Interim Results

Old Mutual PLC 10 August 2005 OLD MUTUAL PLC ISIN: GB0007389926 JSE Share code: OML NSX share code: OLM Issuer code: OLOML RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 Delivering organic growth HIGHLIGHTS # Adjusted operating profit* up 29% to GBP554 million (30 June 2004: GBP428 million) and (IFRS** basis): up 24% to R6,445 million (30 June 2004: R5,194 million) # Adjusted operating profit (European up 28% to GBP638 million embedded value (EEV) basis): (30 June 2004: GBP497 million) and up 23% to R7,420 million (30 June 2004: R6,032 million) # Profit for the period attributable to equity holders GBP387 million (30 June 2004: GBP141 million) R4,509 million (30 June 2004: R1,712 million) # Adjusted operating earnings per share* up 22% to 8.4p (30 June 2004: 6.9p) and (IFRS basis): up 18% to 98.2c (30 June 2004: 83.1c) # Adjusted operating earnings per share up 25% to 10.1p (30 June 2004: 8.1p) and (EEV basis): up 20% to 117.7c (30 June 2004: 97.7c) # Basic earnings per share: 11.2p (30 June 2004: 4.1p), 130.2c (30 June 2004: 50.1c) # Total life assurance sales, on an Annual Premium Equivalent (APE) basis, of GBP318 million, an increase of 12% # Funds under management GBP158 billion (30 June 2004: GBP130 billion) an increase of 22%, R1,896 billion (30 June 2004: R1,469 billion) with record $20 billion fund inflows in the USA.Selestia funds under management exceed GBP1 billion # Adjusted embedded value per share 137.5p, R16.45 at 30 June 2005 (30 June 2004: 114.0p, (EEV basis): R12.88) # Return on equity 17.8% (30 June 2004: 18.7%) # Interim dividend increased by 5.7% to 1.85p (22.13 cents***) Commenting on the results, Jim Sutcliffe, Chief Executive, said: 'All of our businesses have shown strong organic growth during the first half of 2005, and returns on rising assets and embedded value are encouraging. We have completed our BEE deals in South Africa, produced strong cash flows in the USA and increased market recognition in the UK. Our strategy has delivered good earnings growth and we are well placed to take market opportunities as they arise.' Wherever the items asterisked in the Highlights are used, whether in the Highlights, the Chief Executive's Statement or the Group Finance Director's Review, the following apply: * Adjusted operating profit represents the directors' view of the underlying performance of the Group. For life assurance and general insurance businesses, adjusted operating profit is based on a long term investment return and includes investment returns on life funds' investments in Group equity and debt instruments. For all businesses, adjusted operating profit excludes goodwill impairments, fines and penalties, and profit/(loss) on disposal of investments in subsidiaries. Adjusted operating profit also excludes income from hedging activities that do not qualify for hedge accounting. Adjusted operating earnings per share is calculated on the same basis as adjusted operating profit, but is stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders' funds. ** The financial information has been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards as set out in the basis of preparation note on page 28 of this document. *** 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. Old Mutual plc Results for the six months ended 30 June 2005 continued ENQUIRIES: Old Mutual plc UK James Poole Tel: +44 (0) 20 7002 7000 Miranda Bellord Tel: +44 (0) 20 7002 7133 College Hill, Tony Friend Tel: +44 (0) 20 7457 2020 Old Mutual plc SA Nad Pillay Tel: +27 (0) 21 504 8026 Notes to Editors: A webcast of the analysts presentation and Q&A will be broadcast live at 9.30 a.m. (UK time), 10.30 a.m.(South African time), today on our website, www.oldmutual.com. High-resolution images of Jim Sutcliffe and Julian Roberts are available at www.2.oldmutual.com/Media/media_resources/photo_library/js_jr.jsp. Copies of these results and the associated analysts presentation, together with photographs and biographical details of the executive directors of Old Mutual plc, are available in electronic format to download from the Company's website at www.oldmutual.com. 10 August 2005 Chief Executive's Statement The first half of 2005 has been a period of strong organic growth, with the achievement of a number of significant milestones in the Group's development. Our three main business platforms - in South Africa, the US and the UK - have all established a momentum which their management teams are confident of being able to sustain. Particular highlights in the period have been significantly improved life assurance and unit trust sales in South Africa, substantial progress in the recovery programme at Nedbank, and record cash flows from our US Asset Management business. All our earnings measures showed good progress. Our adjusted operating earnings per share for the first half of 2005 improved to 8.4p/98.2c (2004: 6.9p/83.1c) Basic earnings per share were 11.2p/130.2c (2004:4.1p/50.1c). Adjusted operating earnings per share (EEV basis) for the period were also up at 10.1p/117.7c (2004: 8.1p/97.7c). As a result, the directors have declared an increased interim dividend of 1.85p (2004:1.75p) per share, which will be paid on 30 November 2005. In South Africa, our life business produced a return on capital of 24%, despite profits having been struck after making a provision of R225 million for the improved terms offered to customers following the Pension Fund Adjudicator's rulings on paid-up retirement annuities. We have also reduced the rate at which the Long Term Investment Return accrues, which gave rise to a R250 million negative impact on earnings. Adjusted embedded value stood at a similar level to the year end at 137.5p/R16.45, with the Rand having been at a significantly higher level at the start of the year. Our Black Economic Empowerment (BEE) ownership proposals at Old Mutual South Africa (OMSA), Nedbank Group and Mutual & Federal have been approved by the three companies' shareholders, confirmed by the UK High Court in terms of a related scheme of arrangement in the case of OMSA, and implemented by each company during the last few days. I am delighted to welcome our new black business partners and look forward to working with them to accelerate the transformation of each of the businesses. I am also glad that our staff in South Africa will have a major participation in the company through the employee ownership schemes that have been established. Although the financial impact of the BEE deals will only be seen in the second half of the year, the benefits of our BEE proposals on our sales have already started to come through. Life and unit trust sales at OMSA were well ahead of the equivalent period in 2004, benefiting from a marked upturn between the first and second quarters at Individual Life, while Group Business sales were up 19% on the equivalent period last year. Nedbank Group has continued to hit the required milestones on its path to recovery, with results slightly ahead of expectations. Meanwhile Mutual & Federal reported another excellent result for the half, despite the tougher pricing environment, aided by disciplined underwriting, good claims management and close control of expenses. Net cash flow at our US Asset Management business was very positive, with a record net total of $20 billion, including $5.4 billion of cash collateral assets at our securities lending business, eSecLending. Our South African asset management business experienced a net outflow of R17 billion, largely as a result of withdrawal of funds by the Public Investment Commissioners as it corporatised. This was despite OMAM(SA)'s excellent investment performance record over the past 18 months. Chief Executive's Statement continued We have continued to take steps during the six months to develop our US asset management retail channel through Old Mutual Capital and alternative investment capabilities through our new business, 2100 Capital, and anticipate that we shall continue to make further strategic investments to support our US asset management firms in achieving organic growth and meeting clients' objectives. Our US life business had very good levels of sales (up 10% to $276 million APE) during the first half, and it remains on track to achieve our stated target of paying dividends in 2007. Record sales of variable annuity products have been recorded at OMNIA Bermuda, which reached $1 billion of assets under management. In the UK, we passed another major milestone during the period at Selestia, by achieving over GBP1 billion of funds under management. OMAM(UK) continued to attract funds and to deliver excellent investment performance, particularly in its hedge funds. Outlook Over the past five years, we have made substantial strides in using our powerful South African base to build an international franchise, with over half our life sales and more than 70% of our asset management clients now in the US and UK. Our flexible, multi-brand strategy plays well in the market place, both in the US and elsewhere, as open architecture/multi-manager has become an increasingly powerful trend in life assurance and asset management industries. Conditions remain broadly favourable, particularly in South Africa, and while markets can always affect the outcome, our operational robustness is now well established. Each of our businesses is now on a positive trajectory and well placed to seize opportunities for growth in our marketplaces. I believe we are well set to maintain the strong performance of the first half during the rest of 2005. Jim Sutcliffe Chief Executive 10 August 2005 Group Finance Director's Review Business Review SOUTH AFRICA LIFE ASSURANCE & ASSET MANAGEMENT - OLD MUTUAL SOUTH AFRICA (OMSA) Earnings impacted by one-offs H1 H1 Highlights (Rm) 2005 2004 Var % Life assurance 1,758 1,811 (3%) Long term investment return (LTIR) 646 911 (29%) Asset management 361 230 57% Adjusted operating profit 2,765 2,952 (6%) Return on Capital (Life business) 24% 26% Client funds (Rbn) 316 271 17% The life assurance result reduced by 3% to R1,758 million compared to the first half of 2004.This was largely as a result of the R225 million charge, recognised as a result of management's response to Pension Funds Adjudicator determinations, together with the impact of increased new business strain. This increased strain arises particularly due to the introduction of International Financial Reporting Standards (IFRS), more competitive product pricing and the costs of increasing our distribution capability, especially Group Schemes. The LTIR of R646 million declined by 29% from R911 million in the first half of 2004. This reduction reflects lower rates applied across all asset classes, combined with an increase in the cash component of the portfolio since June 2004 and lower investible assets as a result of an increased investment of R1.4 billion in Nedbank to retain our controlling interest post BEE. Adjusted operating profit for the asset management businesses, excluding Nedbank, increased strongly by 57% to R361 million in the first half of 2005, from R230 million for the first half of 2004. Higher asset levels, driven largely by the good performance of the South African equity market, contributed positively. Further benefit came through higher income from performance fees in Old Mutual Asset Managers (South Africa) (OMAM), growth in unit trust funds, and a large one-off profit in our Specialised Finance company from a single transaction. The combination of the above has resulted in the adjusted operating profit for OMSA reducing by 6% to R2,765 million. The return on life allocated capital has, as a consequence, reduced to 24%, which remains very satisfactory. Funds under management increased slightly Client funds under management for the business increased slightly from R312 billion as at 31 December 2004 to R316 billion at 30 June 2005. The uplift from market movements was largely offset by negative net client cash flows. These have been disappointing, with total net client cash flow being negative R17 billion. Within the Life business, Group Business flows were a negative R4 billion as a result of normal fund benefit payments and higher terminations. Within OMAM, the largest single factor was a withdrawal by the Public Investment Corporation of R10 billion. In addition, OMAM saw outflows as a result of clients rebalancing their portfolios, shifting from balanced mandates to specialised mandates, fragmenting portfolios into smaller pieces, and some smaller funds switching into balanced multi-manager offerings. Group Finance Director's Review Business Review continued OMAM continued to deliver strong investment performance, being ranked second out of the eleven institutional asset managers in the Alexander Forbes Global Manager Watch (Large) Survey over the year to the end of June 2005. Over three years OMAM was ranked fourth. In addition, 80% of the funds managed by OMAM (weighted by value) outperformed their benchmarks over the one-year period to 30 June 2005. Over 3 years, 94% of funds outperformed their benchmarks. Both life and non-life sales increase Total life sales for the period on an Annual Premium Equivalent (APE) basis, including Old Mutual International (OMI) sales out of South Africa, were R1,900 million, 13% higher than the comparative period in 2004. Both Individual Life and Group Business sales were higher, the latter showing particularly strong growth from a low base in 2004. Non-life sales in both our broker and agency channels grew strongly and contributed towards the increase in unit trust sales of 81% from R2,027 million in the first six months of 2004 to a record R3,666 million for this period. Individual Life Business sales up 10% Individual APE (Rm) H1 H1 2005 2004 Var % Savings 574 520 10% Protection 305 267 14% Immediate annuity 82 76 8% Group Schemes 310 295 5% Total excl. OMI 1,271 1,158 10% OMI 67 54 24% Total incl. OMI 1,338 1,212 10% Single 399 358 11% Recurring 940 856 10% Individual Life Business sales increased by 10% over the comparative period in 2004. Within this, recurring premiums were up 10%, single premiums were up 11%, and good growth was seen across all product groupings. Group Schemes sales, whilst only 5% higher for the period in total, recorded strong growth in the second quarter as the strengthening of their distribution gathered pace (with a 16% growth in sales force headcount since the end of 2004). Within single premium sales, bancassurance saw particularly strong growth, with total Old Mutual life sales through the Nedbank channel being up 52% on an APE basis for the first six months compared to the same period last year. Within recurring premiums, sales through brokers were slightly down, whereas sales through our agency channel grew strongly, reflecting our continuing investment in growing our advisor headcount. Our advisor force totalled 3,112 at the end of June 2005 - some 440 higher than a year earlier and 150 higher than at the start of the year. Group Business sales recovering H1 H1 Group APE (Rm) 2005 2004 Var % Savings 148 115 29% Protection 81 67 21% Annuity 54 16 238% Healthcare 278 275 1% Total 561 473 19% Single 182 105 73% Recurring 379 368 3% Total Group Business sales increased by 19% over the comparative period in 2004. Note that this total includes for the first time Healthcare sales, which have been brought in following our move to EEV methodology. Healthcare sales maintained the high level achieved in 2004. Excluding Healthcare business, Group business sales grew by 43% to R283 million over the comparative period in 2004. Group Finance Director's Review Business Review continued This reflects our efforts in restructuring our sales management, processes and capability. The result was underpinned by growth in single premium sales, with recurring premium sales being slower to pick up. Annuity sales showed particularly strong growth, albeit off a low base, with solid growth rates also being achieved in savings and protection product sales. In 2004 there was very little activity in pension fund outsourcing. This year has seen a general increase in outsourcing (especially for post-retirement medical aid liabilities), leading to higher annuity sales. The increase in protection sales is attributable to the securing of two large Group Life Assurance schemes.Increased opportunities in the post-retirement medical aid market resulted in customised products being offered for the first time, which was also a significant driver of savings product sales. Margins reduced reflecting investment in growth New business margins have reduced from 19% on an APE basis for the first half of 2004 to 15% for the first half of 2005, reflecting our efforts to grow the business and improve value for customers. The Individual business margin has reduced from 17% to 12% reflecting more competitive product pricing, as well as the initial expense strains relating to re-building the Group Schemes sales force. The Group business margin reduced marginally from 22% to 20%, reflecting some changes in the mix of new business. Solid capital position The South African life company remains strongly capitalised, as is demonstrated by the 2.4 times coverage of the Statutory Capital Adequacy Requirement (SCAR), after allowing for statutory limitations on the value of certain assets. This compares to coverage of 2.6 times at 31 December 2004 and 2.1 times at 30 June 2004. The decrease since December 2004 is primarily due to the full phasing in of the Financial Services Board's regulations relating to limits on Group undertakings, which result in R7.5 billion of our investment in Nedbank and M&F being disallowed for the purposes of SCAR coverage. Uncertainty around Pension Funds Adjudicator determinations The Pension Funds Adjudicator has made several determinations in recent months against retirement annuity funds, including Old Mutual's retirement annuity fund. While these determinations only apply to the particular client and fund to which each determination relates, they do set a precedent for subsequent determinations. The Adjudicator's rulings are subject to appeal to the High Court which decides a matter anew and may replace the Adjudicator's ruling with its own judgement. Considering the changing needs of investors that have developed over recent years, in the second half of 2004 Old Mutual introduced its new Max Investments product, which features greater flexibility to accommodate the changing needs of clients, as well as lower policy charges. In April 2005 Old Mutual announced its intention to offer existing clients with paid-up retirement annuities the option to have their premiums managed in the style of the Max Investments product. This option will result in enhanced retirement values for certain clients who have ceased or reduced their contributions. The value of policyholder liabilities has been increased by R225 million at 30 June 2005 to reflect the estimated cost of providing this option to policyholders. We believe that this is a significant step aimed at strengthening our customer franchise, and ensuring we provide good value for money. Discussions are currently being held between the industry and the regulator about these issues. Since at this stage it is not possible to foresee the outcome of these discussions, no further provision has been made for subsequent developments that may occur. Group Finance Director's Review Business Review continued BANKING - NEDBANK GROUP (NEDBANK) Recovery on track Nedbank's financial performance for the first six months of 2005 is in line with management's expectations, with the benefits of the recovery programme gaining momentum. Highlights (Rm) H1 2005 H1 2004 Var % Adjusted operating profit 2,112 898 135% Net interest income* 4,024 3,319 21% Non-interest revenue* 3,716 3,771 (1%) NII margin* 3.45% 2.99% Cost to income ratio* 68.6% 77.9% * As reported by Nedbank Group Nedbank's adjusted operating profit, for both its banking and asset management operations, of R2,112 million increased by 135% compared to the same period last year, outperforming the previous two half year performances. Nedbank continues to deliver on its commitments made to shareholders since the inception of the recovery programme in late 2003 with the resultant benefits being increasingly reflected in its financial performance. This has manifested itself with both growth in operating income and the containment of expenses, improving the efficiency ratio from a high of 77.9% for the first half of 2004 to 68.6% for the first half of 2005. Net interest income (NII) increased by 21% to R4,024 million compared to the same period last year. The margin has improved from 2.99% to 3.45% for the six months ended 30 June 2005, having benefited from 2004 initiatives undertaken. These included the uplift created from the rights offer cash received in May 2004, reduced funding drag following the revised hedging strategy, income from the sale of non-core investments and the repatriation of certain foreign capital. The settlement of expensive empowerment funding for Peoples Bank in April 2005 has also contributed to the increase. Margins were negatively impacted by the 1% reduction in the taxation rate and were slightly compressed from the impact of the lower interest environment and the resultant drop in endowment income. Non-interest revenue (NIR) growth was negatively impacted by the sale of subsidiaries during 2004. NIR decreased by 1% from R3,771 million to R3,716 million for the six months ended 30 June 2005. Deal flow has continued to improve and the pipeline remains strong with core business of commissions and fees showing good growth. In order to more accurately reflect the banking margin on banking assets by excluding trading activities and to facilitate easier peer group comparison, Nedbank has reclassified certain trading revenue from NII to NIR. Retail earnings more than doubled in the period, and the rate of market share loss reduced. Bancassurance premiums rose both through Nedbank and Old Mutual branded products. Cost to income ratio drops to 68.6% Total expenses for the period totalled R5,311 million, 3.9% lower than in the first half of 2004, contributing to an improvement in the cost to income ratio to 68.6% from 77.9% for the first six months of 2004. Income growth was 13.2% higher than expense growth for the period, which exceeded the target of 9%. This improvement can be attributed to improved efficiencies across the business, as well as a reduction in one-off strategic recovery programme and BoE merger costs. Group Finance Director's Review Business Review continued Return on equity (ROE) on track Nedbank has achieved ROE (excluding foreign exchange) of 12.9% for the period ended 30 June 2005, compared to 13.2% in the equivalent period in 2004, with the decline due to the impact of the 2004 rights issue. Nedbank remains committed to meeting 20% ROE and 55% cost to income ratio target by 2007 despite the dilutive aspects of BEE and impacts of IFRS. Capital Nedbank continues to be well capitalised, with tier 1 capital being above 8.5% at 30 June 2005 (December 2004: 8.1%). Nedbank's capital adequacy ratio has remained stable at 12.2% (31 December 2004: 12.1%). GENERAL INSURANCE - MUTUAL & FEDERAL Continued strong performance, but pressure on margins Mutual & Federal continued to perform strongly during the first six months in 2005 in a softening insurance market, with an adjusted operating profit of R573 million, although this is down on the comparable period last year. Highlights (Rm) H1 2005 H1 2004 Var % Adjusted operating profit 573 639 (10%) Underwriting ratio 8.6% 10.7% Gross premiums 3,962 3,592 10% This excellent performance was largely attributable to a favourable underwriting cycle, which continued into the first quarter of 2005, and the inclusion for the first time of the results of Credit Guarantee Insurance Corporation (CGIC). Strong premium growth up 10% Gross premiums for the period ended 30 June 2005 increased to R3,962 million, an increase of 10% from the comparable period last year. This result was substantially impacted by the inclusion of CGIC. Excluding CGIC, the growth would have been 5%, which reflects the intense levels of competition being experienced in the market. Claims Trading conditions for the short term insurance industry remained favourable for the first six months of 2005. The general level of commercial and industrial claims remained relatively low and this positively influenced the commercial portfolio. However, the personal division has been impacted by adverse weather conditions and a noticeable decline in the profitability of the motor account, which continued to be affected by an increase in motor vehicle accidents. Healthy underwriting surplus maintained - 8.6% The underwriting surplus for the period ended 30 June 2005 was R301 million, a decrease of R34 million from the underwriting surplus of R335 million for the period ended 30 June 2004. This reduction reflects the exceptionally strong general insurance cycle of 2004, which we believe has now peaked. Nevertheless, the 2005 surplus continues to reflect good claims management and close control of expenses. The underwriting ratio was 8.6% for the first half of 2005, down from 10.7% in the equivalent period last year. Group Finance Director's Review Business Review continued UNITED STATES US LIFE Strong profits continue, up 27% Highlights ($m) H1 2005 H1 2004 Var % Adjusted operating profit 93 73 27% Funds under management ($bn) 19.8 15.3 29% APE sales 276 251 10% Value of New Business 55 38 45% New Business margin 20% 15% Our US life business's adjusted operating profit of $93 million for the period ended 30 June 2005 was 27% up on the comparable period in 2004. This reflects the continued growth in assets and in-force business, the benefits of which have more than offset the strain from increasing volumes of new business. We continue to manage growth in profitable product areas and to drive towards capital self-sufficiency in 2007. Funds under management have increased by 29% to $19.8 billion - an increase of $4.5 billion since the first half last year and $2.5 billion since the start of the year. This increase reflects strong sales inflows, and we are now only just below our $20 - $25 billion critical mass. Sales up 10% Total sales on an APE basis for the first six months of 2005 were $276 million, an increase of 10% from $251 million in first six months of 2004. This growth was driven by particularly strong sales of life products as well as offshore annuity products through OMNIA Bermuda (soon to be rebranded Old Mutual Bermuda). Life sales grew by 51% and OMNIA Bermuda sales grew by 102% over the equivalent period in 2004. The continued growth in life sales reflects strengthening relationships and increases to the number of distributors, as well as strong market growth in the middle income sector on which we focus. We also benefit from our efficient use of outsourcing of underwriting and administration services. We are now ranked 18 overall for sales in the life market, and remain the market leader for mortgage protection term insurance. OMNIA Bermuda sales continue to reflect the benefits of the stability we have provided the business since we purchased it in May 2003. Our product offering has been expanded beyond the original variable annuity to include a fixed annuity and an equity indexed product modeled closely on our onshore products. The strong growth in sales reflects these product extensions, as well as growth in our bank distribution network. Our US retail annuity businesses also continue to grow as our distribution broadens and our product offerings are expanded. Corporate sales have been kept at low levels due to the strength of retail sales. Group Finance Director's Review Business Review continued Margins healthy The average margin on new business after tax increased from 15% at 30 June 2004 to 20% of APE for the period ended 30 June 2005. The value of new business after tax increased sharply from $38 million last year to $55 million this year. The achieved margin of 20% of APE is at the upper end of our expected range of results for new business margin under EEV methodology, reflecting strengthening of our pricing disciplines, strong stock selection by our asset managers and favourable product mix. US ASSET MANAGEMENT H1 H1 Highlights ($m) 2005 2004 Var % Adjusted operating profit 94 85 11% Funds under management ($bn) 209 163 28% Net client cashflow ($bn) 20 5 300% The Group's US Asset Management business achieved adjusted operating profit of $94 million in the first half of 2005, which was an increase of 11% on the comparative period in 2004. The combined effects of improving equity markets last year and record net cash inflows of $20 billion led to a 28% increase in funds under management to $209 billion. The net cash inflows were achieved across a broad range of asset classes, with fixed income, value equity and quantitative strategies particularly attracting new funds. Profitability improved although we continue to spend money building the retail channel through Old Mutual Capital, and into the alternative investments market through our interest in 2100 Capital. Funds under management benefit from record net fund inflows of $20bn Funds under management increased 13% to $209 billion, from $185 billion at 31 December 2004. Cashflows for the first half of 2005 achieved a record $20 billion net inflow, including cash collateral assets of $5.4 billion, accounting for 11% of the increase. The remaining 2% increase resulted from market action and fund investment performance. Our retail initiative continues to gather momentum, with gross sales of $497 million in the first half of 2005. Managing the portfolio In addition to our strategic partnership with Copper Rock Capital Partners and the launch of 2100 Capital announced earlier this year, US Asset Management has actively worked to manage its portfolio of businesses by enhancing the diversification of asset management capabilities and through divestiture of non-core operations. We sold our business based in Japan at the end of the first quarter of 2005. Going forward, we will continue to make strategic investments in order to support our firms in achieving organic growth and meeting the objectives of our clients. Group Finance Director's Review Business Review continued UK & REST OF WORLD H1 H1 Highlights (GBPm) 2005 2004 Var % Adjusted operating profit 9 0 Fund under management(GBPbn) 4.9 4.0 23% Selestia sales 305 197 55% Adjusted operating profit from the Group's UK and Rest of World asset management and life assurance businesses, excluding Nedbank, was GBP9 million in 2005. This result includes the adjusted operating profit from the UK, Old Mutual International (OMI) and the Far East. The success of the organic growth strategy of the UK businesses is reflected in the growth in adjusted operating profit during this year, with Old Mutual Asset Managers (UK) (OMAM(UK)) in particular producing a good result as a consequence of excellent hedge fund performance. The UK businesses contributed GBP3 million of adjusted operating profit in the first half of 2005, compared to a break even position for the comparable period in 2004. Total funds under management in the UK grew by 17% from GBP4.2 billion at 31 December 2004 to GBP4.9 billion at 30 June 2005. OMAM(UK)'s hedge fund products continued to attract strong inflows and generate strong fund performance. Selestia funds under management exceed GBP1 billion New business sales at Selestia continued to grow, with sales of GBP305 million achieved in the first half of 2005, an increase of 55% on the comparative period in 2004. Funds under management increased from GBP730 million at 31 December 2004 to GBP1,051 million at 30 June 2005. GROUP RESULTS H1 2005 Adjusted EPS up by 22% to 8.4p The Old Mutual Group has had a positive start to 2005, with a 29% increase in adjusted operating profit before tax to GBP554 million. Adjusted operating profit after tax and minority interests increased by 24% from GBP256 million for the period ending 30 June 2004 to GBP317 million for the first six months of 2005, leading to an increase in adjusted operating earnings per share to 8.4p for the period ending 30 June 2005, from 6.9p for the comparative period in 2004. The basic earnings per share is 11.2p, representing a 173% increase. Profit for the financial period attributable to equity holders increased to GBP387 million during the first half of 2005 compared to GBP141 million during the first half of 2004. Funds under management and fund flows During 2005, funds under management increased by 13% from GBP140 billion as at 31 December 2004 to GBP158 billion at 30 June 2005. Our international diversity has delivered strong net cash inflows of GBP9.6 billion, an increase of GBP5.6 billion when compared to the first half of last year, as strong performances by our US and UK businesses more than offset weak flows in South Africa. Group Finance Director's Review Business Review continued Embedded Value (EV) - profits Old Mutual published its 2004 embedded value figures restated in accordance with EEV principles on 20 June 2005. The same approach has been taken to the calculation of our June 2005 figures, and all 2004 comparatives are on the restated EEV basis. The Group's adjusted operating profit on an EEV basis of GBP638 million increased by 28% from GBP497 million at June 2004. Adjusted operating profit for life assurance of GBP345 million was up 3% from GBP334 million at June 2004, with African profit being down 7% and North American profit being up 57%. The reduction in adjusted operating profit for Africa is mainly due to lower expected return on capital and a provision for the expected cost of the offer to policyholders that has been announced in respect of paid-up retirement annuities. The increase in adjusted operating profit for North America is mainly due to a significant increase in the value of new business sold in 2005 and the consequential effect of new business sold in 2004. Adjusted embedded value per share down by 2% Adjusted embedded value (EV) (adjusted for own shares held in policyholders' funds and to bring listed Group subsidiaries to market value) of GBP5,303 million at 30 June 2005 decreased by 2% from GBP5,384 million at 31 December 2004. Good Rand growth in African life embedded value (aided by good investment returns) was partially offset by the depreciation of the Rand, good US dollar growth in North American embedded value (driven by new business growth) was enhanced by the strengthening of the US dollar, and a decline in the share prices of Nedbank and Mutual & Federal was exacerbated by the weakening of the Rand. Adjusted EV per share at 30 June 2005 was 137.5p representing a decline in EV per share of 2% over the 2004 result of 139.7p. Capital The Group's gearing level remains favourable, with senior debt gearing at 30 June 2005 of 7.9% (10.8% at 31 December 2004) and total gearing, including hybrid capital, of 19.0% (16.9% at 31 December 2004). Hybrid capital excludes hybrid debt from banking activities and includes the $750 million of Guaranteed Cumulative Perpetual Preferred Securities issued during 2003 that are reported as part of minority interests in the financial statements and the GBP350 million of Perpetual Preferred Callable Securities issued in March 2005 that are reported as part of equity holders' funds. Senior debt gearing is defined as senior debt over senior debt plus adjusted embedded value on an EEV basis. Senior debt excludes debt from banking activities and is net of cash and short-term investments, which are immediately available to repay debt, and derivative assets relating to swaps associated with senior debt, so as to reflect debt valued on effective currency and interest rate positions. Total gearing is similarly based, but includes hybrid capital instruments within debt. On 2 May 2005 the Group's $636 million of outstanding 3.625 per cent Convertible Bonds matured and were repaid in full at par value. Old Mutual's Group-wide Economic Capital (EC) Programme is progressing according to plan. Once completed, it will significantly improve the Group's ability to measure risk and shareholder value creation. The early results show the Group's available financial resources to be well above the EC required for our target external agency rating. The Group exceeds the minimum capital resources requirement under the Financial Groups Directive, which applies to UK-based financial conglomerates. Group Finance Director's Review Business Review continued Taxation The Group's effective tax rate (based on the tax charge excluding income tax attributable to policyholder returns as a proportion of adjusted operating profit) for the period ended 30 June 2005 of 24% decreased from 25% for the corresponding period in 2004. This was primarily as a result of the recognition of a previously unrecognised deferred tax asset in the US. Excluding the impact of this adjustment, the tax rate would have increased to 27% as a result of a decrease in the proportion of tax advantaged investment income earned in the period. BLACK ECONOMIC EMPOWERMENT Over the past few years Old Mutual plc has been actively addressing various aspects of Black Economic Empowerment (BEE). We believe that Black Economic Empowerment (BEE) is a key requirement for the promotion of sustainable economic growth and social development in South Africa and is therefore fundamental to the interests of our employees, clients and shareholders. Earlier this year we proposed three separate, but independent transactions designed under a common set of principles, which introduce new broad-based black ownership into each of our South African subsidiaries. These transactions have now been completed and have resulted in the introduction of direct black ownership worth 12.75% of the value of Old Mutual plc's South African businesses, with the total value of black shareholding being R7.1 billion. The financial impact of these proposals will be incorporated into the Group's results for the second half of 2005. Our BEE deal is very broad based and our South African employees now have share interests in our companies with the incentivisation that share ownership provides. Uniquely, many of our clients and distributors have also acquired an interest in our shares, which supports our strategy. We believe that our black business partners will add value to our businesses and are extremely pleased to have the Wiphold and Brimstone Consortia as shareholders in our businesses, as well as Mtha at Mutual & Federal. The transformation deal secures future returns for all our stakeholders. DIVIDEND The directors have declared an interim dividend of 1.85p per share for the six months ended 30 June 2005, to be paid on Wednesday, 30 November 2005. The record date for this dividend payment is the close of business on Friday, 21 October 2005, for all the Exchanges where the Company's shares are listed. The last day to trade cum-dividend on the JSE Limited ('JSE') and other African Exchanges will be Friday, 14 October 2005. The shares will trade ex-dividend from the opening of business on Monday, 17 October 2005 on the JSE and the other African Exchanges and from the opening of business on Wednesday, 19 October 2005 on the London Stock Exchange. Group Finance Director's Review Business Review continued Shareholders on the South African, Zimbabwe and Malawi branch registers and the Namibian section of the principal register will be paid the local currency equivalents of the dividend under the Dividend Access Trust arrangements established in each country. Local currency equivalents of the dividend will be determined by the Company using exchange rates prevailing at close of business on Thursday, 6 October 2005 and will be announced by the Company on Friday, 7 October 2005. Share certificates may not be dematerialised or rematerialised on the South African branch register between Monday, 17 October and Friday, 21 October 2005, both dates inclusive, and transfers between the registers may not take place during that period. Julian V F Roberts Group Finance Director 10 August 2005 Independent Review Report by KPMG Audit Plc to Old Mutual plc Introduction We have been engaged by the Company to review the financial information, including the European Embedded Value supplementary information, set out on pages 19 to 81 and supplementary financial information set out on pages 84 to 145. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where any changes, and the reasons for them, are disclosed. As disclosed in note 1 to the financial information on page 28, the next annual financial statements of the Group will be prepared in accordance with IFRSs adopted for use in the European Union (EU). The accounting policies that have been adopted in preparing the financial information are consistent with those that the directors currently intend to use in the next annual financial statements. There is, however, a possibility that the directors may determine that some changes to these policies are necessary when preparing the full annual financial statements for the first time in accordance with those IFRSs adopted for use by the EU. This is because, as disclosed in note 1, the directors have anticipated that certain standards, which have yet to be formally adopted for use in the EU, will be so adopted in time to be applicable to the next annual financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of interim financial information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2005. KPMG Audit Plc Chartered Accountants 10 August 2005 8 Salisbury Square, London EC4Y 8BB Summary Consolidated Income Statement for the six months ended 30 June 2005 The following table summarises the Group's results in the consolidated income statement on page 19. Adjusted operating profit represents the directors' view of the underlying performance of the Group. This summary does not form part of the statutory financial statements. GBPm 6 months 6 months Year to to 30 June to 30 June 31 December Notes 2005 2004 2004 Africa Long term business 3(iv) 212 228 467 Asset management 3(vii) 37 22 54 Banking 3(vi) 162 54 203 General insurance 3(v) 49 52 101 460 356 825 North America Long term business 3(iv) 50 40 97 Asset management 3(vii) 51 47 87 101 87 184 United Kingdom & Rest of World Long term business 3(iv) 2 - 6 Asset management 3(vii) 7 7 (5) Banking 3(vi) 14 11 23 23 18 24 Debt service costs (19) (24) (49) Other shareholders' income / (expenses) 3(viii) (11) (9) (30) Adjusted operating profit* 554 428 954 Goodwill impairments 9 (2) (33) (33) (Loss) / profit on disposal of investments in subsidiaries (4) 12 (27) Short term fluctuations in investment returns 4 133 (48) 197 Income from hedging activities that do not qualify for hedge accounting - 5 31 Investment return adjustment for Group equity and debt instruments held in life funds 3(iv) (28) (26) (99) Fines and penalties 5 - (49) (49) Profit before tax (net of income tax attributable to policyholder returns) 653 289 974 Total income tax expense 6 (181) (120) (344) Less income tax attributable to policyholder returns 21 23 62 Income tax attributable to equity holders (160) (97) (282) Profit for the financial period 493 192 692 Minority interests - ordinary shares 11(a) (78) (24) (74) Minority interests - preferred securities (28) (27) (59) Profit for the financial period attributable to equity holders 387 141 559 * 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 instruments. For all businesses, adjusted operating profit excludes goodwill impairments, fines and penalties and profit/(loss) on disposal of investments in subsidiaries. Adjusted operating profit excludes income from hedging activities that do not qualify for hedge accounting. Summary Consolidated Income Statement continued for the six months ended 30 June 2005 The adjusted operating profit after tax attributable to equity holders is determined as follows: GBPm 6 months to 6 months to Year to 30 June 30 June 31 December Notes 2005 2004 2004 Adjusted operating profit 554 428 954 Tax on adjusted operating profit 6 (133) (109) (244) 421 319 710 Minority interests - ordinary shares 11 (76) (36) (94) - preferred securities (28) (27) (59) Adjusted operating profit after tax attributable to equity holders 317 256 557 The reconciliation of adjusted operating profit after tax attributable to equity holders to profit for the financial period attributable to equity holders is as follows: GBPm 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 317 256 557 Goodwill impairments (2) (17) (17) (Loss) / profit on disposal of investments in subsidiaries (4) 6 (21) Short term fluctuations in investment returns 104 (42) 149 Income from hedging activities that do not qualify for hedge accounting - 5 31 Investment return adjustment for Group equity and debt instruments held in life funds (28) (26) (99) Fines and penalties - (41) (41) Profit for the financial period attributable to equity holders 387 141 559 p 6 months to 6 months to Year to 30 June 30 June 31 December Earnings per share attributable to equity holders Notes 2005 2004 2004 Adjusted operating earnings per share* 7 8.4 6.9 14.9 Basic earnings per share 7 11.2 4.1 16.3 Diluted earnings per share 7 11.2 4.1 16.3 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 * Adjusted operating earnings per share is calculated on the same basis as adjusted operating profit, but is stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders' funds. Consolidated Income Statement for the six months ended 30 June 2005 GBPm 6 months 6 months Year to to 30 June to 30 June 31 December Notes 2005 2004 2004 Revenue Gross earned premiums 2,148 2,023 4,114 Outward reinsurance (80) (74) (140) Net earned premiums 2,068 1,949 3,974 Investment income (net of investment losses) 2,501 371 4,250 Banking interest and similar income 1,072 983 2,041 Fee and commission income, and income from service activities 576 582 1,230 Other income 104 67 147 Total revenues 3(ii) 6,321 3,952 11,642 Expenses Claims and benefits (including change in insurance contract provisions) (3,334) (1,737) (5,901) Reinsurance recoveries 88 55 143 Net claims incurred (3,246) (1,682) (5,758) Change in provision for investment contract liabilities (including amortisation) (448) (33) (760) Losses on loans and advances (53) (33) (104) Finance costs (including interest and similar expenses) (14) (21) (61) Banking interest expense (712) (704) (1,440) Fees, commissions and other acquisition costs (164) (167) (398) Other operating and administrative expenses (960) (981) (1,988) Third party interest in consolidated funds (50) (7) (55) Total expenses 3(ii) (5,647) (3,628) (10,564) Share of associated undertakings' profit after tax 6 9 18 Goodwill impairments 9 (2) (33) (33) (Loss) / profit on disposal of investment in subsidiaries (4) 12 (27) Profit before tax 674 312 1,036 Income tax expense 6 (181) (120) (344) Profit for the financial period 493 192 692 Minority interests Ordinary shares (78) (24) (74) Preferred securities (28) (27) (59) Total minority interests (106) (51) (133) Profit for the financial period attributable to equity holders 387 141 559 p 6 months to 6 months to Year to 30 June 30 June 31 December Earnings and dividend per share 2005 2004 2004 Basic earnings per share 11.2 4.1 16.3 Diluted earnings per share 11.2 4.1 16.3 Dividend per share 8 1.85 1.75 5.25 Weighted average number of shares - millions 3,467 3,419 3,422 Consolidated Balance Sheet at 30 June 2005 GBPm At At At 30 June 31 December 30 June Notes 2005 2004 2004 Assets Goodwill and other intangible assets 9 1,302 1,296 1,397 Investments in associated undertakings 139 149 186 Investment property 704 690 649 Property, plant and equipment 457 512 480 Deferred tax assets 498 440 360 Reinsurers' share of insurance contract provisions 362 317 338 Deferred acquisition costs 815 655 626 Current tax receivable 28 20 16 Loans, receivables and advances 17,068 17,183 15,706 Derivative financial instruments - assets 1,992 2,689 2,003 Other financial assets 11,886 9,763 8,705 Financial assets fair valued through income statement 25,658 27,935 23,183 Short term securities 3,199 3,063 2,978 Other assets 2,612 2,074 2,157 Cash and balances with the central bank 1,484 1,038 1,543 Placements with other banks 302 392 42 Total assets 68,506 68,216 60,369 Liabilities Insurance contract provisions 19,794 18,883 16,643 Investment contract liabilities 13,240 13,293 11,768 Third party interests in consolidation of funds 708 556 395 Borrowed funds 10 1,093 1,490 1,319 Provisions 454 510 434 Deferred revenue 123 139 129 Deferred tax liabilities 500 400 257 Current tax payable 154 171 97 Deposits from other banks 1,536 2,831 1,699 Amounts owed to other depositors 16,192 18,334 17,047 Other money market deposits 3,301 1,563 984 Derivative financial instruments - liabilities 1,914 2,599 1,774 Other liabilities 4,241 2,713 3,678 Total liabilities 63,250 63,482 56,224 Net assets 5,256 4,734 4,145 Shareholders' equity Equity attributable to equity holders of the parent 3,844 3,286 2,796 Minority interest Ordinary shares 11 759 800 700 Preferred securities 653 648 649 Total minority interests 1,412 1,448 1,349 Total equity 5,256 4,734 4,145 Consolidated Cash Flow Statement for the six months ended 30 June 2005 GBPm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Cash flows from operating activities Profit before tax 674 312 1,036 Non-cash movements in profit before tax (1,328) 573 (2,166) Changes in working capital 597 (730) 3,720 Taxation paid (199) (158) (323) Net cash from operating activities (256) (3) 2,267 Cash flows from investing activities Net acquisition of financial investments 1,057 (14) (2,386) Acquisition of investment properties (11) (4) 9 Net acquisition of other fixed assets (28) (50) (90) Acquisition of interests in subsidiaries (106) (104) (158) Disposal of interests in subsidiaries, associates and joint ventures (16) 34 84 Net cash outflow from investing activities 896 (138) (2,541) Cash flows from financing activities Dividends paid to: Ordinary shareholders of the Company (118) (106) (166) Equity minority interests and preferred security interests (47) (34) (79) Net proceeds from issue of ordinary shares (including by subsidiaries to minority interests) 3 204 232 Net proceeds on issue of perpetual preferred callable securities 347 - - Net repayments of debt (341) (31) (96) Net cash flows from financing activities (156) 33 (109) Net increase/(decrease) in cash and cash equivalents 484 (108) (383) Effects of exchange rate changes on cash and cash equivalents 120 68 93 Cash and cash equivalents at beginning of the year 1,648 1,938 1,938 Cash and cash equivalents at end of the year 2,012 1,944 1,648 Consisting of: Placements with other banks 302 42 392 Cash and balances with the central bank 1,484 1,543 1,038 Other cash equivalents 226 359 218 2,012 1,944 1,648 Cash flows presented in this statement include all cash flows relating to policyholders' funds for the long term business. Statement of Changes in Equity for the six months ended 30 June 2005 Millions GBPm Number of Attributable to shares issued equity holders Total minority Total Six months and fully paid of the parent interest equity ended 30 June 2005 Equity shareholders' funds at 1 January 2005 3,854 3,286 1,448 4,734 Change in operating profit arising in the period Fair value gains / (losses): Available- for-sale investments - 84 - 84 Fair value of equity settled share options - 4 - 4 Shadow accounting - (11) - (11) Currency translation differences/ exchange differences on translating foreign operations - (100) (85) (185) Cash flow hedge amortisation - 2 - 2 Aggregate tax effect of items taken directly to or transferred from equity - (16) - (16) Movement in net investment hedge reserve - (45) - (45) Redemption of convertible bonds - (18) - (18) Net acquisition/ disposal of minority interests - - 24 24 Other - 46 (34) 12 Net income recognised directly in equity - (54) (95) (149) Profit for the period - 387 106 493 Total recognised income and expense for the period - 333 11 344 Dividend for the period - (118) (47) (165) Purchases /sales of treasury shares - (7) - (7) Issue of perpetual preferred callable securities - 347 - 347 Exercise of share options 3 3 - 3 Equity attributable to equity holders of the parent at 30 June 2005 3,857 3,844 1,412 5,256 Statement of Changes in Equity continued for the six months ended 30 June 2005 Share Share Other Six months ended 30 June 2005 capital premium reserves Attributable to equity holders of the parent at 1 January 2005 386 600 439 Changes in equity arising in the period: Fair value gains / (losses): Available-for-sale investments - - 84 Fair value of equity settled share options - - - Shadow accounting - - (11) Currency translation differences / exchange differences on translating foreign operations - - - Cash flow hedge amortisation - - 2 Aggregate tax effect of items taken directly to or transferred from equity - - (16) Movement in net investment hedge reserve - - (45) Redemption of convertible bonds - - (18) Other - - - Net income recognised directly in equity - - (4) Profit for the period - - - Total recognised income and expense for the period - - (4) Dividend for the period - - - Purchases / sales of treasury shares - - - Issue of perpetual preferred callable securities - (3) - Exercise of share options - 3 - Attributable to equity holders of the parent at 30 June 2005 386 600 435 Translation Retained Six months ended 30 June 2005 reserve earnings Attributable to equity holders of the parent at 1 January 2005 122 1,739 Changes in equity arising in the period: Fair value gains / (losses): Available-for-sale investments - - Fair value of equity settled share options - 4 Shadow accounting - - Currency translation differences / exchange differences on translating foreign operations (100) - Cash flow hedge amortisation - - Aggregate tax effect of items taken directly to or transferred from equity - - Movement in net investment hedge reserve - - Redemption of convertible bonds - - Other - 46 Net income recognised directly in equity (100) 50 Profit for the period - 387 Total recognised income and expense for the period (100) 437 Dividend for the period - (118) Purchases / sales of treasury shares - (7) Issue of perpetual preferred callable securities - - Exercise of share options - - Attributable to equity holders of the parent at 30 June 2005 22 2,051 GBPm Perpetual preferred callable Six months ended 30 June 2005 securities Total Attributable to equity holders of the parent at 1 January 2005 - 3,286 Changes in equity arising in the period: Fair value gains / (losses): Available-for-sale investments - 84 Fair value of equity settled share options - 4 Shadow accounting - (11) Currency translation differences / exchange differences on translating foreign operations - (100) Cash flow hedge amortisation - 2 Aggregate tax effect of items taken directly to or transferred from equity - (16) Movement in net investment hedge reserve - (45) Redemption of convertible bonds - (18) Other - 46 Net income recognised directly in equity - (54) Profit for the period - 387 Total recognised income and expense for the period - 333 Dividend for the period - (118) Purchases / sales of treasury shares - (7) Issue of perpetual preferred callable securities 350 347 Exercise of share options - 3 Attributable to equity holders of the parent at 30 June 2005 350 3,844 Retained earnings have been reduced by GBP533 million as at 30 June 2005 in respect of shares held in policyholder funds, ESOP trusts and related undertakings. On 24 March 2005 the Company issued GBP350 million of Perpetual Preferred Callable Securities. These are unsecured and subordinated to the claims of senior creditors and the holders of any priority preference shares. For an initial period to 24 March 2020 interest is payable at a fixed rate of 6.4 per cent. per annum., annually in arrears. After 24 March 2020 interest is re-set semi-annually at 2.2 per cent. per annum. above the Sterling inter-bank offer rate for six month Sterling deposits, and is payable semi-annually in arrears. Coupon payments may be deferred. The Perpetual Preferred Callable Securities are redeemable at the discretion of the Company, at their principal amount from 24 March 2020. Statement of Changes in Equity continued for the six months ended 30 June 2005 Millions Number of Attributable to shares issued equity holders of Six months ended 30 June 2004 and fully paid the parent Equity shareholders' funds at 1 January 2004 3,837 2,670 Changes in equity arising in the period Fair value gains / (losses): Available-for-sale investments - (166) Fair value of equity settled share options - 1 Shadow accounting - 117 Currency translation differences/ exchange differences on translating foreign operations - 124 Cash flow hedge amortisation - (2) Aggregate tax effect of items taken directly to or transferred from equity - 14 Net acquisition / disposal of minority interests - - Other - - Net income recognised directly in equity - 88 Profit for the period - 141 Total recognised income and expense for the period - 229 Dividend for the period - (106) Purchases / sales of treasury shares - (5) Exercise of share options 12 8 Equity shareholders' funds at 30 June 2004 3,849 2,796 GBPm Total minority Total Six months ended 30 June 2004 interest equity Equity shareholders' funds at 1 January 2004 1,229 3,899 Changes in equity arising in the period Fair value gains / (losses): Available-for-sale investments - (166) Fair value of equity settled share options - 1 Shadow accounting - 117 Currency translation differences/ exchange differences on translating foreign operations 46 170 Cash flow hedge amortisation - (2) Aggregate tax effect of items taken directly to or transferred from equity - 14 Net acquisition / disposal of minority interests 66 66 Other (12) (12) Net income recognised directly in equity 100 188 Profit for the period 51 192 Total recognised income and expense for the period 151 380 Dividend for the period (31) (137) Purchases / sales of treasury shares - (5) Exercise of share options - 8 Equity shareholders' funds at 30 June 2004 1,349 4,145 Statement of Changes in Equity continued for the six months ended 30 June 2005 Share Share Other Six months ended 30 June 2004 capital premium reserves Attributable to equity holders of the parent at 1 January 2004 384 587 367 Changes in equity arising in the period: Fair value gains / (losses): Available-for-sale investments - - (166) Fair value of equity settled share options - - - Shadow accounting - - 117 Currency translation differences / exchange differences on translating foreign operations - - - Cash flow hedge amortisation - - (2) Aggregate tax effect of items taken directly to or transferred from equity - - 14 Other - - 8 Net income recognised directly in equity - - (29) Profit for the period - - - Total recognised income and expense for the period - - (29) Dividend for the period - - - Purchases / sales of treasury shares - - - Exercise of share options - 8 - Attributable to equity holders of the parent at 30 June 2004 384 595 338 GBPm Translation Retained Six months ended 30 June 2004 reserve earnings Total Attributable to equity holders of the parent at 1 January 2004 - 1,332 2,670 Changes in equity arising in the period: Fair value gains / (losses): Available-for-sale investments - - (166) Fair value of equity settled share options - 1 1 Shadow accounting - - 117 Currency translation differences / exchange differences on translating foreign operations 124 - 124 Cash flow hedge amortisation - - (2) Aggregate tax effect of items taken directly to or transferred from equity - - 14 Other - (8) - Net income recognised directly in equity 124 (7) 88 Profit for the period - 141 141 Total recognised income and expense for the period 124 134 229 Dividend for the period - (106) (106) Purchases / sales of treasury shares - (5) (5) Exercise of share options - - 8 Attributable to equity holders of the parent at 30 June 2004 124 1,355 2,796 Retained earnings have been reduced by GBP556 million as at 30 June 2004 in respect of shares held in policyholder funds, ESOP trusts and related undertakings. Statement of Changes in Equity continued for the six months ended 30 June 2005 Millions Number of Attributable to shares issued equity holders of Year ended 31 December 2004 and fully paid the parent Equity shareholders' funds at 1 January 2004 3,837 2,670 Changes in equity arising in the year: Fair value gains / (losses): Gain on property revaluation - 9 Available-for-sale investments - 118 Fair value of equity settled share options - 3 Shadow accounting - (35) Currency translation differences/ exchange differences on translating foreign operations - 122 Cash flow hedge amortisation - (4) Aggregate tax effect of items taken directly to or transferred from equity - (18) Net acquisition / disposal of minority interests - - Other - (12) Net income recognised directly in equity - 183 Profit for the year - 559 Total recognised income and expense for the year - 742 Dividend for the year - (166) Purchases / sales of treasury shares - 25 Issue of share capital - - Exercise of share options 17 15 Equity shareholders' funds at 31 December 2004 3,854 3,286 GBPm Total minority Total Year ended 31 December 2004 interest equity Equity shareholders' funds at 1 January 2004 1,229 3,899 Changes in equity arising in the year: Fair value gains / (losses): Gain on property revaluation - 9 Available-for-sale investments - 118 Fair value of equity settled share options - 3 Shadow accounting - (35) Currency translation differences/ exchange differences on translating foreign operations 81 203 Cash flow hedge amortisation - (4) Aggregate tax effect of items taken directly to or transferred from equity - (18) Net acquisition / disposal of minority interests 66 66 Other 11 (1) Net income recognised directly in equity 158 341 Profit for the year 133 692 Total recognised income and expense for the year 291 1,033 Dividend for the year (84) (250) Purchases / sales of treasury shares - 25 Issue of share capital 5 5 Exercise of share options 7 22 Equity shareholders' funds at 31 December 2004 1,448 4,734 Statement of Changes in Equity continued for the six months ended 30 June 2005 Share Share Other Year ended 31 December 2004 capital premium reserves Attributable to equity holders of the parent at 1 January 2004 384 587 367 Changes in equity arising in the period: Fair value gains / (losses): Gain on property revaluation - - 9 Available-for-sale investments - - 118 Fair value of equity settled share options - - - Shadow accounting - - (35) Currency translation differences / exchange differences on translating foreign operations - - - Cash flow hedge amortisation - - (4) Aggregate tax effect of items taken directly to or transferred from equity - - (18) Other - - 2 Net income recognised directly in equity - - 72 Profit for the period - - - Total recognised income and expense for the period - - 72 Dividend paid in the year - - - Purchases / sales of treasury shares - - - Exercise of share options 2 13 - Attributable to equity holders of the parent at 31 December 2004 386 600 439 GBPm Translation Retained Year ended 31 December 2004 reserve earnings Total Attributable to equity holders of the parent at 1 January 2004 - 1,332 2,670 Changes in equity arising in the period: Fair value gains / (losses): Gain on property revaluation - - 9 Available-for-sale investments - - 118 Fair value of equity settled share options - 3 3 Shadow accounting - - (35) Currency translation differences / exchange differences on translating foreign operations 122 - 122 Cash flow hedge amortisation - - (4) Aggregate tax effect of items taken directly to or transferred from equity - (18) Other - (14) (12) Net income recognised directly in equity 122 (11) 183 Profit for the period - 559 559 Total recognised income and expense for the period 122 548 742 Dividend paid in the year - (166) (166) Purchases / sales of treasury shares - 25 25 Exercise of share options - - 15 Attributable to equity holders of the parent at 31 December 2004 122 1,739 3,286 Retained earnings have been reduced by GBP526 million as at 31 December 2004 in respect of shares held in policyholder funds, ESOP trusts and related undertakings. 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 changes 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 Sterling are: Rand 6 months 6 months Year to to 30 June to 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 6 months Year to to 30 June to 30 June 31 December 2005 2004 2004 Income statement (average rate) 1.8731 1.8222 1.8327 Balance sheet (closing rate) 1.7918 1.8144 1.9158 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 United Kingdom North & Six months to 30 June 2005 Africa America Rest of World Revenue Long term business 2,856 1,266 64 General insurance 346 - - Banking 1,369 - 53 Asset management 111 191 57 Other shareholders' income 1 - 12 Consolidation of funds 62 - 16 Inter segment revenue (72) (6) (5) 4,673 1,451 197 Expenses Long term business (2,566) (1,194) (62) General insurance (274) - - Banking (1,210) - (39) Asset management (74) (140) (50) Debt service costs and other shareholders' expenses (5) - (38) Consolidation of funds (62) - (16) Inter segment expenses 70 5 8 (4,120) (1,329) (198) Net revenue / (expense) Long term business 290 72 2 General insurance 72 - - Banking 159 - 14 Asset management 37 51 7 Other shareholders' income / (expenses) (4) - (26) Inter segment (revenue) / expense (2) (1) 3 552 122 - Share of associated undertakings' profit after tax 6 - - Goodwill impairments (2) - - Loss on disposal of investment in subsidiaries (1) (3) - Profit before tax 555 119 - GBPm Total Total before inter Inter after inter segment segment segment (revenue) (revenue) (revenue) Six months to 30 June 2005 / expense expense / expense Revenue Long term business 4,186 (52) 4,134 General insurance 346 - 346 Banking 1,422 (1) 1,421 Asset management 359 (30) 329 Other shareholders' income 13 - 13 Consolidation of funds 78 - 78 Inter segment revenue (83) 83 - 6,321 - 6,321 Expenses Long term business (3,822) 29 (3,793) General insurance (274) 2 (272) Banking (1,249) 8 (1,241) Asset management (264) 34 (230) Debt service costs and other shareholders' expenses (43) 10 (33) Consolidation of funds (78) - (78) Inter segment expenses 83 (83) - (5,647) - (5,647) Net revenue / (expense) Long term business 364 (23) 340 General insurance 72 2 74 Banking 173 7 180 Asset management 95 4 99 Other shareholders' income / (expenses) (30) 10 (20) Inter segment (revenue) / expense - - - 674 - 674 Share of associated undertakings' profit after tax 6 - 6 Goodwill impairments (2) - (2) Loss on disposal of investment in subsidiaries (4) - (4) Profit before tax 674 - 674 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ii) Income statement continued United Kingdom North & Rest Six months to 30 June 2004 Africa America of World Revenue Long term business 871 1,255 10 General insurance 266 - - Banking 1,189 - 54 Asset management 81 177 61 Other shareholders' income - - 31 Consolidation of funds 17 - 5 Inter segment revenue (40) (1) (24) 2,384 1,431 137 Expenses Long term business (707) (1,189) (10) General insurance (230) - - Banking (1,141) - (43) Asset management (59) (179) (54) Debt service costs and other shareholders' expenses - - (59) Consolidation of funds (17) - (5) Inter segment expenses 38 14 13 (2,116) (1,354) (158) Net revenue / (expense) Long term business 164 66 - General insurance 36 - - Banking 48 - 11 Asset management 22 (2) 7 Other shareholders' income / (expenses) - - (28) Inter segment (revenue) / expense (2) 13 (11) 268 77 (21) Share of associated undertakings' profit after tax 9 - - Goodwill impairments - 1 11 Loss on disposal of investment in subsidiaries (33) - - Profit before tax 244 78 (10) GBPm Total Total before inter Inter after inter segment segment segment (revenue) (revenue) (revenue) Six months to 30 June 2004 / expense expense / expense Revenue Long term business 2,136 (30) 2,106 General insurance 266 - 266 Banking 1,243 (1) 1,242 Asset management 319 (15) 304 Other shareholders' income 31 (19) 12 Consolidation of funds 22 - 22 Inter segment revenue (65) 65 - 3,952 - 3,952 Expenses Long term business (1,906) 23 (1,883) General insurance (230) - (230) Banking (1,184) 6 (1,178) Asset management (292) 29 (263) Debt service costs and other shareholders' expenses (59) 7 (52) Consolidation of funds (22) - (22) Inter segment expenses 65 (65) - (3,628) - (3,628) Net revenue / (expense) Long term business 230 (7) 223 General insurance 36 - 36 Banking 59 5 64 Asset management 27 14 41 Other shareholders' income / (expenses) (28) (12) (40) Inter segment (revenue) / expense - - - 324 - 324 Share of associated undertakings' profit after tax 9 - 9 Goodwill impairments 12 - 12 Loss on disposal of investment in subsidiaries (33) (33) Profit before tax 312 - 312 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ii) Income statement continued United Kingdom North & Year ended 31 December 2004 Africa America Rest of World Revenue Long term business 4,975 2,496 44 General insurance 655 - - Banking 2,659 - 112 Asset management 173 366 117 Other shareholders' income 3 - 87 Consolidation of funds 73 - 11 Inter segment revenue (95) (12) (22) 8,443 2,850 349 Expenses Long term business (4,449) (2,341) (38) General insurance (518) - - Banking (2,467) - (89) Asset management (119) (328) (122) Debt service costs and other shareholders' expenses (22) - (116) Consolidation of funds (73) - (11) Inter segment expense 95 13 21 (7,553) (2,656) (355) Net revenue / (expense) Long term business 526 155 6 General insurance 137 - - Banking 192 - 23 Asset management 54 38 (5) Other shareholders' income / (expenses) (19) - (29) Inter segment (revenue) / expense - 1 (1) 890 194 (6) Share of associated undertakings' profit after tax 18 - - Goodwill impairments (15) - (12) Loss on disposal of investment in subsidiaries (33) - - Profit before tax 860 194 (18) GBPm Total Total before inter Inter after inter segment segment segment (revenue) (revenue) (revenue) Year ended 31 December 2004 / expense expense / expense Revenue Long term business 7,515 (67) 7,448 General insurance 655 - 655 Banking 2,771 (2) 2,769 Asset management 656 (49) 607 Other shareholders' income 90 (11) 79 Consolidation of funds 84 - 84 Inter segment revenue (129) 129 - 11,642 - 11,642 Expenses Long term business (6,828) 58 (6,770) General insurance (518) - (518) Banking (2,556) 8 (2,548) Asset management (569) 56 (513) Debt service costs and other shareholders' expenses (138) 7 (131) Consolidation of funds (84) - (84) Inter segment expense 129 (129) - (10,564) - (10,564) Net revenue / (expense) Long term business 687 (9) 678 General insurance 137 - 137 Banking 215 6 221 Asset management 87 7 94 Other shareholders' income / (expenses) (48) (4) (52) Inter segment (revenue) / expense - - - 1,078 - 1,078 Share of associated undertakings' profit after tax 18 - 18 Goodwill impairments (27) - (27) Loss on disposal of investment in subsidiaries (33) - (33) Profit before tax 1,036 - 1,036 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 GBPm United North Kingdom & Six months to 30 June 2005 Africa America Rest of World Total Individual business Single 356 1,085 78 1,519 Recurring 517 130 5 652 873 1,215 83 2,171 Group business Single 307 - - 307 Recurring 152 - - 152 459 - - 459 Total gross premiums and investment contract deposits written 1,332 1,215 83 2,630 Insurance contracts 550 1,029 2 1,581 Investment contracts with discretionary participation features 231 - - 231 Other investment contracts 551 186 81 818 1,332 1,215 83 2,630 Less: Other investment contracts (551) (186) (81) (818) Total gross written premiums 781 1,029 2 1,812 GBPm United North Kingdom & Six months to 30 June 2004 Africa America Rest of World Total Individual business Single 300 1,131 53 1,484 Recurring 467 94 8 569 767 1,225 61 2,053 Group business Single 217 - - 217 Recurring 155 - - 155 372 - - 372 Total gross premiums and investment contract deposits written 1,139 1,225 61 2,425 Insurance contracts 506 1,026 2 1,534 Investment contracts with discretionary participation features 191 - - 191 Other investment contracts 442 199 59 700 1,139 1,225 61 2,425 Less: Other investment contracts (442) (199) (59) (700) Total gross written premiums 697 1,026 2 1,725 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 GBPm Year ended 31 December North United Kingdom 2004 Africa America Rest of World Total Individual business Single 643 2,169 125 2,937 Recurring 977 205 13 1,195 1,620 2,374 138 4,132 Group business Single 452 - - 452 Recurring 317 - - 317 769 - - 769 Total gross premiums and investment contract deposits written 2,389 2,374 138 4,901 Insurance contracts 1,052 2,023 2 3,077 Investment contracts with discretionary participation features 402 - - 402 Other investment contracts 935 351 136 1,422 2,389 2,374 138 4,901 Less: Other investment contracts (935) (351) (136) (1,422) Total gross written premiums 1,454 2,023 2 3,479 Gross new business premiums and investment contract deposits written GBPm United North Kingdom & Six months to 30 June 2005 Africa America Rest of World Total Individual business Single 356 1,085 78 1,519 Recurring 85 39 - 124 441 1,124 78 1,643 Group business Single 307 - - 307 Recurring 9 - - 9 316 - - 316 Total gross new business premiums and investment contract deposits written 757 1,124 78 1,959 Insurance contracts 175 938 - 1,113 Investment contracts with discretionary participation features 97 - - 97 Other investment contracts 485 186 78 749 757 1,124 78 1,959 Less: Other investment contracts (485) (186) (78) (749) Total gross new business premiums written 272 938 - 1,210 Annual premium equivalent 160 148 8 316 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 (iii) Long term business continued Gross new business premiums and investment contract deposits written continued GBPm North United Kingdom Six months to 30 June 2004 Africa America Rest of World Total Individual business Single 300 1,131 53 1,484 Recurring 73 25 1 99 373 1,156 54 1,583 Group business Single 217 - - 217 Recurring 9 - - 9 226 - - 226 Total gross new business premiums and investment contract deposits written 599 1,156 54 1,809 Insurance contracts 124 957 - 1,081 Investment contracts with discretionary participation features 87 - - 87 Other investment contracts 388 199 54 641 599 1,156 54 1,809 Less: Other investment contracts (388) (199) (54) (641) Total gross new business premiums written 211 957 - 1,168 Annual premium equivalent 134 138 6 278 GBPm North United Kingdom Year to 31 December 2004 Africa America Rest of World Total Individual business Single 643 2,169 125 2,937 Recurring 164 58 1 223 807 2,227 126 3,160 Group business Single 452 - - 452 Recurring 17 - - 17 469 - - 469 Total gross new business premiums and investment contract deposits written 1,276 2,227 126 3,629 Insurance contracts 319 1,876 - 2,195 Investment contracts with discretionary participation features 167 - - 167 Other investment contracts 790 351 126 1,267 1,276 2,227 126 3,629 Less: Other investment contracts (790) (351) (126) (1,267) Total gross new business premiums written 486 1,876 - 2,362 Annual premium equivalent 291 275 13 579 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 GBPm United North Kingdom & Six months to 30 June 2005 Africa America Rest of World Total Individual business 99 50 2 151 Group business 52 - - 52 151 50 2 203 Long term investment return 58 - - 58 Share of associated undertakings' profit after tax 3 - - 3 Adjusted operating profit 212 50 2 264 Short term fluctuations in investment returns 88 22 - 110 Investment return adjustment for Group equity and debt instruments held in life funds (28) - - (28) Profit before tax (net of income tax attributable to policyholder returns) 272 72 2 346 GBPm United North Kingdom & Six months to 30 June 2004 Africa America Rest of World Total Individual business 103 40 - 143 Group business 47 - - 47 150 40 - 190 Long term investment return 75 - - 75 Share of associated undertakings' profit after tax 3 - 3 Adjusted operating profit 228 40 - 268 Short term fluctuations in investment returns (58) 26 - (32) Investment return adjustment for Group equity and debt instruments held in life funds (26) - - (26) Profit before tax (net of income tax attributable to policyholder returns) 144 66 - 210 GBPm United North Kingdom & Year to 31 December 2004 Africa America Rest of World Total Individual business 230 97 6 333 Group business 87 - - 87 317 97 6 420 Long term investment return 145 - - 145 Share of associated undertakings' profit after tax 5 - - 5 Adjusted operating profit 467 97 6 570 Short term fluctuations in investment returns 100 58 - 158 Investment return adjustment for life companies investments in Group equity and debt instruments held in life funds (99) - - (99) Profit before tax (net of income tax attributable to policyholder returns) 468 155 6 629 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (iv) Long term business continued GBPm 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 11 11 18 Realised gains on investment return (1) 3 5 Unrealised gains / (losses) on investment 18 12 76 Total investment return 28 26 99 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 GBPm Gross Earned Claims Profit premiums premiums net incurred net before Six months to 30 June 2005 written of reinsurance of reinsurance tax Commercial 165 135 78 21 Personal lines 134 129 95 2 Risk financing 42 36 18 3 341 300 191 26 Long term investment return 23 Adjusted operating profit 49 Goodwill impairments (2) Short term fluctuations in investment returns 23 Profit before tax 70 GBPm Gross Earned Claims Profit premiums premiums net incurred net before Six months to 30 June 2004 written of reinsurance of reinsurance tax Commercial 142 113 66 17 Personal lines 122 116 79 7 Risk financing 32 28 16 3 296 257 161 27 Long term investment return 25 Adjusted operating profit 52 Short term fluctuations in investment returns (16) Profit before tax 36 GBPm Gross Earned Claims Profit premiums premiums net incurred net before Year ended 31 December 2004 written of reinsurance of reinsurance tax Commercial 280 238 138 35 Personal lines 249 244 170 13 Risk financing 95 89 48 5 624 571 356 53 Long term investment return 45 Share of associated undertakings' operating profit after tax 3 Adjusted operating profit 101 Short term fluctuations in investment returns 39 Profit before tax 140 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vi) Banking GBPm United Kingdom & Six months to 30 June 2005 Africa Rest of World Total Interest and similar income 1,017 40 1,057 Interest expense and similar charges (685) (27) (712) Net interest income 332 13 345 Dividend income 15 - 15 Fees and commission receivable 257 1 258 Fees and commission payable (35) (1) (36) Other operating income 66 11 77 Foreign currency translation gain 14 - 14 Total operating income 649 24 673 Losses on loans and advances (53) - (53) Operating expenses (437) (10) (447) 159 14 173 Share of associated undertakings' operating profit after tax 3 - 3 Adjusted operating profit 162 14 176 Loss on disposal of investment in subsidiaries (1) - (1) Profit before tax 161 14 175 During the period the Group's banking subsidiary incurred a loss of GBP1m in connection with the liquidation of certain joint venture operations. GBPm United Kingdom & Six months to 30 June 2004 Africa Rest of World Total Interest and similar income 943 36 979 Interest expense and similar charges (677) (27) (704) Net interest income 266 9 275 Dividend income 4 - 4 Fees and commission receivable 196 9 205 Fees and commission payable (14) (2) (16) Other operating income 54 9 63 Foreign currency translation loss (8) - (8) Total operating income 498 25 523 Losses on loans and advances (33) - (33) Operating expenses (417) (14) (431) 48 11 59 Share of associated undertakings' operating profit after tax 6 - 6 Adjusted operating profit 54 11 65 Goodwill impairments (33) - (33) Profit on disposal of investment in subsidiaries - 11 11 Profit before tax 21 22 43 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vi) Banking continued GBPm United Kingdom & Year to 31 December 2004 Africa Rest of World Total Interest and similar income 1,968 61 2,029 Interest expense and similar charges (1,402) (38) (1,440) Net interest income 566 23 589 Dividend income 12 - 12 Fees and commission receivable 476 39 515 Fees and commission payable (59) (2) (61) Other operating income 227 12 239 Foreign currency translation loss (24) - (24) Total operating income 1,198 72 1,270 Losses on loans and advances (102) (2) (104) Operating expenses (904) (47) (956) 192 23 215 Share of associated undertakings' operating profit after tax 11 - 11 Adjusted operating profit 203 23 226 Goodwill impairments (33) - (33) Loss on disposal of investment in subsidiaries (10) - (10) Profit before tax 160 23 183 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 GBPm Profit Six months to 30 June 2005 Revenue Expenses Before tax Africa Fund management Old Mutual Asset Managers 28 (15) 13 Old Mutual Unit Trust 14 (10) 4 Other 26 (21) 5 68 (46) 22 Old Mutual Specialised Finance 25 (15) 10 Nedbank unit trusts and portfolio management 18 (13) 5 111 (74) 37 US asset management 191 (140) 51 United Kingdom & Rest of World Fund management 38 (29) 9 Fund investment platform 7 (9) (2) Other financial services 8 (8) - Nedbank unit trusts and portfolio management 4 (4) - 57 (50) 7 Adjusted operating profit 359 (264) 95 Loss on disposal of investment in subsidiaries - (3) (3) Profit before tax 359 (267) 92 During March 2005, the Group disposed of its interests in UAM Japan for GBP4 million cash consideration, resulting in a loss on disposal of GBP3 million. No tax was payable. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vii) Asset management continued GBPm Profit Six months to 30 June 2004 Revenue Expenses before tax Africa Fund management 20 (11) 9 Old Mutual Asset Managers 10 (8) 2 Old Mutual Unit Trust 8 (7) 1 Other 38 (26) 12 Old Mutual Specialised Finance 22 (14) 8 Nedbank unit trusts and portfolio management 21 (19) 2 81 (59) 22 US asset management 177 (130) 47 United Kingdom & Rest of World Fund management 24 (16) 8 Fund investment platform 3 (6) (3) Other financial services 7 (12) (5) Nedbank unit trusts and portfolio management 27 (20) 7 61 (54) 7 Adjusted operating profit 319 (243) 76 Profit on disposal of investment in subsidiaries 1 - 1 Fines and penalties - (49) (49) Profit before tax 320 (292) 28 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (vii) Asset management continued GBPm Profit Year ended 31 December 2004 Revenue Expenses before tax Africa Fund management Old Mutual Asset Managers 44 (24) 20 Old Mutual Unit Trust 23 (19) 4 Other 39 (30) 9 106 (73) 33 Old Mutual Specialised Finance 35 (22) 13 Nedbank unit trusts and portfolio management 32 (24) 8 173 (119) 54 US asset management 366 (279) 87 United Kingdom & Rest of World Fund management 63 (52) 13 Fund investment platform 9 (15) (6) Other financial services 9 (27) (18) Nedbank unit trusts and portfolio management 34 (28) 6 117 (122) (5) Adjusted operating profit 656 (520) 136 Loss on disposal of investments in subsidiaries - (17) (17) Fines and penalties - (49) (49) Profit before tax 656 (586) 70 GBPm 6 months to 6 months to Year to 30 June 30 June 31 December US asset management 2005 2004 2004 Revenue Investment management fees 167 153 315 Transaction, performance and other fees 24 24 51 191 177 366 Expenses Staff costs - fixed and variable (108) (56) (121) Other (32) (74) (158) (140) (130) (279) Adjusted operating profit 51 47 87 Fines and penalties - (49) (49) (Loss) / profit on disposal of investments in subsidiaries (3) 1 (5) Profit before tax 48 (1) 33 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 GBPm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Distribution of unclaimed share trust 2 - 16 Provisions for contributions to public benefit and charitable organisations (2) - (16) Interest receivable 8 4 9 Net other income / (expenses) (2) 6 - Net corporate expenses (17) (19) (39) Adjusted operating loss (11) (9) (30) 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 GBP2 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 GBPm United North Kingdom & At 30 June 2005 Africa America Rest of World Total Life investments 21,445 11,457 2,140 35,042 Africa Fund management Old Mutual Asset Managers 6,961 - - 6,961 Old Mutual Unit Trust 359 - - 359 Other 1,030 - - 1,030 8,350 - - 8,350 Nedbank unit trusts and portfolio management 4,554 - - 4,554 12,904 - - 12,904 US asset management - 100,037 5,336 105,373 United Kingdom & Rest of World Fund management - - 2,725 2,725 Fund investment platform - - 753 753 Other financial services - - 81 81 Nedbank unit trusts and portfolio management - - 1,606 1,606 - - 5,165 5,165 Total funds under management 34,349 111,494 12,641 158,484 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ix) Funds under management continued GBPm United North Kingdom & At 31 December 2004 Africa America Rest of World Total Life investments 20,879 10,714 2,997 34,590 Africa Fund management Old Mutual Asset Managers 8,011 - - 8,011 Old Mutual Unit Trust 288 - - 288 Other 1,016 - - 1,016 9,315 - - 9,315 Nedbank unit trusts and portfolio management 4,541 - - 4,541 13,856 - - 13,856 US asset management - 80,289 6,561 86,850 United Kingdom & Rest of World Fund management - - 2,210 2,210 Fund investment platform - - 531 531 Other financial services - - 270 270 Nedbank unit trusts and portfolio management - - 1,817 1,817 - - 4,828 4,828 Total funds under management 34,735 91,003 14,386 140,124 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 3 SEGMENT INFORMATION continued (ix) Funds under management continued GBPm United North Kingdom & At 30 June 2004 Africa America Rest of World Total Life Investments 18,937 9,477 2,309 30,723 Africa Fund management Old Mutual Asset Managers 6,318 - - 6,318 Old Mutual Unit Trust 351 - - 351 Other 803 - - 803 7,472 - - 7,472 Nedbank unit trusts and portfolio management 3,944 - - 3,944 11,416 - - 11,416 US asset management - 75,559 5,761 81,320 United Kingdom & Rest of World Fund management - - 2,063 2,063 Fund investment platform - - 350 350 Other financial services - - 281 281 Nedbank unit trusts and portfolio management - - 3,803 3,803 - - 6,497 6,497 Total funds under management 30,353 85,036 14,567 129,956 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. GBPm 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 168 43 303 Long term investment return 58 75 145 110 (32) 158 General insurance business Actual investment return attributable to equity holders 46 9 84 Long term investment return 23 25 45 23 (16) 39 Short term fluctuations in investment returns 133 (48) 197 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 GBP49 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 GBP8 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 GBPm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Current tax: Africa 115 94 291 North America (2) 5 10 Rest of World 3 2 1 Prior year adjustment 10 4 10 Secondary tax on companies (STC) 8 8 10 United Kingdom tax UK corporation tax - 2 (5) Total current tax 134 115 317 Deferred tax: Origination / (reversal) of temporary differences 50 5 7 Changes in tax rates / bases 3 - - Write down of deferred tax assets (6) - 20 Total deferred tax 47 5 27 Total income tax expense 181 120 344 The reported tax charge is analysed as follows: Adjusted operating profit 133 109 244 Short term fluctuations in investment returns 27 (4) 46 Fines and penalties - (8) (8) Total income tax expense excluding income tax attributable to policyholder returns 160 97 282 Income tax attributable to policyholder returns 21 23 62 Total income tax expense 181 120 344 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 6 INCOME TAX EXPENSE continued GBPm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Reconciliation of tax charge Profit before tax 674 312 1,036 Tax at standard rate of 30% (2004- 30%) 202 94 311 Different tax rate or basis on overseas operations (10) 2 1 Untaxed and low taxed income (51) (28) (85) Disallowable expenses 21 36 74 Net movement on deferred tax assets not recognised 1 - 1 STC 8 8 10 Income tax attributable to policyholder returns 14 16 43 Other (4) (8) (11) Total income tax charge for period 181 120 344 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 GBP3 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: GBPm 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 317 256 557 Goodwill impairments (2) (17) (17) Loss / (profit) on disposal of subsidiaries (4) 6 (21) Short term fluctuations in investment returns 104 (42) 149 Income from hedging activities that do not qualify for hedge accounting - 5 31 Investment return adjustment for Group equity and debt instruments held in life funds (28) (26) (99) Fines and penalties - (41) (41) Profit for the financial period attributable to equity holders 387 141 559 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 (p) 8.4 6.9 14.9 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. GBPm 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 (GBPm) 387 141 559 Weighted average number of ordinary shares (millions) 3,467 3,419 3,422 Basic earnings per share (p) 11.2 4.1 16.3 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 GBPm 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 118 - - 2004 interim dividend paid - 1.75p per 10p share - - 60 2003 final dividend paid - 3.1p per 10p share - 106 106 118 106 166 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 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. Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 9 GOODWILL AND OTHER INTANGIBLE ASSETS GBPm Present value of Software acquired in-force development At 30 June 2005 Goodwill business costs Total Cost Balance at beginning of period 1,215 260 299 1,774 Other acquisitions - separately acquired - - 13 13 Foreign exchange and other movements 9 18 (15) 12 Disposals or retirements - - (2) (2) Balance at end of period 1,224 278 295 1,797 Amortisation and impairment losses Balance at beginning of period 156 171 151 478 Amortisation charge for the period - 9 20 29 Impairment charge for the period 2 - - 2 Foreign exchange and other movements (15) 6 (2) (11) Disposals or retirements - - (3) (3) Balance at end of period 143 186 166 495 Carrying amount At beginning of period 1,059 89 148 1,296 At end of period 1,081 92 129 1,302 Goodwill impairments represent GBP2 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 GBPm Present value of Software acquired in-force development At 31 December 2004 Goodwill business costs Total Cost Balance at beginning of year 1,251 279 249 1,779 Acquisitions through business combination 36 - 40 76 Other acquisitions - internally developed - - 5 5 Foreign exchange and other movements (28) (19) 23 (24) Disposals or retirements (44) - (18) (62) Balance at end of period 1,215 260 299 1,774 Amortisation and impairment losses Balance at beginning of year 132 146 92 370 Amortisation charge for the year - 27 7 34 Impairment losses charged for the year 33 - 43 76 Foreign exchange and other movements 16 (2) 23 37 Disposals or retirements (25) - (14) (39) Balance at end of year 156 171 151 478 Carrying amount At beginning of year 1,119 133 157 1,409 At end of year 1,059 89 148 1,296 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 9 GOODWILL AND OTHER INTANGIBLE ASSETS continued GBPm Present value of Software acquired in-force development At 30 June 2004 Goodwill business costs Total Cost Balance at beginning of period 1,251 279 249 1,779 Acquisitions through business combination 13 - 9 22 Other acquisitions - internally developed - - 2 2 Foreign exchange and other movements 15 (5) 14 24 Disposals or retirements (2) - - (2) Balance at end of year 1,277 274 274 1,825 Amortisation and impairment losses Balance at beginning of period 132 146 92 370 Amortisation charge for the period - 32 2 34 Impairment losses charged for the period 33 - 10 43 Foreign exchange and other movements 13 (47) 15 (19) Balance at end of period 178 131 119 428 Carrying amount At beginning of period 1,119 133 157 1,409 At end of period 1,099 143 155 1,397 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 10 BORROWED FUNDS GBPm At At At 30 June 31 December 30 June 2005 2004 2004 Debt securities in issue 608 626 439 Subordinated liabilities 482 527 523 Convertible bonds 3 337 357 Total borrowed funds 1,093 1,490 1,319 (i) Debt securities in issue GBPm Average At At At interest 30 June 31 December 30 June rate 2005 2004 2004 Floating rate notes 3.6% 163 167 46 Fixed rate notes 4.5% 312 334 310 Term loan 3.2% 25 24 25 Other 46 51 58 546 576 439 Consolidation of funds 62 50 - Total debt securities in issue 608 626 439 Debt securities comprises: Floating rate notes: â€¢ GBP24 million repayable November 2006 â€¢ GBP21 million note repayable on 31 December 2010, with the holders having the option to elect for early redemption every six months â€¢ US$10 million repayable September 2009 â€¢ US$50 million repayable September 2011 â€¢ US$150 million repayable September 2014 Fixed rate notes: â€¢ EUR400 million Euro bond due 2007, capital and interest swapped into fixed rate US Dollars. â€¢ EUR30 million Euro bond due 2010, capital and interest swapped into floating rate US Dollars. â€¢ EUR10 million Euro bond due 2010, capital and interest swapped into floating rate US Dollars. â€¢ 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 GBP90 million. These are recognised as assets and are included within the reported 'Derivative financial instruments - assets'. Term loan: â€¢ US$45 million term loan repayable on 30 June 2006. Other â€¢ R550million 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. 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 GBPm At At At 30 June 31 December 30 June 2005 2004 2004 US$40 million repayable 17 April 2008 (6 month LIBOR) 22 21 22 US$18 million repayable 31 August 2009 (6 month LIBOR less 1.5 per cent.) 10 9 10 R515 million repayable 4 December 2008 (13.5 per cent.) 45 49 48 R2.0 billion repayable 20 September 2011 (11.3 per cent.) * 173 190 183 R4.0 billion repayable 9 July 2012 (13.0 per cent.) * 355 392 376 Other - - 15 605 661 654 Less: subordinated debt held by other group companies (123) (134) (131) Total subordinated liabilities 482 527 523 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 GBPm 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% - 331 348 Compulsory convertible loan maturing 6 November 2005 13.75% 1 2 3 Compulsory convertible loan maturing 31 December 2005 18.12% 2 4 6 Total convertible bonds 3 337 357 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 11 MINORITY INTERESTS 11 (a) Ordinary shares GBPm 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 800 579 579 Minority interests' share of profit 78 74 24 Minority interests' share of dividends paid (19) (25) (5) Net acquisition/(disposal) of interests 24 66 66 Foreign exchange and other movements (124) 106 36 Balance at end of period 759 800 700 GBPm 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 76 94 36 Goodwill impairments - (16) (16) Short term fluctuations in investment returns 2 2 (2) (Loss) / profit on disposal of investment in subsidiaries - (6) 6 Reported charge 78 74 24 Notes to the Consolidated Financial Statements continued for the six months ended 30 June 2005 11 MINORITY INTERESTS continued 11(b) Preferred securities GBPm 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) 140 140 140 R792 million non-cumulative preference shares(2) 71 71 71 US $750 million cumulative preferred securities(3) 458 458 458 Other(4) 6 7 5 675 676 674 Unamortised issue costs (13) (14) (12) 662 662 662 Deduct: preferred securities held by other group companies (9) (14) (13) Balance at end of period 653 648 649 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 GBPm 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Guarantees and assets pledged as collateral security 836 954 994 Irrevocable letters of credit 324 280 323 Secured lending 584 633 596 Other contingent liabilities 127 41 209 1,871 1,908 2,122 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 GBP25 million. Initial costs to be recognised upon implementation of the Nedbank and Mutual & Federal arrangements are estimated at GBP10 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 GBP6 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 GBP22 million as at 31 December 2004 and no impact as at 30 June 2004. This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW IR EAAPEFDNSEEE

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