Results for the six months

10th Aug 2007 07:01

Old Mutual PLC10 August 2007 OLD MUTUAL PLCISIN: GB0007389926JSE share code: OMLNSX share code: OLMIssuer code: OLOML 10 August 2007 Results for the six months ended 30 June 2007 Steady profits underlying growth strong • Net client cash flows (NCCF) £11.8 billion, 10% of opening funds undermanagement(FUM) on an annualised basis • Life APE up 10% to £859 million (up 17% at constant exchange rates) o SA retail up 21% as sales force productivity and bancassurance grows,corporate flat o US up 34%: Bermuda variable annuities strong o UK up 23%: Open architecture continues to thrive o Nordic slower following tax changes and price pressure o ELAM: matches last year's highs • Investment performance strong in US and Europe, recovering in SA • Funds under management up 11% to £263 billion • Skandia continuing to exceed acquisition assumptions in total and on track todeliver promised synergies • US Life actuarial review complete and provisions made; business now wellpositioned for the future • Adjusted earnings per share steady at 8.2p on an IFRS basis (30 June 2006:8.5p*) • Adjusted embedded value per share (EEV basis) 161.6p at 30 June 2007 (31 December 2006: 161.1p***) • Interim dividend increased by 10% to 2.3p (32.59 cents**) per share, in linewith underlying growth rates Jim Sutcliffe, Chief Executive, commented: "Underlying business performance during the first half, driven by high-quality investment management, resulted in strong net client cash flows and growth in funds under management - the key driver of profitability. The Skandia synergy and development targets are on track. Group earnings, however have been muted by the strengthening of the Sterling against the Rand and the US Dollar, and the provisions following the completion of the actuarial review in the USA. Ourstrong capital position and powerful set of international businesses will allowus to grow even if economic conditions continue to be turbulent." Enquiries Investor RelationsMalcolm Bell UK +44 (0)20 7002 7166Deward Serfontein SA +27 (0)21 509 8709 MediaJames Crampton UK +44 (0)20 7002 7133Nad Pillay SA +27 (0)21 504 8026 College Hill (UK)Tony Friend UK +44 (0)20 7457 2020Gareth David UK Notes Wherever the terms asterisked in the Financial Highlights are used, whether inthe Financial Highlights, the Chief Executive's Statement, the Group FinanceDirector's Review or the Business Review, the following 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, the impact of closure of unclaimed shares trusts, profit/(loss)on disposal of subsidiaries, associated undertakings and strategic investmentsand dividends declared to holders of perpetual preferred callable securities. Adjusted operating earnings per ordinary share is calculated on the same basisas adjusted operating profit. It is stated after tax attributable to adjustedoperating profit and minority interests. It excludes income attributable toBlack Economic Empowerment (BEE) trusts of listed subsidiaries. The calculationof the adjusted weighted average number of shares includes own shares held inpolicyholders' funds and BEE trusts. ** Indicative only, being the Rand equivalent of 2.3p converted at the exchangerate prevailing on 30 June 2007. The actual amount to be paid by way of interimdividend to holders of shares on the South African branch register will becalculated by reference to the exchange rate prevailing at the close ofbusiness on 18 October 2007, as determined by the Company, and will beannounced on 19 October 2007. *** Restated due to addition of own shares in Employee Share Ownership Plans(ESOP). 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) and 10:30 a.m. (Swedish and South African time) today on theCompany's website, www.oldmutual.com. Analysts and investors who wish toparticipate in the call should dial the following toll-free numbers: UK 0500 101 630Sweden 0200 887 651South Africa 0800 991 468North America +1 877 491 0064 Playback (available until midnight on 24 August 2007): UK 0207 031 4064UK toll-free 0800 358 1860Sweden +46 (0) 850 520 333North America toll-free +1 888 365 0240North America toll +1 954 334 0342 Access code: 761356 A full copy of these results together with high-resolution images (athttp://oldmutual.com) and biographical details of the Executive Directors ofOld Mutual plc, are available in electronic format to download from theCompany's website. A Financial Disclosure Supplement relating to the Company's Interim results canbe found on the website. This contains a summary of key financial data for 2007and 2006. An interview with Jim Sutcliffe, Chief Executive, in video, audio and text is available on the Company's website, www.oldmutual.com, and on www.cantos.com. Chief Executive's Statement Steady profits underlying growth strong Old Mutual's international savings and wealth management business has grownprofitably during the first half of 2007. The Group's open architecture modeland good investment performance have continued to attract strong inflows duringthe period, with net client cash flow of £11.8 billion, representing 10% ofopening funds under management on an annualised basis. These inflows, togetherwith positive equity markets in the main countries in which we operate,delivered an increase in overall funds under management, one of our keymeasures of performance, of 11% to £263 billion from the 2006 year-end positionof £237 billion. IFRS earnings were down slightly in Sterling terms, at 8.2p, compared to theequivalent period last year (8.5p), largely due to the strength of Sterlingagainst the Rand and the US Dollar during the first half of 2007.Assuming constant exchange rates, H1 2006 adjusted operating EPS would havebeen 7.0p, with the currency impact being 1.0p and the impact of the increasein issued shares being 0.5p. As a result of the underlying growth profile of the business, the Board ispleased to declare an increase in the interim dividend of 10% to 2.3p a share. Europe In the UK, our industry leading open architecture platform, which enables awide range of investment choices for IFAs and clients continued to boost salesand net client cash flows. Post "A-Day" demand continues to benefit thebusiness with pension sales up by 32% to £249 million. Adjusted operatingprofit for the UK increased to £80 million from £73 million and new businessmargins increased to 11% as a result of the operating leverage delivered by a23% increase in life sales and a 13% increase in funds under management to £41 billion. During the period we announced the launch of Selestia InvestmentSolutions, the combination of Old Mutual's Selestia platform and SkandiaMultiFUNDs, giving financial advisers a single, easy-to-understand marketproposition. This is well positioned to harness the market's demand forsimplicity, flexibility and choice. The integration of the two platforms willdeliver further revenue synergies above those originally announced and goeslive on 15 August 2007. Adjusted operating profit at Nordic benefited from higher levels offunds under management (up SEK 7 billion) and some exceptional profits insmaller lines of business. However, sales were depressed by the Swedishgovernment's removal of the tax privileges of a key product, Kapitalpension inthe first quarter, and by our early adoption of a level commission structure.EEV earnings were further depressed by the need to make provisions for pricingadjustments introduced in response to lowered charges from our competitors, andnew business margins were depressed by the negative gearing of the lower saleslevels. The Swedish market, in particular, remains very competitive. Goodprogress is being made in putting this division on to a sounder footing for thefuture with Skandia and Skandia Liv, the wholly-owned mutual life business,signing agreements to resolve a number of operating legacy issues andinvestment in the IT platform which will provide benefits by allowing speedierproduct development. This will cost some SEK 100 million in the second half.We have welcomed Bertil Hult this week, as our Nordic CEO. In ELAM, strong performance in Central European (especially Poland)markets, particularly in relation to regular premium sales, was offset by lowersales in southern Europe, most notably in Spain and Italy. Profit for the ELAMdivision grew by 67%, reflecting the scale benefits of organic growth, thoughagainst a soft comparative period in 2006. Overall, we remain ahead of our acquisition assumptions and we remain on trackto meet our stated synergy targets for the middle of next year. South Africa OMSA's overall profit was up 28% benefiting from the JSE's strong performanceand some one-off items. The focus given to growing the sales force andfostering better broker relations has had a positive impact on retail lifesales and margins. The Retail Mass division, aimed at capturing new businessfrom lower income customers, achieved a R120 million (up 32%) increase insales, while the Retail Affluent division, concentrating on middle income and higher net worth individuals, grew total life sales by R174 million (up 16%). Bancassurance sales achieved through the Nedbank channel also continued to growstrongly, up 33% on the corresponding period in 2006. Concerns over historic short-term investment performance resulted in unit trust sales that did not reach last year's historic highs and negative net client cash flow in the corporate segment. Performance at OMIGSA is improving as the business is beddeddown and the results of a common risk management support function come into effect. Nedbank momentum continues, with a 32% increase in headline earnings on a localcurrency basis. Nedbank exceeded its 2007 target of 20% RoE for the first timein the first quarter, ending the six months at a solid 21.2%. Its cost toincome ratio for the half year fell to its target of 55% for the year, althoughthis will be affected for the rest of 2007 by continuing high levels ofinvestment in its retail programme. Net interest income grew 30% to R6 568 million, mainly as a result of the 30.9% growth in average interest-earning banking assets. Non-interest revenue increased by 5% to R4 742 million for the period. Expenses increased by 14.9% to R6 238 million, reflecting the group's continued expense management, balanced by the need to invest for growth. Profits at our general insurance business, Mutual & Federal, were affected bysome adverse weather-related and motor claims. However the premium cycle doesappear to have turned, evidenced by a recent hardening of rates. Ourlong-standing CEO, Bruce Campbell, has decided to pursue different challengesand leaves the Company, after 34 years on 15 August 2007. He is succeeded byKeith Kennedy, who moves up from Executive General Manager: Claims and BusinessServices. Our ongoing and widely-recognised commitment to the social and economictransformation of South Africa was boosted even further by the establishment ofthe Masisizane Fund, with proceeds set aside for it from the closure of theUnclaimed Shares Trust. The aim of the Fund is to support a number of economictransformation initiatives including women entrepreneurs, financial education,and capacity building in local and provincial government. USA Continuing good investment performance at our US asset management affiliatesonce again delivered excellent net client cash flows, attracting $17 billion.This performance, together with the acquisition of Ashfield, has raised totalfunds under management from $274 billion to $315 billion and increased IFRS-adjusted operating profit by 28%. Mutual fund sales at Old Mutual CapitalPartners rose by 29%, underlining the potential of our strategic retailinitiatives. Award-winning investment performances at Old Mutual Asset Managers(UK), which is now reported as part of the US asset management division, helpeddeliver an outstanding second quarter, with unit trust sales up by 56%. Excellent sales through Old Mutual Bermuda, our offshore variable annuitybusiness unit now representing 44% of APE sales in the US Life business, andstrong demand for fixed indexed annuities, helped the Group produce a 41%increase in total life sales to $2.5 billion. We completed our investigation into the actuarial models used in the US Lifebusiness. As a result, we decided to strengthen our annuitant mortalityassumptions in particular and, amongst other things, adopted a moreconservative approach to future assumed spreads. This led to a $185 millionadjustment to post-tax embedded value and a $60 million adjustment to pre-taxIFRS-adjusted operating profits. Underlying profits were in line with the firstquarter at an annual rate of about 1% of assets. We believe this business isnow on a sound footing for the future, and we will not constrain sales in thesecond half as we have in past years. The business remains on track to return cash to the Group by the end of 2007. Asia Pacific Our joint venture partnerships in China and India continue to make steadyprogress. Kotak Mahindra Old Mutual (KMOM), in which we have a 26% stake, hasexpanded its distribution footprint to include representation in 51 citiesthroughout India, and gross premiums for the six months were INR6.9 billion(£82 million). In China, buoyant equity markets have helped drive sales of unit-linkedproducts, placing the joint venture in seventh position on a gross premiumbasis out of the 25 foreign-affiliated insurance companies, with premiums inthe six months of RMB807 million (£53 million). Summary and outlook Underlying business performance during the first half, driven principally by high-quality investment management, resulted in strong net client cash flows and growth in funds under management - the key driver of profitability. The Skandia synergy and development targets are on track. Group earnings, however, have been muted by the strengthening of the Sterling against the Rand and US Dollar, and the provisions following the completion of the actuarial review in the USA. Our strong capital position and powerful set of international businesses will allow us to grow even if economic conditions continue to be turbulent. Jim SutcliffeChief Executive 10 August 2007 Group Finance Director's Review GROUP RESULTS Group Highlights (£m) H1 2007 H1 2006 % Change Adjusted operating profit (IFRS basis) (pre-tax) 757 771 (2%)Adjusted operating profit (EEV basis) (pre-tax) 782 885 (12%)Profit before tax (IFRS) 898 815 10%Adjusted operating earnings per share (IFRS basis) 8.2p 8.5p (4%)Adjusted operating earnings per share (EEV basis) 8.7p 9.8p (11%)Basic earnings per share (IFRS basis) 9.6p 8.0p 20%Value of new business 124 121* 2%PVNBP 6,843 5,963*# 15%Life assurance sales (APE) 859 779* 10%Unit trust/mutual funds sales 4,171 4,252* (2%)Net client cash flows (£bn) 11.8 9.7 22%Interim dividend 2.30p 2.10p 10% Group Highlights H1 2007 FY 2006 % Change Embedded value (£bn) 8.9 8.9** -Adjusted embedded value per share (EEV basis) 161.6p 161.1p** -Funds under management (£bn) 263 237 11%Return on equity (annualised basis) (%) *** 13.4% 12.0% Return on embedded value (annualised basis) (%) 14.5% 13.8% * Pro forma six months# Restated due to change in the calculation of US Life APE to align with thevalue of new business calculation** Restated due to addition of own shares in ESOP*** Return on equity is calculated using adjusted operating profit after taxand minority interests on an IFRS basis with allowance for accrued couponpayments on the Group's hybrid capital. The average shareholders' equity usedin the calculation excludes hybrid capital During the first half of 2007, Old Mutual has experienced strong sales andpositive net client cash flows in most businesses. In Europe we have continued to benefit from being the open architecture leaderin the UK and growth continued in ELAM. In Nordic, year-to-date APE salesdeclined compared to the same period last year due to a drop in Sweden. SouthAfrican life sales were 17% higher in Rand terms although 7% lower in Sterling.In the US, APE was up by 34% in US Dollar terms driven by the exceptionalgrowth in Bermuda. IFRS-adjusted operating earnings per share 8.2p Earnings per share were held back by Rand and US Dollar currency depreciationtogether with the full impact of additional shares issued in relation to theacquisition of Skandia. H1 2006Group Highlights (£m) restated at H1 2007 H1 2006 2007 ratesAdjusted operating profit Africa 608 591 474United States 106 137 124Europe 129 126 121Other 2 1 2 845 855 721Other shareholders expenses (19) (20) (20)Finance costs (69) (64) (64)Adjusted operating profit before tax and MI 757 771 637Tax (177) (196) (147)Minority Interest (138) (145) (112)Adjusted operating profit after tax and MI 442 430 378Adjusted operating EPS (pence) 8.2 8.5 7.0 Assuming constant exchange rates, H1 2006 adjusted operating EPS would havebeen 7.0p with the currency impact being 1.0p and the impact of the increase inissued shares being 0.5p. Net client cash flows Overall Old Mutual's NCCF's were a very healthy £11.8 billion representing 10%of opening FUM on an annualised basis. Our USAM business delivered excellentnet inflows of £8.7 billion representing 12% of opening FUM on an annualisedbasis, while the Skandia businesses achieved £3 billion of NCCF's, representing12% of FUM. Within this figure Skandia UK achieved an outstanding £2.4 billionrepresenting 13% of opening FUM on an annualised basis. Within OMSA, net clientcash flow remained a challenge, primarily due to net outflows from our thirdparty asset management businesses as a result of concerns over last year'sinvestment performance. Adjusted embedded value per share 161.6p Adjusted group embedded value (EV) was unchanged at £8.9 billion at 30 June2007 (31 December 2006: £8.9 billion, restated from £8.6 billion##). The adjusted Group EV per share is 161.6p as at 30 June 2007. This represents a slight increase from 160p(restated from 157.2p) as at 1 January 2007. The movement in EV per share has largely been driven by the net impact of adjusted operating profit and other profit flows including investment variances but, hasbeen negatively impacted by currency movements and the lower organic earnings in South African and US covered businesses. ## Please note that after allowing for the opening adjustment calculated now aspart of the fair value balance sheet exercise and including the adjustment forthe value of ESOP shares, the adjusted Group EV is at 1 January 2007 is £8.8billion and the EEV per share at 31 December 2006 is 160p Skandia synergies on track The Skandia integration and synergy benefits of £70 million per annum(announced in June 2006) are on track to be delivered by the end of 2008, andan additional £10 million per annum of revenue synergies were announced in June 2007. However, 2007 is the key year for investment in synergy initiatives with £17 million incurred in the first half. It is expected that £46 million will be incurred this year as communicated in June 2006. Value of new business growing The value of new business grew strongly to £124 million driven by very strongsales at Skandia UK and Bermuda. In the UK, strong growth in new business salesover the first half of 2007, coupled with lower acquisition expenses has led toan increase in APE profit margin and value of new business. In Nordic, the APEprofit margin declined due to lower sales and higher marketing expenses. InELAM, the VNB was maintained although there was a shift towards high marginPolish business. In South Africa, the value of new business increased due to anoverall increase in margins, particularly on individual business, whichincreased from 12% to 16% due to operating leverage from the higher newbusiness sales, improvement in distribution expenses and higher margin riskbusiness sold. In the US, margins and VNB were higher due to the Bermudanbusiness which contributed 65% of the new business value. Return on equity up Return on equity for the Group improved to 13.4% on an annualised basis from12.0% reflecting the improvement in the earnings run rate compared to 2006. Robust capital position The Group's gearing level remains comfortably within our target range, withsenior debt gearing at 30 June of 4.4% (5.9% at 31 December 2006) and totalgearing, including hybrid capital, of 23.1% (21.4% at 31 December 2006). Theoverall increase in gearing was primarily as a result of a payment to SkandiaLiv in connection with the finalisation of the Liv-Link agreement. In January 2007, the Group issued Euro750 million of Lower Tier 2 PreferredCallable Securities, the proceeds of which were used, in part, to finance therepayment of a Euro400 million senior Eurobond that matured in April 2007. The Group has continued to develop its Economic Capital programme. At 31 December 2006 our Economic Capital Requirement was £4.1 billion and thecorresponding Available Financial Resources (AFR) was £7.1 billion. Acomfortable surplus exists within each of our South African, US and Europeanregions, meaning that the Group is not reliant for its economic solvency on theneed to transfer capital between geographies. The Group is in compliance with the Financial Groups Directive capitalrequirements, which apply to all EU-based financial conglomerates. Our FGDsurplus was £1.6 billion at 30 June 2007 and we seek to maintain an FGD surplusbuffer of around £750 million to £1 billion. Capital requirements are set by the Board whilst recognising theneed to maintain appropriate credit ratings and meet regulatory requirements. Taxation The Group's effective tax rate### for the period ended 30 June 2007 of 23%decreased from 29% for the corresponding period in 2006. The net effective ratein 2006 was high due to the level of the investment return adjustment for Groupequity and debt instruments held in life funds, much of which is taxed at theSouth African statutory tax rate of 29%. In 2007 this adjustment is minimal. Inaddition, the 2007 effective tax rate has benefited from the recognition of certain previously unrecognised deferred tax assets and the reduction in deferred tax liability arising from the reduction in UK tax rates effective 1 April 2008. ### Based on the tax excluding income tax attributable to policyholder returnsas a proportion before tax but after income tax attributable to policyholderreturns Dividend The directors of Old Mutual plc have declared an interim dividend of 2.30p pershare**** for the six months ended 30 June 2007, to be paid on 30 November 2007. This represents an increase in dividend per share of 10% over the 2006 interim dividend. The indicative Rand equivalent of this interim dividend^ is 32.59c, an increase of 17%. The Board's policy on dividends is to seek to achieve steadily increasing returns to shareholders over time, reflecting the underlying rate of progress and cash flow requirements of Old Mutual's businesses. **** The record date for this dividend payment is the close of business onFriday, 9 November 2007 for all the Exchanges where the Company's shares arelisted. The last day to trade cum-dividend on the JSE and on the Namibian,Zimbabwe and Malawi Stock Exchanges will be Friday, 2 November 2007 and on theLondon Stock Exchange on Wednesday, 7 November 2007. The shares will tradeex-dividend from the opening of business on Monday, 5 November 2007 on the JSEand the Namibian, Zimbabwe and Malawi Stock Exchanges, and from the opening ofbusiness on Wednesday, 7 November 2007 on the London Stock Exchange. 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, 18 October 2007 and will be announced by theCompany on Friday, 19 October 2007. Share certificates may not be dematerialised or rematerialised on the South African branch register between Monday, 5 November and Friday, 9 November 2007,both dates inclusive, and transfers between the registers may not take place during that period ^ Based on rates at 30 June 2007 (R14.16772 = £1) Holding company cash flow The table below shows the cash flows of the Old Mutual plc holding company andits satellite holding companies. We believe this provides a clearer picture ofthe receipts and payments of available cash within the Old Mutual Group thanthe IFRS holding company cash flow statement. £m £m Total gross debt 31 December 2006 2,483Opening liquid assets held centrally 76 Operational receipts 229 Capital receipts 69 Net debt raised 232 New equity issuance 3 Operational expenses (87) Other expenses (83) Acquisitions (21) FX adjustments and other items 20 Cash available 438 Old Mutual plc dividend paid (218) Organic investment (160) Closing liquid assets held centrally 60 Net debt raised 232Adjustments 13Total gross debt 30 June 2007 2,728Liquid assets held centrally (60)Total net debt 30 June 2007 2,668 Total available cash within the holding company at the end of 2006 was £76 million. During the first half of 2007, the holding company received a total of £298 million of operational and capital receipts from business units, plus net debt and equity proceeds of £235 million. After operational expenses, other expenses, acquisition payments and adjustingitems, there was £438 million in available cash, of which £218 million was usedto pay the Old Mutual plc 2006 final dividend and £160 million invested in thebusinesses. The balance of remaining cash at the end of June 2007 was £60 million. Long-Group Highlights H1 2007 (£m) term Asset General business Management Banking Insurance OtherAdjusted operating profit (IFRS basis) (pre-tax) 369 144 296 36 (88)Adjusted operating profit (EEV basis) (pre-tax) 389 144 296 36 (83)Profit before tax (IFRS) 485 148 296 47 (78)Value of new business 124 - - - -Life assurance sales (APE) 859 - - - -Unit trust/mutual funds sales - 4,171 - - -Net client cash flows (£bn) 9.6 2.2 - - -Funds under management (£bn) 77 182 - - 4 Long- Group Highlights H1 2006 (£m) term Asset General business Management Banking Insurance OtherAdjusted operating profit (IFRS basis) (pre-tax) 408 125 280 42 (84)Adjusted operating profit (EEV basis) (pre-tax) 516 125 280 42 (78)Profit before tax (IFRS) 314 196 303 64 (62)Value of new business 111 - - - -Life assurance sales (APE) 723 - - - -Unit trust/mutual funds sales - 4,252 - - -Net client cash flows (£bn) 7.6 2.1 - - -Funds under management (£bn) 65 149 - - 4 Jonathan NichollsGroup Finance Director10 August 2007 COMPARATIVE INFORMATIONThe reporting format for Old Mutual plc for the first half 2007 reportingperiod is as follows: • All Group comparative interim reporting information on earnings includeSkandia from the date of acquisition of 1 February 2006 (unless indicatedotherwise). • Within the financial statements the Europe division comparative informationis from the date of acquisition of 1 February 2006. • Where Europe information is shown within the business review, this has been adjusted on a pro forma basis to reflect ownership from 1 January 2006. Business Review EUROPE Net client cash flows continue at a high level Pro forma* Highlights (£m) H1 2007 H1 2006 % changeIFRS-adjusted operating profit 129 129 -EV-adjusted operating profit (covered business) 176 211 (17%)Life assurance sales (APE) 554 488 14%Mutual fund sales 2 232 2 296 (3%)Value of new business 69 74 (7%)PVNBP 4 453 3 767 18%Net client cash flows (£bn) 3.0 3.3 (9%)Return on invested capital 9.0% 7.7% Return on EV (covered business) 12.3% 13.3% * The 2006 numbers are a pro forma result assuming ownership for 12 monthsrather than 11 months Highlights (£bn) H1 2007 FY 2006 % changeFunds under management 57 51 13% Strong sales driving solid funds under management Our European business continues to achieve strong life assurance sales,particularly in the UK. Life sales on an APE basis for the covered business reached £554 million forthe first half of 2007, 14% higher than the same period last year, with UKsingle premium pension sales particularly strong. Mutual fund sales, althoughmarginally down in 2007, were boosted in 2006 by UK institutional business,where funds flow can be irregular. Net client cash flows at 12% of opening FUM on an annualised basis were strongand totalled £3.0 billion for the period. Funds under management increased by 13% over the past six months to £57 billion. A significant portion of that growth comes from the UK division, wherenet inflows and advantageous market movements have contributed to the positiveoutcome. Skandia is well on track to deliver on the 2008 growth and synergy targets asreiterated at the capital markets day on 21 June 2007. IFRS-adjusted operatingprofit remains stable, even with the impact from the less profitable, butnecessary, new Liv-Link agreement, with particularly impressive returns fromELAM from scale benefits and solid growth in the UK division. UNITED KINGDOM AND OFFSHORE Highlights (£m) Pro forma* H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit** 80 73 10%EV-adjusted operating profit (covered business) 120 100 20%Life assurance sales (APE) 389 316 23%UK life assurance sales (APE) 249 189 32%Unit trust sales 1 291 1 363 (5%)Value of new business 42 33 27%New business margin 11% 10% PVNBP 3 377 2 597 30%Net client cash flows (£bn) 2.4 2.3 4% * The 2006 numbers are a pro forma result assuming ownership for 12 monthsrather than 11 months and have been restated to include the results of OldMutual International. No restatement has been made in respect of Selestia Lifeand Pension, which is now reported under long-term business rather than assetmanagement ** From 2007 the treatment of Selestia deferred fee income has been harmonisedwith Skandia MultiFUNDS reducing the 2007 result. The impact of policy holder tax has been smoothed from 2007 Highlights (£bn) H1 2007 FY 2006 % ChangeFunds under management 41 36 13% Growing IFRS-adjusted operating profits Adjusted operating profit for the UK increased to £80 million, driven bysignificantly higher level of funds under management and continued growth frominvestment contracts. As expected, we incurred £12 million of synergy costs in the first half relatedto the integration of our UK businesses to deliver the planned synergy benefitsby 2008. The integration is on target to deliver the planned savings as well assignificant revenue potential. The outsourcing of IT operations to HCL(Hindustan Computers Limited), was completed in February 2007 and theoff-shoring of key activities is in progress. Meanwhile the business processre-engineering programme continues to drive out further efficiencies, in linewith synergy plans. The mutual fund business continues to perform well. Integration of the SkandiaMultiFUNDS and Selestia fund supermarkets is on track to deliver the committedrun rate savings by the middle of 2008. The integration of back officeoperations and sales teams has been successful and efforts are now focused onthe launch of the new combined platform, which brings together the best aspectsof each proposition. Selestia Investment Solutions will go live on 15 August2007. Higher EV-adjusted operating profits (covered business) EV-adjusted operating profit for the UK increased to £120 million, with highersales volumes driving an increased contribution from new business. Resultsbenefit from the continued growth of the in-force books of business. Experience (as measured against the operating assumptions) has led to afavourable contribution despite a write-back in respect of Selestia Life andPension to reflect a reduction in charges. In the critical area of businessretention, overall persistency has been in line with expectations. Strong new business growth in UK life and mutual fund sales Skandia's leading open architecture model continues to deliver strong newbusiness growth. The first half of 2007 was characterised by improving sales,buoyant net client cash flows and ongoing recognition from our distributors forour award winning platform. Both life assurance sales (APE) and unit trustsales, (excluding the institutional investment business with Mercer) were upin the half year to 30 June 2007 compared to the first half of 2006, due togrowth in single premium business, the continued impact of the "A-Day" pensionchanges and strong ISA sales. Mercer's business was significantly down in theperiod, and this is reflected in the fall in unit trust sales in aggregate. Pension sales substantially higher The increase in life assurance new business levels for the first half of 2007is largely due to higher single premium pension sales in the UK. These haveflowed from the continued impact of the "A-Day" changes. UK pensions businessgrew in the half year by 26%, building on the increase in volumes alreadyexperienced during 2006. International business increased in the half-year, benefiting from strongportfolio bond sales in the UK and single premium business in Latin America andthe Far East. There has been some tailing off in institutional portfolio bondbusiness in the latter part of the period following a tax change in the UKbudget. Strong underlying unit trust sales Skandia has brought together Skandia MultiFUNDS and Selestia, under the banner"Selestia Investment Solutions" giving financial advisers a single,easy-to-understand market proposition backed by a comprehensive range ofproducts and a single sales team with which to interact. Sales for SelestiaLife and Pension of £128 million in the first half of 2007 (H1 2006: £114million) are now reported under the long-term business rather than under assetmanagement. Excluding this and the Mercer business described above, theunderlying growth was 10%. The Selestia and Skandia MultiFUNDS businesses continue to benefit from UKadvisers' shift to open architecture investment platforms in line with theirpreferred strategy for the management of their clients' assets. The GlobalProperty Securities Fund has remained Skandia's best selling fund throughout2007, and together with the launch of the "Best Ideas" funds, this has drivenimproved sales across the Group, generating gross direct subscriptionsexceeding £152 million for the half-year. Margins improved with new business growing Life new business APE margins post-tax improved from 10% to 11% for the half-year. The improvement in margin is due to a combination of increased scalebenefits and a shift towards single premium retail pension business. The value of new business improved by 27% to £42 million due to strong salesgrowth and mix of business across our core products. The 23% increase in lifeassurance sales and the increase in profit margin gives rise to the increase inthe value of new business. Strong growth in funds under management and net client cash flows Net client cash flows were £2.4 billion for the half-year representing 13% ofopening funds under management on an annualised basis. Strong inflows combinedwith favourable market movements during the first half drove a significantincrease in funds under management versus 2006 year-end of 13% to £41 billion. NORDIC Pro forma* Highlights (SEKm) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 486 652 (25%)EV-adjusted operating profit (covered business) 207 897 (77%)Life assurance sales (APE) 959 1,076 (11%)Mutual funds sales 821 1,586 (48%)Value of new business 143 310 (54%)New business margin 15% 29% PVNBP 4,450 5,389 (17%)Net client cash flows (SEKbn) 0.8 2.3 (65%) * The 2006 numbers are a pro forma result assuming ownership for 12 monthsrather than 11 months Highlights (SEKbn) H1 2007 FY 2006 % ChangeFunds under management 114 107 6% IFRS profits lower due to new corporate business agreement with Skandia Liv IFRS-adjusted operating profit decreased by 25% in the first half year toSEK486 million due to the negative impact of the joint corporate pensionagreement with Skandia Liv, but also due to higher marketing expenses and thelower risk business result. Life assurance sales still below expectations after change in law Life sales APE declined 11% mostly due to a weaker performance in Sweden. From 1 February 2007 the tax advantages of the Swedish Kapitalpension product were removed following a change in regulations. This negatively impacted sales as Kapitalpension products accounted for 10% of sales in 2006. Sales were also affected by a reduction in volumes from smaller brokers due to the adoption by Skandia of a new commission model in Sweden and the response from some competitors who enhanced up-front commission with small brokers. As part of ourinvestment programme, new product launches and some adjustments to pricing are being introduced to combat the lower sales in Sweden. New sales growth in Denmark continued strongly, up 26% compared to last year. Liv-Link legacy issues largely resolved though negatively impacting margins inthe short-term Life new business margin was 15% compared to 29% for the firsthalf of 2006. The decline can be attributed to a change in arrangements betweenSkandia and Skandia Liv and negative operating leverage from lower sales. Theseexpenses will be reduced and, in combination with the benefit of theintroduction of new products, we expect margins to rise in the second half of2007. The positive impact of cost synergies in 2008 will further strengthen themargin. However in order to reach the 2008 targeted range of 23 to 27% pre-tax,our Swedish sales, in particular, will need to improve in what is a verycompetitive market. Funds under management passed another record milestone Funds under management increased in the first half of 2007 to SEK 114 billiondue to continued positive net client cash flows and good fund performance. Continued growth in banking business Both deposit and loan books at SkandiaBanken continued to increase in the firsthalf of 2007 reaching new highs. The growth in loans has been at a slower pacethan last year, preserving the net interest margin in the face of stiffcompetition. Lending increased to SEK53.5 billion, up 16% on the first half of2006, mainly due to strong mortgage lending in Norway and Sweden. The number ofcustomers has increased 4% over the past 12 months. Operating profit for the first half of 2007 was 26% higher than the first half of 2006. This reflects higher earnings from increased volume which was partly offset by increased costs associated with Basel II and additional employees in Norway to support the business growth. Our Danish banking operations will be divested in the second half to strengthen profitability and to bring focus to the remaining successful businesses. Banking profit before tax for the half year was SEK111million (H1 2006: SEK88 million). Putting the business on a sound footing for the future As previously reported, Skandia and Skandia Liv renegotiated their arrangementsfor jointly offered corporate business with effect from 1 January 2007. In addition, Skandia and Skandia Liv have settled other operational legacy issues. The focus in the half-year has been on improving operational efficiency and aggressive marketing activities. The integration programme has reduced IFRS-adjusted operating profits in the half and will continue throughout the year in line with previous market guidance. Our unit-linked product offering improvement is under way and will reach the market towards the end of 2007. Furthermore SkandiaBanken's savings offering has been strengthened by widening the fund range and introducing discounted share trading. Head of Nordic Bertil Hult has commenced as the new head for Skandia's Nordic division on 6 August 2007, further boosting the quality of the management team in Sweden.Bertil is well known and respected in Sweden with a strong knowledge offinancial services. Business Review EUROPE AND LATIN AMERICA (ELAM) Pro forma* Highlights (Euro m) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 20 12 67%EV-adjusted operating profit (covered business) 60 65 (8%)Life assurance sales (APE) 140 135 4%Mutual fund sales 1 306 1 183 10%Value of new business 25 26 (4%)New business margin 18% 20% PVNBP 1 112 1 119 (1%)Net client cash flows (Euro bn) 0.8 1.1 (27%) * The 2006 numbers are a pro forma result assuming ownership for 12 monthsrather than 11 months and excludes businesses subsequently divested Highlights (Euro bn) H1 2007 FY 2006 % ChangeFunds under management (Euro bn) 13 11 19% Strong adjusted operating profit result IFRS-adjusted operating profit is up 67% on the equivalent prior year period,reflecting the scale benefit of organic growth in both covered and non-coveredbusiness. This growth is driven by the larger in-force book of business whichhas been buoyed by good stock market performance with both fund-based andpremium-based fees up on the prior year equivalent period. However, the IFRSresult was partially constrained by accelerated deferred acquisition costrecognition arising from higher surrender activity in Italy. Continuing growth in life new business sales (APE) Life sales on an APE basis rose 4%, with strong growth in regular premium salesacross Central Europe partially offset by lower single premium sales inSouthern Europe. Sales in Southern Europe decreased year-on-year reflecting thestrong and exceptional growth experienced in the first half of 2006. Sales inCentral Europe, have increased 31% compared to the same period in 2006 buoyedby stronger economies. Mutual fund sales up and margins improved Mutual fund sales are up 10% over the first half of 2006, with strongcontributions from both of the division's asset managers, Palladyne and SkandiaGlobal Funds. Sales in the first half of 2006 predominantly arose from lowmargin institutional asset management business in Spain, while sales this half-year have significantly higher margins, leading to an increased adjustedoperating profit contribution from mutual fund business for the half year. Funds under management Euro 13 billion after Euro 0.8 billion net client cash flows and reclassifications Net client cash inflows in the half-year were 15% of opening funds undermanagement, on an annualised basis. Market movements were positive for the half-year, growing funds under management by a further 5%. Net client cash flows, and the comparison to prior year, have been negativelyimpacted by the previously high volume low margin institutional business fromSpain. This business generated strong inflows in H1 2006 from a small group ofinstitutions. Some of these funds have been withdrawn resulting in highsurrender levels. Value of new business down 4%, with profit margin at the upper-end of thetarget range at 18% VNB for the first half of 2007 was slightly behind the first half of 2006. Anincrease arising from the higher contribution from the less developed markets,which have a higher profit margin, was offset by a reduction in VNB arisingfrom the increased investment in sales resource in Europe, which has not yetgenerated increased sales volumes. The post-tax profit margin of 18% achieved for the half year is at the upperend of our medium-term target range of 16-18%. We continue to anticipate thatmargin pressure will increase in these markets and have lowered our margin oncertain products for the remainder of the year in order to competitivelyreposition our offerings in these markets. Well positioned ELAM is well placed to achieve further growth, as evidenced by rising marketshares in most of the countries in which we operate, and the growing importanceof the unit linked segment within ELAM's markets. Product development andinnovation remain at the heart of our offering with 13 new products launched inthe half-year and further offerings in the pipeline for the next half-year.These products are aimed at the long-term retail savings market, with a mix ofnew unit-linked and mutual funds offerings bolstering our existing productrange. At the same time we are seeking operational efficiencies across the businessunit to ensure we have a scalable model to support both our current, andfuture, business needs. Poland continues to grow strongly and is now a significant contributor to bothnew sales and the division's overall result. This reflects the efforts put intothis business over recent years, with particular emphasis on growingdistribution. We are seeing encouraging growth from Germany, with new sales onan APE basis up 22% over the same period in 2006. Expansion of the sales teamand segmentation of the IFA channel in France have put us on a good footing inthis market, although year-on-year growth is suppressed due to the strongtax-driven market of H1 2006. We have made a significant investment indistribution in our Latin American and European markets during the first halfof 2007, and this investment sees us well placed to capture the growth in thosemarkets. Sale of business As disclosed previously, a strategic decision was taken to divest thetraditional life business in Spain. This transaction was concluded on 5 April 2007. AFRICA The three African businesses, Old Mutual South Africa (OMSA), Nedbank andMutual & Federal (M&F) continue to benefit from the expanding South Africaneconomy where GDP is forecast to grow 4.4% during 2007 and stock markets haveperformed strongly in the first half of the year, with the JSE recording a 14%rise. We are well positioned across all key product and market sectors tobenefit from these positive economic conditions and are well on the way to ourtarget of R1 trillion assets under management (OMSA and Nedbank). Our businesses enjoy a high market share overall and the lack of commonalitybetween these bases is the potential for our bancassurance model. OMSA serves3.2 million retail customers, Nedbank 3.9 million retail customers and M&Fanother 1.1 million retail customers. However Nedbank and OMSA share less than1 million customers in common and between the three companies altogether, thesharing of common customers is circa 0.3 million. In the corporate market bothOMSA and Nedbank have large corporate customer bases and, again, a relativelylimited overlap providing good opportunities to cross-sell. Measured by assets under management, OMSA is number one in the life industryand aims to be number one across the entire savings and wealth managementbusiness. Working with Nedbank and M&F, OMSA aims to build the number onefinancial services franchise in South Africa. Highlights (£m) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 608 591 3%Life assurance sales (APE) 159 171 (7%)Unit trust sales 495 794 (38%) Highlights (Rm) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 8 584 6 686 28%Life assurance sales (APE) 2 250 1 929 17%Unit trust sales 6 987 8 970 (22%) Highlights H1 2007 FY 2006 % ChangeFunds under management (£bn) 41 40 3%Funds under management (Rbn) 576 549 5% LONG-TERM BUSINESS AND ASSET MANAGEMENT - OLD MUTUAL SOUTH AFRICA (OMSA) Strong retail sales performance Highlights (Rm) H1 2007 H1 2006 % ChangeLong-term business adjusted operating profit 1 714 1 589 8%Asset management adjusted operating profit 510 459 11%Long-term investment return (LTIR) 1 413 798 77%IFRS-adjusted operating profit 3 637 2 846 28%EV-adjusted operating profit (covered business) 3 638 2 869 27%Return on EV (covered business) 14.9% 12.9% Life assurance sales (APE) 2 148 1 847 16%Unit trust sales 6 688 8 574 (22%)Value of new business 324 252 29%APE margin (post-tax) 15% 14% PVNBP 14 007 12 115 16%Net client cash flows (Rbn) (9.0) 6.4 (241%) Highlights (Rm) H1 2007 FY 2006 % ChangeSA client funds under management (Rbn) 440 424 4%Return on Allocated Capital 31% 23% During the first half of 2007 the business continued to transition as plannedtowards a modern and premier savings and wealth management business. Our retaildistribution continued to grow and perform well, while our asset managementbusiness settled down well into the new boutique structure. We continued tomove our product offering from the "Traditional" high capital requirement/high margin product to the "New Era" product suite which is more competitiveand associated with lower capital requirements and lower margins.Our focus on back office administration costs resulted in unit cost targetsbeing achieved and our retail distribution channels continued to adapt inpreparation for a world of lower upfront commissions. Adjusted operating profit at R3 637 million was 28% higher than in 2006. Withinthis result, long-term business operating profit increased by 8% to R1 714 million and the LTIR increased 77% to R1 413 million. The Life profit benefited from an increase in the average level of policyholder funds under management, driven by stronger equity markets, and significantly lower IFRS 2 share-based payments charge. The latter was significantly lower in the first half of this year compared to the same period last year as a result of the relative performance of the Old Mutual plc share price. The Investment Guarantee Reserve was increased by R270 million in the period, in anticipation of the requirement to move to a market consistent basis at the end of the year.This, together with some other assumption changes, resulted in a net negative impact of R161 million on adjusted operating profit. Asset management adjusted operating profit was up 11% to R510 million, heldback by less attractive investment conditions for our structured financebusiness, the costs associated with the investment in the new boutiquestructure in OMIGSA and loss of fee income as a result of the withdrawal ofclient funds, offset by higher fees in our property business. Net client cash flow remained a challenge for us, primarily due to net outflows from our third party asset management businesses. Last year's investment performance was disappointing and this continues to impact current flows as does uncertainty around the restructuring into boutiques. Investment performance has now improved significantly. Good performance in the fourth quarter of 2006 and in the first quarter of 2007 saw investment performance figures for the year to June 2007 improve to 84% of funds outperforming benchmarks achievement of the number two position in the Alexander Forbes Large Manager Watch over one and three years. Overall, life sales (APE) were 16% higher than the first half of 2006, withRetail life sales 21% higher and Corporate life sales marginally higher. Unittrust sales were 22% lower than in 2006 although still at high levels. Across OMSA, the after-tax value of new life business was R324 million, 29%higher than in 2006, reflecting primarily a higher margin in Retail Affluent. The Corporate margin was lower because of a lower proportion of with-profits annuity business this year compared to last year. Our ongoing and widely-recognised commitment to the social and economictransformation of South Africa was boosted even further by the establishment ofthe Masisizane Fund with proceeds (R400 million) set aside for it from theclosure of the Unclaimed Shares Trust. The aim of the Fund is to support anumber of economic transformation initiatives including women entrepreneurs,financial education, and capacity building in local and provincial government. Retail Mass Rm H1 2007 H1 2006 % ChangeLife sales (APE) Savings 289 199 45%Risk 206 176 17%Total 495 375 32%Life VNB 113 96 18%Life APE margin (post-tax) 23% 26% Net client cash flow 905 788 15% Retail Mass sales were up 32% on the equivalent period in 2006, continuing thestrong rate of growth seen in 2006. The result reflects the continued focus ongrowing the sales force, which at 30 June 2007 was 10% higher than at thebeginning of the year. Sales force productivity improved, notwithstanding theeffects of the protracted public servants strike, which impacted a key customerbase. Good growth was also achieved in sales through the broker channel. In thesix months, there was a swing to lower margin savings business. VNB was 18% higher than in 2006, with the new business APE margin lower at 23%as compared with 26% in 2006, reflecting the higher proportion of lower marginsavings business. We have responded by implementing changes to adviserremuneration and increasing minimum premiums for savings business, with effectfrom August 2007. We have designed new savings products to be launched in April 2008 (to coincidewith the new commission regime), with a focus on giving better value to clientsand acceptable profits to shareholders. Retail Affluent Rm H1 2007 H1 2006 % ChangeLife sales (APE) Savings 628 600 5%Protection 506 375 35%Annuity 100 85 18%Total 1 234 1 060 16%Single 400 392 2%Recurring 834 668 25%Non-life sales* 981 1 168 (16%)Life VNB 170 74 130%Life APE margin (post-tax) 14% 7% Net client cash flow (1 120) 923 - * Includes non-life flows in respect of OMUT, Galaxy and LISP sales on an APEbasis Total Retail Affluent life sales were 16% higher, but non-life sales 16% lower,primarily as a result of lower unit trust flows. The latter were affected bydisappointing performance in 2006 in some of our funds and concerns overseveral investment staff losses. Life recurring premium sales were 25% higher, driven by good risk business,aided by enhancements to our Greenlight risk product and good credit life sales, reflecting the extension of personal credit through Nedbank. Recurring premium Max Investment savings business (both life and non-life wrappers) performed well, with significant growth of the non-life recurring option but off a relatively low base. Single premium investment sales were relatively flatas a result of concerns over investment performance and less attractive returns offered on lower margin structured products. Single premium sales of the offshore investment product through Old Mutual International were 30% upon 2006. Life VNB at R170 million was 130% higher than in 2006, with new business APEmargin improving from 7% in the first half of 2006 to 14% in 2007, as a resultof an increased proportion of higher margin risk business being sold, as wellas good expense management and the improvement brought about by distributionexpenses being spread over higher recurring premium volumes. Unit trust sales declined by 22% compared to the strong first half of 2006,primarily as a result of concerns over short-term investment performance in ourcore funds (principally our Dynamic Floor and Enhanced Income funds) anduncertainty over the restructuring of the asset management business. Improvedinvestment performance rankings as at 30 June 2007 relative to 31 December 2006, and the launch of the new Stable Growth Fund in July 2007 should benefitsales going forward. Net client cash flow was a negative R1.1 billion (2006: R0.9 billion positive),driven primarily by net outflows from several of the unit trust funds asdescribed above. The outflows were driven primarily by multi-managers whoswitched their assets from our unit trust funds. Bancassurance sales through Nedbank continued to grow strongly and were up 33%on the corresponding period last year. Credit life sales reflected thecontinued buoyancy of personal credit extension and OMSA still continues tosecure a high proportion of Nedbank broker risk and single premium investmentsales. Overall, bancassurance life sales through Nedbank accounted for 15% ofOMSA's total Retail life sales on an APE basis. Corporate Rm H1 2007 H1 2006 % ChangeLife sales (APE) Savings 185 147 26%Protection 68 37 84%Annuity 56 96 (42%)Healthcare 110 132 (17%)Total 419 412 2%Single 229 227 1%Recurring 190 185 3%Non-life sales* 1 458 1 970 (26%)Life VNB 40 81 (51%)Life APE margin (post-tax) 10% 20% Net client cash flow (8 780) 4 642 - * Includes non-life flows in respect of OMIGSA, Symmetry and Old MutualProperties on an APE basis Total Corporate sales (APE) of R1.9 billion were 21% lower than in 2006primarily reflecting the uncertainty amongst clients and asset consultants overthe restructuring of our asset management business as well as a shorterpipeline of opportunities. Corporate Life sales (APE) of R419 million were marginally higher than 2006.Symmetry sales were significantly up, reflecting its good investment trackrecord, and Group assurance sales were higher, despite a tough group riskmarket. Single premium with-profit annuity sales were lower in comparison tolast year primarily as a result of an unusually large transaction in 2006. TheLife new business APE margin fell from 20% in the first half of 2006 to 10% in2007 reflecting primarily the mix of lower margin products, and in particularthe absence of significant high margin with-profit annuity business andincreased volumes of lower margin Symmetry business. We continued to drive the change to new era products with the launch of ourAbsolute Growth Portfolios as an attractive alternative to our older-generationGuaranteed Fund. The recent launch of the new funds has been well received byconsultants and clients alike. Net client cash flow for the Corporate segment was a negative R8.8 billion(2006: R4.6 billion positive), driven primarily by net outflows from our assetmanagement boutiques as a result of concerns over investment performance anduncertainty around the effects of the restructuring of the asset managementbusiness. Whilst investment performance has improved significantly over thelast six months there is a risk that we could lose further funds in the shortterm during the transition to the multi-boutique model. In our Healthcare administration business, a new 75 000 member scheme was addedin the second quarter (which has not been accounted for as new business in2007). We installed a new healthcare administration platform and have focusedon improving our service to clients, although membership growth has been weak.We are continuing to review our options for the best long-term solution for ourhealthcare administration business. Old Mutual Investment Group South Africa (OMIGSA) Sources of FUM (Rbn) H1 2007 FY 2006 % ChangeLife 293 283 4%Unit trusts 43 40 8%Third party 95 95 -Total OMIGSA managed assets 431 418 3%Managed by external fund managers 34 30 13%Total OMSA FUM 465 448 4% In January 2007 we announced the restructuring of our asset management businessinto twelve autonomous boutique investment houses under the umbrella of Old Mutual Investment Group South Africa (OMIGSA). Given the global trends in asset management and the ongoing swing to non-life business, the strategy is toreplicate the success of our US asset management model in South Africa. Thiswill enable us to deliver more focused investment performance and raise themarketing profile of the investment skills and expertise, in order to win agrowing flow of asset management mandates. Performance across the directly managed OMIGSA funds showed a stronglyimproving trend for Q4 of 2006 and Q1 of 2007, although Q2 performance wasdisappointing. For the twelve months ended 30 June 2007, 84% of directlymanaged assets outperformed their benchmarks (an improvement from 69% as at 31 December 2006). This takes performance over the three years to 30 June 2007 to 79% of funds outperforming their benchmarks, from 81% at 31 December 2006. The Macro Strategy Investments Boutique Global Balanced offering ranked second over both twelve months and three years, and third over the five years to June 2007, in the Alexander Forbes Large Manager Watch. On the multi-managed front, the Symmetry institutional funds performed well.Against multi-manager peers, as at 30 June 2007, the Aggressive Fund is rated the top performing fund for three-month, three-year and five-year time periods,while the Conservative Fund is the leading performer over the three-year period(Fifth Quadrant Manager Meter). The Balanced Fund fares well against single managers for the quarter, being ranked fifth out of 14 Funds. The Balanced Fundis the top performing fund for one-year and three-year time periods according to the Alexander Forbes Multi-Manager Survey. The restructuring has resulted in some changes for staff and asset consultantsand clients have adopted a cautious approach to the new structure as expected.During H1 2007, the operating models of the boutiques have been finalised andthe boutique managers have met with clients to address any specific concerns. A branding campaign positioning the investment skills of OMIGSA has also beenlaunched. The process of change is being managed tightly to ensure a focus onclient retention and delivering excellent performance. BANKING - NEDBANK GROUP (NEDBANK) Delivering 2007 targets focusing on closing the gap on competitors Nedbank remains on track to meet its 2007 performance targets. Adjustedoperating profits rose 32% to R4 277 million and Nedbank's annualised return onaverage ordinary shareholders' equity (ROE) rose to 21.2%, up from 18.6% forthe year to 31 December 2006 (H1 2006: 18.3%). Highlights (Rm) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 4 277 3 247 32%Headline earnings* 2 775 2 104 32%Net interest income* 6 568 5 039 30%Non-interest revenue* 4 742 4 502 5%Net interest margin* 3.90% 3.91%Cost to income ratio* 55.2% 56.9% ROE* 21.2% 18.3% ROE* (excluding goodwill) 24.7% 21.8% * As reported by Nedbank Net interest income (NII) NII grew 30% to R6 568 million (H1 2006: R5,039 million), mainly as a result ofthe 30.9% growth in average interest-earning banking assets (H1 2007 comparedwith H1 2006). The margin for the six-month period was 3.90% down from 3.91%reported for the half-year to June 2006. This reflects strong competition forassets and pressure on deposit pricing as the sector has had to source a higherproportion of funding from the wholesale deposit market, offset by theendowment benefits from interest rate increases. Impairments charge on loans and advances The impairments charge rose by 26.1% to R1 016 million (H1 2006: R806 million).The credit loss ratio (impairments charge as a percentage of average advances)increased from 0.61% in H1 2006 to 0.63% for the period. Impairments continuedto benefit from recoveries in both Nedbank Corporate and Nedbank Capital. Asanticipated, impairments in the retail portfolios of Nedbank Retail andImperial Bank deteriorated as a result of rising interest rates and increasedlevels of consumer indebtedness. Non-interest revenue (NIR) NIR increased 5% to R4 742 million for the period (H1 2006: R4 502 million).Commission and fee income grew by 12.9% supported by good transactional bankingand bancassurance volumes. NIR growth has been adversely affected bydisappointing trading income in Nedbank Capital and within the Macquariebusiness alliance, in particular. Nedbank Corporate recorded higher thananticipated property private equity gains and, together with Nedbank Capital,showed a strong increase in private equity revenues. Expenses Expenses increased by 14.9% to R6 238 million (H1 2006: R5 427 million),reflecting the Group's continued expense management balanced by the need toinvest for growth. Staff expenses grew by 19.0%, as a result of the plannedincrease in client-facing staff and an increase in performance-relatedremuneration. Marketing costs increased by 23.8% as Nedbank invested toreposition and increase awareness of the Nedbank brand. Nedbank's brand equitycontinues to increase, with good gains in awareness and loyalty levels. The 'jaws' ratio remained positive, with total revenue growth of 18.5% being3.6% above expense growth of 14.9%, resulting in an improvement in theefficiency ratio from 56.9% for the first half of 2006 to 55.2%. Advances Average interest-earning banking assets grew by 30.9%, largely driven by thestrong growth in advances of 22.7% (compared to H1 2006) with good growth inmost core banking advances categories. Deposits Deposits increased by 27.1% from R281 billion at 30 June 2006 to R357 billionat 30 June 2007, with the Group maintaining a strong liquidity positionthroughout the period. Capital management During 2007, Nedbank: • concluded Tier 2 subordinated debt issues (NED 7 and NED 8) of R2.65 billion; • completed a 10-year Tier 2 subordinated debt issue (NED 9) of R2 billion,which was fully subscribed for by the International Finance Corporation andAfrican Development Bank in equal amounts. This transaction diversifies thebank's bondholder profile to include international investors and wascompetitively priced on a floating basis; • completed a R2 billion Imperial Bank asset securitisation; • issued Tier 1 perpetual preference shares of R364 million; and • redeemed the expensive NED2 R4 billion bond on its call date in July 2007. Nedbank continues to be well capitalised with a Tier 1 capital adequacy ratioof 8.3% (31 December 2006: 8.3%) and a total capital adequacy ratio of 12.4%(31 December 2006: 11.8%). GENERAL INSURANCE MUTUAL & FEDERAL Highlights (Rm) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 509 475 7%Gross premiums* 4 594 4 260 8%Earned premiums* 3 813 3 634 5%Claims ratio* 68.8% 63.6% Combined ratio* 97.1% 96.1% Solvency ratio* 49% 75% Return on capital* (3-year average) 31.7% 20.4% * As reported by Mutual & Federal Solid performance Mutual & Federal has maintained positive results despite a softer insurancemarket compared to twelve months ago. However, premiums have now begun to beincreased in response to declining profitability. The underwriting results weresignificantly influenced by a sharp increase in the frequency and severity ofindustrial and commercial fire claims, while the motor account continues tounderperform. Gross Premiums Gross premiums grew by 8% during the first half and follow rate increases,underwriting interventions and the cancellation of unprofitable blocks ofbusiness. Combined ratio deteriorated, though underlying result benefiting from a changein LTIR Mutual & Federal generated an underwriting surplus of R109 million, down 22%from the surplus of R140 million in the first half of 2006. The combined ratio(the ratio of claims, commissions and expenses to net earned premiums)increased to 97.1% (H1 2006: 96.1%), mainly as a result of the increase in theclaims ratio from 63.6% to 68.8%. This was a result of large fire claims, theongoing increase in the frequency and severity of motor claims and high levelsof weather-related claims. The 2007 underwriting results have been favourablyimpacted by a release of R48 million (2006: R36 million) from a reduction intechnical reserves following further refinements of estimation methods fortechnical reserves. Whilst trading conditions in the commercial environmentremain favourable, rates in the personal market remain soft. Solvency ratio The solvency ratio has reduced to 49% following the payment of a specialdividend of R2.1 billion in September 2006. Adjusted operating profit and return on capital The adjusted operating profit includes R121 million arising from a change inthe long-term investment return rate from 11.1% to 15.6%. This, together withthe special dividend paid in 2006 has contributed to the increase in the returnon capital from 20.4% in 2006 to 31.7% in 2007. UNITED STATES Strong asset growth and excellent investment performance continues Life sales and new business margins on target Highlights (£m) H1 2007 H1 2006* % ChangeIFRS-adjusted operating profit 106 137 (23%)EV-adjusted operating profit (covered business) (53) 67 (179%)Life assurance sales (APE) 146 120 22%Mutual fund/Unit Trust sales 1 126 862 31%Net client cash flows (£bn) 9.2 5.7* 61% Highlights ($m) H1 2007 H1 2006* % ChangeIFRS-adjusted operating profit 209 245 (15%)EV-adjusted operating profit (covered business) (105) 120 (188%)Life assurance sales (APE) 288 215** 34%Mutual fund/unit trust sales 2 219 1 543 44%Net client cash flows ($bn) 18.2 10.2* 78% Highlights H1 2007 FY 2006 % ChangeFunds under management (£bn) 158 140 13%Funds under management ($bn) 318 274 16% * 2006 comparative information restated to include OMAM (UK), and excludes fundflows related to eSecLending, sold in 2006 ** Restated due to change in US Life APE methodology Our US business achieved excellent net client cash flows and sales growthduring the first half of 2007, driving funds under management to $318 billion,16% higher than at 31 December 2006. The business continues to benefit fromgood investment performance, wider style capabilities and enhanceddistribution. Our coordinated retail distribution strategy has made goodprogress. IFRS-adjusted operating profit in local currency declined 15% due to the impactof modelling changes made as part of our previously announced, and nowcompleted, actuarial review process. Full details of the IFRS and EEV effects are detailed on page 33 of the full results announcement. Excluding these items, as well as an $18 million one-off benefit in the life business in the first half of 2006, adjusted operating profit increased 19%. This was due largely to strong growth in the asset management business driven by positive markets and continued strength in net cash flows. Exchange rate depreciation of 9%,since 30 June 2006, has had a negative impact on the Sterling equivalent results. US ASSET MANAGEMENT Strong net client cash flows and improved profitability Highlights ($m) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 149 116 28%Mutual fund / unit trust sales 2 219 1 543 44%Net client cash flows ($bn) 17.2 9.9* 74%Operating margin 28% 25% Highlights ($bn) H1 2007 FY 2006 % ChangeFunds under management 315 274 15% * 2006 comparative information has been restated to include OMAM (UK), andexcludes fund flows related to eSecLending, which was sold in 2006 $17.2 billion in net client cash flows and 15% growth in funds under managementfor the half-year. Net fund inflows of $17.2 billion have been achieved year to date, driven by sustained momentum at Acadian and Rogge in particular. Strong investment performance, net fund inflows and the acquisition of Ashfield resulted in an overall increase in funds under management of $41 billion during the first halfof 2007. Expanding the business We continue to be pleased by progress made on our retail initiative, with Old Mutual Capital mutual fund sales increasing 29% to $887 million versus thecorresponding period last year. OMAM (UK) unit trust sales increased 56% to$1 332 million for the half (H1 2006: $855 million), benefiting frominvestment made during 2006 to enhance the product offering and distributioncapabilities of the business. IFRS-adjusted operating profit up 28% Adjusted operating profit for the first half increased $33 million compared tothe corresponding period in 2006, driven by higher average asset values as aresult of strong net fund inflows and positive markets. The operating marginhas also improved in line with our expectations, benefiting from the increasedasset base and the resulting economies of scale. Investment performance continues to show strength versus our peers Our member firms continue to deliver excellent investment performance. At 30 June 2007, 93% and 95% of assets outperformed their benchmarks over three and five years respectively. 82% and 83% of assets ranked in the first quartileof their peer group over the same period. US LIFE Continuation of strong sales and margins on target Highlights ($m) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 60 129 (53%)Return on equity 3.4% 7.9% EV-adjusted operating profit (105) 120 (188%)Return on EV 0.9% 9.2% Life assurance sales (APE) 288 215* 34%Value of new business 55 40 38%New business margin 19% 19%* PVNBP 2 661 1 932 38% Highlights ($bn) H1 2007 FY 2006 % ChangeFunds under management 23 22 5% * Restated due to change in US Life APE methodology One-offs impair an otherwise positive result IFRS- and EV-adjusted operating profit and return on equity have decreasedcompared to the first half of 2006, due to the provisions described on page 33 of the full results announcement and the non-recurring income in the first halfof 2006 of $18 million. Excluding these impacts, adjusted operating profit was up 8%, driven by higher average asset levels. Total life sales were $2.5 billion on a gross basis and $288 million on an APEbasis, a 34% increase over the same period last year. Sales by Old MutualBermuda were the largest contributors to the increase over prior year. Offshore sales through Old Mutual Bermuda increased by 133% to $126 million(APE) compared to the same period last year and represented 44% of APE sales inour US life business. Attractive product offering and successful expansion ofdistribution relationships are the major factors creating the growthopportunity. Funds under management at the end of the half were up 5% with strong salesoffsetting surrenders of a large block of Multi-Year Guaranteed Annuitiesreaching the end of their guarantee period. The business remains on track to return cash in 2007. Margin on target The new business margin of 19% is healthy and in line with the target. Thisreflects strong investment performance, a higher volume of profitable Old Mutual Bermuda business, and improvements in life insurance pricing over the prior year. Effective financial management and risk control update on progress andassumption changes As previously announced, in the first half we continued to undertake anactuarial review to deal with the specific issues which we disclosed last year.As committed, we have made allowance for and disclosure of these and otheritems covered by the review. Firstly, in our first quarter results announcement, we highlighted continuednegative mortality (annuitant longevity) experience as the primary source oflosses in our Single Premium Immediate Annuity (SPIA) block of business. Basedon the actuarial review findings and continued negative mortality experience,the decision has been taken to revise assumptions on the SPIA line. As a resultof this assumption change, European Embedded Value Adjusted operating profitfor the covered business for the first half was negatively impacted by $131 million post-tax. Sufficient margins in other lines of business in US Lifepreclude taking a charge for IFRS because margins are aggregated at theconsolidated US Life level under IFRS. Secondly, through the actuarial work, we have revised the modelling of spreadsunder Fixed Indexed Annuity contracts and are now assuming fixed spreads,instead of a variable spreads, in line with normal actuarial practice in theUS. As a consequence, the IFRS loss is $40 million pre-tax and the EV loss is$34 million post-tax. Finally, there are other modelling changes. The IFRS loss for these changes is$20 million pre-tax and the EV loss is $20 million post-tax. The number ofchanges is large, both positive and negative, and our belief is that we haveused suitable best estimates to account for the effects of these model changes. We have now made the changes we intend to make arising from this project. OTHER Pro forma* Highlights (£m) H1 2007 H1 2006 % ChangeIFRS-adjusted operating profit 2 1 100%Australia unit trust/mutual funds sales 318 300 6%Australia institutional sales 82 - n/aSkandia:BSAM (China) Gross Premiums ** 53 18 194%KMOM (India) Gross Premiums ** 82 64 28% * The 2006 numbers are a pro forma result assuming ownership for 12 monthsrather than 11 months ** This represents 100% of the businesses; OM owns 50% of Skandia:BSAM and 26%of KMOM Highlights (£bn) H1 2007 FY 2006 % ChangeFunds under management*** 7 6 14% *** Excludes KMOM GBP exchange rates AUD RMB INRClosing 2.36 15.28 81.63YTD Average 2.44 15.23 84.15 Australia Skandia Group Australia consists of retail mutual funds (ASL) and institutionalinvestment funds (Intech). After breaking even for the first time in 2006, thebusiness posted a profit of £1.2 million (AUD2.9 million) for the first half of2007 and is on course to achieve improved profits in 2007. In June, funds undermanagement closed at AUD15.4 billion (FY 2006: AUD14.2 billion), consisting ofretail AUD5.8 billion and institutional AUD9.6 billion. Integration of theIntech business, acquired late 2006, is now substantially complete. China Skandia:BSAM, our 50:50 joint venture with the Beijing State-owned AssetManagement Company (BSAM) in China, is now in its third full year of operationand continues to show strong sales growth. The business sells unit-linkedproducts and has licences to operate in Beijing, Shanghai and Jiangsu Province.Plans are under way to apply for a provincial licence and to open another twocity sub branches in Jiangsu Province before the end of the year. For the sixmonths ended 30 June 2007 Skandia:BSAM reported a loss of RMB27.7 million.Despite its recent entry into the market, of the 25 foreign owned joint ventureinsurance companies in China, Skandia:BSAM had the seventh largest grosspremium flows (up two places from the previous quarter) including second placein Beijing. India Kotak Mahindra Old Mutual Life Insurance Ltd (KMOM), our joint venture with theKotak Mahindra Group, continues to show steady progress. Old Mutual has theoption to increase its share in this business to 49% if and when the Indian lawallows the cap of 26% to be lifted. The business now has 79 branches in 51cities across India, with more than 3 300 employees. In line with the KotakMahindra Group, KMOM has a 31 March year-end. The business recorded a deficitfor the three months ended 30 June 2007 of INR246.6 million. Independent Review Report by KPMG Audit Plc to Old Mutual plc Introduction We have been instructed by Old Mutual plc ('the Company') to review thefinancial information for the six months ended 30 June 2007 which comprises theConsolidated income statement, Consolidated balance sheet, Consolidated cashflow statement, Statement of changes in equity and the related notes (the'Financial Information') as set out on pages 36 to 73 of the full results announcement and to review the European Embedded Value basis supplementary information for the six months ended 30 June 2007 as set out on pages 74 to 99 of the full results announcement (the 'Supplementary Information'). The Supplementary Information has been prepared in accordance with the EuropeanEmbedded Value Principles issued in May 2004 by the European CFO Forum andsupplemented by the Additional Guidance on European Embedded Value Disclosuresissued in October 2005 (together the 'EEV Principles') and using themethodology and assumptions set out on page 82 and pages 94 to 98 of the full results announcement. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with either the Financial Information or the SupplementaryInformation. This report is made solely to the Company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority and also to provide a reviewconclusion to the Company on the Supplementary Information. Our reviews havebeen undertaken so that we might state to the Company those matters we arerequired to state to it in this report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the Company for our review work, for this report, or for theconclusions we have reached. Directors' responsibilities The interim report, including the Financial Information and the SupplementaryInformation contained therein, is the responsibility of, and has been approvedby, the directors. The Directors are responsible for preparing the FinancialInformation in accordance with the Listing Rules of the Financial ServicesAuthority which require that the accounting policies and presentation appliedto the interim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes, and the reasonsfor them, are disclosed. The Directors have accepted responsibility forpreparing the Supplementary Information in accordance with the EEV Principlesand for determining the assumptions used in the application of thoseprinciples. Review work performed We conducted our review of the Financial Information in accordance withguidance contained in Bulletin 1999/4 issued by the Auditing Practices Boardfor use in the United Kingdom. We conducted our review of the SupplementaryInformation having regard to that Bulletin. A review consists principally ofmaking enquiries of Group management and applying analytical procedures to theFinancial Information, the Supplementary Information and underlying financialdata and based thereon, assessing whether the accounting policies andpresentation have been consistently applied unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit performed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the Financial Information orthe Supplementary Information. Review conclusion On the basis of our reviews we are not aware of any material modifications thatshould be made either to the Financial Information or to the EEV basisSupplementary Information as presented for the six months ended 30 June 2007. KPMG Audit PlcChartered Accountants, 8 Salisbury Square, London, EC4Y 8BB10 August 2007 Consolidated Income Statementfor the six months ended 30 June 2007 £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2007 2006 2006Revenue Gross earned premiums 3(iii) 2,504 2 411 4 713 Outward reinsurance (153) (129) (267)Net earned premiums 2 351 2 282 4 446Investment income (net of investment losses) 5 427 3 775 10 439Banking interest and similar income 1 450 1 190 2 441Fee and commission income, and income from service activities 1 148 1 030 2 171Other income 124 127 324Share of associated undertakings' profit after tax 2 3 6Total revenues 10 502 8 407 19 827Expenses Claims and benefits (including change in insurance contract provisions) (3 681) (3 782) (7 958)Reinsurance recoveries 120 109 245Net claims and benefits incurred (3 561) (3 673) (7 713)Change in provision for investment contract liabilities (2 877) (832) (4 655)Losses on loans and advances (74) (73) (123)Finance costs (including interest and similar expenses) (47) (42) (91)Banking interest expense (928) (712) (1 461)Fees and commission expense, and other acquisition costs (407) (358) (717)Other operating and administrative expenses (1 313) (1 370) (2 773)Change in third party interest in consolidation of funds (220) (453) (278)Goodwill impairment 4(ii) (1) (2) (8)Amortisation of PVIF and other acquired intangibles (183) (174) (379)Profit on disposal of subsidiaries, associated undertakings and strategic investments 4(iii) 7 97 85Total expenses (9 604) (7 592) (18 113)Profit before tax 898 815 1,714Income tax expense 5(i) (287) (296) (621)Profit for the financial period 611 519 1 093Profit for the financial period attributable to: Equity holders of the parent 483 380 836Minority interests Ordinary shares 104 113 207Preferred securities 24 26 50Profit for the financial period 611 519 1 093 Pence 6 months ended 6 months ended Year ended 30 June 30 June 31 DecemberEarnings per share 2007 2006 2006Basic earnings per ordinary share 6(i) 9.6 8.0 17.0Diluted earnings per ordinary share 6(i) 9.0 7.5 16.1Dividend per ordinary share 4.15 3.65 5.75Weighted average number of shares millions 6(i) 4 880 4 547 4 705 Adjusted Operating Profitfor the six months ended 30 June 2007Reconciliation of adjusted operating profit to profit after tax £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2007 2006 2006South Africa 3(ii) 608 591 1 118United States 3(ii) 106 137 264Europe 3(ii) 129 126 239Other 3(ii) 2 1 1 845 855 1 622Finance costs (69) (64) (130)Other shareholders' expenses (19) (20) (33)Adjusted operating profit* 757 771 1 459Adjusting items 4(i) 35 (40) 16Profit for the financial period before tax 792 731 1 475Total income tax expense 5(i) (287) (296) (621)Income tax attributable to policyholder returns 106 84 239Profit for the financial period after tax 611 519 1 093 Adjusted operating profit after tax attributable to ordinary equity holders £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2007 2006 2006Adjusted operating profit* 757 771 1 459Tax on adjusted operating profit 5(iii) (177) (196) (395) 580 575 1 064Minority interest ordinary shares (114) (119) (224)Minority interest preferred securities (24) (26) (50) 442 430 790 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2007 2006 2006Adjusted weighted average number of shares millions 6(ii) 5 407 5 063 5 222Adjusted operating earnings per share** - pence 6(ii) 8.2 8.5 15.1 * 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, the impact of closure of unclaimed share trusts, profit/(loss) ondisposal of subsidiaries, associated undertakings and strategic investments anddividends declared 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 30 June 2007 £m At At At 30 June 30 June 31 December Notes 2007 2006 2006Assets Goodwill and other intangible assets 5 340 5 444 5 367Investments in associated undertakings 100 56 83Investment property 946 728 804Property, plant and equipment 493 476 499Deferred tax assets 574 536 511Reinsurers' share of insurance contract provisions 792 819 763Deferred acquisition costs 1 908 1 419 1 578Current tax receivable 103 74 60Loans, receivables and advances 24 373 20 530 22 804Derivative financial instruments assets 734 1 280 1 238Financial assets fair valued through income statement 78 192 66 432 73 065Other financial assets 12 422 12 235 11 568Short-term securities 1 347 911 1 819Other assets 3 595 3 526 3 635Assets held-for-sale 8 573 1 168 1 165Cash and balances with the Central Banks 3 114 2 078 2 951Placements with other banks 870 720 665Total assets 135 476 118 432 128 575Liabilities Insurance contract provisions 22 846 21 751 22 495Financial liabilities fair valued through income statement 62 680 52 004 57 586Third party interests in consolidation of funds 3 589 2 261 3 041Borrowed funds 9 1 833 2 203 1 676Provisions 519 371 542Deferred revenue 406 207 311Deferred tax liabilities 1 443 1 259 1 393Current tax payable 220 229 283Amounts owed to other depositors 25 547 22 643 25 052Derivative financial instruments liabilities 971 1 241 1 060Liabilities held-for-sale 8 553 1 105 1 107Other liabilities 5 928 4 680 5 266Total liabilities 126 535 109 954 119 812Net assets 8 941 8 478 8 763Shareholders' equity Equity attributable to equity holders of the parent 7 359 6 932 7 237Minority interests Ordinary shares 879 868 848Preferred securities 703 678 678Total minority interests 1 582 1 546 1 526Total equity 8 941 8 478 8 763 Consolidated Cash Flow Statementfor the six months ended 30 June 2007 £m 6 months ended 6 months ended Year ended 30 June 30 June 31 December Notes 2007 2006 2006Cash flows from operating activities Profit before tax 898 815 1 714Non-cash movements in profit before tax (1 404) (1 454) (3 421)Changes in working capital 2,646 6,895 8 326Taxation paid (303) (172) (317)Net cash inflow from operating activities 1 837 6 084 6 302Cash flows from investing activities Acquisitions of financial investments (1 786) (6 568) (4 294)Disposal/(acquisition) of investment properties 15 (37) (4)Net acquisition of tangible fixed assets (50) (33) (120)Net acquisition of intangible fixed assets (34) (17) (39)Acquisition of interests in subsidiaries, associated undertakings and Strategic investments (175) (1 351) (1 318)Disposal of interests in subsidiaries, associated undertakings and strategic investments 1 113 78Net cash outflow from investing activities (2 029) (7 893) (5 697)Cash flows from financing activities Dividends paid to: Equity holders of the Company 7 (218) (174) (282)Equity minority interests and preferred security interests (88) (82) (199)Interest payable (excluding banking interest payable) (25) (43) (52)Net proceeds from issue of ordinary shares (including by subsidiaries to minority interests) 199 17 52Receipts from unclaimed shares trust 90 - -Issue of subordinated debt 430 264 297Other debt (repaid)/ issued (277) 404 (96)Net cash inflow / (outflow) from financing activities 111 386 (280)Net (decrease)/increase in cash and cash equivalents (81) (1 423) 325Effects of exchange rate changes on cash and cash equivalents (45) (405) (575)Cash and cash equivalents on acquisition of new subsidiaries - 581 581Cash and cash equivalents at beginning of the period 3 634 3 303 3 303Cash and cash equivalents at end of the period 3 508 2 056 3 634Consisting of: Cash and balances with the Central Banks 3 114 2 078 2 951Placements with other banks 870 720 665Other cash equivalents 671 346 1 101Cash and cash equivalents subject to consolidation of funds (1 147) (1 088) (1 083)Total 3 508 2 056 3 634 Cash flows presented in this statement include all cash flows relating topolicyholders' funds for the long-term business. Cash and cash equivalentssubject to consolidation of funds are not included in the cash flow as theyrelate to the minority holding in the funds. Statement of Changes in Equityfor the six months ended 30 June 2007 Millions Number of Attributable to shares issued equity holders ofSix months ended 30 June 2007 Note and fully paid the parentEquity holders' funds at beginning of the period 5 501 7 237Change in equity arising in the period Fair value gains/(losses): Property revaluation - 5Net investment hedge - 31Available-for-sale investments - (177)Shadow accounting - 93Currency translation differences/exchange differences on translating foreign operations - (162)Other movements - (16)Aggregate tax effect of items Taken directly to or transferred from equity - 29Net expense recognised directly in equity - (197)Profit for the period - 483Total recognised income and expense for the period - 286Dividend for the period 7 - (240)Net sale of treasury shares - 55Issue of ordinary share capital by the Company - -Net acquisition of interests in subsidiaries - -Exercise of share options 4 3Fair value of equity-settled share options - 18Equity holders' funds at end of the period 5 505 7 359 £m Total minority TotalSix months ended 30 June 2007 interest equityEquity holders' funds at beginning of the period 1 526 8 763Change in equity arising in the period Fair value gains/(losses): Property revaluation - 5Net investment hedge - 31Available-for-sale investments - (177)Shadow accounting - 93Currency translation differences/ exchange differences on translating foreign operations (33) (195)Other movements (4) (20)Aggregate tax effect of items taken directly to or transferred from equity - 29Net expense recognised directly in equity (37) (234)Profit for the period 128 611Total recognised income and expense for the period 91 377Dividend for the period (70) (310)Net sale of treasury shares - 55Issue of ordinary share capital by the Company - -Net acquisition of interests in subsidiaries 35 35Exercise of share options - 3Fair value of equity-settled share options - 18Equity holders' funds at end of the period 1 582 8 941 £m Share Share OtherSix months ended 30 June 2007 Note capital premium reservesAttributable to equity holders of the parent at beginning of the period 550 746 2 901Changes in equity arising in the period: Fair value gains/(losses): Property revaluation - - 5Net investment hedge - - -Available-for-sale investments - - (177)Shadow accounting - - 93Currency translation differences/exchange differences on translating foreign operations - - -Other movements - - (12)Aggregate tax effect of items taken directly to or transferred from equity - - 27Net expense recognised directly in equity - - (64)Profit for the period - - -Total recognised income and expense for the period - - (64)Dividend for the period 7 - - -Net sale of treasury shares - - -Issue of ordinary share capital by the Company - - -Net acquisition of interests in subsidiaries - - -Exercise of share options - 3 -Fair-value of equity settled share options - - 18Attributable to equity holders of the parent at end of the period 550 749 2,855 Perpetual preferred Translation Retained callable £mSix months ended 30 June reserve earnings securities Total2007 Attributable to equity holders of the parent at beginning of the period (421) 2,773 688 7,237Changes in equity arising in the period: Fair-value gains/(losses): Property revaluation - - - 5Net investment hedge 31 - - 31Available-for-sale investments - - - (177)Shadow accounting - - - 93Currency translation differences/exchange differences on translating foreign operations (162) - - (162)Other movements - (4) - (16)Aggregate tax effect of items taken directly to or transferred from equity (5) 7 - 29Net expense recognised directly in equity (136) 3 - (197)Profit for the period - 483 - 483Total recognised income and expense for the period (136) 486 - 286Dividend for the period - (240) - (240)Net sale of treasury shares - 55 - 55Issue of ordinary share capital by the Company - - - -Net acquisition of interests in subsidiaries - - - -Exercise of share options - - - 3Fairvalue of equity- settled share options - - - 18Attributable to equity holders of the parent at end of the period (557) 3 074 688 7 359 £m At 30 JuneOther reserves 2007Merger reserve 2 716Available-for-sale reserve (33)Investment property revaluation reserve 48Share-based payments reserve 124Attributable to equity holders of the parent at end of the period 2 855 Retained earnings have been reduced by £649 million at 30 June 2007 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. Millions £m Number of Attributable to shares issued equity holders ofSix months ended 30 June 2006 Note and fully paid the parentEquity holders' funds at beginning of the period 4 090 4 751 Change in equity arising in the period Fair value gains/(losses): Property revaluation - 2Net investment hedge - (25)Available-for-sale investments - (422)Shadow accounting - 209Currency translation differences/exchange differences on translating foreign operations - (565)Other movements - 57Aggregate tax effect of items taken directly to or transferred from equity - 62Net expense recognised directly in equity - (682)Profit for the period - 380Total recognised income and expense for the period - (302)Dividend for the period 7 - (196)Net purchase of treasury shares - (13)Issue of ordinary share capital by the Company 1 389 2 670Net acquisition of interests in subsidiaries - -Exercise of share options 9 12Fair value of equity-settled share options - 10Equity holders' funds at end of the period 5 488 6 932 £m Total minority TotalSix months ended 30 June 2006 interest equityEquity holders' funds at beginning of the period 1,668 6,419 Change in equity arising in the period Fair value gains/(losses): Property revaluation - 2Net investment hedge - (25)Available-for-sale investments - (422)Shadow accounting - 209Currency translation differences/exchange differences on translating foreign operations (181) (746)Other movements (61) (4)Aggregate tax effect of items taken directly to or transferred from equity - 62Net expense recognised directly in equity (242) (924)Profit for the period 139 519Total recognised income and expense for the period (103) (405)Dividend for the period (60) (256)Net purchase of treasury shares - (13)Issue of ordinary share capital by the Company - 2 670Net acquisition of interests in subsidiaries 41 41Exercise of share options - 12Fair value of equity settled share options - 10Equity holders' funds at end of the period 1 546 8 478 £m Share Share Other TranslationSix months ended 30 June 2006 Note capital premium reserves reserveAttributable to equity holders of the Parent at beginning of the period 410 730 374 357Changes in equity arising in the period: Fair value gains/(losses): Property revaluation - - 2 -Net investment hedge - - - (25)Available-for-sale investments - - (422) -Shadow accounting - - 209 -Currency translation differences/ exchange differences on translating foreign operations - - - (565)Other movements - - (2) -Aggregate tax effect of items taken directly to or transferred from equity - - 52 5Net expense recognised directly in equity - - (161) (585)Profit for the period - - - -Total recognised income and expense For the period - - (161) (585)Dividend for the period 7 - - - -Net purchase of treasury shares - - - -Issue of ordinary share capital by the Company 138 - 2 532 -Exercise of share options 1 11 - -Fair value of equity-settled share options - - 10 -Attributable to equity holders of the parent at end of the period 549 741 2 755 (228) Perpetual preferred Retained callable £mSix months ended 30 June 2006 earnings securities TotalAttributable to equity holders of the parent at beginning of the period 2,192 688 4,751Changes in equity arising in the period: Fair value gains/(losses): Property revaluation - - 2Net investment hedge - - (25)Available for sale investments - - (422)Shadow accounting - - 209Currency translation differences/ exchange differences on translating foreign operations - - (565)Other movements 59 - 57Aggregate tax effect of items taken directly to or transferred from equity 5 - 62Net expense recognised directly in equity 64 - (682)Profit for the period 380 - 380Total recognised income and expense for the period 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 2 427 688 6 932 £m At 30 JuneOther reserves 2006Merger reserve 2 716Available-for-sale reserve (91)Investment property revaluation reserve 38Share-based payments reserve 92Attributable 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. Millions £m Number of Attributable to shares issued equity holders ofYear ended 31 December 2006 Note 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 - 836Total recognised income and expense for the year - 73Dividend for the year 7 - (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 093Total 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 Share OtherYear ended 31 December 2006 Note capital premium reservesAttributable to equity holders of the parent at beginning of the year 410 730 374Changes in equity arising in the year: Fair value gains/(losses): Property revaluation - - 28Net investment hedge - - -Available-for-sale investments - - (94)Shadow accounting - - 28Currency translation differences/exchange differences on translating foreign operations - - -Other movements - - (6)Aggregate tax effect of items taken directly to or transferred from equity - - 11Net expense recognised directly in equity - - (33)Profit for the year - - -Total recognised income and expense for the year - - (33)Dividend for the year 7 - - -Net sale of treasury shares - - -Issue of ordinary share capital by the Company 139 3 2 532Exercise of share options 1 13 -Fair value of equity-settled share options - - 28Attributable to equity holders of the parent at end of the year 550 746 2 901 Perpetual preferred Translation Retained callable £mYear ended 31 December 2006 reserve earnings securities TotalAttributable to equity holders of the parent at beginning of the year 357 2 192 688 4 751Changes in equity arising in the year: Fair value gains/(losses): Property revaluation - - - 28Net investment hedge 75 - - 75Available-for-sale investments - - - (94)Shadow accounting - - - 28Currency translation differences/exchange differences on translating foreign operations (852) - - (852)Other movements - 44 - 38Aggregate tax effect of items taken directly to or transferred from equity (1) 4 - 14Net expense recognised directly in equity (778) 48 - (763)Profit for the year - 836 - 836Total recognised income and expense for the year (778) 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 (421) 2 773 688 7 237 £m At 31 DecemberOther reserves 2006Merger reserve 2 716Available-for-sale reserve 28Investment property revaluation reserve 48Cash flow hedge reserve (1)Share-based payments reserve 110Attributable 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. This information is provided by RNS The company news service from the London Stock Exchange

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