Final Results - Part 2
Old Mutual PLC
24 February 2003
PART 2
Notes to the Financial Statements
for the year ended 31 December 2002
1 FOREIGN CURRENCIES
The information contained in these financial statements is expressed in both
Sterling and South African Rand. This is in order both to meet the legal
requirements of the UK Companies Act 1985 and to provide the users of the
accounts in South Africa with illustrative information.
The principal exchange rates used to translate the operating results, assets and
liabilities of key foreign business segments to Sterling are:
Rand US$
Year to Year to Year Year
31 Dec 31 Dec to to
2002 2001 31 Dec 31 Dec
2002 2001
Profit and loss account (average rate) 15.7878 12.3923 1.5030 1.4405
Balance sheet (closing rate) 13.8141 17.4286 1.6105 1.4542
Foreign currency revenue transactions are translated at average exchange rates
for the year. Foreign currency assets and liabilities are translated at year end
exchange rates. Exchange differences arising from the translation of net
investments in foreign subsidiary undertakings are taken to the consolidated
statement of total recognised gains and losses. Exchange differences arising on
the translation of foreign integrated operations are taken through the
non-technical account. Other exchange differences are included in the profit and
loss account.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
2 EARNINGS AND EARNINGS PER SHARE
Basic earnings per share is calculated based upon the profit or loss after tax
attributable to equity shareholders after the amortisation and impairment of
goodwill arising on acquisitions, the write-down of investment in Dimension Data
Holdings plc, Nedcor restructuring and integration costs, short term
fluctuations in investment return and non-operating items.
The directors' view is that operating earnings per share derived from operating
profit or loss based on a long term investment return and before goodwill
amortisation and impairment, write-down of investment in Dimension Data Holdings
plc, Nedcor restructuring and integration costs and non-operating items provides
a better indication of the underlying performance of the Group. A table
reconciling profit / (loss) on ordinary activities after tax and minority
interests to this underlying measure of operating earnings is included below.
£m Rm
Notes Year Year to Year Year to
to 31 Dec to 31 Dec
31 2001 31 2001
Dec Dec
2002 (Restated) 2002 (Restated)
Profit / (loss) on ordinary activities after tax and minority 157 (264) 2,472 (3,274)
interests
Goodwill amortisation net of minority interests 104 120 1,646 1,487
Goodwill impairment - 500 - 6,196
Write-down of investment in Dimension Data Holdings plc net of tax and 4 29 144 467 1,788
minority interests
Nedcor restructuring and integration costs net of tax and minority 3(d)(ii)7 - 104 -
interests
Short term fluctuations in investment returns net of tax and minority 75 (73) 1,192 (905)
interests
Non-operating items net of tax 6(b) 44 - 688 -
Operating earnings after tax and minority interests based on a long 416 427 6,569 5,292
term investment return before goodwill amortisation and impairment,
write-down of investment in Dimension Data Holdings plc and Nedcor
restructuring and integration costs
p c
Basic earnings / (loss) per share 4.3 (7.4) 67.4 (92.2)
Goodwill amortisation net of minority interests 2.8 3.4 44.9 41.9
Goodwill impairment - 14.1 - 174.5
Write-down of investment in Dimension Data Holdings plc net of tax and 0.8 4.1 12.7 50.3
minority interests
Nedcor restructuring and integration costs net of tax and minority 0.2 - 2.8 -
interests
Short term fluctuations in investment returns net of tax and minority 2.0 (2.1) 32.5 (25.4)
interests
Non-operating items net of tax 1.2 - 18.7 -
Operating earnings per share after tax and minority interests based on 11.3 12.1 179.0 149.1
a long term investment return before goodwill amortisation and
impairment, write-down of investment in Dimension Data Holdings plc
and Nedcor restructuring and integration costs
Basic earnings per share is calculated by reference to the profit / (loss) on
ordinary activities after tax and minority interests of £157 million (R2,472
million) for the year ended 31 December 2002 (2001: loss £264 million (R3,274
million)) and a weighted average number of shares in issue of 3,670 million
(2001: 3,550 million). This is calculated after taking into account shares held
by Employee Share Ownership Plans (ESOPs), which have waived their rights to
dividends.
The diluted earnings per share calculation reflects the impact of the shares in
the ESOP Trusts, the US Dollar Guaranteed Convertible Bond and potential issue
of shares to satisfy the Pilgrim Baxter deferred consideration.
316 million (2001: 316 million) Old Mutual plc shares held by policyholders'
funds are included in the weighted average number of shares used in the earnings
per share calculation, reflecting the policyholders' economic interest in these
shares.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS
3(a) Summary of operating profit on £m Rm
ordinary activities before tax Notes South United UK & Total South United UK & Total
Africa States Rest of Africa States Rest of
World World
Year to 31 December 2002
Life assurance 3(b)(iii)343 83 (3) 423 5,414 1,310 (47) 6,677
Asset management 3(c)(i) 28 95 2 125 441 1,500 31 1,972
Banking 3(d)(i) 165 - 56 221 2,605 - 884 3,489
General insurance business 3(e)(i) 35 - - 35 556 - - 556
Other shareholders' income / 3(f) - - (22) (22) - - (347) (347)
(expenses)
Debt service costs - - (58) (58) - - (916) (916)
Operating result based on a long 571 178 (25) 724 9,016 2,810 (395) 11,431
term investment return
Goodwill amortisation (31) (70) (19) (120) (490) (1,105) (300) (1,895)
Write-down of investment in 4 (68) - - (68) (1,080) - - (1,080)
Dimension Data Holdings plc
Nedcor restructuring and
integration costs 3(d)(ii) (14) - - (14) (227) - - (227)
Short term fluctuations in (292) 181 20 (91) (4,613) 2,858 316 (1,439)
investment return
Operating profit on ordinary 166 289 (24) 431 2,606 4,563 (379) 6,790
activities before tax
Analysed as:
Life assurance 93 258 (17) 334 1,464 4,073 (268) 5,269
Asset management 28 31 (13) 46 441 490 (206) 725
Banking 53 - 52 105 824 - 821 1,645
General insurance business (8) - - (8) (123) - - (123)
Other shareholders' income / - - 12 12 - - 190 190
(expenses)
Debt service costs - - (58) (58) - - (916) (916)
Operating profit on ordinary 166 289 (24) 431 2,606 4,563 (379) 6,790
activities before tax
Year to 31 December 2001
Life assurance 3(b)(iii) 397 13 (2) 408 4,915 161 (25) 5,051
Asset management 3(c)(i) 37 116 (3) 150 458 1,437 (38) 1,857
Banking 3(d)(i) 290 - 79 369 3,593 - 979 4,572
General insurance business 3(e)(i) 46 - - 46 570 - - 570
Other shareholders' income / 3(f) 12 - (41) (29) 149 - (508) (359)
(expenses)
Debt service costs - (3) (64) (67) - (37) (793) (830)
Write-down of strategic investments 3(f) - - (21) (21) - - (260) (260)
Operating result based on a long 782 126 (52) 856 9,685 1,561 (645) 10,601
term investment return
Goodwill amortisation (27) (78) (27) (132) (334) (966) (336) (1,636)
Goodwill impairment - (335) (165) (500) - (4,151) (2,045) (6,196)
Write-down of investment in 4 (269) - - (269) (3,334) - - (3,334)
Dimension Data Holdings plc
Short term fluctuations in 77 31 18 126 954 384 223 1,561
investment return
Operating profit on ordinary 563 (256) (226) 81 6,971 (3,172) (2,803) 996
activities before tax
Analysed as:
Life assurance 464 42 4 510 5,745 520 49 6,314
Asset management 37 (295) (193) (451) 458 (3,655) (2,393) (5,590)
Banking (4) - 77 73 (50) - 953 903
General insurance business 88 - - 88 1,090 - - 1,090
Other shareholders' income / (22) - (29) (51) (272) - (359) (631)
(expenses)
Debt service costs - (3) (64) (67) - (37) (793) (830)
Write-down of strategic investments - - (21) (21) - - (260) (260)
Operating profit on ordinary 563 (256) (226) 81 6,971 (3,172) (2,803) 996
activities before tax
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(b) Life assurance South United UK & Total South United UK & Total
Africa States Rest of Africa States Rest of
World World
(i) Gross premiums written
Year to 31 December 2002
Individual business
Single 610 2,633 104 3,347 9,631 41,562 1,637 52,830
Recurring 612 146 49 807 9,662 2,312 779 12,753
1,222 2,779 153 4,154 19,293 43,874 2,416 65,583
Group business
Single 647 - 9 656 10,215 - 142 10,357
Recurring 241 - 9 250 3,805 - 142 3,947
888 - 18 906 14,020 - 284 14,304
Total gross premiums 2,110 2,779 171 5,060 33,313 43,874 2,700 79,887
Year to 31 December 2001
Individual business
Single 854 578 97 1,529 10,583 7,163 1,202 18,948
Recurring 757 78 87 922 9,381 967 1,078 11,426
1,611 656 184 2,451 19,964 8,130 2,280 30,374
Group business
Single 598 - 13 611 7,411 - 161 7,572
Recurring 280 - 29 309 3,470 - 359 3,829
878 - 42 920 10,881 - 520 11,401
Total gross premiums 2,489 656 226 3,371 30,845 8,130 2,800 41,775
Business transacted with South African residents in terms of their personal
offshore allowances is conducted by the Group's offshore companies and is
therefore disclosed under the Rest of World segment.
(ii) Gross new business premiums
written
Year to 31 December 2002
Individual business
Single 610 2,633 104 3,347 9,631 41,562 1,637 52,830
Recurring 115 73 11 199 1,808 1,154 175 3,137
725 2,706 115 3,546 11,439 42,716 1,812 55,967
Group business
Single 647 - 9 656 10,215 - 142 10,357
Recurring 19 - 1 20 296 - 11 307
666 - 10 676 10,511 - 153 10,664
Total gross new business premiums 1,391 2,706 125 4,222 21,950 42,716 1,965 66,631
written
Annual premium equivalent 260 336 23 619 4,089 5,310 364 9,763
Year to 31 December 2001
Individual business
Single 854 578 97 1,529 10,583 7,163 1,202 18,948
Recurring 159 26 11 196 1,970 322 136 2,428
1,013 604 108 1,725 12,553 7,485 1,338 21,376
Group business
Single 598 - 13 611 7,411 - 161 7,572
Recurring 20 - 1 21 248 - 12 260
618 - 14 632 7,659 - 173 7,832
Total gross new business premiums 1,631 604 122 2,357 20,212 7,485 1,511 29,208
written
Annual premium equivalent 324 84 23 431 4,017 1,038 284 5,339
Annual premium equivalent is defined as one tenth of single premiums plus
recurring premiums.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(b) Life assurance continued South United UK & Total South United UK & Total
Africa States Rest of Africa States Rest of
World World
(iii) Life assurance operating result
Year to 31 December 2002
Individual business 149 83 (8) 224 2,352 1,310 (126) 3,536
Group business 59 - 1 60 931 - 16 947
Life assurance technical result 208 83 (7) 284 3,283 1,310 (110) 4,483
Long term investment return 135 - 4 139 2,131 - 63 2,194
Life assurance operating result before 343 83 (3) 423 5,414 1,310 (47) 6,677
short term fluctuations in investment
return
Year to 31 December 2001
Individual business 174 13 (8) 179 2,152 161 (99) 2,214
Group business 75 - 1 76 933 - 12 945
Life assurance technical result 249 13 (7) 255 3,085 161 (87) 3,159
Long term investment return 148 - 5 153 1,830 - 62 1,892
Life assurance operating result before 397 13 (2) 408 4,915 161 (25) 5,051
short term fluctuations in investment
return
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(c) Asset management Notes Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
(i) Analysis of operating result
Fund management worldwide
South Africa
Old Mutual Asset Managers 13 16 205 198
Old Mutual Unit Trusts 3 11 47 136
Other 3 1 47 12
19 28 299 346
United States
Old Mutual Asset Managers 3(c)(ii) 31 38 490 471
Pilgrim Baxter 3(c)(ii) 18 29 284 359
Other Old Mutual US affiliates 3(c)(ii) 46 49 726 607
95 116 1,500 1,437
United Kingdom and Rest of World (2) 6 (32) 74
112 150 1,767 1,857
Private client UK - Gerrard
Gross profit 3 2 47 25
Profit on disposal of current investments 6 - 95 -
Integration costs (5) (12) (79) (149)
4 (10) 63 (124)
Other financial services
South Africa 9 9 142 112
United Kingdom and Rest of World - 1 - 12
9 10 142 124
Asset management operating result before goodwill amortisation 125 150 1,972 1,857
and impairment
Analysed as:
South Africa 28 37 441 458
United States 95 116 1,500 1,437
United Kingdom and Rest of World 2 (3) 31 (38)
Asset management operating result before goodwill amortisation 125 150 1,972 1,857
and impairment
£m Rm
OMAM Pilgrim Other Total OMAM Pilgrim Other Total
(US) Baxter Affiliates (US) Baxter Affiliates
(ii) Old Mutual (US) Holdings
Year to 31 December 2002
Revenue 123 50 200 373 1,942 789 3,158 5,889
Expenses (92) (32) (154) (278) (1,452) (505) (2,432) (4,389)
Asset management operating result 31 18 46 95 490 284 726 1,500
before goodwill amortisation
Year to 31 December 2001
Revenue 147 85 219 451 1,822 1,053 2,713 5,588
Expenses (109) (56) (170) (335) (1,351) (694) (2,106) (4,151)
Asset management operating result 38 29 49 116 471 359 607 1,437
before goodwill amortisation and
impairment
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(d) Banking South UK & Total South UK & Rest Total
Africa Rest of Africa of World
World
(i) Banking operating result
Year to 31 December 2002
Interest receivable 1,372 142 1,514 21,661 2,242 23,903
Interest payable (1,003) (108) (1,111) (15,835) (1,705) (17,540)
Net interest income 369 34 403 5,826 537 6,363
Dividend income 11 - 11 174 - 174
Fees and commissions receivable 261 45 306 4,121 710 4,831
Fees and commissions payable (9) (2) (11) (142) (32) (174)
Other operating income 112 21 133 1,768 332 2,100
Total operating income 744 98 842 11,747 1,547 13,294
Specific and general provisions charge (87) (1) (88) (1,374) (16) (1,390)
Net income 657 97 754 10,373 1,531 11,904
Operating expenses (497) (46) (543) (7,847) (726) (8,573)
Banking operating result before goodwill 160 51 211 2,526 805 3,331
amortisation, share of associated undertakings'
profit, write-down of investment in Dimension
Data Holdings plc and Nedcor restructuring and
integration costs
Share of associated undertakings' profit 5 5 10 79 79 158
Banking operating result before goodwill 165 56 221 2,605 884 3,489
amortisation, write-down of investment in
Dimension Data Holdings plc and Nedcor
restructuring and integration costs
Year to 31 December 2001
Net interest income 386 43 429 4,783 533 5,316
Non-interest revenue 413 55 468 5,118 681 5,799
Total operating income 799 98 897 9,901 1,214 11,115
Specific and general provisions charge (118) - (118) (1,462) - (1,462)
Net income 681 98 779 8,439 1,214 9,653
Operating expenses (399) (26) (425) (4,945) (322) (5,267)
Banking operating result before goodwill 282 72 354 3,494 892 4,386
amortisation, share of associated undertakings'
profit and write-down of investment in Dimension
Data Holdings plc
Share of associated undertakings' profit 8 7 15 99 87 186
Banking operating result before goodwill 290 79 369 3,593 979 4,572
amortisation and write-down of investment in
Dimension Data Holdings plc
Operating expenses includes translation losses of £64 million (R1,011 million).
Non-interest revenue in 2001 includes exceptional revenue of £36 million (R441
million).
Specific and general provisions charge for the year includes the release of an
exceptional provision of £25 million (R400 million). The exceptional provision
included in the specific and general provisions charge for 2001 was £32 million
(R400 million).
There are no banking operations in the United States.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(d) Banking continued Year to Year to
31 Dec 31 Dec
2002 2002
(ii) Nedcor restructuring and integration costs
Costs before tax and minority interests 14 227
Tax (1) (23)
Costs after tax and before minority interests 13 204
Minority interests (6) (100)
Costs after tax and minority interests 7 104
In 2002, one-off merger and restructuring costs of £13 million (R204 million)
after tax have been charged to the profit and loss account. This figure includes
£5 million (R86 million) for Nedcor's restructuring and integration costs in
connection with the acquisition of BoE and £8 million (R118 million) for the
closure and restructuring costs of Permanent Bank's deposit-taking activities
and infrastructure, which are being merged with Old Mutual Bank.
Although these costs are considered significant to the operating results of the
Group, they do not fall under the definition of exceptional items as described
in Financial Reporting Standard 3 and as such are classified as operating
activities for statutory reporting.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(e) Other technical income, net of reinsurance Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
(i) General insurance technical account
Earned premiums, net of reinsurance
Premiums written, net of reinsurance
Gross premiums written 355 394 5,603 4,882
Outward reinsurance premiums (45) (43) (717) (533)
310 351 4,886 4,349
Change in the provision for unearned premiums, net of
reinsurance
Gross amount (13) (2) (212) (25)
Reinsurers' share 8 1 132 12
(5) (1) (80) (13)
305 350 4,806 4,336
Allocated investment return transferred from the non-technical 35 41 554 508
account
Claims incurred, net of reinsurance
Claims paid
Gross amount (234) (290) (3,682) (3,594)
Reinsurers' share 18 33 275 409
(216) (257) (3,407) (3,185)
Change in the provision for claims, net of reinsurance
Gross amount (20) (4) (312) (50)
Reinsurers' share 7 1 112 12
(13) (3) (200) (38)
(229) (260) (3,607) (3,223)
Net operating expenses (76) (85) (1,197) (1,051)
General insurance operating result before short term 35 46 556 570
fluctuations in investment returns
£m Rm
Earned Claims Operating Earned Claims Operating
premiums incurred result premiums incurred result
net of net of based on a net of net of based on a
reinsurance reinsurance long term reinsurance reinsurance long term
investment investment
return return
(ii) General insurance result by class of
business
Year to 31 December 2002
Commercial 125 89 3 1,968 1,400 40
Corporate 15 11 (2) 234 180 (28)
Personal lines 145 111 (1) 2,284 1,747 (8)
Risk financing 20 18 - 320 280 (2)
305 229 - 4,806 3,607 2
Long term investment return 35 554
35 556
Year to 31 December 2001
Commercial 134 98 1 1,659 1,212 8
Corporate 17 14 - 210 167 -
Personal lines 177 130 4 2,196 1,615 54
Risk financing 22 18 - 271 229 -
350 260 5 4,336 3,223 62
Long term investment return 41 508
46 570
(iii) Other technical income
Other technical income principally consists of fees earned in respect of South
African policyholders' funds and fees earned for healthcare administration.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(f) Other shareholders' income / (expenses) and write-down of Year Year Year Year
strategic investments to to to to
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
Long term investment return credited to operating result - 12 - 149
Other income 13 - 205 -
Net corporate expenses (35) (41) (552) (508)
Other shareholders' income / (expenses) (22) (29) (347) (359)
Write-down of strategic investments - (21) - (260)
£m Rm
3(g) Net assets South United UK & Rest Total South United UK & Rest Total
Africa States of World Africa States of World
At 31 December 2002
Life assurance 1,095 851 71 2,017 15,126 11,756 981 27,863
Asset management 100 1,005 322 1,427 1,381 13,883 4,449 19,713
Banking 541 - 89 630 7,473 - 1,230 8,703
General insurance 78 - - 78 1,077 - - 1,077
Other (19) - (158) (177) (261) - (2,183) (2,444)
1,795 1,856 324 3,975 24,796 25,639 4,477 54,912
Debt (1,189) (16,426)
Net assets 2,786 38,486
At 31 December 2001
Life assurance 802 588 28 1,418 13,978 10,248 488 24,714
Asset management 60 1,252 469 1,781 1,046 21,821 8,173 31,040
Banking 341 - 147 488 5,943 - 2,562 8,505
General insurance 69 - 3 72 1,203 - 52 1,255
Other 75 - (6) 69 1,307 - (109) 1,198
1,347 1,840 641 3,828 23,477 32,069 11,166 66,712
Debt (1,358) (23,667)
Net assets 2,470 43,045
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
3 SEGMENTAL ANALYSIS CONTINUED
£m Rm
3(h) Funds under management South United UK & Total South United UK & Total
Africa States Rest of Africa States Rest of
World World
At 31 December 2002
Investments including assets 13,968 6,793 3,058 23,819 192,955 93,839 42,243 329,037
held to cover linked
liabilities
Unit trusts
Old Mutual Asset Managers 773 - 1,376 2,149 10,678 - 19,008 29,686
Nedcor unit trusts 633 - 712 1,345 8,744 - 9,836 18,580
Other asset management - - 11 11 - - 152 152
1,406 - 2,099 3,505 19,422 - 28,996 48,418
Third party
Old Mutual Asset Managers 3,833 - 105 3,938 52,949 - 1,450 54,399
Old Mutual Asset Managers - 37,457 - 37,457 - 517,435 - 517,435
(US)
Pilgrim Baxter - 4,207 - 4,207 - 58,116 - 58,116
Old Mutual Affiliates - 24,781 5,875 30,656 - 342,327 81,158 423,485
3,833 66,445 5,980 76,258 52,949 917,878 82,608 1,053,435
Private client UK - - 12,030 12,030 - - 166,184 166,184
Nedcor portfolio management 3,845 310 3,501 7,656 53,115 4,282 48,363 105,760
Other financial services 18 - 310 328 249 - 4,282 4,531
7,696 66,755 21,821 96,272 106,313 922,160 301,437 1,329,910
Total funds under management 23,070 73,548 26,978 123,596 318,690 1,015,999 372,676 1,707,365
At 31 December 2001
Investments including assets 11,519 4,497 5,699 21,715 200,760 78,376 99,325 378,461
held to cover linked
liabilities
Unit trusts
Old Mutual Asset Managers 670 - 360 1,030 11,677 - 6,274 17,951
Private client UK - - 1,051 1,051 - - 18,317 18,317
Other asset management - - 159 159 - - 2,771 2,771
670 - 1,570 2,240 11,677 - 27,362 39,039
Third party
Old Mutual Asset Managers 2,783 - 401 3,184 48,504 - 6,989 55,493
Old Mutual Asset Managers - 48,884 - 48,884 - 851,979 - 851,979
(US)
Pilgrim Baxter - 8,675 - 8,675 - 151,193 - 151,193
Old Mutual Affiliates - 33,595 8,081 41,676 - 585,514 140,840 726,354
2,783 91,154 8,482 102,419 48,504 1,588,686 147,829 1,785,019
Private client UK - - 16,347 16,347 - - 284,905 284,905
Other financial services 12 - 363 375 209 - 6,327 6,536
2,795 91,154 25,192 119,141 48,713 1,588,686 439,061 2,076,460
Total funds under management 14,984 95,651 32,461 143,096 261,150 1,667,062 565,748 2,493,960
Nedcor managed funds have been included in 2002 as a result of growth in this
business.
Unit Trust private client UK business was transferred to Old Mutual Asset
Managers in January 2002.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
4 INVESTMENT IN DIMENSION DATA HOLDINGS PLC
£m Rm
Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
Write-down of investment in Dimension Data Holdings plc before tax 68 269 1,080 3,334
and minority interests
Tax (11) 14 (171) 171
Write-down of investment in Dimension Data Holdings plc before 57 283 909 3,505
minority interests
Minority interests (28) (139) (442) (1,717)
Write-down of investment in Dimension Data Holdings plc after tax 29 144 467 1,788
and minority interests
During 2001, an impairment in the carrying value of the Group's investment in
Dimension Data Holdings plc was recognised, reflecting a market value of R14.50
per share at 31 December 2001. A further impairment has been recognised for the
year ended 31 December 2002 based on a closing market value of R4.02 per share.
Although these events are exceptional in the context of their significance to
the Group, the losses form part of banking operating profit in the statutory
financial statements.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
5 TAX ON PROFIT ON ORDINARY ACTIVITIES
£m Rm
5(a) Analysis of tax charge Year to Year to Year to Year to
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
(Restated) (Restated)
United Kingdom tax
UK corporation tax 40 64 632 793
Double tax relief (20) (49) (316) (607)
20 15 316 186
Overseas tax
South Africa 51 48 805 594
United States 8 31 126 384
Rest of World (1) 4 (16) 50
Secondary tax on companies (STC) 3 23 47 285
61 106 962 1,313
Adjustment in respect of prior periods (1) (7) (16) (87)
Current tax for the year 80 114 1,262 1,412
Current tax attributable to shareholders' profits on long term 38 40 596 497
business
Total current tax on ordinary activities 118 154 1,858 1,909
Deferred tax - non-technical account 17 88 272 1,087
Deferred tax attributable to shareholders' profits on long term 89 36 1,405 445
business
Adjustment for adoption of FRS19 - 41 - 507
Total tax on profit on ordinary activities 224 319 3,535 3,948
The tax charge is analysed as follows:
Operating profit 195 250 3,082 3,094
Short term fluctuations 3 55 47 683
Investment in Dimension Data Holdings plc (11) 14 (171) 171
Nedcor restructuring and integration costs (1) - (23) -
Non-operating losses on disposal of businesses 38 - 600 -
224 319 3,535 3,948
5(b) Reconciliation of tax charge
Tax at UK rate of 30.0 per cent. (2001: 30.0 per cent.) on profit 128 24 2,011 299
on ordinary activities before tax
Untaxed and low taxed income (including tax exempt investment (64) (118) (1,010) (1,462)
return)
Disallowable expenditure 128 418 2,021 5,175
STC 3 23 47 285
Movement in deferred tax (106) (165) (1,674) (2,045)
Other 29 (28) 463 (343)
Current tax charge 118 154 1,858 1,909
Comparative amounts have been restated to reflect the adoption of Financial
Reporting Standard 19 'Deferred tax'.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
6 ACQUISITIONS AND DISPOSALS / NON-OPERATING ITEMS
6(a) Acquisitions
(i) BoE Limited (BoE)
On 2 July 2002, the Group's banking subsidiary, Nedcor Limited, acquired 100% of
the net assets of BoE, a South African banking business, for a total
consideration of £485 million (R7,697 million). This consideration comprised
10.4 million Nedcor Limited ordinary shares valued at £84 million (R1,339
million), cash payments of £391 million (R6,199 million) and additional costs
directly associated with the acquisition of £10 million (R159 million). The
table below shows the fair value of the banking assets and liabilities acquired.
£m Rm
Book value Provisional Accounting Provisional Provisional
on fair value policy fair value fair value
acquisition adjustments alignments to Group to Group
Goodwill 55 (55) - - -
Cash and balances at central banks 114 - 1 115 1,833
Treasury bills and other eligible bills 199 (2) - 197 3,114
Loans and advances to banks 109 - - 109 1,723
Loans and advances to customers 2,326 (24) (21) 2,281 36,162
Other investment securities 715 (2) 1 714 11,323
All other assets 393 - 12 405 6,414
Deposits by banks (580) - - (580) (9,195)
Customer accounts (1,937) - (4) (1,941) (30,761)
All other liabilities (1,017) (6) (6) (1,029) (16,285)
Net assets acquired 377 (89) (17) 271 4,328
Consideration satisfied by:
Cash 391 6,199
Ordinary shares 84 1,339
Acquisition costs 10 159
485 7,697
Goodwill arising on acquisition 214 3,369
Provisional fair value adjustments
The fair value adjustments relate to the revaluation of BoE assets and
liabilities at the date of acquisition and accounting policy alignments between
BoE and Nedcor Ltd. Adjustments in respect of treasury bills and other eligible
bills includes impairment of banking bonds; loans and advances to customers have
been adjusted to reflect additional provisions against specific banking book
assets; other liabilities include a provision against an onerous lease.
Pre-acquisition performance
The following shows the profit and loss accounts of BoE from the beginning of
its financial year, 1 October 2001, to the date of acquisition, and for the
previous financial year ended 30 September 2001.
£m Rm
1 Oct 1 Oct 1 Oct 1 Oct
2001 2000 2001 2000
to to to to
1 July 30 Sep 1 July 30 Sep
2002 2001 2002 2001
Total operating income 199 329 3,148 4,033
(Loss) / profit on ordinary activities before tax (57) 36 (897) 443
Tax (5) (13) (81) (160)
(Loss) / profit on ordinary activities after tax (62) 23 (978) 283
Post-acquisition performance
From the date of acquisition to 31 December 2002, BoE contributed £114 million
(R1,797 million) to banking operating income, £23 million (R359 million) to
operating profit before tax and minority interests.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
6 ACQUISITIONS AND DISPOSALS / NON-OPERATING ITEMS CONTINUED
6(a) Acquisitions continued
(ii) Nedcor Investment Bank Holdings Limited (NIB)
In October 2002, Nedcor Limited, a banking subsidiary of the Group, acquired the
11.6% of the share capital of Nedcor Investment Bank Holdings Limited that the
Group did not already own. The consideration paid, net of costs, was £43 million
(R685 million) and the goodwill arising was £17 million (R274 million).
(iii) Franklin Templeton Nedcor Investment Bank Asset Management Limited
With effect from 1 October 2002, Nedcor Investment Bank Holdings Limited
acquired the remaining 50% of Franklin Templeton Nedcor Investment Bank Asset
Management Limited. The consideration paid was £11 million (R180 million) and
the goodwill arising was £9 million (R150 million).
(iv) Other
Other acquisitions made by the US asset management business during the year gave
rise to additional goodwill of £5 million (R79 million).
6(b) Disposals / Non-operating items
(i) Summary
The following gains and losses on the disposal of business operations have been
disclosed as non-operating. There were no non-operating items during 2001.
£m Rm
Notes Year to Year to
31 Dec 31 Dec
2002 2002
United States - asset management affiliates 6(b)(ii) 35 558
United Kingdom - asset management subsidiaries 6(b)(iii)(61) (963)
Rest of World - Old Mutual International (Isle of Man) Limited 6(b)(iv) 20 317
Loss on disposal before tax (6) (88)
Tax - United States asset management affiliates (38) (600)
Loss on disposal after tax (44) (688)
(ii) United States - asset management affiliates
Following the acquisition of United Asset Management in September 2000, the
Group has rationalised the affiliates held. Disposals during the year were NWQ
Investment Management Company Inc., C.S. McKee & Company Inc., Suffolk Capital
Management, J.R. Senecal & Associates Investment Counsel and Fiduciary
Management Associates. The total consideration received was £125 million (R1,724
million). The total profit before tax on disposal was £35 million (R553 million)
after charging goodwill attributable to the businesses of £71 million (R981
million) and the associated tax charge was £38 million (R600 million).
(iii) United Kingdom - asset management subsidiaries
The Group disposed of GNI Holdings Limited in November 2002 and Old Mutual
Securities Limited and King & Shaxson Bond Brokers Limited in December 2002 for
total cash consideration of £106 million (R1,674 million). Provisions have been
established in relation to the businesses sold of £28 million (R387 million). A
loss on disposal of £61 million (R963 million) has been incurred after charging
goodwill attributable to the businesses of £54 million (R746 million). In
respect of Old Mutual Securities Limited, deferred consideration is to be
determined on an earn-out basis over three years. In determining the loss on
disposal, no amount has been included for deferred consideration.
(iv) Rest of World - Old Mutual International (Isle of Man) Limited
In January 2002, Old Mutual International (Isle of Man) Limited, an offshore
life assurance business and a 100% subsidiary of the Group, was sold for cash
consideration of £36 million (R574 million), resulting in a profit on disposal
of £20 million (R317 million) and no tax was payable.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
7 GOODWILL
£m Rm
Notes At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
At beginning of year 1,580 2,279 27,537 25,786
Additions arising on acquisitions in the period 6(a) 245 174 3,872 2,122
Adjustments in respect of prior year acquisitions 5 2 79 25
Disposals 6(b) (125) (10) (1,727) (174)
Impairment loss - (500) - (6,196)
Pilgrim Baxter & Associates revenue share adjustments 101 (241) 1,604 (4,200)
Amortisation for the year (107) (113) (1,689) (1,400)
Foreign exchange and other movements (101) (11) (7,601) 11,574
At end of year 1,598 1,580 22,075 27,537
Analysed between:
Life assurance 84 76 1,160 1,325
Asset management 1,187 1,412 16,397 24,609
General insurance 12 10 166 174
Banking 315 82 4,352 1,429
1,598 1,580 22,075 27,537
Adjustments in respect of prior year acquisitions
Adjustments have been made to goodwill of £67 million (R785 million) that arose
on the acquisition in July 2001 of Fidelity & Guaranty Life Insurance Company.
The addition to goodwill of £21 million (R332 million), net of tax, reflects a
revision to the original estimate of the costs involved in exiting an onerous
contract.
In addition, the adjustments in respect of prior year acquisitions includes a
credit of £16 million (R253 million) which reflects the latest estimate of the
deferred consideration payable for the purchase of revenue shares of certain
affiliates combined with the effect of disposing of affiliates held for resale
at values in excess of the original estimated carrying amount. The ultimate
costs of purchasing these revenue shares will remain uncertain as they are
dependent upon future events and hence are subject to adjustment in future
years.
Impairment loss
The impairment loss in the prior year arose from a review of the carrying value
of the Group's UK private client and US asset management businesses. As a result
of this exercise, the Group reduced the carrying value of its unamortised
goodwill by £500 million (R6,196 million), reflecting the impact of declining
equity markets. A further review was undertaken as at 31 December 2002 which
supports the existing carrying value of the goodwill.
Pilgrim Baxter & Associates revenue share adjustments
During 2001, a reduction to goodwill of £241 million (R4,200 million), net of
tax, reflected the expiry on 31 December 2001 of the Group's option to purchase
the remaining revenue share from Pilgrim Baxter. On 14 March 2002, the Group
negotiated terms for the purchase of the remaining revenue share which comprised
a combination of fixed instalments and a variable earn-out depending upon profit
growth. Adjustments have been made to goodwill of £101 million (R1,604 million),
which represents the best estimate of the total obligation.
Amortisation for the year
The goodwill amortisation charge for the period of £120 million (R1,895 million)
(2001: £132 million (R1,636 million)) comprises £107 million (R1,689 million)
(2001: £113 million (R1,400 million)) disclosed above and £13 million (R206
million) (2001: £19 million (R236 million)) shown within investments in
associated undertakings.
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
8 AMOUNTS OWED TO CREDIT INSTITUTIONS
£m Rm
At 31 December 2002
Bank overdrafts repayable on demand 2 28
Bank and other loans:
Repayable within one year:
Floating rate notes 45 622
Commercial paper 330 4,559
Term loan 30 414
405 5,595
Repayable between one and two years:
Floating rate notes 12 166
Repayable between two and five years:
Syndicated revolving credit facilities 78 1,077
Euro notes 217 2,998
Floating rate notes 7 97
Other 41 566
343 4,738
Repayable after five years:
Other 5 69
767 10,596
At 31 December 2001
Bank overdrafts repayable on demand 1 17
Bank and other loans:
Repayable within one year:
Syndicated revolving credit facilities 294 5,124
Floating rate notes 74 1,289
Commercial paper 112 1,952
Other 4 70
484 8,435
Repayable between one and two years:
Term loan 30 523
Repayable between two and five years:
Syndicated revolving credit facilities 376 6,553
Term loan 6 105
382 6,658
897 15,633
Notes to the Financial Statements
for the year ended 31 December 2002 (continued)
8 AMOUNTS OWED TO CREDIT INSTITUTIONS CONTINUED
The multi-currency Revolving Credit Facility of £900 million (amount drawn down
at 31 December 2002: £78 million (R1,077 million)) is repayable on 13 July 2006.
Commercial paper is used under a £600 million Euro Commercial Paper ('ECP')
programme for periods of up to 12 months. Commercial papers are issued in
various currencies, the proceeds of which are generally swapped into US dollars
at the date of issuance.
During the year the company entered into $600 million and $60 million
multi-currency revolving credit facilities as back stop for the £600 million
multi-currency ECP programme. Both facilities are 364 day facilities, although
the company has term out options of 18 and 12 months respectively. At 31
December 2002 neither facility was drawn.
The Floating Rate Notes consist of a £45 million note repayable on 31 December
2010 with the holders having the option to elect for early redemption every six
months, a $20 million note repayable by 17 September 2004 and a $10.5 million
note repayable on 18 January 2005.
The term loan of £30 million (R414 million) is repayable on 30 April 2003.
Amounts owed to credit institutions bear interest at variable rates except for a
€400 million note. The Old Mutual plc €400 million Euro Notes due 2007 were
issued on 10 April 2002. The capital and interest on the notes were immediately
swapped into US Dollars and used to repay existing debt.
8(a) Convertible loan stock
(i) Insurance and other assets
On 2 May 2001, Old Mutual Finance (Cayman Islands) Limited, a 100 per cent.
owned subsidiary of the Group, issued US$650 million 3.625 per cent. Convertible
Bonds, which are guaranteed by and convertible into the ordinary shares of Old
Mutual plc at a conversion price of 190p per share at an exchange rate of one US
dollar to 69.52p sterling. The bonds are repayable on 2 May 2005 with the bond
holders having the option to elect for redemption on 2 May 2003.
(ii) Banking
The banking unsecured loan stock was acquired with BoE. It is denominated in
South African Rand, has an interest rate of 18.1 per cent. and is repayable at
the discretion of the borrower.
9 POST BALANCE SHEET EVENTS
There have been no significant events between the balance sheet date and 24
February 2003.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002
1 CONSOLIDATED PROFIT AND LOSS ACCOUNT ON AN ACHIEVED PROFITS BASIS FOR THE YEAR ENDED 31 DECEMBER 2002
£m Rm
Year Year Year to Year to
to to 31 Dec 31 Dec
31 Dec 31 Dec 2002 2001
2002 2001
South Africa
Life assurance 418 588 6,605 7,297
Asset management 28 37 441 458
Banking 165 290 2,605 3,593
General insurance 35 46 556 570
646 961 10,207 11,918
United States
Life assurance 138 17 2,182 220
Asset management 95 116 1,500 1,437
233 133 3,682 1,657
United Kingdom and Rest of World
Life assurance 5 (5) 73 (51)
Asset management 2 (3) 31 (38)
Banking 56 79 884 979
63 71 988 890
942 1,165 14,877 14,465
Other shareholders' income / (expenses) (22) (29) (347) (359)
Debt service costs (58) (67) (916) (830)
Write-down of strategic investments - (21) - (260)
Operating profit based on a long term investment return before goodwill 862 1,048 13,614 13,016
amortisation and impairment, write-down of investment in Dimension Data
Holdings plc and Nedcor restructuring and integration costs
Goodwill amortisation and impairment (120) (632) (1,895) (7,832)
Write-down of investment in Dimension Data Holdings plc (68) (269) (1,080) (3,334)
Nedcor restructuring and integration costs (14) (227)
Short term fluctuations in investment return (including economic
assumption changes)
Life assurance (338) 178 (5,340) 2,205
Other (9) 22 (128) 272
Impact of Capital Gains Tax (CGT) - (78) - (969)
Operating profit on ordinary activities before tax 313 269 4,944 3,358
Non-operating items (26) - (409) -
Profit on ordinary activities before tax 287 269 4,535 3,358
Tax on profit on ordinary activities (190) (371) (2,998) (4,600)
Profit / (loss) on ordinary activities after tax 97 (102) 1,537 (1,242)
Minority interests (44) (26) (695) (322)
Profit / (loss) for the financial year 53 (128) 842 (1,564)
Dividends paid and proposed (176) (172) (2,556) (2,606)
Retained loss for the financial year (123) (300) (1,714) (4,170)
Earnings per share - achieved profits basis p c
Operating earnings per share 14.1 15.4 222.8 190.8
Basic earnings / (loss) per share 1.4 (3.6) 22.9 (44.1)
Weighted average number of shares - millions 3,670 3,550 3,670 3,550
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
2 CONSOLIDATED BALANCE SHEET ON AN ACHIEVED PROFITS BASIS AS AT 31 DECEMBER 2002
£m Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
Assets:
Intangible assets (goodwill) 1,598 1,580 22,075 27,537
Insurance and other assets 26,593 31,915 367,358 556,232
Banking assets 21,377 11,309 295,291 197,099
Total long term in-force business asset 640 597 8,843 10,397
Total assets 50,208 45,401 693,567 791,265
Liabilities:
Achieved profits equity shareholders' funds 3,426 3,067 47,329 53,442
Minority interests 927 565 12,808 9,847
Subordinated liabilties 18 22 249 383
Insurance and other liabilities 25,602 31,292 353,666 545,377
Banking liabilities 20,235 10,455 279,515 182,216
Total liabilities 50,208 45,401 693,567 791,265
Reconciliation of total long term in-force business asset:
Value of in-force business 1,089 881 15,045 15,350
Adjustment for discounting CGT - 17 (6) 298
OMI life subsidiaries statutory solvency adjustment (18) (17) (242) (303)
OMUSL statutory solvency adjustment (431) (284) (5,954) (4,948)
Total long term in-force business asset 640 597 8,843 10,397
3 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES ON AN ACHIEVED PROFITS BASIS FOR THE YEAR ENDED 31
DECEMBER 2002
£m Rm
Year Year to Year to Year to
to 31 Dec 31 Dec 31 Dec
31 Dec 2001 2002 2001
2002
Profit / (loss) for the financial year 53 (128) 842 (1,564)
Foreign exchange movements 442 (1,277) (5,034) 4,622
Total recognised gains and losses for the year 495 (1,405) (4,192) 3,058
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
4 RECONCILIATION OF MOVEMENTS IN THE CONSOLIDATED ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31
DECEMBER 2002
£m Rm
Year Year to Year to Year to
to 31 Dec 31 Dec 31 Dec
31 Dec 2001 2002 2001
2002
Total recognised gains and losses for the year 495 (1,405) (4,192) 3,058
Dividends paid and proposed (176) (172) (2,556) (2,606)
319 (1,577) (6,748) 452
Issue of new capital 39 - 619 -
Issue of new capital in connection with the acquisition of Fidelity & - 203 - 2,690
Guaranty Life
Shares issued under option schemes 1 5 16 61
Proceeds from sale of shares previously held to satisfy claims and errors - 3 - 37
on demutualisation
Net increase / (decrease) in achieved profits equity shareholders' funds 359 (1,366) (6,113) 3,240
Achieved profits equity shareholders' funds at the beginning of the year 3,067 4,433 53,442 50,202
Achieved profits equity shareholders' funds at the end of the year 3,426 3,067 47,329 53,442
5 BASIS OF PREPARATION
These supplementary financial statements have been prepared in accordance with
the methodology for supplementary reporting for long term insurance business
(the achieved profits method) issued in December 2001 by the Association of
British Insurers.
These supplementary financial statements have been audited by KPMG Audit Plc and
prepared in conjunction with our consulting actuaries Tillinghast-Towers Perrin.
The objective of the achieved profits method is to recognise profit as it is
earned arising from contracts of long term insurance business. The methodology
is based on an attribution of the assets of a life insurance company between
those backing long term insurance contracts (backing assets) and the residual
assets representing unencumbered capital.
The backing assets cover :
(i) the long term liabilities calculated in accordance with local
supervisory requirements; and
(ii) the solvency capital requirements in each country (or equivalent
where there is no local requirement).
Under the achieved profits method the profits of the long term insurance
business comprise:
(i) the cash transfers to the residual assets from the backing
assets as determined following the statutory valuation;
(ii) the movement over the accounting period in the present value of
the expected future cash flows to the residual assets from contracts in-force at
the balance sheet date and their backing assets; and
(iii) the return on the residual assets.
Shareholder profit arises fundamentally from:
(i) the difference between (a) the amounts charged to policyholders
for guarantees, expenses and insurance and (b) the
actual experience in respect of these items; and
(ii) the investment return earned on capital.
In addition for the United States business, the guarantees for interest credited
to policyholder funds are reset periodically. The assumed future credited
interest rates are consistent with investment earnings made and in line with
recent company policy. The United States business is included from the effective
acquisition date of 1 July 2001.
The treatment within these supplementary statements of all businesses other than
life assurance is unchanged from the primary financial statements. The
requirements of FRS19, Deferred Tax, have been complied with for both 2001 and
2002.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
6 COMPONENTS OF ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS
£m Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
Shareholders' adjusted net worth 2,337 2,186 32,284 38,092
Equity shareholders' funds 2,786 2,470 38,486 43,045
Adjustment to include OMI life subsidiaries on a statutory solvency (18) (17) (242) (303)
basis
Adjustment to include OMUSL on a statutory solvency basis (431) (284) (5,954) (4,948)
Adjustment for discounting CGT - 17 (6) 298
Value of in-force business 1,089 881 15,045 15,350
Value of in-force business before cost of solvency capital 1,195 964 16,506 16,803
Cost of solvency capital (106) (83) (1,461) (1,453)
Achieved profits equity shareholders' funds 3,426 3,067 47,329 53,442
Pro-forma adjustment to bring listed subsidiaries to market value
Achieved profits equity shareholders' funds 3,426 3,067 47,329 53,442
Adjustment to bring listed subsidiaries to market value 502 455 6,938 7,922
Adjusted embedded value 3,928 3,522 54,267 61,364
The achieved profits equity shareholders' funds are the sum of the shareholders'
adjusted net worth and the value of in-force business. Old Mutual plc's adjusted
net worth comprises the assets backing the solvency capital, the residual assets
in the life insurance companies and the other net assets of the Group. The value
of in-force is the present value of the expected future cash flows to the
residual assets from contracts in-force at the balance sheet date and their
backing assets less the amount of the solvency capital.
The shareholders' adjusted net worth is equal to the consolidated equity
shareholders' funds adjusted to reflect:
(i) the Old Mutual International (OMI) and Old Mutual US life
assurance (OMUSL) subsidiaries on a statutory solvency basis. The adjusted net
worth also includes goodwill relating to OMUSL of £74 million (R1,022 million)
at 31 December 2002 and £65 million (R1,133 million) at 31 December 2001;
(ii) the difference between the face value and discounted value of
accrued Capital Gains Tax on South African shareholders' funds. The value of
in-force has been restated as this adjustment was previously included in the
value of in-force.
All non-life subsidiaries are included at net asset value plus goodwill (as
reflected in the primary financial statements) in the achieved profits
shareholders' funds. A pro forma adjustment to include listed subsidiaries at
market value has been provided separately.
The table below sets out a geographical analysis of the value of in-force
business.
£m Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
South Africa 682 527 9,419 9,176
Individual business 417 325 5,751 5,653
Group business 265 202 3,668 3,523
United States 341 271 4,712 4,722
United Kingdom and Rest of World 66 83 914 1,452
Value of in-force business 1,089 881 15,045 15,350
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
6 COMPONENTS OF ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS CONTINUED
The encumbered and unencumbered capital as at 31 December 2002 and 31 December
2001 is shown in the table below.
£m Rm
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
South Africa 1,139 1,000 15,739 17,414
Encumbered capital 1,008 729 13,925 12,697
Unencumbered capital 131 271 1,814 4,717
United States 355 206 4,904 3,591
Encumbered capital 155 92 2,144 1,605
Unencumbered capital 200 114 2,760 1,986
For South Africa the average unencumbered capital applicable for the year ended
31 December 2002 and the year ended December 2001 was £160 million (R2,524
million) and £139 million (R1,722 million) respectively. These average figures
were used to determine the expected return on the unencumbered capital.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
7 SEGMENTAL ANALYSIS OF RESULTS
£m Rm
South United UK & Rest Total South United UK & Rest Total
Africa States of World Africa States of World
Year to 31 December 2002
New business contribution 114 80 3 197 1,806 1,261 42 3,109
Profits from existing business
Expected return on in-force 150 35 6 191 2,367 561 100 3,028
business
Expected return on encumbered 113 6 4 123 1,778 98 63 1,939
capital
Experience variances 36 - (10) 26 569 (3) (160) 406
Operating assumption changes (17) (9) 2 (24) (268) (141) 28 (381)
Risk margin changes - 18 - 18 - 284 - 284
Expected return on unencumbered 22 8 - 30 353 122 - 475
capital
Life assurance operating profit 418 138 5 561 6,605 2,182 73 8,860
before tax
Investment return variances
On value of in-force (87) (25) (2) (114) (1,381) (396) (23) (1,800)
On capital (250) (4) (14) (268) (3,950) (60) (221) (4,231)
Effect of economic assumption 24 19 1 44 371 303 17 691
changes
Life assurance achieved profits 105 128 (10) 223 1,645 2,029 (154) 3,520
before tax
Attributed tax (68) (32) - (100) (1,067) (508) - (1,575)
Life assurance achieved profits 37 96 (10) 123 578 1,521 (154) 1,945
after tax
Year to 31 December 2001
New business contribution 109 19 3 131 1,350 244 42 1,636
Profits from existing business
Expected return on in-force 191 20 13 224 2,369 250 160 2,779
business
Expected return on encumbered 147 3 5 155 1,820 35 62 1,917
capital
Experience variances 42 (15) 2 29 525 (189) 26 362
Operating assumption changes 3 - (9) (6) 39 - (110) (71)
Risk margin changes 77 - - 77 953 - - 953
Development costs - (13) (19) (32) - (161) (231) (392)
Expected return on unencumbered 19 3 - 22 241 41 - 282
capital
Life assurance operating profit 588 17 (5) 600 7,297 220 (51) 7,466
before tax
Investment return variances
On value of in-force 50 8 (3) 55 617 100 (34) 683
On capital 40 (13) 15 42 492 (172) 186 506
Effect of economic assumption 64 11 6 81 799 139 78 1,016
changes
Impact of Capital Gains Tax (78) - - (78) (969) - - (969)
Life assurance achieved profits 664 23 13 700 8,236 287 179 8,702
before tax
Attributed tax (211) (6) (11) (228) (2,626) (71) (136) (2,833)
Life assurance achieved profits 453 17 2 472 5,610 216 43 5,869
after tax
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
7 SEGMENTAL ANALYSIS OF RESULTS CONTINUED
The new business contribution is the value of new business written during the
period, determined initially at the point of sale, and then accumulated to the
end of the period by applying the discount rate to the value of new business at
the point of sale and adding back the expected cost of solvency capital between
the point of sale and the end of the period.
The expected return on the in-force business is determined by applying the
discount rate to the value of in-force business at the beginning of the period
and adding back the expected cost of solvency capital over the period.
The expected return on encumbered capital is determined by applying the equity
return assumption at the previous year end to the opening solvency capital.
The experience variances arise in the period due to differences between the
actual experience and the assumptions used to calculate the value at the start
of the period. The amount under operating assumption changes reflects revised
expectations of future experience. The risk margin change for December 2001
reflects a 0.5% reduction in the South African risk margin. The risk margin
change for December 2002 reflects a 0.5% reduction in the United States risk
margin. The United States risk margin was reviewed in line with the United
States market practice. The investment assumptions are shown in section 9.
Expected return on the unencumbered capital for South Africa is 14% of the
unencumbered capital and 7% for the United States. The unencumbered capital is
the life capital in excess of the solvency capital referred to previously. For
South Africa, the life capital is an average value of investible shareholders'
assets, excluding subsidiaries eliminated on consolidation, adjusted for net
fund flow. Investment return variances consist of two components: investment
variances on the value in-force which represent the differences between the
actual returns in the period and the assumptions used to calculate the value at
the start of the period; and short term fluctuations of investment return on the
life capital.
Effect of economic assumption changes represents the impact of interest rate
changes. The impact of changes to the differentials between the various
investment and economic assumptions are also included. However, the risk margin
changes for December 2001 and December 2002, referred to previously, are
included under profits from existing business (risk margins changes). The
investment assumptions are shown in section 9.
The impact of CGT relates to the change in the cost of capital as at 31 December
2001 as a result of the introduction of capital gains tax in South Africa in
October 2001. This is a one-off item as going forward the impact of capital
gains tax is allowed for in the calculation of the value of in-force business.
The segmental results for the United States include the operating profits
generated by Old Mutual Reassurance in Ireland, a subsidiary of Old Mutual plc,
which provides reinsurance to the United States life companies.
The difference between the total tax charge shown in the above segmental
analysis, and the total tax charge shown in the profit and loss account in
section 1, represents the tax charge on the non-life assurance businesses as
shown in the primary financial statements.
£m Rm
Year to 31 December 2002
Tax on life assurance achieved profits
South Africa - value of in-force 80 1,264
- capital (12) (197)
United States 32 508
United Kingdom and Rest of World - -
100 1,575
Tax on non-life assurance businesses 90 1,423
Tax on profit of ordinary activities 190 2,998
Year to 31 December 2001
Tax on life assurance achieved profits
South Africa - value of in-force 200 2,490
- capital 11 136
United States 6 71
United Kingdom and Rest of World 11 136
228 2,833
Tax on other businesses 143 1,767
Tax on profit of ordinary activities 371 4,600
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
8 VALUE OF NEW BUSINESS
The tables below set out a geographical analysis of the value of new business
(VNB) for the year to 31 December 2002 and the year to 31 December 2001. United
States new business numbers for 2001 are in respect of second six months only.
New business profitability (as measured by the ratio of the value of new
business to the Annual Premium Equivalent) is also shown. Annual Premium
Equivalent (APE) is calculated as recurring premiums (RP) plus 10% of single
premiums (SP).
The value of new business is grossed up to the pre-tax level. The assumptions
and tax rates used to calculate the value of new business are set out in section
9.
For the year to For the year to
31 December 2002 31 December 2002
RP SP APE VNB Margin RP SP APE VNB
£m £m £m £m Rm Rm Rm Rm
South Africa 134 1,014 235 114 49% 2,104 16,009 3,705 1,806
Individual business 115 546 170 53 31% 1,808 8,624 2,670 841
Group business 19 468 65 61 93% 296 7,385 1,035 965
United States 37 2,629 300 80 27% 586 41,500 4,736 1,261
UK & Rest of World 12 104 22 3 12% 186 1,641 350 42
Total 183 3,747 557 197 36% 2,876 59,150 8,791 3,109
For the year to 31 December 2001 For the year to 31 December 2001
RP SP APE VNB Margin RP SP APE VNB
£m £m £m £m Rm Rm Rm Rm
South Africa 140 1,142 254 109 43% 1,728 14,143 3,142 1,350
Individual business 120 792 199 66 33% 1,486 9,812 2,467 813
Group business 20 350 55 43 80% 242 4,331 675 537
United States* 26 578 84 19 22% 349 7,719 1,121 244
UK & Rest of World 12 106 23 3 15% 151 1,323 283 42
Total 178 1,826 361 131 36% 2,228 23,185 4,547 1,636
* United States new business for 6 months only
The value of new business after tax is shown in the tables below.
For the year to 31 December 2002 For the year to 31 December 2002
RP SP APE VNB Margin RP SP APE VNB
£m £m £m £m Rm Rm Rm Rm
South Africa 134 1,014 235 71 30% 2,104 16,009 3,705 1,124
Individual business 115 546 170 33 20% 1,808 8,624 2,670 524
Group business 19 468 65 38 58% 296 7,385 1,035 600
United States 37 2,629 300 56 19% 586 41,500 4,736 883
UK & Rest of World 12 104 22 3 12% 186 1,641 350 42
Total 183 3,747 557 130 23% 2,876 59,150 8,791 2,049
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
8 VALUE OF NEW BUSINESS CONTINUED
For the year to 31 December 2001 For the year to 31 December 2001
RP SP APE VNB Margin RP SP APE VNB
£m £m £m £m Rm Rm Rm Rm
South Africa 140 1,142 254 68 27% 1,728 14,143 3,142 840
Individual business 120 792 199 41 21% 1,486 9,812 2,467 506
Group business 20 350 55 27 49% 242 4,331 675 334
United States* 26 578 84 13 15% 349 7,719 1,121 171
UK & Rest of World 12 106 23 3 15% 151 1,323 283 42
Total 178 1,826 361 84 23% 2,228 23,185 4,546 1,053
* United States new business for 6 months only
The value of new individual unit trust and some group market-linked business
written by the life companies is excluded, as the profits on this business arise
in the asset management subsidiaries. It also excludes premium increases arising
from indexation arrangements in respect of existing business, as these are
already included in the value of in-force business. The premiums shown for the
United States exclude reinsurance ceded externally.
The increase in the margin for South Africa occurred because a higher proportion
of Group Business with-profit annuities was sold.
A reconciliation of the new business premiums shown in the notes to the
financial statements to those shown above, for the year ended 31 December 2002,
is set out below.
£m Rm
Year to 31 December 2002 Recurring Single Recurring Single
premiums premiums premiums premiums
New business premiums in the notes to the financial statements 219 4,003 3,444 63,187
Less:
United States reinsurance ceded externally (36) (4) (568) (62)
Group market-linked business not valued - (185) - (2,921)
Unit trust business not valued - (64) - (1,007)
Selestia business not valued - (3) - (47)
New business premiums as per achieved profits supplementary 183 3,747 2,876 59,150
statements
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
9 ASSUMPTIONS
The principal assumptions used in the calculation of the value of in-force
business and the value of new business are set out below.
• The pre-tax investment and economic assumptions used for South African
and United States businesses were as follows:
South Africa 31 Dec 31 Dec
2002 2001
Fixed interest return 11.0% 12.0%
Equity return 13.0% 14.0%
Property return 12.0% 13.0%
Inflation 7.0% 8.0%
Risk discount rate 13.5% 14.5%
United States 31 Dec 31 Dec
2002 2001
Treasury yield 4.0% 5.0%
Inflation 3.0% 3.0%
New money yield assumed 6.0% 6.6%
Net portfolio earned rate 7.2% 7.3%
Risk discount rate 8.0% 9.5%
• For the other operations, appropriate investment and economic
assumptions were chosen on bases consistent with those adopted in South Africa.
(i) Where applicable, rates of future bonuses have been set at
levels consistent with the investment return
assumptions.
(ii) Projected company taxation is based on the current tax basis
that applies in each country.
• For the South African business full allowance has been made for Secondary
Tax on Companies that may be payable in South Africa. Full account has been
taken of the impact of CGT introduced in South Africa with effect from 1 October
2001. It has been assumed that 10% of the equity portfolio (excluding group
subsidiaries) will be traded each year. For the United States business full
allowance has been made for existing tax attributes of the companies, including
the use of existing carry forwards and preferred tax credit investments.
Achieved profits results are initially calculated on an after tax basis and are
then grossed up to the pre-tax level for presentation in the profit and loss
account and the segmental analysis of results. The tax rates used were the
effective corporation tax rates of 37.8% for South African business (December
2001: 37.8%), 30% for United States business (December 2001: 30%) and 0% for
United Kingdom and Rest of World (December 2001: 0%) except for the investment
return on capital for which the attributed tax was derived from the primary
accounts.
• The assumed future mortality, morbidity and voluntary discontinuance
rates have been based as far as possible on analyses of recent operating
experience. Allowance has been made where appropriate for the effect of expected
AIDS-related claims.
• The management expenses attributable to life assurance business have been
analysed between expenses relating to the acquisition of new business and the
maintenance of business in-force. Assumed future expenses were based on levels
experienced up to 31 December 2002. The future expenses attributable to life
assurance business do not include Group holding company expenses.
• Material development costs are disclosed separately in 2001. No allowance
has been made for future development costs.
• Future investment expenses were based on the current scales of fees
payable by the life assurance companies to the asset management subsidiaries. To
the extent that these fees include profit margins for the asset management
subsidiaries, these margins have not been included in the value of in-force
business or the value of new business.
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
9 ASSUMPTIONS CONTINUED
• The effect of increases in premiums over the period for policies in-force
at 31 December 2002 and at 31 December 2001 has been included in the value of
in-force business only where such increases are associated with indexation
arrangements. Other increases in premiums of existing policies are included in
the value of new business.
• New schemes written on which recurring single premiums are expected to be
received on a regular basis are treated as new business. The annualised premium
is recognised as recurring premium new business at inception of the scheme and
is determined by annualising the actual premiums received during the year in
question. Subsequent recurring single premiums received in future years are not
treated as new business, as these have already been provided for in calculating
the value of in-force business.
• The value of in-force and value of new business is sensitive to changes
in various economic and non-economic assumptions. The sensitivities of the value
of in-force and value of new business to changes in key assumptions are set out
in section 9.
• Conversions between Rand, US Dollar and Sterling were carried out at
the following exchange rates:
Rand per US$ per Rand per
Sterling Sterling US$
At 31 December 2002 13.8141 1.6105 8.5775
At 31 December 2001 17.4286 1.4542 11.9850
Year to 31 December 2002 (average) 15.7878 1.5030 10.5042
Year to 31 December 2001 (average) 12.3923 1.4405 9.2670
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
10 ALTERNATIVE ASSUMPTIONS
The tables below for South Africa and the United States show the sensitivity of
the value of in-force at 31 December 2002 and the value of new business for the
year ended 31 December 2002 to changes in key assumptions. For each sensitivity
illustrated, all other assumptions have been left unchanged.
The sensitivity of the adjustment for discounting CGT, which is included in the
shareholders' adjusted net worth, to changes in the central discount rate is not
material and is not included in the table below.
£m Rm
South Africa Value of Value of Value of Value of
in-force new life in-force new life
business business business business
at 31 Dec at 31 Dec at 31 Dec at 31 Dec
2002 2002 2002 2002
Central assumptions 682 114 9,419 1,806
Value before cost of solvency capital 763 123 10,545 1,950
Cost of solvency capital (81) (9) (1,126) (144)
Effect of:
Central discount rate +1% 586 100 8,090 1,582
Value before cost of solvency capital 722 115 9,971 1,821
Cost of solvency capital (136) (15) (1,881) (239)
Central discount rate -1% 790 130 10,920 2,056
Value before cost of solvency capital 809 132 11,187 2,093
Cost of solvency capital (19) (2) (267) (37)
Decreasing the pre-tax investment return assumptions by 1% with 592 103 8,184 1,626
bonus rates changing commensurately
Value before cost of solvency capital 734 118 10,150 1,868
Cost of solvency capital (142) (15) (1,966) (241)
Voluntary discontinuance rates increasing by 25% 651 100 8,989 1,584
Maintenance expense levels increasing by 20% with no corresponding 613 105 8,464 1,653
increase in policy charges
Increasing the inflation assumption by 1% 672 112 9,278 1,769
Achieved Profits Basis Supplementary Information
for the year ended 31 December 2002 (continued)
10 ALTERNATIVE ASSUMPTIONS CONTINUED
£m Rm
United States Value of Value of Value of Value of
in-force new life in-force new life
business business business business
at 31 Dec at 31 Dec at 31 Dec at 31 Dec
2002 2002 2002 2002
Central assumptions 341 80 4,712 1,261
Value before cost of solvency capital 364 94 5,029 1,490
Cost of solvency capital (23) (14) (317) (229)
Effect of:
Central discount rate +1% 317 72 4,374 1,135
Value before cost of solvency capital 344 89 4,753 1,408
Cost of solvency capital (27) (17) (379) (273)
Central discount rate -1% 368 89 5,084 1,401
Value before cost of solvency capital 386 100 5,332 1,579
Cost of solvency capital (18) (11) (248) (178)
Decreasing the pre-tax investment return assumptions by 1% with 345 81 4,765 1,281
credited rates changing commensurately
Value before cost of solvency capital 367 95 5,074 1,504
Cost of solvency capital (22) (14) (309) (223)
Voluntary discontinuance rates increasing by 25% 316 74 4,362 1,166
Maintenance expense levels increasing by 20% with no corresponding 331 77 4,566 1,219
increase in policy charges
Increasing the inflation assumption by 1% 341 80 4,705 1,260
Increasing Risk Based Capital to 200%, with 1% reduction in central 344 78 4,752 1,232
discount rate
Value before cost of solvency capital 380 100 5,249 1,579
Cost of solvency capital (36) (22) (497) (347)
--------------------------
(1) Operating profit is based on a long term investment return, before goodwill
amortisation and impairment, write-down of investment in Dimension Data Holdings
plc, Nedcor restructuring and integration costs and non-operating items.
Operating earnings per share are stated on the same basis, but after tax and
minority interests.
(1)Operating profit is based on a long term investment return, before goodwill
amortisation and impairment, write-down of investment in Dimension Data Holdings
plc, Nedcor restructuring and integration costs and non-operating items.
Operating earnings per share are stated on the same basis, but after tax and
minority interests.
(2) Debt from the Group's insurance and asset management activities, net of cash
and short term investments which are immediately available to repay debt.
This information is provided by RNS
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