Results for the year

Old Mutual PLC
27 February 2006

Old Mutual plc

Results for the year ended 31 December 2005

 

 

Highlights

 

- Adjusted operating profit*                   up 30% to GBP1,244 million 

(IFRS basis):                                  (2004: GBP954 million) and

                                               up 28% to R14,431 million 

                                               (2004: R11,254 million)

- Adjusted operating profit (European          up 23% to GBP1,387 million 

Embedded Value (EEV) basis):                   (2004: GBP1,124 million) and

                                               up 21% to R16,067 million 

                                               (2004: R13,249 million)

- Profit for the financial year                GBP867 million (2004: 

attributable to equity holders of the          GBP559 million) R10,041 million

parent (IFRS basis):                           (2004: R6,571 million)

 

- Adjusted operating earnings per              up 22% to 18.2p (2004: 14.9p) 

share* (IFRS basis):                           and up 20% to 211.2c 

                                               (2004: 175.8c)

- Adjusted operating earnings per              up 10% to 20.7p (2004: 18.9p) 

share (EEV basis):                             and up 8% to 240.0c 

                                               (2004: 222.8c)

 

- Basic earnings per share (IFRS

basis):                                        25.1p (2004: 16.3p), 290.5c 

                                               (2004: 192.0c)

 

- Funds under management GBP183 billion (2004: GBP140 billion) an increase of 

31%, R1,992 billion (2004: R1,520 billion) with record $26 billion fund inflows

in the USA. Selestia funds under management exceed GBP1.5 billion

 

- Total life assurance sales, on an EEV Annual Premium Equivalent (APE) basis,

of GBP648 million, an increase of 10% (2004: GBP587 million)

 

- Adjusted embedded value per

share (EEV basis):                             175.6p, 1,912c at 31 December 

                                               2005 (2004: 139.7p, 1,515c)

- Return on equity** 18.5% (2004: 18.8%)

Return on adjusted embedded value** 15.6% (2004: 17.8%)

 

- Final dividend increased by 4% to 3.65p, 39.8 cents***

 

Commenting on the results, Jim Sutcliffe, Chief Executive, said:

'This has been a defining period for Old Mutual, marked by these very

satisfactory results that show our organic growth is coming through strongly.

The acquisition of Skandia represents a step change in the business profile of

the Group. We are determined to deliver on the exciting potential of the

international business we are building.'

 

Wherever the items asterisked in the Highlights are used, whether in the

Highlights, the Chief Executive's Statement or the Group Business Review, the

definitions set out on page 2 apply.

 

ENQUIRIES:

 

Old Mutual plc

 

Media:

Miranda Bellord (UK)                          Tel: [phone]

Nad Pillay (SA)                               Tel: [phone]

Investors:

Malcolm Bell (UK)                             Tel: + 44 (0) 20 7002 7166

Deward Serfontein (SA)                        Tel: [phone]

College Hill (UK)

Tony Friend                                   Tel: [phone]

Alex Sandberg

 

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. (Swedish time), and 11.30 a.m. (South African time),

today on our website, www.oldmutual.com. High-resolution images of Jim

Sutcliffe and Julian Roberts are available at

www.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 release of the 2005 preliminary results, 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 2005 and 2004.

 

                                                            27 February 2006

 

*  Adjusted operating profit represents the directors' view of the underlying

   performance of the Group. For life assurance and general insurance

   businesses, adjusted operating profit is based on a long term investment

   return, includes investment returns on investments in Group equity and debt

   instruments held in life funds and is stated net of income tax attributable

   to policyholder returns. For all businesses, adjusted operating profit

   excludes goodwill impairment, fines and penalties, initial costs of Black

   Economic Empowerment schemes, and profit/(loss) on disposal of subsidiaries,

   associated undertakings and strategic investments. Adjusted operating profit

   excludes income from hedging activities that do not qualify for hedge

   accounting.

 

   Adjusted operating earnings per share is calculated on the same basis as

   adjusted operating profit, but is stated after tax and minority interests

   and excluding income attributable to Black Economic Empowerment trusts of

   listed subsidiaries. The calculation of the weighted average number of

   shares includes own shares held in policyholders' funds and Black Economic

   Empowerment trusts of the parent company.

 

** Return on equity is calculated using adjusted operating profit after tax

   and minority interests on an IFRS basis with allowance for accrued coupon

   payments on the Group's hybrid capital. The average shareholders' equity

   used in the calculation excludes hybrid capital.

 

***Indicative only, being the Rand equivalent of 3.65p converted at the

   exchange rate prevailing on 30 December 2005. The actual amount to be paid

   by way of final 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 28 March 2006, as determined by the Company,

   and will be announced on 29 March 2006.

 

Chief Executive's Statement

A year of achievement

 

2005 was a year of significant transformation of the Old Mutual Group and one

which I believe we can look back on with considerable satisfaction.

 

Firstly, we achieved strong organic growth in our major business platforms in

South Africa, the USA and the UK, with significantly improved life assurance

and unit trust sales in South Africa, substantial progress in the recovery

programme at Nedbank, record cash flows at our US asset management business and

impressive growth at both of our UK businesses.

 

Secondly, we completed innovative and broad-based Black Economic Empowerment

(BEE) ownership proposals at each of Old Mutual South Africa (OMSA), Nedbank

Group and Mutual & Federal. The benefits of these transactions, in terms of

accelerating the transformation of each of the businesses, are already becoming

apparent.

 

Lastly, we have now completed our acquisition of Skandia and thereby broadened

the revenue base of the Old Mutual Group significantly, which has been one of

our strategic objectives for some years. Julian Roberts, who has served us so

well as Finance Director, has agreed to take up the reins as CEO of Skandia.

I know he will do a great job.

 

In South Africa, we have made progress in aligning our life assurance, banking

and general insurance businesses more closely so as to exploit bancassurance

and other benefits of working together.

Bancassurance business nearly doubled in 2005 compared to 2004, but I believe

there are still great opportunities for additional synergies to be achieved in

this area. Bob Head was appointed as Group Director, Southern Africa, towards

the end of the year, with one of his specific objectives being to promote a

more integrated product offering among the businesses and to catalyse the

necessary changes to address the rapidly developing financial services market

in South Africa.

 

We have made progress with our brand rationalisation and modernisation, with

OMSA now using the 'new' Old Mutual brand, as used by Old Mutual plc itself, in

replacement of the more familiar 'tablet' version of the name. Nedbank has

continued its rebranding, with its change of parent company name from Nedcor

Limited to Nedbank Group Limited and completion of the transformation of former

Peoples Bank branches into Nedbank branches.

 

In the USA, we have continued to develop our portfolio of asset managers, with

a number of acquisitions and disposals during the year. Copper Rock, 2100

Capital and Larch Lane have added to our alternative investments capability,

whilst we have said farewell to L&B Realty, Integra Global Advisors and UAM

(Japan). Funds under management continued to grow strongly throughout 2005,

albeit less strongly in the last quarter following the loss of some mandates at

Pacific Financial Research. Overall funds under management by the US asset

managers at the end of the year stood at $226 billion, including $15 billion of

cash collateral assets for our securities lending business, eSecLending, an

increase of 23% over the position at 31 December 2004.

 

At US Life, strong sales were achieved, particularly in the first three

quarters of the year, with equity index annuities making a particularly strong

showing. We have been enhancing our systems at this business to manage a

company that is now three times as large as when we bought it in 2001. As a

consequence, we have made some reserve adjustments, which have caused earnings

in 2005 to be lower than 2004, but the underlying trends have remained steady

as a percentage of assets managed. This business is becoming more mature and is

on track to deliver a dividend by the end of 2007. There are a number of

strategic opportunities open to us to develop US Life further over the next few

years. One of these will be to develop products and sales strategies to appeal

to the large Hispanic market.

 

Our profile in the UK and the rest of the world will be much more significant

from 2006 onwards as a result of our ownership of Skandia. Skandia's business

has a strong focus on modern, open architecture life and investment products,

which are likely to appeal to baby-boomers in developed markets as they age. It

therefore fits very well with our existing UK businesses, Selestia and

OMAM(UK), as well as extending the Group's presence into a large number of

other new territories. We also expect Skandia's presence in China to accelerate

the Group's push into that fast-growing economy.

 

Future outlook

 

Concerted management action taken during 2005 has contributed to the creation

of a strong platform for sustainable growth across each of our geographies.

 

Our African businesses will continue in 2006 to focus on strengthening their

brand and distribution capabilities and on working closely together to leverage

opportunities for cross-selling and creating efficiency savings. OMSA's focus

is on building sales volumes and stabilising cash flows in the face of

increased industry margin pressure, whilst Nedbank will continue to focus on

growing its retail and corporate transactional business. The softer

underwriting cycle and increased pressure on premium rates is expected to

result in more normal trading conditions for Mutual & Federal in 2006.

 

Our US Life business is still aiming to become capital self-sufficient by the

end of 2007, whilst our US asset management business is continuing to focus on

building its retail distribution network and actively managing its affiliate

relationships. Growth looks set to continue at our UK and Rest of World

businesses.

 

As a result of a successful year in 2005 and our acquisition of Skandia, we now

have a much higher profile among international investors. We are committed to

ensuring that not only do we deliver the prospective returns from Skandia

factored into our acquisition planning, but also that our other businesses

continue to make good progress. We believe that, in 2005, we have taken an

important step along the path to achieving our objective of being a world-class

financial services group. We look to the future with confidence that we can

create something special through Old Mutual and its family of companies.

 

Jim Sutcliffe

Chief Executive

27 February 2006

 

Group Business Review

 

Group Finance Director's Review

 

GROUP RESULTS

 

Basis of reporting

 

International Financial Reporting Standards (IFRS)

 

The Group has adopted IFRS from 1 January 2004, including a restatement of 2004

comparatives. Details of all transitional impacts, including the

reconciliations required by IFRS and the Group's IFRS accounting policies are

contained in our IFRS announcement released on 3 May 2005. This can be found on

our website. Our 2005 interim results announcement released on 10 August 2005

was prepared on the basis of these accounting policies. The Group has

subsequently early adopted the IAS 39 Fair Value Option amendments which

removed the impact of the European Union (EU) 'carve-out'. Updated details of

the Group's significant accounting policies will be included in the 2005 Annual

Report.

 

European Embedded Value (EEV)

 

The 2005 embedded value numbers have been prepared in accordance with the EEV

principles issued in May 2004 by the European Chief Financial Officers' Forum,

with all 2004 comparative figures also restated on this basis. Risk margins

have been calculated using a market consistent approach, reflecting the

distinctive product risks in the individual businesses.

 

Adjusted operating profit

 

Adjusted operating profit represents the directors' view of the underlying

performance of the Group. For life assurance and general insurance business,

adjusted operating profit is based on a long term investment return, includes

investment returns on investments in Group equity and debt instruments held in

life funds and is stated net of income tax attributable to policyholder

returns. For all businesses, adjusted operating profit excludes goodwill

impairments, fines and penalties, initial costs of Black Economic Empowerment

(BEE) schemes, and profit/(loss) on disposal of investments in subsidiaries,

associated undertakings and strategic investments. Adjusted operating profit

also excludes income from hedging activities that do not qualify for hedge

accounting.

 

Black Economic Empowerment (BEE) accounting implications

 

One of the key differences between the adjusted operating profit and profit

before tax attributable to equity holders relates to the accounting treatment

of our BEE transactions announced on 19 April 2005.

 

In accordance with the latest technical interpretations of BEE accounting,

shares issued under these schemes are treated in accordance with IFRS2. On this

basis, the effective interest reflected in the consolidated income statement

and balance sheet for Nedbank and Mutual & Federal is 55% and 88% respectively

and excludes the impact of the Group's BEE schemes.

 

Under IFRS 2, share-based payment charges are recognised over the vesting

period of the schemes and apply to employee and non-employee arrangements where

the Group receives benefits in respect of the issue of these shares.

 

The amounts calculated in respect of certain schemes, principally the

broad-based employee schemes and black business partners arrangements, vest

immediately such that the total charge is recognised upfront within the

consolidated income statement.

 

The initial share-based payment charges, in addition to professional fees

incurred in respect of the establishment of the BEE schemes, have, however,

been excluded from adjusted operating profit as these large, one-off charges

distort the underlying performance of the Group.

 

The shares issued in respect of the BEE schemes are legally issued on the basis

that the BEE beneficiaries have full voting rights over the shares and receive

all dividends, in essence obtaining full economic benefits attaching to equity

ownership.

 

In recognition of this, the Summary consolidated income statement reflects the

legal ownership of these shares following implementation of the BEE schemes,

with the minority interest on adjusted operating profit based on a weighted

average effective interest in Nedbank and Mutual & Federal of 52% and 83%

respectively. The weighted average shares used in the calculation of adjusted

operating earnings per share include those Old Mutual plc shares issued as part

of the BEE schemes.

 

In determining the Group's embedded value, contributions received under the BEE

schemes are recognised within adjusted net worth. In order to ensure that the

Group's adjusted embedded value reflects the total contributions to be

received, an adjustment is made to incorporate the present value of future BEE

payments. Consequently the adjusted embedded value per share calculation is

based upon the Company's total number of shares on issue, including shares in

issue to BEE scheme beneficiaries.

 

Strong growth in basic EPS up 54% to 25.1p and adjusted operating EPS up by 

22% to 18.2p

 

Group profit attributable to equity holders increased by 55% from 

GBP559 million in 2004, to GBP867 million in 2005, contributing to the 54% 

increase in basic earnings per share to 25.1p.

 

The strong organic growth in sales and assets across all regions contributed to

an increase of 30% in adjusted operating profit before tax to GBP1,244 million.

 

Adjusted operating profit after tax and minority interests increased by 25%

from GBP557 million in 2004 to GBP699 million in 2005, resulting in an increase

in adjusted operating earnings per share to 18.2p for 2005.

 

Adjusted Embedded Value profit up 23%

 

The Group's adjusted operating profit on an EEV basis of GBP1,387 million

increased by 23% from GBP1,124 million for the year ended 31 December 2004,

primarily reflecting a strong increase in banking and asset management profits

in addition to life profits in North America. Adjusted embedded value operating

profit for life assurance of GBP701 million was down by 4% from GBP733 million 

for the year ended 31 December 2004, with African embedded value profit being 

down 13% due primarily to the impact of lower interest rates and reduced equity

exposure in shareholder funds on the expected return on adjusted net worth.

North America life embedded value profits increased by 58% reflecting the

significant value of new business sold in 2004.

 

Adjusted Embedded Value per share up by 26%

 

Adjusted Group Embedded Value (EV) (adjusted for own shares held in

policyholders' funds and to bring listed Group subsidiaries to market value)

has increased by 33% to GBP7.2 billion, increasing adjusted Group EV per share

by 26% to 175.6p. Return on Adjusted Group EV was strong at 15.6%.

 

The significant increase in equity prices in South Africa in 2005 has been a

key driver of the strong growth in EV, resulting in large positive investment

variances in the African life business and increases in the Nedbank and Mutual

& Federal share prices. Return on EV for the life businesses was 14% before

investment variances and 27% including investment variances.

 

The value of new life business grew by 5%, with 13% growth in North America,

offset by a 5% decline in Africa. Good new business volume growth of 14% in

Africa was offset by a conscious reduction in new business margins.

 

Funds under management up 31%

 

During 2005, funds under management increased to GBP183 billion up 31% from 

GBP140 billion at 31 December 2004 and GBP158 billion at 30 June 2005. Our 

international diversity delivered strong net cash inflows of GBP13 billion, an

increase of GBP8 billion when compared to last year, as strong performances by

our US and UK businesses more than offset weak flows in Africa.

 

Capital position strengthened in readiness for Skandia acquisition

                                                                          

                                                             2005      2004

Highlights                                                                 

Senior debt gearing                                          5.2%     11.4%

Total gearing                                               14.6%     17.1%

 

In March 2005 the Group issued GBP350 million of Tier 1 Perpetual Preferred

Callable Securities. In May 2005 the Group's $636 million of outstanding 3.625%

Convertible Bonds matured and were repaid in full at par value. In November the

Group issued EUR500 million of Upper Tier 2 Perpetual Preferred Callable

Securities, followed by a further issue of GBP300 million of lower Tier 2

Perpetual Preferred Callable Securities in January 2006 as part of the public

debt raising associated with the Skandia acquisition.

 

The Group's gearing level remains comfortably within our target range, with

senior debt gearing of 5.2% (11.4% at 31 December 2004) and total gearing,

including hybrid capital, of 14.6% (17.1% at 31 December 2004). Hybrid capital

excludes hybrid debt from banking activities and includes the $750 million of

Guaranteed Cumulative Perpetual Preferred Securities issued during 2003 that

are reported as part of minority interests and the GBP350 million and EUR500

million of Perpetual Securities issued in 2005, which are both reported as part

of equity shareholders' funds.

 

Senior debt gearing is defined as senior debt over total debt plus Adjusted EV

on an EEV basis. 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.

 

Our economic capital position continued to strengthen in 2005 as the Group

further developed its economic capital programme, with our estimate of

available financial resources now significantly in excess of the capital

required to meet the Group's target 'A' credit rating.

 

The Group is in compliance with the Financial Groups Directive capital

requirements, which apply to all EU-based financial conglomerates.

 

Taxation

 

The Group's effective tax rate of 25% (based on the tax charge excluding income

tax attributable to policyholder returns as a proportion of adjusted operating

profit) for the year ended 31 December 2005 decreased from 26% for the

corresponding period in 2004. This was primarily as a result of the 1%

reduction in the South African corporate tax rate.

 

Dividend

 

The directors of Old Mutual plc are recommending a final dividend for the year

ended 31 December 2005 of 3.65p per share (making a total of 5.5p per share for

the year, an increase of 5% over 2004). The indicative Rand equivalent of this

final dividend is 39.8c (making a total of 60.3c for the year, an increase of

3%).

 

The record date for this dividend payment is the close of business on Friday,

21 April 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 the

Malawi Stock Exchanges will be Wednesday, 12 April 2006 and on the London and

Stockholm Stock Exchanges, Tuesday, 18 April 2006. The shares will trade

ex-dividend from the opening of business on Thursday, 13 April 2006 on the JSE

and the Namibian, Zimbabwe and Malawi Stock Exchanges, and from the opening of

business on Wednesday, 19 April 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

Kronor (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 Tuesday, 28 March 2006 and will be announced by the

Company on Wednesday, 29 March 2006.

 

Share certificates may not be dematerialised or rematerialised on the South

African branch register between Thursday, 13 April and Friday, 21 April 2006,

both dates inclusive, and transfers between the registers may not take place

during that period.

 

The final dividend is subject to approval at the Annual General Meeting of Old

Mutual plc, which is to be held in London on Wednesday, 10 May 2006. Subject to

being so approved, the final dividend will be paid on Wednesday, 31 May 2006.

 

Change in role

 

I move to my role as Chief Executive Officer of Skandia, confident in the

knowledge that management action taken across all our businesses has created a

platform for long-term, sustainable growth.

 

I would like to take this opportunity to thank management and employees in each

of our businesses for their support during my five years as Group Finance

Director of Old Mutual. Richard Hoskins takes over as Acting Group Finance

Director from 1 March, and I look forward to working with him in my new role.

 

Julian V F Roberts

Group Finance Director

27 February 2006

 

AFRICA

 

Strong growth in profits and sales

 

                                                                          %

Highlights (GBPm)                                 2005      2004     Change

Adjusted operating profit                        1,049       825        27%

Life assurance sales (APE inc OMI)                 341       299        14%

Funds under management (GBPbn)                      44        39        13%

                                                                           

                                                                          %

Highlights (Rm)                                   2005      2004     Change

Adjusted operating profit                       12,136     9,719        25%

Life assurance sales (APE inc OMI)               3,947     3,536        12%

Funds under management (Rbn)                       480       421        14%

 

Adjusted operating profit for the African businesses has increased by 25% from

R9,719 million to R12,136 million in 2005, principally driven by the

significant increase in Nedbank's results as the momentum of the strategic

recovery programme continued. OMSA delivered good growth in life and unit trust

sales, with life sales on an Annual Premium Equivalent (APE) basis up 12% and

unit trust sales up 87% on the prior year. The increase in funds under

management of 14% to R480 billion at 31 December 2005 reflects the impact of

buoyant markets offset by significant fund outflows in OMSA.

 

Benefits emerging from Black Economic Empowerment (BEE) transactions

 

The BEE transactions were implemented in August 2005 following approval by

shareholders of Old Mutual, Nedbank and Mutual & Federal, and confirmation of a

related scheme of arrangement by the UK High Court. The transactions were

implemented in accordance with the detailed proposals described in circulars

sent to the companies' respective shareholders earlier in 2005 (the Company's

own circular was dated 27 May 2005) and will ultimately result in the

introduction of direct black ownership of 12.75% of the value of Old Mutual's

South African businesses, with a total value of black shareholding of R7.1

billion at the time of implementation.

 

As previously discussed, the adjusted operating profit impact is calculated

after tax and minority interests, and reflects the dilutive impact on earnings

as a result of our reduced stake in Mutual & Federal and the decrease in the

long term investment return at OMSA due to additional Nedbank shares held to

maintain our controlling interest.

 

The cost impact of these arrangements on adjusted operating profit and profit

attributable to equity holders is a decrease of R172 million and R776 million

respectively.

 

The businesses are already experiencing tangible benefits from these

transactions, with the Nedbank Eyethu scheme attracting 47,523 retail client

participants with a total value invested of R741 million (market value at

investment date of R987 million), making it the largest retail share scheme by

value ever in South Africa. The Nedbank corporate scheme involved 76 black

corporate and business banking clients. The working relationships with the

strategic Black Business Partners (BBPs), namely the Brimstone consortium, the

Wiphold consortium and Aka Capital, are progressing well, with numerous deals

having been introduced by these partners to the Group.

 

Within Mutual & Federal the focus has been on the acceleration of

transformation within the company, with BBPs having been active in drafting a

Transformation Strategy and related action plans.

 

OMSA's BEE transaction, worth approximately R3.4 billion, saw a broad range of

black stakeholders acquire direct ownership at that time worth 13.48% of the

value of Old Mutual's South African business, excluding the value of Nedbank

and Mutual & Federal. In October 2005, more than 11,000 staff members received

their offer to participate in the Old Mutual South Africa Broad-Based Scheme,

thus making them owners of shares in Old Mutual plc.

 

Significant progress has been made in the establishment of the Black

Distributors Trust - one of the key broad-based elements of the transaction.

This will be officially launched in March 2006, with some 150 beneficiaries in

the first year. The Old Mutual Education Trust has five participating trade

unions, with the first bursaries funded by this trust to be awarded to

participating union members and their beneficiaries during 2006, for studies

commencing in 2007. Transformation has been a central pillar of the OMSA

business strategy, with significant strides having been made in all areas of

transformation including employment equity, skills development, procurement and

social responsibility. The relationship with the strategic BBPs provides

further impetus to our transformation initiatives.

 

Outlook

 

The South African economy is in a growth phase, with strong equity markets,

Rand stability and a low inflationary and interest rate environment. Our

businesses continue to benefit from these conditions, with OMSA's and Mutual &

Federal's 2005 results reflecting the substantial growth in the JSE during the

year, whilst Nedbank profited from the positive credit environment through

lower impairment levels and increased retail advances growth following higher

levels of consumer spending.

 

The insurance industry in South Africa is facing significant pressure on

margins and costs, increased competition and pressure from regulatory and

consumer bodies. At OMSA we will continue to address these challenges by

driving sales volumes increases through our investments in distribution,

ensuring we have appropriate products that deliver good value for customers and

containing costs to enable improvements in value for money for customers. Going

forward the business will also focus on stabilising the net client cash flow

position.

 

Management actions taken at Nedbank have moved the business into the next stage

of its turnaround, with the majority of the strategic recovery benefits planned

for 2005 now firmly in place. Nedbank has become more outward-looking, with the

focus shifting to building a sustainable business through the delivery of

world- class service. The business is seeking to improve innovation and deliver

quality transactional banking growth, with a view to optimising risk and

capital management and creating profitable asset growth.

 

Although conditions remain conducive to maintaining underwriting profitability,

the pressure on rates is likely to continue to have an impact on Mutual &

Federal, with the ongoing softening of the short-term insurance cycle. Our

focus is on continuing to grow our share of the short-term insurance market and

on delivering unit growth through the maintenance of superior levels of client

service, whilst undertaking further product development to exploit current

market opportunities. Despite the aggressive competitor cutting of premium

rates, Mutual & Federal remains committed to responsible underwriting

standards, with market share not being pursued indiscriminately at the expense

of profitability.

 

Going forward Old Mutual is well placed to deliver cross-sales growth in its

African businesses and to bring its product offerings more closely together to

serve the growing black middle market and small business sectors.

 

LIFE ASSURANCE & ASSET MANAGEMENT- OLD MUTUAL SOUTH AFRICA (OMSA)

 

A year of strong growth

 

Markets rose significantly during the year driving demand for investment

products across the industry, despite some negative publicity from the Pension

Funds Adjudicator rulings. OMSA significantly strengthened its retail

distribution capability in relation to both independent brokers and tied agents

(increasing numbers of Personal Financial Advisers and Group Schemes Advisers)

to remain the clear market leader in distribution. This advantage, coupled with

strong investment performance from 2004, helped push unit trust sales up 87%

for 2005, whilst leading product development (Max Investments and Max Income)

contributed to good Individual Life sales in our core life market, with APE up

10%. It was pleasing to see our bancassurance efforts in both Old Mutual Bank

and through Nedbank continuing to bear fruit in 2005. Better-coordinated and

resourced approaches to distribution in the corporate sales environment saw

Group Business life sales up 16%.

                                                                          %

Highlights (Rm)                                  2005       2004     Change

Life assurance*                                 3,819      3,754         2%

Long term investment return (LTIR)              1,453      1,668      (13%)

Asset management                                  801        542        48%

Adjusted operating profit                       6,073      5,964         2%

Return on Allocated Capital                       25%        27%           

EV adjusted operating profit (after tax)        4,648      5,350      (13%)

Embedded Value                                 30,944     26,386        17%

Adjusted return on Embedded Value               17.6%      20.9%           

Life assurance sales (APE inc. OMI)             3,932      3,519        12%

Unit trust sales                                9,348      5,004        87%

Value of new business (excl. OMI)                 614        698      (12%)

Life new business margin (excl. OMI)              16%        21%           

SA client funds under management (Rbn)            362        312        16%

 

* Includes income from associated undertakings

 

Solid underlying earnings growth

 

Overall earnings have shown a small increase to R6,073 million from R5,964

million in 2004, with a significant increase in Asset Management profits and

modest growth in Life Assurance profits being offset by a 13% reduction in the

LTIR.

 

Life Assurance profits showed modest growth of 2% to R3,819 million from R3,754

million in 2004, largely as a result of the cost of initiatives undertaken to

improve value for money of our products for customers. The major items within

this are a charge of R716 million in respect of the industry-wide response to

the challenge of early termination values for retirement annuities and

endowment policies. Other significant items impacting on profit included an 

increase of R115 million in the share-based payments charge to R270 million, 

driven by the increase in our share price and the impact of our continuing 

investment in distribution.

 

These items were largely offset by the positive impact of basis changes. Whilst

our strategy of investing in distribution has increased acquisition costs

temporarily, we have at the same time been successful in reducing unit

maintenance costs for retail policies. This success has allowed us to reduce

our valuation assumptions in this area, which together with reduced expense

inflation assumptions have released R900 million of reserves. In addition, the

higher market level had a positive impact on asset-based charges and fees.

 

Significant investment gains on the shareholder portfolio arising from the

underlying market strength were masked by the smoothing effect of the LTIR. The

LTIR of R1,453 million was R215 million lower than 2004, reflecting the lower

rates applied across all asset classes, combined with an increase in the cash

component of the portfolio since June 2004, and lower investible assets

following the increased investment in Nedbank Group.

 

The adjusted operating profit for the OMSA asset management businesses

increased by 48% to R801 million from R542 million in 2004. The strong

performance of the South African equity market, good performance fees earned by

Old Mutual Asset Managers (South Africa) ((OMAM) (SA)), combined with rapid

growth in unit trust funds and an investment revaluation gain in Old Mutual

Specialised Finance, all contributed to this result.

 

Growth of 16% in funds under management

 

Client funds under management increased by 16% to R362 billion from R312

billion at 31 December 2004, driven primarily by higher equity markets.

 

Net client cash flows of negative R18 billion have continued to disappoint

despite positive investment performance during the year. R17 billion of this

outflow, including R10 billion of funds withdrawn by the Public Investment

Corporation, occurred in the first six months of the year, with cash flow for

the second half negative R1 billion. The main area of outflows has been OMAM

(SA), which has suffered from the widespread trend to break up balanced

mandates and direct funds into specialised investment mandates.

Employee Benefits' cash flows have also suffered from the trend away from

guaranteed benefits that led to outflows from the Guaranteed Fund. Significant

management effort continues to be taken to reduce the outflow of client funds

and improve inflows through our distribution initiatives.

 

OMAM (SA) continued to deliver strong investment performance, improving its

ranking from third to second 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 December 2005, although it dropped from first to

sixth out of eleven over one year. At 31 December 2005, 72% of funds managed by

OMAM (SA) weighted by value outperformed their benchmarks over three years (58%

over one year).

 

The acquisition of Marriott Properties and Marriott Asset Management, with R20

billion of funds under management, was announced in October 2005. The

transaction is still subject to approval by the Competition Commission.

 

Exceptional growth of 87% in non-life sales

 

Unit trust sales grew in both our broker and agency channels, with sales for

the year increasing by 87% to a record R9.3 billion. Net cash flows also

increased significantly to R4.0 billion from R1.3 billion in 2004. This result

moves us from sixth to fourth market position on a gross inflows basis, and

from seventh to second on a net inflows basis (both comparisons exclude money

market funds).

 

Unit trust investment performance remained strong, with 53% of funds positioned

in the top quartile of their respective peer groups over the three-year period

to 31 December 2005, and 35% placed in the top quartile over the 12 month

period.

 

Life sales continue to benefit from investment in distribution

 

Our focus on investing in our distribution capability has benefited growth in

life and non-life sales. Total life sales (including South African sales into

Old Mutual International (OMI)) on an APE basis for the year increased by 12%

to R3,932 million as compared with R3,519 million achieved last year. Both

Individual and Group Business life sales were higher, the latter showing strong

growth in all areas, with the exception of the Healthcare segment.

 

Individual Life sales up 10%, reflecting strong increase in bancassurance sales

 

                                                                          %

Individual APE (Rm)                               2005      2004     Change

Savings                                          1,165     1,076         8%

Protection                                         710       651         9%

Immediate annuity                                  175       164         7%

Group Schemes                                      685       611        12%

Total excl. OMI                                  2,735     2,502         9%

OMI (SA only)                                      148       114        30%

Total incl. OMI                                  2,883     2,616        10%

Single                                             851       750        13%

Recurring                                        2,032     1,866         9%

 

Individual Business Life sales increased by 10% over 2004, with good growth

experienced across all product categories. Within this, single premiums showed

growth of 13% positively impacted by a strong increase in bancassurance life

sales through the Nedbank channel, up 92% on an APE basis compared with 2004

and underpinned by strong demand for our low cost MAX product range and our

offshore products sold via OMI.

 

Individual Life recurring premiums increased by 9% to R2,032 million from

R1,866 million last year, reflecting the ongoing benefit from growing headcount

in both our own agency channel and our Group Schemes sales force. Our combined

sales force totalled 5,460 at the end of December 2005, some 10% higher than

the position at 31 December 2004. Sales of regular premium life savings

products through our Group Schemes channel showed particularly strong growth.

 

Strong growth in Group Business sales

 

                                                                          %

Group APE (Rm)                                     2005     2004     Change

Savings                                             310      260        19%

Protection                                          157      120        31%

Annuity                                             162       42       286%

Healthcare                                          420      481      (13%)

Total                                             1,049      903        16%

Single                                              425      240        77%

Recurring                                           624      663       (6%)

 

Group Business life sales increased by 16% to R1,049 million compared with R903

million in 2004, with sales continuing to benefit from the investment in our

sales management processes and capability. This overall picture was driven by

strong single premium growth, 77% higher than last year, whilst sales of

recurring premium policies were 6% lower than last year.

 

The high growth in Group Business life single premiums was underpinned by

significantly higher demand for our annuity range of products than in 2004,

together with strong sales growth in savings products.

 

Group Business life recurring premiums suffered overall as a result of lower

Healthcare sales, which were 13% lower than 2004 due primarily to new customers

choosing lower levels of cover. Recurring premium protection sales, on the

other hand, increased strongly by 31%.

 

Lower value of new business as value for money for clients is improved

 

The after-tax value of new business (excluding OMI) was R614m, 12% lower than

in 2004. This reduction is a consequence of the initiatives we have taken to

improve value for money for customers as well as the investments we have made

to increase our distribution capacity.

 

New business margins have decreased correspondingly to 16% overall from 21% for

2004. Whilst the Group Business margin has increased slightly from 17% to 18%,

benefiting from relatively stronger sales growth in higher margin products, the

Individual Business margin has reduced significantly from 22% to 16% as

expected. We continue to anticipate margins in the 15% to 20% range.

 

Strong capital position

 

The capital strength of the South African life company is demonstrated through

the 3 times coverage of the Statutory Capital Adequacy Requirement (SCAR),

after allowing for statutory limitations on the value of certain assets. This

compares with the coverage of 2.4 times at 30 June 2005 and 2.6 times at 31

December 2004. The significant strengthening in this position results from the

increase in value of our shareholdings in Nedbank and Mutual & Federal,

together with the issue of a R3 billion 8.92% callable subordinated note in

October 2005. This has contributed to the diversification and flexibility of

the business's capital base, taking advantage of the current strong credit

appetite and low interest rate environment in South Africa.

 

Update on Pension Funds Adjudicator determinations

 

An industry-wide solution has been announced, in consultation with the South

African Finance Ministry, to resolve the challenge of poor early termination

values for retirement annuities and endowment policies in South Africa. The

life industry as a whole has estimated the cost of the solution at between 

R2.5 billion and R3 billion, with OMSA's results reflecting a charge of R716

million.

 

BANKING - NEDBANK GROUP (NEDBANK)

 

Strong results as benefits from strategic recovery programme continue

 

Nedbank's financial performance in 2005 was ahead of management expectations as

the business continued to benefit from the strategic recovery programme in a

positive economic environment.

 

                                                                          %

Highlights (Rm)                                   2005      2004     Change

Adjusted operating profit                        5,034     2,828        78%

Headline earnings*                               3,167     1,743        82%

Net interest income*                             8,529     7,145        19%

Non-interest revenue*                            8,483     8,379         1%

Net interest margin*                             3.55%     3.18%           

Cost to income ratio*                            65.1%     71.8%           

ROE*                                             15.5%     11.0%           

 

* As reported by Nedbank

 

Nedbank's adjusted operating profit, including asset management operations,

increased significantly by 78% to R5,034 million, compared with R2,828 million

in 2004. The continued positive banking and credit environment, resulting in a

relatively lower level of impairments, growth in Nedbank Retail's net interest

income, favourable private equity investment realisations and revaluations in

the Property Finance division, as well as expense containment contributed to

this improved result.

 

Solid growth was experienced in all three key operating divisions, with

headline earnings increasing by 82% to R3,167 million compared with R1,743

million for 2004. Nedbank Retail's results benefited from the turnaround

strategy implemented during 2004, with the rate of market share losses

decreasing in the key home loans market. Further benefits are expected now that

the integration of Peoples Bank into Nedbank has been completed. Nedbank Retail

continues to focus on building on its strategic objectives of generating

profitable asset growth and addressing the loss of market share as part of the

Retail 'fix it, grow it, and win it' strategy.

 

Strong growth of 19% in net interest income (NII)

 

Positive growth of 19% in NII helped to increase the net interest margin to

3.55% from 3.18% for the year to 31 December 2004. The margin benefited from an

improved mix of advances from strong asset growth in Nedbank Retail and Nedbank

Corporate's Business Banking divisions, the sale of non-core assets and from

the various initiatives undertaken in 2004. These initiatives include the

uplift created from the rights offer cash received in May 2004, reduced funding

drag following the revised hedging strategy, income from sale of non-core

investments and the repatriation of certain foreign capital during 2004. The

impact of these initiatives has more than offset the industry margin pressure

resulting from the lower interest rate environment.

 

Non-interest revenue (NIR) set to grow

 

The sale of certain subsidiaries in 2004 negatively impacted NIR which

increased by only 1% to R8,483 million compared with R8,379 million for 2004.

Deal flow, however, continues to improve with commissions and fees in the

existing businesses showing good growth of 6%. Nedbank's long-term goal is to

grow transactional revenue through a range of initiatives implemented to

improve cross-selling, up-selling, client service, pricing and bancassurance.

Whilst Nedbank recognises that transactional revenue growth is a longer term

goal and the full benefits are only expected to be realised over the next few

years, an increase in bancassurance sales of new business premiums of 95% was

experienced in 2005.

 

Cost to income ratio improves to 65.1%

 

Cost savings were achieved through tight expense control and a reduction in

recovery programme and merger expenses, resulting in total expenses increasing

by only R218 million to R11,157 million and contributing to the improvement in

the cost to income ratio to 65.1% compared with 71.8% for the prior year.

Good progress has been made towards achieving our target cost to income ratio

of 55% by 2007, with income growth for the year excluding the cost of the BEE

transaction, of 11.2% higher than expense growth and exceeding the target of

9%.

 

Return on equity (ROE) on track

 

ROE of 15.5% for the year significantly improved from the 2004 level of 11.0%,

and whilst still being below Nedbank's peers, is now comfortably above the cost

of capital. Despite the dilutive effects of the BEE transaction and the

accounting impacts of IFRS, Nedbank remains committed to achieving the 20% ROE

target by 2007 through the continued improvement in profit and the application

of sound capital management.

 

Strong capital position

 

Nedbank continues to be well capitalised with the Tier 1 capital adequacy ratio

increasing from 8.1% at 31 December 2004 to 9.4% at 31 December 2005. The total

capital adequacy ratio has increased to 12.9%, compared with 12.1% at 31

December 2004. This improved capital position has prompted the initiation of a

share repurchase programme by Nedbank, with just over 1 million ordinary shares

repurchased to date. This initiative further supports the efficient management

of Nedbank's Tier 1 capital and improves the business's overall capital mix.

Nedbank has also changed its dividend cover policy, reducing the cover ratio

from between 3 to 3.5 times headline earnings to between 2.5 to 3 times

headline earnings.

 

GENERAL INSURANCE - MUTUAL & FEDERAL

 

Strong results in a softening cycle

 

Mutual & Federal has performed strongly over the past year with an adjusted

operating profit of R1,178 million, a slight decrease from the 2004 result of

R1,190 million, reflecting the continuation of increasing pricing pressure on

premium income, and the negative impact of the reduction to the long term

investment return rates effective from 1 January 2005. This result has

benefited from the consolidation for the first time of the results of Credit

Guarantee Insurance Corporation (CGIC). Continued close management of expenses,

an overall relatively low level of significant Corporate and Commercial claims,

and the strong equity performance, with the JSE All Share index rising by more

than 45% during the year, also contributed to this result.

                                                                     

Highlights (Rm)                                                           %

                                                  2005      2004     Change

Adjusted operating profit                        1,178     1,190       (1%)

Underwriting ratio*                               8.4%      9.4%           

Gross premiums*                                  8,004     7,360         9%

Earned premiums*                                 6,882     6,449         7%

Solvency ratio                                   73.7%     56.1%           

Return on capital*                               20.2%     23.9%           

 

* As reported by Mutual & Federal

 

Solid premium growth at 9%

 

Total gross premiums for the year increased by 9% to R8,004 million, assisted

by the inclusion of CGIC. Excluding CGIC, gross premium growth would have been

3%, reflecting the intense levels of competition experienced in the market.

Each division has encountered challenges in defending its client base, with

particularly disappointing premium growth experienced in Personal schemes.

 

Following a change to interpretation of IFRS accounting rules and emerging

industry practice, from 1 January 2005 Mutual & Federal no longer consolidates

results of cells, entities into which clients may place business covering all

or part of their insurance risks, resulting in a R374 million reduction in net

premiums. As the cell results no longer form part of adjusted operating profit,

no transfer is required to minority interests, as was the case in prior years,

with this change in presentation having no effect on profit.

 

Claims maintained at a low level

 

Whilst a sharp increase in claims was experienced in the last quarter following

the impact of the expected seasonal weather, the overall level of commercial

and industrial claims remained relatively low for the year and positively

influenced the commercial portfolio. The claims ratio for the division improved

to 49% from 51% in 2004. The Personal division, however, was impacted by

adverse weather conditions and a noticeable decline in the profitability of the

motor account, which continued to be impacted by an increase in the incidence

of motor vehicle accidents. Management action has been taken to withdraw

certain motor group schemes in order to address the underperformance in this

division.

 

Healthy underwriting surplus maintained

 

The underwriting surplus of R577 million, although lower than the 2004 surplus

of R607 million, remained at a highly satisfactory level, representing an

underwriting ratio of 8.4% (the ratio of underwriting surplus to net earned

premiums). The Corporate section of the Commercial division, however, continued

to be impacted by aggressive competitor rate reductions.

 

The return on capital also remained strong at 20.2% due to the satisfactory

underwriting performance. The solvency margin at 73.7%, allowed an increase in

the Mutual & Federal final dividend to 115c. Mutual & Federal is reviewing its

current capital requirements, following the strong performance in 2005.

 

UNITED STATES

 

Profit up 11% reflects record fund flows

                                                                           

                                                                          %

Highlights (GBPm)                                  2005     2004     Change

Adjusted operating profit                           207      184        13%

Life assurance sales (APE)                          290      274         6%

Funds under management (GBPbn)                      131       97        35%

                                                                           

                                                                          %

Highlights ($m)                                    2005     2004     Change

Adjusted operating profit                           376      338        11%

Life Assurance Sales (APE)                          528      501         5%

Funds under management ($bn)                        226      185        22%

 

Adjusted operating profit for the US businesses increased by 11% from $338

million to $376 million in 2005, driven by record net cash flows and strong

investment performance in our US Asset Management business, offset by

historical reserve adjustments at US Life.

 

Funds under management increased by 22% to $226 billion, with the asset

management business contributing the majority of this growth, whilst the US

Life business experienced an 18% increase in funds under management to $20

billion. The 35% increase in funds under management on a sterling basis

reflects the dollar appreciation during 2005.

 

Outlook

 

The Group's focus in the US is on providing financial solutions to

'baby-boomers', with the life and asset management businesses well positioned

to meet this opportunity. We will continue to focus on delivering organic

growth in these businesses, particularly through building wholesale

distribution for the retail market and incrementally enhancing the breadth of

our products and investment styles.

 

At US Life we will continue to maintain strong pricing disciplines to achieve

sales growth in the higher margin, more profitable areas of the business.

Through strong capital management disciplines, the business continues to be

well positioned to achieve the target of delivering dividends from 2007.

 

At US Asset Management, the loss of higher margin assets during 2005, offset by

increased volumes of lower margin assets, may have a modest downward impact on

future earnings. However, we will continue to execute our strategy in the year

ahead, growing our core businesses, augmenting our capabilities where required,

and building up our retail platform and alternative investment business.

 

US LIFE

 

Continued strong growth

                                                                         

Highlights ($m)                                                           %

                                                  2005      2004     Change

Adjusted operating profit                          162       178       (9%)

Return on equity                                  5.8%      8.4%           

EV adjusted operating profit (after tax)           147        99        48%

Embedded Value                                   2,116     1,837        15%

Adjusted return on Embedded Value                   8%        7%           

Life assurance sales (APE)                         528       501         5%

Value of new business                               93        82        13%

New business margin                                18%       16%           

Funds under management ($bn)                        20        17        18%

 

The business continued its strong growth trend as it develops towards maturity

and capital self-sufficiency. The Group is committed to ensuring that adequate

infrastructure is in place to support this growing business, which has now

trebled in size since its acquisition in 2001. As part of a wider internal

transformation programme, we have chosen to implement a new financial and

actuarial system, working closely with our external advisors to build new

actuarial models. Several historical reserve adjustments were identified during

the course of this transition, resulting in net adjustments to valuation

reserves totalling $40 million, driving a 9% decrease in adjusted operating

profit to $162 million. The system migration is due for completion in 2006 and

is expected to provide significant enhancements to our internal processes.

 

The business has been successful in growing underlying profit in line with

funds under management since 2001 and despite the drop in 2005, we expect this

long term trend in profit to continue.

 

ROE for the year of 5.8% was negatively impacted by the lower operating profit

and $200 million capital injection in late 2004 to strengthen the business's

capital base and maintain the targeted risk-based capital (RBC) ratio at 300%,

coupled with the repatriation to the United States of a significant block of

annuity business from Old Mutual Re (Ireland) at the end of 2004.

 

APE up 5%

Total sales on an APE basis were $528 million for the year, an increase of 5%

from $501 million in 2004, underpinned by strong growth for the year of 40% in

life sales and 85% in offshore annuity sales through Old Mutual Bermuda.

 

Life product sales of $148 million for the year, compared with $106 million in

2004 reflect the success of our market penetration strategies, strong market

growth in the middle income sector and a strengthening of relationships with

our key distributors. We are now ranked 18th overall for sales in the life

market and remain the market leader for mortgage protection term insurance.

 

Equity Index Annuity sales was the single largest APE contributor, as agent and

consumer acceptance expanded the market.

 

Old Mutual Bermuda's sales reflected growth in our bank distribution, combined

with extensions to our product range to include fixed annuity and equity

indexed products modelled closely on our onshore products. Corporate sales

continued to be held at low levels due to the strength in retail sales.

 

Improved margins

 

The after-tax value of new business increased to $93 million, 13% higher than

in 2004, positively impacted by the growth in sales and an increase in the new

business margin from 16% for 2004 to 18% for the year. The increased margin is

at the upper end of our long-term expectations under EEV methodology and 

reflects the strengthening of our pricing disciplines, positive investment 

yields, and a favourable product mix.

 

Prudent action taken to build the strength of this business

 

Whilst the fundamentals of our US Life business model remain unchanged, the

strong sales growth experienced in the first nine months of the year allowed

management the opportunity to rationalise certain products and distribution

channels towards the end of 2005, providing the business with a more efficient

distribution network.

 

The increasingly efficient use of outsourced underwriting and administration

services also continued to differentiate the US operations. Our migration to a

new third party administrator has been successfully executed, contributing to a

reduction of 49% in our annual per policy unit costs compared with 2003, which

was the last full year prior to the move to outsourcing.

 

US ASSET MANAGEMENT

 

Record net cash flows contribute to strong operating result

 

The Group's US asset management business delivered excellent growth in adjusted

operating profit of $214 million, an increase of 34% over 2004. The combination

of record net cash flows, strong investment performance and positive equity

markets led to a 23% increase in asset levels to $226 billion for 2005.

 

                                                                          %

Highlights ($m)                                   2005      2004     Change

Adjusted operating profit                          214       160        34%

Funds under management ($bn)                     226.3     184.6        23%

Average funds under management ($bn)               207       165        25%

Net fund flows ($bn)                              26.3      12.3       114%

Operating margin                                   26%       24%           

 

Operating profit has also benefited from a significant increase in one-off

transaction and performance fees of $106 million in 2005, with the increase of

56% over 2004 sourced primarily from the Campbell Group and Heitman.

 

Funds up 23% to $226 billion

 

Funds at our US Asset Management business increased by 23% to $226 billion at

31 December 2005 from $185 billion at 31 December 2004, driven by record net

inflows of client assets totalling $26 billion. The net fund inflows were

achieved mainly in international and emerging markets equity, value equity and

fixed income, as well as $11 billion in cash collateral assets. Strong

investment performance and positive market action contributed 8.3% or $15

million towards this increase.

 

Funds under management were negatively impacted by the restructuring of the

Pacific Financial Research (PFR) team, which was announced during the third

quarter of 2005. Definitive management action taken to address the impact of

this reorganisation and significant fund inflows from other areas of the US

asset management business, resulted in minimal net cash outflows of less than

$400 million for the fourth quarter.

 

Barrow, Hanley, Mewhinney & Strauss, one of the affiliates in the US Asset

Management business, has been awarded the mandate to manage from the start of

2006, the Clipper Focus fund, formerly managed by PFR, and now renamed the Old

Mutual Barrow Hanley Value Fund.

 

Excellent fund performance

 

The record net fund inflows reflected the excellent investment performance

achieved by our member firms.

At 31 December 2005 86% and 95% of assets outperformed their benchmarks over

three and five years respectively. Over the same periods 52% and 68% of assets,

respectively, ranked in the first quartile of their peer group.

 

Building our distribution

 

Our retail initiative continued to gather momentum with gross sales of $1.9

billion, of which $445 million related to open-end mutual fund sales. We

invested $19 million in this initiative during the year, with the aim of

providing our affiliates with access to a higher margin market and further

diversifying revenue-generating sources for the Group. The business continued

to expand its product offering, with four new open-end mutual funds and two

closed-end fund products launched during 2005.

 

US Asset Management has actively worked to manage its portfolio during the

year, establishing a high- quality alternative investments business with the

launch of 2100 Capital, the initiation of our strategic partnership with Copper

Rock Capital Partners as well as the acquisition of Larch Lane, a New

York-based hedge fund specialist in October. In an effort to sharpen our

strategic focus, we divested ourselves of L&B Realty, Integra Global Advisors,

and UAM (Japan) during the year.

 

The US Asset Management business now primarily consists of profit-sharing

businesses, being left with only one significant revenue-sharing firm, First

Pacific Advisors, which has an option to acquire certain of the firm's assets

and liabilities with effect from October 2006.

 

UK & REST OF WORLD

 

A year of exceptional growth

 

Our UK & Rest of World asset management and life assurance businesses delivered

exceptional growth in adjusted operating profit to GBP24 million in 2005 from a

loss of GBP5 million in 2004.

                                                                           

                                                                          %

Highlights (GBPm)                                 2005      2004     Change

Adjusted operating profit                           24     (5.0)           

Funds under management (GBPbn)                     6.9       5.2        33%

Selestia sales                                     704       423        66%

 

Old Mutual Asset Managers (UK) (OMAM (UK)), in particular, produced strong

results with adjusted operating profit increasing to GBP13 million from GBP5

million in 2004. This result was driven by excellent hedge fund and retail unit

trust performance, combined with strong net fund inflows, resulting in a 38%

increase in funds under management to GBP4.7 billion. 2005 was OMAM (UK)'s most

successful year in terms of gross and net business, with gross sales of GBP1.1

billion. Overall, 67% by value of the retail unit trust funds produced top

quartile performance for the year, with the UK Select Mid Cap and the UK Select

Small Cap equity funds both ranked in first place within their sectors for the

year ending 31 December 2005.

 

Selestia has also continued to build critical mass with sales of GBP704 million

for 2005, an increase of 66% when compared to sales of GBP423 million in 2004.

 

The UK & Rest of World segment also includes the results from Old Mutual

International, the Far East and Bermuda with our interests in India continuing

to grow exponentially, now in its fourth full year of financial operation. The

business is currently operating from 45 branches in 31 cities across India and

has a sales force of around 10,500 tied agents.

 

Outlook

 

Going forward we will continue to pursue organic growth, with new product

launches and further development of our team capabilities planned for OMAM

(UK). The focus at Selestia is on continuing to build critical mass, with the

planned launch of a new pension product in response to the release of the

Pensions 'A' Day regulations.

 

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 year ended 31 December 2005

The financial information in this document does not constitute the Company's

statutory accounts for the years ended 31 December 2005 or 2004 but is derived

from the 2005 accounts. Statutory accounts for 2004, which were prepared under

the UK GAAP, have been delivered to the Registrar of Companies, and those for

2005, prepared under accounting standards adopted by the EU, will be delivered

following the Company's Annual General Meeting. The auditors (KPMG Audit Plc)

have reported on those accounts: their reports were unqualified, did not

include reference to any matters to which the auditors drew attention by way of

emphasis without qualifying their reports and did not contain statements under

Section 237 (2) or (3) of the Companies Act 1985.

 

                                                                       GBPm

                                                    Year to         Year to

                                                31 December     31 December

                                      Notes            2005            2004

Africa                                                                     

Long term business                    2(iv)             467             467

Asset management                     2(vii)              86              54

Banking                               2(vi)             394             203

General insurance                      2(v)             102             101

                                                      1,049             825

North America                                                              

Long term business                    2(iv)              89              97

Asset management                     2(vii)             118              87

                                                        207             184

United Kingdom & Rest of World                                             

Long term business                    2(iv)               8               6

Asset management                     2(vii)              15             (5)

Banking                               2(vi)              27              23

                                                         50              24

Finance costs                                          (37)            (49)

Other shareholders' income /        

(expenses)                          2(viii)            (25)            (30)

Adjusted operating profit*                            1,244             954

Goodwill impairment                    3(i)             (5)            (33)

Profit / (loss) on disposal of      

subsidiaries, associated            

undertakings and                                                           

strategic investments                 3(ii)              58            (27)

Short term fluctuations in          

investment return                    3(iii)             363             197

Investment return adjustment for    

Group equity and debt instruments                                          

held in life funds                     3(v)           (109)            (99)

Initial costs of Black Economic     

Empowerment schemes                   3(vi)            (72)               -

Income from hedging activities that 

do not qualify for hedge                                                   

accounting                            3(iv)               -              31

Fines and penalties                  3(vii)               -            (49)

Profit before tax (net of income    

tax attributable to policyholder                                           

returns)                                              1,479             974

Total income tax expense                  4           (484)           (344)

Less income tax attributable to     

policyholder returns                                    127              62

Income tax attributable to equity   

holders                                               (357)           (282)

Profit for the financial year                         1,122             692

Profit for the financial year is    

attributable to:                                                           

Equity holders of the parent                            867             559

Minority interests - ordinary shares   5(i)             203              74

Minority interests - preferred      

securities                            5(ii)              52              59

                                                      1,122             692

 

* For life assurance and general insurance businesses, adjusted operating 

profit is based on a long term investment return, includes investment returns

on investments in Group equity and debt instruments held in life funds and is

stated net of income tax attributable to policyholder returns. For all

businesses, adjusted operating profit excludes goodwill impairment, fines and

penalties, initial costs of Black Economic Empowerment schemes and

profit/(loss) on disposal of subsidiaries, associated undertakings and 

strategic investments. Adjusted operating profit excludes income from hedging

activities that do not qualify for hedge accounting.

 

Summary Consolidated Income Statement

for the year ended 31 December 2005 continued

The adjusted operating profit on an after tax attributable to equity holders

is determined as follows:

                                                                       GBPm

                                                    Year to         Year to

                                                31 December     31 December

                                      Notes            2005            2004

Adjusted operating profit                             1,244             954

Tax on adjusted operating profit          4           (308)           (244)

                                                        936             710

Minority interests - ordinary shares   5(i)           (185)            (94)

Minority interests - preferred        

securities                            5(ii)            (52)            (59)

Adjusted operating profit after tax   

attributable to equity holders                          699             557

 

The reconciliation of adjusted operating profit after tax attributable to

equity holders to profit for the financial period attributable to equity

holders is as follows. Details of items included in profit before tax but

excluded from adjusted operating profit are set out in note 3.

 

                                                                       GBPm

                                                    Year to         Year to

                                                31 December     31 December

                                                       2005            2004

Adjusted operating profit after tax             

attributable to equity holders                          699             557

Goodwill impairment                                     (4)            (17)

Profit / (loss) on disposal of subsidiaries,    

associated undertakings and strategic                                      

investments                                              32            (21)

Short term fluctuations in investment return            294             149

Investment return adjustment for Group equity   

and debt instruments held in life                                          

funds                                                 (109)            (99)

Initial costs of Black Economic Empowerment     

schemes                                                (54)               -

Income attributable to Black Economic           

Empowerment trusts of listed                                               

subsidiaries                                              9               -

Income from hedging activities that do not      

qualify for hedge accounting                              -              31

Fines and penalties                                       -            (41)

Profit for the financial period attributable to 

equity holders                                          867             559

                                                                           

                                                                          p

                                                    Year to         Year to

Earnings per share attributable to              31 December     31 December

equity holders                        Notes            2005            2004

Adjusted operating earnings per share*6(ii)            18.2            14.9

Basic earnings per share               6(i)            25.1            16.3

Diluted earnings per share             6(i)            24.3            16.3

Adjusted weighted average number of   

shares - millions                                     3,840           3,738

Weighted average number of shares -   

millions                                              3,456           3,422

                                                                        

*  Adjusted operating earnings per share is calculated on the same basis as

   adjusted operating profit, but is stated after tax and minority interests

   and excluding income attributable to Black Economic Empowerment trusts of

   listed subsidiaries. The calculation of the weighted average number of

   shares includes own shares held in policyholders' funds and Black Economic

   Empowerment trusts of the parent company.

 

Consolidated Income Statement

for the year ended 31 December 2005

                                                                       GBPm

                                                    Year to         Year to

                                                31 December     31 December

                                      Notes            2005            2004

Revenue                                                                    

Gross earned premiums                                 4,473           4,114

Outward reinsurance                                   (197)           (140)

Net earned premiums                                   4,276           3,974

Investment income (net of investment  

losses)                                               6,569           4,286

Banking interest and similar income                   2,198           2,023

Fee and commission income,                                                 

and income from service activities                    1,274           1,143

Other income                                            215             216

Total revenue                                        14,532          11,642

Expenses                                                                   

Claims and benefits (including change                                      

in insurance contract provisions)                   (7,795)         (5,901)

Reinsurance recoveries                                  226             143

Net claims incurred                                 (7,569)         (5,758)

Change in provision for investment                                         

contract liabilities (including       

amortisation)                                       (1,202)           (760)

Losses on loans and advances                          (103)           (104)

Finance costs (including interest                                          

and similar expenses)                                  (40)            (61)

Banking interest expense                            (1,434)         (1,459)

Fees, commissions and other           

acquisition costs                                     (389)           (413)

Other operating and administrative    

expenses                                            (2,179)         (1,954)

Change in provision for third                                              

party interest in consolidated funds                   (80)            (55)

   (12,996)        (10,564)

Share of associated undertakings'     

profit after tax                                         17              18

Goodwill impairment                                     (5)            (33)

Profit / (loss) on disposal                                                

of subsidiaries, associated           

undertakings                                                               

and strategic investments                                58            (27)

Profit before tax                                     1,606           1,036

Income tax expense                        4           (484)           (344)

Profit for the financial year                         1,122             692

Profit for the financial year is      

attributable to:                                                           

Equity holders of the parent                            867             559

Minority interests - ordinary shares   5(i)             203              74

Minority interests - preferred        

securities                            5(ii)              52              59

                                                      1,122             692

                                                                           

                                                                          p

                                                    Year to         Year to

                                                31 December     31 December

Earnings and dividend per share                        2005            2004

Basic earnings per share               6(i)            25.1            16.3

Diluted earnings per share             6(i)            24.3            16.3

Dividend per share                                     5.35            4.85

Weighted average number of 

shares - millions                                     3,456           3,422

                                                                           

Consolidated Balance Sheet

at 31 December 2005

                                                                       GBPm

                                                      At 31           At 31

                                                   December     31 December

                                                       2005            2004

Assets                                                                     

Goodwill and other intangible assets                  1,570           1,296

Investment in associated undertakings                    93             149

Investment property                                     847             690

Property, plant and equipment                           538             512

Deferred tax assets                                     458             440

Reinsurers' share of insurance contract provision       455             317

Deferred acquisition costs                            1,089             655

Current tax receivable                                   29              20

Loans, receivables and advances                      18,456          16,520

Derivative financial instrument assets                1,604           2,689

Financial assets fair valued through income        

statement                                            35,378          28,357

Other financial assets                               12,265           9,763

Short term securities                                 1,764           2,829

Other assets                                          2,409           2,074

Cash and balances with central banks                  3,051           1,513

Placements with other banks                             568             392

Total assets                                         80,574          68,216

                                                                           

Liabilities

Insurance contract provisions                        23,258          18,883

Liabilities fair valued through 

the income statement      

(including investment                                                      

contract liabilities)                                21,187          15,035

Third party interests in 

consolidation of funds                                  966             556

Borrowed funds                                        1,433           1,441

Provisions                                              504             510

Deferred revenue                                        138             139

Deferred tax liabilities                                611             386

Current tax payable                                     178             171

Deposits from other banks                             2,577           2,813

Amounts owed to other depositors                     15,509          15,251

Other money market deposits                           3,059           3,037

Derivative financial instrument liabilities           1,634           2,646

Other liabilities                                     3,101           2,652

Total liabilities                                    74,155          63,520

Net assets                                            6,419           4,696

Shareholders' equity

Equity attributable to 

equity holders of the parent                          4,751           3,265

Minority interests - ordinary shares                  1,012             783

Minority interests - preferred securities               656             648

Total minority interests                              1,668           1,431

Total equity                                          6,419           4,696

                                                                          

Consolidated Cashflow Statement

for the year ended 31 December 2005

                                                                       GBPm

                                                    Year to         Year to

                                                31 December     31 December

                                                       2005            2004

                                                                           

Cash flows from operating activities                                       

Profit before tax                                     1,606           1,036

Capital gains included in investment income         (4,340)         (2,523)

Loss on disposal of property, plant and         

equipment                                                 8               9

Depreciation of property, plant and equipment            61             121

Amortisation and impairment of intangible assets         75             110

Provision for bad debts                                 122             122

Share-based compensation expense                         94              15

Share of associated undertakings' profit after  

tax                                                    (17)            (18)

(Profit) / loss arising on disposal of          

subsidiaries, associated undertakings and                                  

strategic investments                                  (58)              27

Other non-cash amounts in profit                          9              19

Non-cash movements in profit before tax             (4,046)         (2,118)

                                                                           

Reinsurance assets                                     (83)               2

Deferred acquisition costs                            (276)           (269)

Loans, receivables and advances                     (3,233)           (512)

Insurance contracts                                   3,307           2,677

Investment contracts                                  2,319             928

Amounts owed to depositors (including bank and  

money market deposits)                                  983           1,544

Other operating assets and liabilities                  465           (650)

Changes in working capital                            3,482           3,720

Taxation paid                                         (314)           (323)

                                                                           

Net cash from operating activities                      728           2,315

                                                                           

Cash flows from investing activities                                       

Net disposal / (acquisition) of financial       

investments                                             644         (2,386)

Net disposal of investment properties                    40               9

Net acquisition of tangible fixed assets               (83)            (55)

Net acquisition of intangible fixed assets             (17)            (35)

Acquisition of interests in subsidiaries               (56)           (158)

Disposal of interests in subsidiaries,          

associated undertakings                                                    

and strategic investments                                33              84

                                                                           

Net cash inflow / (outflow) from investing      

activities                                              561         (2,541)

                                                                           

Cash flow from financing activities                                        

Dividends paid to:                                                         

Ordinary shareholders of the Company                  (184)           (166)

Equity minority interests and preferred         

security interests                                     (99)            (79)

Interest payable (excluding banking interest    

payable)                                               (40)            (48)

Net proceeds from issue of ordinary shares      

(including by subsidiaries to                                              

minority interests excluding Treasury shares)             2             232

Repayment of convertible debt                         (336)             (5)

Issue / (repayment) of subordinated debt                259            (62)

Issue of perpetual preferred callable securities        688               -

Other debt repaid                                      (10)            (29)

Net cash flows from financing activities                280           (157)

Net increase / (decrease) in cash and cash      

equivalents                                           1,569           (383)

Effects of exchange rate changes on cash and    

cash equivalents                                         86              93

Cash and cash equivalents at beginning of the   

year                                                  1,648           1,938

Cash and cash equivalents at end of the year          3,303           1,648

                                                                           

Consisting of:                                                             

Placements with other banks                             567             392

Cash and balances with central banks                  3,051           1,513

Other cash equivalents                                  382             218

                                                      4,000           2,123

Less: Cash and cash equivalents subject to      

consolidation of funds                                (697)           (475)

                                                      3,303           1,648

Statement of Changes in Consolidated Equity

for the year ended 31 December 2005

                                                                       GBPm

                                            Number of       Attributable to

                                        shares issued     equity holders of

Year ended 31 December 2005            and fully paid            the parent

Equity holders' funds at 1 January 2005         3,854                 3,265

Change in equity arising in the year                                       

Fair value gains / (losses):                                               

Property revaluation                                -                    27

Net investment hedge reserve                        -                  (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 / (expense)    

for the year                                        -                   930

Dividends for the year                              -                 (184)

Net purchase of treasury shares                     -                 (182)

Issue of perpetual preferred callable  

securities                                          -                   679

Issue of share capital                            231                   159

Net acquisition of minority interests               -                     -

Exercise of share options                           5                     4

Fair value of equity settled share     

options                                             -                    80

Equity holders' funds at 31 December   

2005                                            4,090                 4,751

                                                                           

                                                                       GBPm

                                                  Total minority      Total

Year ended 31 December 2005                             interest     equity

Equity holders' funds at 1 January 2005                    1,431      4,696

Change in equity arising in the year                                       

Fair value gains / (losses):                                               

Property revaluation                                           -         27

Net investment hedge reserve                                   -       (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 / (expense) for the year             290      1,220

Dividends for the year                                      (99)      (283)

Net purchase of treasury shares                                -      (182)

Issue of perpetual preferred callable securities               -        679

Issue of share capital                                         -        159

Net acquisition of minority interests                         26         26

Exercise of share options                                      -          4

Fair value of equity settled share options                    20        100

Equity holders' funds at 31 December 2005                  1,668      6,419

 

Statement of Changes in Consolidated Equity

for the year ended 31 December 2005 continued                         

                                                                       GBPm

Year ended 31                Share       Share        Other     Translation

December 2005              capital     premium     reserves         reserve

Attributable to equity     

holders of the parent                                                      

at                                                                         

1 January 2005                 386         600          445             122

                                                                           

Changes in equity arising  

in the year:                                                               

Fair value gains /         

(losses):                                                                  

Property revaluation             -           -           27               -

Net investment hedge       

reserve                          -           -         (50)            (28)

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                  -           -            -               -

Aggregate tax effect of    

items taken                                                                

directly to or transferred 

from equity                      -           -           34               -

Net income / (expense)     

recognised                                                                 

directly in equity               -           -        (151)             235

Profit for the year              -           -            -               -

Total recognised income /  

(expense) for                                                              

the year                         -           -        (151)             235

Dividends for the year           -           -            -               -

Net purchase of treasury   

shares                           -           -            -               -

Issue of perpetual         

preferred callable                                                         

securities                       -         (9)            -               -

Issue of share capital          23         136            -               -

Exercise of share options        1           3            -               -

Fair value of equity       

settled share options            -           -           80               -

Attributable to equity     

holders of the parent                                                      

at 31 December 2005            410         730          374             357

 

                                                                       GBPm

                                                        Perpetual          

                                                        Preferred          

                                          Retained       Callable      GBPm

Year ended 31 December 2005               earnings     Securities     Total

Attributable to equity holders of the     

parent                                                                     

at                                                                         

1 January 2005                               1,712              -     3,265

                                                                           

Changes in equity arising in the year:                                     

Fair value gains / (losses):                                               

Property revaluation                             -              -        27

Net investment hedge reserve                     -              -      (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)              -      (21)

Aggregate tax effect of items taken                                        

directly to or transferred from equity           -              -        34

Net income / (expense) recognised                                          

directly in equity                            (21)              -        63

Profit for the year                            867              -       867

Total recognised income / (expense) for                                    

the year                                       846              -       930

Dividends for the year                       (184)              -     (184)

Net purchase of treasury shares              (182)              -     (182)

Issue of perpetual preferred callable                                      

securities                                       -            688       679

Issue of share capital                           -              -       159

Exercise of share options                        -              -         4

Fair value of equity settled share options       -              -        80

Attributable to equity holders of the     

parent                                                                     

at 31 December 2005                          2,192            688     4,751

 

                                                                       GBPm

                                                         At              At

                                                31 December     31 December

Other reserves                                         2005            2004

Merger reserve                                          184             184

Available for sale reserve                               68             153

Investment property revaluation reserve                  39              26

Convertible debt reserve                                  -              17

Net investment hedge reserve                              -              50

Cashflow hedge reserve                                  (3)               9

Share based payments reserve                             86               6

                                                        374             445

 

Retained earnings have been reduced by GBP712 million at 31 December 2005 in

respect of treasury shares held in policyholder funds, ESOP trusts, Black

Economic Empowerment trusts and other related undertakings.

 

Statement of Changes in Consolidated Equity

for the year ended 31 December 2005 continued

                                                                       GBPm

                                            Number of       Attributable to

                                        shares issued     equity holders of

Year ended 31 December 2004            and fully paid            the parent

Equity holders' funds at 1 January 2004         3,837                 2,651

Changes in equity arising in the year                                      

Fair value gains / (losses):                                               

Gain on property revaluation                        -                     9

Available-for-sale investments                      -                   118

Shadow accounting                                   -                  (35)

Currency translation differences /     

exchange                                                                   

differences on translating foreign     

operations                                          -                   122

Cash flow hedge amortisation                        -                   (4)

Other movements                                     -                  (14)

Aggregate tax effect of items taken    

directly to or                                                             

transferred from equity                             -                  (18)

Net income recognised directly in      

equity                                              -                   178

Profit for the year                                 -                   559

Total recognised income / (expense)    

for the year                                        -                   737

Dividends for the year                              -                 (166)

Sale of treasury shares                             -                    25

Issue of share capital                              -                     -

Net acquisition / disposal of minority 

interests                                           -                     -

Exercise of share options                          17                    15

Fair value of equity settled share     

options                                             -                     3

Equity holders' funds at 31 December   

2004                                            3,854                 3,265

 

                                                                       GBPm

                                                  Total minority      Total

Year ended 31 December 2004                             interest     equity

Equity holders' funds at 1 January 2004                    1,212      3,863

Changes in equity arising in the year                                      

Fair value gains / (losses):                                               

Gain on property revaluation                                   -          9

Available-for-sale investments                                 -        118

Shadow accounting                                              -       (35)

Currency translation differences / exchange                                

differences on translating foreign operations                 81        203

Cash flow hedge amortisation                                   -        (4)

Other movements                                               11        (3)

Aggregate tax effect of items taken directly to or                         

transferred from equity                                        -       (18)

Net income recognised directly in equity                      92        270

Profit for the year                                          133        692

Total recognised income / (expense) for the year             225        962

Dividends for the year                                      (84)      (250)

Sale of treasury shares                                        -         25

Issue of share capital                                         5          5

Net acquisition / disposal of minority interests              66         66

Exercise of share options                                      7         22

Fair value of equity settled share options                     -          3

Equity holders' funds at 31 December 2004                  1,431      4,696

 

Statement of Changes in Consolidated Equity

for the year ended 31 December 2005 continued

                                                                       GBPm

                                             Share       Share        Other

Year ended 31 December 2004                capital     premium     reserves

Attributable to equity holders of the      

parent at                                                                  

1 January 2004                                 384         587          370

Changes in equity arising in the year                                     

Fair value gains / (losses):                                               

Gain on property revaluation                     -           -            9

Available-for-sale investments                   -           -          118

Shadow accounting                                -           -         (35)

Currency translation differences / exchange                                

differences on translating foreign         

operations                                       -           -            -

Cash flow hedge amortisation                     -           -          (4)

Other                                            -           -            2

Aggregate tax effect of items taken        

directly to                                                                

or transferred from equity                       -           -         (18)

Net income recognised directly in equity         -           -           72

Profit for the year                              -           -            -

Total recognised income / (expense) for the                                

year                                             -           -           72

Dividends paid in year                            -           -            -

Sales of treasury shares                         -           -            -

Exercise of share options                        2          13            -

Fair value of equity settled share options       -           -            3

Attributable to equity holders of the      

parent at                                                                  

31 December 2004                               386         600          445

 

                                         Translation     Retained      GBPm

Year ended 31 December 2004                  reserve     earnings     Total

Attributable to equity holders of the    

parent at                                                                  

1 January 2004                                     -        1,310     2,651

Changes in equity arising in the year                                     

Fair value gains / (losses):                                               

Gain on property revaluation                       -            -         9

Available-for-sale investments                     -            -       118

Shadow accounting                                  -            -      (35)

Currency translation differences /       

exchange                                                                   

differences on translating foreign       

operations                                       122            -       122

Cash flow hedge amortisation                       -            -       (4)

Other                                              -         (16)      (14)

Aggregate tax effect of items taken      

directly to                                                                

or transferred from equity                         -            -      (18)

Net income recognised directly in equity         122         (16)       178

Profit for the year                                -          559       559

Total recognised income / (expense) for  

the                                                                        

year                                             122          543       737

Dividends paid in year                             -        (166)     (166)

Sales of treasury shares                           -           25        25

Exercise of share options                          -            -        15

Fair value of equity settled share       

options                                            -            -         3

Attributable to equity holders of the    

parent at                                                                  

31 December 2004                                 122        1,712     3,265

 

Retained earnings have been reduced by GBP526 million at 31 December 2004 in

respect of shares held in policyholder funds, ESOP trusts and related

undertakings.

END 



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