Results Announcement
Old Mutual PLC
14 September 2006
OLD MUTUAL PLC
ISIN: GB0007389926
JSE Share code: OML
NSX share code: OLM
Issuer code: OLOML
Results for the six months ended 30 June 2006
Results on track, with increasingly diversified earnings
Highlights
* Adjusted operating profit* up 36% to £771 million (30
(IFRS** basis): June 2005: £566 million****) and
up 32% to R8,714 million
(30 June 2005: R6,584 million)
* Adjusted operating profit (European up 39% to £885 million
embedded value (EEV) basis): (30 June 2005: £638 million) and
up 35% to R10,001 million
(30 June 2005: R7,420 million)
* Profit for the period £380 million
attributable to (30 June 2005: £387 million)
equity holders: R4,295 million
(30 June 2005: R4,509 million)
* Adjusted operating earnings per down 2% to 8.5p (30 June 2005: 8.7p) and
share* (IFRS basis): down 5% to 96.0c (30 June 2005: 100.7c)
* Adjusted operating earnings per down 3% to 9.8p (30 June 2005: 10.1p)
share (EEV basis): and
down 5% to 111.4c (30 June 2005: 117.7c)
* Basic earnings per share: 8.0p (30 June 2005: 11.2p),
90.2c (30 June 2005: 130.2c)
* Total life assurance sales, on an Annual Premium Equivalent (APE) basis, of
£732 million, an increase of 130%
* Funds under management £218 billion (30 June 2005: £158 billion) an increase
of 38%, R2,891 billion (30 June 2005: R1,896 billion)
* Adjusted embedded value per share 143.2p, R18.95 at 30 June 2006
(30 June 2005:135.9p, R16.25) (EEV basis)
* Return on equity 14.1% (30 June 2005: 19.0%)
* Interim dividend increased by 13.5% to 2.1p (27.8 cents***)
Commenting on the results, Jim Sutcliffe, Chief Executive, said:
'It has been a good first half with encouraging growth across our business and
we've been able to declare a significant increase in the dividend. Skandia's
results are ahead of our expectations and the integration is progressing well.
Currency movements always affect our results, but Old Mutual is now a
significantly bigger and more diverse organisation than in the past and we are
well placed in some very attractive markets'.
Wherever the items asterisked in the Highlights are used, whether in the
Highlights, the Chief Executive's Statement or the Group Finance Director's
Review, the definitions set out on page 2 apply.
ENQUIRIES:
Old Mutual plc UK
Media:
Miranda Bellord (UK) Tel: +44 (0) 20 7002 7133
Nad Pillay (SA) Tel: +27 (0) 21 504 8026
Investors:
Malcolm Bell (UK) Tel: +44 (0) 20 7002 7166
Deward Serfontein (SA) Tel: +27 (0) 21 509 8709
College Hill (UK)
Tony Friend Tel: +44 (0) 20 7457 2020
Gareth David
Notes to Editors:
A webcast of the analysts presentation and Q&A will be broadcast live at 9.30
a.m. (UK time), 10.30 a.m.(South African and Swedish time), today on our
website, www.oldmutual.com. High-resolution images of Jim Sutcliffe are
available at www.oldmutual.com/vpage.jsp?page_id=7004. Copies of these
results and the associated analysts presentation, together with photographs and
biographical details of the executive directors of Old Mutual plc, are
available in electronic format to download from the Company's website. (An
interview with Jim Sutcliffe, Chief Executive, Old Mutual in video/audio and
text is now available on the Company's website and on http://www.cantos.com).
The full 2006 interim results release, together with the Financial Disclosure
Supplement, can be found on the website at www.oldmutual.com. This document
contains a summary of key financial data for 2006 and 2005.
Forward-looking statements
This announcement contains certain forward-looking statements with respect to
the financial condition and results of operations of Old Mutual plc and its
group companies, which by their nature involve risk and uncertainty because
they relate to events and depend on circumstances that may occur in the future.
Factors that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, global, national
and regional economic conditions, levels of securities markets, interest rates,
credit or other risks of lending and investment activities, and competitive and
regulatory factors.
14 September 2006
* For long-term assurance and general insurance business, adjusted
operating profit is based on a long-term investment return, includes
investment returns on life funds' investments in Group equity and debt
instruments and is stated net of income tax attributable to policyholder
returns. For all businesses, adjusted operating profit excludes goodwill
impairment, the impact of acquisition accounting, initial costs of Black
Economic Empowerment schemes, profit / (loss) on disposal of
subsidiaries, associated undertakings and strategic investments and
dividends declared to holders of perpetual preferred callable securities.
Adjusted operating earnings per ordinary share is calculated on the same
basis as adjusted operating profit, but is stated after tax and minority
interests and excludes income attributable to Black Economic Empowerment
Trusts. The calculation of the adjusted weighted average number of shares
includes own shares held in policyholders' funds and Black Economic
Empowerment Trusts.
** The financial information has been prepared on the basis of the
recognition and measurement requirements of International Financial
Reporting Standards as set out in the basis of preparation note on page
39 of the document appearing on Old Mutual's website.
*** Indicative only, being the Rand equivalent of 2.1p converted at the
exchange rate prevailing on 30 June 2006. The actual amount to be paid
by way of interim dividend to holders of shares on the South African
branch register will be calculated by reference to the exchange rate
prevailing at the close of business on 5 October 2006, as determined by
the Company, and will be announced on 6 October 2006.
**** The 2005 comparative financial information does not include Skandia,
2006 includes 5 months from 1 February 2006.
Chief Executive's Statement
The first half of 2006 has been a period of strong growth for the Old Mutual
Group. Our clients around the world entrusted us with significantly more money
to manage on their behalf, while underlying growth in both funds under
management, up 19%, and adjusted operating profit, up 36%, was encouraging. We
have increased the interim dividend by 13.5% to 2.1p, or an indicative 27.8c
at the period-end exchange rate for Rand shareholders.
We are pleased with the progress at Skandia under Julian Roberts' management
since he became CEO in February. Skandia has exceeded our expectations and this
important acquisition has transformed both the geographic and business profile
of Old Mutual. We expect funds under management in this business to double
within the next five years and Skandia, which is also generating sufficient
cash to fund its own growth, is expected to provide a significant enhancement
in EEV earnings from 2007 onwards. The synergies of £70 million, highlighted at
the time of acquisition, have also been confirmed and are on track for full
delivery from 2008. We believe there are significant opportunities to leverage
Skandia's skill set to maximise growth.
South Africa
In South Africa, our businesses have continued to make good progress, with
individual life sales well ahead at Old Mutual Life Assurance Company and a
strong increase in profits at Nedbank. Unit trust sales have also continued to
grow substantially. Healthcare sales disappointed and impacted an otherwise
encouraging picture. A clear strategy to address this has been initiated by
Paul Hanratty, who became Chief Executive of OMSA in July. We have also
announced plans to build on the success of Old Mutual Asset Managers (South
Africa) by establishing within it a number of investment boutiques that will be
able to offer specialised investment management services. Return on Equity
(RoE) of 23% and cash generation by this business were both excellent and
Return on Embedded Value (RoEV) of 13% was in line with expectations.
Bancassurance has continued to grow, with a 21% increase in sales at Nedbank
over the equivalent period in 2005, and we are making progress with our plans
to extract synergies through the life business working more closely with its
sister businesses in South Africa. Our general insurer, Mutual & Federal, has
maintained underwriting disciplines during a period of increased competition
and reduced underwriting margins, and has again underlined its sound financial
footing by announcing a significant return of excess capital to shareholders
through a special dividend. Nedbank continues to deliver improved financial
results, with performance for the period reflecting the benefits of an
increasing focus on client service and organic growth, coupled with the
operating efficiencies achieved over the last two years. Adjusted operating
profit rose by 54% in the first half and the group remains on track to deliver
20% RoE in 2007.
United States
In the US, overall net client cash flow remained strongly positive at our asset
management business. Underlying funds under management also grew despite a
lacklustre market performance. Excluding the effects of the disposal of the low
margin eSecLending business, underlying funds under management grew by 10%. Our
retail sales initiative, OMCAP, continued to make progress, with an increase of
473% in sales compared to the equivalent period in 2005.
US Life had a satisfactory half year. We are continuing to aim for total sales
of around $4 billion for the year, with a view to managing the business's
capital requirements and fulfilling our stated goal of US Life returning
cash from 2007. Continued growth in variable annuity sales out of our
operation in Bermuda were particularly strong, and are running at a rate of
about $100 million per month ten times the rate of sale when we bought the
business in 2003. Profit increased 11% as a result of underlying asset growth,
although embedded value profit was affected by lower value of new business
and operating assumption changes.
During the half, we announced that Scott Powers, previously CEO of the US asset
management business, would take charge of the whole of our US operations. We
anticipate that benefits will emerge as our businesses there work more closely
together in the future to address the changing demands of the baby- boomer
generation.
Europe
In the UK, sales grew at Skandia by 16% against the favourable background of
A-day and strong mutual fund inflows. Progress is being made to restructure the
UK business to deliver improved efficiencies. This includes the integration of
Selestia and Skandia MultiFUNDS, which is proceeding well.
In Sweden, sales were flat, but our net cash flow was positive and we were
pleased with the loyalty shown to Skandia by both customers and staff despite
the distractions of the prolonged bid process.The adjusted operating profit
result came through strongly, reaching SEK572 million before tax, and embedded
value profit was SEK755 million before tax.
In the European and Latin American (ELAM) business unit, strong growth in sales
and market share was achieved in a number of countries, especially in unit
trust lines. We continue to see plenty of opportunities for expansion in
existing operations and new markets. It was also pleasing to see the business
start to generate cash.
Other
Our other businesses also had a good half, with continued growth in sales,
profit and funds under management. Old Mutual Asset Managers (UK) has
maintained its profile as a very capable unit trust and hedge fund manager
despite the less favourable conditions for hedge funds during the period. Our
26%-owned Indian life associate has achieved significant sales growth and now
has over 4,000 sales agents. Our Chinese joint venture, which operates out of
offices in Shanghai and Beijing, continued its rapid growth. Total sales in
India and China now approach 8% of our total life sales and will soon rival
some of our more established businesses. In Australia, we also produced
continued growth in sales, profit and market share.
Outlook
We are developing our strategy to take the Group forward as the integration
phase of Skandia moves onto business as usual. We have a powerful set of
engines with plenty of opportunities to grow organically through our mature,
cash-generative franchises in southern Africa and Sweden, our comprehensive
suite of asset management and life product skills in the USA, and our strong
and expanding presence in the UK and Europe, as well as the new businesses we
have established in the Asia Pacific region. We see excellent opportunities to
build further on our position as a leading international provider of innovative,
client-focused, open architecture financial services products.
Our businesses are in good shape and are well positioned to take on current and
future challenges. We expect the progress seen in the first half to continue as
our businesses mature and we remain on track for the full year.
Jim Sutcliffe
Chief Executive
14 September 2006
Group Finance Director's Review
Business Review
Old Mutual continued to grow strongly during the first half of 2006 with good
net cash flow from clients in all our major businesses, including our newly
acquired European business units. Despite the issuance of new shares as part of
the acquisition of Skandia, the earnings per share dilution was small, and
Return on Equity remained well above our cost of capital. Funds under
management, the key driver of our revenue, have grown significantly since year
end, with the positive impact of net client cash flow and generally higher
market levels being offset by currency movements and the sale of eSecLending
in May.
New Business APE including Skandia on a pro forma basis was up 8% overall,
reflecting good progress in all our markets in the first half, with strong
growth in our Skandia businesses offsetting a managed rationalisation of sales
at US Life and more modest growth at OMSA as the shift towards open
architecture and unit trust sales continues. Nearly 60% of our life sales are
now in Europe. Unit trust and mutual fund sales showed rapid growth of 70%
including Skandia on a pro forma basis.
Embedded value per share reduced primarily because of foreign exchange impacts,
the use of higher discount rates to reflect increases in interest rates in many
countries and the purchase of Skandia, where we were happy to accept some
reduction in embedded value per share in exchange for the benefit of further
diversifying the risk profile of the Group and the enhanced growth prospects.
The return on embedded value was a creditable 13.8%. The value of new business
at £111 million roughly doubled the figure delivered in the equivalent period
last year despite the increase in discount rate.
Strong profit results as Skandia exceeds expectations
We have benefited significantly from the earnings arising from the acquisition
of Skandia, steady progress in the USA and the continuing recovery at Nedbank,
with adjusted operating profit before tax increasing by 36% from £566 million
for the first six months of 2005 to £771 million for the first half of 2006,
and adjusted operating earnings per share down 2% to 8.5p despite the issue
of additional shares for the purchase of Skandia.
The Group's adjusted operating profit on a European Embedded Value (EEV) basis
was £885 million for the first six months of 2006, which is a 39% increase on
2005, primarily reflecting the significant contribution from Skandia as a
result of strong new business growth and the increased profit from the
non-covered business in Nedbank and the asset management businesses. The strong
results meant that the adjusted embedded value operating profit per share was
only slightly down from 10.1 to 9.8p.
Group profit attributable to equity holders for the half year 2006 of £380
million leads to basic earnings per share of 8.0p. Basic earnings per share
were affected by the dilutive impact of the requirement to amortise the
intangible assets acquired, the additional shares now in issue as a result
of the acquisition of Skandia and the lower overall short-term fluctuations in
investment returns.
Adjusted Group embedded value per share
Adjusted embedded value (adjusted for own shares held in policyholders' funds
and to bring listed Group subsidiaries to market value) was £7.9 billion,
resulting in an adjusted embedded value per share of 143.2p at 30 June 2006.
The significant underlying operating earnings have pushed the number upwards,
and our experience and investment variances have in total been positive.
Despite the strength of the South African stock market, foreign exchange
impacts and the increase in interest rates and hence discount rates over the
period have had a negative impact on the embedded value. Moreover the high
growth nature of Skandia meant that the acquisition was completed at a price in
excess of embedded value. Accordingly, the embedded value per share was diluted
by approximately 19p at the time of acquisition.
Strong net client cash flows and equity markets drive underlying funds growth
Funds under management of £218 billion at 30 June 2006, up 19% from £183
billion (excluding Skandia) at 31 December 2005, includes favourable net cash
inflows of £9 billion (excluding. eSecLending) for the six months to 30 June
2006. The impact of firm equity markets across all our geographies was
partially muted by currency impacts, particularly in South Africa. Funds under
management at our US businesses, while benefiting from strong net cash flows,
positive equity markets and strong investment performance, are shown net of a
reduction of $25.4 billion in client assets during the first half as a result
of the sale of eSecLending by US Asset Management during the second quarter
of 2006.
Taxation
The Group's effective tax rate* for the period ended 30 June 2006 of 29%
increased from 24% for the corresponding period in 2005. The net effective rate
in 2006 has increased because of a decrease in lower taxed investment income
earned in South Africa as a proportion of profits. This is due to a decrease in
OMSA's profits as a result of the increase in the investment return adjustment
for Group equity and debt instruments held in life funds and an increase in
Nedbank's profits, much of which is taxed at the South African statutory tax
rate of 29%. These effects have been partly offset by untaxed profit on the
disposal of subsidiaries. The 2005 effective tax rate also benefited from
recognition of a previously unrecognised deferred tax asset, without which the
2005 effective tax rate would have been 27%.
* Based on the tax charge excluding income tax attributable to policyholder
returns as a proportion of profit before tax but after income tax
attributable to policyholder returns.
Capital
Highlights H1 2006 FY 2005
Senior debt gearing** 8.8% 5.2%
Total gearing 25.4% 14.7%
The Group's gearing level remains comfortably within our target range, with
senior debt gearing at 30 June 2006 of 8.8% (5.2% at 31 December 2005) and
total gearing, including hybrid capital, of 25.4% (14.7% at 31 December
2005)*** reflecting the impact of funding the acquisition of Skandia.
The Group's economic capital programme is now moving to its implementation
stage, with internal models being used to measure risk-adjusted returns within
our businesses. Our position on an economic basis continues to be very strong,
with available financial resources significantly in excess of the economic
capital the Group believes would be required to support its target credit
rating.
The Group remains in compliance with the Financial Groups Directive (FGD)
capital requirements, which apply to all EU-based financial conglomerates, with
a surplus of £1 billion at 30 June 2006.
** Senior debt gearing is defined as senior debt over senior debt plus
adjusted embedded value. Senior debt excludes debt from banking activities
and is net of cash and short-term investments that are immediately
available to repay debt and derivative assets relating to swaps associated
with senior debt, so as to reflect debt valued on effective currency and
interest rate positions. Total gearing is similarly based, but includes
hybrid capital instruments within debt.
*** Hybrid capital excludes hybrid debt from banking activities and includes
$750 million of Guaranteed Cumulative Perpetual Preferred Securities
issued during 2003 that are reported as part of minority interests in the
financial statements, £350 million of Perpetual Preferred Callable
Securities issued in March 2005 and EUR500 million of Perpetual Preferred
Callable Securities issued in November 2005 which are both reported as
part of equity shareholders' funds, the £300 million of 10 Year Non-Call 5
Year Preferred Callable Securities issued in January 2006 and R3 billion
unsecured substantial callable notes issued by OMSA.
Dividend
The Directors of Old Mutual plc have declared an interim dividend of 2.1p per
share* for the six months ended 30 June 2006, to be paid on 30 November 2006,
representing an increase in dividend per share of 13.5% over the 2005 interim
dividend and 20% over the 2004 interim dividend, reflecting the Group's good
IFRS earnings.
Richard Hoskins
Acting Group Finance Director
14 September 2006
* The record date for this dividend payment is the close of business on 20
October 2006 for all the Exchanges where the Company's shares are listed.
The last day to trade cum-dividend on the JSE, and on the Namibian,
Zimbabwe and Malawi Stock Exchanges will be 13 October 2006 and on the
London and Stockholm Stock Exchanges 17 October 2006. The shares will trade
ex-dividend from the opening of business on 16 October 2006 on the JSE, and
on the Namibian, Zimbabwe and Malawi Stock Exchanges, and from the opening
of business on 18 October 2006 on the London and Stockholm Stock Exchanges.
Shareholders on the South African, Zimbabwe and Malawi branch registers and
the Namibian section of the principal register will be paid the local
currency equivalents of the dividend under the dividend access trust
arrangements established in each country. Shareholders who hold their
shares through VPC AB, the Swedish nominee, will be paid the equivalent of
the dividend in Swedish Krona (SEK). Local currency equivalents of the
dividend for all five territories will be determined by the Company using
exchange rates prevailing at close of business on 5 October 2006 and will
be announced by the Company on 6 October 2006.
Share certificates may not be dematerialised or rematerialised on the South
African branch register between 16 October 2006 and 20 October 2006, both
dates inclusive, and transfers between the registers may not take place
during that period.
SOUTH AFRICA
Operating profit up 25%
Highlights (£m)* H1 2006 H1 2005 % change
Adjusted operating profit 595 476 25%
Embedded value adjusted operating profit 637 524 22%
Life assurance sales (APE) 183 171 7%
Unit trust sales 795 511 56%
Funds under management (£bn) 39 36 8%
Highlights (Rm)* H1 2006 H1 2005 % change
Adjusted operating profit 6,724 5,532 22%
Embedded value adjusted operating profit 7,199 6,090 18%
Life assurance sales (APE) 2,062 1,991 4%
Unit trust sales 8,985 5,948 51%
Funds under management (Rbn) 514 431 19%
* Includes results for Namibia and Old Mutual International.
Performance
Our businesses continue to benefit from an expanding South African economy with
GDP growth at 4.1% over the first six months of 2006. We are well positioned
across all product sectors to benefit from these positive economic conditions,
as we progress further towards the objective of becoming the financial provider
of choice to every economically active home and business in South Africa.
Adjusted operating profit increased by 22% (25% in GBP) in the first half of
2006 to R6,724 million (30 June 2005: R5,532 million) principally driven by
strengthening profit growth at Nedbank, as the business continues to recover. A
buoyant banking market coupled with operating efficiencies achieved over the
last two years has meant that Nedbank is well on track to deliver a 20% ROE in
2007, from the base of 18.3% delivered in the first half of the year. Whilst
the impact of exchange rates on half-year earnings for the group was minimal, a
more significant impact is expected on full year earnings.
Unit trust sales for the half-year increased by 51% in South Africa as the
business continues to benefit from a number of factors including more focused
product level marketing initiatives and sales growth through open architecture
solutions. Life sales, which on an Annual Premium Equivalent (APE) basis
increased by 4% to R2,062 million, benefited from good growth in our core
Retail and Group single premium business offset by a decline in the Healthcare
and Group protection business.
South African funds under management increased by 7% to R514 billion (31
December 2005: R480 billion), benefiting from growth in the South African
equity market. On a Sterling basis funds under management of £39 billion have
decreased by 11% (31 December 2005: £44 billion) reflecting the devaluation in
the Rand over the six months.
LIFE ASSURANCE & ASSET MANAGEMENT- OLD MUTUAL SOUTH AFRICA (OMSA)
Highlights (Rm) H1 2006 H1 2005 % change
Life assurance* 1,589 1,758 (10%)
Long-term investment return (LTIR) 798 646 24%
Asset management 459 361 27%
Adjusted operating profit 2,846 2,765 3%
Return on allocated capital 23% 24%
Embedded value adjusted operating profit
(covered business) 2,869 2,971 (3%)
Adjusted return on embedded value 13% 16%
Life assurance sales (APE) 1,847 1,833 1%
Unit trust sales 8,506 5,614 52%
Value of new business 252 267 (6%)
Life new business margin 14% 15%
SA client funds under management (Rbn) 391 316 24%
* Includes income from associated undertakings.
Strong asset management result offset by lower life assurance earnings
Total earnings increased by 3% to R2,846 million for the first six months of
2006 from R2,765 million for the equivalent period last year, reflecting a
strong increase in asset management profits and the LTIR, offset by a decrease
of 10% in the life assurance result.
Adjusted operating profit for the asset management businesses, which increased
by 27% to R459 million for the half year 2006 (30 June 2005: R361 million),
benefited from significant performance fees earned and a strong increase in
funds under management since the start of the year. Active targeting of unit
trust sales growth through specific product-level marketing also contributed to
this result, with unit trust sales increasing by 52% in the first half compared
with the first six months of 2005.
The life assurance profit showed a decrease of 10% to R1,589 million from
R1,758 million in 2005 as a result of the continued investment in distribution,
an increased share-based incentive charge following the strong increase in the
Old Mutual share price, a significant decline in investment variances off a
high 2005 base due to interest rate movements and the consequences of
assumption changes in 2005.
The underlying strength of the South African equity market, resulting in higher
investible assets as a result of significant investment gains on the
shareholder portfolio, have contributed to the increase of 24% in the LTIR to
R798 million for the half year (30 June 2005: R646 million).
EEV earnings
Embedded value adjusted operating profit before tax for covered business has
decreased by 3% to R2,869 million, from R2,971 million at June 2005. An
increase in the expected return, due to an increase in the opening embedded
value has been offset by a reduction in experience variances, which are still
positive due to some one-off items in 2005. The annualised return on embedded
value has decreased to 13%, from 16% at June 2005. This reduction is due to
lower favourable experience variances, a decrease in the expected opening rates
of return and a decrease in relative value of new business.
Positive net client cash flows of R6.4 billion
Client funds under management increased by 8% to R391 billion from R362 billion
at 31 December 2005, benefiting from the growth in the South African equity
market.
Net client cash flows were R6.4 billion for the half year, compared with R17
billion of negative cash flows in the first half of last year. The turnaround
in cash flows relates mainly to third party asset management flows which have
been positive this half year, but were significantly negative in the same
period last year. These flows include R4.2 billion from Mutual & Federal.
OMAM (SA) continued to deliver solid investment performance, ranking third out
of the nine institutional asset managers in the Alexander Forbes South African
Global Manager Watch (Large) Survey over the three years to the end of June
2006.
Exceptional growth of 52% in unit trust sales
OMSA unit trust sales increased by 52% to R8,506 million (30 June 2005: R5,614
million), driven by more focused product-level marketing, our ongoing
investment in distribution, sales growth through open architecture platforms
and the current positive investment environment in South Africa.
Net cash flows also increased for the half year to R2.2 billion from
R1.9 billion in 2005.
Life sales continue to benefit from investment in distribution
Our focus on improving customer value for money, strengthening our tied agent
sales force and relationships with independent sales forces, and building links
with our other South African businesses, have all positively impacted sales.
Individual Life sales up 13%
Individual APE (Rm) H1 2006 H1 2005 % change
Savings 600 574 5%
Protection 375 306 23%
Immediate annuity 85 82 4%
Group Schemes 375 310 21%
Total 1,435 1,272 13%
Single 393 334 18%
Recurring 1,042 938 11%
Individual business was up 13% to R1,435 million, reflecting the benefits of
continuing investment in distribution.
It was pleasing to see the ongoing focus on delivering cross business growth
continuing to bear fruit, with single premiums positively impacted by a 91%
increase in life APE sales through Nedbank for the first six months of 2006
compared with same period last year.
Individual Life recurring premiums increased by 11% to R1,042 million for the
first half from R938 million for the equivalent period last year, with our
Group Schemes business continuing to expand on the back of good sales force
growth. A significant increase in credit life sales through Nedgroup Life
contributed to the 23% increase in Protection business.
Growth in Group Business sales impacted by lower Healthcare
Group APE (Rm) H1 2006 H1 2005 % change
Savings 147 148 (1%)
Protection 37 81 (54%)
Annuity 96 54 78%
Healthcare 132 278 (53%)
Total 412 561 (27%)
Single 227 182 25%
Recurring 185 379 (51%)
Group Business sales decreased by 27% to R412 million (30 June 2005: R561
million) as recurring premiums of R185 million suffered as a result of 53%
lower Healthcare sales, decreasing to R132 million for the first half (30 June
2005: R278 million). Steps being taken to address the declining Healthcare
sales include reviewing the structure of the business, improving distribution
issues and reviewing benefit structures.
Group protection sales were lower by 54%, as incumbents won most tenders and
competition remained fierce. We have been successful in retaining more
protection business than normal, helping to offset the impact of lower new
business levels.
The high growth of 25% in Group single premiums to R227 million (30 June
2005:R182 million) was underpinned by some significant annuity wins in the
first half of 2006.
Margin of 14% is in line with expectations
Both Individual and Group Business new business margins have remained in line
with the first half of last year, at 12% and 20% respectively, despite the
increase in discount rates used to value the margins. The Individual Business
margin reflects the impact of the investments in our distribution capability,
the switch to lower charge products, an increase in embedded value economic
assumptions and more competitive product pricing in some areas. Overall new
business margins decreased slightly to 14% from 15% in the first half of 2005
due to the lower proportion of Group Business sales and the change in discount
rates.
The after-tax value of new business was R252 million, 6% lower than in the
first half of 2005 in line with the reduction in overall margin.
Strong capital position
Our South African life company remains strongly capitalised, with 3.1 times
coverage of its Statutory Capital Adequacy Requirement (SCAR) after allowing
for statutory limitations on the value of certain assets. This compares
favourably with the coverage of 3.0 times at 31 December 2005 and 2.4 times at
30 June 2005.
BANKING - NEDBANK GROUP (NEDBANK)
Highlights (Rm) H1 2006 H1 2005 % change
Adjusted operating profit 3,247 2,114 54%
Headline earnings* 2,104 1,398 51%
Net interest income* 5,039 4,024 25%
Non-interest revenue* 4,591 3,881 18%
Net interest margin* 3.88% 3.45%
Cost to income ratio* 57.3% 65.1%
ROE* 18.3% 14.8%
Total Assets (bn)* 385 336 15%
ROA* 1.15% 0.85%
* As reported by Nedbank.
Strong results with adjusted operating profit up 54%
Nedbank continues to deliver improved financial results, with adjusted
operating profit of R3,247 million up by 54% on the 2005 equivalent of R2,114
million. This reflects the benefits of organic growth, coupled with the
operating efficiencies achieved over the last two years.
Continued growth in net interest income (NII)
NII grew 25% to R5,039 million. Despite margin compression experienced by the
industry, Nedbank's margin for the period improved to 3.9% from 3.5% in the
first half of 2005, reflecting product mix changes from the growth in higher
margin retail and business banking advances, including strong growth in
personal loans at Nedbank Retail, the settlement of the expensive funding for
the minority shareholders of Peoples Bank in April 2005, higher endowment
levels and interest on the proceeds from the sales of the remaining holdings in
Net1 UEPS Technologies Inc and State Bank of Mauritius.
Nedbank anticipates some margin reduction for the remainder of the year as a
result of asset growth within the banking sector in South Africa being funded
largely by wholesale deposits. This is expected to be partially offset by the
increased endowment effect from interest rate increases.
Strong growth in Non-interest revenue (NIR)
NIR increased by 18% from R3,881 million to R4,591 million for the period to 30
June 2006. This growth was driven largely by property private equity
revaluations in Nedbank Corporate, buoyant and volatile market conditions
contributing to a 38.7% increase in overall trading income at Nedbank Capital,
increased volume growth resulting in commission and fees growing 18% over the
comparative period, and growth in the group's bancassurance operations, with
new business premiums increasing by 21% from R2,294 million to R2,767 million.
In July 2006 Nedbank Retail reduced bank fees for individual current account
clients by an average of 13%.
Cost to Income Ratio reduced to 57%
Expenses continued to be closely managed, as they increased by only 7% to
R5,516 million, and revenue growth exceeded expense growth by 15% for the
period, resulting in the efficiency ratio improving from 65% to 57%. Nedbank
has recruited additional staff in client-facing divisions and has announced a
major expansion program whereby it will invest R1 billion over the next three
years in expanding its distribution footprint, including opening an additional
400 retail outlets and upgrading their ATM network.
Return on Equity (ROE) on track at 18%
Return on Equity improved significantly from 15% (at 30 June 2005) to 18% for
the six month period to 30 June 2006 and the bank remains committed to meeting
the 2007 targets of the 55% Cost to Income Ratio and 20% Return on Equity
despite the challenge of continued investment in its retail footprint.
Strong capital position maintained
Nedbank remains well capitalised, with its Tier 1 group capital adequacy ratio
increasing from 8.5% at 30 June 2005 to 9.1% at 30 June 2006. The total group
capital adequacy ratio has increased from 12.2% at 30 June 2005 to 13.3% at 30
June 2006. Nedbank bought back 5.5 million shares in the first half of 2006.
GENERAL INSURANCE MUTUAL & FEDERAL
Highlights (Rm) H1 2006 H1 2005 % change
Adjusted operating profit 475 573 (17%)
Underwriting ratio* 3.9% 8.2%
Gross premiums* 4,260 3,962 8%
Earned premiums* 3,634 3,323 9%
Solvency ratio* 75% 57%
Return on capital* 20.4% 22.7%
* As reported by Mutual & Federal.
Underwriting surplus achieved in a competitive market
The anticipated deterioration in trading conditions in the short-term insurance
market resulted in a 17% decrease in Mutual & Federal's adjusted operating
profit for the half year to R475 million (30 June 2005:
R573 million). This result was impacted by an escalation in average claim costs
as claim patterns returned to more normal levels following the benign claims
environment during the comparable period in 2005, combined with moderate
premium growth due to increasing pricing pressure in a softening insurance
cycle.
Mutual & Federal generated an underwriting surplus of R140 million at an
underwriting ratio of 3.9%. Despite the aggressive cutting of premium rates to
non-sustainable levels by certain competitors, Mutual & Federal remain
committed to maintaining responsible underwriting standards.
Conditions within the short-term insurance market and in the economy in
general, continue to provide significant opportunities for business growth at
Mutual & Federal while management expressed confidence that premium increases
and corrective action planned for the second half of the year, particularly in
relation to the motor business, will continue to support modest underwriting
profits.
Satisfactory premium growth at 8%
Total gross premiums increased by a satisfactory 8% for the first half to R4,260
million (30 June 2005: R3,962 million) despite the continued softening of the
short-term insurance market and the intense level of competition experienced
throughout the sector with each division encountering difficulties in defending
its client base.
Claims increase in severity and frequency
The general level of commercial and industrial fire claims increased in both
severity and frequency in the first half, negatively impacting the results of
the commercial portfolio. The personal division was also affected by severe
adverse weather conditions in addition to increased theft losses. The motor
account, in particular, reflected an underwriting deficit as it continued to be
affected by an escalation in the incidence of motor vehicle accidents. This
division has also been impacted by increased repair costs relating to imported
cars following the recent decline in the Rand.
Investment income increased due to positive operational cash flows
Investment income in the first half remained at a high level following
continued growth in the value of listed equities, while interest income
benefited from higher levels of cash in hand.
Capital management
Mutual & Federal has announced the payment of a special dividend following a
detailed review of its capital requirements. The capitalisation award, with a
cash alternative of 800 cents per share, payable on 11 September 2006,
representing R2.3 billion or 40% of the net asset value of the company.
Following payment of the special dividend, the solvency ratio is expected to
decrease from the current level of 75% to approximately 40%, a level which is
considered sufficient to sustain the current operations, as well as supporting
the future development of the business.
UNITED STATES
Strong growth in adjusted operating profit
Highlights (£m) H1 2006 H1 2005 % change
Adjusted operating profit 131 112 17%
Embedded value adjusted operating profit 126 133 (5%)
Life assurance sales (APE) 129 147 (12%)
Mutual fund sales 384 64 500%
Funds under management (£bn) 126 117 8%
Highlights ($m) H1 2006 H1 2005 % change
Adjusted operating profit 234 210 11%
Embedded value adjusted operating profit 225 251 (10%)
Life assurance sales (APE) 230 276 (17%)
Mutual fund sales 687 120 473%
Funds under management ($bn) 232 209 11%
Performance
Our US business is well placed to take advantage of local demographics as we
further enhance our products and investment styles. We have introduced a common
management structure and aim to implement a coordinated retail distribution
strategy, while preserving the autonomy of the individual money management
affiliates, and their ability to focus on producing excellent investment
performance for clients.
The US businesses delivered an 11% increase in adjusted operating profit to
$234 million for the half year 2006 compared with $210 million for the first
six months of 2005. Funds under management increased by 11% to $232 billion
compared to 30 June 2005, even after the sale of eSecLending in May. Both the
life business and the asset management businesses continues to grow through the
combined effect of net cash flow from clients, positive equity markets, and
good investment performance by our affiliates. We also had another good
contribution from transaction and performance fees.
Funds under management at the half year have been impacted by a decrease of
$25.4 billion in client assets as a result of the sale of eSecLending. Funds
under management at our US life business of $21 billion at 30 June 2006 are now
firmly in the $20 to $25 billion range required to meet the target of releasing
cash from 2007.
US LIFE
Strong growth in operating profit, up 11%
Highlights ($m) H1 2006 H1 2005 % change
Adjusted operating profit* 129 116 11%
Return on equity 7.9% 8.4%
Embedded value adjusted operating profit
(covered business) 120 157 (24%)
Return on embedded value 8.1% 12.8%
Life assurance sales (APE) 230 276 (17%)
Value of new business 40 55 (27%)
New business margin 17% 20%
Funds under management ($bn) 21 20 5%
* Restated to exclude amortisation of the present value of acquired in-force
business.
Adjusted operating profit in the US life business increased by 11% to $129
million for the half year from $116 million achieved in the first six months of
2005. This result reflects the continued growth in assets and in-force
business, combined with financial disciplines implemented to both progress the
business and enable the targeted release of cash from 2007.
Return on equity for the year of 7.9% benefited from the strong operating
profit result but was negatively impacted by recent capital injections to fund
growth and maintain the targeted risk-based capital ratio.
On track for full year sales target
Our goal for this business is to grow assets by achieving sales of $4 billion
so as to release cash from 2007. We are well on track, with funds under
management at 30 June 2006 of $21 billion, the business is on target to deliver
full year sales at a similar level to 2005.
In accordance with expectations, Life APE sales for the first half were 17%
lower at $230 million (30 June 2005: $276 million), compared with record
half-year 2005 sales. Second quarter sales were up 17% on the first quarter. We
continue to focus on maintaining pricing disciplines and targeting growth in
more profitable product areas rather than indiscriminately pursuing volume
growth.
Offshore annuity APE sales through Old Mutual Bermuda continued to show
excellent growth of 54%, increasing to $54 million (30 June 2005: $35 million)
and now represent almost a quarter of sales for the US Life business. This
growth reflected a further strengthening of relationships in the existing bank
distribution network and an overall expansion in the network during the first
half of 2006.
Our adjusted embedded value operating profits were affected by a lower value of
new business due to the decline in new business sales and a change in operating
assumption to reflect the higher than expected usage of a product feature which
allows clients to withdraw 10% of their fund without any surrender charge.
Pricing disciplines maintained
Positive investment yields, combined with the focus on achieving profitability
through the maintenance of strong pricing disciplines, resulted in a robust
margin of 17% in the first half of 2006 despite the impact of a significant
increase in the risk discount rate.
The after-tax value of new business decreased by 27% to $40 million compared
with $55 million for the half year 2005, reflecting the impact of the reduction
in sales, in addition to the increase in the risk discount rate and the
unusually high margin achieved in the first half of 2005.
Continued strengthening of this business
We are committed to ensuring that adequate infrastructure is in place to
support this growing business, with the implementation of new actuarial and
financial systems now substantially complete, providing significant
enhancements to our internal processes.
We will continue to maintain strong pricing disciplines to achieve sales growth
in the higher margin, more profitable areas of the business.
US ASSET MANAGEMENT
Operating profit up 12%
The Group's US asset management business delivered 12% growth in adjusted
operating profit to $105 million for the six months to 30 June 2006, compared
with $94 million for the equivalent period last year.
Operating profit benefited from the continuation of strong net cash inflows,
combined with strong transaction and performance fees sourced primarily from
Heitman and Acadian.
Highlights ($m) H1 2006 H1 2005 % change
Adjusted operating profit 105 94 12%
Funds under management ($bn) 231 209 11%
Net fund flows ($bn) 9.7* 20.1 (52%)
Operating margin 26% 25%
* Excludes impact of eSecLending.
Continued strong net inflows
The combination of strong net cash flows, positive equity markets and the focus
on delivering superior investment performance, contributed to a 11% increase in
asset levels to $231 billion compared with the first half 2005, and an increase
of 2% from $226 billion funds since the start of the year. Excluding the effect
of the sale of eSecLending, funds under management increased by 10% from $211
billion at 31 December 2005.
Funds under management benefited from net fund inflows of $20 billion for the
first half of 2006, including $10.3 billion relating to eSecLending.
International / emerging markets equity, core equity and global fixed income
products attracted the largest inflows, with strong investment performance and
net positive market movements contributing a further $9.4 billion towards the
increase in funds under management for the half year.
Strong investment performance
Continued positive net fund inflows reflected the excellent investment
performance achieved by our member firms. At 30 June 2006, 88% and 92% of
assets had outperformed their benchmarks over three and five years
respectively. Over the same periods 55% and 66% of assets respectively ranked
in the first quartile of their peer group.
Executing on growth
Our retail initiative continued to gather momentum with year to date gross
sales of $1.2 billion, of which $687 million related to open-end mutual fund
sales. This sales momentum is a result of the wholesaling team effort in place
for over a year now, as well as having over 400 National Account selling
agreements in place. We have continued to expand our product line and in May
2006 launched the Old Mutual Analytic Global Defensive Equity Fund.
In February 2006, the US asset management business exercised its option to
purchase a majority interest in Copper Rock Capital Partners, a small-cap
growth equity manager headquartered in Boston. The investment team brought with
them a solid performance record, contributing to a doubling of funds under
management since February, including healthy growth of assets in the Old Mutual
Old Mutual Copper Rock Emerging Growth Fund.
The US Asset Management business remains committed to its strategy of
identifying product and sector gaps in its portfolio and selectively pursuing
opportunities that will assist in development of those areas.
Continuing strong net inflows and forthcoming product introductions place the
business in a favourable position to increase total funds under management and
earnings going forward. As always the business model is focused on enabling the
member firms to deliver superior investment returns to clients.
EUROPE
Proforma % change
Highlights (£m)* H1 2006 H1 2005
Adjusted IFRS operating profit 120 39 208%
Embedded value adjusted operating profit
(covered business) 183 137 34%
Life assurance sales (APE) 420 359 17%
Mutual fund sales 1,790 1,184 51%
Return on invested capital 9% n/a
Return on embedded value 13.3% n/a
Funds under management (£bn) 47 36 31%
* All current and prior year numbers reflect 5 months of results. All prior
year numbers are proforma, adjusted to Old Mutual accounting policies.
Prior year embedded value numbers are on a Skandia basis but allow for
group expenses.
Strong operating results
A strong operating result both on an IFRS and EEV basis was delivered, with the
integration remaining on track both in terms of realisation of synergies and
estimated synergy costs.
Adjusted operating profit on an IFRS basis increased from £39 million to £120
million driven by higher funds under management, higher sales volumes and
increased fee income achieved across most areas of the business.
The embedded value adjusted operating profit before tax of £183 million
increased from £137 million, benefiting from excellent new sales in many
regions including UK post A-day sales, as well as significant growth in the
Europe and Latin America division (ELAM) particularly in Italy, Poland and
France and positive experience effects. In addition, experience variances
improved reflecting a higher level of fee income and better persistency
experience compared to that assumed in all three divisions.
Particularly pleasing was the increase in UK mutual fund sales, with 75% sales
growth in the UK from Skandia MultiFUNDS and Selestia combined, as the industry
shift to open architecture platforms continued.
Margins after tax on life business improved, after factoring in the Head office
expenses allocation. Healthy net cash inflows of £3 billion, led to funds under
management increasing by 7% since 31 December 2005, benefiting also from the
strength of equity markets. This was also reflected in the increase in total
fund based fees of 58%.
The results from Skandia are above expectations with strong sales and we are
pleased that the business has shown minimal disruption from the acquisition in
February. Much, of course, remains to be done. We outlined our future strategy
on 20 June 2006 and we are committed to all the goals laid out at that time.
UNITED KINGDOM
Proforma
Highlights (£m)* H1 2006 H1 2005 % change
Long-term business 63 16 297%
Asset management 4 (7) 163%
IFRS adjusted operating profit 67 9 644%
Embedded value adjusted operating profit
(covered business) 86 52 65%
Life assurance sales (APE) 262 225 16%
Mutual fund sales 1,170 667 75%
Value of new business 26 17 53%
Life new business margin 10% 8%
Funds under management (bn) 31 23 35%
* All current and prior year numbers reflect 5 months of results. All prior
year numbers are proforma adjusted onto old Mutual accounting policies.
Prior year embedded value numbers are on a Skandia basis but allow for
group expenses.
Strong earnings
The improvement in the adjusted operating result in the first half of 2005 of
£9 million, to £67 million in the first half 2006 is primarily driven by higher
fund base fees as asset appreciation and net fund inflows have increased funds
under management.
In addition the 2005 result was impacted by a number of one-off charges in
2005, as provisions were required to address changes in fee structure.
Embedded value adjusted operating profit before tax increased from £52 million
to £86 million, driven by growth in new business, operating leverage and
improved experience variances from the positive impact of high fee income.
Skandia UK also saw a rise in surrender rates associated with increased A-day
related pension transfer activity and we believe this trend was experienced
across the industry. We are currently undertaking measures to improve long-term
persistency performance.
Life sales up 16%, Mutual Fund sales up 75%
Skandia UK continued to deliver strong new business growth, with life APE sales
up 16% to £262 million (30 June 2005: £225 million).
UK onshore unit-linked sales grew by 39% to £162 million, benefiting from
increased transfer activity and higher regular premium investments following
the implementation of Pensions 'A' Day regulations, with an 89% growth in
pensions sales.
Offshore sales declined by 5% to £100 million. Whilst strong growth was
experienced by Royal Skandia in international markets, this was offset by lower
UK sourced sales, where volumes were adversely impacted by uncertainty
surrounding the tax treatment of trusts.
Mutual fund sales increased by 75% to £1,170 million (30 June 2005: £667
million), benefiting from strong tax year end sales and the continuing industry
shift to open architecture investment platforms.
Profit margins
Value of new business for life business after tax of £26 million resulted in a
profit margin (after tax and after allocating Head Office expenses) of 10%.
Skandia UK's margin has benefited from favourable operating leverage from
strong new sales and an improvement in product mix, as Skandia sold
proportionately less of some lower margin International products. The long-term
goal, as communicated on 20 June 2006, is to achieve margins in the 11-12%
range.
Funds under management
Funds under management have increased by 7% to £31 billion from 31 December
2005, benefiting from strong net inflows from unit-linked and mutual funds
coupled with favourable market movements.
The largest increase was experienced within mutual funds driven by strong
performance in Skandia MultiFUNDS (SMFL), Selestia and Skandia Investment
Management (SIML).
SMFL/Selestia inflows are growing strongly as fund platforms become the
industry standard for mutual funds investments. SIML has continued to broaden
its fund range, with new funds such as Global Best Ideas Funds (GBI) launched
in June 2006.
SIML funds were added to the Selestia platform in June and the SMFL/Selestia
integration plan continues to gain momentum in line with the plans announced by
the Group on 20 June 2006.
NORDIC
Proforma
Highlights (SEKm)* H1 2006 H1 2005 % change
Long-term business 481 276 75%
Asset management 12 10 18%
Banking 79 58 36%
Adjusted operating profit 572 344 66%
Embedded value adjusted operating profit
(covered business) 755 460 64%
Life assurance sales (APE) 904 916 (1%)
Mutual fund sales 793 820 (3%)
Value of new business 260 261 -
Life new business margin 29% 29%
Funds under management (bn) 99 82 21%
* All current and prior year numbers reflect 5 months of results. All prior
year numbers are proforma adjusted onto Old Mutual accounting policies.
Prior year embedded value numbers are on a Skandia basis but allow for
group expenses.
Nordic division delivers good profits
Adjusted operating profit increased from SEK344 million to SEK572 million
benefiting from higher fund- based fees in the unit-linked business, improved
risk result and higher rebates from fund managers. Within Nordic, a majority of
fee income is fund based and it grew 38% with funds growing by 21%. Whilst
Nordic's banking result has improved in 2006 due to lower head office expense
allocation, underlying business performance was dampened by both lower net
interest income due to a change in product mix and increased competition as
well as higher transaction and project costs following the Basel II
implementation.
Embedded value adjusted operating profit increased from SEK460 million to
SEK755 million driven by a higher return on in-force business and significant
improvements in experience variances mainly related to higher fee income and
surrenders in line with that assumed as part of the restatement. The value of
new business was relatively stable.
During the prior year there was increased transfer activity from other products
as a result of the new Kapitalpension product. As expected during the first
half of 2006, the levels of surrenders in unit-linked business have levelled
off with the reduced impact of conversions to Kapitalpension.
Sales
Unit-linked APE sales in the Nordic region decreased by 1% to SEK904 million
with 7% growth in recurring premiums offset by a 31% decrease in single
premiums, reflecting a downturn in Kapitalpension product sales over the second
quarter, as the rush to convert older contracts has tailed off. For the same
reason, surrenders were also lower.
The downturn in Kapitalpension is reflected in the declining market share for
unit-linked business in Sweden, which was 17.9% on a moving twelve months basis
compared to 18.7% a quarter earlier. New sales within the corporate segment in
Sweden were stable and Skandia's market share in that segment grew slightly to
18.3%. The corporate segment accounts for more than two-thirds of new sales in
Sweden.
Profit margins maintained
Strong profit margins for unit linked business were maintained in the first
half of 2006, and the VNB after tax of SEK260 million resulted in a profit
margin after tax of 29%. We expect that structural changes in the Swedish
market will squeeze margins down to the 22-25% range as communicated on 20
June.
Funds under management
Despite the decrease in equity markets during the second quarter of 2006, total
funds under management retained most of the increase seen in 2005. The increase
was driven by higher net inflows from customers into unit-linked funds.
Lending in the bank increased by 14% compared to 31 December 2005, resulting
mainly from mortgages in Norway.
EUROPE AND LATIN AMERICA (ELAM)
Proforma
Highlights (Euro m)* H1 2006 H1 2005 % change
Long-term business 19 12 58%
Asset management (3) (6) 42%
Adjusted operating profit 16 6 167%
Embedded value adjusted operating profit
(covered business) 60 74 (19%)
Life assurance sales (APE) 132 95 39%
Mutual fund sales 816 665 23%
Value of new business 25 17 47%
Life new business margin 19% 18%
Funds under management (bn) 13 10 30%
* All current and prior year numbers reflect 5 months of results. All prior
year numbers are proforma adjusted onto Old Mutual accounting policies.
Prior year embedded value numbers are on a Skandia basis but allow for
group expenses.
Positive growth in IFRS profit
Adjusted operating profit increased to Euro 16 million compared to Euro 6
million in the prior year driven by increased fee income as funds under
management have continued to grow, higher inflows together with maintained cost
control. Total fund based fees increased 50% during the first six months as the
total funds within Unit Linked and Mutual Funds grew by 30% from 30 June 2005.
Within Mutual Funds, Colombia and Skandia Global Funds are the largest positive
contributors to the IFRS result whereas the businesses in some other countries
are still in a start up phase.
Embedded value adjusted operating profit of Euro 60 million declined from Euro
74 million despite higher value of new business compared to last year due to
strong growth in the value of new business in Italy, Poland and France. This
was because there was some positive one-off effects in the value of new
business and experience variance due to the German overhang in 2005 as well as
changes in operating assumptions in 2005.
Strong growth in sales
Life APE sales growth has been particularly strong in Italy, Poland and France,
with exceptionally strong single premium sales in Italy in the first quarter of
2006.
The new business inflow in Germany continues to recover even though the market
is still slower than in the first years before the pension reform. Germany,
like Austria, has a steady book of regular premium contracts generating a good
level of regular inflow.
ELAM achieved growth of 23% in mutual fund sales to Euro 816 million (30 June
2005: Euro 665 million), primarily driven by excellent sales in Spain and
Colombia in the first quarter.
Margin of 19% achieved
The overall new business margin of 19% was slightly higher than the expected
long-term margin of 16-18% as communicated on 20 June due to a shift in the
geographical new business mix.
Funds under management
Despite the decrease in equity markets during the second quarter of 2006, total
funds under management remain stable at Euro 13 billion when compared to 31
December 2005. Net client cash flows were positively impacted by strong inflows
within mutual funds offset by withdrawals in the short-term asset management
business, primarily due to the downturn in equity markets during the second
quarter of 2006.
OTHER
Highlights (£m) H1 2006 H1 2005* % change
Adjusted operating profit 9 8 13%
Funds under management (£bn) 7 6 17%
Unit trust sales 779 450 73%
* Includes results of Skandia Australia and Skandia-BSAM (China).
A year of strong organic growth
The success of our organic growth strategy continues with our other businesses
(including Old Mutual Asset Managers (OMAM (UK)), Skandia Australia, Old Mutual
Asset Managers Bermuda and our Asian operations) delivering adjusted operating
profit of £9 million for the half year 2006.
OMAM (UK) produced solid results, with adjusted operating profit of £6 million
driven by strong hedge fund and retail unit trust performance.
Unit trust sales increased by 73% to £779 million for the first half (30 June
2005: £450 million) driven by strong sales at OMAM (UK) as the business
continued to benefit from the expansion of its product portfolio and the
further strengthening of its distribution capabilities.
Expansion into Asia
Our life associate in India, Kotak Mahindra Old Mutual, continues to make
strong progress. Total premium income on an APE basis reached £55 million for
the first six months of the year, an increase of 92% over the first half of
2005. The business now has more than 2,000 employees and a tied-agency force of
14,000, and operates from 51 branches in 39 cities across India.
Skandia-BSAM, our joint venture with the Beijing state-owned Asset Management
Company, now in its second year of operation, has made a very good start to the
year, achieving 87% of its annual sales target at the half-year. In addition to
the current branches in Beijing and Shanghai, we will be opening a third branch
in Nanjing before the end of the year.
Australian Skandia Limited has been in operation for five years and provides
investors with a choice of flexible, long-term savings solutions. Australia
remains an attractive market, with the business showing strong fund inflows.
Going forward we will continue to pursue organic growth, with new product
launches and further development of our distribution team capabilities planned
for OMAM (UK). The business is also focusing on diversifying its revenue
streams, primarily through growth in the institutional business.
We are also committed to expanding our operations in India and China through
the development and offering of financial solutions to the emerging middle
class in those countries.
Summary Consolidated Income Statement
for the six months ended 30 June 2006
The following table summarises the Group's results in the consolidated income
statement on page 30. Adjusted operating profit represents the Directors' view
of the underlying performance of the Group. This summary does not form part of
the interim financial statements.
£m
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2006 2005 2005
South Africa
Long-term
business 224 214 475
Asset management 55 37 85
Banking 274 176 421
General
insurance 42 49 102
595 476 1,083
United States
Long-term
business 72 62 106
Asset management 59 50 118
131 112 224
Europe
Long-term
business 111 - -
Asset management 3 (2) (4)
Banking 6 - -
120 (2) (4)
Other
Long-term
business (1) - -
Asset management 10 10 20
9 10 20
Finance costs (63) (19) (37)
Other
shareholders'
income/(expense
s) (21) (11) (25)
Adjusted
operating
profit* 3(ii) 771 566 1,261
Adjusting items 4 (40) 87 218
Profit before
tax (net of
income tax
attributable to
policyholder
returns) 731 653 1,479
Total income
tax expense 5 (296) (181) (484)
Less: income
tax
attributable to
policyholder
returns 84 21 127
Income tax
attributable to
shareholders (212) (160) (357)
Profit for the
financial
period 519 493 1,122
Profit for the
financial
period
attributable
to:
Equity holders
of the parent 380 387 867
Minority
interests
Ordinary shares 113 78 203
Preferred
securities 26 28 52
519 493 1,122
* For long-term and general insurance business, adjusted operating profit is
based on a long-term investment return, includes investment returns on life
funds' investments in Group equity and debt instruments and is stated net of
income tax attributable to policyholder returns. For all businesses,
adjusted operating profit excludes goodwill impairment, the impact of
acquisition accounting, initial costs of Black Economic Empowerment schemes,
profit / (loss) on disposal of subsidiaries, associated undertakings and
strategic investments and dividends declared to holders of perpetual
preferred callable securities.
Adjusting items comprise:
£m
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2006 2005 2005
Income /
(expense)
Goodwill
impairment
and impact of
acquisition
accounting 4(i) (135) (14) (22)
Profit /
(loss) on
disposal of
subsidiaries,
associated
undertakings
and strategic
investments 4(ii) 97 (4) 58
Short-term
fluctuations
in investment
return 4(iii) 73 133 363
Investment
return
adjustment
for Group
equity and
debt
instruments
held in life
funds 4(iv) (97) (28) (109)
Initial costs
of Black
Economic
Empowerment
schemes 4(v) - - (72)
4(vi) /
Dividends
declared to
holders of
perpetual
preferred
callable
securities 8 22 - -
Adjusting
items (40) 87 218
Adjusted operating profit after tax attributable to ordinary equity holders
is determined as follows:
£m
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2006 2005 2005
Adjusted
operating
profit 771 566 1,261
Tax on adjusted
operating
profit 5 (196) (137) (314)
575 429 947
Minority
interests
ordinary shares (119) (76) (185)
Minority
interests
preferred
securities (26) (28) (52)
Adjusted
operating
profit after
tax
attributable to
ordinary equity
holders 430 325 710
Pence
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Earnings per
share
attributable to
ordinary equity
holders Notes 2006 2005 2005
Adjusted
operating
earnings per
ordinary share* 7(ii) 8.5 8.7 18.5
Basic earnings
per ordinary
share 7(i) 8.0 11.2 25.1
Diluted
earnings per
ordinary share 7(i) 7.5 11.2 24.3
Adjusted
weighted
average number
of shares
millions 7(ii) 5,063 3,753 3,840
Weighted
average number
of shares
millions 7(i) 4,547 3,467 3,456
* Adjusted operating earnings per ordinary share is calculated on the same
basis as adjusted operating profit. It is stated after tax attributable to
adjusted operating profit and minority 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 Income Statement
for the six months ended 30 June 2006
£m
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2006 2005 2005
Revenue
Gross earned
premiums 3(iii) 2,411 2,148 4,473
Outward
reinsurance (129) (80) (197)
Net earned
premiums 2,282 2,068 4,276
Investment
income (net of
investment
losses) 3,661 2,501 6,569
Banking
interest and
similar income 1,304 944 2,018
Fee and
commission
income, and
income from
service
activities 1,074 576 1,274
Other income 127 104 215
Share of
associated
undertakings'
profit after
tax 3 6 17
Total revenues 8,451 6,199 14,369
Expenses
Claims and
benefits
(including
change in
insurance
contract
provisions) (3,759) (3,334) (7,795)
Reinsurance
recoveries 109 88 226
Net claims
incurred (3,650) (3,246) (7,569)
Change in
provision for
investment
contract
liabilities
(including
amortisation) (832) (448) (1,202)
Losses on
loans and
advances (73) (53) (103)
Finance costs
(including
interest and
similar
expenses) (42) (22) (40)
Banking
interest
expense (712) (576) (1,254)
Fees,
commissions
and other
acquisition
costs (381) (164) (389)
Other
operating and
administrative
expenses (1,414) (951) (2,155)
Change in
provision for
third party
interest in
consolidated
funds (453) (50) (80)
Goodwill
impairment 4(i) (2) (2) (5)
Amortisation
of PVIF and
other acquired
intangibles (174) (9) (24)
Profit /
(loss) on
disposal of
subsidiaries,
associated
undertakings
and
strategic
investments 4(ii) 97 (4) 58
Total expenses (7,636) (5,525) (12,763)
Profit before
tax 674
815 1,606
Income tax
expense 5 (296) (181) (484)
Profit for the
financial
period 519 493 1,122
Profit for the
financial
period
attributable
to:
Equity holders
of the parent 380 387 867
Minority
interests
Ordinary shares 113 78 203
Preferred
securities 26 28 52
Profit for the
financial
period 519 493 1,122
Pence
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Earnings and
dividend per
share 2006 2005 2005
Basic earnings
per ordinary
share 7(i) 8.0 11.2 25.1
Diluted earnings
per ordinary
share 7(i) 7.5 11.2 24.3
Dividend per
ordinary share 8 3.65 3.5 5.35
Weighted average
number of shares
millions 4,547 3,467 3,456
Consolidated Balance Sheet
at 30 June 2006
£m
At At At
30 June 30 June 31 December
Notes 2006 2005 2005
Assets
Goodwill and other intangible
assets 5,444 1,302 1,570
Investments in associated
undertakings 56 132 93
Investment property 728 704 847
Property, plant and equipment 476 457 538
Deferred tax assets 536 505 458
Reinsurers' share of
insurance contract provisions 819 362 455
Deferred acquisition costs 1,419 815 1,089
Current tax receivable 74 28 29
Loans, receivables and
advances 20,530 15,600 18,456
Derivative financial
instruments assets 1,280 1,971 1,604
Financial assets fair valued
through income statement 66,739 28,470 35,378
Other financial assets 12,235 11,886 12,265
Short-term securities 911 1,293 1,764
Other assets 3,526 2,721 2,409
Assets held-for-sale 1,168 - -
Cash and balances with the
central banks 2,078 1,946 3,051
Placements with other banks 720 324 568
Total assets 118,739 68,516 80,574
Liabilities
Insurance contract provisions 21,751 19,794 23,258
Financial liabilities fair
valued through income
statement 52,311 15,863 21,187
Third party interests in
consolidation of funds 2,261 708 966
Borrowed funds 9 2,203 1,048 1,433
Provisions 371 237 285
Deferred revenue 207 123 138
Deferred tax liabilities 1,259 486 611
Current tax payable 229 154 178
Deposits from other banks 1,377 1,090 2,577
Amounts owed to other
depositors 18,380 14,776 15,509
Other money market deposits 2,886 3,122 3,059
Derivative financial
instruments liabilities 1,241 1,893 1,634
Liabilities held-for-sale 1,105 - -
Other liabilities 4,680 4,016 3,320
Total liabilities 110,261 63,310 74,155
Net assets 8,478 5,206 6,419
Shareholders' equity
Equity attributable to equity
holders of the parent 6,932 3,816 4,751
Minority interests
Ordinary shares 868 737 1,012
Preferred securities 678 653 656
Total minority interests 1,546 1,390 1,668
Total equity 8,478 5,206 6,419
Consolidated Cash Flow Statement
for the six months ended 30 June 2006
£m
6 months ended 6 months ended Year ended
30 June 30 June 31 December
Notes 2006 2005 2005
Cash flows from
operating
activities
Profit before
tax 815 674 1,606
Non-cash
movements in
profit before
tax (1,454) (1,328) (4,046)
Changes in
working capital 7,309 597 3,482
Taxation paid (172) (199) (314)
Net cash inflow
/ (outflow)
from operating
activities 6,498 (256) 728
Cash flows from
investing
activities
(Acquisition) /
disposal of
financial
investments (6,568) 1,057 644
(Acquisition) /
disposal of
investment
properties (37) (11) 40
Net acquisition
of other fixed
assets (50) (28) (100)
Acquisition of
interests in
subsidiaries (1,351) (106) (56)
Disposal of
interests in
subsidiaries,
associated
undertakings
and strategic
investments 113 (16) 33
Net cash
(outflow) /
inflow from
investing
activities (7,893) 896 561
Cash flows from
financing
activities
Dividends paid
to:
Equity holders
of the parent 8 (174) (118) (184)
Ordinary
minority
interests and
preferred
security
interests (82) (47) (99)
Interest
payable
(excluding
banking
interest
payable) (43) - (40)
Net proceeds
from issue of
ordinary shares
(including by
subsidiaries to
minority
interests) 17 3 2
Repayment of
convertible
debt - (341) (336)
Issue of
subordinated
debt 264 - 259
Other debt
issued /
(repaid) 404 - (10)
Issue of
perpetual
preferred
callable
securities - 347 688
Net cash inflow
/ (outflow)
from financing
activities 386 (156) 280
Net (decrease)
/ increase in
cash and cash
equivalents (1,009) 484 1,569
Effects of
exchange rate
changes on cash
and cash
equivalents (405) (120) 86
Cash and cash
equivalents on
acquisition of
new
subsidiaries 167 - -
Cash and cash
equivalents at
beginning of
the period 3,303 1,648 1,648
Cash and cash
equivalents at
end of the
period 2,056 2,012 3,303
Consisting of:
Cash and
balances with
the central
banks 2,078 1,946 3,051
Placements with
other banks 720 324 568
Other cash
equivalents 346 226 381
3,144 2,496 4,000
Cash and cash
equivalents
subject to
consolidation
of funds (1,088) (484) (697)
2,056 2,012 3,303
Cash flows presented in this statement include all cash flows relating to
policyholders' funds for the long-term business.
Statement of Changes in Equity
for the six months ended 30 June 2006
Millions £m
Number of Attributable to
shares issued equity holders of Total minority Total
Six and fully paid the parent interest equity
months
ended 30
June
2006
Equity holders'
funds at
beginning of the
period 4,090 4,751 1,668 6,419
Change in
equity arising
in the period
Fair value
gains / (losses):
Property
revaluation - 2 - 2
Available-for-sale
investments - (422) - (422)
Net
investment hedge - (25) - (25)
Shadow
accounting - 209 - 209
Currency
translation
differences /
exchange
differences on
translating
foreign
operations - (565) (181) (746)
Other
movements - 57 (61) (4)
Aggregate tax
effect of items
taken directly
to or transferred
from equity - 62 - 62
Net expense
recognised
directly in equity - (682) (242) (924)
Profit for the
period - 380 139 519
Total
recognised
income and
expense
for the
period - (302) (103) (405)
Dividend
for the
period - (196) (60) (256)
Net
purchase of
treasury shares - (13) - (13)
Issue of
ordinary share
capital
by the
Company 1,389 2,670 - 2,670
Net
acquisition of
interests in
subsidiaries - - 41 41
Exercise
of share
options 9 12 - 12
Fair value of
equity settled
share options - 10 - 10
Equity
holders'
funds at
end of the
period 5,488 6,932 1,546 8,478
Share Share Other
Six months ended 30 June 2006 Notes capital premium reserves
Attributable to equity holders
of the parent at
beginning of the period 410 730 374
Changes in equity arising in the
period:
Fair value gains / (losses):
Property revaluation - - 2
Available-for-sale investments - - (422)
Net investment hedge - - -
Shadow accounting - - 209
Currency translation differences
/ exchange
differences on translating
foreign operations - - -
Other movements - - (2)
Aggregate tax effect of items
taken directly to or
transferred from equity - - 52
Net expense recognised directly
in equity - - (161)
Profit for the period - - -
Total recognised income and
expense for the
period - - (161)
Dividend for the period 8 - - -
Net purchase of treasury shares - - -
Issue of ordinary share capital
by the Company 138 - 2,532
Exercise of share options 1 11 -
Fair value of equity settled
share options - - 10
Attributable to equity holders
of the parent at end
of the period 549 741 2,755
£m
Perpetual
preferred
Translation Retained callable
Six months ended 30 June
2006 reserve earnings securities Total
Attributable to equity
holders of the parent at
beginning of the period 357 2,192 688 4,751
Changes in equity arising
in the period:
Fair value gains /
(losses):
Property revaluation - - - 2
Available-for-sale
investments - - - (422)
Net investment hedge (25) - - (25)
Shadow accounting - - - 209
Currency translation
differences / exchange
differences on
translating foreign
operations (565) - - (565)
Other movements - 59 - 57
Aggregate tax effect of
items taken directly to
or transferred from equity 5 5 - 62
Net expense recognised
directly in equity (585) 64 - (682)
Profit for the period - 380 - 380
Total recognised income
and expense for the
period (585) 444 - (302)
Dividend for the period - (196) - (196)
Net purchase of treasury
shares - (13) - (13)
Issue of ordinary share
capital by the Company - - - 2,670
Exercise of share options - - - 12
Fair value of equity
settled share options - - - 10
Attributable to equity
holders of the parent at
end
of the period (228) 2,427 688 6,932
£m
At
30 June
Other reserves 2006
Merger reserve 2,716
Available-for-sale reserve (91)
Investment property revaluation reserve 38
Share based payments reserve 92
Attributable to equity holders of the parent at end of the period 2,755
Retained earnings have been reduced by £724 million at 30 June 2006 in respect
of own shares held in policyholders' funds, ESOP trusts, Black Economic
Empowerment trusts and other related undertakings.
Included in the dividend for the period is £22 million of dividends declared to
holders of perpetual preferred callable securities (note 8).
Millions
Number of Attributable to
shares issued equity holders of
Six months ended Notes and fully paid the parent
30 June 2005
Equity holders' funds at
beginning of the period 3,854 3,265
Changes in equity arising in
the period
Fair value gains / (losses):
Net investment hedge - (50)
Available-for-sale
investments - 84
Shadow accounting - (11)
Currency translation
differences
/ exchange differences on
translating foreign
operations - (100)
Cash flow hedge amortisation - 2
Redemption of convertible
bonds - (18)
Other movements - 44
Aggregate tax effect of items
taken directly to or
transferred from equity - (16)
Net expense recognised
directly in equity - (65)
Profit for the period - 387
Total recognised income
and expense for the period - 322
Dividend for the period 8 - (118)
Net purchase of treasury
shares - (7)
Issue of perpetual preferred
callable securities - 347
Net disposal of interests in
subsidiaries - -
Exercise of share options 3 3
Fair value of equity settled
share options - 4
Equity holders' funds at end
of the period 3,857 3,816
£m
Total minority Total
Six months ended 30 June 2005 interest equity
Equity holders' funds at beginning of the period 1,431 4,696
Changes in equity arising in the period
Fair value gains / (losses):
Net investment hedge - (50)
Available-for-sale investments - 84
Shadow accounting - (11)
Currency translation differences
/ exchange differences on translating foreign
operations (85) (185)
Cash flow hedge amortisation - 2
Redemption of convertible bonds - (18)
Other movements (39) 5
Aggregate tax effect of items
taken directly to or transferred from equity - (16)
Net expense recognised directly in equity (124) (189)
Profit for the period 106 493
Total recognised income
and expense for the period (18) 304
Dividend for the period (47) (165)
Net purchase of treasury shares - (7)
Issue of perpetual preferred callable securities - 347
Net disposal of interests in subsidiaries 24 24
Exercise of share options - 3
Fair value of equity settled share options - 4
Equity holders' funds at end of the period 1,390 5,206
Share Share Other
Six months ended 30 June 2005 Notes capital premium reserves
Attributable to equity holders
of the parent at beginning of
the period 386 600 445
Changes in equity arising in the
period:
Fair value gains / (losses):
Net investment hedge - - (50)
Available-for-sale investments - - 84
Shadow accounting - - (11)
Currency translation differences
/ exchange differences on
translating foreign operations - - -
Cash flow hedge amortisation - - 2
Redemption of convertible bonds - - (18)
Other movements
- - -
Aggregate tax effect of items
taken directly to or transferred
from
equity - - (16)
Net expense recognised directly
in equity
- - (9)
Profit for the period
- - -
Total recognised income and
expense for the period
- - (9)
Dividend for the period 8 - - -
Net purchase of treasury shares - - -
Issue of perpetual preferred
callable securities - (3) -
Exercise of share options - 3 -
Fair value of equity settled
share options - - -
Attributable to equity holders
of the parent at end of the
period 386 600 436
£m
Perpetual
preferred
Translation Retained callable
Six months ended 30 June
2005 reserve earnings securities Total
Attributable to equity
holders of the parent at
beginning of the
period 122 1,712 - 3,265
Changes in equity arising
in the period:
Fair value gains /
(losses):
Net investment hedge - - - (50)
Available-for-sale
investments - - - 84
Shadow accounting - - - (11)
Currency translation
differences / exchange
differences on
translating foreign
operations (100) - - (100)
Cash flow hedge
amortisation - - - 2
Redemption of convertible
bonds - - - (18)
Other movements 44 - 44
-
Aggregate tax effect of
items taken directly to
or transferred from
equity - - - (16)
Net expense recognised
directly in equity (100) 44 - (65)
Profit for the period 387 - 387
-
Total recognised income
and expense for the
period (100) 431 - 322
Dividend for the period - (118) - (118)
Net purchase of treasury
shares - (7) - (7)
Issue of perpetual
preferred callable
securities - - 350 347
Exercise of share options - - - 3
Fair value of equity
settled share options - 4 - 4
Attributable to equity
holders of the parent at
end of the period 22 2,022 350 3,816
£m
At
30 June
Other reserves 2005
Merger reserve 184
Available-for-sale reserve 207
Investment property revaluation reserve 28
Cash flow hedge reserve 11
Share based payments reserve 6
Attributable to equity holders of the parent at end of the period 436
Retained earnings were reduced by £533 million, at 30 June 2005 in respect of
own shares held in policyholder funds, ESOP trusts and related undertakings.
Millions
Number of Attributable to
shares issued equity holders of
Year ended 31 December 2005 Notes and fully paid the parent
Equity holders' funds at
beginning of the year 3,854 3,265
Changes in equity arising in
the year
Fair value gains / (losses):
Property revaluation - 27
Net investment hedge - (78)
Available-for-sale
investments - (249)
Shadow accounting - 117
Currency translation
differences
/ exchange differences on
translating
foreign operations - 263
Cash flow hedge amortisation - (12)
Redemption of convertible
bonds - (18)
Other movements - (21)
Aggregate tax effect of items
taken directly to or
transferred from equity - 34
Net income recognised
directly in equity - 63
Profit for the year - 867
Total recognised income and
expense for the year - 930
Dividend for the year 8 - (184)
Net purchase of treasury
shares - (182)
Issue of perpetual preferred
callable securities - 679
Issue of share capital by
the Company 231 159
Net disposal of interests in
subsidiaries - -
Exercise of share options 5 4
Fair value of equity settled
share options - 80
Equity holders' funds at end
of the year 4,090 4,751
£m
Total minority Total
Year ended 31 December 2005 interest equity
Equity holders' funds at beginning of the year 1,431 4,696
Changes in equity arising in the year
Fair value gains / (losses):
Property revaluation - 27
Net investment hedge - (78)
Available-for-sale investments - (249)
Shadow accounting - 117
Currency translation differences
/ exchange differences on translating
foreign operations 12 275
Cash flow hedge amortisation - (12)
Redemption of convertible bonds - (18)
Other movements 23 2
Aggregate tax effect of items
taken directly to or transferred from equity - 34
Net income recognised directly in equity 35 98
Profit for the year 255 1,122
Total recognised income and expense for the year 290 1,220
Dividend for the year (99) (283)
Net purchase of treasury shares - (182)
Issue of perpetual preferred callable securities - 679
Issue of share capital by the Company - 159
Net disposal of interests in subsidiaries 26 26
Exercise of share options - 4
Fair value of equity settled share options 20 100
Equity holders' funds at end of the year 1,668 6,419
Statement of Changes in Equity continued
for the six months ended 30 June 2006
Share Share Other
Year ended 31 December 2005 Notes capital premium reserves
Attributable to equity holders
of the parent at beginning of
the year 386 600 445
Changes in equity arising in the
year:
Fair value gains / (losses):
Property revaluation - - 27
Net investment hedge - - (50)
Available-for-sale investments - - (249)
Shadow accounting - - 117
Currency translation differences
/ exchange differences on
translating foreign operations - - -
Cash flow hedge amortisation - - (12)
Redemption of convertible bonds - - (18)
Other movements - - -
Aggregate tax effect of items
taken directly to or transferred
from
equity - - 34
Net expense recognised directly
in equity - - (151)
Profit for the year - - -
Total recognised income and
expense for the year - (151)
Dividend for the year - - -
8
Net purchase of treasury shares - - -
Issue of perpetual preferred
callable securities - (9) -
Issue of share capital by the
Company 23 136 -
Exercise of share options 1 3 -
Fair value of equity settled
share options - - 80
Attributable to equity holders
of the parent at end of the year 410 730 374
£m
Perpetual
preferred
Translation Retained callable
Year ended 31 December
2005 reserve earnings securities Total
Attributable to equity
holders of the parent at
beginning of the year 122 1,712 - 3,265
Changes in equity arising
in the year:
Fair value gains /
(losses):
Property revaluation - - - 27
Net investment hedge (28) - - (78)
Available-for-sale
investments - - - (249)
Shadow accounting - - - 117
Currency translation
differences / exchange
differences on
translating foreign
operations 263 - - 263
Cash flow hedge
amortisation - - - (12)
Redemption of convertible
bonds - - - (18)
Other movements - (21) - (21)
Aggregate tax effect of
items taken directly to
or transferred from
equity - - - 34
Net expense recognised
directly in equity 235 (21) - 63
Profit for the year - 867 - 867
Total recognised income
and expense for the year 235 846 - 930
Dividend for the year - (184) - (184)
Net purchase of treasury
shares - (182) - (182)
Issue of perpetual
preferred callable
securities - - 688 679
Issue of share capital by
the Company - - - 159
Exercise of share options - - - 4
Fair value of equity
settled share options - - - 80
Attributable to equity
holders of the parent at
end of the year 357 2,192 688 4,751
£m
At
31 December
Other reserves 2005
Merger reserve 184
Available-for-sale reserve 68
Investment property revaluation reserve 39
Cash flow hedge reserve (3)
Share based payments reserve 86
Attributable to equity holders of the parent at end of the year 374
Retained earnings were reduced by £712 million at 31 December 2005 in respect
of own shares held in policyholders funds, ESOP trusts, Black Economic
Empowerment trusts and related undertakings.
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