Preliminary Results - Part 2 IFRS

RNS Number : 9661Y

Old Mutual PLC

01 March 2013

 



Index to the financial information For the year ended 31 December 2012
Statement of directors' responsibilities in respect of the preliminary announcement of the Annual Report and the financial statements		48
Consolidated income statement		49
Consolidated statement of comprehensive income		50
Reconciliation of adjusted operating profit to profit after tax		51
Consolidated statement of financial position		52
Condensed consolidated statement of cash flows		53
Consolidated statement of changes in equity		54
Notes to the consolidated financial statements
	A: Significant accounting policies	58
	B: Segment information	62
	C: Other key performance information	72
	D: Other income statement notes	77
	E: Financial assets and liabilities	78
	F: Other statement of financial position notes	81
	G: Other notes	84
	H: Discontinued operations and disposal groups held for sale	86
Adjusted Group MCEV by line of business		88
Adjusted operating group MCEV statement of earnings		89
Significant corporate activities and business changes		89
Adjusted operating Group MCEV earnings per share		90
Group market consistent embedded value statement of earnings		91
Notes to the MCEV basis supplementary information
	A: MCEV policies	92
	B: Segment information	100
	C: Other key performance information	107
	D: Sensitivity tests	110

Statement of directors' responsibilities

in respect of the Annual Report and the financial statements

The directors confirm that to the best of their knowledge:

n The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

n The Annual Report includes a fair review of the development and performance of the business and the position of Old Mutual plc and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Julian Roberts                                         Philip Broadley
Group Chief Executive                            Group Finance Director

1 March 2013

Consolidated income statement
For the year ended 31 December 2012
			£m
	Notes	Year ended 31 December 2012	Year ended 31 December 2011
Revenue
Gross earned premiums	B2	3,725	3,584
Outward reinsurance		(322)	(325)
Net earned premiums		3,403	3,259
Investment return (non-banking)		9,524	(567)
Banking interest and similar income		3,431	3,669
Banking trading, investment and similar income		214	217
Fee and commission income, and income from service activities		3,096	3,035
Other income		125	171
Total revenues		19,793	9,784
Expenses
Claims and benefits (including change in insurance contract provisions)		(5,612)	(3,331)
Reinsurance recoveries		221	123
Net claims and benefits incurred		(5,391)	(3,208)
Change in investment contract liabilities		(5,361)	1,889
Losses on loans and advances		(400)	(458)
Finance costs		(214)	(58)
Banking interest payable and similar expenses		(1,887)	(2,095)
Fee and commission expenses, and other acquisition costs		(1,031)	(1,007)
Other operating and administrative expenses		(3,754)	(3,852)
Goodwill impairment	C1(b)	-	(264)
Change in third party interest in consolidated funds		(328)	2
Total expenses		(18,366)	(9,051)
Share of associated undertakings' and joint ventures' profit after tax		24	10
(Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic   investments	C1(c)	(56)	251
Profit before tax		1,395	994
Income tax expense	D1	(472)	(225)
Profit from continuing operations after tax		923	769
Discontinued operations
Profit from discontinued operations after tax	H1	564	198
Profit after tax for the financial year		1,487	967
Attributable to
Equity holders of the parent		1,173	667
Non-controlling interests
Ordinary shares	F2(a)	264	238
Preferred securities	F2(a)	50	62
Profit after tax for the financial year		1,487	967
Earnings per share
Basic earnings per share based on profit from continuing operations (pence)		12.6	8.9
Basic earnings per share based on profit from discontinued operations (pence)		12.3	4.0
Basic earnings per ordinary share (pence)	C2(a)	24.9	12.9
Diluted earnings per share based on profit from continuing operations (pence)		11.6	8.0
Diluted earnings per share based on profit from discontinued operations (pence)		11.5	3.7
Diluted earnings per ordinary share (pence)	C2(a)	23.1	11.7
Weighted average number of ordinary shares - millions	C2(a)	4,587	4,935

Consolidated statement of comprehensive income
For the year ended 31 December 2012
			£m
	Notes	Year ended  31 December  2012	Year ended  31 December  2011
Profit after tax for the financial year		1,487	967
Other comprehensive income for the financial year
Fair value gains
Property revaluation		20	39
Net investment hedge		160	28
Available-for-sale investments
Fair value gains/(losses)		30	(1)
Recycled to the income statement		(21)	(6)
Shadow accounting		6	(22)
Currency translation differences/exchange differences on   translating foreign operations		(641)	(1,240)
Other movements		(46)	(49)
Income tax relating to components of other comprehensive income	D1(c)	5	12
Total other comprehensive income for the financial year from continuing operations		(487)	(1,239)
Total other comprehensive income for the financial year from discontinued operations	H1(b)	(348)	(161)
Total other comprehensive income for the financial year		(835)	(1,400)
Total comprehensive income for the financial year		652	(433)
Attributable to
Equity holders of the parent		476	(408)
Non-controlling interests
Ordinary shares		126	(87)
Preferred securities		50	62
Total comprehensive income for the financial year		652	(433)

Reconciliation of adjusted operating profit to profit after tax
For the year ended 31 December 2012
			£m
	Notes	Year ended 31 December 2012	Year ended 31 December 2011
Core operations
Long-Term Savings	B3	800	793
Nedbank	B3	828	755
Mutual & Federal	B3	43	89
USAM	B3	91	67
		1,762	1,704
Finance costs		(130)	(128)
Long term investment return on excess assets		54	37
Net interest payable to non-core operations		(18)	(23)
Corporate costs		(54)	(57)
Other net expenses		-	(18)
Adjusted operating profit before tax		1,614	1,515
Adjusting items	C1(a)	(459)	(329)
Non-core operations	B3	165	(183)
Profit before tax (net of policyholder tax)		1,320	1,003
Income tax attributable to policyholder returns	B3	75	(9)
Profit before tax		1,395	994
Total tax expense	D1(a)	(472)	(225)
Profit from continuing operations after tax		923	769
Profit from discontinued operations after tax	H1(a)	564	198
Profit after tax for the financial year		1,487	967
Adjusted operating profit after tax attributable to ordinary equity holders of the parent
			£m
	Notes	Year ended 31 December 2012	Year ended 31 December 2011¹
Adjusted operating profit before tax		1,614	1,515
Tax on adjusted operating profit	D1(d)	(441)	(341)
Adjusted operating profit after tax		1,173	1,174
Non-controlling interests - ordinary shares	F2(a)	(281)	(257)
Non-controlling - preferred securities	F2(a)	(50)	(62)
Adjusted operating profit after tax attributable to ordinary equity holders   of the parent		842	855
Adjusted weighted average number of shares (millions)	C2(b)	4,818	4,756
Adjusted operating earnings per share (pence)	C2(b)	17.5	18.0
1 The results for the year ended 31 December 2011 have been restated to reflect the share consolidation which occurred on 23 April 2012 (see note A2).

Basis of preparation

Adjusted operating profit (AOP) reflects the directors' view of the underlying long-term performance of the Group. AOP is a measure of profitability which adjusts the standard IFRS profit measures for the specific items detailed in note C1, and as such it is a non-GAAP measure. This reconciliation explains the differences between adjusted operating profit and profit after tax as reported under IFRS as adopted by the EU.

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 is treated as a non-core operation in the AOP disclosure, and Nordic, which is disclosed as discontinued operations for IFRS reporting, is also treated a non-core operation for AOP disclosure. Non-core operations are not included in AOP.

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.

Consolidated statement of financial position
At 31 December 2012
			£m
	Notes	At 31 December 2012	At 31 December 2011
Assets
Goodwill and other intangible assets		3,056	3,358
Mandatory reserve deposits with central banks		921	951
Property, plant and equipment		848	925
Investment property		1,946	2,064
Deferred tax assets		340	339
Investments in associated undertakings and joint ventures		137	111
Deferred acquisition costs		1,288	1,351
Reinsurers' share of policyholder liabilities		1,406	989
Loans and advances		38,495	40,001
Investments and securities		86,381	81,253
Current tax receivable		103	138
Trade, other receivables and other assets		2,890	3,348
Derivative financial instruments - assets		1,781	1,795
Cash and cash equivalents		3,863	3,624
Non-current assets held for sale	H2	42	22,138
Total assets		143,497	162,385
Liabilities
Long-term business policyholder liabilities		80,188	76,350
General insurance liabilities		346	325
Third-party interests in consolidated funds		2,783	1,893
Borrowed funds	E1	3,050	3,656
Provisions	F1	263	269
Deferred revenue		689	701
Deferred tax liabilities		400	504
Current tax payable		287	199
Trade, other payables and other liabilities		4,789	4,243
Amounts owed to bank depositors		39,499	41,215
Derivative financial instruments - liabilities		1,402	1,755
Non-current liabilities held for sale	H2	3	20,417
Total liabilities		133,699	151,527
Net assets		9,798	10,858
Shareholders' equity
Equity attributable to equity holders of the parent		7,833	8,488
Non-controlling interests
Ordinary shares	F2(b)	1,692	1,652
Preferred securities	F2(b)	273	718
Total non-controlling interests		1,965	2,370
Total equity		9,798	10,858

Consolidated statement of cash flows
For the year ended 31 December 2012
			£m
		Year ended  31 December 2012	Year ended 31 December 2011
Cash flows from operating activities - continuing operations
Profit before tax		1,395	994
Non-cash movements in profit before tax		249	1,372
Changes in working capital		1,041	(1,415)
Taxation paid		(295)	(402)
Net cash inflow from operating activities - continuing operations		2,390	549
Cash flows from investing activities
Net (acquisitions)/disposals of financial investments		(1,531)	43
Acquisition of investment properties		(55)	(57)
Proceeds from disposal of investment properties		67	6
Acquisition of property, plant and equipment		(120)	(184)
Proceeds from disposal of property, plant and equipment		7	43
Acquisition of intangible assets		(72)	(91)
Acquisition of interests in subsidiaries, associated undertakings and strategic   investments		(23)	103
Disposal of interests in subsidiaries, associated undertakings and strategic   investments		1,883	(329)
Net cash inflow/(outflow) from investing activities - continuing operations		156	(466)
Cash flows from financing activities
Dividends paid to
Ordinary equity holders of the Company		(1,172)	(97)
Non-controlling interests and preferred security interests		(211)	(206)
Interest paid (excluding banking interest paid)		(85)	(87)
Proceeds from issue of ordinary shares (including by subsidiaries to   non-controlling interests)		35	10
Net disposal/(acquisition) of treasury shares		19	(17)
Issue of subordinated and other debt		290	890
Subordinated and other debt repaid		(1,293)	(905)
Net cash outflow from financing activities - continuing operations		(2,417)	(412)
Net increase/(decrease) in cash and cash equivalents - continuing   operations		129	(329)
Net (decrease)/increase in cash and cash equivalents - discontinued operations		(129)	346
Effects of exchange rate changes on cash and cash equivalents		(271)	(594)
Cash and cash equivalents at beginning of the year		5,055	5,632
Cash and cash equivalents at end of the year		4,784	5,055
Consisting of
Cash and cash equivalents in the statement of financial position		3,863	3,624
Mandatory reserve deposits with central banks		921	951
Cash and cash equivalents included in assets held for sale		-	480
Total		4,784	5,055

Cash flows presented in this statement include all cash flows relating to policyholders' funds for life assurance.

Except for mandatory reserve deposits with central banks of £921 million (2011: £951 million) and cash and cash equivalents subject to consolidation of funds of £679 million (2011: £756 million), management do not consider that there are any material amounts of cash and cash equivalents which are not available for use in the Group's day-to-day operations. Mandatory reserve deposits are, however, included in cash and cash equivalents for the purposes of the cash flow statement in line with market practice in South Africa.

Included within the above  is interest income received (including banking interest) of £4,490 million (2011: £4,936 million), dividend income received of £508 million (2011: £371 million) and interest paid (including banking interest) of £2,047 million (2011: £2,143 million).

Consolidated statement of changes in equity
For the year ended 31 December 2012
		Millions		£m
Year ended 31 December 2012	Notes	Number of shares issued and fully paid		Share capital	Share premium	Merger reserve	Available-for-sale reserve
Shareholders' equity at beginning of the year		5,801		580	805	2,532	53
Profit after tax for the financial year		-		-	-	-	-
Other comprehensive income
Fair value gains/(losses)
Property revaluation		-		-	-	-	-
Net investment hedge1		-		-	-	-	-
Available-for-sale investments
Fair value gains		-		-	-	-	33
Recycled to the income statement		-		-	-	-	(21)
Exchange differences recycled to the income statement1		-		-	-	-	-
Shadow accounting		-		-	-	-	6
Currency translation differences/exchange differences on   translating foreign operations		-		-	-	-	-
Other movements		-		-	-	-	-
Income tax relating to components of other   comprehensive income	D1(c)	-		-	-	-	(6)
Total comprehensive income for the financial year		-		-	-	-	12
Dividends for the year	C3	-		-	-	-	-
Other movements in share capital and share-based    payment reserve		27		3	30	-	-
Cancellation of treasury shares		(239)		(24)	-	-	-
Share consolidation		(697)		-	-	-	-
Preferred securities purchased		-		-	-	-	-
Merger reserve realised in the period		-		-	-	(815)	-
Change in participation in subsidiaries		-		-	-	-	-
Transactions with shareholders		(909)		(21)	30	(815)	-
Shareholders' equity at end of the year		4,892		559	835	1,717	65
1 Following the sale of the Nordic business on 21 March 2012, foreign exchange translation gains of £350 million relating to the  Nordic operations, and foreign exchange hedge losses of £112 million relating to net investment hedges in respect of the Nordic investment were recognised in the income statement. These amounts are included in the £564 million profit on sale.

								£m
Property revaluation reserve	Share-based payments reserve	Other reserves	Translation reserve	Retained earnings	Perpetual preferred callable securities	Attributable to equity holders  of the parent	Total non-controlling interests	Total equity
124	230	5	301	3,170	688	8,488	2,370	10,858
-	-	-	-	1,141	32	1,173	314	1,487
19	-	-	-	-	-	19	1	20
-	-	-	160	-	-	160	-	160
-	-	-	-	-	-	33	1	34
-	-	-	-	-	-	(21)	-	(21)
-	-	-	(350)	-	-	(350)	-	(350)
-	-	-	-	-	-	6	-	6
-	-	-	(489)	-	-	(489)	(150)	(639)
1	(24)	4	-	(40)	-	(59)	10	(49)
-	-	-	-	-	10	4	-	4
20	(24)	4	(679)	1,101	42	476	176	652
-	-	-	-	(1,172)	(42)	(1,214)	(169)	(1,383)
-	62	-	-	7	-	102	13	115
-	-	24	-	-	-	-	-	-
-	-	-	-	-	-	-	-	-
-	-	-	-	(13)	(6)	(19)	(445)	(464)
-	-	-	-	815	-	-	-	-
-	-	-	-	-	-	-	20	20
-	62	24	-	(363)	(48)	(1,131)	(581)	(1,712)
144	268	33	(378)	3,908	682	7,833	1,965	9,798
Retained earnings were reduced in respect of own shares held in policyholders' funds, ESOP trusts, Black Economic Empowerment trusts and other undertakings at 31 December 2012 by £489 million (2011: £501 million).

Consolidated statement of changes in equity
For the year ended 31 December 2012
		Millions		£m
Year ended 31 December 2011	Notes	Number of shares issued and fully paid		Share capital	Share premium	Merger reserve	Available-for-sale reserve
Shareholders' equity at beginning of the year		5,695		570	795	2,845	225
Profit after tax for the financial year		-		-	-	-	-
Other comprehensive income
Fair value gains/(losses)
Property revaluation		-		-	-	-	-
Net investment hedge		-		-	-	-	-
Available-for-sale investments
Fair value gains		-		-	-	-	51
Recycled to the income statement		-		-	-	-	(10)
Realised on disposal		-		-	-	-	(157)
Exchange differences realised on disposal		-		-	-	-	-
Shadow accounting		-		-	-	-	(58)
Currency translation differences/exchange differences on   translating foreign operations		-		-	-	-	-
Other movements		-		-	-	-	-
Income tax relating to components of other   comprehensive income	D1(c)	-		-	-	-	2
Total comprehensive income for the financial year		-		-	-	-	(172)
Dividends for the year	C3	-		-	-	-	-
Other movements in share capital and share-based    payment reserve		7		-	10	-	-
Merger reserve realised in the year		-		-	-	(313)	-
Change in participation in subsidiaries		-		-	-	-	-
Reclassification of translation differences on   non-controlling interests		-		-	-	-	-
Shares issued in lieu of cash dividend		99		10	-	-	-
Transactions with shareholders		106		10	10	(313)	-
Shareholders' equity at end of the year		5,801		580	805	2,532	53

								£m
Property revaluation reserve	Share-based payments reserve	Other reserves	Translation reserve	Retained earnings	Perpetual preferred callable securities	Attributable to equity holders  of the parent	Total non-controlling interests	Total equity
101	215	5	1,176	2,331	688	8,951	2,523	11,474
-	-	-	-	635	32	667	300	967
30	-	-	-	-	-	30	9	39
-	-	-	28	-	-	28	-	28
-	-	-	-	-	-	51	(1)	50
-	(1)	-	-	-	-	(11)	-	(11)
-	-	-	-	-	-	(157)	-	(157)
-	-	-	24	-	-	24	-	24
(7)	-	-	-	-	-	(65)	-	(65)
-	-	-	(970)	-	-	(970)	(313)	(1,283)
-	(34)	-	-	15	-	(19)	(20)	(39)
-	-	-	-	-	12	14	-	14
23	(35)	-	(918)	650	44	(408)	(25)	(433)
-	-	-	-	(221)	(44)	(265)	(162)	(427)
-	50	-	-	(17)	-	43	16	59
-	-	-	-	313	-	-	-	-
-	-	-	-	-	-	-	61	61
-	-	-	43	-	-	43	(43)	-
-	-	-	-	114	-	124	-	124
-	50	-	43	189	(44)	(55)	(128)	(183)
124	230	5	301	3,170	688	8,488	2,370	10,858

Notes to the consolidated financial statements

For the year ended 31 December 2012

A: Significant accounting policies

A1: Basis of preparation

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU. The accounting policies adopted by the Group, unless otherwise stated, have been applied consistent with those applied in the preparation of the Group's 2011 Annual Report and Accounts.

The Group financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial assets and liabilities designated as fair value through the income statement or as available-for-sale, owner-occupied property and investment property. Non-current assets and disposal groups held for sale are stated at the lower of the previous carrying amount and the fair value less costs to sell.

The Group financial statements have been prepared on the going concern basis which the directors believe to be appropriate.

The financial statements contained herein do not constitute the Company's statutory accounts for the financial years ended 31 December 2012 and 31 December 2011 within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the financial year ended 31 December 2011 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The statutory accounts for the financial year ended 31 December 2012 will be delivered in due course. The report of the auditors for the financial year ended 31 December 2011 was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Translation of foreign operations

The assets and liabilities of foreign operations are translated from their respective functional currencies into the Group's presentation currency using the year end exchange rates, and their income and expenses using the average exchange rates. Other than in respect of cumulative translation gains and losses up to 1 January 2004, cumulative unrealised gains or losses resulting from translation of functional currencies to the presentation currency are included as a separate component of shareholders' equity. To the extent that these gains and losses are effectively hedged, the cumulative effect of such gains and losses arising on the hedging instruments are also included in that component of shareholders' equity. Upon the disposal of subsidiaries the cumulative amount of exchange differences deferred in shareholders' equity, net of attributable amounts in relation to net investments, is recognised in the income statement. Cumulative translation gains and losses up to 1 January 2004 were reset to zero.

The principal exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to pounds sterling are:
	Year ended 31 December 2012		Year ended 31 December 2011
	Income Statement (average rate)	Statement of financial position (closing rate)	Income Statement (average rate)	Statement of financial position  (closing rate)
Rand	13.0123	13.7696	11.6445	12.5643
US dollars	1.5850	1.6242	1.6037	1.5553
Swedish kronor	10.7363	10.5638	10.4144	10.6801
Euro	1.2326	1.2307	1.1519	1.1970

A2: Significant corporate activity and business changes

Disposal of Nordic

As previously reported the Group had agreed at 31 December 2011 to the disposal of its life assurance operations, asset management and banking operations in Sweden, Denmark and Norway to Skandia Liv. Following final regulatory approval on 8 March 2012 and subsequent shareholder approval, the sale was completed on 21 March 2012. The sale represented the Group's exit from the life assurance market in the Nordic region and therefore met the criteria of a discontinued operation. The assets and liabilities of Nordic were classified as non-current assets and liabilities held for sale at 31 December 2011. At 31 December 2012, following the completion of the disposal, there are no assets and liabilities of Nordic remaining in the Statement of Financial Position. For the purposes of adjusted operating profit, Nordic is classified as a non-core operation. Further details of the impact of discontinued operations are provided in note H1.

Special dividend and share consolidation

On 9 March 2012 the Group declared a special dividend of 18p per 10p ordinary share to all holders of those shares on the register at 20 April 2012 and the dividend was subsequently paid on 7 June 2012. A seven-for-eight share consolidation was effected on 23 April 2012 and from that date only new ordinary shares of 11^3/7 pence have been in issue. For basic and diluted earnings per share, the weighted average number of shares is adjusted with effect from 23 April 2012. For adjusted operating earnings per share the adjustment of the weighted average number of shares has been made effective 1 January 2012. Consequently the comparative information in the adjusted operating earnings per share note C2(b) has been restated accordingly.

Disposal of Finnish branch in Old Mutual Wealth

On 21 December 2011 the Group announced that it had agreed terms to sell the Finnish branch of Old Mutual Wealth to OP-Pohjola osk. The assets and liabilities of the Finnish branch were classified as non-current assets and liabilities held for sale in the Statement of Financial Position at 31 December 2011. As at 31 December 2012, following the completion of the sale of the business on 31 August 2012, there were no assets and liabilities of the Finland branch remaining in the Statement of Financial Position.

Consolidation of other African businesses 

As reported in the Group's 2011 Annual Report and Accounts the Group's operations in Zimbabwe, Kenya, Malawi, Swaziland and Nigeria (the other African businesses), were consolidated effective from 1 January 2011. The net asset value of the underlying businesses on 1 January 2011 was deemed to be the fair value of these operations on that date. As a result of the consolidation of these businesses, the Group recognised a gain on 1 January 2011, which was disclosed as a profit on acquisition of subsidiaries. The results of the other African businesses were included in the comparatives for the year ended 31 December 2011.

In anticipation of the indigenisation of the Zimbabwe business a non-controlling interest adjustment has been included for this operation in respect of adjusted operating profit to reflect the agreed indigenous shareholding to be provided. At 31 December 2012 the Group had completed the transfer of the agreed indigenous shareholding to approved indigenisation and economic empowerment trusts, the majority of which remains fully consolidated for the purposes of IFRS reporting.

Reporting of Retail Europe within Old Mutual Wealth

On 24 January 2012 the Group announced that that it would combine its Old Mutual Wealth Continental Europe business (France and Italy) with the Skandia Retail Europe business unit (Germany, Austria, Poland and Switzerland). As a result of these operational changes, the businesses previously reported as the Retail Europe segment are now reported within the Old Mutual Wealth segment for the year ended 31 December 2012. The comparative information for the year ended 31 December 2011 has been reclassified where applicable.

Integration of OMAM UK with Skandia Investment Group

On 26 April 2012 the Group announced the integration of Old Mutual Asset Management UK (OMAM UK) with Skandia Investment Group. OMAM UK was previously reported within the US Asset Management segment and Skandia Investment Group is reported within the Old Mutual Wealth segment. Consequently OMAM UK is included within the Old Mutual Wealth segment for the year ended 31 December 2012.

In September 2012 the Group announced the merger of the Skandia businesses (Skandia UK, Skandia International, Old Mutual Global Investors and the Skandia European businesses outside of the Nordic region) into a single business called Old Mutual Wealth. The operational changes are designed to combine asset management capability with UK platform strength and international expertise to grow into a leading provider of wealth management solutions in selected markets. As a result the businesses previously reported as the Retail Europe segment are now reported within the Old Mutual Wealth segment for the year ended 31 December 2012. The comparative information for the year ended 31 December 2011 has been reclassified where applicable.

Cancellation of treasury shares

On 13 January 2012 the Group announced that it had cancelled 239,434,888 Ordinary Shares of 10p each previously held in treasury.

Repayment of debt

On 18 January 2012, the remaining €200 million of the €750 million subordinated bond was repaid on the first call date.

Following an open market tender offer on 19 July 2012, the Group announced it repurchased £388 million of the £500 million senior bond with a repayment date of 1 August 2012.

On 23 August 2012, the Group announced it had applied to repay the US$750 million Subordinated Cumulative Perpetual Notes at their nominal value. The transaction was completed on 24 September 2012.

On 4 December 2012, €5 million of the €500 million perpetual preferred callable securities and on 5 December 2012, £2 million of the £350 million preferred callable securities were acquired, both via open market repurchase.

Notes to the consolidated financial statements

For the year ended 31 December 2012

A: Significant accounting policies continued

A3: Critical accounting estimates and judgements

In the preparation of these financial statements, the Group is required to make estimates and judgements that affect items reported in the consolidated income statement, statement of financial position, other primary statements and related supporting notes.

Critical accounting estimates and judgements are those which involve the most complex or subjective judgements or assessments. Where applicable the Group applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting guidance based on knowledge of the current situation, and require assumptions and predictions of future events and actions. There has been no significant change to the critical accounting estimates and judgements that the Group applied at 31 December 2011. The significant accounting policies are described in the Annual Report

Specific areas that have required closer attention in respect of the estimates and judgements applied during the year ended 31 December 2012 are explained in more detail below.

(a)  Loans and advances

Provisions for impairment of loans and advances

The majority of loans and advances are in respect of Nedbank, which assesses its loan portfolios for impairment at each financial reporting date. Nedbank actively manages their exposure to loans and advances through robust credit approval processes which contributed to the improved credit loss ratio at 31 December 2012 of 1.05% (2011: 1.13%).

The impairment for performing loans is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio.

These include early arrears and other indicators of potential default, such as changes in macroeconomic conditions and legislation affecting credit recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period.

For portfolios which comprise large numbers of small homogenous assets with similar risk characteristics where credit scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on the portfolio, based on historical recovery rates and assumed emergence periods. There are many models in use, each tailored to a product, line of business or client category. Judgement and knowledge is needed in selecting the statistical methods to use when the models are developed or revised.

For larger exposures impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing on the expected future cash flows are taken into account. The level of impairment allowance is the difference between the value of the discounted expected future cash flows and its carrying amount. Subjective judgements are made in the calculations of future cash flows and change with time as new information becomes available or as strategies evolve, resulting in frequent revisions to the impairment provision as individual decisions are taken.

Further detail is provided in the Annual Report.

(b)  Policyholder liabilities

Emerging Markets Financial Soundness Valuation discount rate

The calculation of the Group's South African Life assurance contract provisions is sensitive to the discount rate applied to future liabilities. The methodology applied by the Group requires discount rates to be set according to the Financial Soundness Valuation (FSV) principles as prescribed by the Actuarial Society of South Africa. These In line with these principles the reference rate is selected as the Bond Exchange of South Africa (BESA) par bond 10-year yield.

During 2012 the reference discount rate applied to its South African business reduced from 8.2% to 6.9% in line with observable market data. During H1 2012, the discount rate reduced from 8.2% to 7.6%, which resulted in an increase in FSV provisions of £20m.  During H2 2012, the discount rate reduced further from 7.6% to 6.9%, resulting in a further increase to FSV provisions of £15m. 

During the fourth quarter of 2012 a broad duration based hedge was implemented which partially mitigated the negative impact of the decline in the FSV rate over H2. This hedge remains in place and is expected to reduce the South African business's sensitivity to interest rate movements in future. The Group estimates that a 1% reduction in the discount rate will result in an increase in policyholder liabilities of £39 million (2011: £42 million), allowing for the impact of the duration based hedge. The growth in the book over 2012 and the fact that a 1% fall now represents a larger proportionate fall in interest rates mean that the sensitivity at the end of 2012 is higher than the actual impact observed over 2012.

Further disclosure of the Policyholder sensitivity to interest rates is provided in the Annual Report.

Emerging Markets discretionary reserves

Management has discretion in managing exposure to financial options and guarantees, particularly within participating business. As required by applicable Actuarial Society of South Africa guidance, the time value of the financial options and guarantees included in the statutory reserves in the Emerging Markets businesses at 31 December 2012 have been valued using a risk-neutral market consistent asset model and is referred to as the Investment Guarantee Reserve (IGR). This reserve includes a discretionary margin as defined by local guidelines to allow for the sensitivity of the reserve to future interest rate and equity market movements. Further detail is provided in the Old Mutual audited market consistent Embedded Value supplementary basis information section of the Annual Report.

Bermuda guarantees

Old Mutual Bermuda was closed to new business on 18 March 2009. Management's key priority since the closure to new business has been to de-risk the business. The main risks associated with this business relate to guarantees in the products previously sold by the business. At 31 December 2012 a total of 21,975 (2011: 34,828) contracts remain active, comprising of 20,910 variable annuity products (2011: 33,373) and 1,065 deferred and fixed index annuity investments (2011:1,455). The variable annuity products provided both a guaranteed minimum accumulation benefit (GMAB) and guaranteed minimum death benefit (GMDB).

During 2012 the business experienced significantly higher rates of surrender than assumed with 12,380 variable annuity contracts surrendering in total (2011:5,657). The increase in surrender activity was attributable to variable annuity UGO policyholders passing through a top-up process on the fifth anniversary following product inception. At 31 December 2012 approximately 70% of variable annuity UGO policyholders had reached their 5-year top-up. At 31 December 2012, 77% of non-Hong Kong policies and 57% of Hong Kong policies had been surrendered on or after their 5-year anniversary date. The significantly reduced size of the book has meant that associated GMAB reserves have reduced from $1,056 million at 31 December 2011 to $229 million at 31 December 2012 while the associated GMDB reserves reduced from $5 million to $155,677.

The favourable lapse experience has been reflected in surrender assumptions for the remaining policies that are yet to go through their 5-year policy anniversary.  These revised assumptions have resulted in further releases of reserves, contributing positively to IFRS and MCEV operating profits for 2012. Policies still in force after the 5-year anniversary are no longer subject to surrender penalties.

The Group continues to operate strong oversight over the business. The key remaining risk relates to the 10-year GMAB top-up process which will commence in 2017.

(c)  Tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is correspondingly recognised in other comprehensive income.

The Group is regularly in discussion with the respective tax authorities in each of the jurisdictions where the Group is active. In certain circumstances the Group applies its judgement to determine if a provision for future tax should be raised. The Group reviews any potential exposure to tax authorities under the requirements of IAS 37 to determine if a provision should be recognised. The measurement of any provisions for future taxes is based on the Group's assessment of the specific circumstances and it applies judgement to determine the most likely outcome of its discussions with the relevant tax authorities. As these provisions are based on estimates and rely on judgements made by the Group, the actual amount of future taxes paid by the Group could be different to the amounts provided.

Notes to the consolidated financial statements

For the year ended 31 December 2012

B: Segment information

B1: Basis of segmentation

The Group's segmental results are analysed and reported on a basis consistent with the way that management and the Board of directors assesses performance and allocates resources. Information is presented to the Board on a consolidated basis in pounds sterling (the presentational currency) and in functional currency of each business.

Adjusted operating profit is one of the key measures reported to the Group's management and Board of directors for their consideration in the allocation of resources to and the review of performance of the segments. The Group utilises additional measures to assess the performance of each of the segments, in particular the level of net client cash flows and funds under management. Additional performance measures considered by management and the Board of directors in assessing the performance of the segments can be found in the Market Consistent Embedded Value supplementary information.

A reconciliation between the segment revenues and expenses and the Group's revenues and expenses is shown in note B3. In line with internal reporting, assets, liabilities, revenues or expenses that are not directly attributable to a particular segment are allocated between segments where appropriate and where there is a reasonable basis for doing so. The Group accounts for inter-segment revenues and transfers as if the transactions were with third parties at current market prices. Given the nature of the operations, there are no major customers within any of the segments.

The revenues generated in each reported segment can be seen in the analysis of profits and losses in note B3. The segmental information in notes B3 and B4, reflects the adjusted and IFRS measures of profit and loss, assets and liabilities for each operating segment as provided to management and the Board of directors. There are no differences between the measurement of the assets and liabilities reflected in the primary statements and that reported for the segments.

There are four principal business activities from which the Group generates revenues. These are life assurance (premium income), asset management business (fee and commission income), banking (banking interest receivable) and general insurance (premium income). The lines of business in each operating segment derive its revenues are as follows:

Core operations

Long-Term Savings

Emerging Markets - life assurance and asset management

Old Mutual Wealth - life assurance and asset management

Other core operations

Nedbank - banking and asset management

Mutual & Federal - general insurance

US Asset Management - asset management

Discontinued and non-core operations

Bermuda - life assurance (non-core)

Nordic - life assurance, asset management and banking (discontinued and non-core)

Income statement segmentation

For both reported periods:

n  Nordic  has been classified as a discontinued operation in the IFRS income statement and its results as non-core in determining the Group's adjusted operating profits; and

n  Bermuda has been classified as a continuing operation in the IFRS income statement, but as non-core in determining the Group's adjusted operating profit.

US Life is classified as a discontinued operation in the comparative period.

All other businesses have been classified as continuing operations for both reported periods.

The results of OMAM UK (previously included within US Asset Management) and Retail Europe are included within the Old Mutual Wealth segment for the year ended 31 December 2012. Except for OMAM UK, the income statement segmental presentation for the year ended 31 December 2011 is consistent with the above.

Statement of financial position segmentation

At 31 December 2011, the assets and liabilities of Nordic were classified as non-current assets and liabilities held for sale. Following disposal of the business during 2012, no assets and liabilities remain at 31 December 2012.

The segmental analysis of the statement of financial position at 31 December 2012 and 31 December 2011 discloses Bermuda as non-core.

At 31 December 2011, the assets and liabilities of the Finnish branch were classified as non-current assets and liabilities held for sale. Following disposal of the business during 2012, no assets and liabilities remain at 31 December 2012.

B2: Gross earned premiums and deposits to investment contracts
						£m
Year ended 31 December 2012	Emerging Markets	Old Mutual Wealth	Long-Term Savings	M&F	Bermuda	Total
Life assurance - insurance contracts	1,673	362	2,035	-	-	2,035
Life assurance - investment contracts    with discretionary participation features	970	-	970	-	-	970
General insurance	-	-	-	720	-	720
Gross earned premiums	2,643	362	3,005	720	-	3,725
Life assurance - other investment contracts   recognised as deposits	2,022	5,699	7,721	-	-	7,721
						£m
Year ended 31 December 2011	Emerging Markets	Old Mutual Wealth	Long-Term Savings	M&F	Bermuda	Total
Life assurance - insurance contracts	1,567	304	1,871	-	2	1,873
Life assurance - investment contracts    with discretionary participation features	975	-	975	-	-	975
General insurance	-	-	-	736	-	736
Gross earned premiums	2,542	304	2,846	736	2	3,584
Life assurance - other investment contracts   recognised as deposits	2,088	6,406	8,494	-	-	8,494

Notes to the consolidated financial statements
For the year ended 31 December 2012
B: Segment information continued
B3: Adjusted operating profit statement - segment information year ended 31 December 2012
			Long-Term Savings
	Notes		Emerging Markets	Old Mutual Wealth	Total Long-Term Savings
Revenue
Gross earned premiums	B2		2,643	362	3,005
Outward reinsurance			(82)	(87)	(169)
Net earned premiums			2,561	275	2,836
Investment return (non-banking)			5,288	3,806	9,094
Banking interest and similar income			-	-	-
Banking trading, investment and similar income			-	-	-
Fee and commission income, and income from service activities			440	1,199	1,639
Other income			61	26	87
Inter-segment revenues			83	3	86
Total revenues			8,433	5,309	13,742
Expenses
Claims and benefits (including change in insurance contract provisions)			(4,813)	(387)	(5,200)
Reinsurance recoveries			89	59	148
Net claims and benefits incurred			(4,724)	(328)	(5,052)
Change in investment contract liabilities			(1,756)	(3,605)	(5,361)
Losses on loans and advances			-	-	-
Finance costs (including interest and similar expenses)			-	-	-
Banking interest payable and similar expenses			-	-	-
Fee and commission expenses, and other acquisition costs			(233)	(677)	(910)
Other expenses			(1,066)	(446)	(1,512)
Goodwill impairment	C1(b)		-	-	-
Change in third-party interest in consolidated funds			-	-	-
Income tax attributable to policyholder returns			(49)	(26)	(75)
Inter-segment expenses			(20)	(32)	(52)
Total expenses			(7,848)	(5,114)	(12,962)
Share of associated undertakings' and joint ventures' profit after tax			20	-	20
Loss on acquisition/disposal of subsidiaries, associated undertakings and   strategic investments	C1(c)		-	-	-
Adjusted operating profit/(loss) before tax and non-controlling interests			605	195	800
Income tax expense	D1		(164)	(43)	(207)
Non-controlling interests	F2(a)		(9)	-	(9)
Adjusted operating profit/(loss) after tax and non-controlling interests			432	152	584
Adjusting items net of tax and non-controlling interests	C1(a)		(153)	(134)	(287)
Profit/(loss) after tax from continuing operations			279	18	297
Profit from discontinued operations after tax	H1		-	-	-
Profit/(loss) after tax attributable to equity holders of the parent			279	18	297
Of the total revenues, excluding intercompany revenues, £4,190 million was generated in the UK (2011: (£1,492)), £1,191 million in the rest of Europe (2011: (£81) million), £13,739 million in southern Africa (2011: £11,007 million), £590 million in United States (2011: £201 million) and £83 million relates to other operating segments (2011: £80 million).
¹ Non-core operations relates to Bermuda with the exception of £4 million of inter-segment revenue and the profit from discontinued operations after tax, with these reflecting the results of Nordic which has been classified as discontinued operations as detailed in notes A2 and B1. Bermuda profit after tax for the year ended 31 December 2012 was £161 million. Further details on the results of discontinued operations is provided in note H1.

								£m
Nedbank	M&F	USAM	Other	Consolidation adjustments	Adjusted operating profit	Adjusting items  (note C1)	Discontinued and non-core operations1	IFRS Income statement
-	720	-	-	-	3,725	-	-	3,725
-	(153)	-	-	-	(322)	-	-	(322)
-	567	-	-	-	3,403	-	-	3,403
-	44	1	75	366	9,580	(191)	135	9,524
3,431	-	-	-	-	3,431	-	-	3,431
214	-	-	-	-	214	-	-	214
1,084	26	421	-	2	3,172	(76)	-	3,096
23	1	1	-	(1)	111	-	14	125
21	18	-	7	(156)	(24)	-	24	-
4,773	656	423	82	211	19,887	(267)	173	19,793
-	(485)	-	-	-	(5,685)	-	73	(5,612)
-	73	-	-	-	221	-	-	221
-	(412)	-	-	-	(5,464)	-	73	(5,391)
-	-	-	-	-	(5,361)	-	-	(5,361)
(400)	-	-	-	-	(400)	-	-	(400)
-	-	-	(130)	-	(130)	(84)	-	(214)
(1,886)	-	-	-	-	(1,886)	(1)	-	(1,887)
-	(107)	(5)	-	(34)	(1,056)	88	(63)	(1,031)
(1,601)	(82)	(329)	(68)	(5)	(3,597)	(139)	(18)	(3,754)
-	-	-	-	-	-	-	-	-
-	-	-	-	(328)	(328)	-	-	(328)
-	-	-	-	-	(75)	75	-	-
(58)	(14)	-	(32)	156	-	-	-	-
(3,945)	(615)	(334)	(230)	(211)	(18,297)	(61)	(8)	(18,366)
-	2	2	-	-	24	-	-	24
-	-	-	-	-	-	(56)	-	(56)
828	43	91	(148)	-	1,614	(384)	165	1,395
(222)	(9)	(15)	12	-	(441)	(31)	-	(472)
(287)	(8)	-	(27)	-	(331)	17	-	(314)
319	26	76	(163)	-	842	(398)	165	609
16	(15)	(10)	(102)	-	(398)	398	-	-
335	11	66	(265)	-	444	-	165	609
-	-	-	-	-	-	-	564	564
335	11	66	(265)	-	444	-	729	1,173

Notes to the consolidated financial statements
For the year ended 31 December 2012
B: Segment information continued
B3: Adjusted operating profit statement - segment information year ended 31 December 2011
			Long-Term Savings
	Notes		Emerging Markets	Old Mutual Wealth	Total Long-Term Savings
Revenue
Gross earned premiums	B2		2,542	304	2,846
Outward reinsurance			(88)	(88)	(176)
Net earned premiums			2,454	216	2,670
Investment return (non-banking)			2,626	(2,878)	(252)
Banking interest and similar income			-	-	-
Banking trading, investment and similar income			-	-	-
Fee and commission income, and income from service activities			411	1,183	1,594
Other income			68	23	91
Inter-segment revenues			66	11	77
Total revenues			5,625	(1,445)	4,180
Expenses
Claims and benefits (including change in insurance contract provisions)			(2,854)	(102)	(2,956)
Reinsurance recoveries			73	9	82
Net claims and benefits incurred			(2,781)	(93)	(2,874)
Change in investment contract liabilities			(925)	2,814	1,889
Losses on loans and advances			-	(1)	(1)
Finance costs (including interest and similar expenses)			-	-	-
Banking interest payable and similar expenses			-	-	-
Fee and commission expenses, and other acquisition costs			(223)	(664)	(887)
Other operating and administrative expenses			(1,076)	(404)	(1,480)
Goodwill impairment	C1(b)		-	-	-
Change in third-party interest in consolidated funds			-	-	-
Income tax attributable to policyholder returns			(53)	62	9
Inter-segment expenses			(7)	(46)	(53)
Total expenses			(5,065)	1,668	(3,397)
Share of associated undertakings' and joint ventures' profit after tax			10	-	10
Profit on disposal of subsidiaries, associated undertakings and strategic   investments	C1(c)		-	-	-
Adjusted operating profit/(loss) before tax and non-controlling interests			570	223	793
Income tax expense	D1		(120)	(26)	(146)
Non-controlling interests	F2(a)		(3)	-	(3)
Adjusted operating profit/(loss) after tax and non-controlling interests			447	197	644
Adjusting items net of tax and non-controlling interests	C1(a)		126	(87)	39
Profit/(loss) after tax from continuing operations			573	110	683
Profit from discontinued operations after tax	H1		-	-	-
Profit/(loss) after tax attributable to equity holders of the parent			573	110	683
¹ Non-core operations relates to Bermuda with the exception of £22 million and £5 million of inter-segment revenue and expenses and the profit from discontinued operations after tax, with these reflecting the results of Nordic and US Life both of which have been classified as discontinued operations. More detail is provided in notes A2 and B1. Bermuda loss after tax for the year ended 31 December 2011 was £201 million. Further detail on the results of discontinued operations are provided in note H1.

								£m
Nedbank	M&F	USAM	Other	Consolidation adjustments	Adjusted operating profit	Adjusting items  (note C1)	Discontinued and non-core operations1	IFRS Income statement
-	736	-	-	-	3,582	-	2	3,584
-	(149)	-	-	-	(325)	-	-	(325)
-	587	-	-	-	3,257	-	2	3,259
-	54	-	52	30	(116)	(241)	(210)	(567)
3,669	-	-	-	-	3,669	-	-	3,669
217	-	-	-	-	217	-	-	217
1,051	34	447	-	-	3,126	(91)	-	3,035
50	-	10	-	-	151	-	20	171
27	18	1	16	(185)	(46)	-	46	-
5,014	693	458	68	(155)	10,258	(332)	(142)	9,784
-	(422)	-	-	-	(3,378)	-	47	(3,331)
-	41	-	-	-	123	-	-	123
-	(381)	-	-	-	(3,255)	-	47	(3,208)
-	-	-	-	-	1,889	-	-	1,889
(457)	-	-	-	-	(458)	-	-	(458)
-	-	-	(128)	-	(128)	70	-	(58)
(2,091)	-	-	-	-	(2,091)	(4)	-	(2,095)
(9)	(109)	(12)	-	(24)	(1,041)	104	(70)	(1,007)
(1,641)	(95)	(379)	(81)	(8)	(3,684)	(154)	(14)	(3,852)
-	-	-	-	-	-	(264)	-	(264)
-	-	-	-	2	2	-	-	2
-	-	-	-	-	9	(9)	-	-
(61)	(19)	-	(48)	185	4	-	(4)	-
(4,259)	(604)	(391)	(257)	155	(8,753)	(257)	(41)	(9,051)
-	-	-	-	-	10	-	-	10
-	-	-	-	-	-	251	-	251
755	89	67	(189)	-	1,515	(338)	(183)	994
(188)	(22)	(8)	23	-	(341)	117	(1)	(225)
(269)	(8)	-	(39)	-	(319)	19	-	(300)
298	59	59	(205)	-	855	(202)	(184)	469
16	(24)	(260)	27	-	(202)	202	-	-
314	35	(201)	(178)	-	653	-	(184)	469
-	-	-	-	-	-	-	198	198
314	35	(201)	(178)	-	653	-	14	667

Notes to the consolidated financial statements
For the year ended 31 December 2012
B: Segment information continued
B4: Statement of financial position - segment information at 31 December 2012
					£m
	Notes		Emerging Markets	Old Mutual Wealth	Total Long-Term Savings
Assets
Goodwill and other intangible assets			98	1,594	1,692
Mandatory reserve deposits with central banks			-	-	-
Property, plant and equipment			336	13	349
Investment property			1,588	-	1,588
Deferred tax assets			82	44	126
Investments in associated undertakings and joint ventures			57	-	57
Deferred acquisition costs			103	1,159	1,262
Reinsurers' share of policyholder liabilities			55	1,236	1,291
Loans and advances			142	180	322
Investments and securities			31,157	45,402	76,559
Current tax receivable			16	64	80
Trade, other receivables and other assets			697	333	1,030
Derivative financial instruments - assets			612	-	612
Cash and cash equivalents			816	576	1,392
Non-current assets held for sale	H2		-	5	5
Inter-segment assets			562	101	663
Total assets			36,321	50,707	87,028
Liabilities
Life assurance policyholder liabilities			31,124	46,455	77,579
General insurance liabilities			-	-	-
Third-party interests in consolidated funds			-	-	-
Borrowed funds	E1		218	-	218
Provisions	F1		148	54	202
Deferred revenue			11	667	678
Deferred tax liabilities			122	189	311
Current tax payable			198	39	237
Trade, other payables and other liabilities			2,221	669	2,890
Amounts owed to bank depositors			86	-	86
Derivative financial instruments - liabilities			377	-	377
Non-current liabilities held for sale	H2		-	-	-
Inter-segment liabilities			216	587	803
Total liabilities			34,721	48,660	83,381
Net assets			1,600	2,047	3,647
Equity
Equity attributable to equity holders of the parent			1,586	2,047	3,633
Non-controlling interests			14	-	14
Ordinary shares	F2(b)		14	-	14
Preferred securities	F2(b)		-	-	-
Total equity			1,600	2,047	3,647
The net assets of Emerging Markets are stated after eliminating investments in Group equity and debt instruments of £364 million (2011: £368 million) held in policyholder funds. These include investments in the Company's ordinary shares and subordinated liabilities and preferred securities issued by the Group's banking subsidiary Nedbank Limited. All Emerging Markets debt relates to life assurance. All other debt relates to other shareholders' net assets.

						£m
Nedbank	M&F	USAM	Other	Consolidation adjustments	Non-core operations Bermuda	Total
534	14	816	-	-	-	3,056
921	-	-	-	-	-	921
465	20	13	1	-	-	848
15	-	-	-	343	-	1,946
29	20	162	2	-	1	340
49	2	3	26	-	-	137
-	18	8	-	-	-	1,288
15	100	-	-	-	-	1,406
38,173	-	-	-	-	-	38,495
6,303	397	37	368	1,765	952	86,381
18	5	-	-	-	-	103
674	92	121	62	316	595	2,890
1,003	-	-	97	51	18	1,781
1,049	109	131	379	678	125	3,863
37	-	-	-	-	-	42
111	43	21	1,366	(2,877)	673	-
49,396	820	1,312	2,301	276	2,364	143,497
907	-	-	-	-	1,702	80,188
-	346	-	-	-	-	346
-	-	-	-	2,783	-	2,783
2,163	-	10	659	-	-	3,050
1	30	1	29	-	-	263
1	10	-	-	-	-	689
44	21	-	24	-	-	400
9	-	6	34	-	1	287
1,076	127	203	70	331	92	4,789
39,413	-	-	-	-	-	39,499
977	-	-	8	39	1	1,402
3	-	-	-	-	-	3
596	2	554	922	(2,877)	-	-
45,190	536	774	1,746	276	1,796	133,699
4,206	284	538	555	-	568	9,798
2,309	261	507	555	-	568	7,833
1,897	23	31	-	-	-	1,965
1,624	23	31	-	-	-	1,692
273	-	-	-	-	-	273
4,206	284	538	555	-	568	9,798

Notes to the consolidated financial statements
For the year ended 31 December 2012
B: Segment information continued
B4: Statement of financial position - segment information at 31 December 2011
					£m
	Notes		Emerging Markets	Old Mutual Wealth	Total Long-Term Savings
Assets
Goodwill and other intangible assets			104	1,756	1,860
Mandatory reserve deposits with central banks			-	-	-
Property, plant and equipment			374	16	390
Investment property			1,666	-	1,666
Deferred tax assets			81	65	146
Investments in associated undertakings and joint ventures			32	-	32
Deferred acquisition costs			113	1,164	1,277
Reinsurers' share of policyholder liabilities			31	844	875
Loans and advances			299	190	489
Investments and securities			30,064	41,508	71,572
Current tax receivable			10	70	80
Trade, other receivables and other assets			711	310	1,021
Derivative financial instruments - assets			298	-	298
Cash and cash equivalents			339	516	855
Non-current assets held for sale	H2		-	1,161	1,161
Inter-segment assets			1,025	138	1,163
Total assets			35,147	47,738	82,885
Liabilities
Life assurance policyholder liabilities			30,270	42,159	72,429
General insurance liabilities			-	-	-
Third-party interests in consolidated funds			-	-	-
Borrowed funds	E1		239	-	239
Provisions	F1		137	64	201
Deferred revenue			17	673	690
Deferred tax liabilities			185	189	374
Current tax payable			120	39	159
Trade, other payables and other liabilities			1,667	673	2,340
Amounts owed to bank depositors			-	-	-
Derivative financial instruments - liabilities			230	-	230
Non-current liabilities held for sale	H2		-	1,120	1,120
Inter-segment liabilities			141	462	603
Total liabilities			33,006	45,379	78,385
Net assets			2,141	2,359	4,500
Equity
Equity attributable to equity holders of the parent			2,144	2,359	4,503
Non-controlling interests			(3)	-	(3)
Ordinary shares	F2(b)		(3)	-	(3)
Preferred securities	F2(b)		-
Total equity			2,141	2,359	4,500

							£m
Nedbank	M&F	USAM	Other	Consolidation adjustments	Non-core operations Bermuda	Discontinued operations1	Total
557	23	904	13	-	1	-	3,358
951	-	-	-	-	-	-	951
502	21	11	1	-	-	-	925
49	-	-	-	349	-	-	2,064
21	14	165	(8)	-	1	-	339
49	1	2	27	-	-	-	111
-	16	9	-	-	49	-	1,351
16	98	-	-	-	-	-	989
39,511	1	-	-	-	-	-	40,001
6,403	416	41	216	874	1,731	-	81,253
56	2	-	-	-	-	-	138
943	75	126	54	293	836	-	3,348
1,022	-	-	86	388	1	-	1,795
1,071	113	197	467	756	165	-	3,624
1	-	16	-	-	-	20,960	22,138
206	23	21	1,136	(3,155)	566	40	-
51,358	803	1,492	1,992	(495)	3,350	21,000	162,385
815	-	-	-	-	3,106	-	76,350
-	325	-	-	-	-	-	325
-	-	-	-	1,893	-	-	1,893
2,273	-	11	1,133	-	-	-	3,656
-	32	3	33	-	-	-	269
1	10	-	-	-	-	-	701
93	13	-	24	-	-	-	504
10	-	(3)	32	-	1	-	199
1,123	108	219	96	348	9	-	4,243
41,215	-	-	-	-	-	-	41,215
1,103	-	-	3	419	-	-	1,755
-	-	8	-	-	-	19,289	20,417
501	2	598	1,451	(3,155)	-	-	-
47,134	490	836	2,772	(495)	3,116	19,289	151,527
4,224	313	656	(780)	-	234	1,711	10,858
2,347	294	625	(1,226)	-	234	1,711	8,488
1,877	19	31	446	-	-	-	2,370
1,605	19	31	-	-	-	-	1,652
272	-	-	446	-	-	-	718
4,224	313	656	(780)	-	234	1,711	10,858

Notes to the consolidated financial statements

For the year ended 31 December 2012

C: Other key performance information 

C1: Operating profit adjusting items

(a) Summary of adjusting items

In determining the adjusted operating profit of the Group for core operations certain adjustments are made to profit before tax to reflect the directors' view of the underlying long-term performance of the Group. The following table shows an analysis of those adjustments from adjusted operating profit to profit before and after tax.

		£m
	Notes	Year ended 31 December 2012	Year ended 31 December 2011
Income/(expense)
Goodwill impairment and impact of acquisition accounting	C1(b)	(123)	(401)
(Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic   investments	C1(c)	(56)	251
Short-term fluctuations in investment return	C1(d)	(78)	(171)
Investment return adjustment for Group equity and debt instruments held in life funds	C1(e)	(113)	(71)
Dividends declared to holders of perpetual preferred callable securities	C1(f)	42	44
US Asset Management equity plans and non-controlling interests	C1(g)	(5)	(4)
Credit-related fair value losses on Group debt instruments	C1(h)	(126)	23
Total adjusting items		(459)	(329)
Tax on adjusting items		44	108
Non-controlling interest in adjusting items		17	19
Total adjusting items after tax and non-controlling interests		(398)	(202)

 (b) Goodwill impairment and impact of acquisition accounting

Acquisition date deferred acquisition costs and deferred revenues are not recognised. These are reversed in the acquisition statement of financial position and replaced by goodwill, other intangible assets and the value of the acquired present value of in-force business (acquired PVIF). In determining its adjusted operating profit the Group recognises deferred revenue and acquisition costs in relation to policies sold by acquired businesses pre-acquisition, and excludes the impairment of goodwill and the amortisation of acquired other intangibles and acquired PVIF and the movements in certain acquisition date provisions. Goodwill impairment and acquisition accounting adjustments to adjusted operating profit are summarised below:

	£m
Year ended 31 December 2012	Emerging Markets	Old Mutual Wealth	USAM	Total
Amortisation of acquired PVIF	-	(84)	-	(84)
Amortisation of acquired deferred costs and revenue	-	12	-	12
Amortisation of other acquired intangible assets	(2)	(48)	(1)	(51)
Goodwill impairment	-	-	-	-
	(2)	(120)	(1)	(123)
	£m
Year ended 31 December 2011	Emerging Markets	Old Mutual Wealth	USAM	Total
Amortisation of acquired PVIF	-	(90)	-	(90)
Amortisation of acquired deferred costs and revenue	-	13	-	13
Amortisation of other acquired intangible assets	(2)	(50)	(8)	(60)
Goodwill impairment	-	-	(264)	(264)
	(2)	(127)	(272)	(401)

(c) (Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic investments (Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic investments is analysed below:
		£m
	Year ended 31 December 2012	Year ended 31 December 2011
Emerging Markets	(15)	249
Old Mutual Wealth	(25)	-
Long-Term Savings	(40)	249
USAM	(16)	2
(Loss)/profit on acquisition/disposal of subsidiaries, associated undertakings and strategic investments	(56)	251

On 20 November 2012, the Emerging Markets segment recognised a profit of £3 million on the acquisition of a strategic investment Curo Fund Services (Pty) Ltd.

During the year ended 31 December 2012 the Group incurred expenses of £18 million as initial costs regarding Zimbabwean Indiginisation and Economic Empowerment Schemes. These costs are directly related to the acquisition of the Zimbabwean business. Further detail has been provided in note A2.

On 31 August 2012, Old Mutual Wealth completed the sale of its Finnish branch at a loss of £27 million. A profit of £2 million was recognised on the sale of Skandia Services AG (Switzerland) on 30 June 2012.

On 13 April 2012 USAM disposed of Old Mutual Capital, Inc, a subsidiary, at a profit of £12 million. On 15 May 2012 USAM disposed of Dwight Asset Management Company LLC, a fixed income affiliate, at a profit of £7 million. On 11 October 2012 the Group announced that it has finalised agreements to sell 5 USAM affiliates at a loss of £32 million. A £3 million loss has been recognised during the year ended 31 December 2012 in relation to disposals of subsidiaries by USAM in previous periods. On 30 December 2011, USAM disposed of Lincluden Management Ltd, a subsidiary, at a profit of £2 million.

In preparing the consolidated financial statements for the year ended 31 December 2011 the Emerging Markets segment included the South African and Namibian businesses but excluded all other African businesses. This was consistent with prior periods. Following a period of greater political and currency stability in Zimbabwe and an expectation that the Group would be able to extract benefits from its Zimbabwean business it was consolidated for the first time for the year ended 31 December 2011 together with operations in Kenya, Malawi, Swaziland and Nigeria. The Group recognised a gain of £249 million on acquisition of these businesses for the year ended 31 December 2011.

(d) Short-term fluctuations in investment return

Profit before tax, as disclosed in the IFRS income statement, includes actual investment returns earned on the shareholder assets of the Group's life assurance and general insurance businesses. Adjusted operating profit is stated after recalculating shareholder asset investment returns based on a long-term investment return rate. The difference between the actual and the long-term investment returns is referred to the short-term fluctuation in investment return.

Long-term rates of return are based on achieved rates of return appropriate to the underlying asset base, adjusted for current inflation expectations, default assumptions, costs of investment management and consensus economic investment forecasts. The underlying rates are principally derived with reference to 10-year government bond rates, cash and money market rates, and an explicit equity risk premium for South African businesses The rates set out below reflect the weighting of investments in underlying cash, money market and equity assets. The long-term rates of return are reviewed frequently by the Board, usually annually, for appropriateness. The review of the long-term rates of return seeks to ensure that the returns credited to adjusted operating profit are consistent with the actual returns expected to be earned over the long-term.

For Emerging Markets, the return is applied to an average value of investible shareholders' assets, adjusted for net fund flows. For Old Mutual Wealth, the return is applied to average investible assets. For M&F general insurance business, the return is an average value of investible assets supporting shareholders' funds and insurance liabilities, adjusted for net fund flows.

		%
Long-term investment rates	Year ended 31 December 2012	Year ended 31 December 2011
Emerging Markets	9.0	9.0
Old Mutual Wealth	1.5-2.0	2.0-2.1
M&F	8.6	9.0

Notes to the consolidated financial statements

For the year ended 31 December 2012

C: Other key performance information continued

C1: Operating profit adjusting items continued

Analysis of short-term fluctuations in investment return
	£m
Year ended 31 December 2012	Emerging Markets	Old Mutual Wealth¹	Long-Term Savings	M&F	Other	Total
Actual shareholder investment return	81	65	146	34	34	214
Less: Long-term investment return	124	67	191	47	54	292
Short-term fluctuations in investment return	(43)	(2)	(45)	(13)	(20)	(78)
	£m
Year ended 31 December 2011	Emerging Markets	Old Mutual Wealth¹	Long-Term Savings	M&F	Other	Total
Actual shareholder investment return	14	66	80	26	6	112
Less: Long-term investment return	112	80	192	54	37	283
Short-term fluctuations in investment return	(98)	(14)	(112)	(28)	(31)	(171)
1 Old Mutual Wealth long-term investment return includes £59 million (2011: £65 million) in respect of income tax attributable to policyholder returns.

(e) Investment return adjustment for Group equity and debt instruments held in policyholder funds

Adjusted operating profit includes investment returns on policyholder investments in Group equity and debt instruments held by the Group's life funds. These include investments in the Company's ordinary shares, and the subordinated liabilities and ordinary securities of Nedbank. These investment returns are eliminated within the consolidated income statement in arriving at profit before tax in the IFRS income statement, but are included in adjusted operating profit. During the year ended 31 December 2012 the investment return adjustment increased adjusted operating profit by £113 million (2011: increase £71 million).

(f) Dividends declared to holders of perpetual preferred callable securities

Dividends declared to the holders of the Group's perpetual preferred callable securities were £42 million for the year ended 31 December 2012 (2011: £44 million). These are recognised in finance costs on an accruals basis for the purpose of determining adjusted operating profit. In the IFRS financial statements this cost is recognised in equity.

(g) US Asset Management equity plans and non-controlling interests

US Asset Management has a number of long-term incentive arrangements with senior employees in its asset management affiliates.

In accordance with IFRS requirements the cost of these schemes is disclosed as being attributable to non-controlling interests. However, this is treated as a compensation expense in determining adjusted operating profit. The loss recognised in the year ended 31 December 2012 was £8 million (2011: loss £6 million).

The Group has issued put options in equities in the affiliates to senior employees as part of its US affiliate incentive schemes. The impact of revaluing these instruments is recognised in accordance with IFRS, but excluded from adjusted operating profit. At 31 December 2012 these instruments were revalued, the impact of which was a profit of £13 million (2011: profit £10 million).

(h) Credit-related fair value gains and losses on Group debt instruments

The narrowing of credit spread of the Group's debt instruments in the market price has resulted in losses in the year ended 31 December 2012 of £54 million in Other operating segments and £1 million  in Nedbank (2011: gains of £27 million and losses of £4 million respectively) being recorded in the Group's income statement for those instruments that are recorded at fair value.

In the directors' view, such movements are not reflective of the underlying performance of the Group and will reverse over time. They have therefore been excluded from adjusted operating profit.

On 1 August 2012 the Group redeemed £388 million of the £500 million senior bond due in 2016 at a cash consideration of £459 million. The £71 million excess over the nominal value reflects the price of the respective debt instrument prior to expiration.

C2: Earnings and earnings per share

(a) Basic and diluted earnings per share

Basic earnings per share is calculated by dividing the profit for the financial period attributable to ordinary equity shareholders by the weighted average number of ordinary shares in issue during the year excluding own shares held in policyholder funds, ESOP trusts, Black Economic Empowerment trusts and other related undertakings.

		£m
	Year ended 31 December 2012	Year ended 31 December 2011
Profit for the financial period attributable to equity holders of the parent from continuing operations	609	469
Profit for the financial period attributable to equity holders of the parent from discontinued operations	564	198
Profit for the financial period attributable to equity holders of the parent	1,173	667
Dividends declared to holders of perpetual preferred callable securities	(32)	(32)
Profit attributable to ordinary equity holders	1,141	635
Total dividends declared to holders of perpetual preferred callable securities of £32 million in 2012 (2011: £32 million) are stated net of tax credits
of £10 million (2011: £12 million).
		Millions
	Year ended 31 December 2012	Year ended 31 December 2011
Weighted average number of ordinary shares in issue	5,096	5,502
Shares held in charitable foundations	(6)	(6)
Shares held in ESOP trusts	(61)	(61)
Adjusted weighted average number of ordinary shares	5,029	5,435
Shares held in life funds	(181)	(201)
Shares held in Black Economic Empowerment trusts	(261)	(299)
Weighted average number of ordinary shares	4,587	4,935
Basic earnings per ordinary share (pence)	24.9	12.9

Diluted earnings per share recognises the dilutive impact of share options held in ESOP trusts and Black Economic Empowerment trusts which are currently in the money in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full period.

	Year ended 31 December 2012	Year ended 31 December 2011
Profit attributable to ordinary equity holders (£m)	1,141	635
Dilution effect on profit relating to share options issued by subsidiaries (£m)	(10)	(8)
Diluted profit attributable to ordinary equity holders (£m)	1,131	627
Weighted average number of ordinary shares (millions)	4,587	4,935
Adjustments for share options held by ESOP trusts (millions)	53	133
Adjustments for shares held in Black Economic Empowerment trusts (millions)	261	299
	4,901	5,367
Diluted earnings per ordinary share (pence)	23.1	11.7

(b) Adjusted operating earnings per ordinary share
The reconciliation of profit/(loss) for the financial period to adjusted operating profit after tax attributable to ordinary equity holders is as follows:
		£m
	Year ended 31 December     2012	Year ended 31 December  2011 (restated)
Profit for the financial period attributable to equity holders of the parent	1,173	667
Adjusting items	459	329
Tax on adjusting items	(44)	(108)
Non-core operations	(165)	184
Profit from discontinued operations	(564)	(198)
Non-controlling interest on adjusting items	(17)	(19)
Adjusted operating profit after tax attributable to ordinary equity holders	842	855
Adjusted weighted average number of ordinary shares (millions)	4,818	4,756
Adjusted operating earnings per ordinary share (pence)	17.5	18.0

Notes to the consolidated financial statements

For the year ended 31 December 2012

C: Other key performance information continued

C2: Earnings per share continued

(c) Headline earnings per share

In accordance with the JSE Limited (JSE) listing requirements, the Group is required to calculate a 'headline earnings per share' (HEPS), determined by reference to the South African Institute of Chartered Accountants' circular 3/2009 'Headline Earnings'. The table below sets out a reconciliation of basic earnings per ordinary share and HEPS in accordance with that circular. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa.

				£m
	Year ended 31 December 2012		Year ended 31 December 2011
	Gross	Net	Gross	Net
Profit for the financial period attributable to   equity holders of the parent	1,173	1,173	667	667
Dividends declared to holders of perpetual preferred   callable securities	(32)	(32)	(32)	(32)
Profit attributable to ordinary equity holders	1,141	1,141	635	635
Adjustments:
Impairments of goodwill and intangible assets	-	-	264	264
(Profit)/loss on acquisition/disposal of subsidiaries,   associated undertakings and  strategic investments	(183)	(173)	(222)	(228)
Realised gains (including impairments) on available-for-   sale financial assets	(21)	(21)	(144)	(144)
Exchange differences realised on disposal	(350)	(350)	-	-
Headline earnings	587	597	533	527
Weighted average number of ordinary shares	4,587	4,587	4,935	4,935
Diluted weighted average number of ordinary   shares	4,901	4,901	5,367	5,367
Headline earnings per share (pence)	12.8	13.0	10.8	10.7
Diluted headline earnings per share (pence)	11.8	12.0	9.8	9.7

C3: Dividends
		£m
	Year ended 31 December 2012	Year ended 31 December 2011
2010 Final dividend paid - 2.9p per 10p share	-	145
2011 Interim dividend paid - 1.5p per 10p share	-	76
2011 Final dividend paid - 3.5p per 10p share	178	-
Special dividend - 18.0p per 10p share	915	-
2012 Interim dividend paid - 1.75p per 11 3/7p share	79	-
Dividends to ordinary equity holders	1,172	221
Dividends declared to holders of perpetual preferred callable securities	42	44
Dividend payments for the period	1,214	265

Final and interim dividends paid to ordinary equity holders, as above, are calculated using the number of shares in issue at the record date, less treasury shares held in ESOP trusts, life funds of Group companies, Black Economic Empowerment trusts and related undertakings.

As a consequence of the exchange control arrangements in place in certain African territories, dividends to ordinary equity holders on the branch registers of those countries (or, in the case of Namibia, the Namibian section of the principal register) are settled through Dividend Access Trusts established for that purpose.

Following the disposal of Nordic a special dividend of 18.0 pence per 10p share was recommended by the directors and a seven for eight share consolidation proposed, with the consolidation approved at the Company's general meeting on 14 March 2012. The special dividend was paid on 7 June 2012. Further details of the disposal of the Nordic business unit have been provided in notes A2 and H1.

A final dividend of 5.25 pence (or its equivalent in other applicable currencies) per ordinary share in the Company has been recommended by the directors. The dividend will be paid on 31 May 2013 to shareholders on the register at the close of business on 26 April 2013. The dividend will absorb an estimated £233 million of shareholders' funds. The Company is not planning to offer a scrip dividend alternative.

In March and November 2012, £22 million and £20 million respectively were declared and paid to holders of perpetual preferred callable securities (March 2011: £22 million; November 2011: £22 million).

D: Other income statement notes
D1: Income tax expense
(a) Analysis of total income tax expense
		£m
	Year ended 31 December 2012	Year ended 31 December 2011
Current tax
United Kingdom	18	22
Africa	513	390
United States	4	(2)
Europe	30	20
Secondary Tax on Companies (STC)	23	14
Prior year adjustments	5	(7)
Total current tax	593	437
Deferred tax
Origination and reversal of temporary differences	(121)	(204)
Changes in tax rates/bases	2	(8)
Recognition of deferred tax assets	(2)	-
Total deferred tax	(121)	(212)
Total income tax expense	472	225

(b) Reconciliation of total income tax expense
		£m
	Year ended 31 December 2012	Year ended 31 December 2011
Profit before tax	1,395	994
Tax at standard rate of 24.5% (2011: 26.5%)	342	263
Different tax rate or basis on overseas operations	19	57
Untaxed and low taxed income	(58)	(166)
Disallowable expenses	48	93
Net movement on deferred tax assets not recognised	48	5
Effect on deferred tax of changes in tax rates	2	(8)
STC	20	19
Income tax attributable to policyholder returns	59	(28)
Other	(8)	(10)
Total income tax expense	472	225

(c) Income tax relating to components of other comprehensive income
		£m
	Year ended 31 December 2012	Year ended 31 December 2011
Preferred perpetual callable securities	(10)	(12)
Other	5	-
Income tax credit - continuing operations	(5)	(12)
Fair value gains	1	2
Shadow accounting	-	(4)
Income tax expense/(credit) - discontinued operations	1	(2)
Income tax credit relating to components of other comprehensive   income	(4)	(14)

Notes to the consolidated financial statements

For the year ended 31 December 2012

D: Other income statement notes continued

D1: Income tax expense continued

(d) Reconciliation of income tax expense in the IFRS income statement to income tax on adjusted operating profit
		£m
	Year ended 31 December 2012	Year ended 31 December 2011
Income tax expense	472	225
Goodwill impairment and impact of acquisition accounting	51	35
Profit on disposal of subsidiaries, associates and strategic investments	(10)	6
Short-term fluctuations in investment return	7	75
Income tax attributable to policyholders returns	(75)	9
Tax on dividends declared to holders of perpetual preferred callable securities recognised in equity	(10)	(12)
Fair value gains and losses on Group debt instruments	-	2
US Asset Management equity plans	6	2
Tax on non-core operations	-	(1)
Income tax on adjusted operating profit	441	341

E: Financial assets and liabilities
E1: Borrowed funds
									£m
	Notes		Group excluding Nedbank	Nedbank	At 31 December 2012 Group		Group excluding Nedbank	Nedbank	At 31 December 2011 Group
Senior debt securities and term loans			122	1,363	1,485		507	1,355	1,862
Floating Rate Notes	E1(a)		-	849	849		-	844	844
Fixed Rate Notes	E1(b)		122	514	636		507	511	1,018
Mortgage Backed Securities	E1(d)		-	131	131		-	77	77
Subordinated debt securities (net of        Group holdings)	E1(e)		765	669	1,434		876	841	1,717
Borrowed funds			887	2,163	3,050		1,383	2,273	3,656
Other issues treated as equity for    accounting purposes
US$750 million cumulative    preference securities¹	F2(b)(ii)		-				458
€495 million perpetual preferred    callable securities²			334				338
£348 million perpetual preferred    callable securities²			348				350
Total: Book value			1,569				2,529
Nominal value of the above			1,590				2,666
¹ On 24 September 2012, the Group repaid the US$750 million cumulative preference securities at their nominal value.
² On 4 December 2012, €5 million of the €500 million perpetual preferred callable securities were acquired and on 5 December 2012, £2 million of the £350 million preferred   callable securities were acquired, both via open market repurchase.

The table below is a maturity analysis of the liability cash flows based on contractual maturity dates for borrowed funds. Maturity analysis is undiscounted and based on year end exchange rates.
									£m
			Group excluding Nedbank	Nedbank	At 31 December 2012 Group		Group excluding Nedbank	Nedbank	At 31 December 2011 Group
Less than 1 year			-	522	522		272	512	784
Greater than 1 year and less than 5 years			340	1,820	2,160		898	1,936	2,834
Greater than 5 years			500	314	814		998	556	1,554
Total			840	2,656	3,496		2,168	3,004	5,172

Senior notes
(a) Floating Rate Notes
			£m
	Maturity date	At 31 December 2012	At 31 December 2011
Nedbank
R1,690 million unsecured senior debt at JIBAR + 1.50%	Repaid	-	119
R1,044 million unsecured senior debt  at JIBAR + 2.20%	September 2015	76	84
R1,750 million unsecured senior debt at inflation linked (3.90% real yield)	March 2013	151	158
R98 million unsecured senior debt at inflation linked (3.80% real yield)	March 2013	8	9
R1,552 million unsecured senior debt at JIBAR + 1.48%	April 2013	114	125
R1,027 million unsecured senior debt at JIBAR + 1.75%	April 2015	76	83
R80 million unsecured senior debt at JIBAR + 2.15%	April 2020	6	6
R988 million unsecured senior debt at JIBAR + 1.05%	March 2014	71	79
R677 million unsecured senior debt at JIBAR + 1.25%	March 2016	49	54
R500 million unsecured senior debt at JIBAR + 1.00%	April 2014	33	40
R1,075 million unsecured senior debt at JIBAR + 0.94%	October 2014	79	87
R1,297 million unsecured senior debt at JIBAR + 1.00%	February 2015	95	-
R405 million unsecured senior debt at JIBAR + 1.30%	February 2017	30	-
R250 million unsecured senior debt at JIBAR + 1.00%	August 2015	18	-
R786 million unsecured senior debt at JIBAR + 1.31%	August 2017	43	-
Total floating rate notes		849	844
All floating rate notes are non-qualifying for the purposes of regulatory tiers of capital.
(b) Fixed Rate Notes
			£m
	Maturity date	At 31 December 2012	At 31 December 2011
Nedbank
R450 million unsecured senior debt at 8.39%	March 2014	33	37
R478 million unsecured senior debt at 9.68%	April 2015	35	39
R3,244 million unsecured senior debt at 10.55%	September 2015	242	265
R1,137 million unsecured senior debt at 9.36%	March 2016	85	93
R1,273 million unsecured senior debt at 11.39%	September 2019	102	63
R660 million unsecured senior debt at zero coupon	October 2024	17	14
		514	511
Group excluding Nedbank
£112 million eurobond at 7.125%¹	October 2016	112	496
US$16 million secured senior debt at 5.23%²	August 2014	10	11
		122	507
Total fixed rate notes		636	1,018
¹ On 1 August 2012 £388m of the £500m senior bond was redeemed via open market tender.
² On 1 December 2012 $0.5m of the $16.5m senior bond was repaid.
All fixed rate notes are non-qualifying for the purposes of regulatory tiers of capital.

(c) Revolving credit facilities and irrevocable letters of credit

The Group has access to a £1,200 million five-year multi-currency revolving credit facility (agreed in April 2011). At 31 December 2012, none of this facility was drawn down and there were no irrevocable letters of credit in issue against this facility. At 31 December 2011 the facility was undrawn but letters of credit were held against the facility in relation to the sale of US Life.

Notes to the consolidated financial statements

For the year ended 31 December 2012

E: Financial assets and liabilities continued

E1: Borrowed funds continued

(d) Mortgage backed securities - Nedbank
				£m
	Tier	Maturity date	At 31 December 2012	At 31 December 2011
Nedbank
R1.4 billion (class A2A) at 11.817%	Tier 2	Repaid	-	67
R98 million (class B note) at 12.067%	Tier 2	Repaid	-	6
R76 million (class C note) at 13.317%	Tier 2	Repaid	-	4
R480 (class A1) million at JIBAR + 1.10%	Tier 2	25 October 2039	32	-
R336 million (class A2) at JIBAR + 1.25%	Tier 2	25 October 2039	25	-
R900 million (class A3) at JIBAR + 1.54%	Tier 2	25 October 2039	66	-
R110 (class B)  million at JIBAR + 1.90%	Tier 2	25 October 2039	8	-
Total mortgage backed securities			131	77

(e) Subordinated debt securities (net of Group holdings)
					£m
	Tier	First call date	Maturity date	At 31 December 2012	At 31 December 2011
Nedbank
R300 million (3 month JIBAR + 2.50%)	Non-core Tier 1	December 2013	December 2013	11	12
R1,265 million (JIBAR plus 4.75%)	Non-core Tier 1	November 2018	November 2018	93	102
R650 million (9.03%)	Tier 2	Repaid	Repaid	-	54
R500 million (3 month JIBAR plus 0.45%)	Tier 2	Repaid	Repaid	-	40
R500 million (3 month JIBAR plus 0.70%)	Tier 2	Repaid	Repaid	-	40
R120 million (10.38%)	Tier 2	Repaid	Repaid	-	10
R1.8 billion (9.84%)	Tier 2	September 2013	September 2018	137	153
R1.7 billion (8.90%)	Tier 2	February 2014	February 2019	132	144
R1.0 billion (10.54%)	Tier 2	September 2015	September 2020	81	87
R2.0 billion (JIBAR plus 0.47%)	Tier 2	July 2017	July 2022	146	161
R487 million (15.05%)	Tier 2	November 2018	November 2018	43	42
US$100 million (3 month USD LIBOR)	Tier 2 Secondary	March 2017	March 2022	62	65
				705	910
Less: banking subordinated debt securities    held by other Group companies				(36)	(69)
Banking subordinated securities (net of    Group holdings)				669	841
Group excluding Nedbank
€200 million (4.50% to January 2012 and 6 month    EURIBOR plus 0.96 thereafter)1	Lower Tier 2	Repaid	Repaid	-	166
R3.0 billion (8.92% to October 2015, 3 month   JIBAR plus 1.59% thereafter)	Lower Tier 2	October 2015	October 2020	218	239
£500 million (8.00%)2	Lower Tier 2	-	June 2021	547	471
				765	876
Total subordinated debt securities				1,434	1,717
¹ The principal and coupon on the bond were swapped at issue equally into sterling and US$ with coupons of 6 month GBP LIBOR plus 0.34% and 6 month USD LIBOR   plus 0.31% respectively. During 2011 a €550 million partial repayment, together with settlements of associated currency swaps, was made. On 18 January 2012 the   remaining €200 million was repaid on the first call date.
² The principal and coupon on the bond were initially swapped into floating rate Swedish kroner, at 3 month STIBOR plus 5.46%. Following the Nordic sale, £375 million    of the coupon is now swapped into floating rate sterling at 6 month GBP LIBOR plus 4.15% and £125 million of principal and coupon is swapped into US dollars at    6 month USD LIBOR plus 5.49%.

F: Other statement of financial position notes
F1: Provisions
						£m
Year ended 31 December 2012	Client compensation	Liability for long service leave	Restructuring	Provision for donations	Other	Total
Balance at beginning of the year	43	47	37	78	62	267
Unused amounts reversed	-	-	(1)	-	(4)	(5)
Charge to income statement	7	30	7	-	15	59
Utilised during the year	(22)	(26)	(14)	7	(9)	(64)
Foreign exchange and other movements	(6)	(2)	8	(7)	15	8
Transfer to non-current assets held for sale	-	-	-	-	-	-
	22	49	37	78	79	265
Post employment benefits					(2)	(2)
Balance at end of the year	22	49	37	78	77	263
						£m
Year ended 31 December 2011	Client compensation	Liability for long service leave	Restructuring	Provision for donations	Other	Total
Balance at beginning of the year	39	57	34	89	92	311
Unused amounts reversed	-	(1)	-	-	(14)	(15)
Charge to income statement	-	33	11	-	14	58
Utilised during the year	(3)	(30)	(7)	-	(3)	(43)
Foreign exchange and other movements	7	(8)	(1)	(11)	(18)	(31)
Transfer to non-current assets held for sale	-	(4)	-	-	(9)	(13)
	43	47	37	78	62	267
Post employment benefits					2	2
Balance at end of the year	43	47	37	78	64	269

Provisions in relation to client compensation were £22  million (2011: £43  million), primarily relating to ongoing resolution of claims related to mis-selling of guarantee contracts in Old Mutual Wealth. £Nil million (2011: £1 million) is estimated to be payable after more than one year.

The liability for long service leave of £49 million (2011: £47 million) relates to provision for staff payments for long serving employees, all of which is estimated to be payable in less than one year.

Provisions in relation to restructuring were £37 million (2011: £37 million), primarily in respect of ongoing restructuring of the Old Mutual Wealth Management business.

The provision for donations is held by Long-Term Savings in respect of commitments made by the South African business to the future funding of charitable donations. The funds were made available on the closure of the Group's unclaimed shares trusts which were set up as part of the demutualisation in 1999 and closed in 2006. £78 million (2011: £78 million) estimated to be payable after more than one year.

Other provisions include provisions for long-term staff benefits and legal fees.

Where material, provisions are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded. Of the total provisions recorded above, £127 million (2011: £129 million) is estimated to be payable after more than one year.

Notes to the consolidated financial statements

For the year ended 31 December 2012

F: Other statement of financial position notes continued

F2: Non-controlling interests

(a) Income statement

(i) Ordinary shares

The non-controlling interests share of profit for the financial year has been calculated on the basis of the Group's effective ownership of the subsidiaries in which it does not own 100% of the ordinary equity. The principal subsidiaries where a non-controlling interest exists is the Group's banking business in South Africa, Nedbank. For the year ended 31 December 2012 the non-controlling interests attributable to ordinary shares was £264 million (2011: £238 million).

(ii) Preferred securities
		£m
	At 31 December 2012	At 31 December 2011
R2,000 million non-cumulative preference shares	12	14
R773 million non-cumulative preference shares	5	5
R355 million non-cumulative preference shares	2	2
US$750 million cumulative preferred securities	27	37
R363 million non-cumulative preference shares	3	3
R92 million non-cumulative preference shares	1	1
Non-controlling interests - preferred securities	50	62

(iii) Non-controlling interests - adjusted operating profit
The following table reconciles non-controlling interests' share of profit for the financial year to non-controlling interests' share of adjusted
operating profit:
		£m
Reconciliation of non-controlling interests' share of profit for the financial year	Year ended 31 December 2012	Year ended 31 December 2011
The non-controlling interests share is analysed as follows:
Non-controlling interests - ordinary shares	264	238
Short-term fluctuations in investment return	-	1
Income attributable to Black Economic Empowerment trusts of listed subsidiaries	25	22
Fair value gains on Group debt instruments	-	1
Income attributable to US Asset Management non-controlling interests	(8)	(5)
Non-controlling interests share of adjusted operating profit	281	257

The Group uses revised weighted average effective ownership interests when calculating the non-controllable interest applicable to the adjusted operating profit of its South Africa banking business. This reflects the legal ownership of this business following the implementation for Black Economic Empowerment (BEE) schemes in 2005. In accordance with IFRS accounting rules the shares issued for BEE purposes are deemed to be, in substance, options. Therefore the effective ownership interest of the minorities reflected in arriving at profit after tax in the consolidated income statement is lower than that applied in arriving at adjusted operating profit after tax. In 2012 the increase in adjusted operating profit attributable to non-controlling interests as a result of this was £25 million (2011: £22 million).

(b) Statement of financial position
(i) Ordinary shares
		£m
Reconciliation of movements in non-controlling interests	At 31 December 2012	At 31 December 2011
Balance at beginning of the year	1,652	1,763
Non-controlling interests' share of profit	264	238
Non-controlling interests' share of dividends paid	(119)	(100)
Net disposal of interests	20	61
Foreign exchange and other movements	(125)	(310)
Balance at end of the year	1,692	1,652

(ii) Preferred securities
		£m
	At 31 December 2012	At 31 December 2011
Nedbank
R2,000 million non-cumulative preference shares1	140	140
R773 million non-cumulative preference shares2	71	71
R355 million non-cumulative preference shares3	25	25
R363 million non-cumulative preference shares4	29	29
R92 million non-cumulative preference shares5	8	8
	273	273
Group excluding Nedbank
US$750 million cumulative preferred securities6	-	458
Unamortised issue costs	-	(13)
Total in issue at 31 December	273	718

Preferred securities are held at historic value of consideration received less unamortised issue costs.

¹   200 million R10 preference shares issued by Nedbank Limited (Nedbank), the Group's banking subsidiary. These shares are non-redeemable and non-cumulative and pay a cash dividend equivalent to 75% of the prime overdraft interest rate of Nedbank. Preference shareholders are only entitled to vote during periods when a dividend or any part of it remains unpaid after the due date for payment or when resolutions are proposed that directly affect any rights attaching to the shares or the rights of the holders. Preference shareholders will be entitled to receive their dividends in priority to any payment of dividends made in respect of any other class of Nedbank's shares.

²   77.3 million R10 preference shares issued at R10.68 per share by Nedbank on the same terms as the securities described in (1) above.

³   35 million R10 preference shares issued in 16 April 2007 at R10.27 per share by Nedbank on the same terms as the securities described in (1) above.

⁴   36.3 million R10 preference shares issued by Nedbank in seven instalments between September 2009 and December 2009 on the same terms as the securities described in (1) above.

⁵   9.2 million R10 preference shares issued by Nedbank on 11 March 2010 on the same terms as the securities described in (1) above.

⁶   US$750 million guaranteed cumulative perpetual preference securities issued on 19 May 2003 by Old Mutual Capital Funding L.P., a subsidiary of the Group. The securities are perpetual, but may be redeemed at the discretion of the Group from 22 December 2008. On 24 September 2012, the Group repaid the US$750 million cumulative preference securities at their nominal value.

Notes to the consolidated financial statements

For the year ended 31 December 2012

G: Other notes

G1: Contingent liabilities
		£m
	At 31 December 2012	At 31 December 2011
Guarantees and assets pledged as collateral security	2,521	2,251
Irrevocable letters of credit	177	193
Secured lending	492	515
Other contingent liabilities	57	72

The Group, through its South African banking business, has pledged debt securities amounting to £1,203 million (2011:  £1,196 million) as collateral for deposits received under re-purchase agreements. These amounts represent assets that have been transferred but do not qualify for derecognition under IAS 39. These transactions are entered into under terms and conditions that are standard industry practice to securities borrowing and lending activities.

Contingent liabilities - tax

The Revenue authorities in the principal jurisdictions in which the Group operates (South Africa and the United Kingdom) routinely review historic transactions undertaken and tax law interpretations made by the Group. The financial statements accordingly include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise.

Nedbank structured financing

Historically the Group's South African banking business entered into structured-finance transactions with third parties using their tax bases. In the majority of these transactions, the underlying third party has contractually agreed to accept the risk of any tax being imposed by the South African Revenue Service (SARS), although the obligation to pay rested in the first instance with the Group It would only be in limited cases, for example, where the credit quality of a client became doubtful, or where the client specifically contracted out of the repricing of additional taxes, that the recovery from a client could be less than the liability arising on assessment, in which case provisions would be raised.

Nedbank litigation

There are a number of legal or potential claims against Nedbank and its subsidiary companies, the outcome of which cannot at present be foreseen. The largest of these potential actions is a claim in the High Court for R1.3 billion against Nedbank by certain shareholders in Pinnacle Point Group Limited, alleging that Nedbank had a legal duty of care to them arising from a share swap transaction. During 2011 further actions were instituted against Nedbank by other stakeholders relating to this same issue. In early 2013 one of the claims by one of the shareholders, Property Promotions and Management (Pty) Ltd, for an amount of R147 million was dismissed by the North Gauteng High Court in Pretoria. Nedbank and its legal advisers remain of the opinion that the remaining claims are ambitious, and that the remaining claimants will have great difficulty succeeding.

Nedbank Securitisations

The Group through Nedbank uses securitisation primarily as a funding diversification tool and to add flexibility in mitigating structural liquidity risk. Nedbank currently has two active traditional securitisation transactions:

n Synthesis Funding Limited (Synthesis), an asset- backed commercial paper (ABCP) programme launched in 2004; and

n GreenHouse Funding (Pty) Limited, Series 1 (GreenHouse), a residential mortgage-backed securitisation programme launched in December 2007 restructured in November 2012.

Synthesis primarily invests in long-term rated bonds and offers capital market funding to South African corporates. These assets are funded through the issuance of short-dated investment-grade commercial paper to institutional investors. All the commercial paper issued by Synthesis is assigned the highest short-term RSA local-currency credit rating by Fitch, and is listed on JSE Limited.

Within GreenHouse Series 1, R2.0 billion of home loans originated by Nedbank, was securitised in 2007. The notes issued to finance the purchase of the home loan portfolio were assigned credit ratings by both Fitch and Moody's and listed on JSE Limited. During 2010 Fitch placed the GreenHouse notes on rating watch negative as a result of changes in its rating criteria for SA RMBS transactions. On 22 May 2012 Fitch affirmed the rating of the notes, with a stable outlook, and withdrew the rating of the subordinated loan

GreenHouse was restructured and refinanced on 19 November 2012 as a static amortising structure. The proceeds from the refinance of this transaction, through the issuance of new notes and subordinated loans, was utilised to repay the R1.3 billion existing notes and subordinated loans upon their scheduled maturity, and to acquire additional home loans of approximately R795 million. The newly issued senior notes, which have been rated by Fitch and listed on the JSE Limited,  were placed with third party investors and the junior notes and subordinated loans retained by the Group. The home loans transferred to GreenHouse have continued to be recognised as financial assets. GreenHouse will direct all capital repayments received on the home loan portfolio to the noteholders.

The following table shows the carrying amount of securitised assets, stated at the amount of the Group's continuing involvement where appropriate, together with the associated liabilities, for each category of asset in the statement of financial position:*
	Carrying amount of assets		Associated liabilities
At 31 December	2012	2011	2012	2011
Loans and advances to customers
Residential mortgage loans**	96	116	161	132
Other financial assets
Corporate and bank paper	155	116	-	-
Other securities	189	199	-	-
Commercial paper	-	-	345	320
Total	440	431	506	452
This table presents the gross balances within the securitisation schemes and does not reflect any eliminations of intercompany and cash balances held by the various securitisation vehicles.
*   The value of any derivative instruments taken out to hedge any financial asset or liability is adjusted against such instrument in this disclosure.
**  The balance at 31 December 2012 represents residential mortgages ceded to GreenHouse at 31 December 2012.  It excludes funds of approximately £58 million held in a warehouse facility available for transfer once the remaining acquired residential mortgages have been ceded.

G2: Events after the reporting date

In January 2013, the Group completed the acquisition of a majority stake ownership in AIVA Business Platforms (AIVA), a Uruguay-based strategic distribution business. The Group will consolidate the financial results of AIVA in its 2013 consolidated financial statements.

Notes to the consolidated financial statements

For the year ended 31 December 2012

H: Discontinued operations and disposal groups held for sale 

H1: Discontinued operations

The results of the Group's Swedish, Danish and Norwegian life businesses, collectively Nordic, and United States life business, US Life, are shown as discontinued operations in these financial statements. The disposal of Nordic was completed on 21 March 2012 following shareholder and regulatory approval, and has been reported up until that date. The disposal of US Life was completed on 7 April 2011 following regulatory approval, and has been reported up until that date. Further detail is provided in note A2.

(a) Income statement from discontinued operations
						£m
	Year ended 31 December 2012			Year ended 31 December 2011
	Nordic	US Life	Total	Nordic	US Life	Total
Revenue	842	-	842	(421)	342	(79)
Expenses	(866)	-	(866)	541	(330)	211
Profit before tax from discontinued operations	(24)	-	(24)	120	12	132
Profit/(loss) on disposal	239	-	239	-	(29)	(29)
Realised available-for-sale investment gains and    exchange differences on disposal	350	-	350	-	133	133
Profit before tax	565	-	565	120	116	236
Income tax (charge)/credit	(1)	-	(1)	(52)	14	(38)
Profit from discontinued operations after tax	564	-	564	68	130	198
(b) Statement of comprehensive income from discontinued operations
						£m
	Year ended 31 December 2012			Year ended 31 December 2011
	Nordic	US Life	Total	Nordic	US Life	Total
Profit from discontinued operations after tax	564	-	564	68	130	198
Other comprehensive income for the   financial period
Fair value gains/(losses)
Available-for-sale investments
Fair value gains	4	-	4	3	48	51
Recycled to the income statement	-	-	-	-	(5)	(5)
Realised on disposal	-	-	-	-	(157)	(157)
Exchange differences realised on disposal	(350)	-	(350)	-	24	24
Shadow accounting	-	-	-	-	(43)	(43)
Currency translation differences/exchange   differences on translating foreign operations	2	-	2	(43)	-	(43)
Other movements	(3)	-	(3)	10	-	10
Aggregate tax on transfers from equity	(1)	-	(1)	(1)	3	2
Total other comprehensive (loss)/income   from discontinued operations	(348)	-	(348)	(31)	(130)	(161)
Total comprehensive income for the financial   period  from discontinued operations	216	-	216	37	-	37
Attributable to
Equity holders of the parent	216	-	216	37	-	37

Profit before tax from the Nordic discontinued operation includes trading revenues and expenses up to the completion date, 21 March 2012. Also included in the expenses is an impairment of brand assets of £35 million.

Profit on disposal of the Nordic business is calculated after taking into account the net sales proceeds of £2,095 million, net assets of the business of £1,744 million and net investment currency hedge losses of £112 million, previously included in equity translation reserves.

Cumulative foreign exchange translation gains of £350 million, previously included in equity translation reserves, are realised on the disposal of the Nordic business.

(c) Net cash flows from discontinued operations
						£m
	Year ended 31 December 2012			Year ended 31 December 2011
	Nordic	US Life	Total	Nordic	US Life	Total
Operating activities	(8)	-	(8)	1,609	2	1,611
Investing activities	(121)	-	(121)	(1,411)	146	(1,265)
Net cash flows from discontinuing   operations	(129)	-	(129)	198	148	346

H2: Disposal groups held for sale

At 31 December 2011 the assets and liabilities of the Group's Nordic business were shown as held for sale in the financial statements, being £20,960 million and £19,289 million respectively. At 31 December 2011 the assets and liabilities of the Group's Finnish branch were also shown as held for sale in the financial statements, being £1,156 million and £1,119 million respectively. The disposals of both of these businesses were completed during the year and therefore no assets or liabilities are shown as held for sale at 31 December 2012.

In addition to the disposal groups held for sale, the Group also had additional non-current assets for sale of £42 million (2011: £22 million) and non-current liabilities of £3 million (2011: £9 million).

 

END

 

 

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