Interim Results 2003 - Part 1

Old Mutual PLC 7 August 2003 Old Mutual plc Results for the six months ended 30 June 2003 Continued solid earnings Highlights • Adjusted operating profit*: £395m (2002: £381m), an increase of 4% in Sterling R5,122m (2002: R6,059m), a decrease of 15% in Rand • Operating profit: £378m (2002: £212m), an increase of 78% in Sterling R4,899m (2002: R3,376m), an increase of 45% in Rand • Adjusted operating earnings per share*: 5.6p (2002: 5.8p), a decrease of 3% in Sterling 73.4c (2002: 92.9c), a decrease of 21% in Rand • Basic earnings per share: 4.7p (2002: 3.3p), an increase of 42% in Sterling 61.1c (2002: 52.9c), an increase of 16% in Rand • Life sales of £261m annual premium equivalent (2002: £288m) • Total banking assets £22.3bn, adjusted operating profit £101m (2002: £128m) • Total assets under management £128bn at 30 June 2003 (£124bn at 31 December 2002) • Adjusted embedded value: £4,059m (31 December 2002: £3,928m), an increase of 3% in Sterling R50,212m (31 December 2002: R54,267m), a decrease of 7% in Rand • Interim dividend of 1.7p (2002: 1.7p) maintained, 21.0 cents in Rand** Jim Sutcliffe, Chief Executive, commented: 'We have produced solid earnings in the first half, although life assurance sales and margins were lower against a background of volatile market conditions. The impact of management action is coming through and the recent recoveries of the US, UK and South African equity markets from their low points earlier in the year hold out the prospect of better times ahead.' Wherever the items asterisked in the Highlights are used, whether in the Highlights, the Chief Executive's Statement or the Operating and Financial Review, the following apply: * Adjusted operating profit represents operating profit before tax and minority interests based on a long term investment return before goodwill amortisation, write-down of investment in Dimension Data Holdings plc, Nedcor restructuring and integration costs and change in credit provisioning methodology. Adjusted operating earnings per share are similarly based, but are stated after tax and minority interests. ** Indicative only, being the Rand equivalent of 1.7p converted at the exchange rate prevailing on 30 June 2003. The actual amount to be paid by way of interim dividend to holders of shares on the South African branch register will be by reference to the exchange rate prevailing at the close of business on 2 October 2003, as determined by the Company, and will be announced on 3 October 2003. Old Mutual plc Results for the six months ended 30 June 2003 continued enquiries: Old Mutual plc James Poole, Director, Corporate Affairs Tel: +44 20 7569 0100 Nad Pillay, Head of Group Communications (SA) Tel: +27 (0) 11 217 1605 Tel: +27 (0) 82 553 7980 College Hill Tony Friend / Gareth David (UK) Tel: +44 (0) 20 7457 2020 Notes to editors: A webcast of the analysts presentation and Q&A will be broadcast live at 09.30am (UK time) on our website at www.oldmutual.com. High resolution images are available for the media to view and download free of charge from www.vismedia.co.uk. 7 August 2003 Chief Executive's Statement Our adjusted operating earnings for the first half of 2003 were solid at 5.6p per share (2002: 5.8p), with results in our life and general insurance businesses ahead of the equivalent period in 2002. We have continued to develop our businesses in line with our declared strategy, despite being buffeted by difficult market conditions. Our life assurance operations in South Africa benefited from fixed interest-related gains and positive mortality and retention experience, whilst in the USA our life assurance company continued to see the effects of the growth in sales in 2002 come through. Mutual & Federal once again made good progress. Results at our asset management businesses were down somewhat because of lower average equity market levels and as a result of disposals of businesses since 30 June 2002. Our banking result was negatively impacted by currency effects, the higher costs of long term funding, the short term effects of the cash drain arising from the purchase of BoE and a reduction in earnings from investment banking. In the UK, Gerrard was again able to make a small profit despite the low equity markets as a result of its cost cutting efforts. Life sales reduced to £261 million on an annual premium equivalent basis (2002: £288m). Poor equity markets and the absence of a sufficiently competitive range of absolute return products had an adverse impact on our individual business sales in South Africa. Group business premiums were also held back by market conditions, which deterred our clients from purchasing with-profit annuities, and by uncertainty in the pensions arena as a result of recent legislation. Lower volumes also hurt our margins. Our group business sales were focused on low capital, low margin multi-manager products resulting in further downward pressure on average margins. We had intended to rein in our US life sales, but in the event the very low and declining interest rate environment rapidly curtailed the market for our type of life assurance products. Both sales and margins at our US life business were lower as a result. To address these issues, we shall be launching a range of funds targeting absolute returns in South Africa in the third quarter and in the USA we have expanded our distribution channels and index tracking product range. Total funds under management increased from £124 billion at 31 December 2002 to £128 billion at 30 June 2003. We continued to achieve positive net fund inflows at our US asset management operations. Our teams of specialist fund managers and distributors attracted net new funds of $1.9 billion, although with lower average fee levels due to the increased proportion of fixed interest business. The portfolio effect of our mix of different investment styles and investment sectors continued to mute the impacts of volatile markets. Elsewhere around the Group funds under management were broadly stable, but encouraging results were achieved in the UK in our developing businesses, OMAM(UK) and Selestia. We continue to focus heavily on building our distribution muscle in all three of our main territories. Investment performance has been good in all three regions, although absolute levels of return remain a concern for many customers. Whilst overall the results of our banking businesses were disappointing, the integration of BoE with Nedcor is proceeding satisfactorily and we continue to expect synergy benefits of R905 million per annum to be achieved by 2006. There has been a significant turnaround in Old Mutual Bank's results now that it is part of Nedcor's operations. Our South African businesses have been heavily involved in developing industry proposals to address Black Economic Empowerment (BEE) in the context of the proposed Financial Services Charter. Major programmes Chief Executive's Statement continued have been initiated in the areas of procurement, employment equity and investment, and our businesses are committed to playing a full part in this important aspect of the evolution of the new South Africa. Cost control is a key focus at present in all of our businesses as we seek to deliver increased value for our customers and shareholders. Our capital position remains strong, bolstered by the issue of $750 million of Guaranteed Cumulative Perpetual Preferred Securities during the first half of the year. Currency translation effects, particularly the comparative strength of the Rand in the first half of 2003, affected the overall picture as shown in our two reporting currencies. Whilst Rand strength boosted Sterling operating earnings at our South African businesses, it had the reverse effect for those shareholders who consider our results in Rand. It led to significant unrealised translation losses at Nedcor's overseas operations and also contributed to volatility in South African equity market levels, with effects on our life profit as indicated above. In the long run, a strong Rand helps the Group and has a positive effect on our embedded value. Adjusted embedded value at the end of the period rose in Sterling terms by 3% to £4,059 million or 106p per share, but declined in Rand by 7% to R50,212 million or R13.10 per share, again reflecting the impact of the Rand's strength. The Board has declared an unchanged interim dividend of 1.7p per share. OUTLOOK We remain committed to the development of our three-region (USA/UK/South Africa) business. Our first priority remains the continuing improvement of our existing portfolio of businesses. Our management will continue to use the Group's strengths as an investment manager and product designer to respond to the various challenges that we face and to extend our distribution capability. The improved investment climate in our three key geographies since April, if maintained, is expected to provide a better background for the Group's businesses in the second half of the year. Jim Sutcliffe Chief Executive 7 August 2003 Operating and Financial Review BUSINESS REVIEW SOUTH AFRICA LIFE ASSURANCE Financial performance The South African life business operating profit, before long term investment return, of R1,592 million, was 3% up on the R1,541 million recorded in the same period last year, although it was adversely affected by lower levels of average assets. However, this result was helped by favourable investment experience in bond portfolios backing annuities and risk products, as well as favourable mortality and retention experience variances. The total annual premium equivalent (APE) of the Group's South African life sales for the period was R1,576 million, 3% lower than the corresponding period last year, while the after tax value of new business at R285 million was 29% lower. The average margin on new business after tax reduced from 25% to 18% of APE. This was due to both lower new business volumes affecting the funding of new business expenses and lower sales of equity-based savings products as consumers remained averse to risk. Funds under management at the Group's South African life business totalled R221 billion at 30 June 2003, which represented a decrease of 3% over the position at 31 December 2002. Lower equity markets and a stronger Rand contributed to this decline. The life company's capital on the relevant local basis decreased by R2.7 billion to R29 billion at 30 June 2003, but the business remains well capitalised at 2.2 times the required statutory capital. Outlook Client expectations are being actively managed through various marketing campaigns on the merits of long term investment and absolute and relative investment performance. Management is focused on customer segmentation, a broad range of new generation products and a productive distribution force. Cost containment, particularly extracting efficiencies through cross-business synergies, remains a key focus for management. Individual Business Financial performance Operating profit, before long term investment return, of R1,152 million was 5% higher than the same period last year. The fall in interest rates resulted in favourable investment experience in bond portfolios, which back certain annuity and risk products. Favourable mortality and retention experience variances also contributed to the improved result. New business volumes were lower than in the previous year. New business APE of R1,196 million was 6% lower than the R1,270 million reported in the first half of 2002. Recurring premium business was up 9%, driven primarily by sales of the market leading Greenlight risk product. However, single premium business was down 32% due to customers purchasing less equity-based savings products at a time of market volatility. The value of new business after tax of R177 million, was 32% lower as a consequence of reduced new business volumes, the movement out of equity-based products into lower margin, interest-bearing products, and continued investment in distribution. Operating and Financial Review continued Business development In an industry first, an internal ombudsman was appointed to resolve claims-related and service disputes in a fair, equitable and speedy manner. The reorganisation of bancassurance arrangements with Nedcor has now been completed. The rebranding of Permanent Bank branches as Old Mutual Bank was successfully concluded with minimal attrition of customers. In the first six months of 2003, deposits of R458 million were attracted by Old Mutual Bank. Following the merger of Nedcor and BoE, an integrated full service offering which includes wealth management advice, stockbroking and private banking is now available to our high net worth customers. The size of the distribution force remained stable, with further improvements in its productivity, and the infrastructure in Gauteng was strengthened during the first half. Group Business Financial performance Operating profit, before long term investment return, of R440 million was 1% lower than in the same period last year. Favourable investment experience in the bond portfolio backing risk products was offset by the decrease in average policyholder funds following poor equity performance. New business APE of R380 million was up 7% from R354 million in the first half of 2002. Group single premium sales were positively impacted as clients switched multi-manager new business from Nedcor. The value of new business after tax of R108 million was 24% lower than the equivalent period last year due to the greater proportion of lower margin, less capital intensive multi-manager business. The proportion of high margin with-profit annuity business declined accordingly. Business development The Symmetry multi-manager offering was extended after the closure of NIB Investments and Edge Investments. New structured and preferred risk products were launched and investment in new administration systems continued in the first half of 2003. ASSET MANAGEMENT Financial performance The South African asset management adjusted operating profit was R233 million compared to R207 million in the same period last year. Total funds managed in South Africa were unchanged from 31 December 2002 at R215 billion, despite market volatility. Adjusted operating profit was negatively impacted by lower levels of funds under management, offset by a movement to higher margin products, tight expense control and one-off costs in Old Mutual Unit Trusts in the prior year. Total net fund inflows into the asset management businesses (Old Mutual Asset Managers (South Africa) (OMAM(SA)), Old Mutual Unit Trusts and Fairbairn Capital) were R1.4 billion over the period. OMAM(SA)'s performance continued to sustain the good relative investment results apparent at the end of 2002. Specialist equity mandates continued to perform well, with most being ahead of benchmarks for the twelve-month period to the end of June 2003. Operating and Financial Review continued Old Mutual Unit Trusts' new 4 Plus range of products, targeting the middle-income investor, was favourably received by the market. BANKING NEDCOR The results of Nedcor Limited (Nedcor), the Group's 53% owned banking subsidiary, have been incorporated into the Group accounts in accordance with UK GAAP. Nedcor has adopted a new accounting standard on the recognition and measurement of financial instruments (AC133) for local reporting requirements. Under UK GAAP, the AC133 adjustments have been excluded, with the exception being in relation to changes in credit provisioning methodology. This has resulted in a one-off increase of R963 million in opening specific provisions, which has been taken to the profit and loss account, but excluded from adjusted operating profit. The results of BoE are excluded from the 30 June 2002 comparatives, as it was acquired with effect from 2 July 2002. Financial performance Nedcor experienced a challenging first six months in 2003, with earnings for the period lower than for the comparable period in 2002. Adjusted operating profit of R1,308 million is stated before goodwill amortisation (R161 million), write-down of investment in Dimension Data Holdings plc (R136 million), restructuring and integration costs (R134 million) and change in credit provisioning methodology (R963 million). This compares with R2,035 million for the first half of 2002, a decrease of 36%. Adjusted operating profit includes translation losses of R658 million (2002: R436 million). A challenging operating climate, weaker financial markets and the stronger Rand held back Nedcor's earnings in the first half of 2003. Banking business and advances growth benefited from the BoE acquisition. Interest margins were under pressure, while investment banking and wealth management revenues were below target. In addition, the stronger average value of the Rand compared to the same period last year diminished the Rand value of international earnings. However, there was a significant turnaround in Old Mutual Bank's results, which experienced a successful half year largely as a result of corrective action taken by management under the new ownership structure. Excluding BoE, advances grew over the comparable period in 2002, with net interest income growing at a lower rate reflecting the increased pressure on margins. The interest margin declined due to changes in funding requirements, but was flat when compared to the second half of 2002. The Group's market share increased marginally over the previous year with high client retention figures. Credit quality, including unsecured micro-loans, was satisfactory despite the high interest rate environment. The high level of non-performing loans, which include the legacy of some acquired businesses, continues to receive management attention. Operating expenses of R5,217 million over the period, including translation losses of R658 million, increased by 73% from R3,017 million in the equivalent period in 2002. As calculated locally, the cost to income ratio increased to 67.2% from 53.4% in the equivalent period in 2002 as a result of lower revenue growth. Management has put stringent cost control measures in place to reduce this ratio to former levels, particularly focusing on cost containment and aligning costs with relevant income streams. Again as calculated locally, Nedcor's capital adequacy at 30 June 2003 was 10.1%, which compares to 11.2% at 30 June 2002, and has been affected by the BoE integration. This is being carefully monitored by management to ensure compliance with the statutory requirement of 10%. Operating and Financial Review continued Business development and outlook The merger and reorganisation activities undertaken during the reporting period included the legal consolidation of banking licences on 1 January 2003, the integration of the four treasuries of Nedbank, Cape of Good Hope Bank, NIB and BoE and the establishment of a private client wealth management joint venture with Old Mutual South Africa. The integration of BoE into the Nedcor group is on track and on target to achieve total merger benefits of R905 million by 2006, with 2003 being a year of transition and real synergy benefits expected to come through in 2004 and 2005. Restructuring and integration costs of R134 million were incurred more quickly than anticipated because the merger is being implemented ahead of plan. Management is focused on fast tracking the integration for substantial operational synergies, particularly client service and retention, cost containment and addressing underperforming areas. Priorities are to realise these synergies, bed down the merger, lower funding costs and continue to deliver good service to clients. Nedcor is working with the Banking Council and the rest of the industry to develop an empowerment charter for the banking sector. Prior to this process, Nedcor had undertaken a major transaction with the sale of an empowerment stake in Peoples Bank and has subsequently undertaken a number of other initiatives. GENERAL INSURANCE MUTUAL & FEDERAL Financial performance Mutual & Federal Insurance Company Limited (Mutual & Federal), the Group's 51% owned general insurance subsidiary, generated an adjusted operating profit of R368 million in the first six months of 2003, 19% higher than the R308 million earned in the first half of 2002. The solvency margin, being the ratio of net assets to net premiums, remained satisfactory and was in excess of 50% at 30 June 2003. Management's increased emphasis on appropriate product pricing resulted in a 14% growth in premiums, at R3.0 billion for the first six months of 2003, compared to R2.6 billion in the first half of 2002. This was accompanied by corrective action taken on risk selection, which resulted in a further improvement in the underwriting result to R93 million for this reporting period. Trading results during the period were favourable with claims activity remaining stable, particularly an absence of severe weather-related losses. In addition, improved levels of crime awareness and a number of motor claim handling initiatives assisted in controlling claims costs. Interest income grew strongly during the first six months of the year due to increased levels of funds on deposit and continued high interest rates. Dividend income declined as a result of lower levels of equity holdings. The net asset value per share reduced following a fall in the value of listed equities. Business development and outlook Mutual & Federal continued to develop business opportunities through strong relationships with intermediaries, including the implementation of the 'Vehicle Accident Management Process', which provides a comprehensive roadside service to clients involved in motor accidents. Management's focus remains on identifying and implementing additional cost saving opportunities, with a view to improving the long term profitability of the organisation. This includes striving to become the lowest cost service provider with projects underway to automate routine processes and provide quicker access to financial information. Operating and Financial Review continued USA US LIFE Financial performance Benefiting from the strong sales in 2002, our US life business's adjusted operating profit of $62 million was 29% up on the $48 million recorded in the same period last year. Total APE for the period, at $207 million, was 18% lower than the corresponding period last year, which was a record year in its history. Whilst the life assurance business continues to grow strongly, the macro-economic environment is presenting a number of challenges to its annuity business. Interest rates at their lowest level in forty years, combined with a flattening yield curve, reduced the relative attractiveness of interest-related products, which provided much of the premium growth in 2002 and have led to a growing market in equity-indexed products. The market has favourably received a range of new equity-indexed products that were launched by Fidelity & Guaranty Life at the end of 2002. A number of new life assurance products were launched that are attracting significant premiums. The average margin on new business after tax reduced from 18% to 11% of APE, reflecting the interest rate squeeze. The value of new business after tax at $22 million was 51% lower than in the equivalent period last year. The launch in 2003 of the OMNIA Life (Bermuda) operations allows US life to offer US style products to an international customer base. This new channel gives the business direct exposure to variable annuity products and an important new conduit to large US banks. The value of in-force life business of $652 million increased by 19% from $549 million at the beginning of the year. Funds under management totalled $12.5 billion at 30 June 2003, an increase of 19% over the year end. $63 million of capital was injected into the company during the first six months of 2003 to support new business written. Business development and outlook US life has enhanced retail sales volume through its multiple distribution channel strategy, which now includes sales offshore and a competitive multi-brand product range. The continuing capital support from the Group enabled US life to take advantage of profitable wholesale opportunities in the marketplace. Fidelity & Guaranty Life also continued to strengthen its relationships with Managing General Agencies. As trading conditions are expected to remain challenging for the rest of 2003, US life will continue to adapt by designing and selling products, which allow competitive positioning in the retail market. A lower level of overall sales is anticipated in 2003, but nevertheless for Fidelity & Guaranty Life considerably higher than in any year prior to its acquisition by Old Mutual. US ASSET MANAGEMENT Financial performance Adjusted operating profit of $61 million for the Group's US asset management business increased 13% from $54 million in the second half of 2002. After allowance for the impact of affiliates disposed of during the period, the increase in adjusted operating profit was 22% above the results of the second half of 2002. When compared to the equivalent period in 2002, adjusted operating profit decreased by 31% from $88 million, or 21% after allowance for sold firms, being adversely affected by lower average market levels. Operating and Financial Review continued The well-balanced composition of the business and positive equity markets in the second quarter helped to mitigate the negative impact of the first quarter's decline. Operating costs were actively managed against this background to ensure that operating margins were maintained. Funds under management grew 7% to $136 billion, compared to $127 billion at the beginning of the year. After allowing for year to date divestitures of $3.3 billion of funds, the increase was 11% from $123 billion. Net cash inflows of $1.9 billion included $0.8 billion from US life. Market impact boosted assets by an additional $10.5 billion. While cash flows were biased towards fixed income products, the primary driver for the increase in funds under management was the result of strong performance within domestic equity portfolios. Major domestic equity indices recovered from first quarter losses to double digit returns in the second quarter, resulting in overall positive performance for the six months. Superior long term fund performance was sustained throughout volatile market conditions. On an asset-weighted basis, the four and five-star rated funds managed by the Group's US asset management firms represented 65% of total funds rated by Morningstar. Business development and outlook The rationalisation of the group is largely complete following the divestiture of a further three firms in 2003. The organisation now comprises a stable core of twenty-one affiliates and is well positioned to lead the business forward under an integrated 'one firm' strategy. Management strategy continues to focus on leveraging the diverse product and distribution capabilities of the various firms, both externally and within the wider Group. The capability of the centralised marketing entity established in 2002 continues to evolve. Sales and services resources at an affiliate level were also strengthened. The PBHG platform, which was expanded in 2002 to provide access to other affiliates' products in the mutual fund marketplace, attracted new funds of $460 million to these affiliates since the beginning of the year. Two new funds are planned to join the platform later this year. The synergistic relationship with US life is being further consolidated, with Dwight and Analytic continuing to manage key components of its portfolio and eSecLending managing its bond lending programme. Management remains committed to driving organic growth from a core group of entrepreneurial investment firms. The business will continue to exploit its current strength in the institutional market, while investing in selected managed account and retail growth opportunities. This includes the strengthening of the suite of investment products, investment in the retail distribution platform, affiliate and central sales forces, and continued focus on client retention. UK & Rest of World ASSET MANAGEMENT Private Client (UK) Financial performance Despite the average level of the FTSE 100 Index falling by 25%, adjusted operating profit of £3 million from Gerrard was unchanged from the equivalent period in 2002. Profit levels were maintained through a combination of expense reductions, operational efficiencies and revenue improvements. Operating and Financial Review continued Funds under management of £12 billion at 30 June 2003 were consistent with 31 December 2002 levels, and fund quality improved as pricing initiatives began to take effect. Fee income for the period declined by 19%, which compares favourably to the reduction in average market levels. Trading activity remained relatively robust in the face of market adversity, as fund managers pursued opportunities to manage the effects of market conditions on client portfolios. Operating costs of £48 million incurred in the period compared to £60 million in the first half of 2002, a reduction of 20%. Business development and outlook The business will continue to take advantage of trading opportunities to build client value as markets cautiously recover, and cost levels will be carefully managed. Revenue enhancing initiatives are gaining momentum and wider service offerings such as financial planning are progressing well. Fund Management Financial performance Adjusted operating profit from the Group's UK & Rest of World fund management businesses of £5 million compared to an adjusted operating profit of £3 million in the equivalent period in 2002. Included in these results are Old Mutual Asset Managers (UK) (OMAM(UK)), Old Mutual Asset Managers (Bermuda) and Bright Capital. The improved operating result in 2003 reflects the impact of successful hedge fund launches by OMAM(UK) and a more streamlined cost base in the UK. OMAM (UK) Strong investment performance and successful new product launches were key highlights so far this year. Overall, 63% of OMAM(UK)'s asset-weighted retail funds achieved top quartile ranking over one year relative to peer group performance. Total net external fund inflows into the business were £230 million in the first half of 2003. Six new hedge funds were launched during the first half of 2003, attracting £173 million of new funds in the period. Bright Capital GNI FM, the fund of hedge funds manager, was relaunched as Bright Capital in May 2003. The Bright Capital proposition is 'Controlling Risk' and is consistent with a distinctive hedge fund investment process designed to achieve transparency, liquidity and good corporate governance. Significant investment has been made in the business's risk platform, and an innovative product range is being developed that will be marketed to institutional and private clients. Other Financial Services Adjusted operating losses from the Group's UK & Rest of World other financial services businesses were £7 million compared to a £1 million loss recorded in the same period last year. The increased loss was due to the reclassification of Selestia from life assurance to other financial services reflecting the mix of products sold. The 2002 comparatives also included the results of GNI, Old Mutual Securities and King & Shaxson Bond Brokers, which were sold in the fourth quarter of 2002. Operating and Financial Review continued Selestia Selestia's business continued to grow, with sales in the period increasing from the prior year total sales figure. Management focus since launch has been to develop strong working relationships with quality IFAs dealing with the high net worth market. As a result several large mandates have been won. Life assurance Adjusted operating profit from the Group's UK & Rest of World life businesses was £8 million in the first half of 2003 compared to a loss of £3 million for the equivalent period in 2002. The increase was largely due to the sale of Old Mutual International's International Personal Portfolio Bond book, which released £4 million to profit. Selestia's adjusted operating losses of £6 million were included in the 2002 result. Operating and Financial Review continued GROUP FINANCIAL REVIEW Financial performance Operating profit on ordinary activities before tax of £378 million increased from £212 million in the first half of 2002. Basic earnings per share were 4.7p in 2003 compared with 3.3p in the equivalent period last year. Adjusted operating profit grew 4% to £395 million from £381 million in the same period last year. Adjusted operating earnings per share of 5.6p decreased 3% compared with 5.8p in the first half of 2002; however, this represented a 2% increase over the second half of 2002. Achieved profits The Group's adjusted operating profit on an achieved profits basis of £429 million decreased by 10% from £477 million in 2002. Adjusted operating earnings per share on an achieved profits basis of 6.0p declined from 7.7p. Embedded value (adjusted for the market value uplift of listed subsidiaries) of £4,059 million at 30 June 2003 also increased by 3% from £3,928 million at 31 December 2002. Embedded value per share was 106p at 30 June 2003 compared to 104p at 31 December 2002. Capital Shareholders' capital benefited from a stronger Rand, as well as the raising of £37 million through a placing of new shares issued in connection with the second fixed instalment of payments due to Harold Baxter and Gary Pilgrim as part of the restructuring of the Pilgrim Baxter revenue sharing agreement announced in 2002. The Group continued its strategy of diversifying its funding sources during the first half of 2003, successfully issuing $750 million of Guaranteed Cumulative Perpetual Preferred Securities. The Securities, which are redeemable at the Group's election from December 2008, provide core long term funding and improve the Group's gearing (core debt1 over core debt plus equity shareholders' funds) to 21%, compared with 30% at 31 December 2002. In addition, the Group's Euro Commercial Paper programme has continued to be well supported, while committed bank facilities have been maintained, ensuring the Group retains a high degree of financial flexibility within an efficient and balanced capital structure. The solvency ratios of the Group's key businesses at 30 June were as follows: excess assets equivalent to 2.2 and 2.5 times statutory capital at the South African and US life businesses respectively; a capital adequacy ratio of 10.1% at Nedcor and a solvency margin in excess of 50% at Mutual & Federal. In all cases, these are above the minimum statutory requirements. Taxation The Group's effective rate (based on the tax charge as a proportion of adjusted operating profit) of 32.7% represents an increase from 27.8% in the first half of 2002. The higher rate reflects the impact of a reduction in Nedcor's proportion of low taxed income and additional South African Secondary Tax on Companies. Long term investment return The long term investment return assumption used in calculating the adjusted earnings of the Group's South African life and general insurance businesses for 2003 is unchanged at 14% for equities. Changes in the composition of the South African investment portfolios has resulted in the introduction of long term investment returns for cash and other investible assets, resulting in a weighted average long term investment return of 13.4%. The return earned by assets, mainly bonds, backing the Group's US life business's liabilities has been smoothed by reference to the actual yield earned by the portfolio, resulting in a long term rate of return of 6.04%. 1 Core debt excludes debt from banking activities and is net of cash and short term investments which are immediately available to repay debt. Operating and Financial Review continued Dividend The Board has declared an interim dividend of 1.7p per share, which will be paid on 28 November 2003 to shareholders recorded at the close of business on 17 October 2003. The equivalent of this dividend in the local currencies of South Africa, Malawi, Namibia and Zimbabwe will be determined by the Company on 2 October 2003 and will be announced to the markets on 3 October 2003. The Company's shares will trade ex dividend from the opening of business on 13 October 2003 on the JSE Securities Exchange South Africa and the Malawi, Namibian and Zimbabwean Stock Exchanges and from the opening of business on 15 October 2003 on the London Stock Exchange. The last dates to trade cum-dividend will therefore be 10 October 2003 (in South Africa, Malawi, Namibia and Zimbabwe) and 14 October 2003 (in London). No dematerialisation or rematerialisation of shares within the South African STRATE system may take place between 13 October 2003 and 17 October 2003 (both dates inclusive). Julian V F Roberts Group Finance Director 7 August 2003 Independent Review Report by KPMG Audit Plc to Old Mutual plc Introduction We have been engaged by the Company to review the financial information set out on pages 16 to 42 and the supplementary financial information set out on pages 43 to 53 prepared on an achieved profits basis, and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/ 4: Review of interim financial information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2003. KPMG Audit Plc Chartered Accountants London 7 August 2003 Consolidated Profit and Loss Account for the six months ended 30 June 2003 £m Rm ______________________________________________________________________________________ 6 months to 6 months to Year to 6 months to 6 months to Year to 30 June 30 June 31 December 30 June 30 June 31 December Notes 2003 2002 2002 2003 2002 2002 ________________________________________________________________________________________________________________________ South Africa Technical result 123 97 208 1,592 1,541 3,283 Long term investment 83 63 135 1,075 1,000 2,131 return ______________________________________________________________________________________ Life assurance 5(b)(iii) 206 160 343 2,667 2,541 5,414 Asset management 5(c) 18 13 28 233 207 441 Banking 5(d) 74 99 165 959 1,579 2,605 General insurance 5(e) 28 19 35 368 308 556 ______________________________________________________________________________________ 326 291 571 4,227 4,635 9,016 United States Life assurance 5(b)(iii) 39 33 83 505 524 1,310 Asset management 5(c) 37 60 95 479 951 1,500 ______________________________________________________________________________________ 76 93 178 984 1,475 2,810 UK & Rest of World Life assurance 5(b)(iii) 8 (3) (3) 104 (47) (47) Asset management 5(c) 1 5 2 14 80 31 Banking 5(d) 27 29 56 349 456 884 ______________________________________________________________________________________ 36 31 55 467 489 868 ______________________________________________________________________________________ 438 415 804 5,678 6,599 12,694 Other shareholders' income / (expenses) 5(f) (13) (9) (22) (168) (143) (347) Debt service costs (30) (25) (58) (388) (397) (916) ______________________________________________________________________________________ Adjusted operating profit * 5(a) 395 381 724 5,122 6,059 11,431 Goodwill amortisation 9 (47) (55) (120) (608) (873) (1,895) Write-down of investment in Dimension Data Holdings plc (11) (52) (68) (136) (830) (1,080) Nedcor restructuring and integration costs 5(d)(ii) (10) - (14) (134) - (227) Change in credit provisioning methodology 5(d)(iii) (74) - - (963) - - Short term fluctuations in investment return 6 125 (62) (91) 1,618 (980) (1,439) ______________________________________________________________________________________ Operating profit on ordinary activities 378 212 431 4,899 3,376 6,790 before tax Non-operating items 8 (13) 38 (6) (168) 603 (88) ______________________________________________________________________________________ Profit on ordinary activities before tax 365 250 425 4,731 3,979 6,702 Tax on profit on ordinary activities 7 (191) (97) (224) (2,472) (1,540) (3,535) ______________________________________________________________________________________ Profit on ordinary activities after tax 174 153 201 2,259 2,439 3,167 Minority interests - equity 10(a) 15 (32) (44) 194 (508) (695) Minority interests - non-equity (14) - - (181) - - _____________________________________________________________________________________ Profit for the financial period 175 121 157 2,272 1,931 2,472 Dividends paid and proposed 4 (64) (63) (176) (792) (998) (2,556) ____________________________________________________________________________________ Retained profit / (loss) for the financial period 111 58 (19) 1,480 933 (84) ____________________________________________________________________________________ Earnings per share p c ________________________________________________________________________________________________________________________ Adjusted operating earnings per share * 3 5.6 5.8 11.3 73.4 92.9 179.0 Basic earnings per share 3 4.7 3.3 4.3 61.1 52.9 67.4 Diluted earnings per share 3 4.6 3.2 4.3 60.0 51.0 67.4 Dividend per share 4 1.7 1.7 4.8 21.0** 27.3 69.6 ________________________________________________________________________________________________________________________ Weighted average number of shares - millions 3,717 3,652 3,670 3,717 3,652 3,670 * Adjusted operating profit represents operating profit before tax and minority interests based on a long term investment return before goodwill amortisation, write-down of investment in Dimension Data Holdings plc, Nedcor restructuring and integration costs and change in credit provisioning methodology. Adjusted operating earnings per share are similarly based, but are stated after tax and minority interests. ** Indicative only - the actual amount of the dividend per share in Rand will be determined by reference to the exchange rate prevailing on 2 October 2003 and announced by the Company on 3 October 2003. Consolidated Statement of Total Recognised Gains and Losses for the six months ended 30 June 2003 £m Rm _______________________________________________________________________________________________ 6 months to 6 months to Year to 6 months to 6 months to Year to 30 June 30 June 31 December 30 June 30 June 31 December 2003 2002 2002 2003 2002 2002 ________________________________________________________________________________________________________________________ Profit for the financial period 175 121 157 2,272 1,931 2,472 Foreign exchange movements 174 117 295 (2,001) (2,069) (5,110) _______________________________________________________________________________________________ Total recognised gains and losses for the period 349 238 452 271 (138) (2,638) _______________________________________________________________________________________________ Reconciliation of Movements in Consolidated Equity Shareholders' Funds for the six months ended 30 June 2003 £m Rm ________________________________________________________________________________________________________________________ 6 months to 6 months to Year to 6 months to 6 months to Year to 30 June 30 June 31 December 30 June 30 June 31 December Notes 2003 2002 2002 2003 2002 2002 ________________________________________________________________________________________________________________________ Total recognised gains and losses for the period 349 238 452 271 (138) (2,638) Dividends paid and proposed 4 (64) (63) (176) (792) (998) (2,556) ________________________________________________________________________________________________________________________ 285 175 276 (521) (1,136) (5,194) Issue of new capital 37 39 39 479 619 619 Shares issued under option schemes - - 1 - - 16 ________________________________________________________________________________________________________________________ Net addition / (reduction) to equity shareholders' funds 322 214 316 (42) (517) (4,559) Equity shareholders' funds at the beginning of the period 2,786 2,470 2,470 38,486 43,045 43,045 ________________________________________________________________________________________________________________________ Equity shareholders' funds at the end of the period 3,108 2,684 2,786 38,444 42,528 38,486 ________________________________________________________________________________________________________________________ Consolidated Balance Sheet at 30 June 2003 Notes £m Rm ________________________________________________________________________ At At At At At At 30 June 31 December 30 June 30 June 31 December 30 June 2003 2002 2002 2003 2002 2002 ________________________________________________________________________________________________________________________ Intangible assets Goodwill 9 1,552 1,598 1,561 19,198 22,075 24,734 Insurance and other assets Investments 21,682 19,502 17,729 268,189 269,402 280,918 Assets held to cover linked liabilities 4,716 4,317 4,337 58,333 59,635 68,720 ________________________________________________________________________ 5(g) 26,398 23,819 22,066 326,522 329,037 349,638 Reinsurers' share of technical provisions 385 370 351 4,762 5,111 5,562 Debtors 1,177 429 9,186 14,557 5,925 145,553 Other assets 888 845 1,011 10,984 11,674 16,019 Cash at bank and in hand 614 565 635 7,595 7,805 10,062 Prepayments and accrued income 683 565 226 8,448 7,806 3,581 ________________________________________________________________________ Total insurance and other assets 30,145 26,593 33,475 372,868 367,358 530,415 ________________________________________________________________________ Banking assets Cash and balances at central banks 760 1,202 961 9,401 16,607 15,227 Treasury bills and other eligible bills 1,566 1,085 581 19,370 14,987 9,210 Loans and advances to banks 1,467 1,228 468 18,146 16,963 7,416 Loans and advances to customers 14,679 12,854 8,920 181,567 177,566 141,338 Debt securities 886 1,061 724 10,959 14,647 11,472 Equity securities 411 965 209 5,084 13,331 3,312 Interest in associated undertakings 132 124 122 1,633 1,713 1,933 Other assets 1,858 2,384 299 22,981 32,929 4,734 Prepayments and accrued income 539 474 341 6,667 6,548 5,403 ________________________________________________________________________ Total banking assets 22,298 21,377 12,625 275,808 295,291 200,045 ________________________________________________________________________ Total assets 53,995 49,568 47,661 667,874 684,724 755,194 ________________________________________________________________________ Consolidated Balance Sheet continued at 30 June 2003 £m Rm ______________________________________________________________________________ At At At At At At 30 June 31 December 30 June 30 June 31 December 30 June Notes 2003 2002 2002 2003 2002 2002 ______________________________________________________________________________________________________________ Capital and reserves Called up share capital 383 378 378 4,737 5,222 5,989 Share premium account 584 552 551 7,224 7,625 8,731 Merger reserve 184 184 184 2,276 2,542 2,915 Profit and loss account 1,957 1,672 1,571 24,207 23,097 24,893 ________________________________________________________________________________ Equity shareholders' funds 3,108 2,786 2,684 38,444 38,486 42,528 ________________________________________________________________________________ Minority interests Equity 10(a) 795 783 617 9,834 10,816 9,776 Non-equity 10(b) 606 144 - 7,492 1,992 - ________________________________________________________________________________ 1,401 927 617 17,326 12,808 9,776 ________________________________________________________________________________ Subordinated 17 18 21 210 249 333 liabilities Insurance and other liabilities Technical provisions 19,381 17,655 16,023 239,727 243,888 253,886 Technical provisions for linked liabilities 4,716 4,317 4,337 58,333 59,635 68,720 Provisions for other risks and charges 575 486 428 7,112 6,714 6,782 Creditors 2,607 1,789 10,456 32,250 24,710 165,676 Amounts owed to credit institutions 11 497 767 857 6,147 10,596 13,580 Convertible loan stock 12(a) 385 404 420 4,762 5,581 6,655 Accruals and deferred income 140 184 170 1,732 2,542 2,694 ________________________________________________________________________________ Total insurance and other liabilities 28,301 25,602 32,691 350,063 353,666 517,993 ________________________________________________________________________________ Banking liabilities Deposits by banks 3,348 2,110 1,144 41,412 29,148 18,133 Customer accounts 14,057 12,070 8,668 173,874 166,735 137,345 Debt securities in issue 1,111 2,266 1,060 13,742 31,303 16,790 Other liabilities 1,947 3,149 476 24,083 43,487 7,548 Provision for liabilities and charges 103 105 104 1,274 1,450 1,648 Subordinated liabilities 588 521 196 7,273 7,197 3,100 Convertible loan stock 12(b) 14 14 - 173 195 - ________________________________________________________________________________ Total banking liabilities 21,168 20,235 11,648 261,831 279,515 184,564 ________________________________________________________________________________ Total liabilities 53,995 49,568 47,661 667,874 684,724 755,194 ________________________________________________________________________________ Consolidated Cash Flow Statement for the six months ended 30 June 2003 £m Rm ________________________________________________________________________________________ 6 months to 6 months to Year to 6 months to 6 months to Year to 30 June 30 June 31 December 30 June 30 June 31 December 2003 2002 2002 2003 2002 2002 ________________________________________________________________________________________ Net cash (outflow) / (631) 608 1,207 (8,164) 9,664 19,047 inflow from operating activities Net cash outflow from (61) (41) (93) (790) (651) (1,468) returns on investments and servicing of finance including dividends paid to minority interests Total tax paid (90) (129) (132) (1,165) (2,049) (2,084) Net cash inflow / 64 (39) (26) 829 (619) (411) (outflow) from capital expenditure and financial investment Net cash (outflow) / (23) 80 (160) (298) 1,270 (2,526) inflow from acquisitions and disposals Equity dividends paid (114) (110) (175) (1,476) (1,747) (2,763) Net cash inflow from 165 5 260 2,136 79 4,108 financing activities ________________________________________________________________________________________ Net cash (outflow) / inflow of the Group excluding long term business (690) 374 881 (8,928) 5,947 13,903 ________________________________________________________________________________________ Cash flows relating to insurance activities were invested as follows: Increase in cash 102 106 41 1,320 1,677 647 holdings (Decrease) / increase in net portfolio investments (233) 1 483 (3,016) 23 7,631 ________________________________________________________________________________________ (131) 107 524 (1,696) 1,700 8,278 Cash flows relating to banking activities were invested as follows: (Decrease) / increase in cash and balances at central banks (559) 267 357 (7,232) 4,247 5,625 ________________________________________________________________________________________ Net cash (outflow) / inflow of the Group excluding long term business (690) 374 881 (8,928) 5,947 13,903 ________________________________________________________________________________________ Reconciliation of operating profit to operating cash flow Operating profit from 384 143 326 4,978 2,282 5,145 insurance and other activities Operating (loss) / profit from banking activities (6) 69 105 (79) 1,094 1,645 ________________________________________________________________________________________ Operating profit on 378 212 431 4,899 3,376 6,790 ordinary activities before tax Write-down of investment 11 52 68 142 830 1,080 in Dimension Data Holdings plc Change in credit 74 - - 958 - - provisioning methodology Unrealised investment (185) 35 68 (2,395) 552 1,074 losses / (gains) Other insurance and other (246) 120 464 (3,185) 1,905 7,318 activities non cash flow items Other banking non cash flow items (663) 189 176 (8,583) 3,001 2,785 ________________________________________________________________________________________ Net cash (outflow) / (631) 608 1,207 (8,164) 9,664 19,047 inflow from operating activities ________________________________________________________________________________________ The cash flows presented in this statement exclude all cash flows relating to policyholders' funds for the long term business. Part 2 to follow This information is provided by RNS The company news service from the London Stock Exchange

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