings'. The table below sets out a reconciliation of basic EPS and HEPS in accordance with that circular. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa. The table below reconciles the profit for the financial year attributable to equity holders of the parent to headline earnings and summarises the calculation of basic HEPS:
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
|||
|
|
Notes |
Gross |
Net of tax and non-controlling interests |
Gross |
Net of tax and non-controlling interests |
Gross |
Net of tax and non-controlling interests |
|
Profit for the financial period attributable to equity holders of the parent |
|
|
10,648 |
|
7,503 |
|
14,372 |
|
Dividends paid to holders of perpetual preferred callable securities |
|
|
- |
|
(253) |
|
(253) |
|
Profit attributable to ordinary equity holders |
|
|
10,648 |
|
7,250 |
|
14,119 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Impairments of intangible assets and property, plant and equipment (IAS36) |
|
56 |
21 |
1,186 |
720 |
1,667 |
1,080 |
|
(Profit)/loss on disposal of property and equipment (IAS16) |
|
(15) |
(14) |
22 |
12 |
42 |
26 |
|
Profit on disposal of subsidiaries, associated undertakings and strategic investments (including amounts recycled from the foreign currency translation reserve) (IFRS3) |
|
(2,855) |
(2,855) |
(815) |
(956) |
(2,151) |
(2,081) |
|
Total adjustments |
|
(2,814) |
(2,848) |
393 |
(224) |
(442) |
(975) |
|
Headline earnings |
|
|
7,800 |
|
7,026 |
|
13,144 |
|
Dilution effect on earnings relating to share options issued by subsidiaries |
|
|
(68) |
|
(33) |
|
(120) |
|
Diluted headline earnings (Rm) |
|
|
7,732 |
|
6,993 |
|
13,024 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares (millions) |
C1(a) |
|
4,641 |
|
4,687 |
|
4,633 |
|
Diluted weighted average number of ordinary shares (millions) |
C1(b) |
|
4,691 |
|
4,768 |
|
4,705 |
|
|
|
|
|
|
|
|
|
|
Headline earnings per share (cents) |
|
|
168.1 |
|
149.9 |
|
283.7 |
|
Diluted headline earnings per share (cents) |
|
|
164.8 |
|
146.7 |
|
276.8 |
C2: Net asset value per share and tangible net asset value per share
Net asset value per share is calculated as total assets minus total liabilities divided by the weighted average number of ordinary shares in issue at 30 June 2018.
Net tangible asset value per share is calculated as total assets minus goodwill and other intangible assets minus total liabilities divided by the total number of shares in issue at 30 June 2018.
|
|
|
|
|
|
|
Rand |
|
At 30 June 2018 |
At 30 June 2017 |
At 31 December 2017 |
|
Net asset value per share |
|
30.8 |
36.4 |
37.2 |
|
Net tangible asset value per share |
|
29.5 |
28.1 |
35.8 |
C3: Dividends
|
|
|
|
|
|
|
Rm |
Ordinary dividend payment date |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 |
Year ended 31 December 2017 |
|
2016 Second interim dividend paid - 3.39p (53.55c) per 11 3/7p share |
28 April 2017 |
- |
2,549 |
2,549 |
|
2017 Interim dividend paid - 3.53p (65.35c) per 11 3/7p share |
31 October 2017 |
- |
- |
3,118 |
|
2017 Second interim dividend paid - 3.57p (66.50c) per 11 3/7p share |
30 April 2018 |
3,113 |
- |
- |
|
Dividends to ordinary equity holders |
|
3,113 |
2,549 |
5,667 |
|
Dividends paid to holders of perpetual preferred callable securities |
|
- |
259 |
259 |
|
Dividend payments for the period |
|
3,113 |
2,808 |
5,926 |
The total dividend paid to ordinary equity holders is calculated using the number of shares expected to be in issue at the record date less own shares held in ESOP trusts, life funds of Group entities, Black Economic Empowerment trusts and related undertakings.
As a consequence of exchange control arrangements, dividends to shareholders holding shares issued through/from the company's secondary listings in Africa (being Namibia, Malawi and Zimbabwe) are settled through Dividend Access Trusts established for that purpose
The Directors have declared an interim dividend of 45 cents per ordinary share and a special dividend of 100 cents per ordinary share. These dividends will be paid on 16 October 2018 to shareholders on the South African register and Malawi, Namibia and Zimbabwe branch registers at the close of business on Tuesday, 18 September 2018 and to shareholders on the UK register at the close of business on Wednesday, 19 September 2018.
On 3 February 2017, all of the Group's outstanding perpetual preferred callable securities were redeemed. At this date a final dividend payment of R259 million was made to the holders of the securities.
D: Other consolidated income statement notes
D1 Analysis of the underlying other operating and administrative expense base
The table below provides an analysis of the underlying operating and administrative expense base.
|
|
|
|
|
|
Analysis of the underlying other operating and administrative expense base
Rm |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 (Re-presented)¹ |
Year ended 31 December 2017 (Re-presented)¹ |
|
Total other operating and administrative expenses |
12,157 |
12,427 |
25,566 |
|
Perimeter adjustments |
|
|
|
|
Residual plc and Old Mutual Bermuda |
(1,374) |
(647) |
(2,551) |
|
Consolidation of funds |
(263) |
(338) |
(515) |
|
Elimination of transactions with discontinued operations |
159 |
185 |
350 |
|
Expenses excluded from cost base |
|
|
|
|
Amortisation of acquired intangible assets |
(35) |
(205) |
(252) |
|
Impairment of goodwill and other intangible assets |
- |
(1,192) |
(1,478) |
|
Operational finance costs |
(855) |
(588) |
(1,096) |
|
Investment management expenses excluded from operating and administrative expenses |
(791) |
(855) |
(2,173) |
|
Cell captive share of costs |
(243) |
(299) |
- |
|
Restructuring costs including one-off business standalone costs |
(358) |
(81) |
(237) |
|
Underlying operating and administrative expense base |
8,397 |
8,407 |
17,614 |
1 The six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. In addition, the six months ended 30 June 2017 has been re-presented to reflect Nedbank and Quilter as discontinued operations, consistent with the year ended 31 December 2017. Refer to notes A2 and G1 for more information.
E: Financial assets and liabilities
E1: Categories of financial instruments
The analysis of financial assets and liabilities of the Group's continuing businesses into their categories as defined in IFRS 9 'Financial Instruments' is set out in the tables below. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets and liabilities category. The Group has taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from restating prior periods in respect of IFRS 9's classification and measurement (including impairment) requirements.
All gains and losses on measuring the financial assets and liabilities at each reporting date are included in the determination of profit or loss for the period.
Information about the methods and assumptions used in determining fair value is included in note E2.
|
At 30 June 2018 |
|
|
|
|
|
|
|
|
Fair value(note E3)1 |
|
|
|
|
Rm |
Total |
Mandatorily fair value through profit or loss |
Designated fair value through profit or loss |
Amortised cost |
Non- financial assets and liabilities |
|
Assets |
|
|
|
|
|
|
Mandatory reserve deposits with central banks |
98 |
- |
- |
98 |
- |
|
Investments in associated undertakings and joint ventures2 |
2,265 |
- |
- |
- |
2,265 |
|
Reinsurers' share of policyholder liabilities |
7,898 |
- |
- |
- |
7,898 |
|
Loans and advances |
24,618 |
- |
- |
24,618 |
- |
|
Investments and securities |
750,370 |
1,985 |
741,320 |
7,065 |
- |
|
Trade, other receivables and other assets |
21,119 |
- |
- |
19,205 |
1,914 |
|
Derivative financial instruments |
3,347 |
3,347 |
- |
- |
- |
|
Cash and cash equivalents |
27,542 |
- |
- |
27,542 |
- |
|
Total assets that include financial instruments |
837,257 |
5,332 |
741,320 |
78,528 |
12,077 |
|
Assets held for sale and distribution |
1,020,757 |
- |
- |
- |
1,020,757 |
|
Total other non-financial assets |
54,548 |
- |
- |
- |
54,548 |
|
Total assets |
1,912,562 |
5,332 |
741,320 |
78,528 |
1,087,382 |
|
Liabilities |
|
|
|
|
|
|
Life insurance contract liabilities |
152,108 |
- |
- |
- |
152,108 |
|
Investment contract liabilities with discretionary participating features |
201,691 |
|
|
|
201,691 |
|
Investment contract liabilities |
296,547 |
- |
296,547 |
- |
- |
|
Borrowed funds |
21,132 |
- |
14,636 |
6,496 |
- |
|
Third-party interest in consolidated funds |
86,665 |
- |
86,665 |
- |
- |
|
Trade, other payables and other liabilities |
45,415 |
- |
753 |
34,796 |
9,866 |
|
Amounts owed to bank depositors |
16,254 |
- |
- |
16,254 |
- |
|
Derivative financial instruments |
4,892 |
4,892 |
- |
- |
- |
|
Total liabilities that include financial instruments |
824,704 |
4,892 |
398,601 |
57,546 |
363,665 |
|
Liabilities held for sale and distribution |
917,713 |
- |
- |
- |
917,713 |
|
Total other non-financial liabilities |
18,188 |
- |
- |
- |
18,188 |
|
Total liabilities |
1,760,605 |
4,892 |
398,601 |
57,546 |
1,299,566 |
1 As explained in note G5 the Group adopted IFRS 9 'Financial Instruments' for the first time in 2018. Although IFRS 9 introduced new classification and measurement categories, the majority of the Group's financial assets and liabilities continue to be measured at FVTPL after the implementation of IFRS 9.
2 Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
|
At 31 December 2017 |
|
|
|
|
|
|
|
|
|
|
Fair value (note E3)1 |
Amortised cost |
|
|||
|
Rm |
Total |
Held-for-trading |
Designated |
Available-for-sale financial assets |
Loans and receivables |
Financial liabilities amortised cost |
Non-financial assets and liabilities |
|
Assets |
|
|
|
|
|
|
|
|
Mandatory reserve deposits with central banks |
94 |
- |
- |
- |
94 |
- |
- |
|
Investments in associated undertakings and joint ventures2 |
1,789 |
- |
- |
- |
- |
- |
1,789 |
|
Reinsurers' share of policyholder liabilities |
4,220 |
- |
- |
- |
25 |
- |
4,195 |
|
Loans and advances |
21,483 |
- |
- |
- |
21,483 |
- |
- |
|
Investments and securities |
722,249 |
- |
721,328 |
921 |
- |
- |
- |
|
Trade, other receivables and other assets |
21,875 |
- |
- |
- |
20,675 |
- |
1,200 |
|
Derivative financial instruments |
4,101 |
4,101 |
- |
- |
- |
- |
- |
|
Cash and cash equivalents |
30,761 |
- |
- |
- |
30,761 |
- |
- |
|
Total assets that include financial instruments |
806,572 |
4,101 |
721,328 |
921 |
73,038 |
- |
7,184 |
|
Assets held for sale and distribution |
2,188,443 |
- |
- |
- |
- |
- |
2,188,443 |
|
Total other non-financial assets |
51,871 |
- |
- |
- |
- |
- |
51,871 |
|
Total assets |
3,046,886 |
4,101 |
721,328 |
921 |
73,038 |
- |
2,247,498 |
|
Liabilities |
|
|
|
|
|
|
|
|
Life insurance contract liabilities |
159,514 |
- |
- |
- |
- |
- |
159,514 |
|
Investment contract liabilities with discretionary participating features |
193,425 |
- |
- |
- |
- |
- |
193,425 |
|
Investment contract liabilities |
288,164 |
- |
288,164 |
- |
- |
- |
- |
|
Third-party interest in consolidated funds |
81,573 |
- |
81,573 |
- |
- |
- |
- |
|
Borrowed funds |
18,866 |
- |
13,191 |
- |
- |
5,675 |
- |
|
Trade, other payables and other liabilities |
42,355 |
- |
2,039 |
- |
- |
30,437 |
9,879 |
|
Amounts owed to bank depositors |
12,440 |
- |
- |
- |
- |
12,440 |
- |
|
Derivative financial instruments |
4,498 |
4,498 |
- |
- |
- |
- |
- |
|
Total liabilities that include financial instruments |
800,835 |
4,498 |
384,967 |
- |
- |
48,552 |
362,818 |
|
Liabilities held for sale and distribution |
2,043,759 |
- |
- |
- |
- |
- |
2,043,759 |
|
Total other non-financial liabilities |
18,847 |
- |
- |
- |
- |
- |
18,847 |
|
Total liabilities |
2,863,441 |
4,498 |
384,967 |
- |
- |
48,552 |
2,425,424 |
1 As explained in note G5, the Group adopted IFRS 9 'Financial Instruments' for the first time in 2018 and has taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from restating prior periods in respect of IFRS 9's classification and measurement (including impairment) requirements
2 Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
E: Financial assets and liabilities continued
E2: Fair values of financial assets and liabilities
The description of the determination of fair value and the fair value hierarchies of financial assets and liabilities described in this section applies to financial assets and liabilities for all the businesses.
(a) Determination of fair value
The best evidence of fair value is a quoted price in an active market. In the event that the market for a financial asset or liability is not active, or quoted prices cannot be obtained without undue effort, another valuation technique is used.
In general, the following inputs are taken into account when evaluating the fair value of financial instruments:
- Assessing whether instruments are trading with sufficient frequency and volume, that they can be considered liquid
- The inclusion of a measure of the counterparties' non-performance risk in the fair-value measurement of loans and advances, which involves the modelling of dynamic credit spreads
- The inclusion of credit valuation adjustment (CVA) and debit valuation adjustment (DVA) in the fair-value measurement of derivative instruments
- The inclusion of own credit risk in the calculation of the fair value of financial liabilities.
There have been no significant changes in the valuation techniques applied when valuing financial instruments. The general principles applied to those instruments measured at fair value are outlined below:
Reinsurers' share of policyholder liabilities
Reinsurers' share of policyholder liabilities are measured on a basis that is consistent with the measurement of the provisions held in respect of the related insurance contracts. Reinsurance contracts which cover financial risk are measured at fair value of the underlying assets.
Loans and advances
Loans and advances include mortgage loans, other asset-based loans, including collateralised debt obligations, and other secured and unsecured loans.
In the absence of an observable market for these instruments, the fair value is determined by using internally developed models that are specific to the instrument and that incorporate all available observable inputs. These models involve discounting the contractual cash flows by using a credit-adjusted zero-coupon rate.
Investments and securities
Investments and securities include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as investments and certain other securities.
Pooled investments represent the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices that are regularly updated or models based on the market prices of investments held in the underlying pooled investment funds.
Other investments and securities that are measured at fair value are measured at observable market prices where available. In the absence of observable market prices, these investments and securities are fair valued utilising one or more of the following techniques: discounted cash flows, the application of an EBITDA multiple or any other relevant technique.
Investments in associated undertakings and joint ventures held by investment-linked insurance funds and venture capital divisions
Investments in associated undertakings and joint ventures are valued using appropriate valuation techniques. These techniques may include price earnings multiples, discounted cash flows or the adjusted value of similar completed transactions.
Derivative financial instruments
The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. In situations where the derivatives are traded over the counter the fair value of the instruments is determined by the utilisation of option pricing models.
Investment contract liabilities
The fair value of investment contract liabilities is determined with reference to the fair value of the underlying funds that are held by the Group.
Third-party interests in consolidation of funds
Third-party interests in consolidation of funds are measured at the attributable net asset value of each fund.
Amounts owed to bank depositors
The fair values of amounts owed to bank depositors correspond with the carrying amount shown in the consolidated statement of financial position, which generally reflects the amount payable on demand.
Borrowed funds
The fair values of amounts included in borrowed funds are based on quoted market prices at the reporting date where applicable, or by reference to quoted prices of similar instruments.
Other financial assets and liabilities
The fair values of other financial assets and liabilities (comprising cash and cash equivalents; cash with central banks; trade, other receivables and other assets; and trade, other payables and other liabilities) reasonably approximate their carrying amounts as included in the consolidated statement of financial position as they are short-term in nature or re-price to current market rates frequently.
(b) Fair value hierarchy
Fair values are determined according to the following hierarchy.
|
Description of hierarchy |
Types of instruments classified in the respective levels |
|
Level 1 - quoted market prices: financial assets and liabilities with quoted prices for identical instruments in active markets. |
Listed equity securities, listed government securities and other listed debt securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and liabilities, listed borrowed funds, reinsurance share of policyholder liabilities and investment contract liabilities directly linked to other Level 1 financial assets. |
|
Level 2 - valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable. |
Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data, with a majority determined with reference to observable prices. Certain loans and advances, certain privately placed debt instruments, third-party interests in consolidated funds and amounts owed to bank depositors. |
|
Level 3 - valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable. |
Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments, and derivatives embedded in certain portfolios of insurance contracts where the derivative is not closely related to the host contract and the valuation contains significant unobservable inputs. |
The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process. All businesses have significant processes in place to perform reviews of the appropriateness of the valuation of Level 3 instruments.
The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. However, certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or liability's carrying amount is driven by unobservable inputs.
In this context, 'unobservable' means that there is little or no current market data available for which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about the overall fair value of the asset or liability being measured.
(c) Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and Level 2 when an active, traded primary market ceases to exist for that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine fair value of the instrument become unobservable.
E: Financial assets and liabilities continued
E3: Disclosure of financial assets and liabilities measured at fair value
(a) Financial assets and liabilities measured at fair value, classified according to fair value hierarchy
The table below presents a summary of the financial assets and liabilities of the Group's continuing businesses that are measured at fair value in the consolidated statement of financial position according to their IFRS 9 classification, as set out in note G5.
|
At 30 June 2018 |
|
|
|
|
|
Rm |
Total |
Level 1 |
Level 2 |
Level 3 |
|
Financial assets measured at fair value |
|
|
|
|
|
Mandatorily fair value through profit or loss |
5,332 |
1,527 |
3,805 |
- |
|
Investments and securities |
1,985 |
1,527 |
458 |
- |
|
Derivative financial instruments - assets |
3,347 |
- |
3,347 |
- |
|
|
|
|
|
|
|
Designated fair value through profit or loss |
741,320 |
418,554 |
306,992 |
15,774 |
|
Investments and securities |
741,320 |
418,554 |
306,992 |
15,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets measured at fair value |
746,652 |
420,081 |
310,797 |
15,774 |
|
Financial liabilities measured at fair value |
|
|
|
|
|
Mandatorily fair value through profit or loss |
4,892 |
- |
4,892 |
- |
|
Derivative financial instruments - liabilities |
4,892 |
- |
4,892 |
- |
|
|
|
|
|
|
|
Designated fair value through profit or loss |
398,601 |
8,892 |
389,709 |
- |
|
Investment contract liabilities1 |
296,547 |
- |
296,547 |
- |
|
Third-party interests in consolidated funds |
86,665 |
- |
86,665 |
- |
|
Borrowed funds |
14,636 |
8,139 |
6,497 |
- |
|
Other liabilities |
753 |
753 |
- |
- |
|
|
|
|
|
|
|
Total financial liabilities measured at fair value |
403,493 |
8,892 |
394,601 |
- |
1 Investment contract liabilities amount excludes R201,691 million discretionary participating investment contracts. These contracts are classified as non-financial liabilities and are not analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'.
|
At 31 December 2017 |
|
|
|
|
|
Rm |
Total |
Level 1 |
Level 2 |
Level 3 |
|
Financial assets measured at fair value |
|
|
|
|
|
Held-for-trading (fair value through profit or loss) |
4,101 |
- |
4,072 |
29 |
|
Derivative financial instruments - assets |
4,101 |
- |
4,072 |
29 |
|
|
|
|
|
|
|
Designated (fair value through profit or loss) |
721,328 |
439,007 |
261,924 |
20,397 |
|
Investments and securities |
721,328 |
439,007 |
261,924 |
20,397 |
|
|
|
|
|
|
|
Available-for-sale financial assets (fair value through other comprehensive income) |
921 |
921 |
- |
- |
|
Investments and securities |
921 |
921 |
- |
- |
|
|
|
|
|
|
|
Total financial assets measured at fair value |
726,350 |
439,928 |
265,996 |
20,426 |
|
Financial liabilities measured at fair value |
|
|
|
|
|
Held-for-trading (fair value through profit or loss) |
4,498 |
- |
4,498 |
- |
|
Derivative financial instruments - liabilities |
4,498 |
- |
4,498 |
- |
|
|
|
|
|
|
|
Designated (fair value through profit or loss) |
384,967 |
7,488 |
377,479 |
- |
|
Investment contract liabilities1 |
288,164 |
- |
288,164 |
- |
|
Third-party interests in consolidated funds |
81,573 |
- |
81,573 |
- |
|
Borrowed funds |
13,191 |
6,696 |
6,495 |
- |
|
Other liabilities |
2,039 |
792 |
1,247 |
- |
|
|
|
|
|
|
|
Total financial liabilities measured at fair value |
389,465 |
7,488 |
381,977 |
- |
1 Investment contract liabilities amount excludes R193,425 million discretionary participating investment contracts. These contracts are classified as non-financial liabilities and are not analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'.
(b) Level 3 fair value hierarchy disclosure
The tables below reconcile the opening balances of Level 3 financial assets and liabilities to closing balances at the end of the period. Movements during the period include both continuing operations and assets and movements of assets and liabilities classified as held for sale and distribution during the period. A single line item at the end of the movement table is included to reflect the carrying value transferred to assets or liabilities held for sale and distribution at 30 June 2018.
|
|
|
|
|
|
Rm |
Mandatorily fair value through profit or loss |
Designated fair value through profit or loss |
Total |
|
Six months ended 30 June 2018 |
Derivatives |
Investments and securities |
|
|
Level 3 financial assets |
|
|
|
|
At beginning of the period |
29 |
20,397 |
20,426 |
|
Total net fair value (losses)/gains recognised in profit or loss |
(28) |
135 |
107 |
|
Purchases and issues |
- |
1,648 |
1,648 |
|
Sales and settlements |
(2) |
(2,550) |
(2,552) |
|
Transfers in |
- |
1,975 |
1,975 |
|
Transfers out |
- |
(19) |
(19) |
|
Foreign exchange and other |
1 |
(44) |
(43) |
|
Transferred to assets held for sale and distribution |
- |
(5,768) |
(5,768) |
|
Total Level 3 financial assets |
- |
15,774 |
15,774 |
|
Unrealised fair value gains relating to assets held at 30 June 2018 recognised in profit or loss |
- |
135 |
135 |
At 30 June 2018, Level 3 assets comprised unlisted private company shares, unlisted debt securities and unlisted pooled investments mainly held by policyholder funds for which the bulk of the investment risk is borne by policyholders. At 31 December 2017, all level 3 assets held by the Quilter and Nedbank businesses were transferred into assets held for sale and distribution and are therefore not included within any of the amounts disclosed in the table above.
Transfers into Level 3 principally comprise private equity investments that it is now considered more appropriate to disclose as Level 3 rather than as their previous designation of Level 2. This is due to the nature and degree of the unobservable inputs contained in the valuation models.
The amount of R5,768 million shown as transferred to held for sale and distribution relates to assets held by the Latin American businesses, which was classified as held for sale and distribution with effect from 30 June 2018. Refer to note G1 for more information.
E: Financial assets and liabilities continued
E3: Disclosure of financial assets and liabilities measured at fair value continued
(b) Level 3 fair value hierarchy disclosure continued
|
Year ended 31 December 2017 |
|
|
|
|
|
|
|
|
Held-for-trading |
Designated at fair value through profit or loss |
Available- for-sale |
Total |
||
|
Rm |
Derivatives |
Investments in associated undertakings and joint ventures |
Loans and advances |
Investments and securities |
Investments and securities |
|
|
Level 3 financial assets |
|
|
|
|
|
|
|
At beginning of the year |
490 |
2,357 |
77 |
24,141 |
410 |
27,475 |
|
Total net fair value (losses)/gains recognised in: |
|
|
|
|
|
|
|
- profit or loss |
(444) |
10 |
45 |
915 |
- |
526 |
|
- other comprehensive income |
18 |
(8) |
- |
6 |
- |
16 |
|
Purchases and issues |
70 |
1,513 |
- |
13,814 |
- |
15,397 |
|
Sales and settlements |
(58) |
(668) |
(89) |
(1,436) |
- |
(2,251) |
|
Transfers in |
- |
- |
- |
7,632 |
- |
7,632 |
|
Transfers out |
- |
- |
- |
(4,198) |
- |
(4,198) |
|
Foreign exchange and other |
(46) |
(1) |
- |
77 |
- |
30 |
|
Transferred to assets held for sale and distribution |
(1) |
(3,203) |
(33) |
(20,554) |
(410) |
(24,201) |
|
Total Level 3 financial assets |
29 |
- |
- |
20,397 |
- |
20,426 |
|
|
|
|
|
|
|
|
|
Unrealised fair value (losses)/gains relating to assets held at 31 December 2017 recognised in profit or loss |
(444) |
- |
- |
1,230 |
- |
786 |
At 31 December 2017 all Level 3 liabilities held by the Quilter and Nedbank businesses were transferred into liabilities held for sale and distribution. No Level 3 liabilities were held by any of the other Group businesses at 30 June 2018, at 31 December 2017 or at any time during the current reporting period.
|
Year ended 31 December 2017 |
|
|
|
|
|
|
Held-for-trading |
Designated fair value through profit or loss |
Total |
|
|
Rm |
Other liabilities |
Derivatives |
Investment contract liabilities |
|
|
Level 3 financial liabilities |
|
|
|
|
|
At beginning of the year |
330 |
120 |
10,004 |
10,454 |
|
Total net losses/(gains) recognised in profit or loss |
105 |
(122) |
(388) |
(405) |
|
Purchases and issues |
- |
- |
10,557 |
10,557 |
|
Sales and settlements |
- |
- |
(403) |
(403) |
|
Transfers in |
- |
- |
2,869 |
2,869 |
|
Transfers out |
- |
- |
(2,613) |
(2,613) |
|
Transferred to liabilities held for sale and distribution |
(435) |
- |
(19,550) |
(19,985) |
|
Foreign exchange and other |
- |
2 |
(476) |
(474) |
|
Total Level 3 financial liabilities |
- |
- |
- |
- |
|
|
|
|
|
|
|
Unrealised fair value losses/(gains) relating to liabilities held at 31 December 2017 recognised in profit or loss |
- |
- |
- |
- |
(c)(i) Effect of changes in significant unobservable assumptions to reasonable possible alternatives
Favourable and unfavourable changes are determined on the basis of changes in the value of the financial asset or liability as a result of varying the levels of the unobservable parameters using statistical techniques. When parameters are not amenable to statistical analysis, quantification of uncertainty is judgemental.
When the fair value of a financial asset or liability is affected by more than one unobservable assumption, the figures shown reflect the most favourable or most unfavourable change from varying the assumptions individually.
The valuations of the private equity investments are performed on an asset-by-asset basis using a valuation methodology appropriate to the specific investment and in line with industry guidelines. In determining the valuation of the investment the principal assumption used is the valuation multiple applied to the main financial indicators (such as adjusted earnings). The source of this multiple may include multiples for comparable listed companies which have been adjusted for discounts for non-tradability and valuation multiples earned on transactions in comparable sectors.
The valuations of asset-backed securities are determined by discounted cash flow models that generate the expected value of the asset, incorporating benchmark information on factors such as prepayment patterns, default rates, loss severities and the historical performance of the underlying assets. The outputs from the models used are calibrated with reference to similar securities for which external market information is available.
Structured notes and other derivatives are generally valued using option pricing models. For structured notes and other derivatives, principal assumptions concern the future volatility of asset values and the future correlation between asset values. These principal assumptions used in the valuation of structured credit notes include credit volatilities and correlations. For such unobservable assumptions, estimates are based on available market data, which may include the use of a proxy method to derive a volatility or correlation from comparable assets for which market data is more readily available, and examination of historical levels.
The table below summarises the significant inputs to value instruments categorised as Level 3 hierarchy in the Group's continuing businesses and their sensitivity to changes in the inputs used.
|
Rm |
At 30 June 2018 |
At 31 December 2017 |
|
|
At 30 June 2018 |
At 31 December 2017 |
|
Types of financial instruments |
Fair values |
Valuation techniques used |
Significant unobservable input |
Fair value measurement sensitivity to unobservable inputs |
||
|
Assets |
|
|
|
|
|
|
|
Investments and securities |
15,774 |
20,397 |
Discounted cash flows (DCF) EBITDA multiples Price earnings ratios Adjusted net asset values |
Valuation multiples Volatilities Credit spreads Dividend growth rates Internal rates of return Cost of capital Risk premiums |
Favourable: 2,973 Unfavourable: 2,633 |
Favourable: 1,838 Unfavourable: 1,503 |
|
Derivatives - assets |
- |
29 |
Option pricing model |
Interest rates Volatilities |
Favourable: nil Unfavourable: nil |
Favourable: 16 Unfavourable: 14 |
F: Analysis of financial assets and liabilities
F1: Insurance and investment contracts
The tables below provide a summary of the Group's long-term business insurance policyholder liabilities and investment contract liabilities:
|
|
|
|
|
|
|
|
|
|
At 30 June 2018 |
At 31 December 2017 |
||||
|
Rm |
Gross |
Reinsurance |
Net |
Gross |
Reinsurance |
Net |
|
Life assurance policyholder liabilities |
|
|
|
|
|
|
|
Total life insurance contracts liabilities |
152,108 |
(691) |
151,417 |
159,514 |
(563) |
158,951 |
|
Life insurance contracts liabilities |
149,723 |
(691) |
149,032 |
157,151 |
(563) |
156,588 |
|
Outstanding claims |
2,385 |
- |
2,385 |
2,363 |
- |
2,363 |
|
|
|
|
|
|
|
|
|
Investment contract liabilities |
498,238 |
(3,296) |
494,942 |
481,589 |
- |
481,589 |
|
Unit-linked investment contracts and similar contracts |
295,377 |
(3,296) |
292,081 |
286,957 |
- |
286,957 |
|
Other investment contracts |
1,170 |
- |
1,170 |
1,207 |
- |
1,207 |
|
Investment contracts with discretionary participating features |
201,691 |
- |
201,691 |
193,425 |
- |
193,425 |
|
|
|
|
|
|
|
|
|
Total life assurance policyholder liabilities |
650,346 |
(3,987) |
646,359 |
641,103 |
(563) |
640,540 |
|
Property & casualty liabilities |
|
|
|
|
|
|
|
Claims incurred but not reported |
1,143 |
(294) |
849 |
1,317 |
(320) |
997 |
|
Unearned premiums |
2,869 |
(1,210) |
1,659 |
2,599 |
(1,185) |
1,414 |
|
Outstanding claims |
4,878 |
(2,407) |
2,471 |
4,369 |
(2,152) |
2,217 |
|
Total property & casualty liabilities |
8,890 |
(3,911) |
4,979 |
8,285 |
(3,657) |
4,628 |
|
Total policyholder liabilities |
659,236 |
(7,898) |
651,338 |
649,388 |
(4,220) |
645,168 |
F2: Borrowed funds
|
|
|
|
|
|
|
|
|
|
At 30 June 2018 |
|||||
|
Rm |
Old Mutual Life Assurance Company (South Africa) Limited |
Old Mutual Insure |
Old Mutual Finance (Pty) Ltd |
Rest of Africa |
Old Mutual Plc1 |
Total |
|
Term loans |
- |
- |
3,700 |
1,621 |
- |
5,321 |
|
Revolving credit facilities |
- |
- |
975 |
200 |
- |
1,175 |
|
Subordinated debt securities |
5,995 |
500 |
- |
- |
8,141 |
14,636 |
|
Total borrowed funds |
5,995 |
500 |
4,675 |
1,821 |
8,141 |
21,132 |
1 On 19 July 2018, Old Mutual plc repurchased R281 million (£16 million) of its outstanding R7,944 million (£450 million) 7.875% subordinated debt securities, of which R1,105 million (£61 million) was outstanding on 30 June 2018 (Tier 2 subordinated 2025 securities) and R4,745 million (£269 million) of its outstanding R8,827 million (£500 million) 8% subordinated debt securities, of which R6,181 million (£341 million) was outstanding on 30 June 2018 (Tier 2 subordinated 2021 securities) through tender offers. All repurchased securities were cancelled on 19 July 2018. Refer to note G4 for more information.
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Rm |
Old Mutual Life Assurance Company (South Africa) Limited |
Old Mutual Insure |
Old Mutual Finance (Pty) Ltd |
Rest of Africa |
Old Mutual plc |
Total |
|
Term loans |
- |
- |
2,300 |
1,237 |
- |
3,537 |
|
Revolving credit facilities |
- |
- |
975 |
140 |
- |
1,115 |
|
Subordinated debt securities |
5,995 |
500 |
- |
- |
7,719 |
14,214 |
|
Total borrowed funds |
5,995 |
500 |
3,275 |
1,377 |
7,719 |
18,866 |
(f) Breaches of covenant
During the six months ended 30 June 2018, the financial covenants on eight loans with aggregate funding of R656 million were breached. The funding was raised to support operations in the Rest of Africa segment.
At 30 June 2018, two of the loans, totalling R169 million, were in compliance with the covenant requirements. The Group obtained official waivers amounting to R266 million from three of the lenders. These waivers were obtained with requirements to get back to within covenant requirements by December 2018. The Group is following remediation plans to ensure that business will be in compliance with the respective covenants by December 2018.
Furthermore, an agreement has been reached in July with one of the lenders to adjust the breached covenant on a R129 million loan to a level where the Group is in compliance. The Group is still in negotiation with the lenders of the remaining two loans of R92 million to similarly amend the breached covenant.
The breaches of the covenants by the individual businesses has not had an impact on the ability of the Group to obtain additional funding.
G: Other notes
G1: Discontinued operations and disposal groups held for sale
Nedbank and Quilter
Nedbank and Quilter have continued to be presented as discontinued operations in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the six months ended 30 June 2018. This is consistent with the presentation for the year ended 31 December 2017. Following the listing and distribution of Quilter on 25 June 2018 (see note A2), it ceased to be a subsidiary of the Group. Consequently, its results are only consolidated from 1 January 2018 to 25 June 2018.
In accordance with the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations', comparative information in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the six months ended 30 June 2017 have been re-presented to reflect Nedbank and Quilter as discontinued operations.
The assets and liabilities of Nedbank continue to be classified as assets and liabilities held for sale and distribution in the consolidated statement of financial position at 30 June 2018. This judgement was made based on the facts and circumstances which existed at 31 December 2017 when the Directors made a formal assessment of whether the businesses should be classified as held for distribution. At that time it was determined that although a number of minor internal reorganisations remained to be implemented, the business in its current state could have been distributed within a period of twelve months based on interactions with South African regulators, positive interactions with the relevant tax authorities and interactions with the South African government. Once the Old Mutual Limited share register has had a period to settle, the Group will unbundle to its shareholders a significant portion of its shareholding in Nedbank, whilst retaining a strategic minority interest. This transaction is anticipated to be completed before 31 December 2018. Consequently, the Directors still consider it is highly probable that the Nedbank business will be distributed within a period of twelve months from initial classification, which was 31 December 2017. This is consistent with the published unbundling plan. Following the planned distribution, the Group will revalue its residual associate interest at the market value prevailing at the time and will commence equity accounting its interest as a continuing operation from that date.
In the consolidated statement of financial position at December 2017, the assets and liabilities of both Nedbank and Quilter were classified and presented as assets and liabilities held for sale and distribution. Following the listing and distribution of Quilter on 25 June 2018 (see note A2), it ceased to be a subsidiary of the Group. Consequently, its assets and liabilities are no longer included in the consolidated statement of financial position at 30 June 2018.
Latin American businesses
As a consequence of the agreed sale of the Latin American businesses as set out in note A2, its size relative to the new Group structure and its separate geographical location, the Latin American businesses have been presented as discontinued operations in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the six months ended 30 June 2018. Consistent with the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations', the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the six months ended 30 June 2018 and year to 31 December 2017 have been re-presented.
The Group's interest in the assets and liabilities of the Latin American businesses have been classified as held for sale in the consolidated statement of financial position at 30 June 2018. This judgement was done based on the facts and circumstances which existed at 30 June 2018 when the Directors made a formal assessment of whether the businesses should be classified as held for sale. Consistent with the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations', comparative information in the consolidated statement of financial position at 31 December 2017 have not been re-presented.
Old Mutual Bermuda
Old Mutual Bermuda is expected to wind-down its operations, including shutting down the New York office and either terminating or giving notice to all employees by the end of 31 December 2018. During the six months ended 30 June 2018, the Bermuda operation has actively commenced the wind down process in line with the Wind‐Down plan that was presented to the Old Mutual Bermuda and Old Mutual plc Boards as well as to the Bermuda Monetary Authority (BMA) in December 2017. Given its separate geographical location, Old Mutual Bermuda has therefore been classified and presented as a discontinued operation in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for all reporting periods. Consistent with the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations', comparative information in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented. In accordance with IFRS, Old Mutual Bermuda has not been classified as held for sale.
Re-presentation of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak)
On 13 October 2017, the Old Mutual plc Group completed the sale of its 26% stake in Kotak to its joint venture partner Kotak Mahindra Bank Limited. The investment was presented as an asset held for sale in the Old Mutual plc Group interim accounts to 30 June 2017. However, given its size relative to the Old Mutual plc Group, it was assessed that the business did not meet the definition of a component and therefore was not presented as a discontinued operation. Following the change in Group structure in 2018, as described in notes A1 and A2, the treatment of Kotak has been re-assessed. Consequently, the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows the six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect Kotak as a discontinued operation.
Further information on discontinued operations is provided in note G1.1. Further information on assets and liabilities classified as held for sale and distribution is provided in note G1.2.
G1.1: Discontinued operations
The tables below present the income statement from discontinued operations (note G1.1(a)), the statement of comprehensive income from discontinued operations (note G1.1(b)) and net cash flows from discontinued operations (note G1.1(c)) for the six months ended 30 June 2018, the six months ended 30 June 2017 and the year ended 31 December 2017.
(a) Income statement from discontinued operations
|
Six months ended 30 June 2018 |
|
|
|
|
|
|
|
Rm |
Nedbank |
Quilter |
Latin American businesses |
Old Mutual Bermuda |
Elimination of intra-segment transactions |
Total |
|
Revenue |
|
|
|
|
|
|
|
Gross earned premiums |
- |
1,268 |
43 |
- |
- |
1,311 |
|
Outward reinsurance |
- |
(749) |
(11) |
- |
- |
(760) |
|
Net earned premiums |
- |
519 |
32 |
- |
- |
551 |
|
Investment return (non-banking) |
- |
5,050 |
40 |
(31) |
- |
5,059 |
|
Banking interest and similar income |
37,660 |
- |
- |
- |
- |
37,660 |
|
Banking trading, investment and similar income |
2,440 |
- |
- |
- |
- |
2,440 |
|
Fee and commission income, and income from service activities |
9,513 |
10,254 |
899 |
- |
(108) |
20,558 |
|
Other income |
343 |
188 |
8 |
- |
(157) |
382 |
|
Total revenue |
49,956 |
16,011 |
979 |
(31) |
(265) |
66,650 |
|
Expenses |
|
|
|
|
|
|
|
Claims and benefits (including change in insurance contract provisions) |
- |
(1,150) |
(33) |
36 |
- |
(1,147) |
|
Reinsurance recoveries |
- |
833 |
3 |
- |
- |
836 |
|
Net claims and benefits incurred |
- |
(317) |
(30) |
36 |
- |
(311) |
|
Change in investment contract liabilities |
- |
(3,252) |
- |
- |
- |
(3,252) |
|
Credit impairment charges |
(1,815) |
(2) |
- |
- |
- |
(1,817) |
|
Banking interest payable and similar expenses |
(23,240) |
- |
- |
- |
- |
(23,240) |
|
Fee and commission expenses, and other acquisition costs |
(60) |
(3,417) |
(300) |
- |
101 |
(3,676) |
|
Change in third-party interest in consolidated funds |
- |
(129) |
- |
- |
- |
(129) |
|
Other operating and administrative expenses |
(15,667) |
(8,325) |
(455) |
(2) |
482 |
(23,967) |
|
Total expenses |
(40,782) |
(15,442) |
(785) |
34 |
583 |
(56,392) |
|
Share of associated undertakings' and joint ventures' profits after tax |
207 |
- |
2 |
- |
- |
209 |
|
Profit before tax from discontinued operations |
9,381 |
569 |
196 |
3 |
318 |
10,467 |
|
Income tax expense |
(2,355) |
174 |
(84) |
(2) |
(92) |
(2,359) |
|
Profit after tax from discontinued operations |
7,026 |
743 |
112 |
1 |
226 |
8,108 |
|
Attributable to: |
|
|
|
|
|
|
|
Equity holders of the parent |
3,659 |
743 |
112 |
1 |
226 |
4,741 |
|
Non-controlling interests |
|
|
|
|
|
|
|
Ordinary shares |
3,082 |
- |
- |
- |
- |
3,082 |
|
Preferred securities |
285 |
- |
- |
- |
- |
285 |
|
Profit after tax from discontinued operations |
7,026 |
743 |
112 |
1 |
226 |
8,108 |
G: Other notes continued
G1: Discontinued operations and disposal groups held for sale continued
G1.1: Discontinued operations continued
(a) Income statement from discontinued operations continued
|
Six months ended 30 June 2017 (Re-presented)1 |
|
|
|
|
|
|
|
|
|
Rm |
Nedbank |
Quilter |
OM Asset Management plc |
Latin American businesses |
Kotak |
Old Mutual Bermuda |
Elimination of intra- segment trans- actions |
Total |
|
Revenue |
|
|
|
|
|
|
|
|
|
Gross earned premiums |
- |
1,222 |
- |
10 |
- |
- |
- |
1,232 |
|
Outward reinsurance |
- |
(723) |
- |
(9) |
- |
- |
- |
(732) |
|
Net earned premiums |
- |
499 |
- |
1 |
- |
- |
- |
500 |
|
Investment return (non-banking) |
- |
45,171 |
103 |
92 |
- |
(374) |
- |
44,992 |
|
Banking interest and similar income |
37,280 |
- |
- |
- |
- |
- |
- |
37,280 |
|
Banking trading, investment and similar income |
2,285 |
- |
- |
- |
- |
- |
- |
2,285 |
|
Fee and commission income, and income from service activities |
9,185 |
9,399 |
3,551 |
862 |
- |
- |
(160) |
22,837 |
|
Other income |
314 |
59 |
- |
12 |
- |
- |
(130) |
255 |
|
Total revenue |
49,064 |
55,128 |
3,654 |
967 |
- |
(374) |
(290) |
108,149 |
|
Expenses |
|
|
|
|
|
|
|
|
|
Claims and benefits (including change in insurance contract provisions) |
- |
(1,002) |
- |
(3) |
- |
844 |
- |
(161) |
|
Reinsurance recoveries |
- |
861 |
- |
2 |
- |
- |
- |
863 |
|
Net claims and benefits incurred |
- |
(141) |
- |
(1) |
- |
844 |
- |
702 |
|
Change in investment contract liabilities |
- |
(38,394) |
- |
- |
- |
- |
- |
(38,394) |
|
Credit impairment charges |
(1,594) |
(1) |
- |
- |
- |
- |
- |
(1,595) |
|
Finance costs |
- |
- |
(103) |
- |
- |
- |
- |
(103) |
|
Banking interest payable and similar expenses |
(23,249) |
- |
- |
- |
- |
- |
- |
(23,249) |
|
Fee and commission expenses, and other acquisition costs |
(138) |
(2,851) |
(81) |
(299) |
- |
- |
134 |
(3,235) |
|
Change in third-party interest in consolidated funds |
- |
(5,194) |
- |
- |
- |
- |
- |
(5,194) |
|
Other operating and administrative expenses |
(15,239) |
(7,748) |
(3,015) |
(456) |
- |
47 |
655 |
(25,756) |
|
Total expenses |
(40,220) |
(54,329) |
(3,199) |
(756) |
- |
891 |
789 |
(96,824) |
|
Share of associated undertakings' and joint ventures' (losses)/profits after tax |
(1,053) |
- |
59 |
- |
118 |
- |
- |
(876) |
|
Profit on disposal of subsidiaries, associated undertakings and strategic investments |
- |
158 |
- |
- |
- |
- |
- |
158 |
|
Profit before tax from discontinued operations |
7,791 |
957 |
514 |
211 |
118 |
517 |
499 |
10,607 |
|
Income tax expense |
(2,188) |
(514) |
(101) |
(86) |
- |
1 |
(120) |
(3,008) |
|
Profit after tax from discontinued operations |
5,603 |
443 |
413 |
125 |
118 |
518 |
379 |
7,599 |
|
Attributable to: |
|
|
|
|
|
|
|
|
|
Equity holders of the parent |
2,906 |
443 |
218 |
125 |
118 |
518 |
379 |
4,707 |
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
Ordinary shares |
2,399 |
- |
195 |
- |
- |
- |
- |
2,594 |
|
Preferred securities |
298 |
- |
- |
- |
- |
- |
- |
298 |
|
Profit after tax from discontinued operations |
5,603 |
443 |
413 |
125 |
118 |
518 |
379 |
7,599 |
1 The six months ended 30 June 2017 has been re-presented to reflect the Nedbank, Quilter, the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. Refer to notes A2 and G1 for more information.
|
Year ended 31 December 2017 (Re-presented)1 |
|
|
|
|
|
|
|
|
|
Rm |
Nedbank |
Quilter |
OM Asset Management plc |
Latin American businesses |
Kotak |
Old Mutual Bermuda |
Elimination of intra-segment trans- actions |
Total |
|
Revenue |
|
|
|
|
|
|
|
|
|
Gross earned premiums |
- |
2,534 |
- |
133 |
- |
- |
- |
2,667 |
|
Outward reinsurance |
- |
(1,498) |
- |
(20) |
- |
- |
- |
(1,518) |
|
Net earned premiums |
- |
1,036 |
- |
113 |
- |
- |
- |
1,149 |
|
Investment return (non-banking) |
- |
88,627 |
103 |
144 |
- |
(454) |
- |
88,420 |
|
Banking interest and similar income |
75,150 |
- |
- |
- |
- |
- |
- |
75,150 |
|
Banking trading, investment and similar income |
4,860 |
- |
- |
- |
- |
- |
- |
4,860 |
|
Fee and commission income, and income from service activities |
18,875 |
21,807 |
3,551 |
1,829 |
- |
- |
(311) |
45,751 |
|
Other income |
415 |
67 |
- |
25 |
- |
- |
(282) |
225 |
|
Total revenue |
99,300 |
111,537 |
3,654 |
2,111 |
- |
(454) |
(593) |
215,555 |
|
Expenses |
|
|
|
|
|
|
|
|
|
Claims and benefits (including change in insurance contract provisions) |
- |
(2,651) |
- |
(125) |
- |
1,152 |
- |
(1,624) |
|
Reinsurance recoveries |
- |
2,388 |
- |
6 |
- |
- |
- |
2,394 |
|
Net claims and benefits incurred |
- |
(263) |
- |
(119) |
- |
1,152 |
- |
770 |
|
Change in investment contract liabilities |
- |
(73,875) |
- |
- |
- |
- |
- |
(73,875) |
|
Credit impairment charges |
(3,304) |
(4) |
- |
- |
- |
- |
- |
(3,308) |
|
Finance costs |
- |
- |
(103) |
- |
- |
- |
- |
(103) |
|
Banking interest payable and similar expenses |
(46,838) |
- |
- |
- |
- |
- |
- |
(46,838) |
|
Fee and commission expenses, and other acquisition costs |
(155) |
(6,228) |
(81) |
(633) |
- |
- |
272 |
(6,825) |
|
Change in third-party interest in consolidated funds |
- |
(11,044) |
- |
- |
- |
- |
- |
(11,044) |
|
Other operating and administrative expenses |
(31,591) |
(17,561) |
(3,015) |
(1,182) |
- |
(256) |
932 |
(52,673) |
|
Total expenses |
(81,888) |
(108,975) |
(3,199) |
(1,934) |
- |
896 |
1,204 |
(193,896) |
|
Share of associated undertakings' and joint ventures' (losses)/profits after tax |
(838) |
- |
59 |
2 |
181 |
- |
- |
(596) |
|
Profit on disposal of subsidiaries, associated undertakings and strategic investments |
- |
163 |
- |
- |
- |
- |
- |
163 |
|
Profit before tax from discontinued operations |
16,574 |
2,725 |
514 |
179 |
181 |
442 |
611 |
21,226 |
|
Income tax expense |
(4,227) |
(1,274) |
(101) |
(186) |
- |
(30) |
(146) |
(5,964) |
|
Profit after tax from discontinued operations |
12,347 |
1,451 |
413 |
(7) |
181 |
412 |
465 |
15,262 |
|
Attributable to: |
|
|
|
|
|
|
|
|
|
Equity holders of the parent |
6,411 |
1,451 |
218 |
(7) |
181 |
412 |
465 |
9,131 |
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
Ordinary shares |
5,346 |
- |
195 |
- |
- |
- |
- |
5,541 |
|
Preferred securities |
590 |
- |
- |
- |
- |
- |
- |
590 |
|
Profit after tax from discontinued operations |
12,347 |
1,451 |
413 |
(7) |
181 |
412 |
465 |
15,262 |
1 The year ended 31 December 2017 has been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. Refer to notes A2 and G1 for more information.
G: Other notes continued
G1: Discontinued operations and disposal groups held for sale continued
G1.1: Discontinued operations continued
(b) Statement of comprehensive income from discontinued operations
|
|
|
|
|
|
Rm |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 (Re-presented)¹ |
Year ended 31 December 2017 (Re-presented)¹ |
|
Profit after tax from discontinued operations |
8,108 |
7,599 |
15,262 |
|
Items that will not be reclassified subsequently to profit or loss |
|
|
|
|
Fair value movements - property revaluation |
(2) |
3 |
215 |
|
Net measurement (losses)/gains on defined benefit plans |
(876) |
194 |
538 |
|
Income tax on items that will not be reclassified to profit or loss |
245 |
(22) |
(151) |
|
|
(633) |
175 |
602 |
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
Instruments at fair value through other comprehensive income - net change in fair value |
(138) |
1 |
22 |
|
Currency translation differences/exchange differences on translating foreign operations |
851 |
(459) |
(1,248) |
|
Share of other comprehensive income of investments |
(214) |
283 |
728 |
|
Other movements |
(13) |
- |
45 |
|
|
486 |
(175) |
(453) |
|
Total other comprehensive income for the financial period from discontinued operations |
(147) |
- |
149 |
|
|
|
|
|
|
Total comprehensive income for the financial period from discontinued operations |
7,961 |
7,599 |
15,411 |
|
Attributable to: |
|
|
|
|
Equity holders of the parent |
4,655 |
4,742 |
9,264 |
|
Non-controlling interests |
|
|
|
|
Ordinary shares |
3,021 |
2,559 |
5,557 |
|
Preferred securities |
285 |
298 |
590 |
|
|
7,961 |
7,599 |
15,411 |
1 The six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. In addition, the six months ended 30 June 2017 has been re-presented to reflect Nedbank and Quilter as discontinued operations. Refer to notes A2 and G1 for more information.
(c) Net cash flows from discontinued operations
|
|
|
|
|
|
Rm |
Six months ended 30 June 2018 |
Six months ended 30 June 2017 (Re-presented)¹ |
Year ended 31 December 2017 (Re-presented)¹ |
|
Operating activities |
42,921 |
49,522 |
104,758 |
|
Investing activities |
(28,216) |
(45,248) |
(91,813) |
|
Financing activities |
3,398 |
2,600 |
(3,351) |
|
Net cash flows from discontinued operations |
18,103 |
6,874 |
9,594 |
1 The six months ended 30 June 2017 and the year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations. In addition, the six months ended 30 June 2017 has been re-presented to reflect Nedbank and Quilter as discontinued operations. Refer to notes A2 and G1 for more information.
G1.2: Assets and liabilities held for sale and distribution
The tables below present details of the assets and liabilities that have been classified as held for sale and distribution at 30 June 2018 and 31 December 2017:
|
At 30 June 2018 |
|
||||
|
Rm |
Nedbank |
Latin American businesses |
Other Emerging Markets |
Elimination of intra-segment balances |
Total |
|
Assets |
|
|
|
|
|
|
Goodwill and other intangible assets |
11,963 |
1,036 |
- |
- |
12,999 |
|
Mandatory reserve deposits with central banks |
21,596 |
- |
- |
- |
21,596 |
|
Property, plant and equipment |
9,013 |
276 |
- |
- |
9,289 |
|
Investment property |
- |
63 |
45 |
- |
108 |
|
Deferred tax assets |
341 |
126 |
- |
- |
467 |
|
Investments in associated undertakings and joint ventures |
3,103 |
25 |
- |
- |
3,128 |
|
Deferred acquisition costs |
- |
440 |
- |
- |
440 |
|
Reinsurers' share of policyholder liabilities |
102 |
- |
- |
- |
102 |
|
Loans and advances |
712,668 |
288 |
- |
(431) |
712,525 |
|
Investments and securities |
191,793 |
8,893 |
- |
- |
200,686 |
|
Current tax receivable |
922 |
134 |
- |
- |
1,056 |
|
Trade, other receivables and other assets |
22,352 |
221 |
- |
(1,156) |
21,417 |
|
Derivative financial instruments |
28,058 |
2 |
- |
(666) |
27,394 |
|
Cash and cash equivalents |
14,070 |
429 |
- |
(4,949) |
9,550 |
|
Total assets |
1,015,981 |
11,933 |
45 |
(7,202) |
1,020,757 |
|
Liabilities |
|
|
|
|
|
|
Life insurance contract liabilities |
2,044 |
1,972 |
- |
- |
4,016 |
|
Investment contract liabilities |
18,316 |
5,370 |
- |
- |
23,686 |
|
Borrowed funds |
53,680 |
- |
- |
(1,177) |
52,503 |
|
Provisions and accruals |
1 |
55 |
- |
- |
56 |
|
Deferred revenue |
474 |
- |
- |
- |
474 |
|
Deferred tax liabilities |
655 |
80 |
- |
- |
735 |
|
Current tax payable |
239 |
139 |
- |
- |
378 |
|
Trade, other payables and other liabilities |
25,163 |
600 |
- |
(11,254) |
14,509 |
|
Amounts owed to bank depositors |
801,165 |
- |
- |
(4,707) |
796,458 |
|
Derivative financial instruments |
25,394 |
9 |
- |
(505) |
24,898 |
|
Total liabilities |
927,131 |
8,225 |
- |
(17,643) |
917,713 |
|
Net assets |
88,850 |
3,708 |
45 |
10,441 |
103,044 |
G: Other notes continued
G1: Discontinued operations and disposal groups held for sale continued
G1.2: Assets and liabilities held for sale and distribution continued
|
At 31 December 2017 |
|
||||
|
Rm |
Nedbank |
Quilter |
Emerging Markets |
Elimination of intra- segment balances |
Total |
|
Assets |
|
|
|
|
|
|
Goodwill and other intangible assets |
11,130 |
23,439 |
- |
- |
34,569 |
|
Mandatory reserve deposits with central banks |
19,222 |
- |
- |
- |
19,222 |
|
Property, plant and equipment |
9,290 |
310 |
- |
- |
9,600 |
|
Investment property |
- |
- |
718 |
- |
718 |
|
Deferred tax assets |
189 |
519 |
- |
- |
708 |
|
Investments in associated undertakings and joint ventures |
6,722 |
45 |
- |
- |
6,767 |
|
Deferred acquisition costs |
- |
9,378 |
- |
- |
9,378 |
|
Reinsurers' share of policyholder liabilities |
93 |
48,724 |
- |
- |
48,817 |
|
Loans and advances |
710,329 |
3,342 |
- |
(384) |
713,287 |
|
Investments and securities |
158,651 |
1,078,276 |
- |
- |
1,236,927 |
|
Current tax receivable |
211 |
4 |
- |
- |
215 |
|
Trade, other receivables and other assets |
17,499 |
11,755 |
- |
(2,139) |
27,115 |
|
Derivative financial instruments |
29,904 |
1,464 |
- |
(505) |
30,863 |
|
Cash and cash equivalents |
16,900 |
35,475 |
- |
(2,118) |
50,257 |
|
Total assets |
980,140 |
1,212,731 |
718 |
(5,146) |
2,188,443 |
|
Liabilities |
|
|
|
|
|
|
Life insurance contract liabilities |
2,277 |
8,190 |
- |
- |
10,467 |
|
Investment contract liabilities |
18,134 |
990,961 |
- |
- |
1,009,095 |
|
Third-party interests in consolidated funds |
- |
127,427 |
- |
- |
127,427 |
|
Borrowed funds |
51,576 |
- |
- |
(784) |
50,792 |
|
Provisions and accruals |
2 |
1,739 |
- |
- |
1,741 |
|
Deferred revenue |
8 |
3,588 |
- |
- |
3,596 |
|
Deferred tax liabilities |
642 |
3,350 |
- |
- |
3,992 |
|
Current tax payable |
259 |
1,196 |
- |
- |
1,455 |
|
Trade, other payables and other liabilities |
23,887 |
25,467 |
- |
(11,098) |
38,256 |
|
Amounts owed to bank depositors |
771,584 |
- |
- |
(4,707) |
766,877 |
|
Derivative financial instruments |
23,367 |
7,252 |
- |
(558) |
30,061 |
|
Inter-segment funding - liabilities |
- |
13,102 |
- |
(13,102) |
- |
|
Total liabilities |
891,736 |
1,182,272 |
- |
(30,249) |
2,043,759 |
|
Net assets |
88,404 |
30,459 |
718 |
25,103 |
144,684 |
G1.3: Impairment testing relating to the assets held for sale and distribution
At 30 June 2018, no impairment losses have been recognised for Nedbank and the Latin American business, which have been classified and presented as discontinued operations in the consolidated income statement and as held for distribution in the consolidated statement of financial position in terms of the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. Impairment losses are determined as the deficit between fair value less cost to distribute and sell respectively of each business and the carrying value of each business at 31 December 2017.
The fair value less cost to distribute of Nedbank was determined by reference to its quoted market price as at 30 June 2018. At 30 June 2018, the fair value less cost to distribute exceeded the carrying value of Nedbank. The Group therefore concluded that goodwill and other intangible assets related to the Nedbank are not impaired.
The agreed selling price of the Latin American businesses is a reasonable approximation of the fair value. As such, the fair value less costs to sell exceeded the carrying value of the Latin American businesses at 30 June 2018 and therefore no impairment losses of goodwill and other intangible assets have been recognised.
In addition, no other impairments for property, plant and equipment, investment properties or other intangible assets have been recognised as a result of classifying these businesses as held for sale and distribution.
G2: Related parties
There were no transactions with related parties during the six months ended 30 June 2018 which had a material effect on the results or financial position of the Group. The nature of the related party transactions of the Group has not changed from those described in the audited general purpose consolidated financial statements for the year ended 31 December 2017.
G3: Contingent liabilities and commitments
The Group has provided certain guarantees for specific client obligations, in return for which the Group has received a fee. The Group has evaluated the extent of the possibility of the guarantees being called on and has provided appropriately.
Contingent liabilities - tax
The Revenue authorities in the principal jurisdictions in which the Group operates (South Africa and historically the United Kingdom) routinely review historic transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions in which they operate. All interpretations made by management are made with reference to the specific facts and circumstances of the transaction and the relevant legislation.
There are occasions where the Group's interpretation of tax law may be challenged by the Revenue authorities. The financial statements include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such potential settlements are sufficient.
Due to the level of estimation required in determining tax provisions amounts eventually payable may differ from the provision recognised.
Consumer protection
The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals and it is central to how our businesses operates. We routinely engage with customers and regulators to ensure that we meet this commitment, but there is the risk of regulatory intervention across various jurisdictions, giving rise to the potential for customer redress which can result in retrospective changes to policyholder benefits, penalties or fines. The Group monitors the exposure to these actions and makes provision for the related costs as appropriate.
Implications of the Managed Separation strategy
The Group routinely monitors and reassesses contingent liabilities arising from matters such as litigation, and warranties and indemnities relating to past acquisitions and disposals. The announcement of the Managed Separation strategy on 11 March 2016 does not affect the nature of such items, however it is possible that the Group may seek to resolve certain matters as part of the implementation of the managed separation strategy.
Outcome of Zimbabwean Commission Enquiry
On 31 December 2016, the Zimbabwean Government concluded its inquiry into the loss in value for certain policyholders and beneficiaries upon the conversion of pension and insurance benefits after the dollarisation of the economy in 2009. On 9 March 2018, the results of the Zimbabwean Government's inquiry were made public.
The Group is committed to treating its customers fairly and is currently reviewing the report and preparing a preliminary evaluation of the potential impact on Group operations. We are not currently able to establish what impact the commission's findings will have on Old Mutual Zimbabwe.
US legacy items
On 13 March 2018, Old Mutual plc announced that The Travelers Companies, Inc. and St. Paul Fire and Marine Insurance Company (Travelers) had lodged a claim in the United States District Court for the Southern District of New York in relation to pre-existing plc Head Office legacy items relating to previously disposed of US assets. The Group believed at that time the claim was without merit. Old Mutual plc further announced on 9 April 2018 that Travelers had withdrawn all of the remedies they were claiming and that Old Mutual Limited, has agreed, inter alia, to provide an intragroup guarantee to Old Mutual plc in the circumstances where Old Mutual plc is unable to satisfy the highly remote obligations in respect of the legacy items which were the subject of the claim.
G: Other notes continued
G3: Contingent liabilities and commitments continued
Potential Future Commitments
Old Mutual Emerging Markets Limited (OMEM) guarantee
A sales agreement was signed between Old Mutual (South Africa) Holdings (Pty) Ltd (OMSAH) and Lily Bermuda Capital Limited (SPV domiciled in Bermuda), owned by CMIG International Holding Pte. Limited (CMI) on 15 March 2018, for the purchase of OM Latin America Holdco UK Limited and AIVA Holding Group S.A. (collectively known as 'the Latin American businesses'). The long stop date for the fulfilment of the conditions precedent in the sales agreements, is 15 March 2019, unless the parties agree otherwise. OMEM has provided a guarantee for credit worthiness of OMSAH to the buyer and has also received a reciprocal guarantee from CMI. At 30 June 2018, the timing and amount of any payments (if any) cannot be reasonably estimated.
UAP put option
At 31 December 2017, the Group owned 60.7% of UAP Holdings Limited (UAP). The two significant minority anchor shareholders in UAP have the right to collectively put up to an aggregate 6% shareholding in UAP to the Group at the occurrence of a 'Put Event'. The put option period commenced at 1 October 2015 and ends on the earlier of an Old Mutual Limited listing or 3 years from the date of completion of the initial purchase of UAP (being June 2018). The put option exercise price is equal to the initial price (paid by Old Mutual plc in acquiring its current holding), increased by the Government of Kenya Treasury one year bond rates and reduced by dividends declared by UAP.
At 31 December 2017, the Group recognised the obligation to purchase the additional 6% at R359 million with a corresponding reduction in reserves. Following the listing of Old Mutual Limited on 26 June 2018, the minority anchor shareholders collectively put a 6% ownership interest in UAP to the Group. As at 30 June 2018, the settlement agreement had been drafted and presented to the anchor shareholders. The settlement amount equates to R437 million, reflecting the contractual discount unwind and the movement in the Kenyan Shilling to the rand over the period. At 30 June 2018, the acquisition of the interest held by the minority anchor shareholders has been accounted for as a transaction between shareholders as there has been no change in control. On settlement, a pro-rata portion of the non-controlling interest will be derecognised and transferred to the equity holders of the Group.
Old Mutual (Pty) Ltd Finance put option
The Old Mutual plc Group and the Business Doctor Consortium Limited and its associates ('Business Doctor') established Old Mutual Finance (Pty) Ltd (Old Mutual Finance) as a 50/50 start-up strategic alliance in 2008. The Group increased its shareholding in Old Mutual from 50% to 75% in 2014 by acquiring an additional 25% shareholding from Business Doctor for R1.1 billion. The Group has a call option to acquire the remaining 25% shareholding in Old Mutual Finance held by Business Doctor at market value under certain circumstances, inter alia in the event of a change of control within Business Doctor and on the eighth and tenth anniversary of the effective date of the Old Mutual Finance shareholders' agreement (i.e. in 2022 and 2024 respectively). Business Doctor has a put option to sell its remaining 25% shareholding in Old Mutual Finance to the Group at market value under certain circumstances, inter alia in the event of a change of control within the Old Mutual plc Group and on the eighth and tenth anniversary of the effective date of the Old Mutual Finance shareholders' agreement (i.e. in 2022 and 2024 respectively).
Following the listing of Old Mutual Limited on 26 June 2018, Business Doctor became entitled to exercise the option to put the remaining shares to Old Mutual Limited. The Group received written confirmation on 22 July 2018 from Business Doctor that the put option would not be exercised.
G4: Events after the reporting date
Tender offer for Old Mutual plc's outstanding subordinated notes
On 19 July 2018, Old Mutual plc repurchased R281 million (£16 million) of its outstanding R7,944 million (£450 million) 7.875% subordinated debt securities, of which R1,105 million (£61 million) was outstanding on 30 June 2018 (Tier 2 subordinated 2025 securities) and R4,745 million (£269 million) of its outstanding R8,827 million (£500 million) 8% subordinated debt securities, of which R6,181 million (£341 million) was outstanding on 30 June 2018 (Tier 2 subordinated 2021 securities) through tender offers. All repurchased securities were cancelled on 19 July 2018. Following cancellation of these securities, the aggregate principal amounts outstanding of the R7,944 million (£450 million) securities was R793 million (£45 million) and the aggregate principal amount outstanding of R8,827 million (£500 million) securities was R1,273 million (£72 million).
Repatriation of capital from Old Mutual Bermuda
On 5 July 2018, the Bermuda Monetary Authority approved the repatriation of capital to the value of R668 million ($49 million) from Old Mutual Bermuda to Old Mutual plc.
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements
5.1 Introduction
Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements at and for the year ended 31 December 2017.
The Group has adopted IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments' from 1 January 2018. The following other new standards are effective from 1 January 2018 but they do not have a material effect on the Group's financial statements:
- Amendment to IFRS 2 'Share based payments', regarding the classification and measurement of share-based payment transactions;
- Amendment to IAS 40 'Investment Property', regarding the transfer of property to, or from, investment property;
- Annual improvements 2014-2016 made to IAS 28 'Investments in associates and joint ventures' and IFRS 1 'First-time adoption of IFRS'; and
- Interpretation 22 Foreign Currency Transactions and Advance Consideration.
The impact of transitioning to IFRS 9 and IFRS 15 at 1 January 2018 has been presented separately for continuing and discontinued operations for the six months ended 30 June 2018. Refer to note A2 and note G1 for more information.
As explained in 5.3.5 and 5.4.1 below for IFRS 9 and IFRS 15, prior year financial statements have not been restated. This is in compliance with the transitional provisions. The reclassifications, the adjustments arising from the new impairment rules of IFRS 9 and the adjustments relating to a change in revenue recognition from contracts with customers of IFRS 15, are therefore not reflected in the consolidated statement of financial position as at 31 December 2017, but are recognised in the opening consolidated statement of financial position at 1 January 2018.
The table below shows the adjustments recognised for each individual line item on the consolidated statement of financial position. As prior year figures have not been restated, an opening consolidated statement of financial position at 1 January 2017 or a consolidated income statement and consolidated statement of comprehensive income for the six months ended 30 June 2017 have not been presented. Consequently, there has been no impact on the basic and diluted earnings per share of prior periods.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.2 Impact on the consolidated statement of financial position
The impact on the Group's consolidated statement of financial position is summarised below:
|
|
|
|
|
|
|
|
|
Rm |
Notes |
At |
IFRS 9 |
IFRS 15 |
At |
|
|
Assets |
|
|
|
|
|
|
|
Goodwill and other intangible assets |
|
6,653 |
- |
- |
6,653 |
|
|
Mandatory reserve deposits with central banks |
|
94 |
- |
- |
94 |
|
|
Investment property |
|
31,903 |
- |
- |
31,903 |
|
|
Property, plant and equipment |
|
8,081 |
- |
- |
8,081 |
|
|
Investments in associated undertakings and joint ventures |
|
1,789 |
- |
- |
1,789 |
|
|
Deferred tax assets |
5.3.1 / 5.4.1 |
1,084 |
97 |
(245) |
936 |
|
|
Deferred acquisition costs |
5.4.1 |
3,086 |
- |
(848) |
2,238 |
|
|
Reinsurers' share of policyholder liabilities |
|
4,220 |
- |
- |
4,220 |
|
|
Loans and advances |
5.3.2 |
21,483 |
(915) |
- |
20,568 |
|
|
Investments and securities |
5.3.2 |
722,249 |
(10) |
- |
722,239 |
|
|
Current tax receivables |
|
1,064 |
- |
- |
1,064 |
|
|
Trade, other receivables and other assets |
5.3.2 |
21,875 |
(13) |
- |
21,862 |
|
|
Derivative financial instruments |
|
4,101 |
- |
- |
4,101 |
|
|
Cash and cash equivalents |
|
30,761 |
- |
- |
30,761 |
|
|
Assets held for sale and distribution |
5.5 |
2,188,443 |
(2,854) |
- |
2,185,589 |
|
|
Total assets |
|
3,046,886 |
(3,695) |
(1,093) |
3,042,098 |
|
|
Liabilities |
|
|
|
|
|
|
|
Life insurance contract liabilities |
|
159,514 |
- |
- |
159,514 |
|
|
Investment contract liabilities with discretionary participating features |
|
193,425 |
- |
- |
193,425 |
|
|
Investment contract liabilities without discretionary participating features |
|
288,164 |
- |
- |
288,164 |
|
|
Borrowed funds |
5.3.2 |
18,866 |
266 |
- |
19,132 |
|
|
Deferred tax liabilities |
5.3.1 / 5.4.1 |
5,088 |
- |
(237) |
4,851 |
|
|
Deferred revenue |
5.4.1 |
1,378 |
- |
(875) |
503 |
|
|
Property & casualty liabilities |
|
8,285 |
- |
- |
8,285 |
|
|
Provisions and accruals |
|
2,385 |
- |
- |
2,385 |
|
|
Third-party interests in consolidated funds |
|
81,573 |
- |
- |
81,573 |
|
|
Current tax payable |
|
1,711 |
- |
- |
1,711 |
|
|
Trade, other payables and other liabilities |
|
42,355 |
- |
- |
42,355 |
|
|
Amounts owed to bank depositors |
|
12,440 |
- |
- |
12,440 |
|
|
Derivative financial instruments |
|
4,498 |
- |
- |
4,498 |
|
|
Liabilities held for sale and distribution |
5.5 |
2,043,759 |
124 |
254 |
2,044,137 |
|
|
Total liabilities |
|
2,863,441 |
390 |
(858) |
2,862,973 |
|
|
Net assets |
|
183,445 |
(4,085) |
(235) |
179,125 |
|
|
Shareholders' equity |
|
|
|
|
|
|
|
Equity attributable to equity holders of the parent |
|
136,678 |
(2,573) |
(119) |
133,986 |
|
|
Continuing operations |
5.3.1 / 5.4.1 |
58,775 |
(946) |
19 |
57,848 |
|
|
Businesses classified as held for sale and distribution |
5.5.2 / 5.5.3 |
77,903 |
(1,627) |
(138) |
76,138 |
|
|
Non-controlling interests |
|
|
|
|
|
|
|
Ordinary shares |
|
40,910 |
(1,512) |
(116) |
39,282 |
|
|
Continuing operations |
5.3.1 |
3,720 |
(161) |
- |
3,559 |
|
|
Businesses classified as held for sale and distribution |
5.5.2/5.5.3 |
37,190 |
(1,351) |
(116) |
35,723 |
|
|
Preferred securities |
|
5,857 |
- |
- |
5,857 |
|
|
Total non-controlling interests |
|
46,767 |
(1,512) |
(116) |
45,139 |
|
|
Total equity |
|
183,445 |
(4,085) |
(235) |
179,125 |
The impact of adopting IFRS 9 and IFRS 15 have been explained separately for:
- continuing operations (5.3 and 5.4 for IFRS 9 and IFRS 15 respectively); and
- businesses which have been classified as held for sale and distribution (5.5).
The adjustments are explained in more detail by standard below.
5.3. IFRS 9 Financial Instruments - Continuing operations
5.3.1. Overview including impact on the Group's total equity
The table below summarises the impact of transitioning to IFRS 9 on the Group's opening balance of total equity (comprising retained earnings, other reserves and non-controlling interests) for continuing operations at 31 December 2017. For a description of the transition method used, refer to 5.3.5 below).
|
|
|
|
|
Rm |
Notes |
Impact of adopting IFRS 9 on opening balance at |
|
Retained earnings |
|
|
|
Recognition of expected credit loss allowance |
5.3.2 |
(716) |
|
Designation of borrowed funds at fair value through profit or loss |
5.3.2 |
(266) |
|
Transfer of cumulative fair value changes linked to changes in credit risk of liabilities to other reserves |
5.3.2 |
683 |
|
Related deferred tax impact |
5.3.1 |
97 |
|
Total impact - Retained earnings |
|
(202) |
|
Other reserves |
|
|
|
Recognition of expected credit loss allowance |
5.3.2 |
(222) |
|
Transfer of cumulative fair value changes linked to changes in credit risk of liabilities from retained earnings |
5.3.2 |
(683) |
|
Related deferred tax impact |
5.3.1 |
- |
|
Total impact - Other reserves |
|
(905) |
|
Total impact on shareholders' equity |
|
(1,107) |
|
|
|
|
|
Total impact on equity attributable to shareholders of the parent |
|
(946) |
|
Total impact on non-controlling interests |
|
(161) |
|
Total impact on shareholders' equity |
|
(1,107) |
The income tax consequences of recognising expected credit losses on financial assets at amortised cost and other instruments and writing off balances are different between the jurisdictions where the Group conducts its business. In some jurisdictions the income tax consequences are also different between different types of financial assets. As a result the Group applied judgment in determining the deferred tax consequences of the transition to IFRS 9:
- Old Mutual Finance (Pty) Ltd currently obtains an income tax deduction of approximately 80% of the allowance for incurred credit losses as prepared under IAS 39. Recent developments indicate that SARS is reconsidering the income tax allowances allowed for financial services entities that are not banks regarding the allowance for expected credit losses in terms of IFRS 9. A significant change in this income tax deduction could result in significant deferred tax assets being recognised by Old Mutual Finance (Pty) Ltd, due to a delay in obtaining the income tax deduction and lead to an increase in the income tax payments made to SARS in respect of future years. Since a change in the existing income tax legislation and allowed practices has not yet been effected, the Group applied judgment by recognising a deferred tax asset of R82 million on the transition impact to the expected credit loss model, based on the current income tax treatment in retained earnings. The Group and industry participants are in discussions with National Treasury regarding the matter.
- There is uncertainty with regards to the deductibility of the allowance for expected credit losses in Kenya for income tax purposes. The Group applied judgment and did not recognise any deferred tax on the transition impact to the expected credit loss model for loans and advances provided to customers by Faulu, the Group's micro-lender in Kenya. When more clarity has been obtained from revenue authorities an appropriate adjustment will be made.
- The total transition movement in the allowance for expected credit losses (R938 million) was recorded in retained earnings (R716 million) and other reserves (R222 million). The transition movement was recognised in other reserves to utilise regulatory reserves previously created in the Rest of Africa business.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.3. IFRS 9 Financial Instruments - Continuing operations continued
5.3.2. Classification and measurement of financial assets and financial liabilities
IFRS 9 replaces the provisions of IAS 39 'Financial instruments: Recognition and measurement' that relate to the recognition, classification and measurement of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out below.
Initial recognition of financial assets
Under IFRS 9, on initial recognition, a financial asset is classified as measured at:
- Amortised cost;
- Fair Value through Other Comprehensive Income (FVOCI) which may include debt or equity instruments; or
- Fair Value through Profit and Loss (FVTPL).
IFRS 9 eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale.
The classification of financial assets under IFRS 9 is based on whether the financial assets are equity instruments, debt instruments held or derivative assets. Equity instruments and derivative assets are mandatorily categorised as financial assets at FVTPL. The classification and measurement of debt instruments is dependent on the business model in which the financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are not accounted for separately. Instead, the hybrid financial instrument as a whole is assessed for classification.
A debt instrument is classified as a financial asset at amortised cost if it meets both of the following conditions (and is not designated as at FVTPL):
- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt instrument is measured at FVOCI if it meets both of the following conditions (and is not designated as at FVTPL):
- it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity instrument that is not held for trading, the instrument may be irrevocably designated at FVOCI. In such an instance changes in the equity instrument's fair value are recorded in other comprehensive income (OCI). This election is made on an investment-by-investment basis.
All debt instrument financial assets that were not classified as measured at amortised cost or FVOCI are measured at FVTPL. On initial recognition, the Group may irrevocably designate a debt instrument financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI or at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Transaction costs that are directly attributable to the acquisition of financial assets are expensed in profit or loss for financial assets initially classified at FVTPL. For financial assets not classified at FVTPL, transaction costs are added to or deducted from the fair value at initial recognition.
Initial recognition of financial liabilities
IFRS 9 largely retains the requirements in IAS 39 for the classification and measurement of financial liabilities. On initial recognition financial liabilities are measured at fair value plus or minus, in the case of financial liabilities not classified at FVTPL, transaction costs that are incremental and directly attributable to the issue of the financial liability. Transaction costs of financial liabilities carried at FVTPL are expensed in profit or loss.
Subsequent measurement of financial assets
The following accounting policies apply to the subsequent measurement of financial assets.
|
Financial assets at FVTPL |
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. |
|
Financial assets at amortised cost |
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. |
|
Debt investments at FVOCI
|
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. |
|
Equity investments at FVOCI
|
These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss. |
Subsequent measurement of financial liabilities
IFRS 9 largely retains the requirements in IAS 39 for the measurement of financial liabilities with one exception. Fair value movements attributable to changes in the credit risk of a financial liability designated at FVTPL is recorded in other comprehensive income and not recycled to profit or loss. The balance of the fair value movement is recorded in profit or loss.
IFRS 9 transition impact assessment
On 1 January 2018 (the date of initial application of IFRS 9), the Group's management has assessed which business models apply to the financial assets held by the group and classified its financial instruments into the appropriate IFRS 9 categories. In addition management considered the impact of implementation of the expected credit loss model for financial assets measured at amortised cost as well as any 'fair value option' designation adjustments. The tables below and accompanying notes explain the original measurement categories under IAS 39 and the new measurement categories and carrying values under IFRS 9 for each class of the group's financial assets and financial liabilities as at 1 January 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total IFRS 9 transition adjustment allocation |
|
|
Rm |
Note |
IAS 39 Classification |
IFRS 9 Classification |
Carrying value IAS 39 |
Total IFRS 9 transition adjustment |
Adjusted carrying value IFRS 9 |
IFRS 9 reclassification into new category |
IFRS 9 ECL impact |
|
Financial Assets |
|
|
|
|
|
|
|
|
|
Mandatory reserve deposits with central banks |
|
Loans and receivables |
Amortised cost |
94 |
- |
94 |
- |
- |
|
Reinsurers' share of policyholder liabilities |
|
Loans and receivables |
Amortised cost |
25 |
- |
25 |
- |
- |
|
Loans and advances |
|
Loans and receivables |
Amortised cost |
21,483 |
(915) |
20,568 |
- |
(915) |
|
Investments and securities |
(a) |
Designated FVTPL |
Accounting mismatch at FVTPL |
721,328 |
(434,277) |
287,051 |
- |
- |
|
|
|
|
Mandatorily at FVTPL |
- |
430,768 |
430, 768 |
430,768 |
- |
|
|
(b) |
|
Amortised cost |
- |
3,499 |
3,499 |
3,509 |
(10) |
|
|
(c) |
Available for sale |
Mandatorily at FVTPL |
921 |
921 |
921 |
921 |
- |
|
Trade and other receivables |
|
Loans and receivables |
Amortised cost |
21,875 |
(13) |
21,862 |
- |
(13) |
|
Derivative instruments |
|
Held for trading |
Mandatorily at FVTPL |
4,101 |
- |
4,101 |
- |
- |
|
Cash and cash equivalents |
|
Loans and receivables |
Amortised cost |
30,761 |
- |
30,761 |
- |
- |
|
Total |
|
|
|
800,588 |
none |
799,650 |
435,198 |
(938) |
The classification and measurement of the remaining balance of R 287,051 million is unchanged.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.3. IFRS 9 Financial Instruments - Continuing operations continued
|
|
|
|
|
|
|
|
Rm |
||
|
|
|
|
|
|
|
|
Total IFRS 9 transition adjustment allocation |
||
|
Rm |
Note |
IAS 39 Classification |
IFRS 9 Classification |
Carrying value IAS 39 |
Total IFRS 9 transition adjustment |
Adjusted carrying value IFRS 9 |
IFRS 9 reclassification into new category |
IFRS 9 ECL impact |
|
|
Financial Liabilities |
|
|
|
|
|
|
|||
|
Investment contract liabilities |
|
Designated FVTPL |
Mandatorily at FVTPL |
288,164 |
- |
288,164 |
- |
- |
|
|
Third-party interest in consolidation of funds |
|
Designated FVTPL |
Mandatorily at FVTPL |
81,573 |
- |
81,573 |
- |
- |
|
|
Borrowed funds |
(d) |
Designated FVTPL |
Accounting mismatch at FVTPL |
13,191 |
1,284 |
14,475 |
- |
- |
|
|
|
(d) |
Amortised cost |
Amortised Cost |
5,675 |
(1,018) |
4,657 |
- |
- |
|
|
Trade, other payables and other liabilities |
|
Accounting mismatch (FVTPL) |
Accounting mismatch at FVTPL |
2,039 |
- |
2,039 |
- |
- |
|
|
|
|
Amortised cost |
Amortised Cost |
30,437 |
- |
30,437 |
- |
- |
|
|
Amounts owed by depositors |
|
Amortised cost |
Amortised Cost |
12,440 |
- |
12,440 |
- |
- |
|
|
Derivative financial instruments |
|
Held for trading |
Mandatorily at FVTPL |
4,498 |
- |
4,498 |
- |
- |
|
|
Total |
|
|
|
438,017 |
266 |
438,283 |
- |
- |
|
Apart from the implementation of the expected credit loss model, other significant changes in the classification and measurement of financial assets and liabilities as illustrated above have been described below.
(a) Reclassification of equity instruments with a fair value of R430,570 million (at 31 December 2017) and debt instruments with a fair value of R198 million (at 31 December 2017) from financial assets designated at fair value through profit or loss in terms of IAS 39, to financial assets mandatorily at fair value through profit or loss in terms of IFRS 9.
In accordance with the Group's accounting policies equity instruments are classified as financial assets at fair value through profit or loss. In terms of IAS 39 the debt instruments were designated as financial instruments at fair value through profit or loss. In terms of IFRS 9, the Group considers that these debt instruments are held within a business model where the financial performance of these instruments are measured and the instruments are managed on a fair value basis. As a result the debt instruments are classified as financial instruments at fair value through profit or loss. Since the instruments were measured at fair value in terms of IAS 39, no measurement adjustment was recognised when the instruments were reclassified.
(b) Reclassification of government securities with a fair value of R3,509 million (at 31 December 2017) from financial assets designated at FVTPL under IAS 39, to financial assets at amortised cost under IFRS 9.
The government securities were designated at fair value through profit or loss in terms of IAS 39. A review of the business model regarding these instruments indicated that the instruments are held with the objective to collect contractual cash flows over the term of the instrument. A review of the cash flows characteristics of the instruments indicated that the cash flows are solely payments of capital and interest on the capital outstanding. Consequently the Group classified these instruments as financial assets at amortised cost. At 1 January 2018 the Group recognised an allowance for expected credit losses of R10 million with regards to these instruments. The expected credit loss was recognised in equity at 1 January 2018.
The fair value of these financial assets as at 30 June 2018 was R5,553 million. The various original effective interest rates of these instruments range from 5% to 26% per annum and R263 million of interest income has been recognised during the period.
(c) Reclassification of investments and securities with a fair value of R921 million (at 31 December 2017) from available-for-sale to financial assets at fair value through profit or loss.
The investment and securities comprise of government, government guaranteed securities and equity instruments. In terms of IAS 39 these instruments were designated as available for sale financial instruments. In terms of IFRS 9, the Group considers that the debt securities are held within a business model where the financial performance of these instruments are measured and the instruments are managed on a fair value basis. As a result the government and government guaranteed securities are classified as financial instruments at fair value through profit or loss. Since the instruments were measured at fair value in terms of IAS 39, no measurement adjustment was recognised when the instruments were reclassified in terms of IFRS 9.
(d) Reclassification of borrowed funds (R1,018 million) at 31 December 2017) from financial liabilities at amortised under IAS 39, to financial liabilities designated at fair value through profit or loss under IFRS 9.
At 31 December 2017 the Group carried total borrowed funds with a carrying value of R18,866 million. Included in this balance were borrowed funds classified as financial liabilities at amortised cost of R5,675 million. On 1 January 2018 the Group reclassified R1,018 million of this balance to financial liabilities at fair value to avoid or significantly reduce an accounting mismatch with derivative instruments (held to mitigate interest rate risk) classified as financial instruments at fair value through profit or loss. To adjust the carrying value of the borrowed funds to fair value (R1,284 million at 31 December 2017) a fair value loss of R266 million was recognised in retained earnings.
The portion of cumulative fair value losses related to changes in the credit risk of the total borrowed funds designated at fair value through profit or loss was transferred from retained earnings to other reserves at 1 January 2018. The amount of the transfer was R683 million.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.3.3. Impairment of financial assets
5.3.3.1 Overview
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model and results in credit losses being recognised earlier than under IAS 39. The new impairment model applies to financial assets measured at amortised cost (for example mandatory reserve deposits with central banks, reinsurers' share of policyholder liabilities, loans and advances, trade and other receivables, cash and cash equivalents, and corporate debt securities held by the Group) and corporate debt investments measured at FVOCI, but not to investments in equity instruments. As a consequence of the new standard, the Group has revised its impairment methodology under IFRS 9 for each of these classes of assets. The impact of the change in impairment methodology on the Group's total equity is disclosed in 5.3.1.
The ECL impairment loss allowance is an unbiased, probability-weighted amount determined by evaluating a range of possible outcomes that reflects reasonable and supportable information that is available without undue cost or effort of past events, current conditions and forecasts of forward-looking economic conditions. The ECL model is dependent on the availability of relevant and accurate data to determine whether a significant increase in credit risk occurred since initial recognition, the probability of default (PD), the loss given default (LGD) and the possible exposure at default (EAD). Of equal importance is sound correlation between these parameters and forward-looking economic conditions.
ECL reflects an entity's own expectations of credit losses. However, when considering all reasonable and supportable information that is available without undue cost or effort in estimating ECL, an entity should also consider observable market information about the credit risk of the particular financial instrument or similar financial instruments.
In the absence of sufficient depth of data, management apply expert judgment within a governance framework to determine the required parameters. The expert judgement process is based on available internal and external information. Due to differences in availability of data and maturity of credit risk management across the Group, different approaches are used to determine the key parameters.
Forward-looking information includes, but is not limited to macro-economic conditions expected in the future. Forward looking information used in the ECL calculation should reflect the nature and characteristics of the credit risk exposures. All reasonable and supportable information that is available should be used when incorporating forward-looking information into the ECL allowance. Forward looking assessments can be performed on an individual or collective basis. Forward-looking factors should be aligned with risk factors used in risk assessments, stress testing, budgeting as well as strategy and pricing decisions. Relevant factors include factors intrinsic to the entity and its business or derived from external conditions.
Estimates regarding credit risk parameters and the impact of forward-looking information used in the calculation of the ECL loss amount should be reviewed at each reporting date and updated if necessary.
The ECL loss amount depends on the specific stage where the financial instrument has been allocated to within the ECL model:
- Stage 1: At initial recognition a financial instrument is allocated into stage 1, except for purchased or originated credit impaired financial instruments.
- Stage 2: A financial instrument is allocated to stage 2 if there has been a significant increase in credit risk since initial recognition of the financial instrument.
- Stage 3: A financial instrument is allocated to stage 3 if the financial instrument is in default or is considered to be credit impaired.
Under IFRS 9, impairment loss allowances are measured on either of the following bases:
- 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
- Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
Group's assessment
The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured as 12-month ECLs:
- Financial assets that are determined to have low credit risk at the reporting date; and
- Financial assets where credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.
The Group has elected to apply the IFRS 9 simplified approach in measuring expected credit losses. This uses a provision matrix when determining the lifetime expected loss allowance for all trade receivables, contract assets and lease receivables.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers quantitative and qualitative information, based on the Group's historical experience, credit assessment and including forward-looking information. The Group's assessment of a significant increase in credit risk from initial recognition consists of a primary and secondary risk driver as follows:
- The primary risk driver aligns to the quantitative credit risk assessments performed, such as the credit score, credit rating, probability of default or arrears aging of a financial instrument.
- The secondary risk assessment considers a broad range of qualitative risk factors based on a forward looking view such as economic and sector outlooks. The secondary risk assessment can be performed on a portfolio basis as opposed to a quantitative assessment at a financial instrument level.
These primary and secondary risk drivers are included by the Group as part of the ongoing credit risk management.
When making a quantitative assessment, the Group uses the change in the probability of default occurring over the expected life of the financial instrument. This requires a measurement of the probability of default at initial recognition and at the reporting date.
A rebuttable assumption is that the credit risk since initial recognition has increased significantly if a financial instrument is 30 days past due on any payments or is one payment in arrears. It is not anticipated that this assumption will be rebutted.
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. The ECL calculation of a financial instrument takes into account both the contractual and available behavioural repayment patterns over the relevant estimation period.
A financial asset is in default when the financial asset is credit-impaired or if the Basel definition of default is met. Where applicable, the rebuttable presumption that default does not occur later than when a financial asset is 90 days past due, is applied.
Write-off policy
The Group writes off a financial instrument at amortised cost when the entity has no reasonable expectation of recovery of the financial instrument. Determining when to write-off financial assets is a matter of judgment and incorporates both quantitative and qualitative information. Different operational write off policies exist for the different businesses and jurisdictions with regards to credit impaired or in-default financial assets at amortised cost. The following are examples of what could result in the write-off of a financial asset at amortised cost:
- legal prescription
- settlement campaigns, collection efforts and legal processes do not result in the settlement of balances outstanding;
- receipt of payments from insurers; or
- financial assets have been in arrears for a significant amount of time with no qualifying payments being received in recent months.
The gross amount of loans and advances written-off during the six months ended 30 June 2018 was R165 million.
5.3.3.2 Measurement of expected credit losses (ECL)
ECLs are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
For presentation the ECL allowances are deducted from the gross carrying amount of the assets. ECLs are presented separately in the consolidated income statement.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.3.3.3 Impact of the new impairment model
For assets in the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase and fluctuate. The Group has determined that the application of IFRS 9's impairment requirements at 1 January 2018 results in an additional impairment allowance for the continuing business as set out in 5.3.2. The table below sets out the transition adjustment between the IAS 39 impairment provision recognised at 31 December 2017 and the IFRS 9 impairment provision at 1 January 2018 for those instruments most impacted by the new impairment model:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rm |
|
Instruments
Rm |
IAS 39 impairment provision |
IFRS 9 impairment provision - allowance for ECL |
ECL coverage % at 1 January 2018 |
IFRS 9 - transition adjustment |
||||||||
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Gross |
Tax |
Net |
||
|
Loans and advances |
2,918 |
642 |
244 |
2,947 |
3,833 |
4% |
14% |
59% |
17% |
915 |
(97) |
818 |
The table below includes details on how much the loss allowance has changed during the six month period to 30 June 2018 for those instruments most impacted by the new impairment model under IFRS 9:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rm |
|
Instruments
Rm |
IFRS 9 impairment provision - allowance for ECL at 30 June 2018 |
Movement between 1 January 2018 and 30 June 2018 |
ECL coverage at 30 June 2018 |
|||||||||
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
Loans and advances |
799 |
282 |
2,893 |
3,974 |
157 |
38 |
(54) |
141 |
4% |
15% |
57% |
14% |
The allowance for expected credit losses for loans and advances increased by R141 million from 1 January 2018 to 30 June 2018.
5.3.3.4 Significant judgments and estimates
In determining the ECL allowances for loans and advances the following significant judgments and estimates were considered. The availability of information and the sophistication of credit risk management systems and protocols will influence the judgments made and estimates considered.
- The Group applies judgment in determining whether a significant increase in credit risk took place since initial recognition of financial assets at amortised cost. Judgment was applied in identifying the qualitative and quantitative triggers and thresholds used to identify significant increases in credit risk since initial recognition of the financial assets. Depending on the availability of reasonable and supportable information without undue cost or effort, significant increases in credit risk is identified through increases in behaviour risk, arrears aging and portfolio assessments. The Group makes use of the rebuttable presumption that a significant increase in credit risk has taken place when a financial asset is 30 days past due or one payment in arrears. The assessments are carried out on regular basis as part of the credit risk management activities of the Group.
- The Group applies judgment in identifying default and credit-impaired financial assets. The Group considers the arrears category where the balance have been allocated to or whether the balance is in legal review, debt review or under administration. In less sophisticated systems balances are considered to be in default when the balances have been past due for 90 days or more or have been identified to be in default after applying expert judgment. Financial asset are credit impaired when one or more events with a detrimental impact on the expected cash flows have taken place.
- The calculation of the ECL balance is primarily influenced by the stage allocation of the balance and the risk parameters. The Group makes use of estimates of PDs, LGDs and EADs to calculate the ECL balance for financial assets at amortised cost. Depending on the relevant information available PDs are based on a behavioural scoring model and historic default rate curves or are determined through internally developed statistical models. LGDs are derived from a default recovery time series model that takes recency of payments into account or through internally developed statistical models. EADs are determined with reference to expected amortisation schedules and taking into account credit conversion factors as applicable for undrawn or revolving facilities.
- The ability to include forward-looking information in the measurement of ECL balances is dependent on the existence of reliable and quantifiable correlation between forward-looking factors and changes in the ECL balance. When such correlations do not exist and where applicable, management applies expert judgment to determine an overlay provision to incorporate best estimates of the impact of forward-looking information. Any overlay provision is based on available information and qualitative risk factors within a governed process. The incorporation of forward-looking information into the ECL balances is an area where further development is expected as industry practice emerge.
5.3.4 Hedge accounting
On the adoption of IFRS 9 the Group elected to not apply hedge accounting to any financial instruments in the continuing businesses. The Group elected to continue with hedge accounting principles as set out in IAS 39 and will adopt the hedge accounting principles set out in IFRS 9 when the IASB project on marco-hedge accounting has been completed.
5.3.5 Transitional impact
Changes in accounting policies resulting from the adoption of IFRS 9 have been not been applied retrospectively and as such:
- The Group has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. As a result the comparative information disclosed for financial instruments is based on the accounting policies applied in preparing the financial statements for the financial year ended 31 December 2017.
- Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 but rather that of IAS 39.
The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.
- The determination of the business model within which a financial asset is held and whether or not the cash flows meet the characteristics of cash flows that are simply payments of principal and interest in the principal.
- The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.
- The designation of certain investments in equity instruments not held for trading as at FVOCI.
- If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Group has assumed that the credit risk on the asset had not increased significantly since its initial recognition.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.4. IFRS 15 'Revenue from Contracts with Customers' - Continuing businesses
5.4.1 Overview including impact on the Group's total equity
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 'Revenue', IAS 11 'Construction Contracts' and related interpretations.
The Group has adopted IFRS 15 'Revenue from Contracts with Customers' from 1 January 2018 which has resulted in changes to accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions in IFRS 15, the Group has used the cumulative effect method, with the effect of initially applying the standard at the date of initial application, being 1 January 2018. Accordingly, no adjustments have been made to prior year figures which were previously reported under IAS 18 and related interpretations.
Adjustments made to the amounts recognised in the Consolidated statement of financial position at the date of initial application (1 January 2018) are set out in 5.2. The table below summarises the impact, net of tax, of transition to IFRS 15 on retained earnings and for continuing operations at 1 January 2018:
|
|
|
|
|
|
|
Rm |
Notes |
Reported under IAS 18 |
Transition adjustment |
Reported Under IFRS 15 |
|
Statement of financial position |
|
|
|
|
|
Deferred acquisition costs |
(a) |
848 |
(848) |
- |
|
Deferred tax assets |
|
245 |
(245) |
- |
|
Total assets |
|
1,093 |
(1,093) |
- |
|
|
|
|
|
|
|
Deferred revenue |
(a) |
(875) |
875 |
- |
|
Deferred tax liabilities |
|
(237) |
237 |
- |
|
Total liabilities |
|
(1,112) |
1,11 2 |
- |
|
|
|
|
|
|
|
Impact to retained earnings (before tax) |
|
|
|
27 |
|
Deferred tax |
|
|
|
(8) |
|
Impact to retained earnings on 1 January 2018 (after tax) |
|
|
|
19 |
(a) Initial financial planning fees
An initial financial planning fee is paid to brokers for providing initial financial planning to clients. Fees charged to clients consist of initial fees and ongoing fees. In the past the initial fee received was recognised as a deferred revenue liability and the initial financial planning fee paid as a deferred acquisition cost asset. These balances were amortised into the statement of comprehensive income as separate items of income and expense over the expected contractual periods.
In terms of IFRS 15 revenue is recognised when the related performance obligation has been satisfied. The initial fee received should be recognised as revenue when the services have been provided. The initial financial planning fee paid should be expensed when incurred.
Deferred acquisition costs and deferred revenue liabilities at 31 December 2017 have been adjusted with a corresponding impact to retained earnings. This lead to a reduction of deferred acquisition costs of R848 million and a reduction in deferred revenue liability of R875 million at 1 January 2018. The related impact to deferred tax has been a reduction in the deferred tax asset of R245 million and a reduction in the deferred tax liability of R237 million.
5.5 Impact on business classified as held for sale and distribution
The impacts of the adoption of the standard for the businesses classified as held for sale and distribution is outlined below:
5.5.1 Overview
Businesses classified as held for sale and distribution and which meet the criteria of being a discontinued operation at 31 December 2017 include Nedbank and Quilter. Each business has performed an assessment of the impact of IFRS 9 and IFRS 15 on the consolidated statement of financial position and performance, the results of which are provided below. Amongst the businesses held for sale and distribution, the impact of implementation of IFRS 9 and 15 was the most significant on Nedbank.
5.5.2 IFRS 9 'Financial Instruments'
5.5.2.1 Impact on the Group's total equity
The table below summarises the impact of transitioning to IFRS 9 on the Group's opening balance of total equity for business classified as held for sale and distribution at 31 December 2017.
|
|
|
|
|
Rm |
Notes |
Impact of adopting IFRS 9 on opening balance at 1 January 2018 |
|
Assets held for sale and distribution |
|
|
|
Changes in classification and measurement |
5.5.2.2 |
(204) |
|
Recognition of expected credit loss allowance |
5.5.2.2 |
(2,785) |
|
Reduction in equity accounted carrying value of an associate |
|
(780) |
|
Related deferred tax impact |
|
915 |
|
Total assets held for sale and distribution |
|
(2,854) |
|
Liabilities held for sale and distribution |
|
|
|
Changes in classification and measurement |
|
112 |
|
Recognition of expected credit loss allowance |
|
(205) |
|
Related deferred tax impact |
|
(31) |
|
Total liabilities held for sale and distribution |
|
(124) |
|
Total impact on shareholders' equity |
|
(2,978) |
|
|
|
|
|
Total impact on non-controlling interests |
|
(1,351) |
|
Total impact on equity attributable to shareholders of the parent |
|
(1,627) |
|
Total impact on shareholders' equity |
|
(2,978) |
The implementation of IFRS 9 at Ecobank Transnational Incorporated (ETI), an associate of Nedbank, resulted in reduction in equity of R780 million (after tax). The after tax impact of the implementation of IFRS 15 was a reduction of R254 million to equity and is further discussed in note 5.5.3.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.5.2 IFRS 9 'Financial Instruments' continued
5.5.2.2 Classification and measurement of financial assets and financial liabilities
The table below and the accompanying notes below explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of financial assets and financial liabilities as at 1 January 2018 for the businesses held for sale and distribution. The table only includes changes which have resulted in a significant impact in the measurement of the instrument as a consequence of either a change in classification or a change in the impairment provision recognised. The line items disclosed in the table are summarised into the assets held for distribution and sale and liabilities held for distribution on sale in note 5.2. The following are the main changes impacting the classification and measurement of financial instruments for Nedbank:
|
|
|
|
|
|
|
|
|
|
|
|
IAS 39 Categories |
31 December 2017 |
1 January 2018 |
|||||||
|
|
IAS 39 |
IFRS 9 |
|||||||
|
Rm |
Carrying value |
Impairment |
Classification and Measurement |
Carrying value |
Amortised cost |
FVOCI: Debt instruments |
FVOCI: Equity instruments |
FVTPL: Mandatorily |
FVTPL: Designated |
|
Amortised cost |
731,952 |
(2,785) |
54 |
729,221 |
705,638 |
18,583 |
- |
5,000 |
- |
|
Fair value through profit or loss |
201,036 |
- |
(258) |
200,778 |
61,580 |
- |
- |
135,415 |
3,783 |
|
Available for sale |
19,775 |
- |
- |
19,775 |
3,454 |
14,263 |
923 |
1,135 |
- |
|
Total assets |
952,763 |
(2,785) |
(204) |
949,774 |
770,672 |
32,846 |
923 |
141,550 |
3,783 |
|
Financial liabilities at amortised cost |
759,004 |
205 |
(112) |
759,097 |
759,097 |
- |
- |
- |
- |
|
Fair value through profit or loss |
127,369 |
- |
- |
127,369 |
59,655 |
- |
- |
67,406 |
308 |
|
Total liabilities |
886,373 |
205 |
(112) |
886,466 |
818,752 |
- |
- |
67,406 |
308 |
Altogether R887 million of gross loans and advances and associated impairments of R474 million were reclassified from amortised cost in FVTPL, because these loans include features other than 'payments solely of principal and interest'. The loans with features other than 'payments solely of principal and interest' were reclassified in investment securities and remeasured to fair value on transition, which was R152 million lower than the amortised cost. A total of R2 billion of loans and advances at amortised cost was included in a portfolio that has a sales business objective (at 1 January 2018). These loans have been reclassified in FVTPL on adoption of IFRS 9, together with the associated impairments of R71 million. On reclassification the fair value was R44 million higher than the amortised cost. In summary, on-balance-sheet impairments decreased by R545 million on transition (R474 million due to features other than 'payments solely of principal and interest' and R71 million due to the business model). Consequently, net loans and advances decreased by R369 million and investment securities increased by R261 million, with the difference of R108 million being a fair-value remeasurement.
On adoption of IFRS 9 the Group reviewed a number of accounting policies, including those on the effective-interest-rate and the derecognition of loans and advances on modification thereof. As a result of the review, the Group changed the recognition of certain initiation fees from upfront recognition in net interest revenue to amortisation, using the effective-interest-rate method. On adoption of IFRS 9 and IFRS 15 management estimated the cumulative impact of the change in effective interest rate to be R658 million (before tax) and R474 million (after tax).
5.5.2.3 Impact of the new impairment model
The impact of the expected credit loss model on businesses held for sale and for distribution is largely attributable to Nedbank. Nedbank's IFRS 9 implementation accounts for supervisory guidance provided by the Basel Committee on Banking Supervision guidance document issued on credit risk and accounting for ECL, which outlines the basic principles of supervisory requirements for sound credit risk practices associated with the implementation and ongoing application of ECL accounting models, and the supervisory evaluation of credit risk, as well as by the corresponding SARB Guidance Note 3/2016.
It is important to note that the methods, assumptions and accounting policies applied in applying the ECL model in Nedbank will differ from the methods, assumptions and accounting policies applied in the lending businesses reported under continuing businesses. The differences in methods, assumptions and accounting policies must be viewed against the backdrop of different products, systems and availability of information across the continuing businesses and the businesses held for sale and distribution.
The total transition adjustment for ECL was R 2,135 million (after tax) on 1 January 2018 and can be analysed as follows:
|
Rm |
|
|
|
Loans and advances |
|
2,752 |
|
Provision for items not recorded on the balance sheet |
|
205 |
|
Other |
|
33 |
|
Total impact before tax |
|
2,990 |
|
Tax impact |
|
(855) |
|
Total impact after tax |
|
2,135 |
The table below sets out the transition adjustment between the IAS 39 impairment provision recognised at 31 December 2017 and the IFRS 9 impairment provision at 1 January 2018 for loans and advances and related liabilities held by Nedbank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments
Rm |
IAS 39 impairment provision (note 1) |
IFRS 9 impairment provision - allowance for ECL |
ECL coverage % |
IFRS 9 - transition adjustment |
||||||||
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Gross |
Tax |
Net |
||
|
Loans and advances |
11,527 |
2,695 |
3,889 |
7,695 |
14,279 |
0.38% |
0.55% |
1.09% |
2.03% |
2,752 |
(855) |
1,897 |
|
Provision for items not recorded on the balance sheet |
- |
82 |
63 |
60 |
205 |
|
|
|
|
205 |
- |
205 |
|
Total |
11,527 |
2,777 |
3,952 |
7,755 |
14,484 |
0.38% |
0.55% |
1.09% |
2.03% |
2,957 |
(855) |
2,102 |
Note 1: At 1 January 2018 Nedbank reclassified loans and advances with accompanying IAS 39 impairment provision of R475 million to financial assets at fair value through profit or loss. The adjusted IAS 39 impairment provision at 1 January 2018 was R11,527 million (31 December 2017: R12,002 million).
Loans and advances
The largest contributor to the transition adjustment of R2,752 million was Retail and Business Banking with a transition adjustment of R2,370 million. The adjustment was due to measuring ECL for balances allocated to stage 1 of the ECL model at 12-month expected credit losses, revised behavioural lifetime estimates for products and refined modelling for performing loans.
Forward-looking information
The IFRS 9 macro-economic forecasts are reviewed quarterly, aligned with SARB's Monetary Policy Committee meetings. Additional ad hoc reviews will be performed in the event of significant change in the economic climate. The macroeconomic forecast includes four scenarios: a base case, a mild-stress case, a high-stress case, and a positive case. Each scenario is assigned an appropriate probability, based on its likelihood of occurring relative to the base scenario. The key macroeconomic variables included in the forecast are: GDP growth, the prime rate forecast, the household debt-to-income ratio and credit growth.
The impact of macroeconomic factors is included on a probability-weighted basis by firstly determining whether the credit risk of the loan has increased significantly since origination and secondly, once it has been determined whether 12-month ECL (stage 1) or lifetime ECL (stage 2) applies, by adjusting the ECL for the macroeconomic forecast on a probability-weighted basis.
Income and deferred tax
Historically, Nedbank has deducted allowances on credit loss impairment provisions in accordance with the SARS ruling applicable to banks in order to determine cash tax payable. In terms of revised income tax legislation Nedbank will be able to claim a tax deduction equal to 25% of the stage 1 ECL allowance, 40% of the stage 2 ECL allowance and 85% of the stage 3 ECL allowance. It is important to note that there is no reduction for a present-value factor in the new legislation. This results in an overall reduction of current tax payable in 2018 of R450 million. The total current and deferred tax adjustment for ECL is R855 million, with R405 million recognised as a deferred tax asset. The deferred tax asset represents the difference between the accounting ECL allowance and the deduction allowed under the revised tax regime multiplied by the current corporate tax rate.
G: Other notes continued
G5: Standards, amendments to standards, and interpretations adopted in the 2018 unaudited condensed interim consolidated financial statements continued
5.5.2.3 Impact of the new impairment model continued
Write-off
IFRS 9 provides more detailed guidance on the point at which loans and advances should be written off. In terms of IFRS 9, loans and advances are written off when the Group has no reasonable expectations of recovering the asset partially or in its entirety. This assessment is judgemental and includes both qualitative and quantitative information, including trends based on historical recoveries. The implementation of IFRS 9 has resulted in an opening adjustment to balance sheet impairments to take into account the net impact of removing the benefit of post write-off recoveries and amending the point of write-off.
Comparative information
As permitted by the transitional provisions of IFRS 9, Nedbank has elected not to restate comparative figures. Information in this report for the year ended 31 December 2017 relating to Nedbank is presented on the basis calculated in terms of IAS 39.
5.5.3 IFRS 15 'Revenue from Contracts with Customers'
Nedbank performed an assessment to determine the impact of the new standard on the Group's client loyalty programmes. Nedbank has concluded that the loyalty points awarded to clients are consideration payable in terms of IFRS 15 guidance. IFRS 15 requires revenue to be decreased by the amount expected to be payable to clients, which is recognised as a liability until payment is affected. The liability for the amount expected to be paid to clients under the loyalty programmes increased by R347 million and R254 million (on an after-tax basis) on transition. Under IFRS 15, as clients earn loyalty points, the fee and commission income earned from card transactions is reduced by the expected cost of the loyalty points against a loyalty points liability. On redemption of the loyalty points the actual costs incurred are offset against the liability. Under IFRS 15 costs of Nedbank's rewards programme were previously recognised as an expense whereas they are now recognised as a reduction in net interest revenue.
G6: Future standards, amendments to standards, and interpretations not early-adopted in the 2018 unaudited condensed interim consolidated financial statements
Certain new accounting standards and interpretations, have been published that are not mandatory for 2018 reporting periods and have not been early adopted by the Group.
IFRS 16 'Leases'
IFRS 16 'Leases' was issued in January 2016 and replaces IAS 17 Leases and its related interpretations for reporting periods beginning on or after 1 January 2019. All of the Group's businesses will be impacted by the adoption of IFRS 16.
The Group as lessee: IFRS 16 introduces a 'right of use' model whereby the lessee recognises a right-of-use asset and an associated financial obligation to make lease payments for all leases with a term of more than 12 months. The asset will be amortised over the lease term and the financial liability measured at amortised cost with interest recognised in profit or loss using the effective interest rate method.
The Group as lessor: IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify and account for its leases as operating leases or finance leases.
The Group is in the process of assessing the impact of IFRS 16 and which transitional approach it will follow.
IFRS 17 'Insurance Contracts'
The IASB issued IFRS 17 'Insurance Contracts' in May 2017 as a replacement for IFRS 4 Insurance Contracts.
The new IFRS 17 standard is effective for reporting periods beginning on or after 1 January 2021. The new rules will affect the financial statements and key performance indicators of all entities in the Group that issue insurance contracts or investment contracts with discretionary participation features.
The Group has commenced assessing the impact of IFRS 17.
Registered name: Old Mutual Limited
Country of incorporation: South Africa
Registration number: 2017/235138/06
Income tax reference number: 9267358233
Share code (JSE and LSE): OMU
Share code (NSX): OMM
Registered Office
Mutualpark
Jan Smuts Drive
Pinelands
Cape Town
7405
Internet address
www.oldmutual.com
Company Secretary
Kirsten, Elsabé Margaretha
Transfer secretaries
Link Market Services South Africa (Pty) Ltd
Directors
|
Independent non-executive Directors |
Non-executive Directors |
|
Manuel, Trevor Andrew (Chairperson) |
De Beyer, Peter Gerard |
|
Baloyi, Paul Cambo |
Johnson, Ingrid Gail |
|
Du Toit, Matthys Michielse |
Naidoo, Vassi |
|
Essien, Albert Kobina |
Rapiya, Bahleli Marshall |
|
Kgaboesele, Itumeleng |
|
|
Lister, John Robert |
Executive Directors |
|
Magwentshu-Rensburg, Sizeka Monica |
Moyo, Mthandazo Peter (Chief Executive Officer) |
|
Moholi, Nombulelo Thokozile |
Troskie, Casparus Gerhardus (Chief Financial Officer) |
|
Mokgosi-Mwantembe, Thoko Martha |
|
|
Molope, Carol Winifred Nosipho |
|
|
Mwangi, James Irungu |
|
|
Sehoole, Ignatius Simon |
|
|
Van Graan, Stewart William |
|
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