Interim Results - Part 3

Old Mutual PLC 10 August 2005 Part 3 Notes to the Consolidated Financial Statements for the six months ended 30 June 2005 1 BASIS OF PREPARATION European Union (EU) law (IAS Regulation EC 1606/2002) requires that the next annual consolidated financial statements of the company, for the year ending 31 December 2005, be prepared in accordance with International Financial Reporting Standards (IFRSs) adopted for use in the EU ('adopted IFRSs'). This interim financial information has been prepared on the basis of the recognition and measurement requirements of IFRSs in issue that either are endorsed by the EU and effective at 31 December 2005 or are expected to be endorsed and effective at 31 December 2005, the Group's first annual reporting date at which it is required to use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directors have made assumptions about the accounting policies expected to be applied when the first annual IFRS financial statements are prepared for the year ending 31 December 2005. These are set out in the Group's Analyst and Investor Briefing and Restatement Document published on 3 May 2005. In particular, the directors have assumed that the IAS 19: Employee Benefits issued by the International Accounting Standards Board (IASB) will be adopted by the EU in sufficient time that they will be available for use in the annual IFRS financial statements for the year ending 31 December 2005. The financial statements do not reflect any changes in respect of recent amendments to IAS39: Financial Instruments Recognition and Measurement for the fair value option expected to be endorsed by the EU which will be available for early adoption in the consolidated financial statements for the year ending 31 December 2005. In addition, the adopted IFRSs that will be effective in the annual financial statements for the year ending 31 December 2005 are still subject to change, through additional interpretations or change to standards issued or endorsed by the EU and therefore cannot be determined with certainty. Accordingly, the accounting policies for the year ending 31 December 2005 will only be finally determined when the annual financial statements are prepared and the information presented within these financial statements are potentially subject to change. The comparative figures for the financial year ended 31 December 2004 are not the Company's statutory accounts for that financial year. Those accounts, which were prepared under UK Generally Accepted Accounting Practices (UK GAAP), have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 2 FOREIGN CURRENCIES The principal exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to Rand are: Sterling 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Income statement (average rate) 11.6325 12.1544 11.7986 Balance sheet (closing rate) 11.9624 11.3037 10.8482 US Dollar 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Income statement (average rate) 6.2104 6.7015 6.4380 Balance sheet (closing rate) 6.6760 6.2301 5.6625 Foreign currency revenue transactions are translated at average exchange rates for the year. Monetary foreign currency assets and liabilities are translated at year end exchange rates. Non-monetary foreign currency assets and liabilities are translated at historical exchange rates. The assets and liabilities of foreign operations are translated from their respective functional currencies into the Group's presentation currency using the year-end exchange rates, and their income and expenses using the average exchange rates. Unrealised gains or losses resulting from translation of functional currencies to the presentation currency are included as a separate component of shareholders' equity, net of applicable deferred income taxes. 3 SEGMENT INFORMATION (i) Basis of segmentation Geographical segments For management purposes the Group is organised on a geographical basis into the following segments: Africa, North America and United Kingdom & Rest of World. This is the basis on which the Group reports its primary segment information. Business segments Although the Group is managed on a geographical basis, it operates in four principle areas of business: long term business, general insurance, banking and asset management. These businesses operate independently within each geographical sector. Financial information about the Group's geographic and business segments is presented in notes 3(ii) below. Where financial information is required for both primary and secondary segments, this information is shown in the format of a matrix. The segment information is presented in accordance with the profit format used in preparation of the consolidated income statement. Notes 3(iii) to 3(ix) provide additional supplemental information for each business segment and has been presented in accordance with the adjusted operating profit format used in preparation of the summary consolidated income statement. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. There are no significant differences between the geographical location of assets and operations and the associated external revenues. Business transacted with South African residents in terms of their personal offshore allowances is conducted by the Group's offshore companies and is therefore disclosed under the Rest of World segment. Inter-segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ii) Income statement Total United before inter Kingdom segment North & (revenue) Six months to 30 June 2005 Africa America Rest of World / expense Revenue Long term business 33,224 14,731 751 48,706 General insurance 4,024 - - 4,024 Banking 15,924 - 617 16,541 Asset management 1,286 2,218 663 4,167 Other shareholders' income 13 - 136 149 Consolidation of funds 732 - 187 919 Inter segment revenue (832) (69) (62) (963) 54,371 16,880 2,292 73,543 Expenses Long term business (29,844) (13,890) (721) (44,455) General insurance (3,181) - - (3,181) Banking (14,081) - (450) (14,531) Asset management (864) (1,630) (576) (3,070) Debt service costs and other shareholders' expenses (55) - (447) (502) Consolidation of funds (732) - (187) (919) Inter segment expenses 815 63 85 963 (47,942) (15,457) (2,296) (65,695) Net revenue / (expense) Long term business 3,380 841 30 4,251 General insurance 843 - - 843 Banking 1,843 - 167 2,010 Asset management 422 588 87 1,097 Other shareholders' income / (expenses) (42) - (311) (353) Inter segment (revenue) / expense (17) (6) 23 - 6,429 1,423 (4) 7,848 Share of associated undertakings' profit after tax 66 - - 66 Goodwill impairments (19) - - (19) Loss on disposal of investment in subsidiaries (9) (38) - (47) Profit before tax 6,467 1,385 (4) 7,848 Rm Total Inter after inter segment segment (revenue) (revenue) Six months to 30 June 2005 expense / expense Revenue Long term business (602) 48,104 General insurance - 4,024 Banking (15) 16,526 Asset management (346) 3,821 Other shareholders' income - 149 Consolidation of funds - 919 Inter segment revenue 963 - - 73,543 Expenses Long term business 335 (44,120) General insurance 23 (3,158) Banking 91 (14,440) Asset management 403 (2,667) Debt service costs and other shareholders' expenses 111 (391) Consolidation of funds - (919) Inter segment expenses (963) - - (65,695) Net revenue / (expense) Long term business (267) 3,984 General insurance 23 866 Banking 76 2,086 Asset management 57 1,154 Other shareholders' income / (expenses) 111 (242) Inter segment (revenue) / expense - - - 7,848 Share of associated undertakings' profit after tax - 66 Goodwill impairments - (19) Loss on disposal of investment in subsidiaries - (47) Profit before tax - 7,848 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ii) Income statement continued Total United before inter Kingdom segment North & (revenue) Six months to 30 June 2004 Africa America Rest of World / expense Revenue Long term business 10,586 15,254 122 25,962 General insurance 3,239 - - 3,239 Banking 14,448 - 660 15,108 Asset management 984 2,151 741 3,876 Other shareholders' income - - 377 377 Consolidation of funds 207 - 61 268 Inter segment revenue (486) (12) (292) (790) 28,978 17,393 1,669 48,040 Expenses Long term business (8,592) (14,452) (122) (23,166) General insurance (2,791) - - (2,791) Banking (13,875) - (523) (14,398) Asset management (730) (2,176) (650) (3,556) Debt service costs and other shareholders' expenses - - (717) (717) Consolidation of funds (207) - (61) (268) Inter segment expenses 462 170 158 790 (25,733) (16,458) (1,915) (44,106) Net revenue / (expense) Long term business 1,994 802 - 2,796 General insurance 448 - - 448 Banking 573 - 137 710 Asset management 254 (25) 91 320 Other shareholders' income / (expenses) - - (340) (340) Inter segment (revenue) / expense (24) 158 (134) - 3,245 935 (246) 3,934 Share of associated undertakings' profit after tax 109 - - 109 Goodwill impairments (401) - - (401) Loss on disposal of investment in subsidiaries - 12 137 149 Profit before tax 2,953 947 (109) 3,791 Rm Total Inter after inter segment segment (revenue) (revenue) Six months to 30 June 2004 expense / expense Revenue Long term business (365) 25,597 General insurance - 3,239 Banking (12) 15,096 Asset management (182) 3,694 Other shareholders' income (231) 146 Consolidation of funds - 268 Inter segment revenue 790 - - 48,040 Expenses Long term business 280 (22,886) General insurance - (2,791) Banking 73 (14,325) Asset management 352 (3,204) Debt service costs and other shareholders' expenses 85 (632) Consolidation of funds - (268) Inter segment expenses (790) - - (44,106) Net revenue / (expense) Long term business (85) 2,711 General insurance - 448 Banking 61 771 Asset management 170 490 Other shareholders' income / (expenses) (146) (486) Inter segment (revenue) / expense - - - 3,934 Share of associated undertakings' profit after tax - 109 Goodwill impairments - (401) Loss on disposal of investment in subsidiaries - 149 Profit before tax - 3,791 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ii) Income statement continued Total United before inter Kingdom segment North & (revenue) Year ended 31 December 2004 Africa America Rest of World / expense Revenue Long term business 58,691 29,449 519 88,659 General insurance 7,731 - - 7,731 Banking 31,373 - 1,321 32,694 Asset management 2,040 4,318 1,380 7,738 Other shareholders' income 35 - 1,026 1,061 Consolidation of funds 861 - 130 991 Inter segment revenue (1,121) (142) (260) (1,523) 99,610 33,625 4,116 137,351 Expenses Long term business (52,496) (27,621) (448) (80,565) General insurance (6,112) - - (6,112) Banking (29,115) - (1,044) (30,159) Asset management (1,404) (3,888) (1,437) (6,729) Debt service costs and other shareholders' expenses (260) - (1,361) (1,621) Consolidation of funds (861) - (130) (991) Inter segment expense 1,122 153 248 1,523 (89,126) (31,356) (4,172) (124,654) Net revenue / (expense) Long term business 6,195 1,828 71 8,094 General insurance 1,619 - - 1,619 Banking 2,258 - 277 2,535 Asset management 636 430 (57) 1,009 Other shareholders' income / (expenses) (225) - (335) (560) Inter segment (revenue) / expense 1 11 (12) - 10,484 2,269 (56) 12,697 Share of associated undertakings' profit after tax 214 - - 214 Goodwill impairments (401) - - (401) Loss on disposal of investment in subsidiaries (110) - (201) (311) Profit before tax 10,187 2,269 (257) 12,199 Rm Total Inter after inter segment segment (revenue) (revenue) Year ended 31 December 2004 expense / expense Revenue Long term business (791) 87,868 General insurance - 7,731 Banking (24) 32,670 Asset management (578) 7,160 Other shareholders' income (130) 931 Consolidation of funds - 991 Inter segment revenue 1,523 - 137,351 Expenses Long term business 685 (79,880) General insurance - (6,112) Banking 94 (30,065) Asset management 661 (6,068) Debt service costs and other shareholders' expenses 83 (1,538) Consolidation of funds - (991) Inter segment expense (1,523) - - (124,654) Net revenue / (expense) Long term business (106) 7,988 General insurance - 1,619 Banking 70 2,605 Asset management 83 1,092 Other shareholders' income / (expenses) (47) (607) Inter segment (revenue) / expense - - - 12,697 Share of associated undertakings' profit after tax - 214 Goodwill impairments - (401) Loss on disposal of investment in subsidiaries - (311) Profit before tax - 12,199 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (iii) Long term business Gross premiums and investment contract deposits written Rm United North Kingdom Six months to 30 June 2005 Africa America & Rest of World Total Individual business Single 4,144 12,621 907 17,672 Recurring 6,017 1,512 63 7,592 10,161 14,133 970 25,264 Group business Single 3,572 - - 3,572 Recurring 1,770 - - 1,770 5,342 - - 5,342 Total gross premiums and investment contract deposits written 15,503 14,133 970 30,606 Insurance contracts 6,407 11,969 24 18,400 Investment contracts with discretionary participation features 2,686 - - 2,686 Other investment contracts 6,410 2,164 946 9,520 15,503 14,133 970 30,606 Less: Other investment contracts (6,410) (2,164) (946) (9,520) Total gross written premiums 9,093 11,969 24 21,086 Rm United North Kingdom Six months to 30 June 2004 Africa America & Rest of World Total Individual business Single 3,646 13,747 644 18,037 Recurring 5,676 1,143 97 6,916 9,322 14,890 741 24,953 Group business Single 2,638 - - 2,638 Recurring 1,884 - - 1,884 4,522 - - 4,522 Total gross premiums and investment contract deposits written 13,844 14,890 741 29,475 Insurance contracts 6,151 12,471 24 18,646 Investment contracts with discretionary participation features 2,321 - - 2,321 Other investment contracts 5,372 2,419 717 8,508 13,844 14,890 741 29,475 Less: Other investment contracts (5,372) (2,419) (717) (8,508) Total gross written premiums 8,472 12,471 24 20,967 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (iii) Long term business Gross premiums and investment contract deposits written continued Rm North United Kingdom Year ended 31 December 2004 Africa America Rest of World Total Individual business Single 7,586 25,591 1,475 34,652 Recurring 11,527 2,419 153 14,099 19,113 28,010 1,628 48,751 Group business Single 5,333 - - 5,333 Recurring 3,740 - - 3,740 9,073 - - 9,073 Total gross premiums and investment contract deposits written 28,186 28,010 1,628 57,824 Insurance contracts 12,411 23,869 23 36,303 Investment contracts with discretionary participation features 4,743 - - 4,743 Other investment contracts 11,032 4,141 1,605 16,778 28,186 28,010 1,628 57,824 Less: Other investment contracts (11,032) (4,141) (1,605) (16,778) Total gross written premiums 17,154 23,869 23 41,046 Gross new business premiums and investment contract deposits written United Rm Six months to 30 June North Kingdom & 2005 Africa America Rest of World Total Individual business Single 4,144 12,621 907 17,672 Recurring 985 454 2 1,441 5,129 13,075 909 19,113 Group business Single 3,572 - - 3,572 Recurring 105 - - 105 3,677 - - 3,677 Total gross new business premiums and investment contract deposits written 8,806 13,075 909 22,790 Insurance contracts 2,024 10,911 - 12,935 Investment contracts with discretionary participation features 1,133 - - 1,133 Other investment contracts 5,649 2,164 909 8,722 8,806 13,075 909 22,790 Less: Other investment contracts (5,649) (2,164) (909 ) (8,722) Total gross new business premiums written 3,157 10,911 - 14,068 Annual premium equivalent 1,862 1,716 93 3,671 Annual premium equivalent is defined as one tenth of single premiums plus recurring premiums (including investment contract deposits written). Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (iv) Long term business Gross new business premiums and investment contract deposits written continued Rm North United Kingdom Six months to 30 June 2004 Africa America Rest of World Total Individual business Single 3,646 13,747 644 18,037 Recurring 887 304 12 1,203 4,533 14,051 656 19,240 Group business Single 2,638 - - 2,638 Recurring 109 - - 109 2,747 - - 2,747 Total gross new business premiums and investment contract deposits written 7,280 14,051 656 21,987 Insurance contracts 1,512 11,632 - 13,144 Investment contracts with discretionary participation features 1,051 - - 1,051 Other investment contracts 4,717 2,419 656 7,792 7,280 14,051 656 21,987 Less: Other investment contracts (4,717) (2,419) (656) (7,792) Total gross new business premiums written 2,563 11,632 - 14,195 Annual premium equivalent 1,624 1,679 76 3,379 Rm North United Kingdom Year to 31 December 2004 Africa America Rest of World Total Individual business Single 7,586 25,591 1,475 34,652 Recurring 1,935 684 12 2,631 9,521 26,275 1,487 37,283 Group business Single 5,333 - - 5,333 Recurring 201 - - 201 5,534 - - 5,534 Total gross new business premiums and investment contract deposits written 15,055 26,275 1,487 42,817 Insurance contracts 3,764 22,134 - 25,898 Investment contracts with discretionary participation features 1,970 - - 1,970 Other investment contracts 9,321 4,141 1,487 14,949 15,055 26,275 1,487 42,817 Less: Other investment contracts (9,321) (4,141) (1,487) (14,949) Total gross new business premiums written 5,734 22,134 - 27,868 Annual premium equivalent 3,433 3,245 153 6,831 Annual premium equivalent is defined as one tenth of single premiums plus recurring premiums (including investment contract deposits written). Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (iv) Long term business Rm United North Kingdom & Six months to 30 June 2005 Africa America Rest of World Total Individual business 1,160 581 27 1,768 Group business 607 - - 607 1,767 581 27 2,375 Long term investment return 675 - 4 679 Share of associated undertakings' profit after tax 29 - - 29 Adjusted operating profit 2,471 581 31 3,083 Short term fluctuations in investment returns 1,023 260 (1) 1,282 Investment return adjustment for Group equity and debt instruments held in life funds (329) - - (329) Profit before tax (net of income tax attributable to policyholder returns) 3,165 841 30 4,036 Rm United North Kingdom & Six months to 30 June 2004 Africa America Rest of World Total Individual business 1,252 486 - 1,738 Group business 571 - - 571 1,823 486 - 2,309 Long term investment return 912 - - 912 Share of associated undertakings' profit after tax 36 - - 36 Adjusted operating profit 2,771 486 - 3,257 Short term fluctuations in investment returns (705) 316 - (389) Investment return adjustment for Group equity and debt instruments held in life funds (316) - - (316) Profit before tax (net of income tax attributable to policyholder returns) 1,750 802 - 2,552 Rm United North Kingdom & Year to 31 December 2004 Africa America Rest of World Total Individual business 2,714 1,144 71 3,929 Group business 1,026 - - 1,026 3,740 1,144 71 4,955 Long term investment return 1,711 - - 1,711 Share of associated undertakings' profit after tax 59 - - 59 Adjusted operating profit 5,510 1,144 71 6,725 Short term fluctuations in investment returns 1,180 684 - 1,864 Investment return adjustment for life companies investments in Group equity and debt instruments held in life funds (1,168) - - (1,168) Profit before tax (net of income tax attributable to policyholder returns) 5,522 1,828 71 7,421 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (iv) Long term business continued Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Investment return adjustment for Group equity and debt instruments held in life funds Dividend income 132 134 212 Realised gains on investment return (17) 36 59 Unrealised gains / (losses) on investment 214 146 897 Total investment return 329 316 1,168 Adjusted operating profit includes investment returns on life fund investments in Group equity and debt instruments.These include investments in the Company's ordinary shares and Nedbank Limited subordinated liabilities and preferred securities. The investment returns are eliminated within the consolidated income statement in arriving at profit for the financial period, but included in adjusted operating profit. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (v) General insurance Gross Earned premiums premiums net Six months to 30 June 2005 written of reinsurance Commercial 1,919 1,556 Personal lines 1,559 1,502 Risk financing 489 422 3,967 3,480 Long term investment return Share of associated undertakings' operating profit after tax Adjusted operating profit Goodwill impairments Short term fluctuations in investment returns Profit before tax Rm Claims Profit incurred Before Six months to 30 June 2005 net of reinsurance Tax Commercial 913 245 Personal lines 1,101 18 Risk financing 204 36 2,218 299 Long term investment return 272 Share of associated undertakings' operating profit after tax 2 Adjusted operating profit 573 Goodwill impairments (19) Short term fluctuations in investment returns 272 Profit before tax 826 Gross Earned premiums premiums Six months to 30 June 2004 written net of reinsurance Commercial 1,720 1,384 Personal lines 1,483 1,412 Risk financing 389 342 3,592 3,138 Long term investment return Adjusted operating profit Short term fluctuations in investment returns Profit before tax Rm Claims Profit incurred Before Six months to 30 June 2004 net of reinsurance Tax Commercial 804 216 Personal lines 965 88 Risk financing 196 32 1,965 336 Long term investment return 303 Adjusted operating profit 639 Short term fluctuations in investment returns (191) Profit before tax 448 Rm Gross Earned premiums premiums Year ended 31 December 2004 written net of reinsurance Commercial 3,305 2,808 Personal lines 2,938 2,878 Risk financing 1,117 1,050 7,360 6,736 Long term investment return Share of associated undertakings' operating profit after tax Adjusted operating profit Short term fluctuations in investment returns Profit before tax Claims Profit incurred Before Year ended 31 December 2004 net of reinsurance Tax Commercial 1,629 415 Personal lines 2,004 151 Risk financing 565 64 4,198 630 Long term investment return 530 Share of associated undertakings' operating profit after tax 30 Adjusted operating profit 1,190 Short term fluctuations in investment returns 459 Profit before tax 1,649 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vi) Banking Rm United Kingdom Six months to 30 June 2005 Africa & Rest of World Total Interest and similar income 11,831 472 12,303 Interest expense and similar charges(7,968) (310) (8,278) Net interest income 3,863 162 4,025 Dividend income 177 - 177 Fees and commission receivable 2,989 14 3,003 Fees and commission payable (412) (14) (426) Other operating income 763 129 892 Foreign currency translation gain 165 - 165 Total operating income 7,545 291 7,836 Losses on loans and advances (618) (3) (621) Operating expenses (5,084) (121) (5,205) 1,843 167 2,010 Share of associated undertakings' operating profit after tax 35 - 35 Adjusted operating profit 1,878 167 2,045 Loss on disposal of investment in subsidiaries (9) - (9) Profit before tax 1,869 167 2,036 During the period the Group's banking subsidiary incurred a loss of R8 million in connection with the liquidation of certain joint venture operations. Rm United Kingdom Six months to 30 June 2004 Africa & Rest of World Total Interest and similar income 11,462 438 11,900 Interest expense and similar charges(8,229) (328) (8,557) Net interest income 3,233 110 3,343 Dividend income 49 - 49 Fees and commission receivable 2,382 109 2,491 Fees and commission payable (170) (24) (194) Other operating income 656 109 765 Foreign currency translation loss (97) - (97) Total operating income 6,053 304 6,357 Losses on loans and advances (401) - (401) Operating expenses (5,079) (167) (5,246) 573 137 710 Share of associated undertakings' operating profit after tax 73 - 73 Adjusted operating profit 646 137 783 Goodwill impairments (401) - (401) Profit on disposal of investment in subsidiaries - 137 137 Profit before tax 245 274 519 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vi) Banking continued Rm United Kingdom Year to 31 December 2004 Africa & Rest of World Total Interest and similar income 23,215 723 23,938 Interest expense and similar charges (16,537) (454) (16,991) Net interest income 6,678 269 6,947 Dividend income 143 - 143 Fees and commission receivable 5,606 467 6,073 Fees and commission payable (690) (25) (715) Other operating income 2,674 138 2,812 Foreign currency translation loss (280) - (280) Total operating income 14,131 849 14,980 Losses on loans and advances (1,209) (21) (1,230) Operating expenses (10,664) (551) (11,215) 2,258 277 2,535 Share of associated undertakings' operating profit after tax 125 - 125 Adjusted operating profit 2,383 277 2,660 Goodwill impairments (401) - (401) Loss on disposal of investment in subsidiaries (110) - (110) Profit before tax 1,872 277 2,149 To reflect more accurately the banking margin on banking assets by excluding trading activities, certain trading revenues have been reclassified from net interest income to non-interest revenue. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vii) Asset management Rm Profit Six months to 30 June 2005 Revenue Expenses before tax Africa Fund management Old Mutual Asset Managers 332 (185) 147 Old Mutual Unit Trust 161 (111) 50 Other 293 (244) 49 786 (540) 246 Old Mutual Specialised Finance 286 (171) 115 Nedbank unit trusts and portfolio management 214 (153) 61 1,286 (864) 422 US asset management 2,218 (1,630) 588 United Kingdom & Rest of World Fund management 434 (329) 105 Fund investment platform 82 (106) (24) Other financial services 95 (95) - Nedbank unit trusts and portfolio management 52 (46) 6 663 (576) 87 Adjusted operating profit 4,167 (3,070) 1,097 Loss on disposal of investment in subsidiaries - (38) (38) Profit before tax 4,167 (3,108) 1,059 During March 2005, the Group disposed of its interests in UAM Japan for R48 million cash consideration, resulting in loss on disposal of R36 million. No tax was payable. Rm Profit Six months to 30 June 2004 Revenue Expenses before tax Africa Fund management 243 (134) 109 Old Mutual Asset Managers 122 (105) 17 Old Mutual Unit Trust 97 (82) 15 Other 462 (321) 141 Old Mutual Specialised Finance 267 (178) 89 Nedbank unit trusts and portfolio management 255 (231) 24 984 (730) 254 US asset management 2,151 (1,580) 571 United Kingdom & Rest of World Fund management 291 (194) 97 Fund investment platform 37 (73) (36) Other financial services 85 (146) (61) Nedbank unit trusts and portfolio management 328 (237) 91 741 (650) 91 Adjusted operating profit 3,876 (2,960) 916 Profit on disposal of investment in subsidiaries 12 - 12 Fines and penalties - (596) (596) Profit before tax 3,888 (3,556) 332 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vii) Asset management continued Rm Profit Year ended 31 December 2004 Revenue Expenses before tax Africa Fund management Old Mutual Asset Managers 519 (283) 236 Old Mutual Unit Trust 271 (224) 47 Other 460 (354) 106 1,250 (861) 389 Old Mutual Specialised Finance 413 (260) 153 Nedbank unit trusts and portfolio management 377 (283) 94 2,040 (1,404) 636 US asset management 4,318 (3,292) 1,026 United Kingdom & Rest of World Fund management 767 (614) 153 Fund investment platform 106 (177) (71) Other financial services 106 (319) (213) Nedbank unit trusts and portfolio management 401 (327) 74 1,380 (1,437) (57) Adjusted operating profit 7,738 (6,133) 1,605 Loss on disposal of investments in subsidiaries - (201) (201) Fines and penalties - (596) (596) Profit before tax 7,738 (6,930) 808 Rm 6 months to 6 months to Year to 30 June 30 June 31 December US asset management 2005 2004 2004 Revenue Investment management fees 1,941 1,859 3,716 Transaction, performance and other fees 277 292 602 2,218 2,151 4,318 Expenses Staff costs - fixed and variable (1,251) (681) (1,428) Other (379) (899) (1,864) (1,630) (1,580) (3,292) Adjusted operating profit 588 571 1,026 (Loss) / profit on disposal of investments in subsidiaries (38) 12 (59) Fines and penalties - (596) (596) Profit before tax 550 (13) 371 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (viii) Other shareholders income and expenses Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Distribution of unclaimed share trust 24 - 189 Provisions for contributions to public benefit and charitable organisations (24) - (189) Interest receivable 88 49 106 Net other income / (expenses) (29) 73 - Net corporate expenses (196) (231) (454) Adjusted operating loss (137) (109) (348) In accordance with proposals announced by the Company on 23 February 2004 and approved by its shareholders on 14 May 2004, during the period the Company received R21 million from Old Mutual South Africa Unclaimed Shares Trusts. This amount represents final settlement of accumulated dividends and interest accrued in respect of shares of the Company unclaimed at 12 July 2004, being five years after the demutualisation of the South Africa Mutual Life Assurance Society. It is the firm intention of the Board that all of this money will eventually be distributed to public benefit and charitable organisations and, therefore, full provision has been made for the cost of making such distributions. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ix) Funds under management North At 30 June 2005 Africa America Life investments 256,534 137,053 Africa Fund management Old Mutual Asset Managers 83,270 - Old Mutual Unit Trust 4,295 - Other 12,321 - 99,886 - Nedbank unit trusts and portfolio management 54,477 - 154,363 - US asset management - 1,196,685 United Kingdom & Rest of World Fund management - - Fund investment platform - - Other financial services - - Nedbank unit trusts and portfolio management - - - - Total funds under management 410,897 1,333,738 Rm United Kingdom & At 30 June 2005 Rest of World Total Life investments 25,600 419,187 Africa Fund management Old Mutual Asset Managers - 83,270 Old Mutual Unit Trust - 4,295 Other - 12,321 - 99,886 Nedbank unit trusts and portfolio management - 54,477 - 154,363 US asset management 63,831 1,260,516 United Kingdom & Rest of World Fund management 32,598 32,598 Fund investment platform 9,008 9,008 Other financial services 969 969 Nedbank unit trusts and portfolio management 19,212 19,212 61,787 61,787 Total funds under management 151,218 1,895,853 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ix) Funds under management continued North At 31 December 2004 Africa America Life investments 226,500 116,228 Africa Fund management Old Mutual Asset Managers 86,905 - Old Mutual Unit Trust 3,124 - Other 11,022 - 101,051 - Nedbank unit trusts and portfolio management 49,261 - 150,312 - US asset management - 870,991 United Kingdom & Rest of World Fund management - - Fund investment platform - - Other financial services - - Nedbank unit trusts and portfolio management - - - - Total funds under management 376,812 987,219 Rm United Kingdom & At 31 December 2004 Rest of World Total Life investments 32,512 375,240 Africa Fund management Old Mutual Asset Managers - 86,905 Old Mutual Unit Trust - 3,124 Other - 11,022 - 101,051 Nedbank unit trusts and portfolio management - 49,261 - 150,312 US asset management 71,175 942,166 United Kingdom & Rest of World Fund management 23,975 23,975 Fund investment platform 5,760 5,760 Other financial services 2,929 2,929 Nedbank unit trusts and portfolio management 19,711 19,711 52,375 52,375 Total funds under management 156,062 1,520,093 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ix) Funds under management continued North At 30 June 2004 Africa America Life Investments 214,058 107,125 Africa Fund management Old Mutual Asset Managers 71,417 - Old Mutual Unit Trust 3,968 - Other 9,077 - 84,462 - Nedbank unit trusts and portfolio management 44,582 - 129,044 - US asset management - 854,096 United Kingdom & Rest of World Fund management - - Fund investment platform - - Other financial services - - Nedbank unit trusts and portfolio management - - - - Total funds under management 343,102 961,221 Rm United Kingdom & At 30 June 2004 Rest of World Total Life Investments 26,100 347,283 Africa Fund management Old Mutual Asset Managers - 71,417 Old Mutual Unit Trust - 3,968 Other - 9,077 - 84,462 Nedbank unit trusts and portfolio management - 44,582 - 129,044 US asset management 65,121 919,217 United Kingdom & Rest of World Fund management 23,320 23,320 Fund investment platform 3,956 3,956 Other financial services 3,176 3,176 Nedbank unit trusts and portfolio management 42,988 42,988 73,440 73,440 Total funds under management 164,661 1,468,984 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 4 INSURANCE LONG TERM INVESTMENT RETURNS Adjusted operating profit is stated after allocating an investment return earned by the insurance businesses based on a long term investment return. For the South African and Namibian long term business, the return is applied to an average value of investible equity holders' assets, adjusted for net fund flows. For general insurance business, the return is an average value of investible assets supporting equity holders' funds and insurance liabilities, adjusted for net fund flows. 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 returns represent the difference between actual return and long term investment return. The 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 2005 2004 2004 South Africa and Namibian long term business and general insurance - weighted average return 11.1% 13.0% 12.5% Equities 13.0% 14.0% 14.0% Cash and other investible assets - Rand denominated 9.0% 12.5% 11.0% Cash and other investible assets - other currencies 6.0% 9.0% 8.0% United States 5.85% 6.09% 6.00% 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 adjusted operating profit are not inconsistent with the actual returns expected to be earned over the long term. Rm 6 months to 6 months to Year to 30 June 30 June 31 December Analysis of short term fluctuations in investment returns 2005 2004 2004 Long term business Actual investment return attributable to equity holders 1,961 523 3,575 Long term investment return 679 912 1,711 1,282 (389) 1,864 General insurance business Actual investment return attributable to equity holders 544 112 989 Long term investment return 272 303 530 272 (191) 459 Short term fluctuations in investment returns 1,554 (580) 2,323 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 5 FINES AND PENALTIES On 21 June 2004, the US asset management affiliate, Liberty Ridge Capital Inc. (formerly known as 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 resulted in a charge of R596 million for the period ended 30 June 2004, which has been taken to the income statement 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 R97 million. In addition PBA will reduce fees to investors by approximately $10 million over the five years from 2004. 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 were consolidated into a single lawsuit along with all other cases against US parties alleging market timing and late trading violations. Proceedings in this case are at a preliminary 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 Consolidated Financial Statements continued for the six months ended 30 June 2005 6 INCOME TAX EXPENSE Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Current tax: Africa 1,342 1,143 3,433 North America (26) 61 118 Rest of World 37 24 12 Prior year adjustment 112 49 118 Secondary tax on companies (STC) 93 97 118 United Kingdom tax UK corporation tax - 24 (59) Total current tax 1,558 1,398 3,740 Deferred tax: Origination / (reversal) of temporary differences 578 61 83 Changes in tax rates / bases 34 - - Write down of deferred tax assets (68) - 236 Total deferred tax 544 61 319 Total income tax expense 2,102 1,459 4,059 The reported tax charge is analysed as follows: Adjusted operating profit 1,550 1,325 2,879 Short term fluctuations in investment returns 308 (49) 545 Fines and penalties - (97) (97) Total income tax expense excluding income tax attributable to policyholder returns 1,858 1,179 3,327 Income tax attributable to policyholder return 244 280 732 Total income tax expense 2,102 1,459 4,059 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 6 INCOME TAX EXPENSE continued Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Reconciliation of tax charge Profit before tax 7,848 3,791 12,199 Tax at standard rate of 30% (2004- 30%) 2,354 1,137 3,660 Different tax rate or basis on overseas operations (116) 24 12 Untaxed and low taxed income (593) (340) (1,003) Disallowable expenses 244 438 873 Net movement on deferred tax assets not recognised 12 - 12 Secondary tax charge 93 97 118 Income tax attributable to policyholder returns 163 194 507 Other (55) (91) (120) Total income tax charge for period 2,102 1,459 4,059 Effective January 2005, corporation tax rates in South Africa reduced from 30% to 29%. The impact of this change on the Group's net deferred tax rate balances was a reduction of R34 million. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 7 EARNINGS AND EARNINGS PER SHARE 7(a) Adjusted EPS 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 returns on life funds' investments in Group equity and debt investments. For all businesses, adjusted operating profit excludes goodwill impairments, fines and penalties, profit / (loss) on disposal of investments in subsidiaries after operating profit, and income from hedging activities that do not qualify for hedge accounting. The reconciliation of adjusted operating profit after tax attributable to equity holders to profit for the financial period is as follows: Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Adjusted operating profit after tax attributable to equity holders 3,685 3,103 6,570 Goodwill impairments (17) (206) (200) Loss / (profit) on disposal of subsidiaries (47) 76 (252) Short term fluctuations in investment returns 1,217 (507) 1,754 Income from hedging activities that do not qualify for hedge accounting - 61 366 Investment return adjustment for Group equity and debt instruments held in life funds (329) (316) (1,168) Fines and penalties - (499) (499) Profit for the financial period attributable to equity holders 4,509 1,712 6,571 The adjusted weighted average number of shares is calculated as follows: Millions 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Total weighted average number of ordinary shares in issue 3,855 3,840 3,844 Shares held in charitable foundation (10) (10) (10) Shares held in ESOP Trusts (92) (95) (96) Adjusted weighted average number of ordinary shares 3,753 3,735 3,738 Shares held in policyholders funds (286) (316) (316) Weighted average number of ordinary shares 3,467 3,419 3,422 Adjusted operating earnings per share (c) 98.2 83.1 175.6 7(b) Basic EPS Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the period excluding own shares held in policyholder funds, ESOP trusts and other related undertakings. Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Profit for the financial period attributable to equity holders (Rm) 4,509 1,712 6,571 Weighted average number of ordinary shares (millions) 3,467 3,419 3,422 Basic earnings per share (c) 130.2 50.1 192.0 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 7 EARNINGS AND EARNINGS PER SHARE continued 7(c) Diluted EPS No adjustment is required in respect of share options as they are economically hedged through the issue of ordinary shares held in ESOP Trusts, which are already excluded from the weighted average number of shares for basic EPS purposes. There were no other potentially dilutive conditions existing at the balance sheet date. 8 DIVIDENDS Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 2004 final dividend paid - 3.5p per 10p share 1,373 - - 2004 interim dividend paid - 1.75p per 10p share - - 708 2003 final dividend paid - 3.1p per 10p share - 1,288 1,251 1,373 1,288 1,959 Dividends paid to ordinary shareholders, as above, are calculated using the number of shares in issue at payment date less own shares held in ESOP Trusts, policyholders' funds of Group companies and related undertakings. 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. The directors have declared a 2005 interim dividend of 1.85p per share (R22.13c per share)* which will be paid on 30 November 2005 to all shareholders on the register at the close of business on 21 October 2005, being the record date for the dividend. No provision have been recognised in respect of this dividend. * Indicative only, being the Rand equivalent of 1.85p converted at the exchange rate prevailing on 30 June 2005. The actual amount to be paid by way of interim dividend to holders of shares on the South African Branch register will be calculated by reference to the exchange rate prevailing at the close of business on 6 October 2005, as determined by the Company, and will be announced on 7 October 2005. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 9 GOODWILL AND OTHER INTANGIBLE ASSETS Rm Present value of Software acquired in-force development At 30 June 2005 Goodwill business costs Total Cost Balance at beginning of period 13,181 2,821 3,244 19,246 Other acquisitions - separately acquired 1 - 274 275 Foreign exchange and other movements 1,460 505 31 1,996 Disposals or retirements - - (25) (25) Balance at end of period 14,642 3,326 3,524 21,492 Amortisation and impairment losses Balance at beginning of period 1,692 1,855 1,640 5,187 Amortisation charge for the period - 107 234 341 Impairment charged for the period 19 - 5 24 Foreign exchange and other movements (1) 261 141 401 Disposals or retirements - - (34) (34) Balance at end of period 1,710 2,223 1,986 5,919 Carrying amount At beginning of period 11,489 966 1,604 14,059 At end of period 12,932 1,103 1,538 15,573 Goodwill impairments represent R19 million incurred in respect of the Group's general insurance business in Africa. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 9 GOODWILL AND OTHER INTANGIBLE ASSETS continued Present value of acquired in-force At 31 December 2004 Goodwill business Cost Balance at beginning of year 14,933 3,330 Acquisitions through business combination 425 - Other acquisitions - internally developed - - Foreign exchange and other movements (1,658) (509) Disposals or retirements (519) - Balance at end of year 13,181 2,821 Amortisation and impairment losses Balance at beginning of year 1,576 1,743 Amortisation charge for the year - 319 Impairment charged for the year 401 - Foreign exchange and other movements 10 (207) Disposals or retirements (295) - Balance at end of year 1,692 1,855 Carrying amount At beginning of year 13,357 1,587 At end of year 11,489 966 Rm Software development At 31 December 2004 costs Total Cost Balance at beginning of year 2,972 21,235 Acquisitions through business combination 472 897 Other acquisitions - internally developed 59 59 Foreign exchange and other movements (47) (2,214) Disposals or retirements (212) (731) Balance at end of year 3,244 19,246 Amortisation and impairment losses Balance at beginning of year 1,098 4,417 Amortisation charge for the year 83 402 Impairment charged for the year 507 908 Foreign exchange and other movements 117 (80) Disposals or retirements (165) (460) Balance at end of year 1,640 5,187 Carrying amount At beginning of year 1,874 16,818 At end of year 1,604 14,059 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 9 GOODWILL AND OTHER INTANGIBLE ASSETS continued Present value of acquired in-force At 30 June 2004 Goodwill business Cost Balance at beginning of period 14,933 3,330 Acquisitions through business combination 158 - Other acquisitions - internally developed - - Foreign exchange and other movements (632) (233) Disposals or retirements (24) - Balance at end of period 14,435 3,097 Amortisation and impairment losses Balance at beginning of period 1,576 1,743 Amortisation charge for the period - 389 Impairment charged for the period 401 - Foreign exchange and other movements 35 (651) Balance at end of period 2,012 1,481 Carrying amount At beginning of period 13,357 1,587 At end of period 12,423 1,616 Rm Software development At 30 June 2004 costs Total Cost Balance at beginning of period 2,972 21,235 Acquisitions through business combination 109 267 Other acquisitions - internally developed 24 24 Foreign exchange and other movements (8) (873) Disposals or retirements - (24) Balance at end of period 3,097 20,629 Amortisation and impairment losses Balance at beginning of period 1,098 4,417 Amortisation charge for the period 24 413 Impairment charged for the period 122 523 Foreign exchange and other movements 101 (515) Balance at end of period 1,345 4,838 Carrying amount At beginning of period 1,874 16,818 At end of period 1,752 15,791 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 10 BORROWED FUNDS Rm At At At 30 June 31 December 30 June 2005 2004 2004 Debt securities in issue 7,279 6,791 4,963 Subordinated liabilities 5,769 5,717 5,912 Convertible bonds 35 3,656 4,035 Total borrowed funds 13,083 16,164 14,910 (i) Debt securities in issue Rm Average At At At interest 30 June 31 December 30 June rate 2005 2004 2004 Floating rate notes 3.6% 1,950 1,812 520 Fixed rate notes 4.5% 3,738 3,624 3,504 Term loan 3.2% 299 260 283 Other 550 553 656 6,537 6,249 4,963 Consolidation of funds 742 542 - Total debt securities in issue 7,279 6,791 4,963 Debt securities comprises: Floating rate notes: • GBP24 million repayable November 2006 • GBP21 million note repayable on 31 December 2010, with the holders having the option to elect for early redemption every six months • US$10 million repayable September 2009 • US$50 million repayable September 2011 • US$150 million repayable September 2014 Fixed rate notes: • EUR400 million Euro bond due 2007, capital and interest swapped into fixed rate US Dollars. • EUR30 million Euro bond due 2010, capital and interest swapped into floating rate US Dollars. • EUR10 million Euro bond due 2010, capital and interest swapped into floating rate US Dollars. • EUR20 million Euro bond due 2013, capital and interest swapped into floating rate US Dollars. The total fair value of the swap derivatives associated with the Fixed Rate Notes is R1,077 million. These are recognised as assets and are included within the reported 'Derivative financial instruments - assets'. Term loan: • US$45 million term loan repayable on 30 June 2006. Other • R550 million redeemable on or after 20 July 2005 at the option of the holders or the Company. The Company has available a GBP1,100 million five year multi-currency Revolving Credit Facility which matures during May 2009 (R13,159 million). The facility is undrawn as at 30 June 2005. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 10 BORROWED FUNDS continued (ii) Subordinated liabilities Rm At At At 30 June 31 December 30 June 2005 2004 2004 US$40 million repayable 17 April 2008 (6 month LIBOR) 263 228 249 US$18 million repayable 31 August 2009 (6 month LIBOR less 1.5 per cent.) 129 98 113 R515 million repayable 4 December 2008 (13.5 per cent.) 532 532 543 R2.0 billion repayable 20 September 2011 (11.3 per cent.) * 2,069 2,061 2,069 R4.0 billion repayable 9 July 2012 (13.0 per cent.) * 4,247 4,252 4,249 Other - - 170 7,240 7,171 7,393 Less: subordinated debt held by other group companies (1,471) (1,454) (1,481) Total subordinated liabilities 5,769 5,717 5,912 The subordinated notes rank behind the claims against the Group depositors and other unsecured unsubordinated creditors. None of the Group's subordinated notes are secured. * These notes are subordinated to all unsecured unsubordinated claims against the issuer, Nedbank Limited, but rank equally with all other unsecured subordinated obligations. Subject to prior approval by the South African Registrar of Banks, Nedbank Limited has the option to elect for early redemption of these notes. (iii) Convertible Bonds Rm Average At At At interest 30 June 31 December 30 June rate 2005 2004 2004 Convertible bond US$636 million matured 2 May 2005 3.625% - 3,591 3,933 Compulsory convertible loan maturing 6 November 2005 13.75% 12 22 34 Compulsory convertible loan maturing 31 December 2005 18.12% 23 43 68 Total convertible bonds 35 3,656 4,035 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 11 MINORITY INTERESTS 11 (a) Ordinary shares Rm 6 months to Year to 6 months to 30 June 31 December 30 June Reconciliation of movements in minority interests 2005 2004 2004 Balance at beginning of period 8,679 6,911 6,911 Minority interests' share of profit 910 873 292 Minority interests' share of dividends paid (267) (295) (61) Net acquisition / (disposal) of interests 283 779 802 Foreign exchange and other movements (522) 411 (31) Balance at end of period 9,083 8,679 7,913 Rm 6 months to Year to 6 months to 30 June 31 December 30 June Reconciliation of minority interests share of profit 2005 2004 2004 The minority interest charge is analysed as follows: Adjusted operating profit 883 1,109 438 Goodwill impairments (2) (201) (201) Short term fluctuations in investment returns 29 24 (18) (Loss) / profit on disposal of investment in subsidiaries - (59) 73 Reported charge 910 873 292 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 11 MINORITY INTERESTS continued 11(b) Preferred securities Rm 6 months to Year to 6 months to 30 June 31 December 30 June 2005 2004 2004 R2,000 million non-cumulative preference shares (1) 1,675 1,519 1,583 R792 million non-cumulative preference shares (2) 849 770 803 US $750 million cumulative preferred securities (3) 5,479 4,969 5,176 Other (4) 71 76 57 8,074 7,334 7,619 Unamortised issue costs (156) (152) (136) 7,918 7,182 7,483 Deduct: preferred securities held by other group companies (108) (152) (147) Balance at end of period 7,810 7,030 7,336 Preferred securities are held at historic value of consideration received less unamortised issue costs, converted at historical exchange rates. (1) 200 million R10 preference shares issued by Nedbank Limited (Nedbank), the Group's banking subsidiary. 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 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. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 12 CONTINGENT LIABILITIES Rm 6 months to Year to 6 months to 30 June 31 December 30 June 2005 2004 2004 Guarantees and assets pledged as collateral security 10,000 10,783 10,784 Irrevocable letters of credit 3,876 3,504 3,165 Secured lending 6,986 6,453 7,155 Other contingent liabilities 1,519 2,267 463 22,381 23,007 21,567 13 POST BALANCE SHEET EVENTS: BLACK ECONOMIC EMPOWERMENT On 19 April 2005, the Group announced its intention to implement certain Black Economic Empowerment ownership proposals which will increase black shareholdings in its South African businesses. The proposals involve the issue of new ordinary shares in Old Mutual plc, Nedbank and Mutual & Federal to various share trusts for the benefit of black employees within the Group and to a number of black controlled entities beneficially owned by black clients or distributors, black community groups and Black Business Partners in South Africa. Share-based payment costs in accordance with IFRS 2, which are required to be recognised on issue of the Company's shares, are estimated at R283 million. Initial costs to be recognised upon implementation of the Nedbank and Mutual & Federal arrangements are estimated at R108 million. The proposals were approved by shareholders at an Extraordinary General Meeting and Court Meeting held on 6 July 2005. The proposals in respect of the Company were subject to a scheme of arrangement under section 425 of the Companies Act 1985, which were confirmed by the UK High Court on 18 July 2005. Implementation of the proposals has taken place during August 2005, resulting in the issue of 230,680,000 new ordinary shares in the Company. Of these, 172,840,000 ordinary shares are to be accounted for as treasury shares. Shareholders' equity will increase by R65 million, being the initial consideration received for the shares. 14 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS Reconciliations from our previously reported UK GAAP results to those results restated under IFRS for all comparative periods have been set out in the Group's Analyst and Investor Briefing and Restatement Document published on 3 May 2005. Where necessary, certain comparatives have been corrected to ensure consistency in preparation and presentation of results. The impact of the changes is an increase in equity attributable to equityholders of the parent of R238 million as at 31 December 2004 and no impact as at 30 June 2004. European Embedded Value Supplementary Information for the six months to 30 June 2005 1 SUMMARY INCOME STATEMENT ON A EUROPEAN EMBEDDED VALUE BASIS Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Africa Covered business 3,036 3,415 7,693 Asset management 422 254 636 Banking 1,878 646 2,383 General insurance 573 639 1,190 5,909 4,954 11,902 North America Covered business 966 644 908 Asset management 588 571 1,026 1,554 1,215 1,934 United Kingdom & Rest of World Covered business 12 - 48 Asset management 87 91 (57) Banking 167 137 277 266 228 268 Debt service costs (216) (292) (578) Other shareholders' income / (expenses) (93) (73) (277) Adjusted operating profit* 7,420 6,032 13,249 Goodwill impairments (19) (401) (401) (Loss) / profit on disposal of investments in subsidiaries (47) 149 (311) Short term fluctuations in investment returns (including economic assumption changes) Covered business 2,443 (2,625) 3,197 Other 272 (191) 458 Other covered business changes** 570 - (2,714) Income from hedging activities that do not qualify for hedge - 61 366 accounting Investment return adjustment for Group equity and debt instruments (329) (316) (1,168) held in life funds Fines and penalties - (596) (596) Profit before tax 10,310 2,113 12,080 Income tax attributable to equity holders (2,536) (644) (3,197) Profit for the financial period 7,774 1,469 8,883 Minority interests - ordinary shares (910) (292) (873) - preferred securities (327) (328) (696) Profit for the financial period attributable to equity holders 6,537 849 7,314 * For life assurance and general insurance business, EEV adjusted operating profit is based on the expected investment return and includes investment returns on own shares held within policyholders' funds. For all businesses, adjusted operating profit excludes goodwill impairments, fines and penalties, income from hedging activities that do not qualify for hedge accounting, and (loss)/profit on disposal of subsidiaries. Adjusted operating earnings per share are similarly based, but are stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders' funds. ** Refer to analysis of covered business embedded value results in Section 7. European Embedded Value Supplementary Information for the six months to 30 June 2005 1 SUMMARY INCOME STATEMENT ON A EUROPEAN EMBEDDED VALUE BASIS continued The adjusted operating profit after tax attributable to equity holders is determined as follows: Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Adjusted operating profit 7,420 6,032 13,249 Tax on adjusted operating profit (1,791) (1,617) (2,714) 5,629 4,415 10,535 Minority interests - ordinary shares (883) (438) (1,109) - preferred securities (327) (328) (696) Adjusted operating profit after tax attributable to equity holders 4,419 3,649 8,730 Rm 6 months to 6 months to Year to 30 June 30 June 31 December Embedded value earnings per share attributable to equity holders 2005 2004 2004 Adjusted operating earnings per share 117.7 97.7 233.5 Basic earnings per share 188.5 24.8 213.7 Adjusted weighted average number of shares - millions 3,753 3,735 3,738 Weighted average number of shares - millions 3,467 3,419 3,422 European Embedded Value Supplementary Information for the six months to 30 June 2005 1 SUMMARY INCOME STATEMENT ON A EUROPEAN EMBEDDED VALUE BASIS continued Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Adjusted operating profit for the covered business 4,014 4,059 8,649 Africa 3,036 3,415 7,693 North America 966 644 908 United Kingdom & Rest of World 12 - 48 Tax on adjusted operating profit for the covered business 1,150 1,229 2,396 Africa 871 1,034 2,125 North America 279 195 271 United Kingdom & Rest of World - - - Adjusted operating profit after tax for the covered business 2,864 2,830 6,253 Africa 2,165 2,381 5,568 North America 687 449 637 United Kingdom & Rest of World 12 - 48 Reconciliation of tax on adjusted operating profit Tax on adjusted operating profit for the covered business 1,150 1,229 2,396 Tax on adjusted operating profit for other business 641 388 318 Tax on adjusted operating profit 1,791 1,617 2,714 European Embedded Value Supplementary Information for the six months ended 30 June 2005 2 RECONCILIATION OF MOVEMENTS IN GROUP EMBEDDED VALUE Rm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Group embedded value at the beginning of the year 47,808 43,462 43,462 Change in equity arising in the period Fair value gains / (losses) 268 486 755 Fair value of equity settled share options 47 12 35 Currency translation differences / exchange differences on translating foreign operations 2,457 (363) (3,026) Cash flow hedge amortisation 23 (24) (47) Aggregate tax effect of items taken directly to or transferred from equity - (73) - Other (1,954) (122) 802 Net income recognised 841 (84) (1,481) Profit for the period 6,537 849 7,314 Total recognised income and expense for the period 7,378 765 5,833 Dividend for the period (1,373) (1,288) (1,959) Purchase / sale of treasury shares (81) (61) 295 Issue of perpetual preferred callable securities 4,036 - - Exercise of share options 35 100 177 Group embedded value at the end of the period 57,803 42,978 47,808 3 COMPONENTS OF GROUP EMBEDDED VALUE Rm At 30 June At 31 December At 30 June 2005 2004 2004 Shareholders' adjusted net worth 38,041 31,818 29,085 Equity shareholders' funds 45,984 35,647 31,607 Adjustment to include life subsidiaries on a statutory solvency basis: Africa 945 2,343 1,763 North America (9,043) (6,259) (4,183) United Kingdom & Rest of World (96) (76) (147) Adjustment for discounting CGT 251 163 45 Value of in-force business 19,762 15,990 13,893 Value of in-force business before items listed below 24,302 20,807 16,753 Additional time-value reserves for financial options and guarantees (802) (803) (746) Cost of required capital (3,708) (3,992) (2,091) Minority interest in value of in-force (30) (22) (23) Group embedded value 57,803 47,808 42,978 European Embedded Value Supplementary Information for the six months to 30 June 2005 3 COMPONENTS OF GROUP EMBEDDED VALUE continued Rm At 30 June At 31 December At 30 June 2005 2004 2004 Pro-forma adjustments to bring Group investments to market value Group embedded value 57,803 47,808 42,978 Adjustment to bring listed subsidiaries to market value 5,766 6,607 3,075 Adjustment for market value of Group equity and debt instruments held in life funds 4,055 3,992 3,527 Adjustment to remove perpetual preferred callable securities (4,187) - - Adjusted Group embedded value 63,437 58,407 49,580 c c c Adjusted Group embedded value per share 1,645 1,515 1,288 Return on adjusted Group embedded value (ROEV) % p.a. 15.4% 19.0% 15.3% Number of shares in issue at the end of the period including own shares held in policyholders' funds - millions 3,857 3,854 3,849 The adjustments to include life subsidiaries on a statutory solvency basis reflect the difference between the net worth of each life subsidiary on the statutory basis (as required by the local regulator) and their portion of the group's consolidated equity shareholders' funds. In Africa, these values exclude items that are eliminated or shown separately on consolidation (such as Nedbank, Mutual & Federal and inter-company loans). The ROEV is calculated as the adjusted operating profit after tax and minorities of R4,419 million together with an expected equity return on the pro-forma adjustment of R368 million divided by the opening adjusted embedded value increased / (reduced) by the weighted value of any capital raised / (dividends paid). European Embedded Value Supplementary Information for the six months to 30 June 2005 4 RECONCILIATION OF EMBEDDED VALUE OF THE COVERED BUSINESS WITH THE ADJUSTED EMBEDDED VALUE Rm At At At 30 June 31 December 30 June 2005 2004 2004 Embedded value of the covered business 43,101 38,566 33,279 Adjusted net worth 23,339 22,576 19,386 Value of in-force business* 19,762 15,990 13,893 Adjusted net worth of asset management businesses 14,044 10,740 10,953 Africa 1,735 1,096 1,492 North America 12,309 9,644 9,461 Market value banking Africa 16,365 15,643 12,457 Market value general insurance Africa 4,952 5,272 4,578 Net other business 1,914 1,823 1,515 Preferred securities (5,479) (4,969) (5,176) Perpetual preferred callable securities (4,187) - - Debt (7,273) (8,668) (8,026) Rand denominated (550) (651) (667) US$ denominated (6,185) (7,453) (7,359) GBP denominated (538) (564) - Adjusted Group embedded value 63,437 58,407 49,580 * Net of minority interests European Embedded Value Supplementary Information for the six months to 30 June 2005 5 COMPONENTS OF EMBEDDED VALUE OF THE COVERED BUSINESS Rm At At At 30 June 31 December 30 June 2005 2004 2004 Embedded value of the covered business 43,101 38,566 33,279 Adjusted net worth 23,339 22,576 19,386 Value of in-force business 19,762 15,990 13,893 Africa Adjusted net worth 16,831 16,674 13,836 Required capital (equivalent to 152% of statutory minimum capital at 30 June 2005) 16,687 17,303 16,730 Free surplus 144 (629) (2,894) Value of in-force business 12,130 10,902 9,631 Value of in-force business before items listed below 15,354 14,569 11,451 Additional time-value reserves for financial options and guarantees* (443) (532) (497) Cost of required capital (2,751) (3,113) (1,300) Minority interest in value of in-force (30) (22) (23) North America Adjusted net worth 6,149 5,587 5,290 Required capital (equivalent to 282% of statutory minimum capital at 30 June 2005) 5,312 4,893 4,589 Free surplus 837 694 701 Value of in-force business 7,333 4,817 3,979 Value of in-force business before items listed below 8,613 5,934 4,985 Additional time-value reserves for financial options and guarantees (359) (271) (249) Cost of required capital (921) (846) (757) United Kingdom & Rest of World Adjusted net worth 359 315 260 Required capital 120 109 113 Free surplus 239 206 147 Value of in-force business 299 271 283 Value of in-force business before items listed below 335 304 317 Additional time-value reserves for financial options and guarantees - - - Cost of required capital (36) (33) (34) * These time-value reserves in respect of financial options and guarantees are in addition to those already held within the policyholder liabilities. The shareholders' adjusted net worth includes goodwill relating to the North American life subsidiaries of R754 million (December 2004: R640 million, June 2004: R701 million). European Embedded Value Supplementary Information for the six months to 30 June 2005 6 BASIS OF PREPARATION This supplementary information has been prepared in accordance with the European Embedded Value (EEV) Principles issued in May 2004 by the European Chief Financial Officers' Forum. The results for the six months to 30 June 2005 and the position at that date have been prepared on the same basis as that used in the Group's EEV press release dated 20 June 2005. There has been no change in the definition of business covered by the EEV Principles ('covered business') as compared with the 20 June 2005 press release. The treatment within this supplementary information of all business other than covered business is unchanged from the primary financial information. The comparative figures for the financial year ended 31 December 2004, and the results for the six months to 30 June 2004, were presented in the 20 June 2005 EEV press release. However, where necessary, certain comparatives have been corrected to ensure consistency in preparation and presentation of results. Note 13 to the primary financial information describes the post balance sheet event in respect of the issue of new shares in connection with Black Economic Empowerment. Such shares are subject to a deferred consideration, and the present value of the deferred consideration will be included within the adjusted Group embedded value at 31 December 2005. European Embedded Value Supplementary Information for the six months to 30 June 2005 7 ANALYSIS OF COVERED BUSINESS EMBEDDED VALUE RESULTS (after tax) Rm 6 months to30 June 2005 Value of Adjusted In-force Total covered business net worth business Total Embedded value of the covered business at the beginning of the period 22,576 15,990 38,566 New business contribution (635) 1,268 633 Expected return on existing business - return on VIF - 1,034 1,034 Expected return on existing business - transfer to net worth 1,176 (1,176) - Experience variances 49 256 305 Operating assumption changes (254) 335 81 Expected return on adjusted net worth 811 - 811 Adjusted operating profit after tax 1,147 1,717 2,864 Investment return variances on in-force business 223 366 589 Investment return variances on adjusted net worth 1,003 - 1,003 Effect of economic assumption changes - 302 302 Effect of changes in and cost of required capital - 367 367 Profit after tax 2,373 2,752 5,125 Exchange rate movements 1,001 1,020 2,021 Capital injected to covered business 163 - 163 Amounts released from covered business (1,381) - (1,381) Transfer from covered business to other segments (1,393) - (1,393) Embedded value of the covered business at the end of the period 23,339 19,762 43,101 Rm 6 months to 30 June 2004 Value of Adjusted In-force Total covered business net worth business Total Embedded value of the covered business at the beginning of the period 21,868 14,706 36,574 New business contribution (571) 1,130 559 Expected return on existing business - return on VIF - 886 886 Expected return on existing business - transfer to net worth 1,531 (1,531) - Experience variances 304 170 474 Operating assumption changes - (73) (73) Expected return on adjusted net worth 984 - 984 Adjusted operating profit after tax 2,248 582 2,830 Investment return variances on in-force business 36 (341) (305) Investment return variances on adjusted net worth (804) - (804) Effect of economic assumption changes - (742) (742) Effect of changes in and cost of required capital - - - Profit after tax 1,480 (501) 979 Exchange rate movements (410) (312) (722) Capital injected to covered business 109 - 109 Amounts released from covered business (366) - (366) Transfer from covered business to other segments (3,295) - (3,295) Embedded value of the covered business at the end of the period 19,386 13,893 33,279 Rm Year to 31 December 2004 Value of Adjusted In-force Total covered business net worth business Total Embedded value of the covered business at the beginning of the period 21,868 14,706 36,574 New business contribution (1,216) 2,490 1,274 Expected return on existing business - return on VIF - 1,746 1,746 Expected return on existing business - transfer to net worth 2,288 (2,288) - Experience variances 154 413 567 Operating assumption changes 177 565 742 Expected return on adjusted net worth 1,924 - 1,924 Adjusted operating profit after tax 3,327 2,926 6,253 Investment return variances on in-force business 356 295 651 Investment return variances on adjusted net worth 850 - 850 Effect of economic assumption changes - 601 601 Effect of changes in and cost of required capital - (1,688) (1,688) Profit after tax 4,533 2,134 6,667 Exchange rate movements (1,008) (850) (1,858) Capital injected to covered business 1,935 - 1,935 Amounts released from covered business (1,438) - (1,438) Transfer from covered business to other segments (3,314) - (3,314) Embedded value of the covered business at the end of the period 22,576 15,990 38,566 European Embedded Value Supplementary Information for the six months to 30 June 2005 7 ANALYSIS OF COVERED BUSINESS EMBEDDED VALUE RESULTS (after tax) continued Rm 6 months to 30 June 2005 Adjusted Value of net In-force business Africa covered business worth Individual Group Total Embedded value of the covered business at the beginning of the period 16,674 7,338 3,564 27,576 New business contribution (186) 361 116 291 Expected return on existing business - return on VIF - 465 289 754 Expected return on existing business - transfer to net worth 1,059 (744) (315) - Experience variances 328 12 (24) 316 Operating assumption changes (138) 150 104 116 Expected return on adjusted net worth 688 - - 688 Adjusted operating profit after tax 1,751 244 170 2,165 Investment return variances on in-force business 142 301 146 589 Investment return variances on adjusted net worth 1,050 - - 1,050 Effect of economic assumption changes - - - - Effect of changes in and cost of required capital - (48) 415 367 Profit after tax 2,943 497 731 4,171 Amounts released from covered business (1,381) - - (1,381) Transfer from covered business to other segments* (1,405) - - (1,405) Embedded value of the covered business at the end of the period 16,831 7,835 4,295 28,961 Rm 6 months to 30 June 2004 Adjusted Value of net in-force business Africa covered business worth Individual Group Total Embedded value of the covered business at the beginning of the period 16,174 6,112 4,238 26,524 New business contribution (97) 316 97 316 Expected return on existing business - return on VIF - 388 292 680 Expected return on existing business - transfer to net worth 851 (596) (255) - Experience variances 340 12 134 486 Operating assumption changes - 12 - 12 Expected return on adjusted net worth 887 - - 887 Adjusted operating profit after tax 1,981 132 268 2,381 Investment return variances on in-force business 36 (98) (328) (390) Investment return variances on adjusted net worth (682) - - (682) Effect of economic assumption changes - (426) (267) (693) Effect of changes in and cost of required capital - - - - Profit after tax 1,335 (392) (327) 616 Amounts released from covered business (366) - - (366) Transfer from covered business to other segments* (3,307) - - (3,307) Embedded value of the covered business at the end of the period 13,836 5,720 3,911 23,467 Rm Year to 31 December 2004 Adjusted Value of net In-force business Africa covered business worth Individual Group Total Embedded value of the covered business at the beginning of the period 16,174 6,112 4,238 26,524 New business contribution (189) 779 165 755 Expected return on existing business - return on VIF - 802 590 1,392 Expected return on existing business - transfer to net worth 1,734 (1,205) (529) - Experience variances 885 104 (222) 767 Operating assumption changes 118 824 (11) 931 Expected return on adjusted net worth 1,723 - - 1,723 Adjusted operating profit after tax 4,271 1,304 (7) 5,568 Investment return variances on in-force business 72 187 155 414 Investment return variances on adjusted net worth 921 - - 921 Effect of economic assumption changes - 481 120 601 Effect of changes in and cost of required capital - (746) (942) (1,688) Profit after tax 5,264 1,226 (674) 5,816 Amounts released from covered business (1,438) - - (1,438) Transfer from covered business to other segments* (3,326) - - (3,326) Embedded value of the covered business at the end of the period 16,674 7,338 3,564 27,576 * The transfer from covered business to other segments includes the purchase of additional shares in Nedbank Group Limited, as well as head office expenses. The effect of changes in and cost of required capital for Africa reflects changes in the amount of required capital and in the mix of assets backing the capital. European Embedded Value Supplementary Information for the six months to 30 June 2005 7 ANALYSIS OF COVERED BUSINESS EMBEDDED VALUE RESULTS (after tax) continued Rm 6 months to 30 June 2005 Value of Adjusted In-force North America covered business net worth business Total Embedded value of the covered business at the beginning of the period 5,587 4817 10,404 New business contribution (442) 779 337 Expected return on existing business - return on VIF - 268 268 Expected return on existing business - transfer to net worth 105 (105) - Experience variances (279) 268 (11) Operating assumption changes (116) 93 (23) Expected return on adjusted net worth 116 - 116 Adjusted operating profit after tax (616) 1,303 687 Investment return variances on in-force business 81 (81) - Investment return variances on adjusted net worth (47) - (47) Effect of economic assumption changes - 302 302 Profit after tax (582) 1,524 942 Exchange rate movements 969 992 1,961 Capital injected to covered business 163 - 163 Transfer from covered business to other segments* 12 - 12 Embedded value of the covered business at the end of the period 6,149 7,333 13,482 Rm 6 months to 30 June 2004 Value of Adjusted In-force North America covered business net worth business Total Embedded value of the covered business at the beginning of the period 5,419 4,058 9,477 New business contribution (474) 729 255 Expected return on existing business - return on VIF - 194 194 Expected return on existing business - transfer to net worth 656 (656) - Experience variances (12) - (12) Operating assumption changes - (85) (85) Expected return on adjusted net worth 97 - 97 Adjusted operating profit after tax 267 182 449 Investment return variances on in-force business - 85 85 Investment return variances on adjusted net worth (122) - (122) Effect of economic assumption changes - (49) (49) Profit after tax 145 218 363 Exchange rate movements (395) (297) (692) Capital injected to covered business 109 - 109 Transfer from covered business to other segments* 12 - 12 Embedded value of the covered business at the end of the period 5,290 3,979 9,269 Rm Year to 31 December 2004 Value of Adjusted In-force North America covered business net worth business Total Embedded value of the covered business at the beginning of the period 5,419 4,058 9,477 New business contribution (1,015) 1,546 531 Expected return on existing business - return on VIF - 330 330 Expected return on existing business - transfer to net worth 519 (519) - Experience variances (684) 507 (177) Operating assumption changes - (236) (236) Expected return on adjusted net worth 189 - 189 Adjusted operating profit after tax (991) 1,628 637 Investment return variances on in-force business 260 (47) 213 Investment return variances on adjusted net worth (71) - (71) Effect of economic assumption changes - - - Profit after tax (802) 1,581 779 Exchange rate movements (977) (822) (1,799) Capital injected to covered business 1,935 - 1,935 Transfer from covered business to other segments* 12 - 12 Embedded value of the covered business at the end of the period 5,587 4,817 10,404 * The transfer from covered business to other segments is head office expenses. The segmental results of North America include the operating profit generated by Old Mutual Reassurance (Ireland) Limited (OMRe), which provides reinsurance to the North American life companies, and in OMNIA Life (Bermuda) Limited. European Embedded Value Supplementary Information for the six months to 30 June 2005 7 ANALYSIS OF COVERED BUSINESS EMBEDDED VALUE RESULTS (after tax) continued Rm 6 months to 30 June 2005 Value of United Kingdom & Rest of World Adjusted In-force covered business net worth business Total Embedded value of the covered business at the beginning of the period 315 271 586 New business contribution (7) 12 5 Expected return on existing business - return on VIF - 12 12 Expected return on existing business - transfer to net worth 12 (12) - Experience variances - - - Operating assumption changes - (12) (12) Expected return on adjusted net worth 7 - 12 Adjusted operating profit after tax 12 - 12 Investment return variances on in-force business - - - Investment return variances on adjusted net worth - - - Profit after tax 12 - 12 Exchange rate movements 32 28 60 Amounts released from covered business - - - Embedded value of the covered business at the end of the period 359 299 658 Rm 6 months to 30 June 2004 Value of United Kingdom & Rest of World Adjusted In-force covered business net worth business Total Embedded value of the covered business at the beginning of the period 275 298 573 New business contribution - (12) (12) Expected return on existing business - return on VIF - 12 12 Expected return on existing business - transfer to net worth 24 (24) - Experience variances (24) 24 - Operating assumption changes - - - Expected return on adjusted net worth - - - Adjusted operating profit after tax - - - Investment return variances on in-force business - - - Investment return variances on adjusted net worth - - - Profit after tax - - - Exchange rate movements (15) (15) (30) Amounts released from covered business - - - Embedded value of the covered business at the end of the period 260 283 543 Rm Year to 31 December 2004 Value of United Kingdom & Rest of World Adjusted In-force covered business net worth business Total Embedded value of the covered business at the beginning of the period 275 298 573 New business contribution (12) - (12) Expected return on existing business - return on VIF - 24 24 Expected return on existing business - transfer to net worth 35 (35) - Experience variances (47) 24 (23) Operating assumption changes 59 (12) 47 Expected return on adjusted net worth 12 - 12 Adjusted operating profit after tax 47 1 48 Investment return variances on in-force business 24 - 24 Investment return variances on adjusted net worth - - - Profit after tax 71 1 72 Exchange rate movements (31) (28) (59) Amounts released from covered business - - - Embedded value of the covered business at the end of the period 315 271 586 European Embedded Value Supplementary Information for the six months to 30 June 2005 8 VALUE OF NEW BUSINESS (after tax) The tables below set out a geographical analysis of the value of new business (VNB) after tax for the six months to 30 June 2005, six months to 30 June 2004 and the year to 31 December 2004. Annual Premium Equivalent (APE) is calculated as recurring premiums plus 10% of single premiums. New business profitability is measured by both the ratio of the VNB to the APE as well as to the Present Value of new business premiums (PVNBP), and shown under 'Margin' below. PVNBP is defined as the present value of regular premiums plus single premiums for any given period. It is calculated using the same assumptions as for the new business contribution. Individual Group business business Africa 6 months to 30 June 2005 Recurring premiums 985 385 1,370 Single premiums 3,385 1,887 5,272 Annual premium equivalent 1,324 574 1,898 Present value of future new business premiums 8,170 3,806 11,976 Value of new business after tax and cost of required capital 175 116 291 APE Margin 13% 20% 15% PVNBP Margin 2.1% 3.1% 2.4% 6 months to 30 June 2004 Recurring premiums 889 385 1,274 Single premiums 3,162 1,097 4,259 Annual premium equivalent 1,205 495 1,700 Present value of future new business premiums 7,499 2,990 10,489 Value of new business after tax and cost of required capital 207 109 316 APE Margin 17% 22% 19% PVNBP Margin 2.8% 3.7% 3.0% Year to 31 December 2004 Recurring premiums 1,943 684 2,627 Single premiums 6,563 2,530 9,093 Annual premium equivalent 2,599 937 3,536 Present value of future new business premiums 16,329 6,206 22,535 Value of new business after tax and cost of required capital 602 153 755 APE Margin 23% 16% 21% PVNBP Margin 3.7% 2.5% 3.4% Rm North UK & Recurring America Rest of World premiums 6 months to 30 June 2005 Recurring premiums 454 2 1,826 Single premiums 12,575 907 18,754 Annual premium equivalent 1,712 93 3,703 Present value of future new business premiums 14,762 920 27,658 Value of new business after tax and cost of required capital 337 5 633 APE Margin 20% 5% 17% PVNBP Margin 2.3% 0.5% 2.3% 6 months to 30 June 2004 Recurring premiums 304 5 1,583 Single premiums 13,698 648 18,605 Annual premium equivalent 1,674 70 3,444 Present value of future new business premiums 15,181 668 26,338 Value of new business after tax and cost of required capital 255 (12) 559 APE Margin 15% (16%) 16% PVNBP Margin 1.7% (1.8%) 2.1% Year to 31 December 2004 Recurring premiums 679 12 3,318 Single premiums 25,455 1,476 36,024 Annual premium equivalent 3,225 160 6,921 Present value of future new business premiums 28,706 1,498 52,740 Value of new business after tax and cost of required capital 531 (12) 1274 APE Margin 16% (7%) 18% PVNBP Margin 1.8% (0.8%) 2.4% European Embedded Value Supplementary Information for the six months to 30 June 2005 8 VALUE OF NEW BUSINESS (after tax) continued The value of new individual unit trust and some group market-linked business written by the life companies is excluded, as the profits on this business arise in the asset management subsidiaries. The value of new business also excludes premium increases arising from indexation arrangements in respect of existing business, as these are already included in the value of in-force business. The premiums shown for the United States exclude reinsurance ceded externally. A reconciliation of the new business premiums shown in the notes to the primary financial information to those shown above, for the six months to 30 June 2005, is set out below. Rm Recurring Single 6 months to 30 June 2005 premiums premiums New business premiums in the notes to the primary financial information 1,305 12,763 Add: Healthcare business 278 - Other Investment contracts 243 8,479 Less: North America reinsurance ceded externally - (47) Group market-linked business not valued - (1,655) Unit trust business not valued - (758) OMART business not valued - (27) New business premiums as per European Embedded Value supplementary information 1,826 18,755 European Embedded Value Supplementary Information for the six months to 30 June 2005 9 PRODUCT ANALYSIS OF NEW COVERED BUSINESS PREMIUMS Rm 6 months to 30 June 2005 Africa Recurring Single Total business 1,370 5,272 Individual business 985 3,385 Saving 339 2,511 Protection 317 38 Annuity - 829 Group schemes 329 7 Group business 385 1,887 Saving 24 1,341 Protection 83 3 Annuity - 543 Healthcare 278 - Total business* 1,370 5,272 Individual business 985 3,385 Insurance contracts 490 877 Investment contracts with discretionary participating features 255 77 Other investment contracts 240 2,431 Group business 385 1,887 Insurance contracts 362 545 Investment contracts with discretionary participating features 23 778 Other investment contracts - 564 Rm 6 months to 30 June 2004 Africa Recurring Single Total business 1,274 4,259 Individual business 889 3,162 Saving 305 2,335 Protection 273 50 Annuity - 772 Group schemes 311 5 Group business 385 1,097 Saving 29 936 Protection 81 - Annuity - 161 Healthcare 275 - Total business* 1,274 4,259 Individual business 889 3,162 Insurance contracts 487 754 Investment contracts with discretionary participating features 256 134 Other investment contracts 146 2,274 Group business 385 1,097 Insurance contracts 350 159 Investment contracts with discretionary participating features 35 633 Other investment contracts - 305 Rm Year to 31 December 2004 Africa Recurring Single Total business 2,627 9,093 Individual business 1,943 6,563 Saving 629 4,800 Protection 671 81 Annuity - 1,670 Group schemes 643 13 Group business 684 2,530 Saving 67 2,133 Protection 136 2 Annuity - 395 Healthcare 481 - Total business* 2,627 9,093 Individual business 1,943 6,563 Insurance contracts 1,053 1,712 Investment contracts with discretionary participating features 569 260 Other investment contracts 321 4,591 Group business 684 2,530 Insurance contracts 613 368 Investment contracts with discretionary participating features 71 1241 Other investment contracts - 921 European Embedded Value Supplementary Information for the six months to 30 June 2005 9 PRODUCT ANALYSIS OF NEW COVERED BUSINESS PREMIUMS continued Rm 6 months to 30 June 2005 North America Recurring Single Total business 454 12,575 Fixed deferred annuity - - Equity indexed annuity - 7,607 Variable annuity - 2,199 Life 454 - Immediate annuity - 1,931 Other (corporate) - 838 Total business* 454 12,575 Insurance contracts 454 10,411 Investment contracts with discretionary participating features - - Other investment contracts - 2,164 Rm 6 months to 30 June 2004 North America Recurring Single Total business 304 13,698 Fixed deferred annuity - 1,459 Equity indexed annuity - 6,673 Variable annuity - 1,203 Life 304 - Immediate annuity - 3,330 Other (corporate) - 1,033 Total business* 304 13,698 Insurance contracts 304 11,279 Investment contracts with discretionary participating features - - Other investment contracts - 2,419 Rm Year to 31 December 2004 North America Recurring Single Total business 679 25,455 Fixed deferred annuity - 2,821 Equity indexed annuity - 13,653 Variable annuity - 2,514 Life 679 - Immediate annuity - 5,216 Other (corporate) -- 1,251 Total business* 679 25,455 Insurance contracts 679 21,335 Investment contracts with discretionary participating features - - Other investment contracts - 4,120 Rm 6 months to 30 June 2005 United Kingdom & Rest of World Recurring Single Total business 2 907 Saving 2 907 Protection - - Total business* 2 907 Insurance contracts - - Investment contracts with discretionary participating features - - Other investment contracts 2 907 Rm 6 months to 30 June 2004 United Kingdom & Rest of World Recurring Single Total business 5 648 Saving 5 648 Protection - - Total business* 5 648 Insurance contracts - - Investment contracts with discretionary participating features - - Other investment contracts 5 648 Rm Year to 31 December 2004 United Kingdom & Rest of World Recurring Single Total business 12 1,476 Saving 12 1,476 Protection - - Total business* 12 1,476 Insurance contracts - - Investment contracts with discretionary participating features - - Other investment contracts 12 1,476 * The classification of insurance contracts, investment contracts with discretionary participating features and other investment contracts is in accordance with the IFRS definitions. All categories of business (i.e. insurance and investment) are subject to EEV accounting. European Embedded Value Supplementary Information for the six months to 30 June 2005 10 ASSUMPTIONS The principal assumptions used in the calculation of the value of in-force business and the value of new business are set out below. The assumptions are best estimates and actively reviewed. • The pre-tax investment and economic assumptions used for the African and North American businesses are set out below. We have used a bottom-up market consistent methodology to calculate the risk discount rates in all other territories. At At At 30 June 31 December 30 June 2005 2004 2004 Africa Risk-free rate (10 year Government bond) 8.3% 8.3% 10.4% Cash return 6.3% 6.3% 8.4% Equity return 11.8% 11.8% 13.9% Property return 9.8% 9.8% 11.9% Inflation 5.3% 5.3% 7.4% Risk discount rate 10.6% 10.6% 12.7% Risk margin 2.3% 2.3% 2.3% North America Risk free rate (10 year Treasury yield) 3.9% 4.3% 4.6% Inflation 3.0% 3.0% 3.0% New money yield assumed 4.9% 5.1% 6.4% Net portfolio earned rate 5.7% 5.9% 6.2% Risk discount rate 7.1% 7.5% 7.8% Risk margin 3.2% 3.2% 3.2% • The pre-tax investment and economic assumptions are updated every six months to reflect the economic conditions prevailing on the valuation date. Risk-free rates have a duration similar to that of the underlying liabilities. Equity and property risk premiums incorporate both historical relationships and the Directors' view of future projected returns in each geography. • The risk margins have been calculated using a bottom-up market consistent approach, and reflect the distinctive risks of the products in the respective business units. The calibration of the risk margins was not redone for June 2005, and the same risk margins were used as for December 2004. • Where applicable, rates of future bonuses or crediting rates have been set at levels consistent with the investment return assumptions. Projected company taxation is based on the current tax basis that applies in each country. • For the South African business, full allowance has been made for Secondary Tax on Companies (STC) that may be payable. Account has been taken of the impact of CGT in South Africa. It has been assumed that 10% of the equity portfolio (excluding group subsidiaries) will be traded each year. For North America full allowance has been made for existing tax attributes of the companies, including the use of existing carry-forwards and preferred tax credit investments. For the purposes of the summary income statement the adjusted operating profit for the covered business has been grossed up for tax. The tax rates used were effective corporation tax rates of 35% for Africa and 30% for North America and 0% for the United Kingdom & Rest of World, except for the investment return on African capital, for which the attributed tax was derived from the primary financial statements. • Both operating profit and new business are calculated on closing assumptions. European Embedded Value Supplementary Information for the six months to 30 June 2005 10 ASSUMPTIONS continued • For the African business, the required capital is calculated independently in each of the major business units. The non-investment items are based on a multiple of the non-investment components of the local Statutory Capital Adequacy Requirements set out in PGN104 issued by the Actuarial Society of South Africa (ASSA). The investment item is based on internal models developed for capital allocation and pricing purposes. The models project assets and liabilities for the business forward for 10 years using stochastically determined investment returns on a realistic basis. Bonus rates and adjustments to non-vested bonuses are determined using a consistent formula based on a weighted average of past returns and the level of the Bonus Smoothing Account (BSA) at the time. To the extent that the BSA falls to lower than normally allowable minimum levels, the shareholder is considered to be required to provide support to the business, and the capital requirement is based on the discounted value of the maximum shareholder support in the 99th worst percentile case. The required capital is invested in local equities, local cash and international cash. The asset allocation as at 30 June 2005 is 60%, 20% and 20% respectively. • For the North American business, the required capital is based on the multiple of the local Risk Based Capital (RBC) requirement that management deems necessary to maintain the desired credit rating for the company in question. The multiples vary by company from 200% to 300% and average 282% as at 30 June 2005. The required capital for OMNIA (Bermuda) Limited and Old Mutual Reassurance (Ireland) Limited in Ireland is based on the United Kingdom Financial Services Authority statutory requirements to ensure that the Group maintains adequate solvency capital in terms of the European Union Financial Groups Directive. The required capital is invested in short-dated fixed interest assets. • The required capital of Old Mutual International, based in Guernsey, is set at some 1% of funds under management, a level considered by the Directors to be appropriate to manage the business. The required capital is invested in short-dated fixed interest assets. • The assumed future mortality, morbidity and voluntary discontinuance rates have been based as far as possible on analyses of recent operating experience. Allowance has been made where appropriate for the effect of expected AIDS-related claims. • The management expenses attributable to life assurance business have been analysed between expenses relating to the acquisition of new business and the maintenance of business in-force. The future expenses attributable to life assurance business include 19% of the Group holding company expenses, with 14% allocated to Africa and 5% allocated to North America. The allocation of these expenses aligns to the proportion that the management expenses incurred by the business bears to the total management expenses incurred in the Group. • No allowance has been made for future productivity improvements in the expense assumptions. • No development expenses have been excluded from the calculations and no material allowance has been made for future development expenses. • Future investment expenses are based on the current scales of fees payable by the life assurance companies to the asset management subsidiaries. To the extent that these fees include profit margins for the asset management subsidiaries, these margins have not been included in the value of in-force business or the value of new business. • The effect of increases in premiums over the period for policies in-force has been included in the value of in-force business only where such increases are associated with indexation arrangements. Other increases in premiums of existing policies are included in the value of new business. • New schemes written on which recurring single premiums are expected to be received on a regular basis are treated as new business. The annualised premium is recognised as recurring premium new business at inception of the scheme and is determined by annualising the actual premiums received during the year in question. Subsequent recurring single premiums received in future years are not treated as new business, as these have already been provided for in calculating the value of in-force business. European Embedded Value Supplementary Information for the six months to 30 June 2005 10 ASSUMPTIONS continued • The value of new business has been accumulated to the period end. • The sensitivity of the value of in-force and value of new business to changes in the central risk discount rate are set out in section 11. • The principal exchange rates used to translate the operating results of key foreign business segments to Sterling are: Rand 6 months to Year to 6 months to 30 June 31 December 30 June 2005 2004 2004 Profit and loss account (average rate) 11.6325 11.7986 12.1544 Balance sheet (closing rate) 11.9624 10.8482 11.3037 Balance sheet (opening rate) 10.8482 11.9367 11.9367 US$ 6 months to Year to 6 months to 30 June 31 December 30 June 2005 2004 2004 Profit and loss account (average rate) 1.8731 1.8327 1.8222 Balance sheet (closing rate) 1.7918 1.9158 1.8144 Balance sheet (opening rate) 1.9158 1.7833 1.7833 • The nature of the financial options and guarantees for the African and North American businesses was set out in the EEV press release dated 20 June 2005. • The approaches and models used to determine the time value of the financial options guarantees as at 30 June 2005 are consistent with the approaches as at 31 December 2004 as set out in the EEV press release dated 20 June 2005. European Embedded Value Supplementary Information for the six months to 30 June 2005 11 ALTERNATIVE ASSUMPTIONS The tables below for Africa and North America show the sensitivity of the embedded value, value of in-force at 30 June 2005 and the value of new business for the six months to 30 June 2005 to changes in the central risk discount rate. In determining the values at different central discount rates, all other assumptions have been left unchanged. Rm Embedded Value of in-force Value of new At 30 June 2005 value business business Africa Central assumptions 28,961 12,130 291 Value before cost of required capital 14,881 349 Cost of required capital (2,751) (58) Effect of : Central discount rate +1% 27,131 10,300 233 Value before cost of required capital 14,044 314 Cost of required capital (3,744) (81) Central discount rate -1% 31,186 14,355 349 Value before cost of required capital 15,862 384 Cost of required capital (1,507) (35) North America Central assumptions 13,482 7,333 337 Value before cost of required capital 8,254 372 Cost of required capital (921) (35) Effect of : Central discount rate +1% 13,051 6,902 314 Value before cost of required capital 7,979 361 Cost of required capital (1,077) (47) Central discount rate -1% 13,936 7,787 361 Value before cost of required capital 8,541 384 Cost of solvency capital (754) (23) This information is provided by RNS The company news service from the London Stock Exchange

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