Results Announcement

26th Feb 2007 07:02

Old Mutual PLC26 February 2007 Old Mutual plc is incorporated in England and Wales under the Companies Act 1985 with registration number3591559 and is registered in South Africa as an externalcompany with registration number 1999/004855/10.ISIN code: GB0007389926 NSX share code: OLMJSE share code: OML Issuer code: OLOML Results for the year ended 31 December 2006 Financial highlights Adjusted operating profit(IFRS basis):* up 16% to £1,459 million (2005: £1,261 million Adjusted operating profit (European Embedded Value (EEV) basis): up 22% to £1,687 million (2005: £1,387 million) Profit for the financial year £836 million (2005: £867 million)attributable to equity holders of theparent (IFRS basis): Adjusted operating earnings per down 18% to 15.1p (2005: 18.5p)share* (IFRS basis): Adjusted operating earnings per down 14% to 17.8p (2005: 20.7p)share (EEV basis): Basic earnings per share (IFRS basis): 17.0p (2005: 25.1p) Net cash flow in relation to funds under management of £24 billion (2005: £13billion) Funds under management of £239 billion at 31 December 2006 (2005: £182billion), an increase of 31% Total life assurance sales, on an EEV Annual Premium Equivalent (APE) basis,of £1,535 million, an increase of 137% (2005: £648 million) Adjusted embedded value per share (EEV basis): 157.2p at 31 December 2006 (2005: 174.0p) Recommended final dividend up 13.7% to 4.15p (58c)** Jim Sutcliffe, Chief Executive, commented:"This set of results reflects a healthy overall performance from around thegroup. Funds under management grew an impressive 31% with operating profitsbenefiting both from a better than expected result from the Skandia acquisitionand from investment in our existing businesses. Despite earnings being impactedby unfavourable currency translation impact, our strong financial position hasenabled us to declare a final dividend increase of 13.7%. The current year has started well. Although exchange rates, the cost ofinvesting to achieve synergies across Europe, and costs in Sweden and at ourSouth African life business to put these businesses on a sound basis for thefuture will hold back earnings growth for 2007, we have an excellent set ofgrowing businesses and are clear about the tasks we must complete. We are ontrack to achieve over £300 billion of funds under management by the end of2008, which should provide a solid basis for substantial future earningsgrowth." 26 February 2007 Wherever the items asterisked in the Highlights are used, whether in theHighlights, the Chief Executive's Statement or the Group Business Review, thefollowing definitions apply: * For long-term and general insurance business, adjusted operating profit isbased on a long-term investment return, includes investment returns on lifefunds' investments in Group equity and debt instruments and is stated net ofincome tax attributable to policyholder returns. For all businesses, adjustedoperating profit excludes goodwill impairment, the impact of acquisitionaccounting, initial costs of Black Economic Empowerment schemes, the impact ofclosure of unclaimed shares trusts, profit / (loss) on disposal ofsubsidiaries, associated undertakings and strategic investments and dividendsdeclared to holders of perpetual preferred callable securities. Adjusted operating earnings per ordinary share is calculated on the samebasis as adjusted operating profit. It is stated after tax attributable toadjusted operating profit and minority interests. It excludes incomeattributable to Black Economic Empowerment trusts of listed subsidiaries. Thecalculation of the adjusted weighted average number of shares includes ownshares held in policyholders' funds and Black Economic Empowerment trusts. ** Indicative only, being the Rand equivalent of 4.15p converted at the exchange rate prevailing on 20 February 2007. The actual amount to be paidby way of final 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 19 April 2007, as determined by the Company, and will be announced on 20 April 2007. For further information on Old Mutual plc, please visit our website atwww.oldmutual.com. Enquiries Investor RelationsMalcolm Bell UK +44 (0)20 7002 7166Deward Serfontein SA +27 (0)11 523 9616 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 2020Gareth David UK Forward-looking statements This announcement contains forward-looking statements with respect to certainof Old Mutual plc's plans and its current goals and expectations relating toits future 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 wellas the 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, performanceand results may differ materially from the plans, goals and expectations setforth in Old Mutual plc's forward-looking statements. Old Mutual plc undertakesno obligation to update any forward- looking statements contained in thisannouncement or any other forward-looking statements that it may make. Notes to Editors: A webcast of the analyst presentation and Q&A will be broadcast live at 9.30a.m. (UK time), 10.30 a.m. (Swedish time), and 11.30 a.m.(South African time) today on the Company's website, www.oldmutual.com. Copiesof these results and the associated analyst presentation, together withhigh-resolution images (at http://oldmutual.com/vpage.jsp?page_id=2220) 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 2006 preliminary results Financial Disclosure Supplement can be found onthe website. This contains a summary of key financial data for 2006 and 2005. Chief Executive's Statement A year of significant international development 2006 was a year of significant international development for the Old MutualGroup, with the successful completion of our acquisition of Skandia.Reflecting the increased spread of our business, funds under management grewsubstantially, to £239 billion. Our businesses around the Group produced a healthy overall earningsperformance. Operating profit benefited both from a better than expected resultfrom our Skandia acquisition and good progress at our other businesses. Weended the year with a capital surplus of over £1 billion on an FGD (FinancialGroups Directive) basis. Our strong financial position has enabled us torecommend a final dividend of 4.15p per share, which produces a total dividendfor 2006 of 6.25p, an overall increase of 13.6%. Notwithstanding this healthy performance, unfavourable currency movements,particularly in the Rand's exchange rate to Sterling, reduced our IFRS earningsper share (EPS) by around 1.2p year-on-year. The transformation of the overall profile of our business is apparent from thefact that alongside our traditional South African franchise, we now haveapproximately 60% of our life sales for the year on an APE basis came in the UKand the rest of Europe and over three quarters of our funds under management inthe USA and Europe. We have been pleased with what we have found at Skandia and the culturalintegration has progressed well. The synergy targets announced at our marketupdate in June 2006 are on track, with some associated costs to be incurredduring 2007. Skandia's UK and Europe/Latin American businesses have exceededexpectations, while the Nordic business is still dealing with a number oflegacy issues. We continued to manage our portfolio of businesses actively during 2006. Weacquired Ashfield (a large cap asset manager in the USA, completed in January2007), Intech (an Australian asset manager) and Marriott (a property investmentgroup in South Africa) and disposed of eSecLending, our US securities lendingbusiness, Pacific Financial Advisors, one of our US asset managementbusinesses, and Skandia Vida, Skandia's traditional life assurance business inSpain. We have begun restructuring Old Mutual Asset Managers (South Africa)into twelve boutique businesses under the new name, Old Mutual Investment Group(South Africa), and received a special dividend from our South African generalinsurer, Mutual & Federal Insurance Company Limited. Growth is evident from our net cash flow of £24bn, increase in gross unit trustsales of 185% and life APE sales of 137% and increase in funds under management(after discounting businesses disposed of) of 31%. Our 53%-owned South African banking subsidiary, Nedbank Group, continued on itsreturn to health, with a 38% increase in profit and Return on Equity of 18.6%.Plans for our South African businesses to cooperate strategically and, whereappropriate, operationally to deliver ever-increasing bancassurance and othersynergy benefits are progressing well. During the year we were pleased to welcome Jonathan Nicholls as Group FinanceDirector. Jonathan has already started to make an impact on our financial andaccounting processes. Outlook This set of results reflects a healthy overall performance from around thegroup. Funds under management grew an impressive 31% with operating profitsbenefiting both from a better than expected result from the Skandia acquisitionand from investment in our existing businesses. Despite earnings being impactedby the unfavourable currency translation impact, our strong financial positionhas enabled us to declare a final dividend increase of 13.7%. The current year has started well. Although exchange rates, the cost ofinvesting to achieve synergies across Europe, and costs in Sweden and at ourSouth African life business to put the business on a sound basis for the futurewill hold back earnings growth in 2007, we have an excellent set of growingbusinesses and are clear about the tasks we must complete. We are on track toachieve over £300 billion of funds under management by the end of 2008, whichshould provide a solid basis for substantial future earnings growth. We are confident that Old Mutual will continue successfully on its journey tobecome a premier international savings and wealth management group. Jim Sutcliffe Chief Executive Group Finance Director's Review GROUP RESULTS For Old Mutual, 2006, with the acquisition of Skandia, was a transforming yearduring which we were able to produce a healthy set of results, driven by strongsales and cash earnings and an increased level of funds under management. Theacquisition of Skandia in February resulted in a significantly larger and moreinternationally diversified business. Group Highlights (£m) 2006 2005 Change Adjusted operating profit (IFRS basis) (pre tax) 1,459 1,261 16% Adjusted operating profit (EEV basis) (pre tax) 1,687 1,387 22% Profit before tax (IFRS) 1,714 1,606 7% Adjusted operating earnings per share (IFRS basis) 15.1p 18.5p (18%) Adjusted operating earnings per share (EEV basis) 17.8p 20.7p (14%) Basic earnings per share (IFRS basis) 17.0p 25.1p (32%) Embedded Value (£bn) 8.6 7.1 21% Adjusted Embedded Value per share (EEV basis) 157.2p 174.0p (10%) Value of new business 244 113 116% Life assurance sales (APE) (£bn) 1,535 648 137 % Unit trust / mutual funds sales (£bn) 7,961 2,795 185% Net fund inflows (£bn) 24 13 85% Funds under management (£bn) 239 182 31% Return on equity (%)* 12.0% 18.8% Return on Embedded Value 13.8% 16.5% Full dividend (p) 6.25p 5.5p 14% * Return on equity is calculated using adjusted operating profit after tax andminority interests on an IFRS basis with allowance for accrued coupon paymentson the Group's hybrid capital. The average shareholders' equity used in thecalculation excludes hybrid capital. Strong growth in sales and assets across all regions, including our enlarged European operation, contributed to an encouraging increase in adjusted operating profit before tax. This represents a 30% increase in the life result and a 17% increase in the asset management, banking and general insuranceresult, with all regions improving on a local currency basis. Adjusted operating profit after tax and minority interests increased by 11%from £710 million in 2005 to £790 million in 2006, resulting in adjustedoperating earnings per share of 15.1p for 2006. The split of the Group by adjusted IFRS earnings (after tax and minorityinterests, excluding corporate) is now broadly 58% South Africa, 20% UnitedStates, 20% Europe 2% Asia Pacific and elsewhere, reflecting the greaterdiversification of our earnings as a result of the Skandia acquisition. Adjusted Embedded Value operating profit up 22% The increase of 22% in the Group's adjusted operating profit on a EuropeanEmbedded Value (EEV) basis primarily reflects the significant contribution fromSkandia, strong new business growth, and the increased profit from thenon-covered business in Nedbank and our asset management businesses. The adjusted embedded value operating profit of £981 million for our coveredbusiness was up 40% from £701 million for the year ended 31 December 2005. Thisincrease was driven by the acquisition of Skandia, which contributed 40% of theprofit. The contribution of the South African and United States businesses were50% and 10% respectively. The value of new life business grew by 116% to £244million. The increase on prior year is caused by the contribution from Skandia- and growth of 16% in South Africa, partially offset by a managed volumereduction of 12% in the United States. Whilst operating assumptions across all businesses were more conservative, thisimpact was largely offset by risk margin recalibration, ranging from 10bps to30bps. This was driven by the lower risk profile of our business and the impactof higher markets and interest rates reducing the expected cost of financialoptions and guarantees. Dilution reduces Adjusted Embedded Value per share down by 10.0% Adjusted Group Embedded Value (EV) (adjusted primarily to bring listed Groupsubsidiaries to market value) increased by 21% to £8.6 billion at 31 December2006 (31 December 2005: £7.1 billion). The adjusted Group EV per share hasreduced from 174p to 157.2p at 31 December 2006. Return on Group EV was strongat 13.8%. The movement in the embedded value per share has been driven by the dilutionimpact of approximately 22p as a result of acquiring Skandia and depreciationof the South African Rand and US Dollar over the year by 26% and 14%respectively, offset by market movements and operating profit growth. Synergies on track The purchase of Skandia, with its leading open architecture technology, buildsout our European operations and provides significant opportunities for organic,new start-up and acquisitive growth. The integration and synergies benefits of£70 million per annum (announced in June 2006) are on track to be delivered byend-2008. Funds under management up 31% We are pleased with the increased level of our sales and assets following theSkandia acquisition. The Annual Premium Equivalent (APE) of new businessincreased 137% and the Value of New Business has also more than doubled. Netfund inflows were £24 billion representing 11% of FUM when Skandia's openingFUM are taken into account. Total funds under management is up 31% to £239billion. Capital position Highlights (£m) 2006 2005 % ChangeSenior debt gearing 6.0% 6.1% (2%)Total gearing 21.8% 23.6% (8%) The Group's gearing level remains comfortably within our target range, withsenior debt gearing(1) at 31 December 2006 of 6.0% (6.1% at 31 December 2005)and total gearing, including hybrid capital, of 21.8% (23.6% at 31 December2005) reflecting the funding of Skandia. In January 2006 the Group issued £300million of Lower Tier 2 Preferred Callable Securities as part of the publicdebt raising associated with the Skandia acquisition. The Group continues to develop its economic capital programme. Over the year,we have observed a strengthening in our overall capital position, withavailable financial resources significantly in excess of the economic capitalthe Group believes would be required to support its target credit rating. The Group is in compliance with the Financial Groups Directive capitalrequirements, which apply to all EU- based financial conglomerates. Our FGDsurplus was £1 billion at 31 December 2006. (1) Senior debt gearing is defined as senior debt over senior debt plus adjusted embedded value on an EEV basis. Senior debt excludes debt from bankingactivities and is net of cash and short-term investments that are immediatelyavailable to repay debt and derivative assets relating to swaps associated withsenior debt, so as to reflect debt valued on effective currency and interestrate positions. Total gearing is similarly based, but includes hybrid capitalinstruments within debt. Holding company cash flow The table below shows the cash flows of the Old Mutual plc holding company andits satellite holding companies in South Africa, the United States and, since 1February, Europe. We believe this provides a clearer picture of the receiptsand payments of available cash within the Old Mutual group than the IFRSholding company cash flow statement. £m £m Total debt at 31 December 2005 1,982 Opening liquid assets held centrally 704 Operational receipts 535 Capital receipts 356 Net debt raised 387 New equity issuance 14 Operational expenses (156) Acquisitions, including Skandia (1,287) FX adjustments and other items 18 Cash available 571 Old Mutual plc dividend paid (281) Organic investment (214) Closing liquid assets held centrally 76 Net debt raised 387Skandia's debt included at 31 December 2006 and other adjustments 114Total debt 31 December 2006 2,483Liquid assets held centrally (76)Total net debt 31 December 2006 2,407 Total available cash within the holding companies at the end of2005 was £704m, largely being held in anticipation of financing the purchase of Skandia. During 2006, the holding companies received a total of £891m ofoperational and capital receipts from business units, plus net debt andequity proceeds of £401 million. After operational expenses, acquisition payments and adjusting items, there was£571m in available cash, of which £281m was used to pay the Old Mutual plcdividend and £214m invested in the businesses. The balance of remaining cash at the end of 2006 was £76m, which is more inline with normal expectations than the end 2005 balance, as surplus cash isgenerally applied to reduce outstanding debt. Taxation The Group's effective tax rate(1) for the year ended 31 December 2006 of 26%increased from 25% for the corresponding period in 2005. The main reasons forthis movement are as follows: • Increased STC (Secondary Tax on Companies) paid on dividends has led to a 1%increase• A reduction in the amount of non-taxable income has led to a 4% increase• Against this, the tax rate has reduced by 3% as a result of additionalprofits arising in lower tax jurisdictions. Dividend The directors of Old Mutual plc are recommending a final dividend for the yearended 31 December 2006 of 4.15p per share, making a total of 6.25p per sharefor the year, an increase of 13.6% over 2005. The indicative Rand equivalent ofthis final dividend(2) is 58c, making a total of 89c for the year, an increaseof 45%. The Board's policy on dividends is to seek to achieve steadilyincreasing returns to shareholders over time, reflecting the underlying rate ofprogress and cash flow requirements of Old Mutual's businesses.(3) Jonathan NichollsGroup Finance Director26 February 2007 (1) Based on the tax charge excluding income tax attributable to policyholderreturns as a proportion of profit before tax but after income tax attributableto policyholder returns (2) Based on rates at 20 February 2007 (R13.9876 = £1). (3) The record date for this dividend payment is the close of business onFriday, 11 May 2007 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 Friday, 4 May 2007 and on the London and Stockholm Stock Exchange Tuesday, 8 May 2007. The shares will tradeex-dividend from the opening of business on Monday, 7 May 2007 on the JSE andthe Namibian, Zimbabwe and Malawi Stock Exchanges, and from the opening ofbusiness on Wednesday, 9 May 2007 on the London and Stockholm Stock Exchanges.Shareholders on the South African, Zimbabwe and Malawi branch registers and theNamibian section of the principal register will be paid the local currencyequivalents of the dividend under the dividend access trust arrangementsestablished in each country. Shareholders who hold their shares through VPC AB,the Swedish nominee, will be paid the equivalent of the dividend in SwedishKronor (SEK). Local currency equivalents of the dividend for all fiveterritories will be determined by the Company using exchange rates prevailingat close of business on Thursday, 19 April 2007 and will be announced by theCompany on Friday, 20 April 2007. Share certificates may not be dematerialisedor rematerialised on the South African branch register between Monday, 7 Mayand Friday, 11 May 2007, both dates inclusive, and transfers between theregisters may not take place during that period. The final dividend is subjectto approval at the Annual General Meeting of Old Mutual plc, which is to beheld in London on Thursday, 24 May 2007. Subject to being so approved, thefinal dividend will be paid on Thursday, 31 May 2007. Business Review AFRICA Satisfactory increase in profits Strong rand growth in funds under management Continued strong recovery at Nedbank Impressive life and non-life sales Highlights (£m) 2006 2005 % Change Adjusted operating profit pre-tax 1,124 1,083 4%Life assurance sales (APE) 392 358 9%Unit trust sales 1,256 1,226 2%Funds under management (£bn) 41 43 (5%) Highlights (Rm) 2006 2005 % Change Adjusted operating profit pre-tax 13,997 12,539 12%Life assurance sales (APE) 4,888 4,141 18%Unit trust sales 15,622 14,200 10%Funds under management (Rbn) 561 472 19% Our African businesses continue to benefit from an expanding South Africaneconomy with GDP growth of 4.5% and growth of 38% in the JSE All Share Indexover the year. We are well positioned across all key product and market sectorsto benefit from these positive economic conditions. Despite the deterioration of the rand, adjusted operating profit for theAfrican businesses increased by 4% on a sterling basis, mainly as a result ofthe significant increase in Nedbank Group's results as the momentum of therecovery programme continued. The increase in funds under management 'on a Randbasis' despite high outflows, reflects the impact of buoyant markets. Theseoutflows arose principally from the R30 billion withdrawal of Public InvestmentCorporation (PIC) assets and the depressed investment performance in the earlypart of 2006. Several projects aimed at realising revenue and cost synergies between thethree businesses have progressed well. In particular, the project to leveragethe scale of the data and voice transmission has yielded considerable savings.Bancassurance life sales between Old Mutual and Nedbank have increased 61%. LIFE ASSURANCE & ASSET MANAGEMENT - OLD MUTUAL SOUTH AFRICA (OMSA). Substantial sales growth OMSA delivered another year of impressive sales. This was buoyed by theexpanding South African economy driving the demand for investment and insuranceproducts. We are also reaping the benefits of the investment in our retaildistribution over the last three years. Our higher sales force numbers andstrong medium term investment performance boosted growth in unit trust sales.Despite the shift in customer preference to non-life investment products ourIndividual Life sales (APE) grew by 19% in our core market.The introduction of new-era products to capture this trend boosted the salesgrowth. Group life sales (APE) were up 11%. Responding to our customers' demands for greater investment flexibility andfocus, we announced in January 2007 the restructuring of Old Mutual AssetManagers (SA) into twelve autonomous investment houses under the umbrella ofOld Mutual Investment Group South Africa. This new multi-boutique business isstyled on the successful model operated by our US Asset Managers and combinesthe benefits of Old Mutual's international reach and strong supportinfrastructure. We also acquired Marriott, a property specialist and Umbono,the black-empowered investment boutique which gives our customers access to thecountry's largest index tracking group in South Africa. This restructuringbrings our asset management business in line with emerging trends in the globalinvestment world. Highlights (Rm) 2006 2005 % ChangeLife assurance adjusted operating profit* 3,077 3,819 (19%)Asset management adjusted operating profit 874 801 9%Long term investment return (LTIR) 1,773 1,453 22%IFRS adjusted operating profit - pre-tax 5,724 6,073 (6%)Return on Allocated Capital 23% 27% Embedded Value adjusted operating profit of covered business (pre tax) 5,752 6,352 (9%)Embedded Value of the covered business 33,274 30,944 8%Return on Embedded Value of the covered business 13.5% 17.6% Life assurance sales (APE) 4,416 3,784 17%Unit trust sales (Rbn) 14,833 13,319 11%Value of new business 781 614 27%APE margin (post tax) 18% 16% SA client funds under management (Rbn) 424 362 17%Net client cash flows (Rbn) (29) (18) *Includes income from associated undertakings Unit trust sales up 11% Retail unit trust sales grew in both our broker and agency channels, with salesfor the year up to a record R14.8 billion, driven by specific product-levelmarketing, our ongoing investment in distribution, sales growth through ouropen-architecture platform, client preference toward non-life investmentproducts and the current positive investment environment in South Africa. Sales growth, although robust, tapered off in the second half of the year as aresult of the volatile market and short-term investment performance slippageduring the first half of the year. Again, we are confident that our newboutique model will address these concerns. Life sales (APE) up 17% Our investment in our distribution capability has benefited growth in lifesales. Despite the move to non-life investment products, individual life salesare up 19% and institutional sales are up 11% on 2005. Good growth wasexperienced across all core product categories and distribution channelsdespite a shift in consumer preference to unit trust products. The sharpupsurge in life sales in the fourth quarter, which has continued into the newyear, sets us up well for 2007 as a whole. Individual Life sales up 19% Individual APE (Rm) 2006 2005 % ChangeSavings 1,279 1,165 10%Protection 897 710 26%Annuity 193 175 10%Group Schemes 887 685 29%Total 3,256 2,735 19%Single 841 706 19%Recurring 2,415 2,029 19% Individual single premiums showed excellent growth, positively impacted by thebullish investment environment and a strong increase in bancassurance lifesales through the Nedbank Group channel. Bancassurance sales, year-on-year wereup 61% and as a proportion of total life APE grew from 9% last year to 13% thisyear. Sales of single premium savings products also showed good growth,supported by strong demand for our popular Investment Frontiers and MAX productrange. Although we enjoyed strong demand for risk products, life wrapped recurringpremium investment products remain under pressure as a result of negativepublicity around these products. Non-life wrapped sales continue to grow, andsales of recurring premium life savings products through our Group Schemeschannel have increased by 29% as a result of higher sales force numbers. Institutional sales up 11% Institutional APE (Rm) 2006 2005 % ChangeSavings 629 310 103%Protection 99 157 (37%)Annuity 193 162 19%Healthcare 239 420 (43%)Total 1,160 1,049 11%Single 788 425 85%Recurring 372 624 (40%) Single premium sales (which tend to be lumpy in nature) were 85% above lastyear's levels largely as a result of a large Symmetry inflow and several largeschemes in the fourth quarter. Institutional Business life recurring premiumsdeclined mainly as a result of disappointing Healthcare sales which reflectsthe impact of declining membership in our Oxygen scheme following problems withthe approval of new benefit options at the start of 2006. A new 75,000-memberscheme was tendered for and won (coming on stream in 2007) at the end of theyear supporting our efforts to bulk up our healthcare administration. ExcludingHealthcare, Institutional sales (APE) is 46% ahead of 2005. Value of new life business increases as "value for money" for clients improves Across OMSA, the after-tax value of new life business was R781 million, 27%higher than in 2005. This increase is pleasing given our continued focus oninitiatives to improve value for money for customers as well as the investmentswe have made to increase our distribution capacity during 2006. New business APE margins have increased to 18% overall from 16% in 2005. Withinthis result, the Institutional Business margin increased from 18% to 20% andIndividual Business margin increased from 16% to 17%. The margin increased dueto a change in the mix of business sold with increased sales of Group Schemesand Nedlife in individual business and with-profit annuity business inInstitutional Business. The increase in margin was despite the investment ingrowing our sales forces and distribution capability, the switch to lowercharge less capital intensive products, and more competitive pricing of ourproducts. Growth of 17% in funds under management Funds under management increased by 17% buoyed by higher equity markets and netfund inflow. Funds under management include R19 billion of funds introduced aspart of the acquisition of Marriott Property and Income Specialists in July2006. Net fund outflows of R29 billion was disappointing and were severely impactedby the R30 billion of funds withdrawn by the PIC in December 2006 (R10 billionwithdrawal in 2005) and, in the second half of the year, concerns overshort-term performance slippage. Excluding the PIC withdrawal, net fund inflowwas broadly neutral for the year as a result of management actions taken during2006 to reduce the outflow of client funds experienced in 2005 and to improveinflows through our distribution initiatives. The PIC has indicated that itwill place assets with specialists and empowered managers. We believe that withour new boutique structure, investment record and strong empowermentcredentials, we are favourably positioned to compete for asset managementmandates of all types. Cash flows benefited from strong positive unit trust inflows into the wholesaleand retail market during the first six months of the year. We are veryencouraged by the strong net inflows that were achieved by the Symmetrymulti-manager business during the final quarter. Good investment performance continues OMAM (SA) continued to deliver strong investment performance over themedium-term, maintaining its ranking of third out of the eleven institutionalasset managers in the Alexander Forbes South African Global Manager Watch(Large) Survey over the three years to 31 December 2006. At 31 December 2006,81% of funds managed by OMAM (SA) weighted by value outperformed theirbenchmarks over three years. Our Asset management earnings include the resultsof Marriott Property and Income Specialists (acquired in July), which togethercontributed a profit R30 million after integration costs. Excluding the one-offgains in OMSFIN in 2005, Asset Management profits increased 39%. Earnings depressed Total earnings decreased by 6% partially as a result of adjustments made in thethird quarter in our life assurance and healthcare business. Also impacting onour earnings was the increased investment in our distribution capability. Theshift to lower margin and less capital-intensive products subdued expectationsfor core earnings. IFRS earnings were also negatively affected by the rising(Rand) share price. Asset Management profits grew by 9% supported by the effects of a highermarket. LTIR, partially offset by a reduction in life assurance profits,nevertheless rose by 22%, reflecting the growth in assets held in theshareholders' fund over recent years. Although our return on allocated capital dropped in 2006, this is stillconsiderably above our hurdle despite being hit by the adjustments mentionedabove. Strong capital position The capital strength of the South African life company remains strong at a 3.7times coverage of the Statutory Capital Adequacy Requirement (SCAR), afterallowing for statutory limitations on the value of certain assets. Thiscompares with the coverage of 2.8 times at 31 December 2005. BANKING - NEDBANK GROUP (NEDBANK) Growth strategy reflected in performance Headline earnings up 40% to R4,435 million Nedbank has maintained the momentum reported in the interim and third quarterresults, ending the year with a strong performance in the final quarter. Alldivisions recorded strong growth and improved return on equity (ROE) over 2005. Highlights (Rm) 2006 2005 % ChangeAdjusted operating profit 6,940 5,047 38%Headline earnings* 4,435 3,167 40%Net interest income* 10,963 8,529 29%Non-interest revenue* 9,468 8,469 12%Net interest margin* 3.92% 3.55% -Cost to income ratio* 58.2% 64.8% -ROE* 18.6% 15.5% -ROE* (excluding goodwill) 22.1% 18.9% -*As reported by Nedbank Strong performance Adjusted operating profit grew as a result of the continued positive bankingenvironment, increasing growth in both net interest income and non-interestincome, together with disciplined expense management. Average interest-earning banking advances grew by 16.5%, with strong growthexperienced in retail advances, particularly residential home loans. Thisgrowth contributed to an increase in Total Assets to R425 billion. Nedbank has started to show improvements in market share in a number of asset categories particularly retail mortgages and other private sector loans (mainlycorporate lending). This can be attributed to the brand being repositioned as abank for all. Southern Africans, increased brand awareness, price reductions inseveral retail banking products and the launch of a number of new retail productstogether with continued strong performances from Nedbank Capital and NedbankCorporate. Net interest income growth of 29%, Net interest margin increases to 3.92% Net interest income (NII) growth was particularly strong. The margin increasewas driven by the increased endowment together with the higher interest rateenvironment, positive mix changes from the growth in higher margin retail andbusiness banking advances, as well as a change in the advances mix withinNedbank Retail resulting from higher growth in higher margin personal loans.NII benefited from this increase in the margin together with the growth inadvances of 24%. Nedbank anticipates some margin reduction during 2007 as a result of assetgrowth being funded largely by wholesale deposits. This will be partiallyoffset by the remaining endowment effect from the interest rate increases. Impairment losses on loans and advances The impairments charge rose by 25% for the year. The impairments charge toaverage advances remained at low levels at 0.52% for the full year. Impairmentswere negatively impacted by the mix change in advances, referred to above, withhigher margin retail advances and personal loans attracting appropriatelyhigher levels of impairments, but with overall and particularly in thecorporate division, our credit experience remained good. Non-interest revenue growth of 12% Growth in non interest revenue (NIR) was mainly attributable to continuedvolume growth in Nedbank Corporate and Nedbank Retail, property private equityrevaluations and realisations in Nedbank Corporate, private equity revaluationsand realisations in Nedbank Capital, strong deal flow in Nedbank Capital, andstrong growth in Bond Choice origination fees combined with new businesspremium growth in our bancassurance operations. NIR growth has been affected by the price reductions in Nedbank Retail. In July2006 Nedbank Retail reduced fees for individual current account clients by anaverage of 13%. Cost-to-income ratio of 58.2% The improvement in the cost to income ratio is a result of the growth inoperating income and disciplined expense management. As expected, this ratio isabove the level of 57.3% reported in June 2006 due to the planned investment indistribution and branding in the second half of the year. Strong capital position Nedbank remains well capitalised with a Tier 1 capital adequacy ratio of 8.3%(9.4% at 31 December 2005) and total capital adequacy ratio of 11.8% (12.9% at31 December 2005). During the year Nedbank executed a number of initiatives aspart of the group's ongoing long-term capital management programme, which seeksto achieve an optimal and prudent capital structure including the buy-back of13.7 million shares. Nedbank's return on equity (ROE) is now comfortably ahead our cost of capital.While the ROE was ahead of the 2006 target, the planned investment indistribution makes the 55% cost-to-income ratio more challenging in 2007. Award winning bank Nedbank received the international award for Emerging Markets Corporate SocialResponsibility Bank of the Year' for the second consecutive year and the awardfor "Bank of the Year in South Africa" at the Banker's 2006 Awards in London.During 2006 Nedbank was also rated first in its category in the JSE SociallyResponsible Investment Index and again included in the Dow Jones WorldSustainability Index. GENERAL INSURANCE MUTUAL & FEDERAL Highlights (Rm) 2006 2005 % ChangeAdjusted operating profit 1,039 1,178 (12%)Gross premiums* 8,549 8,004 7%Earned premiums* 7,458 6,882 8%Claims ratio* 63% 62% Underwriting ratio* 6.1% 8.4% Solvency ratio* 49% 74% Return on capital* (3 year average) 27.5% 27.4% * As reported by Mutual & Federal Strong performance in a softening cycle Mutual & Federal delivered another year of solid results, achieving premiumgrowth in a softening insurance market. The adjusted operating profit wasboosted by a reserve release of R215 million and was delivered despite theanticipated deterioration in trading conditions in the short-term insurancemarket which resulted in a modest decrease in Mutual & Federal's adjustedoperating profit for the year. Although profitability is 12% lower than lastyear, Mutual & Federal's continued close management of expenses, premium growthdespite persistent pressure on premium income, and an overall relatively lowlevel of claims reflects management's focus on the business's profit levers. Solid premium growth at 7% The increase in total gross premiums for the year was broadly in line withinflation and was achieved despite the intensifying of competition and ongoingpricing pressure on premium income. Underwriting surplus maintained Mutual & Federal generated an underwriting surplus of R455 million, down 21%from a surplus of R577 million in 2005. The underwriting ratio (the ratio ofunderwriting surplus to net earned premiums) was 6.1% (2005: 8.4%). Claims ratio impacted by increased claims The general level of claims increased over last year, with the claims ratioincreasing to 63% from 62%. The motor account was impacted by a sharp increasein the incidence of motor accidents and the continuing escalation in repaircosts. In addition, substantial weather related claims were experienced as aresult of hailstorms during the year. Capital Management The solvency ratio at year end was 49%, substantially impacted by the paymentof a special dividend to shareholders following the detailed review of itscapital requirements (31 December 2005: 74%). The capitalisation award, with acash alternative of 800 cents per share, was paid in September 2006 andrepresented R2.1 billion or 40% of the net asset value of the company. Thecurrent solvency level is considered sufficient to sustain ongoing operations,as well as support the future development of the business. A final dividend of 135c per share was recommended, making a total of 175c forthe year (2005: 155c). Return on capital remained strong as a result of the payment of the specialdividend and the satisfactory underwriting performance during the year. UNITED STATES Excellent Investment performance continues Life sales in target range at good margins Highlights (£m) 2006 2005 % ChangeAdjusted operating profit (IFRS) 251 224 12%Embedded Value adjusted operating profit (covered business) 98 122 (20%)Life assurance sales (APE) 262 290 (10%)Mutual fund sales 743 245 203%Net fund flows (£bn) 16* 14 14%Funds under management (£bn) 134 132 1.5% Highlights ($m) 2006 2005 % ChangeAdjusted operating profit (IFRS) 465 407 14%Embedded Value adjusted operating profit (covered business) 181 222 (18%)Life assurance sales (APE) 482 528 (9%)Mutual fund sales 1,369 445 208%Net fund flows ($bn) 30* 26 15%Funds under management ($bn) 263 227 16%* Excluding the impact of eSecLending. Our US business is well placed to achieve strong growth as we enhance ourproducts and investment styles. We introduced a common management structureacross the Life and Asset Management businesses and aim to implement acoordinated retail distribution strategy in 2007. IFRS adjusted operating profit for the US businesses was driven by strong fundsinflows, positive equity markets and excellent investment performance in our USAsset Management business and sustained growth in assets at US Life. The asset management business enjoyed a 16% increase in funds under managementin US $ terms, notwithstanding the sale of eSecLending and First PacificAdvisors, whilst US Life funds under management grew by 10% to $22 billion. Ona Sterling basis, funds under management reflected the dollar depreciationduring 2006. From 1 January 2007, Old Mutual Asset Managers (UK) (OMAM(UK)), a specialistasset management boutique firm located in London, will become an affiliate ofUS Asset Management. US ASSET MANAGEMENT Strong net client cash inflow Highlights ($m) 2006 2005 % ChangeAdjusted operating profit (IFRS) 235 214 10% Funds under management ($bn) 261 226 15% Net fund flows ($bn) 30* 26 15% Mutual fund sales ($m) 1,369 445 208% Operating margin 28% 26% -*Excludes impact of eSecLending Another strong operating result Operating earnings were strong and benefited from strong transaction and performance fees, and strong asset growth resulting from net cash inflows and positive market conditions. Earnings were boosted by transaction and performance fees of $112 million(2005:$106 million) with a sharp increase in performance fees at Acadian. Inaddition, we benefited from unrealised gains of $18 million in relation to ourseed capital investments in new funds. New earnings were produced from CopperRock and Larch Lane which partially offset a reduction in securities lendingrevenue following the sale of eSecLending in May 2006. The improvement in operating margin came from positive operating leverage,higher average funds under management and a more favourable mix of transactionand performance fees on a stable expense base. Record net funds flows and 15% growth in funds under management Record net fund inflows of $40 billion were achieved for the year ($30 billionexcluding eSecLending), as Acadian (international/ emerging markets "quant"equity), in particular continued to attract inflows. The strong growth in funds under management was driven by record cash flows,strong investment performance and positive equity markets. Excluding thedisposals of eSecLending ($25.4 billion) and FPA ($10.4 billion), funds undermanagement is up 31% from 2005. Excellent fund performance Our affiliates continue to achieve excellent investment performance. At 31December 2006 90% of assets outperformed their benchmarks over three years.Over the same period 78% of assets ranked in the first quartile of their peergroup. Building our business Our Old Mutual Capital initiative gathered momentum with gross sales of $2.3billion, an increase of 77% compared to $1.3 billion last year. Of this, $1.4billion related to mutual fund sales, up 208% on last year. US Asset Management continues to manage and balance its portfolio, with theaddition of growth specialists; Copper Rock Capital Partners in February 2006,and Ashfield Capital Partners in February 2007, and of hedge fund of fundscapability at Larch Lane and 2100. We divested eSecLending in May, and inOctober, our last remaining revenue sharing firm, First Pacific Advisors,executed an MBO. A trend of strong net inflows, a track record of excellent investmentperformance, and a focus on retail distribution place the business in afavourable position to increase funds under management and earnings goingforward. US LIFE Life assets up $2 billion Continued increase in operating profits EV models improved Highlights ($m) 2006 2005 % ChangeAdjusted operating profit (IFRS)* 230 193 19%Return on equity* 7.1% 6.4% Embedded Value adjusted operating profit 181 222 (18%)Return on embedded value (ROEV) 6.1% 8.5% -Life assurance sales (APE) 482 528 (9%)Value of new business 83 93 (11%)New business margin 17% 18% Funds under management ($bn) 22 20 10%* 2005 restated to exclude amortisation of the present value of acquiredin-force business Earnings increased in line with assets, with asset growth driven by premiumsReturn on embedded value (ROEV) at the planned level. Although positiveearnings growth was achieved, this was slowed by the impact of higher interestrates, which led us to strengthen ourv capitalised assumptions on ourMulti-Year Guaranteed Annuities (this gave rise to a $24 million reduction inIFRS earnings in Q3) and poorer than expected mortality experience on SinglePremium Immediate Annuities. EEV assumptions were strengthened for the Single Premium Immediate Annuitiesand Multi-Year Guaranteed Annuities, as highlighted at Q3 and the usage of apenalty-free surrender option. Premiums reached $3.9 billion, in the bandaround $4 billion that we were aiming for, but a little lower than last yearwhen we were at the top of the target range. Together, these resulted in areduction in the ROEV to 6.1% from 8.5%. As we have said, we have also been engaged in a substantial upgrade of oursystems and our modelling capability. This has resulted in the EV being reducedby $107 million. This has been excluded from adjusted EV earnings, anddisclosed separately. ROE increased in line with the improvement in earnings. We maintained ourtargeted risk-based capital ratio at 300% and were happy to see statutoryprofit appear in Q4. The growth in funds under management benefited from strong net inflows,particularly from Old Mutual Bermuda which achieved inflows in excess of $1billion for the first time, and positive market movements.The business remains on track to return cash in 2007. Life sales volumes in target range at good margins Following a strong performance in the final quarter, total life sales were $3.9billion on a gross basis and $482 million on an APE basis. Sales of equity-indexed annuities were the single largest APE contributor andrepresented 43% of total APE. Offshore sales (APE) through Old Mutual Bermuda increased by 66% to $119million, maintaining the strong momentum built in the first half of 2006. Theexceptional growth reflects the strength of our relationships and overallexpansion in the bank distribution network, combined with the attractiveness ofour product range, which includes variable annuity, fixed annuity andequity-indexed products. Offshore annuity sales now represent a quarter ofsales in our US Life business. Margin healthy The after tax value of new business was affected by slightly lower margins andthe reduction in new life sales. Margin remains healthy and within our targetrange, and reflects strong investment performance and overall improvement inour pricing disciplines during 2006. Effective financial management and risk control Our migration to a new actuarial and finance system was successfully executed,with the new system providing enhancements to our internal processes. Wecontinue to improve the required infrastructure to support this growingbusiness. EUROPE 108% surge in operating profit Proforma Highlights (£m)* 2006 2005 % changeIFRS adjusted operating profit 231 111 108%Embedded Value adjusted operating profit (covered business) 394 328 20%Life assurance sales (APE) 881 781 13%Mutual fund sales 4,306 2,715 59%Value of New Business 127 113 12%Net fund inflows (£bn) 6.3 Return on Invested Capital 8.1% Return on Embedded Value (covered business) 13.5% Funds under management (£bn) 52 44 18% *All current and prior year numbers reflect 11 months of results and areadjusted to Old Mutual accounting policies, prior year embedded value numbersare on a Skandia basis but allow for group expenses. Strong business performance Our European business continued to deliver very pleasing performance on theback of strong sales, net client inflows and the increasing scale of ouroperations in the United Kingdom and ELAM divisions. APE sales and margins inthe fourth quarter improved significantly over the third when volumes werelower due to seasonal effects. Our European business now forms a verysignificant part of the Group's operations and international diversification,and is on track to achieve the 2008 targets communicated at the Capital MarketsDay on 20 June 2006. In line with our estimates announced on 20 June 2006, £16million was spent on integration costs realising £12 million of synergies in2006. Adjusted operating profit for the eleven months to 31 December 2006 increasedto £231 million, building on growth in funds under management and strong salesvolumes which delivered higher fund- and premium- based income growth. Value ofnew business grew by 12% driven by an increase in APE. This also contributedpositively to the return on EEV of 13.5%. Our higher than average exposure to baby boomers in our European marketsprovides a real opportunity. In the UK, we will capitalise on the market trendto wrap products with the launch in the summer of the new supermarket platform.The underlying need for advised pension savings remains and these changes arereceiving the committed attention of senior management. In the ELAM Division weare expanding distribution capacity further during 2007. UNITED KINGDOM AND OFFSHORE ProformaHighlights (£m)* 2006 2005 % ChangeIFRS adjusted operating profit 128 34 276%EV adjusted operating profit (covered business) 208 100 108%Life assurance sales (APE) 558 480 16%UK life assurance sales (APE) 396 261 52%Unit trust sales 3,039 1,456 109%Value of new business 55 44 25%New business margin 10% 9% Net fund inflows (£bn) 4.8 Funds under management (£bn) 35 29 29% *All current and prior year numbers reflect 11 months of results and areadjusted to Old Mutual accounting policies, prior year embedded value numbersare on a Skandia basis but allow for group expenses. 2005 figures includeSelestia 2006 was a year of significant achievement for UK Division, characterised bystrong sales, strong net fund inflows and ongoing recognition from ourdistributors. Life sales growth was better than average in the UK market withpension sales, driven by A day, up 65% to £230 November, Skandia UK wereawarded their 26th million and overall life sales, including offshore, up 16%.In Financial Adviser 5-star award in 16 years, which this year included the'Company of the Year' award. The financial results also showed significantimprovement over 2005 with strong growth in both the IFRS and Embedded Valueadjusted operating profit for the year. Growing IFRS profits Adjusted operating profit for the UK division was driven by a higher level offunds under management, the maturity profile of the book and effectiveoperational leverage. The synergy capture process is under way and expenditurehas commenced, and will increase over the coming months in line with our 20June disclosure. Involving an extensive outsourcing arrangement, the businessis in the process of extensive reengineering to enable efficient andcost-effective straight-through processing. The underlying performance of the mutual funds business continued to improvethrough the second half of 2006. The integration of the two fund supermarkets(Skandia MultiFUNDS and Selestia) is progressing in line with expectations. Strong underlying Embedded Value performance Embedded value adjusted operating profit before tax was £208 million, driven bygood growth in new business, strong experience variances and operatingleverage. Our experience variances were positive, driven by higher fee andfavourable surrenders and mortality experience consistent with ourexpectations. Strong growth in funds under management and net fund inflows Net fund inflows were £4.9 billion for the year representing 14% of funds undermanagement. The favourable position was supported by positive market movementsgiving rise to significant growth in funds under management during the year. Strong new business growth in UK life and mutual fund sales The UK Division's open architecture platform, helped by our strong reputationin the industry and the favourable economy and equity markets, continued todeliver strong new business growth, with both life sales on an APE basis andmutual fund sales up strongly in the eleven months to 31 December 2006. Salesin the UK were particularly strong boosted by A Day effects and were 52% up at£396 million APE. Pension sales substantially higher Overall new business levels in the course of 2006 are broadly in line withmanagement expectations with the UK pensions business where high levels ofactivity continued even after "Pensions A-Day" (6th exception of April 2006,the date when the UK government significantly simplified the rules for taxprivilege). UK Pensions business grew in the year by over 65% to £230 millionAPE. Towards the end of the year there was further growth in the sale of life bondsmirroring improved investor confidence arising from equity market appreciation.Offshore business, in line with management expectations remained flat against2005. UK-sourced offshore sales were muted by uncertainty surrounding the taxtreatment of trusts in the early part of the year but improved towards thelatter part of the year as greater understanding of the implications of the newlegislation became apparent. Unit trust sales up 109% to £3 billion Our Selestia and Skandia MultiFUNDS businesses continue to benefit from theIFA's shift to open architecture investment platforms as the preferred strategyfor the management of clients' assets. The launch of the Skandia-manufactured"Best Ideas" funds, including the UK Best Ideas in October, has improved netfund inflows across the group generating gross direct subscriptions exceeding£300 million. Margins improved with new business growing significantly Life new business APE margins post-tax at a product level improved by 10% forthe year. The delivery elements of our integration programme are now welladvanced to deliver the synergies required to reduce administrative costs perpolicy significantly to achieve our target margin in the 11-12% range from mid2008. The value of new business improved by 25% to £55 million, due to strong salesgrowth across our core products. Bankhall successful turn around 2006 has seen Bankhall concentrate on its core services and ensure that itsproposition is meeting fully the needs of the intermediary market. Therefocusing of activity has returned the business to profitable growth whilstreducing income and expenses, the latter to a greater extent. NORDIC ProformaHighlights (SEKm)* 2006 2005 % ChangeIFRS adjusted operating profit 995 971 2%EV adjusted operating profit (covered business)1,447 1,530 (5%)Life assurance sales (APE) 1,769 1,954 (9%)Mutual funds sales 2,144 1,986 8%Value of new business 479 618 (22%)New business margin 27% 32% Net fund inflows (SEK bn) 3.5 Funds under management (SEK bn) 106 95 12% *All current and prior year numbers reflect 11 months of results and areadjusted to Old Mutual accounting policies, prior year embedded value numbersare on a Skandia basis but allow for group expenses. Increased operating profit driven by higher level of funds under management. The increase in adjusted operating profit for the Nordic business is attributable to a higher level of funds under management and positive netclient cash flow in the Swedish unit linked business. Life assurance sales The sales of the 'Kapitalpension' product boosted life sales (APE) temporarilyin 2005 and 2006 saw volumes drop back. New sales of occupational corporatepension schemes (TPS), our largest product, were constant compared to lastyear. Denmark recorded strong growth of 101% in life sales (APE) compared to prioryear following favourable market development in Denmark and an improved productoffering. Sales in 2007 are likely to be lower as the tax effectiveness of theKapitalpension product was removed in February this year and we are only on thepanel for the new ITP agreement through Skandia Liv products. Strong growth in funds under management Funds under management increased following an improvement in market conditionsand higher net inflows from customers and benefiting from a strong fourthquarter after the traditionally slow third quarter holiday season. Margin and EEV Life new business margin was 27%, compared to 32% for the 11 months to 31December 2005. This in part attributable to the lower new sales of theKapitalpension. EV adjusted operating profit declined by 5% to SEK 1,447million. This decrease in EV adjusted operating profit on a pro-forma basis wascaused by the lower value of new business, and a small negative operatingassumption change in 2006 compared to strong positive assumption changes lastyear. The former two effects were partially offset by higher fee income andsurrender experience in line with assumptions. Continued growth in banking business Our banking business continues to strengthen, with lending and depositsachieving good growth during the year. Lending increased to SEK49 billion, up19% on the prior year, mainly due to strong mortgage lending in Norway.Skandiabanken continued to attract new customers and create valuable synergieswith the rest of the Nordic business. Operating profit is lower than 2005,which was impacted by some positive one-offs. This is also in line with 2006expectations where IT projects and expenditures for the Basel II implementationwere planned. Putting the Business on a sound footing for the future There are a series of factors that will affect the earnings from this businessin 2007. Firstly, we have decided to alter the arrangements between Skandia Livand Skandia AB so that there is complete clarity that Liv policyholders'interests continue to be separated from the shareholder interests. This shouldensure that the longstanding debates about governance of Skandia Liv areresolved. We have commenced discussions with the Skandia Liv board and hope tohave these completed in the near future. This will result in greater newbusiness strain borne by our shareholders (SEK 150 million in 2007), and someadditional administration costs (SEK 100 million SEK 150 million per annum),but will enable us to grow profitably in 2008 and beyond. Skandia Liv is anintegral part of our strategy, and we believe it is important to ensure thatthe highest standards of governance are observed. Secondly, the IT systems ofSkandia require significant improvements both to improve service standards andto allow us to improve our products, and we will be investing in these over thenext eighteen months. This will cost approximately SEK 100 million in 2007.This was well understood at the time of acquisition and does not relate to thesynergies, which are being sought at the same time. A new organisationalstructure for Sweden is being put in place and we are confident about thestrength of the underlying Skandia brand in Sweden. EUROPE AND LATIN AMERICA (ELAM) ProformaHighlights (EURm)* 2006 2005 % ChangeIFRS adjusted operating profit 48 9 433%EV adjusted operating profit (covered business) 116 169 (31%)Life assurance sales (APE) 282 231 22%Mutual fund sales 1,629 1,629 0%Value of new business 55 33 66%New business margin 19% 14% Net fund inflows (EURbn) 1.7 Funds under management (EURbn) 13 12 8% *All current and prior year numbers reflect 11 months of results and areadjusted to Old Mutual accounting policies, prior year embedded value numbersare on a Skandia basis but allow for group expenses. Margins in line with target The year ended positively, with strong life assurance sales growth recordedfor the nperiod, delivered through expanded distribution, profitable productsand helped by generally positive equity market sentiment. In 2006 we continued our expansion into new market segments, distributionchannels, IFA networks and products. We also continued our drive for greaterefficiency, and used the existing German back office to launch into Hungary andthe Czech Republic. 2006 has been another year where our businesses have been recognised in theirlocal markets as excellent service providers and strong innovators of financialsolutions. Notable growth was experienced in the French, Polish and Mexicanmarkets. Towards the end of 2006, Austria and France each achieved the landmarkof EUR1 billion funds under management, demonstrating that more and more of our young businesses are achieving scale. Strong operating profit result IFRS adjusted operating result reflects the benefits of strong organic growthin life and mutual fund business, coupled with expense discipline. EEV adjusted operating profit of EUR116 million is 31% below that for 2005. The decrease is primarily attributed to significant and positive operatingassumption changes in 2005, which are marginally negative in 2006. Theunderlying growth, however, is strong due to the increase in new businessresulting in a significant improvement in the value of new business. Life new business sales end on a strong note Particularly strong sales of single premium products in Europe and recurringpremium business in Poland were recorded during the period. Mutual fund sales flat In Latin America, where our pension products are reported as mutual fundsbusiness, we performed strongly during 2006, particularly in the mandatory andcomplementary pension segments in Colombia and in institutional mandatesawarded in Mexico. In Europe, sales in 2005 were inflated by exceptionallysuccessful institutional mutual fund inflows in Spain. As anticipated, theseinflows in Spain decreased notably in 2006 because of the sale of Skandia Vida,offsetting the growth experienced throughout the rest of the Division. Funds under management up 8% Net fund inflows, 14% of opening funds under management, were experiencedduring the year and account for EUR1.7 billion of the increase, withunfavourable market movements accounting for EUR0.7 billion. The overallrevenue-generating quality of the funds under management improved over thecourse of the year. Margin in line with target The value of new business is ahead of last year, reflecting particularly goodgrowth in sales and market share in a number of countries and the increasingeconomies of scale of our operations. The post-tax profit margin of 19% achieved for the eleven-month period is aheadof our medium-term target range of 16-18%, principally reflecting the good newbusiness growth in higher margin markets and increased economies of scale inthe sales activities. Sale of Skandia Vida, Spain In December 2006, we announced we have reached an agreement to sell SkandiaVida, our traditional life business in Spain. The successful completion of thistransaction is in line with Skandia's core European strategy to focus on mutualfund and unit-linked business. OTHER %Highlights (£m) 2006* 2005 ChangeAdjusted operating profit 18 20 (10%)Funds under management (£bn) 12 7 71%Unit trust / Mutual funds sales 1,657 1,072 55%KMOM (India) APE (INRm)** 5,321 2,659 100%Skandia:BSAM APE (RMBm)** 53.8 6.8 691% * Includes results of Skandia Australia and Skandia BSAM (China) for 11 months** This represents 100% of the businesses, OM owns 26% of KMOM and 50% of Skandia:BSAM Australia Australian Skandia Limited (ASL) has been operating in the retail Australianmarket for five years as a unit linked multi manager principally targeting theindependent sector. Intech, a research operation focusing on the institutionalmarket, was acquired in late 2006. Both ASL and Intech will benefit from alarger combined investment research team, providing the enlarged entity withtop-class proprietary research and wider distribution across both retail andinstitutional markets. For the first time since incorporation, the business posted a small profit forthe year and is on track to achieve strong profits in 2007. Funds undermanagement closed at AU$14.2 billion (2005: AU$3.7 billion), consisting ofretail (ASL) AU$5.1 billion and institutional (Intech) AU$9.1 billion. China Our joint venture with the Beijing State-owned Asset Management Company (BSAM)in China has now been in operation for two years and continues to show strongsales growth. The business sells unit-linked products and has licences tooperate in Beijing, Shanghai and Jiangsu Province. Plans are underway to applyfor at least two further branch licenses before the end of the year and to opentwo sub branches in other major cities in Jiangsu Province. For the year ended 31 December 2006 the venture reported a loss of RMB59million. Despite its recent entry into the market, of the 25 foreign ownedjoint venture insurance companies in China, Skandia BSAM had the 10th largestgross premium flows. India Our 26% life associate in India, Kotak Mahindra Old Mutual (KMOM) continues tomake robust progress. Old Mutual has an option to increase its shareholding inthe business, when the Indian Government's proposed increase in the foreigndirect investment limit, currently capped at 26%, comes into effect. In line with the Kotak Mahindra Group, KMOM has a 31 March year-end. Net losses for the 9 months ended 31 December 2006 are INR482 million. Grosspremiums for the 9 months totalled INR5,047 million representing a 96% increaseon 2005. OMAM (UK) 2006 has been a year of investment and of developing the platform for futuregrowth in OMAM (UK). The business reported adjusted operating profit of£13.1million (2005: £10 million). Gross sales for the year exceeded £1.6 billion (2005: £1.1 billion)representing a year-on-year increase of 45%. Full year closing funds undermanagement increased by 23% to £5.7 billion (2005: £4.6 billion). 2006 saw the launch of three single strategy hedge funds and three multistrategy hedge funds. With effect from 1 January 2007, executive responsibilities for OMAM (UK) willbe transferred to US Asset Management. Other Other businesses include Old Mutual Asset Managers Bermuda and Palladyne AssetManagers in the Netherlands. Palladyne funds under management increased by 54%to EUR576 million, (2005: EUR376 million). With effect from 1 January 2007,executive responsibilities for Palladyne will be transferred to Skandia ELAM. Consolidated Income Statementfor the year ended 31 December 2006 £m Year ended Year ended 31 December 31 December Notes 2006 2005Revenue Gross earned premiums 3(iii) 4,713 4,473Outward reinsurance (267) (197)Net earned premiums 4,446 4,276Investment income (net of investment losses) 10,439 6,569Banking interest and similar income 2,441 2,018Fee and commission income, and income from service activities 2,262 1,274Other income 324 215Share of associated undertakings' profit after tax 6 17Total revenues 19,918 14,369 Expenses Claims and benefits (including change in insurance contract provisions) (7,999) (7,795)Reinsurance recoveries 245 226Net claims and benefits incurred (7,754) (7,569)Change in investment contract liabilities (4,655) (1,202)Losses on loans and advances (123) (103)Finance costs (including interest and similar expenses) (91) (40)Banking interest expense (1,461) (1,254)Fees and commission expense, and other acquisition costs (714) (389)Other operating and administrative expenses (2,826) (2,155)Change in third party interest in consolidated funds (278) (80)Goodwill impairment 4(ii) (8) (5)Amortisation of PVIF and other acquired intangibles (379) (24)Profit / (loss) on disposal of subsidiaries, associated undertakings and strategic investments 4(iii) 85 58Total expenses (18,204) (12,763) Profit before tax 1,714 1,606 Income tax expense 5(i) (621) (484)Profit for the financial year 1,093 1,122Profit for the financial year attributable to: Equity holders of the parent 836 867Minority interests Ordinary shares 6 207 203Preferred securities 6 50 52Profit for the financial year 1,093 1,122 Pence Year ended Year ended 31 December 31 DecemberEarnings per share 2006 2005Basic earnings per ordinary share 7(i) 17.0 25.1Diluted earnings per ordinary share 7(i) 16.1 24.3Weighted average number of shares millions 4,705 3,456 Adjusted Operating Profitfor the year ended 31 December 2006Reconciliation of adjusted operating profit to profit after tax £m Year ended Year ended 31 December 31 December Notes 2006 2005 South Africa 3(ii) 1,124 1,083United States 3(ii) 251 224Europe 3(ii) 231 (4)Other 3(ii) 16 20 1,622 1,323Finance costs (130) (37)Other shareholders' income / (expenses) (33) (25)Adjusted operating profit* 1,459 1,261 Adjusting items 4(i) 16 218Profit for the financial year before tax 1,475 1,479Total income tax expense 5(i) (621) (484)Income tax attributable to policyholder returns 239 127Profit for the financial year after tax 1,093 1,122 Adjusted operating profit after tax attributable to ordinary equity holders £m Year ended Year ended 31 December 31 December Notes 2006 2005 Adjusted operating profit* 1,459 1,261Tax on adjusted operating profit 5(iii) (395) (314) 1,064 947Minority interest ordinary shares 6(iii) (224) (185)Minority interest preferred securities 6(ii) (50) (52) 790 710 Year ended Year ended 31 December 31 December Notes 2006 2005Weighted average number of shares (millions) 7(i) 5,222 3,840Adjusted operating earnings per share** (pence) 7(ii) 15.1 18.5 * For long-term and general insurance business, adjusted operating profit isbased on a long-term investment return, includes investment returns on lifefunds' investments in Group equity and debt instruments and is stated net ofincome tax attributable to policyholder returns. For all businesses, adjustedoperating profit excludes goodwill impairment, the impact of acquisitionaccounting, initial costs of Black Economic Empowerment schemes, the impact ofclosure of unclaimed shares trusts, profit / (loss) on disposal ofsubsidiaries, associated undertakings and strategic investments and dividendsdeclared to holders of perpetual preferred callable securities. ** Adjusted operating earnings per ordinary share is calculated on the samebasis as adjusted operating profit. It is stated after tax attributable toadjusted operating profit and minority interests. It excludes incomeattributable to Black Economic Empowerment trusts of listed subsidiaries. Thecalculation of the adjusted weighted average number of shares includes ownshares held in policyholders' funds and Black Economic Empowerment trusts. Consolidated Balance Sheetat 31 December 2006 £m At At 31 December 31 December Note 2006 2005 Assets Goodwill and other intangible assets 5,367 1,570Investments in associated undertakings 83 93Investment property 804 847Property, plant and equipment 499 538Deferred tax assets 511 458Reinsurers' share of insurance contract provisions 763 455Deferred acquisition costs 1,578 1,089Current tax receivable 60 29Loans, receivables and advances 22,804 18,456Derivative financial instruments assets 1,238 1,604Financial assets fair valued through income statement 73,065 35,378Other financial assets 11,568 12,265Short-term securities 1,819 1,764Other assets 3,635 2,373Assets held-for-sale 1,165 36Cash and balances with central banks 2,951 3,051Placements with other banks 665 568Total assets 128,575 80,574 Liabilities Insurance contract provisions 22,495 23,258Financial liabilities fair valued through income statement 57,586 21,187Third party interests in consolidation of funds 3,041 966Borrowed funds 1,676 1,433Provisions 9 542 285Deferred revenue 311 138Deferred tax liabilities 1,393 611Current tax payable 283 178Amounts owed to depositors 25,052 21,145Derivative financial instruments liabilities 1,060 1,634Liabilities held-for-sale 1,107 -Other liabilities 5,266 3,320Total liabilities 119,812 74,155Net assets 8,763 6,419 Shareholders' equity Equity attributable to equity holders of the parent 7,237 4,751Minority interests Ordinary shares 848 1,012Preferred securities 678 656Total minority interests 1,526 1,668Total equity 8,763 6,419 Consolidated Cash Flow Statementfor the year ended 31 December 2006 £m Year ended Year ended 31 December 31 December 2006 2005Cash flows from operating activities Profit before tax 1,714 1,606Capital gains included in investment income (4,076) (4,340)Loss on disposal of property, plant and equipment (1) 8Depreciation of property, plant and equipment 68 61Amortisation and impairment of intangible assets 428 75Impairment of loans and receivables 143 122Share based compensation expense 40 94Share of associated undertakings profit after tax (6) (17)Profit / (loss) arising on disposal of subsidiaries, associated undertakings and strategic investments (85) (58)Other non-cash amounts in profit 68 9Non-cash movements in profit before tax (3,421) (4,046) Reinsurancer's share of insurance contract provisions (785) (83) Deferred acquisition costs (632) (276)Loans, receivables and advances (5,543) (3,233)Insurance contract provisions 2,886 3,307Financial liabilities fair valued through income statement 6,594 2,319Amounts owed to depositors (including bank and money market deposits) 5,251 983Other operating assets and liabilities 555 465Changes in working capital 8,326 3,482Taxation paid (317) (314)Net cash inflow / (outflow) from operating activities 6,302 728 Cash flows from investing activities (Acquisition) / disposal of financial investments (4,294) 644(Acquisition) / disposal of investment properties (4) 40Net acquisition of tangible fixed assets (120) (83)Net acquisition of intangible fixed assets (39) (17)Acquisition of interests in subsidiaries (1,318) (56)Disposal of interests in subsidiaries, associated undertakings and strategic investments 78 33Net cash (outflow) / inflow from investing activities (5,697) 561 £m Year ended Year ended 31 December 31 December 2006 2005Cash flows from financing activities Dividends paid to: Equity holders of the Company (281) (184)Equity minority interests and preferred security interests (200) (99)Interest payable (excluding banking interest payable) (52) (40)Net proceeds from issue of ordinary shares (including by subsidiaries to minority interests) 52 2Repayment of convertible debt - (336)Issue of subordinated debt 297 259Other debt issued / (repaid) (96) (10)Issue of perpetual preferred callable securities - 688Net cash inflow / (outflow) from financing activities (280) 280 Net (decrease) / increase in cash and cash equivalents 325 1,569Effects of exchange rate changes on cash and cash equivalents (575) 86Cash and cash equivalents on acquisition of new subsidiaries 581 -Cash and cash equivalents at beginning of the period 3,303 1,648Cash and cash equivalents at end of the year 3,634 3,303 Consisting of: Coins and bank notes 236 196Money at call and short notice 2,190 2,268Balances with central banks (other than mandatory reserve deposits) 9 59Mandatory reserve deposits with central banks 516 528Cash and balances with the central banks 2,951 3,051Placements with other banks 665 568Other cash equivalents 1,101 381Cash and cash equivalents subject to consolidation of funds (1,083) (697)Total 3,634 3,303 Other supplementary cash flow disclosures Interest income received (including banking interest) 4,059 3,322Dividend income received 513 488Interest payable (including banking interest) 1,552 1,294 Cash flows presented in this statement include all cash flows relating topolicyholders' funds for the long-term business. Cash and cash equivalents subject to consolidation of funds are not included inthe cash flow. Statement of Changes in Equityfor the year ended 31 December 2006 Millions £m Number of Attributable to shares issued equity holders ofYear ended 31 December 2006 and fully paid the parentEquity holders' funds at beginning of the year 4,090 4,751Change in equity arising in the year Fair value gains / (losses): Property revaluation - 28Net investment hedge - 75Available-for-sale investments - (94)Shadow accounting - 28Currency translation differences / exchange differences on translating foreign operations - (852)Other movements - 38Aggregate tax effect of items taken directly to or transferred from equity - 14Net expense recognised directly in equity - (763)Profit for the year - 836 Total recognised income and expense for the year - 73Dividend for the year - (321)Net sale of treasury shares - 18Issue of ordinary share capital by the Company 1,400 2,674Net acquisition of interests in subsidiaries - -Exercise of share options 11 14Fair value of equity settled share options - 28Equity holders' funds at end of the year 5,501 7,237 £m Total minority TotalYear ended 31 December 2006 interest equityEquity holders' funds at beginning of the year 1,668 6,419Change in equity arising in the year Fair value gains / (losses): Property revaluation - 28Net investment hedge - 75Available-for-sale investments - (94)Shadow accounting - 28Currency translation differences / exchange differences on translating foreign operations (208) (1,060)Other movements (42) (4)Aggregate tax effect of items taken directly to or transferred from equity - 14Net expense recognised directly in equity (250) (1,013)Profit for the year 257 1,093 Total recognised income and expense for the year 7 80Dividend for the year (160) (481)Net sale of treasury shares - 18Issue of ordinary share capital by the Company - 2,674Net acquisition of interests in subsidiaries 11 11Exercise of share options - 14Fair value of equity settled share options - 28Equity holders' funds at end of the year 1,526 8,763 £m Share ShareYear ended 31 December 2006 capital premium Attributable to equity holders of the parent at beginning of the year 410 730Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - -Net investment hedge - -Available-for-sale investments - -Shadow accounting - -Currency translation differences / exchange differences on translating foreign operations - -Other movements - -Aggregate tax effect of items taken directly to or transferred from equity - -Net expense recognised directly in equity - -Profit for the year - - Total recognised income and expense for the year - -Dividend for the year - -Net sale of treasury shares - -Issue of ordinary share capital by the Company 139 3Exercise of share options 1 13Fair value of equity settled share options - -Attributable to equity holders of the parent at end of the year 550 746 £m Other TranslationYear ended 31 December 2006 reserves reserve Attributable to equity holders of the parent at beginning of the year 374 357Changes in equity arising in the year: Fair value gains / (losses): Property revaluation 28 -Net investment hedge - 75Available-for-sale investments (94) -Shadow accounting 28 -Currency translation differences / exchange differences on translating foreign operations - (852)Other movements (6) -Aggregate tax effect of items taken directly to or transferred from equity 11 (1)Net expense recognised directly in equity (33) (778)Profit for the year - - Total recognised income and expense for the year (33) (778)Dividend for the year - -Net sale of treasury shares - -Issue of ordinary share capital by the Company 2,532 -Exercise of share options - -Fair value of equity settled share options 28 -Attributable to equity holders of the parent at end of the year 2,901 (421) £m Perpetual preferred Retained callable Year ended 31 December 2006 earnings securities Total Attributable to equity holders of the parent at beginning of the year 2,192 688 4,751Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - - 28Net investment hedge - - 75Available-for-sale investments - - (94)Shadow accounting - - 28Currency translation differences / exchange differences on translating foreign operations - - (852)Other movements 44 - 38Aggregate tax effect of items taken directly to or transferred from equity 4 - 14Net expense recognised directly in equity 48 - (763)Profit for the year 836 - 836 Total recognised income and expense for the year 884 - 73Dividend for the year (321) - (321)Net sale of treasury shares 18 - 18Issue of ordinary share capital by the Company - - 2,674Exercise of share options - - 14Fair value of equity settled share options - - 28Attributable to equity holders of the parent at end of the year 2,773 688 7,237 £m At 31 DecemberOther reserves 2006 Merger reserve 2,716Available-for-sale reserve 28Property revaluation reserve 48Cash flow hedge reserve (1)Share based payments reserve 110 Attributable to equity holders of the parent at end of the year 2,901 Retained earnings have been reduced by £704 million at 31 December 2006 inrespect of own shares held in policyholders' funds, ESOP trusts, Black EconomicEmpowerment trusts and other related undertakings. Included in the dividend for the year is £39 million of dividends declared toholders of perpetual preferred callable securities (see note 11). Included within issue of ordinary share capital by the Company are transactioncosts totalling £2 million deducted from the share premium. Included within other reserves is the merger reserve for the additional shareconsideration made in respect of the Skandia acquisition, being the differencebetween the market value of the shares on the date of issue and the nominalvalue included as share capital. Millions £m Number of Attributable to shares issued equity holders ofYear ended 31 December 2005 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 - 27Net 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 - 34Net income recognised directly in equity - 63Profit for the year - 867 Total recognised income and expense for the year - 930Dividend for the year - (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 - 80Equity 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 - 27Net 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 - 34Net income recognised directly in equity 35 98Profit 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 100Equity holders' funds at end of the year 1,668 6,419 £m Share ShareYear ended 31 December 2005 capital premium Attributable to equity holders of the parent at beginning of the year 386 600Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - -Net investment hedge - -Available-for-sale investments - -Shadow accounting - -Currency translation differences / exchange differences on translating foreign operations - -Cash flow hedge amortisation - -Redemption of convertible bonds - -Other movements - -Aggregate tax effect of items taken directly to or transferred from equity - -Net expense recognised directly in equity - -Profit for the year - - Total recognised income and expense for the year - Dividend for the year - -Net purchase of treasury shares - -Issue of perpetual preferred callable securities - (9)Issue of share capital by the Company 23 136Exercise of share options 1 3Fair value of equity settled share options - -Attributable to equity holders of the parent at end of the year 410 730 £m Other TranslationYear ended 31 December 2005 reserves reserve Attributable to equity holders of the parent at beginning of the year 445 122Changes in equity arising in the year: Fair value gains / (losses): Property revaluation 27 -Net investment hedge (50) (28)Available-for-sale investments (249) -Shadow accounting 117 -Currency translation differences / exchange differences on translating foreign operations - 263Cash 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) 235Profit for the year - - Total recognised income and expense for the year (151) 235Dividend for the year - -Net purchase of treasury shares - -Issue of perpetual preferred callable securities - -Issue of share capital by the Company - -Exercise of share options - -Fair value of equity settled share options 80 -Attributable to equity holders of the parent at end of the year 374 357 £m Perpetual preferred Retained callable Year ended 31 December 2005 earnings securities Total Attributable to equity holders of the parent at beginning of the year 1,712 - 3,265Changes in equity arising in the year: Fair value gains / (losses): Property revaluation - - 27Net 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) - (21)Aggregate tax effect of items taken directly to or transferred from equity - - 34Net expense recognised directly in equity (21) - 63Profit for the year 867 - 867 Total recognised income and expense for the year 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 2,192 688 4,751 £m At 31 DecemberOther reserves 2005 Merger reserve 184Available-for-sale reserve 68Property revaluation reserve 39Cash flow hedge reserve (3)Share based payments reserve 86Attributable 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. Income tax expense Analysis of total income tax expense £m Year ended Year ended 31 December 31 December 2006 2005 Current tax United Kingdom tax Corporation tax 61 50Double tax relief (26) (45)Overseas tax South Africa 282 256United States 16 -Europe 54 1Secondary Tax on Companies (STC) 36 17Prior year adjustments (3) 27Total current tax 420 306 Deferred tax Origination of temporary differences 203 201Changes in tax rates / bases - 6Write down / (recognition) of deferred tax assets (2) (29)Total deferred tax 201 178 Total income tax expense 621 484 END This information is provided by RNS The company news service from the London Stock Exchange

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