Annual Financial Report 2013 and AGM 2014

RNS Number : 7312D

Old Mutual PLC

01 April 2014

 



Old Mutual plc

Ref 28/14

1 April 2014

ANNUAL FINANCIAL REPORT 2013 AND ANNUAL GENERAL MEETING 2014

Old Mutual plc ("Company") has today published its Annual Financial Report for 2013. Copies of the Annual Financial Report, the Annual Review for 2013, the shareholder circular containing Notice of the 2014 Annual General Meeting ("AGM") and the Form of Proxy for the AGM have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do. The documents (including an HTML version of the Annual Review) will also be available later today on the Company's own website at www.oldmutual.com. Copies of the Annual Financial Report may also be obtained from Investor Relations, Old Mutual plc, 5th Floor, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG or Old Mutual Square, Isibaya Building, 2nd Floor, 93 Grayston Drive, Sandton 2196, South Africa.

The AGM will be held in the Presentation Suite, 2nd Floor, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG on 15 May 2014 at 11.00 a.m.  As usual, the meeting will be webcast so that shareholders who cannot readily attend it in London can, if they have access to a computer, observe the proceedings.  A link to the webcast will be available on our website on Thursday, 15 May 2014 from 10.45 a.m. (UK time).

As part of the Chief Executive's review in the Annual Financial Report, Julian Roberts commented as follows;

"As we build across Africa and as we cement our position in South Africa we will continue to seek ways in which Old Mutual, Nedbank and Mutual & Federal can work more closely together and leverage off their individual strengths and capabilities. This initiative is already resulting in significant cross-selling opportunities. For example: Nedbank Financial Planners delivered gross flows of R4.3 billion to the South African Retail Affluent division and Retail Affluent sold R600 million of Mutual & Federal products. Collaboration is key to our future growth and we intend to implement incentive plans for the executive management of Old Mutual Emerging Markets (OMEM), Nedbank and Mutual & Federal which will reward them for driving revenue, cost and capital synergies between the three businesses. In addition, reflecting the importance of the insurance and banking businesses to South Africa, at the request of the Regulator, in 2014 we will be activating a new top Board in the country to oversee risks, capital and strategy for the South African part of the Group."

In compliance with the Company's obligations under Disclosure and Transparency Rule 6.3.5, additional information is set out below which has been extracted in full unedited text from the Annual Financial Report.  Accordingly, page references and section numbers in the text below refer to page numbers and section numbers in the Annual Financial Report.  This extracted information should be read in conjunction with the Company's preliminary results announcement, which was released on 28 February 2014 and is available on our website.

Group Financial Statements - Independent Auditor's report to the Members of Old Mutual plc only

For year ended 31 December 2013

Opinions and conclusions arising from our audit

1.         Our opinion on the financial statements is unmodified

We have audited the financial statements of Old Mutual plc for the year ended 31 December 2013, which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Cash Flow Statements, the Consolidated and Parent Company Statements of Changes in Equity and the related notes which include the reconciliation of adjusted operating profit to profit after tax.

In our opinion:

■        The financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2013 and of the Group's profit for the year then ended

■        The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU)

■        The Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006, and

■        The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

2.         Our assessment of risks of material misstatement

In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit were as follows:

Loans and advances (£33,386 million)

Refer to page 97 (Audit Committee Report), pages 144 and 176 (accounting policy) and the disclosures in notes A3, E1, E2 and E3 to the financial statements

The risk:

The Group's loans and advances impairment assessment requires the exercise of judgement and the use of subjective assumptions. Due to the significance of loans and advances and the related estimation uncertainty, this is considered to be a key audit risk, both in respect of the mature, established clusters and the unsecured lending books within Nedbank, as well as the Emerging Markets exposure through a joint venture, Old Mutual Finance.

Our response:

For all banking clusters, our procedures included, among others, testing the design, implementation and operating effectiveness of key controls in operation over the loan approval, administration and monitoring processes. We involved our own internal valuation specialists to assess each of the portfolio loan loss provisioning models employed by the Group and to compare the Group's assumptions to externally available data in relation to key inputs such as historical default rates, recovery rates, collateral valuation, and economic growth rates. Specific focus was given to the Business banking, Corporate banking and Retail books, in response to increasing credit loss ratios during 2013. We also performed detailed testing over the specific provisions held against loans and advances, by reviewing latest correspondence and Credit Committee minutes, assessing collateral values and re-performing key calculations.

Policyholder liabilities (£81,141 million)

Refer to page 97 (Audit Committee Report), pages 144 and 196 (accounting policy) and the disclosures in notes A3, E1, E2 and E8 to the financial statements

The risk:

The main risk associated with policyholder liabilities is in respect of the insurance contracts within the life businesses; Emerging Markets and Old Mutual Wealth. Judgement is required over the variety of uncertain future outcomes, including the policy for creating and releasing discretionary reserves. Economic assumptions, such as investment return and associated discount rates, and operating assumptions, such as mortality and persistency, are the key inputs used to estimate the valuation of these long-term liabilities and the wide variety of uncertain future outcomes results in this being one of the key judgemental areas that our audit focused on.

Our response:

Our procedures in this area included testing the design, implementation and operating effectiveness of key controls over the identification, measurement and management of the Group's calculation of insurance liabilities and evaluation of the consistency of methodologies and the appropriateness of the assumptions used by the Group. We involved our own internal actuarial specialists to assist us in our challenge of the assumptions used and the process followed for setting and updating these assumptions, particularly around expense and mortality/morbidity assumptions. Our challenge was provided in the context of our own industry knowledge, external data and our views of experience to date,

an understanding of which was enhanced through our attendance at the Group's own Independent Review Committee meetings. In respect

of the discretionary reserves held within the South African business we reviewed and challenged the Group's use and application of the established policy, with reference to industry-wide practice and applicable accounting standards.

■          Goodwill and intangibles (£2,835 million)

Refer to page 97 (Audit Committee Report), page 207 (accounting policy) and the disclosures in note F1 to the financial statements

The risk:

The determination of the recoverable amount of intangible assets (both acquired and internally generated) and goodwill is complex and typically requires a high level of judgement, taking into account the different economic environments in which the Group operates. We consider the greatest risk to be within Old Mutual Wealth.

Our response:

The most significant judgements arise over the forecast cash flows and the discount rate applied in the value-in-use valuation models. Our procedures included, among others, challenging the cash flow forecasts and the corresponding assumptions applied by the Group in the consideration of potential impairment of intangible assets, based on our understanding of the relevant business and the industry and economic environment in which it operates. We compared forecasts to business plans and also previous forecasts to actual results to assess the performance of the business and the accuracy of forecasting and considered the appropriateness of the scenarios used, in the context of our wider business understanding. We involved our own valuation specialists to assist us in evaluating the assumptions and methodologies used by the Group, in particular those relating to the discount rates and in evaluating these assumptions with reference to independently derived inputs.

■          Taxation (£171 million - tax risk provision)

Refer to page 97 (Audit Committee Report), page 145 (accounting policy) and the disclosures in notes D1 and F7 to the financial statements

The risk:

Accruals for uncertain tax positions require the Group to make judgements and estimates in relation to tax exposures and in response to enquiries raised by the tax authorities. This is one of the key judgemental areas that our audit is concentrated on due to the Group operating in a number of different tax jurisdictions and the complexities of and developments in international tax legislation, particularly in relation to South Africa given the proportion of the Group's income earned there.

Our response:

In understanding the accruals held, we inspected the correspondence with the relevant tax authorities and associated advice and held discussions with relevant members of management. We involved our own local and international tax specialists to assist us in analysing the Group's tax positions and challenged assumptions used to determine tax provisions based on our knowledge and experiences of the application of the international and local legislation by relevant authorities and courts.

For all of the risk areas set out above, we have assessed whether the Group's disclosures about the sensitivity of the relevant financial statement items to changes in the respective key assumptions appropriately reflect the associated risks and comply with the requirements of relevant accounting standards.

3.         Our application of materiality and an overview of the scope of our audit

The materiality for the Group financial statements as a whole was set at £80 million. This has been determined with reference to a benchmark of Group profit before taxation, which we consider to be one of the principal considerations for members of the Company in assessing the financial performance of the Group. Materiality represents 5.2% of Group profit before tax and 5.0% of Group Adjusted Operating Profit, the definition of which is set out within the primary statements and notes to the financial statements.

We agreed with the Group Audit Committee to report to it all corrected and uncorrected misstatements we identified through our audit with an individual value in excess of £4 million in addition to other audit misstatements below that threshold which we believe warranted reporting on qualitative grounds.

Audits for Group reporting purposes were performed at the key components, being Emerging Markets, Old Mutual Wealth, Nedbank, US Asset Management and Bermuda businesses, by separate component teams. These audits covered 94% of total revenues, 99% of profit before tax, and 95% of total Group assets.

The audits undertaken for Group reporting purposes at the significant reporting components of the Group were all performed to materiality levels set by the Group audit team, ranging from £32 million to £65 million. To support the audit instructions sent to our component teams, the Group audit team visited the teams in South Africa, the US, Bermuda and elsewhere in the UK for planning and risk assessment meetings and maintained regular communication with the auditors at these locations throughout the audit cycle to discuss work progress and identify matters of relevance to our audit of the Group financial statements. The Senior Statutory Auditor, in conjunction with other senior staff in the Group audit team, also regularly attends Audit Committee meetings held at the significant components to understand key risks and audit issues at a component level which may affect the Group financial statements.

4.         Our opinion on other matters prescribed by the Companies Act 2006 is unmodified

In our opinion:

■        The elements of the Directors' Remuneration Report subject to audit have been properly prepared in accordance with the Companies Act 2006, and

■        The information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

5.         We have nothing to report in respect of the matters on which we are required to report by exception

Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

■          We have identified material inconsistencies between the knowledge we acquired during our audit and the directors' statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy or

■          The Audit Committee Report does not appropriately address matters communicated by us to the Audit Committee.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

■          Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us or

■          The Parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns or

■          Certain disclosures of directors' remuneration specified by law are not made or

■          We have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

■          The directors' statement, set out on page 105, in relation to going concern and

■          The part of the Corporate Governance Statement relating to the Parent Company's compliance with the nine provisions of the 2010 UK Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

Scope of report and responsibilities

As explained more fully in the Statement of directors' responsibilities set out on page 128, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company's members as a body and is subject to important explanations  and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.

Philip Smart (Senior Statutory Auditor)

for and on behalf of KPMG Audit Plc, Statutory Auditor

Chartered Accountants

15 Canada Square

London E14 5GL

28 February 2014

Report from the Group Audit Committee

Roger Marshall has submitted the following report on behalf of the Group Audit Committee:

The committee met six times during 2013. In this report I comment on the key issues we considered over the last 12 months.

The committee considers that the most significant areas of judgement in preparing the 2013 accounts were:

The level of explicit discretionary reserves in Old Mutual South Africa's financial statements. In accordance with South African actuarial practice, insurance liabilities continue to be calculated on a prudent basis, including discretionary reserves. At 31 December 2013, the Group recognised explicit discretionary margins of £489 million or 1.9% of technical liabilities (2012: £556 million; 1.9%). The committee approved a revised policy for creating and releasing these reserves as well as reviewing and agreeing the composition of and rationale for these explicit discretionary reserves. A significant portion of the Group's explicit discretionary margins relates to uncertainty around mortality assumptions for HIV in South Africa

The appropriate level of tax provisions, particularly in South Africa. The nature of the South African assessment process and complexity of our businesses there means that specific areas of tax computation can remain open for a number of years after filing. While progress was made during 2013 in closing outstanding computations, a number of issues remain under discussion with the tax authorities. The committee discussed the individual matters and the corresponding provisions with both subsidiary management and the external auditors. We are satisfied with the amounts carried in the accounts

Loan loss provisions at Nedbank and Old Mutual Finance, particularly in relation to unsecured loans. At 31 December 2013, the Group's unsecured advances totalled £1,664 million, with related provisions of £232 million (2012: £2,080 million and £238 million). During the year the committee reviewed the provisioning methodologies in use at both companies and was satisfied that they were appropriate

Impairment of the carrying value of goodwill (see Note F1 to the Accounts). The committee reviewed the assumptions used to justify no material impairment to goodwill this year and was comfortable with them. In particular, we reviewed the carrying value of goodwill and other intangibles relating to the Old Mutual Wealth business of £1,461 million at 31 December 2013 (2012: £1,594 million), taking into account that certain countries are operating a closed book model, and the announcement of the disposal of the business in Poland. The committee agreed that the projected future cash flows from the businesses supported the current carrying value of these intangibles.

The Company makes a number of adjustments to IFRS income to arrive at an Adjusted Operating Profit. Some reflect IFRS requirements not valued by users, such as recognising gains or losses on own debt. Others seek to arrive at more normalised profit by for example substituting a long-term investment return for actual investment returns for the year. The committee reviews and agrees the long-term investment return annually. This year we discussed in particular the proposal to exclude the significant Old Mutual Wealth restructuring costs related to the proposed outsourcing of certain administrative activities to International Financial Data Services from Adjusted Operating Profit and reviewed how peers dealt with similar items. Whilst the committee accepts the proposed Adjusted Operating Profit treatment, it has made recommendations to the Remuneration Committee about how the expected restructuring benefits should be monitored for remuneration purposes.

I mentioned in my 2012 report that the committee had discussed the results of an external effectiveness review of Internal Audit and agreed an action plan. The review had concluded that Internal Audit was effective, but that change was needed for it to operate at best practice levels in all areas. During 2013 a committee, which I chaired, sponsored by the Institute of Internal Auditors made recommendations for improving internal audit of financial services companies. The Group Audit Committee reviewed a gap analysis comparing the Company's internal audit arrangements with the recommendations in that report and agreed appropriate changes to our arrangements. Key changes were:

A change in the Internal Audit Director's executive reporting line from the Group Finance Director to the Group Chief Executive

Whilst Internal Audit's scope was not previously limited, it was agreed that the team should spend more time in areas where they had not previously been involved. As an early example of this, I asked Internal Audit to examine management's risk mitigation plans in relation to Old Mutual Wealth's outsourcing project before this project was finally agreed. We have also asked Internal Audit to report to us on management's attitude to controls as well as the controls themselves.

We agreed a revised Group Internal Audit Charter reflecting the changes, which is available on the Company's website.

During 2013, we discussed the recommendations of the Financial Reporting Council (of which I am a director) for the external audit to be tendered. We also took into account UK Competition Commission regulation and pending European legislation, and increased market comment on the subject. Following these discussions, we have determined that it will be appropriate to conduct a tender of the Group's audit engagement during 2014. The tender will be in respect of appointment to the role of Group auditor for the year ending 31 December 2016.

Initial analysis suggests that independence considerations and potential conflicts of interests will limit the number of firms which will be involved in the tender. The Group's audit has not previously been tendered since the Company became a listed entity in 1999.

We are yet to finalise the criteria against which we will assess potential candidates, but these are likely to include:

•           Financial services experience and extent of in-house actuarial resource

•           Experience of listed and multiple-listed entity audits

•           Presence in the significant markets in which we operate

•           Proposed approach to the audit and expertise of the proposed team

•           Proposed fees.

We would welcome shareholder input on this matter, in particular on the proposed criteria, and this can be provided by contacting the Secretary to the committee, [e-mail].

In the meantime, we reviewed the effectiveness of our current auditors, KPMG, during the year and continued to be satisfied with the quality of the audit. We routinely review the performance of the external auditors annually. The review in 2013 was conducted in advance of that year's AGM and informed our recommendation to reappoint the incumbent. This review analysed critical competencies expected of our external auditors and was performed by the Internal Audit function. Interviews with, and the responses to questionnaires by, key finance personnel from Group and subsidiary entities and committee members are central to the assessment process. We have strict controls over the scope and amount of non-audit services provided by the audit firm (see "Who are the Group Auditors and how much are they paid?" below) and are satisfied that they remain independent.

I would be happy to discuss the contents of this report, and the activities of the committee, with individual shareholders.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group's overall risk profile and capital position remains stable despite difficult economic conditions and weakened global recovery.

Our risk profile is considered through different lenses, reflecting the possible effect of risk on earnings, capital and the future sustainability of our business. The table below summarises the Group's top five topical risks, taking into account the likelihood and severity of risks, where the severity assessment considers the financial, reputational, regulatory, people and legal impact of a risk. These risks are largely strategic in nature and are closely monitored and overseen by Group management, which gives regular updates to the Board and Executive Risk Committees.

Our business is also affected by a number of inherent risks, such as the exposure to market levels and insurance risk, which drives a significant proportion of our capital requirement and earnings at risk. Although market risk is material, a large portion is inherent within the nature of our product offering, as we are exposed to the impact of market movements on asset-based fees generated from client-selected investment. Our risk exposure to earnings and capital is measured and monitored half-yearly, with more frequent monitoring of key risk indicators to identify and track developing trends.

More information on our risk and capital management and risk profile is contained in the Risk and Capital Management section in this Annual Report. Additional risk information is disclosed in the consolidated financial statements, note E, in this Annual Report.

Risk description	2013 and beyond	Risk mitigation and management action
1. Potential slowing of the South African economy A significant portion of our earnings comes from our South African businesses. In our insurance and investment businesses, our earnings are at risk if our customers are not able to keep up premiums on existing business, or if they cancel existing policies or withdraw their savings earlier than anticipated. Additionally our future profits will be at risk if customers do not buy insurance policies from us or invest their savings with us at the levels we anticipate. This may also impact credit risk, as discussed overleaf.	Customers' propensity to save and to purchase and maintain insurance policies is a function of, among other factors, their disposable income and their confidence in their future prospects. Disposable income will be affected by the rate of increase of customers' real incomes, the unemployment rate in the economy and levels of consumer confidence. Each of these factors is in turn affected by macro-economic factors, such as inflation and interest rates, which is outside of our control and difficult to predict. Whilst our business plans assume nominal GDP growth in South Africa in the next 2 to 3 years that is lower than its long-term trend rate, other scenarios have also been considered.	Understanding customers' financial position at an individual level at the point of sale. Managing premium collections and monitoring for early indicators of financial distress. Monitoring multiple external economic factors and incorporating these into stress and scenario testing to understand our earnings and capital resilience to severe macro-economic events. Management actions have been identified to mitigate the impact on earnings of a pessimistic low growth scenario.

Risk description	2013 and beyond	Risk mitigation and management action
2. Credit risk across the Group One of our largest single quantifiable risks to the Group is our exposure to banking credit risk from lending and other financing activities through our exposure to Nedbank. Despite tight controls and processes, profits remain sensitive to relatively small movements in the credit loss ratios. Our exposure to Nedbank is primarily risk to earnings, as Nedbank's capital and liquidity requirements are both met from its own available resources. There is also credit risk within the Emerging Markets business which is expected to increase due to planned growth: ·    Our unsecured lending joint venture, Old Mutual Finance (OMF) ·    Credit spread risk through Old Mutual Specialised Finance (OMSFIN) ·    The South African life business, predominantly through the management of assets backing annuity products ·    Within Mutual & Federal there is credit risk exposure through holdings in the credit guarantee insurer, CGIC ·    A building society in Zimbabwe, although the exposures are currently small in the Group context. Credit risk outside Nedbank and Emerging Markets is relatively limited.	Our credit risk remains within appetite. However, the high level of personal indebtedness and pressure on consumers in South Africa remain a challenge. As highlighted in the first risk above, this is dependent on macro-economic factors that are outside our control. Our credit exposure is concentrated in secured lending through Nedbank. Unsecured lending exposure is small in comparison to the total lending book. Within Nedbank, the unsecured lending book reduced over 2013. Within Old Mutual Finance we experienced controlled growth off a low base, applying stringent affordability requirements and strict credit criteria. During 2014 we will have rights through Nedbank to acquire up to a 20% stake in Ecobank Transnational Incorporated (ETI). In 2014 we will also have the opportunity for Emerging Markets to increase its stake in OMF. This would further increase the overall Group exposure to credit lending risk.	We monitor credit loss ratios on an ongoing basis and these are broadly within target range. In addition, we review the quality of credit portfolios to ensure levels of credit impairment provisions are adequate. For unsecured lending, Nedbank and OMF continue to apply strict affordability criteria to ensure loans are granted within appropriate risk thresholds. Credit scoring, including elements of behavioural scoring and overall financial fitness, continue to evolve. Stress testing is carried out at both Nedbank and Emerging Markets to understand exposure to credit events. Large concentrations are monitored at Group level, although there is little concentration or aggregation of individual credits outside of Nedbank and Emerging Markets.

Risk description	2013 and beyond	Risk mitigation and management action
3. Currency translation risk          At a Group level our earnings, dividend and regulatory surplus capital are expressed in pounds but the majority of the Group's earnings and its surplus capital are denominated in rand. The translation of our rand earnings and capital are therefore affected by movements in exchange rates.	In 2013, the rand depreciated from R13.77 to R17.43 against the pound, following a period of some years during which the rand exchange rate was in a range of R10 to R15 to the pound. Future exchange rates are difficult to predict but there are some macro-economic factors that point to possible further rand weakness in the medium-term. These include the current account deficit, 6.5% of GDP in Q4 2013, and the possibility of capital outflows from South Africa as some external investors may sell their holdings of South African government bonds should global interest rates rise.	Holding capital resources (including the Group's issued debt) to meet our capital requirements in matched currencies and servicing interest on debt with matching earnings. The balance of cash flows earned in rand and other currencies is closely monitored and the dividend policy, through its link to earnings, in part addresses this risk. In addition, the Group's plans to grow the proportion of earnings in currencies other than the rand in the medium-term is expected to reduce the proportion of the Group's dividend that is met by remittances in rand from group-owned businesses. Forward currency contracts are used to hedge expected rand cash flows used to make dividend payments in pounds. Understanding of the resilience of the Group's capital and capacity to pay dividends in the event of significant appreciation and depreciation of the currencies to which the Group is exposed is improved through stress and scenario testing.

Risk description	2013 and beyond	Risk mitigation and management action
4. Strategic execution risk and pace of change across the Old Mutual Group There is currently, and for the foreseeable future, a high degree of execution risk associated with the scale and pace of change across the Group. Most notably: ·    Implementation of the outsourcing arrangement with IFDS within Old Mutual Wealth ·    The build out of the asset management capability within Old Mutual Wealth ·    Emerging Markets is facing significant transformation in the South African life and property and casualty businesses, and simultaneous expansion into East and West Africa.	The Old Mutual Wealth business plan seeks to transform the business into a simpler, unified business with updated IT systems. This strategy focuses mainly on the UK and international markets. The level of operational risk within Old Mutual Wealth is increasing in the short-term, reflecting the significant changes to the operating model and staffing changes resulting in less continuity. In addition, a key focus over the next few years will be on the execution of the outsourcing arrangement with IFDS and of the Intrinsic Financial Services acquisition. During 2013, Emerging Markets acquired stakes in a number of businesses across Africa. During 2014, work will continue on integrating these businesses and pursuing further acquisitions.	During the past year new governance structures have been put in place in both Old Mutual Wealth and Emerging Markets to streamline their boards, aiming to leverage experienced local non-executive director skills and experience to more effectively challenge key strategic initiatives. In addition, executive and risk functions have been enhanced in many areas to provide clearer line of oversight. For key projects across the Group, there is centralised oversight at Group Head Office over and above the business unit oversight. Within Old Mutual Wealth, there is executive oversight of the IFDS outsourcing project, together with a dynamic programme governance approach that takes into account lessons learnt from previous major projects (eg. Retail Distribution Review implementation) and activity prioritisation. We will continue to focus on the control environment and prompt escalation in order to mitigate the increased operational risk.

Risk description	2013 and beyond	Risk mitigation and management action
5. Changing shape of the industry due to changing customer needs and regulations, particularly consumer-focused regulations Attracting new and retaining existing customers is key to delivering our strategy. New and evolving consumer-focused regulation, non-traditional distribution methods, new technologies and changing customers' needs and preferences are altering the distribution and competitive landscape across the Group's geographies. This may place business plans and our growth strategy at risk if our business model is not flexible to allow us to adapt quickly and effectively to the changing landscape.	Our customers' needs are evolving. Consumers want to be more in control of their finances. With the growing digital era and technological advances, consumers increasingly rely on and prefer technological tools for a number of tasks. Despite this, a need for individual attention remains. Consumers seek quality as well as original offerings that meet their personal needs, and it is important that service remains convenient both in terms of time and effort. From a regulatory perspective, regulators across the globe continue to focus on the fair treatment of customers and both principles and appropriate regulation in this area are evolving. In particular, there is increased focus on product design, advice and the product life cycle after the sales process.	The strategic initiatives across the Group are focused on streamlining our business to allow us to adapt more easily to the changing customer needs and regulations. This includes implementation of IT solutions that allow us to implement new products and system changes more quickly. In addition, our brand promise and commitment to operating responsibly, with a strong customer focus and culture, positions us well to respond to consumer-focused regulation. Our KPIs include a customer advocacy measure in the form of the Net Promoter Score (NPS). The NPS is a customer loyalty metric that looks at how likely our customers are to recommend Old Mutual to their family and friends. In addition, our ACT NOW! Leadership Behaviours, which are formally measured as part of our performance management system, includes a behaviour around putting the customer first, and we measure our customer culture annually through our group-wide culture survey. From a regulatory perspective, where there are similar regulatory themes developing, we leverage knowledge from different geographies across the Group to anticipate and implement the regulations as they arise.

Related parties transactions

H3: Related parties

The Group provides certain pension fund, insurance, banking and financial services to related parties. These are conducted on an arm's length basis and are not material to the Group's results.

(a) Transactions with key management personnel, remuneration and other compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Details of the compensation paid to the Board of directors as well as their shareholdings in the Company are disclosed in the Remuneration Report on pages 106 to 125.

(b) Key management personnel remuneration and other compensation                                          

	Year ended 31 December 2013		Year ended 31 December 2012
	Number of personnel	Value £000s	Number of personnel	Value £000s
Directors' fees	12	1,313	10	1,418
Remuneration		25,301		24,140
Cash remuneration	13	4,944	18	5,837
Short-term employee benefits	13	9,700	18	6,779
Long-term employee benefits	13	373	18	781
Share-based payments	11	10,284	13	10,743
		26,614		25,558

	Year ended 31 December 2013		Year ended 31 December 20121
Share options	Number of personnel	Number of options/ shares '000s	Number of personnel	Number of options/ shares '000s
Outstanding at beginning of the year	6	1,770	11	11,482
Leavers	2	(178)	-	-
New appointments	1	9	1	697
Granted during the year		-		26
Exercised during the year		(498)		(8,340)
Lapsed during the year		-		(2,095)
Outstanding at end of the year	5	1,103	6	1,770

	Year ended 31 December 2013		Year ended 31 December 20121
Restricted shares	Number of personnel	Number of options/ shares '000s	Number of personnel	Number of options/ shares '000s
Outstanding at beginning of the year	14	22,557	14	21,644
Leavers	5	(2,121)	-	-
New appointments	1	576	4	2,041
Granted during the year		5,439		5,896
Exercised during the year		(1,505)		(1,398)
Vested during the year		(4,451)		(4,617)
Effect of share consolidation		-		(1,009)
Outstanding at end of the year	10	20,495	14	22,557

·      ¹Certain share scheme information has been restated based on additional information received from key management personnel.

(c) Key management personnel transactions

Key management personnel and members of their close family have undertaken transactions with Old Mutual plc and its subsidiaries, joint ventures and associated undertakings in the normal course of business, details of which are given below. For current accounts, positive values indicate assets of the individual, whilst, for credit cards and mortgages positive values indicate liabilities of the individual.

	Year ended 31 December 2013		Year ended 31 December 2012
	Number of personnel	Value £000s	Number of personnel	Value £000s
Current accounts
Balance at beginning of the year	4	1,204	5	324
Net movement during the year		1,331		880
Balance at end of the year	4	2,535	4	1,204
Credit cards
Balance at beginning of the year	4	18	5	26
Net movement during the year		6		(8)
Balance at end of the year	2	24	4	18
Mortgages
Balance at beginning of the year	2	219	4	621
Net movement during the year		(76)		(402)
Balance at end of the year	1	143	2	219
General insurance contracts
Total premium paid during the year	3	13	3	13
Claims paid during the year	-	-	1	3
Life insurance products
Total sum assured/value of investment at end of the year	11	24,498	12	18,524
Pensions, termination benefits paid
Termination benefits paid	1	608	4	2,736
Value of pension plans as at end of the year	10	4,838	10	4,379

Various members of key management personnel hold, and have at various times during the year held, investments managed by asset management businesses of the Group. These include unit trusts, mutual funds and hedge funds. None of the amounts concerned are material in the context of the funds managed by the Group business concerned, and all of the investments have been made by the individuals concerned either on terms which are the same as those available to external clients generally or, where that is not the case, on the same preferential terms as were available to employees of the business generally.

Directors' Responsibility statement

In connection with the Annual Financial Report for 2013, the directors of the Company confirm that to the best of their knowledge:

·           the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·           the Annual  Financial Report includes a fair review of the development and performance of the business and the position of Old Mutual plc and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Enquiries

External communications

Patrick Bowes                           UK        [phone]

Investor relations

Dominic Lagan                          UK        [phone]

Kelly de Kock                            SA         [phone]

Media

William Baldwin-Charles                         [phone]

                                                                [phone]

Notes to Editors

Old Mutual provides life assurance, asset management, banking and general insurance to more than 16 million customers in Africa, the Americas, Asia and Europe. Originating in South Africa in 1845, Old Mutual has been listed on the London and Johannesburg Stock Exchanges, among others, since 1999.

In the year ended 31 December 2013, the Group reported adjusted operating profit before tax of £1.6 billion (on an IFRS basis) and had £294 billion of funds under management from core operations.

For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com

 

END

 

 

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