Interim Results - Part 1

Old Mutual PLC 10 August 2004 Old Mutual plc Results for the six months ended 30 June 2004 Building Momentum Highlights â€¢ Adjusted operating earnings per share*: 6.8p (2003: 5.6p), an increase of 21% in Sterling 82.7c (2003: 73.4c), an increase of 13% in Rand â€¢ Basic loss per share: 1.8p (2003: Earnings of 5.6p**) 21.9c (2003: Earnings of 72.1c**) â€¢ Life sales of Â£262m on an annual premium equivalent basis (2003: Â£261m) â€¢ Return on equity 19% (2003: 16%***) â€¢ Total assets under management Â£130bn at 30 June 2004 (Â£125bn at 31 December 2003) â€¢ Adjusted embedded value: 114p per share (31 December 2003: 105p***) R12.86 per share (31 December 2003: R12.49***) â€¢ Interim dividend of 1.75p (2003: 1.7p), 19.8 cents in Rand**** (2003: 19.5 cents) Jim Sutcliffe, Chief Executive, commented: 'Through our strategy of diversity we have built momentum in the first half, taking advantage of improved conditions in some key markets. Our US asset management and South African general insurance businesses had a particularly good half-year, although there is still work to be done to improve life sales in South Africa and to deliver recovery at Nedcor. We look forward to the rest of 2004 with confidence.' Wherever the items asterisked in the Highlights are used, whether in the Highlights or the Operating and Financial Review, the following apply: * Adjusted operating profit represents the directors' view of the underlying performance of the Group. For life assurance and general insurance businesses, adjusted operating profit is based on a long-term investment return and includes investment return on own shares held in policyholders' funds. For banking business, adjusted operating profit excludes the loss on disposal/write-down of investment in Dimension Data Holdings plc, restructuring and integration costs and the transitional impact of the change in credit provisioning methodology. For all businesses, adjusted operating profit excludes goodwill amortisation and impairment and fines and penalties. Adjusted operating earnings per share is similarly based, but is stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders' funds. The segmental adjusted operating profit for 2004 is shown before elimination of inter-segment results. ** Comparative figures have been restated to reflect the adoption of Urgent Issues Taskforce Abstract 37 'Purchases and Sales of Own Shares'. Details of the changes are set out in notes 1, 3, 4 and 5(b)(iv) to the attached Financial Statements. *** Comparative figures have been restated to reflect the adoption of Urgent Issues Taskforce Abstract 38 'Accounting for ESOP Trusts'. Details of the changes are set out in note 1 to the attached Financial Statements. **** Indicative only, being the Rand equivalent of 1.75p converted at the exchange rate prevailing on 30 June 2004. The actual amount to be paid by way of interim dividend to holders of shares on the South African branch register will be by reference to the exchange rate prevailing at the close of business on 7 October 2004, as determined by the Company, and will be announced on 8 October 2004. Old Mutual plc Results for the six months ended 30 June 2004 continued ENQUIRIES: Old Mutual plc Investors Andrew Parkins Tel: +44 (0) 20 7002 7264 Tel: +44 (0) 7789 927 764 Old Mutual plc Media UK Miranda Bellord Tel: +44 (0) 20 7002 7133 Tony Friend, College Hill Tel: +44 (0) 20 7457 2020 Old Mutual plc Media SA Nad Pillay Tel: +27 (0) 82 553 7980 Notes to editors: A webcast of the analysts presentation and Q&A will be broadcast live at 9.30 a.m. (UK time) today on our website at www.oldmutual.com. High-resolution images are available for the media to view and download on www.uppa.co.uk. To access these, please register, log in and then search on 'Old Mutual'. Alternatively, you can contact UPPA directly on +44 (0) 20 7421 6000 or email contact@uppa.co.uk. 10 August 2004 Operating and Financial Review Chief Executive's Statement Our adjusted operating earnings for the first half of 2004 improved to 6.8p / 82.7c per share (2003: 5.6p / 73.4c). Return on average equity was a creditable 19%, helped by strong growth at our US businesses, recovery at Nedcor, another solid profit contribution from our South African life business and an excellent first half at Mutual & Federal. We have shown our confidence in the strength of the Group's business and our generally positive results for the half-year by declaring an increased interim dividend of 1.75p (2003: 1.7p) per share, which will be paid on 30 November 2004. These improved operating results have been accompanied by progress in our journey to develop a powerful international financial services business from our South African core. We have invested further in our US life business, and our UK distribution and asset management businesses have built their teams and capabilities. We have also been working hard at our Black Economic Empowerment (BEE) plans in South Africa and remain committed to introducing BEE shareholdings at the South African level to support our continuing efforts to normalise our staff complement and procurement practices. Adjusted embedded value grew over the period by 9% in Sterling terms and 3% in Rand. Basic earnings per share were negative, mainly as a result of short term market fluctuations in the value of US life's bond portfolio and the impact of the $90 million regulatory settlement at our US asset management affiliate Pilgrim Baxter. The Group's net fund flow from customers was healthy around the world, with a net positive total of Â£4.0 billion, including a record $5.3 billion from our US asset management business. Investment performance continues to be the key for our businesses to attract client assets. On a three-year basis, more than three-quarters of our US funds under management and more than two-thirds of our South African third party asset management clients have received returns above benchmark and more than 70% of our UK unit trusts were in the top half of their comparator groups. Markets remained at higher levels than in the equivalent period in 2003. Together with the strong net cash flow, this led to assets under management, the driver for much of our revenues, being up 12% on 30 June 2003 levels. Nedcor stabilised through the early stages of its recovery programme during the first half. Our target for Nedcor remains to achieve a run-rate Return on Equity of 20% by the end of 2006 for delivery in 2007. Adjusted operating profit (under UK GAAP) of R712 million was below that for the equivalent period in 2003 (R1,308 million), but was a substantial improvement on the loss incurred in the second half of 2003. Before restructuring costs, Nedcor covered its cost of capital and we expect it to make steady progress to our goal over the next three years. Operating and Financial Review Chief Executive's Statement continued Important steps were also taken by Nedcor during the period to fulfil the strategic imperatives that we had agreed with management. These included: the strengthening of capital through the completion of its R5.2 billion rights issue; disposal of non-core operations outside South Africa; the installation of a new executive team; the reduction of risk and volatility through the repatriation of surplus capital and an interest rate hedging programme; and tackling the expense base through retrenchments announced in the first quarter. Life sales for the Group as a whole were flat overall. A 21% increase in sales in US Dollar terms at our US life business offset disappointing sales at our South African life business, so that 53% of our sales came from the US in this period. Margins were well above our long-term expectations in the US life business at 22%. In South Africa, margins were in line with our long-term expectations at a product level, but our product mix produced a lower result than last year. In the UK, Selestia continued to make strong progress by building its sales (Â£197 million, as compared with Â£86 million in the equivalent period in 2003). We were very pleased with the results from our now 88%-owned South African general insurance subsidiary, Mutual & Federal, as it achieved top-of-the-cycle underwriting results and benefited from favourable claims conditions. These excellent results have enabled Mutual & Federal to declare a special dividend, of which some R753m will be for our benefit. Our total gearing* was 17.5% at the end of June, compared to 21.7% at the end of 2003. In South Africa, we have 2.5 times the statutory requirements in our life company, and Nedcor's capital adequacy ratio was 12.3% at 30 June 2004. A M Best have confirmed our US life business's credit ratings. Outlook We expect the momentum built up in the period to June will continue and that our results for the year will benefit from management action initiated in the first half. We shall be making further investment in our strategic development, including the launch of a new retail strategy at our US asset management business. Volatility of currencies and markets will affect us, as usual, but the benefits of our diversity will continue to mitigate this. Jim Sutcliffe Chief Executive 10 August 2004 * As defined in the footnote on page 12. Operating and Financial Review Group Finance Director's Review SEGMENTAL REVIEW - SOUTH AFRICA LIFE ASSURANCE Our South African life assurance business continued to deliver strong profit, although sales were lower than planned. Adjusted operating profit, excluding long term investment return (LTIR), of R1,825 million was up 15% on the R1,592 million recorded in the same period for 2003, driven by tighter expense control, favourable experience variances and a 10% increase in average asset levels. The LTIR of R1,023 million declined by 5% from R1,075 million for the comparative period. This reduction reflects the impact that the investments in Nedcor and Mutual & Federal, outlined under Capital below, had on the average shareholder assets used in the calculation, as well as the reduction in the effective LTIR rate arising from an increase in the cash component of the portfolio. Total life sales on an APE basis for the period were R1,356 million, 14% lower than the corresponding period last year principally caused by significantly lower Group Business sales. Individual Business and Group Business contributed R1,158 million (2003: R1,196 million) and R198 million (2003: R380 million) respectively to this result. Individual Business single premiums were flat at R3,099 million when compared to the equivalent period last year, with higher annuity sales being offset by lower investment business. Individual Business recurring premiums of R848 million were 5% down on the R888 million in the same period last year, with significantly higher Group Schemes sales offset by lower investment business in the middle market. Individual Business sales were achieved despite the negative productivity impact of completing accreditation for advisors and brokers in line with the Financial Advisory and Intermediary Services Act. The successful launch of Masthead for the broker market is designed to strengthen our position with independent brokers, who remain a key channel. While life Individual Business was disappointing, non-life sales in Unit Trusts and Fairbairn Capital increased by 28% over the prior period. Group Business single premiums fell 60% from the equivalent period last year with no significant large flows in the period, while Group Business recurring premiums of R93 million were 21% behind the R117 million in the same period last year. Progress on the pipeline for Group Business has been disappointing, although the pipeline remains significant and is subject to an unpredictable sales pattern. The after-tax value of new business at R264 million was 7% lower than the comparative period in 2003, although total margins improved slightly from 18% in 2003 to 19% for the current period due to tight expense management in the distribution business. The value of in-force business of R9,190 million at 30 June 2004 decreased from R9,832 million at 31 December 2003 due to the negative effect of economic assumption changes and investment variances. Operating and Financial Review Group Finance Director's Review continued Life company net cash flow was a negative R2.8 billion in the six months, including a negative R0.9 billion in respect of life wrapped asset management flows. The remaining life result reflects a positive R0.3 billion in respect of Individual Business (2003: negative R0.7 billion) and a negative R2.2 billion for Group Business (2003: positive R0.2 billion) as a result of significantly lower Group Business single premiums. The life company's capital on the relevant local basis increased by R1.9 billion during the period to R31.0 billion at 30 June 2004, and the company remains well capitalised with excess assets of 2.5 times the required statutory capital. ASSET MANAGEMENT Adjusted operating profit for the South African asset management businesses, excluding Nedcor, decreased to R217 million in 2004, compared to R233 million in the equivalent period in 2003. Higher asset levels and improved performance fees were offset by lower trading fees in the unit trust company following changes to industry guidelines regarding trading in units, charges relating to share incentive arrangements and development of administration infrastructure. Total net client inflows to the asset management businesses were R4.8 billion, excluding the R0.9 billion of life wrapped assets noted under life above. This included R2.6 billion of inflows following the successful transfer of mandates from Quaystone clients. BANKING - NEDCOR The first six months of 2004 have seen Nedcor make good progress in restoring the performance of the Group and laying a foundation for growth. As previously noted, it is going to take time for the full benefits of the recovery programme to emerge, although the progress and improvements made to date have been encouraging. Nedcor's adjusted operating profit, which includes its asset management operations, of R712 million was a decrease of 46% compared to the same period last year, but an improvement on the second half of 2003. Nedcor's net interest income of R3,549 million reflects an increase of 2% over the first half of 2003. Improved margins at 3.05% were the primary drivers as expensive fixed rate funding started to unwind. Non-interest revenue at R3,156 million was a decrease of 5% over R3,332 million in the second half of 2003 (based on a reclassification of asset management result). This is primarily attributable to a reduction in profits from exchange and securities trading. Operating and Financial Review Group Finance Director's Review continued Translation losses are substantially lower at R213 million (2003: R658 million). Nedcor has repatriated, restructured and hedged offshore capital to reduce foreign currency exposure from R7.1 billion to a net R3.1 billion during the past six months. The capital volatility arising from foreign exchange movements has now been substantially neutralised. The cost-to-income ratio, on an SA GAAP basis and excluding the effect of translation losses, at 77.6% reflects a deterioration from the 2003 ratio of 65.4% mainly due to lower revenue growth and re-engineering expenses. This negative gearing effect of expense growth exceeding income growth has accordingly impacted earnings. The headcount reductions will only impact the cost base from the second half of the year. Nedcor continues to focus on internal expense reduction as a key part of its recovery programme. In February, Nedcor launched a rights issue which raised R5.2 billion of additional ordinary capital. Part of the net proceeds were used to repay the R2 billion advanced by Old Mutual in December and other short term financing of R0.5 billion. This, together with the realisation of non-core investments, the focus on managing advances growth and the reduction of foreign currency exposure through the repatriation of offshore capital, have all contributed to increasing the primary capital adequacy ratio from 10.1% at 31 December 2003 to 12.3% at 30 June 2004. GENERAL INSURANCE - MUTUAL & FEDERAL Mutual & Federal, the Group's 88% owned South African general insurance operation, has had an exceptional six months with an adjusted operating profit of R569 million, including long term investment return, representing an increase of 55% from R368 million last year. The strong performance was principally attributable to an improvement in the underwriting surplus to R266 million (2003: R93 million). This represented an underwriting ratio of 8.5% to net earned premiums (10.7% on an SA GAAP basis), which was a marked improvement over the 3.5% achieved in the equivalent period in 2003. This has been aided by the strong underwriting cycle in the first half of 2004, combined with an absence of severe weather-related claims and strong claims control with a focus on quality and speed of claims settlement. Gross premium income of R3,592 million was 19% higher than last year as a result of new business acquired and rating adjustments in unprofitable segments of the business. Operating and Financial Review Group Finance Director's Review continued SEGMENTAL REVIEW - United States US LIFE Our US life business's adjusted operating profit of $73 million was 18% up on the $62 million achieved in 2003. This increase was driven by the impact of the continued growth in scale of the business, with funds under management increasing by 22% to $15.3 billion. Over the past year the business has demonstrated its ability to exploit opportunities in changing market conditions by adding pertinent new distribution and through rapid product development. In distribution we added a corporate and offshore channel. In products, the business has used its traditional equity index competence to produce both profitable annuity and life products, which respectively took second and fifth place market share nationally for the period. Total APE for the first half of 2004, at $251 million, was 21% higher than achieved in the first half of 2003. The average margin on new business after tax increased from 11% to 22% of APE and the value of new business after tax at $54 million was $32 million higher than in 2003 driven mainly by movements in interest rates, the change in product mix and a reduction in the costs of gathering new business. US life continue to manage the capital efficiently and $16 million was injected to support new business volumes. The business is now generating positive statutory profits, reducing the business's need for future capital support from the Group. The Risk Based Capital (RBC) remains in excess of 200% of the statutory requirement. US ASSET MANAGEMENT The Group's US asset management business delivered adjusted operating profit of $87 million, an increase of 43% on the equivalent period in 2003. The stable equity markets in the first half of 2004, in conjunction with strong transaction and performance fees and positive net fund inflows, were the key factors driving this positive result. Average asset levels for 2004 were $159 billion, compared to $127 billion, adjusted for sold firms, for the comparative 2003 period. Funds under management increased in the first half of 2004 by 6% from $154 billion to $163 billion following net client inflows of $5.3 billion and positive market movements of $4.1 billion. These inflows were achieved in both equity and fixed income portfolios and included $1.5 billion from the US life business and $2.0 billion in cash collateral assets for eSecLending, our securities lending business. Our strategy of maintaining a diversity of separate specialist affiliates has ensured that the issues affecting Pilgrim Baxter & Associates (PBA) had no material impact on other affiliates. At 30 June 2004, the funds under management remain well diversified, comprising 45% US equities, 10% international equities, 34% fixed income and 11% alternative and other assets. Operating and Financial Review Group Finance Director's Review continued Strong investment performance has been maintained at previously high levels. 81% and 93% of mandates outperformed their respective benchmarks on an asset weighted basis over three and five years respectively. Over 70% of these funds also achieved top quartile performance relative to their peers over the same periods. In June, PBA reached agreements with the US Securities and Exchange Commission and the Office of the New York State Attorney General to settle the regulatory actions against the firm. The agreements settled charges brought against PBA in November 2003 in relation to past trading activity in the PBHG Funds permitted by the former management of the firm. New leadership appointed at PBA in November has instituted significant reforms at the firm and worked with the authorities to settle the charges. Total fines and penalties agreed by PBA were $90 million. PBA has also committed to future fee reductions of $10 million. SEGMENTAL REVIEW - UK & REST OF WORLD Adjusted operating profit from the Group's UK and Rest of World asset management and life assurance businesses, excluding Nedcor, was Â£4 million in the first half of 2004, lower than the Â£9 million earned in the equivalent period in 2003. This result includes the adjusted operating profit from Bermuda (Â£5 million) and African countries other than South Africa (Â£4 million), offset by an adjusted operating loss from the Group's operations in the UK (Â£5 million). Selestia's business continues to grow, with funds under management increasing by 65% in 2004 to Â£477 million as a result of sales reaching Â£197m, 49% higher than the second half of 2003. OMAM(UK) has achieved adjusted operating profits of Â£3 million compared to a loss of Â£1 million in the equivalent period in 2003, with average assets 7% higher and a larger proportion of high margin hedge fund assets driving this increase, despite net external client outflows of Â£54 million for the period. Investment performance remains strong with 77% of unit trust assets above the peer comparative median over three years. GROUP RESULTS Solid performances across each of our business units have contributed to Old Mutual's improved results during the first half of 2004, with adjusted operating profits before tax of Â£422 million increasing by 7% from Â£395 million in the equivalent period of 2003. Net fund flows remain strong on a Group basis with increased sales in the US market for both life and asset management more than offsetting the impact of lower sales in South Africa. Following stable financial markets, total funds under management for the Group increased steadily to Â£130 billion from Â£125 billion at the end of 2003. Operating and Financial Review Group Finance Director's Review continued Adjusted operating earnings per share improved to 6.8p per share (2003: 5.6p), representing a 21% increase over the first half of 2003. The basic loss per share was 1.8p compared to basic earnings of 5.6p in 2003. Basic earnings have been impacted by the fines and penalties relating to PBA and negative short term fluctuations arising predominantly from the impact on our US Life portfolio of higher prevailing yields. Operating profit on ordinary activities before tax, which includes goodwill amortisation and impairment, restructuring and integration costs, fines and penalties, short term fluctuations in investment return and adjustments for investment return for own shares held in the policyholders' funds, similarly declined to a loss of Â£10 million compared to a profit of Â£392 million in 2003. ACHIEVED PROFITS The Group's adjusted operating profit on an achieved profits basis of Â£468 million increased by 9% from Â£429 million in 2003. Adjusted operating profit for life assurance of Â£326 million was up by 14% from Â£287 million in the first half of 2003, driven by increased new business in the US and improved experience variances in South Africa. Adjusted operating earnings per share on an achieved profits basis rose from 6.0p to 7.4p. Achieved profits equity shareholders' funds (adjusted for own shares held in policyholder funds and to bring listed Group subsidiaries to market value) of Â£4,380 million at 30 June 2004 increased by 9% from Â£4,015 million at 31 December 2003, benefiting from an improvement in the Rand exchange rate, an increase in the share price of Mutual & Federal and the impact of the Nedcor rights issue. The resultant adjusted embedded value per share increased to 114p from 105p. CAPITAL The Group's gearing level remains favourable, with senior debt gearing* at 30 June 2004 of 11% (15% at 31 December 2003) and total gearing*, including hybrid capital, of 17.5% (21.7% at 31 December 2003). Hybrid capital excludes hybrid debt from banking activities and comprises the $750 million of Guaranteed Cumulative Perpetual Preferred Securities issued during May 2003 that are reported as part of non-equity minority interests in the financial statements. The increased stake in Mutual & Federal and our participation in the Nedcor rights issue were funded from the Group's existing financial resources. We continue to monitor the potential implications of all new regulations including the Financial Groups Directive. Strong support from Old Mutual ensured that Nedcor's rights offer was a success, raising R5.2 billion and restoring Nedcor's capital base resulting in a capital adequacy ratio of 12.3% (10.1% at 31 December 2003). Operating and Financial Review Group Finance Director's Review continued The Group's investment in Mutual & Federal was increased to 88% as a result of the offer to acquire the outstanding minority interests, which resulted in acceptances representing 37% of Mutual & Federal's issued share capital. Mutual & Federal's solvency margin, being the ratio of net assets to net premiums, is anticipated to reduce to 43% following the payment of a special dividend in November. This remains comfortably above the minimum required to support current operations and facilitate the future growth of the business. The solvency ratios of the Group's major life businesses at 30 June 2004 remain well above the minimum statutory requirements, with South Africa's excess assets (before regulatory asset limitations) equivalent to 2.5 times the statutory minimum, and the US business in excess of 200% RBC requirement. In May 2004, Old Mutual plc raised a new Â£1.1 billion five-year syndicated revolving credit facility and at the same time retired a number of existing bank credit facilities. The new facility was undrawn at 30 June 2004. TAXATION The Group's effective tax rate (based on the tax charge as a proportion of adjusted operating profit) of 25% represents a decrease from 33% in the first half of 2003. The rate is primarily lower as a result of a lower effective tax rate at Nedcor, which reflects the decision to report certain transactional taxes as an expense in adjusted operating profit. The rate was also favourably affected by a reduction in Secondary Tax on Companies (Nedcor paid a scrip dividend this year) and by an increase in the proportion of low tax income earned relative to income taxed at the standard South African tax rate. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) We are continuing to make good progress towards the transition to IFRS across the Group by 1 January 2005. Our IFRS project, established in 2002, has now started focusing on the systems, process and reporting changes required for compliance with IFRS. The International Financial Reporting Standards that will have the most impact on the Group, in common with our peers, are those that deal with financial instruments and insurance and investment contracts. We are concerned by the uncertainty in accounting for financial instruments resulting from continued changes by the International Accounting Standards Board to IAS 39 and the fact that the European Commission is yet to endorse the standard. Until IAS 39 is endorsed, there remains considerable uncertainty as to the impact and timing of implementation. Operating and Financial Review Group Finance Director's Review continued DIVIDEND The Board has declared an interim dividend of 1.75p per share (2003: 1.7p), which will be paid on 30 November 2004 to shareholders on the register at the close of business on 22 October 2004. The equivalent of this dividend in the local currencies of South Africa, Malawi, Namibia and Zimbabwe will be determined by the Company on 7 October 2004 and will be announced to the markets on 8 October 2004. The Company's shares will trade ex-dividend from the opening of business on 18 October 2004 on the JSE Securities Exchange South Africa and the Malawi, Namibian and Zimbabwe Stock Exchanges, and from the opening of business on 20 October 2004 on the London Stock Exchange. The last dates to trade cum-dividend will therefore be 15 October 2004 in South Africa, Malawi, Namibia and Zimbabwe and 19 October 2004 in London. No dematerialisation or rematerialisation of shares within the South African STRATE system may take place between 18 October 2004 and 22 October 2004 (both dates inclusive). Julian V F Roberts Group Finance Director 10 August 2004 * Senior debt gearing is defined as senior debt over senior debt plus adjusted embedded value on an achieved profits basis. Senior debt excludes debt from banking activities and is net of cash and short term investments which are immediately available to repay debt. Total gearing is similarly based but includes hybrid capital instruments within debt. Independent Review Report by KPMG Audit Plc to Old Mutual plc Introduction We have been engaged by the Company to review the financial information set out on pages 14 to 49 and the supplementary financial information set out on pages 50 to 64 prepared on an achieved profits basis, and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/ 4: Review of interim financial information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2004. KPMG Audit Plc Chartered Accountants London 10 August 2004 Consolidated Profit and Loss Account for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 Notes (Restated)*** (Restated)*** Operating income Life assurance - gross written premiums 2,425 2,193 4,577 29,481 28,382 56,520 General insurance - gross written premiums 296 233 526 3,592 3,010 6,486 Asset management - total revenue 308 291 684 3,743 3,768 8,448 Banking - total operating income 552 568 1,107 6,705 7,348 13,671 Profit and loss account South Africa Technical result 148 123 253 1,801 1,592 3,124 Long term investment return 84 83 178 1,023 1,075 2,198 Life assurance 5(b)(iii) 232 206 431 2,824 2,667 5,322 Asset management 5(c) 14 18 53 156 233 656 Banking 5(d)(i) 33 74 (10) 401 959 (118) General insurance 5(e) 47 28 73 569 368 909 326 326 547 3,950 4,227 6,769 United States Life assurance 5(b)(iii) 43 39 86 522 505 1,062 Asset management 5(c) 44 37 81 544 479 1,000 87 76 167 1,066 984 2,062 United Kingdom & Rest of World Life assurance 5(b)(iii) 5 8 24 62 104 297 Asset management 5(c) 10 1 (4) 121 14 (48) Banking 5(d)(i) 22 27 4 263 349 48 37 36 24 446 467 297 450 438 738 5,462 5,678 9,128 Other shareholders' income /5(f) (expenses) (8) (13) (40) (97) (168) (494) Debt service costs (20) (30) (48) (243) (388) (593) Adjusted operating profit* 5(a) 422 395 650 5,122 5,122 8,041 Goodwill amortisation and 10 impairment (66) (47) (206) (802) (608) (2,544) Loss on disposal / write-down of investment in Dimension Data Holdings plc - (11) (5) - (136) (60) Restructuring and integration costs 5(d)(ii) (8) (10) (32) (94) (134) (394) Change in credit provisioning methodology 5(d)(iii) - (74) (87) - (963) (1,074) Fines and penalties 7 (49) - - (596) - - Short term fluctuations in investment return 6 (287) 125 143 (3,486) 1,618 1,767 Investment return adjustment for own shares held in policyholders' funds 5(b)(iv) (22) 14 12 (266) 181 148 Operating (loss)/ profit on ordinary activities before tax (10) 392 475 (122) 5,080 5,884 Non-operating items 9(b) 12 (13) (32) 149 (168) (404) Profit on ordinary activities before tax 2 379 443 27 4,912 5,480 Tax on profit on ordinary activities 8 (22) (191) (241) (267) (2,472) (2,976) (Loss) / profit on ordinary activities after tax (20) 188 202 (240) 2,440 2,504 Minority interests - equity 11(a) (13) 15 117 (158) 194 1,445 Minority interests - non-equity (29) (14) (46) (352) (181) (568) (Loss) / profit for the financial period (62) 189 273 (750) 2,453 3,381 Dividends paid and proposed 4 (60) (60) (166) (678) (741) (2,006) Retained (loss)/ profit for the financial period (122) 129 107 (1,428) 1,712 1,375 Consolidated Profit and Loss Account continued for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 Notes (Restated)*** (Restated)*** The adjusted operating profit on an after-tax and minority interest basis is determined as follows: Adjusted operating profit 422 395 650 5,122 5,122 8,041 Tax on adjusted operating profit 8 (106) (129) (224) (1,290) (1,673) (2,763) 316 266 426 3,832 3,449 5,278 Minority interests - equity 11(a) (31) (42) (7) (379) (538) (96) - non-equity (29) (14) (46) (352) (181) (568) Adjusted operating profit after tax and minority interests 256 210 373 3,101 2,730 4,614 Earnings per share p c Adjusted operating earnings per share* 3 6.8 5.6 10.0 82.7 73.4 123.8 Basic (loss) / earnings per share 3 (1.8) 5.6 8.0 (21.9) 72.1 99.1 Diluted (loss) / earnings per share 3 (1.8) 5.5 8.0 (21.9) 71.0 99.1 Dividend per share 4 1.75 1.70 4.8 19.8** 19.5 56.0 Adjusted weighted average number of shares - millions 3,745 3,717 3,727 3,745 3,717 3,727 Weighted average number of shares - millions 3,429 3,401 3,411 3,429 3,401 3,411 * Adjusted operating profit represents the directors' view of the underlying performance of the Group. For life assurance and general insurance businesses, adjusted operating profit is based on a long term investment return and includes investment return on own shares held in policyholders' funds. For banking business, adjusted operating profit excludes the loss on disposal / write down of investment in Dimension Data Holdings plc, restructuring and integration costs and the transitional impact of the change in credit provisioning methodology. For all businesses, adjusted operating profit excludes goodwill amortisation and impairment and fines and penalties. Adjusted operating earnings per share is similarly based, but is stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders' funds. The segmental analysis within the consolidated profit and loss account has been prepared after eliminating inter-segment results. Details of the total segmental results are set out in note 5. ** Indicative only - the actual amount of the dividend per share in Rand will be determined by reference to the exchange rate prevailing on 7 October 2004 and announced by the Company on 8 October 2004. *** Comparative figures for the six months ended 30 June 2003 have been restated to reflect the adoption of Urgent Issues Taskforce Abstracts 37 'Purchases and Sales of Own shares' and 38 'Accounting for ESOP Trusts' (UITF38). Comparative figures for the year ended 31 December 2003 have been restated to reflect the adoption of UITF38. Details of the changes are set out in notes 1, 3, 4 and 5(b)(iv). Consolidated Statement of Total Recognised Gains and Losses for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 Notes (Restated) (Restated) (Restated) (Restated) (Loss) / profit for the financial period (62) 189 273 (750) 2,453 3,381 Foreign exchange movements 98 139 176 (591) (1,918) (2,574) Total recognised gains and losses for the period 36 328 449 (1,341) 535 807 Prior period adjustment 1 109 1,301 Total recognised gains and losses since last annual report 145 (40) Reconciliation of Movements in Consolidated Equity Shareholders' Funds for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 Notes (Restated) (Restated) (Restated) (Restated) Total recognised gains and losses for the period 36 328 449 (1,341) 535 807 Dividends paid and proposed 4 (60) (60) (166) (678) (741) (2,006) (24) 268 283 (2,019) (206) (1,199) Issue of new capital - 37 37 - 479 457 Net sale of shares held in ESOP Trusts 3 2 6 31 21 76 Shares issued under employee incentive schemes 8 - 4 97 - 49 Net (decrease)/ increase to equity shareholders' funds (13) 307 330 (1,891) 294 (617) Equity shareholders' funds at the beginning of the period (originally Â£2,863 million (R34,175 million) before prior year adjustment of Â£109 million (R1,301 million)) 2,754 2,424 2,424 32,874 33,491 33,491 Equity shareholders' funds at the end of the period 2,741 2,731 2,754 30,983 33,785 32,874 Consolidated Balance Sheet at 30 June 2004 Â£m Rm At At At At At At 30 June 31 December 30 June 30 June 31 December 30 June 2004 2003 2003 2004 2003 2003 Notes (Restated) (Restated) (Restated) (Restated) Intangible assets Goodwill 10 1,229 1,264 1,552 13,892 15,088 19,198 Insurance and other assets Investments 24,582 23,433 21,415 277,868 279,712 264,886 Assets held to cover linked liabilities 6,141 5,860 4,716 69,416 69,949 58,333 5(g) 30,723 29,293 26,131 347,284 349,661 323,219 Reinsurers' share of technical provisions 384 374 385 4,341 4,465 4,762 Debtors 665 702 1,177 7,517 8,380 14,557 Other assets 659 607 778 7,449 7,244 9,628 Cash at bank and in hand 540 695 614 6,104 8,296 7,595 Prepayments and accrued income 868 738 683 9,812 8,809 8,448 Total insurance and other assets 33,839 32,409 29,768 382,507 386,855 368,209 Banking assets Cash and balances at central banks 1,045 1,025 760 11,812 12,235 9,401 Treasury bills and other eligible bills 845 888 1,566 9,552 10,600 19,370 Loans and advances to banks 1,178 2,092 1,467 13,316 24,972 18,146 Loans and advances to customers 16,263 15,136 14,679 183,832 180,674 181,567 Debt securities 1,493 1,420 886 16,876 16,952 10,959 Equity securities 342 317 411 3,866 3,784 5,084 Interest in associated undertakings 134 144 132 1,515 1,719 1,633 Other assets 2,684 2,758 1,858 30,339 32,923 22,981 Prepayments and accrued income 323 262 539 3,651 3,126 6,667 Total banking assets 24,307 24,042 22,298 274,759 286,985 275,808 Total assets 59,375 57,715 53,618 671,158 688,928 663,215 Consolidated Balance Sheet continued at 30 June 2004 Â£m Rm At At At At At At 30 June 31 December 30 June 30 June 31 December 30 June 2004 2003 2003 2004 2003 2003 Notes (Restated) (Restated) (Restated) (Restated) Capital and reserves Called up share capital 384 384 383 4,341 4,584 4,737 Share premium account 595 587 584 6,726 7,007 7,224 Merger reserve 184 184 184 2,080 2,196 2,276 Profit and loss account 1,979 2,000 1,981 21,744 22,995 23,456 Reserve in respect of own shares held in policyholders' funds (401) (401) (401) (3,908) (3,908) (3,908) Equity shareholders' funds 2,741 2,754 2,731 30,983 32,874 33,785 Minority interests Equity 11(a) 815 652 795 9,213 7,783 9,834 Non-equity 11(b) 666 658 606 7,528 7,854 7,492 1,481 1,310 1,401 16,741 15,637 17,326 Subordinated liabilities - 15 17 - 179 210 Insurance and other liabilities Technical provisions 22,389 21,157 19,381 253,079 252,545 239,727 Technical provisions for linked liabilities 6,141 5,860 4,716 69,416 69,949 58,333 Provisions for other risks and charges 485 551 575 5,482 6,576 7,112 Creditors 2,506 2,287 2,607 28,327 27,292 32,250 Amounts owed to credit institutions 12 359 377 497 4,063 4,501 6,147 Convertible loan stock 13(a) 351 357 385 3,968 4,261 4,762 Accruals and deferred income 114 135 140 1,289 1,611 1,732 Total insurance and other liabilities 32,345 30,724 28,301 365,624 366,735 350,063 Banking liabilities Deposits by banks 1,698 4,381 3,348 19,194 52,295 41,412 Customer accounts 15,773 13,976 14,057 178,293 166,827 173,874 Debt securities in issue 1,615 468 1,111 18,255 5,586 13,742 Other liabilities 3,030 3,200 1,947 34,250 38,199 24,083 Provision for liabilities and charges 29 229 103 328 2,732 1,274 Subordinated liabilities 654 648 588 7,393 7,745 7,273 Convertible loan stock 13(b) 9 10 14 97 119 173 Total banking liabilities 22,808 22,912 21,168 257,810 273,503 261,831 Total liabilities 59,375 57,715 53,618 671,158 688,928 663,215 Consolidated Cash Flow Statement for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 Net cash (outflow) / inflow from operating activities (117) (631) 237 (1,422) (8,164) 2,925 Net cash outflow from returns on investments and servicing of finance (including dividends paid to minority interests) (50) (61) (128) (608) (790) (1,580) Total tax paid (137) (90) (174) (1,665) (1,165) (2,149) Net cash inflow from capital expenditure and financial investment 58 64 227 705 829 2,804 Net cash (outflow)/inflow from acquisitions and disposals (66) (23) 83 (802) (298) 1,025 Equity dividends paid (115) (114) (178) (1,398) (1,476) (2,198) Net cash inflow from financing activities 124 165 231 1,507 2,136 2,851 Net cash (outflow)/inflow excluding long term business (303) (690) 298 (3,683) (8,928) 3,678 Cash flows relating to insurance and other activities were invested as follows: (Decrease) / increase in cash holdings (153) 102 36 (1,859) 1,320 445 (Decrease) / increase in net portfolio investments (115) (233) 616 (1,399) (3,016) 7,605 (268) (131) 652 (3,258) (1,696) 8,050 Cash flows relating to banking activities were invested as follows: Decrease in cash and balances at central banks (35) (559) (354) (425) (7,232) (4,372) Net cash (outflow)/inflow excluding long term business (303) (690) 298 (3,769) (8,928) 3,678 Reconciliation of operating profit to operating cash flow Operating profit/(loss) from insurance and other activities (47) 384 690 (571) 4,978 8,521 Operating profit/(loss) from banking activities (5) (6) (144) (61) (79) (1,778) Operating (loss)/profit on ordinary activities before tax (52) 378 546 (632) 4,899 6,743 Unrealised investment(gains)/ losses 150 (185) (161) 1,823 (2,395) (1,988) Other insurance and other activities non cash flow items 146 (246) 387 1,775 (3,185) 4,779 Other banking non cash flow items (361) (578) (535) (4,388) (7,483) (6,609) Net cash (outflow)/inflow from operating activities (117) (631) 237 (1,422) (8,164) 2,925 The cash flows presented in this statement exclude all cash flows relating to policyholders' funds for the long term business. Notes to the Financial Statements for the six months ended 30 June 2004 1 BASIS OF PREPARATION AND CHANGE IN ACCOUNTING POLICY The results for the six months to 30 June 2004 and the position at that date have been prepared using accounting policies consistent with those used in the Group 2003 Annual Report except for: â€¢ the adoption of Urgent Issues Task Force (UITF) Abstract 38 'Accounting for ESOP Trusts', the effects of which are described below. â€¢ the adoption of the Statement of Recommended Practice on 'Accounting for Insurance Business' issued by the Association of British Insurers in November 2003 ('ABI SORP') (previously December 1998 version), the implementation of which does not impact the interim financial statements. The results of the Group's banking operations have been prepared in accordance with the British Bankers' Association Statements of Recommended Practice on Advances (1997), Securities (1990), Derivatives (2001), Contingent Liabilities and Commitments (1996) and Segmental Reporting (1993). Comparative figures have been restated to reflect the adoption of UITF Abstract 38 'Accounting for ESOP Trusts'. This abstract requires that Group's holdings in own shares held by Employee Share Ownership Trusts (ESOPs) be accounted for as a deduction from shareholders' funds (profit and loss account) rather than recorded as an asset. In addition, purchases and sales of such own shares should be shown as changes in shareholders' funds such that no profit or loss is recognised. In the majority of cases, the ESOP Trusts have waived their rights to dividends such that there is no impact on operating profit after tax. The reductions in equity shareholders' funds at 30 June 2004, 31 December 2003 and 30 June 2003 were Â£113 million (R1,270 million), Â£109 million (R1,301 million) and Â£110 million (R1,356 million) respectively, representing the original cost of these shares. In the second half of 2003 the Group adopted UITF Abstract 37 'Purchases and Sales of Own Shares'. As a result, shares of the Company held by the Group's long term policyholders' funds were accounted for as deduction from equity rather than as an asset and the investment return earned and dividends paid on these shares were no longer shown in the profit and loss account. The 30 June 2003 comparative figures have been restated to reflect the adoption of this Abstract. For the six months ended 30 June 2003, operating profit after tax increased by Â£14 million (R181 million) and dividends paid have been restated to exclude dividends in respect of own shares, resulting in an overall increase in retained profit of Â£18 million (R232 million). Basic earnings per share have been restated to reflect a reduction in the weighted average number of shares in issue of 316 million. At 30 June 2003, the reduction in equity shareholders' funds was Â£267 million (R3,303 million). Full details of the changes are set out in notes 3, 4 and 5(b)(iv). The results for the six months ended 30 June 2004 and 2003 are unaudited, but have been reviewed by the auditors whose report is presented on page 13. The auditors have reported on the statutory accounts for the year ended 31 December 2003 and the accounts have been delivered to the Registrar of Companies. The auditors' report in respect of the year ended 31 December 2003 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. Notes to the Financial Statements continued for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 Profit and loss account (average rate) 12.1544 12.9459 12.3487 1.8222 1.6110 1.6354 Balance sheet (closing rate) 11.3037 12.3692 11.9367 1.8144 1.6528 1.7833 3 EARNINGS AND EARNINGS PER SHARE Basic earnings per share is calculated based upon the profit after tax attributable to equity shareholders. 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. For life assurance and general insurance businesses, adjusted operating profit is based on a long term investment return and includes investment return on own shares held in policyholders' funds. For banking business, adjusted operating profit excludes the loss on disposal / write down of investment in Dimension Data Holdings plc, restructuring and integration costs and the transitional impact of the change in credit provisioning methodology. For all businesses, adjusted operating profit excludes goodwill amortisation and impairment and fines and penalties. Adjusted operating earnings per shares is similarly based, but is stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders' funds. Notes to the Financial Statements continued for the six months ended 30 June 2004 3 EARNINGS AND EARNINGS PER SHARE continued A table reconciling operating profit on ordinary activities after tax and minority interests to adjusted operating profit after tax and minority interests is set out below. 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 2004 2003 2003 2004 2003 2003 Notes (Restated) (Restated) (Loss) / profit on ordinary activities after tax and minority interests (62) 189 273 (750) 2,453 3,381 Goodwill amortisation and impairment net of minority interests 47 40 128 571 518 1,581 Loss on disposal/ write-down of investment in Dimension Data Holdings plc net of minority interests - 6 3 - 78 30 Restructuring and integration costs net of tax and minority interests 5(d)(ii) 3 5 13 34 69 160 Change in credit provisioning methodology net of tax and minority interests 5(d)(iii) - 24 31 - 311 376 Fines and penalties net of tax 7 41 - - 499 - - Short term fluctuations in investment returns net of tax and minority interests 211 (55) (95) 2,563 (712) (1,170) Investment return adjustment for own shares held in policyholders' funds 5(b)(iv) 22 (14) (12) 266 (181) (148) Non-operating items net of tax and minority interests 9 (6) 15 32 (82) 194 404 Adjusted operating profit after tax and minority interests 256 210 373 3,101 2,730 4,614 p c Basic (loss)/earnings per share (1.8) 5.6 8.0 (21.9) 72.1 99.1 Impact of exclusion of own shares held in policyholders' funds on weighted average number of shares 0.1 (0.5) (0.7) 1.9 (6.1) (8.4) (1.7) 5.1 7.3 (20.0) 66.0 90.7 Goodwill amortisation and impairment net of minority interests 1.3 1.1 3.4 15.2 13.9 42.4 Loss on disposal/ write-down of investment in Dimension Data Holdings plc net of minority interests - 0.2 0.1 - 2.1 0.8 Restructuring and integration costs net of tax and minority interests 0.1 0.1 0.3 0.9 1.9 4.3 Change in credit provisioning methodology net of tax and minority interests - 0.6 0.8 - 8.4 10.1 Fines and penalties net of tax 1.1 - - 13.3 - - Short term fluctuations in investment returns net of tax and minority interests 5.6 (1.5) (2.5) 68.4 (19.2) (31.3) Investment return adjustment for own shares held in policyholders' funds 0.6 (0.4) (0.3) 7.1 (4.9) (4.0) Non-operating items net of tax and minority interests (0.2) 0.4 0.9 (2.2) 5.2 10.8 Adjusted operating earnings per share after tax and minority interests 6.8 5.6 10.0 82.7 73.4 123.8 Notes to the Financial Statements continued for the six months ended 30 June 2004 3 EARNINGS AND EARNINGS PER SHARE continued Basic loss per share is calculated by reference to the loss on ordinary activities after tax and minority interests of Â£62 million (R750 million) for the six months ended 30 June 2004 (June 2003 (restated): profit of Â£189 million (R2,453 million); December 2003: profit of Â£273 million (R3,381 million)) and a weighted average number of shares in issue of 3,429 million (June 2003 (restated): 3,401 million; December 2003: 3,411 million). The weighted average number of shares is calculated as follows: millions At At At 30 June 30 June 31 December 2004 2003 2003 (Restated) Total weighted average number of shares in issue 3,840 3,814 3,824 Shares held in ESOP Trusts (95) (97) (97) Adjusted weighted average number of shares 3,745 3,717 3,727 Shares held in policyholders' funds (316) (316) (316) Weighted average number of shares 3,429 3,401 3,411 In accordance with UITF Abstract 37 'Purchases and Sales of Own Shares', shares in the Company held in policyholders' funds are not included in the weighted average number of shares used in basic earnings per share calculations. No adjustment is required for UITF Abstract 38 'Accounting for ESOP Trusts' as the shares in the Company held in ESOP Trusts have already been excluded from the calculation as, in the majority of cases, the ESOP Trusts have waived their rights to dividends on these shares. The diluted earnings per share calculation reflects the impact of the potential issue of shares in respect of ESOP Trusts and the US Dollar Guaranteed Convertible Bond. Notes to the Financial Statements continued for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 (Restated) (Restated) 2004 interim dividend proposed: 1.75p (19.8c*) 60 - - 678 - - 2003 final dividend paid: 3.1p (36.5c) - - 106 - - 1,265 2003 interim dividend paid: 1.7p (19.5c) - 60 60 - 741 741 60 60 166 678 741 2,006 Provision has been made for an interim dividend of 1.75p (19.8c*) per share calculated using the number of shares in issue at 30 June 2004 of 3,849 million less 95 million shares in Employee Share Ownership Plans and 316 million shares held in policyholders' funds of Group companies. The dividend will be paid on 30 November 2004 to all shareholders on the register at the close of business on 17 October 2004, 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. As described in note 1, in accordance with UITF Abstract 37 'Purchases and Sales of Own Shares', dividends paid have been restated to exclude dividends on shares in the Company held in policyholders' funds. * Indicative only - the actual amount of the dividend per share in Rand will be determined by reference to the exchange rate prevailing on 7 October 2004 and announced by the Company on 8 October 2004. Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS 5(a) Summary of operating profit Notes Â£m Rm on ordinary activities before tax South United UK & South United UK & Africa States Rest Africa States Rest of of World Total World Total 6 months to 30 June 2004 Life assurance 5(b)(iii) Total segmental result 234 40 4 278 2,848 486 50 3,384 Inter-segment result (2) 3 1 2 (24) 36 12 24 Result from third parties 232 43 5 280 2,824 522 62 3,408 Asset management 5(c) Total segmental result 21 47 8 76 241 580 97 918 Inter-segment result (7) (3) 2 (8) (85) (36) 24 (97) Result from third parties 14 44 10 68 156 544 121 821 Banking 5(d)(i) Total segmental result 27 - 22 49 328 - 263 591 Inter-segment result 6 - - 6 73 - - 73 Result from third parties 33 - 22 55 401 - 263 664 General insurance business 5(e) 47 - - 47 569 - - 569 Other shareholders' income / (expenses) 5(f) 1 - (9) (8) 12 - (109) (97) Debt service costs (2) - (18) (20) (24) - (219) (243) Adjusted operating profit 325 87 10 422 3,938 1,066 118 5,122 Goodwill amortisation and impairment 10 (39) (26) (1) (66) (474) (316) (12) (802) Restructuring and integration costs 5(d)(ii) (8) - - (8) (94) - - (94) Fines and penalties 7 - (49) - (49) - (596) - (596) Short term fluctuations in investment return 6 (85) (201) (1) (287) (1,032)(2,443) (11) (3,486) Investment return adjustment for own shares held in policyholders' funds 5(b)(iv) (22) - - (22) (266) - - (266) Operating (loss) / profit on ordinary activities before tax 171 (189) 8 (10) 2,072 (2,289) 95 (122) Analysed as: Life assurance 143 (160) 4 (13) 1,744 (1,945) 51 (150) Asset management 14 (29) 9 (6) 156 (344) 109 (79) Banking (13) - 22 9 (155) - 263 108 General insurance business 28 - - 28 339 - - 339 Other shareholders' income / (expenses) 1 - (9) (8) 12 - (109) (97) Debt service costs (2) - (18) (20) (24) - (219) (243) Operating (loss) / profit on ordinary activities before tax 171 (189) 8 (10) 2,072 (2,289) 95 (122) Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(a) Summary of operating profit Notes Â£m Rm on ordinary activities before tax South United UK & South United UK & Africa States Rest Africa States Rest of of World Total World Total 6 months to 30 June 2003 (restated) 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 business 5(e) 28 - - 28 368 - - 368 Other shareholders' income / (expenses) 5(f) 2 - (15) (13) 26 - (194) (168) Debt service costs - - (30) (30) - - (388) (388) Adjusted operating profit 328 76 (9) 395 4,253 984 (115) 5,122 Goodwill amortisation 10 (13) (29) (5) (47) (167) (376) (65) (608) Write-down of investment in Dimension Data Holdings plc (11) - - (11) (136) - - (136) Restructuring and integration 5(d)(ii) costs (10) - - (10) (134) - - (134) Change in credit provisioning 5(d)(iii) methodology (74) - - (74) (963) (963) Short term fluctuations in investment return 6 (168) 303 (10) 125 (2,175) 3,922 (129) 1,618 Investment return adjustment for own shares held in policyholders' funds 5(b)(iv) 14 - - 14 181 - - 181 Operating profit / (loss) on ordinary activities before tax 66 350 (24) 392 859 4,530 (309) 5,080 Analysed as: Life assurance 72 340 8 420 932 4,401 104 5,437 Asset management 18 10 (4) 24 233 129 (51) 311 Banking (33) - 27 (6) (428) - 349 (79) General insurance business 7 - - 7 96 - - 96 Other shareholders' income / (expenses) 2 - (25) (23) 26 - (323) (297) Debt service costs - - (30) (30) - - (388) (388) Operating profit / (loss) on ordinary activities before tax 66 350 (24) 392 859 4,530 (309) 5,080 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued (a) Summary of operating profit on ordinary activities before tax continued Â£m Rm South United UK & Rest South United UK & Rest Notes Africa States of World Total Africa States of World Total Year to 31 December 2003 Life assurance 5(b)(iii) 431 86 24 541 5,322 1,062 297 6,681 Asset management 5(c) 53 81 (4) 130 656 1,000 (48) 1,608 Banking 5(d)(i) (10) - 4 (6) (118) - 48 (70) General insurance business 5(e) 73 - - 73 909 - - 909 Other shareholders' income/(expenses) 5(f) - - (40) (40) - - (494) (494) Debt service costs (4) - (44) (48) (49) - (544) (593) Adjusted operating profit 543 167 (60) 650 6,720 2,062 (741) 8,041 Goodwill amortisation and impairment 10 (140) (57) (9) (206) (1,729) (703) (112) (2,544) Loss on disposal of investment in Dimension Data Holdings plc (5) - - (5) (60) - - (60) Restructuring and integration costs 5(d)(ii) (32) - - (32) (394) - - (394) Change in credit provisioning methodology 5(d)(iii) (87) - - (87) (1,074) - - (1,074) Short term fluctuations in investment return 6 (37) 196 (16) 143 (457) 2,420 (196) 1,767 Investment return adjustment for own shares held in policyholders' funds 5(b)(iv) 12 - - 12 148 - - 148 Operating profit/((loss) on ordinary activities before tax 254 306 (85) 475 3,154 3,779 (1,049) 5,884 Analysed as: Life assurance 402 278 12 692 4,964 3,433 149 8,546 Asset management 53 28 (13) 68 656 346 (159) 843 Banking (272) - 4 (268) (3,350) - 48 (3,302) General insurance business 75 - - 75 933 - - 933 Other shareholders' income / (expenses) - - (44) (44) - - (543) (543) Debt service costs (4) - (44) (48) (49) - (544) (593) Operating profit/(loss) on ordinary activities before tax 254 306 (85) 475 3,154 3,779 (1,049) 5,884 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(b) Life assurance Â£m Rm 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 2004 Individual business Single 295 1,131 58 1,484 3,580 13,747 711 18,038 Recurring 449 94 26 569 5,460 1,143 313 6,916 744 1,225 84 2,053 9,040 14,890 1,024 24,954 Group business Single 210 - 7 217 2,547 - 92 2,639 Recurring 147 - 8 155 1,790 - 98 1,888 357 - 15 372 4,337 - 190 4,527 1,101 1,225 99 2,425 13,377 14,890 1,214 29,481 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 Year to 31 December 2003 Individual business Single 563 1,815 87 2,465 6,952 22,413 1,074 30,439 Recurring 833 186 51 1,070 10,286 2,297 630 13,213 1,396 2,001 138 3,535 17,238 24,710 1,704 43,652 Group business Single 715 - 20 735 8,829 - 247 9,076 Recurring 294 - 13 307 3,631 - 161 3,792 1,009 - 33 1,042 12,460 - 408 12,868 2,405 2,001 171 4,577 29,698 24,710 2,112 56,520 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(b) Life assurance continued Â£m Rm South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total (ii) Gross new business premiums written 6 months to 30 June 2004 Individual business Single 295 1,131 58 1,484 3,580 13,747 711 18,038 Recurring 70 25 4 99 848 304 46 1,198 365 1,156 62 1,583 4,428 14,051 757 19,236 Group business Single 210 - 7 217 2,547 - 92 2,639 Recurring 8 - 1 9 93 - 17 110 218 - 8 226 2,640 - 109 2,749 Total gross new business premiums written 583 1,156 70 1,809 7,068 14,051 866 21,985 Annual premium equivalent 129 138 12 279 1,554 1,679 143 3,376 Annual premium equivalent is defined as one tenth of single premiums plus recurring premiums. 6 months to 30 June 2003 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 Total gross new business premiums written 685 914 55 1,654 8,856 11,833 713 21,402 Annual premium equivalent 139 128 11 278 1,793 1,661 142 3,596 Year to 31 December 2003 Individual business Single 563 1,815 87 2,465 6,952 22,413 1,074 30,439 Recurring 158 76 7 241 1,951 939 86 2,976 721 1,891 94 2,706 8,903 23,352 1,160 33,415 Group business Single 715 - 20 735 8,829 - 247 9,076 Recurring 18 - 3 21 222 - 37 259 733 - 23 756 9,051 - 284 9,335 Total gross new business premiums written 1,454 1,891 117 3,462 17,954 23,352 1,444 42,750 Annual premium equivalent 304 258 21 583 3,751 3,180 255 7,186 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(b) Life assurance continued Â£m Rm 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 2004 Individual business 103 40 1 144 1,252 486 15 1,753 Group business 47 - 1 48 573 - 14 587 Technical result 150 40 2 192 1,825 486 29 2,340 Long term investment return 84 - 2 86 1,023 - 21 1,044 Total segmental result 234 40 4 278 2,848 486 50 3,384 Inter-segment result (2) 3 1 2 (24) 36 12 24 Adjusted operating profit 232 43 5 280 2,824 522 62 3,408 Total segmental result includes administration fees paid to / received from other Group life companies and investment management fees paid to the Group's asset management companies in respect of shareholders' funds. 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 return 83 - 2 85 1,075 - 26 1,101 Adjusted operating profit 206 39 8 253 2,667 505 104 3,276 Year to 31 December 2003 Individual business 183 86 17 286 2,260 1,062 210 3,532 Group business 70 - 2 72 864 - 25 889 Technical result 253 86 19 358 3,124 1,062 235 4,421 Long term investment return 178 - 5 183 2,198 - 62 2,260 Adjusted operating profit 431 86 24 541 5,322 1,062 297 6,681 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 2004 2003 2003 2004 2003 2003 (iv) Investment return adjustment for own shares held in policyholders' funds Dividend income 9 9 14 109 117 173 Unrealised gains/(losses) on investment in own shares 13 (23) (26) 157 (298) (321) Net investment losses 22 (14) (12) 266 (181) (148) In accordance with UITF 37 'Sales and purchases of Own Shares', the net investment return on shares in the Company held by policyholders' funds and shown above are not included within statutory operating profit. However, as described in note 3 above, the investment return for own shares held in policyholders' funds is included within the Group's adjusted operating profit. Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(c)(i) Asset management Â£m Rm Adjusted Adjusted operating operating Revenue Expenses profit Revenue Expenses profit 6 months to 30 June 2004 South Africa Fund management Old Mutual Asset Managers 20 (12) 8 243 (147) 96 Old Mutual Unit Trusts 10 (8) 2 122 (105) 17 Other 8 (7) 1 97 (82) 15 Other financial services 22 (14) 8 267 (178) 89 60 (41) 19 729 (512) 217 Nedcor Unit Trusts and Portfolio Management 21 (19) 2 255 (231) 24 81 (60) 21 984 (743) 241 US asset management 177 (130) 47 2,152 (1,572) 580 UK & Rest of World Fund management 24 (16) 8 292 (194) 98 Selestia investment platform 3 (6) (3) 36 (73) (37) Other financial services 7 (12) (5) 85 (146) (61) Nedcor Unit Trusts and Portfolio 27 (19) 8 328 (231) 97 Management 61 (53) 8 741 (644) 97 Total segmental result 319 (243) 76 3,877 (2,959) 918 Inter-segment result South Africa (8) 1 (7) (97) 12 (85) US asset management (3) - (3) (36) - (36) UK & Rest of World - 2 2 - 24 24 (11) 3 (8) (133) 36 (97) Adjusted operating profit South Africa 73 (59) 14 887 (731) 156 US asset management 174 (130) 44 2,116 (1,572) 544 UK & Rest of World 61 (51) 10 741 (620) 121 308 (240) 68 3,744 (2,923) 821 Total segmental result includes Â£6m (R73 million) in relation to interest received on short-term funding provided to the Group's banking subsidiary. The remainder of the inter-segment elimination represents investment management fees paid to/ received from the Group's life assurance companies and other asset management companies. Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(c)(i) Asset management continued 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 Other financial services 24 (16) 8 311 (207) 104 54 (36) 18 700 (467) 233 US asset management 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 Selestia investment platform 3 (8) (5) 39 (99) (60) Other financial services 4 (6) (2) 52 (82) (30) 78 (77) 1 1,010 (996) 14 291 (235) 56 3,768 (3,042) 726 Year to 31 December 2003 South Africa Fund management Old Mutual Asset Managers 33 (20) 13 408 (247) 161 Old Mutual Unit Trusts 21 (13) 8 259 (161) 98 Other 16 (12) 4 198 (148) 50 Other financial services 42 (24) 18 519 (296) 223 112 (69) 43 1,384 (852) 532 Nedcor Unit Trusts and Portfolio Management 36 (26) 10 445 (321) 124 148 (95) 53 1,829 (1,173) 656 US asset management 347 (266) 81 4,285 (3,285) 1,000 UK & Rest of World Fund management 43 (35) 8 531 (432) 99 Private client - Gerrard 91 (83) 8 1,124 (1,025) 99 Selestia investment platform 3 (10) (7) 37 (123) (86) Other financial services 10 (24) (14) 123 (296) (173) Nedcor Unit Trusts and Portfolio Management 42 (41) 1 519 (506) 13 189 (193) (4) 2,334 (2,382) (48) 684 (554) 130 8,448 (6,840) 1,608 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(c)(ii) US asset management 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 2004 2003 2003 2004 2003 2003 Revenue Investment management fees 153 145 304 1,860 1,880 3,754 Transaction, performance and other fees 24 14 43 292 178 531 177 159 347 2,152 2,058 4,285 Expenses Remuneration 56 58 117 681 755 1,445 Other expenses 74 64 149 891 824 1,840 130 122 266 1,572 1,579 3,285 47 37 81 580 479 1,000 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(d) Banking Â£m Rm South UK & Rest South UK & Rest Africa of World Total Africa of World Total (i) Banking adjusted operating profit 6 months to 30 June 2004 Interest receivable 917 59 976 11,146 717 11,863 Interest payable (647) (37) (684) (7,864) (450) (8,314) Net interest income 270 22 292 3,282 267 3,549 Dividend income 4 - 4 49 - 49 Fees and commissions receivable 202 12 214 2,455 146 2,601 Fees and commissions payable (20) (2) (22) (243) (28) (271) Net other operating income 55 9 64 668 109 777 Total operating income 511 41 552 6,211 494 6,705 Specific and general provisions charge (58) (1) (59) (705) (12) (717) Net income 453 40 493 5,506 482 5,988 Operating expenses (431) (19) (450) (5,239) (231) (5,470) 22 21 43 267 251 518 Share of associated undertakings' profit 5 1 6 61 12 73 Total segmental result 27 22 49 328 263 591 Inter-segment result 6 - 6 73 - 73 Adjusted operating profit 33 22 55 401 263 664 Total segmental result includes Â£6 million (R73 million) in relation to inter-company interest payable for short term funding now repaid. 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 receivable 196 5 201 2,537 65 2,602 Fees and commissions payable (5) (1) (6) (65) (13) (78) Net 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 provisions charge (69) - (69) (893) - (893) 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 undertakings' profit 1 4 5 13 57 70 Adjusted operating profit 74 27 101 959 349 1,308 Notes to the Financial Statements continued for the six months ended 30 June 2004 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 2003 Interest receivable 2,156 114 2,270 26,619 1,411 28,030 Interest payable (1,643) (80) (1,723) (20,295) (981) (21,276) Net interest income 513 34 547 6,324 430 6,754 Dividend income 12 - 12 150 2 152 Fees and commissions receivable 396 19 415 4,891 229 5,120 Fees and commissions payable (36) (2) (38) (445) (28) (473) Net other operating income 157 14 171 1,946 172 2,118 Total operating income 1,042 65 1,107 12,866 805 13,671 Specific and general provisions charge (232) (2) (234) (2,868) (18) (2,886) Net income 810 63 873 9,998 787 10,785 Operating expenses (824) (65) (889) (10,169) (807) (10,976) (14) (2) (16) (171) (20) (191) Share of associated undertakings' profit 4 6 10 53 68 121 Adjusted operating (loss) / profit (10) 4 (6) (118) 48 (70) Operating expenses includes translation losses of Â£18 million (R213 million) (June 2003: Â£51 million (R658 million); December 2003: Â£110 million (R1,356 million)). 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 2004 2003 2003 2004 2003 2003 (ii) Restructuring and integration costs Costs before tax and minority interests 8 10 32 94 134 394 Tax (2) - (6) (27) - (74) Costs after tax and before minority interests 6 10 26 67 134 320 Minority interests (3) (5) (13) (33) (65) (160) Costs after tax and minority interests 3 5 13 34 69 160 Restructuring and integration costs incurred in connection with the acquisition of BoE by Nedcor Limited have been excluded from adjusted operating profit. Notes to the Financial Statements continued for the six months ended 30 June 2004 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 2004 2003 2003 2004 2003 2003 (iii) Change in credit provisioning methodology Charge before tax and minority interests - 74 87 - 963 1,074 Tax - (22) (26) - (289) (322) Charge after tax and before minority interests - 52 61 - 674 752 Minority interests - (28) (30) - (363) (376) Charge after tax and minority interests - 24 31 - 311 376 During 2003, 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 future cash flows on advances is acceptable under UK GAAP reporting and was therefore adopted in preparation of the Group's 2003 financial statements, resulting in a one-off increase in opening specific provisions due to the discounting effect. Further investigation of the transitional adjustment following publication of the 2003 interim results resulted in an increased charge of Â£9 million (R111 million) that was recognised in the second half of 2003. 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 2004 5 SEGMENTAL ANALYSIS continued 5(e) General insurance business Â£m Rm 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 2004 Commercial 105 64 14 1,276 776 175 Corporate 9 5 1 109 63 14 Personal lines 116 82 5 1,410 999 54 Risk financing 28 17 2 340 205 23 258 168 22 3,135 2,043 266 Long term investment return 25 303 47 569 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 Year to 31 December 2003 Commercial 185 123 17 2,284 1,516 216 Corporate 17 13 (1) 210 156 (15) Personal lines 206 150 6 2,543 1,853 75 Risk financing 52 36 4 637 442 53 460 322 26 5,674 3,967 329 Long term investment return 47 580 73 909 Â£m Rm 6 months to 6 months to Year to 6 months to 6 months to Year to 5(f) Other shareholders'income/ 30 June 30 June 31 December 30 June 30 June 31 December (expenses) 2004 2003 2003 2004 2003 2003 Interest receivable 4 1 6 49 13 74 Net other income / 7 1 (5) 85 13 (62) (expenses) Net corporate (19) (15) (41) (231) (194) (506) expenses Other shareholders' (8) (13) (40) (97) (168) (494) income / (expenses) Net corporate expenses include Â£2 million (R24 million) (June 2003: Â£1 million (R12 million); December 2003: Â£5 million (R62 million)) in connection with the International Financial Reporting Standards conversion project. Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(g) Funds under management Â£m Rm South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total At 30 June 2004 Investments including assets held to cover linked liabilities 18,937 9,477 2,309 30,723 214,059 107,125 26,100 347,284 SA asset management Fund management Old Mutual Asset Managers 6,318 - - 6,318 71,417 - - 71,417 Old Mutual Unit Trusts 351 - - 351 3,968 - - 3,968 6,669 - - 6,669 75,385 - - 75,385 Other financial services 803 - - 803 9,077 - - 9,077 Nedcor Unit Trusts 974 - - 974 11,010 - - 11,010 Nedcor Portfolio Management 2,970 - - 2,970 33,572 - - 33,572 11,416 - - 11,416 129,044 - - 129,044 US asset management - 75,559 5,761 81,320 - 854,096 65,121 919,217 UK & Rest of World asset management Fund management - - 2,063 2,063 - - 23,320 23,320 Selestia investment platform - - 350 350 - - 3,956 3,956 Other financial services - - 281 281 - - 3,176 3,176 Nedcor Unit Trusts - - 539 539 - - 6,093 6,093 Nedcor Portfolio Management - - 3,264 3,264 - - 36,895 36,895 - - 6,497 6,497 - - 73,440 73,440 Total funds under management 30,353 85,036 14,567 129,956 343,103 961,221 164,661 1,468,985 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(g) Funds under management continued Â£m Rm South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total At 30 December 2003 Investments including assets held to cover linked liabilities 19,437 8,317 1,539 29,293 232,012 99,278 18,371 349,661 SA asset management Fund management Old Mutual Asset Managers 5,378 - - 5,378 64,196 - - 64,196 Old Mutual Unit Trusts 293 - - 293 3,497 - - 3,497 5,671 - - 5,671 67,693 - - 67,693 Other financial services 697 - - 697 8,320 - - 8,320 Nedcor Unit Trusts 865 - - 865 10,325 - - 10,325 Nedcor Portfolio Management 2,771 - - 2,771 33,077 - - 33,077 10,004 - - 10,004 119,415 - - 119,415 US asset management - 72,532 5,895 78,427 - 865,793 70,367 936,160 UK & Rest of World asset management Fund management - - 2,027 2,027 - - 24,196 24,196 Selestia investment platform - - 213 213 - - 2,543 2,543 Other financial services - - 345 345 - - 4,118 4,118 Nedcor Unit Trusts - - 707 707 - - 8,439 8,439 Nedcor Portfolio Management - - 4,210 4,210 - - 50,254 50,254 7,502 7,502 - - 89,550 89,550 Total funds under management 29,441 80,849 14,936 125,226 351,427 965,071 178,288 1,494,786 Notes to the Financial Statements continued for the six months ended 30 June 2004 5 SEGMENTAL ANALYSIS continued 5(g) Funds under management continued Â£m Rm South United UK & Rest South United UK & Rest Africa States of World Total Africa States of World Total At 30 June 2003 (restated) Investments including assets held to cover linked liabilities 16,011 7,823 2,297 26,131 198,043 96,764 28,412 323,219 SA asset management Fund management Old Mutual Asset Managers 4,613 - - 4,613 57,063 - - 57,063 Old Mutual Unit Trusts 177 - - 177 2,186 - - 2,186 4,790 - - 4,790 59,249 - - 59,249 Other financial services 318 - - 318 3,933 - - 3,933 Nedcor Unit Trusts 335 - - 335 4,144 - - 4,144 Nedcor Portfolio Management 2,748 - - 2,748 33,991 - - 33,991 8,191 - - 8,191 101,317 - - 101,317 US asset management - 68,929 5,781 74,710 - 852,597 71,506 924,103 UK & Rest of World asset management Fund management - - 1,889 1,889 - - 23,365 23,365 Other financial services - - 287 287 - - 3,550 3,550 Nedcor Unit Trusts - - 729 729 - - 9,017 9,017 Nedcor Portfolio Management - - 3,805 3,805 - - 47,065 47,065 - - 6,710 6,710 - - 82,997 82,997 UK Private Client - Gerrard - - 11,992 11,992 - - 148,331 148,331 Total funds under management 24,202 76,752 26,780 127,734 299,360 949,361 331,246 1,579,967 Notes to the Financial Statements continued for the six months ended 30 June 2004 6 INSURANCE LONG TERM INVESTMENT RETURN ON SHAREHOLDERS' FUNDS 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 business, 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 2004 2003 2003 South Africa and Namibia long term and general insurance businesses - weighted average return 13.0% 13.4% 13.4% Equities 14.0% 14.0% 14.0% Cash and other investible assets - Rand denominated 12.5% 12.5% 12.5% Cash and other investible assets - other currencies 9.0% 9.0% 9.0% United States 6.09% 6.04% 6.04% 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. Analysis of short term fluctuations in investment return 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 2004 2003 2003 2004 2003 2003 Life assurance Actual investment return attributable to shareholders (183) 240 326 (2,224) 3,107 4,026 Long term investment return credited to operating result 86 85 183 1,044 1,101 2,260 (269) 155 143 (3,268) 2,006 1,766 General insurance Actual investment return attributable to shareholders 7 1 51 85 13 630 Long term investment return credited to operating result 25 21 47 303 272 580 (18) (20) 4 (218) (259) 50 Other shareholders' income/(expenses) Actual investment return attributable to shareholders - (10) (3) 5 (129) (37) Long term investment return credited to operating result - - 1 5 - 12 - (10) (4) - (129) (49) (Deficit) / excess of actual return over longer term return (287) 125 143 (3,486) 1,618 1,767 Notes to the Financial Statements continued for the six months ended 30 June 2004 7 FINES AND PENALTIES On 21 June 2004, one of the Group's US asset management affiliates, Pilgrim Baxter & Associates Ltd (PBA), reached agreements with the US Securities and Exchange Commission (SEC) and the Office of the New York State Attorney General (NYAG) which settle all charges brought by these authorities against PBA in relation to market timing in the US mutual fund business. PBA agreed to pay $40 million in disgorgement of past fees, as well as $50 million in civil penalties. This has resulted in a charge of Â£49 million (R596 million) for the period ended 30 June 2004, which has been taken to the profit and loss account in the Group's financial statements, but excluded from adjusted operating profit. Tax deductions have been recognised on the disgorgement of past fees, resulting in a tax credit of Â£8 million (R97 million). In addition PBA will reduce fees to investors by approximately $10 million over the next five years. There are several related private lawsuits arising from the conduct alleged in the civil suits filed by the SEC and NYAG. These class action lawsuits are at a very early procedural stage and it is not possible to say, at this time, whether or not the amount of the ultimate liability to be borne by the Group will be material. As a result, no amount has been recognised for additional fines or other penalties that may arise, as significant uncertainty remains over the quantum of any settlement. Notes to the Financial Statements continued for the six months ended 30 June 2004 8 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 2004 2003 2003 2004 2003 2003 United Kingdom tax UK corporation tax 9 11 34 109 142 420 Double tax relief (7) (5) (24) (85) (65) (296) 2 6 10 24 77 124 Overseas tax South African tax 72 76 160 875 984 1,976 United States tax 17 11 11 207 142 136 Rest of World tax 5 2 4 61 26 49 Secondary taxation on companies (STC) 7 5 14 85 65 173 101 94 189 1,228 1,217 2,334 Adjustment in respect of prior periods - 4 (8) - 52 (99) Current tax for period 103 104 191 1,252 1,346 2,359 Deferred tax (81) 87 50 (985) 1,126 617 Reported tax charge 22 191 241 267 2,472 2,976 The tax charge is analysed as follows: Adjusted operating profit 106 129 224 1,290 1,673 2,763 Restructuring and integration costs (2) - (6) (27) - (74) Change in credit provisioning methodology - (22) (26) - (289) (322) Short term fluctuations in investment return (74) 82 49 (899) 1,062 609 Fines and penalties (8) - - (97) - - Non-operating items - 2 - - 26 - Reported tax charge 22 191 241 267 2,472 2,976 Reconciliation of tax charge 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 2004 2003 2003 2004 2003 2003 Tax at UK rate of 30.0 per cent. (2003: 30.0 per cent.) on profit on ordinary activities before tax 1 110 133 8 1,419 1,644 Untaxed and low taxed income (including tax exempt investment return) (27) (34) (113) (328) (440) (1,395) Disallowable expenditure 49 86 179 596 1,113 2,210 STC 7 5 14 85 65 173 Movement in deferred tax 81 (87) (50) 985 (1,126) (617) Other (8) 24 28 (94) 315 344 Current tax charge 103 104 191 1,252 1,346 2,359 Notes to the Financial Statements continued for the six months ended 30 June 2004 9 ACQUISITIONS AND DISPOSALS / NON OPERATING ITEMS 9(a) Acquisitions Mutual and Federal Insurance Company Limited During the period the Group acquired an additional 37.0% of the equity share capital of its general insurance subsidiary, Mutual and Federal Insurance Company Limited, bringing its total holding to 87.6%. Cash consideration of Â£102 million (R1,343 million) was paid. The table below shows the fair value of the assets and liabilities acquired. Â£m Rm Book value Fair value Provisional fair Provisional fair on acquisitions adjustments value to Group value to Group Goodwill 10 (10) - - Investments 304 - 304 4,214 Technical assets 73 - 73 1,006 Insurance debtors 28 - 28 394 All other assets 115 - 115 1,589 Minority interests (3) - (3) (38) Technical provisions (266) - (266) (3,692) Insurance creditors (12) - (12) (173) Provisions (11) - (11) (155) All other liabilities (25) - (25) (363) Total net assets of Mutual and Federal Insurance Company Limited 213 (10) 203 2,782 Additional share acquired by the Group 75 1,029 Cash consideration paid 102 1,343 Goodwill arising on acquisition 27 314 Fair Value Adjustments In accordance with Financial Reporting Standard 7 'Fair Values in Acquisition Accounting', the book value of goodwill has been deducted in determining the fair value of the net assets acquired as it not a separately identifiable asset. There were no other fair value adjustments. Notes to the Financial Statements continued for the six months ended 30 June 2004 9 ACQUISITIONS AND DISPOSALS / NON OPERATING ITEMS continued 9(b) Disposals / 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 2004 2003 2003 2004 2003 2003 United States - asset management affiliates 1 (13) (15) 12 (168) (194) South Africa - banking subsidiary 11 - - 137 - - United Kingdom - asset management subsidiaries - - (17) - - (210) Profit / (loss) on disposal before tax 12 (13) (32) 149 (168) (404) Tax - United States asset management affiliates - (2) - - (26) - Profit / (loss) on disposal after tax 12 (15) (32) 149 (194) (404) Minority interest - South Africa banking subsidiary (6) - - (67) - - Profit / (loss) on disposal after tax and minority interests 6 (15) (32) 82 (194) (404) United States - asset management affiliates The gain for the period represents contingent consideration received on disposals made in prior periods. South Africa - banking subsidiary During the period Nedbank disposed of Chiswell Associates Ltd for cash consideration of Â£20 million (R241 million). The profit on disposal was Â£11 million (R137 million) after charging goodwill of Â£2 million (R20 million). No tax was payable and the minority interest attributable was Â£6 million (R67 million). Notes to the Financial Statements continued for the six months ended 30 June 2004 10 GOODWILL Â£m Rm At At At At At At 30 June 31 December 30 June 30 June 31 December 30 June Notes 2004 2003 2003 2004 2003 2003 At beginning of period 1,264 1,598 1,598 15,088 22,075 22,075 Additions arising on acquisitions in period 9(a) 27 - - 314 - - Adjustment in respect of prior year acquisitions - 81 - - 1,000 - Disposals 9(b) (2) (159) (20) (20) (1,898) (259) Amortisation and impairment for the period (63) (194) (44) (766) (2,396) (570) Foreign exchange and other movements 3 (62) 18 (724) (3,693) (2,048) At end of period 1,229 1,264 1,552 13,892 15,088 19,198 Represented by: Cost less impairments 1,518 1,508 1,817 17,159 18,001 22,476 Accumulated amortisation (289) (244) (265) (3,267) (2,913) (3,278) At end of period 1,229 1,264 1,552 13,892 15,088 19,198 Amortisation for the period The goodwill amortisation charge for the period of Â£66m (R802 million) (June 2003: Â£47 million (R608 million); December 2003: Â£206 million (R2,544 million)) comprises Â£63 million (R766 million) (June 2003: Â£44 million (R570 million); December 2003: Â£194 million (R2,396 million)) disclosed above, and Â£3 million (R36 million) (June 2003: Â£3 million (R38 million); December 2003: Â£12 million (R148 million)) included within interests in associated undertakings. The charge for the period includes an impairment of Â£26 million (R310 million) in respect of Group adjustments associated with our banking subsidiaries. Notes to the Financial Statements continued for the six months ended 30 June 2004 11 MINORITY INTERESTS 11(a) Equity interests Â£m Rm At At At At At At 30 June 31 December 30 June 30 June 31 December 30 June 2004 2003 2003 2004 2003 2003 At beginning of period 652 783 783 7,783 10,816 10,816 Minority interests' share of profit /(loss) 13 (117) (15) 158 (1,445) (194) Minority interests' share of dividends paid (5) (61) (36) (61) (753) (466) Net acquisition /(disposal) of interests 101 (41) (5) 1,228 (506) (65) Foreign exchange and other movements 54 88 68 105 (329) (257) At end of period 815 652 795 9,213 7,783 9,834 Reconciliation of minority interests share of profit / (loss) 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 2004 2003 2003 2004 2003 2003 The minority interest charge/(credit) is analysed as follows: Adjusted operating profit 31 7 42 379 96 538 Amortisation and impairment of goodwill (19) (78) (7) (231) (963) (90) Loss on disposal/write-down of investment in Dimension Data Holdings plc - (2) (5) - (30) (58) Restructuring and integration costs (3) (13) (5) (33) (160) (65) Change in credit provisioning methodology - (30) (28) - (376) (363) Short term fluctuations (2) (1) (12) (24) (12) (156) Non-operating items 6 - - 67 - - Reported charge/(credit) 13 (117) (15) 158 (1,445) (194) 11(b) Non-equity interests Â£m Rm At At At At At At 30 June 31 December 30 June 30 June 31 December 30 June 2004 2003 2003 2004 2003 2003 R2,000 million non-cumulative preference shares (banking subsidiary)1 177 168 162 2,000 2,000 2,000 R825 million non-cumulative preference shares (banking subsidiary)2 73 69 - 825 825 - US$750 million cumulative preferred securities3 413 421 454 4,668 5,020 5,624 Other (general insurance subsidiary)4 5 3 - 57 36 - 668 661 616 7,550 7,881 7,624 Unamortised issue costs (11) (12) (14) (124) (143) (181) Undistributed profits due to non-equity minority interests 9 9 4 102 116 49 At end of period 666 658 606 7,528 7,854 7,492 1 200 million R10 preference shares issued by Nedbank Limited (Nedbank), a banking subsidiary of the Group. 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 Nedbank's shares. 2 77.3 million R10 preference shares issued at R10.68 per share by Nedbank during November 2003 on the same terms as the securities described in 1 above. 3 US$750 million Guaranteed Cumulative Perpetual Preference Securities issued on 19 May 2003 by Old Mutual Capital Funding L.P., a subsidiary of the Group. 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. 4 The Group has a general insurance subsidiary that offers clients a share of underwriting surpluses which accrue in respect of certain policies and which is payable in the form of a preference dividend. This information is provided by RNS The company news service from the London Stock Exchange

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