Final Results - Year Ended 31 December 1999 - Pt 1

Old Mutual PLC 8 March 2000 PART 1 OLD MUTUAL PLC Preliminary Results for the year ended 31 December 1999 HIGHLIGHTS * Operating profits based on a longer term rate of return increased by 23% to £656 million (1998: £534 million). (Profit figures for the comparative 12 months to 31 December 1998 are given on a pro forma basis reflecting demutualisation and change in year end) * Profits attributable to shareholders exceed £1 billion. * Life assurance operating profits of £426 million from continuing operations, an increase of 47%. * Adjusted earnings per share (smoothed) increased 21% to 12.2p (1998: 10.1p). * Proposed final dividend of 2p is effectively covered 3.0 times on an annualised basis. * Growth in life assurance new business embedded value profits to £75 million. * Embedded value increased 74% to £5.4 billion, equivalent to 157p per share. * Asset management profits up 109% to £48 million. 8 March 2000 Mike Levett, Chairman & Chief Executive commented: 'I am delighted to be able to report on a year of substantial progress at Old Mutual. We successfully made the transition from a mutual life society to an internationally listed financial services group, focused on delivering shareholder value. Progress was achieved in our South African businesses and, since our July listing, we have taken the first steps to create a platform for our international expansion.' OLD MUTUAL PLC Preliminary Results for the year ended 31 December 1999 CHAIRMAN'S STATEMENT Our maiden set of results as a public company for the year 1999 reflect the substantial progress achieved in the six months since we became a listed company. As a life assurance company we measure progress against achievement of a smoothed profit performance, eliminating short- term fluctuations in the market values of our holdings of equity investments which would otherwise distort the true performance in the businesses. Smoothed operating profit in sterling rose by 23% to £656 million (1998: £534 million) and smoothed earnings per share increased by 21% to 12.2p. New business embedded value profits in our life assurance business were also highly satisfactory, at £75 million, compared to a loss of £4 million for the 6 months to December 1998. The overall uplift in embedded value to £5.4 billion, an increase of 74% over the embedded value of £3.1 billion at the end of 1998, was struck after new capital of £559 million raised at the time of listing and £404 million new capital arising from policyholder self-investment at the beginning of the year. Dividend The directors are proposing a final dividend for the year of 2.0p per share. As outlined in our prospectus, this represents one half of the total dividend of 4.0p per share which the Board would have expected to recommend had the Group been listed throughout the year. This represents an increase of 33% on the notional figure for the previous year (3.0p per share) indicated in our prospectus. The annualised rate of dividend would be three times covered by the smoothed earnings per share of 12.2p. As we said in our prospectus, the Board intends to follow a dividend policy aimed at achieving stable growth in dividends over time, measured against the Group's underlying earnings and cash flow. We plan to pay an interim dividend in November 2000, which would represent approximately one third of the total anticipated dividend for the year to December 2000. Profits from operations Whilst our core South African businesses continued to perform strongly in 1999, their results when translated from Rand into sterling were depressed by the fall of the average £/Rand exchange rate during 1999 compared to 1998 by a factor of 8%. Our life operating profits of £426 million from continuing operations represent an increase of 47% in sterling terms over the pro forma 1998 result. A key feature of the past year has been the outstanding performance of our core South African life operations. The performance in 1999 was the result of management action during the year to introduce market-leading new products, to revise pricing of new business, to develop a strong focus on cost containment, and to an outstanding investment management performance in a year of exceptional stockmarket returns. Total funds under management increased to £45 billion, £19 billion of which is managed outside South Africa. Profits from asset management, at £48 million, were up 109% over the year. Old Mutual Asset Managers (OMAM) in South Africa capitalised on a successful year of investment performance, winning a record £1.6 billion of new third party funds. Our unit trusts in both South Africa and Europe topped a successful year with market- leading global technology funds. Shortly after the end of the year we announced an offer for Gerrard Group to make us a leading private client wealth manager in the UK. When completed, this acquisition will bring our total UK funds under management to more than £27 billion. Project 500 - Driving down costs The strong profit performance reflected our efforts to reduce the cost base of the organisation through our Project 500 programme. By the end of the year we had more than achieved the initial objective of Project 500, by putting actions into place that are expected to deliver annual cost savings in excess of R500 million (£50 million). Subsidiaries Nedcor, our listed banking subsidiary on the JSE, recently reported a 20% pro forma rise in operating income to £296 million before tax, non-recurring deductions for general provisions, and asset write-downs and income from associates. After charges against operating income under UK GAAP, pre-tax profit on banking business, including income from associates, was £210 million, compared to £287 million for the previous year. During the year Nedcor greatly extended its focus on emerging information technologies in partnership with Dimension Data International Ltd. which after the year end acquired the European networks and e-commerce provider, Comparex Networks. Omnilink, a partnership between Old Mutual, Nedcor and Dimension Data, further developed during the year as a leading provider of backbone virtual private networks to industry and commerce. Nedcor's management further strengthened capital and reserves of the bank during the year, with its capital ratio rising to 12%. Tight cost controls held expenses growth to under 2% and continued to drive down the cost/income ratio from 56.2% to 51.7%, General insurance profits at our JSE-listed subsidiary, Mutual & Federal (M&F), were adversely affected by underwriting losses, although it is pleasing to note that the company returned to underwriting profit in the second half as a result of adjustments to premium levels. M&F returned £144 million of capital to shareholders by way of a special dividend in September 1999. Pre- and post-tax profits Old Mutual's pre-tax result, on a statutory reporting basis, benefited from strong investment returns on shareholder assets, largely reflecting the recovery in the South African equity market during 1999. This produced an excess return of £778 million over the smoothed return used to calculate operating profits. During the year a revised basis for the taxation of South African life assurance companies was introduced, with effect from January 2000. The effect of this change is reflected in our results for 1999. A transitional tax in 1999 on the move to the revised basis has led to an overall increase in the Group's effective tax charge to 25% (of smoothed operating earnings). In our first year as a public company it is a noteworthy milestone that profits after tax were over £1 billion, from which our maiden dividend of £69 million is proposed to be paid. Technology During the year we further developed our portfolio of emerging businesses. We partnered with Computer Sciences Corporation to outsource non-core infrastructure systems management in order to focus our investment on new systems development and integration initiatives. Across the Group, administrative intermediary and customer support systems are being systematically upgraded and transportable platforms developed to exploit synergies between operations worldwide. In e-commerce Old Mutual Unit Trusts in South Africa is already operating an end-to-end internet delivery channel. Other Group companies are re-focusing on developing further our ability to leverage the low cost base we have established through systems leadership in South Africa to provide life and wealth management products, and developing e- commerce distribution and service delivery channels, internationally. Developments since the year end In January 2000 we announced a recommended bid for Gerrard Group plc, a leading wealth management and financial services company in the UK. The bid has been declared unconditional as to acceptances and now awaits final regulatory approval. Gerrard provides an excellent opportunity to benefit from increased scale. By merging Gerrard's private client business, Greig Middleton, with that of Capel Cure Sharp, our existing subsidiary, the prospective enlarged company will occupy a leading position in UK private client wealth management, with total UK funds under management of £27 billion and excellent prospects for future growth. We agreed at year end the disposal of our UK Life business, via two separate transactions with XL Mid Ocean and Century Life. Once completed we expect this will release approximately £65m of capital. An exceptional book gain in net assets of £15 million was taken in 1999. Board appointment In January 2000 Jim Sutcliffe was appointed to the Board of Old Mutual plc and joined the Executive Management Team, taking specific responsibilities for the Group's life assurance businesses. Jim has a significant track record in the industry in the UK, South Africa, and the USA. I welcome him to Old Mutual. His international experience will be invaluable to our management in seizing the many opportunities that we can see ahead. Outlook Our strong 1999 results demonstrate our ability to deliver shareholder value. We will continue to strive to drive value forward by enhancing the performance of our core businesses in southern Africa, growing profitability and reducing costs across all of our businesses; and seeking to add new business opportunities internationally in our chosen areas of operation. I am confident that Old Mutual has both the will and the potential to deliver further substantial progress in the coming years. MIKE LEVETT Chairman & Chief Executive ENQUIRIES: Old Mutual plc Tel: + 44 20 7569 0100 Mike Levett, Chairman Eric Anstee, Finance Director Jim Sutcliffe, Chief Executive, Life James Poole, Director, Investor Relations College Hill Tel: + 44 20 7457 2020 Alex Sandberg Mark Garraway Gareth David Nicholas Williams College Hill South Africa Tel: + 27 11 447 3030 Graham Fiford Tony Friend Further details on Website www.oldmutual.com OLD MUTUAL PLC Preliminary Results for the year ended 31 December 1999 REVIEW OF OPERATIONS Old Mutual's business comprises life assurance in Southern Africa, asset management in Southern Africa and the UK, banking through its 53% subsidiary Nedcor Ltd, general insurance through its 51% interest in Mutual & Federal Investments Ltd., and other life and asset management businesses internationally. LIFE ASSURANCE Highlights The year was characterised by strong growth in operating profits and a significant turnaround in new business profitability. Life operating profits (before tax and based on a longer-term rate of return on shareholder fund portfolio investments) increased 120% to £376 million. Profits were boosted by one off items, totaling approximately £50 million, resulting primarily from investment market conditions in the year. This offset the loss of £50 million in respect of our discontinued UK life business. The life operating profit is equivalent to 1.5% of insurance funds at 31 December 1999, which compares very well with similar companies around the world. Insurance funds, a primary driver of profits, grew by 30% to £24 billion as at the year end. Embedded value added by new business was £75 million compared with a loss of £4 million in the six months to 31 December 1998. This is an accumulated value as at the end of the year, and is on the 1999 South African tax basis. Restating the value on the new South African tax basis, including corresponding pricing changes, the new business embedded value would be £66 million. Besides the recovery in the South African stock market, the strong improvement in operating profits and embedded value added by new business was the result of a very successful cultural shift from a mutual environment to a shareholder environment. This was evidenced by the effort put into eliminating unprofitable business, carefully managing costs (particularly in respect of new business related expenses), improved new business pricing and carefully managing all sources of profit. Expenses were held at 1998 levels, and office staff numbers decreased by over 10%. South African Individual Business The key features of the year for our Individual Business were strong growth in operating profits to £168 million (before tax and excluding investment return on shareholder funds) and a significant turnaround in new business embedded value profitability to £36 million (including expected return to the end of the year), on the back of good volumes of single premium business, particularly for our Investment Frontiers product range, which was introduced towards the end of 1998. The market for individual investment products has been characterised by a trend towards flexible investment products. Our Investment Frontiers product range is ideally positioned to benefit from this trend, with a wide range of innovative investment offerings, which we further extended during the year. Recurring premium growth for new business sold through affinity groups was also good, thanks to the success of our new renewable term risk product, the increased productivity of our sales force in this market, and to cross-selling initiatives with People's Bank (a subsidiary of Nedcor) and the JD Group (a South African retailer). This product is carefully structured to cope properly with the effect that AIDS will have in this market. Sales volumes of other recurring premium new business have declined. The consequences of the spike in interest rates and the stock market decline in 1998 continued to affect consumer confidence in 1999. We took steps to improve profitability by restructuring our Agency Distribution channel and branch network, by cutting back on other new business related expenses and by increasing minimum premiums for several products. In the short run this has had a negative effect on new business volumes, but has built a sound platform for future growth. We have also continued to invest in the development of alternative distribution channels, such as direct distribution and e- commerce, where our primary website now receives over 30,000 visits per month. We continue to use technology to improve business efficiency. In 1999, important enhancements were made to our client record and data-warehousing systems. New network technology improved messaging capability between our diverse platforms and systems. Our Affinity Group division significantly upgraded its policy administration system. Our call centre was the subject of intense activity around the time of our demutualisation and listing, with calls reaching 26,000 per day. We have built upon this capability to enhance our client servicing and reduce costs. South African Group Business Our Group Business unit has undergone a significant restructuring of its business operations in 1999 in recognition of the transforming marketplace. This has significantly reduced its cost base, while its retirement fund administration services have been re-priced. Pre-tax operating profits (excluding investment return on shareholder funds) increased to £67 million and embedded value added by new business was maintained at £32 million (including expected returns to the end of the year), on the back of single premiums of £521 million, and recurring premiums of £21 million, excluding Group market linked business. The ramifications of the 1998 stock market decline continued to be felt in 1999. New investments in our Guaranteed Fund product reduced noticeably, as many retirement funds retained their net cash flow on short term deposit. The Guaranteed Fund product did, however, receive new single premiums of £170 million from retirement funds which sold their free Old Mutual shares and invested the proceeds in their Guaranteed Fund policies. The 1998 events triggered a change in outlook by the market to retirement fund investment products. With the predominance of defined contribution funds, and with many of these funds starting to offer member investment choice, the market decline highlighted the inappropriateness of the traditional guaranteed fund product for this market. We have accordingly developed and introduced two new smoothed bonus products, CoreGrowth and Genesis. These products have attracted significant new business, and by the end of 1999 had investments totalling £225 million. Another new product introduced in 1999 was Platinum Pensions, a with-profit life annuity. This product succeeded our OptiPlus product range, which was closed to new business after the market fall. The new product has been structured to ensure more efficient use of capital and to build on the success of Optiplus, and attracted new business of £125 million by the end of the year. Our risk business continued to produce acceptable underwriting results in a highly competitive market. We have a substantial IT project underway to improve service quality and productivity in our retirement fund administration area. This together with the restructuring of the business in 1999 will place the business on a sound basis for future growth. International Business Outside South Africa, our African life businesses operate in underdeveloped markets. They suffered difficult economic circumstances during 1999, typified by high inflation and high interest rates. Old Mutual maintains a leading market position in these markets, holds a strong brand and is well positioned to take advantage of any return to stable economic conditions. Our life operations in the UK, Guernsey, the Isle of Man, Hong Kong, Dublin and Bermuda underwent a strategic review in 1999. As already reported, this resulted in the withdrawal of the Group from its UK life business, together with the sale of the Group's distribution business, Pioneer. Growth opportunities remain in the expatriate market and in other emerging markets. ASSET MANAGEMENT Old Mutual Asset Managers Total assets under management by OMAM Group were £27.1 billion at year-end. This represents strong growth of 44% over the year, driven by a combination of excellent new business inflows and buoyant investment markets. Relative investment performance of OMAM's funds and products was highly competitive. Largely as a result of this, OMAM achieved an industry record for net new business inflows in South Africa amounting to £1.6 billion of new third party institutional mandates. OMAM also won third party mandates from US and UK institutions. OMAM in South Africa added to its list of achievements in 1999 by being rated as the top fund management company in South Africa by the management of a very broad spread of the listed corporations in the 1999 Reuters Survey of Global Emerging Markets. Competition for funds in South Africa remains strong. The institutional market continues to be influenced by the effects of retirement funds shifting from defined benefit to defined contribution schemes. In the retail market, investors take a more active interest in their contractual and discretionary savings. Product innovations and technology developments create new competitive dynamics in the quest to satisfy investor needs profitably. OMAM will aim to develop its operations through a combination of organic growth, selective acquisition and strategic alliances. Unit Trusts During the year there were a number of structural changes in the OMAM Group. Old Mutual Fund Managers (OMFM), which administers and markets a range of UK-registered unit trusts, was merged with OMAM (UK) and moved into the latter's offices in the City of London. This created a unit trust operation with over £3 billion of assets under management. OMAM (Zimbabwe) was created by separating the asset management business from the Life Company in that country. OMUT, our unit trust management business in South Africa, had a very successful year, attracting £600m of new funds from investors and increasing its market share to over 19%, excluding money market funds. In March 1999, OMUT launched a new Global Technology Fund, which attracted R875million (£88million) in new money and delivered a 62% return in the period ended 31 December 1999, to become the top performing new fund in the industry. In July 1999 another launch of two funds-of-funds products with different risk/reward profiles, attracted a further R337million (£34million). Capel Cure Sharp Total funds under management at the Capel Cure Sharp Group (CCS) at the year end were £9.6 billion, an increase of 5% over 1998 of which 53% is now managed on a discretionary basis. CCS's unit trust funds passed through the £1 billion mark during the year. In November 1999 CCS Unit Trust group also launched a Global Technology Fund, which to date has attracted investment of £40 million and has delivered a return of 68% since launch, comfortably beating the benchmark index MSCI Global Technology. Over the year the performance of the unit trusts was excellent, with 15 of CCS's 16 funds producing above average performance and with ten in the first quartile. The UK high net worth market is growing rapidly and attracting a larger customer base, especially of younger and more financially sophisticated individuals. During 1999 we completed the merger of Albert E Sharp with Capel- Cure Myers, achieving annualised cost savings of £16 million as part of Project 500. The year also saw the development of a web- based communication channel, giving clients on-line access to their portfolios. This site is now being further developed in line with CCS's individual lifelong wealthcare strategy. In October 1999 we launched Albert E Sharp Securities ('AESS') to develop the Group's institutional stockbroking and corporate finance business in the small to medium cap market. AESS will focus on industries and companies that are either growing or in the process of change. AESS began market making in February 2000. OLD MUTUAL PLC Preliminary Results for the year ended 31 December 1999 REVIEW OF OPERATIONS Acquisition of Gerrard Group plc Through Capel Cure Sharp, Old Mutual already has a leading presence in the high net worth market. On 18 January 2000 Old Mutual announced a recommended offer for Gerrard Group plc, a leading specialist banking and private client business (Greig Middleton). The Group believes it is particularly well placed to capitalise on the growth of the UK high net worth market. Galaxy Portfolio Services Galaxy was formed in 1999 with the merger of Old Mutual Investment Services and Nedcor Investment Bank Investment Product Services (Pty) Limited. Assets under administration more than doubled from £400 million at the beginning of the year to £900 million as at 31 December 1999. Our effective interest, including the stake held via Nedcor Investment Bank Holdings Ltd, is 91%. In August, Galaxy launched an Investment Advisory Service, which created the facility for clients to have their assets managed by professional investment managers, in accordance with predetermined mandates representing various risk profiles. During the first five months to 31 December 1999, these mandates attracted nearly £50 million of client assets. Galaxy also launched a range of offshore foreign currency funds which enable both new and existing clients to diversify into a range of Dollar and Sterling funds managed by third parties. BANKING Nedcor again achieved excellent results, with headline operating earnings, excluding supplemental additions to general risk provisions and prudent write-downs in respect of central Johannesburg properties of £94 million and including income from associates, increasing from £287 million to £309 million. Earnings per share at Nedcor Group level increased by 25% and average total assets increased by 13%. Retail banking had a particularly satisfactory year with market share growth experienced in home loans, credit cards and investment products. The Nedcor group's cost to income ratio reduced from 56.2% to an industry leading benchmark in South Africa of 51.7%. The hangover effects of the high interest rate environment were reflected in a 130% increase in the provisions compared to last year. The bank remains well capitalised. Exceptional gains of £66 million were realised on sale of the Group's travel business and sale of 15% in Nedcor Investment Bank upon its listing, assisting Nedcor to achieve a capital adequacy ratio target of 12% during the year. Last year Nedcor Investment Bank contributed £50 million to Nedcor's bottom line 1999 results. This was 25% higher than last year, in spite of a general slowdown in corporate activity. During the year Nedcor made an approach to Standard Bank to propose a merger at a ratio of one Nedcor share for 5.5 Stanbic shares. Nedcor is awaiting the outcome of its application for regulatory approval and of an action in the South African courts relating to regulatory jurisdiction before making an offer to Standard Bank's shareholders. Old Mutual continues to support the proposal. Investment in strategic alliances continued during the year, with Nedcor commencing its joint venture with Capital One in the US, aimed at exploiting electronic technology to sell additional products. In September, Nedcor invested a further £140 million in Dimension Data International (DDIL). Nedcor also floated 15% of its interest in Nedcor Investment Bank (NIB) on the Johannesburg and Namibian stock exchanges which raised £100 million in new capital. The float provides NIB with a significant brand building opportunity whilst enabling NIB to provide a share option incentive mechanism for key staff. In December, NIB acquired the commercial division of Edward Nathan & Friedland, a leading corporate law firm in South Africa, which represents NIB's strategic response to the convergence of corporate advisory services in the South African marketplace. This transaction gives NIB a significant tier-one corporate finance capability and the possibility of additional deal flow and synergies generating a significant source of future growth. Nedcor's goal is to develop a globally competitive and client- focused bank to take advantage of improvements in banking technology and enhanced e-commerce capability. Domestically Nedcor is a national champion in banking in South Africa. Nedcor's international strategy concentrates on areas where both barriers to entry and capital requirements are lower and therefore much effort has been directed toward the virtual banking and technology arenas, again exploiting its vision of the convergence of banking and technology to create a unique platform for future growth. GENERAL INSURANCE The general insurance market in South Africa continues to suffer from the effects of intense competition, deteriorating claims experience and higher claims costs which has led to a decline in underwriting profitability across all classes. Fraudulent claims activity coupled with high costs of crime, added to rising accidents and fire claim costs, have had adverse consequences for the South African general insurance industry. For Mutual & Federal, which is one of the leaders in the market with a 12% market share, underwriting results were disappointing this year, relative to past performance. As a result earnings fell to £59 million from £86 million in 1998. A programme to raise rates during the year was partially successful in restoring underwriting profitability by year end, but margin pressure remains. Underwriting performance remains, however, favourable by international standards and market-share was retained despite growing competition. A strict control over supplier costs ensured that increases in the average claims costs were held below the headline South African inflation rate of 8%. Mutual & Federal was pleased to receive the award of South African Financial Services Intermediaries Association Commercial Insurer of the Year for 1999. In mid-1999 Duff & Phelps rating agency confirmed Mutual & Federal's AAA credit rating. OLD MUTUAL PLC Preliminary Results for the year ended 31 December 1999 FINANCIAL REVIEW Introduction Operating profit before tax for our life assurance business is determined using a modified statutory method of accounting for life profits and excludes the future profitability of in-force and new business. Operating profits before tax also include the results for the Group's listed banking and general insurance subsidiaries before minorities and the results of the asset management operations in full. Operating profits for the life and general insurance companies are reported on the basis of a longer term investment rate of return, which smoothes out the impact of short term fluctuations in investment returns on shareholder funds. This statutory basis for calculating earnings is supplemented by a separate reporting of embedded value profit. Embedded value profit is a realistic method of profit reporting and reflects more accurately the underlying performance of the Group's life assurance business. An embedded value provides an actuarially determined estimate of the economic value of a life assurance company. It represents the sum of the shareholders' net assets at market value and the present value of the future after tax profit from the life business written and in force at the valuation date, adjusted for the cost of holding an appropriate amount of solvency capital. The change in the embedded value over the period, adjusted for any capital raised and dividend provided for, provides a measure of the performance of a life assurance operation, referred to as the embedded value profit. Financial Performance Operating profits (based on the longer term rate of return) before tax increased 23% which included an outstanding performance from the Group's core life insurance operations where operating profits from continuing businesses of £426 million represented an increase of 47% over 1998 pro forma of £289 million. High investment returns in South Africa have resulted in short term fluctuations being strongly positive. Total short term fluctuations for the Group amounted to £778 million. The focus on cost containment has also significantly contributed to the improved result. The asset management businesses made a strong contribution to operating profits, with the overall result of £48 million representing an increase of 109% over 1998's £23 million. The 1999 profits benefited both from a strong performance of OMAM (SA) which added £1.6 billion funds under management during the year and the cost savings achieved of £16 million in the integration of the UK private client businesses Capel Cure-Myers and Albert E Sharp. Funds under management for the Group totalled £45 billion. This represents a 29% increase over 1998. Of this amount at the year end OMAM group managed funds of £27.1 billion, including £19.3 billion of life funds, third party institutional funds of £5.1 billion and unit trusts of £2.7 billion. Nedcor's banking underlying results were strong at £309 million before the impact of non-recurring deductions for general provisions and asset writedowns. These adjusted earnings exclude both the gains on the sale of Nedtravel (£20 million) and the listing of 15% of investment banking subsidiary NIB (£46 million) which are carried below the line as exceptionals and the non recurring deductions for general provisions and property portfolio writedowns. These provisions, charged by Nedcor against the gains, were grossed up in the Group results and deducted from operating earnings to arrive at a banking pre-tax profit of £210 million (1998: £287million). From June 2000 the Bank for International Settlements, under the Basle agreement on Banking Supervision, proposes to impose an extra 1% provision on risk weighted assets for all emerging market banks. The increases in provisions were made with this target in mind. Overall Nedcor's reserves for bad and doubtful debts now stand at 3% of average advances. In addition retention of profit meant that Nedcor's capital ratio was 12% at year end, making Nedcor one of the best capitalised banks in South Africa. Start-up losses of £5 million were incurred in the development of Old Mutual Bank. Mutual & Federal's result before minorities, at £59 million, was 31% below pro forma 1998 result of £86 million, reflecting tough underwriting conditions as a result primarily of the higher incidence of motor accident claims and inadequate rating levels in the fire account. Results did improve in the second half however, largely due to rate increases implemented in the second half year. In September, Mutual & Federal declared a special dividend of £144 million from excess capital. As a result, the Group's longer term rate of investment return will be calculated going forward on a lower level of shareholder funds. Other shareholders' income/expense comprises the smoothed investment return on the shareholders' funds outside of the life assurance and general insurance companies plus returns on funds raised at listing, totalling £40 million, operating results from a number of financial services businesses including health, and corporate costs. In December 1999 the Group reached agreement to dispose of its UK life insurance operations to Century Group, following the reinsurance of its annuity portfolio to XL Mid Ocean. The transaction has received regulatory approval and awaits consent of the Court. Results for both 1998 and 1999 have been impacted by provisions required against pension mis-selling and the effects of improving annuitant mortality. The UK life operation has been treated separately in discontinued operations. The Group has retained provisions of £38 million against warranties provided to the purchaser in respect of pension mis-selling, over and above the provisions held in the company disposed of. The sale and reinsurance agreement results in a gain of £15 million on book value in 1999 including £10 million in respect of the reinsurance agreement. However, although the sale gave rise to a gain on book value, it resulted in an embedded value loss of £12 million. Profit before tax is declared after additional general risk provisions and property write-downs by Nedcor, amortisation of goodwill from the Group's acquisition of Albert E Sharp, and investment returns in excess of the longer term investment return. The effective rate of tax in 1999 was 25%. The Four Funds basis of life taxation in South Africa was modified with effect from 1 January 2000. Inter alia, the changes reduced the deductibility of expenses for tax in the policyholders' life funds and the deductibility of transfers of profit from policyholder funds to shareholders' funds. The impact of both changes is expected to increase the effective rate of tax in the South African life business in future years to about 28%. The 1999 result includes a transitional charge in respect of the move to this new basis of £61 million. The directors have proposed a final dividend for 1999 of 2.0p per share. On an annualised basis, the 4.0p per share represents an increase of 33% over the notional annual dividend of 3.0p per share indicated in the prospectus when we listed. Embedded Value Profits Excluding capital raised and dividends provided for, the Group's embedded value increased during 1999 by £1,434 million. Most of this growth arose from investment return on the adjusted net worth, which benefited from high investment returns on shareholder investments, particularly in South Africa. Profits from new business written during the year were £75 million, up significantly from a loss of £4 million in the second half of 1998. Positive new business embedded value profits were generated by all the South African life businesses. This improvement was aided by a recovery from the adverse circumstances that affected our new business in the second half of 1998 and the first half of 1999. Investment Frontiers, Platinum Pensions, and investment in the Guaranteed Fund by some retirement funds of the proceeds from the sale of their free demutualisation shares contributed in particular to improved single premium volumes. A focus on new business cost containment and the introduction of more profitable new products also made a positive contribution. The change in the South African tax basis, however, had a negative impact of £121 million on embedded value profits. This charge includes provision for the additional tax of £61 million that will be payable at the end of 2000 on transition from the old to the new basis. The remaining £60 million also includes the capitalised value of future additional tax expected to be paid by shareholders, after making allowance for amounts to be borne by policyholders. Experience variances (other than additional provisions for pensions mis-selling reported at mid-year) and investment variances were both positive. Exchange rate impacts result from movement in the average £/Rand exchange rate. Embedded Value During 1999 the Group's embedded value rose 74% from £3.1 billion to £5.4 billion. This includes additional capital of £963 million, £404 million from the policyholder self investment at the beginning of the year, and £559 million raised in the course of listing in the middle of the year. The value of in-force business has increased from £771 million to £806 million. This increase would have been greater but for the adverse impact of the exclusion of the discontinued UK life operations and the inclusion of the effect of the new SA tax basis. The embedded value does not include a valuation of the businesses of the asset management subsidiaries (including such business written through the life assurance companies), nor of any other in-force non-life business of the Group. We have continued to maintain a 1% margin between our discount rate and the assumed equity return rate which we believe is a conservative treatment. Shareholders' Funds The Group derives competitive advantage from the financial strength of its life businesses in South Africa. Retention of capital in excess of the minimum statutory requirements for the life business enables shareholders' funds to be invested in a diversified portfolio of equity investments, which in addition to current beneficial tax treatment, enhances returns to shareholders in the longer term. The proposed introduction of Capital Gains Tax in South Africa from 1 April 2001 may to some extent reduce the tax advantage of equities. We will continue to evaluate the optimal mix of our shareholder portfolio investments, to ensure that these deliver maximum value for shareholders. Since the allocation of shares in the demutualisation and subsequent listing of the company on five stock exchanges, the remaining significant portion of shareholder funds in the balance sheet is invested in our listed subsidiaries Nedcor and Mutual & Federal, and also in our various asset management businesses and in other subsidiary businesses. These businesses form an integral part of the Group. Capital Management Internal targets were set in 1999 for the return on capital for life assurance businesses based on a prudent internal measure of required solvency capital. These targets are kept under constant review to ensure they are consistent with the Group's overall sterling return on capital targets. During 1999 the life business units have reviewed their capital requirements to ensure efficient use of capital. Particular attention is being paid to designing and developing new products that have lower capital requirements and provide a higher return on capital. It is consequently envisaged that over time capital will be generated in excess of that required for the life businesses, and that this excess capital could be gradually released for redeployment elsewhere in the Group. The Group has also sought to reallocate capital from less productive activities and to free up excess capital in parts of the business to enable the Group to develop businesses expected to have higher growth and greater return on equity for shareholders. The sale of the Group's UK life business, which has underperformed for a number of years, should release £65 million of capital when successfully completed. In keeping with this overall Group philosophy of optimal capital utilisation, Mutual & Federal's Board of Directors declared a special dividend of £144 million to shareholders from excess funds in September 1999. The raising of £559 million new equity capital at listing and the syndication of a £300 million revolving credit facility at very competitive rates during the year demonstrates the value to the Group of access to lower-cost international capital markets. The acquisition of Gerrard will be financed largely from internal cash resources, except for the loan notes to be taken up by Gerrard shareholders. Following this acquisition, the Group retains the capability to mobilise internal and external resources to make further acquisitions which fit the established strategic criteria and meet our required rate of return, whilst maintaining at all times sufficient working capital for operations and normal business contingencies. Share buybacks The company keeps shareholder capital constantly under review. Resolutions will be put at the next annual general meeting of the company to renew existing authorities to allot shares, to disapply statutory pre-emption rights, and to make market purchases of Old Mutual shares on the London Stock Exchange. In addition the company intends to seek shareholder approvals for a reduction in share premium account in order to create reserves in the accounts and authorities to buy back shares on the four southern African stock exchanges on which its shares are currently listed. The mechanism for achieving any future stock market purchases in the African territories will be through four separate 'contingent purchase contracts' with the respective counterparty defined in the contracts, in each of territories concerned. Further details of the proposed resolutions and the contingent purchase contracts will be included with the notice of meeting in the annual report. The authorities to buy back shares will collectively permit the company to buy up to a maximum of 10% of the current issued share capital. Shareholder information On July 12 1999 the company listed its shares on five stock exchanges in London, Johannesburg, Malawi, Zimbabwe, and Namibia. The total number of shares in issue at the year end was 3,444,624,230. For calculating earnings per share the average number of shares in issue for the year was 3,127,051,667. The annual general meeting will be held at the Grosvenor House Hotel, London, at 11:00 a.m. on 18 May 2000. Notice will be given with the company's annual report and accounts, which are expected to be posted in the first week of April. Subject to the dividend being approved at the Annual General Meeting, it will be paid on 31 May 2000 to shareholders on the UK register on 14 April 2000 and on the southern African registers on 7 April 2000, which will also be the currency conversion date for converting the dividend into other currencies. The interim results for the six months to 30 June 2000 will be released on Tuesday 5 September 2000. Old Mutual plc Preliminary results for the year ended 31 December 1999 Summary consolidated profit and loss account Year to 31 December 1999 Pro forma Year to year to 31 December 31 December 1999 1998 Notes £ £ Operating profit Life assurance (based on a long term investment return) Continuing operations 4 426 289 Discontinued operations (50) (118) Banking 5 210 287 Asset management 48 23 General insurance business (based on a 6 59 86 long term investment return) Other shareholders' income / (expenses) 7 (37) (33) Operating profit before short term 656 534 fluctuations in investment return Short term fluctuations in investment 10 778 (477) return Non-operating items 12 54 - Profit on ordinary activities before tax 1,488 57 Tax on profit on ordinary activities 11 (165) (85) Profit / (loss) on ordinary activities 1,323 (28) after tax Minority interests (257) (73) Profit / (loss) attributable to 1,066 (101) shareholders Dividend proposed 13 (69) - Retained profit / (loss) for the 997 (101) financial period p p Basic earnings per share 13 34.1 (3.4) Diluted earnings per share 13 33.9 (3.4) Adjusted earnings per share based on a 13 12.2 10.1 long term investment return Old Mutual plc Preliminary results for the year ended 31 December 1999 Consolidated profit and loss account Technical account -longterm business Pro forma Year to year to 31 31 December December 1999 1998 Notes £ £ Earnedpremiums,net of reinsurance Gross premiums written Continuingoperations 2 3,301 3,328 Discontinued operations 2 33 37 3,334 3,365 Outward reinsurance premiums (5) (20) 3,329 3,345 Investment income 2,995 2,507 Unrealised gains on investments 3,783 - Other technical income, net of reinsurance 35 4 10,142 5,856 Claims incurred,net of reinsurance Claims paid Gross amount (3,360) (2,970) Reinsurers'share 35 56 (3,325) (2,914) Change in the provision for claims, net of reinsurance (67) (31) (3,392) (2,945) Changes in other technical provisions, net of reinsurance Longterm business provision, net of reinsurance Gross amount (3,670) 448 Reinsurers' share (30) (12) (3,700) 436 Change in technical provisions for linked liabilities, net of reinsinsurance (1,519) 260 (5,219) 696 Net operating expenses (552) (543) Investment expenses and charges (28) (26) Unrealised losses on investments - (3,147) Tax attributable to the long term business (116) (50) Allocated investment return transferred from / (to) the non technical account (543) 312 Balance on the technical account -long term business 292 153 Analysed between: Continuing operations 342 271 Discontinued operations (50) (118) 292 153 Balance on the technical account - long term business Analysis of balance on technical account -longterm business Long term business result before investment return 105 21 Long term investment return 187 132 Balance on the technical account - long term business 292 153 Technical account -general business Pro forma Year to year to 31 31 December December 1999 1998 Notes £ £ Earned premiums,net of reinsurance Gross premiums written (continuing operations) 291 292 Outward reinsurance premiums (33) (39) 6 258 253 Change in the provision for unearned premiums, net of reinsurance Gross amount 2 7 Reinsurers'share (1) - 259 260 Allocated investment return 56 79 transferred from the non-technical account Claims incurred, net of reinsurance Claims paid Gross amount (223) (226) Reinsurers'share 21 35 (202) (191) Change in the provisions for claims, net of reinsurance Gross amount 8 (4) Reinsurers'share (5) - (199) (195) Net operating expenses (57) (58) Balance on the technical account -general business 59 86 Analysis of balance on technical account - general business General 3 7 business result before long term investment return Long term investment return 56 79 Balance on the technical account -general business 59 86 MORE TO FOLLOW FR GGGDXBXGGGGI

Companies

Old Mutual Limited NPV (DI) (OMU)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today