Old Mutual plc Interim results for the half year ended 30 June 2015

Transcription

1 NEWS RELEASE Ref 558/15 6 August 2015 Old Mutual plc Interim results for the half year 2015 Strong financial performance Adjusted operating profit (AOP) of 904 million, up 20% in constant currency, 19% in reported currency AOP earnings per share of 10.3p up 18% in constant currency, 17% in reported currency Interim dividend of 2.65p up 8% Net client cash flow (NCCF) of 1.4 billion FUM at billion up 7% in constant currency, 5% in reported currency (vs FY) 508 million net free surplus generated (H1 : 467 million) Group ROE 15.0%, at the top end of our target range of 12-15% IFRS profit after tax distributable to equity holders of the parent of 260 million, up 22% in reported currency Transforming our prospects in our chosen markets Building an African financial services champion Strong performance by Old Mutual in South Africa, with profits up 14%, and profits up 31% in Rest of Africa Nedbank headline earnings up 16%; with Rest of Africa up more than 400% due to 20% stake in ETI Completed acquisition of UAP; implementing integration plan Building the leading retail investment business in the UK Profits at Old Mutual Wealth up 26%; up 33% excluding Quilter Cheviot and European divestments Quilter Cheviot integration on track; 100 day plan complete 1.2 billion of gross flows from Platform into OMGI; Intrinsic restricted advisers delivered 24% of Platform NCCF OM Asset Management (OMAM) Strong organic growth, with profits up 38% to $128 million, including $19 million due to an exceptional performance fee Sale of a further 13% of OMAM raised gross proceeds of $257 million, before underwriting costs Julian Roberts, Group Chief Executive, commented: This has been an exceptional six months for Old Mutual. Last year, we reallocated significant capital to buy quality businesses in our core markets. This year is about ensuring that these investments are fully integrated and making the returns we expect. We have an absolute focus on achieving this, while being a responsible business. Our businesses in South Africa continue to perform very well in the context of challenging economic conditions in large emerging markets. Old Mutual in South Africa grew profits by 14%, Nedbank grew its headline earnings by 16% and we are making good progress on these businesses working more closely together. Old Mutual s Rest of Africa businesses are growing strongly, with profits up 31%, and Nedbank s Rest of African division has seen very significant growth through the acquisition of a 20% stake in ETI. In the UK, we are seeing further proof that we have the right business model and believe we will be a net beneficiary from the ongoing reform in the pensions market. Pressure to deliver full access to pension freedoms, including drawdown for beneficiaries of a pension, creates additional opportunities for Old Mutual Wealth as one of the leading retail investment businesses. Nevertheless, I believe that the Government must balance pension liberalisation with the need for individuals to save for their retirement. This is the last set of results I will present as Group Chief Executive of Old Mutual. I am delighted to be able to pass on the stewardship of the Group to my successor when it is in such robust health. While we expect the next six months to be challenging for emerging markets, and exchange rate movements will likely temper sterling reported growth, I am confident that by remaining focused on meeting our customers needs and improving the operating efficiencies of the business we will continue to make good progress. 1 OLD MUTUAL plc INTERIM RESULTS 2015

2 Old Mutual plc interim results for the half year 2015 Enquiries Investor Relations Patrick Bowes UK Dominic Lagan UK Sizwe Ndlovu SA Media William Baldwin-Charles Notes to the financial summary on the front page of this announcement All figures refer to core continuing operations. Core continuing operations exclude the results of the Bermuda business, which is classified as non-core. Constant currency figures are calculated by translating the Group s principle local currency in (ZAR and USD) prior-period figures at the prevailing exchange rates for the period under review. AOP reflects the directors view of the underlying long-term performance of the Group. AOP is a measure of profitability which adjusts the IFRS profit measures for the specific items detailed in the notes in Part 3 of these interim results and, as such, it is a non-gaap measure. For core life assurance and property and casualty businesses, AOP is based on a long-term investment return, including returns on investments held by life funds in Group equity and debt instruments, and is stated net of income tax attributable to policyholder returns. For all core businesses, AOP excludes goodwill impairment, the impact of accounting for intangibles acquired in a business combination and costs related to completed acquisitions, revaluations of put options related to long-term incentive schemes, profit/(loss) on acquisition/disposal of subsidiaries, associated undertakings and strategic investments, fair value profits/(losses) on certain Group debt instruments and costs related to the fundamental restructuring of continuing businesses. AOP includes dividends declared to holders of perpetual preferred callable securities. Old Mutual Bermuda and Nordic are treated as non-core and discontinued operations in the AOP disclosure. As such they are not included in AOP. Refer to note B1 for further information on the basis of segmentation. Adjusted operating earnings per share is calculated on the same basis as AOP. It is stated after tax attributable to AOP and noncontrolling interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders funds and Black Economic Empowerment trusts. MCEV information is subject to departures from MCEV Principles (Copyright Stichting CFO Forum Foundation 2008) due to the use of the government bond yield curve in the majority of Emerging Markets. Cautionary statement This announcement contains forward-looking statements relating to certain of Old Mutual plc s plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond Old Mutual plc s control, including, among other things, global and UK and South African, domestic economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties, future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and regulations in territories where Old Mutual plc or its affiliates operate. As a result, Old Mutual plc s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out in its forward-looking statements. Old Mutual plc undertakes no obligation to update any forward-looking statements contained in this announcement or any other forward-looking statements that it may make. Notes to editors A webcast of the presentation on the interim results and Q&A will be broadcast live at 12:30 pm BST/UK time (1:30 pm South African time) today on the Company's website Analysts and investors who wish to participate in the call should dial the following numbers and quote the pass-code #: UK/International US South Africa Playback (available for 30 days from 6 August 2015), using pass-code #: UK/International OLD MUTUAL plc INTERIM RESULTS

3 Copies of these results, together with high-resolution images and biographical details of the directors of Old Mutual plc, are available in electronic format to download from the Company s website at The following documents, containing financial data for 2015 and, are also available from the Company s website. Presentation slides Appendix slides Financial Disclosure Supplement MCEV Supplementary information Sterling exchange rates South African Rand US Dollar Appreciation / (depreciation) of H H1 local currency against sterling Average Rate (2%) Closing Rate (5%) Average Rate % Closing Rate % 3 OLD MUTUAL plc INTERIM RESULTS 2015

4 Part Interim Review Contents News Release 1 Part Interim Review 4 Group Review 5 Overview 5 Business review 7 Board changes 10 Other announcements 10 Outlook 10 Part 2 Detailed Business Review 11 Part 3 Financial Information 45 OLD MUTUAL plc INTERIM RESULTS

5 Part Interim Review Group Review Group highlights ¹ H H1 (constant currency) change (as reported) change Adjusted operating profit (pre-tax, ) % % Adjusted operating earnings per share (pence) 10.3p 8.7p 18% 8.8p 17% IFRS profit after tax distributable to equity holders of the parent % % Return on equity % 13.2% 180bps Adjusted net asset value per share (pence) 4, p 212.8p (1%) 221.9p (5%) Net client cash flow ( bn) (13%) Gross sales ( bn) % % Group customer numbers (millions) % Funds under management ( bn) % % Interim dividend for the year (pence) 2.65p 2.45p 8% ¹ The figures in the table are in respect of core continuing operations only, unless otherwise stated 2 A full reconciliation of IFRS profit to AOP is shown in Part 2 3 Group ROE is calculated as AOP (post-tax and NCI) on an annualised basis divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities). It excludes non-core operations 4 The adjusted Group NAV per ordinary share uses an MCEV valuation basis for Emerging Markets covered business and the UK Heritage business in Old Mutual Wealth as well as the market value of listed subsidiaries. Other businesses and other assets are included at IFRS NAV 5 Comparative is at 31 December Overview In the first six months of the year Old Mutual has made further operational and strategic progress. At the presentation of our full year results for on 27 February 2015, we highlighted that our focus this year would be on integrating the acquisitions we have made, creating value from these investments and delivering operational improvements. We are making good progress in this regard. This will remain our focus while ensuring that our businesses continue to deliver sustainable, profitable growth and that we maintain a rigorous control on costs. Producing strong financial results Profits grew strongly in the six months up 20% in constant currency to 904 million and up 19% in reported currency. NCCF for the Group was 1.4 billion and excluding our non-us asset management affiliate, was 4.2 billion. Gross sales of 15.6 billion were up 25% in constant currency, with funds under management up 7% to billion also in constant currency. Annualised Group return on equity (RoE) at 15.0% was at the top end of our target range of 12 to 15%, benefiting from profit growth and the impact of a weaker rand. Against a varied macro-economic backdrop The economy in our main market of South Africa remains weak as it is affected by a number of wide ranging issues, including power outages, with GDP growth forecast to be 2.0% for the year. Wage demands and a rise in maize and electricity prices have created inflationary pressures. These factors continue to put pressure on the rand and the interest rate increase of 25 basis points in July will place further financial pressure on consumers. Growth in sub-saharan Africa is expected to remain strong at 4.4%, although Zimbabwe continues to slow down and the Nigerian economy is under pressure due to the low oil price. Growth in GDP in the UK is expected to moderate, from 2.9% in to 2.4% in 2015, with the US GDP growth forecast to be 2.5% for It has been a somewhat volatile six months for the equity markets. The average levels of the JSE All Share, FTSE 100 and Russell 1000 Value were all higher during the first half of 2015 than in the first half of. The JSE All Share the half 4% higher than it started the year, whereas the FTSE-100 and Russell 1000V were moderately down, 1% and 2% respectively. In currency terms, the rand has weakened by approximately 6% against sterling since the start of the year, and was 2% weaker on average than in the first half of. Despite the challenging macro-economic backdrop, demand and the need for financial services remains robust in South Africa and the rest of Africa, and this is supported by increasing awareness of financial services and digital access. Old Mutual has been able to deliver another strong performance by doing what it does best focusing on its customers, offering a broad and innovative product suite with competitive pricing and ensuring the Group has the right strategies in its key markets. 5 OLD MUTUAL plc INTERIM RESULTS 2015

6 Part Interim Review While continuing to deliver our strategy Building an African financial services champion We are making good progress in building an African financial services champion. In South Africa, we are ensuring our three businesses of Old Mutual South Africa, Nedbank and Mutual & Federal are collaborating more closely. Old Mutual South Africa has agreed to outsource certain of its IT infrastructure functions to Nedbank. This will allow both companies to leverage their joint scale and generate material synergy benefits over the next five years. The expected savings will form part of our target of R1 billion of collaboration synergies, of which we have now identified the full R1 billion. In October, Nedbank invested approximately R6 billion to obtain approximately 20% of Ecobank Transnational Incorporated (ETI), enabling clients to grow on the continent and providing shareholders with the opportunity to participate in higher growth in the rest of Africa. More than 70 Nedbank wholesale clients now conduct transactional banking with Ecobank. Nedbank continues to explore acquisition opportunities in the Southern African Development Community and East Africa. In response to the challenging macro environment, we have continued to focus on developing innovative products for our customers. In the second half of the year we will be launching the Old Mutual Money Account for our customers. This new transactional account and separate, but linked, savings account will have a low monthly administration cost and low charges and will also allow our customers to bank via their phones and the internet. We would expect persistency amongst our existing customers to improve if they transfer their banking account to the Old Mutual Money Account as well as for levels of saving to increase. Following the success of the 2-IN-ONE product in South Africa, we have also rolled out similar products into Namibia and Nigeria and will launch in Malawi in the fourth quarter of In South Africa, we continue to deploy our customers long-term savings into infrastructure and developmental impact assets that support socio-economic growth and are supportive of financial inclusion while generating attractive risk-adjusted returns for savers and pensioners. Our Development Impact Funds, part of Old Mutual Investment Group (OMIG) has invested or committed in excess of R13 billion in aggregate. The Developmental Impact Fund targets a number of areas: the backlog in affordable housing through the Housing Impact Fund; micro-finance, black SME finance and mortgage finance through the Financial Sector Charter and education through the Schools and Education fund. In addition, along with the state-owned National Housing Finance Corporation, Old Mutual has recently allocated more than R1.3 billion to provide affordable mortgage loan finance to the lower end of the housing market. Loan instalments will be increased with salary adjustments rather than interest rate movements making these loans more affordable for customers than traditional loan finance. We believe this to be an important innovation in mortgage finance, and an important initiative to drive broader and much needed financial inclusion in South Africa. Through the acquisition of a 60.7% stake in UAP, an East and Central African financial services company, we now have an East African business of scale, which has the right offering, network and skill sets to take advantage of the significant growth potential of these markets. The acquisition completed on 24 June 2015 from which date we consolidated the business in our Group financial statements. We are now in the process of integrating UAP with our existing Old Mutual Kenya and Faulu businesses. We have established a new board and management team to run the new entity and are in the process of implementing governance, finance, product and actuarial processes. The merger of our operations is expected to be concluded before year end. We have agreed with the Kenyan regulator that we will list the combined business on the Nairobi Stock Exchange in due course. In West Africa, we are seeing steady growth in our existing businesses in Nigeria and Ghana, and will increasingly look to harness the relationship we have with ETI in West Africa. In Nigeria, we are trialling a model very similar to the South African Mass Foundation business, and we are seeing particularly pleasing growth in savings products through our agency force. In Ghana, we have launched our bancassurance retail offering through ETI, which is one of the top three banks in the country, to sell our products through 35 of their branches. We expect to expand this offering to all 79 ETI branches in Ghana by the end of the year. Our existing mass market products in both countries will be enhanced during the second half of the year. Building the leading retail investment business in the UK This is an important period for Old Mutual Wealth as it continues its transformation and it is showing further evidence of the success of its vertically integrated model. For example: Intrinsic restricted advisers delivered 11% of platform sales and 24% of Platform NCCF in the period; Old Mutual Global Investors (OMGI) now manages some 13% of Platform funds, up from 9% at the same point in ; the Platform generated 1.2 billion (H1 : 0.8 billion) of gross flows into OMGI. Integration of Quilter Cheviot is progressing well and we continue to explore synergies via distribution and asset management. We believe that industry dynamics are boosting demand for tailored investment services for the high net worth customer segment and we will also seek to offer further opportunities to existing customers. For example, Quilter Cheviot added a selection of high-performing OMGI funds to their buy-list during the second quarter. We have also effected a number of cost synergies during the first half, including the implementation of centralised support services. We have continued to build our advice and distribution network in the UK, which we believe, is a critical element for a retail financial services business to succeed under the new regulations, and Intrinsic is now fully integrated into Old Mutual Wealth. It increased its restricted network to 988 advisers at the end of H1 2015, up from 840 in H1. In April, Intrinsic was selected by Sesame Bankhall Group to become their preferred adviser network partner. This is expected to lead to approximately 220 new wealth advisers joining our network. By the year end, we expect to have more than 1,200 restricted advisers within the Intrinsic network. OLD MUTUAL plc INTERIM RESULTS

7 Part Interim Review The project to build a best-in-class platform and outsource various administration functions to International Financial Data Systems (IFDS) is well underway. We are half way through building the requisite coding, with detailed testing and roll-out to follow. We have completed the detailed implementation planning and expect the cost of the project will be some 50 million more than the 160 million we had originally anticipated due to additional costs in relation to pension liberalisation, corporate activity, regulatory changes and the deferral of completion dates. In addition, we have identified opportunities to build a new customer interface and enhance our service and product offering as part of this project, and have ext the project scope to deliver this. These improvements will ensure even better digital functionality and flexibility and their development will cost a further 40 million. We now expect the system to go live at the start of 2017, with the timing dependent on minimising customer disruption and the outcome of detailed testing. The delivery of the new best-in-class platform remains a critical part of the strategy to build an integrated wealth management business, to deliver what our customers need as well as improving efficiency. We have incurred 40 million of costs in the first half of the year with regard to this project and expect these costs to be approximately 90 million for the full year. During the period, we completed the sale of our businesses in France and Luxembourg and on 29 May 2015 entered into an agreement to sell Skandia Switzerland to Life Invest Holding. As at 31 December the Swiss business had funds under management of CHF 1.3 billion. It made CHF 25 million of pre-tax adjusted operating profit in. Improving and growing our US asset management business OMAM had an excellent six months with higher margin net flows and continues to seek value enhancing acquisitions. Old Mutual further sold down its stake in OMAM during June to increase liquidity in the stock and to broaden and deepen the shareholder base. The Group sold 15.3 million OMAM shares raising gross proceeds of $257 million, less underwriting costs. Following the sale, the Group s holding of OMAM has been reduced to 65.8%. Old Mutual plc remains a supportive shareholder in OMAM. Becoming a leader in responsible business We have identified financial wellbeing, covering financial inclusion and financial education, and responsible investment, covering our commitment to invest in the green economy and infrastructure, as focus areas for our commitment to responsible business. We are now working to set clear and ambitious goals in these areas. We will also make it simple for our customers to choose investment funds that suit their needs. We recognise that we can have a greater impact working with strategic partners to deliver these programmes and will commission independent reports on their impact. More information regarding Old Mutual s responsible business commitments can be accessed on our website: Adapting to new regulatory frameworks The regulatory environments in South Africa and the EU continue to evolve. In South Africa, the regulatory frameworks of Solvency Assessment and Management (SAM) and Twin Peaks will come into effect in Under Twin peaks, Old Mutual South Africa and Nedbank have both been identified as Domestic Systemically Important Financial Institutions (D-SIFIs). We are in discussions with our regulators in South Africa and the UK over the implications of the Twin Peaks regime. In the UK, Solvency II comes into effect on 1 January Under the Financial Services Compensation Scheme (FSCS) Old Mutual Wealth has incurred a levy of 8 million. This is an industry levy and primarily driven via a number of company failures and pension transfers or switches to SIPPs with inappropriate underlying investments. Regulatory changes impose considerable direct costs as well as indirect costs. In the UK, the government is deregulating parts of consumer financial services to reduce charges and enhance flexibility for customers in managing their savings, whereas in South Africa there is a move to restrict access to savings and preserve savings pools. It is too early to determine which approach will most benefit the consumer. Business review The following business review refers to reported basis unless otherwise stated. AOP analysis by business unit () H H1 % change Core operations Old Mutual Emerging Markets % Nedbank % Old Mutual Wealth % Institutional Asset Management % % Central activities (67) (65) 3% Adjusted operating profit before tax % 7 OLD MUTUAL plc INTERIM RESULTS 2015

8 Part Interim Review AOP by business unit Old Mutual Emerging Markets profits increased 16% on a constant currency basis (14% on a reported basis) to 333 million, benefiting from good equity market performance, continued positive mortality and persistency experience and the impact of Old Mutual Finance (OMF) consolidation, partly offset by finance costs incurred since December on newly-issued OMLAC(SA) debt (issued in December and March 2015) of R3,061 million. Mutual & Federal has delivered significant improvement in its underwriting result in the current period due to strong claims performance. Nedbank delivered a good set of results, achieving an increase of 14% on a constant currency basis (12% on a reported basis) and an ROE (excluding goodwill) of 17.3%. Growth was driven by strong non-interest revenue generation, disciplined expense management and improvement in the credit loss ratio and from Nedbank s shareholding in ETI being associate income net of funding cost. Old Mutual Wealth profits rose 26%, to 151 million, with strong growth in the OMGI and other UK businesses. Intrinsic has continued to deliver strong flows into OMGI s Cirilium fund range and on to the Platform. Excluding Quilter Cheviot and divested business, underlying profits rose 33%. Institutional Asset Management profits rose strongly as a result of increased performance and management fees earned in the period. Excluding one-off exceptional performance fees and Rogge, underlying profits rose 17%. Central activities increased to 67 million from 65 million as a result of lower investment return on excess assets as a result of acquisition activity and weaker rand. The following business commentary refers to the locally reported currency. A further detailed business unit report is shown in Part 2 of these 2015 Interim Results. Continuing growth in Old Mutual Emerging Markets This has been another six months of strong profit growth from Old Mutual Emerging Markets, with AOP up 16% on the prior period mainly due to higher asset based fees, good risk experience, the consolidation of OMF and an improved performance from Mutual & Federal. Gross sales increased by 23% to R105.7 billion, mainly due to two large non-life deals in our Corporate business, excellent flows in OMIG and 19% growth in the Rest of Africa. The Corporate deals and OMIG performance also helped grow NCCF by 61% on the prior period to R14.8 billion. FUM was up 5% from the beginning of the year at R948.5 billion. In South Africa, Retail Affluent recorded profits of R1.9 billion, up 1% on a strong comparative period due to higher market levels and improved disability experience, partly offset by a planned reduction in administration fees for the new Wealth offering and higher adviser costs following investment in distribution. Gross sales were up 13%, with particularly strong APE sales, up 35%, due to strong sales of Old Mutual Invest (our tax free savings account), XtraMax and Wealth Life. Non-covered sales increased by 34%, with good growth in Old Mutual Wealth, OMUT and Private Client Securities. We have now recorded R177 million of APE sales from Old Mutual Invest, in the short period since launch in March. Mass Foundation s profits were up 60%, with half of the growth due to the consolidation of the increased stake in OMF and the balance from improved new business result and good retention. APE Sales were up 23% due to a combination of the increased ownership of OMF, good 2-IN-ONE sales, good sales from the enhanced funeral range and the change in the recognition of sales methodology, with the second quarter particularly strong with sales up 26% against the prior period following the completion of training in the first quarter. Excluding the methodology change and the impact of increased OMF ownership, the sales growth was 9%. We continue to expand our distribution footprint in the Mass Foundation market. Our branch adviser force increased by 9% since the start of the year and we have expanded the number of OMF branches by 21 branches from the prior year to 260 branches. Sales made through OMF branches now account for 27% of the total Mass Foundation life sales. In the Corporate business, APE sales of R707 million were down 31% on the first half of, which was particularly strong due to a number of significant group assurance deals. Non-life sales were R14.7 billion, against a R1.4 billion in, after the business secured two significant deals. Old Mutual Investment Group (OMIG) had an encouraging half, with investment performance continuing to improve across key equity and multi-asset funds. NCCF for the half was R2.0 billion, against R0.2 billion in, and non-covered sales were up 27% to R18.5 billion as OMIG secured a number of large mandates. However, profit for the period was down 14% to R463 million as higher OMSFIN profits were offset by a planned reduction in the fee basis for some retail funds and a return to normalised operating cost levels. The prior year also included one off gains in the Alternatives boutique. OMIG received a number of awards during the period, including: Hedge Fund Provider of the Year; and Futuregrowth was named Responsible Manager of the year for the third time. Property & Casualty in South Africa had a good first half of the year, with an underwriting profit of R147 million, against a loss of R75 million for the same period last year. AOP of R355 million was up significantly on the same period in (R129 million) with a significant improvement in claims experience. The Credit Guarantee Insurance Company (CGIC) delivered strong profits mainly due to maintenance of underwriting discipline and the absence of high profile corporate failures as was seen in early. We have reached agreement with Santam to acquire their 33.6% interest in Credit Guarantee Insurance Corporation of Africa Limited (CGIC) for a purchase consideration of cr600 million in cash. The transaction is subject to regulatory approval and expected to complete in H In the Rest of Africa, profits were up 31% with good profit growth in Zimbabwe, Malawi and Namibia. While Zimbabwe has had a good six months, the economic environment remains very challenging. Gross sales across Rest of Africa were up 19%, with APE sales 44% ahead of last year due to new business in Malawi, increased advisor numbers, credit life sales in Zimbabwe and good corporate sales in Namibia. Non-life sales were up 27% due to increased asset management flows in all countries, particularly Kenya. OLD MUTUAL plc INTERIM RESULTS

9 Part Interim Review In Latin America and Asia, profits were slightly down up [editor s correction] on the comparative period at R278 million, mainly due to higher Asia profits partially offset by lower profits in Latin America due to increased distribution costs in Mexico and currency devaluation. APE sales were up 62% to R877 million with excellent growth in India, driven by strong recurring premium individual savings business and Group recurring fund business, as well as good non-bank sales in China. Nedbank Nedbank delivered a strong set of results for the first half of 2015, achieving an increase of 15.7% in headline earnings to R5.3 billion underpinned by strong non-interest revenue (NIR) growth, disciplined expenses growth, ongoing improvement in impairments and faster growth from our activities in the rest of Africa, including associate income from our shareholding in Ecobank Transnational Incorporated (ETI). Diluted headline earnings per share (HEPS) increased 14.1% to 1,101 cents (June : 965 cents) and headline earnings per share grew by 13.7% to 1,128 cents (June : 992 cents). The increases in the return on average ordinary shareholders' equity (ROE), excluding goodwill to 17.3% (June : 16.5%) and the ROE to 16.0% (June : 15.1%) were driven by a higher return on assets (ROA) of 1.28% (June : 1.22%). Economic profit (EP) increased by 59.4% to R1.3 billion against a cost of equity of 13.0% (June : 13.5%). Nedbank remained well capitalised with the Basel III common-equity tier 1 (CET1) ratio at 11.4% (December : 11.6%) within the target range of 10.5% %. The liquidity coverage ratio (LCR) at 76.3% in the second quarter of 2015 (December : 66.4%) is well above the 60% requirement in 2015 and is reflective of adequate funding and liquidity levels. Nedbank s high-quality-liquid-assets (HQLA) and other sources of quick liquidity portfolio amounted to R142.2bn (December : R124.6bn). An excellent six months for Old Mutual Wealth This is an important year for the Wealth business and we are seeing significant transformation towards a vertically integrated wealth and asset management business. AOP was up 26% to 151 million (H1 : 120 million), including four months of Quilter Cheviot profit of 17 million. Excluding Quilter Cheviot, and recent European divestments profits were up 33% to 134 million. Profits from our core growth business were 112 million (H1 : 67 million) compared to 39 million (H1 : 53 million) from the Heritage business. We remain well placed to achieve our 270 million profit target, which excludes the contribution of Quilter Cheviot, at current market levels. Profit growth has been predominantly driven by revenue growth in our fast growing core businesses, with Old Mutual Global Investors profit up 88%, from 16 million at H1 to 30 million at H1 2015, and our Platform also showing good growth. Intrinsic continues to deliver strong flows into OMGI s Cirilium fund range and onto the Platform and is a key contributor to the growth in revenue in these businesses. Gross sales in the half were up 26% at 9.8 billion. UK Platform gross sales were 3.0 billion, 19% up on the first half of. OMGI sales were up 12% to 5.1 billion. Pension activity increased significantly following the pension liberalisation legislation introduced in April Our pension offering is well placed to help customers take advantage of these changes as we already have a flexible drawdown facility, which allows customers to access their cash immediately while retaining the balance of their assets in a pension wrapper. Pension sales are up 43% on the comparative period, and we have seen a notable increase in partial withdrawals although full cash drawdowns have not had a material impact. NCCF was 2.3 billion, 92% higher than the comparative period, with strong net flows into the UK Platform and our International businesses. Excluding Quilter Cheviot and the divested European businesses NCCF was 1.9 billion, 73% up on the first half of. This is a particularly pleasing result given the uncertain environment for retail investors in the first part of the year ahead of the general election and the run up to the pension liberalisation legislation taking effect. OMGI NCCF was 1.0 billion for the half (H1 : 1.1 billion) with the Global Equity Absolute Return fund continuing to attract strong net flows with NCCF of 0.8 billion year to date. Cirilium continues to perform well attracting 0.4 billion of NCCF in the first half. Following the strategic restructure in the fixed-income team, we saw outflows from the Global Strategic Bond fund, and while this has now stabilised we do expect some further outflows over the rest of the year. UK Platform delivered NCCF of 1.2 billion, 33% up on the prior half. NCCF was boosted by new flexi-drawdown enhancements on our pension product which we introduced following the new flexible pension rules introduced on 6 April WealthSelect continues to be successful, attracting over 0.5 billion of NCCF for the six months. Quilter Cheviot contributed 0.3 billion of NCCF in the first half. Investment in our International business is coming to an end and we are beginning to see this investment reflected in performance. The business contributed 0.3 billion of NCCF, up from 0.1 billion in the first half of, as sales of the Wealth Management Plan, launched in Hong Kong in March, began to gain traction and our new licence in Miami, which has resulted in increased sales into Latin America. Our European region benefited from a single case worth 54 million. Our business in Italy saw a significant uplift in NCCF to 0.4 billion due to expansion of distribution agreements. Institutional Asset Management OM Asset Management OMAM continued to generate strong organic growth with a significant increase in revenue from NCCF. AOP was up 38% at $128 million, including $19 million relating to an exceptional performance fee, and FUM increased 3% to $226.6 billion. Revenues of $379 million were 30% higher than the comparative period due to growth in average FUM and higher performance fees. 9 OLD MUTUAL plc INTERIM RESULTS 2015

10 Part Interim Review NCCF for the period was $0.6 billion. Gross inflows totaled $14.5 billion (H1 : $13.9 billion), driven by sales in international equities, emerging markets equities, and real estate classes. Gross inflows of $5.9 billion were from new client accounts during the period. Gross outflows totaled $13.9 billion (H1 : $11.3 billion) driven by U.S. value equity and some global equity products. Gross outflows of $0.5 billion relate to investment-driven hard asset disposals by Heitman, OMAM s real estate manager. OMAM s aggregate investment performance is reported as weighted by the revenue generated by its products. As of 2015, assets representing 70%, 74%, and 89% of revenue outperformed benchmarks over the one-, three- and five-year periods ( : 70%, 73%, and 75%, 31 March 2015: 55%, 70%, and 77%). On an asset-weighted basis, over the one-, three- and five-year periods 2015, 61%, 61% and 80% of assets outperformed benchmarks, compared to 57%, 62% and 61% at and 43%, 58%, and 64% at 31 March Non-US affiliate Rogge had net outflows of 2.8 billion in the half, with FUM at 28.0 billion down from 32.3 billion at the beginning of the year. Despite the continued improvement in investment performance, we expect heightened net outflows for the remainder of Dividend The Board has considered the position in respect of an interim dividend for 2015, and is declaring an interim dividend of 2.65p per share (or its equivalent in other applicable currencies). This is in line with our stated policy to pay an interim dividend of 30% of the prior year s total dividend. Further details of the interim dividend are contained in this morning s separate announcement on the subject. Board changes On 15 April 2015 the Company announced the appointment of Bruce Hemphill as Group Chief Executive in succession to Julian Roberts. Julian Roberts will remain as Group Chief Executive until Bruce Hemphill's start date on 1 November Bruce will be an Executive Director and based in London. Vassi Naidoo joined the Old Mutual plc Board as a non-executive director in May 2015, when he also succeeded Dr. Reuel Khoza as Chairman of Nedbank Group Limited and Nedbank Limited. Dr. Khoza retired from the Old Mutual plc Board at the end of the Annual General Meeting on 14 May Adjusted Group NAV per ordinary share Adjusted Net NAV per share was 210.9p compared to 221.9p at FY. The major movements between FY and HY 2015 were exchange rate losses of 9.1p, a net 1.4p of adverse movements in the value of quoted subsidiaries, a dilution of 0.9p due to an increase in the number of shares, general business growth and other movements of 6.8p and the final dividend of 6.4p. Outlook In our main market of South Africa we expect conditions to remain challenging as power shortages constrain growth and an upward interest rate cycle will increase financial pressure on consumers. However, our businesses in South Africa are in good shape and have been performing well despite the ongoing headwinds as we have focused on our customers through offering a broad and innovative product suite with competitive pricing. In the UK, we are seeing further proof that we have the right business model and believe we will be a net beneficiary from the ongoing reform in the pensions market. We remain well placed to achieve our 270 million profit target, excluding Quilter Cheviot s contribution, at current market levels. In the US, OMAM remained focused on pursuing growth opportunities including developing capabilities in new asset classes, through its global distribution initiative and through value enhancing acquisitions. We are confident that by remaining focused on meeting our customers needs and improving the operating efficiencies of the business, we will continue to make good progress. OLD MUTUAL plc INTERIM RESULTS

11 Part 2 Detailed Business Review Contents News Release 1 Part Interim Review 4 Part 2 Detailed Business Review 11 Group Financial Summary 12 Review of Financial Performance (Sterling) 12 Review of Financial Position 17 Emerging Markets 20 Emerging Markets data tables (Rand) 24 Nedbank 29 Nedbank data tables (Rand) 33 Old Mutual Wealth 35 Old Mutual Wealth data tables (Sterling) 38 Institutional Asset Management 40 Non-core business Bermuda 42 Part 3 Financial Information OLD MUTUAL plc INTERIM RESULTS 2015

12 Part 2 Detailed Business Review REVIEW OF FINANCIAL PERFORMANCE AOP Analysis Financial results in this part are on a reported basis unless otherwise stated AOP analysis by line of business () Line of business H H1 % change Life & Savings % Asset Management % Banking & Lending % Property & Casualty % Finance costs % (42) (41) 2% Long-term investment return on excess assets (15%) Interest payable to non-core operations (2) (2) - Corporate costs (24) (25) (4%) Other net shareholder (expenses) (10) (10) - Adjusted operating profit before tax % Tax on adjusted operating profit (235) (202) 16% Adjusted operating profit after tax % Non-controlling interests ordinary shares (157) (126) 25% Non-controlling interests preferred securities (10) (9) 11% Adjusted operating profit after tax attributable to ordinary equity holders of the % parent Adjusted weighted average number of shares (millions) 4,855 4,840 - Adjusted operating earnings per share (pence) % 1 Includes Institutional Asset Management, OMGI and Quilter Cheviot, OMEM and Nedbank s asset management businesses 2 Includes Nedbank, OMSFIN, Faulu in Kenya, CABS in Zimbabwe and Old Mutual Finance from FY 3 IFRS profit after tax attributable to equity holders of the parent was 260 million for the six months 2015 ( : 213 million). A full reconciliation of IFRS profit to AOP is shown later in Part 2 AOP by line of business Life & Savings profits were boosted by strong growth in insurance profits in South Africa. Asset Management earnings rose substantially following growth in profits in the U.S. and the UK. Banking & Lending profits grew through Nedbank s strong non-interest revenue generation, disciplined expense management, and continued improvement in the credit loss ratio, and associate income from the 20% shareholding in ETI. Increased profits from CABS and consolidation and growth at OMF also contributed which amounted to 10% of Banking & Lending profits in H Property & Casualty earnings showed a strong recovery in South Africa with strong claims cost management. Long-term investment return (LTIR) on excess assets decreased in 2015 as a result of a lower asset base following acquisition activity in Emerging Markets, as well as the impact of the weaker rand. Corporate costs were in line with prior year. Other net shareholder (expenses) will increase in the second half of the year, in part, due to the final implementation costs for Solvency II, which will be effective 1 January Based on the current underlying timetable and regulation of Solvency II, we estimate the total cost of completion will be up to 20 million, of which 10 million will be incurred in H2 2015, and the balance running into H In addition to the usual H2 uplifts, there are expected to be a further 10m of costs in relation to other Group initiatives, including costs related to the incoming Group Chief Executive. OLD MUTUAL plc INTERIM RESULTS

13 Part 2 Detailed Business Review Tax The AOP effective tax rate (ETR) for the Group has decreased slightly to 26.0% (H1 : 26.5%). As over 80% of the profits and tax before non-controlling interests arise in Emerging Markets and Nedbank, movements in the ETR in these businesses have a large impact on the Group ETR. The ETR in Nedbank fell slightly, mostly due to Ecobank being accounted for as an associate, while the ETR in our emerging markets businesses increased marginally due to a general reduction in tax exempt income. The ETR for our Old Mutual Wealth business is generally lower than those in our emerging markets businesses given the lower corporate tax rate in the UK and in the markets in which the International businesses operate. Interest and corporate costs incurred in the UK can be offset against profits in Old Mutual Wealth UK in the same year. Due to the uncertainty of utilising prior year losses these are not recognised. The tax environment within which the Group operates continues to be subject to significant change this has recently been illustrated by the UK Summer Budget of 8 July 2015, the release of draft tax law changes in South Africa on 22 July 2015, and the expected adoption by the G20 Heads of Government of various of the OECD s Base Erosion and Profit Shifting reports in September Nevertheless these are not expected to impact materially the Group s forecast 2015 AOP effective tax rate which, subject to market conditions and profit mix, continues to be forecast in the 25% to 28% range as previously indicated. Return on Equity Group return on equity () 1, 2 H H1 % change Adjusted Operating Profits from core operations % Average shareholders equity 6,680 6,422 4% Return on average equity % 13.2% ¹ ROE is calculated as AOP (post-tax) divided by average ordinary shareholders' equity (i.e. excluding the perpetual preferred callable securities). It excludes non-core operations 2 Half year return on equity is annualised The Group ROE increased by 1.8% to 15.0% and is at the top end of the 12% to 15% target. The increase is due to profit growth after tax and non-controlling interests of 18% being substantially higher than the average equity growth. Profits benefitted from 16% growth in the business units, driven by a strong underlying performance and through operating profits from inorganic activity in the period. Average equity is up 4% to 6,680 million (June : 6,422 million). The growth in average equity has been reduced by the impact of foreign currency translation effects on shareholder equity and the final dividend paid in May 2015 on closing equity. Return on Equity Group and local ROE (annualised basis) H () AOP Shareholder equity excl. intangibles 1 Return on shareholder equity excl. intangibles 2 Local ROE Old Mutual Emerging Markets 226 1, % 23.2% Nedbank , % 17.3% Old Mutual Wealth % 17.0% Institutional Asset Management >100% 15.0% Central Activities (63) 3,090 1,3 - - Group RoE 502 6, % % 4 ¹ Shareholders' equity is at Business unit figures exclude the Group share of 'Goodwill and other intangible assets' as reported in the segmental balance sheet; however these assets are included in the Group ROE 2 Calculated as AOP post-tax and NCI divided by average shareholders' equity excluding 'goodwill and other intangible assets' 3 Includes 'Goodwill and other intangible assets' and excludes the perpetual preferred callable securities and non-core operations 4 Group ROE is calculated using average ordinary shareholders' equity (i.e. excluding perpetual preferred callable securities) and excludes non-core operations 5 Local ROE for Nedbank excluding goodwill At an individual business unit level, each business performed well in relation to their expected medium and long-term ROE target ranges. 13 OLD MUTUAL plc INTERIM RESULTS 2015

14 Part 2 Detailed Business Review IFRS Results The Group IFRS profit after tax attributable to equity holders of the parent was 260 million for the six months 2015 (H1 : 213 million). Basic earnings per share (pence) was 5.4p as at 2015 and 4.5p as at. IFRS to AOP Reconciliation six months ending June 2015 Old Mutual Emerging Markets Nedbank Old Mutual Wealth Institutional Asset Management Other 2 Discontinued and non-core operations 3 Profit/(loss) after tax attributable to equity holders of the parent (42) 48 (73) (17) 260 Total adjusting items 1 48 (3) Tax on adjusting items 5 1 (26) (7) - - (27) Non-controlling interest in adjusting items (4) (4) (8) Discontinued and non-core operations AOP after tax and non-controlling interest (63) Total IFRS to AOP Reconciliation six months ending June Old Mutual Emerging Markets Nedbank Old Mutual Wealth Institutional Asset Management Other 2 Discontinued and non-core operations 3 Profit/(loss) after tax attributable to equity holders of the parent (81) 35 (97) Total adjusting items Tax on adjusting items (10) - (27) (1) 10 - (28) Non-controlling interest in adjusting items (4) (8) (12) Discontinued and non-core operations (4) (4) AOP after tax and non-controlling interest (61) Total IFRS to AOP Reconciliation year end December Old Mutual Emerging Markets Nedbank Old Mutual Wealth Institutional Asset Management Other 2 Discontinued and non-core operations Profit/(loss) after tax attributable to equity holders of the parent (37) 77 (119) (49) 582 Total adjusting items (16) Tax on adjusting items (20) (1) (14) (18) 17 - (36) Non-controlling interest in adjusting items (10) (15) - (3) - - (28) Discontinued and non-core operations AOP after tax and non-controlling interest (118) Full details of the adjustments applied in determining AOP is set out in note C1 to the Interim Financial Statements, which can be found in Part 3 of this document 2 Other: principally relates to post-tax central activities which include finance costs 3 Discontinued and non-core operations comprises: Loss of 17 million at 2015 which principally comprises of the US litigation expense of 21 million, offset by OM Bermuda profit of 4 million Adjusting items Old Mutual Wealth adjustments primarily arise from the amortisation of acquired intangibles and acquired PVIF of 46 million, mainly resulting from the Skandia transaction in 2006, 40 million of restructuring costs in relation to the transformation IT project `and the impairment of goodwill and other intangibles in Skandia Switzerland prior to its expected disposal in the second half of 2015 in respect of 94 million. In May 2015, the Group settled litigation arising from the disposal of US Life in 2011 following a court ruling in favour of the plaintiff on the main matter in dispute., an expense of 21 million (: 19 million) was recognised in the income statement in relation to this matter. Total OLD MUTUAL plc INTERIM RESULTS

15 Part 2 Detailed Business Review Free surplus generation Our businesses have generated free surplus of 508 million in the first half of 2015 (H1 : 467 million), which represents a conversion rate of 90% of AOP post-tax and NCI (H1 : 96%). The reduction in conversion rate is largely due to lower investment returns in Emerging Markets against a strong comparative. Group cash flows () H H1 FY Opening cash and liquid assets at holding company at 1 January 1, Operational flows Operational receipts from northern hemisphere businesses Operational receipts from emerging markets businesses Corporate costs and other operational flows (86) (17) (30) Total operational flows Capital servicing Interest paid (16) (16) (32) Preference dividends (17) (17) (32) Ordinary cash dividends (297) (285) (411) Total servicing of capital (330) (318) (475) Capital movements Net business unit funding (38) Issue of ordinary shares - - (5) Total capital movements (38) Other Group cash movements Net corporate activity 1 (287) (13) 453 Total Group cash movements (287) (13) 453 Closing cash and liquid assets at holding company at end of period ,003 1 Old Mutual Emerging Markets and Nedbank corporate activity was funded directly by those businesses Operational cash flows A total of 288 million (H1 : 241 million) has been remitted by the operating business units to the Group Holding company during the first half of This increase reflects higher remittances from Old Mutual Emerging Markets and Old Mutual Wealth. The increase in Old Mutual Wealth remittances is largely due to timing as no material dividends had been received in the comparative period. The OMAM remittances are lower following its partial listing in October, the Group now receives a dividend based on 25% of Economic Net Income (ENI) and annual payment in respect of deferred tax whereas in the comparative period all available cash was remitted. Servicing of capital Dividend payments to shareholders of 297 million have been made in the year to date in relation to the final dividend for, of which 175 million was paid to shareholders in southern Africa. Capital movements Group capital movements year to date in 2015 include the co-investment returns of 3 million from OM Asset Management, less the redemption of 25 million in respect of Bermuda funding and 16 million seed investment. Corporate activity Cash flows from corporate activity includes the payment of 566 million to fund the Quilter Cheviot acquisition and the receipt of 156 million (net of costs) from the sale of OMAM shares in a secondary offering and after the litigation settlement relating to the disposal of US Life. 15 OLD MUTUAL plc INTERIM RESULTS 2015

16 Part 2 Detailed Business Review Liquidity At 2015, the Group holding company had available liquid assets of 550 million ( : 466 million; 31 December : 1,003 million) invested in cash and near cash instruments, including; money market funds, UK government securities and a highly liquid corporate bond portfolio. The Group holding company also has access to an undrawn committed facility of 800 million (30 June : 800 million; 31 December : 800 million). In addition to cash and available resources held at the Group holding company level, which are considered adequate to support the Group under both normal and stressed conditions, each individual business also maintains liquidity and credit facilities sufficient to support its normal trading operations and to withstand stress events. Group debt Group debt summary 1 H FY Senior gearing (gross of holding company cash) - IFRS basis 1.8% 2.1% Total gearing (gross of holding company cash) - IFRS basis 14.0% 13.3% Book value of debt - IFRS basis () 1,613 1,540 Total interest cover times 16.8 times Hard interest cover times 4.3 times 1 Excludes banking-related debt of 2,479 million at Nedbank and Old Mutual Emerging Markets ( 135 million is held at OMF, 28 million is held at CABS and 11 million is held at Faulu) 2 Total interest cover and hard interest cover ratios exclude non-core operations. Hard interest cover now calculated to exclude LTIR on excess assets and all OMEM and Nedbank earnings (previously only adjusted for earnings in South Africa and Rest of Africa). Comparatives have been restated Maturity profile of debt outstanding at 2015 The Group has first calls on capital instruments of R3,000 million ( 157 million) Tier 2 debt, issued by OMLAC(SA) exercisable in October 2015, and at the holding company level, 374 million ( 266 million) Tier 2 debt, exercisable in November. The Group also has 112 million of senior debt maturing in October 2016, 273 million of Tier 1 debt exercisable in March 2020 and 500 million of Tier 2 debt maturing in June OMLAC(SA) has a further R1,000 million ( 53 million) Tier 2 debt callable in November In addition, during the year, OMLAC(SA) raised R1,524 million ( 79 million) in fixed rate Tier 2 bonds and R537 million ( 28 million) in floating rate Tier 2 bonds in the South African bond market. The fixed instruments have first calls in 2020, 2022 and 2025, the floating bond has first call in OMLAC(SA) is continuing with this programme and intends issuing further debt in H OM Asset Management has drawn $145 million ( 92 million) on a $350 million 5 year Revolving Credit Facility. Nedbank has a remaining 243 million of maturities on its debt for the second half of Nedbank redeemed R1.8 billion of hybrid debt in January 2015, and issued R2.3 billion of Basel III compliant debt in line with its capital plan. Normal course debt management remains important to us in terms of both our liquidity and solvency positions. OLD MUTUAL plc INTERIM RESULTS

17 REVIEW OF FINANCIAL POSITION Capital Part 2 Detailed Business Review The Group s capital position is managed to optimise shareholder value creation within evolving regulatory regimes, ensuring that both Group and subsidiary businesses are appropriately capitalised under local and Group capital rules, are resilient to stress scenarios and have the resources to deliver on current strategic plans. The Group capital position is supported by debt and hybrid instruments and takes account of operating within appropriate and sustainable levels of debt gearing including stress scenarios. Business Unit regulatory solvency strength The Group s subsidiary businesses continue to have strong and resilient local capital. This is consistent with the Group s strategic controller model and philosophy of ensuring that capital resides where the risks lie, and is sufficient for risks associated within extreme scenarios. The table below summarises the principal local statutory capital positions. Local currency Capital Resources Capital Requirements Surplus H FY Old Mutual Life Assurance Company (South Africa) (OMLAC(SA)) 1 (Rbn) x 3.1x Mutual & Federal 2 (Rbn) x 1.8x Nedbank 3 (Rbn) % 14.6% UK 4 ( bn) x 2.7x Bermuda 5 ($bn) x 1.3x ¹ South Africa Statutory Valuation Methods (SVM) in accordance with the FSB requirements ² Capital Adequacy Requirement (CAR) in accordance with the FSB requirements ³ Basel III valuation method and including unappropriated profits and showing total Group Capital Adequacy ratio 4 FGD basis (we are not required to report to the PRA separately) 5 Enhanced Capital Requirement as set by the Bermuda Monetary Authority Group regulatory capital - Financial Groups Directive (FGD) The Group currently measures its Group solvency and regulatory capital in accordance with the EU Financial Groups Directive (FGD). The FGD methodology and framework differ fundamentally from the risk based Solvency II regime, to which the industry will transition on 1 January The Group s regulatory capital surplus, calculated under the FGD, was 1.7 billion at 2015 (31 December : 2.1 billion as reported to the PRA) representing a statutory cover ratio of 151% (31 December : 164%). The movement in surplus and coverage ratio is due to a decrease in capital resources as a result of corporate activity including the acquisition of Quilter Cheviot and UAP Holdings, partially offset by the unwind of the BEE schemes and the sell-down of an additional 12.9% of OMAM. The capital requirements in rand increased as a result of growth in Nedbank s risk-weighted banking assets and the continued growth in the protection part of OMEM s insurance book. Group regulatory capital (FGD basis) ( bn) H FY 1 Capital resources Capital requirements Surplus Coverage Ratio 151% 164% 1 As reported to the PRA in April % of the Group FGD resources of 5.0 billion comprise of qualifying debt instruments (totalling 1.7 billion). These provide additional liquidity as well as optimising the Group s Weighted Average Cost of Capital (WACC). They consist of 1.0 billion of debt instruments issued at the Group holding company and 0.3 billion at the Group s South African subsidiary Old Mutual Life Assurance Company (South Africa) Limited (OMLAC(SA)) and 0.4 billion at Nedbank. Regulatory capital has been assessed in the context of various stress scenarios. This analysis indicates that a 1% fall in the ZAR/GBP exchange rate would result in a 11 million reduction in the surplus (: 13 million reduction), and if the ZAR/GBP weakened to R25, the surplus would reduce to 1.4 billion, yet the FGD ratio coverage would increase to 154%. The cover ratio is resilient to movements in exchange rates in a stress scenario because both the capital resources and the capital requirement fluctuate with changes in those same exchange rates. 17 OLD MUTUAL plc INTERIM RESULTS 2015

18 Part 2 Detailed Business Review Future Regulatory Capital assessment- Solvency II and Solvency Assessment and Management (SAM) The Group is progressing our Solvency II and SAM implementations in line with our plans. SAM has been delayed until at least Q We expect that formal PRA approval applications will only be received late in 2015 and as such, we continue to operate in a period of uncertainty in respect of the ultimate basis for Group Solvency until early 2016, when we should have clarity on the outcome of the calculation methodology. The Solvency II regime will introduce a different lens through which to look at Group capital. It will use a more conservative 1 in 200 stress scenario in determining capital requirements and apply a more rules-based determination of capital fungibility and transferability. The Group result will also depend on the assumptions and aggregation models used in Solvency II calculations. Irrespective of the outcome of certain specific aspects used to determine the Group position under Solvency II, the local regulatory capital strength relative to the risks of our underlying business will remain unchanged. By comparison, the FGD regime is not a risk based regime and assumes full fungibility and transferability of capital across geographies. Given the inherent conservatism of Solvency II compared to the FGD regime, it is likely that Solvency II will result in the reporting of lower yet more resilient levels of Group surplus regulatory capital and a lower Group coverage ratio when compared with the FGD regime. This view is unchanged on that shared at our Preliminary Results announced in February During July 2015, we completed our initial reporting to regulators under the interim arrangements of Solvency II. Our preparation and readiness for the full Pillar 3 reporting under Solvency II and SAM, which is required from 2016 onwards when the new regimes become effective, is progressing well. However, preparing for reporting under the new regulations requires significant effort and investment in reporting processes for our businesses. Given the delays in the SAM legislative process, the South African entities will be subject to a period of dual reporting under both old and new regulations. Risk Management Principal risks and uncertainties Our principal risks have been determined by assessing the possible effects on our reputation, our stakeholders, our earnings, capital and liquidity, and the future sustainability of our business. These risks are closely monitored by local management and independent subsidiary boards and overseen by Group management. They are reported to the Board on a regular basis. The Group s principal risks remain largely unchanged during However, given the successful completion of the purchase of Quilter Cheviot and regulatory approval of the UAP acquisition, execution and integration risk has increased. The IT transformation of Old Mutual Wealth is a complex and substantial project which involves implementation and execution risk given the new nature of the technology solution being employed. The most significant external risk to earnings relates to our exposure to South African economic conditions and the impact thereof on our South African customer base, as well as the value of the Group s earnings when translated from rand to Sterling. As previously discussed, the South African economy remains weak. The rand has depreciated in 2015, but remains within the Group s business plan stress test boundary levels. The Group holds capital in the location where its risks reside, which naturally hedges some balance sheet currency translation risk. To mitigate the impact of currency fluctuations on Group liquidity, the Group uses forward currency contracts to hedge expected rand cash flows needed to make dividend payments in Sterling. Within Nedbank, the increased holdings in Ecobank introduced a different form of currency risk, as Nedbank is now exposed to movements in ETI s foreign currency translation reserve as detailed in Nedbank s Interim Results disclosures. In line with our peers, there is significant regulatory change impacting the financial services sector in the territories we operate. There continues to be change in the conduct agenda of regulators in terms of the way business is sold or the nature of the products designed to achieve required customers outcomes. Our focus on responsible business, core values and culture gives us confidence to embrace these changes, and we continue to monitor the position carefully. In most of the territories in which we operate there is increasing focus by the regulators on companies management of money laundering risk, in particular demonstrating suitable processes and documentation for customer identification and risk profiling. In addition, international tax co-operation initiatives such as the OECD Common Reporting Standard and US FATCA are increasing client data gathering and management obligations. We have significantly increased our programmes of work in these areas and we will incur additional costs for some time to meet these rising regulatory requirements. As previously discussed, the Twin Peaks system of regulating the financial sector in South Africa is due to come into effect on 1 April We are actively preparing to meet the proposed regulatory requirements and are in discussion with the Group s regulators over the implications of both Old Mutual South Africa and Nedbank being identified as D-SIFIs. In addition to regulatory changes, there are a number of tax changes to the treatment of long term savings and pensions which could have an impact on how our products are designed and sold in future. We continue to monitor developments and adapt accordingly. Further discussion of these risks and the process by which the Group routinely assesses and responds to the changing risk environment was provided in the Annual Report and Accounts and available on the Investor Relations section of the Group website. Tax risks and uncertainties The Revenue authorities in the principal jurisdictions in which the Group operates (South Africa, United Kingdom and the United States) routinely review historic transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions in which they operate. All interpretations made by management are made with reference to the specific facts and circumstances of the transaction and the relevant legislation. OLD MUTUAL plc INTERIM RESULTS

19 Part 2 Detailed Business Review There are occasions where the Group s interpretation of tax law may be challenged by the Revenue authorities. The financial statements include provisions that reflect the Group s assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such potential settlements are sufficient. Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised. Corporate activity As part of its corporate activity, the Group undertake acquisitions and disposals. In certain transactions, in addition to the stakes acquired, the Group may obtain options to acquire additional stakes at market value or other amounts. The Group has previously entered into a combination of put and call options to acquire an additional 23% stake in its Indian life joint venture from the current holding of 26%, which would be settled at the fair value of the stake if and when exercised. Group gross flows and funds under management (FUM) ( bn) FUM 1-Jan-15 Gross inflows Gross outflows Net flows Market and other movements FUM 30-Jun-15 Net flows as % of opening FUM (annualised) Emerging Markets (5.0) 0.8 (1.5) % Nedbank (5.9) 0.7 (0.3) % Old Mutual Wealth (7.5) % Invest and Grow markets (7.7) % Manage for Value markets (1.1) (0.2) (2.1) 14.8 (2%) Eliminations (8.0) (1.5) 1.3 (0.2) (0.1) (8.3) 5% Institutional Asset Management (12.7) (2.4) (3%) OM Asset Management (9.1) % Non-US based affiliate (3.6) (2.8) (1.5) 28.0 (17%) Core operations (31.1) % FUM 1-Jan-14 Gross inflows Gross outflows Net flows Market and other movements FUM 30-Jun-14 Net flows as % of opening FUM (annualised) Emerging Markets (4.3) 0.5 (0.6) % Nedbank (5.7) % Old Mutual Wealth (6.5) % Invest and Grow markets (6.1) % Manage for Value markets (1.5) (0.4) (4%) Eliminations (7.4) (1.6) 1.1 (0.5) 0.1 (7.8) (14%) Institutional Asset Management (10.6) (0.7) (1%) OM Asset Management (6.7) % Non-US based affiliate (3.9) (2.3) (13%) Core operations (27.1) % At 2015, Funds Under Management grew by 12% to billion compared to that at the end of. Funds under management in Old Mutual Wealth increased by 22%, primarily as a result of the acquisition of Quilter Cheviot in February 2015, which added 17.5 billion of funds under management. For HY 2015, Group net flows as a percentage of opening Funds Under Management were 1%, with 2.8 billion of net outflows from the Group's non-u.s. based asset management affiliate. Excluding these outflows NCCF over opening FUM was 3%. 19 OLD MUTUAL plc INTERIM RESULTS 2015

20 Part 2 Detailed Business Review Old Mutual Emerging Markets Highlights (Rm) H H1 % change AOP (pre-tax) 6,044 5,198 16% Gross Sales 105,747 85,759 23% Covered sales (APE) 5,474 4,544 20% NCCF (Rbn) % FUM (Rbn) % IFRS profit after tax attributable to equity holders of the parent 3,214 3,641 (12%) 1 FUM is shown on an end manager basis and prior year comparative represents the balance at 31 December Operating environment Emerging Markets business had a strong first half of 2015, despite slowing economic growth. The slowdown in emerging markets can be attributed to lower commodity prices, and the rebalancing of the Chinese economy and volatile exchange rates. In South Africa, the SARB reported a narrowing trade deficit for the first quarter of 2015, however despite the improvement, the deficit remains relatively large. The economic landscape remains challenging with the wide-ranging impacts from power outages, the depreciating rand, protracted labour wage negotiations and a drought creating inflationary pressure, adversely impacting the economy. GDP growth forecasts have been revised down from 2.1% to 2.0% for Despite this, the recent credit rating cycle resulted in Fitch and S&P maintaining the SA sovereign rating, albeit with precautions. South African equity markets reached all-time highs during the first half of 2015, but have remained volatile and have shown some vulnerability over recent months exacerbated by anticipated increases in US interest rates. In the rest of emerging markets, the lower oil price has negatively impacted government revenues and economic growth for net oil exporters, particularly in Colombia and Nigeria, while stimulating growth in other countries. As a result, the local currencies in Colombia and Nigeria have continued on a depreciating trend against the US dollar. The Zimbabwe economy continues to slow down, amid considerable political uncertainty, evidenced by the Zimbabwean stock exchange declining by 9% since the start of the year. Other southern African economies have proved resilient and are attracting increased foreign direct investment. China s economic growth continues to slow from historically strong levels of growth, now at 7% growth, with a 6.8% projection for There has been a significant decline in the Chinese stock market in June, retracting a portion of the significant growth in the past year, which prompted the Chinese government to introduce measures to manage this volatility. Investment markets in India have been strong with sentiment of recovery across several sectors. Business developments Expansion across emerging markets In South Africa, we have agreed to purchase a further 33.6% interest in Credit Guarantee Insurance Corporation for R600 million in cash, with the transaction expected to complete in H2 2015, subject to regulatory approvals. We continue to expand our operations in Rest of Africa through both acquisitions and organic growth, increasing the size of our sales forces and innovative product development. We successfully completed the acquisition of UAP on 24 June 2015, resulting in a majority stake of 60.7%. The financial results and financial position of UAP were subsequently consolidated in the Group financial statements. This provides us with an excellent platform to accelerate growth in Kenya and the broader East Africa region through access to customers in five additional Central and East African countries (Tanzania, Uganda, South Sudan, DRC and Rwanda). By combining, UAP, OM Kenya and Faulu we have a solid foundation upon which we can build an integrated financial services offering to our customers in this region. Our West African businesses continue to leverage our bancassurance relationship with Ecobank in Ghana and Nigeria to grow sales. In Ghana, Ecobank and Old Mutual officially launched their partnership in May and sales staff from 79 Ecobank branches have been trained on the two products expected to go live in H Rest of Africa s profit contribution is up to 11.3% (9.8% as at 31 December ) as a percentage of South Africa profits and is expected to increase further following the UAP acquisition. In Latin America, AIVA has supported the entry into the 3rd party agency channel in Mexico. In India distribution via Kotak bank branches continues to grow and there is a strong focus on growing sales via the internet channel in China. OLD MUTUAL plc INTERIM RESULTS