8th Nov 2007 07:02
Old Mutual PLC08 November 2007 Old Mutual plc Ref: 75/07 8 November 2007 Trading update for the nine months ended 30 September 2007 Good investment performance continuing to attract assets - Net client cash flows (NCCF) £17.0 billion, 10% of opening funds undermanagement (FUM) on an annualised basis - Funds under management up 14% to £270.4 billion during unsettledmarket conditions - Life APE sales up 13%* to £1,294 million (up 19% at constant exchangerates) - UK up 20%*: good single premium business backed by strong net cash inflows - Nordic sales picking up, slower overall following tax changes - ELAM up 12%*: strong contribution from Central Europe - SA retail up 15%*: increased distribution channels - US up 43%*: excellent offshore sales - Mutual fund sales of £6,192 million: strong US and ELAM growth offsetby declines in South Africa and UK - Value of new business up 9%* to £191 million - Estimated EEV per share 176p at 31 October 2007 Jim Sutcliffe, Chief Executive, commented: "Old Mutual has delivered good investment performance during the period and £17billion of net inflows from clients, continuing to grow assets under managementdespite the turbulence in world financial markets. Sales have been buoyantoverall, with particular strength in the UK and US where the performance wassupported by impressive variable annuity sales from Bermuda." * For the nine months to 30 September 2007, with comparisons to the nine monthsto 30 September 2006 Enquiries Investor RelationsAleida van Herel UK +44 (0)20 7002 7287Deward Serfontein SA +27 (0)21 509 8709 MediaJames Crampton UK +44 (0)20 7002 7133Nad Pillay SA +27 (0)21 504 8026 College Hill (UK)Tony Friend UK +44 (0)20 7457 2020 Notes to Editors: A conference call for analysts and investors will take place at 8.30 a.m. (UKtime), 9.30 a.m. (Central European Time) and 10:30 a.m. (South African time)today. Analysts and investors who wish to participate in the conference callshould dial the following numbers: UK (toll-free) 0800 694 0257 Sweden (toll-free) 0200 890 171 South Africa (toll-free) 0800 980 759 International +44 (0) 1452 555 566 A replay facility will be available until 22 November 2007 on the followingnumbers, access code 22669724# UK (freephone) 0800 953 1533 US (toll-free) 1866 247 4222 International +44 (0) 1452 550 000 Copies of this update together with high-resolution images (at http://oldmutual.com) and biographical details of the Executive Directors of Old Mutual plc are available in electronic format to download from the Company's website. A Financial Disclosure Supplement relating to the Company's nine month tradingupdate can be found on the website. This contains a summary of key financialdata for the first nine months of 2007 and 2006. Forward-looking statements This announcement contains forward-looking statements with respect to certain ofOld Mutual plc's plans and its current goals and expectations relating to itsfuture financial condition, performance and results. By their nature, allforward-looking statements involve risk and uncertainty because they relate tofuture events and circumstances that are beyond Old Mutual plc's control,including, among other things, UK domestic and global economic and businessconditions, market-related risks such as fluctuations in interest rates andexchange rates, policies and actions of regulatory authorities, the impact ofcompetition, inflation, deflation, the timing and impact of other uncertaintiesor of future acquisitions or combinations within relevant industries, as well asthe impact of tax and other legislation and other regulations in territorieswhere Old Mutual plc or its affiliates operate. As a result, Old Mutual plc's actual future financial condition, performance andresults may differ materially from the plans, goals and expectations set forthin Old Mutual plc's forward-looking statements. Old Mutual plc undertakes noobligation to update any forward-looking statements contained in thisannouncement or any other forward-looking statements that it may make. GROUP RESULTS Group Highlights (£m) Q3 YTD Q3 YTD % Change 2007 2006Life assurance sales (APE) 1,294 1,145 13%Europe 808 708 14%South Africa 248 255 (3%)US 238 182 31%Other - - -Unit trust / mutual fund sales 6,192 6,274 (1%)Europe 3,343 3,608 (7%)South Africa 801 1,019 (21%)US 1,570 1,213 29%Other 478 434 10%Value of new business 191 176 9%Europe 97 99 (2%)South Africa 42 40 5%US 52 37 41%Other - - -Net Client Cash Flows (£bn) 17.0 16.2 5%Europe 4.1 4.6 (11%)South Africa (1.2) (0.3) n/aUS 14.1 10.9 29%Other - 1.0 n/a(£bn) Q3 2007 FY 2006 % ChangeFunds under management 270.4 237.1 14%Europe 59.1 51.2 15%South Africa 41.0 40.1 2%US 163.7 140.0 17%Other 6.6 5.8 14% During the nine months to 30 September 2007 ("the period"), Old Mutual hasexperienced strong life APE sales and positive net client cash flows in most ofits businesses compared with the nine months to 30 September 2006 ("thecomparative period"). Investment performance drives net client cash flows Net client cash flows continued to be positive overall during the third quarter,driven by good investment performance in the US in particular, where 87% of ourclients received returns in excess of their benchmarks on a trailing three yearbasis. Funds under management had grown to £270.4 billion by the end of theperiod. This was particularly gratifying given that it was achieved during aperiod of market volatility caused by the tightening of credit conditions duringAugust. Sales Life APE sales were strong at US Life (primarily as a result of sales fromBermuda) and Old Mutual South Africa (OMSA) performed particularly well in theRetail Life segment. Both our UK and ELAM businesses produced solid results andwe were pleased that Nordic life sales, after a slow start to the year, werehigher in the third quarter than in the equivalent months in 2006. Unit trustsales overall were consistent with 2006 levels with good performance at US AssetManagement and ELAM, but some weakness caused by market conditions in the UK andNordic. On a constant currency basis unit trust sales were up 3%. Total grosspremiums from our increasingly significant Asia Pacific businesses are doublethat of the comparative period. Skandia synergies and developments We have continued to invest to deliver our targeted synergies from Skandiaincluding launching Selestia Investment Solutions, our new integrated investmentplatform in the UK as well as investing in IT in Sweden. During the period, weannounced the rollout of a new Skandia logo clearly identifying it as part ofthe Old Mutual Group by changing the colour to green. In October 2007 welaunched Skandia Investment Group (SIG), a new global investment managementfunction which will be one of the world's largest MultiManager investmentbusinesses. It will manage combined assets of around £60 billion across avariety of MultiManager and open-architecture investment solutions. Value of new business growing Life margins were higher in the US and South Africa, and slightly lower acrossEurope. The value of new business was up 9% in total, and on a constant currencybasis was up 15%. Nedbank and Mutual & Federal Nedbank has progressed well and for the end of the period exceeded itslongstanding 20% return on equity target for 2007. It is continuing to invest inits retail franchise. Impairments are rising, but are within normal tolerances.Mutual & Federal produced better results in the latter part of the period and isseeing the corrective actions implemented now taking effect. Other Matters Our £350 million share buyback programme was announced at the beginning ofOctober 2007 and we have so far repurchased approximately 28.5 million sharesthrough the London and Johannesburg markets at a total sterling equivalent costof £49 million. The Group EEV per share as at 31 October 2007 has been estimated atapproximately 176p. This is based on the Group EEV per share calculated as at 30June 2007 rolled forward to allow for the earnings run rate, foreign exchangemovements and changes in the share price of the listed subsidiaries. UNITED KINGDOM AND OFFSHORE Another good quarter from Skandia UK Our industry-leading open-architecture platform, which enables a wide range ofinvestment choices for IFAs and clients, continued to boost sales and net clientcash flows. New business margins were 10% as a result of the operating leveragedelivered by a 20% increase in life sales over the comparative period (withincreased scale benefits and a shift towards single premium retail pensionbusiness) and a 15% increase in funds under management to £41.5 billion since 31December 2006. During the period we launched Selestia Investment Solutions, thecombination of Old Mutual's Selestia platform and Skandia MultiFUNDs, givingfinancial advisers a single, easy-to-understand market proposition. This is wellpositioned to harness the market's demand for simplicity, flexibility andchoice. Net client cash flows were £3.2 billion for the period, representing 12% ofopening funds under management on an annualised basis. Good inflows, combinedwith favourable market movements during the period, have driven a significantincrease in funds under management since the beginning of the year. In the thirdquarter, however, volatile markets affected investment performance, but this waspartially offset by positive net client cash flows. Skandia UK continued to deliver good new business growth. The first nine monthsof 2007 were characterised by buoyant net client cash flows and ongoingrecognition from our distributors for our award-winning platform. However unittrust sales (excluding institutional investment business) were down against thecomparative period, as a result of uncertainty in markets since the end of thefirst quarter. Institutional mutual fund business was significantly down in theperiod, with no recurrence of the exceptional business volumes experienced inthe third quarter of 2006. Market share increased from 5.0% in the prior year to5.4% on a whole of the market basis. Life sales on an APE basis were £569 million, driven by particularly strong UKsingle premium sales of £430 million and the continued impact of the "A-Day"pension changes. International covered business increased to £205 million duringthe period, benefiting from strong institutional portfolio bond sales into theUK in the first part of the year. A significant tail-off following a tax changein the UK pre-budget statement has been offset by higher regular premiumbusiness in the latter part of the period. The value of new business improved by28% to £59 million against the comparative period due to strong sales growth andmix of business across our core products. Skandia Investment Management Limited's (SIML) risk-controlled products havecontinued to deliver excellent absolute returns, with SIML's Aggressive,Balanced and Cautious funds up 89%, 73% and 46% respectively since launch inFebruary 2003. The Global Property Securities Fund has remained Skandia's bestselling fund throughout 2007. Together with the launch of the Best Ideas funds,including the new UK Strategic Best Ideas Fund in September 2007, this hasdriven improved sales, generating direct subscriptions in excess of £309 millionfor the period. Global Best Ideas Fund has delivered 30% since launch in June2006 and is top decile in the IMA Active Managed Sector. Skandia welcomes the FSA's Retail Distribution Review which provides theindustry with an excellent opportunity to debate the developments taking placein the market and drive forward best practice. Proposals that promote increasedtransparency and place value on financial advice are a positive development andshould be embraced by advisers. We believe consumers will benefit from increasedchoice and clarity of the service they receive and Skandia is well placed tocontinue to build on the rapid growth of its platforms. NORDIC Sales starting to recover in Sweden The negative trend in life sales APE has turned around during the third quarter,with sales on an APE basis up 12% over the third quarter in 2006. The improvedquarter performance in Sweden, up 8%, is due to continued focus on salesactivities (impacting both internal and external sales channels), providing amore attractive investment offering as well as some pricing adjustments.However, life sales on an APE basis for the nine month period were still 5% downon the comparative period as a result of weaker performance in Sweden earlier inthe year. The tax advantages of the Swedish Kapitalpension product were removedfrom 1 February 2007 following a change in regulations. This negatively impactedsales as Kapitalpension products accounted for 10% of sales in 2006. New salesgrowth in Denmark continued strongly, up 30% as a result of a general increasein the Danish life market as well as good performance of the new Skandia Matchproduct. The third quarter of 2007 was the best quarter ever for our Danishbusiness. Life new business margin was 14% compared to 27% for the comparative period. Thedecline can be attributed to a change in arrangements between Skandia andSkandia Liv, negative operating leverage from lower sales, increased competitionin the Swedish market and a changing mix of business as a result of the highmargin Kapitalpension product no longer being sold. Funds under management increased during the period to SEK117.8 billion due tocontinued positive net client cash flows and good fund performance. Negativemarket movements in recent months have slowed down fund growth, but closingfunds under management were still up 10% over 31 December 2006. Funds undermanagement include an adjustment to the opening balance of SEK3.2 billion withSkandiaBanken Norway and pension savings (IPS) in SkandiaBanken Sweden nowincluded. Lending at SkandiaBanken increased to SEK51.3 billion, up 20% on the comparativeperiod, mainly due to strong mortgage lending in Norway and Sweden. The depositsincrease of 12% to SEK50.2 billion related to saving accounts in both Norway andSweden. The number of bank customers in Sweden and Norway has increased 3% overthe past 12 months. SkandiaBanken's savings offering has been strengthened bywidening the fund range and introducing discounted share trading. Our Danish banking operations were divested during the third quarter tostrengthen profitability and to bring focus to the remaining businesses. On 23 October 2007 we announced the sale of SkandiaBanken Bilfinans, the vehiclefinancing business, to DnB NOR. SkandiaBanken Bilfinans provides lending andleasing credits in co-operation with general agents and car dealerships inSweden and Norway. The business today comprises some 115,000 customer contractsand includes an aggregate credit portfolio of approximately SEK13 billion. Thesale is part of SkandiaBanken's focus on being a market-leading direct bank inSweden and Norway. The total consideration of the transaction is SEK2.3 billionand the sale is expected to be complete in early 2008. Completion of the deal issubject to regulatory approvals in Sweden and Norway. In the first half of theyear, the profits on this business were SEK63.2 million. We have continued to focus on improving operational efficiency and aggressivemarketing activities in the Nordic business. The investment programme hasreduced adjusted operating profit for the period and this is expected tocontinue during the fourth quarter in line with previous market guidance. Theimprovement of our unit-linked product offering is underway and will be launchedtowards the end of 2007. Furthermore SkandiaBanken's savings offering has beenstrengthened by widening the fund range. EUROPE AND LATIN AMERICA (ELAM) Solid sales In ELAM, strong performance in Central European markets, particularly in Polandwhere our positioning continues to be strong in a fast growing market waspartially offset by lower sales in Southern Europe, most notably in Italy.Regular premium sales for the period were 17% ahead of the comparative period onan APE basis, while single premium sales were 7% ahead. Overall, life sales of€204 million on an APE basis are up 12% over the comparative period. Mutual fund sales of €1,988 million were up 26% over the comparative period withstrong contributions from our discretionary asset manager, Skandia Global Funds(particularly in Latin America and Taiwan) and our Latin American pensionsbusiness (particularly in Mexico and Colombia). Average margins on mutual fundbusiness improved as funds placed in the low margin institutional assetmanagement business in Spain have been replaced by funds in the higher margindiscretionary asset management businesses. This led to an improved adjustedoperating result for the mutual fund portion of the business. Net client cash flows of €1.2 billion for the period were 15% of opening fundsunder management on an annualised basis. Market movements for ELAM were positivefor the first six months of the year but experienced a downturn during July andAugust in line with markets across the world. By the end of the third quarter,markets had staged a partial recovery and, together with further net fundinflows of €0.4 billion, funds under management were broadly flat compared tothe start of the third quarter. As reported at the 2007 interim results, the Italian business has beenexperiencing higher surrender activity. This results from products sold fiveyears ago that are now approaching the end of the surrender penalty period. Wehave reassessed and updated the surrender assumptions in Italy and externalacquisition costs will now be amortised over a shorter timeframe. The financialadvisory market in Italy, our predominant distribution channel, continues to seeconsolidation and strategic stake building. VNB of €35 million for the period was flat against the comparative period. Thisis due to a higher contribution from less developed markets being offset by anincreased investment in sales resource in Europe. The latter creates a time lagfactor with sales volume expected to increase in later periods. Poland continues to grow strongly and is now a significant contributor to bothnew sales and ELAM's overall result. This reflects the efforts put into thisbusiness over recent years, with particular emphasis on growing distribution. Wecontinue to grow market share in France. Sales on an APE basis were flat in thefirst half due to a strong tax-driven market in the first half of 2006, but wesaw new business sales grow strongly in the third quarter. This was partly dueto our sales segmentation project and further investment in e-tools fordistributors. We made a significant investment in distribution in our LatinAmerican and European markets during the period, and this sees us well placed tocapture the growth in those markets. SOUTH AFRICA - LIFE AND ASSET MANAGEMENT Continued retail sales performance Sales through our growing retail distribution channels in South Africa werestrong and we launched a number of new funds into the institutional market fromour investment boutiques. This structure is progressing well and we are verypleased at our overall investment performance. It will take time for the marketto appreciate fully the benefits of this model, but the innovation emerging fromour asset management boutiques in the form of new offerings is beginning toattract new flows. Our stated intention to migrate from Traditional to New Era products in the lifebusiness has continued and the returns on the shareholders' funds backing thebusiness's capital requirements have been excellent. Funds under management, at R476.2 billion, grew by 5% relative to the positionat 31 December 2006. Good investment returns were partially offset by negativenet client cash flows which were a negative R11.5 billion compared to R1.6billion net inflow in the comparative period. This was mainly because ofsignificant net outflows from institutional clients, notably from twomulti-managers. Life sales on an APE basis of R3,362 million continue to be strong, up 15% onthe comparative period. This performance was driven mainly by the productivityof our direct sales force and the expansion of the numbers of sales people inour Mass Market business. Recurring premium sales grew strongly with relativelymoderate single premium sales performance. Unit trust sales were down 6% with caution among multi-managers over portfoliomanager changes and short-term investment performance on certain core funds (Dynamic Floor and Enhanced Income funds). The new Stable Growth Fund, analternative to the Dynamic Floor Fund, was launched in July 2007 and has hadgood early sales. We have also seen a switch to platforms that receive feerebates from underlying unit trust funds, and these platforms tend to driveflows to related asset managers rather than independent asset managers. The value of new business was R527 million for the period, 24% up on R425million for the comparative period with improved margins. This was primarilydriven by a higher proportion of risk business and good expense management inthe Mass Affluent segment, leading to lower distribution costs. Mass Market Retail Mass sales were up 25% on the equivalent period in 2006, continuing thestrong rate of growth seen in 2006. The result reflects the continued focus ongrowing the sales force, which at 30 September 2007 was 14% higher than at thebeginning of the year. Sales force productivity has remained sound, despite theeffects of the protracted public servants strike, which impacted a key customerbase. Sales through the broker channel were nearly double (up 97%) thoseachieved in the comparative period. The value of new business was 14% higher than for the comparative period, withthe new business APE margin lower (28% versus 31% for the comparative period),reflecting the higher proportion of lower margin savings business sold duringthe period. We have responded by implementing changes to adviser remunerationand increasing minimum premiums for savings business to change the mix backtowards risk business. These measures, implemented in August 2007, are beginningto take effect. We have designed new savings products to be launched in 2008 (tocoincide with the new commission regime), with a focus on giving better value toclients and acceptable returns. Retail Affluent Total Retail Affluent life sales were 11% higher, but unit trust sales weresomewhat lower than the comparative period. Disappointing performance in 2006 insome of our funds and concerns over several investment staff losses led to asignificant slow down in unit trust sales, particularly from multi-managers.This has impacted net client cash flows, which were negative R1.9 billion. Life recurring premium sales were 18% higher, driven by continued good riskbusiness, leveraged from enhancements to our Greenlight risk product range andgood credit life sales, reflecting the extension of personal credit throughNedbank. Recurring premium Max Investment savings business (both life andnon-life wrappers) performed well, with significant growth of the non-liferecurring option but from a relatively low base. Single premium investment sales were relatively flat as a result of residualconcerns over the investment business restructuring and significant reductionsin competitors' fees which attracted flows at lower margins. These effects wereoffset by improved investment performance, the new Absolute Return fund launchand enhancements to the fixed bond rates of the life product. Single premiumsales of the offshore investment product through Old Mutual International continued to accelerate and were 49% up on the comparative period. Life VNB at R285 million was 82% higher than the comparative period, with thenew business APE margin improving from 9% in the comparative period to 15%. Thiswas as a result of an increased proportion of higher margin risk business beingsold, as well as good expense management and the improvement brought about bydistribution expenses being spread over higher recurring premium volumes, andimproved efficiency in the distribution channels. Bancassurance sales through Nedbank continued to grow and were up 25% on thecomparative period. The launch of a new, low cost, simple savings productthrough Nedbank branches was very well received. Credit life sales slowedfollowing the introduction of the National Credit Act, but were offset by thenew savings and risk product flows. Corporate There is a strong focus on activities to improve future flows. The emphasis onbuilding strong relationships with corporate clients through the key accountmanagement process continues and an increased emphasis on managing therelationship with investment consultants has been implemented. Corporate life sales were slightly higher driven by strong risk sales,particularly in the third quarter. Single premium sales were lower and wereaffected by the timing of deals. The life new business margin (post-tax) reduced as a result of the change in mixand, in particular, the relatively lower with-profit annuity sales and higherSymmetry (multimanager) volumes. There was also a reduction in with-profitannuity margins during the period. Net client cash flows in the Corporate marketwere better than the comparative period as a result of significantly better thanexpected termination experience. We have had R0.9 billion in terminations duringthe period versus R6.2 billion in the comparative period, which included R4.6billion Guaranteed Income Contracts (GICs). The smoothed bonus products havedeclared high bonuses which has encouraged retention as has the increased focuson managing the relationship with long-standing clients. Old Mutual Investment Group South Africa (OMIGSA) The implementation of the boutique structure in OMIGSA is on track. Appointmentshave been made for all roles where staff losses were incurred after the launchof this structure at the beginning of the year. The focus is now on stabilisingthe structure and increasing investors' confidence in individual boutiqueinvestment philosophies. OMIGSA investment performance continues to be satisfactory. Overall, 78% and 68%of funds outperformed their benchmarks over one and three years respectively to30 September 2007. For the peer cogniscent institutional funds, 91% and 45% ofmandates were above the industry mean over one and three years. 79% and 71% ofinstitutional mandates outperformed their benchmarks over these same periods.The Macro Strategy Investments boutique's Profile Balanced Fund was rankedsecond over one year, fourth over three years and third over five years ended 30September 2007 in the Alexander Forbes Large Manager Watch (global) survey. 83% of the thirteen unit trust funds, representing 44% of unit trust assets,were first and second quartile performers over one year, 82% over three yearsand 88% over five years ended 30 September 2007. 98% of the life fundsoutperformed their benchmarks over one year and three years ended 30 September2007 demonstrating consistent performance on these assets. During the period, Marriot Income Specialists' launched the MarriotInternational Income Growth Fund, OMIGSA Property launched Triangle, an industrydefining direct property fund and Umbono Fund Managers launched the RAFI 40Index Fund. BANKING - NEDBANK GROUP (NEDBANK) On track to deliver 2007 targets The full text of Nedbank's trading update for the nine months ended 30 September2007, released on 8 November 2007, can be accessed on Nedbank's website, http//www.nedbankgroup.co.za Nedbank showed continued positive momentum into the third quarter in anenvironment where South African banks remained largely unaffected by thevolatility and risk aversion that have characterised international financialmarkets since the start of the US sub-prime crisis. Growth in Nedbank'swholesale businesses remains good, with retail earnings growth slowing as thissector feels the impact of increasing interest rates, rising householdindebtedness and ongoing pressure on margins, particularly in the home loansarea. Nedbank Capital's earnings improved in the third quarter after adisappointing first half. Headline earnings increased by 31% to R4,211 million for the period from R3,216million for the comparative period, with headline earnings per share increasingby 32% to 1,059 cents for the period from 801 cents for the comparative period.Diluted headline earnings per share increased by 31% to 1,021 cents from 782cents in the comparative period. Attributable income grew by 25% to R4,248million from R3,394 million in the comparative period. Nedbank achieved a return on average ordinary shareholders' equity of 21.2%, animprovement from the 18.6% reported for the comparative period, and ahead of the2007 target of 20% set during 2004. Net interest income grew 30% from R7,928million to R10,288 million for the period, underpinned by a 31% growth inaverage interest-earning banking assets over the comparative period. The margin for the period was 3.94%, down from 3.96% for the comparative period,but up from the 3.90% for the period to 30 June 2007. Similar to trends reportedat the 2007 interim results, the margin reflects ongoing competition for assetsand pressure on deposit pricing as the sector has had to source a higherproportion of funding from the wholesale deposit market, offset by the endowmentbenefits of interest rate increases. The impairments charge rose by 56% to R1,646 million from R1,055 million for thecomparative period. In line with expectations, the credit loss ratio increasedmarginally from 0.63% for the period to 30 June 2007 to 0.64% for the full ninemonths. This increase reflects higher impairment levels for Nedbank Retail andImperial Bank, while the credit loss ratios in Nedbank Capital and NedbankCorporate are below normalised levels and have continued to benefit from furtherrecoveries, which are unlikely to be sustained into the future. Non Interest Revenue (NIR) grew by 13% to R7,518 million for the period fromR6,660 million for the comparative period with commission and fee income 16%higher, benefiting from good transactional banking and bancassurance volumes. Asreported at the 2007 interim results, NIR growth was adversely affected bydisappointing trading income in Nedbank Capital. Trading income for the periodamounted to R878 million, down from R1,111 million in the comparative period(Nedbank experienced record trading in the first quarter of 2006). Expenses increased by 16% to R9,714 million over the comparative period ofR8,369 million, driven mainly by a 18% growth in staff expenses as additionalemployees were appointed in the client-facing and collections areas and anincrease in marketing spend of 21%. The 'jaws' ratio remained positive, with total revenue growth of 22% being 6%above expense growth of 16%, resulting in an improvement of the cost-to-incomeratio from 57.4% for the comparative period to 54.6%. With the majority of Nedbank's non-core asset disposal programme completed,income after taxation from non-trading and capital items declined from R178million in the comparative period to R37 million. Total assets at R490 billion are an annualised 21% higher than at 31 December 2006. Advances increased by R56 billion (25% annualised) and average interest-earning banking assets increased by an annualised 31%. As a result of the total 300 basis points (six consecutive quarters of 50 basispoints) increase in interest rates prior to 30 September 2007, consumer assetgrowth has started to slow. Following the further 50 basis points increase inOctober 2007 the bank anticipates a continued slowing of asset growth and anincrease in impairment charges, more specifically for Retail advances. WhileBusiness Banking conditions remain robust, it is anticipated that the interestrate increases will slow advances growth in the small and medium businesssectors, which are also likely to start seeing increases in impairments levels.However conditions remain favourable for the corporate banking environment as aresult of substantial infrastructure spend by both the private and publicsectors. Nedbank remains well positioned for the transition to Basel II on 1 January2008. Nedbank Retail's strategy to expand its retail footprint across South Africaremains a key focus and Nedbank has invested a further R44 million since June2007. This includes opening an additional 23 outlets and upgrading andincreasing its ATM network from 1,361 in June to 1,465 ATMs in September 2007. On 25 October 2007, the Nedbank Group announced that Nedbank Limited (Nedbank)would acquire Old Mutual's 50% interest in Old Mutual Bank, which operates as adivision of Nedbank. The current joint venture arrangement will be replaced by abroader group strategy whereby Nedbank will acquire Old Mutual's share of thejoint venture, but will continue to offer intermediary and broker-friendlyproducts through its own branch network. This will enable some branchrationalisation and a broader distribution network for these products. GENERAL INSURANCE - MUTUAL & FEDERAL Solid performance The full text of Mutual & Federal's trading update for the nine months ended 30September 2007, released on 8 November 2007, can be accessed on Mutual &Federal's website, http//www.mf.co.za Mutual & Federal maintained positive results despite ongoing high levels ofcompetition in the insurance market and has been successful in increasingpremiums in an attempt to return all portfolios to satisfactory levels ofprofit. The underwriting results for the period were significantly influenced by a sharpincrease in the frequency and severity of industrial and commercial fire claimsin the second quarter, whilst the motor account continued to be negativelyimpacted by continued high levels of accidents and escalating repair costs. Gross premiums grew by 9% during the period benefiting from rate increases,underwriting interventions and the cancellation of unprofitable blocks ofbusiness. Mutual & Federal generated an underwriting surplus of R298 million, up 25% fromthe surplus of R238 million in the comparative period. The combined ratio (theratio of claims, commissions and expenses to net earned premiums) decreased to94.9% (95.6% in the comparative period), mainly as a result of a reduction inthe claims ratio (excluding Risk Finance business) from 64.0% to 63.5%. Thisreduction includes the release of R72 million (R62 million in the comparativeperiod) from technical reserves following further refinements of estimationmethods. Whilst the trading environment remains extremely competitive,management are confident that the various corrective measures will lead to ageneral improvement in underwriting results. The solvency ratio has increased from 44% to 49% following strong growth in thevalue of listed equities in the period. Following the resignation of Bruce Campbell, from 16 August 2007 Keith Kennedy,previously Executive General Manager: Business Services, has been appointedManaging Director. US LIFE Continuing strong offshore variable annuity sales add to diversity of earnings Excellent sales through Old Mutual Bermuda, our offshore variable annuitybusiness unit, represented 51% of APE sales in the US Life business. With strongdemand for fixed indexed annuities also being felt, we were able to produce (onan APE basis), sales of $473 million, a 43% increase over the comparativeperiod. We now have a diverse mix of product offerings, including variable annuities,fixed indexed annuities, term life and universal life. Offshore sales throughOld Mutual Bermuda increased by 187% to $239 million (APE) versus thecomparative period. The increase in sales is due to a new product launch inApril 2007 as well as new distribution agreements in Asia. Bermuda nowrepresents 21% of our total funds under management. Universal Life (UL) salesare up over the comparative period by 36% as part of a shift from a term-focuseddistribution to a unit-linked-focused distribution. Funds under management of $23.3 billion at 30 September 2007 were up 5% from 31December 2006 primarily due to strong sales, which were partially offset bysurrenders on the Multi-Year Guaranteed Annuities block of business. The new business margin of 22.0% was above our longer-term expectationsprimarily driven by the volume of variable annuity business. The overallbusiness continues to benefit from good investment performance, wider stylecapabilities and enhanced distribution. Our coordinated retail distributionstrategy has made good progress. Old Mutual has very limited direct exposure to sub-prime debt and this helped itweather the market turbulence during August. Profits from the US Life businessare in line with our expectations, with better than expected sales and marginsbeing offset by increased hedging costs, reflecting increased market volatility. The business remains on track to return cash in 2007. Our overall US advertising strategy was launched at the intermediary level andwas built on our theme of innovation. Our proposition, "The thinking is new, thename is Old Mutual", has resonated in the marketplace. Later this year we willlaunch our consumer campaign with a focus on making Old Mutual a recognised namein the US financial services marketplace. US ASSET MANAGEMENT Continued growth in assets through strong cash flow and leading investmentperformance Our US asset management business continues to deliver excellent net client cashflows, attracting $26 billion in the period, driven in particular by strongflows at Analytic, Acadian, Dwight and Rogge. Cash flows, positive markets andinvestment performance, and the acquisition of Ashfield Capital Partners inFebruary enabled us to grow our funds under management from $272.6 billion at 31December 2006 to $330.2 billion at 30 September 2007. We are also seeing adiversification of our client base, with a significant proportion of our netcash flows coming from investors outside the US. Net client cash flow reflects the strong long term investment performance of ouraffiliates. At 30 September 2007, 87% of assets had outperformed theirbenchmarks over three years. 88% of assets were ranked above the median of theirpeer group over the comparative period. Our retail initiative is making progress, with Old Mutual Capital's mutual fundsales increasing 24% to $1,175 million from the comparative period. OMAM (UK)unit trust sales increased 54% to $1,949 million from the comparative period($1,263 million), benefiting from our investment made during 2006 to enhance theproduct offering and distribution capabilities of the business. In the thirdquarter, three of the Asset Allocation funds managed by our affiliates markedtheir three-year anniversaries and were awarded four and five star rankings byMorningstar. We have also recently gained regulatory approval to restructure ourAsset Allocation funds into a "Fund of Funds" structure enhancing ourflexibility as well as helping to achieve scale in many of our single strategyfunds. OMAM has been a pioneer in the market for 130/30 and similar strategies, whichseek to further enhance the alpha our affiliates produce. This is fast-growingarea for institutional and retail investors, and these products typicallycommand higher fees. Five of our affiliates (Acadian Asset Management, AnalyticInvestors, Thompson, Siegel & Walmsley, Thomson, Horstmann & Bryant, and DwightAsset Management Company) manage assets in this market. Acadian and Analytic inparticular have established excellent five-year track records. OTHER Australia Operations in Skandia Group Australia include retail mutual funds andinstitutional investment funds. After breaking even for the first time in 2006,the business continues to be profitable. At 30 September 2007, funds undermanagement were AUD15.0 billion (£6.6 billion) up 6% from AUD14.2 billion (£5.8billion) at 31 December 2006. This was made up of institutional funds of AUD9.1billion and retail funds of AUD5.9 billion. Integration of the institutionalbusiness, acquired late 2006, is now substantially complete and on track togenerate the expected synergies. China Skandia:BSAM, our 50:50 joint venture with the Beijing State-owned AssetManagement Company (BSAM), is now in its third full year of operation andcontinues to show strong sales growth. The business sells unit-linked productsand has licences to operate in Beijing, Shanghai and Jiangsu Province (Nanjing).We now have approval to open a branch in Guangdong Province and we hope to opensub-branches in Wuxi and Nantong in Jiangsu Province, before the end of 2007.Despite its recent entry into the market, of the 24 foreign owned joint ventureinsurance companies in China, Skandia:BSAM had the eighth largest gross premiumflows (up 2 places compared to 2006). Gross premium income for the periodtotalled RMB1.6 billion (£103 million), an increase of 329% over the comparativeperiod and almost triple Gross Premium Income for 2006. India Kotak Mahindra Old Mutual Life Insurance Ltd (KMOM), our joint venture with theKotak Mahindra Group, in which we have a 26% stake, continues to show steadyprogress. The business now operates in 55 cities and 85 locations across India.Gross premiums for the six months (since its 31 March year end) were INR3.6billion (£44 million) against INR2.3 billion (£28 million) for the comparativeperiod. In September we agreed to boost the venture with a capital injection ofINR1.5 billion (approximately £19 million) in order to extend its office networkto 150 locations and increase its workforce by 35% by its year end. Jim SutcliffeChief Executive 8 November 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Old Mutual PLC