Preliminary Results 2011 - Part 1 BRD

RNS Number : 0197Z

Old Mutual PLC

09 March 2012

 



9 March 2012

Old Mutual plc preliminary results for the year ended 31 December 2011

A year of strategic and operational delivery

Financial Summary1		2011	Movement
Adjusted operating profit before tax (IFRS basis)*		£1,515m	14%
Adjusted operating earnings per share (IFRS basis)**		15.7p	13%
Net client cash flows - LTS		£3.2bn	£(1.1)bn
Net client cash flows - USAM2		£(4.2)bn	£4.0bn
Funds under management		£267.2bn	(5)%
Group return on equity		14.6%	+40bps
Dividend	- Final	3.5p	21%
	- Interim	1.5p	36%
Total profit after tax attributable to equity holders of the parent		£667m	+£949m
Adjusted Group MCEV per share		194.1p	(8.1)p
Surplus generated3		£986m	+£238m

¹      Except for total profit after tax and adjusted Group MCEV per share, all figures in the table are in respect of core continuing businesses only and the 2010 comparatives have been restated accordingly. Nordic was classified as a discontinued business in 2011 as it is subject to a sale agreement. Percentage movements are shown on a constant currency basis.

²      USAM excludes NCCF from Dwight, Lincluden and OMCAP, which were sold or held for sale at 31 December 2011.

³     Surplus generated is the adjusted net worth of the operating business units not required to support capital requirements.

Strong financial performance

·     Profits up 14% at £1,515 million

·     EPS up 13% to 15.7p

·     Ordinary dividend up 25% to 5.0p

Positive foundation for growth

·     Selected, high-return emerging markets: increasing Africa presence anchored by three strong South African businesses

·     Low-risk, modern European business: leading UK platform, £20.1 billion FUM at 29 February, well positioned for Retail Distribution Review

·     Our FGD surplus of £2.0 billion and liquidity headroom of £1.5 billion enables us to invest for profitable growth and reward shareholders

Strategic activities continue to pay dividends for shareholders

·     Disposal of Nordic and Finnish businesses; closure of Switzerland to new business; disposal of Dwight and OMCAP

·     Proposed special dividend of 18p; 7 for 8 share consolidation

·     On track to meet or exceed all our 2012 targets

Julian Roberts, Group Chief Executive, commented:

"This has been a year of strategic and operational delivery for Old Mutual despite the tough macro-economic environment. We have produced strong financial results and have taken significant steps in executing our strategic plan.

"Old Mutual has a strong base from which to drive growth. We have exposure to fast growing emerging markets, which we expect to continue to perform well in 2012, and specialist, low-risk businesses in Europe where we also anticipate growth albeit in tougher market conditions. These are markets in which we have significant expertise and where we see the opportunity for profitable growth, and together with our financial strength and flexibility, will allow us to continue to deliver value to our shareholders."

Patrick O'Sullivan, Chairman, commented:

"Old Mutual now has a stronger balance sheet, a simpler structure and a greater strategic focus. These changes have led to significant value creation for our shareholders and are down to the hard work of this company's management and staff, and are reflected in a Total Shareholder Return of 160% over the past three years."

Old Mutual plc

Preliminary results for the year ended 31 December 2011

Enquiries

External Communications
Patrick Bowes	UK	[phone]
Kelly de Kock	SA	[phone]
Media
William Baldwin-Charles		[phone]

Notes

Unless otherwise stated, wherever the terms asterisked in the Financial Summary on the front page of this announcement are used, whether in the Financial Summary, the Group Chief Executive's Statement, the Group Finance Director's Review or the Business Review, the following definitions apply:

*     For core life assurance and general insurance businesses, adjusted operating profit is based on a long-term investment return, including investment returns on life funds' investments in Group equity and debt instruments, and is stated net of income tax attributable to policyholder returns. For the US Asset Management business it includes compensation costs in respect of certain long-term incentive schemes defined as non-controlling interests in accordance with IFRS. For all core businesses, adjusted operating profit excludes goodwill impairment, the impact of acquisition accounting, revaluations of put options related to long-term incentive schemes, profit/(loss) on acquisition/disposal of subsidiaries, associated undertakings and strategic investments, and fair value profits/(losses) on certain Group debt movements but includes dividends declared to holders of perpetual preferred callable securities. Bermuda, which is non-core and Nordic and US Life which are discontinued and non-core, are not included in adjusted operating profit.

**    Adjusted operating earnings per share is calculated on the same basis as adjusted operating profit. It is stated after tax attributable to adjusted operating profit and non-controlling interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment trusts.

Cautionary statement

This announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. It should not be relied on by any other party or for any other purpose.

This announcement contains forward-looking statements relating to certain of Old Mutual plc's plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond Old Mutual plc's control, including, among other things, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties or of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in territories where Old Mutual plc or its affiliates operate.

As a result, Old Mutual plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out in its forward-looking statements. Old Mutual plc undertakes no obligation to update any forward-looking statements contained in this announcement or any other forward-looking statements that it may make.

Notes to editors:

A webcast of the presentation and Q&A will be broadcast live at 9:00am (GMT), (10:00am (CET)/11:00am (South African time)) today on the Company's website www.oldmutual.com. Analysts and investors who wish to participate in the call should dial the following numbers and quote the pass-code 693086#:

UK/International	[phone]
US	[phone]
Sweden	[phone]
South Africa	[phone]

Playback (available for 14 days from 9 March), using pass-code 382367#:

UK/International	[phone]
US	[phone]

Copies of these results, together with high-resolution images 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.

A Financial Disclosure Supplement relating to the Company's Preliminary Results can be found on the website. This contains key financial data for 2011 and 2010.

Foreign exchange rates

	GBP/ZAR exchange rates		GBP/SEK exchange rates		GBP/EUR exchange rates		GBP/USD exchange rates
	Average exchange rate	Closing exchange rate	Average exchange rate	Closing exchange rate	Average exchange rate	Closing exchange rate	Average exchange rate	Closing exchange rate
FY2011	11.64	12.56	10.41	10.68	1.15	1.20	1.60	1.56
FY2010	11.31	10.28	11.14	10.42	1.16	1.16	1.55	1.55

Group Chief Executive's Review

Review of Operations

Introduction

A year of delivery

This has been a year of both operational and strategic delivery for Old Mutual, including the sale of our Nordic operations which is not included in the 2011 adjusted operating results. Our IFRS basis adjusted operating profit (IFRS AOP or AOP) was up 14% due to improved trading and the operational improvements implemented by management over the last few years. Group return on equity (ROE) was up 40 basis points at 14.6%.

This excellent performance was delivered against a backdrop of testing macro economic conditions and continued economic uncertainty in a number of our markets. We have continued to focus on delivering our strategy and remain on track to meet, and in some cases exceed, our 2012 targets.

The Group is in a strong financial position. At 31 December 2011, our FGD surplus was £2.0 billion and we had total liquidity headroom of £1.5 billion. On 21 March we expect to receive £2.1 billion in cash from the disposal of the Nordic business.

Streamlining and simplifying the business

In 2011, we made significant progress in delivering our strategy: to build a long-term savings, protection and investment group by leveraging the strength of our people and capabilities in South Africa and the rest of the world, which will enhance value for both our customers and shareholders, and enhance our overall ROE.

When we announced the strategy in March 2010, we undertook to create value for both shareholders and policyholders. In 2011, we have made significant progress in this regard. We continued to streamline and simplify our business:

·     Concluded the sale of US Life for $350 million;

·     Closed Switzerland to new business;

·     Agreed the sale of our Nordic business to Skandia Liv for £2.1 billion;

·     Announced the sale of our Finnish business to OP-Pohjola Group; and

·     Decided to consolidate our other European businesses under one management team.

We continue to explore a partial IPO of the US Asset Management (USAM) business in line with our stated strategy, but we remain focused on building margins, improving investment performance and driving growth in the business.

While we have already taken considerable steps in restructuring the Group, we will continue to evaluate the optimum shape of the business and will consider all options in the pursuit of creating value for shareholders and policyholders alike. We will continue to be guided by our strict criteria for keeping businesses within the Group.

Meeting our targets

In March 2010, we set ourselves challenging targets: two thirds of the way through our three year strategy, we have either met, exceeded or are well on track to achieve these goals. We set ourselves a target for reducing £100 million of costs across the Group and at the 2011 year end had delivered £111 million in run-rate savings. Our Long-Term Savings (LTS) business was tasked with improving its ROE to between 16% and 18%; in 2011, it achieved an ROE of 20% (18% including Nordic). We said we would reduce our Group net debt by £1.5 billion by the end of 2012 and with the proposed disposal of the Nordic business, we will achieve this target and now intend to repay debt of £1.7 billion, having achieved a £0.6 billion reduction so far.

Focusing the business

Our strategic imperative is to become more customer focused and to leverage our strengths across our businesses. We have refocused our LTS businessesto ensure that they are aligned with customer needs and have identified four key customer segments which we will serve: the Retail Mass market in the Emerging Markets; the Retail Affluent market primarily in Europe and South Africa; the International Affluent; and the Institutional market.

We are rolling out a measure of customer advocacy, the Net Promoter Score, across our Group to monitor how satisfied our customers are with our service. Our businesses in South Africa, the UK, Sweden and the Skandia International business all won various awards in 2011 for superior customer service. Nedbank successfully launched mobile banking in South Africa with 652,000 customers already signed up.

We have continued to seek ways of leveraging our strengths across our businesses. We are looking to roll out our Greenlight protection product into more territories this year, following its successful launch into Mexico in 2011. Our tied agency force in Mexico has benefited from the expertise we have in South Africa. We launched a new product into Colombia with South Africa providing the back office servicing, information technology (IT) and product support.

IT is an area where we see significant scope to gain efficiencies by using our combined Group purchasing power, and we have undertaken two initiatives. We outsourced the South African IT, voice and data infrastructure network services of Old Mutual, Nedbank and Mutual & Federal (M&F) to Dimension Data, and we expect to generate significant local savings for the operating businesses over the next five years. In addition, we have a seven year deal with T-Systems for them to provide IT support services for Old Mutual South Africa and M&F. We will look at rolling out this agreement to other Emerging Markets businesses, including Rest of Africa, Colombia and Mexico. We have plans for further IT efficiencies and operational improvements as we apply best practice techniques, remove duplication and improve delivery standards and customer service.

We will continue our restructuring programme with USAM working to achieve the required operating margin and net client cash flow (NCCF) targets and we will invest in M&F to strengthen the franchise.

We have further strengthened our operational management team across the Group. Ian Gladman, previously Co-Head of Financial Institutions, EMEA for UBS Investment Bank, was appointed Group Strategy Director and a member of the Group Executive Committee (GEC). As part of the strategy portfolio handover, Don Hope has now stepped down from the GEC and will retire at the end of 2012. Sue Kean was appointed Group Risk Officer and has joined the GEC; Ralph Mupita has been appointed Chief Executive of LTS's Emerging Markets business; Paul Feeney, formerly head of distribution of BNY Mellon, has been appointed Chief Executive of LTS's Asset Management business; and Peter Todd has been appointed Managing Director of M&F.

Looking forward

We now have an attractive and resilient business portfolio. We have three excellent businesses in South Africa: the life and savings business of Old Mutual; Nedbank; and M&F. We have significant presence in selected emerging markets which have sizeable populations, under-penetrated financial services markets and strong gross domestic product (GDP) growth. We also have specialist, low-risk businesses in European markets, which includes the leading platform in the UK. The new management team at USAM is addressing the issues of margin, investment performance and growth.

While there has been a significant amount of change over the past two years, we remain committed to building a long-term savings, protection and investment Group and to drive and support Nedbank to become Africa's most admired bank. We will continue to put the customer at the centre of the business and provide them with innovative, transparent and flexible products. We will maintain tight control on costs; a disciplined approach to risk management, governance and allocation of capital; we will seek to ensure that everything we do improves the businesses we own and will provide value to our shareholders and our customers.

Our vision, strategy and strategic priorities remain unchanged. We will continue to deliver shareholder value by putting the customer first in everything we do, building high performance businesses, sharing our core competencies across the Group, embedding our culture of excellence and simplifying the Group's structure to unlock shareholder value.

Dividend

Given the continued progress in achieving our debt repayment programme, the Board has considered the position in respect of a final dividend for 2011, and is recommending the payment of a final 2011 dividend of 3.5p per share (or its equivalent in other applicable currencies). In February 2012, we announced we would pay a £1.0 billion special dividend, 18p per share, subject to shareholder approval of the Nordic disposal and its completion, and shareholder approval of the related share consolidation.

The Board intends to pursue a progressive dividend policy consistent with our strategy, having regard to overall capital requirements, liquidity and profitability, and targeting dividend cover of at least 2.5 times IFRS AOP earnings over time. In future, we expect to set interim dividends routinely as 30% of the prior year's full dividend.

Review of Operations

Long-Term Savings

Our LTS division delivered strong results for the year with operating profits of £793 million up 3% on a constant currency basis. This was driven by strong profit growth in our Emerging Markets business. We have strengthened the capabilities of these businesses and are seeing cohesion in the management of business units across geographies.

Emerging Markets

This has been another good year for Emerging Markets with the business continuing its growth momentum and showing an increasing breadth across its geographic and customer footprints. Local currency sales were up and NCCF showed a particularly good uplift from the prior year.  

In 2011 South Africa delivered another good performance with AOP growing by 5%. The Mass Foundation Cluster, which sits within the Retail Mass customer segment and is a key area of growth for us, has had another excellent year and we expect this strong growth to continue. In Retail Affluent we saw double digit profit growth in the year. This market grew in excess of 15% from 2007 to 2010, with the growth skewed to the younger age group and previously disadvantaged communities. We believe that the retail affluent market in South Africa will continue to show good growth potential for us. Our South African Corporate business had an excellent second half. Our South African business is managing the issue of regulatory examinations very carefully and we have extensive training plans and other measures to help our representatives pass their exams ahead of the 30 June 2012 deadline. Additionally, the Group created more than 1,500 jobs in 2011.

We see exciting growth opportunities across sub-Saharan Africa for Old Mutual and we are actively exploring means for organic and inorganic growth on the continent. As part of this growth plan, and as we announced in February 2012, a non-binding offer has been accepted by Ecobank Transnational Incorporated (ETI) for the purchase of Oceanic Life, a Nigerian life assurance company acquired by ETI when it bought the Oceanic Group in November 2011. Oceanic Life has a Net Asset Value of $16 million and approximately 2% of the Nigerian life assurance market. ETI, with whom Nedbank has a strategic alliance, is the leading independent regional banking group in Africa, with operations in 32 countries across the continent. We have signed a 10 year agreement with ETI in Nigeria to distribute our products through their branch network.

We already have a management team in Nigeria and Nigeria will act as a hub for our expansion into West Africa.  Similarly we plan to expand into East Africa from our established base in Kenya and into other countries where we see value creating opportunities.   This expansion will be via our 'business in a box model' which uses common products, IT, systems and processes that can be replicated across markets, after allowing for local market requirements, with limited customisation and increases the speed to market, reduces costs and in-country risk. We are on track to meet our target of the Rest of Africa recording profits equal to 10% of South Africa's profits by the end of 2012 and 15% by the end of 2015.

Wealth Management

Wealth Management performed well building on 2010's momentum, despite the effects of the eurozone crisis which have squeezed incomes and lowered investment confidence which was particularly noticeable in the final quarter of the year. In the UK, we saw a continuation of the real trend of Independent Financial Advisers  (IFAs) transferring their business to platforms and we now have around 9,000 advisers using our platform with our assets increasing by 13% on the year end to approximately £19 billion with NCCF of a pleasing £3.3 billion. Over the last three years, assets held on UK platforms have more than doubled to more than £170 billion and while currently around 33% of the UK's retail long-term savings is conducted via platforms we expect that to become more than two thirds by the end of the decade.

We see a number of areas of growth for the platform which we are actively working on: increasing decumulation options, alternative investment options and passive investments. It is apparent that our platform customers would like to have more online access to their investments on our platform and we are working with IFAs to determine the level of demand for them being able to authorise wider access to the platform for their customers. We are excited about the opportunities we believe that the Retail Distribution Review will present to our business and we are confident that we are well placed to succeed through: our size, as the platform with the most funds under management (FUM); our financial strength and stability; and our effective technology. Skandia International is also developing a market-leading end-to-end wealth management service called "Wealth Interactive", which will also be RDR compliant for UK clients.

We are combining our Wealth Management Continental Europe business, which comprises France and Italy, with Skandia Retail Europe (Germany, Austria, Poland and Switzerland) to create Wealth Management Europe. This new business unit will increasingly focus on the Retail Affluent market which is comprised of 30 million households, holding €2.3 trillion of assets, growing at 5% per annum and is a market we believe is currently underserved. These customers are active and highly demanding: they are looking for transparent, flexible and modern products and are increasingly looking to e-channels to service them. The new business unit brings together 736,000 customers, over €11 billion FUM and 800 employees. The integration will continue throughout 2012 and we will be implementing further plans to improve our product offering and customer service. Wealth Management Europe will be reported as part of Wealth Management going forward.

Asset Management

We have appointed Paul Feeney as Chief Executive of the LTS Asset Management business, which primarily comprises Old Mutual Investment Group South Africa (OMIGSA) and Skandia Investment Group (SIG). In line with our client-centric business philosophy, OMIGSA is splitting its central research team to better align the research analysts with specific equity boutiques and their unique philosophies. This means that two equity boutiques, Toros and Value, fall away, and the remaining equity boutiques now comprise complete investment teams, each with substantial experience and appropriate investment skills, in order to achieve even better equity returns for our clients.

During the period, OMIGSA raised R9.3 billion for its housing impact fund, which aims to provide 120,000 new low cost houses, and a further R1.2 billion for a schools and education fund in South Africa. In total across Old Mutual, we had £2.8 billion FUM in social, environmental and transformation related investments, including: OMIGSA's Housing and Impact Fund, the South African Schools and Education fund, Futuregrowths' Agri fund in South Africa, the African Infrastructure Investment Managers fund and Skandia's Ideas for Life fund.

Nedbank

Nedbank performed well for the year ended 31 December 2011, reflecting the benefits of disciplined execution of its business plans and excellent progress with key strategic initiatives. Headline earnings growth were strong at 26.2% to R6,184 million for the year (2010: R4,900 million), driven primarily by 16.6% growth in non-interest revenue (NIR), net interest margin expansion and continued improvement in the Nedbank Retail credit loss ratio.

These results were underpinned by continued delivery on our key strategic focus areas of repositioning Nedbank Retail, growing NIR and implementing the portfolio tilt strategy. In the rest of Africa we deepened our strategic alliance with ETI by providing a facility in support of ETI's corporate development programmes, including its transformational banking acquisition in Nigeria, and as a result secured rights to acquire up to 20% of ETI within two to three years.

Mutual & Federal

M&F delivered a sound underwriting result in 2011 with results reflecting a more normalised year compared to the very favourable trading conditions and benign claims environment in 2010. Management is focused on managing its expense base and on driving premium growth through alternative distribution channels including: direct through iWyze; underwriting management agencies; and niche businesses. iWyze continues to meet its premium growth targets and is performing in line with our expectations.

As part of the Group's ongoing capital management programme, M&F restructured its capital base and paid nearly R1 billion in ordinary and special dividends in 2011.

US Asset Management

The new management team at USAM are focused on building the multi-boutique business around long-term, institutionally driven, active asset management to generate alpha for our clients. This focus has led to the announcement of the disposal of the Dwight, Old Mutual Capital (OMCAP) and Lincluden affiliates. Building our global distribution capability is key for USAM's future growth and we have appointed Julian Ide, who was previously Head of Institutional Business at BBVA Asset Management, to lead OMAM UK and the global distribution effort. We have appointed Olivier Lebleu as Head of non-U.S. Distribution. Olivier was previously a partner and member of the investment advisory committee at Stenham (Montier & Partners).

In USAM's continuing operations we are seeing improving margins and an improvement in investment performance at the affiliates. For the year ended 31 December 2011, 62% of assets outperformed benchmarks, compared to 57% at 31 December 2010. Over the three- and five-year periods to 31 December 2011, 68% and 67% of assets outperformed benchmarks, compared to 49% and 65% at 31 December 2010.  The increase was driven by improving performance in International Equity and Global Fixed Income. There are early signs of an improvement in NCCF and we believe that this trend will continue providing we maintain good investment performance.

Board changes

We are pleased to welcome Nonkululeko Nyembezi-Heita (Nku) to the Board as an independent non-executive director. Ms Nyembezi-Heita is currently CEO of ArcelorMittal South Africa, and has been an independent non-executive director of Old Mutual's wholly-owned life subsidiary, Old Mutual Life Assurance Company (South Africa) Limited (OMLACSA), and will be stepping down from that position as part of her arrangements for joining the Old Mutual Board.

Following the Annual General Meeting on 12 May 2011, the following changes to the Board came into effect:

·     Rudi Bogni and Nigel Andrews, who had both served on the Board as non-executive directors for nine years, retired from the Board;

·     Alan Gillespie succeeded Rudi Bogni as the Company's Senior Independent Director; and

·     Russell Edey succeeded Rudi Bogni as Chairman of the Remuneration Committee.

South African Empowerment

In South Africa in 2011, OMSA and Nedbank maintained a Level 2 rating status and M&F a Level 3 rating status as Broad Based Black Economic Empowerment contributors.

Outlook

While we remain cautious over the timing of any end to the current uncertain and volatile economic climate, we are confident that our unique mix of businesses, and our financial strength and flexibility, will allow us to continue to deliver value to our shareholders.

Julian Roberts
Group Chief Executive
9 March 2012

Group Finance Director's Review

GROUP RESULTS

Overview of FY 2011 results

£m
Group highlights1	2011	2010 (constant currency)	% change	2010 (as reported)	% change
Adjusted operating profit (IFRS basis, pre-tax)	1,515	1,333	14%	1,371	11%
Adjusted operating earnings per share (IFRS basis)	15.7	13.9p	13%	14.3p	10%
Group net margin2	46bps			42bps	4bps
Return on equity3	14.6%			14.2%	40bps
Life assurance sales - APE basis	1,207	1,277	(6)%	1,290	(6)%
Unit trust/mutual fund sales4	14,374	12,766	13%	13,018	10%
LTS net client cash flow (£bn)	3.2	4.3	(26)%	4.3	(26)%
Net client cash flows (£bn)5	(0.2)	(2.5)	91%	(2.8)	92%
Funds under management (£bn)	267.2	282.3	(5)%	295.2	(9)%
Full dividend for the year	5.0p			4.0p	25%
Total profit/(loss) after tax attributable to equity holders of the parent	667			(282)

¹        The figures in the table are in respect of core continuing businesses only and the 2010 comparatives have been restated accordingly, Nordic was classified as discontinued business in 2011 as it is subject to a sale agreement.

²        Ratio of AOP before tax to average assets under management in the period

³        ROE is calculated as core business IFRS AOP (post-tax) divided by average shareholders' equity (excluding the perpetual preferred callable securities)

⁴        Includes all non-covered business sales

⁵        Total NCCF excludes NCCF from USAM's Dwight, Lincluden and OMCAP affiliates, which were sold or held for sale at 31 December 2011.

Overview

Following the proposed sale of the Nordic business, Nordic has been classified as a discontinued operation and its profits have been excluded from AOP.  Seed capital investment in strategies managed by USAM affiliates and seed capital investment returns previously recognised within USAM were recorded at Group level for 2011. Comparatives were restated accordingly. USAM's Dwight, Lincluden and OMCAP affiliates were included in all reported results unless otherwise stated. Nordic, US Life and Bermuda results are included in the Group's MCEV results.

During the year to 31 December 2011 ('2011' or 'the year') Old Mutual showed strong growth in profits compared to the year to 31 December 2010 ('2010'). AOP earnings per share were up 10% to 15.7p for 2011 (2010: 14.3p). Pre-tax AOP was £1,515 million, an increase of £144 million on 2010. On a constant currency basis profits increased by £182 million, with notable improvements in profitability in the Mass Foundation Cluster (MFC) and Retail Affluent in our Emerging Markets business and increased non-interest revenue income in our South African banking business. Including Nordic, AOP earnings per share were up 9% to 17.5p (2010: 16.0p).

Group net margin (measured as profit before tax on average assets) increased by 4 basis points over the year from 42 basis points (excluding Nordic) to 46 basis points. The increase was driven by a strong improvement in the net margin at Nedbank. In Wealth Management the net margin, excluding the previously reported smoothing for policyholder tax, has improved from 23 basis points to 27 basis points as a result of the business gaining operational leverage, with increased UK Platform FUM and a more efficient expense base following the cost reduction programme; administrative expenses are now £42 million below the prior year.

ROE increased to 14.6% from 14.2%, as a result of the increased profits, particularly in Nedbank, offsetting an increase in the Group's equity base, which included the net assets of Zimbabwe, Kenya, Malawi and Swaziland for the first time.

While life assurance annual premium equivalent (APE) sales were down 6% to £1,207 million, Emerging Markets APE sales increased, driven by continued strong protection sales in MFC and Retail Affluent. Wealth Management continued to grow its single premium Platform sales but APE sales were down overall, with lower UK Legacy sales reflecting the reduction in the range of Legacy products being offered in 2011 and weakened European sentiment.

Non-covered business sales, including unit trust and mutual fund sales, were up 13%, driven by pension sales in the Colombian business of Emerging Markets. Strong sales continued in Wealth Management, up 4% on 2010.

All of our LTS businesses saw positive NCCF during the year. The Group had a small net client cash outflow of £0.2 billion (2010: £2.5 billion outflow), excluding £11.2 billion of net outflows from USAM's affiliates which were sold or held for sale at 31 December 2011.  The improvement was primarily due to improved NCCF in USAM's continuing business, reflecting markedly improved investment performance on a number of key strategies.

On a constant currency basis closing FUM decreased by 5% driven by negative market movements in H2 and net client cash outflows in USAM. Over the year the FTSE and MSCI World indices fell by 6% and 8% respectively, the JSE All Share and S&P 500 indices were broadly flat and the Dow Jones rose by 6%.

The rand weakened by 3% against sterling, on an average rate, negatively impacting sterling earnings from our South African businesses. The 31 December 2011 rand closing rate was down 22% against 31 December 2010, negatively impacting sterling FUM from our South African businesses. The US dollar weakened by 4% on an average rate negatively impacting sterling earnings from USAM but was flat at closing rate.

Proposed Nordic sale

On 15 December 2011 we announced the sale of our Skandia Nordic business, which operates in Sweden, Norway and Denmark, to Skandia Liv for net cash proceeds of £2.1 billion. Following shareholder approval at the Extraordinary General Meeting on 14 March 2012, completion is expected on or around 21 March 2012. The necessary competition authority and regulatory approvals have been obtained.

The total return on the Skandia Investment

Since purchasing the Skandia businesses in 2006 the Group has made a total return on investment from the acquisition of about £1.8 billion or 45%, giving an internal rate of return of 8%.

	£bn
Net cash flows from Skandia BU's	0.8
Proposed net sales proceeds	2.1
Remaining business valued at MCEV 31/12/2011	2.9
Total proceeds from and remaining value of Skandia BU's	5.8
Purchase price	(4.0)
Surplus	1.8
Internal rate of return	8%

Net cash inflows, including proceeds from disposals, from the Skandia businesses to the Group since acquisition have amounted to £0.8 billion; the proposed net sales proceeds for the Nordic elements of the Skandia businesses are £2.1 billion and the MCEV of the remaining Skandia businesses within the Group (which ignores the value of future new business) is £2.9 billion. The bulk of the £4.0 billion consideration for the Skandia businesses was paid in February 2006, resulting in an implied surplus for shareholders of £1.8 billion from the acquisition.

Dividends and consolidation of shares

Special dividend

Following the proposed Nordic sale the Board intends to return approximately £1.0 billion of net proceeds from the disposal to Ordinary Shareholders by means of a special dividend, equivalent to 18p per Ordinary Share (or its equivalent in other applicable currencies), which we expect to be paid in June 2012. We are also proposing a consolidation of shares following the special dividend of 7 new shares of 11 3/7p nominal per share for every 8 existing shares of 10p nominal. Reported earnings per share for 2012 and 2011 will be restated accordingly.

No scrip alternative to the 18p per Ordinary Share special dividend will be offered.

Final dividend for 2011

Given the continued progress in achieving our debt repayment programme, the Board has considered the position in respect of the final dividend for 2011 and is recommending the payment of a final dividend for 2011 of 3.5p per Ordinary Share (or its equivalent in other applicable currencies), amounting to about £195 million. This is equivalent to 4.0p per new ordinary share once the existing shares are consolidated. Based on this recommendation the full year Ordinary dividend would be 5.0p, up 25% on 2010.

A scrip dividend alternative is not being made available in relation to this dividend in view of the complexities involved in the share consolidation, and the Board will consider later in 2012 whether to reinstate a scrip dividend alternative for the interim dividend for the current year.

Dividend policy

The Board intends to pursue a progressive dividend policy consistent with our strategy, having regard to overall capital requirements, liquidity and profitability, and targeting dividend cover of at least 2.5 times IFRS AOP earnings over time.In future we expect to set interim dividends routinely at 30% of the prior year's full dividend.

Management discussion and analysis of results for FY 2011

The principal businesses of the Group are the LTS division, Nedbank, M&F and USAM.  The results for each of the LTS businesses, Nedbank, M&F and USAM are discussed separately in the Business Review which follows this report.

Sources of earnings

			£m
	2011	20101	% change
Revenue
Fees	2,075	1,976	5%
Underwriting2	1,471	1,419	4%
Nedbank net interest income3	1,120	943	19%
Nedbank non-interest revenues	1,268	1,145	11%
Net other revenue	402	405	-
Total revenues	6,336	5,888	8%
Expenses
Debt costs	(128)	(128)	-
Administration expenses & other expenses	(3,676)	(3,460)	(6)%
Acquisition expenses	(1,017)	(929)	(9)%
Total expenses	(4,821)	(4,517)	(7)%
AOP before tax and non-controlling interests	1,515	1,371	11%

¹     The year ended 31 December 2010 has been restated to reflect Nordic as discontinued

²     Underwriting includes net income from writing insurance products (protection, annuity and general insurance)

³     Presented net of impairments

Fees increased 5% to £2,075 million. Fees include asset based fees, transactional fees, performance fees and premium based fees, earned on unit linked investment contracts and Asset Management revenues.

The increase in fees was driven by Wealth Management and Emerging Markets, reflecting significantly higher average FUM - up some 7% on 2010.

Underwriting increased 4% to £1,471 million. The increase was driven by Emerging Markets, which benefited from improved retail mortality and morbidity experience as well as more favourable retail persistency experience.

Nedbank net interest income (NII) was up 19% to £1,120 million, due to an increase in the NII margin, an increase in interest earning assets and a reduction in impairment provisions.

Nedbank non-interest revenue (NIR) was up 11% to £1,268 million. NIR included service charges, trading income, commission and transactional fees. The increase was due to higher commission and fees, higher derivative and dividend income and increased transactional volumes.

Net other revenue was flat, with reduced inter-company interest paid to Bermuda and small increases in other revenues in Nedbank and Emerging Markets, offset by a reduction in long-term investment return (LTIR) in Wealth Management.

Administration expenses increased by 6% to £3,676 million, with increased costs in Nedbank (primarily due to higher staff costs) and Emerging Markets (driven by one-off project costs). Wealth Management reduced its costs, reflecting the underlying savings achieved as part of its transformation programme. Across the business £11 million was spent in 2011 on transformation costs associated with cost saving initiatives and £15 million on LTS IT transformation.

Acquisition expenses increased by 9% to £1,017 million, primarily in Wealth Management, which saw increased trail commission as a result of higher average FUM.

Operating profit analysis

£m
AOP analysis	2011	2010 (constant currency)	% change	2010* (as reported)	% change
Long-Term Savings	793	772	3%	787	1%
Nedbank	755	584	29%	601	26%
Mutual & Federal	89	100	(11)%	103	(14)%
US Asset Management	67	69	(3)%	72	(7)%
	1,704	1,525	12%	1,563	9%
Finance costs	(128)	(128)	-	(128)	-
LTIR on excess assets	37	31	19%	31	19%
Net interest payable to non-core operations	(23)	(39)	41%	(39)	41%
Corporate costs	(57)	(60)	5%	(60)	5%
Other net (expenses)/income	(18)	4	n/a	4	n/a
AOP	1,515	1,333	14%	1,371	11%

*     The year ended 31 December 2010 has been restated to reflect Nordic as discontinued

AOP from operating units increased 12%, primarily as a result of a 29% increase in Nedbank's AOP, driven by higher non-interest revenues, a moderate improvement in net interest margin and lower retail credit losses. LTS was 3% up on 2010, driven by a 9% increase in Emerging Markets following strong results in MFC and Retail Affluent. AOP in Wealth Management was down £18 million to £179 million, with 2010 benefiting from policyholder tax smoothing of £76 million compared to £32 million in 2011. Excluding the benefit of policyholder tax smoothing for prior years, underlying AOP grew by 21%, driven by higher FUM balances and reduced absolute levels of expenses. M&F saw higher claims in H2 as underwriting conditions normalised. USAM's profits were broadly flat despite lower average FUM in H2 and restructuring charges.

AOP for 2011 increased by £144 million on a reported basis, this variance includes a positive currency impact on the 2010 result of £38 million, on a constant currency basis AOP increased by £182 million.

Finance costs were flat, with reduced debt levels offset by the 8% coupon costs of the £500m 10 year bond that was issued in June 2011. We anticipate lower finance charges in the future as the Group debt reduction programme continues.

LTIR on excess assets increased due to an increase in the average asset base, offset by a marginal decline in the long-term rate from 9.4% in 2010 to 9.0% in 2011.

Corporate costs were reduced 5% to £57 million. Around 10% of these costs were incurred in South Africa in respect of activities which support the corporate centre. A further 10% were unavoidable listed holding company costs including, amongst other things, corporate insurances, audit fees and other recurring professional fees.

The other net expenses increased to £(18) million (2010: £4 million income), primarily due to lower seed capital gains from USAM affiliates and interest paid to business units for cash balances held on their behalf at the centre. Associated interest income is recorded at the business unit level.

Group cost savings and ROE and margin targets

At the 2009 Preliminary Results and Strategy Update, the Group introduced three-year ROE and cost saving targets.

ROE and margin targets	2011	2010	Target
Long-Term Savings1
Emerging Markets 2	24%	25%	20%-25%
Retail Europe	15%	20%	15%-18%
Wealth Management	16%	14%	12%-15%
LTS Total	20%	20%3	16%-18%
USAM operating margin4	15%	15%	25%-30%
Nordic	10%	11%	12%-15%

^1.     ROE is calculated as IFRS AOP (post tax) divided by average shareholders' equity, excluding goodwill, PVIF and other acquired intangibles.

^2.     Within Emerging Markets, OMSA is calculated as return on allocated capital.

³     The LTS 2010 ROE has been restated to exclude Nordic

⁴     USAM margin is stated after non-controlling interests and excluding gains/losses on seed capital but makes no adjustment for affiliates held for sale or disposed in the period. The results for the comparative period have been restated accordingly to exclude gains on seed capital.

Wealth Management exceeded its target assisted by a reduced effective tax rate increasing post-tax returns. Emerging Markets ROE decreased to 24% but remains at the upper level of the target range, with increased after tax profit more than offset by increased allocated capital supporting growth and expansion plans in Africa. Retail Europe's ROE reduced, reflecting a reduction in profits and an increased equity base primarily as a result of foreign exchange movements.

USAM operating margin was flat on 2010. However, the new USAM management team has taken steps to refocus the business. As part of that effort several affiliate firms are being divested to improve longer-term financial performance.  Excluding the operating results of affiliates being divested and certain restructuring costs the operating margin increased to 19% from 17% in 2010.

£m
Cost reduction targets	Cumulative  run-rate savings	2011   cost incurred	Cumulative cost incurred to date	2012 run-rate  target
Long-Term Savings
Emerging Markets	4	-	-	5
Retail Europe	9	5	10	15
Wealth Management	50	6	46	45
LTS Total	63	11	56	65
USAM	15	-	20	10
Group-wide corporate costs	11	-	-	15
Total	89	11	76	90
Nordic	22	13	18	10

We are well advanced in delivering the reduction in our cost base announced in March 2010, with £89 million of the targeted £90 million run-rate savings already achieved. The original £100 million target has been re-stated to exclude Nordic following the proposed Nordic sale.

Wealth Management had substantially delivered its 2012 cost saving target of £45 million by July 2011 and has delivered an additional £5 million since then.  Retail Europe achieved a further £3 million of run-rate savings in the year, including savings generated from its Skandia branch in South Africa. The LTS IT transformation programme has made significant steps forward and is expected to generate material savings; benefits from the programme are expected to accrue from 2012. USAM delivered around £15 million of savings in 2009 and 2010.

We identified run-rate savings of £11 million in 2011 in respect of Group wide corporate costs and continue to look for cost efficiencies including, where practical and cost-effective, utilising the Group's South African head office branch.

The £11 million cost of executing the cost reduction programme restricted 2011 profits in Retail Europe and Wealth Management. Retail Europe's costs incurred include an element of dual running costs while activity was transitioned to South Africa. The costs incurred in executing the programmes will continue to restrict profits until the programmes are completed.

Summary MCEV results

		p
Adjusted Group MCEV per share at 31 December 2010*		202.2
Covered business	13.4
Non-covered business	6.0
Adjusted operating Group MCEV earnings per share (including Nordic)*		19.4
Economic variances and other earnings	(7.0)
Foreign exchange and other movements	(20.9)
Dividends paid to ordinary and preferred shareholders	(2.6)
Nedbank market value adjustment	(1.1)
BEE and ESOP adjustments	0.6
Mark to market of debt	(0.7)
Effect of sale of US Life	8.3
Impact of issue of new shares	(4.1)
Below the line effects		(27.5)
Adjusted Group MCEV per share at 31 December 2011*		194.1

* The weighted average number of shares used to calculate adjusted Group MCEV per share and adjusted operating Group MCEV earnings per share do not include preference shares.

The adjusted Group MCEV per share decreased by 4.0% (or 8.1p) from 202.2p at 31 December 2010 to 194.1p at 31 December 2011, largely reflecting foreign exchange losses as a result of the weakening of the South African rand and adverse market movements. This was partially offset by the effect of the sale of US Life.

The adjusted operating Group MCEV earnings per share increased by 3.3p from 13.5p in 2010 (15.5p including US Life and Nordic) to 16.8p for 2011 (19.4p including Nordic).

Covered business operating MCEV earnings per share increased by 1.3p from 9.7p for 2010 (11.0p including Nordic and US Life) to 11.0p for 2011 (13.4p including Nordic), as a result of:

·     A strong positive contribution from experience variances, largely attributable to favourable mortality and persistency experience

·     An improved contribution from new business

·     An adverse contribution from methodology changes.

Non-covered business operating earnings per share increased by 1.5p from 4.5p for 2010 to 6.0p for 2011 as a result of:

·     Higher sterling profits in the banking business due to greater fee income and lower bad debt charges

·     Slightly lower profits in the asset management businesses, arising from reduced FUM at USAM and fall in OMIGSA asset management profits.

During the year Old Mutual owned on average 54% of Nedbank. At 31 December 2011 the market capitalisation of Nedbank was R69.6 billion equivalent to £5.5 billion (2010: R63.7 billion; £6.2 billion). On a constant currency basis Nedbank market capitalisation increased by £0.4 billion from £5.1 billion in 2010, due to an 11% increase in share price over the year.

Free surplus generation

The Group generated £986 million of free surplus in the year (2010: £748 million) of which £554 million (2010: £423 million) was generated by the LTS division. Covered business (which included Nordic, US Life and Bermuda) generated £555 million (2010: £519 million). We expect the value of our in-force business (VIF) will generate about £1.5 billion over the next three years. Over 60% of this surplus is expected to come from non-Emerging Market entities. Non-covered business generated £431 million (2010: £229 million) with the improvement largely from banking but also gains in short-term insurance and asset management.

Sources and uses of free surplus

Gross inflows from core and continuing operations were £1,165 million (2010: £903 million) and new business investment was £390 million (2010: £370 million). Total free surplus generated from core operations of £931 million was significantly higher than the £555 million in 2010 due to higher transfers from the VIF and positive experience in the life businesses, improved profits in the non-covered businesses and lower transfer to capital requirements in Nedbank.

Capital, liquidity and leverage

Debt strategy, activity profile and maturities

In H2, the Group successfully tendered for €550 million of the €750 million euro bond. In addition the Group repaid a further $50 million of senior debt in September 2011 and the remaining €200 million of the €750 million euro bond was called in January 2012.

At 31 January 2012 the Group had repaid £0.6 billion of the £1.5 billion debt repayment target, including £110 million of debt (net of debt raised) in 2010, £339 million of debt (net of debt raised) in 2011 and a further £144 million in January 2012.

We intend to use £1.1 billion of the net proceeds of the proposed Nordic sale to reduce indebtedness. This will increase the Group's debt repayment plan to a total of £1.7 billion. Any decisions regarding the repayment of debt will take account of capital treatment and the economic impact of the repayment and will, where appropriate, be subject to regulatory approval. We do not intend to repay further debt until after the payment of the 18p special dividend to Ordinary Shareholders.

In the medium term the Group has further first calls on debt instruments amounting to £656 million in 2015, £500 million maturing in 2016 and a $750 million retail preferred instrument, which is callable quarterly. In 2020 the Group has a call on a further £350 million instrument. The £500 million 10 year bond issued in June 2011 matures in 2021.

Liquidity

In April 2011 we renewed the Group's bank facilities by negotiating a five-year, £1.2 billion, syndicated revolving credit facility, which was strongly supported by 17 banks.

At 31 December 2011, the Group had available cash and undrawn committed facilities of £1.5 billion (31 December 2010: £1.4 billion). Of this, cash on hand at the holding company was £0.4 billion (31 December 2010: £0.4 billion); a proportion of this was used to settle the remaining €200 million repayment of the €750 million euro bond in early January 2012.

We anticipate that the use of £1.1 billion of the net proceeds from the disposal of the Nordic business to reduce indebtedness will allow Old Mutual to retain an increased proportion of cash flows generated from operational activity and other corporate actions. This will enhance Old Mutual's capital flexibility and liquidity going forward.

In addition to the cash and available resources referred to above at the holding company, each of the individual businesses also maintains liquidity to support its normal trading operations. During the year a total of £84 million (R938 million) of special and ordinary dividends were paid by M&F under its revised capital management strategy. Nedbank paid £120 million of cash dividends to the South African holding company entities and following the preliminary results for Nedbank announced on 29 February 2012, further cash dividends for 2011 of R891 million (equivalent to £71 million at 31 December closing rate) are expected to be paid to the South African holding company in April 2012.

Group (excluding Nedbank) debt movements (IFRS basis) net of holding company cash

£m
	2011		2010
Opening debt (net of holding company cash)		(2,436)		(2,273)
Inflows from businesses		684		433
Outflows to businesses		(57)		-
Holding company expenses and interest costs		(233)		(210)
Change in cash from net repayment / issue of debt		(339)		(110)
Gross debt raised	(500)		(10)
Gross debt repaid	839		120
Debt repaid net of debt raised		339		110
Ordinary dividends paid (net of scrip dividend elections)		(48)		(65)
Other movements		88		(321)
Closing debt (net of holding company cash)		(2,002)		(2,436)
Decrease/(increase) in debt (net of holding company cash)		434		(163)

At a Group holding company level, net inflows from businesses improved from £433 million in 2010 to £684 million in 2011. The inflow in the year included remittances arising from the sale of US Life of £288 million. There was a net outflow of £57 million from the parent company to Bermuda relating to the repayment of inter-company loans. Holding company expenses and interest costs increased predominantly as a result of a non-reoccurrence of the SDRT remittance in 2010. The holding company made ordinary dividend payments in the year of £48 million and offered a scrip dividend election. The £321 million of negative other movements in 2010 resulted primarily from the tightening of credit spreads and the weakening pound increasing the value of Group IFRS debt in sterling terms; this was not repeated to the same extent in 2011.

Financial Groups Directive results

The Group's regulatory capital surplus, calculated under the EU Financial Groups Directive, at 31 December 2011 was £2.0 billion. Following the notice given to the FSA of the right to call the remaining €200 million of the €750 million euro bond that was partially redeemed in July 2011, we followed the FSA's requirements and excluded the instrument from the regulatory capital surplus calculations at 31 December 2011. If this instrument had been included in the calculation the surplus would have been £2.2 billion, and on a like-for-like basis the surplus was £2.4 billion at 31 December 2010 and £1.5 billion at 31 December 2009. The reported £2.0 billion FGD surplus represented a coverage ratio of 155%, compared to 146% at 31 December 2010. The Group comfortably met the recent stress tests required under the EU-wide Solvency II project.

The like-for-like decrease since 31 December 2010 was primarily a result of the impact of the US Life sale (approximately £100 million), the weakening of the rand, the payment of Group ordinary and preferred dividends and the redemption of subordinated debt offset by statutory profits in Emerging Markets and Nedbank and the issue of the £500 million bond in June.

The proposed Nordic sale will increase the Group's FGD surplus by about £1.5 billion on completion, before the payment of the special dividend and the planned repayment of debt.

The Group's FGD surplus is calculated using the 'deduction and aggregation' method, which determines the Group's capital resources less the Group's capital resources requirement. Group capital resources is the sum of all the business units' net capital resources, calculated as each business unit's stand-alone capital resources less the book value of the Group's investment; the Group capital resources requirement is the sum of all the business units' capital requirements. The contribution made by each business unit to the Group's regulatory surplus will, therefore, be different from its locally reported surplus since the latter is determined without the deduction for the book value of the Group's investment. Thus, although all the Group's major business units have robust local solvency surpluses, a number of them do not make a positive contribution to the Group's FGD position. The Group regulatory capital was calculated in line with the FSA's prudential guidelines.

The Group's subsidiary businesses continue to have strong local statutory capital cover. There was a small decrease in cover for the UK business following the purchase of two entities from the parent and the conversion of a loan to the parent to a dividend.  Nordic also saw a decrease in cover with the old Skandia UK Holding Company paid up to the parent as a dividend. 

Exposure to sovereign debt in Portugal, Italy, Ireland, Greece, Spain and France

The Group's direct exposure to the sovereign debt of Portugal, Italy, Ireland, Greece and Spain remains very low. At December 2011 the Group had less than £2 million exposure to bonds issued by the Italian Government and no exposure to the debt issued by the Greek, Irish, Portuguese or Spanish governments. The exposure to French sovereign debt is £2 million.

Corporate disposals and acquisitions and related party transactions

During 2011 and the early part of 2012 we have continued to focus on streamlining the Old Mutual business to focus on key competencies, competitive strength and operational improvements. In the 2011 interim results we reported the completion of the sale of US Life, the closure to new business of our Retail Europe Swiss business and the proposed legal transfer of some of our emerging markets businesses to reflect their operational management.

Since then we have taken further steps to simplify the business structure. In addition to the proposed Nordic sale we have also announced the sale of Wealth Management's Finnish branch and a number of USAM affiliates.

The sale of the Finnish branch was announced in December 2011. The transaction is subject to regulatory approvals and other customary conditions and is expected to close by the end of H1 2012.

The new management team at USAM has taken steps to refine strategy and refocus the business.  As part of that effort, several affiliate firms have been or are being divested to improve USAM's longer-term financial performance and move towards the margin targets announced to the market in 2010.

·     In September 2011 USAM announced the sale of Lincluden Management to its existing management team. The sale was completed in December 2011.

·     In October 2011 USAM announced the sale of OMCAP its US Retail affiliate, to Touchstone Investments. The sale is expected to close in H1 2012. USAM will continue to act in a sub-advisory capacity and retain a substantial portion of the assets under management. Through the transaction USAM will dispose of its retail administration centre in Denver and the significant costs associated with it.

·     On 7 February 2012 we announced the sale of Dwight Asset Management to Goldman Sachs Asset Management. Subject to certain conditions, the sale is expected to be completed in Q2 2012.  Dwight managed $30.7 billion of FUM at 31 December 2011, largely of stable-value asset mandates.

Subject to the approval of the relevant authorities in South Africa and Zimbabwe, the legal transfer of the ownership of the Zimbabwean business from Old Mutual Zimbabwe Limited to Old Mutual Africa Holdings and to local Zimbabweans, including staff and pensioners, as part of the Old Mutual response to Zimbabwe indigenisation legislation, is expected to be completed in H1 2012.

Statutory results

Reconciliation of Group AOP and IFRS profits

						£m
				2011		2010*
Adjusted operating profit				1,515		1,371
Adjusting items				(329)		(392)
Non-core operations (including Bermuda**)				(183)		15
Profit before tax (net of policyholder tax)				1,003		994
Income tax attributable to policyholder returns				(9)		101
Profit before tax				994		1,095
Total tax expense				(225)		(391)
Profit from continuing operations after tax				769		704
Profit/(loss) from discontinued operations after tax				198		(728)
Profit/(loss) after tax for the financial year				967		(24)
Other comprehensive income				(1,400)		1,151
Total comprehensive income				(433)		1,127
Attributable to
Equity holders of the parent				(408)		594
Non-controlling interests
Ordinary shares			(87)		428
Preferred securities			62		105
Total Non-controlling interests				(25)		533
Total comprehensive income				(433)		1,127

*     The year ended 31 December 2010 has been restated to reflect Nordic as discontinued

**    Non-core operations relates to Bermuda with the exception of £17 million of inter-segment revenue and expenses.

Adjusting items

The key adjusting items for 2011 excluded from AOP but included in IFRS profits were:

·     A £264 million goodwill impairment charge for the USAM business, resulting from a reduction in growth rate assumptions reflecting the outlook for US nominal GDP growth and net cash outflows experienced by USAM in 2011. The impairment charge has been partially offset by a reduction in the risk-adjusted discount rate;

·     A £129 million charge in respect of other acquisition accounting adjustments relating to Skandia (mainly the amortisation of acquired present value of in-force business);

·     A £171 million charge for short-term fluctuations in investment return, largely as a result of Wealth Management policyholder tax and lower returns on cash and bonds;

·     A £249 million profit for the African businesses in Zimbabwe, Kenya, Malawi, Swaziland and Nigeria under the control of Emerging Markets. Following a period of greater political and currency stability in Zimbabwe and an expectation that the Group will be able to extract benefits from its Zimbabwean business the Group's Zimbabwean business has been consolidated for the first time together with operations in Kenya, Malawi, Swaziland and Nigeria.  The acquisition has been accounted for at the net asset value of the underlying businesses at 1 January 2011, being the fair value of the Group's investment in these operations for the assets and liabilities acquired. Deemed consideration for the acquisition is the fair value of the Group's investment immediately prior to control. The result was a gain for the Group in these businesses that is accounted for as a profit on acquisition in the year. This profit has been excluded from adjusted operating profit. The trading results of the other African businesses for the year ending 31 December 2011 have been included in the Group's income statement and adjusted operating profit.

Non-core business units - Bermuda

Bermuda remains a non-core business. Its results are excluded from the Group's IFRS AOP, although the interest charged on internal loans from Bermuda to Group Head Office is charged to AOP.

The IFRS post-tax loss was $286 million (2010: $41 million gain), driven by the Guaranteed Minimum Accumulation Benefits (GMAB) performance, arising primarily from equity market declines in H2 and a reduction in US interest rates. The impact of the dynamic hedging programme over the course of 2011 was beneficial in reducing losses in respect of the variable annuity guarantees. Notwithstanding the hedging programme, given current equity market conditions, the business expects volatility in earnings in the medium term. At 31 December 2011 hedge coverage was 54% over equities (2010: 58%) and 53% over foreign exchange (2010: 39%), with interest rates remaining unhedged (2010: nil).

Of total insurance liabilities of $4,831 million, $3,130 million was held in a separate account relating to variable annuity investments. Of the remaining reserves, $1,061 million relates to guarantee liabilities on the variable annuity business, and $640 million relates to policyholder liabilities (these liabilities include deferred and fixed indexed annuity business as well as variable annuity fixed credited interest investments).

The GMAB reserve in respect of universal guarantee option (UGO) contracts has been set-up for the full period of the contract length, including the five-year anniversary top-up of 105% of total premiums, the 10-year 120% top-up of total premiums and any high water mark contracts.

At 31 December 2011, the total cost of fifth-anniversary top-up payments to policyholders in respect of the GMAB liabilities over the next two years was estimated at $689 million (30 September 2011: $738 million; 30 June 2011: $346 million; 31 December 2010: $334 million). The actual cash cost will be affected by any changes in policyholders' account values until the fifth-anniversary date of each policy, offset by hedge gains or losses. At 29 February 2012 rising equity markets had reduced the cash cost of top-up payments required to meet fifth-anniversary guarantees to $426 million and the GMAB reserve to $791 million. At the level of hedging in place at 29 February 2012, a 1% fall in equity market levels would have increased the net cash cost of meeting policyholder guarantees by approximately $11 million.

In March 2012 Bermuda enhanced its hedging strategy by implementing an option based hedging arrangement. This strategy will protect against downside risk from further equity market declines relating to meeting the cash-cost of the fifth-year anniversary of UGO contract top-up obligations, while maintaining the potential to realise gains if equity markets move higher. The existing futures based dynamic hedging strategy will remain in place for the variable annuity book exposure beyond five years. Also, the exposure to currency movements impacting the UGO top-ups will continue to be dynamically hedged.

Fifth-anniversary payments began on 5 January 2012 but the bulk of the payments will be made between 1 October 2012 and 31 January 2013. The enhanced hedging strategy aims to provide greater cash flow certainty over the period when the fifth-year anniversary UGO top-up payments fall due. We remain confident that the fifth-anniversary top-ups can be met within the estimated cost as at 31 December 2011 and expect the cash cost to be met from Bermuda's own resources. Further information on Bermuda is included in the Business Review Appendix.

Income tax attributable to policyholder returns

Under IFRS, tax on policyholder investment returns is included in the Group's IFRS tax charge rather than being offset against the related income. The impact is to increase IFRS profit before tax with a corresponding increase to the IFRS tax charge. In 2011 policyholder investment return generated a tax credit of £9 million (2010 restated to exclude Nordic: £101 million charge) due mainly to a credit in Wealth Management offsetting a charge in Emerging Markets.

The 2011 AOP result benefited from the structural tax efficiency applicable to UK companies writing unit-linked business in the UK, together with the smoothing of previous years' deferred tax assets.  These assets arose in 2008/09 from the significant market volatility where falls in the value of policyholder assets resulted in the recognition of significant deferred tax assets in the IFRS income statement, which were spread forward under AOP.  The final pre-tax smoothing adjustment in respect of previous years' deferred tax assets made in 2011 gave rise to a profit of £32 million, a significant reduction from £76 million in 2010. Going forward we expect the structural tax efficiency to continue.

Total tax expense

The effective tax rate on AOP was 23% (2010: 24%, restated to exclude Nordic). The decrease from 2010 was due to fewer unutilised tax losses, partially offset by increased Secondary Tax on Companies (STC) on dividends from South Africa and a decreased proportion of low-taxed dividend and capital profits. In addition no further provision strengthening was required in 2011.

Looking forward, and depending on market conditions and profit mix, we would expect the effective tax rate on AOP in future periods to tend towards 25%-27%.

Discontinued operations - Nordic & US Life

Profit from discontinued business after tax was £198 million (2010: £728 million loss), comprised of US Life profits of £130 million (2010: £713 million loss) and Nordic profits of £68 million (2010: £15 million loss).

Despite the turbulent stock markets in H2 and one-off restructuring costs, the Nordic business performed well, with good product development and the successful delivery of a number of cost reduction programmes during the year. The Nordic business is well placed to meet profitability targets in 2012 and the voluntary staff redundancy programme and other restructuring projects have prepared the business for a sustainable future. Further information on Nordic is included in the Business Review Appendix.

US Life profits were driven by the recycling of the 'available for sale' reserve and foreign exchange to the income statement. The 2010 loss reflected the impairment of the US Life business in anticipation of its sale at the terms agreed with the purchaser.

Other comprehensive income

Other comprehensive income for the year was a loss of £1,400 million driven by unrealised foreign exchange losses, primarily from the translation impact of the lower year-end rand to sterling exchange rates on the net asset value of the South African businesses.

Non-controlling interests

Non-controlling interests share of total comprehensive income was a £(25) million loss (2010: £533 million profit), reflecting non-controlling interests' share of the unrealised losses generated on the translation of Nedbank.

Risk allocation, Solvency II and iCRaFT and financial controls initiative update

The Group's economic capital models form the basis of the risk appetite and limit-setting framework. Our economic capital approach applies market consistent valuation methodologies and assumption setting processes to ensure that risk appetite and exposures are based on a risk-neutral benchmark. This approach adds value by ensuring that the Group makes explicit decisions regarding risk when writing new business and in the management of the in-force book. We believe that this disciplined approach facilitated better risk acceptance decisions during the period.

We have developed our economic capital models to meet Solvency II requirements in our integrated Capital, Risk and Finance Transformation (iCRaFT) project. These models were embedded during the period and will add value to risk decision making by formally quantifying risk exposures, and hence ensuring that decision-making is better informed. We conducted the recent EIOPA stress test on a QIS5 basis and this showed a comfortable level of solvency over the Group SCR floor. In tests there was no scenario when the Group's capital reduced below the SCR level.

The three key matters for the Group in respect of its regulatory capital position under Solvency II are:

·     Discussions on the treatment of EPIFP (Expected Profits In Future Premiums) have moved in a positive direction and we believe they are likely to be eligible as Tier 1 capital under Solvency II.

·     Bermuda was included in the first of three groups of non-EEA jurisdiction equivalence assessments. EIOPA's findings from this assessment were inconclusive and will be revisited this year.  The equivalence of South Africa will be reviewed in 2012 as part of the second group of assessments.

·     The latest draft regulations have suggested that a short contract boundary may be applied to some of the Group's long-term unit-linked insurance business.  We believe this proposal is not aligned with an economic balance sheet valuation of this business and we have raised concerns about this definition with the FSA and other bodies.

In addition to delivering the economic capital model developments, the iCRaFT project is progressing well on embedding Pillar I, II and III. We are working towards a submission to the FSA's internal model approval process and are on track to deliver all requirements for Solvency II compliance. We were the first major UK retail group to submit Group QIS5 results and the Self Assessment Questionnaire on the internal model to the FSA. In 2011, we formally entered a 'use test' phase, using an internally developed Use Framework to translate Solvency II requirements into practical business applications and to provide a structured approach in assessing use across the Group. Development and embedding of the Own Risk and Solvency Assessment (ORSA) processes is progressing alongside the use framework and continued development of enterprise risk management, bringing further insight to key risk decisions.

In 2011 we embedded our internal financial controls framework across the Group. The control framework is designed to mitigate the risk of material misstatement in the Group's financial reporting. The control environment continues to be assessed by management to ensure there is reasonable assurance regarding the reliability of financial reporting and the preparation of financial information across all the relevant reporting units.

Risks and uncertainties

A number of potential risks and uncertainties could have a material impact on Group performance and cause actual results to differ materially from expected and historical results.

During 2011, global economic activity weakened against initial expectations and became more uneven, confidence fell sharply, and downside risks grew. Against a backdrop of unresolved structural fragilities, a number of shocks hit the international economy, including the devastating Japanese earthquake and tsunami, unrest in some oil-producing countries and the major financial turbulence in the eurozone.  Two of the forces now shaping the global economy are high and rising commodity prices and the need for many economies to address large budget deficits.  Financial volatility has increased drastically at the year-end, driven by concerns about developments in the eurozone and the strength of global activity. 

Southern Africa and Emerging Markets generally have strong GDP growth, increasing population sizes, a growing middle class, stable unemployment levels and moderate inflation. The impact of the financial crisis on these economies was generally less severe than in the more developed countries. However, the current economic environment remains a threat with unstable and volatile equity markets, currency risk and unemployment challenges - particularly in South Africa.

Regulatory changes in the UK - the Retail Distribution Review (RDR) and Solvency II - are likely to have significant effects on the industry as a whole. The RDR has continued to provide opportunities for the UK Platform to grow, but may accelerate the run-off of the more profitable legacy book. UK Platforms are expecting margins to be squeezed both in the lead up to and RDR and afterwards.  The implementation of Solvency II requirements continues to occupy the industry and there is still uncertainty about both the implementation timetable and the details of the directive, particularly the issue of contract boundaries, which could materially affect our Solvency II position.

We monitor the external factors and uncertainties, such as market and regulatory developments that could adversely affect our ability to create value and continue meeting the capital requirements and day to day liquidity needs of the Group and individual entities. Overall risk trends are going down and Old Mutual is in a solid position to withstand the threat of further economic recession. In this respect we compare favourably to our peers; this is reflected in our Solvency II capital requirement which we believe is less demanding than those faced by some of our peers.  The risks we face in our Bermuda business, although significant, are being effectively managed and closely monitored.

We continue to strengthen and embed our risk management framework. We attach increasing importance on ensuring business decisions are within our risk appetite, and that risk exposures are monitored against appetite, allocated limits and budgets.

The Board of Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements contained in this announcement.

Philip Broadley
Group Finance Director
9 March 2012

Summarised financial information

			£m
Summarised financial information IFRS results (as reported)	2011	20101	% Change
Basic earnings per share	12.9	(6.5)p
IFRS profit/(loss) after tax attributable to equity holders of the parent	667	(282)
Sales statistics
Life assurance sales - APE basis	1,207	1,290	(6)%
Life assurance sales - PVNBP basis	9,113	10,162	(10)%
Value of new business	177	159	11%
Unit trust/mutual fund sales2	14,374	13,018	10%
MCEV results3
Adjusted Group MCEV (£bn)	10.8	11.0
Adjusted Group MCEV per share	194.1	202.2p
AOP Group MCEV earnings (post-tax and non-controlling interests)	1,055	830	27%
Adjusted operating Group MCEV earnings per share	19.4p	15.5p	25%
Financial metrics
Return on equity4	14.6%	14.2%
Return on Group MCEV3	10.7%	10.9%
Net client cash flows (£bn)	(11.4)	(6.7)	(70)%
Funds under management (£bn)	267.2	295.2	(9)%
Interim dividend	1.5p	1.1p	36%
Final dividend	3.5p	2.9p	21%
FGD5 (£bn)	2.0	2.1	(5)%
Net asset value per share	140p	151p

¹     The year ended 31 December 2010 has been restated to reflect Nordic as discontinued

²     Includes all non-covered business sales

³     Includes Nordic and US Life

⁴     ROE is calculated as core business IFRS AOP (post-tax) divided by average shareholders' equity (excluding the perpetual preferred callable securities)

⁵     The Group's regulatory capital surplus, calculated under the EU Financial Groups Directive, was £2.0 billion at 31 December 2011. The Group followed the FSA's requirements, and gave six months advance notice of its right in January 2012 to call the remaining €200 million of the €750 million Lower Tier 2 euro bond that was partially redeemed in July 2011. As a result of that notice, the Lower Tier 2 instrument was excluded from the regulatory capital surplus calculations as at 31 December 2011.

£m
Group return on equity*	2011	2010
AOP including accrued hybrid dividends - core operations	855	765
Opening shareholders' equity excluding hybrid capital - core operations	5,788	5,055
Half-year shareholders' equity excluding hybrid capital - core operations	5,987	5,337
Closing shareholders' equity excluding hybrid capital - core operations	5,857	5,788
Average shareholders' equity - core operations	5,877	5,393
Return on average equity	14.6%	14.2%

*     ROE is calculated as core business IFRS AOP (post-tax) divided by average shareholders' equity (excluding the perpetual preferred callable securities)

		£m
Group debt summary	2011	2010
Debt securities in issue at book value	507	550
Liquid assets held centrally	(441)	(438)
Senior debt	66	112
Hybrid capital and preferred securities	1,146	1,146
Subordinated debt	876	1,198
Derivative (asset)/liability related to hybrid capital	(86)	(20)
Total subordinated debt	1,936	2,324
Total net debt	2,002	2,436
Adjusted Group MCEV	10,794	11,030
Senior gearing	0.5%	0.8%
Total gearing	15.6%	18.1%

		£m
Debt	2011	2010
MCEV basis	2,515	2,829
Total IFRS book value of debt	2,529	2,894

£m
Interest cover*	2011	2010
Total interest cover	8.3 times	8.1 times
Hard interest cover	2.3 times	2.6 times

*     Total interest cover and hard interest cover ratios include Nordic profits in 2011 and 2010.

Business local statutory capital cover	2011	2010
OMLAC(SA)	4.0x	3.9x
Mutual & Federal	1.5x	2.0x
UK	2.0x	2.8x
Nedbank*	Core Tier 1: 11.0% Tier 1: 12.6% Total: 15.3%	Core Tier 1: 10.1% Tier 1: 11.7% Total: 15.0%
Nordic	6.3x	9.8x
Bermuda (estimated)**	2.3x	n/a

*     This includes unappropriated profits.

**    The new BMA regulatory framework is in effect from 2011. Bermuda has not submitted its regulatory return for the year-ended 31 December 2011 but statutory capital cover is estimated to be 2.3x.

		2011		2010*
Regulatory capital	£m	%	£m	%
Ordinary Equity	4,602	80	5,269	77
Other Tier 1 Equity	593	10	653	10
Tier 1 Capital	5,195	90	5,922	87
Tier 2	1,893	34	2,336	35
Deductions from total capital	(1,355)	(24)	(1,502)	(22)
Total capital resources	5,733	100	6,756	100

*     Capital as reported to FSA. Numbers may vary slightly to those reported in Annual Report and Accounts 2010.

Business Review

Long-Term Savings

Continued operational delivery despite difficult markets

Key performance statistics:

				£m
2011	Emerging Markets	Wealth Management	Retail Europe	Total
AOP (IFRS basis, pre-tax)	570	179	44	793
NCCF (£bn)	0.4	2.5	0.3	3.2
FUM (£bn)	49.9	54.4	4.2	108.5
Life assurance sales (APE)	524	611	72	1,207
PVNBP	3,2951	5,269	549	9,113
Non-covered sales2	8,147	4,669	20	12,836
Value of new business	991	70	8	177
Operating MCEV earnings (covered business, post-tax)	349	184	19	552
Adjusted MCEV per share (covered business)	56.9p	35.2p	10.6p	102.7p
Return on Embedded Value4	11.9%1	9.3%	3.0%	9.3%
(VNB + Experience variance)/MCEV (covered business)4	6.8%1	5.0%	1.1%	5.2%

				£m
2010 (constant currency) 3	Emerging Markets	Wealth Management	Retail Europe	Total
AOP (IFRS basis, pre-tax)	524	197	51	772
NCCF (£bn)	-	3.9	0.4	4.3
FUM (£bn)	46.6	55.9	4.8	107.3
Life assurance sales (APE)	473	734	70	1,277
PVNBP	3,1751	6,380	519	10,074
Non-covered sales2	6,762	4,507	23	11,292
Value of new business	831	66	7	156
Operating MCEV earnings (covered business, post-tax)	333	112	67	512
Adjusted MCEV per share (covered business)	49.7p1	36.2p	11.1p	97.0p
Return on Embedded Value4	13.2%1	6.1%	12.8%	10.8%
(VNB + Experience variance)/MCEV (covered business)4	4.7%1	3.1%	2.2%	3.9%

				£m
2010 (as reported) 3	Emerging Markets	Wealth Management	Retail Europe	Total
AOP (IFRS basis, pre-tax)	539	197	51	787
NCCF (£bn)	-	3.9	0.4	4.3
FUM (£bn)	57.0	55.9	5.0	117.9
Life assurance sales (APE)	487	734	69	1,290
PVNBP	3,2691	6,380	513	10,162
Non-covered sales2	6,962	4,507	23	11,492
Value of new business	861	66	7	159
Operating MCEV earnings (covered business, post-tax)	344	112	66	522
Adjusted MCEV per share (covered business)	60.7p1	36.2p	11.4p	108.3p
Return on Embedded Value4	13.2%1	6.1%	12.8%	10.8%
(VNB + Experience Variance)/MCEV (covered business)4	4.7%1	3.1%	2.2%	3.9%

¹     PVNBP and value of new business excluded Zimbabwe, Kenya, Malawi and Swaziland (the other African countries) in 2011 and 2010. The other African countries were excluded from Adjusted MCEV per share in 2010. The return on embedded value and (VNB + Exp Var)/MCEV metrics for 2011 and 2010 excluded the other African countries from opening MCEV when calculated.

²        Includes unit trust/mutual fund sales

³     The year ended 31 December 2010 has been restated to reflect Nordic as discontinued

⁴     RoEV and (VNB + Experience Variance)/MCEV (covered business) were calculated in local currency, except for LTS where they were calculated on a reporting currency basis

On a reported basis the Emerging Markets business accounts for: 72% of the LTS IFRS AOP earnings, 46% of LTS FUM, 43% of LTS APE sales; 63% of LTS operating MCEV earnings (covered business, post tax); and 55% of LTS MCEV per share (covered business).

The analysis below is presented on a constant currency basis.

IFRS AOP results

·     Overall LTS AOP increased 3% to £793 million.

·      Emerging Markets improved by 9% to £570 million with strong growth in profits in Retail Affluent and Mass Foundation Cluster (MFC). The consolidation of Zimbabwe, Kenya, Malawi and Swaziland for the first time increased AOP by £24 million.

·      Wealth Management decreased by £18 million to £179 million, with 2010 benefiting from policyholder tax prior year smoothing of £76 million compared to £32 million in 2011. Excluding the impact of prior year policyholder tax smoothing underlying AOP grew by 21%, driven by higher average FUM balances and reduced absolute levels of expenses.

·      Retail Europe was down £7 million, impacted by non-recurring costs associated with the transfer of some of the business operations to South Africa and higher commissions reflecting increased new business in Poland and Switzerland.

Net client cash flow (NCCF)

·      Overall LTS NCCF decreased by £1.1 billion to £3.2 billion. H2 flows were below H1, reflecting worsening investor sentiment in Europe.

·      Emerging Markets increased to £0.4 billion, with strong inflows in MFC and Retail Affluent and a large transaction in Colombia. OMIGSA benefited from lower PIC outflows and there were improved flows across a number of its boutiques.

·      Wealth Management decreased by £1.4 billion, with reduced inflows from Continental Europe following the end of the Italian tax shield that generated a sales boost in 2010. UK Platform NCCF was £3.3 billion (2010: £3.6 billion), with continued strong positive contributions from both covered and non-covered business.

·      Retail Europe saw a decrease of £0.1 billion as improved persistency was offset by higher surrender values.

Funds under management

·      Overall LTS FUM at 31 December 2011 was up 1% to £108.5 billion.

·      Emerging Markets increased by 7% to £49.9 billion, due mainly to consolidation of the other African countries for the first time. Some 85% of total Emerging Markets FUM is in South Africa.

·      Wealth Management was down 3% to £54.4 billion despite strong NCCF, with markets lower than 31 December 2010. FUM included UK assets of £33.4 billion (2010: £33.9 billion). Of the UK assets, UK Platform assets totalled £18.8 billion, a 13% rise from the 31 December 2010 level, further solidifying Wealth Management's position as one of the largest participants in this market. As of 29 February 2012, UK Platform assets were £20.1 billion.

·      Retail Europe closed slightly below 31 December 2010. Decreases in the market value of investments were partially offset by net client cash inflows.

Life sales summary

·      Overall LTS APE sales decreased by 6% to £1,207 million.

·      In Emerging Markets South African regular premium sales grew by 14%. Continued momentum in MFC sales delivered excellent growth of 28%. Retail Affluent sales increased by 4%, with more advisers, improved sales productivity and focused initiatives for the Greenlight protection product.

·      South African single premium sales decreased by 10% with lower sales in Retail Affluent and OMIGSA.  Retail Affluent sales were muted as management focused on product mix and completing training for the regulatory exams; sales volumes in 2010 were exceptional due to competitive Fixed Bond pricing. OMIGSA sales declined by 32% due to clients delaying investment decisions and some sales are now being reported as Corporate business.

·      Rest of Africa sales more than doubled, with strong Namibian sales. The consolidation of the other African countries for the first time increased APE sales by £17 million.

·      Sales in Asia & Latin America increased by 9%, benefiting from an increase in financial planner numbers and improved productivity in Mexico.

·      Sales in Emerging Markets' Chinese joint venture, Old Mutual-Guodian, increased by 77% due to strong regular premium sales and continued growth in telemarketing sales.

·      Wealth Management continued to grow its single premium business on the UK Platform.  Platform sales totalled £244 million of the £312 million total UK sales.

·      Sales in the UK Legacy market were £68 million, a decrease of £45 million reflecting the managed reduction in product range available in 2011.

·      In the offshore International market, sales decreased by 8% to £208 million as Wealth Management reduced lower margin regular premium business across the International markets.

·      Sales in Wealth Management's Continental Europe business decreased by 43% to £91 million, reflecting worsening investor sentiment in H2 2011 and the ending of the one-off tax shield in Italy in 2010.

·      Retail Europe sales increased by 4% to £72 million driven by increased regular premiums in the Polish business, which benefited from additional sales from new distribution partners in the IFA and bank channels.

Non-covered sales, including unit trust and mutual fund sales

·      Overall LTS non-covered sales were up 14% to £12,836 million.

·      In Emerging Markets there was strong sales growth in Colombian voluntary and mandatory pension sales, including a large public sector transaction concluded in the third quarter. There was strong growth in new client business in acsis and OMIGSA in South Africa and the inclusion of Zimbabwean CABS deposits in 2011.

·      In Wealth Management, UK mutual fund sales grew strongly - up 10%. As in the prior year, Wealth Management benefited from the seasonality of the tax year-end along with increased ISA allowances. International unit trust sales were down as market volatility impacted customer sentiment.

Margins and value of new business

·      Across LTS as a whole, new business APE margins improved to 15% (2010: 13%) and present value of new business premiums (PVNBP) margin improved to 1.9% (2010: 1.6%). The bulk of the improvement was in Wealth Management. Value of new business (VNB) increased by 13% to £177 million, driven by a combination of increased sales volumes and new business margins in Emerging Markets.

·      APE margins improved from 18% to 20% in Emerging Markets mainly as a result of improved persistency rates, favourable changes in economic assumptions, an improved product mix and the positive impact of the new dividend withholding tax replacing the current Secondary Tax on Companies (STC).   Improved product mix and expense control in Retail Affluent in H2 lifted margins from 3% in H1 to 10% for the full year. Corporate margins reduced in 2011 mainly due to a change in product mix and a reduction in sales volumes. The value of new business in Emerging Markets increased by 19% to £99 million, with increased sales volumes and improved new business margins.

·      The increase in margins in Wealth Management was driven largely by a more beneficial product mix in International with increased focus on higher-margin portfolio bond products and lower acquisition costs. The International APE margin improved to 23% (2010: 19%). The value of new business in Wealth Management increased by £4 million to £70 million and the APE margin and PVNBP margin increased to 11% (2010: 9%) and 1.3% (2010: 1.0%) respectively.

·      In Retail Europe the value of new business and APE margin were in line with 2010.

Operating MCEV earnings

·      Overall LTS operating MCEV earnings increased by 8% to £552 million.

·      In Emerging Markets operating MCEV earnings (post-tax) increased by 5% to £349 million. Operating experience variances increased due to improved persistency and mortality experience, partially offset by expense assumption changes and increased central provisions for project costs. Adjusted MCEV per share was up 14% to 56.9p, benefiting from a large positive impact from the replacement of STC with dividend withholding tax and a positive impact from economic variances. Return on Embedded Value (RoEV) reduced from 13.2% to 11.9% reflecting the significant uplift in MCEV during 2010.

·      In Wealth Management MCEV operating earnings post tax increased by £72 million to £184 million for the period, driven by improved new business value, positive experience variances and a number of net positive assumption changes. Adjusted MCEV per share decreased to 35.2p (31 December 2010: 36.2p), with strong MCEV earnings more than offset by high capital and dividend flows to Group and negative economic variances. RoEV increased from 6.1% to 9.3% due to increased MCEV operating earnings.

·      In Retail Europe operating MCEV earnings after tax decreased to £19 million. On a comparable basis MCEV earnings after tax were in line with 2010, which benefited from positive assumption changes for rebates and persistency in 2010. MCEV per share was down 0.5p to 10.6p, due to economic variances, foreign exchange and dividend flows. RoEV decreased to 3.0%, with increased opening MCEV and decreased operating MCEV earnings.

Value creation

·      A key metric by which we judge the performance of the business is Group Value Creation for the LTS covered business. It measures the contribution to return on embedded value from management actions of writing profitable new business and managing expenses, persistency, risk and other experience compared to what had been assumed. This metric improved from 3.9% to 5.2% in LTS (excluding Nordic), driven by strong sales of high margin protection products in Emerging Markets'  MFC and favourable persistency and rebate experience in Wealth Management.

Outlook

·      On 24 January 2012 we announced that we planned to bring together Wealth Management's Continental Europe business (France, Italy) and Retail Europe (Germany, Austria, Poland, Switzerland) to form one new business: Wealth Management Europe. The combined business brings together 736,000 customers across Europe and over €11 billion FUM. Wealth Management Europe will be reported under the Wealth Management business unit in future.

·      We will proceed with the integration of the Retail Europe business during 2012. The product portfolio and customer service offering will be improved and organisational structures amended accordingly.

·      Job creation in South Africa, particularly in the public sector, is likely to see good growth in the medium term, underpinned by the Government's planned infrastructure spending.

·      In South Africa we anticipate that the full potential impacts of the FAIS regulatory exams will only emerge in 2012 and 2013. We have implemented extensive training plans and other measures to help our representatives pass the exams ahead of the revised 30 June 2012 deadline.

·      Together with other companies in the Group Emerging Markets will continue to actively explore means for organic and inorganic growth in Africa. We are well positioned to grow into the rest of Africa by leveraging our established business bases in South Africa, Namibia and Zimbabwe.  Using our expertise in these businesses we are able to design and export relevant products and low cost IT infrastructure into new markets.

·      Our distribution capacity and use of technology to increase customer reach and reduce costs will accelerate in 2012. In particular we expect continued growth in our tied agency operations, with growth in the number of advisers and productivity. Higher new business standards will be the additional drivers of expected premium growth and the quality of new business.

·      The European government debt crisis diminished investor confidence, particularly in the fourth quarter of 2011, reducing European investment market demand in the short-term. There was a particularly strong impact in the weaker European economies such as Italy. However, we expect steady progress for 2012 as a whole.

·      Our early and decisive management action in the UK positioned us well to deal with the impending changes to the industry brought about by the Retail Distribution Review (RDR). With the potential ban on cash rebates and the development in operating margins for legacy businesses we believe our plan for a fully unbundled charging structure, under which we will pass on rebates to customers, would give us an advantage over our peers. We are actively developing new protection and asset management products in anticipation of the new market structures. We are also testing new forms of interaction with customers that help their advisers provide services more efficiently.

·      Total gross sales on the UK Platform were £4.9 billion (2010: £4.9 billion), reflecting challenging markets especially in Q4, however, we believe our share of the Platform market continued to grow over the period. Taxation uncertainty and regulatory delays may impede our ability to act as swiftly as we wish but we are confident that reform will be implemented in line with our expectations. UK sales growth may be constrained in 2012 by the lead up to the RDR announcement and resulting investor uncertainty.

·      We anticipate the completion of the sale of our Finnish business in mid-2012. Post-tax profits for the business were approximately £12 million and were included in Wealth Management for 2011.

 

 

 

 

 

Nedbank

Well positioned to build on the momentum from 2011

			Rm
Highlights	2011	2010	% Change
AOP (IFRS basis, pre-tax)	8,791	6,799	29%
AOP (IFRS basis) (pre-tax) (£m)	755	601	26%
Headline earnings*	6,184	4,900	26%
Net interest income*	18,034	16,608	9%
Non-interest revenue*	15,412	13,215	17%
Net interest margin*	3.46%	3.35%
Credit loss ratio*	1.14%	1.36%
Cost to income ratio*	56.6%	55.7%
Return on Equity*	13.6%	11.8%
Return on Equity (excluding goodwill)*	15.3%	13.4%
Core Tier 1 ratio*	11.0%	10.1%

*     As reported by Nedbank in its report to shareholders for the year-ended 31 December 2011.

The full text of Nedbank's results for the year ended 31 December 2011, released on 29 February 2012, can be accessed on our website http://www.oldmutual.com/mediacentre/pressReleases/viewPressRelease.jsp?pressItem_id=16311. The following is an edited extract:

Banking and economic environment

The global economic environment deteriorated in 2011 as the European sovereign debt crisis continued to unfold, leading to a loss of economic growth momentum in both developed and emerging markets.

For South Africa GDP growth is expected to end at 3.2% for the 2011 year and interest rates remained unchanged at 37-year lows.

Household demand for credit remained stable and transactional demand continued to strengthen, supported by real wage increases.

Business confidence remained at low levels for most of 2011, with corporate credit demand gaining some traction towards the end of the year as both private and public sector fixed-investment activity increased off a low base.

Review of results

Nedbank performed well for the year ended 31 December 2011, reflecting the benefits of disciplined execution of its business plans and excellent progress with key strategic initiatives.

Nedbank recorded strong headline earnings growth of 26.2% to R6,184 million for the year (2010: R4,900 million), driven primarily by 16.6% growth in NIR, net interest margin (NIM) expansion and continued improvement in the Nedbank Retail credit loss ratio.

Diluted headline earnings per share increased 25.4% to 1,340 cents (2010: 1,069 cents) and diluted earnings per share 27.7% to 1,341 cents (2010: 1,050 cents) in line with Nedbank's trading statement issued on 6 February 2012.

Return on average ordinary shareholders' equity (ROE), excluding goodwill, increased to 15.3% (2010: 13.4%) and ROE to 13.6% (2010: 11.8%), with the benefit of return on assets (ROA) improving to 0.99% (2010: 0.82%), partially offset by a reduction in gearing. Nedbank generated economic profit (EP) of R924m (2010: economic loss of R289m).

Nedbank is well capitalised, with the core Tier 1 capital ratio at 11.0% (2010: 10.1%). Funding and liquidity levels remain sound. Liquidity buffers increased R18.0 billion to R24.0 billion and the long-term funding ratio increased to Nedbank's target level of 25.0%.

Net asset value per share continued to increase, growing by 9.4% to 10,753 cents at 31 December 2011 (2010: 9,831 cents).

During 2011 Nedbank continued to deliver on its vision of building Africa's most admired bank and its commitments to all stakeholders. Highlights for the key stakeholders include:

·     For staff: creating 969 additional job opportunities, investing R303 million in leadership development programmes and continuing the positive shift in corporate culture.

·     For clients: paying out R116 billion in new loans; expanding the range of distinctive client-centred offerings; launching various new product innovations; keeping fee increases at or below inflation, with average retail banking fees remaining at levels similar to those in 2005; increasing footprint by 121 new staffed outlets and 389 ATMs; further extending banking hours in 59 branches and Sunday banking in 49 branches and, through restructures, having kept 13,900 families in their homes since 2009.

·     For shareholders: generating a 15.3% total shareholder return, delivering R924 million EP, declaring a total dividend up 26.0% as well as winning numerous reporting awards and the Financial Times and Banker magazine's Bank of the Year in South Africa for 2011.

·     For regulators: increasing capital levels and remaining well positioned for Basel III and the Solvency Assessment and Management regime; being one of the first South African banks to receive South African Reserve Bank (SARB) approval for using the advanced approaches for all three applicable risk types, and making cash contributions of R5.1 billion relating to direct, indirect and other taxation.

·     For communities: making banking more accessible for the entry-level market and remote rural communities with initiatives such as Vodacom m-pesa; extending R1.8 billion in loans to black small to medium enterprises with a turnover of up to R35 million; assisting over 934 entrepreneurs under skills development programmes, including the emerging agriculture sector; contributing R78 million to social development; remaining a Department of Trade and Industry (dti) level 2 contributor and increasing the dti score to 95.2 from 89.5; spending R6.6 billion on local procurement and playing a leadership role in environmental sustainability through participation in the Conference of the Parties 17 (COP17), maintaining our carbon neutrality, leading in water stewardship and being a signatory to the CEO Water Mandate of the United Nations Global Compact.

Cluster performance

The business clusters collectively reported an increased ROE of 18.6% (2010: 14.4%) and earnings growth of 30.8%.

	Headline earnings (Rm)			ROE (%)
	2011	2010	% change	2011	2010
Nedbank Capital	1,225	1,202	1.9	23.0	23.5
Nedbank Corporate	1,672	1,496	11.8	25.0	19.7
Nedbank Business Banking	852	825	3.3	23.1	26.4
Nedbank Retail	2,002	760	163.4	11.8	4.6
Nedbank Wealth	625	592	5.6	38.7	41.0
Operating units	6,376	4,875	30.8	18.6	14.4
Centre	(192)	25
Total	6,184	4,900	26.2	13.6	11.8

Nedbank Retail's headline earnings growth and ROE improvement were achieved through excellent progress strategically and financially in repositioning the cluster. Delivering distinctive client-centred value propositions enabled strong new-client growth and markedly increased sales. As a result, the cluster's NIR grew 17.3%, primarily driven by higher transactional and lending volumes. In addition, improved risk-based pricing, effective collections and rehabilitations resulted in reduced impairments, which contributed to the robust performance.

The good performance from the wholesale clusters was supported by excellent risk management, an increase in primary clients and higher usage of innovative transactional banking offerings. Nedbank Capital navigated well through difficult and volatile markets and ended the year with a small increase in its headline earnings. Nedbank Wealth performed well and its 2009 acquisitions continued to bear fruit, supporting its growth in earnings and embedded value, while the insurance and asset management businesses contributed strongly.

The centre moved to a loss of R192 million primarily as a result of an additional amount of R200 million before tax that was raised as a group portfolio impairment and a R111 million after-tax share-based payments charge for the Eyethu community share scheme.

Detailed segmental information is available on Nedbank's website at www.nedbankgroup.co.za under the 'Financial information' section.

Financial performance

Net interest income (NII)

Net interest income (NII) grew 8.6% to R18,034 million (2010: R16,608 million), with NIM growing to 3.46% (2010: 3.35%). Average interest-earning banking assets increased 5.1% (2010 growth: 3.0%).

The increase in NIM reflects:

·     Asset margin expansion on new advances from risk-adjusted pricing and a change in asset mix.

·     The lower cost of term liquidity in 2011.

This was partially offset by:

·     The impact of endowment, with average interest rates 90 basis points lower than in 2010.

·     The cost of enhancing Nedbank's funding profile.

·     The cost of carrying higher levels of lower-yielding liquid assets as Nedbank proactively positions itself for the likely implications of Basel III.

Impairments charge on loans and advances

The credit loss ratio improved to 1.14% for the year (2010: 1.36%), while further strengthening the portfolio impairment provision.

The credit loss ratio relating to specific impairments improved substantially to 1.02% for the year (2010: 1.32%) as defaulted advances continued tracking downwards to R23,073 million (2010: R26,765 million).

				(%)
Credit loss ratio analysis	Dec 2011	H2 2011	H1 2011	Dec 2010
Specific impairments	1.02	0.93	1.10	1.32
Portfolio impairments	0.12	0.13	0.11	0.04
Total credit loss ratio	1.14	1.06	1.21	1.36

Nedbank maintained a strong focus on credit risk management. The increased level of portfolio impairments includes R159 million relating to lengthened-emergence-period assumptions and R200 million in the centre for unknown events that may have already occurred, but which will only be evident in the future.

					(%)
					Through-the-cycle target ranges
Credit loss ratio	Dec 2011	H2 2011	H1 2011	Dec 2010
Nedbank Capital	1.23	1.57	0.86	1.27	0.10 - 0.35
Nedbank Corporate	0.29	0.24	0.34	0.20	0.20 - 0.35
Nedbank Business Banking	0.54	0.67	0.40	0.40	0.55 - 0.75
Nedbank Retail	1.98	1.73	2.24	2.67	1.50 - 2.20
Nedbank Wealth	0.25	0.09	0.41	0.15	0.20 - 0.40
Total	1.14	1.06	1.21	1.36	0.60 - 1.00

Nedbank Retail's credit loss ratio of 1.98% (2010: 2.67%) is now within the cluster's through-the-cycle target range of 1.50% to 2.20%. Nedbank Capital's credit loss ratio remained elevated at levels similar to those of 2010 mainly due to impairment charges on increased non-performing loans. Credit loss ratios in Nedbank Corporate, Nedbank Business Banking and Nedbank Wealth remained within or better than the respective clusters' through-the-cycle target ranges.

Non-interest revenue (NIR)

The momentum in NIR continued in the second half of 2011, resulting in strong growth of 16.6% to R15,412 million (2010: R13,215 million) and the ratio of NIR-to-expenses increasing to 81.5% (2010: 79.6%).

The continued trend of growth in commission and fee income, which was up 16.2% to R11,335 million (2010: R9,758 million), arose from further primary-client gains, robust transaction volumes and a good uptake of new products, particularly in Nedbank Retail, as well as from increased volumes in electronic channels in the rest of Nedbank.

Insurance income grew strongly at 22.4%, achieved through insurance sales into the MFC, personal loans and card businesses, as well as an improved underwriting performance.

Trading income increased by 3.4% to R2,168 million (2010: R2,096 million) in difficult markets. Private equity income increased by 41.7% to R323 million (2010: R228 million), mainly from improved realisations and dividends received in the Nedbank Capital and Nedbank Corporate private equity investment portfolios.

NIR was negatively impacted by R49 million loss (2010: R213 million loss) over the year due to fair value adjustments of Nedbank's subordinated-debt and associated hedges resulting from the strengthening of Nedbank's credit spreads.

Expenses

Nedbank continued to manage core expenses while investing for growth, resulting in an ongoing improvement in the NIR-to-expenses ratio. Expenses increased 14.0% to R18,919 million (2010: R16,598 million), comprising expense growth of 8.0% relating to 'business-as-usual' activities, 3.0% relating to investing for growth initiatives and 3.0% relating to variable compensation.

Overall the main drivers of expense growth were:

·     Remuneration costs increasing 12.5%, driven by 3.4% headcount growth and inflation-related annual increases of 6.5%.

·     Short-term incentive costs increasing 35.8% on the back of strong headline earnings and EP growth.

·     Long-term incentive costs increasing R140 million to R262 million, as 2010 contained a reversal of costs when associated corporate performance targets were not met.

·     Volume-driven costs, such as fees and computer processing costs, continuing to grow in support of revenue generating business activities.

·     Investing for growth initiatives taking place across the clusters, which included the repositioning of Nedbank Retail that entailed footprint rollout, headcount growth in frontline and collections staff, and system enhancements.

The efficiency ratio increased to 56.6% (2010: 55.7%), reflecting the negative endowment impact of lower interest rates on NII, compounded by slower growth in interest-earning banking assets and the strategy of investing for growth.

Nedbank's compound NIR growth of 10.2% since 2007 continues to exceed its related compound expense growth of 8.8%.

Taxation

The tax charge increased 60.6% to R2,194 million (2010: R1,366 million), with the effective tax rate increasing to a more normalised 25.2% (2010: 20.7%). The increase resulted from:

·     The 31.9% growth in income before tax.

·     A lower proportion of dividend income relative to total income than in 2010.

·     Secondary tax on companies (STC) savings in the first six months of 2010 due to the take-up of the scrip dividend (81.5%) offered in that period.

·     The reversal of certain tax provisions in 2010.

Statement of financial position

Capital

Nedbank's capital adequacy ratios remain well above its internal targets in preparation for Basel III and continue to be strengthened as a result of ongoing risk and capital optimisation, strong growth in organic earnings and a strategic focus on managing for value and portfolio tilt.

				(%)
	2011	2010	Internal target range	Regulatory minimum
Basel II
Core Tier 1 ratio	11.0	10.1	7.5 to 9.0	5.25
Tier 1 ratio	12.6	11.7	8.5 to 10.0	7.00
Total capital ratio	15.3	15.0	11.5 to 13.0	9.75

(Ratios calculated include unappropriated profits.)

Given the predominant focus on the core Tier 1 ratio under Basel III and considering Nedbank's strong total capital adequacy ratio, it elected to call the Nedbank Limited Tier 2 bond (Ned 5) amounting to R1.5 billion in April 2011 without replacing it.

Further detail on capital and risk management will be available in Nedbank's Pillar 3 Report to be published in April 2012 on Nedbank's website at www.nedbankgroup.co.za.

Risk methodologies and capital allocation

In 2011 Nedbank Limited received approval from the SARB to use, for regulatory capital purposes, the Internal Model Approach for market trading risk. Nedbank Limited now has approval for the advanced approaches in respect of all three of the major Pillar 1 risk approaches under Basel II, having received approval for using the Advanced Measurement Approach for operational risk, effective from 2010, and to use the Advanced Internal Ratings-based Approach for credit risk from the implementation date of Basel II in 2008. This makes Nedbank Limited one of the first South African banks to operate under all three advanced risk assessment approaches.

Further enhancements to the internal capital allocation to business clusters occurred in 2011 to support the closer alignment of group and cluster ROEs. These enhancements have no impact on Nedbank's overall capital levels and ROE, but have impacted the ROEs recorded by the business clusters. This is an ongoing process born out of evolving regulatory developments such as Basel III.

Basel III developments

The majority of the international Basel III proposals were finalised in December 2010, although some significant aspects remain to be completed this year. The details of how Basel III will be adopted in South Africa are expected to be determined by the SARB during 2012.

Nedbank expects the impact of the new capital requirements to be manageable. On a Basel III pro forma basis for 2011 Nedbank is in a position to absorb the Basel III capital implications, with all capital adequacy ratios remaining well above the upper end of current internal target ranges. These should improve further into 2013 (the expected commencement date of Basel III implementation) from projected earnings, continuing capital and risk optimisation, and the impact of Nedbank's strategic portfolio management.

Once Basel III has been finalised in South Africa Nedbank will review its current target capital ratios.

Two new liquidity ratios have been proposed under Basel III, being the liquidity coverage ratio (LCR) for implementation in 2015 and the net stable funding ratio (NSFR) for implementation in 2018. The impact of compliance by the South African banking industry with, particularly, the NSFR would be punitive if implemented as it currently stands in the light of structural constraints within the South African financial market. This is the case for many jurisdictions around the world, and the negative effect on economic growth and employment would be significant. Nedbank anticipates that a pragmatic approach on this issue will be applied prior to implementation in 2018.

Loans and advances

Loans and advances grew 4.4% to R496 billion (2010: R475 billion), with growth increasing, particularly in the wholesale portfolios, during the fourth quarter.

Loans and advances by cluster are as follows:

			Rm
	2011	2010	% change
Banking activity	48,558	42,650	13.9
Trading activity	19,952	19,678	1.4
Nedbank Capital	68,510	62,328	9.9
Nedbank Corporate	164,754	157,703	4.5
Nedbank Business Banking	58,272	50,765	14.8
Nedbank Retail	183,663	187,334	(2.0)
Nedbank Wealth	19,625	16,869	16.3
Other	1,224	274	>100.0
Total	496,048	475,273	4.4

Advances totalling R9 billion were transferred from Nedbank Retail to Nedbank Business Banking in 2011 to leverage its strong client and risk practices. On a like-for-like basis the growth in Nedbank Retail was 2.7%, while Nedbank Business Banking's advances, excluding the full impact of the Imperial Bank transfer and other client moves, remained flat.

Deposits

Deposits increased 6.3% to R521 billion (2010: R490 billion) and Nedbank's loan-to-deposit ratio strengthened to 95.2% (2010: 96.9%).

Optimising the mix of the deposit book remains a key focus in reducing the high cost of longer-term and professional funding. This is critical as banks compete more aggressively for lower-cost deposit pools with longer behavioural duration as they position their balance sheets in preparation for the Basel III liquidity ratios. Low interest rates, coupled with low domestic savings levels and the deleveraging of consumers, led to modest growth in retail deposits during 2011. Relatively higher deposit growth in commercial deposits indicated increasing working capital and available capacity among corporate clients.

Group strategic focus

Nedbank's key strategic initiatives of repositioning Nedbank Retail, growing non-interest revenue, implementing the portfolio tilt strategy and expanding into the rest of Africa will continue to drive earnings growth.

Excellent progress was made in repositioning Nedbank Retail as a more client-centred and integrated business while maintaining the growth momentum of the product lines. Strong underlying business performance, growing the number and quality of primary clients, embedding effective risk management practices and strengthening balance sheet impairments while improving credit loss ratios, particularly in home loans, all contributed to Nedbank Retail's headline earnings increasing by 163.4% and its ROE increasing from 4.6% in 2010 to 11.8%.

Nedbank's NIR-to-expenses ratio target of 85% remains a key focus in the medium term. The objective is to achieve this target by continuing to deliver good quality annuity income through commission and fee growth from primary client gains, volume growth, new innovative products and cross-sell across clusters. Since 2009 Nedbank has added 58 branches, 229 in-retailer kiosks and 719 ATMs, and has refurbished 79 branches, representing an investment of R514 million.

The Optimise to Invest programme involving simplifying information technology systems and rationalising costs will also benefit the NIR‑to-expenses ratio in the medium term.

Nedbank's portfolio tilt strategy continues to focus on strategically important EP-rich, lower-capital and liquidity-consuming activities and at the same time drives the efficient allocation of the bank's resources while positioning Nedbank strategically for Basel III. Insurance, asset management, transactional banking products, selected asset categories and deposits are important targeted areas for growth. In secured lending Nedbank continues to focus on profitable business that falls within Nedbank's board-approved risk appetite.

In the short to medium term Nedbank's primary focus on South Africa and the five southern African countries in which it has a presence provides strong upside for Nedbank as it increases its EP share in the largest EP pool for financial services in Africa.

The deepening of the alliance with Ecobank through the granting of a $285 million loan facility and the subscription rights to acquire up to a 20% shareholding in Ecobank Transnational Inc in two to three years creates a path to provide a significant benefit to clients in the rest of Africa in a prudent yet substantive manner and ultimately could provide shareholders with access to higher economic growth in the rest of Africa.

Economic outlook

South Africa's GDP is currently forecast to grow by 2.7% in 2012, but remains dependent on international developments, particularly in Europe.

Given that confidence is anticipated to remain fragile, private sector fixed-investment activity is expected to remain modest. However, government and public corporations are forecast to escalate their infrastructure spending, which should contribute to improved wholesale advances growth.

Consumer spending is anticipated to moderate as concerns about inflation, house prices and job security prevail. Transactional demand should remain robust, while credit demand is likely to improve slowly off a low base as consumer balance sheets strengthen and debt levels decline.

Prospects

Nedbank is well set for continued growth in 2012, building on the earnings momentum created in 2011 and the focus and success of the delivery on Nedbank's strategic initiatives.

In an uncertain global environment Nedbank's qualities are attractive and should support continued earnings growth. These qualities include:

·     Being one of the big four South African banks (South African banks were ranked second in the Soundness of Banks category in the World Economic Forum Global Competitiveness Survey).

·     A strong, well-capitalised balance sheet with a prudent funding structure and sound liquidity.

·     A strong wholesale banking franchise returning high ROEs.

·     A strengthened and growing retail franchise.

·     A growing wealth business returning high ROEs.

·     A demonstrated ability to manage costs judiciously over time.

·     A growing primary-client base.

·     Sound risk management practices.

·     A stable and experienced management team.

·     Good staff morale and a values-based culture.

There is potential for further uplift from any acceleration of the economic cycle, as Nedbank NIM should benefit from the positive effect of increased interest rates on endowment income, improved levels of advances growth and the prospect of lower credit loss ratios.

These drivers, along with Nedbank's operational and financial gearing, are likely to enable continued improvement in Nedbank's ROA and ROE.

In the context of Nedbank's 2012 forecast for GDP growth, inflation and interest rates in South Africa, Nedbank's guidance for 2012 is as follows:

·     Advances to grow at mid single digits.

·     NIM to remain at levels similar to those in 2011 and to benefit from interest rate increases.

·     The credit loss ratio to continue improving into the upper end of Nedbank's through-the-cycle target range.

·     NIR (excluding fair value adjustments) to grow at low double digits, maintaining Nedbank's ongoing improvement in the NIR-to-expenses ratio.

·     Expenses, including investing for growth, to increase by mid to upper single digits.

·     Nedbank to maintain strong capital ratios and continue to strengthen funding and liquidity in preparation for Basel III.

Nedbank's medium-to-long-term targets remain unchanged and are included in the table below, with an outlook for performance against these targets for 2012:

Metric	2011 performance	Medium-to-long-term targets	2012 outlook
ROE (excluding goodwill)	15.3%	5% above average cost of ordinary shareholders' equity	Improving, remaining below target.
Growth in diluted headline earnings per share	25.4%	≥ consumer price index + GDP growth + 5%	Above the target level.
Credit loss ratio	1.14%	Between 0.6% and 1.0% of average banking advances	Improving into upper end of target.
NIR-to-expenses ratio	81.5%	> 85%	Improving, remaining below target.
Efficiency ratio	56.6%	< 50.0%	Improving, remaining above target.
Core Tier 1 capital adequacy ratio (Basel II)	11.0%	7.5% to 9.0%	Strengthening, remaining above target.
Economic capital	Capitalised to 99.93% confidence interval on economic capital basis (target debt rating A, including 10% buffer)
Dividend cover policy	2.26 times	2.25 to 2.75 times	2.25 to 2.75 times

Mutual & Federal

Solid performance while building a strong foundation for growth

			Rm
Highlights	2011	2010	% Change
Underwriting margin	5.0%	7.6%
Underwriting result	354	519	(32)%
Long-term investment return (LTIR)	625	639	(2)%
AOP (IFRS basis, pre-tax)	1,039	1,162	(11)%
Gross premiums	8,865	8,442	5%
Earned premiums	7,039	6,859	3%
Claims ratio	65.2%	63.8%
Combined ratio	95.0%	92.4%
International Solvency ratio	66%	73%
Return on equity	14.9%	19.0%

Overview

·     M&F delivered a sound underwriting result in 2011, with results reflecting a more normalised year compared to the very favourable trading conditions and benign claims environment in 2010.

·     We increased our focus on achieving premium growth through alternative distribution channels, including direct through iWyze, underwriting management agencies and niche business.

·     iWyze, M&F's direct insurance joint venture with the Emerging Markets Mass Foundation distribution team, is progressing well and continues to meet premium growth targets. While there was continued investment in this start-up phase, including an increased headcount from 52 in 2010 to 206 in 2011, we are on track to deliver underwriting profitability in accordance with expectations.

·     As part of its ongoing capital management programme with the rest of the Group, M&F restructured its capital base and paid almost R1.0 billion of dividends in 2011. The company remains well capitalised with a 66% international solvency ratio (the ratio of net assets to net premiums) at 31 December 2011. Working closely with the FSB and Group, M&F continues to make good progress in its preparation for Solvency II and its South African equivalent, Solvency Assessment and Management (SAM).

Underwriting and IFRS AOP results

·     AOP was 11% down on 2010, due to a decrease in the underwriting result and a marginal decrease in the LTIR due to the lower prescribed rate applied in 2011.

·     ROE reduced from 19.0% to 14.9%, reflecting reduced after-tax profits compared to 2010.

·     Premiums increased modestly as softening rates offset unit growth. The commercial portfolio performed well in terms of client retention and underwriting profit. iWyze achieved outstanding premium growth in its first full year of operation and already it has become a meaningful competitor in the direct market for personal insurance.

·     The underwriting result was 32% down on 2010, impacted by softening rates and the expected normalisation in claims patterns which saw the claims ratio increase from 63.8% in 2010 to 65.2%

·     The 2010 claims ratio benefited from unusually benign claims conditions in H2 2010 with abnormally low levels of commercial losses and very favourable climatic conditions.

·     Expenses increased, primarily due to investment in change management initiatives to improve client service and drive operating efficiencies, as well as development costs associated with iWyze.

·     The Credit Guarantee operation performed particularly well over the period, with other portfolios generating solid returns. The businesses in Namibia and Botswana continued to deliver satisfactory contributions.

Outlook

·     We anticipate real top-line growth in 2012, with increased contributions from alternative channels including direct through iWyze and underwriting management agencies.

·     Our further investment in change management initiatives over the next two years will directly improve the claims ratio while reducing the expense base over the medium term. We expect this to lead to an underwriting margin that is sustainable throughout the underwriting cycle in the long-term and in line with the 2011 margin.

·     We continue to partner Old Mutual Emerging Markets in the rest of Africa to identify opportunities and exploit synergies.

US Asset Management

Continuing operations achieve improved financial results and reduced net outflows despite challenging markets

			$m
Highlights	2011	2010	Change
Reported results
AOP (IFRS basis, pre-tax)	107	111	(4)%
Operating margin, before non-controlling interests	18%	18%
Operating margin, after non-controlling interests	15%	15%
Net client cash flows ($bn)	(24.6)	(18.4)*	(34)%
Funds under management ($bn)	231.5	258.3*	(10)%
			$m
	2011	2010	Change
Results from continuing operations
AOP (IFRS basis, pre-tax)	131	113	16%
Operating margin, before non-controlling interests	22%	20%
Operating margin, after non-controlling interests	19%	17%
Net client cash flows ($bn)	(6.7)	(12.6)*	47%
Funds under management ($bn)	200.3	207.4*	(3)%

*  2010 NCCF and FUM were restated to exclude some of Larch Lane's funds, which were also included in Emerging Markets NCCF and FUM

Overview

·     USAM delivers institutionally-driven, active investment management through its multi-boutique framework.  Our 17 boutique firms (affiliates) offer a diverse set of products to a wide range of institutions around the globe.

·     USAM supports its affiliates from the centre by providing selected product distribution, seed capital, risk management, technology, legal and internal audit capabilities. With this strong support from a global wealth management organisation, affiliates can remain focused on generating superior investment performance for their clients.

·     The new USAM management team has taken steps to refine strategy and refocus the business.  As part of that effort, several affiliate firms are being divested to improve longer-term financial performance.  We are therefore presenting our results on two bases: reported results, and results from continuing operations. Results from continuing operations exclude the operating results of the affiliates being divested and certain restructuring costs.¹ The key impact of these strategic actions, reflected in the continuing operations, is a reduction in net cash outflows from $24.6 billion to $6.7 billion and an increase in operating margin from 18% to 22%.  In addition, fees on average assets under management increase from 28 basis points to 31 basis points on a continuing basis.

IFRS AOP results and operating margin

Reported results

·     IFRS AOP was down 4% to $107 million (2010: $111 million).  These figures exclude gains/losses on seed capital which have been captured at the Group level for 2011 and comparative periods.  Seed capital investment returns on strategies managed by our affiliates were $(0.5) million (2010: $24.0 million).

·     Overall revenue was down $3.6 million due to a 2% decrease in average FUM and lower performance fees, partially offset by higher transaction fees.

·     Management fees decreased by $11.6 million or 2% and performance fees were down $2.7 million or 25%. However, transaction fees were up $7.3 million or 103% to $14.4 million for the period.

·     AOP operating margin before non-controlling interests was consistent with 2010 at 18%.

Results from continuing operations

·     Excluding operating results from affiliates held for sale or disposed of, and adding back $12 million of restructuring costs, AOP was up 16% to $131 million (2010: $113 million). This was largely due to higher management fees, lower DAC amortisation and impairments during 2012, and lower central costs. 

·     Management fees were up $6 million or 1% due to higher average FUM.

·     AOP operating margin before non-controlling interests was 22%, up from 20% in 2010.  Improving operating margin continues to be an area of focus.

[1] Excludes results of OMCAP, Lincluden, and Dwight Asset Management, as well as $12 million of restructuring costs in 2011.

Investment Performance

Results from continuing operations

·     Investment performance continued to improve during the period.  For the one-year period ended 31 December 2011, 62% of assets outperformed benchmarks, compared to 57% at 31 December 2010. 

·     Over the three- and five-year periods to 31 December 2011, 68% and 67% of assets outperformed benchmarks, compared to 49% and 65% at 31 December 2010.  The increase was driven by improving performance in International Equity and Global Fixed Income. 

Funds under management and net client cash flows

										$bn
	Flows from continuing operations				Flows from disposed of or held for sale affiliates					Total
	2011	2010			2011	2010			2011	2010
Opening FUM	207.4	198.8			50.9	61.9			258.3	260.7
Gross inflows	25.6	25.9			3.8	5.0			29.4	30.9
Gross outflows	(32.3)	(38.5)			(21.7)	(10.8)			(54.0)	(49.3)
Net outflows	(6.7)	(12.6)			(17.9)	(5.8)			(24.6)	(18.4)
Market and other	(0.4)	21.2			(1.8)	(5.2)			(2.2)	16.0
Closing FUM	200.3	207.4			31.2	50.9			231.5	258.3

Reported results

·     FUM ended the year at $231.5 billion (2010: $258.3 billion).

·     The disposal of Lincluden Investment Management during the period reduced FUM by $2.7 billion.

·     Net client cash outflows totalled $24.6 billion (2010: $18.4 billion), largely relating to low-fee stable value funds.

·     Market volatility and weakness during the year contributed to withdrawals and reallocations.

·     Gross inflows during the period totalled $29.4 billion (2010: $30.9 billion), with $7.6 billion of gross inflows coming from new client accounts during the period.

·     Gross outflows totalled $54.0 billion (2010: $49.3 billion), with $18.8 billion of outflows relating to low fee stable value funds (2010: $8.2 billion).

Results from continuing operations

·     FUM decreased 3% to $200.3 billion (31 December 2010: $207.4 billion) reflecting flat markets overall and net client cash outflows.

·     FUM was primarily long-term investment products diversified across equities ($113 billion, 56%), fixed income ($57 billion, 29%) and alternative investments ($30 billion, 15%).

·     Net client cash outflows of $6.7 billion showed improvement over the prior year (2010: $12.6 billion), as enhanced investment performance stabilised outflows in key products.  

·     Net outflows declined to $0.1 billion in Q4 2011, their lowest quarterly level since Q2 2009. 

·     Gross inflows totalled $25.6 billion (2010: $25.9 billion). Top 2011 gross sales were driven by Emerging Market Equity, Real Estate, Fixed Income and Low Volatility Equity.

·     Gross outflows totalled $32.3 billion (2010: $38.5 billion), driven by outflows from US equities, particularly large cap. This is consistent with the overall asset management industry's experience in 2011.

·     Non-US clients currently account for 34% of FUM. International, emerging markets and global equity products account for 24% of the FUM.

Corporate developments

·     The transaction transferring ownership of Lincluden Investment Management to the affiliate's management team closed on 30 December 2011.

·     The previously announced sale of our domestic retail business, OMCAP, is progressing as planned and is expected to close in April 2012.

·     In February 2012, we announced that Goldman Sachs has entered into a definitive agreement to acquire Dwight Asset Management Company LLC, an institutional fixed income affiliate based in Burlington, Vermont.  The transaction is expected to close in Q2 2012.

·     In Q4 2011 we announced organisational changes to support the strategic expansion of our global distribution efforts.

Outlook

·     We expect continued improvement in NCCF in 2012 as a result of enhanced investment performance in a number of key products.  The improved investment performance over 2011 initially reduced outflows and subsequently increased sales, we believe this trend could lead to positive flows in 2012.

·     In 2012 and beyond, we expect to make investments in our global distribution capabilities to further leverage Group capabilities and distribution platforms.  This will enable USAM to better leverage the affiliates' investment expertise for clients around the world.

·     We remain committed to achieving our financial goals of 25-30% operating margin and expect continued improvement in USAM's margin in 2012, particularly if equity markets remain strong throughout the year and NCCF turn positive.  However, we will continue to invest in the business by incurring current expenses which may partially inhibit margin growth in the short term but achieve important financial and strategic objectives in future years.

Business Review - Appendix

Non-core business - Bermuda

Bermuda remains a non-core business. Its results are excluded from the Group's IFRS AOP, although the interest charged on internal loans from Bermuda to Group Head Office is charged to AOP.

Overview

The business continued to implement its run-off strategy of risk reduction while managing for value. Ongoing business service improvements, enhancements to liability management and further de-risking initiatives, targeted specifically at contracts that have elected the Guaranteed Minimum Accumulation Benefits (GMABs), are designed to accelerate the run-off of the in-force book.

IFRS results

The IFRS post-tax loss of $286 million (2010: $41 million gain) was driven by the guarantee performance arising primarily from equity market declines in H2 and a reduction in US interest rates. There was an IFRS post-tax profit of $76 million in H1. The impact of the dynamic hedging programme over 2011 helped to reduce the losses on the variable annuity guarantees. Notwithstanding the hedging programme, given current equity market conditions the business expects volatility in earnings in the short to medium term.

MCEV results

The 2011 operating MCEV earnings resulted in a gain after tax of $76 million (2010: $36 million loss). Operating earnings include positive persistency experience variance and assumption changes in 2011 compared to one-time negative corrections from data migration and modelling changes in 2010.

Total MCEV earnings including economic variances and other non-operating variances was a loss of $343 million, mainly due to significant under performance of the variable annuity guarantee business.

The MCEV balance reflects the value of the reserve plus the other net assets of the business including the collateral posted under the hedge programme, the fee revenue to be collected and expenses to be paid to run-off the entire business. Thus the VIF reflects the full market cost of providing an instrument that matches the expected development of the liability. Changes in the hedge programme from the levels actually used will not change the value of the reserve itself but may change the value of the collateral posted under the hedging programme and the adjusted net worth which together with the VIF generate the MCEV for the business.

Reserve development

The development of the Bermuda business reserves are shown below:

		$m
	2011	2010
Variable annuity investments	3,130	4,495
Variable annuity guarantee liabilities	1,061	672
Deferred & fixed index annuities	640	939
Total insurance liabilities	4,831	6,106

The overall reduction in liabilities reflects the surrenders experienced in the year and negative investment return earned, offset by the increase in the guarantee reserve.

Of total insurance liabilities of $4,831 million, $3,130 million is held in a separate account relating to variable annuity investments. Of the remaining reserves $1,061 million relates to guarantee liabilities on the variable annuity business and $640 million relates to other policyholder liabilities, including deferred and fixed indexed annuity business.

The GMAB reserve in respect of universal guarantee option (UGO) contracts has been set-up for the full period of the contract length, including the five-year anniversary top-up of 105% of total premiums, the 10-year 120% top-up of total premiums and any high water mark contracts.

At the year-end there were 27,820 UGO contracts, of which 720 had high water marks over and above the 120% top up entitlements.

The $389 million increase in GMAB reserve during the period was largely attributable to poor equity market performance, but lower interest rates increased the reserve by almost $79 million.

Mapping of policyholder investment funds to hedgeable indices is performed at least quarterly. This has improved the accuracy of the GMAB reserve calculations and the effectiveness of hedging.

The sensitivity to capital markets on GMABs with UGO is highlighted in the table below, showing quarterly GMAB reserves and estimated fifth-anniversary guarantees over the past 18 months:

		$m
Period	Guarantee reserves for UGO GMAB	Estimated top-up payment of meeting UGO GMAB fifth-anniversary guarantees
30 June 2010	996	775
30 September 2010	824	458
31 December 2010	660	334
31 March 2011	573	303
30 June 2011	620	346
30 September 2011	1,144	738
31 December 2011	1,035	689

Surrender development

Surrender activity is being proactively managed through further service enhancements and fund expansion, with conservation strategies focused on the non-GMAB book of business. The account values associated with GMAB and non-GMAB for 2010 and 2011 are shown in the table below:

			$m
Period	Account Value: GMAB	Account Value: Non-GMAB	Total Account Value
31 December 2011	2,858	912	3,770
31 December 2010	4,143	1,291	5,434

We continue to engage with distributors, developing the customer proposition and experience through a strengthened adviser focused strategy. Bermuda is maintaining high levels of customer service through continued operational and service improvements. 

The $1.2 billion of surrenders across the whole Bermuda book during the period amounted to some 22% of the total 31 December 2010 account value. This was partially attributable to initiatives allowing UGO GMAB contract holders to surrender their contracts without penalty charges. These initiatives increased the rate, value and number of guarantee contract surrenders; overall surrender activity across UGO GMAB was over two and a half times 2010 levels (2011: 2,175 policies; 2010: 796 policies). Management continues to assess demand for similar offers to accelerate further the run-off of the UGO guaranteed book.

Future surrender behaviour will be influenced by the extent to which the underlying fund values of the policyholders are close to or above the level of the guarantee.

Risk management and investment portfolio update

No defaults or impairments were recorded during 2011. The portfolio has a current average rating of A3 (Moody's rating scale) with investment grade quality holdings continuing to represent more than 80% of the portfolio. 

The net unrealised position was a gain of $29 million at 31 December 2011 (2010: $31 million gain) as a result of continued de-risking efforts and the decrease in US interest rates, offset somewhat by a widening of corporate spreads. Overall, the book value of the portfolio reduced from $0.8 billion at the end of 2010 to $0.6 billion at 31 December 2011, largely due to the sale of investments to meet surrender activity and withdrawals.

The year-end book value of assets in the investment portfolio with a market value to book value ratio of 80% or lower was zero (compared to $3 million at 31 December 2010). The bond portfolio which forms part of shareholder assets is invested to match the duration of obligations to policyholders and has a running yield of 5%, higher than the 3% interest credited to certain policyholders.

Hedging

Over the period the business continued to dynamically manage the underlying economics of the hedging programme to strike a balance between the potential changes in the income statement, liquidity and transactional costs. At 31 December 2011 hedge coverage over equities was 54% (2010: 58%) and 53% over foreign exchange (2010: 39%), with interest rates remaining unhedged (2010: nil). The exposures are primarily to Asian equities and currencies versus the US dollar.

At 31 December 2011, the total cost of fifth-anniversary top-up payments to policyholders in respect of the GMAB liabilities over the next two years was estimated at $689 million (30 September 2011: $738 million; 30 June 2011: $346 million; 31 December 2010: $334 million). The actual cash cost will be affected by any changes in policyholders' account values until the fifth-anniversary date of each policy, offset by hedge gains or losses. At 29 February 2012 rising equity markets had reduced the cash cost of top-up payments required to meet fifth-anniversary guarantees to $426 million and the GMAB reserve to $791 million. At the level of hedging in place at 29 February 2012, a 1% fall in equity market levels would have increased the net cash cost of meeting policyholder guarantees by approximately $11 million.

In March 2012 Bermuda enhanced its hedging strategy by implementing an option based hedging arrangement. This strategy will protect against downside risk from further equity market declines relating to meeting the cash-cost of the fifth-year anniversary of UGO contract top-up obligations, while maintaining the potential to realise gains if equity markets move higher. The existing futures based dynamic hedging strategy will remain in place for the variable annuity book exposure beyond five years. Also, the exposure to currency movements impacting the UGO top-ups will continue to be dynamically hedged.

Fifth-anniversary payments began on 5 January 2012 but the bulk of the payments will be made between 1 October 2012 and 31 January 2013. The enhanced hedging strategy aims to provide greater cash flow certainty over the period when the fifth-year anniversary UGO top-up payments fall due. We remain confident that the fifth-anniversary top-ups can be met within the estimated cost as at 31 December 2011 and expect the cash cost to be met from Bermuda's own resources.

Statutory capital reduced to $291 million at 31 December 2011 reflecting the IFRS loss for the year (2010: $625 million). Capital allocated to the business on a local level takes into account the inter-company loan from the business to the Group.  At the end of December 2011, the Bermuda Class E prudential rules had been signed into Bermuda law, so the new BMA regulatory framework is in effect from 2011. The amount of Bermuda solvency required capital for financial year 2011 is estimated at about $120 million under the current transition rule. The business continues to maintain a sufficient statutory capital surplus against such a requirement.

Treasury management of Bermuda business assets

The Bermuda business assets backing the liabilities include:

		$m
	2011	2010
Cash	256	114
Fixed income general account portfolio	543	839
Collateral for hedge assets	91	77
Intercompany loan	830	880
Separate Account assets	3,130	4,495
Other assets	309	384
Total Assets	5,160	6,789

As the most active period of the fifth-anniversary guarantee payments approaches the business will seek to sell assets from its fixed income general account portfolio and together with the other liquid assets of the business meet the cash requirements of the top-ups as they fall due. Collateral posted for the hedge assets will adjust as the liabilities develop and could be released as the business evolves. The inter-company loan is structured in tranches allowing capital and treasury management flexibility if this is required from this source.

Discontinued business - Nordic

Despite the turbulent stock markets and a number of one-off costs, the Nordic business had a robust underlying IFRS AOP result. A cost reduction programme was implemented during the year and the management team has refocused the business on delivering its key priorities, namely:

·     Strengthening distribution power

·     Improving the product offering to customers

·     Stimulating future NCCF growth

·     Increasing operational efficiency to secure profitable growth

·     Optimising structures and risk frameworks to unlock value

Product development has been accelerated with the release of the Depå pension product and a bank investment savings account.

According to customer surveys, Skandiabanken had the most satisfied banking customers for the tenth year in a row and was also nominated for best customer service in Norway in 2011.

Net client cash flow and funds under management

NCCF decreased 3% to SEK7.2 billion, driven by higher surrenders in the occupational pension business and outflows from the bank offering. The increased outflows in Skandiabanken were primarily driven by customers seeking lower-risk investments, such as deposit accounts. Skandiabanken Sweden retail deposits grew, which are not included in NCCF, to SEK33.1 billion.

FUM reduced by 8% to SEK134.3 billion at the year-end, with negative market movements partially offset by positive NCCF. The stock market recovery during the fourth quarter had a positive impact on FUM. 

Sales

APE sales rose 6% to SEK2,381 million, driven by strong sales in Denmark as a result of attractive products and continued distribution growth via the Tied Agents sales force.  Swedish APE sales were 5% down, with lower Corporate sales. Corporate business growth was held back by the delay in launching the occupational pension version of the Depå product and the current market conditions, which favour products with guarantees.

Mutual fund sales were up 1% to SEK6,553 million, with customers transferring assets to the low risk and popular Skandia interest-earning funds.

IFRS AOP results*

IFRS AOP (pre-tax) was down 16% to SEK1,036 million (2010:SEK1,227 million). The 2010 result included one-off income of SEK126 million related to a divestment of a private equity holding and restructuring costs of SEK49 million. The 2011 result includes several one-off costs totalling SEK281 million, including IT costs. Excluding all one-off items, the underlying profit was SEK1,317 million (2010: SEK1,150 million) - a robust result in a challenging economic climate.

MCEV results

Operating MCEV earnings after tax increased to SEK1,336 million (2010: SEK503 million), primarily due to growth in existing business contribution, strong new business value and a strengthening of operating assumptions in 2010 that negatively impacted 2010 earnings. Operating MCEV earnings included two one-off effects, a restructuring expense from the ongoing redundancy programme and a change in the modelling of tax on overhead expenses. Without these two non-recurring effects, operating MCEV earnings after tax would have been SEK1,482 million.

The value of new business increased 27% to SEK584 million, driven by positive new sales in Skandia Link Denmark. The APE margin increased from 20.6% to 24.5%, due to a more profitable product mix.

*  As a non-core business the Nordic results are reported on an IFRS basis. However, for the purpose of comparability with previous periods Nordic has been included in the Business Review as if it is still being reported under AOP.

Long-Term Savings - Emerging Markets

Highlights

			Rm
Highlights	2011	2010	% Change
Net client cash flows (Rbn)	5.1	0.2
Funds under management (Rbn)	626.3	585.7	7%
Life assurance sales (APE)	6,098	5,505	11%
PVNBP **	38,376	36,975	4%
Unit trust/mutual fund sales and other non-life sales	94,825	78,736	20%
AOP (IFRS basis, pre-tax)	6,641	6,099	9%
Return on equity *	24%	25%
Return on allocated capital (OMSA only)	24%	25%
Value of new business **	1,157	972	19%
APE margin **	20%	18%
PVNBP margin **	3.0%	2.6%
Operating MCEV earnings (covered business, post-tax)	4,059	3,877	5%
Return on embedded value (covered business, post-tax) **	11.9%	13.2%

*     ROE is calculated as IFRS AOP (post-tax) divided by average shareholders' equity (excluding goodwill, PVIF and other acquired intangibles) for Asia & Latin America, whilst for OMSA and Rest of Africa it is calculated as return on allocated capital.

**    PVNBP, value of new business, APE margin and PVNBP margin do not include Zimbabwe, Kenya, Malawi and Swaziland (the other African countries) in 2011 or 2010. The return on embedded value (covered business, post tax) does not include the other African countries in the opening MCEV in 2011 or 2010.

Adjusted operating profit

			Rm
	2011	2010	% Change
Retail Affluent	2,355	2,098	12%
Mass Foundation Cluster	1,529	1,196	28%
Corporate	693	1,066	(35)%
Rest of Africa *	404	248	63%
Asia & Latin America	225	172	31%
LTIR	1,308	1,221	7%
Life and Savings	6,514	6,001	9%
OMIGSA	950	1,109	(14)%
Central expenses and administration	(823)	(1,011)	(19)%
AOP (IFRS basis, pre-tax)	6,641	6,099	9%

*     2011 includes Namibia, Zimbabwe, Kenya, Malawi and Swaziland.  Prior year comparatives represent Namibia only.  Namibian AOP in 2011 was R188 million.

APE sales

										Rm
	Gross single premiums			Gross regular premiums			Total APE			Total PVNBP
By Cluster:	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%
South Africa
MFC	26	14	86%	2,017	1,571	28%	2,020	1,572	28%	8,713	6,995	25%
Retail Affluent	8,622	9,620	(10)%	1,442	1,381	4%	2,304	2,343	(2)%	16,368	16,344	-
Corporate	5,036	4,926	2%	427	454	(6)%	930	947	(2)%	8,658	8,826	(2)%
OMIGSA	2,016	2,966	(32)%	-	-	n/a	202	297	(32)%	2,016	2,962	(32)%
Total South Africa	15,700	17,526	(10)%	3,886	3,406	14%	5,456	5,159	6%	35,755	35,127	2%
Rest of Africa*	1,230	475	159%	408	196	108%	531	244	118%	2,123	1,363	56%
Total Asia & Latin America**	216	231	(6)%	89	79	13%	111	102	9%	498	485	3%
Total Emerging Markets	17,146	18,232	(6)%	4,383	3,681	19%	6,098	5,505	11%	38,376	36,975	4%
By Product:	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%
South Africa
Savings	12,462	14,068	(11)%	1,803	1,654	9%	3,049	3,061	-	20,730	22,441	(8)%
Protection	-	-	n/a	2,083	1,752	19%	2,083	1,752	19%	11,787	9,228	28%
Annuity	3,238	3,458	(6)%	-	-	n/a	324	346	(6)%	3,238	3,458	(6)%
Total South Africa	15,700	17,526	(10)%	3,886	3,406	14%	5,456	5,159	6%	35,755	35,127	2%

*     2011 APE sales include Namibia, Zimbabwe, Kenya, Malawi and Swaziland, whereas PVNBP includes Namibia only.  Prior year comparatives represent Namibia only. Total Namibian life APE sales in 2011 amount to R331 million.   

**    Asia & Latin America represents Mexico only.

Unit trust / mutual fund sales and other non-covered sales

			Rm
New business	2011	2010	+/-%
OMSA	20,934	21,452	(2)%
Rest of Africa*	4,778	5,360	(11)%
Asia & Latin America	19,401	14,676	32%
Total unit trust & mutual fund sales	45,113	41,488	9%
Other non-life sales**	49,712	37,248	33%
Total Emerging Markets	94,825	78,736	20%

*     2011 Rest of Africa includes Namibia, Zimbabwe, Kenya, Malawi and Swaziland.  Prior year comparatives represent Namibia only. Total Namibian unit trust & mutual fund sales in 2011 amount to R4,227 million.

**    Other non-life sales for 2011 include Zimbabwe CABS flows which amount to R6,800 million.

Long-Term Savings - Wealth Management

Highlights

			£m
	2011	2010	% Change
Net Client Cash Flows (£bn)	2.5	3.9	(36)%
Funds under management (£bn)	54.4	55.9	(3)%
Life assurance sales (APE)	611	734	(17)%
PVNBP	5,269	6,380	(17)%
Unit trust/mutual fund sales	4,669	4,507	4%
AOP (IFRS basis, pre-tax)	179	197	(9)%
Return on equity*	16%	14%
Value of new business (post-tax)	70	66	6%
APE margin	11%	9%
PVNBP margin	1.3%	1.0%
Operating MCEV earnings (covered business, post-tax)	184	112	64%
Return on embedded value (covered business, post-tax)	9.3%	6.1%

*     Return on equity is IFRS AOP (post-tax) divided by average shareholders' equity, excluding goodwill, PVIF and other acquired intangibles

APE sales

										£m
	Gross single premiums			Gross regular premiums			Total APE			Total PVNBP
Life new business	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%
Total UK market
Pensions	1,871	2,021	(7)%	68	71	(4)%	255	273	(7)%
Bonds	440	597	(26)%	-	-		44	60	(27)%
Protection	-	-		8	10	(20)%	8	10	(20)%
Savings	-	-		5	9	(44)%	5	9	(44)%
Total UK	2,311	2,618	(12)%	81	90	(10)%	312	352	(11)%	2,639	3,023	(13)%
Of which UK Platform	2,056	2,033	1%	38	35	9%	244	239	2%	2,227	2,234	-
Of which UK Legacy	255	585	(56)%	43	55	(22)%	68	113	(40)%	412	789	(48)%
International markets
Unit-linked	209	324	(35)%	26	44	(41)%	47	77	(39)%
Bonds	1,350	1,253	8%	26	23	13%	161	148	9%
Total International	1,559	1,577	(1)%	52	67	(22)%	208	225	(8)%	1,755	1,826	(4)%
Continental Europe markets
Unit-linked	844	1,490	(43)%	7	9	(22)%	91	157	(42)%	875	1,531	(43)%
Total Wealth Management	4,714	5,685	(17)%	140	166	(16)%	611	734	(17)%	5,269	6,380	(17)%

Unit trust / mutual fund sales

£m
Mutual fund new business	2011	2010	+/-%
UK market	3,596	3,256	10%
International markets	1,044	1,228	(15)%
Continental Europe markets	29	23	26%
Total Wealth Management	4,669	4,507	4%

Long-Term Savings - Retail Europe

Highlights

			€m
	2011	2010	% Change
Net client cash flows (€bn)	0.4	0.5	(20)%
Funds under management (€bn)*	5.5	5.8	(5)%
Life assurance sales (APE)	83	80	4%
PVNBP	632	597	6%
Unit trust/mutual fund sales	23	27	(15)%
AOP (IFRS basis) (pre-tax)	50	60	(17)%
Return on equity**	15%	20%
Value of new business	9	9	-
APE margin	11%	11%
PVNBP margin	1.5%	1.4%
Operating MCEV earnings (covered business, post-tax)	21	77	(73)%
Return on embedded value (covered business, post-tax)	3.0%	12.8%

*     Funds under management are shown on a start manager basis

**    Return on equity is IFRS AOP (post-tax) divided by average shareholders' equity, excluding goodwill, PVIF and other acquired intangibles

APE sales

										€m
	Gross Single Premiums			Gross Regular Premiums			Total APE			Total PVNBP
New business	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%	2011	2010	+/-%
Germany	30	31	(3)%	29	29	-	32	32	-	276	278	(1)%
Poland	15	21	(29)%	22	18	22%	23	20	15%	125	114	10%
Austria	8	7	(14)%	16	17	(6)%	17	18	(6)%	107	109	(2)%
Switzerland	11	14	(21)%	10	9	11%	11	10	10%	124	96	29%
Total Retail Europe	64	73	(12)%	77	73	5%	83	80	4%	632	597	6%

 

END

 

 

FR UWRARUVAORUR