Interim Results 2003 - Part 2

Old Mutual PLC 7 August 2003 Notes to the Financial Statements for the six months ended 30 June 2003 1 BASIS OF PREPARATION The results for the six months to 30 June 2003 and the position at that date have been prepared using accounting policies consistent with those used in the Group 2002 Annual Report. These accounting policies are in accordance with the Statement of Recommended Practice on 'Accounting for Insurance Business' issued by the Association of British Insurers in December 1998 ('ABI SORP') and the British Bankers' Association Statements of Recommended Practice on Advances (1997), Securities (1990), Derivatives (2001), Contingent Liabilities and Commitments (1996) and Segmental Reporting (1993). For details of changes in credit provisioning methodologies during the period, refer Note 5(d)(iii). The results for the six months ended 30 June 2003 and 2002 are unaudited, but have been reviewed by the auditors whose report is presented on page 15. The auditors have reported on the statutory accounts for the year ended 31 December 2002 and the accounts have been delivered to the Registrar of Companies. The auditors' report in respect of the year ended 31 December 2002 was unqualified and did not contain a statement under section 237 (2) or (3) of the UK Companies Act 1985. These financial statements do not constitute statutory accounts as described in section 240 of the UK Companies Act 1985. 2 FOREIGN CURRENCIES The information contained in these financial statements is expressed in both Sterling and South African Rand. This is in order to meet both the legal requirements of the UK Companies Act 1985 and to provide the users of the accounts in South Africa with illustrative information. The principal exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to Sterling are: Rand US$ _________________________________________________________________________________________ 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 and loss account 12.9459 15.8800 15.7878 1.6110 1.4445 1.5030 (average rate) Balance sheet (closing 12.3692 15.8451 13.8141 1.6528 1.5279 1.6105 rate) Notes to the Financial Statements continued for the six months ended 30 June 2003 3 EARNINGS AND EARNINGS PER SHARE Basic earnings per share is calculated based upon the profit after tax attributable to equity shareholders after goodwill amortisation, write-down of investment in Dimension Data Holdings plc, Nedcor restructuring and integration costs, change in credit provisioning methodology, short term fluctuations in investment return and non-operating items. The directors' view is that adjusted operating earnings per share derived from adjusted operating profit or loss after tax and minority interests provides a better indication of the underlying performance of the Group. A table reconciling operating profit on ordinary activities after tax and minority interests to adjusted operating profit after tax and minority interests is included below. Notes Â£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 on ordinary 175 121 157 2,272 1,931 2,472 activities after tax and minority interests Goodwill amortisation 40 51 104 518 810 1,646 net of minority interests Write-down of 6 22 29 78 350 467 investment in Dimension Data Holdings plc net of tax and minority interests Nedcor restructuring 5(d)(ii) 5 - 7 69 - 104 and integration costs net of tax and minority interests Change in credit 5(d)(iii) 24 - - 311 - - provisioning methodology net of tax and minority interests Short term (55) 39 75 (712) 619 1,192 fluctuations in investment return net of tax and minority interests Non-operating items net of tax 8 15 (20) 44 194 (317) 688 __________________________________________________________________________________ Adjusted operating profit after tax and minority interests 210 213 416 2,730 3,393 6,569 __________________________________________________________________________________ p c __________________________________________________________________________________ Basic earnings per 4.7 3.3 4.3 61.1 52.9 67.4 share Goodwill amortisation 1.1 1.3 2.8 13.9 22.2 44.9 net of minority interests Write-down of 0.2 0.6 0.8 2.1 9.6 12.7 investment in Dimension Data Holdings plc net of tax and minority interests Nedcor restructuring 0.1 - 0.2 1.9 - 2.8 and integration costs net of tax and minority interests Change in credit 0.6 - - 8.4 - - provisioning methodology net of tax and minority interests Short term (1.5) 1.1 2.0 (19.2) 16.9 32.5 fluctuations in investment return net of tax and minority interests Non-operating items net of tax 0.4 (0.5) 1.2 5.2 (8.7) 18.7 Adjusted operating earnings per share after tax and minority interests 5.6 5.8 11.3 73.4 92.9 179.0 _________________________________________________________________________________ Basic earnings per share is calculated by reference to the profit on ordinary activities after tax and minority interests of Â£175 million (R2,272 million) for the six months ended 30 June 2003 (June 2002: Â£121 million (R1,931 million); December 2002: Â£157 million (R2,472 million)) and a weighted average number of shares in issue of 3,717 million (June 2002: 3,652 million; December 2002: 3,670 million). This is calculated after taking into account shares held by Employee Share Ownership Plans (ESOPs) that have waived their rights to dividends. The diluted earnings per share calculation reflects the impact of the shares in ESOP Trusts, the US Dollar Guaranteed Convertible Bond, and potential issue of shares to satisfy the purchase of the Pilgrim Baxter deferred consideration. 316 million (June 2002: 316 million; December 2002: 316 million) Old Mutual plc shares held by policyholders' funds are included in the weighted average number of shares used in the earnings per share calculations, reflecting the policyholders' economic interest in these shares. Notes to the Financial Statements continued for the six months ended 30 June 2003 4 DIVIDEND Â£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 ____________________________________________________________________________________________________________________ 2003 interim dividend 64 - - 792 - - proposed: 1.7p (21.0c*) 2002 final dividend paid: - - 114 - - 1,577 3.1p (38.3c) 2002 interim dividend paid: 1.7p (27.7c) - 63 62 - 998 979 ________________________________________________________________________________________ 64 63 176 792 998 2,556 ________________________________________________________________________________________ Provision has been made for an interim dividend of 1.7p (21.0c*) per share calculated using the number of shares in issue at 30 June 2003 of 3,832 million less 97 million shares in Employee Share Ownership Plans that have waived their rights to dividends. The dividend will be paid on 28 November 2003 to all shareholders on the register at the close of business on 17 October 2003, being the record date for the dividend. As a consequence of the exchange control arrangements in place in South Africa and other relevant African territories, dividends to shareholders on the branch registers in those countries (or in the case of Namibia, the Namibian section of the principal register) are settled through Dividend Access Trusts established for that purpose. * Indicative only - the actual amount of the dividend per share in Rand will be determined by reference to the exchange rate prevailing at the close on 2 October 2003 and announced by the Company on 3 October 2003. Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS 5(a) Summary of Notes Â£m Rm operating profit on ______________________________________________________________________________________ ordinary activities South United UK & Rest South United UK & Rest before tax Africa States of World Total Africa States of World Total ___________________________________________________________________________________________________________________ 6 months to 30 June 2003 Life assurance 5(b)(iii) 206 39 8 253 2,667 505 104 3,276 Asset management 5(c) 18 37 1 56 233 479 14 726 Banking 5(d)(i) 74 - 27 101 959 - 349 1,308 General insurance 5(e) 28 - - 28 368 - - 368 business Other shareholders' 5(f) 2 - (15) (13) 26 - (194) (168) income / (expenses) Debt service costs - - (30) (30) - - (388) (388) _____________________________________________________________________________________ Adjusted operating 328 76 (9) 395 4,253 984 (115) 5,122 profit Goodwill 9 (13) (29) (5) (47) (167) (376) (65) (608) amortisation Write-down of (11) - - (11) (136) - - (136) investment in Dimension Data Holdings plc Nedcor restructuring 5(d)(ii) (10) - - (10) (134) - - (134) and integration costs Change in credit 5(d)(iii) (74) - - (74) (963) - - (963) provisioning methodology Short term fluctuations in investment return 6 (168) 303 (10) 125 (2,175) 3,922 (129) 1,618 ___________________________________________________________________________________ Operating profit on ordinary activities before tax 52 350 (24) 378 678 4,530 (309) 4,899 ___________________________________________________________________________________ Analysed as: Life assurance 58 340 8 406 751 4,401 104 5,256 Asset management 18 10 (4) 24 233 129 (51) 311 Banking (33) - 27 (6) (428) - 349 (79) General insurance 7 - - 7 96 - - 96 business Other shareholders' 2 - (25) (23) 26 - (323) (297) income / (expenses) Debt service costs - - (30) (30) - - (388) (388) ___________________________________________________________________________________ Operating profit on ordinary activities before tax 52 350 (24) 378 678 4,530 (309) 4,899 ___________________________________________________________________________________ 6 months to 30 June 2002 Life assurance 5(b)(iii) 160 33 (3) 190 2,541 524 (47) 3,018 Asset management 5(c) 13 60 5 78 207 951 80 1,238 Banking 5(d) 99 - 29 128 1,579 - 456 2,035 General insurance 5(e) 19 - - 19 308 - - 308 business Other shareholders' 5(f) 1 - (10) (9) 16 - (159) (143) income / (expenses) Debt service costs - - (25) (25) - - (397) (397) ___________________________________________________________________________________ Adjusted operating 292 93 (4) 381 4,651 1,475 (67) 6,059 profit Goodwill 9 (8) (40) (7) (55) (127) (635) (111) (873) amortisation Write-down of (52) - - (52) (830) - - (830) investment in Dimension Data Holdings plc Short term fluctuations in investment return 6 (86) 4 20 (62) (1,361) 64 317 (980) ___________________________________________________________________________________ Operating profit on ordinary activities before tax 146 57 9 212 2,333 904 139 3,376 ___________________________________________________________________________________ Analysed as: Life assurance 87 37 4 128 1,386 588 64 2,038 Asset management 13 20 (2) 31 207 316 (31) 492 Banking 40 - 29 69 638 - 456 1,094 General insurance 5 - - 5 86 - - 86 business Other shareholders' 1 - 3 4 16 - 47 63 income / (expenses) Debt service costs - - (25) (25) - - (397) (397) ___________________________________________________________________________________ Operating profit on ordinary activities before tax 146 57 9 212 2,333 904 139 3,376 ___________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(a) Summary of Notes Â£m Rm operating profit on __________________________________________________________________________________ ordinary activities before tax South United UK & Rest South United UK & Rest continued Africa States of World Total Africa States of World Total ___________________________________________________________________________________ Year to 31 December 2002 Life assurance 5(b)(iii) 343 83 (3) 423 5,414 1,310 (47) 6,677 Asset management 5(c) 28 95 2 125 441 1,500 31 1,972 Banking 5(d)(i) 165 - 56 221 2,605 - 884 3,489 General insurance 5(e) 35 - - 35 556 - - 556 business Other shareholders' 5(f) - - (22) (22) - - (347) (347) income / (expenses) Debt service costs - - (58) (58) - - (916) (916) __________________________________________________________________________________ Adjusted operating 571 178 (25) 724 9,016 2,810 (395) 11,431 profit Goodwill 9 (31) (70) (19) (120) (490) (1,105) (300) (1,895) amortisation Write-down of (68) - - (68) (1,080) - - (1,080) investment in Dimension Data Holdings plc Nedcor restructuring 5(d)(ii) (14) - - (14) (227) - - (227) and integration costs Short term fluctuations in investment return 6 (292) 181 20 (91) (4,613) 2,858 316 (1,439) __________________________________________________________________________________ Operating profit on ordinary activities before tax 166 289 (24) 431 2,606 4,563 (379) 6,790 __________________________________________________________________________________ Analysed as: Life assurance 93 258 (17) 334 1,464 4,073 (268) 5,269 Asset management 28 31 (13) 46 441 490 (206) 725 Banking 53 - 52 105 824 - 821 1,645 General insurance (8) - - (8) (123) - - (123) business Other shareholders' - - 12 12 - - 190 190 income / (expenses) Debt service costs - - (58) (58) - - (916) (916) __________________________________________________________________________________ Operating profit on ordinary activities before tax 166 289 (24) 431 2,606 4,563 (379) 6,790 __________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(b) Life Â£m Rm assurance _______________________________________________________________________________________________ South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total _______________________________________________________________________________________________ (i) Gross premiums written 6 months to 30 June 2003 Individual business Single 282 873 41 1,196 3,644 11,302 531 15,477 Recurring 391 91 26 508 5,062 1,178 337 6,577 _______________________________________________________________________________________________ 673 964 67 1,704 8,706 12,480 868 22,054 _______________________________________________________________________________________________ Group business Single 325 - 8 333 4,204 - 104 4,308 Recurring 147 4 5 156 1,903 52 65 2,020 _______________________________________________________________________________________________ 472 4 13 489 6,107 52 169 6,328 _______________________________________________________________________________________________ 1,145 968 80 2,193 14,813 12,532 1,037 28,382 _______________________________________________________________________________________________ 6 months to 30 June 2002 Individual business Single 316 1,534 76 1,926 5,018 24,360 1,207 30,585 Recurring 301 74 23 398 4,780 1,175 365 6,320 _______________________________________________________________________________________________ 617 1,608 99 2,324 9,798 25,535 1,572 36,905 _______________________________________________________________________________________________ Group business Single 232 - 6 238 3,684 - 95 3,779 Recurring 116 - 8 124 1,842 - 127 1,969 _______________________________________________________________________________________________ 348 - 14 362 5,526 - 222 5,748 _______________________________________________________________________________________________ 965 1,608 113 2,686 15,324 25,535 1,794 42,653 _______________________________________________________________________________________________ Year to 31 December 2002 Individual business Single 610 2,633 104 3,347 9,631 41,562 1,637 52,830 Recurring 612 146 49 807 9,662 2,312 779 12,753 _______________________________________________________________________________________________ 1,222 2,779 153 4,154 19,293 43,874 2,416 65,583 _______________________________________________________________________________________________ Group business Single 647 - 9 656 10,215 - 142 10,357 Recurring 241 - 9 250 3,805 - 142 3,947 _______________________________________________________________________________________________ 888 - 18 906 14,020 - 284 14,304 _______________________________________________________________________________________________ 2,110 2,779 171 5,060 33,313 43,874 2,700 79,887 _______________________________________________________________________________________________ Business transacted with SA residents in terms of their personal offshore allowances is conducted by the Group's offshore companies and is therefore disclosed under the Rest of World segment. Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(b) Life assurance Â£m Rm continued ____________________________________________________________________________________________ South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total ____________________________________________________________________________________________ (ii) New business premiums 6 months to 30 June 2003 New business premiums on a statutory basis Individual business Single 282 873 41 1,196 3,644 11,302 531 15,477 Recurring 69 41 4 114 888 531 52 1,471 ____________________________________________________________________________________________ 351 914 45 1,310 4,532 11,833 583 16,948 ____________________________________________________________________________________________ Group business Single 325 - 8 333 4,204 - 104 4,308 Recurring 9 - 2 11 120 - 26 146 ____________________________________________________________________________________________ 334 - 10 344 4,324 - 130 4,454 ____________________________________________________________________________________________ 685 914 55 1,654 8,856 11,833 713 21,402 ____________________________________________________________________________________________ Annual premium 139 128 11 278 1,793 1,661 142 3,596 equivalent ____________________________________________________________________________________________ 6 months to 30 June 2002 New business premiums on a statutory basis Individual business Single 316 1,534 76 1,926 5,018 24,360 1,207 30,585 Recurring 67 21 5 93 1,064 333 79 1,476 ____________________________________________________________________________________________ 383 1,555 81 2,019 6,082 24,693 1,286 32,061 ____________________________________________________________________________________________ Group business Single 232 - 6 238 3,684 - 95 3,779 Recurring 10 - 1 11 159 - 16 175 ____________________________________________________________________________________________ 242 - 7 249 3,843 - 111 3,954 ____________________________________________________________________________________________ 625 1,555 88 2,268 9,925 24,693 1,397 36,015 ____________________________________________________________________________________________ Annual premium 132 174 14 320 2,093 2,769 225 5,087 equivalent ____________________________________________________________________________________________ Year to 31 December 2002 New business premiums on a statutory basis Individual business Single 610 2,633 104 3,347 9,631 41,562 1,637 52,830 Recurring 115 73 11 199 1,808 1,154 175 3,137 ____________________________________________________________________________________________ 725 2,706 115 3,546 11,439 42,716 1,812 55,967 ____________________________________________________________________________________________ Group business Single 647 - 9 656 10,215 - 142 10,357 Recurring 19 - 1 20 296 - 11 307 ____________________________________________________________________________________________ 666 - 10 676 10,511 - 153 10,664 ____________________________________________________________________________________________ 1,391 2,706 125 4,222 21,950 42,716 1,965 66,631 ____________________________________________________________________________________________ Annual premium 260 336 23 619 4,089 5,310 364 9,763 equivalent ____________________________________________________________________________________________ Annual premium equivalent is defined as one tenth of single premiums plus recurring premiums. Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(b) Life assurance Â£m Rm continued ________________________________________________________________________________ South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total ________________________________________________________________________________ (iii) Life assurance adjusted operating profit 6 months to 30 June 2003 Individual business 89 39 6 134 1,152 505 78 1,735 Group business 34 - - 34 440 - - 440 ________________________________________________________________________________ Technical result 123 39 6 168 1,592 505 78 2,175 Long term investment 83 - 2 85 1,075 - 26 1,101 return ________________________________________________________________________________ Adjusted operating 206 39 8 253 2,667 505 104 3,276 profit ________________________________________________________________________________ 6 months to 30 June 2002 Individual business 69 33 (5) 97 1,096 524 (79) 1,541 Group business 28 - - 28 445 - - 445 ________________________________________________________________________________ Technical result 97 33 (5) 125 1,541 524 (79) 1,986 Long term investment 63 - 2 65 1,000 - 32 1,032 return ________________________________________________________________________________ Adjusted operating 160 33 (3) 190 2,541 524 (47) 3,018 profit ________________________________________________________________________________ Year to 31 December 2002 Individual business 149 83 (8) 224 2,352 1,310 (126) 3,536 Group business 59 - 1 60 931 - 16 947 ________________________________________________________________________________ Technical result 208 83 (7) 284 3,283 1,310 (110) 4,483 Long term investment 135 - 4 139 2,131 - 63 2,194 return ________________________________________________________________________________ Adjusted operating 343 83 (3) 423 5,414 1,310 (47) 6,677 profit ________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(c) Asset management Â£m Rm ____________________________________________________________________ Adjusted Adjusted operating operating Revenue Expenses profit Revenue Expenses profit _______________________________________________________________________________________________ 6 months to 30 June 2003 South Africa Fund management Old Mutual Asset Managers 14 (8) 6 181 (104) 77 Old Mutual Unit Trusts 9 (6) 3 117 (78) 39 Other 7 (6) 1 91 (78) 13 ____________________________________________________________________ 30 (20) 10 389 (260) 129 Other financial services 24 (16) 8 311 (207) 104 ____________________________________________________________________ 54 (36) 18 700 (467) 233 ____________________________________________________________________ United States 159 (122) 37 2,058 (1,579) 479 UK & Rest of World Fund management 20 (15) 5 259 (194) 65 Private client - Gerrard 51 (48) 3 660 (621) 39 Other financial services 7 (14) (7) 91 (181) (90) ____________________________________________________________________ 78 (77) 1 1,010 (996) 14 ____________________________________________________________________ 291 (235) 56 3,768 (3,042) 726 ____________________________________________________________________ 6 months to 30 June 2002 South Africa Fund management Old Mutual Asset Managers 13 (6) 7 206 (95) 111 Old Mutual Unit Trusts 8 (8) - 127 (127) - Other 6 (4) 2 96 (64) 32 ____________________________________________________________________ 27 (18) 9 429 (286) 143 Other financial services 10 (6) 4 159 (95) 64 ____________________________________________________________________ 37 (24) 13 588 (381) 207 ____________________________________________________________________ United States 208 (148) 60 3,301 (2,350) 951 UK & Rest of World Fund management 20 (17) 3 318 (270) 48 Private client - Gerrard 63 (60) 3 1,001 (953) 48 Other financial services 53 (54) (1) 842 (858) (16) ____________________________________________________________________ 136 (131) 5 2,161 (2,081) 80 ____________________________________________________________________ 381 (303) 78 6,050 (4,812) 1,238 ____________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued _______________________________________________________________________________________________ Â£m Rm 5(c) Asset management continued _______________________________________________________________________________________________ Adjusted Adjusted operating operating Revenue Expenses profit Revenue Expenses profit ________________________________________________________________________________________________ Year to 31 December 2002 South Africa Fund management Old Mutual Asset Managers 25 (12) 13 394 (189) 205 Old Mutual Unit Trusts 16 (13) 3 252 (205) 47 Other 14 (11) 3 221 (174) 47 __________________________________________________________________ 55 (36) 19 867 (568) 299 Other financial services 25 (16) 9 395 (253) 142 ____________________________________________________________________ 80 (52) 28 1,262 (821) 441 ____________________________________________________________________ United States 373 (278) 95 5,889 (4,389) 1,500 UK & Rest of World Fund management 40 (42) (2) 631 (663) (32) Private client - Gerrard 119 (115) 4 1,879 (1,816) 63 Other financial services 98 (98) - 1,547 (1,547) - ____________________________________________________________________ 257 (255) 2 4,057 (4,026) 31 ____________________________________________________________________ 710 (585) 125 11,208 (9,236) 1,972 ____________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued Â£m Rm ______________________________________________________________________________________ 5(d) Banking South UK & Rest South UK & Rest Africa of World Total Africa of World Total _______________________________________________________________________________________ (i) Banking adjusted operating profit 6 months to 30 June 2003 Interest receivable 1,062 71 1,133 13,750 919 14,669 Interest payable (818) (46) (864) (10,590) (596) (11,186) ____________________________________________________________ Net interest income 244 25 269 3,160 323 3,483 Dividend income 6 - 6 78 - 78 Fees and commissions 196 5 201 2,537 65 2,602 receivable Fees and commissions (5) (1) (6) (65) (13) (78) payable Other operating income 88 10 98 1,139 124 1,263 ____________________________________________________________ Total operating income 529 39 568 6,849 499 7,348 Specific and general (69) - (69) (893) - (893) provisions charge ____________________________________________________________ Net income 460 39 499 5,956 499 6,455 Operating expenses (387) (16) (403) (5,010) (207) (5,217) ____________________________________________________________ 73 23 96 946 292 1,238 Share of associated 1 4 5 13 57 70 undertakings' profit ____________________________________________________________ Adjusted operating 74 27 101 959 349 1,308 profit ____________________________________________________________ 6 months to 30 June 2002 Interest receivable 532 65 597 8,441 1,045 9,486 Interest payable (368) (48) (416) (5,844) (762) (6,606) ____________________________________________________________ Net interest income 164 17 181 2,597 283 2,880 Dividend income 4 - 4 64 - 64 Fees and commissions 104 1 105 1,656 16 1,672 receivable Fees and commissions (5) (2) (7) (79) (32) (111) payable Other operating income 12 27 39 192 427 619 ____________________________________________________________ Total operating income 279 43 322 4,430 694 5,124 Specific and general (10) - (10) (160) (4) (164) provisions charge ____________________________________________________________ Net income 269 43 312 4,270 690 4,960 Operating expenses (173) (17) (190) (2,741) (276) (3,017) ____________________________________________________________ 96 26 122 1,529 414 1,943 Share of associated 3 3 6 50 42 92 undertakings' profit ____________________________________________________________ Adjusted operating 99 29 128 1,579 456 2,035 profit ____________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued Â£m Rm _______________________________________________________________________________________ 5(d) Banking continued South UK & Rest South UK & Rest Africa of World Total Africa of World Total _______________________________________________________________________________________ (i) Banking adjusted operating profit continued Year to 31 December 2002 Interest receivable 1,372 142 1,514 21,661 2,242 23,903 Interest payable (1,003) (108) (1,111) (15,835) (1,705) (17,540) ____________________________________________________________ Net interest income 369 34 403 5,826 537 6,363 Dividend income 11 - 11 174 - 174 Fees and commissions 261 45 306 4,121 710 4,831 receivable Fees and commissions (9) (2) (11) (142) (32) (174) payable Other operating income 112 21 133 1,768 332 2,100 ____________________________________________________________ Total operating income 744 98 842 11,747 1,547 13,294 Specific and general (87) (1) (88) (1,374) (16) (1,390) provisions charge ____________________________________________________________ Net income 657 97 754 10,373 1,531 11,904 Operating expenses (497) (46) (543) (7,847) (726) (8,573) ____________________________________________________________ 160 51 211 2,526 805 3,331 Share of associated 5 5 10 79 79 158 undertakings' profit ____________________________________________________________ Adjusted operating 165 56 221 2,605 884 3,489 profit ____________________________________________________________ Operating expenses include translation losses of Â£51 million (R658 million) (June 2002: Â£27 million (R436 million); December 2002: Â£64 million (R1,011 million)). There are no banking operations in the United States. Â£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 _____________________________________________________________________________________________________________________ (ii) Nedcor restructuring and integration costs Costs before tax and 10 - 14 134 - 227 minority interests Tax - - (1) - - (23) _______________________________________________________________________________________ Costs after tax and before 10 - 13 134 - 204 minority interests Minority interests (5) - (6) (65) - (100) _______________________________________________________________________________________ Costs after tax and 5 - 7 69 - 104 minority interests _______________________________________________________________________________________ For the six months to 30 June 2003, Nedcor incurred merger restructuring and integration costs after tax of Â£10 million (R134 million) (December 2002: Â£5 million (R86 million)) following the acquisition of BoE during 2002. In the year to 31 December 2002, costs after tax of Â£8 million (R118 million) were also incurred for the closure and restructuring costs of Permanent Bank's deposit-taking activities and infrastructure. Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued ______________________________________________________________________________________ Â£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 5(d) Banking continued 2003 2002 2002 2003 2002 2002 __________________________________________________________________________________________________________________ (iii) Change in credit provisioning methodology Charge before tax and minority interests 74 - - 963 - - Tax (22) - - (289) - - ______________________________________________________________________________________ Charge after tax and 52 - - 674 - - before minority interests Minority interests (27) - - (349) - - ______________________________________________________________________________________ Charge after tax and minority interests 25 - - 325 - - ______________________________________________________________________________________ During the period, the Group's banking subsidiary, Nedcor Limited, implemented a revised methodology for the calculation of credit provisions for loans and advances in accordance with changes to local reporting requirements (AC133: 'Financial Instruments - Recognition and Measurement'). The revised methodology requiring the discounting of expected losses is acceptable under UK GAAP reporting and has therefore been adopted in preparation of the Group's financial statements, resulting in a one-off increase in opening specific provisions due to the discounting effect. This adjustment has been taken to the profit and loss account in the Group's financial statements but excluded from adjusted operating profit. Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(e) General insurance Â£m Rm business ______________________________________________________________________________________ Earned Claims Adjusted Earned Claims Adjusted premiums net incurred net operating premiums net incurred net operating of reinsurance of reinsurance profit of reinsurance of reinsurance profit __________________________________________________________________________________________________________________ 6 months to 30 June 2003 Commercial 85 58 5 1,101 750 63 Corporate 9 4 1 110 56 12 Personal lines 95 71 1 1,240 920 18 Risk financing 18 16 - 227 206 - ___________________________________________________________________________________ 207 149 7 2,678 1,932 93 _________________________ _________________________ Long term investment return 21 275 _________ _________ 28 368 _________ _________ 6 months to 30 June 2002 Commercial 60 40 1 957 634 23 Corporate 7 6 - 105 103 (1) Personal lines 73 51 1 1,157 806 10 Risk financing 7 5 - 119 88 - ___________________________________________________________________________________ 147 102 2 2,338 1,631 32 _________________________ _________________________ Long term investment return 17 276 _________ _________ 19 308 _________ _________ Year to 31 December 2002 Commercial 125 89 3 1,968 1,400 40 Corporate 15 11 (2) 234 180 (28) Personal lines 145 111 (1) 2,284 1,747 (8) Risk financing 20 18 - 320 280 2 ___________________________________________________________________________________ 305 229 - 4,806 3,607 2 Long term investment return 35 554 _________ _________ 35 556 _________ _________ Â£m Rm ______________________________________________________________________________________ 6 months to 6 months to Year to 6 months to 6 months to Year to 5(f) Other 30 June 30 June 31 December 30 June 30 June 31 December shareholders' income / (expenses) 2003 2002 2002 2003 2002 2002 _______________________________________________________________________________________________________________ Long term investment - 1 - - 16 - return credited to operating result Corporate expenses (15) (17) (35) (194) (270) (552) Other income 2 7 13 26 111 205 ______________________________________________________________________________________ Other shareholders' (13) (9) (22) (168) (143) (347) income / (expenses) ______________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(g) Funds under Â£m Rm management South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total ______________________________________________________________________________________ At 30 June 2003 Investments 16,278 7,823 2,297 26,398 201,346 96,764 28,412 326,522 including assets ______________________________________________________________________________________ held to cover linked liabilities SA asset management Nedcor Unit Trusts 335 - 729 1,064 4,144 - 9,017 13,161 Unit trusts - 871 - 1,572 2,443 10,774 - 19,444 30,218 other Third party 3,919 - - 3,919 48,475 - - 48,475 Nedcor portfolio 2,748 301 3,504 6,553 33,991 3,723 43,342 81,056 management Other financial 318 - - 318 3,933 - - 3,933 services _______________________________________________________________________________________ 8,191 301 5,805 14,297 101,317 3,723 71,803 176,843 _______________________________________________________________________________________ US asset - 68,929 5,781 74,710 - 852,597 71,506 924,103 management UK & Rest of World asset management Unit trusts - - 23 23 - - 284 284 Third party - - 294 294 - - 3,637 3,637 Other financial - - 287 287 - - 3,550 3,550 services _______________________________________________________________________________________ - - 604 604 - - 7,471 7,471 _______________________________________________________________________________________ UK Private client - - - 11,992 11,992 - - 148,331 148,331 Gerrard _______________________________________________________________________________________ Total funds under 24,469 77,053 26,479 128,001 302,663 953,084 327,523 1,583,270 management _______________________________________________________________________________________ At 31 December 2002 Investments 13,968 6,793 3,058 23,819 192,955 93,839 42,243 329,037 including assets held to cover linked liabilities _______________________________________________________________________________________ SA asset management Nedcor Unit Trusts 633 - 712 1,345 8,744 - 9,836 18,580 Unit trusts - 773 - 1,376 2,149 10,678 - 19,008 29,686 other Third party 3,533 - - 3,533 48,805 - - 48,805 Nedcor portfolio 3,845 310 3,501 7,656 53,115 4,282 48,363 105,760 management Other financial 18 - - 318 4,393 - - 4,393 services _______________________________________________________________________________________ 9,102 310 5,589 15,001 125,735 4,282 77,207 207,224 US asset - 66,445 5,875 72,320 - 917,878 81,158 999,036 management UK & Rest of World asset management Unit trusts 11 11 - - 152 152 Third party - - 105 105 - - 1,450 1,450 Other financial 310 310 - - 4,282 4,282 services _______________________________________________________________________________________ - - 426 426 - - 5,884 5,884 UK Private client - - - 12,030 12,030 - - 166,184 166,184 Gerrard _______________________________________________________________________________________ Total funds under 23,070 73,548 26,978 123,596 318,690 1,015,999 372,676 1,707,365 management _______________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 5 SEGMENTAL ANALYSIS continued 5(g) Funds under Â£m Rm management ______________________________________________________________________________________ continued South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total _______________________________________________________________________________________ At 30 June 2002 Investments 12,483 6,058 3,525 22,066 197,794 95,990 55,854 349,638 including assets _______________________________________________________________________________________ held to cover linked liabilities SA asset management Nedcor Unit Trusts 124 - 575 699 1,965 - 9,111 11,076 Unit trusts - 701 - 1,566 2,267 11,107 - 24,813 35,920 other Third party 3,313 - - 3,313 52,495 - - 52,495 Nedcor portfolio 840 254 549 1,643 13,310 4,025 8,699 26,034 management Other financial 309 - - 309 4,896 - - 4,896 services _______________________________________________________________________________________ 5,287 254 2,690 8,231 83,773 4,025 42,623 130,421 US asset - 80,411 7,073 87,484 - 1,274,121 112,072 1,386,193 management UK & Rest of World asset management Unit trusts - - 172 172 - - 2,725 2,725 Third party - - 110 110 - - 1,743 1,743 Other financial - - 331 331 - - 5,245 5,245 services _______________________________________________________________________________________ - - 613 613 - - 9,713 9,713 UK Private client - - - 14,583 14,583 - - 231,069 231,069 Gerrard _______________________________________________________________________________________ Total funds under 17,770 86,723 28,484 132,977 281,567 1,374,136 451,331 2,107,034 management _______________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 6 INSURANCE LONG TERM INVESTMENT RETURN As permitted by the ABI SORP, balances on the long term business and general business technical accounts are stated after allocating an investment return earned by the insurance businesses, based on a long term investment return, to / from the non-technical account. For the South African and Namibian long term businesses, the return is applied to an average value of investible shareholders' assets. For general insurance business, the return is an average value of investible assets supporting shareholders' funds and insurance liabilities. For the US long term business, the return earned by assets, mainly bonds, has been smoothed with reference to the actual yield earned by the portfolio. Short term fluctuations in investment return represent the difference between actual return and long term investment return. The principal long term rates of investment return for equities and other investible assets are as follows: ___________________________________________ 6 months to 6 months to Year to 30 June 30 June 31 December 2003 2002 2002 ___________________________________________ South Africa and Namibia - weighted 13.4% 14.0% 14.0% average return ___________________________________________ Equities 14.0% 14.0% 14.0% Cash and other investible assets 12.5% * * Cash and other investible assets - 9.0% * * foreign currencies ___________________________________________ United States 6.04% 6.79% 6.46% ___________________________________________ The long term rates of return are based on achieved real rates of return adjusted for current inflation expectations and consensus economic investment forecasts, and are reviewed annually for appropriateness. The directors are of the opinion that these rates of return are appropriate and have been selected with a view to ensuring that returns credited to operating earnings are not inconsistent with the actual returns expected to be earned over the long term. * Changes to the composition of investments have resulted in an increase in the cash and other investible assets held as a proportion of total investible assets in South Africa and Namibia resulting in a weighted average return being applied for 2003. Analysis of short term Â£m Rm fluctuations in ________________________________________________________________________________________ investment return 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 __________________________________________________________________________________________________________________ Life assurance Actual investment return 240 3 56 3,107 52 883 attributable to shareholders Long term investment 85 65 139 1,101 1,032 2,194 return credited to operating result ________________________________________________________________________________________ 155 (62) (83) 2,006 (980) (1,311) ________________________________________________________________________________________ General insurance Actual investment return 1 4 (7) 13 64 (111) attributable to shareholders Long term investment 21 17 35 272 270 554 return credited to operating result _______________________________________________________________________________________ (20) (13) (42) (259) (206) (665) _______________________________________________________________________________________ Other shareholders' income / (expenses) Actual investment return (10) 14 34 (129) 222 537 attributable to shareholders Long term investment - 1 - - 16 - return credited to operating result _______________________________________________________________________________________ (10) 13 34 (129) 206 537 _______________________________________________________________________________________ Excess / (deficit) of 125 (62) (91) 1,618 (980) (1,439) actual return over longer term return _______________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 7 TAX ON PROFIT ON ORDINARY ACTIVITIES Â£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 __________________________________________________________________________________________________________________ United Kingdom tax UK corporation tax 11 22 40 142 349 632 Double tax relief (5) (10) (20) (65) (159) (316) _______________________________________________________________________________________ 6 12 20 77 190 316 Overseas tax South African tax 76 35 86 984 556 1,401 United States tax 11 38 11 142 603 126 Rest of World tax 2 (2) (1) 26 (32) (16) Secondary taxation on 5 3 3 65 48 47 companies (STC) _______________________________________________________________________________________ 94 74 99 1,217 1,175 1,558 Adjustment in respect of 4 7 (1) 52 111 (16) prior periods _______________________________________________________________________________________ Current tax for period 104 93 118 1,346 1,476 1,858 Deferred tax 87 4 106 1,126 64 1,677 _______________________________________________________________________________________ Reported tax charge 191 97 224 2,472 1,540 3,535 _______________________________________________________________________________________ The tax charge is analysed as follows: Adjusted operating 129 106 195 1,673 1,683 3,082 profit Write-down of investment - (9) (11) - (140) (171) in Dimension Data Holdings plc Nedcor restructuring and - - (1) - - (23) integration costs Change in credit (22) - - (289) - - provisioning methodology Short term fluctuations 82 (18) 3 1,062 (289) 47 Non-operating items 2 18 38 26 286 600 _______________________________________________________________________________________ Reported tax charge 191 97 224 2,472 1,540 3,535 _______________________________________________________________________________________ Reconciliation of tax Â£m Rm charge ________________________________________________________________________________________ 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 _______________________________________________________________________________________ Tax at UK rate of 30.0 110 75 128 1,419 1,191 2,011 per cent. (2001: 30.0 per cent.) on profit on ordinary activities before tax Untaxed and low taxed (34) (57) (64) (440) (905) (1,010) income (including tax exempt investment return) Disallowable 86 69 128 1,113 1,096 2,021 expenditure STC 5 3 3 65 48 47 Movement in deferred (87) (4) (106) (1,126) (64) (1,677) tax Other 24 7 29 315 110 466 _______________________________________________________________________________________ Current tax charge 104 93 118 1,346 1,476 1,858 _______________________________________________________________________________________ Notes to the Financial Statements continued for the six months ended 30 June 2003 8 NON OPERATING ITEMS The following gains and losses on the disposal of business operations have been disclosed as non-operating: Â£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 _______________________________________________________________________________________ United States - asset (13) 18 35 (168) 317 558 management affiliates United Kingdom - asset - - (61) - - (963) management subsidiaries Rest of World - Old - 20 20 - 286 317 Mutual International (Isle of Man) Limited _______________________________________________________________________________________ (Loss) / profit on (13) 38 (6) (168) 603 (88) disposal before tax Tax - United States asset (2) (18) (38) (26) (286) (600) management affiliates _______________________________________________________________________________________ (Loss) / profit on (15) 20 (44) (194) 317 (688) disposal after tax _______________________________________________________________________________________ US affiliates During the period the Group completed the sales of Rice Hall James & Associates, Northern Capital Management and Tom Johnson Investment Management Inc.. The total consideration received was Â£9 million (R117 million). The loss realised on disposal was Â£13 million (R168 million) before tax chargeable of Â£2 million (R26 million) and after charging goodwill attributable to the business of Â£20 million (R259 million). 9 Goodwill Notes Â£m Rm 6 months to Year to 6 months to 6 months to Year to 6 months to 30 June 31 December 30 June 30 June 31 December 30 June 2003 2002 2002 2003 2002 2002 _______________________________________________________________________________________ At beginning of period 1,598 1,580 1,580 22,075 27,537 27,537 Additions arising on - 245 2 - 3,872 32 acquisitions in period Adjustment in respect of - 5 - - 79 - prior year acquisitions Disposals 8 (20) (125) (18) (259) (1,727) (286) Pilgrim Baxter and - 101 101 - 1,604 1,604 Associates revenue share adjustments Amortisation for period (44) (107) (50) (570) (1,689) (794) Foreign exchange and 18 (101) (54) (2,048) (7,601) (3,359) other movements _______________________________________________________________________________________ At end of period 1,552 1,598 1,561 19,198 22,075 24,734 _______________________________________________________________________________________ Amortisation for the period The goodwill amortisation charge for the period of Â£47m (R608 million) (June 2002: Â£55 million (R873 million); December 2002: Â£120 million (R1,895 million)) comprises Â£44 million (R570 million) (June 2002: Â£50 million (R794 million); December 2002: Â£107 million (R1,689 million)) disclosed in note 9 above, and Â£3 million (R38 million) (June 2002: Â£5 million (R79 million); December 2002: Â£13 million (R206 million)) disclosed under interests in associated undertakings. Notes to the Financial Statements continued for the six months ended 30 June 2003 10 Minority Interests 10(a) Equity interests Â£m Rm __________________________________________________________________________________________________________________ 6 months to Year to 6 months to 6 months to Year to 6 months to 30 June 31 December 30 June 30 June 31 December 30 June 2003 2002 2002 2003 2002 2002 __________________________________________________________________________________________________________________ At beginning of period 783 565 565 10,816 9,847 9,847 Minority interests' (15) 44 32 (194) 695 508 share of (loss) / profit Minority interests' (36) (43) (25) (466) (679) (397) share of dividends paid Net (disposal) / (5) 106 (39) (65) 1,674 (619) acquisition of interests Foreign exchange and 68 111 84 (257) (721) 437 other movements _______________________________________________________________________________________ At end of period 795 783 617 9,834 10,816 9,776 _______________________________________________________________________________________ Reconciliation of Â£m Rm minority interests share _______________________________________________________________________________________ of (loss) / profit 6 months to Year to 6 months to 6 months to Year to 6 months to 30 June 31 December 30 June 30 June 31 December 30 June 2003 2002 2002 2003 2002 2002 _______________________________________________________________________________________ The minority interest charge / (credit) is analysed as follows: Adjusted operating 42 113 62 538 1,784 983 profit Amortisation of (7) (16) (4) (90) (249) (63) goodwill Write-down of investment (5) (28) (21) (58) (442) (340) in Dimension Data Holdings plc Nedcor restructuring and (5) (6) - (65) (100) - integration costs Change in credit (28) - - (363) - - provisioning methodology Short term (12) (19) (5) (156) (298) (72) fluctuations _______________________________________________________________________________________ Reported (credit) / (15) 44 32 (194) 695 508 charge _______________________________________________________________________________________ 10(b) Non-equity Â£m Rm interests _______________________________________________________________________________________ 6 months to Year to 6 months to 6 months to Year to 6 months to 30 June 31 December 30 June 30 June 31 December 30 June 2003 2002 2002 2003 2002 2002 _______________________________________________________________________________________ R2,000 million 162 145 - 2,000 2,000 - non-cumulative preference shares US$750 million 454 - - 5,624 - - cumulative preferred securities _______________________________________________________________________________________ 616 145 - 7,624 2,000 - Unamortised issue (14) (1) - (181) (8) - costs Undistributed profits 4 - - 49 - - due to minority interests _______________________________________________________________________________________ At end of period 606 144 - 7,492 1,992 - _______________________________________________________________________________________ During 2002, Nedbank Limited, a banking subsidiary of the Group, issued 200 million R10 preference shares. These shares are non-redeemable and non-cumulative and pay a cash dividend equivalent to 75% of the prime overdraft interest rate of Nedbank. Preference shareholders are only entitled to vote during periods when a dividend or any part of it remains unpaid after the due date for payment and when resolutions are proposed that directly affect any rights attaching to the shares or the rights of the holders. Preference shareholders will be entitled to receive their dividends in priority to any payment of dividends made in respect of any other class of shares. On 19 May 2003, Old Mutual Capital Funding L.P., a subsidiary of the Group, issued US$750 million Guaranteed Cumulative Perpetual Preference Securities. Subject to certain limitations, holders of these securities are entitled to receive preferential cash distributions at a fixed rate of 8.0% per annum payable in arrear on a quarterly basis. The Group may defer payment of distributions in its sole discretion, but such an act may restrict Old Mutual plc from paying dividends on its ordinary shares for a period of 12 months. Arrears of distributions are payable cumulatively only on redemption of the securities or at the Group's option. The securities are perpetual, but may be redeemed at the discretion of the Group from 22 December 2008. The costs of issue are being amortised over the period to 22 December 2008. Notes to the Financial Statements continued for the six months ended 30 June 2003 11 AMOUNTS OWED TO CREDIT INSTITUTIONS Â£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 __________________________________________________________________________ Bank overdrafts repayable - 2 - - 28 - on demand Bank and other loans Repayable within one year: Syndicated revolving - - 164 - - 2,599 credit facility Floating rate notes 33 45 62 408 622 982 Commercial paper 155 330 193 1,917 4,559 3,058 Term loan - 30 30 - 414 475 Other - - 3 - - 48 __________________________________________________________________________ 188 405 452 2,325 5,595 7,162 __________________________________________________________________________ Repayable between one and two years: Floating rate notes 12 12 - 148 166 - Repayable between two and five years: Syndicated revolving - 78 162 - 1,077 2,567 credit facility Euro note 212 217 228 2,622 2,998 3,613 Floating rate notes 6 7 - 74 97 - Term loan - - 6 - - 95 Other 46 41 9 569 566 143 __________________________________________________________________________ 264 343 405 3,265 4,738 6,418 Repayable after five years: Term loan 27 - - 334 - - Other 6 5 - 75 69 - __________________________________________________________________________ 33 5 - 409 69 - __________________________________________________________________________ 497 767 857 6,147 10,596 13,580 __________________________________________________________________________ The Floating Rate Notes consist of a Â£33 million note repayable on 31 December 2010 with the holders having the option to elect for early redemption every six months, US$20 million note repayable by 17 September 2004 and a US$10.5 million note repayable on 18 January 2005. Commercial paper is issued under a Â£600 million Euro Commercial Paper ('ECP') Programme for periods of up to 12 months. Commercial papers are issued in various currencies, the proceeds of which are generally swapped into US dollars at the date of issuance. During 2002 the company entered into $600 million and $60 million multi-currency Revolving Credit Facilities as back stop for the Â£600 million multi-currency ECP Programme. Both facilities are 364 day facilities, although the company has term out options of 18 and 12 months respectively. At 30 June 2003 neither facility was drawn. A term loan of Â£30 million, originally due for repayment on 30 April 2003, was extended and redrawn as a $45 million term loan repayable on 30 June 2006. Other amounts owed to credit institutions consist principally of preference shares issued by a subsidiary of the Group. Amounts owed to credit institutions bear interest at variable rates except for the Euro note facility. Old Mutual plc â‚¬400 million Euro Notes due 2007 were issued on 10 April 2002. The capital and interest on the notes were immediately swapped into US dollars at a fixed rate of 6.6% per annum. Notes to the Financial Statements continued for the six months ended 30 June 2003 12 Convertible Loan Stock 12(a) Insurance and other At 30 June 2003, the Group had in issue US$636 million 3.625 per cent. Convertible Bonds repayable on 2 May 2005, which are guaranteed by and convertible into the ordinary shares of Old Mutual plc at a conversion price of 190p per share and an exchange rate of one US dollar to 69.52p Sterling. On 2 May 2003, holders of $14 million of the bonds exercised their option to elect for early redemption at par value. 12(b) Banking The banking unsecured loan stock was acquired with BoE. It is denominated in South African Rand, has an interest rate of 18.1% and is repayable at the discretion of the borrower. Achieved Profits Basis Supplementary Information for the six months ended 30 June 2003 1Consolidated profit and loss account on an Achieved Profits basis for the six months ended 30 june 2003 Â£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 ____________________________________________________________________________________________________________________ South Africa Life assurance 230 206 418 2,977 3,283 6,605 Asset management 18 13 28 233 207 441 Banking 74 99 165 959 1,579 2,605 General insurance 28 19 35 368 308 556 ________________________________________________________________________________________ 350 337 646 4,537 5,377 10,207 United States Life assurance 57 77 138 742 1,243 2,182 Asset management 37 60 95 479 951 1,500 ________________________________________________________________________________________ 94 137 233 1,221 2,194 3,682 UK & Rest of World Life assurance - 3 5 4 32 73 Asset management 1 5 2 14 80 31 Banking 27 29 56 349 456 884 ________________________________________________________________________________________ 28 37 63 367 568 988 ________________________________________________________________________________________ 472 511 942 6,125 8,139 14,877 Other shareholders' income (13) (9) (22) (168) (143) (347) / (expenses) Debt service costs (30) (25) (58) (388) (397) (916) ________________________________________________________________________________________ Adjusted operating profit* 429 477 862 5,569 7,599 13,614 Goodwill amortisation (47) (55) (120) (608) (873) (1,895) Write-down of investment (11) (52) (68) (136) (830) (1,080) in Dimension Data Holdings plc Nedcor restructuring and (10) - (14) (134) - (227) integration costs Change in credit (74) - - (963) - - provisioning methodology Short term fluctuations in investment return (including economic assumption changes) Life assurance (104) (150) (338) (1,345) (2,379) (5,340) Other (30) - (9) (388) - (128) Effect of BoE Life 5 - - 59 - - Effect of changes in and (44) - - (565) - - cost of solvency capital ________________________________________________________________________________________ Operating profit on 114 220 313 1,489 3,517 4,944 ordinary activities before tax Non-operating items (13) 18 (26) (168) 286 (409) ________________________________________________________________________________________ Profit on ordinary 101 238 287 1,321 3,803 4,535 activities before tax Tax on profit on ordinary (127) (114) (190) (1,650) (1,816) (2,998) activities ________________________________________________________________________________________ (Loss) / profit on (26) 124 97 (329) 1,987 1,537 ordinary activities after tax Minority interests - 14 (32) (44) 183 (508) (695) equity Minority interests - (14) - - (181) - - non-equity ________________________________________________________________________________________ (Loss) / profit for the (26) 92 53 (327) 1,479 842 financial period Dividends paid and (64) (63) (176) (792) (998) (2,556) proposed ________________________________________________________________________________________ Retained (loss) / profit (90) 29 (123) (1,119) 481 (1,714) for the financial period ________________________________________________________________________________________ * 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, change in credit provisioning methodology, effect of BoE Life and effect of changes in and cost of solvency capital. Adjusted operating earnings per share are similarly based, but are stated after tax and minority interests. Achieved Profits Basis Supplementary Information for the six months ended 30 June 2003 1Consolidated profit and loss account on an Achieved Profits basis for the six months ended 30 june 2003 continued Earnings per share - p c achieved profits ____________________________________________________________________________________________ basis 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 _____________________________________________________________________________________________________________________ Adjusted operating earnings per 6.0 7.7 14.1 77.9 122.3 222.8 share* Basic (loss) / earnings per (0.7) 2.5 1.4 (8.8) 40.5 22.9 share ___________________________________________________________________________________________ Weighted average number of shares 3,717 3,652 3,670 3,717 3,652 3,670 - millions 2Consolidated statement of total recognised gains and losses on an Achieved Profits basis for the six months ended 30 June 2003 Â£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 _____________________________________________________________________________________________________________________ (Loss) / profit for the (26) 92 53 (327) 1,479 842 financial period Foreign exchange 262 167 442 (1,717) (2,224) (5,034) movements _________________________________________________________________________________________ Total recognised gains and 236 259 495 (2,044) (745) (4,192) losses relating for the period _________________________________________________________________________________________ 3Reconciliation of movements in the Consolidated Achieved Profits Equity shareholders' funds for the Six months ended 30 june 2003 Â£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 _____________________________________________________________________________________________________________________ Total recognised gains / 236 259 495 (2,044) (745) (4,192) (losses) relating to the period Dividends paid and (64) (63) (176) (792) (998) (2,556) proposed _________________________________________________________________________________________ 172 196 319 (2,836) (1,743) (6,748) Issue of new capital 37 39 39 479 619 619 Shares issued under option - - 1 - - 16 schemes _________________________________________________________________________________________ Net increase / (decrease) 209 235 359 (2,357) (1,124) (6,113) in achieved profits equity shareholders' funds Achieved profits equity 3,426 3,067 3,067 47,329 53,442 53,442 shareholders' funds at the beginning of the period _________________________________________________________________________________________ Achieved profits equity 3,635 3,302 3,426 44,972 52,318 47,329 shareholders' funds at the end of the period _________________________________________________________________________________________ Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 4Consolidated balance sheet on an Achieved Profits basis as at 30 June 2003 Â£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 ____________________________________________________________________________________________________ Assets: Goodwill 1,552 1,598 1,561 19,198 22,075 24,734 Insurance and other 30,145 26,593 33,475 372,868 367,358 530,415 assets Banking assets 22,298 21,377 12,625 275,808 295,291 200,045 Total long term in-force 528 640 618 6,539 8,843 9,790 business asset ________________________________________________________________________ Total assets 54,523 50,208 48,279 674,413 693,567 764,984 ________________________________________________________________________ Liabilities: Achieved profits equity 3,635 3,426 3,302 44,972 47,329 52,318 shareholders' funds Minority interests 1,402 927 617 17,337 12,808 9,776 Subordinated 17 18 21 210 249 333 liabilities Insurance and other 28,301 25,602 32,691 350,063 353,666 517,993 liabilities Banking liabilities 21,168 20,235 11,648 261,831 279,515 184,564 ________________________________________________________________________ Total liabilities 54,523 50,208 48,279 674,413 693,567 764,984 ________________________________________________________________________ Reconciliation of total long term in-force business asset: Value of in-force 1,234 1,089 920 15,270 15,045 14,564 business Adjustment for (6) - 5 (77) (6) 87 discounting CGT OMI life subsidiaries (19) (18) (18) (234) (242) (287) statutory solvency adjustment US life statutory (681) (431) (289) (8,420) (5,954) (4,574) solvency adjustment ________________________________________________________________________ Total long term in-force 528 640 618 6,539 8,843 9,790 business asset ________________________________________________________________________ 5 Basis of Preparation The results for the six months to 30 June 2003 and the position at that date have been prepared on the same basis as that used in the Group 2002 Annual Report. These supplementary financial statements have been prepared in accordance with the methodology for supplementary reporting for long term insurance business (the achieved profits method) issued in December 2001 by the Association of British Insurers. Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 6Components of Achieved Profits Equity shareholders' funds Â£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 _________________________________________________________________________________________________ Shareholders' adjusted 2,402 2,337 2,382 29,713 32,284 37,754 net worth _______________________________________________________________________ Equity shareholders' 3,108 2,786 2,684 38,444 38,486 42,528 funds Adjustment to include (19) (18) (18) (234) (242) (287) OMI life subsidiaries on a statutory solvency basis Adjustment to include US (681) (431) (289) (8,420) (5,954) (4,574) on a statutory solvency basis Adjustment for (6) - 5 (77) (6) 87 discounting CGT _______________________________________________________________________ Value of in-force 1,234 1,089 920 15,270 15,045 14,564 business _______________________________________________________________________ Value of in-force 1,377 1,195 1,014 17,041 16,506 16,048 business before cost of solvency capital Cost of solvency (143) (106) (94) (1,771) (1,461) (1,484) capital _______________________________________________________________________ Minority interest in (1) - - (11) - - value of in-force _______________________________________________________________________ Achieved profits equity 3,635 3,426 3,302 44,972 47,329 52,318 shareholders' funds _______________________________________________________________________ Pro-forma adjustment to bring listed subsidiaries to market value Achieved profits equity 3,635 3,426 3,302 44,972 47,329 52,318 shareholders' funds Adjustment to bring 424 502 473 5,240 6,938 7,496 listed subsidiaries to market value _______________________________________________________________________ Adjusted embedded 4,059 3,928 3,775 50,212 54,267 59,814 value _______________________________________________________________________ The shareholders' adjusted net worth includes goodwill relating to OMUSL of Â£70 million (R866 million) (December 2002: Â£74 million (R1,022 million); June 2003: Â£61 million (R967 million)). The table below sets out a geographical analysis of the value of in-force business. Â£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 _________________________________________________________________________________________________ South Africa 776 682 574 9,594 9,419 9,089 _______________________________________________________________________ Individual business 476 417 349 5,881 5,751 5,521 Group business 300 265 225 3,713 3,668 3,568 _______________________________________________________________________ United States 394 341 283 4,879 4,712 4,484 UK & Rest of World 64 66 63 797 914 991 _______________________________________________________________________ Value of in-force 1,234 1,089 920 15,270 15,045 14,564 business _______________________________________________________________________ Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 6Components of Achieved Profits Equity shareholders' funds continued The encumbered and unencumbered capital for South Africa and United States is shown in the table below. Â£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 _________________________________________________________________________________________________ South Africa 1,294 1,139 1,037 16,006 15,739 16,433 _______________________________________________________________________ Encumbered capital 1,077 1,008 831 13,325 13,925 13,170 Unencumbered capital 217 131 206 2,681 1,814 3,263 _______________________________________________________________________ United States 361 355 244 4,461 4,904 3,863 _______________________________________________________________________ Encumbered capital 163 155 123 2,021 2,144 1,949 Unencumbered capital 198 200 121 2,440 2,760 1,914 _______________________________________________________________________ For South Africa the average unencumbered capital applicable was Â£159 million (R2,061 million) (December 2002: Â£160 million (R2,524 million); June 2002: Â£100 million (R1,589 million)). The average figures were used to determine the expected return on unencumbered capital. Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 7Segmental analysis of results Â£m Rm _____________________________________________________________________________ South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total ________________________________________________________________________________________________ 6 months to 30 June 2003 New business 35 28 1 64 459 357 16 832 contribution Profits from existing business Expected return on 86 19 3 108 1,115 246 40 1,401 in-force business Expected return on 70 5 2 77 909 70 26 1,005 encumbered capital Experience 35 (2) (3) 30 451 (21) (40) 390 variances Operating (7) - (3) (10) (95) - (38) (133) assumption changes Expected return on 11 7 - 18 138 90 - 228 unencumbered _____________________________________________________________________________ capital Life assurance 230 57 - 287 2,977 742 4 3,723 adjusted operating profit before tax Investment return variances On value of (18) (4) 2 (20) (232) (52) 31 (253) in-force On capital (147) (13) 1 (159) (1,902) (171) 16 (2,057) Effect of economic 56 17 2 75 720 217 28 965 assumption changes Effect of BoE 5 - - 5 59 - - 59 Life Effect of changes (44) - - (44) (565) - - (565) in and cost of _____________________________________________________________________________ solvency capital Life assurance 82 57 5 144 1,057 736 79 1,872 achieved profits before tax Attributed tax (67) (17) (3) (87) (867) (221) (39) (1,127) _____________________________________________________________________________ Life assurance 15 40 2 57 190 515 40 745 achieved profits _____________________________________________________________________________ after tax Â£m Rm _____________________________________________________________________________ South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total ________________________________________________________________________________________________ 6 months to 30 June 2002 New business 40 44 2 86 648 711 26 1,385 contribution Profits from existing business Expected return on 74 21 4 99 1,175 349 56 1,580 in-force business Expected return on 56 4 2 62 889 61 32 982 encumbered capital Experience 29 (3) (4) 22 460 (50) (63) 347 variances Operating - 7 (1) 6 - 106 (19) 87 assumption changes Expected return on 7 4 - 11 111 66 - 177 unencumbered _____________________________________________________________________________ capital Life assurance 206 77 3 286 3,283 1,243 32 4,558 adjusted operating profit before tax Investment return variances On value of (39) (27) - (66) (601) (431) (6) (1,038) in-force On capital (73) (4) 7 (70) (1,159) (63) 111 (1,111) Effect of economic (13) - (1) (14) (217) - (13) (230) assumption _____________________________________________________________________________ changes Life assurance 81 46 9 136 1,306 749 124 2,179 achieved profits before tax Attributed tax (43) (13) - (56) (679) (217) - (896) _____________________________________________________________________________ Life assurance 38 33 9 80 627 532 124 1,283 achieved profits _____________________________________________________________________________ after tax Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 7 Segmental analysis of results continued Â£m Rm ____________________________________________________________________________ South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total ________________________________________________________________________________________________ Year to 31 December 2002 New business 114 80 3 197 1,806 1,261 42 3,109 contribution Profits from existing business Expected return on 150 35 6 191 2,367 561 100 3,028 in-force business Expected return on 113 6 4 123 1,778 98 63 1,939 encumbered capital Experience 36 - (10) 26 569 (3) (160) 406 variances Operating (17) (9) 2 (24) (268) (141) 28 (381) assumption changes Risk margin - 18 - 18 - 284 - 284 changes Expected return on 22 8 - 30 353 122 - 475 unencumbered _____________________________________________________________________________ capital Life assurance 418 138 5 561 6,605 2,182 73 8,860 adjusted operating profit before tax Investment return variances On value of (87) (25) (2) (114) (1,381) (396) (23) (1,800) in-force On capital (250) (4) (14) (268) (3,950) (60) (221) (4,231) Effect of economic 24 19 1 44 371 303 17 691 assumption _____________________________________________________________________________ changes Life assurance 105 128 (10) 223 1,645 2,029 (154) 3,520 achieved profits before tax Attributed tax (68) (32) - (100) (1,067) (508) - (1,575) _____________________________________________________________________________ Life assurance 37 96 (10) 123 578 1,521 (154) 1,945 achieved profits _____________________________________________________________________________ after tax Expected return on the unencumbered capital for South Africa and the United States is 13.4% p.a. (2002: 14% p.a.) and 7% p.a. (2002: 7% p.a.) respectively for 2003. The BoE Life adjustment reflects the recognition of the initial value of in-force business since its acquisition. The effect of changes in and cost of solvency capital for South Africa reflects changes in the amount of solvency capital required and in the mix of assets backing the solvency capital. The difference between the total tax charge shown in the above segmental analysis, and the total tax charge shown in the profit and loss account in section 1, represents the tax charge on the non-life assurance businesses. Â£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 _________________________________________________________________________________________________________________ Tax on life assurance achieved profit South Africa - value of 56 35 80 723 583 1,264 in-force - capital 11 8 (12) 144 96 (197) United States 17 13 32 221 217 508 UK & Rest of World 3 - - 39 - - ______________________________________________________________________________________ 87 56 100 1,127 896 1,575 Tax on other business 40 58 90 523 920 1,423 ______________________________________________________________________________________ Tax on profit of ordinary 127 114 190 1,650 1,816 2,998 activities ______________________________________________________________________________________ Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 8Value of new business The tables below set out a geographical analysis of the value of new business (VNB) for the six months to 30 June 2003, six months to 30 June 2002 and the year to 31 December 2002. Annual Premium Equivalent (APE) is calculated as recurring premiums plus 10% of single premiums. New business profitability, as measured by the ratio of the VNB to the APE, is also shown under 'margin' below. The value of new business is shown on both the grossed up to the pre-tax level as well as the after tax level. The assumptions and tax rates used to calculate the value of new business are set out in section 9. Individual Group South United UK & Rest business business Africa States of World Total _______________________________________________________________________________________ 6 months to 30 June 2003 Â£m __________________________ __________________ _______ Recurring premiums 68 9 77 40 6 123 Single premiums 238 203 441 892 44 1,377 Annual Premium 92 29 121 129 11 261 Equivalent _________________________ __________________ _______ _________________________ __________________ _______ Value of new business 22 13 35 20 1 56 before tax Value of new business 14 8 22 14 1 37 after tax _________________________ __________________ ______ _________________________ __________________ ______ Margin before tax 24% 46% 29% 15% 12% 22% Margin after tax 15% 28% 18% 11% 12% 14% _________________________ __________________ ______ Rm _________________________ __________________ ______ Recurring premiums 888 117 1,005 513 81 1,599 Single premiums 3,084 2,626 5,710 11,547 569 17,826 Annual Premium 1,196 380 1,576 1,668 138 3,382 Equivalent _________________________ __________________ ______ _________________________ __________________ ______ Value of new business 285 174 459 253 16 728 before tax Value of new business 177 108 285 177 16 478 after tax _________________________ __________________ ______ 6 months to 30 June 2002 Â£m _________________________ __________________ ______ Recurring premiums 52 10 62 21 5 88 Single premiums 285 119 404 1,535 60 1,999 Annual Premium 80 22 102 175 11 288 Equivalent _________________________ __________________ ______ _________________________ __________________ ______ Value of new business 26 14 40 44 2 86 before tax Value of new business 16 9 25 31 2 58 after tax _________________________ __________________ ______ _________________________ __________________ ______ Margin before tax 33% 65% 40% 26% 14% 30% Margin after tax 21% 40% 25% 18% 14% 20% _________________________ __________________ ______ Rm _________________________ __________________ ______ Recurring premiums 817 165 982 326 89 1,397 Single premiums 4,529 1,891 6,420 24,368 949 31,737 Annual Premium 1,270 354 1,624 2,763 184 4,571 Equivalent _________________________ __________________ _____ _________________________ __________________ ______ Value of new business 419 229 648 711 26 1,385 before tax Value of new business 261 142 403 498 26 927 after tax _________________________ __________________ ______ Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 8Value of new business continued Individual Group South United UK & Rest business business Africa States of World Total __________________________________________________________________________________________ Year to 31 December 2002 Â£m ___________________________ ____________________ _________ Recurring premiums 115 19 134 37 12 183 Single premiums 546 468 1,014 2,629 104 3,747 Annual Premium 170 65 235 300 22 557 Equivalent ___________________________ ____________________ _________ ___________________________ ____________________ _________ Value of new business 53 61 114 80 3 197 before tax Value of new business 33 38 71 56 3 130 after tax ___________________________ ____________________ _________ ___________________________ ____________________ _________ Margin before tax 31% 93% 49% 27% 12% 36% Margin after tax 20% 58% 30% 19% 12% 23% ___________________________ ____________________ _________ Rm ___________________________ ____________________ _________ Recurring premiums 1,808 296 2,104 586 186 2,876 Single premiums 8,624 7,385 16,009 41,500 1,641 59,150 Annual Premium 2,670 1,035 3,705 4,736 350 8,791 Equivalent ___________________________ ____________________ _________ ___________________________ ____________________ _________ Value of new business 841 965 1,806 1,261 42 3,109 before tax Value of new business 524 600 1,124 883 42 2,049 after tax ___________________________ ____________________ _________ The new business shown above for 30 June 2003 for the United States excludes the value of OMNIA Life (Bermuda) business that was acquired during 2003, and which is included within the value of new business shown in section 7. If the value of this business (Â£8 million; R104 million), together with the equivalent APE, had been included above, the before and after tax margins for the United States would have been 20% and 14% respectively. The value of new individual unit trust and some group market-linked business written by the life companies is excluded, as the profits on this business arise in the asset management subsidiaries. It also excludes premium increases arising from indexation arrangements in respect of existing business, as these are already included in the value of in-force business. The premiums shown for the United States excludes reinsurance ceded externally. A reconciliation of the new business premiums shown in the notes to the financial statements to those shown above, for the six months to 30 June 2003, is set out below. Â£m Rm _________________________________________________________ Recurring Single Recurring Single premiums premiums premiums premiums ______________________________________________________________________________ 6 months to 30 June 2003 New business premiums in the 125 1,529 1,617 19,785 notes to the financial statements Less: United States reinsurance ceded (2) - (18) - externally Group market-linked business not - (109) - (1,399) valued Unit trust business not valued - (43) - (560) _________________________________________________________ New business premiums as per achieved profits supplementary statements 123 1,377 1,599 17,826 _________________________________________________________ Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 9Assumptions The principal assumptions used in the calculation of the value of in-force business and the value of new business are set out below. â€¢ The pre-tax investment and economic assumptions used for South African and United States businesses were as follows: 30 June 31 December 30 June 2003 2002 2002 _______________________________________________________________________________ South Africa Fixed interest return 9.4% 11.0% 12.5% Equity return 11.4% 13.0% 14.5% Property return 10.4% 12.0% 13.5% Inflation 6.4% 7.0% 8.5% Risk discount rate 11.9% 13.5% 15.0% United States Treasury yield 3.6% 4.0% 5.0% Inflation 3.0% 3.0% 3.0% New money yield assumed 5.8% 6.0% 6.7% Net portfolio earned rate 6.6% 7.2% 7.1% Risk discount rate 7.6% 8.0% 9.5% â€¢ For the other operations, appropriate investment and economic assumptions were chosen on bases consistent with those adopted in South Africa. Where applicable, rates of future bonuses have been set at levels consistent with the investment return assumptions. Projected company taxation is based on the current tax basis that applies in each country. â€¢ For the South African business full allowance has been made for STC that may be payable in South Africa. Full account has been taken of the impact of CGT in South Africa. It has been assumed that 10% of the equity portfolio (excluding group subsidiaries) will be traded each year. For the United States business full allowance has been made for existing tax attributes of the companies, including the use of existing carry forwards and preferred tax credit investments. Achieved profits results are initially calculated on an after tax basis and are then grossed up to the pre-tax level for presentation in the profit and loss account and the segmental analysis of results. The tax rates used were the effective corporation tax rates of 37.8% for South African business (December 2002 and June 2002: 37.8%), 30% for United States business (December 2002 and June 2002: 30%) and 0% for United Kingdom and Rest of World (December 2002 and June 2002: 0%) except for the investment return on capital for which the attributed tax was derived from the primary accounts. â€¢ The assumed future mortality, morbidity and voluntary discontinuance rates have been based as far as possible on analyses of recent operating experience. Allowance has been made where appropriate for the effect of expected AIDS-related claims. â€¢ The management expenses attributable to life assurance business have been analysed between expenses relating to the acquisition of new business and the maintenance of business in-force. The future expenses attributable to life insurance business do not include Group holding company expenses. â€¢ No allowance has been made for future development costs. â€¢ Future investment expenses were based on the current scales of fees payable by the life insurance companies to the asset management subsidiaries. To the extent that these fees include profit margins for the asset management subsidiaries, these margins have not been included in the value of in-force business or the value of new business. â€¢ The effect of increases in premiums over the period for policies in-force has been included in the value of in-force business only where such increases are associated with indexation arrangements. Other increases in premiums of existing policies are included in the value of new business. â€¢ New schemes written on which recurring single premiums are expected to be received on a regular basis are treated as new business. The annualised premium is recognised as recurring premium new business at inception of the scheme and is determined by annualising the actual premiums received during the year in question. Subsequent recurring single premiums received in future years are not treated as new business, as these have already been provided for in calculating the value of in-force business. Achieved Profits Basis Supplementary Information continued for the six months ended 30 June 2003 9Assumptions continued Conversions between Rand, US Dollar and Sterling were carried out at the following exchange rates: ______________________________________________________________________________ Rand per US$ per Rand per US$ Sterling Sterling At 30 June 2003 12.3692 1.6528 7.4838 At 31 December 2002 13.8141 1.6105 8.5775 At 30 June 2002 15.8451 1.5279 10.3702 6 months to 30 June 2003 (average) 12.9459 1.6110 8.0361 Year to 31 December 2002 (average) 15.7878 1.5030 10.5042 6 months to 30 June 2002 (average) 15.8800 1.4445 10.9926 10 Alternative Assumptions The tables below for South Africa and the United States show the sensitivity of the value of in-force at 30 June 2003 and the value of new business for the six months to 30 June 2003 to changes in the central discount rate. In determining the values at different central discount rates, all other assumptions have been left unchanged. The value of new business is shown before tax. The sensitivity of the adjustment for discounting CGT, which is included in the shareholders' adjusted net worth, to changes in the central discount rate is not material and is not included in the table below. Â£m Rm _____________________________ __________________________ Value of Value of Value of Value of in-force new in-force new business at business at business at business at 30 June 30 June 30 June 30 June 2003 2003 2003 2003 ______________________________________________________________ __________________________ South Africa Central assumptions 776 35 9,594 459 _____________________________ __________________________ Value before cost of solvency 891 40 11,022 517 capital Cost of solvency capital (115) (5) (1,428) (58) _____________________________ __________________________ Effect of: Central discount rate +1% 679 30 8,404 386 _____________________________ __________________________ Value before cost of solvency 841 36 10,397 466 capital Cost of solvency capital (162) (6) (1,993) (80) _____________________________ __________________________ Central discount rate - 1% 886 42 10,963 545 _____________________________ __________________________ Value before cost of solvency 948 45 11,731 577 capital Cost of solvency capital (62) (3) (768) (32) _____________________________ __________________________ United States Central assumptions 394 20 4,879 253 _____________________________ __________________________ Value before cost of solvency 421 23 5,208 295 capital Cost of solvency capital (27) (3) (329) (42) _____________________________ __________________________ Effect of: Central discount rate +1% 367 18 4,537 228 _____________________________ __________________________ Value before cost of solvency 399 22 4,933 280 capital Cost of solvency capital (32) (4) (396) (52) _____________________________ __________________________ Central discount rate - 1% 422 22 5,221 285 _____________________________ __________________________ Value before cost of solvency 443 24 5,481 311 capital Cost of solvency capital (21) (2) (260) (26) _____________________________ __________________________ This information is provided by RNS The company news service from the London Stock Exchange

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