14th Sep 2006 07:02
Old Mutual PLC14 September 2006 OLD MUTUAL PLCISIN: GB0007389926JSE Share code: OMLNSX share code: OLMIssuer code: OLOML Results for the six months ended 30 June 2006 Results on track, with increasingly diversified earnings Highlights * Adjusted operating profit* up 36% to £771 million (30 (IFRS** basis): June 2005: £566 million****) and up 32% to R8,714 million (30 June 2005: R6,584 million) * Adjusted operating profit (European up 39% to £885 million embedded value (EEV) basis): (30 June 2005: £638 million) and up 35% to R10,001 million (30 June 2005: R7,420 million) * Profit for the period £380 million attributable to (30 June 2005: £387 million) equity holders: R4,295 million (30 June 2005: R4,509 million) * Adjusted operating earnings per down 2% to 8.5p (30 June 2005: 8.7p) andshare* (IFRS basis): down 5% to 96.0c (30 June 2005: 100.7c) * Adjusted operating earnings per down 3% to 9.8p (30 June 2005: 10.1p) share (EEV basis): and down 5% to 111.4c (30 June 2005: 117.7c) * Basic earnings per share: 8.0p (30 June 2005: 11.2p), 90.2c (30 June 2005: 130.2c) * Total life assurance sales, on an Annual Premium Equivalent (APE) basis, of£732 million, an increase of 130% * Funds under management £218 billion (30 June 2005: £158 billion) an increase of 38%, R2,891 billion (30 June 2005: R1,896 billion) * Adjusted embedded value per share 143.2p, R18.95 at 30 June 2006 (30 June 2005:135.9p, R16.25) (EEV basis) * Return on equity 14.1% (30 June 2005: 19.0%) * Interim dividend increased by 13.5% to 2.1p (27.8 cents***) Commenting on the results, Jim Sutcliffe, Chief Executive, said:"It has been a good first half with encouraging growth across our business andwe've been able to declare a significant increase in the dividend. Skandia'sresults are ahead of our expectations and the integration is progressing well.Currency movements always affect our results, but Old Mutual is now asignificantly bigger and more diverse organisation than in the past and we arewell placed in some very attractive markets". Wherever the items asterisked in the Highlights are used, whether in theHighlights, the Chief Executive's Statement or the Group Finance Director'sReview, the definitions set out on page 2 apply. ENQUIRIES: Old Mutual plc UK Media:Miranda Bellord (UK) Tel: +44 (0) 20 7002 7133Nad Pillay (SA) Tel: +27 (0) 21 504 8026Investors:Malcolm Bell (UK) Tel: +44 (0) 20 7002 7166Deward Serfontein (SA) Tel: +27 (0) 21 509 8709College Hill (UK)Tony Friend Tel: +44 (0) 20 7457 2020Gareth David Notes to Editors: A webcast of the analysts presentation and Q&A will be broadcast live at 9.30a.m. (UK time), 10.30 a.m.(South African and Swedish time), today on ourwebsite, www.oldmutual.com. High-resolution images of Jim Sutcliffe areavailable at www.oldmutual.com/vpage.jsp?page_id=7004. Copies of theseresults and the associated analysts presentation, together with photographs andbiographical details of the executive directors of Old Mutual plc, areavailable in electronic format to download from the Company's website. (Aninterview with Jim Sutcliffe, Chief Executive, Old Mutual in video/audio andtext is now available on the Company's website and on http://www.cantos.com). The full 2006 interim results release, together with the Financial DisclosureSupplement, can be found on the website at www.oldmutual.com. This documentcontains a summary of key financial data for 2006 and 2005. Forward-looking statements This announcement contains certain forward-looking statements with respect tothe financial condition and results of operations of Old Mutual plc and itsgroup companies, which by their nature involve risk and uncertainty becausethey relate to events and depend on circumstances that may occur in the future.Factors that could cause actual results to differ materially from those in theforward-looking statements include, but are not limited to, global, nationaland regional economic conditions, levels of securities markets, interest rates,credit or other risks of lending and investment activities, and competitive andregulatory factors. 14 September 2006 * For long-term assurance and general insurance business, adjusted operating profit is based on a long-term investment return, includes investment returns on life funds' investments in Group equity and debt instruments and is stated net of income tax attributable to policyholder returns. For all businesses, adjusted operating profit excludes goodwill impairment, the impact of acquisition accounting, initial costs of Black Economic Empowerment schemes, profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments and dividends declared to holders of perpetual preferred callable securities. Adjusted operating earnings per ordinary share is calculated on the same basis as adjusted operating profit, but is stated after tax and minority interests and excludes income attributable to Black Economic Empowerment Trusts. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment Trusts. ** The financial information has been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards as set out in the basis of preparation note on page 39 of the document appearing on Old Mutual's website. *** Indicative only, being the Rand equivalent of 2.1p converted at the exchange rate prevailing on 30 June 2006. The actual amount to be paid by way of interim dividend to holders of shares on the South African branch register will be calculated by reference to the exchange rate prevailing at the close of business on 5 October 2006, as determined by the Company, and will be announced on 6 October 2006. **** The 2005 comparative financial information does not include Skandia, 2006 includes 5 months from 1 February 2006. Chief Executive's Statement The first half of 2006 has been a period of strong growth for the Old MutualGroup. Our clients around the world entrusted us with significantly more moneyto manage on their behalf, while underlying growth in both funds undermanagement, up 19%, and adjusted operating profit, up 36%, was encouraging. We have increased the interim dividend by 13.5% to 2.1p, or an indicative 27.8c at the period-end exchange rate for Rand shareholders. We are pleased with the progress at Skandia under Julian Roberts' managementsince he became CEO in February. Skandia has exceeded our expectations and thisimportant acquisition has transformed both the geographic and business profileof Old Mutual. We expect funds under management in this business to doublewithin the next five years and Skandia, which is also generating sufficientcash to fund its own growth, is expected to provide a significant enhancementin EEV earnings from 2007 onwards. The synergies of £70 million, highlighted atthe time of acquisition, have also been confirmed and are on track for full delivery from 2008. We believe there are significant opportunities to leverage Skandia's skill set to maximise growth. South Africa In South Africa, our businesses have continued to make good progress, withindividual life sales well ahead at Old Mutual Life Assurance Company and astrong increase in profits at Nedbank. Unit trust sales have also continued togrow substantially. Healthcare sales disappointed and impacted an otherwiseencouraging picture. A clear strategy to address this has been initiated byPaul Hanratty, who became Chief Executive of OMSA in July. We have alsoannounced plans to build on the success of Old Mutual Asset Managers (SouthAfrica) by establishing within it a number of investment boutiques that will beable to offer specialised investment management services. Return on Equity(RoE) of 23% and cash generation by this business were both excellent andReturn on Embedded Value (RoEV) of 13% was in line with expectations. Bancassurance has continued to grow, with a 21% increase in sales at Nedbankover the equivalent period in 2005, and we are making progress with our plansto extract synergies through the life business working more closely with itssister businesses in South Africa. Our general insurer, Mutual & Federal, hasmaintained underwriting disciplines during a period of increased competitionand reduced underwriting margins, and has again underlined its sound financialfooting by announcing a significant return of excess capital to shareholdersthrough a special dividend. Nedbank continues to deliver improved financialresults, with performance for the period reflecting the benefits of anincreasing focus on client service and organic growth, coupled with theoperating efficiencies achieved over the last two years. Adjusted operatingprofit rose by 54% in the first half and the group remains on track to deliver20% RoE in 2007. United States In the US, overall net client cash flow remained strongly positive at our assetmanagement business. Underlying funds under management also grew despite alacklustre market performance. Excluding the effects of the disposal of the lowmargin eSecLending business, underlying funds under management grew by 10%. Ourretail sales initiative, OMCAP, continued to make progress, with an increase of473% in sales compared to the equivalent period in 2005. US Life had a satisfactory half year. We are continuing to aim for total salesof around $4 billion for the year, with a view to managing the business'scapital requirements and fulfilling our stated goal of US Life returningcash from 2007. Continued growth in variable annuity sales out of ouroperation in Bermuda were particularly strong, and are running at a rate ofabout $100 million per month ten times the rate of sale when we bought thebusiness in 2003. Profit increased 11% as a result of underlying asset growth,although embedded value profit was affected by lower value of new businessand operating assumption changes. During the half, we announced that Scott Powers, previously CEO of the US assetmanagement business, would take charge of the whole of our US operations. Weanticipate that benefits will emerge as our businesses there work more closelytogether in the future to address the changing demands of the baby- boomergeneration. Europe In the UK, sales grew at Skandia by 16% against the favourable background ofA-day and strong mutual fund inflows. Progress is being made to restructure theUK business to deliver improved efficiencies. This includes the integration ofSelestia and Skandia MultiFUNDS, which is proceeding well. In Sweden, sales were flat, but our net cash flow was positive and we werepleased with the loyalty shown to Skandia by both customers and staff despitethe distractions of the prolonged bid process.The adjusted operating profit result came through strongly, reaching SEK572 million before tax, and embeddedvalue profit was SEK755 million before tax. In the European and Latin American (ELAM) business unit, strong growth in salesand market share was achieved in a number of countries, especially in unittrust lines. We continue to see plenty of opportunities for expansion inexisting operations and new markets. It was also pleasing to see the businessstart to generate cash. Other Our other businesses also had a good half, with continued growth in sales,profit and funds under management. Old Mutual Asset Managers (UK) hasmaintained its profile as a very capable unit trust and hedge fund managerdespite the less favourable conditions for hedge funds during the period. Our26%-owned Indian life associate has achieved significant sales growth and nowhas over 4,000 sales agents. Our Chinese joint venture, which operates out ofoffices in Shanghai and Beijing, continued its rapid growth. Total sales in India and China now approach 8% of our total life sales and will soon rival some of our more established businesses. In Australia, we also produced continued growth in sales, profit and market share. Outlook We are developing our strategy to take the Group forward as the integrationphase of Skandia moves onto business as usual. We have a powerful set ofengines with plenty of opportunities to grow organically through our mature,cash-generative franchises in southern Africa and Sweden, our comprehensivesuite of asset management and life product skills in the USA, and our strongand expanding presence in the UK and Europe, as well as the new businesses we have established in the Asia Pacific region. We see excellent opportunities to build further on our position as a leading international provider of innovative, client-focused, open architecture financial services products. Our businesses are in good shape and are well positioned to take on current andfuture challenges. We expect the progress seen in the first half to continue asour businesses mature and we remain on track for the full year. Jim SutcliffeChief Executive 14 September 2006 Group Finance Director's ReviewBusiness Review Old Mutual continued to grow strongly during the first half of 2006 with goodnet cash flow from clients in all our major businesses, including our newlyacquired European business units. Despite the issuance of new shares as part ofthe acquisition of Skandia, the earnings per share dilution was small, andReturn on Equity remained well above our cost of capital. Funds undermanagement, the key driver of our revenue, have grown significantly since yearend, with the positive impact of net client cash flow and generally highermarket levels being offset by currency movements and the sale of eSecLendingin May. New Business APE including Skandia on a pro forma basis was up 8% overall,reflecting good progress in all our markets in the first half, with stronggrowth in our Skandia businesses offsetting a managed rationalisation of salesat US Life and more modest growth at OMSA as the shift towards openarchitecture and unit trust sales continues. Nearly 60% of our life sales arenow in Europe. Unit trust and mutual fund sales showed rapid growth of 70%including Skandia on a pro forma basis. Embedded value per share reduced primarily because of foreign exchange impacts,the use of higher discount rates to reflect increases in interest rates in manycountries and the purchase of Skandia, where we were happy to accept somereduction in embedded value per share in exchange for the benefit of furtherdiversifying the risk profile of the Group and the enhanced growth prospects.The return on embedded value was a creditable 13.8%. The value of new businessat £111 million roughly doubled the figure delivered in the equivalent period last year despite the increase in discount rate. Strong profit results as Skandia exceeds expectations We have benefited significantly from the earnings arising from the acquisitionof Skandia, steady progress in the USA and the continuing recovery at Nedbank,with adjusted operating profit before tax increasing by 36% from £566 millionfor the first six months of 2005 to £771 million for the first half of 2006,and adjusted operating earnings per share down 2% to 8.5p despite the issueof additional shares for the purchase of Skandia. The Group's adjusted operating profit on a European Embedded Value (EEV) basiswas £885 million for the first six months of 2006, which is a 39% increase on2005, primarily reflecting the significant contribution from Skandia as aresult of strong new business growth and the increased profit from thenon-covered business in Nedbank and the asset management businesses. The strongresults meant that the adjusted embedded value operating profit per share wasonly slightly down from 10.1 to 9.8p. Group profit attributable to equity holders for the half year 2006 of £380million leads to basic earnings per share of 8.0p. Basic earnings per sharewere affected by the dilutive impact of the requirement to amortise theintangible assets acquired, the additional shares now in issue as a resultof the acquisition of Skandia and the lower overall short-term fluctuations ininvestment returns. Adjusted Group embedded value per share Adjusted embedded value (adjusted for own shares held in policyholders' fundsand to bring listed Group subsidiaries to market value) was £7.9 billion,resulting in an adjusted embedded value per share of 143.2p at 30 June 2006.The significant underlying operating earnings have pushed the number upwards,and our experience and investment variances have in total been positive.Despite the strength of the South African stock market, foreign exchangeimpacts and the increase in interest rates and hence discount rates over theperiod have had a negative impact on the embedded value. Moreover the highgrowth nature of Skandia meant that the acquisition was completed at a price inexcess of embedded value. Accordingly, the embedded value per share was dilutedby approximately 19p at the time of acquisition. Strong net client cash flows and equity markets drive underlying funds growth Funds under management of £218 billion at 30 June 2006, up 19% from £183billion (excluding Skandia) at 31 December 2005, includes favourable net cashinflows of £9 billion (excluding. eSecLending) for the six months to 30 June 2006. The impact of firm equity markets across all our geographies was partially muted by currency impacts, particularly in South Africa. Funds under management at our US businesses, while benefiting from strong net cash flows, positive equity markets and strong investment performance, are shown net of a reduction of $25.4 billion in client assets during the first half as a result of the sale of eSecLending by US Asset Management during the second quarter of 2006. Taxation The Group's effective tax rate* for the period ended 30 June 2006 of 29%increased from 24% for the corresponding period in 2005. The net effective ratein 2006 has increased because of a decrease in lower taxed investment incomeearned in South Africa as a proportion of profits. This is due to a decrease inOMSA's profits as a result of the increase in the investment return adjustmentfor Group equity and debt instruments held in life funds and an increase inNedbank's profits, much of which is taxed at the South African statutory taxrate of 29%. These effects have been partly offset by untaxed profit on thedisposal of subsidiaries. The 2005 effective tax rate also benefited fromrecognition of a previously unrecognised deferred tax asset, without which the2005 effective tax rate would have been 27%. * Based on the tax charge excluding income tax attributable to policyholder returns as a proportion of profit before tax but after income tax attributable to policyholder returns. Capital Highlights H1 2006 FY 2005Senior debt gearing** 8.8% 5.2%Total gearing 25.4% 14.7% The Group's gearing level remains comfortably within our target range, withsenior debt gearing at 30 June 2006 of 8.8% (5.2% at 31 December 2005) andtotal gearing, including hybrid capital, of 25.4% (14.7% at 31 December2005)*** reflecting the impact of funding the acquisition of Skandia. The Group's economic capital programme is now moving to its implementationstage, with internal models being used to measure risk-adjusted returns withinour businesses. Our position on an economic basis continues to be very strong,with available financial resources significantly in excess of the economiccapital the Group believes would be required to support its target creditrating. The Group remains in compliance with the Financial Groups Directive (FGD)capital requirements, which apply to all EU-based financial conglomerates, witha surplus of £1 billion at 30 June 2006. ** Senior debt gearing is defined as senior debt over senior debt plus adjusted embedded value. Senior debt excludes debt from banking activities and is net of cash and short-term investments that are immediately available to repay debt and derivative assets relating to swaps associated with senior debt, so as to reflect debt valued on effective currency and interest rate positions. Total gearing is similarly based, but includes hybrid capital instruments within debt. *** Hybrid capital excludes hybrid debt from banking activities and includes $750 million of Guaranteed Cumulative Perpetual Preferred Securities issued during 2003 that are reported as part of minority interests in the financial statements, £350 million of Perpetual Preferred Callable Securities issued in March 2005 and EUR500 million of Perpetual Preferred Callable Securities issued in November 2005 which are both reported as part of equity shareholders' funds, the £300 million of 10 Year Non-Call 5 Year Preferred Callable Securities issued in January 2006 and R3 billion unsecured substantial callable notes issued by OMSA. Dividend The Directors of Old Mutual plc have declared an interim dividend of 2.1p pershare* for the six months ended 30 June 2006, to be paid on 30 November 2006,representing an increase in dividend per share of 13.5% over the 2005 interimdividend and 20% over the 2004 interim dividend, reflecting the Group's good IFRS earnings. Richard HoskinsActing Group Finance Director14 September 2006 * The record date for this dividend payment is the close of business on 20 October 2006 for all the Exchanges where the Company's shares are listed. The last day to trade cum-dividend on the JSE, and on the Namibian, Zimbabwe and Malawi Stock Exchanges will be 13 October 2006 and on the London and Stockholm Stock Exchanges 17 October 2006. The shares will trade ex-dividend from the opening of business on 16 October 2006 on the JSE, and on the Namibian, Zimbabwe and Malawi Stock Exchanges, and from the opening of business on 18 October 2006 on the London and Stockholm Stock Exchanges. Shareholders on the South African, Zimbabwe and Malawi branch registers and the Namibian section of the principal register will be paid the local currency equivalents of the dividend under the dividend access trust arrangements established in each country. Shareholders who hold their shares through VPC AB, the Swedish nominee, will be paid the equivalent of the dividend in Swedish Krona (SEK). Local currency equivalents of the dividend for all five territories will be determined by the Company using exchange rates prevailing at close of business on 5 October 2006 and will be announced by the Company on 6 October 2006. Share certificates may not be dematerialised or rematerialised on the South African branch register between 16 October 2006 and 20 October 2006, both dates inclusive, and transfers between the registers may not take place during that period. SOUTH AFRICA Operating profit up 25% Highlights (£m)* H1 2006 H1 2005 % changeAdjusted operating profit 595 476 25%Embedded value adjusted operating profit 637 524 22%Life assurance sales (APE) 183 171 7%Unit trust sales 795 511 56%Funds under management (£bn) 39 36 8% Highlights (Rm)* H1 2006 H1 2005 % changeAdjusted operating profit 6,724 5,532 22%Embedded value adjusted operating profit 7,199 6,090 18%Life assurance sales (APE) 2,062 1,991 4%Unit trust sales 8,985 5,948 51%Funds under management (Rbn) 514 431 19% * Includes results for Namibia and Old Mutual International. Performance Our businesses continue to benefit from an expanding South African economy withGDP growth at 4.1% over the first six months of 2006. We are well positionedacross all product sectors to benefit from these positive economic conditions,as we progress further towards the objective of becoming the financial providerof choice to every economically active home and business in South Africa. Adjusted operating profit increased by 22% (25% in GBP) in the first half of2006 to R6,724 million (30 June 2005: R5,532 million) principally driven bystrengthening profit growth at Nedbank, as the business continues to recover. Abuoyant banking market coupled with operating efficiencies achieved over thelast two years has meant that Nedbank is well on track to deliver a 20% ROE in2007, from the base of 18.3% delivered in the first half of the year. Whilstthe impact of exchange rates on half-year earnings for the group was minimal, amore significant impact is expected on full year earnings. Unit trust sales for the half-year increased by 51% in South Africa as thebusiness continues to benefit from a number of factors including more focusedproduct level marketing initiatives and sales growth through open architecturesolutions. Life sales, which on an Annual Premium Equivalent (APE) basisincreased by 4% to R2,062 million, benefited from good growth in our coreRetail and Group single premium business offset by a decline in the Healthcareand Group protection business. South African funds under management increased by 7% to R514 billion (31December 2005: R480 billion), benefiting from growth in the South Africanequity market. On a Sterling basis funds under management of £39 billion havedecreased by 11% (31 December 2005: £44 billion) reflecting the devaluation inthe Rand over the six months. LIFE ASSURANCE & ASSET MANAGEMENT- OLD MUTUAL SOUTH AFRICA (OMSA) Highlights (Rm) H1 2006 H1 2005 % changeLife assurance* 1,589 1,758 (10%)Long-term investment return (LTIR) 798 646 24%Asset management 459 361 27%Adjusted operating profit 2,846 2,765 3%Return on allocated capital 23% 24% Embedded value adjusted operating profit (covered business) 2,869 2,971 (3%)Adjusted return on embedded value 13% 16% Life assurance sales (APE) 1,847 1,833 1%Unit trust sales 8,506 5,614 52%Value of new business 252 267 (6%)Life new business margin 14% 15% SA client funds under management (Rbn) 391 316 24% * Includes income from associated undertakings. Strong asset management result offset by lower life assurance earnings Total earnings increased by 3% to R2,846 million for the first six months of2006 from R2,765 million for the equivalent period last year, reflecting astrong increase in asset management profits and the LTIR, offset by a decreaseof 10% in the life assurance result. Adjusted operating profit for the asset management businesses, which increasedby 27% to R459 million for the half year 2006 (30 June 2005: R361 million),benefited from significant performance fees earned and a strong increase infunds under management since the start of the year. Active targeting of unittrust sales growth through specific product-level marketing also contributed tothis result, with unit trust sales increasing by 52% in the first half comparedwith the first six months of 2005. The life assurance profit showed a decrease of 10% to R1,589 million fromR1,758 million in 2005 as a result of the continued investment in distribution,an increased share-based incentive charge following the strong increase in theOld Mutual share price, a significant decline in investment variances off ahigh 2005 base due to interest rate movements and the consequences ofassumption changes in 2005. The underlying strength of the South African equity market, resulting in higherinvestible assets as a result of significant investment gains on theshareholder portfolio, have contributed to the increase of 24% in the LTIR toR798 million for the half year (30 June 2005: R646 million). EEV earnings Embedded value adjusted operating profit before tax for covered business hasdecreased by 3% to R2,869 million, from R2,971 million at June 2005. Anincrease in the expected return, due to an increase in the opening embeddedvalue has been offset by a reduction in experience variances, which are stillpositive due to some one-off items in 2005. The annualised return on embeddedvalue has decreased to 13%, from 16% at June 2005. This reduction is due tolower favourable experience variances, a decrease in the expected opening ratesof return and a decrease in relative value of new business. Positive net client cash flows of R6.4 billion Client funds under management increased by 8% to R391 billion from R362 billionat 31 December 2005, benefiting from the growth in the South African equitymarket. Net client cash flows were R6.4 billion for the half year, compared with R17billion of negative cash flows in the first half of last year. The turnaroundin cash flows relates mainly to third party asset management flows which havebeen positive this half year, but were significantly negative in the sameperiod last year. These flows include R4.2 billion from Mutual & Federal. OMAM (SA) continued to deliver solid investment performance, ranking third outof the nine institutional asset managers in the Alexander Forbes South AfricanGlobal Manager Watch (Large) Survey over the three years to the end of June2006. Exceptional growth of 52% in unit trust sales OMSA unit trust sales increased by 52% to R8,506 million (30 June 2005: R5,614million), driven by more focused product-level marketing, our ongoinginvestment in distribution, sales growth through open architecture platformsand the current positive investment environment in South Africa. Net cash flows also increased for the half year to R2.2 billion from R1.9 billion in 2005. Life sales continue to benefit from investment in distribution Our focus on improving customer value for money, strengthening our tied agentsales force and relationships with independent sales forces, and building linkswith our other South African businesses, have all positively impacted sales. Individual Life sales up 13% Individual APE (Rm) H1 2006 H1 2005 % changeSavings 600 574 5%Protection 375 306 23%Immediate annuity 85 82 4%Group Schemes 375 310 21%Total 1,435 1,272 13%Single 393 334 18% Recurring 1,042 938 11% Individual business was up 13% to R1,435 million, reflecting the benefits ofcontinuing investment in distribution. It was pleasing to see the ongoing focus on delivering cross business growthcontinuing to bear fruit, with single premiums positively impacted by a 91%increase in life APE sales through Nedbank for the first six months of 2006compared with same period last year. Individual Life recurring premiums increased by 11% to R1,042 million for thefirst half from R938 million for the equivalent period last year, with ourGroup Schemes business continuing to expand on the back of good sales forcegrowth. A significant increase in credit life sales through Nedgroup Lifecontributed to the 23% increase in Protection business. Growth in Group Business sales impacted by lower Healthcare Group APE (Rm) H1 2006 H1 2005 % changeSavings 147 148 (1%)Protection 37 81 (54%)Annuity 96 54 78%Healthcare 132 278 (53%)Total 412 561 (27%)Single 227 182 25%Recurring 185 379 (51%) Group Business sales decreased by 27% to R412 million (30 June 2005: R561million) as recurring premiums of R185 million suffered as a result of 53%lower Healthcare sales, decreasing to R132 million for the first half (30 June2005: R278 million). Steps being taken to address the declining Healthcaresales include reviewing the structure of the business, improving distributionissues and reviewing benefit structures. Group protection sales were lower by 54%, as incumbents won most tenders andcompetition remained fierce. We have been successful in retaining moreprotection business than normal, helping to offset the impact of lower newbusiness levels. The high growth of 25% in Group single premiums to R227 million (30 June2005:R182 million) was underpinned by some significant annuity wins in thefirst half of 2006. Margin of 14% is in line with expectations Both Individual and Group Business new business margins have remained in linewith the first half of last year, at 12% and 20% respectively, despite theincrease in discount rates used to value the margins. The Individual Businessmargin reflects the impact of the investments in our distribution capability,the switch to lower charge products, an increase in embedded value economicassumptions and more competitive product pricing in some areas. Overall newbusiness margins decreased slightly to 14% from 15% in the first half of 2005due to the lower proportion of Group Business sales and the change in discountrates. The after-tax value of new business was R252 million, 6% lower than in thefirst half of 2005 in line with the reduction in overall margin. Strong capital position Our South African life company remains strongly capitalised, with 3.1 timescoverage of its Statutory Capital Adequacy Requirement (SCAR) after allowingfor statutory limitations on the value of certain assets. This comparesfavourably with the coverage of 3.0 times at 31 December 2005 and 2.4 times at30 June 2005. BANKING - NEDBANK GROUP (NEDBANK) Highlights (Rm) H1 2006 H1 2005 % changeAdjusted operating profit 3,247 2,114 54%Headline earnings* 2,104 1,398 51%Net interest income* 5,039 4,024 25%Non-interest revenue* 4,591 3,881 18%Net interest margin* 3.88% 3.45% Cost to income ratio* 57.3% 65.1% ROE* 18.3% 14.8% Total Assets (bn)* 385 336 15%ROA* 1.15% 0.85% * As reported by Nedbank. Strong results with adjusted operating profit up 54% Nedbank continues to deliver improved financial results, with adjustedoperating profit of R3,247 million up by 54% on the 2005 equivalent of R2,114million. This reflects the benefits of organic growth, coupled with theoperating efficiencies achieved over the last two years. Continued growth in net interest income (NII) NII grew 25% to R5,039 million. Despite margin compression experienced by theindustry, Nedbank's margin for the period improved to 3.9% from 3.5% in thefirst half of 2005, reflecting product mix changes from the growth in highermargin retail and business banking advances, including strong growth inpersonal loans at Nedbank Retail, the settlement of the expensive funding forthe minority shareholders of Peoples Bank in April 2005, higher endowmentlevels and interest on the proceeds from the sales of the remaining holdings inNet1 UEPS Technologies Inc and State Bank of Mauritius. Nedbank anticipates some margin reduction for the remainder of the year as aresult of asset growth within the banking sector in South Africa being fundedlargely by wholesale deposits. This is expected to be partially offset by theincreased endowment effect from interest rate increases. Strong growth in Non-interest revenue (NIR) NIR increased by 18% from R3,881 million to R4,591 million for the period to 30June 2006. This growth was driven largely by property private equityrevaluations in Nedbank Corporate, buoyant and volatile market conditionscontributing to a 38.7% increase in overall trading income at Nedbank Capital,increased volume growth resulting in commission and fees growing 18% over thecomparative period, and growth in the group's bancassurance operations, withnew business premiums increasing by 21% from R2,294 million to R2,767 million.In July 2006 Nedbank Retail reduced bank fees for individual current accountclients by an average of 13%. Cost to Income Ratio reduced to 57% Expenses continued to be closely managed, as they increased by only 7% toR5,516 million, and revenue growth exceeded expense growth by 15% for theperiod, resulting in the efficiency ratio improving from 65% to 57%. Nedbankhas recruited additional staff in client-facing divisions and has announced amajor expansion program whereby it will invest R1 billion over the next threeyears in expanding its distribution footprint, including opening an additional400 retail outlets and upgrading their ATM network. Return on Equity (ROE) on track at 18% Return on Equity improved significantly from 15% (at 30 June 2005) to 18% forthe six month period to 30 June 2006 and the bank remains committed to meetingthe 2007 targets of the 55% Cost to Income Ratio and 20% Return on Equitydespite the challenge of continued investment in its retail footprint. Strong capital position maintained Nedbank remains well capitalised, with its Tier 1 group capital adequacy ratioincreasing from 8.5% at 30 June 2005 to 9.1% at 30 June 2006. The total groupcapital adequacy ratio has increased from 12.2% at 30 June 2005 to 13.3% at 30June 2006. Nedbank bought back 5.5 million shares in the first half of 2006. GENERAL INSURANCE MUTUAL & FEDERAL Highlights (Rm) H1 2006 H1 2005 % changeAdjusted operating profit 475 573 (17%)Underwriting ratio* 3.9% 8.2% Gross premiums* 4,260 3,962 8%Earned premiums* 3,634 3,323 9%Solvency ratio* 75% 57% Return on capital* 20.4% 22.7% * As reported by Mutual & Federal. Underwriting surplus achieved in a competitive market The anticipated deterioration in trading conditions in the short-term insurancemarket resulted in a 17% decrease in Mutual & Federal's adjusted operatingprofit for the half year to R475 million (30 June 2005:R573 million). This result was impacted by an escalation in average claim costsas claim patterns returned to more normal levels following the benign claimsenvironment during the comparable period in 2005, combined with moderatepremium growth due to increasing pricing pressure in a softening insurancecycle. Mutual & Federal generated an underwriting surplus of R140 million at anunderwriting ratio of 3.9%. Despite the aggressive cutting of premium rates tonon-sustainable levels by certain competitors, Mutual & Federal remaincommitted to maintaining responsible underwriting standards. Conditions within the short-term insurance market and in the economy ingeneral, continue to provide significant opportunities for business growth atMutual & Federal while management expressed confidence that premium increasesand corrective action planned for the second half of the year, particularly inrelation to the motor business, will continue to support modest underwritingprofits. Satisfactory premium growth at 8% Total gross premiums increased by a satisfactory 8% for the first half to R4,260million (30 June 2005: R3,962 million) despite the continued softening of theshort-term insurance market and the intense level of competition experiencedthroughout the sector with each division encountering difficulties in defendingits client base. Claims increase in severity and frequency The general level of commercial and industrial fire claims increased in bothseverity and frequency in the first half, negatively impacting the results ofthe commercial portfolio. The personal division was also affected by severeadverse weather conditions in addition to increased theft losses. The motoraccount, in particular, reflected an underwriting deficit as it continued to beaffected by an escalation in the incidence of motor vehicle accidents. Thisdivision has also been impacted by increased repair costs relating to importedcars following the recent decline in the Rand. Investment income increased due to positive operational cash flows Investment income in the first half remained at a high level followingcontinued growth in the value of listed equities, while interest incomebenefited from higher levels of cash in hand. Capital management Mutual & Federal has announced the payment of a special dividend following adetailed review of its capital requirements. The capitalisation award, with acash alternative of 800 cents per share, payable on 11 September 2006,representing R2.3 billion or 40% of the net asset value of the company.Following payment of the special dividend, the solvency ratio is expected todecrease from the current level of 75% to approximately 40%, a level which isconsidered sufficient to sustain the current operations, as well as supportingthe future development of the business. UNITED STATES Strong growth in adjusted operating profit Highlights (£m) H1 2006 H1 2005 % changeAdjusted operating profit 131 112 17%Embedded value adjusted operating profit 126 133 (5%)Life assurance sales (APE) 129 147 (12%)Mutual fund sales 384 64 500%Funds under management (£bn) 126 117 8% Highlights ($m) H1 2006 H1 2005 % changeAdjusted operating profit 234 210 11%Embedded value adjusted operating profit 225 251 (10%)Life assurance sales (APE) 230 276 (17%)Mutual fund sales 687 120 473%Funds under management ($bn) 232 209 11% Performance Our US business is well placed to take advantage of local demographics as wefurther enhance our products and investment styles. We have introduced a commonmanagement structure and aim to implement a coordinated retail distributionstrategy, while preserving the autonomy of the individual money managementaffiliates, and their ability to focus on producing excellent investmentperformance for clients. The US businesses delivered an 11% increase in adjusted operating profit to$234 million for the half year 2006 compared with $210 million for the firstsix months of 2005. Funds under management increased by 11% to $232 billioncompared to 30 June 2005, even after the sale of eSecLending in May. Both thelife business and the asset management businesses continues to grow through thecombined effect of net cash flow from clients, positive equity markets, andgood investment performance by our affiliates. We also had another goodcontribution from transaction and performance fees. Funds under management at the half year have been impacted by a decrease of$25.4 billion in client assets as a result of the sale of eSecLending. Fundsunder management at our US life business of $21 billion at 30 June 2006 are nowfirmly in the $20 to $25 billion range required to meet the target of releasingcash from 2007. US LIFE Strong growth in operating profit, up 11% Highlights ($m) H1 2006 H1 2005 % changeAdjusted operating profit* 129 116 11%Return on equity 7.9% 8.4% Embedded value adjusted operating profit (covered business) 120 157 (24%)Return on embedded value 8.1% 12.8% Life assurance sales (APE) 230 276 (17%)Value of new business 40 55 (27%)New business margin 17% 20% Funds under management ($bn) 21 20 5% * Restated to exclude amortisation of the present value of acquired in-force business. Adjusted operating profit in the US life business increased by 11% to $129million for the half year from $116 million achieved in the first six months of2005. This result reflects the continued growth in assets and in-forcebusiness, combined with financial disciplines implemented to both progress thebusiness and enable the targeted release of cash from 2007. Return on equity for the year of 7.9% benefited from the strong operatingprofit result but was negatively impacted by recent capital injections to fundgrowth and maintain the targeted risk-based capital ratio. On track for full year sales target Our goal for this business is to grow assets by achieving sales of $4 billionso as to release cash from 2007. We are well on track, with funds undermanagement at 30 June 2006 of $21 billion, the business is on target to deliverfull year sales at a similar level to 2005. In accordance with expectations, Life APE sales for the first half were 17%lower at $230 million (30 June 2005: $276 million), compared with recordhalf-year 2005 sales. Second quarter sales were up 17% on the first quarter. Wecontinue to focus on maintaining pricing disciplines and targeting growth inmore profitable product areas rather than indiscriminately pursuing volumegrowth. Offshore annuity APE sales through Old Mutual Bermuda continued to showexcellent growth of 54%, increasing to $54 million (30 June 2005: $35 million)and now represent almost a quarter of sales for the US Life business. Thisgrowth reflected a further strengthening of relationships in the existing bankdistribution network and an overall expansion in the network during the firsthalf of 2006. Our adjusted embedded value operating profits were affected by a lower value ofnew business due to the decline in new business sales and a change in operatingassumption to reflect the higher than expected usage of a product feature which allows clients to withdraw 10% of their fund without any surrender charge. Pricing disciplines maintained Positive investment yields, combined with the focus on achieving profitabilitythrough the maintenance of strong pricing disciplines, resulted in a robustmargin of 17% in the first half of 2006 despite the impact of a significantincrease in the risk discount rate. The after-tax value of new business decreased by 27% to $40 million comparedwith $55 million for the half year 2005, reflecting the impact of the reductionin sales, in addition to the increase in the risk discount rate and theunusually high margin achieved in the first half of 2005. Continued strengthening of this business We are committed to ensuring that adequate infrastructure is in place tosupport this growing business, with the implementation of new actuarial andfinancial systems now substantially complete, providing significantenhancements to our internal processes. We will continue to maintain strong pricing disciplines to achieve sales growthin the higher margin, more profitable areas of the business. US ASSET MANAGEMENT Operating profit up 12% The Group's US asset management business delivered 12% growth in adjustedoperating profit to $105 million for the six months to 30 June 2006, comparedwith $94 million for the equivalent period last year.Operating profit benefited from the continuation of strong net cash inflows,combined with strong transaction and performance fees sourced primarily fromHeitman and Acadian. Highlights ($m) H1 2006 H1 2005 % changeAdjusted operating profit 105 94 12%Funds under management ($bn) 231 209 11%Net fund flows ($bn) 9.7* 20.1 (52%)Operating margin 26% 25% * Excludes impact of eSecLending. Continued strong net inflows The combination of strong net cash flows, positive equity markets and the focuson delivering superior investment performance, contributed to a 11% increase inasset levels to $231 billion compared with the first half 2005, and an increaseof 2% from $226 billion funds since the start of the year. Excluding the effectof the sale of eSecLending, funds under management increased by 10% from $211billion at 31 December 2005. Funds under management benefited from net fund inflows of $20 billion for thefirst half of 2006, including $10.3 billion relating to eSecLending.International / emerging markets equity, core equity and global fixed incomeproducts attracted the largest inflows, with strong investment performance andnet positive market movements contributing a further $9.4 billion towards theincrease in funds under management for the half year. Strong investment performance Continued positive net fund inflows reflected the excellent investmentperformance achieved by our member firms. At 30 June 2006, 88% and 92% ofassets had outperformed their benchmarks over three and five yearsrespectively. Over the same periods 55% and 66% of assets respectively rankedin the first quartile of their peer group. Executing on growth Our retail initiative continued to gather momentum with year to date grosssales of $1.2 billion, of which $687 million related to open-end mutual fundsales. This sales momentum is a result of the wholesaling team effort in placefor over a year now, as well as having over 400 National Account sellingagreements in place. We have continued to expand our product line and in May2006 launched the Old Mutual Analytic Global Defensive Equity Fund. In February 2006, the US asset management business exercised its option topurchase a majority interest in Copper Rock Capital Partners, a small-capgrowth equity manager headquartered in Boston. The investment team brought withthem a solid performance record, contributing to a doubling of funds undermanagement since February, including healthy growth of assets in the Old MutualOld Mutual Copper Rock Emerging Growth Fund. The US Asset Management business remains committed to its strategy ofidentifying product and sector gaps in its portfolio and selectively pursuingopportunities that will assist in development of those areas. Continuing strong net inflows and forthcoming product introductions place thebusiness in a favourable position to increase total funds under management andearnings going forward. As always the business model is focused on enabling themember firms to deliver superior investment returns to clients. EUROPE Proforma % changeHighlights (£m)* H1 2006 H1 2005 Adjusted IFRS operating profit 120 39 208%Embedded value adjusted operating profit (covered business) 183 137 34%Life assurance sales (APE) 420 359 17%Mutual fund sales 1,790 1,184 51%Return on invested capital 9% n/a Return on embedded value 13.3% n/a Funds under management (£bn) 47 36 31% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma, adjusted to Old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Strong operating results A strong operating result both on an IFRS and EEV basis was delivered, with theintegration remaining on track both in terms of realisation of synergies andestimated synergy costs. Adjusted operating profit on an IFRS basis increased from £39 million to £120million driven by higher funds under management, higher sales volumes andincreased fee income achieved across most areas of the business. The embedded value adjusted operating profit before tax of £183 millionincreased from £137 million, benefiting from excellent new sales in manyregions including UK post A-day sales, as well as significant growth in theEurope and Latin America division (ELAM) particularly in Italy, Poland andFrance and positive experience effects. In addition, experience variancesimproved reflecting a higher level of fee income and better persistencyexperience compared to that assumed in all three divisions. Particularly pleasing was the increase in UK mutual fund sales, with 75% salesgrowth in the UK from Skandia MultiFUNDS and Selestia combined, as the industryshift to open architecture platforms continued. Margins after tax on life business improved, after factoring in the Head officeexpenses allocation. Healthy net cash inflows of £3 billion, led to funds undermanagement increasing by 7% since 31 December 2005, benefiting also from thestrength of equity markets. This was also reflected in the increase in totalfund based fees of 58%. The results from Skandia are above expectations with strong sales and we arepleased that the business has shown minimal disruption from the acquisition inFebruary. Much, of course, remains to be done. We outlined our future strategyon 20 June 2006 and we are committed to all the goals laid out at that time. UNITED KINGDOM Proforma Highlights (£m)* H1 2006 H1 2005 % changeLong-term business 63 16 297%Asset management 4 (7) 163%IFRS adjusted operating profit 67 9 644%Embedded value adjusted operating profit (covered business) 86 52 65%Life assurance sales (APE) 262 225 16%Mutual fund sales 1,170 667 75%Value of new business 26 17 53%Life new business margin 10% 8% Funds under management (bn) 31 23 35% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma adjusted onto old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Strong earnings The improvement in the adjusted operating result in the first half of 2005 of£9 million, to £67 million in the first half 2006 is primarily driven by higherfund base fees as asset appreciation and net fund inflows have increased fundsunder management. In addition the 2005 result was impacted by a number of one-off charges in2005, as provisions were required to address changes in fee structure. Embedded value adjusted operating profit before tax increased from £52 millionto £86 million, driven by growth in new business, operating leverage andimproved experience variances from the positive impact of high fee income.Skandia UK also saw a rise in surrender rates associated with increased A-dayrelated pension transfer activity and we believe this trend was experiencedacross the industry. We are currently undertaking measures to improve long-termpersistency performance. Life sales up 16%, Mutual Fund sales up 75% Skandia UK continued to deliver strong new business growth, with life APE salesup 16% to £262 million (30 June 2005: £225 million). UK onshore unit-linked sales grew by 39% to £162 million, benefiting fromincreased transfer activity and higher regular premium investments followingthe implementation of Pensions 'A' Day regulations, with an 89% growth inpensions sales. Offshore sales declined by 5% to £100 million. Whilst strong growth wasexperienced by Royal Skandia in international markets, this was offset by lowerUK sourced sales, where volumes were adversely impacted by uncertaintysurrounding the tax treatment of trusts. Mutual fund sales increased by 75% to £1,170 million (30 June 2005: £667million), benefiting from strong tax year end sales and the continuing industryshift to open architecture investment platforms. Profit margins Value of new business for life business after tax of £26 million resulted in aprofit margin (after tax and after allocating Head Office expenses) of 10%.Skandia UK's margin has benefited from favourable operating leverage fromstrong new sales and an improvement in product mix, as Skandia soldproportionately less of some lower margin International products. The long-termgoal, as communicated on 20 June 2006, is to achieve margins in the 11-12%range. Funds under management Funds under management have increased by 7% to £31 billion from 31 December2005, benefiting from strong net inflows from unit-linked and mutual fundscoupled with favourable market movements. The largest increase was experienced within mutual funds driven by strongperformance in Skandia MultiFUNDS (SMFL), Selestia and Skandia InvestmentManagement (SIML). SMFL/Selestia inflows are growing strongly as fund platforms become theindustry standard for mutual funds investments. SIML has continued to broadenits fund range, with new funds such as Global Best Ideas Funds (GBI) launchedin June 2006. SIML funds were added to the Selestia platform in June and the SMFL/Selestiaintegration plan continues to gain momentum in line with the plans announced bythe Group on 20 June 2006. NORDIC Proforma Highlights (SEKm)* H1 2006 H1 2005 % changeLong-term business 481 276 75%Asset management 12 10 18%Banking 79 58 36%Adjusted operating profit 572 344 66%Embedded value adjusted operating profit (covered business) 755 460 64%Life assurance sales (APE) 904 916 (1%)Mutual fund sales 793 820 (3%)Value of new business 260 261 -Life new business margin 29% 29% Funds under management (bn) 99 82 21% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma adjusted onto Old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Nordic division delivers good profits Adjusted operating profit increased from SEK344 million to SEK572 millionbenefiting from higher fund- based fees in the unit-linked business, improvedrisk result and higher rebates from fund managers. Within Nordic, a majority offee income is fund based and it grew 38% with funds growing by 21%. WhilstNordic's banking result has improved in 2006 due to lower head office expenseallocation, underlying business performance was dampened by both lower netinterest income due to a change in product mix and increased competition aswell as higher transaction and project costs following the Basel IIimplementation. Embedded value adjusted operating profit increased from SEK460 million to SEK755 million driven by a higher return on in-force business and significantimprovements in experience variances mainly related to higher fee income andsurrenders in line with that assumed as part of the restatement. The value ofnew business was relatively stable. During the prior year there was increased transfer activity from other productsas a result of the new Kapitalpension product. As expected during the firsthalf of 2006, the levels of surrenders in unit-linked business have levelledoff with the reduced impact of conversions to Kapitalpension. Sales Unit-linked APE sales in the Nordic region decreased by 1% to SEK904 millionwith 7% growth in recurring premiums offset by a 31% decrease in singlepremiums, reflecting a downturn in Kapitalpension product sales over the secondquarter, as the rush to convert older contracts has tailed off. For the samereason, surrenders were also lower. The downturn in Kapitalpension is reflected in the declining market share forunit-linked business in Sweden, which was 17.9% on a moving twelve months basiscompared to 18.7% a quarter earlier. New sales within the corporate segment inSweden were stable and Skandia's market share in that segment grew slightly to18.3%. The corporate segment accounts for more than two-thirds of new sales inSweden. Profit margins maintained Strong profit margins for unit linked business were maintained in the firsthalf of 2006, and the VNB after tax of SEK260 million resulted in a profitmargin after tax of 29%. We expect that structural changes in the Swedishmarket will squeeze margins down to the 22-25% range as communicated on 20June. Funds under management Despite the decrease in equity markets during the second quarter of 2006, totalfunds under management retained most of the increase seen in 2005. The increasewas driven by higher net inflows from customers into unit-linked funds. Lending in the bank increased by 14% compared to 31 December 2005, resultingmainly from mortgages in Norway. EUROPE AND LATIN AMERICA (ELAM) Proforma Highlights (Euro m)* H1 2006 H1 2005 % changeLong-term business 19 12 58%Asset management (3) (6) 42%Adjusted operating profit 16 6 167%Embedded value adjusted operating profit (covered business) 60 74 (19%)Life assurance sales (APE) 132 95 39%Mutual fund sales 816 665 23%Value of new business 25 17 47%Life new business margin 19% 18% Funds under management (bn) 13 10 30% * All current and prior year numbers reflect 5 months of results. All prior year numbers are proforma adjusted onto Old Mutual accounting policies. Prior year embedded value numbers are on a Skandia basis but allow for group expenses. Positive growth in IFRS profit Adjusted operating profit increased to Euro 16 million compared to Euro 6million in the prior year driven by increased fee income as funds undermanagement have continued to grow, higher inflows together with maintained costcontrol. Total fund based fees increased 50% during the first six months as thetotal funds within Unit Linked and Mutual Funds grew by 30% from 30 June 2005. Within Mutual Funds, Colombia and Skandia Global Funds are the largest positivecontributors to the IFRS result whereas the businesses in some other countriesare still in a start up phase. Embedded value adjusted operating profit of Euro 60 million declined from Euro74 million despite higher value of new business compared to last year due tostrong growth in the value of new business in Italy, Poland and France. Thiswas because there was some positive one-off effects in the value of newbusiness and experience variance due to the German overhang in 2005 as well aschanges in operating assumptions in 2005. Strong growth in sales Life APE sales growth has been particularly strong in Italy, Poland and France,with exceptionally strong single premium sales in Italy in the first quarter of2006. The new business inflow in Germany continues to recover even though the marketis still slower than in the first years before the pension reform. Germany,like Austria, has a steady book of regular premium contracts generating a goodlevel of regular inflow. ELAM achieved growth of 23% in mutual fund sales to Euro 816 million (30 June2005: Euro 665 million), primarily driven by excellent sales in Spain andColombia in the first quarter. Margin of 19% achieved The overall new business margin of 19% was slightly higher than the expectedlong-term margin of 16-18% as communicated on 20 June due to a shift in thegeographical new business mix. Funds under management Despite the decrease in equity markets during the second quarter of 2006, totalfunds under management remain stable at Euro 13 billion when compared to 31December 2005. Net client cash flows were positively impacted by strong inflowswithin mutual funds offset by withdrawals in the short-term asset managementbusiness, primarily due to the downturn in equity markets during the secondquarter of 2006. OTHER Highlights (£m) H1 2006 H1 2005* % changeAdjusted operating profit 9 8 13%Funds under management (£bn) 7 6 17%Unit trust sales 779 450 73% * Includes results of Skandia Australia and Skandia-BSAM (China). A year of strong organic growth The success of our organic growth strategy continues with our other businesses(including Old Mutual Asset Managers (OMAM (UK)), Skandia Australia, Old MutualAsset Managers Bermuda and our Asian operations) delivering adjusted operatingprofit of £9 million for the half year 2006. OMAM (UK) produced solid results, with adjusted operating profit of £6 milliondriven by strong hedge fund and retail unit trust performance. Unit trust sales increased by 73% to £779 million for the first half (30 June2005: £450 million) driven by strong sales at OMAM (UK) as the businesscontinued to benefit from the expansion of its product portfolio and thefurther strengthening of its distribution capabilities. Expansion into Asia Our life associate in India, Kotak Mahindra Old Mutual, continues to makestrong progress. Total premium income on an APE basis reached £55 million forthe first six months of the year, an increase of 92% over the first half of2005. The business now has more than 2,000 employees and a tied-agency force of14,000, and operates from 51 branches in 39 cities across India. Skandia-BSAM, our joint venture with the Beijing state-owned Asset ManagementCompany, now in its second year of operation, has made a very good start to theyear, achieving 87% of its annual sales target at the half-year. In addition tothe current branches in Beijing and Shanghai, we will be opening a third branchin Nanjing before the end of the year. Australian Skandia Limited has been in operation for five years and providesinvestors with a choice of flexible, long-term savings solutions. Australiaremains an attractive market, with the business showing strong fund inflows. Going forward we will continue to pursue organic growth, with new productlaunches and further development of our distribution team capabilities plannedfor OMAM (UK). The business is also focusing on diversifying its revenuestreams, primarily through growth in the institutional business. We are also committed to expanding our operations in India and China throughthe development and offering of financial solutions to the emerging middleclass in those countries. Summary Consolidated Income Statementfor the six months ended 30 June 2006 The following table summarises the Group's results in the consolidated incomestatement on page 30. Adjusted operating profit represents the Directors' viewof the underlying performance of the Group. This summary does not form part ofthe interim financial statements. £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005South Africa Long-term business 224 214 475Asset management 55 37 85Banking 274 176 421General insurance 42 49 102 595 476 1,083United States Long-term business 72 62 106Asset management 59 50 118 131 112 224Europe Long-term business 111 - -Asset management 3 (2) (4)Banking 6 - - 120 (2) (4)Other Long-term business (1) - -Asset management 10 10 20 9 10 20Finance costs (63) (19) (37)Other shareholders' income/(expense s) (21) (11) (25)Adjusted operating profit* 3(ii) 771 566 1,261Adjusting items 4 (40) 87 218Profit before tax (net of income tax attributable to policyholder returns) 731 653 1,479Total income tax expense 5 (296) (181) (484)Less: income tax attributable to policyholder returns 84 21 127Income tax attributable to shareholders (212) (160) (357)Profit for the financial period 519 493 1,122Profit for the financial period attributable to: Equity holders of the parent 380 387 867Minority interests Ordinary shares 113 78 203Preferred securities 26 28 52 519 493 1,122 * For long-term and general insurance business, adjusted operating profit is based on a long-term investment return, includes investment returns on life funds' investments in Group equity and debt instruments and is stated net of income tax attributable to policyholder returns. For all businesses, adjusted operating profit excludes goodwill impairment, the impact of acquisition accounting, initial costs of Black Economic Empowerment schemes, profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments and dividends declared to holders of perpetual preferred callable securities. Adjusting items comprise: £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Income / (expense) Goodwill impairment and impact of acquisition accounting 4(i) (135) (14) (22)Profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments 4(ii) 97 (4) 58 Short-term fluctuations in investment return 4(iii) 73 133 363 Investment return adjustment for Group equity and debt instruments held in life funds 4(iv) (97) (28) (109) Initial costs of Black Economic Empowerment schemes 4(v) - - (72) 4(vi) / Dividends declared to holders of perpetual preferred callable securities 8 22 - - Adjusting items (40) 87 218 Adjusted operating profit after tax attributable to ordinary equity holders is determined as follows: £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Adjusted operating profit 771 566 1,261 Tax on adjusted operating profit 5 (196) (137) (314) 575 429 947Minority interests ordinary shares (119) (76) (185) Minority interests preferred securities (26) (28) (52) Adjusted operating profit after tax attributable to ordinary equity holders 430 325 710 Pence 6 months ended 6 months ended Year ended 30 June 30 June 31 DecemberEarnings per share attributable to ordinary equity holders Notes 2006 2005 2005 Adjusted operating earnings per ordinary share* 7(ii) 8.5 8.7 18.5 Basic earnings per ordinary share 7(i) 8.0 11.2 25.1 Diluted earnings per ordinary share 7(i) 7.5 11.2 24.3 Adjusted weighted average number of shares millions 7(ii) 5,063 3,753 3,840 Weighted average number of shares millions 7(i) 4,547 3,467 3,456 * Adjusted operating earnings per ordinary share is calculated on the same basis as adjusted operating profit. It is stated after tax attributable to adjusted operating profit and minority interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment trusts. Consolidated Income Statementfor the six months ended 30 June 2006 £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Revenue Gross earned premiums 3(iii) 2,411 2,148 4,473Outward reinsurance (129) (80) (197)Net earned premiums 2,282 2,068 4,276Investment income (net of investment losses) 3,661 2,501 6,569Banking interest and similar income 1,304 944 2,018Fee and commission income, and income from service activities 1,074 576 1,274Other income 127 104 215Share of associated undertakings' profit after tax 3 6 17 Total revenues 8,451 6,199 14,369 Expenses Claims and benefits (including change in insurance contract provisions) (3,759) (3,334) (7,795)Reinsurance recoveries 109 88 226Net claims incurred (3,650) (3,246) (7,569)Change in provision for investment contract liabilities (including amortisation) (832) (448) (1,202)Losses on loans and advances (73) (53) (103)Finance costs (including interest and similar expenses) (42) (22) (40)Banking interest expense (712) (576) (1,254)Fees, commissions and other acquisition costs (381) (164) (389)Other operating and administrative expenses (1,414) (951) (2,155)Change in provision for third party interest in consolidated funds (453) (50) (80)Goodwill impairment 4(i) (2) (2) (5)Amortisation of PVIF and other acquired intangibles (174) (9) (24)Profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments 4(ii) 97 (4) 58 Total expenses (7,636) (5,525) (12,763) Profit before tax 674 815 1,606 Income tax expense 5 (296) (181) (484) Profit for the financial period 519 493 1,122Profit for the financial period attributable to: Equity holders of the parent 380 387 867Minority interests Ordinary shares 113 78 203Preferred securities 26 28 52 Profit for the financial period 519 493 1,122 Pence 6 months ended 6 months ended Year ended 30 June 30 June 31 DecemberEarnings and dividend per share 2006 2005 2005 Basic earnings per ordinary share 7(i) 8.0 11.2 25.1 Diluted earnings per ordinary share 7(i) 7.5 11.2 24.3 Dividend per ordinary share 8 3.65 3.5 5.35 Weighted average number of shares millions 4,547 3,467 3,456 Consolidated Balance Sheetat 30 June 2006 £m At At At 30 June 30 June 31 December Notes 2006 2005 2005 Assets Goodwill and other intangible assets 5,444 1,302 1,570Investments in associated undertakings 56 132 93Investment property 728 704 847Property, plant and equipment 476 457 538Deferred tax assets 536 505 458Reinsurers' share of insurance contract provisions 819 362 455Deferred acquisition costs 1,419 815 1,089Current tax receivable 74 28 29Loans, receivables and advances 20,530 15,600 18,456Derivative financial instruments assets 1,280 1,971 1,604Financial assets fair valued through income statement 66,739 28,470 35,378Other financial assets 12,235 11,886 12,265Short-term securities 911 1,293 1,764Other assets 3,526 2,721 2,409Assets held-for-sale 1,168 - -Cash and balances with the central banks 2,078 1,946 3,051Placements with other banks 720 324 568 Total assets 118,739 68,516 80,574 Liabilities Insurance contract provisions 21,751 19,794 23,258Financial liabilities fair valued through income statement 52,311 15,863 21,187Third party interests in consolidation of funds 2,261 708 966Borrowed funds 9 2,203 1,048 1,433Provisions 371 237 285Deferred revenue 207 123 138Deferred tax liabilities 1,259 486 611Current tax payable 229 154 178Deposits from other banks 1,377 1,090 2,577Amounts owed to other depositors 18,380 14,776 15,509Other money market deposits 2,886 3,122 3,059Derivative financial instruments liabilities 1,241 1,893 1,634Liabilities held-for-sale 1,105 - -Other liabilities 4,680 4,016 3,320 Total liabilities 110,261 63,310 74,155 Net assets 8,478 5,206 6,419 Shareholders' equity Equity attributable to equity holders of the parent 6,932 3,816 4,751Minority interests Ordinary shares 868 737 1,012Preferred securities 678 653 656Total minority interests 1,546 1,390 1,668 Total equity 8,478 5,206 6,419 Consolidated Cash Flow Statementfor the six months ended 30 June 2006 £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2006 2005 2005 Cash flows from operating activities Profit before tax 815 674 1,606 Non-cash movements in profit before tax (1,454) (1,328) (4,046)Changes in working capital 7,309 597 3,482Taxation paid (172) (199) (314) Net cash inflow / (outflow) from operating activities 6,498 (256) 728 Cash flows from investing activities (Acquisition) / disposal of financial investments (6,568) 1,057 644(Acquisition) / disposal of investment properties (37) (11) 40Net acquisition of other fixed assets (50) (28) (100)Acquisition of interests in subsidiaries (1,351) (106) (56)Disposal of interests in subsidiaries, associated undertakings and strategic investments 113 (16) 33 Net cash (outflow) / inflow from investing activities (7,893) 896 561 Cash flows from financing activities Dividends paid to: Equity holders of the parent 8 (174) (118) (184) Ordinary minority interests and preferred security interests (82) (47) (99)Interest payable (excluding banking interest payable) (43) - (40)Net proceeds from issue of ordinary shares (including by subsidiaries to minority interests) 17 3 2Repayment of convertible debt - (341) (336)Issue of subordinated debt 264 - 259Other debt issued / (repaid) 404 - (10)Issue of perpetual preferred callable securities - 347 688 Net cash inflow / (outflow) from financing activities 386 (156) 280 Net (decrease) / increase in cash and cash equivalents (1,009) 484 1,569 Effects of exchange rate changes on cash and cash equivalents (405) (120) 86Cash and cash equivalents on acquisition of new subsidiaries 167 - - Cash and cash equivalents at beginning of the period 3,303 1,648 1,648Cash and cash equivalents at end of the period 2,056 2,012 3,303 Consisting of: Cash and balances with the central banks 2,078 1,946 3,051Placements with other banks 720 324 568Other cash equivalents 346 226 381 3,144 2,496 4,000Cash and cash equivalents subject to consolidation of funds (1,088) (484) (697) 2,056 2,012 3,303 Cash flows presented in this statement include all cash flows relating topolicyholders' funds for the long-term business. Statement of Changes in Equityfor the six months ended 30 June 2006 Millions £m Number of Attributable to shares issued equity holders of Total minority TotalSix and fully paid the parent interest equitymonths ended 30 June 2006 Equity holders' funds at beginning of the period 4,090 4,751 1,668 6,419 Change in equity arising in the period Fair value gains / (losses): Property revaluation - 2 - 2Available-for-sale investments - (422) - (422)Net investment hedge - (25) - (25)Shadow accounting - 209 - 209Currency translation differences / exchange differences on translating foreign operations - (565) (181) (746)Other movements - 57 (61) (4)Aggregate tax effect of items taken directly to or transferred from equity - 62 - 62 Net expense recognised directly in equity - (682) (242) (924)Profit for the period - 380 139 519 Total recognised income and expense for the period - (302) (103) (405)Dividend for the period - (196) (60) (256)Net purchase of treasury shares - (13) - (13)Issue of ordinary share capital by the Company 1,389 2,670 - 2,670Net acquisition of interests in subsidiaries - - 41 41Exercise of share options 9 12 - 12Fair value of equity settled share options - 10 - 10 Equity holders' funds at end of the period 5,488 6,932 1,546 8,478 Share Share OtherSix months ended 30 June 2006 Notes capital premium reserves Attributable to equity holders of the parent at beginning of the period 410 730 374 Changes in equity arising in the period: Fair value gains / (losses): Property revaluation - - 2Available-for-sale investments - - (422)Net investment hedge - - -Shadow accounting - - 209Currency translation differences / exchange differences on translating foreign operations - - -Other movements - - (2)Aggregate tax effect of items taken directly to or transferred from equity - - 52 Net expense recognised directly in equity - - (161) Profit for the period - - - Total recognised income and expense for the period - - (161) Dividend for the period 8 - - -Net purchase of treasury shares - - -Issue of ordinary share capital by the Company 138 - 2,532Exercise of share options 1 11 -Fair value of equity settled share options - - 10Attributable to equity holders of the parent at end of the period 549 741 2,755 £m Perpetual preferred Translation Retained callable Six months ended 30 June 2006 reserve earnings securities Total Attributable to equity holders of the parent at beginning of the period 357 2,192 688 4,751 Changes in equity arising in the period: Fair value gains / (losses): Property revaluation - - - 2Available-for-sale investments - - - (422)Net investment hedge (25) - - (25)Shadow accounting - - - 209Currency translation differences / exchange differences on translating foreign operations (565) - - (565)Other movements - 59 - 57Aggregate tax effect of items taken directly to or transferred from equity 5 5 - 62 Net expense recognised directly in equity (585) 64 - (682) Profit for the period - 380 - 380 Total recognised income and expense for the period (585) 444 - (302) Dividend for the period - (196) - (196)Net purchase of treasury shares - (13) - (13)Issue of ordinary share capital by the Company - - - 2,670Exercise of share options - - - 12Fair value of equity settled share options - - - 10Attributable to equity holders of the parent at end of the period (228) 2,427 688 6,932 £m At 30 JuneOther reserves 2006 Merger reserve 2,716Available-for-sale reserve (91)Investment property revaluation reserve 38Share based payments reserve 92 Attributable to equity holders of the parent at end of the period 2,755 Retained earnings have been reduced by £724 million at 30 June 2006 in respectof own shares held in policyholders' funds, ESOP trusts, Black EconomicEmpowerment trusts and other related undertakings. Included in the dividend for the period is £22 million of dividends declared toholders of perpetual preferred callable securities (note 8). Millions Number of Attributable to shares issued equity holders ofSix months ended Notes and fully paid the parent30 June 2005 Equity holders' funds at beginning of the period 3,854 3,265 Changes in equity arising in the period Fair value gains / (losses): Net investment hedge - (50) Available-for-sale investments - 84Shadow accounting - (11)Currency translation differences / exchange differences on translating foreign operations - (100)Cash flow hedge amortisation - 2Redemption of convertible bonds - (18)Other movements - 44Aggregate tax effect of items taken directly to or transferred from equity - (16) Net expense recognised directly in equity - (65)Profit for the period - 387 Total recognised income and expense for the period - 322Dividend for the period 8 - (118)Net purchase of treasury shares - (7)Issue of perpetual preferred callable securities - 347Net disposal of interests in subsidiaries - -Exercise of share options 3 3Fair value of equity settled share options - 4 Equity holders' funds at end of the period 3,857 3,816 £m Total minority TotalSix months ended 30 June 2005 interest equity Equity holders' funds at beginning of the period 1,431 4,696 Changes in equity arising in the period Fair value gains / (losses): Net investment hedge - (50) Available-for-sale investments - 84Shadow accounting - (11)Currency translation differences / exchange differences on translating foreign operations (85) (185)Cash flow hedge amortisation - 2Redemption of convertible bonds - (18)Other movements (39) 5Aggregate tax effect of items taken directly to or transferred from equity - (16) Net expense recognised directly in equity (124) (189)Profit for the period 106 493 Total recognised income and expense for the period (18) 304Dividend for the period (47) (165)Net purchase of treasury shares - (7)Issue of perpetual preferred callable securities - 347Net disposal of interests in subsidiaries 24 24Exercise of share options - 3Fair value of equity settled share options - 4 Equity holders' funds at end of the period 1,390 5,206 Share Share OtherSix months ended 30 June 2005 Notes capital premium reserves Attributable to equity holders of the parent at beginning of the period 386 600 445 Changes in equity arising in the period: Fair value gains / (losses): Net investment hedge - - (50) Available-for-sale investments - - 84Shadow accounting - - (11)Currency translation differences / exchange differences on translating foreign operations - - -Cash flow hedge amortisation - - 2Redemption of convertible bonds - - (18)Other movements - - -Aggregate tax effect of items taken directly to or transferred from equity - - (16) Net expense recognised directly in equity - - (9)Profit for the period - - -Total recognised income and expense for the period - - (9) Dividend for the period 8 - - -Net purchase of treasury shares - - -Issue of perpetual preferred callable securities - (3) -Exercise of share options - 3 -Fair value of equity settled share options - - - Attributable to equity holders of the parent at end of the period 386 600 436 £m Perpetual preferred Translation Retained callable Six months ended 30 June 2005 reserve earnings securities Total Attributable to equity holders of the parent at beginning of the period 122 1,712 - 3,265 Changes in equity arising in the period: Fair value gains / (losses): Net investment hedge - - - (50) Available-for-sale investments - - - 84Shadow accounting - - - (11)Currency translation differences / exchange differences on translating foreign operations (100) - - (100)Cash flow hedge amortisation - - - 2Redemption of convertible bonds - - - (18)Other movements 44 - 44 - Aggregate tax effect of items taken directly to or transferred from equity - - - (16) Net expense recognised directly in equity (100) 44 - (65)Profit for the period 387 - 387 - Total recognised income and expense for the period (100) 431 - 322 Dividend for the period - (118) - (118)Net purchase of treasury shares - (7) - (7)Issue of perpetual preferred callable securities - - 350 347Exercise of share options - - - 3Fair value of equity settled share options - 4 - 4 Attributable to equity holders of the parent at end of the period 22 2,022 350 3,816 £m At 30 JuneOther reserves 2005 Merger reserve 184Available-for-sale reserve 207Investment property revaluation reserve 28Cash flow hedge reserve 11Share based payments reserve 6 Attributable to equity holders of the parent at end of the period 436 Retained earnings were reduced by £533 million, at 30 June 2005 in respect ofown shares held in policyholder funds, ESOP trusts and related undertakings. Millions Number of Attributable to shares issued equity holders ofYear ended 31 December 2005 Notes and fully paid the parent Equity holders' funds at beginning of the year 3,854 3,265 Changes in equity arising in the year Fair value gains / (losses): Property revaluation - 27 Net investment hedge - (78) Available-for-sale investments - (249)Shadow accounting - 117Currency translation differences / exchange differences on translating foreign operations - 263Cash flow hedge amortisation - (12)Redemption of convertible bonds - (18)Other movements - (21)Aggregate tax effect of items taken directly to or transferred from equity - 34 Net income recognised directly in equity - 63 Profit for the year - 867Total recognised income and expense for the year - 930 Dividend for the year 8 - (184)Net purchase of treasury shares - (182)Issue of perpetual preferred callable securities - 679Issue of share capital by the Company 231 159Net disposal of interests in subsidiaries - -Exercise of share options 5 4Fair value of equity settled share options - 80 Equity holders' funds at end of the year 4,090 4,751 £m Total minority TotalYear ended 31 December 2005 interest equity Equity holders' funds at beginning of the year 1,431 4,696 Changes in equity arising in the year Fair value gains / (losses): Property revaluation - 27 Net investment hedge - (78) Available-for-sale investments - (249)Shadow accounting - 117Currency translation differences / exchange differences on translating foreign operations 12 275Cash flow hedge amortisation - (12)Redemption of convertible bonds - (18)Other movements 23 2Aggregate tax effect of items taken directly to or transferred from equity - 34 Net income recognised directly in equity 35 98 Profit for the year 255 1,122 Total recognised income and expense for the year 290 1,220Dividend for the year (99) (283)Net purchase of treasury shares - (182)Issue of perpetual preferred callable securities - 679Issue of share capital by the Company - 159Net disposal of interests in subsidiaries 26 26Exercise of share options - 4Fair value of equity settled share options 20 100 Equity holders' funds at end of the year 1,668 6,419 Statement of Changes in Equity continuedfor the six months ended 30 June 2006 Share Share OtherYear ended 31 December 2005 Notes capital premium reserves Attributable to equity holders of the parent at beginning of the year 386 600 445Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - - 27 Net investment hedge - - (50) Available-for-sale investments - - (249)Shadow accounting - - 117Currency translation differences / exchange differences on translating foreign operations - - -Cash flow hedge amortisation - - (12)Redemption of convertible bonds - - (18)Other movements - - -Aggregate tax effect of items taken directly to or transferred from equity - - 34 Net expense recognised directly in equity - - (151) Profit for the year - - - Total recognised income and expense for the year - (151)Dividend for the year - - - 8 Net purchase of treasury shares - - -Issue of perpetual preferred callable securities - (9) -Issue of share capital by the Company 23 136 -Exercise of share options 1 3 -Fair value of equity settled share options - - 80 Attributable to equity holders of the parent at end of the year 410 730 374 £m Perpetual preferred Translation Retained callable Year ended 31 December 2005 reserve earnings securities Total Attributable to equity holders of the parent at beginning of the year 122 1,712 - 3,265Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - - - 27 Net investment hedge (28) - - (78) Available-for-sale investments - - - (249)Shadow accounting - - - 117Currency translation differences / exchange differences on translating foreign operations 263 - - 263Cash flow hedge amortisation - - - (12)Redemption of convertible bonds - - - (18)Other movements - (21) - (21)Aggregate tax effect of items taken directly to or transferred from equity - - - 34 Net expense recognised directly in equity 235 (21) - 63 Profit for the year - 867 - 867 Total recognised income and expense for the year 235 846 - 930Dividend for the year - (184) - (184) Net purchase of treasury shares - (182) - (182)Issue of perpetual preferred callable securities - - 688 679Issue of share capital by the Company - - - 159Exercise of share options - - - 4Fair value of equity settled share options - - - 80Attributable to equity holders of the parent at end of the year 357 2,192 688 4,751 £m At 31 DecemberOther reserves 2005 Merger reserve 184Available-for-sale reserve 68Investment property revaluation reserve 39Cash flow hedge reserve (3)Share based payments reserve 86 Attributable to equity holders of the parent at end of the year 374 Retained earnings were reduced by £712 million at 31 December 2005 in respectof own shares held in policyholders funds, ESOP trusts, Black EconomicEmpowerment trusts and related undertakings. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Old Mutual PLC